United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark one)

For the quarterly period ended March 31, June 30, 2011

OR

For the transition period from                    to                   

Commission file number 333-123598

J.B. POINDEXTER & CO., INC.

(Exact name of registrant as specified in its charter)

Delaware  76-0312814

(State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization)

600 Travis

Suite 200

Houston, Texas

77002

(Address of principal executive offices)

(Zip code)

713-655-9800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 o  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files.) Yes o  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

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

There were 3,059 shares of Common Stock, $.01 par value, of the registrant outstanding as of May 12,July 15, 2011.

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME AND ACCUMULATED DEFICIT (Unaudited)RETAINED EARNINGS

(DollarsACCUMULATED DEFICIT) (Unaudited) (Dollars in thousands)

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

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

Morgan has two primary customers Penske Truck Leasing Company(truck leasing and Ryder System Inc., whichrental companies) that together accounted for approximately 64%61% and 59%64% of Morgan’s revenuesnet sales during each of the threesix months ended March 31,June 30, 2011 and 2010, respectively.  Accounts receivable from these customers totaled $11,334$7,721 and $2,323$7,235 at March 31,June 30, 2011 and December 31, 2010, respectively.

  Morgan Olson has one customer (a delivery service company) that accounted for 39% and 37% of Morgan Olson’s net sales during each of the six months ended June 30, 2011 and 2010, respectively.  Accounts receivable from this customer totaled $4,480 and $4,377 at June 30, 2011 and December 31, 2010, respectively.  Specialty Manufacturing has two primary customers in theManufacturing’s net sales are concentrated among international oilfield service industry, Schlumberger Limited and Halliburton Company,companies, with two customers that accounted for approximately 55%47.1% and 31%32.2% of Specialty Manufacturing’s revenuesnet sales during each of the threesix months ended March 31,June 30, 2011 and 2010, respectively.  Accounts receivable from these customers totaled $8,987 and $8,272 at March 31, 2011 and December 31, 2010, respectively.

The Company, on a consolidated basis, had three customers that accounted for approximately 37% and 26% of total revenues for the three-months ended March 31, 2011 and 2010, respectively.  Accounts receivable from these customers totaled $17,042 and $6,790 at March 31, 2011 and December 31, 2010, respectively.  These were customers of Morgan and Specialty Manufacturing.  Morgan had two customers, Penske and Ryder, which individually accounted for more than 10% of the Company’s revenues for the three-months ended March 31, 2011 and 2010.  Penske accounted for approximately 11% and 10% of the Company’s total revenues for the three-months ending March 31, 2011 and 2010, respectively.  Accounts receivable for Penske was $4,973 and $1,036 at March 31, 2011 and December 31, 2010, respectively.  Ryder accounted for approximately 15% and 10% of the Company’s total revenues for the three-months ended March 31, 2011 and 2010, respectively.  Accounts receivable for Ryder was $6,361 and $1,287 at March 31, 2011and December 31, 2010, respectively.  Specialty Manufacturing had one customer, Halliburton, which individually accounted for more than 10% of the Company’s revenues for the three-months ended March 31, 2011.  Halliburton accounted for approximately 11% and 6% of the Company’s total revenues for the three-months ending March 31, 2011 and 2010, respectively.  Accounts receivable for Halliburton was $5,708 and $4,467 at March 31,June 30, 2011 and December 31, 2010, respectively.

(4) Comprehensive LossIncome.

The components of comprehensive lossincome (loss) were as follows (dollars in thousands):follows:

(5) InventoriesInventories.

Consolidated inventories, net, consisted of the following (dollars in thousands):following:

(6) Long-Term Debt and Fair Value of Financial InstrumentsDebt.

The fair value of the Company’s 8.75% Notes is determined under the Financial Accounting Standards Board (“FASB”) guidance on fair value measurements that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  As of March 31,June 30, 2011 and December 31, 2010, the Company had $198.8

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands)

measured using Level 1 inputs which are described as quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.  Other financial instruments consist of cash and cash equivalents, receivables and debt.  Fair values of cash and cash equivalents and receivables approximate carrying values for these financial instruments since they are relatively short-term in nature.  The carrying amount of debt, except for the Company’s 8.75% Notes, approximates the fair value due either to length of maturity or existence of variable interest rates that approximate prevailing market rates.

In late April of 2011, the Company engaged legal counsel and investment advisors and initiated activities in anticipation of refinancing and extending the maturity of the $198.8 million of 8.75% Notes due in March of 2014.

(7) Supplemental Cash Flow InformationInformation.

The supplemental cash flow information for the threesix months ended March 31,June 30, 2011 and 2010 was as follows (dollars in thousands):follows:

(8) Income TaxesTaxes.

The income tax provision for the periods ended March 31,June 30, 2011 and 2010 was recorded based on the Company’s estimated annual effective tax rate.

The Company reports a liability for tax positions taken that will more likely than not result in additional tax payments in the event of examination by the federal, state or foreign taxing jurisdictions in which the Company operates (“uncertain tax positions”) and classifies related interest and penalties on late payment of taxes as income tax expense in the financial statements.   The total amount of accrued interest and penalties related to these tax positions was $439,000$439 at March 31,June 30, 2011 and $527,000$544 at March 31,June 30, 2010.  This decrease was mainly due to resolution of and lapses of statutes of limitations on certain positions.filings.

TheThe Company is subject to U.S. federal income tax as well as income tax in Canada and multiplenumerous state jurisdictions. The Company has concluded substantially all U.S. federal income tax matters for years through 2005. Substantially all material state and local income tax matters have been concluded for fiscal years through 2004. Currently, the Company is under audit by the Internal Revenue Service for 2006. The Company has provided for known potential exposures for this examination and years after 2006.

(9) ContingenciesContingencies.

Claims and Lawsuits.  The Company is involved in certain claims and lawsuits arising in the normal course of business.  In the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on the financial position or results of operations of the Company.

Letters of Credit and Other Commitments.  The Company had $59,000$59 and $1.36 million$1,360 in standby letters of credit outstanding at March 31,June 30, 2011 and December 31, 2010, respectively. The balance at March 31,June 30, 2011 relates tois for legacy self-insurance reserves while the balance at December 31, 2010 consisted of $358,000$36 of similar insurance reserves and $1 million$1,000 related to a chassis bailment pool at Morgan. Due to the improvement in Company performance, the supplier released the requirement for the letter of credit securing the bailment pool during the first quarter of 2011.

Environmental Matters.  The Company’s operations are subject to a variety of federal, state and local environmental and health and safety statutes and regulations, including those relating to emissions to the air, discharges to water, treatment, storage and disposal of waste, and remediation of contaminated sites. From time to time, the Company has received notices of

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management’s discussion and analysis of our financial condition and results of operations should be read in conjunction with the Company’s Annual Report on Form 10-K and 10-K/A for the year ended December 31, 2010, including the financial statements, accompanying notes2010.  The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and management’s discussionexpected performance.  We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and analysis of financial conditions andoften do, vary from actual results of operations, and the interim condensed consolidated financial statementsdifferences can be material.  In light of these risks, uncertainties and accompanying notes included in this Quarterly Report on Form 10-Q.assumptions, the forward-looking events discussed may not occur.

Operating SegmentsOverview and description of business

The Company is a diversified manufacturerMorgan Truck Body, LLC.  Morgan Truck Body, LLC, or Morgan, designs, engineers and operates under a decentralized business model.  The Company consists of four business segments consisting of six distinct and geographically dispersed business units overseen by the JBPCO Corporate (“Parent”) staff located in Houston Texas.

In the Morgan Segment, the Company manufactures truck bodies in the United States and Canada that are used for the transportation of dry freight and refrigerated trucks and vans (excluding those made for pickup trucks and tractor-trailer trucks).products.  The truck bodies are attached to truck chassis provided by itsMorgan’s customers.  Customers include truck rental and leasing companies, truck dealers and companies that operate fleets of delivery vehicles.  The principal raw materials used by Morgan include steel, aluminum, fiberglass-reinforced plywood hardwoods and lubricantshardwoods acquired from a variety of sources. Morgan conducts its Canadian operations through its subsidiary, Commercial Babcock, Inc.

In the Morgan Olson Segment, the Company manufactures step van bodies for parcel, food, newspaper, uniform, linen and other delivery applications. Step vans are specialized vehicles designed for multiple-stop applications and enable the driver of the truck to easily access the cargo area. Morgan Olson manufactures the complete truck body, including the fabrication of the body, the installation of windows, doors, the instrument panel, seating and wiring, and finishing the truck with paint and decal application. The step van bodies are installed on truck chassis provided by Morgan Olson’s customers. The principal raw materials used by Morgan Olson include steel and aluminum and a variety of automotive components.

In the Truck Accessories Group, (“TAG”), the CompanyLLC. Truck Accessories Group, LLC, or TAG, manufactures pickup truck caps and tonneau covers, which are fabricated enclosures that fit over the open beds of pickup trucks, converting the beds into weatherproof storage areas.  Truck Accessories’ brands include Leer, Century, Raider, LowRider,LoRider, BoxTop, and Pace Edwards and State Wide Aluminum.  The principal raw materials used by Truck Accessories are resin,resins, fiberglass, paint, glass and manufactured components such as locks and gas struts.

Morgan Olson, LLC. Morgan Olson, LLC, or Morgan Olson, manufactures step van bodies for parcel, food, newspaper, uniform, linen and other delivery applications.  Step vans, which enable the driver of the truck to easily access the cargo area, are specialized vehicles designed for multiple-stop applications.  Except for the truck chassis on which it is mounted Morgan Olson manufactures the complete vehicle, including the fabrication of the body, the installation of windows, doors, the instrument panel, seating and wiring and finishes the truck with paint and decal application.  The step van bodies are installed on chassis provided by Morgan Olson’s customers.  The principal raw materials used by Morgan Olson include steel and aluminum and a variety of automotive components.

Specialty Manufacturing Division (“Specialty Manufacturing”) is comprised consists of three business units, theMIC Group, LLC, Specialty Vehicle Group (“SVG”), and EFP, LLC.

MIC Group, LLC. MIC Group, LLC, (“MIC”)or MIC, provides high precision machining and EFP, LLC (“EFP”).parts assembly for the oil and gas services industry.  MIC offers an array of services including computer-controlled precision machining, electrical discharge machining, electron beam welding, trepanning, gun drilling and electromechanical assembly.  MIC operates six plants, located in the United States, Mexico and Malaysia.  The principal raw materials used by MIC are ferrous and nonferrous materials including stainless steel, alloy steels, nickel based alloys, titanium, brass, beryllium copper alloys and aluminum.

Specialty Vehicle Group. Specialty Vehicle Group, or SVG, manufactures funeral coaches and limousines.limousines, most of which are sold through authorized dealers in the United States and Canada to funeral directors and livery companies. The components of SVG are Federal Coach, LLC (“Federal Coach”) and Eagle Specialty Vehicles, LLC (“Eagle Coach”).  SVG purchases vehicle chassis from the major automotive manufacturers’ dealers for modification and sale to its customers.  MICEffective December 31, 2009, SVG sold its specialized transit bus business.

EFP, LLC. EFP, LLC, or EFP, manufactures expandable polystyrene and polypropylene foam that is a manufacturer, investment caster and assembler of precision metal partsused mainly in packaging applications.  Its products are engineered to customer specifications for use inby the worldwide oilmedical, electronics, food, furniture, plumbing and gas exploration, automotive and aerospace industries.  EFP molds, fabricates and markets expandable foam products used for packaging and thermal insulation by variousappliance industries.  The principal raw materials used by Specialty Manufacturing are ferrous and nonferrous materials including stainless steel, alloy steels, titanium, brass, beryllium-copper alloys, aluminum,EFP include expandable polystyrene, polypropylene, polyethylene and other resins and automobile chasis.

The Parent staff is located in Houston, Texas, and consists of the Company’s senior executives including the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and various functional leaders including business development, information technology, risk management and human resources.  The Parent provides oversight of, and support to, the business units.resins.

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PerformanceBusiness Environment and Outlook

While the six business units of J.B. Poindexter & Co., Inc. are subject to common influences, such as macroeconomic cycles, there are specific external factors that may impact each business unit’s financial performance.

Morgan.  Morgan’s sales depend on the replacement cycle for delivery trucks that are primarily used in general freight, parcel delivery and distribution applications.  While customers typically replace delivery trucks every six to seven years, timing is directly impacted by general economic conditions.  In a weaker economy, as was the case between 2008 and 2010, customers often defer the purchase of new delivery trucks or may retire old trucks without replacement.  In a stronger economy, customers may make purchases that were deferred in prior years, replacing vehicles at a more rapid rate.

Customer mix also influences sales at Morgan.  In recent years, demand from large fleet operators such as Penske and Ryder has outpaced industry rates of growth as many smaller companies turn to leasing vehicles instead of purchasing them.  As a result of its historically high market share with large fleet operators, Morgan has recently capitalized on this trend reporting a sales increase of 42% in the first six months of 2011, compared to the first six months of 2010, much of which was derived from fleet operators.

TAG.  TAG’s revenues are directly related to sales of new pickup trucks.  Pickup truck sales are cyclical and depend on general economic conditions and other factors that affect the automotive industry such as consumer preferences, fuel costs, consumer spending levels, new model introductions and interest rates.

While light duty pickup truck sales continued to improve in 2011, TAG’s unit sales were 3 percent lower than the comparable period last year. We believe this is due to a decline in general consumer confidence and a higher proportion of pickup trucks being sold to commercial customers that are less likely to install tonneaus and caps.  However, better economic conditions have increased demand for TAG’s recently upgraded commercial fleet and vocational products including marine dock boxes and hoods for commercial vehicles such as UPS step vans.  TAG’s near term growth rate is anticipated to increase as it uses its scale and national footprint to further its relationships with fleet operators, leasing companies and vehicle fleet upfitters.

Morgan Olson. Morgan Olson’s revenues are affected by factors similar to those that influence Morgan.  Additionally, the step van market is not growing and may be declining, probably as a consequence of the inferior fuel efficiency of smaller step van models. To provide an alternative for customers seeking enhanced fuel economy in smaller vehicles, Morgan Olson has entered into development arrangements with chassis manufacturers including Sprinter, Workhorse and Freightliner Custom Chassis to adapt their fuel efficient chassis in step van applications.

Morgan Olson’s revenue is also partly dependent on parts and service sales.  Its largest parts customer is the United States Postal Service (“USPS”) which continues to operate 142,000 vehicles manufactured by the predecessor of Morgan Olson.  Due to the USPS’s limited capital budget, it is expected that these vehicles will be operated, and therefore continue to generate parts and service revenue, for several more years before it replaces vehicles and that the USPS will continue to rely on the availability of Morgan Olson supplied service parts in order to maintain its fleets in operating condition.

Specialty Manufacturing’s business environment and outlook are related to those of its three business units (MIC, SVG and EFP) as follows:

MIC. MIC’s sales depend on activity in the energy services industry. Global consumption of energy, with oil as the major component, is projected to increase steadily, partly as a result of demand in China and other economically developing nations.  In addition, technical advances in drilling will likely cause more challenging oil exploration activities.  Advanced drilling methods such as horizontal drilling, hydraulic fracking, and deep-hole and deep-sea excavation require the high-precision and highly machined assemblies produced by MIC which we believe will lead to increased revenue despite the previously mentioned challenges facing the industry.

SVG.  Despite a growing population, services in the funeral industry are slowly trending away from traditional

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burials toward cremations.  As a result there has been consolidation in the industry and its supplier base, including the funeral vehicle segment.  SVG is one of the two remaining funeral vehicle manufacturers in the United States and Canada and its improving market share has more than compensated for decreased industry demand.  To combat the decline of the funeral services industry, SVG now also utilizes its skilled workforce, design skills and reputation for quality to develop and merchandise other vehicles, including armored limousines.

SVG’s short-term demand is also impacted by the introduction of new chassis platforms. After 10 years of unchanged chassis, SVG has begun to sell vehicles fabricated on the new Lincoln MKT coach and the Cadillac executive sedan; and it will offer a completely redesigned hearse based on another Cadillac chassis scheduled to become available in 2012.

EFP.  EFP is a relatively small part of our Company and a minor participant in the packaging market.  Similar to its competitors, EFP’s sales are limited to customers within a fixed geographical distance from its three locations.  Recently, EFP began to target opportunities in the growing refrigerated shipping market for food, medical and pharmaceutical products, and away from recreational vehicle and construction customers.

Parent.  J.B. Poindexter & Co., Inc. adheres to a lean model, with the corporate parent responsible only for those functions best administered on a centralized basis.  These include strategic planning, lean leadership, financing, accounting controls and financial reporting, human resources, insurance and environmental and workplace safety compliance.

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

Source of revenues. We derive revenues from:

·Morgan’s sales of truck bodies, parts and services;

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

·MIC’s sales of precision machined parts and assembly services;

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

·SVG’s sales of funeral hearses and limousines; and

·EFP’s sales of expandable polystyrene and polypropylene foam products.

Discounts, returns and allowances.  Our gross revenues are reduced by discounts we provide to customers and returns and allowances in the ordinary course of our business.  We provide discounts as deemed necessary to generate sales volume and remain price competitive.  Discounts include payment term discounts and discretionary discounts from list price.

Cost of revenues.  Cost of revenue represents the costs directly associated with manufacturing our products and generally varies with the volume of products produced.  The components of cost of revenue are materials, labor and overhead including transportation costs.  Overhead costs are allocated to production based on labor costs and include the depreciation and amortization costs associated with the assets used in manufacturing, including rent associated with manufacturing and indirect labor and other costs.

Selling and administrative expenses.  Selling and administrative expenses are made up of the costs of selling our products and administrative costs related to information technology, accounting, finance and human resources.  Costs include personnel and related costs, including travel, equipment and facility rent expense not associated with manufacturing activities and professional services such as audit fees.  Selling and administrative expenses also include our costs at corporate headquarters to manage and provide support to our operating subsidiaries.

Other income and expense.  Income and expenses that we incur during the Quarter Ended March 31, 2011 Compared withyear that are nonrecurring in nature and not directly comparable to the Quarter Ended March 31, 2010 (Unaudited)prior year are included in other income and expense or are separately identified.

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Results of Operations

Performance during the Quarter Ended June 30, 2011

Compared with the Quarter Ended June 30, 2010 (Unaudited)

Revenues. RevenuesOur consolidated revenues increased $21.3$38.0 million, or 16.0%23.4%, to $154.6$200.0 million infor the three-month periodquarter ended March 31,June 30, 2011 compared to $133.3$162.0 million infor the three-month period ofquarter ended June 30, 2010.  This increase was led by MIC with a 104%represents higher sales volume increase,of $35.9 million (22.1%) and a 43.7% increase atprice increases of $2.1 million (1.3%).  Morgan, partially offset by a decline at Morgan Olson attributableand MIC Group experienced volume increases due to timing differencescyclical demand improvements while SVG improved due to increased market share.  Revenues at TAG decreased as a result of softening demand for consumer pickup truck caps as compared to the first quarter while EFP saw a decrease in orders placed.revenue following its exit from unprofitable product lines.

·             Morgan’s revenues increased $19.6$27.9 million, or 43.7%40.0%, to $64.2$97.6 million in the firstsecond quarter of 2011 compared to $44.6$69.7 million in the first quarter of 2010. The increase was attributable to unit sales volume in both retail and commercial segments.  The volume increase was primarily attributable to improvement in general economic conditions in the Class 3 - 7 truck market impacting demand from both commercial and consumer related-customers.

·Morgan Olson’s revenues decreased $14.8 million, or 55.2%, to $12.0 million in the first quarter of 2011 compared to $26.8 million in the first quarter of 2010.  The decrease was due to unit volume decreases in the timing of fleet orders of $15.4 million and two large retail orders of $12.6 million received at the end of 2009, shipped in the first quarter of 2010 and not replicated at the end of 2010.  Recent orders have increased the backlog by $23.4 million to $56.5 million at March 31, 2010.

·Truck Accessories’ revenues increased $1.6 million, or 5.2%, to $32.0 million in the first quarter of 2011 compared to $30.4 million in the firstsecond quarter of 2010. This increase represents higher sales volume of $0.5$27.6 million (1.6%(39.6%) and price increases of $1.1$0.3 million (3.6%(0.4%). The volume increase was attributable to an increase of $10.3 million in sales to fleet customers to $48.6 million, compared to $38.3 million in the prior period. Volume also grew in retail units with a sales increase of $17.3 million to $46.6 million compared to $29.3 million in the prior period. Parts and service sales remained flat at $2.3 million year over year.

·TAG’s revenues decreased $1.3 million, or 3.9%, to $32.0 million in the second quarter of 2011 compared to $33.3 million in the second quarter of last year. This decrease represents lower sales volume of $2.7 million (-8.1%) offset by price increases of $1.4 million (4.2%).  The volume change is due to a decrease in shipments of consumer caps and tonneaus of $2.1 million and decreases in window shipments of $.6 million.

·Morgan Olson’s revenues increased $1.4 million, or 6.7%, to $22.3 million in the second quarter of 2011 compared to $20.9 million for the second quarter of 2010. This increase represents higher sales volume of $1.3 million (6.2%) and price increases of $0.1 million (0.5%). The volume increase was due to improvementincreased sales to retail customers of $3.3 million partially offset by a reduction of fleet sales. The second quarter fleet sales decrease was caused by the timing of fleet customer shipments in demand2011. This timing difference is partially evidenced by our backlog increase for pickup trucks inUnited Parcel Service (“UPS”) of $19.8 million to $37.7 million at June 30, 2011 compared to $17.9 million at June 30, 2010. Sales of service parts and delivery income decreased to $3.9 million from $4.1 million due mainly to reduced shipments of parts to the United States and Canada.USPS.

·             Specialty Manufacturing’s revenues increased $14.7$10.0 million, or 46.1%26.1%, to $46.7$48.1 million in the firstsecond quarter of 2011 compared to $32.0$38.1 million in the firstsecond quarter of 2010. The increase was caused primarily by higher unit volume at MIC.

·MIC Group’s revenues increased $10.8 million, or 48.4%, to $33.3 million in the second quarter of 2011 compared to $22.4 million in the second quarter of 2010. This increase reflectswas entirely volume driven and was attributable to increased demand from oil and gas services customers for machined products and assembly services. The increase was primarily attributable to two customers, Schlumberger and Halliburton.

·SVG’s revenues increased $1.2 million, or 13.3%, to $9.9 million in the second quarter of 2011 compared to $8.7 million in the second quarter of 2010. The increase represents higher salesunit volume of $12.9$0.9 million (40.3%(10.3%) and price increases of $1.9$0.3 million (5.8%(3.0%). The volume increase was due to a 93% volume increase at MIC Group attributable to increased demand for oilmarket share from two new customers that are the United States’ and gasCanada’s largest funeral services related machined products partially offset byconsolidators.

·EFP’s revenues decreased $2.0 million, or 29.3%, to $4.9 million in the second quarter of 2011 compared to $6.9 million in the second quarter of 2010. This decrease reflects lower unit volume decreases at SVGshipments following the Company’s decision to exit certain unprofitable product lines principally within the recreational vehicle and EFP.  The volume decrease at SVG related exclusively to its withdrawal from its unprofitable specialty bus business.construction markets.

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BacklogBacklog..  ConsolidatedOur consolidated backlog was $233.8increased 53.4% to $193.7 million as of March 31,at June 30, 2011 compared to $165.6$126.3 million at June 30, 2010.  The December 31, 2010 and $150.8 million as of March 31, 2010.backlog was $165.6 million.

·             Morgan’s backlog was $110.7$80.0 million at March 31,June 30, 2011 compared to $86.7 million at December 31, 2010 and $63.4$40.9 million at March 31,June 30, 2010. The increase in backlog over June 30, 2010 was due to increasesa $36.9 million increase in both commercialretail orders and a $2.2 million increase in fleet and retail activity.orders.  The majority of fleet shipments are typically completed every year prior to June 30th.

·             Morgan Olson’sTAG’s backlog was $56.5$2.6 million at March 31, 2011 compared to $8.9 million at December 31, 2010 and $33.1 million at March 31, 2010.  The increase in backlog was due primarily to the timingas of fleet orders placed by United Parcel Service.

·Truck Accessories’ backlog was $1.9 million at March 31,June 30, 2011 compared to $2.7 million at December 31, 2010 and $2.3$2.8 million as of March 31,at June 30, 2010. Production consists primarily of made to order units and the backlog represents approximately two weeks of production.

·             Morgan Olson’s backlog increased 100% to $54.8 million as of June 30, 2011 compared to $27.4 million at June 30, 2010.  The increase was due to a $21.2 million and a $6.2 million increase, respectively, in fleet and retail orders.  The increase in fleet backlog was primarily related to orders received from UPS. Backlog at December 31, 2010 was $8.9 million.

·Specialty Manufacturing’s backlog was $64.7$56.3 million at March 31,as of June 30, 2011 compared to $67.3 million at December 31, 2010 and $52.0$55.2 million at MarchJune 30, 2010.

·MIC Group’s backlog was $51.4 million as of June 30, 2011 compared to $62.1 million at December 31, 2010 and $50.2 million at June 30, 2010. The minimal increase from June 30, 2010 to June 30, 2011 represents increasing order levels largely offset by an improvement in the order-to-ship cycle.

·SVG’s backlog was $4.9 million as of June 30, 2011 compared to $5.2 million at December 31, 2010 and $5.0 million at June 30, 2010.  The small decrease in backlog compared to March 31, 2010 was primarilyis attributable to increased orders from MIC Group’s oilproduct mix as units in backlog are relatively constant.

·EFP maintains a minimal backlog and gas services customers.does not calculate it as a matter of practice.

Gross profit.profit and cost of sales.  Consolidated grossGross profit increased $2.9 million, or 18.4%, to $18.6of $29.5 million in the three-month period ended March 31,second quarter of 2011 increased $4.3 million, or 17.1%, compared to $15.7$25.2 million in the three-month period ended March 31, 2010, andsecond quarter of 2010. Gross margin as a percent of revenues in the second quarter of 2011 was 14.7% compared to 15.5% in the second quarter of 2010.  The dollar increase in gross profit is attributable to the increase in revenues.  Cost of goods sold as a percentage of revenues improvedincreased from 84.5% in the second quarter of 2010 to 12.1%85.3% in the second quarter of 2011. Materials costs were 53.6% of revenues compared to 51.9% in the previous year, labor costs were 10.7% of revenues compared to 11.5% in the previous year, and overhead costs were 21.0% of revenues in both 2011 and 2010.

·Morgan generated gross profit and gross margin of $14.6 million and 15.0%, respectively, in the second quarter of 2011, compared to 11.8%$10.3 million and 14.7%, respectively, in the second quarter of 2010. The increase in gross profit primarily reflectsmargin was attributable to improvements in labor efficiency and increased absorption of overhead on increased sales partially offset by increases in material costs and inbound freight.

·TAG generated gross profit and gross margin of $6.0 million and 18.7%, respectively, in the volume increase discussed above, cost reductionssecond quarter of 2011, compared to $7.4 million and price increases.22.2%, respectively, in the second quarter of 2010.  The improvementdecrease in gross profit as a percentagemargin was due to start-up costs associated with new product introductions, increased distribution costs and the loss of revenues was duevolume leverage partially offset by product price increases.

9·Morgan Olson generated gross profit and gross margin of $1.9 million and 8.3%, respectively, in the second quarter of 2011, compared to $2.0 million and 9.6%, respectively, in the second quarter of 2010. The decrease in gross margin was primarily attributable to labor inefficiencies, supplier constraints related to increasing production from eight trucks per day to 30 trucks per day, and increased engineering and in research and development personnel headcount.

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primarily·Specialty Manufacturing generated gross profit and gross margin of $7.0 million and 14.6%, respectively, in the second quarter of 2011, compared to $5.5 million and 14.4%, respectively, in the second quarter of 2010.  This increase was attributable to the benefitsfollowing:

·MIC Group generated gross profit and gross margin of operational improvements, cost reductions, sourcing improvements$4.4 million and volume leverage13.2%, respectively, in the second quarter of 2011, compared to $3.5 million and 15.7%, respectively, in the second quarter of 2010. The decrease in gross margin represents losses incurred in fulfilling unprofitable or low margin contracts partially offset by commodityan increase in labor efficiency, more profitable contracts, price increases.increases and increased absorption of overhead costs on increased revenues.

·SVG generated gross profit and gross margin of $1.7 million and 17.4%, respectively, in the second quarter of 2011, compared to $0.8 million and 8.6%, respectively, in the second quarter of 2010. The increase in gross margin was primarily attributable to reduced overhead associated with the closure of the Fort Smith, Arkansas plant.

·EFP generated gross profit and gross margin of $0.9 million and 18.5%, respectively, in the second quarter of 2011, compared to $1.2 million and 17.7%, respectively, in the second quarter of 2010. The increase in gross margin was due to improved product mix resulting from the elimination of the unprofitable recreational vehicle and construction product lines.

Selling and administrative expenses.  SellingConsolidated selling and administrative expenses increased $1.1decreased $0.3 million, or 8.2%2.2%, to $15.1$14.1 million, 7.0% of revenues, for the quarter ended June 30, 2011 compared to $14.4 million, 8.9% of revenues, for the quarter ended June 30, 2010.

·Morgan incurred selling and administrative expenses of $4.1 million, 4.2% of revenues, in the firstsecond quarter of 2011 compared to $13.9$3.9 million, 5.6% of revenues, in the firstsecond quarter of 2010.  The $0.2 million increase was due primarily to the effect that Morgan’s 40% increase in sales had on variable selling expenses.

·TAG reduced selling and administrative expenses to $3.1 million, 9.6% of revenues, in the second quarter of 2011 compared to $3.4 million, 10.1% of revenues, in the second quarter of 2010.  This decrease was the result of by reduced management incentive and health insurance expense partially offset by increases in engineering personnel.

·Morgan Olson incurred selling and administrative expenses of $1.4 million, 6.5% of revenues, in the second quarter of 2011 compared to $1.2 million, 5.8% of revenues, in the second quarter of 2010.  This increase iswas caused primarily dueby higher management incentive expense in 2011 as well as the recording of a bad debt recovery in the second quarter of 2010.

·Specialty Manufacturing decreased selling and administrative expenses to staff additions at$4.0 million, 8.4% of revenues, in the Parent,second quarter of 2011 compared to $4.1 million, 10.8% of revenues, in the second quarter of 2010.

·MIC Group incurred selling and administrative expenses of $2.8 million, 8.4% of revenues, in the second quarter of 2011 compared to $2.6 million, 11.5% of revenues, in the second quarter of 2010.  This increase was caused by increased headcount, increased bad debt expense and the depreciation of enterprise resource planning (“ERP”) software costs partially offset by reduced ERP software initiatedimplementation expenses, reduced consultant expenses and lower incentive compensation expense.

·SVG reduced selling and administrative expenses to $0.6 million, 6.6% of revenues, in the thirdsecond quarter of 2011 compared to $0.7 million, 8.6% of revenues, in the second quarter of 2010.  This decrease was due primarily to the closure of the Forth Smith, Arkansas facility.

·EFP incurred selling and administrative expenses of $0.6 million, 12.4% of revenues, in the second quarter of 2011 compared to $0.8 million, 11.3% of revenues, in the second quarter of 2010. This decrease was due primarily to reduced variable selling expenses.

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·Parent selling and administrative expenses decreased to $1.5 million in the second quarter of 2011 compared to $1.8 million in the second quarter of 2010. The decrease was caused by reduced IT expenses associated with the 2010 ERP implementation, and the transfer of purchasing executives from the parent to MIC Group, partially offset by management incentive expense and amortization of previously capitalized software costs.

Closed and excess facility costs.  During the second quarter of 2010, SVG recognized $0.8 million of costs related to the consolidation and increasesrestructuring of its two funeral coach and limousine manufacturing operations into one facility in accrued incentives attributable to anticipated improved operating income performance in 2011.the current period.

Operating income.  OperatingDue to the effect of the factors summarized above, consolidated operating income of $3.7increased by $5.5 million, or 54.5%, to $15.6 million in the firstsecond quarter of 2011 increased $1.9 million, or 105.7%, compared to $1.8$10.1 million in the firstsecond quarter of 2010, and as a percentage of revenues, improved to 7.8% in 2011 compared to 6.2% in 2010.

·Morgan’s operating income increased by $4.3 million, or 67.2%, to $10.6 million in the second quarter of 2011 compared to $6.3 million in the second quarter of 2010, and as a percentage of revenues, to 10.8% in 2011 from 9.1% in 2010.  OperatingThe increase in operating income and operating income as a percentage of revenues in the first quarter of 2011 was 2.4% compared to 1.4% in the first quarter of 2010.

·Morgan generated segment operating income and segment operating margin of $2.5 million and 3.8%, respectively, in the first quarter of 2011, compared to $0.6 million and 1.4%, respectively, in the first quarter of 2010.  The increase in operating margin isprimarily attributable to increased revenues, operational improvements including labor efficiency,efficiencies, improved material procurement and expense controls in manufacturing overhead, and selling and administrative expenses partially offset by rising material costs.

·TAG’s operating income decreased by $1.1 million, or 28.4%, to $2.9 million in the second quarter of 2011 compared to $4.1 million in the second quarter of 2010, and as a percentage of revenues, to 9.1% in 2011 from 12.2% in 2010.  The decrease in operating income was due to lower revenues and reduced gross margin partially offset by reduced selling and administrative expenses.

·             Morgan Olson incurred a segmentOlson’s operating loss and segment operating margin of $0.7income decreased by $0.4 million, and (5.9)%or 48.4%, respectively,to $0.4 million in the firstsecond quarter of 2011 compared to $1.7$0.8 million and 6.4%, respectively, in the firstsecond quarter of 2010.2010, and as a percentage of revenues, from 3.8% in 2010 to 1.8% in 2011.  The declinedecrease in operating income and operating marginincome as a percentage of revenues was primarily attributable to reduced gross margin and higher general and administrative expenses.

·Specialty Manufacturing’s operating income increased by $2.3 million, or 340%, to $3.0 million in the timingsecond quarter of orders placed by fleet customers2011 compared to $0.7 million in the second quarter of 2010, and as a percentage of revenues, to 6.3% in 2011 compared tofrom 1.8% in 2010.

·                  Truck Accessories generated segmentMIC Group’s operating income and segment operating margin of $2.0increased by $0.6 million, and 6.2%or 60.5%, respectively,to $1.6 million in the firstsecond quarter of 2011 compared to $2.4$1.0 million and 7.9%, respectively, in the in the firstsecond quarter of 2010, and as a percentage of revenues, to 4.8% in 2011 from 4.4% in 2010.  These declines areThe improvement in operating income was primarily attributabledue to expenses incurred as part of a manufacturing improvement project at TAG Midwestincreased revenues; improved pricing, labor efficiencies and expenses associated with the launch of new products at TAG Specialty Products,procurement initiatives partially offset by higher revenue.losses incurred in fulfilling unprofitable or low margin contracts.

·                 Specialty Manufacturing generated segmentSVG’s operating income and segment operating margin of  $2.4increased by $1.8 million and  5.2%, respectively,to $1.1 million in the firstsecond quarter of 2011 compared to ($1.3)an operating loss of $0.7 million and (4.1)%, respectively, in the firstsecond quarter of 2010, and as a percentage of revenues, to 9.0% in 2011 from -8.7% in 2010.  The increase in operating income was attributable to MIC, inand margin primarily reflects the amountimpact of $2.6 million, and SVG, at $1.1 million.  MIC’s improvement resulted from volume and price increases, operational improvements in labor productivity and sourcing and expense controls.  SVG’s improvement was due primarily to reduction in costs associated with the closingclosure of the Fort Smith, Arkansas plant in the second half of 2010.plant.

·                  ParentEFP’s operating expenses increased $0.8income decreased by $0.1 million, or 49.5%21.6%, to $2.4$0.3 million in the second quarter of 2011 compared to $1.6 for$0.4 million in the prior period.second quarter of 2010 and as a percentage of revenues, improved from 6.4% in 2010 to 7.1% in 2011.  The increase resulted from increasesdecline in headcount, increased depreciation of ERP softwareoperating income was due to lower volume partially offset by improved product mix and higher incentive accruals based on projected annual improvementsa plant overhead expense reduction initiative in 2011 Company earnings.EFP’s Elkhart, Indiana facility.

Interest expense.  Consolidated interest expense was $4.6 million (2.3% of net revenues) and $4.5 million (2.8% of net revenues) for the three months ended June 30, 2011 and 2010, respectively.

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Income taxes.  The effective income tax rate was 38.5% and 39.8% for the three months ended June 30, 2011 and 2010, respectively, and differed from the federal statutory rate primarily because of state and foreign taxes.

Performance during the Six Months Ended June 30, 2011

Compared with the Six Months Ended June 30, 2010 (Unaudited)

Revenues.  Consolidated revenues increased $59.3 million, or 20.1%, to $354.6 million for the six months ended June 30, 2011 compared to $295.3 million for the six months ended June 30, 2010.  This increase represents higher sales volume of $55.7 million (18.9%) and price increases of $3.6 million (0.3%).  Morgan and MIC Group experienced significant volume increases due to cyclical demand improvements while revenues at TAG, SVG and EFP remained relatively flat.  Morgan Olson experienced a decline in revenues due to the timing of fleet shipments in 2011 compared to 2010.

·Morgan’s revenues increased $47.4 million, or 41.5%, to $161.7 million in the first six months of 2011 compared to $114.3 million in the first six months of 2010. This increase resulted from higher unit sales volume of $47.0 million (41.1%) and price increases of $0.4 million (0.4%). The volume increase was attributable to an increase of $ 23.1 million in sales to fleet customers to $77.5 million, compared to $54.4 million in the prior period. Volume also grew in retail units with a sales increase of $23.8 million to $79.3 million compared to $55.5 million in the prior period. Parts and service sales remained flat at $4.5 million year over year.

·TAG’s revenues increased $0.6 million, or 0.9%, to $63.8 million in the first six months of 2011 compared to $63.2 million in the first six months of 2010. This increase represents lower sales volume of $1.9 million (3.1%) offset by price increases of $2.5 million (4.0%).  The volume change was due to a decrease in shipment of consumer caps and tonneaus of $1.6 million and a decrease in window shipments of $0.8 million, partially offset by increases in shipments of national fleet products.

·Morgan Olson’s revenues decreased $13.5 million, or 28.3%, to $34.2 million in the first six months of 2011 compared to $47.7 million for the first six months of 2010. This decrease resulted from lower unit sales volume of $13.6 million (28.5%) and price increases of $0.1 million (0.2%). The volume decrease was caused by the timing of fleet customer shipments in 2011 and two large retail fleet orders totaling $14.8 million produced in early 2010.  This timing difference is partially demonstrated by the UPS backlog increase of $19.8 million to $33.7 million at June 30, 2011 compared to $17.9 million at June 30, 2010. Sales of service parts and vehicle delivery income increased to $8.3 million in 2011 compared to $7.8 million in 2010.

·Specialty Manufacturing’s revenues increased $24.7 million, or 35.2%, to $94.8 million in the first six months of 2011 compared to $70.1 million in the first six months of 2010. The increase was caused primarily by higher unit sales volume at MIC.

·MIC Group’s revenues increased $27.3 million, or 71.5%, to $65.5 million in the first six months of 2011 compared to $38.2 million in the first six months of 2010. This increase was entirely volume driven and was primarily the result of increased demand from oil and gas services customers for machined products and assembly services.  The increase was primarily attributable to two customers, Schlumberger and Halliburton.

·Specialty Vehicle Group’s revenues increased $1.0 million, or 5.2%, to $19.3 million in the first six months of 2011 compared to $18.3 million in the first six months of 2010. The increase consisted of volume, price and mix improvements on funeral vehicles of $0.9 million, $0.5 million and $0.4 million, respectively.  Unit volume increases in funeral vehicles were attributable to increased market share with two new customers that are the United States’ and Canada’s largest funeral services consolidators.

·EFP’s revenues decreased $3.5 million, or 26.0%, to $10.1 million in the first six months of 2011 compared to $13.6 million in the first six months of 2010. This decrease was the result of lower unit

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sales volumes attributable to the Company’s decision to exit certain unprofitable product lines primarily within the RV and construction market segments.

Gross profit and cost of sales.  Gross profit of $48.1 million in the first six months of 2011 increased $7.2 million, or 17.6%, compared to $40.9 million in the first six months of 2010. Gross margin in the first six months of 2011 was 13.6% compared to 13.8% in the first six months of 2010. The dollar increase in gross profit is attributable to the increase in revenues. The decrease in gross margin as a percent of revenues was due to increases at Morgan, SVG and EFP offset by decreases at TAG and Morgan Olson. Cost of goods sold as a percentage of revenues increased from 86.2% in the first six months of 2010 to 86.4% in the first six months of 2011. Materials costs were 53.1% of revenues compared to 51.3% in the previous year, labor costs were 11% of revenues compared to 12% in the previous year, and overhead costs were 22.4% of revenues compared to 22.2% in the previous year.

·Morgan achieved gross profit and gross margin of $21.0 million and 13.0%, respectively, in the first six months of 2011, compared to $14.2 million and 12.4% respectively, in the first six months of 2010. The increase in gross profit margin is attributable to improvements in labor efficiency and increased absorption of overhead on increased sales partially offset by increases in material costs and inbound freight.

·TAG generated gross profit and gross margin of $11.4 million and 17.9%, respectively, in the first six months of 2011, compared to $13.3 million and 21.0%, respectively, in the first six months of 2010.  The decrease in gross profit margin was due to expenses associated with a lean plant improvement project at TAG’s Midwest plant, start-up costs associated with new product introductions and freight-out cost increases partially offset by price increases.

·Morgan Olson’s gross profit and gross margin were $2.5 million and 7.3%, respectively, in the first six months of 2011, compared to $5.2 million and 10.8%, respectively, in the first six months of 2010. The decrease in gross margin is attributable to reduced absorption of overhead costs on lower revenue, headcount additions in R&D, lean manufacturing expenses and engineering, and startup costs associated with the ramp up of volume to process the sizable backlog at June 30, 2011.

·Specialty Manufacturing generated gross profit and gross margin of $13.2 million and 13.9%, respectively, in the first six months of 2011, compared to $8.3 million and 11.9%, respectively, in the first six months of 2010.

·MIC Group’s gross profit and gross margin were $8.4 million and 12.7%, respectively, in the first six months of 2011, compared to $4.9 million and 12.7%, respectively, in the first six months of 2010. Despite the increase in gross profit, the relatively flat gross margin resulted from an increase in labor efficiency, price increases and increased absorption of overhead costs on increased unit sales volume, offset primarily by losses incurred in fulfilling unprofitable or low margin contracts.

·SVG had gross profit and gross margin of $3.0 million and 15.6%, respectively, in the first six months of 2011, compared to $1.1 million and 6.2%, respectively, in the first six months of 2010.  The increase in gross margin is primarily attributable to reduced overhead associated with the closure of the Fort Smith, Arkansas plant.

·EFP generated gross profit and gross margin of $1.8 million and 18.2%, respectively, in the first six months of 2011, compared to $2.3 million and 17.1%, respectively, in the first six months of 2010. The increase in gross margin was due to improved product mix resulting from the elimination of the unprofitable recreational vehicle and construction product lines.

Selling and administrative expenses.  Consolidated selling and administrative expenses increased $0.8 million, or 2.9%, to $29.2 million, 8.2% of revenues, for the six months ended June 30, 2011 compared to $28.4 million, 9.6% of revenues, for the six months ended June 30, 2010.

·Morgan incurred selling and administrative expenses of $8.0 million, 4.9% of revenues, in the first six months of 2011 compared to $7.2 million, 6.3% of revenues, in the six months ended June 30, 2010.  The

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increase was due primarily to higher variable selling expenses, increased costs of additional staffing, and higher IT and marketing expenses.

·TAG incurred selling and administrative expenses of $6.5 million, 10.2% of revenues, in the first six months of 2011 compared to $6.8 million, 10.7% of revenues, in the six months ended June 30, 2010.  The decrease was due primarily to reduced incentive expense and lower insurance costs partially offset by increases to engineering and quality personnel.

·Morgan Olson incurred selling and administrative expenses of $2.8 million, 8.1% of revenues, in the first six months of 2011 compared to $2.7 million, 5.6% of revenues, in the six months ended June 30, 2010.  The increase was caused primarily by lower expenses in 2010 as a result of a bad debt recovery and higher management incentive expenses in 2011 compared to 2010.

·Specialty Manufacturing reduced selling and administrative expenses to $7.9 million, 8.3% of revenues, in the first six months of 2011 compared to $8.2 million, 11.7% of revenues, in the six months ended June 30, 2010.

·MIC Group incurred selling and administrative expenses of $5.2 million, 7.9% of revenues, in the first six months of 2011 compared to $5.0 million, 13.2% of revenues, in the six months ended June 30, 2010.  This increase was due primarily to higher variable selling expenses, increased headcount, bad debt accruals and depreciation of ERP software costs partially offset by reduced ERP implementation expenses, reduced consultant cost and lower incentive expenses.

·SVG reduced selling and administrative expenses to $1.3 million, 6.7% of revenues, in the first six months of 2011 compared to $1.7 million, 9.0% of revenues, in the six months ended June 30, 2010.  This decrease was due primarily to the closure of the Fort Smith, Arkansas facility.

·EFP incurred selling and administrative expenses of $1.4 million, 14.0% of revenues, in the first six months of 2011 compared to $1.5 million, 11.4% of revenues, in the six months ended June 30, 2010. The decrease in expense was due primarily to reduced variable selling expenses.

·Parent administrative expense increased to $4.0 million in the six months ended June 30, 2011 compared to $3.5 million in the first six months of 2010. The increase was primarily due to increases in salaries for new personnel, management incentive expenses and amortization of previously capitalized ERP software costs.

Closed and excess facility costs.  During the first six months of 2010, Specialty Vehicle Group recognized $0.8 million of costs related to the consolidation and restructuring of its two funeral coach and limousine manufacturing operations into one facility.

Operating income.  Due to the effect of the factors summarized above, consolidated operating income increased by $7.4 million in the first six months of 2011 to $19.3 million, compared to $11.9 million in the first six months of 2010, and as a percentage of revenues, from to 5.4% in 2011 to 4.0% in 2010.

·Morgan improved operating income 89%, or $6.1 million, to $13.0 million in the first six months of 2011 compared to $7.0 million in the first six months of 2010, and as a percentage of revenues from 8.0% in 2011 to 6.1% in 2010.  The increase in operating income and operating income as a percentage of revenues was driven by increased revenues and their impact on relatively fixed manufacturing overhead and selling and administrative expenses, and improved labor efficiency partially offset by rising material costs.

·TAG’s operating income decreased by $1.6 million, or 24.1% to $4.9 million in the first six months of 2011 compared to $6.5 million in the first six months of 2010, and as a percentage of revenues decreased to 7.7% in 2011 from 10.2% in 2010.  The decrease in operating income was the result of gross margin decreases partially offset by reductions in selling and administrative expenses.

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·Morgan Olson’s operating income decreased by $2.8 million, to an operating loss of $0.3 million in the first six months of 2011, compared to operating income of $2.5 million in the first six months of 2010, and as a percentage of revenues from 5.3% in 2010 to (0.9)% in 2011.  The decrease in operating income and operating income as a percentage of revenues is primarily attributable to decreased revenues in the first half of 2011 caused by the timing of fleet customer shipments in 2011 compared to 2010.  In 2011, as demonstrated by higher backlog levels at June 30, 2011, fleet shipments are expected to be filled largely in the second and third quarters whereas in 2010 these shipments were filled in the first and second quarters.

·Specialty Manufacturing Division’s operating income increased by $6.1 million to $5.4 million in the first six months of 2011 compared to an operating loss of $0.7 million in the first six months of 2010, and as a percentage of revenues, from 5.7% in 2011 to (0.9)% in 2010.

·MIC Group’s operating income increased by $3.3 million to $3.2 million in the first six months of 2011 compared to an operating loss of $0.1 million in the first six months of 2010, and as a percentage of revenues, from (0.4)% in 2010 to 4.9% in 2011.  The improvement in operating income was primarily due to increased revenues, improved pricing, labor efficiencies and procurement initiatives partially offset by losses incurred in fulfilling unprofitable or low margin contracts.

·SVG’s operating income increased by $3.0 million to $1.7 million in the first six months of 2011 compared to an operating loss of $1.3 million in the first six months of 2010, and as a percentage of revenues, from (6.9)% in 2010 to 8.8% in 2011.  The increase in operating income and margin mainly reflects the impact of the closure of the Fort Smith, Arkansas plant.

·EFP’s operating income decreased by $0.2 million, to $0.5 million in the first six months of 2011 compared to $0.7 million in the first six months of 2010, and as a percentage of revenues declined to 5.4% in 2011 compared to 5.7% in 2010.  The decline in operating income and improvement in operating income percentage was due to reduced shipments of unprofitable products to the recreational vehicle and construction markets and a plant overhead reduction in EFP’s Elkhart, Indiana facility.

Interest expense.  Consolidated interest expense was $9.1 million (2.5% of net sales,sales) compared to $4.4$8.9 million or 3.3%(3.0% of net sales,sales) for the quarterssix months ended March 31,June 30, 2011 and 2010, respectively.

Income taxes.  The effective income tax rate was 39.5% and 41.6% for the six months ended June 30, 2011 and 2010, respectively, and differed from the federal statutory rate for the three months ended March 31, 2011 primarily because of state taxes and our inability to record tax benefits on our foreign losses.taxes.

We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. During the quarters ended March 31, 2011 and 2010, we incurred Canadian and Malaysian pretax losses of $0.2 million and $0.3 million, respectively and recorded an increase in the valuation allowance against the deferred tax asset related to those losses of $59,000 and $12,000, respectively.  We consider future taxable income and prudent and feasible tax planning strategies in assessing the need for the valuation allowance and should we determine that it is more likely than not that we will be able to realize deferred tax assets in the future in excess of the net recorded amount, a reduction in the valuation allowance would increase income in the period such determination was made.  Conversely, should we determine that it is more likely than not  that we will be unable to realize all or part of the net deferred tax asset in the future, an increase to the valuation allowance would reduce income in the period such determination was made.

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Financing cash flows.  FinancingNet cashused by financing activities duringtotaled $1.0 million in the three monthssix month period ended March 31,June 30, 2011 used cash of $0.6 million compared to cash used of $0.5 million for the three months ended March 31,and 2010.

Our Revolving Credit Facility, which wasrevolving credit facility has been extended through March 14, 2012 and will automatically renews forterminate on that date.  We anticipate entering into a 12-month period after March 15new revolving credit facility on similar terms with a three to five year maturity during the second half of each year unless notice is provided by either party2011. Although there can be no assurance that we will be able to do so on acceptable terms or at least 90 days prior to its expiration, and our Indenture relating to our 8.75% notes restrict our ability to incur debt, pay dividends and undertake certain corporate activities.all.  See “Risk Factors”.

At March 31,June 30, 2011, the Consolidated Coverage Ratio, as defined in the Indenture relating to our 8.75% Notes, was 1.952.3 to 1.0,1, which was lessgreater than the Indenture debt incurrence covenant of 2.0 to 1.0.  As a result, we1. We are limited in our abilityprohibited from incurring additional indebtedness when the Consolidated Coverage ratio is below 2.0 to incur additional indebtedness.1.  The Indenture permits certain exceptions with respect to capitalized lease obligations and other arrangements that are incurred for the purpose of financing all or part of the purchase price or cost of construction or improvements of property used in our business. Already existing obligations and any amountsAmounts available to be drawn on our existing revolving credit agreement are not subject to this limitation.

TheOur revolving credit facility provides for available borrowings of up to $50.0 million in revolving loans. Available borrowings are subject to a borrowing base of eligible accounts receivable, inventory, machinery and equipment, and real estate. Borrowings under our revolving credit facility are collateralizedsecured by substantially all of our assets and the assets of our existing subsidiaries. Our revolving credit facility also includes a sub-facility for up to $15.0 million for letters of credit. As of March 31,June 30, 2011, we had no borrowings under the facility and our borrowing base would have supported debt borrowings of $50.0 million under our revolving credit facility.

We believe that we will have adequate resources to meet our working capital and capital expenditure requirements consistent with past trends and practices for at least the next 12 months. Additionally, we believe that our cash and borrowing availability under the revolving credit facility will satisfy our cash requirements for the remainder of 2011, given our anticipated capital expenditures, working capital requirements and known obligations. Our ability to make payments on our debt, including the 8.75% Notes, and to fund planned capital expenditures will depend on our ability to generate cash in the future. This is subject to general economic conditions, other factors influencing the industries in which we operate and circumstances that are beyond our control. We cannot be certain that we will generate sufficient cash flows, and if we do not, we may have to engage in other activities such as the sale of assets to meet our cash requirements.  See “Risk Factors”.

Notes refinancing.  In late April of 2011, the Company engaged legal counsel and investment advisors and initiated internal activities in anticipation of refinancing and extending the maturity of the $200 million of 8.75% Notes due in March 2014.

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