**Table of Contents**

 

** **

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

** **

----

** **

**(Mark one)**

** **

| **x**                                                 | **ANNUAL  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**           |
|-------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| ** **                                            |                                                                                                     |
| **For the  fiscal year ended December 31, 2008** |
|                                                  |
| **OR**                                                |
| ** **                                            |                                                                                                     |
| **o**                                                 | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

 

**For thetransition period from                        to                        **

** **

**Commissionfile number 333-123598**

 

**J.B.POINDEXTER & CO., INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                                          | ** ** | **76-0312814**                        |
|---------------------------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of                                                      |       | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)                                                       |       |                                  |
| ** **                                                                            |
| **600 Travis**                                                                        |
| **Suite 200**                                                                    |
| **Houston, Texas 77002**                                                              |
| (Address of  principal executive offices)                                             |
| (Zip Code)                                                                            |
|                                                                                  |
| **(713)  655-9800**                                                              |
| (Registrant’s  telephone number, including area code)                            |
|                                                                                  |
| Securities registered pursuant to Section 12(b) of  the Act:  **None** |
|                                                                                  |
| Name of each  exchange which registered:  **None**                               |
|                                                                                  |
| Securities  registered pursuant to Section 12(g) of the Act:  **None** |

 

Indicate by check mark if the registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act.  Yes oNo x

 

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act. Yes x No o

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x  No o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof the registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. x

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer,” and “smaller reporting company”in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer  o | Accelerated filer o | Non-accelerated filer x                         | Smaller reporting  company o |
|----------------------------|--------------------------|-------------------------------------------------|-----------------------------------|
|                       |                     | (Do not check if a  smaller  reporting company) |                              |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act.)  Yes o No x

 

Theaggregate market value of the voting and non-voting common equity held bynon-affiliates as of March 28, 2009 was $0.00.

 

Asof March 28, 2009, the registrant had 3,059 shares of common stock issuedand outstanding.

Documentsincorporated by reference. None

 

 

 

----

Table of Contents

 

**J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES**

 

 

**Table of Contents**

 
| **PART I**   | ** **                                                                                                         | ** ** |
|-------------------|--------------------------------------------------------------------------------------------------------------------|------------|
| ** **        | ** **                                                                                                         | ** ** |
| Item 1.           | Business                                                                                                           | 3          |
| Item 1A.          | Risk Factors                                                                                                       | 12         |
| Item 1B.          | Unresolved Staff  Comments                                                                                         | 16         |
| Item 2.           | Properties                                                                                                         | 17         |
| Item 3.           | Legal Proceedings                                                                                                  | 18         |
| Item 4.           | Submission of  Matters to a Vote of Security Holders                                                               | 18         |
|              |                                                                                                               |       |
| **PART II**  | ** **                                                                                                         | ** ** |
| Item 5.           | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 18         |
| Item 6.           | Selected Financial Data                                                                                            | 19         |
| Item 7.           | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                        | 21         |
| Item 7A.          | Quantitative and Qualitative Disclosure  About Market Risk                                                         | 34         |
| Item 8.           | Financial Statements and Supplementary  Data                                                                       | 36         |
| Item 9.           | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosure                              | 64         |
| Item 9A.          | Controls and Procedures                                                                                            | 64         |
| Item 9B.          | Other Information                                                                                                  | 65         |
|              |                                                                                                               |       |
| **Part III** | ** **                                                                                                         | ** ** |
| Item 10.          | Directors, Executive Officers and Corporate  Governance                                                            | 65         |
| Item 11.          | Executive Compensation                                                                                             | 67         |
| Item 12.          | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder  Matters                   | 73         |
| Item 13.          | Certain Relationships and Related Transactions,  and Director Independence                                         | 73         |
| Item 14.          | Principal Accountant Fees and Services                                                                             | 74         |
|              |                                                                                                               |       |
| **Part IV**  | ** **                                                                                                         | ** ** |
| Item 15.          | Exhibits and  Financial Statement Schedules                                                                        | 76         |

** **

**2**

----

**Table of Contents**

** **

**J.B. POINDEXTER & CO.,INC. AND SUBSIDIARIES**

** **

**PART I**

** **

**Item 1.                    Business**

** **

**Overview**

** **

J.B. Poindexter & Co., Inc. operatesprimarily transportation-related manufacturing businesses.  Our operating subsidiaries or business unitsare Morgan Truck Body, LLC (“Morgan”), Morgan Olson, LLC (“Morgan Olson”),Truck Accessories Group, LLC (“Truck Accessories”), EFP, LLC (“EFP”), MICGroup, LLC (“MIC Group”), Federal Coach, LLC (“Federal Coach”), and EagleSpecialty Vehicles, LLC (“Eagle Coach”). Eagle Coach and Federal Coach comprisethe Specialty Vehicle Group.  TheSpecialty Vehicle Group, MIC Group and EFP comprise our Specialty ManufacturingDivision (“Specialty Manufacturing”).

 

Unless the context otherwise requires, the “Company,”“we,” “our” or “us” refers to J.B. Poindexter & Co., Inc. (“JBPCO”)together with its operating subsidiaries. We are wholly owned by John B.Poindexter.

 

We operate our business in four different segments:Morgan, Morgan Olson, Truck Accessories and Specialty Manufacturing. Please seeNote 3 of our financial statements included herein for a description offinancial information by segments.

 

**Morgan**

** **

We believe Morgan is the leading United States manufacturerof commercial truck bodies for medium-duty trucks based upon estimated marketshare and total 2008 sales volume. Morgan generally manufactures products formedium-duty trucks having a gross vehicular weight rating of between 10,001pounds (Class 3) and 33,000 pounds (Class 7). Trucks equipped withMorgan’s products are commonly used in a wide variety of applications,including general freight deliveries, moving and storage, and distribution ofrefrigerated consumables. Morgan also offers service programs for its truckbodies.

 

Morgan reaches a broad base of customers in theUnited States and Canada through its sales force and its more than 200authorized distributors and Morgan authorized service centers.  Its customers include rental companies, truckdealers, leasing companies and companies that operate fleets of deliveryvehicles. Through nine manufacturing plants and six service facilities instrategic locations throughout North America, Morgan can provide timely productdelivery and service to its customers.

 

The principal products Morgan manufactures and sellsare:

 

·                  dry freight bodies that are typicallyfabricated with pre-painted aluminum or fiberglass-reinforced plywood panels orMorganplate® panels, a composite panel, hardwood floors andvarious door configurations to accommodate end-user loading and unloading requirements;

 

·                  refrigerated van bodies fabricated withinsulated aluminum or fiberglass-reinforced plywood panels that accommodatecontrolled temperature and refrigeration needs of end users;

 

·                  aluminum or fiberglass-reinforced plywoodcutaway van bodies that are installed only on cutaway chassis (a chassis andcutaway cab) and are available with or without access to the cargo area fromthe cab; and

 

·                  stake bodies, which are flatbeds with variousconfigurations of removable sides.

 

Morgan manufactures its products to customerspecifications and installs its products on truck chassis supplied by itscustomers.

 

3

----

Table ofContents

 

***Customersand sales. ***Morganprincipally generates revenue through three sources:

 

·                  sales of truck bodies to commercial divisionsof leasing companies, companies with fleets of delivery vehicles and to truckdealers and distributors for ultimate sale or lease to end users such asretailers, building supply companies, contractors, delivery companies and fooddistribution companies (“Commercial” sales);

 

·                  sales of truck bodies to national consumerrental companies that then become available for rent to the general public (“ConsumerRental” sales); and

 

·                  sales of parts and service.

 

Morgan’s net sales constituted 48% of ourconsolidated net sales in 2006, 42% in 2007 and 33% in 2008.  Morgan makes sales of truck bodies throughits sales force directly to large end-user customers, including Penske and Ryder,and to distributors and truck dealers. Commercial sales of truck bodiesconstituted 85% of Morgan’s net sales in 2006, 83% in 2007 and 78% in 2008.

 

Morgan has an independent authorized distributornetwork of 41 distributors nationwide. Most distributors sell a wide variety oftrucks or related equipment to truck dealers and end users. Generally,distributors sell Morgan products in a specified territory with limitedexclusivity.  Morgan also sells itsproducts directly to truck dealers, selling to approximately 460 dealers in2008.

 

Consumer Rental sales are composed of sales tocompanies that maintain large fleets of one-way and local hauling vehiclesavailable for rent to the general public. Morgan makes these sales through abid process and negotiation directly with these companies through its salesforce. Primary Consumer Rental customers include Penske and U-Haul. Morgannegotiates contracts for Consumer Rental sales annually, usually in late summerto early fall, with products to be shipped during the first half of the nextyear. These sales are seasonal, with substantially all product shipmentsoccurring in the first six months of the year. Consumer Rental sales tend to bethe most volatile and price-sensitive aspect of Morgan’s business and depend onfactors such as product mix and delivery schedules. Consumer Rental salesconstituted 10% of Morgan’s net sales in 2006, 11% in 2007 and 15% in 2008.

 

Morgan’s two largest customers, Ryder and Penske,together have historically represented approximately 45% to 55% of Morgan’stotal net sales. Each has been Morgan’s customer for approximately20 years and we believe relations with each are good. Sales to thesecustomers represented 22% of our consolidated net sales in 2006, 22% in 2007and 16% in 2008.  Accounts receivablefrom these customers were $3.0 million and $2.9 million at December 31,2007 and 2008, respectively.

 

Morgan also builds truck bodies and installs them onchassis acquired under a bailment pool agreement with General Motors AcceptanceCorporation.  The truck may be placedwith a dealer for display and ultimate sale; however, they are currently beingbuilt based on orders from the customers. Pool program sales were approximately $1 million in each of the yearsended December 31, 2007 and 2008.

 

Morgan offers limited service programs at its ownservice facilities and its authorized distributors. Service sales constituted4% of Morgan’s net sales in 2006, 5% in 2007 and 5% in 2008.

 

***Manufacturing andsupplies. ***Morgan, whichis headquartered in Morgantown, Pennsylvania, operates manufacturing, bodymounting, and parts and service facilities in Arizona, California, Florida,Georgia, Pennsylvania, Texas and Wisconsin. Morgan has sales, service and bodymounting facilities in Colorado, Florida, Georgia, Pennsylvania, Texas, Wisconsin,and Ontario, Canada. Many of Morgan’s domestic manufacturing facilities are ISO9001-2000 certified.

 

Generally, Morgan engineers its products to thespecifications of the customer. Typically, the customer places an order andarranges for a truck chassis manufacturer to deliver the truck chassis toMorgan. Morgan manufactures and installs the body on the customer’s chassis andthe customer or Morgan arranges for delivery of the completed 

 

4

----

Table ofContents

 

truck. Morgan’s production cycle ranges from threeto seven days for dry freight products and up to 28 days for more complexrefrigerated products.  Delays in chassisdeliveries can disrupt Morgan’s operations and can increase its working capitalrequirements.

 

Because contracts for Consumer Rental sales areentered into in the summer or fall but production does not begin generallyuntil the following January, Morgan has a significant backlog of ConsumerRental sales orders at the end of each year that is processed through May ofthe following year. In addition, Morgan typically maintains a significantbacklog of Commercial sales. Morgan’s backlog at December 31, 2008 was$47.6 million compared to $42.0 million at December 31, 2007.Morgan expects to complete all of the orders in its 2008 backlog during 2009.

 

Morgan provides limited warranties againstconstruction defects in its products. These warranties generally allow for thereplacement or repair of defective parts or workmanship for up to five yearsfollowing the date of sale. Warranty costs have not had a material adverseeffect on its business.

 

Morgan maintains an inventory of raw materialsnecessary to build truck bodies according to customers’ orders. Because Morganusually manufactures its products to customer orders, it does not maintainsubstantial inventories of finished goods.

 

Morgan’s principal raw materials include aluminum,steel, fiberglass-reinforced plywood and hardwood. Morgan acquires rawmaterials from a variety of sources and has not experienced significantshortages of materials. However, there are a limited number of suppliers offiberglass-reinforced plywood, an important truck body material. While Morganhas not experienced a disruption in supply or a shortage offiberglass-reinforced plywood, such a disruption or shortage could occur in thefuture. Morgan may not be able to replace its existing supply offiberglass-reinforced plywood on acceptable terms or at all. To manage itssupply costs, Morgan sometimes enters into long-term supply contracts onprincipal materials to secure prices for up to one year if considerednecessary.  Morgan has taken advantage ofthe combined purchasing power of our companies, thereby generating savings onraw materials common to our businesses.

 

***Industry. ***Industry revenue and growthdepend primarily on the demand for delivery vehicles in the general freight,moving and storage, parcel delivery and food distribution industries, all ofwhich are affected by general economic conditions. Replacement of oldervehicles in fleets represents an important revenue source.  Replacement cycles are approximately six toseven years, depending on vehicle types. During economic downturns, replacementorders are often deferred or, in some cases, older vehicles are retired withoutreplacement. During periods of economic growth, as customers decide to increasetheir capital expenditures, sales of delivery trucks grow as customers makepurchases they deferred in prior years and expand their fleets.

 

The federally mandated emission standards for dieselengines were changed effective January 1, 2007 and will change again in2010.  These standards require areduction in the amount of pollutants allowed to be released during theoperation of the diesel engine included with the truck chassis that Morgan isprovided by its customers and have increased the cost of the chassis to Morgan’scustomers and changed the economics of operating the truck.  Historically, approximately 90% of Morgantruck bodies are installed on chassis with diesel engines.  We believe that the 2007 change to theemission standards changed Morgan’s customers’ buying patterns in 2007 as theinventory of chassis manufactured before the change were rapidly consumedthroughout 2007.  We cannot predict howour operations will be affected in 2010 as a result of the uncertain impactthat the change will have on Morgan’s customers’ operations.

 

***Competition. ***The truck body manufacturingindustry is highly competitive. Morgan competes with three nationalmanufacturers: Supreme Industries, Inc., Kidron, a division of SpecializedVehicles Corporation, and America’s Body Company, some of which may be largerand have more resources than Morgan. There are a large number of smallermanufacturers that are regionally focused. Competitive factors in the industryinclude product quality, delivery time, geographic proximity of manufacturingfacilities to customers, warranty terms, service and price. We believecustomers value Morgan’s high-quality products, competitive pricing anddelivery times.

 

5

----

Table ofContents

 

**Morgan Olson**

** **

MorganOlson is one of two major manufacturers of step vans. Step vans are specializedvehicles designed for multiple-stop delivery applications and they enable thedriver of the vehicle to easily access the cargo area of the vehicle frominside the cab. Step vans are made to customer specifications for use inparcel, food, vending, uniform, linen and other delivery applications. MorganOlson’s step van bodies are installed on International (Workhorse),  Fordand Freightliner truck chassis for light- and medium-duty trucks withgross vehicular weight ratings between  10,001 and 33,000 pounds (Class  3-7)with body sizes ranging from 11 to 30 feet. Morgan Olson is headquartered in Sturgis, Michigan, where it hasmanufacturing and service parts distribution facilities.

 

Morgan Olson’s net sales constituted 13%, 14% and15% of our consolidated net sales in 2006, 2007 and 2008, respectively.

 

***Customers and sales. ***Customers purchase step vansthrough dealers and distributors and from Morgan Olson through its direct salesforce. Two customers, United Parcel Service of America, Inc. and FedEx,purchase the majority of step vans produced in the United States. The UnitedStates Postal Service has historically been a major buyer of step vans;however, it has not placed a significant order for new step vans since thecompletion of the prior contract in early 2004 that Morgan Olson participatedin with two chassis manufacturers. Morgan Olson’s end-user customers includethese customers along with Frito-Lay, Inc., Bimbo Bakeries, W.B. Mason,ARAMARK Corporation and others. The preferences and purchasing decisions ofthese customers dramatically affect the results of operations of Morgan Olson.

 

Morgan Olson also sells step van body service partsthrough its dealers and distributors and directly to customers. Morgan Olson isa major supplier of service parts for long-lived vehicles manufactured by itfor the United States Postal Service under an agreement of indefinite term thatis reviewed annually. The United States Postal Service has the right toterminate the agreement for its convenience at any time, but we believe MorganOlson’s relationship with the United States Postal Service is satisfactory.However, there can be no assurance that the parts supply agreement will continueat all or for any length of time.

 

Morgan Olson offers aftermarket support through itsService Parts Department for both step vans manufactured by Morgan Olson anddry freight vans manufactured by Morgan.  The Service Partsbusiness allows Morgan and Morgan Olson to consolidate their parts supportfunctions, with dedicated fabrication, warehousing and shippingfacilities.  This serviceprovides fleet customers with a full range of parts and partsassemblies for their vehicles. Morgan Olson Service Parts and theMorgan Service and Repair Centers offer combined support that we believegives both companies a competitive advantage.

 

Morgan Olson has one customer, the United ParcelService of America, Inc., that accounted for approximately 38%, 37%, and44% of Morgan Olson’s net sales during 2006, 2007 and 2008, respectively.  Accounts receivable from this customer were $2.0million and $4.2 million at December 31, 2007 and 2008, respectively.

 

***Manufacturing andsupplies. ***Morgan Olsonhas ISO 9000 certified manufacturing and parts distribution facilities inSturgis, Michigan.

 

Generally, Morgan Olson manufactures its products tocustomer specifications. Typically, the customer places an order and arrangesfor a truck chassis manufacturer to deliver a truck chassis to Morgan Olson.Morgan Olson manufactures the complete truck body, including the installationof windows, doors, instrument panels, seating, wiring, painting and decalapplication. The customer arranges for delivery of the completed truck.  Morgan Olson’s production cycle varies from 8to 15 days.  Delays in chassis deliveriescan disrupt Morgan Olson’s operations and can increase its working capitalrequirements.

 

At December 31, 2008, Morgan Olson’s totalbacklog was $18.2 million, compared to $43.5 million at December 31,2007. We expect that Morgan Olson will fill all 2008 backlog orders in 2009.

 

6

----

Table ofContents

 

Morgan Olson provides a limited warranty againstconstruction defects in its products. These warranties generally provide forthe replacement or repair of defective parts or workmanship for up to fiveyears following the date of sale. Warranty costs have not had a materialadverse effect on its business.

 

Morgan Olson maintains an inventory of raw materialsnecessary to build step van bodies. Because Morgan Olson manufactures itsproducts to customer orders, it does not maintain substantial inventories offinished goods.  Principal raw materialsinclude steel and aluminum, and raw materials are acquired from a variety ofsources that have not experienced significant shortages. Morgan Olson has takenadvantage of the combined purchasing power of our companies, including Morgan,thereby generating savings on raw materials common to our businesses.

 

***Industry. ***Industry revenue and growthdepend primarily on the demand for delivery vehicles, which is affected bygeneral economic conditions. Because of the concentration of customers in theindustry, the demand for delivery vehicles is significantly influenced by therequirements of the United Parcel Service of America, Inc., FedEx andpotentially the United States Postal Service. Replacement of older vehicles infleets represents an important revenue source, with replacement cycles varying,depending on vehicle types and usage. During economic downturns, replacementorders are often deferred or, in some cases, older vehicles are retired withoutreplacement. During periods of economic growth, as customers decide to increasetheir capital expenditures, sales of delivery trucks grow as customers makepurchases that were deferred in prior years and expand their fleets.

 

The federally mandated emission standards for dieselengines were changed effective January 1, 2007 and will change again in2010. Morgan Olson’s operations were not significantly affected in 2007;however, we cannot predict whether our operations will be affected in 2010 as aresult of the uncertain impact that the change will have on our customers’operations.

 

***Competition. ***The step van bodymanufacturing industry is highly competitive. Morgan Olson competes with oneother major manufacturer of step van bodies, Utilimaster, which may have moreresources than Morgan Olson. Competitive factors in the industry includeproduct quality, delivery time, warranty terms, aftermarket service and price.

 

**Truck Accessories**

** **

Webelieve Truck Accessories, which is headquartered in Elkhart, Indiana, is theleading manufacturer of hard pickup truck caps and tonneaus for thecombined United States and Canadian market. Truck Accessories markets itscap and tonneau products under the brand names Leer, Century, Raider, LoRider,BoxTop and Pace Edwards.   TruckAccessories also markets window and door components under the State Wide name.

 

Capsand tonneaus provide an engineered, stylized enclosure for the bed ofpickup trucks, transforming them into lockable weather-protected storage areas.Truck Accessories’ truck caps and tonneaus offer customers a variety of designsand features, including a number of distinctive styles, allowing themto customize the look and utility of their pickup trucks.  The TruckAccessories product line of truck caps and tonneaus ranges from standard topremium and is differentiated by features, styling and brand name. Pace Edwards offers a variety of retractable hard tonneau covers that can bemechanically retracted into an integrated storage canister behind thepickup truck cab.  State Wide manufactures windows and doors used by TruckAccessories, other cap manufacturers and horse trailer manufacturers in theassembly of their products.

 

Keypickup truck cap features include shape and design, color and finish, windowconfigurations, roof racks, glass tint, trim, and interior features such aslighting, carpeting and special storage options. Tonneaus also offer a range ofstyling, storage and convenience alternatives. Caps and tonneaus can be designed to target specific customers. For example, Leer, Century and Raider offer lifestyle-equipped caps forhunters, fishermen and outdoors enthusiasts that are styled and designed,through storage features and product appearance, to appeal to these customers.Through Truck Accessories’ multiple lines of caps and tonneaus, each withnumerous features and options, we believe Truck Accessories is the industryleader in engineering, product innovation and styling.

 

7

----

Table of Contents

 

Truck Accessories’ net sales constituted 20% of ourconsolidated net sales in 2006, 20% in 2007 and 19% in 2008.

 

***Customers and sales. ***Most of TruckAccessories’ truck caps and tonneaus are purchased by individuals, smallbusinesses and fleet operators through a network of over 1,800 independent,nonexclusive dealers using brand-specific sales forces.

 

PaceEdwards’ retractable tonneau covers are sold primarily through automotiveaccessory warehouse distributors.  StateWide sells directly to manufacturers through its dedicated sales team.

 

Truck Accessories also sells its products in Canadaand Europe. In 2008, foreign sales (primarily in Canada) representedapproximately 16% of Truck Accessories’ net sales and 3% of our consolidatednet sales.

 

***Manufacturing andsupplies. ******The design and manufacture of Truck Accessories’products takes place at six************manufacturing facilities*********located inCalifornia, Indiana (three), Pennsylvania and Washington.

 

Typical product delivery times range from one to twoweeks from the time of order. Truck Accessories operates a fleet of tractorunits and trailers for the efficient and timely delivery of its products to itsdealers.

 

Truck Accessories provides a warranty period,exclusive to the original truck owner, which is, in general but withexceptions, one year for parts, five years for paint and lifetime forstructure.  Warranty costs have not had amaterial adverse effect on its business in recent years.

 

Truck Accessories obtains raw materials andcomponents from a variety of sources. The most important are resin, fiberglass,paint, aluminum, locks and automotive-quality glass.  Truck Accessories and three other of ourcompanies have committed to purchase principally all of their paint requirementsthrough 2009 from one supplier at favorable prices.  As a result of its size and purchasing power,Truck Accessories has maintained a stable supply of materials and components onfavorable terms and to date has not experienced significant shortages of theseitems.

 

Truck Accessories’ products are typicallymanufactured upon receipt of an order from its customers.  Consequently, its backlog represents betweenone and two weeks of production. Truck Accessories’ backlog was$2.2 million at December 31, 2008 compared to $3.6 million at December 31,2007.

 

***Industry. ***Sales of caps and tonneauscorrespond to the level of new pickup truck sales in the United States andCanada. In 2008, we estimate that 18% to 20% of new pickup trucks were equippedwith caps and tonneaus. Based on Truck Accessories’ market share in the UnitedStates and Canada of approximately 42%, we estimate that approximately 8% ofnew pickup trucks are equipped with Truck Accessories’ caps and tonneaus.Factors influencing the automotive industry, including general economicconditions, customer preferences, new model introductions, interest rates andfuel costs, directly influence Truck Accessories’ business.  Cap and tonneau sales are seasonal, withsales typically being higher in the spring and fall than in the winter andsummer.

 

***Competition. ***The pickup truck fiberglasscap and tonneau industry is highly competitive. Truck Accessories competes withone other national competitor, A.R.E., Inc., and a number of smallercompanies that are regionally focused. Competitive factors include design,features, delivery times, product availability, warranty terms, quality andprice.  Based on the number of productsand features it offers, and its ability to quickly supply product for newlyintroduced pickup truck models, we believe Truck Accessories is the industryleader in product design and available accessory options.

 

**Specialty Manufacturing**

** **

Specialty Manufacturing is comprised of SpecialtyVehicle Group, MIC Group and EFP, and its sales made up 20% of our consolidatednet sales in 2006, 25% in 2007 and 34% in 2008. Specialty Vehicle Group represents approximately 24% of SpecialtyManufacturing’s 2008 net sales and is comprised of Federal Coach and EagleCoach.  Specialty Vehicle Groupmanufactures funeral coaches, limousines and specialized transit buses.

 

8

----

Table ofContents

 

MIC Group represents approximately 65% of SpecialtyManufacturing’s 2008 net sales and provides manufacturing services forcustomers requiring precision machining of metal parts and machining andcasting services with a concentration of customers in the oil and gasexploration and development (services) industry.  During 2007, MIC Group acquired threemachining operations, each of which also has a customer concentration in theoil and gas services industry.  The threeacquired operations are located in Duncan, Oklahoma, Brenham, Texas andHouston, Texas.

 

EFP represents approximately 11% of SpecialtyManufacturing’s net sales and manufactures and sells expandable polystyrene andpolypropylene foam, engineered to customer specifications for use by theautomotive, medical, electronics, food, furniture, bath and plumbing, andappliance industries as packaging, shock-absorbing components and materialhandling products, including temperature-controlled containers.

 

***Products.******  ******Specialty Vehicle Group manufactures a full line offuneral coaches, limousines and specialized buses.****** ******We estimate that Specialty Vehicle’s funeral productsales represent approximately***46***% of the domestic funeral coachmarket.***

 

MIC Group is a contract manufacturer that producesprecision metal parts used in energy exploration and production, aerospace andother industries and performs machining and casting services for manufacturersof metal parts and components.

 

EFP manufactures and sellsmaterial handling and protective packaging products including shock-absorbingpackaging material, reusable trays, and containers that are used fortransporting components and the protection of those products. EFP alsofabricates block and sheet products used by the RV industry for producingsidewalls and doors and the construction industry for insulation and commercialroofing applications. Additionally, EFP manufactures a line oftemperature-controlled shipping containers for the protection oftemperature-sensitive products such as food and medical products.

 

***Customers and sales. ******Specialty Vehicle Group manufactures and sells itsline of funeral coaches, limousines and specialized buses to end users, such aslivery companies, funeral directors and approximately 40 authorizeddealers.  Its largest customer representedapproximately***8***% of the total net sales ofSpecialty Manufacturing in 2006, 3% in 2007 and***3***% in 2008.***

 

MIC Group sells products to international oilfieldservice companies and a variety of businesses in various industries. Twooilfield service customers, Schlumberger Limited and Halliburton Company,represented approximately 19% of the total sales of Specialty Manufacturing in2006, 28% in 2007 and 42% in 2008.

 

EFP’s customers include manufacturers from a widerange of industries that require special packaging materials for protectingtheir products.

 

***Manufacturing andsupplies. ***SpecialtyManufacturing’s operations are located in Alabama, Arkansas, Indiana, Oklahoma,Ohio, Tennessee, Texas (three), Wisconsin and Mexico. Its facilities in Alabamaand the three Texas plants are ISO 9000 certified, its facility in Indiana isISO 9000, ISO 14001 and ISO/TS 16949 certified and its facility in Wisconsin isQS 9000 certified.

 

Specialty Vehicle Group engineers its products toits own specifications as well as those of chassis manufacturers in order tomaintain the original equipment manufacturer’s warranty.  Specialty Vehicle Group takes delivery of atruck chassis or a modified sedan, usually manufactured by the Cadillacdivision of General Motors or the Lincoln division of Ford, and modifies it to itsspecifications.  Bus bodies are built ontruck chassis and funeral coaches and limousines are manufactured from amodified sedan by removing part of the interior, lengthening the body andbuilding the required vehicle.  Theproduction process typically takes between four and six weeks.  Specialty Vehicle Group utilizes metals,polymer resins, wood, fiberglass, and petrochemical-based products (paints,plastics, sealants and lubricants).

 

9

----

Table ofContents

 

MIC Group performs a broad range of servicesincluding computer-controlled precision machining and welding, electricaldischarge machining, electron beam welding, trepanning, gun drilling,investment casting and electro mechanical assembly services. MIC Group utilizesferrous and nonferrous materials including stainless steel, alloy steels,nickel-based alloys, titanium, brass, beryllium-copper alloys and aluminum.

 

EFP’s products are manufactured from a wide varietyof materials including expandable polystyrene, polypropylene, polyethylene andresins which are subject to cost fluctuations based on changes to the price ofoil and benzene in the international markets.

 

The Specialty Vehicle Group provides a warranty onits products for a period of 48 months or 50,000 miles on the section of thebody and parts manufactured for funeral coaches and funeral limousines, 36months or 50,000 miles on the body and parts manufactured for bus bodies, and48 months or 100,000 miles on the portion of the body and parts manufacturedfor limousines.  MIC Group and EFP do notprovide warranties on their products. Warranty costs have not had a material adverse effect on SpecialtyManufacturing’s business.

 

Specialty Manufacturing’s backlog at December 31,2008 was $81.3 million compared to $108.5 million at December 31,2007.  Materials are obtained from avariety of sources and Specialty Manufacturing has not experienced significantshortages in materials.

 

***Industry. ******Specialty Vehicle Group’s funeral products are usedby funeral operators and sales generally increase in a new model year with theintroduction of new models by the OEMs.  VIP limousines and small tomedium-sized buses are purchased by livery companies, churches and small tourbus operators whose operations are influenced by the general economy.***

 

MIC Group’s services are used by companies in theautomotive, aerospace and other industries with a concentration of companiesinvolved in oil and gas exploration. The demand for equipment and servicessupplied to the oilfield service industry is directly related to the level ofworldwide oil and gas drilling activity which is influenced by the price of oiland natural gas.  The price of a barrelof oil as of December 31, 2008 was $44.60 compared to $91.73 as of December 31,2007.

 

The majority of EFP’s products are manufactured foruse by companies in the automotive, electronics, furniture, construction,appliance and other industries. It also manufactures products used as thermalinsulators for the medical and healthcare industry.  Economic conditions that affect theseindustries will subsequently affect EFP’s operations.

 

Growth or downturns in the general economy andspecifically the entertainment, automotive, electronics, energy and applianceindustries have a corresponding effect on Specialty Manufacturing’s business.

 

***Competition. ******Specialty Vehicle Group competes with one majormanufacturer of funeral coaches and with other businesses engaged in themanufacture of limousines and***specialized transit buses.

 

MIC Group competes with other businesses engaged inthe machining, casting and manufacturing of parts and equipment utilized in theoil and gas exploration, aerospace and other industries.

 

EFP competes with a large number of other producersof molded, expandable plastic products.

 

Some of Specialty Manufacturing’s competitors may belarger and have more resources.  Price,delivery times, technological know-how, design and capacity are the primarycompetitive factors in Specialty Manufacturing’s industries.

 

**JBPCO (Corporate)**

 

The members of the JBPCO (Corporate) office havehistorically provided strategic direction and support to the businessunits.  This role has been expanded toinclude procurement programs that take advantage of common raw material andcomponent purchases across all of our business units on improved economic termsand the expansion 

 

10

----

Table ofContents

 

of information technology resources to developinitiatives across all business units to reduce our costs and improve datamanagement.

 

**Trademarks and patents**

** **

We own rights to certain presentations of TruckAccessories’ Leer brand name, which we believe are valuable because we believethat Leer is recognized as being a leading brand name.  We own rights to the Federal Coach and EagleCoach names.  We also own rights tocertain other trademarks and trade names, including certain presentations ofMorgan’s name. Although these and other trademarks and trade names used by ushelp customers differentiate our product lines from those of competitors, webelieve that the trademarks or trade names themselves are less important tocustomers than the quality of the products and services. Our subsidiaries,principally Morgan, EFP and Eagle Coach, hold, directly or indirectly throughsubsidiaries, patents on certain products and components used in themanufacturing processes. We do not believe that the loss of any one patentwould have a material adverse effect on us.

 

**Employees (“team members”)**

** **

At December 31, 2008, we had 3,462 full-timeteam members and an average of 3,795 full-time team members throughout the year.  Team members are unionized only at EFP’sDecatur, Alabama facility (covering approximately 60 team members, with acontract expiring in August 2009). We believe that relations with our teammembers are good.

 

**Environmental matters**

** **

Ouroperations are subject to a variety of federal, state and local environmentaland health and safety statutes and regulations, including those relating toemissions to the air, discharges to water, treatment, storage and disposal ofwaste, and remediation of contaminated sites. In certain cases, theserequirements may limit the productive capacity of our operations. Certain laws,including the Federal Comprehensive Environmental Response, Compensation, andLiability Act of 1980, as amended (“Superfund”) impose strict, and undercertain circumstances, joint and several, liability for costs to remediatecontaminated sites upon designated responsible parties including site owners oroperators and persons who dispose of wastes at, or transport wastes to, suchsites. Some of our operations also require permits which may restrict ouractivities and which are subject to renewal, modification or revocation byissuing authorities. In addition, we generate nonhazardous wastes, which arealso subject to regulation under applicable environmental laws.

 

Fromtime to time, we have received notices of noncompliance with respect to ouroperations which have typically been resolved by investigating the allegednoncompliance, correcting any noncompliant conditions and paying fines, none ofwhich individually or in the aggregate has had a material adverse effect onus.   Further, we cannot ensure that wehave been or will be at all times in compliance with all of these requirements,including those related to reporting or permit restrictions, or that we willnot incur material fines, penalties, costs or liabilities in connection withsuch requirements or a failure to comply with them.  However, we expect that the nature of ouroperations will continue to make us subject to increasingly stringent environmentalregulatory standards. Although we believe we have made sufficient capitalexpenditures to maintain compliance with existing laws and regulations, futureexpenditures may be necessary, as compliance standards and technology change oras unanticipated circumstances arise. Unforeseen and significant expendituresrequired, for example, to comply with new or more aggressively enforcedrequirements or newly discovered conditions, could limit expansion or otherwisehave a material adverse effect on our business and financial condition.  For a description of currently outstandingenvironmental issues, see Note 16 of Notes to the Financial Statements.

 

**Reports to Security Holders**

 

Sinceall of the Company’s equity securities are privately held, the Company is notrequired by the SEC’s proxy rules or regulations, or stock exchangerequirements, to send an annual report to security holders. Nonetheless, the 

 

11

----

Table of Contents

 

Companywill send to each security holder annually a copy of its Annual Report on Form 10-Kand quarterly a copy of each Quarterly Report on Form 10-Q.

 

**Item 1A.                 RiskFactors**

** **

An investment in our securities is subject to anumber of risks. An investor should carefully consider the following riskfactors in evaluating this investment. Any of the following risks, as well asother risks and uncertainties that we do not know about now or that we do notthink are important, could seriously harm our business and financial resultsand cause the value of our securities to decline, which in turn could causeinvestors to lose all or part of their investment.

 

**Our businesses are highly cyclical. An economic downturncould adversely affect our ability to generate cash and make required paymentson our debt.**

 

Thesuccess of our business depends on general economic conditions and such factorsas:

 

·      corporateprofitability;

 

·      interestrates;

 

·      retailfinancing;

 

·      fuel costs;

 

·      consumerpreferences;

 

·      consumerspending patterns;

 

·      sales of truckchassis and new pickup trucks; and

 

·      levels of oiland gas exploration activity.

 

Inaddition, we sell our products to customers in inherently cyclical industries,such as the trucking industry and the energy services industry, whichexperience significant downturns from time to time. As a result of thecontinuing economic recession that began in late 2007, we have experiencedsubstantially lower sales across all our transportation businesses, namelyMorgan, Morgan Olson, Truck Accessories and the Specialty Vehicle component ofSpecialty Manufacturing.  However, ourenergy-related machining business, which is a component of SpecialtyManufacturing, experienced a substantial increase in sales during 2008,including increased sales from the three related strategic acquisitions made in2007.  The price of oil has decreasedfrom $91.73 a barrel at December 31, 2007 to $44.60 a barrel at December 31,2008, which price per barrel has continued in 2009 to be well below the priceper barrel at the end of 2007.  Becauseof this decrease in the price of oil, our energy-related machining businessbegan to soften in the second half of 2008, and we believe that this softeningwill continue into 2009. Our combined operations generated cash of $45.5million in 2008, and as of December 31, 2008 we had cash and cashequivalents on hand of $36.3 million and approximately $47.3 million availableto borrow under our revolving credit facility.

 

Aprolonged economic downturn or recession would result in a significant decreasein our sales and would materially and adversely affect our operating cash flowsand our ability to make required payments on our debt.

 

**Demand for our truck body products depends largely on thereplacement cycle of delivery trucks.**

 

Morganand Morgan Olson produce and sell truck bodies for new delivery trucks,primarily in the general freight, moving and storage, parcel delivery anddistribution industries. Demand for these products is driven by customersreplacing older vehicles in their delivery truck fleets, and these customersoften decide to postpone their purchases of new delivery trucks during economicdownturns. If economic conditions or other factors, including longer usefullives of delivery trucks, cause our customers to reduce their capitalexpenditures and decrease investments in new delivery trucks, our sales wouldbe materially and adversely affected. As a result, our ability to generate cashand make required payments on our debt would be reduced.

 

12

----

Table of Contents

 

**The cyclicality of pickup truck sales could cause a declinein Truck Accessories’ sales.**

 

TruckAccessories’ sales depend on the sales of new pickup trucks in North America.New pickup trucks sales in the United States and Canada decreased 26.3% from2007 to 2008 to 2.2 million units during 2008 and January 2009 projectionsby industry associations indicate a further 10% decline in 2009 to an estimated2.0 million units.   A decline in pickuptruck sales would cause a decline in Truck Accessories’ sales, which wouldmaterially and adversely reduce Truck Accessories’ ability to generate cash andcould reduce our ability to make required payments on our debt. Sales of pickuptrucks are characterized by periodic fluctuations in demand due to, among otherthings, changes in general economic conditions, interest rates, fuel costs, newmodel introductions, consumer spending levels and consumer preferences.

 

**We have a substantial amount of debt outstanding and can incur moredebt, which could hurt our business prospects, limit cash flow available fromour operations and prevent us from fulfilling our obligations under the 8.75%Notes and our other debt obligations.**

 

Weare significantly leveraged and will continue to be significantlyleveraged.  We had $23.8 million ofstockholder’s equity at December 31, 2008 and long-term debt of $207.0million, including $200.0 million in aggregate principal amount of 8.75% seniornotes due 2014 (“8.75% Notes”) and $7.0 million of capital leaseobligations.  In addition, we had $47.2million of secured debt availability under our revolving credit facility and wemay be able to incur substantially more debt in the future.

 

**We may not be able to compete favorably in our industries.**

 

Weexperience direct competition in all of our product lines and some competitorshave greater financial and other resources than we have. We face competitionfrom existing competitors with entrenched positions and we could facecompetition from new ones. Changes in the nature of the industries in which weoperate and our business could produce competition from new sources. Increasedcompetition may have a material adverse effect on our business, cash flows andability to make required payments on our debt by reducing our sales or margins.

 

**Most of our businesses rely on a small number of customers,the loss of any of which could have a material adverse effect on us.**

 

Fourof our businesses rely on a small number of customers to generate significantrevenues.

 

·                  Morgan’s twolargest customers, Penske and Ryder, together accounted for 46% of Morgan’s netsales in 2006, 55% in 2007 and 48% in 2008 and accounted for 22% of ourconsolidated net sales during 2006, 22% in 2007 and 16% in 2008.

 

·                  One customeraccounted for 38% of Morgan Olson’s net sales during 2006, 37% in 2007 and 44%in 2008.

 

·                  Two customersaccounted for 19% of Specialty Manufacturing’s net sales during 2006, 28% in2007 and 42% in 2008.

 

·                  Our top ten customersaccounted for 40% of our consolidated net sales in 2006, 41% in 2007 and 44% in2008.

 

Becauseof the relative importance of large customers and the degree of concentrationin the industries we serve, we are subject to additional risk. We may not beable to maintain these customer relationships or maintain our historical levelsof sales to these customers. Because of the size and importance of thesecustomers, these customers may be able to exert pressure on us to lower ourprices, which may reduce our margins and operating 

 

13

----

Table of Contents

 

 

cashflow. If one of these customers were to experience financial difficulties, ourability to collect receivables from it or generate new sales to it would bematerially and adversely affected.

 

**Disruptions in delivery of truck or car chassis to us couldimpact the profitability of our business.**

 

Morganand Morgan Olson mount their truck bodies on truck chassis delivered from truckchassis manufacturers.  Specialty VehicleGroup converts car chassis supplied by General Motors and Ford into productsfor its customers.  If truck and carchassis manufacturers experience or their suppliers experience disruptions intheir businesses, resulting from plant closures and other cost cuttinginitiatives, lack of cash resources, bankruptcy proceedings or other potentialcauses, Morgan, Morgan Olson and Specialty Vehicle Group may be unable to sellor deliver their products. Work stoppages or slowdowns experienced by thelarge truck manufacturers that supply truck chassis could result in delays orslowdowns in our ability to deliver products to our customers.

 

**Environmental and health and safety liabilities andrequirements could require us to incur material costs.**

 

Ouroperations are subject to a variety of federal, state and local environmentaland health and safety statutes and regulations, including those relating toemissions to the air, discharges to water, treatment, storage and disposal ofwaste, and remediation of contaminated sites. In certain cases, theserequirements may limit the productive capacity of our operations. Laws,including Superfund legislation, impose strict, and under certaincircumstances, joint and several, liability for costs to remediate contaminatedsites upon designated responsible parties including site owners or operatorsand persons who dispose of wastes at, or transport wastes to, such sites.

 

Fromtime to time, we have received notices of noncompliance with respect to ouroperations, which have typically been resolved by investigating the allegednoncompliance, correcting any noncompliant conditions and paying fines. We havefrom time to time been identified as a potentially responsible party at variousSuperfund sites, which, based on available information, we do not expect toresult in material liability. However, new environmental requirements or moreaggressive enforcement of existing ones or discovery of presently unknownconditions could require material expenditures or result in liabilities whichcould limit expansion or otherwise have a material adverse effect on ourbusiness, financial condition, operating cash flows and our ability to makerequired payments on our debt.

 

Fora description of current environmental issues, see Note 16 of Notes to theFinancial Statements.

 

**We may incur material losses and costs as a result of productliability and warranty claims that may be brought against us.**

 

Weface an inherent risk of exposure to product liability claims if the use of ourproducts results, or is alleged to result, in personal injury and/or propertydamage. If we manufacture a defective product, we may experience materialproduct liability losses and we may incur significant costs to defend productliability claims. We also could incur significant costs in correcting anydefects, lose sales and suffer damage to our reputation. Our product liabilityinsurance coverage may not be adequate for the liabilities we could incur andmay not continue to be available on terms acceptable to us.

 

Wealso are subject to product warranty claims in the ordinary course of ourbusiness. If we produce poor-quality products or use defective materials, wemay incur unforeseen costs in excess of what we have reserved in our financialstatements. These costs could have a material adverse effect on our business,operating cash flows and ability to make required payments on our debt.

 

**We depend on the services of key management personnel, theloss of whom would materially harm us.**

 

Ourability to compete successfully and implement our business strategy depends onthe efforts of our senior management personnel, including those of JohnPoindexter, our Chairman of the Board, President and Chief

 

14

----

Table of Contents

 

ExecutiveOfficer. The loss of the services of any of these individuals could have amaterial adverse effect on our business. We do not maintain key-man lifeinsurance policies on any of our executives.

 

**We may be unable to realize our business strategy ofimproving operating performance and generating cost reductions.**

 

Wehave either implemented or plan to implement strategic initiatives designed toimprove our operating performance. The failure to achieve the goals of theseinitiatives would have a material adverse effect on our business. We may decideto make significant expenditures in an effort to streamline our operations,including combining some of our operations at existing facilities, but beunable to successfully implement or realize the expected benefits of theseinitiatives. We also may not be able to sustain improvements made to date. Wemay decide to alter or discontinue some aspects of our strategy and may adoptalternative or additional strategies, which may not be in the best interests ofour note holders.

 

**We may not be able to consummate future acquisitions orsuccessfully integrate acquisitions into our business.**

 

Ourbusiness strategy includes growing through strategic acquisitions of otherbusinesses with complementary products, manufacturing capabilities orgeographic markets. We may not be able to continue to identify attractive acquisitionopportunities or successfully acquire identified targets.  If we fail to integrate acquired businessessuccessfully into our existing businesses, or incur unforeseen expenses inconsummating acquisitions, we could incur unanticipated expenses and losses.

 

Wemust successfully integrate acquired businesses into our operations to takefull advantage of projected benefits from those acquired businesses. Theintegration of future acquisitions into our operations could result inoperating difficulties and divert management and financial resources that wouldotherwise be available for the development and maintenance of our existingoperations. Our ability to make acquisitions may be constrained by our abilityto obtain additional financing and by the provisions of the indenture governingour outstanding 8.75% Notes and by the terms of our revolving credit facility.

 

Acquisitionsmay involve a number of special risks, including:

 

·                  unexpectedlosses of key employees or customers of the acquired business;

 

·                  conforming thestandards, processes, procedures and controls of the acquired business withthose of our existing operations;

 

·                  coordinatingour product and process development;

 

·                  hiringadditional management and critical personnel; and

 

·                  increasing the scope,geographic diversity and complexity of our operations.

 

Acquisitionscould result in our incurrence of additional debt and contingent liabilities,including environmental, tax, pension and other liabilities. These liabilitiescould have a material adverse effect on our business, our ability to generatecash and our ability to make required payments on our debt.

 

**If we are unable to meet future capital requirements, ourcompetitive position may be adversely affected.**

 

Asa manufacturer, we are required to expend significant amounts of capital forengineering, development, tooling and other costs. Generally we seek to recoverthese costs through revenue generation, but we may be unsuccessful due tocompetitive pressures and other market constraints. We expect to fund capitalexpenditures through operating cash flows, borrowings under our revolvingcredit facility and other sources of borrowing such as capital leases, but wemay not have adequate funds or borrowing availability to make all the necessarycapital

 

15

----

Table of Contents

 

expenditures.If we are unable to make necessary capital expenditures, our business and ourcompetitive position will be materially and adversely affected.

 

**As a privately held company, we are subject to less stringentcorporate governance requirements than a company with public equity. Thisprovides less protection to our investors. Further, we identified material internal control weaknesses over ourfinancial reporting.**

 

Whilewe are subject to certain requirements of the Sarbanes-Oxley Act of 2002, weare not subject to many of its provisions, including rules requiring us tohave independent directors or an audit committee composed of independentdirectors. Two of our three directors, John Poindexter, our President and CEO,and Stephen Magee, the chairman of the Audit Committee of our board ofdirectors, are not independent. We are not subject to the same corporategovernance standards as a company with public equity or a company listed on anational exchange and our security holders do not have the protections providedby having independent directors or audit committee members.

 

Additionally,as a result of our assessment of our internal controls over financial reportingduring 2007, we identified the following material weaknesses in our internalcontrols:

 

·                  We restated the financialstatements as of December 31, 2006 and for the year then ended due to anerror in the accounting for inventory. The error was related to a failure to perform an adequate reconciliationof inventory records as a result of a combination of inadequate procedures andinventory tracking systems.  Thisrepresented a material weakness in the internal controls over the financialreporting of inventory as of December 31, 2006 and March 31,2007.  We believe that these weaknesseshave been corrected through the implementation of a new information system andimproved procedures.

 

·                  The timelyoversight over the financial reporting of the business units and the workoutsourced to third parties needs to be improved.  Specifically, more timely oversight may haveprevented an adjustment to record an additional FIN No. 48 provision for uncertainstate income tax positions in the fourth quarter of 2007 and should enable usto more timely report our financial results. Improvements, including the addition of corporate and business unitpersonnel, continue to be evaluated and implemented by management.

 

Webelieve that actions taken to date which include the hiring of additionalbusiness unit financial personnel and the additional experience gained by ourcorporate office financial reporting personnel have resulted in improvedcontrols over financial reporting.  Webelieve that our controls have improved sufficiently such that we do notcontinue to have material weaknesses over our financial reporting processes andwe have reported in section 9a of this annual report on Form 10K that weidentified no material weaknesses in the Company’s internal controls for theyear ended December 31, 2008.  Wemay need to make additional improvements if and when our business operationsexpand in size and complexity.

 

**We believe that theremedial action described above has satisfactorily addressed all mattersidentified as weaknesses by management. We will continue to monitor the effectiveness of our internal controlsand procedures on an ongoing basis and will take further actions asappropriate.**

** **

**Item 1B.**                                                  UnresolvedStaff Comments

** **

**None.**

** **

**16**

----

**Table of Contents**

** **

**Item 2.**                                                           Properties

** **

Weown or lease the following manufacturing, office and sales facilities as of December 31,2008:

 
| **Location**                                     | ** **   | **Principal  use**               | ** **   | **Approximate  square feet** | ** **   | **Owned  or leased** | ** **   | **Lease  expiration** |
|--------------------------------------------------|--------------|----------------------------------|--------------|------------------------------|--------------|----------------------|--------------|-----------------------|
| ***Morgan:***                                    | *** *** | *** ***                     | *** *** | *** ***                 | *** *** | *** ***         | *** *** | *** ***          | *** *** |
| Ehrenberg,  Arizona                              |         | Manufacturing                    |         | 119,000                      |         | Owned                |         |                  | — |
| Riverside,  California                           |         | Manufacturing/service            |         | 62,000                       |         | Leased               |         |                  | 2013 |
| Atlanta,  Georgia                                |         | Parts &  service        |         | 20,000                       |         | Leased               |         |                  | 2009 |
| Rydal,  Georgia                                  |         | Manufacturing                    |         | 85,000                       |         | Owned                |         |                  | — |
| Ephrata,  Pennsylvania                           |         | Manufacturing                    |         | 51,000                       |         | Leased               | *            |                  | 2015 |
| New  Morgan, Pennsylvania                        |         | Manufacturing                    |         | 62,900                       |         | Leased               |         |                  | 2009 |
| Morgantown,  Pennsylvania                        |         | Manufacturing/service            |         | 261,000                      |         | Leased               | *            |                  | 2015 |
| Morgantown,  Pennsylvania                        |         | Office/warehouse                 |         | 110,000                      |         | Leased               |         |                  | 2009 |
| Corsicana,  Texas                                |         | Manufacturing/service            |         | 63,000                       |         | Leased               | *            |                  | 2015 |
| Janesville,  Wisconsin                           |         | Manufacturing/service            |         | 166,000                      |         | Leased               |         |                  | 2010 |
| Denver,  Colorado                                |         | Parts &  service        |         | 15,000                       |         | Leased               |         |                  | 2012 |
| Lakeland,  Florida                               |         | Parts &  service        |         | 47,000                       |         | Leased               |         |                  | 2010 |
| Tampa,  Florida                                  |         | Parts &  service        |         | 24,000                       |         | Leased               |         |                  | 2010 |
| Brampton,  Ontario, Canada.                      |         | Office &  manufacturing |         | 35,000                       |         | Leased               |         |                  | 2013 |
| ***Morgan Olson:***                              | *** *** | *** ***                     | *** *** | *** ***                 | *** *** | *** ***         | *** *** | *** ***          | *** *** |
| Sturgis,  Michigan                               |         | Office &  manufacturing |         | 384,000                      |         | Owned                |         |                  | — |
| ***Truck Accessories:***                         | *** *** | *** ***                     | *** *** | *** ***                 | *** *** | *** ***         | *** *** | *** ***          | *** *** |
| Woodland,  California                            |         | Manufacturing                    |         | 65,000                       |         | Leased               |         |                  | 2009 |
| Elkhart,  Indiana                                |         | Office &  research      |         | 23,500                       |         | Owned                |         |                  | — |
| Elkhart,  Indiana                                |         | Manufacturing                    |         | 132,500                      |         | Leased               |         |                  | 2010 |
| Elkhart,  Indiana                                |         | Office &  manufacturing |         | 80,000                       |         | Owned                |         |                  | — |
| Elkhart,  Indiana                                |         | Manufacturing                    |         | 10,000                       |         | Leased               |         |                  | 2009 |
| Elkhart,  Indiana                                |         | Manufacturing                    |         | 150,000                      |         | Leased               |         |                  | 2011 |
| Chickasha,  Oklahoma                             |         | Warehouse                        |         | 9,700                        |         | Leased               |         |                  | 2010 |
| Milton,  Pennsylvania                            |         | Manufacturing/retail             |         | 103,000                      |         | Leased               |         |                  | 2009 |
| Clackamas,  Oregon                               |         | Retail                           |         | 12,700                       |         | Leased               |         |                  | 2013 |
| Centralia,  Washington                           |         | Manufacturing                    |         | 45,950                       |         | Owned                |         |                  | — |
| ***Specialty Manufacturing:***                   |         |                             |         |                         |         |                 |         |                  |   |
| Amelia,  Ohio                                    |         | Office &  manufacturing |         | 54,100                       |         | Leased               |         |                  | 2011 |
| Brenham,  Texas                                  |         | Office &  manufacturing |         | 125,000                      |         | Owned                |         |                  | — |
| Brenham,  Texas                                  |         | Office &  manufacturing |         | 130,000                      |         | Owned                |         |                  | — |
| Decatur,  Alabama                                |         | Manufacturing                    |         | 175,000                      |         | Leased               |         |                  | 2009 |
| Duncan,  Oklahoma                                |         | Office &  manufacturing |         | 53,000                       |         | Leased               |         |                  | 2012 |
| Elkhart,  Indiana                                |         | Office &  manufacturing |         | 211,600                      |         | Owned                |         |                  | — |
| Fort  Smith, Arkansas                            |         | Office &  manufacturing |         | 170,000                      |         | Leased               |         |                  | 2010 |
| Houston,  Texas                                  |         | Office &  manufacturing |         | 97,000                       |         | Leased               |         |                  | 2012 |
| Milwaukee,  Wisconsin                            |         | Office &  manufacturing |         | 70,000                       |         | Leased               |         |                  | 2010 |
| Monterrey,  Mexico                               |         | Manufacturing                    |         | 38,000                       |         | Leased               |         |                  | 2009 |
| Nashville,  Tennessee                            |         | Manufacturing                    |         | 40,900                       |         | Leased               |         |                  | 2009 |
| ***J.B. Poindexter & Co., Inc.:*** |         |                             |         |                         |         |                 |         |                  |   |
| Houston,  Texas                                  |         | Office                           |         | 10,000                       |         | Leased               |         |                  | 2019 |

----

*                                         Effective December 12,2008, these facilities were sold to and leased back from an entity owned byJohn Poindexter. See Note 17 of Notes to the Financial Statements.

 

We believe that our facilities are adequate for ourcurrent needs and are capable of being utilized at higher capacities to supplyincreased demand, if necessary.  Allowned properties are pledged as collateral against our revolving creditfacility.

 

17

----

**Table of Contents**

** **

**Item 3.****                                                          ****Legal Proceedings**

** **

We are involved in various lawsuits, which arise in the ordinary courseof business. In the opinion of management, the ultimate outcome of knownlawsuits will not have a material adverse effect on us.

 

**Item 4.****                                                          ****Submission of Matters to a Vote of Security Holders**

 

**The sole shareholder ofthe Company signed a consent dated December 2, 2008 electing the followingmembers of the board of directors for the ensuing year: John B. Poindexter,Stephen P. Magee and William J. Bowen.**

 

**PART II**

 

**Item 5.****                                                          ****Market for Registrant’s Common Equity, Related StockholderMatters and Issuer Purchases of Equity Securities**

 

The registrant’s common equity is privately held and not publiclytraded.  As of March 31, 2009, JohnPoindexter owned all of the registrant’s issued and outstanding commonequity.  The Company has never paid cashdividends.

 

The covenants in the indenture regarding the 8.75% Notes and the loanagreement for the Company’s revolving credit facility both restrict the Company’sability to pay dividends on its common equity.

 

The Company has no securities authorized for issuance under equitycompensation plans.

 

18

----

Table ofContents

 

**Item  6.                   Selected Financial Data**

 

The following tables set forth selected consolidatedfinancial data and other data concerning J.B. Poindexter & Co., Inc.for each of the last five years.  Theselected financial data should be read in conjunction with “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” andthe Consolidated Financial Statements and related Notes thereto.

 
| ** **                                    | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|
| **(Dollars in Millions)**                     | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** |
| **Operating  data:**                          |       |                             |       |   |   |   |   |   |   |   |   |
| Net sales                                     |       | $                                | 584.9      |   | $ | 668.1 |   | $ | 795.4 |   | $ | 792.2 |   | $ | 706.4 |   |
| Cost of sales                                 |       | 513.4                            |       | 593.1 |   | 701.1 |   | 707.2 |   | 610.8 |   |
| Selling, general  and administrative expenses |       | 40.6                             |       | 50.0 |   | 63.0 |   | 64.9 |   | 66.1 |   |
| Loss (gain) on  extinguishment of debt        |       | 2.4                              |       | — |   | — |   | — |   | (0.4 | ) |
| Closed and  excess facility costs             |       | —                           |       | 0.4 |   | 2.7 |   | 0.2 |   | 0.8 |   |
| Other expense  (income)                       |       | (0.4                             | )          | 0.1 |   | (0.2 | ) | (0.3 | ) | (0.6 | ) |
| Operating income                              |       | 28.9                             |       | 24.5 |   | 28.8 |   | 20.2 |   | 29.7 |   |
| Interest expense                              |       | 14.5                             |       | 18.5 |   | 18.9 |   | 18.7 |   | 18.5 |   |
| Interest income                               |       | (0.1                             | )          | (1.7 | ) | (1.7 | ) | (0.8 | ) | (0.4 | ) |
| Income tax  provision                         |       | 4.1                              |       | 2.6 |   | 3.4 |   | 3.1 |   | 4.8 |   |
| Income (loss)  before discontinued operations |       | 10.4                             |       | 5.1 |   | 8.2 |   | (0.8 | ) | 6.8 |   |
| Loss from  discontinued operations            |       | (0.5                             | )          | — |   | — |   | — |   | — |   |
| Net income  (loss)                            |       | $                                | 9.9        |   | $ | 5.1 |   | $ | 8.2 |   | $ | (0.8 | ) | $ | 6.8 |   |
| Ratio of  earnings to fixed charges(a)        |       | 1.9x                             |       | 1.4x |   | 1.5x |   | 1.1x |   | 1.5x |   |
|                                          |       |                             |       |   |   |   |   |   |   |   |   |
| **Other  data:**                              | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| EBITDA(b)                                     |       | $                                | 46.4       |   | $ | 37.9 |   | $ | 43.8 |   | $ | 43.5 |   | $ | 48.6 |   |
| Consolidated Coverage  Ratio(c)               |       | 3.2                              |       | 2.1 |   | 2.4 |   | 2.3 |   | 2.6 |   |
|                                          |       |                             |       |   |   |   |   |   |   |   |   |
| **Balance  sheet data (at period end):**      | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Working capital                               |       | $                                | 75.8       |   | $ | 114.9 |   | $ | 112.3 |   | $ | 83.3 |   | $ | 99.2 |   |
| Total assets                                  |       | $                                | 217.5      |   | $ | 273.2 |   | $ | 292.4 |   | $ | 297.2 |   | $ | 295.9 |   |
| Total debt                                    |       | $                                | 158.4      |   | $ | 205.4 |   | $ | 207.6 |   | $ | 213.6 |   | $ | 207.4 |   |
| Stockholder’s  equity                    |       | $                                | 4.6        |   | $ | 9.7 |   | $ | 18.3 |   | $ | 18.3 |   | $ | 23.8 |   |

----

(a)          For the purpose of calculating the ratio of earningsto fixed charges, earnings consist of net income (loss) plus income taxes andfixed charges (excluding capitalized interest). Fixed charges consist ofinterest expense, amortization of debt issuance costs and the estimated portionof rental expenses deemed a reasonable approximation of the interest factor.

 

(b)         “EBITDA” is net income from continuing operations increasedby the sum of interest expense, income taxes, depreciation and amortization andother noncash items for those operations defined as restricted subsidiaries inthe indenture pertaining to the 8.75% Notes. EBITDA is not included herein as operating data and should not beconstrued as an alternative to operating income (determined in accordance withaccounting principles generally accepted in the United States) as an indicatorof the Company’s operating performance. The Company has included EBITDA because it is relevant for determiningcompliance under the indenture and because the Company understands that it isone measure used by certain investors to analyze the Company’s operating cashflow and historical ability to service its indebtedness.  The following are the components of theCompany’s EBITDA:

 

19

----

Table of Contents

 
| ** **                                    | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|
| **(Dollars in Millions)**                     | ** ** | **2004**                         | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** |
| Income (loss)  before discontinued operations |       | $                                | 10.4       |   | $ | 5.1 |   | $ | 8.2 |   | $ | (0.8 | ) | $ | 6.8 |   |
| Income tax  provision                         |       | 4.1                              |       | 2.6 |   | 3.4 |   | 3.1 |   | 4.8 |   |
| Interest expense                              |       | 14.5                             |       | 18.5 |   | 18.9 |   | 18.7 |   | 18.5 |   |
| Depreciation and  amortization                |       | 9.5                              |       | 10.4 |   | 12.0 |   | 15.1 |   | 17.7 |   |
| Noncash charges                               |       | 2.4                              |       | 0.4 |   | 1.1 |   | — |   | 0.8 |   |
| Pro forma effect  of acquisitions             |       | 5.5                              |       | 0.9 |   | 0.2 |   | 7.4 |   | — |   |
|                                          |       | $                                | 46.4       |   | $ | 37.9 |   | $ | 43.8 |   | $ | 43.5 |   | $ | 48.6 |   |

----

(c)          “Consolidated Coverage Ratio” is the ratio of EBITDAto interest expense of the Company and its subsidiaries that guarantee the8.75% Notes.  It is used in the indentureto limit the amount of indebtedness that the Company may incur.  All the Company’s subsidiaries are restrictedunder the terms of the indenture and guarantee the 8.75% Notes.

 

20

----

Table of Contents

 

**Item 7.                    Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

** **

**Overview**

** **

**The current economic recessionhas affected all of our businesses but primarily our transportation-relatedbusinesses which began to experience lower demand for their products in thethird quarter of 2007, which has continued through 2008 and into the first quarterof 2009.  We have reacted and arecontinuing to react to these conditions by increasing market share at theexpense of weaker competitors and reducing both direct and indirect coststhrough improved manufacturing processes and the reduction of general andadministrative costs.  Our employeeheadcount was approximately 3,000 as of February 28, 2009 compared to3,500 as of December 31, 2008 and 4,200 at December 31, 2007.  In contrast to the previous economic downturnduring 2001 and 2002, oil and gas exploration activity increased in 2008compared to the prior year which along with three strategic acquisitions in2007 has provided significant additional net sales and operating income to ourSpecialty Manufacturing Division. However, as a result of the recent decrease in the price of oil from$91.73 a barrel at December 31, 2007 to $44.60 a barrel at December 31,2008 (which price per barrel has continued in 2009 to be well below the priceper barrel at the end of 2007), it is likely that our energy-related machiningbusiness will soften in 2009.**

** **

Duringthe year ended December 31, 2007, MIC Group acquired three manufacturingbusinesses that specialize in providing services to the oil and gas explorationand production industry, primarily large multinational oilfield servicescompanies.  MIC Group has combined themwith its operations.  MIC Group acquiredRichard’s Manufacturing Co., Inc. (“MIC Duncan”) effective April 30,2007, Tarlton Supply Company (“MIC Tarlton”) effective August 23, 2007,and Machine and Manufacturing I, Inc. (“MIC Houston”) effective September 4,2007.  The results of operations forthese businesses for the period of time subsequent to their acquisition havebeen included in the results of operations of the Specialty ManufacturingDivision for the years ended December 31, 2008 and 2007.

 

Thefollowing table shows our net sales, operating income and operating income as apercentage of net sales for each segment for the years ended December 31,2006, 2007 and 2008.

 
| ** **                   | ** ** | **Year ended December 31,** | ** ** |
|------------------------------|------------|----------------------------------|------------|
| **(Dollars in Millions)**    | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| Net Sales                    |       |                             |       |   |   |   |   |
| Morgan                       |       | $                                | 379.4      |   | $ | 332.9 |   | $ | 233.9 |   |
| Morgan Olson                 |       | 100.4                            |       | 110.3 |   | 104.4 |   |
| Truck  Accessories           |       | 159.3                            |       | 155.6 |   | 131.9 |   |
| Specialty  Manufacturing     |       | 155.9                            |       | 195.2 |   | 238.3 |   |
| Eliminations                 |       | 0.4                              |       | (1.8 | ) | (2.1 | ) |
| Consolidated                 |       | $                                | 795.4      |   | $ | 792.2 |   | $ | 706.4 |   |
| Operating Income  (Loss)     |       |                             |       |   |   |   |   |
| Morgan                       |       | $                                | 21.6       |   | $ | 15.4 |   | $ | 4.0 |   |
| Morgan Olson                 |       | 2.8                              |       | (2.7 | ) | 5.4 |   |
| Truck  Accessories           |       | 3.5                              |       | 3.2 |   | 2.4 |   |
| Specialty  Manufacturing     |       | 9.8                              |       | 13.7 |   | 25.9 |   |
| JBPCO  (Corporate)           |       | (8.9                             | )          | (9.4 | ) | (8.0 | ) |
| Consolidated                 |       | $                                | 28.8       |   | $ | 20.2 |   | $ | 29.7 |   |
| Operating Margin  Percentage |       |                             |       |   |   |   |   |
| Morgan                       |       | 5.7                              | %          | 4.6 | % | 1.7 | % |
| Morgan Olson                 |       | 2.8                              | %          | (2.4 | )% | 5.2 | % |
| Truck  Accessories           |       | 2.2                              | %          | 2.1 | % | 1.8 | % |
| Specialty  Manufacturing     |       | 6.2                              | %          | 6.9 | % | 10.9 | % |
| Consolidated                 |       | 3.6                              | %          | 2.5 | % | 4.2 | % |

 

21

----

Table of Contents

 

The following is a discussion of the key componentsof our results of operations:

 

***Source of revenues.***  We derive revenues from:

 

·                  Morgan’s sales of truck bodies, parts andservices;

 

·                  Morgan Olson’s sales of step van truckbodies, parts and services;

 

·                  Truck Accessories’ sales of pickup truck capsand tonneaus and trailer door and window components; and

 

·                  Specialty Manufacturing’s sales ofmanufacturing services to customers requiring precision machining of metalparts and casting services and specialty vehicles, including funeral coaches,buses and limousines, contract manufacturing services, packaging and otherproducts.

 

***Discounts, returns andallowances.***  Ourgross sales are reduced by discounts we provide to customers and returns andallowances in the ordinary course of our business.  We provide discounts as deemed necessary togenerate sales volume and remain price competitive. Discounts include paymentterm discounts and discretionary discounts from list price.

 

***Cost of sales.***  Cost of sales represents the costs directlyassociated with manufacturing our products and generally varies with the volumeof products produced. The components of cost of sales are materials, labor andoverhead including transportation costs. We have experienced significantfluctuations in transportation costs and in the cost of materials, such asaluminum, steel, fiberglass-reinforced plywood, lumber, fiberglass resin andplastic beads, over the previous year that have affected our operating profitmargins.  However, increased prices wecharge for our products and the cost to transport them mitigated the impact ofrising prices on our financial condition and results of operations. The benefitof lower raw material and transportation costs also will be mitigated by anydecrease in the prices we charge for our products necessary to remaincompetitive.  We have entered into supplycontracts for some materials at a fixed price for up to one year and in somecases prepurchased bulk quantities of materials to mitigate rising prices asdeemed necessary in this economic environment. We are increasingly sourcing materials from overseas to take advantageof lower prices.   Overhead costs areallocated to production based on labor costs and include the depreciation andamortization costs associated with the assets used in manufacturing and othercosts including rent associated with manufacturing, indirect labor and othercosts.

 

***Selling, general andadministrative expenses.***  Selling, general and administrative expensesare made up of the costs of selling our products and administrative costsrelated to information technology, accounting, finance, human resources,procurement and engineering. Costs include personnel and related costs,including travel, equipment and facility rent expense not associated withmanufacturing activities, and professional services such as audit fees.Selling, general and administrative expenses also include our costs atcorporate headquarters to manage and provide support to our operatingsubsidiaries.

 

***Other income and expense.***  Income and expenses that we incur during theyear that are nonrecurring in nature and not directly comparable to the prioryear are included in other income and expense or are separately identified.

 

**Critical accounting policies and estimates**

 

Thediscussion and analysis of financial condition and the results of operationsare based upon our consolidated financial statements, which have been preparedin conformity with accounting principles generally accepted in the UnitedStates.  The preparation of theseconsolidated financial statements requires the use of estimates that affect thereported amounts of assets, liabilities, revenues and expenses, and relateddisclosure of contingent assets and liabilities. The estimates are evaluatedcontinually, including those related to warranties offered on products,

 

22

----

Table of Contents

 

self-insurance reserves, bad debts, inventoryobsolescence, investments, intangible assets and goodwill, income taxes,financing operations, workers’ compensation insurance and contingentliabilities. The estimates are based on historical experience and on variousother assumptions that are believed to be reasonable under the circumstances,the results of which form the basis for making judgments about the carryingvalues of assets and liabilities that are not readily apparent from othersources. Actual results may differ from these estimates under differentassumptions or conditions.

 

We believe the followingare the most critical accounting policies used in the preparation of ourfinancial statements.

 

***Revenue recognition.***  Revenue is recognized upon shipment of theproduct to customers, except for Morgan and Morgan Olson where revenue isrecognized when title transfers to the customer upon final body assembly,quality inspection and customer notification. We classify amounts billed tocustomers related to shipping and handling as revenue. The costs associatedwith shipping and handling revenue are included in cost of sales.

 

***Warranties.*** Reserves for costs associated with fulfillingwarranty obligations offered on Morgan, Morgan Olson, Truck Accessories andSpecialty Vehicles Group products are established based on historicalexperience and an estimate of future claims. Increases in the incidence ofproduct defects would result in additional reserves being required in thefuture and would reduce income in the period of such determination.

 

***Self-insurance risks.***  We utilize a combination of insurancecoverage and self-insurance programs for property, casualty, workers’compensation and healthcare insurance. We use a combination of internally andactuarially determined development factors to record a fully developedself-insurance reserve to cover the self-insured portion of these risks basedon known facts and historical industry and company trends. Changes in theassumptions used could result in a different self-insurance reserve.

 

***Income taxes. ***We estimate our income taxesin each of the jurisdictions in which we operate. This process involvesestimating our current tax exposure and assessing temporary differencesresulting from the differing treatment of items for tax and financial reportingpurposes. These differences result in deferred tax assets and liabilities,which are included in the consolidated balance sheets. We then assess thelikelihood that the deferred tax assets will be recovered from future taxableincome and, to the extent recovery is not likely, a valuation allowance isestablished thereby reducing the deferred tax asset. When an increase in thisallowance within a period is recorded, we include an expense in the taxprovision in the consolidated statements of operations. Management’s judgmentis required in determining the provision for income taxes, deferred tax assetsand liabilities, and any valuation allowance recorded against the net deferredtax assets. We had alternative minimum tax credit carryforward deferred taxassets of approximately $0.8 million at December 31, 2008 and 2007, forU.S. federal income tax purposes, which may be carried forwardindefinitely.   We had a capital losscarryforward deferred tax asset of approximately $1.4 million at December 31,2007 of which $1.1 million was utilized during the year ended December 31,2008, and the remaining balance of $0.3 million expired.  At December 31, 2008 and 2007, we had astate tax net operating loss carryforward deferred tax asset of $3.9 millionand $3.7 million, respectively, and at December 31, 2008 and 2007, we hadrecorded a valuation allowance of $2.5 million against the portion of whichrealization is uncertain.  We hadCanadian tax net operating losses of approximately $4.7 million and $6.6million and recognized a deferred tax asset of $1.5 million and $2.5 million asof December 31, 2008 and 2007, respectively.  As of December 31, 2008 and 2007, we hadrecorded a valuation allowance of $1.5 million and $0.7 million, respectively,against the portion of the deferred tax asset for which realization isuncertain.  Canadian net operating lossesof $4.3 million were carried back to prior years.  The remaining Canadian net operating losscarryforwards expire at various dates ranging from 1 to 20****years.  While our deferred tax assets, net of thevaluation allowance, are considered realizable, actual amounts could be reducedif future taxable income is not achieved.

 

In June 2006, the FASB issued FIN 48, *Accounting for Uncertainty in Income Taxes - aninterpretation of FASB Statement No. 109*. FIN 48 clarifies theaccounting for uncertainty in income taxes recognized under SFAS No. 109, *Accounting for Income Taxes*. FIN 48prescribes a recognition threshold and measurement attribute for 

 

23

----

Tableof Contents

 

financial statement recognition and measurement of atax position taken or expected to be taken in a tax return and also providesguidance on various related matters such as derecognition, interest andpenalties, and disclosure.  In connectionwith the adoption of FIN 48, we recognized an increase of approximately $0.2million to our net tax liabilities primarily related to uncertain state incometax positions, net of a federal tax benefit, which was accounted for as areduction to retained earnings as of January 1, 2007. As of January 1,2007, we had approximately $1.6 million of unrecognized state taxliabilities, and a corresponding federal tax benefit of $0.4 million, whichincluded $0.3 million of interest and penalties.  During 2007, we recorded an additionalprovision for uncertain state tax positions of $1.0 million, and acorresponding federal tax benefit of $0.3 million, related to prior year statetax positions and an additional provision for uncertain state tax positions of$0.3 million, and a corresponding federal tax benefit of $0.1 million, relatedto current year state tax positions. During 2008, we recorded a reduction inthe provision for uncertain state tax position of $0.3 million, and acorresponding federal tax increase of $0.1 million, related to prior year statetax positions and an additional provision for uncertain state tax positions of$0.2 million, and a corresponding federal tax benefit of $0.1 million, relatedto current year state tax positions. As of December 31, 2008 and 2007, wehad approximately $2.8 million and $2.9 million, respectively, of unrecognizedtax benefits related primarily to uncertain state tax liabilities, and acorresponding federal benefit of $0.8 million and $0.9 million, respectively,including approximately $0.8 million and $0.7 million, respectively, ofpossible interest and the consequential late payment penalties for each period,if assessed, of which $2.0 million and $2.1 million, respectively, ifrecognized, would reduce our income tax provision in future periods.

 

***Inventory valuation. ***Our inventories mainlyconsist of raw materials, vehicles prior to conversion, supplies andwork-in-progress. Because we primarily produce products to our customers’orders, we maintain a relatively small stock of finished goods inventories.Inventories are stated at the lower of cost (first-in, first-out method) ormarket. We record reserves against the value of inventory based upon ourdetermination that the inventory is not usable in our products. These reservesare estimates, which could vary significantly, either favorably or unfavorably,from actual requirements if future economic conditions, customer inventorylevels or competitive conditions differ from our expectations.

 

***Accounts receivable. ***We provide credit to ourcustomers in the ordinary course of business. We are not aware of anysignificant credit risks related to our customer base and do not generallyrequire collateral or other security to support customer receivables.  Specialty Vehicle Group sells to certaincustomers on extended terms and retains title to the vehicle until payment iscomplete. The carrying amount of our accounts receivable approximates the fairvalue of the receivables because of their short-term nature with paymenttypically due within 30 days of transfer of title to the product. Weestablish an allowance for doubtful accounts on a case-by-case basis when webelieve that we are unlikely to receive payment in full of amounts owed to us.We make a judgment in these cases based on available facts and circumstancesand we may record a reserve against a customer’s account receivable. Wereevaluate the reserves and adjust them as we obtain more information regardingthe account. The collectability of trade receivables could be significantlyreduced if there is a greater than expected rate of defaults or if one or moresignificant customers experience financial difficulties or are otherwise unableto make required payments.

 

***Goodwill, identifiedintangibles and long-lived assets impairment. ***We perform a test of our goodwill for potentialimpairment annually as of October 1 as prescribed by Statement ofFinancial Accounting Standards No. 142, *Goodwill andOther Intangibles.* The fairvalues of our reporting units are based on various valuation methods, includingmultiples of earnings derived from information and analysis of recentacquisitions in the marketplace for companies with similar operations anddiscounted cash flow analysis. Changes in the assumptions used in the fairvalue calculation could result in an estimated reporting unit fair value thatis below the carrying value, which may give rise to an impairment of ourgoodwill.  In addition to the annualreview, we also test for impairment of our long-lived assets, goodwill andindefinite-lived intangible assets should events or circumstances indicate apotential reduction in the fair value of those assets below their carryingvalue.  During 2008, we determined thatthe carrying value of our Federal Coach trade name was impaired due toindustry-wide reductions in profit margins that reduced the estimated amount ofthe royalty fee that the name could command 

 

24

----

Tableof Contents

 

and wrote down its value by $0.3 million.  Lastly, on an annual basis, we determine thatthe remaining lives of identified amortizable intangible assets continue to beappropriate.

 

**Comparison of 2008 to 2007**

 

***Sales.**** **Our*consolidated net salesdecreased $85.8 million, or 10.8%, to $706.4 million for 2008 compared to$792.2 million for 2007.  Excludingbusinesses acquired during 2007, consolidated net sales decreased $137.7million, or 17.9%, to $629.8 million for 2008.

 

·                  Morgan’s net sales decreased $99.0 million,or 29.7%, to $233.9 million for 2008 compared to $332.9 million for2007.  Demand for Classes 3-7 truckbodies continued at depressed levels during 2008 as a result of thedeterioration in general economic conditions. Sales of truck bodies to the commercial divisions of leasing companies,companies with fleets of delivery vehicles, truck dealers and distributors, orCommercial sales, which represented 78.4% of Morgan’s net sales in 2008compared to 83.0% percent in the prior year, decreased $93.5 million, or 33.8%,to $183.4 million on a 38.8% decline in unit shipments.  Consumer Rental sales decreased $0.8 million,or 2.1%, on a 3.6% increase in unit shipments. The average price of a Consumer Rental truck body declined 5.5% due toincreased shipments of smaller units. Other sales including sales of parts and services decreased $5.5million, or 27.1%, to $14.7 million compared to $20.1 million last year.

 

·                  Morgan Olson’s net sales decreased $5.6million, or 5.3%, to $104.4 million for 2008 compared to $110.3 million for2007.  Step van sales declined $10.9million, or 12.3%, on a 12.8% decrease in unit shipments for 2008.  Sales to customers with large fleets ofvehicles were down $13.6 million, or 67.0%, compared to the prior year.  The decrease in step van sales was partiallyoffset by a $6.3 million increase in parts and service sales to $23.0 million,compared to $16.7 million in 2007, due to an atypical $5.7 million serviceparts purchase by the United States Postal Service in the second quarter of2008.

 

·                  Truck Accessories’ net sales decreased $23.7million, or 15.2%, to $131.9 million for 2008 compared to $155.6 million for2007.   Shipments of caps and tonneausdecreased by 22.1% to approximately 135,000 units as new pickup trucks sales inthe United States and Canada decreased 26.3% from last year.  Sales of new pickup trucks declined to 2.2million units during 2008 and January 2009 projections by industryassociations indicate a further 10% decline in 2009 to approximately 2.0million units.

 

·                  Specialty Manufacturing’s net sales increasedby $43.2 million, or 22.1%, to $238.3 million for 2008 compared to$195.2 million for 2007.  Sales tocustomers in the energy services business excluding acquisitions increased 10.0%to $78.5 million compared to $71.3 million in 2007.  Acquisitions added an additional $51.9million of sales in 2008.  Demand forspecialty vehicles including funeral coaches, buses and limousines declined assales of those products decreased $13.2 million, or 18.8%, to $57.2 millioncompared to $70.4 million.   Sales ofplastics-based packaging products decreased $2.6 million, or 9.1%, to $26.1million.  Because of the recent largedecrease in the price per barrel of oil, which price per barrel has continuedto be well below the price per barrel at the end of 2007, it is likely thatdemand for the services of our energy-related machining business, whichsoftened in the second half of 2008, will continue to soften in 2009.

 

***Backlog.***** **Consolidated backlog was$149.2 million as of December 31, 2008 compared to $219.3 million as of December 31,2007.

 

·                  Morgan’s backlog at December 31, 2008was $47.6 million compared to $62.0 million at December 31, 2007. Thedecrease in backlog was due to the continued industrywide reduction in demandfor truck bodies.

 

25

----

Tableof Contents

 

·                  Morgan Olson’s backlog was $18.2 million at December 31,2008 compared to $43.5 million at December 31, 2007.  The decrease was due primarily to a decreasein demand from customers that operate large fleets.

 

·                  Truck Accessories’ backlog of approximatelytwo weeks of production was $2.2 million at December 31, 2008 compared to$3.6 million as of December 31, 2007.

 

·                  Specialty Manufacturing’s backlog at December 31,2008 decreased $28.9 million to $81.3 million compared to$110.2 million at December 31, 2007. The backlog of machining services decreased $25.4 million over last yeardue to lower demand from customers in the energy services industry in thesecond half of 2008.

 

***Costof sales and gross profit. ******Our***consolidated cost of salesdecreased by $96.4 million, or 13.6%, to $610.8 million for 2008 compared to$707.2 million for 2007. Consolidated gross profit increased by$10.7 million, or 12.6%, to $95.6 million (13.5% of net sales) for2008 compared to $84.9 million (10.7% of net sales) for 2007.  Material, labor and overhead costs made up50.3%, 14.1% and 22.0%, respectively, of cost of sales during 2008 and 53.7%,15.2% and 20.3%, respectively, during 2007. Excluding businesses acquired in 2007, our 2008 cost of sales was $554.5million and gross profit was $75.3 million (13.6% of net sales) compared to $686.6million and $80.0 million (11.8% of net sales) in 2007.

 

·                  Morgan’s gross profit decreased by$13.4 million, or 39.8%, to $20.4 million (8.7% of its net sales) for2008 compared to $33.8 million (10.2% of its net sales) for 2007.  The decline in gross profit margin was due toincreased overhead costs as a result of decreased absorption of overhead onlower production volume, partly offset by a decrease in material and laborcosts as a percentage of net sales. Morgan’s manufacturing headcount was reduced by 23.0% during 2008.

 

·                  Morgan Olson’s gross profit increased by$8.6 million, or 206.2%, to $12.8 million (12.3% of its net sales)for 2008 compared to $4.2 million (3.8% of its net sales) for 2007.  Improved manufacturing processes implementedby the new management team put in place late last year eliminated significantamounts of material waste and overtime labor costs.

 

·                  Truck Accessories’ gross profit declined by$0.2 million, or 1.0%, to $16.0 million (12.1% of its net sales) for2008 compared to $16.1 million (10.4% of its net sales) for 2007.  The gross profit margin increased due toimprovements in labor productivity and materials management.  Material and labor costs as a percentage ofnet sales decreased to 54.6% and 15.0% in 2008 compared to 55.5% and 16.8% in2007, respectively.  Overhead expenses asa percentage of net sales increased to 33.1% in 2008 compared to 31.1% in 2007as a result of lower absorption of overhead on lower production volume alongwith higher delivery costs.

 

·                  Specialty Manufacturing’s gross profitincreased $15.8 million, or 51.3%, to $46.5 million (19.5% of its net sales)for 2008 compared to $30.8 million (15.8% of its net sales) for 2007.  The gross profit increase at the machiningservices business included $16.2 million from acquisitions made during 2007,partly offset by a $3.6 million decline in gross profit at the SpecialtyVehicle Group and the packaging business due primarily to lower productionvolumes.

 

***Selling, general andadministrative expenses. ***Ourconsolidated selling, general and administrative expenses increased $1.4million, or 2.2%, to $66.3 million (9.4% of net sales) for 2008 compared to$64.9 million (8.2% of net sales) for 2007. Excluding businesses acquired in 2007, selling, general andadministrative expenses decreased $1.0 million in 2008.

 

·                  Morgan’s selling, general and administrativeexpenses decreased $1.7 million, or 8.9%, to $17.1 million (7.3% of its netsales) for 2008 compared to $18.7 million (5.6% of its net sales) for 2008primarily due to 

 

26

----

Tableof Contents

 

         lowerpersonnel costs from a 22% reduction in headcount as well as lower commissionson decreased sales.

 

·                  Morgan Olson’s selling, general andadministrative expenses increased by $0.5 million, or 7.8%, to $7.4 million(7.1% of its net sales) for 2008 compared to $6.9 million (6.2% of its netsales) for 2007 due primarily to increased sales commissions.

 

·                  Truck Accessories’ selling, general andadministrative expenses increased by $0.5 million, or 4.1%, to $13.4 million(10.2% of its net sales) for 2008 from $12.9 million (8.3% of its net sales)for 2007.  The increase was primarily dueto currency transaction gains of $0.9 million in 2007 not repeated in2008.  Truck Accessories’ manufacturingoperations in Canada have been terminated.

 

·                  Specialty Manufacturing’s selling, generaland administrative expenses increased by $3.1 million, or 19.0%, to $20.1million (8.4% of its net sales) for 2008 from $17.0 million (8.7% of itsnet sales) for 2007. The increase was due to incremental costs of $2.6 millionfrom the businesses acquired in 2007, increased sales commissions and executiveincentive payments of $1.4 million offset by a decrease of $0.9 million on a22% headcount reduction at the Specialty Vehicle Group.

 

·                  Corporate selling, general and administrativeexpenses decreased by $1.1 million, or 11.2%, to $8.4 million for 2008from $9.5 million for 2007.  The decreasewas due primarily to reduction of manufacturing process consulting expenses of$0.9 million.

 

***Closed and excess facility costs.***During 2008,Specialty Manufacturing decided on a plan to vacate one of its plants and moveproduction to others of its manufacturing plants and as a result recognized$0.7 million of noncash charges related to the write-down of property, plantand equipment.  Also, Truck Accessoriesadopted a plan to combine two of its manufacturing facilities located inElkhart, Indiana and recognized $0.1 million of noncash charges related to theimpairment in value of certain property, plant and equipment.  During 2007, Specialty Manufacturing’spackaging business closed its plant in Tennessee due to the loss of businessresulting from the elimination of a product by a major customer.  Costs associated with the closure were $0.2million. ** **During2006, Truck Accessories announced a plan to close its manufacturing facility inCanada and move production of its Raider product line to other manufacturinglocations. As a result of this decision, Truck Accessories recorded a closedand excess facility charge of $2.7 million during 2006.  The $2.7 million expense includedapproximately $1.1 million of noncash charges related to the write-down ofproperty, plant and equipment.  Thecharge also included estimated personnel costs. Manufacturing operations ceasedat this location effective February 2007.

 

***Gain on repurchase of 8.75% Notes.*** As of December 31,2008, the Company purchased $0.8 million of its 8.75% Notes on the open marketand recognized a $0.4 million gain on the transaction.

 

***Other income.***  Morgan sold its minority interest  in a truck dealership in Canada that wasacquired with the purchase of Morgan Canada in 2004 and recognized a gain of$0.4 million.  Specialty Manufacturingreceived insurance proceeds of $0.4 million arising from a storm damage claimin 2007.

 

In accordance with Statement of Financial Accounting Standard (“SFAS”) No. 144,*Impairment or Disposal of Long-Lived Assets,*the Company evaluated the carrying value of long-lived assets of its businessunits and, through a third-party analysis, determined that Federal Coach had animpairment of its acquired intangibles of $0.3 million that was recorded as areduction in other income.

 

***Operating income. ***Due to the effect of thefactors summarized above, consolidated operating income increased by$9.5 million, or 47.2%, to $29.7 million (4.2% of net sales) for 2008from $20.2 million (2.5% of net sales) for 2007.

 

27

----

Table ofContents

 

·                  Morgan’soperating income decreased by $11.4 million, or 74.3%, to$4.0 million (1.7% of its net sales) for 2008 compared to$15.4 million (4.6% of its net sales) for 2007.

 

·                  Morgan Olson’soperating income increased by $8.1 million, or 302.0%, to $5.4 million for 2008from a loss of $2.7 million for 2007.

 

·                  TruckAccessories’ operating income decreased by $0.8 million, or 24.8%, to$2.4 million (1.8% of its net sales) for 2008 compared to $3.2 million(2.1% of its net sales) for 2007.

 

·                  SpecialtyManufacturing’s operating income increased by $12.2 million, or 88.7%, to$25.9 million (10.9% of its net sales) for 2008 compared to $13.7 million(7.0% of its net sales) for 2007. Acquisitions contributed $15.2 million of operating income during theyear.

 

·                  Corporateexpenses decreased $1.5 million to $8.0 million for 2008 compared to $9.5million for 2007.

 

***Interest expense(income). ******I***nterest expense decreased $0.2million, or 1.1%, to $18.5 million (2.6% of net sales) for 2008 compared to$18.7 million (2.4% of net sales) for 2007.  We earned $0.4 million of interest income onour cash and cash equivalents during 2008 compared to $0.9 million during 2007as a result of the decrease in cash and cash equivalents during the year.

 

***Income taxes.***The effective income taxrate was 41% and 134% of income before income taxes for 2008 and 2007,respectively.  The income tax provisionfor 2008 differs from amounts computed based on the federal statutory rate as aresult of state taxes of $1.4 million, a $0.8 million increase in the valuationallowance for foreign net operating loss carryforwards, offset by a $1.0million reduction in the valuation allowance against capital loss carryforwardsand $0.3 million of research and development credits. The income tax provisionfor 2007 differs from amounts computed based on the federal statutory rate as aresult of state and foreign taxes, a $0.8 million increase in the valuation allowanceand a $0.9 million increase in reserves for uncertain tax positions.

 

**Comparison of 2007 to 2006**

 

***Sales.**** **Our*consolidated net salesdecreased $3.2 million, or 0.4%, to $792.2 million for 2007 compared to$795.4 million for 2006.  Excludingbusinesses acquired during 2007, consolidated net sales decreased $28.0million, or 3.5%, to $767.4 million for 2007.

 

·                  Morgan’s netsales decreased $46.5 million, or 12.3%, to $332.9 million for 2007compared to $379.4 million for 2006. After a 4.8% increase in sales in the six months ended June 30,2007, sales declined $56.6 million, or 33.4%, in the six months ended December 31,2007 as an industrywide decline in demand for truck bodies took effect.  Shipments decreased 17.7% for the year offsetby a 7.1% increase in the average unit price of a truck body. Sales of truckbodies to the commercial divisions of leasing companies, companies with fleetsof delivery vehicles, truck dealers and distributors, or Commercial sales,which represented 83.0% of Morgan’s net sales in 2007, decreased $47.5 million,or 14.6%, to $276.9 million.  ConsumerRental sales increased $0.6 million, or 1.7%, on a 6.0% increase in unit pricewhich was offset by a 4.1% decrease in unit shipments.  Sales of parts and services increased $2.7million to $15.7 million compared to $12.9 million last year.

 

·                  Morgan Olson’snet sales increased $9.9 million, or 9.9%, to $110.3 million for 2007 comparedto $100.4 million for 2006.  Step vanbody sales increased $5.9 million, or 7.1%, on a 4.8% increase in unitshipments.  Parts and service sales were$16.7 million in 2007 and $17.1 million in 2006.

 

·                  TruckAccessories’ net sales decreased $3.7 million, or 2.4%, to $155.6 million for2007 compared to $159.3 million for 2006.  Shipments of caps and tonneaus decreased by 7.5% to approximately173,700

 

 

28

----

Tableof Contents

 

units.   Demand for caps and tonneaus is dependent onnew pickup trucks sales which in the United States and Canada decreased 5.8%from the respective period last year to approximately 2.7 million units.

 

·                  SpecialtyManufacturing’s net sales increased by $39.3 million, or 25.2%, to$195.2 million for 2007 compared to $155.9 million for 2006.  Sales to customers in the energy servicesbusiness excluding acquisitions increased 32.3% to $71.3 million comparedto $53.9 million in 2006. Acquisitions added an additional $24.8 million of sales for 2007.  Sales at the Specialty Vehicle Groupdecreased $1.6 million, or 2.2%, to $70.4 million compared to $72.0million.  Demand for funeral products,coaches and family cars declined in 2007 after increasing in 2006 in responseto a new chassis introduction by Cadillac. Sales of funeral products decreased $11.7 million but was partially offsetby an increase in limousine, bus and van sales of $10.1 million.

 

***Backlog.***** **Consolidated backlog was$219.3 million as of December 31, 2007 compared to $198.1 million as of December 31,2006.

 

·                  Morgan’sbacklog at December 31, 2007 was $62.0 million compared to$114.6 million at December 31, 2006. The decrease in backlog was dueto a decrease in orders received for retail units in the latter half of 2007.

 

·                  Morgan Olson’sbacklog was $43.5 million at December 31, 2007 compared to$25.1 million at December 31, 2006. The increase was due primarily to an increase in UPS and DHL backlog of$16.7 million.

 

·                  TruckAccessories’ backlog of approximately two weeks of production was $3.6 millionat December 31, 2007 compared to $4.1 million as of December 31,2006.

 

·                  SpecialtyManufacturing’s backlog at December 31, 2007 increased $56.1 million to$110.2 million compared to $54.1 million at December 31,2006.  The backlog of machining servicesincreased $50.4 million over last year; acquisitions accounted for $38.9million of the increase.

 

***Costof sales and gross profit. ******Our***consolidated cost of salesincreased by $6.1 million, or 0.9%, to $707.2 million for 2007 compared to$701.1 million for 2006. Consolidated gross profit decreased by$9.4 million, or 9.9%, to $84.9 million (10.7% of net sales) for 2007compared to $94.3 million (11.9% of net sales) for 2006.  Material, labor and overhead costs made up53.7%, 15.2% and 20.3%, respectively, of sales during 2007 and 53.9%, 14.9% and19.4%, respectively, during 2006. Excluding businesses acquired in 2007, cost of sales decreased $14.7million, or 2.1%, and the gross profit was $80.8 million (10.5% of net sales).

 

·                  Morgan’s grossprofit decreased by $8.4 million, or 19.9%, to $33.8 million (10.2%of its net sales) for 2007 compared to $42.2 million (11.1% of its net sales)for 2006.  The decline in gross profitwas due primarily to lower sales which at 2006 cost levels reduced gross profitby $5.6 million; however, a $1.0 million increase in overhead costs and a $3.3million increase in material costs partly offset by labor productivityimprovements that eliminated labor costs of $1.7 million increased the declinein gross profit in 2007 to $8.4 million.

 

·                  Morgan Olson’sgross profit decreased by $4.5 million, or 52.1%, to $4.2 million(3.8% of its net sales) for 2007 compared to $8.7 million (8.7% of its netsales) for 2006.  The decrease in grossprofit was due to increased material and overhead costs of $6.4 million partlyoffset by reduced labor costs of $1.0 million and the gross profit on theincreased volume of about $0.8 million. The increase in overhead costs included amounts resulting from eventsspecific to 2007 for step van warranty repairs, unemployment insurance costsand costs associated with a failure to comply with environmental reportingrequirements that totaled about $0.6 million. Material cost increases relative to the amount of sales were primarilydue to pricing errors on our products and increased scrap.

 

 

29

----

Tableof Contents

 

·                  TruckAccessories’ gross profit declined by $3.5 million, or 17.9%, to$16.1 million (10.4% of its net sales) for 2007 compared to$19.6 million (12.3% of its net sales) for 2006. Gross profit decreased$3.5 million due to lower volumes ($0.4 million), increased labor and overheadof $6.2 million (of which we estimate $4.0 million was the result of productionproblems arising from the move of the Canadian operation to two plants in theU.S.) partly offset by a reduction in material costs of $3.1 million (primarilydue to the benefits derived from the acquisition of a key component supplier,State Wide, in March 2006).

 

·                  SpecialtyManufacturing’s gross profit increased $7.1 million, or 30.0%, to $30.8 million(15.8% of its net sales) for 2007 compared to $23.7 million (15.2% of itsnet sales) for 2006.  Gross profitincreased $11.2 million, or 120%, at the machining services business including$4.2 million from acquisitions made during 2007, partly offset by a $4.1million decline in gross profit at the Specialty Vehicle Group and thepackaging business due primarily to lower production volumes.

 

***Selling, general andadministrative expenses. ***Ourconsolidated selling, general and administrative expenses increased $1.9million, or 3.0%, to $64.9 million (8.2% of net sales) for 2007 compared to$63.0 million (7.9% of net sales) for 2006. Excluding businesses acquired in 2007 selling, general andadministrative expenses increased $0.2 million (also 8.2% of net sales).

 

·                  Morgan’sselling, general and administrative expenses decreased $2.0 million, or 9.6%,to $18.7 million (5.6% of its net sales) for 2007 compared to$20.7 million (5.5% of its net sales) for 2006 due to lower spending on anEnterprise Resource Planning (ERP) implementation and lower sales commissions.

 

·                  Morgan Olson’sselling, general and administrative expenses increased by $0.9 million, or15.3%, to $6.9 million (6.2% of its net sales) for 2007 compared to$6.0 million (5.9% of its net sales) for 2006 due primarily to increasedsales personnel and increased commissions.

 

·                  TruckAccessories’ selling, general and administrative expenses decreased by $0.5million, or 3.9%, to $12.9 million (8.3% of its net sales) for 2007 from $13.4million (8.4% of its net sales) for 2006.

 

·                  SpecialtyManufacturing’s selling, general and administrative expenses increased by $2.9million, or 20.3%, to $17.0 million (8.7% of its net sales) for 2007 from$14.1 million (9.0% of its net sales) for 2006.  Businesses acquired in 2007 added $1.7million of expense and expenses increased at the manufacturing servicesoperations by $1.2 million due to higher sales commissions and executiveincentive payments on improved performance.

 

·                  Corporateselling, general and administrative expenses increased by $0.6 million, or7.0%, to $9.5 million for 2007 from $8.9 million for 2006.  The increase was due to increases in ERPimplementation costs of $1.1 million, acquisition-related costs of $0.5million, costs associated with the documentation and testing of internalcontrols of $0.5 million and increases in casualty insurance reserves of $0.5million all partly offset by a $2.0 million reduction in spending onmanufacturing consultants.

 

***Closed and excess facility costs.***During 2007, SpecialtyManufacturing’s packaging business closed its plant in Tennessee due to theloss of business resulting from the elimination of a product by a majorcustomer.  Costs associated with theclosure were $0.2 million. ** **During 2006, Truck Accessoriesannounced a plan to close its manufacturing facility in Canada and moveproduction of its Raider product line to other manufacturing locations. As aresult of this decision, Truck Accessories recorded a closed and excessfacility charge of $2.7 million during 2006. The $2.7 million expense included approximately $1.1 million of noncashcharges related to the write-down of property, plant and equipment andestimated personnel costs. Manufacturing operations ceased at the Canadianlocation effective February 2007.

 

***Operating income. ***Due to the effect of thefactors summarized above, consolidated operating income decreased by$8.6 million, or 29.9%, to $20.2 million (2.5% of net sales) for 2007from $28.8 million (3.6% of net sales) for 2006.

 

 

30

----

Table ofContents

 

·                  Morgan’soperating income decreased by $6.2 million, or 28.7%, to$15.4 million (4.6% of its net sales) for 2007 compared to$21.6 million (5.7% of its net sales) for 2006.

 

·                  Morgan Olson’soperating income decreased by $5.5 million to a loss of $2.7 million for 2007from income of $2.8 million (2.8% of its net sales) for 2006.

 

·                  TruckAccessories’ operating income decreased by $0.3 million, or 9.3%, to$3.2 million (2.1% of its net sales) for 2007 compared to $3.5 million(2.2% of its net sales) for 2006.

 

·                  SpecialtyManufacturing’s operating income increased by $3.9 million, or 40.7%, to$13.7 million (7.0% of its net sales) for 2007 compared to $9.8 million(6.2% of its net sales) for 2006. Acquisitions contributed $2.5 million of operating income during theyear.

 

·                  Corporateexpenses increased $0.6 million to $9.5 million for 2007 compared to $8.9million for 2006.

 

***Interestexpense (income).  ******I***nterest expense decreased$0.2 million, or 1.2%, to $18.7 million (2.4% of net sales) for 2007 compared to$18.9 million (2.4% of net sales) for 2006.  The decrease was due to about $0.6 million ofcapitalized interest associated with our ERP project.  We earned $0.9 million of interest income onour cash and cash equivalents during 2007 compared to $1.8 million during2006.  The reduction in interest incomewas a result of a decrease in cash and cash equivalents.

 

***Income taxes.***The effectiveincome tax rate was 134% and 29% of income before income taxes for 2007 and2006, respectively.  The income taxprovision for 2007 differs from amounts computed based on the federal statutoryrate as a result of state and foreign taxes, a $0.8 million increase in thevaluation allowance for foreign net operating loss carryforwards and $0.9million increase in reserves for uncertain tax positions. The income taxprovision for 2006 differs from amounts computed based on the federal statutoryrate as a result of state and foreign taxes, a $0.7 million benefit from anincrease in the state net operating loss carryforwards and other items.

 

**Liquidity and capital resources**

 

Historically,we have funded our operations with cash available from the proceeds of our8.75% Notes, cash generated from operations and borrowings under our revolvingcredit facility, as needed.  Working capitalat December 31, 2008 was $99.2 million compared to $83.3 million at December 31,2007.  Our cash and cash equivalentsincreased by $29.6 million as a result of cash provided by operating activitiesof $45.5 million reduced by cash used in investing activities of $8.6 millionand cash used in financing activities of $6.1 million.  Due to the decrease in business activity as aresult of the general decline in economic activity in 2008, working capital,excluding cash and cash equivalents, decreased $13.7 million with a decrease inaccounts receivable of $8.6 million, a decrease in inventories of $9.2 millionoffset by a decrease in accounts payable of $4.7 million.  Average accounts receivable days salesoutstanding at December 31, 2008 were approximately 22 compared to 24 at December 31,2007 and inventory turns during 2008 were approximately 9.0 compared to 8.8during 2007.  Excluding vehicle chassisat Specialty Vehicle Group (vehicle chassis remain in inventory for extendedperiods of time and amounted to $6.2 million and $11.7 million at December 31,2008 and 2007, respectively) inventory turns were 9.0 and 10.7 for 2008 and2007, respectively.

 

***Operating cash flows. ***Operating activities during2008 generated cash of $45.5 million compared to $30.8 million in 2007 and$3.0 million in 2006. The increase in net cash generated by operatingactivities during 2008 was due primarily to a $9.5 million increase inoperating income, a $3.1 million increase in cash from the liquidation ofworking capital and a $2.6 million increase in depreciation and amortization.

 

The increase in cash from operating activitiesduring 2007 compared to 2006 was due principally to a decrease in workingcapital, primarily accounts receivable and inventories of $25.2 million.

 

 

31

----

Table ofContents

 

***Investing cash flows. ******Net cash used in investing activities decreased $47.2million in 2008 compared to 2007 primarily because there were no acquisitionsin 2008 as compared to three in 2007. Capital expenditures were $14.7 million compared to $14.3 million in theprior year, partly offset in 2008 by proceeds from the disposition of three ofMorgan’s manufacturing properties to Poindexter Properties, LLC, an entityowned by John Poindexter, for $7.1 million (see Note 17 to the consolidatedfinancial statements).***

 

***In 2007, w***e acquired MICDuncan for cash of $12.6 million, MIC Tarlton for cash of $18.4 million and MICHouston for cash of $10.6 million.  Theseacquisitions were paid for with proceeds from our 8.75% Note offerings and cashgenerated by operations.   In 2008, therewere no acquisitions.

 

Capitalexpenditures during 2008 were $14.7 million and were ***comprised of machinery andequipment of $9.2 million for Specialty Manufacturing and new product molds of$3.0 million for Truck Accessories.  Weacquired approximately $0.4 million of equipment under capital leases that werenot included in capital expenditures.***As of December 31,2008, we had no significant open commitments for capital expenditures.

 

***Financing cash flows. ******Net cash used by financing activities totaled $6.1million in 2008 as opposed to generating cash of $1.5 million in 2007.  Our Revolving Credit Agreement expired March 15,2009; however neither party to the agreement gave notice of termination and itautomatically was extended for an additional year ending on March 15,2010.***

 

***During 2008, w***e repaid $3.3million of our revolver borrowings as well as $2.8 million of long-term debtand capital lease commitments.

 

At December 31, 2008, the Consolidated CoverageRatio, as defined in the indenture relating to our 8.75% Notes, was 2.6 to 1.0.As a result, we are able to incur additional borrowings including capitalleases to finance capital expenditures. Our indenture and revolving creditfacility restrict our ability to incur debt, pay dividends and undertakecertain corporate activities. We are in compliance with the terms of theindenture and revolving credit facility.

 

The revolving credit facility provides for availableborrowings of up to $50.0 million in revolving loans. Available borrowingsare subject to a borrowing base of eligible accounts receivable, inventory,machinery and equipment, and real estate. Borrowings under our revolving creditfacility are collateralized by substantially all of our assets and the assetsof our existing subsidiaries. Our revolving credit facility also includes asub-facility for up to $15.0 million of letters of credit. As of December 31,2008, we had $0.4 million of borrowings under the facility, $2.4 millionof letters of credit outstanding and our borrowing base would have supporteddebt borrowings of the entire $50.0 million under our revolving creditfacility.

 

In addition, the revolving credit facility includescovenants that place various restrictions on us, including limitation on ourability to:

 

·                  incuradditional debt;

 

·                  create orbecome subject to liens or guarantees;

 

·                  makeinvestments or loans;

 

·                  pay dividendsor make distributions;

 

·                  prepay the8.75% Notes or other debt;

 

·                  merge withother entities or make acquisitions or dissolve;

 

·                  sell assets;

 

 

32

----

Tableof Contents

 

·                  change fiscalyear or amend organizational documents or terms of any subordinated debt;

 

·                  enter intoleases; and

 

·                  enter intotransactions with affiliates.

 

We believe that we will have adequate resources tomeet our working capital and capital expenditure requirements consistent withpast trends and practices for at least the next twelve months.Additionally, we believe that our cash and borrowing availability under therevolving credit facility will satisfy our cash requirements for the comingyear, given our anticipated capital expenditures, working capital requirementsand known obligations. Our ability to make payments on our debt, including the8.75% Notes, and to fund planned capital expenditures will depend on ourability to generate cash in the future. This is subject to general economicconditions, other factors influencing the industries in which we operate andcircumstances that are beyond our control. We cannot be certain that we will generate sufficient cash flows, and ifwe do not, we may have to engage in other activities such as the sale of assetsto meet our cash requirements.

 

**Off-balance-sheet arrangements**

 

We have no off-balance-sheet arrangements.

 

**Commitments and capital expenditures**

** **

We have entered into an agreement with a major paintmanufacturer under which Truck Accessories, Morgan, Morgan Olson and SpecialtyVehicle Group are committed to buying principally all of their automotive paintfor five years ending October 2009. We receive favorable pricing in return for the commitment and estimatethat we will purchase approximately $4.8 million of paint products during 2009under this agreement.  We sometimescommit to the purchase of aluminum based on expected levels of future productionand at December 31, 2008 Morgan and Morgan Olson had a combined commitmentof $3.0 million to buy aluminum through June 2009.  We did not have any material commitments toacquire new capital equipment as of December 31, 2008.

 

Certain cash contractual obligations of ours as of December 31,2008 are summarized in the table below.

 
| **Obligations (Dollars in millions)** | ** ** | **Total** | ** ** | **Less than  1 year** | ** ** | **1-3  years** | ** ** | **4-5  years** | ** ** | **After 5  years** | ** ** |
|---------------------------------------|------------|-----------|------------|-----------------------|------------|----------------|------------|----------------|------------|--------------------|------------|
| 8.75% Notes,  excluding interest      |       | $         | 199.2      |                  | $          | —         |       | $              | —     |               | $          | — |   | $ | 199.2 |   |
| Operating leases                      |       | 36.1      |       | 9.5                   |       | 13.1           |       | 8.0            |       | 5.5                |       |
| Capital leases                        |       | 6.5       |       | 2.3                   |       | 3.4            |       | 0.8            |       | —             |       |
| Total                                 |       | $         | 241.8      |                  | $          | 11.8           |       | $              | 16.5       |               | $          | 8.8 |   | $ | 204.7 |   |

 

The Company has recorded along-term liability of approximately $2.8 million as of December 31, 2008related to uncertain tax positions in accordance with FIN 48.  Given the uncertainty of these positions, thecompany has not reflected obligations in the above table.

 

**Other matters**

 

We are significantly leveraged and will continue tobe significantly leveraged. We had $23.8 million and $18.3 million ofstockholder’s equity at December 31, 2008 and 2007, respectively. Weoperate in cyclical businesses and the markets for our products are highlycompetitive. In addition, we have two customers that accounted for 16% of 2008consolidated net sales and our top ten customers accounted for 44% of our 2008consolidated net sales.

 

We continually evaluate, depending on marketconditions, the most efficient use of our capital and contemplate variousstrategic options, which may include, without limitation, restructuring ourbusiness, indebtedness or capital

 

 

33

----

Tableof Contents

 

structure. Accordingly, we or our subsidiaries mayfrom time to time consider, among other things, purchasing, refinancing orotherwise retiring certain outstanding indebtedness (whether in the open marketor by other means), public or private issuances of debt or equity securities,joint venture transactions, acquisitions or dispositions, new borrowings,tender offers, exchange offers or any combination thereof, although there canbe no assurances that such financing sources will be available on commerciallyreasonable terms. Additionally, there can be no assurances that these strategicoptions, if pursued, will be consummated or, if consummated, what effect theywill have on us.

 

Historically, inflation has not materially affectedour business; however, a rapid acceleration of material price inflation reducedour operating profit margins during 2005 and 2004.  We believe that we increased our sellingprices to levels necessary to offset the raw material cost inflation that wasexperienced during both 2005 and 2004. We implemented further price increases at Morgan, Truck Accessories andSpecialty Manufacturing during 2006, 2007 and 2008 but cannot predict theimpact, if any, of future raw material price increases on ourprofitability.  Recent economicconditions have resulted in declines in raw material prices but we cannotpredict the effect that this will have on the selling price of our manufacturedproducts.  Operating expenses, such assalaries and team member benefits, are subject to normal inflationary pressures.

 

During 2008, Poindexter Properties, LLC, which iswholly owned by Mr. Poindexter, purchased three real estate propertiesfrom Morgan for approximately $7.1 million in cash and is leasing theproperties back to Morgan.  Morganrecognized a deferred gain of approximately $1.9 million in thistransaction.  The transaction wasfinanced by an independent lender and the properties were sold for pricesdetermined by an independent appraisal.

 

During2006, we paid $0.3 million in fees to Southwestern Holdings, Inc. (“Southwestern”),which is wholly owned by Mr. Poindexter, for services provided by Mr. Poindexterduring 2006. Beginning in July 2006, Mr. Poindexter began receiving asalary from the Company.  Effective July 31,2008, Mr. Poindexter ceased receiving a salary from the Company and we paid$0.2 million in fees to Southwestern Holdings for the services of Mr. Poindexterduring 2008.

 

Southwesternwas a named insured under the Company’s general liability and excessumbrella insurance policies during 2007 when Southwestern became the defendantin a suit for damages resulting from a vehicle accident not involving theCompany’s assets or any of its team members.  The lawsuit was settledduring 2008 and Southwestern paid the amount of the self-insured reserve of$0.3 million.  Southwestern is no longer a named insured under the Company’sgeneral liability policy effective July 1, 2007.  Any increased premiums under the Company’sumbrella policy incurred in the future by the Company by reason of thesettlement will be reimbursed by Southwestern.

 

**Recentlyissued accounting standards**

 

Theeffect of recently issued accounting standards on the Company is addressed inNote 2 to the consolidated financial statements.

 

**Item 7A.                 Quantitative and QualitativeDisclosure About Market Risks**

 

We are subject to certain market risks, including interest rate riskand foreign currency risk. The adverse effects of potential changes in thesemarket risks are discussed below.  Seethe notes to our consolidated financial statements elsewhere in this 10-K for adescription of our accounting policies and other information related to thesefinancial instruments.

 

***Variable-rate debt. ******From time to time,*********we borrow funds under ourrevolving credit facility. The interest rates on the revolving credit facilityare based upon a spread above either the prime interest rate or the LondonInterbank Offered Rate (LIBOR), which rate used is determined at ouroption.  At December 31, 2008 and2007, we had $0.4 million and $3.6 million of revolver borrowings outstanding,respectively.

 

***Fixed-rate debt. ***As of December 31,2008, the Company had $199.2 million of 8.75% Notes outstanding, with anestimated fair value of approximately $92.5****million and$103.5 million based upon the traded value at December 31, 

 

 

34

----

 

2008 and March 19, 2009, respectively. Marketrisk, estimated as the potential increase in fair value resulting from ahypothetical 1.0% decrease in interest rates, was approximately $3.8 million asof December 31, 2008.

 

***Foreign currency. ***Morgan has a manufacturingplant in Canada that during 2008 generated sales of approximately $14.1 millionfor the year. The functional currency of Morgan’s Canadian operations is theCanadian dollar.  Specialty Manufacturinghas a plant in Mexico; however, the functional currency is the U.S.dollar.  We do not currently employ riskmanagement techniques to manage potential exposure to foreign currencyfluctuations.

 

 

35

----

 

**Table of Contents**

** **

**Item  8.                   Financial Statements andSupplementary Data**

** **
| **J.B. Poindexter & Co., Inc. and  Subsidiaries**                                                                                                                  | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                                                                                             |       |
| Report  of Independent Registered Public Accounting Firm as of December 31, 2008  and 2007 and for each of the years in the three year period ended  December 31, 2008 | 37         |
| Financial Statements:                                                                                                                                                            |       |
| Consolidated  Balance Sheets                                                                                                                                                     | 38         |
| Consolidated  Statements of Operations                                                                                                                                           | 39         |
| Consolidated  Statements of Stockholder’s Equity                                                                                                                            | 40         |
| Consolidated Statements of Cash Flows                                                                                                                                            | 41         |
| Notes to Consolidated Financial Statements                                                                                                                                       | 42         |

 

 

36

----

Table ofContents

 

**Reportof Independent Registered Public Accounting Firm**

 

Board of Directors and Stockholder ofJ.B. Poindexter & Co., Inc.

 

We have audited the accompanying consolidatedbalance sheets of J.B. Poindexter & Co., Inc. and subsidiaries(Company) as of December 31, 2008 and 2007, and the related consolidatedstatements of operations, stockholder’s equity, and cash flows for each of thethree years in the period ended December 31, 2008.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal controls over financial reporting.  Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting.  Accordingly, we express nosuch opinion.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, the consolidated financialstatements referred to above present fairly, in all material respects, thefinancial position of J.B. Poindexter & Co., Inc. andsubsidiaries as of December 31, 2008 and 2007, and the results of theiroperations and their cash flows for each of the three years in the period endedDecember 31, 2008 in conformity with U.S. generally accepted accountingprinciples.

 

/s/ CROWE HORWATH LLP

 

South Bend, IndianaMarch 31**,**2009

 

37

----

Table of Contents

 

**J.B.POINDEXTER & CO., INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**(Dollars in Thousands)**

 
| ** **                                                                     | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                     | ** ** | **2008**              | ** ** | **2007** | ** ** |
| **Assets**                                                                     |       |                  |       |   |   |
| Current assets                                                                 |       |                  |       |   |   |
| Cash and cash  equivalents                                                     |       | $                     | 36,251     |   | $ | 6,684 |   |
| Accounts  receivable, net                                                      |       | 42,668                |       | 52,446 |   |
| Inventories, net                                                               |       | 68,071                |       | 79,443 |   |
| Deferred income  taxes                                                         |       | 2,123                 |       | 2,038 |   |
| Income tax  receivable                                                         |       | 4,589                 |       | 5,665 |   |
| Prepaid expenses  and other                                                    |       | 2,715                 |       | 2,430 |   |
| Total current  assets                                                          |       | 156,417               |       | 148,706 |   |
| Property, plant  and equipment, net                                            |       | 73,699                |       | 80,125 |   |
| Goodwill                                                                       |       | 35,550                |       | 35,317 |   |
| Intangible  assets, net                                                        |       | 17,147                |       | 19,656 |   |
| Deferred income  taxes                                                         |       | —                |       | 252 |   |
| Other assets                                                                   |       | 13,125                |       | 13,097 |   |
| Total assets                                                                   |       | $                     | 295,938    |   | $ | 297,153 |   |
| **Liabilities  and stockholder’s equity**                                 | ** ** | ** **            | ** ** | ** ** | ** ** |
| Current liabilities                                                            |       |                  |       |   |   |
| Current portion  of long-term debt                                             |       | $                     | 2,574      |   | $ | 2,669 |   |
| Borrowings under  revolving credit facility                                    |       | 417                   |       | 3,637 |   |
| Accounts payable                                                               |       | 26,825                |       | 31,925 |   |
| Accrued  compensation and benefits                                             |       | 8,718                 |       | 8,841 |   |
| Other accrued  liabilities                                                     |       | 18,731                |       | 18,373 |   |
| Total current  liabilities                                                     |       | 57,265                |       | 65,445 |   |
| Noncurrent  liabilities                                                        |       |                  |       |   |   |
| Long-term debt,  less current portion                                          |       | 204,411               |       | 207,313 |   |
| Deferred income  taxes                                                         |       | 2,869                 |       | — |   |
| Employee benefit  obligations and other                                        |       | 7,605                 |       | 6,126 |   |
| Total noncurrent  liabilities                                                  |       | 214,885               |       | 213,439 |   |
| Stockholder’s  equity                                                     |       |                  |       |   |   |
| Common stock,  par value $0.01 per share (3,059 shares issued and outstanding) |       | —                |       | — |   |
| Capital in  excess of par value of stock                                       |       | 19,486                |       | 19,486 |   |
| Accumulated  other comprehensive income (loss)                                 |       | (254                  | )          | 1,017 |   |
| Retained earnings  (accumulated deficit)                                       |       | 4,556                 |       | (2,234 | ) |
| Total  stockholder’s equity                                               |       | 23,788                |       | 18,269 |   |
| Total  liabilities and stockholder’s equity                               |       | $                     | 295,938    |   | $ | 297,153 |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

 

 

38

----

Table ofContents

 

**J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTSOF OPERATIONS**

**(Dollars in Thousands)**

 
| ** **                                   | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------|------------|-----------------------------------|------------|
| ** **                                   | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net sales                                    |       | $                                 | 706,409    |   | $ | 792,161 |   | $ | 795,379 |   |
| Cost of sales                                |       | 610,799                           |       | 707,244 |   | 701,111 |   |
| Gross profit                                 |       | 95,610                            |       | 84,917 |   | 94,268 |   |
| Selling, general  and administrative expense |       | 66,290                            |       | 64,914 |   | 63,034 |   |
| Closed and  excess facility costs            |       | 788                               |       | 166 |   | 2,678 |   |
| Gain on repurchase  of 8.75% Notes           |       | (416                              | )          | — |   | — |   |
| Other income                                 |       | (733                              | )          | (323 | ) | (202 | ) |
| Operating income                             |       | 29,681                            |       | 20,160 |   | 28,758 |   |
| Interest expense                             |       | 18,491                            |       | 18,698 |   | 18,929 |   |
| Interest income                              |       | (410                              | )          | (877 | ) | (1,766 | ) |
| Income from operations  before income taxes  |       | 11,600                            |       | 2,339 |   | 11,595 |   |
| Income tax  provision                        |       | 4,810                             |       | 3,124 |   | 3,370 |   |
| Net income  (loss)                           |       | $                                 | 6,790      |   | $ | (785 | ) | $ | 8,225 |   |

 

*The accompanying notes arean integral part of these consolidated financial statements.*

 

 

39

----

Table of Contents

 

**J.B. POINDEXTER & CO.,INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTSOF STOCKHOLDER’S EQUITY**

**(Dollars in Thousands)**

 
| **For the years ended December 31, 2008, 2007 and 2006**          | ** ** | **Shares  of  common  stock** | ** ** | **Common  stock and  paid-in  capital** | ** ** | **Retained********earnings  (accumulated********deficit)** | ** ** | **Accumulated  other  comprehensive  income (loss)** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------------|------------|-------------------------------|------------|-----------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------|------------|
| **January 1,  2006**                                              |       | 3,059                         |       | $                                       | 19,486     |                                                       | $          | (9,825                                               | )          | $         | (10        | ) | $ | 9,651 |   |
| Cumulative  effect adjustment,adoption of SAB No. 108, net of tax |       | —                        |       | —                                  |       | 372                                                        |       | —                                               |       | 372       |       |
| Net income                                                             |       | —                        |       | —                                  |       | 8 ,225                                                     |       | —                                               |       | 8,225     |       |
| Translation  adjustment                                                |       | —                        |       | —                                  |       | —                                                     |       | 86                                                   |       | 86        |       |
| Comprehensive  income                                                  |       |                          |       |                                    |       |                                                       |       |                                                 |       | 8,311     |       |
| **December 31,  2006**                                            |       | 3,059                         |       | 19,486                                  |       | (1,228                                                     | )          | 76                                                   |       | 18,334    |       |
| Adjustment for  adoption of FIN 48                                     |       | —                        |       | —                                  |       | (221                                                       | )          | —                                               |       | (221      | )          |
| Net loss                                                               |       | —                        |       | —                                  |       | (785                                                       | )          | —                                               |       | (785      | )          |
| Translation  adjustment                                                |       | —                        |       | —                                  |       | —                                                     |       | 941                                                  |       | 941       |       |
| Comprehensive  income                                                  |       |                          |       |                                    |       |                                                       |       |                                                 |       | 156       |       |
| **December 31,  2007**                                            |       | 3,059                         |       | 19,486                                  |       | (2,234                                                     | )          | 1,017                                                |       | 18,269    |       |
| Net income                                                             |       | —                        |       | —                                  |       | 6,790                                                      |       | —                                               |       | 6,790     |       |
| Translation  adjustment                                                |       | —                        |       | —                                  |       | —                                                     |       | (1,271                                               | )          | (1,271    | )          |
| Comprehensive  income                                                  |       |                          |       |                                    |       |                                                       |       |                                                 |       | 5,519     |       |
| ** **                                                             |       | 3,059                         |       | $                                       | 19,486     |                                                       | $          | 4,556                                                |       | $         | (254       | ) | $ | 23,788 |   |

 

*The accompanying notes arean integral part of these consolidated financial statements.*

 

** **

**40**

----

** **

Table of Contents

 

**J.B. POINDEXTER & CO., INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTSOF CASH FLOWS**

**(Dollars in Thousands)**

* *
| ** **                                                                                      | ** ** | **Years ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                      | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Cash flows from  operating activities:                                                          |       |                              |       |   |   |   |   |
| Net income  (loss)                                                                              |       | $                                 | 6,790      |   | $ | (785 | ) | $ | 8,225 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities:       |       |                              |       |   |   |   |   |
| Depreciation and  amortization                                                                  |       | 17,658                            |       | 15,063 |   | 12,017 |   |
| Amortization of  debt issuance costs                                                            |       | 691                               |       | 791 |   | 761 |   |
| Gain on  redemption of 8.75% Notes                                                              |       | (416                              | )          | — |   | — |   |
| Closed and  excess facility costs                                                               |       | —                            |       | — |   | 1,161 |   |
| Provision for  excess and obsolete inventory                                                    |       | 2,218                             |       | 1,796 |   | 1,397 |   |
| Provision for  doubtful accounts receivable                                                     |       | 1,181                             |       | 64 |   | 333 |   |
| Loss (gain) on  sale of property, plant and equipment                                           |       | 199                               |       | (81 | ) | (7 | ) |
| Deferred income  tax provision (benefit)                                                        |       | 3,036                             |       | 616 |   | (434 | ) |
| Impairment of  intangible assets                                                                |       | 300                               |       | — |   | — |   |
| Other                                                                                           |       | 127                               |       | (178 | ) | 393 |   |
| Change in assets  and liabilities, net of the effect of business acquisitions and dispositions: |       |                              |       |   |   |   |   |
| Accounts  receivable                                                                            |       | 8,594                             |       | 17,571 |   | (13,092 | ) |
| Inventories                                                                                     |       | 9,179                             |       | 7,635 |   | (14,655 | ) |
| Prepaid expenses  and other                                                                     |       | (93                               | )          | (533 | ) | (103 | ) |
| Accounts payable                                                                                |       | (4,715                            | )          | (4,256 | ) | 1,412 |   |
| Accrued income  taxes                                                                           |       | 1,076                             |       | (4,414 | ) | 1,784 |   |
| Other accrued  liabilities                                                                      |       | (355                              | )          | (2,520 | ) | 3,847 |   |
| Net cash  provided by operating activities                                                      |       | 45,470                            |       | 30,769 |   | 3,039 |   |
| Cash flows from  investing activities:                                                          |       |                              |       |   |   |   |   |
| Acquisition of  businesses, net of cash acquired                                                |       | (233                              | )          | (41,673 | ) | (13,897 | ) |
| Proceeds from  disposition of business, property, plant and equipment                           |       | 7,135                             |       | 89 |   | 214 |   |
| Purchase of  property, plant and equipment                                                      |       | (14,719                           | )          | (14,312 | ) | (13,874 | ) |
| Proceeds from  sale of short-term investments                                                   |       | —                            |       | — |   | 15,266 |   |
| Issuance of  insurance collateral deposits                                                      |       | (736                              | )          | (348 | ) | (659 | ) |
| Other                                                                                           |       | —                            |       | 455 |   | — |   |
| Net cash used in  investing activities                                                          |       | (8,553                            | )          | (55,789 | ) | (12,950 | ) |
| Cash flows from  financing activities:                                                          |       |                              |       |   |   |   |   |
| Net proceeds  from revolving credit facility                                                    |       | (3,321                            | )          | 3,637 |   | — |   |
| Payments of  long-term debt and capital leases                                                  |       | (2,758                            | )          | (2,177 | ) | (1,583 | ) |
| Net cash  provided by (used in) financing activities                                            |       | (6,079                            | )          | 1,460 |   | (1,583 | ) |
| Effect of  exchange rate on cash                                                                |       | (1,271                            | )          | 940 |   | (57 | ) |
| Change in cash  and cash equivalents                                                            |       | 29,567                            |       | (22,620 | ) | (11,551 | ) |
| Cash and cash  equivalents, beginning of year                                                   |       | 6,684                             |       | 29,304 |   | 40,855 |   |
| Cash and cash  equivalents, end of year                                                         |       | $                                 | 36,251     |   | $ | 6,684 |   | $ | 29,304 |   |

 

*The accompanying notes arean integral part of these consolidated financial statements.*

 

 

41

----

Table of Contents

 

**J.B. POINDEXTER &CO., INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(Dollars in Thousands)**

 

**1.             Organization & Business**

** **

J.B. Poindexter & Co., Inc. (“JBPCO”)and its subsidiaries or business units (the “Subsidiaries” or “business units”and together with JBPCO, the “Company”) operate primarily manufacturingbusinesses principally in North America. JBPCO is owned and controlled by JohnPoindexter.

 

The Company acquired five businesses during thethree years ended December 31, 2008 (see Note 4).

 

The Company’s operating segments are as follows:

 

***Morgan Truck Body, LLC (“Morgan”)*** manufacturestruck bodies in the United States and Canada for dry freight and refrigeratedtrucks and vans (excluding those made for pickup trucks and tractor-trailertrucks).  Morgan’s operations include itsCanadian subsidiary Morgan Canada (f/k/a Commercial Babcock, Inc.).  The truck bodies are attached to truckchassis provided by its customers. Customers include truck rental and leasing companies, truck dealers andcompanies that operate fleets of delivery vehicles. The principal raw materialsused by Morgan include steel, aluminum, fiberglass-reinforced plywood,hardwoods and lubricants acquired from a variety of sources.

 

***Morgan Olson, LLC (“MorganOlson”)*** manufactures step van bodies for parcel, food,newspaper, uniform, linen and other delivery applications. Step vans arespecialized vehicles designed for multiple-stop applications and enable thedriver of the truck to easily access the cargo area. Morgan Olson manufacturesthe complete truck body, including the fabrication of the body, theinstallation of windows, doors, the instrument panel, seating and wiring andfinishing the truck with paint and decal application. The step van bodies areinstalled on truck chassis provided by Morgan Olson’s customers. The principalraw materials used by Morgan Olson include steel and aluminum and a variety ofautomotive components.

 

***Truck Accessories Group, LLC(“Truck Accessories”)*** manufactures pickup truckcaps and tonneau covers, which are fabricated enclosures that fit over the openbeds of pickup trucks, converting the beds into weatherproof storage areas.Truck Accessories’ brands include Leer, Century, Raider, Pace Edwards, andState Wide Aluminum, which was acquired on March 17, 2006 (see Note4).  The principal raw materials used byTruck Accessories are resin, fiberglass, paint, glass and manufacturedcomponents such as locks and gas struts.

 

***Specialty ManufacturingDivision (“Specialty Manufacturing”)*** is comprised of theSpecialty Vehicle Group, MIC Group, LLC (“MIC Group”) and EFP, LLC (“EFP”). TheSpecialty Vehicle Group is comprised of Federal Coach, LLC (“Federal Coach”)and Eagle Specialty Vehicles, LLC (“Eagle Coach”).  The Specialty Vehicle Group manufacturesfuneral coaches, limousines and specialty buses.  MIC Group acquired three companies during2007. Effective April 30, August 23 and September 4, 2007, itacquired MIC Duncan (f/k/a Richard’s Manufacturing Co., Inc.), MIC Tarlton(f/k/a Tarlton Supply Company) and MIC Houston (f/k/a Machine and ManufacturingI, Inc.), respectively.  Effective December 31,2008, these companies were merged into MIC Group.  MIC Group is a manufacturer, investmentcaster and assembler of precision metal parts for use in the worldwide oil andgas exploration, automotive and aerospace industries and other general industries.EFP molds, fabricates and markets expandable foam products used for packagingand thermal insulation by various industries. The principal raw materials usedby Specialty Manufacturing are ferrous and nonferrous materials includingstainless steel, alloy steels, nickel-based alloys, titanium, brass,beryllium-copper alloys, aluminum, expandable polystyrene, polypropylene,polyethylene and other resins.  TheSpecialty Vehicle Group purchases vehicle chassis from the major automotivemanufacturers’ dealers for modification and sale to its customers.

 

**2.             Summary of Significant Accounting Policies**

** **

*Principlesof Consolidation. *Theconsolidated financial statements have been prepared in accordance withaccounting principles generally accepted in the United States.  All intercompany accounts and transactionshave been eliminated in consolidation.

 

 

42

----

Table of Contents

 

**J.B. POINDEXTER &CO., INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)**

**(Dollars in Thousands)**

* *

*Cashand Cash Equivalents.*  Cashand all highly liquid investments with a maturity of three months or less atthe date of purchase, including short-term deposits and government agency andcorporate obligations, are classified as cash and cash equivalents.  At December 31, 2008 and 2007 andperiodically throughout the year, the Company has maintained deposits infinancial institutions in excess of federally insured limits.

 

*Revenue Recognition*.  Revenue is recognized upon shipment of theproduct to customers, except for Morgan and Morgan Olson where revenue isrecognized when title transfers to the customer upon final body assembly,quality inspection and customer notification. Amounts billed to customers related to shipping and handling areclassified as revenue.  The costsassociated with the shipping and handling revenue are included in cost ofsales.

 

*AccountsReceivable. *The Companysells to customers on terms customary in its industries and typically extendsits customers 30-day payment terms. Interest is charged on accounts receivable in cases where there is aneconomic reason for extended terms. Discounts are allowed for early payment but only if economicallyjustified based on the cost of capital. Accounts receivable is stated net of an allowance for doubtful accountsof $1,740 and $1,182 at December 31, 2008 and 2007, respectively.  The Company establishes an allowance fordoubtful accounts receivable on a case-by-case basis when it believes that therequired payment of specific amounts owed is unlikely to occur.  The activity in the allowance for doubtfulaccounts for the years ended December 31 was:

 
| ** **                            | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance at the  beginning of the year |       | $        | 1,182      |     | $          | 1,547    |       | $ | 1,490 |   |
| Provision for  losses                 |       | 1,181    |       | 64       |       | 333      |       |
| Charge-offs                           |       | (576     | )          | (301     | )          | (340     | )          |
| Recoveries                            |       | (47      | )          | (128     | )          | (3       | )          |
| Acquisitions                          |       | —   |       | —   |       | 67       |       |
| Balance at the  end of the year.      |       | $        | 1,740      |     | $          | 1,182    |       | $ | 1,547 |   |

 

Thecarrying amounts of trade accounts receivable approximate fair value because ofthe short maturity of those instruments. The Company is not aware of any significant credit risks related to itscustomer base and does not generally require collateral or other security tosupport customer receivables.

 

*Inventories. *Inventories are stated atthe lower of cost or market.  Cost isdetermined by the first-in, first-out (FIFO) method.

 

*Property,Plant and Equipment. *Property, plantand equipment, including property under capital leases, are stated atcost.  The cost of property under capitalleases represents the present value of the future minimum lease payments at theinception of the lease.  Depreciation andamortization is computed by using the straight-line method over the estimateduseful lives of the applicable assets or over the shorter of the lease term orthe estimated useful life of leasehold improvements.  The cost of maintenance and repairs ischarged to operating expense as incurred and the cost of major replacements andsignificant improvements is capitalized.

 

*DebtIssuance Costs. *Debt issuancecosts are amortized using the effective interest method over the term of therelated debt, which ranges from four to ten years.  Amortization of debt issuance costs isincluded in interest expense.

 

*Evaluation of Impairment ofLong-Lived Assets. *In accordancewith Statement of Financial Accounting Standard (“SFAS”) No. 144, *Impairment or Disposal of Long-Lived Assets*, the Companyevaluates the carrying value of long-lived assets whenever significant eventsor changes in circumstances indicate the carrying value of these assets may beimpaired.  The Company evaluatespotential impairment of long-lived assets by comparing the carrying value ofthe assets to the expected net future cash flows resulting from the use of theassets.  As indicated in Note 6, theCompany recorded impairment charges in 2008 and 2006.

 

 

43

----

Table of Contents

 

**J.B. POINDEXTER &CO., INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)**

**(Dollars in Thousands)**

 

*Warranty. *Morgan provides productwarranties for periods of up to five years. Morgan Olson provides a warranty period, which is one year or 12,000miles for components, three years or 36,000 miles for paint, and five years or50,000 miles for the van body structure. Truck Accessories provides a warranty period, exclusive to the originaltruck owner, which is, in general but with exclusions, one year for parts, fiveyears for paint and lifetime for structure. The Specialty Vehicle Group provides a warranty on its products for aperiod of 48 months or 50,000 miles on the section of the body and parts manufacturedfor funeral coaches and funeral limousines, 36 months or 50,000 miles on thebody and parts manufactured for bus bodies, and 48 months or 100,000 miles onthe section of the body and parts manufactured for limousines.  The remaining operations of SpecialtyManufacturing do not provide a warranty on their products.  A provision for warranty costs is included incost of sales when goods are sold based on historical experience and estimatedfuture claims.  The Company had accruedwarranty costs of $3,631 and $4,343 at December 31, 2008 and 2007,respectively.  The activity in theaccrued warranty cost accounts for the years ended December 31 was:

 
| ** **                            | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance at the  beginning of the year |       | $        | 4,343      |     | $          | 4,185    |       | $ | 4,255 |   |
| Provision for  losses                 |       | 1,739    |       | 3,002    |       | 4,362    |       |
| Charge-offs                           |       | (2,451   | )          | (2,844   | )          | (4,545   | )          |
| Acquisitions                          |       | —   |       | —   |       | 113      |       |
| Balance at the  end of the year       |       | 3,631    |       | 4,343    |       | 4,185    |       |
| Less: Short-term                      |       | 1,246    |       | 2,089    |       | 1,795    |       |
| Long-term                             |       | $        | 2,385      |     | $          | 2,254    |       | $ | 2,390 |   |

 

*Advertisingand Research and Development Expense.*  The Company expenses advertising costs andresearch and development (“R&D”) costs as incurred.  During the years ended December 31,2008, 2007 and 2006, advertising expense was $3,324,****$3,606and $3,474, respectively, and R&D expense was $2,298, $3,476 and $3,495,respectively.

 

*IncomeTaxes. *The Company accounts forincome taxes under the provisions of SFAS No. 109, *Accountingfor Income Taxes.*  Under SFAS No. 109,deferred tax assets and liabilities are computed based on the differencebetween the financial statement and income tax bases of assets and liabilitiesusing the enacted tax rates.

 

TheCompany’s management believes that it is more likely than not that current andlong-term deferred tax assets will reduce future income tax payments.  The Company has considered ongoing prudentand feasible tax planning strategies in making this assessment. There aresignificant assumptions inherent in the Company’s prudent and feasible taxplanning strategies.  Changes in theseassumptions would impact the estimated amount of deferred tax assets realizedby these tax planning strategies.  Shouldthe Company determine that it is more likely than not unable to realize all orpart of the net deferred tax asset in the future, a valuation allowance,necessary to reduce the deferred tax asset to the amount that is more likelythan not to be realized,  would reduceincome in the period such determination was made.

 

TheCompany accounts for uncertain tax positions in accordance with FIN 48, whichwas adopted effective January 1, 2007. Accordingly, the Company reports aliability for unrecognized tax benefits resulting from uncertain tax positionstaken or expected to be taken in a tax return. The Company recognizes interest and penalties, if any, related tounrecognized tax benefits in income tax expense.

 

*Self-InsuranceRisks*.  The Company utilizes acombination of insurance coverage and self-insurance programs for property,casualty, workers’ compensation and healthcare insurance.  The Company records an actuariallydetermined, fully developed self-insurance reserve to cover the self-insuredportion of these risks based on known facts and historical industrytrends.  Changes in management’sassumptions may result in a different self-insurance reserve.

 

 

44

----

Table of Contents

 

**J.B. POINDEXTER &CO., INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)**

**(Dollars in Thousands)**

 

*ContingentLiabilities.  *Reserves areestablished for estimated environmental and legal loss contingencies when aloss is probable and the amount of the loss can be reasonably estimated.  Revisions to contingent liabilities arereflected in income in the period in which different facts or informationbecome known or circumstances change that affect the previous assumptions withrespect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon the assumptions andestimates regarding the probable outcome of the matter.  Should the outcome differ from theassumptions and estimates, revisions to the estimated reserves for contingentliabilities would be required.

 

*ComprehensiveIncome.*Comprehensive income consists of net income (loss)and other comprehensive income (loss). Other comprehensive income (loss) consists of foreign currencytranslation adjustments, which are also recognized as a separate component ofequity.

 

*Translationof Foreign Financial Statements. *Assets andliabilities of foreign operations are translated at year-end rates of exchange,and the income statements are translated at the average rates of exchange forthe year.  Gains or losses resulting fromtranslating foreign currency financial statements are accumulated in a separatecomponent of stockholder’s equity until the foreign operations are sold orsubstantially liquidated.  Gains orlosses resulting from foreign currency transactions (transactions that requiresettlement in a currency other than the Company’s functional currency) areincluded in net income (loss).

 

*FairValue of Financial Instruments*.  The Company’s financial instruments consistof cash and cash equivalents, receivables and debt.  Fair values of cash and cash equivalents andreceivables approximate carrying values for these financial instruments sincethey are relatively short-term in nature. The carrying amount of debt, except for the Company’s 8.75% Notes (seeNote 10), approximates the fair value due either to length of maturity orexistence of variable interest rates that approximate prevailing market rates. The fair value of the Company’s 8.75%Notes is determined under the provisions of SFAS No. 157, “Fair ValueMeasurements”.  The fair value hierarchyestablished with SFAS No. 157 requires an entity to maximize the use ofobservable inputs and minimize the use of unobservable inputs when measuringfair value. The standard describes three levels of inputs that may be used tomeasure fair value:

 

Level 1: Quoted prices(unadjusted) for identical assets or liabilities in active markets that theentity has the ability to access as of the measurement date.

 

Level 2: Significantother observable inputs other than Level 1 prices such as quoted prices forsimilar assets or liabilities; quoted prices in markets that are not active; orother inputs that are observable or can be corroborated by observable marketdata. 

 

Level 3: Significantunobservable inputs that reflect a reporting entity’s own assumptions about theassumptions that market participants would use in pricing an asset orliability.

 

The Company’s 8.75% Notesare reported at fair value (see Note 10) utilizing Level 1 inputs.  

 

*Use ofEstimates.*The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  Actual results could differ from thoseestimates.  Significant estimates subjectto change include the valuation of goodwill and other intangible assets, theallowances for doubtful accounts, shrinkage and excess and obsolete inventory,the valuation of deferred tax assets, and the allowances for self-insurancerisks, warranty claims, and environmental claims.

 

***Recent Accounting Pronouncements***.  In July 2006, the Financial AccountingStandards Board (“FASB”) released Interpretation No. 48 *Accounting for Uncertainty in Income Taxes.*  The Company adopted this Interpretation on January 1,2007 (see Note 13).

** **

**In September 2006, theSecurities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”)No. 108, *Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements*.  The Companyadopted the provisions of SAB No. 108 using the cumulative effecttransition method in connection with the preparation of the financialstatements for the year ended December 31, 2006.  As a result, the Company recorded a decreasein accrued liabilities and an increase in retained earnings in the amount of$372, net of tax of $159, as of January 1, 2006.  This adjustment resulted from the Companyoverstating liabilities for certain compensation agreements, which was deemedimmaterial to the financial statements in each respective period.  This misstatement, decreasing net income inthe year reported, originated as follows: 2005 — $81; 2004 — $81; and prior to2004— $210.**

** **

**In September 2006, the FASBissued SFAS No. 157, *Fair Value Measurements*,which provides a definition of fair value, establishes a framework formeasuring fair value and requires expanded disclosures about fair valuemeasurements.  This standard is effectivefor fiscal years beginning after November 15, 2007; however, in February 2008,the FASB issued FASB Staff Position (“FSP”) FAS 157-2 *EffectiveDate of FASB Statement No. 157*, which**

** **

** **

**45**

----

**Table of Contents**

** **

**J.B. POINDEXTER &CO., INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)**

**(Dollars in Thousands)**

** **

**delayed the effective date ofthis standard for all non-financial assets and non-financial liabilities,except those that are recognized or disclosed at fair value in the financialstatements on a recurring basis (at least annually), to fiscal years beginningafter November 15, 2008, and interim periods within those fiscal years foritems within the scope of this FSP.  TheCompany adopted this standard during fiscal year 2008 except as it applies tothose nonfinancial assets and nonfinancial liabilities as noted in FSP FAS157-2, without any significant impact on the Company’s financial position,results of operations or cash flows.**

** **

**In February 2007, FASBissued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities — including an Amendment of FASBStatement No. 115*, which allows an entity to choose to measurecertain financial instruments and liabilities at fair value that are notcurrently required to be measured at fair value and is effective for fiscalyears beginning after November 15, 2007. The Company adopted this standard during fiscal year 2008 withnon-election of the fair value option available under SFAS No. 159.**

** **

**In December 2007, the FASB issued SFAS No. 141(R), *Business Combinations*, which improves reporting by creatinggreater consistency in the accounting and financial reporting of businesscombinations, resulting in more complete, comparable and relevant informationfor investors and other users of financial statements. The standard requiresthe acquiring entity in a business combination to recognize all the assetsacquired and liabilities assumed in the transaction; establishes theacquisition-date fair value as the measurement objective for all assetsacquired and liabilities assumed; and requires the acquirer to disclose toinvestors and other users all of the information they need to evaluate andunderstand the nature and financial effect of the business combination. Thestandard also requires transaction costs for a business combination be expensedas incurred.  SFAS No. 141(R) appliesprospectively to business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after December 15,2008.**

** **

**In December 2007, the FASB issued SFAS No. 160, *Noncontrolling Interests in Consolidated Financial Statements-AnAmendment of ARB No. 51* which improves the relevance,comparability and transparency of financial information provided inconsolidated financial statements by establishing accounting and reportingstandards for the non controlling (minority) interests in subsidiaries and forthe deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscalyears beginning after December 15, 2008. The adoption of SFAS No. 160is not expected to have a material impact on the Company’s financial position,results of operations and liquidity, and its related disclosures.**

** **

**3.           Segment Data**

** **

TheCompany operates and manages its subsidiaries within the separate businesssegments described in Note 1.  TheCompany evaluates performance and allocates resources based on the operatingincome of each segment.  The accountingpolicies of the reportable business segments are the same as those described inthe summary of significant accounting policies.

 

Thefollowing is a summary of the business segment data for the years ended December 31:

 
| **Net Sales**            | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|----------|------------|
| Morgan                   |       | $        | 233,893    |     | $          | 332,926  |       | $ | 379,434 |   |
| Morgan Olson             |       | 104,437  |       | 110,291  |       | 100,361  |       |
| Truck  Accessories       |       | 131,871  |       | 155,564  |       | 159,310  |       |
| Specialty  Manufacturing |       | 238,337  |       | 195,163  |       | 155,856  |       |
| Eliminations             |       | (2,129   | )          | (1,783   | )          | 418      |       |
| Net Sales                |       | $        | 706,409    |     | $          | 792,161  |       | $ | 795,379 |   |

 

 

46

----

Tableof Contents

 

**J.B. POINDEXTER &CO., INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)**

**(Dollarsin Thousands)**

 
| **Operating  Income**                      | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Morgan                                     |       | $        | 3,953      |     | $          | 15,384   |       | $ | 21,576 |   |
| Morgan Olson                               |       | 5,415    |       | (2,680   | )          | 2,778    |       |
| Truck  Accessories                         |       | 2,403    |       | 3,196    |       | 3,524    |       |
| Specialty  Manufacturing                   |       | 25,895   |       | 13,726   |       | 9,759    |       |
| JBPCO  (Corporate)                         |       | (7,985   | )          | (9,466   | )          | (8,879   | )          |
| Operating Income                           |       | $        | 29,681     |     | $          | 20,160   |       | $ | 28,758 |   |
|                                       |       |     |       |     |       |     |       |
| **Depreciation  and Amortization Expense** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Morgan                                     |       | $        | 2,054      |     | $          | 2,506    |       | $ | 2,241 |   |
| Morgan Olson                               |       | 1,027    |       | 1,210    |       | 958      |       |
| Truck  Accessories                         |       | 4,191    |       | 4,237    |       | 4,233    |       |
| Specialty  Manufacturing                   |       | 10,281   |       | 7,028    |       | 4,547    |       |
| JBPCO  (Corporate)                         |       | 105      |       | 82       |       | 38       |       |
| Depreciation and  Amortization Expense     |       | $        | 17,658     |     | $          | 15,063   |       | $ | 12,017 |   |
|                                       |       |     |       |     |       |     |       |
| **Total  Assets as of December 31,**  | ** ** | **2008** | ** ** | **2007** |       |     |       |
| Morgan                                     |       | $        | 43,897     |     | $          | 60,146   |       |   |   |
| Morgan Olson                               |       | 23,752   |       | 27,865   |       |     |       |
| Truck  Accessories                         |       | 62,230   |       | 69,059   |       |     |       |
| Specialty  Manufacturing                   |       | 131,329  |       | 133,650  |       |     |       |
| JBPCO  (Corporate)                         |       | 34,730   |       | 6,433    |       |     |       |
| Identifiable  Assets                       |       | $        | 295,938    |     | $          | 297,153  |       |   |   |
|                                       |       |     |       |     |       |     |       |
| **Capital  Expenditures**                  | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Morgan                                     |       | $        | 735        |     | $          | 1,361    |       | $ | 1,764 |   |
| Morgan Olson                               |       | 799      |       | 958      |       | 328      |       |
| Truck  Accessories                         |       | 3,070    |       | 5,044    |       | 3,569    |       |
| Specialty  Manufacturing                   |       | 9,176    |       | 6,671    |       | 4,485    |       |
| JBPCO  (Corporate)                         |       | 939      |       | 278      |       | 3,728    |       |
| Capital Expenditures                       |       | $        | 14,719     |     | $          | 14,312   |       | $ | 13,874 |   |

 

Morganhad two customers (truck leasing and rental companies) that accounted for, on acombined basis, approximately 48%, 55% and 46% of Morgan’s net sales during2008, 2007 and 2006, respectively. Accounts receivable from these customers totaled $2,850 and $3,023 at December 31,2008 and 2007, respectively.  SpecialtyManufacturing has two customers in the international oilfield service industrythat accounted for approximately 42%,****28% and 19% ofSpecialty Manufacturing’s net sales during 2008, 2007 and 2006,respectively.  Accounts receivable fromthese customers totaled $6,228 and $4,462 at December 31, 2008 and 2007,respectively.

 

MorganOlson had one customer that accounted for approximately 44%, 37% and 38% ofMorgan Olson’s net sales during 2008, 2007 and 2006, respectively.  Accounts receivable from this customer were$4,196 and $2,044 at 

 

 

 

47

----

Table of Contents

 

**J.B. POINDEXTER &CO., INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)**

**(Dollars in Thousands)**

 

December 31,2008 and 2007, respectively.  During2007, Morgan Olson shipped $700 of step vans and spare parts to its Canadiancustomers and used Morgan’s Canadian operations as an intermediary in thetransaction.  This practice wasdiscontinued during 2008.

 

TheCompany, on a consolidated basis, had two customers that accounted forapproximately 16%, 22% and 22% of total net sales during 2008, 2007 and 2006,respectively.  Accounts receivable fromthese customers totaled $2,850 and $3,023 at December 31, 2008 and 2007,respectively.  These were customers ofMorgan.

 

TheCompany’s operations are located principally in the United States.  However, Morgan has operations located inCanada and Specialty Manufacturing has operations in Mexico.  Long-lived assets relating to these foreignoperations were $9,580 and****$11,664 at December 31,2008 and 2007, respectively. Consolidated net sales included $31,888, $29,706 and****$29,610in 2008, 2007 and 2006, respectively, of sales to customers outside the UnitedStates.

 

JBPCO(Corporate) operating expenses for all periods comprise the costs of the parentcompany office and personnel who provide strategic direction and support to thesubsidiary companies.  JBPCO (Corporate)costs were $7,985, $9,466 and $8,879 for 2008, 2007 and 2006, respectively.

 

**4.             Acquisitions**

** **

EffectiveJanuary 3, 2006, the Company acquired all of the outstanding stock ofKellerman Coach Co., Inc. (“Eagle Coach”). The results of Eagle Coach’s operations have been included in theconsolidated financial statements since that date.  Eagle Coach is located in Amelia, Ohio andmanufactures funeral coaches.  EagleCoach and Federal Coach comprise the Specialty Vehicle Group that operates as adivision of the Specialty Manufacturing segment and Eagle Coach continues toutilize the purchased assets in the same manner as prior to theacquisition.  The acquisition wasaccounted for as a purchase and the purchase price was $7,440.

 

Thefollowing summarizes the fair value of the assets acquired and liabilitiesassumed at the date of acquisition:

 
| **Eagle Coach**                | ** ** | **January 3, 2006** | ** ** |
|--------------------------------|------------|-------------------------------|------------|
| Accounts  receivable           |       | $                             | 1,933      |   |
| Inventories                    |       | 1,658                         |       |
| Other current  assets          |       | 18                            |       |
| Property, plant  and equipment |       | 232                           |       |
| Other long-term  assets        |       | 161                           |       |
| Goodwill                       |       | 1,527                         |       |
| Acquired  intangibles          |       | 2,900                         |       |
| Current  liabilities           |       | (954                          | )          |
| Accrued warranty               |       | (35                           | )          |
|                           |       | $                             | 7,440      |   |

 

EffectiveMarch 17, 2006, the Company acquired all of the outstanding stock of StateWide Aluminum, Inc. (“State Wide”). The results of State Wide’s operation have been included in theconsolidated financial statements since that date.  State Wide is located in Elkhart, Indiana andis one of Truck Accessories’ two principal suppliers of windows and doors usedin the manufacture of pickup truck caps. State Wide operates as a division of Truck Accessories and continues toutilize the purchased assets in the same manner as prior to the acquisition.  The acquisition was accounted for as apurchase and the purchase price was $6,457. The following summarizes the fair value of the assets acquired andliabilities assumed at the date of acquisition:

 

** **

**48**

----

Table of Contents

** **

**J.B.POINDEXTER & CO., INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars In Thousands)**

** **

 
| **State Wide**                 | ** ** | **March 17, 2006** | ** ** |
|--------------------------------|------------|-------------------------|------------|
| Accounts  receivable           |       | $                       | 2,181      |   |
| Inventories                    |       | 2,493                   |       |
| Other current  assets          |       | 149                     |       |
| Property, plant  and equipment |       | 923                     |       |
| Goodwill                       |       | 3,528                   |       |
| Current  liabilities           |       | (2,782                  | )          |
| Other long-term  liabilities   |       | (35                     | )          |
|                           |       | $                       | 6,457      |   |

 

During 2007, MIC Group acquired all of the common stock of Richard’sManufacturing Co., Inc. (“MIC Duncan”), a precision machining businesslocated in Duncan, Oklahoma, Tarlton Supply Company (“MIC Tarlton”), aprecision machining and assembly business located in Brenham, Texas, andMachining and Manufacturing I, Inc. (“MIC Houston”), a precision machiningbusiness located in Houston, Texas. MIC Duncan, MIC Tarlton and MIC Houstonwere acquired on April 30, August 23 and September 4, 2007,respectively.  MIC Group continues toutilize the purchased assets in the same manner as prior to the acquisition andthe operating results of the acquisitions have been included in theconsolidated financial statements since the respective acquisition date.  MIC Duncan, MIC Tarlton and MIC Houston wereaccounted for as a purchase and the aggregate cash purchase prices were$12,635, $18,668 and $10,603, respectively. During 2008, MIC Group paid the former owner of MIC Tarlton $233 (seeNote 7) of additional purchase price related to taxes payable by the owner.

 

The following summarizes the estimated fair value of the assetsacquired and liabilities assumed at the date of the acquisitions:

 
| ** **                     | ** ** | **MIC Duncan**          | ** ** | **MIC Tarlton**          | ** ** | **MIC Houston**            | ** ** |
|--------------------------------|------------|-------------------------|------------|--------------------------|------------|----------------------------|------------|
| ** **                     | ** ** | **April 30, 2007** | ** ** | **August 23, 2007** | ** ** | **September 4, 2007** | ** ** |
| Accounts  receivable           |       | $                       | 755        |                     | $          | 2,793                      |       | $ | — |   |
| Inventories                    |       | 1,305                   |       | 8,394                    |       | 3,457                      |       |
| Other current  assets          |       | 226                     |       | 66                       |       | —                     |       |
| Property, plant  and equipment |       | 3,397                   |       | 6,502                    |       | 4,431                      |       |
| Goodwill                       |       | 3,843                   |       | 1,567                    |       | 326                        |       |
| Acquired  intangibles          |       | 3,890                   |       | 2,430                    |       | 2,575                      |       |
| Current  liabilities           |       | (781                    | )          | (3,049                   | )          | (186                       | )          |
| Other long-term  liabilities   |       | —                  |       | (35                      | )          | —                     |       |
|                           |       | $                       | 12,635     |                     | $          | 18,668                     |       | $ | 10,603 |   |

 

Thecombined results of operations of the Company for the years ended December 31,2008, 2007 and 2006 including Eagle Coach, State Wide, MIC Duncan, MIC Tarltonand MIC Houston as if acquired on the first day of the year of theiracquisition and one immediately preceding year on an unaudited pro forma basiswould be as follows:

 
| ** **       | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------|------------|----------|------------|----------|------------|----------|------------|
| Net sales        |       | $        | 706,409    |     | $          | 827,536  |       | $ | 849,924 |   |
| Operating income |       | 29,681   |       | 25,930   |       | 34,825   |       |
| Net income       |       | 6,790    |       | 2,530    |       | 11,716   |       |
|             |       |     |       |     |       |     |       |
|                  |            |          |            |          |            |          |            |  |  |  |

 

49

----

Tableof Contents

 

**J.B.POINDEXTER & CO., INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars In Thousands)**

** **

**5.**                                      Inventories

 

Consolidated net inventoriesconsisted of the following:

 
| ** **         | ** ** | **December 31,** | ** ** |
|--------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2008**              | ** ** | **2007** | ** ** |
| Raw materials      |       | $                     | 33,081     |   | $ | 40,820 |   |
| Work in process    |       | 24,553                |       | 26,661 |   |
| Finished goods     |       | 10,437                |       | 11,962 |   |
| Total  inventories |       | $                     | 68,071     |   | $ | 79,443 |   |

 

Inventories are stated net of an allowance for excess and obsoleteinventory of $3,166 and****$1,707 at December 31,2008 and 2007, respectively.  Theactivity in the allowance for excess and obsolete inventory accounts for theyears ended December 31 was:

 
| ** **                            | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance at the  beginning of the year |       | $        | 1,707      |     | $          | 1,919    |       | $ | 2,529 |   |
| Provision for  losses                 |       | 2,218    |       | 1,796    |       | 1,397    |       |
| Charge-offs                           |       | (759     | )          | (1,748   | )          | (2,049   | )          |
| Recoveries                            |       | —   |       | (260     | )          | —   |       |
| Acquisitions                          |       | —   |       | —   |       | 42       |       |
| Balance at the  end of the year       |       | $        | 3,166      |     | $          | 1,707    |       | $ | 1,919 |   |

** **

**6.**                                      Property, Plantand Equipment

 

Property, plant and equipment, as of December 31,2008 and 2007, consisted of the following:

 
| ** **                                 | ** ** | **Range  of  Useful Lives in  Years** | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------|------------|---------------------------------------|------------|----------|------------|----------|------------|
| Land                                       |       | —                                |       | $        | 3,079      |     | $          | 4,877 |   |
| Buildings and  improvements                |       | 5-25                                  |       | 24,505   |       | 33,522   |       |
| Machinery and  equipment                   |       | 3-10                                  |       | 134,231  |       | 125,421  |       |
| Furniture and  fixtures                    |       | 2-10                                  |       | 15,235   |       | 15,763   |       |
| Transportation  equipment                  |       | 2-10                                  |       | 5,958    |       | 5,828    |       |
| Leasehold  improvements                    |       | 3-10                                  |       | 7,564    |       | 6,843    |       |
| Construction in  progress                  |       | —                                |       | 6,432    |       | 5,660    |       |
|                                       |       |                                  |       | 197,004  |       | 197,914  |       |
| Accumulated  depreciation and amortization |       |                                  |       | (123,305 | )          | (117,789 | )          |
| Property, plant  and equipment, net        |       |                                  |       | $        | 73,699     |     | $          | 80,125 |   |

 

Machinery and equipment included approximately $13,628 and $13,899 ofequipment at cost recorded under capital leases as of December 31, 2008and 2007, respectively, and accumulated depreciation of approximately $5,516and $3,976 at December 31, 2008 and 2007, respectively.

 

In 2008 and 2007, the Company capitalized $417 and $569, respectively,of interest costs incurred related to constructed assets in progress.

 

50

----

Table of Contents

 

**J.B.POINDEXTER & CO., INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars In Thousands)**

 

During 2008, the Company decided to combine two of its TruckAccessories manufacturing facilities located in Elkhart, Indiana, resulting ina write-down of the carrying value of the assets by $111.  The Company also decided to move productionof one of its Specialty Manufacturing plants to another of its manufacturingfacilities, resulting in a write-down of the carrying value of the assets by$677.

 

In the fourth quarter of 2006, the Company decided to close itsremaining Truck Accessories’ Canadian operations, resulting in a write-down ofthe carrying value of the assets by $1,161. A $2,678 charge has been recorded as closed and excess facility coststhat included the write-down of assets and certain personnel-related costs.

 

Depreciation expense was $16,064,****$13,899 and$11,201 and included $1,725, $1,374 and $1,044 for assets recorded undercapital leases for the years ended December 31, 2008, 2007 and 2006,respectively.

 

**7.**                                      Goodwill,Intangibles and Other Assets

 

Goodwill represents the excess of costs over fair value of net assetsof businesses acquired.  The Company paida premium over the fair value of net tangible and identifiable intangibleassets acquired for reasons such as the profitable expansion of its business,strategic fit, economies of scale and the value of an assembled workforce,among others.  Pursuant to SFAS No. 142,*Goodwill and Other Intangible Assets,*goodwill and intangible assets acquired in a purchase business combination anddetermined to have an indefinite life are not amortized but instead tested forimpairment at least annually.

 

The Company completed its annual impairment review effective October 1,2008, 2007 and 2006, which indicated that there was a $300 impairment in thecarrying value of Federal Coach’s trade name. The fair value of our reporting units is based on various valuationmethods, including acquisition multiples of earnings and discounted cash flowanalysis, which were derived from information and analysis of recentacquisitions in the marketplace for companies with similar operations.

 

SFAS No. 142 also requires that intangible assets with estimableuseful lives be amortized over their respective estimated useful lives andreviewed for impairment in accordance with SFAS No. 144, *Accounting for Impairment or Disposal of Long-Lived Assets*.

 

The Company records impairment losses on long-lived assets used inoperations when events and circumstances indicate that the assets may beimpaired and the undiscounted cash flows estimated to be generated by thoseassets are less than the carrying amounts of those assets.  During 2008, the Company determined that the carryingvalue of the trade names intangible asset was impaired and recorded animpairment charge of $300 for the year ended December 31, 2008.  At December 31, 2008, goodwill was$7,408, $14,884 and $13,258 for the Morgan, Truck Accessories and SpecialtyManufacturing reporting units, respectively.

 

Effective January 3, 2006, the Company acquired all of theoutstanding stock of Eagle Coach, a manufacturer of funeral coaches, andcombined it with the Specialty Manufacturing segment.  Goodwill of $1,527 and acquired intangiblesof $2,900 were recorded at the time of purchase.

 

Effective March 17, 2006, the Company acquired all of theoutstanding stock of State Wide, a manufacturer of windows and doors used inpickup truck caps. State Wide operates as a division of Truck Accessories.  Goodwill of $3,528 was recorded at the timeof purchase.

 

Effective April 30, 2007, the Company acquired all of theoutstanding stock of MIC Duncan, a manufacturing services provider forcompanies operating in the oil and gas exploration and production industry. MICDuncan operates as part of MIC Group which is part of the SpecialtyManufacturing segment.  Goodwill of$3,843 and acquired intangibles of $3,890 were recorded at the time ofpurchase.

 

51

----

Table of Contents

 

**J.B.POINDEXTER & CO., INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars In Thousands)**

 

Effective August 23, 2007, the Company acquired all of the outstandingstock of MIC Tarlton, a manufacturing services provider for companies operatingin the oil and gas exploration and production industry. MIC Tarlton operates aspart of MIC Group which is part of the Specialty Manufacturing segment.  Goodwill of $1,334 (which was adjusted to$1,567 in 2008) and acquired intangibles of $2,430 were recorded at the time ofpurchase.

 

Effective September 4, 2007, the Company acquired all of theoutstanding stock of MIC Houston, a manufacturing services provider for companiesoperating in the oil and gas exploration and production industry. MIC Houstonoperates as part of MIC Group which is part of the SpecialtyManufacturing.  Goodwill of $326 andacquired intangibles of $2,575 were recorded at the time of purchase.

 

The changes in the carrying amount of goodwill for the years ended December 31,2008 and 2007 were:

 
| ** **                           | ** ** | **Morgan** | ** ** | **Truck  Accessories** | ** ** | **Specialty  Manufacturing** | ** ** | **Total** | ** ** |
|--------------------------------------|------------|------------|------------|------------------------|------------|------------------------------|------------|-----------|------------|
| Balance,  December 31, 2006     |       | $          | 7,408      |                   | $          | 14,884                       |       | $         | 7,522      |   | $ | 29,814 |   |
| Goodwill  acquired during the year   |       | —     |       | —                 |       | 5,503                        |       | 5,503     |       |
| Balance,  December 31, 2007     |       | 7,408      |       | 14,884                 |       | 13,025                       |       | 35,317    |       |
| Changes to  goodwill during the year |       | —     |       | —                 |       | 233                          |       | 233       |       |
| Balance,  December 31, 2008     |       | $          | 7,408      |                   | $          | 14,884                       |       | $         | 13,258     |   | $ | 35,550 |   |

 

Goodwillrecognized in acquisitions (see Note 4) is expected to be deductible for incometax purposes.

 

Intangible assets (allacquired in connection with the acquisitions described in Note 4) and therelated accumulated amortization as of December 31, 2008 and 2007 were:

 
| ** **                        | ** ** | ** **                  | ** ** | **Cost**   | ** ** | ** **             | ** ** |
|-----------------------------------|------------|-----------------------------|------------|------------|------------|------------------------|------------|
| **December 31, 2008:**       | ** ** | **Useful  Lives  in Years** | ** ** | **Morgan** | ** ** | **Truck  Accessories** | ** ** | ******SMG** | ** ** | **Total** | ** ** | **Accumulated  Amortization** | ** ** |
| Amortizable  intangible assets:   |       |                        |       |       |       |                   |       |   |   |   |   |   |   |
|                              |       |                        |       |       |       |                   |       |   |   |   |   |   |   |
| Customer base                     |       | 5-20                        |       | $          | 1,522      |                   | $          | 2,556 |   | $ | 10,400 |   | $ | 14,478 |   | $ | 2,383 |   |
| Noncompete  agreements            |       | 5                           |       | 187        |       | —                 |       | 663 |   | 850 |   | 421 |   |
| Supplier  relationship            |       | 10                          |       | —     |       | —                 |       | 3,218 |   | 3,218 |   | 1,052 |   |
| Patents                           |       | 2                           |       | —     |       | 300                    |       | — |   | 300 |   | 300 |   |
|                              |       |                        |       | 1,709      |       | 2,856                  |       | 14,281 |   | 18,846 |   | 4,156 |   |
| Unamortizable  intangible assets: |       |                        |       |       |       |                   |       |   |   |   |   |   |   |
| Trade names                       |       |                        |       | 961        |       | 616                    |       | 880 |   | 2,457 |   | — |   |
| Balance,  December 31, 2008  |       |                        |       | $          | 2,670      |                   | $          | 3,472 |   | $ | 15,161 |   | $ | 21,303 |   | $ | 4,156 |   |

 

52

----

Table of Contents

 

**J.B. POINDEXTER & CO., INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars In Thousands)**

 
| ** **                        | ** ** | ** **                  | ** ** | **Cost**   | ** ** | ** **             | ** ** |
|-----------------------------------|------------|-----------------------------|------------|------------|------------|------------------------|------------|
| **December 31, 2007:**       | ** ** | **Useful  Lives  in Years** | ** ** | **Morgan** | ** ** | **Truck  Accessories** | ** ** | ******SMG** | ** ** | **Total** | ** ** | **Accumulated  Amortization** | ** ** |
| Amortizable  intangible assets:   |       |                        |       |       |       |                   |       |   |   |   |   |   |   |
|                              |       |                        |       |       |       |                   |       |   |   |   |   |   |   |
| Customer base                     |       | 5-20                        |       | $          | 1,883      |                   | $          | 2,556 |   | $ | 10,400 |   | $ | 14,839 |   | $ | 1,571 |   |
| Noncompete  agreements            |       | 5                           |       | 231        |       | —                 |       | 663 |   | 894 |   | 251 |   |
| Supplier  relationship            |       | 10                          |       | —     |       | —                 |       | 3,200 |   | 3,200 |   | 440 |   |
| Patents                           |       | 2                           |       | —     |       | 300                    |       | — |   | 300 |   | 300 |   |
|                              |       |                        |       | 2,114      |       | 2,856                  |       | 14,263 |   | 19,233 |   | 2,562 |   |
| Unamortizable  intangible assets: |       |                        |       |       |       |                   |       |   |   |   |   |   |   |
| Trade names                       |       | —                      |       | 1,189      |       | 616                    |       | 1,180 |   | 2,985 |   | — |   |
| Balance,  December 31, 2007  |       |                        |       | $          | 3,303      |                   | $          | 3,472 |   | $ | 15,443 |   | $ | 22,218 |   | $ | 2,562 |   |

 

The amortization ofintangible assets was $1,594, $1,164 and $816 for the years ended December 31,2008, 2007 and 2006, respectively. Estimated amortization expense for each of the subsequent five yearsending December 31 is $1,688 — 2009, $1,624 — 2010, $1,565 — 2011, $1,377 —2012 and $1,073 — 2013.

 

Other assets as of December 31, 2008 and 2007consisted of the following:

 
| ** **                         | ** ** | ** **                        | ** ** | **2008**                      | ** ** | **2007**            | ** ** |
|------------------------------------|------------|-----------------------------------|------------|-------------------------------|------------|---------------------|------------|
| ** **                         | ** ** | **Amortization  Period in Years** | ** ** | **Accumulated  Amortization** | ** ** | **Net Book  Value** | ** ** | **Accumulated  Amortization** | ** ** | **Net Book  Value** | ** ** |
| Other Assets:                      |       |                              |       |                          |       |                |       |   |   |   |   |
| Debt issuance  costs               |       | 4-10                              |       | $                             | 3,495      |                | $          | 2,960 |   | $ | 2,804 |   | $ | 3,551 |   |
| Insurance cash  collateral deposit |       | —                            |       | —                        |       | 7,277               |       | — |   | 6,527 |   |
| Other                              |       | —                            |       | —                        |       | 2,888               |       | — |   | 3,019 |   |
| Total                              |       |                              |       | $                             | 3,495      |                | $          | 13,125 |   | $ | 2,804 |   | $ | 13,097 |   |

 

The amortization of debtissuance costs was $691, $791 and $761 for the years ended December 31,2008, 2007 and 2006, respectively. Estimated amortization of debt issuance costs for each of the subsequentfive years ending December 31 is $612 — 2009, $568 — 2010, $560 — 2011,$560 — 2012 and $560 — 2013.

 

The Company created a trustin favor of its insurance carrier to secure its liabilities under itsself-insured, casualty insurance program including workers’ compensationinsurance.  The liabilities werepreviously secured by an irrevocable standby letter of credit that wascancelled upon the initial deposit of $5,520 into the trust.  During the years ended December 31, 2008and 2007, the Company contributed an additional $750 and $348, respectively, tothe trust.

 

**8.**                                      Floor PlanNotes Payable

 

The Company has a floor planfinancing agreement with Ford Motor Credit Company for financing part of itschassis inventory at Federal Coach and Eagle Coach.  Floor plan notes payable reflect the monetaryvalue of the chassis that are in the Company’s possession as of December 31,2008 and 2007.  These obligations arereflected on the accompanying balance sheet as accounts payable, a currentliability.

 

The total amount financedunder these agreements was $1,395 and $3,286 as of December 31, 2008 and2007, respectively.  These borrowingsbear interest at the prime rate plus 150 basis points on balances outstandingover 

 

53

----

Table ofContents

 

**J.B. POINDEXTER & CO., INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars In Thousands)**

 

90 days.  As of December 31, 2008 and 2007, theweighted average interest rate on all outstanding floor plan notes payable was0.4% and 0.1%, respectively.  The averageinterest rate on the liabilities that bear interest was 4.9% and 9.52% at December 31,2008 and 2007, respectively.

 

**9.**                                      RevolvingCredit Facility

 

On March 15, 2004, concurrently with the 8.75% Note offeringdiscussed in Note 10, the Company entered into a revolving credit agreement(the “Revolving Credit Facility”) that expired March 15, 2008.  The Revolving Credit Facility automaticallyrenews for a twelve-month period after March 15 of each year unless noticeis provided at least 90 days prior to expiration by either party.  It was renewed for a twelve-month periodending March 15, 2010.  TheRevolving Credit Facility currently provides for borrowings by the Company ofup to $50,000 ($30,000 at December 31, 2007). The Revolving CreditFacility allows the Company to borrow funds up to the lesser of $50,000 or anamount based on the sum of: 1) advance rates applied to the total amounts ofeligible accounts receivable and inventories of the subsidiaries and 2) up to$20,000 collateralized by the fixed assets of the Company.  The advance rates are 85% for eligibleaccounts receivable and 60% for eligible inventory, as defined.  Borrowings against inventory may not exceed$20,000.  The Company is entitled toborrow up to an additional $20,000 against fixed assets not to exceed themaximum amount of credit under the facility. The availability of funds secured by the fixed assets will amortize tozero over the remaining term of the Revolving Credit Facility.  The Revolving Credit Facility includes asubfacility for up to $15,000 of letters of credit.

 

The Revolving Credit Facility provides for borrowing at variable ratesof interest, based on either LIBOR (London Interbank Offered Rate, which was2.8%****at December 31, 2008) plus amargin of 1.75% or the bank’s base rate (the greater of the Federal Funds Rateplus 0.5% or its prime rate, which was 3.25%****atDecember 31, 2008).  Interest ispayable monthly including a fee of 0.375% on the portion of the $50,000 totalcommitment that remains unused during the period.  The Subsidiaries are also guarantors of the8.75% Notes defined in Note 10.

 

The Revolving Credit Facility contains provisionsallowing the lender to accelerate the repayment of debt upon the occurrence ofan event the lender determines to represent a material adverse change.  The Revolving Credit Facility also containsrestrictive covenants, which, among other things, restrict the use of proceedsfrom the sale of assets, the ability of the Company to incur additional debt orpay dividends, and certain other corporate activities.  In addition, the Company is subject to afinancial covenant requiring it to maintain a minimum fixed charge coverageratio, as defined, of 1.0 to 1.0 should availability fall below $10,000.  At December 31, 2008, the Company was incompliance with all covenants of the Revolving Credit Facility. In the eventthat the Company’s borrowing availability is below $20,000, the Company’s cashbalances will become restricted.

 

At December 31, 2008 and 2007, the Company had borrowings of $417and $3,637, respectively, and $2,400 in standby letters of credit (see Note 16)at December 31, 2008, and had unused gross borrowing availability, basedon eligible accounts receivable and inventory, in excess of the $50,000borrowing limit under the Revolving Credit Facility.

 

54

----

Table of Contents

 

**J.B. POINDEXTER & CO., INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)(Dollars In Thousands)**

 

**10.**                               Long-Term Debtand 8.75% Note Offering

 

Long-termdebt as of December 31, 2008 and 2007 consisted of:

 
| ** **                                                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| 8.75% Notes due  2014, plus unamortized premium of $1.3 million at December 31, 2008 |       | $        | 200,491    |     | $          | 201,536 |   |
| Obligations  under capital leases                                                         |       | 6,494    |       | 8,446    |       |
| Total long-term  debt                                                                     |       | 206,985  |       | 209,982  |       |
| Less current  portion                                                                     |       | 2,574    |       | 2,669    |       |
| Long-term debt,  less current portion                                                     |       | $        | 204,411    |     | $          | 207,313 |   |

 

On March 15, 2004, the Company completed a note offering of$125,000, 8.75% senior notes due in 2014 (the “8.75% Notes”) with interestpayable semiannually.  On May 17,2004 and January 21, 2005, the Company completed offers to sell anadditional $30,000 and $45,000, respectively, of the 8.75% Notes.  The additional $30,000 of 8.75% Notes were issuedat par and the $45,000 of 8.75% Notes were issued at a 5% premium.  The additional 8.75% Notes were issued on thesame terms as the original issue.  Netproceeds from the additional offerings of approximately $46,400 increased theCompany’s cash and short-term investments. The 8.75% Notes mature on March 15, 2014 and bear interest at anannual rate of 8.75% payable each September 15 and March 15 to theholders of record on September 1 and March 1 immediately precedingthe interest payment date.  On May 11,2005, the Company completed an offer to exchange (“2005 Exchange Offer”) $200million principal amount of its 8.75% Notes which had been registered under theSecurities Act for any and all of its outstanding unregistered 8.75% Notes.

 

The 8.75% Notes are subordinated to borrowings under the RevolvingCredit Facility (see Note 9) and other secured indebtedness to the extent ofthe assets securing the debt.  Also, theCompany’s obligations under the 8.75% Notes are guaranteed by each wholly ownedsubsidiary of the Company (the “Subsidiary Guarantors”).  Each guarantee is a senior unsecuredobligation of the Subsidiary providing such Guarantee.  The Subsidiary Guarantors are also borrowersunder the Revolving Credit Facility (see Note 9).

 

The Company has the option to redeem the 8.75% Notes at any time on orafter March 15, 2009, at a defined premium plus accrued and unpaidinterest to the date of redemption.  On December 19,2008, the Company purchased $800 of the 8.75% Notes on the open market, resultingin a gain of $416.

 

The 8.75% Notes’ indenture includes covenants that limit the ability ofthe Company to: incur additional debt, including sale and leasebacktransactions; pay dividends or distributions on its capital stock or repurchasecapital stock; issue stock of subsidiaries; make certain investments; createliens on its assets to secure debt; enter into transactions with affiliates;merge or consolidate with another company; and transfer and sell assets.  As noted, the indenture contains a covenantto limit the incurrence of additional indebtedness as measured by itsConsolidated Coverage Ratio, as defined. The Company may incur indebtedness if this ratio is greater than 2.0 to1.0 and there is no other event of default, as defined.  At December 31, 2008, the ConsolidatedCoverage Ratio, as defined, was 2.6 to 1.0.

 

The Company estimates the fair value of the 8.75% Notes at December 31,2008 and 2007 was approximately $95,000 and $167,500, respectively, based ontheir market values at those dates compared to a recorded amount of $200,491.

 

The Company’s obligation under capital leases is due in varyingmaturity dates through 2013.  The capitalleases are secured by certain equipment with a net book value of approximately$8,112 and $9,190 at December 31, 2008 and 2007, respectively.

 

55

----

Table of Contents

 

**J.B. POINDEXTER & CO., INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)**

**(Dollars in Thousands)**

 

**Maturities.**  Aggregate principal payments on long-termdebt based on scheduled maturities for the next five years and thereafter as ofDecember 31, 2008 are as follows:

 
| 2009                 |   | $       | 2,574   |   |
|----------------------|--------|---------|---------|--------|
| 2010                 |   | 2,044   |    |
| 2011                 |   | 1,792   |    |
| 2012                 |   | 1,048   |    |
| 2013                 |   | 263     |    |
| 2014 and  thereafter |   | 199,264 |    |
|                 |   | $       | 206,985 |   |

 

**11.**                               OperatingLeases

 

The Company leases certain manufacturing facilities and equipment undernoncancelable operating leases certain of which contain renewal options. Thefuture minimum lease payments subsequent to December 31, 2008 are asfollows:

 
| 2009                          |   | $     | 9,542  |   |
|-------------------------------|--------|-------|--------|--------|
| 2010                          |   | 7,280 |   |
| 2011                          |   | 5,843 |   |
| 2012                          |   | 4,639 |   |
| 2013                          |   | 3,311 |   |
| 2014 and  thereafter          |   | 5,524 |   |
| Total minimum  lease payments |   | $     | 36,139 |   |

 

Total rental expense included in continuing operations under alloperating leases was approximately $9,711, $9,485 and $8,933 for the yearsended December 31, 2008, 2007 and 2006, respectively.

 

**12.**                               SupplementalCash Flow Information

** **

The supplemental cash flow information for the yearsended December 31, 2008, 2007 and 2006 was as follows:

 
| ** **                                             | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cash paid for  interest                                |       | $        | 18,371     |     | $          | 18,688   |       | $ | 18,070 |   |
| Cash paid for  income taxes, net of foreign refunds    |       | 508      |       | 6,875    |       | 2,022    |       |
| Noncash  investing and financing activities:           |       |     |       |     |       |     |       |
| Capital lease  obligations for machinery and equipment |       | 438      |       | 4,635    |       | 4,051    |       |
|                                                        |            |          |            |          |            |          |            |  |  |  |

 

56

----

Table of Contents

** **

**J.B. POINDEXTER & CO., INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)**

**(Dollars in Thousands)**

 

**13.**                               Income Taxes

** **

The income tax provision consists of the followingfor the years ended December 31, 2008, 2007 and 2006:

 
| ** **            | ** ** | **2008** | ** ** | **2007** | ** ** | **2006**   | ** ** |
|-----------------------|------------|----------|------------|----------|------------|------------|------------|
| Current:              |       |     |       |     |       |       |       |
| Federal               |       | $        | 1,478      |     | $          | 970        |       | $ | 2,995 |   |
| State                 |       | 1,162    |       | 1,509    |       | 809        |       |
| Foreign               |       | (866     | )          | 29       | ** ** | **—** | ** ** |
|                  |       | 1,774    |       | 2,508    |       | 3,804      |       |
| Deferred:             |       |     |       |     |       |       |       |
| Federal               |       | 1,733    |       | 466      |       | 3,174      |       |
| State                 |       | 411      |       | 158      |       | (1,739     | )          |
| Foreign               | ** ** | 892      |       | (8       | )          | (1,869     | )          |
|                  |       | 3,036    |       | 616      |       | (434       | )          |
| Income tax  provision |       | $        | 4,810      |     | $          | 3,124      |       | $ | 3,370 |   |

 

The following table reconciles the differences between the federalstatutory income tax rate and the effective tax rate for the years ended December 31,2008, 2007 and 2006:

 
| ** **                                                | ** ** | **2008**   | ** ** | **2007** | ** ** | **2006**   | ** ** |
|-----------------------------------------------------------|------------|------------|------------|----------|------------|------------|------------|
| ** **                                                | ** ** | **Amount** | ** ** | **%**    | ** ** | **Amount** | ** ** | **%** | ** ** | **Amount** | ** ** | **%** | ** ** |
| Tax provision at  federal statutory income tax rate       |       | $          | 3,944      |     | 34         | %          | $          | 796 |   | 34 | % | $ | 4,058 |   | 35 | % |
| Net impact of change  in valuation allowance              |       | (304       | )          | (2       | )          | 827        |       | 35 | ** ** | **—** | ** ** | **—** | ** ** |
| Increase in  state net operating loss carryforwards       |       | —     |       | —   |       | —     |       | — |   | (700 | ) | (6 | ) |
| Nondeductible  expenses                                   |       | 127        |       | 1        |       | 201        |       | 9 |   | 336 |   | 3 |   |
| State income  taxes, net of federal income tax benefit    |       | 1,440      |       | 12       |       | 304        |       | 13 |   | 396 |   | 3 |   |
| FIN 48  adjustment related to prior years                 |       | (211       | )          | (2       | )          | 668        |       | 29 |   | — |   | — |   |
| FIN 48  adjustment related to current year                |       | 111        |       | 1        |       | 219        |       | 9 |   | — |   | — |   |
| Foreign income  taxes, at rate different thanfederal rate |       | (93        | )          | (1       | )          | 19         |       | 1 |   | (167 | ) | (1 | ) |
| Other                                                     |       | (204       | )          | (2       | )          | 90         |       | 4 |   | (553 | ) | (5 | ) |
| Provision for  income taxes and effective tax rates       |       | $          | 4,810      |     | 41         | %          | $          | 3,124 |   | 134 | % | $ | 3,370 |   | 29 | % |

 

The domestic and foreign components of income (loss)before income taxes were:

 
| ** ** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|
| Domestic   |       | $        | 14,195     |     | $          | 4,374    |       | $ | 17,061 |   |
| Foreign    |       | (2,595   | )          | (2,035   | )          | (5,466   | )          |
| Total      |       | $        | 11,600     |     | $          | 2,339    |       | $ | 11,595 |   |

 

Deferred income taxes are based on the estimated future tax effects ofdifferences between the financial statements and tax basis of assets andliabilities given the provisions of the enacted tax laws.  The net deferred tax assets and liabilitiesas of December 31, 2008 and 2007 were:

 

57

----

Tableof Contents

 

**J.B. POINDEXTER & CO., INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)**

**(Dollars in Thousands)**

 

 
| ** **                                         | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|----------------------------------------------------|------------|------------|------------|------------|------------|
| **Current  deferred tax asset:**                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Allowance for  doubtful accounts                   |       | $          | 437        |       | $          | 209 |   |
| Employee benefit  accruals and reserves            |       | 395        |       | 393        |       |
| FIN No. 48  tax benefit                       |       | 814        |       | 852        |       |
| Other                                              |       | 477        |       | 584        |       |
| Total current  deferred tax asset                  |       | $          | 2,123      |       | $          | 2,038 |   |
| ** **                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Long-term  deferred tax asset:**                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Tax credit and  state operating loss carryforwards |       | $          | 6,135      |       | $          | 8,328 |   |
| Warranty  liabilities                              |       | 1,316      |       | 1,498      |       |
| Other                                              |       | 2,696      |       | 2,834      |       |
| Valuation  allowance                               |       | (3,977     | )          | (4,581     | )          |
| Total long-term  deferred tax asset                |       | $          | 6,170      |       | $          | 8,079 |   |
| ** **                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Long-term  deferred tax liabilities:**           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Depreciation and  amortization                     |       | $          | (8,333     | )          | $          | (6,598 | ) |
| Intangible  assets                                 |       | (706       | )          | (1,229     | )          |
| Total long-term  deferred tax liability            |       | (9,039     | )          | (7,827     | )          |
| Net long-term  deferred tax asset (liability)      |       | (2,869     | )          | 252        |       |
| Net deferred tax  asset (liability)                |       | $          | (746       | )          | $          | 2,290 |   |

 

The Company had alternative minimum tax credit carryforwarddeferred tax assets of approximately $800 at December 31, 2008 and 2007for U.S. federal income tax purposes, which may be carried forwardindefinitely.  The Company had capitalloss carryforwards of approximately $0 and $3,600 at December 31, 2008 andDecember 31, 2007, respectively, for U.S. federal income taxpurposes.  The Company utilizedapproximately $2,800 of the capital loss carryforwards to offset capital gainsand approximately $800 of the capital loss carryforwards expired on December 31,2008.  The utilization of this deferredtax asset carryforward of approximately $1,100 and the accompanying release ofthe valuation allowance resulted in a reduction of tax expense of approximately$1,100.  The remaining capital losscarryforward deferred tax asset of approximately $300 expired as of December 31,2008 and was removed from the Company’s deferred tax assets along with theaccompanying valuation allowance.

 

**At December 31, 2008 and 2007, the Company hadstate tax net operating loss carryforwards of approximately $72,000 and$64,000, respectively, and recognized a deferred tax asset of approximately$3,900 and $3,700, respectively. The state net operating loss carryforwardsexpire at varying dates ranging from 1 to 20 years.  At December 31, 2008 and 2007, theCompany had recorded a valuation allowance of approximately $2,500 against thisdeferred tax asset as it was uncertain as to whether it would be realized.  The Company had Canadian net operating lossesof approximately $4,700 and $6,600 as of December 31, 2008 and 2007,respectively, and recognized a deferred tax asset of approximately $1,500 and$2,550, respectively.  At December 31,2008 and 2007, the Company recorded a valuation allowance of approximately$1,500 and $700, respectively, against this deferred tax asset as it wasuncertain as to whether it would be realized. Canadian net operating losses of $4,343 were carried back to prior yearsand the remaining amounts will be carried forward for up to 20 years, with asignificant majority being greater than 10 years.**

** **

As of December 31, 2008and December 31, 2007, the Company had $2,802 and $2,940, respectively, oftax liabilities related to uncertain state income tax liabilities, or $1,988and $2,088, respectively, net of a federal tax benefit of $814 and $852,respectively.  The tax liability includes$824 and $689 of interest and penalties at December 31, 2008 and 2007,respectively.  If these uncertain taxpositions are favorably resolved, $1,988 would 

 

58

----

Table of Contents

 

**J.B. POINDEXTER & CO., INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)**

**(Dollars in Thousands)**

 

 

reduce our income taxprovision in future periods.  Areconciliation of the beginning and ending unrecognized tax liability is asfollows:

 
| ** **                                                                                                                      | ** ** | **Liability for  Unrecognized Tax  Benefits** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| Balance at  December 31, 2006                                                                                              |       | $                                             | 979        |   |
| FIN No. 48  adjustment                                                                                                     |       | 658                                           |       |
| Balance at January 1,  2007                                                                                                |       | 1,637                                         |       |
| Additions based  on tax positions related to prior years                                                                        |       | 955                                           |       |
| Additions based  on tax positions related to current year                                                                       |       | 348                                           |       |
| Balance at  December 31, 2007                                                                                              |       | 2,940                                         |       |
| Releases related  to prior years due to expiration of statutes, net of additions based on tax  positions related to prior years |       | (311                                          | )          |
| Additions based  on tax positions related to current year                                                                       |       | 173                                           |       |
| Balance at  December 31, 2008                                                                                              |       | $                                             | 2,802      |   |

 

We are subject to U.S.federal income tax as well as income tax in Canada and multiple statejurisdictions. We have substantially concluded all U.S. federal income taxmatters for years through 2004. Substantially all material state and local income tax matters have beenconcluded for fiscal years through 2004. Currently, we are under audit by Revenue Canada for tax years 2001through 2004, the Internal Revenue Service for tax year 2006, and examinationby the states of Wisconsin and Illinois. The Company has provided for any known potential exposures for theseexaminations.

 

**14.**                               Common Stock

 

As of December 31, 2008and 2007, there were 100,000 shares authorized and 3,059 shares issued andoutstanding of JBPCO common stock with a par value of $.01 per share.  JBPCO was incorporated in Delaware.  No other classes of common stock, preferredstock or common stock equivalents exist.

 

**15.**                               EmployeeBenefit Plans

 

E*mployee Incentive Plans*. The Company has an Annual Management Incentive Plan for executives atthe parent company and at each of the business units to provide for the earningof annual bonuses based upon the attainment of performance-based goals.Eligible participants are entitled to receive a bonus if the business unit (orthe Company) attain at least 80% of the operating income target.  Individual bonuses are then allocated amongthe eligible employees based upon their individual achievement of statedperformance objectives including working capital performance objectives. TheCompany incurred expenses related to this plan totaling $3,877, $2,378 and$3,125 for the years ended December 31, 2008, 2007 and 2006, respectively.

 

TheCompany has a Long-Term Performance Plan (“LTPP”) designed to align theinterests and the Company’s long-term financial performance goals with the mostsenior executives in the Company.  Eachelement of the LTPP has a three-year duration and awards are paid only at theend of the three-year cycle, depending upon performance versus establishedbudgeted financial goals.  The Companyincurred expenses related to this plan totaling $733, $136 and $173 for theyears ended December 31, 2008, 2007 and 2006, respectively.

 

*JBPCO401(k) Defined Contribution Plan.* The JBPCO-sponsored 401(k) savingsplan allows participating employees to contribute through salary deductions upto 100% of gross compensation and provides for Company matching contributionsup to 1% of the first 5% or 3% of the first 6% depending on the profitabilityof the business unit, of gross pay as well as the opportunity for an annualdiscretionary contribution.  The Company 

 

59

----

Table of Contents

 

**J.B. POINDEXTER & CO., INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)**

**(Dollars in Thousands)**

 

decreasedthe matching percentage to 1% of the first 5% from 3% of the first 6%, forcertain business units, during 2008.  TheCompany has not made discretionary contributions.  Vesting in the Company matching contributionis 20% per year over the first five years. The Company incurred related employer matching contribution andadministrative expenses of $1,702,****$2,009 and$1,634 during the years ended December 31, 2008, 2007 and 2006,respectively.

 

*Defined Benefit Plan.*****TruckAccessories assumed future sponsorship of a defined benefit plan (the “Plan”)covering hourly employees at its Gem Top division that was sold with all theemployees terminated effective February 28, 2003.  The Plan was frozen effective March 31,1996 and at December 31, 2008 the Plan was underfunded by approximately$160 compared to being overfunded by approximately $33 in 2007.  The Company’s funding policy for the Plan isto make the minimum annual contributions required by applicableregulations.  Minimum contributions forthe 2008 plan year totaled $43.

 

The Plan has invested its assets through a group annuity contract withan insurance company.  The targetedcomposition is set by the Company and is reallocated periodically.  The long-term portfolio is chosen based onthe duration of the Plan’s individual population and is set toward funding forbenefits payable in the future.  The fairvalue of the Plan’s assets was $307 and $461 as of December 31, 2008 and2007, respectively.  The pension expense(benefit) recognized was $(4), $5 and $23 for the years ended December 31,2008, 2007 and 2006, respectively.  Basedon the immateriality of the Plan, management does not believe expandeddisclosure is necessary.

 

**16.**                               Commitments andContingencies

 

*Claims and Lawsuits.*  The Company is involved in certain claims andlawsuits arising in the normal course of business.  In the opinion of management, the ultimateresolution of these matters will not have a material adverse effect on thefinancial position or results of operations and cash flows of the Company.

 

*Letters of Credit and Other Commitments.** ***The Company had $2,358 instandby letters of credit outstanding at December 31, 2008, primarilysecuring the Company’s insurance programs. The Company holds funds in a trust for the benefit of its casualty insurancecarrier of $7,277 to secure the Company’s insurance programs.  Income from the trust accrues to the Company.

 

The Company has a five-year agreement that expires October 1, 2009with a key supplier, whereby it exclusively purchases inventory from this supplierin return for favorable pricing.  TheCompany estimates that it will purchase approximately $4.7 million from thissupplier in 2009.

 

*Consigned Chassis Inventories. *The Companyobtains vehicle chassis for certain units produced at Morgan directly from thechassis manufacturer under a bailment pool agreement with General MotorsAcceptance Corporation.  Chassis areobtained directly from the manufacturer based on orders from customers, whichare typically manufacturer dealers.  Theagreements generally provide that the Company is restricted to producingcertain conversions or up-fittings on these chassis.  The manufacturer does not transfer thecertificate of origin to the Company and, accordingly, the Company accounts forthe chassis as consigned inventory belonging to the manufacturer.  Under these agreements, if the chassis is notdelivered to a customer within a specified timeframe, the Company is requiredto pay a finance charge based on the value of the chassis.  The finance charges incurred on consignedchassis inventories included in interest expense in the consolidated statementsof income totaled $27, $49 and $76 for the years ended December 31, 2008,2007 and 2006, respectively.  Totalconsigned chassis inventory was $930 and $1,433 at December 31, 2008 and2007, respectively.

 

*Environmental Matters*.****TheCompany’s operations are subject to a variety of federal, state and localenvironmental and health and safety statutes and regulations, including thoserelating to emissions to the air, discharges to water, treatment, storage anddisposal of waste, and remediation of contaminated sites. In certain

 

60

----

Table of Contents

 

**J.B. POINDEXTER & CO., INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)**

**(Dollars in Thousands)**

 

cases, these requirements may limit the productive capacity of itsoperations. Certain laws, including the Federal Comprehensive EnvironmentalResponse, Compensation and Liability Act of 1980, impose strict and, undercertain circumstances, joint and several liability for costs to remediatecontaminated sites upon designated responsible parties including site owners oroperators and persons who dispose of wastes at, or transport wastes to, suchsites. Some of the Company’s operations also require permits which may restrictits activities and which are subject to renewal, modification or revocation byissuing authorities. In addition, the Company generates nonhazardous wastes,which are also subject to regulation under applicable environmental laws.

 

From time to time, the Company has received notices of noncompliancewith respect to its operations, which typically have been resolved by investigatingthe alleged noncompliance, correcting any noncompliant conditions and payingfines, none of which individually or in the aggregate has had a materialadverse effect on the Company.  The Company cannot ensure that it has beenor will be at all times in compliance with all of these requirements, includingthose related to reporting or permit restrictions, or that it will not incurmaterial fines, penalties, costs or liabilities in connection with suchrequirements or a failure to comply with them.  Additionally, the Companyexpects that the nature of its operations will continue to make it subject toincreasingly stringent environmental regulatory standards. Although the Companybelieves it has made sufficient capital expenditures to maintain compliancewith existing laws and regulations, future expenditures may be necessary ascompliance standards and technology change or as unanticipated circumstancesarise. Unforeseen and significant expenditures required to comply with new ormore aggressively enforced requirements or newly discovered conditions couldlimit expansion or otherwise have a material adverse effect on the Company’sbusiness and financial condition.

 

In February 2009, Morgan Olson voluntarily reported to theEnvironmental Protection Agency (“USEPA”) potential non-compliance withreporting requirements applicable to certain chemicals under the federalEmergency Planning and Community Right-to-know Act (“EPCRA”).  In March 2009, Morgan Olson filed withthe USEPA additional EPCRA reports for some chemicals and modified EPCRAreports for other chemicals for calendar year 2004 through 2007.  The Company is unable to estimate thefinancial impact of the non-compliance.

 

In August 2007, Morgan Olson was notified by the MichiganDepartment of Environmental Quality (“MDEQ”) that it had allegedly failed toprovide certain reports related to its air permit and committed certain otherpermit violations.  Morgan Olsondisagreed with MDEQ’s interpretation of the required reports and could notreach agreement with MDEQ to settle these alleged violations.  MDEQ referred the matter to the USEPA.  The USEPA completed its review and determinedthat there were four alleged violations. The Company is not contesting the findings and has agreed to settle thematter for a penalty of $65.

 

In July 2005, Morgan notified the USEPA that it was investigatingits compliance with the filing requirements of Section 313 of the EPCRA,and regulations promulgated thereunder. All necessary reports were completedand filed with the USEPA by August 31, 2005.  A letter from the USEPA requesting additionalinformation was received in December 2006 and a response submitted. Actionby the USEPA is probable and the financial impact of such enforcement action,if any, cannot be estimated but could be material.

 

 

**17.**                               Related-PartyTransactions

** **

The Company is party to aManagement Services Agreement with Southwestern Holdings, Inc. (“Southwestern”),a corporation owned by Mr. Poindexter. The services agreement was suspended effective June 30, 2006 when Mr. Poindexterbecame an employee of the Company and reinstated effective July 31, 2008when Mr. Poindexter ceased being an employee of the Company.  Pursuant to the Management ServicesAgreement, Southwestern provides services to the Company, including those of Mr. Poindexter.  The Company pays Southwestern a base fee ofapproximately $45 per month for these services, subject to annual automaticincreases based upon the consumer price index. The Company paid Southwestern $222, $0 and $346 during 2008, 2007 and2006, respectively, for all these services.

 

61

----

Table of Contents

 

**J.B. POINDEXTER & CO., INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)**

**(Dollars in Thousands)**

 

Southwesternwas a named insured under the Company’s general liability and excessumbrella insurance policies during 2007 when Southwestern became the defendantin a suit for damages resulting from a vehicle accident not involving theCompany’s assets or any of its team members.  The lawsuit was settledduring 2008 and Southwestern paid the amount of the self-insured reserve of$250.  Southwestern is no longer a named insured under the Company’sgeneral liability policy effective July 1, 2007.  Any increased premiums under the Company’sumbrella policy incurred in the future by the Company by reason of thesettlement will be reimbursed by Southwestern.

 

EffectiveDecember 12, 2008, Morgan sold and leased back three of its manufacturingfacilities to Poindexter Properties, LLC, a company owned by Mr. Poindexter.  The properties, located in Morgantown andEphrata, Pennsylvania and Corsicana, Texas, were sold at their appraised valueof $7,135.  Morgan realized a gain on thesale of $1,854 that has been deferred and included in other current andnoncurrent liabilities in the accompanying consolidated balance sheet and willbe recognized as income over the term of the leases.  Morgan paid rent of $51 for the use of theproperties for the period December 12, 2008 through the end of the year.

 

62

----

Table of Contents

 

**J.B. POINDEXTER & CO., INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)**

**(Dollars in Thousands)**

 

***18.****                              **Selected Quarterly Information (Unaudited)*

 

***The Company’s accounting recordsare maintained on the basis of four 13-week quarters.  Shown below are the selected unauditedquarterly data.***

 
| ** **                                    | ** ** | **March  31, 2008** | ** ** | **June  30, 2008** | ** ** | **September  30, 2008** | ** ** | **December  31, 2008** | ** ** |
|-----------------------------------------------|------------|---------------------|------------|--------------------|------------|-------------------------|------------|------------------------|------------|
| Net sales                                     |       | $                   | 184,236    |               | $          | 208,235                 |       | $                      | 167,178    |   | $ | 146,760 |   |
| Cost of sales                                 |       | 164,306             |       | 178,946            |       | 142,286                 |       | 125,261                |       |
| Gross profit                                  |       | 19,930              |       | 29,289             |       | 24,892                  |       | 21,499                 |       |
| Selling, general  and administrative expenses |       | 15,827              |       | 16,187             |       | 17,720                  |       | 16,556                 |       |
| Closed and  excess facility costs             |       | —              |       | —             |       | —                  |       | 788                    |       |
| Gain on  redemption of 8.75% Notes            |       | —              |       | —             |       | —                  |       | (416                   | )          |
| Other expense  (income)                       |       | 168                 |       | (342               | )          | (454                    | )          | (105                   | )          |
| Operating income                              |       | 3,935               |       | 13,444             |       | 7,626                   |       | 4,676                  |       |
| Interest  expense, net                        |       | 4,565               |       | 4,623              |       | 4,118                   |       | 4,775                  |       |
| Income tax  provision (benefit)               |       | 188                 |       | 3,498              |       | 1,371                   |       | (247                   | )          |
| Net income  (loss)                            |       | $                   | (818       | )                  | $          | 5,323                   |       | $                      | 2,137      |   | $ | 148 |   |
| Depreciation and  amortization                |       | $                   | 4,489      |               | $          | 4,550                   |       | $                      | 4,323      |   | $ | 4,296 |   |
| Amortization of  debt issuance costs          |       | $                   | 196        |               | $          | 146                     |       | $                      | 165        |   | $ | 184 |   |

 
|                                          | ** ** | **March  31, 2007** | ** ** | **June  30, 2007** | ** ** | **September  30, 2007** | ** ** | **December  31, 2007** | ** ** |
|-----------------------------------------------|------------|---------------------|------------|--------------------|------------|-------------------------|------------|------------------------|------------|
| Net sales                                     |       | $                   | 213,154    |               | $          | 229,743                 |       | $                      | 179,855    |   | $ | 169,409 |   |
| Cost of sales                                 |       | 188,339             |       | 200,568            |       | 164,801                 |       | 153,536                |       |
| Gross profit                                  |       | 24,815              |       | 29,175             |       | 15,054                  |       | 15,873                 |       |
| Selling, general  and administrative expenses |       | 16,629              |       | 15,627             |       | 15,630                  |       | 17,028                 |       |
| Closed and  excess facility costs             |       | 200                 |       | —             |       | —                  |       | (34                    | )          |
| Other expense  (income)                       |       | —              |       | —             |       | (244                    | )          | (79                    | )          |
| Operating income  (loss)                      |       | 7,986               |       | 13,548             |       | (332                    | )          | (1,042                 | )          |
| Interest  expense, net                        |       | 4,519               |       | 3,912              |       | 4,938                   |       | 4,452                  |       |
| Income tax  provision (benefit)               |       | 1,779               |       | 4,752              |       | (2,360                  | )          | (1,047                 | )          |
| Net income  (loss)                            |       | $                   | 1,688      |               | $          | 4,884                   |       | $                      | (2,910     | ) | $ | (4,447 | ) |
| Depreciation and  amortization                |       | $                   | 3,194      |               | $          | 3,442                   |       | $                      | 3,756      |   | $ | 4,671 |   |
| Amortization of  debt issuance costs          |       | $                   | 199        |               | $          | 197                     |       | $                      | 198        |   | $ | 197 |   |

 

During the fourth quarter of2007, the Company recorded an additional provision for uncertain state incometax positions of $955, and a corresponding federal tax benefit of $286, relatedto prior year tax positions and a tax provision of $348, and a correspondingfederal tax benefit of $129, related to current year tax positions.

** **

**63**

----

**Table of Contents**

** **

**Item 9.                    Changesin and Disagreements with Accountants on Accounting and Financial Disclosure**

** **

**None.**

** **

**Item 9A.                 Controlsand Procedures**

** **

**Management’s Conclusions RegardingEffectiveness of Disclosure Controls and Procedures**

** **

Asof December 31, 2008, the Company conducted an evaluation, under thesupervision and participation of management including the Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness of the Company’sdisclosure controls and procedures (as defined in Rule 13a-15(e) ofthe Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that the Company’s disclosure controls andprocedures required remedial action as of December 31, 2007. Managementbelieves that remedial action as outlined in Management’s Report on InternalControl Over Financial Reporting has satisfactorily addressed all mattersidentified as weaknesses as of December 31, 2007.

 

**Changes in Internal Control Over Financial Reporting**

 

Therehave been no changes in our internal control over financial reporting thatoccurred during the year ended December 31, 2008 that have materiallyaffected, or are likely to materially affect, our internal controls overfinancial reporting.

 

**Management’s Report on Internal Control Over Financial Reporting**

 

Managementof the Company is responsible for establishing and maintaining adequateinternal control over financial reporting as defined in Rule 13a-15(f) ofthe Securities Exchange Act of 1934. Internal control over financial reporting provides reasonable assuranceregarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generallyaccepted accounting principles.

 

TheCompany’s internal control over financial reporting includes policies andprocedures that: pertain to the maintenance of records that, in reasonabledetail, accurately and fairly reflect the transactions and disposition of theCompany’s assets; provide reasonable assurance that transactions are recordedas necessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that the Company’s receipts andexpenditures are being made only in accordance with authorizations ofmanagement; and provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use or disposition of the Company’sassets that could have a material effect on the financial statements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements.  Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

Managementof the Company has assessed the effectiveness of the Company’s internal controlover financial reporting based on criteria established in the InternalControl-Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

Management’sassessment included an evaluation of the design of the Company’s internalcontrol over financial reporting and testing of the operational effectivenessof the Company’s internal control over financial reporting.  Based on this assessment, managementidentified no material weaknesses in the Company’s internal controls as of December 31,2008.

 

Asa result of management’s assessment of internal controls over financialreporting during 2007, the following material weaknesses in internal controlswere identified:

 

 

64

----

Table of Contents

 

·                  The financial statements asof December 31, 2006 and for the year then ended were restated due to anerror in the accounting for inventory. The error was related to a failure to perform an adequate reconciliationof inventory records as a result of a combination of inadequate procedures andinventory tracking systems.  Thisrepresented a material weakness in the internal controls over the financialreporting of inventory as of December 31, 2006 and March 31,2007.  Management believes that theseweaknesses have been corrected through the implementation of a new informationsystem and improved procedures.

 

·                  The timelyoversight over the financial reporting of the business units and the workoutsourced to third parties needs to be improved.  Specifically, more timely oversight may haveprevented an adjustment to record an additional FIN No. 48 provision for uncertainstate income tax positions in the fourth quarter of 2007 and should enable moretimely reporting of financial results. Improvements, including the addition of corporate and business unitpersonnel, continue to be evaluated and implemented by management.

 

Webelieve that actions taken to date which include the hiring of additionalbusiness unit financial personnel and the additional experience gained by ourcorporate office financial reporting personnel have resulted in improvedcontrols over financial reporting.  Webelieve that our controls have improved sufficiently such that we do notcontinue to have material weaknesses over our financial reporting processes andwe have reported in section 9a of this annual report on Form 10K that weidentified no material weaknesses in the Company’s internal controls.  We may need to make additional improvementsif and when our business operations expand in size and complexity.

 

Thisannual report does not include an attestation report of the Company’s independentregistered public accounting firm regarding internal control over financialreporting.  Management’s report was notsubject to attestation by the Company’s independent registered publicaccounting firm pursuant to temporary rules of the Securities and ExchangeCommission that permit the Company to provide only management’s report in theannual report.

 

**Item 9B.                 Other Information**

 

None.

 

**PART III**

** **

**Item 10.                 Directors,Executive Officers and Corporate Governance**

** **

The Company’s directors and executive officers areset forth below. All directors hold office until the next annual meeting oruntil their successors are duly elected and qualified. The executive officersare appointed by the Board of Directors annually and serve at the discretion ofthe Board of Directors.

 
| **Name**            | ** ** | **Age** | ** ** | **Position**                                                  |
|---------------------|------------|---------|------------|---------------------------------------------------------------|
| John  B. Poindexter |       | 64      |       | Chairman  of the Board, President and Chief Executive Officer |
| Stephen  P. Magee   |       | 61      |       | Director                                                      |
| William  J. Bowen   |       | 87      |       | Director                                                      |
| Robert  S. Whatley  |       | 57      |       | Vice  President Finance, Secretary and Treasurer              |
| Larry  T. Wolfe     |       | 60      |       | Vice  President Administration and Assistant Secretary        |

 

 

65

----

Table ofContents

 

John B. Poindexter has served as Chairman of theBoard of Directors since 1988 and Chief Executive Officer since 1994.  He was President from November 2002until September 2005 and again from November 2006 to present.

 

Stephen P. Magee has served as Director since theCompany was formed in 1988, as Treasurer from 1988 to 2001 and as ChiefFinancial Officer from 1994 to 2001. Mr. Magee also serves as Chairman ofthe Audit Committee of the Board of Directors.

 

William J. Bowen has served as Director since1988.  Mr. Bowen retired in 1992 asChairman of the Board of Transco Energy Company, a diversified energy companybased in Houston, Texas. Mr. Bowen served as Chief Executive Officer ofTransco Energy from 1974 until his retirement from that position in 1987. Mr. Bowenserves on the Company’s Audit Committee.

 

Robert S. Whatley has served as Vice President sinceJune 1994. He is a Certified Public Accountant and a member of theInstitute of Chartered Accountants in England and Wales.

 

Larry T. Wolfe has served as Vice President ofAdministration since May 1995. He previously served as Vice President ofHuman Resources and Administrative Services for Transco Energy Company.

 

**Audit Committee**

 

The Audit Committee is a standing committee of theBoard of Directors. The primary purpose of the Committee is to assist the Boardof Directors in fulfilling its oversight responsibility relating to (1) theintegrity of our financial statements and financial reporting process and oursystems of internal accounting and financial controls; (2) the annualindependent audit of our financial statements, the engagement of theindependent auditors and the evaluation of the independent auditors’qualifications, independence and performance; and (3) the compliance bythe Company with legal and regulatory requirements, including disclosurecontrols and procedures. The Committee also reviews the Company’s criticalaccounting policies, annual and quarterly reports on Form 10-K and Form 10-Q,and earnings releases before they are published. The Committee has soleauthority to engage, evaluate and replace the independent auditor. TheCommittee also has the authority to retain special legal, accounting and otherconsultants it deems necessary in the performance of its duties. The Committeemeets regularly with our management and independent auditors to discussinternal controls and financial reporting process and also meets regularly withthe independent auditor in private.

 

The current members of the Audit Committee are Messrs. Magee(chairman) and Bowen. Since the Company is not a publicly traded company on alisted exchange, the Board of Directors has not designated a member of theAudit Committee as an “audit committee financial expert” who is independent asthe term is used in Item 7(d)(3)(iv) of Schedule 14A under the ExchangeAct.

 

**Other significant persons**

 

Although not an executive officer, each of the following persons is anofficer of the referenced subsidiary or division thereof and is an importantcontributor to operations:

 
| **Name**              | ** ** | **Age** | ** ** | **Position**                    |
|-----------------------|------------|---------|------------|---------------------------------|
| Nelson Byman          |       | 62      |       | President of MIC Group          |
| Jim Donohue           |       | 52      |       | President of Truck  Accessories |
| Bill  Flint, Jr. |       | 59      |       | President  of EFP               |
| Norbert  Markert      |       | 48      |       | President  of Morgan Truck Body |
| Michael  Ownbey       |       | 54      |       | President  of Morgan Olson      |

 

Nelson Byman became President of MIC Group in June 1998.Previously, Mr. Byman was Vice President/General Manager of a domesticdivision of Weatherford/Enterra, a manufacturer of oilfield-related equipment.

 

 

66

----

Table ofContents

 

Jim Donohue was named President of Truck Accessorieseffective July 7, 2008. Previously, Mr. Donohue spent nine yearsin general management positions with Unison Engine and Smiths Aerospacefollowing a nineteen year career with SKF Group.

 

Bill Flint, Jr. was named President of EFP on October 6,2003. Previously, Mr. Flint was President and Chief Operating Officer ofFlambeau Corporation, a plastics manufacturing company.

 

NorbertMarkert became President and Chief Operating Officer of Morgan in November 2005.  Previously, he served two years as Presidentof Autoliv of North America after having been President of PilkingtonAutomotive North America for four years.

 

MichaelOwnbey became President of Morgan Olson on December 10, 2007.  Prior to joining Morgan Olson, Mr. Ownbeywas Vice President of Operations for Honda Motor Company’s largest subsidiaryin North America, Yachiyo Manufacturing of Alabama, LLC.

 

**Code of Ethics**

 

The Board of Directors has adopted a code of ethicsthat applies to its executive officers. Management does not believe that a codeof ethics is a substitute for an obligation to always act in an honest andethical fashion.  The code of ethics isincorporated by reference to the 2006 Form 10-K.

 

**Item 11.                 Executive Compensation**

 

**Overviewof Compensation Program**

 

TheChairman of the Board of Directors (the “Chairman”) along with other Boardmembers and Company senior executives (for the purpose of this discussion, the “Committee”)has the responsibility for establishing, implementing and monitoring adherenceto the Company’s compensation program. The Committee ensures that the total compensation paid to executives isfair, reasonable and competitive.

 

**CompensationPractices and Objectives**

 

TheCommittee believes that the most effective executive compensation program isone that is designed to reward the achievement of specific goals and whichaligns the executive’s interests with those of the Company. The Committeeevaluates both performance and compensation to ensure that it maintains itsability to attract and retain superior employees in key positions and thatcompensation provided to key employees remains competitive relative to thecompensation paid to executives at similar companies.  To that end, the Committee believes executivecompensation provided by the Company to its executives, including the namedexecutive officers, should include a combination of competitive base salariesand performance-driven incentive plans.

 

**Role ofExecutive Officers in Compensation Decisions**

 

TheCommittee participates in compensation assessments and recommendations for theexecutive officers of the Company and the Chairman reserves the right of finalapproval.  The Chairman further reservesthe right to exercise discretion in modifying any recommended adjustments orawards.

 

**SettingExecutive Compensation**

 

TheCommittee has structured the Company’s annual and long-term incentive-basedexecutive compensation to motivate executives to achieve the financial goalsset by the Company and reward executives for achieving such goals.  In furtherance of these objectives, theCommittee periodically engages the services of outside executive compensationconsultants to provide relevant market data and alternatives to consider whenmaking compensation decisions.

 

 

67

----

Table of Contents

 

Inmaking compensation decisions, the Committee compares the total compensationopportunity of executives as compared to a nationwide survey of similar-sizedcompanies from a cross section of manufacturing industries.  This data is updated annually and ispresented to the Company by a third-party firm expressed as 25th, 50th and 75th percentiles. The Company strives to manage the base and incentive compensation to the50th percentile which is further influenced byindividual performance, Company performance and an executive’s length ofservice.

 

Asignificant portion of total compensation is provided as incentive compensationrealized by the executives as a result of the Company achieving establishedobjectives.  Historically, and in fiscal2006, incentive awards were reflective of both the Company’s achievement ofestablished objectives and the individual executive’s performance.

 

**2008Executive Compensation Components**

 

Forthe fiscal year ended December 31, 2008, the principal components ofcompensation for named executive officers were:

 

·                  Base salary

 

·                  Performance-basedannual incentive compensation

 

·                  Performance-basedlong-term incentive compensation

 

TheCompany does not provide any executives with any form of non-cash compensationsuch as retirement plans or perquisites.

 

**BaseSalary**

 

TheCompany provides executive officers with a base salary to compensate them forservices rendered during the fiscal year. Salary ranges for each executive are determined based on their positionand responsibility and by using market data. The Company strives to manage an executive’s base salary compensation tothe 50th percentile of the market data provided by anoutside consultant.  Salary levels aretypically considered annually as part of the Company’s performance reviewprocess as well as upon a promotion or other change in job responsibility.  Merit-based increases for executives are aresult of recommendations made by the Committee and subject to the finalapproval of the Chairman.

 

**Performance-BasedAnnual Incentive Plan**

 

TheAnnual Management Incentive Plan (the “Annual Plan”) was established in themid-1990s to provide an annual incentive opportunity to executives throughoutthe Company.  The purpose of the AnnualPlan is to align the interests of the executives with the financial performanceat either their business unit or the parent. At the beginning of each calendar year, the Chairman reviews andapproves each participant’s eligibility in the Annual Plan and incentive targetwhich is expressed as a percent of base salary earnings for the year.

 

Participantsin the Annual Plan at the parent level have their performance measured by theconsolidated earnings performance of the Company in relationship to theearnings budget established at the beginning of each calendar year.  Participants in the Annual Plan at thebusiness unit level have their performance measured by a combination of theirbusiness unit’s performance to an established earnings budget and themanagement of working capital targets. Performance to the earnings budget accounts for 75% to 80% of theincentive award and the management of working capital accounts for 20% to25%.  However, if the earnings budget isnot achieved at least at the threshold level, no incentive awards are paid.

 

Thethreshold level is set at 80% of budgeted earnings.  Once the annual audit is complete and theearnings performance verified at both the parent and business unit level by theCompany’s outside auditors, the percent of performance to budget isestablished.  If the performance exceeds80%, that number is squared to determine what percent of a participant’s awardis paid. (Example:  If 90% earningsperformance is achieved, then 90% x 90% = 81% 

 

 

68

----

Table of Contents

 

ofa participant’s incentive target award is paid.)  The Annual Plan maximum payout is achievedwhen the earning’s performance is 130% of budgeted earnings and 169% of aparticipant’s incentive target.

 

Inany calendar year where performance falls below the threshold performancelevel, the Committee may make modest discretionary awards to certain AnnualPlan participants to reward exceptional individual contributions.

 

In2008, the income thresholds under the Annual Plan were reduced to offsetnegative industry trends that were not anticipated when the grants under theAnnual Plan were established, resulting in greater awards under the Annual Planthan would have been the case if those adjustments had not been made.

 

**Long-TermPerformance Plan**

 

TheLong-Term Performance Plan (“LTPP”) was established in 1999 and was designed toalign the interests and performance goals of the most senior executives in theCompany with the long-term financial performance of the Company.  Each element of the LTPP has a three-yearduration and awards are paid only at the end of the three-year cycle, dependingupon consolidated financial performance versus established budgets.

 

Eachyear, the Committee designates participants in the LTPP and provides them witha letter which outlines their participation, their targeted award and theperformance criteria.  Because of thethree-year cycle, a regular participant in the LTPP will have three cycles inprogress simultaneously, one cycle will be in its first year, one in the secondyear and one in the third year.  Targetedparticipant awards are expressed as a percent of their base annual salary atthe end of the three-year cycle.

 

Performanceof the LTPP is determined by the cumulative Profit Before Tax (“PBT”) financialperformance of the Company over each three-year period as measured against thebudgeted PBT for the same time period. Threshold performance is achieved when the Company’s cumulative PBTachieves 80% of budgeted PBT for the same period.  A scale is used to determine a participant’saward so that at the threshold, or 80% performance, a participant receives 20%of the established award.  The maximumaward is achieved when PBT is 130% or greater than plan which, based on thescale, equates to a payment of 200% of a participant’s established award.  Awards are paid at the conclusion of eachthree-year cycle, following the audit of the Company’s results of operations.

 

Forany calendar year that the Company’s performance fails to reach at least the80% threshold level, an 80% achievement factor is used for that year.  The Chairman has the authority to modify aparticipant’s award, once the Company’s performance has become known for thethree-year cycle, between 80% to 200% of the calculated award, to recognize aparticipant’s individual performance and contribution.  The Board has the authority to amend, modifyor cancel the Plan at any time.

 

**NonqualifiedDeferred Compensation Plan**

 

TheCompany sponsors a nonqualified deferred compensation plan that allows eligibleemployees to elect to tax defer any portion of their annual compensation.  There is no Company match and deferredamounts are invested in funds managed by an independent investmentcompany.  The funds earn market rates ofreturn and are subject to normal market risk. The funds are not subject to a trust arrangement and therefore may notbe available in the future to pay the liability to the employee.  Deferred amounts are eligible to be distributedto participants after their separation from the Company.

 

**401(k) Plan**

 

TheCompany sponsors a 401(k) savings plan that allows participating employeesto contribute a portion of their gross compensation up to 100% and provides forCompany matching contributions up to 3.0% of the first 6.0% or 1% of the first5% of gross compensation, depending on the financial performance of thebusiness unit, as well as 

 

 

69

----

Table of Contents

 

theopportunity for an annual discretionary contribution.  The Company has not made a discretionarycontribution to date.  Vesting in theCompany’s matching contribution is 20% per year over the first five years ofemployment.

 

**Perquisitesand Other Personal Benefits**

 

TheCompany does not provide any form of perquisite, executive benefit program orpersonal benefits to any of the named executives or any other senior managementmember at the parent or business unit level.

 

**CompensationCommittee Interlocks and Insider Participation**

 

Themembers of the Committee are Messrs. Poindexter, Magee, Wolfe andWhatley.  Messrs. Wolfe and Whatleyare officers and employees of the Company. See Item 13. Certain Relationships and Related Transactions, andDirector Independence, for a description of certain transactions between theCompany and Messrs. Poindexter and Magee.

 

**COMMITTEEREPORT**

 

TheCommittee of the Company has reviewed and discussed this CompensationDiscussion and Analysis and, based on such review and discussion, the Committeerecommended to the Board that this Compensation Discussion and Analysis beincluded in this 10-K.

 

The Committee

 

John Poindexter - Chairman, President & CEO

Stephen Magee - Member, Board of Directors

Larry Wolfe - Vice President of Administration and Assistant Secretary

Robert Whatley - Vice President Finance, Secretary and Treasurer

 

The following table sets forth certain informationregarding the compensation paid to the Company’s Principal Executive Officer,the Company’s Principal Financial Officer, the Company’s three most highlycompensated executive officers (including executive officers of the Company’sbusiness units) other than the Principal Executive Officer and PrincipalFinancial Officer for each of the last three completed fiscal years(collectively, the “named officers”).

 

** **

**70**

----

** **

**Table of Contents**

** **

**SummaryCompensation Table**

 
| **Name and principal position**     | ** ** | **Year** | ** ** | **Salary** | ** ** | **Non-Equity  Incentive Plan  Compensation** | ** ** | **All Other   Compensation** | ** ** | **Total** | ** ** |
|-------------------------------------|------------|----------|------------|------------|------------|----------------------------------------------|------------|------------------------------|------------|-----------|------------|
| John B.  Poindexter(a)              |       | 2008     |       | $          | 340,984    |                                         | —     |                         | $          | 6,900     |       | $ | 340,984 |   |
| Principal  Executive Officer        |       | 2007     |       | $          | 593,016    |                                         | —     |                         | $          | 6,750     |       | $ | 600,516 |   |
|                                |       | 2006     |       | $          | 296,508    |                                         | —     |                         | $          | 352,200   |       | $ | 648,708 |   |
|                                |       |     |       |       |       |                                         |       |                         |       |      |       |
| Robert  Whatley(b)                  |       | 2008     |       | $          | 230,844    |                                         | $          | 65,000                       |       | $         | 10,452     |   | $ | 306,386 |   |
| Principal Financial  Officer        |       | 2007     |       | $          | 220,377    |                                         | $          | 48,000                       |       | $         | 6,750      |   | $ | 272,877 |   |
|                                |       | 2006     |       | $          | 201,500    |                                         | $          | 63,362                       |       | $         | 6,100      |   | $ | 270,962 |   |
|                                |       |     |       |       |       |                                         |       |                         |       |      |       |
| Norbert  Markert(c)                 |       | 2008     |       | $          | 359,298    |                                         | $          | 340,662                      |       | $         | 204,772    |   | $ | 904,732 |   |
| President,  Morgan                  |       | 2007     |       | $          | 337,012    |                                         | $          | 132,184                      |       | $         | 164,086    |   | $ | 633,282 |   |
|                                |       | 2006     |       | $          | 326,848    |                                         | $          | 136,975                      |       | $         | 7,500      |   | $ | 471,323 |   |
|                                |       |     |       |       |       |                                         |       |                         |       |      |       |
| Nelson Byman(d)                     |       | 2008     |       | $          | 289,116    |                                         | $          | 344,453                      |       | $         | 6,900      |   | $ | 640,469 |   |
| President,  Specialty Manufacturing |       | 2007     |       | $          | 248,654    |                                         | $          | 216,015                      |       | $         | 40,525     |   | $ | 505,193 |   |
|                                |       | 2006     |       | $          | 229,901    |                                         | $          | 155,535                      |       | $         | 7,500      |   | $ | 392,936 |   |
|                                |       |     |       |       |       |                                         |       |                         |       |      |       |
| Mike Ownbey(e)                      |       | 2008     |       | $          | 234,428    |                                         | $          | 210,000                      |       | $         | 50,312     |   | $ | 494,740 |   |
| President,  Morgan Olson            |       |     |       |       |       |                                         |       |                         |       |      |       |
|                                |       |     |       |       |       |                                         |       |                         |       |      |       |
| Larry Wolfe(f)                      |       | 2007     |       | $          | 270,000    |                                         | $          | 155,000                      |       | $         | 6,750      |   | $ | 431,434 |   |
| Vice President  of Administration   |       | 2006     |       | $          | 240,866    |                                         | $          | 104,167                      |       | $         | 6,600      |   | $ | 351,633 |   |
|                                |       |     |       |       |       |                                         |       |                         |       |      |       |

----

(a) Mr. Poindexterreceived a salary from the Company for July 2006 until July 31, 2008.He does not receive a bonus and does not participate in either the Annual Planor LTPP. Through June 2006, Mr. Poindexter was compensated through aManagement Services Agreement between Southwestern Holdings, Inc. and theCompany. (Southwestern Holdings, Inc. is owned by Mr. Poindexter.)For all services, the Company paid Southwestern Holdings, Inc. $222,380 in2008 and $346,000 in 2006. The Company matched $6,750 and $6,200 of Mr. Poindexter’scontributions to the Company’s 401(k) Plan in 2007 and 2006, respectively.

 

(b) Mr. Whatleywas paid $65,000 pursuant to the Annual Plan that was accrued in 2008 but paidin 2009. Mr. Whatley does not participate in the LTPP. The Company matched$10,542, $6,750 and $6,100 of Mr. Whatley’s contributions to the Company’s401(k) Plan in 2008, 2007 and 2006, respectively.

 

(c) Mr. Markertwas paid $143,719 pursuant to the Annual Plan that was accrued in 2008 but paidin 2009 and received a payment of $196,943 under the LTPP. The Company matched$7,301, $8,081 and $7,500 of Mr. Markert’s contributions to the Company’s401(k) Plan in 2008, 2007 and 2006, respectively.  The Company reimbursed Mr. Markert$187,471 for interest paid on his unsold private residence and closing costs.

 

(d) Mr. Bymanwas paid $204,953 pursuant to the Annual Plan that was accrued in 2008 but paidin 2009 and received a payment of $139,500 under the LTPP. The Company matched$6,900, $6,750 and $7,500 of Mr. Byman’s contributions to the Company’s401(k) Plan in 2008, 2007 and 2006, respectively.

 

(e) Mr. Ownbeywas paid $210,000 pursuant to the Annual Plan that was accrued in 2008 but paidin 2009.  Mr. Ownbey did not receivea payment under the LTPP in 2008.  Mr. Ownbeydid not participate in the Company’s 401(k) Plan in 2008 and 2007.

 

 

71

----

Table of Contents

 

(f) Mr. Wolfewas paid $155,000 pursuant to the Annual Plan that was accrued in 2007 but paidin 2008 and received no payment under the LTPP. The Company matched $6,750 and$6,600 of Mr. Wolfe’s contributions to the Company’s 401(k) Plan in2007 and 2006, respectively.

 

**Estimated Future Payouts Under**

**Non-Equity Incentive Plan Awards**

 
| **Name**               | ** ** | **Grant Date**       | ** ** | **Plan**    | ** ** | **Threshold** | ** ** | **Target** | ** ** | **Maximum** | ** ** |
|------------------------|------------|----------------------|------------|-------------|------------|---------------|------------|------------|------------|-------------|------------|
| John B.  Poindexter(a) |       | —               |       | —      |       | —        |       | —     |       | —      |       |
|                   |       |                 |       |        |       |          |       |       |       |        |       |
| Robert  Whatley(b)     |       | January 1, 2009 |       | Annual Plan |       | $             | 51,709     |       | $          | 80,795      |       | $ | 136,544 |   |
|                   |       |                 |       |        |       |          |       |       |       |        |       |
| Norbert  Markert(c)    |       | January 1, 2009 |       | Annual Plan |       | $             | 114,975    |       | $          | 179,649     |       | $ | 303,607 |   |
|                   |       | January 1, 2009 |       | LTPP        |       | $             | 52,572     |       | $          | 262,860     |       | $ | 525,720 |   |
|                   |       |                 |       |        |       |          |       |       |       |        |       |
| Nelson Byman(d)        |       | January 1, 2009 |       | Annual Plan |       | $             | 92,517     |       | $          | 144,558     |       | $ | 244,303 |   |
|                   |       | January 1, 2009 |       | LTPP        |       | $             | 46,500     |       | $          | 232,500     |       | $ | 465,000 |   |
|                   |       |                 |       |        |       |          |       |       |       |        |       |
| Larry Wolfe(e)         |       | January 1, 2009 |       | Annual Plan |       | $             | 66,080     |       | $          | 103,250     |       | $ | 174,493 |   |
|                   |       | January 1, 2009 |       | LTPP        |       | $             | 38,350     |       | $          | 191,750     |       | $ | 383,500 |   |

----

(a) Mr. Poindexteris not eligible to participate in either the Annual Plan or the LTPP.

 

(b) Mr. Whatleywas granted an award under the Annual Plan with an earnings target of $46.5million for the Company for 2008. He was eligible for the threshold amount ifthe Company reached 80% of that target and for the maximum amount if theCompany reached 130% of that target. Mr. Whatley does not participate inthe LTPP.

 

(c) Mr. Markertwas granted an award under the Annual Plan with an earnings target of $11.9million for Morgan for 2008. He was eligible for the threshold amount if Morganreached 80% of that target and for the maximum amount if Morgan reached 130% ofthat target. During 2009, Mr. Markert received $196,943 under the LTPP forthe three years ended December 31, 2008. During 2008, Mr. Markert was given a performance target under theLTPP that makes him eligible for an award beginning in 2009.  The adjusted PBT earnings target for 2008 was$11.8 million.  The target PBT for theremaining years in the cycle will be determined at a later date.

 

(d) Mr. Bymanwas granted an award under the Annual Plan with an earnings target of $24.7million for MIC Group for 2008. He was eligible for the threshold amount if MICGroup reached 80% of that target and for the maximum amount if MIC Groupreached 130% of that target.  During2009, Mr. Byman received $139,508 under the LTPP for the three years endedDecember 31, 2008.  During 2008, Mr. Bymanwas given a performance target under the LTPP that makes him eligible for anaward beginning in 2009 at the same threshold and maximum percentages.  The adjusted PBT earnings target for 2008 was$11.8 million.  The target PBT for theremaining years in the cycle will be determined at a later date.

 

(e) Mr. Wolfewas granted an award under the Annual Plan with an earnings target of $46.5million for the Company for 2008. He was eligible for the threshold amount ifthe Company reached 80% of that target and for the maximum amount if it reached130% of that target. During 2008, Mr. Wolfe received $92,040 under theLTTP plan for the three years ended December 31, 2008.  During 2008, Mr. Wolfe was given aperformance target under the LTTP that makes him eligible for an awardbeginning in 2009.  The adjusted PBTearnings target for 2008 was $11.8 million. The target PBT for the remaining years in the cycle will be determinedat a later date.

 

**Nonqualified DeferredCompensation**

 

Mr. Byman and Mr. Wolfe were the only twonamed executives to elect to defer a portion of their annual compensation underthe Nonqualified Deferred Compensation Plan. The balance of Mr. Byman’s account at 

 

 

72

----

Table ofContents

 

December 31, 2008 and 2007 was $199,940 and$236,848, respectively.  The balance of Mr. Wolfe’saccount at December 31, 2008 and 2007 was $78,007 and $169,101,respectively.

 

**Director’s Compensation**

 

Directors who are officers or employees do notreceive fees for serving as directors. The Company pays $20,000 per year asdirector’s fees to each outside director. Additionally, Mr. Magee receives$8,000 per year as Chairman of the Audit Committee of the Board of Directors.

 
| **Name**         | ** ** | **Fees Earned or  Paid in Cash** | ** ** | **Non-Equity  Incentive Plan  Compensation** | ** ** | **All Other  Compensation** | ** ** | **Total** | ** ** |
|------------------|------------|----------------------------------|------------|----------------------------------------------|------------|-----------------------------|------------|-----------|------------|
| William J. Bowen |       | $                                | 20,000     |                                         | —     |                        | —     |      | $          | 20,000 |   |
|             |       |                             |       |                                         |       |                        |       |      |       |
| Stephen Magee(a) |       | $                                | 28,000     |                                         | —     |                        | $          | 228,000   |       | $ | 256,000 |   |
|             |       |                             |       |                                         |       |                        |       |      |       |
|                  |            |                                  |            |                                              |            |                             |            |           |            |  |  |  |

----

(a) Mr. Magee is not an employee of theCompany and the amount in the All Other Compensation column represents paymentsmade to him as an independent contractor on a variety of consultingassignments.

 

**Item 12.                 Security Ownership of CertainBeneficial Owners and Management and Related Stockholder Matters**** **

 

Thefollowing table sets forth information regarding beneficial ownership of theCompany’s common stock as of December 31, 2008. No class of the Company’ssecurities is registered pursuant to Section 13 or 15(d) of theExchange Act.

 
| **Directors, officers and 5% stockholders**                        | ** ** | **Title of Class** | ** ** | **Beneficial  number of  shares** | ** ** | **Ownership  percent of class** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|-----------------------------------|------------|---------------------------------|------------|
| John Poindexter  (director and named executive officer)            |       | Common Stock       |       | 3,059                             |       | 100                             | %          |
| All other  directors and executive officers as a group (6 persons) |       | —             |       | —                            |       | —                          |       |

 

Mr. Poindexter has sole voting power withrespect to all shares of common stock that he beneficially owns and is the onlyperson who beneficially owns common stock. His address is 600 Travis St., Suite 200, Houston, Texas 77002.

 

The Company has not reserved any equity shares forissuance under any equity compensation plans.

 

**Item 13.                 CertainRelationships and Related Transactions, and Director Independence**

** **

Of the Company’s three directors, only Mr. Bowenis independent under NASDAQ’s independence standards. Mr. Magee ischairman of the audit committee and is not independent under the standardsapplicable to audit committee members by the SEC or NASDAQ.

 

The Company is party to a Management ServicesAgreement with Southwestern Holdings, Inc., (“Southwestern”) which isowned by Mr. Poindexter and of which Mr. Magee, one of the Company’s directors,serves as President.  The ManagementServices Agreement was suspended effective June 30, 2006 when Mr. Poindexterbecame an employee of the Company and reinstated effective July 31, 2008when Mr. Poindexter ceased being an employee of the Company.  Pursuant to the Management ServicesAgreement, Southwestern provided services to the Company, including those of Mr. Poindexter.The Company paid to Southwestern approximately $46,000 per month for these services,subject to annual automatic increases based upon the consumer price index. TheCompany may pay a discretionary annual bonus to Southwestern or raise theannual increases above normal adjustments 

 

 

73

----

Table ofContents

 

subject to certain limitations. For all services,the Company paid Southwestern $346,000 in 2006, $0 in 2007 and $222,380 in2008. In addition to the consulting fee, Mr. Poindexter is covered underthe Company’s employee medical and dental insurance plans, he participates inthe 401(k) plan and is reimbursed for travel and other miscellaneousexpenses.

 

Southwesternwas a named insured under the Company’s general liability and excessumbrella insurance policies during 2007 when Southwestern became the defendantin a suit for damages resulting from a vehicle accident not involving theCompany’s assets or any of its team members.  The lawsuit was settledduring 2008 and Southwestern paid the amount of the self-insured reserve of$250,000.  Southwestern is no longer a named insured under the Company’sgeneral liability policy effective July 1, 2007.  Any increased premiums under the Company’sumbrella policy incurred in the future by the Company by reason of thesettlement will be reimbursed by Southwestern.

 

EffectiveDecember 12, 2008, one of the Company’s subsidiaries sold and leased backthree of its manufacturing facilities to Poindexter Properties, LLC, a companyowned by Mr. Poindexter.  Theproperties, located in Morgantown and Ephrata, Pennsylvania and Corsicana,Texas, were sold at their appraised value of $7,135,000.  The Company subsidiary paid rent of $51,000to Poindexter Properties, LLC for the use of the properties for the period December 12,2008 through the end of the year.

 

Mr. Mageeprovided the Company consulting services in 2006, 2007 and 2008. The Companypaid $99,629, $235,600 and $228,000 in 2006, 2007 and 2008, respectively, fordirector’s fees and for consulting services. In addition, the Company reimbursed Mr. Magee for related businessexpenses.

 

The Company does not have an established procedurefor the review, approval or ratification of related-party transactions. Priorto entering into any such transaction, however, the executive officers of theCompany determine whether the transaction is permitted by the terms of theCompany’s 8.75% Notes indenture, the credit facility agreement and otherrelevant contractual obligations.

 

**Item 14.                 PrincipalAccountant Fees and Services**

** **

**Thefollowing table sets forth the fees billed to us by our independent auditors,Crowe Horwath, LLP (“CH”):**

 
| ** **          | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------|------------|----------|------------|----------|------------|----------|------------|
| Audit Fees          |       | $        | 326,930    |     | $          | 350,000  |       | $ | 296,500 |   |
| Audit-related  Fees |       | —   |       | 51,875   |       | 8,000    |       |
| Tax Fees            |       | —   |       | —   |       | —   |       |
| Other Fees          |       | —   |       | 208,225  |       | —   |       |
| Total Fees          |       | $        | 326,930    |     | $          | 610,100  |       | $ | 304,500 |   |

** **

***Audit Fees.***

** **

**Auditfees are the charges billed by CH during the year in connection with theconclusion of the prior year audit and the current year audit of our consolidatedfinancial statements as well as reviews of our quarterly reports on Form 10-Q.**

** **

**Audit-relatedfees are the charges billed by CH for assurance and related services, includingaccounting advice related to the restatement of the Company’s 2006 consolidatedfinancial statements and other matters.**

** **

**Otherfees were comprised mainly of assistance with due diligence conducted on theCompany’s acquisitions during the year.**

** **

**Thesefees were preapproved by the Audit Committee under the procedures describedbelow.**

** **

** **

**74**

----

**Table of Contents**

** **

**Preapproval Procedures**

** **

**TheCompany’s Audit Committee is responsible for the engagement of the independentauditors and for approving, in advance, all auditing services and permittednon-audit services to be provided by the independent auditors. The AuditCommittee maintains a policy governing the engagement of independent auditorsthat is intended to maintain the independence from the Company of theindependent auditors. In adopting this policy, the Company’s Audit Committeeconsidered the various services that independent auditors have historicallyperformed or may be needed to perform for the Company. Under this policy, whichis subject to review and re-adoption annually by the Audit Committee:**

** **

**·**                                          The Audit Committee approves the performance by the independentauditors of audit-related services, subject to restrictions in certain cases,based on the Audit Committee’s determination that this action would not belikely to impair the independence of the independent auditors from the Company;

** **

**·**                                          The Company’s management must obtain the specific prior approval of theCompany’s Audit Committee for each engagement of the independent auditors toperform any auditing or permitted non-audit services; provided however, thatspecific prior approval by the Company’s Audit Committee is not required forany auditing services that are within the scope of a preapproved engagement andthat are consistent with other services provided by the auditor in the past;and provided further that specific prior approval is not required for permittednon-audit services that:

** **

**(i)**                                     in the aggregate do not total more than $25,000;

** **

**(ii)**                                  were not recognized by the Company at the time of the engagement to benon-audit services; and

** **

**(iii)**                               are promptly brought to the attention of the Company’s Audit Committeeand approved by the Audit Committee in accordance with this policy prior to thecompletion of the audit.

** **

**·**                                          The performance by the independent auditors of certain types ofservices (bookkeeping or other services related to the accounting records orfinancial statements of the Company; financial information systems design andimplementation; appraisal or valuation services, fairness opinions orcontribution-in-kind reports; actuarial services; internal audit outsourcingservices; management functions or human resources; broker or dealer, orinvestment adviser or investment banking services; legal services and expertservices unrelated to the audit; and any other service that the applicablefederal oversight regulatory authority determines, by regulation, isimpermissible) is prohibited due to the likelihood that their independencewould be impaired.

** **

**Anyapproval required under this policy must be provided by the Company’s AuditCommittee, by the chairman of the Audit Committee in office at the time, or byany other Audit Committee member to whom the Audit Committee has delegated thatauthority. The Company’s Audit Committee will not delegate its responsibilitiesto approve services performed by the independent auditors to any member ofmanagement.**

** **

**Thestandard applied by the Company’s Audit Committee in determining whether togrant approval of an engagement of the independent auditors is whether theservices to be performed, the compensation to be paid for such services andother related factors are consistent with the independent auditor’sindependence under guidelines of the Securities and Exchange Commission andapplicable professional standards. Relevant considerations include, but are notlimited to, whether the work product is likely to be subject to, or implicatedin, audit procedures during the audit of the Company’s financial statements;whether the independent auditors would be functioning in the role of managementor in an advocacy role; whether performance of the service by the independentauditors would enhance the Company’s ability to manage or control risk orimprove audit quality; whether performance of the service by the independentauditors would increase efficiency because of their**

** **

** **

**75**

----

**Table of Contents**

** **

familiarity withthe Company’s business, personnel, culture, systems, risk profile and otherfactors; and whether the amount of fees involved, or the proportion of thetotal fees payable to the independent auditors in the period that is for taxand other non-audit services, would tend to reduce the ability of theindependent auditors to exercise independent judgment in performing the audit.

 

**Part IV**

 

**Item 15.  Exhibits and Financial Statement Schedules**

 

1.             Financial Statements:

 

Thefollowing financial statements are included within the text of this report:

** **
| **Financial Statement**                                                                                        |
|----------------------------------------------------------------------------------------------------------------|
|                                                                                                           |
| Consolidated Balance  Sheets as of December 31, 2008 and 2007                                             |
|                                                                                                           |
| Consolidated Statements of  Income for the years ended December 31, 2008, 2007 and 2006                   |
|                                                                                                           |
| Consolidated Statements of  Stockholder’s Equity for the years endedDecember 31, 2008, 2007 and 2006 |
|                                                                                                           |
| Consolidated Statements of  Cash Flows for the years ended December 31, 2008, 2007 and 2006               |
|                                                                                                           |
| Notes to Consolidated  Financial Statements                                                                    |

 

2.             Financial Statement Schedules:

 

Valuationand Qualifying Accounts disclosures have been incorporated in the Notes toConsolidated Financial Statements.

 

3.             Exhibits

 

Thefollowing exhibits are included with this report:

** **
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                   |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                                                              |
| 3.1                 | (1)        | Second Restated Certificate of Incorporation of J.B.  Poindexter & Co., Inc. dated January 21, 1994.                                                                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                              |
| 3.2                 | (2)        | Certificate of First Amendment to the Second  Restated Certificate of Incorporation of J.B. Poindexter &  Co., Inc. dated December 29, 1994.                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                              |
| 3.3                 | (2)        | Amended and Restated Bylaws of J.B.  Poindexter & Co., Inc. dated July 29, 1994                                                                                                                                                                                                                                                |
|                |       |                                                                                                                                                                                                                                                                                                                                              |
| 4.1                 | (4)        | Indenture dated as of March 15, 2004, with  respect to J.B. Poindexter & Co., Inc.’s 8.75% Senior Notes due  2014, among J.B. Poindexter & Co., Inc., the subsidiary  guarantors named therein and Wilmington Trust Company, as trustee.                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                              |
| 4.2                 | (5)        | Form of 8.75% Senior Note due 2014.                                                                                                                                                                                                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                              |
| 4.3                 | (5)        | Form of Senior Note Guarantee of 8.75% Senior  Notes due 2014.                                                                                                                                                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                                                                              |
| 4.4                 | (5)        | First Supplemental Indenture dated December 14,  2004, to the Indenture dated as of March 15, 2004, with respect to J.B.  Poindexter & Co., Inc.’s 8.75% Senior Notes due 2014, among  J.B. Poindexter & Co., Inc., the subsidiary guarantors named  therein and Wilmington Trust Company, as trustee. |

 

76

----

Tableof Contents

 
| 4.5    | (4)    | Registration Rights Agreement dated March 15,  2004, among J.B. Poindexter & Co., Inc., certain guarantors  listed therein, J.P. Morgan Securities Inc. and certain initial purchasers  listed therein.                                                                                                                          |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.6    | (5)    | Registration Rights Agreement dated May 17,  2004, among J.B. Poindexter & Co., Inc., certain guarantors  listed therein and J.P. Morgan Securities Inc.                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.7    | (5)    | Registration Rights Agreement dated January 27,  2005, among J.B. Poindexter & Co., Inc., certain guarantors  listed therein and J.P. Morgan Securities Inc.                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.8    | (7)    | Second Supplemental Indenture dated June 10,  2005, to the Indenture dated as of March 15, 2004, with respect to J.B.  Poindexter & Co., Inc.’s 8.75% Senior Notes due 2014, among  J.B. Poindexter & Co., Inc., the subsidiary guarantors named  therein and Wilmington Trust Company, as trustee.      |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.9    | (8)    | Third Supplemental Indenture dated January 9,  2006, to the Indenture dated as of March 15, 2004, with respect to J.B.  Poindexter & Co., Inc.’s 8.75% Senior Notes due 2014, among  J.B. Poindexter & Co., Inc., the subsidiary guarantors named  therein and Wilmington Trust Company, as trustee.     |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.10   | (8)    | Fourth Supplemental Indenture dated April 17,  2006, to the Indenture dated as of March 15, 2004, with respect to J.B.  Poindexter & Co., Inc.’s 8.75% Senior Notes due 2014, among  J.B. Poindexter & Co., Inc., the subsidiary guarantors named  therein and Wilmington Trust Company, as trustee.     |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.11   | (9)    | Fifth Supplemental Indenture dated  September 30, 2006, to the Indenture dated as of March 15, 2004,  with respect to J.B. Poindexter & Co., Inc.’s 8.75% Senior  Notes due 2014, among J.B. Poindexter & Co., Inc., the  subsidiary guarantors named therein and Wilmington Trust Company, as trustee.  |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.12   | (10)   | Sixth Supplemental Indenture dated September 4,  2007, to the Indenture dated as of March 15, 2004, with respect to J.B.  Poindexter & Co., Inc.’s 8.75% Senior Notes due 2014, among  J.B. Poindexter & Co., Inc., the subsidiary guarantors named  therein and Wilmington Trust Company, as trustee.   |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 4.13   | *      | Seventh Supplemental Indenture dated  December 31, 2008, to the Indenture dated as of March 15, 2004,  with respect to J.B. Poindexter & Co., Inc.’s 8.75% Senior  Notes due 2014, among J.B. Poindexter & Co., Inc., the  subsidiary guarantors named therein and Wilmington Trust Company, as trustee. |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.1   | (4)    | Loan and Security Agreement dated March 15,  2004, among J.B. Poindexter & Co., Inc., certain subsidiaries  thereof, certain other loan parties signatories thereto and LaSalle Bank  National Association, a national banking association, for itself, as a  lender, and as the agent for the lenders.                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                |
| 10.2   | (4)    | First Amendment to Loan and Security Agreement dated  May 13, 2004, among J.B. Poindexter & Co., Inc., certain  subsidiaries thereof, certain other loan parties signatories thereto and LaSalle  Bank National Association, a national banking association, for itself, as a  lender, and as the agent for the lenders.         |

 

77

----

Tableof Contents

 
| 10.3   | (5)    | Limited Consent and Second Amendment to Loan and  Security Agreement dated November 3, 2004, among J.B.  Poindexter & Co., Inc., certain subsidiaries thereof, certain  other loan parties signatories thereto and LaSalle Bank National Association,  a national banking association, for itself, as a lender, and as the agent for  the lenders. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.4   | (5)    | Third Amendment to Loan and Security Agreement dated  January 20, 2005, among J.B. Poindexter & Co., Inc.,  certain subsidiaries thereof, certain other loan parties signatories thereto  and LaSalle Bank National Association, a national banking association, for  itself, as a lender, and as the agent for the lenders.                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.5   | (4)    | Sales Agreement dated October 1, 2004 between  E. I. du Pont de Nemours and Company and Morgan Trailer Mfg. Co.                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.6   | (4)    | Sales Agreement dated October 1, 2004 between  E. I. du Pont de Nemours and Company and Truck Accessories Group, Inc.                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.7   | (1)    | Form of Incentive Plan for certain employees of  the subsidiaries of J.B. Poindexter & Co., Inc.                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.8   | (1)    | Morgan Trailer Mfg. Co. Long-Term Management Equity  Appreciation Program dated May 10, 1990.                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.9   | (5)    | Management Services Agreement dated as of  May 23, 1994, between J.B. Poindexter & Co., Inc. and  Southwestern Holdings, Inc.                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.10  | (3)    | Management Services Agreement effective as of  December 19, 2003, between J.B. Poindexter & Co., Inc.,  Morgan Trailer Mfg. Co., and Morgan Olson.                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.11  | (6)    | Fourth Amendment to Loan and Security Agreement  dated April 25, 2005, among J.B. Poindexter & Co., Inc.,  certain subsidiaries thereof, certain other loan parties signatories thereto  and LaSalle Bank National Association, a national banking association, for  itself, as a lender, and as the agent for the lenders.                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.12  | (9)    | Limited Consent, Joinder and Fourth Omnibus  Amendment dated October 10, 2006, among J.B. Poindexter &  Co., Inc., certain subsidiaries thereof, certain other loan parties  signatories thereto and LaSalle Bank National Association, a national banking  association, for itself, as a lender, and as the agent for the lenders.                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.13  | (10)   | 10.13 Limited Consent, Joinder and Fifth Omnibus  Amendment dated April 30, 2007, among J.B. Poindexter &  Co., Inc., certain subsidiaries thereof, certain other loan parties  signatories thereto and LaSalle Bank National Association, a national banking  association, for itself, as a lender, and as the agent for the lenders.             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.14  | (10)   | Limited Consent, Joinder and Sixth Omnibus Amendment  dated August 22, 2007, among J.B. Poindexter & Co., Inc.,  certain subsidiaries thereof, certain other loan parties signatories thereto  and LaSalle Bank National Association, a national banking association, for  itself, as a lender, and as the agent for the lenders.                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.15  | (10)   | Limited Consent, Joinder and Seventh Omnibus  Amendment dated September 4, 2007, among J.B. Poindexter &  Co., Inc., certain subsidiaries thereof, certain other loan parties  signatories thereto and LaSalle Bank National Association, a national banking  association, for itself, as a lender, and as the agent for the lenders.              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.16  | *      | Limited Consent, Joinder and Eight Omnibus Amendment  dated October 7, 2008, among J.B. Poindexter & Co., Inc.,  certain subsidiaries thereof, certain other loan parties signatories thereto  and Bank of America, a national banking association, for itself, as a lender,  and as the agent for the lenders.                                    |

 

78

----

Tableof Contents

 
| 12     | *      | Computation of Ratio of Earnings to Fixed Charges                                |
|--------|--------|----------------------------------------------------------------------------------|
|   |   |                                                                             |
| 14     | (9)    | Code of Ethics                                                                   |
|   |   |                                                                             |
| 21     | *      | List of subsidiaries of J.B. Poindexter &  Co., Inc.               |
|   |   |                                                                             |
| 31.1   | *      | Rule 13(a)-14(a)/15d-14(a) Certificate of  the Chief Executive Officer |
|   |   |                                                                             |
| 31.2   | *      | Rule 13(a)-14(a)/15d-14(a) Certificate of  the Chief Financial Officer |
|   |   |                                                                             |
| 32.1   | *      | Section 1350 Certificate of the Chief Executive  Officer                    |
|   |   |                                                                             |
| 32.2   | *      | Section 1350 Certificate of the Chief Financial  Officer                    |

----

#                 Managementcontracts or compensatory plans.

 

*                 Filed herewith.

 

(1)          Incorporated by reference to J.B. Poindexter &Co., Inc.’s Registration Statement on Form S-1 (No. 33-75154) asfiled with the SEC on February 10, 1994.

 

(2)          Incorporated by reference to J.B. Poindexter &Co., Inc.’s Annual Report on Form 10-K for the year ended December 31, 1994,as filed with the SEC on March 31, 1995.

 

(3)          Incorporated by reference to J.B. Poindexter &Co., Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003,as filed with the SEC on November 14, 2003.

 

(4)          Incorporated by reference to J.B. Poindexter &Co., Inc.’s Registration Statement on Form S-4 (No. 333-123598)as filed with the SEC on March 25, 2005.

 

(5)          Incorporated by reference to J.B. Poindexter &Co., Inc.’s Registration Statement as amended on Form S-4A (No. 333-123598)as filed with the SEC on April 7, 2005.

 

(6)          Incorporated by reference to J.B. Poindexter &Co., Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005,as filed with the SEC on November 14, 2005.

 

(7)          Incorporated by reference to J.B. Poindexter &Co., Inc.’s Annual Report on Form 10-K for the year ended December 31,2005, as filed with the SEC on March 31, 2006.

 

(8)          Incorporated by reference to J.B. Poindexter &Co., Inc.’s Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2006,as filed with the SEC on September 5, 2007.

 

(9)          Incorporated by reference to J.B. Poindexter &Co., Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006,as filed with the SEC on April 2, 2007.

 

(10)    Incorporated by reference to J.B. Poindexter &Co., Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007,as filed with the SEC on November 20, 2007.

 

79

----

Table of Contents

 

SIGNATURES

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
| ** **                 | ** ** | ** ** | **J.B.  POINDEXTER & CO., INC.**   |
|----------------------------|------------|------------|---------------------------------------------|
|                       |       |       |                                        |
| Date:  March 31, 2009 |       | By         | /s/  John B. Poindexter                     |
|                       |       |       | John  B. Poindexter, Chairman of the Board, |
|                       |       |       | Chief  Executive Officer and President      |
|                       |       |       | (Principal  Executive Officer)              |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.

 
| Date:  March 31, 2009 |   | By     | /s/  John B. Poindexter                       |
|----------------------------|--------|--------|-----------------------------------------------|
|                       |   |   | John  B. Poindexter, Chairman of the Board,   |
|                       |   |   | Chief  Executive Officer and President        |
|                       |   |   | (Principal  Executive Officer)                |
|                       |   |   |                                          |
| Date:  March 31, 2009 |   | By     |                                          |
|                       |   |   | Stephen  P. Magee, Director                   |
|                       |   |   |                                          |
| Date:  March 31, 2009 |   | By     | /s/  William J. Bowen                         |
|                       |   |   | William  J. Bowen, Director                   |
|                       |   |   |                                          |
| Date:  March 31, 2009 |   | By     | /s/  Robert S. Whatley                        |
|                       |   |   | Robert  S. Whatley, Vice President Finance,   |
|                       |   |   | Secretary  and Treasurer                      |
|                       |   |   | (Principal  Financial and Accounting Officer) |

 

80

----