##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarterly period ended June 30, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 COMMISSION FILE NUMBER 1-8831
 FEDDERS CORPORATION
  DELAWARE
(State of incorporation) 
505 MARTINSVILLE ROAD, LIBERTY CORNER, NJ
(Address of principal executive offices)
    
    22-2572390
(I.R.S. Employer Identification No.)
07938-0813
(Zip Code)
    þ o
  o þ o
  o þ




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##### 



PAGENUMBERPART I
    
    FINANCIAL INFORMATION
    
    3ITEM 1.
    
    FINANCIAL STATEMENTS
    
    3CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006
    
    3CONDENSED CONSOLIDATED BALANCE SHEETSAS OF JUNE 30, 2007, DECEMBER 31, 2006 AND JUNE 30, 2006
    
    4CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006
    
    5CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY/(DEFICIT)AS OF JUNE 30, 2007, DECEMBER 31, 2006 AND JUNE 30, 2006
    
    6NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    
    7-22ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
    
    23-27ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    28ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    28-29PART II
    
    OTHER INFORMATION
    
    30ITEM 1.
    
    LEGAL PROCEEDINGS
    
    30ITEM 1A.
    
    RISK FACTORS
    
    30ITEM 2.
    
    CHANGES IN SECURITIES AND USE OF PROCEEDS
    
    30ITEM 3.
    
    DEFAULTS ON SENIOR SECURITIES
    
    30ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    30ITEM 5.
    
    OTHER INFORMATION
    
    30ITEM 6.
    
    EXHIBITS
    
    30SIGNATURE
    
    31CERTIFICATIONS
    
    32-35EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
   
 
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(amounts in thousands, except per share data)Net sales
    
    $
    45,504
    
    
    $
    95,567
    
    
    $
    75,644
    
    
    $
    195,268Cost of sales
    
    
    38,267
    
    
    
    81,878
    
    
    
    66,249
    
    
    
    168,884Gross profit
    
    
    7,237
    
    
    
    13,689
    
    
    
    9,395
    
    
    
    26,384Selling, general and administrative expense
    
    
    11,566
    
    
    
    16,509
    
    
    
    25,505
    
    
    
    31,549Asset impairment, employee severance and other restructuring
charges/(credits)
    
    
    215
    
    
    
    611
    
    
    
    215
    
    
    
    611Total operating expenses
    
    
    11,781
    
    
    
    17,120
    
    
    
    25,720
    
    
    
    32,160Operating income/(loss)
    
    
    (4,544
    )
    
    
    (3,431
    )
    
    
    (16,325
    )
    
    
    (5,776
    )(Income)/loss from minority interest in unconsolidated subsidiaries
    
    
    238
    
    
    
    (215
    )
    
    
    (180
    )
    
    
    (68
    )Interest expense, net
    
    
    8,643
    
    
    
    5,340
    
    
    
    14,828
    
    
    
    10,813Other (income)/expense
    
    
    (1,918
    )
    
    
    30
    
    
    
    (1,694
    )
    
    
    589Income/(loss) from continuing operations before income taxes
    
    
    (11,507
    )
    
    
    (8,586
    )
    
    
    (29,279
    )
    
    
    (17,110
    )Provision/(benefit) for income taxes
    
    
    (37
    )
    
    
    315
    
    
    
    (22
    )
    
    
    592Net income/(loss)
    
    
    (11,470
    )
    
    
    (8,901
    )
    
    
    (29,257
    )
    
    
    (17,702
    )Preferred stock dividends
    
    
    1,144
    
    
    
    1,144
    
    
    
    2,287
    
    
    
    2,287Net income/(loss) applicable to common stockholders
    
    $
    (12,614
    )
    
    $
    (10,045
    )
    
    $
    (31,544
    )
    
    $
    (19,989
    )Income/(loss) per common share:Basic net income/(loss) per common share
    
    $
    (0.36
    )
    
    $
    (0.32
    )
    
    $
    (0.92
    )
    
    $
    (0.65
    )Diluted net income/(loss) per common share
    
    
    (0.36
    )
    
    
    (0.32
    )
    
    
    (0.92
    )
    
    
    (0.65
    )Weighted average shares:Basic
    
    
    34,513
    
    
    
    30,927
    
    
    
    34,199
    
    
    
    30,879Diluted
    
    
    34,513
    
    
    
    30,927
    
    
    
    34,199
    
    
    
    30,879Dividends per share declared:Common and Class B Stock
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  3




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##### Table of Contents



June 30,
    
    
    December 31,
    
    
    June 30,2007
    
    
    2006
    
    
    2006(amounts in thousands, except par value data)
    
    (Unaudited)
    
    
    
    
    
    
    (Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    7,996
    
    
    $
    4,789
    
    
    $
    11,754Accounts receivable (net of allowance of $4,176, $3,761 and
$4,148 at June 30, 2007, December 31, 2006 and June 30, 2006,
respectively)
    
    
    40,394
    
    
    
    27,525
    
    
    
    57,175Inventories:Finished goods
    
    
    23,748
    
    
    
    23,633
    
    
    
    40,071Work-in-process
    
    
    2,631
    
    
    
    1,316
    
    
    
    2,407Raw materials and supplies
    
    
    22,385
    
    
    
    16,524
    
    
    
    19,253Net inventories
    
    
    48,764
    
    
    
    41,473
    
    
    
    61,731Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    3,882Other current assets
    
    
    11,950
    
    
    
    12,429
    
    
    
    8,136Total current assets
    
    
    109,104
    
    
    
    86,216
    
    
    
    142,678Net property, plant and equipment:Land and improvements
    
    
    3,991
    
    
    
    3,636
    
    
    
    4,900Buildings and leasehold improvements
    
    
    35,786
    
    
    
    35,606
    
    
    
    35,576Machinery and equipment
    
    
    74,615
    
    
    
    73,695
    
    
    
    73,248Gross property, plant and equipment
    
    
    114,392
    
    
    
    112,937
    
    
    
    113,724Less accumulated depreciation
    
    
    76,476
    
    
    
    73,595
    
    
    
    71,076Net property, plant and equipment
    
    
    37,916
    
    
    
    39,342
    
    
    
    42,648Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    21,629Goodwill
    
    
    27,493
    
    
    
    27,493
    
    
    
    87,721Other intangible assets
    
    
    3,389
    
    
    
    3,727
    
    
    
    4,236Other assets
    
    
    25,721
    
    
    
    24,582
    
    
    
    31,156Total assets
    
    $
    203,623
    
    
    $
    181,360
    
    
    $
    330,068LIABILITIES AND STOCKHOLDERS EQUITY/(DEFICIT)Current liabilities:Short-term notes
    
    $
    237,290
    
    
    $
    17,777
    
    
    $
    45,774Current portion of long-term debt
    
    
    772
    
    
    
    2,487
    
    
    
    2,297Accounts payable
    
    
    49,941
    
    
    
    40,795
    
    
    
    65,676Accrued expenses
    
    
    40,635
    
    
    
    41,086
    
    
    
    46,152Total current liabilities
    
    
    328,638
    
    
    
    102,145
    
    
    
    159,899Long-term debt
    
    
    1,390
    
    
    
    177,479
    
    
    
    157,872Other long-term liabilities
    
    
    15,684
    
    
    
    18,251
    
    
    
    24,477Partners net interest in joint venture
    
    
    4,474
    
    
    
    4,851
    
    
    
    4,862Total liabilities
    
    
    350,186
    
    
    
    302,726
    
    
    
    347,110Stockholders equity/(deficit):Preferred Stock, $0.01 par value, 15,000 shares authorized and
2,127 shares issued at June 30, 2007, December 31, 2006 and
June 30, 2006, respectively
    
    
    21
    
    
    
    21
    
    
    
    21Common Stock, $0.01 par value, 70,000 shares authorized,
37,299, 37,299 and 37,298 issued at June 30, 2007, December
31, 2006 and June 30, 2006, respectively
    
    
    373
    
    
    
    373
    
    
    
    373Class B Stock, $0.01 par value, 5,000 shares authorized and
2,492 shares issued at June 30, 2007, December 31, 2006 and
June 30, 2006, respectively
    
    
    25
    
    
    
    25
    
    
    
    25Warrants-Common Stock
    
    
    1,000
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    115,607
    
    
    
    115,487
    
    
    
    115,421Retained earnings/(deficit)
    
    
    (241,525
    )
    
    
    (205,571
    )
    
    
    (93,937
    )Accumulated other comprehensive gain/(loss)
    
    
    2,212
    
    
    
    1,272
    
    
    
    243Treasury stock, at cost, 5,278, 7,169 and 8,521 shares of
Common Stock at June 30, 2007, December 31, 2006 and June 30,
2006
    
    
    (24,276
    )
    
    
    (32,973
    )
    
    
    (39,188
    )Total stockholders equity/(deficit)
    
    
    (146,563
    )
    
    
    (121,366
    )
    
    
    (17,042
    )Total liabilities and stockholders equity/(deficit)
    
    $
    203,623
    
    
    $
    181,360
    
    
    $
    330,068
  4




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##### Table of Contents



Six months EndedJune 30,2007
    
    
    2006(amounts in thousands, except par value data)
    
    (Unaudited)Cash flows from operating activities:Net loss
    
    $
    (29,257
    )
    
    $
    (17,702
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    3,345
    
    
    
    3,256Amortization of deferred financing costs
    
    
    1,192
    
    
    
    445(Gain)/loss on asset disposal
    
    
    
    
    
    
    (35
    )Stock compensation expense
    
    
    117
    
    
    
    VAT receivable
    
    
    (2,392
    )
    
    
    Partners net interest in joint venture results
    
    
    (180
    )
    
    
    147Changes in operating assets and liabilities, net of acquisition:Accounts receivable
    
    
    (12,868
    )
    
    
    (15,018
    )Inventories
    
    
    (7,291
    )
    
    
    12,582Other current assets
    
    
    (1,227
    )
    
    
    (1,803
    )Other assets
    
    
    603
    
    
    
    98Accounts payable
    
    
    9,146
    
    
    
    21,715Accrued expenses
    
    
    (633
    )
    
    
    5,637Other long-term liabilities
    
    
    (419
    )
    
    
    (475
    )Other-net
    
    
    (83
    )
    
    
    366Net cash provided by/(used in) operating activities
    
    
    (39,947
    )
    
    
    9,213Cash flows from investing activities:Additions to property, plant, and equipment
    
    
    (1,316
    )
    
    
    (1,598
    )Proceeds from prior-year sale of Walkersville, MD and sale of Columbia,
TN real estate ass
    
    
    4,098
    
    
    
    878Net cash provided by/(used in) investing activities
    
    
    2,782
    
    
    
    (720
    )Cash flows from financing activities:Net (repayments) of short-term notes
    
    
    (11,134
    )
    
    
    (10,966
    )Proceeds received from short-term debt
    
    
    50,000
    
    
    
    Proceeds received from revolving credit facility
    
    
    28,468
    
    
    
    Net (repayments) of long-term debt
    
    
    (24,943
    )
    
    
    (583
    )Payments of debt issue costs
    
    
    (4,959
    )
    
    
    Proceeds received from sale of treasury shares
    
    
    2,000
    
    
    
    Net cash provided by/(used in) financing activities
    
    
    39,432
    
    
    
    (11,549
    )Effect of exchange rate changes
    
    
    940
    
    
    
    393Net increase/(decrease) in cash and cash equivalents
    
    
    3,207
    
    
    
    (2,663
    )Cash and cash equivalents at beginning of period
    
    
    4,789
    
    
    
    14,417Cash and cash equivalents at end of period
    
    $
    7,996
    
    
    $
    11,754Supplemental disclosure:Interest paid
    
    $
    12,994
    
    
    $
    11,004Income taxes paid
    
    
    257
    
    
    
    294Non-cash disclosure:Warrants issued
    
    $
    1,000
    
    
    $
    
    5




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##### Table of Contents



Six months
    
    
    Twelve Months
    
    
    Six monthsEnded
    
    
    Ended
    
    
    EndedJune 30,
    
    
    December 31,
    
    
    June 30,2007
    
    
    2006
    
    
    2006(Amounts in thousands except per share data)
    
    (Unaudited)
    
    
    
    
    
    
    (Unaudited)PREFERRED STOCKBalance at beginning of period
    
    $
    21
    
    
    $
    21
    
    
    $
    21Stock rights subscribed
    
    
    
    
    
    
    
    
    
    
    Balance at end of period
    
    $
    21
    
    
    $
    21
    
    
    $
    21COMMON STOCKBalance at beginning of period
    
    $
    373
    
    
    $
    367
    
    
    $
    367Stock options exercised
    
    
    
    
    
    
    
    
    
    
    Restricted stock granted
    
    
    
    
    
    
    5
    
    
    
    5Other
    
    
    
    
    
    
    1
    
    
    
    1Balance at end of period
    
    $
    373
    
    
    $
    373
    
    
    $
    373CLASS B STOCKBalance at beginning and end of period
    
    $
    25
    
    
    $
    25
    
    
    $
    25WARRANTSBalance at beginning of period
    
    $
    
    
    
    $
    
    
    
    $
    Issuance of warrants to Goldman Sachs Partners
    
    
    1,000
    
    
    
    
    
    
    
    Balance at end of period
    
    $
    1,000
    
    
    $
    
    
    
    $
    ADDITIONAL PAID-IN CAPITALBalance at beginning of period
    
    $
    115,487
    
    
    $
    115,523
    
    
    $
    115,523Stock options exercised
    
    
    
    
    
    
    
    
    
    
    Restricted stock granted
    
    
    
    
    
    
    
    
    
    
    Amortization of restricted stock
grants
    
    
    117
    
    
    
    415
    
    
    
    169Transfer from deferred
compensation
    
    
    
    
    
    
    (483
    )
    
    
    (483
    )Other
    
    
    3
    
    
    
    32
    
    
    
    212Balance at end of period
    
    $
    115,607
    
    
    $
    115,487
    
    
    $
    115,421RETAINED EARNINGS (DEFICIT)Balance at beginning of period
    
    $
    (205,571
    )
    
    $
    (76,235
    )
    
    $
    (76,235
    )Net (loss) income
    
    
    (29,257
    )
    
    
    (124,621
    )
    
    
    (17,702
    )Treasury stock sold for less than carrying
value
    
    
    (6,697
    )
    
    
    (4,715
    )
    
    
    Dividends
    
    
    
    
    
    
    
    
    
    
    Balance at end of period
    
    $
    (241,525
    )
    
    $
    (205,571
    )
    
    $
    (93,937
    )ACCUMULATED OTHER COMPREHENSIVE LOSSBalance at beginning of period
    
    $
    1,272
    
    
    $
    (92
    )
    
    $
    (92
    )Foreign currency translation adjustment, net of tax
    
    
    940
    
    
    
    1,364
    
    
    
    335Balance at end of period
    
    $
    2,212
    
    
    $
    1,272
    
    
    $
    243DEFERRED COMPENSATIONBalance at beginning of period
    
    $
    
    
    
    $
    (483
    )
    
    $
    (483
    )Restricted stock granted
    
    
    
    
    
    
    
    
    
    
    Re-classed to additional paid in
capital
    
    
    
    
    
    
    483
    
    
    
    483Balance at end of period
    
    $
    
    
    
    $
    
    
    
    $
    TREASURY STOCKBalance at beginning of period
    
    $
    (32,973
    )
    
    $
    (39,188
    )
    
    $
    (39,188
    )Shares sold/(purchased)
    
    
    8,697
    
    
    
    6,215
    
    
    
    Balance at end of period
    
    $
    (24,276
    )
    
    $
    (32,973
    )
    
    $
    (39,188
    )
  6




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##### Table of Contents



7




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##### Table of Contents



Three months Ended
    
    
    Six months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income/(loss)
    
    $
    (11,470
    )
    
    $
    (8,901
    )
    
    $
    (29,257
    )
    
    $
    (17,702
    )Change in fair value of cash flow hedge income/(loss)
    
    
    
    
    
    
    (58
    )
    
    
    
    
    
    
    (58
    )Foreign currency translation
    
    
    618
    
    
    
    (385
    )
    
    
    940
    
    
    
    393Comprehensive income/(loss)
    
    $
    (10,852
    )
    
    $
    (9,344
    )
    
    $
    (28,317
    )
    
    $
    (17,367
    )
      Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 302007
    
    
    2006
    
    
    2007
    
    
    2006Restricted
stock
    
    $
    59
    
    
    $
    89
    
    
    $
    117
    
    
    $
    169Stock
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total share-based
compensation
expense
    
    
    59
    
    
    
    89
    
    
    
    117
    
    
    
    169Tax effect on share-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net effect on
income from
continuing operations
    
    
    59
    
    
    
    89
    
    
    
    117
    
    
    
    169Effect on basic and
diluted earnings
per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 8




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##### Table of Contents



Weighted

    
    
    
    

    
    WeightedAverage
    
    
    
    
    

    Average Grant-Grant-Date
    
    
    
    
    

    DateRestricted stock shares
    
    2007
    
    
    Fair Value
    
    
    2006
    
    
    Fair ValueBalance at January 1
    
    
    500,000
    
    
    $
    2.30
    
    
    
    250,000
    
    
    $
    4.33Granted
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    
    2.31Cancelled or
expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at June 30
    
    
    500,000
    
    
    $
    2.30
    
    
    
    650,000
    
    
    $
    3.08
  Weighted
    
    
    
    
    
    
    WeightedOptions
    
    
    Average Grant-
    
    
    Options
    
    
    AverageOutstanding
    
    
    Date
    
    
    Outstanding
    
    
    Grant-DateStock options
    
    2007
    
    
    Fair Value
    
    
    2006
    
    
    Fair ValueOutstanding at January 1
    
    
    1,028,750
    
    
    $
    4.18
    
    
    
    1,128,750
    
    
    $
    4.25Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled or
expired
    
    
    (608,750
    )
    
    
    3.17
    
    
    
    (100,000
    )
    
    
    4.92Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at June 30
    
    
    420,000
    
    
    $
    5.65
    
    
    
    1,028,750
    
    
    $
    4.18Exercisable at June 30
    
    
    420,000
    
    
    $
    5.65
    
    
    
    1,028,750
    
    
    $
    4.18Exercise price per
share
    
    $
    5.65
    
    
    
    
    
    
    $
    3.02 - $5.65
  Expected dividend yield
    
    
    2.1
    %Risk-free rate
    
    
    3.0
    %Expected life in years
    
    
    5Volatility
    
    
    39
    %
  Options Outstanding
    
    
   


Options ExercisableNumber
    
    Contractual
    
    Exercise
    
    Number
    
    ExerciseExercise Prices
    
    Outstanding
    
    Life Remaining (1)
    
    Price(1)
    
    Exercisable
    
    Price(1)$5.65
    
    
    420,000
    
    
    
    1.33
    
    
    $  5.65
    
    
    420,000
    
    
    $
    5.65
 
 (1)
    
    weighted average    9




---



##### Table of Contents



EngineeredHVAC
    
    
    Products
    
    
    TotalGoodwill balance as of December 31, 2006
    
    $
    19,104
    
    
    $
    8,389
    
    
    $
    27,493Effect of foreign currency change
    
    
    
    
    
    
    
    
    
    
    Goodwill balance as of June 30, 2007
    
    $
    19,104
    
    
    $
    8,389
    
    
    $
    27,493
 June 30,
    
    
    December 31,
    
    
    June 30,2007
    
    
    2006
    
    
    2006Other intangible assets
    
    $
    6,867
    
    
    $
    6,854
    
    
    $
    7,084Accumulated amortization
    
    
    (3,478
    )
    
    
    (3,127
    )
    
    
    (2,848
    )Other intangible assets  net
    
    $
    3,389
    
    
    $
    3,727
    
    
    $
    4,236
      10




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune, 30
    
    
    June, 302007
    
    
    2006
    
    
    2007
    
    
    2006Net sales:HVAC
    
    $
    39,274
    
    
    $
    87,986
    
    
    $
    62,872
    
    
    $
    181,285Engineered Products
    
    
    6,230
    
    
    
    7,581
    
    
    
    12,772
    
    
    
    13,983Net sales
    
    $
    45,504
    
    
    $
    95,567
    
    
    $
    75,644
    
    
    $
    195,268Income/(loss) by segment:HVAC
    
    $
    (1,605
    )
    
    $
    (1,086
    )
    
    $
    (9,757
    )
    
    $
    (3,010
    )Engineered Products
    
    
    541
    
    
    
    370
    
    
    
    924
    
    
    
    433Segment operating income/(loss)
    
    
    (1,064
    )
    
    
    (716
    )
    
    
    (8,833
    )
    
    
    (2,577
    )Goodwill impairment, asset
impairment, employee severance
and other restructuring
charges/(credits)
harges/(credits)
    
    
    215
    
    
    
    611
    
    
    
    215
    
    
    
    611Non-allocated expense/(income)
    
    
    1,585
    
    
    
    1,919
    
    
    
    5,403
    
    
    
    3,109Interest expense, net
    
    
    8,643
    
    
    
    5,340
    
    
    
    14,828
    
    
    
    10,813Income tax expense/(benefit)
    
    
    (37
    )
    
    
    315
    
    
    
    (22
    )
    
    
    592Income/(loss)
    
    $
    (11,470
    )
    
    $
    (8,901
    )
    
    $
    (29,257
    )
    
    $
    (17,702
    )
 June 30,
    
    
    December 31,
    
    
    June 30,2007
    
    
    2006
    
    
    2006Total assets:HVAC
    
    $
    136,481
    
    
    $
    113,269
    
    
    $
    237,914Engineered Products
    
    
    23,583
    
    
    
    27,666
    
    
    
    39,262Non-allocated assets
    
    
    43,559
    
    
    
    40,425
    
    
    
    52,892$
    203,623
    
    
    $
    181,360
    
    
    $
    330,068
  11




---



##### Table of Contents



Six months EndedJune 30,2007
    
    
    2006Change in benefit obligationBenefit obligation at beginning of year
    
    $
    7,597
    
    
    $
    10,280Interest cost
    
    
    266
    
    
    
    240Actuarial changes and other
    
    
    
    
    
    
    (90
    )Benefits paid
    
    
    (825
    )
    
    
    (833
    )Benefit obligation at end of period
    
    $
    7,038
    
    
    $
    9,597Weighted-average assumptions as of June 30:Average discount rate
    
    
    8.03
    %
    
    
    5.75
    %
     2007
    
    
    2006Warranty balance at beginning of period
    
    $
    6,978
    
    
    $
    7,552Accrual for warranty based on revenue during the period
    
    
    2,743
    
    
    
    5,278Settlements made during the period
    
    
    (2,635
    )
    
    
    (3,474
    )Warranty balance at end of period
    
    $
    7,086
    
    
    $
    9,356
   .
 12




---



##### Table of Contents



13




---



##### Table of Contents



June 30
    
    
    December 312007
    
    
    20069 and 7/8% Senior Subordinated Notes due
in 2014 (Senior Notes were reclassified to
short-term debt as of June 30, 2007. The
$155,000 principal amount less unamortized
discount of $3,666 as of June 30, 2007 and
$3,854 as of December 31, 2006)
    
    $
    
    
    
    $
    151,146Promissory note payable to the State of Illinois
    
    
    375
    
    
    
    561Trion Industrial Revenue Bond
    
    
    
    
    
    
    3,200Eubank Manufacturing Enterprises, Inc. mortgage
    
    
    215
    
    
    
    321Fedders Addison Company mortgage
    
    
    
    
    
    
    1,902Wachovia debt
    
    
    
    
    
    
    20,277Capital lease obligations
    
    
    1,572
    
    
    
    2,559Total debt
    
    
    2,162
    
    
    
    179,966Less current maturities
    
    
    772
    
    
    
    2,487Total long-term debt
    
    $
    1,390
    
    
    $
    177,479
        14




---



##### Table of Contents



15




---



##### Table of Contents



Three Months Ended June 30, 2007FeddersNorth
    
    
    Other
    
    
    Corporate
    
    
    Eliminating
    
    
    FeddersAmerica
    
    
    Fedders
    
    
    Parent
    
    
    Entries
    
    
    CorporationNet sales
    
    $
    39,799
    
    
    $
    5,705
    
    
    $
    
    
    
    $
    
    
    
    $
    45,504Cost of sales
    
    
    33,319
    
    
    
    4,948
    
    
    
    
    
    
    
    
    
    
    
    38,267Gross profit
    
    
    6,480
    
    
    
    757
    
    
    
    
    
    
    
    
    
    
    
    7,237Selling, general and administrative expense (a)
    
    
    8,541
    
    
    
    1,287
    
    
    
    1,738
    
    
    
    
    
    
    
    11,566Asset impairment, employee severance and other
restructuring charges/(credits)
    
    
    215
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215Operating income/(loss)
    
    
    (2,276
    )
    
    
    (530
    )
    
    
    (1,738
    )
    
    
    
    
    
    
    (4,544
    )(Income)/loss from minority interest in
unconsolidated subsidiaries
    
    
    134
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    238Equity income in investment
    
    
    
    
    
    
    
    
    
    
    (9,822
    )
    
    
    9,822
    
    
    
    Interest expense, net (b)
    
    
    8,358
    
    
    
    285
    
    
    
    
    
    
    
    
    
    
    
    8,643Other (income)/expense
    
    
    (218
    )
    
    
    (1,610
    )
    
    
    (90
    )
    
    
    
    
    
    
    ( 1,918
    )Income/(loss) before income taxes
    
    
    (10,550
    )
    
    
    691
    
    
    
    (11,470
    )
    
    
    9,822
    
    
    
    (11,507
    )Provision/(benefit) for income taxes
    
    
    53
    
    
    
    (90
    )
    
    
    
    
    
    
    
    
    
    
    (37
    )Net income/(loss)
    
    
    (10,603
    )
    
    
    781
    
    
    
    (11,470
    )
    
    
    9,822
    
    
    
    (11,470
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    1,144
    
    
    
    
    
    
    
    1,144Net income/(loss) applicable to common stockholders
    
    $
    (10,603
    )
    
    $
    781
    
    
    $
    (12,614
    )
    
    $
    9,822
    
    
    $
    (12,614
    )
 Three Months Ended June 30, 2006FeddersNorth
    
    
    Other
    
    
    Corporate
    
    
    Eliminating
    
    
    FeddersAmerica
    
    
    Fedders
    
    
    Parent
    
    
    Entries
    
    
    CorporationNet sales
    
    $
    81,211
    
    
    $
    71,184
    
    
    $
    
    
    
    $
    (56,828
    )
    
    $
    95,567Cost of sales
    
    
    72,833
    
    
    
    65,589
    
    
    
    284
    
    
    
    (56,828
    )
    
    
    81,878Gross profit
    
    
    8,378
    
    
    
    5,595
    
    
    
    (284
    )
    
    
    
    
    
    
    13,689Selling, general and administrative expense (a)
    
    
    11,496
    
    
    
    3,238
    
    
    
    1,775
    
    
    
    
    
    
    
    16,509Asset impairment, employee severance and other
restructuring charges/(credits)
    
    
    410
    
    
    
    
    
    
    
    201
    
    
    
    
    
    
    
    611Operating income/(loss)
    
    
    (3,528
    )
    
    
    2,357
    
    
    
    (2,260
    )
    
    
    
    
    
    
    (3,431
    )(Income)/loss from minority interest in
unconsolidated subsidiaries
    
    
    165
    
    
    
    (380
    )
    
    
    
    
    
    
    
    
    
    
    (215
    )Equity income in investment
    
    
    
    
    
    
    
    
    
    
    (6,841
    )
    
    
    6,841
    
    
    
    Interest expense, net (b)
    
    
    4,739
    
    
    
    601
    
    
    
    
    
    
    
    
    
    
    
    5,340Other (income)/expense
    
    
    71
    
    
    
    159
    
    
    
    (200
    )
    
    
    
    
    
    
    30Income/(loss) before income taxes
    
    
    (8,503
    )
    
    
    1,977
    
    
    
    (8,901
    )
    
    
    6,841
    
    
    
    (8,586
    )Provision/(benefit) for income taxes
    
    
    68
    
    
    
    247
    
    
    
    
    
    
    
    
    
    
    
    315Net income/(loss)
    
    
    (8,571
    )
    
    
    1,730
    
    
    
    (8,901
    )
    
    
    6,841
    
    
    
    (8,901
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    1,144
    
    
    
    
    
    
    
    1,144Net income/(loss) applicable to common stockholders
    
    $
    (8,571
    )
    
    $
    1,730
    
    
    $
    (10,045
    )
    
    $
    6,841
    
    
    $
    (10,045
    )
 16




---



##### Table of Contents



Six Months Ended June 30, 2007FeddersNorth
    
    
    Other
    
    
    Corporate
    
    
    Eliminating
    
    
    FeddersAmerica
    
    
    Fedders
    
    
    Parent
    
    
    Entries
    
    
    CorporationNet sales
    
    $
    66,123
    
    
    $
    9,521
    
    
    $
    
    
    
    $
    
    
    
    $
    75,644Cost of sales
    
    
    56,311
    
    
    
    9,938
    
    
    
    
    
    
    
    
    
    
    
    66,249Gross profit
    
    
    9,812
    
    
    
    (417
    )
    
    
    
    
    
    
    
    
    
    
    9,395Selling, general and administrative expense (a)
    
    
    16,974
    
    
    
    2,515
    
    
    
    6,016
    
    
    
    
    
    
    
    25,505Asset impairment, employee severance and other
restructuring charges/(credits)
    
    
    215
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215Operating income/(loss)
    
    
    (7,377
    )
    
    
    (2,932
    )
    
    
    (6,016
    )
    
    
    
    
    
    
    (16,325
    )(Income)/loss from minority interest and net
interest in unconsolidated subsidiaries
    
    
    130
    
    
    
    (310
    )
    
    
    
    
    
    
    
    
    
    
    (180
    )Equity income in investment
    
    
    
    
    
    
    
    
    
    
    (23,354
    )
    
    
    23,354
    
    
    
    Interest expense, net (b)
    
    
    14,247
    
    
    
    581
    
    
    
    
    
    
    
    
    
    
    
    14,828Other (income)/expense
    
    
    (246
    )
    
    
    (1,334
    )
    
    
    (114
    )
    
    
    
    
    
    
    (1,694
    )Income/(loss) before income taxes
    
    
    (21,508
    )
    
    
    (1,869
    )
    
    
    (29,256
    )
    
    
    23,354
    
    
    
    (29,279
    )Provision/(benefit) for income taxes
    
    
    57
    
    
    
    (79
    )
    
    
    
    
    
    
    
    
    
    
    (22
    )Income/(loss) from continuing operations
    
    
    (21,565
    )
    
    
    (1,790
    )
    
    
    (29,256
    )
    
    
    23,354
    
    
    
    (29,257
    )Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    2,287
    
    
    
    
    
    
    
    2,287Net income/(loss) applicable to common stockholders
    
    $
    (21,565
    )
    
    $
    (1,790
    )
    
    $
    (31,543
    )
    
    $
    23,354
    
    
    $
    (31,544
    )
 Six Months Ended June 30, 2006FeddersNorth
    
    
    Other
    
    
    Corporate
    
    
    Eliminating
    
    
    FeddersAmerica
    
    
    Fedders
    
    
    Parent
    
    
    Entries
    
    
    CorporationNet sales
    
    $
    172,434
    
    
    $
    146,392
    
    
    $
    
    
    
    $
    (123,558
    )
    
    $
    195,268Cost of sales
    
    
    157,519
    
    
    
    134,639
    
    
    
    284
    
    
    
    (123,558
    )
    
    
    168,884Gross profit
    
    
    14,915
    
    
    
    11,753
    
    
    
    (284
    )
    
    
    
    
    
    
    26,384Selling, general and administrative expense (a)
    
    
    22,830
    
    
    
    6,643
    
    
    
    2,076
    
    
    
    
    
    
    
    31,549Asset impairment, employee severance and other
restructuring charges/(credits)
    
    
    410
    
    
    
    
    
    
    
    201
    
    
    
    
    
    
    
    611Operating income/(loss)
    
    
    (8,325
    )
    
    
    5,110
    
    
    
    (2,561
    )
    
    
    
    
    
    
    (5,776
    )(Income)/loss from minority interest and net
interest in unconsolidated subsidiaries
    
    
    194
    
    
    
    (262
    )
    
    
    
    
    
    
    
    
    
    
    (68
    )Equity income in investment
    
    
    
    
    
    
    
    
    
    
    (15,341
    )
    
    
    15,341
    
    
    
    Interest expense, net (b)
    
    
    9,545
    
    
    
    1,268
    
    
    
    
    
    
    
    
    
    
    
    10,813Other (income)/expense
    
    
    325
    
    
    
    464
    
    
    
    (200
    )
    
    
    
    
    
    
    589Income/(loss) before income taxes
    
    
    (18,389
    )
    
    
    3,640
    
    
    
    (17,702
    )
    
    
    15,341
    
    
    
    (17,110
    )Provision/(benefit) for income taxes
    
    
    77
    
    
    
    515
    
    
    
    
    
    
    
    
    
    
    
    592Net income/(loss)
    
    
    (18,466
    )
    
    
    3,125
    
    
    
    (17,702
    )
    
    
    15,341
    
    
    
    (17,702
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    2,287
    
    
    
    
    
    
    
    2,287Net income/(loss) applicable to common stockholders
    
    $
    (18,466
    )
    
    $
    3,125
    
    
    $
    (19,989
    )
    
    $
    15,341
    
    
    $
    (19,989
    )
 17




---



##### Table of Contents



June 30, 2007FeddersNorth
    
    
    Other
    
    
    Corporate
    
    
    Eliminating
    
    
    FeddersAmerica
    
    
    Fedders
    
    
    Parent
    
    
    Entries
    
    
    CorporationASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,840
    
    
    $
    3,910
    
    
    $
    2,246
    
    
    $
    
    
    
    $
    7,996Net accounts receivable
    
    
    32,891
    
    
    
    7,503
    
    
    
    
    
    
    
    
    
    
    
    40,394Net inventories
    
    
    30,462
    
    
    
    18,302
    
    
    
    
    
    
    
    
    
    
    
    48,764Other current assets
    
    
    2,395
    
    
    
    8,381
    
    
    
    1,174
    
    
    
    
    
    
    
    11,950Total current assets
    
    
    67,588
    
    
    
    38,096
    
    
    
    3,420
    
    
    
    
    
    
    
    109,104Investments in subsidiaries
    
    
    
    
    
    
    
    
    
    
    (207,982
    )
    
    
    207,982
    
    
    
    Net property, plant and equipment
    
    
    23,494
    
    
    
    14,342
    
    
    
    80
    
    
    
    
    
    
    
    37,916Goodwill
    
    
    27,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,493Other intangible assets
    
    
    3,389
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,389Other assets
    
    
    8,448
    
    
    
    5,980
    
    
    
    11,293
    
    
    
    
    
    
    
    25,721Total assets
    
    $
    130,412
    
    
    $
    58,418
    
    
    $
    (193,189
    )
    
    $
    207,982
    
    
    $
    203,623LIABILITIES AND STOCKHOLDERS EQUITY/(DEFICIT)Current liabilities:Short-term notes
    
    $
    228,932
    
    
    $
    8,358
    
    
    $
    
    
    
    $
    
    
    
    $
    237,290Current portion of long-term debt
    
    
    772
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    772Accounts payable
    
    
    10,454
    
    
    
    36,980
    
    
    
    2,507
    
    
    
    
    
    
    
    49,941Accrued expenses
    
    
    24,449
    
    
    
    8,782
    
    
    
    7,404
    
    
    
    
    
    
    
    40,635Total current liabilities
    
    
    264,607
    
    
    
    54,120
    
    
    
    9,911
    
    
    
    
    
    
    
    328,638Long-term debt
    
    
    1,390
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,390Other long-term liabilities
    
    
    5,853
    
    
    
    3,237
    
    
    
    11,068
    
    
    
    
    
    
    
    20,158Net due to (from) affiliates
    
    
    29,381
    
    
    
    38,224
    
    
    
    (67,605
    )
    
    
    
    
    
    
    Total liabilities
    
    
    301,231
    
    
    
    95,581
    
    
    
    (46,626
    )
    
    
    
    
    
    
    350,186Stockholders equity/(deficit):Preferred Stock
    
    
    5
    
    
    
    
    
    
    
    21
    
    
    
    (5
    )
    
    
    21Common and Class B Stock
    
    
    
    
    
    
    
    
    
    
    398
    
    
    
    
    
    
    
    398Warrants
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    1,000Additional paid-in capital
    
    
    26,938
    
    
    
    27,403
    
    
    
    115,607
    
    
    
    (54,341
    )
    
    
    115,607Retained earnings/(deficit)
    
    
    (197,932
    )
    
    
    (66,490
    )
    
    
    (241,525
    )
    
    
    264,422
    
    
    
    (241,525
    )Treasury stock
    
    
    
    
    
    
    
    
    
    
    (24,276
    )
    
    
    
    
    
    
    (24,276
    )Accumulated other comprehensive loss
    
    
    170
    
    
    
    1,924
    
    
    
    2,212
    
    
    
    (2,094
    )
    
    
    2,212Total stockholders equity/(deficit)
    
    
    (170,819
    )
    
    
    (37,163
    )
    
    
    (146,563
    )
    
    
    207,982
    
    
    
    (146,563
    )Total liabilities and stockholders
equity/(deficit)
    
    $
    130,412
    
    
    $
    58,418
    
    
    $
    (193,189
    )
    
    $
    207,982
    
    
    $
    203,623
 18




---



##### Table of Contents



As of December 31, 2006FeddersNorth
    
    
    Other
    
    
    
    
    
    
    Eliminating
    
    
    FeddersAmerica
    
    
    Fedders
    
    
    Corporate
    
    
    Entries
    
    
    CorporationASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,490
    
    
    $
    2,597
    
    
    $
    702
    
    
    $
    
    
    
    $
    4,789Net accounts receivable
    
    
    20,982
    
    
    
    6,543
    
    
    
    
    
    
    
    
    
    
    
    27,525Inventories
    
    
    30,604
    
    
    
    10,869
    
    
    
    
    
    
    
    
    
    
    
    41,473Other current assets
    
    
    5,356
    
    
    
    6,356
    
    
    
    717
    
    
    
    
    
    
    
    12,429Total current assets
    
    
    58,432
    
    
    
    26,365
    
    
    
    1,419
    
    
    
    
    
    
    
    86,216Investments in subsidiaries
    
    
    
    
    
    
    
    
    
    
    (185,804
    )
    
    
    185,804
    
    
    
    Net property, plant and equipment
    
    
    24,544
    
    
    
    14,733
    
    
    
    65
    
    
    
    
    
    
    
    39,342Goodwill
    
    
    27,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,493Other intangible assets
    
    
    3,727
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,727Other assets
    
    
    3,821
    
    
    
    5,373
    
    
    
    15,388
    
    
    
    
    
    
    
    24,582Total assets
    
    $
    118,017
    
    
    $
    46,471
    
    
    $
    (168,932
    )
    
    $
    185,804
    
    
    $
    181,360LIABILITIES AND STOCKHOLDERS EQUITY/(DEFICIT)Current liabilities:Short-term notes
    
    $
    
    
    
    $
    17,777
    
    
    $
    
    
    
    $
    
    
    
    $
    17,777Current portion of long-term debt
    
    
    2,487
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,487Accounts payable
    
    
    13,124
    
    
    
    23,218
    
    
    
    4,453
    
    
    
    
    
    
    
    40,795Accrued expenses
    
    
    24,545
    
    
    
    7,322
    
    
    
    9,219
    
    
    
    
    
    
    
    41,086Total current liabilities
    
    
    40,156
    
    
    
    48,317
    
    
    
    13,672
    
    
    
    
    
    
    
    102,145Long-term debt
    
    
    177,479
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177,479Other long-term liabilities
    
    
    5,171
    
    
    
    3,829
    
    
    
    14,102
    
    
    
    
    
    
    
    23,102Net due to (from) affiliates
    
    
    44,450
    
    
    
    30,887
    
    
    
    (75,337
    )
    
    
    
    
    
    
    Total liabilities
    
    
    267,256
    
    
    
    83,033
    
    
    
    (47,563
    )
    
    
    
    
    
    
    302,726Stockholders equity/(deficit):Preferred Stock
    
    
    5
    
    
    
    
    
    
    
    21
    
    
    
    (5
    )
    
    
    21Common and Class B Stock
    
    
    
    
    
    
    
    
    
    
    398
    
    
    
    
    
    
    
    398Additional paid-in capital
    
    
    26,938
    
    
    
    27,403
    
    
    
    115,487
    
    
    
    (54,341
    )
    
    
    115,487Retained earnings/(deficit)
    
    
    (176,364
    )
    
    
    (64,935
    )
    
    
    (205,574
    )
    
    
    241,302
    
    
    
    (205,571
    )Deferred compensation and treasury stock
    
    
    
    
    
    
    
    
    
    
    (32,973
    )
    
    
    
    
    
    
    (32,973
    )Accumulated other comprehensive loss
    
    
    182
    
    
    
    970
    
    
    
    1,272
    
    
    
    (1,152
    )
    
    
    1,272Total stockholders equity/(deficit)
    
    
    (149,239
    )
    
    
    (36,562
    )
    
    
    (121,369
    )
    
    
    185,804
    
    
    
    (121,366
    )Total liabilities and stockholders
equity/(deficit)
    
    $
    118,017
    
    
    $
    46,471
    
    
    $
    (168,932
    )
    
    $
    185,804
    
    
    $
    181,360
 19




---



##### Table of Contents



June 30, 2006FeddersNorth
    
    
    Other
    
    
    Corporate
    
    
    Eliminating
    
    
    FeddersAmerica
    
    
    Fedders
    
    
    Parent
    
    
    Entries
    
    
    CorporationASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,798
    
    
    $
    4,713
    
    
    $
    1,243
    
    
    $
    
    
    
    $
    11,754Net accounts receivable
    
    
    46,419
    
    
    
    10,756
    
    
    
    
    
    
    
    
    
    
    
    57,175Net inventories
    
    
    46,324
    
    
    
    15,407
    
    
    
    
    
    
    
    
    
    
    
    61,731Other current assets
    
    
    2,058
    
    
    
    6,109
    
    
    
    9,191
    
    
    
    (5,340
    )
    
    
    12,018Total current assets
    
    
    100,599
    
    
    
    36,985
    
    
    
    10,434
    
    
    
    (5,340
    )
    
    
    142,678Investments in subsidiaries
    
    
    
    
    
    
    
    
    
    
    (102,549
    )
    
    
    102,549
    
    
    
    Net property, plant and equipment
    
    
    26,329
    
    
    
    16,250
    
    
    
    69
    
    
    
    
    
    
    
    42,648Goodwill
    
    
    72,452
    
    
    
    15,269
    
    
    
    
    
    
    
    
    
    
    
    87,721Other intangible assets
    
    
    4,199
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    4,236Other assets
    
    
    
    
    
    
    6,724
    
    
    
    46,061
    
    
    
    
    
    
    
    52,785Total assets
    
    $
    203,579
    
    
    $
    75,265
    
    
    $
    (45,985
    )
    
    $
    97,209
    
    
    $
    330,068LIABILITIES AND STOCKHOLDERS EQUITY/(DEFICIT)Current liabilities:Short-term notes
    
    $
    21,817
    
    
    $
    23,957
    
    
    $
    
    
    
    $
    
    
    
    $
    45,774Current portion of long-term debt
    
    
    2,179
    
    
    
    118
    
    
    
    
    
    
    
    
    
    
    
    2,297Accounts and income taxes payable
    
    
    13,400
    
    
    
    51,648
    
    
    
    628
    
    
    
    
    
    
    
    65,676Accrued expenses
    
    
    28,036
    
    
    
    9,096
    
    
    
    9,020
    
    
    
    
    
    
    
    46,152Total current liabilities
    
    
    65,432
    
    
    
    84,819
    
    
    
    9,648
    
    
    
    
    
    
    
    159,899Long-term debt
    
    
    156,494
    
    
    
    1,378
    
    
    
    
    
    
    
    
    
    
    
    157,872Other long-term liabilities
    
    
    4,087
    
    
    
    9,858
    
    
    
    20,734
    
    
    
    (5,340
    )
    
    
    29,339Net due to (from) affiliates
    
    
    59,757
    
    
    
    (432
    )
    
    
    (59,325
    )
    
    
    
    
    
    
    Total liabilities
    
    $
    285,770
    
    
    $
    95,623
    
    
    $
    (28,943
    )
    
    $
    (5,340
    )
    
    $
    347,110Stockholders equity/(deficit):Preferred Stock
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    21Common and Class B Stock
    
    
    5
    
    
    
    
    
    
    
    398
    
    
    
    (5
    )
    
    
    398Additional paid-in capital
    
    
    26,927
    
    
    
    28,538
    
    
    
    115,421
    
    
    
    (55,465
    )
    
    
    115,421Retained earnings (deficit)
    
    
    (109,223
    )
    
    
    (49,039
    )
    
    
    (93,937
    )
    
    
    158,262
    
    
    
    (93,937
    )Deferred compensation and treasury stock
    
    
    
    
    
    
    
    
    
    
    (39,188
    )
    
    
    
    
    
    
    (39,188
    )Accumulated other comprehensive loss
    
    
    100
    
    
    
    143
    
    
    
    243
    
    
    
    (243
    )
    
    
    243Total stockholders equity/(deficit)
    
    
    (82,191
    )
    
    
    (20,358
    )
    
    
    (17,042
    )
    
    
    102,549
    
    
    
    (17,042
    )Total liabilities and stockholders
equity/(deficit)
    
    $
    203,579
    
    
    $
    75,265
    
    
    $
    (45,985
    )
    
    $
    97,209
    
    
    $
    330,068
 20




---



##### Table of Contents



For The Six months Ended June 30, 2007FeddersNorth
    
    
    Other
    
    
    Corporate

    
    
    Eliminating
    
    
    FeddersAmerica
    
    
    Fedders
    
    
    Parent
    
    
    Entries
    
    
    CorporationNet cash (used in) provided by operating activities
    
    $
    (33,829
    )
    
    $
    3,034
    
    
    $
    (9,152
    )
    
    $
    
    
    
    $
    (39,947
    )Net additions to property, plant and equipment
    
    
    (689
    )
    
    
    (593
    )
    
    
    (34
    )
    
    
    
    
    
    
    (1,316
    )Proceeds from prior year Walkersville sale
    
    
    4,098
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,098Net cash (used in) provided by investing activities
    
    
    3,409
    
    
    
    (593
    )
    
    
    (34
    )
    
    
    
    
    
    
    2,782Repayments of short-term notes
    
    
    (1,715
    )
    
    
    (9,419
    )
    
    
    
    
    
    
    
    
    
    
    (11,134
    )Warrants issued
    
    
    (1,000
    )
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    Proceeds from short-term debt
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000Proceeds from revolving credit facility
    
    
    28,468
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,468Repayments of long-term borrowings
    
    
    (24,943
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,943
    )Payments of debt issue costs
    
    
    (4,959
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,959
    )Proceeds from sale of treasury stock
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    2,000Change in net due to (from )
affiliate
    
    
    (15,069
    )
    
    
    7,337
    
    
    
    7,732
    
    
    
    
    
    
    
    Net cash (used in) provided by financing activities
    
    
    30,782
    
    
    
    (2,082
    )
    
    
    10,732
    
    
    
    
    
    
    
    39,432Effect of exchange rates
    
    
    (12
    )
    
    
    954
    
    
    
    (2
    )
    
    
    
    
    
    
    940Net (decrease) increase in cash and cash equivalents
    
    
    350
    
    
    
    1,313
    
    
    
    1,544
    
    
    
    
    
    
    
    3,207Cash and cash equivalents at beginning of period
    
    
    1,490
    
    
    
    2,597
    
    
    
    702
    
    
    
    
    
    
    
    4,789Cash and cash equivalents at end of period
    
    $
    1,840
    
    
    $
    3,910
    
    
    $
    2,246
    
    
    $
    
    
    
    $
    7,996
 For The Six Months Ended June 30, 2006FeddersNorth
    
    
    Other
    
    
    Corporate
    
    
    Eliminating
    
    
    FeddersAmerica
    
    
    Fedders
    
    
    Parent
    
    
    Entries
    
    
    CorporationNet cash (used in) provided by operating activities
    
    $
    29,441
    
    
    $
    (35,407
    )
    
    $
    15,179
    
    
    $
    
    
    
    $
    9,213Net additions to property, plant and equipment
    
    
    (752
    )
    
    
    (787
    )
    
    
    (59
    )
    
    
    
    
    
    
    (1,598
    )Disposal of property, plant and equipment
    
    
    878
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    878Acquisition of business, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash (used in) provided by investing activities
    
    
    126
    
    
    
    (787
    )
    
    
    (59
    )
    
    
    
    
    
    
    (720
    )Proceeds (repayments) of short-term notes
    
    
    (12,782
    )
    
    
    1,816
    
    
    
    
    
    
    
    
    
    
    
    (10,966
    )Net repayments of long-term debt
    
    
    (531
    )
    
    
    (52
    )
    
    
    
    
    
    
    
    
    
    
    (583
    )Change in net due to (from) affiliate
    
    
    (16,911
    )
    
    
    32,450
    
    
    
    (15,539
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (30,224
    )
    
    
    34,214
    
    
    
    (15,539
    )
    
    
    
    
    
    
    (11,549
    )Effect of exchange rates
    
    
    
    
    
    
    393
    
    
    
    
    
    
    
    
    
    
    
    393Net (decrease) increase in cash and cash equivalents
    
    
    (657
    )
    
    
    (1,587
    )
    
    
    (419
    )
    
    
    
    
    
    
    (2,663
    )Cash and cash equivalents at beginning of period
    
    
    6,455
    
    
    
    6,300
    
    
    
    1,662
    
    
    
    
    
    
    
    14,417Cash and cash equivalents at end of period
    
    $
    5,798
    
    
    $
    4,713
    
    
    $
    1,243
    
    
    $
    
    
    
    $
    11,754
 21




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##### Table of Contents



22




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##### Table of Contents



Overview
      Development of the Business
  23




---



##### Table of Contents



Results of Operations
  Operating Results as a Percent of Net Sales
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Net sales
    
    $
    45,504
    
    
    $
    95,567
    
    
    $
    75,644
    
    
    $
    195,268Gross profit
    
    
    15.9
    %
    
    
    14.3
    %
    
    
    12.4
    %
    
    
    13.5
    %Selling, general, and administrative expense
    
    
    (25.4
    )
    
    
    (17.3
    )
    
    
    (33.7
    )
    
    
    (16.2
    )Restructuring expense
    
    
    (0.5
    )
    
    
    (0.6
    )
    
    
    (0.3
    )
    
    
    (0.3
    )Operating income/(loss)
    
    
    (10.0
    )
    
    
    (3.6
    )
    
    
    (21.6
    )
    
    
    (3.0
    )Net interest expense
    
    
    (19.0
    )
    
    
    (5.6
    )
    
    
    (19.6
    )
    
    
    (5.5
    )Pre-tax loss
    
    
    (25.3
    )
    
    
    (9.0
    )
    
    
    (38.7
    )
    
    
    (8.8
    )
 Three months Ended June 30, 2007 versus the Three months Ended June 30, 2006
       24




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##### Table of Contents



Six months Ended June 30, 2007 versus the Six months Ended June 30, 2006
       Liquidity and Capital Resources
   25




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##### Table of Contents



26




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##### Table of Contents



27




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##### Table of Contents



.
 .
 An Audit of
Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial
Statements
 Changes in Internal Control Over Financial Reporting
 Changes In Internal Control Over Financial Reporting.
 28




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##### Table of Contents



a.)
    
    The Company established a work plan to develop new, more efficient accounting
processes and scheduled meeting dates in the second quarter of 2007 to complete this
initiative that will free up resources to accelerate the closing process and reconcile
accounts.b.)
    
    The Company required that operating units submit to the Corporate office balance
sheet reconciliations with evidence of appropriate review and approval.c.)
    
    The Company required that operating units submit to the Corporate office an
analytical review of the income statement and balance sheet as well as a reconciliation of
the unit trial balance to its financial statements.d.)
    
    The Company identified additional potential risks and drafted improved controls for
information technology based on COBIT.e.)
    
    The Company communicated the remediation log from the year-end testing for each
operating entity and established a framework for remediation in the second quarter.f.)
    
    The Company interviewed third-party consulting firms to assist with remediation and
testing 2006 material weaknesses and implementing new controls consistent with PCAOB
Auditing Standard No. 5.
 Limitations on the Effectiveness of Controls.
   29




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##### Table of Contents



PART II  OTHER INFORMATION
 
   
    
   
    
   
   
  EXHIBITNUMBER
    
    DESCRIPTION31.1
    
    Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 30




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##### Table of Contents



By:
    
    ROBERT L. LAURENT, JR.Chief Financial Officer
   31