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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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 36,304,762 shares of Common Stock and
2,493,061 shares of Class B Stock (which is immediately convertible into Common
Stock, on a share-for-share basis) as of October 31, 2004.
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FEDDERS CORPORATION
INDEX
PAGE
NUMBER
------
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) 3
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003. 4
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2004, DECEMBER 31, 2003
AND SEPTEMBER 30, 2003 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2004 AND 2003 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7-20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 21-25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 26
ITEM 4. CONTROLS AND PROCEDURES 26
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 27
SIGNATURES 28
CERTIFICATIONS 29-32
2
PART I FINANCIAL INFORMATION
The quarterly report on Form 10-Q contains financial statements for the
quarter ended September 30, 2004, the review of which has not been completed by
the Company's independent public accountant as required by Rule 10-01(d) of
Regulation S-X. The Company expects that the review will be completed as soon as
practicable. Upon completion of such review, the Company intends to file an
amendment to the Quarterly Form 10-Q.
ITEM 1. FINANCIAL STATEMENTS
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(amounts in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
2004 2003 2004 2003
-------- --------- --------- ---------
Net sales ........................................... $ 69,158 $ 78,720 $ 366,578 $ 388,770
Costs and expenses:
Cost of sales ..................................... 61,590 63,265 308,364 301,269
Selling, general and administrative expense ....... 17,999 16,325 54,962 49,570
Restructuring credit .............................. -- (115) (709) (115)
-------- --------- --------- ---------
79,589 79,475 362,617 350,724
-------- --------- --------- ---------
Operating (loss) income ............................. (10,431) (755) 3,961 38,046
Partners' interest in joint venture earnings (losses) 482 (743) (170) 386
Interest expense, net ............................... 4,769 4,212 14,938 14,069
Loss on debt extinguishment ......................... -- -- 8,075 --
Other income ........................................ 230 118 500 426
-------- --------- --------- ---------
(Loss) income before income taxes ................... (14,488) (5,592) (18,722) 24,789
Income tax (benefit) provision ...................... (4,750) (1,862) (6,097) 8,012
-------- --------- --------- ---------
Net (loss) income ................................... (9,738) (3,730) (12,625) 16,777
Preferred stock dividends ........................... 1,005 222 3,015 618
-------- --------- --------- ---------
Net (loss) income applicable to common stockholders . (10,743) (3,952) (15,640) 16,159
Other comprehensive (loss) income:
Foreign currency translation, net of tax .......... (6) (398) 56 (674)
-------- --------- --------- ---------
Comprehensive (loss) income ......................... $(10,749) $ (4,350) $ (15,584) $ 15,485
======== ========= ========= =========
Net (loss) income per common share:
Basic/diluted net (loss) income per common share .... (0.35) (0.13) (0.51) 0.54
======== ========= ========= =========
Weighted average shares outstanding:
Basic ............................................. 30,494 29,636 30,454 29,805
Diluted ........................................... 30,494 29,636 30,454 29,977
Dividends per share declared:
Common Stock ...................................... -- -- $ 0.090 $ 0.090
Class B Stock ..................................... -- -- 0.090 0.090
Preferred Stock ................................... -- -- 1.614 1.614
See accompanying notes to the consolidated financial statements
4
FEDDERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except par value)
(unaudited)
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2004 2003 2003
------------- ------------ -------------
ASSETS
Current assets:
Cash and cash equivalents .......................................................... $ 23,913 $ 22,043 $ 44,200
Accounts receivable (net of allowances of $1,882, $2,032 and $2,088 at September 30,
2004, December 31, 2003 and September 30, 2003, respectively) ..................... 49,960 29,718 40,723
Inventories:
Finished goods ................................................................... 95,247 113,659 69,148
Work-in-process .................................................................. 3,446 4,487 26,413
Raw materials and supplies ....................................................... 29,886 27,340 2,332
--------- --------- ---------
Net inventories .................................................................... 128,579 145,486 97,893
Deferred income taxes .............................................................. 6,993 7,652 7,656
Assets held for sale ............................................................... 8,249 8,564 8,564
Other current assets ............................................................... 21,816 28,352 20,761
--------- --------- ---------
Total current assets ................................................................. 239,510 241,815 219,797
Net property, plant and equipment:
Land and improvements .............................................................. 1,521 1,508 1,508
Buildings and leasehold improvements ............................................... 30,358 31,880 30,773
Machinery and equipment ............................................................ 104,934 102,815 101,406
--------- --------- ---------
Gross property, plant and equipment ................................................ 136,813 136,203 133,687
Less accumulated depreciation ...................................................... 86,600 81,541 78,223
--------- --------- ---------
Net property, plant and equipment .................................................... 50,213 54,662 55,464
Deferred income taxes ................................................................ 10,541 8,224 8,224
Goodwill ............................................................................. 77,942 78,630 78,630
Other intangible assets .............................................................. 1,359 1,685 1,441
Other assets ......................................................................... 35,688 31,232 36,076
--------- --------- ---------
Total assets ......................................................................... $ 415,253 $ 416,248 $ 399,632
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes ................................................................... $ 31,632 $ 30,446 $ 12,400
Current portion of long-term debt .................................................. 1,421 2,779 4,852
Accounts payable ................................................................... 65,021 86,313 50,989
Income taxes payable ............................................................... -- -- 4,048
Accrued expenses ................................................................... 48,146 39,032 58,462
--------- --------- ---------
Total current liabilities ............................................................ 146,220 158,570 130,751
Long-term debt ....................................................................... 158,804 158,965 159,253
Other long-term liabilities .......................................................... 32,579 31,528 30,959
Partners' net interest in joint venture .............................................. 4,471 4,235 4,479
Stockholders' equity:
Preferred Stock, $0.01 par value, 15,000 shares authorized, 1,870, 675 and 675 issued
at September 30, 2004, December 31, 2003 and September 30, 2003, respectively ...... 19 7 7
Common Stock, $0.01 par value, 70,000 shares authorized, 36,525, 36,444 and 35,780
issued at September 30, 2004, December 31, 2003 and September 30, 2003, respectively 365 364 358
Class B Stock, $0.01 par value, 5,000 shares authorized, 2,493 issued at September 30,
2004, December 31, 2003 and September 30, 2003 ..................................... 25 25 25
Additional paid-in capital ........................................................... 109,038 80,680 77,044
Retained earnings .................................................................... 5,209 23,603 37,306
Accumulated other comprehensive loss ................................................. (1,697) (1,752) (1,920)
--------- --------- ---------
112,959 102,927 112,820
Treasury stock, at cost, 8,521, 8,521 and 8,158 shares of Common Stock at September
30, 2004, December 31, 2003 and September 30, 2003, respectively ................... (39,188) (39,188) (38,559)
Deferred compensation ................................................................ (592) (789) (71)
--------- --------- ---------
Total stockholders' equity ........................................................... 73,179 62,950 74,190
--------- --------- ---------
Total liabilities and stockholders' equity ........................................... $ 415,253 $ 416,248 $ 399,632
========= ========= =========
See accompanying notes to the consolidated financial statements
5
FEDDERS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2004 2003
--------- --------
Cash flows from operating activities:
Net (loss) income ......................................... $ (12,625) $ 16,777
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization ........................... 7,272 7,127
Deferred compensation amortization ...................... 197 211
Stock option re-pricing charge .......................... -- 1,407
Loss on debt extinguishment ............................. 8,075 --
Deferred income taxes ................................... (1,658) 4,326
Partners' net interest in joint venture losses (earnings) 170 (386)
Loss (gain) on disposal of assets ....................... 286 (96)
Changes in operating assets and liabilities:
Accounts receivable ..................................... (20,242) (3,097)
Inventories ............................................. 16,907 5,803
Other current assets .................................... 6,536 (1,822)
Other assets ............................................ 988 1,237
Accounts payable ........................................ (21,292) (5,260)
Accrued expenses ........................................ 9,305 12,655
Income taxes payable .................................... -- 2,887
Other long-term liabilities ............................. 1,051 (2,631)
Other--net .............................................. 84 (480)
--------- --------
Net cash (used in) provided by operating activities ....... (4,946) 38,658
--------- --------
Cash flows from investing activities:
Additions to property, plant and equipment .............. (4,139) (4,752)
Disposal of property, plant and equipment ............... 1,551 539
Investment in joint venture ............................. (932) (1,333)
--------- --------
Net cash used in investing activities ..................... (3,520) (5,546)
--------- --------
Cash flows from financing activities:
Proceeds from (repayment of) short-term notes ........... 1,186 (11,904)
Repayments of long-term debt ............................ (3,179) (1,891)
Net proceeds from issuance of 9 7/8% Senior Notes ....... 150,245 --
Repayment of 9 3/8% Senior Subordinated Notes ........... (150,000) --
Call premium and deferred financing charges ............. (10,356) --
Proceeds from stock options exercised ................... 110 314
Cash dividends .......................................... (5,769) (3,294)
Cost of stock offerings ................................. (224) (1,123)
Proceeds from stock rights exercised .................... 28,323 6,167
--------- --------
Net cash provided by (used in) financing activities ....... 10,336 (11,731)
--------- --------
Net increase in cash and cash equivalents ................. 1,870 21,381
Cash and cash equivalents at beginning of period .......... 22,043 22,819
--------- --------
Cash and cash equivalents at end of period ................ $ 23,913 $ 44,200
========= ========
Supplemental disclosure:
Interest paid ........................................... $ 15,848 $ 15,430
Income taxes paid ....................................... 1,360 1,237
========= ========
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 for the fiscal year
ended August 31, 2003. The Company's fiscal year end through the 2003 fiscal
year was August 31. However, on August 26, 2003, the Board of Directors changed
the Company's fiscal year end from August 31 to December 31. The financial
statements and notes included herein provide unaudited results of the Company
for the three-month period from July 1, 2004 through September 30, 2004 and for
the nine-month period from January 1, 2004 through September 30, 2004. The
unaudited statements for the three-month and nine-month periods ended September
30, 2003 have been provided for comparison purposes.
The Company's business is seasonal and, consequently, operating results
for the nine-month period ending September 30, 2004 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2004. Certain reclassifications have been made in prior-year
amounts to conform to the current-year presentation.
Subsequent to the issuance of its unaudited consolidated financial
statements for the quarter ended June 30, 2004, the Company determined that a
provision for returns granted to certain customers during the third quarter
should have been reflected in the second quarter when the sales were recognized.
At the time the Company recorded the sales, the Company did not consider
customer buying patterns and programs, historical experience, and levels of
inventory at those customers. As a result, the Company recognized approximately
$17.9 million of sales returns and reduced related costs of sales by $12.4
million. The accompanying statements of operations and comprehensive income
(loss) for the nine months ended September 30, 2004 give effect to this
adjustment. An amendment to the Company's Form 10-Q for the quarter ended June
30, 2004 will be filed as soon as practicable, to reflect this restatement in
the three and six months ended June 30, 2004, unaudited consolidated financial
statements.
A summary of the significant effects of the restatement is as follows:
FOR THE THREE MONTHS ENDED
JUNE 30, 2004
--------------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
------------- ---------------
Statement of Operations
Net Sales $ 196,018 $ 178,125
Cost of sales 161,603 149,237
Operating income 15,211 9,684
Income before income taxes 8,854 3,327
Provision for income taxes 2,835 1,067
Net income 6,019 2,260
Net income applicable to common stockholders 5,014 1,255
Comprehensive income 4,930 1,171
Basic and diluted income per share 0.16 0.04
FOR THE SIX MONTHS ENDED
JUNE 30,2004
--------------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
------------- ---------------
Statement of Operations
Net Sales $ 315,313 $ 297,420
Cost of sales 259,140 246,774
Operating income 19,919 14,392
Income (loss) before income taxes 1,293 (4,234)
Provision (benefit) from income taxes 421 (1,347)
Net income (loss) 872 (2,887)
Net loss applicable to common stockholders (1,138) (4,897)
Comprehensive loss (1,076) (4,835)
Basic and diluted loss per share (0.04) (0.16)
AS OF JUNE 30,2004
--------------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
------------- ---------------
Balance Sheet
Finished goods $ 80,686 $ 92,909
Net inventories 116,568 128,791
Other current assets 14,966 16,735
Total current assets 283,777 297,769
Total assets 458,994 472,986
Accrued expenses 52,244 69,994
Total current liabilities 177,099 194,849
Retained earnings 18,721 14,962
Total stockholders' equity 86,613 82,855
Total liabilities and stockholders' equity 458,994 472,986
7
2. STOCK COMPENSATION
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 have 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
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
2004 2003 2004 2003
-------- ------- -------- --------
Net (loss) income applicable to common stockholders-as reported .......... $(10,743) $(3,952) $(15,640) $ 16,159
Add: Stock option re-pricing compensation expense included in reported net
loss, net of related tax effects ....................................... -- 950 -- 950
Deduct: Total stock-based employee compensation expense determined under
fair-value-based method for all awards, net of related tax effects ..... (175) (90) (634) (270)
-------- ------- -------- --------
Pro forma net (loss) income .............................................. $(10,918) $(3,092) $(16,274) $ 16,839
======== ======= ======== ========
Net (loss) income per common share:
Basic/diluted -- as reported .......................................... $ (0.35) $ (0.13) $ (0.51) $ 0.54
Basic/diluted -- pro forma ............................................ $ (0.36) $ (0.10) $ (0.53) $ 0.56
3. ASSET IMPAIRMENT, EMPLOYEE SEVERANCE AND OTHER RESTRUCTURING AND RELATED
CHARGES
In the fourth quarter of fiscal year 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 fiscal year 2001. In the first nine months of 2004, the Company
expended $30, primarily for facility closing costs. The Company conducted a
detailed evaluation of the remaining restructuring reserves, as the activities
for the past 10 months have been minimal. The Company identified required
reserves of $401 for on going projects and recorded a restructuring credit of
$709 for reserves in excess of identified requirements.
8
The following table displays the activity and balances of the
restructuring reserve account from December 31, 2003 to September 30, 2004.
DECEMBER 31, SEPTEMBER 30,
2003 2004
BALANCE ADDITIONS DEDUCTIONS BALANCE
----------- --------- ---------- ------------
Workforce reductions . $ 586 -- 432 $154
Facility closing costs 340 -- 292 48
Other costs .......... 214 -- 15 199
------ -- --- ----
Total .............. $1,140 -- 739 $401
====== == === ====
The remaining balance of $401, which consists primarily of workforce
reduction and environmental cleanup costs, is expected to be expended during
fiscal 2004. The final amounts will be settled upon the expiration of the period
for workers' compensation claims and completion of facility clean up and waste
removal.
4. STOCKHOLDERS' EQUITY
On December 5, 2003, the Company's Board of Directors authorized the
distribution of transferable rights to the Company's Common and Class B
stockholders. Stockholders received one right for every share of Common Stock
and Class B Stock they held as of December 22, 2003. Every 20 rights entitled
the holder to purchase one share of Cumulative Preferred Stock at the
subscription price of $23.70 per share, and carried with it a basic subscription
right and an over-subscription right. As of January 16, 2004, 1,195,092 shares
of Cumulative Preferred Stock had been issued as a result of the offering for
gross proceeds of $28.3 million.
5. EARNINGS PER SHARE
For the three months ended September 30, 2004 and 2003, net income (loss)
per common share was computed using the weighted average number of shares of
Common and Class B stock outstanding, which amounted to 30,493,949 and
29,636,277 shares, respectively. Due to their anti-dilutive effect, 156,833 and
400,764 shares under options were excluded from the computation of diluted loss
per common share for the three months ended September 30, 2004 and 2003,
respectively.
For the nine months ended September 30, 2004 and 2003, net income (loss)
per common share was computed using the weighted average number of shares of
Common and Class B stock outstanding, which amounted to 30,454,488 and
29,805,310 shares, respectively. Shares under stock options included in
computing diluted earnings per share amounted to 171,814 shares for the nine
months ended September 30, 2003. Due to their anti-dilutive effect, 435,641
shares under options were excluded from the computation of diluted loss per
common share for the nine months ended September 30, 2004.
6. LONG-TERM DEBT
On February 6, 2004, Fedders North America, Inc., a wholly owned
subsidiary of the Company ("FNA") commenced a cash tender offer for any and all
of FNA's outstanding 9 3/8% Senior Subordinated Notes due 2007, issued August
24, 1999, and any and all of FNA's outstanding 9 3/8% Senior Subordinated Notes
due 2007, issued August 18, 1997 (collectively, the "Notes"). As of September
30, 2004, all Notes have been purchased and the Company recorded a loss on debt
extinguishment of $8,075, consisting of $4,848 of call premiums and $3,227 for
the write-off of associated debt issuance costs.
9
7. GOODWILL AND INTANGIBLE ASSETS
The Company records the excess purchase price of net tangible and
intangible assets acquired over their estimated fair value as goodwill. The
Company adopted the provisions of SFAS 142 "Goodwill and Other Intangible
Assets" ("SFAS 142"), as of September 1, 2002. Under SFAS 142, the Company is
required to test goodwill for impairment at least annually. The Company has
elected to perform its annual test for indications of goodwill impairment as of
September 30 of each year. The Company identifies potential goodwill impairment
by comparing the fair value of a reporting segment with its carrying amount,
including goodwill. The Company determines fair value using a discounted cash
flow and market-multiple approach. If the fair value of a reporting segment
exceeds its carrying amount, goodwill of the reporting segment is not considered
impaired. If the carrying amount of a segment exceeds its fair value, the amount
of goodwill impairment loss, if any, must be measured. The Company measures the
amount of goodwill impairment loss by comparing the implied fair value of
reporting segment goodwill with the carrying amount of that goodwill. If the
carrying amount of the segment goodwill exceeds the implied fair value of
goodwill, an impairment loss is recognized as an operating expense.
Goodwill and other intangible assets consist of the following:
ENGINEERED
HVACR PRODUCTS TOTAL
-------- ---------- --------
Goodwill balance as of December 31, 2003 $ 70,133 $8,497 $ 78,630
Effect of foreign currency change ....... (688) -- (688)
-------- ------ --------
Goodwill balance as of September 30, 2004 $ 69,445 $8,497 $ 77,942
======== ====== ========
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------ -----------
Other intangible assets $ 2,994 $ 3,178
Accumulated amortization (1,635) (1,493)
------- -------
Other intangible assets $ 1,359 $ 1,685
======= =======
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 September 30, 2004 and 2003 is $52 and $39, respectively.
Amortization expense for the nine months ended September 30, 2004 and 2003 is
$153 and $131, respectively. Estimated amortization expense for other intangible
assets will be approximately $180 for each of the next five years.
8. ASSETS HELD FOR SALE
In connection with a restructuring of the Company's operations in 2001 (Note 3),
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 Walkersville facility for sale. The Company
has since changed the marketing strategy and taken necessary actions to divide
the property in order to enhance the property value. Currently there are several
interested parties and the Company is managing the process to maximize the sale
price. 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 September 30, 2004, 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. During the three months ended March 31, 2004, a
building in Ningbo, China was sold. The Company recorded a loss of $7 on the
disposal of this property.
The following table presents the carrying amount, by asset class, of the
"Assets Held for Sale" at:
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------ -----------
Land and land improvements $2,181 $2,181
Building, net ............ 4,272 4,587
Building improvements, net 1,796 1,796
------ ------
Assets held for sale ..... $8,249 $8,564
====== ======
10
9. 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,
through-the-wall, ductless split and portable room air conditioners, ducted
central air conditioning systems, air cleaners, humidifiers 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
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------------
2004 2003 2004 2003
-------- -------- --------- ---------
Net sales:
HVACR ..................................................................... $ 59,556 $ 70,417 $ 335,495 $ 363,876
Engineered Products ....................................................... 9,602 8,303 31,083 24,894
-------- -------- --------- ---------
Net sales ................................................................. $ 69,158 $ 78,720 $ 366,578 $ 388,770
======== ======== ========= =========
Income (loss) before interest expense, income taxes and loss on debt
extinguishment:
HVACR ..................................................................... $ (7,738) $ 3,273 $ 2,114 $ 41,783
Engineered Products ....................................................... 1,091 (62) 2,554 (671)
-------- -------- --------- ---------
Segment (loss) income before interest expense and income taxes ............ (6,647) 3,211 4,668 41,112
Non-allocated expense ..................................................... (3,072) (4,591) (377) (2,254)
Loss on debt extinguishment ............................................... -- -- 8,075 --
Interest expense, net ..................................................... 4,769 4,212 14,938 14,069
Income tax (benefit) provision ............................................ (4,750) (1,862) (6,097) 8,012
-------- -------- --------- ---------
Net (loss) income ......................................................... $ (9,738) $ (3,730) $ (12,625) $ 16,777
======== ======== ========= =========
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2004 2003 2003
------------ ----------- ------------
Total assets:
HVACR .............. $300,112 $310,646 $273,093
Engineered Products 55,477 52,826 53,930
Non-allocated assets 59,664 52,776 72,609
-------- -------- --------
$415,253 $416,248 $399,632
======== ======== ========
Non-allocated expense and assets are primarily related to the Company's
corporate headquarters.
10. GUARANTEES
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 are 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.
11
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 December 31, 2003 to September 30, 2004:
NINE MONTHS
ENDED
SEPTEMBER 30, 2004
------------------
Warranty balance at December 31, 2003 .......... $ 5,641
Accruals for warranties issued during the period 13,801
Settlements made during the period ............. (12,150)
--------
Warranty balance at September 30, 2004 ......... $ 7,292
--------
At September 30, 2004, $6,487 of warranty liability was included in
current liabilities and $805 of warranty liability was included in other
long-term liabilities.
LOAN GUARANTEES
Guarantees of subsidiary debt by Fedders Corporation (the "Company" or the
"Parent") and subsidiaries consist of the following at September 30, 2004:
(i) The Parent guarantees the obligations of FNA under its 9 7/8%
Senior Notes due 2014 (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 $155 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 Wachovia 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 September 30, 2004.
(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 guarantee 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 September 30, 2004 is $0.8 million.
(iv) The Parent and Melcor Corporation guarantee the obligations of
a subsidiary, Fedders Eubank Company, 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
Fedders Eubank fails to pay rent when due or fails to comply with the
provisions of the lease agreement. The outstanding loan balance at
September 30, 2004 is $1.8 million.
(v) The Parent guarantees the obligations of a subsidiary, Fedders
Eubank Company 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 guarantee in the event Fedders 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 September 30, 2004 is $0.3
million.
(vi) The Parent guarantees the obligations of a subsidiary, Fedders
(Shanghai) Co., Ltd. ("FSC") under a working capital line of credit
totaling $6.0 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 loan or fails to comply with the
provisions of the loan agreement. The outstanding loan balance at
September 30, 2004 is $6.0 million.
12
(vii) The Parent guarantees the obligations of a subsidiary, Polenz
GmbH ("Polenz"), under a Euro 6.0 million working capital line of credit.
The line of credit bears interest at the rate of Libor +2% per annum and
matures June 2006. 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 September 30, 2004.
(viii) The Parent guarantees the obligations of a subsidiary,
Fedders Eubank Company, Inc., under a mortgage agreement providing for a
loan of $1.0 million. The loan has an interest rate of 4.25% and matures
in June 2008. The Parent would be required to perform under the guarantee
in the event Fedders 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 September 30, 2004 is $0.8 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 guarantee 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 September 30, 2004 is $1.7
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 rate set
by the Peoples Bank of China and matures December 2004. FIAQ would be
obligated to perform its obligations under the guarantee 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 September 30, 2004.
11. REVENUE RECOGNITION
Sales are recorded consistent with their related shipping terms upon the
passing of title and the risks and rewards of ownership to the customer. For a
majority of the Company's customers, title and the risks and rewards of
ownership pass at the time of shipment. However, certain of the Company's sales
are recorded at the time the products are delivered to the customers. Sales
are recorded net of a provision for sales allowances, warranties and returns.
The Company estimates a provision for sales allowances and for returns at
the time of sale based on consideration of a number of factors including
historical experience, customer buying patterns and programs, and information
with respect to customer inventory levels.
Each quarter, the estimate of warranty and defective return obligations
including the assumptions about estimated failure and return rates, is
reevaluated. The Company uses historical failure and defective return rates,
which may or may not be indicative of future rates.
12. SUBSEQUENT EVENTS
On November 1, 2004, the Company completed the acquisition of a wholly
owned air conditioning manufacturing operation in Orlando, Florida, Fedders
Addison Company, Inc. This company manufactures and markets a broad line of air
conditioning products primarily serving commercial and institutional markets.
This subsidiary will be included within the HVACR reportable segment. The cash
purchase price was $8.3 million, no goodwill resulted from the transaction.
This transaction will be accounted for as a business combination.
13. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
FNA and the Company are the issuer and the guarantor, respectively, of the
$155 million 9 7/8% Senior Notes due 2014. In addition, the subsidiaries of FNA
are also guarantors of the notes.
The Company's and the subsidiaries' guarantees are full and unconditional.
The following condensed consolidating financial statements present separate
information for FNA and its guarantor subsidiaries, the Parent, and the other
non-guarantor subsidiaries and should be read in conjunction with the
consolidated financial statements of the Company.
13
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
THREE MONTHS ENDED SEPTEMBER 30, 2004
-----------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- -------- --------- ----------- -----------
Net sales ............................................ $ 50,590 $ 33,218 -- $(14,650) $ 69,158
Costs and expenses:
Cost of sales ........................................ 46,273 29,967 -- (14,650) 61,590
Selling, general and administrative expense (a) ...... 10,316 5,329 $ 2,354 -- 17,999
-------- -------- -------- -------- --------
Operating loss ....................................... (5,999) (2,078) (2,354) -- (10,431)
Partners' net interest in joint venture (losses)
earnings ........................................... (19) 501 -- -- 482
Equity loss in investment ............................ -- -- (8,554) 8,554 --
Interest expense, net (b) ............................ 4,160 557 52 -- 4,769
Other income ......................................... 105 121 4 -- 230
-------- -------- -------- -------- --------
Loss before income taxes ............................. (10,073) (2,013) (10,956) 8,554 (14,488)
Benefit for income taxes ............................. (3,275) (257) (1,218) -- (4,750)
-------- -------- -------- -------- --------
Net loss ............................................. (6,798) (1,756) (9,738) 8,554 (9,738)
Preferred stock dividend ............................. -- -- 1,005 -- 1,005
-------- -------- -------- -------- --------
Net loss applicable to common stockholders ........... (6,798) (1,756) (10,743) 8,554 (10,743)
Foreign currency translation, net of tax ............. -- (27) (6) 27 (6)
-------- -------- -------- -------- --------
Comprehensive loss ................................... $ (6,798) $ (1,783) $(10,749) $ 8,581 $(10,749)
======== ======== ======== ======== ========
THREE MONTHS ENDED SEPTEMBER 30, 2003
----------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- -------- --------- -------- -----------
Net sales ............................................... $ 62,036 $ 32,933 -- $(16,249) $ 78,720
Costs and expenses:
Cost of sales ........................................... 49,782 29,732 -- (16,249) 63,265
Selling, general and administrative expense (a) ......... 8,988 4,626 $ 2,711 -- 16,325
Restructuring credit .................................... (115) -- -- -- (115)
-------- -------- ------- -------- --------
Operating income(loss) .................................. 3,381 (1,425) (2,711) -- (755)
Partners' net interest in joint venture earnings
(losses)............................................... 304 (1,047) -- -- (743)
Equity loss in investment ............................... -- -- (2,110) 2,110 --
Interest expense, net (b) ............................... 3,926 496 (210) -- 4,212
Other income (expense) .................................. 11 131 (24) -- 118
-------- -------- ------- -------- --------
Loss before income taxes ................................ (230) (2,837) (4,635) 2,110 (5,592)
Benefit from income taxes ............................... (26) (931) (905) -- (1,862)
-------- -------- ------- -------- --------
Net loss ................................................ (204) (1,906) (3,730) 2,110 (3,730)
Preferred stock dividend ................................ -- -- 222 -- 222
-------- -------- ------- -------- --------
Net loss applicable to common stockholders .............. (204) (1,906) (3,952) 2,110 (3,952)
Foreign currency translation, net of tax ................ 149 (485) (398) 336 (398)
-------- -------- ------- -------- --------
Comprehensive loss ...................................... $ (55) $ (2,391) $(4,350) $ 2,446 $ (4,350)
======== ======== ======= ======== ========
14
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
AND COMPREHENSIVE (LOSS) INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2004
--------------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
--------- --------- --------- ----------- -----------
Net sales ............................................ $ 311,679 $ 200,373 -- $(145,474) $ 366,578
Costs and expenses:
Cost of sales ........................................ 269,777 184,061 -- (145,474) 308,364
Selling, general and administrative expense (a) ...... 39,077 16,310 $ (425) -- 54,962
Restructuring credit ................................. (709) -- -- -- (709)
--------- --------- -------- --------- ---------
Operating income ..................................... 3,534 2 425 -- 3,961
Partners' net interest in joint venture
(losses) earnings ................................... (522) 352 -- -- (170)
Equity loss in investment ............................ -- -- (13,199) 13,199 --
Interest expense, net (b) ............................ 13,126 1,629 183 -- 14,938
Loss on debt extinguishment .......................... 8,075 -- -- -- 8,075
Other income ......................................... 255 241 4 -- 500
--------- --------- -------- --------- ---------
Loss before income taxes ............................. (17,934) (1,034) (12,953) 13,199 (18,722)
(Benefit) provision for income taxes ................. (5,830) 61 (328) -- (6,097)
--------- --------- -------- --------- ---------
Net loss ............................................. (12,104) (1,095) (12,625) 13,199 (12,625)
Preferred stock dividend ............................. -- -- 3,015 -- 3,015
--------- --------- -------- --------- ---------
Net loss applicable to common stockholders ........... (12,104) (1,095) (15,640) 13,199 (15,640)
Foreign currency translation, net of taxes ........... 6 47 56 (53) 56
--------- --------- -------- --------- ---------
Comprehensive loss ................................... $ (12,098) $ (1,048) $(15,584) $ 13,146 $ (15,584)
========= ========= ======== ========= =========
NINE MONTHS ENDED SEPTEMBER 30, 2003
---------------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
--------- --------- --------- ----------- -----------
Net sales ............................................... $ 345,231 $ 191,723 -- $(148,184) $ 388,770
Costs and expenses:
Cost of sales ........................................... 277,416 172,037 -- (148,184) 301,269
Selling, general and administrative expense (a) ......... 35,678 14,459 $ (567) -- 49,570
Restructuring credit .................................... (115) -- -- -- (115)
--------- --------- -------- --------- ---------
Operating income ........................................ 32,252 5,227 567 -- 38,046
Partners' net interest in joint venture (losses) earnings (30) 416 -- -- 386
Equity income in investment ............................. -- -- 16,528 (16,528) --
Interest expense, net (b) ............................... 12,155 1,770 144 -- 14,069
Other (expense) income .................................. (61) 504 (17) -- 426
--------- --------- -------- --------- ---------
Income before income taxes .............................. 20,006 4,377 16,934 (16,528) 24,789
Provision for income taxes .............................. 6,315 1,540 157 -- 8,012
--------- --------- -------- --------- ---------
Net income .............................................. 13,691 2,837 16,777 (16,528) 16,777
Preferred stock dividend ................................ -- -- 618 -- 618
--------- --------- -------- --------- ---------
Net income applicable to common stockholders ............ 13,691 2,837 16,159 (16,528) 16,159
Foreign currency translation, net of tax ................ (179) (506) (674) 685 (674)
--------- --------- -------- --------- ---------
Comprehensive income .................................... $ 13,512 $ 2,331 $ 15,485 $ (15,843) $ 15,485
========= ========= ======== ========= =========
15
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF SEPTEMBER 30, 2004
---------------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
--------- -------- --------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents .............. $ 8,447 $ 7,839 $ 7,627 -- $ 23,913
Net accounts receivable ................ 34,415 15,545 -- -- 49,960
Net inventories ........................ 100,008 28,571 -- -- 128,579
Assets held for sale ................... 8,249 -- -- -- 8,249
Other current assets ................... 5,773 7,852 15,184 -- 28,809
--------- -------- --------- --------- ---------
Total current assets ..................... 156,892 59,807 22,811 -- 239,510
Investments in subsidiaries .............. -- -- (24,064) $ 24,064 --
Net property, plant and equipment ........ 34,318 15,471 424 50,213
Goodwill ................................. 62,868 15,074 -- -- 77,942
Other intangible assets .................. 1,359 -- -- -- 1,359
Other assets ............................. 11,006 2,091 40,155 (7,023) 46,229
--------- -------- --------- --------- ---------
Total assets ............................. $ 266,443 $ 92,443 $ 39,326 $ 17,041 $ 415,253
========= ======== ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes ....................... -- $ 31,632 -- -- $ 31,632
Current portion of long-term debt ...... $ 1,302 119 -- -- 1,421
Accounts and income taxes payable ...... 20,684 42,008 $ 2,329 -- 65,021
Accrued expenses ....................... 31,669 9,046 7,431 -- 48,146
--------- -------- --------- --------- ---------
Total current liabilities ................ 53,655 82,805 9,760 -- 146,220
Long-term debt ........................... 157,345 1,459 -- 158,804
Other long-term liabilities .............. 1,048 11,868 31,157 $ (7,023) 37,050
Net due to (from) affiliates ............. 71,270 3,500 (74,770) -- --
Stockholders' equity:
Preferred Stock ........................ -- -- 19 -- 19
Common and Class B Stock ............... 5 -- 390 (5) 390
Additional paid-in capital ............. 20,292 25,542 109,038 (45,834) 109,038
Retained earnings (deficit) ........ (36,265) (31,937) 5,209 68,202 5,209
Deferred compensation and treasury stock -- -- (39,780) -- (39,780)
Accumulated other comprehensive loss ... (907) (794) (1,697) 1,701 (1,697)
--------- -------- --------- --------- ---------
Total stockholders' equity ............... (16,875) (7,189) 73,179 24,064 73,179
--------- -------- --------- --------- ---------
Total liabilities and stockholders' equity $ 266,443 $ 92,443 $ 39,326 $ 17,041 $ 415,253
========= ======== ========= ========= =========
16
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2003
--------------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
--------- --------- --------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents ................ $ 13,657 $ 8,386 -- -- $ 22,043
Net accounts receivable .................. 18,646 11,072 -- -- 29,718
Net inventories .......................... 111,587 33,899 -- -- 145,486
Assets held for sale ..................... 8,249 315 -- -- 8,564
Other current assets ..................... 2,864 23,266 $ 9,874 -- 36,004
--------- --------- -------- -------- ---------
Total current assets ....................... 155,003 76,938 9,874 -- 241,815
Investments in subsidiaries ................ -- -- (11,047) $ 11,047 --
Net property, plant and equipment .......... 38,911 15,160 591 -- 54,662
Goodwill ................................... 62,870 15,760 -- -- 78,630
Other intangible assets .................... 1,685 -- -- -- 1,685
Other assets ............................... 8,035 624 37,820 (7,023) 39,456
--------- --------- -------- -------- ---------
Total assets ............................... $ 266,504 $ 108,482 $ 37,238 $ 4,024 $ 416,248
========= ========= ======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes ......................... -- $ 30,446 -- -- $ 30,446
Current portion of long-term debt ........ $ 1,446 1,331 $ 2 -- 2,779
Accounts and income taxes payable ........ 27,983 57,084 1,246 -- 86,313
Accrued expenses ......................... 21,497 9,492 8,043 -- 39,032
--------- --------- -------- -------- ---------
Total current liabilities .................. 50,926 98,353 9,291 -- 158,570
Long-term debt ............................. 157,027 1,938 -- -- 158,965
Other long-term liabilities ................ 630 11,630 30,526 $ (7,023) 35,763
Net due to (from) affiliates ............... 62,829 2,700 (65,529) -- --
Stockholders' equity:
Preferred Stock .......................... -- -- 7 -- 7
Common and Class B Stock ................. 5 -- 389 (5) 389
Additional paid-in capital ............... 20,292 25,542 80,680 (45,834) 80,680
Retained earnings (deficit) .............. (24,292) (30,840) 23,603 55,132 23,603
Deferred compensation and treasury stock.. -- -- (39,977) -- (39,977)
Accumulated other comprehensive loss ..... (913) (841) (1,752) 1,754 (1,752)
--------- --------- -------- -------- ---------
Total stockholders' equity ................. (4,908) (6,139) 62,950 11,047 62,950
--------- --------- -------- -------- ---------
Total liabilities and stockholders' equity.. $ 266,504 $ 108,482 $ 37,238 $ 4,024 $ 416,248
========= ========= ======== ======== =========
17
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF SEPTEMBER 30, 2003
--------------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
--------- --------- --------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents ................ $ 23,538 $ 7,464 $ 13,198 -- $ 44,200
Net accounts receivable .................. 27,160 13,563 -- -- 40,723
Net inventories .......................... 72,394 25,499 -- -- 97,893
Assets held for sale ..................... 8,249 315 -- -- 8,564
Other current assets ..................... 2,130 18,044 8,243 -- 28,417
--------- --------- -------- -------- ---------
Total current assets ....................... 133,471 64,885 21,441 -- 219,797
Investments in subsidiaries ................ -- -- 13,935 $(13,935) --
Net property, plant and equipment .......... 40,100 14,737 627 -- 55,464
Goodwill ................................... 62,870 15,760 -- -- 78,630
Other intangible assets .................... 1,441 -- -- -- 1,441
Other assets ............................... 8,373 5,740 37,210 (7,023) 44,300
--------- --------- -------- -------- ---------
Total assets ............................... $ 246,255 $ 101,122 $ 73,213 $(20,958) $ 399,632
========= ========= ======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes ......................... -- $ 12,400 -- -- $ 12,400
Current portion of long-term debt ........ $ 3,289 1,547 $ 16 -- 4,852
Accounts and income taxes payable ........ 22,053 27,950 5,034 -- 55,037
Accrued expenses ......................... 42,449 8,323 7,690 -- 58,462
--------- --------- -------- -------- ---------
Total current liabilities .................. 67,791 50,220 12,740 -- 130,751
Long-term debt ............................. 156,791 2,462 -- -- 159,253
Other long-term liabilities ................ 999 11,761 29,701 $ (7,023) 35,438
Net due to (from) affiliates ............... (925) 44,343 (43,418) -- --
Stockholders' equity:
Preferred Stock .......................... -- -- 7 -- 7
Common and Class B Stock ................. 5 -- 383 (5) 383
Additional paid-in capital ............... 20,292 25,542 77,044 (45,834) 77,044
Retained earnings (deficit) .............. 1,470 (31,444) 37,306 29,974 37,306
Deferred compensation and treasury stock.. -- -- (38,630) -- (38,630)
Accumulated other comprehensive loss ..... (168) (1,762) (1,920) 1,930 (1,920)
--------- --------- -------- -------- ---------
Total stockholders' equity ................. 21,599 (7,664) 74,190 (13,935) 74,190
--------- --------- -------- -------- ---------
Total liabilities and stockholders' equity.. $ 246,255 $ 101,122 $ 73,213 $(20,958) $ 399,632
========= ========= ======== ======== =========
18
FEDDERS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
-----------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
--------- ------- --------- ----------- -----------
Net cash (used in) provided by operating activities .. $ (1,703) $ 2,145 $ (5,388) -- $ (4,946)
--------- ------- -------- --- ---------
Net additions to property, plant and equipment ....... (1,542) (2,547) (50) (4,139)
Disposal of property, plant and equipment ............ 1,243 308 -- 1,551
Investment in joint venture .......................... -- (932) -- -- (932)
--------- ------- -------- --- ---------
Net cash used in investing activities ................ (299) (3,171) (50) -- (3,520)
--------- ------- -------- --- ---------
Proceeds from short-term notes ....................... -- 1,186 1,186
Net repayments of long-term debt ..................... (1,359) (1,820) (3,179)
Proceeds from stock options exercised ................ -- -- 110 110
Cash dividends ....................................... -- -- (5,769) (5,769)
Net proceeds from issuance of 9 7/8% Senior Notes .... 150,245 -- -- 150,245
Repayments of 9 3/8% Senior Subordinated Notes ....... (150,000) -- -- (150,000)
Call premium and financing costs ..................... (10,356) -- -- (10,356)
Costs of stock offerings ............................. -- -- (224) (224)
Proceeds from stock rights offering .................. -- -- 28,323 28,323
Change in net due to (from) affiliate ................ 8,262 1,112 (9,374) -- --
--------- ------- -------- --- ---------
Net cash (used in) provided by financing activities .. (3,208) 478 13,066 -- 10,336
--------- ------- -------- --- ---------
Net (decrease) increase in cash and cash equivalents (5,210) (548) 7,628 1,870
Cash and cash equivalents at beginning of period ..... 13,657 8,386 -- -- 22,043
--------- ------- -------- --- ---------
Cash and cash equivalents at end of period ........... $ 8,447 $ 7,838 $ 7,628 -- $ 23,913
========= ======= ======== === =========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
-----------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- -------- --------- ----------- -----------
Net cash provided by (used in) operating activities... $ 29,726 $ (2,667) $ 11,599 -- $ 38,658
-------- -------- -------- --- --------
Net additions to property, plant and equipment ....... (2,113) (2,495) (144) (4,752)
Disposal of property, plant and equipment ............ 539 -- -- 539
Investment in joint venture .......................... -- (1,333) -- -- (1,333)
-------- -------- -------- --- --------
Net cash used in investing activities ................ (1,574) (3,828) (144) -- (5,546)
-------- -------- -------- --- --------
Repayments of short-term notes ....................... -- (11,904) -- (11,904)
(Repayments of) proceeds from long-term debt ......... (957) (934) (1,891)
Proceeds from stock options exercised ................ -- -- 314 314
Proceeds from stock rights exercised ................. -- -- 6,167 6,167
Cash dividends ....................................... -- -- (3,294) (3,294)
Preferred stock exchange offer ....................... -- -- (1,123) (1,123)
Change in net due to (from) affiliate ................ (21,083) 21,404 (321) --
------- -------- -------- --------
Net cash (used in) provided by financing activities... (22,040) 8,566 1,743 -- (11,731)
------- -------- -------- --- --------
Net increase (decrease) in cash and cash equivalents.. 6,112 2,071 13,198 -- 21,381
Cash and cash equivalents at beginning of period ..... 17,426 5,393 -- -- 22,819
-------- -------- -------- --- --------
Cash and cash equivalents at end of period ........... $ 23,538 $ 7,464 $ 13,198 -- $ 44,200
======== ======== ======== === ========
19
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 $2.1 million and $2.6 million for the three months
ended September 30, 2004 and 2003, respectively. Such charges to FNA
amounted to approximately $12.5 million and $13.9 million for the
nine months ended September 30, 2004 and 2003, respectively.
b) FNA's interest expense reflects actual interest charges on the 9
7/8% Senior Notes, 9 3/8% Senior Subordinated Notes, retired in
April 2004, State of Illinois Promissory Note, Trion Industrial
Revenue Bond, capital lease obligations and a revolving line of
credit.
c) FNA's depreciation and amortization for the three months ended
September 30, 2004 and 2003 amounted to approximately $1.5 million
and $1.3 million, respectively. Capital expenditures of FNA amounted
to $0.3 million and nil in the three months ended September 30, 2004
and 2003, respectively. FNA's depreciation and amortization for the
nine months ended September 30, 2004 and 2003 amounted to
approximately $4.7 million and $4.9 million, respectively. Capital
expenditures of FNA amounted to $1.5 million and $2.2 million in the
nine months ended September 30, 2004 and 2003, 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.
g) On November 1, 2004, FNA completed the acquisition of a wholly
owned air conditioning manufacturing operation in Orlando, Florida,
Fedders Addison Company, Inc.. This company manufactures and markets
a broad line of air conditioning products primarily serving
commercial and institutional markets.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following is management's discussion and analysis of certain
significant factors which affected the Company's financial position and
operating results during the periods included in the accompanying consolidated
financial statements.
Fedders Corporation is a leading global producer and marketer of air
treatment products for the residential, commercial and industrial markets. Our
products include room air conditioners, central air conditioners, dehumidifiers,
humidifiers, air cleaners, and thermal technology products. We have two
reportable industry segments: Heating, Ventilation, Air Conditioning and
Refrigeration ("HVACR") and Engineered Products. Both segments operate and sell
products in the global air treatment market. Over the past five years, we have
re-positioned ourselves through globalization and expansion of our product
offerings from serving primarily the $1.3 billion North American market for
window air conditioners to serving the $37.0 billion global air treatment
market. Major markets we are targeting include the global market for central air
conditioning and high growth markets in Asia.
Due to the current seasonality of our business, we normally report a loss
during the second half of the calendar year, with a majority of shipments and
revenue being derived during the first six months of the calendar year.
The following table presents our results of operations for the periods
indicated. Results for the three-month and nine-month periods ended September
30, 2004 and 2003 are unaudited. On August 26, 2003, the Board of Directors
changed the Company's fiscal year-end from August 31 to December 31.
RESULTS OF OPERATIONS RESULTS OF OPERATIONS
AS PERCENT OF AS PERCENT OF
NET SALES NET SALES
-------------------- --------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
2004 2003 2004 2003
---- ---- ---- ----
Gross profit .............................. 10.9% 19.6% 15.9% 22.5%
Selling, general and administrative expense 26.0% 20.7% 15.0% 12.8%
Operating (loss) income ................... (15.1)% (1.0)% 1.1% 9.8%
Net interest expense ...................... 6.9% 5.4% 4.1% 3.6%
Pre-tax (loss) income ..................... (20.9)% (7.1)% (5.1)% 6.4%
21
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 VERSUS THE
THREE MONTHS ENDED SEPTEMBER 30, 2003.
Net sales in the three-month period ended September 30, 2004 decreased by
12.1% to $69.2 million, compared to $78.7 million in the prior-year period.
Sales in the HVACR reporting segment decreased by 15.3% to $59.6 million from
$70.4 million in the prior-year period. Sales in the HVACR segment declined as a
result of lower sales of room air conditioners caused by much cooler than normal
weather conditions in key North America markets which resulted in a very poor
retail sales environment which not only prevented in-season sales re-orders, but
also resulted in customer returns. The financial statements for the three months
and six months ended June 30, 2004 have been restated to reflect the return in
the third quarter of products sold in the second quarter to certain customers,
the effect of which, the Company has determined should be reflected in the
second quarter. The returns were the result of cool weather in key markets in
the north America. For the affects of this restatement, see footnote 1 to the
financial statements. Lower prices also contributed to lower sales. Partially
offsetting the lack of in-season sales of room air conditioners in North America
was continued growth in sales of residential central air conditioner products
globally and sales of all air conditioner products in Asia. Sales in the
Engineered Products reporting segment increased by 15.7% to $9.6 million from
$8.3 million in the prior-year period due primarily to increased sales of
industrial air cleaners in Asia and North America.
Gross profit in the period of $7.6 million, or 10.9% of net sales,
declined from $15.5 million, or 19.6% of net sales, in the prior-year period.
Gross profit and margin percentage in the quarter were adversely affected by
higher component and raw material costs due to increases in commodity prices and
by unabsorbed manufacturing costs associated with the transfer of production
from several U.S. factories to China. Gross profit was also affected during the
period as the Company recorded $0.8 million related to inventory shrinkage and
$0.7 million of manufacturing variances at its joint venture in Nanjing (see
Item 4). Price increases have been announced to offset the increased material
costs.
Selling, general and administrative ("SG&A") expenses in the three months
ended September 30, 2004 were $18.0 million, or 26.0% of net sales, compared to
$16.3 million, or 20.7% of net sales, in the prior-year period. SG&A expenses
were higher than prior year as a result of higher selling expenses due to
increased selling activity globally and increased warehousing costs to support
higher inventory levels resulting from cooler than normal weather conditions in
North America.
Operating loss in the three months ended September 30, 2004 was $10.4
million, or 15.1% of net sales, compared to operating loss of $0.8 million, or
1.0% of net sales, in the prior-year period as a result of the factors
discussed above.
Net interest expense in the three months ended September 30, 2004 was $4.8
million, or 6.9% of net sales, compared to $4.2 million, or 5.4% of net sales,
in the prior-year period and consisted primarily of interest expense on the
Company's long-term debt and interest on short- term working capital loans in
Asia. Net interest expense was higher than the prior year due primarily to
higher short-term borrowings during the period to finance higher inventory
levels.
Net loss in the three months ended September 30, 2004 applicable to common
stockholders was $10.7 million, or 35 cents per diluted common share, compared
to net loss in the three months ended September 30, 2003 applicable to common
stockholders of $4.0 million, or 13 cents per diluted common share.
22
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 VERSUS THE
NINE MONTHS ENDED SEPTEMBER 30, 2003.
Net sales in the nine-month period ended September 30, 2004 decreased by
5.7% to $366.6 million, compared to $388.8 million in the prior-year period.
Sales in the HVACR reporting segment decreased by 7.8% to $335.5 million from
$363.9 million in the prior-year period. Sales in the HVACR segment decreased as
a result of the cool summer weather in North America, which depressed sales of
room air conditioners. This was partially offset by growth in sales of central
air conditioners globally, and sales of all HVACR products in Asia. Sales in the
Engineered Products reporting segment increased by 24.9% to $31.1 million from
$24.9 million in the prior-year period due to growth in industrial air cleaners
globally. Net sales for the nine months ended September 30, 2004 reflect an
adjustment to reclassify $3.9 million of accrued warranty expenses from Cost of
Sales to Net Sales, consistent with the Company's accounting practices. The
adjustment had no effect on gross profit or net income.
The gross profit in the period was $58.2 million, or 15.9% of net sales,
compared to $87.5 million, or 22.5% of net sales, in the prior-year period.
Gross profit and margin percentage were reduced by transition and start-up costs
related to the final stages of transferring production of high volume products
from the U.S. to China, increases in material and component costs, and ocean
freight costs. Gross profit was also affected during the period as the Company
recorded $0.8 million related to inventory shrinkage and $0.7 million of
manufacturing variances at its joint venture in Nanjing (see Item 4).
Selling, general and administrative ("SG&A") expenses in the nine months
ended September 30, 2004 were $55.0 million, or 15.0% of net sales, compared to
$49.6 million, or 12.8% of net sales, in the prior-year period. SG&A expenses
were higher than prior year as a result of higher selling expenses due to
increased sales activity globally and increased warehousing costs to support
higher inventory caused in part by increased requirements and in the third
quarter by cool summer weather in North America.
The operating income in the nine months ended September 30, 2004 was $4.0
million, or 1.1% of net sales, compared to an operating income of $38.0 million,
or 9.8% of net sales, in the prior-year period.
Net interest expense in the nine months ended September 30, 2004 was $14.9
million, or 4.1% of net sales, compared to $14.1 million, or 3.6% of net sales,
in the prior-year period and consisted of interest expense on the Company's
long-term debt and interest on short-term working capital loans in Asia and on
its revolving credit facility in the U.S. Net interest expense was slightly
higher than prior year due to higher short-term borrowings during the period.
A loss on debt extinguishment of $8.1 million was recorded during the
period to account for the early retirement of the Company's ten-year notes and
the issuance of new ten-year notes due March 2014. The charge consisted of $4.9
million of call premiums required to be paid to note holders and $3.2 million
for the write-off of unamortized debt discount. A $0.7 million credit due to a
revision in management's estimates of the required restructuring reserves for
ongoing projects associated with the 2001 restructuring was recorded in the
period.
Net loss in the nine months ended September 30, 2004 applicable to common
stockholders, which included the loss on debt extinguishment, was $15.6 million,
or 51 cents per diluted common share, compared to net income in the nine months
ended September 30, 2003 applicable to common stockholders of $16.2 million, or
54 cents per diluted common share.
23
LIQUIDITY AND CAPITAL RESOURCES
Working capital requirements of the Company are seasonal, with cash
balances typically peaking in the third quarter of each calendar year and the
greatest utilization of its lines of credit occurring early in the calendar
year. Cash on hand amounted to $23.9 million at September 30, 2004 compared to
$44.2 million a year earlier due to reduced cash flow from operations and
increased inventory levels. Short-term borrowings under the Company's working
capital credit facilities amounted to $31.6 million at September 30, 2004
compared to $12.4 million a year earlier and consisted of bank borrowings in
China. There were no borrowings on the Company's $100 million revolving credit
facility at the end of September of either period.
Net cash used in operations for the nine months ended September 30, 2004
amounted to $5.0 million, compared to net cash provided by operations of $38.7
million in the prior period. Seasonal increases in accounts receivable and lower
accounts payable, as the factories were producing at a lower rate as a result of
high inventory levels were the primary uses of cash. Net inventories at
September 30, 2004 were $128.6 million compared to $145.5 million at December
31, 2003 and $97.9 million at September 30, 2003. Inventories were higher
compared to the previous year due to cooler than normal summer weather
conditions in key North America markets and to inventory required to support the
expansion of sales of central air conditioners globally and sales of all
products in Asian markets.
Net cash used in investing activities was $3.5 million versus $5.5 million
used in investing activities in the prior-year period. The use during the
nine-month period ended September 30, 2004 consisted of capital expenditures of
$4.1 million, primarily to support the expansion of production capacity in Asia
offset by $1.6 million of proceeds from the sale of building and equipment.
Net cash provided by financing activities during the nine months ended
September 30, 2004 was $10.3 million and consisted primarily of $1.2 million in
short-term borrowings to support production in Asia, $28.3 million of proceeds
from stock rights exercised offset in part by $5.8 million of cash dividends,
$10.4 million of call premium and financing charges, and the repayment of $3.2
million of long-term debt. Net cash used in financing activities during the
prior-year period was $11.7 million, consisting primarily of $3.3 million of
cash dividends, the repayment of $11.9 million of short-term notes, and the
repayment of $1.9 million of long-term debt offset by $6.2 million of proceeds
from stock rights exercised.
The Company declared dividends of 9 cents on each share of outstanding
Common and Class B Stock and 161.4 cents on each share of outstanding Preferred
Stock in the nine months ended September 30, 2004 and 2003.
The following summarizes Fedders' contractual cash obligations and
commercial commitments at September 30, 2004, and the effect such obligations
are expected to have on liquidity and cash flows in future periods.
PAYMENTS DUE BY PERIOD LESS THAN
--------------------------------
AFTER
CONTRACTUAL OBLIGATION TOTAL 1 YEAR 2-3 YEARS 4-5 YEARS 5 YEARS
---------------------- -------- -------- --------- --------- --------
(AMOUNTS IN THOUSANDS)
Long-term debt, including current maturities .... $156,869 $ 949 $ 1,435 $ 765 $153,720
Capital lease obligations ....................... 3,355 472 1,084 866 933
Operating leases and contractual minimum payments 21,511 4,770 8,116 6,287 2,338
Short-term notes ................................ 31,632 31,632 -- -- --
-------- -------- -------- -------- --------
Total contractual cash obligations .............. $213,367 $ 37,823 $ 10,635 $ 7,918 $156,991
======== ======== ======== ======== ========
24
From time to time, subsidiaries of the Company may guarantee the debt of
certain unconsolidated joint ventures, up to a maximum of the Company's
ownership percentage in the unconsolidated joint venture. The Company currently
holds no collateral for such guarantees, and has not recorded corresponding
obligations. The Company's subsidiaries would be obligated to perform their
obligations under such guarantees in the event the unconsolidated joint ventures
fail to pay the principal and interest on the loans or fail to comply with the
terms of the loan agreement.
PAYMENTS DUE BY PERIOD LESS THAN
--------------------------------
AFTER
OTHER COMMERCIAL COMMITMENTS TOTAL 1 YEAR 2-3 YEARS 4-5 YEARS 5 YEARS
---------------------------- -------- -------- --------- --------- --------
(AMOUNTS IN THOUSANDS)
Guarantee of debt................................ $ 2,249 $ 1,424 $ 825 -- --
-------- -------- -------- ----- -----
Total commercial commitments..................... $ 2,249 $ 1,424 $ 825 -- --
-------- -------- -------- ----- -----
Subsequent to the end of the third quarter, on November 1, 2004, the
Company purchased the assets of Addison Products Company, a division of Heat
Controller, Inc., located in Orlando, Florida. The company, which is now Fedders
Addison Company,Inc., manufactures and markets a broad line of air conditioning
products primarily serving commercial and institutional markets, including
supermarkets, schools, hospitals and shopping centers. Addison's sales for the
twelve-month period ended September 30, 2004 were approximately $21.0 million.
The purchase price was $8.3 million in cash, no goodwill resulted from the
transaction.
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.
25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
ITEM 4. CONTROLS AND PROCEDURES
(a) During the three months ended September 30, 2004, the Company
identified certain internal control weaknesses in Fedders Suning
Nanjing Co,. Ltd., a joint venture in China. The Company recorded
$0.8 million related to inventory shrinkage and $0.7 million of
manufacturing variances for the three months and nine months ended
September 30, 2004. The Company is taking immediate corrective
actions, including:
- Completing implementation of the Company's integrated ERP system
to replace the manual system at the joint venture.
- Development of written procedures for warehousing and accounts
payable staff.
- Increased physical security inside the warehouse and at plant
entry/exit points.
- Clearly defining the policy on segregation of purchasing and
accounts payable responsibilities.
- Implementing a weekly cycle count process.
(b) Subsequent to the issuance of its unaudited consolidated
financial statements for the quarter ended June 30, 2004, the
Company determined that a provision for returns granted to certain
customers during the third quarter should have been reflected in the
second quarter when the sales were recognized. At the time the
Company recorded the sales, the Company did not considered customer
buying patterns and programs, historical experience, and levels of
inventory at those customers. As a result, the Company recognized
approximately $17.9 million of sales returns and reduced related
costs of sales by $12.4 million. The accompanying statements of
operations and comprehensive income (loss) for the nine months ended
September 30, 2004 give effect to this adjustment. An amendment to
the Company's Form 10-Q for the quarter ended June 30, 2004 will be
filed as soon as practicable, to reflect this restatement in the
three and six months ended June 30, 2004, unaudited consolidated
financial statements. This represents a material weakness.
The Company has remediated this weakness by restating its second quarter
financial statements and modifying its revenue recognition policy.
The Company is currently undergoing a comprehensive effort to ensure
compliance with the regulations under Section 404 of the Sarbanes-Oxley Act that
take effect for the Company's fiscal year ending December 31, 2004. This effort
includes internal control documentation, testing, and review under the direction
of senior management.
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 the end of the
period covered by 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. During the nine-month period ended
September 30, 2004, there have not been any significant changes in the Company's
internal controls over financial reporting or in other factors that have
materially affected or are reasonably likely to materially affect the Company's
internal control over financial reporting, except as reported above with respect
to a joint venture in China.
24
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
31.1 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by this
report..
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/ ROBERT L. LAURENT JR.
- --------------------------------------
Executive Vice President,
Finance and Acquisitions and
Chief Financial Officer
Signing both in his capacity as Executive Vice President, Finance and
Acquisitions and Chief Financial Officer and on behalf of the registrant.
November 15, 2004
26