Earnings Releases
Fedders Reports Results for 2006;
Operating Loss Excluding Non-Recurring Items
Narrows from Prior Year
CONTACT:
Robert Laurent, Jr.
Fedders Corporation
(908) 604-8686
investorrelations@fedders.com
LIBERTY CORNER, New Jersey -- March 30, 2007 -- Fedders Corporation (OTC: FJCC), a global manufacturer of air treatment products for the residential, commercial and industrial markets today announced its results for the year ended December 31, 2006.
Net sales for the year ended December 31, 2006 of $279.3 million, decreased by 6.2% from sales of $297.7 million for the year ended December 31, 2005. Net sales in the HVAC reporting segment of $250.7 million in 2006 decreased by 6.3% from $267.5 million in 2005 due primarily to lower sales of room air conditioners as a result of planned reductions in sales to The Home Depot. Net sales for the year were also impacted by an 18% industry-wide decline in unit shipments of residential central air conditioners as inventories corrected to more normalized levels following the transition from 10 SEER to 13 SEER systems. The sales decrease was partly offset by increased sales to new customers and growth in commercial HVAC sales. Sales in the Engineered Products segment of $28.6 million decreased by 5.4% from $30.2 million in 2005, due primarily to lower sales of industrial air cleaning products in Asia.
Gross profit in 2006 amounted to $36.9 million, or 13.2% of net sales, compared with $39.7 million, or 13.3% of net sales in 2005. Gross profit in the HVAC segment of $30.1 million, or 12% of net sales in 2006, decreased from $32.0 million, or 12% of net sales in 2005. The decrease in gross profit resulted primarily from $10.5 million in increased costs of copper, aluminum and plastic, as well as components that use these materials that could not be passed along to big-box room air conditioner and dehumidifier customers in the form of price increases. Partly offsetting these costs were higher margins on air conditioner sales to new customers due to an improved product mix and increased profitability of commercial HVAC sales. Gross profit in the Engineered Products segment of $6.8 million, or 23.7% of net sales in 2006, decreased from $7.7 million, or 25.4% of net sales in 2005. Gross profit in the Engineered Products segment was also impacted by rising commodity costs. Price increases were implemented globally throughout 2006 to pass through the commodity cost increases to non-big-box room air conditioner, unitary HVAC and Engineered Products customers.
Selling, general and administrative expenses (SG&A) were reduced to $59.2 million, or 21.2% of net sales in 2006, compared with SG&A of $71.0 million, or 23.9% of net sales, in 2005. The decline in SG&A resulted primarily from a 42% reduction in shipping and warehousing costs and a 25% reduction in research and development costs resulting from the consolidation of most R&D activities into the company's new facility in China.
During 2006, the company recognized $3.7 million in restructuring charges primarily related to discontinuing room air conditioner sales to The Home Depot and Wal-Mart and discontinuing the manufacture and sale of dehumidifiers due to low profitability. The company recorded a goodwill impairment charge of $54.0 million, also resulting from its decision to no longer focus on the low profit, big-box segment of the market.
The 2006 operating loss of $22.3 million before restructuring and non-cash goodwill impairment charges, narrowed from $31.4 million in 2005. Including restructuring and non-cash goodwill impairment charges, the 2006 operating loss amounted to $80.0 million, compared with $52.8 million in 2005.
In 2006, the company generated positive operating cash flow of $5.3 million compared to negative cash flow in 2005.
Inventory management improved in 2006 with inventories at year-end decreasing to $41.5 million compared with $74.3 million at 2005 year-end.
At December 31, 2006, the order backlog was $36.8 million. Excluding the backlog at the end of 2005 for Wal-Mart, The Home Depot and dehumidifiers, the backlog increased 31.4% or $8.8 million.
The company sold non-core assets during the year, including its German HVAC distribution company and property in Maryland and Tennessee for $12.5 million.
The company recorded a full valuation allowance against deferred tax assets in 2006 which resulted in a $20.6 million non-cash charge in income tax expense.
In 2005, the company recorded non-recurring income from discontinued operations of $13.5 million.
Net loss applicable to common stockholders in 2006, excluding the non- recurring items was $50.4 million, or a $1.61 loss per diluted common share, compared with $57.3 million, or a $1.87 loss per diluted common share in the prior year. The reported net loss applicable to common stockholders in 2006 was $129.2 million, or a $4.12 loss per diluted common share, compared with $66.5 million, or a $2.17 loss per diluted common share in 2005.
Subsequent to fiscal 2006 year end, the company completed $90 million in new senior secured financing which will support continued growth of its global air treatment businesses. As a result, the company is no longer pursuing the sale of its Indoor Air Quality business.
Fourth Quarter 2006 Results
Sales in the 2006 fourth quarter of $32.8 million decreased from sales of $39.0 million in the prior year quarter primarily as a result of lower sales of room air conditioners and dehumidifiers to Wal-Mart and the industry-wide decline in central air conditioner unit shipments.
The operating loss before non-recurring items in the fourth quarter of 2006 amounted to $13.3 million compared with $22.2 million in the fourth quarter of 2005.
During the fourth quarter, the company sold non-core assets including its German HVAC distribution company and property in Maryland for $11.6 million.
The company recorded a goodwill impairment charge of $54.0 million in the fourth quarter, resulting from its decision to no longer focus on the low profit, big-box segment of the market.
The company recorded a full valuation allowance against deferred tax assets in 2006 which resulted in a $20.6 million non-cash charge to income tax expense recorded in the quarter.
In the fourth quarter of 2005, the Company had income from discontinued operations, including the sale of Melcor of $11.6 million.
Net loss applicable to common stockholders in the 2006 quarter, excluding non-recurring items was $20.4 million, or a $0.65 loss per diluted common share, compared with the loss of $28.5 million, or a $0.94 loss per diluted common share in 2005. The reported net loss applicable to common stockholders in the 2006 fourth quarter was $96.4 million or $3.07 per diluted common share, compared with a net loss of $35.4 million or $1.16 per diluted common share in 2005.
FEDDERS CORPORATION
RESULTS FOR THE FOURTH QUARTER AND FULL YEAR ENDED
DECEMBER 31, 2006 AND 2005
(amounts in thousands, except per share data)
FULL YEAR 2006 2005
Net sales $279,255 $297,716
Cost of sales 242,374 258,040
Gross profit 36,881 39,676
Selling, general and
administrative expense 59,176 71,049
Operating income/(loss) before
restructuring and goodwill impairment
charges (22,295) (31,373)
Restructuring expense 3,666 21,396
Goodwill impairment 54,011 -
Operating income/(loss) (79,972) (52,769)
Interest expense, net 21,743 22,298
Income/(loss) from minority interest and
net interest in unconsolidated subsidiaries 468 637
Other (income)/expense 2,268 1,013
Net income/(loss) before income taxes (103,515) (75,443)
Income tax expense/(benefit) 21,109 114
Net income/(loss) from continuing
operations (124,624) (75,557)
Income/(loss) from discontinued operations - 13,476
Net income/(loss) $(124,624) $(62,081)
Preferred stock dividends 4,574 4,436
Net income/(loss) applicable to
common stockholders $(129,198) $(66,517)
Basic and diluted net income/(loss) per
common share ($4.12) ($2.17)
Basic and diluted weighted average
shares outstanding 31,328 30,629
FEDDERS CORPORATION
RESULTS FOR THE FOURTH QUARTER AND FULL YEAR ENDED
DECEMBER 31, 2006 AND 2005
(amounts in thousands, except per share data)
FOURTH QUARTER 2006 2005
Net sales $32,809 $38,976
Cost of sales 31,043 43,925
Gross profit 1,766 (4,949)
Selling, general and administrative
expense 15,034 17,247
Operating income/(loss) before
restructuring and goodwill impairment
charges (13,268) (22,196)
Restructuring expense/(income) 902 17,150
Goodwill impairment 54,011 -
Operating income/(loss) (68,181) (39,346)
Interest expense, net 5,645 5,760
Income/(loss) from minority interest
and net interest in unconsolidated
subsidiaries 233 (207)
Other (income)/expense 1,284 658
Net income/(loss) (74,877) (45,971)
Income tax/(benefit) 20,402 (149)
Net income/(loss) from
continuing operations $(95,279) (45,822)
Income/(loss) from discontinued
operations - 11,582
Net income/(loss) $(95,279) $(34,240)
Preferred stock dividend 1,144 1,142
Net income/(loss) applicable to
common stockholders $(96,423) $(35,382)
Basic and diluted net income/(loss) per
common share ($3.07) ($1.16)
Basic and diluted weighted average shares
outstanding 31,408 30,688
FEDDERS CORPORATION
Selected balance sheet items as of
December 31, 2006 and 2005 2006 2005
Cash and cash equivalents $4,789 $14,417
Accounts receivable 27,525 42,157
Inventories 41,473 74,313
Accounts payable 40,795 43,961
Short-term notes 17,777 56,740
Long-term debt, including current
portion 179,966 160,583
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 this announcement. Visit the Fedders investor information website at www.fedders.com to access additional information on Fedders.
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