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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(d)

OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2004

Commission File No.: 0-24804

FEATHERLITE, INC.

(Exact Name of Registrant as Specified in its Charter)

Highways 63 and 9

Cresco, Iowa 52136

(563) 547-6000

(Address of principal executive offices;

Issuer’s telephone number)

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

None

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

Common Stock, no par value

Indicate by check mark 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. ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ¨     No x

The aggregate market value of the Common Stock held by non-affiliates of the registrant as of June 30, 2004, was $25,954,000 (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, 2005: 7,267,551.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s definitive Proxy Statement for its 2005 Annual Meeting of Shareholders are incorporated by reference into Part II

FEATHERLITE, INC

FORM 10-K

TABLE OF CONTENTS

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

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PART I

Overview

Featherlite, Inc. (referred to as “Featherlite,” “we,” “us,” “our,” or the “Company,”) is a Minnesota corporation formed in 1988 to acquire the assets of a non-affiliated business that had manufactured trailers since the early 1970s under the FEATHERLITE^® brand name. Our principal operations have historically involved designing, manufacturing and marketing over 400 models of both custom-made and standard model specialty aluminum and steel trailers. We market our trailers primarily through a network of over 240 full-line dealers located in the United States and Canada. The Company markets its trailers primarily under the FEATHERLITE^® brand name.

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

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

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

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

The Company pays special attention to its target customers and attempts to reach them through a variety of media. Featherlite benefits from national advertising and sponsorship of major events that are visible to its customers. These sponsorships include Featherlite’s designation as the “Official Trailer” of NASCAR, Champ Car, Indy Racing League (IRL), Grand Am Road Racing, TransAm Racing, Super Chevy Show, Auto Racing Club of America (ARCA), Wahl Equestrian Center, and Nevada Joe. Featherlite also is the Contingency Program Sponsor of the NASCAR Featherlite Most Improved Driver Award Program. Additionally, we are a sponsor of the National Tractor Pullers Association, World Snowmobile Association, Ohio All American Quarter Horse Congress, The Horse Show with Rick Lamb, the Missouri Fox Trotting Horse Breed Association, The Texas Quarter Horse Association, the National Western Livestock Show, Appaloosa Horse Club, United States Team Roping Championships, the National High School Rodeo Association, the Professional Women’s Rodeo Association, and the World’s Toughest Bulls & Broncs. The Company’s luxury motorcoach is the “Official Coach” of NASCAR, Grand Am Road Racing and The Golf Channel, and is a sponsor of the World Billfish Series and Superboat/APBA.

In 2001, the Company began a three-year agreement with NBC and TNT and in 2002 with FOX Sports Network to broadcast Featherlite TV commercials as part of the networks nationwide telecasts of certain NASCAR races. The Company has a similar agreement with MRN (Motor Racing Network). As a program sponsor of The Golf Channel, the Company currently has annual television commercial package rights as well as onsite promotional activity rights. These agreements have been renewed and are all continuing. In addition, the company has signed a multi-year agreement with horse clinician and television personality Clinton Anderson to sponsor a tour and television program.

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Specialty Trailer and Motorcoach Industries

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

Specialty Trailer Industry

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

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

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

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

Motorcoach Industry

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

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

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Products and Services

The Company’s primary business activities are the manufacture and sale of specialty aluminum trailers and luxury motorcoaches. Other activities related to these primary business activities include rework and warranty services provided for Company-built trailers and motorcoaches at the Company’s facilities and dealer locations; and coordination of the delivery of trailers to dealers and customers for a fee. These other activities are setout separately below but are included in the trailer and motorcoach segment financial information reported in Note 13 to the consolidated financial statements in this annual report on Form 10-K. For 2004, approximately 93% of the Company’s revenues were derived from trailer and motorcoach sales.

The following data illustrates the percentage of the Company’s net sales in 2002, 2003 and 2004 (dollars in thousands):

Specialty Trailers

The Company believes it is unique among trailer manufacturers because of the many types of trailers it manufactures and markets. The Company’s FEATHERLITE^®, FEATHERLITE-STL^® series and DIAMOND D^® trailers may be broadly classified into several trailer types, which can be further subdivided into over 400 models depending on their intended use and resulting design. The Company’s primary trailer types are horse, livestock, utility recreational, commercial and car trailers as well as race car and specialty transporters, including mobile marketing, mobile office, mobile classroom, vending and command centers. Within these broad product categories, the Company generally offers different features, such as various lengths, heights and widths, open and enclosed models, gooseneck and bumper pulls, straight and slant loaders, and aluminum, steel, fiberglass and wood frames, floors, sides and roofs. The Company believes FEATHERLITE^® brand trailers, which are “all aluminum” with the exception of steel axle and hitch assemblies, enjoy a premier image in the industry. Sales of FEATHERLITE^® brand trailers currently represent approximately 92% of the Company’s total trailer sales. FEATHERLITE-STL^® series and DIAMOND D^® brand trailers, which generally are a composite of steel frame, aluminum skin and galvanized roof, allow the Company to place these product lines at the lower-priced end of the market.

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

The Company’s standard model trailers are normally available for quicker delivery to dealers than custom trailers. In an industry consisting historically of manufacturers who custom build trailers, the Company’s introduction in 1991 of standard model aluminum trailers represented an innovative step. Standard model trailer sales now represent approximately 72% of the Company’s total trailer sales. The Company’s dealer network has enthusiastically endorsed and supported the standard model concept.

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

Management believes that growth in the demand for the Company’s trailers coincides with an overall market expansion for trailers generally, particularly in uses related to entertainment and leisure. Demand for the Company’s

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

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

Retail prices for the Company’s aluminum model trailers range from approximately $1,200 for the least expensive utility trailer to over $300,000 for a custom built race car transporter and hospitality trailer. Specialty custom transporters with slide-outs may sell for $900,000 or more. Representative FEATHERLITE^® aluminum trailer retail prices are approximately $7,200 for a bumper pull livestock trailer, $8,200 for a two horse trailer, and $16,000 for a gooseneck car trailer. Popular model FEATHERLITE STL^®gooseneck and bumper pull livestock trailers retail for about $7,700 and $4,200, respectively, excluding any additional surcharges for steel costs.

Motorcoaches

The Company offers different motorcoach conversion body styles based on the XL and the H models made by a single bus shell manufacturer (Prevost Car Company). The “H” body style is much taller and the layout is considerably different than a typical XL motorcoach, and it has become the model most requested by customers. The Company offers single or multiple “slide-out” models that expand the livable space within the motorcoach. The Company’s motorcoaches are now primarily marketed under the trade names FEATHERLITE VANTARE^® and FEATHERLITE LUXURY COACHES^®. Production of the Featherlite Vogue^® model was discontinued in 2001.

In 2003, the Company became a dealer of Foretravel^® motorcoaches manufactured since 1967 by Foretravel, Inc., Nacogdoches, Texas. Foretravel^® motorcoaches are “highline” Class A series motorcoaches. These motorcoaches sell in the price range $359,000 to $475,000. These motorcoaches complement the H3 and XL models the Company offers. They include many of the features and options of the H3 and XL models but are a less expensive alternative to customers desiring to purchase this type of vehicle.

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

The Company builds a number of luxury motorcoaches before it receives orders for them (70 percent of work in process at December 31, 2004 compared with 59 percent at December 31, 2003). While it is the Company’s expectation that substantially all of these motorcoaches will be sold to specific customers at retail prices ranging from $800,000 to $1,500,000 or more, there is no assurance this will occur. There is a risk that certain of the motorcoaches built on a speculative basis may not be sold on a timely basis or at normal profit margins. This may require additional working capital investment and cause the Company to incur additional interest and inventory carrying costs, which would have an adverse impact on operating margins and results and capital liquidity.

The Company also sells used motorcoaches that are taken as trade-ins from customers on sales of new motorcoaches as well as other used motorcoach sales. There is a risk that the market value of these -trade-ins will be reduced before they are resold and adversely impact the Company’s operating margins and results. In the three years ended December 31, 2004, the Company recorded motorcoach inventory aggregate write-downs of $2.4 million related to used motorcoaches.

Servicing, maintenance and warranty 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, Pryor, Oklahoma and Cresco, Iowa.

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In February 2003, the Company entered into a Master Sales Agreement with Universal Luxury Coaches, LLC (ULC) under which ULC had the option to purchase from Featherlite up to 20 Featherlite Vantare and Featherlite Vogue motorcoaches over a one-year period at market prices. ULC purchased 6 coaches from Featherlite in 2003 and none in 2004. 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. Featherlite also entered into agreements with ULC to lease ULC office space and to provide service on ULC motorcoaches. In December, 2004, these agreements were terminated because ULC has ceased doing business. Featherlite has no obligation to repurchase any motorcoaches it sold to ULC.

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 2004 delivered approximately 57% 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. These other business activities, in the aggregate, accounted for approximately 6.1%, 6.9% and 7.1% of the Company’s net sales for 2002, 2003 and 2004, respectively, and are included as part of the trailer and motorcoach segments in Note 13 to the consolidated financial statements included in this annual report on Form 10-K.

The Company is a licensed aircraft dealer and markets used business class aircraft. Featherlite Aviation Company, a wholly owned subsidiary of the Company, conducts such aircraft dealer activities. There have been no purchases or sales of aircraft in 2002, 2003 or 2004. Featherlite Aviation Company held for resale one used aircraft at December 31, 2004, which it leases to the Company on an as needed basis for its use. In 2004, the Company reduced the aircraft’s recorded value by $232,000, which is included in selling and administrative expenses and reflects a decline in its value during the year. These activities are included as part of the Corporate and other segment in Note 13 to the consolidated financial statements included in this annual report on Form 10-K.

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

Sales and Marketing

Specialty Trailers

The Company markets its trailers primarily through a network of over 240 full-line dealers located in the United States and Canada. The Company also sells trailers through company-owned dealerships at its sales and service centers in Sanford, Florida and Pryor, Oklahoma. Dealers typically handle only a portion of the entire FEATHERLITE^®, FEATHERLITE-STL^® series and DIAMOND D^® product lines and may sell other steel trailer brands. Certain Featherlite dealers are prohibited by their agreements with the Company from selling other brands of aluminum trailers if they receive all of the discounts and other benefits available from the Company and are required to maintain defined inventory levels. No single dealer accounts for more than 10% of the Company’s net sales. The Company’s top 50 dealers accounted for approximately 50% of the Company’s net trailer sales for 2002, 2003 and 2004. For these periods, 76% or more of the Company’s trailer sales were made by its dealer network, with the remainder representing direct Company sales to end users. Company sales to end users are primarily specialty mobile marketing trailers and race car transporters.

Dealers sell our products under contractual arrangements with the Company, which can be terminated by either party on specified notice. Laws in certain states govern terms and conditions under which dealers may be terminated. Such laws have not had a material adverse affect on the Company to date. Changes in dealers take place from time to time. The Company believes that a sufficient number of prospective dealers exist across the United States and Canada to permit orderly transitions whenever necessary. The Company is continually seeking to expand the size and upgrade the quality of its dealer network. The Company believes that significant areas of the United States and Canada are not served by a sufficient number of dealers and the Company intends to substantially increase its number of dealers over the next several years in underserved markets.

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

Motorcoaches

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

Promotions

Specialty Trailers

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

Market intelligence is gathered which helps the Company craft its message and reach the most productive target constituencies. Benefit and demographic segmentations are utilized to more accurately target specific groupings of people within each product cluster. Quarter Horse Journal, Western Horseman, Horse & Rider, Equus and Horse Illustrated are some of the various publications utilized to reach a diverse customer base in the horse market. Similar selected groupings of publications are utilized to target the Company’s various markets: automotive, livestock/farm, race, recreational/utility and mobile marketing. Over 100 publications in various product segments contain advertisements for the Company’s trailers. The Company also sponsors a nationally syndicated radio program, as well as a television program available through satellite and cable, which targets equine markets. Featherlite video is supplied to large arenas for use on sponsor jumbotrons and electronic message boards.

Motorcoaches

The Company promotes its motorcoach segment directly in user group publications such as Family Motorcoaching magazine and RV Trader, which can target specific high potential markets for new and pre-owned motorcoaches. In addition, the Company places classified and display advertising during high sales-potential periods in selected regional metropolitan newspapers near the Company’s sales centers. Outdoor advertising 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. Other sports venues where Featherlite motorcoach products are being promoted include PGA golf events and World Billfish tournaments. The Company also sponsors the Featherlite VIP Club and the Featherlite VIP Bikers’ Club. These lifestyle clubs are an excellent marketing platform to introduce people around America to new motorcoach and trailer products.

Affiliations and Sponsorships

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. Also in 2002, a multi year contract was finalized with MRN (Motor Racing Network) to air Featherlite commercial announcements nationally. In 2003, the Company became a program sponsor of The Golf Channel and currently has annual commercial television package rights as well as onsite promotional activity rights. In 2004, all these media contracts were extended and are continuing.

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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), Grand Am Road Racing, TransAm Racing, Super Chevy Show and Auto Racing Club of America (ARCA). Featherlite is the “Official Coach” of NASCAR, Grand Am Road Racing, and is also a sponsor of the World Billfish Series, Power Boat International, Superboat/APBA and The Golf Channel.

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

In addition to the racing industry, the Company is the “Official Trailers” of the Wahl Equestrian Center, and Nevada Joe and sponsors or is a sponsor of the All American Quarter Horse Congress, United States Team Roping Championship, Appaloosa Horse Club, National High School Rodeo Association, Missouri Foxtrotting Breed Association, The Texas Quarter House Association, World’s Toughest Bulls & Broncs, 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, 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.

In addition, the Company has signed a multi-year agreement with horse clinician and television personality Clinton Anderson to sponsor the Clinton Anderson/Downunder No Worries Wahl Walkabout Tour and Clinton Anderson Downunder Horsemanship television program

Payment for some of the advertising and promotional services related to the affiliations and sponsorships described above involve the exchange or lease of trailers and coaches of an equivalent value as discussed further in Notes 2 and 3 to the consolidated financial statements.

Financing

Specialty Trailers

A substantial portion of the Company’s sales of trailers to dealers is paid for within ten days of invoicing. The Company has arrangements with Bank of America, GE Commercial Distribution Finance (GE), Bombardier Capital, Textron Financial Corporation, Ford Motor Credit Company and TransAmerica Commercial Finance Corp. to provide floor plan financing for its trailer dealers. Under these floor plan arrangements, the Company may be required to repurchase trailers repossessed from a Featherlite trailer dealer by these financial institutions for the remaining unpaid balance, including finance charges plus costs and expenses, if the trailers are in salable condition. The Company has not been required to make any significant payments or repurchases to date from these financial institutions (approximately $273,000 in 2002, $38,000 in 2003 and none in 2004).

Featherlite Credit Corporation, a related party corporation owned by certain of the Company’s officers and directors, provides retail financing to end user customers of the Company’s trailers dealers. Prior to 2004, this financing was provided by companies such as Wells Fargo Equipment Finance, Inc., Conseco Finance, Inc. and Deutsche Bank. Beginning in 2004, Featherlite Credit Corporation also provided such financing directly through funds provided by a credit line with Associated Bank, Milwaukee, Wisconsin (Associated). Featherlite Credit also provides lease financing for trailers and motorcoaches, which was funded by a line of credit from U.S. Bank National Association prior to 2004. In 2004, this line of credit was refinanced with funds provided by Associated.

Motorcoaches

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

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

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

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

Motorcoaches

The motorcoach industry is highly competitive, particularly in XL and “highline” Class A models. Featherlite is the dominant producer of Prevost H model bus conversion motorcoaches, but also manufactures Prevost XL models. In 2003, the Company became a dealer for Foretravel Class A motorcoaches manufactured by Foretravel, Inc. Competition is based primarily on quality and price, although other factors such as brand name, reliability, design features, warranty and service are also important. The Company believes it competes favorably with its competitors with respect to each of these factors. The brand names of the Company’s principal bus conversion competitors, all of which are located domestically, include: Marathon, Liberty, and Royale. The principal manufacturers in the specially-designed chassis “highline” Class A models include: Monaco, Fleetwood, Winnebago and Thor.

Manufacturing

Trailers

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

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

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

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Motorcoaches

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

The Company purchases its motorcoach shells from one manufacturer, Prevost Car Company, Inc. (Prevost) of Sainte-Claire, Quebec, Canada, although the Company could purchase certain shells from other manufacturers. The Company provides Prevost with its estimated yearly motorcoach requirements. Once the Company provides Prevost with detailed specifications for a coach, it becomes obligated to execute a consignment agreement and take delivery of the coach when it is completed. In the event Prevost is unable to deliver motorcoach shells to the Company, the Company’s revenues and profits could be materially and adversely affected.

In 2003, the Company entered into an agreement with Amadas Coach Corporation (Amadas) by which Amadas agreed to perform conversion work on a limited number of Prevost XLII motorcoach shells in accordance with the specifications provided by the Company for a defined price. This agreement was discontinued in 2004.

Raw Materials

Aluminum is a significant material used in the manufacture of trailers and represents about 14 percent of consolidated cost of sales. The Company purchases substantial amounts of aluminum extrusions from a number of major suppliers, including Alcoa Extrusions, Inc., and Indalex, Inc., and the majority of its sheet metal from Ryerson Tull and Aluminum Line Products. The identity of particular suppliers and the quantities purchased from each varies from period to period. Prices of aluminum, the principal commodity used in the Company’s business, fluctuate daily in the open market. It has been the Company’s practice to obtain fixed price contracts from suppliers to reduce the risk related to fluctuations in the cost of aluminum for approximately 80% to 90% of its expected annual requirements. While the Company continues to monitor aluminum prices on a daily basis for buying opportunities, it has not yet obtained such contracts for 2005 and may not. The Company is purchasing aluminum to meet its production requirements at current market prices for aluminum. The Company has not engaged in hedging or the purchase and sale of future contracts other than contracts for delivery to fill its own needs. In the event that one or more of the Company’s suppliers were unable to deliver raw materials to the Company for an extended period of time, the Company’s production and profits could be materially and adversely affected if an adequate replacement supplier could not be found within a reasonable amount of time. There is a potential risk of loss related to fixed price contracts if there is a substantial drop in the actual cost of aluminum in relation to the contract price, which would affect the competitive price of the Company’s product. Increases in the prices of aluminum and other supplies may adversely affect margins on the Company’s products if our requirements exceed the amount of our aluminum purchases covered by fixed price contracts, or if the Company is unable to recover such price increases in the form of increased selling prices to its customers.

In addition to obtaining fixed contracts from suppliers, the Company may in the future also try to reduce the price risk associated with aluminum by buying London Metal Exchange hedge contracts or options for future delivery. These contracts would “lock in” the aluminum cost for the Company for anticipated aluminum requirements during the periods covered by the contracts. There is a potential risk of loss related to such contracts if the quantity of materials hedged significantly exceeds the Company’s actual requirements and the contract is closed without taking physical delivery of the aluminum or if there is a substantial drop in the actual cost of aluminum in relation to the hedge contract price which would affect the competitive price of the Company’s product. The Company has no such contracts at December 31, 2004 and has no current plans to engage in hedging.

The Company also uses steel in the manufacture of its trailers. Steel is purchased from 4 different vendors dependent on best pricing and availability at the time of order. In 2004, steel purchases were about 2 percent of consolidated cost of sales.

Backlog

At December 31, 2004 the Company had unfilled confirmed orders from its customers in an aggregate amount of approximately $25.2 million, with $17.5 million in trailer orders and $7.7 million in motorcoach orders, compared to an aggregate amount of $29.8 million at December 31, 2003, with $18.3 million in trailer orders and $11.5 million in motorcoach orders. At February 28, 2005, the Company had unfilled confirmed orders from its customers in an

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aggregate amount of approximately $19.0 million, with $13.3 million in trailer orders and $5.7 million in motorcoach orders, compared to an aggregate amount of $31.5 million at February 29, 2004, with $20.5 million in trailer orders and $11.0 million of motorcoach orders. All orders in backlog at December 31, 2004 and February 28, 2005, are expected to be filled during 2005.

Quality Assurance

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

Government and Industry Regulation

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

In 2002, Congress authorized the National Highway Traffic Safety Administration (NHTSA), to enact new early warning reporting requirements for vehicle manufacturers referred to as the “Tread Act”. This act requires certain transportation manufacturers, including the Company, to provide detailed reporting of various warranty claims and repairs performed on products produced by transportation manufacturers. The Company has met these new requirements during the 2003 and 2004 fiscal year and expects to maintain compliance with these requirements in the future. A new regulation by NHTSA requires manufacturers to install new tire labeling on all vehicles under 10,000 pounds Gross Vehicle Weight Rating (GVWR) by September 1, 2005. The Company does not anticipate delays in meeting these new regulatory requirements.

Patents and Trademarks

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

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

Warranty

The Company warrants the workmanship and materials of certain parts of the main frame of its aluminum trailers under a limited warranty for a period of six years and such parts of certain other Company trailers as well as other products manufactured by the Company for periods of one to five years. The limited warranty does not include normal wear items, such as brakes, bearings and tires. The Company’s warranty obligations are expressly limited to repairs and replacement of parts. Historically, there have been no significant recalls of the Company’s trailers for replacement of

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major components or parts, except in 2002 there was a recall issued on certain models of steel gooseneck trailers, which has been completed. The expense of warranty claims for repairs or replacement of parts, including the previously mentioned recall, has been less than 1% of the Company’s net trailer sales.

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

Product Liability

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

Employees

As of December 31, 2004, the Company had 1,381 employees, of whom 1,300 are full-time and 81 are part-time, as follows: Production and production support – 1,140, Sales and Marketing - 156, and Administration - 85.

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 and is beneficiary to a $10 million term life insurance policy on Mr. Clement.

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

Forward-looking Information and Risks

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

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

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

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Risk Factors

The Company may not be able to increase prices sufficiently to cover increases in cost of aluminum and other costs . Prices of aluminum, the principal commodity used in the Company’s business, fluctuate daily in the open market. The Company purchases substantial amounts of aluminum extrusions from a number of major suppliers, including Alcoa Extrusions, Inc. and Indalex, Inc. and the majority of its sheet metal from two large suppliers, Ryerson Tull. and Aluminum Line Products Co. The Company has not engaged in hedging or the purchase and sale of future contracts other than contracts for delivery to fill its own needs. In the past, the Company has had contracts with certain of the above suppliers to fill a substantial portion of its projected needs for aluminum for the forthcoming year at fixed prices. The Company has not obtained such contracts for 2005 and is purchasing aluminum to meet its production requirements at current market prices for aluminum. If the Company is unable to obtain such commitments from suppliers or otherwise reduce the price risk related to 2005, this could have an adverse impact on the Company’s operating results if the cost of aluminum in 2005 increases significantly above 2004 levels and the Company cannot increase its product prices sufficiently to cover aluminum and other cost increases. The Company implemented a 5 percent price increase on its aluminum trailers effective on January 1, 2005 to help offset increased aluminum costs it is currently experiencing, but there can be no assurance the price increase will be sufficient or that increased sales prices will not harm demand. Our commodity risks are discussed further in Item 7A of this annual report on Form 10-K under “Commodity Risk.”

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

The Company may not be able to maintain compliance with, or obtain future waivers for non-compliance with, various restrictive covenants under its credit facilities. During 2002, the Company signed long-term financing agreements with its principal lenders (U.S. Bank and GE). (These agreements are discussed more fully in Note 8 to the consolidated financial statements.) Each of these agreements contain affirmative and restrictive covenants. In 2004 and 2005, the lenders amended their agreements to reduce the requirements of certain covenants for compliance in 2004 and beyond. The Company was in compliance with all of these covenants during 2004 and as December 31, 2004, but has required waivers of compliance for certain covenants in 2003 and certain prior years. Although management believes it will be able to maintain compliance with these covenants in 2005, violations could occur allowing the lenders their option to accelerate payment of the debt.

The Company’s motorcoach credit facility availability could be reduced. Advance rates under the Company’s financing arrangement with GE have been based on 90 percent of the cost of eligible new motorcoach inventory and 70 percent of the defined value of eligible used motorcoach inventory. On February 22, 2005 the agreement was amended as follows: (i) there will be a 1.5% per month reduction in amounts borrowed on a used coach when it has been financed more than 360 days and all financing will be due in full on day 720; and (ii) after 360 days new units will be converted to used financing at an advance rate of 70 percent versus 90 percent and 1.5% per month curtailments will begin on day 721 until day 1,080 when all financing on the unit will be due in full. As of February 22, 2005 the Company had borrowings of $2.2 million which were repaid to GE as a result of the revised advance rates. Future aggregate availability under this agreement could be reduced if the Company is unable to sell certain new or used coaches before the financing expires under this amended agreement. This may require the Company to use financing available from its other credit line or to obtain additional financing from other sources. There can be no assurance such financing will be available.

The value of the Company’s motorcoach inventory fluctuates. The Company takes trade-ins on both new and used motorcoach sales. These trade-in units are marketed on a retail basis to other customers. In the three years ended December 31, 2004, 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 $500,000, $1.4 million and $632,000 in 2004, 2003 and 2002, respectively, in order to facilitate their sale. There is a risk that additional write-downs of this inventory will occur if these trade-in units are not sold at current selling prices, which could adversely impact the Company’s future operating results and reduce the capital advances available under its credit facility with GE.

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The Company begins motorcoach production before customer orders are received. To maintain a level production schedule, production often begins on motorcoaches before orders have been received from specific buyers. As of December 31, 2004, approximately 70% of the coaches in production and to be completed over the next four months had not been sold to specific customers. While it is the Company’s expectation that substantially all of these motorcoaches will be sold to specific customers before production is completed, or shortly thereafter, there is no assurance this will occur. If the motorcoaches are not sold according to expectations, the Company may have to reduce selling prices which would harm its profitability. Further, if the sale periods for motorcoaches are substantially longer than expected, capital advances available under the Company’s credit facility with GE will be reduced and liquidity may be harmed.

We may not have the capital resources to maintain pace with technology improvements. To remain competitive, the Company is required from time to time to make capital expenditures for machinery to remain competitive and to improve operating efficiencies and output. While the Company does not currently anticipate significant capital expenditures will be required in the near future, the Company may not have sufficient liquidity and may not be able to obtain additional financing for such any required capital expenditures as necessary. Failure to keep pace with technological improvements in manufacturing trailers and motorcoaches could lead to reduced competitiveness and increased cost and production inefficiencies. The occurrence of any of these events could further harm our liquidity and results of operations.

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

We purchase our aluminum from a limited number of vendors. We may have difficulty receiving our requirements for aluminum (our principal raw material component) if we lose one of our major suppliers of aluminum. In the past, this risk has been relatively nominal as there have been alternate sources of supply. In recent years, however, the number of alternate sources of supply has been reduced due to mergers within the aluminum industry. Also, additional time may be required to replace an extruded aluminum supplier due to the fact that dies are required and would have to be made. The Company routinely tries to keep at least three suppliers of each shape so it has a backup supplier if necessary. However, if the number of suppliers of aluminum is further reduced, or if the Company is otherwise unable to obtain its aluminum requirements on a timely basis and on favorable terms, the Company’s operations may be harmed.

Startup operations may have adverse impact on operating results. As discussed in Note 5 to the consolidated financial statements included in this annual report on Form 10-K, in October 2003, the Company reopened a facility in Pryor, Oklahoma as a sales and service center. The Company sustained losses of about $660,000 and $124,000 in restarting and operating this facility in 2004 and 2003, respectively. In the event the facility cannot generate sufficient income to absorb the annual lease cost and other costs of operation by December 31, 2005, the Company may be required to accrue additional costs related to this facility. Also, the Company is a 51 percent owner in a Company that sells car care products as discussed in Note 4 to the consolidated financial statements. The Company has invested $197,000 in this entity in 2004 and 2003 and has absorbed total losses of $194,000 in those years. Continued capital requirements and operating losses of this entity could have an adverse impact on the Company’s future operating results and liquidity.

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

The Company owns trailer production and warehouse facilities in Cresco and Shenandoah, Iowa. The Cresco facilities presently consist of five buildings and include approximately 258,000 square feet, as follows: Three buildings, totaling approximately 186,000 square feet are used for production of trailers and fabrication of components; one 58,000 square foot building is used for custom interior finishing and one 14,000 square foot building is used for storage of raw materials. The Shenandoah facilities include a 117,000 square foot manufacturing facility purchased in October 1995 in

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connection with the DIAMOND D^® acquisition. This facility is used to produce trailers. The Company believes these facilities will be sufficient to meet its production requirements for the foreseeable future.

The Company-owned Nashua, Iowa 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 this facility.

All of the Iowa properties described above are subject to a security interest by U.S. Bank National Association as described in Note 8 to the consolidated financial statements.

The Company leases motorcoach production and office facilities from Seminole Port Authority in Sanford, Florida at an approximate annual cost of $388,000 under the terms of an operating lease that expires in 2007. This facility includes approximately 79,000 square feet of inside space, as well as 6,000 square feet for outside service bays. In October 1999, the Company completed construction of an 18,000 square foot sales office and a 21,000 square foot service center with seventeen service bays. The cost of this entire project, including land and development costs, was approximately $5.5 million. In 2002, the sales office and service center were sold to an unrelated outside party and leased back by the Company with an initial term of 7 years under the terms of a capitalized lease as described in Note 8 to consolidated financial statements included in this annual report on Form 10-K. In January, 2005, the Company exercised its option to repurchase this facility for $5.3 million.

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

The Company acquired the rights to certain office and production facilities and other assets of Mitchell Motorcoach Sales, Inc. in Pryor, Oklahoma in 1998. This facility includes approximately 150,000 square feet of production and office space and was used to manufacture luxury motorcoaches. The facility is owned by Oklahoma Ordnance Works Authority and is being leased to the Company at an approximate annual cost of $299,000 under the terms of an operating lease which expires in March, 2011. In 2000, the Company leased approximately 15 acres of land adjacent to this facility at an approximate annual cost of $27,000 for a period expiring in March 2011. In 2001, the Company shut down its Pryor, Oklahoma, manufacturing facility. The Company has not been successful in subleasing this facility and as discussed in Note 5, in October 2003 reopened this location as a sales and service facility for recreational vehicles and motorcoaches, including units owned by others and recreational vehicles repossessed by financial institutions.

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

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

No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders.

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

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. Mr. Clement is also the President and Chief Executive Officer and a director and shareholder of Featherlite Credit Corporation, an affiliate of the Company (“Featherlite Credit”). Mr. Clement is a shareholder of Nevada Coach Partners, LLP, the entity that owns a controlling interest in ULC. He is also owner of Valley Trailer Sales, a Featherlite dealer, an owner of Clement Enterprises and Clement Properties, affiliates of the Company. Mr. Clement is the brother of Larry D. Clement and the father of Tracy J. Clement and Eric P. Clement.

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

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

Eric P. Clement has been Vice President & General Manger, Trailer Division since January 2005. Prior to that Mr. Clement was Vice President of Sales since March 1996 after service as Vice President of Operations since January 1991. Mr. Clement is also an officer and shareholder of Featherlite Credit Corporation and an owner of Clement Properties, an affiliate of the Company. Mr. Clement is 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 was Chairman of the Board and Chief Operating Officer of Autumn Home Care Facilities, Inc. from 1994 to 1998. Mr. Wooley is also an attorney. Mr. Wooley is a shareholder of Nevada Coach Partners, LLP, the entity that owns a controlling interest in ULC.

Larry D. Clement has been Treasurer of the Company since 1988 and was previously secretary and a director of the Company. Mr. Clement is also an officer and shareholder of Featherlite Credit Corporation and 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

The Company’s common stock is traded on the Nasdaq Smallcap Market under the Nasdaq symbol “FTHR”. Quotations below represent the high and low closing sales price, by quarter, for the years ended December 31, 2004 and 2003.

As of March 31, 2005, the Company had approximately 250 shareholders of record. The Company is restricted from paying dividends by its agreements with lenders. See Liquidity and Capital Resources in Item 7 for a discussion of these restrictions.

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

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QUARTERLY FINANCIAL DATA (Unaudited, in thousands except per share data)

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 13 to the consolidated financial statements for the years ended December 31, 2004, 2003 and 2002. This discussion should be read together with the Company’s consolidated financial statements for the same periods, which are included in this annual report on Form 10-K.

Fiscal Year 2004 Compared to Fiscal Year 2003

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

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On a consolidated basis, the Company’s net income for the year ended December 31, 2004 was $4.9 million or $0.64 cents per diluted share, compared with net income of $705,000, or $0.10 cents per diluted share in the same period of 2003. The improved annual results in 2004 were primarily a result of increased gross profit realized from greater unit sales volume, partially offset by increased marketing and administrative costs.

Consolidated net sales for the year 2004 increased by $36.4 million (20.2 percent) to $216.4 million compared to net sales of $180.0 million for the same period in 2003, primarily reflecting, we believe, an improvement in general economic conditions and consumer confidence. For the trailer segment, sales of specialty trailers and transporters increased by 25.6 percent compared to the same period in 2003 as unit sales in 2004 improved over 2003 by 23.4 percent. There were increases in all product categories except specialty trailers, and average net revenue per unit improved by 1.8 percent in 2004 compared to 2003. The average net revenue improvements reflect a more favorable mix of products with higher average prices and the full effect of a 3.0 percent price increase in May 2003, partially offset by an increase in sales program rebates and discounts in 2004. Motorcoach segment net sales increased by 13.1 percent over the same period in 2003 as total unit sales increased by 16.2 percent, with increases of 4.2 percent and 21.7 percent in unit sales of new and used motorcoaches, respectively. The effect of these increases was partially offset by a 2.7 percent decline in average net revenue per unit sold due to the significant increase in the number of lower price used units sold.

Consolidated gross profit margin increased by $10.6 million to $33.6 million in 2004 from $23.0 million in 2003. This improvement was attributable to increased sales volume in both segments in 2004 compared to 2003. As a percentage of sales, consolidated gross profit margin for the year of 2004 was 15.6 percent in 2004 compared to 12.8 percent in 2003. Trailer margin percentages for the current year were 2.2 percentage points higher than the same period in 2003, primarily the result of manufacturing efficiency improvements due to increased volume, changes in product mix and the further implementation of lean manufacturing processes, which increased the average gross margin per unit sold. Motorcoach gross profit margin increased by 3.3 percentage points in 2004 compared to 2003. This increase resulted primarily from improved percentage margins realized on sales of both new and used coaches as well as reduced labor and overhead costs, including the non-recurrence in 2004 of a loss settlement accrual of $354,000 in 2003, as well as an $869,000 reduction in write-downs on used motorcoaches held in inventory.

Consolidated selling and administrative expenses increased by $4.6 million in 2004, to $25.2 million, a 22.6 percent increase, from $20.6 million in 2003. As a percentage of sales, these expenses increased to 11.7 percent in 2004 from 11.4 percent in 2003. Trailer segment expenses increased by 17.1 percent in 2004 compared to 2003 due primarily to increased marketing related costs related to generating and maintaining higher sales volume as well as increased sales commissions and matching 401(K) contributions. Motorcoach segment expenses increased by 29.0 percent in 2004 compared to 2003 mainly due to increases in marketing costs related to higher volume and reopening the sales and service center in Pryor, Oklahoma. Corporate and other expenses increased by $1.0 million in 2004 compared to 2003, primarily reflecting increased executive management performance bonus accruals based achievement of annual performance goals.

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

Consolidated interest expense decreased by $162,000 in 2004 compared to 2003 as the result of lower average borrowing levels in 2004. Other income increased by $32,000 in 2004 compared to 2003 due in part to increased fees from retail finance companies.

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

Consolidated income before taxes (IBT) increased by $6.0 million in 2004 to $6.5 million compared to $494,000 in 2003. This increase reflects an increase in trailer segment IBT of $4.7 million due mainly to increased sales volume, an increase in motorcoach segment IBT of $2.3 million due to increased sales volume and improved gross margin on sales, offset by an increase in corporate and other expenses of $1.0 million due to increased management performance bonus accruals.

The overall effective income tax provision rate was 25.3 percent in 2004 compared to an income tax benefit of 17.7 percent in 2003. The 2004 effective rate was lower than the Company’s combined federal and state

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

Fiscal Year 2003 Compared to Fiscal Year 2002

The following table summaries changes in the Company’s consolidated and segment results of operations (in millions) and as a percentage of net sales for the years 2003 and 2002:

On a consolidated basis, the Company’s net income for the year ended December 31, 2003, was $705,000 or $0.10 cents per diluted share, compared with net income of $2.7 million, or $0.38 cents per diluted share for the same period in 2002. This significant reduction primarily reflects: decreased gross profit from (1) reduced sales volume as the overall number of trailer and motorcoach units sold declined in 2003 as compared to the same period in the prior year; and (2) increased write-downs of used motorcoaches due to lower estimated resale market values. These decreases were partially offset by a reduction in interest expense and selling costs and by the realization of certain income tax benefits.

Consolidated net sales for 2003 decreased by $13.2 million (6.8 percent) to $180.0 million compared with $193.2 million in 2002. This decrease in 2003 primarily reflects an overall decline of 6.7 percent in unit sales. Sales of specialty trailers and transporters decreased by 3.3 percent as unit sales declined 6.5 percent with reductions in all product categories except car hauler and utility trailers. This decline was partially offset by an increase of 3.4 percent in average net revenue per unit due to a more favorable mix of products with a higher average price and the affect of 3.0 percent price increases in both 2003 and 2002 on most trailer models, partially offset by an increase in sales program rebates and discounts in 2003 compared to 2002. Motorcoach segment sales decreased 11.1 percent as unit sales declined 14.9 percent. This reduction in unit sales was partially offset by a 4.5 percent increase in the average revenue per unit as there were more higher priced units sold. Unit sales of new motorcoaches decreased by 15.8 percent as the result of lower sales of less popular XL models and discontinued Featherlite Vogue^® models. Unit sales of used coaches also declined 14.5 percent in part due to fewer trade-ins and reduced new unit sales.

Consolidated gross profit margin decreased by $3.0 million to $23.0 million in 2003 from $26.0 million in 2002. As a percentage of sales, consolidated gross profit margin was 12.8 percent in 2003 compared to 13.5 percent in 2002. This overall decline in consolidated gross profit margin reflects the decline in net sales as discussed above, but was also partially attributable to lower percentage margins on trailer sales and reduced percentage margins realized in the motorcoach segment. Trailer margins were 0.5 percentage points lower in 2003 compared to the same period in 2002 primarily as a result of increased material costs attributable to changes in product mix, including

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increased sales of used units, partially offset by reduced labor and overhead costs due to improved efficiencies resulting from changes in sales volume and product mix. Motorcoach gross profit margins decreased by 1.1 percentage points as lower margins were realized on sales of new and used units as prices were reduced to sell less popular/discontinued models and as the result of the following additional charges: (1) A provision of $1.4 million in 2003 to reduce the inventory cost of used coaches to estimated market value compared to a similar provision of $722,000 in 2002; and (2) a charge of $354,000 for the loss on a litigation settlement

Consolidated selling and administrative expenses increased by $248,000 in 2003 to $20.6 million, a 1.2 percent increase from $20.3 million in 2002. As a percentage of sales, these expenses increased to 11.4 percent in 2003 from 10.5 percent in 2002, primarily reflecting the reduced sales volume. Trailer segment expenses remained unchanged. Motorcoach segment expenses decreased by about $603,000 (8.3 percent) due mainly to reduced commissions as the result of lower sales and lower advertising and promotion costs. Corporate and other expenses increased by $858,000 (41.0 percent) as the result of increased depreciation on the aircraft and the inclusion of $187,000 of Featherlite Chemical Corporation’s (FCC) selling and administration expenses in 2003.( See Note 4 to the consolidated financial statements included in this annual report on Form 10-K.)

A net restructuring credit of $222,000 was realized in 2003. This resulted from a favorable lawsuit settlement that cancelled accounts payable in the amount of $170,000 included in restructuring charges recorded in 2001 and the elimination of the balance of the accrual related to the Pryor, Oklahoma facility, which was reopened in October 2003 (as discussed further in Note 5 to consolidated financial statements included in this Annual Report on Form 10-K). In 2002 a restructuring charge of $400,000 was recorded for costs related maintaining this facility until it was subleased.

Consolidated interest expense decreased by $566,000 in 2003 compared to 2002 as the result of lower average interest rates and borrowing levels in 2003. Other income, net, increased by $97,000 in 2003 due mainly to the non-recurrence of financial advisory fees related to investigating strategic financing alternatives in 2002 partially offset by royalties received.

Minority interest in subsidiary earnings represents the equity interest of the 49 percent owner in FCC. FCC was formed in 2003 to market car care products. The accompanying consolidated statement of operations for the year ended December 31, 2003 include the accounts of FCC, which reflect a total operating loss of $216,000 for this period.

Consolidated income before taxes (IBT) was $494,000 in 2003 compared to $2.4 million in 2002. This decrease of $1.9 million (80.0 percent) in 2003 includes a decrease in trailer segment IBT of $986,000 due mainly to decreased sales volume, a decrease in motorcoach segment IBT of $697,000 mainly due to decreased sales volume and increased write-downs in used motorcoach inventory and an increase in corporate and other net expense by $155,000 primarily due to the increased FCC expenses in 2003, for the reasons discussed above.

The overall effective income benefit was 17.7 percent in 2003 compared to an income tax benefit of 10.6 percent in 2002. The 2003 effective income tax benefit rate was primarily a result of the reduction in the deferred tax asset valuation allowance due to a decrease in net deferred tax assets. The 2002 effective tax benefit rate reflects a $690,000 tax refund (28.3 percent reduction in rate) as a result of the Jobs Creation and Worker Assistance Act of 2002 and a $495,000 reduction in the valuation allowance on deferred tax assets (20.3 percent reduction in rate) due to a decrease in net deferreds.

Outlook

We are cautiously optimistic about the rate of sales growth in 2005, although unfilled confirmed order backlog has decreased in both our specialty trailer and motorcoach segments. At December 31, 2004 the new order backlog for trailers of $17.6 million is 4 percent below its level of $18.3 million at December 31, 2003. Motorcoach backlog has decreased by 33% to a level of $7.7 million at December 31, 2004 compared to $11.5 million at December 31, 2003. These backlogs have continued to decline in the early months of 2005, with trailer backlog at $13.3 million at February 28, 2005 compared to $19.7 million at February 29, 2004, and motorcoach backlog of $5.7 million at February 28, 2005 compared to $11.9 million at February 29, 2004. We believe the decrease in trailer backlog can be attributed primarily to the heavy buying by dealers in the fourth quarter of 2004 in anticipation of a 5% increase in prices as of January 1, 2005 for all trailers invoiced after that date that were not in backlog at December 31, 2004 to offset increased aluminum costs in 2005. We believe that the price increase has decreased the new order levels in the early months of 2005 as the dealers’ inventories are being reduced. Management believes the reduction in motorcoach backlog primarily reflects a change in customer buying preferences, i.e., buying completed coaches rather than ordering a custom coach for future delivery and does not reflect a reduction in the demand for motorcoaches. Management expects that sales in both business segments will continue to improve if the

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national economic business conditions improve and consumer uncertainty diminishes. There is continuing focus by the Company on sales and marketing related activities that have been effective in increasing sales in the past, but there is no assurance they will be successful in increasing order levels to maintain or exceed the 2004 sales volume or that the price increase initiated as of January 1, 2005 will be sufficient to offset increased aluminum and other cost increases that may be incurred in 2005.

The Company believes its name recognition and close affiliation with the motorsports industry will continue to have a positive impact on its sales of specialty trailers, transporters and luxury motorcoaches. With more than 75 percent of its revenue from end users in motorsports and leisure and entertainment categories, which also includes horse trailers, and its strong position in the livestock trailer market, the Company believes it is strategically well-positioned to continue to benefit from these markets. The Company introduced 90 new and enhanced models of trailers in 2004 and added motorcoach models with enhanced features.

Liquidity and Capital Resources

General

The Company’s liquidity is primarily affected by its cash flow from operations together with changes in amounts available to borrow on its approved lines of credit with U.S. Bank and GE. During the year ended December 31, 2004, the Company’s operating activities provided net cash of $7.2 million. At December 31, 2004, the Company had approximately $9.5 million available to borrow under its credit lines compared to $6.7 million at December 31, 2003, an increase of $2.8 million as availability under these both lines increased due to changes in eligible receivables and inventories.

The Company’s liquidity can be measured by two key indicators, its current ratio and its ratio of debt to shareholders’ investment. The Company’s ratio of current assets to current liabilities was 1.44 : 1 at December 31, 2004, compared with a ratio of 1.38 : 1 at December 31, 2003. This ratio has improved as a result of operating results and cash flow. The ratio of total debt to shareholders’ investment decreased to 1.54 to 1 at December 31, 2004 from 2.15 to 1 at December 31, 2003. This ratio improved as stockholders’ investment increased during 2004 as a result improved net income for the year.

To maintain an efficient level of trailer production, increased expenditures for working capital items may be required from time to time to support production levels in excess of sales. A significant increase in trailer backlog beginning in the fourth quarter 2003 and through the first two quarters of 2004 led to an increase in raw materials and work in process inventories by $2.7 million. The production workforce was also expanded proportionally with the increased level of orders. Production levels in excess of new order levels especially during the last two quarters of 2004 have resulted in the growth of finished trailer inventories by $2.9 million. It is the Company’s expectation that a substantial portion of these additional trailers will be sold to dealers in the coming months. However, there is no assurance this will occur, which could adversely impact the liquidity of the Company. At the Company’s request, U.S Bank increased its asset-based revolving credit commitment from $14 million to $17 million in December 2004 to provide funding for this inventory growth.

To maintain a level motorcoach production schedule, production may begin on coaches before an order has been received from a specific buyer. As of December 31, 2004, approximately 70 percent of the coaches in production and to be completed over the next four months have not been sold to specific customers as compared to 59 percent at December 31, 2003. For the year ended December 31 2004, total units produced exceeded units sold and new coach inventory increased by $2.1 million. While it is the Company’s expectation that substantially all of these motorcoaches will be sold to specific customers, there is no assurance this will occur. Accordingly, this could adversely impact the liquidity of the Company.

During the first quarter of 2005, the Company has scheduled payments for debt principal and interest, expiring motorcoach shell consignment agreements, management performance bonus payments, 401k matching contribution payment and other fixed obligations that will require cash flows of $11.3 million, including $2.2 million paid to GE due to changes in advance rates on certain coaches on February 22, 2005. Additional payments may be required for the commitments and contingencies referred to in Note 9 to the consolidated financial statements included in this annual report on Form 10-K. These payments are expected to be funded by cash generated from operations as well as availability on existing lines of credit.

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Credit Facilities and Other Financing Activities

The following, read in conjunction with Note 8 to the consolidated financial statements included in this annual report on Form 10-K, is a summary of the Company’s agreements with its principal lenders:

Certain Other Obligations

As described in Note 9 to the consolidated financial statements included in this annual report on Form 10-K, the Company is subject to a number of commitments and contingencies that may affect its liquidity.

Statement of Cash Flows

Following is a discussion of the principal components of the Company’s cash flow for the year ended December 31, 2004, as reflected in the condensed consolidated statements of cash flow:

Operating activities provided net cash of $7.1 million. The Company’s net income of $4.9 million included non-cash depreciation and amortization of $2.4 million and other non-cash items in an aggregate net amount of $178,000. Net changes in receivables, inventories and prepaid assets used cash of $5.2 million. The substantial portion of this change resulted from total inventory levels increasing by about $6.4 million as a $8.9 million increase in raw materials, work in process, and new trailer and motorcoach inventories was partially offset by a $2.5 million decrease in used motorcoach inventories and an aggregate $1.3 million decrease in receivables, leased trailers and

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prepaid expenses. Net changes in accounts payable, accrued liabilities and other current liabilities provided cash of $4.8 million. Changes in these liabilities included, among other items: an increase of $758,000 in motorcoach shells payable as work in process increased, a $960,000 increase in trade accounts payables due to increased terms from trade creditors; and an increase of $3.0 million in accrued liabilities due mainly to increased accruals for payroll, incentive bonuses, 401K match contributions and dealer holdback payments.

The Company’s investing activities used cash of $1.9 million, principally for the purchase of plant and equipment. In 2004, U.S. Bank renewed the availability of a capital expenditure financing under a $2.7 million Capital Expenditure Term Note to finance certain of the Company’s capital expenditures for machinery and equipment in 2004 and 2005. Borrowings against this term note were $460,000 at December 31, 2004 for capital expenditures in 2004.

The Company’s financing activities used net cash of $5.2 million, including $2.9 million for net reductions in wholesale financing and line of credit borrowings, a $1.3 million net reduction in other long term debt, which is net of $460,000 received by the Company on its Capital Expenditure Term Note, as discussed in the preceding paragraph, and $2.1 million for Trade Creditors Repayment Plan payments. Checks issued but not presented for payment increased by $824,000. Borrowings on the U.S. Bank line of credit are used to fund these checks as they are presented for payment at the bank.

The Company believes that its current sources of liquidity will be sufficient to fund continued operations and capital requirements for the next twelve months. As described above, the Company has agreements with its two major lenders to continue funding in 2005 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.

Contractual Obligations

Off-Balance Sheet Arrangements

The Company did not have any material off-balance sheet arrangements at December 31, 2004 or during the year then ended.

Critical Accounting Policies

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

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assumptions. Accordingly, actual results could differ from those anticipated, and could harm the Company’s future liquidity.

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

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

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

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

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

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

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, 2004, as reported to the Company by its suppliers was $0.85 in 2004, $0.68 in 2003, and $0.65 in 2002. The current average aluminum cost per pound for 2005 delivery is $0.92 for the first two months of 2005. The Company’s cost of aluminum, which was approximately 14 percent of consolidated cost of sales in 2004, varies from these market prices due to vendor processing charges, timing of purchases, and contractual commitments with suppliers for specific prices and other factors. In 2004, the Company obtained commitments from suppliers to provide, at an agreed upon fixed price, more than 90 percent of its anticipated requirements for 2004, which reduced substantially the risk of aluminum cost fluctuations for the year. The Company has not yet obtained such commitments for 2005. If the Company is unable to obtain such commitments from suppliers or otherwise reduce the price risk related to 2005, this could have an

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adverse impact on the Company’s operating results if the cost of aluminum increases significantly above 2004 levels in 2005 and the Company cannot increase its product prices sufficiently to cover such increases. The Company initiated a 5 percent price increase for substantially all trailer products other than interior packages that are invoiced after December 31, 2004 unless they were ordered and in backlog at December 31, 2004. Management believes this price increase will cover the higher aluminum costs in 2005. There is a potential risk of loss related to fixed price contracts if there is a substantial drop in the actual cost of aluminum in relation to the contract price, which would affect the competitive price of the Company’s products.

Interest Rate Risk

The Company is exposed to market risks related to changes in U.S. and international interest rates. Approximately $31 million of the Company’s debt bears interest at a variable rate. An interest rate increase by one percentage point would reduce the Company’s future annual net income by approximately $193,000 at current debt levels.

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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

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

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

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None

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

(b) Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect the Company’s control over financial reporting.

PART III

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 relating to directors, codes of ethics and compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by reference to the sections labeled “Election of Directors”, “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance” that appear in the Company’s definitive Proxy Statement for its 2005 Annual Meeting of Shareholders.

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 2005 Annual Meeting of Shareholders.

The information required by Item 12 is incorporated herein by reference to the sections labeled “Principal Shareholders”, “Management Shareholdings” and Equity Compensation Plans” that appear in the Company’s definitive Proxy Statement for its 2005 Annual Meeting of Shareholders.

The information required by Item 13 is incorporated herein by reference to the section labeled “Certain Transactions” that appears in the Company’s definitive Proxy Statement for its 2005 Annual Meeting of Shareholders.

The information required by Item 15 is incorporated herein by reference to the section labeled “Fees of Independent Public Accountants” that appears in the Company’s definitive Proxy Statement for its 2005 Annual Meeting of Shareholders.

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PART IV

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.

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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.

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Featherlite, Inc.

Consolidated Balance Sheets

December 31, 2004 and 2003

( In thousands)