CONTACT:
Robert Laurent, Jr.
Fedders Corporation
(908) 604-8686
investorrelations@fedders.com
LIBERTY CORNER, New Jersey -- March 31, 2006 -- Fedders Corporation (NYSE: FJC), a leading global manufacturer of air treatment products for the residential, commercial and industrial markets, today announced its results for the year ended December 31, 2005. Results were affected in both 2005 and 2004 by unfavorable weather in key North American markets during the summer of 2004 that reduced room air conditioner sales and left excess inventory in the distribution system. The impact of these higher inventory levels sharply reduced customer orders and factory production for 2005. During 2005, hot weather depleted most inventories at retail distribution channels, creating demand for room air conditioners entering 2006. During 2005, the company sharply lowered its inventory levels by 43%, or $56.3 million.
The company implemented an extensive restructuring plan during 2005 to significantly reduce costs throughout the company, to enhance its competitive position in the markets in which it participates, and to return the company to profitability. The restructuring involved ceasing manufacturing and refurbishing of room air conditioners in Effingham, Illinois; consolidating commercial air conditioner manufacturing from our Longview, Texas factory into our Orlando, Florida factory; consolidating air filtration manufacturing from our Albuquerque, New Mexico factory into our Sanford, North Carolina and Suzhou, China factories; consolidating room air conditioner manufacturing in China from three factories to two factories; and during 2006, consolidating all domestic warehousing from company and third party warehouses into our Effingham, Illinois facility.
Fiscal 2005 Results
Sales for the year ended December 31, 2005 of $297.7 million decreased 25.5% from sales of $399.5 million for the year ended December 31, 2004. Net sales in the HVACR segment of $267.5 million in 2005 decreased 28.1% from $372.0 million in 2004 due primarily to lower sales of room air conditioners due to increased room air conditioner inventory levels for reasons discussed above. This sales decrease was partly offset by a $40.3 million increase in sales of commercial air conditioners resulting from the acquisitions of Addison Products in November 2004 and Islandaire, Inc. in March 2005. Sales in the Engineered Products segment increased by 10.0% over the prior year, due primarily to industrial air cleaning projects in Asia.
Gross profit in the period declined to $39.7 million, or 13.3% of net sales, compared with $55.5 million, or 13.9% of net sales, in the prior-year period. Gross profit in the HVACR segment of $32.0 million, or 12.0% of net sales in 2005, decreased from $46.4 million, or 12.5% of net sales, in 2004. The decline in gross profit resulted from lower sales volume associated with North American room air conditioner inventory in distribution channels. This lower volume, and the company's decision to discontinue sales of room air conditioners in China, resulted in lower production levels and therefore lower factory absorption in the company's China air conditioner factories. As discussed, as part of the restructuring plan, the company consolidated its Chinese air conditioner factories to more efficiently utilize capacity and absorb costs. In addition, unabsorbed factory overhead at the company's Longview, Texas factory affected gross profit and gross margin as a percentage of sales. Longview air conditioner manufacturing is now consolidated into the company's Orlando, Florida facility. Also affecting HVACR gross margins in 2005 were increased raw material costs of $3.2 million that were not passed along as price increases and costs of $2.1 million related to ceasing air conditioner refurbishment in Effingham, Illinois. Gross profit in the Engineered Products segment of $7.7 million, or 25.4% of net sales in 2005, decreased $1.4 million from 2004, as a result of unabsorbed overhead at the company's Albuquerque, New Mexico factory, as production was transferred to Sanford, North Carolina and Suzhou, China. Throughout the company, unabsorbed overhead at operations that have been consolidated into other company facilities amounted to $3.8 million. Unabsorbed overhead of $2.2 million, at the factories into which manufacturing was transferred will significantly improve.
Selling, general and administrative expenses for the year ended December 31, 2005 were $71.0 million, or 23.9% of net sales, compared with $71.8 million, or 18.0% of net sales, in 2004. SG&A was higher as a percentage of sales than the prior year as a result of $8.9 million in expenses of acquired operations, $3.1 million in increased professional fees related to audit, SOX 404 consulting, and obtaining debt waivers. The amount of these increases was more than offset by reduced selling, warehousing, and research and development expenses. Cost reductions implemented in the restructuring plan should significantly reduce SG&A expenses in the future.
During 2005, in connection with the implementation of the restructuring plan, the company recognized $22.7 million in impairment and restructuring charges. The impairment charges include non-cash charges of $19.2 million for writing down fixed and other assets to estimated net realizable value, as these assets will no longer be utilized, with production and warehousing transferred to other facilities.
Operating loss from continuing operations for the year ended December 31, 2005 was $52.8 million compared with a loss of $15.5 million in 2004. The increased loss reflects lower sales and production of room air conditioners, which impacted gross profit and the restructuring charges.
The company recorded a loss on debt extinguishment of $8.1 million during the year ended December 31, 2004, in connection with retiring ten-year notes and issuing new ten-year notes due March 2014. The charge consisted of $4.9 million of call premiums that were required to be paid to note holders and $3.2 million for the write-off of the unamortized debt discount and deferred financing costs.
Income from discontinued operations for the year ended December 31, 2005 includes a gain on the sale of Melcor Corporation, a former subsidiary, of $11.4 million and income related to Melcor operations of $2.1 million, compared with income from discontinued operations in 2004 of $1.1 million.
Net loss applicable to common stockholders in 2005 was $66.5 million, or $2.17 loss per diluted common share. Net loss applicable to common stockholders in the year ended December 31, 2004 was $30.1 million, or $0.99 loss per diluted common share.
Fiscal Fourth Quarter Results
Sales in the 2005 fourth quarter of $39.0 million decreased 9.4% from $43.0 million in the prior-year quarter primarily as a result of lower sales of dehumidifiers and sales accruals for chargebacks related to a large customer, offset in part by higher sales of commercial HVAC products.
Gross loss in the 2005 fourth quarter was $4.9 million or 12.7% of net sales, compared to gross profit of $0.8 million, or 1.8% of net sales, in the prior-year period. Gross profit was affected by lower sales volume and sales accruals for chargebacks related to the decision not to continue to sell products to a large customer, costs associated with the implementation of the restructuring plan, unabsorbed factory overhead at Longview, Texas, Albuquerque, New Mexico, and Nanjing, China, as production was transferred to other locations, and unabsorbed overhead as the company continued to reduce inventories by $9.7 million during the quarter, from $84.0 million to $74.3 million.
SG&A expenses declined 17.1% to $15.7 million in the fourth quarter of 2005, compared with $18.9 million in the prior-year quarter. SG&A expenses declined, as the company began to benefit from its cost savings measures during the quarter.
The loss from continuing operations of $46.0 million included $18.7 million of impairment and restructuring charges, compared with a loss from continuing operations in the fourth quarter of 2004 of $21.9 million. There was a gain on the sale of Melcor during the 2005 quarter of $11.4 million.
Net loss applicable to common stockholders in the fourth quarter of 2005 was $35.4 million, or $1.16 loss per diluted common share. Net loss applicable to common stockholders in the fourth quarter of 2004, was $14.5 million, or $0.48 loss per diluted common share.
FEDDERS CORPORATION
RESULTS FOR THE FOURTH QUARTER AND FISCAL YEARS ENDED
DECEMBER 31, 2005 AND 2004
(amounts in thousands, except per share data)
FISCAL YEAR 2005 2004
Net sales $297,716 $399,485
Costs and expenses:
Cost of sales 258,040 344,035
Selling, general and administrative expense 71,049 71,815
Restructuring and other (income)/expense 21,396 (842)
Total costs and expenses 350,485 415,008
Operating loss (52,769) (15,523)
Interest expense, net 22,298 20,066
Loss on debt extinguishment -- 8,075
Partners' net interest in joint venture results 637 (141)
Other (income)/expense 1,013 (1,910)
Net loss before income taxes (75,443) (41,895)
Income tax expense/(benefit) 114 (14,694)
Net loss from continuing operations (75,557) (27,201)
Income from discontinued operations 13,476 1,094
Net loss $(62,081) $(26,107)
Preferred stock dividends 4,436 4,020
Net loss applicable to common stockholders $(66,517) $(30,127)
Basic and diluted net loss per common share $(2.17) $(0.99)
Basic and diluted weighted average shares
outstanding 30,629 30,466
FEDDERS CORPORATION
RESULTS FOR THE FOURTH QUARTER AND FISCAL YEARS ENDED
DECEMBER 31, 2005 AND 2004
(amounts in thousands, except per share data)
FOURTH QUARTER 2005 2004
Net sales $38,976 $43,030
Costs and expenses:
Cost of sales 43,925 42,274
Selling, general and administrative expense 15,733 18,982
Restructuring expense (income) 18,664 (132)
Total costs and expenses 78,322 61,124
Operating loss (39,346) (18,094)
Interest expense, net 5,760 5,173
Partners' net interest in joint venture results (207) (29)
Other (income)/expense (658) (1,427)
Net loss before income taxes (45,971) (21,869)
Income tax (benefit) (149) (8,141)
Net loss from continuing operations (45,822) (13,728)
Income from discontinued operations 11,582 246
Net loss $(34,240) $(13,482)
Preferred stock dividend 1,142 1,005
Net loss applicable to common stockholders $(35,382) $(14,487)
Basic and diluted net loss per common share $(1.16) $(0.48)
Basic and diluted weighted average shares
outstanding 30,688 30,466
FEDDERS CORPORATION
Selected balance sheet items as of
December 31, 2005 and 2004 2005 2004
Cash and cash equivalents $14,417 $22,783
Accounts receivable 42,157 26,933
Inventories 74,313 130,577
Accounts payable 43,961 47,955
Short-term notes 56,740 57,571
Long-term debt, including current portion 160,583 161,808
This news release includes forward-looking statements that 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 developments occurring after release of announcement. Visit the Fedders investor information website at http://www.fedders.com to access additional information on Fedders.
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