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# **UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

## **WASHINGTON D.C. 20549**

## ** **

# **FORM 10-K**

# ** **

| x | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES****EXCHANGE ACT OF 1934** |
|---|--------------------------------------------------------------------------------------------------------|

 

**For the fiscal year ended:December 26, 2009**

 

**OR**

 
| o | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES****EXCHANGE ACT OF 1934** |
|---|------------------------------------------------------------------------------------------------------------|

 

**COMMISSIONFILE NUMBER: 1-8183**

 

### **SUPREME INDUSTRIES, INC.**

(Exactname of Registrant as specified in its charter)

 

| **Delaware**                                                   | ** ** | **75-1670945**                           |
|----------------------------------------------------------------|------------|------------------------------------------|
| (State  or other jurisdiction of incorporation)                |       | (I.R.S.  Employer Identification Number) |
|                                                           |       |                                     |
| **P.O. Box 237, 2581 E. Kercher Road****Goshen, Indiana** | ** ** | **46528**                                |
| (Address  of principal executive office)                       |       | (Zip  Code)                              |

 

#### **Registrant’s telephonenumber, including area code:** (574) 642-3070

 

Securitiesregistered pursuant to Section 12(b) of the Exchange Act:

 

| **Title  of each class:**                   | ** ** | **Name of  each exchange on which registered:** |
|---------------------------------------------|------------|-------------------------------------------------|
| Class A  Common Stock ($.10 Par Value) |       | NYSE  Amex                                      |

 

Securities registeredpursuant to Section 12(g) of the Exchange Act: **None**

 

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Indicate by check mark if theregistrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act. Yes o   No x

 

Indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Act. Yes o  No x

 

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

 

Indicate by check whether theregistrant has submitted electronically and posted on its corporate Web site,if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T during the preceding 12 months (orfor such shorter period that the registrant was required to submit and post suchfiled). Yes o  No o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to thisForm 10-K. x

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,”“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of theExchange Act.

 

| Large  accelerated filer o |   | Accelerated  filer o         |
|----------------------------|--------|------------------------------|
|                       |   |                         |
| Non-accelerated  filer o   |   | Smaller  reporting company x |

 

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

 

The aggregate market value ofthe voting and non-voting common stock held by non-affiliates of the registrantas of the last business day of the registrant’s most recently completed secondfiscal quarter, based on the last closing sale price of $1.30 per share for thecommon stock on the NYSE Amex (formerly American Stock Exchange) on such date,was approximately $13,719,958.

 

Indicate the number of sharesoutstanding of each of the registrant’s classes of common stock as of thelatest practicable date.

 

| **Class**                                   | ** ** | **Outstanding at March 8,  2010** |
|---------------------------------------------|------------|----------------------------------------|
| Class A  Common Stock ($.10 Par Value) |       | 12,227,860  shares                     |
| Class B  Common Stock ($.10 Par Value) |       | 2,120,382  shares                      |

 

**Documentsincorporated by reference**

 

Listedbelow are documents, parts of which are incorporated herein by reference, andthe part of this report into which the document is incorporated:

 

Portions of the Proxy Statement for the 2010 Annual Meeting of Stockholdersto be held on May 6, 2010  –  Part III

 

 

 

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**TABLE OF CONTENTS**

 
| PART I   |   |                                                                                                                |   | 1  |
|---------------|--------|---------------------------------------------------------------------------------------------------------------------|--------|----|
| ITEM 1.       |   | BUSINESS                                                                                                            |   | 1  |
| ITEM 1A.      |   | RISK FACTORS                                                                                                        |   | 5  |
| ITEM 1B.      |   | UNRESOLVED STAFF COMMENTS                                                                                           |   | 8  |
| ITEM 2.       |   | PROPERTIES                                                                                                          |   | 9  |
| ITEM 3.       |   | LEGAL PROCEEDINGS                                                                                                   |   | 10 |
| ITEM 4.       |   | RESERVED                                                                                                            |   | 10 |
| PART II  |   |                                                                                                                |   | 10 |
| ITEM 5.       |   | MARKET FOR REGISTRANT’S COMMON EQUITY,  RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES |   | 10 |
| ITEM 6.       |   | SELECTED FINANCIAL DATA                                                                                             |   | 12 |
| ITEM 7.       |   | MANAGEMENT’S DISCUSSION AND ANALYSIS  OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         |   | 12 |
| ITEM 7A.      |   | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         |   | 25 |
| ITEM 8.       |   | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                                        |   | 25 |
| ITEM 9.       |   | CHANGES IN  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               |   | 50 |
| ITEM 9A.      |   | CONTROLS AND  PROCEDURES                                                                                            |   | 50 |
| ITEM 9B.      |   | OTHER INFORMATION                                                                                                   |   | 51 |
| PART III |   |                                                                                                                |   | 51 |
| ITEM 10.      |   | DIRECTORS,  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                             |   | 51 |
| ITEM 11.      |   | EXECUTIVE  COMPENSATION                                                                                             |   | 51 |
| ITEM 12.      |   | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS                    |   | 51 |
| ITEM 13.      |   | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                          |   | 51 |
| ITEM 14.      |   | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                                             |   | 51 |
| PART IV  |   |                                                                                                                |   | 52 |
| ITEM 15.      |   | EXHIBITS  AND FINANCIAL STATEMENT SCHEDULES                                                                         |   | 52 |

 

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**PART I**

** **

**ITEM 1.                  BUSINESS.**

 

**History**

 

Supreme Industries, Inc., a Delaware corporation (the “Company” or“Supreme”), is one of the nation’s leading manufacturers of specializedvehicles, including trucks, buses and armored vehicles.  The Company was incorporated in 1979 andoriginally had one operating subsidiary, TGC Industries, Inc., which wasspun-off to stockholders of the Company effective July 31, 1986.

 

Supreme Corporation, the Company’s wholly-owned operating subsidiary,was formed in January 1984 to acquire a company engaged in the business ofmanufacturing, selling, and repairing specialized truck bodies, buses, andrelated equipment.

 

**FinancialInformation About Operating Segments**

 

The Company has two operating segments — specialized vehicles andfiberglass products.  The fiberglassproducts segment does not meet the quantitative thresholds for separate disclosure.  See segment information in Note 1 - Nature ofOperations and Accounting Policies, of the Notes to Consolidated FinancialStatements (Item 8).

 

**GeneralDescription of the Company’s Business**

 

The specialized vehicle industry consists of companies that manufactureand/or distribute specialized truck bodies and buses.  Depending on the product, it is either builtdirectly on a truck chassis or built separately and installed at a later date.  The truck chassis, which consists of anengine, frame with wheels, and in some cases a cab, is manufactured by thirdparties who are major automotive or truck companies.  Such companies typically do not buildspecialized truck bodies.

 

Supreme’s core truck products are medium-priced, although prices canrange from $4,000 to $175,000.  Supreme’struck bodies are offered in aluminum, fiberglass reinforced plywood (“FRP”),FiberPanel, or molded fiberglass construction and are available in lengths of 8to 30 feet and heights of up to 109 inches. Examples of optional equipment offered by Supreme include lift gates,cargo-handling equipment, customized doors, special bumpers, ladder racks, andrefrigeration equipment, which are configured with the truck bodies to meet theend-user’s needs.

 

The following table shows net sales contributed by each of theCompany’s continuing operation product categories:

 
| ** **             | ** ** | **2009**    | ** **  | **2008**    | ** ** | **2007**    | ** ** |
|------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| Specialized  vehicles: |       |        |        |        |       |        |       |
| Trucks                 |       | $           | 98,167,373  |        | $          | 162,667,783 |       | $ | 209,180,974 |   |
| Buses                  |       | 70,976,280  |        | 79,139,207  |       | 65,409,725  |       |
| Armored  vehicles      |       | 18,751,395  |        | 6,002,900   |       | 13,813,434  |       |
|                   |       | 187,895,048 |        | 247,809,890 |       | 288,404,133 |       |
| Composites             |       | 4,140,608   |        | 10,093,047  |       | 13,250,937  |       |
|                   |       | $           | 192,035,656 |        | $          | 257,902,937 |       | $ | 301,655,070 |   |

 

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The following is a brief summary of Supreme’s products:

 

Signature Van bodies.  Supreme’s Signature Van bodies range from 10to 28 feet in length with exterior walls assembled from one of several materialoptions including pre-painted aluminum, FRP panels, or FiberPanels. Additionalfeatures include molded composite front and side corners, LED marker lights,sealed wiring harnesses, hardwood or pine flooring, and various doorconfigurations to accommodate end-user loading and unloading requirements.  This product is adaptable for a diverse rangeof uses in dry-freight transportation.

 

Iner-City® cutaway vanbodies.  An ideal routetruck for a variety of commercial applications, the Iner-City bodies aremanufactured on cutaway chassis which allow access from the cab to the cargoarea.  Borrowing many design elementsfrom Supreme’s larger van body, the Iner-City is shorter in length (10 to 17feet) than a van body.

 

Portable storagecontainers.  Supremehas also applied its truck body expertise in developing multiple sizes ofstorage containers for companies in the expanding market of portable storagecontainers which provide warehouse storage of household goods.

 

Spartan service bodies.  Built on the cutaway chassis out of durableFRP, the Spartan Service Body is a virtual workshop on wheels.  In lengths from 10 to 14 feet, the Spartan’sselection of compartments, shelves, doors, and pre-designed options providesjob-site protection from the weather while offering a secure lockableworkspace.

 

Spartan cargo vans.  Built on a cutaway chassis and constructed ofFRP, the Spartan Cargo Van provides the smooth maneuverability of a commercialvan with the full-height and spacious cargo area of a truck body.  In lengths of 10 to 14 feet and availablewith a variety of pre-designed options, the Spartan Cargo Van is a bridgeproduct for those moving up from a traditional cargo van into the truck bodycategory.

 

Spartan MX insulatedbodies.  Designed forcompanies which make frequent hand-loaded refrigerated deliveries, the 10-footand 12-foot Spartan MX insulated body provides superb thermal efficiency andmaximum cubic load capacity compared to an insulated OEM cargo van.

 

Astro Body.  Supreme has partnered with General Motors(“GM”) to develop the molded fiberglass Astro Body.  As a replacement to GM’s phased out Astro andSafari cargo vans, the Astro Body mounts to a pickup chassis and is availablewith various options providing a sleek, durable, and functional alternative tothe cargo van.

 

Kold King® insulated vanbodies.  Kold Kinginsulated bodies, in lengths of up to 28 feet, provide versatility anddependability for temperature controlled applications.  Flexible for either hand-load or pallet-loadrequirements, they are ideal for multi-stop distribution of both fresh andfrozen products.

 

Stake bodies.  Stake bodies are flatbeds with variousconfigurations of removable sides.  Thestake body is utilized for a broad range of agricultural and construction industriestransportation needs.

 

Suburbans. Supreme’s armored Suburban offers the same outside appearance andinterior as a stock model Suburban, but with armored protection against hostilefire.  The protective vehicle is usedabroad by governmental agencies.

 

Armored trucks.  Supreme’s armored trucks are built tocustomer specifications in aluminum, galvaneal, or stainless steel.

 

Supreme SpecialtyVehicles.  The SupremeSpecialty Vehicles (“SSV”) product line specializes in meeting thetransportation needs of emergency response and homeland securitypersonnel.  Sample products include SWATrapid deployment vehicles, prisoner transport, mobile command centers, andmobile medical units.

 

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StarTrans® shuttle buses.  The StarTrans® shuttle buses (Senator andCandidate) have seating capacities for 12 to 29 people and are offered with avariety of seating arrangements and with options such as wheelchair lifts,custom interiors, and special exterior paint schemes.  The shuttle bus line features an aerodynamicexterior design and is intended for use by hotels, nursing homes, car leasingcompanies, and airport-related users.

 

StarTrans® mid-sizebuses.  Supreme’sStarTrans® mid-size buses (President and Ambassador) are offered in lengths ofup to 31 feet with capacities of up to 35 passengers.  This product serves the public transit andtour markets and provides the Company’s dealer network with a morecomprehensive product line.

 

StarTrans® trolleys.  Supreme’s StarTrans® trolley line is similarin size to the mid-size bus line but resembles a San Francisco trolleycar.  It is marketed to resort areas,theme parks, and cities desiring unique transportation vehicles.

 

StarTrans® Tourliner.  This luxury touring coach providestransportation for up to 39 passengers and is marketed to church groups,retirement communities, colleges, and other touring organizations.

 

StarTrans® Activity Bus.  The Activity Bus is a stylish replacement forthe former 15 passenger van and is marketed to churches, schools, day carecenters, and other organizations in need of shuttle bus capabilities.

 

Kold King®, Iner-City®, Spartan, StarTrans®, TourLiner®, and Fuel Sharkare tradenames used by Supreme in its marketing of truck bodies and buses.  Kold King®, Iner-City®, StarTrans®,FiberPanel® and TourLiner® are trademarks registered in the U.S. Patent andTrademark Office.

 

Some examples of specialized vehicles that are not manufactured bySupreme are dump bodies, utility bodies, and garbage packers.  Neither Supreme nor any of its competitorsmanufacture every type of specialized vehicle.

 

During the fourth quarter of 2009, the Company exited its Silver Crownluxury motorhome business. The unprecedented tight credit markets caused by thesevere economic recession led to a significant reduction of new motorhomeorders and the cancellation of existing orders.

 

**Manufacturing**

 

Supreme’s manufacturing facilities are located in Goshen and Ligonier,Indiana; Griffin, Georgia; Cleburne, Texas; Moreno Valley, California;Jonestown, Pennsylvania, and Woodburn, Oregon. Supreme’s management estimates that the recent capacity utilization ofits plants and equipment ranges from 40% to 75% of capacity when annualized ona one-shift basis.

 

Supreme builds specialized vehicles and installs other equipment ontruck chassis, most of which are provided by converter pool agreements or areowned by dealers or end-users.  These truckbodies are built on an assembly line from engineered structural components suchas floors, roofs, and wall panels.  Thesecomponents are manufactured from Supreme’s proprietary designs and areinstalled on the truck chassis.  Supremethen installs optional equipment and applies any special finishes that thecustomer has specified.  At each step ofthe manufacturing and installation process, Supreme conducts quality controlprocedures to ensure that the products meet its customers’ specifications.  Supreme’s products are generally produced tofirm orders and are designed and engineered by Supreme.  Order levels will vary depending upon price,competition, prevailing economic conditions, and other factors.

 

Supreme is more vertically integrated than many of itscompetitors.  The Company manufacturesits own fiberglass reinforced plywood and a portion of its fiberglass parts,and has extensive roll forming and metal bending capabilities.  A portion of the excess capacity of thesefabrication capabilities has historically been used to supply products to therecreational vehicle and marine industries. These component manufacturing facilities are located in Goshen andLigonier, Indiana.

 

Supreme provides limited warranties against construction defects in itsproducts.  These warranties generallyprovide for the replacement or repair of defective parts or workmanship forperiods of up to five years following the date of retail sale.

 

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**Marketing**

 

Supreme normally sells the vehicle and/or equipmentthat has been installed on the chassis to commercial dealers, distributors,fleet leasing companies, or directly to end-users.  Products purchased by a dealer from Supremeare sold by the dealer to its own customers. Since Supreme or its distributors generally service all Supreme productssold by the dealers, each dealer is normally located within relatively closegeographic proximity to a Supreme facility or the distributor supplying suchdealer.

 

Supreme’s distributor/dealer network consists of approximately 40 busdistributors, a limited number of truck equipment distributors, andapproximately 1,000 commercial dealers. Management believes that this large network, coupled with Supreme’sgeographically-dispersed plant and distribution sites, gives Supreme a distinctmarketing advantage over its competitors. Supreme generally delivers its products within 4 to 8 weeks after the receiptof orders.

 

Supreme directly markets products in geographic areas where the Companydoes not have a distributor.  The Companycurrently operates distribution/mounting facilities in or near the cities ofSt. Louis, Missouri; Orlando, Florida; and Harrisville, Rhode Island.

 

Approximately 80 employees are engaged in direct sales.  Supreme engages in direct advertising intrade publications, trade shows, and cooperative advertising campaigns withdistributors.

 

**Trademarks**

 

The Company owns and maintains trademarks that are used in marketingspecialized products manufactured by Supreme. Management believes that these trademarks have significant customergoodwill.  For this reason, managementanticipates renewing each trademark discussed above for an additional ten-yearperiod prior to such trademark’s expiration.

 

**WorkingCapital**

 

The Company utilizes its revolving line of credit to finance itsaccounts receivable and inventories.  TheCompany believes that its days sales outstanding and its days inventories onhand are within normal industry levels. The Company had working capital of $21.5 million and $60.3 million at December 26,2009, and December 27, 2008, respectively. During the third quarter of 2009, the Company reclassified its revolvingline of credit from long-term to current (See Note 6 of the Notes toConsolidated Financial Statements for additional information regarding debt andrelated matters).

 

**MajorCustomers**

 

No single customer, or group of customers, accounted for 10% or more ofthe Company’s net sales for the fiscal years ended in 2009, 2008, and2007.  The Company’s export sales are notsignificant.  For the years ended 2009and 2008, one customer accounted for 16.6% and 13.3%, respectively, of theCompany’s total trade accounts receivable.

 

**CompetitiveConditions**

 

The highly competitive nature of the specialized vehicle industrypresents a number of challenges. With only a few national competitors, theCompany often competes with smaller, regional companies. As a result of thisbroad competition, the Company is often faced with competitive pricingpressures. Other competitive factors include quality of product, lead times,geographic proximity to customers, and the ability to manufacture a productcustomized to customer specifications.

 

During favorable business cycles, the industry tends to see an increasein smaller, regional competitors, and then a similar decrease during times ofchallenging economic pressures. With its national presence, diverse productofferings, and strong financial position, the Company believes that it iswell-positioned to meet the competitive challenges presented.

 

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**GovernmentalRegulation**

 

The Company’s operations are subject to a variety of federal, state,and local environmental and health and safety statutes and regulationsincluding those related to emissions to the air, discharges to the water,treatment, storage, and disposal of water, and remediation of contaminatedsites. From time to time, the Company has received notices of noncompliancewith respect to our operations. These notices have typically been resolved byinvestigating the alleged noncompliance and correcting any noncompliantconditions.

 

**Seasonalityof Business**

 

The Company’s business is generally not seasonal in nature due to thenormal replacement cycle of its products (being approximately sevenyears).  However, the Companyhistorically has participated in bids for large fleet contracts and, ifsuccessful, is generally required to ship these fleet units in the first andsecond quarters.  Additionally, ourbusiness depends on various factors that are particularly sensitive to generaleconomic conditions and business cycles including: corporate profitability;interest rates; fuel costs; changes in government regulations (i.e. fuelstandards); customer preferences; industrial, commercial, and consumer spendingpatterns, and availability of truck chassis.

 

**Employees**

 

As of December 26, 2009 and December 27, 2008, the Companyemployed approximately 1,400 and 1,500 employees, respectively, none of whomare represented by a collective bargaining unit.  The Company considers its relations with itsemployees to be very favorable.

 

**BackLog**

 

The Company’s backlog of firm orders was $68.1 million at December 26,2009 compared to $60.0 million at December 27, 2008.

 

**ITEM** 1A.               RISK FACTORS.

** **

Any investment in our Common Stock involves a high degree of risk.  You should carefully consider the risks anduncertainties described below and the other information included in this Form 10-Kbefore purchasing our Common Stock. Although the risks described below are the risks that we believe arematerial, they are not the only risks relating to our business and our CommonStock.  Additional risks anduncertainties, including those that are not yet identified or that we currentlybelieve are immaterial, may also adversely affect our business, financialcondition, or results of operations.  Ifany of the events described below occur, our business and financial resultscould be materially and adversely affected. The market price of our Common Stock could decline due to any of theserisks, perhaps significantly, and you could lose all or part of yourinvestment.

 

**Theongoing economic uncertainty is having a significant negative impact on ourindustry.**

 

The recent recession andthe uncertainty over its breadth, depth, and duration have had a negativeimpact on the specialized commercial vehicle industry. Accordingly, ourfinancial results have been negatively impacted by the economic downturnnotwithstanding cost-cutting measures taken by the Company in response to suchdownturn. Both our financial results and potential for growth could be furtherhindered if economic uncertainties continue for a significant period or becomeworse. The Company may be forced to take additional cost-cutting measures whichmay adversely affect the Company’s ability to execute its business plan.

 

**A lackof credit and financing availability to the Company, its vendors, dealers, orend users could adversely affect our business.**

 

The Company’s liquidityand financial condition may be materially and adversely affected if, under itscurrent bank credit agreement, the Company’s ability to borrow money from itsexisting lender to finance its operations is reduced or eliminated. Similaradverse effects may also result if the Company realizes lessened creditavailability from trade creditors. Additionally, many of our customers requirethe availability of financing to facilitate the purchase of our products. As aresult, a continuing period of reduced credit availability in the marketplacecould have further adverse effects on the Company’s business.

 

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**Increasesin the price and demand for raw materials could lower our margins andprofitability.**

 

Supreme does not have long-term raw material contracts and is dependentupon suppliers of steel, aluminum, wood products, and fiberglass materials,among others, for its manufacturing operations. Consequently, our ability toproduce and deliver our products could be affected by disruptions encounteredby our raw material suppliers or freight carriers.  Additionally, competitive market conditionsmay prevent the Company from implementing price increases to offset rawmaterial cost increases.

 

**Volatilityin the supply of vehicle chassis and other vehicle components could adverselyaffect our business.**

 

With the exception ofsome StarTrans bus products, the Company generally does not purchase vehiclechassis for its inventory.  The Company accepts shipments of vehiclechassis owned by dealers or end-users for the purpose of installing and/ormanufacturing its specialized truck bodies and buses on such chassis.Historically, General Motors Corp. (“GM”) has been the Company’s primarysupplier of truck chassis, while Ford Motor Company (“Ford”) has been theprimary supplier of bus chassis.  In the event of a disruption in supplyfrom one major supplier, the Company would attempt to use another majorsupplier, but there can be no assurance that this attempt would be successful.Nevertheless, in the event of chassis supply disruptions, there could beunforeseen consequences that may have a significant adverse effect on theCompany’s business operations.

 

The Company also facesrisk relative to finance and storage charges for maintaining excess consignedchassis inventory from GM and Ford.  Under these consigned inventoryagreements, if a chassis is not delivered to a customer within a specified timeframe, the Company is required to pay finance or storage charges on suchchassis.

 

**Wecompete in the highly competitive specialized vehicle industry which may impactour financial results.**

 

The competitive nature of the specialized vehicle industry creates anumber of challenges for the Company. Important factors include product pricing, quality of product, leadtimes, geographic proximity to customers, and the ability to manufacture aproduct customized to customer specifications. Specialized vehicles are produced by a number of smaller, regionalcompanies which create product pricing pressures that could adversely impactthe Company’s profits.  Chassismanufacturers have not generally shown an interest in manufacturing specializedvehicles, including truck bodies and buses, because such manufacturers’highly-automated assembly line operations do not lend themselves to theefficient production of a wide variety of highly specialized vehicles withvarious options and equipment.

 

**Wehave potential exposure to environmental and health and safety liabilitieswhich may increase costs and lower profitability.**

 

Our operations are subject to a variety of federal, state, and localenvironmental and health and safety statutes and regulations, including thoserelating to emissions to the air, discharges to water, treatment, storage, anddisposal of waste, and remediation of contaminated sites.  In certain cases, these requirements maylimit the productive capacity of our operations.

 

Certain laws, including the Federal Comprehensive EnvironmentalResponse, Compensation, and Liability Act of 1980, as amended, have imposedstrict and, under certain circumstances, joint and several liability for coststo remediate contaminated sites upon designated responsible parties includingsite owners or operators and persons who dispose of wastes at, or transportwastes to, such sites.

 

From time to time, we have received notices of noncompliance withrespect to our operations. These notices have typically been resolved byinvestigating the alleged noncompliance and correcting any non-compliantconditions.  New environmentalrequirements, more aggressive enforcement of existing ones, or discovery ofpresently unknown conditions could require material expenditures or result inliabilities which could limit expansion or otherwise have a material adverseeffect on our business, financial condition, and operating cash flows.

 

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**Aproduct liability claim in excess of our insurance coverage, or an inability toacquire or maintain insurance at commercially reasonable rates, could have amaterially adverse effect upon our business.**

 

We face an inherent risk of exposure to product liability claims if theuse of our current and formerly manufactured products result, or are alleged toresult, in personal injury and/or property damage.  If we manufacture a defective product, we mayexperience material product liability losses in the future.  In addition, we may incur significant coststo defend product liability claims.  Wecould also incur damages and significant costs in correcting any defects, lostsales, and suffer damage to our reputation. Our product liability insurance coverage may not be adequate forliabilities we could incur and may not continue to be available on termsacceptable to us.

 

**Ourmanufacturer’s warranties expose us to potentially significant claims.**

 

We are subject to product warranty claims in theordinary course of our business.  If wemanufacture poor quality products or receive defective materials, we may incurunforeseen costs in excess of what we have reserved in our financialstatements.  These costs could have amaterial adverse affect on our business and operating cash flows.

 

**Wedepend on the services of our key executives. Any loss of our key executives could have a material adverse effect onour operations.**

 

Our ability to compete successfully and implement our business strategydepends on the efforts of our senior management personnel.  The loss of the services of any one or moreof these individuals could have a material adverse effect on our business.  We do not maintain key-man life insurancepolicies on any of our executives.  If wewere unable to attract qualified personnel to our management, our existingmanagement resources could become strained which would harm our business andour ability to implement our strategies.

 

**Ourrelatively low trading volumes may limit our stockholders’ ability to selltheir shares.**

 

Our Class A Common Stock has experienced, and may continue to experience,price volatility and low trading volumes. Overall market conditions, and other risk factors described herein, maycause the market price of our Class A Common Stock to fall.  Our high and low sales prices for the twelvemonth period ended December 26, 2009, were $3.17 and $0.73,respectively.  Our Class A CommonStock is listed on the NYSE Amex exchange under the symbol “STS.”  However, daily trading volumes for our Class ACommon Stock are, and may continue to be, relatively small compared to manyother publicly-traded securities.  Forexample, during the twelve month period ended December 26, 2009, our dailytrading volume has been as low as zero. It may be difficult for you to sell your shares in the public market atany given time at prevailing prices, and the price of our Class A CommonStock may, therefore, be volatile.

 

**Ourofficers and directors own a large percentage of our common stock.  They may vote their shares in ways with whichyou disagree.**

 

As of March 8, 2010, our officers and directors as a groupbeneficially owned 29.5% of our Class A Common Stock and 91.1% of our Class BCommon Stock.  As a result, they will continue to be able to exercisesignificant influence, and in most cases, control, over matters requiringshareholder approval, including the election of directors, changes to ourcharter documents, and significant corporate transactions.  This concentration of ownership makes itunlikely that any other holder or group of holders of our Class A CommonStock will be able to affect the way we are managed or the direction of ourbusiness.

 

**Our split classes of stock may makeit more difficult or expensive for a third party to acquire the Company whichmay adversely affect our stock price.**

 

Our outstanding Common Stock is split into two classes.  The Class A Common Stock is listed onthe NYSE Amex exchange, and the holders thereof are entitled to elect twomembers of the Company’s Board of Directors. The majority (91.1%) of the Class B Common Stock is owned orcontrolled by the Company’s officers and directors and is entitled to elect theremaining six members of the Company’s Board of Directors.  The continuing ability of the holders of our Class BCommon Stock to elect a majority of the members of the Company’s Board ofDirectors will make it difficult for another company to acquire us and for youto receive any related take-over premium for your shares (unless thecontrolling group approves the sale).

 

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**Ourinternal controls provide only reasonable assurance that objectives are met.Failure of one or more of these controls could adversely affect the Company.**

 

While the Company believes that its control systems are effective,there are inherent limitations in all control systems, and misstatements due toerror or fraud may occur and not be detected. The Company continues to take action to assure compliance with theinternal controls, disclosure controls, and other requirements of theSarbanes-Oxley Act of 2002.  Management,including our Chief Executive Officer and Chief Financial Officer, cannotguarantee that our internal controls and disclosure controls will prevent allpossible errors or all fraud.  A controlsystem, no matter how well conceived and operated, can provide only reasonable,not absolute, assurance that the objectives of the control system are met.  In addition, the design of a control systemmust reflect the fact that there are resource constraints, and the benefit ofcontrols must be relative to their costs. Because of the inherent limitations in all control systems, no system ofcontrols can provide absolute assurance that all control issues and instancesof fraud, if any, within the Company have been detected.  These inherent limitations include therealities that judgments in decision-making can be faulty and that breakdownscan occur because of simple error or mistake. Further, controls can be circumvented by individual acts of somepersons, by collusion of two or more persons, or by management override of thecontrols.  The design of any system ofcontrols is also based in part upon certain assumptions about the likelihood offuture events, and there can be no assurance that any design will succeed inachieving its stated goals under all potential future conditions.  Over time, a control may be inadequatebecause of changes in conditions or the degree of compliance with the policiesor procedures may deteriorate.  Becauseof inherent limitations in a cost-effective control system, misstatements dueto error or fraud may occur and not be detected.

 

(See other risk factors listed under the following captions:  Critical Accounting Policies and Estimatesand Forward-Looking Statements).

 

**ITEM 1B.               UNRESOLVED STAFF COMMENTS.**

** **

Not applicable.

 

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**ITEM 2.                  PROPERTIES.**

 

Set forth below is a brief summary of the properties which are owned orleased by the Company.

 
| ** **                        | ** ** | **Square**  | ** ** | **Owned  or** | ** ** | ** **             |
|-----------------------------------|------------|-------------|------------|---------------|------------|------------------------|
|                              | ** ** | **Footage** | ** ** | **Leased**    | ** ** | **Operating  Segment** |
| Manufacturing  of Products        |       |        |       |          |       |                   |
| Jonestown,  Pennsylvania          |       | 429,376     |       | Owned         |       | Specialized Vehicles   |
| Goshen,  Indiana                  |       | 287,796     |       | Leased        |       | Specialized Vehicles   |
| Goshen,  Indiana                  |       | 195,939     |       | Owned         |       | Specialized Vehicles   |
| Cleburne,  Texas                  |       | 177,035     |       | Owned         |       | Specialized Vehicles   |
| Woodburn,  Oregon                 |       | 116,760     |       | Owned         |       | Specialized Vehicles   |
| Griffin,  Georgia                 |       | 105,379     |       | Leased        |       | Specialized Vehicles   |
| Moreno  Valley, California        |       | 103,200     |       | Owned         |       | Specialized Vehicles   |
| Griffin,  Georgia                 |       | 86,400      |       | Owned         |       | Specialized Vehicles   |
| White  Pigeon, Michigan (1)       |       | 74,802      |       | Owned         |       | Specialized Vehicles   |
| Ligonier,  Indiana                |       | 23,540      |       | Owned         |       | Specialized Vehicles   |
|                              |       | 1,600,227   |       |          |       |                   |
|                              |       |        |       |          |       |                   |
| Manufacturing  of Component Parts |       |        |       |          |       |                   |
| Goshen,  Indiana                  |       | 57,570      |       | Owned         |       | Fiberglass Products    |
| Ligonier,  Indiana                |       | 52,142      |       | Owned         |       | Fiberglass Products    |
|                              |       | 109,712     |       |          |       |                   |
|                              |       |        |       |          |       |                   |
| Distribution                      |       |        |       |          |       |                   |
| Harrisville,  Rhode Island        |       | 20,000      |       | Owned         |       | Specialized Vehicles   |
| Apopka,  Florida                  |       | 5,200       |       | Owned         |       | Specialized Vehicles   |
| St.  Louis, Missouri              |       | 4,800       |       | Owned         |       | Specialized Vehicles   |
| Colorado  Springs, Colorado       |       | 950         |       | Leased        |       | Specialized Vehicles   |
|                              |       | 30,950      |       |          |       |                   |
|                              |       |        |       |          |       |                   |
| Properties  Held for Sale         |       |        |       |          |       |                   |
| Wilson,  North Carolina (2)       |       | 113,694     |       | Owned         |       | Not Applicable         |
| Streetsboro,  Ohio (3)            |       | 11,900      |       | Owned         |       | Not Applicable         |
| Springfield,  Ohio (4)            |       | 11,200      |       | Owned         |       | Not Applicable         |
|                              |       | 136,794     |       |          |       |                   |
|                              |       |        |       |          |       |                   |
| Corporate  Office Building        |       |        |       |          |       |                   |
| Goshen,  Indiana                  |       | 26,000      |       | Owned         |       | Not Applicable         |
|                              |       |        |       |          |       |                   |
| Total  square footage             |       | 1,903,683   |       |          |       |                   |

 

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(1)          During the fourth quarter of 2009, theCompany ceased business operations at its White Pigeon, Michigan facility whichproduced luxury motorhomes. The Company is in the process of assessing theviability of selling or leasing this facility.

(2)          During the third quarter of 2002, theCompany ceased business operations at its manufacturing facility in Wilson,North Carolina.  Since then, the propertyhas been, and continues to be, listed for sale; however, the Company has beenunable to sell the property because of weak economic conditions and excessbuilding facilities in this region of the country.  While retaining the right to sell theproperty to interested buyers, the Company does currently lease a portion ofthis property to an unrelated business.

(3)          During the first quarter of 2009, theCompany ceased business operations at its Streetsboro, Ohio distributionfacility.  This facility is currentlybeing marketed for sale.

(4)          During the second quarter of 2009, theCompany ceased business operations at its distribution facility in Springfield,Ohio.  This facility was sold on January 26,2010.

 

The facilities owned or leased by the Company are well maintained, ingood condition, and adequate for our purposes.

 

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| **ITEM  3.** | **LEGAL PROCEEDINGS** |
|--------------|-----------------------|

 

The Company is subject to variousinvestigations, claims, and legal proceedings covering a wide range of mattersthat arise in the ordinary course of its business activities.  Each of these matters is subject to variousuncertainties, and it is possible that some ofthese matters may be resolved unfavorably to the Company.  The Company has established accruals formatters that are probable and reasonably estimable.  Management believes that any liability thatmay ultimately result from the resolution of these matters in excess ofaccruals and or amounts provided by insurance coverage will not have a materialadverse effect on the consolidated financial position or results of operationsof the Company.

 
| **ITEM 4.** | **RESERVED** |
|-------------|--------------|

 

**PART II**

** **
| **ITEM  5.** | **MARKET FOR REGISTRANT’S COMMON  EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY  SECURITIES.** |
|--------------|---------------------------------------------------------------------------------------------------------------------------|

** **

The Company’s Class A Common Stock is traded on the NYSE Amexexchange (ticker symbol STS).  The numberof record holders of the Class A Common Stock as of March 8, 2010 wasapproximately 251.  Due to the number ofshares held in nominee or street name, it is likely that there aresubstantially more than 251 beneficial owners of the Company’s Class ACommon Stock.

 

The Company’s Class A Common Stock closed at a price of $2.70 pershare on the NYSE Amex exchange on March 8, 2010 on which date there were12,227,860 shares of Class A Common Stock outstanding.  Adjusted for the two percent (2%) and sixpercent (6%) common stock dividends declared and paid during 2008 (see dividenddata below), high and low sales prices of the Class A Common Stock for thetwo-year period ended December 26, 2009 were:

 
| ** **   | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------|------------|----------|------------|----------|------------|
| ** **   | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| 1st  Quarter |       | $        | 1.65       |     | $          | 0.73 |   | $ | 5.95 |   | $ | 4.95 |   |
| 2nd  Quarter |       | 1.84     |       | 0.80     |       | 5.28 |   | 3.71 |   |
| 3rd  Quarter |       | 3.17     |       | 1.55     |       | 4.70 |   | 2.75 |   |
| 4th  Quarter |       | 2.99     |       | 1.85     |       | 2.83 |   | 0.68 |   |
|              |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

All of the 2,120,382 outstanding shares of the Company’s Class BCommon Stock were held by a total of 14 persons as of March 8, 2010.  There is no established trading market forthe Class B Common Stock.  The Class BCommon Stock is freely convertible on a one-for-one basis into an equal numberof shares of Class A Common Stock, and ownership of the Class BCommon Stock is deemed to be beneficial ownership of the Class A CommonStock under Rule 13d-3(d) (1) promulgated under the SecuritiesExchange Act of 1934.

 

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The Company did not declare or pay any stock dividends during the yearended December 26, 2009.  The Boardof Directors approved the following stock dividends on its outstanding Class Aand Class B Common Stock during the year ended December 27, 2008:

 
| ** **             | ** ** | ** **             | ** ** | ** **             | ** ** | **Stock Dividend** | ** ** |
|------------------------|------------|------------------------|------------|------------------------|------------|--------------------|------------|
| **Declaration  Date**  | ** ** | **Record Date**        | ** ** | **Paid Date**          | ** ** | **Per Share**      | ** ** |
|                   |       |                   |       |                   |       |               |       |
| 2008                   |       |                   |       |                   |       |               |       |
| August 11, 2008   |       | August 22, 2008   |       | August 29, 2008   |       | 2                  | %          |
| November 10, 2008 |       | November 21, 2008 |       | November 28, 2008 |       | 6                  | %          |

 

All basic and diluted shares outstanding have been adjusted to reflectthe two percent (2%) and six percent (6%) common stock dividends declared andpaid during 2008.

 

The Company did not declare or pay any cash dividends during the yearended December 26, 2009.  The Boardof Directors approved the following cash dividends on its outstanding Class Aand Class B Common Stock during the year ended December 27,2008.  Adjusted for the common stockdividends declared and paid in 2008, cash dividends were:

 
| **Declaration  Date**  | ** ** | **Record Date**        | ** ** | **Paid Date**      | ** ** | **Cash Dividend  Per Share** | ** ** |
|------------------------|------------|------------------------|------------|--------------------|------------|------------------------------|------------|
|                   |       |                   |       |               |       |                         |       |
| 2008                   |       |                   |       |               |       |                         |       |
| February 12, 2008 |       | February 25, 2008 |       | March 3, 2008 |       | $                            | .088       |   |
| May 6, 2008       |       | May 20, 2008      |       | May 27, 2008  |       | $                            | .088       |   |

 

Future dividend payments will necessarily be subject to business conditions,the Company’s financial position, and requirements for working capital,property, plant and equipment expenditures, and other corporate purposes.

 

**EquityCompensation Plan Information**

 

The following tableprovides information as of December 26, 2009 with respect to the shares ofthe Company’s Class A Common Stock that may be issued under the Company’sequity compensation plans:

 
| ** **                                              | ** ** | **(a)**                                                                                                                                              | ** ** | **(b)**                                                                                                         | ** ** | **(c)**                                                                                                                                                                                                          | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Plan category **                            | ** ** | **Number of securities to be  issued upon exercise of  outstanding options,  warrants and rights** | ** ** | **Weighted-average exercise  price of outstanding options,  warrants and rights** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation plans  (excluding securities  reflected in column (a))** | ** ** |
|                                                    |       |                                                                                                                                                 |       |                                                                                                            |       |                                                                                                                                                                                                             |       |
| Equity compensation plans approved by security  holders |       | 1,246,082                                                                                                                                            |       | $                                                                                                               | 5.00       |                                                                                                                                                                                                             | 60,100     |   |
|                                                         |            |                                                                                                                                                      |            |                                                                                                                 |            |                                                                                                                                                                                                                  |            |  |

 

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| **ITEM  6.** | **SELECTED FINANCIAL DATA** |
|--------------|-----------------------------|

 

Thefollowing selected financial data has been derived from our consolidatedfinancial statements. The data set forth below should be read in conjunctionwith Management’s Discussion and Analysis of Financial Condition and Results ofOperations and our consolidated financial statements and notes thereto.

 

Allper share data have been adjusted to reflect the two percent (2%) and six percent (6%)common stock dividends declared and paid during 2008.

 
| ** **                                                | ** ** | **For  Fiscal Years Ended** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------|------------|
|                                                      |       | **2009**                    | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** |   |
| **Consolidated Statement of Continuing Operations Data:** |       | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |
| (in  millions, except per share amounts)                  |       | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |
| Net sales (a)                                             |       | $                           | 192.0      |   | $ | 257.9 |   | $ | 301.7 |   | $ | 336.7 |   | $ | 341.3 |   |
|                                                      |       |                        |       |   |   |   |   |   |   |   |   |
| Net income (loss) from continuing operations              |       | (6.5                        | )          | (2.1 | ) | 4.2 |   | 4.9 |   | 8.3 |   |
|                                                      |       |                        |       |   |   |   |   |   |   |   |   |
| Net income (loss) from continuing operations per  share:  |       |                        |       |   |   |   |   |   |   |   |   |
| Basic earnings (loss) per share                           |       | (0.46                       | )          | (0.15 | ) | 0.30 |   | 0.35 |   | 0.62 |   |
| Diluted earnings (loss) per share                         |       | (0.46                       | )          | (0.15 | ) | 0.30 |   | 0.35 |   | 0.60 |   |
|                                                      |       |                        |       |   |   |   |   |   |   |   |   |
| Cash dividends per common share                           |       | —                      |       | 0.18 |   | 0.35 |   | 0.35 |   | 0.24 |   |
|                                                      |       |                        |       |   |   |   |   |   |   |   |   |
| **Consolidated Balance Sheet Data:**                      |       |                        |       |   |   |   |   |   |   |   |   |
| (in millions)                                             |       |                        |       |   |   |   |   |   |   |   |   |
|                                                      |       |                        |       |   |   |   |   |   |   |   |   |
| Working capital (b)                                       |       | $                           | 21.5       |   | $ | 60.3 |   | $ | 58.5 |   | $ | 66.6 |   | $ | 60.8 |   |
|                                                      |       |                        |       |   |   |   |   |   |   |   |   |
| Total assets                                              |       | 109.4                       |       | 125.5 |   | 132.8 |   | 142.1 |   | 137.4 |   |
|                                                      |       |                        |       |   |   |   |   |   |   |   |   |
| Total debt                                                |       | 27.3                        |       | 33.6 |   | 29.8 |   | 40.7 |   | 33.2 |   |
|                                                      |       |                        |       |   |   |   |   |   |   |   |   |
| Stockholders’ equity                                 |       | 62.6                        |       | 70.4 |   | 75.5 |   | 75.2 |   | 75.2 |   |

 

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(a)          Net sales for 2005 have beenadjusted from amounts previously reported as “Revenue” to exclude other incomeand report only net sales.

 

(b)         During the third quarter of2009, the Company reclassified its revolving line of credit from long-term tocurrent (See Note 6 of the Notes to Consolidated Financial Statements foradditional information regarding debt and related matters).

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

 

**Overview**

 

Established in 1974 as a truck body manufacturer,Supreme Industries, Inc., through its wholly-owned subsidiary SupremeCorporation, is one of the nation’s leading manufacturers of specializedcommercial vehicles. Utilizing a nationwide direct sales and distributionnetwork, as well as manufacturing and service facilities in nine states acrossthe continental United States, Supreme is able to meet the needs of customersacross all of North America.

 

The Company engages principally in the production andsale of customized truck bodies, buses, and other specialty vehicles. Buildingon its expertise in providing both cargo and passenger transportation solutions,the Company’s specialty offerings include products such as customized armoredvehicles, homeland response vehicles, and portable storage units.

 

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The Company and its product offerings are sensitive tovarious factors which include, but are not limited to, economic conditions,interest rate fluctuations, volatility in the supply chain of vehicle chassis,and the availability of credit and financing to the Company, our vendors,dealers, or end users.  The Company’s business is also affected by theavailability and costs of certain raw materials that serve as significantcomponents of its product offerings.  The Company’s risk factors aredisclosed in Item 1A “Risk Factors” of this document.

 

The following discussion should be read in conjunctionwith the consolidated financial statements and related notes thereto located inItem 8 of this document and pertain to continuing operations unless otherwisenoted.

 

**Results of Operations**

 

***Comparison of 2009 with 2008***

 

For the year ended 2009, Supreme continued toexperience significantly lower demand for its core dry-freight trucks.  Weendured recession-related weak demand in the commercial truck market whichresulted in a 52% year-over-year decline in unit shipments which was inaddition to the 13% decrease in unit shipments experienced in 2008 as comparedwith 2007.  As core dry-freight trucksand related products having historically represented approximately 65% of ourrevenues, our total revenues have been dramatically affected by theseconditions.  In our efforts to ultimatelyemerge from the current economic environment as one of the strongest companiesin our industry, we continued to execute on our strategy of cost containment,production efficiencies, market expansion, and product diversification.

 

By the end of 2009, we had reduced our annualizedoperating costs by more than $15 million but were unable to adjust our coststructure rapidly enough to avoid losses for the past two years, which were thefirst loss years in the Company’s 35-year history. We continue to look foropportunities to make our operations leaner and have implemented additionalcost reductions that should be realized in 2010.  The cumulative cost reductions have beenderived from, among other factors, personnel and salary reductions, suspensionof the Company’s 401K contributions, process improvements, plant closures andconsolidations, outsourcing, and improved inventory management.

 

In addition, during thefourth quarter of 2009, the Company terminated its Silver Crown luxurymotorhome business and has reclassified prior-period results accordingly asdiscontinued operations. The unprecedented tight credit markets caused by thesevere economic recession led to a significant reduction of new motorhomeorders and the cancellation of existing orders. During the year, we alsoincurred production start-up costs in both our Pennsylvania and Oregon bus operationsas we expanded capacity in those locations to meet the recent increase in busdemand.

 

Having taken the above-described actions, we believethat we are more competitively positioned and look forward to achievingearnings when revenues improve from either core truck or other products. In oureffort to increase revenues, we have invested in product improvements,technology, and our sales organization. We also increased efforts to sellproduct lines that have reasonable continuing market demand (i.e. buses,armored vehicles, etc.) while pursuing profitable dry-freight orders asbusiness conditions permit.  With recentimprovements to our new Signature body and improved production processes, webelieve that our truck division is well-positioned to capitalize on an increasein demand for dry-freight units. Further, we continually work to improve our operational processes,researching new materials to increase value to our customers with an emphasison “green” materials and technologies, while also upgrading existing anddeveloping new product offerings.

 

We believe that the commercial truck market is poised for arebound since the average age of fleet vehicles in use is estimated to be morethan nine years compared with the historic average of seven years. Someindustry analysts are predicting truck sales to increase by double-digits ineach of the next two years. With Supreme’s product diversification, costreductions, and overall market share, we are positioned for a meaningfulimprovement in our financial performance if these predictions hold true.  However, in the event the dry-freight truckdemand remains low and does not rebound from current levels during 2010, wewill take additional measures to improve our financial performance whilecontinuing to push for increased revenues from other product groups.

 

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Finally, the Company’s focus on asset managementcontinues as evidenced by our total debt-to-equity ratio which improved sincethe beginning of 2009, along with a total debt level decrease of 19% or $6.3million.

 

***Net Sales***

 

Net sales for the year ended December 26, 2009decreased $65.9 million to $192.0 million as compared with $257.9 million forthe year ended December 27, 2008. The following table presents the components of net sales and the changesfrom 2009 to 2008:

 
| **($000’s omitted)** | ** ** | **2009** | ** ** | **2008** | ** ** | **Change** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|------------|------------|
| Specialized vehicles:     |       |     |       |     |       |       |       |   |   |
| Trucks                    |       | $        | 98,167     |     | $          | 162,668    |       | $ | (64,501 | ) | (39.7 | )% |
| Buses                     |       | 70,976   |       | 79,139   |       | (8,163     | )          | (10.3 | ) |
| Armored vehicles          |       | 18,752   |       | 6,003    |       | 12,749     |       | 212.4 |   |
|                      |       | 187,895  |       | 247,810  |       | (59,915    | )          | (24.2 | ) |
| Composites                |       | 4,141    |       | 10,093   |       | (5,952     | )          | (59.0 | ) |
|                      |       | $        | 192,036    |     | $          | 257,903    |       | $ | (65,867 | ) | (25.5 | )% |

 

We attribute the decreasein our truck product sales primarily to the economic recession which resultedin an industry-wide decline in demand within the retail truck market.  This, combined with decreased orders frommajor fleet customers in 2009, resulted in a revenue decrease of almost 40% forthe year when compared to the 2008 year. Based on industry data, we do not believe that we lost market shareduring 2008 and 2009 but rather the domestic dry-freight industry demanddeclined dramatically as a result of the overall economic conditions.  According to the POLK*CommercialVehicle Market Intelligence Report*, calendar year 2009 representedthe lowest total for new commercial vehicle registrations in a calendar yearsince POLK started tracking the data in 1985.

 

Although sales were down $8.2 million (10.3%) for theyear, our StarTrans bus division continued to experience good demand due inpart to the availability of funds from the 2009 federal economic stimulus planand an increased use of more economical public transportation.  With ourrecently expanded capacity and our strong backlog for this division, we anticipatecontinued favorable contributions from our bus division in 2010.

 

The armored division sales increase of $12.7 millionwas primarily the result of our contract with the U.S. Department of State toproduce armored Suburbans for embassies abroad.  We believe that thearmored division is also well-positioned for 2010 due to the increased backlogand the positive response we are receiving from other governmental agenciesregarding our armored product offerings and product quality.

 

The decrease in composite sales of fiberglassreinforced plywood and other fiberglass products of $6 million (59%) was due tothe overall decline in the commercial truck market.

 

The Company’s salesbacklog began to increase during the final quarter of 2009 reaching its highestlevel in more than a year and was up 13% to $68.1 million at December 26,2009 as compared with $60.0 million at the end of December 2008. Theimproved backlog is related to increased demand for buses and armored vehicleswhile the truck backlog decreased from the prior year and was quite low whencompared with backlog levels in more normal economic conditions.  Although not reflected in our year-endbacklog levels, increased quoting activity in most of the Company’s salesterritories, as well as signs of stabilization in the commercial truck market,have been observed.

 

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***Cost of sales andgross profit***

 

Gross profit decreased by $11.4 million, or 47.5%, to$12.6 million for the year ended December 26, 2009 as compared with $24.0million for the year ended December 27, 2008.  The following table presents the componentsof cost of sales as a percentage of net sales and the changes from 2009 to2008:

 
| ** **    | ** ** | **2009** | ** ** | **2008** | ** ** | **Percent Change** | ** ** |
|---------------|------------|----------|------------|----------|------------|--------------------|------------|
| Material      |       | 58.8     | %          | 57.5     | %          | 1.3                | %          |
| Direct Labor  |       | 14.0     |       | 14.0     |       | —             |       |
| Overhead      |       | 18.3     |       | 16.3     |       | 2.0                |       |
| Delivery      |       | 2.3      |       | 2.9      |       | (0.6               | )          |
| Cost of sales |       | 93.4     |       | 90.7     |       | 2.7                |       |
| Gross profit  |       | 6.6      | %          | 9.3      | %          | (2.7               | )%         |

 

**Material** — Material cost as a percentage of netsales increased by 1.3% for the year ended December 26, 2009 as comparedwith 2008. The change in the material percentage was primarily related tochanges in our product mix reflecting our increased sales in our bus division,which has a higher material percentage than our core truck products, andaccounted for 37.0% of our total net sales in 2009 compared to 30.7% for thesame period in 2008.  The material percentage for the truck divisionincreased slightly during the year resulting from higher sales discounts to winsales orders and due to producing more specialized truck units.

 

Raw material costs haverecently stabilized for certain commodities, particularly for aluminum andsteel products.  The Company closely monitors all major commodities andcontinually reviews the financial viability of its primary vendors.  Wealso strive to reduce manufacturing costs through the use of improvedtechnologies, processes, and supply chain management tactics and strategies.

 

**DirectLabor** — Thedirect labor as a percentage of net sales (14%) was unchanged for the yearended December 26, 2009 as compared with 2008.  During this economicdownturn the Company has worked toward improving the overall direct laborpercentage and continues its effort in this regard.

 

**Overhead** — Overhead as a percentage of net salesincreased by 2.0% for the year ended December 26, 2009 as compared with2008.  The majority of the increase in the overhead percentage was due tothe fixed nature of certain expenses that do not fluctuate when sales volumechanges. Additionally, group health insurance expense was higher thananticipated as a result of a few large medical claims.  In an effort tocontrol its health care costs, the Company continues to implement changes toits employee benefit plan design with an increased focus on preventivecare.  We continue to focus on reducing operating expenses and managingour overhead cost structure based on prevailing sales levels.

 

**Delivery** — Delivery as a percentage of net salesdecreased by 0.6% for the year ended December 26, 2009 as compared with2008.  The Company continues to utilize more cost-effective deliverymethods to counteract the adverse impact of high fuel costs.

 

***Selling, generaland administrative expenses***

 

Selling, general and administrative (“G&A”)expenses decreased by $4.0 million, or 15.3%, to $22.1 million for the yearended December 26, 2009 as compared with $26.1 million for the year ended December 27,2008.  The following table presents selling and G&A expenses as apercentage of net sales and the changes from 2009 to 2008:

 

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| **($000’s  omitted)** | ** ** | **2009** | ** ** | **2008** | ** ** | **Change** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|------------|------------|
| Selling expenses           |       | $        | 7,358      |     | 3.8        | %          | $          | 9,844 |   | 3.8 | % | $ | (2,486 | ) | — | % |
| G&A expenses           |       | 14,712   |       | 7.7      |       | 16,297     |       | 6.3 |   | (1,585 | ) | 1.4 |   |
| Total                      |       | $        | 22,070     |     | 11.5       | %          | $          | 26,141 |   | 10.1 | % | $ | (4,071 | ) | 1.4 | % |

 

**Sellingexpenses** —Selling expenses declined for the year ended December 26, 2009 as comparedwith 2008.  The decrease was a result of lower commission expense, sellingwages, and other employee-related expenses due to lower sales volumes andseveral proactive cost reduction efforts.  These declines were partially offsetby fewer cooperative marketing credits the Company received from chassismanufacturers.

 

**G&Aexpenses** —G&A expenses decreased for the year ended December 26, 2009 ascompared with 2008.  The decrease was primarily attributable to reducedemployee headcount and the related payroll and benefits which are a large partof the cost savings initiatives begun in mid-2008.  The increase as a percentage of sales was dueto the fixed nature of certain G&A expenses that do not fluctuate whensales volume changes.

 

***Other income***

 

For the year ended December 26, 2009, otherincome was $0.8 million (0.4% of net sales) as compared with $1.1 million (0.4%of net sales) for the year December 27, 2008. Other income consisted ofrental income, gain on sale of assets, and other miscellaneous income receivedby the Company.

 

***Interest expense***

 

Interest expense was $2.2 million (1.1% of net sales)for the year ended December 26, 2009 as compared with $1.9 million (0.7%of net sales) for the year ended December 27, 2008.  The increased bank interest expense reflectedhigher interest rates under the Company’s credit facility due to recentoperating losses.  This was somewhatoffset by lower prevailing LIBOR and prime interest rates coupled with reduceddebt levels due to lower working capital requirements.  Chassis interest expense increased due to theslowdown in the light-duty truck market causing a build-up of consigned chassisinventory.  The Company continuouslymonitors the age of consigned chassis with the objective of minimizing chassisinterest expense.

 

***Income taxes***

 

The Company’s estimated effective income tax rate was(39.6)% for the year ended December 26, 2009 as compared with (41.5)% forthe year ended December 27, 2008. The estimated effective income tax rate for both periods were favorablyimpacted by tax benefits associated with the Company’s wholly-owned captiveinsurance subsidiary, federal alternative fuel tax credits, and research anddevelopment tax credits.  The combination of these tax benefits along withthe incurred pretax losses resulted in an overall tax benefit position for theCompany in each of the 2009 and 2008 years.

 

***Net loss***

 

Net loss from continuing operations increased by $4.4million to $6.5 million (-3.4% of net sales) for the year ended December 26,2009 from a net loss of $2.1 million (-0.8% of net sales) for the year ended December 27,2008.

 

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***Discontinued Operations***

 

As noted earlier, the Company terminated its SilverCrown luxury motorhome business and has reclassified prior-period resultsaccordingly as discontinued operations. The unprecedented tight credit marketscaused by the severe economic recession led to a significant reduction of newmotorhome orders and the cancellation of existing orders.  The after tax loss from discontinuedoperations related to our Silver Crown recreational vehicle division was $2.2million in 2009 and $0.9 million in 2008.

 

***Basic and diluted loss per share***

 

The following table presents basic and diluted lossper share and the changes from 2009 to 2008:

 
| ** **                            | ** ** | **2009**   | ** ** | **2008**   | ** ** | **Change** | ** ** |
|---------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Basic and diluted net loss per share: | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Loss from continuing operations       |       | $          | (0.46      | )          | $          | (0.15      | )          | $ | (0.31 | ) |
| Loss from discontinued operations     |       | (0.16      | )          | (0.07      | )          | (0.09      | )          |
| Net loss                              |       | $          | (0.62      | )          | $          | (0.22      | )          | $ | (0.40 | ) |

 

***Comparison of 2008 with 2007***

 

***Discontinued operations***

 

During the fourth quarterof 2009, the Company terminated its Silver Crown luxury motorhome business andhas reclassified prior-period results accordingly as discontinuedoperations.  As a result, certain amountsin the comparison of 2008 with 2007 have been adjusted to reflect the reporteddiscontinued operations to conform to the 2009 presentation.  These changes had no effect on stockholders’equity or overall net income or losses as previously reported.

 

***General***

 

The following consolidated results of operationspertain to continuing operations unless otherwise noted.

 

***Net Sales***

 

Net sales for the year ended December 27, 2008decreased $43.8 million to $257.9 million as compared with $301.7 million forthe year ended December 29, 2007.  The decrease in net sales wasprimarily related to our truck body sales, our largest product group, whichdeclined by $46.5 million.  Our armored truck division and compositedivision experienced a decline in net sales of $7.8 million and $3.2 million,respectively.  Partially offsetting these decreases was an increase in netsales by our StarTrans bus division of $13.7 million, or 21.0%, to $79.1million for the year ended December 27, 2008.

 

The following table presents the components of netsales and the changes from 2008 to 2007:

 
| **($000’s  omitted)** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|------------|------------|
| Specialized vehicles:      |       |     |       |     |       |       |       |   |   |
| Trucks                     |       | $        | 162,668    |     | $          | 209,181    |       | $ | (46,513 | ) | (22.2 | )% |
| Buses                      |       | 79,139   |       | 65,410   |       | 13,729     |       | 21.0 |   |
| Armored vehicles           |       | 6,003    |       | 13,813   |       | (7,810     | )          | (56.5 | ) |
|                       |       | 247,810  |       | 288,404  |       | (40,594    | )          | (14.1 | ) |
| Composites                 |       | 10,093   |       | 13,251   |       | (3,158     | )          | (23.8 | ) |
|                       |       | $        | 257,903    |     | $          | 301,655    |       | $ | (43,752 | ) | (14.5 | )% |

 

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We attributed the decrease in our truck product salesto the economic recession which resulted in an industry-wide decline in theretail truck market.  Additionally, truck products were negativelyimpacted in the first half of 2008 by the cancellation of approximately $2.6million of orders from a major fleet customer due to the disruption in thesupply of General Motors (“GM”) chassis resulting from a labor dispute betweenthe United Auto Workers and GM’s axle supplier. This labor dispute was settledin the second quarter, but returning to normal conditions was further delayedby a second labor strike against a chassis delivery provider which was laterresolved. The disruption adversely affected our profitability and resulted inexcess inventory carrying costs for both our fleet and retail business duringthe first half of 2008.

 

The armored division sales decline was the result ofthe economic environment and the highly competitive nature of thecash-in-transit business.

 

StarTrans bus division continued to experience strongdemand resulting from increased use of mass transit due to the volatility offuel prices and increased ridership as more individuals conserve energy to livea “green” life style.

 

Total sales backlog was $60.0 million at December 27,2008 as compared with $87.0 million at December 29, 2007.

 

***Cost of sales andgross profit***

 

Gross profit decreased by $9.7 million, or 28.8%, to$24.0 million for the year ended December 27, 2008 as compared with $33.7million for the year ended December 29, 2007.  The following tablepresents the components of cost of sales as a percentage of net sales and thechanges from 2008 to 2007:

 
| ** **    | ** ** | **2008** | ** ** | **2007** | ** ** | **Percent  Change** | ** ** |
|---------------|------------|----------|------------|----------|------------|---------------------|------------|
| Material      |       | 57.5     | %          | 56.7     | %          | 0.8                 | %          |
| Direct Labor  |       | 14.0     |       | 13.9     |       | 0.1                 |       |
| Overhead      |       | 16.3     |       | 15.5     |       | 0.8                 |       |
| Delivery      |       | 2.9      |       | 2.7      |       | 0.2                 |       |
| Cost of sales |       | 90.7     |       | 88.8     |       | 1.9                 |       |
| Gross profit  |       | 9.3      | %          | 11.2     | %          | (1.9                | )%         |

 

**Material** — Material cost as a percentage of netsales increased for the year ended December 27, 2008 as compared with2007. The change in the material percentage was primarily related to higher rawmaterial costs and product mix. Our change in product mix related to our busdivision, which had a higher material percentage and accounted for a 30.7% ofour total sales in 2008 compared to 21.7% for the same period in 2007.

 

Raw material costs,particularly for aluminum, steel, and petroleum-based products, increased in2008. We attempted to address the unavoidable raw material cost increasesby increasing the prices of our products to the limited extent that our highlycompetitive markets permitted. We announced price increases of 3.0% and 5.0% inMarch and June, respectively, on all core truck product lines.  OurStarTrans bus division implemented price increases of 2.5% and 3.0% effectivein January and June, respectively.  We also strived to reducemanufacturing costs through the use of technology (i.e., robotics, innovativematerials, etc.), lean manufacturing, and improved processes.  The ongoingefforts, as well as product diversification and the introduction of ourSignature Van Body,  helped us tomitigate the effect of any future increases in raw material costs.

 

**DirectLabor** — Directlabor as a percentage of net sales increased for the year ended December 27,2008 as compared with 2007.  The slight increase in the direct laborpercentage was the result of inefficiencies resulting from the labor strikes(as discussed previously), timing of fleet customer buying patterns, and thenormal startup costs of additional production lines to fulfill fleet orders.

 

Additionally, ourStarTrans bus division experienced an increase in its labor percentage due toemployee training costs associated with our regional plants’ bus productionline start-up costs. The expanded capacity improved plant utilization whileaccelerating delivery to satisfy our bus backlog.

 

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**Overhead** — Overhead as a percentage of net salesincreased for the year ended December 27, 2008 as compared with2007.  The majority of the increase in the overhead percentage was due tothe fixed nature of certain expenses that do not fluctuate when sales volumechanges.  The Company also experienced higher costs for research anddevelopment which was associated with the investments in Signature Van Body andthe armored Suburban contract.  During 2008, the Company reduced its costand benefited from changes to its group health insurance plan design. Additionally, the Company’s continued safety efforts decreased our workerscompensation expense year-over-year as additional programs wereimplemented.  We continued to focus on reducing expenses and managing ouroverhead cost structure based on our level of sales volume.

 

**Delivery** — Delivery as a percentage of net salesincreased for the year ended December 27, 2008 as compared with2007.  The Company continued to research and utilize more cost-effectivedelivery methods to reduce the adverse impact of volatile fuel costs.

 

***Selling, generaland administrative expenses***

 

Selling, general and administrative (“G&A”)expenses decreased by $0.5 million, or 1.9%, to $26.1 million for the yearended December 27, 2008 as compared with $26.6 million for the year ended December 29,2007.    The following table presents selling and G&Aexpenses as a percentage of net sales and the changes from 2008 to 2007:

 
| **($000’s  omitted)** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|------------|------------|
| Selling expenses           |       | $        | 9,844      |     | 3.8        | %          | $          | 9,658 |   | 3.2 | % | $ | 186 |   | 0.6 | % |
| G&A expenses           |       | 16,297   |       | 6.3      |       | 16,911     |       | 5.6 |   | (614 | ) | 0.7 |   |
| Total                      |       | $        | 26,141     |     | 10.1       | %          | $          | 26,569 |   | 8.8 | % | $ | (428 | ) | 1.3 | % |

 

**Sellingexpenses** —Selling expenses increased by $0.1 million, or 1.0%, to $9.8 million for theyear ended December 27, 2008 from $9.7 million for the year ended December 29,2007.  This increase was due to the investment in training costs,literature, promotion, and advertising expenses resulting from the newSignature Van Body.  Partially offsetting this increase was a reduction incommission expense resulting from the lower sales volume in 2008 when comparedto 2007.

 

**G&Aexpenses** —General and administrative expenses decreased by $0.6 million, or 3.6%, to$16.3 million for the year ended December 27, 2008 from $16.9 million forthe year ended December 29, 2007.  This decrease in general andadministrative expenses was primarily due to lower incentive compensation accrualsas a result of the decrease in pretax income.  Additionally, we incurredone-time professional fees during 2007 related to complying with therequirements of the Sarbanes-Oxley Act of 2002.

 

***Goodwill Impairment***

 

In the fourth quarter of 2008, the Company recorded agoodwill impairment charge of approximately $0.7 million.  Goodwill was tested for impairment at December 27,2008 and due primarily to the depressed market price of the Company’s Class ACommon Stock and consequent difference between the market capitalization andbook value of the Company, management recorded an impairment charge against thefull balance of this asset.

 

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***Other income***

 

For the year ended December 27, 2008, otherincome was $1.1 million (0.4% of net sales) as compared with $0.6 million (0.2%of net sales) for the year ended December 29, 2007.  Other incomeconsisted of rental income, gain on sale of assets, and other miscellaneousincome received by the Company through its various business activities. This increase was primarily the result of gains recognized on the sale of twoservice and distribution centers.  The closure of the service anddistribution centers resulted from the Company’s continued strategy to maximizeefficiency through streamlined operations and reduced costs.

 

***Interest expense***

 

Interest expense was $1.9 million (0.7% of net sales)for the year ended December 27, 2008 as compared with $2.2 million (0.7%of net sales) for the year ended December 29, 2007.   Thisdecrease in interest expense reflected lower prevailing interest rates coupledwith lower working capital requirements resulting from lower sales volume.

 

***Income taxes***

 

The Company’s effective income tax rate was (41.5)%for the year ended December 27, 2008, as compared with 23.8% for the yearended December 29, 2007.  The estimated effective income tax rate forboth periods was favorably impacted by tax benefits associated with theCompany’s wholly-owned captive insurance subsidiary, federal alternative fueltax credits, and research and development tax credits.  The substantiallylower pretax income for fiscal 2008 resulted in a tax benefit position for theCompany.

 

***Net income (loss)***

 

Net income (loss) from continuing operations decreasedby $6.3 million to $(2.1) million (-0.8% of net sales) for the year ended December 27,2008, from $4.2 million (1.4% of net sales) for the year ended December 29,2007.

 

***Intangible asset impairment ondiscontinued operations***

 

In connection with a business acquisition of PonyXpress, LLC, in February 2006, the Company acquired a customer listtotaling approximately $0.7 million.  Due to the significant downturn inthe economy, motorhome industry, and selected customers’ financial positions,the Company recorded an impairment charge against the remaining balance of thisasset in the fourth quarter of 2008.  As a result of total impairment, nofuture amortization expense will be recorded against this intangible asset.

 

***Basic and diluted earning (loss)per share***

 

The following table presents basic and dilutedearnings (loss) per share and the changes from 2008 to 2007:

 
| ** **                                      | ** ** | **2008**   | ** **  | **2007**   | ** ** | **Change** | ** ** |
|-------------------------------------------------|------------|------------|-------------|------------|------------|------------|------------|
| Basic and diluted net earning (loss) per share: | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** |
| Earning (loss) from continuing operations       |       | $          |  (0.15 | )          | $          |  0.30 |       | $ |  (0.45 | ) |
| Earning (loss) from discontinued operations     |       | (0.07      | )           | —     |       | (0.07      | )          |
| Net earnings (loss)                             |       | $          |  (0.22 | )          | $          |  0.30 |       | $ |  (0.52 | ) |

 

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**Liquidity and Capital Resources**

 

**Cash Flows**

 

The Company’s primary sources of liquidity have beencash flows from operating activities and borrowings under a credit facilitywith JPMorgan Chase Bank, N. A., entered into by Supreme Corporation, theCompany’s wholly-owned subsidiary. Principal uses of cash have been to supportworking capital demands, meet debt service requirements, and finance capitalexpenditure needs.

 

***Operatingactivities***

 

Cash flows from operations represent the net incomeearned or the net loss sustained in the reported periods adjusted for non-cashcharges and changes in operating assets and liabilities.  Operating activities provided $7.3 million ofcash for the year ended December 26, 2009 as compared with cash providedof $1.1 million for the year ended December 27, 2008.  In 2009, cashprovided by operating activities was favorably impacted by a $12.7 millionreduction in inventory due to lower production levels related to lower salesand also improved inventory management. During 2009, the Company improved itsinventory management resulting in higher inventory turns which increased byover 20% year-over-year.  Further, theaccounts receivable decreased by $2.3 million resulting from the lower revenuesand accounts payable increased by $1.6 million as a result of ongoing operatingcash management strategies. This was offset by a $2.7 million increase in othercurrent assets resulting principally from an increase in income tax refundclaims receivable.  Additionally, otheraccrued liabilities decreased $1.6 million principally due to lower customerdeposits in 2009.  The net loss, adjusted for depreciation andamortization, unfavorably impacted cash flows by $4.7 million for the yearended December 26, 2009.

 

***Investing activities***

 

Cash used in investing activities was $0.4 million forthe year ended December 26, 2009 as compared with $3.1 million for theyear ended December 27, 2008. Capital expenditures for the yeartotaled $1.9 million and consisted primarily of replacement machinery andequipment to improve efficiencies at our armored truck division.  This wasoffset by the sale of investments of $1.1 million in our wholly-owned captiveinsurance subsidiary and an additional $0.5 million in proceeds from the saleof assets during the year ended December 26, 2009.

 

***Financingactivities***

 

Financing activities used $6.7 million of cash for theyear ended December 26, 2009 principally to pay down bank debt as comparedwith cash provided of $1.6 million for the year ended December 27,2008.  The lower level of bank borrowings for the year occurred primarilyas a result of the decreased inventories resulting principally from lowerproduction and inventory management practices. Effective December 23, 2009, the Company terminated its interestrate swap arrangement and paid $375,000 (the fair value of the swap on suchdate).  Because of the prevailingindustry conditions, the Company’s Board of Directors suspended paying cashdividends effective as of February 16, 2009. Future dividends will  be subject to business conditions, theCompany’s financial position, and requirements for working capital, property,plant, and equipment expenditures, and other corporate purposes.

 

**Capital Resources**

 

During the quarter ended December 26, 2009,Supreme Corporation, the Company’s wholly-owned subsidiary, was not incompliance with an earnings-related covenant and a minimum tangible net worthcovenant in its Credit Agreement.  TheCompany is in the process of obtaining an amendment to the Credit Agreementthat will waive the covenant defaults and suspend the measurements until thesecond quarter of 2010 to provide the Company, with the assistance ofconsultants engaged in February 2010, time to refine and implement itsprofit improvement plan. Additionally, the amendment will require the Companyand its subsidiaries to pledge all assets as collateral under the CreditAgreement. Management, based on discussions with the bank, is reasonablyconfident that in the near future the Company will conclude a satisfactoryamendment with the bank. Despite the non-compliance with covenants, the Companyhas made every scheduled payment of principal and interest on a timely basis.The remaining terms of the Credit Agreement are substantially the same as theprevious Credit Agreement disclosed in the Annual Report on Form 10-K forthe year ended December 27, 2008.

 

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During the third quarter, and as a result of previouscovenant violations, management changed the classification of the Company’sbank revolving credit facility obligations from a long-term liability to acurrent liability.  Management was of theopinion that the Company may not be able to cure potential covenant defaults atmeasurement dates that are within the next twelve months.  Thisreclassification had no effect on previously-reported Consolidated Statement ofOperations or Consolidated Statement of Cash Flows for the 2009 year.

 

Interest on outstanding borrowings under the bankrevolving line of credit is based on the bank’s prime rate, or certain basispoints above LIBOR, depending on the pricing option selected and the Company’sleverage ratio (effective rate of 4.05% and 5.35% at December 26, 2009 andDecember 27, 2008, respectively).

 

**Summary of Liquidity and Capital Resources**

 

The Company’s primary capital requirements are tosupport working capital demands, meet its debt service obligations, and financecapital expenditure requirements. The Company has a substantial assetcollateral base which it believes is more than sufficient to support theoutstanding revolving line of credit balance. Further, additional liquidity isobtained through selling products and collecting the resulting trade accountsreceivable. The funds collected are used to pay creditors, employees, and tofund working capital requirements.

 

The Company’s cash management system and revolvingline of credit are designed to maintain zero cash balances and, accordingly,checks outstanding in excess of bank balances are classified as additionalborrowings under the revolving line of credit.

 

As of December 26,2009, the Company had $22.0 million utilized under its $25.0 million creditfacility. The Company believes that it has adequate availability under itscurrent bank credit facility and sufficient additional liquidity resources tofinance working capital requirements for 2010.

 

**ContractualObligations**

 

The Company’s fixed, noncancelable obligations as of December 26,2009 were as follows:

 
| ** **           | ** ** | **Payments due by period** | ** ** |
|----------------------|------------|----------------------------|------------|
| ** **           | ** ** | ** **                 | ** ** | **Less than** | ** ** | **1-3** | ** ** | **3-5** | ** ** | **More than** | ** ** |
| ** **           | ** ** | **Total**                  | ** ** | **1 Year** | ** ** | **Years** | ** ** | **Years** | ** ** | **5 Years** | ** ** |
| Debt (a)             |       | $                          | 27,341,699 |   | $ | 26,226,289 |   | $ | 498,332 |   | $ | 417,078 |   | $ | 200,000 |   |
| Operating leases (b) |       | 468,551                    |       | 443,401 |   | 25,150 |   | — |   | — |   |
| Total                |       | $                          | 27,810,250 |   | $ | 26,669,690 |   | $ | 523,482 |   | $ | 417,078 |   | $ | 200,000 |   |

 

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(a)         Amounts areincluded on the Consolidated Balance Sheets. See Note 6 of the Notes to Consolidated Financial Statements foradditional information regarding debt and related matters.

 

(b)         See Note 10 ofthe Notes to Consolidated Financial Statements for additional informationregarding property leases.

 

The Company’s historicalpractice has been to exclude the interest payments from the contractualobligations table due to the variability of its interest rates and thevariability in its revolving line of credit which represented 94% of its debtobligations at December 26, 2009.

 

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**CriticalAccounting Policies and Estimates**

 

Management’s discussion and analysis of its financial position andresults of operations are based upon the Company’s consolidated financialstatements which have been prepared in accordance with accounting principlesgenerally accepted in the United States of America.  The preparation of these financial statementsrequires management to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues, expenses, and related disclosure ofcontingent assets and liabilities.  TheCompany’s significant accounting policies are discussed in Note 1 of the Notesto Consolidated Financial Statements.  Inmanagement’s opinion, the Company’s critical accounting policies includerevenue recognition, allowance for doubtful accounts, excess and obsoleteinventories, inventory relief, accrued insurance, accrued warranty, andimpairment of goodwill and intangible assets.

 

Revenue Recognition - The Companygenerally recognizes revenue when products are shipped to the customer.  Revenue on certain customer requested billand hold transactions is recognized after the customer is notified that theproducts have been completed according to customer specifications, have passedall of the Company’s quality control inspections, and are ready for deliverybased on established delivery terms.

 

Allowance for Doubtful Accounts -The Company maintains an allowance for doubtful accounts for estimated lossesresulting from the inability of our customers to make required payments. If the financial conditions of our customers were to deteriorate,resulting in an impairment of their ability to make payments, additionalallowances may be required which would adversely affect our future operatingresults.

 

Excess and Obsolete Inventories -The Company must make estimates regarding the future use of raw materials andfinished products and provide for obsolete or slow-moving inventories.  If actual product life cycles, productdemand, and/or market conditions are less favorable than those projected bymanagement, additional inventory write-downs may be required which wouldadversely affect future operating results.

 

Inventory Relief - For monthly andquarterly financial reporting, cost of sales is recorded and inventories arerelieved by the use of standard bills of material adjusted for scrap and otherestimated factors affecting inventory relief. Because of our large and diverse product line and the customized natureof each order, it is difficult to place full reliance on the bills of materialfor accurate relief of inventories. Although the Company continues to refine the process of creatingaccurate bills of materials, manual adjustments (which are based on estimates)are necessary in an effort to assure correct relief of inventories for productssold.  The calculations to estimate costsnot captured in the bill of materials take into account the customized natureof products, historical inventory relief percentages, scrap variances, andother factors which could impact inventory relief.

 

The accuracy of the inventory relief is not fully known until physicalinventories are conducted at each of the Company’s locations. We conductsemi-annual physical inventories at a majority of locations and schedule themin a manner that provides coverage in each of our calendar quarters. We haveinvested significant resources in our continuing effort to improve the physicalinventory process and accuracy of our inventory accounting system.

 

Accrued Insurance - The Company hasa self-insured retention against product liability claims with insurancecoverage over and above the retention. The Company is also self-insured for a portion of its employee medicalbenefits and workers’ compensation. Product liability claims are routinely reviewed by the Company’sinsurance carrier, and management routinely reviews other self-insurance risksfor purposes of establishing ultimate loss estimates.  In addition, management must determineestimated liability for claims incurred but not reported.  Such estimates, and any subsequent changes inestimates, may result in adjustments to our operating results in the future.

 

The Company utilizes a wholly-owned small captive insurance company toinsure certain of its business risks. Certain risks, traditionally self-insured by the Company and itssubsidiaries, are insured by the captive insurance subsidiary.  The captive insurance subsidiary helps theCompany manage its risk exposures and, under the Internal Revenue Code, the netunderwriting income of such a small captive is not taxable.

 

AccruedWarranty**- TheCompany provides limited warranties for periods of up to five years from thedate of retail sale.  Estimated warrantycosts are accrued at the time of sale and are based upon historical experience.

 

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Impairment of Goodwill - The Companyhas a policy of evaluating the carrying value of goodwill during the fourthquarter of each year and between annual evaluations if events occurred orcircumstances changed that would more likely than not reduce the fair value ofthe reporting unit below its carrying amount. Such circumstances could include, but are not limited to:  (1) a significant adverse change inlegal factors or in business climate, (2) unanticipated competition, or (3) anadverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares thefair value of the reporting unit to which the goodwill is assigned to thereporting unit’s carrying amount, including goodwill.  The fair value of the reporting unit isestimated using a combination of the discounted cash flows approach andconsideration of the Company’s aggregate market value of its common stock.  As of December 26, 2009, the Company didnot carry a goodwill balance.

 

For the year ended December 27, 2008, thecarrying amount of the Company’s specialized vehicles reporting unit exceededits fair value which required a measurement of the impairment loss.  The impairment loss was calculated bycomparing the implied fair value of the reporting unit goodwill to its carryingamount.  In calculating the implied fairvalue of the reporting unit goodwill, the fair value of the reporting unit isallocated to all of the other assets and liabilities of that unit based ontheir fair values.  The Company hasdetermined there was no excess fair value over the amount assigned to thereporting unit’s other assets and liabilities. An impairment loss was recognized for the full carrying value of thegoodwill which totaled $735,014 at December 27, 2008.

 

Impairment of Intangible Assets -The Company evaluates the recoverability of identifiable intangible assetswhenever events or changes in circumstances indicate that an intangible asset’scarrying amount may not be recoverable. Such circumstances could include, but are not limited to:  (1) a significant decrease in the marketvalue of an asset, (2) a significant adverse change in the extent ormanner in which an asset is used, or (3) an accumulation of costssignificantly in excess of the amount originally expected for the acquisitionof an asset.  The Company measures thecarrying amount of the asset against the estimated undiscounted future cashflows associated with it.  Should the sumof the expected future net cash flows be less than the carrying value of theasset being evaluated, an impairment loss is recognized.  The impairment loss would be calculated asthe amount by which the carrying value of the asset exceeds its fairvalue.  The Company estimates the valueof its customer list based on various valuation techniques including thediscounted value of estimated future cash flows.  The evaluation of asset impairment requiresthe Company to make assumptions about future cash flows over the life of theasset being evaluated.  These assumptionsrequire significant judgment, and actual results may differ from assumed andestimated amounts.  As of December 26,2009, the Company did not carry an intangible asset balance.  During the fourth quarter of 2008, theCompany recorded an impairment charge for the full carrying amount of itscustomer list which totaled $588,507.

 

**PendingAccounting Pronouncements**

 

See Recent Accounting Pronouncements in Note 1 ofNotes to Consolidated Financial Statements.

 

**Forward-LookingStatements**

 

This report contains forward-looking statements, otherthan historical facts, which reflect the view of management with respect tofuture events.  When used in this report,words such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” andsimilar expressions, as they relate to the Company or its plans or operations,identify forward-looking statements. Such forward-looking statements are based on assumptions made by, andinformation currently available to, management. Although management believes that the expectations reflected in suchforward-looking statements are reasonable, it can give no assurance that theexpectations reflected in such forward-looking statements are reasonable, andit can give no assurance that such expectations will prove to be correct.  Important factors that could cause actualresults to differ materially from such expectations include, withoutlimitation, an economic slowdown in the specialized vehicle industry,limitations on the availability of chassis on which the Company’s product isdependent, availability of raw materials, raw material cost increases, andsevere interest rate increases. Furthermore, the Company can provide no assurance that such raw materialcost increases can be passed on to its customers through implementation ofprice increases for the Company’s products. The forward-looking statements contained herein reflect the current viewof management with respect to future events and are subject to those factorsand other risks, uncertainties, and assumptions relating to the operations,results of operations, cash flows, and financial position of the Company.  The Company assumes no obligation to updatethe forward-looking statements or to update the reasons actual results coulddiffer from those contemplated by such forward-looking statements.

 

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** **

**ITEM7A.             QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

** **

Not applicable.

 

**ITEM 8.                FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA.**

** **
| ** **                                                                                                                                           | **Page** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| Index to Financial  Statements                                                                                                                       |     |
|                                                                                                                                                 |     |
| 1.  Financial  Statements:                                                                                                                 |     |
|                                                                                                                                                 |     |
| Report of Crowe Horwath LLP,  Independent Registered Public  Accounting Firm                                                                         | 26       |
|                                                                                                                                                 |     |
| Consolidated Balance Sheets as of  December 26, 2009 and December 27,  2008                                                                | 27       |
|                                                                                                                                                 |     |
| Consolidated Statements of  Operations for the years ended December 26,  2009, December 27, 2008 and December 29, 2007                | 28       |
|                                                                                                                                                 |     |
| Consolidated  Statements of Stockholders’ Equity for the years ended December 26, 2009, December 27, 2008 and  December 29, 2007 | 29       |
|                                                                                                                                                 |     |
| Consolidated  Statements of Cash Flows for the years ended December 26, 2009, December 27, 2008 and  December 29, 2007                | 30       |
|                                                                                                                                                 |     |
| Notes to  Consolidated Financial Statements                                                                                                          | 31-47    |
|                                                                                                                                                 |     |
| 2.  Financial  Statement Schedule:                                                                                                         |     |
|                                                                                                                                                 |     |
| Schedule II - Valuation and Qualifying Accounts for  the years ended December 26,  2009, December 27, 2008 and December 29, 2007      | 48       |
|                                                                                                                                                 |     |
| All  other schedules are omitted because they are not applicable.                                                                                    |     |
|                                                                                                                                                 |     |
| 3.  Supplementary  Data                                                                                                                    |     |
|                                                                                                                                                 |     |
| Quarterly Results  (Unaudited)                                                                                                                       | 49       |

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

 

To the Board of Directorsand Stockholders of

Supreme Industries, Inc.

 

We have audited theaccompanying consolidated balance sheets of Supreme Industries, Inc. andsubsidiaries as of December 26, 2009 and December 27, 2008, and therelated consolidated statements of operations, stockholders’ equity, and cashflows for each of the three years in the period ended December 26,2009.  In connection with our audits ofthe consolidated financial statements, we also have audited the financialstatement schedule, Schedule II — Valuation and Qualifying Accounts.  These financial statements and financialstatement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements and financial statement schedule based on ouraudits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  The Company is not required to have, nor werewe engaged to perform, an audit of its internal control over financialreporting.  Our audit includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements.  An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonablebasis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Supreme Industries, Inc. andsubsidiaries as of December 26, 2009 and December 27, 2008, and theresults of their operations and their cash flows for each of the three years inthe period ended December 26, 2009, in conformity with U.S. generallyaccepted accounting principles.  Also, inour opinion, the related consolidated financial statement schedule, whenconsidered in relation to the basic consolidated financial statements taken asa whole, presents fairly, in all material respects, the information set forththerein.

 

 
|                | /s/ Crowe Horwath LLP |
|---------------------|-----------------------|
|                |                  |
| South Bend, Indiana |                  |
| March 24, 2010 |                  |

 

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Table ofContents

 

**Supreme Industries, Inc. AndSubsidiaries**

**ConsolidatedBalance Sheets**

*December 26,2009 and December 27, 2008*

 
| ** **                                                                                                                                                                                                      | ** ** | **2009**    | ** **  | **2008**    | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| **ASSETS**                                                                                                                                                                                                      |       |        |        |        |       |
| **Current assets:**                                                                                                                                                                                             |       |        |        |        |       |
| Cash and cash equivalents                                                                                                                                                                                       |       | $           | 1,222,411   |        | $          | 932,608 |   |
| Investments                                                                                                                                                                                                     |       | 1,645,407   |        | 2,509,848   |       |
| Accounts receivable, net of allowance for doubtful  accounts of $70,000 in 2009and $290,000 in 2008                                                                                                             |       | 22,710,669  |        | 25,423,842  |       |
| Refundable income taxes                                                                                                                                                                                         |       | 5,028,061   |        | 2,244,129   |       |
| Inventories                                                                                                                                                                                                     |       | 31,553,351  |        | 44,248,516  |       |
| Deferred income taxes                                                                                                                                                                                           |       | 1,758,179   |        | 1,642,363   |       |
| Other current assets                                                                                                                                                                                            |       | 2,084,060   |        | 2,449,248   |       |
| **Total current assets**                                                                                                                                                                                        |       | 66,002,138  |        | 79,450,554  |       |
|                                                                                                                                                                                                            |       |        |        |        |       |
| **Property, plant and equipment, net**                                                                                                                                                                          |       | 42,237,084  |        | 45,778,908  |       |
|                                                                                                                                                                                                            |       |        |        |        |       |
| **Other assets**                                                                                                                                                                                                |       | 1,181,357   |        | 295,109     |       |
| **Total assets**                                                                                                                                                                                                |       | $           | 109,420,579 |        | $          | 125,524,571 |   |
|                                                                                                                                                                                                            |       |        |        |        |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                   |       |        |        |        |       |
|                                                                                                                                                                                                            |       |        |        |        |       |
| **Current liabilities:**                                                                                                                                                                                        |       |        |        |        |       |
| Current maturities of long-term debt                                                                                                                                                                            |       | $           | 26,226,289  |        | $          | 823,297 |   |
| Trade accounts payable                                                                                                                                                                                          |       | 9,906,429   |        | 8,266,945   |       |
| Accrued wages and benefits                                                                                                                                                                                      |       | 1,714,801   |        | 1,924,311   |       |
| Accrued self-insurance                                                                                                                                                                                          |       | 1,454,069   |        | 1,847,727   |       |
| Customer deposits                                                                                                                                                                                               |       | 539,553     |        | 1,644,234   |       |
| Accrued warranty                                                                                                                                                                                                |       | 1,377,000   |        | 1,473,000   |       |
| Accrued income taxes                                                                                                                                                                                            |       | 989,300     |        | 675,200     |       |
| Other accrued liabilities                                                                                                                                                                                       |       | 2,300,828   |        | 2,459,840   |       |
| **Total current liabilities**                                                                                                                                                                                   |       | 44,508,269  |        | 19,114,554  |       |
|                                                                                                                                                                                                            |       |        |        |        |       |
| **Long-term debt**                                                                                                                                                                                              |       | 1,115,410   |        | 32,805,350  |       |
|                                                                                                                                                                                                            |       |        |        |        |       |
| **Deferred income taxes**                                                                                                                                                                                       |       | 1,211,262   |        | 2,403,698   |       |
| ** **                                                                                                                                                                                                      |       |        |        |        |       |
| **Other long-term liabilities**                                                                                                                                                                                 |       | —      |        | 818,053     |       |
| **Total liabilities**                                                                                                                                                                                           |       | 46,834,941  |        | 55,141,655  |       |
| ** **                                                                                                                                                                                                      |       |        |        |        |       |
| **Commitments and contingencies  (Note 10)**                                                                                                                                                                    |       |        |        |        |       |
| ** **                                                                                                                                                                                                      |       |        |        |        |       |
| **Stockholders’ equity:**                                                                                                                                                                                  |       |        |        |        |       |
| Preferred Stock, $1 par value; authorized 1,000,000  shares, none issued                                                                                                                                        |       | —      |        | —      |       |
| Class A Common Stock, $.10 par value;  authorized 20,000,000 shares, issued 14,704,399 shares in 2009 and 14,586,634  in 2008                                                                              |       | 1,470,440   |        | 1,458,664   |       |
| Class B Common Stock, convertible into  Class A Common Stock on a one-for-one basis, $.10 par value; authorized  5,000,000 shares, issued 2,161,058   shares in 2009 and2,188,490 shares in 2008 |       | 216,106     |        | 218,849     |       |
| Additional paid-in capital                                                                                                                                                                                      |       | 71,185,093  |        | 70,603,235  |       |
| Retained earnings                                                                                                                                                                                               |       | 11,762,111  |        | 20,573,244  |       |
| Treasury stock, Class A Common Stock, at cost,  2,631,500 shares in 2009 and2,641,050  shares in 2008                                                                                                      |       | (21,771,537 | )           | (21,853,337 | )          |
| Accumulated other comprehensive loss                                                                                                                                                                            |       | (276,575    | )           | (617,739    | )          |
| **Total stockholders’ equity**                                                                                                                                                                             |       | 62,585,638  |        | 70,382,916  |       |
|                                                                                                                                                                                                            |       |        |        |        |       |
| **Total liabilities and  stockholders’ equity**                                                                                                                                                            |       | $           | 109,420,579 |        | $          | 125,524,571 |   |

 

See accompanying notes to consolidated financial statements.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**ConsolidatedStatements of Operations**

*for the years ended December 26,2009, December 27, 2008 and December 29, 2007*

 
| ** **                                                           | ** ** | **2009**    | ** **  | **2008**    | ** ** | **2007**    | ** ** |
|----------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| ** **                                                           |       |        |        |        |       |        |       |
| Net sales                                                            |       | $           | 192,035,656 |        | $          | 257,902,937 |       | $ | 301,655,070 |   |
| Cost of sales                                                        |       | 179,411,490 |        | 233,946,559 |       | 267,957,812 |       |
| **Gross profit**                                                     |       | 12,624,166  |        | 23,956,378  |       | 33,697,258  |       |
|                                                                 |       |        |        |        |       |        |       |
| Selling, general and administrative expenses                         |       | 22,070,040  |        | 26,140,767  |       | 26,569,551  |       |
| Goodwill impairment                                                  |       | —      |        | 735,014     |       | —      |       |
| Other income                                                         |       | (838,032    | )           | (1,123,848  | )          | (586,878    | )          |
| **Operating income (loss)**                                          |       | (8,607,842  | )           | (1,795,555  | )          | 7,714,585   |       |
| ** **                                                           |       |        |        |        |       |        |       |
| Interest expense                                                     |       | 2,212,168   |        | 1,853,463   |       | 2,209,253   |       |
| **Income (loss) from continuing  operations before****income taxes** |       | (10,820,010 | )           | (3,649,018  | )          | 5,505,332   |       |
|                                                                 |       |        |        |        |       |        |       |
| Income tax expense (benefit)                                         |       | (4,286,818  | )           | (1,512,535  | )          | 1,312,931   |       |
| **Income (loss) from continuing  operations**                        |       | (6,533,192  | )           | (2,136,483  | )          | 4,192,401   |       |
| ** **                                                           |       |        |        |        |       |        |       |
| Discontinued operations                                              |       |        |        |        |       |        |       |
| Operating loss of  discontinued motorhome operations, net of tax     |       | (2,209,541  | )           | (924,936    | )          | (28,596     | )          |
| **Net income (loss)**                                                |       | $           | (8,742,733  | )           | $          | (3,061,419  | )          | $ | 4,163,805 |   |
| ** **                                                           |       |        |        |        |       |        |       |
| **Earnings (loss) Per Share:**                                       |       |        |        |        |       |        |       |
| Earnings (loss) from continuing operations                           |       | $           | (0.46       | )           | $          | (0.15       | )          | $ | 0.30 |   |
| Earnings (loss) from discontinued operations                         |       | (0.16       | )           | (0.07       | )          | —      |       |
| **Net earnings (loss)**                                              |       | $           | (0.62       | )           | $          | (0.22       | )          | $ | 0.30 |   |
|                                                                 |       |        |        |        |       |        |       |
| **Shares used in the computation of  earnings (loss) per share:**    |       |        |        |        |       |        |       |
| Basic                                                                |       | 14,187,207  |        | 14,110,103  |       | 13,871,471  |       |
| Diluted                                                              |       | 14,187,207  |        | 14,110,103  |       | 13,983,749  |       |
|                                                                 |       |        |        |        |       |        |       |
| **Cash dividends per common share**                                  |       | $           | —      |        | $          | .18         |       | $ | .35 |   |

 

See accompanying notes to consolidated financial statements.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**ConsolidatedStatements of Stockholders’ Equity**

*for the years ended December 26,2009, December 27, 2008 and December 29, 2007*

 
|                                                                       |       |                                    |       |                                    |       |           |       |         |       |                     |       |              |       |                   |       |                   |       |       |        |   |   |     |   |   |       |   |
|----------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|----------------|------------|--------------|------------|--------------------------|------------|-------------------|------------|------------------------|------------|------------------------|------------|------------|-------------|--------|--------|----------|--------|--------|------------|--------|
| ** **                                                                 | ** ** | ** **                              | ** ** | ** **                              | ** ** | ** **     | ** ** | ** **   | ** ** | ** **               | ** ** | ** **        | ** ** | ** **             | ** ** | **Accumulated**        | ** ** | ** ** | ** **  |
| ** **                                                                 | ** ** | ** **                              | ** ** | ** **                              | ** ** | ** **     | ** ** | ** **   | ** ** | ** **               | ** ** | ** **        | ** ** | ** **             | ** ** | **Other**              | ** ** | **Total**  | ** **  |
| ** **                                                                 | ** ** | **Class A Common Stock** | ** ** | **Class B Common Stock** | ** ** | **Additional** | ** ** | **Retained** | ** ** | **Treasury**             | ** ** | **Comprehensive** | ** ** | **Stockholders’** | ** ** |
| ** **                                                                 | ** ** | **Shares**                              | ** ** | **Amount**                              | ** ** | **Shares**     | ** ** | **Amount**   | ** ** | **Paid-In Capital** | ** ** | **Earnings**      | ** ** | **Stock**              | ** ** | **Income (Loss)** | ** ** | **Equity** | ** **  |
| Balance, December 30, 2006                                            |       | 13,155,160                              |       | $                                       | 1,315,516  |           | 2,024,133  |         | $          | 202,413                  |       | $                 | 65,499,875 |                   | $          | 29,008,233             |       | $          | (20,910,173 | )      | $      | 92,817   |   | $      | 75,208,681 |   |
| Net income                                                                 |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | 4,163,805         |       | —                 |       | —                 |       | 4,163,805  |        |
| Unrealized loss on hedge activity, net of tax                              |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | —            |       | —                 |       | (300,888               | )          | (300,888   | )           |
| Unrealized holding gain on investments, net of tax                         |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | —            |       | —                 |       | 8,652                  |       | 8,652      |        |
| Total comprehensive income                                                 |       |                                    |       |                                    |       |           |       |         |       |                     |       |              |       |                   |       |                   |       | 3,871,569  |        |
| Cash dividends ($.35 per share)                                            |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | (4,873,991        | )          | —                 |       | —                 |       | (4,873,991 | )           |
| Exercise of stock options                                                  |       | 302,834                                 |       | 30,284                                  |       | —         |       | —       |       | 1,502,229                |       | —            |       | (688,719               | )          | —                 |       | 843,794    |        |
| Issuance of 10,000 shares of common stock                                  |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | (12,200           | )          | 83,000                 |       | —                 |       | 70,800     |        |
| Issuance of restricted stock                                               |       | 3,180                                   |       | 318                                     |       | —         |       | —       |       | 16,631                   |       | —            |       | —                 |       | —                 |       | 16,949     |        |
| Stock-based compensation                                                   |       | —                                  |       | —                                  |       | —         |       | —       |       | 255,899                  |       | —            |       | —                 |       | —                 |       | 255,899    |        |
| Tax benefit of disqualifying stock option dispositions                     |       | —                                  |       | —                                  |       | —         |       | —       |       | 73,384                   |       | —            |       | —                 |       | —                 |       | 73,384     |        |
| Balance, December 29, 2007                                            |       | 13,461,174                              |       | 1,346,118                               |       | 2,024,133      |       | 202,413      |       | 67,348,018               |       | 28,285,847        |       | (21,515,892            | )          | (199,419               | )          | 75,467,085 |        |
| Net loss                                                                   |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | (3,061,419        | )          | —                 |       | —                 |       | (3,061,419 | )           |
| Unrealized loss on hedge activity, net of tax                              |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | —            |       | —                 |       | (310,607               | )          | (310,607   | )           |
| Unrealized holding loss on investments, net of tax                         |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | —            |       | —                 |       | (107,713               | )          | (107,713   | )           |
| Total comprehensive loss                                                   |       |                                    |       |                                    |       |           |       |         |       |                     |       |              |       |                   |       |                   |       | (3,479,739 | )           |
| Common stock dividends                                                     |       | 911,209                                 |       | 91,121                                  |       | 164,357        |       | 16,436       |       | 2,014,575                |       | (2,122,132        | )          | —                 |       | —                 |       | —     |        |
| Cash dividends ($.18 per share)                                            |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | (2,491,612        | )          | —                 |       | —                 |       | (2,491,612 | )           |
| Exercise of stock options                                                  |       | 148,500                                 |       | 14,850                                  |       | —         |       | —       |       | 668,255                  |       | —            |       | (435,605               | )          | —                 |       | 247,500    |        |
| Issuance of 12,000 shares of common stock                                  |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | (37,440           | )          | 98,160                 |       | —                 |       | 60,720     |        |
| Issuance of restricted stock                                               |       | 65,751                                  |       | 6,575                                   |       | —         |       | —       |       | 366,873                  |       | —            |       | —                 |       | —                 |       | 373,448    |        |
| Stock-based compensation                                                   |       | —                                  |       | —                                  |       | —         |       | —       |       | 205,514                  |       | —            |       | —                 |       | —                 |       | 205,514    |        |
| Balance, December 27, 2008                                            |       | 14,586,634                              |       | 1,458,664                               |       | 2,188,490      |       | 218,849      |       | 70,603,235               |       | 20,573,244        |       | (21,853,337            | )          | (617,739               | )          | 70,382,916 |        |
| Net loss                                                                   |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | (8,742,733        | )          | —                 |       | —                 |       | (8,742,733 | )           |
| Unrealized gain on hedge activity, net of tax                              |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | —            |       | —                 |       | 275,353                |       | 275,353    |        |
| Unrealized holding gain on investments, net of tax                         |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | —            |       | —                 |       | 65,811                 |       | 65,811     |        |
| Total comprehensive loss                                                   |       |                                    |       |                                    |       |           |       |         |       |                     |       |              |       |                   |       |                   |       | (8,401,569 | )           |
| Issuance of 10,000 shares of common stock                                  |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | (68,400           | )          | 81,800                 |       | —                 |       | 13,400     |        |
| Issuance of restricted stock                                               |       | 90,333                                  |       | 9,033                                   |       | —         |       | —       |       | 454,999                  |       | —            |       | —                 |       | —                 |       | 464,032    |        |
| Conversion of 27,432 shares of Class B shares  to Class A shares |       | 27,432                                  |       | 2,743                                   |       | (27,432        | )          | (2,743       | )          | —                   |       | —            |       | —                 |       | —                 |       | —     |        |
| Stock-based compensation                                                   |       | —                                  |       | —                                  |       | —         |       | —       |       | 126,859                  |       | —            |       | —                 |       | —                 |       | 126,859    |        |
| Balance, December 26, 2009                                            |       | 14,704,399                              |       | $                                       | 1,470,440  |           | 2,161,058  |         | $          | 216,106                  |       | $                 | 71,185,093 |                   | $          | 11,762,111             |       | $          | (21,771,537 | )      | $      | (276,575 | )      | $      | 62,585,638 |   |

 

See accompanying notes to consolidated financial statements.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**ConsolidatedStatements of Cash Flows**

*for the years ended December 26,2009, December 27, 2008 and December 29, 2007*

 
| ** **                                                                                | ** ** | **2009**    | ** ** | **2008**     | ** ** | **2007**     | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------|------------|--------------|------------|--------------|------------|
| **Cash flows from operating  activities:**                                                |       |        |       |         |       |         |       |
| Net income (loss)                                                                         |       | $           | (8,742,733 | )            | $          | (3,061,419   | )          | $ | 4,163,805 |   |
| Adjustments to reconcile net income (loss) to net  cash provided by operating activities: |       |        |       |         |       |         |       |
| Depreciation                                                                              |       | 4,085,025   |       | 4,268,447    |       | 4,295,739    |       |
| Building impairment                                                                       |       | 80,000      |       | —       |       | —       |       |
| Amortization of intangibles                                                               |       | —      |       | 48,370       |       | 48,370       |       |
| Goodwill and intangible asset impairment                                                  |       | —      |       | 1,323,521    |       | —       |       |
| Provision for losses on doubtful receivables                                              |       | 762,871     |       | 238,580      |       | 177,785      |       |
| Deferred income taxes                                                                     |       | (1,509,858  | )          | (412,700     | )          | (331,000     | )          |
| Stock-based compensation expense                                                          |       | 604,291     |       | 639,682      |       | 343,648      |       |
| Losses (gains) on sale of property, plant, and  equipment, net                            |       | (179,129    | )          | (234,894     | )          | 24,284       |       |
| Changes in operating assets and liabilities                                               |       |        |       |         |       |         |       |
| Accounts receivable                                                                       |       | 2,250,302   |       | 2,965,902    |       | 2,310,167    |       |
| Inventories                                                                               |       | 12,695,165  |       | 2,394,964    |       | 6,862,887    |       |
| Other current assets                                                                      |       | (2,718,744  | )          | (714,205     | )          | (778,759     | )          |
| Trade accounts payable                                                                    |       | 1,639,484   |       | (6,375,671   | )          | 1,134,175    |       |
| Other current liabilities                                                                 |       | (1,648,761  | )          | 16,055       |       | 194,529      |       |
|                                                                                      |       |        |       |         |       |         |       |
| **Net cash provided by operating  activities**                                            |       | 7,317,913   |       | 1,096,632    |       | 18,445,630   |       |
|                                                                                      |       |        |       |         |       |         |       |
| **Cash flows from investing  activities:**                                                |       |        |       |         |       |         |       |
| Proceeds from sale of property, plant, and  equipment                                     |       | 511,571     |       | 955,363      |       | 66,003       |       |
| Additions to property, plant and equipment                                                |       | (1,850,637  | )          | (3,577,094   | )          | (3,426,268   | )          |
| Proceeds from sale of investments                                                         |       | 1,053,054   |       | 832,670      |       | 544,804      |       |
| Purchases of investments                                                                  |       | (88,896     | )          | (1,283,253   | )          | (1,203,900   | )          |
| Decrease in other assets                                                                  |       | 8,746       |       | 8,746        |       | 408,745      |       |
|                                                                                      |       |        |       |         |       |         |       |
| **Net cash used in investing  activities**                                                |       | (366,162    | )          | (3,063,568   | )          | (3,610,616   | )          |
|                                                                                      |       |        |       |         |       |         |       |
| **Cash flows from financing  activities:**                                                |       |        |       |         |       |         |       |
| Proceeds from revolving line of credit and other  long-term debt                          |       | 70,742,407  |       | 120,761,270  |       | 105,717,892  |       |
| Repayments of revolving line of credit and other  long-term debt                          |       | (77,029,355 | )          | (116,883,747 | )          | (116,637,422 | )          |
| Settlement of interest rate swap                                                          |       | (375,000    | )          | —       |       | —       |       |
| Payment of cash dividends                                                                 |       | —      |       | (2,491,612   | )          | (4,873,991   | )          |
| Tax benefit of disqualifying stock option  dispositions                                   |       | —      |       | —       |       | 73,384       |       |
| Proceeds from exercise of stock options                                                   |       | —      |       | 247,500      |       | 843,793      |       |
|                                                                                      |       |        |       |         |       |         |       |
| **Net cash provided by (used in)  financing activities**                                  |       | (6,661,948  | )          | 1,633,411    |       | (14,876,344  | )          |
|                                                                                      |       |        |       |         |       |         |       |
| **Change in cash and cash  equivalents**                                                  |       | 289,803     |       | (333,525     | )          | (41,330      | )          |
|                                                                                      |       |        |       |         |       |         |       |
| **Cash and cash equivalents,  beginning of year**                                         |       | 932,608     |       | 1,266,133    |       | 1,307,463    |       |
|                                                                                      |       |        |       |         |       |         |       |
| **Cash and cash equivalents, end of  year**                                               |       | $           | 1,222,411  |         | $          | 932,608      |       | $ | 1,266,133 |   |
|                                                                                      |       |        |       |         |       |         |       |
| **Supplemental disclosure of cash  flow information:**                                    |       |        |       |         |       |         |       |
| Cash paid during the year for:                                                            |       |        |       |         |       |         |       |
| Interest                                                                                  |       | $           | 2,630,245  |         | $          | 2,223,660    |       | $ | 2,563,934 |   |
| Income taxes, net                                                                         |       | (58,912     | )          | (694,256     | )          | 1,794,197    |       |
| **Noncash investing and financing  activities:**                                          |       |        |       |         |       |         |       |
| Common stock dividends                                                                    |       | —      |       | 2,122,132    |       | —       |       |
| Issuance of stock options                                                                 |       | —      |       | 435,605      |       | 688,719      |       |

 

See accompanying notes to consolidated financial statements.

 

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**Supreme Industries, Inc. AndSubsidiaries**

**Notes toConsolidated Financial Statements**

 

**1.****                                     ****NATURE OF OPERATIONS ANDACCOUNTING POLICIES.**

 

Supreme Industries, Inc.and its subsidiaries (collectively the “Company”) manufacture specializedvehicles including truck bodies, buses, and armored vehicles.  The Company’s core products include cutawayand dry-freight van bodies, refrigerated units, stake bodies, and otherspecialized vehicles including shuttle buses. At December 26, 2009, the Company operated at nine manufacturing,distribution, and component manufacturing locations.  The Company’s customers are locatedprincipally in the United States of America.

 

The following is asummary of the significant accounting policies used in the preparation of theaccompanying consolidated financial statements:

 

**Principlesof Consolidation**- The accompanying consolidated financial statements include the accounts ofSupreme Industries, Inc. and its wholly-owned subsidiaries.  All significant intercompany accounts andtransactions have been eliminated in consolidation.

 

**FiscalYear End** - TheCompany’s fiscal year ends the last Saturday in December.  The fiscal years ended December 26,2009, December 27, 2008, and December 29, 2007 each contained 52weeks.

 

**Use ofEstimates in the Preparation of Financial Statements** - The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

**RevenueRecognition** - Theproduction of specialized truck bodies, buses, and armored vehicles starts whenan order is received from the customer, and revenue is recognized when the unitis shipped to the customer.  Revenue oncertain customer requested bill and hold transactions is recognized subsequentto when the customer is notified that the products have been completedaccording to customer specifications, have passed all of the Company’s qualitycontrol inspections, and are ready for delivery based upon established deliveryterms.

 

Net sales are net of cashdiscounts which the Company offers its customers in the ordinary course ofbusiness.

 

**Concentrationof Credit Risk** -Concentration of credit risk is limited due to the large number of customersand their dispersion among many different industries and geographicregions.  For the years ended 2009 and2008, one customer accounted for 16.6% and 13.3%, respectively, of theCompany’s total trade accounts receivable. As of year-end, no other customer represented more than 10% of theCompany’s total accounts receivable.  TheCompany performs ongoing credit evaluations of its customers and credit isextended on an unsecured basis.

 

**Advertising** - The Company expenses advertising costsas incurred.  Advertising costs for theyears ended December 26, 2009, December 27, 2008, and December 29,2007 were $124,650, $184,376, and $230,634, respectively.

 

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**Supreme Industries, Inc. AndSubsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**1.****                                     ****NATURE OF OPERATIONS ANDACCOUNTING POLICIES, Continued**

 

**FinancialInstruments and Fair Values** - The Company has utilized interest rate swapagreements to reduce the impact of changes in interest rates on certain of itsfloating rate debt.  The swap agreementsare contracts to exchange the debt obligation’s LIBOR floating rate (exclusiveof the applicable spread) for fixed rate interest payments over the term of theswap agreement without exchange of the underlying notional amounts.  The notional amounts of the interest rateswap agreements are used to measure interest to be paid or received and do notrepresent the amount of exposure of credit loss.  The differential paid or received underinterest rate swap agreements is recognized as an adjustment to interestexpense.

 

At December 27,2008, the Company had an interest rate swap agreement outstanding with anotional amount of $15,000,000.  Theinterest rate swap agreement provided a 4.71% fixed interest rate and matureson July 28, 2010.  The interest rateswap agreement was designated and qualified as a cash flow hedginginstrument.  It was fully effective,resulting in no net gain or loss recorded in the consolidated statements ofoperations.  The fair value of thecontract at December 27, 2008, was a liability of $818,053 and changes infair value of the financial instrument, net of applicable income taxes, wereadjusted through accumulated other comprehensive income (loss).

 

Effective December 23,2009, the Company terminated its interest rate swap arrangement and paid$375,000, the fair value of the swap on such date.  As the terminated swap arrangement was nolonger an effective hedge against changes in interest rates, the swap wasde-designated.  The Company is amortizinglosses on the swap included in other comprehensive income as of the date of thede-designation into net income (loss) in 2010 over the remaining seven monthlife of the swap utilizing the straight-line method.

 

Fairvalue is the exchange price that would be received for an asset or paid totransfer a liability (an exit price) in the principal or most advantageousmarket for the asset or liability in an orderly transaction between marketparticipants on the measurement date.  The Company utilizes a fair valuehierarchy which requires an entity to maximize the use of observable inputs andminimize the use of unobservable inputs when measuring fair value.  Thehierarchy is as follows:

 

Level 1: Quoted prices(unadjusted) or identical assets or liabilities in active markets that theentity has the ability to access as of the measurement date.

Level 2: Significantother observable inputs other than Level 1 prices such as quoted prices forsimilar assets or liabilities; quoted prices in markets that are not active; orother inputs that are observable or can be corroborated by observable marketdata.

Level 3: Significantunobservable inputs that reflect a company’s own assumptions about theassumptions that market participants would use in pricing an asset orliability.

 

As of December 27,2008, the Company’s derivative instruments consisted of interest rateswaps.  As such, significant fair value inputs can generally be verifiedand do not typically involve significant management judgments (Level 2inputs).  As of December 26, 2009,the Company had no derivative instruments.

 

The carrying amounts ofcash and cash equivalents, accounts receivable, and trade accounts payableapproximated fair value as of December 26, 2009 and December 27, 2008because of the relatively short maturities of these financial instruments.  The carrying amount of long-term debt,including current maturities, approximated fair value as of December 26,2009 and December 27, 2008, based upon terms and conditions available tothe Company at those dates in comparison to the terms and conditions of itsoutstanding long-term debt.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**1.****                                     ****NATURE OF OPERATIONS ANDACCOUNTING POLICIES, Continued**

 

**Cash andCash Equivalents**- The Company considers all highly liquid investments with original maturitiesof three months or less to be cash equivalents.

 

**Investments** - The Company categorizes its investments as either trading,available-for-sale, or held-to-maturity. The Company’s investments are comprised of available-for-sale securitiesand are carried at fair value with unrealized gains and losses, net ofapplicable income taxes, recorded within accumulated other comprehensive income(loss).  The Company determined fair valuesof investments available for sale by obtaining quoted prices on nationallyrecognized securities exchanges (Level 1 inputs).  Dividend and interest income are accrued asearned.  The Company reviews itsinvestments quarterly for declines in market value that are other thantemporary.

 

**AccountsReceivable** - TheCompany accounts for trade receivables based on the amounts billed tocustomers.  Past due receivables aredetermined based on contractual terms. The Company does not accrue interest on any of its trade receivables.

 

**Allowancefor Doubtful Accounts** - The allowance for doubtful accounts is determined by managementbased on the Company’s historical losses, specific customer circumstances, andgeneral economic conditions. Periodically, management reviews accounts receivable and adjusts theallowance based on current circumstances and charges off uncollectiblereceivables against the allowance when all attempts to collect the receivablehave failed.

 

**Inventories** - Inventories are stated at the lower ofcost or market with cost determined using the first-in, first-out method.

 

**Property,Plant and Equipment**- Property, plant and equipment are recorded at cost.  For financial reporting purposes,depreciation is provided based on the straight-line method over the estimateduseful lives of the assets.  The usefullife of each class of property is as follows: land improvements (22 years); buildings (40 years); and machinery andequipment (3 to 10 years).  For financialreporting purposes, leasehold improvements are amortized using the straight-linemethod over the lesser of the useful life of the asset or term of the lease,except for the leasehold improvements associated with the leased facilities inGoshen, Indiana, and Griffin, Georgia, which are leased from a related party (apartnership whose partners include four directors/stockholders of theCompany).  These related party leasesinclude a provision whereby upon termination of the leases, the lessor isobligated to pay the lessee a cash payment equal to the unamortized balance ofany leasehold improvements.  Accordingly,leasehold improvements to these leased facilities are amortized over the usefullife of the asset (15 to 40 years).  Uponsale or other disposition of assets, the cost and related accumulateddepreciation and amortization are removed from the accounts, and any resultinggain or loss is reflected in operations (included in other income in theconsolidated statements of operations). Expenditures for repairs and maintenance are charged to operations asincurred.  Betterments and major renewalsare capitalized and recorded in the appropriate asset accounts.

 

**IntangibleAssets** - The Company evaluates the recoverability ofidentifiable intangible assets whenever events or changes in circumstancesindicate that an intangible asset’s carrying amount may not berecoverable.  Such circumstances couldinclude, but are not limited to:  (1) asignificant decrease in the market value of an asset, (2) a significantadverse change in the extent or manner in which an asset is used, or (3) anaccumulation of costs significantly in excess of the amount originally expectedfor the acquisition of an asset.  TheCompany measures the carrying

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**1.****                                     ****NATURE OF OPERATIONS ANDACCOUNTING POLICIES, Continued**

 

amount of the assetagainst the estimated undiscounted future cash flows associated with it.  Should the sum of the expected future netcash flows be less than the carrying value of the asset being evaluated, animpairment loss would be recognized.  Theimpairment loss would be calculated as the amount by which the carrying valueof the asset exceeds its fair value.  TheCompany estimated the value of its customer list based on various valuationtechniques including the discounted value of estimated future cash flows.  The evaluation of asset impairment requiresthe Company to make assumptions about future cash flows over the life of theasset being evaluated.  These assumptionsrequire significant judgment, and actual results may differ from assumed andestimated amounts.  During the fourthquarter of 2008, the Company recorded an impairment charge for the fullcarrying amount of its customer list acquired in 2006 which totaled $588,507.

 

**Goodwill**- The Company evaluates the carrying value of goodwill during the fourthquarter of each year and between annual evaluations if events occur orcircumstances change that would more likely than not reduce the fair value ofthe reporting unit below its carrying amount. Such circumstances could include, but are not limited to:  (1) a significant adverse change inlegal factors or in business climate, (2) unanticipated competition, or (3) anadverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares thefair value of the reporting unit to which the goodwill is assigned to the reportingunit’s carrying amount, including goodwill. The fair value of the reporting unit is estimated using a combination ofthe discounted cash flows approach and consideration of the Company’s aggregatemarket value of its common stock.  As of December 27,2008, the carrying amount of the Company’s specialized vehicles reporting unitexceeded its fair value which required a measurement of the impairmentloss.  The impairment loss was calculatedby comparing the implied fair value of the reporting unit goodwill to itscarrying amount.  In calculating theimplied fair value of the reporting unit goodwill, the fair value of thereporting unit is allocated to all of the other assets and liabilities of thatunit based on their fair values.  TheCompany determined that there was no excess fair value over the amount assignedto the reporting unit’s other assets and liabilities.  An impairment loss was recognized for thefull carrying value of the goodwill which totaled $735,014 at December 27,2008.

 

**Evaluationof Impairment of Long-Lived Assets** - The Company evaluates the carrying value oflong-lived assets whenever significant events or changes in circumstancesindicate the carrying value of these assets may be impaired.  The Company evaluates potential impairment oflong-lived assets by comparing the carrying value of the assets to the expectednet future cash inflows resulting from use of the assets.

 

**Stock-BasedCompensation** -The Company recorded all stock-based payments to employees, including grants ofemployee stock options, in the consolidated statements of operations based ontheir fair values at the date of grant.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**1.****            ****NATURE OF OPERATIONS ANDACCOUNTING POLICIES, Continued**

 

The Companycurrently uses the Black-Scholes option pricing model to determine the fairvalue of stock options.  Thedetermination of the fair value of stock-based payment awards on the date ofgrant using an option-pricing model is affected by stock price as well asassumptions regarding a number of complex and subjective variables.  These variables include expected stock pricevolatility over the term of the awards, actual and projected employee stockoption exercise behaviors, risk-free interest rate, and expected dividends.

 

Compensation expense (netof estimated forfeitures) relative to stock-based awards (see Note 8), includedin the consolidated statements of operations for the years ended December 26,2009, December 27, 2008, and December 29, 2007, was $604,291,$639,682 and $343,648, respectively.  Theweighted-average assumptions utilized in the determination of stock-basedcompensation expense were as follows:

 
| ** **               | ** ** | **2009**  | ** ** | **2008**  | ** ** | **2007** | ** ** |
|--------------------------|------------|-----------|------------|-----------|------------|----------|------------|
| Risk  free interest rate |       | 2.53      | %          | 2.69      | %          | 4.51     | %          |
| Expected  life           |       | 7.0 years |       | 6.8 years |       | 5 years  |       |
| Expected  volatility     |       | 48.35     | %          | 41.19     | %          | 25.57    | %          |
| Expected  dividends      |       | —    | %          | 0.59      | %          | 6.08     | %          |

 

The risk-free interestrate is determined based on observed U.S. Treasury yields in effect at the timeof grant for maturities equivalent to the expected life of the option.  The expected life of the option (estimatedaverage period of time the option will be outstanding) is estimated based onthe historical exercise behavior of employees with executives displayingsomewhat longer holding periods than other employees.  Expected volatility is based on historicalvolatility measured daily for a time period equal to the option’s expected lifeending on the day of grant.  The expecteddividend yield is estimated based on the dividend yield at the time of grant asadjusted for expected dividend increases and historical payout policy.

 

**Warranty** - The Company provides limited productwarranties for periods of up to five years from the date of retail sale.  Estimated warranty costs are provided at thetime of sale and are based upon historical experience.  Warranty activity for the years ended December 26,2009, December 27, 2008, and December 29, 2007 is as follows:

 
| ** **                           | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Accrued  warranty, beginning of year |       | $          | 1,473,000  |       | $          | 1,476,000  |       | $ | 1,541,000 |   |
| Warranty  expense                    |       | 1,435,184  |       | 1,680,643  |       | 1,344,327  |       |
| Warranty  claims paid                |       | (1,531,184 | )          | (1,683,643 | )          | (1,409,327 | )          |
| Accrued  warranty, end of year       |       | $          | 1,377,000  |       | $          | 1,473,000  |       | $ | 1,476,000 |   |

 

**Income Taxes** - Deferred income taxes are determined using theliability method.

 

**Earnings (Loss) Per Share** - Basic earnings (loss) per share is computed bydividing net income (loss) by the weighted average number of shares of commonstock outstanding during the period.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**1.****            ****NATURE OF OPERATIONS ANDACCOUNTING POLICIES, Continued**

 

Dilutedearnings per share is computed by dividing net income (loss) by the weightedaverage number of shares of common stock outstanding plus the dilutive effectof stock options and restricted stock awards. The stock options and restricted stock awards have not been included inthe 2009 and 2008 computations of diluted earnings per share since their effectwould have been anti-dilutive.

 

**ComprehensiveIncome** - Othercomprehensive income refers to revenues, expenses, gains, and losses that,under generally accepted accounting principles, are included in comprehensiveincome but are excluded from net income since these amounts are recordeddirectly as an adjustment to stockholders’ equity.  The Company’s other comprehensive income iscomprised of unrealized gains and losses on hedge activities andavailable-for-sale securities, net of tax.

 

**SegmentInformation** - TheCompany’s principal business is manufacturing specialized vehicles.  Management has not separately organized thebusiness beyond specialized vehicles (includes three categories of products)and manufacturing processes.  Thefiberglass manufacturing subsidiary constitutes a segment, however this segmentdoes not meet the quantitative thresholds for separate disclosure.  The fiberglass manufacturing subsidiary’srevenues are less than ten percent of consolidated revenues, the absoluteamount of its reported income is less than ten percent of the absolute amountof consolidated net income, and finally, its assets are less than ten percentof consolidated assets.

 

Net sales from continuingoperations consist of the following:

 
| ** **             | ** ** | **2009**    | ** **  | **2008**    | ** ** | **2007**    | ** ** |
|------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| Specialized  vehicles: |       |        |        |        |       |        |       |
| Trucks                 |       | $           | 98,167,373  |        | $          | 162,667,783 |       | $ | 209,180,974 |   |
| Buses                  |       | 70,976,280  |        | 79,139,207  |       | 65,409,725  |       |
| Armored  vehicles      |       | 18,751,395  |        | 6,002,900   |       | 13,813,434  |       |
|                   |       | 187,895,048 |        | 247,809,890 |       | 288,404,133 |       |
| Composites             |       | 4,140,608   |        | 10,093,047  |       | 13,250,937  |       |
|                   |       | $           | 192,035,656 |        | $          | 257,902,937 |       | $ | 301,655,070 |   |

 

**RecentAccounting Pronouncements** - In June of 2009, the Financial Accounting Standards Board (“FASB”)issued Accounting Standards Codification (“ASC”) 105 which modifies thehierarchy of Generally Accepted Accounting Principles in the United States(“GAAP”) to include only two levels of GAAP: authoritative andnonauthoritative.  All of the content included in the ASC will beconsidered authoritative.  ASC is not intended to amend GAAP but codifiesprevious accounting literature.  ASC iseffective for interim and annual periods ending after September 15,2009.    The adoption of the ASC changed the referencing ofauthoritative accounting literature to conform to the ASC but did not have animpact on our consolidated results.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**1.****            ****NATURE OF OPERATIONS ANDACCOUNTING POLICIES, Continued**

 

Effective the beginningof fiscal year 2009, the Company adopted new FASB guidance relating toDisclosures about Derivative Instruments and Hedging Activities.  This guidance requires enhanced disclosuresabout how and why an entity uses derivative instruments, how derivativeinstruments and related hedged items are accounted for under GAAP, and howderivative instruments and related hedged items affect an entity’s financialposition, financial performance, and cash flows. It also requires qualitativedisclosures about objectives and strategies for using derivatives, quantitativedisclosures about fair value amounts of gains and losses on derivativeinstruments, and disclosures about credit risk-related contingent features inderivative agreements. The adoption of this guidance did not have a materialimpact on our consolidated financial statements.

 

In April of 2009,the FASB issued new guidance to require fair value disclosures of financialinstruments for interim reporting periods for publicly traded companies as wellas in annual financial statements.  This guidance also requires thosedisclosures in summarized financial information at interim reporting periodsand is effective for interim reporting periods ending after June 15,2009.  The adoption of this guidance did not have a material impact on ourconsolidated financial statements.

 

**2.****            ****DISCONTINUED OPERATIONS.**

 

In the fourth quarter of2009, the Company terminated its Silver Crown luxury motorhome product line.This decision was triggered by a significant reduction of new motorhome salesorders and the cancellation of existing sales orders due to the extremely tightcredit markets caused by the economic recession. The Company decided to exitthe motorhome product line as part of a plan to focus on core truck and busproducts and to reduce overall fixed costs.

 

The Company is assessingthe viability of selling or leasing the real estate of the Silver Crowndivision and expects to retain the remaining fixed assets; therefore, they arenot classified as held for sale. The Company plans to sell the finished unitson hand as of December 26, 2009 and to complete the production of existingsales orders over the course of the next few months. The Silver Crowndivision’s 2009 loss from operations includes the establishment of lower ofcost or market inventory reserves totaling approximately $1.2 million.

 

The 2009 operatingresults for the Silver Crown division are classified as discontinuedoperations, and prior years’ operating results have been reclassified todiscontinued operations as follows:

 
| ** **                  | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-----------------------------|------------|------------|------------|------------|------------|------------|------------|
| Net sales                   |       | $          | 3,966,995  |       | $          | 10,846,716 |       | $ | 11,617,653 |   |
| Pretax loss from operations |       | (3,658,181 | )          | (1,581,086 | )          | (37,527    | )          |
| Net loss                    |       | (2,209,541 | )          | (924,936   | )          | (28,596    | )          |
|                             |            |            |            |            |            |            |            |  |  |  |

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**3.****            ****INVESTMENTS.**

 

Investment securitiesconsist of the following:

 
| ** **                         | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Intermediate  bond fund-cost       |       | $        | 1,688,703  |     | $          | 2,654,059 |   |
| Unrealized  losses                 |       | (43,296  | )          | (144,211 | )          |
| Intermediate  bond fund-fair value |       | $        | 1,645,407  |     | $          | 2,509,848 |   |

 

Sales of securities were$1,053,054 and $832,670 during 2009 and 2008, respectively, and resulted inlosses of $31,264 and $10,701, respectively. Investment income (included in other income) consisted of dividendincome and aggregated $67,898 and $125,440 for the years ended December 26,2009 and December 27, 2008, respectively.

 

**4.****            ****INVENTORIES.**

 

Inventories consist ofthe following:

 
| ** **       | ** ** | **2009**  | ** ** | **2008**   | ** ** |
|------------------|------------|-----------|------------|------------|------------|
| Raw  materials   |       | $         | 17,512,758 |       | $          | 24,596,109 |   |
| Work-in-progress |       | 6,528,059 |       | 8,204,858  |       |
| Finished  goods  |       | 7,512,534 |       | 11,447,549 |       |
|             |       |      |       |       |       |
| Total            |       | $         | 31,553,351 |       | $          | 44,248,516 |   |

 

**5.****            ****PROPERTY, PLANT ANDEQUIPMENT.**

 

Property, plant andequipment consists of the following:

 
| ** **                                       | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|--------------------------------------------------|------------|------------|------------|------------|------------|
| Land                                             |       | $          | 4,871,025  |       | $          | 5,242,325 |   |
| Land  improvements                               |       | 5,806,992  |       | 5,895,386  |       |
| Buildings                                        |       | 29,301,000 |       | 29,107,282 |       |
| Leasehold  improvements                          |       | 6,759,829  |       | 7,575,979  |       |
| Machinery  and equipment                         |       | 42,762,820 |       | 46,307,433 |       |
|                                             |       | 89,501,666 |       | 94,128,405 |       |
| Less,  accumulated depreciation and amortization |       | 47,264,582 |       | 48,349,497 |       |
|                                             |       |       |       |       |       |
| Property,  plant and equipment, net              |       | $          | 42,237,084 |       | $          | 45,778,908 |   |

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**6.****            ****LONG-TERM DEBT.**

 

Long-term debt consistsof the following:

 
| ** **                                                                                                                                                                           | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Revolving line of credit                                                                                                                                                             |       | $          | 25,629,137 |       | $          | 29,928,679 |   |
|                                                                                                                                                                                 |       |       |       |       |       |
| Obligations under industrial development revenue  bonds, variable rates, with maturities in August 2010, April 2011,  and October 2015, collateralized by real estate |       | 1,550,000  |       | 2,050,000  |       |
|                                                                                                                                                                                 |       |       |       |       |       |
| Mortgage note, payable in monthly installments  including interest at a fixed rate of 2.5%, collateralized by a real estate  mortgage                                                |       | —     |       | 1,260,388  |       |
|                                                                                                                                                                                 |       |       |       |       |       |
| Term loan, payable in monthly installments  including interest at a fixed rate of 2.5%, collateralized by specific  equipment                                                        |       | —     |       | 181,082    |       |
|                                                                                                                                                                                 |       |       |       |       |       |
| Term loan, payable in monthly installments  including interest at a fixed rate of 2.75%, with final maturity in  May 2013, collateralized by specific equipment                 |       | 162,562    |       | 208,498    |       |
|                                                                                                                                                                                 |       |       |       |       |       |
| Total                                                                                                                                                                                |       | 27,341,699 |       | 33,628,647 |       |
|                                                                                                                                                                                 |       |       |       |       |       |
| Less, current maturities                                                                                                                                                             |       | 26,226,289 |       | 823,297    |       |
|                                                                                                                                                                                 |       |       |       |       |       |
| Long-term debt                                                                                                                                                                       |       | $          | 1,115,410  |       | $          | 32,805,350 |   |

 

The revolving line ofcredit, term note, and a letter of credit facility are part of a CreditAgreement as amended and restated on December 23, 2008 (the “CreditAgreement”).  All borrowings under theCredit Agreement are collateralized by certain inventories and tradereceivables of the Company.  The CreditAgreement provides for a revolving line of credit facility, as defined, up to$25 million.  Interest on outstandingborrowings under the revolving line of credit is based on the bank’s prime rateor certain basis points above LIBOR depending on the pricing option selectedand the Company’s leverage ratio, as defined (effective rate of 4.05% and 5.35%at December 26, 2009 and December 27, 2008, respectively).  The Company’s cash management system andrevolving line of credit are designed to maintain zero cash balances and,accordingly, checks outstanding in excess of bank balances are classified asadditional borrowings under the revolving line of credit.  Checks outstanding in excess of bank balanceswere $3,629,137 at December 26, 2009, and $7,528,679 at December 27,2008.  The revolving line of credit alsorequires a quarterly commitment fee ranging from 0.20% to 0.40% per annumdepending on the Company’s financial ratios and based upon the average dailyunused portion.  Any amounts outstandingunder the revolving line of credit will be due at maturity on October 31,2010.

 

Outstanding letters ofcredit related to the Company’s workers’ compensation insurance policies,aggregated $3.5 million and $4.0 million at December 26, 2009, and December 27,2008, respectively.  Under separateagreements, the Company had irrevocable letters of credit aggregating $1.7million and $2.1 million at December 26, 2009, and December 27, 2008,respectively, in favor of bond trustees as a credit enhancement for bondholdersof two industrial development revenue bonds.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**6.****            ****LONG-TERM DEBT, Concluded**

 

The Credit Agreementcontains, among other items, certain restrictive covenants including compliancewith financial measurements.  During thequarter ended December 26, 2009, Supreme Corporation, the Company’swholly-owned subsidiary, was not in compliance with an earnings-relatedcovenant and a minimum tangible net worth covenant in its CreditAgreement.  The Company is in the processof obtaining an amendment to the Credit Agreement that will waive the covenantdefaults and suspend the measurements until the second quarter of 2010 to providethe Company, with the assistance of consultants engaged in February 2010,time to refine and implement its profit improvement plan. Additionally, theamendment will require the Company and its subsidiaries to pledge all assets ascollateral under the Credit Agreement. Management, based on discussions withthe bank, is reasonably confident that in the near future the Company willconclude a satisfactory amendment with the bank. Despite the non-compliancewith covenants, the Company has made every scheduled payment of principal andinterest on a timely basis. The remaining terms of the Credit Agreement aresubstantially the same as the previous Credit Agreement disclosed in the AnnualReport on Form 10-K for the year ended December 27, 2008.

 

During the third quarterof 2009, and as a result of previous covenant violations resulting from thecurrent economic environment, management changed the classification of theCompany’s revolving line of credit from long-term to current.  Management was of the opinion that theCompany may not be able to cure potential covenant defaults at measurementdates that are within the next twelve months.  This reclassification hadno effect on previously reported Consolidated Statement of Operations orConsolidated Statement of Cash Flows for the 2009 year.

 

Maturities of long-termdebt for each of the next five years are as follows:  2010 - $26,226,289; 2011 - $348,484;2012 - $149,848, 2013 - $217,078 and 2014 - $200,000.

 

**7.****            ****RETIREMENT PLAN.**

 

The Company maintains adefined contribution plan which covers substantially all employees of theCompany who have reached the age of twenty-one years and have completed thirtydays of credited service.  The planprovides that eligible employees can contribute from one to fifteen percent oftheir annual compensation.  The Companyformerly maintained a policy to match thirty percent of each employee’scontributions up to seven percent of the employee’s compensation.  Effective September 1, 2008, however,the Company temporarily suspended this contribution match.  The Board of Directors may reinstate,increase, or decrease the Company’s contribution as business conditionspermit.  Expense related to this plan was$385,763, and $583,793 for the years ended 2008 and 2007, respectively.  There was no expense related to the plan forthe year ended 2009.

 

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**Supreme Industries, Inc. AndSubsidiaries**

**Notes to Consolidated FinancialStatements, Continued**

 

**8.****            ****STOCKHOLDERS’ EQUITY.**

 

**Preferred Stock**

 

The Company is authorizedto issue 1,000,000 shares of preferred stock ($1 par value) of which none hasbeen issued.  The Board of Directors isvested with the authority to determine and state the designations and relativepreferences, limitations, voting rights, if any, and other rights of thepreferred shares.

 

**CommonStock**

 

No dividends weredeclared or paid during the year ended December 26, 2009.  During the year ended December 27, 2008,the Board of Directors approved the following stock dividends:

 
| ** **                | ** ** | ** **              | ** ** | ** **              | ** ** | **Stock Dividend** | ** ** |
|---------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------------|------------|
| **Declaration Date** | ** ** | **Record Date**    | ** ** | **Paid Date**      | ** ** | **Per Share**      | ** ** |
|                      |       |                    |       |                    |       |                    |       |
| August 11, 2008      |       | August 22,  2008   |       | August 29,  2008   |       | 2                       | %          |
| November 10, 2008    |       | November 21,  2008 |       | November 28,  2008 |       | 6                       | %          |

 

**Convertible Class B Common Stock**

 

Class BCommon Stock is convertible into Class A Common Stock on a one-for-onebasis.  Holders of Class A CommonStock are entitled to elect one-third of the Board of Directors rounded to thelowest whole number.  Holders of Class BCommon Stock elect the remainder of the directors.

 

**Restricted Stock**

 

The following tablesummarizes the activity for our unvested restricted stock units and restrictedstock for the twelve months ended December 26, 2009.

 
| ** **                       | ** ** | ** ** | ** ** | **Weighted -** | ** ** |
|----------------------------------|------------|------------|------------|----------------|------------|
| ** **                       | ** ** | ** ** | ** ** | **Average**    | ** ** |
| ** **                       | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                       | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Unvested, December 27, 2008 |       | 202,069    |       | $              | 4.81       |   |
| Granted                          |       | —     |       | —         |       |
| Vested                           |       | (90,333    | )          | 5.04           |       |
| Unvested, December 26, 2009 |       | 111,736    |       | 4.62           |       |
|                                  |            |            |            |                |            |  |

 

Thetotal fair value of shares vested during the year ended December 26, 2009was $454,999.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**8.****            ****STOCKHOLDERS’ EQUITY, Continued**

 

**Stock Options**

 

On October 29, 1998,the Company’s Board of Directors approved, and the Company’s stockholderssubsequently ratified, the 1998 Stock Option Plan under which 886,469 shares ofClass A Common Stock were reserved for grant.  This plan expired on October 29,2008.  On January 31, 2001, theCompany’s Board of Directors approved, and the Company’s stockholderssubsequently ratified, the 2001 Stock Option Plan under which 891,990 shares ofClass A Common Stock were reserved for grant.  On January 23, 2004, the Company’s Boardof Directors approved, and the Company’s stockholders subsequently ratified,the 2004 Stock Option Plan, as recently amended, under which 1,297,440 sharesof Class A Common Stock were reserved for grant.  Under the terms of the stock option plans,both incentive stock options and non-statutory stock options can be granted bya specially designated Stock Awards Committee. The Amended and Restated 2004 Stock Option Plan also allows for awardsof common stock including restricted stock awards. Options granted under thestock option plans generally vest and become exercisable in annual installmentsof 33 1/3% beginning on the first anniversary date, and the options expire fiveor seven years after the date of grant. The Company generally issues new shares to satisfy stock optionexercises.

 

The following tablesummarizes stock option activity:

 
| ** **                           | ** ** | ** **  | ** ** | **Weighted - Average** | ** ** |
|--------------------------------------|------------|-------------|------------|------------------------|------------|
| ** **                           | ** ** | **Options** | ** ** | **Exercise Price**     | ** ** |
| Outstanding,  December 30, 2006 |       | 1,328,060   |       | $                      | 5.66       |   |
| Granted                              |       | 119,143     |       | 5.94                   |       |
| Exercised                            |       | (327,424    | )          | 4.68                   |       |
| Expired  or canceled                 |       | (50,277     | )          | 6.22                   |       |
| Outstanding,  December 29, 2007 |       | 1,069,502   |       | 5.96                   |       |
| Granted                              |       | 234,513     |       | 3.01                   |       |
| Exercised                            |       | (160,566    | )          | 4.25                   |       |
| Forfeited                            |       | (81,474     | )          | 4.84                   |       |
| Outstanding,  December 27, 2008 |       | 1,061,975   |       | 5.65                   |       |
| Granted                              |       | 196,000     |       | 1.56                   |       |
| Exercised                            |       | —      |       | —                 |       |
| Forfeited                            |       | (11,893     | )          | 6.32                   |       |
| Outstanding,  December 26, 2009 |       | 1,246,082   |       | 5.00                   |       |
|                                      |            |             |            |                        |            |  |

 

The weighted-average grant-date fair values of optionsgranted during the fiscal years ended 2009, 2008, and 2007 was $0.81, $0.71,and $0.86, respectively.  The totalintrinsic value of options exercised during the fiscal years ended 2008 and2007 approximated $67,540 and $1,532,000, respectively.  Total unrecognized compensation expenserelated to all share-based awards outstanding at December 26, 2009, isapproximately $672,459 and is to be recorded over a weighted-averagecontractual life of 1.42 years.

 

In connection with the exercise of certain stockoptions in 2008, officers and directors exchanged shares of Class A CommonStock as consideration for their exercise of stock options and received newstock options pursuant to the reload feature included in the stock option plan.There were 93,500 stock options exercised using the reload feature during2008.  The officers and directorsexchanged 83,528 shares of Class A Common Stock and received the samenumber of new stock options during 2008. The exercise of stock options, and the related issuance of shares of Class ACommon Stock in exchange for the shares of Class A Common Stock, with afair value of  $435,605 in 2008 was anoncash financing activity.

 

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**Supreme Industries, Inc. AndSubsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**8.****            ****STOCKHOLDERS’ EQUITY, Concluded**

 

Information about stockoptions outstanding and exercisable at December 26, 2009 is as follows:

 
| ** **                           | ** ** | **Outstanding**               | ** ** | **Exercisable**               | ** ** |
|--------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                           | ** ** | ** **                    | ** ** | **Weighted -********Average** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                           | ** ** | ** **                    | ** ** | **Remaining**                 | ** ** | **Weighted -** | ** ** | ** ** | ** ** | **Weighted -** | ** ** |
| ** **                           | ** ** | ** **                    | ** ** | **Contractual**               | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **Range  of********Exercise Prices** | ** ** | **Number********Outstanding** | ** ** | **Life in  Years**            | ** ** | **Exercise********Price** | ** ** | **Number********Exercisable** | ** ** | **Exercise********Price** | ** ** |
| $5.60 – 6.16                    |       | 57,741                        |       | 0.31                          |       | $ | 5.87 |   | 57,741 |   | $ | 5.87 |   |
| 6.33                                 |       | 27,030                        |       | 0.35                          |       | 6.33 |   | 27,030 |   | 6.33 |   |
| 6.15 – 6.77                     |       | 278,949                       |       | 0.58                          |       | 6.21 |   | 278,949 |   | 6.21 |   |
| 8.20 – 9.03                     |       | 24,055                        |       | 0.84                          |       | 8.63 |   | 24,055 |   | 8.63 |   |
| 7.14                                 |       | 7,385                         |       | 1.19                          |       | 7.14 |   | 7,385 |   | 7.14 |   |
| 6.52 – 7.17                     |       | 335,172                       |       | 3.36                          |       | 6.58 |   | 335,172 |   | 6.58 |   |
| 5.78 – 6.36                     |       | 85,240                        |       | 4.34                          |       | 6.00 |   | 77,169 |   | 6.02 |   |
| 5.73                                 |       | 6,487                         |       | 5.06                          |       | 5.73 |   | 6,487 |   | 5.73 |   |
| 4.72 – 5.34                     |       | 96,795                        |       | 5.36                          |       | 4.99 |   | 75,080 |   | 5.06 |   |
| 1.55 – 1.71                     |       | 196,000                       |       | 6.50                          |       | 1.56 |   | 15,000 |   | 1.63 |   |
| 1.42                                 |       | 131,228                       |       | 5.84                          |       | 1.42 |   | 43,743 |   | 1.42 |   |
|                                 |       | 1,246,082                     |       | 3.46                          |       | 5.00 |   | 947,811 |   | 5.99 |   |
|                                      |            |                               |            |                               |            |  |  |  |  |  |  |  |  |

 

At December 26,2009, the aggregate intrinsic value of options exercisable approximated$22,911.  The intrinsic value of alloptions outstanding at December 26, 2009 was approximately $116,744.

 

At December 27,2008, the exercise price for all exercisable options exceeded the last closingsale price of the Company’s common stock. Consequently, there was no aggregate intrinsic value of optionsexercisable.  Likewise, the exerciseprice for all options outstanding at December 27, 2008 also exceeded thelast closing price of the Company’s common stock resulting in no intrinsicvalue of options outstanding at December 27, 2008.

 

At December 27, 2008and December 29, 2007, there were exercisable options outstanding topurchase 754,775 and 752,886 shares at weighted average exercise prices of$6.34 and $6.31.

 

As of December 26,2009, 60,100 shares were reserved for the granting of future share-based awards(stock options and restricted stock) compared to 244,207 shares at December 27,2008.

 

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**Supreme Industries, Inc. AndSubsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**9.****            ****INCOME TAXES.**

 

Income taxes (benefits)consist of the following:

 
| ** **                                     | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007**   | ** ** |
|------------------------------------------------|------------|------------|------------|----------|------------|------------|------------|
| Taxes (benefits) from continuing operations    |       | $          | (4,286,818 | )        | $          | (1,512,535 | )          | $ | 1,312,931 |   |
| Taxes (benefits) from discontinued  operations |       | (1,448,640 | )          | (656,150 | )          | (8,931     | )          |
| ** **                                     |       | $          | (5,735,458 | )        | $          | (2,168,685 | )          | $ | 1,304,000 |   |

 

Income taxes (benefits)from continuing operations consist of the following:

 
| ** ** | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|------------|------------|------------|------------|------------|------------|------------|------------|
| Federal:   |       |       |       |       |       |       |       |
| Current    |       | $          | (3,739,077 | )          | $          | (1,327,970 | )          | $ | 1,537,759 |   |
| Deferred   |       | (326,569   | )          | (83,246    | )          | (321,828   | )          |
|       |       | (4,065,646 | )          | (1,411,216 | )          | 1,215,931  |       |
|       |       |       |       |       |       |       |       |
| State:     |       |       |       |       |       |       |       |
| Current    |       | 396,900    |       | 126,000    |       | 110,000    |       |
| Deferred   |       | (618,072   | )          | (227,319   | )          | (13,000    | )          |
|       |       | (221,172   | )          | (101,319   | )          | 97,000     |       |
| Total      |       | $          | (4,286,818 | )          | $          | (1,512,535 | )          | $ | 1,312,931 |   |

 

The deferred tax assets andthe deferred tax liabilities were as follows:

 
| ** **                                          | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|-----------------------------------------------------|------------|------------|------------|------------|------------|
| Deferred tax assets:                                |       |       |       |       |       |
| Receivables                                         |       | $          | 145,808    |       | $          | 111,650 |   |
| Inventories                                         |       | 1,230,745  |       | 618,601    |       |
| Accrued liabilities                                 |       | 1,153,886  |       | 1,417,145  |       |
| Stock-based compensation                            |       | 59,862     |       | 59,862     |       |
| Intangible asset                                    |       | 207,953    |       | 226,575    |       |
| Unrealized hedge loss                               |       | —     |       | 294,700    |       |
| State net operating losses and credit carryforwards |       | 1,410,669  |       | 337,428    |       |
| Other                                               |       | 154,287    |       | 48,242     |       |
| Total deferred tax assets                           |       | 4,363,210  |       | 3,114,203  |       |
|                                                |       |       |       |       |       |
| Deferred tax liabilities:                           |       |       |       |       |       |
| Depreciation                                        |       | (2,829,884 | )          | (2,984,835 | )          |
| Prepaids and other                                  |       | (890,929   | )          | (890,703   | )          |
| Realized hedge loss                                 |       | (95,480    | )          | —     |       |
| Total deferred tax liabilities                      |       | (3,816,293 | )          | (3,875,538 | )          |
|                                                |       |       |       |       |       |
| Net deferred income tax assets (liabilities)        |       | $          | 546,917    |       | $          | (761,335 | ) |
|                                                |       |       |       |       |       |
| Presented in the consolidated balance sheets as:    |       |       |       |       |       |
| Current deferred tax assets                         |       | $          | 1,758,179  |       | $          | 1,642,363 |   |
| Long-term deferred tax liabilities                  |       | (1,211,262 | )          | (2,403,698 | )          |
|                                                |       | $          | 546,917    |       | $          | (761,335 | ) |

 

A reconciliation of theprovision for income taxes from continuing operations to the amount computed byapplying the statutory federal income tax rate (34% in 2009, 2008, and 2007) toincome before income taxes is as follows:

 

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**Supreme Industries, Inc. AndSubsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**9.****            ****INCOME TAXES, Concluded**

 
| ** **                                                                         | ** ** | **2009** | ** ** | **2008** | ** ** | **2007**   | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|------------|------------|
| Income taxes at statutory rate                                                     |       | $        | (3,678,803 | )        | $          | (1,239,231 | )          | $ | 1,871,759 |   |
| State income taxes, net of federal tax effect                                      |       | (172,532 | )          | (97,542  | )          | 65,115     |       |
| Manufacturer’s deduction                                                      |       | —   |       | —   |       | (104,000   | )          |
| Tax-exempt underwriting income of wholly-owned  small captive insurance subsidiary |       | (404,600 | )          | (427,100 | )          | (421,800   | )          |
| Research and development tax credits                                               |       | (327,296 | )          | (157,500 | )          | (140,100   | )          |
| Alternative fuel tax credit                                                        |       | (22,565  | )          | (33,000  | )          | (48,600    | )          |
| Nondeductible goodwill impairment                                                  |       | —   |       | 249,900  |       | —     |       |
| Stock-based compensation                                                           |       | 144,472  |       | 115,600  |       | 65,700     |       |
| Other, net                                                                         |       | 174,506  |       | 76,338   |       | 24,857     |       |
| Total                                                                              |       | $        | (4,286,818 | )        | $          | (1,512,535 | )          | $ | 1,312,931 |   |

 

**UncertainTax Positions**

 

The Company recognizesincome tax benefits only when it is more likely than not that the tax positionwill be allowed upon examination by taxing authorities (which is presumed tooccur).  The amount of such tax benefitrecorded is the largest amount that is more likely than not to be allowed.  A reconciliation of the change in theunrecognized tax benefits for the three years ended December 26, 2009 isas follows:

 
| Unrecognized tax benefits at January 1, 2007   |   | $       | 495,678   |   |
|-----------------------------------------------------|--------|---------|-----------|--------|
| Gross increases - tax positions in prior periods    |   | 2,484   |      |
| Gross increases - tax positions in current period   |   | —  |      |
| Settlements                                         |   | —  |      |
| Lapse of statute of limitations                     |   | —  |      |
| Unrecognized tax benefits at December 29, 2007 |   | 498,162 |      |
| Gross increases - tax positions in prior periods    |   | 266,800 |      |
| Gross increases - tax positions in current period   |   | —  |      |
| Settlements                                         |   | —  |      |
| Lapse of statute of limitations                     |   | (89,762 | )         |
| Unrecognized tax benefits at December 27, 2008 |   | 675,200 |      |
| Gross increases - tax positions in prior periods    |   | 330,058 |      |
| Gross increases - tax positions in current period   |   | —  |      |
| Settlements                                         |   | —  |      |
| Lapse of statute of limitations                     |   | —  |      |
| Unrecognized tax benefits at December 26, 2009 |   | $       | 1,005,258 |   |

 

The entire balance of approximately $1,005,000 at December 26,2009 relates to unrecognized tax positions that, if recognized, would affectthe annual effective tax rate.  TheCompany is subject to U.S. federal income tax as well as various state taxes.  The Company is no longer subject toexamination by federal taxing authorities for the fiscal year ended 2004 andearlier.  The Company does not expect thetotal amount of unrecognized tax benefits to significantly increase over thenext twelve months.  Interest andpenalties related to income tax matters are recognized in income taxexpense.  Interest and penalties accruedfor, and recognized during, the fiscal years ended 2009, 2008, and 2007 wereimmaterial.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**10.****         ****COMMITMENTS AND CONTINGENCIES.**

 

**Lease Commitments and Related Party Transactions**

 

The Company leasescertain office and manufacturing facilities under operating lease agreementswhich expire at various dates from July 2010 through November 2011.  Certain of the lease agreements are withrelated parties for which related party rent expense was $683,472 for each ofthe fiscal years ending 2009 and 2008, and $669,999 for the fiscal year ended2007, respectively.

 

Rent expense under alloperating leases aggregated $812,535, $1,178,992, and $992,652 for the fiscalyears ended 2009, 2008, and 2007, respectively.

 

At December 26,2009, future minimum rental payments under noncancelable operating leasesaggregated $468,551 and are payable as follows: 2010 - $443,401; and 2011 - $25,150.

 

In addition to the aboverelated party transactions, the Company purchases delivery services from acompany owned by a former director of the Company.  Related party purchased delivery servicesaggregated $1,664,588, $2,878,190, and $2,859,763 for the fiscal years ended2009, 2008, and 2007, respectively. Amounts due to related parties, included in accounts payable, aggregated$116,091 and $98,594 as of December 26, 2009, and December 27, 2008,respectively.

 

**Consigned Inventories**

 

The Company obtainsvehicle chassis for its specialized vehicle products directly from the chassismanufacturers under converter pool agreements. Chassis are obtained from the manufacturers based on orders fromcustomers, and to a lesser extent, for unallocated orders.  Although each manufacturer’s agreement hasdifferent terms and conditions, the agreements generally state that themanufacturer will provide a supply of chassis to be maintained from time totime at the Company’s various facilities with the condition that the Companywill store such chassis and will not move, sell, or otherwise dispose of suchchassis except under the terms of the agreement.  The manufacturer does not transfer thecertificate of origin to the Company and, accordingly, the Company accounts forthe chassis as consigned inventory belonging to the manufacturer.  Under these agreements, if the chassis is notdelivered to a customer within a specified time frame the Company is requiredto pay a finance or storage charge on the chassis.  The finance or storage charges incurred on consignedchassis inventory, included in interest expense in the consolidated statementsof operations, aggregated $683,310, $498,344, and $499,055 for the fiscal yearsended 2009, 2008, and 2007, respectively. At December 26, 2009 and December 27, 2008, chassis inventory,accounted for as consigned inventory to the Company by the manufacturers,aggregated approximately $21.4 million and $32.5 million, respectively.  Typically, chassis are converted anddelivered to customers within 90 days of the receipt of the chassis by theCompany.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Concluded**

 

**10.****         ****COMMITMENTS AND CONTINGENCIES,Concluded**

 

**RepurchaseCommitments**

 

The Corporation was contingently liable at December 26,2009, under repurchase agreements with certain financial institutions providinginventory financing for retailers of its products.  Under these arrangements, which are customaryin the industry, the Company agrees to repurchase vehicles in the event ofdefault by the retailer.  The maximum repurchaseliability is the total amount that would be paid upon the default of theCompany’s independent dealers.  Themaximum potential repurchase liability, without reduction for the resale valueof the repurchased units, was approximately $2.0 million at December 26,2009 and $4.7 million at December 27, 2008.  The risk of loss under these agreements isspread over several retailers and financial institutions.  The loss, if any, under these agreements isthe difference between the repurchase cost and the resale value of the units.  The Corporation believes that any potentialloss under the agreements in effect at December 26, 2009 will not bematerial.

 

**Self-Insurance**

 

The Company isself-insured for a portion of general liability ($100,000 and $250,000 peroccurrence in 2009 and 2008, respectively), certain employee health benefits($200,000 annually per employee with no annual aggregate), and workers’compensation in certain states ($250,000 per occurrence with no annualaggregate).  The Company accrues for theestimated losses occurring from both asserted and unasserted claims.  The estimate of the liability for unassertedclaims arising from incurred but not reported claims is based on an analysis ofhistorical claims data.

 

**Other**

 

The Company is subject tovarious investigations, claims, and legal proceedings covering a wide range ofmatters that arise in the ordinary course of its business activities.  Each of these matters is subject to variousuncertainties, and it is possible that some of these matters may be resolvedunfavorably to the Company.  The Companyhas established accruals for matters that are probable and reasonablyestimable.  Management believes that anyliability that may ultimately result from the resolution of these matters inexcess of accruals and/or amounts provided by insurance coverage will not havea material adverse effect on the consolidated financial position or results ofoperation of the Company.

 

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** **

**SUPREMEINDUSTRIES, INC. AND SUBSIDIARIES**

**SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS**

 
| ** **                                             | ** ** | ** **     | ** ** | **Column C**    | ** ** | ** **        | ** ** | ** **       | ** ** |
|--------------------------------------------------------|------------|----------------|------------|-----------------|------------|-------------------|------------|------------------|------------|
| ** **                                             | ** ** | **Column B**   | ** ** | **Additions**   | ** ** | ** **        | ** ** | ** **       | ** ** |
| ** **                                             | ** ** | **Balance**    | ** ** | **Charged  to** | ** ** | ** **        | ** ** | **Column E**     | ** ** |
| **Column A**                                           | ** ** | **Beginning**  | ** ** | **Costs  and**  | ** ** | **Column D**      | ** ** | **Balance  End** | ** ** |
| **Description**                                        | ** ** | **of  Period** | ** ** | **Expenses**    | ** ** | **Deductions(1)** | ** ** | **of  Period**   | ** ** |
| Year ended December 26, 2009:                     |       |           |       |            |       |              |       |             |       |
| Reserves and allowances deducted from asset  accounts: |       |           |       |            |       |              |       |             |       |
| Allowance for doubtful receivables                     |       | $              | 290,000    |            | $          | 463,000           |       | $                | 683,000    |   | $ | 70,000 |   |
|                                                   |       |           |       |            |       |              |       |             |       |
| Year ended December 27, 2008:                     |       |           |       |            |       |              |       |             |       |
| Reserves and allowances deducted from asset  accounts: |       |           |       |            |       |              |       |             |       |
| Allowance for doubtful receivables                     |       | $              | 160,000    |            | $          | 239,000           |       | $                | 109,000    |   | $ | 290,000 |   |
|                                                   |       |           |       |            |       |              |       |             |       |
| Year ended December 29, 2007:                     |       |           |       |            |       |              |       |             |       |
| Reserves and allowances deducted from asset  accounts: |       |           |       |            |       |              |       |             |       |
| Allowance for doubtful receivables                     |       | $              | 160,000    |            | $          | 178,000           |       | $                | 178,000    |   | $ | 160,000 |   |

 

----

(1)  Uncollectible accounts written off, net of recoveries.

 

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**SUPREMEINDUSTRIES, INC. AND SUBSIDIARIES**

**UNAUDITED SUPPLEMENTARY DATA**

 
| ** **                                 | ** ** | **First**  | ** ** | **Second** | ** ** | **Third**  | ** ** | **Fourth** | ** ** |
|--------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| 2009 Quarter                               |       |       |       |       |       |       |       |       |       |
| Net sales, continuing operations           |       | $          | 48,621,988 |       | $          | 47,582,740 |       | $          | 49,805,255 |   | $ | 46,025,673 |   |
| Gross profit, continuing operations        |       | 2,904,075  |       | 3,841,917  |       | 4,082,970  |       | 1,795,204  |       |
| Net income (loss), continuing operations   |       | (1,184,758 | )          | (926,085   | )          | (1,250,227 | )          | (3,172,122 | )          |
| Net income (loss), discontinued operations |       | (213,219   | )          | (180,961   | )          | (278,347   | )          | (1,537,014 | )          |
| Net income (loss), consolidated            |       | (1,397,977 | )          | (1,107,046 | )          | (1,528,574 | )          | (4,709,136 | )          |
| Per share, consolidated:                   |       |       |       |       |       |       |       |       |       |
| Basic                                      |       | (0.10      | )          | (0.08      | )          | (0.11      | )          | (0.33      | )          |
| Diluted                                    |       | (0.10      | )          | (0.08      | )          | (0.11      | )          | (0.33      | )          |
|                                            |            |            |            |            |            |            |            |            |            |  |  |  |  |

 
| ** **                                 | ** ** | **First** | ** ** | **Second** | ** ** | **Third**  | ** ** | **Fourth** | ** ** |
|--------------------------------------------|------------|-----------|------------|------------|------------|------------|------------|------------|------------|
| 2008 Quarter                               |       |      |       |       |       |       |       |       |       |
| Net sales, continuing operations           |       | $         | 71,503,225 |       | $          | 72,142,233 |       | $          | 58,259,473 |   | $ | 55,998,006 |   |
| Gross profit, continuing operations        |       | 6,983,753 |       | 6,969,434  |       | 5,334,541  |       | 4,668,650  |       |
| Net income (loss), continuing operations   |       | 116,254   |       | 110,807    |       | (387,790   | )          | (1,975,754 | )          |
| Net income (loss), discontinued operations |       | 110,260   |       | 105,772    |       | (242,261   | )          | (898,707   | )          |
| Net income (loss), consolidated            |       | 226,514   |       | 216,579    |       | (630,051   | )          | (2,874,461 | )          |
| Per share, consolidated:                   |       |      |       |       |       |       |       |       |       |
| Basic                                      |       | 0.02      |       | 0.02       |       | (0.04      | )          | (0.20      | )          |
| Diluted                                    |       | 0.02      |       | 0.02       |       | (0.04      | )          | (0.20      | )          |
|                                            |            |           |            |            |            |            |            |            |            |  |  |  |  |

 

The consolidatedoperating results above reflect the net of both continuing and discontinuedoperations.

 

During the fourth quarterof 2009, the Company exited its Silver Crown luxury motorhome businessresulting in unfavorable charge of $1.6 million.  The 2008 fourth quarter operating resultswere unfavorably impacted by noncash, pre-tax impairment charges of $1.3million against goodwill, and intangible assets.

 

Earnings per share dataabove are adjusted for the 2% and 6% common stock dividends declared and paidin 2008.  The sum of quarterly earnings(loss) per share for the four quarters may not equal annual earnings (loss) pershare due to rounding and changes in the diluted potential common shares.

 

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

** **

Not applicable.

 

**ITEM9A.**               CONTROLS ANDPROCEDURES.

** **

**Management’s Conclusions Regarding Effectiveness ofDisclosure Controls and Procedures**

 

As of December 26, 2009, the Company conductedan evaluation, under the supervision and participation of management includingthe Chief Executive Officer and Chief Financial Officer, of the effectivenessof the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) andRule 15d-15(e) of the Securities Exchange Act of 1934). Based uponthat evaluation, the Chief Executive Officer and Chief Financial Officerconcluded that the Company’s disclosure controls and procedures are effectiveas of December 26, 2009.

 

**Management’s Report on Internal Control over FinancialReporting**

 

Management of the Company is responsible forestablishing and maintaining adequate internal control over financial reportingas defined in Rule 13a-15(f) and Rule 15d-15(f) of theSecurities Exchange Act of 1934. Internal control over financial reportingprovides reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles.

 

The Company’s internal control over financialreporting includes policies and procedures that:  (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the Company’s assets; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles; (3) that the Company’s receipts and expendituresare being made only in accordance with authorizations of management and directors;and (4) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use, or disposition of the Company’sassets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internalcontrol over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditionsor that the degree of compliance with the policies or procedures maydeteriorate.

 

Management of the Company has assessed theeffectiveness of the Company’s internal control over financial reporting basedon criteria established in *InternalControl-Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

Management’s assessment included an evaluation ofthe design of the Company’s internal control over financial reporting, andtesting of the operational effectiveness of the Company’s internal control overfinancing reporting. Based on this assessment, management has concluded thatthe Company’s internal control over financial reporting was effective as of December 26,2009.

 

This annual report does not include an attestationreport of the Company’s registered independent public accounting firm regardinginternal control over financial reporting. Management’s report was not subject to attestation by the Company’sregistered independent public accounting firm pursuant to temporary rules ofthe Securities and Exchange Commission that permit the Company to provide onlymanagement’s report in this annual report.

 

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

 

**Changes in Internal Control over Financial Reporting**

 

No change in the Company’s internal control overfinancial reporting (as such term is defined in Exchange Act Rule 13a-15(f) andRule 15d-15(f)) occurred during the fiscal quarter ended December 26,2009 that materially affected, or is reasonably likely to materially affect,the Company’s internal control over financial reporting.

 

**ITEM9B.**               OTHERINFORMATION.

** **

Not applicable.

 

**PART III**

** **

**ITEM 10.**               DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

** **

The information requiredby Item 10 of Form 10-K is hereby incorporated by reference from theCompany’s definitive proxy statement which will be filed with the Securitiesand Exchange Commission in connection with the Company’s 2010 annualstockholders’ meeting.

 

**ITEM11.**               EXECUTIVECOMPENSATION.

** **

The information requiredby Item 11 of Form 10-K is hereby incorporated by reference from theCompany’s definitive proxy statement which will be filed with the Securitiesand Exchange Commission in connection with the Company’s 2010 annualstockholders’ meeting.

 

**ITEM 12.**               SECURITY **O**WNERSHIPOF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

** **

The information requiredby Item 12 of Form 10-K is hereby incorporated by reference from theCompany’s definitive proxy statement, which will be filed with the Securitiesand Exchange Commission in connection with the  Company’s2010 annual stockholders’ meeting.

 

**ITEM 13.**               CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

** **

The information requiredby Item 13 of Form 10-K is hereby incorporated by reference from theCompany’s definitive proxy statement which will be filed with the Securitiesand Exchange Commission in connection with the Company’s 2010 annualstockholders’ meeting.

 

**ITEM 14.**               PRINCIPALACCOUNTANT FEES AND SERVICES.

** **

Theinformation required by Item 14 of Form 10-K is hereby incorporated byreference from the Company’s definitive proxy statement which will be filedwith the Securities and Exchange Commission in connection with the Company’s2010 annual stockholders’ meeting.

 

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**PART IV**

** **

**ITEM15.**               EXHIBITS ANDFINANCIAL STATEMENT SCHEDULES.

 

a.     The following financial statements andfinancial statement schedule are included in Item 8 herein:

 
| 1.             Financial Statements                                                      |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                 |   |
| Report of Crowe Horwath LLP, Independent Registered  Public Accounting Firm                                                                          |   |
|                                                                                                                                                 |   |
| Consolidated Balance Sheets as of December 26,  2009 and December 27, 2008                                                                 |   |
|                                                                                                                                                 |   |
| Consolidated Statements of Operations for the years  ended December 26, 2009, December 27, 2008 and December 29,  2007                |   |
|                                                                                                                                                 |   |
| Consolidated Statements of Stockholders’ Equity for  the years ended December 26, 2009, December 27, 2008 and  December 29, 2007 |   |
|                                                                                                                                                 |   |
| Consolidated Statements of Cash Flows for the years  ended December 26, 2009, December 27, 2008 and December 29,  2007                |   |
|                                                                                                                                                 |   |
| Notes to Consolidated Financial Statements                                                                                                           |   |
|                                                                                                                                                 |   |
| 2.             Financial Statement Schedule                                              |   |
|                                                                                                                                                 |   |
| Schedule II - Valuation and Qualifying Accounts                                                                                                      |   |
|                                                                                                                                                 |   |
| 3.             Exhibits                                                                  |   |
|                                                                                                                                                 |   |
| See Index to Exhibits                                                                                                                                |   |

 

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 

 
|   |                | SUPREME  INDUSTRIES, INC. |
|--------|---------------------|---------------------------|
|   |                |                      |
|   |                |                      |
| Date:  | March 24, 2010 |                      | By: | /s/Herbert M. Gardner |
|   |                |                      | Herbert M. Gardner, |
|   |                |                      | Chairman of the Board |
|        |                     |                           |  |  |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

 
| /s/Herbert M. Gardner |   | Chairman of the Board  and Chief Executive Officer                                                        |   | March 24, 2010 |
|-----------------------|--------|-----------------------------------------------------------------------------------------------------------|--------|---------------------|
| Herbert M. Gardner    |   | (Principal Executive  Officer)                                                                            |   |                |
|                  |   |                                                                                                      |   |                |
| /s/Robert W. Wilson   |   | President, Chief  Operating Officer and Director                                                          |   | March 24, 2010 |
| Robert W. Wilson      |   |
|                  |   |                                                                                                      |   |                |
| /s/William J. Barrett |   | Executive  Vice President, Secretary,Assistant Treasurer and Director                                     |   | March 24, 2010 |
| William J. Barrett    |   |
|                  |   |                                                                                                      |   |                |
| /s/Jeffery D. Mowery  |   | Treasurer,  Chief Financial Officer and Assistant Secretary (Principal Financial and  Accounting Officer) |   | March 24, 2010 |
| Jeffery D. Mowery     |   |
|                  |   |                                                                                                      |   |                |
| /s/Robert J. Campbell |   | Director                                                                                                  |   | March 24, 2010 |
| Robert J. Campbell    |   |                                                                                                      |   |                |
|                  |   |                                                                                                      |   |                |
| /s/Thomas Cantwell    |   | Director                                                                                                  |   | March 24, 2010 |
| Thomas Cantwell       |   |                                                                                                      |   |                |
|                  |   |                                                                                                      |   |                |
| /s/Edward L. Flynn    |   | Director                                                                                                  |   | March 24, 2010 |
| Edward L. Flynn       |   |                                                                                                      |   |                |
|                  |   |                                                                                                      |   |                |
| /s/Mark C. Neilson    |   | Director                                                                                                  |   | March 24, 2010 |
| Mark C. Neilson       |   |                                                                                                      |   |                |
|                  |   |                                                                                                      |   |                |
| /s/Wayne A. Whitener  |   | Director                                                                                                  |   | March 24, 2010 |
| Wayne A. Whitener     |   |                                                                                                      |   |                |

 

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INDEX TO EXHIBITS

 
| **Exhibit** | ** ** | **Description**                                                                                                                                                                                                                                                                                                          |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 3.1         |       | Certificate of  Incorporation of the Company, filed as Exhibit 3(a) to the  Company’s Registration Statement on Form 8-A, filed with the Commission  on September 18, 1989, and incorporated herein by reference.                                                                               |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 3.2         |       | Certificate of  Amendment of Certificate of Incorporation of the Company filed with the  Secretary of State of Delaware on June 10, 1993 filed as  Exhibit 3.2 to the Company’s annual report on Form 10-K for the  fiscal year ended December 31, 1993, and incorporated herein by  reference. |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 3.3         |       | Certificate of  Amendment of Certificate of Incorporation of the Company filed with the  Secretary of State of Delaware on May 29, 1996 filed as Exhibit 3.3  to the Company’s annual report on Form 10-K for the fiscal year ended  December 31, 1996, and incorporated herein by reference.   |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 3.4         |       | Amended and Restated  Bylaws, filed as Exhibit 3.1 to the Company’s current report on  Form 8-K, filed on May 7, 2008, and incorporated herein by  reference.                                                                                                                                        |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 10.1        |       | 1998 Stock Option Plan,  filed as Exhibit 10.3 to the Company’s annual report on Form 10-K  for the fiscal year ended December 31, 1998, and incorporated herein by  reference.                                                                                                                      |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 10.2        |       | Amendment No. 1 to  the Company’s 1998 Stock Option Plan, filed as Exhibit 10.4 to the  Company’s annual report on Form 10-K for the fiscal year ended  December 31, 1999, and incorporated herein by reference.                                                                           |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 10.3        |       | Amendment No. 2 to  the Company’s 1998 Stock Option Plan, filed as Exhibit 10.5 to the  Company’s annual report on Form 10-K for the fiscal year ended  December 31, 2000, and incorporated herein by reference.                                                                           |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 10.4        |       | 2001 Stock Option Plan,  filed as Exhibit 10.6 to the Company’s annual report on Form 10-K  for the fiscal year ended December 31, 2001, and incorporated herein by  reference.                                                                                                                      |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 10.5        |       | Amendment No. 1 to  the Company’s 2001 Stock Option Plan, filed as Exhibit 10.7 to the  Company’s annual report on Form 10-K for the fiscal year ended  December 31, 2001, and incorporated herein by reference.                                                                           |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 10.6        |       | 2004 Stock Option Plan,  filed as Exhibit 4.1 to the Company’s Registration Statement on  Form S-8 effective on August 26, 2004, and incorporated herein by  reference.                                                                                                                              |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 10.7        |       | Amended and Restated  2004 Stock Option Plan filed as Exhibit A to the Company’s Revised  Definitive Proxy Statement filed on April 5, 2006, and incorporated  herein by reference.                                                                                                                       |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 10.8        |       | Amendment Number One to  the Company’s Amended and Restated 2004 Stock Option Plan dated  October 25, 2006, included in the Company’s Definitive Proxy Statement  filed on April 2, 2007, and incorporated herein by reference.                                                                      |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 10.9        |       | Amendment No. 2 to  the Company’s Amended and Restated 2004 Stock Option Plan dated  March 25, 2008, included in the Company’s Definitive Proxy Statement  filed on April 3, 2008, and incorporated herein by reference.                                                                        |
|        |       |                                                                                                                                                                                                                                                                                                                     |
| 10.10       |       | Amendment No. Four  to the Company’s Amended and Restated 2004 Stock Option Plan dated  August 25, 2009, filed as Exhibit 10.3 to the Company’s quarterly  report on Form 10-Q for the quarterly period ended September 26,  2009, and incorporated herein by reference.              |

 

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| **Exhibit** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                 |
|-------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                                                                                                                                                                            |
| 10.11       |       | Form of Supreme  Industries, Inc. Director and Officer Indemnification Agreement, filed  as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed  on October 6, 2008, and incorporated herein by reference.                                                                                                             |
|        |       |                                                                                                                                                                                                                                                                                                                                                            |
| 10.12       |       | Special Vehicle  Manufacturer Converters Agreement with General Motors Corporation, effective  February 29, 2008, between General Motors Corporation and Supreme  Corporation, filed as Exhibit 10.11 to the Company’s annual report on  Form 10-K for the fiscal year ended December 27, 2008, and  incorporated herein by reference. |
|        |       |                                                                                                                                                                                                                                                                                                                                                            |
| 10.13       |       | Ford Authorized  Converter Pool Agreement, effective May 1, 2008, among Ford Motor  Company, Supreme Corporation and certain subsidiaries, filed as  Exhibit 10.12 to the Company’s annual report on Form 10-K for the  fiscal year ended December 27, 2008, and incorporated herein by  reference.                                    |
|        |       |                                                                                                                                                                                                                                                                                                                                                            |
| 10.14       |       | Amended and Restated  Credit Agreement dated December 23, 2008, by and between Supreme  Corporation and JPMorgan Chase Bank, N.A., filed as Exhibit 10.13 to the  Company’s annual report on Form 10-K for the fiscal year ended  December 27, 2008, and incorporated herein by reference.                                             |
|        |       |                                                                                                                                                                                                                                                                                                                                                            |
| 10.15       |       | Amendment to Credit  Agreement dated May 12, 2009, by and between Supreme Corporation and  JPMorgan Chase Bank, N.A., filed as Exhibit 10.2 to the Company’s  quarterly report on Form 10-Q for the quarterly period ended  March 28, 2009, and incorporated herein by reference.                                                      |
|        |       |                                                                                                                                                                                                                                                                                                                                                            |
| 10.16       |       | Note Modification  Agreement dated May 12, 2009, by and between Supreme Corporation and  JPMorgan Chase Bank, N.A., filed as Exhibit 10.3 to the Company’s  quarterly report on Form 10-Q for the quarterly period ended  March 28, 2009, and incorporated herein by reference.                                                        |
|        |       |                                                                                                                                                                                                                                                                                                                                                            |
| 10.17       |       | Amendment to Credit  Agreement dated September 9, 2009, by and between Supreme Corporation  and JPMorgan Chase Bank, N.A., filed as Exhibit 10.1 to the Company’s  Current Report on Form 8-K filed on September 15, 2009, and  incorporated herein by reference.                                                                      |
|        |       |                                                                                                                                                                                                                                                                                                                                                            |
| 10.18       |       | Note Modification  Agreement dated September 9, 2009, by and between Supreme Corporation  and JPMorgan Chase Bank, N.A., filed as Exhibit 10.2 to the Company’s  Current Report on Form 8-K filed on September 15, 2009, and  incorporated herein by reference.                                                                        |
|        |       |                                                                                                                                                                                                                                                                                                                                                            |
| 10.19       |       | Amendment to Credit  Agreement dated November 6, 2009, by and between Supreme Corporation and  JPMorgan Chase Bank, N.A., filed as Exhibit 10.4 to the Company’s  quarterly report on Form 10-Q for the quarterly period ended  September 26, 2009, and incorporated herein by reference.                                              |
|        |       |                                                                                                                                                                                                                                                                                                                                                            |
| 10.20       |       | Note Modification  Agreement dated November 6, 2009, by and between Supreme Corporation and  JPMorgan Chase Bank, N.A., filed as Exhibit 10.5 to the Company’s  quarterly report on Form 10-Q for the quarterly period ended  September 26, 2009, and incorporated herein by reference.                                                |
|        |       |                                                                                                                                                                                                                                                                                                                                                            |
| 10.21       |       | Lease dated  July 25, 1988, between Supreme Corporation and G-2, Ltd., a Texas  limited partnership, relating to Supreme Corporation’s Goshen, Indiana  facilities, filed as Exhibit 10.22 to the Company’s annual report on  Form 10-K for the fiscal year ended December 31, 1988, and  incorporated herein by reference.       |
|        |       |                                                                                                                                                                                                                                                                                                                                                            |
| 10.22       |       | Lease dated  July 25, 1988, between Supreme Corporation and G-2, Ltd., a Texas  limited partnership, relating to Supreme Corporation’s Griffin, Georgia  facilities, filed as Exhibit 10.23 to the Company’s annual report on  Form 10-K for the fiscal year ended December 31, 1988, and  incorporated herein by reference.      |

 

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|   | 10.23  |   | Amended and Restated  Employment Contract by and among Supreme Industries, Inc. and Herbert M.  Gardner dated to be effective January 1, 2005, filed as  Exhibit 10.2 to the Company’s Current Report on Form 8-K dated  February 10, 2006, and incorporated herein by reference. |
|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                            |
|   | 10.24  |   | Amended and Restated  Employment Contract by and among Supreme Industries, Inc. and William J.  Barrett dated to be effective January 1, 2005, filed as  Exhibit 10.3 to the Company’s Current Report on Form 8-K dated  February 10, 2006, and incorporated herein by reference. |
|   |   |   |                                                                                                                                                                                                                                                                                                            |
|   | 10.25  |   | Amended and Restated  Employment Contract by and among Supreme Industries, Inc. and Robert W.  Wilson dated to be effective May 1, 2008, filed as exhibit 10.1 to the  Company’s Current Report on Form 8-K dated May 12, 2008, and  incorporated herein by reference.                 |
|   |   |   |                                                                                                                                                                                                                                                                                                            |
| *      | 21.1   |   | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                 |
|   |   |   |                                                                                                                                                                                                                                                                                                            |
| *      | 23.1   |   | Consent of Crowe  Horwath LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                   |
|   |   |   |                                                                                                                                                                                                                                                                                                            |
| *      | 31.1   |   | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                                                      |
|   |   |   |                                                                                                                                                                                                                                                                                                            |
| *      | 31.2   |   | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                                                      |
|   |   |   |                                                                                                                                                                                                                                                                                                            |
| *      | 32.1   |   | Certification of Chief  Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                                                      |
|   |   |   |                                                                                                                                                                                                                                                                                                            |
| *      | 32.2   |   | Certification of Chief  Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.                                                                                                                                                                                                      |

 

----

*  Filed herewith.

 

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