**United StatesSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-K**

 

**(Markone)**

 

**ý****ANNUAL REPORT UNDER SECTION 13OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the fiscal year ended December 31, 2005**

 

**OR**

 

**o****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from                 to             **

 

**Commission file number 333-123598**

 

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

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                                                    |   | **76-0312814**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer Identification No.) |

 

**1100Louisiana**

### Suite 5400,

### Houston, Texas 77002

(Address of principal executive offices)

(Zip Code)

 

**(713) 655-9800**

(Registrant’s telephone number, includingarea code)

Securitiesregistered pursuant to Section 12(b) of the Act:  None

Name of eachexchange which registered:  None

Securitiesregistered 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 o No  ý

 

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

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes ý No  o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act.  (CheckOne):

 

o — Large accelerated filer       o —Accelerated filer       ý — Non-accelerated filer

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act.)  Yes o No  ý

 

Theaggregate market value of the voting and non-voting common equity held bynon-affiliates as of the last business day of the registrant’s most recentlycompleted second fiscal quarter was $0.00.

 

Documentsincorporated by reference.  None

 

Asof March 31, 2006, the registrant had 3,059 shares of common stock outstanding.

 

 

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

 

**Table of contents**

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

 

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**PART I**

 

**Item 1.                    Business**

 

**Overview**

** **

We operate primarily transportation-relatedmanufacturing businesses.  Our operatingsubsidiaries are Morgan Corporation (“Morgan”), Morgan Olson Corporation (“MorganOlson”), Truck Accessories Group, Inc., (“Truck Accessories”), EFP Corporation(“EFP”), MIC Group Inc., (“MIC Group”) and Federal Coach LLC., (“Federal Coach”).  Effective January 3, 2006 we acquired EagleSpecialty Vehicles, Inc. (“Eagle Coach”, f/k/a Kellerman Coach Inc.) thattogether with Federal Coach comprise the Specialty Vehicle Group.  The Specialty Vehicle Group, MIC Group andEFP comprise our Specialty Manufacturing Division (“Specialty Manufacturing”,f/k/a Specialty Manufacturing Group).

 

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

 

During March 2004, weissued $125 million in aggregate principal amount of 8.75% senior notesdue 2014 (“8.75% Notes”). With the proceeds of that offering we redeemed the$76 million in aggregate principle amount of the then outstanding 12.50%senior secured notes due 2007, paid accrued interest of approximately$4 million and repaid outstanding borrowings under our revolving creditfacilities and other loans of approximately $37 million.  At the same time as the issuance of$125 million in aggregate principal amount of 8.75% Notes, we entered intoa new $30 million revolving credit facility with a new lender. We currentlyhave no borrowings outstanding under this revolving credit facility.  In May 2004 and January 2005, we issuedan additional $30 million and $45 million, respectively, in aggregateprincipal amount of our 8.75% Notes, the proceeds from which increased our cashbalances.  On June 6, 2005, we acquired100% of the ownership interests in Federal Coach LLC, and subsequent toDecember 31, 2005 we acquired 100% of the stock of Eagle Coach and 100% of thestock of State Wide Aluminum, Inc.

 

We operate our business in fourdifferent segments: Morgan, Morgan Olson, Truck Accessories and SpecialtyManufacturing. Please see footnote 3 of our financial statements includedherein for a description of financial information by segments.

 

**Morgan**

** **

We believe Morgan is theleading United States manufacturer of commercial truck bodies for medium dutytrucks in terms of 2005 sales. 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 with Morgan’sproducts are commonly used in a wide variety of applications, including generalfreight deliveries, moving and storage and distribution of refrigeratedconsumables. Morgan also offers service programs for its truck bodies.

 

Morgan reaches a broad base ofcustomers in the United States and Canada through its sales force and its morethan 180 authorized dealers and distributors. Its customers include rentalcompanies, truck dealers, leasing companies and companies that operate fleetsof delivery vehicles. Through nine manufacturing plants and seven servicefacilities in strategic locations throughout North America, Morgan can providetimely product delivery and service to its customers.

 

The principal products Morgan manufactures and sellsare:

 

•             dryfreight bodies that are typically fabricated with pre-painted aluminum orfiberglass-reinforced plywood panels, hardwood floors and various doorconfigurations to accommodate end-user loading and unloading requirements;

 

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•             refrigeratedvan bodies fabricated with insulated aluminum or fiberglass-reinforcedplywood panels that accommodate controlled temperature and refrigeration needsof end-users;

 

•             aluminumor fiberglass-reinforced plywood cutaway van bodies that are installedonly on cutaway chassis and are available with or without access to the cargoarea from the cab; and

 

•             stakebodies, which are flatbeds with various configurations of removable sides.

 

Morgan manufactures itsproducts to customer specifications and installs its products on truck chassissupplied by its customers.

 

***Customers and sales. ***Morgan principallygenerates revenue through three sources:

 

•             salesof truck bodies to commercial divisions of leasing companies, companies withfleets of delivery vehicles, truck dealers and distributors (“Commercial”sales);

 

•             salesof truck bodies to consumer rental companies (“Consumer Rental” sales); and

 

•             salesof parts and service.

 

Morgan’s net sales constituted51% of our consolidated net sales in 2003, 54% in 2004 and 54% in 2005.

 

Morgan makes sales of truckbodies through its sales force directly to large end-user customers, includingPenske and Ryder, and to distributors and truck dealers. Commercial sales oftruck bodies, not including Consumer Rental sales, constituted 79% of Morgan’snet sales in 2003, 80% in 2004 and 86% in 2005.

 

Morgan has an independentauthorized distributor network of 59 distributors nationwide. Most distributorssell a wide variety of trucks or related equipment to truck dealers andend-users. Generally, distributors sell Morgan products in a specifiedterritory with limited exclusivity. Morgan also sells its products directly to truck dealers, selling tomore than 120 dealers in 2005.

 

Consumer Rental sales arecomposed of sales to companies that maintain large fleets of one-way and localhauling vehicles available for rent to the general public. Morgan makes thesesales through a bid process and negotiation directly with these companiesthrough its sales force. Primary Consumer Rental customers include Penske andBudget. Morgan negotiates contracts for Consumer Rental sales annually, usuallyin late summer to early fall, with products to be shipped during the first halfof the next year. These sales are seasonal, with substantially all productshipments occurring the first six months of the year. Consumer Rental salestend to be the most volatile and price sensitive aspect of Morgan’s business,and depend on factors such as product mix and delivery schedules. ConsumerRental sales constituted 14% of Morgan’s net sales in 2003, 13% in 2004 and 9%in 2005.

 

Morgan’s two largest customers,Ryder and Penske, have, together, historically represented approximately 35% to50% of Morgan’s total net sales. Each has been Morgan’s customer forapproximately 20 years and we believe relations with each are good. Salesto these customers represented 22% of our consolidated net sales in 2003, 25%in 2004 and 24% in 2005.

 

Morgan offers limited serviceprograms at its own service facilities and its authorized distributors. Servicesales constituted 6% of Morgan’s net sales in 2003, 5% in 2004 and 3% in 2005.

 

***Manufacturing andsupplies. ***Morgan operatesmanufacturing, body mounting and parts and service facilities in Arizona,California, Florida, Georgia, Pennsylvania, Texas, Wisconsin, and Ontario,Canada. Morgan also has sales, service and body mounting facilities inColorado, Florida, Georgia, Pennsylvania, Texas, Wisconsin, and Ontario,Canada. All of Morgan’s domestic manufacturing facilities are ISO 9000certified.

 

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Generally, Morgan engineers itsproducts to the specifications of the customer. Typically, the customer placesan order and arranges for a manufacturer to deliver a truck chassis to Morgan.Morgan monitors delivery schedules from chassis manufacturers to ensure it hasappropriate levels of labor and materials to fulfill orders. Morganmanufactures and installs the body on the customer’s chassis. The customer orMorgan arranges for delivery of the completed truck. Morgan’s production cycleranges from three to seven days for dry freight products and up to 28 daysfor more complex refrigerated products.

 

Because contracts for ConsumerRental sales are entered into in the summer or fall but production does notbegin generally until the following January, Morgan has a significant backlogof Consumer Rental sales orders at the end of each year that is processedthrough May of the following year. In addition, Morgan typically maintains a significantbacklog of commercial sales. Morgan’s backlog at December 31, 2005 was$94.7 million compared to $101.7 million at December 31, 2004.Morgan expects to complete all of the orders in its 2005 backlog during 2006.

 

Morgan provides limited warrantiesagainst construction defects in its products. These warranties generallyprovide for the replacement or repair of defective parts or workmanship for upto five years following the date of sale. Warranty costs have not had amaterial adverse effect on its business.

 

Morgan maintains an inventoryof raw materials necessary to build truck bodies according to customers’orders. Because Morgan usually manufactures its products to customer orders, itdoes not maintain substantial inventories of finished goods.

 

Morgan’s principal rawmaterials include aluminum, steel, fiberglass-reinforced plywood andhardwood. Morgan acquires raw materials from a variety of sources and has notexperienced significant shortages of materials. There are a limited number ofsuppliers of fiberglass-reinforced plywood, an important truck bodymaterial. While Morgan has not experienced a disruption in supply, or ashortage, of fiberglass-reinforced plywood, such a disruption or shortagecould occur in the future. Morgan may not be able to replace its existingsupply of fiberglass-reinforced plywood on acceptable terms or at all. Tomanage its supply costs, Morgan sometimes enters into long-term supplycontracts on principal materials to secure prices for up to one year ifconsidered necessary.

 

Morgan’s customers purchasetheir truck chassis from major truck manufacturing companies. The delivery of achassis to Morgan depends upon truck manufacturers’ production schedules.Although Morgan often can electronically monitor deliveries from chassismanufacturers and plan its operations accordingly, it cannot control delays ordisruptions in deliveries. Delays or disruptions in chassis deliveries candisrupt Morgan’s operations and can increase its working capital requirements.

 

***Industry. ***Industry revenue andgrowth depend primarily on the demand for delivery vehicles in the generalfreight, moving and storage, parcel delivery and food distribution industries,which are affected by general economic conditions. Replacement of oldervehicles in fleets represents an important revenue source with replacementcycles around six to seven years, depending on vehicle types. During economicdownturns, replacement orders are often deferred or, in some cases, oldervehicles are retired without replacement. During periods of economic growth, ascustomers decide to increase their capital expenditures, sales of deliverytrucks grow as customers make purchases they deferred in prior years.

 

***Competition. ***The truck bodymanufacturing industry is highly competitive. Morgan competes with threenational manufacturers: Supreme Industries, Inc., Kidron, a division ofSpecialized Vehicles Corporation, and Utilimaster Corporation, some of whom maybe larger and have more resources than Morgan. There are a large number ofsmaller manufacturers, who are regionally focused. Competitive factors in theindustry include product quality, delivery time, geographic proximity ofmanufacturing facilities to customers, warranty terms, service and price. Webelieve customers value Morgan’s high quality products, competitive pricing andshort delivery times.

 

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**Morgan Olson**

** **

Morgan Olson is one of thenation’s two largest 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, Ford, Freightliner andWorkhorse truck chassis in body sizes ranging from 11 to 30 feet. Morgan Olsonis headquartered in Sturgis, Michigan, where it has manufacturing and partsdistribution facilities.

 

Morgan Olson is aggressivelyseeking to grow its customer base through increased sales and marketing effortsand by producing higher quality, competitively-priced products withshorter delivery times. Morgan Olson has become more competitive in purchasingraw materials and reducing delivery times by leveraging Morgan’s purchasingpower and supplier relationships.

 

Morgan Olson’s net sales constituted 8%, 12% and 9%of our consolidated net sales in 2003, 2004 and 2005, respectively.  Sales in 2003 were for the six month periodsubsequent to the acquisition of the business.

 

***Customers and sales. ***Customers purchase stepvans through dealers and distributors and directly from Morgan Olson throughits direct sales force. Three customers, the United States Postal Service,United Parcel Service of America, Inc. and FedEx, purchase the majority ofstep vans produced in the United States. Morgan Olson’s end-user customersinclude these three customers along with Frito-Lay, Inc., Bimbo Bakeriesand ARAMARK Corporation. The preferences and purchasing decisions of thesecustomers will dramatically affect the results of operations of Morgan Olson.

 

Morgan Olson also sells stepvan body service parts through its dealers and distributors and directly tocustomers. Morgan Olson is a major supplier of service parts for step vansmanufactured by it for the United States Postal Service under an agreement ofindefinite term that is reviewed annually. The United States Postal Service hasthe right to terminate the agreement for convenience at any time. We believeMorgan Olson’s relationship with the United States Postal Service is good.However, there can be no assurance that the parts supply agreement willcontinue at all or for any length of time.

 

***Manufacturing andsupplies. ***Morgan Olson has ISO9000 certified manufacturing facilities and parts distribution facilities inSturgis, Michigan.

 

Generally, Morgan Olsonmanufactures its products to customer specifications. Typically, the customerplaces an order and arranges for a truck chassis manufacturer to deliver atruck chassis to Morgan Olson. Morgan Olson manufactures the complete truckbody, including the installation of windows, doors, instrument panels, seating,wiring, painting and decal application. The customer then arranges for deliveryof the completed truck.

 

At December 31, 2005,Morgan Olson’s total backlog was $9.3 million, compared to $8.1 million atDecember 31, 2004. We expect that Morgan Olson will fill all 2005 backlog ordersin 2006.

 

Morgan Olson maintains aninventory of raw materials necessary to build step van bodies. Because MorganOlson manufactures its products to customer orders, it does not maintainsubstantial inventories of finished goods.

 

Principal raw materials includesteel and aluminum. Raw materials are acquired from a variety of sources and webelieve that Morgan Olson has not experienced significant shortages ofmaterials. Morgan Olson has taken advantage of combined purchasing power withMorgan thereby generating savings on raw materials common to both businesses.

 

Morgan Olson’s customerspurchase their truck chassis from major truck manufacturing companies. Thedelivery of a chassis to Morgan Olson depends upon truck manufacturers’production schedules, which are beyond Morgan Olson’s control. Delays inchassis deliveries can disrupt Morgan Olson’s operations and can increase itsworking capital requirements.

 

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***Industry. ***Industry revenue andgrowth depend primarily on the demand for delivery vehicles, which are affectedby general economic conditions. Because of the concentration of customers inthe industry, the demand for delivery vehicles can be significantly influencedby the requirements of the United States Postal Service, FedEx and UnitedParcel Service. Replacement of older vehicles in fleets represents an importantrevenue source, with replacement cycles varying, depending on vehicle types andusage. During economic downturns, replacement orders are often deferred or, insome cases, older vehicles are retired without replacement. During periods ofeconomic growth, as customers decide to increase their capital expenditures,sales of delivery trucks grow as customers make purchases that were deferred inprior years.

 

***Competition. ***The step van bodymanufacturing industry is highly competitive. Morgan Olson competes with oneother major manufacturer of step van bodies, Utilimaster, which is larger andmay have more resources than Morgan Olson. Competitive factors in the industryinclude product quality, delivery time, warranty terms, service and price.

 

**Truck Accessories**

** **

We believe Truck Accessories isthe leading manufacturer of pickup truck caps and tonneaus in terms of UnitedStates and Canadian combined market share. Truck Accessories markets itsproducts under the brand names Leer, Raider, LoRider, Century, BoxTop and PaceEdwards.

 

Caps and tonneaus enclose thebeds of pickup trucks, transforming them into secure weatherproof storageareas. Truck Accessories’ truck caps and tonneaus offer customers a variety ofdesigns and features, allowing them to customize the look and utility of theirpickup trucks. Truck Accessories offers caps and tonneaus in multiple anddistinctive styles with numerous features. Truck Accessories offers threeproduct lines, ranging from standard to premium, differentiated by features,styling and brand name.  Pace Edwardsoffers a hard tonneau cover that can be mechanically retracted into a storagearea behind the pickup cab.

 

Features include cap shape anddesign, color and finish, window configurations, roof racks, glass tint, trim,and interior features such as lighting, carpeting and special gear storageoptions. Caps and tonneaus can be designed to target specific customers. Forexample, Leer offers lifestyle equipped caps and tonneaus for hunters,fishermen and outdoors enthusiasts, which are styled and designed, through gearstorage features and product appearance, to appeal to these customers. ThroughTruck Accessories’ multiple lines of caps and tonneaus, each with numerousfeatures and options, we believe Truck Accessories is an industry leader inproduct innovation and style.

 

Truck Accessories’ net salesconstituted 28% of our consolidated net sales in 2003, 23% in 2004 and 23% in2005.

 

***Customers and sales. ***Most of TruckAccessories’ products are purchased by individuals through independent dealers.Truck Accessories sells its products to dealers through its sales force. TruckAccessories’ network of more than 1,270 independent dealers provides a nationalnetwork through which its products are marketed on a non-exclusive basis toindividuals, small businesses and fleet operators. Truck Accessories operatestwo retail stores that distribute a wide array of truck accessoriesmanufactured by a number of other companies and Truck Accessories products.

 

Truck Accessories alsomanufactures and sells its products in Canada. In 2005, foreign sales(primarily in Canada) represented approximately 11% of Truck Accessories net salesand 3% of our consolidated net sales.

 

***Manufacturing andsupplies. ***Truck Accessoriesdesigns and manufactures caps and tonneaus in six manufacturing facilitieslocated in California, Indiana, Pennsylvania, Washington and Saskatchewan,Canada. Typical product delivery times range from one to two weeks from thetime of the order. Truck Accessories operates a fleet of trucks and trailers todeliver its products to its dealers.

 

Truck Accessories obtains rawmaterials and components from a variety of sources. The most important rawmaterials and components include resin, fiberglass, paint, locks, windows anddoors. Truck Accessories has not experienced significant shortages ofmaterials. Truck Accessories purchases windows for caps from two main suppliers,and effective March 17, 2006, acquired State Wide Aluminum, one of thesesuppliers.  Although the loss

 

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of the remaining independentsupplier would disrupt production activities until internal production isincreased, we do not believe that such loss would have a material adverseeffect on us.  Truck Accessories hascommitted to purchase principally all of its paint requirements through 2008from one supplier at favorable price terms. Truck Accessories has maintained a stable supply of materials andcomponents on favorable terms, as a result of its size and purchasing power.

 

Truck Accessories’ products aretypically manufactured upon receipt of an order from the dealer and,consequently, its backlog represents between one and two weeks production.Truck Accessories’ backlog was $4.0 million at December 31, 2005compared to $4.5 million at December 31, 2004.

 

***Industry. ***Sales of caps andtonneaus correspond to the level of new pickup truck sales. In 2005, weestimate that 18% to 20% of new pickup trucks were equipped with caps andtonneaus. Based on Truck Accessories’ market share in the United States andCanada of approximately 39%, we estimate that approximately 8% of new pickuptrucks are equipped with Truck Accessories’ caps and tonneaus. Factorsinfluencing the automotive industry, including general economic conditions,customer preferences, new model introductions, interest rates and fuel costswill directly influence Truck Accessories’ business. Cap and tonneau sales areseasonal, with sales typically being higher in the spring and fall than in thewinter and summer.

 

***Competition. ***The pickup truck cap andtonneau industry is highly competitive. Truck Accessories competes with oneother national competitor, A.R.E., Inc., and a number of smaller companiesthat are regionally focused. Competitive factors include design, features,delivery times, product availability, warranty terms, quality and price. Basedon the number of products and features it offers, and its ability to quicklysupply product for newly introduced pickup truck models, we believe TruckAccessories is the industry leader in design and accessory options.

 

**Specialty Manufacturing**

** **

Specialty Manufacturing iscomprised of Specialty Vehicle Group, MIC Group and EFP. Specialty VehicleGroup’s sales were exclusively the sales of Federal Coach which in turnrepresented approximately 24% of Specialty Manufacturing’s net sales in 2005for the six month period after Federal Coach’s acquisition.  Specialty Vehicle Group is now comprised ofFederal Coach, acquired June 6, 2005, and Eagle Coach, acquired January 2,2006, and it mainly manufactures funeral coaches that serve approximately 40%of the domestic funeral coach market. Specialty Vehicle Group also manufactures limousines and specializedtransit buses.  MIC Group representsapproximately 46% of Specialty Manufacturing’s net sales and provides contractmanufacturing services for customers requiring precision metal parts andmachining and casting services. EFP represents approximately 30% of SpecialtyManufacturing’s net sales and manufactures and sells expandable foam plasticsengineered to customer specifications for use by the automotive, electronics,construction, recreational vehicle and appliance industries as packaging, shockabsorbing, insulating, material handling and structural component products.Specialty Manufacturing’s sales made up 13% of our consolidated net sales in2003, 11% in 2004 and 14% in 2005.

 

***Products.******  ******SpecialtyVehicle Group manufactures a full line of funeral coaches, family cars,limousines and specialized buses.****** ******Familycars are modified limousines for use in funerals.***

 

MIC Group is a contractmanufacturer that produces precision metal parts used in energy exploration andproduction, aerospace and other industries and performs machining and castingservices for manufacturers of metal parts and components.

 

EFP manufactures and sellsmaterial handling products including shock-absorbing packaging material,reusable trays and containers that are used for transporting components to orfrom a customer’s manufacturing facility, and components used in automobile andrecreational vehicle applications and other applications including aproprietary line of its StyroCast® foam foundry patterns used by foundries inthe “lost foam” or evaporative metal casting process.

 

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***Customers and sales. ******SpecialtyVehicle Group manufactures and sells its full line of funeral coaches,limousines and specialized buses to its end users, such as livery companies,and approximately 28 authorized dealers. Its largest customer represented approximately 4% of the total net salesof Specialty Manufacturing in 2005.***

 

MIC Group sells products tointernational oilfield service companies and a variety of businesses in variousindustries. One oilfield service customer represented approximately 15% of thetotal sales of Specialty Manufacturing in 2003, 18% in 2004 and 15% in 2005.

 

EFP’s customer base includes variouscompanies that require special packaging materials for their products, as wellas servicing particular needs of companies in the automotive industry.  ***Oneparticular customer represented approximately 5% of the total sales ofSpecialty Manufacturing in 2003, 7% in 2004 and 3% in 2005.***

 

We consider relations withSpecialty Manufacturing’s customers to be good.

 

***Manufacturing andsupplies. ***Specialty Manufacturing’soperations are located in Alabama, Arkansas, Indiana, Ohio, Tennessee, Texasand Wisconsin. Its facilities in Alabama, Indiana and Texas are ISO 9000certified and its facility in Wisconsin is QS 9000 certified.

 

Specialty Vehicle Groupengineers its product to its own specifications as well as those of chassismanufacturer in order to maintain the original equipment manufacturer’swarranty.  Specialty Vehicle Group takesdelivery of a truck chassis or a modified sedan, usually manufactured by theCadillac division of General Motors or the Lincoln division of Ford, and willmodify it to its specifications.  Busbodies are built on the chassis, funeral coaches and limousines aremanufactured from the modified sedan by removing the contents, lengthening thebody and building the required vehicle. The production process typically takes between four to six weeks.  Specialty Vehicle Group utilizes metals, polymer resins, wood,fiberglass, and petrochemical based products (paints, plastics, sealants andlubricants) and participates in the paint supply contract negotiated by TruckAccessories.

 

MIC Group performs a broadrange of services including computer-controlled precision machining andwelding, electrostatic discharge machining, electron beam welding, trepanning,gun drilling and investment casting. MIC Group utilizes ferrous and non-ferrousmaterials including stainless steel, alloy steels, nickel-based alloys,titanium, brass, beryllium-copper alloys and aluminum.

 

EFP’s products are manufacturedfrom a wide variety of materials including expandable polystyrene,polypropylene, polyethylene and resins which are subject to cost fluctuationsbased on changes to the price of oil in the international markets.

 

Specialty Manufacturing’s backlog at December 31,2005 was $35.7 million compared to $12.6 million at December 31,2004.  Materialsare obtained from a variety of sources and Specialty Manufacturing has notexperienced significant shortages in materials.

 

***Industry. ******SpecialtyVehicle Group’s funeral products are used by funeral operators, and salesgenerally increase with the introduction of new models by the OEM.  The VIP limousines and small to medium sizedbuses are purchased by livery companies, churches and small tour bus operatorswhose businesses are influenced by the general economy.***

 

MIC Group’s services areparticularly demanded by companies involved in oil and gas exploration. Thedemand for equipment and services supplied to the oilfield service industryand, in turn, sales of related manufactured parts are directly correlated tothe level of worldwide oil and gas drilling activity.

 

The majority of EFP’s productsare manufactured for use by other industries; economic conditions that affectthose other industries will generally affect its operations.

 

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In particular, growth or adownturn in the general economy, specifically the entertainment, automotive,electronics, furniture or appliance industries generally would have acorresponding effect on Specialty Manufacturing’s business.

 

***Competition. ******SpecialtyVehicles competes with one other major manufacturer of funeral coaches and witha number of other businesses engaged in the manufacture of limousines and***passenger shuttle/executive buses.

 

MIC Group competes with a largenumber of other businesses engaged in the machining, casting and manufacturingof parts and equipment utilized in the oil and gas exploration, aerospace andgeneral industries.

 

EFP competes with a largenumber of other molded, expandable plastic producers. Some of its competitorsmay be larger and have more resources.

 

Price, delivery times,technological know-how, design and capacity are the primary competitive factorsin Specialty Manufacturing’s industries.

 

**Trademarks and patents**

** **

We own rights to certainpresentations of Truck Accessories’ Leer brand name, which we believe arevaluable because we believe that Leer is recognized as being a leading brandname.  We own rights to the Federal Coachname.  We also own rights to certainother trademarks and trade names, including certain presentations of Morgan’sname. Although these and other trademarks and trade names used by us helpcustomers differentiate our product lines from those of competitors, we believethat the trademarks or trade names themselves are less important to customersthan the quality of the products and services. Our subsidiaries, principallyMorgan, EFP and Eagle Coach, hold, directly or indirectly through subsidiaries,patents on certain products and components used in the manufacturing processes.We do not believe that the loss of any one patent would have a material adverseeffect on us.

 

**Employees**

** **

At December 31, 2005, wehad approximately 4,000 full-time employees and an average of 3,600 full timeemployees throughout the year. Personnel are unionized in EFP’s Decatur,Alabama facility (covering approximately 60 persons, with a contract expiringin August 2006) and Truck Accessories’ Raider Industries facilities inCanada (covering approximately 214 persons, with a contract that expires inApril 2008). We believe that relations with our employees are good.

 

**Environmental matters**

** **

Our operations are subject to a variety of federal,state and local environmental, and health and safety statutes and regulations,including those relating to emissions to the air, discharges to water,treatment, storage and disposal of waste and remediation of contaminated sites.In certain cases, these requirements may limit the productive capacity of our operations. Certain laws, including theFederal Comprehensive Environmental Response, Compensation, and Liability Act of1980, as amended (“Superfund”) impose strict, and under certain circumstances,joint and several, liability for costs to remediate contaminated sites upondesignated responsible parties including site owners or operators and, personswho dispose of wastes at, or transport wastes to, such sites. Some of ouroperations also require permits which may restrict our activities and which aresubject to renewal, modification or revocation by issuing authorities. Inaddition, we generate non-hazardous wastes, which are also subject toregulation under applicable environmental laws.

 

From time to time, we havereceived notices of noncompliance with respect to our operations which havetypically been resolved by investigating the alleged noncompliance, correctingany noncompliant conditions and paying minor fines, none of which individuallyor in the aggregate has had a material adverse effect on us.   Further, we cannot ensure that we have been or will be at all times incompliance with all of these requirements, including those related to reportingor permit restrictions or that it will not incur material fines, penalties,costs or liabilities

 

9

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in connection with such requirements or a failure tocomply with them.  However, we expect that the nature of ouroperations will continue to make us subject to increasingly stringentenvironmental regulatory standards. Although we believe we have made sufficientcapital expenditures to maintain compliance with existing laws and regulations,future expenditures may be necessary, as compliance standards and technologychange or as unanticipated circumstances arise. Unforeseen and significantexpenditures required, for example, to comply with new or more aggressivelyenforced requirements or newly discovered conditions could limit expansion orotherwise have a material adverse effect on the our business and financialcondition.

 

Morgan Olson’s two manufacturing sites in Sturgis,Michigan overlie, or are in close proximity to, a regional plume of volatileorganic compound groundwater contamination. Available information indicatesthat one of the sites was a likely source of part of the groundwatercontamination, and that groundwater contamination is present under the secondsite. In August 2003, Morgan Olson submitted applications for BaselineEnvironmental Assessments for each site to the Michigan Department ofEnvironmental Quality (“MDEQ”). In October 2003, the MDEQ accepted theseapplications and granted to it a liability exemption for any pre-acquisitionreleases of volatile organic compounds from these sites that may havecontributed to the regional groundwater contamination subject to certainconditions, including an agreement not to use chlorinated solvents and toimplement certain engineering controls to minimize future releases at thesites. Based on the granting of the liability exemption, Morgan Olson does notbelieve that it has any responsibility for the investigation or remediation ofthe regional groundwater contamination. However, the exemption does not applyto other applicable laws or regulations, and there can be no guarantee thatnewly discovered conditions or future activities at the sites will not resultin significant costs.

 

InJune 2005, Morgan Olson was notified by the MDEQ that it had failed to filecertain reports related to its air permit, wastewater discharge, and chemicalinventory.  Morgan Olson is indiscussions with MDEQ to correct and settle these alleged violations.  At this point it is not known if the MDEQwill take enforcement action against it, and the financial impact of such anenforcement action, if any, cannot be estimated. The ultimate financial impactis not expected to be material, however.

 

InJuly 2005, Morgan notified the United States Environmental Protection Agency (“USEPA”)that it had failed to file certain reports required pursuant to Section 313 ofthe Emergency Planning and Community Right-to-Know Act, and regulationspromulgated there under.  All necessaryreports were subsequently completed and filed with the USEPA.  At this point Morgan does not know if theUSEPA will take enforcement action against it, and the financial impact of suchan enforcement action, if any, cannot be estimated but could be material.

 

InJanuary 2006, EFP Corporation was notified by the Tennessee Department ofEnvironment and Conservation (“TN DEC”) that a penalty was being assessedrelated to an inspection in January 2005 that indicated it had failed tomaintain proper records and to file a report related to its air permit.  EFP immediately updated its records andconfirmed the report filing and are in discussions with TN DEC to settle thesealleged violations.  The proposed penaltyis $6,000 and is not considered material.

 

**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, theCompany will send to each security holder annually a copy of its Annual Reporton Form 10-K and quarterly a copy of each Quarterly Report on Form 10-Q.

 

**Item 1A.                 Risk Factors**

 

An investment in our securities is subject to anumber of risks. You should carefully consider the following risk factors inevaluating this investment. Any of the following risks, as well as other risksand uncertainties that we do not know about now or that we do not think areimportant, could seriously harm our business and financial results and causethe value of our securities to decline, which in turn could cause investors tolose all or part of their investment.

 

10

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**Our businesses are highly cyclical. An economicdownturn could adversely affect our ability to generate cash and make requiredpayments on our debt.**

 

Ourbusiness depends on various factors that are particularly sensitive to generaleconomic conditions, including:

 

• corporate profitability;

• interest rates;

• fuel costs;

• consumer preferences;

• consumer spending patterns;

• sales of truck chassis and new pickuptrucks; and

• levels of oil and 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 which could result in lower demand for ourproducts. As a result of an economic recession and adverse conditions in thetrucking and energy services industries, we experienced substantially lower salesin our Morgan segment during 2001 and 2002 that rebounded in 2003. Weexperienced substantially lower sales in our Specialty Manufacturing segment in2002, which did not rebound until 2004. As a result of these conditions, we didnot project to have enough cash to be able to pay the holders of our unsecuredsenior notes, initially issued by us in 1994, when they were due to mature in2004. We therefore exchanged these unsecured notes for certain secured notes inJune 2003 and extended the maturity to 2007. These secured notes weresubsequently redeemed by us in March 2004. Another prolonged economicdownturn or recession would result in a significant decrease in our sales andwould materially and adversely affect our operating cash flows and our abilityto make required payments on our debt.

 

**Demand for our truck body products depends largely onthe replacement 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 customersdeciding to replace older vehicles in their delivery truck fleets. Thesecustomers often decide to postpone their purchases of new delivery trucks duringeconomic downturns. During the most recent economic downturn, Morgan’s salesdecreased substantially, as a result of lower demand from its truck dealer,truck leasing and truck fleet customers.

 

Ifeconomic conditions or other factors, including longer useful lives of deliverytrucks, cause our customers to reduce their capital expenditures and decreaseinvestments in their delivery truck fleets, our sales would be materially andadversely affected. As a result, our ability to generate cash and make requiredpayments on our debt would be materially and adversely affected.

 

**The cyclicality of pickup truck sales could cause adecline in Truck Accessories’ sales.**

 

TruckAccessories’ sales depend highly on the sales of new pickup trucks in NorthAmerica. A decline in pickup truck sales would likely cause a decline in TruckAccessories’ sales, which would materially and adversely affect our ability togenerate cash and make required payments on our debt. The automotive industryand sales of pickup trucks are characterized by periodic fluctuations in demandfor vehicles due to, among other things, changes in general economicconditions, interest rates, fuel costs, new model introductions, consumerspending levels and consumer preferences. These fluctuations generally resultin corresponding fluctuations in demand for Truck Accessories’ products.

 

**We have a substantial amount of debtoutstanding and can incur more debt, which could hurt our future prospects,limit cash flow available from our operations and prevent us from fulfillingour obligations under the 8.75% Notes and our other debt obligations.**

 

We are significantly leveraged and will continue to be significantlyleveraged. We had $9.7 million of stockholder's equity at December 31, 2005compared to $4.6 million at December 31, 2004. Of our debt, $3.4 million issecured indebtedness and capital lease obligations. In addition, we had $29.7million of secured debt available to borrow under our revolving creditfacility. We and our subsidiaries may be able to incur substantially more debtin the future.

 

**We may not be able to compete favorably in ourindustries.**

 

Weface direct competition in each of our product lines. Some competitors may havegreater financial and other resources than we have. We face competition fromexisting competitors with entrenched positions and could face

 

11

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competitionfrom new competitors. Changes in the nature of our industries and our businesscould bring competition from different sources. We could face competition inour truck body business from competitors producing truck bodies constructedfrom materials other than fiberglass-reinforced plywood or aluminum. Pickuptruck manufacturers could determine to produce their own truck caps andtonneaus in competition with us.

 

Althoughwe face a small number of competitors in some of our businesses, we facesignificant competition in these areas. The principal competitive factorsinclude price, quality, delivery terms, service, production capacity,technological know-how, product design and innovation. We may not be able tocompete successfully in our industries. Increased competition may have amaterial adverse effect on our business, cash flows and ability to makerequired payments on our debt by reducing our sales or margins.

 

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

 

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

 

• Morgan’s two largest customers, Penske andRyder, together accounted for 41% of Morgan’s net sales in 2003, 46% in 2004and 47% in 2005 and accounted for 22% of our consolidated net sales during2003, 25% in 2004 and 24% in 2005.

 

• One customer accounted for 15% of SpecialtyManufacturing’s net sales during 2003, 18% in 2004 and 15% in 2005.

 

• Our top ten customers accounted for 34% ofour consolidated net sales in 2003, 40% in 2004 and 35% in 2005.

 

Becauseof the relative importance of a few large customers and the high degree ofconcentration in the industries we serve, we are subject to a high degree ofrisk. We may not be able to maintain these customer relationships or maintainour historical levels of sales to these customers. Because of the size andimportance of these customers, these customers may be able to exert pressure onus to lower our prices, which may reduce our margins and operating cash flow.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. The loss of, or significant reduction ofbusiness from, any of these customers would have a material adverse effect onour ability to generate cash and make required payments on our debt.

 

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

 

Morganand Morgan Olson mount their truck bodies on truck chassis delivered from truckchassis manufacturers. If truck chassis manufacturers experience disruptions intheir businesses, Morgan and Morgan Olson may be unable to sell or delivertheir products. Several of the largest manufacturers of truck chassis haveunionized work forces. Work stoppages or slowdowns experienced by the largetruck manufacturers that supply truck chassis could result in delays orslowdowns in our ability to deliver products to our customers. As a result, oursales, operating cash flows and ability to make required payments on our debtcould be materially and adversely affected.

 

**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. Certain laws,including the Federal Comprehensive Environmental Response, Compensation, andLiability Act of 1980, as amended (“Superfund”) impose strict, and undercertain

 

12

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circumstances,joint and several, liability for costs to remediate contaminated sites upondesignated responsible parties including site owners or operators and, personswho 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 the payment of minorfines. We have from time to time been identified as a potentially responsible party,or a PRP, at various Superfund sites, which, based on available information, wedo not expect to result in material liability. However, new environmentalrequirements or more aggressive enforcement of existing ones or discovery ofpresently unknown conditions could require material expenditures or result inliabilities which could limit expansion or otherwise have a material adverseeffect on our business, financial condition, operating cash flows and ourability to make required payments on our debt.

 

Fora description of current environmental issues, see “Item 1.   Business — Environmental Matters”

 

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

 

Weface an inherent risk of exposure to product liability claims if the use of ourcurrent and formerly manufactured products result, or are alleged to result, inpersonal injury and/or property damage. If we manufacture a defective product,we may experience material product liability losses in the future. In addition,we may incur significant costs to defend product liability claims. We couldalso incur damages and significant costs in correcting any defects, lose salesand suffer damage to our reputation. Our product liability insurance coveragemay not be adequate for any liabilities we could incur and may not continue tobe available on terms acceptable to us.

 

Weare also subject to product warranty claims in the ordinary course of ourbusiness. If we produce poor quality products or receive defective materials,we may incur unforeseen costs in excess of what we have reserved in ourfinancial statements. These costs could have a material adverse effect on ourbusiness, operating cash flows and ability to make required payments on ourdebt.

 

**We depend on the services of key management personnel,the loss 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 and Chief Executive Officer. The loss ofthe services of any of these individuals could have a material adverse effecton our business. We do not maintain key-man life insurance policies on any ofour executives.

 

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

 

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 capital and related expenditures in an effort to streamlineour operations, including combining some of our operations at existing facilities.We may not be able to successfully implement or realize the expected benefitsof any of these initiatives. We also may not be able to sustain improvementsmade to date. We may decide to alter or discontinue some aspects of ourstrategy and may adopt alternative or additional strategies, which may not bein the best interests of our note holders.

 

13

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

 

Ourbusiness strategy includes growing through strategic acquisitions of otherbusinesses with complementary products, manufacturing capabilities orgeographic markets. If we fail to integrate acquired businesses successfullyinto our existing businesses, or incur unforeseen expenses in consummatingfuture acquisitions, we could incur unanticipated expenses and losses.

 

Wemust successfully integrate acquired businesses into our operations to takeadvantage of projected benefits from those acquired businesses. The integrationof future acquisitions into our operations could result in operatingdifficulties and divert management and financial resources that would otherwisebe available for the development and maintenance of our existing operations. Ourability to make future acquisitions may be constrained by our ability to obtainadditional financing and by the provisions of the indenture governing ouroutstanding 8.75% Notes and by the terms of our revolving credit facility.

 

Acquisitionsmay involve a number of special risks, including:

 

• unexpected losses of key employees orcustomers of the acquired business;

 

•conforming the standards, processes, procedures and controls of the acquiredbusinesses with those of our existing operations;

 

• coordinating our product and processdevelopment;

 

• hiring additional management and criticalpersonnel; and

 

• increasing the scope, geographic diversityand complexity of our operations.

 

Futureacquisitions could result in our incurrence of additional debt and contingentliabilities, including environmental, tax, pension or other liabilities. Theseliabilities could have a material adverse effect on our business, our abilityto generate cash and ability to make required payments on our debt.

 

**If we are unable to meet future capital requirements,our competitive 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 pricing over time, 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 or other sources of borrowing such as capital leases. We maynot have adequate funds or borrowing availability to make all the necessarycapital expenditures. We may be required to expend more than we anticipated onnecessary capital expenditures. If we are unable to make necessary capitalexpenditures, our business and our competitive position will be materially andadversely affected.

 

 **As aprivately-held company, we are subject to less stringent corporate governancerequirements than a company with public equity. This provides less protectionto our investors.**

 

Whilewe are subject to certain requirements of the Sarbanes-Oxley Act of 2002, wewill not be subject to many of its provisions, including rules requiring us tohave independent directors or an audit committee composed of independentdirectors. Three of our four directors, John Poindexter, Stormy Hicks, ourPresident and Stephen Magee, the chairman of the Audit Committee of our boardof directors, are not independent. We will not be subject to the same corporategovernance standards as a company with public equity or a company listed on anational exchange and our security holders will not have the protectionsprovided by having independent directors or audit committee members.

 

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**Item1B.                 Unresolved StaffComments**

** **

**None**

** **

**Item 2.                    Properties**

** **

We own or lease the following manufacturing, office andsales facilities as of December 31, 2005:

 
| **Location**                     | ** **   | **Principal use**                          | ** **   | **Approximate  square feet** | ** **   | **Owned  or leased** | ** **   | **Lease  expiration** | ** **   |
|----------------------------------|--------------|-------------------------------------------------|--------------|-----------------------------------|--------------|---------------------------|--------------|-----------------------|--------------|
| *** ***                     | *** *** | *** ***                                    | *** *** | *** ***                      | *** *** | *** ***              | *** *** | *** ***          | *** *** |
| ***Morgan:***                    | *** *** | *** ***                                    | *** *** | *** ***                      | *** *** | *** ***              | *** *** | *** ***          | *** *** |
| Ehrenberg,  Arizona              |         | Manufacturing                                   |         | 125,000                           |         | Owned                     |         | —                |         |
| Riverside,  California           |         | Manufacturing/service                           |         | 77,000                            |         | Leased                    |         | 2008                  |         |
| Atlanta,  Georgia                |         | Parts &  service                            |         | 20,000                            |         | Leased                    |         | 2007                  |         |
| Rydal,  Georgia                  |         | Manufacturing                                   |         | 85,000                            |         | Owned                     |         | —                |         |
| Ephrata,  Pennsylvania           |         | Manufacturing                                   |         | 50,000                            |         | Owned                     |         | —                |         |
| New Morgan,  Pennsylvania        |         | Manufacturing                                   |         | 62,900                            |         | Leased                    |         | 2006                  |         |
| Morgantown,  Pennsylvania        |         | Manufacturing/service                           |         | 261,500                           |         | Owned                     |         | —                |         |
| Morgantown,  Pennsylvania        |         | Office/warehouse                                |         | 110,000                           |         | Leased                    |         | 2009                  |         |
| Corsicana,  Texas                |         | Manufacturing/service                           |         | 60,000                            |         | Owned                     |         | —                |         |
| Janesville,  Wisconsin           |         | Manufacturing/service                           |         | 166,000                           |         | Leased                    |         | 2010                  |         |
| Denver,  Colorado                |         | Parts &  service                            |         | 15,000                            |         | Leased                    |         | 2007                  |         |
| Lakeland,  Florida               |         | Parts &  service                            |         | 47,000                            |         | Leased                    |         | 2010                  |         |
| Brampton,  Ontario, Canada       |         | Office &  manufacturing                     |         | 41,000                            |         | Leased                    |         | 2009                  |         |
|                             |         |                                            |         |                              |         |                      |         |                  |         |
| ***Morgan  Olson:***             | *** *** | *** ***                                    | *** *** | *** ***                      | *** *** | *** ***              | *** *** | *** ***          | *** *** |
| Sturgis,  Michigan               |         | Office,  manufacturing and parts & services |         | 380,255                           |         | Owned                     |         | —                |         |
|                             |         |                                            |         |                              |         |                      |         |                  |         |
| ***Truck  Accessories:***        | *** *** | *** ***                                    | *** *** | *** ***                      | *** *** | *** ***              | *** *** | *** ***          | *** *** |
| Woodland,  California            |         | Manufacturing                                   |         | 65,000                            |         | Leased                    |         | 2006                  |         |
| Elkhart,  Indiana                |         | Office &  research                          |         | 23,500                            |         | Owned                     |         | —                |         |
| Elkhart,  Indiana                |         | Manufacturing                                   |         | 132,500                           |         | Leased                    |         | 2006                  |         |
| Elkhart,  Indiana                |         | Office &  manufacturing                     |         | 80,000                            |         | Owned                     |         | —                |         |
| Milton,  Pennsylvania            |         | Manufacturing/retail                            |         | 105,000                           |         | Leased                    |         | 2006                  |         |
| Moose Jaw,  Saskatchewan, Canada |         | Manufacturing                                   |         | 89,300                            |         | Leased                    |         | 2007                  |         |
| Clackamas,  Oregon               |         | Retail                                          |         | 10,000                            |         | Leased                    |         | 2008                  |         |
| Centralia,  Washington           |         | Manufacturing                                   |         | 45,950                            |         | Owned                     |         | —                |         |
|                             |         |                                            |         |                              |         |                      |         |                  |         |
| ***Specialty  Manufacturing:***  | *** *** | *** ***                                    | *** *** | *** ***                      | *** *** | *** ***              | *** *** | *** ***          | *** *** |
| Amelia,  Ohio*                   |         | Office &  manufacturing                     |         | 44,250                            |         | Leased                    |         | 2016                  |         |
| Brenham,  Texas                  |         | Office &  manufacturing                     |         | 105,000                           |         | Owned                     |         | —                |         |
| Decatur,  Alabama                |         | Manufacturing                                   |         | 175,000                           |         | Leased                    |         | 2006                  |         |
| Elkhart,  Indiana                |         | Office &  manufacturing                     |         | 211,600                           |         | Owned                     |         | —                |         |
| Fort Smith,  Arkansas            |         | Office &  manufacturing                     |         | 170,000                           |         | Leased                    |         | 2015                  |         |
| Gordonsville,  Tennessee         |         | Manufacturing                                   |         | 40,000                            |         | Leased                    |         | 2007                  |         |
| Milwaukee,  Wisconsin            |         | Office &  manufacturing                     |         | 70,000                            |         | Leased                    |         | 2010                  |         |
| Nashville,  Tennessee            |         | Manufacturing                                   |         | 40,900                            |         | Leased                    |         | 2006                  |         |
| Elkhart,  Indiana**              |         | Manufacturing                                   |         | 141,000                           |         | Leased                    |         | 2011                  |         |

 

We believe that our facilitiesare adequate for our current needs and are capable of being utilized at highercapacities to supply increased demand, if necessary.

 

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*Acquired January 3, 2006  **Acquired March 17, 2006

 

15

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**Item 3.            Legal Proceedings**

 

We are involved in various lawsuits,which arise in the ordinary course of business. In the opinion of management,the ultimate outcome of these lawsuits will not have a material adverse effecton us.

 

**Item4.            Submission of Matters to aVote of Security Holders**

 

**Nomatters were submitted to a vote of security holders during the twelve monthsended December 31, 2005 covered by this report.**

 

**PART II**

 

**Item5.****                                  ****Market for Registrant’s Common Equity, RelatedStockholder Matters and Issuer  Purchasesof Equity Securities**

 

The registrant’s common equityis privately held and not publicly traded. As of March 23, 2006, John Poindexter owned all of the registrant’sissues and outstanding common equity. During the last three fiscal years, the Company paid no cash dividends.

 

The indenture regarding the8.75% Notes, dated as of March 15, 2004 and the Revolving Credit Facility, asamended and dated as of March 15, 2004 with LaSalle Bank National Association,restrict the Company’s ability to pay dividends on its common equity.

 

The Company has no securitiesauthorized for issuance under equity compensation plans.

 

16

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**Item6.                    Selected FinancialData**

 

The following table sets forthour selected consolidated historical financial data for each of the five yearsin the period ended December 31, 2005. We derived the selectedconsolidated financial data as of December 31, 2001, 2002, 2003, 2004 and2005 and for the years ended December 31, 2001, 2002, 2003, 2004 and 2005from our consolidated financial statements. The following selected consolidated financial data as of December 31,2005 and 2004, and for the years ended December 31, 2005, 2004 and 2003, havebeen derived from our consolidated audited financial statements includedelsewhere in this Form 10-K.  Theselected consolidated financial data as of December 31, 2003, 2002 and 2001 andfor the years ended December 31, 2002 and 2001 have been derived from ourconsolidated financial statements not included or incorporated by reference inthis Form 10-K. The historical results presented are not necessarily indicativeof future results and youshould read this financial data in conjunction with the section in this Form10-K entitled “Management’s Discussion and Analysis of Financial Condition andResults of Operations” and our consolidated financial statements and relatednotes.

 
| ** **                                      | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|
| **(Dollars in millions)**             | ** ** | **2001**                         | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Operating  data:**                            |       |                             |       |   |   |   |   |   |   |   |   |
| Net sales                                       |       | $                                | 351.3      |   | $ | 320.5 |   | $ | 435.5 |   | $ | 584.9 |   | $ | 668.1 |   |
| Cost of  sales                                  |       | 296.4                            |       | 277.9 |   | 373.8 |   | 513.4 |   | 593.1 |   |
| Selling,  general and administrative expense    |       | 36.2                             |       | 37.4 |   | 36.9 |   | 40.6 |   | 50.0 |   |
| Refinancing  costs                              |       | —                           |       | — |   | 0.8 |   | — |   | — |   |
| Loss (gain)  on extinguishment of debt          |       | —                           |       | — |   | (0.4 | ) | 2.4 |   | — |   |
| Closed and  excess facility costs               |       | 0.1                              |       | 0.3 |   | — |   | — |   | 0.4 |   |
| Other  expense (income)                         |       | (0.3                             | )          | (0.9 | ) | — |   | (0.4 | ) | 0.1 |   |
| Operating  income                               |       | 18.9                             |       | 5.8 |   | 24.4 |   | 28.9 |   | 24.5 |   |
| Interest  expense                               |       | 13.0                             |       | 12.4 |   | 12.4 |   | 14.5 |   | 18.5 |   |
| Interest  income                                |       | —                           |       | — |   | — |   | 0.1 |   | 1.7 |   |
| Income tax  provision (benefit)                 |       | 3.3                              |       | (1.1 | ) | 2.7 |   | 4.1 |   | 2.6 |   |
| Income (loss) before discontinued  operations   |       | 2.6                              |       | (5.5 | ) | 9.3 |   | 10.4 |   | 5.1 |   |
| Loss from  discontinued operations              |       | (4.8                             | )          | (6.6 | ) | (0.2 | ) | (0.5 | ) | — |   |
| Net income  (loss)                              |       | $                                | (2.2       | ) | $ | (12.1 | ) | $ | 9.1 |   | $ | 9.9 |   | $ | 5.1 |   |
| Ratio of  earnings to fixed charges(a)          |       | 1.4                              | x          | — | (b) | 1.8 | x | 1.9 | x | 1.4 | x |
|                                            |       |                             |       |   |   |   |   |   |   |   |   |
| **Other  Data:**                                |       |                             |       |   |   |   |   |   |   |   |   |
| EBITDA(c)                                       |       | $                                | 29.6       |   | $ | 15.2 |   | $ | 36.6 |   | $ | 46.4 |   | $ | 37.9 |   |
| Consolidated  Coverage Ratio (d)                |       | 2.3                              |       | 1.3 |   | 3.0 |   | 3.2 |   | 2.1 |   |
|                                            |       |                             |       |   |   |   |   |   |   |   |   |
| **Balance sheet data (at period end):**         |       |                             |       |   |   |   |   |   |   |   |   |
| Working  capital                                |       | $                                | 18.5       |   | $ | 6.6 |   | $ | 14.9 |   | $ | 75.8 |   | $ | 114.9 |   |
| Total assets                                    |       | 119.4                            |       | 114.0 |   | 146.9 |   | 217.5 |   | 273.2 |   |
| Total debt                                      |       | 97.4                             |       | 103.0 |   | 107.8 |   | 158.4 |   | 205.4 |   |
| Stockholder’s  equity (capital deficiency) |       | $                                | (5.9       | ) | $ | (18.0 | ) | $ | (5.4 | ) | $ | 4.6 |   | $ | 9.7 |   |

 

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(a)            For the purpose of calculating the ratio ofearnings to fixed charges, earnings consist of net income (loss) plus incometaxes and fixed charges (excluding capitalized interest). Fixed charges consistof interest expense, amortization of debt issuance costs and the estimatedportion of rental expenses deemed a reasonable approximation of the interestfactor.

 

(b)           Earnings were insufficient to cover fixed charges by $6.9 millionfor 2002.

 

17

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(c)            “EBITDA” is net income from continuingoperations increased by the sum of interest expense, income taxes, depreciationand amortization and other non-cash items for those operations defined as restrictedsubsidiaries in the indenture pertaining to the 8.75% Notes.  EBITDA is not included herein as operatingdata and should not be construed as an alternative to operating income(determined in accordance with accounting principles generally accepted in theUnited States) as an indicator of the Company’s operating performance.  The Company has included EBITDA because it isrelevant for determining compliance under the Indenture and because the Companyunderstands that it is one measure used by certain investors to analyze theCompany’s operating cash flow and historical ability to service itsindebtedness.   The following are thecomponents of the Company’s EBITDA:

 
| ** ** | ** **                                                            | **Year ended December 31,** | ** ** |
|------------|-----------------------------------------------------------------------|--------------------------------------------|------------|
|       | **(Dollars in millions)**                                   | ** **                                 | **2001**   | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
|       | Income (loss) before extraordinary items  and discontinued operations |                                       | $          | 2.6 |   | $ | (5.5 | ) | $ | 9.3 |   | $ | 10.4 |   | $ | 5.1 |   |
|       | Income tax  provision (benefit)                                       |                                       | 3.3        |   | (1.1 | ) | 2.7 |   | 4.1 |   | 2.6 |   |
|       | Interest  expense                                                     |                                       | 13.0       |   | 12.4 |   | 12.4 |   | 14.5 |   | 18.5 |   |
|       | Depreciation  and amortization                                        |                                       | 10.6       |   | 9.1 |   | 9.2 |   | 9.5 |   | 10.4 |   |
|       | Non-cash  charges (income)                                            |                                       | 0.1        |   | 0.3 |   | (0.4 | ) | 2.4 |   | 0.4 |   |
|       | Pro forma  effect of acquisitions                                     |                                       | —     |   | — |   | 3.4 |   | 5.5 |   | 0.9 |   |
|       |                                                                  |                                       | $          | 29.6 |   | $ | 15.2 |   | $ | 36.6 |   | $ | 46.4 |   | $ | 37.9 |   |
|            |                                                                       |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

(d)           “Consolidated Coverage Ratio” is the ratio of EBITDA to interestexpense of the Company and its subsidiaries that guarantee the 8.75%Notes.  It is used in the Indenture tolimit 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.

 

**Item7.**                                                      Management’sDiscussion and Analysis of Financial Condition and Results of Operations

** **

**Overview**

** **

We have four operating segments:

 

•             Morgan,which manufactures and sells truck bodies;

 

•             MorganOlson, which manufactures and sells step van bodies;

 

•             TruckAccessories, which manufactures and sells pickup truck caps and tonneau covers; and

 

•             SpecialtyManufacturing, which manufactures specialty vehicles through its SpecialtyVehicle Group, primarily funeral coaches, limousines and specialized buses,provides contract manufacturing services and manufactures expandable foamproducts for packaging and other applications.

 

***Factors influencing resultsof operations***.  Demand for our products is highly cyclicaland our results of operations are affected by general economic conditions andconditions specific to the industries in which we and our customers operate.

 

Morgan’s and Morgan Olson’ssales depend on the replacement cycle for delivery trucks and step vans primarilyin the general freight, moving and storage, parcel delivery and distributionindustries. We estimate that customers typically replace delivery trucks everysix to seven years. However, the replacement cycle is directly impacted bygeneral economic conditions in the United States. In a weaker economy, ourcustomers will often defer purchases of new delivery trucks or retire olddelivery trucks without replacement. In the early stages of a stronger economy,customers typically replace delivery trucks at a faster than normal rate,making purchases that were deferred in prior

 

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years. We expect generaleconomic conditions to cause significant variability in Morgan’s and MorganOlson’s future results of operations and we cannot predict the impact of thatvariability on our operations.

 

Some of Morgan’s sales are alsoseasonal. Approximately 24% of Morgan’s unit sales are to companies that renttrucks on a short-term basis to consumers. The substantial majority of these Consumer Rental sales are made duringthe first half of each calendar year.

 

Truck Accessories’ sales aredirectly related to sales of new pickup trucks. Pickup truck sales are cyclicaland depend on general economic conditions and factors that affect theautomotive industry, such as consumer preferences, fuel costs, consumerspending levels, new model introductions and interest rates. General economicconditions and the above factors have in the past caused variability in TruckAccessories’ results of operations. We expect these factors will causevariability in the future, although we cannot predict the extent of suchvariability.

 

Specialty Manufacturing’s salesof funeral coaches and related limousines are influenced by new productintroductions by the major U.S. car manufacturers.  Delays in the introduction of a new model canresult in a delay in the ordering new funeral vehicles by the end user.

 

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, 2003,2004 and 2005.

 
| ** **                          | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------|------------|--------------------------------------------|------------|
| **(Dollars in millions)** | ** ** | **2003**                                   | ** ** | **2004** | ** ** | **2005** | ** ** |
| Net Sales                           |       |                                       |       |   |   |   |   |
| Morgan                              |       | $                                          | 223.2      |   | $ | 315.5 |   | $ | 358.2 |   |
| Morgan Olson                        |       | 34.6                                       |       | 71.0 |   | 60.8 |   |
| Truck Accessories                   |       | 122.8                                      |       | 135.4 |   | 153.7 |   |
| Specialty Manufacturing             |       | 54.9                                       |       | 64.3 |   | 95.7 |   |
| Eliminations                        |       | —                                     |       | (1.3 | ) | (0.3 | ) |
| Consolidated                        |       | $                                          | 435.5      |   | $ | 584.9 |   | $ | 668.1 |   |
| Operating  Income (Loss)            |       |                                       |       |   |   |   |   |
| Morgan                              |       | $                                          | 16.0       |   | $ | 19.6 |   | 20.7 |   |
| Morgan Olson                        |       | 0.8                                        |       | 1.9 |   | (1.9 | ) |
| Truck Accessories                   |       | 9.4                                        |       | 10.5 |   | 8.3 |   |
| Specialty Manufacturing             |       | 1.8                                        |       | 2.8 |   | 2.5 |   |
| JBPCO (Corporate)                   |       | (3.6                                       | )          | (5.9 | ) | (5.1 | ) |
| Consolidated                        |       | $                                          | 24.4       |   | $ | 28.9 |   | $ | 24.5 |   |
| Operating  Margin Percentage        |       |                                       |       |   |   |   |   |
| Morgan                              |       | 7.2                                        | %          | 6.2 | % | 5.8 | % |
| Morgan Olson                        |       | 2.3                                        | %          | 2.7 | % | (3.1 | )% |
| Truck Accessories                   |       | 7.7                                        | %          | 7.8 | % | 5.4 | % |
| Specialty Manufacturing             |       | 3.3                                        | %          | 4.4 | % | 2.6 | % |
| Consolidated                        |       | 5.6                                        | %          | 4.9 | % | 3.7 | % |

 

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

 

***Source of revenues.***  Wederive revenues from:

 

•             Morgan’ssales of truck bodies, parts and services.

 

•             MorganOlson’s sales of step van truck bodies, parts and services.

 

•             TruckAccessories’ sales of pickup truck caps and tonneaus;

 

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•             SpecialtyManufacturing’s sales of specialty vehicles, primarily funeral coaches,contract manufacturing services, packaging and other products.

 

***Discounts, returns andallowances.***  Our gross sales are reduced by discounts weprovide to customers and returns and allowances in the ordinary course of ourbusiness.  We provide discounts as deemednecessary to generate sales volume and remain price competitive. Discountsinclude payment term discounts and discretionary discounts from list price.

 

***Cost of sales.***  Costof sales represents the costs directly associated with manufacturing ourproducts and generally varies with the volume of products produced. Thecomponents of cost of sales are materials, labor and overhead. We haveexperienced significant increases in the cost of materials, such as aluminum,steel, fiberglass-reinforced plywood, lumber, fiberglass resin, plasticbeads and truck cap windows that have affected our operating profitmargins.  However, increased sales andthe prices we charge for our products have mitigated the impact on ourfinancial condition and results of operations. Additionally, we enter intosupply contracts for some materials at a fixed price for up to one year and insome cases pre-buy bulk quantities of materials to manage materials costs.Overhead costs are allocated to production based on labor costs and include thedepreciation and amortization costs associated with the assets used inmanufacturing.

 

***Selling, general andadministrative expenses.***  Selling, general andadministrative expenses are made up of the costs of selling our products andadministrative costs such as information technologies, accounting, finance,human resource and engineering. Costs include personnel and related costsincluding travel, equipment and facility rent expense and professional servicessuch as audit fees. Selling, general and administrative expenses also includeour costs at corporate headquarters to manage and provide support to ouroperating subsidiaries.

 

***Other income and expense.*** Income and expenses that we incur during the year that are nonrecurringin nature and not directly comparable to the prior year are included in otherincome and expense or are separately identified such as debt issuance costs.

 

**Basis of financialstatements**

** **

Various items in our financial statements have beenrestated for all prior periods, as described below.

 

On March 15, 2004, we acquired from JohnPoindexter, the sole shareholder of the Company, the stock of Morgan Olson thathe had acquired effective July 15, 2003. The results of operations for allperiods presented have been restated to reflect the merger on a basis similarto a pooling of interests so as to combine the financial statements of bothcompanies for the period they were under common control.

 

During 2004, MIC Group, which is included inSpecialty Manufacturing, reclassified certain manufacturing overhead costs fromselling, general and administrative expense to cost of sales, consistent withour other subsidiaries.

 

In 2004, we sold the Midwest Truck Aftermarketoperations of Truck Accessories.  In2003, we sold the GemTop operations of Truck Accessories. Accordingly, all ofthese operations have been treated as discontinued in the consolidatedfinancial statements for all periods presented, as described below in “DiscontinuedOperations”.  Income we received, orexpenses we incurred, from previously disposed of operations are also reportedin “Discontinued Operations.”

 

**Critical accounting policiesand estimates**

** **

The discussion and analysis offinancial condition and the results of operations are based upon ourconsolidated financial statements, which have been prepared in conformity withaccounting principles generally accepted in the United States.  The preparation of these consolidatedfinancial statements requires the use of estimates that affect the reportedamounts of assets, liabilities, revenues and expenses and related disclosure ofcontingent assets and liabilities. The estimates are evaluated continually,including those related to warranties offered on products, self-insurance

 

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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 following are the most criticalaccounting policies used in the preparation of our financial statements.

 

***Revenue Recognition.*** Revenue is recognized upon shipment of the product to customers, exceptfor Morgan and Morgan Olson where revenue is recognized when title transfers tothe customer upon final body assembly, quality inspection and customernotification. We classify amounts billed to customers related to shipping andhandling as revenue. The costs associated with the shipping and handlingrevenue are included in cost of sales.

 

***Warranties.*** Reserves for costs associated with fulfilling warrantyobligations offered on Truck Accessories, Morgan, Morgan Olson and SpecialtyVehicles Group products are established based on historical experience and anestimate of future claims. Increases in the incidence of product defects wouldresult in additional reserves being required in the future and would reduceincome in the period of such determination.

 

***Self-Insurance risks.***  Weutilize a combination of insurance coverage and self-insurance programs forproperty, casualty, workers’ compensation and health care insurance. We recordan actuarially determined, fully developed self-insurance reserve to cover theself-insured portion of these risks based on known facts and historicalindustry trends. Changes in the assumptions used by the actuary could result ina different self-insurance reserve.

 

***Income taxes. ***We estimate our income taxes in each of thejurisdictions in which we operate. This process involves estimating our currenttax exposure together with assessing temporary differences resulting from thediffering treatment of items for tax and financial reporting purposes. Thesedifferences result in deferred tax assets and liabilities, which are includedin the consolidated balance sheet. We then assess the likelihood that thedeferred tax assets will be recovered from future taxable income, and, to theextent recovery is not likely, a valuation allowance is established thusreducing the deferred tax asset. When an increase in this allowance within aperiod is recorded, we include an expense in the tax provision in theconsolidated statements of operations. Management’s judgment is required indetermining the provision for income taxes, deferred tax assets and liabilitiesand any valuation allowance recorded against the net deferred tax assets. During2005, we utilized net operating loss carryforwards of approximately$7.2 million that were outstanding as of December 31, 2004.  We had a capital loss carryforward deferredtax asset of approximately $1.4 million at December 31, 2005 and 2004, andrecorded a valuation allowance of an equal amount against the asset as it isuncertain as to whether we will generate future capital gains necessary toutilize the loss carryforward.  AtDecember 31, 2005, we had a state tax net operating loss carryforward deferredtax asset of $3.4 million and recorded a valuation allowance of $2.4 millionagainst the portion of which it is uncertain as to whether it will berealized.  We recognized a reduction inthe valuation allowance of $1.0 million, which reduced the tax provision by anequal amount for the year.  While ourdeferred tax assets, net of the valuation allowance, are considered realizable,actual amounts could be reduced if future taxable income is not achieved.

 

***Inventory valuation. ***Our inventories mainly consist of rawmaterials, vehicles prior to conversion, supplies and work-in-progress. Becauseour largest segments, Morgan, Morgan Olson and Truck Accessories primarilyproduce products to their customers’ orders, we maintain a relatively smallstock of finished goods inventories. Inventories are stated at the lower ofcost (first-in, first-out method) or market. We record reserves against thevalue of inventory based upon our determination that the inventory is notusable in our products. These reserves are estimates, which could varysignificantly, either favorably or unfavorably, from actual requirements iffuture economic conditions, customer inventory levels or competitive conditionsdiffer from our expectations.

 

***Accounts receivable. ***We provide credit to our customers in theordinary course of business. We are not aware of any significant credit risksrelated to our customer base and do not generally require collateral or othersecurity to

 

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support customer receivables.  Specialty Vehicles sells to certain customerson extended terms and retains title to the vehicle until payment is complete.The carrying amount of our accounts receivable approximate the fair value ofthe receivables because of their short-term nature with payment typically duewithin 30 days after an invoice is sent. We establish an allowance fordoubtful accounts on a case by case basis when we believe that we are unlikelyto receive payment in full of amounts owed to us. We make a judgment in thesecases based on available facts and circumstances and we may record a reserveagainst a customer’s account receivable. We re-evaluate the reserves and adjustthem as we obtain more information regarding the account. The collectibility oftrade receivables could be significantly reduced if there is a greater thanexpected rate of defaults or if one or more significant customers experiencefinancial difficulties or are otherwise unable to make required payments.

 

***Goodwill and long-livedassets impairment. ***We perform a test of our goodwill forpotential impairment annually as of October 1 as prescribed by Statementof Financial Accounting Standards No. 142, *“Goodwilland Other Intangibles.”* The fair values of our reporting units arebased on multiples of earnings derived from information and analysis of recentacquisitions in the market place for companies with similar operations. Changesin the assumptions used in the fair value calculation could result in anestimated reporting unit fair value that is below the carrying value, which maygive rise to an impairment of our goodwill. In addition to the annual review, we also test for impairment of ourlong-lived assets, goodwill and intangible assets should events orcircumstances indicate a potential reduction in the fair value of those assetsbelow their carrying value.

 

**Comparison of 2005 to 2004**

 

***Sales.**** **Our*consolidated net sales increased $83.2million, or 14.2%, to $668.1 million for 2005 compared to$584.9 million for 2004.

 

•             Morgan’snet sales increased $42.8 million, or 13.6%, to $358.2 million for 2005compared to $315.5 million for 2004. Excluding Commercial Babcock, which was acquired in December 2004, netsales increased $22.6 million or 7.2%. Truck body sales increased $24.7 million or 8.4%.  The increase was due primarily to a 16.0%increase in the average unit price of a truck body partly offset by a 6.6%decline in the number of units shipped. Sales of truck bodies to the commercial divisions of leasing companies,companies with fleets of delivery vehicles, truck dealers and distributors or “Commercial”sales, which represented 86% of Morgan’s net sales this year, increased $36.4million or 14.4% to $289.1 million. Shipments of Commercial units increased approximately 2% during 2005;however, compared to a 44% increase last year, this increase could indicate anunfavorable change in the replacement cycle of our major fleet companycustomers.  Consumer Rental salesdecreased $11.7 million or 27.8% on a 35% decline in unit shipments.  Commercial Babcock’s net sales were $20.9million during 2005.  Sales of parts andservices decreased $4.9 million or 31.3% due primarily to the transfer of theparts business to Morgan Olson.  Discountsdecreased slightly to $10.6 million in 2005 or 2.9% of net sales compared to$10.8 million or 3.3% of net sales in 2004.

 

•             MorganOlson’s net sales decreased $10.2 million or 14.4% to $60.8 million for2005.  Step van body sales decreased$14.7 million or 25.1% on a 33.6% decline in unit shipments.  The reduction in unit shipments was dueprimarily to a 42% reduction in sales to UPS from 1,200 units this yearcompared to approximately 1,800 units in 2004 with a 56% decline in the fourthquarter of 2005.  This trend has notcontinued into 2006 as orders from UPS have increased to 3,200 units fordelivery in 2006.  Parts and servicesales increased $4.5 million to $17.1 million compared to $12.6 million in2004; the increase was due to the transfer of the Morgan parts business toMorgan Olson.

 

•             TruckAccessories’ net sales increased $18.3 million, or 13.5% to $153.7 million for2005 compared to $135.4 million for 2004. The increase was due primarily to the acquisition of Pace Edwards inNovember of 2004, which contributed $16.1 million to 2005 net sales compared to$2.7 million in 2004.  Sales of caps andtonneaus, excluding Pace Edwards, increased by 3.7% or $4.9 million on a 3.3%decrease in unit shipments.  Pickup trucksales in the United States and Canada decreased 1% during 2005 compared to a 3%increase in 2004 with sales increasing 10% during the first, second and thirdquarters of 2005 and declining 9% in the fourth quarter.

 

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•             SpecialtyManufacturing’s net sales (excluding Federal Coach) increased by$8.7 million, or 13.5%, to $73.0 million for 2005 compared to$64.3 million for 2004.  Sales tocustomers in the energy services business increased 28.9% to $28.6 millioncompared to $22.2 million during 2004 due to an increase in demand in theoil and gas industry.  Federal Coach’snet sales were $22.6 million for the six month period subsequent to itsacquisition in 2005.

 

***Backlog****.*  Consolidated backlog was $143.6 millionas of December 31, 2005 compared to $127.2 million as of December 31, 2004.

 

•                      Morgan’s backlog at December 31, 2005 was $94.7 million compared to$101.9 million at December 31, 2004. The decrease from a year earlier wasdue primarily to the timing of the receipt of fleet orders from its two largestcustomers.

 

•                      Morgan Olson’s backlog was $9.3 million atDecember 31, 2005 compared to $8.1 million at December 31, 2004.

 

•                      Truck Accessories’ backlog of approximately two weeks of production was$3.9 million at December 31, 2005 compared to $4.6 million as ofDecember 31, 2004.

 

•                      Specialty Manufacturing’s backlog at December 31, 2005 increased $23.1million to $35.7 million compared to $12.6 million at December 31,2004.  Excluding Federal Coach’s backlogof $6.6 million at December 31, 2005, the backlog of machining servicesincreased $16.5 million over last year.

 

***Costof sales and gross profit. ******Our***consolidated cost of sales increased by $79.6million or 15.5%, to $593.1 million for 2005 compared to $513.5 millionfor 2004. Consolidated gross profit increased by $3.5 million, or 5.0%, to$75.0 million (11.2% of net sales) for 2005 compared to $71.5 million(12.2% of net sales) for 2004.

 

•             Morgan’sgross profit increased by $4.5 million, or 12.9% to $39.6 million (11.1%of its net sales) for 2005 compared to $35.1 million (11.1% of its net sales)for 2004.  Excluding Commercial Babcock,Morgan’s gross profit increased $1.6 million or 4.7% on higher sales this year.

 

•             MorganOlson’s gross profit declined by $4.8 million, or 68.2%, to$2.2 million (3.7% of its net sales) for 2005 compared to$7.1 million (9.9% of its net sales) for 2004.  The decline in gross profit and gross profitmargins was due to lower labor productivity and higher overhead expensesrelative to sales.

 

•             TruckAccessories’ gross profit increased by $1.4 million, or 7.0%, to$21.6 million (14.0% of its net sales) for 2005 compared to$20.2 million (14.9% of its net sales) for 2004. Gross profit increased$4.1 million as a result of the incremental gross profit of Pace Edwards, whichwas part of Truck Accessories for the twelve months of 2005 and only two monthsof 2004, partially offset by a $2.7 million decrease in gross profits at theremaining Truck Accessories’ operations due primarily to increased raw materialcosts and delivery costs.  Delivery costsincreased approximately $2.8 million in 2005 mainly due to increased fuelprices.

 

•             SpecialtyManufacturing’s gross profit increased $2.4 million, or 26.4%, to $11.6 million(12.1% of its net sales) for 2005 compared to $9.2 million (14.2% of itsnet sales) for 2004.  The acquisition ofFederal Coach in June of this year added $1.9 million to gross profits for theyear and the remaining increase was due to higher sales of machining services.

 

***Selling, general andadministrative expenses. ***Our consolidated selling, general andadministrative expenses increased $9.4 million, or 23.2%, to$50.0 million (7.5% of net sales) for 2005 compared to $40.6 million (7.0%of net sales) for 2004.

 

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•             Morgan’sselling, general and administrative expenses increased $3.4 million, or22.2%, to $18.9 million (5.3% of its net sales) for 2005 compared to$15.4 million (4.9% of its net sales) for 2004.  $2.4 million of the increase was due to theaddition of Commercial Babcock late in 2004 and to increased commissions andpromotional expenses related to efforts to increase sales.

 

•             MorganOlson’s selling, general and administrative expenses decreased by$0.7 million, or 14.3%, to $4.2 million (6.9% of its net sales) for2005 compared to $4.9 million (6.9% of its net sales) for 2004.  A reduction in general and administrativeexpenses of $1.0 million was partly offset by a $0.3 million or 16.2% increasein selling expense primarily due to an increase in sales personnel from 17 to21.

 

•             TruckAccessories’ selling, general and administrative expenses increased by$2.9 million, or 30.2%, to $12.6 million (8.2% of its net sales) for 2005from $9.7 million (7.1% of its net sales) for 2004. Costs increased primarilydue to the incremental expenses of $2.6 million from the acquisition of PaceEdwards.

 

•             SpecialtyManufacturing’s selling, general and administrative expenses increased by$2.4 million, or 36.3%, to $9.2 million (9.6% of its net sales) for2005 from $6.8 million (10.5% of its net sales) for 2004. The acquisitionof Federal Coach added $1.7 million of expenses this year.

 

•             Corporateselling, general and administrative expenses increased by $1.4 million, or38.2%, to $5.1 million (0.8% of consolidated net sales) for 2005 from$3.7 million (0.6% of consolidated net sales) for 2004, primarily due toadditional personnel and related costs of approximately $0.8 million.

 

***Loss on extinguishment of debt****.* During 2004, we wrote-off deferred loan costs of $2.4 million as aresult of the refinancing of our then outstanding debt.

 

***Closed and excess facility costs. ***In the third quarter of 2005, we decided to consolidate the TruckAccessories plants in Canada which resulted in a write-down in the carryingvalue of our Drinkwater facility.  Thenon cash write-down of $377,000 was recorded as closed and excess facilitycosts for 2005.

 

***Operating income. ***Due to the effect of the factors summarizedabove, consolidated operating income decreased by $4.4 million, or 15.2%to $24.5 million (3.7% of net sales) for 2005 from $28.9 million(4.9% of net sales) for 2004.

 

•             Morgan’soperating income increased by $1.2 million, or 5.9%, to $20.8 million(5.8% of its net sales) for 2005 compared to $19.6 million (6.2% of itsnet sales) for 2004.  Commercial Babcock’soperating income was $0.7 million (3.4% of its net sales) for 2005.

 

•             MorganOlson’s operating income decreased by $3.8 million to a $1.9 millionoperating loss for 2005 compared to operating income of $1.9 million for 2004.

 

•             TruckAccessories’ operating income decreased by $2.2 million, or 20.9%, to$8.3 million (5.4% of its net sales) for 2005 compared to $10.5 million(7.8% of its net sales) for 2004.  PaceEdwards’ operating income was $1.4 million for the 2005 period.

 

•             SpecialtyManufacturing’s operating income decreased by $0.3 million, or 10.8%, to$2.5 million (2.6% of its net sales) for 2005, compared to$2.8 million (4.3% of its net sales) for 2004.

 

•             Corporateexpenses decreased $0.8 million to $5.1 million for 2005, compared to $5.9million for 2004.  The loss onextinguishment of debt of $2.4 million in 2004 was included in corporateexpenses for that period.

 

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***Interest expense.  ******I***nterest expense increased $4.0 million, or27.5% to $18.5 million (2.8% of net sales) for 2005 compared to$14.5 million (2.5% of net sales) for 2004.  The increase was due to a $56.1 millionincrease in average debt outstanding during 2005, primarily as a result of theadditional 8.75% Note offering totaling $45 million in January of 2005.  We earned $1.6 million of interest on ourcash and short term investments during 2005.

 

***Incometaxes.*** The 2005 income tax rate approximated the statutoryrate. A reduction in the valuation allowance of $1.0 million reduced the ratebut was offset by recurring state income tax provisions and various otheritems. In 2004, the income taxprovision was approximately 28% of pre-tax income. The rate was reduced by a$0.5 million reduction in the valuation allowance and various other items.

 

**Comparison of 2004 to 2003**

 

***Sales.**** **Our*consolidated net sales increased$149.4 million, or 34.3%, to $584.9 million for 2004 compared to$435.5 million for 2003.

 

•             Morgan’snet sales increased $92.3 million, or 41.4%, to $315.5 million for2004 compared to $223.2 million for 2003. The increase resulted from a32.7% increase in the number of units shipped to approximately 38,000 units.Net sales increased by a greater percentage than number of units shippedbecause of a greater increase in higher priced commercial unit shipments andprice increases on all products.  Theaverage price increase across all products was 4.5% for 2004 compared to2003.  Shipment of units to ConsumerRental companies that are historically large production runs completed in thefirst and second quarters of the year, and generally command a lower unitprice, increased approximately 31% in 2004 compared to 2003 including a 136%increase in the fourth quarter of 2004 as 2005 production was accelerated into2004. Shipments of commercial units that represented about 80% of Morgan’stotal sales in 2004, increased by 44% to $252.7 million in 2004 from$175.4 million in 2003 as Morgan’s major fleet customers, distributors anddealers increased new truck body purchases from Morgan. This increase incommercial sales reflected an improvement in general economic conditions. Theincrease in purchases by the major fleet companies reflected a favorable changein the replacement cycle of their fleets. Discounts remained flat at$10.8 million and decreased to 3.3% of gross sales compared to 4.6% during2003.  The acquisition of CommercialBabcock in December of 2004 added $0.7 million of sales in Canada for 2004.

 

•             MorganOlson’s net sales for 2004 were $71.0 million compared to $34.6 millionfor 2003.  This significant increase waslargely due to sales for the six month period ended June 30, 2004 of $25.8million for which we do not have sales for the comparable period in 2003 as weacquired Morgan Olson out of bankruptcy in July 2003.  Sales for the six months ended December 31,2004 increased $10.6 million or 30.8% compared to the same period of 2003 dueto sales to UPS of $23.0 million offset by a decrease in sales to the UnitedStates Postal Service.

 

•             TruckAccessories’ net sales increased $9.9 million, or 8.1%, during 2004 compared to2003, excluding Pace Edwards that was acquired in November 2004.  Net sales for 2004 were $135.4 million,compared to $122.8 million for 2003, and included $2.7 million of net sales byPace Edwards.  The increase was due to a3.2% increase in unit shipments in 2004 compared to 2003, a 4.9% increase innet sales price and changes in the mix of products sold.  Sales of pickup trucks in the United Statesand Canada, a leading indicator of Truck Accessories’ business, rose byapproximately 3.3% over the same period.

 

•             SpecialtyManufacturing’s net sales increased by $9.4 million, or 17.1%, to$64.3 million for 2004 compared to $54.9 million for 2003. Sales tocustomers in the energy services business represented 28% of SpecialtyManufacturing’s sales during 2004, and sales to these customers increased 15%to $22.2 million compared to $19.3 million during 2003. The increaseresulted from increased oil and gas exploration activity during 2004. Othersales increased by 18.3% to $42.2 million during 2004 compared to$35.7 million during 2003.  Sales ofplastic based packaging products increased $4.2 million or 19.3% on increaseddemand from customers in the consumer electronics industry.

 

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***Backlog****.*  Consolidated backlog was $127.2 millionas of December 31, 2004 compared to $100.2 million as of December 31, 2003.

 

•                      Morgan’s backlog at December 31, 2004 was $101.9 million comparedto $72.0 million at December 31, 2003. The increase from a year earlierwas due primarily to additional commercial unit orders from Morgan’s majorfleet customers during 2004.

 

•                      Morgan Olson’s backlog was $8.1 million atDecember 31, 2004 compared to $13.7 million at December 31, 2003. Thebacklog at the end of 2003 included orders for step vans for the United StatesPostal Service supplied under a contract that was completed in the firstquarter of 2004.

 

•                      Truck Accessories’ backlog of approximately two weeks of production was$4.6 million at December 31, 2004 compared to $4.3 million as ofDecember 31, 2003.

 

•                      Specialty Manufacturing’s backlog at December 31, 2004 was$12.6 million compared to $10.2 million at December 31, 2003.

 

***Cost of sales and grossprofit. ******Our***consolidated cost of sales increased by$139.7 million, or 37.4%, to $513.5 million for 2004 compared to$373.8 million for 2003. Consolidated gross profit increased by$9.7 million, or 15.7%, to $71.4 million (12.2% of net sales) for2004 compared to $61.7 million (14.2% of net sales) for 2003.

 

•             Morgan’sgross profit increased by $4.4 million, or 14.5%, to $35.1 million(11.1% of its net sales) for 2004 compared to $30.6 million (13.7% of itsnet sales) for 2003.  The decrease in thegross margin as a percentage of net sales was due to an increase in materialcosts partially offset by the improved absorption of overhead and improvedlabor efficiency on higher sales. Material cost increases reflect material used to manufacture productthat had been booked into backlog prior to product price increases takingeffect. During 2004, Morgan implemented a 6% price increase on truck bodyproducts during the second quarter, a 3.5% cost pass-through on certain optionsduring the third quarter and a 3.8% increase on truck bodies during the fourthquarter. However, the industry practice of honoring price quotes to customersfor 30 days, an unusually large increase in orders late in 2003 and early2004, and long production lead times due to chassis delivery schedules,significantly reduced the benefit of the price increases. Morgan estimated thatthe unrecovered increases in raw material costs reduced operating income byapproximately $8.0 million or by approximately $0.8 million in the firstquarter, $4.2 million in the second quarter and $3.0 million in thethird quarter. An additional 5% increase on truck bodies was implemented inFebruary 2005.

 

•             MorganOlson’s gross profit increased by $2.3 million, or 47.0%, to $7.1 million(9.9% of its net sales) for 2004 compared to $4.8 million (13.9% of itsnet sales) for the period from July 15, 2003, the date of its acquisition,to December 31, 2003.  The declinein the gross profit margin was due primarily to a four percentage pointincrease in labor costs relative to sales caused by high labor turnover, hiringand training costs, and increased wage rates all associated with a ramp-up inproduction to meet higher sales demand.

 

•             TruckAccessories’ gross profit increased by $1.5 million, or 8.0%, to$20.2 million (14.9% of its net sales) for 2004 compared to$18.7 million (15.2% of its net sales) for 2003.

 

•             SpecialtyManufacturing’s gross profit increased $1.5 million, or 20.0%, to $9.2million (14.2% of its net sales) for 2004 compared to $7.6 million (13.9%of its net sales) for 2003.  Increasedmaterial costs were more than offset by improved absorption of overhead onhigher sales.

 

***Selling, general andadministrative expenses. ***Our consolidated selling, general and administrativeexpenses increased $3.7 million, or 10.0%, to $40.6 million (6.9% ofnet sales) for 2004 compared to $36.9 million (8.5% of net sales) for2003.

 

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•             Morgan’sselling, general and administrative expenses increased $1.0 million, or6.9%, to $15.5 million (4.9% of its net sales) for 2004 compared to$14.5 million (6.5% of its net sales) for 2003. The increase was dueprimarily to increased managerial personnel and related costs.  Control of administrative costs in generalreduced the level of expense relative to sales.

 

•             MorganOlson’s selling, general and administrative expenses increased by$0.9 million, or 23.0%, to $4.9 million (7.0% of its net sales) for2004 compared to $4.0 million (11.6% of its net sales) for the period fromJuly 15, 2003, the date of its acquisition, to December 31,2003.  Expenses for 2003 included a $0.8million management fee paid to Southwestern Holdings, Inc. for services providedby John Poindexter.

 

•             TruckAccessories’ selling, general and administrative expenses increased by$0.5 million, or 4.9%, to $9.7 million (7.1% of its net sales) for2004 from $9.2 million (7.5% of its net sales) for 2003. The acquisitionof Pace Edwards in November 2004 added $0.6 million of expenses to 2004.

 

•             SpecialtyManufacturing’s selling, general and administrative expenses increased by$0.8 million, or 12.7%, to $6.8 million (10.5% of its net sales) for2004 from $6.0 million (10.9% of its net sales) for 2003.

 

•             Corporateselling, general and administrative expenses during the 2004 period increased$0.6 million or 17.9% to $3.7 million from $3.1 million for 2003primarily as a result of additional personnel and their associated costs of$0.3 and additional audit fees of approximately $0.2 million.

 

***Loss onextinguishment of debt***. Effective with our offering on March 15,2004 of $125.0 million in aggregate principal amount of 8.75% Notes, we repaidour then outstanding revolving loan facilities and, effective April 15,2004, we repaid the 12.5% senior secured notes that were due 2007. As a result,the remaining debt issuance costs of $2.4 million associated with thoseborrowings were written off to expense. Effective June 10, 2003, we completedan exchange offer of our then outstanding 12.5% senior notes due 2004 for anequal amount of 12.5% senior secured notes due 2007 and expensed therefinancing costs associated with the offer of $0.8 million for 2003.  EffectiveSeptember 29, 2003, we recorded a $0.4 million gain on the purchase and cancellationof $9.1 million principal amount of outstanding 12.5% senior secured notes due2007.

 

***Other income****.*  Ourother income during the period ended December 31, 2004 of $0.4 million wasprimarily a death benefit from a life insurance policy on the life of a formerexecutive of Specialty Manufacturing.

 

***Operating income. ***Due to the effect of the factors summarizedabove, consolidated operating income increased by $4.5 million, or 18.4%,to $28.9 million (4.9% of net sales) for 2004 from $24.4 million (5.6%of net sales) for 2003.

 

•             Morgan’soperating income increased by $3.6 million, or 22.5%, to$19.6 million (6.2% of its net sales) for 2004 compared to$16.0 million (7.2% of its net sales) for 2003.  The decline in operating income as apercentage of sales was due to increased raw material costs.

 

•             MorganOlson’s operating income increased by $1.1 million, or 137.5%, to$1.9 million (2.7% of its net sales) for 2004 compared to$0.8 million (2.3% of its net sales) for the period from July 15,2003, the date of its acquisition, to December 31, 2003.  However, excluding the management fee of $0.8million paid to Southwestern Holdings, Inc. in 2003, operating income increased$0.3 million or 19%.

 

•             TruckAccessories’ operating income increased by $1.1 million, or 11.7%, to$10.5 million (7.8% of its net sales) for 2004 compared to$9.4 million (7.7% of its net sales) for 2003.

 

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•             SpecialtyManufacturing’s operating income increased by $1.0 million, or 55.6%, to$2.8 million (4.3% of its net sales) for 2004, compared to$1.8 million (3.3% of its net sales) for 2003, on increased gross profitsfrom both its machining services and plastics based packing materialoperations.

 

•             Corporateexpenses increased $2.3 million to $5.9 million for 2004, compared to $3.6million for 2003.  The increase was dueprimarily to the loss on extinguishment of debt of $2.4 million.

 

***Interest expense. ***Consolidated interest expense increased $2.1million, or 16.9% to $14.5 million (2.5% of net sales) for 2004 compared to$12.4 million (2.9% of net sales) for 2003.  The increase was primarily as a result of a$44.5 million increase in average total debt during 2004 compared to 2003 and approximately$0.8 million of additional interest on the 2007 senior secured notes that weretired on April 15, 2004, thirty days after the issuance of our $125.0 million8.75% Notes, offset by a 2.7% decrease in the effective interest rate on ourdebt.

 

***Discontinued Operations. ***Our loss from discontinued operations of $0.5 million, net of an incometax benefit, for 2004, consisted primarily of the operating losses of MidwestTruck Aftermarket, a division of Truck Accessories, of $0.2 million andgoodwill of $0.3 million, which was written off to expense.

 

***Tax provision.  ***Our income tax provision for 2004 and 2003differ from amounts computed based on the federal statutory rate due to stateand foreign taxes in jurisdictions where our net operating loss carry forwardsthat were otherwise available were not available to reduce current periodincome.  During 2004, the impact of thereversal of the valuation allowance reduced the provision for income taxes by$0.5 million.  The 2004 provision wasalso reduced by various other items.  During2003, we reduced the amount of the valuation allowance by $0.8 million andreduced other tax reserves by $0.9 million for prior year income taxprovision to return differences, which reduced the provision for income taxesby $1.7 million.

 

**Discontinued operations**

** **

***Truck Accessories-MidwestTruck Aftermarket or MTA.*** MTA was a wholesale distributionoperation that Truck Accessories acquired in 1997 and included it in itsdistribution division. Truck Accessories disposed of almost all of itsdistribution businesses during 1999 and 1998 as part of a strategic decision toconcentrate on manufacturing however, MTA and three retail locations wereretained. A buyer for MTA was identified during 2004 and we sold the assetseffective May 28, 2004. We realized cash proceeds of approximately$1.3 million and wrote off goodwill of $0.3 million, less an incometax benefit of $0.1 million, as a loss on sale of discontinued operations. For2004 and 2003 MTA had sales of $4.1 million and $10.0 million,respectively, and a loss before income tax benefits of $0.3 million and $0.1million, respectively.

 

***Truck Accessories-GemTopOperations. ***During the fourth quarter of 2002, wecommitted to a plan to sell principally all of the assets, less certain of theliabilities of GemTop, a division of Truck Accessories. The sale was completedeffective February 28, 2003. We realized net cash proceeds ofapproximately $0.8 million from the sale. During 2004 and 2003, net sales of the GemTop division were $0, and$0.9 million, respectively, and the loss before income tax benefit was$0.2 million for both years.  The lossduring 2004 was due to the cost of funding a defined benefit pension plan,sponsorship of which was assumed by Truck Accessories.  The plan has been frozen and there areapproximately 30 participants.  We areevaluating various courses of action including canceling the plan andpurchasing annuities for the participants.

 

***Other discontinuedoperations. ***During 2003, we received a settlement from aclass action suit of approximately $0.3 million and proceeds from asurrendered life insurance policy of approximately $0.1 million that wererelated to operations sold in 1999. Income before income taxes of $0.4 millionfrom these transactions was included in loss from discontinued operations for 2003.

 

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**Liquidity and capitalresources**

** **

Historically we have funded ouroperations with cash available from the proceeds of our senior notes, cashgenerated from operations and borrowings under our revolving credit facility,as needed.  Working capital at December31, 2005 was $114.9 million compared to $75.8 million atDecember 31, 2004.  Our cash, cashequivalents and short term investments increased $31.7 million this yearcompared to last year due primarily to proceeds from the $45.0 million 8.75%Note offering in the first quarter of 2005 and cash flows from operations of$14.6 million partially offset by the cash paid for Federal Coach of $12.3million and capital expenditures of $15.5 million.  Excluding cash and short term investments,working capital increased $7.4 million primarily as a result of working capitalacquired with the acquisition of Federal Coach of $6.1 million and aninvestment in working capital over the year of $3.2 million.  Average accounts receivable days salesoutstanding at December 31, 2005 were approximately 27 compared to 32 atDecember 31, 2004, and inventory turns during the year were approximately 10.4compared to 11.0 during 2004.  Inventoryturns declined due to the addition of Federal Coach this year.  Federal Coach’s inventory as of December 31,2005 included approximately $2.5 million of vehicle chassis that remain ininventory for extended periods of time due to a four to six week productioncycle.

 

***Operating cash flows. ***Operating activitiesduring 2005 generated cash of $14.6 million compared to $11.8 millionduring 2004 and $13.2 million during 2003. The increase in net cash generatedby operating activities was due primarily to a smaller investment in workingcapital this year.

 

The decrease in cash fromoperating activities during 2004 compared to 2003 was due to an increase in theinvestment in working capital of approximately $7.3 million substantiallyoffset by higher net income, non cash financing charges and an increase indeferred tax benefits during 2004.

 

***Investing cash flows. ***Net cash used ininvesting activities increased $1.8 million to $38.0 million for 2005 comparedto $36.2 million for 2004.  The increasewas due primarily to a $10.3 million increase in short-term investments and anincrease in capital expenditures of $6.1 million offset by a decrease in cashspent for acquisitions and insurance collateral deposits.

 

We acquired Federal Coachduring the second quarter of 2005 using cash proceeds of approximately $12.3million from our 8.75% Note offerings. Capital expenditures for 2005 were $15.5 million that included $6.1million of new machine tools and presses for Specialty Manufacturing, $2.4million of new product molds at Truck Accessories and a $1.5 million investmentin information technology assets.   Weacquired approximately $1.0 million of equipment under capital lease that isnot included in capital expenditures.

 

As of December 31, 2005, we hadno significant open commitments for capital expenditures.

 

Net cash used in investingactivities increased to $36.2 million during 2004 compared to $16.4 millionduring 2003.

 

We acquired two new businessesduring the fourth quarter of 2004 using cash from the proceeds of our 8.75%Note offering of approximately $17.9 million. Capital expenditures for 2004 were $9.4 million, which included Morgan’spurchase of its manufacturing facility in Georgia for $2.2 million and newproduction equipment of $2.0 million. Specialty Manufacturing acquired productionequipment of $1.2 million and Truck Accessories invested in $2.2 million of newproduction molds.  We acquiredapproximately $2.2 million of production equipment for Specialty Manufacturingunder capital leases that are not included in capital expenditures.  Our capital expenditures during 2003 wereprimarily for the replacement of equipment and product molds of $1.7 millionfor Truck Accessories.

 

Cash generated from investingactivities during 2004 and 2003 by discontinued operations was made up of primarilythe proceeds from the sale of MTA during 2004 and Gem Top during 2003.

 

During the fourth quarter of2004, we substituted a cash collateral deposit for stand-by letters of creditthat had been used to secure our liabilities under our casualty insuranceprograms.  We deposited $5.5 million ofcash into an account restricted by the terms of a trust agreement in favor ofour insurance carrier.  The insurancecarrier has the

 

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right to demand payment fromthe trust in the event that we are unable to pay our liabilities for previouslyincurred insurance claims.

 

We acquired Morgan Olsoneffective July 15, 2003 for cash of approximately $13.9 million. OnMay 5, 2003, Morgan acquired certain assets, primarily inventory, of atruck body manufacturer located in Riverside, California. Morgan paidapproximately $0.4 million in cash for the assets and assumed certainliabilities of approximately $0.2 million. Morgan also sold its Monterrey,Mexico facility during 2003 and realized proceeds of $0.9 million that areincluded in proceeds from the disposition of business property, plant andequipment.

 

***Financing cash flows. ***We generated $45.0 million of cash fromfinancing activities for 2005 compared with $43.8 million and $3.6 millionfor 2004 and 2003, respectively.  DuringJanuary 2005, we issued $45.0 million in aggregate principal amount of 8.75% Notes due 2014 (see below) at a 5%premium and the net proceeds of approximately $46.4 million increased cash andshort term investments.  During 2004 weissued $155.0 million of 8.75% Notes due2014 and used the net proceeds to repay term and revolving debt of$112.9 million and pay accrued interest on the retired debt of$3.9 million.

 

During 2003, we borrowed approximately$10.0 million of long-term debt secured against Morgan Olson’s assets tofinance the acquisition of Morgan Olson. In addition, we borrowed$4.1 million on our revolving credit facilities to fund operations. During2003, we repaid $10.3 million of long-term debt and capital leaseobligations from available cash. In addition, during 2003, we completed theexchange of $85.0 million, 12.5% Senior Notes for the same principal amount of12.5% senior secured notes and paid costs of $2.9 million that included anexchange offer consent fee of $2.6 million. As a result of the contribution of Morgan Olson to us during 2003 ourcapital in excess of par account increased by $3 million.

 

***Long-term debt. ******AtDecember 31, 2005 our long-term debt was $205.4 million and was comprised of$202.0 million of our***8.75% Notes***, whichincluded the unamortized premium on sale of $2.0 million and $3.4 million ofcapital lease obligations.  On January27, 2005, we completed an offer to sell $45.0 million of our***8.75% Notes***at apremium of 5% over par on the same terms as the original issue.  Net proceeds of approximately $46.4 millionincreased cash and short-term investments. ***OnMarch 15, 2004, we issued $125.0 million in aggregate principalamount of 8.75% Notes, the proceedsof which we used to repay existing debt, including (i) $79.8 millionof our 12.50% senior secured notes due 2007, which amount included accruedinterest of $3.9 million, (ii) borrowings under our then revolvingloan agreement of approximately $22.0 million and (iii) Morgan Olsondebt of approximately $14.3 million. Concurrently with issuing$125.0 million in aggregate principal amount of 8.75% Notes, we entered into a new revolving credit facility thatprovides for available borrowings of up to $30.0 million in revolvingloans.

 

Effective May 15, 2004 we completed anadditional sale of $30.0 million in aggregate principal amount of 8.75% Notes with net proceeds ofapproximately $30.0 million going to cash. Other financing activitiesduring 2004 included $4.9 million of costs associated with our 8.75% Notes and the negotiation of our newrevolving credit facility.

 

During June 2003, we successfully completed theexchange of $85.0 million of our then outstanding 12.50% senior notes due2004 for the same principal amount of 12.50% senior secured notes due 2007,which resulted in an extension of the maturity of the principal portion of ourlong-term debt by three years at that time. The consent fee of approximately$2.6 million paid in cash at the time of closing of the exchange offer tothe holders was treated as deferred loan costs to be amortized over theremaining term of the exchange notes. During September 2003, we made an offer to purchase up to$12.5 million of our 12.50% senior secured notes due 2007 at a pricebetween $870 and $920 per $1,000 principal amount and we purchased andcancelled $9.1 million aggregate principal amount of the notes at $920 per$1,000 principal amount using borrowings under our revolving loan agreement.

 

At December 31, 2005, the Consolidated CoverageRatio, as defined in the indenture relating to our 8.75% Notes, was 2.1 to 1.0.As a result, we are able to incur additional borrowings including borrowingsfor capital expenditures. Our revolving loan agreement and indenture restrict ourability to incur debt, pay dividends and

 

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undertake certain corporate activities. We are incompliance with the terms of the revolving loan agreement and indenture.

 

The revolving credit facilityprovides for available borrowings of up to $30.0 million in revolvingloans. We have the option, subject to certain conditions, to increase theamount we are permitted to borrow under the facility to $50.0 million. Asof December 31, 2005, we believe we have satisfied those conditions. Availableborrowings are subject to a borrowing base of eligible accounts receivable,inventory, machinery and equipment and real estate. Borrowings under ourrevolving credit facility are secured by substantially all of our assets andthe assets of our existing subsidiaries. Our revolving credit facility alsoincludes a subfacility for up to $15.0 million of letters of credit. As ofDecember 31, 2005, we had $2.3 million of letters of credit outstandingand our borrowing base would have supported debt borrowings of the entire$30.0 million under our revolving credit facility.

 

In addition, the revolvingcredit facility includes covenants that place various restrictions on us,including limitation, on our ability to:

 

•             incuradditional debt;

 

•             createor become subject to liens or guarantees;

 

•             makeinvestments or loans;

 

•             paydividends or make distributions;

 

•             prepaythe 8.75% Notes or other debt;

 

•             mergewith other entities or make acquisitions or dissolve;

 

•             sellassets;

 

•             changefiscal year or amend organizational documents or terms of any subordinateddebt;

 

•             enterinto leases; and

 

•             enterinto transactions with affiliates.

 

We believe that we will haveadequate resources to meet our working capital and capital expenditurerequirements consistent with past trends and practices for at least the next12 months. Cash generated from operations is a principal source ofliquidity for us. Additionally, we believe that our cash and borrowingavailability under the revolving credit facility will satisfy our cashrequirements for the coming year, given our anticipated capital expenditures,working capital requirements and known obligations. Our ability to makepayments on our debt, including the 8.75% Notes, and to fund planned capitalexpenditures will depend on our ability to generate cash in the future. This issubject to general economic conditions, other factors influencing theindustries in which we operate and circumstances that are beyond our control.  We cannot assure you that we will generatesufficient cash flows, and, if we do not generate sufficient cash flows we mayhave to engage in other activities such as the sale of assets to meet our cashrequirements. We may not be able to refinance any of our debt or take other actionsto generate the necessary cash to pay our debt on commercially reasonable termsor at all. Furthermore, one of our strategies is to pursue acquisitions. Anyfuture acquisition or similar transaction will require additional capital,which may not be available to us.

 

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**Commitments and capitalexpenditures**

** **

We entered into a letter ofintent to buy 100% of the stock of Eagle Coach on October 6, 2005 and completedthe acquisition on January 3, 2006.  EagleCoach is located in Amelia, Ohio and manufactures funeral coaches.  It is operated with Federal Coach as part ofthe Specialty Vehicles Group.  We paidapproximately $7.5 million for Eagle Coach using funds from the proceeds of our8.75% Note offerings.  Eagle Coach had sales of approximately $15.0million and pro forma operating income of approximately $0.5 million for 2005.

 

We entered into a letter ofintent to buy 100% of the stock of State Wide Aluminum, Inc., (“State Wide”) onNovember 8, 2005 and Truck Accessories completed the acquisition on March 17,2006.  State Wide is located in Elkhart,Indiana and is one of Truck Accessories’ two principal suppliers of windows anddoors, used in the manufacture of pick-up truck caps.  State Wide is operated as a subsidiary ofTruck Accessories.  We paid approximately$6.4 million for State Wide using proceeds from our 8.75% Note offerings.  State Wide’s sales were approximately $26.0 million and pro formaoperating income was approximately $1.2 million for 2005.

 

We have entered into anagreement with a major paint manufacturer whereby Truck Accessories, Morgan,Morgan Olson and Specialty Vehicles Group are committed to buying principallyall of their automotive paint requirements from this manufacturer for fiveyears.  We will receive favorable pricingin return for the commitment.  Weestimate that we will purchase approximately $6.5 million of paint productsduring 2006 from this manufacturer. Also, we committed to the purchase of certain amounts of aluminum basedon expected levels of future production. As of December 31, 2005, Morgan had committed to purchase $4.8 millionof aluminum for consumption in 2006.  Wedid not have any material commitments to acquire new capital equipment as ofDecember 31, 2005.

 

Certain cash contractual obligations of ours as ofDecember 31, 2005 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                                          |       | $         | 200.0      |                            | $          | —         |       | $              | —     |                    | $          | — |   | $ | 200.0 |   |
| Operating  leases                                    |       | 27.2      |       | 7.4                             |       | 10.8           |       | 6.8            |       | 2.2                     |       |
| Capital  leases and agreements not to compete        |       | 3.4       |       | 0.9                             |       | 1.4            |       | 1.1            |       | —                  |       |
| Total                                                |       | $         | 230.6      |                            | $          | 8.3            |       | $              | 12.2       |                    | $          | 7.9 |   | $ | 202.2 |   |

 

**Other matters**

 

We are significantly leveragedand will continue to be significantly leveraged. We had $9.7 million ofstockholder’s equity at December 31, 2005 compared to $4.6 million atDecember 31, 2004. We operate in cyclical businesses and the markets forour products are highly competitive. In addition, we have two customers thataccounted for 25% of 2005 consolidated net sales and our top ten customersaccounted for 35% of our 2005 consolidated net sales. The combination of thesefactors, some of which are outside our control, cause us to be subject tochanges in economic trends and new business developments.

 

We continually evaluate,depending on market conditions, the most efficient use of our capital andcontemplate various strategic options, which may include, without limitation,restructuring our business, indebtedness or capital structure. Accordingly, weor our subsidiaries may from time to time consider, among other things,purchasing, refinancing or otherwise retiring certain outstanding indebtedness(whether in the open market or by other means), public or private issuances ofdebt or equity securities, joint venture transactions, acquisitions ordispositions, new borrowings, tender offers, exchange offers or any combinationthereof, although there can be no assurances that such financing sources willbe available on commercially reasonable terms. There can be no assurances thatthese strategic options, if pursued, will be consummated or, if consummated,what effect they will have on us.

 

We utilized net operating losscarryforwards of approximately $7.2 million during 2005 for U.S. federalincome tax purposes.  The Company hasalternative minimum tax credit carryforwards of approximately $3.0 million atDecember 31, 2005 for U.S. federal tax purposes, which may be carried forwardindefinitely.  In addition, the Companyhas a capital loss carry forward of approximately $3.6 million at December 31,2005 for U.S. federal

 

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income tax purposes, which mayonly be carried forward for five years.  AtDecember 31, 2005 and 2004,we had state tax net operating loss carryforwards of approximately $63.0million and recognized a deferred tax asset of $3.4 million.  At December 31, 2005, the state net operatingloss carryforwards expire at varying dates ranging from one to 20 years.  At December 31, 2004, we recorded a valuationallowance of $3.4 million against this deferred tax asset as it was uncertainas to whether it would be realized in the future.  During 2005, we re-evaluated the $3.4 milliondeferred tax asset and determined that $1.0 million was realizable and reducedthe valuation allowance by that amount. The reduction in the valuation allowance reduced the tax provision for2005 by an equal amount or $1.0 million.  Utilization of these operating andcapital loss carryforwards is dependent on future taxable income.

 

Historically, inflation has notmaterially affected our business; however, a rapid acceleration of materialprice inflation reduced our operating profit margins during 2005 and 2004.  We believe that we have increased our sellingprices to levels necessary to offset the raw material cost inflation that hasbeen experienced during both 2005 and 2004. We have implemented further price increases at Morgan, Truck Accessoriesand Specialty Manufacturing during the first quarter of 2006 but cannot predictthe impact, if any, of future raw material price increases on ourprofitability.  Operating expenses, suchas salaries and employee benefits, are subject to normal inflationarypressures.

 

We pay fees to SouthwesternHoldings, Inc., which is wholly-owned by Mr. Poindexter, forservices provided by Mr. Poindexter. Mr. Poindexter does not receivea salary from us.

 

**Recently issued accounting standards**

 

**In November 2004, the FASB issuedSFAS No. 151, *“Inventory Costs — an amendment of APB No.43, Chapter 4.”*  This standardstates that idle facility expense, freight, handling costs and wasted materialbe accounted for as current-period expense regardless of whether they meet thecriterion of “abnormal,” as previously defined. The effective date for the Company is fiscal year 2006.  The adoption of this standard is not expectedto have any significant impact on the Company’s financial position, results ofoperations or cash flows.**

 

**In December 2004, the FASB issuedSFAS No. 153, *“Exchange of Non-monetary Assets — anamendment of APB Opinion No. 29.”* The standard eliminates certainexceptions that were contained in APB Opinion No. 29 to the principle thatexchanges of non-monetary assets should be measured based on the fair value ofassets exchanged.  The effective date forthe Company is for fiscal year 2006.  Theadoption of this standard is not expected to have any significant impact on theCompany’s financial position, results of operations or cash flows.**

 

**In May 2005, the FinancialAccounting Standards Board issued SFAS No. 154 “*AccountingChanges and Error Corrections”.* SFAS 154 changes the requirements for theaccounting for and reporting of voluntary change in accounting principle, andfor changes required by an accounting pronouncement that does not have aspecific transition provision.  Whenrecognizing a change in accounting principle, retrospective application of theprinciple to the prior period’s financial statements is generallyspecified.  The effective date for theCompany is for fiscal year 2006. The adoption of the standard is not expectedto have any significant impact on the Company’s financial position, results ofoperations or cash flows.**

** **

**Item 7a.                   Quantitativeand Qualitative Disclosure about Market Risk**

 

Weare subject to certain market risks, including interest rate risk and foreigncurrency risk. The adverse effects of potential changes in these market risksare discussed below. The sensitivity analyses presented do not consider theeffects that such adverse changes may have on overall economic activity, nor dothey consider additional actions we may take to mitigate our exposure to suchchanges. Actual results may differ. See the notes to our consolidated financialstatements elsewhere in this 10K for a description of our accounting policiesand other information related to these financial instruments.

 

***Variable-rate debt. ***We currently have noborrowings outstanding under our revolving credit facility. The interest rateson the revolving credit facility are based upon a spread above either the primeinterest rate or the London Interbank Overnight Rate (LIBOR), which rate usedis determined at our option.

 

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***Fixed-rate debt. ***As of December 31, 2005,the Company had $200.0 million of 8.75% Notes outstanding, with anestimated fair value of approximately $169.0 million based upon the tradedvalue at December 31, 2005. Market risk, estimated as the potential increase infair value resulting from a hypothetical 1.0% decrease in interest rates, wasapproximately $9.9 million as of December 31, 2005

 

***Foreign currency. ***We have twomanufacturing plants in Canada, which generated revenues of approximately$46.0 million during 2005. The functional currency of our Canadianoperations is the Canadian dollar. We do not currently employ risk managementtechniques to manage this potential exposure to foreign currencyfluctuations.  A significant amount ofour production is exported to customers in the United States. Therefore, aweakening of the United States dollar in relation to the Canadian dollar mayhave the effect of decreasing our gross margins in Canada, assuming that theUnited States sales price remains unchanged.

 

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**Item8.                    Financial Statementsand Supplementary Data**

 
| **J.B. Poindexter &  Co., Inc.**                                                                                                                | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                          | ** ** |
| Report of Independent  Registered Public Accounting Firm as of December 31, 2005 and 2004  and for the years ended December 31, 2005  and 2004 |       |
| Report of Independent  Registered Public Accounting Firm for the year ended December 31, 2003                                                       |       |
|                                                                                                                                                |       |
| Financial Statements:                                                                                                                               |       |
| Consolidated Balance  Sheets as of December 31, 2005 and 2004                                                                                       |       |
| Consolidated Statements of  Income for the years ended December 31, 2005, 2004 and 2003                                                             |       |
| Consolidated Statements of  Stockholder’s Equity (Capital Deficiency) for the years ended  December 31, 2005, 2004 and 2003               |       |
| Consolidated Statements of  Cash Flows for the years ended December 31, 2005, 2004 and  2003                                                   |       |
| Notes to Consolidated  Financial Statements                                                                                                         |       |

 

35

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**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, 2005 and 2004 and the related consolidatedstatements of income, stockholder’s equity (capital deficiency), and cash flowsfor the years then ended.  Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable 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, 2005 and 2004, and the results of itsoperations and its cash flows for the years then ended, in conformity with U.S.generally accepted accounting principles.

 
| /s/ CROWE CHIZEK AND  COMPANY LLC |   |
|-----------------------------------|--------|
|                              |
| South Bend, Indiana               |
| March 17, 2006                    |

 

36

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**Reportof Independent Registered Public Accounting Firm**

 

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

 

We have audited the accompanying consolidatedstatements of income, stockholder’s equity (capital deficiency), and cash flowsof J.B. Poindexter & Co., Inc. and subsidiaries for the year ended December31, 2003. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audit.

 

We conducted our audit 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. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made by management,as well as evaluating the overall financial statement presentation. We believethat our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred toabove present fairly, in all material respects, the consolidated results ofoperations of J.B. Poindexter & Co., Inc. and subsidiaries and its cashflows for the year ended December 31, 2003 in conformity with U.S. generallyaccepted accounting principles.

 

As discussed in Note 1, the accompanying consolidatedstatements of income, stockholder’s equity (capital deficiency), and cash flowsfor the year ended December 31, 2003, have been restated to include thefinancial statements of Morgan Olson for the period that both the Company andMorgan Olson were under common control.

 
| /s/ ERNST & YOUNG LLP |   |
|---------------------------|--------|
|                      |
| Houston, Texas            |
| September  23, 2004       |

 

37

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

 

**CONSOLIDATED BALANCE SHEETS**

 

**(Dollars in Thousands)**

 
| ** **                                                                     | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------|------------|
| ** **                                                                     | ** ** | **2005**         | ** ** | **2004** | ** ** |
| **Assets**                                                                     |       |             |       |   |   |
| Current  assets                                                                |       |             |       |   |   |
| Cash and cash equivalents                                                      |       | $                | 40,855     |   | $ | 19,432 |   |
| Short term investments                                                         |       | 15,266           |       | 5,000 |   |
| Accounts receivable, net                                                       |       | 50,156           |       | 50,911 |   |
| Inventories, net                                                               |       | 57,207           |       | 46,736 |   |
| Deferred income taxes                                                          |       | 1,399            |       | 1,312 |   |
| Income tax receivable                                                          |       | 1,759            |       | — |   |
| Prepaid expenses and other                                                     |       | 2,219            |       | 1,978 |   |
| Total current assets                                                           |       | 168,861          |       | 125,369 |   |
| Property,  plant and equipment, net                                            |       | 54,333           |       | 47,492 |   |
| Goodwill                                                                       |       | 24,759           |       | 22,909 |   |
| Intangible  assets, net                                                        |       | 9,330            |       | 6,106 |   |
| Deferred  income taxes                                                         |       | 1,073            |       | 1,994 |   |
| Other assets                                                                   |       | 14,820           |       | 13,678 |   |
| Total assets                                                                   |       | $                | 273,176    |   | $ | 217,548 |   |
| **Liabilities  and stockholder’s equity**                                 |       |             |       |   |   |
| Current  liabilities                                                           |       |             |       |   |   |
| Current portion of long-term debt                                              |       | $                | 1,017      |   | $ | 943 |   |
| Accounts payable                                                               |       | 29,288           |       | 27,320 |   |
| Accrued compensation and benefits                                              |       | 7,976            |       | 6,996 |   |
| Accrued income taxes                                                           |       | —           |       | 722 |   |
| Other accrued liabilities                                                      |       | 15,681           |       | 13,600 |   |
| Total current liabilities                                                      |       | 53,962           |       | 49,581 |   |
| Noncurrent  liabilities                                                        |       |             |       |   |   |
| Long-term debt, less current portion                                           |       | 204,365          |       | 157,484 |   |
| Employee benefit obligations and other                                         |       | 5,198            |       | 5,861 |   |
| Total noncurrent liabilities                                                   |       | 209,563          |       | 163,345 |   |
| 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)                                 |       | (10              | )          | 73 |   |
| Accumulated deficit                                                            |       | (9,825           | )          | (14,937 | ) |
| Total stockholder’s equity                                                |       | 9,651            |       | 4,622 |   |
| Total liabilities and stockholder’s equity                                |       | $                | 273,176    |   | $ | 217,548 |   |

 

*The accompanying notes are an integral part of these consolidatedfinancial statements.*

 

38

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

**CONSOLIDATED STATEMENTS OF INCOME**

**(Dollars in Thousands)**

 
| ** **                                                                         | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                         | ** ** | **2005**                     | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net sales                                                                          |       | $                            | 668,118    |   | $ | 584,921 |   | $ | 435,521 |   |
| Cost of  sales                                                                     |       | 593,120                      |       | 513,472 |   | 373,777 |   |
| Gross profit                                                                       |       | 74,998                       |       | 71,449 |   | 61,744 |   |
| Selling,  general and administrative expense                                       |       | 49,965                       |       | 40,601 |   | 36,901 |   |
| Loss (gain)  on extinguishment of debt                                             |       | —                       |       | 2,394 |   | (368 | ) |
| Refinancing  costs                                                                 |       | —                       |       | — |   | 831 |   |
| Closed and  excess facility costs                                                  |       | 377                          |       | — |   | — |   |
| Other  expense (income)                                                            |       | 127                          |       | (438 | ) | (34 | ) |
| Operating  income                                                                  |       | 24,529                       |       | 28,892 |   | 24,414 |   |
| Interest  expense                                                                  |       | 18,452                       |       | 14,508 |   | 12,438 |   |
| Interest  income                                                                   |       | (1,617                       | )          | (151 | ) | — |   |
| Income from continuing operations before  income taxes and discontinued operations |       | 7,694                        |       | 14,535 |   | 11,976 |   |
| Income tax  provision                                                              |       | 2,582                        |       | 4,134 |   | 2,715 |   |
| Income  before discontinued operations                                             |       | 5,112                        |       | 10,401 |   | 9,261 |   |
| Loss from  discontinued operations, net of applicable taxes                        |       | —                       |       | (527 | ) | (155 | ) |
| Net income                                                                         |       | $                            | 5,112      |   | $ | 9,874 |   | $ | 9,106 |   |

 

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

 

39

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

**CONSOLIDATED STATEMENTS OFSTOCKHOLDER’S EQUITY (CAPITAL DEFICIENCY)**

**(Dollars in Thousands)**

 
| **For the years ended December  31, 2005, 2004 and 2003** | ** ** | **Shares  of  common  stock** | ** ** | **Common  stock and  paid-in  capital** | ** ** | **Accumulated  deficit** | ** ** | **Accumulated  other  comprehensive income (loss)** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------|------------|-----------------------------------------|------------|--------------------------|------------|-----------------------------------------------------|------------|-----------|------------|
| **January  1, 2003**                                      |       | 3,059                         |       | $                                       | 16,486     |                     | $          | (33,917                                             | )          | $         | (618       | ) | $ | (18,049 | ) |
| Capital  Contribution                                     |       | —                        |       | 3,000                                   |       | —                   |       | —                                              |       | 3,000     |       |
| Net income                                                |       | —                        |       | —                                  |       | 9,106                    |       | —                                              |       | 9,106     |       |
| Translation  adjustment                                   |       | —                        |       | —                                  |       | —                   |       | 536                                                 |       | 536       |       |
| Unrealized  gain (loss) oninvestments                     |       | —                        |       | —                                  |       | —                   |       | —                                              |       | —    |       |
| Comprehensive  income                                     |       |                          |       |                                    |       |                     |       |                                                |       | 9,642     |       |
| **December  31, 2003**                                    |       | 3,059                         |       | 19,486                                  |       | (24,811                  | )          | (82                                                 | )          | (5,407    | )          |
| Net income                                                |       | —                        |       | —                                  |       | 9,874                    |       | —                                              |       | 9,874     |       |
| Translation  adjustment                                   |       | —                        |       | —                                  |       | —                   |       | 155                                                 |       | 155       |       |
| Unrealized  gain (loss) on investments                    |       | —                        |       | —                                  |       | —                   |       | —                                              |       | —    |       |
| Comprehensive  income                                     |       |                          |       |                                    |       |                     |       |                                                |       | 10,029    |       |
| **December  31, 2004**                                    |       | 3,059                         |       | 19,486                                  |       | (14,937                  | )          | 73                                                  |       | 4,622     |       |
| Net income                                                |       | —                        |       | —                                  |       | 5,112                    |       | —                                              |       | 5,112     |       |
| Translation  adjustment                                   |       | —                        |       | —                                  |       | —                   |       | (172                                                | )          | (172      | )          |
| Unrealized  gain (loss) on investments                    |       | —                        |       | —                                  |       | —                   |       | 89                                                  |       | 89        |       |
| Comprehensive  income                                     |       |                          |       |                                    |       |                     |       |                                                |       | 5,029     |       |
| **December  31, 2005**                                    |       | 3,059                         |       | $                                       | 19,486     |                     | $          | (9,825                                              | )          | $         | (10        | ) | $ | 9,651 |   |

 

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

 

40

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

**CONSOLIDATED STATEMENTS OF CASHFLOWS**

**(Dollars in Thousands)**

 
| ** **                                                                             | ** ** | **Years ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                             | ** ** | **2005**                     | ** ** | **2004** | ** ** | **2003** | ** ** |
| Cash flows  from operating activities:                                                 |       |                         |       |   |   |   |   |
| Net income                                                                             |       | $                            | 5,112      |   | $ | 9,874 |   | $ | 9,106 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities:     |       |                         |       |   |   |   |   |
| Depreciation and amortization                                                          |       | 10,360                       |       | 9,527 |   | 9,160 |   |
| Amortization of debt issuance costs                                                    |       | 598                          |       | 592 |   | 714 |   |
| Loss on disposal of discontinued operations                                            |       | —                       |       | 175 |   | — |   |
| Closed and excess facility costs                                                       |       | 377                          |       | — |   | — |   |
| Loss (gain) on extinguishment of debt                                                  |       | —                       |       | 2,394 |   | (368 | ) |
| Provision for excess and obsolete inventory                                            |       | 563                          |       | 448 |   | (4 | ) |
| Provision for doubtful accounts receivable                                             |       | 195                          |       | 481 |   | 250 |   |
| Loss (gain) on sale of property, plant and  equipment                                  |       | 223                          |       | 1 |   | (122 | ) |
| Deferred income tax benefit                                                            |       | 834                          |       | 2,123 |   | 1,525 |   |
| Operating cash flows from discontinued  operations                                     |       | (319                         | )          | (48 | ) | (107 | ) |
| Other                                                                                  |       | (63                          | )          | 232 |   | (261 | ) |
| Change in assets and liabilities, net of  the effect of acquisitions and dispositions: |       |                         |       |   |   |   |   |
| Accounts receivable                                                                    |       | 2,437                        |       | (7,251 | ) | (13,139 | ) |
| Inventories                                                                            |       | (1,045                       | )          | (10,969 | ) | (7,539 | ) |
| Prepaid expenses and other                                                             |       | (1,647                       | )          | 263 |   | (526 | ) |
| Accounts payable                                                                       |       | 910                          |       | (1,936 | ) | 12,627 |   |
| Accrued Income taxes                                                                   |       | (2,481                       | )          | 152 |   | 365 |   |
| Other accrued liabilities                                                              |       | (1,410                       | )          | 5,712 |   | 1,518 |   |
| Net cash provided by operating activities                                              |       | 14,644                       |       | 11,770 |   | 13,199 |   |
| Cash flows  from investing activities:                                                 |       |                         |       |   |   |   |   |
| Acquisition of businesses, net of cash  acquired                                       |       | (12,270                      | )          | (17,906 | ) | (14,341 | ) |
| Proceeds from disposition of business,  property, plant and equipment                  |       | 58                           |       | 294 |   | 1,035 |   |
| Purchase of property, plant and equipment                                              |       | (15,501                      | )          | (9,428 | ) | (4,025 | ) |
| Purchases of short term investments                                                    |       | (53,728                      | )          | (30,600 | ) | — |   |
| Proceeds from sale of short term  investments                                          |       | 43,462                       |       | 25,600 |   | — |   |
| Issuance of insurance collateral deposits                                              |       | —                       |       | (5,520 | ) | — |   |
| Net investing activities of discontinued  operations                                   |       | —                       |       | 1,343 |   | 931 |   |
| Net cash used in investing activities                                                  |       | (37,979                      | )          | (36,217 | ) | (16,400 | ) |
| Cash flows  from financing activities:                                                 |       |                         |       |   |   |   |   |
| Net proceeds (payments) of revolving lines  of credit and short term debt              |       | —                       |       | (19,718 | ) | 4,114 |   |
| Proceeds from long-term debt                                                           |       | 47,251                       |       | 155,000 |   | 10,660 |   |
| Payments of long-term debt and  capital leases                                         |       | (1,047                       | )          | (87,636 | ) | (10,328 | ) |
| Debt issuance cost                                                                     |       | (1,197                       | )          | (5,160 | ) | (2,944 | ) |
| Net financing activities of discontinued  operations                                   |       | —                       |       | — |   | 329 |   |
| Capital contribution                                                                   |       | —                       |       | — |   | 3,000 |   |
| Change in restricted cash                                                              |       | —                       |       | 1,351 |   | (1,239 | ) |
| Net cash provided by financing activities                                              |       | 45,007                       |       | 43,837 |   | 3,592 |   |
| Effect of exchange rate on cash                                                        |       | (249                         | )          | 42 |   | (391 | ) |
| Change in  cash and cash equivalents                                                   |       | 21,423                       |       | 19,432 |   | — |   |
| Cash and  cash equivalents beginning of year                                           |       | 19,432                       |       | — |   | — |   |
| Cash and  cash equivalents end of year                                                 |       | $                            | 40,855     |   | $ | 19,432 |   | $ | — |   |

* *

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

 

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

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(dollars in thousands)**

 

**1.**                   Organization & Business

** **

J.B. Poindexter &Co., Inc. (“JBPCO”) and its subsidiaries (the “Subsidiaries”, and togetherwith JBPCO, the “Company”) operate primarily manufacturing businessesprincipally in North America. JBPCO is owned and controlled by John Poindexter.

 

On March 15, 2004, theCompany acquired from John Poindexter (see Note 4), the sole shareholderof the Company, the stock of Morgan Olson that he had acquired effectiveJuly 15, 2003. The historical financial statements of the Company wererestated to reflect the merger on a basis similar to a pooling of interests soas to combine the financial statements of both companies for the period theywere under common control.

 

On November 5, 2004, theCompany acquired substantially all of the assets of Pace Edwards Company, aWashington State manufacturer of pickup truck accessories.  On December 15, 2004, the Company acquiredthe stock of Commercial Babcock Inc., a Canadian manufacturer of truck bodies(see Note 4).

 

On June 6, 2005, the Companyacquired 100% of the membership interests of Federal Coach LLC, an Arkansasbased manufacturer of funeral coaches, limousines and specialty buses (see Note4).

 

***Morgan Corporation (“Morgan”)*** manufactures truckbodies in the United States and Canada for dry freight and refrigerated trucksand vans (excluding those made for pickup trucks and tractor-trailer trucks).  Morgan’s operations include CommercialBabcock, Inc.  The truck bodies areattached to truck chassis provided by its customers.  Customers include rental companies, truckdealers and companies that operate fleets of delivery vehicles. The principal rawmaterials used by Morgan include steel, aluminum, fiberglass reinforcedplywood, hardwood and oil acquired from a variety of sources.

 

***Morgan Olson Corporation (“MorganOlson”)*** manufactures step van bodies for parcel, food, vending,uniform, linen and other delivery applications. Step vans are specializedvehicles designed for multiple stop applications and enable the driver of thetruck to easily access the cargo area. Morgan Olson manufactures the completetruck body, including the installation of windows, doors, instrument panels,seating, wiring and painting. The step van bodies are installed on truckchassis provided by Morgan Olson’s customers. The principal raw materials usedby Morgan Olson include steel and aluminum.

 

***Truck AccessoriesGroup, Inc. (“Truck Accessories”)*** manufactures pickuptruck caps and tonneau covers, which are fabricated enclosures that fit overthe open beds of pickup trucks, converting the beds into weatherproof storageareas. Truck Accessories includes Leer, Century Fiberglass (“Century”), RaiderIndustries Inc. (“Raider”), and Pace Edwards Company. The principal rawmaterials used by Truck Accessories include resin, fiberglass, paint, andmanufactured locks and windows.

 

***Specialty ManufacturingDivision (“Specialty Manufacturing”)*** comprises the SpecialtyVehicle Group, MIC Group, Inc. (“MIC Group”), and EFP Corp (“EFP”). TheSpecialty Vehicle Group comprises Federal Coach LLC (see note 4) and EagleSpecialty Vehicles, Inc., which was acquired effective January 3, 2006 (see note19).  The Specialty Vehicle Groupmanufactures funeral coaches, limousines and specialty buses.  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 generalindustries. EFP molds, fabricates and markets expandable foam products whichare used as packaging, shock absorbing and materials handling productsprimarily by the automotive, electronics, furniture, construction, applianceand other industries. It also manufactures products used as thermal insulators.The principal raw materials used by Specialty Manufacturing are expandablepolystyrene, polypropylene, polyethylene, resins, ferrous and non-ferrousmaterials including stainless steel, alloy steels, nickel-based alloys,titanium, brass, beryllium-copper alloys and aluminum.  The Specialty Vehicle Group purchases vehiclechassis from the major automotive manufacturers’ dealers for modification andsale to its customers.

 

42

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**2.**                   Summary of Significant Accounting Policies

** **

*Principles of Consolidation. *The consolidated financial statements havebeen prepared in accordance with accounting principles generally accepted inthe United States.  All intercompanyaccounts and transactions have been eliminated in consolidation.

 

*Cash and Cash Equivalents.*  Cash and all highly liquidinvestments with a maturity of three months or less at the date of purchase,including short term deposits and government agency and corporate obligations,are classified as cash and cash equivalents.

 

*Short Term Investments.*  Short-term investments,considered to be available-for-sale investments, include auction rate municipalbond securities with original maturities beyond three months.  Available-for-sale investments are thosewhich the Company may decide to sell if needed for liquidity, asset-liabilitymanagement or other reasons.  Available-for-saleinvestments are reported at fair value with unrealized gains or losses includedas a separate component of equity.  Therewere $89 of unrealized gains or losses on these investments at December 31,2005.  Interest and dividend income, adjustedby amortization of purchase premium or discount, is included in earnings.  Realized gains or losses are determined basedon the amortized cost of the specific investment sold and are included inearnings.  There were no realized gainsor losses on the sale of investments included in the determination of netincome for 2005, 2004 and 2003.

 

*Revenue Recognition*.  Revenue is recognized uponshipment of the product to customers, except for Morgan and Morgan Olson whererevenue is recognized when title transfers to the customer upon final bodyassembly, quality inspection and customer notification.  Amounts billed to customers related toshipping and handling is classified as revenue. The costs associated with the shipping and handling revenue are includedin cost of sales.

 

*Accounts Receivable. *The Company sells to customers as iscustomary in its industries and typically extends its customers 30 day paymentterms.  Interest is not normally chargedon accounts receivable.  Accountsreceivable is stated net of an allowance for doubtful accounts of $1,490 and$933 at December 31, 2005 and 2004, 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 doubtful accountsfor the years ended December 31, was:

 
| ** **                            | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance at  the beginning of the year |       | $        | 993        |     | $          | 909      |       | $ | 809 |   |
| Provision  for losses                 |       | 195      |       | 470      |       | 205      |       |
| Charge offs                           |       | (153     | )          | (520     | )          | (367     | )          |
| Recoveries                            |       | 30       |       | 2        |       | 12       |       |
| Acquisitions                          |       | 425      |       | 132      |       | 250      |       |
| Balance at  the end of the year       |       | $        | 1,490      |     | $          | 993      |       | $ | 909 |   |

 

The carrying amounts of trade accounts receivable approximate fairvalue because of the short maturity of those instruments.  The Company is not aware of any significantcredit risks related to its customer base and does not generally requirecollateral or other security to support customer receivables.

 

*Inventories. *Inventories are stated at the lower of costor market.  Cost is determined by thefirst-in, first-out (FIFO) method.

 

*Property, Plant and Equipment. *Property, plant and equipment, includingproperty under capital leases, are stated at cost.  The cost of property under capital leasesrepresents 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. The cost of maintenance and repairs is charged to

 

43

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operating expense as incurred and the cost of major replacements andsignificant improvements is capitalized. 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.

 

*Debt Issuance Costs. *Debt issuance costs are amortized using theeffective interest method over the term of the related debt, which ranges fromfour to ten years. Amortization of debt issuance costs are included in interestexpense.

 

*Evaluation of Impairment of Long-Lived Assets. *In accordance with Statement of Financial Accounting Standard (“SFAS”)No. 144, “*Impairment or Disposal of Long-Lived Assets*”,the Company evaluates the carrying value of long-lived assets wheneversignificant events or changes in circumstances indicate the carrying value ofthese assets may be impaired.  TheCompany evaluates potential impairment of long-lived assets by comparing thecarrying value of the assets to the expected net future cash flows resultingfrom the use of the assets.  Managementbelieves no material impairment of long-lived assets exists at December 31, 2005and 2004.

 

*Warranty. *Morgan provides product warranties forperiods up to five years.  Morgan Olsonprovides a warranty period, which is one year or 12,000 miles for components,three years or 36,000 miles for paint and five years or 50,000 miles for thevan body structure.  Truck Accessoriesprovides a warranty period, exclusive to the original truck owner, which is, ingeneral but with exclusions, one year for parts, five years for paint andlifetime for structure.  The SpecialtyVehicle Group provides a warranty on its products for a period of 36 months or36,000 miles on the section of the body and parts manufactured for funeralcoaches and funeral limousines, 12 months or 12,000 miles on the body and partsmanufactured for bus bodies and 24 months or 24,000 miles on the section of thebody and parts manufactured for limousines. The remaining operations of Specialty Manufacturing do not provide awarranty on their products.  A provisionfor warranty costs is included in cost of sales when goods are sold based onhistorical experience and estimated future claims.  The Company had accrued warranty costs of$4.3 million and $4.2 million at December 31, 2005 and 2004, respectively.  The activity in the accrued warranty costaccounts for the years ended December 31, was:

 
| ** **                            | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance at  the beginning of the year |       | $        | 4,233      |     | $          | 3,214    |       | $ | 2,544 |   |
| Provision  for losses                 |       | 4,136    |       | 4,273    |       | 2,930    |       |
| Charge offs                           |       | (4,180   | )          | (3,548   | )          | (2,710   | )          |
| Acquisitions                          |       | 66       |       | 294      |       | 450      |       |
| Balance at  the end of the year       |       | 4,255    |       | 4,233    |       | 3,214    |       |
| Less: Short-term                      |       | 2,219    |       | 1,978    |       | 1,478    |       |
| Long-term                             |       | $        | 2,036      |     | $          | 2,255    |       | $ | 1,736 |   |

 

*Advertising and Research and Development Expense.*  TheCompany expenses advertising costs and research and development (“R&D”)costs as incurred.  During the yearsended December 31, 2005, 2004 and 2003, advertising expense was approximately$3.3 million,****$2.4 million and $2.0 million,respectively and R&D expense was approximately $2.2 million, $1.6 millionand $1.5 million, respectively.

 

*Income Taxes. *The Company accounts for income taxes underthe provisions of SFAS No. 109, “*Accounting for IncomeTaxes.*”  Under SFASNo. 109, deferred tax assets and liabilities are computed based on thedifference between the financial statement and income tax bases of assets andliabilities using the enacted tax rates.

 

The Company’s management believes that it is more likely than not thatcurrent and long-term deferred tax assets will reduce future income taxpayments.  The Company has consideredon-going prudent and feasible tax planning strategies in making thisassessment. There are significant assumptions inherent in the Company’s prudentand feasible tax planning strategies. Changes in these assumptions would impact the estimated amount ofdeferred tax assets realized by these tax planning strategies.  Should the Company determine that it is morelikely

 

44

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than not unable to realize all or part of the net deferred tax asset inthe future, a valuation allowance, necessary to reduce the deferred tax assetto the amount that is more likely than not to be realized,  would reduce income in the period suchdetermination was made.

 

*Self-InsuranceRisks*.  The Company utilizes a combination ofinsurance coverage and self-insurance programs for property, casualty,including workers’ compensation and health care 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 industry trends.  Changes in the assumptions used by theactuary could result in a different self-insurance reserve.

 

*ContingentLiabilities. *Reserves are established for estimatedenvironmental and legal loss contingencies when a loss is probable and theamount of the loss can be reasonably estimated. Revisions to contingent liabilities are reflected in income in theperiod in which different facts or information become known or circumstanceschange that affect the previous assumptions with respect to the likelihood oramount of loss.  Reserves for contingentliabilities are based upon the assumptions and estimates regarding the probableoutcome of the matter.  Should theoutcome differ from the assumptions and estimates, revisions to the estimatedreserves for contingent liabilities would be required.

 

*Comprehensive Income.*Comprehensive income consists of net income and other comprehensiveincome.  Other comprehensive incomeincludes foreign currency translation adjustments and unrealized gains andlosses on available-for-sale investments, which are also recognized as separatecomponents of equity.

 

*Translation of Foreign Financial Statements. *Assets and liabilities of foreign operations are translated at year-endrates of exchange, and the income statements are translated at the averagerates of exchanges for the year.  Gainsor losses resulting from translating foreign currency financial statements areaccumulated in a separate component of stockholder’s equity until the foreignoperations are sold or substantially liquidated.  Gains or losses resulting from foreigncurrency transactions (transactions that require settlement in a currency otherthan the Company’s functional currency) are included in net income.

 

*Fair Value of Financial Instruments*.  TheCompany’s financial instruments consist of cash and cash equivalents,receivables, and debt.  Fair values ofcash and cash equivalents and receivables approximate carry values for thesefinancial instruments since they are relatively short-term in nature.  The carrying amount of debt, except for theCompany’s 8.75% Notes (See Note 10), approximates the fair value due either tolength of maturity or existence of variable interest rates that approximateprevailing market rates.

 

*Use of Estimates.*The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from those estimates. Significant estimates subject to change include the valuation ofgoodwill and other intangible assets, the allowances for doubtful accounts andshrinkage and excess and obsolete inventory, the valuation of deferred taxassets, and the allowances for self-insurance risks, warranty claims, andenvironmental claims.

 

**New Accounting Standardsto be Adopted. **InNovember 2004, the FASB issued SFAS No. 151, *“InventoryCosts – an amendment of APB No. 43, Chapter 4.”*  This standard states that idle facilityexpense, freight, handling costs and wasted material be accounted for ascurrent-period expense regardless of whether they meet the criterion of“abnormal,” as previously defined.  Theeffective date for the Company is fiscal year 2006.  The adoption of this standard is not expectedto have any significant impact on the Company’s financial position, results ofoperations or cash flows.

** **

45

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**In December 2004, the FASB issuedSFAS No. 153, *“Exchange of Non-monetary Assets – anamendment of APB Opinion No. 29.”* The standard eliminates certainexceptions that were contained in APB Opinion No. 29 to the principle thatexchanges of non-monetary assets should be measured based on the fair value ofassets exchanged.  The effective date forthe Company is for fiscal year 2006.  Theadoption of this standard is not expected to have any significant impact on theCompany’s financial position, results of operations or cash flows.**

** **

**In May 2005, the FinancialAccounting Standards Board issued SFAS No. 154 “*AccountingChanges and Error Corrections”.* SFAS 154 changes the requirements for theaccounting for and reporting of voluntary change in accounting principle, andfor changes required by an accounting pronouncement that does not have aspecific transition provision.  Whenrecognizing a change in accounting principle, retrospective application of theprinciple to the prior period’s financial statements is generallyspecified.  The effective date for theCompany is for fiscal year 2006.  Theadoption of the standard is not expected to have any significant impact on theCompany’s financial position, results of operations or cash flows.**

** **

*Reclassifications.*  Certain prior year amounts havebeen reclassified to conform to the classifications used in fiscal 2005.

 

**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 endedDecember 31:

 
| ** **                                 | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Net  Sales**                             |       |     |       |     |       |     |       |
| Morgan                                     |       | $        | 358,216    |     | $          | 315,454  |       | $ | 223,242 |   |
| Morgan Olson                               |       | 60,793   |       | 70,995   |       | 34,566   |       |
| Truck  Accessories                         |       | 153,726  |       | 135,385  |       | 122,777  |       |
| Specialty  Manufacturing                   |       | 95,658   |       | 64,347   |       | 54,936   |       |
| Eliminations                               |       | (275     | )          | (1,260   | )          | —   |       |
| Net Sales                                  |       | $        | 668,118    |     | $          | 584,921  |       | $ | 435,521 |   |
|                                       |       |     |       |     |       |     |       |
| **Operating  Income**                      |       |     |       |     |       |     |       |
| Morgan                                     |       | $        | 20,771     |     | $          | 19,605   |       | $ | 15,993 |   |
| Morgan Olson                               |       | (1,942   | )          | 1,939    |       | 786      |       |
| Truck  Accessories                         |       | 8,327    |       | 10,480   |       | 9,441    |       |
| Specialty  Manufacturing                   |       | 2,470    |       | 2,770    |       | 1,787    |       |
| JBPCO  (Corporate)                         |       | (5,097   | )          | (5,902   | )          | (3,593   | )          |
| Operating  Income                          |       | $        | 24,529     |     | $          | 28,892   |       | $ | 24,414 |   |
|                                       |       |     |       |     |       |     |       |
| **Depreciation  and Amortization Expense** |       |     |       |     |       |     |       |
| Morgan                                     |       | $        | 2,661      |     | $          | 2,773    |       | $ | 2,776 |   |
| Morgan Olson                               |       | 901      |       | 809      |       | 335      |       |
| Truck  Accessories                         |       | 3,701    |       | 3,275    |       | 3,319    |       |
| Specialty  Manufacturing                   |       | 3,066    |       | 2,653    |       | 2,701    |       |
| JBPCO  (Corporate)                         |       | 31       |       | 17       |       | 29       |       |
| Depreciation  and Amortization Expense     |       | $        | 10,360     |     | $          | 9,527    |       | $ | 9,160 |   |

 

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| ** **                           | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Total  Assets as of December 31,** |       |     |       |     |       |     |       |
| Morgan                               |       | $        | 83,620     |     | $          | 80,610   |       |   |   |
| Morgan Olson                         |       | 24,430   |       | 25,146   |       |     |       |
| Truck  Accessories                   |       | 62,186   |       | 61,440   |       |     |       |
| Specialty  Manufacturing             |       | 56,113   |       | 30,661   |       |     |       |
| JBPCO  (Corporate)                   |       | 46,827   |       | 19,691   |       |     |       |
| Identifiable  Assets                 |       | $        | 273,176    |     | $          | 217,548  |       |   |   |
|                                 |       |     |       |     |       |     |       |
| **Capital  Expenditures**            |       |     |       |     |       |     |       |
| Morgan                               |       | $        | 2,982      |     | $          | 4,222    |       | $ | 662 |   |
| Morgan Olson                         |       | 725      |       | 633      |       | 33       |       |
| Truck  Accessories                   |       | 4,738    |       | 3,376    |       | 2,273    |       |
| Specialty  Manufacturing             |       | 7,274    |       | 1,192    |       | 1,054    |       |
| JBPCO  (Corporate)                   |       | 752      |       | 5        |       | 3        |       |
| Capital  Expenditures                |       | $        | 16,471     |     | $          | 9,428    |       | $ | 4,025 |   |

 

Morganhas two customers (truck leasing and rental companies) that accounted for, on acombined basis, approximately 47%, 46% and 41% of Morgan’s net sales during2005, 2004 and 2003, respectively.  Accounts receivable from these customers totaled$4.7 million and $5.7 million at December 31, 2005 and 2004,respectively.  SpecialtyManufacturing has one customer in the international oil field service industrythat accounted for approximately 15%,****18% and 15% ofSpecialty Manufacturing’s net sales during 2005, 2004 and 2003, respectively.  Accountsreceivable from this customer totaled $1.8 million and $1.3 million atDecember 31, 2005 and 2004, respectively.

 

Morgan Olson was acquired effective July 15, 2003and is operating as a separate segment. Morgan Olson had three customers thataccounted for approximately 38% and 53% of Morgan Olson’s net sales during 2005and 2004, respectively.  Accountsreceivable from these customers totaled $0.3 million and $2.3 million atDecember 31, 2005 and 2004, respectively. During 2003,Morgan Olson supplied step vans to the United States Postal Service thataccounted for 62% of sales during that year.  Morgan Olson manufactured and shipped truck bodies for CommercialBabcock and charged Commercial Babcock $0.5 million during the year endedDecember 31, 2005 for the products. In addition, Morgan Olson sold $0.3 million of parts to Morgan for theyear ended December 31, 2005.

 

TheCompany, on a consolidated basis, has two customers that accounted forapproximately 25%, 25% and 21% of total net sales during 2005, 2004 and 2003,respectively.  Accounts receivable fromthese customers totaled $4.7 million and $5.7 million at December 31, 2005 and2004, respectively. These are customers of Morgan.

 

The Company’s operations are located principally in the UnitedStates.  However, Morgan and TruckAccessories have operations located in Canada. Long-lived assets relating to these foreign operations were $9.6 millionand****$9.0 million at December 31, 2005 and2004, respectively.  Consolidated netsales included $21.5 million, $17.2 million and****$15.1million in 2005, 2004 and 2003, respectively, of sales to customers outside theUnited States.

 

JBPCO(Corporate) operating expenses for all periods comprise the costs of the parentcompany office and personnel that provide strategic direction and support tothe subsidiary companies.  The JBPCO (Corporate) costs of $5.1 million,$5.9 million and $3.6 million for 2005, 2004 and 2003, respectively,included the loss on

 

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extinguishment of debt of $2.4 million during the2004 period and refinancing costs of $831 less a gain of $368 on the retirementof debt during the 2003 period.

 

Total assets as of December 31, 2005 increased$55.6 million compared to December 31, 2004 due primarily to net cashproceeds of approximately $46.4 million from the sale of an additional$45.0 million of 8.75% Notes (see Note 10) on January 21, 2005, and theaddition of approximately $18.0 million of total assets from the acquisition ofFederal Coach made during the second quarter of 2005 (see Note 4).

 

**4.**                   Acquisitions

 

Effective March 15, 2004, the Company acquired from John Poindexter,the sole shareholder of the Company, the stock of Morgan Olson, a truck bodymanufacturing company that he acquired effective July 15, 2003.  Mr. Poindexter acquired certain assets ofMorgan Olson from Grumman Olson Industries, Inc. in a bankruptcy proceeding andcontributed those assets to the Company. Mr. Poindexter paid approximately $13.9 million for the assets including$3.0 million in cash that he contributed as equity of Morgan Olson and assumedcertain liabilities of approximately $1.5 million.  The purchase price was allocated to theassets based on the estimated fair values as of the date of acquisition.  There was no goodwill recorded with theacquisition. The historical financial statements of the Company have beenrestated to reflect the merger on a basis similar to a pooling of interests soas to combine the financial statements of both companies for the period theywere under common control.

 

The cash purchase price wasallocated to the acquired net assets based on the estimated fair values as ofthe date of the original acquisition as follows:

 
| **Morgan Olson**                   | ** ** | **July 15,   2003** | ** ** |
|------------------------------------|------------|---------------------|------------|
| Accounts  receivable               |       | $                   | 2,905      |   |
| Inventories                        |       | 4,050               |       |
| Prepaid  expenses and other        |       | 328                 |       |
| Property,  plant and equipment     |       | 8,177               |       |
| Accrued  compensation and benefits |       | (160                | )          |
| Accrued  warranty                  |       | (450                | )          |
| Other  accrued expenses            |       | (908                | )          |
|                               |       | $                   | 13,942     |   |

 

Effective November 5, 2004 the Company acquiredsubstantially all of the assets of Pace Edwards Company (“Pace Edwards”).  The results of Pace Edward’s operations havebeen included in the consolidated financial statements since that date.  Pace Edwards is located in Washington Stateand is a leading manufacturer of retractable tonneau covers in the pickup truckaccessories business.  Pace Edwardsoperates as a division of Truck Accessories and continues to utilize thepurchased assets in the same manner as prior to the acquisition.

 

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The aggregate purchase price was approximately$9.6 million for the assets of Pace Edwards.  The acquisition has been accounted for as apurchase and, accordingly, the acquired assets and liabilities assumed havebeen recorded at their estimated fair values at the date of acquisition andapproximated the following:

 
| **Pace Edwards**                   | ** ** | **November 5,   2004** | ** ** |
|------------------------------------|------------|------------------------|------------|
| Accounts  receivable               |       | $                      | 1,532      |   |
| Inventories                        |       | 1,510                  |       |
| Property,  plant and equipment     |       | 2,431                  |       |
| Goodwill                           |       | 971                    |       |
| Acquired  intangibles (see Note 7) |       | 3,472                  |       |
| Current  liabilities               |       | (87                    | )          |
| Accrued  warranty                  |       | (180                   | )          |
|                               |       | $                      | 9,649      |   |

 

EffectiveDecember 15, 2004 the Company acquired all of the outstanding stock ofCommercial Babcock Inc. (“Commercial Babcock”), a Canadian company located inBrampton, Ontario. The results of Commercial Babcock’s operations have beenincluded in the consolidated financial statements since that date.  Commercial Babcock is a manufacturer andmarketer of medium-duty truck bodies for the eastern Canadian market.  Commercial Babcock operates as a division ofMorgan and continues to utilize the purchased assets in the same manner asprior to the acquisition.

 

Theaggregate purchase price was $8.9 million for the outstanding stock ofCommercial Babcock.  The acquisition has been accounted for as apurchase and, accordingly, the acquired assets and liabilities assumed havebeen recorded at their estimated fair values at the date of acquisition andapproximated the following:

 
| **Commercial Babcock**             | ** ** | **December 15,   2004** | ** ** |
|------------------------------------|------------|-------------------------|------------|
| Cash                               |       | $                       | 593        |   |
| Accounts  receivable               |       | 2,581                   |       |
| Inventories                        |       | 1,783                   |       |
| Other  current assets              |       | 89                      |       |
| Property,  plant and equipment     |       | 701                     |       |
| Goodwill                           |       | 5,422                   |       |
| Acquired  intangibles (see Note 7) |       | 2,686                   |       |
| Accounts  payable                  |       | (2,897                  | )          |
| Accrued  warranty                  |       | (114                    | )          |
| Other  current liabilities         |       | (800                    | )          |
| Other  long-term liabilities       |       | (60                     | )          |
| Deferred  income taxes             |       | (1,134                  | )          |
|                               |       | $                       | 8,850      |   |

 

Effective June 6, 2005, the Company acquired 100% of the membershipinterests in Federal Coach LLC (“Federal Coach”).  The results of Federal Coach’s operationshave been included in the consolidated financial statements of the Companysince that date.  Federal Coach islocated in Fort Smith, Arkansas and is a manufacturer of funeral coaches,limousines and mid-sized buses.  FederalCoach operates as a division of the Specialty Manufacturing Group and continuesto utilize the purchased assets in the same manner as prior to the acquisition.The acquisition was accounted for as a purchase and the aggregate purchaseprice was approximately $12.3 million. The following summarizes the fair values of the assets acquired andliabilities assumed at the date of acquisition; 

 

49

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| **Federal Coach**                  | ** ** | **June 6,   2005** | ** ** |
|------------------------------------|------------|--------------------|------------|
| Accounts  receivable               |       | $                  | 2,465      |   |
| Inventories                        |       | 9,330              |       |
| Other  current assets              |       | 15                 |       |
| Property,  plant and equipment     |       | 649                |       |
| Goodwill                           |       | 1,850              |       |
| Acquired  intangibles (see Note 7) |       | 3,650              |       |
| Accounts  payable                  |       | (4,336             | )          |
| Customer  deposits                 |       | (343               | )          |
| Accrued  warranty                  |       | (66                | )          |
| Other  current liabilities         |       | (944               | )          |
|                               |       | $                  | 12,270     |   |

 

Thecombined results of operations of the Company for the years ended December 31,2005, 2004 and 2003 and Morgan Olson, Pace Edwards, Commercial Babcock andFederal Coach for the periods prior to their acquisition on an unaudited proforma basis would be as follows:

 
| ** **                             | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net sales                              |       | $        | 690,624    |     | $          | 653,291  |       | $ | 522,239 |   |
| Operating  income                      |       | 25,455   |       | 34,434   |       | 27,751   |       |
| Income  before discontinued operations |       | 5,727    |       | 14,446   |       | 10,556   |       |
|                                        |            |          |            |          |            |          |            |  |  |  |

 

**5.**                   Inventories

 

Consolidatednet inventories consisted of the following:

 
| ** **         | ** ** | **December 31,** | ** ** |
|--------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Raw  materials     |       | $                     | 36,172     |   | $ | 30,551 |   |
| Work in  process   |       | 13,879                |       | 9,815 |   |
| Finished  goods    |       | 7,156                 |       | 6,370 |   |
| Total  inventories |       | $                     | 57,207     |   | $ | 46,736 |   |

 

Inventories are stated net of an allowance for excess and obsoleteinventory of $2.5 million and****$2.8 millionat December 31, 2005 and 2004, respectively. The activity in the allowance for excess and obsolete inventory accountsfor the years ended December 31, was:

 
| ** **                            | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance at  the beginning of the year |       | $        | 2,753      |     | $          | 2,593    |       | $ | 2,200 |   |
| Provision  for losses                 |       | 563      |       | 382      |       | 625      |       |
| Charge offs                           |       | (1,137   | )          | (992     | )          | (1,190   | )          |
| Recoveries                            |       | —   |       | —   |       | 18       |       |
| Acquisitions                          |       | 350      |       | 770      |       | 940      |       |
| Balance at  the end of the year       |       | $        | 2,529      |     | $          | 2,753    |       | $ | 2,593 |   |

 

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**6.**                   Property, Plant and Equipment

 

Property, plant and equipment, as ofDecember 31, 2005 and 2004, consisted of the following: 

 
| ** **                                 | ** ** | **Range  of Useful   Lives in years** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------|------------|---------------------------------------|------------|----------|------------|----------|------------|
| Land                                       |       | —                                |       | $        | 4,679      |     | $          | 4,673 |   |
| Buildings  and improvements                |       | 5-25                                  |       | 27,924   |       | 28,216   |       |
| Machinery  and equipment                   |       | 3-10                                  |       | 95,207   |       | 82,594   |       |
| Furniture  and fixtures                    |       | 2-10                                  |       | 17,182   |       | 15,360   |       |
| Transportation  equipment                  |       | 2-10                                  |       | 4,870    |       | 4,150    |       |
| Leasehold  improvements                    |       | 3-10                                  |       | 6,435    |       | 6,399    |       |
| Construction  in progress                  |       | —                                |       | 3,809    |       | 2,433    |       |
|                                       |       |                                  |       | $        | 160,106    |     | 143,825    |   |
| Accumulated  depreciation and amortization |       |                                  |       | (105,773 | )          | (96,333  | )          |
| Property,  plant and equipment, net        |       |                                  |       | $        | 54,333     |     | $          | 47,492 |   |

 

Machinery and Equipment included approximately $4.3 million and $3.3million of equipment at cost recorded under capital leases as of December 31,2005 and 2004, respectively, and accumulated depreciation of approximately $1.4million and $600 at December 31, 2005 and 2004, respectively.

 

In the third quarter of 2005, the Company decided to consolidate itstruck accessories group in Canada which resulted in a write-down of itsDrinkwater facility.  The write-down of$377 has been recorded as closed and excess facility costs.

 

Depreciation expense was $9.7 million,****$9.1million and $8.9 million and included $742, $324 and $153 for assets recordedunder capital leases, for the years ended December 31, 2005, 2004 and 2003,respectively.

 

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

 

Goodwill represents the excess of costs over fair value of net assetsof businesses acquired.  Pursuant to SFASNo. 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 1,2005, 2004 and 2003, which indicated that there was no impairment.  The fair value of our reporting units isbased on acquisition multiples, which are derived from information and analysisof recent acquisitions in the market place for companies with similaroperations.

 

SFAS No. 142 also requires that intangible assets with estimable usefullives be amortized over their respective estimated useful lives and reviewedfor impairment in accordance with SFAS No. 144, “*Accountingfor 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.  At December 31, 2005 goodwill comprised ofapproximately $7.4 million, $11.4 million and $6.0 million for the Morgan,Truck Accessories, and Specialty Manufacturing reporting units, respectively.

 

Effective November 5, 2004 the Company acquired substantially all ofthe assets of Pace Edwards Company, a manufacturing company in the pickup capand tonneau business (see Note 4) that was combined with the Truck 

 

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Accessories segment.  Goodwill of$1.0 million and acquired intangibles estimated to be approximately $3.5million were assigned to Truck Accessories.

 

Effective December 15, 2004 the Company acquired all of the outstandingstock of Commercial Babcock Inc., a Canadian company located in Ontario,Canada. Commercial Babcock is a manufacturer and marketer of truck bodies inthe Eastern Canada market and was combined with the Morgan segment (see Note4).  Goodwill of approximately $5.4million and acquired intangibles estimated to be approximately $2.7 millionwere assigned to Morgan.

 

Effective June 6, 2005 the Company acquired all of the membershipinterests in Federal Coach LLC, located in Fort Smith, Arkansas.  Federal Coach is a manufacturer of funeralcoaches, limousines and specialty buses, and was combined with the SpecialtyManufacturing segment.  Goodwill ofapproximately $1.8 million and acquired intangibles of approximately $3.7million were assigned to Specialty Manufacturing.

 

Effective May 28, 2004, theCompany sold principally all of the assets of the distribution business ofTruck Accessories and accordingly it was presented as a discontinuedoperation.  The Company wrote downgoodwill of $300 associated with the operation (see Note 18).

 

The changes in the carrying amount of goodwill for the years endedDecember 31, 2005 and 2004 were:

 
| ** **                         | ** ** | **Morgan** | ** ** | **Truck   Accessories** | ** ** | **Specialty   Manufacturing** | ** ** | **Total** | ** ** |
|------------------------------------|------------|------------|------------|-------------------------|------------|-------------------------------|------------|-----------|------------|
| Balance,  January 1, 2004          |       | $          | 1,986      |                    | $          | 10,385                        |       | $         | 4,145      |   | $ | 16,516 |   |
| Goodwill  acquired during the year |       | 5,422      |       | 971                     |       | —                        |       | 6,393     |       |
| Balance,  December 31, 2004        |       | 7,408      |       | 11,356                  |       | 4,145                         |       | 22,909    |       |
| Goodwill  acquired during the year |       | —     |       | —                  |       | 1,850                         |       | 1,850     |       |
| Balance,  December 31, 2005        |       | $          | 7,408      |                    | $          | 11,356                        |       | $         | 5,995      |   | $ | 24,759 |   |

 

Intangibleassets (all acquired in connection with the acquisitions described in Note 4)and the related accumulated amortization as of December 31, 2005 and 2004 were:

 
| ** **                        | ** ** | **Cost**                    | ** ** |
|-----------------------------------|------------|-----------------------------|------------|
| **December 31, 2005:**            | ** ** | **Useful  Lives  in Years** | ** ** | **Morgan** | ** ** | **Truck  Accessories** | ** ** | **SMG** | ** ** | **Total** | ** ** | **Accumulated    Amortization** | ** ** |
| Amortizable  intangible assets:   |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Customer  base                    |       | 20                          |       | $ | 1,588 |   | $ | 2,575 |   | $ | 1,100 |   | $ | 5,263 |   | $ | 233 |   |
| Non-compete  agreements           |       | 5                           |       | 188 |   | — |   | 50 |   | 238 |   | 45 |   |
| Supplier  relationship            |       | 10                          |       | — |   | — |   | 1,700 |   | 1,700 |   | 122 |   |
| Patents                           |       | 2                           |       | — |   | 300 |   | — |   | 300 |   | 175 |   |
|                              |       |                        |       | 1,776 |   | 2,875 |   | 2,850 |   | 7,501 |   | 575 |   |
| Unamortizable  intangible assets: |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Trade names                       |       | —                      |       | 988 |   | 616 |   | 800 |   | 2,404 |   | — |   |
| Balance,  December 31, 2005       |       |                        |       | $ | 2,764 |   | $ | 3,491 |   | $ | 3,650 |   | $ | 9,905 |   | $ | 575 |   |

 

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| ** **                        | ** ** | **Cost**                    | ** ** |
|-----------------------------------|------------|-----------------------------|------------|
| **December 31, 2004:**            | ** ** | **Useful  Lives  in Years** | ** ** | **Morgan** | ** ** | **Truck    Accessories** | ** ** | **SMG** | ** ** | **Total** | ** ** | **Accumulated********Amortization** | ** ** |
| Amortizable  intangible assets:   |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Customer  base                    |       | 20                          |       | $ | 1,531 |   | $ | 2,556 |   | $ | — |   | $ | 4,087 |   | $ | 25 |   |
| Non-compete  agreements           |       | 5                           |       | 188 |   | — |   | — |   | 188 |   | 2 |   |
| Patents                           |       | 2                           |       | — |   | 300 |   | — |   | 300 |   | 25 |   |
|                              |       |                        |       | 1,719 |   | 2,856 |   | — |   | 4,575 |   | 52 |   |
| Unamortizable  intangible assets: |       |                        |       |   |   |   |   |   |   |   |   |   |   |
| Trade names                       |       | —                      |       | 967 |   | 616 |   | — |   | 1,583 |   | — |   |
| Balance,  December 31, 2004       |       |                        |       | $ | 2,686 |   | $ | 3,472 |   | $ | — |   | $ | 6,158 |   | $ | 52 |   |

 

The amortization of intangible assets was $523, $422 and $260 for theyears ended December 31, 2005, 2004 and 2003, respectively. Estimatedamortization expense for each of the subsequent five years ending December 31is as follows: 2006- $602, 2007-$477, 2008-$477, 2009-$475 and 2010-$434.

 

Other assets, as of December 31, 2005 and 2004,consisted of the following:

 
| ** **                             | ** ** | ** **                          | ** ** | **2005**                      | ** ** | **2004**            | ** ** |
|----------------------------------------|------------|-------------------------------------|------------|-------------------------------|------------|---------------------|------------|
| ** **                             | ** ** | **Amortization  Period in   Years** | ** ** | **Accumulated  Amortization** | ** ** | **Net Book  Value** | ** ** | **Accumulated  Amortization** | ** ** | **Net   Book  Value** | ** ** |
| Other  Assets:                         |       |                                |       |                          |       |                |       |   |   |   |   |
| Cash surrender value of life insurance |       | —                              |       | $                             | —     |                | $          | 1,103 |   | $ | — |   | $ | 1,041 |   |
| Debt issuance costs                    |       | 4-10                                |       | 1,252                         |       | 5,101               |       | 429 |   | 4,727 |   |
| Insurance cash collateral deposit      |       | —                              |       | —                        |       | 5,520               |       | — |   | 5,520 |   |
| Other                                  |       | 3-10                                |       | 695                           |       | 3,096               |       | 579 |   | 2,390 |   |
| Total                                  |       |                                |       | $                             | 1,947      |                | 14,820     |   | $ | 1,008 |   | $ | 13,678 |   |
|                                        |            |                                     |            |                               |            |                     |            |  |  |  |  |  |  |  |  |

 

The amortization of debtissuance costs was $598, $592 and $714 for the years ended December 31, 2005,2004 and 2003.  Estimated amortizationexpense for each of the subsequent five years ending December 31 is $840 peryear.

 

During 2004, the Company created a trust in favor of its insurancecarrier to secure its liabilities under its self insured, casualty insuranceprogram including workmen’s compensation insurance.  The liabilities were previously secured by anirrevocable stand-by letter of credit that was cancelled upon the deposit ofapproximately $5.5 million into the trust.

 

**8.         FloorplanNotes Payable**

 

The Company has floorplanfinancing agreement with Ford Motor Credit Company for financing part of its chassisinventory at Federal Coach.  Floorplannotes payable reflect the monetary value of the chassis that are in theCompany’s possession as of December 31, 2005. These obligations are reflected on the accompanying balance sheet asaccounts payables as a current liability.

 

The total amount financedunder these agreements was $2.7 million as of December 31, 2005.  These borrowings bear interest at the primerate plus 150 basis points on the balances outstanding over 90 days.  As of December 31, 2005 the weighted averageinterest rate on all outstanding floorplan notes payable was 1.6%.  The interest rate on the liabilities thatbear interest was 8.75% at December 31, 2005.

 

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**9.      Revolving Credit Facility**

 

On March 15, 2004, concurrently with the 8.75% Note offering discussed in Note 10, the Company enteredinto a secured revolving credit agreement (the “Revolving Credit Facility”)that expires March 15, 2008.  TheRevolving Credit Facility currently provides for borrowings by the Company ofup to $30.0 million, which may be increased to $50.0 million at the Company’soption. The Revolving Credit Facility allows the Company to borrow funds up tothe lesser of $30.0 million or an amount based on the sum of: 1) advance ratesapplied to the total amounts of eligible accounts receivable and inventories ofthe Subsidiaries and 2) up to $20.0 million secured by the fixed assets of theCompany.  The advance rates are 85% foreligible accounts receivable and 60% for eligible inventory, as defined.  Borrowings against inventory may not exceed$20 million.  The Company is entitled toinclude initially in the borrowing base up to an additional $20 million offixed assets, as defined.  The availabilityof funds secured by the fixed assets will amortize to zero over 60 months forthat portion secured by machinery and equipment and 120 months for real estateor the remaining term of the Revolving Credit Facility, whichever isshorter.  The Revolving Credit Facilityincludes a sub-facility for up to $15 million of letters of credit.

 

The Revolving Credit Facility provides for borrowing at variable ratesof interest, based on either LIBOR (London Interbank Offered Rate, which was4.8%****at December 31, 2005) plus a margin of1.75% or the bank’s base rate (the greater of the Federal Funds Rate plus 0.5%or it’s prime rate, which was 7.25%****at December31, 2005).  Interest is payable monthlyincluding a fee of 0.375% on the portion of the maximum amount of borrowings ofthe $50.0 million total commitment, including the option to increase thecommitment, that remain unused during the period.  The Subsidiaries are also guarantors of the 8.75% 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 restrict 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 a 1.0 to 1.0 should availability fall below $10million.  At December 31, 2005, theCompany was in compliance with all covenants of the Revolving Credit Facility.In the event that the Company’s borrowing availability is below $20.0 millionthe Company’s cash balances will become restricted.

 

As of December 31, 2005 and 2004, the Company had no borrowingsoutstanding and $2.3 million and $0.3 million, respectively, in standby lettersof credit (see Note 16) and had unused gross borrowing availability, based oneligible accounts receivable and inventory, in excess of the $30.0 millionborrowing limit under the Revolving Credit Facility.

 

**10.          Long-term Debt and 8.75% Note Offering**

** **

Long-term debt as of December 31, 2005 and 2004consisted of:

 
| ** **                                                                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                                 |       |     |       |     |       |
| 8.75% Notes  due 2014, plus unamortized premium of $2.0 million at December 31, 2005 |       | $        | 202,025    |     | $          | 155,000 |   |
| Obligations  under capital leases                                                    |       | 3,357    |       | 3,427    |       |
| Total long-term  debt                                                                |       | 205,382  |       | 158,427  |       |
| Less current  portion                                                                |       | 1,017    |       | 943      |       |
| Long-term  debt, less current portion                                                |       | $        | 204,365    |     | $          | 157,484 |   |

 

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On March 15, 2004 the Company completed a note offering of $125.0million, 8.75% senior notes due in 2014 (the “8.75%Notes”) with interest payable semiannually.  The proceeds, net of costs, of the noteoffering of approximately $121.6 million were used to: (1) redeem the Company’s12.5% senior secured notes due 2007 in the amount of $79.8 million includingaccrued interest through the redemption date of April 15, 2004 of  $3.9 million, (2) repay outstanding revolverdebt of the Company of  $22.0 millionincluding interest, (3) repay outstanding term and revolver debt of MorganOlson of $14.0 million including accrued interest and prepayment penalties, (4)repay Specialty Manufacturing’s outstanding term loan of $773 including accruedinterest and (5) provide temporary cash collateral for stand by letters ofcredit of $6.1 million.  The cashcollateral for stand-by letters of credit was subsequently refunded upon thecancellation of the letters of credit. On May 17, 2004, and January 21, 2005, the Company completed offers tosell an additional $30.0 million and $45.0 million, respectively, of 8.75% Notes.  The additional $30.0 million of 8.75% Notes were issued at par and the$45.0 million of 8.75% Notes wereissued at a 5% premium.  The additional 8.75% Notes were issued on the same termsas the original issue.  Net proceeds fromthe additional offerings of approximately $46.4 million increased the Company’scash balance.  The 8.75% Notes mature on March 15, 2014 andbear interest at an annual rate of 8.75% payable each September 15 and March15, to the holders of record on September 1 and March 1 immediately precedingthe interest payment date.  Costsassociated with the $45 million offering of 8.75% Notes totaling approximately$1.3 million have been capitalized as debt issuance costs (see Note 7) and willbe amortized over the term of the 8.75% Notes. The debt issuance costs related to the retired 12.5% senior secured notesdue 2007 of approximately $2.4 million were expensed during the year endedDecember 31, 2004.

 

On May 11, 2005, the Company completed an offer to exchange (“2005Exchange Offer”) $200 million principal amount of its 8.75% Notes which havebeen registered under the Securities Act, for any and all of its outstandingunregistered 8.75% Notes.

 

The 8.75% Notes aresubordinated to borrowings under the Revolving Credit Facility (see Note 9) andother secured indebtedness to the extent of the assets securing the debt.  Also, the Company’s obligations under the 8.75% Notes are guaranteed by eachwholly-owned subsidiary 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 or after March 15, 2009, at a definedpremium plus accrued and unpaid interest to the date of redemption.  The Company may redeem up to 35% of the 8.75% Notes prior to March 15, 2007, at adefined premium plus accrued and unpaid interest to the date of redemption, inconnection with an Equity Offering, as defined.

 

The 8.75% Notes’ indentureincludes covenants that limit the ability of the Company to: incur additionaldebt, including sale and leaseback transactions; pay dividends or distributionson its capital stock or repurchase capital stock; issue stock of subsidiaries;make certain investments; create liens on its assets to secure debt; enter intotransactions with affiliates; merge or consolidate with another company; andtransfer and sell assets.  As noted, theindenture contains a covenant to limit the incurrence of additionalindebtedness as measured by its Consolidated Coverage Ratio, as defined.  The Company may incur indebtedness if thisratio is greater than 2.0 to 1.0 and there is no other event of default, asdefined.  At December 31, 2005, theConsolidated Coverage Ratio, as defined, was 2.1 to 1.0.

 

The Company estimates the fair value of the 8.75% Notes at December 31, 2005 and 2004 was approximately$169.0 and $162.8 million, based on their market value at that date compared toa recorded amount of $200 million and $155.0 million, respectively.

 

Effective June 10, 2003 the Company successfully completed the exchange(“2003 Exchange Offer”) of $85.0 million of its 12.5% senior notes due 2004 for$85.0 million of 12.5% senior secured notes due 2007.  Costs associated with the 2003 Exchange Offerof $831 were expensed during the year ended December 31, 2003.

 

55

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The Company’s obligation under capital leases is due in varyingmaturity dates through 2009.  The capitalleases are secured by certain equipment with a net book value of approximately$2.9 million and $2.7 million at December 31, 2005 and 2004, respectively.

 

**Maturities.** Aggregate principal cash payments on long-term debt based on scheduledmaturities for the next five years and thereafter as of December 31, 2005,are as follows: ** **

 
| 2006                 |   | $       | 1,262   |   |
|----------------------|--------|---------|---------|--------|
| 2007                 |   | 1,069   |    |
| 2008                 |   | 1,024   |    |
| 2009                 |   | 913     |    |
| 2010                 |   | 314     |    |
| 2011 and  thereafter |   | 200,800 |    |
|                 |   | $       | 205,382 |   |

 

**11.**                  OperatingLeases

 

The Company leases certain manufacturing facilities and equipment undernon-cancelable operating leases certain of which contain renewal options.  The future minimum lease payments subsequentto December 31, 2005 are as follows:

 
| 2006                          |   | $     | 7,368  |   |
|-------------------------------|--------|-------|--------|--------|
| 2007                          |   | 5,917 |   |
| 2008                          |   | 4,858 |   |
| 2009                          |   | 4,065 |   |
| 2010                          |   | 2,692 |   |
| 2011 and  thereafter          |   | 2,209 |   |
| Total  minimum lease payments |   | $     | 27,109 |   |

 

Total rental expense included in continuing operations under alloperating leases was approximately $8.1 million, $9.2 million and $9.6 millionfor the years ended December 31, 2005, 2004 and 2003, respectively.

 

**12.          Supplemental CashFlow Information**

 

The supplemental cash flow information for the yearsended December 31, 2005, 2004 and 2003 were as follows:

 
| ** **                                                      | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cash paid  for interest                                         |       | $        | 16,517     |     | $          | 12,069   |       | $ | 13,800 |   |
| Cash paid for  income taxes                                     |       | 4,228    |       | 942      |       | 756      |       |
| Non-cash  investing and financing activities:                   |       |     |       |     |       |     |       |
| Capital lease obligations for machinery and  equipment          |       | 970      |       | 2,950    |       | —   |       |
| In connection with the acquisition of  businesses (see Note 4): |       |     |       |     |       |     |       |
| Fair value of assets acquired                                   |       | 17,960   |       | 23,335   |       | 16,100   |       |
| Liabilities assumed                                             |       | (5,690   | )          | (5,429   | )          | (1,759   | )          |
|                                                                 |            |          |            |          |            |          |            |  |  |  |

 

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**13.          Income Taxes**

 

The income tax provision from continuing operationsconsists of the following for the years ended December 31, 2005, 2004 and2003:

 
| ** **            | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|----------|------------|
| Current:              |       |     |       |     |       |     |       |
| Federal               |       | $        | 1,819      |     | $          | 176      |       | $ | 420 |   |
| State                 |       | 362      |       | 1,441    |       | 204      |       |
|                  |       |     |       |     |       |     |       |
| Foreign               |       | (433     | )          | 394      |       | 566      |       |
|                  |       | 1,748    |       | 2,011    |       | 1,190    |       |
| Deferred:             |       |     |       |     |       |     |       |
| Federal               |       | 1,784    |       | 1,972    |       | 1,522    |       |
| State                 |       | (950     | )          | 151      |       | 3        |       |
|                  |       | 834      |       | 2,123    |       | 1,525    |       |
| Income tax  provision |       | $        | 2,582      |     | $          | 4,134    |       | $ | 2,715 |   |

 

The following table reconciles the differencesbetween the federal statutory income tax rate and the effective tax rate forthe years ended December 31, 2005, 2004 and 2003:

 
| ** **                                                    | ** ** | **2005**   | ** ** | **2004** | ** ** | **2003**   | ** ** |
|---------------------------------------------------------------|------------|------------|------------|----------|------------|------------|------------|
| ** **                                                    | ** ** | **Amount** | ** ** | **%**    | ** ** | **Amount** | ** ** | **%** | ** ** | **Amount** | ** ** | **%** | ** ** |
| Tax  provision at federal statutory income tax rate           |       | $          | 2,616      |     | 34         | %          | $          | 4,960 |   | 34 | % | $ | 4,071 |   | 34 | % |
| Valuation  allowance                                          |       | (1,000     | )          | (13      | )          | (511       | )          | (4 | ) | (800 | ) | (7 | ) |
| Non-deductible  expenses                                      |       | 81         |       | 1        |       | (47        | )          | (1 | ) | (1 | ) | — |   |
| State income taxes, net of federal income  tax benefit        |       | 239        |       | 3        |       | 951        |       | 7 |   | 135 |   | 1 |   |
| Foreign income and withholding taxes, net  of federal benefit |       | 106        |       | 2        |       | 260        |       | 2 |   | 373 |   | 3 |   |
| Other                                                         |       | 540        |       | 7        |       | (1,479     | )          | (10 | ) | (1,063 | ) | (9 | ) |
| Provision  for income taxes and effective tax rates           |       | $          | 2,582      |     | 34         | %          | $          | 4,134 |   | 28 | % | $ | 2,715 |   | 23 | % |

 

The domestic and foreign components of income (loss)from continuing operations before income taxes and discontinued operationswere:

 
| ** ** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|
| Domestic   |       | $        | 8,934      |     | $          | 13,512   |       | $ | 10,632 |   |
| Foreign    |       | (1,240   | )          | 1,023    |       | 1,344    |       |
| Total      |       | $        | 7,694      |     | $          | 14,535   |       | $ | 11,976 |   |

 

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Deferred income taxes are based on the estimated future tax effects of differencesbetween the financial statements and tax basis of assets and liabilities giventhe provisions of the enacted tax laws. The net deferred tax assets and liabilities as of December 31, 2005and 2004 were:

 
| ** **                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|
| Current  deferred tax asset:                 |       |     |       |     |       |
| Allowance  for doubtful accounts             |       | $        | 329        |     | $          | 310 |   |
| Employee  benefit accruals and reserves      |       | 951      |       | 767      |       |
| Other                                        |       | 119      |       | 235      |       |
|                                         |       |     |       |     |       |
| Total  current deferred tax asset            |       | 1,399    |       | 1,312    |       |
| Long-term  deferred tax asset:               |       |     |       |     |       |
| Tax credit  and operating loss carryforwards |       | 7,810    |       | 8,621    |       |
| Warranty  liabilities                        |       | 1,455    |       | 1,515    |       |
| Other                                        |       | 2,271    |       | 2,197    |       |
| Valuation  allowance                         |       | (3,754   | )          | (4,754   | )          |
|                                         |       |     |       |     |       |
| Total  long-term deferred tax asset          |       | 7,782    |       | 7,579    |       |
|                                         |       |     |       |     |       |
| **Long-term  deferred tax liabilities:**     |       |     |       |     |       |
| Depreciation  and amortization               |       | (5,575   | )          | (4,451   | )          |
| Intangible  assets                           |       | (1,134   | )          | (1,134   | )          |
|                                         |       |     |       |     |       |
| Total  long-term deferred tax liability      |       | (6,709   | )          | (5,585   | )          |
| Net long-term deferred tax asset             |       | 1,073    |       | 1,994    |       |
| Net deferred tax asset                       |       | $        | 2,472      |     | $          | 3,306 |   |

 

The Company had alternativeminimum tax credit carryforwards of approximately $3.0 million and $1.4 millionat December 31, 2005 and 2004 for U.S. federal income tax purposes, which maybe carried forward indefinitely.  The Companyhad a capital loss carryforward of approximately $3.6 million at December 31,2005 and 2004 for U.S. federal income tax purposes, which may be carriedforward for five years.  During 2005, weutilized net operating loss carryforwards for U.S. federal tax purposes ofapproximately $7.2 million that were outstanding as of December 31, 2004.  At December 31, 2004, the Company had avaluation allowance of approximately $1.4 million against the capital losscarryforward deferred tax asset of $1.4 million.  At December 31, 2005 and 2004, the Companyhad state tax net operating loss carryforwards of approximately $63.0 millionand recognized a deferred tax asset of $3.4 million.  At December 31, 2005, the state net operatingloss carryforwards expire at varying dates ranging from one to 20 years.  At December 31, 2004, the Company recorded avaluation allowance of $3.4 million against this deferred tax asset as it wasuncertain as to whether it would be realized. During 2005, the Company re-evaluated the $3.4 million deferred taxasset and determined that $1.0 million was realizable and reduced the valuationallowance by that amount.  The reductionin the valuation allowance reduced the tax provision for the year by an equalamount or $1.0 million.  The Companybelieves, based on available evidence, that it is more likely than not that theCompany’s net deferred tax asset will be realized in the future.

 

**14.**                  CommonStock

 

As of December 31, 2005 and 2004, there were100,000 shares authorized and 3,059 shares issued and outstanding of JBPCOcommon 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.

 

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**15.**                  EmployeeBenefit Plans

 

*Employee Incentive Plans*.  The Company has an incentive compensation plan for members of uppermanagement of each of the Subsidiaries to provide for the payments of annualbonuses based upon the attainment of performance-based goals. Eligibleemployees are entitled to receive a bonus if the subsidiary attains orsurpasses a stated percentage of that subsidiary’s earnings before interest andtaxes, with the amount of bonus being tied to the subsidiary’s actual pre-taxprofits. Individual bonuses are then allocated among the eligible employeesbased upon their individual achievement of stated performance objectivesincluding working capital performance objectives. The Company incurred expensesrelated to this plan totaling $1,539, $1,508 and $2,223 for the years ended December31, 2005, 2004 and 2003, respectively.

 

*JBPCO 401(k) Defined Contribution Plan.* The JBPCO-sponsored 401(k) savings planallows participating employees to contribute through salary deductions up to100% of gross compensation and provides for Company matching contributions upto three percent of the first six percent of gross pay as well as theopportunity for an annual discretionary contribution.  The Company increased the matching percentageto three percent from two and one-half percent effective June 1, 2005.  The Company has not made discretionarycontributions.  Vesting in the Companymatching contribution is 20% per year over the first five years.  The Company incurred related employermatching contribution and administrative expenses of $1.4 million,****$1.0 million and $0.7 million during the years endedDecember 31, 2005, 2004 and 2003, respectively.

 

*Defined Benefit Plan.*****Truck Accessories assumed future sponsorshipof a defined benefit plan (the “Plan”) covering hourly employees at its Gem Topdivision that was sold and all the employees terminated effective February 28,2003.  The plan was frozen effectiveMarch 31, 1996 and at December 31, 2005 and 2004 the plan was underfunded byapproximately $33 and $48, respectively. The Company’s funding policy for the Truck Accessories plan is to makethe minimum annual contributions required by applicable regulations.

 

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 towards funding forbenefits payable in the future.  The fairvalue of the Plan’s assets was $286 and $217 as of December 31, 2005 and 2004,respectively.  The pension expenserecognized was $39, $28 and $51 for the years ended December 31, 2005, 2004 and2003, respectively. Based on immateriality of the Plan, Management does notbelieve expanded disclosure is necessary.

 

**16.**                  Commitmentsand Contingencies

 

*Claims and Lawsuits.*  The Company is involved incertain claims and lawsuits 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 of the Company.

 

*Letters of Credit and Other Commitments.** ***The Company had $2.3 million and $0.3 millionin standby letters of credit outstanding at December 31, 2005 and 2004,primarily securing the Company’s insurance programs.  During 2004, the Company deposited $5.5million into a trust account in favor of its insurance carrier (See Note7).  The funds will be held in trust tosecure the Company’s insurance programs. Income from the trust accrues to the Company.

 

During 2004, the Company entered into an agreement with a key paint supplier,whereby it will exclusively purchase inventory from this supplier for fiveyears, in return for favorable pricing. The Company estimates that it will purchase approximately $6.5 millionfrom this supplier in 2006.

 

*Consigned Chassis Inventories. *The Company obtains vehicle chassis forcertain units produced at Morgan and Commercial Babcock 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

 

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dealers.  The agreements generally provide that theCompany is restricted to producing certain conversions or upfittings on thesechassis.  The manufacturer does nottransfer the certificate of origin to the Company and, accordingly, the Companyaccounts for the chassis as consigned inventory belonging to themanufacturer.  Under these agreements, ifthe chassis is not delivered to a customer within a specified timeframe, theCompany is required to pay a finance charge based on the value of the chassis.  The finance charges incurred on consignedchassis inventories, included in interest expense in the consolidatedstatements of income totaled $28, $0 and $0 for the years ended December 31,2005, 2004 and 2003, respectively.  Totalconsigned chassis inventory totaled $1.4 million and $0 at December 31, 2005and 2004, 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 cases,these requirements may limit the productive capacity of the Company’s operations. Certain laws, including the FederalComprehensive Environmental Response, Compensation, and Liability Act of 1980,as amended (“Superfund”) impose strict, and under certain circumstances, jointand several, liability for costs to remediate contaminated sites upondesignated responsible parties including site owners or operators and, personswho dispose of wastes at, or transport wastes to, such sites. Some of theCompany’s operations also require permits which may restrict its activities andwhich are subject to renewal, modification or revocation by issuing authorities.In addition, the Company generates non-hazardous wastes, which are also subjectto regulation under applicable environmental laws.

 

From time to time, the Companyhas received notices of noncompliance with respect to its operations, whichhave typically been resolved by investigating the alleged noncompliance,correcting any noncompliant conditions and paying minor fines, none of whichindividually or in the aggregate has had a material adverse effect on theCompany.  Further, the Company cannot ensure that ithas been or will be at all times in compliance with all of these requirements,including those related to reporting or permit restrictions or that it will notincur material fines, penalties, costs or liabilities in connection with suchrequirements or a failure to comply with them. However, the Company expects that thenature of its operations will continue to make it subject to increasinglystringent environmental regulatory standards. Although the Company believes ithas made sufficient capital expenditures to maintain compliance with existinglaws and regulations, future expenditures may be necessary, as compliancestandards and technology change or as unanticipated circumstances arise.Unforeseen and significant expenditures required, for example, to comply withnew or more aggressively enforced requirements or newly discovered conditionscould limit expansion or otherwise have a material adverse effect on theCompany’s business and financial condition.

 

Morgan Olson’s two manufacturing sites in Sturgis,Michigan overlie, or are in close proximity to, a regional plume of volatileorganic compound groundwater contamination. Available information indicatesthat one of the sites was a likely source of part of the groundwatercontamination, and that groundwater contamination is present under the secondsite. In August 2003, Morgan Olson submitted applications for BaselineEnvironmental Assessments for each site to the Michigan Department ofEnvironmental Quality (“MDEQ”). In October 2003, the MDEQ accepted theseapplications and granted to Morgan Olson a liability exemption for anypre-acquisition releases of volatile organic compounds from these sites thatmay have contributed to the regional groundwater contamination subject tocertain conditions, including an agreement not to use chlorinated solvents andto implement certain engineering controls to minimize future releases at thesites. Based on the granting of the liability exemption, Morgan Olson does notbelieve that it has any responsibility for the investigation or remediation ofthe regional groundwater contamination. However, the exemption does not applyto other applicable laws or regulations, and there can be no guarantee thatnewly discovered conditions or future activities at the sites will not resultin significant costs.

 

In June 2005, Morgan Olson was notified by the MDEQ that it had failedto file certain reports related to its air permit, wastewater discharge, andchemical inventory.  The Company is indiscussions with the MDEQ to correct and settle these alleged violations.  At this point it is not known if the MDEQwill take enforcement action against

 

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Morgan Olson, and the financial impact of such an enforcement action,if any, cannot be estimated. The ultimate financial impact is not expected tobe material, however.

 

InJuly 2005, Morgan notified the United States Environmental Protection Agency(“USEPA”) that it had failed to file certain reports required pursuant toSection 313 of the Emergency Planning and Community Right-to-Know Act, andregulations promulgated there under.  Allnecessary reports were subsequently completed and filed with the USEPA.  At this point the Company does not know ifthe USEPA will take enforcement action against Morgan, and the financial impactof such an enforcement action, if any, cannot be estimated but could bematerial.

 

InJanuary 2006, EFP was notified by the Tennessee Department of Environment andConservation that a penalty was being assessed related to an inspection inJanuary 2005 that indicated it had failed to maintain proper records and tofile a report related to its air permit. The Company has immediately updated its records and confirmed the reportfiling and is in discussions with TN DEC to settle these allegedviolations.  The proposed penalty is $6and is not considered material.

 

**17.          Related PartyTransactions**

 

The Company is party to aManagement Services Agreement with Southwestern Holdings, Inc.(“Southwestern”), a corporation owned by Mr. Poindexter.  Pursuant to the Management ServicesAgreement, Southwestern provides services to the Company, including those ofMr. Poindexter.  The Company pays to Southwesterna base fee of approximately $46 per month for these services, subject to annualautomatic increases based upon the consumer price index.  The Company may also pay a discretionaryannual bonus to Southwestern subject to certain limitations; none was paid in2005 and 2004, and $200 was paid in 2003. The Company paid Southwestern $569,$549 and $749 during 2005, 2004 and 2003, respectively, for all these services.

 

Under the terms of aManagement Services Agreement between Morgan Olson and Southwestern Holdings,Morgan Olson paid Southwestern Holdings $800 during the year ended December 31,2003, for certain management and administrative services that was included inselling general and administrative expenses. The agreement between Morgan Olson and Southwestern Holdings wasterminated effective with the acquisition of Morgan Olson by the Company.

 

Effective July 18, 2004, Morgan acquired from apartnership, of which Mr. Poindexter and Mr. Magee were partners, a certainreal property located in Georgia.  Morganpaid approximately $2.2 million for the property, which was determined to bethe fair market value of the property. The property had been leased from the partnership since 1990 and is usedby Morgan for manufacturing truck bodies. Morgan paid $0,$174, and $286****in rent to the partnership in2005, 2004 and 2003 pursuant to such lease.

 

On November 7, 2003, Mr. Poindexter exercised the buy-outoption for certain equipment valued at $201 under lease to SpecialtyManufacturing by a third party. Specialty Manufacturing made interest only payments to Mr. Poindexter of$10 during 2004, when Specialty Manufacturing purchased the equipment from Mr.Poindexter for $201.

 

**18.          DiscontinuedOperations**

 

EffectiveMay 28, 2004, Truck Accessories sold principally all of the assets of MidwestTruck Aftermarket (“MTA”), its remaining distribution operation.  Truck Accessories realized cash proceeds ofapproximately $1.3 million.  MTA’s totalassets and liabilities totaled approximately $2,178 and $652, respectively, atDecember 31, 2003.  The Company wrote offrelated goodwill of $300, less income tax benefit of $125, as a loss on sale ofdiscontinued operations for the year ended December 31, 2004.  Truck Accessories disposed of principally allof its distribution operations in 1999. MTA and three retail stores, of which one was disposed of in 2002,comprised

 

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theremaining distribution operations.  MTA’snet sales were $4.1 million and $10.0 million for the years ended December 31,2004 and 2003, respectively.  MTA’s lossbefore income tax benefit was $319 and $147 for the years ended December 31,2004 and 2003, respectively.  MTA’s lossbefore income tax benefit included interest expense of $0 and $20 for the yearsended December 31, 2004 and 2003, respectively, related to the borrowings ofMTA under the Revolving Credit Facility. The borrowings were repaid using the proceeds from the sale.

 

During2003, the Company received a settlement from a class action suit ofapproximately $280 and proceeds from a surrendered life insurance policy ofapproximately $86 that were related to operations sold in 1999.  Income before income taxes from thesetransactions of $366 was included in loss from discontinued operations for theyear ended December 31, 2003.

 

Theresults of operations of all of the discontinued operations described abovehave been reported as discontinued operations in the consolidated financialstatements for the periods presented.  Inaddition, the net assets and liabilities which were disposed of have beensegregated within the consolidated balance sheet and $630 and $619 included inother current liabilities as of December 31, 2005 and 2004, respectively.

 

### The loss from discontinued operations during the years ended December31, 2004, and 2003, were as follows:

 
| ** **                                                                                                         | ** ** | **2004**   | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|
| Loss on sale of discontinued operations  less applicable income tax benefit of $(125) and $ - , respectively. |       | $          | (175       | )        | $          | — |   |
| Loss from discontinued operations less  applicable income tax benefit of $(134) and $(52), respectively            |       | (352       | )          | (155     | )          |
|                                                                                                               | $          |  (527 | )          | $        |  (155 | ) |

 

**19.          Subsequent Events**

 

Effective January 3, 2006 the company acquiredKellerman Coach Inc., located in Amelia, Ohio. Kellerman Coach does business as Eagle Coach Company and the name waschanged to Eagle Specialty Vehicles Inc., (“Eagle Coach”) effective February14, 2006.  Eagle Coach manufacturesfuneral coaches and will be operated as part of Specialty Vehicles along withFederal Coach.  The Company paidapproximately $7.5 million for Eagle Coach using funds from the proceeds of the8.75% Notes offerings.  Eagle Coach’s sales were approximately $15.0million and unaudited pro forma operating income was approximately $0.5 millionfor the year ended December 31, 2005.

 

Effective March 17, 2006, Truck Accessories acquiredState Wide Aluminum, Inc., (“State Wide”) located in Elkhart, Indiana.  State Wide manufactures windows and doorsused in the manufacture of pick-up truck caps and is a supplier to TruckAccessories.  Truck Accessories paidapproximately $6.4 million for State Wide using funds from the proceeds of 8.75% Notes offerings and will operate thebusiness as its subsidiary.  State Wide’ssales were approximately $26.0 million and unaudited pro forma operating incomewas approximately $1.2 million for the year ended December 31, 2005.

 

Management is in the process of analyzing thepurchase price allocations for these acquisitions and will include itspreliminary assessment in its first quarter 2006 financial statements filed onForm 10-Q.

 

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***20.          SelectedQuarterly Information (Unaudited)***

 

***The Company’s accounting records are maintained on the basisof four 13 week quarters.  Shown beloware the selected unaudited quarterly data.***

 
| ** **                                   | ** ** | **March   31 2005** | ** ** | **June 30   2005** | ** ** | **September   30 2005** | ** ** | **December   31 2005** | ** ** |
|----------------------------------------------|------------|---------------------|------------|--------------------|------------|-------------------------|------------|------------------------|------------|
| Net sales                                    |       | $                   | 162,465    |               | $          | 178,279                 |       | $                      | 173,927    |   | $ | 153,447 |   |
| Cost of  sales                               |       | 144,986             |       | 155,635            |       | 152,788                 |       | 139,711                |       |
| Gross profit                                 |       | 17,479              |       | 22,644             |       | 21,139                  |       | 13,736                 |       |
| Selling,  general and administrative expense |       | 11,595              |       | 12,341             |       | 13,176                  |       | 12,853                 |       |
| Other  expense (income)                      |       | (49                 | )          | 201                |       | 409                     |       | (57                    | )          |
| Operating  income                            |       | 5,933               |       | 10,102             |       | 7,554                   |       | 940                    |       |
| Interest  expense, net                       |       | 4,232               |       | 3,931              |       | 4,513                   |       | 4,159                  |       |
| Income tax  provision (benefit)              |       | 448                 |       | 2,304              |       | 1,657                   |       | (1,827                 | )          |
| Net income                                   |       | $                   | 1,253      |               | $          | 3,867                   |       | $                      | 1,384      |   | $ | (1,392 | ) |
| Depreciation  and amortization               |       | $                   | 2,594      |               | $          | 2,351                   |       | $                      | 2,371      |   | $ | 3,044 |   |
| Amortization  of debt issuance costs         |       | $                   | (138       | )                  | $          | (184                    | )          | $                      | (126       | ) | $ | (150 | ) |

 
| ** **                                                  | ** ** | **March   31 2004** | ** ** | **June 30   2004** | ** ** | **September 30   2004** | ** ** | **December   31 2004** | ** ** |
|-------------------------------------------------------------|------------|---------------------|------------|--------------------|------------|-------------------------|------------|------------------------|------------|
| Net sales                                                   |       | $                   | 131,672    |               | $          | 146,559                 |       | $                      | 141,462    |   | $ | 165,228 |   |
| Cost of  sales                                              |       | 115,065             |       | 127,335            |       | 126,060                 |       | 145,012                |       |
| Gross profit                                                |       | 16,607              |       | 19,224             |       | 15,402                  |       | 20,216                 |       |
| Selling,  general and administrative expense                |       | 9,839               |       | 10,100             |       | 9,822                   |       | 10,840                 |       |
| Loss on  extinguishment of debt                             |       | 2,213               |       | —             |       | —                  |       | 181                    |       |
| Other income                                                |       | (5                  | )          | (54                | )          | (21                     | )          | (358                   | )          |
| Operating  income                                           |       | 4,560               |       | 9,178              |       | 5,601                   |       | 9,553                  |       |
| Interest  expense, net                                      |       | 4,029               |       | 2,905              |       | 3,624                   |       | 3,799                  |       |
| Income tax  provision                                       |       | 225                 |       | 2,497              |       | 765                     |       | 647                    |       |
| Income  before discontinued operations                      |       | 306                 |       | 3,776              |       | 1,212                   |       | 5,107                  |       |
| Loss from discontinued operations, net of  applicable taxes |       | (20                 | )          | (356               | )          | —                  |       | (151                   | )          |
| Net income                                                  |       | $                   | 286        |               | $          | 3,420                   |       | $                      | 1,212      |   | $ | 4,956 |   |
| Depreciation  and amortization                              |       | $                   | 2,309      |               | $          | 2,307                   |       | $                      | 2,326      |   | $ | 2,585 |   |
| Amortization  of debt issuance costs                        |       | $                   | (223       | )                  | $          | (125                    | )          | $                      | (144       | ) | $ | (100 | ) |

 

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**Item 9.            Changes in and Disagreements withAccountants on Accounting and Financial Disclosure**

 

**None.**

 

**Item 9A.         Controls and Procedures**

 

Pursuant to Section 302 ofthe Sarbanes-Oxley Act and Rule 13a–15 of the Securities Exchange Act of 1934(“Exchange Act”) promulgated there under, the Company’s chief executive officerand principal financial officer have evaluated the effectiveness of disclosurecontrols and procedures as of the end of the period covered by this report (the“Evaluation Date”).  Based on suchevaluation, the Company’s chief executive officer and principal financialofficer have concluded that disclosure controls and procedures were effectiveas of the Evaluation Date to ensure that information required to be disclosedin reports that are filed or submitted under the Exchange Act are recorded,processed, summarized and reported within the required time periods.  There have been no changes in internalcontrols over financial reporting during the period covered by this report thatwere identified in connection with the evaluation referred to above that havematerially affected, or are reasonably likely to materially affect, internalcontrol over financial reporting.

 

**Item 9B.         Other Information**

 

None.

 

**PART III**

** **

**Item 10.         Directors and Executive Officers of theRegistrant**

** **

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 |       | 61      |       | Chairman of the Board and Chief Executive Officer     |
| Stormy T.W. Hicks  |       | 59      |       | Director, President and Chief Operating Officer       |
| Stephen P. Magee   |       | 58      |       | Director                                              |
| William J. Bowen   |       | 84      |       | Director                                              |
| Andrew E. Foskey   |       | 39      |       | Vice President Business Development                   |
| Robert S. Whatley  |       | 54      |       | Vice President Finance, Secretary and Treasurer       |
| Larry T. Wolfe     |       | 57      |       | Vice President Administration and Assistant Secretary |

 

John B. Poindexter has servedas Chairman of the Board and Directors since 1988 and Chief Executive Officersince 1994.  He was President fromNovember 2002 until September 2005.  From1985 through 1994, Mr. Poindexter was the majority limited partner of J.B.Poindexter & Co., L.P., a privately held, long-term equity investmentand management firm formed by Mr. Poindexter in 1985. From 1983 through1985, he was co-managing partner of KD/P Equities, a privately held equityinvestment firm that he co-founded. From 1976 through 1983, Mr. Poindexterworked for Smith Barney, Harris Upham & Co. While with Smith Barney,he became a senior vice president for its Smith Barney Venture Corporation andSmith Barney Capital Corporation affiliates and a partner in First CenturyPartnership II, an investment fund managed by Smith Barney Capital.

 

StormyT.W. Hicks has served as President and Chief Operating Officer and a member ofthe Board since joining the Company in September 2005.  Following his retirement from Ford MotorCompany after a 20 year career, he served as the Vice President and GeneralManager of a division of Eaton Aeroquip for two and one half years followed byfour years as President of the Fluid Handling Division of ITT Automotive.

 

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Stephen P. Magee served asDirector since the Company was formed in 1988, as Treasurer from 1988 to 2001and as Chief Financial Officer from 1994 to 2001. Mr. Magee also serves asChairman of the Audit Committee of the Board of Directors.

 

William J. Bowen retired in1992 as the Chairman of the Board of Transco Energy Company, a diversifiedenergy company based in Houston, Texas. Mr. Bowen served as ChiefExecutive Officer of Transco Energy from 1974 until his retirement from thatposition in 1987. Mr. Bowen serves on the Company’s Audit Committee.

 

Andrew E. Foskey has served asVice President Business Development since July 2001. He is responsible forthe Company’s acquisition efforts. He has 13 years of experience inaccounting, financial management, banking and investment banking. Beforejoining J.B. Poindexter & Co., Inc., Mr. Foskey served asChief Financial Officer of Consolidated Equipment Companies in Houston, Texasand as Director of Corporate Finance for Comerica Bank in Detroit, Michigan.

 

Robert S. Whatley has served asVice President since June 1994. He served as Chief Financial Officer of apetrochemical trading company and Vice President of Finance and Treasurer ofWeatherford International, an energy services company. He is a Certified PublicAccountant and a member of the Institute of Chartered Accountants in Englandand Wales.

 

Larry T. Wolfe has served asVice President of Administration since May of 1995. He previously served asVice-President of Human Resources and Administrative Services for TranscoEnergy Company.

 

Directors who are officers oremployees do not receive fees for serving as directors. The Company pays$20,000 per year as director’s fees to each outside director. Mr. Mageereceives $8,000 per year as Chairman of the Audit Committee of the Board ofDirectors.

 

**Audit Committee**

 

The Audit Committee is a standing committee of theBoard of Directors. The primary purposes of the Committee is to assist theBoard of Directors in fulfilling its oversight responsibility relating to (1)the integrity of our financial statements and financial reporting process andour systems of internal accounting and financial controls; (2) the performanceof the internal audit services function; (3) the annual independent audit ofour financial statements, the engagement of the independent auditors and theevaluation of the independent auditors’ qualifications, independence andperformance; and (4) the compliance by the Company with legal and regulatoryrequirements, including disclosure controls and procedures. The Committee alsoreviews the Company’s critical accounting policies, annual and quarterlyreports on Form 10-K and Form 10-Q, and earnings releases before they arepublished. The Committee has sole authority to engage, evaluate and replace theindependent auditor. The Committee also has the authority to retain speciallegal, accounting and other consultants it deems necessary in the performanceof its duties. The Committee meets regularly with our management, independentauditors and internal auditors to discuss internal controls and financialreporting process and also meets regularly with the independent auditors andinternal auditors in private.

 

The current members of the Audit Committee areMessrs. Magee (chairman) and Bowen. Since the Company is not a publicly tradedcompany, on a listed exchange, the Board of Directors has not designated amember of the Audit Committee as an “audit committee financial expert” who isindependent as the term is used in Item 7(d)(3)(iv) of Schedule 14A under theExchange Act.

 

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**Other significant persons**

 

Although not an executive officer, each of thefollowing persons is an officer of the referenced subsidiary or divisionthereof and is an important contributor to operations:

 
| **Name**        | ** ** | **Age** | ** ** | **Position**                               |
|-----------------|------------|---------|------------|--------------------------------------------|
| Nelson Byman    |       | 58      |       | President of Specialty Manufacturing Group |
| Bruce Freeman   |       | 52      |       | President of Truck Accessories             |
| Bill Flint Jr.  |       | 56      |       | President of EFP Corporation               |
| Norbert Markert |       | 45      |       | President of Morgan Corporation            |

 

Nelson Byman became Presidentof MIC Group in June of 1998 and President of Specialty Manufacturing inJanuary 2001. Previously, Mr. Byman was Vice President/GeneralManager of a domestic division of Weatherford/Enterra, a manufacturer ofoilfield related equipment.

 

Bruce Freeman was named SeniorVice President of Operations of J.B Poindexter & Co., Inc. onNovember 15, 2001 and became President of Truck Accessories duringJuly 2002. Previously, Mr. Freeman spent 20 years with theGeneral Electric Company in a variety of operations and senior managementassignments followed by four years as President of AEC Sterling and later was aSenior Vice President with NorthWestern Growth Corporation.

 

Bill Flint was named Presidentof EFP Corporation on October 6, 2003. Previously Mr. Flint wasPresident and Chief Operation Officer of Flambeau Corporation, a plasticsmanufacturing company.

 

NorbertMarkert became the President and Chief Operating Officer of Morgan Corporationin November 2005.  Previously he servedtwo years as the President of Autoliv of North America after having been thePresident of Pilkington Automotive North America for four years.

 

**Code of Ethics**

 

The Board of Directors hasadopted a code of ethics that applies to its executive officers. Managementdoes not believe that a code of ethics is a substitute for an obligation toalways act in an honest and ethical fashion.

 

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**Item 11.        ****Executive Compensation**

 

The following table sets forthcertain information regarding the compensation paid to the Chief ExecutiveOfficer and the Company’s four most highly compensated executive officers(including executive officers of the Company’s subsidiaries) other than theChief Executive Officer, at the end of the last completed fiscal year(collectively, the “named officers”).

 

**Summary Compensation Table**

 
| ** **                                        | ** ** | **Annual compensation** | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|
| **Name and principal position**                   | ** ** | **Year**                | ** ** | **Salary** | ** ** | **Bonus** | ** ** |
| John B.  Poindexter                               |       | 2005                    |       | — (a | ) | $ | — |   |
| Chairman of the Board and Chief Executive Officer |       | 2004                    |       | — (a | ) | $ | — |   |
|                                              |       | 2003                    |       | — (a | ) | $ | — |   |
|                                              |       |                    |       |   |   |   |   |
| Bruce  Freeman                                    |       | 2005                    |       | $ | 281,946 |   | $ | 103,018 |   |
| President, Truck Accessories Group                |       | 2004                    |       | $ | 268,000 |   | $ | 138,000 |   |
|                                              |       | 2003                    |       | $ | 248,000 |   | $ | 25,000 |   |
|                                              |       |                    |       |   |   |   |   |
| Larry Wolfe                                       |       | 2005                    |       | $ | 243,000 |   | $ | 139,383 |   |
| Vice President Administration                     |       | 2004                    |       | $ | 231,666 |   | $ | 204,535 |   |
|                                              |       | 2003                    |       | $ | 223,000 |   | $ | 45,000 |   |
|                                              |       |                    |       |   |   |   |   |
| Nelson Byman                                      |       | 2005                    |       | $ | 220,366 |   | $ | 140,692 |   |
| President, Specialty Manufacturing Group          |       | 2004                    |       | $ | 206,000 |   | $ | 128,000 |   |
|                                              |       | 2003                    |       | $ | 198,800 |   | $ | 25,000 |   |
|                                              |       |                    |       |   |   |   |   |
| Andrew  Foskey                                    |       | 2005                    |       | $ | 200,000 |   | $ | 150,000 |   |
| Vice President Business Development               |       | 2004                    |       | $ | 197,500 |   | $ | 35,614 |   |
|                                              |       | 2003                    |       | $ | 183,333 |   | $ | 80,592 |   |

 

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(a)Mr. Poindexter does not receive a salary from us. His services are provided tous pursuant to a Management Services Agreement. See “—Management servicesagreement.”

 

The Company’s incentivecompensation plan covering certain of its staff executive officers is similarto the Subsidiary Incentive Plans described below. Additionally, during 1999,the Company implemented a long-term compensation plan in order to provide theopportunity for certain key management personnel to be further rewarded withfinancial incentives for achieving financial objectives. Awards under the planvest over a three year period provided certain financial objectives have beenmet. Amounts vested to date under this plan are approximately $121,000.Mr. Poindexter is not eligible to participate in this plan.

 

Mr. Poindexter is covered by the variousemployee insurance programs provided by Morgan to its employees.

 

**Management ServicesAgreement**

** **

The Company entered into aManagement Services Agreement with Southwestern Holdings, Inc.(“Southwestern”) owned by Mr. Poindexter. Pursuant to the ManagementServices Agreement, Southwestern provides services to the Company, includingthose of Mr. Poindexter who serves as Chairman of the Board and ChiefExecutive Officer. The Company paid to Southwestern approximately $569,000,549,000 and $749,000 for the years ended December 31, 2005, 2004 and 2003for the services of Mr. Poindexter. The annual fee is subject to annualautomatic increases based upon the consumer price index.

 

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**Subsidiary Incentive Plans**

** **

The Company has adopted anincentive compensation plan for members of upper management of each of thesubsidiaries (“Subsidiary Incentive Plans”) to provide for the payments ofannual bonuses based upon the attainment of performance-based goals.Eligible employees are entitled to receive a bonus if the subsidiary attains orsurpasses a stated percentage of that subsidiary’s earnings before interest andtaxes, with the amount of bonus being tied to the subsidiary’s actual pre-taxprofits. Individual bonuses are then allocated among the eligible employeesbased upon their individual achievement of stated performance objectives includingworking capital performance objectives. During 2005, 2004 and 2003, the Companypaid an aggregate $1,508,000, $2,223,000, and $527,000 to employees pursuant tothese plans.

 

The subsidiaries also maintain certain other benefitplans for respective officers and employees.

 

**Item 12.**                                                    SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters

 

The following table sets forth information regardingbeneficial ownership of the Company’s common stock as of December 31, 2005 for(i) each person who beneficially owns 5% or more of the Company’s outstandingcommon stock and (ii) all other executive officers and directors as agroup.  No class of the Company’ssecurities is registered pursuant to Section 13 or 15(d) of the ExchangeAct.

 
| **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 and investmentpower with respect to all shares of common stock that he beneficially owns andis the only person who beneficially owns 5% or more of outstanding commonstock.  His address is1100 Louisiana St., Suite 5400, Houston, Texas 77002.

 

**Item 13.         Certain Relationships and RelatedTransactions**

** **

Mr. John Poindexter owns100% of the Company’s outstanding capital stock. Mr. Stephen Mageeis a director. A corporation owned by Mr. Poindexter, of whichMr. Magee is the president, is the general partner of a partnership thatleased certain real property in Georgia to Morgan. The Company paid $286,000 in rent to the partnership in 2003and $174,000 in 2004.  The Company believes that the rent paid by Morgan to Bartowin the past was a competitive market rate for the location. EffectiveJuly 18, 2004, Morgan acquired the real property located in Georgia.  Morgan paid approximately $2.2 million forthe property, which was determined to be the fair market value of the property.

 

The Company hasentered into a Management Services Agreement with SouthwesternHoldings, Inc., which is owned by Mr. Poindexter and for which Mr.Magee, one of the Company’s directors,serves as President. Pursuant to the Management Services Agreement,Southwestern Holdings, Inc. provides services to the Company, including those of Mr. Poindexter. TheCompany pays to SouthwesternHoldings, Inc. approximately $46,000 per month for these services, subjectto annual automatic increases based upon the consumer price index. TheCompany may pay a discretionary annual bonusto Southwestern Holdings, Inc. or raise the annual increases above normaladjustments subject to certain limitations. For all services, theCompany paid SouthwesternHoldings, Inc. $749,000 in 2003, $549,000 in 2004 and $569,000 in 2005. Inaddition to the base consulting fee, Mr. Poindexter is covered underMorgan’s employee insurance plan and is reimbursed for travel and othermiscellaneous expenses.

 

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In connection with the MorganOlson contribution in March 2004, Mr. Poindexter contributed all ofhis shares of Morgan Olson to the Company. Mr. Poindexter previously owned 100% of Morgan Olson. Effectivewith his acquisition of Morgan Olson, the Company, through Morgan, agreedto provide certain management services to Morgan Olson pursuant to a ManagementServices Agreement between Morgan Olson and the Company. The Company charged Morgan Olson management fees of approximately $362,000 and$160,000 during 2003 and 2004, respectively. Morgan purchased certain materials for and provided the services ofcertain key personnel to Morgan Olson for which it was reimbursed at cost.Morgan charged Morgan Olson approximately $956,000 for the year endedDecember 31, 2003 and approximately $22,000 for the period January 1,2004 through March 15, 2004. As of December 31, 2003, Morgan Olsonowed the Company approximately$272,000, all of which was paid subsequently. In addition, at December 31,2003, Morgan Olson owed approximately $142,000 to SouthwesternHoldings, Inc.

 

Under the terms of a ManagementServices Agreement between Morgan Olson and Southwestern Holdings, Morgan Olsonpaid Southwestern Holdings $800,000 during the year ended December 31, 2003,for certain management and administrative services that was included inselling, general and administrative expenses. The agreement between Morgan Olson and Southwestern Holdings was terminatedeffective with the acquisition of Morgan Olson by the Company.

 

On November 7, 2003,Mr. Poindexter exercised the buy-out option for certain equipmentvalued at $201,000 under lease to Specialty Manufacturing by a third party.Specialty Manufacturing made interest only payments to Mr. Poindexter of$10,200 during 2004, when Specialty Manufacturing purchased the equipment fromMr. Poindexter for $201,000.

 

Mr. Magee provided the Company consultingservices in 2003, 2004 and 2005. The Company paid him $3,600 in 2003, $44,400 in 2004 and $180,955 in 2005 for thoseservices and reimbursements for related business expenses.

 

Mr. Poindexter previouslyheld $4.5 million in aggregate principal amount of the 12.5% seniorsecured notes due 2007 and Mr. Magee previously held $0.1 million inaggregate principal amount of theses senior secured notes. The Company redeemedthe notes with the proceeds of the initialoffering of $125 million in aggregate principal amount of 8.75% Notes, andpaid them 100% of the principal amount plus accrued interest.

 

**Item 14.         Principal Accountant Fees and Services**

** **

***Audit Fees.***For the year ending December 31, 2005, the Company incurred aggregateprofessional fees from Crowe Chizek and Company LLC (“CCC”) in the amount of(i) $261,000 for the audit of the Company’s annual financial statements andreview of financial statements included in the Company’s Form 10-Qs, (ii)$140,000 for assurance and related services, including accounting advicerelated to debt offerings in 2005 and (iii) $20,000 for the audit of theCompany’s 401(k) Defined Contribution Plan for the year ended December 31,2004. These fees were pre-approved by the Audit Committee under the proceduresdescribed below.

** **

**Pre-Approval 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 for the engagement of independent auditors that isintended to maintain the independence from the Company of the independentauditors. In adopting this policy, the Company’s Audit Committee considered thevarious services that independent auditors have historically performed or maybe needed to perform in the future for the Company. Under this policy, which issubject to review and re-adoption at least 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 would not be likely toimpair the independence of the independent auditors from the Company;

 

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**•**                                          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 pre-approved engagementand are consistent with other services provided by the auditor in the past; andprovided 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.

 

Any approval required underthis policy must be given by the Company’s Audit Committee, by the chairman ofthe Audit Committee in office at the time, or by any other Audit Committee memberto whom the Audit Committee has delegated that authority. The Company’s AuditCommittee will not delegate its responsibilities to approve services performedby the independent auditors to any member of management.

 

The standard applied by theCompany’s Audit Committee in determining whether to grant approval of anengagement of the independent auditors is whether the services to be performed,the compensation to be paid for such services and other related factors areconsistent with the independent auditor’s independence under guidelines of theSecurities and Exchange Commission and applicable professional standards.Relevant considerations include, but are not limited to, whether the workproduct is likely to be subject to, or implicated in, audit procedures duringthe audit of the Company’s financial statements; whether the independentauditors would be functioning in the role of management or in an advocacy role;whether performance of the service by the independent auditors would enhancethe Company’s ability to manage or control risk or improve audit quality;whether performance of the service by the independent auditors would increaseefficiency because of their familiarity with the Company’s business, personnel,culture, systems, risk profile and other factors; and whether the amount offees involved, or the proportion of the total fees payable to the independentauditors in the period that is for tax and other non-audit services, would tendto reduce the ability of the independent auditors to exercise independentjudgment in performing the audit.

 

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**Part IV**

 

**Item 15.         Exhibits, Financial Statement Schedulesand Reports on Form 10-K**

 

1.             Financial Statements:

 

The followingfinancial statements are included within the text of this report

 
| **Financial Statement**                                                                                                              | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                                                 |       |
| Consolidated Balance  Sheets as of December 31, 2005 and 2004                                                                        |       |
| Consolidated  Statements of Income for the years ended December 31, 2005, 2004 and 2003                                              |       |
| Consolidated  Statements of Stockholder’s Equity (Capital Deficiency) for the years ended December 31, 2005, 2004 and 2003 |       |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003                                          |       |
| Notes to  Consolidated Financial Statements                                                                                          |       |

 

2.             Financial Statement Schedules:

 

Valuation andQualifying Accounts disclosures have been incorporated in the Notes toConsolidated Financial Statements.

 

3.             Exhibits

 

The following exhibitsare 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. |
|                |       |                                                                                                                                                                                                                                                                                                                |
| 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.                                                                                                         |

 

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| 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*    |     | 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*    |     | 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.                                      |
|    |     |                                                                                                                                                                                                                                                                                                                                                   |
| 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.                           |
|    |     |                                                                                                                                                                                                                                                                                                                                                   |
| 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. |

 

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| #         | 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. |
|      |       |                                                                                                                                                                                                                                                                                                                            |
| *         |  12   |                                                                                                                                                                                                                                                                                                                            | Computation of Ratio of  Earnings to Fixed Charges.                                                                                                    |
|      |       |                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                   |
| *         |  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                                                                                               |

 

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*                 Filedherewith.

**          Furnishedherewith.

#                 Managementcontracts or compensatory plans.

(1)          Incorporatedby reference to J.B. Poindexter & Co., Inc.’s Registration Statement onForm S-1 (No. 33-75154) as filed with the SEC on February 10, 1994

(2)          Incorporatedby reference to J.B. Poindexter & Co., Inc.’s Annual Report on Form 10-Kfor the year ended December 31, 1994, as filed with the SEC on March31, 1995.

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

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

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

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

 

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SIGNATURES

 

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

 
| ** **           | ** ** | ** ** | **J.B. POINDEXTER & CO., INC.**         |
|----------------------|------------|------------|---------------------------------------------|
| ** **           | ** ** | ** ** | ** **                                  |
|                 |       |       |                                        |
| Date: March 29, 2006 |       |       | By                                          | /s/ John B. Poindexter |   |
|                 |       |       | John B. Poindexter,  Chairman of the Board, |
|                 |       |       | Chief Executive Officer                     |
|                 |       |       | (Principal Executive  Officer)              |

 

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

 

 
| Date: March 29, 2006 |   |   | By                                             | /s/ John B. Poindexter |   |
|----------------------|--------|--------|------------------------------------------------|------------------------|--------|
|                 |   |   | John B. Poindexter,  Chairman of the Board,    |
|                 |   |   | Chief Executive Officer                        |
|                 |   |   | (Principal Executive Officer)                  |
|                 |   |   |                                           |
| Date: March 29, 2006 |   |   | By                                             | /s/ Stephen P. Magee   |   |
|                 |   |   | Stephen P. Magee, Director                     |
|                 |   |   |                                           |
| Date: March 29, 2006 |   |   | By                                             | /s/ William J. Bowen   |   |
|                 |   |   | William J. Bowen, Director                     |
|                 |   |   |                                           |
| Date: March 29, 2006 |   |   | By                                             | /s/ Stormy T.W. Hicks  |   |
|                 |   |   | Stormy T.W. Hicks, President,  Chief Operating |
|                 |   |   | Officer and Director                           |
|                 |   |   |                                           |
| Date: March 29, 2006 |   |   | By                                             | /s/ Robert S. Whatley  |   |
|                 |   |   | Robert S. Whatley, Vice  President Finance,    |
|                 |   |   | Secretary and Treasurer                        |
|                 |   |   | (Principal Financial and  Accounting Officer)  |
|                      |        |        |                                                |                        |        |  |  |

 

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