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U.S. SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549



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FORM 10-K



ANNUAL REPORT
UNDER SECTION 13 OR 15(d)

OF

THE SECURITIES EXCHANGE ACT OF 1934



|For the Fiscal Year Ended December 31, 2002 |  | Commission File No.: 0-24804
|------------------------------------------- |  | ----------------------------



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)



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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



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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



The aggregate
market value of the Common Stock held by non-affiliates of the registrant as of March 31, 2003, was $4,891,000 (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 31, 2003: 6,535,104.



DOCUMENTS
INCORPORATED BY REFERENCE



Portions of the
Companys definitive Proxy statement for 2003 Annual Meeting are incorporated by reference into Part III.

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FEATHERLITE, INC.

FORM 10-K

TABLE OF CONTENTS



|         |  | Description                                                                           |  | Page
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART 1   |  |                                                                                       |  |     
|        
|Item 1.  |  | Business                                                                              |  | 3   
|Item 2   |  | Properties                                                                            |  | 19  
|Item 3   |  | Legal Proceedings                                                                     |  | 20  
|Item 4   |  | Submission of Matters to a Vote of Security Holders                                   |  | 20  
|Item 4A  |  | Executive Officers of the Registrant                                                  |  | 20  
|        
|PART II  |  |                                                                                       |  |     
|        
|Item 5   |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  | 22  
|Item 6   |  | Selected Financial Data                                                               |  | 22  
|         |  | Quarterly Financial Data                                                              |  | 23  
|Item 7   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 23  
|Item 7A  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 37  
|Item 8   |  | Financial Statements and Supplementary Data                                           |  | 38  
|Item 9   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 40  
|        
|PART III |  |                                                                                       |  |     
|        
|Item 10  |  | Directors and Executive Officers of Registrant                                        |  | 40  
|Item 11  |  | Executive Compensation                                                                |  | 41  
|Item 12  |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 41  
|Item 13  |  | Certain Relationships and Related Transactions                                        |  | 41  
|Item 14  |  | Controls and Procedures                                                               |  | 41  
|        
|PART IV  |  |                                                                                       |  |     
|        
|Item 15  |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 42  
|         |  | Signatures                                                                            |  | 42  
|         |  | Consolidated Balance Sheets                                                           |  | 46  
|         |  | Consolidated Statements of Operations                                                 |  | 47  
|         |  | Consolidated Statements of Shareholders Investment and Comprehensive Income          |  | 47  
|         |  | Consolidated Statements of Cash Flows                                                 |  | 48  
|         |  | Notes to Consolidated Financial Statements                                            |  | 49  
|         |  | Exhibit Index                                                                         |  | 64  



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PART
I



ITEM 1.
DESCRIPTION OF BUSINESS



General



Featherlite, Inc. 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 240 full-line dealers located in the United States and Canada. The Company markets its trailers primarily under the
FEATHERLITE®brand name.



In 1996, the Company also began designing, manufacturing and
marketing custom luxury motorcoaches primarily through the acquisition of the assets of Vantare International, Inc. In 1998, the Company expanded its presence in this market by acquiring the assets of Mitchell Motorcoach Sales, Inc. Entry into the
luxury motorcoach market was consistent with Featherlites long-term growth and product diversification strategy. Our motorcoaches are marketed under the trade names Featherlite Vantare®andFeatherliteLuxury Coaches®.Production of the Featherlite Vogue®model was discontinued in 2001, although new models still in inventory are continuing to be sold under this trade name.



FEATHERLITE®trailers are made of aluminum, which differentiates the Company from most of its
competitors that 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 DIAMOND D®brands in order to provide dealers and customers with a high quality, but less expensive, alternative to our aluminum
trailers.



Management believes that growth in the
demand for the Companys trailers has from time to time historically coincided 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. In particular, growth in independent product and service markets that also could use or require a high quality specialty trailer
has created increased demand for the Companys trailers as the Company seeks to design and develop trailers that address the needs of customers in niche markets. Those categories and uses include pickup trucks, sport utility vehicles,
all-terrain-vehicles, and snowmobiles; auto races, classic car shows and motorcycle rallies; hobby farming and raising and showing horses; art and craft fairs and expositions; and vending trailers for selling crafts, food and other concessions, such
as T-shirts, souvenirs, apparel or novelty items. Examples of other users of the Companys trailers include 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. The Companys mobile marketing transporter trailers 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.



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



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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 is also developing a motorcoach to be used for command and control purposes by fire and law enforcement teams in cities and states throughout the nation.



The Company is cautious concerning sales in 2003. The
softening of sales in relation to plan in the third and fourth quarters of 2002 has continued into the early months of 2003, particularly in the trailer segment, as the stationary economy and consumer uncertainty continues. In the first three months
of 2003, the new order backlog for trailers increased by 40% whereas in 2002 the backlog had increased by 45% in the same period. In the first three months of 2003, the motorcoach backlog has declined about 18% while in the same period in 2002 it
declined about 7%. While the Company does not know how long the current order trend will last, it will continue its aggressive measures to promote sales and manage costs. Management believes Featherlite is positioned to continue as a leader in the
leisure, recreation and entertainment categories, including motorsports.



The Company continually monitors the market for opportunities to leverage the FEATHERLITE®brand name and its 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 and motorcoaches, 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 and luxury custom motorcoaches. In addition, Featherlite refines the products it already offers by introducing new features to satisfy the increasing demands of
its customers. In 2002, almost 60 new models or existing model changes were introduced.



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 which
are visible to its customers. These sponsorships include Featherlites designation as the Official Trailer of NASCAR, Champ Car, Indy Racing League (IRL), American Speed Association (ASA), World of Outlaws (W.O.O.), CASCAR, Grand Am
Road Racing, INEX & 600 Racing, Sports Car, Super Chevy Show, the Indianapolis Motor Speedway and Speedway Motor Corporation race tracks. Featherlite is a major sponsor of the National Hot Rod Association (NHRA). Featherlite is the title sponsor
of the NASCAR Featherlite Southwest Tour and the NASCAR Featherlite Modified Tour. Featherlite has an association with the Ohio All American Quarter Horse Congress, the National Western Livestock Show, Appaloosa Horse Club, United States Team Roping
Competition, the National High School Rodeo Association, the Professional Womens Rodeo Association, and the Worlds Toughest Rodeo. The Companys luxury motorcoach is the Official Coach of NASCAR, NHRA, IRL, Grand Am Road
Racing and Sports Car and is a sponsor of the World Bullsfish Series. In 2001, the Company began a three-year agreement with NBC and TNT networks to broadcast Featherlite TV commercials as part of their nationwide telecasts of certain NASCAR races.
In 2002, a similar agreement was reached with FOX Sports Network and with MRN (Motor Racing Network).



The Reports of Independent Public Accountants accompanying the Companys consolidated statements as of December 31, 2002 and 2001 and
the years then ended state the Company is unable to ascertain whether it will have sufficient liquidity available under existing credit lines to fund operations or whether the Company will meet various covenant requirements contained in its
financing agreements as discussed in Notes 2 and 9 to the consolidated financial statements. The Report of



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Independent Auditors states these matters raise substantial doubt about the Companys ability to continue as a going concern.



Specialty Trailer and Motorcoach Industries



The Company operates in two principal industries and business
segments: 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, engaged in the activities for which particular trailers are designed. 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 steel 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. As a result, 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. In comparison, production of aluminum trailers 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 five to ten percent of the total market for specialty trailers, but that this percentage is increasing. The Company believes that an increase in demand for aluminum rather than steel trailers will be 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.



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Motorcoach Industry



Motorcoaches are the most luxurious of all
recreational vehicles. They represent a unique market niche, with selling prices ranging from $800,000 to $1,000,000 or more. These motorcoaches are primarily converted from a bus shell that is purchased and completed to provide an interior area
designed to the customers specifications. The target market for these motorcoaches is typically affluent business owners, retirees, professionals and those in the entertainment and sports industries. The Company believes that there are
presently seven or more companies in this industry.



Products
and Services



The Companys primary
business activity is the manufacture and sale of specialty aluminum trailers and motorcoaches under the FEATHERLITE®brand name. In addition, the Company manufactures and sells combination steel and aluminum trailers under its FEATHERLITE-STL®series and DIAMOND D®brand names, sells replacement and specialty parts, and
coordinates delivery of completed trailers to customers. In 1996, the Company also began manufacturing and marketing custom motorcoaches under the name VANTARE BY FEATHERLITE®. In 1998, the FEATHERLITE VOGUE®brand of motorcoaches was added when the Company purchased the assets of Mitchell Motorcoach Sales, Inc. In 2001, the
Company discontinued this brand, and closed the manufacturing facility in Pryor, Oklahoma. The Companys motorcoaches are now marketed under the trade names FEATHERLITE VANTARE®andFEATHERLITE LUXURY COACHES®. The FEATHERLITE VOGUE®brand is continuing to be marketed until existing new models in inventory are sold, which the Company believes will occur
in 2003. Rework and warranty services are also provided for Company-built trailers and motorcoaches at the Companys facilities and dealer locations. For 2002, approximately 94% of the Companys revenues were derived from trailer and
motorcoach sales.



The following data illustrate
the percentage of the Companys net sales in 2000, 2001 and 2002 (dollars in thousands):



|             |  | Years ended December 31,
|------------ |  | ------------------------
|             |  | 2000                    
|             |  | Amount                  
|Trailers     |  | $                       
|            
|Motorcoaches |  |                         
|            
|Other        |  |                         
|             |  |                         
|Net sales    |  | $                       
|             |  |                         



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



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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, which are all aluminum with the exception of steel axle and hitch parts, enjoy a premier image in the industry. Sales of FEATHERLITE®brand trailers currently represent approximately 92% of
the Companys total trailer sales. FEATHERLITE-STL®series andDIAMOND D®brand trailers, which generally are a composite of steel frame, aluminum skin and galvanized roof, allow the Company to place its product line 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.



Trailer design traditionally has been utilitarian. In recent years, however, the demand for trailers with special amenities and custom designed features has increased dramatically. 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 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.



In addition to custom designed trailers, the Company manufactures standard model trailers for inventory, which are available for immediate delivery to dealers. In an industry consisting primarily 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 60% of the Companys total trailer sales. The Companys
dealer network has enthusiastically endorsed and supported the standard model concept.



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 as much as $900,000.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.



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). Even though the H body style is much taller and the layout is considerably different than a typical XL motorcoach, it has become the model most requested by customers. The Company offers a slide-out
model that expands the livable space within the motorcoach. The Company has also offered a high quality Class A series motorcoach, a living unit entirely constructed by Featherlite from the ground up on a specially designed motor vehicle chassis,
under theFeatherlite Vogue®brand. In 2001, the Company discontinued
manufacturing the Featherlite Vogue®brand, including the Vogue 6000
model that was introduced in 2000, and adopted a plan to shut-down its Pryor, Oklahoma manufacturing facility. The Companys motorcoaches are now marketed under the trade names FEATHERLITE VANTARE®andFEATHERLITE LUXURY COACHES®



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The
Companys goal is to produce the best performing and most reliable motorcoach while keeping a low overall gross weight and extremely low ambient noise level. It incorporates into motorcoaches many of the good 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.



The Company builds a number of luxury motorcoaches on a speculative basis (87 percent of work in process at December 31, 2002). 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 at retail prices ranging from $800,000 to $1,000,000 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 results and 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
coach sales. There is a risk that the market value of these trade-ins will be reduced before they are resold and adversely impact the Companys operating results. In the year 2002, the Company recorded motorcoach inventory write-downs of
$632,000, primarily related to used motorcoaches.



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



In 2003, the Company entered into a Master Sales Agreement
with Universal Luxury Coaches, LLC (ULC) under which ULC has the option to 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 Nevada
Coach Partners, LLP, an entity with a majority interest owned by Conrad Clement, Tracy Clement, Eric Clement and James Wooley, officers and shareholders of Featherlite. 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 will also enter into agreements with ULC to lease it office space and to provide
service on the ULC motorcoaches



Other Business Activities



In addition to the manufacture and sale of
specialty trailers and motorcoaches, the Company sells replacement and specialty trailer and motorcoach parts to its dealers and to others. It coordinates delivery of completed trailers to customers and to dealers for a fee and in 2002 delivered
approximately 50% of the trailers sold to dealers, with the remainder picked up at its Iowa facilities. The Company owns and maintains a fleet of trucks and leases semi tractors for this purpose.



The Company is a licensed aircraft dealer and believes that
dealing in used aircraft is complementary to its principal business. Featherlite Aviation Company, a wholly owned subsidiary of the Company, conducts such aircraft dealer activities. Featherlite Aviation Company held for resale one used aircraft at
December 31, 2002. The purchase, sale, use and operation of aircraft and the volatility in the sales volume and value of aircraft create risks to the Company and its operating results. In 2002, the Company recorded a $160,000 write-down in the
carrying value of the aircraft to reflect a



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decline in its value during the year. Gains or losses on aircraft sales and valuation are included in the Other income caption in
the Companys Consolidated Statements of Operations.



The Companys other business activities, excluding aircraft, in the aggregate, accounted for approximately 5.0%, 5.4% and 6.1% of the Companys net sales for 2000, 2001 and 2002, respectively. These activities are included
as part of the trailer and motorcoach segments in Note 15 to the Companys Consolidated Financial Statements.



In 2003, the Company entered into an operating agreement with Benbow Chemical Packaging, Inc.(Benbow) to form Featherlite Chemicals, LLC,
a New Jersey limited liability corporation (FCC). Featherlite will own a 51 percent interest in FCC with the remaining ownership held by Benbow. The purpose of FCC will be 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.



Marketing and Sales



Trailers



The Company
markets its trailers primarily through a network of over 240 full-line and limited-line dealers located in the United States and Canada. The Company also sells trailers directly at its sales and service center in Sanford, Florida. Dealers typically
handle only a portion of the entire FEATHERLITE®, FEATHERLITE-STL®series and DIAMOND
D®product lines and
may sell other steel trailer brands. Featherlite dealers are prohibited by their agreements with the Company from selling other brands of aluminum trailers. No single dealer represents 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 2000, 2001 and 2002. 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. For these periods, the dealer network sold approximately 97% of the number of units sold.



Dealers and distributors sell
FEATHERLITE®, FEATHERLITE-STL®series and DIAMOND D®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 and distributors may be terminated. Such laws have not materially adversely affected the Company to date.
Changes in dealers and distributors take place from time to time. The Company believes that a sufficient number of prospective dealers exists across the United States and Canada to permit orderly transitions whenever necessary. The Company is
continually 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 increase
substantially 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.



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Motorcoaches



Substantially all motorcoaches are sold
directly by Company personnel to end user customers. In 1999, the Company established an exclusive relationship with a dealer in seven Western states for sale of the FEATHERLITE VOGUE®5000 line of luxury motorcoaches. This dealer
relationship was terminated in June 2000. In September 1999 the Company opened a new sales and service center in Sanford, Florida and in May 2001 the Company opened a sales facility in Coburg, Oregon, supporting theFEATHERLITE LUXURY
COACHES®product
line. Company sales representatives participate in trade shows, fairs, motorsports races and other events to promote FEATHERLITE VANTARE®motorcoaches and to lesser extent, FEATHERLITE VOGUE®motorcoaches until all remaining new units are sold.



Financing



A substantial portion of the Companys sales of
motorcoaches and trailers are paid for within 10 days of invoicing. The Company has arrangements with Bank of America (formerly Nations Credit Commercial Corporation), Deutsche Financial Services Corporation (Deutsche), Bombardier Capital, Textron
Financial Corporation 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. At December 31, 2002, the Company is contingently liable for $10.1 million
under these repurchase arrangements. Although the Company has not been required to make any significant payments or repurchases to date from its trailer dealers (approximately $80,000 in 2000, $235,000 in 2001 and $273,000 in 2002), there can be no
assurance that such obligations will not, in the future, adversely impact the Company.The Company has a wholesale floor plan agreement with Deutsche to finance a portion of the new and used motorcoaches held in inventory. In 2000, the
Company was required to repurchase motorcoaches for $2.2 million from a financial institution when its sole motorcoach dealer defaulted on its financing agreement. There are no other repurchase agreements for wholesale financing of motorcoaches with
dealers at December 31, 2002.



Featherlite
Credit Corporation, a corporation owned by certain of the Companys officers and directors, provides retail financing to end user customers of the Companys dealers through financing companies such as Conseco Finance, Inc., Tatonka Credit
Corporation and Deutsche. Featherlite Credit also provides lease financing for trailers and motorcoaches, which is funded by a line of credit from U.S. Bank National Association. The Company has arrangements with several companies to provide
motorcoach retail financing to end user customers. There is no recourse to the Company on these retail financing arrangements.



Promotions



The Companys marketing is designed to advance consumer awareness of the Featherlite brand and position it so that the unique
strengths and benefits of Featherlite products are clearly known. Furthermore, the Companys national advertising campaigns are designed to motivate customers into action: to call a toll-free number for free product information and the location
of their nearest Featherlite dealers and/or visit the Companys website for more comprehensive description of product features and benefits. Market intelligence is gathered which assists the Company craft its message and reach the most
productive target constituencies. Benefit and demographic segmentation are utilized to more accurately target specific groupings of people within each product cluster. Quarter Horse Journal, Western Horseman, Horse & Rider, Thoroughbred Times
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, recreational and utility, and mobile



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marketing. Over 100 publications in various product segments are advertising vehicles for the Company. In addition, the Company utilizes
television advertising, primarily on racing programs carried on major broadcast and cable networks. The Company also sponsors a nationally syndicated radio program, which is broadcast over nearly 100 stations in 30 states targeting the equine
markets. Featherlite video is supplied to large arenas for use on sponsor jumbotrons and electronic message boards.



The Company produces approximately 30 different brochures; catalogues and flyers that support direct mail initiatives and help satisfy
consumer inquiries, as well as the premier web site www.fthr.com.



The Company also 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 into high sales-potential periods in the Wall Street Journal and selected regional metropolitan newspapers near the Companys sales centers. Outdoor advertising is also 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 already has a customer base. The Company also sponsors the Featherlite VIP Club and recently introduced the Featherlite VIP Bikers Club.
These lifestyle clubs are an excellent marketing platform to introduce people around America to new coach and trailer products.



The Companys public and media relations focus actively pursues regional and national media coverage of the uniqueness of the Company
as well as its new product introductions. In 2001, the Company began a three-year agreement with NBC and TNT networks to broadcast Featherlite TV commercials as part of their nationwide telecasts of certain NASCAR races. In 2002, a similar agreement
was reached with FOX Sports Network. In 2002 a contract was finalized with MRN (Motor Racing Network) to air Featherlite commercial announcements nationally through 2006.



An example of the Companys specialized niche market promotional efforts is the motor sports industry.
Featherlite currently is the Official Trailer of NASCAR, Champ Car, Indy Racing League (IRL), American Speed Association (ASA), World of Outlaws (W.O.O.), CASCAR, Grand Am Road Racing, INEX & 600 Racing, Sports Car, Super Chevy Show,
the Indianapolis Motor Speedway and Speedway Motor Corporations racetracks. Featherlite is a major sponsor of the National Hot Rod Association (NHRA) and is the Official Coach of NASCAR, IRL, Grand Am Road Racing and Sports Car.
Featherlite Luxury Coaches is also a sponsor of the World Billfish Series.



Featherlite is the title sponsor of the NASCAR Featherlite Southwest Tour and the NASCAR Featherlite Modified Tour. The 2002 NASCAR Featherlite Southwest Tour was comprised of 14 events in various
cities in Arizona, California and Colorado. The NASCAR Featherlite Modified Tour schedule featured 19 races primarily in the northeastern United States. 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 motocross.



In addition to the racing industry, the Company sponsors or is associated with the All American Quarter Horse Congress, United States Team
Roping Championship, Appaloosa Horse Club, National High School Rodeo Association, Worlds Toughest Rodeo, Professional Womens Rodeo Association, and 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,



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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.



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 competitors with respect to each of these factors. The primary competition to FEATHERLITE®aluminum trailers is steel trailers, which 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 Brands                                                     
|-------------------------------------- |  | ----------------------------------------------------------------------------------
|Horse and Livestock                    |  | 4 Star, Barrett, Sooner, Wilson, Sundowner, Kiefer Built, W-W,
Exiss              
|                                      
|Utility                                |  | Wells Cargo, PACE, Haulmark, US Cargo, Cargo Mate                                 
|                                      
|Car Trailers and Race Car Transporters |  | HighTech, Competition, Wells Cargo, Haulmark, PACE, Goldrush, Champion, Ultra
Comp



Motorcoaches



The motorcoach industry is highly
competitive, particularly in XL and high-end Class A models, with seven or more manufacturers. Featherlite is the dominant producer of H model bus conversion motorcoaches. 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
competitors in this industry, all of which are located domestically, include, among others: Marathon, Liberty, Royale and Angola.



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Manufacturing



Trailers



The Company manufactures substantially all of its trailers at
plants located in Cresco, and Shenandoah, Iowa. In April 2001, the Company closed its Nashua, Iowa trailer production facility and is consolidating some or all of this production into the Cresco, Iowa facility. Approximately 110 employees were
either terminated or reassigned elsewhere in the Company.



In November 2002, Featherlite ended an agreement with one independent company to manufacture certain trailers. Under the agreement, the Company supplied specifications to the manufacturer. The manufacturer, which was prohibited from
manufacturing trailers for any other entities without Featherlites consent, purchased the materials and provided labor and overhead expenses to manufacture the trailers for contractually agreed upon prices. Such trailers constituted less than
1% of net trailer sales for 2002.



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.
Prices of aluminum, the principal commodity used in the Companys business, fluctuate daily in the open market. As discussed below, the Company has obtained fixed price contracts from suppliers to reduce the risk related to fluctuations in the
cost of aluminum for 2003 for approximately 80% of its anticipated aluminum requirements. There is a risk to future operating results if the Company is unable to obtain fixed contracts to reduce the effect of fluctuations in the price of aluminum
for the remainder of its 2003 requirements.



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 two large suppliers, Integris Metals, Inc. and Aluminum Line
Products Co. The identity of particular suppliers and the quantities purchased from each varies from period to period. 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. The Company has contracts with certain of the above suppliers to fill about 80 percent of its projected needs for aluminum in 2003. 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. Increases in the prices of
aluminum and other supplies may adversely affect margins on the Companys products.



In addition to obtaining long-term 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, 2002.



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



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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 motorcoaches at a plant
located in Sanford, Florida. Except for the coach 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 coach are done
by Company personnel. In 2001, the Company transferred production of certain bus conversion models from its Pryor, Oklahoma facility to its Sanford, Florida facility. In June 2001, the Company adopted a plan to shut down its Pryor, Oklahoma,
manufacturing facility and suspend development and manufacturing of the Vogue 6000 motorcoach because of unacceptable delays experienced in obtaining materials essential to the manufacture of this coach. The Company closed this facility in August
2001, and approximately 80 employees were either terminated or reassigned elsewhere in the Company.



The Company purchases its motorcoach shells from one manufacturer, Prevost Car Company, Inc. of Sainte-Claire, Quebec, Canada, although
the Company could purchase certain shells from other manufacturers. The Company does not have any long or short-term manufacturing contracts with Prevost. However, the Company provides Prevost with its estimated yearly motorcoach requirements. Once
Prevost releases an order to production, Prevost becomes obligated to fill the order and the Company becomes obligated to take delivery of the order. In the event Prevost was unable to deliver motorcoach shells to the Company, the Companys
revenues and profits could be materially and adversely affected.



Backlog



At December 31,
2002 the Company had unfilled confirmed orders from its customers in the amount of approximately $16.1 million, including $5.6 million in motorcoach orders, compared with $15.8 million, including $3.1 million in motorcoaches, at December 31, 2001.
At March 31, 2003, the Company had unfilled orders from its customers in the amount of approximately $19.4 million, including $4.6 million in motorcoach orders, compared with $21.4 at March 31, 2002, including $2.9 million of motorcoach orders. All
orders in backlog at December 31, 2002 and March 31, 2003, are expected to be filled during 2003.



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,



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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 to standards of the federal Department of Transportation. The Company is a member of the National Association of Trailer
Manufacturers (NATM) and manufactures its trailers to NATM standards. 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 Board, could have a material adverse effect on the Company.



In 2002, the National Highway Traffic Safety Administration (NHTSA), enacted a new reporting requirement referred to as the Tread Act.
This act requires certain transportation manufacturers, including the Company, to provide detailed reporting of various repairs performed on products produced by transportation manufacturers. The Company expects to meet the new requirements during
the 2003 fiscal year.



Patents and Trademarks



The Company has registered
FEATHERLITE®as a trademark for use in conjunction with trailers in the
United States, Canada and Germany. It has also registered this trademark for a variety of promotional items. In general, such registrations are effective through the year 2001, with continuous ten-year renewal periods thereafter. The Company has a
United States trademark with respect toFEATHERLITE-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 and has a trademark application pending in Canada. In 1993, the Company purchased the rights to two design patents, which expired in
1997, relating to the V-nose design of certain of its horse, livestock and snowmobile trailers. The Company believes that the patented designs are useful, but that the expiration of the patents will not have a material effect on the Company. In
addition, the Company has obtained certain trailer design and utility patents relating to racecar transporters, snowmobile trailers and horse trailers. The Company considers these patents, which have expiration dates ranging from 2011 to 2014, to be
important to the trailer business.



The
Company has a United States registered trademark for VANTARE BY FEATHERLITE®for use in conjunction with motorcoaches and yachts in the United States and FEATHERLITE VOGUE®, FEATHERLITE VANTARE®, and FEATHERLITE LUXURY COACHES® for
motorcoaches in the United States.



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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 four 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 recalls of the Companys
trailers for replacement of major components or parts and the expense of warranty claims for repairs or replacement of parts has been less than 1% of the Companys net 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 a limited warranty on
certain specified components of the FEATHERLITE VANTARE®motorcoach for
36 months.



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, 2002, the Company had 1,160 employees, of whom 1,112 are full-time and 48 are part-time as
follows: Production and production support975, Sales and Marketing102, and Administration83.



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



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 a $10 million term life insurance policy on Mr. Clement.



The Company has three agreements with two Iowa community colleges which provided the Company approximately
$870,000 for job training purposes over a period from 1992 to 1999. The amounts are to be repaid, together with interest, over a ten year period from state withholding taxes on employees at the Companys Iowa facilities. Two of these agreements
in an aggregate amount of $620,000 are complete and have been repaid in full. The remaining agreement began in 1998 and is partially repaid. The Company may be required to provide funds for the repayment of this training credit if sufficient
withholding and unused training funds are not available.



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Cautionary Statements



The Private Securities Litigation Reform
Act of 1995 (the Reform Act) provides a safe harbor for forward-looking statements made by us or on our behalf. We have made, and may continue to make, various written or verbal forward-looking statements with respect to business and
financial matters, including statements contained in this document, other filings with the Securities and Exchange Commission, and reports to stockholders.



Forward-looking statements provide current expectations or forecasts of future events and can be identified by the use of terminology such
as believe, estimate, expect, intend, may, could, will, plan, anticipate, and similar words or expressions. Any statement that is not based
upon historical facts should be considered forward-looking in nature. The Companys forward-looking statements generally relate to its financial results, growth strategy, sales levels, competitive strengths, product development, market trends,
financing availability, cost structure, manufacturing processes, dealer financial solvency, and the impact of general economic conditions on industry trends. 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. Featherlite wishes to caution readers that the following important 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:



| |  | Availability of increased levels of financing and cash from operations necessary to improve the companys net liquidity deficiency, which has raised substantial
doubt about the Companys ability to continue as a going concern.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Inability to achieve restrictive covenants of financing agreements and obtain waivers from lenders for violations; inability to obtain additional financing to fund
liquidity shortfalls.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | A moderating growth rate or decline in the overall demand or in specific market segment demand, in the US and to some extent Canada, for existing models of aluminum
or steel specialty trailers and motorcoaches manufactured by Featherlite and in acceptance by the market of new trailer models and luxury motorcoaches introduced by Featherlite; and general or specific economic conditions, pricing, purchasing,
operational, advertising and promotional decisions by intermediaries in the distribution channels, which could affect their supply or end user demand for Featherlite products.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Increased competition from competitors and potential competitors which have greater financial and other resources than Featherlite; and competitors that are better
established in segments of Featherlites business.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Fluctuation in aluminum prices; inability of a major supplier of aluminum extrusion or sheets utilized by Featherlite to deliver raw materials on a timely
basis.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Inability of graphics/paint subcontractor to complete custom specified paint and graphic designs delaying delivery of specialty trailers.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  | Inability of motorcoach shell manufacturer to deliver shells on a timely basis; inability to sell motorcoaches made on a speculative basis at normal profit
margins.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | Declines in market value of motorcoaches taken as trade-in on new motorcoach or used motorcoach held for resale.
|- |  | ----------------------------------------------------------------------------------------------------------------



| |  | Effects of changes within Featherlites organization, including the loss of the services of key management personnel, particularly Mr. Conrad Clement, President
and Chief Executive Officer.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Continued pressure to increase the selling prices for Featherlites products 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; underutilization of Featherlites manufacturing facilities, resulting in production inefficiencies and higher
costs.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The inability to obtain adequate insurance coverage at an acceptable price or in a sufficient amount to protect Featherlite from the adverse effects of product and
other liability claims.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The risks related to being a licensed aircraft dealer which deals in used business aircraft, including the purchase, sales, use and operation of aircraft and the
volatility in the sales volume and value of aircraft.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Payments or repurchases by Featherlite related to guarantees of debt or the repurchase of trailers under certain circumstances in connection with dealer and retail
product financing arrangements.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The costs and other effects of legal and administrative cases and proceedings (whether civil, such as environmental and product-related, or criminal), settlements
and investigations, claims and changes in those items.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | A change in foreign, federal, state and local laws, rules and regulations related to Featherlite, its products, or activities.
|- |  | ------------------------------------------------------------------------------------------------------------------------------



The Company lists these factors as permitted by the Private Securities
Litigation Reform Act of 1995. It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historic results. As such, investors should not consider any list of such factors to be an exhaustive
statement of all risks, uncertainties or potentially inaccurate assumptions. The Companys forward-looking statements speak only as of the date they are first made available. The Company undertakes no obligation to update any forward-looking
statements that it makes.



Additional Information



All reports filed electronically by
Featherlite, Inc. with the Securities and Exchange Commission (SEC), including its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements, and other information and amendments to
those reports filed (if applicable), are accessible on the SECs web site at www.sec.gov. The public may read and copy any materials filed by the Company with the SEC at the SECs Public Reference Room at 450 Fifth Street,
NW, Washington, DC 20549. They may obtain information from the Public Reference Room by calling the SEC at 1-800-SEC-0330. These filings are also available beginning April 15, 2003 at no cost on the Companys website at www.fthr.com, and
they are available by contacting the Company at 563-547-6000.



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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. Adjacent to it is a Company-owned 50,000 square foot (including 20,000 added
in 1997) parts distribution center and a custom, maintenance and trailer distribution facility, from which substantially all trailer deliveries to dealers are made.



The Company has 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 including a 140,000 square foot expansion completed in March 1995 and a 20,000 square foot expansion in 1998. Three buildings, totaling approximately
186,000 square feet of Company owned space are used for production of trailers and fabrication of components. A 58,000 square foot Company owned building is used for custom interior finishing and a 14,000 square foot Company owned building is used
for storage of raw materials.



The Shenandoah
facilities include a 117,000 square foot manufacturing facility purchased in October 1995 in connection with the DIAMOND D®acquisition. The Company-owned Nashua facilities include a 51,000 square foot manufacturing plant and an 18,000 square foot plant/office building. This property is now idle and no longer used for
production. The Company is attempting to sell or lease the facility. In 1998, the Company sold two of the three buildings owned in Grand Meadow, Minnesota that were used as the Companys corporate office and rework/distribution center prior to
the relocation of these activities to Iowa in 1993. In 2002, the Company sold the remaining Grand Meadow facility, which consists of about 11 acres of land and a small warehouse facility.



In July 1996, the Company acquired office and production facilities and other assets of Vantaré
International, Inc. in Sanford, Florida. This facility includes approximately 55,000 square feet of production and office space and is used for the conversion of luxury motorcoaches. This facility is owned by Seminole Port Authority and is being
leased by the Company at an approximate annual cost of $388,000 under the terms of an operating lease that expires in 2007.These facilities were expanded in 1997 to add 24,000 square feet to the production and office space as well as 6,000
square feet for outside service bays. In 1997, vacant land near the Vantare ́ facilities was purchased for future expansion and 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 operating lease as described in Note 9 to consolidated financial statements.The Company has the option to repurchase this facility on August 1, 2005.



In September 1996, the Company leased property in Mocksville,
North Carolina, under the provisions of an operating lease, which has an initial term of ten years 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 of Featherlite luxury motorcoaches. The Company was planning to lease a new sales and service center in North Carolina from an entity owned by certain of its shareholders. These plans were terminated in December
2001. In this connection, the Company agreed to pay $302,000 to Clement Properties, an entity owned by the majority shareholders of the Company for costs incurred related to the acquisition and development of land related to this project. This
amount is being in equal monthly installments over a three year period without interest beginning in March 2002.



In May 1998, the Company acquired office and production facilities and other assets of Mitchell Motorcoach Sales, Inc. in Pryor, Oklahoma.
This facility includes approximately 150,000 square feet of production and office space and is used to manufacture luxury motorcoaches. It is



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owned by Oklahoma Ordnance Works Authority and is being leased to the Company at an approximate annual cost of $299,000 under the terms of an
operating lease which expires in March, 2011. In September 2000, the Company leased approximately 15 acres of land adjacent to this facility at an approximate annual cost of $27,000 for a period expiring in March 2011. This land was used for trailer
sales and additional parking space. In June 2001, the Company adopted a plan to shut down its Pryor, Oklahoma, manufacturing facility and suspend development and manufacturing of the Vogue 6000 motorcoach. The Company has not been successful in
subleasing this facility and is developing a plan to begin using this location as a sales facility for used recreational vehicles owned by others, primarily recreational vehicles repossessed by financial institutions. The Company expects this
activity will begin in 2003.



ITEM 3.
LEGAL PROCEEDINGS



The
Company, in the course of its business, has been named as a defendant in various legal actions that arise in the ordinary course of its business. Most, but not all, of such actions are product liability or workers compensation claims 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, that the resolution of such
suits will not have a material adverse effect on the Companys business or its financial position.



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.



ITEM 4A.
EXECUTIVE OFFICERS OF THE REGISTRANT



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



|Name ofExecutive Officer |  | Age |  | Present Position with Company                          
|------------------------ |  | --- |  | -------------------------------------------------------
|                        
|Conrad D. Clement        |  | 58  |  | President, Chief Executive Officer and Director        
|                        
|Jeffery A. Mason         |  | 62  |  | Chief Financial Officer and Director                   
|                        
|Tracy J. Clement         |  | 36  |  | Executive Vice President and Director                  
|                        
|Gary H. Ihrke            |  | 56  |  | Vice President of Operations & Secretary               
|                        
|Eric P. Clement          |  | 33  |  | Vice President of Sales                                
|                        
|James S. Wooley          |  | 55  |  | Vice President and President Luxury Motorcoach Division
|                        
|Larry D. Clement         |  | 57  |  | Treasurer                                              



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 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. From 1969 to 1988, Mr. Clement was the President and principal owner of several farm equipment and agricultural businesses. Mr. Clement is



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also the President and Chief Executive Officer and a shareholder of Featherlite Credit Corporation, an affiliate of the Company
(Featherlite Credit). Mr. Clement is Chairman of Universal Luxury Coaches, LLC and a shareholder of Nevada Coach Partners, LLP, the entity that owns a controlling interest in ULC. 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. From 1969 to 1989, Mr. Mason served in various financial management
capacities with several companies, including Arthur Andersen LLP and Carlson Companies. Mr. Mason is a certified public accountant.



Tracy J. Clement has been Executive Vice President and a director of the Company since 1988. Prior to 1988, Mr. Clement was
a shareholder and manager of several farm equipment and agricultural businesses with his father, Conrad D. Clement. Mr. Clement is also an officer and shareholder of Featherlite Credit Corporation. Mr. Clement is Vice President of Universal Luxury
Coaches, LLC and a shareholder of Nevada Coach Partners, LLP, the entity that owns a controlling interest in ULC.



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 and was previously a director of the Company. From January 1989 to June 1993, Mr. Ihrke was the General Manager of the Companys Cresco, Iowa facilities. From 1969 to 1989, he served as
general manager and branch manager of an agricultural equipment manufacturing company.



Eric P. Clement has been Vice President of Sales since March 1996 after service as Vice President of Operations since January 1991 and was previously a director of the Company. Prior
to that time, Mr. Clement attended college and worked part time for businesses owned by his father, Conrad D. Clement. Mr. Clement is also an officer and shareholder of Featherlite Credit Corporation. Mr. Clement is Secretary/Treasurer of Universal
Luxury Coaches, LLC and a shareholder of Nevada Coach Partners, LLP, the entity that owns a controlling interest in ULC.



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 served in various senior management positions in a number of difference business organizations since 1975. Mr. Wooley is also
an attorney. Mr. Wooley is a shareholder of Nevada Coach Partners, PPL, the entity that owns a controlling interest in Universal Luxury Coaches, LLC.



Larry D. Clement has been Treasurer of the Company since 1988 and was previously secretary and a director of the Company. He
has also been the owner and President of several auto and truck dealerships since 1971. Mr. Clement is the President and Secretary of Clement Auto & Truck, Inc., a FEATHERLITE®dealer. Mr. Clement is the brother of Conrad D. Clement.



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PART
II



ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



The Companys common stock is traded on the Nasdaq Small Cap Market under the Nasdaq symbol FTHR. Quotations below represent the high and low closing sales price as reported by Nasdaq,
by quarter, for the years ended December 31, 2002 and 2001.



|               |  | 2002 |      | 2001
|-------------- |  | ---- | ---- | ----
|               |  | High |      | Low 
|First Quarter  |  | $    | 1.77 |     
|Second Quarter |  |      | 3.78 |     
|Third Quarter  |  |      | 3.10 |     
|Fourth Quarter |  |      | 3.14 |     



As of March 20, 2003,
the Company had approximately 300 shareholders of record and approximately 2,100 beneficial shareholders. 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



FIVE YEARS
ENDED DECEMBER 31,



Statement of Income Data (In thousands,
except per share data)



|                                                |  | 2002 |         |   | 2001 |   |         | 2000 |  |   | 1999    |   |  | 1998 |        
|----------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | -------
|Net sales                                       |  | $    | 193,166 |   |      | $ | 212,786 |      |  | $ | 242,486 |   |  | $    | 224,813
|Cost of goods sold                              |  |      | 167,288 |   |      |   | 194,754 |      |  |   | 212,813 |   |  |      | 192,621
|                                                |  |      |         |   |      |   |         |      |  |   |         |   |  |      |        
|Gross profit                                    |  |      | 25,878  |   |      |   | 18,032  |      |  |   | 29,673  |   |  |      | 32,192 
|Selling and administration                      |  |      | 20,287  |   |      |   | 21,829  |      |  |   | 26,599  |   |  |      | 22,723 
|Amortization of intangibles                     |  |      |        |   |      |   | 81      |      |  |   | 636     |   |  |      | 520    
|Restructuring charge                            |  |      | 400     |   |      |   | 1,572   |      |  |   |        |   |  |      |       
|Asset impairment charge                         |  |      |        |   |      |   |        |      |  |   | 8,781   |   |  |      |       
|                                                |  |      |         |   |      |   |         |      |  |   |         |   |  |      |        
|Operating income (loss)                         |  |      | 5,191   |   |      |   | (5,450  | )    |  |   | (6,343  | ) |  |      | 8,949  
|Interest expense                                |  |      | (3,032  | ) |      |   | (4,300  | )    |  |   | (4,996  | ) |  |      | (3,768 
|Other income (expense), net                     |  |      | 278     |   |      |   | (337    | )    |  |   | 747     |   |  |      | 1,229  
|                                                |  |      |         |   |      |   |         |      |  |   |         |   |  |      |        
|Income (loss) before taxes                      |  |      | 2,437   |   |      |   | (10,087 | )    |  |   | (10,592 | ) |  |      | 6,410  
|Provision (benefit) for income taxes            |  |      | (258    | ) |      |   | (1,240  | )    |  |   | (728    | ) |  |      | 2,436  
|                                                |  |      |         |   |      |   |         |      |  |   |         |   |  |      |        
|Net income (loss)                               |  | $    | 2,695   |   |      | $ | (8,847  | )    |  | $ | (9,864  | ) |  | $    | 3,974  
|                                                |  |      |         |   |      |   |         |      |  |   |         |   |  |      |        
|Net income (loss) per share                     |  |      |         |   |      |   |         |      |  |   |         |   |  |      |        
|Basic                                           |  | $    | 0.41    |   |      | $ | (1.35   | )    |  | $ | (1.51   | ) |  | $    | 0.61   
|                                                |  |      |         |   |      |   |         |      |  |   |         |   |  |      |        
|Diluted                                         |  | $    | 0.38    |   |      | $ | (1.35   | )    |  | $ | (1.51   | ) |  | $    | 0.61   
|                                                |  |      |         |   |      |   |         |      |  |   |         |   |  |      |        
|Weighted average shares outstanding             |  |      |         |   |      |   |         |      |  |   |         |   |  |      |        
|Basic                                           |  |      | 6,535   |   |      |   | 6,535   |      |  |   | 6,531   |   |  |      | 6,506  
|Diluted                                         |  |      | 7,158   |   |      |   | 6,535   |      |  |   | 6,531   |   |  |      | 6,545  
|                                                |  |      |         |   |      |   |         |      |  |   |         |   |  |      |        
|                                               
|BALANCE SHEET DATE (End of Period)              |  |      |         |   |      |   |         |      |  |   |         |   |  |      |        
|                                               
|                                                |  | 2002 |         |   | 2001 |   |         | 2000 |  |   | 1999    |   |  | 1998 |        
|Working capital                                 |  | $    | 6,092   |   |      | $ | 1,641   |      |  | $ | 12,149  |   |  | $    | 32,065 
|Total assets                                    |  |      | 92,271  |   |      |   | 97,171  |      |  |   | 123,959 |   |  |      | 119,784
|Total long-term debt, net of current maturities |  |      | 7,230   |   |      |   | 7,386   |      |  |   | 11,821  |   |  |      | 30,563 
|Total shareholders investment                  |  |      | 17,955  |   |      |   | 15,141  |      |  |   | 24,012  |   |  |      | 33,726 





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|Quarterly Financial Data (Unaudited) |  | Net Sales |        | Gross Margin |       | Operating Income (Loss) |  |         | Net Income(Loss) |   |  | Net Income (loss)Per Share |       
|------------------------------------ |  | --------- | ------ | ------------ | ----- | ----------------------- |  | ------- | ---------------- | - |  | -------------------------- | ------
|                                     |  |           |        |              | Basic |                         |  | Diluted |                 
|2002                                 |  |           |        |              |       |                         |  |         |                  |   |  |                            |       
|First Quarter                        |  | $         | 60,605 |              | $     | 7,855                   |  | $       | 2,545            |   |  | $                          | 1,101 
|Second Quarter                       |  |           | 47,624 |              |       | 7,671                   |  |         | 2,195            |   |  |                            | 1,023 
|Third Quarter                        |  |           | 40,601 |              |       | 5,833                   |  |         | 915              |   |  |                            | 753   
|Fourth Quarter**                     |  |           | 44,336 |              |       | 4,519                   |  |         | (464             | ) |  |                            | (182  
|                                     |  |           |        |              |       |                         |  |         |                  |   |  |                            |       
|2001                                 |  |           |        |              |       |                         |  |         |                  |   |  |                            |       
|First Quarter                        |  | $         | 64,681 |              | $     | 7,025                   |  | $       | 1,217            |   |  | $                          | 64    
|Second Quarter**                     |  |           | 57,412 |              |       | 2,393                   |  |         | (4,568           | ) |  |                            | (4,138
|Third Quarter                        |  |           | 51,566 |              |       | 6,429                   |  |         | 1,023            |   |  |                            | 106   
|Fourth Quarter**                     |  |           | 39,127 |              |       | 2,185                   |  |         | (3,122           | ) |  |                            | (4,879
|                                     |  |           |        |              |       |                         |  |         |                  |   |  |                            |       

---

|** |  | Includes a restructuring charge of $400,000 and an inventory write-down of $632,000 in the fourth quarter of 2002, and a restructuring charge of $3.4 million in
second quarter of 2001, and an inventory write-down of $2.5 million and restructuring charge of $422,000 in the fourth quarter of 2001
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 as set forth in Note 15 to the consolidated financial statements for the years ended December 31, 2002, 2001 and 2000.



Results of Operations



2002 vs. 2001



On a consolidated basis, the Companys net income for the fiscal year ended December 31, 2002, was $2.7 million or $0.38 per diluted share, compared with a loss of $8.8 million, or ($1.35) per
diluted share, for the same period in 2001. This significant improvement in profitability for the year 2002 reflects: (i) the non-recurrence in 2002 of $4.1 million in restructuring charges incurred in connection with closing the Pryor, Oklahoma
facility in 2001; (ii) higher gross profit (despite lower sales) resulting from improved efficiencies and reduced manufacturing costs; (iii) reduced selling and administrative costs and lower interest expense, and (iv) tax benefits received from the
realization of deferred tax benefits, as discussed further below.



Net consolidated sales decreased by $19.6 million (9.2 percent) to $193.2 million in 2002 compared with $212.8 million in 2001. This included less than a 1.0 percent decrease in sales of specialty trailers and transporters.
Motorcoach segment sales were down 18.0 percent with a $19.4 million reduction in sales due to the closing of the Pryor, Oklahoma facility, which was closed in 2001. Sales of new motorcoaches decreased 21 percent and sales of used coaches were down
16.1 percent compared to 2001. If the effect of sales at the Pryor Oklahoma facility is excluded from 2001, net consolidated sales for 2002 would have remained essentially unchanged and motorcoach segment sales would have increased by less than 1.0
percent, which the Company believes is reflective of a sluggish economy and general economic uncertainties.



Consolidated gross profit increased by $7.8 million to $25.9 million in 2002 from $18.0 million in 2001. As a percentage of sales, gross profit was 13.4 percent in 2002 compared to 8.5 percent in 2001.
This improvement in gross profit reflects: (1) a $2.9 million increase as a result of the non-recurrence of the restructuring charge included in cost of sales in 2001 (which reduced the 2001 gross margin by 1.4 percentage points); (2) a $2.4 million
increase as a result of lower charges to reduce the inventory carrying value of new and used motorcoaches in 2002 compared to 2001; and (3) improved margins of $1.8 million realized on sales in the trailer segment. Trailer margins were 1.8
percentage points higher in 2002 due to lower material costs and improved labor and overhead utilization compared to 2001. The Nashua plant closure in 2001 reduced inefficiencies and resulted in other cost improvements. Motorcoach gross profit
margins improved slightly as higher margins



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were realized on sales of used units, but were offset by lower margins realized on new motorcoach sales as non-current models were sold at
reduced prices and an additional accrual was made for estimated warranty costs on previously sold Vogue motorcoaches.



Consolidated selling and administrative expenses decreased in 2002 by $1.5 million to $20.3 million, a 6.7 percent decrease, from $21.8 million in 2001.
As a percentage of sales, these expenses increased to 10.6 percent in 2002 from 10.3 percent in 2001. Trailer segment expenses remained essentially unchanged while motorcoach segment expenses decreased by 12.9 percent primarily due to reduced
marketing and administrative costs resulting from closing the Pryor, Oklahoma facility in 2001. Corporate expenses decreased by about 9%. There were no management bonuses paid or accrued in 2002



In 2002, an additional charge of $400,000 was recorded for costs related to
the Pryor, Oklahoma facility. The Company is in the process of developing an alternative plan to begin utilizing this facility in 2003 as discussed in Liquidity and Capital Resources. The restructuring charge of $1.6 million in 2001
included the estimated payroll, severance and other costs paid in connection with closing the Pryor, Oklahoma facility in 2001



Consolidated interest expense decreased by $1.3 million to $3.0 million in 2002 compared to $4.3 million in the same period in 2001. This decrease was due
to lower average levels of debt in 2002 as well as lower average interest rates in 2002. Other income (expense), net, increased by $616,000, primarily as the result of a $530,000 reduction in aircraft write-downs in 2002 compared to 2001.



Income before taxes (IBT) in 2002 was $2.4 million compared to a
loss of $10.1 million in 2001. This improvement reflects an increase in trailer segment IBT of $2.9 million due mainly to improved margins on sales; an improvement of $8.9 million in motorcoach segment IBT due to non-recurrence of restructuring
write-downs, decreased write-downs in the carrying value of motorcoaches and reduced selling and administrative costs and interest expense and a decrease in corporate net expense by $667,000, all for the reasons discussed above.



A benefit from income taxes of $258,000 was provided in 2002. This benefit
resulted primarily from a $690,000 income tax refund as a result of the Job Creation and Worker Assistance Act of 2002 and a $495,000 reduction in the valuation allowance resulting from a decrease in net deferred tax assets. The 2001 provision rate
reflects a reduction due to the anticipated benefit from the carry back of certain book losses to prior years Federal income tax returns for a refund and a $1.9 million valuation provision for deferred tax assets. No benefit was provided on
state income tax losses due to the uncertainty of realization.



2001 vs. 2000



On a consolidated basis, the
Company sustained a net loss of $8.8 million for the year 2001, or $1.35 per share, compared with a net loss of $9.9 million or $1.51 per share in 2000. This loss was caused in part by $4.5 million in restructuring charges related to closing its
facility in Pryor, Oklahoma, motorcoach inventory, trailer inventory and aircraft write-downs of $4.1 million due to market value declines and reduced gross margins related to lower levels of sales in 2001 than 2000,



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as discussed further below. In 2000, asset impairment charges and inventory write-downs totaled $10.0 million.



Consolidated sales in 2001 decreased by 12.2 percent to $212.8 million from
$242.5 million in 2000 as a result of reduced sales volume in both the trailer and motorcoach segments of the Companys business. Trailer segment sales were 18.3 percent lower due to decreased sales in all product categories as economic
uncertainties had a dampening effect on new orders for the entire year. The events of September 11 had a noticeable effect on sales of all models in the fourth quarter of 2001. Motorcoach segment sales decreased by 5.2 percent, including a decrease
of 10.2 percent in sales of new motorcoaches as the Vogue 5000 model was discontinued, which was partially offset by a 5.3 percent increase in sales of used coaches as more used units were sold.



Consolidated gross profit decreased by $11.7 million to $18.0 million in 2001
from $29.7 million in 2000. This decrease includes restructuring charges of $2.9 million, which are included in cost of sales, representing the losses on liquidation of inventories due to the shutdown of the Pryor, Oklahoma facility as discussed in
Note 6 to the consolidated financial statements. The additional decline of $8.7 million in gross profit reflects reductions due to motorcoach write-downs of $3.0 million in 2001 and decreases of $5.7 million related to reduced sales volume as well
as reduced gross profit margin percentages realized on sales in both segments. As a percentage of sales, the gross profit margin for 2001 was 8.5 percent (after a 1.4 percentage point reduction related to the restructuring charge) compared to 12.2
percent in 2000. Trailer margins were 2.1 percentage points lower than 2000 due to increased costs resulting from unfavorable labor and overhead utilization related to the Nashua, Iowa trailer manufacturing plant closure and other inefficiencies
caused by reduced trailer production volume. Motorcoach gross profit margins (excluding the restructuring charge) were 2.2 percentage points lower than in the same period in 2000 as lower margins were realized on sales of new and used units because
of discounts taken on the sale of older units to reduce inventory and due to write-downs in the carrying value of units in inventory of $1.3 million more in 2001 than 2000. Motorcoach margins were also adversely affected by unfavorable labor and
overhead utilization at the Pryor, Oklahoma location.



Consolidated selling and administrative expenses of $21.9 million in 2001, decreased by $5.3 million or 19 percent from the 2000 level of $27.2 million. This decline was due in large part to managements efforts to reduce costs
in all areas. As a percentage of sales, these expenses decreased to 10.3 percent in 2001 from 11.2 percent in 2000. Trailer segment expenses decreased by 18 percent due to reductions in both advertising and promotion related expenses, reduced
personnel costs and lower professional fees. Motorcoach segment expenses decreased by 30 percent due to reduced marketing and selling costs, reduced research and development due to the completion of the Vogue 6000 project in 2000 and reduced
intangible amortization due to the write-off of goodwill in the fourth quarter of 2000.



A restructuring charge of $1.6 million included in selling and administrative costs relates to the closing of the Companys manufacturing facility in Pryor, Oklahoma in August 2001 as discussed in Note 6 to the
consolidated financial statements. This amount includes, among other items, employee payroll and severance costs paid in connection with this closing and the losses incurred in liquidating property and equipment items not usable elsewhere within the
Company. As discussed below, the Company recorded an asset impairment charge of $8.8 million in 2000. Of this amount, $8.3 million relates to the unamortized goodwill associated with the acquisitions of Mitchell Motorcoach Sales (Mitchell) in 1998
and Vantare International, Inc. in 1996. There was an additional write-down in the amount of $431,000 of goodwill and other long-lived assets in the trailer segment in 2000.



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Consolidated interest expense
decreased by $696,000 in 2001 compared to 2000. Lower average levels of debt in 2001 than in 2000 combined with lower average interest rates in 2001 than 2000 resulted in reduced interest expense in 2001. Other income (expense) declined by $1.1
million as the result of decreased gains on sales of aircraft, including a current year write-down in the aircraft carrying value by $690,000 to reflect a decline in its estimated market value and the accrual of $302,000 in settlement of a claim
related to abandoning a sales location is Statesville, North Carolina as discussed in Note 13 to consolidated financial statements.



Loss before taxes decreased by about $500,000 in 2001 to a loss of $10.1 million compared to a loss before income taxes of $10.6 million in 2000. This
decrease is due in part to lower asset impairment charges in 2001, reduced selling and administrative costs of $5.3 million and reduced interest expense of $696,000. These improvements were substantially offset by the $4.5 million in restructuring
charges related to closing the Pryor, Oklahoma facility, the reduced gross margin of $8.7 million from lower sales volume and reduced gross profit percentages in both segments and a net increase in other expense by approximately $$1.1 million.



A benefit from income taxes was provided at a rate of 12 percent
in 2001 compared to a benefit rate of 6.9 percent in 2000. The current year rate reflects the carryback of certain of these losses, net of estimated permanent differences, to prior years for a refund of Federal taxes paid and a $1.9 million
valuation provision for deferred tax assets. No benefit has been provided on the carryforward of losses on state income tax returns due to the uncertainty of realization.



Liquidity and Capital Resources



General



The Companys liquidity is primarily affected most directly by its cash flow from operations together with amounts available to borrow on its approved lines of credit with U.S Bank National
Association (U.S. Bank) and with GE Commercial Distribution Finance (GE) (formerly Deutsche Financial Services Corporation). During the year ended December 31, 2002, the Companys operating activities provided net cash of $4.0 million. At
December 31, 2002, the Company had approximately $1.8 million available to borrow on its credit lines compared to $4.6 million at December 31, 2001, a decline of $2.8 million as availability under these lines declined due to changes in eligible
receivables and inventories and reductions in advance rates. Availability at December 31, 2002 includes a $1.0 million special advance, which was originally due on February 16, 2003, but was subsequently extended to availability reductions of
$500,000 on March 14 and $500,000 on April 14, 2003.



The
Companys liquidity is generally measured by a number of key indicators. The Companys ratio of current assets to current liabilities was 1.09 to 1 at December 31, 2002, compared with a ratio of 1.02 to 1 at December 31, 2001.This
ratio will improve as portions of the debt included in current liabilities in the accompanying consolidated balance sheets are reclassified to long-term debt. This will occur when the Company has additional experience and success in maintaining
profitable operations and demonstrates an ability to achieve compliance with its restrictive debt covenants on a consistent basis in 2003. The ratio of total debt to shareholders investment decreased to 2.75 to 1 at December 31, 2002 from 3.13
to 1 at December 31, 2001. This ratio improved as stockholders investment increased during 2002 as a result of profitable operations.



As discussed further below, several of the factors regarding financing that were uncertain at December 31, 2001 have been resolved. However, the
uncertainty about the Companys ability to



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continue as a going concern remains due to continuing uncertainty regarding liquidity and continued compliance with debt covenants. The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



During the first six months of 2003, the Company has obligations for the
payment of current maturities of debt obligations and reduction of the $1.0 million special advance, payment of trade creditor payables and certain accrued liabilities that total approximately $6.1 million These payments are expected to be
funded in part by cash generated from operations as well as the collection of a tax refund receivable of $1.1 million and borrowings of $550,000 on the capital expenditure term note with U.S. Bank. As discussed further below, financing available
under the Companys wholesale financing plan for motorcoaches will change on July 31, 2003 when the advance rates on used coaches more than 365 days old will be reduced. The Company has requested the advance rates on used coaches be
reduced at the rate of 6 percent per month beginning August 1, 2003 and believes this change will be accepted by the lender. While the Companys 2003 operating plan projects sufficient cash will be provided by operations to meet its obligations
as they become due, management cannot provide assurance that these sources of funds will be adequate to allow the Company to meet all of these and other obligations on a timely basis. The Company will seek additional funding from other sources to
enable it to meet its obligations in 2003.



Credit Facilities
and Other Financing Activities



During 2002, the Company
amended and restated the credit agreements with its principal lenders and completed the sale/leaseback of its sales and service center in Sanford, Florida. Following is a summary of these new agreements:



1. The Amended and Restated Loan Agreement (Agreement) with U.S. Bank is in
an aggregate amount of $24.2 million, including $14 million in an asset-based revolving credit commitment, $7.2 million in term loans on existing real estate and equipment and the remaining $2.0 million as a term loan for new equipment purchases.
The Agreement also provides a special advance of $1.0 million for any 60 day period requested by the Company until July 31, 2003. This Agreement is for a three-year period with annual interest accruing at prime plus 0.50 percent on outstanding
balances. The proceeds from the $7.2 million term notes were used to repay $4.4 million of existing term notes with the balance of $2.8 million reducing borrowings on the revolving credit note. The $7.2 million term notes are repayable over 36
months with aggregate monthly principal payments of $120,000 plus interest with the remaining unpaid balance due on June 30, 2005. Repayment of advances on the new equipment term note will be based on a 60 month amortization with the unpaid balance
due on June 30, 2005. 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, 2002, net availability on the revolving credit
line, including the $1.0 million special advance, was $8.4 million with about $6.8 million outstanding. The Agreement requires the Company to notify the U.S. Bank of material adverse changes in its operations and financial condition, among other
matters, and to comply with the following financial covenants through December 31, 2003: maintain a minimum consolidated fixed charge coverage ratio of 1.05 to 1.0 as of the end of each fiscal quarter for the year to date period then ended,
commencing with the fiscal quarter ended June 30, 2002 and until December 31, 2003; not to exceed a maximum consolidated total liabilities to consolidated tangible net worth ratio of 4.25 to 1.0 as of the last day of each quarter commencing with the
quarter ended June 30, 2002 and until December 31, 2003; achieve a minimum consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) of $9 million during 2002 and 2003 and aggregate capital expenditures of not more than $2
million in 2002 and 2003. The Company is required to obtain waivers for any violations of covenants in agreements with other lenders. The Company was in compliance with these financial covenants at December 31, 2002, except for the minimum EBITDA
requirement for the year ended December 31, 2002.



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On April 14, 2003, U.S. Bank waived this requirement for 2002 and waivers have been obtained for violations of the agreement with GE as
described below.



2. The Amended Wholesale Financing Agreement
(Agreement) with GE (formerly Deutsche) provides for aggregate financing of $25 million on new and used motorcoaches held as inventory by the Company. This is a two-year agreement, which expires in July 2004, with interest on borrowings at prime
rate or if the prime rate is less 6.5 percent, then interest will be at prime rate plus 0.25 percent. Advances under the Agreement are based on 90 percent of the cost of eligible new inventory and 70 percent of the defined value of eligible used
inventory. After July 31, 2003, the Agreement reduces the advance rate on new coaches more than 365 days from date of completion from 90 percent to 70 percent and provides no financing on new coaches more than 720 days old and used coaches more than
365 days from date of acquisition or older than 10 model years. This could reduce future aggregate availability under this Agreement. At December 31, 2002, the Company had $5.8 million of used motorcoach inventory that would be ineligible for
funding and $2.9 million of new inventory eligible only at a reduced rate after July 31, 2003. As of December 31, 2002, the aggregate availability under this Agreement was $25.0 million with $24.8 million outstanding. The Agreement requires
compliance with the following financial covenants: maintain a minimum defined tangible net worth and subordinated debt of $13 million for the fiscal quarter ended June 30, 2002, $14 million for the quarters ended September 30 and December 31, 2002
and $15 million for each fiscal quarter ended March 31, 2003 and thereafter; not to exceed a maximum ratio of debt minus subordinated debt to tangible net worth and subordinated debt of 6.0 to 1.0 for the quarter ended June 30, 2002 and 5.0 to 1.0
for the quarter ended September 30, 2002 and each quarter ended thereafter in 2002 and 2003; achieve a minimum ratio of defined current tangible assets to current liabilities of not less than 1.0 to 1.0 as of the end of the fiscal quarter ended June
30, 2002 and 1.2 to 1.0 as of the end of the fiscal quarter ended September 30, 2002 and for each quarter ended thereafter in 2002 and 2003; achieve 80 percent of the Companys projected net income for each quarter of 2002 beginning June 30,
2002, and at the end of each month in 2002 and 2003, achieve net income greater that zero for the three month period then ended. The Company was in compliance with these amended covenants until the quarter ended December 31, 2002 when it did not
achieve 80 percent of projected net income of the fourth quarter and sustained a loss for the three month period ended December 31, 2002. The Company did not achieve the net income greater than zero covenant at the end of January, 2003 and at the
end of February 2003. On April 11, 2003, GE waived compliance with these requirements for the quarter ended December 31, 2002 and waived the net income greater than zero requirement through the three-month period ended February 28, 2003.



3. On June 28, 2002 the Company satisfied in full its $3.7
million mortgage with Wachovia Bank on the Companys Sanford, Florida sales and service center and terminated a related interest rate swap agreement with a payment of $149,000. These obligations were paid-off with $5.0 million received from
GBNM Partnership in connection with their July 31, 2002 purchase of the sales and service center in Sanford, Florida. The Company 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.



Trade Creditor Repayment Plan



The Company made quarterly payments totaling $2.8 million
for the year 2002 according to the Trade Creditor Repayment Plan (the Plan) schedule worked out with its trade creditors in November 2001. The Company will continue to make quarterly payments totaling $2.5 million in 2003 and



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$2.2 million in 2004. There are no interest or service charges in connection with this arrangement. Vendors under the Plan have been
continuing to supply the Company with materials; however, they frequently require prepayments at the time of order or payment on delivery of the materials. A number of vendors have extended the Company more normal credit terms again as they receive
payments under the Plan.



Certain Other Obligations



As discussed in Note 10 to the consolidated financial
statements, the Company is contingently liable under certain trailer dealer floor plan arrangements. These arrangements relate to inventory financing provided to Featherlite trailer dealers by financial institutions. The Company would be required to
repurchase trailer inventory if the financial institution repossesses it and it is in saleable condition. No reserve has been provided for this contingency because the aggregate amount of such repurchases has historically been less than one percent
of sales and repossessed inventory has been resold to other dealers without a loss. These contingent liabilities total approximately $10.1 million at December 31, 2002.



The Company is partially self-insured for a portion of certain health benefit and workers compensation insurance
claims. For health claims there is an annual stop loss limit of $125,000 per claim but no aggregate loss limit. For workers compensation claims, there is a $250,000 per occurrence limit and an aggregate limit of $2.2 million. At December 31, 2002,
$2.2 million was accrued for estimated incurred but not reported and unpaid health benefit and workers compensation claims. The Company has obtained irrevocable standby letters of credit in the amount of $2.8 million in favor of the
workers compensation claim administrators to guarantee payment of claims. The Company is required to increase its letter of credit with such administrators by $497,500 in March 2003 for the policy year beginning in November 2002. This will
reduce amounts available to borrow on the Companys line of credit with U.S. Bank.



Statement of Cash Flows



Following is a discussion of the principal components of the Companys cash flow for the year ended December 31, 2002, as reflected in the consolidated statements of cash flow:



Operating activities provided net cash of $4.0 million. The Companys
net income of $2.7 million was increased by adjustments for depreciation and amortization of $2.1 million and increased by other non-cash items in an aggregate net amount of $534,000. Net changes in receivables, inventories and other current assets
provided cash of $4.5 million, including an income tax refund of $2.8 million received in the first quarter of 2002. Substantially all of the remainder of this change resulted from decreased inventories, in large part related to the motorcoach
segment, where the number of units in inventory were reduced, with raw materials and work in process decreasing $1.8 million, new motorcoach inventory decreasing by $2.7 million and the used motorcoach inventory increasing by $280,000. Net decreases
in accounts payable, customer deposits and other current liabilities used cash of $5.8 million. These changes include, among other items, a decrease of $4.5 million in trade accounts and motorcoach shells payable as past due obligations were paid,
and a decrease of $877,000 in customer deposits as deposits received on pending sales of trailers and motorcoaches in prior periods were applied to sales completed in the current period.



Increased expenditures for working capital items may be required to support production levels in excess of sales from time to
time. To maintain a level production schedule, production may begin on coaches before an order has been received from a specific buyer. As of December 31, 2002,



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approximately 87 percent of the coaches in production and to be completed over the next four months have not been sold to specific customers.
For the year ended December 31, 2002, total units sold exceeded units produced by 8 units. 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. Accordingly, this could adversely impact the liquidity of the Company.



The Companys motorcoach shell manufacturer has financed a number of shells acquired by the Company for a four-month period that approximates the
time normally required to perform the conversion process. Payment is required for these shells at the time the shell is sold or at the end of the defined period, whichever occurs sooner. The manufacturer has the right to demand payment or to
repossess shells at the time payment is due. . At December 31, 2002, $5.7 million was owed to the shell manufacturer with no units past due.



The Companys investing activities for the year ended December 31, 2002 used cash of $1.4 million, net of proceeds of $299,000 received from the sale
of equipment and idle land during the period. The Companys capital expenditures for plant and equipment were $1.6 million for the year ended December 31, 2002. On July 31, 2002, U.S. Bank renewed the availability of a capital expenditure
financing under a $2.0 million Capital Expenditure Term Note to finance the certain of the Companys capital expenditures for machinery and equipment in 2002. Borrowings against this term note were $350,000 at December 31, 2002. Borrowing
requests for 75 percent of the Companys capital expenditures in the fourth quarter of 2002 have been submitted to the Bank and the Company expects to borrow approximately $550,000 as a result of these requests.



The Company leases certain office and production facilities under various
operating leases that expire at varying dates through fiscal year 2011. Minimum lease payments for 2003 are expected to total $1.1 million. In 2001, the Company decided not to lease a new sales and service center in North Carolina but as
consideration for being released from this obligation, is paying an aggregate amount of $302,000 in monthly installments of $9,000 over a three year period beginning in March, 2002, to Clement Properties, an entity owned by certain of the majority
shareholders of the Company.



An additional restructuring charge
of $400,000 was accrued at December 31, 2002, for estimated rent and others costs related to the Pryor, Oklahoma facility to be paid in 2003. The Company has had discussions with financial institutions that repossess recreational vehicles and is
developing a plan to begin using this facility as a location for reselling such units. The Company believes this activity, when fully developed, will generate sufficient income to cover the underlying lease and other costs of operating the facility.



As discussed above, the Company entered into an agreement with
GBNM Partnership to lease the sales and service center facility in Sanford, Florida 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. The Company has an
option to repurchase this facility for $5.4 million on August 1, 2005.



In 2003, the Company entered into an agreement with Benbow Chemical Packaging, Inc. to form Featherlite Chemicals LLC. Featherlite will invest $102,000 and will have a 51 percent ownership interest. No additional capital investment
is expected to be required in this entity as cash flow generated by its operations is expected to be sufficient to meet its working capital needs.



The Companys financing activities in the year ended December 31, 2002 used net cash of $2.7 million, including $2.4 million for net reductions in
line of credit borrowings, $3.9 million for the



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repayment of the Sanford facility mortgage and interest rate swap, $5.8 million for refinanced real estate and equipment term notes and other
long-term debt reductions and $2.8 million for Trade Creditor Repayment Plan payments. Checks issued but not presented for payment decreased by $1.7 million. These reductions in debt were financed by proceeds of $5.0 million from the sale/leaseback
of the Sanford Sales and Service Center, $7.4 million primarily from refinancing real estate and equipment with U.S. Bank as described above and the $1.5 million in proceeds received from Bulk Resources, Inc., an unrelated private investor, in the
form of a subordinated convertible note. The due date of this note has been extended from December 31, 2002 to April 15, 2003. It may be converted, together with interest accrued thereon at the rate of 6.5 percent per annum, into shares of the
Companys common stock at the lower of $3.00 per share or the average closing price of the Companys common stock between April 30, 2002 and October 30, 2002 (which average was $2.45). The holder of the note must exercise this option by
April 15, 2003. This note is subordinated to the Companys obligations to U.S. Bank and GE and it may not be repaid in cash if the Company is in default on these obligations or would be in default as a result of this payment. A detachable
warrant for 150,000 shares of common stock at $2.00 per share was issued in conjunction with the subordinated convertible note, which must be exercised by January 31, 2007, and was assigned a fair value of $95,000 at issuance as discussed in Note 14
to consolidated financial statements.



Assuming favorable
improvement in the Companys operations as a result continued improvement in the national economy and the sale of a substantial portion of the motorcoaches which will ineligible for financing by GE after July 31, 2003, the Company believes that
its current cash balances, cash flow generated from operations and available borrowing capacity 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 2003 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.



Off-Balance Sheet Arrangements



The Company does not have any material off-balance sheet arrangements during the three years ended December 31, 2002.



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. A summary of significant accounting policies followed in the preparation of the financial statements is contained in Note 3 to the consolidated financial statements.
Other footnotes describe various elements of the financial statements and the assumptions upon which specific amounts were determined.



Our critical accounting policies 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. These 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.



In 2002 and 2001, the Company evaluated the carrying value of its motorcoach inventories and recorded total charges of$632,000 and $2.9 million, respectively, to cost of sales to reduce the carrying cost of this inventory to its estimated net realizable value. This write-down in 2001 was required as a result of a substantial decrease in the market value of used
motorcoaches in light of the reduced demand and a general downturn in the motorcoach market, particularly following the events of September 11.



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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, invoice the customer under normal billing and credit terms and hold the trailer or motorcoach for a short period of time as is customary in the industry, until pick-up or delivery. Products are built to customer specification and no rights
of return or exchange privileges are granted. Accordingly, no provision for sales allowances or returns is recorded.



Long-lived Assets: In 2000 and 2001, the Company assessed long-lived assets for impairment under SFAS Statement No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of. Under those rules, property and equipment, goodwill associated with assets acquired in purchase business combinations, and any other long-lived assets are included in
the impairment evaluations when events or circumstances exist that indicate the carrying amount of those assets many not be recoverable. In the fourth quarter of 2000, the Company determined that unamortized goodwill in the amount of $8.3 million
associated with the acquisitions of Vogue in 1998 and Vantare in 1996 was impaired and wrote it off. The write-off of the goodwill was based on an analysis of projected undiscounted cash flows and a consideration of various other factors the Company
believed contributed to a downturn in the market for new and used bus conversion coaches and the continuing loss of sales and profitability in this segment of the business. Beginning in January 1, 2002, the Company adopted SFAS 142, SFAS 144 and
SFAS 146, as discussed further below in New Accounting Pronouncements.



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.



New Accounting Pronouncements



In June 2001, the Financial Accounting Standards Board (FASB)
issued Statements of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill (and intangible assets deemed to have indefinite lives) will no longer be amortized but will be subject to annual impairment tests in accordance with SFAS No. 142. Other intangible assets will continue to be amortized over their
useful lives. The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. The Company adopted SFAS No. 142 effective January 1, 2002. The adoption of this SFAS had no effect on 2002 operations
because the Company has no unamortized goodwill or other intangibles.



In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS No. 144 supersedes previous guidance for
financial accounting and reporting for the impairment or disposal



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of long-lived assets and for segments of a business to be disposed of. SFAS No. 144 is effective for the Company beginning on January 1,
2002. Adoption of the statement is not expected to have a material impact.



In April 2002, the FASB approved Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS No. 145). FASB No.
4 required all gains or losses from extinguishments of debt to be classified as extraordinary items net of income taxes. SFAS No. 145 requires that gains and losses from extinguishments of debt be evaluated under the provisions of Accounting
Principles Board (APB) Opinion No. 30, and be classified as ordinary items unless they are unusual or infrequent or meet the specific criteria for treatment as an extraordinary item. SFAS No. 145 is effective for fiscal years beginning after May 15,
2002. The Company believes the adoption of SFAS No. 145 will not have a material effect on its financial position or results of operations.



In June 2002, the FASB approved Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal
Activities (SFAS No. 146). SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) (EITF No. 94-3). SFAS No. 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred,
as opposed to when the entity commits to an exit plan under EITF No. 94-3. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company believes the adoption of SFAS No. 146 will not have
a material effect on its financial position or results of operations.



In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (Interpretation No. 45).
Interpretation No. 45 clarifies the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. Interpretation No. 45 also requires a guarantor to recognize,
at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing certain types of guarantees. Certain types of guarantees are not subject to the initial recognition and measurement provisions of Interpretation
No. 45 but are subject to its disclosure requirements. The initial recognition and initial measurement provisions of Interpretation No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, regardless of
the guarantors fiscal year-end. The guarantors previous accounting for guarantees issued prior to the date of the initial application of Interpretation No. 45 shall not be revised or restated. The disclosure requirements in
Interpretation No. 45 are effective for financial statements of interim or annual periods ended after December 15, 2002. The company will apply the initial recognition and initial measurement provisions of Interpretation No. 45 to guarantees issued
or modified after December 31, 2002. For more information on the companys guarantees and the disclosure requirements of Interpretation No. 45, as applicable to the company, see Note 3 and 10 to consolidated financial statements.



In December 2002, the FASB approved Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure- an amendment of FASB Statement No. 123 (SFAS 148). SFAS No. 128 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements



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about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is
effective for financial statements for fiscal years ending after December 15, 2002. The Company adopted the disclosure provisions of SFAS No. 148 at December 31, 2002.



In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46
clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity
at risk for the entity to finance its activities without additional subordinated support from other parties. FIN 46 requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not
effectively disperse risks among parties involved. All companies with variable interests in variable interest entities created after January 31, 2003, shall apply the provisions of this Interpretation to those entities immediately. The company will
prospectively apply the provisions of this new pronouncement effective January 31, 2003. The company does not expect the impact of this new interpretation to have a material impact on the companys financial position or results of operations



Forward-looking Information and
Risks



Certain statements in this report, and in the
Companys Form 10-K and other filings with the SEC, are forward-looking in nature and relate to trends and events that may affect the Companys future financial position and operating results. The words believe,
estimate, expect, intend, may, could, will, plan, anticipate and similar words and expressions are intended to identify forward-looking statements.
These statements speak only as of the date of this quarterly report, are based on current expectations, are inherently uncertain, are subject to risks, and should be viewed with caution. Actual results and experience may differ materially from the
forward-looking statements as the result of many factors, including but not limited to: product demand and acceptance of products in each segment of the Companys markets, fluctuations in the price of aluminum, competition, facilities
utilization, the availability of additional capital required to improve the Companys net liquidity deficiency and certain other unanticipated events and conditions. It is not possible to foresee or identify all such factors. 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.



The Company was encouraged by its improved profitability in 2002, despite
reduced revenue. While consolidated sales levels for the year ended December 31, 2002 declined compared to the same period last year, in large part due to the closure of the Vogue facility in the second quarter of 2001, they were consistent with the
Companys sales plan for 2002 although there was a definite reduction in new order volume in relation to the sales plan in the third and fourth quarters



The Company is cautious concerning sales in 2003. The softening of sales in relation to plan in the third and fourth quarters of 2002 has continued into
the early months of 2003, particularly in the trailer segment, as the stationary economy and consumer uncertainty continues. At December 31, 2002, the new order backlog for trailers was $10.5 million compared with $12.8 million at December 31, 2001.
At March 31, 2003, the trailer order backlog was $14.8 million compared to $18.6 million at March 31, 2002. The motorcoach backlog was $5.6 million at December 31, 2002 compared with $3.1 million at December 31, 2001. At March 31, 2003 the
motorcoach backlog was $4.6



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million compared to $2.9 million at March 31, 2002. While the Company does not know how long the current order trend will last, it will
continue its aggressive measures to promote sales and manage costs. Management expects that sales will improve when national economic business conditions improve. There is continuing focus by the Company on the 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 2002 sales volume.



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 with
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 almost 60 new and enhanced models of trailers in 2003 and added
motorcoach models with multiple slide-out features.



In 2003, the
Company entered into two agreements that could be beneficial in enhancing its operating results in 2003 and following, as follows:



1. 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. ULC is a related party controlled by the Conrad Clement, Tracy Clement, Eric Clement and James Wooley, officers and shareholders of Featherlite. 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 will also have agreements with ULC to
lease ULC office space and to provide service on the ULC motorcoaches.



2. The Company entered into an operating agreement with Benbow Chemical Packaging, Inc. (Benbow) to form Featherlite Chemicals, LLC, a New Jersey corporation (FCC). Featherlite will own a 51 percent interest in FCC with Benbow owning
the remaining interest. The purpose of FCC will be 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.



The Companys future operating results are subject to a number of risks,
including the following:



1. As described above,during
2002 the Company signed long-term agreements with its lenders with new financial covenants. The Company was not in compliance with certain of these covenants as of December 31, 2002 and at February 28, 2003 and secured waivers for these defaults.
The Company cannot provide assurance that it will achieve the requirements of these covenants in the future. If the Company is unable to obtain waivers of future covenant defaults and secure sufficient additional financing to fund its liquidity
shortfalls, the Companys business will be harmed.



2. There
is a risk related to losing a major supplier of aluminum. In the past this risk has been relatively nominal as there have been alternate sources of supply. In recent years, 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



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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 would be harmed.



3. 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 located in Canada. Although the Company has insurance to cover certain losses it may sustain due to fire or other catastrophe at Prevosts plant, the Company may not be
able to obtain conversion shells from another manufacturer on favorable terms or at all. Additionally, if the Company is unable to maintain a good working relationship with Prevost, it may be required to locate a new supplier of its conversion
shells. In the event of any significant loss or interruptions in the subcontractors ability to provide such services may harm the Companys operations.



4. The Company uses one subcontractor to provide paint and graphic design work to meet customer specifications on certain
custom trailers and specialty transporters. There is a risk to the timely delivery of these trailers in the event of an unforeseen interruption in the subcontractors ability to provide these services or if the customer delays providing the
specifications to the subcontractor. Any long-term interruptions in the subcontractors ability to provide such services, the Companys operations may be harmed.



5. The Company begins production of most of the luxury motorcoaches before a customer order is received. 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. Failure to sell these motorcoaches on a timely
basis at prevailing prices could further decrease the liquidity of the Company.



6. 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 2001 and 2000, 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 $2.9 million and $1.7 million, respectively, in order to facilitate their sale.The write-down in 2002 was $632,000. 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.



7. Advances under the Companys present financing agreement with GE are
based on 90 percent of the cost of eligible new inventory and 70 percent of the defined value of eligible used inventory. After July 31, 2003, the Agreement reduces the advance rate on new coaches more than 360 days old from 90 percent to 70 percent
and provides no financing on new or used coaches more than 720 days old or older than 10 model years. The Company has requested and expects that the agreement will be modified to provide for a reduction of 6 percent per month in the advance rate on
used coaches more than 365 days old. This could reduce future aggregate availability under this agreement if the Company is unable to sell these coaches before the financing is reduced and require the Company to obtain additional financing from
another source.



8. The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. However, the Report of Independent Public Accountants on the December 31, 2002 financial statements states that the Company is unable to ascertain whether it
will have sufficient liquidity available under its existing lines of credit to fund operations or whether the Company will meet various covenant requirements contained in its financing agreements. While progress has been made to reduce these
uncertainties, these matters



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still raise substantial doubt about the Companys ability to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.



9. In August 2001, the Company transferred to The Nasdaq Smallcap Market because its common stock had failed to maintain the minimum market value of public float required for continued listing on the Nasdaq National Market. In 2001,
Nasdaq expressed concern that the Company may not be able to sustain compliance with the continued listing requirements of The Nasdaq Stock Market because of the going concern opinion expressed in the Report of Independent Accountants on
the Companys December 31, 2001 and 2000 consolidated financial statements.There is no assurance the Company will be able to satisfy Nasdaq regarding its ability to meet these continued listing requirements, and the Companys
common stock may be delisted from Nasdaq. In such an event, the market for the Companys common stock may become more illiquid, and its shareholders may have a more difficult time selling the Companys common stock.



10. As discussed in Note 6 to consolidated financial statements, the Company
shut down its Pryor, Oklahoma manufacturing facility in 2001. It accrued the estimated rental and other costs of holding this facility through December 31, 2002. In 2002, the Company began formulating a plan to use this facility as a sales facility
for used coaches owned by others. An additional accrual was made at the end of 2002 for the estimated lease and other costs to be incurred until this facility can be profitable. In the event the facility cannot generate sufficient income to absorb
the annual lease cost by December 31, 2003, the Company may be required to continue to accrue additional costs related to this facility. This could have an adverse impact on the Companys future operating results and liquidity.



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, 2002, as reported to the Company by its suppliers was $0.65 in 2002, $0.69 in 2001, and $0.75 in 2000. The Companys cost of aluminum 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 obtained commitments from suppliers to provide, at an agreed upon fixed price, about 80 percent of its anticipated requirements for 2003,
which reduces a portion of the risk of aluminum cost fluctuations for the year. If the Company is unable to obtain such commitments from suppliers or otherwise reduce the price risk related to the balance of the purchases to meet its requirements in
2003 and in the years beyond 2003, this could have an adverse impact on the Companys operating results if the cost of aluminum increases significantly above levels in 2002.



Interest Rate Risk



The Company is exposed to market risks related to changes in U.S and international interest rates. Substantially all 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 $250,000 at current debt levels.



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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Except for the report of the Companys independent public accountants, which is set forth below, the consolidated financial statements and notes appear on pages 49 through 64. Quarterly financial data appears in Item 6.



INDEPENDENT AUDITORS REPORT



Featherlite, Inc.



We have audited the accompanying consolidated balance sheet of Featherlite,
Inc. (a Minnesota Corporation) and Subsidiary (the Company) as of December 31, 2002 and the related consolidated statement of operations, shareholders investment and comprehensive income (loss), and cash flows for the year then ended. Our
audit also included the financial statement schedule listed in Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on
the 2002 consolidated financial statements and financial statement schedule based on our audit. The consolidated financial statements and financial statement schedule as of December 31, 2001 and for each of the years in the two-year period then
ended were audited by other auditors who have ceased operations. Those auditors, in their report dated February 19, 2002, expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph regarding
certain matters raising substantial doubt as to the Companys ability to continue as a going concern as discussed in Note 2 to the consolidated financial statements. Those auditors also expressed an unqualified opinion that such 2001 and 2000
financial statement schedules taken as a whole presented fairly, in all material respects, the information set forth therein.



We conducted our 2002 audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the 2002 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 Subsidiary as of December 31, 2002, and the results of their operations and their cash flows for the year
then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth therein.



The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 2 and 9 to the consolidated financial statements, the Company cannot
provide assurance it will be in compliance with the restrictive debt covenants of its credit agreements, which would entitle certain lenders to call approximately $39.8 million of debt due and payable immediately. As a result, the Company is unable
to ascertain whether it will have sufficient liquidity available under its existing lines of credit to fund operations. These matters raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in
regard to these matters are also described in Note 2. The accompanying consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty.



DELOITTE & TOUCHE LLP



Minneapolis, Minnesota

February 28, 2003

(April 14, 2003 as to Notes 2 and 9)



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THIS IS A COPY OF A REPORT
PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP, NOR HAS ARTHUR ANDERSEN LLP PROVIDED A CONSENT TO THE INCLUSION OF ITS REPORT IN THIS ANNUAL REPORT.



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Featherlite, Inc.



We have audited the accompanying consolidated balance sheets of Featherlite,
Inc. (a Minnesota corporation) and subsidiary as of December 31, 2001 and 2000 and the related consolidated statements of operations, shareholders investment and cash flows for the year then ended These consolidated financial statements and
the schedule referred to below are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits



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



In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Featherlite, Inc. and Subsidiary as of December 31, 2001 and 2000, and the results of their operations and
their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.



The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2
to the consolidated financial statements, the Company is unable to ascertain whether it will have sufficient liquidity available under its existing lines of credit to fund operations or whether the Company will meet various covenant requirements
contained in its revolving loan and security agreement. These matters raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in regard to these matters are also described in Note 2. The
accompanying consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty.



Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in the index
to consolidated financial statements is presented for purposes of complying with the Securities and Exchange Commissions rules and is not part of the basic financial statements. The information in this schedule has been subjected to the
auditing procedures applied in our audit of the basic consolidated financial statements and, in our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole.



ARTHUR ANDERSEN LLP



Minneapolis, Minnesota

February 19, 2002



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



The information required in Item 9 is incorporated by reference to Item 4 of the Form 8-K report filed August 2, 2002.



PART III



ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS



Other than Executive Officers of the Registrant which is set forth at the end of Part I of this Form 10-K, the information required by Item 10 is incorporated herein by reference to the sections labeled Election of
Directors and Section 16(a) Beneficial Ownership Reporting Compliance which appear in the Companys definitive Proxy Statement for its 2003 Annual Meeting of Shareholders.



The following table provides information concerning the
Companys equity compensation plans as of December 31, 2002.



|                                                           |  | 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     |  | 837,900                                                                                     |  | $2.60                                                                       |  | 262,100                                                                                                                                    
|Equity compensation plans not approved by security holders |  | None                                                                                        |  |                                                                             |  | None                                                                                                                                       



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ITEM 11.
EXECUTIVE COMPENSATION



The information required by Item 11 is incorporated herein by reference to the section labeled Executive Compensation which appears in the Companys definitive Proxy Statement for its 2003 Annual Meeting of
Shareholders.



ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



The information required by Item 12 is incorporated herein by reference to the sections labeled Principal Shareholders and Management Shareholdings which appear in the
Companys definitive Proxy Statement for its 2003 Annual Meeting of Shareholders.



ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The information required by Item 13 is incorporated herein by reference to the section labeled Certain Transactions which appears in the Companys definitive Proxy Statement for its
2003 Annual Meeting of Shareholders.



ITEM 14.
CONTROLS AND PROCEDURES



Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) as of a date within 90 days prior to
the filing of this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be
disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commissions rules and forms. Subsequent to
the date of this evaluation, there have not been any significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect the Companys internal controls.



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PART
IV



ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



|(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-K Page
|   
|    |  | Reports of Independent Public Accountants                                                                                         |  | 38            
|   
|    |  | Consolidated Balance Sheets at December 31, 2002 and 2001                                                                         |  | 46            
|   
|    |  | Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and
2000                                        |  | 47            
|   
|    |  | Consolidated Statements of Shareholders Investment and Comprehensive Income for
the years ended December 31, 2002, 2001 and 2000 |  | 47            
|   
|    |  | Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and
2000                                        |  | 48            
|   
|    |  | Notes to Consolidated Financial Statements                                                                                        |  | 49            
|   
|(2) |  | Financial Statement Schedules:                                                                                                    |  |               
|   
|    |  | Schedule IIValuation and Qualifying Accounts                                                                                     |  | 68            
|   
|(3) |  | Exhibits. See Exhibit Index on page                                                                                               |  | 64            



|(b) |  | Reports on Form 8-K. No reports on Form 8-K have been filed during the last quarter of the period covered by this report.
|--- |  | -------------------------------------------------------------------------------------------------------------------------



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: April 15, 2003 |  |  |  |                  



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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.
CLEMENTConrad D. Clement  |  | President, Chief Executive Officer and Director (Principal Executive Officer)     |  | April 15, 2003
|                                           
|/s/    JEFFERY A.
MASONJeffery A. Mason     |  | Chief Financial Officer and Director (Principal Financial and Accounting Officer) |  | April 15, 2003
|                                           
|/s/    TRACY J.
CLEMENTTracy J. Clement     |  | Executive Vice President and Director                                             |  | April 15, 2003
|                                           
|/s/    CHARLES A.
ELLIOTTCharles A. Elliott |  | Director                                                                          |  | April 15, 2003
|                                           
|/s/    THOMAS J.
WINKELThomas J. Winkel     |  | Director                                                                          |  | April 15, 2003
|                                           
|/s/    KENNETH D.
LARSONKenneth D. Larson   |  | Director                                                                          |  | April 15, 2003
|                                           
|/s/    TERRY E.
BRANSTADTerry E. Branstad   |  | Director                                                                          |  | April 15, 2003



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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



I, Conrad D. Clement, Chief Executive Officer, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Featherlite, Inc.;
|-- |  | ---------------------------------------------------------------------



|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in the annual report, fairly present in all material respects the financial
condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filling date of this annual report
(the Evaluation Date); and
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                    
|--------------------
|Date: April 15, 2003
|                    



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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



I, Jeffery A. Mason, Chief Financial Officer, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Featherlite, Inc.;
|-- |  | ---------------------------------------------------------------------



|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in the annual report, fairly present in all material respects the financial
condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filling date of this annual report
(the Evaluation Date); and
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                    
|--------------------
|Date: April 15, 2003
|                    





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Featherlite, Inc.

Consolidated Balance Sheets

December 31, 2002 and 2001

(In thousands)



|                                                          |  | 2002 |         |   | 2001 |  
|--------------------------------------------------------- |  | ---- | ------- | - | ---- | -
|ASSETS                                                    |  |      |         |   |      |  
|                                                         
|CURRENT ASSETS:                                           |  |      |         |   |      |  
|Cash                                                      |  | $    | 218     |   |      | $
|Receivables, net                                          |  |      | 6,117   |   |      |  
|Refundable income taxes                                   |  |      | 1,129   |   |      |  
|Inventories                                               |  |      | 61,459  |   |      |  
|Prepaid expenses                                          |  |      | 2,010   |   |      |  
|                                                          |  |      |         |   |      |  
|Total current assets                                      |  |      | 70,933  |   |      |  
|                                                          |  |      |         |   |      |  
|                                                         
|PROPERTY AND EQUIPMENT:                                   |  |      |         |   |      |  
|Land and improvements                                     |  |      | 4,488   |   |      |  
|Buildings and improvements                                |  |      | 11,559  |   |      |  
|Machinery and equipment                                   |  |      | 14,232  |   |      |  
|                                                          |  |      |         |   |      |  
|                                                          |  |      | 30,279  |   |      |  
|Lessaccumulated depreciation                             |  |      | (13,582 | ) |      |  
|                                                          |  |      |         |   |      |  
|Net property and equipment                                |  |      | 16,697  |   |      |  
|                                                          |  |      |         |   |      |  
|                                                         
|OTHER ASSETS                                              |  |      | 4,641   |   |      |  
|                                                          |  |      |         |   |      |  
|                                                          |  | $    | 92,271  |   |      | $
|                                                          |  |      |         |   |      |  
|                                                         
|LIABILITIES AND SHAREHOLDERS INVESTMENT                  |  |      |         |   |      |  
|                                                         
|CURRENT LIABILITIES:                                      |  |      |         |   |      |  
|Current maturities of long-term debt                      |  | $    | 7,886   |   |      | $
|Bank line of credit                                       |  |      | 6,799   |   |      |  
|Checks issued but not yet presented                       |  |      | 1,408   |   |      |  
|Wholesale financing and other notes payable               |  |      | 25,963  |   |      |  
|Subordinated convertible promissory note payable          |  |      | 1,500   |   |      |  
|Motorcoach shell costs payable                            |  |      | 5,655   |   |      |  
|Trade accounts payable                                    |  |      | 3,423   |   |      |  
|Trade creditors repayment plan                            |  |      | 2,515   |   |      |  
|Accrued liabilities                                       |  |      | 8,375   |   |      |  
|Customer deposits                                         |  |      | 1,317   |   |      |  
|                                                          |  |      |         |   |      |  
|Total current liabilities                                 |  |      | 64,841  |   |      |  
|                                                          |  |      |         |   |      |  
|                                                         
|LONG-TERM DEBT, net of current maturities                 |  |      | 7,230   |   |      |  
|TRADE CREDITORS REPAYMENT PLAN, net of current maturities |  |      | 2,170   |   |      |  
|DEFERRED GRANT INCOME                                     |  |      | 75      |   |      |  
|                                                         
|COMMITMENTS AND CONTINGENCIES (Note 10)                   |  |      |         |   |      |  
|                                                         
|SHAREHOLDERS INVESTMENT                                  |  |      |         |   |      |  
|Common stock6,535 shares outstanding                     |  |      | 16,595  |   |      |  
|Additional paid-in capital                                |  |      | 4,157   |   |      |  
|Retained deficit                                          |  |      | (2,797  | ) |      |  
|Accumulated other comprehensive loss                      |  |      |        |   |      |  
|                                                          |  |      |         |   |      |  
|Total shareholders investment                            |  |      | 17,955  |   |      |  
|                                                          |  |      |         |   |      |  
|                                                          |  | $    | 92,271  |   |      | $
|                                                          |  |      |         |   |      |  

The accompanying notes are an integral part of these consolidated balance sheets.



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Consolidated Statements of Operations

For the years ended December 31, 2002, 2001 and 2000

(In thousands, except per share data)



|                                    |  | 2002 |         |   | 2001 |   |         | 2000 | 
|----------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- | 
|Net sales                           |  | $    | 193,166 |   |      | $ | 212,786 |      | 
|Cost of sales                       |  |      | 167,288 |   |      |   | 194,754 |      | 
|                                    |  |      |         |   |      |   |         |      | 
|Gross profit                        |  |      | 25,878  |   |      |   | 18,032  |      | 
|Selling and administrative expenses |  |      | 20,287  |   |      |   | 21,829  |      | 
|Amortization of intangibles         |  |      |        |   |      |   | 81      |      | 
|Asset impairment charge (Note 5)    |  |      |        |   |      |   |        |      | 
|Restructuring charge (Note 6)       |  |      | 400     |   |      |   | 1,572   |      | 
|                                    |  |      |         |   |      |   |         |      | 
|Income (loss) from operations       |  |      | 5,191   |   |      |   | (5,450  | )    | 
|                                    |  |      |         |   |      |   |         |      | 
|Other income (expense):             |  |      |         |   |      |   |         |      | 
|Interest expense                    |  |      | (3,032  | ) |      |   | (4,300  | )    | 
|Other income (expense), net         |  |      | 278     |   |      |   | (337    | )    | 
|                                    |  |      |         |   |      |   |         |      | 
|Total other expense                 |  |      | (2,754  | ) |      |   | (4,637  | )    | 
|                                    |  |      |         |   |      |   |         |      | 
|Income (loss) before taxes          |  |      | 2,437   |   |      |   | (10,087 | )    | 
|Income tax benefit                  |  |      | (258    | ) |      |   | (1,240  | )    | 
|                                    |  |      |         |   |      |   |         |      | 
|Net income (loss)                   |  | $    | 2,695   |   |      | $ | (8,847  | )    | 
|                                    |  |      |         |   |      |   |         |      | 
|Net income (loss) per sharebasic   |  | $    | 0.41    |   |      | $ | (1.35   | )    | 
|                                    |  |      |         |   |      |   |         |      | 
|diluted                            |  | $    | 0.38    |   |      | $ | (1.35   | )    | 
|                                    |  |      |         |   |      |   |         |      | 



Consolidated Statements of Shareholders Investment and Comprehensive Income

For the years ended December 31,
2002, 2001 and 2000

(In thousands)



|                                                                         |  | Common Stock       |  | Additional Paid-in Capital |        | Retained Earnings (Deficit) |   |       | Accumulated Other Comprehensive Loss |   |        | Total Shareholders Investment | 
|------------------------------------------------------------------------ |  | ------------------ |  | -------------------------- | ------ | --------------------------- | - | ----- | ------------------------------------ | - | ------ | ------------------------------ | 
|                                                                         |  | Outstanding Shares |  | Amount                     |        |                             |   |      
|Balance, December 31, 1999                                               |  | 6,510              |  | $                          | 16,445 |                             | $ | 4,062 |                                      | $ | 13,219 |                                | 
|Net loss for the period                                                  |  |                    |  |                            |        |                             |   |       |                                      |   | (9,864 | )                              | 
|Issuance of common stock                                                 |  | 25                 |  |                            | 150    |                             |   |       |                                      |   |        |                                | 
|                                                                         |  |                    |  |                            |        |                             |   |       |                                      |   |        |                                | 
|Balance, December 31, 2000                                               |  | 6,535              |  |                            | 16,595 |                             |   | 4,062 |                                      |   | 3,355  |                                | 
|Comprehensive loss:                                                      |  |                    |  |                            |        |                             |   |       |                                      |   |        |                                | 
|Net loss for the period                                                  |  |                    |  |                            |        |                             |   |       |                                      |   | (8,847 | )                              | 
|Cumulative effect adjustment of interest rate swap agreement, net of
tax |  |                    |  |                            |        |                             |   |       |                                      |   |        |                                | 
|Unrealized loss on interest rate swap agreement, net of tax              |  |                    |  |                            |        |                             |   |       |                                      |   |        |                                | 
|                                                                         |  |                    |  |                            |        |                             |   |       |                                      |   |        |                                | 
|Total comprehensive loss                                                 |  |                    |  |                            |        |                             |   |       |                                      |   |        |                                | 
|                                                                         |  |                    |  |                            |        |                             |   |       |                                      |   |        |                                | 
|Balance, December 31, 2001                                               |  | 6,535              |  |                            | 16,595 |                             |   | 4,062 |                                      |   | (5,492 | )                              | 
|Fair value of warrants issued                                            |  |                    |  |                            |        |                             |   | 95    |                                      |   |        |                                | 
|Comprehensive income:                                                    |  |                    |  |                            |        |                             |   |       |                                      |   |        |                                | 
|Net income for the period                                                |  |                    |  |                            |        |                             |   |       |                                      |   | 2,695  |                                | 
|Realized loss on interest rate swap agreement, net of tax                |  |                    |  |                            |        |                             |   |       |                                      |   |        |                                | 
|                                                                         |  |                    |  |                            |        |                             |   |       |                                      |   |        |                                | 
|Total comprehensive income                                               |  |                    |  |                            |        |                             |   |       |                                      |   |        |                                | 
|                                                                         |  |                    |  |                            |        |                             |   |       |                                      |   |        |                                | 
|Balance, December 31, 2002                                               |  | 6,535              |  | $                          | 16,595 |                             | $ | 4,157 |                                      | $ | (2,797 | )                              | 
|                                                                         |  |                    |  |                            |        |                             |   |       |                                      |   |        |                                | 



The
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, 2002, 2001 and 2000 (In thousands)



|                                                                                             |  | 2002 |          |   | 2001 |   |          | 2000 | 
|-------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | ---- | 
|CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:                                             |  |      |          |   |      |   |          |      | 
|Net income (loss)                                                                            |  | $    | 2,695    |   |      | $ | (8,847   | )    | 
|Adjustments to reconcile net income (loss) to net cash from (used for) operating
activities |  |      |          |   |      |   |          |      | 
|Depreciation and amortization                                                                |  |      | 2,135    |   |      |   | 2,280    |      | 
|Non-cash asset impairment charge                                                             |  |      |         |   |      |   |         |      | 
|Non-cash restructuring charge                                                                |  |      | 400      |   |      |   | 3,400    |      | 
|Amortization of prepaid advertising, net                                                     |  |      | 163      |   |      |   | 167      |      | 
|Amortization of warrant                                                                      |  |      | 95       |   |      |   |         |      | 
|Grant income                                                                                 |  |      | (15      | ) |      |   | (15      | )    | 
|Provision for (benefit from) deferred income taxes                                           |  |      |         |   |      |   | 1,889    |      | 
|Loss (gain) on sales of aircraft and other property                                          |  |      | (109     | ) |      |   | 536      |      | 
|Changes in current operating items                                                           |  |      |          |   |      |   |          |      | 
|Receivables                                                                                  |  |      | (1,098   | ) |      |   | 1,355    |      | 
|Refundable income taxes                                                                      |  |      | 1,625    |   |      |   | (2,755   | )    | 
|Inventories                                                                                  |  |      | 4,205    |   |      |   | 19,213   |      | 
|Prepaid expenses                                                                             |  |      | (289     | ) |      |   | 124      |      | 
|Trade accounts payable                                                                       |  |      | (2,650   | ) |      |   | (4,219   | )    | 
|Motorcoach shell costs payable                                                               |  |      | (1,875   | ) |      |   | (8,302   | )    | 
|Accrued liabilities                                                                          |  |      | (414     | ) |      |   | 169      |      | 
|Customer deposits                                                                            |  |      | (887     | ) |      |   | (874     | )    | 
|                                                                                             |  |      |          |   |      |   |          |      | 
|Net cash from (used for) operations                                                          |  |      | 3,981    |   |      |   | 4,121    |      | 
|                                                                                             |  |      |          |   |      |   |          |      | 
|CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:                                             |  |      |          |   |      |   |          |      | 
|Purchases of property and equipment                                                          |  |      | (1,626   | ) |      |   | (544     | )    | 
|Proceeds from sale of equipment and facilities                                               |  |      | 299      |   |      |   | 312      |      | 
|Purchase of aircraft for resale                                                              |  |      |         |   |      |   |         |      | 
|Proceeds from aircraft sales                                                                 |  |      |         |   |      |   |         |      | 
|Payment for non-compete agreement                                                            |  |      | (25      | ) |      |   |         |      | 
|                                                                                             |  |      |          |   |      |   |          |      | 
|Net cash used for investing activities                                                       |  |      | (1,352   | ) |      |   | (232     | )    | 
|                                                                                             |  |      |          |   |      |   |          |      | 
|CASH FLOWS FROM (USED FOR )FINANCING ACTIVITIES                                              |  |      |          |   |      |   |          |      | 
|Borrowings on trade creditors repayment plan                                                 |  |      |         |   |      |   | 7,493    |      | 
|Repayments on trade creditors repayment plan                                                 |  |      | (2,808   | ) |      |   |         |      | 
|Proceeds from wholesale financing and other notes payable                                    |  |      | 9,221    |   |      |   | 20,700   |      | 
|Repayments of wholesale financing and other notes payable                                    |  |      | (10,971  | ) |      |   | (23,202  | )    | 
|Proceeds from bank line of credit                                                            |  |      | 219,568  |   |      |   | 238,733  |      | 
|Repayments of bank line of credit                                                            |  |      | (219,995 | ) |      |   | (244,387 | )    | 
|Change in checks issued not yet presented                                                    |  |      | (1,653   | ) |      |   | (1,879   | )    | 
|Proceeds from other long-term debt                                                           |  |      | 12,732   |   |      |   | 916      |      | 
|Repayments of other long-term debt                                                           |  |      | (10,029  | ) |      |   | (2,347   | )    | 
|Payment of loan acquisition costs                                                            |  |      | (223     | ) |      |   |         |      | 
|Proceeds from subordinated convertible note                                                  |  |      | 1,500    |   |      |   |         |      | 
|                                                                                             |  |      |          |   |      |   |          |      | 
|Net cash from (used for) financing activities                                                |  |      | (2,658   | ) |      |   | (3,973   | )    | 
|                                                                                             |  |      |          |   |      |   |          |      | 
|Net cash increase (decrease) for period                                                      |  |      | (29      | ) |      |   | (84      | )    | 
|Cash, beginning of period                                                                    |  |      | 247      |   |      |   | 331      |      | 
|                                                                                             |  |      |          |   |      |   |          |      | 
|Cash, end of period                                                                          |  | $    | 218      |   |      | $ | 247      |      | 
|                                                                                             |  |      |          |   |      |   |          |      | 
|Supplemental disclosures: Interest payments                                                  |  | $    | 4,343    |   |      | $ | 5,009    |      | 
|Trailers exchanged for advertising                                                           |  |      | 551      |   |      |   | 100      |      | 
|Income tax payments                                                                          |  |      | 1,557    |   |      |   | 1,144    |      | 
|Issuance of earnout shares                                                                   |  |      |         |   |      |   | 150      |      | 



The
accompanying notes are an integral part of these consolidated financial statements.



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Notes to Consolidated Financial Statements



Note 1. Nature of Business



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 currently manufactured in Florida. Its Oklahoma motorcoach manufacturing location was closed in 2001. (The Company is currently considering reopening this facility as a motorcoach resale center. See Note 6).
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 2002 or 2001.



Note 2. Going Concern Basis of Presentation



The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The removal of this uncertainty is dependent upon continued compliance with the terms and covenants
of the Companys amended loan agreements, continued compliance with its Trade Creditor Repayment Plan, and ultimately the continued generation of sufficient cash flow from operations to meet its obligations on a timely basis.



During the year ended December 31, 2002, the Companys operations
provided net cash of $4.0 million, which was used primarily to reduce line of credit and other borrowings and to fund expenditures for machinery and equipment and other property items. During the year, the Company made progress in revising and
restructuring it financing arrangements including the following: the Company amended and restated its credit agreements with its principal lenders that extended their terms by two or more years and revised the financial covenants based on the
Companys financial plan for 2002; the Company repaid the Wachovia/First Union Bank mortgage on the Sanford, Florida facility with the proceeds received in connection with the sale/leaseback financing of the facility; and the Company made
timely quarterly installment payments under the terms of its Trade Creditor Repayment Plan.



At December 31, 2002, the Company has approximately $1.8 million available to borrow on its two credit lines compared to $4.6 million at December 31, 2001. The Company has maturing payments for debt
principal and the Trade Creditors Repayment Plan and repayment of the $1.0 million special advance on the U.S. Bank line of credit, among other requirements, during the first six months of 2003 that will require operating cash flows of $6.2 million.
The Companys operating plan for this period projects that sufficient cash flow will be generated to meet these requirements. However, management cannot provide assurance that these funds will be available to meet these obligations on a timely
basis and that the Company will maintain successful operations. The Company will seek additional funding from other sources to meet its obligations in 2003.



As discussed in Note 9 to these consolidated financial statements, financing available under the Companys wholesale financing plan for motorcoaches
will change on July 31, 2003 when new and used motorcoaches more than 365 days old will be financed at reduced advance rates. The present agreement reduces the advance rate on used motorcoaches to zero and the advance on new motorcoaches from 90
percent to 70 percent. The Company has requested the advance rate on used motorcoaches be reduced at the rate of 6 percent per month beginning August 1, 2003 and believes this change will be accepted by the lender. In any case, the Company will
either need to sell this inventory, obtain an extension of existing financing or arrange other financing by no later than July 31, 2003 to cover the reduced borrowings available on the wholesale financing agreement.



At December 31, 2002, the Company was not in compliance with certain of the
financial covenants of the amended and restated credit agreements with its principal lenders as discussed in Note 9 to consolidated financial statements. These violations were subsequently waived by U.S. Bank on April 14, 2003 through December 31,
2002 and by GE on April 11, 2003 through February 28, 2003, but management cannot provide assurance the Company will not violate these covenants in the future or be able to obtain waivers for such violations.



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Note 3. Summary of Significant Accounting Policies



Principles of Consolidation: The consolidated financial statements include the accounts of Featherlite, Inc. and its wholly owned subsidiary, Featherlite Aviation Company, 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 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 excess inventory, warranty and self-insurance and Pryor facility lease costs. As better information becomes available or as actual amounts are
determinable, the recorded estimates are revised. Ultimate results could differ from these estimates.



Concentrations: The Company purchases all of its conversion motorcoach shells from one supplier. The purchases represented approximately 9%, 11% and 10% of consolidated cost of sales for the years
ended December 31, 2002, 2001 and 2000, respectively. Although there are a limited number of manufacturers of motorcoach shells, management believes that the 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.



Receivables: Receivables are stated net of an allowance for doubtful accounts of $365,000 and $185,000 at December 31, 2002 and 2001, respectively.



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. Inventories were as follows at December 31, 2002 and 2001 (in thousands):



|                                   |  | 2002 |        | 2001
|---------------------------------- |  | ---- | ------ | ----
|Raw materials                      |  | $    | 6,330  |     
|Work in progress                   |  |      | 10,125 |     
|Finished trailers and motorcoaches |  |      | 22,860 |     
|Used trailers and motorcoaches     |  |      | 22,144 |     
|                                   |  |      |        |     
|Total                              |  | $    | 61,459 |     
|                                   |  |      |        |     



In 2002 and 2001, the
Company evaluated the carrying value of its motorcoach inventories and recorded total charges of $632,000 and $2.9 million, respectively, to cost of sales to reduce the carrying cost of this inventory to its estimated net realizable value. The
write-down in 2001 was required as a result of a substantial decrease in the market value of used motorcoaches in light of the reduced demand and a general downturn in the motorcoach market, particularly following the events of September 11.
Finished and used inventories are presented net of $1.7 million and $2.5 million of valuation reserves to reflect such inventories at lower of cost or market at December 31, 2002 and 2001, respectively.



Prepaids: Prepaids primarily include the unamortized portion of annual
property, casualty and third party liability insurance premiums for the insurance year beginning November 1 each fiscal year.



Property and Equipment: Property and equipment are stated at cost, while repair and maintenance items are charged to expense as incurred. Depreciation is
provided for financial reporting purposes using straight-line and accelerated 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.



Goodwill: The excess of the total acquisition cost of
Vantare International, Inc. (Vantare) and Mitchell Motorcoach Sales, Inc. (Vogue) and other prior acquisitions, over the fair value of the net assets acquired was being amortized on a straight-line basis over periods of up to 20 years.
Amortization was $0 in 2002, $0 in 2001, $525,000 in 2000. As discussed in Note 5 below, all goodwill was determined to be impaired and written-off in the fourth quarter of 2000.



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Long-lived Assets: Effective
January 1, 2002 the Company assesses long-lived assets under SFAS Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. During 2001 and 2000, the Company assessed long-lived assets for impairment under SFAS
Statement No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of. Under these rules, property and equipment, goodwill associated with assets acquired in purchase business combinations, and
any other long-lived assets are included in the impairment evaluations when events or circumstances exist that indicate the carrying amount of those assets many not be recoverable. See Note 5 for further discussion of 2000 impairment charge.



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 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 recorded.



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.



Stock-based compensation: The Company has a stock option plan for directors, officers and key employees and accounts for these options plans in accordance
with Accounting Principles Board (APB) Opinion No. 25 under which no compensation cost has been recognized. For more information on the Companys stock-based compensation, see Note 10 to these consolidated financial statements.



The following table illustrate the effect on earnings and earnings per common
share for the years ended December 31, 2002, 2001 and 2000, as if the Company had applied Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation (SFAS No. 123) to its stock-based compensation:



|                                                                                                               |  |   | 2002  |  |   | 2001   |   |  |   | 2000    |  
|-------------------------------------------------------------------------------------------------------------- |  | - | ----- |  | - | ------ | - |  | - | ------- | -
|Net income (loss) (000s)                                                                                      |  |   |       |  |   |        |   |  |   |         |  
|As reported                                                                                                    |  | $ | 2,695 |  | $ | (8,847 | ) |  | $ | (9,864  | )
|Stock-based compensation expense, determined under fair value method of all awards, net
of related tax effects |  |   | 615   |  |   | 347    |   |  |   | 221     |  
|                                                                                                               |  |   |       |  |   |        |   |  |   |         |  
|Pro forma earnings (loss) on common stock                                                                      |  | $ | 2,080 |  | $ | (9,194 | ) |  | $ | (10,085 | )
|Basic net income (loss) per share                                                                              |  |   |       |  |   |        |   |  |   |         |  
|As reported                                                                                                    |  | $ | 0.41  |  | $ | (1.35  | ) |  | $ | (1.51   | )
|Pro forma                                                                                                      |  |   | 0.32  |  |   | (1.41  | ) |  |   | (1.54   | )
|Diluted net income (loss) per share                                                                            |  |   |       |  |   |        |   |  |   |         |  
|As reported                                                                                                    |  | $ | 0.38  |  | $ | (1.35  | ) |  | $ | (1.51   | )
|Pro forma                                                                                                      |  |   | 0.29  |  |   | (1.41  | ) |  |   | (1.54   | )



Research and Development
Expenses: Research and development expenses were approximately $0, $19,000, and $839,000, in 2002, 2001, and 2000, respectively, and are included in selling and administrative expenses.



Income Taxes: Deferred 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.



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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 8 to these consolidated financial statements.



Comprehensive Income or Loss: Comprehensive income or loss consists of the Companys net loss and unrealized losses from an interest rate swap agreement and is presented in the consolidated
statements of shareholders investment and comprehensive loss.



New Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133 established accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 also required that changes in the derivatives fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows
a derivatives gains or losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. SFAS
No.133 (as amended) was effective for fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133 as of January 1, 2001 did not materially impact the Companys results of operations or financial position.



In June 2001, the FASB issued Statements of Financial Accounting Standards
(SFAS) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill (and intangible assets deemed to have
indefinite lives) will no longer be amortized but will be subject to annual impairment tests in accordance with SFAS No. 142. Other intangible assets will continue to be amortized over their useful lives. The amortization provisions of SFAS No. 142
apply to goodwill and intangible assets acquired after June 30, 2001. The Company adopted SFAS No. 142 effective January 1, 2002. The adoption of this SFAS had no effect on 2002 operations because the Company had no unamortized goodwill or other
intangibles.



In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS No. 144 supersedes previous guidance for financial accounting and reporting for the impairment or
disposal of long-lived assets and for segments of a business to be disposed of. SFAS No. 144 was effective for the Company beginning on January 1, 2002. Adoption of the statement did not have any impact on the Companys financial position or
results of operations for fiscal 2002.



In April 2002, the FASB
approved Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS No. 145). FASB No. 4 required all gains or losses from
extinguishments of debt to be classified as extraordinary items net of income taxes. SFAS No. 145 requires that gains and losses from extinguishments of debt be evaluated under the provisions of Accounting Principles Board (APB) Opinion No. 30, and
be classified as ordinary items unless they are unusual or infrequent or meet the specific criteria for treatment as an extraordinary item. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The Company believes the adoption of
SFAS No. 145 will not have a material effect on its financial position or results of operations.



In June 2002, the FASB approved Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS No. 146). SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring) (EITF No. 94-3). SFAS No. 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred, as opposed to when the entity commits to an exit plan
under EITF No. 94-3. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company believes the adoption of SFAS No. 146 will not have a material effect on its financial position or results
of operations.



In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (Interpretation No. 45). Interpretation No. 45 clarifies the disclosures to be made by
a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. Interpretation No. 45 also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing certain types of guarantees. Certain types of guarantees are not subject to the initial recognition and measurement provisions of Interpretation No. 45 but are subject to its disclosure requirements. The
initial recognition and initial measurement provisions of Interpretation No. 45 are applicable on a prospective basis to guarantees issued or modified after



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December 31, 2002, regardless of the guarantors fiscal year-end. The guarantors previous
accounting for guarantees issued prior to the date of the initial application of Interpretation No. 45 shall not be revised or restated. The disclosure requirements in Interpretation No. 45 are effective for financial statements of interim or annual
periods ended after December 15, 2002. The Company will apply the initial recognition and initial measurement provisions of Interpretation No. 45 to guarantees issued or modified after December 31, 2002. For more information on the Companys
guarantees and the disclosure requirements of Interpretation No. 45, as applicable to the Company, see Notes 3 and 10 to these consolidated financial statements.



In December 2002, the FASB approved Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure- an amendment of FASB Statement No. 123 (SFAS 148). SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS No. 148 is effective for financial statements for fiscal years ending after December 15, 2002. The Company adopted the disclosure provisions of SFAS No. 148 at December 31,
2002.



In January 2003, the FASB issued FASB Interpretation No.
46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated support from other parties. FIN 46 requires existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. All companies with variable interests in variable interest entities created after January 31, 2003, shall apply the provisions of
this Interpretation to those entities immediately. The Company will prospectively apply the provisions of this new pronouncement effective January 31, 2003. The Company does not expect the impact of this new interpretation to have a material impact
on the Companys financial position or results of operations because it does not have any such entities.



Note 4. Other Assets



Other assets consist of the following at December 31, 2001 and 2000 (in thousands):



|                         |  | 2002 |       | 2001
|------------------------ |  | ---- | ----- | ----
|Aircraft held for resale |  | $    | 3,240 |     
|Other                    |  |      | 1,401 |     
|                         |  |      |       |     
|Total                    |  | $    | 4,641 |     
|                         |  |      |       |     



Aircraft Held for
Resale: The Company is a licensed aircraft dealer and markets used business-class aircraft. Aircraft purchased for resale are stated at cost. The Company periodically evaluates the aircrafts net realizable value and, if necessary, adjusts the
carrying value.During 2002 and 2001, the Company wrote down the aircraft by $160,000 and $690,000, respectively, to reflect declines in its estimated market value. Gain or loss on the sale of aircraft or losses in estimated market value are
included in other income (expense) during the period in which the aircraft is sold rather than sales and cost of sales because these transactions are incidental to the Companys principal business segments and occur on an irregular basis.
Aircraft held by the Company for resale are classified as non-current as prior history indicates the aircraft may not be sold within twelve months.



Other: The Company exchanged trailers and coaches for future personal service, promotional and advertising services of an equivalent value. These
contracts were capitalized at the cost basis of the inventory exchanged and are being amortized over the period the services will be rendered. Amortization of these agreements to advertising expense was $163,000 in 2002, $167,000 in 2001 and
$222,000 in 2000.



The Company owns land, a warehouse, and a
manufacturing plant with a cost of $435,000 and $515,000 at December 31, 2002 and 2001, respectively, at sites previously used by the Company as a corporate headquarters and for manufacturing trailers. Such property is being held for resale. In
2002, the land and warehouse were sold for $92,500 cash and a contract for deed of $75,000 for the balance, which is being paid-off over 5 years. A gain of $71,000 was recognized on the sale and is included in Other income.



In 2002 the Company incurred approximately $223,000 in loan acquisition costs
in connection with amending its financing agreements with its financing institutions. These costs are being amortized to interest expense over the respective terms of the agreements. Amortization was $32,000 and $62,000 in 2002 and 2001,
respectively.





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The Company has deposits on motorcoach shells in the amount of $320,000 at December 31, 2002 and 2001.
These deposits were classified in prepaid expenses in the December 31, 2001 financial statements. The motorcoach shell manufacturer will hold these deposits as long as the Company holds motorcoaches on a consignment basis as discussed in Note 9.



Note 5. Asset Impairment



In the fourth quarter of 2000, the Company determined that
unamortized goodwill in the amount of $8.3 million associated with the acquisitions of Vogue in 1998 and Vantare in 1996 was impaired, and wrote it off. The write-off of the goodwill was based on an analysis of projected undiscounted cash flows,
which were no longer deemed adequate to support the goodwill associated with these businesses, and a consideration of various factors that the Company believed contributed to a downturn in the market for new and used bus conversion coaches and the
continuing loss of sales and profitability in this segment of the business, including: increased interest rates, higher fuel costs and stock market volatility. Impairment reviews of the long-lived assets of certain business units in the trailer
segment also resulted in the write-down of goodwill and other long-lived assets by $431,000. These write-downs were based on projected cash flows that were not adequate to support goodwill associated with an acquired business and the reduction of
the net book value of related land and buildings to an amount deemed realizable based on previous experience. As management executed its plan to rationalize motorcoach and trailer production between facilities, other costs were incurred in the first
and second quarters of 2001 and were expensed at that time.



Note 6. Restructuring Charge



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 because of unacceptable delays experienced in
obtaining materials essential to the manufacture of this coach. The Company closed this facility in August 2001 and 80 employees were either terminated or reassigned elsewhere in the Company. An accrual in the amount of $4.5 million was made in the
financial statements in 2001, including $2.9 million charged to cost of sales, to provide for exit and other costs related to this restructuring following the guidance of EITF 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). As a result of the Companys inability to sublease this facility in 2002, the Company began formulating a plan to use this facility again
as a sales facility for used coaches owned by others. In the fourth quarter of 2002, an additional $400,000 was accrued for estimated lease and other costs to be incurred until this facility is put back into productive use and generates sufficient
revenue to cover the costs of operation, including the lease, which the Company estimates will occur during the next 12 months. Following is a summary of this accrual, amounts used and the balance remaining at December 31, 2002:



|                                     |  | 2002    |     | 2001
|------------------------------------ |  | ------- | --- | ----
|                                     |  | Accrued |     | Used
|Impairment of inventory              |  | $       |    |     
|Impairment of property and equipment |  |         |    |     
|Payroll and severance pay            |  |         |    |     
|Lease costs until subleased          |  |         | 400 |     
|                                     |  |         |     |     
|                                     |  | $       | 400 |     
|                                     |  |         |     |     



Note 7. Trade Creditor Repayment Plan



In
November 2001 the Company proposed a Trade Creditor Repayment Plan (the Plan) to certain of its trade creditors. Creditors were asked to approve the Plan and select one of four repayment options proposed for the balance due them as of November 16,
2001. The Company obtained the required percentages of favorable ballots and has implemented the Plan. As of December 31, 2001, $7.5 million of trade accounts payable were enrolled in the Plan. During 2002 the Company made aggregate quarterly
payments in accordance with the Plan totaling $2.8 million, with approximately $2.5 payable in 2003, and $2.2 million payable in 2004.



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Note 8. Income Tax Matters

The components of the provision (benefit) for income taxes for the years ended December 31 2002,
2001 and 2000 are as follows (in thousands):



|         |  | 2002 |      |   | 2001 |   |        | 2000 | 
|-------- |  | ---- | ---- | - | ---- | - | ------ | ---- | 
|Current  |  |      |      |   |      |   |        |      | 
|Federal  |  | $    | (258 | ) |      | $ | (3,109 | )    | 
|State    |  |      |     |   |      |   |       |      | 
|         |  |      |      |   |      |   |        |      | 
|         |  | $    | (258 | ) |      | $ | (3,109 | )    | 
|         |  |      |      |   |      |   |        |      | 
|Deferred |  |      |      |   |      |   |        |      | 
|Federal  |  |      |     |   |      | $ | 1,720  |      | 
|State    |  |      |     |   |      |   | 149    |      | 
|         |  |      |      |   |      |   |        |      | 
|         |  |      |     |   |      | $ | 1,869  |      | 
|         |  |      |      |   |      |   |        |      | 
|Total    |  | ($   | 258  | ) |      | $ | (1,240 | )    | 
|         |  |      |      |   |      |   |        |      | 



A reconciliation of the
provision (benefit) for income taxes at the federal statutory rate to the provision (benefit) for income taxes in the consolidated financial statements for the years ended December 31, 2002, 2001, and 2000 is as follows (in thousands):



|                                                     |  | 2002 |      |   | 2001 |   |        | 2000 | 
|---------------------------------------------------- |  | ---- | ---- | - | ---- | - | ------ | ---- | 
|Provision (benefit) at federal statutory rate (34%)  |  | $    | 828  |   |      | $ | (3,429 | )    | 
|State income taxes, net of Federal income tax effect |  |      |     |   |      |   |       |      | 
|Non-deductible goodwill amortization and write-off   |  |      |     |   |      |   |       |      | 
|Valuation allowance increase (decrease)              |  |      | (495 | ) |      |   | 1,869  |      | 
|Benefit from carryback claim to prior years          |  |      | (690 | ) |      |   |       |      | 
|Other                                                |  |      | 99   |   |      |   | 320    |      | 
|                                                     |  |      |      |   |      |   |        |      | 
|Total                                                |  | $    | (258 | ) |      | $ | (1,240 | )    | 
|                                                     |  |      |      |   |      |   |        |      | 



The Job Creation and
Workers Assistance Act of 2002 enabled the Company to amend its 2001 Federal income tax return and claim additional deductions relating to its self-insured employee medical plan. These deductions increased the 2001 income tax loss, which carried
back to prior years resulting in refunds of taxes paid in those years. In addition, law changes enabled the Company to claim refunds for Alternative Minimum tax payments made in prior years. These refunds, which totaled $690,000, were recorded as a
reduction of the provision for income taxes in the third quarter.



Deferred tax assets and liabilities consist of the following components as of December 31, 2002 and 2001 (in thousands):



|                                      |  | 2002 |        |   | 2001 |  
|------------------------------------- |  | ---- | ------ | - | ---- | -
|Non-current deferred tax liabilities: |  |      |        |   |      |  
|Depreciation                          |  | $    | (480   | ) |      | $
|Current deferred tax assets:          |  |      |        |   |      |  
|Accrued expenses                      |  |      | 936    |   |      |  
|Accrued warranty expenses             |  |      | 544    |   |      |  
|Inventory allowances                  |  |      | 283    |   |      |  
|Receivable allowances                 |  |      | 91     |   |      |  
|                                      |  |      |        |   |      |  
|Total current                         |  |      | 1,854  |   |      |  
|                                      |  |      |        |   |      |  
|Net deferred tax asset                |  |      | 1,374  |   |      |  
|                                      |  |      |        |   |      |  
|Valuation allowance                   |  | $    | (1,374 | ) |      | $
|                                      |  |      |        |   |      |  



At December 31, 2002,
the Company has no Federal net operating loss carryforwards but has carryforwards available to offset certain state incomes. Benefit will be recorded on the utilization of these state carryforwards in the years in which they are realized.



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Note 9. Financing Arrangements



Wholesale
Financing and Other Notes Payable: Wholesale financing and other notes payable includes unpaid balances of $24.8 million in 2002 and $26.9 million at December 31, 2002 and 2001, respectively, on the motorcoach wholesale financing agreement with GE
Commercial Distribution Finance Company (GE) (formerly Deutsche Financial Services Corporation) and $1.1 million and $853,000 at December 31, 2002 and 2001, respectively, with an insurance premium finance company. The motorcoach wholesale financing
agreement, which was amended in 2002, provides for a $25 million line of credit (reduced from $30 million) to finance completed new and used motorcoaches held in inventory. Amounts borrowed are limited to 90% of the cost of eligible new inventory
and 70% of the defined value of eligible used inventory. After July 31, 2002, the Agreement reduces the advance rate on new coaches more than 365 days old based on date of completion from 90% to 70% and provides no financing on used coaches more
than 365 days old based on date of acquisition or older than 10 model years. This could reduce future aggregate borrowings under this Agreement and could require additional funding from other sources to cover this reduction. At December 31, 2002,
the Company had $5.8 million of used inventory that would be ineligible for funding and $2.9 million of new inventory eligible only at a reduced rate after July 31, 2003. Borrowings bear interest of 4.5% and 5.0% at December 31, 2002 and 2001,
respectively, which is prime plus 0.25% when prime is less than 6.25%, otherwise prime and are secured by the financed motorcoaches and other assets of the Company. The agreement requires, among other covenants: a minimum defined tangible current
ratio of 1.2 as determined quarterly; a minimum tangible net worth of $14 million through December 31, 2002 and $15 million at March 31, 2003 and thereafter; not exceed a ratio of debt to tangible net worth of 5 to 1 as determined quarterly; achieve
positive net income at the end of each month for the prior three month period and 80% of projected quarterly profitability in 2002. There is no profitability covenant in 2003. The Company was not in compliance with the three month positive net
income covenant and did not achieve 80 percent of projected quarterly profitability for the quarter ended December 31, 2002. On April 11, 2003, GE has waived violations of these covenants as of that date and until February 28, 2003. The Company may
be required to request additional waivers if it is not in compliance with this and other covenants at March 31, 2003. There is no assurance the Company will be able to obtain these waivers. This agreement is subject to cancellation by GE at any
time. The Company must pay a fee of up to 2% of the aggregate outstanding borrowings under the Agreement if it cancels the Agreement before June 30, 2004.



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.



Line of Credit: On July 31, 2002, the Company entered into an Amended and Restated Loan Agreement (Agreement) with U.S. Bank in an aggregate amount of $24.2 million, including $14 million in an asset-based revolving credit
commitment, $7.2 million in term loans on existing real estate and equipment and a $2.0 million as a term loan for new equipment purchases. The Agreement also provides a special advance of $1.0 million for any 60 day period requested by the Company
until July 31, 2003. This Agreement is for a three-year period with annual interest accruing on outstanding balances at 4.75% and 6.75%, which is prime plus 0.50 percent at December 31, 2002 and prime plus 2.0% at December 31, 2001, respectively.
The proceeds from the $7.2 million term notes were used to repay $4.4 million of existing term notes with the balance of $2.8 million reducing borrowings on the revolving credit note. The $7.2 million term notes are repayable over 36 months with
aggregate monthly principal payments of $120,000 plus interest with the remaining unpaid balance due on June 30, 2005. Repayment of advances on the new equipment term note will be based on a 60 month amortization with the unpaid balance due on June
30, 2005. 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, 2002, net availability on the revolving credit line was $8.4
million with about $6.8 million outstanding. 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 following financial covenants
through December 31, 2003: maintain a minimum consolidated fixed charge coverage ratio of 1.05 to 1.0 as of the end of each fiscal quarter for the year to date period then ended, commencing with the fiscal quarter ended June 30, 2002; not to exceed
a maximum consolidated total liabilities to consolidated tangible net worth ratio of 4.25 to 1.0 as of the last day of each quarter commencing with the quarter ended June 30, 2002; achieve a minimum consolidated EBITDA of $9 million during each
fiscal year and not to exceed aggregate capital expenditures of $2 million in any fiscal year. The Company may not have any unwaived violations of agreements with other lenders. The Company was in compliance with the amended covenant requirements as
required for the quarter ended December 31, 2002 except for the minimum EBIDTA requirement and on April 14, 2003, received a waiver of this violation at December 31, 2002, and as discussed above, has obtained waivers of violations of its agreement
with GE.



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, 2002 and 2001, there was $1.4 million and $3.1 million, respectively, of checks that had been issued but not yet presented for payment.



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Subordinated Promissory Note:
On January 30, 2002, the Company entered into an agreement with a private corporate investor to borrow $1.5 million. The debt is due in full, together with interest at the rate of 6.5% per annum, on April 15, 2003. The entire amount is repayable in
cash or may be converted to common stock at the option of the lender at the lower of $3.00 per share or the daily average closing market price during the period from April 30, 2002 until October 31, 2002 ($2.45). This note is secured by a second
mortgage on the Companys Cresco, Iowa property and the proceeds from the Companys income tax refund, subject to the terms and conditions of the subordination agreement with U.S. Bank. As a fee for this loan, the Company issued to the
private investor, 150,000 warrants convertible to common stock at $2.00 per share, which must be exercised within the next five years ending January 30, 2007. As discussed in Note 14 to these consolidated financial statements, a value to $95,000 was
assigned to these warrants and amortized to interest expense in 2002 over the original term of the note that matured on December 31,2002. The maturity has been subsequently extended to April 15, 2003.



Other Long-Term Debt: Other long-term debt consisted of the following at
December 31, 2002 and 2001 (in thousands):



|                                                                                                                                                                                                                                                                                           |  | 2002 |        |   | 2001 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------ | - | ---- | -
|Bank term notes payable; interest at prime plus 0.5% (4.75% at December 31, 2002)
payable in monthly installments of $120 plus interest; balance due June 30, 2005; contains same collateral and covenant provisions as Revolving Loan and Security Agreement. Refinanced on July 31, 2002 |  | $    | 7,064  |   |      | $
|Mortgage notes, interest at LIBOR plus 4.80 (6.94% at December 31, 2001) payable in full
on March 30, 2002; collateralized by Florida real estate; paid in full in 2002                                                                                                                    |  |      |        |   |      |  
|Capitalized lease of Florida real estate; payable in monthly installments of $50 thru
July 31, 2007 with 5% annual increase thereafter until initial term ends on July 31, 2009                                                                                                            |  |      | 4,886  |   |      |  
|Bank notes payable; interest at 6.5%; interest only until August 2002, then $27 payable
monthly including interest; balance due July 2005; collateralized by aircraft                                                                                                                      |  |      | 3,007  |   |      |  
|Notes and capitalized leases to banks and others, interest at average of 5.6%, payable
in varying monthly installments through 2007; collateralized by real estate and vehicles                                                                                                            |  |      | 159    |   |      |  
|                                                                                                                                                                                                                                                                                           |  |      |        |   |      |  
|Total                                                                                                                                                                                                                                                                                      |  |      | 15,116 |   |      |  
|Less current maturities                                                                                                                                                                                                                                                                    |  |      | (7,886 | ) |      |  
|                                                                                                                                                                                                                                                                                           |  |      |        |   |      |  
|                                                                                                                                                                                                                                                                                           |  | $    | 7,230  |   |      | $
|                                                                                                                                                                                                                                                                                           |  |      |        |   |      |  



Mortgage Notes and
Capitalized lease: On June 28, 2002 the Company satisfied in full its $3.9 million mortgage notes with Wachovia Bank on the Companys Sanford, Florida sales and service center. These obligations were paid-off with proceeds of $5.0 million
received from GBNM Partnership in connection with its July 31, 2002 purchase of the sales and service center in Sanford, Florida. The Company 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 and no gain or loss was recognized.



Interest Rate Swap Agreement: The Company was a party to an interest rate swap with First Union Bank. The agreement hedged a portion of its exposure to fluctuations on one bank note, under the terms of a Forbearance and Loan
Modification Agreement with First Union. This agreement terminated on June 30, 2002, when the related debt was paid. It was accounted for as a hedge, with any realized gains or losses recognized currently as an adjustment to interest expense. The
notional amount of the swap transaction was $4.0 million at a fixed rate of 7.34 percent. During 2001, the fair market value of this swap decreased by $159,000 to a cumulative loss of $142,000 at December 31, 2001, including $109,000 which was
recorded as other expense in 2001 and $24,000, net of tax, which was recorded as shown in the Consolidated Statements of Shareholders Investment and Comprehensive Loss as a comprehensive loss and adjustment to notes payable and
deferred tax assets. The unrealized portion of this swap was recognized on June 30, 2002, when the First Union note is paid in full and swap is terminated with a payment of $149,000.



Annual maturities of total long-term debt during the five years subsequent to December 31, 2002 are as follows (in
thousands):



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|Year |  | Amount
|---- |  | ------
|2003 |  | $7,886
|2004 |  | 5,681 
|2005 |  | 1,522 
|2006 |  | 16    
|2007 |  | 11    



The Company was not in
compliance with certain covenants of U.S Bank and GE financing agreements at December 31, 2002, which were subsequently waived in 2003. However, the debt with respect to these new agreements will continue to be classified as current liabilities and
due within one year until the Company has additional experience and success in maintaining profitable operations and demonstrating the ability to continue compliance with the debt covenants through December 31, 2003.



Note 10. Commitments and Contingencies



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 $10.1 million at December 31, 2002.During 2002, the Company repurchased $273,000 from a financial institution due to the default of a dealer. In
the opinion of management, no reserve is required for this contingency because the aggregate amount of such repurchases on annual basis has been less than 1 percent of annual sales and the repossessed inventory has been sold to other dealers without
a loss. The Company has no motorcoach dealers and, accordingly, has no repurchase obligation with respect to motorcoaches.



The Company has a separate agreement that provides approximately $250,000 for job training purposes from the State of Iowa. The amounts are to be repaid,
together with interest, over a ten-year period from state withholding taxes on employees at the Companys Iowa facilities. The Company may be required to provide funds for the repayment of these training credits if sufficient withholding and
unused training funds are not available.



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 $125,000 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, 2002, $2.2 million was accrued for estimated incurred but not reported
and unpaid claims. The Company has obtained irrevocable standby letters of credit in the amount of $2.8 million in favor of the workers compensation claims administrators to guarantee settlement of claims. An additional $497,500 letter of
credit is required to be provided in March 2003, which is expected to be partially offset by reductions in existing letters of credit.



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, 2002, 2001, and 2000, was approximately $1.3 million, $1.2 million, and $1.2 million, respectively. The approximate annual minimum future lease payments under these operating leases for the
five years subsequent to December 31, 2002 are as follows (in thousands):



|Year       |  | Amount
|---------- |  | ------
|2003       |  | $1,064
|2004       |  | 969   
|2005       |  | 790   
|2006       |  | 684   
|2007       |  | 557   
|Thereafter |  | 889   



The Company, in the
course of its business, has been named as a defendant in various legal actions. These actions are primarily product liability or workers compensation 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



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of management, after consultation with counsel, that the resolution of such matters will not have a material adverse effect on the financial
position of the Company.



The Company has obtained fixed price
commitments from certain suppliers for about 80 percent of its expected aluminum requirements in 2003 to reduce the risk related to fluctuations in the cost of aluminum, the principal commodity used in the Companys trailer segment. In certain
instances there may be a carrying charge added to the fixed price if the Company requests a deferral of a portion of its purchase commitment to the following year.



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 that are provided for as described in Note 3 to these consolidated financial statements. Following is a summary of the changes in these liabilities during the
years ended December 31, 2002 and 2001 (In thousands):



|                                       |  | 2002 |        |   | 2001 |  
|-------------------------------------- |  | ---- | ------ | - | ---- | -
|Provision for units sold during period |  | $    | 1,516  |   |      | $
|Adjustments of prior period provision  |  |      | 236    |   |      |  
|Claims paid during the period          |  |      | (2,156 | ) |      |  
|                                       |  |      |        |   |      |  
|Net increase (decrease) in liability   |  |      | (404   | ) |      |  
|Balance, beginning of year             |  |      | 1,835  |   |      |  
|                                       |  |      |        |   |      |  
|Balance, end of year                   |  | $    | 1,431  |   |      | $
|                                       |  |      |        |   |      |  



Note 11. Deferred Grant
Income



Deferred grant income consists of forgivable loans
(grants) in an aggregate amount of approximately $2 million provided to the Company by various governmental units to assist with the establishment of the Companys headquarters and production facility in Cresco, Iowa and its Nashua, Iowa
production facility. These loans have been forgiven based on fulfillment and retention of job creation goals through June 1999. These grants are being recognized as income as they are earned. Income recognized for these grants was approximately
$15,000 in each fiscal year ended December 31, 2002, 2001 and 2000.



Note 12. 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 first four percent of such contributions in the years ended December 31, 2002, 2001 and 2000. No matching contribution was made in 2001. The Companys contributions to the plan were $ 180,000, $ 0, and $208,000 for the years
ended December 31, 2002, 2001 and 2000, respectively.



Note 13.
Related-Party Transactions



The Company recorded sales of
approximately $3.3 million, $2.8 million, and $2.5 million in 2002, 2001, and 2000, respectively, to authorized 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. The Company had receivables from these related parties of $100,000 at December 31, 2002 and $97,000 at December
31, 2001.



The Company has leased equipment from certain
shareholders/executives during current and prior periods. Payments related on these leases totaled $86,000 in 2002, $82,000 in 2001 and $50,000 in 2000. During 2002, 2001, and 2000, the Company also leased various aircraft from certain shareholders.
Payments for leased aircraft totaled $26,000 in 2002, $49,000 in 2001, and $20,000 in 2000.



Featherlite Credit Corporation reimbursed the Company $87,000, $86,000, and $63,000 for salaries and other costs paid by the Company in 2002, 2001, and 2000, respectively.



In 2001, the Company agreed to pay $303,000 to Clement Properties, an entity
owned by the majority shareholders of the Company 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 is being paid in equal monthly installments over a three year period without interest ending in February 2005, with $90,000 paid in 2002.



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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 will also have agreements with ULC to lease it office space and to provide service work on the ULC motorcoaches.



Note 14. 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.



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 150,000 shares on the Companys common stock. This note is due in full on April 15, 2003 or may be converted at that time to common stock at the option of the holder,
subject to provisions of the U.S. Bank and GE subordination agreements. The conversion price for this note is the lower of $3.00 per share or the average closing market price of the Companys common stock between April 30, 2002 and October 31,
2002, which was $2.45. Using $2.45 as the conversion factor, this note could be converted into 612,244 shares of common stock. Interest that accrues on this note at the rate of 6.5 percent per year may also be converted into common stock at the same
conversion price if not paid in cash. 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 maturity date was subsequently extended to April 15, 2003. The warrant may be exercised at any time before
January 31, 2007 at a price of $2.00 per common share.



Stock
Option Plan: At December 31, 1998, the Company reserved 1,100,000 shares of common stock for issuance as options under the Companys 1994 Stock Option Plan (the Plan). These 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 incentive 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 are non-transferable and expire at varying dates, but do not exceed ten years from date of grant.



Grants under the Plan are accounted for using APB Opinion No. 25 and related interpretations. No compensation cost has been recognized for grants under
the Plan. Had compensation cost for the Plan been based on the grant date fair values of awards (the method prescribed by SFAS No. 123) reported net income (loss) and net income (loss) per share would have been the pro forma amounts shown below:



The fair value of each option has been estimated at the grant
date using the Black-Scholes option-pricing model with the following assumptions for grants in 2002, 2001, and 2000:



|                                        |  | 2002    |  | 2001    |  | 2000   
|--------------------------------------- |  | ------- |  | ------- |  | -------
|Dividend Rate                           |  | 0%      |  | 0%      |  | 0%     
|Price Volatility5 year options         |  | 71.0%   |  | 55.7%   |  | 58.4%  
|Price Volatility10 year options        |  | 71.5%   |  | 56.8%   |  | 59.2%  
|Risk-free interest rate5-year options  |  | 4.4%    |  | 4.9%    |  | 6.3%   
|Risk-free interest rate10-year options |  | 4.0%    |  | 4.1%    |  | 6.6%   
|Expected life5 year options            |  | 5 yrs.  |  | 5 yrs.  |  | 5 yrs. 
|Expected life10 year options           |  | 10 yrs. |  | 10 yrs. |  | 10 yrs.



A summary of the status
of the Plan at December 31, 2002, 2001 and 2000 and changes during the years ended on those dates is as follows:



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|                                                                         |  | Shares |          |   | Weighted Average Exercise Price
|------------------------------------------------------------------------ |  | ------ | -------- | - | -------------------------------
|2000                                                                     |  |        |          |   |                                
|Outstanding, beginning of year                                           |  |        | 536,160  |   |                                
|Granted                                                                  |  |        | 32,000   |   |                                
|Forfeited                                                                |  |        | (92,554  | ) |                                
|                                                                         |  |        |          |   |                                
|Outstanding, end of year                                                 |  |        | 475,606  |   |                                
|                                                                         |  |        |          |   |                                
|Exercisable at end of year                                               |  |        | 385,406  |   |                                
|Weighted average fair value per share of options granted during the year |  | $      | 3.24     |   |                                
|2001                                                                     |  |        |          |   |                                
|Outstanding, beginning of year                                           |  |        | 475,606  |   |                                
|Granted                                                                  |  |        | 389,300  |   |                                
|Forfeited                                                                |  |        | (29,506  | ) |                                
|                                                                         |  |        |          |   |                                
|Outstanding, end of year                                                 |  |        | 835,400  |   |                                
|                                                                         |  |        |          |   |                                
|Exercisable at end of year                                               |  |        | 508,200  |   |                                
|Weighted average fair value per share of options granted during the year |  | $      | 1.78     |   |                                
|2002                                                                     |  |        |          |   |                                
|Outstanding, beginning of year                                           |  |        | 835,400  |   |                                
|Granted                                                                  |  |        | 380,500  |   |                                
|Forfeited or cancelled                                                   |  |        | (378,000 | ) |                                
|                                                                         |  |        |          |   |                                
|Outstanding, end of year                                                 |  |        | 837,900  |   |                                
|                                                                         |  |        |          |   |                                
|Exercisable at end of year                                               |  |        | 637,300  |   |                                
|Weighted average fair value per share of options granted during the year |  | $      | 1.43     |   |                                



In February 2002, the
Board of Directors authorized the officers of the Company to offer the holders of 396,500 outstanding stock options the opportunity to voluntarily cancel all or certain of these options and replace them with an equal number of new stock options to
be issued with an exercise price equal to the fair market value of one share of common stock as determined six months and one day from the effective date of cancellation of such outstanding options, which enabled the Company to avoid recognizing any
compensation expense for these cancelled and reissued options. Stock options totaling 344,500 shares were cancelled as of May 25, 2002 and reissued on November 25, 2002 at the closing market price ($1.81) on that date.



At December 31, 2002, options outstanding have exercise prices ranging from
$1.11 to $10.00 and a weighted average remaining contractual life of 5.8 years. Following is a summary of exercise price ranges of the options outstanding at December 31, 2002:



|Exercise Price Range |  | Options Outstanding
|-------------------- |  | -------------------
|$1.00 to $1.99       |  | 366,500            
|$2.00 to $2.99       |  | 356,400            
|$3.00 to $4.99       |  | 48,000             
|$5.00 to $6.99       |  | 61,000             
|$ 7.00 or more       |  | 6,000              
|                     |  |                    
|Total                |  | 837,900            
|                     |  |                    



Net Income (Loss) Per
Share: Following is a reconciliation of the weighted average shares outstanding used to determine basic and diluted net income (loss) per share for the years ended December 31, 2002, 2001, and 2000 (in thousands, except per share data):



|                                                    |  | 2002 |       | 2001 |   |        | 2000 | 
|--------------------------------------------------- |  | ---- | ----- | ---- | - | ------ | ---- | 
|Net (loss) income available to common shareholders  |  | $    | 2,695 |      | $ | (8,847 | )    | 
|                                                    |  |      |       |      |   |        |      | 
|Weighted average number of shares outstandingbasic |  |      | 6,535 |      |   | 6,535  |      | 



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|Dilutive effect of:                                   |  |   |       |  |   |       |   |  |   |       |  
|----------------------------------------------------- |  | - | ----- |  | - | ----- | - |  | - | ----- | -
|Stock Options                                         |  |   | 27    |  |   |      |   |  |   |      |  
|Convertible promissory note and interest              |  |   | 596   |  |   |      |   |  |   |      |  
|Warrants                                              |  |   | 18    |  |   |      |   |  |   |      |  
|                                                      |  |   |       |  |   |       |   |  |   |       |  
|Weighted average number of shares outstandingdiluted |  |   | 7,158 |  |   | 6,535 |   |  |   | 6,531 |  
|                                                      |  |   |       |  |   |       |   |  |   |       |  
|Net (loss) income per sharebasic                     |  | $ | 0.41  |  | $ | (1.35 | ) |  | $ | (1.51 | )
|                                                      |  |   |       |  |   |       |   |  |   |       |  
|Net (loss) income per sharediluted                   |  | $ | 0 38  |  | $ | (1.35 | ) |  | $ | (1.51 | )
|                                                      |  |   |       |  |   |       |   |  |   |       |  



Stock options for
471,400 shares, 835,400 shares and 475,606 shares at December 31, 2002, 2001 and 2000, 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.



Note 15. Segment Reporting



The Company follows Statement of Financial Accounting Standards 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 primarily includes the aircraft operations,
corporate officers and administration. 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 Company allocates corporate selling and administrative expenses to
each segment. During 2001, management adopted a policy of ceasing to charge interest on intercompany borrowing balances and to retain all interest expense related to the U.S. Bank line of credit in the Corporate and other division. Prior period
results have been restated to conform with this new policy, which had no affect on consolidated income (loss) before income taxes.



The following table shows the Companys business segments and related financial information for the years ended December 31, 2002, 2001 and 2000 (in
thousands):



|                                     |  | Trailers |         | Motorcoaches |   |         | Corporate and other |  |   | Total  |  
|------------------------------------ |  | -------- | ------- | ------------ | - | ------- | ------------------- |  | - | ------ | -
|2002                                 |  |          |         |              |   |         |                     |  |   |        |  
|Revenues from unaffiliated customers |  | $        | 105,797 |              | $ | 87,369  |                     |  | $ |       |  
|Interest expense (income)            |  |          | 505     |              |   | 1,571   |                     |  |   | 956    |  
|Depreciation and amortization        |  |          | 1,003   |              |   | 633     |                     |  |   | 499    |  
|Income (loss) before taxes           |  |          | 5,444   |              |   | (382    | )                   |  |   | (2,625 | )
|Identifiable assets                  |  |          | 29,023  |              |   | 57,311  |                     |  |   | 5,937  |  
|Capital expenditures                 |  |          | 1,171   |              |   | 359     |                     |  |   | 96     |  
|2001                                 |  |          |         |              |   |         |                     |  |   |        |  
|Revenues from unaffiliated customers |  | $        | 106,194 |              | $ | 106,592 |                     |  | $ |       |  
|Interest expense                     |  |          | 583     |              |   | 2,526   |                     |  |   | 1,191  |  
|Depreciation and amortization        |  |          | 1,065   |              |   | 731     |                     |  |   | 484    |  
|Income (loss) before taxes           |  |          | 2,534   |              |   | (9,329  | )                   |  |   | (3,292 | )
|Identifiable assets                  |  |          | 31,546  |              |   | 58,983  |                     |  |   | 6,642  |  
|Capital expenditures                 |  |          | 277     |              |   | 145     |                     |  |   | 122    |  
|                                    
|2000                                 |  |          |         |              |   |         |                     |  |   |        |  
|Revenues from unaffiliated customers |  | $        | 130,019 |              | $ | 112,467 |                     |  | $ |       |  
|Interest expense                     |  |          | 707     |              |   | 2,554   |                     |  |   | 1,735  |  
|Depreciation and amortization        |  |          | 1,192   |              |   | 1,188   |                     |  |   | 593    |  
|Income (loss) before taxes           |  |          | 6,523   |              |   | (14,367 | )                   |  |   | (2,748 | )
|Identifiable assets                  |  |          | 34,921  |              |   | 77,552  |                     |  |   | 11,486 |  
|Capital expenditures                 |  |          | 848     |              |   | 1,160   |                     |  |   | 640    |  



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Geographic information for the
same years is as follows (in thousands):



|                                     |  | 2002 |         | 2001 |   | 2000   
|------------------------------------ |  | ---- | ------- | ---- | - | -------
|Revenues from unaffiliated customers |  |      |         |      |   |        
|United States                        |  | $    | 188,138 |      | $ | 208,234
|Canada and other regions             |  |      | 5,128   |      |   | 4,552  
|                                     |  |      |         |      |   |        
|Consolidated                         |  | $    | 193,166 |      | $ | 212,786
|                                     |  |      |         |      |   |        



The accounting policies
applied to determine segment information are the same as those described in the summary of significant accounting policies.



Revenue attributed to geographic locations is based on the location of the customer.



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EXHIBIT INDEX

TO

FORM 10-K FOR FISCAL YEAR ENDED

DECEMBER 31, 2002



---



FEATHERLITE, INC.



|EXHIBIT NUMBER |  | DESCRIPTION                                                                                                                                                                                                                                                                           
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              
|3.1            |  | 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, 1998*                                                                                                                                  
|              
|3.2            |  | The Companys Bylaws, as amendedincorporated by reference to Exhibit 3.2 to Companys S-1 Registration
Statement, Reg. No. 33-82564*                                                                                                                                                 
|              
|4.1            |  | 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. 33-82564*                                                                                                                          
|              
|10.1           |  | **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. 82564*                                                                                                       
|              
|10.2           |  | **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, 1996*                                                                                                                    
|              
|10.3           |  | 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. 33-82564*                                                                                
|              
|10.4           |  | Inventory Repurchase Agreement, dated September 12, 1990, between the Company and NationsCredit Commercial Corporation
(formerly Chrysler First Commercial Corporation Limited)incorporated by reference to Exhibit 10.12 to Companys S-1 Registration Statement, Reg. No. 33-82564*
|              
|10.5           |  | Floorplan Agreement, dated March 27, 1992, between the Company and ITT Commercial Finance Corp.incorporated by
reference to Exhibit 10.13 to Companys S-1 Registration Statement, Reg. No. 33-82564*                                                                                
|              
|10.6           |  | Inventory Repurchase Agreement, dated February 27, 1995, between the Company and TransAmerica Commercial Finance
Corporationincorporated by reference to Exhibit 10.23 to Companys Form 10-K for the fiscal year ended December 31, 1995*                                           
|              
|10.7           |  | Agreement for wholesale financing dated October 3, 1996 between the Company and Deutsche Financial
Servicesincorporated by reference to Exhibit 10.22 to Companys 10-K for the fiscal year ended December 31, 1996*                                                                 
|              
|10.10          |  | Loan Modification and Forbearance Agreement dated October 1, 2001 between Featherlite, Inc. and First Union National
Bankincorporated by reference to Exhibit 10.1 to Companys 10-Q for the quarter ended September 30, 2001*                                                       



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|     
|-----
|10.11
|     
|10.12
|     
|10.13
|     
|10.14
|     
|10.15
|     
|10.16
|     
|10.17
|     
|10.18
|     
|10.19
|     
|10.20
|     
|10.21
|     
|10.22
|     
|10.23



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|     
|-----
|10.24
|     
|10.25
|     
|10.26
|     
|10.27
|     
|10.28
|     
|10.29
|     
|10.30
|     
|10.31
|     
|10.32
|     
|10.33
|     
|10.34
|     
|10.35
|     
|10.36
|     
|21   
|     
|     
|     
|     
|23.1 
|     
|23.2 
|     
|24   
|     
|99.1 
|     
|99.2 



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|99.3 |  | Letter to Securities and Exchange Commission, Pursuant to Temporary Note 3T, dated March 25, 2002incorporated by
reference to Exhibit 99.1 to the Companys Form 10-K for the year ended December 31, 2001*.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|* |  | Incorporated by reference to a previously filed document or report (File #0-24804, unless otherwise indicated)
|- |  | --------------------------------------------------------------------------------------------------------------



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



|*** |  | Portions of these documents have been omitted pursuant to a request for confidential treatment
|--- |  | ----------------------------------------------------------------------------------------------



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FEATHERLITE,
INC.



SCHEDULE IISCHEDULE OF VALUATION AND
QUALIFYING ACCOUNTS

(In Thousands)



|Description                     |  | Balance at Beginning of Period |     | Additions                 |   | Balanceat Endof Period
|------------------------------- |  | ------------------------------ | --- | ------------------------- | - | ----------------------
|                                |  | Charged to Costs and Expenses  |     | Charged to Other Accounts |   | (1) Deductions        
|Year ended December 31, 2000    |  |                                |     |                           |   |                       
|Allowance for doubtful accounts |  | $                              | 65  |                           | $ | 163                   
|Year ended December 31, 2001    |  |                                |     |                           |   |                       
|Allowance for doubtful accounts |  |                                | 180 |                           |   | 133                   
|Year ended December 31, 2002    |  |                                |     |                           |   |                       
|Allowance for doubtful accounts |  |                                | 185 |                           |   | 208                   

---

|(1) |  | Write off of doubtful accounts
|--- |  | ------------------------------



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