.
.
.

FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

<Table>

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

</Table>

COMMISSION FILE NUMBER 1-8831

FEDDERS CORPORATION
(Exact name of Registrant as specified in its charter)

<Table>

DELAWARE 22-2572390
(State of Incorporation) (I.R.S. Employer
Identification No.)
505 MARTINSVILLE ROAD, 07938-0813
LIBERTY CORNER, NJ (Zip Code)
(Address of Principal Executive Offices)
</Table>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(908) 604-8686

SECURITIES REGISTERED PURSUANT TO SECTION 12(b)OF THE ACT:

<Table>
<Caption>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------

Common Stock, $.01 par value New York Stock Exchange, Inc.
Series A Cumulative Preferred New York Stock Exchange, Inc.
Stock, $.01 par value
</Table>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g)OF THE ACT:

NONE

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 and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]

Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The approximate aggregate market value (based upon the closing price on the
New York Stock Exchange) of common equity held by non-affiliates of the
Registrant as of June 30, 2004 was $132,637,929. (The value of a share of Common
Stock is used as the value for a share of Class B Stock as there is no
established market for Class B Stock and it is convertible into Common Stock on
a share-for-share basis.)

As of the close of business on September 1, 2005, there were outstanding
28,195,107 shares of the Registrant's Common Stock and 2,492,401 shares of its
Class B Stock.

DOCUMENTS INCORPORATED BY REFERENCE

None.

FEDDERS CORPORATION

FORM 10-K ANNUAL REPORT
JANUARY 1, 2004 TO DECEMBER 31, 2004

TABLE OF CONTENTS

<Table>
<Caption>
PAGE
----

PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 6
Item 3. Legal Proceedings........................................... 7
Item 4. Submission of Matters to a Vote of Security Holders......... 7
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities........... 8
Item 6. Selected Financial Data..................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 21
Item 8. Financial Statements and Supplementary Data................. 21
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 22
Item 9A. Controls and Procedures..................................... 22
Item 9B. Other Information........................................... 28
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 29
Item 11. Executive Compensation...................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 36
Item 13. Certain Relationships and Related Transactions.............. 37
Item 14. Principal Accountant Fees and Services...................... 37
PART IV
Item 15. Exhibits, Financial Statement Schedules..................... 39
</Table>

PART I

ITEM 1. BUSINESS

(a) GENERAL DEVELOPMENT OF BUSINESS

Fedders Corporation (the "Company", "Fedders" or the "Registrant") is a
leading global manufacturer and marketer of air treatment products, including
air conditioners, air cleaners, dehumidifiers and humidifiers, and thermal
technology products. The Company was established more than 100 years ago and has
been in the indoor air treatment business for more than 50 years.

The Company has been actively pursuing strategic acquisitions and alliances
and new product introductions to support continued growth in new and existing
markets. Activities in 2004 include:

- On November 1, we acquired the Addison Products Division of Heat
Controller, Inc., which manufactures and markets a broad line of air
conditioning products, primarily serving commercial and institutional
markets, which now operates as Fedders Addison Company, Inc.

- In October, we announced the establishment of a new business unit,
Fedders Global Sourcing Solutions, which will leverage the Company's
expertise in global sourcing and Asian manufacturing to assist other
manufacturers in developing Asian suppliers, conducting reverse internet
auctions and producing their products in our extensive China
manufacturing facilities.

- In the fourth quarter, we began construction of a research and
development center in Qingpu, Shanghai, China. The center began operation
by April 4, 2005.

Unless otherwise indicated, all references herein to "we", "our", the
"Company" or the "Registrant" include Fedders Corporation and its principal
operating subsidiaries. The discussion included herein reflects the Company's
operations during 2004.

(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

The Company has two reportable industry segments: Heating, Ventilation, Air
Conditioning and Refrigeration ("HVACR") and Engineered Products. See Note 8 of
the Notes to Consolidated Financial Statements at page F-18 herein.

The Company 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, heat pumps, gas
furnaces, dehumidifiers, humidifiers, air cleaners and thermal technology
products. We are a low-cost producer of high quality products due, in part, to
our Asian manufacturing base and our continuous cost-reduction programs in
product design and manufacturing processes.

HVACR

PRODUCTS

The HVACR segment designs, manufactures and markets air conditioners,
including window units, ducted central air conditioners, heat pumps, gas
furnaces, ductless split- and multi-split systems, through-the-wall, portable,
and packaged unit air conditioners, rotary compressors for air conditioners,
residential humidifiers, dehumidifiers and air cleaners.

MARKETS

The Company's consumer products are sold globally, primarily by the
Company's salaried sales force, directly to retailers, including regional,
national and multi-national and to original equipment manufacturers. Residential
and commercial products are primarily sold to wholesale distributors,
contractors and original equipment manufacturers by our salaried sales force and
through a network of manufacturers' representatives.
2

PRODUCTION

The Company currently manufactures air conditioners in Orlando, Florida;
Longview, Texas; Ningbo, Shanghai and Nanjing, China; Dadra, India; and Manila,
Philippines and rotary compressors in Xi'an, China.

SOURCES AND AVAILABILITY OF RAW MATERIALS

The principal raw materials used for production are steel, copper and
aluminum. The Company also purchases certain components used in its products
from other manufacturers including thermostats, compressors, motors and
electrical controls. The Company endeavors to obtain the lowest possible cost in
its purchases of raw materials and components, which must meet specified quality
standards, through an active global sourcing program.

ENGINEERED PRODUCTS

PRODUCTS

The Engineered Products segment designs, manufactures and markets products
for commercial and industrial indoor air quality and thermal technology markets
around the world. These products include electronic air cleaners, fan filters,
media filters and humidification systems and thermoelectric-based components and
equipment.

MARKETS

Engineered Products are primarily sold through manufacturers'
representatives, distributors and directly to end-users.

PRODUCTION

The Company produces air cleaning products and humidifiers in Sanford,
North Carolina. Cleanroom products are produced in Albuquerque, New Mexico and
Suzhou, China and thermoelectric devices are produced in Suzhou, China.
Thermoelectric modules are produced in Lawrence Township, New Jersey and
Quanzhou, China.

SOURCES AND AVAILABILITY OF RAW MATERIALS

The principal raw materials used for production are steel, aluminum, filter
paper and ceramics. The Company also purchases certain components used in its
products, such as motors and electrical controls, from other manufacturers. The
Company endeavors to obtain the lowest possible cost in its purchases of raw
materials and components, which must meet specified quality standards, through
an active global sourcing program.

SEASONALITY OF BUSINESS

The Company is succeeding with its strategy to diversify sales and
earnings; however, results of operations and financial condition are currently
principally dependent on the manufacture and sale of room air conditioners, the
demand for which is highly seasonal in North American markets. Seasonally low
volume sales are not sufficient to offset fixed costs, resulting in operating
losses at certain times of the year. In addition, the Company's working capital
needs are seasonal, with the greatest utilization of lines of credit occurring
early in the calendar year. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition," at pages 11 through 19 herein.

See also the discussion under "Working Capital Practices."

WORKING CAPITAL PRACTICES

The Company regularly reviews working capital with a view to maintaining
the lowest level consistent with requirements of anticipated levels of
operation. Sales currently peak in the period from March through
3

June and production is weighted towards the selling season. Accordingly, the
greatest use of credit lines occurs early in the calendar year. Cash balances
peak in the third quarter.

Information with respect to the Company's warranty and defective return
policy is provided in Note 1 of the Notes to Consolidated Financial Statements
at page F-5 herein.

See also the information entitled "Management's Discussion and Analysis of
Results of Operations and Financial Condition" at pages 11 through 19 herein.

BACKLOG

The backlog for the Company's products as of December 31, 2004, was $77.4
million, a decrease of 40.7% from December 31, 2003. This decrease reflects
lower orders of room air conditioners as a result of higher inventory levels
throughout channels of distribution following the seasonally cool summer of 2004
in key North American markets, offset in part by increased backlog in other
products.

QUALITY ASSURANCE

One of the key elements of the Company's strategy is a commitment to a
single worldwide standard of quality. All of the Company's principal
manufacturing facilities have received the highest level of quality
certification (ISO 9000 series) from the International Standards Organization
for their quality management systems. The ISO 9000 program is an internationally
recognized benchmark of quality management systems within a production facility.
The same level of quality will be required at all of the Company's manufacturing
facilities.

PATENTS, TRADEMARKS, LICENSES AND CONCESSIONS HELD

The Company owns a number of trademarks, and licenses the name MAYTAG from
Maytag Corporation for use on air conditioners and dehumidifiers. While the
Company believes that its trademarks, such as, FEDDERS, ADDISON, EMERSON QUIET
KOOL, AIRTEMP, MELCOR, TRION, SUN, KOPPEL, EUBANK, POLENZ and MAC-10, and the
trademark MAYTAG, are well known and enhance the marketing of its products, the
Company does not consider the successful conduct of its business to be dependent
upon such trademarks. The Company aggressively protects its trademark and
intellectual property rights worldwide.

COMPETITION

Domestically, our competitors include a number of foreign and domestic
manufacturers of room air conditioners and appliances, including Whirlpool
Corporation, Frigidaire Company, Matsushita Electric Industrial Co., Ltd., LG
Corporation and Haier. In the central air conditioner market, competitors
include Carrier Corporation, Trane, York International Corporation, Lennox
Industries Inc., Goodman Manufacturing Company and Nordyne, Inc. All of the
markets in which the Company does business are very competitive. Many of these
competitors are larger and have greater resources than the Company. The Company
competes principally on the basis of quality, price and its ability to deliver
products and services to its customers on an accurate-response basis. We believe
that we compete effectively by using a multiple brand strategy and providing
competitively-priced, high quality products.

Internationally, competitors vary depending on the market. Some markets,
such as China, are served by many local manufacturers. Other markets are
dominated by foreign manufacturers of air conditioners and electronics products,
including Matsushita Electric Industrial Co. Ltd., Carrier-Toshiba Corporation,
Hitachi, Ltd,. Mitsubishi Electric Corporation and Sanyo Electric Trading Co.,
Ltd., all of which also manufacture compressors. We believe that we can compete
effectively by using a strategy of manufacturing low cost air conditioners
locally and utilizing our global sourcing network.

RESEARCH AND DEVELOPMENT

The Company's product development activities include ongoing research and
development programs to redesign existing products, reduce manufacturing cost,
increase product efficiencies and create new products. In the twelve months
ended December 31, 2004, four months ended December 31, 2003, and twelve months
ended August 31, 2003 and 2002, the Company spent approximately $10.2 million,
$3.0 million, $9.5 million and $8.9 million, respectively, on research and
development. Research and development expenditures are included within selling,
general and administrative expense.

ENVIRONMENTAL PROTECTION

The Company's operations are subject to various United States (federal and
state) and foreign environmental statutes and regulations, including laws and
regulations dealing with storage, treatment, discharge and disposal of hazardous
materials, substances and wastes and that affect the production of chemical
refrigerants used in the operation of some of the Company's products. The
refrigerant used in room air conditioners is an HCFC that is to be phased out of
use in new products on January 1, 2010 in the United States. Chemical producers
have developed environmentally acceptable alternative refrigerants for use in
room air conditioners. The Company is currently supplying products using such
refrigerants in certain markets.

The Company believes it is currently in material compliance with applicable
environmental laws and regulations. The Company did not make capital
expenditures on environmental matters during the fiscal year ended December 31,
2004 that are material to its total capital expenditures, earnings and
competitive position and does not anticipate making material capital
expenditures on such items in the fiscal year ending December 31, 2005.

EMPLOYEES

The Company has approximately 2,700 employees worldwide, of which
approximately 194 are covered by collective bargaining agreements. During our
peak manufacturing period, we employ an additional 1,187 seasonal, temporary
workers. The Company considers its relations with its employees to be generally
satisfactory.

FOREIGN OPERATIONS

Foreign operations are subject to the risks inherent in such activities,
such as foreign regulations, unsettled political conditions and exchange rate
fluctuations.

Through certain subsidiary companies, the Company has operations in a
number of countries, including China, India, Germany, the United Kingdom and the
Philippines. Of our fourteen manufacturing facilities, eight are in China.

The Company's foreign operations, at times, may be adversely affected by
changes in government policies such as changes in laws and regulations (or the
interpretation thereof), restrictions on imports and exports and sources of
supply, duties or tariffs, the introduction of additional measures to control
inflation, changes in the rate or method of taxation, the imposition of
additional restrictions on currency conversion and remittances abroad and the
expropriation of private enterprise. In addition, policy concerns particular to
the United States with respect to a country in which the Company has operations
could adversely affect the Company's operations in that country.

The Company monitors its operations with a view to minimizing the impact on
its foreign investments and overall business that could arise as a result of the
risks inherent in maintaining operations in foreign countries as described
above.

WEBSITE ACCESS TO REPORTS

Fedders' annual reports and proxy statements are and have been throughout
2004 available, without charge, on Fedders' website (www.fedders.com) as soon as
reasonably practicable after they are filed with or

furnished to the SEC. Fedders also makes available on its website the charters
of its Board Committees, its Corporate Governance Guidelines and its Code of
Business Conduct and Ethics. Copies of SEC reports and other documents are also
available, without charge, from Investor Relations, Fedders Corporation, 505
Martinsville Road, Liberty Corner, New Jersey 07938 or by sending an email to
InvestorRelations@Fedders.com or by calling (908) 604-8686. The Company does not
post its Forms 10-K, 10-Q or 8-K on its website, as these reports are available
upon request and are also publicly available on the SEC's website, as indicated
below. Information on our website does not constitute part of this report.
Additionally, the Company's filings with the SEC may be read and copied at the
SEC Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330. These filings are also available on the SEC's website at
www.sec.gov free of charge as soon as reasonably practicable after the Company
has filed the above referenced reports.

ITEM 2. PROPERTIES

The Company owns or leases the following primary facilities:

<Table>
<Caption>
APPROXIMATE
SQUARE FEET
LOCATION PRINCIPAL FUNCTIONS OF FLOOR AREA
- -------- ------------------- -------------

Liberty Corner, New Jersey (Leased) Corporate Headquarters 25,000
Shanghai, China (Leased) International Headquarters 13,000
HVACR:
Effingham, Illinois (Owned) Warehouse 650,000
Orlando, Florida (Owned) Manufacture of air conditioners 160,000
Longview, Texas (Owned) Manufacture of air conditioners 100,000
Manila, Philippines (Leased) Manufacture of air conditioners 41,000
Ningbo, China (Leased) Manufacture of air conditioners 323,000
Shanghai, China (Leased) Manufacture of air conditioners 175,000
Nanjing, China (Leased) Manufacture of air conditioners 140,000
Dadra, India (50% owned) Manufacture of air conditioners 207,000
Xi'an, China (Leased) Manufacture of rotary compressors 127,000
Changzhou, China (Leased) Manufacture of heat exchangers 41,000
Qingpu, China (Leased) Research and development 92,000
Engineered Products:
Lawrence Township, New Jersey (Owned) Manufacture of thermoelectric modules 22,400
Quanzhou, China (Leased) Manufacture of thermoelectric modules 29,000
Sanford, North Carolina (Owned) Manufacture of air cleaning products 263,000
and humidifiers
Albuquerque, New Mexico (Leased) Manufacture of cleanroom products 63,000
Suzhou, China (Two plants) (Leased) Manufacture of cleanroom products and 95,000
thermoelectric devices
</Table>

The Effingham, Illinois facility is subject to a mortgage securing a $1.3
million, 1% promissory note payable over the next four years to the State of
Illinois. The Sanford, North Carolina and the Lawrence Township, New Jersey
facilities are each subject to a mortgage securing repayment of economic
development bonds and the Longview, Texas and Orlando, Florida facilities are
each subject to a mortgage. The Company believes that productive capacity at its
major manufacturing facilities is adequate to meet production needs in the
foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

<Table>
<Caption>
NAME AND AGE POSITION HELD EXECUTIVE OFFICER
- ------------ ------------- -----------------

Sal Giordano, Jr., 67 Chairman and Chief Executive Officer 1965
Jordan Bruno, 54 Vice President, Taxes 2000
Nancy DiGiovanni, 54 Vice President and Treasurer 1998
Robert N. Edwards, 59 Vice President and General Counsel 2000
Richard L. Essex, 55 Vice President and President, Fedders 2004
International
Peter Gasiewicz, 50 Senior Vice President and President, 2005
Fedders North America
Michael Giordano, 40(1) President 1999
Kent E. Hansen, 58 Executive Vice President, Administration 1996
and Secretary
Judy A. Katz, 53 Vice President, Strategic Planning and 2000
Corporate Marketing
Robert L. Laurent, Jr., 50 Executive Vice President, Finance and 1989
Acquisitions and Chief Financial Officer
Michael D. Webb, 55 Corporate Controller 2004
</Table>

- ---------------

(1) Son of Sal Giordano, Jr.

BUSINESS EXPERIENCE DURING THE LAST FIVE YEARS

Mr. Sal Giordano, Jr. has been Chief Executive Officer of the Company for
more than five years.

Mr. Bruno was elected Vice President, Taxes in December 2000. Previously,
he was Director, Taxes for more than five years.

Ms. DiGiovanni was elected to her present position in November 2004.
Previously, she served as Treasurer from October 1998.

Mr. Edwards was elected to his present position in June 2000. He has been
General Counsel of the Company for more than five years.

Mr. Essex was elected Vice President and President, Fedders International
in November 2004. Previously, he was Vice President, Fedders International from
April 2004, Senior Vice President, International from January 2003, and Vice
President, Sales, International from July 2001. Prior to joining Fedders, Mr.
Essex held senior sales and marketing positions with Frigidaire Home Products.

Mr. Gasiewicz was elected Senior Vice President and President, Fedders
North America in April 2005. Previously, he was with the International Comfort
Products unit of Carrier Corporation for more than five years, most recently in
the position of Vice President and General Manager from 2003 and prior thereto,
Vice

President, Worldwide Sales and Marketing from 2000 to 2003 and Vice President,
U.S. Sales from 1997 to 2000.

Mr. Michael Giordano was elected President in November 2004. Previously, he
was Executive Vice President, Finance and Administration and Chief Financial
Officer from June 2000 and, prior thereto, Vice President, Finance and Chief
Financial Officer from July 1, 1999.

Mr. Hansen was elected to his present position in June 2000. Previously he
was Senior Vice President and Secretary from August 1996.

Ms. Katz was elected to her present position in April 2004. Previously, she
was Vice President, Strategic Planning from June 2000 and, prior thereto, Vice
President, Communications and Planning.

Mr. Laurent was elected to his present position in November 2004.
Previously, he was Executive Vice President, Acquisitions and Alliances from
January 1999.

Mr. Webb was elected Corporate Controller in April 2004. Previously, he was
Controller, HVACR-Americas from March 2003, Controller, Fedders Appliances from
January 2002 and Group Controller, Fedders Air Conditioning from March 2000.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

The Company's Common Stock is listed on the New York Stock Exchange. There
is no established public trading market for the Company's Class B Stock, as
there are restrictions on its transfer. As of August 1, 2005, there were 2,624
holders of Common Stock and 13 holders of Class B Stock. For information with
respect to the Company's Common Stock and Class B Stock, see Notes 9 and 10 of
the Notes to Consolidated Financial Statements on pages F-20 through F-22.

PRICE RANGE OF COMMON AND CLASS A STOCK

For information regarding the high and low sale prices of the Company's
Common Stock for each of the quarters in the past two fiscal years, see Fedders
Corporation Quarterly Financial Data (unaudited) on page F-43.

DIVIDENDS PAID ON COMMON AND CLASS B STOCK

For information regarding the dividends paid by the Company on its Common
and Class B stock in the past five fiscal years, see Selected Financial Data on
page 9. As a result of Fedders Corporation being included in the covenants of
the 9 7/8% Senior Notes due 2014, payment of dividends by Fedders Corporation to
its stockholders will be limited by the terms of those covenants. See the
discussion under "Management's Discussion and Analysis of Results of Operations
and Financial Condition".

ITEM 6. SELECTED FINANCIAL DATA(1)

<Table>
<Caption>
FOUR MONTHS
YEAR ENDED ENDED FISCAL YEAR ENDED AUGUST 31,
DECEMBER 31, TWELVE MONTHS DECEMBER 31, -----------------------------------------
2004 ENDED 2003(7) 2003 2003 2002 2001 2000
------------ ------------- ------------ -------- -------- -------- --------

STATEMENT OF OPERATIONS DATA:
Net sales..................... $413,016 $427,954 $ 55,554 $421,703 $373,702 $405,697 $416,181
Gross profit.................. 60,255 91,198 7,301 92,868 83,050 68,700 104,828
Percent of net sales........ 14.6 21.3 13.1 22.0 22.2 16.9 25.2
Operating (loss) income(2).... (13,725) 25,193 (15,569) 31,079 20,339 (15,045) 46,854
Percent of net sales.......... (3.3) 5.9 (28.0) 7.4 5.4 (3.7) 11.3
(Loss) income before income
taxes and cumulative effect
of a change in accounting
principle................... (40,212) 6,430 (22,662) 13,020 2,976 (33,263) 30,474
Percent of net sales........ (9.7) 1.5 (40.8) 3.1 0.8 (8.2) 7.3
(Loss) income before
cumulative effect of a
change in accounting
principle................... (26,107) 4,345 (15,301) 8,796 8,009 (22,453) 20,401
Percent of net sales........ (6.3) 1.0 (27.5) 2.1 2.1 (5.5) 4.9
Cumulative effect of a change
in accounting
principle(3)................ -- -- -- 11,906 -- -- --
Net (loss) income............. $(26,107) $ 4,345 $(15,301) $ (3,110) $ 8,009 $(22,453) $ 20,401
Preferred Stock dividends..... 4,020 1,102 484 618 -- -- --
Net (loss) income applicable
to common stockholders...... $(30,127) $ 3,243 $(15,785) $ (3,728) $ 8,009 $(22,453) 20,401
(Loss) earnings per common
share(4):
Basic....................... $ (0.99) $ 0.11 $ (0.52) $ (0.12) $ 0.25 $ (0.71) $ 0.58
Diluted..................... (0.99) 0.11 (0.52) (0.12) 0.25 (0.71) 0.57
Dividends per share
declared(4):
Preferred Stock............. $ 2.150 $ 2.150 $ 0.538 $ 1.613 -- -- --
New Common Stock............ 0.120 0.120 0.003 0.120 $ 0.060 --
Old Common/Class A Stock.... -- -- -- -- 0.060 $ 0.120 $ 0.120
New Class B Stock........... 0.120 0.120 0.003 0.120 0.060 -- --
Old Class B Stock........... -- -- -- -- 0.054 0.108 0.108
BALANCE SHEET DATA (END OF
PERIOD):
Cash and cash equivalents..... $ 22,783 $ 22,043 $ 22,043 $ 60,902 $ 67,379 $ 51,192 $ 87,193
Total assets.................. 402,197 416,248 416,248 408,929 366,128 362,332 388,175
Long-term debt (including
current portion)(6)......... 162,539 161,744 161,744 164,044 167,131 168,455 166,434
Stockholders' equity(4)....... 58,206 62,950 62,950 74,928 77,818 73,014 112,260
Capital expenditures.......... 6,831 6,440 2,116 7,271 7,846 10,773 9,858
Depreciation and
amortization(5)............. 11,029 9,885 3,413 9,543 14,830 15,431 13,076
-------- -------- -------- -------- -------- -------- --------
OTHER FINANCIAL DATA:
Cash flow provided by (used
in):
Operating activities........ $(21,841) $ 369 $(58,232) $ 5,617 $ 34,134 $ 5,919 $ 4,619
Investing activities........ (14,054) (4,991) (555) (7,368) (14,564) (30,327) (15,037)
Financing activities........ 36.635 3,846 19,928 (4,726) (3,383) (11,593) (19,898)
</Table>

- ---------------

(1) The selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
and the consolidated financial statements and the notes thereto.

(2) Fiscal 2001 results include $8,947 of asset impairment, employee severance
and other restructuring charges, $4,031 of one-time inventory charges, a
$7,583 deferred compensation charge relating to the retirement of an officer
of the Company, an additional $2,283 of other non-recurring inventory
write-offs, $1,364 of operating losses incurred at the Tennessee and
Maryland facilities subsequent to the announcement that production at these
facilities would cease, a $726 non-cash charge for the re-pricing of a
majority of unexercised stock options and $716 of other one-time charges.

(3) In 2003, the Company recorded a transitional goodwill impairment charge of
$11.9 million as a cumulative effect of a change in accounting principle.
See Note 1 to the Notes to Consolidated Financial Statements.

(4) On December 5, 2003, the Company's Board of Directors authorized the
distribution of transferable rights to the holders of the Company's Common
and Class B stock. In the rights offering, holders of Common Stock and Class
B Stock as of December 22, 2003 received subscription rights to purchase
shares of Series A Cumulative Preferred Stock. 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 were issued as a result of
the offering for gross proceeds of $28.3 million.

On October 1, 2003, the Company granted an officer 150,000 shares of
restricted Common Stock of the Company pursuant to the officer's employment
agreement. The officer is not permitted to sell, assign, transfer, pledge
or otherwise encumber these shares prior to January 1, 2007. The Company
recorded $0.9 million of deferred compensation expense to be amortized over
the vesting period.

On May 16, 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 ten shares of
Common Stock and Class B Stock they held as of July 1, 2003. Each
transferable right represented the right to purchase one share of the
Company's Series A Cumulative Preferred Stock at the subscription price of
$23.70, until the expiration date of August 12, 2003. At the expiration of
the offering on August 12, 2003, 262,316 rights had been subscribed.

On February 14, 2003, the Company announced an offer to exchange shares of
Series A Cumulative Preferred Stock for up to 12,500,000 shares of the
Company's Common Stock, with 0.14 shares of Preferred Stock being offered
in exchange for every share of Common Stock. The exchange of 633,082 shares
of Common Stock for 88,276 shares of Series A Cumulative Preferred Stock
was completed on March 18, 2003.

In October 2002, the Company's Board of Directors approved a plan pursuant
to which a new class of cumulative preferred stock would be offered to
stockholders in exchange for up to 15,000,000 shares of the Company's
Common Stock, with 0.14 shares of Series A Cumulative Preferred Stock being
offered in exchange for every share of Common Stock. The Series A
Cumulative Preferred Stock receives a cumulative annual dividend of $2.15
and has a liquidation preference of $25.00 plus the amount of any accrued
and unpaid dividends. The holders of the Series A Cumulative Preferred
Stock have no right to vote, except in limited circumstances. The exchange
of 2,315,750 shares of Common Stock for 323,947 shares of Series A
Cumulative Preferred Stock was completed on December 27, 2002.

On March 26, 2002, the Company's stockholders approved a recapitalization
plan (the "Plan") which became effective the same day. Under the Plan the
holder of each share of Common Stock received 1.1 shares of new Common
Stock, the holder of each share of Class A Stock received 1.0 share of new
Common Stock and the holder of each share of Class B Stock received 1.1
shares of new Class B Stock.

During fiscal 2001, the Company repurchased 2,998,000 shares of old Common
and Class A Stock at an average price of $4.39 per share for a total of
$13,169, excluding commissions.

During fiscal 2000, the Company repurchased 2,768,000 shares of old Common
and Class A Stock at an average price of $4.87 per share for a total of
$13,484, excluding commissions.

(5) In accordance with SFAS No. 142, beginning September 1, 2002, the Company no
longer amortizes goodwill. Goodwill amortization expense was $3.0 million,
$2.7 million and $2.7 million in fiscal years 2002, 2001, and 2000,
respectively. See Note 1 to the Notes to Consolidated Financial Statements.

(6) In March 2004, Fedders North America, Inc. ("FNA"), a wholly-owned
subsidiary of the Company, issued $155,000 principal amount of 9 7/8% Senior
Notes due 2014. The Company and all of the continuing subsidiaries of FNA
are guarantors, on a senior basis, of the notes. FNA may redeem the notes on
and after March 1, 2009 for a defined redemption price. The provisions of
the notes limit, among other things, the payment of dividends by the
subsidiary.

On February 6, 2004, 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. In connection with this
transaction, the Company recorded a loss on debt extinguishment of $8.1
million for the year ended December 31, 2004.

(7) In 2003, the Company changed to a fiscal year ending December 31. The
results of operations for the 12 months ended December 31, 2003 are
presented for comparative purposes only and were not previously reported.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following is management's discussion and analysis of certain
significant factors, which affected our financial position and operating results
during the periods included in the accompanying consolidated financial
statements. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ from those anticipated
in forward-looking statements for many reasons. You should read the following
discussion with "Selected Historical Consolidated Financial Data" and our
historical consolidated financial statements included herein.

OVERVIEW

Fedders 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, heat pumps, gas furnaces,
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 billion global air treatment market.
Major markets we are targeting include 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.

ACQUISITIONS AND JOINT VENTURES

We have pursued acquisitions, strategic alliances and joint ventures that
complement or enhance our core air treatment business and generate overall
corporate value. These activities have (i) been a critical factor in driving
down costs by establishing our low-cost manufacturing base in Asia; (ii)
provided access to new geographic markets through well-known local brand names,
existing sales and distribution networks and experienced employees who are
familiar with the local markets; and (iii) expanded our air treatment business
through broadening product lines and extending distribution into commercial and
industrial markets.

In 1999, we acquired Trion, Inc., a leading manufacturer of equipment to
improve indoor air quality in cleanroom, residential, commercial and industrial
environments.

In 2000, we acquired (i) Sun Manufacturing, Inc. (which was merged into
Eubank Manufacturing Enterprises, Inc.), a manufacturer of specialized air
conditioning equipment used in schools and wireless

communications enclosures; (ii) Eubank Manufacturing Enterprises, Inc. (now
Fedders Eubank Company, Inc.), a manufacturer of residential and commercial
heating, ventilating and air conditioning products, including packaged air
conditioners and ducted central air conditioners; and (iii) ABB Koppel, Inc.
(now Fedders Koppel, Inc. and a subsidiary of Fedders International), a leading
manufacturer of packaged and room air conditioners in the Philippines, providing
access to this important market and a manufacturing base in the ASEAN trading
block.

In 2001, we acquired manufacturing assets to produce window air
conditioners in Shanghai, China. Also in 2001, we acquired Polenz GmbH, a
leading German HVAC distributor, providing access to this important market. In
addition, we established a joint venture with Voltas, Ltd. to produce window and
split air conditioners in India, giving us access to this growing market in
Asia.

In 2003, we established a joint venture with Suning Appliance Group, which
we believe is the largest retailer of air conditioners in China, which expanded
our room air conditioner manufacturing and sales capabilities in China. Fedders
holds a two-thirds interest in this joint venture, Fedders Suning (Nanjing) Co.,
Ltd. In 2003, Fedders also established a 50% joint venture with Xingrong Hi-Tech
Co., Ltd. in Changzhou, China to manufacture heat exchangers used in air
conditioners.

In 2004, we acquired the Addison Products Division of Heat Controller,
Inc., which manufactures and markets a broad line of air conditioning products,
primarily serving commercial and institutional markets, which now operates as
Fedders Addison Company, Inc.

Subsequent to year end, in March 2005 we acquired eighty percent of the
stock of Islandaire, Inc. Islandaire, Inc. manufactures and markets specialized
through-the-wall packaged terminal air conditioners and heat pumps. The Company
intends to purchase the remaining twenty percent of Islandaire stock within
three years.

We continually evaluate potential acquisitions and intend to actively
pursue acquisition opportunities, some of which may be material, but we do not
currently have any other agreements or understandings with respect to the
foregoing.

RESULTS OF OPERATIONS

On August 26, 2003, our board of directors decided to change our fiscal
year from August 31 to December 31. The following table presents our results of
operations, including the transition period indicated. Results for the four
months ended December 31, 2002 and for the twelve months ended December 31, 2003
are unaudited and are presented for comparison purposes.

OPERATING RESULTS AS A PERCENT OF NET SALES

<Table>
<Caption>
FOUR MONTHS FOUR MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, YEAR ENDED AUGUST 31,
------------ ------------ ------------ ------------ ---------------------
2004 2003 2003 2002 2003 2002
------------ ------------ ------------ ------------ --------- ---------

Net Sales.................. $413,016 $427,954 $55,554 $49,303 $421,703 $373,702
Gross Profit............... 14.6% 21.3% 13.1% 18.2% 22.0% 22.2%
Selling, general and
administrative expense... 18.1 15.6 42.3 37.8 14.7 16.9
Operating (loss) income.... (3.3) 5.9 (28.0) (19.6) 7.4 5.4
Interest expense........... 4.9 4.3 10.8 12.1 4.4 5.0
(Loss) income before income
taxes and cumulative
effect of a change in
accounting principle..... (9.7) 1.5 (40.8) (32.6) 3.1 0.8
</Table>

YEAR ENDED DECEMBER 31, 2004 VERSUS THE YEAR ENDED DECEMBER 31, 2003

Net sales for the year ended December 31, 2004 of $413.0 million decreased
3.5% from sales of $428.0 million for the year ended December 31, 2003. Net
sales in the HVACR segment of $372.0 million in 2004 decreased 5.8% from $394.8
million in 2003 as a result of much cooler than normal summer weather in key
North American markets, causing a very poor retail sales environment which not
only prevented in-season sales re-orders, but also resulted in customer returns.
Lower prices on room air conditioners also contributed to lower sales. Partially
offsetting the lower sales of room air conditioners in North America was the
growth 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 23.5% to $41.0 million in 2004, compared to $33.2 in 2003,
due to growth in industrial air cleaners in Asia and North America.
Industry-wide prices began to increase entering 2005.

Gross profit declined to $60.2 million, or 14.6% of net sales, in the year
ended December 31, 2004, compared to $91.2 million, or 21.3% of net sales in
2003. Gross profit in the HVACR segment of $45.5 million, or 12.2% of net sales
in 2004 decreased from $78.2 million, or 19.8% of net sales in 2003 as a result
of lower prices on room air conditioners, higher component and raw material
costs due to increases in commodity prices, including the loss of a value-added
tax (VAT) rebate of approximately $9.2 million, and by unabsorbed manufacturing
costs associated with the transfer of production from several U.S. factories to
China of $5.0 million. Gross profit in the Engineered Products segment of $14.7
million in 2004 increased from $12.3 million in 2003 as a result of increased
sales, but gross profit as a percentage of sales of 36.0% in 2004 decreased from
39.1% in 2003 as a result of higher component and raw material costs.

Selling, general and administrative expenses ("SG&A") for the year ended
December 31, 2004 were $74.8 million, or 18.1% of net sales, compared to $66.8
million, or 15.6% of net sales in 2003. SG&A expenses were higher than the prior
year as a result of higher selling expenses of $6.5 million due to increased
selling activity globally, and increased warehousing costs of $2.8 million to
support higher inventory caused in part by increased requirements and as a
result of the cooler than normal weather conditions in North America. These
increases were partially offset by a reduction in administrative expenses.

Operating loss for the year ended December 31, 2004 was $13.7 million, or
3.3% of net sales, compared to operating profit of $25.2 million, or 5.9% of net
sales, in 2003. The decrease reflects lower sales of room air conditioners in
North America, higher material costs, unabsorbed overhead and higher selling and
warehousing expenses.

Net interest expense increased in 2004 to $20.1 million, or 4.9% of net
sales, compared to $18.6 million, or 4.3% of net sales, in 2003. Interest
expense consisted of interest on the Company's long-term debt, most of which was
refinanced during 2004, and interest on short-term working capital loans in Asia
and on the Company's revolving credit facility in the U.S. Net interest expense
was 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 year
ended December 31, 2004 in connection with the extinguishment 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 and deferred
financing costs. A $0.8 million credit due to a revision in management's
estimates of required restructuring reserves for ongoing projects associated
with a 2001 restructuring was recorded in 2004.

Net loss applicable to common stockholders in 2004 was $30.1 million, or 99
cents loss per diluted common share. Net income applicable to common
stockholders in the year ended December 31, 2003 was $3.2 million, or 11 cents
earnings per diluted common share.

FOUR MONTHS ENDED DECEMBER 31, 2003 VERSUS THE FOUR MONTHS ENDED DECEMBER 31,
2002

Net sales in the four-month period ended December 31, 2003 increased by
12.7% to $55.6 million, compared to $49.3 million in the prior-year, four-month
period. The improvement was the result of an increase of $6.3 million, or 17.2%,
within the HVACR reporting segment due to increased air conditioner sales
13

in Asia and dehumidifier sales in North America. Sales in the Engineered
Products reporting segment of $12.7 million were essentially flat compared to
prior year, as weak sales of commercial and industrial air cleaners in Europe
and North America were offset by sales growth in Asia.

The gross profit in the four-month period ended December 31, 2003 was $7.3
million, or 13.1% of net sales, compared to $9.0 million, or 18.2% of net sales,
in the prior-year, four-month period. The lower gross margin was the result of
costs associated with the closing of our air conditioner production plant in
Georgia and consolidation of the production of commercial air conditioners at
our plant in Texas. Costs associated with this manufacturing rationalization and
redundant overhead costs between the two plants during the period amounted to
approximately $2.0 million. We also incurred start-up and transition costs of
approximately $2.2 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.

SG&A expenses in the four months ended December 31, 2003 were $23.5
million, or 42.3% of net sales, compared to $18.7 million, or 37.8% of net
sales, in the prior-year four-month period. The SG&A expenses in the 2003 period
included two non-recurring charges. A non-cash charge of $2.3 million was
recorded due to the variable accounting treatment associated with the value of
re-priced stock options to reflect the increase in the market price of our
stock. 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. A $1.6
million charge was recorded to account for a tax gross-up upon the expiration of
restrictions on stock granted pursuant to an employment agreement in October
1997.

The operating loss in the four months ended December 31, 2003 was $15.6
million, or 28.0% of net sales, compared to an operating loss of $9.7 million,
or 19.6% of net sales, in the prior-year, four-month period.

Net interest expense in the four months ended December 31, 2003 of $6.0
million was approximately equal to the prior-year, four-month period and
consisted primarily of interest expense on our long-term debt. Net interest
expense as a percent of net sales was lower than prior year due to the increase
in sales.

Upon adoption of Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets", we were required to perform a
transitional goodwill impairment test. The transitional goodwill impairment test
was completed during the fourth quarter of fiscal year 2003. As a result, we
recognized a non-cash transitional goodwill impairment charge of $11.9 million
in our 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 September 1,
2002.

Net loss in the four months ended December 31, 2003 applicable to common
stockholders, before the cumulative effect of a change in accounting principle,
was $15.8 million, compared to a net loss in the four months ended December 31,
2002 applicable to common stockholders, before the cumulative effect of a change
in accounting principle, of $10.9 million. Net loss applicable to common
stockholders in the four months ended December 31, 2002, including the $11.9
million non-cash transitional goodwill impairment charge, was $22.8 million.

YEAR ENDED AUGUST 31, 2003 (FISCAL 2003) VERSUS THE YEAR ENDED AUGUST 31, 2002
(FISCAL 2002)

Net sales for fiscal 2003 totaled $421.7 million, an increase of 12.8% from
sales of $373.7 million in fiscal 2002. The sales increase in fiscal 2003
reflects a $49.5 million, or 14.9%, increase in sales in the HVACR segment to
$382.2 million compared to $332.7 million in fiscal 2002. Sales in the HVACR
segment increased in all major global markets despite a general decline in
pricing. In the Engineered Products segment, sales were $39.5 million in fiscal
2003 compared to $41.0 million in fiscal 2002. The 3.6% sales decline was due to
continued weak demand in the capital equipment market for commercial and
industrial air cleaners.

Gross profit improved to $92.9 million in fiscal 2003 from $83.0 million in
fiscal 2002. The gross profit percentage was 22.0% of net sales in fiscal 2003
compared to 22.2% in fiscal 2002. The decline reflects continued deflationary
effects on pricing, overhead absorption variances at Engineered Products
production
14

facilities due to lower production and sales, higher manufacturing engineering
costs related to the movement of additional high-volume production to Asia and
start-up expenses related to supporting the introduction of new products
globally.

SG&A expenses for fiscal 2003 were $61.9 million, or 14.7% of net sales,
compared to $63.1 million, or 16.9% of net sales, in fiscal 2002. The decrease
was primarily due to the elimination of goodwill amortization expense.

Operating income increased 53.2% in fiscal 2003 to $31.1 million, or 7.4%
of net sales, compared to $20.3 million, or 5.4% of net sales, in fiscal 2002,
which included $3.0 million in goodwill amortization expense. The increase in
operating income reflects higher sales and improved operating leverage within
the HVACR segment.

Net interest expense decreased in fiscal 2003 to $18.5 million, or 4.4% of
net sales, compared to $18.6 million, or 5.0% of net sales, in fiscal 2002 due
to lower borrowing costs on our short-term lines of credit.

Upon adoption of SFAS No. 142, we were required to perform a transitional
goodwill impairment test. The transitional goodwill impairment test was
completed during the fourth quarter of fiscal year 2003. As a result, we
recognized a non-cash transitional goodwill impairment charge of $11.9 million
in our 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 September 1,
2002.

Net income in fiscal 2003 applicable to common stockholders before the
cumulative effect of a change in accounting principle was $8.2 million compared
to net income of $8.0 million in fiscal 2002. Net loss applicable to common
stockholders in fiscal 2003, including the $11.9 million non-cash transitional
goodwill impairment charge, was $3.7 million. Net income in fiscal 2002
benefited from a $6.0 million reduction in accrued tax liabilities. The
reduction was due to reserves no longer required for federal, state and foreign
tax purposes primarily due to favorable audit results and a change in estimate
for foreign taxes.

LIQUIDITY AND CAPITAL RESOURCES

Our working capital requirements are seasonal, with cash balances peaking
in the third quarter of each calendar year and the greatest utilization of our
lines of credit occurring early in the calendar year. Cash on hand amounted to
$22.8 million at December 31, 2004 compared to $22.0 million at December 31,
2003.

Net cash used in operations in calendar 2004 amounted to $21.8 million.
This compares to net cash provided by operations in calendar 2003 of $0.4
million. Cash was utilized in operations primarily as a result of the net loss
for the year, as well as decreases in accounts payable, offset in part by
decreases in inventory due to room air conditioners not being produced during
the fourth quarter of 2004, and a decrease in other current assets primarily as
a result of a reduction in VAT tax receivable. In calendar 2003, cash was
provided by operations primarily as a result of net income and an increase in
accounts payable, offset, in part, by an increase in finished goods inventories.
Net cash used in operations for the four months ended December 31, 2003 amounted
to $58.2 million, compared to $53.0 million in the prior-year, four-month
period. A build-up in inventory to support seasonal requirements was the main
use of cash during this period. Net cash provided by operations in fiscal 2003
was $5.6 million, primarily as a result of an increase in accounts payable and
accrued expenses, offset, in part, by increased finished goods inventories.

Net inventories at December 31, 2004 were $132.9 million compared to $145.5
million at December 31, 2003. The decrease is a result of reduced production of
room air conditioners in the fourth quarter of 2004 to align inventory levels to
lower expected sales of room air conditioners in 2005, as a result of higher
inventory levels throughout distribution channels following the cool summer in
key North American markets in 2004. Net inventories at December 31, 2003 were
$145.5 million compared to $78.9 million at August 31, 2003 (the end of fiscal
2003), and $103.7 million at December 31, 2002. Inventories increased during
this period due to inventory required to support the expansion of sales of
central air conditioners globally and all products in Asian markets, as well as
to meet U.S. retailers' earlier shipment requirements for the 2004 season. Net
inventories at August 31, 2003, were $78.9 million, compared to $48.6 million at
the end of fiscal 2002. The
15

increase in finished goods was the result of a build-up of inventory to support
in-season sales due to the shift to offshore production of high-volume products
and to support sales of new products globally.

In the fiscal year ended August 31, 2003, we completed two exchange offers
in which a new class of cumulative preferred stock was offered to stockholders
in exchange for our Common Stock. The exchange offers were intended to provide
an opportunity to stockholders interested in a security that will provide
significantly higher dividends than the Common Stock. The exchange of 2,315,750
shares of Common Stock for 323,947 shares of Series A Cumulative Preferred Stock
was completed on December 27, 2002, and the exchange of 633,082 shares of Common
Stock for 88,276 shares of Series A Cumulative Preferred Stock was completed on
March 18, 2003.

Subsequently, on two occasions, we distributed transferable rights to our
Common and Class B stockholders entitling them to purchase the Series A
Cumulative Preferred Stock at a discount to market prices. The rights offerings
were made to raise capital for possible future strategic acquisitions, to
decrease the use of debt for working capital and for general corporate purposes.
As of the expiration of the first offer on August 12, 2003, 262,316 rights had
been subscribed for gross proceeds to us of $6.2 million. As of the expiration
of the second offer on January 16, 2004, 1,195,092 rights had been subscribed
for net proceeds to us of approximately $28.0 million.

Net cash used in investing activities in calendar 2004 was $14.1 million
and primarily consisted of capital expenditures for the year of $6.8 million
which related primarily to investments in tooling, machinery and equipment to
support production and R&D in Asia, and the November 2004 acquisition of Addison
Products Division of Heat Controller, Inc., for $7.8 million. Net cash used in
investing activities in calendar 2003 amounted to $5.0 million and consisted
primarily of capital expenditures of $6.4 million and a March 2003 investment in
a joint venture with Suning Appliance Group to manufacture split-type air
conditioners in China. The Company has a 2/3 interest in the joint venture,
Fedders Suning (Nanjing) Co., Ltd. Net cash used in investing activities in the
four-month period ended December 31, 2003, consisted of capital expenditures of
$2.1 million, primarily to support the expansion of production capacity in Asia,
offset by the sale of our interest in a former joint venture in Spain for $1.6
million. Net cash used in investing activities in fiscal 2003 was $7.4 million
versus $14.6 million in the prior year. Capital expenditures in fiscal 2003 were
$7.3 million compared to $7.8 million in fiscal 2002 and were primarily related
to investments in tooling, machinery and equipment to support production in
Asia.

Net cash provided by financing activities in calendar 2004 amounted to
$36.6 million, consisting primarily of $27.1 million in short-term borrowings to
support operating needs and the acquisition of Addison, and $28.3 million of
proceeds from the exercise of subscription rights. These were offset in part by
a call premium and deferred financing charges paid of $10.4 million resulting
from refinancing long-term debt and dividend payments of $7.7 million. This
compares to cash provided by financing activities of $3.8 million in calendar
2003, consisting of short-term borrowings of $6.1 million to support production,
offset by $4.3 million in repayments of long-term debt and cash dividends of
$4.6 million. Net cash provided by financing activities during the four months
ended December 31, 2003 was $19.9 million and consisted primarily of $22.9
million in short-term borrowings to support production in Asia and $1.7 million
of proceeds from stock options exercised, offset by $2.4 million of cash
dividends and the repayment of $2.3 million of long-term debt. Net cash used in
financing activities in fiscal 2003 amounted to $4.7 million and consisted
primarily of $4.1 million of cash dividends and repayments of debt of $6.4
million, offset by $6.2 million in proceeds from a rights offering. Net cash
used in financing activities in the prior year was $3.4 million and consisted
primarily of $3.7 million of cash dividends paid.

We declared quarterly dividends of 12 cents on each share of outstanding
Common and Class B Stock and $2.15 on each share of outstanding Preferred Stock
in calendar 2004. We declared quarterly dividends of 12 cents on each share of
outstanding Common and Class B Stock and $2.15 on each share of outstanding
Preferred Stock in calendar 2003. As a result of Fedders Corporation being
included in the covenants of the 9 7/8% Senior Notes due 2014 (see below),
payment of dividends by Fedders Corporation to its stockholders will be limited
by the terms of those covenants.

In calendar 2004, our $100.0 million revolving credit facility was utilized
for seven months with a maximum outstanding balance during the fiscal year of
$40.5 million. The term of this credit facility expires on February 1, 2006. We
also utilized short-term borrowing facilities to support production in our China
operations. There was a maximum outstanding balance of $42.1 million in China
during 2004.

Senior Notes bearing interest at 9 7/8% with an aggregate $155.0 million
principal amount maturing in 2014 (the "Senior Notes") were issued during 2004
by Fedders North America, Inc. ("FNA") to refinance $150.0 million outstanding
of 9 3/8% Senior Subordinated Notes due in 2007.

On June 24, 2005, FNA defaulted on the covenant in the indenture pursuant
to which the Senior Notes were issued (the "Indenture") requiring us to file a
Form 10-K for the year ended December 31, 2004. This delay in filing the Form
10-K also resulted in a default under our agreement with Wachovia Bank, NA (the
"Senior Lender"). On September 13, 2005, FNA received the written consent from
holders of a majority in aggregate principal amount of the outstanding Senior
Notes under the Indenture waiving the default in performance of this covenant
and consenting to the adoption of the First Supplemental Indenture and Waiver,
dated September 13, 2005, (the "First Supplemental Indenture") among Fedders
Corporation, Fedders North America, Inc., the Guarantors named in the Indenture
(the "Guarantors") and U.S. Bank National Association, as Trustee (the
"Trustee"). The First Supplemental Indenture established a waiver period (the
"Waiver Period"), which ends on December 31, 2005, during which the Company must
complete the filing of this Form 10-K and of the Forms 10-Q for the first,
second and third quarters of 2005. The Company currently expects to complete
these filings during the Waiver Period.

A default under the Indenture or under our agreement with the Senior Lender
will trigger a cross default under the terms of the other agreement. During
2005, as a result of the delay in filing this annual report on Form 10-K and
quarterly reports on Form 10-Q for the first and second quarters, the Company
was in default of its agreement with the Senior Lender related to a covenant
requiring the Company to timely file these reports. The Company subsequently
received a waiver of this default. See Note 15 to the consolidated financial
statements. By the terms of the waiver, the Company must file its Form 10-K on
or before September 30, 2005 and Forms 10-Q for the first and second quarters of
2005 on or before November 30, 2005. The Company currently expects to file these
reports by such date.

In order to obtain the consent of the holders of the Senior Notes, pursuant
to the First Supplemental Indenture, the Company and FNA agreed that during the
Waiver Period an additional 100 basis points of interest will accrue on the
principal amount of the Senior Notes, which amount shall be payable with the
interest payment due on March 1, 2006.

In connection with the waiver of the default, the Indenture was amended by
the First Supplemental Indenture as follows:

- To include the Company under certain covenants of the Indenture;

- To limit the Company, FNA and the Restricted Subsidiaries, as defined in
the First Supplemental Indenture (the "Restricted Subsidiaries"), from
making restricted payments, including dividends, incurring debt
obligations or making acquisitions during the Waiver Period;

- To require the Company to enter into a pledge agreement pursuant to which
it granted a second lien on the stock of Fedders International, Inc. to
secure its obligations under its guarantee in the Indenture.

Pursuant to the Indenture, FNA was required to make a semi-annual interest
payment to the noteholders on September 1, 2005. FNA did not make the payment on
or before September 1, 2005. Under the terms of the Indenture, a failure to make
an interest payment by the date due is not an event of default if the payment is
made within 30 days from the date it was originally due. FNA utilized the 30 day
grace period in order to complete the documentation required for the waiver and
paid all accrued interest due on the Senior Notes on September 14, 2005.

The following summarizes Fedders' contractual cash obligations and
commercial commitments at December 31, 2004 and the effect such obligations are
expected to have on liquidity and cash flow in future periods.

<Table>
<Caption>
PAYMENTS DUE BY PERIOD
----------------------------------------------------------
LESS THAN
-------------------------------
CONTRACTUAL OBLIGATION TOTAL 1 YEAR 2-3 YEARS 4-5 YEARS AFTER 5 YEARS
- ---------------------- -------- ------- --------- --------- -------------
(AMOUNTS IN THOUSANDS)

Long-term debt, including current
maturities..................... $159,142 $ 1,154 $ 2,049 $ 1,216 $154,723
Capital lease obligations........ 3,397 499 1,679 214 1,005
Operating leases and contractual
minimum payments............... 33,837 5,138 8,606 7,913 12,180
Short term notes................. 57,571 57,571 -- -- --
Pension obligation............... 16,562 1,656 3,312 3,312 8,282
-------- ------- ------- ------- --------
Total contractual cash
obligations.................... $270,509 $66,018 $15,646 $12,655 $176,190
======== ======= ======= ======= ========
</Table>

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. The Company's subsidiaries would be
obligated to perform 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.

<Table>
<Caption>
COMMITMENTS BY PERIOD
----------------------------------------------------------
LESS THAN (AMOUNTS IN THOUSANDS)
---------------------------------
OTHER COMMERCIAL COMMITMENTS TOTAL 1 YEAR 2-3 YEARS 4-5 YEARS AFTER 5 YEARS
- ---------------------------- ------ ------- ---------- ---------- -------------
(AMOUNTS IN THOUSANDS)

Guarantee of debt................... $2,643 $1,219 $1,155 269 --
------ ------ ------ --- ----
Total commercial commitments........ $2,643 $1,219 $1,155 269 --
====== ====== ====== === ====
</Table>

The Company has incurred operating losses and used cash in its operations
and for investment in both the four month period ended December 31, 2003 and the
year ended December 31, 2004 requiring the Company to utilize higher levels of
its short-term borrowing facilities to fund ongoing operations. In an effort to
reduce costs and enhance the Company's liquidity, management has taken steps to
rationalize and consolidate certain of its domestic operations and reduce
redundancies and overlap within its organizational structure. In addition, the
Company has offered for sale all of the capital stock of Melcor Corporation, its
thermal management subsidiary, and its industrial facility and 182 acres of
development property in Walkersville, Maryland. The Company is currently
negotiating a contract for the sale of Melcor, and an auction of the facility
and property in Maryland will take place on November 1, 2005. The Company
expects minimum cash proceeds from the two transactions to total in excess of
$30 million.

Management believes that through existing operations, as well as the steps
outlined above, the Company's existing and future sources of cash, anticipated
future earnings, and short-term borrowing capacity are adequate to meet the
demands of its operations and its short and long-term credit requirements. In
addition, the Company believes it will be able to secure a revolving credit
facility upon the expiration of its current revolving credit facility with
Wachovia Bank, NA, which expires in February 2006.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

2004, the FASB issued FASB Staff Position ("FSP") EITF Issue 03-1-1 which
delayed the effective date for the measurement and recognition guidance
contained in EITF 03-1 pending finalization of the draft FSP EITF Issue 03-1-a,
"Implementation Guidance for the Application of Paragraph 16 of EITF 03-1." The
disclosure requirements of EITF 03-1 remain in effect. The Company adopted the
disclosure requirements of EITF 03-1 as of December 31, 2004. The adoption of
the recognition and measurement provisions of EITF 03-1 when finalized are not
expected to have a material impact on the Company's results of operations,
financial position or cash flows.

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 153, "Exchanges of Non-monetary
Assets", as an amendment of APB Opinion No. 29. FAS No. 153 eliminates the
exception to fair value for exchanges of similar productive assets and replaces
it with a general exception for exchange transactions that do not have
commercial substance. The provisions of this Statement shall be effective for
non-monetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. The provisions of this Statement shall be applied prospectively. The
Company will adopt FASB Statement No. 153 in its third quarter of fiscal 2005
and does not expect it to have material impact on the results of operations,
financial position, or cash flows.

In December 2004, the FASB issued Staff Position No. FAS 109-1,
"Application of SFAS No. 109, Accounting for Income Taxes, to the Tax Deduction
on Qualified Production Activities provided by the American Jobs Creation Act of
2004" ("FSP 109-1"). FSP 109-1 states that qualified domestic production
activities should be accounted for as a special deduction under SFAS No. 109,
"Accounting for Income Taxes." The provisions of FSP 109-1 are effective
immediately. The Company is currently evaluating the impact of the new Act,
which may allow the Company to qualify for a benefit beginning in fiscal 2005.

In December 2004, the FASB issued Staff Position No. FAS 109-2, "Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision Within
the American Jobs Creation Act of 2004". The American Jobs Creation Act of 2004
introduces a special one-time dividends received deduction on the repatriation
of certain foreign earnings to a U.S. taxpayer provided certain criteria are
met. As disclosed in Note 7 to the consolidated financial statements, the
Company will repatriate foreign earnings under this provision, and accordingly
has reduced its U.S. tax provision at December 31, 2004 by $1.1 million for the
U.S. tax differential.

In November 2004, the FASB issued Statement of Financial Accounting
Standards No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4", to
improve the comparability of cross-border financial reporting. This statement
amends and clarifies the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). This Statement
requires that those items be recognized as current-period charges regardless of
whether they meet the criterion of "so abnormal" as stated in ARB No. 43,
Chapter 4. In addition, this Statement requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity
of the production facilities. The provisions of this Statement will be effective
for inventory costs incurred during fiscal years beginning after June 15, 2005.
The provision of this statement will be applied prospectively. The Company is
currently assessing the impact that FASB Statement No. 151 will have on its
results of operations, financial position, or cash flows.

On December 16, 2004, the FASB issued FASB Statement No. 123 (revised
2004), "Share-Based Payment," ("Statement 123(R)") which is a revision of FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123").
Statement 123(R) supersedes Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("Opinion 25") and amends FASB
Statement No. 95, "Statement of Cash Flows." Generally, the approach in
Statement 123(R) is similar to the approach described in Statement 123. However,
Statement 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the income statement based
on their fair values. Pro forma disclosure is no longer an alternative.

Statement 123(R) is effective for the Company as of January 1, 2006. The
Company is currently assessing the impact that Statement 123(R) will have on its
results of operations, financial position, or cash flows.

On December 23, 2003, the FASB issued Statement of Financial Accounting
Standards No. 132 (revised 2003), "Employers' Disclosures about Pensions and
Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and
106, and a revision of FASB Statement No. 132." This Statement requires
additional disclosures about the assets, obligations, cash flows, and net
periodic benefit cost of defined benefit pension plans and other defined benefit
postretirement plans. The new disclosures are generally effective for 2003
calendar year-end financial statements of public companies, with a delayed
effective date for certain disclosures for foreign plans. The Company adopted
this statement in December 2003.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

ESTIMATES

In preparing financial statements in accordance with accounting principles
generally accepted in the United States, management makes estimates and
assumptions that affect the reported amounts and disclosures of assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

DEFERRED TAX ASSETS

At December 31, 2004, we had US and foreign net operating loss
carry-forwards of approximately $39 million and $6 million respectively, for
which we recorded a deferred tax asset. For us to realize the benefit of our
deferred tax asset, we must achieve future earnings prior to the expiration of
our net operating loss carry-forwards. We have established a valuation allowance
against the future tax benefit of a portion of our net operating loss
carry-forwards. We may need to further adjust that valuation allowance if future
earnings are, or are projected to be, significantly different from current
estimates. The valuation allowance reflects the uncertainty associated with the
realization of deferred tax assets. The increase in the valuation reserve was
due primarily to foreign net operating losses.

IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL

We review long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
recoverability of the carrying amount of an asset or asset group should be
assessed. We assess the carrying amount of the asset or asset group by comparing
the carrying amount to the estimate of cash inflows, net of outflows. If the
estimated net cash inflows are less than the asset carrying amount, the asset is
written down to fair value. Fair value is based upon quoted market prices, if
available. When quoted market prices are not available, we estimate fair value
based upon the selling prices of similar assets or valuation techniques. We must
estimate the net cash inflows to assess an asset or asset group carrying amount
and fair value. Estimates are based upon internal budgets and forecasts. A
change in the utilization of the assets or a decision to exit certain product
lines or manufacturing locations could impact our estimate of future cash flows.
A decrease in estimated future cash flows could reduce the fair values of long-
lived assets, increasing the likelihood of impairment, which could have a
significant impact on our consolidated results of operations and financial
position.

We are required to test goodwill for impairment at least annually or
between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carry
amount. We have elected to perform the annual tests for indications of goodwill
impairment as of September 30 of each year. We identify potential goodwill
impairment by comparing the fair value of a reporting segment with its carrying
amount, including goodwill. We determine 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. We measure the amount of
goodwill impairment by comparing the implied fair value of reporting segment
goodwill with the carrying amount of that goodwill. If the carrying amount of
the reporting segment goodwill exceeds the implied fair value of goodwill, an
impairment loss is recognized as an operating expense.

WARRANTY AND DEFECTIVE RETURNS

Our air conditioner products are covered by standard product warranty plans
that extend from one to five years. In addition, major retailers have consumer
return policies that allow consumers the ability to return product that may be
defective in lieu of field service. Upon return to us, these units are
inspected, repaired as required, reboxed and held for future sale as factory
reconditioned products. A portion of those units returned is 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.

We estimate warranty costs and defective returns utilizing historical
failure and defective return rates, which may or may not be indicative of future
rates. The estimate for warranty obligations and defective returns is a critical
accounting estimate for the HVACR segment.

Over the past three years, warranty and defective return costs represented
approximately 5.4% of sales for the HVACR segment. Each quarter, the estimate of
warranty and defective return obligations, including the assumptions about
estimated failure and return rates, is reevaluated.

We have discussed the development and selection of this and other critical
accounting estimates with the Audit Committee of our Board of Directors, and the
Audit Committee has reviewed the disclosure in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

END OF SEASON RETURNS

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 and returns. (See "Warranty and
Defective Returns" above).

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. The Company's sales of room air
conditioners are seasonal, and, with the exception of certain significant
customers, the Company generally does not allow its customers the right of
return of unsold product at the end of the selling season. For such significant
customers, the Company has a process of estimating potential end of season
returns based upon a review of customer inventory levels, taking into account
actual and expected sell-through of product during the summer season.

RISK FACTORS

Foreign operations are subject to the risks inherent in such activities,
such as foreign regulations, unsettled political conditions and exchange rate
fluctuations such as the recent revaluation of the Chinese currency.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The only activity subject to market risk in which the Company engages is
hedging exchange rates. The impact of exchange rate fluctuations on our results
of operations cannot be accurately predicted. From time to time we engage in
hedging activities in an effort to mitigate the impact of exchange rate
fluctuations. However, we cannot assure that any hedging transactions we enter
into will be effective or will not result in foreign exchange hedging loss.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements of the Company at December 31, 2004
and 2003, and for the twelve months ended December 31, 2004, August 31, 2003 and
four months ended December 31, 2003, the

notes thereto and the report of the Company's independent registered public
accounting firm thereon are included at pages F-1 through F-[41], herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On April 14, 2005, Deloitte & Touche LLP ("Deloitte") informed Fedders
Corporation (the "Company") that it will not stand for reappointment as the
Company's independent registered public accounting firm for the year ending
December 31, 2005 or for any of the quarterly reporting periods therein.
Deloitte has been engaged to audit the Company's financial statements as of
December 31, 2003 and for the transition period from September 1, 2003 through
December 31, 2003, and the financial statements as of and for the year ended
December 31, 2004, including reporting on management's assessment of the
effectiveness of the Company's internal control over financial reporting and the
effectiveness of the Company's internal control over financial reporting as of
December 31, 2004.

During each of the fiscal years ended December 31, 2004, August 31, 2003
and the four months periods ended December 31, 2003 and the subsequent period
from January 1, 2005 through September 30, 2005, there were no disagreements
between the Company and Deloitte on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Deloitte, would have
caused Deloitte to make reference to the subject matter of the disagreement(s)
in connection with its report on the consolidated financial statements for such
periods.

During each of the fiscal years ended December 31, 2004, August 31, 2003
and the four months periods ended December 31, 2003, and the subsequent period
from January 1, 2005 through September 30, 2005, there were no "reportable
events" as that term is defined in Item 304(a)(1)(v) of Regulation S-K except
that Deloitte has disclaimed an opinion on management's process of evaluating
the effectiveness of the Company's internal control over financial reporting as
of December 31, 2004, and has issued an adverse opinion with respect to the
operating effectiveness of internal control over financial reporting as of
December 31, 2004.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. The Company's
management, under the supervision of and with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the Company's disclosure controls and procedures, as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as of the end of the period covered by
this report. Based on such evaluation, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that because of the material weaknesses
described below, the Company's disclosure controls and procedures were not
effective as of December 31, 2004. To address the deficiencies described below,
the Company performed additional analysis and other post-closing procedures to
ensure that the Company's consolidated financial statements were prepared in
accordance with accounting principles generally accepted in the United States.
Accordingly, management believes that (i) the financial statements filed fairly
present in all material respects the Company's financial condition, results of
operations and cash flows for the periods presented, and (ii) this report does
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report.

Management's Report on Internal Control Over Financial Reporting. The
Company's management is responsible for establishing and maintaining adequate
internal control over financial reporting, as that term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f). The Company's internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. The Company's management, including the principal executive officer
and principal financial officer, has conducted an assessment of its internal
control over financial reporting as of December 31, 2004, based on criteria
established in Internal Control -- Integrated Framework issued by the

Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), and
concluded that the Company did not maintain effective internal control over
financial reporting. In conducting its assessment, management performed an
incomplete review as of December 31, 2004 with respect to all five components of
internal control over financial reporting: control environment, risk assessment,
control activities, information and communication, and monitoring.

The Company's management determined that the identified control
deficiencies related to the controls listed below are material weaknesses
because the Company believes that these deficiencies could result in more than a
remote likelihood that a material misstatement of the annual or interim
financial statements would not be prevented or detected.

- The Company's control environment did not sufficiently promote effective
internal control over financial reporting throughout its management
structure, and this material weakness was a contributing factor in the
development of other material weaknesses described below. Principal
contributing factors included the turnover of employees in key financial
reporting positions, the lack of a formal program for training members of
the Company's finance and accounting groups, a lack of a full evaluation
of the Company's financial system applications due to incomplete
documentation and testing of key controls, and the lack of a complete
entity-wide risk assessment. This deficient control environment also
contributed to the Company's inability to complete its documentation of
controls by the as of date of December 31, 2004, and to complete its
assessment of design effectiveness, general computer controls, financial
system application controls, and tax controls.

- Controls over the selection and application of accounting principles
generally accepted in the United States of America to resolve non-routine
or complex accounting matters are ineffective as a result of inadequate
resources and technical accounting expertise, along with a lack of
appropriate training.

- The design and operation of controls over the financial closing and
reporting process are ineffective as a result of the lack of timely
preparation of account analyses and reconciliations, a lack of
appropriate review of account reconciliations and supporting analyses,
errors in account balance classifications, and inadequate controls over
spreadsheet preparation.

- Controls over the process for recording and approving journal entries
were inadequate as a result of a lack of appropriate evidence of review
and approval, and a lack of adequate documentation and support.

- Controls over the segregation of duties were inadequate due to an
inadequate level of accounting and finance resources.

- Controls over the recording of product revenues were not effective with
respect to estimating a provision for returns of seasonal product and the
proper cutoff of revenue with respect to a non-routine revenue
transaction.

- The design and operation of controls over the valuation of inventory
reserves for the following: refurbishments, shrinkage, manufacturing
variances, and intercompany profit; were ineffective as a result of a
lack of effective supervisory controls over the monitoring and review of
these inventory reserves.

- Controls over the recording and reconciliation of property, plant and
equipment at certain domestic businesses were ineffective as a result of
a lack of timely and effective reconciliation of the fixed asset
subsidiary ledgers to the general ledger.

The material weaknesses described above resulted in numerous adjustments to
the financial statements as of and for the year ended December 31, 2004 as well
as the restatement of comprehensive income as discussed in Note 1 to the
consolidated financial statements.

As a result of the aforementioned control deficiencies, which constitute
material weaknesses in internal control over financial reporting, the Company's
management has determined that there is more than a remote

likelihood that a material misstatement of the annual or interim financial
statements would not have been prevented or detected.

Management has excluded from its report Fedders Addison Company, Inc.
("Addison"), a material acquisition consummated on November 2, 2004, that was
not required to be assessed in 2004. The Company's consolidated revenues for the
year ended December 31, 2004 were $413.0 million, of which Addison represented
$2.6 million. The Company's total assets as of December 31, 2004 were $405.0
million, of which Addison represented $10.0 million.

As a result of management's incomplete assessment of the effectiveness of
the Company's internal control over financial reporting as of December 31, 2004,
Deloitte & Touche LLP, our independent registered public accounting firm, was
unable to perform auditing procedures necessary to form an opinion on
management's assessment and did not express an opinion on management's
assessment and expressed an adverse opinion on the effectiveness of internal
control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Fedders Corporation:

We were engaged to audit management's assessment regarding the
effectiveness of internal control over financial reporting of Fedders
Corporation and subsidiaries (the "Company") as of December 31, 2004. As
described in Management's Report on Internal Control Over Financial Reporting,
management excluded from their assessment the internal control over financial
reporting at Fedders Addison Company, Inc., which was acquired on November 2,
2004, and whose financial statements reflect total assets and revenues
constituting 2% and 1% percent, respectively, of the related consolidated
financial statement amounts as of and for the year ended December 31, 2004. The
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting.

As described in the accompanying Management's Report on Internal Control
Over Financial Reporting, the Company was unable to complete its assessment of
the effectiveness of the Company's internal control over financial reporting.
Accordingly, we are unable to perform auditing procedures necessary to form an
opinion on management's assessment.

A company's internal control over financial reporting is a process designed
by, or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

A material weakness is a significant deficiency, or combination of
significant deficiencies, that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not be
prevented or detected. The following material weaknesses have been identified
and included in management's assessment:

CONTROL ENVIRONMENT

The Company's control environment did not sufficiently promote effective
internal control over financial reporting throughout its management structure,
and this material weakness was a contributing factor in the development of other
material weaknesses described below. Principal contributing factors included the
turnover of employees in key financial reporting positions, the lack of a formal
program for training members of the Company's finance and accounting groups, a
lack of a full evaluation of the Company's financial system applications due to
incomplete documentation and testing of key controls, and the lack of a complete
entity-wide risk assessment. This deficient control environment also contributed
to the Company's inability to complete its documentation of controls by the as
of date of December 31, 2004, and to complete its assessment of design
effectiveness, general computer controls, financial system application controls,
and tax controls.
25

SELECTION AND APPLICATION OF ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED STATES OF AMERICA

The Company's controls over the selection and application of accounting
principles generally accepted in the United States of America are ineffective as
a result of inadequate resources and technical accounting expertise, and a lack
of appropriate training, within the accounting function to resolve non-routine
or complex accounting matters. This resulted in numerous adjustments to the
financial statements as of and for the year ended December 31, 2004, as well as
the restatement of comprehensive income (loss) as discussed in Note 1 to the
consolidated financial statements. Due to the potential pervasive effect on the
financial statement account balances and disclosures, in the aggregate, there is
more than a remote likelihood that a material misstatement of the annual or
interim financial statements would not have been prevented or detected.

THE FINANCIAL CLOSING AND REPORTING PROCESS

The Company's design and operation of controls with respect to the process
of preparing and reviewing the annual and interim financial statements are
ineffective. Deficiencies identified include the lack of timely preparation of
account analyses and reconciliations, a lack of appropriate review of account
reconciliations and supporting analyses, errors in account balance
classifications, and inadequate controls over spreadsheet preparation. As a
result of these deficiencies, numerous adjustments to the financial statements
were required as of and for the year ended December 31, 2004. Due to the
potential pervasive effect on the financial statement account balances and
disclosures and the importance of the annual and interim financial closing and
reporting process, in the aggregate, there is more than a remote likelihood that
a material misstatement of the annual or interim financial statements would not
have been prevented or detected.

INADEQUATE CONTROLS OVER JOURNAL ENTRIES

The Company did not have appropriate controls around the process for
recording and approving journal entries. Numerous instances were identified
where journal entries lacked appropriate evidence of review and approval prior
to being recorded. Instances also occurred in which journal entries were not
adequately documented and supported with appropriate evidence and analysis.
These deficiencies constitute a material weakness in internal control over
financial reporting in which there is more than a remote likelihood that a
material misstatement of the annual or interim financial statements would not
have been prevented or detected.

SEGREGATION OF DUTIES

The Company did not design and implement controls related to the
segregation of duties. This material weakness is due in part to an inadequate
level of accounting and finance resources within the organization which could
result in a misappropriation of assets. Due to the potential pervasive effect on
financial statement account balances and disclosures and the absence of other
mitigating controls, there is more than a remote likelihood that a material
misstatement of the annual or interim financial statements would not have been
prevented or detected.

CONTROLS OVER THE RECORDING OF REVENUES

The Company's controls over the recording of product revenues were not
effective. Specifically, the Company did not properly estimate a provision for
returns granted to certain customers as a result of the lack of an established
returns policy and effective monitoring of compliance with the policy. This
breakdown in control resulted in an overstatement of revenues and an
understatement of the related seasonal returns reserve for the three months
ended June 30, 2004. Given the materiality of this error, the Company was
required to restate its financial statement results for the quarter ended June
30, 2004. In addition, as a result of an inadequate management review and
approval process, the Company did not maintain appropriate revenue cutoff at
December 31, 2004, with respect to a non-routine revenue transaction. While the
effect of this transaction individually was not material to the financial
statements taken as a whole, the lack of appropriate controls with respect to
the proper recognition of non-routine revenue transactions could have resulted
in a material misstatement of the financial statements. The lack of effective
controls over the recording of revenues

constitutes a material weakness, and given its importance with respect to
effective internal control over financial reporting, there is more than a remote
likelihood that a material misstatement of the annual or interim financial
statements would not have been prevented or detected.

CONTROLS OVER INVENTORY AND COST OF GOODS SOLD

The Company did not maintain effective control over the valuation of
inventory and cost of goods sold specifically related to inventory reserves for
the following: refurbishments, shrinkage, manufacturing variances, and
intercompany profit. This resulted in adjustments to the Company's financial
statements as of and for the year ended December 31, 2004. The Company did not
have effective supervisory controls in place with respect to monitoring and
reviewing these inventory reserves at its Appliances and Unitary Products
businesses domestically, and its Nanjing, China facility. The lack of effective
controls over the valuation of inventory and cost of goods sold and the lack of
effective supervisory controls constitutes a material weakness, and given the
importance of these controls with respect to effective internal control over
financial reporting, there is more than a remote likelihood that a material
misstatement of the annual or interim financial statements would not have been
prevented or detected.

CONTROLS OVER THE RECORDING OF PROPERTY, PLANT AND EQUIPMENT

The Company did not maintain effective control over the recording and
reconciliation of property, plant and equipment at certain of its domestic
businesses resulting in adjustments to the Company's financial statements as of
and for the year ended December 31, 2004. The Company did not perform timely and
effective reconciliations of its fixed asset subsidiary ledgers to the general
ledger. The lack of reconciliations performed on a timely basis, and given its
importance with respect to effective internal control over financial reporting,
there is more than a remote likelihood that a material misstatement of the
annual or interim financial statements would not have been prevented or
detected.

These material weaknesses were considered in determining the nature,
timing, and extent of audit tests applied in our audit of the consolidated
financial statements and financial statement schedule as of and for the year
ended December 31, 2004, of the Company and this report does not affect our
report on such financial statements and financial statement schedule.

Because of the limitation on the scope of our audit described in the second
paragraph, the scope of our work was not sufficient to enable us to express, and
we do not express, an opinion on management's assessment referred to above. In
our opinion, because of the effect of the material weaknesses described above on
the achievement of the objectives of the control criteria and the effects of any
other material weaknesses, if any, that we might have identified if we had been
able to perform sufficient auditing procedures relating to management's
assessment process, the Company has not maintained effective internal control
over financial reporting as of December 31, 2004, based on the criteria
established in Internal Control -- Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.

We have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements and financial statement schedule as of and for the year ended
December 31, 2004, of the Company and have issued our reports dated September
30, 2005, that express an unqualified opinion on those financial statements and
financial statement schedule (which report on the consolidated financial
statements includes an explanatory paragraph relating to the restatement
discussed in Note 1).

/s/ Deloitte & Touche LLP
- ----------------------------------------------------

Parsippany, New Jersey
September 30, 2005

Changes In Internal Control Over Financial Reporting. There have not been
any changes in the Company's internal control over financial reporting, as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during
the Company's fiscal quarter ended December 31, 2004. However, in connection
with the material weaknesses in internal control over financial reporting
discussed above, the Company performed additional analyses and other
post-closing procedures, as described above in Evaluation of Disclosure Controls
and Procedures, and the audit adjustments to the Company's fourth quarter 2004
financial statements were determined not to be material on an interim or annual
basis.

The deployment of a new suite of software application commenced at the
Nanjing, China facility during the fourth quarter of 2004. The new suite of
applications will include financial applications, including accounts payable,
general ledger, fixed assets, and inventory and reporting. Once fully deployed,
the new software, together with the hiring of a new Controller, is intended to
further enhance the Company's internal and disclosure controls and its operating
efficiencies.

Management, with the oversight from the Audit Committee, has been
addressing all of these issues and is committed to effectively remediating known
weaknesses as expeditiously as possible. Although the Company's remediation
efforts are well underway, control weaknesses will not be considered remediated
until new internal controls over financial reporting are implemented and
operational for a period of time and tested, and management concludes that these
controls are operating effectively.

Limitations on the Effectiveness of Controls. A company's internal control
over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

Further, the design of disclosure controls and procedures and internal
control over financial reporting must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected.

ITEM 9B. OTHER INFORMATION

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

The Company's directors are Messrs. Sal Giordano, Jr., William J. Brennan,
David C. Chang, Michael L. Ducker, Joseph Giordano, Michael Giordano, Howard S.
Modlin, S. A. Muscarnera, Anthony E. Puleo and Jitendra V. Singh. Set forth
opposite the name of each director/nominee are his age, principal occupation for
the past five years, the name and principal business of any corporation or other
organization in which such employment is carried on and other business
directorships held by the nominee or director. As part of the Fedders Corporate
Governance Guidelines, the Board adopted director independence standards
incorporating all of the director independence standards of the New York Stock
Exchange. These standards require that a director can be considered independent
only if the director does not have, and generally has not had in the most recent
three years, any material relationships with Fedders, including any affiliation
with our independent auditors. The Board has reviewed each of the Directors'
relationships with Fedders in light of those standards and has affirmatively
determined that all of the Directors, other than Messrs. Sal Giordano, Jr.,
Joseph Giordano and Michael Giordano, are independent directors.

<Table>
<Caption>
DIRECTOR
NAME PRINCIPAL OCCUPATION AND AGE SINCE
- ---- ---------------------------------------- --------

Sal Giordano, Jr. ................................. Chairman and Chief Executive Officer of 1965
Fedders(1)(2); 66

William J. Brennan................................. Financial Consultant(3); 77 1980

Dr. David C. Chang................................. President, Polytechnic University(4); 63 1998

Michael L. Ducker.................................. Executive Vice President, International, 2000
Federal Express Corporation(5); 51

Joseph Giordano.................................... Retired(1)(6); 72 1961

Michael Giordano................................... President of Fedders(1)(7); 41 2004

Howard S. Modlin................................... President, Weisman Celler Spett & 1977
Modlin, P.C.(8); 74

S. A. Muscarnera................................... Retired(1)(9); 63 1982

Anthony E. Puleo................................... President, Puleo International, 1994
Inc.(10); 70

Dr. Jitendra V. Singh.............................. Professor, Wharton School -- University 2004
of Pennsylvania(11); 51
</Table>

- ---------------

(1) Mr. Joseph Giordano is the brother, Mr. Michael Giordano is the son and Mr.
Muscarnera is the cousin, of Mr. Sal Giordano, Jr.

(2) Mr. Sal Giordano, Jr. has been associated with Fedders in an executive
capacity for more than five years. He is also currently the Chairman of the
Executive Committee of the Board.

(3) Mr. Brennan has been a financial consultant since 1989. He previously
served as a director of Fedders from 1980 to 1987, and was again elected a
director in 1989. Mr. Brennan is also currently the Chairman of the Audit
Committee of the Board.

(4) Dr. Chang is Chancellor and, formerly, President for more than five years,
of Polytechnic University located at Six Metrotech Center, Brooklyn, New
York 11201. Prior to that, Dr. Chang was Dean of the College of Engineering
and Applied Sciences at Arizona State University. Dr. Chang is currently a
member of the Compensation, Finance and Nominating and Corporate Governance
Committees of the Board. In addition, Dr. Chang serves on the board of AXT,
a NASDAQ company, and Time Warner Cable, a wholly owned subsidiary of Time
Warner.

(5) From 1999 to present, Mr. Ducker has been Executive Vice President,
International of Federal Express Corporation, located at 3610 Hacks Cross
Road, Memphis, Tennessee 38125. Previously, he was President and Division
Head, Asia Pacific Region from 1998 and Senior Vice President of that
division from 1995. He has been with Federal Express Corporation since
1975. Mr. Ducker is a member of the Audit and Compensation Committees of
the Board.

(6) Mr. Joseph Giordano has been retired for the past five years. He was a
Senior Vice President of Fedders until his retirement on August 31, 1992,
and President of NYCOR, Inc. until its merger into Fedders on August 13,
1996. Mr. Giordano is currently a member of the Executive and Finance
Committees of the Board.

(7) Mr. Michael Giordano has been associated with Fedders in an executive
capacity for more than five years and was appointed to the Fedders Board of
Directors in June 2004. He is currently the President of Fedders. Mr.
Giordano is a member of the Finance Committee of the Board.

(8) For the past five years, Mr. Modlin has been the President of the law firm
of Weisman Celler Spett & Modlin, P.C., located at 445 Park Avenue, New
York, New York 10022. Mr. Modlin is also chairman of the board of directors
of General DataComm Industries, Inc. and a director of Trans-Lux
Corporation. Mr. Modlin is currently Chairman of the Compensation Committee
and a member of the Executive and Audit Committees of the Board.

(9) Mr. Muscarnera has been retired for the past five years. He was Senior Vice
President and Secretary of Fedders prior to his retirement on August 31,
1996. Mr. Muscarnera served in various capacities with Fedders for over 39
years, including human resources and legal. Mr. Muscarnera is currently
Chairman of the Finance Committee and a member of the Audit Committee of
the Board.

(10) For the past five years, Mr. Puleo has been the President of Puleo
International, Inc. located at 3630 Kennedy Road, South Plainfield, New
Jersey 07080. Puleo International, Inc. is an importer of seasonal
products. Prior to that, Mr. Puleo was President of Boulderwood
Corporation. Mr. Puleo is currently Chairman of the Nominating and
Corporate Governance Committee and a member of the Compensation Committee
of the Board.

(11) Dr. Singh was appointed to the Fedders Board of Directors in June 2004. Dr.
Singh has been the Saul P. Steinberg Professor, Department of Management,
at the Wharton School of the University of Pennsylvania since 1999. During
the period 1998-2001, he was the Vice Dean, International Academic Affairs
at the Wharton School. Dr. Singh is currently a member of the Audit and
Nominating and Corporate Governance Committees of the Board.

The Company has a standing Audit Committee. The Audit Committee is
comprised of five non-employee directors, William J. Brennan, Michael L. Ducker,
Howard S. Modlin, S. A. Muscarnera and Jitendra V. Singh, each of whom is
"independent" as that term is defined in Sections 303.01 (B) (2) (a) and (3) of
the New York Stock Exchange ("NYSE") listing standards and regulations of the
Securities and Exchange Commission ("SEC"). All members are financially literate
as required by the applicable NYSE listing standards. In addition, the Board has
determined that Mr. William J. Brennan has the financial experience required by
the applicable NYSE listing standards and is an "audit committee financial
expert" as defined by applicable standards of the SEC.

Directors who are not employees receive an annual fee of $48,000, payable
one-half in cash and one-half in shares of Fedders' Common Stock.

SECTION 16 COMPLIANCE

Based solely on a review of Forms 3, 4 and 5 and amendments thereto
furnished to Fedders related to transactions during the fiscal year ended
December 31, 2004, Fedders believes that all reports required by Section 16(a)
of the Exchange Act were filed on a timely basis.

CODE OF ETHICS

The Board of Directors of Fedders approved a Code of Business Conduct and
Ethics ("Code of Ethics") on October 22, 2002. The Code of Ethics applies to all
employees of Fedders including the principal executive officer, principal
financial officer, principal accounting officer and controller. Each year, every
employee of Fedders must sign a statement acknowledging that they have received
and read a copy of the Code of Ethics and agree to comply fully with the
standards, policies and procedures contained in the Code of Ethics and Fedders'
related policies and procedures. Portions of the Code of Ethics contain the
standards of conduct for all financial officers of Fedders. A copy of the Code
of Ethics is posted on Fedders' website at HTTP://WWW.FEDDERS.COM.

ITEM 11. EXECUTIVE COMPENSATION

The following information is furnished as to all cash compensation paid by
Fedders and its subsidiaries during the stub period (as defined in footnote (1))
and the fiscal year ended December 31, 2004 to each of the five highest paid
executive officers of Fedders whose aggregate direct compensation exceeded
$100,000.

SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------ ------------------------- -------
(A) (B) (C) (D) (E) (F) (G) (H)
- -------------------------------- ------- ------- -------- --------------- ---------- ------------ -------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP
FISCAL SALARY BONUS(2) COMPENSATION(3) AWARD(S) OPTIONS/SARS PAYOUTS
NAME AND PRINCIPAL POSITION YEAR(1) ($) ($) ($) ($) (#) ($)
- --------------------------- ------- ------- -------- --------------- ---------- ------------ -------

Sal Giordano, Jr. .............. 2004 625,024 -0- 2,393,416 -0- -0- 333,333
Chairman and Chief Executive Stub 208,341 122,514 -0- 855,000 120,000 -0-
Officer 2003 622,218 367,542 733,632 -0- -0- 333,333
2002 591,345 341,440 573,296 -0- 150,000 333,333

Michael B. Etter, Executive..... 2004 300,012 -0- 70,955 -0- -0- 70,000
Vice President and President, Stub 100,004 61,257 10,020 -0- 130,000 -0-
Fedders Global Sourcing 2003 300,000 183,771 60,715 -0- -0- 70,000
Solutions 2002 290,000 128,040 16,066 -0- 100,000 70,000

Michael Giordano................ 2004 269,176 -0- 36,960 -0- -0- -0-
President Stub 76,667 38,286 19,933 -0- 70,000 -0-
2003 227,500 114,857 17,148 -0- -0- -0-
2002 200,000 64,020 12,062 -0- 75,000 -0-

Kent E. Hansen.................. 2004 220,842 -0- 29,539 -0- -0- -0-
Executive Vice President, Stub 71,669 26,800 -0- -0- 80,000 -0-
Administration and Secretary 2003 214,591 80,400 34,794 -0- -0- -0-
2002 210,000 64,020 14,655 -0- 75,000 -0-

Robert L. Laurent , Jr. ........ 2004 270,842 33,993 33,501 -0- -0- -0-
Executive Vice President,
Finance Stub 88,337 61,257 11,887 -0- 60,000 -0-
and Acquisitions and 2003 264,176 183,771 16,502 -0- -0- -0-
Chief Financial Officer 2002 255,000 170,720 20,271 -0- 75,000 -0-

(A) (I)
- -------------------------------- ---------------

ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION(4)
- --------------------------- ---------------

Sal Giordano, Jr. .............. 43,312
Chairman and Chief Executive 2,377
Officer 38,717
34,903
Michael B. Etter, Executive..... 89,781
Vice President and President, 23,109
Fedders Global Sourcing 70,322
Solutions 12,911
Michael Giordano................ 40,535
President 33,436
8,146
7,730
Kent E. Hansen.................. 32,059
Executive Vice President, -0-
Administration and Secretary 31,375
8,508
Robert L. Laurent , Jr. ........ 30,786
Executive Vice President,
Finance 19,597
and Acquisitions and 13,698
Chief Financial Officer 12,084
</Table>

- ---------------

(1) On August 26, 2003, the Board of Directors of Fedders changed Fedders'
fiscal year end from August 31st to December 31st. The period designated as
the "Stub" period represents the period from September 1, 2003 through
December 31, 2003.

(2) Bonus payments represent amounts earned for the periods indicated but not
paid until the following fiscal year.

(3) Includes tax reimbursement payments and certain fringe benefits.

(4) Includes Fedders' contribution to savings and investment retirement plans on
the same basis offered to all employees of Fedders and the value of premiums
paid for life insurance policies.

OPTIONS/SAR GRANTS TABLE

The following table sets forth information concerning the grant of stock
options and/or stock appreciation rights (SARs) during the Stub period to the
individual executive officers named in the Summary Compensation Table. There
were no grants of stock options or SARs during fiscal year 2004 ("Fiscal Year").

The table shows the number of options granted to each named executive
officer, the number of options granted as a percentage of options granted to all
employees during the Stub period, the exercise price of each option, the
expiration date for each option, and a presentation of the potential realizable
value for each option using the Black-Scholes Model.

OPTIONS/SAR GRANTS IN STUB PERIOD

<Table>
<Caption>
ALTERNATIVE
TO (F) AND
INDIVIDUAL GRANTS (G) GRANT
- ---------------------------------------------------------------------------------------- DATE VALUE
(A) (B) (C) (D) (E) (H)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES OR BASE GRANT DATE
GRANTED(1) IN FISCAL PRICE EXPIRATION PRESENT
NAME (#) YEAR ($/SH) DATE VALUE $(2)
- ---- ------------ ---------- -------- ---------- -----------

Sal Giordano, Jr. ................... 120,000 15.2% 5.65 10/28/2008 223,200
Michael B. Etter..................... 130,000 16.4% 5.65 10/28/2008 241,800
Michael Giordano..................... 70,000 8.9% 5.65 10/28/2008 130,200
Kent E. Hansen....................... 80,000 10.1% 5.65 10/28/2008 148,800
Robert L. Laurent, Jr. .............. 60,000 7.6% 5.65 10/28/2008 111,600
</Table>

- ---------------

(1) All vesting restrictions were removed on December 29, 2004.

(2) Present value of the grant at the date of grant of $1.86, under Binomial
Model.

AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE

The following table sets forth the number of shares of Common Stock
acquired upon exercise of options and the value realized upon exercise during
the Stub period and the number of unexercised options and the value of
unexercised in-the-money options at the end of the Fiscal Year. No options were
exercised during the Fiscal Year.

AGGREGATED OPTION/SAR EXERCISES IN STUB PERIOD
AND FY-END OPTION/SAR VALUES

<Table>
<Caption>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#) FY-END ($)
SHARES ------------- -------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ------------- -------------

Sal Giordano, Jr. .......................... 157,500 300,000 E 232,500 E 67,500
U -0- U -0-
Michael B. Etter............................ 130,000 331,753 E 230,000 E 60,000
U -0- U -0-
Michael Giordano............................ 88,750 180,800 E 126,250 E 33,750
U -0- U -0-
Kent E. Hansen.............................. 80,000 178,081 E 155,000 E 45,000
U -0- U -0-
Robert L. Laurent, Jr. ..................... 78,750 107,813 E 116,250 E 33,750
U -0- U -0-
</Table>

- ---------------

(1) On December 29, 2004, Fedders' Board of Directors approved the elimination
of vesting restrictions on all outstanding stock option grants. The Board's
action was prompted by accounting considerations related to these options.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is comprised of four directors, Howard S.
Modlin, David C. Chang, Michael L. Ducker and Anthony E. Puleo. None of the
members of the Committee was an officer or employee of the Company or had any
relationship or was involved in any transaction requiring disclosure under
applicable rules and regulations.

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

The Committee submitted a compensation plan to the Board of Directors for
the fiscal year ended December 31, 2004 which was approved by the Board on
February 3, 2004. In determining the total compensation package for the chief
executive officer and all other executive officers for the fiscal year ended
December 31, 2004, the Committee considered several factors including: the
performance of Fedders; the individual contribution of each executive officer;
the need to attract and retain highly qualified executives necessary to build
long-term stockholder value; and the need to link a portion of each executive
officer's long-term capital accumulation to the growth in the market value of
Fedders' stock. Executive compensation was broken down into two major components
(i) cash compensation, and (ii) incentive bonus. Sal Giordano, Jr. has an
employment contract with Fedders.

Cash compensation for the fiscal year ended August 31, 2003 is shown on the
Summary Compensation Table. For the fiscal year ended December 31, 2004, the
Committee recommended and the Board adopted the same bonus plan as the last
fiscal year, which applied percentages against consolidated earnings before
interest, taxes, depreciation and amortization ("EBITDA") of Fedders minus
$1,000,000 and, with respect to certain officers, against EBITDA of the
operations for which they are responsible and certain additional goals. The
bonuses under the plan are based heavily upon the performance of Fedders. The
amount of the bonuses for the fiscal year ended December 31, 2004 range from
0.19% to 1% of EBITDA. With respect to the

individuals named in the Summary Compensation Table, the following percentages
of EBITDA or potential bonus amount were designated: Mr. Sal Giordano, Jr., 1%;
Mr. Michael B. Etter, 0.5%; Mr. Michael Giordano, 0.5%; Mr. Kent E. Hansen,
0.21875%; and Mr. Robert L. Laurent, Jr., 0.5% or, if higher, 0.5% of the total
purchase price (equity plus debt) of all acquisitions completed during the
fiscal year. The gross amount of each bonus is reduced if completion of certain
key projects deemed critical to Fedders' success is not achieved. There are 25
such key items which are known as "critical drivers." For each critical driver
not achieved, 1% is deducted from the gross amount of each bonus.

The federal income tax law limits the deductibility of certain compensation
paid to the Chief Executive Officer and the four other most highly compensated
executives (the "covered employees") in excess of the statutory maximum of $1
million per covered employee. The Committee's general policy is, where feasible,
to structure compensation paid to the covered employees so as to maximize the
deductibility of such compensation for federal income tax purposes; however,
there may be circumstances where portions of such compensation will not be
deductible.

Respectfully submitted,

COMPENSATION COMMITTEE
HOWARD S. MODLIN -- Chairman
DAVID C. CHANG
MICHAEL L. DUCKER
ANTHONY E. PULEO

EMPLOYMENT CONTRACTS

Mr. Sal Giordano, Jr. has an Employment Agreement with Fedders which was
entered into in December 2001 and expires on September 30, 2006. The material
provisions of the Agreement include: (1) an annual base salary of at least
$591,345, which is reviewable annually and subject to increase and (2)
eligibility to receive an annual bonus of not less than 1% of Fedders' earnings
before income taxes, net interest expense, depreciation and amortization in
excess of $1 million (3) a loan, to be repaid in six annual installments
following his retirement and (4) a grant of restricted stock.

PERFORMANCE GRAPH

The following graph provides a comparison of the cumulative total
stockholder return on Fedders' Common Stock with returns on the New York Stock
Exchange Composite Index, and stocks included in the "Home Appliance" category
by The Value Line Investment Survey.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG FEDDERS CORPORATION,
NYSE COMPOSITE INDEX, AND HOME APPLIANCE STOCKS

(PERFORMANCE GRAPH)

<Table>
<Caption>
- --------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
- --------------------------------------------------------------------------------

FEDDERS CORPORATION 100.00 86.10 58.14 56.48 148.41 76.76
- --------------------------------------------------------------------------------
PEER GROUP INDEX 100.00 75.00 89.17 82.52 103.33 131.36
- --------------------------------------------------------------------------------
NYSE MARKET INDEX 100.00 102.38 93.26 76.18 98.69 111.45
- --------------------------------------------------------------------------------
</Table>

ASSUMES $100 INVESTED ON JANUARY 1, 2000
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDED DECEMBER 31, 2004

The Peer Group Index is made up of the following companies' securities:
Black & Decker Corporation, Fedders Corporation, Maytag Corporation, National
Presto Industrial, Toro Co. and Whirlpool Corporation.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
BENEFICIAL OWNERSHIP TABLE(1)
AS OF SEPTEMBER 1, 2005

<Table>
<Caption>
TOTAL OF ALL CLASSES
COMMON STOCK CLASS B STOCK --------------------------
------------------------- ------------------------- PERCENT OF
BENEFICIALLY PERCENT BENEFICIALLY PERCENT BENEFICIALLY CLASS
NAME OF BENEFICIAL OWNER OWNED OF CLASS OWNED OF CLASS OWNED OUTSTANDING
- ------------------------ ------------ -------- ------------ -------- ------------ -----------

DIRECTORS
Sal Giordano, Jr. ......... 2,355,432(2)(4) 8.3% 2,488,822(6) 99.9% 4,844,254 15.8%
William J. Brennan......... 73,155 * -- -- 73,155 *
Dr. David C. Chang......... 36,178 * -- -- 36,178 *
Michael L. Ducker.......... 26,270 * -- -- 26,270 *
Joseph Giordano............ 1,522,389(2)(5) 5.4% 2,488,822(6) 99.9% 4,011,211 13.2%
Michael Giordano........... 226,761 * *
Howard S. Modlin........... 692,841(3) 2.5% -- -- 692,841 2.3%
S.A. Muscarnera............ 176,556 * -- -- 176,556 *
Anthony E. Puleo........... 72,855 * -- -- 72,855 *
Dr. Jitendra V. Singh...... 5,661 * 5,661 *
OFFICERS
Michael B. Etter........... 245,000 * -- -- 245,000 *
Kent E. Hansen............. 186,165 * -- -- 186,165 *
Robert L. Laurent, Jr. .... 473,381 1.7% -- -- 473,381 1.7%
All Officers and Directors
as a Group............... 5,461,609 19.4% 2,488,822 99.9% 7,950,431 26.0%
</Table>

- ---------------

* Less than 1%

(1) All amounts shown include shares of which the named individuals have the
right to acquire beneficial ownership within 60 days as a result of the
transactions described in Rule 13d-3(d) of the Securities Exchange Act of
1934, as amended.

(2) The amount shown includes 905,042 shares that are held by corporations in
which Messrs. Sal Giordano, Jr. and Joseph Giordano are officers, directors
and stockholders and share voting and investment power over such shares.

(3) Includes 674,542 shares owned by members of Mr. Modlin's family, as to which
Mr. Modlin disclaims beneficial ownership.

(4) Includes 18,119 shares held of record by Mr. Giordano's wife, 357,574 shares
held of record by Mr. Giordano's wife in trust for their grandchildren, as
to which Mr. Giordano disclaims beneficial ownership, and 71,630 shares held
by Mr. Giordano as trustee in trust for himself.

(5) Includes 71,630 shares held by Mr. Giordano as trustee in trust for himself
and 192,769 shares held by Mr. Giordano in trust for his grandchildren.

(6) Shares owned by Giordano Holding Corporation, as to which Messrs. Sal
Giordano, Jr. and Joseph Giordano share voting and investment power.

PRINCIPAL STOCKHOLDERS OF FEDDERS

The following table sets forth information at September 1, 2005 with
respect to the beneficial ownership of Fedders' voting securities by all persons
known by Fedders to own more than 5% of Fedders' outstanding voting securities.
Unless otherwise indicated, the owners listed have sole voting and investment
power.

<Table>
<Caption>
AMOUNT
BENEFICIALLY PERCENT
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED OF CLASS
- -------------- ----------------------------------------- ------------ --------

Common Stock..................... Sal Giordano, Jr.(1) 2,355,432 8.3%
c/o Fedders Corporation
Liberty Corner, NJ 07938
Common Stock..................... Joseph Giordano(1) 1,522,389 5.4%
c/o Fedders Corporation
Liberty Corner, NJ 07938
Common Stock..................... Gabelli Asset Management Inc. 3,331,925 11.85%
One Corporate Center
Rye, NY 10580
Class B Stock.................... Sal Giordano, Jr. and Joseph Giordano(1) 2,488,822 99.9%
c/o Fedders Corporation
Liberty Corner, NJ 07938
</Table>

- ---------------

(1) See footnotes 3, 4, 5 and 6 to the previous table for more detailed
information with respect to the security ownership of the named individuals.

STOCK OPTION PLANS

All stock option plans, as approved by the stockholders, provide for the
granting to employees and officers of incentive stock options (as defined under
current tax laws) and non-qualified stock options. All of the plans provide for
the granting of non-qualified stock options to directors who are not employees.
Stock options are exercisable one year after the date of grant. Options, if not
exercised, will expire five years from the date of grant. In December 2004, the
Company eliminated all vesting restrictions on outstanding options.

<Table>
<Caption>
(A) (B) (C)
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES FUTURE ISSUANCE UNDER
TO BE ISSUED WEIGHTED-AVERAGE STOCK OPTIONS PLANS
UPON EXERCISE OF EXERCISE PRICE OF (EXCLUDING SECURITIES
STOCK OPTION PLAN CATEGORY OUTSTANDING OPTIONS OUTSTANDING OPTIONS REFLECTED IN COLUMN (A))
- -------------------------- ----------------------- ------------------- ------------------------

Stock option plans approved
by stockholders.......... 1,474 $4.30 1,209
----- ----- -----
Total...................... 1,474 $4.30 1,209
===== ===== =====
</Table>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See the information contained in Item 11 and the Notes to the Consolidated
Financial Statements, which are incorporated herein by reference.

See the section entitled "Election of Directors" in the Company's Proxy
Statement, to be filed in connection with the Company's Annual Meeting of
Stockholders to be held on April 26, 2005, which section is incorporated herein
by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT COMMITTEE APPROVAL POLICIES

(i) The Audit Committee Charter provides that the Audit Committee's duties
and responsibilities include prior approval of all audit engagement fees, as
well as significant, non-prohibited, non-audit engagements.
37

(ii) The Audit Committee approved the indicated percentage of the fees and
services described above: audit fees, 100%; audit-related fees, 100%; tax fees,
100%; and all other fees, 0%. As to "all other fees," the audit of the 401(k)
plan is an annual requirement and the Board of Directors, including the members
of the Audit Committee, approved the filing of the indicated forms, which
filings required the services of Deloitte & Touche LLP ("D&T").

AUDIT FEES

The aggregate fees billed for professional services rendered by D&T, the
member firms of Deloitte Touche Tohmatsu and their respective affiliates
(collectively "Deloitte"), for the audit of the Company's annual financial
statements, review of quarterly financial statements and other services normally
provided by the accountant in connection with statutory and regulatory filings
for the twelve months ended December 31, 2004, four months ended December 31,
2003 and twelve months ended August 31, 2003 were $2,477,607, $431,046 and
$612,840 respectively.

AUDIT-RELATED FEES

The amounts billed for assurance and related services rendered by Deloitte
which were reasonably related to the performance of the audit and review of our
financial statements for the twelve months ended December 31, 2004, four months
ended December 31, 2003 and twelve months ended August 31, 2003, not reported in
the preceding paragraph, were $81,834, $35,000 and $25,462, respectively. These
audit-related fees were incurred primarily in connection with due diligence and
the audit of the Company's 401(k) plan.

TAX FEES

The aggregate fees billed for professional services rendered by Deloitte
for tax compliance, tax advice and tax planning for the twelve months ended
December 31, 2004, four months ended December 31, 2003 and twelve months ended
August 31, 2003 were $123,135, $0 and $9,536, respectively.

ALL OTHER FEES

There were no other professional services rendered by Deloitte for products
and services not reported in the preceding paragraphs for the twelve months
ended December 31, 2004, four months ended December 31, 2003, and twelve months
ended August 31, 2003.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Financial Statements

The following Consolidated Financial Statements of the Company and its
subsidiaries are included:

<Table>
<Caption>
PAGE #
-----------

Consolidated Statements of Operations for the year ended
December 31, 2004, four months ended December 31, 2003 and
for the fiscal years ended August 31, 2003 and 2002....... F-1
Consolidated Balance Sheets at December 31, 2004 and 2003... F-2
Consolidated Statements of Cash Flows for the year ended
December 31, 2004, four months ended December 31, 2003 and
for the fiscal years ended August 31, 2003 and 2002....... F-3
Consolidated Statements of Stockholders' Equity for the year
ended December 31, 2004, four months ended December 31,
2003 and for the fiscal years ended August 31, 2003 and
2002...................................................... F-4
Notes to Consolidated Financial Statements.................. F-5-F-41
Reports of Independent Registered Public Accounting Firm.... F-42 & F-46
</Table>

(a) 2. Financial Statement Schedule

<Table>

Consolidated Schedule as of and for the fiscal year ended
December 31, 2004, four months ended December 31, 2003 and
for the fiscal years ended August 31, 2003 and 2002
II. Valuation and Qualifying Accounts...................... F-45
</Table>

All other schedules have been omitted because of the absence of the
conditions under which they are required or because the required information is
included in the Consolidated Financial Statements or the Notes thereto.

(a) 3. Exhibits

<Table>

(3) (i) Restated Certificate of Incorporation of the Company filed
as Exhibit (A) to Annex (A) of the Company's Proxy
Statement/Prospectus dated January 9, 2002 and incorporated
herein by reference.
(ii) By-Laws of the Company, filed as Exhibit 3 (ii) to the
Company's Annual Report on Form 10-K for fiscal year ended
August 31, 2002, and incorporated herein by reference.
(4) (i) Registration statement on Form S-4 filed with the Securities
and Exchange Commission on May 28, 2004 and incorporated
herein by reference.
(ii) First Supplemental Indenture and Waiver dated September 13,
2005, filed as Exhibit 4.1 to the Company's Current Report
on Form 8-K dated September 14, 2005 and incorporated herein
by reference.
(10) (i) Stock Option Plan VIII, filed as Annex F to the Company's
Proxy Statement -- Prospectus dated May 10, 1996 and
incorporated herein by reference.
(ii) Employment Agreement between the Company and Sal Giordano,
Jr. effective December 14, 2001, filed as Exhibit 10 (ii) to
the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 2002, and incorporated herein by reference.
(21) Subsidiaries.
(23) Consent of Deloitte & Touche LLP.
(31.1) Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
(31.2) Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
(32.1) Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(32.2) Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
</Table>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.

FEDDERS CORPORATION

By /s/ ROBERT L. LAURENT, JR.
------------------------------------
Robert L. Laurent, Jr.
Executive Vice President,
Finance and Acquisitions
and Chief Financial Officer

September 30, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----

/s/ SALVATORE GIORDANO, JR. Chairman and Chief Executive September 30, 2005
------------------------------------------------ Officer and a Director
Salvatore Giordano, Jr. (Principal Executive Officer)

/s/ WILLIAM J. BRENNAN Director September 30, 2005
------------------------------------------------
William J. Brennan

/s/ DAVID C. CHANG Director September 30, 2005
------------------------------------------------
David C. Chang

/s/ MICHAEL L. DUCKER Director September 30, 2005
------------------------------------------------
Michael L. Ducker

/s/ JOSEPH GIORDANO Director September 30, 2005
------------------------------------------------
Joseph Giordano

/s/ MICHAEL GIORDANO Director September 30, 2005
------------------------------------------------
Michael Giordano

/s/ HOWARD S. MODLIN Director September 30, 2005
------------------------------------------------
Howard S. Modlin

/s/ S. A. MUSCARNERA Director September 30, 2005
------------------------------------------------
S. A. Muscarnera

/s/ ANTHONY E. PULEO Director September 30, 2005
------------------------------------------------
Anthony E. Puleo

/s/ JITENDRA V. SINGH Director September 30, 2005
------------------------------------------------
Jitendra V. Singh

/s/ ROBERT L. LAURENT, JR. Executive Vice President, September 30, 2005
------------------------------------------------ Finance
Robert L. Laurent, Jr. and Acquisitions
(Principal Financial Officer)
</Table>

FEDDERS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
FOUR MONTHS FISCAL YEAR ENDED
YEAR ENDED ENDED AUGUST 31,
DECEMBER 31, DECEMBER 31, -----------------------
2004 2003 2003 2002
-------------- -------------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Net sales...................................... $413,016 $ 55,554 $421,703 $373,702
Costs and expenses:
Cost of sales................................ 352,761 48,253 328,835 290,652
Selling, general and administrative
expense................................... 74,822 23,508 61,904 63,108
Asset impairment, employee severance and
other restructuring (credits) charges..... (842) -- (115) (397)
Gain on sale of joint venture interest....... -- (638) -- --
-------- -------- -------- --------
426,741 71,123 390,624 353,363
-------- -------- -------- --------
Operating (loss) income........................ (13,725) (15,569) 31,079 20,339
Partners' net interest in joint venture
results...................................... (220) (1,355) (14) 713
Interest expense (net of interest income of
$139, $146, $1,409 & $1,232)................. (20,124) (6,003) (18,546) (18,617)
Loss on debt extinguishment.................... (8,075) -- -- --
Other income................................... 1,932 265 501 541
-------- -------- -------- --------
(Loss) income before income taxes and
cumulative effect of a change in accounting
principle.................................... (40,212) (22,662) 13,020 2,976
(Benefit) provision for income taxes........... (14,105) (7,361) 4,224 (5,033)
-------- -------- -------- --------
(Loss) income before cumulative effect of a
change in accounting principle............... (26,107) (15,301) 8,796 8,009
Cumulative effect of a change in accounting
principle.................................... -- -- 11,906 --
-------- -------- -------- --------
Net (loss) income.............................. (26,107) (15,301) (3,110) 8,009
Preferred stock dividends...................... 4,020 484 618 --
-------- -------- -------- --------
Net (loss) income applicable to common
stockholders................................. $(30,127) $(15,785) $ (3,728) $ 8,009
======== ======== ======== ========
Earnings (loss) per common share:
Basic/diluted earnings (loss) per common
share before cumulative effect of a change
in accounting principle, less preferred
stock dividends........................... $ (0.99) $ (0.52) $ 0.27 $ 0.25
Cumulative effect of a change in accounting
principle................................. -- -- (0.39) --
-------- -------- -------- --------
Basic/diluted (loss) earnings per common
share..................................... $ (0.99) $ (0.52) $ (0.12) $ 0.25
======== ======== ======== ========
Weighted average shares:
Basic........................................ 30,466 30,179 30,638 31,492
Diluted...................................... 30,466 30,179 30,704 31,494
Dividends per share declared:
New Common Stock............................. $ 0.120 $ 0.03 $ 0.120 $ 0.060
Old Common/Class A Stock..................... -- -- -- 0.060
New Class B Stock............................ 0.120 0.03 0.120 0.060
Old Class B Stock............................ -- -- -- 0.054
Preferred Stock.............................. 2.150 0.538 1.613 --
</Table>

See accompanying notes to the consolidated financial statements

F-1

FEDDERS CORPORATION

CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
DECEMBER 31,
-----------------------
2004 2003
---------- ----------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)

ASSETS
Current assets:
Cash and cash equivalents................................. $ 22,783 $ 22,043
Accounts receivable (less allowances of $3,391 and $1,888
in 2004 and 2003, respectively)........................ 28,673 29,718
Net inventories........................................... 132,920 145,486
Deferred income taxes..................................... 8,827 7,652
Assets held for sale...................................... -- 8,564
Other current assets...................................... 10,579 28,352
-------- --------
Total current assets........................................ 203,782 241,815
Net property, plant and equipment........................... 60,719 54,662
Deferred income taxes....................................... 22,263 8,224
Goodwill.................................................... 77,966 78,630
Other intangible assets..................................... 1,347 1,685
Other assets................................................ 36,120 31,232
-------- --------
TOTAL ASSETS................................................ $402,197 $416,248
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes.......................................... $ 57,571 $ 30,446
Current portion of long-term debt......................... 1,653 2,779
Accounts payable.......................................... 48,563 86,313
Income taxes payable...................................... 586 --
Accrued expenses.......................................... 40,172 39,032
-------- --------
Total current liabilities................................... 148,545 158,570
Long-term debt.............................................. 160,886 158,965
Other long-term liabilities................................. 29,799 31,528
Partners' interest in joint ventures........................ 4,761 4,235
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.01 par value, 15,000 shares authorized,
1,870 and 675 issued at December 31, 2004 and 2003,
respectively.............................................. 19 7
Common Stock, $0.01 par value, 70,000 shares authorized,
36,528 and 36,444 issued at December 31, 2004 and 2003,
respectively.............................................. 365 364
Class B Stock, $0.01 par value, 5,000 shares authorized,
2,493 issued at December 31, 2004 and 2003................ 25 25
Additional paid-in capital.................................. 108,363 80,680
Retained (deficit) earnings................................. (10,176) 23,603
Accumulated other comprehensive loss........................ (676) (1,752)
-------- --------
97,920 102,927
Deferred compensation....................................... (526) (789)
Treasury stock, at cost, 8,521 shares of Common Stock at
December 31, 2004 and 2003................................ (39,188) (39,188)
-------- --------
Total stockholders' equity.................................. 58,206 62,950
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $402,197 $416,248
======== ========
</Table>

See accompanying notes to the consolidated financial statements

F-2

FEDDERS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
FOUR MONTHS FISCAL YEAR ENDED
YEAR ENDED ENDED AUGUST 31,
DECEMBER 31, DECEMBER 31, -------------------
2004 2003 2003 2002
------------ ------------ -------- --------
(AMOUNTS IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income...................................... $ (26,107) $(15,301) $ (3,110) $ 8,009
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization........................ 11,029 3,413 9,543 14,830
Amortization of deferred financing charges........... 436 210 630 630
Deferred income taxes................................ (16,301) -- 4,341 6,756
Stock option repricing (income) expense.............. (714) 2,256 147 (339)
Loss on debt extinguishment.......................... 8,075 -- -- --
Goodwill impairment.................................. -- -- 11,906 --
Gain on sale of joint venture interest............... -- (638) -- --
Partners' net interest in joint venture results...... 220 1,355 14 (713)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable.................................. 4,176 21,417 (19,410) (6,667)
Inventories.......................................... 15,925 (66,538) (30,368) 25,557
Other current assets................................. 17,799 (5,993) (7,899) (6,755)
Other assets......................................... 1,220 (95) 2,121 (4,868)
Income taxes payable................................. 586 (5,452) (503) (471)
Accounts payable..................................... (39,034) 30,395 14,924 673
Accrued expenses..................................... (832) (24,412) 27,317 (2,858)
Other long-term liabilities.......................... (775) 984 (2,920) (285)
Other -- net......................................... 2,456 167 (1,116) 635
--------- -------- -------- --------
Net cash (used in) provided by operating activities.... (21,841) (58,232) 5,617 34,134
--------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment............. (6,831) (2,116) (7,271) (7,846)
Disposal of property, plant and equipment.............. 1,620 -- 1,236 1,290
Sale of joint venture interest......................... -- 1,561 -- --
Investment in joint venture............................ (1,029) -- -- --
Acquisition of businesses, net of cash acquired........ (7,814) -- (1,333) (8,008)
--------- -------- -------- --------
Net cash used in investing activities.................. (14,054) (555) (7,368) (14,564)
--------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments of) short-term notes......... 27,125 22,926 (2,309) 2,238
Repayments of long-term debt........................... (3,426) (2,300) (4,087) (3,666)
Proceeds from long-term borrowing...................... 2,500 -- 1,000 2,000
Proceeds from stock options exercised.................. 117 1,709 30 1
Cash dividends......................................... (7,672) (2,383) (4,126) (3,725)
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 rights subscribed.................. 28,323 -- 6,167 --
Cost of offerings and recapitalization................. (221) (24) (1,401) (428)
Other.................................................. -- -- -- 197
--------- -------- -------- --------
Net cash provided by (used in) financing activities.... 36,635 19,928 (4,726) (3,383)
--------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents... 740 (38,859) (6,477) 16,187
Cash and cash equivalents at beginning of year......... 22,043 60,902 67,379 51,192
--------- -------- -------- --------
Cash and cash equivalents at end of year............... $ 22,783 $ 22,043 $ 60,902 $ 67,379
========= ======== ======== ========
SUPPLEMENTAL DISCLOSURE:
Net interest paid.................................... $ 18,332 $ 881 $ 18,345 $ 16,880
Income taxes paid.................................... 1,240 223 970 967
Property, plant and equipment contributed to joint
ventures........................................... 658 -- 340 4,908
</Table>

See accompanying notes to the consolidated financial statements

F-3

FEDDERS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<Table>
<Caption>
YEAR ENDED FOUR MONTHS YEAR ENDED AUGUST 31,
DECEMBER 31, ENDED ---------------------
2004 2003 2003 2002
------------ ----------- --------- ---------
(AMOUNTS IN THOUSANDS)

PREFERRED STOCK
Balance at beginning of year.............................. $ 7 $ 7 -- --
Issuance of shares upon Exchange Offer.................... -- -- $ 4 --
Stock rights subscribed................................... 12 -- 3 --
-------- -------- -------- --------
Balance at end of year.................................... $ 19 $ 7 $ 7 --
======== ======== ======== ========
NEW COMMON STOCK
Balance at beginning of year.............................. $ 364 $ 353 $ 382 --
Stock options exercised................................... 1 9 -- $ 1
Restricted stock granted.................................. -- 2 -- --
Issuance of shares upon recapitalization.................. -- -- -- 381
Exchange of shares upon Preferred Stock exchange offer.... -- -- (29) --
-------- -------- -------- --------
Balance at end of year.................................... $ 365 $ 364 $ 353 $ 382
======== ======== ======== ========
OLD COMMON STOCK
Balance at beginning of year.............................. -- -- -- $ 16,135
Exchange of shares upon recapitalization.................. -- -- -- (16,135)
-------- -------- -------- --------
Balance at end of year.................................... -- -- -- --
======== ======== ======== ========
CLASS A STOCK
Balance at beginning of year.............................. -- -- -- $ 20,298
Exchange of shares upon recapitalization.................. -- -- -- (20,298)
-------- -------- -------- --------
Balance at end of year.................................... -- -- -- --
======== ======== ======== ========
NEW CLASS B STOCK
Balance at beginning of year.............................. $ 25 $ 25 $ 25 --
Issuance of shares upon recapitalization.................. -- -- -- $ 25
-------- -------- -------- --------
Balance at end of year.................................... $ 25 $ 25 $ 25 $ 25
======== ======== ======== ========
OLD CLASS B STOCK
Balance at beginning of year.............................. -- -- -- $ 2,267
Exchange of shares upon recapitalization.................. -- -- -- (2,267)
-------- -------- -------- --------
Balance at end of year.................................... -- -- -- --
======== ======== ======== ========
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year.............................. $ 80,680 $ 74,025 $ 68,870 $ 31,146
Stock options exercised................................... 117 3,565 30 1
Restricted stock granted.................................. -- 854 -- --
Cost of offerings and recapitalization.................... (221) (20) (1,401) (428)
Stock option repricing and valuation...................... (714) 2,256 147 (339)
Effect of recapitalization and exchange offer............. -- -- 23 38,294
Proceeds from rights offering............................. 28,312 -- 6,167 --
Other..................................................... 189 -- 189 196
-------- -------- -------- --------
Balance at end of year.................................... $108,363 $ 80,680 $ 74,025 $ 68,870
======== ======== ======== ========
RETAINED EARNINGS (DEFICIT)
Balance at beginning of year.............................. $ 23,603 $ 40,179 $ 47,551 $ 43,313
Net (loss) income......................................... (26,107) (15,301) (3,110) 8,009
Dividends................................................. (7,672) (1,275) (4,262) (3,771)
-------- -------- -------- --------
Balance at end of year.................................... $(10,176) $ 23,603 $ 40,179 $ 47,551
======== ======== ======== ========
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance at beginning of year.............................. $ (1,752) $ (2,245) $ (1,312) $ (2,165)
Foreign currency translation adjustment, net of tax....... 1,076 493 (933) 853
-------- -------- -------- --------
Balance at end of year.................................... $ (676) $ (1,752) $ (2,245) $ (1,312)
======== ======== ======== ========
DEFERRED COMPENSATION
Balance at beginning of year.............................. $ (789) $ (94) $ (376) $ (658)
Restricted stock granted.................................. -- (855) -- --
Amortization of deferred compensation..................... 263 160 282 282
-------- -------- -------- --------
Balance at end of year.................................... $ (526) $ (789) $ (94) $ (376)
======== ======== ======== ========
TREASURY STOCK
Balance at beginning of year.............................. $(39,188) $(37,322) $(37,322) $(37,322)
Shares relinquished or purchased.......................... -- (1,866) -- --
-------- -------- -------- --------
Balance at end of year.................................... $(39,188) $(39,188) $(37,322) $(37,322)
======== ======== ======== ========
</Table>

See accompanying notes to the consolidated financial statements

F-4

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, SHARE AND MARKET DATA)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Fedders Corporation (the "Company") is a leading global manufacturer and
marketer of air treatment products, including air conditioners, air cleaners,
dehumidifiers, humidifiers, and thermal technology products.

FISCAL YEAR

On August 26, 2003, the Board of Directors of the Company decided to change
the Company's fiscal year end from August 31 to December 31.

OPERATIONS AND FINANCING

The Company has incurred operating losses and used cash in its operations
and for investment in both the four month period ended December 31, 2003 and the
year ended December 31, 2004 requiring the Company to utilize higher levels of
its short-term borrowing facilities to fund ongoing operations. In an effort to
reduce costs and enhance the Company's liquidity, management has taken steps to
rationalize and consolidate certain of its domestic operations and reduce
redundancies and overlap within its organizational structure. In addition, the
Company offered for sale all of the capital stock of Melcor Corporation, its
thermal management subsidiary, and its industrial facility and development
property in Walkersville, Maryland. The Company is currently negotiating a
contract for the sale of Melcor, and an auction of the facility and property in
Maryland will take place on November 1, 2005. Management believes that through
existing operations, as well as the steps outlined above, the Company's existing
and future sources of cash, anticipated future earnings, and short-term
borrowing capacity are adequate to meet the demands of its operations and its
short and long-term credit requirements. In addition, the Company believes it
will be able to secure a revolving credit facility upon the expiration of its
current revolving credit facility with Wachovia Bank, NA, which expires in
February 2006.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company and all of its wholly-owned and majority-owned subsidiaries and
joint ventures. Joint ventures which are not majority owned, but over which the
Company shares joint control, are accounted for by the equity method. All
significant intercompany accounts and transactions are eliminated in
consolidation.

In connection with FASB Interpretation No. 46R, "Consolidation of Variable
Interest Entities" ("FIN 46R"), when evaluating an entity for consolidation, the
Company first determines whether an entity is within the scope of FIN 46R and if
it is deemed to be a variable interest entity ("VIE"). If the entity is
considered to be a VIE, the Company determines whether it would be considered
the entity's primary beneficiary. The Company consolidates those VIEs for which
it has determined that it is the primary beneficiary. Generally, the Company
will consolidate an entity not deemed either a VIE or qualifying special purpose
entity ("QSPE") upon a determination that its ownership, direct or indirect,
exceeds fifty percent of the outstanding voting shares of an entity and/or that
it has the ability to control the financial or operating policies through its
voting rights, board representation or other similar rights. For entities where
the Company does not have a controlling interest (financial or operating), the
investments in such entities are classified as available-for-sale securities or
accounted for using the equity or cost method, as appropriate. The Company
applies the equity method of accounting when it has the ability to exercise
significant influence over operating and financial policies of an investee in
accordance with APB Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock."

REVENUE RECOGNITION

F-5

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the time the products are delivered to the customers. Sales are recorded net of
a provision for sales allowances, warranties and returns.

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

WARRANTY AND DEFECTIVE RETURN POLICY

The Company's policy is to accrue the estimated cost of warranty coverage
and defective returns at the time the sale is recorded.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities of the Company's foreign subsidiaries are translated
at the rate of exchange in effect at the end of the period. Net sales and
expenses are translated at the average rate of exchange for the period.
Translation adjustments are reflected in other comprehensive loss as a separate
component of stockholders' equity.

COMPREHENSIVE INCOME (LOSS)

<Table>
<Caption>
FOUR MONTHS FISCAL YEAR ENDED
YEAR ENDED ENDED AUGUST 31,
DECEMBER 31, DECEMBER 31, --------------------
2004 2003 2003 2002
------------ ------------ ---------- -------
(RESTATED) (RESTATED)

Net (loss) income......................... $(26,107) $(15,301) $(3,110) $8,009
Other comprehensive (loss) income:
Foreign currency translation, net of
tax..................................... 1,076 493 (933) 853
-------- -------- ------- ------
Comprehensive (loss) income............... $(25,031) $(14,808) $(4,043) $8,862
======== ======== ======= ======
</Table>

In previously reporting comprehensive income (loss), the Company included
the affects of preferred stock dividends declared in its measurement. As such,
comprehensive loss as previously reported for the fiscal year ended August 31,
2003 in the amount of $4,661 has been restated to correct for this error. This
adjustment had no effect on basic/diluted loss per share applicable to common
stockholders.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.

F-6

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INVENTORIES

Inventories are stated at the lower of the first-in, first-out (FIFO) cost
or market. The Company reviews inventory periodically for slow-moving and
obsolete items. Write-downs are recorded in the period in which they are
identified. Inventories consist of the following at December 31:

<Table>
<Caption>
2004 2003
-------- --------

Finished goods.............................................. $100,783 $113,659
Work-in-process............................................. 3,487 4,487
Raw materials and supplies.................................. 28,650 27,340
-------- --------
$132,920 $145,486
======== ========
</Table>

OTHER CURRENT ASSETS

Other current assets consist of the following at December 31:

<Table>
<Caption>
2004 2003
------- ----------

VAT tax refund receivable................................... $ 2,504 $17,517
Income tax refund receivable................................ -- 1,562
Other....................................................... 8,075 9,273
------- -------
$10,579 $28,352
======= =======
</Table>

PROPERTY, PLANT AND EQUIPMENT

Replacements, betterments and additions to property, plant and equipment
are capitalized at cost. Expenditures for maintenance and repairs are charged to
expense as incurred. Upon sale or retirement of property, plant and equipment,
the cost and related accumulated depreciation are removed from the respective
accounts and any gain or loss is reflected in cost of sales or selling, general
and administrative expense, as appropriate. Net property, plant and equipment
consist of the following at December 31:

<Table>
<Caption>
ESTIMATED
USEFUL LIFE 2004 2003
-------------- -------- --------

Land and improvements............................ $ 5,398 $ 1,508
Buildings and leasehold improvements............. 10 to 30 years 41,766 31,880
Machinery and equipment.......................... 3 to 12 years 105,948 102,815
-------- --------
Property, plant and equipment -- gross........... 153,112 136,203
Accumulated depreciation......................... (92,393) (81,541)
-------- --------
Net property, plant and equipment................ $ 60,719 $ 54,662
======== ========
</Table>

At December 31, 2004, assets totaling $8,249 which were previously
classified as "Assets Held for Sale" were reclassified as held and used and
included in net property, plant and equipment due to the inability of the
Company to complete the sale of its Walkersville, Maryland facility in
accordance with the Company's original plans and expectations. The Company
recorded an additional $1,032 of depreciation expense which represents the
amount of depreciation expense that otherwise would have been recorded during
the period that such asset was classified as held for sale. See Note 14.

The Company, using estimates based on reasonable assumptions and
projections, reviews for impairment of long-lived assets and certain
identifiable intangibles to be held and used whenever events or changes in
circumstances indicate the carrying amount of its assets might not be
recoverable and appropriately records any necessary adjustments. Depreciation is
provided on the straight-line basis over the estimated useful life of each asset
as noted above. Depreciation expense for the year ended December 31, 2004, four
months ended

F-7

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 2003 and fiscal years ended August 31, 2003 and 2002 was $10,706,
$3,314 and $9,112 and $10,394, respectively.

GOODWILL AND OTHER 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 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.

The Company completed the transitional goodwill impairment test during the
fourth quarter for fiscal 2003. The Company did not identify any impairment
within its HVACR reporting segment but has recognized a non-cash goodwill
impairment charge of $11,906 within its Engineered Products reporting segment.
The projected financial performance of the Engineered Products reporting 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 September 1, 2002.

In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets",
the Company ceased amortization of goodwill as of September 1, 2002. For the
fiscal year ended August 31, 2002, reported net income applicable to common
stockholders included goodwill amortization, net of tax, of $2,000, or $0.06 on
a basic and diluted per common share basis.

The Company completed its goodwill impairment test as of September 1, 2004
and 2003, respectively. No impairment was recognized.

Goodwill and other intangible assets consist of the following:

<Table>
<Caption>
ENGINEERED
HVACR PRODUCTS TOTAL
------- ---------- -------

Goodwill balance as of December 31, 2003............... $70,133 $8,497 $78,630
Effect of foreign currency change...................... (664) -- (664)
------- ------ -------
Goodwill balance as of December 31, 2004............... $69,469 $8,497 $77,966
======= ====== =======
</Table>

<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------

Other intangible assets..................................... $3,028 $3,178
Accumulated amortization.................................... (1,681) (1,493)
------ ------
Other intangible assets..................................... $1,347 $1,685
====== ======
</Table>

Other intangible assets primarily include a right associated with a joint
venture that is being amortized over 20 years. Amortization expense for the year
ended December 31, 2004, four months ended December 31, 2003 and fiscal years
ended August 31, 2003 and 2002 was $204, $63, $181 and $215, respectively.
Estimated amortization expense for other intangibles will be approximately $120
for each of the next five years and $747 thereafter.

F-8

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

OTHER ASSETS

Other assets consist of the following at December 31:

<Table>
<Caption>
2004 2003
------- -------

Note due from an executive officer (note 11)................ $ 6,000 $ 6,000
Unamortized deferred finance costs, amortized over the life
of the debt............................................... 5,072 2,284
Cash surrender value of life insurance...................... 7,501 7,856
Supplemental retirement assets.............................. 8,301 8,422
Investment in unconsolidated joint ventures (note 12)....... 7,971 5,990
Other....................................................... 1,275 680
------- -------
$36,120 $31,232
======= =======
</Table>

ACCRUED EXPENSES

Accrued expenses consist of the following at December 31:

<Table>
<Caption>
2004 2003
------- -------

Warranty.................................................... $ 6,868 $ 4,517
Marketing programs.......................................... 7,107 5,835
Salaries and benefits....................................... 10,383 11,681
Interest.................................................... 5,143 2,055
Insurance and taxes......................................... 1,124 2,107
Professional fees........................................... 1,328 659
Other....................................................... 8,219 12,178
------- -------
$40,172 $39,032
======= =======
</Table>

INCOME TAXES

Deferred income taxes are provided to reflect the tax effects of temporary
differences between assets and liabilities for financial reporting purposes and
income tax purposes. Provisions are also made for U.S. income taxes on
undistributed earnings of foreign subsidiaries not considered to be indefinitely
reinvested (note 7).

SHIPPING AND HANDLING FEES AND COSTS

Costs associated with the handling and warehousing of finished goods are
charged to selling, general and administrative expense. Shipping and handling
costs for the year ended December 31, 2004, four months ended December 31, 2003
and fiscal years ended August 31, 2003 and 2002 was $8,723, $1,732, $5,811 and
$4,817, respectively.

RESEARCH AND DEVELOPMENT COSTS

All research and development costs are charged to selling, general and
administrative expense as incurred. Research and development costs for the year
ended December 31, 2004, four months ended December 31, 2003 and fiscal years
ended August 31, 2003 and 2002 was $10,179, $2,993, $9,478 and $8,896,
respectively.

F-9

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 for options granted, as all options
granted had 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
123 to stock-based employee compensation.

<Table>
<Caption>
FISCAL YEAR ENDED
YEAR ENDED AUGUST 31,
DECEMBER 31, FOUR MONTHS ENDED -----------------
2004 DECEMBER 31, 2003 2003 2002
------------ ----------------- -------- ------

Net (loss) income applicable to
common stockholders -- as
reported.......................... $(30,127) $(15,785) $ (3,728) $8,009
Add: Stock-based employee
compensation expense (income)
included in reported net (loss)
income, net of related tax
effects........................... (464) 1,523 99 (229)
Deduct: Total stock-based employee
compensation expense determined
under fair-value-based method for
all awards, net of related tax
effects........................... 1,160 64 360 779
-------- -------- -------- ------
Pro forma net (loss) income......... $(31,751) $(14,326) $ (3,989) $7,001
======== ======== ======== ======
Net (loss) income per common share:
Basic and diluted -- as
reported....................... $ (0.99) $ (0.52) $ (0.12) $ 0.25
Basic and diluted -- pro forma.... $ (1.04) $ (0.47) $ (0.13) $ 0.22
</Table>

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

RISKS AND UNCERTAINTIES

The Company's foreign operations, at times, may be adversely affected by
changes in government policies such as changes in laws and regulations (or the
interpretation thereof), restrictions on imports and exports and sources of
supply, duties or tariffs, the introduction of measures to control inflation,
changes in the rate or method of taxation, the imposition of restrictions on
currency conversion and remittances abroad and the expropriation of private
enterprise. In addition, policy concerns particular to the United States with
respect to a country in which the Company has operations could adversely affect
the Company's operations in that country.

F-10

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EARNINGS PER SHARE

Basic earnings (loss) per common share are computed by dividing net income
(loss) applicable to common stockholders by the weighted average number of
shares outstanding for the period. Diluted earnings (loss) per common share are
computed by adjusting outstanding shares assuming conversion of all potentially
dilutive stock options. Due to their anti-dilutive effect, 349,107 and 736,567
options were excluded from the computation of diluted loss per share for the
year ended December 31, 2004 and four months ended December 31, 2003. There were
no options excluded for the fiscal year ended August 31, 2003 and 2002. The
computation of basic earnings (loss) per common share and diluted earnings
(loss) per common share is as follows:

<Table>
<Caption>
FOUR MONTHS FISCAL YEAR ENDED
YEAR ENDED ENDED AUGUST 31,
DECEMBER 31, DECEMBER 31, -----------------
2004 2003 2003 2002
------------ ------------ ------- -------

Net (loss) income applicable to common
stockholders........................... $(30,127) $(15,785) $(3,728) $ 8,009
-------- -------- ------- -------
Weighted average shares outstanding
(amounts in thousands)................. 30,466 30,179 30,638 31,492
Assumed conversion of stock options
(amounts in thousands)................. -- -- 66 2
-------- -------- ------- -------
Dilutive average shares outstanding
(amounts in thousands)................. 30,466 30,179 30,704 31,494
======== ======== ======= =======
(Loss) earnings per common share:
Basic.................................. $ (0.99) $ (0.52) $ (0.12) $ 0.25
Diluted................................ (0.99) (0.52) (0.12) 0.25
======== ======== ======= =======
</Table>

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount for cash and cash equivalents, accounts receivable,
accounts payable, short term notes and accrued expenses approximates fair value
due to the short maturity of these instruments. At December 31, 2004 and 2003,
the fair value of long-term debt (including current portion), is estimated to be
$144,821 and $155,713, respectively, based on current market rates that could be
obtained by the Company for similar debt.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The nature of the Company's business activities necessarily involves the
management of various financial and market risks, including those related to
changes in foreign currency exchange rates. The Company's use of derivative
financial instruments is limited primarily to the use of forward foreign
currency exchange contracts to mitigate certain foreign currency exchange rate
risks relative to Canadian dollar receivables, Euro dollar payables, and
Philippine peso payables. Such contracts are not designated as hedges and any
changes in fair value are recognized in "Other income (expense)" in the current
period. The Company does not have any such contracts outstanding as of December
31, 2004 and 2003.

F-11

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In November 2004, the EITF reached a consensus on EITF Issue No. 03-1, "The
Meaning of Other-Than-Temporary Impairment and its Application to Certain
Investments" ("EITF 03-1"). EITF 03-1 provides guidance on determining
other-than-temporary impairments and its application to marketable equity and
debt securities accounted for under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," as well as investments accounted for
under the cost method of accounting. In September 2004, the FASB issued FASB
Staff Position ("FSP") EITF Issue 03-1-1 which delayed the effective date for
the measurement and recognition guidance contained in EITF 03-1 pending
finalization of the draft FSP EITF Issue 03-1-a, Implementation Guidance for the
Application of Paragraph 16 of EITF 03-1." The disclosure requirements of EITF
03-1 remain in effect. The Company adopted the disclosure requirements of EITF
03-1 as of December 31, 2004. The adoption of the recognition and measurement
provisions of EITF 03-1 when finalized are not expected to have a material
impact on the Company's results of operations, financial position or cash flows.

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 153, "Exchanges of Non-monetary
Assets", as an amendment of APB Opinion No. 29. FAS No. 153 eliminates the
exception to fair value for exchanges of similar productive assets and replaces
it with a general exception for exchange transactions that do not have
commercial substance. The provisions of this Statement shall be effective for
non-monetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. The provisions of this Statement shall be applied prospectively. The
Company will adopt FASB Statement No. 153 in the third quarter of fiscal 2005
and does not expect it to have a material impact on the results of operations,
financial position, or cash flows.

In December 2004, the FASB issued Staff Position No. FAS 109-2, "Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision Within
the American Jobs Creation Act of 2004". The American Jobs Creation Act of 2004
introduces a special one-time dividends received deduction on the repatriation
of certain foreign earnings to a U.S. taxpayer provided certain criteria are
met. As disclosed in Note 7, the Company will repatriate foreign earnings under
this provision, and accordingly has reduced its U.S. tax provision at December
31, 2004 by $1.1 million for the U.S. tax differential.

In November 2004, the FASB issued Statement of Financial Accounting
Standards No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4", to
improve the comparability of cross-border financial reporting. This statement
amends and clarifies the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). This Statement
requires that those items be recognized as current-period charges regardless of
whether they meet the criterion of "so abnormal" as stated in ARB No. 43,
Chapter 4. In addition, this Statement requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity
of the production facilities. The provisions of this Statement will be effective
for inventory costs incurred during fiscal years beginning after June 15, 2005.
The provisions of this Statement will be applied prospectively. The Company is
currently assessing the impact that FASB Statement No. 151 will have on its
results of operations, financial position, or cash flows.

On December 16, 2004, the FASB issued FASB Statement No. 123 (revised
2004), "Share-Based Payment," ("Statement 123(R)") which is a revision of FASB
Statement No. 123, "Accounting for Stock-

F-12

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Based Compensation" ("Statement 123"). Statement 123(R) supersedes Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
("Opinion 25") and amends FASB Statement No. 95, "Statement of Cash Flows."
Generally, the approach in Statement 123(R) is similar to the approach described
in Statement 123. However, Statement 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative.

2. 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 four months ended December 31, 2003, the
Company expended $137, primarily for facility closing costs. For the year ended
December 31, 2004, the Company expended $52, primarily for facility closing
costs. In September 2004, 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.

The following table displays the activity and balances of the restructuring
reserve account from August 31, 2003 to December 31, 2004:

<Table>
<Caption>
AUGUST 31,
2003 DECEMBER 31, DECEMBER 31,
BALANCE ADDITIONS DEDUCTIONS 2003 BALANCE ADDITIONS DEDUCTIONS 2004 BALANCE
---------- --------- ---------- ------------ --------- ---------- ------------

Workforce
reductions......... $ 586 -- -- $ 586 -- $454 $132
Facility closing
costs.............. 477 -- $137 340 -- 292 48
Other costs.......... 214 -- -- 214 -- 15 199
------ ---- ---- ------ ---- ---- ----
Total.............. $1,277 -- $137 $1,140 -- $761 $379
====== ==== ==== ====== ==== ==== ====
</Table>

The remaining balance of $379 will be settled upon the expiration of the period
for workers' compensation claims and completion of facility clean up and waste
removal.

F-13

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. CONTINGENCIES

The Company is involved in litigation, both as plaintiff and defendant,
incidental to the conduct of its business. It is the opinion of management,
after consultation with counsel, that the outcome of such litigation will not
have a material adverse effect on its financial position, results of operations
and cash flows.

4. SHORT-TERM BORROWING

At December 31, 2004 and 2003, the Company had $28,329 and $0 of short-term
borrowing outstanding under its $100,000 U.S. revolving credit facility with
Wachovia Bank, NA (the "Senior Lender"). Availability under the revolving credit
facility is based on accounts receivable and inventory and requires maintenance
of certain financial covenants. During 2005, as a result of the delay in filing
this annual report on Form 10-K and quarterly reports on Form 10-Q for the first
and second quarters of 2005, the Company was in default of its agreement with
the Senior Lender related to a covenant requiring the Company to timely file
these reports. The Company subsequently received a waiver of this default. See
Note 15. By the terms of the waiver, the Company must file its Form 10-K on or
before September 30, 2005 and Forms 10-Q for the first and second quarters of
2005 on or before November 30, 2005. The Company currently expects to file these
reports by such date.

The maximum amount outstanding under the credit facility was $40,495 during
fiscal 2004. There were no borrowings during the four months ended December 31,
2003. The average amount outstanding and average rate of interest charged on
outstanding borrowings under the credit facility were $16,710 and 4% in the year
ended December 31, 2004. The credit facility is collateralized by substantially
all of the Company's assets and is in effect until February 2006. The rate of
interest on the facility is prime rate or LIBOR plus 2%. The Company was
required to pay a fee each month equal to one half of one percent (1/2 of 1%)
per annum of the unused revolver amount based upon the average daily loan
balance.

At December 31, 2004 and 2003, certain foreign subsidiaries had short-term
notes of $29,242 and $30,446, respectively, outstanding under loan agreements
with various banks. The current notes bear interest ranging from 2.625% to 14.0%
and expire no later than December 2005. A portion of these short-term notes were
used to support production in China. At December 31, 2004 and 2003, the
outstanding balance under these borrowing facilities was $26,741 and $29,829,
respectively. The maximum amount outstanding under these credit facilities was
$42,070 and $30,174 during 2004 and the four months ended December 31, 2003,
respectively. The average amount outstanding and average rate of interest
charged on outstanding borrowings under these credit facilities were $28,477 and
4.93% in fiscal 2004. The average amount outstanding and average rate of
interest charged on outstanding borrowings under these credit facilities were
$15,896 and 4.82% during four months ended December 31, 2003.

F-14

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM DEBT

Long-term debt consists of the following:

<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------

9 7/8% Senior Subordinated Notes due in 2014
$155,000 principal amount less unamortized discount of
$4,515................................................. $150,485 --
9 3/8% Senior Subordinated Notes due in 2007:
$100,000 principal amount less unamortized discount of
$173................................................... -- $ 99,827
$50,000 principal amount less unamortized discount of
$1,076................................................. -- 48,924
Fedders Koppel promissory note.............................. -- 1,821
Promissory note payable to the State of Illinois............ 1,294 1,655
Trion Industrial Revenue Bond............................... 3,200 3,200
Flag Bank................................................... 211 510
Melcor, State of New Jersey Economic Development Bond....... 731 863
Eubank Manufacturing Enterprises, Inc. mortgage............. 721 925
Fedders Addison Company mortgage............................ 2,500 --
Capital lease obligations................................... 3,397 4,019
-------- --------
162,539 161,744
Less current maturities..................................... 1,653 2,779
-------- --------
160,886 158,965
======== ========
</Table>

Aggregate amounts of long-term debt, excluding capital leases of $3,397,
maturing in each of the years ending December 31 are as follows:

<Table>
<Caption>
YEAR 2005 2006 2007 2008 2009 THEREAFTER TOTAL
- ---- ------ ------ ------ ------ ------ ---------- --------

Amount............... $1,154 $1,020 $1,029 $ 772 $ 444 $154,723 $159,142
</Table>

Aggregate future minimum rental payments under capital leases are as
follows:

<Table>
<Caption>
YEAR AMOUNT
- ---- ------

2005........................................................ $ 730
2006........................................................ 1,746
2007........................................................ 230
2008........................................................ 230
2009........................................................ 230
Thereafter.................................................. 1,039
------
Total minimum lease payments................................ 4,205
Less amount representing interest........................... 808
------
Total obligation under capital leases....................... $3,397
======
</Table>

In March 2004, Fedders North America, Inc. ("FNA"), a wholly-owned
subsidiary of the Company, issued $155,000 principal amount of 9 7/8% Senior
Notes due 2014 (the "Senior Notes"). The Company and all of the continuing
subsidiaries of FNA are guarantors, on a senior basis, of the notes. FNA may
redeem the notes on and after March 1, 2009 for a defined redemption price. The
provisions of the notes limit, among other things, the payment of dividends by
the subsidiary. See Note 15.

On February 6, 2004, 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

F-15

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9 3/8% Senior Subordinated Notes due 2007, issued August 18, 1997 (collectively,
the "Notes"). The total consideration offered in the tender was comprised of the
tender offer consideration and a consent payment. The tender offer consideration
was equal to $1,012.50 per $1,000 principal amount of Notes plus accrued and
unpaid interest from the last interest payment up to, but not including, the
settlement date. An additional consent fee was paid to holders who effectively
consented to amend the Notes, in the amount of $20.00 per $1,000 principal
amount of Notes. Loss on debt extinguishment of $8,075 was incurred as a result
of the early retirement of debt, consisting of $4,848 of call premiums and
$3,227 for the write-off of associated debt issuance costs and unamortized debt
discount.

The loan from the State of Illinois has an interest rate of 1%, is to be
paid over the next four years, and is collateralized by a mortgage on the
Company's Illinois facility.

The Trion Industrial Revenue Bond is due in November 2011, bears interest
at a variable rate which fluctuates in accordance with the Bond Market
Association Index, and requires no principal payments until maturity. This bond
is collateralized by Trion's Sanford, North Carolina facility, including real
property and equipment.

The Eubank Manufacturing Enterprises, Inc. promissory note due to Flag Bank
is to be paid next year and has a variable rate of interest, payable at the
prime rate. The promissory note is collateralized by certain real property and
equipment.

The loan from the New Jersey Economic Development Corporation to Melcor
Corporation has an interest rate of 6.6%, is to be paid over the next seven
years and is collateralized by Melcor's facility and certain equipment.

The Eubank Manufacturing Enterprises Inc. mortgage with Bank One has an
interest rate of 4.25%, is to be paid over the next four years and is
collateralized by a mortgage on Eubank's facility.

In December 2004, Fedders Addison Company obtained a $2,500 term loan with
Wachovia Bank, NA. The loan is collateralized by a mortgage on real estate in
Orlando, Florida and is to be paid over the next eight years. The rate of
interest on the loan is the prime rate.

6. COMMITMENTS

The Company leases certain property and equipment under operating leases.
Most of these operating leases contain one of the following options: (a) the
Company may, at the end of the initial lease term, purchase the property at the
then fair market value or (b) the Company may renew its lease at the then fair
rental value for a period of one month to five years. The Company also has
contractual minimum payments under license agreements. Minimum payments for
operating leases having non-cancelable terms and contractual minimum payments
under the license agreements are as follows:

<Table>
<Caption>
YEAR 2005 2006 2007 2008 2009 THEREAFTER TOTAL
- ---- ------ ------ ------ ------ ------ ---------- -------

Amount................. $5,138 $4,394 $4,212 $4,159 $3,754 $12,180 $33,837
</Table>

Total rent and licensing expense amounted to $10,811, $1,671, $8,556 and
$5,715 for the year ended December 31, 2004, four months ended December 31, 2003
and fiscal years ended August 31, 2003 and 2002, respectively.

F-16

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES

The provision (benefit) for income taxes consists of the following
components:

<Table>
<Caption>
FOUR MONTHS FISCAL YEAR ENDED
YEAR ENDED ENDED AUGUST 31,
DECEMBER 31, DECEMBER 31, -----------------
2004 2003 2003 2002
------------ ------------ ------ --------

Current: Federal......................... $ 1,303 $(7,076) $ (465) $(12,101)
State.......................... 45 (343) 151 (181)
Foreign........................ 848 58 197 493
-------- ------- ------ --------
2,196 (7,361) (117) (11,789)
-------- ------- ------ --------
Deferred: Federal........................ (15,500) -- 4,264 6,497
State......................... (617) -- 77 259
Foreign....................... (184) -- -- --
-------- ------- ------ --------
(16,301) -- 4,341 6,756
-------- ------- ------ --------
$(14,105) $(7,361) $4,224 $ (5,033)
======== ======= ====== ========
</Table>

The Company elected to carry back its 2001 and 2002 U.S. net operating
losses.

Deferred tax assets and liabilities result from temporary differences
between assets and liabilities for financial reporting and income tax purposes,
and include the components related to acquired companies. The components are as
follows at December 31:

<Table>
<Caption>
2004 2003
------- -------

Warranty.................................................... $ 2,399 $ 3,453
Depreciation................................................ (9,093) (10,123)
Employee benefit programs................................... 6,871 7,363
Inventory................................................... 3,754 3,558
Net operating loss and tax credit carry-forwards............ 16,071 820
Restructuring............................................... 213 470
Other....................................................... 1,213 (619)
------- -------
21,428 4,922
Valuation allowance......................................... (980) (775)
------- -------
$20,448 $ 4,147
======= =======
</Table>

At December 31, 2004 and 2003, $8,827 and $7,652 of current deferred tax
assets were included in current assets, $22,263 and $8,224 of long-term deferred
tax assets were included in non-current assets, and $10,642 and $11,729 of
deferred income tax liabilities were included in other long-term liabilities.

F-17

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The difference between the United States statutory income tax rate and the
consolidated effective income tax rate is due to the following items:

<Table>
<Caption>
FOUR MONTHS FISCAL YEAR ENDED
YEAR ENDED ENDED AUGUST 31,
DECEMBER 31, DECEMBER 31, ------------------
2004 2003 2003 2002
------------ ------------ ------- --------

Expected tax at statutory rate............ $(14,074) $(7,932) $4,557 $ 1,042
Tax difference on foreign earnings........ 410 (220) (508) (568)
Valuation allowance reflected in current
income.................................. 205 -- -- 98
State taxes, less federal income tax
benefit................................. (371) (223) 120 50
Tax benefit of foreign earnings
repatriation............................ (1,110) -- -- --
Prior-year provisions no longer
required................................ -- -- -- (6,048)
Tax on foreign dividends-net.............. 204 231 -- --
Other..................................... 631 783 55 393
-------- ------- ------ -------
$(14,105) $(7,361) $4,224 $(5,033)
======== ======= ====== =======
</Table>

At December 31, 2003, the Company has U.S. and foreign net operating loss
carry-forwards of approximately $3 million and $1 million, respectively. At
December 31, 2004, the Company has U.S. and foreign net operating loss
carry-forwards of approximately $39 and $6 million, respectively. Nearly all of
the U.S. federal net operating loss carry-forward is available for utilization
over a 20 year period, and the foreign net operating loss carry-forwards have
unlimited lives. The valuation allowance reflects the uncertainty associated
with the realization of deferred tax assets. The increase in the valuation
reserve in 2004 was due primarily to the foreign net operating losses.
Management believes the valuation allowance is adequate to reduce the total
deferred tax asset to an amount that will more likely than not be realized.

The American Jobs Creation Act of 2004 was enacted on October 22, 2004 and
provides for a limited time an 85% dividend received deduction on the
repatriation of specified foreign earnings, effectively taxing those dividends
at 5.25%. The Company made its evaluation of this tax benefit and intends to
repatriate foreign earnings under this provision, including amounts that the
Company reflected in its U.S. tax provision in prior years. Accordingly, the
Company reduced its U.S. tax provision at December 31, 2004 by $1.1 million for
the U.S. tax differential.

8. REPORTABLE 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 which have been
aggregated due to similar economic characteristics.

The HVACR segment designs, manufactures and distributes window, residential
split system condensing units and air handlers, gas furnaces, multi-split
systems, through-the-wall, commercial and residential packaged unit air
conditioners, residential humidifiers, dehumidifiers and air cleaners. 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
commercial and industrial 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.

F-18

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SUMMARY OF BUSINESS BY SEGMENT:

<Table>
<Caption>
FOUR MONTHS FISCAL YEAR ENDED
YEAR ENDED ENDED AUGUST 31,
DECEMBER 31, DECEMBER 31, ----------------------
2004 2003 2003 2002
------------ ------------ ----------- --------

Net sales
HVACR.................................. $372,010 $ 42,814 $382,219 $332,748
Engineered Products.................... 41,006 12,740 39,484 40,954
-------- -------- -------- --------
Net sales.............................. $413,016 $ 55,554 $421,703 $373,702
======== ======== ======== ========
Earnings before interest, taxes and
cumulative effect of changes in
accounting principle
HVACR.................................. $(12,199) $ (9,749) $ 32,934 $ 25,908
Engineered Products.................... 3,018 947 194 (1,663)
-------- -------- -------- --------
Segment earnings before interest, taxes
and goodwill impairment.............. (9,181) (8,802) 33,128 24,245
-------- -------- -------- --------
Goodwill impairment, asset impairment,
employee severance and other
restructuring charges (credits)...... (842) -- 11,791 (397)
Non-allocated expenses................. 3,674 7,857 1,677 3,049
Loss on debt extinguishment............ 8,075 -- -- --
Interest expense, net.................. 20,124 6,003 18,546 18,617
Provision (benefit) for income taxes... (14,105) (7,361) 4,224 (5,033)
-------- -------- -------- --------
Net (loss) income...................... $(26,107) $(15,301) $ (3,110) $ 8,009
======== ======== ======== ========
</Table>

<Table>
<Caption>
FOUR MONTHS FISCAL YEAR ENDED
YEAR ENDED ENDED AUGUST 31,
DECEMBER 31, DECEMBER 31, ----------------------
DEPRECIATION AND AMORTIZATION 2004 2003 2003 2002
- ----------------------------- ------------ ------------ ----------- --------

HVACR.................................. $ 8,861 $ 2,706 $ 7,175 $ 10,409
Engineered Products.................... 1,845 600 2,033 3,779
Corporate.............................. 323 107 335 642
-------- -------- -------- --------
Consolidated depreciation and
amortization......................... $ 11,029 $ 3,413 $ 9,543 $ 14,830
======== ======== ======== ========
</Table>

<Table>
<Caption>
FOUR MONTHS FISCAL YEAR FISCAL YEAR
YEAR ENDED ENDED ENDED ENDED
PROPERTY, PLANT AND EQUIPMENT DECEMBER 31, DECEMBER 31, AUGUST 31, AUGUST 31,
ADDITIONS 2004 2003 2003 2002
- ----------------------------- ------------ ------------ ----------- -----------

HVACR....................... $ 5,490 $ 1,977 $ 6,478 $ 5,955
Engineered Products......... 899 99 330 1,796
Corporate................... 442 40 463 95
-------- -------- -------- --------
Consolidated property,
plant and equipment
additions.............. $ 6,831 $ 2,116 $ 7,271 $ 7,846
======== ======== ======== ========
</Table>

F-19

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
FOUR MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------

TOTAL ASSETS
HVACR....................... $288,500 $310,646
Engineered Products......... 54,418 52,826
Non-allocated assets........ 59,279 52,776
-------- --------
Consolidated assets....... $402,197 $416,248
======== ========
</Table>

At December 31, 2004 and December 31, 2003, $7,971 and $5,990 of investment
in equity method investees were included in total assets of the HVACR segment.

Non-allocated expense and assets are primarily related to the Company's
corporate headquarters.

SUMMARY OF NET SALES BY GEOGRAPHIC AREA (1)

<Table>
<Caption>
U.S. OTHER CONSOLIDATED
-------- ------- ------------

Year ended December 31, 2004......................... $314,981 $98,035 $413,016
Four months ended December 31, 2003.................. 35,501 20,053 55,554
Fiscal year ended August 31, 2003.................... 340,432 81,271 421,703
Fiscal year ended August 31, 2002.................... 321,666 52,036 373,702
</Table>

- ---------------

(1) "Other" includes the Company's net sales principally to Asia, Europe, Canada
and Mexico.

SUMMARY OF LONG-LIVED ASSETS BY GEOGRAPHIC AREA(2)

<Table>
<Caption>
U.S. OTHER CONSOLIDATED
-------- ------- ------------

December 31, 2004.................................... $115,645 $33,393 $149,038
December 31, 2003.................................... 111,656 28,799 140,455
</Table>

- ---------------

(2) "Other" includes long-lived assets located principally in Asia.

For the year ended December 31,2004, and fiscal years ended August 31, 2003
and August 31, 2002, two customers accounted for net sales of 48%, 48% and 49%,
respectively.

It is not practical for the Company to report revenues for each product or
group of similar products. A majority of the Company's internal reports provide
detailed information by legal entity, but there is no one uniform customer or
product information management system.

9. CAPITAL STOCK

On December 5, 2003, the Company's Board of Directors authorized the
distribution of transferable rights to the holders of the Company's Common and
Class B stock. In the rights offering, holders of Common Stock and Class B Stock
as of December 22, 2003 received subscription rights to purchase shares of
Series A Cumulative Preferred Stock. 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 were issued as result of the offering for gross proceeds of
$28.3 million.

F-20

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On October 1, 2003, the Company granted an officer 150,000 shares of
restricted Common Stock of the Company pursuant to the officer's employment
agreement. The officer is not permitted to sell, assign, transfer, pledge or
otherwise encumber these shares prior to January 1, 2007. The Company recorded
$0.9 million of deferred compensation expense to be amortized over the vesting
period.

On May 16, 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 ten shares of Common
Stock and Class B Stock they held as of July 1, 2003. Each transferable right
represented the right to purchase one share of the Company's Series A Cumulative
Preferred Stock at the subscription price of $23.70, until the expiration date
of August 12, 2003. As of August 12, 2003, 262,316 rights had been subscribed.

On February 14, 2003, the Company announced an exchange offer to exchange
shares of Series A Cumulative Preferred Stock for up to 12,500,000 shares of the
Company's Common Stock, with 0.14 shares of Preferred Stock being offered in
exchange for every share of Common Stock. The exchange of 633,082 shares of
Common Stock for 88,276 shares of Series A Cumulative Preferred Stock was
completed on March 18, 2003.

In October 2002, the Company's Board of Directors approved a plan pursuant
to which a new class of cumulative Preferred Stock would be offered to
stockholders in exchange for up to 15,000,000 shares of the Company's Common
Stock, with 0.14 shares of Preferred Stock being offered in exchange for every
share of Common Stock. The Series A Cumulative Preferred Stock receives a
cumulative annual dividend of $2.15 and has a liquidation preference of $25.00
plus the amount of any accrued and unpaid dividends. The holders of the Series A
Cumulative Preferred Stock has no right to vote, except in limited
circumstances. The exchange of 2,315,750 shares of Common Stock for 323,947
shares of Series A Cumulative Preferred Stock was completed on December 27,
2002.

Series A Cumulative Preferred Stock (15,000,000 shares authorized): The
Series A Cumulative Preferred Stock receives a cumulative annual dividend of
$2.15 and has a liquidation preference of $25.00 plus the amount of any accrued
and unpaid dividends. The holders of the Series A Cumulative Preferred Stock has
no right to vote, except in limited circumstances.

Common Stock (70,000,000 shares authorized): 2,682,488 shares of Common
Stock were reserved for the exercise of stock options and 2,492,511 shares of
Common Stock were reserved for the conversion of shares of new Class B Stock as
of December 31, 2004.

Class B Stock (5,000,000 shares authorized): Class B Stock is immediately
convertible into Common Stock on a share-for-share basis if the number of
outstanding shares of Class B Stock falls below 2.5% of the aggregate number of
issued and outstanding shares of Common Stock and Class B Stock. Class B Stock
has greater voting power, in certain circumstances (ten-to-one in the election
of directors), and has limited transferability. Class B Stock also votes
separately, as a class, on certain significant issues. Based upon the number of
shares of Common Stock and Class B Stock currently outstanding, in the event
that the Class B Stock became entitled to 10 votes per share in the election of
directors, the holders of the Class B Stock would have the power to elect all of
the directors.

F-21

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the number of shares outstanding by class of
stock:

<Table>
<Caption>
COMMON CLASS B PREFERRED
STOCK STOCK STOCK
---------- --------- ---------

Balance at August 31, 2002......................... 30,091,065 2,493,046 --
Stock options exercised............................ 10,000 -- --
Exchange offer..................................... (2,948,942) -- 412,521
Stock rights subscribed............................ -- -- 262,316
Other.............................................. (32,358) -- --
---------- --------- ---------
Balance at August 31, 2003......................... 27,119,765 2,493,046 674,837
---------- --------- ---------
Stock options exercised............................ 653,364 -- --
Restricted stock granted........................... 150,000 -- --
---------- --------- ---------
Balance at December 31, 2003....................... 27,923,129 2,493,046 674,837
Stock options exercised............................ 38,750 -- --
Stock rights subscribed............................ -- -- 1,195,092
Other.............................................. 45,838 (535) --
---------- --------- ---------
Balance at December 31, 2004....................... 28,007,717 2,492,511 1,869,929
========== ========= =========
</Table>

10. STOCK OPTION PLANS

The stock option plan, as approved by the stockholders, provides for the
granting to employees and officers of incentive stock options (as defined under
current tax laws) and non-qualified stock options. The plan provides for the
granting of non-qualified stock options to directors who are not employees.

On December 29, 2004, the Company's Board of Directors approved the
elimination of vesting restrictions on all outstanding stock options.

In October 2000, the Company's Board of Directors approved the repricing of
a majority of unexercised stock options, reducing the exercise price to $3.625
per share, which was the fair market value of the Class A Stock on the date of
repricing. The Company recorded a non-cash charge of $726 due to the repricing
in fiscal 2001. In fiscal 2002, the Company recorded a $339 reduction to
compensation expense to reflect changes in the market price of the Company's
stock. In fiscal 2003, the Company recorded a non-cash charge of $147 to reflect
changes in the market price of the Company's stock. For the four months ended
December 31, 2003, the Company recorded a $2,256 non-cash charge to compensation
expense due to the variable accounting treatment associated with the value of
re-priced stock options to reflect changes in the market price of the Company's
stock.

F-22

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The stock option plan summary and changes during each period are presented
below:

<Table>
<Caption>
FOUR MONTHS FISCAL YEAR
YEAR ENDED ENDED ENDED
DECEMBER 31, EXERCISE DECEMBER 31, EXERCISE AUGUST 31,
2004 PRICE(1) 2003 PRICE(1) 2003
------------- -------- ------------ -------- -------------

Options outstanding at
beginning of year............ 1,981,000 $4.10 2,228,000 $3.28 2,514,000
Granted........................ -- 791,000 $5.65 --
Canceled/Expired............... (468,000) $3.56 (22,000) $3.42 (276,000)
Exercised...................... (39,000) $3.02 (1,016,000) $3.52 (10,000)
---------- ----- ----------- ----- ----------
Options outstanding at end of
year......................... 1,474,000 $4.30 1,981,000 $4.10 2,228,000
========== ===== =========== ===== ==========
Options exercisable at end of
year......................... 1,474,000 $4.30 159,000 $3.02 317,000
========== ===== =========== ===== ==========
Exercise price per share....... $ 3.02 $ 2.65 $ 2.65
to 5.65 to 5.65 to 5.00
========== =========== ==========
</Table>

- ---------------

(1) weighted average

Options exercisable at December 31, 2004 have an average exercise price of
$4.30. There were no stock options granted during the year ended December 31,
2004. The weighted-average grant-date fair value of stock options granted during
the four months ended December 31, 2003 was $1.86. The fair value of each option
granted is estimated on the date of grant using the Binomial option pricing
model with the following weighted-average assumptions:

<Table>
<Caption>
FOUR MONTHS
ENDED
DECEMBER 31,
2003
------------

Expected dividend yield..................................... 2.10%
Risk-free rate.............................................. 3.0%
Expected life in years...................................... 5
Volatility.................................................. 39%
</Table>

The following table summarizes information on stock options outstanding at
December 31, 2004:

<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE(1) PRICE(1) EXERCISABLE PRICE(1)
- --------------- ----------- ----------- -------- ----------- --------

$3.02 - 3.02...................... 754,000 2.51 $3.02 754,000 $3.02
$4.20 - 5.65...................... 720,000 3.86 5.64 720,000 5.64
--------- ---- ----- --------- -----
1,474,000 3.17 $4.30 1,474,000 $4.30
========= ==== ===== ========= =====
</Table>

- ---------------

(1) weighted average

11. PENSION PLANS AND OTHER COMPENSATION ARRANGEMENTS

The Company maintains a 401(k) defined contribution plan covering all U.S.
employees. Company matching contributions under the plan are based on the level
of individual participant contributions and amounted to $685, $251, $649 and
$1,064, for the year ended December 31, 2004, four months ended December 2003
and fiscal years ended August 31, 2003 and 2002, respectively.

F-23

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In fiscal 2002, the Company entered into an employment agreement with an
officer that has a term that extends through September 2006. The agreement
provides for annual base and incentive compensation, a non-interest bearing,
uncollateralized loan, which the Company expects to collect in six yearly
installments over the six-year period following the officer's termination of
employment (see note 1), a retirement contribution that vests over the life of
the agreement and restricted stock, of which a portion vests in January 2004 and
a portion vests in January 2007. The Company is amortizing the retirement
contribution over the vesting period and the restricted stock, commencing on the
date of grant, over the remaining life of the agreement.

The Company provides a portion of health care and life insurance benefits
for certain retired employees who elect to participate in the Company's plan.
SFAS 106 requires accrual accounting for all post-retirement benefits other than
pensions. At December 31, 2004 and 2003, post-retirement benefits, although
immaterial, were fully accrued with no significant change between these dates.

The Company has a deferred retiree obligation for certain retirees. The
following tables summarize certain information with respect to this obligation
at:

<Table>
<Caption>
FOUR MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER
2004 31, 2003
------------ ------------

CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $12,068 12,348
Service cost................................................ -- --
Interest cost............................................... 646 290
Actuarial loss.............................................. 217 --
Benefits paid............................................... (1,703) (570)
------- -------
Benefit obligation at end of year........................... $11,228 12,068
======= =======
Weighted-average assumptions as of December 31:
Discount rate............................................... 5.75% 5.75%
</Table>

Estimated future payments:

<Table>
<Caption>
YEAR 2005 2006 2007 2008 2009 THEREAFTER
- ---- ------ ------ ------ ------ ------ ----------

Amount.......................... $1,656 $1,656 $1,656 $1,656 $1,656 $8,282
</Table>

12. ACQUISITIONS AND JOINT VENTURES

On November 1, 2004, the Company completed the acquisition of a wholly
owned air conditioning manufacturing operation in Orlando, Florida, Fedders
Addison Company, Inc.("Addison"). The Company has accounted for the acquisition
under the purchase method of accounting according to SFAS No. 141, "Business
Combinations", the results of Addison's operations have been included in the
consolidated financial statements since that date. Addison manufactures and
markets a broad line of air conditioning products primarily serving commercial
and institutional markets. The addition of Addison's products extends the
Company's existing commercial line from its Fedders Eubank division. This
subsidiary is included within the HVACR reportable segment.

F-24

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The cash purchase price was $7.8 million, no goodwill resulted from the
transaction. The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of acquisition.

<Table>
<Caption>
AT
NOVEMBER 1,
2004
-----------

Accounts receivable......................................... 3,130
Inventory................................................... 3,359
Other current assets........................................ 27
Property, plant, and equipment.............................. 4,554
------
Total assets acquired....................................... 11,070
======
Current Liabilities......................................... 3,256
------
Total liabilities assumed................................... 3,256
======
Net assets acquired......................................... 7,814
======
</Table>

On October 21, 2003, the Company entered into a joint venture with Jiangsu
Xingrong Hi-Tech Company ("Xingrong") to design, produce and market heat
exchangers used in air conditioners. The Company and Xingrong each have a 50%
interest in the joint venture, Changzhou Fedders Xingrong Air Conditioner
Components Co., Ltd. . The Company's investment in the joint venture amounted to
$0.9 million. This joint venture is included within the HVACR reportable
segment. The Company reports the results of the joint venture by the equity
method of accounting.

On December 9, 2003, the Company and BSH Bosch und Siemens Hausgerate GmbH
terminated their joint venture named BSH and Fedders International Air
Conditioning, S.A., as of November 2003. This joint venture was established on
March 24, 1998. The Company agreed to sell its interest for the sum of 3.6
million Euros, approximately $4.4 million. The two parties also settled other
various claims. Net proceeds received from the sale were $1.6 million. The
Company realized a gain of $0.6 million on the sale.

In March 2003, the Company entered into a joint venture with Nanjing Suning
High & New Technology Industrial Park Co., Ltd. to manufacture split-type air
conditioners in China. The Company has a 2/3 interest in the joint venture,
Fedders Suning Nanjing Co., Ltd. The joint venture is included within the HVACR
reportable segment. The Company's investment in the joint venture amounted to
$1.7 million. This joint venture is consolidated into the Company's financial
statements with Nanjing Suning's 1/3 interest accounted for as a minority
interest. This transaction was accounted for as a business combination

The Company completed the acquisition, in the first quarter of fiscal 2002,
of a wholly-owned air conditioning manufacturing operation in Shanghai, China,
now called Fedders Shanghai Co., Ltd. This subsidiary is included within the
HVACR reportable segment. This plant has fully replaced the production of room
air conditioners previously produced at the Company's Tennessee plant, which
ceased production as part of the 2001 restructuring plan. The purchase price of
$4.6 million was allocated based on the fair market value of the assets
acquired, which consisted primarily of inventory and fixed assets. The excess of
purchase price over the fair market value of the assets acquired was allocated
to goodwill ($0.6 million).

In January 2002, Rotorex Company, Inc. ("Rotorex"), a subsidiary of the
Company, and Dong Fang Electromechanical, a subsidiary of China North Industries
Group Corporation, entered into an agreement to form a joint venture to
manufacture rotary compressors for air conditioners, in Xi'an, China. This joint
venture is included within the HVACR reportable segment. The Company's
investment in the joint venture amounted to $5.0 million. Rotorex has a 50%
interest in Xi'an Fedders Dong Fang Air Conditioner Compressor Co. Ltd. The
Company reports the results of the joint venture by the equity method of
accounting.

F-25

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's consolidated financial statements include the operating
results of the acquired businesses and joint ventures from the date of
acquisition or the commencement of the joint venture. On a pro forma basis, as
if the businesses had been acquired or the joint ventures entered into at the
beginning of the fiscal year, revenue, net income and earnings per share would
not differ materially from the amounts reported in the consolidated financial
statements for the fiscal year.

13. GUARANTEES

In November 2002, FASB Interpretation ("FIN") 45, "Guarantor's Accounting
And Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others", was approved by the FASB. FIN 45 clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. The
initial recognition and initial measurement provisions of this interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The interpretation also requires enhanced and additional
disclosures of guarantees in interim and annual financial statements for periods
ending after December 15, 2002. The Company adopted this statement in the second
quarter of fiscal year 2003.

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 is 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.

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 December 31, 2004:

<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004
------------

Warranty balance at December 31, 2003....................... $ 5,641
Accruals for warranties issued during the period............ 16,981
Settlements made during the period.......................... (15,289)
--------
Warranty balance at December 31, 2004....................... $ 7,333
========
</Table>

LOAN GUARANTEES

Guarantees of subsidiary debt by Fedders Corporation (the "Parent") and
subsidiaries consist of the following at December 31, 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.

F-26

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(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. The
outstanding loan balance at December 31, 2004 is $28.3 million.

(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 December 31, 2004 is $0.7 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 December
31, 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 December 31, 2004 is $0.2
million.

(vi) 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 December 31, 2004.

(vii) 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 December 31, 2004 is $0.7 million.

(viii) The Parent guarantees the obligations of a subsidiary, Fedders
Koppel, Inc. ("FK"), under a Philippines peso 75 million term loan. The
loan bears interest at the rate set by China Bank and matures September
2005. The Parent would be obligated to perform under the guarantee in the
event that FK 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 December 31, 2004 is $0.9 million.

(ix) The Parent guarantees the obligations of a subsidiary, Fedders
Koppel, Inc. ("FK"), under a Philippines peso 50 million working capital
line of credit. The line of credit bears interest at 12.375% per annum and
matures August 2005. The Parent would be required to perform under the
guarantee in the event that FK fails to repay amounts borrowed under the
line of credit and interest and other charges associated therewith, or
fails to comply with the provisions of the credit agreement. The
outstanding loan balance at December 31, 2004 is $0.4 million.

F-27

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company also provides loan guarantees to two joint ventures which are
not consolidated in the Company's financial statements:

(i) On November 30, 2004, Fedders International, Inc., ("FI") a
subsidiary of the Company, guaranteed up to 50% of the obligations of a
50%-owned joint venture, Universal Comfort Products Pvt., Ltd., ("UCPL"),
under a Rupees 37.5 million term loan. The loan bears interest at the rate
of State Bank Mid Term Loan Rate and matures November 2008. FI would be
obligated to perform under the guaranty 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 has accounted for this guarantee under FIN 45 and
recorded $0.1 million as a liability associated with this guarantee.

(ii) 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
guaranty 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 December 31, 2004 is approximately $1.2
million. This guarantee was issued prior to December 31, 2002, and hence
only disclosure is required under FIN 45.

(iii) 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 rate set by
the People's Bank of China and matures in December 2005. FIAQ would be
obligated to perform its obligations under the guaranty 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 approximately $0.6 million as of December 31, 2004.

14. ASSETS HELD FOR SALE

In connection with a restructuring of the Company's operations in 2001
(Note 2), 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 December 31, 2003, assets totaling
$8,564, 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 first quarter of 2004,
a building in Ningbo, China was sold. The Company recorded a loss of $7 on the
disposal of this property. At December 31, 2004, assets totaling $8,249 which
were previously classified as "Assets Held for Sale" were reclassified as held
and used and included in net property, plant and equipment due to the inability
of the Company to complete the sale of its Walkersville, Maryland facility in
accordance with the Company's original plans and expectations. The Company
recorded an additional $1,032 of depreciation expense which represents the
amount of depreciation expense that otherwise would have been recorded during
the period that such asset was classified as held for sale.

F-28

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents the carrying amount, by asset class, of the
"Assets Held for Sale" at December 31:

<Table>
<Caption>
2004 2003
------ ------

Land and land improvements.................................. $ -- $2,181
Building, net............................................... -- 4,587
Building improvements, net.................................. -- 1,796
------ ------
Assets Held for Sale........................................ $ -- $8,564
====== ======
</Table>

15. SUBSEQUENT EVENTS

On March 7, 2005, the Company completed the acquisition of eighty percent
of the stock of Islandaire, Inc. for a combination of $9.7 million in cash, $6.4
million or 257,484 shares of Preferred Stock and $0.3 million, or 100,000 shares
of Common Stock. Islandaire Inc. manufactures and markets specialized
through-the-wall packaged terminal air conditioners and heat pumps. The Company
intends to purchase the remaining twenty percent of Islandaire stock within
three years. This subsidiary will be included within the HVACR reportable
segment. This transaction will be accounted for as a business combination.

A default under the Indenture or under our agreement with the Senior Lender
will trigger a cross default under the terms of the other agreement. During
2005, as a result of the delay in filing this annual report on Form 10-K and
quarterly reports on Form 10-Q for the first and second quarters, the Company
was in default of its agreement with the Senior Lender related to a covenant
requiring the Company to timely file these reports. The Company subsequently
received a waiver of this default. By the terms of the waiver, the Company must
file its Form 10-K on or before September 30, 2005 and Forms 10-Q for the first
and second quarters of 2005 on or before November 30, 2005. The Company
currently expects to file these reports by such date.

F-29

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In connection with the waiver of the default, the Indenture was amended by
the First Supplemental Indenture as follows:

- To include the Company under certain covenants of the Indenture;

- To require the Company to enter into a pledge agreement pursuant to which
it grants a second lien on the stock of Fedders International, Inc. to
secure its obligations under its guarantee in the Indenture.

16. 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. The following presentation has
been prepared on a historical basis taking into account the
guarantor/non-guarantor structure that resulted from the issuance of the Senior
Notes due 2014 in March 2004.

F-30

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2004
-----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- -------- --------- ----------- -----------

Net sales............................. $345,790 $219,195 -- $(151,969) $413,016
Cost of sales......................... 302,927 201,803 -- (151,969) 352,761
Selling, general and administrative
expense(a).......................... 51,026 21,668 $ 2,128 -- 74,822
Asset impairment, employee severance
and other restructuring credits..... (842) -- -- -- (842)
-------- -------- -------- --------- --------
Operating loss........................ (7,321) (4,276) (2,128) -- (13,725)
Partners' net interest in joint
venture results..................... -- (220) -- -- (220)
Equity income in investment........... -- -- (24,853) 24,853 --
Interest expense, net(b).............. (17,589) (2,296) (239) -- (20,124)
Loss on debt extinguishment........... (8,075) -- -- -- (8,075)
Other income.......................... 747 798 387 -- 1,932
-------- -------- -------- --------- --------
Loss before income taxes.............. (32,238) (5,994) (26,833) 24,853 (40,212)
Benefit for income taxes.............. (11,283) (2,096) (726) -- (14,105)
-------- -------- -------- --------- --------
Net loss.............................. (20,955) (3,898) (26,107) 24,853 (26,107)
Preferred stock dividends............. -- -- 4,020 -- 4,020
-------- -------- -------- --------- --------
Net (loss) applicable to common
stockholders........................ $(20,955) $ (3,898) $(30,127) $ 24,853 $(30,127)
======== ======== ======== ========= ========
</Table>

F-31

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

<Table>
<Caption>
FOUR MONTHS ENDED DECEMBER 31, 2003
----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- ------- --------- ----------- -----------

Net sales............................... $ 44,481 $73,671 -- $(62,598) $ 55,554
Cost of sales........................... 45,324 65,527 -- (62,598) 48,253
Selling, general and administrative
expense(a)............................ 12,141 6,635 $ 4,732 -- 23,508
Gain on sale of joint venture
interest.............................. -- (638) -- -- (638)
-------- ------- -------- -------- --------
Operating (loss) income................. (12,984) 2,147 (4,732) -- (15,569)
Partners' net interest in joint venture
results............................... 126 (1,481) -- -- (1,355)
Equity income in investment............. -- -- (12,135) 12,135 --
Interest expense, net(b)................ (5,236) (689) (78) -- (6,003)
Other (expense) income.................. (125) 172 218 -- 265
-------- ------- -------- -------- --------
(Loss) income before income taxes....... (18,219) 149 (16,727) 12,135 (22,662)
(Benefit) provision for income taxes.... (6,023) 88 (1,426) -- (7,361)
-------- ------- -------- -------- --------
Net (loss) income....................... (12,196) 61 (15,301) 12,135 (15,301)
Preferred stock dividends............... -- -- 484 -- 484
-------- ------- -------- -------- --------
Net (loss) income applicable to common
stockholders.......................... $(12,196) $ 61 $(15,785) $ 12,135 $(15,785)
======== ======= ======== ======== ========
</Table>

F-32

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

<Table>
<Caption>
FISCAL YEAR ENDED AUGUST 31, 2003
-----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- -------- --------- ----------- -----------

Net sales.............................. $382,228 $278,624 -- $(239,149) $421,703
Cost of sales.......................... 314,574 253,410 -- (239,149) 328,835
Selling, general and administrative
expense(a)........................... 41,839 19,339 $ 726 -- 61,904
Asset impairment, employee severance
and other restructuring credits...... (115) -- -- -- (115)
-------- -------- ------- --------- --------
Operating income (loss)................ 25,930 5,875 (726) -- 31,079
Partners' net interest in joint venture
results.............................. -- (14) -- -- (14)
Equity income in investment............ -- -- (2,402) 2,402 --
Interest expense, net(b)............... (16,010) (2,263) (273) -- (18,546)
Other (expense) income................. (224) 737 (12) -- 501
-------- -------- ------- --------- --------
Income (loss) before income taxes and
cumulative effect of a change in
accounting principle................. 9,696 4,335 (3,413) 2,402 13,020
Provision (benefit) for income taxes... 2,863 1,664 (303) -- 4,224
-------- -------- ------- --------- --------
Net income (loss) before cumulative
effect of a change in accounting
principle............................ 6,833 2,671 (3,110) 2,402 8,796
Cumulative effect of a change in
accounting principle................. 11,906 -- -- -- 11,906
-------- -------- ------- --------- --------
Net (loss) income...................... (5,073) 2,671 (3,110) 2,402 (3,110)
Preferred stock dividends.............. -- -- 618 -- 618
-------- -------- ------- --------- --------
Net (loss) income applicable to common
stockholders......................... $ (5,073) $ 2,671 $(3,728) $ 2,402 $ (3,728)
======== ======== ======= ========= ========
</Table>

F-33

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

<Table>
<Caption>
FISCAL YEAR ENDED AUGUST 31, 2002
-----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- -------- --------- ----------- -----------

Net sales.............................. $337,293 $133,908 -- $(97,499) $373,702
Cost of sales.......................... 272,088 116,063 -- (97,499) 290,652
Selling, general and administrative
expense(a)........................... 44,095 18,196 $ 817 -- 63,108
Asset impairment, employee severance
and other restructuring credits...... (397) -- -- -- (397)
-------- -------- ------- -------- --------
Operating income (loss)................ 21,507 (351) (817) -- 20,339
Partners' net interest in joint venture
results.............................. -- 713 -- -- 713
Equity income in investment............ -- -- 2,348 (2,348) --
Interest expense, net(b)............... (16,653) (1,964) -- -- (18,617)
Other income........................... 133 96 312 -- 541
-------- -------- ------- -------- --------
Income (loss) before income taxes...... 4,987 (1,506) 1,843 (2,348) 2,976
Provision (benefit) for income taxes... 1,622 (489) (6,166) -- (5,033)
-------- -------- ------- -------- --------
Net income (loss)...................... $ 3,365 $ (1,017) $ 8,009 $ (2,348) $ 8,009
======== ======== ======= ======== ========
</Table>

F-34

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEETS

<Table>
<Caption>
AS OF DECEMBER 31, 2004
-----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- -------- --------- ----------- -----------

ASSETS
Current assets:
Cash and cash equivalents........... $ 2,778 $ 14,529 $ 5,476 -- $ 22,783
Net accounts receivable............. 16,844 11,829 -- -- 28,673
Net inventories..................... 97,760 35,160 -- -- 132,920
Other current assets................ 4,636 5,943 14,167 $ (5,340) 19,406
-------- -------- -------- --------- --------
Total current assets.................. 122,018 67,461 19,643 (5,340) 203,782
Investments in subsidiaries........... -- -- (34,538) 34,538 --
Net property, plant and equipment..... 44,057 16,292 370 -- 60,719
Goodwill.............................. 62,870 15,096 -- -- 77,966
Other intangible assets............... 1,347 -- -- -- 1,347
Other assets.......................... 11,186 3,139 44,058 -- 58,383
-------- -------- -------- --------- --------
Total assets.......................... $241,478 $101,988 $ 29,533 $ 29,198 $402,197
======== ======== ======== ========= ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term notes.................... $ 28,330 $ 29,241 -- -- $ 57,571
Current portion of long-term debt... 1,534 119 -- 1,653
Accounts and income taxes payable... 10,026 37,015 $ 2,108 -- 49,149
Accrued expenses.................... 25,920 8,608 5,644 -- 40,172
-------- -------- -------- --------- --------
Total current liabilities............. 65,810 74,983 7,752 -- 148,545
Long-term debt........................ 159,453 1,433 -- -- 160,886
Other long-term liabilities........... 24 11,120 28,756 $ (5,340) 34,560
Net due to (from) affiliates.......... 41,685 23,496 (65,181) -- --
Stockholders' equity:
Preferred Stock..................... -- -- 19 -- 19
Common and Class B Stock............ 5 -- 390 (5) 390
Additional paid-in capital.......... 20,293 25,542 108,363 (45,835) 108,363
Retained earnings (deficit)(f)...... (45,446) (34,256) (10,176) 79,702 (10,176)
Deferred compensation and treasury
stock............................ -- -- (39,714) -- (39,714)
Accumulated other comprehensive
loss............................. (346) (330) (676) 676 (676)
-------- -------- -------- --------- --------
Total stockholders' equity............ (25,494) (9,044) 58,206 34,538 58,206
-------- -------- -------- --------- --------
Total liabilities and stockholders'
equity.............................. $241,478 $101,988 $ 29,533 $ 29,198 $402,197
======== ======== ======== ========= ========
</Table>

F-35

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEETS

<Table>
<Caption>
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 $ 16,897 $ (7,023) 36,004
-------- -------- -------- -------- --------
Total current assets................... 155,003 76,938 16,897 (7,023) 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 30,797 -- 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)(f)....... (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
======== ======== ======== ======== ========
</Table>

F-36

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2004
------------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
--------- -------- --------- ----------- -----------

Net cash provided by (used in)
operating activities................ $ 633 $ (7,442) $(15,032) -- $(21,841)
--------- -------- -------- ---- --------
Net additions to property, plant and
equipment........................... (1,365) (3,744) (102) -- (5,211)
Investment in joint venture........... -- (1,029) -- (1,029)
Acquisition of businesses............. (7,814) -- -- -- (7,814)
--------- -------- -------- ---- --------
Net cash used in investing
activities.......................... (9,179) (4,773) (102) -- (14,054)
--------- -------- -------- ---- --------
Net proceeds from (repayments of)
short-term notes.................... 28,330 (1,205) -- -- 27,125
Net proceeds from (repayments of)
long-term debt...................... 791 (1,717) -- -- (926)
Proceeds from stock options
exercised........................... -- -- 117 -- 117
Cash dividends........................ -- -- (7,672) -- (7,672)
Proceeds from stock rights
subscribed.......................... -- -- 28,323 -- 28,323
Net proceeds from issuance of 9 7/8%
Senior Note......................... 150,245 -- -- -- 150,245
Repayments of 9 3/8% Senior
Subordinated Notes.................. (150,000) -- -- -- (150,000)
Call premium and deferred financing
charges............................. (10,356) -- -- -- (10,356)
Other................................. -- -- (221) -- (221)
Change in net due to (from)
affiliate........................... (21,343) 21,280 63 -- --
--------- -------- -------- ---- --------
Net cash (used in) provided by
financing activities................ (2,333) 18,358 20,610 -- 36,635
--------- -------- -------- ---- --------
Net (decrease) increase in cash and
cash equivalents.................... (10,879) 6,143 5,476 -- 740
Cash and cash equivalents at beginning
of year............................. 13,657 8,386 -- -- 22,043
--------- -------- -------- ---- --------
Cash and cash equivalents at end of
year................................ $ 2,778 $ 14,529 5,476 -- $ 22,783
========= ======== ======== ==== ========
</Table>

F-37

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

<Table>
<Caption>
FOUR MONTHS ENDED DECEMBER 31, 2003
-----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- -------- --------- ----------- -----------

Net cash (used in) provided by
operating activities................. $(64,808) $ 14,417 $ 8,710 $(16,551) $(58,232)
-------- -------- ------- -------- --------
Net additions to property, plant and
equipment............................ (814) (1,264) (38) -- (2,116)
Sale of joint venture interest......... -- 1,561 -- -- 1,561
-------- -------- ------- -------- --------
Net cash (used in) provided by
investing activities................. (814) 297 (38) -- (555)
-------- -------- ------- -------- --------
Proceeds from short-term notes......... -- 22,926 -- -- 22,926
Net repayments of long-term debt....... (1,731) (555) (14) -- (2,300)
Proceeds from stock options
exercised............................ -- -- 1,709 -- 1,709
Cash dividends......................... (16,551) -- (2,383) 16,551 (2,383)
Preferred stock exchange offer......... -- -- (24) -- (24)
Change in net due to (from)
affiliate............................ 43,830 (35,870) (7,960) -- --
-------- -------- ------- -------- --------
Net cash provided by (used in)
financing activities................. 25,548 (13,499) (8,672) 16,551 19,928
-------- -------- ------- -------- --------
Net (decrease) increase in cash and
cash equivalents..................... (40,074) 1,215 -- -- (38,859)
Cash and cash equivalents at beginning
of period............................ 53,731 7,171 -- -- 60,902
-------- -------- ------- -------- --------
Cash and cash equivalents at end of
period............................... $ 13,657 $ 8,386 -- -- $ 22,043
======== ======== ======= ======== ========
</Table>

F-38

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

<Table>
<Caption>
FISCAL YEAR ENDED AUGUST 31, 2003
----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
-------- ------- --------- ----------- -----------

Net cash (used in) provided by operating
activities............................ $ (3,527) $ 5,673 $ 3,471 -- $ 5,617
-------- ------- ------- ----- -------
Net additions to property, plant and
equipment............................. (2,447) (3,980) 392 -- (6,035)
Acquisition of businesses............... -- (1,333) -- -- (1,333)
-------- ------- ------- ----- -------
Net cash (used in) provided by investing
activities............................ (2,447) (5,313) 392 -- (7,368)
-------- ------- ------- ----- -------
Net repayments of short-term notes...... -- (2,309) -- -- (2,309)
Net repayments of long-term debt........ (1,462) (1,518) (107) -- (3,087)
Proceeds from stock options exercised... -- -- 30 -- 30
Cash dividends.......................... -- -- (4,126) -- (4,126)
Proceeds from stock rights subscribed... -- -- 6,167 6,167
Other................................... -- -- (1,401) -- (1,401)
Change in net due (from) to affiliate... (3,335) 7,761 (4,426) -- --
-------- ------- ------- ----- -------
Net cash (used in) provided by financing
activities............................ (4,797) 3,934 (3,863) -- (4,726)
-------- ------- ------- ----- -------
Net (decrease) increase in cash and cash
equivalents........................... (10,771) 4,294 -- -- (6,477)
Cash and cash equivalents at beginning
of year............................... 64,502 2,877 -- -- 67,379
-------- ------- ------- ----- -------
Cash and cash equivalents at end of
year.................................. $ 53,731 $ 7,171 -- -- $60,902
======== ======= ======= ===== =======
</Table>

F-39

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

<Table>
<Caption>
FISCAL YEAR ENDED AUGUST 31, 2002
----------------------------------------------------------
FEDDERS
NORTH OTHER ELIMINATING FEDDERS
AMERICA FEDDERS CORPORATE ENTRIES CORPORATION
------- -------- --------- ----------- -----------

Net cash provided by operating
activities............................ $20,516 $ 2,096 $ 11,522 -- $ 34,134
------- -------- -------- ---- --------
Net additions to property, plant and
equipment............................. (3,410) (3,051) (95) -- (6,556)
Acquisition of businesses............... -- (8,008) -- -- (8,008)
------- -------- -------- ---- --------
Net cash used in investing activities... (3,410) (11,059) (95) -- (14,564)
------- -------- -------- ---- --------
Proceeds from short-term notes.......... -- 1,896 -- -- 1,896
Proceeds from (repayments of) long-term
debt.................................. 222 (1,444) (102) -- (1,324)
Proceeds from stock options exercised... -- -- 1 -- 1
Cash dividends.......................... -- -- (3,725) -- (3,725)
Other................................... -- -- (231) -- (231)
Change in net due to (from) affiliate... 2,234 7,786 (10,020) -- --
------- -------- -------- ---- --------
Net cash provided by (used in) financing
activities............................ 2,456 8,238 (14,077) -- (3,383)
------- -------- -------- ---- --------
Net increase (decrease) in cash and cash
equivalents........................... 19,562 (725) (2,650) -- 16,187
Cash and cash equivalents at beginning
of year............................... 44,940 3,602 2,650 -- 51,192
------- -------- -------- ---- --------
Cash and cash equivalents at end of
year.................................. $64,502 $ 2,877 -- -- $ 67,379
======= ======== ======== ==== ========
</Table>

F-40

FEDDERS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INTERCOMPANY TRANSACTIONS

The historical condensed consolidating financial statements presented above
include the following transactions between FNA and the Company:

a) The Company charges corporate overhead to FNA essentially on a cost
basis allocated in proportion to sales. Such charges to FNA amounted to
$13,832, $3,363, $13,143 and $11,483 for the year ended December 31, 2004,
the four months ended December 31, 2003, and the fiscal years ended August
31, 2003 and 2002, respectively.

b) FNA's interest expense reflects actual interest charges on the
Senior Subordinated Notes, State of Illinois Promissory Note, capital lease
obligations, and a revolving line of credit.

c) FNA's depreciation and amortization for the year ended December 31,
2004, the four months ended December 31, 2003, and the fiscal years ended
August 31, 2003 and 2002, amounted to $7,855, $2,431, $6,138 and $10,584,
respectively. Capital expenditures for the year ended December 31, 2004,
the four months ended December 31, 2003, and the fiscal years ended August
31, 2003 and 2002, amounted to $2,677, $825, $3,066 and $4,369,
respectively.

d) The Company guarantees FNA's obligations under FNA's revolving
credit facility.

e) The Company's stock option plan includes FNA's employees.

f) In the year ended December 31, 2004, and the fiscal years ended
August 31, 2003 and 2002, FNA did not declare a dividend. In the four
months ended December 31, 2003, FNA declared a dividend of $16,551 to the
Company.

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.

F-41

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Fedders Corporation:

We have audited the accompanying consolidated balance sheets of Fedders
Corporation and subsidiaries (the "Company") as of December 31, 2004 and 2003,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the year ended December 31, 2004, for the four months ended
December 31, 2003, and for each of the two fiscal years in the period ended
August 31, 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Fedders Corporation and
subsidiaries as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for the year ended December 31, 2004, for the
four months ended December 31, 2003, and for each of the two fiscal years in the
period ended August 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the
Company restated comprehensive income (loss) for the four months ended December
31, 2003, and for the fiscal year ended August 31, 2003.

As discussed in Note 1 to the consolidated financial statements, effective
September 1, 2002, the Company changed its method of accounting for goodwill and
intangible assets upon adoption of Statement of Financial Accounting Standards
No. 142, "Goodwill and Intangible Assets".

We were engaged to audit, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of the
Company's internal control over financial reporting as of December 31, 2004, and
our report dated September 30, 2005 disclaimed an opinion on management's
assessment of the effectiveness of the Company's internal control over financial
reporting because of a scope limitation and expressed an adverse opinion on the
effectiveness of the Company's internal control over financial reporting because
of material weaknesses.

/s/ Deloitte & Touche LLP

Parsippany, New Jersey
September 30, 2005

F-42

FEDDERS CORPORATION QUARTERLY FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND MARKET PRICE DATA)

<Table>
<Caption>
QUARTER ENDED 2004
(UNAUDITED)
--------------------------------------------------- YEAR ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 30, DECEMBER 31,
2004 2004 2004 2004 2004
--------- -------- ------------- ------------ ------------

Net sales................................ $119,295 $178,125 $ 69,158 $ 46,438 $413,016
Gross profit............................. 21,758 28,888 7,568 2,041 60,255
(Loss) income before income taxes........ (7,561) 3,327 (14,488) (21,490) (40,212)
Net (loss) income........................ (5,147) 2,260 (9,738) (13,482) (26,107)
Net (loss) income applicable to common
stockholders........................... (6,152) 1,255 (10,743) (14,487) (30,127)
Comprehensive (loss) income(c)........... (5,001) 2,176 (9,744) (12,462) (25,031)
Basic (loss) earnings per common
share(b)............................... (0.20) 0.04 (0.35) (0.48) (0.99)
Diluted (loss) earnings per common
share.................................. (0.20) 0.04 (0.35) (0.48) (0.99)
Market price per share:
Common Stock (FJC)
High................................... 8.27 6.43 4.39 4.38 8.27
Low.................................... 5.05 3.55 3.06 2.70 2.70
</Table>

<Table>
<Caption>
QUARTER ENDED 2003
(UNAUDITED) FISCAL YEAR FOUR MONTHS
--------------------------------------------------- ENDED ENDED
NOVEMBER 30, FEBRUARY 28, MAY 31, AUGUST 31, AUGUST 31, DECEMBER 31,
2002 2003 2003 2003 2003 2003
------------ ------------ -------- ---------- ------------- ------------

Net sales........................... $ 39,163 $71,496 $194,174 $116,870 $421,703 $ 55,554
Gross profit........................ 7,831 14,923 45,100 25,014 92,868 7,301
(Loss) income before income taxes
and cumulative effect of a change
in accounting principle........... (11,254) (4,796) 23,629 5,441 13,020 (22,662)
Cumulative effect of a change in
accounting principle.............. 11,906 -- -- -- 11,906 --
Net (loss) income(a)................ (19,504) (3,236) 15,950 3,680 (3,110) (15,301)
Net (loss) income applicable to
common stockholders............... (19,504) (3,410) 15,728 3,458 (3,728) (15,785)
Comprehensive (loss) income(c)...... (19,753) (3,034) 15,854 2,890 (4,043) (14,808)
Basic (loss) earnings per common
share before cumulative effect of
a change in accounting
principle......................... (0.23) (0.11) 0.53 0.12 0.27 (0.52)
Cumulative effect of a change in
accounting principle(b)........... (0.37) -- -- -- (0.39) --
Basic (loss) earnings per common
share(b).......................... (0.60) (0.11) 0.53 0.12 (0.12) (0.52)
Diluted (loss) earnings per common
share before cumulative effect of
a change in accounting
principle......................... (0.23) (0.11) 0.53 0.12 0.27 (0.52)
Cumulative effect of a change in
accounting principle(b)........... (0.37) -- -- -- (0.39) --
Diluted (loss) earnings per common
share............................. (0.60) (0.11) 0.53 0.12 (0.12) (0.52)
Market price per share:
Common Stock (FJC)
High.............................. 2.93 3.43 3.70 4.04 4.04 7.90
Low............................... 2.23 2.58 2.86 2.97 2.23 3.92
</Table>

- ---------------

(a) The Company completed the transitional goodwill impairment test during the
fourth quarter for fiscal 2003 and recognized a non-cash goodwill
impairment charge of $11.9 million within its Engineered Products reporting
segment. As required, the transitional goodwill impairment charge was
recorded as a cumulative effect of a change in accounting principle as of
September 1, 2002.

F-43

(b) Quarterly earnings per share may not add to earnings per share for the year
due to rounding and changes in the number of weighted average shares
outstanding.

(c) In previously reporting comprehensive income (loss), the Company included
the affects of preferred stock dividends declared in its measurement. As
such, quarterly comprehensive income (loss) as previously reported for the
year ended December 31, 2004, four months ended December 31, 2003 and for
the fiscal year ended August 31, 2003 has been restated to correct for this
error. This adjustment had no effect on basic/diluted earnings (loss) per
share applicable to common stockholders. The following table summarizes the
effects of the restatement on comprehensive income (loss):

Comprehensive Income (Loss):

<Table>
<Caption>
QUARTER ENDED 2004
(UNAUDITED)
-----------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2004 2004 2004 2004
------------ ------------- ------------- ------------

As previously reported............ $ (6,006) $ 1,171 $(10,749) $(12,461)
As restated....................... (5,001) 2,176 (9,744) (12,461)
</Table>

<Table>
<Caption>
QUARTER FOUR MONTHS
ENDED ENDED
NOVEMBER 30, DECEMBER 31,
2003 2004
------------ -------------

As previously reported............ $(10,323) $(15,292)
As restated....................... (9,960) (14,808)
</Table>

<Table>
<Caption>
QUARTER ENDED FISCAL YEAR 2003
(UNAUDITED)
-----------------------------------------------------------
NOVEMBER 30, FEBRUARY 28, AUGUST 31,
2002 2003 MAY 31, 2003 2003
------------ ------------- ------------- ------------

As previously reported............ $(19,753) $ (3,208) $ 15,632 $ 2,668
As restated....................... (19,753) (3,034) 15,854 2,889
</Table>

F-44

FEDDERS CORPORATION

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II

<Table>
<Caption>
BALANCE ADDITIONS BALANCE
AT CHARGED AT END
BEGINNING TO OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS: OF PERIOD EXPENSE DEDUCTIONS OTHER PERIOD
- -------------------------------- --------- --------- ---------- ------- -------
(AMOUNTS IN THOUSANDS)

For the year ended December 31, 2004......... $1,888 $1,819 $ (292) $ (24) $3,391
For the four months ended December 31,
2003....................................... $2,032 $ 16 $ (81) $ (79) $1,888
For the fiscal year ended August 31, 2003.... $2,613 $ 423 $(1,078) $ 74 $2,032
For the fiscal year ended August 31, 2002.... $2,494 $ 698 $ (579) -- $2,613
</Table>

F-45

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Fedders Corporation:

We have audited the consolidated financial statements of Fedders Corporation and
subsidiaries (the "Company") as of December 31, 2004 and 2003, and for the year
ended December 31, 2004, for the four months ended December 31, 2003, and for
each of the two fiscal years in the period ended August 31, 2003, management's
assessment of the effectiveness of the Company's internal control over financial
reporting as of December 31, 2004, and the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004, and have
issued our reports thereon dated September 30, 2005 (which report on the
consolidated financial statements expresses an unqualified opinion and includes
explanatory paragraphs relating to the restatement discussed in Note 1 and a
change in method of accounting for goodwill and intangible assets; and which
report on the effectiveness of the Company's internal control over financial
reporting expresses a disclaimer of opinion on management's assessment of the
effectiveness of the Company's internal control over financial reporting because
of a scope limitation and expresses an adverse opinion on the effectiveness of
the Company's internal control over financial reporting because of material
weaknesses); such consolidated financial statements and reports are included
elsewhere in this Form 10-K. Our audits also included the consolidated financial
statement schedule of the Company listed in Item 15. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP

Parsippany, New Jersey
September 30, 2005

F-46