**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-K**





ANNUAL
      REPORT UNDER SECTION 13 OR 15(d)


OF


THE
      SECURITIES EXCHANGE ACT OF 1934





For
                the Fiscal Year Ended
            Commission
                File No. 0-24804December
                31, 2005


**FEATHERLITE,
        INC.**


(Exact
      Name of Registrant as Specified in its Charter)





Minnesota
            41-1621676(State
                of Incorporation)
            (IRS
                Employer Identification Number)




**Highways
      63 and 9**


**Cresco,
      Iowa 52136**


**(563)
      547-6000**


(Address
      of principal executive offices;


Issuer’s
      telephone number)


________________________




Securities
      registered under Section 12(b) of the Exchange Act:


None




Securities
      registered under Section 12(g) of the Exchange Act:


Common
      Stock, no par value





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


**Yes** **X** **No** **_____**





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 of 15(d) pf the Exchange Act.


**Yes** **____** **No** **_X___**





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. **Yes** **X**  **No** **__**





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





Indicate
      by check mark whether the registrant is large accelerated filer, an accelerated
      filer or a non-accelerated filer. (See definition of accelerated filer and
      large
      accelerated filer in Exchange Act Rule 12b-2).





Large
                Accelerated Filer
            Accelerated
                Filer
            Non-Accelerated
                Filer
            X





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


**Yes** ****  **No** **X__**





The
      aggregate market value of the Common Stock held by non-affiliates of the
      registrant as of June 30, 2005, was **** $21,779,981
      (based on the last sale price of the registrant’s Common Stock on such
      date).





Number
      of
      shares of Common Stock, no par value, outstanding at March 27, 2006:
      11,160,060.


DOCUMENTS
      INCORPORATED BY REFERENCE





1
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          of Contents





FEATHERLITE,
                INCFORM
                10-KTABLE
                OF CONTENTSDescription
            Page**PART
                1**Item
                1
            Business
            3Item
                1A
            Risk
                Factors
            12Item
                2
            Properties
            14Item
                3
            Legal
                Proceedings
            14Item
                4
            Submission
                of Matters to a Vote of
                Security Holders
            15**PART
                II**Item
                5
            Market
                for Registrant’s Common Equity, Related Stockholder
                Matters and Issuer Purchases of Equity Securities
            15Item
                6
            Selected
                Financial Data
            15Item
                7
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            16Item
                7A
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            24Item
                8
            Financial
                Statements and Supplementary
                Data
            24Item
                9
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosure
            26Item
                9A
            Controls
                and Procedures
            26**PART
                III**Item
                10
            Directors
                and Executive Officers of
                Registrant
            27Item
                11
            Executive
                Compensation
            29Item
                12
            Security
                Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters
            30Item
                13
            Certain
                Relationships and Related
                Transactions
            32Item
                14
            Principal
                Accountant Fees and Services
            33**PART
                IV**Item
                15
            Exhibits
                and Financial Statement
                Schedules
            34Signatures
            35Consolidated
                Balance Sheets
            36Consolidated
                Statements of
                Operations
            37Consolidated
                Statements of Shareholders’
                Investment
            37Consolidated
                Statements of Cash
                Flows
            38Notes
                to Consolidated Financial
                Statements
            39Exhibit
                Index
            52





We
      make
      available, free of charge, copies of our annual report on Form 10-K, quarterly
      reports on Form 10-Q, current reports on Form 8-K and amendments to those
      reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
      Exchange Act on our web site, www.fthr.com, as soon as reasonable practical
      after filing such material electronically or otherwise furnishing it to the
      SEC.
      We are not including the information on our web site as part of, or
      incorporating it by reference into, this annual report on Form
      10-K.





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          of Contents


**PART
      I**





**ITEM
      1.****BUSINESS**





**Overview**




Featherlite,
      Inc. (referred to as “Featherlite,” “we,” “us,” “our,” or the “Company,”) is a
      Minnesota corporation formed in 1988 to acquire the assets of a non-affiliated
      business that had manufactured trailers since the early 1970s under the *FEATHERLITE* ® brand
      name. Our principal operations have historically involved designing,
      manufacturing and marketing over 400 models of both custom-made and standard
      model specialty aluminum and steel trailers. We market our trailers primarily
      through a network of over 220 full-line dealers located in the United States
      and
      Canada. The Company markets its trailers primarily under the *FEATHERLITE* ® brand
      name.





We
      make a
      majority of our *FEATHERLITE* ® trailers
      from aluminum, which differentiates the Company from many of its competitors
      who
      primarily make steel trailers. Aluminum trailers are generally believed to
      be
      superior to steel in terms of weight, durability, corrosion resistance,
      maintenance and weight-to-load ratio. Although the Company’s focus is on
      manufacturing and marketing aluminum trailers, it also markets a line of
      composite steel and aluminum trailers under the *FEATHERLITE-STL* ® series
      and, on a limited basis, *DIAMOND
      D* Ò  brands
      in
      order to provide dealers and customers with a high quality, but less expensive,
      alternative to our aluminum trailers.





Since
      1996, the Company has also been designing, manufacturing and marketing custom
      luxury motorcoaches through its acquisition of Vantare International, Inc.
      In
      1998, the Company expanded its presence in this market by acquiring the assets
      of Mitchell Motorcoach Sales, Inc. We market our motorcoaches under the trade
      names “ *Featherlite
      Vantare* ,
      and *Featherlite
      Luxury Coaches* ® directly
      rather than selling them through a dealer network. The Company discontinued
      production of the *Featherlite
      Vogue* ® model
      in
      2001.





The
      Company continually monitors the trailer market for opportunities to leverage
      its brand names and expertise. Featherlite pioneered the introduction of
      standard model aluminum horse and livestock trailers, which traditionally had
      been custom made. It has also responded to the increasing demand for customizing
      the interiors of trailers, a capability which helps distinguish the Company
      from
      its competition. Typical interiors range from a simple interior, such as a
      dressing room, closet and mirror in the nose of a horse trailer, to upscale
      interiors such as upholstered seating and sleeping areas, kitchens, bathrooms
      and modern electronics, including fax machines, cellular phones and satellite
      dishes, in race car transporters. In addition, Featherlite enhances the products
      it already offers by introducing new features to satisfy the increasing demands
      of its customers.





Featherlite
      luxury motorcoach customers have over 200 amenities and state-of-the-art options
      to choose from in detailing their luxury motorcoach. The list of options and
      choices will continue to grow as the Company strives to offer features that
      meet
      or exceed customer preferences and to offer customers uncommon conveniences
      and
      luxury in their motorcoaches. Engineering advancements now offer customers
      an
      inside look into their future motorcoach through enhanced 3-D graphic
      illustrations.








**Specialty
      Trailer and Motorcoach Industries**





The
      Company operates in two principal industries: specialty trailers and
      motorcoaches.





*Specialty
      Trailer Industry*





Specialty
      trailers are designed for specific hauling purposes rather than for general
      commercial freight. The customers of the specialty trailer industry consist
      of
      broad segments of the general public, such as hobbyists, sports enthusiasts,
      farmers and ranchers and certain service providers. In contrast, commercial
      freight trailers are generally made for non-specific purposes and the customers
      are typically trucking companies and manufacturers with fleets of trucks and
      trailers. Unlike the commercial freight trailer industry, which is dominated
      by
      a few large manufacturers, the specialty trailer industry is comprised of many
      small manufacturers. No published statistics are available on the size of the
      specialty trailer industry or its subcategories. However, the Company believes
      that there may be as many as 500 manufacturers of specialty trailers in the
      United States, of which approximately 30 manufacture specialty aluminum
      trailers.





Historically,
      specialty trailers were made of steel, principally because they cost
      approximately 30% to 40% **** less
      than
      trailers made primarily of aluminum. Entry into the production of steel trailers
      is relatively easy and inexpensive because of the widespread availability of
      steel components and simple production techniques. The relative lack of barriers
      to entry into the steel trailer industry, differing regional demands for trailer
      types and the relatively high cost of long distance delivery have contributed
      to
      the fragmented status of the specialty steel trailer industry. Specialty steel
      trailer manufacturers generally produce relatively small numbers of trailers
      for
      sale in limited geographical markets without the efficiencies of high volume
      production, quality controls, significant warranty and service capabilities,
      substantial dealer networks, or national advertising and marketing programs.


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In
      comparison, we believe barriers to entry into the aluminum trailer production
      are moderately higher since production requires larger capital investment in
      dies, extrusion molds and equipment, more sophisticated welding and production
      techniques, and greater design capabilities to maximize the strength-to-weight
      ratio advantage of aluminum over steel.





In
      dollar
      sales, the Company estimates that aluminum trailers presently constitute 10
      to
      20 percent **** of
      the
      total market for specialty trailers. The Company believes that an increase
      in
      demand for aluminum rather than steel trailers is driven by a number of factors.
      Aluminum trailers offer substantial advantages over steel trailers in weight,
      ease of maintenance, durability and useful life. Aluminum trailers resist rust
      and corrosion, and weigh 30% to 40% less than comparable steel models.
      Maintenance is substantially less on aluminum trailers because of the absence
      of
      rust and because they typically are not painted or are pre-painted with a
      baked-on enamel. As a result, aluminum trailers can be offered with superior
      warranties and provide greater customer satisfaction. The lighter weight of
      aluminum trailers reduces the demands on the towing vehicle, affords better
      gas
      mileage and allows a greater percentage of gross trailer weight for carrying
      cargo. The Company believes Featherlite trailers are more durable than
      alternative brands, thus adding value for the customer.





*Motorcoach
      Industry*





Motorcoaches
      are the most luxurious of all recreational vehicles. There are various models
      of
      motorcoaches, including bus conversions and “Highline” luxury Class A models.
      Bus conversion motorcoaches represent a high-end market niche, with selling
      prices for the most luxurious motorcoaches ranging from $800,000 to $1,500,000
      or more. The most expensive models are primarily converted from a bus shell
      that
      is purchased and converted to provide an interior area designed to customers’
specifications. “Highline” luxury Class A motorcoaches are built on
      specially-designed chasses and are also available at lower prices, ranging
      from
      $375,000 to $800,000. The Company believes that there are presently four or
      more
      companies in the motorcoach industry. The Company views Marathon, Liberty,
      Country and Parliament as being its principal competitors in the bus conversion
      market. Monaco, Thor, Winnebago and Fleetwood are the principal manufacturers
      in
      the “Highline” luxury Class A models market.





The
      target market for the Company’s motorcoaches is typically affluent business
      owners, retirees, professionals and those in the entertainment and sports
      industries. The number of affluent retirees and business owners who represent
      the target market for luxury motorcoaches produced by Featherlite is also
      continuing to grow as the “baby boomer” generation ages. The Company has also
      developed a motorcoach to be used for command and control purposes by fire
      and
      law enforcement teams in cities and states throughout the nation.








**Products
      and Services**


The
      Company’s primary business activities are the manufacture and sale of specialty
      aluminum trailers and luxury motorcoaches. The Company’s “other” net sales
      include rework and warranty services provided for Company-built trailers and
      motorcoaches at the Company’s facilities and dealer locations; and coordination
      of the delivery of trailers to dealers and customers for a fee.





The
      following data illustrates the percentage of the Company’s net sales in 2003,
      2004 and 2005 (dollars in thousands **):**





Years
                ended December 312003*
            
            2004*
            
            2005Amount
            
            Percent
            
            Amount
            
            Percent
            
            Amount
            
            PercentTrailers
            
            $
            94,091
            
            
            52.2
            %
            $
            117,757
            
            
            54.4
            %
            $
            130,132
            
            
            57.8
            %Motorcoaches
            
            
            73,681
            
            
            40.9
            
            
            83,381
            
            
            38.5
            
            
            77,349
            
            
            34.3Other
            
            
            12,372
            
            
            6.9
            
            
            15,382
            
            
            7.1
            
            
            17,803
            
            
            7.9Net
                sales
            
            $
            180,144
            
            
            100.0
            %
            $
            216,520
            
            
            100.0
            %
            $
            225,284
            
            
            100.0
            %


*
      Reclassified prior year amounts to conform to 2005 presentation. See Note 2
      to
      the financial statements for discussion of the  reclassification.





*Specialty
      Trailers*





The
      Company believes it is unique among trailer manufacturers because of the many
      types of trailers it manufactures and markets. The Company’s *FEATHERLITE* *®* *,
      FEATHERLITE-STL* ® series
      and *DIAMOND
      D* *®* trailers
      may be broadly classified into several trailer types, which can be further
      subdivided into over 400 models depending on their intended use and resulting
      design. The Company’s primary trailer types are horse, livestock, utility
      recreational, commercial and car trailers as well as race car and specialty
      transporters, including mobile marketing, mobile office, mobile classroom,
      vending and command centers. Within these broad product categories, the Company
      generally offers different features, such as various lengths, heights and
      widths, open and enclosed models, gooseneck and bumper pulls, straight and
      slant
      loaders, and aluminum, steel, fiberglass and wood frames, floors, sides and
      roofs. The Company believes *FEATHERLITE* *®* brand
      trailers,


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which
      are
“all aluminum” with the exception of steel axle and hitch assemblies, enjoy a
      premier image in the industry. Sales of *FEATHERLITE* *®* brand
      trailers currently represent approximately 94% of the Company’s total trailer
      sales. *FEATHERLITE-STL* *®* series
      and *DIAMOND D* *®* brand
      trailers, which generally are a composite of steel frame, aluminum skin and
      galvanized roof, allow the Company to place these product lines at the
      lower-priced end of the market.





*FEATHERLITE* *®* *,
      FEATHERLITE-STL* *®* series  and *DIAMOND
      D* *®* trailers
      are built as standard models or to customer order from selected options.
      Depending on the model, the Company’s trailers generally include name brand
      tires, reflectors and exterior running and license plate lights, sealed and
      enclosed wires, and safety chains and breakaway switches. Popular options to
      standard designs include paint schemes, logos, lettering and graphics, winches
      and generators, viewing platforms, workbenches and cabinets, vents and other
      airflow designs, roll-up doors, access and side doors and windows, aluminum
      wheels and hubcaps, and hydraulic or air brakes.





The
      Company’s standard model trailers are normally available for quicker delivery to
      dealers than custom trailers. In an industry consisting historically of
      manufacturers who custom build trailers, the Company’s introduction in 1991 of
      standard model aluminum trailers represented an innovative step. Standard model
      trailer sales now represent approximately 65% of the Company’s total trailer
      sales. The Company’s believes that its dealer network has enthusiastically
      endorsed and supported the standard model concept.





In
      recent
      years, the Company has experienced increased demand for special-order trailers
      with more luxurious interior amenities and custom-designed features. For that
      reason, the Company’s Interiors Division offers options ranging from simple
      shelves, cupboards, lockers and dressing rooms to complete living quarters,
      including upholstered furniture, electronics, wood or laminated Formica
      finishes, air conditioning, refrigerators, dinettes and bath packages. The
      Company installs complete interior packages for race car transporters, mobile
      marketing trailers and specialty transporters, including all plumbing,
      electrical, HVAC and other features on custom built trailers. The Company
      stresses its ability and willingness to build trailers “from the ground up” with
      unique, even luxurious, custom designed features and amenities tailored to
      customer specifications. This distinguishes the Company from many other trailer
      manufacturers.





Management
      believes that growth in the demand for the Company’s trailers coincides with an
      overall market expansion for trailers generally, particularly in uses related
      to
      entertainment and leisure. Demand for the Company’s trailers has been
      significantly driven by the lifestyles, hobbies and events that are important
      to
      Featherlite’s target customers. Some of the common hobbies and activities for
      our specialty trailers include hauling all-terrain-vehicles and snowmobiles;
      transporting cars and accessories to auto races and classic car shows; hauling
      motorcycles to rallies; many uses for hobby farming; raising and showing horses;
      transporting products to art and craft fairs and expositions; and selling
      crafts, food and other concessions such as T-shirts, souvenirs, apparel or
      novelty items. Demand for our specialty trailers has also been driven by certain
      product and service sectors such as lawn care services, house painters,
      construction crews, traveling museum exhibitions, concert tours, musical groups
      and fiber optic utility crews that require clean environments in which to splice
      and store cable.





Our
      specialty trailers are also increasingly being used as mobile marketing
      transporters that serve a wide variety of sales and marketing needs for Fortune
      500 companies, as well as medical, larger non-profit and governmental clients
      and event and sports promotions. The Company has also provided command center
      and hazardous materials trailers to a number of fire and law enforcement
      departments and continues to pursue opportunities in the developing “homeland
      security” market.





Retail
      prices for the Company’s aluminum model trailers range from approximately $1,200
      for the least expensive utility trailer to over $300,000 for a custom built
      race
      car transporter and hospitality trailer. Specialty custom transporters with
      slide-outs may sell for $1,000,000 or more. **** Representative *FEATHERLITE* *®* aluminum
      trailer retail prices are approximately $7,200 for a bumper pull livestock
      trailer, $8,200 for a two horse trailer, and $16,000 for a gooseneck car
      trailer **.** Popular **** model *FEATHERLITE
      STL*  *®* gooseneck
      and bumper pull livestock trailers retail for about $7,700 and $4,200,
      respectively, excluding any additional surcharges for steel costs.





*Motorcoaches*





The
      Company offers different motorcoach conversion body styles based on the XL
      and
      the H models made by a single bus shell manufacturer (Prevost Car Company).
      The
“H” body style is taller and the layout is considerably different than the XL
      motorcoach model. The Company offers single or multiple “slide-out” models that
      expand the livable space within the motorcoach. The Company’s motorcoaches are
      now primarily marketed under the trade names *FEATHERLITE
      VANTARE* ® and *FEATHERLITE
      LUXURY COACHES* ® .




In
      2003,
      the Company became a dealer of *Foretravel®* motorcoaches
      which have been manufactured since 1967 by Foretravel, Inc., Nacogdoches, Texas. *Foretravel®* motorcoaches
      are “highline” Class A series motorcoaches. These motorcoaches typically sold in
      the price range of $359,000 to $475,000. These motorcoaches complemented the
      H
      and XL models the Company offers. They included many of the features and options
      of the H and XL models, but are a less expensive alternative to customers
      desiring to purchase this type of vehicle. Featherlite discontinued being a
      Foretravel dealer in 2005.





The
      Company’s primary goal is to produce the best performing and most reliable
      motorcoaches while keeping a low overall gross weight and extremely low ambient
      noise level. It incorporates into motorcoaches many of the features and quality
      often present in luxury yachts that were previously developed by Vantare
      International, Inc. when it was in the business of building
      yachts.


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The
      Company builds a number of luxury motorcoaches before it receives orders for
      them (86 percent of work in process at December 31, 2005 compared with 70
      percent at December 31, 2004). While it is the Company’s expectation that
      substantially all of these motorcoaches will be sold to specific customers
      at
      retail prices ranging from $800,000 to $1,500,000 or more, there is no assurance
      this will occur. There is a risk that certain of the motorcoaches built on
      a
      speculative basis may not be sold on a timely basis or at normal profit margins.
      This may require additional working capital investment and cause the Company
      to
      incur additional interest and inventory carrying costs, which would have an
      adverse impact on operating margins and results and capital
      liquidity.





The
      Company also sells used motorcoaches that are taken as trade-ins from customers
      on sales of new motorcoaches as well as other used motorcoach sales. There
      is a
      risk that the market value of these trade-ins will be reduced before they are
      resold ,
      which
      could adversely impact the Company’s operating margins and results. In the three
      years ended December 31, 2005, the Company recorded motorcoach inventory
      aggregate write-downs of $2.2 million related to used motorcoaches, including
      $0.3 million in 2005.





Servicing,
      maintenance and warranty services for motorcoaches of customers and others
      are
      provided at the Vantare facility in Sanford, Florida, as well as at Company
      service centers in Mocksville, North Carolina, Pryor, Oklahoma and Cresco,
      Iowa.





*Other
      Business Activities*





In
      addition to the manufacture and sale of specialty trailers and motorcoaches,
      the
      Company provides rework and warranty services, sells replacement and specialty
      trailer and motorcoach parts to its dealers and to others and coordinates
      delivery of completed trailers to customers and to dealers for a fee. In 2005,
      the Company delivered approximately 60% of the trailers sold to dealers, with
      the remainder picked up at its Iowa facilities or shipped via common carrier.
      The Company owns and maintains a fleet of trucks and leases semi tractors for
      this purpose.





The
      Company is a licensed aircraft dealer and markets used business class aircraft.
      Featherlite Aviation Company, a wholly owned subsidiary of the Company, conducts
      such aircraft dealer activities. There have been no purchases or sales of
      aircraft in 2003, 2004 or 2005. Featherlite Aviation Company held for resale
      one
      used aircraft at December 31, 2005, which it leases to the Company on an as
      needed basis for its use. In 2005, the Company wrote-down the aircraft by
      $240,000 **,** which is
      included in selling and administrative expenses. These
      activities are included as part of the Corporate and other segment in Note
      13 to
      the consolidated financial statements included in this annual report on Form
      10-K.





In
      February, 2003, the
      Company entered into an operating agreement with Benbow Chemical Packaging,
      Inc.
      (Benbow) to form Featherlite Chemicals, LLC (FCC), a New Jersey limited
      liability corporation. Featherlite Chemical Holdings, LLC, a wholly owned
      subsidiary of the Company, holds Featherlite’s 51 percent interest in FCC with
      the remaining 49 percent ownership held by Benbow. The principal business
      activity of FCC was to market and sell car care products manufactured by Benbow
      under the Featherlite brand name and a NASCAR license agreement to use the
      “Winston Cup Series” name in 2003 and “NASCAR Nextel Cup Series” name in 2004.
      The accompanying consolidated financial statements include the accounts of
      FCC
      as of December 31, 2005 and 2004 and for the years ended December 31, 2005,
      2004, and 2003. These activities are included as part of the Corporate and
      other
      segment in Note 13 to the consolidated financial statements included in this
      annual report on Form 10-K because they were insignificant in 2003, 2004 and
      2005. FCC’s operations were discontinued at the end of 2005.











**Sales
      and** **Marketing**





*Specialty
      Trailers*





The
      Company markets its trailers primarily through a network of over 220 full-line
      dealers located in the United States and Canada. The Company also sells trailers
      through company-owned dealerships at its sales and service centers in Sanford,
      Florida and Pryor, Oklahoma. Dealers typically handle *FEATHERLITE* *®* aluminum
      trailers, while some also sell *FEATHERLITE-STL* *®* trailers
      and may sell other steel trailer brands. Certain Featherlite dealers are
      prohibited by their agreements with the Company from selling other brands of
      aluminum trailers if they receive all of the discounts and other benefits
      available from the Company and are required to maintain defined inventory
      levels. No single dealer accounts for more than 10% of the Company’s net sales.
      The Company’s top 50 dealers accounted for approximately 50% of the Company’s
      net trailer sales for 2003 and 2004 and approximately 55% in 2005. For these
      periods, 76% or more of the Company’s trailer sales were made by its dealer
      network, with the remainder representing direct Company sales to end users.
      Company sales to end users are primarily specialty mobile marketing trailers
      and
      race car transporters.





Dealers
      sell our products under contractual arrangements with the Company, which can
      be
      terminated by either party on specified notice. Laws in certain states govern
      terms and conditions under which dealers may be terminated. Such laws have
      not
      had a material adverse affect on the Company to date. Changes in dealers take
      place from time to time. The Company believes that a sufficient number of
      prospective dealers exist across the United States and Canada to permit orderly
      transitions whenever necessary. The Company is continually


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seeking
      to expand the size and upgrade the quality of its dealer network. The Company
      believes that significant areas of the United States and


Canada
      are not served by a sufficient number of dealers and the Company intends to
      substantially increase its number of dealers over the next several years in
      underserved markets.





The
      Company employs territory managers to assist in the marketing and sales process.
      These managers assist the Company’s dealers in coordinating the selection of
      custom options by customers and the production of orders. They also participate
      with the dealers at trade shows, fairs, rodeos, races and other events to
      promote the *FEATHERLITE* *®* brand.
      Factory representatives also actively seek out potential new dealers and provide
      sales and product training to dealers and their staff.





*Motorcoaches*





All
      motorcoaches are sold directly by Company personnel to end user customers.
      The
      Company’s main motorcoach sales location is in Sanford, Florida, with other
      sales locations in Mocksville, North Carolina, Cresco, Iowa, and Pryor,
      Oklahoma. Its sales location in Coburg, Oregon was closed in 2004. Company
      sales
      representatives participate in trade shows, fairs, motorsports races and other
      events to promote *FEATHERLITE
      VANTARE* *®* and *FEATHERLITE LUXURY COACHES* ® .





*Media*





The
      Company pays special attention to its target customers and attempts to reach
      them through a variety of media. Featherlite benefits from national advertising
      and sponsorship of major events that are visible to its customers. These
      sponsorships include Featherlite’s designation as the “Official Trailer”
of **** NASCAR,
      Champ Car, Indy Racing League, Grand Am Road Racing, Trans-Am Road Racing,
      Super
      Chevy Show, Auto Racing Club of America (ARCA) and Wahl Equestrian Center.
      Featherlite also is the Contingency Program Sponsor of the NASCAR Featherlite
      Most Improved Driver Award Program. Additionally, the Company is a sponsor
      of
      Clinton Anderson Downunder Horsemanship and Wahl Walkabout Tour, World
      PowerSports Association, Ohio All American Quarter Horse Congress, The Horse
      Show with Rick Lamb, the National Western Livestock Show, Appaloosa Horse Club,
      United States Team Roping Championships and the National High School Rodeo
      Association. The Company’s luxury motorcoach is the “Official Coach” of NASCAR,
      Grand Am Road Racing and World Billfish Series.





The
      Company has agreements with NBC, TNT and the FOX Sports Network to broadcast
      Featherlite TV commercials as part of the networks nationwide telecasts of
      certain NASCAR races. The Company has a similar agreement with MRN (Motor Racing
      Network). In addition, the Company signed a multi-year agreement with horse
      clinician and television personality Clinton Anderson to sponsor a tour and
      television program. All of these agreements have been renewed through
      2006.








*Promotions*





*Specialty
      Trailers*





The
      Company’s trailer marketing is designed to advance consumer awareness of the
      FEATHERLITE® brand and position it so that the unique strengths and benefits of
      these products are clearly known. The Company produces approximately 30
      different brochures, catalogues and flyers that support direct mail initiatives
      and help satisfy consumer inquiries, and maintains product and sales information
      at its web site www.fthr.com.





Market
      intelligence is gathered which helps the Company create its message and reach
      the most productive target constituencies. Benefit and demographic segmentations
      are utilized to more accurately target specific groupings of people within
      each
      product cluster. Quarter Horse Journal, Western Horseman, Horse & Rider,
      Equus and Horse Illustrated are some of the various publications utilized to
      reach a diverse customer base in the horse market. Similar selected groupings
      of
      publications are utilized to target the Company’s various markets: automotive,
      livestock/farm, race, recreational/utility and mobile marketing. Approximately
      80 **** publications
      in various product segments contain advertisements for the Company’s trailers.
      The Company also sponsors a nationally syndicated radio program, as well as
      a
      television program available through satellite and cable, which targets equine
      markets. Featherlite video is supplied to large arenas for use on sponsor
      jumbotrons and electronic message boards.





*Motorcoaches*





The
      Company promotes its motorcoach segment directly in user group publications
      such
      as Family Motorcoaching magazine and RV Trader, which can target specific high
      potential markets for new and pre-owned motorcoaches. In addition, the Company
      places classified and display advertising during high sales-potential periods
      in
      selected regional metropolitan newspapers near the Company’s sales centers.
      Outdoor advertising also is used along high-traffic interstate corridors. In
      addition, the Company participates in the Family Motor Coach Association rallies
      twice each year, the Tampa RV Show and numerous other shows and rallies. The
      Company’s motorcoach products are also represented at motorsports events where
      other Featherlite products are promoted and where Featherlite


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already
      has a customer base. Other sports venues where Featherlite motorcoach products
      are being promoted include PGA golf events. The Company also sponsors the
      Featherlite VIP Club and the Featherlite VIP Bikers’ Club. These lifestyle clubs
      are an excellent marketing platform to introduce people around America to new
      motorcoach and trailer products. Both luxury motorcoaches and trailers have
      a
      presence at the Barrett-Jackson Collector Car Auctions events in Scottsdale,
      AZ
      and Palm Beach, FL.





***Affiliations
      and Sponsorships***





The
      Company’s public and media relations focus actively pursues regional and
      national media coverage highlighting
      the uniqueness of the Company, as well as its product mix.





In
      2004,
      Featherlite became the NASCAR Award and Contingency Sponsor of the NASCAR
      Featherlite Most Improved Driver Award Program, which includes over 100 races,
      as well as year-end award programs for each series. This sponsor agreement
      is
      continuing. The Company expects to continue to design and build trailers to
      fit
      the needs of all types of racing, including NASCAR, NHRA, IndyCar, nostalgic,
      sprint car, off road, motorcycle and motorcross.





The
      Company sponsors the National Western Livestock Show, as well as various rodeos
      and state and local fairs and expos. Annually, Featherlite territory managers
      attend in excess of 250 races, rodeos, fairs, trade shows and other special
      events. The Company’s dealers attend over 1,000 such events each year staffing
      display and sales booths and meeting with the public.





Payment
      for some of the advertising and promotional services related to the affiliations
      and sponsorships described above involve the exchange or lease of trailers
      and
      coaches of an equivalent value as discussed further in Notes 3 to the
      consolidated financial statements.






***Financing***





*Specialty
      Trailers*





A
      substantial portion of the Company’s sales of
      trailers to dealers is paid for within ten days of invoicing. The Company has
      arrangements with GE Commercial Distribution Finance (GE), Bombardier Capital,
      Textron Financial Corporation, Ford Motor Credit Company and TransAmerica
      Commercial Finance Corp **.** to
      provide floor plan financing for its trailer dealers **.** Under
      these floor plan arrangements, the Company may be required to repurchase
      trailers repossessed from a Featherlite trailer dealer by these financial
      institutions for the remaining unpaid balance, including finance charges plus
      costs and expenses, if the trailers are in salable condition. The Company has
      not been required to make any significant payments or repurchases to date from
      these financial institutions (approximately $38,000 in 2003, none in 2004 and
      none in 2005).





Featherlite
      Credit Corporation, a related party corporation owned by certain of the
      Company’s officers and directors, provides retail financing to end user
      customers of the Company’s trailer dealers and on occasion, direct sale
      transporter and motorcoach customers through funds provided by a credit line
      with Associated Bank, Milwaukee, Wisconsin (Associated). Retail financing is
      also provided by companies such as GE Consumer Finance and Bank of America.
      Featherlite Credit Corporation also provides lease financing for trailers and
      motorcoaches with funds provided by Associated. Lease financing is also provided
      by companies such as Wells Fargo Equipment Finance. The Company does not provide
      any guarantees for Featherlite Credit Corporation’s financing arrangements with
      Associated Bank or any of the end user customers’ contracts.





*Motorcoaches*





The
      Company normally receives payment within ten days of invoicing for a substantial
      portion of its motorcoach sales. The Company has arrangements with several
      companies to provide motorcoach retail financing to end user customers. There
      is
      no recourse to the Company on any of these retail financing arrangements. The
      Company receives a fee from certain companies if the retail financing is
      completed.





The
      Company also has wholesale
      floor plan agreements with GE and Regions Bank, Birmingham, Alabama (Regions)
      to
      finance substantially all of the new and used motorcoaches held in
      inventory.





**Competition**





*Specialty
      Trailers*





The
      specialty trailer industry is highly competitive, especially with respect to
      the
      most commonly sold models, such as standard model gooseneck and bumper pull
      horse trailers. Competition is based upon a number of factors, including brand
      name recognition, quality, price, reliability, product design features, breadth
      of product line, warranty and service. The Company believes it competes
      favorably with its




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competitors
      with respect to each of these factors. In addition to the competitors, which
      produce aluminum trailers that compete with FEATHERLITE ® aluminum
      trailers, there are also competitors that produce steel trailers. Steel trailers
      typically sell for approximately 30% to 40% less but are subject to rust and
      corrosion and are heavier. There are no significant technological or
      manufacturing barriers to entry into the production of steel trailers and only
      moderate barriers to the production of aluminum trailers.





Because
      the Company has a broad based product line, its competition varies by product
      category. There is no single company that provides competition in all product
      lines. Certain of the Company’s competitors and potential competitors are more
      established in segments of the Company’s business. The Company’s principal
      competitors, all of which are located domestically, include the following: ****





Trailer
                Types
            Principal
                Competitors’ BrandsHorse
                and Livestock
            4
                Star, Barrett, Sooner, Eby, Wilson, Sundowner, Kiefer Built, W-W,
                ExissUtility
            Wells
                Cargo, PACE, Haulmark, US Cargo, Cargo MateCar
                Haulers
            Exiss,
                Gold Rush, Pace American, SoonerRace
                Car and Specialty Transporters
            HighTech
                Performance, Elite, Competition, Classic Mfg/Champion, UltraComp,
                Craftsman, SPEVCO, Trailer Tech





*Motorcoaches*





The
      luxury motorcoach conversion is highly competitive. Featherlite is the dominant
      producer of Prevost H model bus conversion motorcoaches, but also manufactures
      Prevost XL models. Competition is based primarily on quality and price, although
      other factors such as brand name, reliability, design features, warranty and
      service are also important. The Company believes it competes favorably with
      its
      competitors with respect to each of these factors. The brand names of the
      Company’s principal bus conversion competitors, all of which are located
      domestically, include: Marathon, Liberty, Royale (exited business in 2005),
      Country and Parliament.








**Manufacturing**





*Trailers*





The
      Company manufactures all of its trailers at plants located in Cresco and
      Shenandoah, Iowa. Except
      for tires, brakes, couplers, axles and various other purchased items, the
      Company fabricates its component parts for its trailers. Most raw materials
      and
      standard parts, including aluminum extrusions and sheet metal, are available
      from multiple sources.





In
      the
      manufacturing process, the Company seeks to maximize production efficiency
      by
      using weekly production schedules which allocate scheduled trailers to specific
      production lines within each plant. The Company generally follows a
      build-to-order policy to control inventory levels. Inventory pool trailers
      may
      be scheduled to maximize the efficiency of the production lines. Lean
      manufacturing concepts and principles are being taught and implemented in all
      areas of manufacturing. Lean manufacturing is a systematic approach to
      identifying and eliminating waste through continuous improvement techniques.
      If
      successfully implemented, benefits of lean manufacturing can include reduction
      in work in process, shorter lead times, productivity increases, quality
      improvement and better utilization of space. There is no assurance the Company
      will be successful in achieving any of these benefits.





The
      Company also utilizes certain production lines solely for standard model
      trailers. The Company utilizes an independent outside contractor to provide
      customer specified paint and graphic designs on specialty trailers. There is
      a
      risk related to delays in completing trailer delivery to the customer due to
      delays by the subcontractor. This could adversely affect reported sales and
      operating income.





*Motorcoaches*





The
      Company manufactures all of its Featherlite
      Vantare model motorcoaches at a plant located in Sanford, Florida. Except for
      the motorcoach shell and electronic equipment, various kitchen and bathroom
      fixtures and accessories and other purchased items, the Company fabricates
      most
      of the components for its motorcoaches. The Company completes the conversion
      by
      finishing the interior of the purchased shell to the layout and design
      requirements of the customer or its specifications. All design engineering,
      plumbing, cabinetry and upholstery required to complete the motorcoach are
      done
      by Company personnel.





The
      Company purchases its motorcoach shells from one manufacturer, Prevost Car
      Company, Inc. (Prevost) of Sainte-Claire, Quebec, Canada, although the Company
      could purchase certain shells from other manufacturers. The Company provides
      Prevost with its estimated yearly motorcoach requirements. Once the Company
      provides Prevost with detailed specifications for a coach, it becomes obligated
      to execute


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a
      consignment agreement and take delivery of the coach when it is completed.
      In
      the event Prevost is unable to deliver motorcoach shells to the Company, the
      Company’s revenues and profits could be materially and adversely
      affected.








**Raw
      Materials**





Aluminum
      is a significant material used in the manufacture of trailers and represents
      about 15 percent of consolidated cost of sales. The
      Company purchases substantial amounts of aluminum extrusions from a number
      of
      major suppliers, including Alcoa Extrusions, Inc., and Indalex, Inc., and the
      majority of its sheet metal from Ryerson Tull and Aluminum Line Products. The
      identity of particular suppliers **** and
      the
      quantities purchased from each varies from period to period. Prices
      of
      aluminum, the principal commodity used in the Company’s business, fluctuate
      daily in the open market. It has been the Company’s practice to obtain fixed
      price contracts from suppliers to reduce the risk related to fluctuations in
      the
      cost of aluminum for approximately 80% to 90% of its expected annual
      requirements. While the Company continues to monitor aluminum prices on a daily
      basis for buying opportunities, it did not obtain such contracts in 2005 and
      has
      not yet obtained such contracts for 2006 and may not. The Company is purchasing
      aluminum to meet its production requirements at current market prices for
      aluminum. The
      Company has not engaged in hedging or the purchase and sale of future contracts
      other than contracts for delivery to fill its own needs. In the event that
      one
      or more of the Company’s suppliers were unable to deliver raw materials to the
      Company for an extended period of time, the Company’s production and profits
      could be materially and adversely affected if an adequate replacement supplier
      could not be found within a reasonable amount of time. There
      is
      a potential risk of loss related to fixed price contracts if there is a
      substantial drop in the actual cost of aluminum in relation to the contract
      price, which would affect the competitive price of the Company’s product. Increases
      in the prices of aluminum and other supplies may adversely affect margins on
      the
      Company’s products if our requirements exceed the amount of our aluminum
      purchases covered by fixed price contracts, or if the Company is unable to
      recover such price increases in the form of increased selling prices to its
      customers.





In
      addition to obtaining fixed contracts from suppliers, the Company may in the
      future also try to reduce the price risk associated with aluminum by buying
      London Metal Exchange hedge contracts or options for future delivery. These
      contracts would “lock in” the aluminum cost for the Company for anticipated
      aluminum requirements during the periods covered by the contracts. There is
      a
      potential risk of loss related to such contracts if the quantity of materials
      hedged significantly exceeds the Company’s actual requirements and the contract
      is closed without taking physical delivery of the aluminum or if there is a
      substantial drop in the actual cost of aluminum in relation to the hedge
      contract price which would affect the competitive price of the Company’s
      product. The Company has no such contracts at December 31, 2005 and has no
      current plans to engage in hedging.





The
      Company also uses steel in the manufacture of its trailers. Steel is purchased
      from 4 different vendors dependent on best pricing and availability at the
      time
      of order. In 2005, steel purchases were about 2 percent of consolidated cost
      of
      sales.








**Backlog**





At
      December 31, 2005 the Company had unfilled confirmed orders from its customers
      in an aggregate amount of approximately $20.4 million, with $18.1 million in
      trailer orders and $2.3 million in motorcoach orders, compared to an aggregate
      amount of $25.2 million at December 31, 2004, with $17.5 million in trailer
      orders and $7.7 million in motorcoach orders. All orders in backlog at December
      31, 2005 are expected to be filled during 2006.








**Quality
      Assurance**





The
      Company monitors quality at various points of the manufacturing process. Due
      to
      the variety of custom products that the Company builds, employee skill training
      and individual responsibility for workmanship are emphasized. Inventory
      specialists assess the overall quality, physical dimensions, and imperfections
      or damage to the raw materials. Extruded and sheet aluminum, which is outside
      of
      specified tolerances, is rejected and replaced by the vendor. Line foremen
      train
      and monitor work cells of employees. Quality control inspectors inspect trailers
      and motorcoaches for quality of workmanship, material quality and conformity
      of
      options to order specifications.








**Government
      and Industry Regulation**





The
      Company and its products are subject to various foreign, federal, state and
      local laws, rules and regulations. The Company builds its trailers and
      motorcoaches in accordance with the regulations of the federal Department of
      Transportation and other accepted industry standards. The Company is a member
      of
      the National Association of Trailer Manufacturers (“NATM”) and manufactures its
      trailers in compliance with NATM’s recommended manufacturing procedures. The
      Company is also a member of the Truck Trailer Manufacturers Association (TTMA).
      The Company is also governed by regulations relating to employee safety and
      working conditions and other activities. A change in any such laws, rules,
      regulations or standards, or a mandated federal recall by the National Highway
      Transportation Safety Administration (NHTSA), could have a material adverse
      effect on the Company.


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In
      2002,
      Congress authorized the National Highway Traffic Safety Administration (NHTSA),
      to enact new early warning reporting requirements for vehicle manufacturers
      referred to as the “Tread Act”. This act requires certain transportation
      manufacturers, including the Company, to provide detailed reporting of various
      warranty claims and repairs performed on products produced by transportation
      manufacturers. The Company has met these new requirements during the 2003,
      2004
      and 2005 fiscal year and expects to maintain compliance with these requirements
      in the future. In 2005, a new regulation by NHTSA requires manufacturers to
      install new tire labeling on all vehicles under 10,000 pounds Gross Vehicle
      Weight Rating (GVWR) by September 1, 2005. The Company has met these new
      regulatory requirements.





**Patents
      and Trademarks**





The
      Company has registered *FEATHERLITE* ® as
      a
      trademark for use in conjunction with trailers in the United States and has
      registered or applied for registration of FEATHERLITE AND DESIGN, as a trademark
      for use in conjunction with trailers in Canada, Iceland,
      Australia, Germany, Singapore, Austria, Greece, Spain, Hungary, Sweden,
      Russia, China, Ireland, Switzerland, Czech
      Republic, Italy, United Kingdom, Republic of Korea, Japan,
      Denmark, Benelux, Finland, Norway, and France. It
      has
      also registered or applied for registration of these trademarks for a variety
      of
      promotional items. In general, such
      registrations will remain in force through the year 2008 ,
      with
      continuous ten-year renewal periods thereafter. The Company has a United States
      trademark with respect *to
      FEATHERLITE-STL* ® series.
      In October 1995, the Company acquired the rights to the *DIAMOND
      D* *®* trademark and has registered it as a trademark in the United States. In
      addition, the Company has obtained certain trailer design and utility patents
      relating to race car transporters, snowmobile trailers and horse trailers and
      vehicle anti-sway bars .
      The
      Company considers these patents, which have renewal dates ranging from 2007
      to
      2014, to be important to the trailer business.





The
      Company has a United States registered trademark for *VANTARE
      BY FEATHERLITE* ® , *FEATHERLITE
      VOGUE* ® ,
      ” *FEATHERLITE
      VANTARE* ® ”
and
      “ *FEATHERLITE
      LUXURY COACHES* ® ”
for
      motorcoaches in the United States. In addition the Company has registered the
      trademark *VANTARE* *®* in the
      United States ** and
      has
      registered or applied for registration of the trademark *VANTARE* *®* ** in,
      Canada *,* Iceland,
      Australia, Germany, Singapore, Austria, Greece, Spain, Hungary, Sweden,
      Russia, China, Ireland, Switzerland, Czech
      Republic, Italy, United Kingdom, Republic of Korea, Japan,
      Denmark, Benelux, Finland, Norway, and France.




**Warranty**





The
      Company warrants the workmanship and materials of certain parts of the main
      frame of its aluminum trailers under a limited warranty for a period of six
      years and such parts of certain other Company trailers as well as other products
      manufactured by the Company for periods of one to five years. The limited
      warranty does not include normal wear items, such as brakes, bearings and tires.
      The Company’s warranty obligations are expressly limited to repairs and
      replacement of parts. Historically, there have been no significant recalls
      of
      the Company’s trailers for replacement of major components or parts, except in
      2002 there was a recall issued on certain models of steel gooseneck trailers,
      which has been completed. The expense of warranty claims for repairs or
      replacement of parts, including the previously mentioned recall, has been less
      than 1% of the Company’s net trailer sales.





The
      Company warrants for one year the workmanship and materials related to certain
      parts of its motorcoaches. Otherwise, warranties applicable to components
      purchased from vendors are applicable. The warranty of the manufacturer of
      the
      shell, transmission and engine generally is for two years. In August 2000,
      the
      Company began offering additional limited warranty on certain specified
      components of the *FEATHERLITE
      VANTARE* ® motorcoach for an additional twenty four months. Historically, there have been
      no recalls of the Company’s motorcoaches for replacement of major components or
      parts and warranty claims for repairs or replacement of parts have been less
      than 2 percent on net motorcoach sales.





**Product
      Liability**





Although
      the Company has never been required to pay any significant amount in a product
      liability action, as a manufacturing company it is subject to an inherent risk
      of product liability claims. The Company maintains product liability insurance
      policies in an amount it believes is adequate, but there is no assurance that
      its coverage will continue to be available at an acceptable price or be
      sufficient to protect the Company from adverse financial effects in the event
      of
      product liability claims.





**Employees**





As
      of
      December 31, 2005, the Company had 1,323 employees, of whom 1,249 **** are
      full-time and 74 are part-time, as follows: Production and production support
      -
      1,145, Sales and Marketing - 103, and Administration - 75.





The
      Company is not a party to any collective bargaining agreements and believes
      that
      it has good working relationships with its employees.


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The
      Company’s success is highly dependent on its senior management, including Conrad
      D. Clement, President and Chief Executive Officer. The loss of Mr. Clement’s
      services could have a material adverse effect on the Company’s business and
      development. There can be no assurance that an adequate replacement could be
      found for Mr. Clement in the event of his departure. The Company carries and
      is
      beneficiary to a $10 million term life insurance policy on Mr.
      Clement.





The
      Company has an agreement with an Iowa community college which provides
      approximately $250,000 for job training purposes over a period ending in 2008.
      The amounts borrowed under this agreement are to be repaid, together with
      interest, over a ten year period, from state withholding taxes on employees
      wages earned at the Company’s Iowa facilities. This agreement began in 1998 and
      repayment was completed in January 2005.











**ITEM
      1A. RISK FACTORS**





**Forward-looking
      statements cannot be guaranteed and actual results may vary materially due
      to
      the uncertainties and risks, known and unknown, associated with such statements.** We
      have
      made, and may continue to make, various written or verbal forward-looking
      statements with respect to our business, including statements contained in
      this
      annual report on Form 10-K, other filings with the Securities and Exchange
      Commission, and reports to stockholders. Forward-looking statements are those
      involving the outcome of future events that are based upon current expectations,
      estimates, forecasts and projects as well as the current beliefs and assumptions
      of our management. Any statement that is not a historical fact, including any
      statement regarding estimates, projections, future trends and the outcome of
      events that have not occurred, is a forward-looking statement. The Private
      Securities Litigation Reform Act of 1995 provides a safe harbor for
      forward-looking statements made by us or on our behalf.





The
      words
“believe,” “estimate,” “expect,” “intend,” “may,” “could,” “will,” “plan,”
“anticipate’” and similar words and expressions are intended to identify
      forward-looking statements. Forward-looking statements speak only as of the
      date
      of the date made, are based on current expectations, are inherently uncertain
      and should be viewed with caution. The Company makes no commitment to update
      any
      forward-looking statement or to disclose any facts, events, or circumstances
      after the date hereof that may affect the accuracy of any forward-looking
      statement, other than as required by law.





Featherlite
      wishes to caution readers that the factors discussed below in “Risk Factors,”,
      among others, in some cases have affected, and in the future could affect,
      Featherlite’s actual results and could cause Featherlite’s actual consolidated
      results to differ materially from those expressed in any forward-looking
      statements made by, or on behalf of, Featherlite.








**The
      Company may not be able to increase prices sufficiently to cover increases
      in
      cost of aluminum and other costs .** Prices
      of aluminum, the principal commodity used in the Company’s business, fluctuate
      daily in the open market. The Company purchases substantial amounts of aluminum
      extrusions from a number of major suppliers, including Alcoa Extrusions, Inc.
      Tifton Aluminum Co., Inc. and Indalex, Inc. and the majority of its sheet metal
      from two large suppliers, Joseph T. Ryerson & Son, Inc. and Aluminum Line
      Products Co. The Company has not engaged in hedging or the purchase and sale
      of
      future contracts other than contracts for delivery to fill its own needs. In
      the
      past, the Company has had contracts with certain of the above suppliers to
      fill
      a substantial portion of its projected needs for aluminum for the forthcoming
      year at fixed prices. The
      Company has not obtained such contracts for 2006 and is purchasing aluminum
      to
      meet its production requirements at current market prices for aluminum. If
      the
      Company is unable to obtain such commitments from suppliers or otherwise reduce
      the price risk related to 2006, this could have an adverse impact on the
      Company’s operating results if the cost of aluminum in 2006 increases
      significantly above 2005 levels and the Company cannot increase its product
      prices sufficiently to cover aluminum and other cost increases. The Company
      initiated a 4 percent price increase for substantially all trailer products
      other than interior packages that are invoiced after December 31, 2005 unless
      they were ordered and in backlog at December 31, 2005. The Company also
      initiated a 4.5% aluminum surcharge on all aluminum trailer models invoiced
      after January 17, 2006 unless they were ordered and in backlog at January 17,
      2006 to help offset increased aluminum costs it is currently experiencing,
      but
      there can be no assurance these price increases will be sufficient or that
      increased sales prices will not harm demand. Our commodity risks are discussed
      further in Item 7A of this annual report on Form 10-K under “Commodity Risk.” **




**Changes
      in customer discretionary spending may cause our sales volume and product mix
      to
      fluctuate.** A
      large
      portion of our sales involve discretionary spending by our customers, and may
      be
      delayed or cancelled in times of economic uncertainty. The industries in which
      we operate are competitive, and we face continued pressure to increase selling
      prices to reduce the impact on margins of increasing aluminum and other
      materials costs, labor rates and overhead costs related to the expanded
      production facilities and organization to support expected increases in sales.
      Our product mix from period to period can have an important impact on our gross
      profit since products include varying combinations of material and labor costs.
      While we experienced significant sales growth in 2004 and moderate growth in
      2005, a return to a static or declining growth rate in the overall demand for
      our products may harm our sales and hinder our ability to maintain operating
      results and our liquidity.


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**The
      Company may not be able to maintain compliance with, or obtain future waivers
      for non-compliance with, various restrictive covenants under its credit
      facilities.** Each
      of
      the Company’s long-term financing agreements contains affirmative and
      restrictive covenants. The Company was in compliance with all of these covenants
      during 2005 and 2004, but has required waivers of compliance for certain
      covenants in 2003 and certain prior years (as discussed more fully in Note
      7 to
      the consolidated financial statements included in the Company’s annual report on
      Form 10-K). Although management believes it will be able to maintain compliance
      with these covenants in 2006 and beyond, violations could occur allowing the
      lenders their option to accelerate payment of the debt.





**Ongoing
      insurance and claims expenses could significantly affect our
      earnings.** Our
      future insurance and claims expense might exceed our historical levels, which
      could reduce our earnings. The Company self-insures for a portion of its claims
      exposure resulting from workers’ compensation and employee health insurance. The
      Company is also responsible for its legal expenses relating to such claims.
      The
      Company reserves currently for anticipated losses and expenses. Our claims
      reserves are periodically evaluated and adjusted to reflect our experience.
      However, ultimate results may differ from our estimates, which could result
      in
      losses over our reserve amounts.





The
      Company maintains insurance above the amounts for which it self-insures with
      licensed insurance carriers, including individual stop loss coverage for both
      workers’ compensation employee and health insurance and aggregate claims stop
      loss coverage for workers’ compensation insurance. Although the Company believes
      the aggregate insurance limit should be sufficient to cover reasonably expected
      claims, it is possible that one or more claims could exceed our aggregate
      coverage limits. Insurance carriers have raised premiums for many businesses,
      including manufacturing companies such as ours. As a result, our insurance
      and
      claims expense could increase, or we could raise our self-insurance retention
      when our policies are renewed. If these expenses increase, or if we experience
      a
      claim exceeding our coverage limits, or if we experience a claim or series
      of
      claims for which coverage is not provided, results of our operations and
      financial condition could be materially and adversely affected.





**The
      Company’s motorcoach credit facility availability could be reduced.** Advance
      rates under the Company’s financing arrangement with GE are based on 90 percent
      of the cost of eligible new motorcoach inventory and 70 percent of the defined
      value of eligible used motorcoach inventory. The agreement also requires a
      1.5%
      per month reduction in amounts borrowed on a used coach when it has been
      financed more than 360 days and all financing will be due in full on day 720,
      and after 360 days, new units are converted to used financing at an advance
      rate
      of 70 percent versus 90 percent, with 1.5% per month curtailments beginning
      on
      day 721 until day 1,080 when all financing on the unit will be due in full.
      Future aggregate availability under this agreement could be reduced if the
      Company is unable to sell certain new or used coaches before the financing
      expires under this amended agreement. This may require the Company to use
      financing available from its other credit line or to obtain additional financing
      from other sources. There can be no assurance such financing will be
      available.





**The
      value of the Company’s motorcoach inventory fluctuates.** The
      Company takes trade-ins on both new and used motorcoach sales. These trade-in
      units are marketed on a retail basis to other customers. In the three years
      ended December 31, 2005, the Company experienced a significant decline in the
      market value of trade-in units and certain non-current new models and wrote
      down
      the carrying value of the used inventory by $300,000, $500,000, and $1.4 million
      in 2005, 2004 and 2003, respectively, in order to facilitate their
      sale. **** There
      is
      a risk that additional write-downs of this inventory will occur if these
      trade-in units are not sold at current selling prices, which could adversely
      impact the Company’s future operating results and reduce the capital advances
      available under its credit facility with GE.





**The
      Company begins motorcoach production before customer orders are
      received.** To
      maintain a level production schedule, production often begins on motorcoaches
      before orders have been received from specific buyers. As of December 31, 2005,
      approximately 86% of the coaches in production and to be completed over the
      next
      four months had not been sold to specific customers. While it is the Company’s
      expectation that substantially all of these motorcoaches will be sold to
      specific customers before production is completed, or shortly thereafter, there
      is no assurance this will occur. If the motorcoaches are not sold according
      to
      expectations, the Company may have to reduce selling prices which would harm
      its
      profitability. Further, if the sale periods for motorcoaches are substantially
      longer than expected, capital advances available under the Company’s credit
      facility with GE will be reduced and liquidity may be harmed.





**The
      Company relies upon one supplier for motorcoach shells and one vendor for
      special graphics.** There is
      a risk related to the loss or interruption in the supply of bus conversion
      shells from the Company’s sole supplier of these shells. The Company purchases
      all of its bus conversion shells from Prevost Car Company, which is owned by
      Volvo Bus Corporation. The Company also uses one subcontractor to provide paint
      and graphic design work to meet customer specifications on certain custom
      trailers and specialty transporters. In the event Prevost is unable to deliver
      motorcoach shells to the Company or the subcontractor is unable to provide
      its
      services on a timely basis, the Company’s revenues and profits could be
      adversely affected.





**We
      purchase our aluminum from a limited number of vendors** .
      We may
      have difficulty receiving our requirements for aluminum (our principal raw
      material component) if we lose one of our major suppliers of aluminum. In the
      past, this risk has been


13
 Table
          of Contents


relatively
      nominal as there have been alternate sources of supply. In recent years,
      however, the number of alternate sources of supply has been reduced due to
      mergers within the aluminum industry. Also, additional time may be required
      to
      replace an extruded aluminum supplier due to the fact that dies are required
      and
      would have to be made. The Company routinely tries to keep at least three
      suppliers of each shape so it has a backup supplier if necessary. However,
      if
      the number of suppliers of aluminum is further reduced, or if the Company is
      otherwise unable to obtain its aluminum requirements on a timely basis and
      on
      favorable terms, the Company’s operations may be harmed.







**ITEM
      2.****PROPERTIES**





The
      Company’s principal sales, marketing and executive offices are located in a
      20,000 square foot building constructed in 1993 and owned by the Company near
      Cresco, Iowa. The Company owns a 50,000 square foot parts distribution center
      and a custom, maintenance and trailer distribution facility adjacent to its
      principal offices, from which substantially all trailer deliveries to dealers
      are made.





The
      Company owns trailer production and warehouse facilities in Cresco and
      Shenandoah, Iowa. The Cresco facilities presently consist of five buildings
      and
      include approximately 258,000 square feet, as follows: Three buildings, totaling
      approximately 186,000 square feet are used for production of trailers and
      fabrication of components; one 58,000 square foot building is used for custom
      interior finishing and one 14,000 square foot building is used for storage
      of
      raw materials. The Shenandoah facilities include a 117,000 square foot
      manufacturing facility used primarily for trailer production. The Company
      believes these facilities will be sufficient to meet its production requirements
      for 2006.





The
      Company owned a 51,000 square foot manufacturing plant and an 18,000 square
      foot
      plant/office building that was idle and no longer used for production in Nashua,
      Iowa. The Company sold this facility to the City of Nashua in 2005. All of
      the
      Iowa properties described above are subject to a security interest by U.S.
      Bank
      National Association as described in Note 7 to the consolidated financial
      statements.





The
      Company leases motorcoach production and office facilities from Seminole Port
      Authority in Sanford, Florida at an approximate annual cost of $388,000 under
      the terms of an operating lease that expires in 2007. This facility includes
      approximately 79,000 square feet of inside space, **** as
      well
      as 6,000 square feet for outside service bays. In October 1999, the Company
      completed construction of an 18,000 square foot sales office and a 21,000 square
      foot service center with seventeen service bays. The cost of this entire
      project, including land and development costs, was approximately $5.5 million.
      In 2002, the sales office and service center were sold to an unrelated outside
      party and leased back by the Company with an initial term of 7 years under
      the
      terms of a capitalized lease as described in Note 7 to consolidated financial
      statements included in this annual report on Form 10-K **.** In
      January, 2005, the Company exercised its option to repurchase this facility
      for
      $5.3 million.





The
      Company leases property in Mocksville, North Carolina under the terms of an
      operating lease at an approximate annual cost of $80,000, which has an initial
      term of ten years ending in 2006, with options to extend the initial term up
      to
      an additional ten years. These facilities are being used to provide service
      for
      Featherlite trailers and transporters and for the retail sale and service of
      Featherlite luxury motorcoaches.





The
      Company acquired the rights to certain office and production facilities and
      other assets of Mitchell Motorcoach Sales, Inc. in Pryor, Oklahoma in 1998.
      This
      facility includes approximately 150,000 square feet of production and office
      space and was used to manufacture luxury motorcoaches. The facility is owned
      by
      Oklahoma Ordnance Works Authority and is being leased to the Company at an
      approximate annual cost of $259,000 under the terms of an operating lease which
      expires in March, 2011. In 2000, the Company leased approximately 15 acres
      of
      land adjacent to this facility at an approximate annual cost of $26,000 for
      a
      period expiring in March 2011. **** In
      2001,
      the Company shut down its Pryor, Oklahoma, manufacturing facility. The Company
      has not been successful in subleasing this facility and, as discussed in Note
      5,
      reopened this location in October, 2003 as a sales and service facility for
      recreational vehicles and motorcoaches, including units owned by others and
      recreational vehicles repossessed by financial institutions.





The
      Company owns a lot at a motorcoach resort in Newport, Oregon that was acquired
      in 1999 and two lots at a motorcoach resort in Indio, California that were
      acquired in 1998 and 2005. These lots are used for motorcoach marketing
      purposes.





**ITEM
      3. LEGAL PROCEEDINGS**





The
      Company, in the course of its business, has been named as a defendant in various
      legal actions. These actions are primarily for product liability for which
      the
      Company is covered by insurance subject to applicable deductibles. Although
      the
      ultimate outcome of such claims cannot be ascertained at this time, it is the
      opinion of management, after consultation with counsel handling such matters,
      that the resolution of such suits will not have a material adverse effect on
      the
      financial position of the Company.





14
 Table
          of Contents


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





No
      matter
      was submitted during the fourth quarter of the fiscal year covered by this
      report 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**





The
      Company’s common stock is traded on the Nasdaq Smallcap Market under the Nasdaq
      symbol “FTHR”. Quotations below represent the high and low closing sales price,
      by quarter, for the years ended December 31, 2005 and 2004, as restated to
      reflect the 3 for 2 split in May 2005.





-----2005----
            
            ----2004----High
            
            Low
            
            High
            
            LowFirst
                Quarter
            
            $
            4.90
            
            $
            3.26
            
            $
            3.13
            
            $
            2.01Second
                Quarter
            
            
            6.22
            
            
            3.90
            
            
            5.46
            
            
            2.19Third
                Quarter
            
            
            4.09
            
            
            3.27
            
            
            5.60
            
            
            3.67Fourth
                Quarter
            
            
            4.38
            
            
            3.01
            
            
            4.66
            
            
            2.67





As
      of
      March 27, 2006, the Company had approximately 236 shareholders of record. The
      Company is restricted from paying dividends by its agreements with lenders.
      See
      Liquidity and Capital Resources in Item 7 for a discussion of these
      restrictions.





**ITEM
      6. SELECTED
      FINANCIAL DATA**





**STATEMENT
      OF INCOME DATA** (In
      thousands, except per share data)





**2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001**Net
                sales
            
            $
            225,284
            
            $
            216,520
            
            $
            180,144
            
            $
            193,326
            
            $
            213,122Cost
                of goods sold
            
            
            190,896
            
            
            182,678
            
            
            156,940
            
            
            167,152
            
            
            194,754Gross
                profit
            
            
            34,388
            
            
            33,842
            
            
            23,204
            
            
            26,174
            
            
            18,368Selling
                and administration
            
            
            25,070
            
            
            25,244
            
            
            20,595
            
            
            20,347
            
            
            21,756Restructuring
                charge (credit)
            
            
            
            
            
            
            
            
            (222
            )
            
            400
            
            
            1,572Operating
                income (loss)
            
            
            9,318
            
            
            8,598
            
            
            2,831
            
            
            5,427
            
            
            (4,960
            )Interest
                expense
            
            
            (2,686
            )
            
            (2,304
            )
            
            (2,466
            )
            
            (3,032
            )
            
            (4,300
            )Other
                income (expense), net
            
            
            112
            
            
            172
            
            
            129
            
            
            42
            
            
            (827
            )Income
                (loss) before taxes
            
            
            6,744
            
            
            6,467
            
            
            494
            
            
            2,437
            
            
            (10,087
            )Benefit
                (provision) for income taxes
            
            
            (2,316
            )
            
            (1,658
            )
            
            106
            
            
            258
            
            
            1,240Minority
                interest in subsidiary loss
            
            
            45
            
            
            81
            
            
            105
            
            
            -
            
            
            -Net
                income (loss)
            
            $
            4,473
            
            $
            4,890
            
            $
            705
            
            $
            2,695
            
            $
            (8,847
            )Net
                income (loss) per share *Basic
            
            $
            0.41
            
            $
            0.45
            
            $
            0.07
            
            $
            0.27
            
            $
            (0.90
            )Diluted
            
            $
            0.38
            
            $
            0.42
            
            $
            0.06
            
            $
            0.25
            
            $
            (0.90
            )Weighted
                average shares outstanding*Basic
            
            
            10,944
            
            
            10,829
            
            
            10,034
            
            
            9,803
            
            
            9,803Diluted
            
            
            11,900
            
            
            11,546
            
            
            10,950
            
            
            10,737
            
            
            9,803





**BALANCE
      SHEET DATA**


**(End
      of Period, in thousands)**


**2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001**Working
                capital
            
            $
            24,334
            
            $
            21,831
            
            $
            18,148
            
            $
            6,092
            
            $
            1,641Total
                assets
            
            
            87,801
            
            
            92,213
            
            
            86,600
            
            
            92,271
            
            
            97,171Long-term
                debt, net of current maturities
            
            
            12,586
            
            
            15,335
            
            
            18,418
            
            
            7,230
            
            
            7,386Total
                shareholders’ investment
            
            
            30,236
            
            
            25,363
            
            
            20,292
            
            
            17,955
            
            
            15,141





15
 Table
          of Contents





**QUARTERLY
      FINANCIAL DATA**         **Net
      Income Per Share**


**(Unaudited,
      in thousands except per share data)**


**Net**
              **Sales***
            
            **Gross
                Profit***
            
            **Operating
                Income***
            
            **Net
                Income***
            
            **Basic***
            
            **Diluted*****2005**First
                Quarter
            
            $
            58,480
            
            $
            9,645
            
            $
            2,863
            
            $
            1,461
            
            $
            0.13
            
            $
            0.13Second
                Quarter
            
            
            51,993
            
            
            7,834
            
            
            2,324
            
            
            1,075
            
            
            0.10
            
            
            0.09Third
                Quarter
            
            
            59,260
            
            
            8,892
            
            
            2,283
            
            
            1,052
            
            
            0.10
            
            
            0.09Fourth
                Quarter
            
            
            55,551
            
            
            8,017
            
            
            1,848
            
            
            885
            
            
            0.08
            
            
            0.07**2004**First
                Quarter
            
            $
            56,471
            
            $
            8,684
            
            $
            2,463
            
            $
            1,236
            
            $
            0.11
            
            $
            0.11Second
                Quarter
            
            
            58,162
            
            
            9,143
            
            
            2,900
            
            
            1,504
            
            
            0.14
            
            
            0.13Third
                Quarter **
            
            
            45,223
            
            
            7,002
            
            
            734
            
            
            940
            
            
            0.09
            
            
            0.08Fourth
                Quarter
            
            
            56,664
            
            
            9,013
            
            
            2,501
            
            
            1,210
            
            
            0.11
            
            
            0.10


***** Prior
      year amounts reclassified to conform to 2005 presentation **** and
      3 for
      2 stock split in May 2005.


****** Includes
      tax benefit of $829,000.








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





The
      following discussion pertains to the Company’s results of operations and
      financial condition, including information on the Company’s two principal
      business segments. This discussion should be read together with the Company’s
      consolidated financial statements and related notes for the same periods, which
      are included in this annual report on Form 10-K.





**Fiscal
      Year 2005 Compared to Fiscal Year 2004**




The
      following table summaries changes in the Company’s consolidated and segment
      results of operations (in millions) and as a percentage of net sales for the
      years 2005 and 2004:







Amount
                (millions)
            
            Increase
                (decrease)
            
            Percent
                of Net SalesCONSOLIDATED
                DATA
            
            2005
            
            2004
            
            Amount
            
            Percent
            
            2005
            
            2004Net
                Sales
            
            $
            225.3
            
            $
            216.5
            
            $
            8.8
            
            
            4.0
            %
            
            100.0
            %
            
            100.0
            %Gross
                profit
            
            
            34.4
            
            
            33.8
            
            
            0.6
            
            
            1.8
            
            
            15.3
            
            
            15.6Selling
                and administrative expenses
            
            
            25.0
            
            
            25.2
            
            
            (0.2
            )
            
            (0.8
            )
            
            11.1
            
            
            11.6Income
                from operations
            
            
            9.4
            
            
            8.6
            
            
            0.8
            
            
            .3
            
            
            4.2
            
            
            4.0Interest
                expense
            
            
            (2.7
            )
            
            (2.3
            )
            
            0.4
            
            
            17.4
            
            
            (1.2
            )
            
            (1.1
            )Other
                income (expense)
            
            
            0.1
            
            
            0.2
            
            
            (0.1
            )
            
            (50,0
            )
            
            -
            
            
            -Income
                before income taxes
            
            
            6.8
            
            
            6.5
            
            
            0.3
            
            
            4.6
            
            
            3.0
            
            
            3.0Provision
                for income taxes
            
            
            (2.3
            )
            
            (1.7
            )
            
            0.6
            
            
            35.3
            
            
            (1.0
            )
            
            (0.8
            )Minority
                interest in subsidiary loss
            
            
            -
            
            
            0.1
            
            
            (0.1
            )
            
            N
                M*
            
            
            -
            
            
            -Net
                income
            
            $
            4.5
            
            $
            4.9
            
            $
            (
                0.4
            )
            
            (8.2
            )%
            
            2.0
            %
            
            2.3
            %





Amounts
                (millions)
            
            Increase
                (decrease)
            
            Percent
                of Net SalesSEGMENT
                DATA
            
            2005
            
            2004
            
            Amount
            
            Percent
            
            2005
            
            2004Net
                SalesTrailers
            
            $
            142.2
            
            $
            128.4
            
            $
            13.8
            
            
            10.7
            %
            
            63.1
            %
            
            59.3
            %Motorcoach
            
            
            83.1
            
            
            88.1
            
            
            (5.0
            )
            
            (5.7
            )
            
            36.9
            
            
            40.7Income
                (loss) before income taxesTrailers
            
            $
            9.6
            
            $
            9.1
            
            $
            0.5
            
            
            5.5
            %
            
            4.3
            %
            
            4.2
            %Motorcoach
            
            
            0.9
            
            
            1.2
            
            
            (0.3
            )
            
            (25.0
            )
            
            0.4
            
            
            0.6Corporate
                and other
            
            
            (3.7
            )
            
            (3.8
            )
            
            0.1
            
            
            .6
            
            
            (1.6
            )
            
            (1.8
            )


*
      NM
      means percentage change calculation Not Meaningful








On
      a
      consolidated basis, the Company’s net income for the year ended December 31,
      2005 was $4.5 million or $0.38 cents per diluted share, compared with net income
      of $4.9 million, or $0.42 cents per diluted share for the same period of 2004,
      including in 2004, an $829,000 or $0.07 cents per diluted share related to
      a
      non-recurring income tax benefit. The non-recurrence of the 2004 tax benefit
      was
      partially offset by increased profitability in the trailer division and reduced
      corporate expenses in 2005.


16
 Table
          of Contents


Consolidated
      net sales for 2005 increased $8.8 million (4.1 percent) to $225.3 million
      compared to net sales of $216.5 million for in 2004. For the trailer segment,
      net sales of specialty trailers and transporters increased by 10.7 percent
      ($13.8 million) to $142.2 million compared to $128.4 million in 2004 as total
      unit sales in 2005 improved over 2004 by 2.9 percent and the average revenue
      per
      unit increased by 7.4 percent. Decreased unit sales in the horse and livestock
      categories were more than offset by unit increases in the other product
      categories. The average revenue per unit was up in all product categories,
      reflecting the favorable impact of a 5 percent price increase that was effective
      on January 1, 2005 and a mix of higher priced units, particularly in the
      specialty transporter category. Motorcoach segment net sales decreased by 5.7
      percent over the same period of 2004 as total unit sales decreased by 31.3
      percent, with decreases of 6.0 percent and 41.1 percent in unit sales of new
      and
      used motorcoaches, respectively. While there was
      reduced customer traffic and sales at Company showrooms and events in the first
      six months of 2005 compared to 2004, there were strong sales increases in the
      third quarter of 2005 compared to the same quarter in 2004, which was adversely
      impacted by hurricane activity in Florida in the third quarter of 2004. The
      effect of these unit volume decreases was partially offset by a 37.5 percent
      increase in average net revenue per motorcoach unit sold due to a favorable
      mix
      of higher priced new unit sales compared to lower priced used units sold and
      an
      increase of 42.7 percent in the average revenue per unit for used coaches sold.
      There were decreased sales of used units in 2005 compared to 2004 due to reduced
      sales promotions and other activities to reduce inventories in
      2004.





Consolidated
      gross profit margin increased by approximately $0.6 million to $34.4 million
      in
      2005 from $33.8 million in 2004. As a percentage of net sales, consolidated
      gross profit margin was 15.3 percent in 2005, compared to 15.6 percent in 2004.
      The trailer division gross profit margin increased by $0.9 million due to margin
      added from increased sales, which resulted primarily from a 7.4 percent increase
      in average revenue per unit. This increase was partially offset by an increase
      in the average cost per unit of 8.9 percent due to higher cost of aluminum
      and
      other materials. The motorcoach division gross profit decreased by $0.4 million
      in 2005 compared to 2004. Gross profit margin as a percentage sales increased
      by
      0.3 of a percentage point as the result of improved percentage margins that
      were
      realized on sales of new coaches due to higher average selling prices and the
      realization of reduced production costs due to efficiency improvements. This
      gain was more than offset by lost margin due to lower unit sales levels.





Consolidated
      selling and administrative expenses decreased by $0.2 million in 2005, to $25.0
      million, a 0.8 percent decrease, from $25.2 million in 2004. As a percentage
      of
      sales, these expenses decreased to 11.1 **** percent
      in 2005 from 11.6 percent in 2004. Trailer segment expenses increased by $0.7
      million (5.1 percent) in 2005 compared to 2004 due primarily to increased
      marketing costs related to generating and maintaining a higher sales volume.
      Motorcoach segment expenses decreased by $0.4 million in 2005 compared to 2004,
      but increased slightly as a percent of sales due to decreased sales. Corporate
      selling and administrative expenses decreased by $0.4 million in 2005 compared
      to 2004, primarily due to reduced Featherlite Chemicals, LLC (FCC) selling
      and
      administrative expenses as this activity was discontinued in 2005 and reduced
      corporate bonus levels.





Consolidated
      interest expense increased **** by
      $0.4
      million **** in
      2005
      compared to 2004 as the result of higher interest rates in 2005. Other income,
      net, was unchanged in 2005 compared to 2004.





Minority
      interest in the Company’s 51 percent owned subsidiary’s loss was $45,000 in 2005
      compared to $81,000 in 2004. This amount represents the equity interest of
      the
      49 percent minority owner’s share of pre-tax losses in FCC that was formed in
      2003 to market car care products. The accompanying condensed consolidated
      statement of operations includes the accounts of FCC. This enterprise was
      discontinued in the 2005 due to the lack of profitable operations.





Consolidated
      income before taxes (IBT) increased by approximately $0.3 million in 2005 to
      $6.8 million compared to $6.5 million in 2004. This increase reflects an
      increase of approximately $0.4 million in IBT in the trailer segment, a decrease
      of $0.3 million in IBT in the motorcoach segment and an increase of $0.2 in
      IBT
      in the corporate segment.





Income
      taxes expense was $2.3 million for 2005 compared to $1.7 million in 2004. An
      income tax provision rate of approximately 38 percent was used in 2005 and
      2004,
      reflecting the federal corporate tax rate and effective state tax rates
      estimated for each year. In addition, a tax benefit of $0.2 million was
      recognized in 2005 as the result of the sale of the Company’s idle facility in
      Nashua, IA, to the City of Nashua and a tax benefit of $0.8 million was
      recognized in 2004 to eliminate a deferred tax asset valuation reserve because
      of the improvement in the Company’s operating results in 2004 and its improved
      outlook.





17
 Table
          of Contents


**Fiscal
      Year 2004 Compared to Fiscal Year 2003**





The
      following table summarizes changes in the Company’s consolidated and segment
      results of operations (in millions) and as a percentage of net sales for the
      years 2004 and 2003:





Amount
                (millions)
            
            Increase
                (decrease)
            
            Percent
                ofCONSOLIDATED
                DATA
            
            2004
            
            2003
            
            Amount
            
            Percent
            
            Net
                SalesNet
                Sales
            
            $
            216.5
            
            
            180.1
            
            $
            36.4
            
            
            20.2
            %
            
            20.2
            %
            
            100.0
            %Gross
                profit
            
            
            33.8
            
            
            23.2
            
            
            10.6
            
            
            45.7
            
            
            45.7
            
            
            12.9Selling
                and administrative expenses
            
            
            25.2
            
            
            20.6
            
            
            4.6
            
            
            22.3
            
            
            22.3
            
            
            11.4Restructuring
                (credit)
            
            
            -
            
            
            (0.2
            )
            
            (0.2
            )
            
            NM*
            
            
            NM*
            
            
            (0.1
            )Income
                from operations
            
            
            8.6
            
            
            2.8
            
            
            5.8
            
            
            207.1
            
            
            207.1
            
            
            1.6Interest
                expense
            
            
            (2.3
            )
            
            (2.5
            )
            
            (0.2
            )
            
            (8.0
            )
            
            (8.0
            )
            
            (1.4
            )Other
                income (expense)
            
            
            0.2
            
            
            0.1
            
            
            0.1
            
            
            100.0
            
            
            100.0
            
            
            -Income
                before income taxes
            
            
            6.5
            
            
            0.5
            
            
            6.0
            
            
            1,200.0
            
            
            1,200.0
            
            
            0.3Benefit
                (provision) for income taxes
            
            
            (1.7
            )
            
            0.1
            
            
            (1.8
            )
            
            NM*
            
            
            NM*
            
            
            0.1Minority
                interest in subsidiary loss
            
            
            0.1
            
            
            0.1
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                income
            
            $
            4.9
            
            $
            0.7
            
            
            4.2
            
            
            600.0
            
            
            600.0
            
            
            0.4
            %








Amounts
                (millions)
            
            Increase
                (decrease)
            
            Percent
                ofSEGMENT
                DATA
            
            2004
            
            2003
            
            Amount
            
            Percent
            
            Net
                SalesNet
                SalesTrailers
            
            $
            128.4
            
            $
            102.2
            
            $
            26.2
            
            
            25.6
            %
            
            59.3
            %
            
            56.7
            %Motorcoach
            
            
            88.1
            
            
            77.9
            
            
            10.2
            
            
            13.1
            
            
            40.7
            
            
            43.3Income
                (loss) before income taxesTrailers
            
            $
            9.2
            
            $
            4.5
            
            $
            4.7
            
            
            104.4
            %
            
            4.2
            %
            
            2.5
            %Motorcoach
            
            
            1.2
            
            
            (1.1
            )
            
            2.3
            
            
            NM*
            
            
            0.6
            
            
            (0.6
            )Corporate
                and other
            
            
            (3.9
            )
            
            (2.9
            )
            
            (1.0
            )
            
            (34.5
            )
            
            (1.8
            )
            
            (1.6
            )


*
      NM
      means percentage change calculation Not Meaningful




On
      a
      consolidated basis, the Company’s net income for the year ended December 31,
      2004 was $4.9 million or $0.42 cents per diluted share, compared with net income
      of $0.7 million or $0.06 cents per diluted share in the same period of 2003.
      The
      improved annual results in 2004 were primarily a result of increased gross
      profit realized from greater unit sales volume, partially offset by increased
      marketing and administrative costs.





Consolidated
      net sales for the year 2004 increased by $36.4 million (20.2 percent) to $216.5
      million compared to net sales of $180.1 million for the same period in 2003,
      primarily reflecting, we believe, an improvement in general economic conditions
      and consumer confidence. For the trailer segment, sales of specialty trailers
      and transporters increased by 25.6 percent compared to the same period in 2003
      as unit sales in 2004 improved over 2003 by 23.4 percent. There were increases
      in all product categories except specialty transporters, and average net revenue
      per unit improved by 1.8 percent in 2004 compared to 2003. The average net
      revenue improvements reflect a more favorable mix of products with higher
      average prices and the full effect of a 3.0 percent price increase in May 2003,
      partially offset by an increase in sales program rebates and discounts in 2004.
      Motorcoach segment net sales increased by 13.1 percent over the same period
      in
      2003 as total unit sales increased by 16.2 percent, with increases of 4.2
      percent and 21.7 percent in unit sales of new and used motorcoaches,
      respectively. The effect of these increases was partially offset by a 2.6
      percent decline in average net revenue per unit sold due to the significant
      increase in the number of lower price used units sold.





Consolidated
      gross profit margin increased by $10.6 million to $33.8 million in 2004 from
      $23.2 million in 2003. This improvement was attributable to increased sales
      volume in both segments in 2004 compared to 2003. As a percentage of sales,
      consolidated gross profit margin for the year of 2004 was 15.6 percent in 2004
      compared to 12.9 percent in 2003. Trailer margin percentages for the current
      year were 2.1 percentage points higher than the same period in 2003, primarily
      the result of manufacturing efficiency improvements due to increased volume,
      changes in product mix and the further implementation of lean manufacturing
      processes, which increased the average gross margin per unit sold. Motorcoach
      gross profit margin increased by 3.4 percentage points in 2004 compared to
      2003.
      This increase resulted primarily from improved percentage margins realized
      on
      sales of both new and used coaches as well as reduced labor and overhead costs,
      including the non-recurrence in 2004 of a loss settlement accrual of $354,000
      in
      2003, as well as an $869,000 reduction in write-downs on used motorcoaches
      held
      in inventory.





Consolidated
      selling and administrative expenses increased by $4.6 million in 2004, to $25.2
      million, a 22.3 percent increase, from $20.6 million in 2003. As a percentage
      of
      sales, these expenses increased to 11.6 **** percent
      in 2004 from 11.4 percent in 2003. Trailer segment expenses increased by 16.8
      percent in 2004 compared to 2003 due primarily to increased marketing related
      costs related to generating and maintaining higher sales volume as well as
      increased sales commissions and matching 401(K) contributions. Motorcoach
      segment expenses increased by 29.6 percent in 2004 compared to 2003 mainly
      due
      to increases in marketing costs related to higher


18
 Table
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volume
      and reopening the sales and service center in Pryor, Oklahoma. Corporate and
      other expenses increased by $1.0 million in 2004 compared to 2003, primarily
      reflecting increased executive management performance bonus accruals based
      on
      achievement of annual performance goals.





There
      was
      no recurrence in 2004 of the restructuring credits of $222,000 that were
      realized in 2003 (as discussed further in Note 5 to consolidated financial
      statement included in this Annual Report on Form 10-K).





Consolidated
      interest expense decreased **** by
      $163,000 **** in
      2004
      compared to 2003 as the result of lower average borrowing levels in 2004. Other
      income decreased by $53,000 in 2004 compared to 2003 due to reduced royalty
      income.





Minority
      interest in subsidiary loss represents the 49 percent minority owner’s share of
      pre-tax losses in FCC, the Company’s 51 percent owned entity that was formed in
      2003 to market car care products. These losses amounted to $81,000 in 2004
      and
      $105,000 in 2003. The accompanying consolidated statement of operations includes
      the accounts of FCC, which reflects a total operating loss of $165,000 in 2004
      compared to $216,000 in 2003.





Consolidated
      income before taxes (IBT) increased by $6.0 million in 2004 to $6.5 million
      compared to $0.5 million in 2003. This increase reflects an increase in trailer
      segment IBT of $4.7 million due mainly to increased sales volume, an increase
      in
      motorcoach segment IBT of $2.3 million due to increased sales volume and
      improved gross margin on sales, offset by an increase in corporate expenses
      of
      $1.0 million due to increased management performance bonus accruals.





The
      overall effective income tax provision rate was 25.3 percent in 2004 compared
      to
      an income tax benefit of 17.7 percent in 2003.  The 2004 effective rate was
      lower than the Company's combined federal and state corporate tax rate due
      to
      the tax benefit of 12.7% associated with the reversal of the $829,000 deferred
      tax asset valuation allowance recorded in the third quarter due to the
      improvement of the Company's operating results in 2004 and its improved outlook
      for the future.  The low 2003 effective income tax benefit rate was
      primarily a result of the reduction in the deferred tax asset valuation
      allowance due to a $545,000 decrease in net deferred tax assets that resulted
      in
      a 91 percent reduction in tax rate.







**Outlook**





We
      are
      cautiously optimistic about the rate of sales growth in 2006. Unfilled confirmed
      order backlog has increased in our specialty trailer segment, but decreased
      in
      the motorcoach segment. At December 31, 2005 the new order backlog for trailers
      of $18.1 million is 3 percent above its level of $17.5 million at December
      31,
      2004. Motorcoach backlog has decreased by 70% to a level of $2.3 million at
      December 31, 2005 compared to $7.7 million at December 31, 2004. Trailer sales
      leads in 2006, which relate to the number of consumer calls coming into the
      Company, are rising compared to 2005 and the coach division has generated
      excellent traffic and sale prospects at the early trade shows and events.
      Management believes the reduction in motorcoach backlog primarily reflects
      a
      trend toward customers preferring to buy completed coaches rather than ordering
      a custom coach for future delivery and does not reflect a reduction in the
      demand for motorcoaches. Management expects that sales in both business segments
      will continue to improve, barring a downturn in national economic business
      conditions. There is continuing focus by the Company on sales and marketing
      related activities that have been effective in increasing sales in the past,
      but
      there is no assurance they will be successful in increasing order levels to
      maintain or exceed the 2005 sales volume or that the price increase initiated
      as
      of January 1, 2006 and surcharge initiated on January 17, 2006 will be
      sufficient to offset increased aluminum and other cost increases that may be
      incurred in 2006. Margins may be adversely impacted until the price increase
      and
      surcharge are fully effective.




The
      Company believes its name recognition and close affiliation with the motorsports
      industry will continue to have a positive impact on its sales of specialty
      trailers, transporters and luxury motorcoaches. With more than 75 percent of
      its
      revenue from end users in motorsports and leisure and entertainment categories,
      which also includes horse trailers, and its strong position in the livestock
      trailer market, the Company believes it is strategically well-positioned to
      continue to benefit from these markets. The Company introduced over 70 new
      and
      enhanced models of trailers in 2005 and added 16 enhancements to motorcoach
      models.








**Liquidity
      and Capital Resources**





***General***





The
      Company’s liquidity is primarily affected by its cash flow from operations
      together with changes in amounts available to borrow on its approved lines
      of
      credit with U.S. Bank and GE. During the year ended December 31, 2005, the
      Company’s operating activities provided net cash of $6.8 million. At December
      31, 2005, the Company had approximately $12.3 million available to borrow under
      its credit lines compared to $9.5 million at December 31, 2004, an increase
      of
      $2.8 million as availability under both lines increased due to changes in
      eligible receivables and inventories.


19
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The
      Company’s liquidity can be measured by two key indicators, its current ratio and
      its ratio of debt to shareholders’ investment. The Company’s ratio of current
      assets to current liabilities was 1.56:1 at December 31, 2005, compared with
      a
      ratio of 1.44:1 at December 31, 2004. **** This
      ratio has improved as a result of operating results and cash flow. The ratio
      of
      total debt to shareholders’ investment decreased to 1.10:1 at December 31, 2005
      from 1.54:1 at December 31, 2004. This ratio improved as stockholders’
investment increased during 2005 as a result of net income for the
      year.





To
      maintain an efficient level of trailer production, increased expenditures for
      working capital items may be required from time to time to support production
      levels in excess of sales. Work in process and finished trailer inventories
      have
      increased by $0.9 million in 2005 to support the increased level of sales volume
      that we are experiencing in the trailer division. The production workforce
      was
      also expanded proportionally with the increased level of orders. It is the
      Company’s expectation that a substantial portion of these additional trailers
      will be sold to dealers in the coming months. However, there is no assurance
      this will occur, which could adversely impact the liquidity of the Company.





To
      maintain a level motorcoach production schedule, production may begin on coaches
      before an order has been received from a specific buyer. As of December 31,
      2005, approximately 86 percent of the coaches in production and to be completed
      over the next four months have not been sold to specific customers as compared
      to 70 percent at December 31, 2004. While it is the Company’s expectation that
      substantially all of these motorcoaches will be sold to specific customers,
      there is no assurance this will occur. Accordingly, this could adversely impact
      the liquidity of the Company. For the year ended December 31 2005, total units
      sold exceeded units produced and new coach inventory decreased by $3.4 million.





During
      the first quarter of 2006, the Company has scheduled payments for debt principal
      and interest, expiring motorcoach shell consignment agreements, management
      performance bonus payments, 401k matching contribution payment and other fixed
      obligations that will require cash flows of $7.1 million. Additional payments
      may be required for the commitments and contingencies referred to in Note 8
      to
      the consolidated financial statements included in this annual report on Form
      10-K. These payments are expected to be funded by cash generated from operations
      as well as availability on existing lines of credit.








***Credit
      Facilities and Other Financing Activities***





The
      following, read in conjunction with Note 7 to the consolidated financial
      statements included in this annual report on Form 10-K, is a summary of the
      Company’s agreements with its principal lenders:





1.
      The
      Company’s Amended and Restated Loan Agreement with U.S. Bank is in an aggregate
      amount of $27.8 million, including $17.0 million in an asset-based revolving
      credit commitment, $8.1 million in term loans on existing real estate and
      equipment and $2.7 million as a term loan for new equipment purchases. As of
      December 31, 2005, net availability on the revolving credit line was $17.0
      million, with $2.6 million used for irrevocable standby letters of credit and
      $2.4 million borrowed and outstanding. The $8.1 million term notes are repayable
      over varying terms ending October 31, 2008 with aggregate monthly principal
      payments of $98,000 plus interest until maturity. Monthly principal payments
      are
      required on the outstanding principal balance on the new equipment term loan
      based on a 60 month amortization schedule ($7,700 plus interest on outstanding
      balance of $376,000 at December 31, 2005) and will be determined as borrowings
      are made on this note with the unpaid balance due on October 31, 2008. The
      Company was in compliance with all the covenants of this agreement at December
      31, 2005.








2.
      The
      Company’s Amended Wholesale Financing Agreement with GE provides for aggregate
      financing of $25 million on new and used motorcoaches held as inventory by
      the
      Company. As of December 31, 2005, the aggregate availability under this
      agreement based upon motorcoach inventory levels and composition was $17.7
      million with $17.4 million outstanding. The Company was in compliance with
      all
      the covenants of this agreement at December 31, 2005.





.


3.
      In
      2003, the Company entered into a Floor Plan Financing Agreement with Regions
      Bank, for aggregate financing of $3.0 million to fund 100 percent of the cost
      of
      new motorcoaches purchased for resale from Foretravel, the manufacturer. During
      2004, the Agreement was amended to provide for use of this line to also fund
      purchases of travel trailers from Coachmen, Inc. In December 2005, this
      agreement was amended to reduce the available line from $3.0 million to $2.0
      million, as the Company’s need for this financing has been reduced as the
      Foretravel dealership is being discontinued. As of December 31, 2005, $0.7
      million was outstanding on this agreement. The Company was in compliance with
      the financial covenants of this agreement.





4.
      The
      Company’s motorcoach shell manufacturer provides shells to the Company on a
      4-month consignment basis. Payment is required at the time a motorcoach is
      sold
      or at the end of the consignment period. At December 31, 2005, the amount due
      the Company’s shell manufacturer for consigned shells was $3.1 million and there
      were no shells with an expired consignment term.


20
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5.
      On
      January 21, 2005, the Company entered into a Mortgage Agreement with GE
      Commercial Finance Business Property Corporation (GE Property) whereby the
      Company borrowed funds to purchase the $5.3 million Sanford, Florida property
      it
      uses as a sales and service center for the motorcoach division. The mortgage
      note matures on February 1, 2017, bears interest at a fixed rate of 6.49 percent
      per annum and requires monthly principal and interest payments of $52,874.
      Prior
      to entering into this agreement, the Company was using this property under
      the
      terms of a lease agreement and it was recorded on the Company’s balance sheet as
      a capital lease obligation. As this property was previously recorded as a
      capitalized lease, this transaction did not result in a significant increase
      in
      annual depreciation or interest expense.





Based
      on
      the Company’s operating results for 2005 and its business plan for 2006,
      management believes that the Company will meet all the quarterly and year-end
      restrictive financial covenants of its lenders, as defined by the underlying
      agreements (including those with U.S. Bank and GE as revised), which are
      discussed more fully in Note 7.








***Certain
      Other Obligations***





As
      described in Note 8 to the consolidated financial statements included in this
      annual report on Form 10-K, the Company is subject to a number of commitments
      and contingencies that may affect its liquidity.








***Statement
      of Cash Flows***





Following
      is a discussion of the principal components of the Company’s cash flow for the
      year ended December 31, 2005, as reflected in the consolidated statements of
      cash flow:




Operating
      activities provided net cash of $6.8 million. The Company’s net income of $4.5
      million included non-cash depreciation and amortization of $2.3 million and
      other non-cash items in an aggregate net amount of $0.3 million. Net changes
      in
      receivables, inventories, leased trailers and prepaid assets provided cash
      of
      $4.5 million. Accounts receivable increased by $2.4 million, which was more
      than
      offset by a decrease in total inventory levels of $5.9 million. This inventory
      decrease was primarily the result of a $4.5 million decrease in new and used
      motorcoach inventories and a $1.9 million reduction in motorcoach work in
      process. These decreases were partially offset by a $0.9 million increase in
      work in process and finished trailer inventories. Leased promotional trailers
      and prepaid expenses also decreased, providing an additional $0.9 million.
      Net
      changes in accounts payable, accrued liabilities and other current liabilities
      used cash of $4.8 million. Changes in these liabilities included, among other
      items: a decrease of $4.1 million motorcoach shells payable and a decrease
      of
      $0.9 million in accrued expenses due mainly to decreased accruals for executive
      incentive bonuses, 401K match contributions and dealer holdback payments.





The
      Company’s investing activities used cash of $2.8 million, including $5.4 million
      used to purchase the Sanford, FL facility and $1.0 million for the purchase
      of
      other equipment. There were no borrowings against the capital expenditure term
      note in 2005.





The
      Company’s financing activities used net cash of $4.4 million. Borrowings to
      purchase the Sanford, FL facility provided cash of $5.3 million. While $4.4
      million was used to pay-off the capital lease on that property. Net long term
      debt reductions used $1.8 million and reductions in the Company’s credit lines
      used $5.0 million. Checks issued but not presented for payment increased by
      $1.5
      million. Borrowings on the U.S. Bank line of credit are used to fund these
      checks as they are presented for payment at the bank. The Company received
      $235,000 of proceeds for the issuance of common stock for options
      exercised.





The
      Company believes that its current sources of liquidity will be sufficient to
      fund continued operations and capital requirements for the next twelve months.
      As described above, the Company has agreements with its two major lenders to
      continue funding in 2006 and beyond, assuming ongoing compliance with applicable
      covenants. ****





For
      the
      foreseeable future, the Company does not plan to pay dividends but instead
      will
      follow the policy of reinvesting any earnings in order to finance the expansion
      and development of its business. The Company is a party to certain loan
      agreements that prohibit the payment of dividends without the lenders’
consent.





21
 Table
          of Contents


**Contractual
      Obligations**





Contractual
                obligation
              In
                000’s
            
            Total
            
            1
                year
              or
                less
            
            2-3
              Years
            
            4-5
              Years
            
            More
                Than
              5
                yearsLong-term
                debt (1)
            
            $
            11,915
            
            $
            1,768
            
            $
            6,125
            
            $
            805
            
            $
            3,217Interest
                payments on fixed rate debt (4)
            
            
            2,291
            
            
            486
            
            
            637
            
            
            473
            
            
            695Operating
                leases (2)
            
            
            3,089
            
            
            1,216
            
            
            1,249
            
            
            555
            
            
            69Purchase
                obligations (3)
            
            
            3,142
            
            
            3,142
            
            
            -
            
            
            -
            
            
            -Total
            
            $
            20,437
            
            $
            6,612
            
            $
            8,011
            
            $
            1,833
            
            $
            3,981





(1)
      See
      Note 8 to consolidated financial statements included in this annual report
      on
      Form 10-K.


(2)
      See
      Note 9 to consolidated financial statements included in this annual report
      on
      Form 10-K.


(3)
      The
      Company has no contracts with suppliers to buy aluminum in 2006 at agreed upon
      prices; however, it has firm commitments with the motorcoach shell manufacturer
      to purchase a number of shells in 2006.


(4)
      Does
      not include interest that varies with the prime rate on approximately $25
      million of debt.








**Off-Balance
      Sheet Arrangements**





Other
      than the irrevocable standby letters of credit in the amount of $2.6 million
      and
      operating leases summarized above under “Contractual Obligations”, the Company
      did not have any material off-balance sheet arrangements at December 31, 2005
      or
      during the year then ended.








**Critical
      Accounting Policies**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      decisions based upon estimates, assumptions, and factors it considers as
      relevant to the circumstances. Such decisions include the selection of
      applicable accounting principles and the use of judgment in their application,
      the results of which impact reported amounts and disclosures. Changes in
      economic conditions or other business circumstances may affect the outcomes
      of
      management’s estimates and assumptions. Accordingly, actual results could differ
      from those anticipated, and could harm the Company’s future
      liquidity.





The
      Company’s critical accounting policies that we believe require the most
      significant estimates and assumptions by management, include the
      following:





*Inventories:* Inventories are stated at the lower of cost, as determined on a first-in,
      first-out (FIFO) basis, or market and includes materials, labor and overhead
      costs. Raw materials consist of the cost of materials required to produce
      trailers and complete motorcoach conversions and to support parts sales and
      service. Work in process consists of costs related to materials, bus conversion
      shells, labor and overhead related to the production process. The Company writes
      down its inventory for obsolescence, and the difference between the cost of
      inventory and its estimated market value. In the past, the Company has recorded
      significant reductions in the value of its used motorcoach inventory. Inventory
      write-downs are based on assumptions about future sales demand and market
      conditions. If actual sales demand or market conditions change from those
      projected by management, additional inventory write-downs may be required.





*Revenue
      Recognition* :
      The
      Company recognizes revenue from the sale of trailers and motorcoaches when
      title
      and risks of ownership are transferred to the customer, which generally is
      upon
      shipment or customer pick-up. A customer may be invoiced for and receive title
      prior to taking physical possession when the customer has made a fixed, written
      commitment to purchase, the trailer or motorcoach has been completed and is
      available for pick-up or delivery, and the customer has requested the Company
      to
      hold the trailer or motorcoach until the customer determines the most economical
      means of taking physical possession. Upon such a request, the Company has no
      further obligation except to segregate the trailer or motorcoach, issue its
      Manufacturer’s Statement of Origin (MSO), invoice the customer under normal
      billing and credit terms and hold the trailer or motorcoach and related MSO
      for
      a short period of time, as is customary in the industry, until pick-up or
      delivery and receipt of payment. Products are built to customer specification
      and no right of return or exchange privileges are granted. Accordingly, no
      provision for sales allowances or returns is normally required except in unusual
      circumstances.





*Long-lived
      Assets:* Management periodically reviews the carrying value of long-lived assets for
      impairment whenever events or changes in circumstances indicate that carrying
      value may not be recoverable. In performing the review for recoverability,
      management estimates the non-discounted future cash flows expected to result
      from the use of the asset and its eventual disposition.


22
 Table
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*Income
      taxes* :
      The
      Company accounts for income taxes in accordance with Statement of Financial
      Accounting Standards No. 109, “Accounting for Income Taxes.” As part of the
      process of preparing our consolidated financial statements, the Company is
      required to estimate its income taxes in each of the jurisdictions in which
      it
      operates. This process involves estimating our current tax exposure together
      with assessing temporary differences resulting from differing treatment of
      items
      for tax and financial reporting purposes. These temporary differences result
      in
      deferred tax assets and liabilities, which are included in our accompanying
      consolidated balance sheets. Deferred tax assets and liabilities are measured
      using enacted tax rates expected to apply to taxable income in the years in
      which temporary differences are expected to be recovered or settled. To the
      extent it is determined that it is not likely that our deferred tax assets
      will
      be recovered from future taxable income, a valuation allowance must be
      established for the amount of the deferred tax assets determined not to be
      realizable. A valuation allowance for deferred tax assets has not been deemed
      necessary due to our profitable operations. However, if the facts or our
      financial results were to change, thereby impacting the likelihood of realizing
      the deferred tax assets, judgment would have to be applied to determine the
      amount of any valuation allowance required in any given period.





*Product
      Warranty* :
      The
      Company’s products are covered by product warranties ranging from one to six
      years after the date of sale. At the time of sale, the Company recognizes
      estimated warranty costs based on prior history and expected future claims
      and
      records an accrued liability. The accrued liability is reduced as actual
      warranty costs are paid and is evaluated periodically to validate previous
      estimates and known requirements and is adjusted as necessary.





*Other:* The
      Company has reserves for other loss exposures, such as litigation, taxes,
      product liability, worker’s compensation, employee medical claims, vacation and
      accounts receivable. Establishing loss reserves for these matters requires
      use
      of estimates and judgment in regards to risk exposure and ultimate liability.
      The Company estimates losses under the programs using consistent and appropriate
      methods; however, as better information becomes available or as actual amounts
      are determinable, the recorded estimates are revised. Ultimate results could
      differ from these estimates.





**Recent
      Accounting Pronouncements**





In
      November 2004, the FASB issued SFAS 151, ** Inventory
      Costs, an Amendment of ARB No. 43, Chapter 4 *,* which is
      effective for the company on January 1, 2006. The standard amends the guidance
      in Accounting Research Bulletin (ARB) No. 43, Chapter 4, “Inventory Pricing,” to
      clarify the accounting for abnormal amounts of idle facility expense, freight,
      handling costs and spoilage. In addition, the standard requires that allocation
      of fixed production overhead to the costs of conversion be based on the normal
      capacity of the production facilities. The adoption of this standard is not
      expected to have a material impact on the Company’s financial position or
      results of operations.





Effective
      January 1, 2003, the Company early adopted the provisions of Statement of
      Financial Accounting Standards No. 123(R), *Share-Based
      Payments* ,
      in
      accounting for its stock options plans using the modified prospective
      application. The Company would have otherwise been required to adopt SFAS No,
      123(R) in the first annual period beginning after December 15, 2005. The Company
      has elected to use the Black-Scholes method to determine the fair value of
      its
      options. The amount of stock-based compensation expense reported for fiscal
      year
      2005 was $58,000.





In
      December 2004, the FASB issued FASB No. 153, Exchange of Nonmonetary Assets
      (“SFAS 153”). SFAS 153 addresses the measurement of exchanges of nonmonetary
      assets. It eliminates the exception from fair value measurement for nonmonetary
      exchanges of similar productive assets and replaces it with a general exception
      for exchanges that do not have commercial substance. This Statement specifies
      that a nonmonetary exchange has commercial substance if the future cash flows
      of
      the entity are expected to change significantly as a result of the exchange.
      The
      provisions of this Statement shall be effective for nonmonetary asset exchanges
      occurring in fiscal periods beginning after June 15, 2005. The Company will
      adopt SFAS 153 at the beginning of Fiscal 2006 and does not anticipate that
      it
      will have a material impact on its consolidated results of operations, financial
      position, or cash flows.





In
      May
      2005, the FASB issued FASB No. 154, Accounting Changes and Error Corrections
      (“SFAS 154”). SFAS 154 provides guidance on the accounting for and reporting of
      accounting changes and error corrections. It requires retrospective application
      to the prior periods’ financial statements of voluntary changes in accounting
      principle and changes required by an accounting pronouncement in the event
      the
      pronouncement does not include specific transition provisions. The provision
      of
      this Statement shall be effective for accounting changes made in fiscal years
      beginning after December 15, 2005.





On
      October 22, 2004, the FASB issued FASB Staff Position (FSP) 109-1, Application
      of FASB Statement No. 109, *Accounting for Income Taxes* ,
      for the
      Tax Deduction Provided to U.S. Based Manufacturers by the American Job Creation
      Act of 2004.  FSP No. 109-1 clarifies how to apply SFAS No. 109 to the new
      law’s tax deduction for income attributable to “domestic production activities.”
The fully phased-in deduction is up to nine percent of the lesser of taxable
      income or “qualified production activities income.” The staff proposal would
      require that the deduction be accounted for as a special deduction in the period
      earned, not as a tax-rate reduction.  The Company expects that
      substantially all of its net income will be “qualified production activities
      income” when calculating the deduction.





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**ITEM
      7A.****QUANTITATIVE
      & QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





*Commodity
      Risk*




The
      Company is exposed to market risks related to changes in the cost of aluminum.
      Aluminum is a commodity that is traded daily on the commodity markets and
      fluctuates in price. The average Midwest delivered cash price per pound for
      ingot aluminum during the three years ended December 31, 2005, as reported
      to
      the Company by its suppliers was $0.92 in 2005 **,** $0.85 in
      2004, and $0.68 in 2003. The current average aluminum cost per pound for 2006
      delivery is $1.19 for the first two months of 2006. The Company’s cost of
      aluminum, which was approximately 15 percent of consolidated cost of sales
      in
      2005, varies from these market prices due to vendor processing charges, timing
      of purchases, and contractual commitments with suppliers for specific prices
      and
      other factors. The Company has not yet obtained any fixed price commitments
      for
      aluminum purchases in 2006, which would reduce the risk of aluminum cost
      fluctuations for the year.  If
      the
      Company is unable or elects not to obtain such commitments from suppliers or
      otherwise reduce the price risk related to 2006, this could have an adverse
      impact on the Company’s operating results if the cost of aluminum increases
      significantly above 2005 levels in 2006 and the Company cannot increase its
      product prices sufficiently to cover such increases. The Company initiated
      a 4
      percent price increase for substantially all trailer products other than
      interior packages that are invoiced after December 31, 2005 unless they were
      ordered and in backlog at December 31, 2005. The Company also initiated a 4.5%
      aluminum surcharge on all aluminum trailer models invoiced after January 17,
      2006 unless they were ordered and in backlog at January 17, 2006. Management
      believes these price increases will cover the higher aluminum costs in 2006
      when
      fully effective.








*Interest
      Rate Risk*





The
      Company is exposed to market risks related to changes in U.S. and international
      interest rates. Approximately $25 million of the Company’s debt bears interest
      at a variable rate. An interest rate increase by one percentage point would
      reduce the Company’s future annual net income by approximately $153,000 at
      current debt levels.





**ITEM
      8.****FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA**





Except
      for the report of the Company’s independent registered
      public accounting firms, which are set forth below, the consolidated financial
      statements and notes appear on pages 31 through 46. Quarterly financial data
      appears in Item 6.


24
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**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**











Board
      of
      Directors and


Shareholders
      of Featherlite, Inc.











We
      have
      audited the accompanying consolidated balance sheet of Featherlite, Inc. and
      subsidiaries (a Minnesota Corporation) as of December 31, 2005, and the related
      consolidated statements of operations, stockholders’ investment, and cash flows
      for the year ended December 31, 2005. These financial statements are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these financial statements based on our audit.





We
      conducted our audit in accordance with the standard of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform an audit of its internal control over
      financial reporting. Our audit included consideration of internal control of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      also
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements, assessing the accounting principles
      used and significant estimates made by management, as well as evaluating the
      overall financial statement presentation. We believe that our audit provides
      a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Featherlite, Inc. and
      subsidiaries as of December 31, 2005, and the results of their operations and
      their cash flows for the year ended December 31, 2005, in conformity with
      accounting principles generally accepted in the United States of
      America.





Our
      audit
      was conducted for the purpose of forming an opinion on the basic financial
      statements taken as a whole. The accompanying Schedule ll is presented for
      purpose of additional analysis and is not a required part of the basic financial
      statements and, in our opinion, is fairly stated in all material respects in
      relation to the basic financial statements taken as a whole.














GRANT
      THORNTON LLP


Minneapolis,
      Minnesota


February
      14, 2006





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**INDEPENDENT
      AUDITORS’ REPORT**











To
      the
      Board of Directors and Shareholders of Featherlite, Inc.:








We
      have
      audited the accompanying consolidated balance sheets of Featherlite, Inc. and
      subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related
      consolidated statements of operations, shareholders’ investment and
      comprehensive income and cash flows for each of the two years in the period
      ended December 31, 2004. Our audits also included the 2004 and 2003 amounts
      in
      the financial statement schedule listed in the Index at Item 15. These financial
      statements and financial statement schedule are the responsibility of the
      Company’s management. Our responsibility is to express an opinion on the
      financial statements and financial statement schedules based on our
      audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require that
      we plan and perform the audit to obtain reasonable assurance about whether
      the
      financial statements are free of material misstatement.  The Company is not
      required to have, nor were we engaged to perform, an audit of its internal
      control over financial reporting. Our audit included consideration of internal
      control over financial reporting as a basis for designing audit procedures
      that
      are appropriate in the circumstances but not for the purpose of expressing
      an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion *.* An
      audit also includes examining, on a test basis, evidence supporting the amounts
      and disclosures in the financial statements, assessing the accounting principles
      used and significant estimates made by management, as well as evaluating the
      overall financial statement presentation.  We believe that our audits
      provide a reasonable basis for our opinion.




In
      our
      opinion, such consolidated financial statements present fairly, in all material
      respects, the financial position of Featherlite, Inc. and subsidiaries as of
      December 31, 2004 and 2003, and the results of their operations and their cash
      flows for each of the two years in the period ended December 31, 2004, in
      conformity with accounting principles generally accepted in the United States
      of
      America. Also, in our opinion, such financial statement schedule, when
      considered in relation to the basic consolidated financial statements taken
      as a
      whole, present fairly in all material respects the information set forth
      therein.








DELOITTE
      & TOUCHE LLP


Minneapolis,
      Minnesota


March
      29,
      2005













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


None.








**ITEM****9A.****CONTROLS
      AND PROCEDURES**





(a)  Evaluation
      of disclosure controls and procedures. After evaluating the effectiveness of
      the
      Company’s “disclosure controls and procedures” pursuant to Rule 13a-15(b) of the
      Securities and Exchange Act of 1934 (the Exchange Act) as of the end of the
      period covered by this annual report, our chief executive officer and chief
      financial officer, with the participation of the Company’s management, have
      concluded that the Company’s disclosure controls and procedures are effective to
      ensure that information that is required to be disclosed by the Company in
      reports that it files under the Exchange Act is recorded, processed, summarized
      and reported within the time periods specified in the rules of the Securities
      and Exchange Commission.





(b)  Changes
      in internal controls. There were no changes in our internal control over
      financial reporting (as defined in Rule 13(a)-15(f) under the Exchange Act)
      that
      occurred during the fourth fiscal quarter of 2005, that have materially
      affected, or are reasonably likely to materially affect the Company’s control
      over financial reporting.





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**PART
      III**





**ITEM
      10. DIRECTORS AND EXECUTIVE OFFICERS**





The
      following table sets forth certain information concerning the directors and
      executive officers of the Company:






**Name**
                **Age**
                **Present
                    Position with Company****Conrad
                    D. Clement**
                **61**
                **President,
                    Chief Executive Officer and Director****Jeffery
                    A. Mason**
                **65**
                **Chief
                    Financial Officer and Director****Tracy
                    J. Clement**
                **39**
                **Executive
                    Vice President and Director****Gary
                    H. Ihrke**
                **59**
                **Vice
                    President of Operations & Secretary****Eric
                    P. Clement**
                **36**
                **Vice
                    President & General Manager, Trailer Division****James
                    S. Wooley**
                **58**
                **Vice
                    President and President, Luxury Motorcoach Division****Larry
                    D. Clement**
                **60**
                **Treasurer****Thomas
                    J. Winkel**
                **63**
                **Director****Kenneth
                    D. Larson**
                **65**
                **Director****Terry
                    E. Branstad**
                **59**
                **Director****Charles
                    A. Elliott**
                **72**
                **Director**




The
      term of office
      of each executive officer is from one annual meeting of directors until the
      next
      annual meeting of directors or until a successor is elected.


The
      business
      experience of the executive officers and directors during the past five years
      is
      as follows:





***Conrad
      D.
      Clement*** has been
      the Chairman, President and Chief Executive Officer and a director of the
      Company since its inception in 1988. Mr. Clement is also the President and
      Chief
      Executive Officer and a director and shareholder of Featherlite Credit
      Corporation, an affiliate of the Company (“Featherlite Credit”). He is also an
      owner of Valley Trailer Sales, a *FEATHERLITE* ® dealer,
      and an owner of Clement Enterprises and Clement Properties, all affiliates
      of
      the Company. Mr. Clement is the brother of Larry D. Clement and the father
      of
      Tracy J. Clement and Eric P. Clement.





***Jeffery
      A. Mason*** has been
      the Chief Financial Officer of the Company since August 1989 and has been a
      director of the Company since June 1993. Mr. Mason is also an officer of
      Featherlite Credit Corporation, an affiliate of the Company. Mr. Mason is also
      a
      certified public accountant with an inactive status.





***Tracy
      J. Clement*** has been
      Executive Vice President and a director of the Company since 1988. Mr. Clement
      is also an officer and shareholder of Featherlite Credit, and an owner of Valley
      Trailers, a *FEATHERLITE* ® dealer
      and Clement Properties, all affiliates of the Company.





***Gary
      H. Ihrke*** was
      appointed Secretary in August 1996 and Vice President of Operations in March
      1996 after service as Vice President of Manufacturing since June 1993.





***Eric
        P. Clement*** has been
        Vice President & General Manger, Trailer Division since January 2005. Prior
        to that Mr. Clement was Vice President of Sales since March 1996 after service
        as Vice President of Operations since January 1991. Mr. Clement is also an
        officer and shareholder of Featherlite Credit Corporation and an owner of
        Clement Properties, both
        affiliates of the
        Company.





***James
        S. Wooley*** has been
        Vice President and President of the Featherlite Luxury Coach Division since
        April 2002 and was previously the Chief Operating Officer of the Division
        since
        joining the Company in January **** 2001.
        Prior to that **,** Mr.
        Wooley was Chairman of the Board and Chief Operating Officer of Autumn Home
        Care
        Facilities, Inc. from 1994 to 1998. Mr. Wooley is also an attorney.


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***Larry
        D. Clement*** has been
        Treasurer of the Company since 1988 and was previously secretary and a director
        of the Company. Mr. Clement is also an officer and shareholder of Featherlite
        Credit Corporation **,** an
        affiliate of the company **,** and is
        the President and Secretary of Clement Auto & Truck, Inc., a
        FEATHERLITE ® dealer.
        Mr. Clement is the brother of Conrad D. Clement **.**





***Thomas
      J. Winkel*** has been
      a director since April 1994. Since January 1994, Mr. Winkel has been a
      management and financial consultant and private investor. From 1990 to 1994,
      Mr.
      Winkel was the majority owner, Chairman of the Board, Chief Executive Officer
      and President of Road Rescue, Inc., a manufacturer of emergency response
      vehicles. Mr. Winkel is a certified public accountant, and from 1977 to 1990
      was
      a partner in a national accounting firm. Mr. Winkel also is a director of Marten
      Transport, Ltd., a public company where he serves on the audit, compensation
      and
      nominating/corporate governance committees.





***Kenneth
      D. Larson*** has been
      a director since August 1994.  Mr. Larson is the retired President and COO
      of Polaris Industries, Inc., positions he held from 1988 to 1998.  Mr.
      Larson is a director and chairman of Restaurant Technologies, Inc., a private
      company and a director of Nortech Systems Inc., a public company where he serves
      on the audit and compensation committees.  Mr. Larson is also a director of
      Bellacor.com, Inc., a private company.





***Terry
      E. Branstad*** **** has
      been
      a director since 1999 and served as Governor of the State of Iowa from January
      of 1983 to January of 1999.  Governor Branstad is an attorney-at-law and
      since August of 2003 has been the President of Des Moines University.  He
      serves as a director of the Iowa Health System, and Liberty Bank FSB, both
      private organizations and is a public member of the American Institute of
      Certified Public Accountants Board.




***Charles
      A. Elliott*** has been
      a director of the Company since 2000. In 1951, Mr. Elliott joined Crenlo, Inc.,
      a manufacturer of cabs and ROPS for agricultural and construction equipment,
      and
      was named President, Chief Executive Officer and Chairman in 1985, a position
      held until October 1999 when the Company was sold. Mr. Elliott currently serves
      as an advisory board member and trustee for several private companies and
      organizations.








**CORPORATE
      GOVERNANCE**








**Code
      of Ethics for Senior Financial Management**





The
      Company has adopted the Featherlite Code of Ethics for Senior Financial
      Management (the “Code of Ethics”), a code of ethics that applies to members of
      senior financial management, including the Company’s Chief Executive Officer,
      President, Executive Vice President, Chief Financial Officer, Corporate and
      Division Controllers and other employees performing similar functions who have
      been identified by the Chief Executive Officer, and meets the requirements
      of
      the Securities and Exchange Commission. The Featherlite Code of Ethics for
      Senior Financial Management is available on the Company’s website at
      www.fthr.com. If the Board makes any substantive amendments to the Code of
      Ethics or grants any waiver, including any implicit waiver from a provision
      of
      the Code of Ethics, the nature of such amendments or waiver will be disclosed
      on
      the Company’s website or in a report on Form 8-K.





**Code
      of Ethics and Business Conduct**





The
      Company has adopted the Featherlite Code of Ethics and Business Conduct (the
      “Code of Conduct”), a code of conduct that applies to all of our directors,
      officers and employees, including senior financial management. The Code of
      Conduct is intended to promote honest and ethical conduct and to provide
      guidance for the appropriate handling of various business situations. The Code
      of Conduct addresses, among other matters, legal and regulatory compliance,
      insider trading, confidentiality, conflicts of interest, competition and fair
      dealing, financial reporting and record-keeping, protection and proper use
      of
      company assets, and the reporting of illegal or unethical behavior. Employees
      may anonymously report possible violations of the Code of Conduct via a toll
      free telephone number, which is 1-800-826-6762. Waivers of the Code of Conduct
      for officers and directors may be made only by the Board of Directors and will
      be promptly disclosed if and as required by law or Nasdaq listing requirements.





**Audit
      Committee**





The
      audit
      committee of the Board of Directors is composed of four directors and acts
      under
      a written charter adopted and approved by the Board of Directors. Messrs.
      Branstad, Elliott, Larson and Winkel currently serve as the members of the
      Audit
      Committee. The Board has determined that all members of the Audit Committee
      meet
      the SEC and Nasdaq Stock Market definitions of independence and financial
      literacy for audit committee members. The Board has also determined that Mr.
      Winkel qualifies as an “audit committee financial expert” as defined by
      Securities and Exchange Commission rules. The Company acknowledges that the
      designation of Mr. Winkel as the audit committee financial expert does not
      impose on Mr. Winkel any duties, obligations or liability that are greater
      than
      the duties, obligations and liability imposed on Mr. Winkel as a member of
      the
      Audit Committee and the Board of Directors in the absence of such designation
      or
      identification.


28
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          of Contents





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Section
      16(a) of the Securities Exchange Act of 1934 requires the Company’s executive
      officers and directors, and persons who own more than 10 percent of the
      Company’s common stock, to file with the Securities and Exchange Commission
      initial reports of ownership and reports of changes in ownership of common
      stock
      and other equity securities of the Company. Officers, directors and greater
      than
      10% shareholders (“Insiders”) are required by SEC regulations to furnish the
      Company with copies of all Section 16(a) forms they file.





To
      the
      Company’s knowledge, based on a review of the copies of such reports furnished
      to the Company, during the fiscal year ended December 31, 2005 all Section
      16(a)
      filing requirements applicable to Insiders were complied with.








**ITEM
      11. EXECUTIVE COMPENSATION**








**Summary
      Compensation Table**





The
      following table sets forth certain information regarding compensation paid
      during each of the Company’s last three fiscal years to the Company’s Chief
      Executive Officer and each of the most highly compensated executive officers
      who
      received total salary and bonus in excess of $100,000 for 2005:





Annual
                Compensation
            Long
                Term CompensationName
                and
              Principal
                Position
            Fiscal
                Year
            Salary
                ($)(3)
            Bonus
                ($)
            Other(1)
            Securities
                Underlying Options/ SARs (#)
            All
                Other Compensation ($)Conrad
                D. Clement
            2005
            358,025
            407,300
            4,384
            -0-
            15,775(2)President
                and Chief
            2004
            340,000
            -0-
            10,067
            -0-
            16,000Executive
                Officer
            2003
            355,692
            -0-
            8,767
            -0-
            14,000Tracy
                J Clement
            2005
            225,970
            198,112
            254
            -0-
            11,792(2)Executive
                Vice President
            2004
            213,440
            -0-
            11,574
            -0-
            13,0002003
            223,149
            -0-
            253
            -0-
            12,000James
                S. Wooley
            2005
            218,400
            -0-
            253
            -0-
            -0-Vice
                President & President
            2004
            208,000
            -0-
            253
            -0-
            -0-Luxury
                Coach Division
            2003
            216,000
            -0-
            253
            -0-
            -0-Eric
                P. Clement
            2005
            178,011
            131,183
            7,401
            -0-
            11,362(2)Vice
                President &
            2004
            140,943
            -0-
            6,857
            -0-
            8,997General
                Manager, Trailer
            2003
            145,745
            -0-
            3,932
            -0-
            9,303DivisionJeffery
                A. Mason
            2005
            141,552
            131,183
            4,512
            -0-
            15,885(2)Chief
                Financial Officer
            2004
            137,944
            -0-
            4,700
            -0-
            11,9962003
            144,288
            -0-
            6,047
            -0-
            11,419Gary
                H. Ihrke
            2005
            141,578
            131,183
            147
            -0-
            15,859(2)Vice
                President of
            2004
            137,944
            -0-
            253
            -0-
            11,996Operations
                & Secretary
            2003
            144,288
            -0-
            51
            -0-
            11,419





(1)  Related
      to automobiles and other fringe benefits.


(2)  Company
      contribution to 401(k) Plan.


(3)
      Salary
      reflects cash payments received in fiscal year and reported on W-2. The year
      2003 included one extra bi-weekly pay period.





**Option/SAR
      Grants During 2005 Fiscal Year**





There
      were no options/SAR grants to executive officers during fiscal year 2005.
      Outstanding options were increased by 50% to reflect the 3 for 2 stock split
      authorized by the Board of Directors in April 2005.


29
 Table
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**Option/SAR
      Exercises During 2005 Fiscal Year and Fiscal Year End Option/SAR
      Values**





The
      following table provides information related to options exercised by the named
      executive officers during the 2005 fiscal year and the number and value of
      options held at fiscal year end:





Name
            
            Shares
              Acquired
                on
              Exercise
                (#)
            
            Value
              Realized
                ($)
            
            Number
              of
              Unexercised
              Options/SARs
                at
              FY-End
                (#)
              Exercisable/
              Unexercisable
            
            Value
                of
              Unexercised
              In-the-Money
              Options/SARs
                at
              FY-End
                ($)(1)
              Exercisable/
              UnexercisableConrad
                D. Clement
            
            
            -0-
            
            
            -0-
            
            
            120,000/0
            
            $
            322,245/0Tracy
                J. Clement
            
            
            -0-
            
            
            -0-
            
            
            45,000/0
            
            $
            105,295/0Jeffery
                A. Mason
            
            
            96,000
            
            $
            278,198
            
            
            132,000/0
            
            $
            367,565/0Gary
                H. Ihrke
            
            
            -0-
            
            
            -0-
            
            
            228,000/0
            
            $
            656,787/0Eric
                P. Clement
            
            
            -0-
            
            
            -0-
            
            
            63,000/0
            
            $
            167,216/0James
                S. Wooley
            
            
            -0-
            
            
            -0-
            
            
            75,000/0
            
            $
            188,311/0





(1)
            Based
                on the difference between $4.22 (the closing price of the Company’s common
                stock on December 31, 2005 as reported by Nasdaq) and the option
                exercise
                price.





**Directors’
        Fees**





In
        2005,
        directors who are not employees of the Company were paid an annual retainer
        of
        $20,000 plus $1,000 for each board meeting attended and $750 for each committee
        meeting attended on days other than when a Board meeting is held. Directors
        who
        chair committees received an additional fee as follows: audit committee-
        $18,000; compensation committee- $5,000, nominating/corporate governance
        committee- $2,000. In addition, pursuant to the Company’s proposed 2004 Equity
        Incentive Plan, non-employee directors received automatic grants of nonqualified
        stock options to purchase 3,000 shares upon their initial election to the
        Board
        and upon their re-election by the shareholders. The exercise price shall
        be 100%
        of the common stock’s current fair market value as of the date of grant. Each
        nonqualified stock option granted to non-employee directors shall be immediately
        exercisable and shall expire at the end of the ten year period from the date
        of
        grant.





**Compensation
        Committee Interlocks and Insider Participation**





During
        fiscal 2005, the Compensation Committee of the Board of Directors of the
        Company
        was composed of directors Thomas J. Winkel, Charles A. Elliott, Kenneth D.
        Larson and Terry E. Branstad. None of the members of the Committee is or
        ever
        has been an employee or an officer of the Company and none is affiliated
        with
        any entity (other than the Company) with which an executive officer of the
        Company is affiliated.








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





**PRINCIPAL
      SHAREHOLDERS**





The
      following table provides information concerning the only persons known to the
      Company to be the beneficial owners of more than five percent (5%) of the
      Company’s outstanding common stock as of March 27, 2006 adjusted for the 3 for 2
      stock split in May 2005:





**Name
                and Address**
              **Of
                Beneficial Owner**
            **Number
                of Shares**
              **Beneficially
                Owned****(1)(2)**
            **Percent
                of Class**Conrad
                D. Clement(3)
            2,520,000
            22.5%Tracy
                J. Clement(3)
            1,545,000
            13.9%Larry
                D. Clement(3)
            1,500,000
            13.6%Eric
                P. Clement(3)
            663,000
            6.0%Bulk
                Resources, Inc.(4)
            1,216,971
            10.8%





30
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(1)  The
      above
      beneficial ownership information is determined in accordance with Rule 13d-3
      under the Securities Exchange Act, as required for purposes of this Proxy
      Statement. Accordingly, it includes shares of common stock that are issueable
      upon the exercise of stock options exercisable within 60 days of March 27,
      2006.
      Such information is not necessarily to be construed as an admission of
      beneficial ownership for other purposes. Unless otherwise indicated, the person
      listed as the beneficial owner of the shares has sole voting and sole investment
      power with respect to identified shares.


(2)  See
      Note
      (2) below with respect to the number of shares not outstanding but deemed
      beneficially owned by virtue of the right of a person to acquire them as of
      March 22, 2006, or within sixty days of such date.


(3)  Address:
      Highways 63 and 9, P.O. Box 320, Cresco, Iowa 54136.


(4)  Includes
      a warrant to purchase 225,000 shares at $1.333 per share at anytime before
      January 31, 2007. The address for Bulk Resources, Inc. is P.O. Box 50401,
      Henderson, NV 89016.








**MANAGEMENT
      SHAREHOLDINGS**




The
      following table sets forth the number of shares of the Company’s common stock
      beneficially owned as of March 22, 2006, by each executive officer of the
      Company named in the Summary Compensation Table, and by each director and by
      all
      directors and executive officers (including the named individuals) as a group:








**Name
                of Director or Officer or**
              **Identity
                of Group**
            
            **Number
                of Shares**
              **Beneficially
                Owned****(1)
                (3)**
            
            **Outstanding
                Options****(2)**
            
            **Percent**
              **of
                Class****(3)**Conrad
                D. Clement
            
            
            2,520,000
            
            
            120,000
            
            
            22.5
            %Tracy
                J. Clement
            
            
            1,545,000
            
            
            45,000
            
            
            13.9
            %Eric
                P. Clement
            
            
            663,000
            
            
            63,000
            
            
            6.0
            %Jeffery
                A. Mason
            
            
            111,000
            
            
            96,000
            
            
            1.0
            %Gary
                H. Ihrke
            
            
            228,000
            
            
            228,000
            
            
            2.0
            %James
                S. Wooley
            
            
            75,000
            
            
            75,000
            
            
            *Thomas
                J. Winkel
            
            
            34,500
            
            
            31,500
            
            
            *Charles
                A. Elliott
            
            
            45,000
            
            
            31,500
            
            
            *Kenneth
                D. Larson
            
            
            69,750(4
            )
            
            31,500
            
            
            *Terry
                E. Branstad
            
            
            9,000
            
            
            9,000
            
            
            *Officers
                and Directors as a group
              (11
                persons)
            
            
            6,800,250
            
            
            730,500
            
            
            57.7
            %








*  Less
      than
      1%


(1)   See
      Note
      (1) to preceding table.


(2)
            Shares
                deemed beneficially owned by virtue of the right of a person to acquire
                them as of March 22, 2006, or within sixty days of such date, that
                are
                included in this column are included in the total number of shares
                beneficially owned be each listed person.


(3)
            Shares
                not outstanding but deemed beneficially owned by virtue of the right
                of a
                person to acquire them as of March 22, 2006, or within sixty days
                of such
                date, are treated as outstanding only when determining the percent
                owned
                by such individual and when determining the percent owned by the
                group.


(4)  Includes
      1,000 shares held by Mr. Larson’s wife.





31
 Table
          of Contents


**Equity
      Compensation Plans**





The
      following table provides information as of December 31, 2005 about the Company’s
      equity compensation plans:


**Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            
            **Weighted
                average exercise price of outstanding options, warrants and
                rights**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))****(a)**
            
            **(b)**
            
            **(c)**Equity
                compensation plans approved by security holders
            
            
            1,001,651
            
            $
            1.60
            
            
            864,000Equity
                compensation plans not approved by security holders
            
            
            None
            
            
            None
            
            
            NoneTOTAL
            
            
            1,001,651
            
            $
            1.60
            
            
            864,000







**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS**








Featherlite
      Credit Corporation (or Featherlite Credit), which provides retail financing
      to
      customers of the Company’s dealers, is wholly-owned by the following officers,
      directors and shareholders of the Company: Conrad D. Clement (40%), Tracy J.
      Clement (25%), Larry D. Clement (25%), and Eric P. Clement (10%). Featherlite
      Credit leases trailers and coaches to outside parties under operating leases
      with terms varying from three to six years. It also provides installment
      contract financing to customers of Featherlite dealers. Featherlite Credit
      buys
      trailers and coaches from Featherlite dealers and in some cases, directly from
      the Company at normal selling prices and pays for the trailers at the time
      the
      lease or installment contract is signed. Aggregate trailer and coach sales
      of
      $1.4 million, $2.2 million, and $2.4 million were made by the Company to
      Featherlite Credit in 2005, 2004 and 2003, respectively. The Company also sold
      for Featherlite Credit coaches and trailers that had been returned from expired
      Featherlite Credit leases for $1.2 million, $575,000, and $947,000 in 2005,
      2004
      and 2003, respectively. Featherlite Credit reimbursed the Company $98,000,
      $91,000 and $89,000 for salaries and other costs paid by the Company in 2005,
      2004 and 2003. Featherlite Credit was not indebted to the Company at December
      31, 2005.





Clement
      Inc. (formerly Clement Auto and Truck, Inc.), which was wholly-owned by Larry
      D.
      Clement, was an authorized FEATHERLITE ® ** dealer
      located in Bondurant, Iowa. Sales to this dealership were $0.4 million, $1.2
      million, and $1.1million in 2005, 2004 and 2003, respectively. All such sales
      were on terms and conditions comparable to those available to other Company
      dealers. In 2005, Clement Inc was sold to Central Iowa Featherlite, in which
      Larry Clement has a 50 percent ownership interest. Sales to this dealership
      were
      $1.5 million in 2005. All such sales were on terms and conditions comparable
      to
      those available to other Company dealers. Central Iowa Featherlite owes the
      Company $104,571 at December 31, 2005, with terms of net thirty days.





Valley
      Trailer Sales (“Valley”), which is 65 percent owned by Conrad D. Clement and
      Tracy J. Clement is a FEATHERLITE ® ** dealer
      located in Waterloo, Iowa and Rochester, Minnesota. Sales of trailers to Valley
      were $3.0 million, $4.2 million, and $2.6 million in 2005, 2004 and 2003,
      respectively. All such sales were on terms and conditions comparable to those
      available to other Company dealers. Valley was indebted to the Company in the
      amount of $74,498 for transactions related to such sales at December 31, 2005,
      with terms of net thirty days.







In
      2004,
      leases were signed with Clement Properties an entity owned by the majority
      shareholders of the Company for eight forklifts and a loader for a term of
      four
      years. Aggregate payments under these new leases will total $443,800 during
      their term. All material lease provisions were on terms and conditions
      comparable to those generally available from independent third party vendors.
      Rental payments on the new leases totaled $110,959 in 2005 and $16,653 in 2004.


32
 Table
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In
      2003,
      the Company entered into a Master Sales Agreement with Universal Luxury Coaches
      (or ULC) under which ULC had the right to purchase from Featherlite up to 20
      Featherlite Vantare and Featherlite Vogue motorcoaches over a one-year period
      at
      market prices. ULC is controlled by Nevada Coach Partners LLP, which owns 63.25
      percent of the common stock of ULC. Nevada Coach Partners is 87.35 percent
      owned
      by Conrad Clement (49.4%), Tracy Clement (12.65%), Eric Clement (12.65%), and
      James Wooley (12.65%), who are majority shareholders and executive officers
      of
      the Company. The Company also had agreements with ULC to lease it office space
      in the Featherlite Sales and Service Center in Sanford, Florida and to perform
      service work on ULC motorcoaches. During 2004, ULC purchased no motorcoaches
      from the company and purchased related parts and services in a total aggregate
      amount of $142,000. During 2005, there were no sales of motorcoaches or services
      to ULC and the Company had no receivables from ULC at December 31, 2005. In
      2004, ULC ceased doing business and the Master Sales Agreement and lease
      agreements with ULC were terminated.





In
      2003,
      the Company purchased a motorcoach for $600,000 from Clement Enterprises, LLC,
      a
      company wholly-owned by Conrad Clement, at its estimated fair market value.
      This
      motorcoach was then resold to ULC by the Company for $630,000. In 2004, the
      Company leased this motorcoach back from ULC under the terms of a ten month
      operating lease for a total rental payment of $120,000. This motorcoach is
      being
      used by an independent third party for sales promotion purposes, for which
      the
      Company receives certain sponsor and promotional rights. During 2005, the
      Company purchased a motorcoach from Clement Enterprises at its estimated fair
      market value of $361,000. This coach was then resold by the Company to a third
      party for $380,000. During 2005, Clement Enterprises also purchased various
      services from the Company in the aggregate amount of $39,300 and had a
      receivable of $24,500 at December 31, 2005, with terms of net thirty days
      related to these services.







**ITEM
        14.****PRINCIPAL ACCOUNTANT FEES AND SERVICES**





**INDEPENDENT
      PUBLIC ACCOUNTANTS**








On
      May
      20, 2005, the Audit Committee selected Grant Thornton LLP to serve as the
      Company’s independent public accountants for the 2005 fiscal year and ceased its
      client-auditor relationship with Deloitte & Touche LLP, the independent
      public accountant which had been engaged by the Company for prior years. The
      decision to change accountants was recommended by the Company’s Audit Committee
      and approved by the Company’s Board of Directors. The decision to dismiss
      Deloitte & Touche was made solely in connection with cost containment
      initiatives. The audit report of Deloitte & Touche, LLP dated March 29, 2005
      on the Company’s consolidated financial statements for the fiscal years ended
      December 31, 2004 and 2003 contained no adverse opinion of disclaimer or opinion
      and was not qualified or modified as to uncertainty, audit scope or accounting
      principles. In connection with its audits as of and for the years ended December
      31, 2003 and 2004 and the subsequent interim reporting periods from the last
      fiscal year ending December 31, 2004 through and including May 20, 2005, there
      were no disagreements between the Company and Deloitte & Touche LLP on any
      matter of accounting principles or practices, financial statement disclosure,
      or
      auditing scope or procedure, and there were no other reportable matters.








**FEES
      OF INDEPENDENT PUBLIC ACCOUNTANTS**





The
      following table presents the aggregate fees billed for professional services
      rendered by Grant Thornton LLP and Deloitte & Touche LLP for the fiscal
      years ended December 31, 2005 and 2004. We believe all services rendered by
      Grant Thornton and Deloitte & Touche LLP were permissible under applicable
      laws and regulations.





Pursuant
      to its written charter, the Audit Committee is required to pre-approve the
      audit
      and non-audit services performed by the Company’s independent accountant in
      order to assure that the provision of such services does not impair the
      accountant’s independence. Unless a particular service has received general
      pre-approval by the Audit Committee, each service provided must be specifically
      pre-approved. Any proposed services exceeding pre-approved costs levels will
      require specific pre-approval by the Audit Committee. The term of any
      pre-approval is 12 months from the date of pre-approval, unless the Audit
      Committee specifically provides for a different term. The Audit Committee
      retains the right to periodically revise the nature of pre-approved services.





As
      part
      of the Company’s annual engagement agreement with its independent accountant,
      the Audit Committee has pre-approved the following audit services to be provided
      by the independent accountant: statutory and financial audits for the Company,
      audit services associated with SEC registration statements, periodic reports
      and
      other documents filed with the SEC, production of other documents issued by
      the
      independent accountant in connection with securities offerings (e.g., comfort
      letters, consents), and assistance in responding to SEC comment letters. The
      Audit Committee also pre-approved the audit of its employee benefit plan and
      Sarbanes-Oxley Act advisory services as audit-related services, and has given
      its independent accountant pre-approval for U.S. federal, state, and local
      tax
      compliance and consulting services.


33
 Table
          of Contents





**Aggregate
                Amount**
              **Billed
                by**
              **Grant
                Thornton LLP ($)**
            
            **Aggregate
                Amount**
              **Billed
                by**
              **Deloitte
                & Touche LLP ($)****Services
                Rendered**
            
            **2005**
            
            **2004**
            
            **2005**
            
            **2004**Audit
                Fees (1)
            
            $
            47,483
            
            
            -
            
            $
            74,550
            
            $
            299,041Audit-Related
                Fees (2)
            
            
            -
            
            
            -
            
            
            5,000
            
            
            13,250Tax
                Fees (3)
            
            
            -
            
            
            -
            
            
            53,700
            
            
            53,850All
                Other Fees
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
            
            $
            47,483
            
            
            
            
            $
            133,250
            
            $
            366,141





(1)
      These
      fees consisted of the annual audit of our financial statements for the
      applicable fiscal year, and the reviews of our financial


statements
      included in our Form 10-Q’s for the first, second and third quarters of the
      applicable year as well as additional fees for


the
      2003
      audit billed in 2004.


(2)
      These
      fees related to Sarbanes-Oxley Act advisory services in 2004 and for the audit
      of our 401(k) plan in 2004.


(3)
      These
      fees related to corporate tax compliance and consulting services.






















**PART
      IV**





**ITEM
      15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**





**(a)**
            **Documents
                filed as part of this
                report:**





(1)  **Consolidated
      Financial Statements:**


The
                following consolidated financial statements of the Company and subsidiary
                are filed as part of this Form
                10-K:





Form
                10-KPageReport
                of Independent Registered Public
                Accounting Firm
            25Consolidated
                Balance Sheets at December 31, 2005 and
                2004
            36Consolidated
                Statements of
                Operationsfor
                the years ended December 31, 2005, 2004 and
                2003
            37Consolidated
                Statements of Shareholders’
                Investmentfor
                the years ended December 31, 2005, 2004
                and 2003
            37Consolidated
                Statements of Cash
                Flowsfor
                the years ended December 31, 2005, 2004 and
                2003
            38Notes
                to Consolidated Financial
                Statements
            39





(2)****
            **Financial
                Statement
                Schedules:**


Schedule
                II -
                Valuation and Qualifying Accounts
            52





(3) **Exhibits**


See
                Exhibit Index
                on page
            52




**SIGNATURES**





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




**FEATHERLITE,
              INC.**Date: March
              31, 2006
            By:
            /s/ Conrad
              D. ClementTitle President
              and Chief Executive Officer







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 Table
          of Contents


**POWER
      OF ATTORNEY**





Each
      person whose signature appears below constitutes CONRAD D. CLEMENT and TRACY
      J.
      CLEMENT his true and lawful attorneys-in-fact and agents, each acting alone,
      with full power of substitution and resubstitution, for him and in his name,
      place and stead, in any and all capacities, to sign any or all amendments to
      this Annual Report on Form 10-K and to file the same, with all exhibits thereto,
      and other documents in connection therewith, with the Securities and Exchange
      Commission, granting unto said attorneys-in-fact and agents, each acting alone,
      full power and authority to do and perform each and every act and thing
      requisite and necessary to be done in and about the premises, as fully to all
      intents and purposes as he might or could do in person, hereby ratifying and
      confirming all said attorneys-in-fact and agents, each acting alone, or his
      substitute or substitutes, may lawfully do or cause to be done by virtue
      thereof.





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





Signature
            Title
            Date/s/
                Conrad D. Clement
              Conrad
                D. Clement
            President,
                Chief Executive Officer, Chairman of the Board and Director (Principal
                Executive Officer)
            March
                31, 2006/s/
                Jeffery A. Mason
              Jeffery
                A. Mason
            Chief
                Financial Officer and Director (Principal Financial and Accounting
                Officer)
            March
                31, 2006/s/
                Tracy J. Clement
              Tracy
                J. Clement
            Executive
                Vice President and Director
            March
                31 , 2006/s/
                Charles A. Elliott
              Charles
                A. Elliott
            Director
            March
                31, 2006/s/
                Thomas J. Winkel
              Thomas J. Winkel
            Director
            March
                31, 2006/s/
                Kenneth D. Larson
              Kenneth
                D. Larson
            Director
            March
                31, 2006/s/
                Terry E. Branstad
              Terry
                E. Branstad
            Director
            March
                31, 2006





35
 Table
          of Contents





**Featherlite,
                Inc.****Consolidated
                Balance Sheets****December
                31, 2005 and 2004**(
                In thousands)
            
            2005
            
            2004ASSETSCURRENT
                ASSETS:Cash
            
            $
            91
            
            $
            179Receivables,
                net
            
            
            7,178
            
            
            4,781Refundable
                income taxes
            
            
            337
            
            
            497Inventories
            
            
            55,714
            
            
            61,730Leased
                promotional trailers
            
            
            1,550
            
            
            1,669Prepaid
                expenses
            
            
            1,820
            
            
            1,827Deferred
                tax asset
            
            
            1,329
            
            
            1,275Total
                current assets
            
            
            68,019
            
            
            71,958PROPERTY
                AND EQUIPMENT :Land
                and improvements
            
            
            4,583
            
            
            4,515Buildings
                and improvements
            
            
            12,138
            
            
            12,397Machinery
                and equipment
            
            
            15,967
            
            
            16,47732,688
            
            
            33,389Less-
                accumulated depreciation
            
            
            (16,105
            )
            
            (17,386
            )Net
                property and equipment
            
            
            16,583
            
            
            16,003OTHER
                ASSETS
            
            
            3,199
            
            
            4,252$
            87,801
            
            $
            92,213LIABILITIES
                AND SHAREHOLDERS' INVESTMENTCURRENT
                LIABILITIES:Wholesale
                financing and other notes payable
            
            $
            18,923
            
            $
            22,106Current
                maturities of long-term debt
            
            
            1,791
            
            
            1,699Checks
                issued but not yet presented
            
            
            4,419
            
            
            2,900Motorcoach
                shell costs payable
            
            
            3,142
            
            
            7,277Trade
                accounts payable
            
            
            4,384
            
            
            4,323Accrued
                liabilities
            
            
            8,194
            
            
            9,124Customer
                deposits
            
            
            2,832
            
            
            2,698Total
                current liabilities
            
            
            43,685
            
            
            50,127LONG-TERM
                DEBTBank
                line of credit
            
            
            2,418
            
            
            4,243Other
                long-term debt, net of current maturities
            
            
            10,168
            
            
            11,092Total
                long-term debt
            
            
            12,586
            
            
            15,335DEFERRED
                INCOME TAXES
            
            
            1,259
            
            
            1,340OTHER
                LIABILITIES
            
            
            30
            
            
            45MINORITY
                INTEREST IN SUBSIDIARY
            
            
            5
            
            
            3COMMITMENTS
                AND CONTINGENCIES (Note 9)SHAREHOLDERS'
                INVESTMENTCommon
                stock - 11,021 and 10,865 shares issued and outstanding
            
            
            18,562
            
            
            18,327Additional
                paid-in capital
            
            
            4,403
            
            
            4,238Retained
                earnings
            
            
            7,271
            
            
            2,798Total
                shareholders' investment
            
            
            30,236
            
            
            25,363$
            87,801
            
            $
            92,213The
                accompanying notes are an integral part of these consolidated financial
                statements.





36
 Table
          of Contents





**Featherlite,
                Inc.****Consolidated
                Statements of Operations****For
                the years ended December 31, 2005, 2004 and 2003**(
                In thousands, except per share data)2005
            
            2004
            
            2003Net
                sales
            
            $
            225,284
            
            $
            216,520
            
            $
            180,144Cost
                of sales
            
            
            190,896
            
            
            182,678
            
            
            156,940Gross
                profit
            
            
            34,388
            
            
            33,842
            
            
            23,204Selling
                and administrative expenses
            
            
            25,070
            
            
            25,243
            
            
            20,595Restructuring
                charge (credit) (Note 5)
            
            
            -
            
            
            -
            
            
            (222
            )Income
                from operations
            
            
            9,318
            
            
            8,599
            
            
            2,831Other
                income (expense):Interest
                expense
            
            
            (2,686
            )
            
            (2,304
            )
            
            (2,466
            )Other
                income, net
            
            
            112
            
            
            172
            
            
            129Total
                other expense
            
            
            (2,574
            )
            
            (2,132
            )
            
            (2,337
            )Income
                before taxes
            
            
            6,744
            
            
            6,467
            
            
            494Income
                tax (provision) benefit
            
            
            (2,316
            )
            
            (1,658
            )
            
            106Minority
                interest in subsidiary loss
            
            
            45
            
            
            81
            
            
            105Net
                income
            
            $
            4,473
            
            $
            4,890
            
            $
            705Net
                income per share -basic
            
            $
            0.41
            
            $
            0.45
            
            $
            0.07-diluted
            
            $
            0.38
            
            $
            0.42
            
            $
            0.06








**Consolidated
                Statements of Shareholders'
                Investment****For
                the years ended December 31, 2005, 2004 and 2003**(In
                thousands)---Common
                Stock---
            
            
            
            Retained
              Earnings
              (Deficit)Outstanding
              Shares*
            
            Amount
            
            Additional
              Paid-in
                CapitalBalance,
                December 31, 2002
            
            
            9,802
            
            $
            16,595
            
            $
            4,157
            
            $
            (2,797
            )Common
                stock issued uponconversion
                of subordinatedpromissory
                note and interest
            
            
            992
            
            
            1,619Fair
                value of stock options issued
            
            
            
            
            
            
            
            
            13Net
                income for the period
            
            
            
            
            
            
            
            
            
            
            
            705Balance,
                December 31, 2003
            
            
            10,794
            
            $
            18,214
            
            $
            4,170
            
            $
            (2,092
            )Fair
                value of stock options issued
            
            
            
            
            
            
            
            
            43Exercise
                of stock options
            
            
            71
            
            
            113Tax
                benefit of stock options exercised
            
            
            
            
            
            
            
            
            25Net
                income for the period
            
            
            
            
            
            
            
            
            
            
            
            4,890Balance,
                December 31, 2004
            
            
            10,865
            
            $
            18,327
            
            $
            4,238
            
            $
            2,798Fair
                value of stock options issued
            
            
            
            
            
            
            
            
            57Exercise
                of stock options
            
            
            156
            
            
            235Tax
                benefit of stock options exercised
            
            
            
            
            
            
            
            
            108Net
                income for the period
            
            
            
            
            
            
            
            
            
            
            
            4,473Balance,
                December 31, 2005
            
            
            11,021
            
            $
            18,562
            
            $
            4,403
            
            $
            7,271*
                Restated to reflect 3 for 2 stock split in May 2005The
                accompanying notes are an integral part of these consolidated financial
                statements.





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**Featherlite,
                Inc.****Consolidated
                Statements of Cash Flows****For
                the years ended December 31, 2005, 2004 and 2003 (In
                thousands)**2005
            
            2004
            
            2003CASH
                FLOWS FROM (USED FOR )OPERATING ACTIVITIES:Net
                income
            
            $
            4,473
            
            $
            4,890
            
            $
            705Adjustments
                to reconcile net income to net cashprovided
                by operating activities-Depreciation
                and amortization
            
            
            2,322
            
            
            2,339
            
            
            2,536Fair
                value of stock options issued
            
            
            57
            
            
            43
            
            
            13Non-cash
                restructuring (credit)
            
            
            -
            
            
            -
            
            
            (222
            )Grant
                income
            
            
            (15
            )
            
            (15
            )
            
            (15
            )Minority
                interest (decrease)
            
            
            (45
            )
            
            (81
            )
            
            (105
            )Provision
                for deferred income taxes
            
            
            (135
            )
            
            65
            
            
            -Tax
                benefit of stock options exercised
            
            
            108
            
            
            25
            
            
            -Loss
                (gain) on sales of property
            
            
            214
            
            
            (21
            )
            
            (45
            )Changes
                in current operating itemsReceivables,
                net
            
            
            (2,397
            )
            
            1,252
            
            
            (85
            )Refundable
                income taxes
            
            
            160
            
            
            286
            
            
            346Amortization
                of prepaid advertising
            
            
            146
            
            
            162
            
            
            117Inventories
            
            
            5,882
            
            
            (6,387
            )
            
            3,071Leased
                promotional trailers
            
            
            514
            
            
            (229
            )
            
            535Prepaid
                expenses
            
            
            353
            
            
            (45
            )
            
            13Trade
                accounts payable
            
            
            61
            
            
            960
            
            
            (164
            )Motorcoach
                shell costs payable
            
            
            (4,135
            )
            
            758
            
            
            863Accrued
                liabilities
            
            
            (907
            )
            
            2,987
            
            
            (1,881
            )Customer
                deposits
            
            
            134
            
            
            85
            
            
            1,296Net
                cash from operating activities
            
            
            6,790
            
            
            7,074
            
            
            6,978CASH
                FLOWS FROM (USED FOR) INVESTING ACTIVITIES:Purchase
                of the Sanford, Florida facility
            
            
            (1,006
            )
            
            (106
            )
            
            -Purchases
                of other property and equipment
            
            
            (2,159
            )
            
            (1,934
            )
            
            (997
            )Proceeds
                from sale of equipment
            
            
            373
            
            
            158
            
            
            142Net
                cash used for investing activities
            
            
            (2,792
            )
            
            (1,882
            )
            
            (855
            )CASH
                FLOWS FROM (USED FOR )FINANCING ACTIVITIESRepayments
                on trade creditors repayment plan
            
            
            -
            
            
            (2,064
            )
            
            (2,620
            )Proceeds
                from wholesale financing and other notes payable
            
            
            28,861
            
            
            19,373
            
            
            6,872Repayments
                of wholesale financing and other notes payable
            
            
            (32,045
            )
            
            (20,026
            )
            
            (9,802
            )Proceeds
                from bank line of credit
            
            
            235,659
            
            
            224,845
            
            
            193,191Repayments
                of bank line of credit
            
            
            (237,484
            )
            
            (227,056
            )
            
            (193,536
            )Change
                in checks issued not yet presented
            
            
            1,519
            
            
            824
            
            
            668Proceeds
                from borrowings for purchase of Sanford, Florida facility
            
            
            5,280
            
            
            -
            
            
            -Settlement
                of Sanford, Florida facility lease obligation
            
            
            (4,434
            )
            
            -
            
            
            -Proceeds
                from other long-term debt
            
            
            42
            
            
            524
            
            
            983Repayments
                of other long-term debt
            
            
            (1,765
            )
            
            (1,810
            )
            
            (2,022
            )Proceeds
                from issuance of common stock for options
            
            
            235
            
            
            113
            
            
            -Proceeds
                from capital contributions of FCC minority shareholders
            
            
            46
            
            
            91
            
            
            98Net
                cash used for financing activities
            
            
            (4,086
            )
            
            (5,186
            )
            
            (6,168
            )Net
                cash increase (decrease) for period
            
            
            (88
            )
            
            6
            
            
            (45
            )Cash,
                beginning of period
            
            
            179
            
            
            173
            
            
            218Cash,
                end of period
            
            $
            91
            
            $
            179
            
            $
            173See
                Note 13 for supplemental and non-cash disclosures.The
                accompanying notes are an integral part of these consolidated financial
                statements.





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**Featherlite,
      Inc**.





**Notes
      to Consolidated Financial Statements**





**Note
      1. Nature of Business and Basis of Presentation**





Featherlite,
      Inc. is engaged in the manufacture and distribution of various types of
      specialty trailers and luxury motorcoaches as well as related parts, accessories
      and services. Specialty trailers are manufactured at facilities in Iowa, while
      luxury motorcoaches are manufactured in Florida. The Company’s Oklahoma
      motorcoach manufacturing location was closed in 2001; the Company reopened
      this
      facility as a motorcoach resale and service center in October 2003 (see Note
      5).
      Trailers are primarily sold to authorized dealers throughout the United States
      and Canada. Terms and conditions for business are defined by standard agreements
      with each authorized dealer. Luxury motorcoaches are sold directly to end-user
      customers. Featherlite Aviation Company, a wholly owned subsidiary, is involved
      in the purchase and resale of used business class aircraft, but has not had
      any
      purchases or sales of aircraft in 2005, 2004 or 2003. Featherlite Chemicals
      Holdings, LLC, a wholly owned subsidiary, owns a 51 percent interest in
      Featherlite Chemicals, LLC (FCC) that was formed and began operations in 2003
      to
      market and sell car care products as discussed in Note 4.





**Note
      2**  **Summary**  **of
      Significant Accounting Policies**





Principles
      of Consolidation: The consolidated financial statements include the accounts
      of
      Featherlite, Inc., and its wholly owned subsidiaries, Featherlite Aviation
      Company and Featherlite Chemicals Holdings LLC, which are referred to herein
      as
      the Company. All material intercompany accounts and transactions have been
      eliminated in consolidation.





Fair
      Values of Financial Instruments: The carrying values of cash, accounts
      receivable and payable, short-term debt and accrued liabilities approximate
      fair
      value due to the short-term maturities of these assets and liabilities. The
      carrying value of long-term debt, including current maturities, approximates
      its
      fair value because the related interest rates either fluctuate with the lending
      bank’s current prime rate or approximate current rates of debt of a similar
      nature or maturity.





Financial
      Statement Estimates: The preparation of financial statements in conformity
      with
      accounting principles generally accepted in the United States of America
      requires management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosures of contingent assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      revenues and expenses during the period. The more significant estimates are
      used
      for such items as: valuation of used trailer and motorcoach inventory,
      depreciable lives of property and equipment, allowance for doubtful accounts,
      and reserves for obsolete and excess inventory, warranty and self-insurance.
      As
      better information becomes available or as actual amounts are determinable,
      the
      recorded estimates are revised. Actual results could differ from these
      estimates.





Concentrations:
      The Company purchases all of its motorcoach shells for conversion from one
      supplier. The purchases represented approximately 10%, 10%, and 9% of
      consolidated cost of sales for the years ended December 31, 2005, 2004 and
      2003,
      respectively. Although there are a limited number of manufacturers of motorcoach
      shells, management believes that other suppliers could provide similar shells
      on
      comparable terms. A change in suppliers, however, could cause a delay in
      manufacturing and a possible loss of sales, which would affect operating results
      adversely. Also, aluminum purchases were approximately 15% of consolidated
      cost
      for sales in the year ended December 31, 2005. Aluminum is available from
      multiple suppliers.





Receivables:
      Receivables are stated net of an allowance for doubtful accounts of $353,000
      and
      $465,000 at December 31, 2005 and 2004, respectively. Provisions for bad debts
      of $29,000, $312,000 and $49,000 were charged to selling and administrative
      expenses in 2005, 2004 and 2003, respectively. Management continuously assesses
      the collectibility and established reserves and writes off accounts as
      necessary, based on factors that include customer creditworthiness, past payment
      history and the progress of collection efforts. Accounts are typically
      considered delinquent when they are not paid within invoice payment
      terms.





Inventories:
      Inventories are stated at the lower of cost, as determined on a first-in,
      first-out (FIFO) basis, or market and includes materials, labor and overhead
      costs. There were no general and administrative costs charged to inventory
      in
      2005 or 2004.





In
      November 2004, the FASB issued SFAS 151, ** Inventory
      Costs, an Amendment of ARB No. 43, Chapter 4 *,* which is
      effective for the company on January 1, 2006. The standard amends the guidance
      in Accounting Research Bulletin (ARB) No. 43, Chapter 4, Inventory Pricing,
      to
      clarify the accounting for abnormal amounts of idle facility expense, freight,
      handling costs and spoilage. In addition, the standard requires that allocation
      of fixed production overhead to the costs of conversion be based on the normal
      capacity of the production facilities. The adoption of this standard is not
      expected to have a material impact on the Company’s financial position or
      results of operations.


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Raw
      materials consist of the cost of materials required to produce trailers and
      complete motorcoach conversions and to support parts sales and service. Work
      in
      process consists of costs related to materials, bus conversion shells, labor
      and
      overhead related to the production process. Abnormal amounts of idle facility
      costs, freight handling costs and spoilage are expensed as incurred.





Inventories
      were as follows at December 31, 2005 and 2004 (in thousands):





2005
            
            2004Raw
                materials
            
            $
            7,438
            
            $
            7,491Work
                in progress
            
            
            13,886
            
            
            15,362Finished
                trailers and motorcoaches
            
            
            21,536
            
            
            23,750Used
                trailers and motorcoaches
            
            
            12,854
            
            
            15,127Total
            
            $
            55,714
            
            $
            61,730





In
      2005
      and 2004, the Company evaluated the carrying value of its motorcoach inventories
      and recorded total charges of $0.3 million and $0.5 million, respectively,
      to
      cost of sales to reduce the carrying cost of this inventory to its estimated
      net
      realizable value.





Prepaid
      Expenses: Prepaid expenses primarily include the unamortized portion of annual
      property, casualty and third party liability insurance premiums. These premiums
      are amortized to expense over the insurance year.





Leased
      Promotional Trailers: The Company leases trailers to third parties for
      promotional purposes at a nominal lease cost when the Company believes it will
      derive an economic benefit from these arrangements. Normally, the leases on
      these trailers are for a one year period, with longer periods in some instances.
      Trailers with leases maturing in more than one year are classified as long-term
      in “other assets” in the accompanying consolidated balance sheets whereas
      trailers with leases maturing within the next year are classified as current.
      The carrying cost of these trailers is reduced over the lease period by the
      estimated diminution in gross margin that will occur during the lease period.





Property
      and Equipment: Property and equipment are stated at cost, while repair and
      maintenance items and equipment costing less than $500 are charged to expense
      as
      incurred. Depreciation is provided for financial reporting purposes using
      straight-line methods over estimated useful lives of 31 to 39 years for
      buildings and improvements, 15 years for land improvements and 5 to 7 years
      for
      machinery and equipment. Management periodically reviews the carrying value
      of
      long-lived assets for impairment whenever events or changes in circumstances
      indicate that the carrying value may not be recoverable. In performing the
      review for recoverability, management estimates the non-discounted future cash
      flows expected to result from the use of the asset and its eventual
      disposition.





Product
      Warranty: The Company’s products are covered by product warranties ranging from
      one to six years after the date of sale. At the time of sale, the Company
      recognizes estimated warranty costs, based on prior history and expected future
      claims, by a charge to cost of sales and records an accrued liability. The
      accrued liability is reduced as actual warranty costs are paid and is evaluated
      periodically to validate previous estimates and known requirements and adjusted
      as necessary.





Revenue
      Recognition: The Company generally recognizes revenue from the sale of trailers
      and motorcoaches when title and risks of ownership are transferred to the
      customer, which generally is upon shipment or customer pick-up. A customer
      may
      be invoiced for and receive title prior to taking physical possession when
      the
      customer has made a fixed, written commitment to purchase, the trailer or
      motorcoach has been completed and is available for pick-up or delivery, and
      the
      customer has requested the Company to hold the trailer or motorcoach until
      the
      customer determines the most economical means of taking physical possession.
      Upon such a request, the Company has no further obligation except to segregate
      the trailer or motorcoach, issue its Manufacturer’s Statement of Origin (MSO),
      invoice the customer under normal billing and credit terms and hold the trailer
      or motorcoach and related MSO for a short period of time, as is customary in
      the
      industry, until pick-up or delivery and receipt of payment. Products are built
      to customer specification and no right of return or exchange privileges are
      granted. Accordingly, no provision for sales allowances or returns is normally
      required except in unusual circumstances.





Revenue
      from sales of parts is recognized when the part has been shipped. Revenue from
      the delivery and servicing of trailers and motorcoaches is recognized when
      the
      service is completed. Revenues related to shipping and deliveries are included
      as a component of net sales and the related shipping costs are included as
      a
      component of cost of sales. Revenues related to financing and extended warranty
      referral fees are recognized at the time the related unit sale is recognized.





Stock-based
      Compensation: The Company has a stock option plan for directors, officers and
      key employees. In December 2004, the Financial Accounting Standards Board (FASB)
      released its final revised standard, Statement of Financial Accounting Standards
      (SFAS) No. 123(R), Share-Based Payments. SFAS 123(R) requires that an entity
      measure the cost of equity based service awards based on the grant-date fair
      value of the award. That cost will be recognized over the period during which
      an
      employee is required to provide service in exchange for the award or the vesting
      period. No compensation cost is recognized for equity instruments for which
      employees do not render the requisite service. An entity will initially measure
      the cost of liability based service awards based on its current fair value;
      the


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fair
      value of that award will be remeasured subsequently at each reporting date
      through the settlement date. Changes in fair value during the requisite service
      period will be recognized as compensation cost over that period. We have no
      outstanding liability based service awards. SFAS 123(R) also requires that
      the
      benefits of tax deductions in excess of recognized compensation cost to be
      reported as a financing cash flow, rather than as an operating cash flow as
      is
      currently required. This requirement will reduce net operating cash flows and
      increase net financing cash flows in periods after the effective date. Adoption
      of SFAS 123(R) is required for annual periods beginning after December 15,
      2005.
      We adopted the fair value based method of SFAS 123 in January, 2003 through
      the
      provisions allowed in SFAS 148, Accounting for Stock-Based Compensation -
      Transition and Disclosure. The adoption of SFAS 123(R) in the third quarter
      of
      2005 did not have a material impact on our consolidated financial position,
      results of operations, or cash flow. For more information on the Company’s
      stock-based compensation, see Note 11 to these consolidated financial
      statements.





The
      following table illustrates the effect on net income and net income per common
      share for the years ended December 31, 2005, 2004 and 2003, as if the Company
      had applied SFAS No. 123(R) in those years:





2005
            
            2004
            
            2003Net
                income (000’s)As
                reported
            
            $
            4,473
            
            $
            4,890
            
            $
            705Stock
                based compensation expense included in reported net income, net of
                related
                tax effects
            
            
            57
            
            
            43
            
            
            13Stock-based
                compensation expense, determined under fair value method for all
                awards,
                net of related tax effects
            
            
            (57
            )
            
            (66
            )
            
            (64
            )Pro
                forma net income
            
            $
            4,473
            
            $
            4,867
            
            $
            654Basic
                net income per shareAs
                reported
            
            $
            0.41
            
            $
            0.45
            
            $
            0.07Pro
                forma
            
            
            0.41
            
            
            0.45
            
            
            0.07Diluted
                net income per shareAs
                reported
            
            $
            0.38
            
            $
            0.42
            
            $
            0.06Pro
                forma
            
            
            0.38
            
            
            0.42
            
            
            0.06








The
      fair
      value of each option has been estimated at the grant date using the Black-Sholes
      option pricing model. The expected term is based on past exercise and
      termination behavior. Volatility is determined using a sufficient number of
      historical price observations of the Company’s stock. The risk free rate is
      based on the implied yield of a United States Treasury security with a remaining
      term equal to the expected remaining term of the option. The following
      assumptions were used for grants in 2005, 2004 and 2003:








2005
            
            2004
            
            2003Weighted
                average fair value of options granted during the year
            
            $
            3.20
            
            $
            2.39
            
            $
            0.75Dividend
                Rate
            
            
            0
            %
            
            0
            %
            
            0
            %Price
                Volatility 5 year options
            
            
            
            
            
            
            
            
            71.3
            %Price
                Volatility 10 year options
            
            
            70.8
            %
            
            70.2
            %Risk-free
                interest rate-5-year options
            
            
            
            
            
            
            
            
            2.7
            %Risk-free
                interest reate-10-year options
            
            
            4.0
            %
            
            3.9
            %Expected
                life-5 year options
            
            
            
            
            
            
            
            
            5
                yrsExpected
                life-10 year options
            
            
            10
                yrs
            
            
            10
                yrs





Income
      Taxes: Deferred income taxes are provided on a liability method whereby deferred
      tax assets are recognized for deductible temporary differences and deferred
      tax
      liabilities are recognized for taxable temporary differences. Temporary
      differences are the differences between the reported amounts of assets and
      liabilities and their tax bases. Deferred tax assets are reduced by a valuation
      allowance when, in the opinion of management, it is more likely than not that
      some portion or all of the deferred tax assets will not be realized. Deferred
      tax assets and liabilities are adjusted for the effects of changes in tax laws
      and rates on the date of enactment. See Note 6 to these consolidated financial
      statements.





Comprehensive
      Income or Loss: The Company has no comprehensive income or loss items.





Reclassifications:
      Certain prior year amounts have been reclassified to conform to the current
      year
      presentation. These reclassifications had no affect on net income or
      stockholders’ investment as previously reported.


41
 Table
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**New
      Accounting Pronouncements** :





In
      November 2004, the FASB issued SFAS 151, Inventory
      Costs, an Amendment of ARB No. 43, Chapter 4 *,* which is
      effective for the company on January 1, 2006. The standard amends the guidance
      in Accounting Research Bulletin (ARB) No. 43, Chapter 4, Inventory Pricing,
      to
      clarify the accounting for abnormal amounts of idle facility expense, freight,
      handling costs and spoilage. In addition, the standard requires that allocation
      of fixed production overhead to the costs of conversion be based on the normal
      capacity of the production facilities. The adoption of this standard is not
      expected to have a material impact on the Company’s financial position or
      results of operations.





Effective
      January 1, 2003, the Company early adopted the provisions of Statement of
      Financial Accounting Standards No. 123(R), *Share-Based
      Payments* ,
      in
      accounting for its stock options plans using the modified prospective
      application. The Company would have otherwise been required to adopt SFAS No,
      123(R) on October 1, 2005. The Company has elected to use the Black-Scholes
      method to determine the fair value of its options. The amount of stock-based
      compensation expense reported for fiscal year 2005 was $58,000.





In
      December 2004, the FASB issued FASB No. 153, Exchange of Nonmonetary Assets
      (“SFAS 153”). SFAS 153 addresses the measurement of exchanges of nonmonetary
      assets. It eliminates the exception from fair value measurement for nonmonetary
      exchanges of similar productive assets and replaces it with a general exception
      for exchanges that do not have commercial substance. This Statement specifies
      that a nonmonetary exchange has commercial substance if the future cash flows
      of
      the entity are expected to change significantly as a result of the exchange.
      The
      provisions of this Statement shall be effective for nonmonetary asset exchanges
      occurring in fiscal periods beginning after June 15, 2005. The Company will
      adopt SFAS 153 at the beginning of Fiscal 2006 and does not anticipate that
      it
      will have a material impact on its consolidated results of operations, financial
      position, or cash flows.





In
      May
      2005, the FASB issued FASB No. 154, Accounting Changes and Error Corrections
      (“SFAS 154”). SFAS 154 provides guidance on the accounting for and reporting of
      accounting changes and error corrections. It requires retrospective application
      to the prior periods’ financial statements of voluntary changes in accounting
      principle and changes required by an accounting pronouncement in the event
      the
      pronouncement does not include specific transition provisions. The provision
      of
      this Statement shall be effective for accounting changes made in fiscal years
      beginning after December 15, 2005.




On
      October 22, 2004, the FASB issued FASB Staff Position (FSP) 109-1, Application
      of FASB Statement No. 109, *Accounting for Income Taxes* ,
      for the
      Tax Deduction Provided to U.S. Based Manufacturers by the American Job Creation
      Act of 2004.  FSP No. 109-1 clarifies how to apply SFAS No. 109 to the new
      law’s tax deduction for income attributable to “domestic production activities.”
The fully phased-in deduction is up to nine percent of the lesser of taxable
      income or “qualified production activities income.” The staff proposal would
      require that the deduction be accounted for as a special deduction in the period
      earned, not as a tax-rate reduction.  The Company expects that
      substantially all of its net income will be “qualified production activities
      income” when calculating the deduction.




**Note
      3** . **Other
      Assets**





Other
      assets consist of the following at December 31, 2005 and 2004 (in
      thousands):





2005
            
            2004Aircraft
                held for resale
            
            $
            2,340
            
            $
            2,580Deposits
            
            
            532
            
            
            717Leased
                promotional trailers
            
            
            242
            
            
            637Advertising
                and promotion
            
            
            85
            
            
            174Deposit
                on building repurchase
            
            
            -
            
            
            106Other
            
            
            -
            
            
            38Total
            
            $
            3,199
            
            $
            4,252





***Aircraft
      Held for Resale*** :
      The
      Company is a licensed aircraft dealer and markets used business-class aircraft.
      At December 31, 2005 and 2004, the Company owned one used aircraft. Aircraft
      purchased for resale are stated at the lower of cost or estimated net realizable
      value. The Company periodically evaluates the aircraft’s net realizable value
      based on sales of comparable aircraft and, if necessary, reduces the carrying
      value. **** Net
      realizable value is affected by engine time, avionics on the aircraft and
      fluctuations in market demand. During 2005, 2004 and 2003, the Company wrote
      down the aircraft by $240,000, $232,000 and $480,000, respectively, with charges
      to corporate selling and administrative expenses to reflect declines in its
      estimated market value.





**Deposits:** The
      Company has deposits on motorcoach shells in the amount of $320,000 at December
      31, 2005 and 2004. The motorcoach shell manufacturer will hold these deposits
      as
      long as the Company holds motorcoaches on a consignment basis as discussed
      in
      Note 7. The Company also has other deposits with its workers compensation
      administrators and others in the amount of $212,000 and $397,000 at December
      31,
      2005 and 2004, respectively.


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**Leased
      promotional trailers** :
      Leases
      of promotional trailers beyond one year are classified as long-term as discussed
      in Note 2.





**Advertising
      and promotion** :
      The
      Company exchanged trailers and coaches primarily for promotional and advertising
      services of an equivalent value. These contracts were capitalized at the cost
      basis of the inventory exchanged. These agreements, including those classified
      as prepaid expenses of $154,000 and $131,000 at December 31, 2005 and 2004,
      respectively, are being expensed as incurred. Advertising expense was $146,000
      in 2005, $162,000 in 2004, and $117,000 in 2003.





**Deposits
      on building repurchase:** The
      Company had made deposits totaling $106,000 at December 31, 2004 with GE
      Commercial Finance Business Property Corporation (GE Commercial) in connection
      with securing a mortgage to repurchase the Sales and Service Center in Sanford,
      Florida that was being leased. These deposits were applied against closing
      and
      other costs related to this repurchase when it was completed on January 21,
      2005, as discussed further in Note 7 to consolidated financial
      statements.





**Note
      4. Investment in Featherlite Chemicals LLC (FCC)**





During
      the years ended December 31, 2005, 2004 and 2003, the Company paid $48,000,
      $108,000 and $89,000 respectively, as capital contributions to FCC. The Company
      has evaluated the guidance in EITF 96-16 “Investor’s Accounting for an
      Investment” as it pertains to FCC and determined that consolidation is
      appropriate. Therefore, the accounts of FCC are consolidated with the accounts
      of Featherlite. The principal business activity of FCC is to market and sell
      car
      care products manufactured by Benbow Chemical Packaging, Inc. (the 49 percent
      minority owner) under the Featherlite Car Care brand name and a NASCAR license
      agreement. At December 31, 2005, the capital contribution of the owners exceeded
      the operating losses of FCC by $8,700. The minority interest’s share of that
      excess was $4,300 at December 31, 2005. At December 31, 2004, the capital
      contribution of the owners exceeded the operating losses of FCC by $5,900.
      The
      minority interest’s share of that excess was $2,900 at December 31, 2004.
      Featherlite Chemicals has discontinued operations in 2005 and no further capital
      contributions by the Company or Benbow are expected to be necessary.





**Note
      5** . **Restructuring
      Credit**





In
      June
      2001, the Company adopted a plan to shut-down and sublease its Pryor, Oklahoma
      manufacturing facility and suspend development and manufacturing of the Vogue
      6000 motorcoach line. The Company closed this facility in August 2001. As a
      result of the Company’s inability to sublease this facility in 2002, the Company
      began exploring alternative options to use this facility again. In 2003 and
      2002, prior to the decision to reopen the facility as a sales location, an
      additional $100,000 and $400,000, respectively, in additional restructuring
      charges were recorded. In October 2003 the Company opened this facility as
      a
      sales center for recreational vehicles and motorcoaches and the remaining unused
      balance in the accrual, which was not material to the consolidated financial
      statements, was reversed against restructuring charges resulting in a net credit
      of $222,000.





**Note
      6** . **Income
      Tax Matters**





The
      statutory Federal income tax (provision) benefit rate is reconciled to the
      effective income tax (provision) benefit rate as follows for years ended
      December 31, 2005, 2004 and 2003, respectively:





2005
            
            2004
            
            2003Statutory
                Federal income tax (provision) benefit rate
            
            
            (34.0
            %)
            
            (34.0
            %)
            
            (34.0
            %)(Increase)
                decrease in rate arising fromState
                income taxes, net ofFederal
                income tax effect
            
            
            (2.0
            )
            
            (2.3
            )
            
            (15.7
            )Valuation
                allowance decrease
            
            
            -
            
            
            12.7
            
            
            91.0Benefit
                from production deduction
            
            
            1.0
            
            
            -
            
            
            -Benefit
                from sale of Nashua facility
            
            
            3.1
            
            
            -
            
            
            -Non-deductible
                expenses
            
            
            (2.4
            )
            
            (1.7
            )
            
            (23.6
            )Effective
                tax (provision) benefit rate
            
            
            (34.3
            %)
            
            (25.3
            %)
            
            17.7
            %





The
      components of the (provision) benefit for income taxes for the years ended
      December 31 2005, 2004 and 2003 are as follows (in thousands):





2005
            
            2004
            
            2003CurrentFederal
            
            $
            (2,251
            )
            $
            (1,443
            )
            $
            200State
            
            
            (200
            )
            
            (150
            )
            
            (94
            )$
            (2,451
            )
            $
            (1,593
            )
            $
            (106
            )Deferred
            
            
            135
            
            
            (65
            )
            
            -Total
            
            $
            (2,316
            )
            $
            (1,658
            )
            $
            106





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Deferred
      tax assets and liabilities consist of the following components as of December
      31, 2005 and 2004 (in thousands):





2005
            
            2004Current
                deferred tax assetAccrued
                expenses
            
            $
            961
            
            $
            799Accrued
                warranty expenses
            
            
            455
            
            
            464Inventory
                allowances
            
            
            350
            
            
            367Receivable
                allowances
            
            
            66
            
            
            98State
                tax loss carryforward
            
            
            16
            
            
            75Prepaid
                expenses
            
            
            (519
            )
            
            (528
            )Total
                current deferred tax asset
            
            $
            1,329
            
            
            1,275Deferred
                tax liabilitiesDepreciation
            
            $
            (1,259
            )
            $
            (1,340
            )Net
                deferred tax (liability) asset
            
            
            70
            
            
            (65
            )Valuation
                allowance
            
            $
            -
            
            $
            -





At
      December 31, 2003, there was a deferred tax asset valuation allowance equal
      to
      the net deferred tax asset. This valuation reserve had been recorded in 2003
      because the Company was uncertain that future taxable income would be sufficient
      to realize the asset within a reasonable period of time. In 2004, this allowance
      was eliminated because of the improvement in the Company’s operating results
      during the year and its improved outlook for the future.





At
      December 31, 2005 and 2004, the Company had refundable income taxes of $337,000
      and $497,000, respectively, resulting from excess deposits on estimated taxable
      income. At December 31, 2005 and 2004, the Company has no Federal net operating
      loss carryforwards, but has carryforwards of $1,872,000 and $405,000,
      respectively, available to offset state income taxes in certain
      states.





The
      Company’s Federal income tax returns for the years 2002 and 2003 are currently
      under examination.







**Note
      7** . **Financing
      Arrangements**





***Wholesale
      Financing and Other Notes Payable*** :
      At
      December 31, 2005 and 2004, wholesale financing and other notes payable consist
      of the following (in thousands):








2005
            
            2004GE
                Commercial Distribution Finance Company (GE) wholesale finance agreement,
                interest rate of prime plus 0.25% when the prime is less than 6.25%,
                otherwise prime ( 7.25% and 5.25% at December 31, 2005 and 2004);
                secured
                by the financed motorcoaches and other assets of the
                Company
            
            $
            17,447
            
            $
            19,426Regions
                Bank (Regions) floor plan financing agreement, monthly interest at
                the
                prime rate plus 0.5% (7.75% and 5.75% at December 31, 2005 and 2004);
                secured by financed Foretravel motorcoaches and Coachmen
                trailers
            
            
            662
            
            
            1,880Note
                payable with an insurance premium finance company
            
            
            814
            
            
            800$
            18,923
            
            $
            22,106





The
      motorcoach wholesale financing agreement with GE, which originated in 1997,
      provides for a $25 million line of credit to finance completed new and used
      motorcoaches held in inventory. At December 31, 2005, the aggregate loan value
      of eligible coaches under this financing agreement was $17.7 million and $17.4
      million was borrowed and outstanding. As a result, $0.4 million currently
      available and an additional $7.2 million is available for future purchases,
      for
      a total of $7.6 million. Amounts borrowed are limited to 90% of the cost of
      eligible new inventory and 70% of the defined value of eligible used inventory.
      On February 22, 2005, the agreement was amended as follows: (i) there will
      be a
      1.5% per month reduction in amounts borrowed on a used coach when it has been
      financed more than 360 days and all financing will be due in full on day 720;
      (ii) after 360 days, new units will be converted to used financing at an advance
      rate of 70 percent versus 90 percent and a 1.5% per month curtailment will
      begin
      on day 721 until day 1,080 when all financing on the unit will be due in full
      and (iii) the financial covenants in the agreement were modified to conform
      in
      all material respects to those contained in the Company’s lending agreement with
      U.S. Bank. The agreement requires certain covenants, which are summarized in
      the
      table below. **** The
      Company was in compliance with these covenants in 2005. This agreement is
      subject to cancellation by GE at any time and the Company may cancel at anytime
      without penalty.


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In
      2003,
      the Company entered into a Floor Plan Financing Agreement with Regions Bank,
      Birmingham, Alabama, to provide up to $3.0 million of wholesale financing for
      100 percent of the cost of new motorcoaches purchased by the Company from
      Foretravel, Inc. for resale. In December 2005 this agreement was amended to
      reduce the available line from $3.0 million to $2.0 million to be in line with
      the Company’s reduced need to finance Foretravel motorcoaches. The outstanding
      balance at December 31, 2005 was $0.7 million, leaving $1.3 million available
      to
      borrow for new purchases. The agreement requires, among other covenants, a
      minimum current ratio of 1.2:1 and a leverage ratio of 5:1 or less. The Company
      was in compliance with these covenants at December 31, 2005.





***Line
      of Credit and Term Notes*** :
      In
      December, 2004, the 2002 Amended and Restated Loan Agreement (Agreement) with
      U.S. Bank was further amended to provide financing in an aggregate amount of
      $27.8 million (previously $24.2 million), including a $17 million (previously
      $14 million) asset-based revolving credit commitment, $8.1 million in term
      loans
      on existing real estate and equipment and a $2.7 million term loan for new
      equipment purchases. This amended Agreement is for the period ending October
      31,
      2008 with annual interest accruing on outstanding balances at the prime rate,
      which is 7.25% at December 31, 2005 and 5.25% at December 31, 2004. Advances
      under the revolving credit commitment range from 70 to 85 percent on eligible
      accounts receivable and from 30 to 70 percent on eligible inventory. As of
      December 31, 2005, the credit facility had outstanding borrowings of $2.4
      million, outstanding irrevocable standby letters of credit of $2.6 million
      and
      remaining borrowing availability of $12.0 million. Repayment of advances on
      the
      new equipment term note ($376,000 as of December 31, 2005) are made monthly
      based on a 60 month amortization from the time the advance is made, with the
      unpaid balance due on October 1, 2008, unless otherwise extended. The Agreement
      requires the Company to notify the Bank of material adverse changes in its
      operations and financial condition, among other matters, and to comply with
      the
      financial covenants summarized in the table that follows. As of December 31,
      2005, the Company was in compliance with these covenants.





Following
      is a summary of the Company’s quarterly and year-end restrictive financial
      covenants of its lenders, as defined by the underlying agreements (including
      those with U.S. Bank and GE as revised):











Financial
                Covenant
            
            Lender
            
            Covenant
            
            December
                31,
              2005
                ActualMinimum
                Consolidated Fixed Charge Ratio
            
            
            U.S.
                Bank & GE
            
            
            1.2:1
            
            
            1.25:1Maximum
                Liabilities to Tangible Net Worth Ratio
            
            
            U.S.
                Bank & GE
            
            
            4.25:1
            
            
            1.99:1Minimum
                Annual Earnings Before Interest, Taxes, Depreciation and Amortization
                (EBITDA)
            
            
            U.S.
                Bank &GE
            
            $
            6,500
            
            $
            11,764Maximum
                Annual Capital Expenditures
            
            
            U.S.
                Bank & GE
            
            $
            8,000
            
            $
            7,646Maximum
                Leverage Ratio
            
            
            Regions
            
            
            5:1
            
            
            1.10:1Minimum
                Current Ratio
            
            
            Regions
            
            
            1.20:1
            
            
            1.56:1











***Motorcoach
      Shell Cost Payables*** :
      The
      shell manufacturer provides the Company with a certain number of motorcoach
      shells on a consignment basis for a defined period of time (generally 4 months).
      Payment is required for each shell at the time it is sold or at the end of
      the
      consignment period, whichever occurs sooner. The consignor has the right to
      demand payment for the shell or to have the consigned unit returned at the
      end
      of the consignment term of each shell.





***Checks
      Issued Not Yet Presented:*** In
      connection with the U.S Bank line of credit, the Company has a controlled
      disbursement bank account. Deposits are applied to reduce the outstanding
      balance on the line of credit and advances from the line of credit are used
      to
      pay the checks issued when they are presented to the bank for payment. As of
      December 31, 2005 and 2004, there was $4.4 million and $2.9 million,
      respectively, of checks that had been issued but not yet presented for payment.


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**Other
      Long-Term Debt** :
      Other
      long-term debt consisted of the following at December 31, 2005 and 2004 (in
      thousands):


2005
            
            2004U.S.
                Bank term notes payable; interest at prime (7.00% at December 31,
                2005 and
                5.25% at December 31, 2004) payable in monthly installments of $106,000
                plus interest; until October 31, 2008 when remaining balance of $115,000
                is due; contains same collateral and covenant provisions as Revolving
                Loan
                and Security Agreement.
            
            $
            4,212
            
            $
            5,505Capitalized
                lease of Florida real estate; payable in monthly installments of
                $50,000
                through July 31, 2007; lease terminated in January 2005 and replaced
                with
                mortgage debt. See discussion below.
            
            
            -
            
            
            4,434GE
                Commercial Finance Business Property Corporation, mortgage on Sanford,
                Florida property; interest rate fixed at 6.49%; payable over twelve
                years
                with monthly principal and interest payments of $53,000, through
                January
                21, 2017.
            
            
            5,031
            
            
            -Bank
                notes payable; interest at 6.5%; $26,600 payable monthly including
                interest; balance of $2.4 million due May 2007; collateralized by
                aircraft
            
            
            2,606
            
            
            2,749Notes
                and capitalized leases to banks and others, interest at average of
                6.0%,
                payable in varying monthly installments through 2007; collateralized
                by
                real estate and vehicles
            
            
            110
            
            
            103Total
            
            
            11,959
            
            
            12,791Less
                current maturities
            
            
            (1,791
            )
            
            (1,699
            )$
            10,168
            
            $
            11,092








***Capitalized
      leases*** :
      In July
      2002, GBNM Partnership purchased the Company’s sales and service center in
      Sanford, Florida for $5.0 million. The Company then entered into an agreement
      with GBNM Partnership to lease the Sanford facility beginning August 1, 2002
      for
      an initial term of 7 years plus a 3 year renewal option, at a rental rate of
      $50,000 per month for the first 5 years. Since the Company has an option to
      repurchase this facility for $5.4 million on August 1, 2005, this has been
      recorded as a sale/leaseback financing transaction. No gain or loss was
      recognized on this transaction and the carrying cost of the property ($5.1
      million) and annual depreciation expense remained unchanged. On January 21,
      2005, the Company terminated this lease and exercised its option to repurchase
      this facility for $5.3 million. This purchase was financed with a mortgage
      in
      approximately that amount from GE Commercial Finance Business Property
      Corporation. The Company also leases a delivery vehicle for a period of 4 years
      with an aggregate carrying cost of $50,000 which is being depreciated over
      a 5
      year period, a vehicle for a period of 4 years with an aggregate carrying cost
      of $60,000 which is being depreciated over a 3 year period and a data collection
      system for a period of two years with an aggregate carrying cost of $46,000
      which is being depreciated over a 7 year period.





Annual
      maturities of other long-term debt, including the capitalized leases, during
      the
      five years subsequent to December 31, 2005 and thereafter are as follows (in
      thousands):








Year
            
            Amount2006
            
            $
            1,7912007
            
            
            3,9312008
            
            
            2,2142009
            
            
            3942010
            
            
            411Thereafter
            
            
            3,218Total
            
            $
            11,959








**Note
      8** . **Commitments
      and Contingencies**





***Inventory
      Repurchase Arrangements:*** Pursuant
      to dealer inventory floor plan financing arrangements, the Company may be
      required, in the event of default by a financed dealer, to purchase certain
      repossessed products from the financial institutions or to reimburse the
      institutions for unpaid balances including finance charges, plus costs and
      expenses **.** The
      Company was contingently liable under these arrangements for a maximum amount
      of
      $18.7 million and $15.0 million at December 31, 2005 and 2004,
      respectively **.** The
      Company


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 Table
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has
      been
      required to repurchase $0, $0, and $38,000 in 2005, 2004 and 2003, respectively,
      from financial institutions due to the default of dealers **.** In the
      opinion of management, no reserve is required for this contingency because
      the
      aggregate amount of such repurchases on an annual basis has been less than
      1
      percent of annual sales and the repossessed inventory has been sold to other
      dealers with little or no loss. The Company has no motorcoach dealers and,
      accordingly, has no repurchase obligation with respect to
      motorcoaches.








***Self
      Insurance:*** The
      Company is partially self-insured for a portion of certain health benefit and
      workers’ compensation insurance claims. The Company’s maximum annual exposure
      under these programs varies as follows: For health claims there is an annual
      stop loss limit of $150,000 per claim but no aggregate loss limit. For workers
      compensation claims there is a $250,000 occurrence limit and an aggregate limit
      of $2.2 million. At December 31, 2005, $2.0 million was accrued **** for
      estimated incurred but not reported and unpaid claims, including $1.5 million
      for workers compensation claims and $547,000 for health claims. The Company
      has
      obtained irrevocable standby letters of credit in the amount of $2.6 million
      in
      favor of the workers’ compensation claims administrators to guarantee settlement
      of claims. These letters of credit have reduced the amounts available for
      borrowing under the U.S. Bank Credit Facility discussed in Note 7 to these
      consolidated financial statements.








***Operating
      leases*** :
      The
      Company leases certain office and production facilities under various operating
      leases that expire at varying dates through 2011. Rental expense under these
      operating leases for the years ended December 31, 2005, 2004, and 2003, was
      approximately $1.4 million, $1.3 million and $1.3 million, respectively. The
      approximate annual minimum future lease payments under these operating leases
      for the five years subsequent to December 31, 2005 and thereafter, are as
      follows (in thousands):





Year
            Amount2006
            $1,2162007
            8402008
            4092009
            2782010
            277Thereafter
            69Total
            $3,089








***Litigation:*** The
      Company, in the course of its business, has been named as a defendant in various
      legal actions. These actions are primarily for product liability claims in
      which
      the Company is covered by insurance subject to applicable deductibles. Although
      the ultimate outcome of such claims cannot be ascertained at this time, it
      is
      the opinion of management, after consultation with counsel handling such
      matters, that the resolution of such matters will not have a material adverse
      effect on the financial position of the Company.





During
      2003, a jury reached a verdict in favor of a plaintiff requiring the Company
      to
      repurchase a motorcoach. At December 31, 2003, the Company accrued a liability
      and charged cost of sales for $354,000 for the estimated loss on the resale
      of a
      motorcoach to be reacquired and related legal costs. During 2004, the Company
      paid off this accrued liability and related interest and dropped its appeal
      of
      this decision.





***Aluminum*** ***and other purchase commitments:*** The
      Company has not obtained any fixed price commitments from suppliers for any
      part
      of its expected aluminum requirements in 2006. In prior years the Company had
      obtained commitments for a substantial portion of its estimated production
      requirements to reduce the risk related to fluctuations in the cost of aluminum,
      the principal commodity used in the Company’s trailer segment. At December 31,
      2005, the Company had a firm commitment to purchase motorcoach shells in an
      aggregate amount of $3.1 million in 2006.





***Warranty*** **:** The
      Company is not a guarantor of any obligations that would require it to recognize
      a liability for the fair value of the underlying obligation at its inception.
      However, it does have product warranty liabilities as described in Note 2 to
      these consolidated financial statements. Following is a summary of the changes
      in these liabilities during the years ended December 31, 2005 and 2004 (in
      thousands):




2005
            
            2004Balance
                beginning of year
            
            $
            1,221
            
            $
            1,225Provision
                for units sold during period
            
            
            1,549
            
            
            1,803Claims
                paid during the period
            
            
            (1,572
            )
            
            (1,807
            )Balance
                end of year
            
            $
            1,198
            
            $
            1,221





47
 Table
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**Note
      9. Employee Retirement Savings Plan**





The
      Company sponsors a 401(k) employee retirement savings plan, which covers
      substantially all employees after one year of employment. The Company may
      annually elect to match a portion of the each employee’s contributions and has
      elected to match a portion of the contributions in years ended December 31,
      2005
      and 2004. The Company’s contribution to the plan was $199,000 and $389,000 for
      the years ended December 31, 2005 and 2004, respectively. No matching
      contribution was made for the year ended December 31, 2003.





**Note
      10** . **Related-Party
      Transactions**





The
      Company recorded sales of approximately $6.4 million, $7.8 million, and $6.7
      million in 2005, 2004, and 2003, respectively, to certain Featherlite dealers
      and Featherlite Credit Corporation, which are entities owned by majority
      shareholders and executives of the Company. These sales were made at the same
      prices offered other Featherlite dealers. The Company has no repurchase
      commitments to these entities. However, the Company purchased trailers and
      motorcoaches that were previously leased to third parties from Featherlite
      Credit Corporation and resold them to unrelated customers. These purchases
      aggregated $1,128,000, $529,000, and $908,000 in 2005, 2004 and 2003,
      respectively, and were resold for $1,193,000, $575,000 and $947,000
      respectively. Featherlite Credit Corporation reimbursed the Company $98,000,
      $91,000, and $89,000 for salaries and other costs paid by the Company in 2005,
      2004, and 2003, respectively. The Company had receivables from these related
      parties of $142,000 at December 31, 2005 and $102,000 at December 31, 2004,
      with
      terms of net thirty days.





The
      Company leases equipment from certain shareholders and executives and Clement
      Properties, an entity owned by the majority shareholders of the Company during
      current and prior periods. Payments related to these leases totaled $111,000
      in
      2005, $86,000 in 2004, and $84,000 in 2003 with $323,000 remaining to be paid
      in
      monthly installments ending at varying dates in 2008. During 2004 and 2003,
      the
      Company also leased various aircraft from certain shareholders. Payments for
      leased aircraft totaled $6,100 in 2004 and $11,000 in 2003. There were no
      aircraft leases from shareholders in 2005.





In
      2001,
      the Company agreed to pay $303,000 to Clement Properties, for costs incurred
      related to the acquisition and development of land for a sales and service
      center in North Carolina. The Company decided not to lease this property and
      agreed to pay this amount to be released from this obligation. This amount,
      without interest, was paid in equal monthly installments over a three year
      period that ended in December 2004, with $105,000 and $108,000 paid in 2004
      and
      2003, respectively.





In
      2003,
      the Company entered into a Master Sales Agreement with Universal Luxury Coaches,
      LLC (ULC) under which ULC will purchase from Featherlite up to 20 Featherlite
      Vantare and Featherlite Vogue motorcoaches over a one year period at market
      prices. ULC is a related party controlled by executive officers and majority
      shareholders of the Company. ULC received approval by Florida’s Department of
      Business & Professional Regulators to sell timeshares of luxury coaches and
      will purchase motorcoaches exclusively from Featherlite as the timeshare units
      are sold. Featherlite has agreements with ULC to lease it office space and
      to
      provide service work on the ULC motorcoaches. During 2005, 2004 and 2003, ULC
      purchased six motorcoaches and various services from the Company in an aggregate
      amount of $0, $141,000 and $3.6 million, respectively. The Company had
      receivables of $0 and $3,200 from ULC at December 31, 2005 and 2004,
      respectively, with terms of net thirty days. In 2004, the state of Florida
      rescinded ULC’s right to sell timeshares and ULC has ceased doing business.





In
      2003,
      the Company purchased a used
      motorcoach from Clement Enterprises, LLC, a company owned by the President
      and
      CEO of the Company, at its estimated fair market value of $600,000. This
      motorcoach was then resold to ULC by the Company for $630,000. In 2004, the
      Company leased this motorcoach back from ULC under the terms of an operating
      lease for a ten month period ending December 31, 2004 with a total rental
      payment of $120,000. This motorcoach was being used by a third party for sales
      promotion purposes. During 2005, the Company purchased a motorcoach from Clement
      Enterprises at its estimated fair market value for $361,000. This coach was
      then
      resold by the Company to a third party for $380,000. During 2005 Clement
      Enterprises also purchased various services from the Company in the aggregate
      amount of $39,300 and the Company had a receivable of $24,500 at December 31,
      2005 with terms of net thirty days relating to these services.





**Note
      11** . **Shareholders’
      Investment**





***Capitalization:*** The
      Company’s authorized capital is 40 million shares of no par common stock and 10
      million shares of undesignated stock. No shares of undesignated stock are
      outstanding and no rights or preferences have been established for these shares
      by the Board of Directors. In May 2005, the Board of Directors approved a
      resolution to split the outstanding shares on a three for two basis. This
      increased the number of issued and outstanding shares by 3.6 million shares.
      All
      prior year shares and per share amounts have been restated to reflect the effect
      of this stock split.





***Subordinated
      Convertible Promissory Note*** :
      On
      January 31, 2002, the Company received $1.5 million from a private investor
      in
      the form of a subordinated convertible promissory note and a warrant for 225,000
      shares on the Company’s common stock. The maturity of the note and the holder’s
      option to convert the note into common stock was extended from December 31,
      2002
      to April 15, 2003 and then


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until
      October 15, 2003. The accrual of interest on the note at a rate of 6.5% per
      year
      ceased on April 15, 2003. On October 8, 2003, the holder of the note exercised
      the option to convert the note and accrued interest of $118,000 into common
      stock. The entire amount was converted to 991,971 shares of common stock at
      the
      daily average closing market price during the period from April 30, 2003 until
      October 31, 2002 at $1.632 per share according to the terms of the agreement.
      In
      2002, the warrant was assigned a fair value of $95,000 using the Black-Sholes
      option pricing model. The face amount of the convertible note was reduced and
      paid-in capital increased by the fair value assigned to the warrant. This amount
      was amortized to interest expense in 2002 over the original term of the note
      that matured on December 31, 2002. The warrant may be exercised at any time
      before January 31, 2007 at a price of $1.33 per common share.





***Stock
      Option Plans*** :
      At
      December 31, 1998, the Company reserved 1,650,000 shares of common stock for
      issuance as options under the Company’s 1994 Stock Option Plan (the 1994 Plan)
      until July 31, 2004, when the Plan terminated and the granting of options under
      this plan ended. At the annual meeting in June 2004, the shareholders approved
      the 2004 Equity Incentive Plan, which reserved 900,000 shares of common stock
      for issuance as options after that date. All options granted under the 1994
      plan
      remain in effect until the expiration date specified when granted





Options
      may be granted to employees and directors at the discretion of the Board of
      Directors, which may grant either incentive stock options or non-statutory
      stock
      options. All options must be granted at no less than 100 percent of the fair
      market value of the stock on the date of grant (110 percent for employees owning
      more than 10 percent of the outstanding stock on the date of grant). The options
      fully vest upon grant. They are non-transferable and expire at varying dates,
      but do not exceed ten years from date of grant. Options were granted during
      2005, 2004 and 2003 with a fair value of $58,000, $43,000 and $13,000 as
      determined by the Black-Scholes option pricing model and were charged against
      selling and administrative expenses and additional paid in capital in 2005,
      2004
      and 2003, respectively. See Note 2 for a discussion of Black-Sholes pricing
      model assumptions.





A
      summary
      of the status of these Plans at December 31, 2005, 2004 and 2003 and changes
      during the years ended on those dates is as follows:





**2003**
            
            Shares
            
            Weighted
                Average
              Exercise
                PriceOutstanding,
                beginning of year
            
            
            1,256,850
            
            $
            1.73Granted
            
            
            18,000
            
            
            1.25Exercised
            
            
            -
            
            
            -Forfeited
                or cancelled
            
            
            (61,500
            )
            
            4.39Outstanding,
                end of year
            
            
            1,213,350
            
            
            1.59Exercisable
                at end of year
            
            
            1,064,700
            
            
            1.57**2004**Outstanding,
                beginning of year
            
            
            1,213,350
            
            $
            1.59Granted
            
            
            18,000
            
            
            3.05Exercised
            
            
            (70,650
            )
            
            1.60Forfeited
                or cancelled
            
            
            (21,000
            )
            
            3.23Outstanding,
                end of year
            
            
            1,139,700
            
            
            1.58Exercisable
                at end of year
            
            
            1,124,700
            
            
            1.58**2005**Outstanding,
                beginning of year
            
            
            1,139,700
            
            $
            1.58Granted
            
            
            18,000
            
            
            4.07Exercised
            
            
            (156,000
            )
            
            1.51Forfeited
                or cancelled
            
            
            -
            
            
            -Outstanding,
                end of year
            
            
            1,001,700
            
            
            2.43Exercisable
                at end of year
            
            
            1,001,700
            
            
            2.43







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At
      December 31, 2005, options outstanding have exercise prices ranging from $0.74
      to $4.07. Following is a summary of exercise price ranges of the options
      outstanding at December 31, 2005:





Options
                Outstanding
            
            Average
                Exercise
            
            RemainingExercise
                Price Range
            
            And
                Exercisable
            
            Price
            
            Contractual
                Life$0.00
                to $1.99
            
            
            899,700
            
            $
            1.48
            
            
            4.9$2.00
                to $2.99
            
            
            31,500
            
            
            2.03
            
            
            1.4$3.00
                to $4.99
            
            
            70,500
            
            
            3.68
            
            
            6.3Total
            
            
            1,001,700








***Net
      Income Per Share*** :
      Following is a reconciliation of the weighted average shares outstanding used
      to
      determine basic and diluted net income per share for the years ended December
      31, 2005, 2004, and 2003 (in thousands, except per share data):













2005
            
            2004
            
            2003Net
                income available to common shareholders
            
            $
            4,473
            
            $
            4,890
            
            $
            705Weighted
                average number of shares outstanding - basic
            
            
            10,944
            
            
            10,829
            
            
            10,034Dilutive
                effect of:Stock
                Options
            
            
            808
            
            
            587
            
            
            125Convertible
                promissory note and interest
            
            
            -
            
            
            -
            
            
            761Warrants
            
            
            148
            
            
            130
            
            
            30Weighted
                average number of shares outstanding- diluted
            
            
            11,900
            
            
            11,546
            
            
            10,950Net
                income per share - basic
            
            $
            0.41
            
            $
            0.45
            
            $
            0.07Net
                income per share -diluted
            
            $
            0.38
            
            $
            0.42
            
            $
            0.06











Stock
      options for 28,125 shares, 25,500 shares, and 111,000 shares, at December 31,
      2005, 2004 and 2003, respectively, were excluded from the dilutive effect of
      stock options because the exercise price of the options was greater than the
      market value of the stock at those dates and, accordingly, would be
      anti-dilutive, or decrease the number of weighted average shares. The numbers
      of
      shares above reflect adjustment for the May 2005 stock split.








**Note
      12. Segment Reporting**





The
      Company follows SFAS No. 131 “Disclosure About Segments of an Enterprise and
      Related Information,” which requires that companies disclose segment data based
      on how management makes decisions about allocating resources to segments and
      measuring their performance. The Company has two principal business segments
      that manufacture and sell trailers and luxury motorcoaches to many different
      markets, including recreational, entertainment and agriculture. “Corporate and
      other” in the table below includes the accounts of Featherlite Chemicals, LLC,
      unallocated aircraft operating costs, certain corporate officers’ salaries and
      other administrative costs in 2005 and 2004. The Company’s sales are not
      materially dependent on a single customer or small group of
      customers.





Management
      evaluates the performance of each segment based on income before taxes. The
      accounting policies applied to determine segment information are the same as
      those described in the summary of significant accounting policies. The Company
      allocates corporate selling and administrative expenses to each segment. No
      allocation is made of interest expense.


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The
      following table shows the Company’s business segments and related financial
      information for the years ended December 31, 2005, 2004 and 2003 (in
      thousands):





**2005**
            
            Trailers
            
            Motorcoaches
            
            Corporate
                and other*
            
            TotalRevenues
                from external customers
            
            $
            142,140
            
            $
            83,016
            
            $
            128
            
            $
            225,284Interest
                expense
            
            
            368
            
            
            1,629
            
            
            689
            
            
            2,686Depreciation
                and amortization
            
            
            1,128
            
            
            653
            
            
            541
            
            
            2,322Income
                (loss) before taxes *
            
            
            9,537
            
            
            947
            
            
            (3,695
            )
            
            6,789Identifiable
                assets
            
            
            39,080
            
            
            44,555
            
            
            4,166
            
            
            87801Capital
                expenditures
            
            
            1,405
            
            
            1,420
            
            
            340
            
            
            3,165**2004**Revenues
                from external customers
            
            $
            128,426
            
            $
            88,046
            
            $
            48
            
            $
            216,520Interest
                expense
            
            
            367
            
            
            1,341
            
            
            596
            
            
            2,304Depreciation
                and amortization
            
            
            1,135
            
            
            657
            
            
            547
            
            
            2,339Income
                (loss) before taxes *
            
            
            9,156
            
            
            1,226
            
            
            (3,834
            )
            
            6,548Identifiable
                assets
            
            
            35,835
            
            
            51,908
            
            
            4,470
            
            
            92,213Capital
                expenditures
            
            
            1,493
            
            
            221
            
            
            221
            
            
            1,935**2003**Revenues
                from external customers
            
            $
            102,265
            
            $
            77,866
            
            $
            13
            
            $
            180,144Interest
                expense
            
            
            757
            
            
            1,408
            
            
            301
            
            
            2,466Depreciation
                and amortization
            
            
            1,108
            
            
            706
            
            
            722
            
            
            2,536Income
                (loss) before taxes
            
            
            4,458
            
            
            (1,079
            )
            
            (2,780
            )
            
            599Identifiable
                assets
            
            
            29,997
            
            
            51,220
            
            
            5,376
            
            
            86,593Capital
                expenditures
            
            
            652
            
            
            259
            
            
            85
            
            
            996


*
      includes add back of minority interest in subsidiary loss of $45,000 in 2005
      and
      $81,000 in 2004 to “Corporate and Other” loss before taxes.








Revenue
      attributed to geographic locations is based on the location of the customer.
      Geographic information is as follows (in thousands):





2005
            
            2004
            
            2003Revenues
                from unaffiliated customersUnited
                States
            
            $
            218,976
            
            $
            212,161
            
            $
            176,334Canada
                and other regions
            
            
            6,308
            
            
            4,359
            
            
            3,810Consolidated
            
            $
            225,284
            
            $
            216,520
            
            $
            180,144














**Note
      13. Supplemental Cash Flow Disclosures**





Summarized
      below are the supplemental cash flow disclosures and the non-cash investing
      activities for the years ended December 31, 2005, 2004 and 2003.








2005
            
            2004
            
            2003Supplemental
                disclosures:Interest
                payments
            
            $
            2,657
            
            $
            2,191
            
            $
            2,533Income
                tax payments
            
            
            2,201
            
            
            1,864
            
            
            477Non-cash
                investing activities:Trailers
                exchanged for advertising
            
            
            113
            
            
            122
            
            
            -

















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FORM
      10-K FOR FISCAL YEAR ENDED


DECEMBER
      31, 2005


_________________________





FEATHERLITE,
      INC.





EXHIBIT
              NUMBER
            DESCRIPTION3.1
            The
                Company’s Articles of Incorporation, as amended -- incorporated by
                reference to Exhibit 3.1 to Company’s 10-Q for the quarter ended March 31,
                19983.2
            The
                Company’s Bylaws, as amended -- incorporated by reference to Exhibit 3.2
                to Company’s S-1 Registration Statement, Reg. No.
                33-825644.1
            Specimen
                Form of the Company’s Common Stock Certificate -- incorporated by
                reference to Exhibit 4.1 to Company’s S-1 Registration Statement, Reg. No.
                33-8256410.1
            **1994
                Stock Option Plan, including Form of Incentive Stock Option Agreement
                --
                incorporated by reference to Exhibit 10.2 to Company’s S-1 Registration
                Statement, Reg. No. 8256410.2
            **Amendment
                to 1994 Stock Option Plan dated May 14, 1996 -- incorporated by reference
                to Exhibit 10.23 to Company’s 10-K for the fiscal year ended December 31,
                199610.3
            Industrial
                New Jobs Training Agreement between the Company and Northeast Iowa
                Community College -- incorporated by reference to Exhibit 10.10 to
                Company’s S-1 Registration Statement, Reg. No. 33-8256410.4
            Consignment
                Agreement dated January 31, 2002 between the Company and Prevost
                Car, Inc.
                -- incorporated by reference to Exhibit 10.31 to the Company’s Form 10-K
                for the year ended December 31, 200110.5
            Amended
                and Restated Loan Agreement Between U.S. Bank National Association
                and the
                Company dated July 31, 2002 -- incorporated by reference to Exhibit
                10.22
                to the Company’s Form 10-K for the year ended December 31,
                200210.6
            Commercial
                Lease Between GBNM Partnership and the Company -- incorporated by
                reference to Exhibit 10.37 to the Company’s Form 10-K for the year ended
                December 31, 200310.7
            Floor
                Plan Financing Agreement dated October 28, 2003 between the Company
                and
                Regions Bank -- incorporated by reference to Exhibit 10.35 to the
                Company’s Form 10-K for the year ended December 31,
                200310.08
            First
                Amendment to Amended and Restated Loan Agreement Between U.S. Bank
                National Association and the Company dated February 18, 2003 --
                incorporated by reference to Exhibit 10.14 to the Company’s Form 10-K for
                the year ended December 31, 200410.09
            Second
                amendment to Amended and Restated Loan Agreement Between U.S. Bank
                National Association and the Company dated September 26, 2003 --
                incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K for
                the year ended December 31, 200310.10
            Third
                amendment to Amended and Restated Loan Agreement Between U.S. Bank
                National Association and the Company dated April 14, 2004 -- incorporated
                by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter
                ended March 31, 200410.11
            Fourth
                amendment to Amended and Restated Loan Agreement Between U.S. Bank
                National Association and the Company dated June 30 ,2004 -- incorporated
                by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter
                ended June 30, 200410.12
            Fifth
                amendment to Amended and Restated Loan Agreement Between U.S. Bank
                National Association and the Company dated December 24, 2004 --
                incorporated by reference to Exhibit 10.18 to the Company’s Form 10-K for
                the year ended December 31, 200410.13
            Sixth
                amendment to Amended and Restated Loan Agreement Between U.S. Bank
                National Association and the Company dated November 17,
                200510.14
            Amended
                and Restated Agreement for wholesale financing between GE Commercial
                Distribution Finance Corporation (formerly Deutsche Financial Services)
                and the Company dated October 6, 1997 -- incorporated by reference
                to
                Exhibit 10.19 to the Company’s Form 10-K for the year ended December 31,
                200410.15
            First
                Amendment to Amended and Restated Agreement for wholesale financing
                between GE Commercial Distribution Finance Corporation and the Company
                dated April 1, 1998 -- incorporated by reference to Exhibit 10.20
                to the
                Company’s Form 10-K for the year ended December 31,
                200410.16
            Second
                Amendment to Amended and Restated Agreement for wholesale financing
                between GE Commercial Distribution Finance Corporation and the Company
                dated May 8, 1998 -- incorporated by reference to Exhibit 10.21 to
                the
                Company’s Form 10-K for the year ended December 31,
                200410.17
            Third
                Amendment to Amended and Restated Agreement for wholesale financing
                between GE Commercial Distribution Finance Corporation and the Company
                dated March 25, 2000 --incorporated by reference to Exhibit 10.22
                to the
                Company’s Form 10-K for the year ended December 31,
                200410.18
            Fourth
                Amendment to Amended and Restated Agreement for wholesale financing
                between GE Commercial Distribution Finance Corporation and the Company
                dated September 25, 2000 --incorporated by reference to Exhibit 10.23
                to
                the Company’s Form 10-K for the year ended December 31,
                200410.19
            Fifth
                Amendment to Amended and Restated Agreement for wholesale financing
                between GE Commercial Distribution Finance Corporation and the Company
                dated July 30, 2002 --incorporated by reference to Exhibit 10.24
                to the
                Company’s Form 10-K for the year ended December 31,
                200410.20
            Sixth
                Amendment to Amended and Restated Agreement for wholesale financing
                between GE Commercial Distribution Finance Corporation and the Company
                dated February 22, 2005 --incorporated by reference to Exhibit 10.25
                to
                the Company’s Form 10-K for the year ended December 31,
                200410.21
            Mortgage,
                Security Agreement, Assignment of Leases and Rents, and Fixture Filing
                dated January 21, 2005, made by the Company in favor of GE Commercial
                Finance Business Property Corporation -- incorporated by reference
                to
                Exhibit 10.26 to the Company’s Form 10-K for the year ended December 31,
                200410.22
            The
                Company’s 2004 Equity Incentive Plan -- incorporated by reference to
                Exhibit 10.27 to the Company’s Form 10-K for the year ended December 31,
                200410.23
            Form
                of the Company’s Incentive Stock Option Agreement under the Company’s 2004
                Equity Incentive Plan -- incorporated by reference to Exhibit 10.28
                to the
                Company’s Form 10-K for the year ended December 31,
                200410.24
            Form
                of the Company’s Nonqualified Stock Option Agreement under the Company’s
                2004 Equity Incentive Plan -- incorporated by reference to Exhibit
                10.29
                to the Company’s Form 10-K for the year ended December 31,
                200410.25
            Floor
                Plan Financing Agreement Dated December 19, 2005
                Between the Company and Regions Bank.10.26
            Letter
                Agreement Between U.S. Bank National Association
                and the Company dated November 17, 200510.27
            Retention
                Letter for James Wooley dated March 10,
                2006.21
            Subsidiaries
                of the Company:
              State
                of
              Name       Incorporation
              Featherlite
                Aviation Company    Minnesota
              Featherlite
                Chemicials Holdings, LLC   Delaware23.1
            Consent
                of Grant Thornton LLP, independent registered
                public accounting firm23.2
            Consent
                of Deloitte and Touche
                LLP24
            Powers
                of Attorney of directors -- included under the “Signatures” section of
                this Form 10-K31.1
            Certification
                of Chief Executive Officer Pursuant to
                Section 302 of the Sarbanes-Oxley Act of 200231.2
            Certification
                of Chief Financial Officer Pursuant to
                Section 302 of the Sarbanes-Oxley Act of 200232.1
            Certification
                of Chief Executive Officer pursuant to
                Section 906 of the Sarbanes-Oxley Act of 200232.2
            Certification
                of Chief Financial Officer pursuant to
                Section 906 of the Sarbanes Oxley Act of
                2002





**
      Management contract or compensatory plan or arrangement required to be filed
      as
      an exhibit to this Form 10-K.














FEATHERLITE,
                INC.SCHEDULE
                II - SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS(In
                Thousands)AdditionsBalance
                at
            
            Charged
                to
            
            Charged
                to
            
            
            
            BalanceBeginning
            
            Costs
                and
            
            Other
            
            
            
            at
                EndDescription
            
            of
                Period
            
            Expenses
            
            Accounts
            
            Deductions
            
            of
                PeriodYear
                ended December 31, 2003Allowance
                for doubtful accounts
            
            
            365
            
            
            49
            
            
            
            
            
            102
            
            
            312Warranty
                accrual
            
            
            1,431
            
            
            1,349
            
            
            
            
            
            1,555
            
            
            1,225Year
                ended December 31, 2004Allowance
                for doubtful accounts
            
            
            312
            
            
            158
            
            
            
            
            
            5
            
            
            465Warranty
                accrual
            
            
            1,225
            
            
            1,803
            
            
            
            
            
            1,807
            
            
            1,221Year
                ended December 31, 2005Allowance
                for doubtful accounts
            
            
            465
            
            
            29
            
            
            
            
            
            141
            
            
            353Warranty
                accrual
            
            
            1,221
            
            
            1,549
            
            
            
            
            
            1,572
            
            
            1,198












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