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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 May 31, 2003 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 27,142,233 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 June 30, 2003.
FEDDERS CORPORATION
INDEX
PAGE NUMBER
-----------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations and Comprehensive Income for
the three months and nine months ended May 31, 2003 and May 31, 2002
(as restated)............................................................ 3
Consolidated Balance Sheets as of May 31, 2003, August 31, 2002
and May 31, 2002 (as restated)........................................... 4-5
Consolidated Statements of Cash Flows for the nine months ended
May 31, 2003 and May 31, 2002 (as restated).............................. 6
Notes to Consolidated Financial Statements.................................. 7-22
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.......................................... 22-24
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................. 24
Item 4. Controls and Procedures..................................................... 24
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................ 25
SIGNATURE................................................................... 26
CERTIFICATIONS.............................................................. 27-30
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 NINE MONTHS ENDED
MAY 31, MAY 31,
------------------------------- ----------------------------
2003 2002 2003 2002
--------------- ------------- -------------- -------------
(AS RESTATED, (AS RESTATED,
SEE NOTE 11) SEE NOTE 11)
Net sales............................. $ 194,174 $ 170,688 $ 304,833 $ 281,866
--------------- ------------- -------------- -------------
Cost of sales......................... 149,074 129,787 236,979 217,462
Selling, general and administrative
expense............................ 17,888 16,458 46,673 47,345
--------------- ------------- -------------- -------------
166,962 146,245 283,652 264,807
--------------- ------------- -------------- -------------
Operating income...................... 27,212 24,443 21,181 17,059
Partners' net interest in joint
venture results...................... 1,133 496 255 420
Interest expense, net................. (5,021) (5,032) (14,300) (14,414)
Other income.......................... 305 288 443 647
--------------- ------------- -------------- -------------
Income before income taxes............ 23,629 20,195 7,579 3,712
Provision for income taxes............ 7,679 6,564 2,463 1,207
--------------- ------------- -------------- -------------
Net income............................ $ 15,950 $ 13,631 $ 5,116 $ 2,505
Preferred stock dividends............. (222) -- (396) --
--------------- ------------- -------------- -------------
Net income applicable to common
stockholders......................... 15,728 13,631 4,720 2,505
Other comprehensive income:
Foreign currency translation,
net of tax........................ (96) 218 (142) 285
--------------- ------------- -------------- -------------
Comprehensive income.................. $ 15,632 $ 13,849 $ 4,578 $ 2,790
=============== ============= ============== =============
Basic and diluted net income per common
share.............................. $ 0.53 $ 0.43 $ 0.15 $ 0.08
Dividends per share declared:
New Common Stock..................... $ 0.030 $ 0.030 $ 0.090 $ 0.030
Old Common and Class A Stock......... -- -- -- $ 0.060
New Class B Stock.................... $ 0.030 $ 0.030 $ 0.090 $ 0.030
Old Class B Stock.................... -- -- -- $ 0.054
Preferred Stock...................... $ 0.538 -- $ 1.075 --
See accompanying notes to the consolidated financial statements
3
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)
MAY 31, AUGUST 31, MAY 31,
2003 2002 2002
--------------- -------------- -------------
(AS RESTATED,
SEE NOTE 11)
ASSETS
Current assets:
Cash and cash equivalents........................... $ 39,460 $ 67,379 $ 15,713
Accounts receivable (net of allowance of $2,567,
$2,613 and $2,751 at May 31, 2003,
August 31, 2002 and May 31, 2002,
respectively)..................................... 88,604 31,768 82,440
Inventories:
Finished goods..................................... 78,276 25,364 51,135
Work-in-process.................................... 3,891 3,042 3,391
Raw materials and supplies......................... 23,768 20,174 20,650
--------------- -------------- -------------
Net inventories..................................... 105,935 48,580 75,176
Deferred income taxes............................... 5,580 5,620 8,830
Assets held for sale................................ 8,249 -- --
Other current assets................................ 16,780 13,564 9,824
--------------- -------------- -------------
Total current assets.................................. 264,608 166,911 191,983
Net property, plant and equipment:
Land and improvements............................... 1,434 3,770 3,802
Buildings and leasehold improvements................ 29,221 40,246 39,722
Machinery and equipment............................. 102,624 98,271 108,860
--------------- -------------- -------------
Gross property, plant and equipment................. 133,279 142,287 152,384
Less accumulated depreciation....................... 75,547 75,441 80,055
--------------- -------------- -------------
Net property, plant and equipment..................... 57,732 66,846 72,329
Deferred income taxes................................. 2,867 2,867 6,510
Goodwill.............................................. 90,536 90,536 91,244
Other intangible assets............................... 1,458 1,556 1,844
Other assets.......................................... 35,576 37,412 33,763
--------------- -------------- -------------
Total assets.......................................... $ 452,777 $ 366,128 $ 397,673
=============== ============== =============
See accompanying notes to the consolidated financial statements
4
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except par value)
(unaudited)
MAY 31, AUGUST 31, MAY 31,
2003 2002 2002
-------------- ------------ -------------
(AS RESTATED,
SEE NOTE 11)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes..................................................... $ 22,743 $ 9,829 $ 8,591
Current portion of long-term debt.................................... 3,447 3,362 3,381
Accounts payable..................................................... 97,952 41,888 61,236
Income taxes payable................................................. 9,028 5,955 8,610
Accrued expenses..................................................... 55,565 37,099 51,563
-------------- ------------ -------------
Total current liabilities............................................. 188,735 98,133 133,381
Long-term debt........................................................ 161,013 163,769 164,582
Other long-term liabilities........................................... 18,820 22,225 22,632
Partners' net interest in joint venture............................... 5,058 4,183 4,517
Stockholders' equity:
Preferred Stock, $0.01 par value, 15,000 shares authorized, 413, none
and none issued at May 31, 2003,
August 31, 2002 and May 31, 2002, respectively....................... 4 -- --
New Common Stock, $0.01 par value, 70,000
shares authorized, 35,301, 38,249 and 38,047 issued at May 31, 2003,
August 31, 2002 and May 31, 2002,
respectively......................................................... 353 382 380
New Class B Stock, $0.01 par value, 5,000 shares
authorized, 2,493 issued at May 31, 2003,
August 31, 2002 and May 31, 2002, respectively....................... 25 25 25
Additional paid-in capital............................................ 68,197 68,870 68,789
Retained earnings..................................................... 49,513 47,551 43,016
Accumulated other comprehensive loss.................................. (1,454) (1,312) (1,880)
-------------- ------------ -------------
116,638 115,516 110,330
Treasury stock, at cost, 8,158 shares of New Common Stock at May 31,
2003, August 31,2002 and May 31,
2002, respectively................................................... (37,322) (37,322) (37,322)
Deferred compensation................................................. (165) (376) (447)
-------------- ------------ -------------
Total stockholders' equity............................................ 79,151 77,818 72,561
-------------- ------------ -------------
Total liabilities and stockholders' equity............................ $ 452,777 $ 366,128 $ 397,673
============== ============ =============
See accompanying notes to the consolidated financial statements
5
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
NINE MONTHS ENDED
MAY 31,
2003 2002
----------- ------------
(AS RESTATED,
SEE NOTE 11)
Cash flows from operating activities:
Net income................................................................... $ 5,116 $ 2,505
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization.............................................. 7,254 10,572
Deferred income taxes...................................................... 40 (97)
Stock option repricing..................................................... -- (339)
Partners' net interest in joint venture results............................ (255) (420)
Changes in operating assets and liabilities:
Accounts receivable........................................................ (56,836) (57,627)
Inventories................................................................ (57,355) (1,232)
Other current assets....................................................... (3,216) (3,077)
Other assets............................................................... 4,176 (4,930)
Accounts payable........................................................... 56,064 19,758
Accrued expenses........................................................... 18,332 11,990
Income taxes payable....................................................... 3,073 2,846
Other long-term liabilities................................................ (3,405) 122
Other - net................................................................ (27) --
----------- ------------
Net cash used in operating activities........................................ (27,039) (19,929)
----------- ------------
Cash flows from investing activities:
Additions to property, plant and equipment................................. (6,611) (4,557)
Disposal of property, plant and equipment.................................. 539 150
Acquisition of businesses, net of cash acquired............................ (1,333) (8,211)
----------- ------------
Net cash used in investing activities........................................ (7,405) (12,618)
----------- ------------
Cash flows from financing activities:
Proceeds from short-term notes............................................. 12,914 1,000
Proceeds of long-term borrowings........................................... -- 2,000
Repayments of long-term debt............................................... (2,671) (2,863)
Cash dividends............................................................. (3,020) (2,756)
Preferred stock exchange offer............................................. (698) --
Other...................................................................... -- (313)
----------- ------------
Net cash provided by (used in) financing activities.......................... 6,525 (2,932)
----------- ------------
Net decrease in cash and cash equivalents.................................... (27,919) (35,479)
Cash and cash equivalents at beginning of period............................. 67,379 51,192
----------- ------------
Cash and cash equivalents at end of period................................... $ 39,460 $ 15,713
=========== ============
Supplemental disclosure:
Interest paid.............................................................. $ 10,668 $ 9,487
Income taxes paid.......................................................... 714 381
=========== ============
See accompanying notes to the consolidated financial statements
6
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except 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 presentation 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/A for the fiscal year
ended August 31, 2002. The Company's business is seasonal, and consequently,
operating results for the three-month and nine-month periods ended May 31, 2003
are not necessarily indicative of the results that may be expected for the
fiscal year ending August 31, 2003. Certain reclassifications have been made in
prior-year amounts to conform to the current-year presentation.
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 nine months of 2003, the
Company expended $326, primarily for facility closing costs.
The following table displays the activity and balances of the restructuring
reserve account from August 31, 2002 to May 31, 2003.
AUGUST 31, MAY 31,
2002 2003
BALANCE ADDITIONS DEDUCTIONS BALANCE
-------------- -------------- -------------- ---------------
Workforce reductions $ 621 -- $ 35 $ 586
Facility closing costs 661 -- 163 498
Other costs 403 -- 128 275
-------------- -------------- -------------- ---------------
Total $ 1,685 -- $ 326 $ 1,359
============== ============== ============== ===============
The remaining balance of $1,359, which consists primarily of workforce 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.
3. STOCKHOLDERS' EQUITY
On May 16, 2003, the Company's Board of Directors authorized the distribution of
transferable rights to the Company's Common and Class B stockholders.
Stockholders will receive one right to purchase one share of the Company's
Series A Cumulative Preferred Stock for every ten shares of Common Stock and
Class B Stock. The subscription rights are expected to trade on the NYSE under
the symbol "FJC.RT". As of May 31, 2003, the subscription price per share has
not been established. See Note 13.
In October 2002, the Company's Board of Directors approved a plan pursuant to
which a new class of cumulative Preferred Stock would be offered to stockholders
in exchange for up to 15,000,000 shares of the Company's Common Stock, with 0.14
shares of Preferred Stock being offered in exchange for every share of Common
Stock. The Series A Cumulative Preferred Stock receives a cumulative annual
dividend of $2.15 and has a liquidation preference of $25.00 plus the amount of
any accrued and unpaid dividends. The holders of the Series A Cumulative
Preferred Stock have no right to vote, except in limited circumstances. The
exchange of 2,315,750 shares of Common Stock for 323,947 shares of Series A
Cumulative Preferred Stock was completed on December 27, 2002.
On February 14, 2003, the Company announced an exchange offer to exchange shares
of Series A Cumulative Preferred Stock for up to 12,500,000 shares of the
Company's Common Stock, with 0.14 shares of Preferred Stock being offered in
exchange for every share of Common Stock. The exchange of 633,082 shares of
Common Stock for 88,276 shares of Series A Cumulative Preferred Stock was
completed on March 18, 2003.
7
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 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 Stock. 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
In the third fiscal quarter and first nine months of 2003, basic net income per
share was computed using the weighted average number of shares of Common and
Class B Stock outstanding.
As discussed in Note 3, the Company issued new Common Stock and new Class B
Stock on March 26, 2002. For the third quarter and first nine months of fiscal
2002, weighted average shares outstanding are 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 three months ended May 31, 2003 and 2002, the weighted average shares
outstanding amounted to approximately 29,752,000 and 31,932,000, respectively.
In the third fiscal quarter of 2003 and 2002, stock options included in
computing diluted earnings per share amounted to approximately 91,000 and 10,000
shares, respectively. The weighted average number of shares outstanding for the
first nine months of fiscal 2003 and 2002 amounted to approximately 30,987,000
and 31,176,000, respectively. In the first nine months of 2003 and 2002, stock
options included in computing diluted earnings per share amounted to
approximately 32,000 and 4,000 shares, respectively.
5. 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. 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 second and third quarter of fiscal 2002 and first nine
months of 2003, the Company did not record an adjustment to compensation expense
as the market value of the Company's stock remained below the exercise price of
the options.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations". 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
in the first quarter of fiscal year 2003 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". The adoption of this statement in
the third quarter of fiscal year 2002 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 is
effective for the Company for disposal activities initiated after December 31,
2002.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." This interpretation defines when a business
enterprise must consolidate a variable interest entity. This interpretation
applies immediately to variable interest entities created after January 31,
2003. It applies in the first fiscal year or interim period beginning after June
15, 2003, to entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. The Company has determined that it is not
8
reasonably probable that it will be required to consolidate or disclose
information about a variable interest entity upon the effective date of this
interpretation.
In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities". This Statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. In addition, generally all provisions of this
statement should be applied prospectively. The Company is in the process of
evaluating the effect that adopting this statement will have on its financial
position and results of operations.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS 150"). This statement changes the accounting for
certain financial instruments that issuers could account for as equity. SFAS 150
requires that those instruments be classified as liabilities in statements of
financial position. SFAS 150 also requires disclosures about alternative ways of
settling the instruments and the capital structure of entities, all of whose
shares are mandatorily redeemable. Most of the guidance in SFAS 150 is effective
for all financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. The Company is in the process of evaluating the effect that
adopting this statement will have on its financial position.
7. GOODWILL AND INTANGIBLE ASSETS
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142"). The Company adopted
SFAS 142 on September 1, 2002. SFAS 142 changed the accounting for goodwill and
indefinite-lived intangible assets and supersedes Accounting Principles Board
("APB") Opinion No. 17, "Intangible Assets". SFAS 142 addresses how intangible
assets that are acquired individually or with a group of other assets (but not
those acquired in business combinations) should be accounted for in financial
statements upon their acquisition, and also addresses how goodwill and other
intangible assets (including those acquired in business combinations) should be
accounted for after they have been initially recognized in the financial
statements.
The major provisions of SFAS 142 and differences from APB Opinion No. 17 include
(a) no amortization of goodwill and certain other intangible assets with
indefinite lives, including excess reorganization value, (b) a more aggregate
view of goodwill and accounting for goodwill based on units of the combined
entity, (c) a better-defined, "two-step" approach for testing impairment of
goodwill, (d) a better-defined process for testing other intangible assets for
impairment, and (e) disclosure of additional information related to goodwill and
intangible assets.
The "two-step" impairment approach to testing goodwill is required to be
performed at least annually with the first step involving a screen for potential
impairment and the second step measuring the amount of impairment. The
provisions of SFAS 142 are required to be applied starting with fiscal years
after December 15, 2001. The Company adopted the provisions of SFAS 142 as of
September 1, 2002 and was therefore required to have completed the first step of
its goodwill impairment testing by the end of its second fiscal quarter and the
transitional impairment testing of its other intangible assets by the end of its
fiscal year. The Company did not identify any impairment as a result of the
first step of goodwill impairment testing performed within its HVACR reporting
segment but has identified impairment within its Engineered Products reporting
segment.
The Company is required to quantify these impairments by August 31, 2003, which
it is in the process of doing. 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 as of
September 1, 2002. However, no estimate can yet be made as to the outcome of
these evaluations.
In addition, pursuant to SFAS 142, the Company is no longer amortizing goodwill.
Prior to adoption of SFAS 142, the Company incurred goodwill amortization
expense, net of tax, of $0.5 million and $1.5 million during the three and nine
months ended May 31, 2002, respectively. If SFAS 142 had been applied during the
prior periods, net income, as adjusted for the exclusion of amortization
expense, net of tax, would have been $14.1 million and $4.0 million for the
three and nine months ended May 31, 2002, respectively. Similarly, basic and
diluted income per share as adjusted for the exclusion of goodwill amortization
expense, net of tax, would have been $0.45 and $0.14 per share for the three and
nine months ended May 31, 2002, respectively.
Goodwill and other intangible assets consist of the following:
MAY 31, AUGUST 31,
2003 2002
--------- -----------
Goodwill.................... $ 90,536 $ 90,536
========= ===========
Gross other amortizable
intangibles.............. $ 2,797 $ 2,787
Accumulated amortization (1,339) (1,231)
--------- -----------
Other intangible assets..... $ 1,458 $ 1,556
========= ===========
9
As of May 31, 2003 and August 31, 2002, the Company had goodwill of $70,133 and
$20,403 reflected in its HVACR and Engineered Products reportable segments,
respectively. Other intangible assets primarily include a right associated with
a joint venture that is being amortized over 20 years. Amortization expense for
the three months ended May 31, 2003 and 2002 is $35 and $47, respectively.
Amortization expense for the nine months ended May 31, 2003 and 2002 is $102 and
$134, respectively. Estimated amortization expense for other intangible assets
will be approximately $120 for each of the next five years.
8. ASSETS HELD FOR SALE
In October 2001, 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. The Company adopted this statement
at the beginning of its fiscal year 2003.
In connection with a restructuring of the Company's operations in 2001 (see Note
2), the Company ceased production at its Walkersville, Maryland facility, part
of the Company's HVACR reportable segment. In December 2002, the Company began
the process of actively marketing the sale of the Walkersville facility. The
sale is expected to be completed within one year. The Company anticipates the
selling price of the facility will exceed its net book value after consideration
of selling expenses associated with marketing the facility for sale. At May 31,
2003, assets totaling $8,249, which consist of land, land improvements,
buildings, and building improvements have been classified as "Assets Held for
Sale" and are no longer being depreciated in accordance with SFAS 144.
The following table presents the carrying amount, by asset class, of the "Assets
Held for Sale".
MAY 31,
2003
--------
Land and land improvements..... $ 2,181
Building, net.................. 4,272
Building improvements, net..... 1,796
--------
Assets Held for Sale........... $ 8,249
========
9. STOCK COMPENSATION
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 provides
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. The Company adopted
the disclosure requirements of this statement at the beginning of its second
fiscal quarter.
The Company accounts for stock options issued to its employees under the
recognition and measurement principles of APB Opinion 25,"Accounting for Stock
Issued to Employees," and related interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted had an
exercise price equal to the market value of the underlying Common Stock on the
date of grant. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair-value recognition
provisions of SFAS No. 123 to stock-based employee compensation.
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
---------------------------------- -------------------------------
2003 2002 2003 2002
--------------- ---------------- -------------- -------------
Net income applicable to common
stockholders-as reported...................... $ 15,728 $ 13,631 $ 4,720 $ 2,505
Deduct: Total stock-based employee
compensation expense determined under
fair-value-based method for all awards, net
of related tax effects........................ 90 -- 269 --
--------------- ---------------- -------------- -------------
Pro forma net income............................ $ 15,638 $ 13,631 $ 4,451 $ 2,505
=============== ================ ============== =============
Net income per common share:
Basic and diluted-as reported............... $ 0.53 $ 0.43 $ 0.15 $ 0.08
Basic and diluted-pro forma................. $ 0.53 $ 0.43 $ 0.14 $ 0.08
10
10. 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 that 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:
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net sales:
HVACR...................................... $ 183,650 $ 159,776 $ 274,721 $ 250,758
Engineered Products........................ 10,524 10,912 30,112 31,108
---------- ---------- ---------- ----------
Net sales.................................. $ 194,174 $ 170,688 $ 304,833 $ 281,866
========== ========== ========== ==========
Income before interest and taxes:
HVACR...................................... $ 25,129 $ 24,013 $ 20,656 $ 19,810
Engineered Products........................ 358 15 142 (671)
---------- ---------- ---------- ----------
Segment income before interest and taxes 25,487 24,028 20,798 19,139
Non-allocated expenses..................... (3,163) (1,199) (1,081) 1,013
Interest expense, net...................... 5,021 5,032 14,300 14,414
Provision for income taxes................. 7,679 6,564 2,463 1,207
---------- ---------- ---------- ----------
Net income................................ $ 15,950 $ 13,631 $ 5,116 $ 2,505
========== ========== ========== ==========
MAY 31, AUGUST 31, MAY 31,
2003 2002 2002
---------- ---------- ----------
Total assets:
HVACR.................. $ 334,746 $ 212,931 $ 287,121
Engineered Products 64,546 66,173 58,655
Non-allocated assets 53,485 87,024 51,897
---------- ---------- ----------
$ 452,777 $ 366,128 $ 397,673
========== ========== ==========
11. RESTATEMENT
Subsequent to the issuance of its consolidated financial statements for the year
ended August 31, 2002, the Company's management determined that amounts in its
unaudited quarterly financial information included intercompany profit and
certain manufacturing variances that should have been eliminated. As a result,
the unaudited interim financial statements as of and for the three months and
nine months ended May 31, 2002 have been restated from the amounts previously
reported to eliminate approximately $1.7 million of intercompany profit and
certain manufacturing variances included in ending inventory and to reflect the
impact on cost of sales and income taxes of this adjustment. The restatement has
no effect on the Company's previously reported full fiscal year results for the
year ended August 31, 2002.
11
A summary of the significant effects of the restatement is as follows:
THREE MONTHS ENDED
MAY 31, 2002
--------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------
Statement of Operations
Cost of sales......................... $ 130,829 $ 129,787
Operating income...................... 23,401 24,443
Income before income taxes............ 19,153 20,195
Provision for income taxes............ 6,225 6,564
Net income ........................... 12,928 13,631
Comprehensive income.................. 13,146 13,849
Basic and diluted income per share 0.40 0.43
NINE MONTHS ENDED
MAY 31, 2002
--------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------
Statement of Operations
Cost of sales......................... $ 215,729 $ 217,462
Operating income...................... 18,792 17,059
Income before income taxes............ 5,445 3,712
Provision for income taxes............ 1,770 1,207
Net income............................ 3,675 2,505
Comprehensive income.................. 3,960 2,790
Basic and diluted income per share 0.12 0.08
MAY 31, 2002
--------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------
Balance Sheet
Finished goods............................. $ 52,868 $ 51,135
Net inventories............................ 76,909 75,176
Total current assets....................... 193,716 191,983
Total assets............................... 399,406 397,673
Income taxes payable....................... 9,173 8,610
Total current liabilities.................. 133,944 133,381
Retained earnings.......................... 44,186 43,016
Total stockholders' equity................. 73,731 72,561
Total liabilities and stockholders' equity 399,406 397,673
12. GUARANTEES
In November 2002, FASB Interpretation ("FIN") 45, "Guarantor's Accounting And
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others", was approved by the FASB. FIN 45 clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. The
initial recognition and initial measurement provisions of this interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The interpretation also requires enhanced and additional
disclosures of guarantees in interim and annual financial statements for periods
ending after December 15, 2002. The Company adopted this statement in the second
quarter of fiscal year 2003.
Product Warranty
Certain of the Company's products are covered by standard product warranty plans
that extend from 1 to 5 years. In addition, major retailers have consumer return
policies which allow consumers to return product that may be defective in lieu
of field service. Upon return to the Company, these units are inspected,
repaired as required, reboxed and held for future sale as factory reconditioned
products. A portion of those units returned is not repairable. At the time
revenue is recognized, upon shipment, measurements of those sales are reduced by
estimates of the future costs associated with fulfilling warranty obligations
and for the expense associated with repairing or scrapping defective returns.
12
The Company uses historical failure and defective return rates, which may or may
not be indicative of future rates. Each quarter, the estimate of warranty and
defective return obligations including the assumptions about estimated failure
and return rates, is reevaluated.
The following table displays the activity and balances of the product warranty
liability from August 31, 2002 to May 31, 2003:
NINE MONTHS ENDED
MAY 31, 2003
-----------------
Warranty balance at August 31, 2002...................... $ 7,458
Accruals for warranties issued during the period......... 9,228
Settlements made during the period....................... (7,702)
---------
Warranty balance at May 31, 2003......................... $ 8,984
=========
Loan Guarantees
Guarantees of subsidiary debt by the Parent and subsidiaries consist of the
following at May 31, 2003:
(i) The Parent guarantees the obligations of Fedders North America, Inc.
("FNA") under its 9 3/8% Senior Subordinated Notes due 2007 (the
"Notes"). This is a guarantee of payment of principal and interest on
the Notes that arose in connection with the issuance and sale of $150
million in principal amount of the Notes. The Parent would be required
to perform under the guarantee in the event FNA failed to pay principal
and interest when due or to perform its obligations under the indenture
pursuant to which the Notes were issued.
(ii) The Parent and various subsidiaries guarantee the obligations of
certain subsidiaries under a $100 million working capital line of
credit. The line of credit bears interest at Libor +2% or the prime
rate of First Union Bank and expires in February 2006. The Parent and
guarantor subsidiaries would be required to perform under the
guarantees in the event that the borrowing subsidiaries failed to repay
amounts borrowed under the line of credit and interest and other
charges associated therewith, or failed to comply with the provisions
of the credit agreement. There is no outstanding loan balance at May
31, 2003.
(iii) The Parent guarantees the obligations of its subsidiary, Melcor
Corporation, under a $1.3 million New Jersey Economic Development
Authority Economic Development Bond. The bond bears interest at the
rate of 6.6% per annum and matures in July 2010. The Parent would be
required to perform under the guaranty in the event that Melcor fails
to pay the principal of and interest on the bond or fails to comply
with the provisions of the bond agreement pursuant to which the bond
was issued. The outstanding loan balance at May 31, 2003 is $0.9
million.
(iv) The Parent and Melcor Corporation guarantee the obligations of a
subsidiary, Eubank Manufacturing Enterprises, Inc., under an equipment
financing lease in the amount of $3.1 million. The lease bears interest
at the rate of 7.16% per annum and expires in December 2007. The Parent
and Melcor Corporation would be required to perform under the guarantee
in the event Eubank fails to pay rent when due or fails to comply with
the provisions of the lease agreement. The outstanding loan balance at
May 31, 2003 is $2.4 million.
(v) The Parent and a subsidiary, NYCOR North America, Inc., guarantee the
obligations of Eubank Manufacturing Enterprises, Inc., a subsidiary,
under a $2 million Development Authority of Dooly County, Georgia
Economic Development Bond. The bond bears interest at the floating rate
of 75% of the sum of Libor plus 1.75 % per annum and matures in
December 2008. The Parent and NYCOR North America would be required to
perform under the guarantee in the event Eubank fails to pay the
principal of and interest on the bond, when due, or fails to comply
with the provisions of the bond agreement. The outstanding loan balance
at May 31, 2003 is $1.6 million.
(vi) The Parent guarantees the obligations of a subsidiary, Eubank
Manufacturing Enterprises, Inc., under a loan agreement providing for a
loan of $2.0 million. The loan bears interest at the prime rate of Flag
Bank and matures in February 2007. The Parent would be required to
perform under the guaranty in the event Eubank fails to pay the
principal of and interest on the loan or fails to comply with the
provisions of the loan agreement. The outstanding loan balance at May
31, 2003 is $0.7 million.
(vii) The Parent guarantees the obligations of a subsidiary, Fedders Shanghai
Co., Ltd. ("FSC") under a working capital line of credit totaling $6
million. The line of credit bears interest at the rate of Sibor + 1.5%
per annum and matures at various dates. The Parent would be obligated
to perform under the guarantee in the event that FSC fails to pay the
principal of and interest on the
13
loan or fails to comply with the provisions of the loan agreement. The
outstanding loan balance at May 31, 2003 is $5.0 million.
(viii) The Parent guarantees the obligations of a subsidiary, Polenz GmbH
("Polenz"), under a Euro 6 million working capital line of credit. The
line of credit bears interest at the rate of Libor +2.5% per annum and
matures June 2004. The Parent would be obligated to perform under the
guarantee in the event Polenz fails to pay the principal of and
interest on the loan or fails to comply with the provisions of the loan
agreement. There is no outstanding loan balance at May 31, 2003.
(ix) The Parent guarantees the obligations of a subsidiary, Fedders Koppel,
Inc. ("FK"), under a Ph peso 320 million term loan. The loan bears
interest at the rate of Phibor + 3% per annum and matures May 2005. The
Parent would be obligated to perform under the guarantee in the event
that FK fails to pay the principal of and interest on the loan or fails
to comply with the provisions of the loan agreement. The outstanding
loan balance at May 31, 2003 is $2.6 million.
The Company also provides loan guarantees to two joint ventures which are not
consolidated in the Company's financial statements:
(i) Fedders International, Inc., ("FI") a subsidiary of the Company,
guarantees up to 50% of the obligations of a 50%-owned joint venture,
Universal Comfort Products Pvt., Ltd., ("UCPL"), under a Rupees 230
million term loan. The loan bears interest at the rate of State Bank
Mid Term Loan Rate and matures November 2006. FI would be obligated
to perform under the guaranty in the event UCPL fails to pay the
principal of and interest on the loan or fails to comply with the
terms of the loan agreement. FI's exposure under the guarantee at
May 31, 2003 is $2.4 million.
(ii) Fedders Indoor Air Quality (Suzhou) Co., Ltd., ("FIAQ"), a subsidiary
of the Company, guarantees up to RMB 5 million of the obligations of
Xi'an Fedders Dong Fang Air Conditioner Compressor Co., Ltd.,
("FDF"), a 50%-owned joint venture of the Company, under a working
capital line of credit. The line of credit bears interest at the
prime rate of Bank of China and matures January 2004. FIAQ would be
obligated to perform its obligations under the guaranty in the event
FDF fails to pay the principal of and interest on the loan or fails
to comply with the provisions of the loan agreement. FIAQ's maximum
exposure under the guarantee is $0.6 million as of May 31, 2003.
13. SUBSEQUENT EVENTS
In May 2003, the Company's Board of Directors authorized the distribution of
transferable rights to the holders of the Company's Common and Class B stock.
Stockholders will receive a subscription right to purchase one share of the
Company's Series A Cumulative Preferred Stock for every ten shares of Common or
Class B stock they hold as of July 1, 2003. On July 2, 2003, the Company
announced that the subscription price is $23.70. The Company expects that the
rights offering will expire on August 12, 2003, unless extended by the Company.
14. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Fedders North America, Inc. ("FNA") is a wholly-owned subsidiary of the Company.
FNA and the Parent 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 Parent's guarantee is full and
unconditional. The following condensed consolidating financial statements
present separate information for FNA and for the Parent and its subsidiaries
other than FNA, and should be read in conjunction with the consolidated
financial statements of the Company.
The unaudited interim financial statements for FNA for the three months and nine
months ended May 31, 2002 have been restated from the amounts previously
reported to eliminate approximately $1.7 million of intercompany profit and
certain manufacturing variances included in ending inventory and to reflect the
impact on cost of sales and income taxes of this adjustment. See Note 11.
14
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MAY 31, 2003
-----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
---------- --------- ---------- ----------- -----------
Net sales......................... $ 166,437 $ 35,045 -- $ (7,308) $ 194,174
Cost of sales..................... 129,647 26,735 -- (7,308) 149,074
Selling, general and
administrative expense (a,c)..... 10,589 7,989 $ (690) -- 17,888
---------- --------- -------- ---------- ----------
Operating income ................. 26,201 321 690 -- 27,212
Partners' net interest in
joint venture results........... -- 1,133 -- -- 1,133
Equity earnings in investment..... -- -- 15,311 (15,311) --
Interest income (expense),
net (b)......................... (4,722) (580) 281 -- (5,021)
Other income...................... 78 224 3 -- 305
---------- --------- --------- ---------- ----------
Income before income taxes........ 21,557 1,098 16,285 (15,311) 23,629
Provision for income taxes........ 7,006 338 335 -- 7,679
---------- --------- --------- ---------- ----------
Net income........................ 14,551 760 15,950 (15,311) 15,950
Preferred Stock dividends......... -- -- (222) -- (222)
---------- --------- --------- ---------- ----------
Net income applicable to common
stockholders.................... 14,551 760 15,728 (15,311) 15,728
Foreign currency translation,
net of tax...................... (526) 422 (96) 104 (96)
----------- --------- --------- ---------- ----------
Comprehensive income.............. $ 14,025 $ 1,182 $ 15,632 $ (15,207) $ 15,632
========== ========= ========= ========== ==========
FOR THE THREE MONTHS ENDED MAY 31, 2002
-----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
---------- --------- ---------- ----------- -----------
Net sales (f).................... $ 146,958 $ 28,456 -- $ (4,726) $ 170,688
Cost of sales (f)................ 113,622 20,891 -- (4,726) 129,787
Selling, general and
administrative expense (a, c).... 11,421 6,903 $ (1,866) -- 16,458
---------- --------- --------- ---------- ----------
Operating income.................. 21,915 662 1,866 -- 24,443
Partners' net interest in
joint venture results............ -- 496 -- -- 496
Equity gain in investment......... -- -- 12,349 (12,349) --
Interest expense, net (b)......... (4,528) (572) 68 -- (5,032)
Other income (expense)............ 90 232 (34) -- 288
---------- --------- --------- ---------- ----------
Income before income
taxes............................ 17,477 818 14,249 (12,349) 20,195
Provision for income taxes........ 5,680 266 618 -- 6,564
---------- --------- --------- ---------- ----------
Net income........................ 11,797 552 13,631 (12,349) 13,631
Foreign currency translation,
net of tax....................... (74) 292 218 (218) 218
---------- -------- --------- ---------- ----------
Comprehensive income.............. $ 11,723 $ 844 $ 13,849 $ (12,567) $ 13,849
========== ========= ========= ========== ==========
15
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
FOR THE NINE MONTHS ENDED MAY 31, 2003
-----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
---------- --------- ---------- ----------- -----------
Net sales........................ $ 243,205 $ 76,939 -- $ (15,311) $ 304,833
Cost of sales.................... 193,009 59,281 -- (15,311) 236,979
Selling, general and
administrative expense (a,c)... 25,690 21,674 $ (691) -- 46,673
---------- --------- -------- ---------- ----------
Operating income (loss).......... 24,506 (4,016) 691 21,181
Partners' net interest in
joint venture results.......... -- 255 -- -- 255
Equity earnings in investment -- -- 4,810 (4,810) --
Interest expense, net(b)......... (12,597) (1,617) (86) -- (14,300)
Other income..................... 335 105 3 -- 443
---------- --------- -------- ---------- ----------
Income (loss) before income taxes 12,244 (5,273) 5,418 (4,810) 7,579
Provision (benefit) for
income taxes................... 3,892 (1,731) 302 -- 2,463
---------- --------- -------- ---------- ---------
Net income (loss)................ 8,352 (3,542) 5,116 (4,810) 5,116
Preferred Stock dividends........ -- -- (396) -- (396)
---------- --------- -------- ---------- ----------
Net income (loss) applicable to
common stockholders............ 8,352 (3,542) 4,720 (4,810) 4,720
Foreign currency translation,
net of tax..................... (439) 288 (142) 151 (142)
---------- --------- -------- ---------- ----------
Comprehensive income (loss)...... $ 7,913 $ (3,254) $ 4,578 $ (4,659) $ 4,578
========== ========== ======== ========== ==========
FOR THE NINE MONTHS ENDED MAY 31, 2002
-----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
---------- --------- ---------- ----------- -----------
Net sales (f)..................... $ 224,204 $ 70,099 -- $ (12,437) $ 281,866
Cost of sales (f)................. 176,564 53,335 -- (12,437) 217,462
Selling, general and
administrative expense (a,c).... 27,431 19,914 -- -- 47,345
---------- --------- -------- ---------- ----------
Operating income (loss)........... 20,209 (3,150) -- -- 17,059
Partners' net interest in
joint venture results........... -- 420 -- -- 420
Equity earnings in investment..... -- -- $ 2,486 (2,486) --
Interest expense, net (b)......... (12,651) (1,826) 63 -- (14,414)
Other income (expense)............ 291 390 (34) -- 647
---------- --------- --------- ---------- ----------
Income (loss) before income taxes 7,849 (4,166) 2,515 (2,486) 3,712
Provision (benefit) for income
taxes........................... 2,551 (1,354) 10 -- 1,207
---------- --------- -------- ---------- ----------
Net income (loss)................. 5,298 (2,812) 2,505 (2,486) 2,505
Foreign currency translation,
net of tax...................... (27) 312 285 (285) 285
---------- --------- -------- ---------- ----------
Comprehensive income (loss)....... $ 5,271 $ (2,500) $ 2,790 $ (2,771) $ 2,790
========== ========= ======== ========== ==========
16
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF MAY 31, 2003
-------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
---------- ----------- ---------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents................ $ 29,330 $ 10,130 -- -- $ 39,460
Net accounts receivable.................. 64,972 23,632 -- -- 88,604
Net inventories.......................... 72,940 32,995 -- -- 105,935
Assets held for sale..................... 8,249 -- -- -- 8,249
Other current assets..................... 9,282 7,488 $ 12,613 $ (7,023) 22,360
---------- ---------- ---------- ---------- ----------
Total current assets........................ 184,773 74,245 12,613 (7,023) 264,608
Investments in subsidiaries................. -- -- 25,189 (25,189) --
Net property, plant and equipment........... 35,321 21,697 714 -- 57,732
Goodwill.................................... 64,791 25,745 -- -- 90,536
Other intangible assets..................... 265 1,193 -- -- 1,458
Other assets................................ 7,241 7,163 24,039 -- 38,443
---------- ---------- ---------- ---------- ----------
Total assets................................ $ 292,391 $ 130,043 $ 62,555 $ (32,212) $ 452,777
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes......................... $ 9,833 $ 12,910 -- -- $ 22,743
Current portion of long-term debt........ 448 2,983 $ 16 -- 3,447
Accounts and income taxes payable........ 63,522 34,640 8,818 -- 106,980
Accrued expenses......................... 39,554 8,013 7,998 -- 55,565
---------- ---------- ---------- ---------- ----------
Total current liabilities................... 113,357 58,546 16,832 -- 188,735
Long-term debt.............................. 153,325 7,661 27 -- 161,013
Other long-term liabilities................. 1,719 12,080 17,102 $ (7,023) 23,878
Net due to (from) affiliates................ (14,310) 64,867 (50,557) -- --
Stockholders' equity:
Preferred Stock.......................... -- -- 4 -- 4
Common and Class B Stock................. 5 -- 378 (5) 378
Additional paid-in capital............... 21,292 24,589 68,197 (45,881) 68,197
Retained earnings (deficit).............. 17,430 (36,664) 49,513 19,234 49,513
Deferred compensation and treasury stock. -- -- (37,487) -- (37,487)
Accumulated other
comprehensive loss..................... (427) (1,036) (1,454) 1,463 (1,454)
---------- ---------- ---------- ---------- ----------
Total stockholders' equity.................. 38,300 (13,111) 79,151 (25,189) 79,151
---------- ---------- ---------- ---------- ----------
Total liabilities and stockholders' equity.. $ 292,391 $ 130,043 $ 62,555 $ (32,212) $ 452,777
========== ========== ========== ========== ==========
17
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
Net 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 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 income (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
========== ========== ========== ========== ==========
18
FEDDERS CORPORATION
NOTES TO THE 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
Net accounts receivable ............................ 64,947 17,493 -- -- 82,440
Net inventories .................................... 53,693 21,483 -- -- 75,176
Other current assets ............................... 3,894 5,818 8,942 -- 18,654
--------- --------- --------- ----------- -----------
Total current assets ................................ 129,301 48,256 14,426 -- 191,983
Investments in subsidiaries ......................... -- -- 20,153 $ (20,153) --
Net property, plant and equipment ................... 51,423 19,990 916 -- 72,329
Goodwill ............................................ 65,163 26,081 -- -- 91,244
Other intangible assets ............................. 545 1,299 -- -- 1,844
Other assets ........................................ 3,759 6,724 36,813 (7,023) 40,273
--------- --------- --------- ----------- -----------
Total assets ........................................ $ 250,191 $ 102,350 $ 72,308 $ (27,176) $ 397,673
========= ========= ========= =========== ===========
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 .................. 28,228 33,075 8,543 -- 69,846
Accrued expenses ................................... 33,253 11,181 7,129 -- 51,563
--------- --------- --------- ----------- -----------
Total current liabilities ........................... 65,084 52,518 15,779 -- 133,381
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:
Common, Class A 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) ........................ 8,279 (32,185) 43,016 23,906 43,016
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 .......................... 29,338 (9,185) 72,561 (20,153) 72,561
--------- --------- --------- ----------- -----------
Total liabilities and stockholders' equity........... $ 250,191 $ 102,350 $ 72,308 $ (27,176) $ 397,673
========= ========= ========= =========== ===========
19
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31, 2003
-----------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
--------- --------- --------- ----------- -----------
Net cash (used in) provided by operating activities $ (23,942) $ (4,446) $ 1,349 -- $ (27,039)
--------- --------- --------- -----------
Net additions to property, plant and equipment (3,541) (2,394) (137) -- (6,072)
Acquisition of businesses -- (1,333) -- -- (1,333)
--------- --------- --------- -----------
Net cash used in investing activities (3,541) (3,727) (137) -- (7,405)
--------- --------- --------- -----------
Proceeds from short-term notes 7,401 5,513 -- -- 12,914
Net repayments of long-term debt (444) (2,147) (80) -- (2,671)
Cash dividends -- -- (3,020) -- (3,020)
Other -- -- (698) -- (698)
Change in net due to (from) affiliate (14,310) 11,724 2,586 -- --
--------- --------- --------- -----------
Net cash (used in) provided by financing activities (7,353) 15,090 (1,212) -- 6,525
--------- --------- --------- -----------
Net (decrease) increase in cash and cash equivalents (34,836) 6,917 -- -- (27,919)
Cash and cash equivalents at beginning of period 64,166 3,213 -- -- 67,379
--------- --------- --------- -----------
Cash and cash equivalents at end of period $ 29,330 $ 10,130 -- -- $ 39,460
========= ========= ========= =========== ===========
20
FEDDERS CORPORATION
NOTES TO THE 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)
--------- --------- --------- -----------
Proceeds from (repayments of) short-term notes 3,020 (2,020) -- -- 1,000
Net repayments 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
========= ========= ========= =========== ===========
21
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:
a) The Company charges corporate overhead essentially on a cost basis
allocated in proportion to sales. Such charges to FNA amounted to
approximately $1.9 million and $3.5 million for the three months ended May
31, 2003 and 2002, respectively. Such charges to FNA amounted to
approximately $10.8 million and $10.5 million for the nine months ended
May 31, 2003 and 2002, respectively.
b) 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.
c) FNA's depreciation and amortization for the three months ended May 31, 2003
and 2002 amounted to approximately $1.6 million and $2.4 million,
respectively. Capital expenditures of FNA amounted to $0.7 million and $1.3
million in the three months ended May 31, 2003 and 2002, respectively.
FNA's depreciation and amortization for the nine months ended May 31, 2003
and 2002 amounted to approximately $4.8 million and $7.5 million,
respectively. Capital expenditures of FNA amounted to $3.5 million and $2.7
million in the nine months ended May 31, 2003 and 2002, respectively
d) The Company guarantees FNA's obligations under FNA's revolving credit
facility.
e) The Company's stock option plans include FNA's employees.
f) Certain reclassifications have been made in the prior year to conform to
the current year presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion and analysis gives effect to the restatement of the
unaudited consolidated financial statements for the three and nine months ended
May 31, 2002, as described in Note 11 to the unaudited consolidated financial
statements.
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 MAY 31 ENDED MAY 31
------------------ -----------------
2003 2002 2003 2002
---- ---- ---- ----
Gross profit 23.2% 24.0% 22.3% 22.8%
Selling, general and administrative expense 9.2% 9.6% 15.3% 16.8%
Operating income 14.0% 14.3% 6.9% 6.1%
Interest expense, net 2.6% 2.9% 4.7% 5.1%
Income before taxes 12.2% 11.8% 2.5% 1.3%
==== ==== ==== ====
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MAY 31, 2003 (THIRD QUARTER OF
FISCAL 2003) VERSUS THE THREE MONTHS ENDED MAY 31, 2002 (THIRD QUARTER OF FISCAL
2002)
Net sales in the third quarter of fiscal 2003 were $194.2 million compared to
$170.7 million in the third quarter of fiscal 2002. HVACR sales were $183.7
million for the third quarter of fiscal 2003 compared to $159.8 million in the
third quarter of fiscal 2002. Sales were higher than the prior year primarily
due to strong pre-season demand for air conditioners within the HVACR segment
both in North America and internationally. Sales in the Engineered Products
22
segment declined slightly to $10.5 million in the quarter compared to $10.9
million in the prior-year period continuing to reflect weak demand in the
capital equipment market for commercial and industrial air filtration products.
The gross profit margin in the third quarter of fiscal 2003 was 23.2% compared
to 24.0% in the third quarter of fiscal 2002. The decline in the gross profit
percentage was due to a greater mix of air conditioner sales, which typically
carry a lower margin than sales of engineered products, and start-up costs
associated with the transfer of production to Asia.
Selling, general and administrative ("S,G&A") expenses in the third quarter of
fiscal 2003 were $17.9 million compared to $16.5 million in the prior-year
period which included $0.7 million of goodwill amortization which the Company
ceased amortizing as of September 1, 2002 in accordance with SFAS 142, "Goodwill
and Other Intangible Assets". S,G&A expenses were higher than the prior year as
a result of increased sales and marketing activities.
Operating income in the third quarter of fiscal 2003 was $27.2 million versus
$24.4 million in the prior-year period, reflecting the increased sales activity
for the period.
Net interest expense in the third fiscal quarter of 2003 was flat with the
prior-year period at $5.0 million.
Net income applicable to common stockholders for the third quarter of fiscal
2003 was $15.7 million, or 53 cents per diluted share, compared to net income in
the third quarter of fiscal 2002 of $13.6 million, or 43 cents per diluted
share.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MAY 31, 2003 (NINE MONTHS OF
FISCAL 2003) VERSUS THE NINE MONTHS ENDED MAY 31, 2002 (NINE MONTHS OF FISCAL
2002)
In the nine months of fiscal 2003, sales were $304.8 million, an 8.1% increase
from sales of $281.9 million in the comparable fiscal 2002 period. HVACR sales
were $274.7 million for the nine months of fiscal 2003 compared to $250.8
million in the comparable fiscal 2002 period. Sales were higher than the prior
year primarily due to strong pre-season demand for air conditioners within the
HVACR segment both in North America and internationally. In the Engineered
Products segment, sales of $30.1 million were 3.2% lower than prior-year sales
of $31.1 million. The sales decline was the result of continued weak demand in
the capital equipment market for commercial and industrial air filtration
products.
Gross profit margins declined to 22.3% from 22.8% in the prior-year period due
to a greater mix of air conditioner sales which typically carry a lower
margin than sales of engineered products, and start-up costs associated with the
transfer of production to Asia.
S,G&A expenses in the first nine months of fiscal 2003 were $46.7 million
compared to $47.3 million in the prior-year period which included $2.2 million
of goodwill amortization which the Company ceased amortizing as of September 1,
2002 in accordance with SFAS 142, "Goodwill and Other Intangible Assets." S,G&A
expenses were higher than the prior year as a result of increased sales and
marketing activities offset by a gain on the sale of the Company's interest in
an airplane.
The operating income for the nine months of fiscal 2003 was $21.2 million versus
$17.1 million in the prior-year period, reflecting the impact of higher sales
for the period.
Net interest expense declined slightly for the nine months of fiscal 2003 to
$14.3 million versus $14.4 million in the prior period.
Net income applicable to common stockholders for the nine months of fiscal 2003
was $4.7 million, or 15 cents per diluted share, compared to net income in the
nine months of fiscal 2002 period of $2.5 million, or 8 cents per diluted 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 $39.5
million at May 31, 2003 compared to $15.7 million at the end of May 2002.
Net cash used in operations for the nine months ended May 31, 2003 amounted to
$27.0 million, compared to $19.9 million in the prior-year 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 third quarter were $105.9 million
23
compared to $48.6 million at the beginning of the fiscal year and $75.2 million
at the end of the third quarter in the last fiscal year.
Net cash used in investing activities for the nine months of fiscal 2003 was
$7.4 million versus $12.6 million in the prior-year period. Capital expenditures
for the nine-month period ended May 31, 2003 were $6.6 million compared to $4.6
million during the same period in fiscal 2002. Investments in acquisitions
amounted to $1.3 million for the first nine months of fiscal 2003. In March
2003, the Company entered into a joint venture with Nanjing Suning High & New
Technology Industrial Park Co., Ltd. to manufacture split-type air conditioners
in China. The Company has a 2/3 interest in the joint venture, Fedders Suning
Nanjing Co., Ltd. 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 in fiscal year
2002 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.
Net cash provided by financing activities for the nine months of fiscal 2003 was
$6.5 million, which consisted primarily of $12.9 million in short-term
borrowings offset by $3.0 million of cash dividends and $2.7 million in
repayments of long-term debt. Short-term borrowings at the end of the nine
months of fiscal 2003 increased to $22.7 million compared to $9.8 million at the
end of fiscal 2002. $22.1 million of the borrowings at the end of the nine
months of fiscal 2003 were to support production in the Company's China
operations. On February 1, 2003, the Company amended its $100 million revolving
credit facility in the U.S. to extend its terms to February 1, 2006. As of May
31, 2003, there are no borrowings under the revolving U.S. credit line.
The Company declared quarterly dividends of 3.0 cents on each share of
outstanding Class B and Common Stock and 53.8 cents on each share of outstanding
Preferred Stock in the third quarter of fiscal 2003. The Company declared
quarterly dividends of 3.0 cents on each share of outstanding Class B and Common
Stock in the third quarter of fiscal 2002.
Management believes that the Company's cash, earnings and borrowing capacity are
adequate to meet the demands of its operations for at least the next twelve
months and its long-term credit requirements.
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.
PART II OTHER INFORMATION
24
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
25
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, 2003
26
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: July 15, 2003
/s/ Sal Giordano, Jr.
- ---------------------------
Sal Giordano, Jr.
Chief Executive Officer
27
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 July 15, 2003
/s/ Michael Giordano
- --------------------------
Michael Giordano
Chief Financial Officer
28