# **UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

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

## ** **

# **FORM 10-K**

# ** **

x                     **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES****EXCHANGE ACT OF1934**

 

**For the fiscal year ended:December 29, 2007**

** **

**OR**

 

o                        **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES****EXCHANGE ACT OF1934**

 

**COMMISSION FILE NUMBER: 1-8183**

 

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

(Exact name of Registrantas 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 telephone number,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) |       | American Stock Exchange                         |

 

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

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes £ No x

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes £ No x

 

Indicate by check whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of Registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company.  Seedefinition of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

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

 

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

 

The aggregate market value of the voting stock held bynon-affiliates of the registrant as of the last business day of the registrant’smost recently completed second fiscal quarter; based on the last closing saleprice of $6.94 per share for the common stock on the American Stock Exchange onsuch date was approximately:  $62,331,312

 

Indicate the number of shares outstanding of each ofthe registrant’s classes of common stock as of the latest practicable date.

 

| **Class**                                                                                | ** ** | **Outstanding  at March 13, 2008** |
|------------------------------------------------------------------------------------------|------------|-----------------------------------------|
| Class A Common  Stock ($.10 Par Value)

Class B Common  Stock ($.10 Par Value) |       | 11,012,944 shares

2,024,133 shares     |

 

**Documents incorporated byreference**

 

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

 

Portions of theProxy Statement for 2008 Annual Meeting of Stockholders to be held on May 8,2008  — Part III

 

** **

** **

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**TABLE OF CONTENTS**

 

 
| PART I   |      |                                                                                                                  |   |
|---------------|-----------|-----------------------------------------------------------------------------------------------------------------------|--------|
|          | ITEM 1.   | BUSINESS.                                                                                                             | 1      |
|          | ITEM 1A.  | RISK FACTORS.                                                                                                         | 5      |
|          | ITEM 2.   | PROPERTIES.                                                                                                           | 8      |
|          | ITEM 3.   | LEGAL PROCEEDINGS.                                                                                                    | 9      |
|          | ITEM 4.   | SUBMISSION OF MATTERS TO A VOTE  OF SECURITY HOLDERS.                                                                 | 9      |
| PART II  |      |                                                                                                                  |   |
|          | ITEM 5.   | MARKET FOR REGISTRANT’S COMMON  EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY  SECURITIES. | 9      |
|          | ITEM 6.   | SELECTED FINANCIAL DATA.                                                                                              | 10     |
|          | ITEM 7.   | MANAGEMENT’S DISCUSSION AND  ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.                          | 11     |
|          | ITEM 7A.  | QUANTITATIVE AND QUALITATIVE  DISCLOSURES ABOUT MARKET RISK.                                                          | 19     |
|          | ITEM 8.   | FINANCIAL STATEMENTS AND  SUPPLEMENTARY DATA.                                                                         | 19     |
|          | ITEM 9.   | CHANGES IN AND DISAGREEMENTS  WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.                                | 45     |
|          | ITEM  9A. | CONTROLS  AND PROCEDURES.                                                                                             | 45     |
|          | ITEM  9B. | OTHER  INFORMATION.                                                                                                   | 46     |
| PART III |      |                                                                                                                  |   |
|          | ITEM 10.  | DIRECTORS, EXECUTIVE OFFICERS  AND CORPORATE GOVERNANCE.                                                              | 46     |
|          | ITEM 11.  | EXECUTIVE COMPENSATION.                                                                                               | 46     |
|          | ITEM  12. | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS.                     | 46     |
|          | ITEM  13. | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.                                           | 47     |
|          | ITEM 14.  | PRINCIPAL ACCOUNTING FEES AND  SERVICES.                                                                              | 47     |
| PART IV  |      |                                                                                                                  |   |
|          | ITEM  15. | EXHIBITS,  FINANCIAL STATEMENT SCHEDULES.                                                                             | 47     |

 

 

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**PART I**

 

**ITEM1.                  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, shuttle buses,and related equipment.

 

**FinancialInformation About Operating Segments**

 

The Company has two operating segments — specialized vehicles andvertically integrated fiberglass products. The vertically integrated fiberglass products segment does not meet thequantitative 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 shuttle buses.  Depending on the product, it is either builtdirectly on a truck chassis or built separately and installed at a laterdate.  The truck chassis, which consistsof an engine, frame with wheels, and in some cases a cab, is manufactured bythird parties 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 $1,000 to $175,000.  Supreme’struck bodies are offered in aluminum or fiberglass reinforced plywood panel (“FRP”)construction and are available in lengths of 9 to 45 feet and heights up to 13feet, 6 inches.  Examples of optionalequipment offered by Supreme include lift gates, cargo-handling equipment,customized doors, special bumpers, ladder racks, and refrigeration equipment,which are configured with the truck bodies to meet the end-user’s needs.

 

Supreme also makes its own fiberglass wind deflectors, under the nameof Fuel Shark, which reduce wind resistance and improve fuel efficiency.  Supreme is not in the business ofmanufacturing long-distance truck-trailers.

 

The following table shows net sales contributed by each of the Company’sproduct categories:

 

| ** **            | ** ** | **2007**    | ** **  | **2006**    | ** ** | **2005**    | ** ** |
|-----------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| Specialized vehicles: |       |        |        |        |       |        |       |
| Trucks                |       | $           | 209,180,974 |        | $          | 259,894,141 |       | $ | 267,563,822 |   |
| Buses                 |       | 65,409,725  |        | 59,396,203  |       | 56,112,684  |       |
| Armored vehicles      |       | 13,813,434  |        | 8,361,974   |       | 9,203,059   |       |
| Motorhomes            |       | 11,617,653  |        | 4,063,359   |       | —      |       |
|                  |       | 300,021,786 |        | 331,715,677 |       | 332,879,565 |       |
| Composites            |       | 13,250,937  |        | 9,031,112   |       | 8,373,287   |       |
|                  |       | $           | 313,272,723 |        | $          | 340,746,789 |       | $ | 341,252,852 |   |

 

1

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

 

Van bodies.  Supreme’s van bodies are typically fabricatedup to 28 feet in length with pre-painted aluminum or FRP panels, aerodynamicfront and side corners, hardwood floors, and various door configurations toaccommodate end-user loading and unloading requirements.  This product is used for diversified dryfreight transportation.

 

Iner-City® cutaway van bodies.  An ideal route truck for a variety ofcommercial applications, the Iner-City’s aluminum or FRP 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.

 

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.

 

Kold King® insulated van bodies.  Kold King insulated bodies, in lengths up to28 feet, provide versatility and dependability for temperature controlledapplications.  Flexible for eitherhand-load or pallet load requirements, they are ideal for multi-stopdistribution of both fresh and frozen products.

 

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

 

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

 

StarTrans® shuttle buses.  The StarTrans® shuttle buses have seatingcapacities for 12 to 29 people and are offered with a variety of seatingarrangements and with options such as wheelchair lifts, custom interiors, andspecial exterior paint schemes.  Theshuttle bus line features an aerodynamic exterior design and is intended foruse by hotels, nursing homes, car leasing companies, and airport-related users.

 

StarTrans® mid-size buses.  Supreme’s StarTrans® mid-size buses(President and Ambassador) are offered in lengths of up to 31 feet withcapacities of up to 35 passengers.  Thisproduct serves the public transit and tour markets and provides the Company’sdealer network with a more comprehensive 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.  StarTrans® introduced its Tourliner model in October 2006.  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 replacementfor the former 15 passenger van and is marketed to churches, schools, day carecenters, and other organizations in need of shuttle bus capabilities.

 

Silver Crown.  Silver Crown luxury motorcoaches are customdesigned for the enthusiast in the race car, show horse, sports car, andmotorcycle industries.  The custom designalong with the strength of a Freightliner chassis allows for towing capacity oflarge trailers with the comforts of a high-end recreational vehicle.

 

 

2

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Pony Xpress.  Pony Xpress manufacturers motorhomes,totorhomes, and garages on a variety of OEM chassis.  The product provides towing capacity andmobility for a variety of hauling needs with the comforts of a traditionalrecreation vehicle.

 

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

 

**Manufacturing**

 

Supreme’s manufacturing facilities are located in Goshen and Ligonier,Indiana; Griffin, Georgia; Cleburne, Texas; Moreno Valley, California;Jonestown, Pennsylvania; Woodburn, Oregon, and White Pigeon, Michigan.  Supreme’s management estimates that thecapacity utilization of its plants and equipment ranges from 60% to 90% ofcapacity when annualized on a one-shift basis. At various times during the year, several of the Company’s plantsoperate at near capacity to fulfill large fleet order contracts.

 

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.  Thesetruck bodies are built on an assembly line from engineered structuralcomponents such as floors, roofs, and wall panels.  These components are manufactured fromSupreme’s proprietary designs and are installed on the truck chassis.  Supreme then installs optional equipment andapplies any special finishes that the customer has specified.  At each step of the manufacturing andinstallation process, Supreme conducts quality control procedures to ensurethat 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, fiberglass parts, and has extensive rollforming and metal bending capabilities. A portion of the excess capacity of these fabrication capabilities isused to supply products to the recreational vehicle and marine industries.  These component manufacturing facilities arelocated in Goshen and Ligonier, 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.

 

**Marketing**

 

Supreme normally sells the vehicle and/or equipment that has beeninstalled on the chassis to commercial dealers, distributors, fleet leasingcompanies, or directly to end-users. Products purchased by a dealer from Supreme are sold by the dealer to itsown customers.  Since Supreme or itsdistributors generally service all Supreme products sold by the dealers, eachdealer is normally located within relatively close geographic proximity toSupreme or the distributor supplying such dealer.

 

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 thereceipt of orders.

 

Supreme directly markets products in geographic areas where the Companydoes not have a distributor.  The Companycurrently has distribution/mounting facilities in or near the cities of St.Louis, Missouri; Louisville, Kentucky; Cleveland and Columbus, Ohio; Orlando,Florida; Houston and San Antonio, Texas; Denver, Colorado and Harrisville,Rhode Island.

 

Approximately 85 employees are engaged in direct sales.  Supreme engages in direct advertising intrade publications, trade shows, and cooperative advertising campaigns withdistributors.

 

 

3

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**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 its days sales outstanding and its days inventories on handare within normal industry levels.  TheCompany had working capital of $58.5 million and $66.6 million at December 29,2007 and December 30, 2006, respectively.

 

**MajorCustomers**

 

No single customer, or group of customers, accounted for 10% or more ofthe Company’s net sales for the fiscal years ended in 2007, 2006, and2005.  The Company’s export sales are notsignificant.

 

**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 pricing pressures.Other competitive factors include quality of product, lead times, geographicproximity to customers, and the ability to manufacture a product customized tocustomer 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 it iswell-positioned to meet the competitive challenges presented.

 

**GovernmentalRegulation**

 

Our operations are subject to a variety of federal, state, and localenvironmental and health and safety statutes and regulations, including thoserelated to emissions to the air, discharges to the water, treatment, storage,and disposal of water, and remediation of contaminated sites. From time totime, we have received notices of noncompliance with respect to our operations.These have typically been resolved by investigating the alleged noncomplianceand correcting any noncompliant conditions.

 

**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 29, 2007 and December 30, 2006, the Companyemployed approximately 2,100 and 2,400 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 $87.0 million at December 29,2007 compared to $97.5 million at December 30, 2006.

 

** **

**4**

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** **

**ITEM** 1A.               RISKFACTORS.

** **

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.

 

**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 forits manufacturing operations. Consequently, our ability to produce and deliverour products could be affected by disruptions encountered by our raw materialsuppliers or freight carriers. Additionally, competitive market conditions may prevent the Company fromimplementing price increases to offset raw material cost increases.

 

**Volatilityin the supply of vehicle chassis and other vehicle components could adverselyaffect our business because they may reduce the number of truck bodies andbuses that we can manufacture or result in excess inventory costs.**

 

Supreme generally does not purchase vehicle chassis for itsinventory.  Supreme accepts shipments ofvehicle chassis owned by dealers or end-users for the purpose of installingand/or manufacturing its specialized truck bodies and buses on suchchassis.  In the event of a labordisruption or other uncontrollable event adversely affecting all or most of thecompanies which manufacture and/or deliver such chassis, Supreme’s level ofmanufacturing could be substantially reduced. The Company has established relationships with all major chassismanufacturers.  In the event of adisruption in supply from one manufacturer, the Company would attempt to divertits demand to the other manufacturers. Approximately 30% of the chassis involved in Supreme’s manufacturinghave been secured through converter pool agreements with three major chassismanufacturers.  These agreements providefor truck chassis pools at each of Supreme’s manufacturing facilities.

 

The Company also faces risk relative to finance charges for maintainingexcess chassis inventory.  Under theseconsigned inventory agreements, if the chassis is not delivered to a customerwithin a specified time frame, the Company is required to pay a finance chargeon the chassis.

 

**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 shuttle 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 

 

 

5

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remediate contaminated sites upon designated responsible partiesincluding site owners or operators and persons who dispose of wastes at, ortransport wastes to, such sites.

 

From time to time, we have received notices of noncompliance with respectto our operations. These have typically been resolved by investigating thealleged noncompliance and correcting any non-compliant conditions.  New environmental requirements, moreaggressive enforcement of existing ones, or discovery of presently unknownconditions could require material expenditures or result in liabilities whichcould limit expansion or otherwise have a material adverse effect on ourbusiness, financial condition, and operating cash flows.

 

**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 formally 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 toexperience, price volatility and low trading volumes.  Overall market conditions, and other riskfactors described herein, may cause the market price of our Class A CommonStock to fall.  Our high and low salesprices for the twelve month period ended December 29, 2007, were $8.10 and$5.50, respectively.  Our Class ACommon Stock is listed on the American Stock 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 public-traded securities.  Forexample, during the twelve month period ended December 29, 2007, 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 20, 2008, our officers and directors as a groupbeneficially own 32.3% of our Class A Common Stock and 90.1% 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.

 

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**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 American Stock Exchange, and the holders thereof are entitled to electthree members of the Company’s Board of Directors.  The majority (90.1%) of the Class BCommon Stock is owned or controlled by the Company’s officers and directors andis entitled to elect the remaining six members of the Company’s Board ofDirectors.  The continuing ability of theholders of our Class B Common Stock to elect a majority of the members ofthe Company’s Board of Directors will make it difficult for another company toacquire us and for you to receive any related take-over premium for your shares(unless the controlling group approves the sale).

 

**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 its control systems are effective, there areinherent limitations in all control systems, and misstatements due to error orfraud may occur and not be detected.  TheCompany continues to take action to assure compliance with the internalcontrols, disclosure controls, and other requirements of the Sarbanes-Oxley Actof 2002.  Management, including our ChiefExecutive Officer and Chief Financial Officer, cannot guarantee that ourinternal controls and disclosure controls will prevent all possible errors orall fraud.  A control system, no matterhow 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 some persons,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)

 

** **

**7**

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** **

**ITEM2.                  PROPERTIES.**

** **

Set forth below is a brief summary of the properties which are owned orleased by the Company as of December 29, 2007.

 

 
| ** **                        | ** ** | **Square  Footage** | ** ** | **Owned or  Leased** | ** ** | **Operating Segment** | ** ** |
|-----------------------------------|------------|---------------------|------------|----------------------|------------|-----------------------|------------|
| Manufacturing of Products         |       |                |       |                 |       |                  |       |
| Jonestown, Pennsylvania           |       | 429,376             |       | Owned                |       | Specialized  Vehicles |       |
| Goshen, Indiana                   |       | 320,146             |       | Leased               |       | Specialized  Vehicles |       |
| Goshen, Indiana                   |       | 195,939             |       | Owned                |       | Specialized  Vehicles |       |
| Cleburne, Texas                   |       | 177,035             |       | Owned                |       | Specialized  Vehicles |       |
| Woodburn, Oregon                  |       | 131,160             |       | 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            |       | 49,780              |       | Owned                |       | Specialized  Vehicles |       |
| Ligonier, Indiana                 |       | 23,540              |       | Owned                |       | Specialized  Vehicles |       |
| Cleburne, Texas                   |       | 1,440               |       | Leased               |       | Specialized  Vehicles |       |
|                              |       | 1,623,395           |       |                 |       |                  |       |
|                              |       |                |       |                 |       |                  |       |
| Manufacturing of Component  Parts |       |                |       |                 |       |                  |       |
| Goshen, Indiana                   |       | 57,570              |       | Owned                |       | Fiberglass  Products  |       |
| Ligonier, Indiana                 |       | 52,142              |       | Owned                |       | Fiberglass  Products  |       |
| Ligonier, Indiana                 |       | 28,000              |       | Leased               |       | Fiberglass  Products  |       |
|                              |       | 137,712             |       |                 |       |                  |       |
|                              |       |                |       |                 |       |                  |       |
| Distribution                      |       |                |       |                 |       |                  |       |
| Harrisville, Rhode Island         |       | 20,000              |       | Owned                |       | Specialized  Vehicles |       |
| Houston, Texas                    |       | 14,533              |       | Owned                |       | Specialized  Vehicles |       |
| Streetsboro, Ohio                 |       | 11,900              |       | Owned                |       | Specialized  Vehicles |       |
| Denver, Colorado                  |       | 11,575              |       | Leased               |       | Specialized  Vehicles |       |
| Springfield, Ohio                 |       | 11,200              |       | Owned                |       | Specialized  Vehicles |       |
| San Antonio, Texas                |       | 7,000               |       | Owned                |       | Specialized  Vehicles |       |
| Louisville, Kentucky              |       | 6,664               |       | Owned                |       | Specialized  Vehicles |       |
| Apopka, Florida                   |       | 5,200               |       | Owned                |       | Specialized  Vehicles |       |
| St. Louis, Missouri               |       | 4,800               |       | Owned                |       | Specialized  Vehicles |       |
|                              |       | 92,872              |       |                 |       |                  |       |
|                              |       |                |       |                 |       |                  |       |
| Properties Held for Sale          |       |                |       |                 |       |                  |       |
| Wilson, North Carolina (1)        |       | 113,694             |       | Owned                |       | Not  Applicable       |       |
|                              |       |                |       |                 |       |                  |       |
| Corporate Office Building         |       |                |       |                 |       |                  |       |
| Goshen, Indiana                   |       | 26,000              |       | Owned                |       | Not  Applicable       |       |
|                              |       |                |       |                 |       |                  |       |
| Total square footage              |       | 1,993,673           |       |                 |       |                  |       |

----

(1)          During the third quarter of 2002, the Company ceasedbusiness operations at its facility in Wilson, North Carolina.  Since then, the property has been, andcontinues to be, listed for sale; however, the Company has been unable to sellthe property because of weak economic conditions and excess building facilitiesin this region of the country.

 

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

 

 

8

----

 

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

** **

The Company is subject to various investigations, claims, and legalproceedings covering a wide range of matters that arise in the ordinary courseof its business activities.  Each ofthese matters is subject to various uncertainties, and it is possible that someof these matters may be resolved unfavorably tothe Company.  The Company has establishedaccruals for matters 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.** | ** ** | **SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS.** |
|--------------|------------|-----------------------------------------------------------|

** **

No matters were submitted by the Company to a vote of the Company’ssecurity holders, through the solicitation of proxies, or otherwise during thefourth quarter of the year ended December 29, 2007.

 

**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 American StockExchange (ticker symbol STS).  The numberof record holders of the Class A Common Stock as of March 13, 2008was approximately 258.  Due to the numberof shares held in nominee or street name, it is likely that there aresubstantially more than 258 beneficial owners of the Company’s Class ACommon Stock.

 

The Company’s Class A Common Stock closed at a price of $5.70 pershare on the American Stock Exchange on March 13, 2008 on which date therewere 11,012,944 shares of Class A Common Stock outstanding.  High and low sales prices of the Class ACommon Stock for the two-year period ended December 29, 2007 were:

 

| ** **  | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| ** **  | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| 1st Quarter |       | $        | 6.90       |     | $          | 5.80 |   | $ | 8.00 |   | $ | 7.20 |   |
| 2nd Quarter |       | 7.10     |       | 5.77     |       | 7.61 |   | 6.10 |   |
| 3rd Quarter |       | 7.25     |       | 6.77     |       | 7.28 |   | 6.05 |   |
| 4th Quarter |       | 8.10     |       | 5.50     |       | 6.89 |   | 6.05 |   |
|             |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

All of the 2,024,133 outstanding shares of the Company’s Class BCommon Stock were held by a total of 14 persons as of March 13, 2008.  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.

 

 

9

----

 

The Board of Directors approved the following cash dividends on itsoutstanding Class A and Class B Common Stock during the years ended December 29,2007 and December 30, 2006:

 
| **Declaration Date**   | ** ** | **Record Date**        | ** ** | **Paid Date**          | ** ** | **Cash Dividend   Per Share** | ** ** |
|------------------------|------------|------------------------|------------|------------------------|------------|-------------------------------|------------|
|                   |       |                   |       |                   |       |                          |       |
| 2007                   |       |                   |       |                   |       |                          |       |
| February 14, 2007 |       | February 27, 2007 |       | March 5, 2007     |       | $.095                         |       |
| May 3, 2007       |       | May 17, 2007      |       | May 24, 2007      |       | $.095                         |       |
| August 7, 2007    |       | August 21, 2007   |       | August 28, 2007   |       | $.095                         |       |
| October 30, 2007  |       | November 13, 2007 |       | November 20, 2007 |       | $.095                         |       |
|                   |       |                   |       |                   |       |                          |       |
| 2006                   |       |                   |       |                   |       |                          |       |
| February 7, 2006  |       | February 20, 2006 |       | February 27, 2006 |       | $.095                         |       |
| May 1, 2006       |       | May 15, 2006      |       | May 22, 2006      |       | $.095                         |       |
| August 8, 2006    |       | August 21, 2006   |       | August 28, 2006   |       | $.095                         |       |
| October 26, 2006  |       | November 13, 2006 |       | November 20, 2006 |       | $.095                         |       |

 

The Board of Directors has expressed its intention to continue the $.095per share quarterly cash dividend indefinitely, business conditions permitting.

 

**ITEM 6.                  SELECTEDFINANCIAL 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.

 
| ** **                                    | ** ** | **For Fiscal Y ears Ended** | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|
| ** **                                    | ** ** | **2007**                    | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Consolidated Income Statement  Data:**      |       |                        |       |   |   |   |   |   |   |   |   |
| (in millions, except per  share amounts)      |       | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |
| Net sales (a)                                 |       | $                           | 313.3      |   | $ | 340.7 |   | $ | 341.3 |   | $ | 307.3 |   | $ | 224.9 |   |
|                                          |       |                        |       |   |   |   |   |   |   |   |   |
| Net income                                    |       | 4.2                         |       | 4.6 |   | 8.3 |   | 4.7 |   | 4.6 |   |
|                                          |       |                        |       |   |   |   |   |   |   |   |   |
| Net income per share:                         |       |                        |       |   |   |   |   |   |   |   |   |
| Basic earnings per share                      |       | .32                         |       | .36 |   | .67 |   | .39 |   | .39 |   |
| Diluted earnings per share                    |       | .32                         |       | .36 |   | .65 |   | .38 |   | .38 |   |
|                                          |       |                        |       |   |   |   |   |   |   |   |   |
| Cash dividends per common share               |       | .38                         |       | .38 |   | .26 |   | .14 |   | .03 |   |
|                                          |       |                        |       |   |   |   |   |   |   |   |   |
| **Consolidated Balance Sheet  Data:**         | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| (in millions)                                 |       |                        |       |   |   |   |   |   |   |   |   |
|                                          |       |                        |       |   |   |   |   |   |   |   |   |
| Working capital                               |       | $                           | 58.5       |   | $ | 66.6 |   | $ | 60.8 |   | $ | 50.9 |   | $ | 42.9 |   |
|                                          |       |                        |       |   |   |   |   |   |   |   |   |
| Total assets                                  |       | 132.8                       |       | 142.1 |   | 137.4 |   | 129.2 |   | 106.3 |   |
|                                          |       |                        |       |   |   |   |   |   |   |   |   |
| Long-term debt (excluding current maturities) |       | 29.0                        |       | 38.9 |   | 31.4 |   | 28.8 |   | 17.4 |   |
|                                          |       |                        |       |   |   |   |   |   |   |   |   |
| Stockholders’ equity                     |       | 75.5                        |       | 75.2 |   | 75.2 |   | 67.6 |   | 63.6 |   |

----

(a)          Net sales for2003-2005 have been adjusted from amounts previously reported as “Revenue” toexclude other income and report only net sales.

 

 

10

----

 

** **

**ITEM7.**                                                     MANAGEMENT’SDISCUSSION 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 Supreme Corporation, is one of the nation’sleading manufacturers of specialized vehicles. Utilizing a nationwide directsales and distribution network, as well as manufacturing and service facilitiesin 13 states across North America, Supreme is able to meet the needs ofcustomers across all regions of the continental United States.

 

The Company engages principally in the production and sale ofcustomized truck bodies, shuttle buses, and other specialty vehicles. Buildingon our expertise in providing both cargo and passenger transportation solutions,the Company’s specialty vehicle offerings include products such as customizedarmored vehicles, homeland response vehicles, and luxury motor coaches. Throughvertical integration and proprietary processes, the Company also supplies bothinternal and external customers with high quality fiberglass andfiberglass-reinforced components.

 

The Company and its product offerings are sensitive to various factorswhich include, but are not limited to, interest rate fluctuations, changes ingovernmental regulations, and industrial and commercial spending patterns. TheCompany’s business is also affected by the availability and costs of certainraw materials that serve as significant components to our product offerings.

 

Company growth in recent years has been achieved through internalproduct development, business acquisitions, and joint ventures. The Companyoperates only in businesses related to its core competencies and currently hasno plans to deviate from this strategy.

 

For more detailed information related to the Company and its products,see Business (Item 1) of this document.

 

The following discussion should be read in conjunction with theconsolidated financial statements and related notes thereto, located at Item 8of this document.

 

**Resultsof Operations**

 

***Comparison of 2007 with 2006***

 

***Net Sales***

 

Net sales for the year ended December 29, 2007 decreased $27.4million, or 8.0%, to $313.3 million compared to $340.7 million for the yearended December 30, 2006.  Thedecrease was primarily related to our core dry freight sales, our largestproduct group, which declined by $40.7 million, or 22.6%.****Weattribute the decrease in our core dry freight products to continuedindustry-wide softness in the retail truck market.  Partially offsetting this decrease werefavorable sales contributions from our StarTrans bus division which experienceda 10.1% increase to $65.4 million, and our armored division, which increased64.3% over the prior year, to $13.8 million in 2007.  Additionally, Silver Crown, one of our specialtyproduct divisions, increased sales to $11.6 million, a 182.9% increase,resulting from the increased market penetration of this 2006 acquisition. Ourtotal sales backlog was $87.0 million at December 29, 2007 compared to$97.5 million at December 30, 2006.

 

***Cost of Sales and Gross Profit***

 

Gross profit decreased by $2.4 million, or 6.4%, to $35.2 million(11.2% of net sales) for the year ended December 29, 2007 compared to$37.6 million (11.0% of net sales) for the year ended December 30,2006.  The following table presents thecomponents of cost of sales as a percentage of net sales for 2007 and 2006 andthe changes from 2006:

 

 

11

----

 

 
| ** **    | ** ** | **2007** | ** ** | **2006** | ** ** | **Percent Change** | ** ** |
|---------------|------------|----------|------------|----------|------------|--------------------|------------|
| Material      |       | 57.4     | %          | 56.8     | %          | 0.6                | %          |
| Direct labor  |       | 13.6     |       | 14.3     |       | -0.7               |       |
| Overhead      |       | 15.2     |       | 15.1     |       | 0.1                |       |
| Delivery      |       | 2.6      |       | 2.8      |       | -0.2               |       |
| Cost of sales |       | 88.8     |       | 89.0     |       | -0.2               |       |
| Gross profit  |       | 11.2     | %          | 11.0     | %          | 0.2                | %          |

 

**Material****—**Material cost as a percentage of net sales was 57.4% in2007 compared to 56.8% in 2006. ** **The increase of 0.6% wasattributable to our growing StarTrans bus division and our Silver Crowndivision which have a higher material content and accounted for a largerportion of our total sales volume in 2007. Partially offsetting the increase in the material percentage was animprovement of 2.2% in our core truck divisions which resulted from workingwith our material suppliers to strengthen our supply chain logistics whilecontrolling material costs. However, raw material costs continue to remain aconcern as costs are increasing for aluminum, steel, and petroleum-based rawmaterials. We are closely monitoring and managing all material costs throughtimely communication and negotiation with key suppliers, and will continue tomake efforts to recover raw material cost increases through the pricing of ourproducts.  The Company also continues tostrive to reduce the costs of its products through research into innovativematerials and the use of robotics.

 

Historically, the Company has experienced and recorded both favorableand unfavorable physical inventory adjustments. Due to our product diversity, complexity, customization, and on-lineengineering, inventory relief using standard bills of material does not providefull relief of our inventory.  Therefore,the Company records an additional cost relief adjustment based on variousfactors. In addition, the Company intensified its bills of material accuracyinitiatives and cost relief systems and methods in conjunction with performingadditional interim physical inventories and recording any adjustments relatingthereto.  In 2007, the Company recordedfavorable inventory adjustments of $0.2 million.  In the third quarter of fiscal year 2006, theCompany recorded a $1.9 million favorable inventory adjustment.  In 2006, the Company improved its bills ofmaterials accuracy without changing its cost relief adjustment to account forthese improvements resulting in a favorable inventory adjustment for the year.The more frequent physical inventories and the continued improvements from theprocess improvement initiatives should enable the Company to continue tominimize the physical inventory adjustments (See “Inventory Relief” below inour discussion of “Critical Accounting Policies and Estimates”).

 

**Direct Labor** — Directlabor as a percentage of net sales was 13.6% in 2007 compared to 14.3% in2006.  The direct labor improvement wasthe result of the efficiencies realized from contracting fewer, more costlytemporary workers at our core truck divisions due to reduced sales volume.  Additionally, in the first half of 2006 weexperienced a delay in OEM-supplied chassis which caused the Company totemporarily suspend production, thereby negatively affecting labor and overheadabsorption.  As noted earlier, while ourStarTrans bus division and Silver Crown division material content is higherthan our core truck products, the labor percentage is lower in these divisionsfurther reducing the overall Company labor percentage as a result of the ourchange in product mix for 2007.

 

**Overhead** — Overheadas a percentage of net sales was 15.2% in 2007 compared to 15.1% in 2006.  Overall, the Company was able to effectivelymanage its cost structure to the lower sales volume experienced in 2007.  However, our group health insurance expenseincreased 6.3% when compared to 2006. To combat the increase in group healthinsurance, the Company continues to implement changes to its group healthinsurance plan design in an effort to control future claim costs.  We will continue to focus on reducingexpenses and managing our overhead cost structure based on our level of salesvolume.

 

**Delivery** — Delivery as apercentage of net sales was 2.6% in 2007 compared to 2.8% in 2006.  The Company continues to utilize more costeffective outside delivery methods versus using its employees and ownedequipment to deliver units.  Fuel costsremain a concern, and we will continue to attempt to pass on higher fuel costsdespite competitive pressures in the marketplace.

 

 

12

----

 

***Selling, General and Administrative Expenses***

 

Selling, general and administrative (“G&A”) expenses decreased by$0.7 million, or 2.5%, to $27.8 million (8.9% of net sales) for the year ended December 29,2007, compared to $28.5 million (8.4% of net sales) for the year ended December 30,2006.  The following table presentsselling and G&A expenses as a percentage of net sales and the changes fromyear to year:

 
| ** **       | ** ** | **2007** | ** ** | **2006** | ** ** | **Percent Change** | ** ** |
|------------------|------------|----------|------------|----------|------------|--------------------|------------|
| Selling expenses |       | 3.3      | %          | 3.4      | %          | -0.1               | %          |
| G&A expenses |       | 5.6      |       | 5.0      |       | 0.6                |       |
| Total            |       | 8.9      | %          | 8.4      | %          | 0.5                | %          |

 

**Selling expenses** —Selling expenses decreased by $1.2 million, or 10.4%, to $10.3 million for theyear ended December 29, 2007 from $11.5 million for the year ended December 30,2006.  Selling expenses declined due toincreased cooperative marketing credits the Company received from chassismanufacturers.  These credits, determinedsolely by programs established by the chassis manufacturers, are to be used tooffset marketing and promotional expenses. Additionally, sales commission expense decreased due to the lower salesvolume experienced during 2007 compared to 2006.

 

**G&A expenses** — General andadministrative expenses increased by $0.5 million, or 2.9%, to $17.5 millionfor the year ended December 29, 2007 from $17.0 million for the year endedDecember 30, 2006. The increase in general and administrative expenses wasprimarily due to non-recurring fees associated with complying with therequirements of the Sarbanes-Oxley Act of 2002.

 

***Other Income***

 

Other income remained relatively constant at $0.6 million for the yearended December 29, 2007 and December 30, 2006. Other income consistedof rental income, gain on sale of assets, and other miscellaneous incomereceived by the Company through its various business activities.

 

***Interest Expense***

 

Interest expense decreased by $0.6 million, or 19.4%, to $2.5 million(0.8% of net sales) for the year ended December 29, 2007 compared to $3.1million (0.9% of net sales) for the year ended December 30, 2006. Thedecrease in interest expense was due to less borrowing under the Company’sworking capital line of credit and a decrease in chassis interest expense.  The decrease in bank interest expense alsoreflects lower prevailing interest rates, coupled with an increased focus on workingcapital management and managing our working capital levels in accordance withthe lower sales volume experienced in 2007. Additionally, the decrease in chassis interest expense was due toreduced consigned chassis inventory levels relating to light-duty chassis.  In 2006, we experienced an unanticipatedslowdown in the light-duty truck market causing a build-up of consigned chassisinventory which resulted in increased chassis interest expense.

 

***Income Taxes***

 

The Company’s effective income tax rate was 23.8% for the year ended December 29,2007, compared to 30.2% for 2006.   Theeffective income tax rates for both years were favorably impacted by tax-exemptunderwriting income of a wholly-owned small captive insurance subsidiary, bythe additional tax deduction allowed manufacturers under the 2004 American JobsCreation Act, federal alternative fuel tax credits, and federal and stateresearch and development tax credits.

 

***Net Income and Earnings Per Share***

 

Net income decreased by $0.4 million, or 8.7%, to $4.2 million (1.3% ofnet sales) for the year ended December 29, 2007 from $4.6 million (1.4% ofnet sales) for the year ended December 30, 2006. The following tablepresents basic and diluted earnings per share and the changes from year toyear:

 

 

13

----

 

 
| ** **          | ** ** | **2007** | ** ** | **2006** | ** ** | **Change** | ** ** |
|---------------------|------------|----------|------------|----------|------------|------------|------------|
| Earnings per share: |       |     |       |     |       |       |       |
| Basic               |       | $        | 0.32       |     | $          | 0.36       |       | $ | (0.04 | ) |
| Diluted             |       | $        | 0.32       |     | $          | 0.36       |       | $ | (0.04 | ) |

 

***Comparison of 2006 with 2005***

 

***Net Sales***

 

Net sales for the year ended December 30, 2006 decreased $0.6million, or 0.2%, to $340.7 million compared to $341.3 million for the yearended December 31, 2005.  The slightdecrease in net sales was primarily attributable to an 18% reduction in ourfleet sales.  An industry-wide reductionin truck purchases contributed to lower fleet sales but this was offset byincreases in our core dry freight product line and our StarTrans Bus Divisionwhich increased 3% and 6%, respectively. We partially attribute the increased retail demand of our dry freightproduct line to customers buying 2006 chassis to avoid the higher cost of 2007chassis.  New, more stringent dieselengine emission standards became effective for engines produced beginning January 1,2007.  The increased StarTrans BusDivision revenues were the result of a strong demand for mid-size buses and anew cycle of Transit Authority purchasing. Our total sales backlog was $97.5 million at December 30, 2006compared to $90.3 million at December 31, 2005.

 

On February 28, 2006, we acquired the business operations andassets of Pony Xpress, Inc. (“Pony Xpress”), a manufacturer ofhighly-specialized vehicles.  Though arelatively small acquisition, it provides us with the platform for our newlyformed “Silver Crown” operations.  SilverCrown has unique manufacturing expertise that will enable our entry intoadditional highly-specialized vehicle markets including Homeland Security.  In the fourth quarter of 2006, the Companyintroduced a higher-end product which is being marketed under the Silver Crownname and has broadened the existing Pony Xpress product line.  From the date of acquisition, Silver Crownsales for the year ended December 30, 2006 totaled $4.1 million.

 

***Cost of Sales andGross Profit***

 

Gross profit decreased by $3.5 million, or 8.5%, to $37.6 million(11.0% of net sales) for the year ended December 30, 2006 compared to$41.1 million (12.1% of net sales) for the year ended December 31,2005.  The following table presents thecomponents of cost of sales as a percentage of net sales for 2006 and 2005 andthe changes from 2005:

 
| ** **    | ** ** | **2006** | ** ** | **2005** | ** ** | **Percent Change** | ** ** |
|---------------|------------|----------|------------|----------|------------|--------------------|------------|
| Material      |       | 56.8     | %          | 56.6     | %          | 0.2                | %          |
| Direct labor  |       | 14.3     |       | 14.0     |       | 0.3                |       |
| Overhead      |       | 15.1     |       | 14.5     |       | 0.6                |       |
| Delivery      |       | 2.8      |       | 2.8      |       | —             |       |
| Cost of sales |       | 89.0     |       | 87.9     |       | 1.1                |       |
| Gross profit  |       | 11.0     | %          | 12.1     | %          | -1.1               | %          |

 

**Material** - Material cost as a percentage of net sales was56.8% in 2006 compared to 56.6% in 2005. The slight increase of 0.2% was primarily due to our growing StarTransBus Division and our newly acquired Silver Crown division, which have a highermaterial content and accounted for a larger portion of our total sales volumein 2006.  Additionally, the Companyexperienced escalating steel and aluminum raw material costs throughout 2006but was able to offset most of these increases with price increases on amajority of its truck division products effective in late April and August of2006.

 

We continue to closely monitor and manage our major commodity coststhrough close communication and negotiation with key suppliers, utilizing costmonitoring tools, and developing strategies to mitigate cost and availabilityissues.  The Company also continuallystrives to reduce the cost of its product offerings through the development anduse of innovative materials, robotics and improved processes.

 

14

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Historically, the Company has experienced and recorded both favorableand unfavorable physical inventory adjustments. In the third quarter of fiscal year 2006, the Company recorded a $1.9million favorable inventory adjustment compared to a $1.1 million unfavorableadjustment recorded in the third quarter of fiscal year 2005.  Due to our product diversity, complexity,customization, and on-line engineering, inventory relief using standard billsof material does not provide full relief of our inventory.  Therefore, the Company records an additionalcost relief adjustment based on various factors. Beginning in late 2005 andthroughout 2006, the Company intensified its bills of material accuracyinitiatives and cost relief systems and methods in conjunction with performingadditional interim physical inventories and recording any adjustments relatingthereto.  In 2006, the Company improvedits bills of materials accuracy without changing its cost relief adjustment toaccount for these improvements, resulting in the favorable inventoryadjustment.

 

**Direct Labor** -Direct labor as a percentage of net sales was 14.3% in 2006 compared to 14.0%in 2005.  The direct labor percentageincrease was the result of a delay inOEM-supplied chassis in the first quarter that caused the Company totemporarily shut down production lines, thereby negatively affecting labor andoverhead absorption.  Despite thesechallenges, direct labor as a percentage of net sales remained relativelyconstant for both years.

 

**Overhead** - Overheadas a percentage of net sales was 15.1% in 2006 compared to 14.5% in 2005.  The increase was primarily due to higherworkers’ compensation costs.  These costsincreased $1.0 million, or 109%, year over year, due to increased high-dollarclaims. In an effort to reduce future claims, the Company implementedadditional safety programs.  The Company’s2006 accident incident rate improved approximately 23% when compared to 2005.Other increases in overhead included higher repairs and maintenance costs andutility costs which increased 21% and 12%, respectively.

 

**Delivery** - Deliveryexpense as a percentage of net sales was constant at 2.8% for both years ended December 30,2006 and December 31, 2005.  TheCompany utilized more cost effective outside delivery methods versus using itsemployees and owned equipment to deliver units. However, fuel costs remain a concern, and the Company will continue toattempt to pass on higher fuel costs despite competitive pressures in themarketplace.

 

***Selling, General and AdministrativeExpenses***

 

Selling, general and administrative (“G&A”) expenses increased by$1.4 million, or 5.2%, to $28.5 million (8.4% of net sales) for the year ended December 30,2006 from $27.1 million (8.0% of net sales) for the year ended December 31,2005. The following table presents selling and G&A expenses as a percentageof net sales and the changes from year to year:

 

| ** **       | ** ** | **2006** | ** ** | **2005** | ** ** | **Percent Change** | ** ** |
|------------------|------------|----------|------------|----------|------------|--------------------|------------|
| Selling expenses |       | 3.4      | %          | 3.0      | %          | 0.4                | %          |
| G&A expenses |       | 5.0      |       | 5.0      |       | —             |       |
| Total            |       | 8.4      | %          | 8.0      | %          | 0.4                | %          |

 

**Selling expenses** -Selling expenses increased by $1.4 million, or 13.9%, to $11.5 million for theyear ended December 30, 2006 from $10.1 million for the year ended December 31,2005.  The increased selling expensesrelate primarily to higher compensation-related costs from adding corporatesales positions and a new sales force associated with our newly formed SilverCrown entity.  In addition, the Companyexperienced a reduction in cooperative marketing funds received from chassismanufacturers. These funds, determined solely by programs established by thechassis manufacturers, are to be used to help offset marketing and promotionalexpenses.  To promote the Company’sexpanding and extensive product lines, the Company also experienced highertrade show and related expenses in 2006.

 

**General and administrative expenses**- General and administrative expenses decreased by $0.1 million, or 0.6% to$17.0 million for the year ended December 30, 2006 from $17.1 million forthe year ended December 31, 2005. The decrease in general andadministrative expenses was primarily due to the decrease in incentivecompensation tied directly to the decrease in pretax income.  The decrease was partially offset by increasesin G&A wages related to our newly formed Silver Crown entity and theaddition of a new corporate position to focus on special projects.

 

15

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***Other Income***

 

Other income for the year ended December 30, 2006 decreased to$0.6 million from $0.8 million for the year ended December 31, 2005. Otherincome consisted of rental income, gain on sale of assets and othermiscellaneous income received by the Company through its various businessactivities.

 

***Interest Expense***

 

Interest expense increased by approximately $1.0 million, or 47.6%, to$3.1 million (0.9% of net sales) for the year ended December 30, 2006,from $2.1 million (0.6% of net sales) for the year ended December 31,2005. The increase in interest expense resulted from increased borrowings underthe Company’s working capital line of credit, higher interest rates andincreased levels of chassis inventory. The increased chassis levels related to the new Silver Crown productline, chassis from our armored product line and an unanticipated slow down inthe light-duty truck market.  To mitigatethe effect of higher interest rates, in July of 2005, the Company enteredinto an interest rate swap agreement to reduce the impact of increasinginterest rates on certain of its floating rate debt.  The swap agreement exchanges the debtobligation’s floating rate for fixed rate interest payments over the term ofthe swap agreement.

 

***Income Taxes***

 

The Company’s effective income tax rate was 30.2% for 2006 compared to34.2% for 2005.  The 2006 favorablereduction in the effective income tax rate was due to a change in the Company’sapplicable federal tax bracket to 34% compared to 35% in 2005 resulting fromlower levels of pre-tax income.  The 2006rate was also favorably impacted by tax-exempt underwriting income of awholly-owned small captive insurance subsidiary, by the additional taxdeduction allowed manufacturers under the 2004 American Jobs Creation Act, andfederal and state research and development tax credits.

 

***Net Income and Earnings Per Share***

 

Net income decreased by $3.7 million, or 45%, to $4.6million (1.3% of net sales) for the year ended December 30, 2006 from $8.3million (2.4% of net sales) for the year ended December 31, 2005.

 

Basic earnings per share decreased $0.31 per share, or 46%, to $0.36per share for the year ended December 30, 2006 from $0.67 per share forthe year ended December 31, 2005.

 

Diluted earnings per share decreased $0.29 per share, or 45%, to $0.36per share for the year ended December 30, 2006 from $0.65 per share forthe year ended December 31, 2005.

 

**Liquidityand Capital Resources**

 

Cash generated from operations and reductions in working capital weremajor sources of cash flows during 2007. The Company’s cash management system and revolving line of credit havebeen designed to maintain zero cash balances and, accordingly, excess cashgenerated from operations has been utilized to reduce borrowings.  All borrowings under the revolving line ofcredit remain unsecured.

 

***Operating activities***

 

Operating activities provided $18.4 million in 2007 compared to $1.7million in 2006.  In 2007, operating cashwas favorably impacted by the $6.9 million decrease in inventory, the $2.3million decrease in accounts receivable, and the $1.1 million increase inaccounts payable. Net income, adjusted for depreciation and amortization, alsoprovided cash flows from operating activities totaling $8.5 million and $8.9million in 2007 and 2006, respectively. Working capital decreased $8.0 million in 2007, principally due to thelower inventories, lower accounts receivables, and the increase in accountspayable.  The improvement was the resultof an increased focus on working capital requirements and effectively managingour cost structure for the lower sales volume.

 

16

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***Investingactivities***

 

Investing activities used $3.6 million in cash in 2007 compared to $4.6million in 2006.  Capital expenditurestotaled $3.4 million in 2007 and consisted, in part, of investments inreplacing manufacturing equipment. Additionally, our manufacturing facility in Cleburne, Texas, invested inrobotics and the reconfiguration of a plant to support a State Department awardfor up to $100 million to produce armored vehicles over a five-year period withsales subject to receipt of periodic orders. The Company intends to have similar levels of investment in property,plant, and equipment in 2008.

 

***Financing******activities***

 

Financing activities used $14.9 million in 2007 and provided $2.7million in 2006. Our 2007 positive cash flow, used to significantly reduce ourbank borrowings, occurred as a result of a reduction of $8.0 million in workingcapital. The Company also received $844,000 from the exercise of stock optionsin 2007 compared to $33,000 in 2006.  Inboth 2007 and 2006, the Company paid cash dividends of thirty-eight cents pershare, or $4.9 million in 2007 and $4.8 million in 2006.

 

**ContractualObligations**

 

Our fixed, noncancelable obligations as of December 29, 2007 wereas follows:

 
| ** **           | ** ** | **Payments due by period** | ** ** |
|----------------------|------------|----------------------------|------------|
| ** **           | ** ** | ** **                 | ** ** | **Less than** | ** ** | **1-3** | ** ** | **3-5** | ** ** | **More than** | ** ** |
| ** **           | ** ** | **Total**                  | ** ** | **1 Year** | ** ** | **Years** | ** ** | **Years** | ** ** | **5 Years** | ** ** |
| Debt (a)             |       | $                          | 29,751,124 |   | $ | 748,406 |   | $ | 27,886,792 |   | $ | 498,099 |   | $ | 617,827 |   |
| Operating leases (b) |       | 2,384,470                  |       | 907,799 |   | 1,407,593 |   | 69,078 |   | — |   |
| Total                |       | $                          | 32,135,594 |   | $ | 1,656,205 |   | $ | 29,294,385 |   | $ | 567,177 |   | $ | 617,827 |   |

----

(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.

 

**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, and expenses and related disclosureof contingent assets and liabilities. The Company’s significant accounting policies are discussed in Note 1 ofthe Notes to Consolidated Financial Statements. In management’s opinion, the Company’s critical accounting policiesinclude revenue recognition, allowance for doubtful accounts, excess andobsolete inventories, inventory relief, accrued insurance, and accruedwarranty.

 

Revenue Recognition – The Company generally recognizes revenue when theunit is shipped to the customer.  Revenueon certain customer requested bill and hold transactions is recognized afterthe customer is notified that the products have been completed according tocustomer specifications, have passed all of the Company’s quality controlinspections, and are ready for delivery based on established delivery terms.

 

Allowance for Doubtful Accounts - The Company maintains an allowancefor doubtful accounts for estimated losses resulting from the inability of ourcustomers to make required payments.  If the financial conditions of our customerswere to deteriorate, resulting in an impairment of their ability to makepayments, additional allowances may be required which would adversely affectour future operating results.

 

Excess and Obsolete Inventories - The Company must make estimatesregarding the future use of raw materials and finished products and provide forobsolete or slow-moving inventories.  Ifactual product life cycles, product 

 

 

17

----

 

demand, and/or market conditions are less favorable than thoseprojected by management, additional inventory write-downs may be required whichwould adversely affect future operating results.

 

Inventory Relief - For monthly and quarterly financial reporting, costof sales is recorded and inventories are relieved by the use of standard billsof material adjusted for scrap and other estimated factors affecting inventoryrelief.  Because of our large and diverseproduct line and the customized nature of each order, it is difficult to placefull reliance on the bills of material for accurate relief of inventories.  Although the Company continues to refine theprocess of creating accurate bills of materials, manual adjustments (which arebased on estimates) are necessary in an effort to assure correct relief ofinventories for products sold.  Thecalculations to estimate costs not captured in the bill of materials take intoaccount the customized nature of products, historical inventory reliefpercentages, scrap variances, and other factors which could impact inventoryrelief.

 

The accuracy of the inventory relief is not fully known until physicalinventories are conducted at each of the Company’s plant locations. We conductsemi-annual physical inventories at all locations and schedule them in a mannerthat provides coverage in each of our calendar quarters. We have investedsignificant resources in our continuing effort to improve the physicalinventory process and accuracy of our inventory accounting system.

 

Accrued Insurance - The Company has a self-insured retention againstproduct liability claims with insurance coverage over and above theretention.  The Company is alsoself-insured for a portion of its employee medical benefits and workers’compensation.  Product liability claimsare routinely reviewed by the Company’s insurance carrier, and managementroutinely reviews other self-insurance risks for purposes of establishingultimate loss estimates.  In addition,management must determine estimated liability for claims incurred but notreported.  Such estimates, and anysubsequent changes in estimates, may result in adjustments to our operatingresults 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.  In addition, certain business risks nottraditionally insured are insured by the captive insurance subsidiary.  Since the captive insurance company has notreinsured any of its coverages, the Company’s overall self-insurance risk hasnot changed.  The captive insurancesubsidiary helps the Company manage its risk exposures and, under the InternalRevenue Code, the net underwriting income of such a small captive is nottaxable.

 

Accrued Warranty*-* The Company provides limited warrantiesfor 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.

 

**Pending Accounting Pronouncements**

 

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

 

**Forward-LookingStatements**

 

This report contains forward-looking statements, other than historicalfacts, which reflect the view of management with respect to future events.  When used in this report, words such as “believe,”“expect,” “anticipate,” “estimate,” “intend,” and similar expressions, as theyrelate to the Company or its plans or operations, identify forward-lookingstatements.  Such forward-lookingstatements are based on assumptions made by, and information currentlyavailable to, management.  Althoughmanagement believes that the expectations reflected in such forward-lookingstatements are reasonable, it can give no assurance that the expectationsreflected in such forward-looking statements are reasonable, and it can give noassurance that such expectations will prove to be correct.  Important factors that could cause actualresults to differ materially from such expectations include, withoutlimitation, limitations on the availability of chassis on which the Company’sproduct is dependent, availability of raw materials, raw material cost increasesand severe 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.

 

** **

**18**

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** **

**ITEM7A.**                                            QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

** **

In the normal course of business, operations of the Company are exposedto fluctuations in interest rates.  Thesefluctuations can vary the cost of investing, financing, and operating.  The Company’s primary risk exposure resultsfrom changes in short-term interest rates. In an effort to manage risk exposures, the Company strives to achieve anacceptable balance between fixed and floating rate debt positions.  The Company’s revolving line of credit isfloating rate debt and bears interest at the bank’s prime rate or LIBOR pluscertain basis points depending on the pricing option selected and the Company’sleverage ratio.  At December 29,2007, the Company had in effect an interest rate swap agreement dated July 28,2005.  The interest rate swap agreementis a contract to exchange floating rate for fixed rate interest payments overthe life of the interest rate swap agreement and is used to measure interest tobe paid or received and does not represent the amount of exposure of creditloss.  The differential paid or receivedunder the interest rate swap agreement is recognized as an adjustment tointerest expense.  The following is asummary of the interest rate swap agreement outstanding at December 29,2007.

 

| **Notional Amount** | ** ** | **Fixed Rate** | ** ** | **Maturity**        |
|---------------------|------------|----------------|------------|---------------------|
| $15,000,000         |       | 4.71%          |       | July 28,  2010 |

 

Based on the Company’s overall interest rate exposure at December 29,2007, a hypothetical 10 percent change in interest rates applied to the fairvalue of the financial instruments as of December 29, 2007, would have nomaterial impact on earnings, cash flows, or fair values of interest rate risksensitive instruments over a one-year period.

 

**ITEM8.                  FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA.**

** **
| Index to Financial  Statements | ** ** | ** **                                                                                                                                           | ** ** |
|--------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                           |       |                                                                                                                                                 | **Page**   |
|                           | 1.         | Financial Statements:                                                                                                                                |       |
|                           |       |                                                                                                                                                 |       |
|                           |       | Report of Crowe Chizek and Company LLC, Independent  Registered Public Accounting  Firm                                                              | 20         |
|                           |       |                                                                                                                                                 |       |
|                           |       | Consolidated  Balance Sheets as of December 29, 2007 and December 30, 2006                                                                 | 21         |
|                           |       |                                                                                                                                                 |       |
|                           |       | Consolidated  Statements of Income for the years ended December 29, 2007, December 30, 2006 and  December 31, 2005                    | 22         |
|                           |       |                                                                                                                                                 |       |
|                           |       | Consolidated Statements of Stockholders’ Equity for  the years ended December 29,  2007, December 30, 2006 and December 31, 2005 | 23         |
|                           |       |                                                                                                                                                 |       |
|                           |       | Consolidated Statements of Cash Flows for the years  ended December 29, 2007,  December 30, 2006 and December 31, 2005                | 24         |
|                           |       |                                                                                                                                                 |       |
|                           |       | Notes to Consolidated Financial Statements                                                                                                           | 25-42      |
|                           |       |                                                                                                                                                 |       |
|                           | 2.         | Financial Statement  Schedule:                                                                                                                       |       |
|                           |       |                                                                                                                                                 |       |
|                           |       | Schedule II - Valuation and Qualifying Accounts for  the years ended December 29,  2007, December 30, 2006 and December 31, 2005      | 43         |
|                           |       |                                                                                                                                                 |       |
|                           |       | All other schedules are omitted because they are not  applicable.                                                                                    |       |
|                           |       |                                                                                                                                                 |       |
|                           | 3.         | Supplementary  Data                                                                                                                                  |       |
|                           |       |                                                                                                                                                 |       |
|                           |       | Quarterly  Results (Unaudited)                                                                                                                       | 44         |
|                                |            |                                                                                                                                                      |            |  |  |

 

 

19

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

 

To the Board of Directorsand Stockholders of

     Supreme Industries, Inc.:

 

We have audited the accompanying consolidated balance sheets of SupremeIndustries, Inc. and its subsidiaries as of December 29, 2007 and December 30,2006, and the related consolidated statements of income, stockholders’ equityand cash flows for each of the three years in the period ended December 29,2007.  Our audits also included thefinancial statement schedule, Schedule II - Valuation and QualifyingAccounts.  These financial statements andfinancial statement schedule are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these financial statements and financial statementschedule based on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of materialmisstatement.  The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting.  Ouraudit included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of SupremeIndustries, Inc. and its subsidiaries as of December 29, 2007 and December 30,2006, and the results of their operations and their cash flows for each of thethree years in the period ended December 29, 2007, in conformity withaccounting principles generally accepted in the United States of America.  In addition, in our opinion, the financialstatement schedule referred to above, when considered in relation to the basicfinancial statements taken as a whole, presents fairly, in all material respects,the information required to be included therein.

 

                                                                                                                                /s/CroweChizek and Company LLC

 

South Bend, Indiana

February 1, 2008

 

 

20

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**Supreme Industries, Inc. AndSubsidiaries**

**ConsolidatedBalance Sheets**

*December 29,2007 and December 30, 2006*

 
| ** **                                                                                                                                                                            | ** ** | **2007**    | ** **  | **2006**    | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| **ASSETS**                                                                                                                                                                            | ** ** | ** **  | ** **  | ** **  | ** ** |
| **Current assets:**                                                                                                                                                                   | ** ** | ** **  | ** **  | ** **  | ** ** |
| Cash and cash equivalents                                                                                                                                                             |       | $           | 1,266,133   |        | $          | 1,307,463 |   |
| Investments                                                                                                                                                                           |       | 2,215,267   |        | 1,542,101   |       |
| Accounts receivable, net of allowance for doubtful accounts of  $160,000 in 2007 and 2006                                                                                             |       | 28,628,324  |        | 31,116,276  |       |
| Refundable income taxes                                                                                                                                                               |       | 805,082     |        | 589,000     |       |
| Inventories                                                                                                                                                                           |       | 46,643,480  |        | 53,506,367  |       |
| Deferred income taxes                                                                                                                                                                 |       | 1,192,331   |        | 1,022,292   |       |
| Other current assets                                                                                                                                                                  |       | 3,174,090   |        | 2,611,413   |       |
| **Total current assets**                                                                                                                                                              |       | 83,924,707  |        | 91,694,912  |       |
|                                                                                                                                                                                  |       |        |        |        |       |
| **Property, plant and equipment,  net**                                                                                                                                               |       | 47,429,725  |        | 48,389,483  |       |
|                                                                                                                                                                                  |       |        |        |        |       |
| **Intangible assets, net**                                                                                                                                                            |       | 636,877     |        | 685,247     |       |
|                                                                                                                                                                                  |       |        |        |        |       |
| **Goodwill**                                                                                                                                                                          |       | 735,014     |        | 735,014     |       |
| ** **                                                                                                                                                                            | ** ** | ** **  | ** **  | ** **  | ** ** |
| **Other assets**                                                                                                                                                                      |       | 64,860      |        | 620,064     |       |
| **Total assets**                                                                                                                                                                      |       | $           | 132,791,183 |        | $          | 142,124,720 |   |
|                                                                                                                                                                                  |       |        |        |        |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                         | ** ** | ** **  | ** **  | ** **  | ** ** |
|                                                                                                                                                                                  |       |        |        |        |       |
| **Current liabilities:**                                                                                                                                                              | ** ** | ** **  | ** **  | ** **  | ** ** |
| Current maturities of long-term debt                                                                                                                                                  |       | $           | 748,406     |        | $          | 1,807,425 |   |
| Trade accounts payable                                                                                                                                                                |       | 14,642,616  |        | 13,508,441  |       |
| Accrued wages and benefits                                                                                                                                                            |       | 3,062,950   |        | 3,484,757   |       |
| Accrued self-insurance                                                                                                                                                                |       | 2,652,350   |        | 2,716,101   |       |
| Accrued warranty                                                                                                                                                                      |       | 1,476,000   |        | 1,541,000   |       |
| Accrued income taxes                                                                                                                                                                  |       | 498,162     |        | 495,678     |       |
| Other accrued liabilities                                                                                                                                                             |       | 2,318,795   |        | 1,576,192   |       |
| **Total current liabilities**                                                                                                                                                         |       | 25,399,279  |        | 25,129,594  |       |
|                                                                                                                                                                                  |       |        |        |        |       |
| **Long-term debt**                                                                                                                                                                    |       | 29,002,718  |        | 38,863,229  |       |
|                                                                                                                                                                                  |       |        |        |        |       |
| **Deferred income taxes**                                                                                                                                                             |       | 2,589,055   |        | 2,923,216   |       |
| ** **                                                                                                                                                                            | ** ** | ** **  | ** **  | ** **  | ** ** |
| **Other long-term liabilities**                                                                                                                                                       |       | 333,046     |        | —      |       |
| **Total liabilities**                                                                                                                                                                 |       | 57,324,098  |        | 66,916,039  |       |
|                                                                                                                                                                                  |       |        |        |        |       |
| **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 13,461,174 shares in 2007 and 13,155,160 in 2006                                                     |       | 1,346,118   |        | 1,315,516   |       |
| 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  2,024,133 shares in 2007 and 2006 |       | 202,413     |        | 202,413     |       |
| Additional paid-in capital                                                                                                                                                            |       | 67,348,018  |        | 65,499,875  |       |
| Retained earnings                                                                                                                                                                     |       | 28,285,847  |        | 29,008,233  |       |
| Treasury stock, Class A Common Stock, at cost, 2,569,522 shares  in 2007 and 2,469,327 in 2006                                                                                   |       | (21,515,892 | )           | (20,910,173 | )          |
| Accumulated other comprehensive income (loss)                                                                                                                                         |       | (199,419    | )           | 92,817      |       |
| **Total stockholders’ equity**                                                                                                                                                   |       | 75,467,085  |        | 75,208,681  |       |
|                                                                                                                                                                                  |       |        |        |        |       |
| **Total liabilities and stockholders’ equity**                                                                                                                                   |       | $           | 132,791,183 |        | $          | 142,124,720 |   |

 

See accompanying notes toconsolidated financial statements.

 

21

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**SupremeIndustries, Inc. And Subsidiaries**

** **

**ConsolidatedStatements of Income**

*for the years ended December 29,2007, December 30, 2006 and December 31, 2005*

 
| ** **                                                 | ** ** | **2007**    | ** **  | **2006**    | ** ** | **2005**    | ** ** |
|------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| ** **                                                 | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| Net sales                                                  |       | $           | 313,272,723 |        | $          | 340,746,789 |       | $ | 341,252,852 |   |
| Cost of sales                                              |       | 278,089,294 |        | 303,182,249 |       | 300,114,755 |       |
| **Gross profit**                                           |       | 35,183,429  |        | 37,564,540  |       | 41,138,097  |       |
|                                                       |       |        |        |        |       |        |       |
| Selling, general and  administrative expenses              |       | 27,838,011  |        | 28,483,091  |       | 27,137,573  |       |
| Other income                                               |       | (594,654    | )           | (560,045    | )          | (806,005    | )          |
| **Operating income**                                       |       | 7,940,072   |        | 9,641,494   |       | 14,806,529  |       |
| ** **                                                 | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| Interest expense                                           |       | 2,472,267   |        | 3,054,726   |       | 2,129,149   |       |
| **Income before income taxes**                             |       | 5,467,805   |        | 6,586,768   |       | 12,677,380  |       |
|                                                       |       |        |        |        |       |        |       |
| Income taxes                                               |       | 1,304,000   |        | 1,992,000   |       | 4,336,000   |       |
| **Net income**                                             |       | $           | 4,163,805   |        | $          | 4,594,768   |       | $ | 8,341,380 |   |
| ** **                                                 | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| **Earnings Per Share:**                                    | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| Basic                                                      |       | $           | .32         |        | $          | .36         |       | $ | .67 |   |
| Diluted                                                    |       | .32         |        | .36         |       | .65         |       |
|                                                       |       |        |        |        |       |        |       |
| **Shares used in the computation  of earnings per share:** |       |        |        |        |       |        |       |
| Basic                                                      |       | 12,829,699  |        | 12,696,598  |       | 12,455,818  |       |
| Diluted                                                    |       | 12,933,545  |        | 12,872,638  |       | 12,835,405  |       |
|                                                       |       |        |        |        |       |        |       |
| **Cash dividends per common share**                        |       | $           | .38         |        | $          | .38         |       | $ | .26 |   |

 

See accompanying notes to consolidated financial statements.

 

 

22

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**SupremeIndustries, Inc. And Subsidiaries**

 

**ConsolidatedStatements of Stockholders’ Equity**

*for the years ended December 29,2007, December 30, 2006 and December 31, 2005*

 
| ** **                                                                                              | ** ** | ** **                    | ** ** | ** **                    | ** ** | ** **     | ** ** | ** **   | ** ** | ** **          | ** ** | ** **        | ** ** | ** **             | ** ** | **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 26,  2004                                                                        |       | 12,400,102                    |       | $                             | 1,240,010  |           | 2,109,133  |         | $          | 210,913             |       | $                 | 62,293,094 |                   | $          | 24,155,562        |       | $          | (20,336,570 | ) | $ | — |   | $ | 67,563,009 |   |
| Net income                                                                                              |       | —                        |       | —                        |       | —         |       | —       |       | —              |       | 8,341,380         |       | —                 |       | —            |       | 8,341,380  |        |
| Unrealized gain on hedge activity, net of tax                                                           |       | —                        |       | —                        |       | —         |       | —       |       | —              |       | —            |       | —                 |       | 22,166            |       | 22,166     |        |
| Unrealized holding loss on investments, net of tax                                                      |       | —                        |       | —                        |       | —         |       | —       |       | —              |       | —            |       | —                 |       | (10,102           | )          | (10,102    | )           |
| Total comprehensive income                                                                              |       |                          |       |                          |       |           |       |         |       |                |       |              |       |                   |       |              |       | 8,353,444  |        |
| Cash dividends ($.26 per share)                                                                         |       | —                        |       | —                        |       | —         |       | —       |       | —              |       | (3,260,688        | )          | —                 |       | —            |       | (3,260,688 | )           |
| Exercise of stock options                                                                               |       | 641,724                       |       | 64,173                        |       | —         |       | —       |       | 2,706,286           |       | —            |       | (520,868               | )          | —            |       | 2,249,591  |        |
| Tax benefit of disqualifying stock option dispositions                                                  |       | —                        |       | —                        |       | —         |       | —       |       | 260,100             |       | —            |       | —                 |       | —            |       | 260,100    |        |
| Balance, December 31,  2005                                                                        |       | 13,041,826                    |       | 1,304,183                     |       | 2,109,133      |       | 210,913      |       | 65,259,480          |       | 29,236,254        |       | (20,857,438            | )          | 12,064            |       | 75,165,456 |        |
| Net income                                                                                              |       | —                        |       | —                        |       | —         |       | —       |       | —              |       | 4,594,768         |       | —                 |       | —            |       | 4,594,768  |        |
| Unrealized gain on hedge activity, net of tax                                                           |       | —                        |       | —                        |       | —         |       | —       |       | —              |       | —            |       | —                 |       | 71,393            |       | 71,393     |        |
| Unrealized holding gain on investments, net of tax                                                      |       | —                        |       | —                        |       | —         |       | —       |       | —              |       | —            |       | —                 |       | 9,360             |       | 9,360      |        |
| Total comprehensive income                                                                              |       |                          |       |                          |       |           |       |         |       |                |       |              |       |                   |       |              |       | 4,675,521  |        |
| Cash dividends ($.38 per share)                                                                         |       | —                        |       | —                        |       | —         |       | —       |       | —              |       | (4,822,789        | )          | —                 |       | —            |       | (4,822,789 | )           |
| Exercise of stock options                                                                               |       | 18,334                        |       | 1,833                         |       | —         |       | —       |       | 83,915              |       | —            |       | (52,735                | )          | —            |       | 33,013     |        |
| Conversion of 85,000 shares of Class B Common Stock to 85,000  shares of Class A Common Stock |       | 85,000                        |       | 8,500                         |       | (85,000        | )          | (8,500       | )          | —              |       | —            |       | —                 |       | —            |       | —     |        |
| Issuance of 10,000 shares of restricted stock                                                           |       | 10,000                        |       | 1,000                         |       | —         |       | —       |       | (1,000              | )          | —            |       | —                 |       | —            |       | —     |        |
| Stock-based compensation                                                                                |       | —                        |       | —                        |       | —         |       | —       |       | 123,000             |       | —            |       | —                 |       | —            |       | 123,000    |        |
| Tax benefit of disqualifying stock option dispositions                                                  |       | —                        |       | —                        |       | —         |       | —       |       | 34,480              |       | —            |       | —                 |       | —            |       | 34,480     |        |
| 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 ($.38 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 |   |

See accompanying notes to consolidated financial statements.

 

23

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**SupremeIndustries, Inc. And Subsidiaries**

 

**ConsolidatedStatements of Cash Flows**

*for the years ended December 29,2007, December 30, 2006 and December 31, 2005*

 
| ** **                                                                                   | ** ** | **2007**     | ** ** | **2006**    | ** ** | **2005**     | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------|------------|-------------|------------|--------------|------------|
| **Cash flows from operating  activities:**                                                   | ** ** | ** **   | ** ** | ** **  | ** ** | ** **   | ** ** |
| Net income                                                                                   |       | $            | 4,163,805  |        | $          | 4,594,768    |       | $ | 8,341,380 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities:           |       |         |       |        |       |         |       |
| Depreciation and amortization                                                                |       | 4,295,739    |       | 4,260,632   |       | 4,129,376    |       |
| Amortization of intangibles                                                                  |       | 48,370       |       | 40,309      |       | 30,066       |       |
| Provision for losses on doubtful receivables                                                 |       | 177,785      |       | 223,859     |       | 33,902       |       |
| Deferred income taxes                                                                        |       | (331,000     | )          | (307,000    | )          | (13,000      | )          |
| Stock-based compensation expense                                                             |       | 343,648      |       | 123,000     |       | —       |       |
| Tax benefit of disqualifying stock option dispositions                                       |       | —       |       | —      |       | 260,100      |       |
| Losses (gains) on sale of property, plant, and equipment, net                                |       | 24,284       |       | (4,718      | )          | (6,199       | )          |
| Changes in operating assets and liabilities, net of effect of business  acquisition in 2006: |       |         |       |        |       |         |       |
| Accounts receivable                                                                          |       | 2,310,167    |       | (1,589,116  | )          | (1,196,006   | )          |
| Inventories                                                                                  |       | 6,862,887    |       | (2,534,290  | )          | (5,289,016   | )          |
| Other current assets                                                                         |       | (778,759     | )          | (275,712    | )          | 727,240      |       |
| Trade accounts payable                                                                       |       | 1,134,175    |       | (2,329,854  | )          | (3,042,684   | )          |
| Other current liabilities                                                                    |       | 194,529      |       | (514,863    | )          | 916,165      |       |
|                                                                                         |       |         |       |        |       |         |       |
| **Net cash provided by operating activities**                                                |       | 18,445,630   |       | 1,687,015   |       | 4,891,324    |       |
|                                                                                         |       |         |       |        |       |         |       |
| **Cash flows from investing  activities:**                                                   | ** ** | ** **   | ** ** | ** **  | ** ** | ** **   | ** ** |
| Business acquisition                                                                         |       | —       |       | (1,050,000  | )          | —       |       |
| Proceeds from sale of property, plant, and equipment                                         |       | 66,003       |       | 1,937,551   |       | 87,362       |       |
| Additions to property, plant and equipment                                                   |       | (3,426,268   | )          | (5,187,712  | )          | (6,354,522   | )          |
| Proceeds from sale of investments                                                            |       | 544,804      |       | 893,285     |       | —       |       |
| Purchases of investments                                                                     |       | (1,203,900   | )          | (1,251,186  | )          | (1,185,224   | )          |
| Decrease in restricted cash deposit                                                          |       | —       |       | —      |       | 600,000      |       |
| Decrease in other assets                                                                     |       | 408,745      |       | 42,079      |       | 44,856       |       |
|                                                                                         |       |         |       |        |       |         |       |
| **Net cash used in investing activities**                                                    |       | (3,610,616   | )          | (4,615,983  | )          | (6,807,528   | )          |
|                                                                                         |       |         |       |        |       |         |       |
| **Cash flows from financing  activities:**                                                   | ** ** | ** **   | ** ** | ** **  | ** ** | ** **   | ** ** |
| Proceeds from revolving line of credit and other long-term debt                              |       | 105,717,892  |       | 100,172,242 |       | 114,267,879  |       |
| Repayments of revolving line of credit and other long-term debt                              |       | (116,637,422 | )          | (92,696,047 | )          | (111,473,420 | )          |
| Payment of cash dividends                                                                    |       | (4,873,991   | )          | (4,822,789  | )          | (3,260,688   | )          |
| Tax benefit of disqualifying stock option dispositions                                       |       | 73,384       |       | 34,480      |       | —       |       |
| Proceeds from exercise of stock options                                                      |       | 843,793      |       | 33,013      |       | 2,161,482    |       |
|                                                                                         |       |         |       |        |       |         |       |
| **Net cash provided by (used in) financing  activities**                                     |       | (14,876,344  | )          | 2,720,899   |       | 1,695,253    |       |
|                                                                                         |       |         |       |        |       |         |       |
| **Change in cash and cash  equivalents**                                                     |       | (41,330      | )          | (208,069    | )          | (220,951     | )          |
| ** **                                                                                   | ** ** | ** **   | ** ** | ** **  | ** ** | ** **   | ** ** |
| **Cash and cash equivalents,  beginning of year**                                            |       | 1,307,463    |       | 1,515,532   |       | 1,736,483    |       |
|                                                                                         |       |         |       |        |       |         |       |
| **Cash and cash equivalents, end  of year**                                                  |       | $            | 1,266,133  |        | $          | 1,307,463    |       | $ | 1,515,532 |   |
| ** **                                                                                   | ** ** | ** **   | ** ** | ** **  | ** ** | ** **   | ** ** |
| **Supplemental disclosure of cash  flow information:**                                       | ** ** | ** **   | ** ** | ** **  | ** ** | ** **   | ** ** |
| Cash paid during the year for:                                                               |       |         |       |        |       |         |       |
| Interest                                                                                     |       | $            | 2,563,934  |        | $          | 2,986,054    |       | $ | 2,125,857 |   |
| Income taxes                                                                                 |       | 1,794,197    |       | 1,834,272   |       | 3,748,145    |       |
| **Noncash investing and financing  activities:**                                             | ** ** | ** **   | ** ** | ** **  | ** ** | ** **   | ** ** |
| Liabilities assumed in business acquisition                                                  |       | —       |       | 163,222     |       | —       |       |

 

See accompanying notes to consolidated financial statements.

 

24

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements**

 

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

 

Supreme Industries, Inc.and its subsidiaries (collectively the “Company”) manufacture specialized truckbodies that are mounted on new truck chassis produced by others.  The Company’s truck body products includecutaway and dry freight van bodies, refrigerated units, stake bodies and otherspecialized vehicles, including shuttle buses. At December 29, 2007, the Company operated at 19 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 29, 2007and December 30, 2006 each contained 52 weeks while the fiscal year ended December 31,2005 contained 53 weeks.

 

**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 and shuttle buses starts when an orderis received from the customer and revenue is recognized when the unit isshipped to the customer.  Revenue oncertain customer requested bill and hold transactions is recognized subsequentto when the customer is notified that the products have been completed accordingto customer specifications, have passed all of the Company’s quality controlinspections and are ready for delivery based upon established deliveryterms.  These transactions meet therequirements for bill and hold accounting under Securities and ExchangeCommission Staff Accounting Bulletin Topic 13, “Revenue Recognition.”

 

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.  The Company performs ongoingcredit evaluations of its customers and credit is extended on an unsecuredbasis.

 

**Advertising** - The Company expenses advertising costsas incurred.  Advertising costs for theyears ended December 29, 2007, December 30, 2006 and December 31,2005 were $230,634, $260,715, and $255,301, respectively.

 

 

25

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**SupremeIndustries, Inc. And Subsidiaries**

**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 29, 2007and December 30, 2006, the Company had an interest rate swap agreementoutstanding with a notional amount of $15,000,000.  The interest rate swap agreement provides a4.71% fixed interest rate and matures on July 28, 2010.  In accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 133, “Accounting for DerivativeInstruments and Hedging Activities,” the interest rate swap agreement isdesignated and qualified as a cash flow hedging instrument.  It is fully effective, resulting in no netgain or loss recorded in the consolidated statements of income.  The fair value of the contract at December 29,2007 and December 30, 2006 was a liability of  $333,046 and an asset of $146,459,respectively and under SFAS No. 133 changes in fair value of the financialinstrument, net of applicable income taxes, are adjusted through accumulatedother comprehensive income.

 

The carrying amounts ofcash and cash equivalents, accounts receivable and trade accounts payableapproximated fair value as of December 29, 2007 and December 30, 2006because 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 29,2007 and December 30, 2006, based upon terms and conditions available tothe Company at those dates in comparison to the terms and conditions of itsoutstanding long-term debt.

 

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

 

**Investments** - The Company accounts for itsinvestments in debt and equity securities under SFAS No. 115, “Accountingfor Certain Investments in Debt and Equity Securities,” which requires certainsecurities to be categorized as either trading, available-for-sale orheld-to-maturity.  The Company’sinvestments are comprised of available-for-sale securities and are carried atfair value with unrealized gains and losses, net of applicable income taxes,recorded within accumulated other comprehensive income (loss).  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.

 

 

26

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

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

 

**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 thestraight-line method over the lesser of the useful life of the asset or term ofthe lease, except for the leasehold improvements associated with the leasedfacilities in Goshen, Indiana and Griffin, Georgia which are leased from a relatedparty (a partnership whose partners include five 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 accumulated depreciationand amortization are removed from the accounts and any resulting gain or lossis reflected in operations (included in other income in the consolidatedstatements of income).  Expenditures forrepairs and maintenance are charged to operations as incurred.  Betterments and major renewals arecapitalized and recorded in the appropriate asset accounts.

 

**IntangibleAssets** - Inconnection with a business acquisition in February 2006 (see Note 2), theCompany acquired a customer list with a cost of $725,556, which is beingamortized using the straight-line method over the estimated useful life of thecustomer relationships, determined to be fifteen years.  Amortization expense was $48,370 and $40,309for the years ended December 29, 2007 and December 30, 2006,respectively.  Amortization expense forthe year ended December 31, 2005 was $30,066, and related to certainfavorable lease agreements that became fully amortized during 2005.  Estimated annual amortization expense is$48,370 for each of the next five years.

 

**Goodwill** - The carrying value of goodwill at December 29,2007 and December 30, 2006 aggregates $735,014.  The Company accounts for goodwill under theprovisions of SFAS No. 142, “Goodwill and Other Intangible Assets.” Underthe provisions of  SFAS No. 142,goodwill is no longer amortized. SFAS No. 142 requires the Company to testgoodwill for impairment at least annually at the reporting unit level.  At December 29, 2007 and December 302006, management determined there was no impairment of goodwill.

 

 

27

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

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

 

**Evaluationof Impairment of Long-Lived Assets** - In accordance with SFAS No. 144, “Impairmentor Disposal 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** -Effective January 1, 2006, the Company adopted SFAS No. 123R (revised2004), “Share-Based Payment” as interpreted by SEC Staff Accounting Bulletin No. 107.  SFAS No. 123R supersedes AccountingPrinciples Board (“APB”) Opinion No. 25, “Accounting for Stock Issued toEmployees,” and amends SFAS No. 95, “Statement of Cash Flows.” Generally,the approach in SFAS No. 123R is similar to the approach described in SFASNo. 123, “Accounting for Stock-Based Compensation.”  However, SFAS No. 123R requires allstock-based payments to employees, including grants of employee stock options,to be recognized in the income statement based on their fair values at the dateof grant.

 

The Company has electedto use the modified prospective transition method for implementing SFAS No. 123R.  Under this transition method, compensationexpense will include:  (a) compensationexpense for all share-based payments granted prior to, but not yet vested asof, January 1, 2006, based on the grant date fair value estimated inaccordance with the original provisions of SFAS No. 123, and (b) compensationexpense for all share-based payments granted on or after January 1, 2006,based on the grant date fair value estimated in accordance with the provisionsof SFAS No. 123R.  Because theCompany elected to use the modified prospective transition method, results forprior periods have not been restated and new awards are valued and accountedfor prospectively upon adoption.

 

The Company currentlyuses the Black-Scholes option pricing model to determine the fair value ofstock options.  The determination of thefair value of stock-based payment awards on the date of grant using anoption-pricing model is affected by stock price as well as assumptionsregarding 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),included in the consolidated statements of income for the years ended December 29,2007 and December 30, 2006 was $343,648 and $123,000, respectively.  The following assumptions were utilized inthe determination of stock-based compensation expense:

 
| ** **              | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
| Risk free interest rate |       | 4.51     | %          | 5.03     | %          |
| Expected life           |       | 5  years |       | 5  years |       |
| Expected volatility     |       | 25.57    | %          | 32.23    | %          |
| Expected dividends      |       | 6.08     | %          | 5.39     | %          |

 

 

28

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

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

 

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 expectedlife, ending on the day of grant.  Theexpected dividend yield is estimated based on the dividend yield at the time ofgrant, adjusted for expected dividend increases and historical payout policy.

 

On August 4, 2005,the Company’s Board of Directors approved a plan to accelerate vesting of alloutstanding stock options which were unvested at December 31, 2005.  Under APB Opinion No. 25, there was nocompensation expense related to the vesting of these options.  As a result of the board’s action, stockoptions to purchase 430,831 shares of the Company’s common stock becameexercisable effective December 31, 2005.

 

Prior to January 1,2006, the Company accounted for its stock options under the recognition andmeasurement principles of APB Opinion No. 25, and relatedinterpretations.  Accordingly, nostock-based employee compensation cost was reflected in net earnings prior to January 1,2006 as all options to purchase common stock of the Company had an exerciseprice equal to, or greater than, the market value of the underlying commonstock on the date of grant.  The proforma disclosure below reflects recognition of the remaining pro forma expenserelated to these options.

 

The following tableillustrates the pro forma effect on net income and earnings per share if theCompany had applied the fair value recognition provisions of SFAS No. 123in the previous years:

 
|                                                                                           |   | **2005**   |      |
|------------------------------------------------------------------------------------------------|--------|------------|-----------|
| Net income, as reported                                                                        |   | $          | 8,341,380 |   |
| Deduct, Stock-based compensation expense determined under fair value  based method, net of tax |   | (1,000,556 | )         |
| Pro forma net income                                                                           |   | $          | 7,340,824 |   |
|                                                                                           |   |       |      |
| Basic earnings per share,  as reported                                                         |   | $          | .67       |   |
| Pro forma basic earnings  per share                                                            |   | .59        |      |
|                                                                                           |   |       |      |
| Diluted earnings per  share, as reported                                                       |   | .65        |      |
| Pro forma diluted earnings  per share                                                          |   | .57        |      |

 

 

29

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

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

 

The pro forma amountsshown above and the weighted-average grant-date fair values of options grantedwere estimated using the Black-Scholes option-pricing model with the followingassumptions:

 
| ** **              | ** ** | **2005** | ** ** |
|-------------------------|------------|----------|------------|
| Risk free interest rate |       | 3.73     | %          |
| Expected life           |       | 5  years |       |
| Expected volatility     |       | 36.10    | %          |
| Expected dividends      |       | 5.71     | %          |

 

**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 29,2007, December 30, 2006 and December 31, 2005 is as follows:

 
| ** **                           | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Accrued warranty,  beginning of year |       | $          | 1,541,000  |       | $          | 1,385,000  |       | $ | 1,209,344 |   |
| Warranty expense                     |       | 1,344,327  |       | 1,794,057  |       | 1,821,765  |       |
| Warranty claims paid                 |       | (1,409,327 | )          | (1,638,057 | )          | (1,646,109 | )          |
| Accrued warranty, end of  year       |       | $          | 1,476,000  |       | $          | 1,541,000  |       | $ | 1,385,000 |   |

 

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

 

**EarningsPer Share** - Basicearnings per share is computed by dividing net income by the weighted averagenumber of shares of common stock outstanding during the period.  Diluted earnings per share is computed bydividing net income by the weighted average number of shares of common stockoutstanding plus the dilutive effect of stock options.

 

**ComprehensiveIncome** - Othercomprehensive income refers to revenues, expenses, gains and losses that, undergenerally accepted accounting principles, are included in comprehensive incomebut are excluded from net income as these amounts are recorded directly as anadjustment to stockholders’ equity.  TheCompany’s other comprehensive income is comprised of unrealized gains andlosses on hedge activities and available-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 four categories of products) andvertically integrated fiberglass manufacturing processes.  The vertically integrated fiberglassmanufacturing subsidiary constitutes a segment by definition of SFAS No. 131,“Disclosures about Segments of an Enterprise and Related Information;” however,this segment does not meet the quantitative thresholds for separate disclosureas set forth in this statement.  Thevertically integrated fiberglass manufacturing subsidiary’s revenues are lessthan 10 percent of consolidated revenues, the absolute amount of its reportedincome is less than 10 percent of the absolute amount of consolidated netincome, and finally, its assets are less than 10 percent of consolidatedassets.

 

 

30

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

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

 

Net sales consist of thefollowing:

 
| ** **            | ** ** | **2007**    | ** **  | **2006**    | ** ** | **2005**    | ** ** |
|-----------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| Specialized vehicles: |       |        |        |        |       |        |       |
| Trucks                |       | $           | 209,180,974 |        | $          | 259,894,141 |       | $ | 267,563,822 |   |
| Buses                 |       | 65,409,725  |        | 59,396,203  |       | 56,112,684  |       |
| Armored vehicles      |       | 13,813,434  |        | 8,361,974   |       | 9,203,059   |       |
| Motorhomes            |       | 11,617,653  |        | 4,063,359   |       | —      |       |
|                  |       | 300,021,786 |        | 331,715,677 |       | 332,879,565 |       |
| Composites            |       | 13,250,937  |        | 9,031,112   |       | 8,373,287   |       |
|                  |       | $           | 313,272,723 |        | $          | 340,746,789 |       | $ | 341,252,852 |   |

 

**RecentAccounting Pronouncements** - In September 2006, theFinancial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which defines fair value,establishes a framework for measuring fair value in generally acceptedaccounting principles, and expands disclosures about fair valuemeasurements.  SFAS 157 does not requireany new fair value measurements, but provides guidance on how to measure fairvalue by providing a fair value hierarchy used to classify the source of theinformation.  SFAS 157 is effectivefor fiscal years beginning after November 15, 2007; however, on February 12,2008, the FASB issued FSP FAS 157-2 which delayed the effective date ofSFAS 157 for all nonfinancial assets and nonfinancial liabilities, exceptthose that are recognized or disclosed at fair value in the financialstatements on a recurring basis (at least annually).  This FSP partially deferred the effectivedate of Statement 157 to fiscal years beginning after November 15,2008, and interim periods within those fiscal years for items within the scopeof this FSP.  Effective for 2008, we willadopt SFAS 157 except as it applies to those nonfinancial assets andnonfinancial liabilities as noted in FSP FAS 157-2. The partial adoptionof SFAS 157 is not expected to have a material impact on our consolidatedfinancial position, results of operations or cash flows.

 

In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for FinancialAssets and Financial Liabilities- including an Amendment of FASB Statement No. 115”**(“SFAS 159”), which allows anentity to choose to measure certain financial instruments and liabilities atfair value.  Subsequent measurements forthe financial instruments and liabilities an entity elects to fair value willbe recognized in earnings.  SFAS 159 alsoestablishes additional disclosure requirements. SFAS 159 is effective for the Company beginning in fiscal2008.  The adoption of SFAS 159 is not expected to have a material impacton our consolidated financial position, results of operations or cash flows.

 

In December 2007, the FASB issued SFAS No. 141(revised 2007), “Business Combinations”**(“SFAS 141R”).  SFAS 141R establishes principles andrequirements for how an acquirer recognizes and measures in its financialstatements the identifiable assets acquired, the liabilities assumed, anynoncontrolling interest in the acquiree and the goodwill acquired.  SFAS 141R also establishes disclosurerequirements to enable the evaluation of the nature and financial effects ofthe business combination.  This statementis effective for us beginning in fiscal 2009. The adoption of this statement isnot expected to have a material impact on our consolidated financial position,results of operations or cash flows.

 

 

31

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

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

 

In December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests inConsolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51”**(“SFAS 160”).  SFAS 160 establishes accounting andreporting standards for ownership interests in subsidiaries held by partiesother than the parent, the amount of consolidated net income attributable tothe parent and to the noncontrolling interest, changes in a parent’s ownershipinterest, and the valuation of retained noncontrolling equity investments whena subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearlyidentify and distinguish between the interests of the parent and the interestsof the noncontrolling owners.  Thisstatement is effective for us beginning in fiscal 2009.  The adoption of this statement is notexpected to have a material impact on our consolidated financial position,results of operations or cash flows.

 

**2.****                                     ****BUSINESS ACQUISITION.**

 

On February 28,2006, the Company acquired the business operations and assets of Pony Xpress, Inc.(“Pony Xpress”) for a total purchase price of $1,213,222 which consisted of$1,050,000 in cash and the assumption of certain liabilities.  Pony Xpress is a manufacturer of highlyspecialized luxury totorhome products. This acquisition broadens the Company’s product line and the Companypurchased a facility in White Pigeon, Michigan for the operations of thisacquired business.  The acquisition hasbeen accounted for as a purchase and, accordingly, the operating results havebeen included since the date of acquisition. Pro forma financial information reflecting the acquired business has notbeen presented as it is not materially different from the Company’s historicalresults.  The allocation of purchaseprice was as follows:

 

| Accounts receivable             |   | $       | 156,200   |   |
|---------------------------------|--------|---------|-----------|--------|
| Inventories                     |   | 241,872 |      |
| Other current assets            |   | 29,305  |      |
| Equipment                       |   | 60,289  |      |
| Intangible asset-customer  list |   | 725,556 |      |
|                            |   | $       | 1,213,222 |   |

 

 

32

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

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

 

Investment securitiesconsist of the following:

 
| ** **                         | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Intermediate bond  fund-cost       |       | $        | 2,202,222  |     | $          | 1,543,125 |   |
| Unrealized gains (losses)          |       | 13,045   |       | (1,024   | )          |
| Intermediate bond  fund-fair value |       | $        | 2,215,267  |     | $          | 1,542,101 |   |

 

Sales of securities were$544,804 and $893,285 during 2007 and 2006, respectively, and resulted inlosses of $4,210 and $16,005, respectively. Investment income (included in other income) consisted of dividendincome and aggregated $111,968 and $81,167 for the years ended December 29,2007 and December 30, 2006, respectively.

 

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

 

Inventories consist ofthe following:

 
| ** **       | ** ** | **2007**  | ** ** | **2006**   | ** ** |
|------------------|------------|-----------|------------|------------|------------|
| Raw materials    |       | $         | 25,042,022 |       | $          | 29,569,267 |   |
| Work-in-progress |       | 9,676,041 |       | 11,199,112 |       |
| Finished goods   | 11,925,417 |      | 12,737,988 |       |
|             |       |      |       |       |       |
| Total            |       | $         | 46,643,480 |       | $          | 53,506,367 |   |

 

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

 

Property, plant andequipment consists of the following:

 
| ** **                                      | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-------------------------------------------------|------------|------------|------------|------------|------------|
| Land                                            |       | $          | 5,441,130  |       | $          | 5,441,130 |   |
| Land improvements                               |       | 5,990,389  |       | 5,747,448  |       |
| Buildings                                       |       | 29,106,547 |       | 28,811,470 |       |
| Leasehold improvements                          |       | 7,448,543  |       | 7,293,110  |       |
| Machinery and equipment                         |       | 44,543,581 |       | 44,178,342 |       |
|                                            |       | 92,530,190 |       | 91,471,500 |       |
| Less, Accumulated depreciation and amortization |       | 45,100,465 |       | 43,082,017 |       |
|                                            |       |       |       |       |       |
| Property, plant and equipment, net              |       | $          | 47,429,725 |       | $          | 48,389,483 |   |

 

 

33

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

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

 

Long-term debt consistsof the following:

 
| ** **                                                                                                                                                                                                                                    | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Revolving line of credit                                                                                                                                                                                                                      |       | $          | 25,294,766 |       | $          | 34,436,504 |   |
|                                                                                                                                                                                                                                          |       |       |       |       |       |
| Term  note payable in quarterly installments of $300,000 plus interest at LIBOR  plus certain basis points determined by the Company’s leverage ratio  (effective rate of 6.87% at December 30, 2006), with final maturity in  2007 |       | —     |       | 1,000,000  |       |
|                                                                                                                                                                                                                                          |       |       |       |       |       |
| Obligations  under industrial development revenue bonds, variable rates, with maturities  in August 2010 and April 2015, collateralized by real estate                                                                              |       | 2,500,000  |       | 3,000,000  |       |
|                                                                                                                                                                                                                                          |       |       |       |       |       |
| Mortgage  note, payable in monthly installments including interest at a fixed rate of  2.5%, with final maturity in October 2010, collateralized by a real  estate mortgage                                                              |       | 1,426,846  |       | 1,575,920  |       |
|                                                                                                                                                                                                                                          |       |       |       |       |       |
| Term  loan, payable in monthly installments including interest at a fixed rate of  2.5%, with final maturity in October 2010, collateralized by specific  equipment                                                                      |       | 276,323    |       | 361,561    |       |
|                                                                                                                                                                                                                                          |       |       |       |       |       |
| 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                                                                         |       | 253,189    |       | 296,669    |       |
|                                                                                                                                                                                                                                          |       |       |       |       |       |
| Total                                                                                                                                                                                                                                         |       | 29,751,124 |       | 40,670,654 |       |
|                                                                                                                                                                                                                                          |       |       |       |       |       |
| Less, Current maturities                                                                                                                                                                                                                      |       | 748,406    |       | 1,807,425  |       |
|                                                                                                                                                                                                                                          |       |       |       |       |       |
| Long-term debt                                                                                                                                                                                                                                |       | $          | 29,002,718 |       | $          | 38,863,229 |   |

 

The revolving line ofcredit, term note and a letter of credit facility are part of a CreditAgreement dated January 5, 2004 and as amended through August 13, 2007(the “Credit Agreement”).  All borrowingsunder the Credit Agreement are unsecured. The Credit Agreement provides for a revolving line of credit facility,as defined, up to $35 million and increasing to $45 million during the periodeach year from January 1 to June 30. Interest on outstanding borrowings under the revolving line of credit isbased on the bank’s prime rate or certain basis points above LIBOR depending onthe pricing option selected and the Company’s leverage ratio, as defined(effective rate of 6.34% and 6.56% at December 29, 2007 and December 30,2006, respectively).  The Company’s cashmanagement system and revolving line of credit are designed to maintain zerocash balances and, accordingly, checks outstanding in excess of bank balancesare classified as additional borrowings under the revolving line ofcredit.  Checks outstanding in excess ofbank balances were $2,394,766 at December 29, 2007 and $1,736,504 at December 30,2006.  The revolving line of credit alsorequires a quarterly commitment fee ranging from 1/8% to 1/4% 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, June 30, 2009.

 

 

34

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

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

 

Outstanding letters ofcredit, related to the Company’s workers’ compensation insurance policies,aggregated $3.7 million and $3.5 million at December 29, 2007 and December 30,2006, respectively.  Under separateagreements the Company had irrevocable letters of credit aggregating $2.5million and $3.0 million at December 29, 2007 and December 30, 2006,respectively, in favor of bond trustees as a credit enhancement for bondholdersof two industrial development revenue bonds.

 

The Credit Agreementcontains, among other matters, certain restrictive covenants including requiredfinancial ratios.

 

Maturities of long-termdebt for each of the next five years are as follows:  2008 - $748,406; 2009 - $26,117,377; 2010 -$1,769,415, 2011 - $348,369 and 2012 - $149,730.

 

**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 and the Company will match thirty percent of employee’scontributions up to seven percent of the employee’s compensation.  The Board of Directors may increase ordecrease the Company’s contribution on a year-to-year basis.  Expense related to this plan was $583,793,$657,563 and $612,145 for the fiscal years ended 2007, 2006 and 2005,respectively.

 

**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.

 

**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.

 

 

35

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

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

 

**RestrictedStock**

 

The following tablesummarizes the activity for our unvested restricted stock units and restrictedstock for the twelve months ended December 29, 2007.

 

| ** **                        | ** ** | ** ** | ** ** | **Weighted -** | ** ** |
|-----------------------------------|------------|------------|------------|----------------|------------|
| ** **                        | ** ** | ** ** | ** ** | **Average**    | ** ** |
| ** **                        | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                        | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Unvested,  December 30, 2006 |       | 8,612      |       | $              | 6.65       |   |
| Granted                           |       | 114,500    |       | 6.23           |       |
| Vested                            |       | (11,792    | )          | 6.54           |       |
| Unvested,  December 29, 2007 |       | 111,320    |       | 6.23           |       |
|                                   |            |            |            |                |            |  |

 

The total fairvalue of shares vested during the year ended December 29, 2007 was$77,079.

 

**StockOptions**

 

On October 29, 1998,the Company’s Board of Directors approved, and the Company’s stockholderssubsequently ratified, the 1998 Stock Option Plan under which 869,087 shares ofClass A Common Stock were reserved for grant.  On January 31, 2001, the Company’s Boardof Directors approved, and the Company’s stockholders subsequently ratified,the 2001 Stock Option Plan under which 825,000 shares of Class A CommonStock were reserved for grant.  On January 23,2004, the Company’s Board of Directors approved, and the Company’s stockholderssubsequently ratified, the 2004 Stock Option Plan, as recently amended, underwhich 850,000 shares of 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 five orseven years after the date of grant.  TheCompany generally issues new shares to satisfy stock option exercises.  On August 4, 2005, the Company’s Boardof Directors approved a plan to accelerate vesting of all outstanding stockoptions which were unvested at December 31, 2005.  Under the provisions of APB No. 25,there was no compensation expense related to the acceleration of theseoptions.  As a result of the Board’saction, stock options to purchase 430,831 shares of the Company’s common stockbecame exercisable effective December 31, 2005.

 

 

36

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

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

 

The following tablesummarizes stock option activity:

 

| ** **                           | ** ** | ** **  | ** ** | **Weighted - Average** | ** ** |
|--------------------------------------|------------|-------------|------------|------------------------|------------|
| ** **                           | ** ** | **Options** | ** ** | **Exercise Price**     | ** ** |
| Outstanding,  December 26, 2004 |       | 1,183,614   |       | $4.47                  |       |
| Granted                              |       | 395,655     |       | 6.77                   |       |
| Exercised                            |       | (641,724    | )          | 4.18                   |       |
| Expired or canceled                  |       | (15,722     | )          | 4.87                   |       |
| Outstanding,  December 31, 2005 |       | 921,823     |       | 5.67                   |       |
| Granted                              |       | 352,831     |       | 7.12                   |       |
| Exercised                            |       | (18,334     | )          | 4.68                   |       |
| Forfeited                            |       | (28,000     | )          | 5.19                   |       |
| Outstanding,  December 30, 2006 |       | 1,228,320   |       | 6.12                   |       |
| Granted                              |       | 110,195     |       | 6.42                   |       |
| Exercised                            |       | (302,834    | )          | 5.06                   |       |
| Forfeited                            |       | (46,500     | )          | 6.73                   |       |
| Outstanding,  December 29, 2007 |       | 989,181     |       | 6.44                   |       |

 

The weighted-average grant-date fair values of optionsgranted during the fiscal years ended 2007, 2006 and 2005 was $0.86, $1.47 and$1.40, respectively.  The total intrinsicvalue of options exercised during the fiscal years ended 2007, 2006 and 2005approximated $1,532,000, $44,000 and $198,700, respectively.  Total unrecognized compensation expenserelated to all share-based awards outstanding at December 29, 2007 isapproximately $997,035 and is to be recorded over a weighted-averagecontractual life of 2.51 years.

 

In connection with the exercise of certain stockoptions in 2007 and 2006, officers and directors exchanged shares of Class ACommon Stock as consideration for their exercise of stock options and receivednew stock options pursuant to the reload feature included in the stock optionplan. There were 132,000 and 11,000 stock options exercised using the reloadfeature during 2007 and 2006, respectively. The officers and directors exchanged 110,195 and 6,831 shares of Class ACommon Stock and received the same number of new stock options during 2007 and2006, respectively.  The exercise ofstock options and the related issuance of shares of Class A Common Stockin exchange for the shares of Class A Common Stock, with a fair value of$688,719 and $52,735, respectively, was a noncash financing activity.

 

 

37

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

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

 

Information about stockoptions outstanding and exercisable at December 29, 2007 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** | ** ** |
| $4.50  - $4.95                |       | 192,500                 |       | 0.36                    |       | 4.58 |   | 192,500 |   | 4.58 |   |
| 6.05  - 6.66                  |       | 53,406                  |       | 2.31                    |       | 6.35 |   | 53,406 |   | 6.35 |   |
| 6.84                          |       | 25,000                  |       | 2.34                    |       | 6.84 |   | 25,000 |   | 6.84 |   |
| 6.65  - 7.32                  |       | 264,000                 |       | 2.44                    |       | 6.71 |   | 264,000 |   | 6.71 |   |
| 8.87  - 9.76                  |       | 22,249                  |       | 2.83                    |       | 9.34 |   | 22,249 |   | 9.34 |   |
| 7.72                          |       | 6,831                   |       | 3.19                    |       | 7.72 |   | 6,831 |   | 7.72 |   |
| 7.05  - 7.76                  |       | 315,000                 |       | 5.35                    |       | 7.12 |   | 145,000 |   | 7.20 |   |
| 6.25  - 6.88                  |       | 110,195                 |       | 6.34                    |       | 6.42 |   | 43,900 |   | 6.46 |   |
|                          |       | 989,181                 |       | 2.67                    |       | 6.44 |   | 752,886 |   | 6.31 |   |

 

At December 29,2007, the aggregate intrinsic value of options exercisable approximated$235,400, with a remaining contractual term of 0.35 years.  The intrinsic value of all optionsoutstanding at December 29, 2007 was approximately $235,400.

 

At December 30, 2006and December 31, 2005, there were exercisable options outstanding topurchase 908,905 and 921,823 shares at weighted-average exercise prices of$5.77 and $5.67, respectively.

 

As of December 29,2007, 173,185 shares were reserved for the granting of future share-basedawards (stock options and restricted stock) compared to 351,380 shares at December 30,2006.

 

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

 

Income taxes consist ofthe following:

 

| ** ** | ** ** | **2007**  | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Federal:   |       |      |       |      |       |      |       |
| Current    |       | $         | 1,525,000  |      | $          | 2,060,000 |       | $ | 3,617,000 |   |
| Deferred   |       | (318,000  | )          | (307,000  | )          | (11,000   | )          |
|       |       | 1,207,000 |       | 1,753,000 |       | 3,606,000 |       |
|       |       |      |       |      |       |      |       |
| State:     |       |      |       |      |       |      |       |
| Current    |       | 110,000   |       | 239,000   |       | 732,000   |       |
| Deferred   |       | (13,000   | )          | —    |       | (2,000    | )          |
|       |       | 97,000    |       | 239,000   |       | 730,000   |       |
| Total      |       | $         | 1,304,000  |      | $          | 1,992,000 |       | $ | 4,336,000 |   |

 

 

38

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**9.****                                     ****INCOME TAXES, Continued.**

 

The deferred tax assetsand the deferred tax liabilities were as follows:

 

 

| ** **                                        | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|---------------------------------------------------|------------|------------|------------|------------|------------|
| Deferred tax assets:                              |       |       |       |       |       |
| Receivables                                       |       | $          | 61,600     |       | $          | 61,600 |   |
| Inventories                                       |       | 457,340    |       | 353,813    |       |
| Accrued liabilities                               |       | 1,656,487  |       | 1,518,099  |       |
| Stock-based compensation                          |       | 103,927    |       | 6,509      |       |
| Unrealized hedge loss                             |       | 120,300    |       | —     |       |
| Other                                             |       | 455        |       | 30,380     |       |
| Total deferred tax assets                         |       | 2,400,109  |       | 1,970,401  |       |
|                                              |       |       |       |       |       |
| Deferred tax liabilities:                         |       |       |       |       |       |
| Depreciation                                      |       | (2,813,282 | )          | (2,876,825 | )          |
| Prepaids and other                                |       | (983,551   | )          | (941,600   | )          |
| Unrealized hedge gain                             |       | —     |       | (52,900    | )          |
| Total deferred tax liabilities                    |       | (3,796,833 | )          | (3,871,325 | )          |
|                                              |       |       |       |       |       |
| Net deferred income tax liabilities               |       | $          | (1,396,724 | )          | $          | (1,900,924 | ) |
|                                              |       |       |       |       |       |
| Presented in the  consolidated balance sheets as: |       |       |       |       |       |
| Current deferred tax assets                       |       | $          | 1,192,331  |       | $          | 1,022,292 |   |
| Long-term deferred tax liabilities                |       | (2,589,055 | )          | (2,923,216 | )          |
|                                              |       | $          | (1,396,724 | )          | $          | (1,900,924 | ) |

 

A reconciliation of theprovision for income taxes to the amount computed by applying the statutoryfederal income tax rate (34% in 2007 and 2006 and 35% in 2005) to income beforeincome taxes is as follows:

 
| ** **                                                                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2005**  | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
| Income taxes at statutory  rate                                                    |       | $        | 1,859,000  |     | $          | 2,239,500 |       | $ | 4,437,100 |   |
| State income taxes, net of  federal tax effect                                     |       | 64,000   |       | 157,700  |       | 474,500   |       |
| Manufacturer’s deduction                                                      |       | (104,000 | )          | (65,600  | )          | (105,000  | )          |
| Tax-exempt underwriting income of wholly-owned small captive  insurance subsidiary |       | (421,800 | )          | (369,800 | )          | (359,600  | )          |
| Research and development  tax credits                                              |       | (140,100 | )          | (81,000  | )          | (26,000   | )          |
| Alternative fuel tax credit                                                        |       | (48,600  | )          | —   |       | —    |       |
| Other, net                                                                         |       | 95,500   |       | 111,200  |       | (85,000   | )          |
| Total                                                                              |       | $        | 1,304,000  |     | $          | 1,992,000 |       | $ | 4,336,000 |   |

 

 

39

----

 

**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

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

 

**Uncertain Tax Positions**

 

In July 2006, the FASB issued FinancialInterpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN48”).  This Interpretation revises therecognition test for tax positions taken in tax returns such that a tax benefitis recorded only when it is more likely than not that the tax position will beallowed upon examination by taxing authorities, which is presumed tooccur.  The amount of such a tax benefitto be recorded is the largest amount that is more likely than not to beallowed. The Company adopted FIN 48 as of December 31, 2006, the first dayof the Company’s fiscal year ending December 29, 2007.  The adoption of FIN 48 did not have amaterial impact on the Company’s consolidated financial position or results ofoperations.

 

A reconciliation of the change in the unrecognizedtax benefits from December 31, 2006 to December 29, 2007 is asfollows:

 

| Unrecognized tax benefits  at December 31, 2006 |   | $      | 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 |   |

 

The entire December 29, 2007 balance ofapproximately $500,000 relates to unrecognized tax positions that, ifrecognized, would affect the annual effective tax rate.

 

The Company is subject to U.S. federal income taxas well as various state taxes and is no longer subject to examination bytaxing authorities for the fiscal year ended 2003 and earlier.  The Company does not expect the total amountof unrecognized tax benefits to significantly increase in the next twelvemonths.  Interest and penalties relatedto income tax matters are recognized in income tax expense.  Interest and penalties accrued for andrecognized during the year ended December 29, 2007 were immaterial.

 

**10.****                              ****COMMITMENTS ANDCONTINGENCIES.**

 

**Lease Commitments and Related Party Transactions**

 

The Company leasescertain office and manufacturing facilities under operating lease agreementswhich expire at various dates from October 2008 through July 2011.  Certain of the lease agreements are withrelated parties for which related party rent expense was $669,999, $677,408 and$759,678 for the fiscal years ended 2007, 2006 and 2005, respectively.

 

Rent expense under alloperating leases aggregated $992,652, $1,005,670 and $998,156 for the fiscalyears ended 2007, 2006 and 2005, respectively.

 

 

40

----

 

**Supreme Industries, Inc.And Subsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**10.          COMMITMENTS AND CONTINGENCIES,Continued.**

 

At December 29,2007, future minimum rental payments under noncancelable operating leasesaggregated $2,384,000 and are payable as follows:  2008 - $908,000; 2009 - $887,000; 2010 -$521,000; 2011 - $68,000.

 

In addition to the aboverelated party lease transactions, the Company purchases delivery services froma company owned by a director of the Company. Related party purchased delivery services aggregated $2,859,763,$3,523,358, and $3,690,777 for the fiscal years ended 2007, 2006, and 2005,respectively.  Amounts due to relatedparties, included in accounts payable, aggregated $241,894 and $153,587 as of December 29,2007 and December 30, 2006, respectively.

 

**ConsignedInventories**

 

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 provide that themanufacturer will provide a supply of chassis to be maintained from time totime at the Company’s various facilities under the conditions 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 charge on the chassis. The finance charges incurred on consigned chassis inventory, included ininterest expense in the consolidated statements of income, aggregated $499,055,$889,092 and $466,392 for the fiscal years ended 2007, 2006 and 2005,respectively.  At December 29, 2007and December 30, 2006, chassis inventory, accounted for as consignedinventory to the Company by the manufacturers, aggregated approximately $48.8million and $41.4 million, respectively. Typically, chassis are converted and delivered to customers within 90days of the receipt of the chassis by the Company.

 

 

41

----

 

**SupremeIndustries, Inc. And Subsidiaries**

**Notes toConsolidated Financial Statements, Concluded**

 

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

 

**Repurchase Commitments**

 

The Corporation was contingently liable at December 29,2007, 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 at declining prices over the term of the agreement, generally12 months.  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 $6.2 million at December 29,2007 and $2.4 million at December 30, 2006.  The risk of loss under these agreements isspread over many retailers and financial institutions.  The loss, if any, under these agreements isthe difference between the repurchase cost and the resale value of theunits.  The Corporation believes that anypotential loss under the agreements in effect at December 29, 2007 willnot be material.  The Company has notexperienced any significant repurchases, and losses are also insignificant dueto the Company’s extended dealer network.

 

**Self-Insurance**

 

The Company isself-insured for a portion of general liability ($250,000 per occurrence),certain employee health benefits ($200,000 annually per employee with no annualaggregate) and workers’ compensation in certain states ($250,000 per occurrencewith no annual aggregate).  The Companyaccrues for the estimated losses occurring from both asserted and unassertedclaims.  The estimate of the liabilityfor unasserted claims arising from incurred but not reported claims is based onan analysis of historical 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.

 

 

42

----

 

 

 

**SUPREME INDUSTRIES, 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 29, 2007:                   |       |          |       |           |       |              |       |            |       |
| Reserves and allowances deducted from asset accounts: |       |          |       |           |       |              |       |            |       |
| Allowance for doubtful receivables                    |       | $             | 160,000    |           | $          | 178,000           |       | $               | 178,000    |   | $ | 160,000 |   |
|                                                  |       |          |       |           |       |              |       |            |       |
| Year ended  December 30, 2006:                   |       |          |       |           |       |              |       |            |       |
| Reserves and allowances deducted from asset accounts: |       |          |       |           |       |              |       |            |       |
| Allowance for doubtful receivables                    |       | $             | 252,000    |           | $          | 224,000           |       | $               | 316,000    |   | $ | 160,000 |   |
|                                                  |       |          |       |           |       |              |       |            |       |
| Year ended  December 31, 2005:                   |       |          |       |           |       |              |       |            |       |
| Reserves and allowances deducted from asset accounts: |       |          |       |           |       |              |       |            |       |
| Allowance for doubtful receivables                    |       | $             | 296,000    |           | $          | 34,000            |       | $               | 78,000     |   | $ | 252,000 |   |

----

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

* *

 

43

----

 

 

**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

**SUPPLEMENTARY DATA**

** **
| ** **   | ** ** | **First** | ** ** | **Second** | ** ** | **Third**  | ** ** | **Fourth** | ** ** |
|--------------|------------|-----------|------------|------------|------------|------------|------------|------------|------------|
| 2007 Quarter |       |      |       |       |       |       |       |       |       |
| Net sales    |       | $         | 83,891,983 |       | $          | 88,161,027 |       | $          | 67,540,998 |   | $ | 73,678,715 |   |
| Gross profit |       | 8,971,386 |       | 11,089,216 |       | 7,339,150  |       | 7,783,677  |       |
| Net income   |       | 964,445   |       | 2,043,677  |       | 273,865    |       | 881,818    |       |
| Per share:   |       |      |       |       |       |       |       |       |       |
| Basic        |       | 0.08      |       | 0.16       |       | 0.02       |       | 0.07       |       |
| Diluted      |       | 0.08      |       | 0.16       |       | 0.02       |       | 0.07       |       |
|              |            |           |            |            |            |            |            |            |            |  |  |  |  |

 
| ** **   | ** ** | **First** | ** ** | **Second** | ** ** | **Third**  | ** ** | **Fourth** | ** ** |
|--------------|------------|-----------|------------|------------|------------|------------|------------|------------|------------|
| 2006 Quarter |       |      |       |       |       |       |       |       |       |
| Net sales    |       | $         | 85,747,138 |       | $          | 98,863,512 |       | $          | 79,678,398 |   | $ | 76,457,741 |   |
| Gross profit |       | 9,605,686 |       | 10,530,957 |       | 9,556,286  |       | 7,871,611  |       |
| Net income   |       | 1,373,035 |       | 1,565,381  |       | 1,242,361  |       | 413,991    |       |
| Per share:   |       |      |       |       |       |       |       |       |       |
| Basic        |       | 0.11      |       | 0.12       |       | 0.10       |       | 0.03       |       |
| Diluted      |       | 0.11      |       | 0.12       |       | 0.10       |       | 0.03       |       |
|              |            |           |            |            |            |            |            |            |            |  |  |  |  |

 

Operating results for thethird quarter of 2006 were favorably impacted by book-to-physical inventoryadjustments aggregating $1.9 million (pre-tax). Operating results for the fourth quarter of 2006 were unfavorablyimpacted by book-to-physical inventory adjustments aggregating $0.2 million(pre-tax).  The 2007 and 2006 fourthquarter operating results were favorably impacted by a $0.2 million and a $0.3million income tax benefit, respectively, principally attributable to thetrue-up of the Company’s estimated effective federal and state tax rates duringthe first three quarters to the actual effective tax rates for the fiscal year.

 

The sum of quarterlyearnings per share for the four quarters may not equal annual earnings pershare due to rounding and changes in the diluted potential common shares.

 

 

44

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| **ITEM  9.** | ** ** | **CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.** |
|--------------|------------|--------------------------------------------------------------------------------------------|
| ** **   | ** ** | ** **                                                                                 |
| ** **   | ** ** | Not applicable.                                                                            |
|         |

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

** **
| **Management’s  Conclusions Regarding Effectiveness of Disclosure Controls and Procedures**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| As of December 29, 2007, the Company  conducted an evaluation, under the supervision and participation of  management including the Chief Executive Officer and Chief Financial Officer,  of the effectiveness of the Company’s disclosure controls and procedures (as  defined in Rule 13a-15(e) of the Securities Exchange Act of 1934).  Based upon that evaluation, the Chief Executive Officer and Chief Financial  Officer concluded that the Company’s disclosure controls and procedures are  effective as of December 29, 2007.                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **Management’s  Report on Internal Control over Financial Reporting**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Management of the Company is responsible for  establishing and maintaining adequate internal control over financial  reporting as defined in Rule 13a-15(f) of the Securities Exchange  Act of 1934. Internal control over financial reporting provides reasonable  assurance regarding the reliability of financial reporting and the  preparation of financial statements for external purposes in accordance with  generally accepted accounting principles.                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| The Company’s internal control over financial  reporting includes policies and procedures that: pertain to the maintenance  of records that, in reasonable detail, accurately and fairly reflect the  transactions and dispositions of the Company’s assets; provide reasonable  assurance that transactions are recorded as necessary to permit preparation  of financial statements in accordance with generally accepted accounting  principles, and that the Company’s receipts and expenditures are being made  only in accordance with authorizations of management and directors; provide  reasonable assurance regarding prevention or timely detection of unauthorized  acquisition, use or disposition of the Company’s assets that could have a  material effect on the financial statements. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Because of its inherent limitations, internal  control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are  subject to the risk that controls may become inadequate because of changes in  conditions, or that the degree of compliance with the policies or procedures  may deteriorate.                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Management of the Company has assessed the  effectiveness of the Company’s internal control over financial reporting  based on criteria established in *Internal  Control-Integrated Framework*issued by the Committee of Sponsoring  Organizations of the Treadway Commission.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

** **

**45**

----

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

** **
| Management’s assessment included an evaluation of  the design of the Company’s internal control over financial reporting, and  testing of the operational effectiveness of the Company’s internal control  over financing reporting. Based on this assessment, management has concluded  that the Company’s internal control over financial reporting was effective as  of December 29, 2007.                                          |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| This annual report does not include an  attestation report of the Company’s registered public accounting firm regarding  internal control over financial reporting. Management’s report was not  subject to attestation by the Company’s registered public accounting firm  pursuant to temporary rules of the Securities and Exchange Commission  that permit the Company to provide only management’s report in this annual  report. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **Changes in  Internal Control over Financial Reporting**                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| No change in the Company’s internal control over  financial reporting (as such term is defined in Exchange Act  Rule 13a-15(f)) occurred during the fiscal quarter ended  December 29, 2007 that materially affected, or is reasonably likely to  materially affect, the Company’s internal control over financial reporting.                                                                                                               |

 
| **ITEM  9B.** | ** ** | **OTHER  INFORMATION.** |
|---------------|------------|-------------------------|

** **
| Effective November 20, 2007, the Company  amended its bylaws to provide for shares without certificates in order to  comply with AMEX Rule 778 and Section 135 of the AMEX Company Guide  requiring the Company’s Class A Common Stock to be eligible for  participation in the Direct Registration System (“DRS”). DRS allows a  stockholder’s stock ownership to be recorded and maintained by the Company’s  transfer agent without the issuance of a physical certificate. The amended  bylaws continue to permit stockholders to obtain a physical certificate upon  request. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**PART III**

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

** **
| The information  required by Item 10 of Form 10-K is hereby incorporated by reference  from the Company’s definitive proxy statement, which will be filed with the  Securities and Exchange Commission in connection with the Company’s 2008  annual stockholders’ meeting. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| **ITEM  11.** | ** ** | **EXECUTIVE  COMPENSATION.** |
|---------------|------------|------------------------------|

 
| The information  required by Item 11 of Form 10-K is hereby incorporated by reference  from the Company’s definitive proxy statement, which will be filed with the  Securities and Exchange Commission in connection with the Company’s 2008  annual stockholders’ meeting. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| **ITEM  12.** | ** ** | **SECURITY  **O**WNERSHIP OF CERTAIN BENEFICIAL  OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.** |
|---------------|------------|-----------------------------------------------------------------------------------------------------------|

 

** **
| The information required  by Item 12 of Form 10-K is hereby incorporated by reference from the  Company’s definitive proxy statement, which will be filed with the Securities  and Exchange Commission in connection with the Company’s 2008 annual  stockholders’ meeting. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

46

----

 
| **ITEM  13.** | ** ** | **CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.** |
|---------------|------------|---------------------------------------------------------------------------------|

** **
| The information  required by Item 13 of Form 10-K is hereby incorporated by reference  from the Company’s definitive proxy statement, which will be filed with the  Securities and Exchange Commission in connection with the Company’s 2008  annual stockholders’ meeting. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| **ITEM  14.** | ** ** | **PRINCIPAL  ACCOUNTING FEES AND SERVICES.** |
|---------------|------------|----------------------------------------------|

** **
| The information  required by Item 14 of Form 10-K is hereby incorporated by reference  from the Company’s definitive proxy statement, which will be filed with the  Securities and Exchange Commission in connection with the Company’s 2008  annual stockholders’ meeting. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**PART IV**

 
| **ITEM  15.** | ** ** | **EXHIBITS,  FINANCIAL STATEMENT SCHEDULES.** |
|---------------|------------|-----------------------------------------------|

** **
| a. |   | The following financial  statements and financial statement schedule are included in Item 8 herein: |
|----|--------|-----------------------------------------------------------------------------------------------------|

 
| 1.     | Financial Statements                                                                                                                                 |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                 |
|   | Report of Crowe Chizek  and Company LLC, Independent Registered Public Accounting Firm                                                               |
|   |                                                                                                                                                 |
|   | Consolidated  Balance Sheets as of December 29, 2007 and December 30, 2006                                                                 |
|   |                                                                                                                                                 |
|   | Consolidated Statements  of Income for the years ended December 29, 2007, December 30, 2006  and December 31, 2005                    |
|   |                                                                                                                                                 |
|   | Consolidated Statements  of Stockholders’ Equity for the years ended December 29, 2007,  December 30, 2006 and December 31, 2005 |
|   |                                                                                                                                                 |
|   | Consolidated Statements  of Cash Flows for the years ended December 29, 2007, December 30,  2006 and December 31, 2005                |
|   |                                                                                                                                                 |
|   | Notes  to Consolidated Financial Statements                                                                                                          |
|   |                                                                                                                                                 |
| 2.     | Financial  Statement Schedule                                                                                                                        |
|   |                                                                                                                                                 |
|   | Schedule  II - Valuation and Qualifying Accounts                                                                                                     |
|   |                                                                                                                                                 |
| 3.     | Exhibits                                                                                                                                             |
|   |                                                                                                                                                 |
|   | See  Index to Exhibits                                                                                                                               |

 

 

47

----

 

**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 26,  2008 |   |   | 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 26,  2008 |   |
|-----------------------|--------|----------------------------------------------------|--------|----------------------|--------|
| Herbert M. Gardner    |   | (Principal Executive  Officer)                     |   |                 |   |
|                  |   |                                               |   |                 |   |
| /s/Robert W. Wilson   |   | President, Chief Operating  Officer                |   | March 26,  2008 |   |
| Robert W. Wilson      |   | and Director                                       |   |                 |   |
|                  |   |                                               |   |                 |   |
| /s/William J. Barrett |   | Secretary, Assistant  Treasurer and                |   | March 26,  2008 |   |
| William J. Barrett    |   | Director                                           |   |                 |   |
|                  |   |                                               |   |                 |   |
| /s/Jeffery D. Mowery  |   | Treasurer, Chief Financial  Officer and            |   | March 26,  2008 |   |
| Jeffery D. Mowery     |   | Assistant Secretary (Principal                     |   |                 |   |
|                  |   | Financial and Accounting Officer)                  |   |                 |   |
|                  |   |                                               |   |                 |   |
| /s/Arthur M. Borden   |   | Director                                           |   | March 26,  2008 |   |
| Arthur M. Borden      |   |                                               |   |                 |   |
|                  |   |                                               |   |                 |   |
| /s/Robert J. Campbell |   | Director                                           |   | March 26,  2008 |   |
| Robert J. Campbell    |   |                                               |   |                 |   |
|                  |   |                                               |   |                 |   |
| /s/Thomas Cantwell    |   | Director                                           |   | March 26,  2008 |   |
| Thomas Cantwell       |   |                                               |   |                 |   |
|                  |   |                                               |   |                 |   |
| /s/Edward L. Flynn    |   | Director                                           |   | March 26,  2008 |   |
| Edward L. Flynn       |   |                                               |   |                 |   |
|                  |   |                                               |   |                 |   |
| /s/Omer G. Kropf      |   | Director                                           |   | March 26,  2008 |   |
| Omer G. Kropf         |   |                                               |   |                 |   |
|                  |   |                                               |   |                 |   |
| /s/Mark C. Neilson    |   | Director                                           |   | March 26,  2008 |   |
| Mark C. Neilson       |   |                                               |   |                 |   |

 

 

 

48

----

 

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         |       | Bylaws of the Company,  filed as Exhibit 3(b) to the Company’s Registration Statement on  Form 8-A, filed with the Commission on September 18, 1989, and  incorporated herein by reference.                                                                                                                             |
|        |       |                                                                                                                                                                                                                                                                                                                                             |   |   |
| * 3.5       |       | Amendment to Bylaws (as  amended November 20, 2007).                                                                                                                                                                                                                                                                                        |
|        |       |                                                                                                                                                                                                                                                                                                                                             |   |   |
| 4.1         |       | Credit Agreement dated  January 5, 2004, between the Company, Supreme Corporation, and Bank One,  NA, signed in connection with certain long-term indebtedness, filed as  Exhibit 4.10 to the Company’s annual report on Form 10-K for the  fiscal year ended December 27, 2003, and incorporated herein by  reference. |
|        |       |                                                                                                                                                                                                                                                                                                                                             |   |   |
| 4.2         |       | First Amendment to the  Credit Agreement dated March 19, 2004 signed in connection with certain  long term indebtedness, filed as Exhibit 4.1 to the Company’s quarterly  report on Form 10-Q for the fiscal period ended March 27, 2004, and  incorporated herein by reference.                                        |
|        |       |                                                                                                                                                                                                                                                                                                                                             |   |   |
| 4.3         |       | Second Amendment to the  Credit Agreement dated December 17, 2004 signed in connection with  certain indebtedness, filed as Exhibit 99.1 on Form 8-K dated  December 27, 2004, and incorporated herein by reference.                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                                             |   |   |
| 4.4         |       | Third Amendment to the  Credit Agreement dated September 22, 2005 signed in connection with  certain indebtedness, filed as Exhibit 10.1 to the Company’s quarterly  report on Form 10-Q for the fiscal period ended September 24, 2005,  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.                                                                                                   |
|        |       |                                                                                                                                                                                                                                                                                                                                             |   |   |

 

 

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|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| 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   |   | Inventory Loan and  Security Agreement dated October 12, 1988, among General Motors  Acceptance Corporation and the Company, its subsidiaries, and certain  subsidiaries of Supreme Corporation, filed as Exhibit 10.19 to the  Company’s annual report on Form 10-K for the fiscal year ended  December 31, 1988, and incorporated herein by reference.                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |
| 10.10  |   | Pool Company Wholesale  Finance Plan Application for Wholesale Financing and Security Agreements,  dated December 5, 1990, among Ford Motor Credit Company and each of  Supreme Corporation, Supreme Truck Bodies of California, Inc., Supreme  Corporation of Texas, and Supreme Mid-Atlantic Corporation, filed as  Exhibit 10.15 to the Company’s annual report on form 10-K for the fiscal  year ended December 31, 1991, and incorporated herein by reference. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |
| 10.11  |   | 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.                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |
| 10.12  |   | 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.                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |
| 10.13  |   | Employment Contract  dated to be effective May 1, 2005, between Supreme Corporation and  Robert W. Wilson, filed as Exhibit 10.3 to the Company’s quarterly  report on Form 10-Q for the fiscal period ended June 25, 2005, and  incorporated herein by reference.                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |
| 10.14  |   | Employment Contract  dated to be effective May 1, 2005, between Supreme Corporation and Omer  G. Kropf, filed as Exhibit 10.4 to the Company’s quarterly report on  Form 10-Q for the fiscal period ended June 25, 2005, and  incorporated herein by reference.                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |
| 10.15  |   | 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.                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |
| 10.16  |   | 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.                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |
| 10.17  |   | Amended and Restated  Employment Contract by and among Supreme Industries, Inc. and Robert W.  Wilson dated to be effective January 1, 2006, filed as Exhibit 10.1  to the Company’s Current Report on Form 8-K dated February 10,  2006, and incorporated herein by reference.                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |
| * 21.1 |   | Subsidiaries of the  Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |

 

 

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|   |   |                                                                                                       |
|--------|--------|------------------------------------------------------------------------------------------------------------|
| * 23.1 |   | Consent of Crowe Chizek  and Company LLC, 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. |

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*   Filed herewith.

 

 

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