** **

**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

**FORM10-K**

**(Mark One)**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**For the fiscal year endedDecember 30, 2006.**

**or**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from         to          .

**Commission File No. 1-8183**

**SUPREME INDUSTRIES, INC.**

*(Exactname of registrant as specified in its charter)*

| **Delaware**                                            |   | **75-1670945**                       |
|---------------------------------------------------------|--------|--------------------------------------|
| *(State  of Incorporation)*                             |   | *(IRS  Employer Identification No.)* |
| * *                                                |   | * *                             |
| **P.O. Box 237, 2581 E. Kercher Road, Goshen, Indiana** |   | **46528**                            |
| *(Address  of principal executive offices)*             |   | *(Zip  Code)*                        |

 

*Registrant’s telephone number, includingarea code:* - **(574) 642-3070**

Securities registered pursuant to Section 12(b) of theAct:

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

 

Securities registered pursuant to Section 12(g) of theAct:  **None**

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

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

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period the registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90days.    Yes  x    No  o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of the registrant’sknowledge, in the definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form10-K.    x

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act.

Large acceleratedfiler  o    Acceleratedfiler  o    Non-acceleratedfiler  x

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of the 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 $7.18 per share for the common stock on the American Stock Exchange onsuch date was approximately: $63,933,477

Indicate thenumber of shares outstanding of each of the registrant’s classes of commonstock, as of the latest practicable date.

| Class                                      |   | Outstanding at  March 20, 2007 |
|--------------------------------------------|--------|--------------------------------|
| **Class A  Common Stock ($.10 Par Value)** |   | **10,745,494  shares**         |
| **Class B  Common Stock ($.10 Par Value)** |   | **2,024,133  shares**          |

 

Documents Incorporated by Reference
|                                                            |   | Parts of Form 10-K Into Which the |
|------------------------------------------------------------|--------|-----------------------------------|
| Document                                                   |   | Document is Incorporated          |
| **Portions of the Proxy Statement for Annual  Meeting of** |   |                              |
| **Shareholders to be held on May 3, 2007**                 |   | **Part III**                      |

 

The Index to Exhibits is on page 54 in the sequentialnumbering system.  Total pages 65.

 

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**PART I**

**ITEM1.  BUSINESS.**

**History**

Supreme Industries, Inc.,a Delaware corporation (the “Company” or “Supreme”), is one of the nation’sleading manufacturers of specialized vehicles, including trucks, buses andarmored vehicles.  The Company wasincorporated in 1979 and originally had one operating subsidiary, TGCIndustries, Inc., which was spun-off to stockholders of the Company effectiveJuly 31, 1986.

Supreme Corporation, theCompany’s wholly-owned operating subsidiary, was formed in January 1984 to acquirea company engaged in the business of manufacturing, selling and repairingspecialized truck bodies, shuttle buses and related equipment.

**Financial Information About Operating Segments**

The Company has twooperating segments, specialized vehicles and vertically integrated fiberglassproducts.  The vertically integratedfiberglass products segment does not meet the quantitative thresholds forseparate disclosure.  See segment informationin Note 1 - Nature of Operations and Accounting Policies, of the Notes toConsolidated Financial Statements (Item 8).

**General Description of the Company’s Business**

The specialized vehicleindustry consists of companies that manufacture and/or distribute specializedtruck bodies and shuttle buses. Depending on the product, it is either built directly on a truck chassisor built separately and installed at a later date.  The truck chassis, which consists of anengine, frame with wheels, and in some cases a cab, is manufactured by third partieswho are major automotive or truck companies. Such companies typically do not build specialized truck bodies.  See “RISK FACTORS - Competition.”

Supreme’s products aremedium-priced although prices can range from $1,000 to $175,000.  Supreme’s truck bodies are offered inaluminum or fiberglass reinforced plywood panel (“FRP”) construction and areavailable in lengths of 9 to 45 feet and heights up to 13 feet, 6 inches.  Examples of optional equipment offered bySupreme include lift gates, cargo-handling equipment, customized doors, specialbumpers, ladder racks, and refrigeration equipment, which are configured withthe truck bodies to meet the end-user’s needs.

Supreme also makes itsown fiberglass wind deflectors under the name of Fuel Shark, which reduce windresistance and improve fuel efficiency. Supreme is not in the business of manufacturing long-distancetruck-trailers.

The following table showsnet sales contributed by each of the Company’s product categories:

|                       | ** ** | **2006**    | ** **  | **2005**    | ** ** | **2004**    | ** ** |
|-----------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| Specialized vehicles: |       |        |        |        |       |        |       |
| Trucks                |       | $           | 263,957,500 |        | $          | 267,563,822 |       | $ | 244,135,169 |   |
| Buses                 |       | 59,396,203  |        | 56,112,684  |       | 47,547,153  |       |
| Armored vehicles      |       | 8,361,974   |        | 9,203,059   |       | 6,309,964   |       |
|                  |       | 331,715,677 |        | 332,879,565 |       | 297,992,286 |       |
| Composites            |       | 9,031,112   |        | 8,373,287   |       | 9,334,024   |       |
|                  |       | $           | 340,746,789 |        | $          | 341,252,852 |       | $ | 307,326,310 |   |

 

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The following is a briefsummary 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, 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-stop distributionof both fresh and frozen products.

IceOTherm insulated bodies.  IceOTherm is the high efficiency, lightweightinsulated body that provides superior load protection for hand-loadapplications.  Available in lengths of 10to 16 feet, the IceOTherm’s unique urethane foam and fiberglass body designcreates a lighter body, superior thermal efficiency, and a cleaner appearancethan traditional insulated bodies.

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

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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 atthe BusCon show in October 2006.  Thisluxury touring coach provides transportation for up to 39 passengers and ismarketed to church groups, retirement communities, colleges and other touringorganizations.  Production of theTourliner will begin in early 2007.

StarTrans® Activity Bus.   StarTrans® developed the Activity Bus during2006 and will be starting production in early 2007.  This bus is a stylish replacement for theformer 15 passenger van and is marketed to churches, schools, day care centersand 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.

Pony Xpress.  Pony Xpress manufacturers motorhomes,totorhomes and garages on a variety of OEM chassis.  The product provides towing capacity and mobilityfor a variety of hauling needs with the comforts of a traditional recreationvehicle.

Kold King®, Nordica®,Iner-City®, Spartan, StarTrans®, and Fuel Shark are tradenames used by Supremein its marketing of truck bodies and buses. Kold King®, Nordica®, Iner-City®, and StarTrans® are trademarksregistered in the U.S. Patent and Trademark Office.

The Silver Crown and PonyXpress products were added during 2006 with the Company’s acquisition of thebusiness operations and assets of Pony Xpress, Inc. (See Note 2 — BusinessAcquisition, of the Notes to Consolidated Financial Statements (Item 8).

Some examples ofspecialized vehicles that are not manufactured by Supreme are dump bodies,utility bodies and garbage packers. Neither Supreme nor any of its competitors manufacture every type ofspecialized vehicle.

**Manufacturing**

Supreme’s manufacturingfacilities 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 the capacity utilization of itsplants and equipment ranges from 60% to 90% of capacity when annualized on aone-shift basis.  At various times duringthe year, several of the Company’s plants operate at near capacity to fulfilllarge fleet order contracts.

Supreme buildsspecialized vehicles and installs other equipment on truck chassis, most ofwhich are provided by converter pool agreements or are owned by dealers orend-users.  These truck bodies are builton an assembly line from engineered structural components, such as floors,roofs, and wall panels.  These componentsare manufactured from Supreme’s proprietary designs and are installed on thetruck chassis.  Supreme then installsoptional equipment and applies any special finishes that the customer hasspecified.  At each step of themanufacturing and installation process, Supreme conducts quality controlprocedures to ensure that the products meet its customers’ specifications.  Supreme’s products are generally produced tofirm orders and are designed and engineered by Supreme.  Order levels will vary depending upon price,competition, prevailing economic conditions and other factors.

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Supreme is morevertically integrated than many of its competitors.  The Company manufactures its own fiberglassreinforced plywood, fiberglass parts, and has extensive roll forming and metalbending capabilities.  A portion of the excesscapacity of these fabrication capabilities is used to supply products to therecreational vehicle and marine industries. These component manufacturing facilities are located in Goshen andLigonier, Indiana.

Supreme provides limitedwarranties against construction defects in its products.  These warranties generally provide for thereplacement or repair of defective parts or workmanship for periods of up tofive years following the date of retail sale.

**Marketing**

Supreme normally sellsthe vehicle and/or equipment that has been installed on the chassis tocommercial dealers, distributors, fleet leasing companies or directly toend-users.  Products purchased by adealer from Supreme are sold by the dealer to its own customers.  Since Supreme or its distributors generallyservice all Supreme products sold by the dealers, each dealer is normallylocated within relatively close geographic proximity to Supreme or thedistributor supplying such dealer.

Supreme’sdistributor/dealer network consists of approximately 40 bus distributors, alimited number of truck equipment distributors and approximately 1,000commercial dealers.  Management believesthat this large network, coupled with Supreme’s geographically-dispersed plantand distribution sites, gives Supreme a distinct marketing advantage over itscompetitors.  Supreme generally deliversits products within 4 to 8 weeks after the receipt of orders.

Supreme directly marketsproducts in geographic areas where the Company does not have adistributor.  The Company currently hasdistribution/mounting facilities in or near the cities of St. Louis, Missouri;Louisville, Kentucky; Cleveland and Columbus, Ohio; Orlando, Florida; Houstonand San Antonio, Texas; Denver, Colorado and Harrisville, Rhode Island.

Approximately 85employees are engaged in direct sales. Supreme engages in direct advertising in trade publications, trade showsand cooperative advertising campaigns with distributors.

**Trademarks**

The Company owns andmaintains trademarks that are used in marketing specialized productsmanufactured by Supreme.  Managementbelieves that these trademarks have significant customer goodwill.  For this reason, Management anticipatesrenewing each trademark discussed above for an additional ten-year period priorto such trademark’s expiration.

**WorkingCapital**

The Company utilizes itsrevolving line of credit to finance its accounts receivable andinventories.  The Company believes itsdays sales outstanding and its days inventories on hand are within normalindustry levels.  The Company had workingcapital of $66.6 million and $60.8 million at December 30, 2006 and December31, 2005, respectively.

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**MajorCustomers**

No single customer, orgroup of customers, accounted for 10% or more of the Company’s net sales forthe fiscal years ended in 2006, 2005, and 2004. The Company’s export sales are not significant.

**Seasonalityof Business**

The Company’s business isgenerally not seasonal in nature due to the normal replacement cycle of itsproducts being approximately seven years. However, the Company historically has participated in bids for largefleet contracts and, if successful, is generally required to ship these fleetunits in the first and second quarters. Additionally, our business depends on various factors that areparticularly sensitive to general economic conditions and business cyclesincluding: corporate profitability, interest rates, fuel costs, changes ingovernment regulations (i.e. fuel standards), customer preferences, industrial,commercial, and consumer spending patterns, and availability of truck chassis.

**Employees**

As of December 30, 2006and December 31, 2005, the Company employed approximately 2,400 employees,respectively, none of whom are represented by a collective bargainingunit.  The Company considers itsrelations with its employees to be very favorable.

**BackLog**

The Company’s backlog offirm orders was $97.5 million at December 30, 2006 compared to $90.3 million atDecember 31, 2005.

**ExecutiveOfficers of the Registrant**

The name, age, businessbackground, positions held with the Registrant and tenure of each of theRegistrant’s executive officers are set forth below.  No family relationship exists among any ofthe executive officers.
| Name, Age, and Business  Experience                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | ** ** | **Served as  Executive  Officer Since** | ** ** | **Position(s) With  Company** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|-------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       |                                    | ** ** | ** **                    |
| Herbert M. Gardner, 67  Executive Vice President of Barrett-Gardner Associates, Inc., an investment  banking firm since November 2002 and previously Senior Vice President of  Janney Montgomery Scott LLC, investment bankers; Chairman of the Board of the  Company since 1979 and President of the Company from June 1992 to February  2006; Director of Rumson-Fair Haven Bank and Trust Company, a New Jersey  state independent, commercial bank and trust company; Director of Nu Horizons  Electronics Corp., an electronic component distributor; Director of TGC  Industries, Inc., a company engaged in the geophysical services industry; and  Director of Co-Active Marketing Group, Inc., a marketing and sales promotion  company. |       | 1979                                    |       | Chairman of the Board         |

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| Robert W. Wilson, 62  President and Chief Operating Officer of the Company since February 2006;  Executive Vice President of the Company from December 1992 through February  2006; Treasurer and Chief Financial Officer of the Company from December 1992  through April 2005; Vice President of Finance, Treasurer, and Assistant  Secretary of Supreme Corporation, a subsidiary of the Company, from 1998  through April 2005; co-holder of Office of the President of Supreme  Corporation from November 2000 through April 2005.                                                                                                                                                                                                                                                                               |   | 1992   |   | President and Chief Operating Officer                                                            |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |                                                                                             |
| William J. Barrett, 67  President of Barrett-Gardner Associates, Inc., an investment banking firm  since November 2002, and previously Senior Vice President of Janney  Montgomery Scott LLC, investment bankers; Secretary and Assistant Treasurer  of the Company and a Director since 1979 and Executive Vice President (Long  Range and Strategic Planning) of the Company since 2004; Chairman of the  Board and Director of Rumson-Fair Haven Bank and Trust Company, a New Jersey  state independent, commercial bank and trust company; a Director of TGC  Industries, Inc., a company engaged in the geophysical services industry; a  Director of MassMutual Corporate Investors, a closed-end investment company;  and a Director of MassMutual Participation Investors, a closed-end investment  company. |   | 1979   |   | Executive Vice President (Long Range and Strategic  Planning), Secretary and Assistant Treasurer |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |                                                                                             |
| Jeffery D. Mowery, 44  Treasurer and Chief Financial Officer of the Company since May 2005; Vice President  of Finance of Supreme Corporation, a subsidiary of the Company, since May  2005; and Controller of Supreme Corporation from April 1998 to May 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 2005   |   | Treasurer, Chief Financial Officer and Assistant  Secretary                                      |

 

**ITEM1A.               RISKFACTORS.**

Any investment in ourCommon Stock involves a high degree of risk. You should carefully consider the risks and uncertainties describedbelow and the other information included in this Form 10-K before purchasingour Common Stock.  Although the risksdescribed below are the risks that we believe are material, they are not theonly risks relating to our business and our Common Stock.  Additional risks and uncertainties, includingthose that are not yet identified or that we currently believe are immaterial,may also adversely affect our business, financial condition, or results ofoperations.  If any of the eventsdescribed below occur, our business and financial results could be materiallyand adversely affected.  The market priceof our Common Stock could decline due to any of these risks, perhapssignificantly, and you could lose all or part of your investment.

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**Increasesin the price and demand for steel and other raw materials could lower ourmargins and profitability.**

Supreme does not havelong-term raw material contracts and is dependent upon suppliers of steel,aluminum, wood products and fiberglass materials, for its manufacturingoperations. Consequently, our ability to produce and deliver our products couldbe affected by disruptions encountered by our raw material suppliers or freightcarriers.  Additionally, competitivemarket conditions may prevent the Company from implementing price increases tooffset 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 doesnot purchase vehicle chassis for its inventory. Supreme accepts shipment of vehicle chassis owned by dealers orend-users, for the purpose of installing and/or manufacturing its specializedtruck bodies and buses on such chassis. In the event of a labor disruption or other uncontrollable eventadversely affecting all or most of the companies which manufacture and/ordeliver such chassis, Supreme’s level of manufacturing could be substantiallyreduced.  The Company has establishedrelationships with all major chassis manufacturers.  In the event of a disruption in supply fromone manufacturer, the Company would attempt to divert its demand to the othermanufacturers.  Approximately 30% of thechassis involved in Supreme’s manufacturing have been secured through converterpool agreements with three major chassis manufacturers that provide for truckchassis pools at each of Supreme’s manufacturing facilities.

The Company also facesrisk relative to finance charges for maintaining excess chassis inventory.  Under these consigned inventory agreements,if the chassis is not delivered to a customer within a specified time frame,the Company is required to pay a finance charge on the chassis.

**Wecompete in the highly competitive specialized vehicle industry, which mayimpact our financial results.**

The competitive nature ofthe specialized vehicle industry creates a number of challenges for theCompany.  Important factors includeproduct pricing, quality of product, lead times, geographic proximity tocustomers and the ability to manufacture a product customized to customerspecifications.  Specialized vehicles areproduced by a number of smaller, regional companies, which create productpricing pressures that could adversely impact the Company’s profits.  Chassis manufacturers have not generallyshown an interest in manufacturing specialized vehicles, including truck bodiesand shuttle buses, because such manufacturers’ highly-automated assembly lineoperations do not lend themselves to the efficient production of a wide varietyof highly specialized vehicles with various options and equipment.

**Wehave potential exposure to environmental and health and safety liabilities,which may increase costs and lower profitability.**

Our operations aresubject to a variety of federal, state, and local environmental and health andsafety statutes and regulations, including those relating to emissions to theair, discharges to water, treatment, storage and disposal of waste, andremediation of contaminated sites.  Incertain cases, these requirements may limit the productive capacity of ouroperations.

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Certain laws, includingthe Federal Comprehensive Environmental Response, Compensation, and LiabilityAct of 1980, as amended, have imposed strict and, under certain circumstances,joint and several liability for costs to remediate contaminated sites upondesignated responsible parties including site owners or operators and personswho dispose of wastes at, or transport wastes to, such sites.

From time to time, wehave received notices of noncompliance with respect to our operations. Thesehave typically been resolved by investigating the alleged noncompliance andcorrecting any non compliant conditions. New environmental requirements, more aggressive enforcement of existingones, or discovery of presently unknown conditions could require materialexpenditures or result in liabilities which could limit expansion or otherwisehave a material adverse effect on our business, financial condition, andoperating 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 riskof exposure to product liability claims if the use of our current and formallymanufactured products result, or are alleged to result, in personal injuryand/or property damage.  If wemanufacture a defective product, we may experience material product liabilitylosses in the future.  In addition, wemay incur significant costs to defend product liability claims.  We could also incur damages and significantcosts in correcting any defects, lost sales, and suffer damage to ourreputation.  Our product liabilityinsurance coverage may not be adequate for liabilities we could incur and maynot continue to be available on terms acceptable to us.

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

We are subject to productwarranty claims in the ordinary course of our business.  If we manufacture poor quality products orreceive defective materials, we may incur unforeseen costs in excess of what wehave reserved in our financial statements. These costs could have a material adverse affect on our business andoperating 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 competesuccessfully and implement our business strategy depends on the efforts of oursenior management personnel.  The loss ofthe services of any one or more of these individuals could have a materialadverse effect on our business.  We donot maintain key-man life insurance policies on any of our executives.  If we were unable to attract qualifiedpersonnel to our management, our existing management resources could becomestrained which would harm our business and our ability to implement ourstrategies.

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

Our Class A Common Stockhas experienced, and may continue to experience, price volatility and lowtrading volumes.  Overall marketconditions, and other risk factors described herein, may cause the market priceof our Class A Common Stock to fall.  Ourhigh and low sales prices for the twelve months period ended December 30, 2006,were $8.00 and $6.05, respectively.  OurClass A Common Stock is listed on the American Stock Exchange under the symbol “STS.”  However, daily trading volumes for our ClassA Common Stock are, and may continue to be, relatively small compared to manyother public-traded securities.  Forexample, during the twelve months period ended December 30, 2006, 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 Common Stockmay, therefore, be volatile.

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

Our officers anddirectors as a group beneficially own approximately 33.2% of our Class A CommonStock and 90.9% of our Class B Common Stock. As a result, they will continue to be able to exercise significantinfluence, and in most cases, control, over matters requiring shareholderapproval, including the election of directors, changes to our charterdocuments, and significant corporate transactions.  This concentration of ownership makes itunlikely that any other holder or group of holders of our Class A Common Stockwill be able to affect the way we are managed or the direction of our business.

**Oursplit classes of stock may make it more difficult or expensive for a thirdparty to acquire the Company, which may adversely affect our stock price.**

Our outstanding CommonStock is split into two classes.  TheClass A Common Stock is listed on the American Stock Exchange, and the holdersthereof are entitled to elect three members of the Company’s Board ofDirectors.  The majority (90.9%) of theClass B Common Stock is owned or controlled by the Company’s officers and directorsand is 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 of theCompany’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).

(See other risk factorslisted under the following captions: Critical Accounting Policies and Estimates, Forward-Looking Statements,and Control Risks)

**ITEM1B.               UNRESOLVEDSTAFF COMMENTS.**

None

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**ITEM2.  PROPERTIES.**

Set forth below is abrief summary of the properties which are owned or leased by the Registrant asof December 30, 2006.
| ** **                        | ** ** | **Square**  | ** ** | **Owned or** | ** ** | ** **                 | ** ** |
|-----------------------------------|------------|-------------|------------|-------------------|------------|----------------------------|------------|
| ** **                        | ** ** | **Footage** | ** ** | **Leased**        | ** ** | **Operating Segment** | ** ** |
| Manufacturing of  Products        |       |        |       |              |       |                       |       |
| Jonestown,  Pennsylvania          |       | 429,376     |       | Owned             |       | Specialized  Vehicles      |       |
| Goshen, Indiana                   |       | 287,796     |       | Leased            |       | Specialized  Vehicles      |       |
| Goshen, Indiana                   |       | 195,939     |       | Owned             |       | Specialized  Vehicles      |       |
| Cleburne, Texas                   |       | 177,035     |       | Owned             |       | Specialized  Vehicles      |       |
| Woodburn, Oregon                  |       | 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      |       |
|                              |       | 1,591,045   |       |              |       |                       |       |
|                              |       |        |       |              |       |                       |       |
| Manufacturing of  Component Parts |       |        |       |              |       |                       |       |
| Goshen, Indiana                   |       | 57,570      |       | Owned             |       | Fiberglass  Products       |       |
| Ligonier,  Indiana                |       | 52,142      |       | Owned             |       | Fiberglass  Products       |       |
|                              |       | 109,712     |       |              |       |                       |       |
|                              |       |        |       |              |       |                       |       |
| Distribution                      |       |        |       |              |       |                       |       |
| Harrisville,  Rhode Island        |       | 20,000      |       | Owned             |       | Specialized  Vehicles      |       |
| 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              |       | 1,933,323   |       |              |       |                       |       |

 

11

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(1)                 During the thirdquarter of 2002, the Company ceased business operations at its facility inWilson, North Carolina.  Since then, theproperty has been, and continues to be, listed for sale; however, the Companyhas been unable to sell the property because of the economic conditions andexcess building facilities in this region of the country.

The facilitiesowned or leased by the Company are well maintained, in good condition andadequate for our purposes.

**ITEM 3.****                                                     LEGALPROCEEDINGS.**

The Company is subjectto various investigations, claims and legal proceedings covering a wide rangeof matters 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 ofoperations of the Company.

**ITEM 4.****                                                     SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS.**

No matters weresubmitted by the Company to a vote of the Company’s security holders, throughthe solicitation of proxies or otherwise, during the fourth quarter of the yearended December 30, 2006.

**PART II**

**ITEM 5.****                                                     MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER****MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.**

The Company’s Class ACommon Stock is traded on the American Stock Exchange (ticker symbol STS).  The number of record holders of the Class ACommon Stock as of March 20, 2007 was approximately 257.  Due to the number of shares held in nomineeor street name, it is likely that there are more than 257 beneficial owners ofthe Company’s Class A Common Stock.

The Company’s Class ACommon Stock closed at a price of $6.00 per share on the American Stock Exchangeon March 20, 2007 on which date there were 10,745,494 shares of Class A CommonStock outstanding.  High and low salesprices of the Class A Common Stock for the two-year period ended December 30,2006 were:

|             | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| ** **  | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| 1st Quarter |       | $        | 8.00       |     | $          | 7.20 |   | $ | 7.25 |   | $ | 6.20 |   |
| 2nd Quarter |       | 7.61     |       | 6.10     |       | 8.35 |   | 5.90 |   |
| 3rd Quarter |       | 7.28     |       | 6.05     |       | 9.50 |   | 7.27 |   |
| 4th Quarter |       | 6.89     |       | 6.05     |       | 9.56 |   | 7.35 |   |
|             |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

All of the 2,024,133outstanding shares of the Company’s Class B Common Stock were held by a totalof 14 persons as of March 20, 2007. There is no established trading market for the Class B CommonStock.  Class B Common Stock is freelyconvertible on a one-for-one basis into an equal number of shares of Class ACommon 

12

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Stock, and ownership ofthe Class B shares is deemed to be beneficial ownership of the Class A sharesunder Rule 13d-3(d) (1) promulgated under the Securities Exchange Act of 1934.

The Board of Directorsapproved the following cash dividends on its outstanding Class A and Class BCommon Stock during the years ended December 30, 2006 and December 31, 2005:

|                      | ** ** | ** **        | ** ** | ** **        | ** ** | **Cash Dividend** | ** ** |
|----------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| **Declaration Date** | ** ** | **Record Date**   | ** ** | **Paid Date**     | ** ** | **Per Share**     | ** ** |
|                 |       |              |       |              |       |              |       |
| 2005                 |       |              |       |              |       |              |       |
| January 28, 2005     |       | February 7, 2005  |       | February 14, 2005 |       | $                 | .035       |   |
| May 2, 2005          |       | May 16, 2005      |       | May 23, 2005      |       | $                 | .035       |   |
| June 6, 2005         |       | July 25, 2005     |       | August 1, 2005    |       | $                 | .095       |   |
| October 28, 2005     |       | November 14, 2005 |       | November 21, 2005 |       | $                 | .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 Directorshas expressed its intentions to continue the $.095 per share quarterly cashdividend indefinitely, business conditions permitting.

Performance Graph

The followinggraph compares the Company’s cumulative total stockholder return (assumingreinvestment of dividends) during the five-year period ended December 30, 2006with an overall stock market index (AMEX Composite Index) and the Company’speer group index (AMEX Sector Index - Industrial).  The data in the graph assumes $100 wasinvested on December 31, 2001.  The graphlines merely connect the beginning and the end of the measuring period and donot reflect fluctuation between those dates.

|                                       | ** ** | **12/31/01** | ** ** | **12/28/02** | ** ** | **12/27/03** | ** ** | **12/25/04** | ** ** | **12/31/05** | ** ** | **12/30/06** | ** ** |
|---------------------------------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|
| Supreme Industries,  Inc. (STS)       |       | $            | 100        |         | $          | 99           |       | $            | 157        |         | $          | 167          |       | $ | 203 |   | $ | 167 |   |
| AMEX Sector Index -  Industrial (XID) |       | $            | 100        |         | $          | 108          |       | $            | 158        |         | $          | 203          |       | $ | 250 |   | $ | 304 |   |
| AMEX Composite Index (XAX)            |       | $            | 100        |         | $          | 97           |       | $            | 138        |         | $          | 169          |       | $ | 208 |   | $ | 243 |   |

 

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**ITEM 6.****                                                     SELECTEDFINANCIAL DATA.**
| **Consolidated Income Statement Data:**               | ** ** | **For Fiscal Years Ended** | ** ** |
|----------------------------------------------------------------------|------------|-------------------------------------------|------------|
| **(in millions, except per share amounts)** | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| Net sales (a)                                                        |       | $                                         | 340.7      |   | $ | 341.3 |   | $ | 307.3 |   | $ | 224.9 |   | $ | 209.6 |   |
|                                                                 |       |                                      |       |   |   |   |   |   |   |   |   |
| Net income                                                           |       | 4.6                                       |       | 8.3 |   | 4.7 |   | 4.6 |   | 3.6 |   |
|                                                                 |       |                                      |       |   |   |   |   |   |   |   |   |
| Net income per share:  (b)                                           |       |                                      |       |   |   |   |   |   |   |   |   |
| Basic earnings  per share                                            |       | .36                                       |       | .67 |   | .39 |   | .39 |   | .30 |   |
| Diluted earnings  per share                                          |       | .36                                       |       | .65 |   | .38 |   | .38 |   | .30 |   |
|                                                                 |       |                                      |       |   |   |   |   |   |   |   |   |
| Cash dividends per  common share                                     |       | .38                                       |       | .26 |   | .14 |   | .03 |   | — |   |
|                                                                      |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| **Consolidated Balance Sheet Data:**           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **(in millions)**                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Working capital                                |       | $          | 66.6       |       | $          | 60.8       |       | $          | 50.9       |       | $          | 42.9 |   | $ | 29.3 |   |
|                                           |       |       |       |       |       |       |       |       |       |       |       |
| Total assets                                   |       | 142.1      |       | 137.4      |       | 129.2      |       | 106.3      |       | 87.9       |       |
|                                           |       |       |       |       |       |       |       |       |       |       |       |
| Long-term debt  (excluding current maturities) |       | 38.9       |       | 31.4       |       | 28.8       |       | 17.4       |       | 7.4        |       |
|                                           |       |       |       |       |       |       |       |       |       |       |       |
| Stockholders' equity                           |       | 75.2       |       | 75.2       |       | 67.6       |       | 63.6       |       | 59.0       |       |
|                                                |            |            |            |            |            |            |            |            |            |            |            |  |  |  |  |  |

----

(a)             Netsales for 2002-2005 have been adjusted from amounts previously reported as"Revenue" to exclude other income and report only net sales.

(b)            Allper share amounts for 2002 have been adjusted for the common stock dividendpaid on October 16, 2003.

**ITEM 7.****                                                     MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL****CONDITION AND RESULTS OF OPERATIONS.**

**Comparisonof 2006 with 2005**

***Net Sales***

Net sales for theyear ended December 30, 2006 decreased $.6 million, or .2%, to $340.7 millioncompared to $341.3 million for the year ended December 31, 2005.  The slight decrease in net sales wasprimarily attributable to an 18% reduction in our fleet sales.  An industry-wide reduction in truck purchasescontributed to lower fleet sales but this was offset by increases in our coredry freight product line and our StarTrans Bus Division which increased 3% and6%, respectively.  We partially attributethe increased retail demand of our dry freight product line to customers buying2006 chassis to avoid the higher cost of 2007 chassis.  New, more stringent diesel engine emissionstandards became effective for engines produced beginning January 1, 2007.  Though difficult to predict with certainty,we believe this revenue acceleration which benefited 2006 could, and mostlikely will have an adverse impact on our retail dry freight truck product lineand possibly other products in 2007. However, because of our broad and diverseproduct line, we are hopeful of mitigating the effect on second half 2007revenues. The increased StarTrans Bus Division revenues were the result of astrong demand for mid-size buses and a new cycle of Transit Authoritypurchasing.  Our total sales backlog was$97.5 million at December 30, 2006 compared to $90.3 million at December 31,2005.

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On February 28, 2006, weacquired the business operations and assets of Pony Xpress, Inc. (“Pony Xpress”),a manufacturer of highly-specialized vehicles. Though a relatively small acquisition, it provides us with the platformfor our newly formed “Silver Crown” operations. Silver Crown has unique manufacturing expertise that will enable ourentry into additional highly specialized vehicle markets including HomelandSecurity.  In the fourth quarter of 2006,the Company introduced a higher-end product which is being marketed under theSilver Crown name 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 and Gross Profit***

Gross profitdecreased by $3.5 million, or 8.5%, to $37.6 million (11.0% of net sales) forthe 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 the components of cost of sales as apercentage of net sales for 2006 and 2005 and the 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 was 56.8% in2006 compared to 56.6% in 2005.  Theslight increase of .2% is primarily due to our growing StarTrans Bus Divisionand our newly acquired Silver Crown division, which have a higher materialcontent and accounted for a larger portion of our total sales volume in2006.  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.

Wecontinue to closely monitor and manage our major commodity costs through closecommunication and negotiation with key suppliers, utilizing cost monitoringtools and developing strategies to mitigate cost and availability issues.  The Company also continually strives toreduce the cost of its product offerings through the development and use ofinnovative materials, robotics and improved processes.

Historically, theCompany has experienced and recorded both favorable and unfavorable physicalinventory adjustments.  In the thirdquarter of fiscal year 2006, the Company recorded a $1.9 million favorableinventory adjustment compared to a $1.1 million unfavorable adjustment recordedin the third quarter of fiscal year 2005. 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. Beginning in late 2005 and throughout 2006, the Company intensifiedits bills of material accuracy initiatives and cost relief systems and methodsin conjunction with performing additional interim physical inventories andrecording any adjustments relating thereto. In 2006, the Company improved its bills of materials accuracy withoutchanging its cost relief adjustment to account for these improvements,resulting in the favorable inventory adjustment. The more frequent physicalinventories and the continued improvements from the process improvementinitiatives should enable the Company to continue to reduce the magnitude ofphysical inventory adjustments.

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**DirectLabor** — Direct labor as a percentage of net sales was 14.3%in 2006 compared to 14.0% in 2005.  Thedirect labor percentage increase was the result of a delay in OEM suppliedchassis in the first quarter that caused the Company to temporarily shut downproduction lines, thereby negatively affecting labor and overheadabsorption.  Despite these challenges,direct labor as a percentage of net sales remained relatively constant for bothyears.

**Overhead**— Overhead as a percentage of net sales was 15.1% in 2006 compared to 14.5% in2005.  The increase was primarily due tohigher workers’ compensation costs. These costs increased $1.0 million, or 109%, year-over-year, due toincreased high-dollar claims. In an effort to reduce future claims, the Companyimplemented additional safety programs. The Company’s 2006 accident incident rate improved approximately 23%when compared to 2005. Other increases in overhead included higher repairs andmaintenance costs and utility costs, which increased 21% and 12%, respectively.

**Delivery**— Delivery expense as a percentage of net sales was constant at 2.8% for bothyears ended December 30, 2006 and December 31, 2005.  The Company utilized more cost effectiveoutside delivery methods versus using its employees and owned equipment todeliver units.  However, fuel costsremain a concern and the Company will continue to attempt to pass on higherfuel costs despite competitive pressures in its marketplace.

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

Selling, generaland 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. Thefollowing table presents selling and G&A expenses as a percentage of netsales 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                     | %          |

 

**Sellingexpenses** — Selling expenses increased by $1.4 million, or13.9%, to $11.5 million for the year ended December 30, 2006 from $10.1 millionfor the year ended December 31, 2005. The increased selling expenses relate primarily to highercompensation-related costs from adding corporate sales positions and a newsales force associated with our newly formed Silver Crown entity.  In addition, the Company experienced areduction in cooperative marketing funds received from chassis manufacturers.These funds, determined solely by programs established by the chassismanufacturers, have historically been used to help offset marketing andpromotional expenses.   To promote theCompany’s expanding and extensive product lines, the Company also experiencedhigher show and related expenses in 2006.

**G&Aexpenses** — General and administrative expenses decreased by$.1 million, or .6% to $17.0 for the year ended December 30, 2006 from $17.1million for the 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 byincreases in G&A wages related to our newly formed Silver Crown entity andthe addition of a new corporate position to focus on special projects.

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***OtherIncome***

Other income forthe year ended December 30, 2006 decreased to $.6 million from $.8 million forthe year ended December 31, 2005. Other income consists of rental income, gainon sale of assets and other miscellaneous income received by the Companythrough its various business activities.

***InterestExpense***

Interest expenseincreased by approximately $1.0 million, or 47.6%, to $3.1 million (.9% of netsales) for the year ended December 30, 2006 from $2.1 million (.6% of netsales) for the year ended December 31, 2005. The increase in interest expenseresulted from increased borrowings under the Company’s working capital line ofcredit, higher interest rates and increased levels of chassis inventory.  The increased chassis levels related to thenew Silver Crown product line, chassis from our armored product line and anunanticipated slow down in the light-duty truck market.  To mitigate the effect of higher interestrates, in July 2005, the Company entered into an interest rate swap agreementto reduce the impact of increasing interest rates on certain of its floatingrate debt.  The swap agreement exchangesthe debt obligation’s floating rate for fixed rate interest payments over theterm of the swap agreement.

***IncomeTaxes***

The Company’seffective income tax rate was 30.2% for 2006 compared to 34.2% for 2005. The2006 favorable reduction in the effective income tax rate was due to a changein the Company’s applicable federal tax bracket to 34% compared to 35% in 2005,resulting from lower levels of pre-tax income. The 2006 rate was also favorablyimpacted by tax-exempt underwriting income of a wholly-owned small captiveinsurance subsidiary, by the additional tax deduction allowed manufacturersunder the 2004 American Jobs Creation Act and federal and state research anddevelopment tax credits.

***NetIncome and Earnings Per Share***

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

Basic earnings pershare decreased $.31 per share, or 46% to $.36 per share for the year endedDecember 30, 2006 from $.67 per share for the year ended December 31, 2005.

Diluted earningsper share decreased $.29 per share, or 45% to $.36 per share for the year endedDecember 30, 2006 from $.65 per share for the year ended December 31, 2005.

**Liquidityand Capital Resources**

Cash generatedfrom operations and borrowings from the Company’s revolving line of credit weremajor sources of cash flows during 2006. The Company’s cash management systemand revolving line of credit are designed to maintain zero cash balances and,accordingly, excess cash generated from operations is utilized to reduceborrowings.

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***Operatingactivities***

Operatingactivities provided $1.7 in 2006 compared to $4.9 million in 2005. In 2006, netincome adjusted for depreciation was the largest source of cash flows fromoperating activities totaling $4.6 million and $4.3 million, respectively.Operating cash flows for 2006 were negatively impacted by the $1.6 millionincrease in accounts receivable, the $2.5 million increase in inventories andthe $2.3 million reduction in trade accounts payable. Working capital increased$5.8 million during 2006, principally due to higher levels of accountsreceivables, inventories and the working capital requirements associated withthe our new Silver Crown operation. In addition, inventories increased as aresult of pre-building component parts for the 2007 fleet production andchassis purchases for our new Silver Crown operation.

***Investingactivities***

Investingactivities used $4.6 million of cash in 2006 compared to $6.8 million in 2005.

Major capitalexpenditures in 2006 related to the purchase of a manufacturing facilitylocated in White Pigeon, Michigan, for the expansion of the acquired operationsof Pony Xpress, a purchase of a manufacturing facility in Ligonier, Indiana anda land purchase in Goshen, Indiana. Major capital disposals included the sale ofone of our manufacturing facilities in Pennsylvania as a result of relocatingto a larger and more efficient facility in 2005. A gain of $63,000 was recordedon the sale of this facility. The Company intends to have lower levels ofadditions to property, plant and equipment in 2007.

***Financingactivities***

Financingactivities provided $2.7 million in 2006 compared to $1.7 million in 2005. Thehigher levels of financing activities occurred as a result of a decrease inoperating cash flows and the acquisition and startup costs associated withSilver Crown. The Company’s board of directors approved an increase in ourquarterly cash dividend from three and one-half cents per share to nine andone-half cents per share beginning with the third quarter 2005 cash dividend.Cash dividends paid in 2006 were $4.8 million compared to $3.3 million in 2005.The Company also received $33,000 from the exercise of stock options in 2006compared to $2.2 million in 2005.

In order tosupport our continued growth and product introductions, the Company’s revolvingline of credit was amended and increased by $5.0 million effective November 1,2006. All borrowings under the revolving line of credit remain unsecured.

**Comparisonof 2005 with 2004**

***NetSales***

Net sales for theyear ended December 31, 2005 increased $34.0 million, or 11.1%, to $341.3million compared to $307.3 for the year ended December 25, 2004. The increasein net sales was primarily attributable to selling price increases implementedin 2004 and 2005. These selling price increases were implemented in an effortto combat escalating raw material costs. Prior to these increases, the Companyhad not had a price increase since June 2000. Net sales for our core dryfreight product line increased 9.5%, including an increase in shipments to ourmajor fleet customers of 19%. Additionally, net sales of our bus divisionincreased 19% and our armored division net sales increased 46%. Our salesbacklog was a strong $90.3 million at December 31, 2005 slightly higher thanthe $89.1 million backlog at December 25, 2004.

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***Costof Sales and Gross Profit***

Gross profitincreased by $10.3 million, or 33.4%, to $41.1 million (12.1% of net sales) forthe year ended December 31, 2005 compared to $30.8 million (10.0% of net sales)for the year ended December 25, 2004. The following table presents thecomponents of cost of sales as a percentage of net sales for 2005 and 2004 andthe changes from 2004:

|               | ** ** | **2005** | ** ** | **2004** | ** ** | **Percent Change** | ** ** |
|---------------|------------|----------|------------|----------|------------|-------------------------|------------|
| Material      |       | 56.6     | %          | 57.6     | %          | -1.0                    | %          |
| Direct labor  |       | 14.0     |       | 15.0     |       | -1.0                    |       |
| Overhead      |       | 14.5     |       | 14.3     |       | 0.2                     |       |
| Delivery      |       | 2.8      |       | 3.1      |       | -0.3                    |       |
| Cost of sales |       | 87.9     |       | 90.0     |       | -2.1                    |       |
| Gross profit  |       | 12.1     | %          | 10.0     | %          | 2.1                     | %          |

 

**Material**- Material cost as a percentage of net sales was 56.6% in 2005 compared to57.6% in 2004. During 2005, our raw material costs stabilized from the volatilecommodity cost environment of 2004, and consequently, our 2005 material cost asa percentage of net sales benefited from the selling price increasesweimplemented. We continue to closely monitor our major commodities costs andare particularly concerned with the future cost of aluminum and the future costand availability of hardwood flooring. Communication with key suppliers isongoing, monitoring tools are in place and strategies to mitigate cost and availabilityissues are at the forefront of our planning activities.

Due to thecomplexity of our manufacturing processes and diverse product line, Supreme hashistorically recorded both favorable and unfavorable annual physical inventoryadjustments. To a large degree, this situation relates to Supreme’s commitmentto provide a high level of product customization through engineering and designin order to meet the particular and unique transportation needs of ourcustomers. The 2005 physical inventory adjustments were a net unfavorableadjustment in the third quarter of $1.1 million and a net favorable adjustmentin the fourth quarter of $.2 million.

**DirectLabor** - Direct labor as a percentage of net sales was 14.0%in 2005 compared to 15.0% in 2004. Our direct labor percentage benefited fromthe selling price increases and also improved as a result of incremental netsales to our large fleet customers. These large orders of standardized unitscreate labor efficiencies that are not attainable with our customized retailunits.

**Overhead**- Overhead as a percentage of net sales was 14.5% in 2005 compared to 14.3% in2004. Despite the higher net sales experienced in 2005, the Company was notable to achieve a lower overhead rate as a percentage of net sales principallydue to increased amounts of group health insurance claim costs. These costsincreased $2.6 million, or 103.4%, year-over-year. The Company has introducedwellness programs to its employees and made design changes to its group healthplan in an effort to control future claim costs. 

**Delivery**- Delivery expense as a percentage of net sales was 2.8% in 2005 compared to3.1% in 2004. Delivery expenses remained relatively flat as the Companyutilized more cost effective outside delivery methods versus using itsemployees and owned equipment to deliver units.

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

Selling, generaland administrative (“G&A”) expenses increased by $2.8 million, or 11.5%, to$27.1 million (8.0% of net sales) for the year ended December 31, 2005 from$24.3 million (7.9% of net sales) for the year ended December 25, 2004. Thefollowing table presents selling and G&A expenses as a percentage of netsales and the changes from year to year:

|                  | ** ** | **2005** | ** ** | **2004** | ** ** | **Percent Change** | ** ** |
|------------------|------------|----------|------------|----------|------------|-------------------------|------------|
| Selling expenses |       | 3.0      | %          | 3.1      | %          | -0.1                    | %          |
| G&A expenses |       | 5.0      |       | 4.8      |       | 0.2                     |       |
| Total            |       | 8.0      | %          | 7.9      | %          | 0.1                     | %          |

 

**Sellingexpenses** - Selling expenses increased by $.5 million, or5.2%, to $10.1 million for the year ended December 31, 2005 from $9.6 millionfor the year ended December 25, 2004. The higher selling expenses relatedprimarily to a reduction in cooperative marketing funds the Company receivesfrom chassis manufacturers. These funds, determined solely by programsestablished by the chassis manufacturers, have historically been used to offsetmarketing and promotional expenses. To a lesser extent, selling expenses werehigher due to compensation-related costs associated with the increase in netsales.

**Generaland administrative expenses** - General and administrativeexpenses increased by $2.3 million, or 15.6%, to $17.0 million for the yearended December 31, 2005 from $14.7 million for the year ended December 25,2004. The increase in general and administrative expenses was primarilyassociated with the increase in incentive pay tied directly to the increase inpretax income.

***OtherIncome***

Other income forthe year ended December 31, 2005 increased to $.8 million from $.6 million forthe year ended December 25, 2004. Other income consists of interest income,rental income, gain on sale of assets and other miscellaneous income receivedby the Company through its various business activities.

***InterestExpense***

Interest expenseincreased by $1.1 million, or 110.0%, to $2.1 million (.6% of net sales) forthe year ended December 31, 2005 from $1.0 million (.3% of net sales) for theyear ended December 25, 2004. The increase in interest expense resulted fromhigher levels of borrowings against the Company’s revolving line of credit andhigher short-term interest rates. The additional borrowings were utilized tofinance strategic plant expansions and additional levels of working capital. InJune 2005, the Company entered into an interest rate swap agreement in aneffort to mitigate the effect of the rising interest rate environment. The swapagreement exchanges the debt obligation’s floating rate for fixed rate interestpayments over the term of the swap agreement.

20

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***Income Taxes***

The Company’seffective income tax rate was 34.2% for 2005 compared to 22.2% for 2004.  The 2005 rate was favorably impacted bytax-exempt underwriting income of a wholly-owned small captive insurancesubsidiary and by the additional tax deduction allowed manufacturers under the2004 American Jobs Creation Act and certain tax credits.  The 2004 rate was favorably impacted byresearch and development tax credits claimed on amended tax filings and thereversal of tax reserves no longer required.

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

Net incomeincreased by $3.6 million, or 76.6%, to $8.3 million (2.4% of net sales) forthe year ended December 31, 2005 from $4.7 million (1.5% of net sales) for theyear ended December 25, 2004.

Basic earningsincreased $.28 cents per share, or 71.8%, to $.67 cents per share for the yearended December 31, 2005 from $.39 cents per share for the year ended December25, 2004.

Diluted earningsincreased $.27 cents per share, or 71.1%, to $.65 cents per share for the yearended December 31, 2005 from $.38 cents per share for the year ended December25, 2004.

**ContractualObligations**

Our fixed, noncancelableobligations as of December 30, 2006 were as follows:
| ** **           | ** ** | **Payments  due by period** | ** ** |
|----------------------|------------|-----------------------------|------------|
| ** **           | ** ** | ** **                  | ** ** | **Less than** | ** ** | **1-3** | ** ** | **3-5** | ** ** | **More than** | ** ** |
| ** **           | ** ** | **Total**                   | ** ** | **1 Year** | ** ** | **Years** | ** ** | **Years** | ** ** | **5 Years** | ** ** |
| Debt (a)             |       | $                           | 40,670,654 |   | $ | 1,807,425 |   | $ | 36,008,097 |   | $ | 2,087,365 |   | $ | 767,767 |   |
| Operating leases (b) |       | 2,932,000                   |       | 789,000 |   | 1,568,000 |   | 575,000 |   | — |   |
| Total                |       | $                           | 43,602,654 |   | $ | 2,596,425 |   | $ | 37,576,097 |   | $ | 2,662,365 |   | $ | 767,767 |   |

 

----

(a)             Amountsare included on the Consolidated Balance Sheets.  See Note 6 of the Notes to ConsolidatedFinancial Statements foradditionalinformation regarding debt and related matters.

(b)            SeeNote 10 of the Notes to Consolidated Financial Statements for additionalinformation regarding operating leases.

** **

**CriticalAccounting Policies and Estimates**

Management’sdiscussion and analysis of its financial position and results of operations arebased upon the Company’s consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States of America.  Thepreparation of these financial statements requires Management to make estimatesand judgments that affect the reported amounts of assets, liabilities, revenuesand expenses and related disclosure of contingent assets and liabilities.  The Company’s significant accounting policiesare discussed in Note 1 of the Notes to Consolidated Financial Statements.  In Management’s opinion, the Company’s criticalaccounting policies include revenue recognition, allowance for doubtfulaccounts, excess and obsolete inventories, inventory relief, accrued insuranceand accrued warranty.

RevenueRecognition — The Company generally recognizes revenue when the unit is shippedto the customer.  Revenue on certaincustomer requested bill and hold transactions is recognized subsequent to whenthe customer is notified that the product(s) 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.

21

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Allowance forDoubtful Accounts - The Company maintains an allowance for doubtful accountsfor estimated losses resulting from the inability of our customers to makerequired payments.  If the financialcondition of our customers were to deteriorate, resulting in an impairment oftheir ability to make payments, additional allowances may be required whichwould affect our future operating results.

Excess and ObsoleteInventories - The Company must make estimates regarding the future use of rawmaterials and finished products and provides a provision for obsolete orslow-moving inventories.  If actualproduct life cycles, product demand or market conditions are less favorablethan those projected by Management, additional inventory write-downs may berequired which would affect future operating results.

Inventory Relief -For monthly and quarterly financial reporting, cost of sales is recorded andinventories are relieved by the use of gross profit percentage method, standardbills of material, adjusted for scrap and other estimated factors affectinginventory relief.  Because of thecustomized nature of the Company’s products, it is difficult to place fullreliance 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.  Theestimate calculations consider the customized nature of products, historicalinventory relief percentages, scrap variances and other factors which couldimpact inventory relief.  The accuracy ofthe inventory relief is not known until interim and or annual physicalinventories are conducted at each of the Company’s plant locations.

During 2005, theCompany’s annual physical inventories resulted in a net unfavorable adjustmentof $1.1 million which was recorded in the third quarter of 2005.  Subsequent to the 2005 third quarter adverseinventory adjustments, Management dedicated significant in-house resources torefining bills of materials, improving cost accounting functions andinstituting new inventory policies and procedures.  In addition, Management implemented morefrequent physical inventories at certain locations.

The third quarterof 2006 was favorably impacted by $1.9 million of inventory adjustmentsresulting from physical inventories. These inventories were conducted during June, July and August at all theCompany’s plant locations, with most of the adjustment attributable toinventory quantity adjustments.  Becausethe Company does not have perpetual inventory systems to track inventoryquantities for raw materials and work-in-progress and it is not alwayspractical or cost beneficial to cease production to conduct physicalinventories, the Company has continued to be dependent on physical inventoryprocedures and such favorable or unfavorable adjustments are historicallymaterial to the quarterly period in which such adjustments are recorded.  Further, it is not possible to determine theimpact of physical inventory adjustments on prior interim periods, since data oninterim inventory quantities is not available.

Accrued Insurance- The Company has a self-insured retention against product liability claimswith insurance coverage over and above the retention.  The Company is also self-insured for aportion of its employee medical benefits and workers’ compensation.  Product liability claims are routinelyreviewed by the Company’s insurance carrier and Management routinely reviewsother self-insurance risks for purposes of establishing ultimate lossestimates.  In addition, Management mustdetermine estimated liability for claims incurred but not reported.  Such estimates and any subsequent changes inestimates may result in adjustments to our operating results in the future.

22

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Effective January1, 2005, the Company began utilizing its newly formed and wholly-owned smallcaptive insurance company to insure certain of its business risks.  Certain risks, previously self-insured by theCompany and its subsidiaries, are now insured by the captive insurancesubsidiary.  In addition, certainbusiness risks not previously insured are now insured by the captive insurancesubsidiary.  Since the captive insurancecompany has not reinsured any of its coverages, the Company’s overallself-insurance risk has not changed.  Thecaptive insurance subsidiary is expected to help the Company manage its riskexposures and under the Internal Revenue Code the net underwriting income of asmall captive, as defined, is not taxable.

Accrued Warranty -The Company provides limited warranties for periods of up to five years fromthe date of retail sale.  Estimatedwarranty costs are provided at the time of sale and are based upon historicalexperience.

**Pending Accounting Pronouncements**

SeeRecent Accounting Pronouncements in Note 1 of Notes to Consolidated FinancialStatements.

**Forward-Looking Statements**

This reportcontains forward-looking statements, other than historical facts, which reflectthe 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 currently availableto, Management.  Although Managementbelieves that the expectations reflected in such forward-looking statements arereasonable, it can give no assurance that the expectations reflected in suchforward-looking statements are reasonable, and it can give no assurance thatsuch expectations will prove to be correct. Important factors that could cause actual results to differ materiallyfrom such expectations include, without limitation, limitations on theavailability of chassis on which the Company’s product is dependent,availability of raw materials, raw material cost increases and severe interestrate increases.  Furthermore, the Companycan provide no assurance that such raw material cost increases can be passed onto its customers through implementation of price increases for the Company’sproducts.  The forward-looking statementscontained herein reflect the current view of Management with respect to futureevents and are subject to those factors and other risks, uncertainties andassumptions relating to the operations, results of operations, cash flows andfinancial position of the Company.  TheCompany assumes no obligation to update the forward-looking statements or toupdate the reasons actual results could differ from those contemplated by suchforward-looking statements.

23

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**Control Risks**

While the Companybelieves its control systems are effective, there are inherent limitations inall control systems, and misstatements due to error or fraud may occur and notbe detected.  The Company continues to takeaction to assure compliance with the internal controls, disclosure controls andother requirements of the Sarbanes-Oxley Act of 2002.  Management, including our Chief ExecutiveOfficer and Chief Financial Officer, cannot guarantee that our internalcontrols and disclosure controls will prevent all possible errors or allfraud.  A control system, no matter howwell 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 system mustreflect the fact that there are resource constraints, and the benefit ofcontrols must be relative to their costs. Because of the inherent limitations in all control systems, no system ofcontrols can provide absolute assurance that all control issues and instancesof fraud, if any, within the Company have been detected.  These inherent limitations include therealities that judgments in decision-making can be faulty and that breakdownscan occur because of simple error or mistake. Further, controls can be circumvented by individual acts of somepersons, by collusion of two or more persons, or by Management override of thecontrols.  The design of any system ofcontrols is also based in part upon certain assumptions about the likelihood offuture events, and there can be no assurance that any design will succeed inachieving its stated goals under all potential future conditions.  Over time, a control may be inadequatebecause of changes in conditions or the degree of compliance with the policiesor procedures may deteriorate.  Becauseof inherent limitations in a cost-effective control system, misstatements dueto error or fraud may occur and not be detected.

**ITEM 7A.               QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

In the normalcourse of business, operations of the Company are exposed to fluctuations ininterest rates.  These fluctuations canvary 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 30, 2006,the Company was party to 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 30, 2006.

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

 

Based on theCompany’s overall interest rate exposure at December 30, 2006, a hypothetical10 percent change in interest rates applied to the fair value of the financialinstruments as of December 30, 2006, would have no material impact on earnings,cash flows or fair values of interest rate risk sensitive instruments over aone-year period.

24

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**ITEM8.  FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA.**
| Index to Financial  Statements                                                                                                       | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| 1.  Financial  Statements:                                                                                                 |       |       |
|                                                                                                                                 |       |       |
| Report of Crowe Chizek and Company LLC, Independent  Registered Public Accounting Firm                                               |       |       |
|                                                                                                                                 |       |       |
| Consolidated Balance Sheets as of December 30, 2006  and December 31, 2005                                                           |       |       |
|                                                                                                                                 |       |       |
| Consolidated Statements of Income for the years ended  December 30, 2006, December 31, 2005 and December 25, 2004                    |       |       |
|                                                                                                                                 |       |       |
| Consolidated Statements of Stockholders’ Equity for  the years ended December 30, 2006, December 31, 2005 and December 25, 2004 |       |       |
|                                                                                                                                 |       |       |
| Consolidated Statements of Cash Flows for the years  ended December 30, 2006, December 31, 2005 and December 25, 2004                |       |       |
|                                                                                                                                 |       |       |
| Notes to Consolidated Financial Statements                                                                                           |       |       |
|                                                                                                                                 |       |       |
| 2.  Financial  Statement Schedule:                                                                                         |       |       |
|                                                                                                                                 |       |       |
| Schedule  II - Valuation and Qualifying Accounts for the years ended December 30, 2006,  December 31, 2005 and December 25, 2004     |       |       |
|                                                                                                                                 |       |       |
| All other schedules are omitted because they are not  applicable.                                                                    |       |       |
|                                                                                                                                 |       |       |
| 3.  Supplementary  Data                                                                                                    |       |       |
|                                                                                                                                 |       |       |
| Quarterly Results (Unaudited)                                                                                                        |       |       |

 

25

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

To the Board of Directorsand Stockholders ofSupreme Industries, Inc.:

We have auditedthe accompanying consolidated balance sheets of Supreme Industries, Inc. andits subsidiaries as of December 30, 2006 and December 31, 2005, and the relatedconsolidated statements of income, stockholders’ equity and cash flows for eachof the three years in the period ended December 30, 2006.  Our audits also included the financialstatement schedule, Schedule II - Valuation and Qualifying Accounts.  These financial statements and financialstatement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements and financial statement schedule based on ouraudits.

We conducted ouraudits in accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  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 above present fairly, in allmaterial respects, the financial position of Supreme Industries, Inc. and itssubsidiaries as of December 30, 2006 and December 31, 2005, and the results oftheir operations and their cash flows for each of the three years in the periodended December 30, 2006 in conformity with accounting principles generallyaccepted in the United States of America. In addition, in our opinion, the financial statement schedule referredto above, when considered in relation to the basic financial statements takenas a whole, presents fairly, in all material respects, the information requiredto be included therein.

/s/CroweChizek and Company LLC

South Bend, Indiana

February 5, 2007

 

26

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**SupremeIndustries, Inc. And Subsidiaries**

**Consolidated Balance Sheets**

*December30, 2006 and December 31, 2005*
| ** **                                                                                                                                                                                | ** ** | **2006**    | ** **  | **2005**    | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| **ASSETS**                                                                                                                                                                                | ** ** | ** **  | ** **  | ** **  | ** ** |
| **Current assets:**                                                                                                                                                                       | ** ** | ** **  | ** **  | ** **  | ** ** |
| Cash and cash  equivalents                                                                                                                                                                |       | $           | 1,307,463   |        | $          | 1,515,532 |   |
| Investments                                                                                                                                                                               |       | 1,542,101   |        | 1,168,922   |       |
| Accounts  receivable, net of allowance for doubtful accounts of $160,000 in 2006                                                                                                          |       |        |        |        |       |
| and $252,000 in  2005                                                                                                                                                                     |       | 31,116,276  |        | 29,594,819  |       |
| Refundable  income taxes                                                                                                                                                                  |       | 589,000     |        | 904,291     |       |
| Inventories                                                                                                                                                                               |       | 53,506,367  |        | 50,730,205  |       |
| Property held  for sale                                                                                                                                                                   |       | —      |        | 1,877,234   |       |
| Deferred income  taxes                                                                                                                                                                    |       | 1,022,292   |        | 827,669     |       |
| Other current  assets                                                                                                                                                                     |       | 2,611,413   |        | 1,991,105   |       |
| **Total  current assets**                                                                                                                                                                 |       | 91,694,912  |        | 88,609,777  |       |
|                                                                                                                                                                                      |       |        |        |        |       |
| **Property, plant and equipment,  net**                                                                                                                                                   |       | 48,389,483  |        | 47,457,713  |       |
|                                                                                                                                                                                      |       |        |        |        |       |
| **Intangible assets, net**                                                                                                                                                                |       | 685,247     |        | —      |       |
|                                                                                                                                                                                      |       |        |        |        |       |
| **Goodwill**                                                                                                                                                                              |       | 735,014     |        | 735,014     |       |
| ** **                                                                                                                                                                                | ** ** | ** **  | ** **  | ** **  | ** ** |
| **Other assets**                                                                                                                                                                          |       | 620,064     |        | 549,350     |       |
| **Total  assets**                                                                                                                                                                         |       | $           | 142,124,720 |        | $          | 137,351,854 |   |
|                                                                                                                                                                                      |       |        |        |        |       |
| **LIABILITIES  AND STOCKHOLDERS' EQUITY**                                                                                                                                                 | ** ** | ** **  | ** **  | ** **  | ** ** |
|                                                                                                                                                                                      |       |        |        |        |       |
| **Current liabilities:**                                                                                                                                                                  | ** ** | ** **  | ** **  | ** **  | ** ** |
| Current  maturities of long-term debt                                                                                                                                                     |       | $           | 1,807,425   |        | $          | 1,816,092 |   |
| Trade accounts  payable                                                                                                                                                                   |       | 13,508,441  |        | 15,675,073  |       |
| Accrued wages  and benefits                                                                                                                                                               |       | 3,484,757   |        | 4,257,201   |       |
| Accrued  self-insurance                                                                                                                                                                   |       | 2,716,101   |        | 2,664,746   |       |
| Accrued warranty                                                                                                                                                                          |       | 1,541,000   |        | 1,385,000   |       |
| Accrued income  taxes                                                                                                                                                                     |       | 495,678     |        | 380,721     |       |
| Other accrued  liabilities                                                                                                                                                                |       | 1,576,192   |        | 1,640,923   |       |
| **Total  current liabilities**                                                                                                                                                            |       | 25,129,594  |        | 27,819,756  |       |
|                                                                                                                                                                                      |       |        |        |        |       |
| **Long-term debt**                                                                                                                                                                        |       | 38,863,229  |        | 31,378,367  |       |
|                                                                                                                                                                                      |       |        |        |        |       |
| **Deferred income taxes**                                                                                                                                                                 |       | 2,923,216   |        | 2,988,275   |       |
| **Total  liabilities**                                                                                                                                                                    |       | 66,916,039  |        | 62,186,398  |       |
|                                                                                                                                                                                      |       |        |        |        |       |
| **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 13,155,160 shares  in 2006 and 13,041,826 in 2005                                                             |       | 1,315,516   |        | 1,304,183   |       |
| 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 2006 and  2,109,133 in 2005 |       | 202,413     |        | 210,913     |       |
| Additional  paid-in capital                                                                                                                                                               |       | 65,499,875  |        | 65,259,480  |       |
| Retained  earnings                                                                                                                                                                        |       | 29,008,233  |        | 29,236,254  |       |
| Treasury stock,  Class A Common Stock, at cost, 2,469,327 shares in 2006 and 2,462,496 in 2005                                                                                            |       | (20,910,173 | )           | (20,857,438 | )          |
| Accumulated  other comprehensive income                                                                                                                                                   |       | 92,817      |        | 12,064      |       |
| **Total  stockholders' equity**                                                                                                                                                           |       | 75,208,681  |        | 75,165,456  |       |
|                                                                                                                                                                                      |       |        |        |        |       |
| **Total  liabilities and stockholders' equity**                                                                                                                                           |       | $           | 142,124,720 |        | $          | 137,351,854 |   |

 

See accompanying notes to consolidated financial statements.

27

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**SupremeIndustries, Inc. And Subsidiaries**

**Consolidated Statements of Income**

*for the years ended December 30,2006 and December 31, 2005 and December 25, 2004*
| ** **                                                 | ** ** | **2006**    | ** **  | **2005**    | ** ** | **2004**    | ** ** |
|------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| Net sales                                                  |       | $           | 340,746,789 |        | $          | 341,252,852 |       | $ | 307,326,310 |   |
| Cost of sales                                              |       | 303,182,249 |        | 300,114,755 |       | 276,556,076 |       |
| **Gross profit**                                           |       | 37,564,540  |        | 41,138,097  |       | 30,770,234  |       |
|                                                       |       |        |        |        |       |        |       |
| Selling, general  and administrative expenses              |       | 28,483,091  |        | 27,137,573  |       | 24,287,530  |       |
| Other income                                               |       | (560,045    | )           | (806,005    | )          | (636,145    | )          |
| **Operating income**                                       |       | 9,641,494   |        | 14,806,529  |       | 7,118,849   |       |
| ** **                                                 | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| Interest expense                                           |       | 3,054,726   |        | 2,129,149   |       | 1,016,732   |       |
| **Income before income taxes**                             |       | 6,586,768   |        | 12,677,380  |       | 6,102,117   |       |
|                                                       |       |        |        |        |       |        |       |
| Income taxes                                               |       | 1,992,000   |        | 4,336,000   |       | 1,354,000   |       |
| **Net income**                                             |       | $           | 4,594,768   |        | $          | 8,341,380   |       | $ | 4,748,117 |   |
| ** **                                                 | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| **Earnings  Per Share:**                                   | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| Basic                                                      |       | $           | .36         |        | $          | .67         |       | $ | .39 |   |
| Diluted                                                    |       | .36         |        | .65         |       | .38         |       |
|                                                       |       |        |        |        |       |        |       |
| **Shares  used in the computation of earnings per share:** | ** ** | ** **  | ** **  | ** **  | ** ** | ** **  | ** ** |
| Basic                                                      |       | 12,696,598  |        | 12,455,818  |       | 12,083,601  |       |
| Diluted                                                    |       | 12,872,638  |        | 12,835,405  |       | 12,477,333  |       |
|                                                       |       |        |        |        |       |        |       |
| **Cash dividends per common share**                        |       | $           | .38         |        | $          | .26         |       | $ | .135 |   |

 

See accompanying notes to consolidatedfinancial statements.

28

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**SupremeIndustries, Inc. And Subsidiaries**

**Consolidated Statements ofStockholders’ Equity**

*for the years ended December 30,2006 and December 31, 2005 and December 25, 2004*
| ** **                                                                                     | ** ** | ** **                              | ** ** | ** **                              | ** ** | ** **     | ** ** | ** **   | ** ** | ** **               | ** ** | ** **        | ** ** | ** **        | ** ** | **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 28,  2003                                                                    |       | 12,250,969                              |       | $                                       | 1,225,097  |           | 2,109,133  |         | $          | 210,913                  |       | $                 | 61,522,180 |              | $          | 21,039,446             |       | $          | (20,336,570 | ) | $ | (18,097 | ) | $ | 63,642,969 |   |
| Net  income                                                                                    |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | 4,748,117         |       | —            |       | —                 |       | 4,748,117  |        |
| Unrealized  gain on hedge activity, net of tax                                                 |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | —            |       | —            |       | 18,097                 |       | 18,097     |        |
| Total  comprehensive income                                                                    |       |                                    |       |                                    |       |           |       |         |       |                     |       |              |       |              |       |                   |       | 4,766,214  |        |
| Cash  dividends ($.135 per share)                                                              |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | (1,632,001        | )          | —            |       | —                 |       | (1,632,001 | )           |
| Exercise  of stock options                                                                     |       | 149,133                                 |       | 14,913                                  |       | —         |       | —       |       | 577,731                  |       | —            |       | —            |       | —                 |       | 592,644    |        |
| Tax  benefit of disqualifying stock option dispositions                                        |       | —                                  |       | —                                  |       | —         |       | —       |       | 193,183                  |       | —            |       | —            |       | —                 |       | 193,183    |        |
| Balance, December 25,  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 |   |

 

29

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**SupremeIndustries, Inc. And Subsidiaries**

**Consolidated Statements of CashFlows**

*for the years ended December 30,2006 and December 31, 2005 and December 25, 2004*
| ** **                                                                                   | ** ** | **2006**    | ** ** | **2005**     | ** ** | **2004**     | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------|------------|--------------|------------|--------------|------------|
| **Cash  flows from operating activities:**                                                   |       |        |       |         |       |         |       |
| Net income                                                                                   |       | $           | 4,594,768  |         | $          | 8,341,380    |       | $ | 4,748,117 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities:           |       |        |       |         |       |         |       |
| Depreciation and amortization                                                                |       | 4,260,632   |       | 4,129,376    |       | 3,537,796    |       |
| Amortization of intangibles                                                                  |       | 40,309      |       | 30,066       |       | 51,542       |       |
| Provision for losses on doubtful receivables                                                 |       | 223,859     |       | 33,902       |       | 54,152       |       |
| Deferred income taxes                                                                        |       | (307,000    | )          | (13,000      | )          | 796,000      |       |
| Stock-based compensation expense                                                             |       | 123,000     |       | —       |       | —       |       |
| Tax benefit of disqualifying stock option dispositions                                       |       | —      |       | 260,100      |       | 193,183      |       |
| Gains on sale of property, plant, and equipment, net                                         |       | (4,718      | )          | (6,199       | )          | (86,946      | )          |
| Changes in operating assets and liabilities, net of  effect of business acquisition in 2006: |       |        |       |         |       |         |       |
| Accounts receivable                                                                          |       | (1,589,116  | )          | (1,196,006   | )          | (4,342,116   | )          |
| Inventories                                                                                  |       | (2,534,290  | )          | (5,289,016   | )          | (9,244,786   | )          |
| Other current assets                                                                         |       | (275,712    | )          | 727,240      |       | (596,506     | )          |
| Trade accounts payable                                                                       |       | (2,329,854  | )          | (3,042,684   | )          | 8,265,577    |       |
| Other current liabilities                                                                    |       | (514,863    | )          | 916,165      |       | (216,417     | )          |
|                                                                                         |       |        |       |         |       |         |       |
| **Net cash provided by operating activities**                                                |       | 1,687,015   |       | 4,891,324    |       | 3,159,596    |       |
|                                                                                         |       |        |       |         |       |         |       |
| **Cash  flows from investing activities:**                                                   |       |        |       |         |       |         |       |
| Business acquisition                                                                         |       | (1,050,000  | )          | —       |       | —       |       |
| Proceeds from sale of property, plant, and equipment                                         |       | 1,937,551   |       | 87,362       |       | 438,694      |       |
| Additions to property, plant and equipment                                                   |       | (5,187,712  | )          | (6,354,522   | )          | (11,775,607  | )          |
| Proceeds from sale of investments                                                            |       | 893,285     |       | —       |       | —       |       |
| Purchases of investments                                                                     |       | (1,251,186  | )          | (1,185,224   | )          | —       |       |
| Decrease in restricted cash deposit                                                          |       | —      |       | 600,000      |       | 400,000      |       |
| Decrease in other assets                                                                     |       | 42,079      |       | 44,856       |       | 39,301       |       |
|                                                                                         |       |        |       |         |       |         |       |
| **Net cash used in investing activities**                                                    |       | (4,615,983  | )          | (6,807,528   | )          | (10,897,612  |       |
|                                                                                         |       |        |       |         |       |         |       |
| **Cash  flows from financing activities:**                                                   |       |        |       |         |       |         |       |
| Proceeds from revolving line of credit and other  long-term debt                             |       | 100,172,242 |       | 114,267,879  |       | 139,580,529  |       |
| Repayments of revolving line of credit and other  long-term debt                             |       | (92,696,047 | )          | (111,473,420 | )          | (129,105,231 | )          |
| Payment of cash dividends                                                                    |       | (4,822,789  | )          | (3,260,688   | )          | (1,632,001   | )          |
| Tax benefit of disqualifying stock option  dispositions                                      |       | 34,480      |       | —       |       | —       |       |
| Proceeds from exercise of stock options                                                      |       | 33,013      |       | 2,161,482    |       | 524,948      |       |
|                                                                                         |       |        |       |         |       |         |       |
| **Net cash provided by financing activities**                                                |       | 2,720,899   |       | 1,695,253    |       | 9,368,245    |       |
|                                                                                         |       |        |       |         |       |         |       |
| **Change  in cash and cash equivalents**                                                     |       | (208,069    | )          | (220,951     | )          | 1,630,229    |       |
| ** **                                                                                   |       |        |       |         |       |         |       |
| **Cash  and cash equivalents, beginning of year**                                            |       | 1,515,532   |       | 1,736,483    |       | 106,254      |       |
|                                                                                         |       |        |       |         |       |         |       |
| **Cash  and cash equivalents, end of year**                                                  |       | $           | 1,307,463  |         | $          | 1,515,532    |       | $ | 1,736,483 |   |
| ** **                                                                                   |       |        |       |         |       |         |       |
| **Supplemental  disclosure of cash flow information:**                                       |       |        |       |         |       |         |       |
| Cash paid during the year for:                                                               |       |        |       |         |       |         |       |
| Interest                                                                                     |       | $           | 2,986,054  |         | $          | 2,125,857    |       | $ | 930,438 |   |
| Income taxes                                                                                 |       | 1,834,272   |       | 3,748,145    |       | 1,290,970    |       |
| **Noncash  investing and financing activities:**                                             |       |        |       |         |       |         |       |
| Liabilities  assumed in business acquisition                                                 |       | 163,222     |       | —       |       | —       |       |

 

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**SupremeIndustries, Inc. And Subsidiaries****Notes to Consolidated Financial Statements**

**1.****                                      NATUREOF OPERATIONS AND ACCOUNTING 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 30, 2006, the Company had 19 manufacturing, distribution andcomponent manufacturing facilities.  TheCompany’s customers are located principally 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 financialstatements include the accounts of Supreme Industries, Inc. and itswholly-owned subsidiaries.  Allsignificant intercompany accounts and transactions have been eliminated inconsolidation.

**FiscalYear End** - The Company’s fiscal year ends the last Saturdayin December.  The fiscal years endedDecember 30, 2006 and December 25, 2004 each contained 52 weeks while thefiscal year ended December 31, 2005 contained 53 weeks.

**Use ofEstimates in the Preparation of Financial Statements** - Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actual resultscould differ from those estimates.

**RevenueRecognition** - The production of specialized truck bodies andshuttle buses starts when an order is received from the customer and revenue isrecognized when the unit is shipped to the customer.  Revenue on certain customer requested billand hold transactions is recognized subsequent to when the customer is notifiedthat the product(s) have been completed according to customer specifications,have passed all of the Company’s quality control inspections and are ready fordelivery based upon established delivery terms. These transactions meet the requirements for bill and hold accountingunder Securities and Exchange Commission Staff Accounting Bulletin Topic 13, “RevenueRecognition.”

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 dueto the large number of customers and their dispersion among many differentindustries and geographic regions.  TheCompany performs ongoing credit evaluations of its customers and credit isextended on an unsecured basis.

**Advertising**- The Company expenses advertising costs as incurred.  Advertising costs for the years endedDecember 30, 2006, December 31, 2005 and December 25, 2004 were $260,715,$255,301 and $280,996, respectively.

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**FinancialInstruments and Fair Values** - The Company has utilizedinterest rate swap agreements to reduce the impact of changes in interest rateson certain of its floating rate debt. The swap agreements are contracts to exchange the debt obligation’sLIBOR floating rate (exclusive of the applicable spread) for fixed rateinterest payments over the term of the swap agreement without exchange of theunderlying notional amounts.  Thenotional amounts of the interest rate swap agreements are used to measureinterest to be paid or received and do not represent the amount of exposure ofcredit loss.  The differential paid orreceived under interest rate swap agreements is recognized as an adjustment tointerest expense.

At December 30, 2006, andDecember 31, 2005 the Company had an interest rate swap agreement outstandingwith a notional amount of $15,000,000. The interest rate swap agreement provides a 4.71% fixed interest rateand matures on July 28, 2010.  Inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accountingfor Derivative Instruments and Hedging Activities,” the interest rate swapagreement is designated 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 December30, 2006 and December 31, 2005 was an asset of $146,459 and $33,666, respectively and under SFAS No. 133 changes infair value of the financial instrument, net of applicable income taxes, areadjusted through accumulated other comprehensive income.

The carrying amounts ofcash and cash equivalents, accounts receivable and trade accounts payableapproximated fair value as of December 30, 2006 and December 31, 2005 becauseof the relatively short maturities of these financial instruments.  The carrying amount of long-term debt,including current maturities, approximated fair value as of December 30, 2006and December 31, 2005, based upon terms and conditions available to the Companyat those dates in comparison to the terms and conditions of its outstandinglong-term debt.

**Cash andCash Equivalents** - The Company considers all highly liquid investmentswith original maturities of three months or less to be cash equivalents.  During 2002, the Company made a $1.0 millioninterest bearing cash deposit to secure the payment of amounts due undercertain insurance policies.  The depositwas refunded to the Company during 2004 and 2005.

**Investments**- The Company accounts for its investments in debt and equity securities underSFAS No. 115, “Accounting for Certain Investments in Debt and EquitySecurities,” which requires certain securities to be categorized as eithertrading, available-for-sale or held-to-maturity.  The Company’s investments are comprised ofavailable-for-sale securities and are carried at fair value with unrealizedgains and losses, net of applicable income taxes, recorded within othercomprehensive income (loss) as a separate component of stockholders’equity.  Dividend and interest income areaccrued as earned.  The Company reviewsits investments quarterly for declines in market value that are other thantemporary.

**AccountsReceivable** - The Company accounts for trade receivables basedon the amounts billed to customers.  Pastdue receivables are determined based on contractual terms.  The Company does not accrue interest on anyof its trade receivables.

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**Allowancefor****Doubtful Accounts** - The allowance fordoubtful accounts is determined by management based on the Company’s historicallosses, specific customer circumstances and general economic conditions.  Periodically, management reviews accountsreceivable and adjusts the allowance based on current circumstances and chargesoff uncollectible receivables against the allowance when all attempts tocollect the receivable have failed.

**Inventories**- Inventories are stated at the lower of cost or market, with cost determinedusing the first-in, first-out method.

**Property,Plant and Equipment** - Property, plant and equipment arerecorded at cost.  For financialreporting purposes, depreciation is provided based on the straight-line methodover the estimated useful lives of the assets. The useful life of each class of property is as follows:  land improvements (22 years); buildings (40years); and machinery and equipment (3 to 10 years).  For financial reporting purposes, leaseholdimprovements are amortized using the straight-line method over the lesser ofthe useful life of the asset or term of the lease, except for the leaseholdimprovements associated with the leased facilities in Goshen, Indiana andGriffin, Georgia which are leased from a related party (a partnership whosepartners include five directors/stockholders of the Company).  These related party leases include aprovision whereby upon termination of the leases, the lessor is obligated topay the lessee a cash payment equal to the unamortized balance of any leaseholdimprovements.  Accordingly, leaseholdimprovements to these leased facilities are amortized over the useful life ofthe asset (15 to 40 years).  Upon sale orother disposition of assets, the cost and related accumulated depreciation andamortization are removed from the accounts and any resulting gain or loss isreflected 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 are capitalizedand recorded in the appropriate asset accounts.

**PropertyHeld for Sale** - During 2005, the Company relocated a portionof the business operations of its Pennsylvania manufacturing facility to a newfacility and committed to a plan to sell the former facility.  At December 31, 2005, the net carrying valueof $1,877,234 was recorded as property held for sale.  The sale of this property occurred in 2006and the Company recorded a small gain on sale in the 2006 operating results.

**IntangibleAssets** - In connection with a business acquisition inFebruary 2006 (see Note 2), the Company acquired a customer list with a cost of$725,556, which is being amortized using the straight-line method over theestimated useful life of the customer relationships, determined to be fifteenyears.  Amortization expense was $40,309for the year ended December 30, 2006. Amortization expense for the years ended December 31, 2005 and December25, 2004 was $30,066 and $51,542, respectively, 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.

33

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**Goodwill**- The carrying value of goodwill at December 30, 2006 and December 31, 2005aggregates $735,014.  The Companyaccounts for goodwill under the provisions of SFAS No. 142, “Goodwill and OtherIntangible Assets.” Under the provisions of SFAS No. 142, goodwill is no longer amortized. SFAS No. 142 requires theCompany to test goodwill for impairment at least annually at the reporting unitlevel.  At December 30, 2006 and December31 2005, Management determined there was no impairment of goodwill.

**Evaluationof Impairment of Long-Lived Assets** - In accordance with SFASNo. 144, “Impairment or Disposal of Long-Lived Assets,” the Company evaluatesthe carrying value of long-lived assets whenever significant events or changesin circumstances indicate the carrying value of these assets may beimpaired.  The Company evaluatespotential impairment of long-lived assets by comparing the carrying value ofthe assets to the expected net future cash inflows resulting from use of theassets.

**Stock-BasedCompensation** - Effective January 1, 2006, the Company adoptedSFAS No. 123R (revised 2004), “Share-Based Payment” as interpreted by SEC StaffAccounting Bulletin No. 107.  SFAS No.123R supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accountingfor Stock Issued to Employees,” and amends SFAS No. 95, “Statement of CashFlows.” Generally, the approach in SFAS No. 123R is similar to the approachdescribed in SFAS No. 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,compensation expense 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 in accordancewith the original provisions of SFAS No. 123, and (b) compensation expense forall share-based payments granted on or after January 1, 2006, based on thegrant date fair value estimated in accordance with the provisions of SFAS No.123R.  Because the Company elected to usethe modified prospective transition method, results for prior periods have notbeen restated and new awards are valued and accounted for prospectively uponadoption.

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.

34

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Compensation expense (netof estimated forfeitures), relative to stock-based awards (see Note 8),included in the consolidated statements of income for the year ended December30, 2006 was approximately $123,000.  Thefollowing assumptions were utilized in the determination of stock-basedcompensation expense:

| Risk free interest rate |   | 5.03%   |   |
|-------------------------|--------|---------|--------|
| Expected life           |   | 5 years |   |
| Expected  volatility    |   | 32.23%  |   |
| Expected dividends      |   | 5.39%   |   |

 

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, theCompany’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 related interpretations.  Accordingly, no stock-based employeecompensation cost was reflected in net earnings prior to January 1, 2006 as alloptions to purchase common stock of the Company had an exercise price equal to,or greater than, the market value of the underlying common stock on the date ofgrant.  The pro forma disclosure belowreflects recognition of the remaining pro forma expense related 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. 123 inthe previous years:

|                                                                                                 | ** ** | **2005**   | ** ** | **2004** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|
| Net income, as  reported                                                                        |       | $          | 8,341,380  |     | $          | 4,748,117 |   |
| Deduct,  Stock-based compensation expense determined under fair value based method,  net of tax |       | (1,000,556 | )          | (436,009 | )          |
| Pro forma net  income                                                                           |       | $          | 7,340,824  |     | $          | 4,312,108 |   |
|                                                                                            |       |       |       |     |       |
| Basic earnings  per share, as reported                                                          |       | $          | .67        |     | $          | .39 |   |
| Pro forma basic  earnings per share                                                             |       | .59        |       | .36      |       |
|                                                                                            |       |       |       |     |       |
| Diluted earnings  per share, as reported                                                        |       | .65        |       | .38      |       |
| Pro forma diluted  earnings per share                                                           |       | .57        |       | .35      |       |

 

35

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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** | ** ** | **2004** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|
| Risk free  interest rate |       | 3.73%    |       | (a)      |       |
| Expected life            |       | 5 years  |       | (a)      |       |
| Expected  volatility     |       | 36.10%   |       | (a)      |       |
| Expected dividends       |       | 5.71%    |       | (a)      |       |

----

(a)             There were no grantsof options made by the Company during 2004.

**Warranty**- The Company provides limited product warranties for periods of up to fiveyears from the date of retail sale. Estimated warranty costs are provided at the time of sale and are basedupon historical experience.  Warrantyactivity for the years ended December 30, 2006, December 31, 2005 and December25, 2004 is as follows:

|                                      | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Accrued  warranty, beginning of year |       | $          | 1,385,000  |       | $          | 1,209,344  |       | $ | 1,059,000 |   |
| Warranty expense                     |       | 1,794,057  |       | 1,821,765  |       | 1,485,504  |       |
| Warranty claims  paid                |       | (1,638,057 | )          | (1,646,109 | )          | (1,335,160 | )          |
| Accrued warranty, end  of year       |       | $          | 1,541,000  |       | $          | 1,385,000  |       | $ | 1,209,344 |   |

 

**IncomeTaxes** - Deferred income taxes are determined using the liabilitymethod.

**EarningsPer Share** - Basic earnings per share is computed by dividingnet income by the weighted average number of shares of common stock outstandingduring the period.  Diluted earnings pershare is computed by dividing net income by the weighted average number ofshares of common stock outstanding plus the dilutive effect of stock options.

**ComprehensiveIncome** - Other comprehensive income refers to revenues,expenses, gains and losses that, under generally accepted accountingprinciples, are included in comprehensive income but are excluded from netincome as these amounts are recorded directly as an adjustment to stockholders’equity.  The Company’s othercomprehensive income is comprised of unrealized gain on hedge activity andunrealized gains and losses on available-for-sale securities, net of tax.

**SegmentInformation** - The Company’s principal business ismanufacturing specialized vehicles. Management has not separately organized the business beyond specializedvehicles (includes three categories of products) and vertically integratedfiberglass manufacturing processes.  Thevertically integrated fiberglass manufacturing subsidiary constitutes a segmentby definition of SFAS No. 131, “Disclosures about Segments of an Enterprise andRelated Information;” however, this segment does not meet the quantitativethresholds for separate disclosure as set forth in this statement.  The vertically integrated fiberglassmanufacturing subsidiary’s revenues are less than 10 percent of consolidatedrevenues, the absolute amount of its reported income is less than 10 percent ofthe absolute amount of consolidated net income, and finally, its assets areless than 10 percent of consolidated assets.

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Net sales consist of thefollowing:

|                        | ** ** | **2006**    | ** **  | **2005**    | ** ** | **2004**    | ** ** |
|------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| Specialized  vehicles: |       |        |        |        |       |        |       |
| Trucks                 |       | $           | 263,957,500 |        | $          | 267,563,822 |       | $ | 244,135,169 |   |
| Buses                  |       | 59,396,203  |        | 56,112,684  |       | 47,547,153  |       |
| Armored vehicles       |       | 8,361,974   |        | 9,203,059   |       | 6,309,964   |       |
|                   |       | 331,715,677 |        | 332,879,565 |       | 297,992,286 |       |
| Composites             |       | 9,031,112   |        | 8,373,287   |       | 9,334,024   |       |
|                   |       | $           | 340,746,789 |        | $          | 341,252,852 |       | $ | 307,326,310 |   |

 

**RecentAccounting Pronouncements** - In July 2006, the FinancialAccounting Standards Board issued Financial Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes” (“FIN 48”). This Interpretation revises the recognition test for tax positions takenin tax returns such that a tax benefit is recorded only when it is more likelythan not that the tax position will be allowed upon examination by taxingauthorities.  The amount of such a taxbenefit to be recorded is the largest amount that is more likely than not to beallowed.  Any reduction in deferred taxassets or increase in tax liabilities upon adoption will correspondingly reduceretained earnings.  FIN 48 is effectivefor fiscal years beginning after December 15, 2006. The Company will adopt FIN48 as of December 31, 2006, the first day of the Company’s fiscal year endingDecember 29, 2007.  Based on the Company’scurrent assessment, and subject to any changes that may result from additionaltechnical guidance being issued, the adoption of FIN 48 is not expected to havea material impact on the Company’s consolidated financial position or resultsof operations.

In September 2006, theSecurities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No.108, “Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements”.  SAB 108 provides guidance on how prior yearmisstatements should be taken into consideration when quantifying misstatementsin current year financial statements for purposes of determining whether thecurrent year’s financial statements are materially misstated.  SAB 108 permits registrants to record thecumulative effect of initial adoption by recording the necessary “correcting”adjustments recorded to the carrying values of assets and liabilities as of thebeginning of that year with the offsetting adjustments recorded to the openingbalance of retained earnings only if material under the dual method.  SAB 108 is effective for fiscal years endingon or after November 15, 2006.  Theadoption of SAB 108 did not have a material impact on the Company’sconsolidated financial position or results of operations.

37

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**2.****                                      BUSINESSACQUISITION.**

On February 28, 2006, theCompany acquired the business operations and assets of Pony Xpress, Inc. (“PonyXpress”) for a total purchase price of $1,213,222 which consisted of $1,050,000in 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 |   |

 

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

Investment securitiesconsist of the following:

|                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Intermediate  bond fund-cost       |       | $        | 1,543,125  |     | $          | 1,185,224 |   |
| Unrealized losses                  |       | (1,024   | )          | (16,302  | )          |
| Intermediate bond  fund-fair value |       | $        | 1,542,101  |     | $          | 1,168,922 |   |

 

Sales of securities were$893,285 during 2006 and resulted in a $16,005 loss.  There were no sales of securities during theyear end December 31, 2005.  Investmentincome (included in other income) consisted of dividend income and aggregated$81,167 and $22,224 for the years ended December 30, 2006 and December 31,2005, respectively.

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

Inventories consist ofthe following:

|                  | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|------------------|------------|------------|------------|------------|------------|
| Raw materials    |       | $          | 29,569,267 |       | $          | 28,160,860 |   |
| Work-in-progress |       | 11,199,112 |       | 8,880,436  |       |
| Finished goods   |       | 12,737,988 |       | 13,688,909 |       |
|             |       |       |       |       |       |
| Total            |       | $          | 53,506,367 |       | $          | 50,730,205 |   |

 

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**5.****                                      PROPERTY, PLANT AND EQUIPMENT.**

Property, plant and equipment consists of the following:

|                                                  | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|--------------------------------------------------|------------|------------|------------|------------|------------|
| Land                                             |       | $          | 5,441,130  |       | $          | 4,852,605 |   |
| Land improvements                                |       | 5,747,448  |       | 5,406,187  |       |
| Buildings                                        |       | 28,811,470 |       | 27,428,748 |       |
| Leasehold improvements                           |       | 7,293,110  |       | 7,239,733  |       |
| Machinery and equipment                          |       | 44,178,342 |       | 41,874,081 |       |
|                                             |       | 91,471,500 |       | 86,801,354 |       |
|                                             |       |       |       |       |       |
| Less,  Accumulated depreciation and amortization |       | 43,082,017 |       | 39,343,641 |       |
|                                             |       |       |       |       |       |
| Property, plant  and equipment, net              |       | $          | 48,389,483 |       | $          | 47,457,713 |   |

 

**6.****                                      LONG-TERMDEBT.**

Long-term debt consists of the following:

|                                                                           | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Revolving line of credit                                                  |       | $          | 34,436,504 |       | $          | 25,432,565 |   |
|                                                                      |       |       |       |       |       |
| 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% and 5.66% at December 30,        |       |       |       |       |       |
| 2006 and December 31, 2005,  respectively), with final maturity           |       |       |       |       |       |
| in August 2007                                                            |       | 1,000,000  |       | 2,200,000  |       |
|                                                                      |       |       |       |       |       |
| Obligations under industrial  development revenue bonds, variable rates,  |       |       |       |       |       |
| with maturities in August  2010 and April 2015, collateralized by         |       |       |       |       |       |
| real estate                                                               |       | 3,000,000  |       | 3,375,000  |       |
|                                                                      |       |       |       |       |       |
| 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                                 |       | 1,575,920  |       | 1,734,587  |       |
|                                                                      |       |       |       |       |       |
| 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                                                     |       | 361,561    |       | 452,307    |       |
|                                                                      |       |       |       |       |       |
| 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                                                     |       | 296,669    |       | —     |       |
|                                                                      |       |       |       |       |       |
| Total                                                                     |       | 40,670,654 |       | 33,194,459 |       |
|                                                                      |       |       |       |       |       |
| Less, Current maturities                                                  |       | 1,807,425  |       | 1,816,092  |       |
|                                                                      |       |       |       |       |       |
| Long-term debt                                                            |       | $          | 38,863,229 |       | $          | 31,378,367 |   |

 

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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 November 1, 2006 (the “CreditAgreement”).  All borrowings under theCredit Agreement are unsecured.  TheCredit Agreement provides for a revolving line of credit facility, as defined,up to $35 million and increasing to $45 million during the period each yearfrom January 1 to June 30.  Interest onoutstanding borrowings under the revolving line of credit is based on the bank’sprime rate or certain basis points above LIBOR depending on the pricing optionselected and the Company’s leverage ratio, as defined (effective rate of 6.56%and 5.85% at December 30, 2006 and December 31, 2005, respectively).  The Company’s cash management system andrevolving line of credit are designed to maintain zero cash balances and,accordingly, checks outstanding in excess of bank balances are classified asadditional borrowings under the revolving line of credit.  Checks outstanding in excess of bank balanceswere $1,736,504 at December 30, 2006 and $4,032,565 at December 31, 2005.  The revolving line of credit also requires aquarterly commitment fee ranging from 1/8% to 1/4% per annum depending on theCompany’s financial ratios and based upon the average daily unusedportion.  Any amounts outstanding underthe revolving line of credit will be due at maturity, June 30, 2009.

Outstanding letters ofcredit, related to the Company’s workers’ compensation insurance policies,aggregated $3.5 million and $3.1 million at December 30, 2006 and December 31,2005, respectively.  Under separateagreements the Company had irrevocable letters of credit aggregating $3.0 millionand $3.4 million at December 30, 2006 and December 31, 2005, respectively, infavor of bond trustees as a credit enhancement for bondholders of twoindustrial 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:  2007 - $1,807,425; 2008 - $748,406; 2009 -$35,259,691, 2010 - $1,738,996 and 2011 - $348,369.

**7.****                                      RETIREMENTPLAN.**

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 $657,563,$612,145 and $570,721 for the fiscal years ended 2006, 2005 and 2004,respectively.

40

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

**PreferredStock**

The Company is authorized to issue 1,000,000 shares ofpreferred stock ($1 par value), of which none has been issued.  The Board of Directors is vested with theauthority to determine and state the designations and relative preferences,limitations, voting rights, if any, and other rights of the preferred shares.

**ConvertibleClass B Common Stock**

Class B Common Stock isconvertible into Class A Common Stock on a one-for-one basis.  Holders of Class A Common Stock are entitledto elect one-third of the Board of Directors, rounded to the lowest wholenumber.  Holders of Class B Common Stockelect the remainder of the directors.

**RestrictedStock**

A summary of restrictedstock activity as of and for the year ended December 30, 2006 is presentedbelow:

|                              | ** ** | ** ** | ** ** | **Weighted -** | ** ** |
|------------------------------|------------|------------|------------|---------------------|------------|
| ** **                   | ** ** | ** ** | ** ** | **Average**         | ** ** |
| ** **                   | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                   | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Granted, July 2, 2006        |       | 10,000     |       | $                   | 6.65       |   |
| Vested                       |       | (1,388     | )          | 6.65                |       |
| Nonvested, December 30, 2006 |       | 8,612      |       | 6.65                |       |
|                              |            |            |            |                     |            |  |

 

The total fair value ofshares vested during the year ended December 30, 2006 was $9,227.  

41

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**StockOptions**

On October 29, 1998, theCompany’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 Board of Directors approved, and theCompany’s stockholders subsequently ratified, the 2001 Stock Option Plan underwhich 825,000 shares of Class A Common Stock were reserved for grant.  On January 23, 2004, the Company’s Board ofDirectors approved, and the Company’s stockholders subsequently ratified, the2004 Stock Option Plan, as recently amended, under which 850,000 shares ofClass A Common Stock were reserved for grant. Under the terms of the stock option plans, both incentive stock optionsand non-statutory stock options can be granted by a specially designated StockOption Committee.  The 2004 Stock OptionPlan, as amended, also allows for awards of common stock, including restrictedstock awards. Options granted under the stock option plans generally vest andbecome exercisable in annual installments of 33 1/3% beginning on the firstanniversary date and the options expire five years after the date ofgrant.  The Company generally issues newshares to satisfy stock option exercises. On August 4, 2005, the Company’s Board of Directors approved a plan toaccelerate vesting of all outstanding stock options which were unvested atDecember 31, 2005.  Under the provisionsof APB No. 25, there was no compensation expense related to the acceleration ofthese options.  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.

The following tablesummarizes stock option activity:

|                                 | ** ** | ** **  | ** ** | **Weighted - Average** | ** ** |
|---------------------------------|------------|-------------|------------|----------------------------------|------------|
| ** **                      | ** ** | **Options** | ** ** | **Exercise Price**          | ** ** |
| Outstanding, December  28, 2003 |       | 1,332,747   |       | $                                | 4.36       |   |
| Exercised                       |       | (149,133    | )          | 3.52                             |       |
|                            |       |        |       |                             |       |
| Outstanding, December  25, 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                             |       |
|                                 |            |             |            |                                  |            |  |

 

42

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The weighted-average grant-date fair values of optionsgranted during the fiscal years ended 2006 and 2005 was $1.47 and $1.40,respectively.  The total intrinsic valueof options exercised during the fiscal years ended 2006, 2005 and 2004approximated $44,000, $198,700 and $525,400, respectively.  Total unrecognized compensation expenserelated to all share-based awards outstanding at December 30, 2006 isapproximately $462,000 and is to be recorded over a weighted-averagecontractual life of 2.36 years.

In connection with the exercise of certain stockoptions in 2006 and 2005, 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 11,000 and 129,525 stock options exercised using the reloadfeature during 2006 and 2005, respectively. The officers and directors exchanged 6,831 and 75,655 shares of Class ACommon Stock and received the same number of new stock options during 2006 and2005, respectively.  The exercise ofstock options and the related issuance of shares of Class A Common Stock inexchange for the shares of Class A Common Stock, with a fair value of $52,735and $520,868, respectively, was a noncash financing activity.

Information about stockoptions outstanding and exercisable at December 30, 2006 is as follows:

|                          | ** ** | **Outstanding** | ** ** | **Exercisable**             | ** ** |
|--------------------------|------------|-----------------|------------|-----------------------------|------------|
| ** **               | ** ** | ** **      | ** ** | **Weighted -**         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **               | ** ** | ** **      | ** ** | **Average**                 | ** ** | **Weighted -** | ** ** | ** ** | ** ** | **Weighted -** | ** ** |
| ** **               | ** ** | ** **      | ** ** | **Remaining**               | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **Range of**        | ** ** | **Number**      | ** ** | **Contractual**             | ** ** | **Exercise** | ** ** | **Number** | ** ** | **Exercise** | ** ** |
| **Exercise Prices** | ** ** | **Outstanding** | ** ** | **Life in Years** | ** ** | **Price** | ** ** | **Exercisable** | ** ** | **Price** | ** ** |
| $5.09 - $5.60            |       | 214,500         |       | 0.33                        |       | $ | 5.17 |   | 214,500 |   | $ | 5.17 |   |
|   3.78         |       | 3,667           |       | 0.79                        |       | 3.78 |   | 3,667 |   | 3.78 |   |
|   4.50 - 4.95  |       | 267,667         |       | 1.35                        |       | 4.56 |   | 267,667 |   | 4.56 |   |
|   6.05 - 6.66  |       | 53,406          |       | 3.30                        |       | 6.35 |   | 53,406 |   | 6.35 |   |
|   6.84         |       | 25,000          |       | 3.34                        |       | 6.84 |   | 25,000 |   | 6.84 |   |
|   6.65 - 7.32  |       | 289,000         |       | 3.44                        |       | 6.71 |   | 289,000 |   | 6.71 |   |
|   8.87 - 9.76  |       | 22,249          |       | 3.83                        |       | 9.34 |   | 22,249 |   | 9.34 |   |
|   7.72         |       | 6,831           |       | 4.18                        |       | 7.72 |   | 3,416 |   | 7.72 |   |
|   7.05 - 7.76  |       | 346,000         |       | 4.35                        |       | 7.72 |   | 30,000 |   | 7.40 |   |
|                     |       | 1,228,320       |       | 2.64                        |       | 6.12 |   | 908,905 |   | 5.77 |   |
|                          |            |                 |            |                             |            |  |  |  |  |  |  |  |  |

 

At December 30, 2006, theaggregate intrinsic value of options exercisable approximated $766,400, with aremaining contractual term of 1.03 years. The intrinsic value of all options outstanding at December 30, 2006 wasapproximately $766,400.

At December 31, 2005 andDecember 25, 2004, there were exercisable options outstanding to purchase921,823 and 848,106 shares at weighted-average exercise prices of $5.67 and$4.36, respectively.

As of December 30, 2006,351,380 shares were reserved for the granting of future share-based awards(stock options and restricted stock) compared to 436,211 shares at December 31,2005.

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**9.****                                      INCOMETAXES.**

Income taxes consist ofthe following:

|          | ** ** | **2006**  | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|----------|------------|-----------|------------|-----------|------------|-----------|------------|
| Federal: |       |      |       |      |       |      |       |
| Current  |       | $         | 2,060,000  |      | $          | 3,617,000 |       | $ | 1,056,000 |   |
| Deferred |       | (307,000  | )          | (11,000   | )          | 708,000   |       |
|     |       | 1,753,000 |       | 3,606,000 |       | 1,764,000 |       |
|     |       |      |       |      |       |      |       |
| State:   |       |      |       |      |       |      |       |
| Current  |       | 239,000   |       | 732,000   |       | (498,000  | )          |
| Deferred |       | —    |       | (2,000    | )          | 88,000    |       |
|     |       | 239,000   |       | 730,000   |       | (410,000  | )          |
| Total    |       | $         | 1,992,000  |      | $          | 4,336,000 |       | $ | 1,354,000 |   |

 

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

|                                                   | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|---------------------------------------------------|------------|------------|------------|------------|------------|
| Deferred tax  assets:                             |       |       |       |       |       |
| Receivables                                       |       | $          | 61,600     |       | $          | 97,020 |   |
| Inventories                                       |       | 353,813    |       | 347,712    |       |
| Accrued  liabilities                              |       | 1,518,099  |       | 1,263,754  |       |
| Other                                             |       | 36,889     |       | 76,061     |       |
| Total deferred  tax assets                        |       | 1,970,401  |       | 1,784,547  |       |
|                                              |       |       |       |       |       |
| Deferred tax  liabilities:                        |       |       |       |       |       |
| Depreciation                                      |       | (2,876,825 | )          | (2,976,775 | )          |
| Prepaids and  other                               |       | (941,600   | )          | (956,878   | )          |
| Unrealized hedge  gain                            |       | (52,900    | )          | (11,500    | )          |
| Total deferred  tax liabilities                   |       | (3,871,325 | )          | (3,945,153 | )          |
|                                              |       |       |       |       |       |
| Net deferred  income tax liabilities              |       | $          | (1,900,924 | )          | $          | (2,160,606 | ) |
|                                              |       |       |       |       |       |
| Presented in the  consolidated balance sheets as: |       |       |       |       |       |
| Current deferred  tax assets                      |       | $          | 1,022,292  |       | $          | 827,669 |   |
| Long-term  deferred tax liabilities               |       | (2,923,216 | )          | (2,988,275 | )          |
|                                              |       | $          | (1,900,924 | )          | $          | (2,160,606 | ) |

 

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A reconciliation of theprovision for income taxes to the amount computed by applying the statutoryfederal income tax rate (34% in 2006, 35% in 2005 and 34% in 2004) to incomebefore income taxes is as follows:

|                                                                                    | ** ** | **2006** | ** ** | **2005** | ** ** | **2004**  | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
| Income taxes at  statutory rate                                                    |       | $        | 2,239,500  |     | $          | 4,437,100 |       | $ | 2,074,700 |   |
| State income taxes, net  of federal tax effect                                     |       | 157,700  |       | 474,500  |       | (270,600  | )          |
| Manufacturer's  deduction                                                          |       | (65,600  | )          | (105,000 | )          | —    |       |
| Tax-exempt underwriting  income of wholly-owned small captive insurance subsidiary |       | (369,800 | )          | (359,600 | )          | —    |       |
| Research and  development tax credits                                              |       | (81,000  | )          | (26,000  | )          | (282,600  | )          |
| Tax benefit, reversal  of reserves                                                 |       | —   |       | —   |       | (307,600  | )          |
| Other, net                                                                         |       | 111,200  |       | (85,000  | )          | 140,100   |       |
| Total                                                                              |       | $        | 1,992,000  |     | $          | 4,336,000 |       | $ | 1,354,000 |   |

 

For the year endedDecember 25, 2004, the effective federal tax rate was favorably impacted by therecognition of $256,600 of research and development tax credits resulting fromthe filing of amended federal income tax returns for the years 2000 - 2003,current year’s research and development tax credits of $26,000, and thereversal of $307,600 of federal tax reserves established in prior years andcredited to income in 2004 as the reserves were no longer required as a resultof favorable tax audits or the expiration of the statute of limitations.  For the year ended December 25, 2004, theeffective state tax rate was favorably affected by the recognition of $166,200of state research and development tax credits for the years 1998-2003.  In addition, the 2004 effective state taxrate was favorably affected by the release of certain reserves for state incometaxes which were no longer required based on satisfactory completion of certainstate tax audits.

**10.****                               COMMITMENTSAND CONTINGENCIES.**

**Lease Commitmentsand Related Party Transactions**

The Company leasescertain office and manufacturing facilities under operating lease agreementswhich expire at various dates from October 2007 through July 2011.  Certain of the lease agreements are withrelated parties for which related party rent expense was $677,408, $759,678 and$711,030 for the fiscal years ended 2006, 2005 and 2004, respectively.

Rent expense under alloperating leases aggregated $1,005,670, $998,156 and $922,418 for the fiscalyears ended 2006, 2005 and 2004, respectively.

At December 30, 2006,future minimum rental payments under noncancelable operating leases aggregated$2,932,000 and are payable as follows: 2007 - $789,000; 2008 - $784,000; 2009 - $784,000; 2010 - $507,000; 2011- $68,000.

45

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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 $3,523,358, $3,690,777and $3,219,454 for the fiscal years ended 2006, 2005 and 2004,respectively.  Amounts due to relatedparties, included in accounts payable, aggregated $153,587 and $89,133 as ofDecember 30, 2006 and December 31 2005, respectively.

**ConsignedInventories**

The Company obtainsvehicle chassis for its specialized vehicle products directly from the chassismanufacturer 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 $889,092,$466,392 and $250,472 for the fiscal years ended 2006, 2005 and 2004,respectively.  At December 30, 2006 andDecember 31, 2005, chassis inventory, accounted for as consigned inventory tothe Company by the manufacturers, aggregated approximately $41.4 million and$48.3 million, respectively.  Typically,chassis are converted and delivered to customers within 90 days of the receiptof the chassis by the Company.

**Self-Insurance**

The Company isself-insured for a portion of product liability ($250,000 per occurrence with a$2,000,000 annual aggregate), certain employee health benefits ($200,000annually per employee with no annual aggregate) and workers’ compensation incertain states ($250,000 per occurrence with no annual aggregate).  The Company accrues for the estimated lossesoccurring from both asserted and unasserted claims.  The estimate of the liability for unassertedclaims arising from incurred but not reported claims is based on an analysis ofhistorical claims data.

**Other**

The Company is subject tovarious investigations, claims and legal proceedings covering a wide range ofmatters that arise in the ordinary course of its business activities.  Each of these matters is subject to variousuncertainties, and it is possible that some of these matters may be resolvedunfavorably to the Company.  The Companyhas established accruals for matters that are probable and 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 operationof the Company.

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**SUPREME INDUSTRIES,INC. AND SUBSIDIARIESSCHEDULE 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 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 |   |
|                                                   |       |               |       |                |       |              |       |                 |       |
| Year ended December 25,  2004:                         |       |               |       |                |       |              |       |                 |       |
| Reserves and  allowances deducted from asset accounts: |       |               |       |                |       |              |       |                 |       |
| Allowance for doubtful  receivables                    |       | $                  | 362,000    |                | $          | 54,000            |       | $                    | 120,000    |   | $ | 296,000 |   |

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(1)             Uncollectibleaccounts written off, net of recoveries.

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

**SUPPLEMENTARY DATA**
| ** **   | ** ** | **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       |       |
|              |            |           |            |            |            |            |            |            |            |  |  |  |  |

 
| ** **   | ** ** | **First**  | ** ** | **Second** | ** ** | **Third**  | ** ** | **Fourth** | ** ** |
|--------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| 2005 Quarter |       |       |       |       |       |       |       |       |       |
| Net sales    |       | $          | 90,322,304 |       | $          | 95,216,407 |       | $          | 77,055,374 |   | $ | 78,658,767 |   |
| Gross profit |       | 11,625,768 |       | 12,246,112 |       | 8,257,972  |       | 9,008,245  |       |
| Net income   |       | 3,094,344  |       | 2,900,305  |       | 1,285,808  |       | 1,060,923  |       |
| Per share:   |       |       |       |       |       |       |       |       |       |
| Basic        |       | 0.25       |       | 0.23       |       | 0.10       |       | 0.08       |       |
| Diluted      |       | 0.25       |       | 0.23       |       | 0.10       |       | 0.08       |       |
|              |            |            |            |            |            |            |            |            |            |  |  |  |  |

 

Operating resultsfor the third quarter of 2006 were favorably impacted by book-to-physicalinventory adjustments aggregating $1.9 million (pre-tax).  Operating results for the fourth quarter of2006 were unfavorably impacted by book-to-physical inventory adjustmentsaggregating $0.2 million (pre-tax).  The2006 fourth quarter’s operating results were favorably impacted by a $0.3million income tax benefit which was principally attributable to the true-up ofthe Company’s estimated effective federal and state tax rates during the firstthree quarters to the actual effective tax rates for the 2006 fiscal year.

Operating resultsfor the third quarter of 2005 were unfavorably impacted by book-to-physicalinventory adjustments aggregating $(1.1) million (pre-tax).

The sum ofquarterly earnings per share for the four quarters may not equal annualearnings per share due to rounding and changes in the diluted potential commonshares.

48

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

Not applicable.
| **ITEM 9A.** | ** ** | **CONTROLS  AND PROCEDURES.** |
|--------------|------------|-------------------------------|

 

a.                                       Evaluationof Disclosure Controls and Procedures.

In connection with the preparation of this Form 10-K,an evaluation was performed under the supervision and with the participation ofthe Company’s Management, including the Company’s Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation ofthe Company’s disclosure controls and procedures (as defined in Rules 13a-15(e)and 15d-15(e)) under the 1934 Act).  Inperforming this evaluation, Management focused on the Company’s inventorycosting and relief procedures relating to the significant physical inventoryadjustments recorded in the third quarter ended September 30, 2006 and asdisclosed in Part I/Item 4 of the Company’s Quarterly Report on Form 10-Q forthe third quarter filed on November 14, 2006. In addition, Management evaluated the effectiveness of the followingcorrective actions which have been implemented to enhance disclosure controlsand procedures:

1.        Quarterlyphysical inventories conducted at those plant locations that have hadsignificant book to physical inventory adjustments in recent periods until suchtime as Management is able to determine that its bills of materials and otherinventory relief procedures will result in correct inventory valuation andproper recognition of cost of sales for interim and year end financialreporting.

2.        Atthose plant locations where a quarterly physical inventory is not performed, amore thorough review of inventory costing procedures performed at the end ofinterim and year end periods to provide additional assurance that theprocedures for valuation of inventories and recognition of cost of sales arereasonable.

3.        Proceduresimplemented to assure that interim quarterly and year end physical inventoriesare priced and summarized on a timely basis to record any book to physicalinventory adjustments in the period of the physical inventory rather than thesubsequent accounting period.

4.        Additionalprocedures implemented at corporate headquarters to strengthen ongoing reviewsof plant accounting activities through the utilization of our corporateaccounting staff.

Given the Company has implemented the foregoingcorrective actions during the fourth quarter and at year end, the Company’sChief Executive Officer and Chief Financial Officer have concluded that as ofthe end of the period covered by this Form 10-K the disclosure controls andprocedures were effective at a reasonable assurance level.

b.             Changesin Internal Control over Financial Reporting.

Except as disclosed above, there has been no change inthe Company’s internal control over financial reporting during our last fiscalquarter that has materially affected, or is reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

49

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The Company continues to take action to assurecompliance with the internal controls, disclosure controls and otherrequirements of the Sarbanes-Oxley Act of 2002.  Management, including theCompany’s Chief Executive Officer and Chief Financial Officer, cannot guaranteethat the internal controls and disclosure controls will prevent all possibleerrors or fraud.  A control system, no matter how well conceived andoperated, can provide only reasonable, not absolute, assurance that theobjectives of a control system have been met. In addition, the design of acontrol system must reflect the fact that there are resource constraints, andthe benefit of controls must be relative to their costs.  Because of theinherent limitations in all control systems, no system of controls can provideabsolute assurance that all control issues and instances of fraud, if any,within the Company will be detected.  These inherent limitations includethe realities that judgments in decision-making can be faulty and thatbreakdowns can occur because of simple error or mistake.  Further,controls can be circumvented by individual acts of some persons, by collusionof two or more persons, or by management override of the controls.

The design of any system of controls is also based inpart upon certain assumptions about the likelihood of future events, and therecan be no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions.  Over time, a control may beinadequate because of changes in conditions, or the degree of compliance withthe policies or procedures may deteriorate.  Because of inherentlimitations in any cost-effective control system, misstatements due to error orfraud may occur and not be detected.
| **ITEM 9B.** | ** ** | **OTHER  INFORMATION.** |
|--------------|------------|-------------------------|

 

Not applicable.

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

** **

Certain information required by Item 10 of Form 10-K ishereby incorporated by reference from the Company’s definitive proxy statement,which will be filed pursuant to Regulation 14A within 120 days after theCompany’s year end for the year covered by this report under the caption “Electionof Directors” of the proxy statement. Also see “Executive Officers of the Registrant” in Item 1 of Part I ofthis Form 10-K.
| **ITEM 11.** | ** ** | **EXECUTIVE  COMPENSATION.** |
|--------------|------------|------------------------------|

** **

The information required by Item 11 of Form 10-K ishereby incorporated by reference from the Company’s definitive proxy statement,which will be filed pursuant to Regulation 14A within 120 days after theCompany’s year end for the year covered by this report under the caption “ExecutiveCompensation” of the proxy statement.

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

The information requiredby Item 12 of Form 10-K is hereby incorporated by reference from the Company’sdefinitive proxy statement, which will be filed pursuant to Regulation 14Awithin 120 days after the Company’s year end for the year covered by thisreport under the caption “Security Ownership of Certain Beneficial Owners andManagement” of the proxy statement.
| **ITEM 13.** | ** ** | **CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR** |
|--------------|------------|-------------------------------------------------------------------|
| ** **   | ** ** | **INDEPENDENCE.**                                                 |

The information requiredby Item 13 of Form 10-K is hereby incorporated by reference from the Company’sdefinitive proxy statement, which will be filed pursuant to Regulation 14Awithin 120 days after the Company’s year end for the year covered by thisreport under the caption “Certain Relationships and Related Party Transactions”of the proxy statement.
| **ITEM 14.** | ** ** | **PRINCIPAL  ACCOUNTING FEES AND SERVICES.** |
|--------------|------------|----------------------------------------------|

** **

The information required by Item 14 of Form 10-K ishereby incorporated by reference from the Company’s definitive proxy statement,which will be filed pursuant to Regulation 14A within 120 days after theCompany’s year-end for the year covered by this report under the caption “PrincipalAccounting Fees and Services” of the proxy statement..

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

** **

a.               The followingfinancial statements and financial statement schedule are included in Item 8herein:

1.                                       FinancialStatements

Report of Crowe Chizek and Company LLC, IndependentRegistered Public Accounting Firm

Consolidated Balance Sheets as of December 30, 2006and December 31, 2005

Consolidated Statementsof Income for the years ended December 30, 2006, December 31, 2005 and December25, 2004

Consolidated Statementsof Stockholders’ Equity for the years ended December 30, 2006, December 31,2005 and December 25, 2004

Consolidated Statements ofCash Flows for the years ended December 30 2006, December 31, 2005 and December25, 2004

Notes toConsolidated Financial Statements

2.                                       FinancialStatement Schedule

Schedule II -Valuation and Qualifying Accounts

3.                                       Exhibits

See Index toExhibits

52

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**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.
|                      | SUPREME INDUSTRIES, INC. |
|----------------------|--------------------------|
| Date: March 27, 2007 | 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 Director      |   | March 27, 2007 |
|---------------------------|--------|-----------------------------------------|--------|----------------|
| Herbert M. Gardner        |   |                                    |   |           |
| /s/Robert W. Wilson       |   | President, Chief  Operating Officer     |   | March 27, 2007 |
| Robert W. Wilson          |   | and Director                            |   |           |
| /s/William J. Barrett     |   | Secretary, Assistant  Treasurer and     |   | March 27, 2007 |
| William J. Barrett        |   | Director                                |   |           |
| /s/Jeffery D. Mowery      |   | Treasurer, Chief  Financial Officer and |   | March 27, 2007 |
| Jeffery D. Mowery         |   | Assistant Secretary  (Principal         |   |           |
|                      |   | Financial and  Accounting Officer)      |   |           |
| /s/Arthur M. Borden       |   | Director                                |   | March 27, 2007 |
| Arthur M. Borden          |   |                                    |   |           |
| /s/Robert J. Campbell     |   | Director                                |   | March 27, 2007 |
| Robert J. Campbell        |   |                                    |   |           |
| /s/Thomas Cantwell        |   | Director                                |   | March 27, 2007 |
| Thomas Cantwell           |   |                                    |   |           |
| /s/Omer G. Kropf          |   | Director                                |   | March 27, 2007 |
| Omer G. Kropf             |   |                                    |   |           |
| /s/Mark C. Neilson        |   | Director                                |   | March 27, 2007 |
| Mark C. Neilson           |   |                                    |   |           |
| /s/William C. Hurtt,  Jr. |   | Director                                |   | March 27, 2007 |
| William C. Hurtt, Jr.     |   |                                    |   |           |

 

53

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INDEX TO EXHIBITS
| Exhibit | ** ** | **Description**                                                                                                                                                                                                                                                                                                             |
|---------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1     |       | Certificate of Incorporation of the Company, filed  as Exhibit 3(a) to the Company’s Registration Statement on Form 8-A, filed  with the Commission on September 18, 1989, and incorporated herein by  reference.                                                                                                      |
| 3.2     |       | Certificate of  Amendment of Certificate of Incorporation of the Company filed with the  Secretary of State of Delaware on June 10, 1993 filed as Exhibit 3.2 to the  Company’s annual report on Form 10-K for the fiscal year ended December 31,  1993, and incorporated herein by reference.                         |
| 3.3     |       | Certificate of  Amendment of Certificate of Incorporation of the Company filed with the  Secretary of State of Delaware on May 29, 1996 filed as Exhibit 3.3 to the  Company’s annual report on Form 10-K for the fiscal year ended December 31,  1996, and incorporated herein by reference.                          |
| 3.4     |       | 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.                                                                                                                            |
| 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.                                                                                                  |

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| 10.4  |   | 2001 Stock Option Plan, filed as Exhibit 10.6 to the  Company’s annual report on Form 10-K for the fiscal year ended December 31,  2001, and incorporated herein by reference.                                                                                                                                                                                                                                                                                      |
|-------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.5  |   | Amendment No. 1 to the  Company’s 2001 Stock Option Plan, filed as Exhibit 10.7 to the Company’s  annual report on Form 10-K for the fiscal year ended December 31, 2001, and  incorporated herein by reference.                                                                                                                                                                                                                                               |
| 10.6  |   | 2004 Stock Option Plan,  filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8  effective on August 26, 2004, and incorporated herein by reference.                                                                                                                                                                                                                                                                                              |
| 10.7  |   | Amended and Restated  2004 Stock Option Plan filed as Exhibit A to the Company’s Revised Definitive  Proxy Statement on Form DEFR14A dated April 3, 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.                                                                                                                                                                                                                                                                                                                                                    |
| 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.                                                                                                                                                                                   |

55

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| 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.                                                                                                                                                                                                                                                    |
| *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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*                    Filedherewith.

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