As previously announced, HVAC/R equipment maker Fedders Corporation has changed its fiscal year end from August 31 to December 31. As required by Securities and Exchange Commission (SEC) rules, the company has filed on Form 10-Q a transition period report for the period ended Nov. 30, 2003. Following are results of operation s for the 3 months ended Nov. 30, 2003.
Net sales in the 3-month period increased by 10.2 percent to U.S. $43.1 million, compared to $39.2 million in the prior-year period.
According to Fedders, the improvement was the result of an increase of $4.3 million, or 14.8 percent, in sales within the HVAC/R reporting segment due to increased air conditioner sales in Asia and dehumidifier sales in North America. The gain in sales was partially offset by a slight decline in sales within the Engineered Products reporting segment of $0.4 million, or 3.7 percent, from the prior-year period due to continued weak demand in the capital equipment market for commercial and industrial air cleaners in North America substantially offset by strengthening demand in Asia.
The gross profit margin in the 3-month period decreased to 15.6 percent from 20.0 percent compared to the prior-year period. The lower gross margin was the result of costs associated with the closing of the company's air-conditioner production plant in Georgia, U.S. and consolidation of the production of commercial air-conditioners at its plant in Texas, U.S.
Costs associated with this manufacturing rationalization and redundant overhead costs between the two plants during the period amounted to approximately $1.5 million. The company also incurred start-up and transition costs of approximately $2.0 million during the period associated with the transfer of production of additional high-volume products from the U.S. to China. Margins were also affected during the period due to an increase in sales of lower margin products.
Selling, general, and administrative (SG&A) expenses in the 3 months ended Nov. 30, 2003 were $16.8 million, compared to $14.4 million in the prior-year period. The SG&A expenses in the current period included a non-cash expense of $2.3 million due to the variable accounting treatment associated with the value of re-priced stock options to reflect the increase in the market price of the Company's stock. The company reports that all of the re-priced options were exercised or expired during the period and will have no further effect on SG&A expenses in subsequent periods.
The operating loss in the 3-month period was $10.1 million, compared to an operating loss of $6.5 million in the prior-year period.
Net interest expense of $4.4 million was approximately equal to the prior-year period and consisted primarily of interest expense on the company's long-term debt.
Upon adoption of SFAS No. 142, Fedders was required to perform a transitional goodwill impairment test. As a result, the company recognized a non-cash transitional goodwill impairment charge of $11.9 million in its Engineered Products segment because the projected financial performance of the Engineered Products segment was insufficient to support the related goodwill. As required, the transitional goodwill impairment charge was recorded as a cumulative effect of a change in accounting principle as of Sept. 1, 2002.
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