Table of Contents

 

 

 

# **UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

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

## ** **

# **FORM 10-K**

# ** **

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

 

**Forthe fiscal year ended: December 27, 2008**

 

**OR**

 

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

 

**COMMISSION FILE NUMBER: 1-8183**

 

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

(Exactname of Registrant as specified in its charter)

 

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

 

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

#### ** **

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

 

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

 

Securitiesregistered pursuant to Section 12(g) of the Exchange Act: **None**

 

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

 

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

 

Indicate by check whetherthe registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. 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 registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.x

 

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

 

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

 

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

 

The aggregate market valueof the voting and non-voting stock held by non-affiliates of the registrant asof the last business day of the registrant’s most recently completed secondfiscal quarter, based on the last closing sale price of $4.48 per share for thecommon stock on the NYSE Alternext US (formerly American Stock Exchange) onsuch date was approximately $44,178,024

 

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

 

| **Class**                                                                                | ** ** | **Outstanding at March 6, 2009** |
|------------------------------------------------------------------------------------------|------------|------------------------------------------------------|
| Class A  Common Stock ($.10 Par Value)

Class B  Common Stock ($.10 Par Value) |       | 12,150,823  shares

2,188,490  shares                |

 

**Documentsincorporated by reference**

 

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

 

Portions of the Proxy Statement for the 2009 Annual Meeting ofStockholders to be held on May 5, 2009 —  Part III

 

 

 

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**TABLE OF CONTENTS**

 
| PART I   |                                                                                                                | 1  |
|---------------|---------------------------------------------------------------------------------------------------------------------|----|
| ITEM  1.      | BUSINESS                                                                                                            | 1  |
| ITEM  1A.     | RISK FACTORS                                                                                                        | 6  |
| ITEM 1B.      | UNRESOLVED  STAFF COMMENTS                                                                                          | 8  |
| ITEM  2.      | PROPERTIES                                                                                                          | 9  |
| ITEM 3.       | LEGAL  PROCEEDINGS                                                                                                  | 10 |
| ITEM 4.       | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                | 10 |
| PART II  |                                                                                                                | 10 |
| ITEM 5.       | MARKET  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER  PURCHASES OF EQUITY SECURITIES | 10 |
| ITEM 6.       | SELECTED  FINANCIAL DATA                                                                                            | 12 |
| ITEM 7.       | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         | 12 |
| ITEM 7A.      | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         | 23 |
| ITEM 8.       | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                                        | 23 |
| ITEM 9.       | CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               | 48 |
| ITEM 9A.      | CONTROLS  AND PROCEDURES                                                                                            | 48 |
| ITEM 9B.      | OTHER  INFORMATION                                                                                                  | 49 |
| PART III |                                                                                                                | 49 |
| ITEM 10.      | DIRECTORS,  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                             | 49 |
| ITEM 11.      | EXECUTIVE  COMPENSATION                                                                                             | 49 |
| ITEM 12.      | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS                    | 49 |
| ITEM 13.      | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                          | 50 |
| ITEM 14.      | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                                             | 50 |
| PART IV  |                                                                                                                | 50 |
| ITEM 15.      | EXHIBITS  AND FINANCIAL STATEMENT SCHEDULES                                                                         | 50 |

 

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**PART I**

** **
| **ITEM 1.** | **BUSINESS.** |
|-------------|---------------|

 

**History**

 

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

 

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

 

**Financial Information About Operating Segments**

 

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

 

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

 

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

 

Supreme’s core truck products are medium-priced although prices can rangefrom $4,000 to $175,000.  Supreme’s truckbodies are offered in aluminum, fiberglass reinforced plywood (“FRP”), ormolded fiberglass construction and are available in lengths of 8 to 30 feet andheights up to 109 inches.  Examples ofoptional equipment offered by Supreme include lift gates, cargo-handlingequipment, customized doors, special bumpers, ladder racks, and refrigerationequipment, which are configured with the truck bodies to meet the end-user’sneeds.

 

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

 

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

 
| ** **            | ** ** | **2008**    | ** **  | **2007**    | ** ** | **2006**    | ** ** |
|-----------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| Specialized vehicles: |       |        |        |        |       |        |       |
| Trucks                |       | $           | 161,037,364 |        | $          | 209,180,974 |       | $ | 259,849,141 |   |
| Buses                 |       | 79,139,207  |        | 65,409,725  |       | 59,396,203  |       |
| Armored vehicles      |       | 6,002,900   |        | 13,813,434  |       | 8,361,974   |       |
| Motorhomes            |       | 12,477,135  |        | 11,617,653  |       | 4,063,359   |       |
|                  |       | 258,656,606 |        | 300,021,786 |       | 331,715,677 |       |
| Composites            |       | 10,093,047  |        | 13,250,937  |       | 9,031,112   |       |
|                  |       | $           | 268,749,653 |        | $          | 313,272,723 |       | $ | 340,746,789 |   |

 

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

 

Signature Van bodies.  Supreme’s Signature Van bodies range from 10to 28 feet in length with pre-painted aluminum or FRP panels, molded compositefront and side corners, LED marker lights, sealed wiring harnesses, hardwood orpine flooring, and various door configurations to accommodate end-user loadingand unloading requirements.  This productis adaptable for a diverse range of uses in dry freight transportation.

 

Iner-City® cutaway vanbodies.  An ideal routetruck for a variety of commercial applications, the Iner-City’s aluminum or FRPbodies are manufactured on cutaway chassis which allow access from the cab tothe cargo area.  Borrowing many designelements from Supreme’s larger van body, the Iner-City is shorter in length (10to 17 feet) than a van body.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

StarTrans® mid-sizebuses.  Supreme’sStarTrans® mid-size buses (President and Ambassador) are offered in lengths ofup to 31 feet with capacities of up to 35 passengers.  This product serves 

 

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the public transit andtour markets and provides the Company’s dealer network with a morecomprehensive product line.

 

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

 

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

 

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

 

Silver Crown.  Silver Crown luxury motorcoaches are customdesigned for the enthusiast in the race car, show horse, sports car, andmotorcycle industries.  The custom SilverCrown design combines large trailer towing capacity with the comforts of ahigh-end recreational vehicle.

 

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

 

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

 

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

 

**Manufacturing**

 

Supreme’s manufacturing facilities are located in Goshen and Ligonier,Indiana; Griffin, Georgia; Cleburne, Texas; Moreno Valley, California;Jonestown, Pennsylvania; Woodburn, Oregon, and White Pigeon, Michigan.  Supreme’s management estimates that therecent capacity utilization of its plants and equipment ranges from 40% to 75%of capacity when annualized on a one-shift basis.  At various times during the year, several ofthe Company’s plants operate at near capacity to fulfill large fleet ordercontracts.

 

Supreme builds specialized vehicles and installs other equipment ontruck chassis, most of which are provided by converter pool agreements or areowned by dealers or end-users.  Thesetruck bodies are built on an assembly line from engineered structuralcomponents such as floors, roofs, and wall panels.  These components are manufactured fromSupreme’s proprietary designs and are installed on the truck chassis.  Supreme then installs optional equipment andapplies any special finishes that the customer has specified.  At each step of the manufacturing andinstallation process, Supreme conducts quality control procedures to ensurethat the products meet its customers’ specifications.  Supreme’s products are generally produced tofirm orders and are designed and engineered by Supreme.  Order levels will vary depending upon price,competition, prevailing economic conditions, and other factors.

 

Supreme is more vertically integrated than many of itscompetitors.  The Company manufacturesits own fiberglass reinforced plywood and fiberglass parts, and has extensiveroll forming and metal bending capabilities. A portion of the excess capacity of these fabrication capabilities hashistorically been used to supply products to the recreational vehicle andmarine industries.  These componentmanufacturing facilities are located in Goshen and Ligonier, Indiana.

 

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

 

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**Marketing**

 

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

 

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

 

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

 

Approximately 70 employees are engaged in direct sales.  Supreme engages in direct advertising intrade publications, trade shows, and cooperative advertising campaigns withdistributors.

 

**Trademarks**

 

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

 

**Working Capital**

 

The Company utilizes its revolving line of credit to finance itsaccounts receivable and inventories.  TheCompany believes that its days sales outstanding and its days inventories onhand are within normal industry levels. The Company had working capital of $60.3 million and $58.5 million at December 27,2008, and December 29, 2007, respectively.

 

**Major Customers**

 

No single customer, or group of customers, accounted for 10% or more ofthe Company’s net sales for the fiscal years ended in 2008, 2007, and2006.  The Company’s export sales are notsignificant.

 

**Competitive Conditions**

 

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

 

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

 

**Governmental Regulation**

 

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

 

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**Seasonality of Business**

 

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

 

**Employees**

 

As of December 27, 2008 and December 29, 2007, the Companyemployed approximately 1,500 and 2,100 employees, respectively, none of whomare represented by a collective bargaining unit.  The Company considers its relations with itsemployees to be very favorable.

 

**Back Log**

 

The Company’s backlog of firm orders was $60.0 million at December 27,2008 compared to $87.0 million at December 29, 2007.

 

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| **ITEM** 1A. | **RISK  FACTORS.** |
|--------------|--------------------|

** **

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

 

**A sustained or substantially deep recession could havea significantly negative impact on our industry.**

 

The present economic recession and the uncertaintyover its breadth, depth, and duration have had a negative impact on thespecialized vehicle industry. Accordingly, our financial results have beennegatively impacted by the economic slowdown. Both our financial results andpotential for growth could be further harmed if the economic recessioncontinues for a significant period or becomes worse.

 

**A lack of credit and financing availability to theCompany, its vendors, dealers, or end users could adversely affect ourbusiness.**

 

The Company and many of its suppliers rely on theavailability of credit to provide operating funds. Likewise, many of ourcustomers require the availability of financing to facilitate the purchase ofour products. A continuing period of reduced credit availability in themarketplace could have further adverse effects on the Company’s business.

 

**Increases in the price and demand for raw materialscould lower our margins and profitability.**

 

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

 

**Volatility in the supply of vehicle chassis and othervehicle components could adversely affect our business because it may reducethe number of truck bodies and buses that we can manufacture or result inexcess inventory costs.**

 

With the exception of some StarTrans products, Supreme generally doesnot purchase vehicle chassis for its inventory. Supreme accepts shipments 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.  These agreements provide for truck chassispools at each of Supreme’s manufacturing facilities.

 

The Company also faces risk relative to finance and storage charges formaintaining excess chassis inventory. Under these consigned inventory agreements, if a chassis is notdelivered to a customer within a specified time frame, the Company is requiredto pay finance or storage charges on such chassis.

 

**We compete in the highly competitive specializedvehicle industry which may impact our financial results.**

 

The competitive nature of the specialized vehicle industry creates anumber of challenges for the Company. Important factors include product pricing, quality of product, leadtimes, geographic proximity to customers, and the ability to manufacture aproduct customized to customer specifications. Specialized vehicles are produced by a number of smaller, regionalcompanies which create product pricing pressures that could adversely impactthe 

 

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Company’s profits.  Chassismanufacturers have not generally shown an interest in manufacturing specializedvehicles, including truck bodies and shuttle buses, because such manufacturers’highly-automated assembly line operations do not lend themselves to theefficient production of a wide variety of highly specialized vehicles withvarious options and equipment.

 

**We have potential exposure to environmental and healthand safety liabilities which may increase costs and lower profitability.**

 

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

 

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

 

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

 

**A product liability claim in excess of our insurancecoverage, or an inability to acquire or maintain insurance at commerciallyreasonable rates, could have a materially adverse effect upon our business.**

 

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

 

**Our manufacturer’s warranties expose us to potentiallysignificant claims.**

 

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

 

**We depend on the services of our key executives.  Any loss of our key executives could have amaterial adverse effect on our operations.**

 

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

 

**Our relatively low trading volumes may limit ourstockholders’ ability to sell their shares.**

 

Our Class A Common Stock has experienced, and may continue toexperience, price volatility and low trading volumes.  Overall market conditions, and other riskfactors described herein, may cause the market price of our Class A CommonStock to fall.  Our high and low salesprices for the twelve month period ended December 27, 2008, were $5.95 and$0.68, respectively.  Our Class ACommon Stock is listed on the NYSE Alternext US exchange under the symbol “STS.”  However, daily trading volumes for our Class ACommon Stock are, and may continue to be, relatively small compared to manyother publicly-traded securities.  Forexample, during the twelve month period ended December 27, 2008, our dailytrading volume has been as low as zero. It may be difficult for 

 

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you to sell your shares in the public market at any given time atprevailing prices, and the price of our Class A Common Stock may,therefore, be volatile.

 

**Our officers and directors own a large percentage of ourcommon stock.  They may vote their sharesin ways with which you disagree.**

 

As of March 6, 2009, our officers and directors as a groupbeneficially own 28.8 % of our Class A Common Stock and 90.1% of our Class BCommon 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 CommonStock will be able to affect the way we are managed or the direction of ourbusiness.

 

**Our splitclasses of stock may make it more difficult or expensive for a third party toacquire the Company which may adversely affect our stock price.**

 

Our outstanding Common Stock is split into two classes.  The Class A Common Stock is listed onthe NYSE Alternext US exchange, and the holders thereof are entitled to electtwo members of the Company’s Board of Directors.  The majority (90.1%) of the Class BCommon Stock is owned or controlled by the Company’s officers and directors andis entitled to elect the remaining six members of the Company’s Board ofDirectors.  The continuing ability of theholders of our Class B Common Stock to elect a majority of the members ofthe Company’s Board of Directors will make it difficult for another company toacquire us and for you to receive any related take-over premium for your shares(unless the controlling group approves the sale).

 

**Our internal controls provide only reasonableassurance that objectives are met. Failure of one or more of these controlscould adversely affect the Company.**

 

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

 

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

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

** **

**Not applicable.**

 

8

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Table of Contents

 
| **ITEM 2.** | **PROPERTIES.** |
|-------------|-----------------|

** **

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

 
| ** **                       | ** ** | **Square**  | ** ** | **Owned or** | ** ** | ** **                 | ** ** |
|----------------------------------|------------|-------------|------------|-------------------|------------|----------------------------|------------|
| ** **                       | ** ** | **Footage** | ** ** | **Leased**        | ** ** | **Operating Segment** | ** ** |
| Manufacturing of Products        |       |        |       |              |       |                       |       |
| Jonestown, Pennsylvania          |       | 429,376     |       | Owned             |       | Specialized Vehicles       |       |
| Goshen, Indiana                  |       | 320,146     |       | Leased            |       | Specialized Vehicles       |       |
| Goshen, Indiana                  |       | 195,939     |       | Owned             |       | Specialized Vehicles       |       |
| Cleburne, Texas                  |       | 177,035     |       | Owned             |       | Specialized Vehicles       |       |
| Woodburn, Oregon                 |       | 116,760     |       | Owned             |       | Specialized Vehicles       |       |
| Griffin, Georgia                 |       | 105,379     |       | Leased            |       | Specialized Vehicles       |       |
| Moreno Valley, California        |       | 103,200     |       | Owned             |       | Specialized Vehicles       |       |
| Griffin, Georgia                 |       | 86,400      |       | Owned             |       | Specialized Vehicles       |       |
| White Pigeon, Michigan           |       | 74,802      |       | Owned             |       | Specialized Vehicles       |       |
| Ligonier, Indiana                |       | 23,540      |       | Owned             |       | Specialized Vehicles       |       |
|                             |       | 1,632,577   |       |              |       |                       |       |
|                             |       |        |       |              |       |                       |       |
| 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       |       |
| Springfield, Ohio                |       | 11,200      |       | Owned             |       | Specialized Vehicles       |       |
| Apopka, Florida                  |       | 5,200       |       | Owned             |       | Specialized Vehicles       |       |
| St. Louis, Missouri              |       | 4,800       |       | Owned             |       | Specialized Vehicles       |       |
| Colorado Springs, Colorado       |       | 950         |       | Leased            |       | Specialized Vehicles       |       |
|                             |       | 42,150      |       |              |       |                       |       |
|                             |       |        |       |              |       |                       |       |
| Properties Held for Sale         |       |        |       |              |       |                       |       |
| Streetsboro, Ohio (1)            |       | 11,900      |       | Owned             |       | Not Applicable             |       |
| Houston, Texas (2)               |       | 14,533      |       | Owned             |       | Not Applicable             |       |
| Wilson, North Carolina (3)       |       | 113,694     |       | Owned             |       | Not Applicable             |       |
|                             |       | 140,127     |       |              |       |                       |       |
|                             |       |        |       |              |       |                       |       |
| Corporate Office Building        |       |        |       |              |       |                       |       |
| Goshen, Indiana                  |       | 26,000      |       | Owned             |       | Not Applicable             |       |
|                             |       |        |       |              |       |                       |       |
| Total square footage             |       | 1,950,566   |       |              |       |                       |       |

 

----

(1)          During the first quarter of 2009, the Company ceased businessoperations at its Streetsboro, Ohio distribution facility.

(2)          During the fourth quarter of 2008, the Company ceased businessoperations at its distribution facility in Houston, Texas.

(3)          During the third quarter of 2002, the Company ceased businessoperations at its facility in Wilson, North Carolina.  Since then, the property has been, andcontinues to be, listed for sale; however, the Company has been unable to sellthe property because of weak economic conditions and excess building facilitiesin this region of the country.  Whileretaining the right to sell the property to interested buyers, the Company doescurrently lease a portion of this property to an unrelated business.

 

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

 

9

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

** **

The Company is subject to various investigations, claims, and legalproceedings covering a wide range of matters that arise in the ordinary courseof its business activities.  Each ofthese matters is subject to various uncertainties, and it is possible that someof these matters may be resolved unfavorably tothe Company.  The Company has establishedaccruals for matters that are probable and reasonably estimable.  Management believes that any liability thatmay ultimately result from the resolution of these matters in excess ofaccruals and or amounts provided by insurance coverage will not have a materialadverse effect on the consolidated financial position or results of operationsof the Company.

 
| **ITEM 4.** | **SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS.** |
|-------------|-----------------------------------------------------------|

** **

No matters were submitted by the Company to a vote of the Company’ssecurity holders, through the solicitation of proxies, or otherwise during thefourth quarter of the year ended December 27, 2008.

 

**PART II**

** **

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

** **

The Company’s Class A Common Stock is traded on the NYSE AlternextUS exchange (ticker symbol STS).  Thenumber of record holders of the Class A Common Stock as of March 6,2009 was approximately 259.  Due to thenumber of shares held in nominee or street name, it is likely that there aresubstantially more than 259 beneficial owners of the Company’s Class ACommon Stock.

 

The Company’s Class A Common Stock closed at a price of $0.77 pershare on the NYSE Alternext US exchange on March 6, 2009 on which datethere were 12,150,823 shares of Class A Common Stock outstanding.  Adjusted for the two percent (2%) and sixpercent (6%) common stock dividends declared and paid during 2008 (see dividenddata below), high and low sales prices of the Class A Common Stock for thetwo-year period ended December 27, 2008 were:

 
| ** **  | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| ** **  | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| 1st Quarter |       | $        | 5.95       |     | $          | 4.95 |   | $ | 6.38 |   | $ | 5.36 |   |
| 2nd Quarter |       | 5.28     |       | 3.71     |       | 6.57 |   | 5.34 |   |
| 3rd Quarter |       | 4.70     |       | 2.75     |       | 6.71 |   | 6.26 |   |
| 4th Quarter |       | 2.83     |       | 0.68     |       | 7.49 |   | 5.09 |   |
|             |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

All of the 2,188,490 outstanding shares of the Company’s Class BCommon Stock were held by a total of 14 persons as of March 6, 2009.  There is no established trading market forthe Class B Common Stock.  The Class BCommon Stock is freely convertible on a one-for-one basis into an equal numberof shares of Class A Common Stock, and ownership of the Class BCommon Stock is deemed to be beneficial ownership of the Class A CommonStock under Rule 13d-3(d) (1) promulgated under the SecuritiesExchange Act of 1934.

 

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The Board of Directors approved the following stock dividends on itsoutstanding Class A and Class B Common Stock during the year ended December 27,2008:

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

 

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

 

The Board of Directors approved the following cash dividends on itsoutstanding Class A and Class B Common Stock during the years ended December 27,2008 and December 29, 2007. Adjusted for the common stock dividends declared and paid in 2008, cashdividends were:

 
| ** **                | ** ** | ** **              | ** ** | ** **              | ** ** | **Cash Dividend** | ** ** |
|---------------------------|------------|-------------------------|------------|-------------------------|------------|------------------------|------------|
| **Declaration Date** | ** ** | **Record Date**    | ** ** | **Paid Date**      | ** ** | **Per Share**     | ** ** |
|                      |       |                    |       |                    |       |                   |       |
| 2008                      |       |                    |       |                    |       |                   |       |
| February 12, 2008    |       | February 25,  2008 |       | March 3,  2008     |       | $                      | .088       |   |
| May 6, 2008          |       | May 20,  2008      |       | May 27,  2008      |       | $                      | .088       |   |
|                      |       |                    |       |                    |       |                   |       |
| 2007                      |       |                    |       |                    |       |                   |       |
| February 14, 2007    |       | February 27,  2007 |       | March 5,  2007     |       | $                      | .088       |   |
| May 3, 2007          |       | May 17,  2007      |       | May 24,  2007      |       | $                      | .088       |   |
| August 7, 2007       |       | August 21,  2007   |       | August 28,  2007   |       | $                      | .088       |   |
| October 30, 2007     |       | November 13,  2007 |       | November 20,  2007 |       | $                      | .088       |   |

 

Future dividend payments will necessarily be subject to businessconditions, the Company’s financial position, and requirements for workingcapital, property, plant and equipment expenditures, and other corporatepurposes.

 

**Equity Compensation Plan Information**

 

Thefollowing table provides information as of December 27, 2008 with respectto the shares of the Company’s Class A Common Stock that may be issuedunder the Company’s equity compensation plans:

 
| ** **                                              | ** ** | **(a)**                                            | ** ** | **(b)**                                          | ** ** | **(c)**                                     | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                              | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | **Number of securities**          | ** ** |
| ** **                                              | ** ** | ** **                                         | ** ** | ** **                                       | ** ** | **remaining available for**       | ** ** |
| ** **                                              | ** ** | **Number of securities to be** | ** ** | ** **                                       | ** ** | **future issuance under**         | ** ** |
| ** **                                              | ** ** | **issued upon exercise of**         | ** ** | **Weighted-average exercise**               | ** ** | **equity compensation plans**     | ** ** |
| ** **                                              | ** ** | **outstanding options,**                      | ** ** | **price of outstanding options,** | ** ** | **(excluding securities**              | ** ** |
| **Plan category**                                  | ** ** | **warrants and rights**                  | ** ** | **warrants and rights**                | ** ** | **reflected in column (a))** | ** ** |
|                                                    |       |                                               |       |                                             |       |                                        |       |
| Equity compensation plans approved by security  holders |       | 1,061,975                                          |       | $                                                | 5.65       |                                        | 244,207    |   |
|                                                         |            |                                                    |            |                                                  |            |                                             |            |  |

 

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

** **

The following selected financial data has beenderived from our consolidated financial statements. The data set forth belowshould be read in conjunction with Management’s Discussion and Analysis ofFinancial Condition and Results of Operations and our consolidated financialstatements and notes thereto.

 

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

 
| ** **                                                         | ** ** | **For Fiscal Years Ended** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                         | ** ** | **2008**                                  | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Consolidated Statement of Operations Data:** |       |                                      |       |   |   |   |   |   |   |   |   |
| (in millions, except per share amounts)   |       |                                      |       |   |   |   |   |   |   |   |   |
| ** **                                                         |       |                                      |       |   |   |   |   |   |   |   |   |
| Net sales (a)                                                      |       | $                                         | 268.7      |   | $ | 313.3 |   | $ | 340.7 |   | $ | 341.3 |   | $ | 307.3 |   |
|                                                               |       |                                      |       |   |   |   |   |   |   |   |   |
| Net income (loss)                                                  |       | (3.1                                      | )          | 4.2 |   | 4.6 |   | 8.3 |   | 4.7 |   |
|                                                               |       |                                      |       |   |   |   |   |   |   |   |   |
| Net income (loss) per share:                                       |       |                                      |       |   |   |   |   |   |   |   |   |
| Basic earnings (loss) per share                                    |       | (0.22                                     | )          | .30 |   | .33 |   | .62 |   | .36 |   |
| Diluted earnings (loss) per share                                  |       | (0.22                                     | )          | .30 |   | .33 |   | .60 |   | .35 |   |
|                                                               |       |                                      |       |   |   |   |   |   |   |   |   |
| Cash dividends per common share                                    |       | .18                                       |       | .35 |   | .35 |   | .24 |   | .13 |   |
|                                                               |       |                                      |       |   |   |   |   |   |   |   |   |
| **Consolidated Balance Sheet Data:**                               |       |                                      |       |   |   |   |   |   |   |   |   |
| (in millions)                                                      |       |                                      |       |   |   |   |   |   |   |   |   |
|                                                               |       |                                      |       |   |   |   |   |   |   |   |   |
| Working capital                                                    |       | $                                         | 60.3       |   | $ | 58.5 |   | $ | 66.6 |   | $ | 60.8 |   | $ | 50.9 |   |
|                                                               |       |                                      |       |   |   |   |   |   |   |   |   |
| Total assets                                                       |       | 125.5                                     |       | 132.8 |   | 142.1 |   | 137.4 |   | 129.2 |   |
|                                                               |       |                                      |       |   |   |   |   |   |   |   |   |
| Long-term debt (excluding current  maturities)                     |       | 32.8                                      |       | 29.0 |   | 38.9 |   | 31.4 |   | 28.8 |   |
|                                                               |       |                                      |       |   |   |   |   |   |   |   |   |
| Stockholders’ equity                                          |       | 70.4                                      |       | 75.5 |   | 75.2 |   | 75.2 |   | 67.6 |   |

 

----

(a)          Net sales for 2004 and 2005 have been adjustedfrom amounts previously reported as “Revenue” to exclude other income andreport only net sales.

 

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

** **

**Overview**

 

Established in 1974 as a truck body manufacturer, Supreme Industries, Inc.,through its wholly-owned subsidiary Supreme Corporation, is one of the nation’sleading manufacturers of specialized vehicles. Utilizing a nationwide directsales and distribution network, as well as manufacturing and service facilitiesin 11 states across the continental United States, Supreme is able to meet theneeds of customers across all of North America.

 

The Company engages principally in the production and sale ofcustomized truck bodies, shuttle buses, and other specialty vehicles. Buildingon its expertise in providing both cargo and passenger transportationsolutions, the Company’s specialty offerings include products such ascustomized armored vehicles, homeland response vehicles, portable storage unitsand luxury motor coaches. Through vertical integration and proprietaryprocesses, the Company also is a producer of high quality fiberglass andfiberglass-reinforced components.  Formore detailed information related to the Company and its products, see Business(Item 1) of this document.

 

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During 2008, Supremecontinued to experience the impact of the economic recession and theunprecedented tight credit markets, particularly in its core truck business andmotorhome operations.  Althoughmanagement foresaw a difficult environment, the downturn has been far moresevere than anticipated. In response, the Company has been executing a strategyto navigate through these conditions and position the Company to emerge fromthe current economic environment even stronger.

 

First and foremost,management has and continues to take costs out of the business, right-sizingoperations to fit the current market conditions. In 2008, the annualized costreductions totaled approximately $9.0 million with a large component of thesaving resulting from our 29% headcount reduction year-over-year.  While the benefits of these reductions beganto emerge in the fourth quarter, the full impact of these savings will berealized in fiscal 2009.  Additionally,management will continue to review its cost structure during 2009 and willreduce the size of operations as economic conditions warrant.  However, Supreme is committed to invest inboth the short and long-term as evidenced by the recent introduction of theSignature Van Body which is expected to help our competitiveness in the market.The new Signature Van Body enables easier and less expensive construction,improved inventory turns, and reduced lead-times to deliver the finishedproduct.  The Company also invested inthe development of an Armored Suburban under the terms of a contract with theU.S. Department of State which calls for up to $100 million of vehicles to beproduced over a five year period, subject to periodic orders from theDepartment of State.

 

Supreme’s healthy bus business has improved its market share and helpedto partially offset the significant downturn in the core dry freight truckbusiness.  To meet increased customerdemand, the Company has recently expanded its bus capacity on both the East andWest coasts to better serve these markets.

 

The Company and its product offerings are sensitive to various factorswhich include, but are not limited to, economic conditions, interest ratefluctuations, changes in governmental regulations, and volatility in the supplychain of vehicle chassis. The Company’s business is also affected by theavailability and costs of certain raw materials that serve as significantcomponents of its product offerings.  TheCompany’s risk factors are disclosed in Item 1A “Risk Factors” of thisdocument.

 

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

 

**Results of Operations**

 

***Comparison of2008 with 2007***

 

***Net Sales***

 

Net sales for the year endedDecember 27, 2008 decreased $44.6 million to $268.7 million compared to$313.3 million for the year ended December 29, 2007.  The decrease in net sales was primarilyrelated to our truck body sales, our largest product group, which declined by$48.1 million.  Our armored truck division and composite divisionexperienced a decline in net sales of $7.8 million and $3.2 million,respectively.  Partially offsetting thesedecreases was an increase in net sales by our StarTrans bus divisions of $13.7million, or 21.0%, to $79.1 million for the year ended December 27,2008.  Our Silver Crown divisionexperienced a slight increase in net sales of $0.9 million for the year ended December 27,2008.

 

The following table presentsthe components of net sales and the changes from 2008 to 2007:

 
| **($000’s omitted)** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|------------|------------|
| Specialized vehicles:          |       |     |       |     |       |       |       |   |   |
| Trucks                         |       | $        | 161,037    |     | $          | 209,181    |       | $ | (48,144 | ) | (23.0 | )% |
| Buses                          |       | 79,139   |       | 65,410   |       | 13,729     |       | 21.0 |   |
| Armored vehicles               |       | 6,003    |       | 13,813   |       | (7,810     | )          | (56.5 | ) |
| Motorhomes                     |       | 12,478   |       | 11,618   |       | 860        |       | 7.4 |   |
|                           |       | 258,657  |       | 300,022  |       | (41,365    | )          | (13.8 | ) |
| Composites                     |       | 10,093   |       | 13,251   |       | (3,158     | )          | (23.8 | ) |
|                           |       | $        | 268,750    |     | $          | 313,273    |       | $ | (44,523 | ) | (14.2 | )% |

 

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We attribute the decrease inour truck product sales to the economic recession which resulted in anindustry-wide decline in the retail truck market.  The decline in the truck market began inearly 2007, and the prevailing expectation is that it will likely continueuntil at least 2010.  Additionally, truckproducts were negatively impacted in the first half of the year by thecancellation of approximately $2.6 million of orders from a major fleetcustomer due to the disruption in the supply of General Motors (“GM”) chassisresulting from a labor dispute between the United Auto Workers and GM’s axlesupplier. This labor dispute was settled in the second quarter, althoughreturning to normal conditions was further delayed by a second labor strikeagainst a chassis delivery provider which has since been resolved. Thedisruption adversely affected our profitability and resulted in excessinventory carrying costs for both our fleet and retail business during thefirst half of 2008.  We anticipate thatthe decrease in our truck business activity will create pent-up demand and weare poised to capitalize on the eventual expected recovery.

 

The armored division salesdecline was the result of the economic environment and the highly competitivenature of the cash-in-transit business. We believe that the armored division is well positioned to increase itsrevenue in 2009 as a result of the U.S. Department of State contract mentionedabove.

 

Our StarTrans bus divisioncontinues to experience strong demand resulting from increased use of masstransit due to the volatility of fuel prices and increased ridership as moreindividuals conserve energy to live a “green” life style.

 

Our total sales backlog was$60.0 million at December 27, 2008 compared to $87.0 million at December 29,2007.

 

***Cost of sales and gross profit***

 

Gross profit decreased by$10.6 million, or 30.1%, to $24.6 million for the year ended December 27,2008 compared to $35.2 million for the year ended December 29, 2007.  The following table presents the componentsof cost of sales as a percentage of net sales and the changes from 2008 to2007:

 
| ** **    | ** ** | **2008** | ** ** | **2007** | ** ** | **Percent Change** | ** ** |
|---------------|------------|----------|------------|----------|------------|-------------------------|------------|
| Material      |       | 58.3     | %          | 57.4     | %          | 0.9                     | %          |
| Direct labor  |       | 13.8     |       | 13.6     |       | 0.2                     |       |
| Overhead      |       | 16.0     |       | 15.2     |       | 0.8                     |       |
| Delivery      |       | 2.8      |       | 2.6      |       | 0.2                     |       |
| Cost of sales |       | 90.9     |       | 88.8     |       | 2.1                     |       |
| Gross profit  |       | 9.1      | %          | 11.2     | %          | -2.1                    | %          |

 

**Material** — Material cost as a percentage of net sales increased for the yearended December 27, 2008 when compared to the corresponding period in 2007.The change in the material percentage is primarily related to higher rawmaterial costs and product mix. Our change in product mix relates to our busdivision, which has a higher material percentage, and accounted for a 29.4% ofour total sales in 2008 compared to 20.9% for the same period in 2007.

 

Rawmaterial costs, particularly for aluminum, steel, and petroleum-based products,increased in 2008. We attempted to address the unavoidable raw materialcost increases by increasing the prices of our products to the limited extentthat our highly competitive markets permitted. We announced price increases of3.0% and 5.0% in March and June, respectively, on all core truck productlines.  Our StarTrans bus division implemented price increases of 2.5% and3.0% effective in January and June, respectively.  We also strived toreduce manufacturing costs through the use of technology (i.e., robotics,innovative materials, etc.), lean manufacturing, and improved processes.  These ongoing efforts, as well as productdiversification and the introduction of our Signature Van Body, should help usto mitigate the effect of any future increases in raw material costs.

 

**Direct Labor** — Direct labor as a percentage of net sales increased for the yearended December 27, 2008 when compared to the corresponding period in2007.  The slight increase in the directlabor percentage was the result of inefficiencies resulting from the laborstrikes (as discussed previously), timing of fleet customer buying patterns,and the normal startup costs of additional production lines to fulfill fleetorders.

 

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Additionally,our StarTrans bus division experienced an increase in its labor percentage dueto employee training costs associated with our regional plants’ bus productionline start-up costs. The expanded capacity will improve plant utilization whileaccelerating delivery to satisfy our bus backlog.

 

**Overhead** — Overhead as a percentage of net sales increased for the year ended December 27,2008 when compared to the corresponding period in 2007.  The majority ofthe increase in the overhead percentage was due to the fixed nature of certainexpenses that do not fluctuate when sales volume changes.  The Companyalso experienced higher costs for research and development which was associatedwith the investments in Signature Van Body and the armored suburbancontract.  During 2008, the Companyreduced its cost and is benefiting from changes to its group health insuranceplan design.  Additionally, the Company’scontinued safety efforts decreased our workers compensation expenseyear-over-year as additional programs were implemented.  We continue to focus on reducing expenses andmanaging our overhead cost structure based on our level of sales volume.

 

**Delivery** — Delivery as a percentage of net sales increased for the year ended December 27,2008 when compared to the corresponding period in 2007.  The Companycontinues to research and utilize more cost-effective delivery methods toreduce the adverse impact of volatile fuel costs.

 

***Selling, general and administrative expenses***

 

Selling, general andadministrative (“G&A”) expenses decreased by $0.4 million, or 1.4%, to$27.4 million for the year ended December 27, 2008 compared to $27.8million for the year ended December 29, 2007.    Thefollowing table presents selling and G&A expenses as a percentage of netsales and the changes from 2008 to 2007:

 
| ** **       | ** ** | **2008** | ** ** | **2007** | ** ** | **Percent Change** | ** ** |
|------------------|------------|----------|------------|----------|------------|-------------------------|------------|
| Selling expenses |       | 3.9      | %          | 3.3      | %          | 0.6                     | %          |
| G&A expenses |       | 6.3      |       | 5.6      |       | 0.7                     |       |
| Total            |       | 10.2     | %          | 8.9      | %          | 1.3                     | %          |

 

**Selling expenses** — Selling expenses increased by $0.2 million, or 1.9%, to $10.5million for the year ended December 27, 2008 from $10.3 million for theyear ended December 29, 2007.  This increase is due to the investmentin training costs, literature, promotion and advertising expenses resultingfrom the new Signature Van Body. Partially offsetting this increase is a reduction in commission expenseresulting from the lower sales volume in 2008 when compared to 2007.

 

**G&A expenses** — General and administrative expenses decreased by $0.7 million, or4.0%, to $16.8 million for the year ended December 27, 2008 from $17.5million for the year ended December 29, 2007.  This decrease in general and administrativeexpenses was primarily due to lower incentive compensation accruals as a resultof the decrease in pretax income.  Additionally, we incurred one-timeprofessional fees during 2007 related to complying with the requirements of theSarbanes-Oxley Act of 2002.

 

***Intangible Asset Impairments***

 

In the fourth quarter of 2008, the Company recordeda goodwill impairment charge of approximately $0.7 million in accordance withStatement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwilland Other Intangible Assets.” Additionally, the Company determined that a customer list totalingapproximately $0.6 million at December 27, 2008, which was associated withthe acquisition of Pony Xpress, LLC, was fully impaired.

 

**Goodwill** — Goodwill was tested for impairment at December 27, 2008 and dueprimarily to the depressed market price of the Company’s Class A Common Stockand consequent difference between the market capitalization and book value ofthe Company, management recorded an impairment charge against the full balanceof this asset in the fourth quarter of 2008.

 

**Intangible Assets** - In connection with a business acquisition of Pony Xpress, LLC, in February 2006,the Company acquired a customer list totaling approximately $0.7 million.  Due to the

 

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significantdownturn in the economy, motorhome industry, and selected customers’ financialpositions, the Company recorded an impairment charge against the remainingbalance of this asset in the fourth quarter of 2008.  As a result of total impairment, no futureamortization expense will be recorded against this intangible asset.

 

***Other income***

 

For the year ended December 27,2008, other income was $1.1 million (0.4% of net sales) compared to $0.6million (0.2% of net sales) for the year ended December 29, 2007.  Other income consisted of rental income, gainon sale of assets, and other miscellaneous income received by the Companythrough its various business activities. This increase is primarily the result of gains recognized on the sale oftwo service and distribution centers. The closure of the service and distribution centers resulted from theCompany’s continued strategy to maximize efficiency through streamlinedoperations and reduced costs.

 

***Interest expense***

 

Interest expense was $2.3million (0.9% of net sales) for the year ended December 27, 2008 comparedto $2.5 million (0.8% of net sales) for the year ended December 29,2007.   This decrease in interest expense reflects lower prevailinginterest rates coupled with lower working capital requirements resulting fromlower sales volume.

 

***Income taxes***

 

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

 

***Net income and earnings per share***

 

Net income (loss) decreasedby $7.3 million to $(3.1) million (-1.2% of net sales) for the year ended December 27,2008, from $4.2 million (1.3% of net sales) for the year ended December 29,2007.  The following table presents basicand diluted earnings (loss) per share and the changes from 2008 to 2007:

** **
| ** **                 | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|------------|------------|
| Earnings (loss) per share: |       |     |       |     |       |       |       |
| Basic                      |       | $        | (0.22      | )        | $          | 0.30       |       | $ | (0.52 | ) |
| Diluted                    |       | $        | (0.22      | )        | $          | 0.30       |       | $ | (0.52 | ) |

 

***Comparison of2007 with 2006***

 

***Net Sales***

 

Net sales for the year ended December 29, 2007 decreased $27.4million, or 8.0%, to $313.3 million compared to $340.7 million for the yearended December 30, 2006.  The decreasewas primarily related to our core dry freight sales, our largest product group,which declined by $40.7 million, or 22.6%.****We attributedthe decrease in our core dry freight products to continued industry-widesoftness in the retail truck market.  Partiallyoffsetting this decrease were favorable sales contributions from our StarTransbus division which experienced a 10.1% increase to $65.4 million, and ourarmored division, which increased 64.3% over the prior year, to $13.8 millionin 2007.  Additionally, Silver Crown, oneof our specialty product divisions, increased sales to $11.6 million, a 182.9%increase, resulting from the increased market penetration of this 2006acquisition. Our total sales backlog was $87.0 million at December 29,2007 compared to $97.5 million at December 30, 2006.

 

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

 

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

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

 

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

 

Historically, the Companyhas experienced and recorded both favorable and unfavorable physical inventoryadjustments.  Due to our productdiversity, complexity, customization, and on-line engineering, inventory reliefusing standard bills of material does not provide full relief of ourinventory.  Therefore, the Companyrecords an additional cost relief adjustment based on various factors. Inaddition, the Company intensified its bills of material accuracy initiativesand cost relief systems and methods in conjunction with performing additionalinterim physical inventories and recording any adjustments relatingthereto.  In 2007, the Company recordedfavorable inventory adjustments of $0.2 million.  In the third quarter of fiscal year 2006, theCompany recorded a $1.9 million favorable inventory adjustment.  In 2006, the Company improved its bills ofmaterials accuracy without changing its cost relief adjustment to account forthese improvements resulting in a favorable inventory adjustment for the year.The more frequent physical inventories, and the continued improvements from theprocess improvement initiatives, should enable the Company to continue tominimize the physical inventory adjustments (See “Inventory Relief” below inour discussion of “Critical Accounting Policies and Estimates”).

 

**DirectLabor** — Direct labor as a percentage of net sales was 13.6%in 2007 compared to 14.3% in 2006.  Thedirect labor improvement was the result of the efficiencies realized fromcontracting fewer, more costly temporary workers at our core truck divisionsdue to reduced sales volume. Additionally, in the first half of 2006 we experienced a delay inOEM-supplied chassis which caused the Company to temporarily suspendproduction, thereby negatively affecting labor and overhead absorption.  As noted earlier, while our StarTrans busdivision and Silver Crown division material content is higher than our coretruck products, the labor percentage is lower in these divisions furtherreducing the overall Company labor percentage as a result of the our change inproduct mix for 2007.

 

**Overhead**— Overhead as a percentage of net sales was 15.2% in 2007 compared to 15.1% in2006.  Overall, the Company was able toeffectively manage its cost structure to the lower sales volume experienced in2007.  However, our group healthinsurance expense increased 6.3% when compared to 2006. To combat the increasein group health insurance, the Company continued to implement changes to itsgroup health insurance plan design in an effort to control future claim costs.  The Company continues to focus on reducingexpenses and managing our overhead cost structure based on our level of salesvolume.

 

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**Delivery**— Delivery as a percentage of net sales was 2.6% in 2007 compared to 2.8% in2006.  The Company continued to utilizemore cost effective outside delivery methods versus using its employees andowned equipment to deliver units.  Fuelcosts remained a concern, and the Company continued its efforts to attempt topass on higher fuel costs despite competitive pressures in the marketplace.

 

***Selling, General and AdministrativeExpenses***

 

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

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

 

**Sellingexpenses** — Selling expenses decreased by $1.2 million, or10.4%, to $10.3 million for the year ended December 29, 2007 from $11.5million for the year ended December 30, 2006.  Selling expenses declined due to increasedcooperative marketing credits the Company received from chassismanufacturers.  These credits, determinedsolely by programs established by the chassis manufacturers, were used tooffset marketing and promotional expenses. Additionally, sales commission expense decreased due to the lower salesvolume experienced during 2007 compared to 2006.

 

**G&Aexpenses** — General and administrative expenses increased by$0.5 million, or 2.9%, to $17.5 million for the year ended December 29,2007 from $17.0 million for the year ended December 30, 2006. The increasein general and administrative expenses was primarily due to non-recurring feesassociated with complying with the requirements of the Sarbanes-Oxley Act of2002.

 

***Other Income***

 

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

 

***Interest Expense***

 

Interest expense decreased by $0.6 million, or 19.4%, to $2.5 million(0.8% of net sales) for the year ended December 29, 2007 compared to $3.1million (0.9% of net sales) for the year ended December 30, 2006. Thedecrease in interest expense was due to less borrowing under the Company’sworking capital line of credit and a decrease in chassis interest expense.  The decrease in bank interest expense alsoreflected lower prevailing interest rates, coupled with an increased focus onworking capital management and managing our working capital levels inaccordance with the lower sales volume experienced in 2007.  Additionally, the decrease in chassisinterest expense was due to reduced consigned chassis inventory levels relatingto light-duty chassis.  In 2006, weexperienced an unanticipated slowdown in the light-duty truck market causing abuild-up of consigned chassis inventory which resulted in increased chassisinterest expense.

 

***Income Taxes***

 

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

 

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***Net Income and EarningsPer Share***

 

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

** **
| ** **          | ** ** | **2007** | ** ** | **2006** | ** ** | **Change** | ** ** |
|---------------------|------------|----------|------------|----------|------------|------------|------------|
| Earnings per share: |       |     |       |     |       |       |       |
| Basic               |       | $        | 0.30       |     | $          | 0.33       |       | $ | (0.03 | ) |
| Diluted             |       | $        | 0.30       |     | $          | 0.33       |       | $ | (0.03 | ) |

 

**Liquidityand Capital Resources**

 

The Company believes that ithas adequate availability in its credit facility to finance future foreseeableworking capital requirements and intends to invest only in replacementequipment during 2009.  The Company’scash management system and revolving line of credit are designed to maintainzero cash balances and, accordingly, checks outstanding in excess of bankbalances are classified as additional borrowings under the revolving line ofcredit.

 

All borrowings under theCredit Agreement are collateralized by certain inventories and tradereceivables of the Company.  The Credit Agreement provides for a revolvingline of credit facility of up to $30 million and increasing to $33 millionduring the period each year from January 1 to June 30.  Intereston outstanding borrowings under the revolving line of credit is based on thebank’s prime rate, or certain basis points above LIBOR, depending on thepricing option selected and the Company’s leverage ratio.  As of December 27,2008, the Company had $29.9 million utilized under its credit facility.  Any amounts outstanding under the revolvingline of credit will be due at maturity, January 31, 2010.

 

The Credit Agreementcontains, among other matters, certain restrictive covenants includingcompliance with financial measurements. As of December 27, 2008, the Company was in compliance with allcovenants.  Subsequent to year-end, theCompany violated a covenant and entered into an amendment to the CreditAgreement with its lender to waive the covenant violation and to reset certainexisting covenant measurements to provide temporary relief during this economicdownturn.

 

***Operating activities***

 

Operating activitiesprovided $1.1 million of cash for the year ended December 27, 2008compared to cash provided of $18.4 million for the year ended December 29,2007.  In 2008, operating cash was favorably impacted by a $3.0 millionreduction in accounts receivable and a $2.4 million decrease in inventoryoffset by a $6.4 million decrease in accounts payable.  Net income,adjusted for depreciation, amortization and noncash impairment charges providedcash flows from operating activities totaling $2.6 million and $8.5 millionduring the twelve months of 2008 and 2007, respectively.

 

***Investing activities***

 

Cash used in investingactivities was $3.1 million for the year ended December 27, 2008 comparedto $3.6 million for the year ended December 29, 2007. Capitalexpenditures for 2008 were $3.6 million and consisted, in part, of investmentsin replacement equipment.  The company received proceeds of $1.0 millionfrom the sale of two service and distribution centers in the fourth quarter of2008.

 

***Financing activities***

 

Financing activitiesprovided $1.6 million of cash for the year ended December 27, 2008compared to cash used of $14.9 million for the year ended December 29,2007.  The lower level of financing activities for the year occurred as aresult of the decrease in accounts receivable and inventory levels. The Companyalso received $248,000 and $844,000 from the exercise of stock options in 2008and 2007, respectively.  Adjusted for the two percent (2%) and

 

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six percent (6%) commonstock dividends declared and paid during 2008, the Company paid cash dividendsof $0.088 per share, or $2.5 million, for each of the first and second quartersof 2008.  The Company suspended the cashdividend in August 2008 and declared a two percent and six percent stockdividend on its outstanding Class A and Class B Common Stock in thethird quarter and fourth quarter, respectively.  Adjusted for the 2008common stock dividends, the Company declared and paid cash dividends of $0.088per share for each of the four quarters of 2007, totaling $4.9 million. Due to the present industry conditions and economic recession, the Board ofDirectors has decided to suspend all dividend programs. Future dividends willnecessarily be subject to business conditions, the Company’s financial positionand requirements for working capital, property, plant, and equipmentexpenditures, and other corporate purposes.

 

**Contractual Obligations**

 

The Company’s fixed, noncancelable obligations as of December 27,2008 were as follows:

 
| ** **           | ** ** | **Payments due by period** | ** ** |
|----------------------|------------|-------------------------------------------|------------|
| ** **           | ** ** | ** **                                | ** ** | **Less than** | ** ** | **1-3** | ** ** | **3-5** | ** ** | **More than** | ** ** |
| ** **           | ** ** | **Total**                                 | ** ** | **1 Year** | ** ** | **Years** | ** ** | **Years** | ** ** | **5 Years** | ** ** |
| Debt (a)             |       | $                                         | 33,628,647 |   | $ | 823,297 |   | $ | 31,938,345 |   | $ | 467,005 |   | $ | 400,000 |   |
| Operating leases (b) |       | 1,263,317                                 |       | 805,871 |   | 457,446 |   | — |   | — |   |
| Total                |       | $                                         | 34,891,964 |   | $ | 1,629,168 |   | $ | 32,395,791 |   | $ | 467,005 |   | $ | 400,000 |   |

 

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(a)          Amounts are included on the ConsolidatedBalance Sheets.  See Note 5 of the Notesto Consolidated Financial Statements for additional information regarding debtand related matters.

 

(b)         See Note 9 of the Notes to ConsolidatedFinancial Statements for additional information regarding property leases.

 

**Critical Accounting Policies and Estimates**

 

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

 

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

 

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

 

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

 

Inventory Relief - For monthly andquarterly financial reporting, cost of sales is recorded and inventories arerelieved by the use of standard bills of material adjusted for scrap and otherestimated factors affecting inventory relief. Because of our large and diverse product line and the customized natureof each order, it is difficult to place

 

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full reliance on the bills of material for accurate relief ofinventories.  Although the Companycontinues to refine the process of creating accurate bills of materials, manualadjustments (which are based on estimates) are necessary in an effort to assurecorrect relief of inventories for products sold.  The calculations to estimate costs notcaptured in the bill of materials take into account the customized nature ofproducts, historical inventory relief percentages, scrap variances, and otherfactors which could impact inventory relief.

 

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

 

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

 

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

 

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

 

Impairment of Goodwill - The Companyevaluates the carrying value of goodwill during the fourth quarter of each yearand between annual evaluations if events occur or circumstances change thatwould more likely than not reduce the fair value of the reporting unit belowits carrying amount.  Such circumstancescould include, but are not limited to (1) a significant adverse change inlegal factors or in business climate, (2) unanticipated competition, or (3) anadverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company compares thefair value of the reporting unit to which the goodwill is assigned to thereporting unit’s carrying amount, including goodwill.  The fair value of the reporting unit isestimated using a combination of the discounted cash flows approach and considerationof the Company’s aggregate market value of its common stock.  As of December 27, 2008, the carryingamount of the Company’s specialized vehicles reporting unit exceeded its fairvalue, which required a measurement of the impairment loss.  The impairment loss was calculated bycomparing the implied fair value of the reporting unit goodwill to its carryingamount.  In calculating the implied fairvalue of the reporting unit goodwill, the fair value of the reporting unit isallocated to all of the other assets and liabilities of that unit based ontheir fair values.  The Companydetermined there was no excess fair value over the amount assigned to thereporting unit’s other assets and liabilities. An impairment loss was recognized for the full carrying value of thegoodwill, which totaled $735,014 at December 27, 2008.

 

Impairment of Intangible Assets -The Company evaluates the recoverability of identifiable intangible assetswhenever events or changes in circumstances indicate that an intangible asset’scarrying amount may not be recoverable. Such circumstances could include, but are not limited to (1) asignificant decrease in the market value of an asset, (2) a significantadverse change in the extent or manner in which an asset is used, or (3) anaccumulation of costs significantly in excess of the amount originally expectedfor the acquisition of an asset.  TheCompany measures the carrying amount of the asset against the estimatedundiscounted future cash flows associated with it.  Should the sum of the expected future netcash flows be less than the carrying value of the asset being evaluated, animpairment loss would be recognized.  Theimpairment loss would be calculated as the amount by which the carrying valueof the asset exceeds its fair value.  TheCompany estimated the value of its customer list based on various valuationtechniques, including the discounted value of estimated future cash flows.  The evaluation of asset impairment requiresthe Company to make assumptions about future cash flows over the life of theasset being evaluated.  These assumptionsrequire significant judgment and actual results may differ from assumed andestimated amounts.  The Company recordedan impairment charge for the full carrying amount of its customer list acquiredin 2006 during the fourth quarter of 2008, which totaled $588,507.

 

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**PendingAccounting Pronouncements**

 

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

 

**Forward-Looking Statements**

 

This report contains forward-looking statements, other than historicalfacts, which reflect the view of management with respect to future events.  When used in this report, words such as “believe,”“expect,” “anticipate,” “estimate,” “intend,” and similar expressions, as theyrelate to the Company or its plans or operations, identify forward-lookingstatements.  Such forward-looking statementsare based on assumptions made by, and information currently available to,management.  Although management believesthat 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, an economic slowdown in thespecialized vehicle industry, limitations on the availability of chassis onwhich the Company’s product is dependent, availability of raw materials, rawmaterial cost increases and severe interest rate increases.  Furthermore, the Company can provide noassurance that such raw material cost increases can be passed on to itscustomers 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.

 

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| **ITEM  7A.** | **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT  MARKET RISK.** |
|---------------|------------------------------------------------------------------|

 

In the normal course of business, operations of the Company are exposedto fluctuations in interest rates.  Thesefluctuations can vary the cost of investing, financing, and operating.  The Company’s primary risk exposure resultsfrom changes in short-term interest rates. In an effort to manage risk exposures, the Company strives to achieve anacceptable balance between fixed and floating rate debt positions.  The Company’s revolving line of credit isfloating rate debt and bears interest at the bank’s prime rate or LIBOR pluscertain basis points depending on the pricing option selected and the Company’sleverage ratio.  At December 27,2008, the Company had in effect an interest rate swap agreement dated July 28,2005.  The interest rate swap agreementis a contract to exchange floating rate for fixed rate interest payments overthe life of the interest rate swap agreement and is used to measure interest tobe paid or received and does not represent the amount of exposure of creditloss.  The differential paid or receivedunder the interest rate swap agreement is recognized as an adjustment to interestexpense.  The following is a summary ofthe interest rate swap agreement outstanding at December 27, 2008.

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

 

Based on the Company’s overall interest rate exposure at December 27,2008, a hypothetical 10 percent change in interest rates applied to the fairvalue of the financial instruments as of December 27, 2008, would have nomaterial impact on earnings, cash flows, or fair values of interest rate risksensitive instruments over a one-year period.

 
| **ITEM 8.** | **FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA.** |
|-------------|---------------------------------------------------|

** **
|                                                                                                                                                 | **Page**                      |
|------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------|
| Index to Financial  Statements                                                                                                                       |                          |
|                                                                                                                                                 |                          |   |
| 1.                                                                                                                                                   | Financial Statements:         |   |
|                                                                                                                                                 |                          |
| Report  of Crowe Horwath LLP, Independent Registered Public Accounting Firm                                                                          | 24                            |
|                                                                                                                                                 |                          |
| Consolidated  Balance Sheets as of December 27, 2008 and December 29, 2007                                                                 | 25                            |
|                                                                                                                                                 |                          |
| Consolidated  Statements of Operations for the years ended December 27, 2008, December 29, 2007 and  December 30, 2006                | 26                            |
|                                                                                                                                                 |                          |
| Consolidated Statements of Stockholders’ Equity for  the years ended December 27,  2008, December 29, 2007 and December 30, 2006 | 27                            |
|                                                                                                                                                 |                          |
| Consolidated Statements of Cash Flows for the years  ended December 27, 2008,  December 29, 2007 and December 30, 2006                | 28                            |
|                                                                                                                                                 |                          |
| Notes to Consolidated Financial Statements                                                                                                           | 29-45                         |
|                                                                                                                                                 |                          |
| 2.                                                                                                                                                   | Financial Statement Schedule: |   |
|                                                                                                                                                 |                          |
| Schedule II - Valuation and Qualifying Accounts for  the years ended December 27,  2008, December 29, 2007 and December 30, 2006      | 46                            |
|                                                                                                                                                 |                          |
| All  other schedules are omitted because they are not applicable.                                                                                    |                          |
|                                                                                                                                                 |                          |
| 3.                                                                                                                                                   | Supplementary Data            |   |
|                                                                                                                                                 |                          |
| Quarterly Results (Unaudited)                                                                                                                        | 47                            |
|                                                                                                                                                      |                               |  |  |

 

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REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

 

Tothe Board of Directors and Stockholders of  Supreme Industries, Inc.

 

Wehave audited the accompanying consolidated balance sheets of Supreme Industries, Inc.and its subsidiaries as of December 27, 2008 and December 29, 2007,and the related consolidated statements of operations, stockholders’ equity,and cash flows for each of the three years in the period ended December 27,2008.  In connection with our audits ofthe consolidated financial statements, we also have audited the financialstatement schedule, Schedule II — Valuation and Qualifying Accounts.  These financial statements and financial statementschedule 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.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of materialmisstatement.  The Company is not requiredto have, nor were we engaged to perform, an audit of its internal control overfinancial reporting.  Our audit includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of Supreme Industries, Inc.and its subsidiaries as of December 27, 2008 and December 29, 2007,and the results of their operations and their cash flows for each of the threeyears in the period ended December 27, 2008, in conformity with U.S.generally accepted accounting principles. Also, in our opinion, the related consolidated financial statementschedule, when considered in relation to the basic consolidated financialstatements taken as a whole, presents fairly, in all material respects, theinformation set forth therein.

 

 
|                    | /s/  Crowe Horwath LLP |
|-------------------------|------------------------|
|                    |                   |
| South  Bend, Indiana    |                   |
| February 12,  2009 |                   |

 

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Tableof Contents

 

**SupremeIndustries, Inc. And Subsidiaries**

**Consolidated Balance Sheets**

*December 27, 2008 and December 29, 2007*

 
| ** **                                                                                                                                                                                         | ** ** | **2008**    | ** **  | **2007**    | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| **ASSETS**                                                                                                                                                                                         |       |        |        |        |       |
| **Current assets:**                                                                                                                                                                                |       |        |        |        |       |
| Cash and cash equivalents                                                                                                                                                                          |       | $           | 932,608     |        | $          | 1,266,133 |   |
| Investments                                                                                                                                                                                        |       | 2,509,848   |        | 2,215,267   |       |
| Accounts receivable, net of allowance for  doubtful accounts of $290,000 in 2008 and $160,000 in 2007                                                                                              |       | 25,423,842  |        | 28,628,324  |       |
| Refundable income taxes                                                                                                                                                                            |       | 2,244,129   |        | 805,082     |       |
| Inventories                                                                                                                                                                                        |       | 44,248,516  |        | 46,643,480  |       |
| Deferred income taxes                                                                                                                                                                              |       | 1,642,363   |        | 1,192,331   |       |
| Other current assets                                                                                                                                                                               |       | 2,449,248   |        | 3,174,090   |       |
| **Total current assets**                                                                                                                                                                           |       | 79,450,554  |        | 83,924,707  |       |
|                                                                                                                                                                                               |       |        |        |        |       |
| **Property, plant and equipment, net**                                                                                                                                                             |       | 45,778,908  |        | 47,429,725  |       |
|                                                                                                                                                                                               |       |        |        |        |       |
| **Intangible assets, net**                                                                                                                                                                         |       | —      |        | 636,877     |       |
|                                                                                                                                                                                               |       |        |        |        |       |
| **Goodwill**                                                                                                                                                                                       |       | —      |        | 735,014     |       |
|                                                                                                                                                                                               |       |        |        |        |       |
| **Other assets**                                                                                                                                                                                   |       | 295,109     |        | 64,860      |       |
| **Total assets**                                                                                                                                                                                   |       | $           | 125,524,571 |        | $          | 132,791,183 |   |
|                                                                                                                                                                                               |       |        |        |        |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                     |       |        |        |        |       |
|                                                                                                                                                                                               |       |        |        |        |       |
| **Current liabilities:**                                                                                                                                                                           |       |        |        |        |       |
| Current maturities of long-term debt                                                                                                                                                               |       | $           | 823,297     |        | $          | 748,406 |   |
| Trade accounts payable                                                                                                                                                                             |       | 8,266,945   |        | 14,642,616  |       |
| Accrued wages and benefits                                                                                                                                                                         |       | 1,924,311   |        | 3,062,950   |       |
| Accrued self-insurance                                                                                                                                                                             |       | 1,847,727   |        | 2,652,350   |       |
| Customer deposits                                                                                                                                                                                  |       | 1,644,234   |        | 81,894      |       |
| Accrued warranty                                                                                                                                                                                   |       | 1,473,000   |        | 1,476,000   |       |
| Accrued income taxes                                                                                                                                                                               |       | 675,200     |        | 498,162     |       |
| Other accrued liabilities                                                                                                                                                                          |       | 2,459,840   |        | 2,236,901   |       |
| **Total current liabilities**                                                                                                                                                                      |       | 19,114,554  |        | 25,399,279  |       |
|                                                                                                                                                                                               |       |        |        |        |       |
| **Long-term debt**                                                                                                                                                                                 |       | 32,805,350  |        | 29,002,718  |       |
|                                                                                                                                                                                               |       |        |        |        |       |
| **Deferred income taxes**                                                                                                                                                                          |       | 2,403,698   |        | 2,589,055   |       |
|                                                                                                                                                                                               |       |        |        |        |       |
| **Other long-term liabilities**                                                                                                                                                                    |       | 818,053     |        | 333,046     |       |
| **Total liabilities**                                                                                                                                                                              |       | 55,141,655  |        | 57,324,098  |       |
|                                                                                                                                                                                               |       |        |        |        |       |
| **Commitments and contingencies (Note 9)**                                                                                                                                                         |       |        |        |        |       |
|                                                                                                                                                                                               |       |        |        |        |       |
| **Stockholders’ equity:**                                                                                                                                                                     |       |        |        |        |       |
| Preferred Stock, $1 par value; authorized  1,000,000 shares, none issued                                                                                                                           |       | —      |        | —      |       |
| Class A Common Stock, $.10 par value;  authorized 20,000,000 shares, issued 14,586,634 Shares in 2008 and 13,461,174  in 2007                                                                 |       | 1,458,664   |        | 1,346,118   |       |
| 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 2,188,490 shares in 2008 and 2,024,133 in 2007 |       | 218,849     |        | 202,413     |       |
| Additional paid-in capital                                                                                                                                                                         |       | 70,603,235  |        | 67,348,018  |       |
| Retained earnings                                                                                                                                                                                  |       | 20,573,244  |        | 28,285,847  |       |
| Treasury stock, Class A Common Stock,  at cost, 2,641,050 shares in 2008 and 2,569,522 shares in 2007                                                                                         |       | (21,853,337 | )           | (21,515,892 | )          |
| Accumulated other comprehensive (loss)                                                                                                                                                             |       | (617,739    | )           | (199,419    | )          |
| **Total stockholders’ equity**                                                                                                                                                                |       | 70,382,916  |        | 75,467,085  |       |
|                                                                                                                                                                                               |       |        |        |        |       |
| **Total liabilities and stockholders’ equity**                                                                                                                                                |       | $           | 125,524,571 |        | $          | 132,791,183 |   |

 

See accompanying notes to consolidated financial statements.

 

25

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**Supreme Industries, Inc. And Subsidiaries**

**Consolidated Statements of Operations**

*for theyears ended December 27, 2008, December 29, 2007 and December 30,2006*

 
| ** **                                                        | ** ** | **2008**    | ** **  | **2007**    | ** ** | **2006**    | ** ** |
|-------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
|                                                              |       |        |        |        |       |        |       |
| Net sales                                                         |       | $           | 268,749,653 |        | $          | 313,272,723 |       | $ | 340,746,789 |   |
| Cost of sales                                                     |       | 244,179,662 |        | 278,089,294 |       | 303,182,249 |       |
| **Gross profit**                                                  |       | 24,569,991  |        | 35,183,429  |       | 37,564,540  |       |
|                                                              |       |        |        |        |       |        |       |
| Selling, general and administrative  expenses                     |       | 27,350,730  |        | 27,838,011  |       | 28,483,091  |       |
| Goodwill and intangible asset impairment                          |       | 1,323,521   |        | —      |       | —      |       |
| Other income                                                      |       | (1,126,044  | )           | (594,654    | )          | (560,045    | )          |
| **Operating income (loss)**                                       |       | (2,978,216  | )           | 7,940,072   |       | 9,641,494   |       |
|                                                              |       |        |        |        |       |        |       |
| Interest expense                                                  |       | 2,251,888   |        | 2,472,267   |       | 3,054,726   |       |
| **Income (loss) before income taxes**                             |       | (5,230,104  | )           | 5,467,805   |       | 6,586,768   |       |
|                                                              |       |        |        |        |       |        |       |
| Income tax expense (benefit)                                      |       | (2,168,685  | )           | 1,304,000   |       | 1,992,000   |       |
| **Net income (loss)**                                             |       | $           | (3,061,419  | )           | $          | 4,163,805   |       | $ | 4,594,768 |   |
|                                                              |       |        |        |        |       |        |       |
| **Earnings (Loss) Per Share:**                                    |       |        |        |        |       |        |       |
| Basic                                                             |       | $           | (0.22       | )           | $          | .30         |       | $ | .33 |   |
| Diluted                                                           |       | (0.22       | )           | .30         |       | .33         |       |
|                                                              |       |        |        |        |       |        |       |
| **Shares used in the computation of earnings  (loss) per share:** |       |        |        |        |       |        |       |
| Basic                                                             |       | 14,110,103  |        | 13,871,471  |       | 13,727,561  |       |
| Diluted                                                           |       | 14,110,103  |        | 13,983,749  |       | 13,917,896  |       |
|                                                              |       |        |        |        |       |        |       |
| **Cash dividends per common share**                               |       | $           | .18         |        | $          | .35         |       | $ | .35 |   |

 

See accompanying notes to consolidated financial statements.

 

26

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**Supreme Industries, Inc. And Subsidiaries**

**Consolidated Statements of Stockholders’ Equity**

*for theyears ended December 27, 2008, December 29, 2007 and December 30,2006*

 
| ** **                                                  | ** ** | ** **                              | ** ** | ** **                              | ** ** | ** **     | ** ** | ** **   | ** ** | ** **               | ** ** | ** **        | ** ** | ** **             | ** ** | **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 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 ($.35 per share)                             |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | (4,822,789        | )          | —                 |       | —                 |       | (4,822,789 | )           |
| Exercise of stock options                                   |       | 18,334                                  |       | 1,833                                   |       | —         |       | —       |       | 83,915                   |       | —            |       | (52,735                | )          | —                 |       | 33,013     |        |
| Conversion of 85,000 shares of Class B                 |       |                                    |       |                                    |       |           |       |         |       |                     |       |              |       |                   |       |                   |       |       |        |
| Common Stock to 85,000 shares of Class A  Common Stock |       | 85,000                                  |       | 8,500                                   |       | (85,000        | )          | (8,500       | )          | —                   |       | —            |       | —                 |       | —                 |       | —     |        |
| Issuance of 10,000 shares of restricted  stock              |       | 10,000                                  |       | 1,000                                   |       | —         |       | —       |       | (1,000                   | )          | —            |       | —                 |       | —                 |       | —     |        |
| Stock-based compensation                                    |       | —                                  |       | —                                  |       | —         |       | —       |       | 123,000                  |       | —            |       | —                 |       | —                 |       | 123,000    |        |
| Tax benefit of disqualifying stock option Dispositions      |       | —                                  |       | —                                  |       | —         |       | —       |       | 34,480                   |       | —            |       | —                 |       | —                 |       | 34,480     |        |
| Balance, December 30, 2006                             |       | 13,155,160                              |       | 1,315,516                               |       | 2,024,133      |       | 202,413      |       | 65,499,875               |       | 29,008,233        |       | (20,910,173            | )          | 92,817                 |       | 75,208,681 |        |
| Net income                                                  |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | 4,163,805         |       | —                 |       | —                 |       | 4,163,805  |        |
| Unrealized loss on hedge activity, net of  tax              |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | —            |       | —                 |       | (300,888               | )          | (300,888   | )           |
| Unrealized holding gain on investments, net  of tax         |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | —            |       | —                 |       | 8,652                  |       | 8,652      |        |
| Total comprehensive income                                  |       |                                    |       |                                    |       |           |       |         |       |                     |       |              |       |                   |       |                   |       | 3,871,569  |        |
| Cash dividends ($.35 per share)                             |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | (4,873,991        | )          | —                 |       | —                 |       | (4,873,991 | )           |
| Exercise of stock options                                   |       | 302,834                                 |       | 30,284                                  |       | —         |       | —       |       | 1,502,229                |       | —            |       | (688,719               | )          | —                 |       | 843,794    |        |
| Issuance of 10,000 shares of common stock                   |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | (12,200           | )          | 83,000                 |       | —                 |       | 70,800     |        |
| Issuance of restricted stock                                |       | 3,180                                   |       | 318                                     |       | —         |       | —       |       | 16,631                   |       | —            |       | —                 |       | —                 |       | 16,949     |        |
| Stock-based compensation                                    |       | —                                  |       | —                                  |       | —         |       | —       |       | 255,899                  |       | —            |       | —                 |       | —                 |       | 255,899    |        |
| Tax benefit of disqualifying stock option Dispositions      |       | —                                  |       | —                                  |       | —         |       | —       |       | 73,384                   |       | —            |       | —                 |       | —                 |       | 73,384     |        |
| Balance, December 29, 2007                             |       | 13,461,174                              |       | 1,346,118                               |       | 2,024,133      |       | 202,413      |       | 67,348,018               |       | 28,285,847        |       | (21,515,892            | )          | (199,419               | )          | 75,467,085 |        |
| Net loss                                                    |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | (3,061,419        | )          | —                 |       | —                 |       | (3,061,419 | )           |
| Unrealized loss on hedge activity, net of  tax              |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | —            |       | —                 |       | (310,607               | )          | (310,607   | )           |
| Unrealized holding loss on investments, net  of tax         |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | —            |       | —                 |       | (107,713               | )          | (107,713   | )           |
| Total comprehensive loss                                    |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | —            |       | —                 |       | —                 |       | (3,479,739 | )           |
| Common stock dividends                                      |       | 911,209                                 |       | 91,121                                  |       | 164,357        |       | 16,436       |       | 2,014,575                |       | (2,122,132        | )          | —                 |       | —                 |       | —     |        |
| Cash dividends ($.18 per share)                             |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | (2,491,612        | )          | —                 |       | —                 |       | (2,491,612 | )           |
| Exercise of stock options                                   |       | 148,500                                 |       | 14,850                                  |       | —         |       | —       |       | 668,255                  |       | —            |       | (435,605               | )          | —                 |       | 247,500    |        |
| Issuance of 12,000 shares of common stock                   |       | —                                  |       | —                                  |       | —         |       | —       |       | —                   |       | (37,440           | )          | 98,160                 |       | —                 |       | 60,720     |        |
| Issuance of restricted stock                                |       | 65,751                                  |       | 6,575                                   |       | —         |       | —       |       | 366,873                  |       | —            |       | —                 |       | —                 |       | 373,448    |        |
| Stock-based compensation                                    |       | —                                  |       | —                                  |       | —         |       | —       |       | 205,514                  |       | —            |       | —                 |       | —                 |       | 205,514    |        |
| Balance, December 27, 2008                             |       | 14,586,634                              |       | $                                       | 1,458,664  |           | 2,188,490  |         | $          | 218,849                  |       | $                 | 70,603,235 |                   | $          | 20,573,244             |       | $          | (21,853,337 | ) | $ | (617,739 | ) | $ | 70,382,916 |   |

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

 

**Supreme Industries, Inc. And Subsidiaries**

**Consolidated Statements of Cash Flows**

*for theyears ended December 27, 2008, December 29, 2007 and December 30,2006*

 
| ** **                                                                                   | ** ** | **2008**     | ** ** | **2007**     | ** ** | **2006**    | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------|------------|--------------|------------|-------------|------------|
| **Cash flows from operating activities:**                                |       |         |       |         |       |        |       |
| Net income (loss)                                                                  |       | $            | (3,061,419 | )            | $          | 4,163,805   |       | $ | 4,594,768 |   |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities:    |       |         |       |         |       |        |       |
| Depreciation                                                                                 |       | 4,268,447    |       | 4,295,739    |       | 4,260,632   |       |
| Amortization of intangibles                                                                  |       | 48,370       |       | 48,370       |       | 40,309      |       |
| Goodwill and intangible asset impairment                                                     |       | 1,323,521    |       | —       |       | —      |       |
| Provision for losses on doubtful  receivables                                                |       | 238,580      |       | 177,785      |       | 223,859     |       |
| Deferred income taxes                                                                        |       | (412,700     | )          | (331,000     | )          | (307,000    | )          |
| Stock-based compensation expense                                                             |       | 639,682      |       | 343,648      |       | 123,000     |       |
| Losses (gains) on sale of property, plant,  and equipment, net                               |       | (234,894     | )          | 24,284       |       | (4,718      | )          |
| Changes in operating assets and  liabilities, net of effect of business acquisition in 2006: |       |         |       |         |       |        |       |
| Accounts receivable                                                                          |       | 2,965,902    |       | 2,310,167    |       | (1,589,116  | )          |
| Inventories                                                                                  |       | 2,394,964    |       | 6,862,887    |       | (2,534,290  | )          |
| Other current assets                                                                         |       | (714,205     | )          | (778,759     | )          | (275,712    | )          |
| Trade accounts payable                                                                       |       | (6,375,671   | )          | 1,134,175    |       | (2,329,854  | )          |
| Other current liabilities                                                                    |       | 16,055       |       | 194,529      |       | (514,863    | )          |
|                                                                                         |       |         |       |         |       |        |       |
| **Net cash provided by operating activities**                                                |       | 1,096,632    |       | 18,445,630   |       | 1,687,015   |       |
|                                                                                         |       |         |       |         |       |        |       |
| **Cash flows from investing activities:**                                                    |       |         |       |         |       |        |       |
| Business acquisition                                                                         |       | —       |       | —       |       | (1,050,000  | )          |
| Proceeds from sale of property, plant, and  equipment                                        |       | 955,363      |       | 66,003       |       | 1,937,551   |       |
| Additions to property, plant and equipment                                                   |       | (3,577,094   | )          | (3,426,268   | )          | (5,187,712  | )          |
| Proceeds from sale of investments                                                            |       | 832,670      |       | 544,804      |       | 893,285     |       |
| Purchases of investments                                                                     |       | (1,283,253   | )          | (1,203,900   | )          | (1,251,186  | )          |
| Decrease in other assets                                                                     |       | 8,746        |       | 408,745      |       | 42,079      |       |
|                                                                                         |       |         |       |         |       |        |       |
| **Net cash used in investing activities**                                                    |       | (3,063,568   | )          | (3,610,616   | )          | (4,615,983  | )          |
|                                                                                         |       |         |       |         |       |        |       |
| **Cash flows from financing activities:**                                                    |       |         |       |         |       |        |       |
| Proceeds from revolving line of credit and  other long-term debt                             |       | 120,761,270  |       | 105,717,892  |       | 100,172,242 |       |
| Repayments of revolving line of credit and  other long-term debt                             |       | (116,883,747 | )          | (116,637,422 | )          | (92,696,047 | )          |
| Payment of cash dividends                                                                    |       | (2,491,612   | )          | (4,873,991   | )          | (4,822,789  | )          |
| Tax benefit of disqualifying stock option  dispositions                                      |       | —       |       | 73,384       |       | 34,480      |       |
| Proceeds from exercise of stock options                                                      |       | 247,500      |       | 843,793      |       | 33,013      |       |
|                                                                                         |       |         |       |         |       |        |       |
| **Net cash provided by (used in) financing  activities**                                     |       | 1,633,411    |       | (14,876,344  | )          | 2,720,899   |       |
|                                                                                         |       |         |       |         |       |        |       |
| **Change in cash and cash equivalents**                                                      |       | (333,525     | )          | (41,330      | )          | (208,069    | )          |
|                                                                                         |       |         |       |         |       |        |       |
| **Cash and cash equivalents, beginning of  year**                                            |       | 1,266,133    |       | 1,307,463    |       | 1,515,532   |       |
|                                                                                         |       |         |       |         |       |        |       |
| **Cash and cash equivalents, end of year**                                                   |       | $            | 932,608    |         | $          | 1,266,133   |       | $ | 1,307,463 |   |
|                                                                                         |       |         |       |         |       |        |       |
| **Supplemental disclosure of cash flow  information:**                                       |       |         |       |         |       |        |       |
| Cash paid during the year for:                                                               |       |         |       |         |       |        |       |
| Interest                                                                                     |       | $            | 2,223,660  |         | $          | 2,563,934   |       | $ | 2,986,054 |   |
| Income taxes, net                                                                            |       | (694,256     | )          | 1,794,197    |       | 1,834,272   |       |
| **Noncash investing and financing activities:**                                              |       |         |       |         |       |        |       |
| Common stock dividends                                                                       |       | 2,122,132    |       | —       |       | —      |       |
| Liabilities assumed in business acquisition                                                  |       | —       |       | —       |       | 163,222     |       |

 

See accompanying notes to consolidated financial statements.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes to Consolidated Financial Statements**

 

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

 

SupremeIndustries, Inc. and its subsidiaries (collectively the “Company”)manufacture specialized vehicles including truck bodies, buses, and armoredvehicles.  The Company’s core productsinclude cutaway and dry freight van bodies, refrigerated units, stake bodiesand other specialized vehicles, including shuttle buses.  At December 27, 2008, the Companyoperated at 12 manufacturing, distribution and component manufacturinglocations.  The Company’s customers arelocated principally in the United States of America.

 

Thefollowing is a summary of the significant accounting policies used in thepreparation of the accompanying consolidated financial statements:

 

**Principles of 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.

 

**Fiscal Year End** - The Company’s fiscal year ends the last Saturday in December.  The fiscal years ended December 27,2008, December 29, 2007 and December 30, 2006 each contained 52weeks, respectively.

 

**Use of Estimates in the Preparation of Financial Statements** - The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

**Revenue Recognition** - The production of specialized truck bodies and shuttle buses startswhen an order is received from the customer and revenue is recognized when theunit is shipped to the customer.  Revenueon certain customer requested bill and hold transactions is recognizedsubsequent to when the customer is notified that the products have beencompleted according to customer specifications, have passed all of the Company’squality control inspections and are ready for delivery based upon establisheddelivery terms.  These transactions meetthe requirements for bill and hold accounting under Securities and ExchangeCommission Staff Accounting Bulletin Topic 13, “Revenue Recognition.”

 

Netsales are net of cash discounts which the Company offers its customers in theordinary course of business.

 

**Concentration of Credit Risk** - Concentration of credit risk is limiteddue to the large number of customers and their dispersion among many differentindustries and geographic regions.  Dueto the completion and shipment of several units for one particular customernear the year’s end, this customer composed 13.3% of the Company’s total tradeaccounts receivable for the year ended December 27, 2008.  As of year-end, no other customer representedmore than 10% of the Company’s total accounts receivable.  The Company performs ongoing creditevaluations of its customers and credit is extended on an unsecured basis.

 

**Advertising** - The Company expenses advertising costs as incurred.  Advertising costs for the years ended December 27,2008, December 29, 2007 and December 30, 2006 were $184,376,$230,634, and $260,715, respectively.

 

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**Supreme Industries, Inc. And Subsidiaries**

**Notes to Consolidated Financial Statements, Continued**

 

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

 

**Financial Instruments and Fair Values** - The Company has utilized interest rateswap agreements to reduce the impact of changes in interest rates on certain ofits floating rate debt.  The swapagreements are contracts to exchange the debt obligation’s LIBOR floating rate(exclusive of the applicable spread) for fixed rate interest payments over theterm of the swap agreement without exchange of the underlying notionalamounts.  The notional amounts of theinterest rate swap agreements are used to measure interest to be paid orreceived and do not represent the amount of exposure of credit loss.  The differential paid or received underinterest rate swap agreements is recognized as an adjustment to interestexpense.

 

AtDecember 27, 2008 and December 29, 2007, the Company had an interestrate swap agreement outstanding with a notional amount of $15,000,000.  The interest rate swap agreement provides a4.71% fixed interest rate and matures on July 28, 2010.  In accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 133, “Accounting for DerivativeInstruments and Hedging Activities,” the interest rate swap agreement isdesignated and qualified as a cash flow hedging instrument.  It is fully effective, resulting in no netgain or loss recorded in the consolidated statements of operations.  The fair value of the contract at December 27,2008 and December 29, 2007 was a liability of  $818,053 and $333,046, respectively and underSFAS No. 133 changes in fair value of the financial instrument, net ofapplicable income taxes, are adjusted through accumulated other comprehensiveincome (loss).

 

Statementof Financial Accounting Standards (“SFAS”) No. 157, “Fair ValueMeasurements,” defines fair value as the exchange price that would be receivedfor an asset or paid to transfer a liability (an exit price) in the principalor most advantageous market for the asset or liability in an orderlytransaction between market participants on the measurement date.  SFAS No. 157also establishes a fair value hierarchy which requires an entity to maximizethe use of observable inputs and minimize the use of unobservable inputs whenmeasuring fair value.  The standard describes three levels of inputs thatmay be used to measure fair value:

 

Level1: Quoted prices (unadjusted) or identical assets or liabilities in activemarkets that the entity has the ability to access as of the measurement date.

 

Level2: Significant other observable inputs other than Level 1 prices such as quotedprices for similar assets or liabilities; quoted prices in markets that are notactive; or other inputs that are observable or can be corroborated byobservable market data.

 

Level3: Significant unobservable inputs that reflect a company’s own assumptionsabout the assumptions that market participants would use in pricing an asset orliability.

 

TheCompany’s derivative instruments consist of interest rate swaps.  As such,significant fair value inputs can generally be verified and do not typicallyinvolve significant management judgments (Level 2 inputs).

 

Thecarrying amounts of cash and cash equivalents, accounts receivable and tradeaccounts payable approximated fair value as of December 27, 2008 and December 29,2007 because of the relatively short maturities of these financialinstruments.  The carrying amount oflong-term debt, including current maturities, approximated fair value as of December 27,2008 and December 29, 2007, based upon terms and conditions available tothe Company at those dates in comparison to the terms and conditions of itsoutstanding long-term debt.

 

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**Supreme Industries, Inc. And Subsidiaries**

**Notes to Consolidated Financial Statements, Continued**

 

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

 

**Cash and Cash Equivalents** - The Company considers all highly liquidinvestments with original maturities of three months or less to be cashequivalents.

 

**Investments** - The Company accounts for its investments in debt and equitysecurities under SFAS No. 115, “Accounting for Certain Investments in Debtand Equity Securities,” which requires certain securities to be categorized aseither trading, 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 accumulatedother comprehensive income (loss).  PerSFAS No. 157, the Company determined fair values of investments availablefor sale by obtaining quoted prices on nationally recognized securitiesexchanges (Level 1 inputs).  Dividend andinterest income are accrued as earned. The Company reviews its investments quarterly for declines in marketvalue that are other than temporary.

 

**Accounts Receivable** - The Company accounts for trade receivables based on the amountsbilled to customers.  Past duereceivables are determined based on contractual terms.  The Company does not accrue interest on anyof its trade receivables.

 

**Allowance for Doubtful Accounts** - The allowance for doubtful accounts isdetermined by management based on the Company’s historical losses, specificcustomer 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 costdetermined using the first-in, first-out method.

 

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

 

**IntangibleAssets** - The Company evaluates the recoverability of identifiableintangible assets whenever events or changes in circumstances indicate that anintangible asset’s carrying amount may not be recoverable.  Such circumstances could include, but are notlimited to (1) a significant decrease in the market value of an asset, (2) asignificant adverse change in the extent or manner in which an asset is used,or (3) an accumulation of costs significantly in excess of the amountoriginally expected for the acquisition of an asset.  The Company measures the carrying amount of

 

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**Supreme Industries, Inc. And Subsidiaries**

**Notes to Consolidated Financial Statements, Continued**

 

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

 

the asset against theestimated undiscounted future cash flows associated with it.  Should the sum of the expected future netcash flows be less than the carrying value of the asset being evaluated, an impairmentloss would be recognized.  The impairmentloss would be calculated as the amount by which the carrying value of the assetexceeds its fair value.  The Companyestimated the value of its customer list based on various valuation techniques,including the discounted value of estimated future cash flows.  The evaluation of asset impairment requiresthe Company to make assumptions about future cash flows over the life of theasset being evaluated.  These assumptionsrequire significant judgment and actual results may differ from assumed andestimated amounts.  The Company recordedan impairment charge for the full carrying amount of its customer list acquiredin 2006 during the fourth quarter of 2008, which totaled $588,507.

 

**Goodwill**- The Company evaluates the carrying value of goodwill during the fourthquarter of each year and between annual evaluations if events occur orcircumstances change that would more likely than not reduce the fair value ofthe reporting unit below its carrying amount. Such circumstances could include, but are not limited to (1) asignificant adverse change in legal factors or in business climate, (2) unanticipatedcompetition, or (3) an adverse action or assessment by a regulator.  When evaluating whether goodwill is impaired,the Company compares the fair value of the reporting unit to which the goodwillis assigned to the reporting unit’s carrying amount, including goodwill.  The fair value of the reporting unit isestimated using a combination of the discounted cash flows approach andconsideration of the Company’s aggregate market value of its common stock.  As of December 27, 2008, the carryingamount of the Company’s specialized vehicles reporting unit exceeded its fairvalue, which required a measurement of the impairment loss.  The impairment loss was calculated bycomparing the implied fair value of the reporting unit goodwill to its carryingamount.  In calculating the implied fairvalue of the reporting unit goodwill, the fair value of the reporting unit isallocated to all of the other assets and liabilities of that unit based ontheir fair values.  The Companydetermined there was no excess fair value over the amount assigned to thereporting unit’s other assets and liabilities. An impairment loss was recognized for the full carrying value of thegoodwill, which totaled $735,014 at December 27, 2008.

 

**Evaluation of Impairment of Long-Lived Assets** - In accordance with SFAS No. 144, “Impairmentor Disposal of Long-Lived Assets,” the Company evaluates the carrying value oflong-lived assets whenever significant events or changes in circumstancesindicate the carrying value of these assets may be impaired.  The Company evaluates potential impairment oflong-lived assets by comparing the carrying value of the assets to the expectednet future cash inflows resulting from use of the assets.

 

**Stock-Based Compensation** - Effective January 1, 2006, theCompany adopted SFAS No. 123R (revised 2004), “Share-Based Payment” asinterpreted by SEC Staff Accounting Bulletin No. 107.  SFAS No. 123R supersedes AccountingPrinciples Board (“APB”) Opinion No. 25, “Accounting for Stock Issued toEmployees,” and amends SFAS No. 95, “Statement of Cash Flows.” Generally,the approach in SFAS No. 123R is similar to the approach described in SFASNo. 123, “Accounting for Stock-Based Compensation.”  However, SFAS No. 123R requires allstock-based payments to employees, including grants of employee stock options,to be recognized in the consolidated statements of operations based on theirfair values at the date of grant.

 

TheCompany has elected to use the modified prospective transition method forimplementing SFAS No. 123R.  Underthis transition method, compensation expense will include:  (a) compensation expense for allshare-based payments granted prior to, but not yet vested as of, January 1,2006, based on the grant date fair value estimated in accordance with theoriginal

 

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**Supreme Industries, Inc. And Subsidiaries**

**Notes to Consolidated Financial Statements, Continued**

 

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

 

provisionsof SFAS No. 123, and (b) compensation expense for all share-based paymentsgranted on or after January 1, 2006, based on the grant date fair valueestimated in accordance with the provisions of SFAS No. 123R.  Because the Company elected to use themodified prospective transition method, results for prior periods have not beenrestated and new awards are valued and accounted for prospectively uponadoption.

 

The Company currently uses the Black-Scholes optionpricing model to determine the fair value of stock options.  The determination of the fair value ofstock-based payment awards on the date of grant using an option-pricing modelis affected by stock price as well as assumptions regarding a number of complexand subjective variables.  Thesevariables include expected stock price volatility over the term of the awards, actualand projected employee stock option exercise behaviors, risk-free interest rateand expected dividends.

 

Compensationexpense (net of estimated forfeitures), relative to stock-based awards (seeNote 7), included in the consolidated statements of operations for the yearsended December 27, 2008, December 29, 2007 and December 30, 2006was $639,682, $343,648 and $123,000, respectively.  The weighted-average assumptions utilized inthe determination of stock-based compensation expense were as follows:

 
| ** **              | ** ** | **2008**  | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------|------------|-----------|------------|----------|------------|----------|------------|
| Risk free interest rate |       | 2.69      | %          | 4.51     | %          | 5.03     | %          |
| Expected life           |       | 6.8 years |       | 5 years  |       | 5 years  |       |
| Expected volatility     |       | 41.19     | %          | 25.57    | %          | 32.23    | %          |
| Expected dividends      |       | 0.59      | %          | 6.08     | %          | 5.39     | %          |

 

Therisk-free interest rate is determined based on observed U.S. Treasury yields ineffect at the time of grant for maturities equivalent to the expected life ofthe option.  The expected life of theoption (estimated average period of time the option will be outstanding) isestimated based on the historical exercise behavior of employees, withexecutives displaying somewhat longer holding periods than otheremployees.  Expected volatility is basedon historical volatility measured daily for a time period equal to the option’sexpected life, ending on the day of grant. The expected dividend yield is estimated based on the dividend yield atthe time of grant, adjusted for expected dividend increases and historicalpayout policy.

 

**Warranty** - The Company provides limited product warranties for periods of up tofive years 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 27, 2008, December 29, 2007 andDecember 30, 2006 is as follows:

 
| ** **                          | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Accrued warranty, beginning of year |       | $          | 1,476,000  |       | $          | 1,541,000  |       | $ | 1,385,000 |   |
| Warranty expense                    |       | 1,680,643  |       | 1,344,327  |       | 1,794,057  |       |
| Warranty claims paid                |       | (1,683,643 | )          | (1,409,327 | )          | (1,638,057 | )          |
| Accrued warranty, end of year       |       | $          | 1,473,000  |       | $          | 1,476,000  |       | $ | 1,541,000 |   |

 

**Income Taxes** - Deferred income taxes are determined usingthe liability method.

 

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

 

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**Supreme Industries, Inc. And Subsidiaries**

**Notes to Consolidated Financial Statements, Continued**

 

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

 

earnings per share is computed by dividing netincome (loss) by the weighted average number of shares of common stockoutstanding plus the dilutive effect of stock options and restricted stockawards.  The stock options and restrictedstock awards were not included in the 2008 computation of diluted earnings pershare as their effect would have been anti-dilutive.

 

**Comprehensive Income** - Other comprehensive income refers to revenues, expenses, gains andlosses that, under generally accepted accounting principles, are included incomprehensive income but are excluded from net income as these amounts arerecorded directly as an adjustment to stockholders’ equity.  The Company’s other comprehensive income iscomprised of unrealized gains and losses on hedge activities andavailable-for-sale securities, net of tax.

 

**Segment Information** - The Company’s principal business is manufacturing specializedvehicles.  Management has not separatelyorganized the business beyond specialized vehicles (includes four categories ofproducts) and vertically integrated fiberglass manufacturing processes.  The vertically integrated fiberglass manufacturingsubsidiary constitutes a segment by definition of SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information;” however, this segmentdoes not meet the quantitative thresholds for separate disclosure as set forthin this statement.  The verticallyintegrated fiberglass manufacturing subsidiary’s revenues are less than 10percent of consolidated revenues, the absolute amount of its reported income isless than 10 percent of the absolute amount of consolidated net income, andfinally, its assets are less than 10 percent of consolidated assets.

 

Netsales consist of the following:

 
| ** **            | ** ** | **2008**    | ** **  | **2007**    | ** ** | **2006**    | ** ** |
|-----------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| Specialized vehicles: |       |        |        |        |       |        |       |
| Trucks                |       | $           | 161,037,364 |        | $          | 209,180,974 |       | $ | 259,894,141 |   |
| Buses                 |       | 79,139,207  |        | 65,409,725  |       | 59,396,203  |       |
| Armored vehicles      |       | 6,002,900   |        | 13,813,434  |       | 8,361,974   |       |
| Motorhomes            |       | 12,477,135  |        | 11,617,653  |       | 4,063,359   |       |
|                  |       | 258,656,606 |        | 300,021,786 |       | 331,715,677 |       |
| Composites            |       | 10,093,047  |        | 13,250,937  |       | 9,031,112   |       |
|                  |       | $           | 268,749,653 |        | $          | 313,272,723 |       | $ | 340,746,789 |   |

 

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

 

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**Supreme Industries, Inc. And Subsidiaries**

**Notes to Consolidated Financial Statements, Continued**

 

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

 

In February 2007, theFASB issued SFAS No. 159, “TheFair Value Option for Financial Assets and Financial Liabilities- including anAmendment of FASB Statement No. 115”**(“SFAS159”),which allows an entity tochoose to measure certain financial instruments and liabilities at fairvalue.  Subsequent measurements for thefinancial instruments and liabilities an entity elects to fair value will berecognized in earnings.  SFAS 159 alsoestablishes additional disclosure requirements. SFAS 159 became effective for the Company beginning in fiscal 2008. The Company did not adopt the fair value option permitted under this statement.

 

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

 

In December 2007, theFASB issued SFAS No. 160, “NoncontrollingInterests in Consolidated Financial Statements—an amendment of AccountingResearch Bulletin No. 51”**(“SFAS 160”).  SFAS 160 establishes accounting andreporting standards for ownership interests in subsidiaries held by partiesother than the parent, the amount of consolidated net income attributable tothe parent and to the noncontrolling interest, changes in a parent’s ownershipinterest, and the valuation of retained noncontrolling equity investments whena subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearlyidentify and distinguish between the interests of the parent and the interestsof the noncontrolling owners.  Thisstatement is effective for us beginning in fiscal 2009.

 

**2.****                                     ****INVESTMENTS.**

 

Investmentsecurities consist of the following:

 
| ** **                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Intermediate bond fund-cost       |       | $        | 2,654,059  |     | $          | 2,202,222 |   |
| Unrealized gains (losses)         |       | (144,211 | )          | 13,045   |       |
| Intermediate bond fund-fair value |       | $        | 2,509,848  |     | $          | 2,215,267 |   |

 

Salesof securities were $832,670 and $544,804 during 2008 and 2007, respectively,and resulted in losses of $10,701 and $4,210, respectively.  Investment income (included in other income)consisted of dividend income and aggregated $125,440 and $111,968 for the yearsended December 27, 2008 and December 29, 2007, respectively.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notes to Consolidated Financial Statements, Continued**

 

**3.****                                     ****INVENTORIES.**

 

Inventoriesconsist of the following:

 
| ** **       | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|------------------|------------|------------|------------|------------|------------|
| Raw materials    |       | $          | 24,596,109 |       | $          | 25,042,022 |   |
| Work-in-progress |       | 8,204,857  |       | 9,676,040  |       |
| Finished goods   |       | 11,447,549 |       | 11,925,417 |       |
|             |       |       |       |       |       |
| Total            |       | $          | 44,248,516 |       | $          | 46,643,480 |   |

 

**4.****                                     ****PROPERTY, PLANT ANDEQUIPMENT.**

 

Property,plant and equipment consists of the following:

 
| ** **                                      | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-------------------------------------------------|------------|------------|------------|------------|------------|
| Land                                            |       | $          | 5,242,325  |       | $          | 5,441,130 |   |
| Land improvements                               |       | 5,895,386  |       | 5,990,390  |       |
| Buildings                                       |       | 29,107,282 |       | 29,106,547 |       |
| Leasehold improvements                          |       | 7,575,979  |       | 7,448,543  |       |
| Machinery and equipment                         |       | 46,307,433 |       | 44,543,581 |       |
|                                            |       | 94,128,405 |       | 92,530,190 |       |
| Less, Accumulated depreciation and Amortization |       | 48,349,497 |       | 45,100,465 |       |
|                                            |       |       |       |       |       |
| Property, plant and equipment, net              |       | $          | 45,778,908 |       | $          | 47,429,725 |   |

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notesto Consolidated Financial Statements, Continued**

 

**5.****                                     ****LONG-TERM DEBT.**

 

Long-term debt consists ofthe following:

 
| ** **                                                                                                                                                                      | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Revolving line of credit                                                                                                                                                        |       | $          | 29,928,679 |       | $          | 25,294,766 |   |
|                                                                                                                                                                            |       |       |       |       |       |
| Obligations under industrial development  revenue bonds, variable rates, with maturities in August 2010 and  April 2015, collateralized by real estate                |       | 2,050,000  |       | 2,500,000  |       |
|                                                                                                                                                                            |       |       |       |       |       |
| 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 |       | 1,260,388  |       | 1,426,846  |       |
|                                                                                                                                                                            |       |       |       |       |       |
| 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         |       | 181,082    |       | 276,323    |       |
|                                                                                                                                                                            |       |       |       |       |       |
| 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            |       | 208,498    |       | 253,189    |       |
|                                                                                                                                                                            |       |       |       |       |       |
| Total                                                                                                                                                                           |       | 33,628,647 |       | 29,751,124 |       |
|                                                                                                                                                                            |       |       |       |       |       |
| Less, Current maturities                                                                                                                                                        |       | 823,297    |       | 748,406    |       |
|                                                                                                                                                                            |       |       |       |       |       |
| Long-term debt                                                                                                                                                                  |       | $          | 32,805,350 |       | $          | 29,002,718 |   |

 

The revolving line ofcredit, term note and a letter of credit facility are part of a CreditAgreement as recently amended and restated on December 23, 2008 (the “CreditAgreement”).  All borrowings under theCredit Agreement are collateralized by certain inventories and tradereceivables of the Company.  The CreditAgreement provides for a revolving line of credit facility, as defined, up to$30 million and increasing to $33 million during the period each year from January 1to June 30.  Interest on outstandingborrowings under the revolving line of credit is based on the bank’s prime rateor certain basis points above LIBOR depending on the pricing option selectedand the Company’s leverage ratio, as defined (effective rate of 7.05% and 6.34%at December 27, 2008 and December 29, 2007, 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 $7,528,679 at December 27, 2008 and $2,394,766 at December 29,2007.  The revolving line of credit alsorequires a quarterly commitment fee ranging from 0.20% to 0.40% per annumdepending on the Company’s financial ratios and based upon the average dailyunused portion.  Any amounts outstandingunder the revolving line of credit will be due at maturity, January 31,2010.

 

Outstanding letters ofcredit, related to the Company’s workers’ compensation insurance policies,aggregated $4.0 million and $3.7 million at December 27, 2008 and December 29,2007, respectively.  Under separateagreements the Company had irrevocable letters of credit aggregating $2.1million and $2.5 million at December 27, 2008 and December 29, 2007,respectively, in favor of bond trustees as a credit enhancement for bondholdersof two industrial development revenue bonds.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notesto Consolidated Financial Statements, Continued**

 

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

 

The Credit Agreementcontains, among other matters, certain restrictive covenants includingcompliance with financial measurements. As of December 27, 2008, the Company was in compliance with allcovenants.  Subsequent to year-end, theCompany violated a covenant and entered into an amendment to the CreditAgreement with its lender to waive the covenant violation and to reset certainexisting covenant measurements to provide temporary relief during this economicdownturn.

 

Maturities of long-term debtfor each of the next five years are as follows: 2009 - $823,297; 2010 - $31,689,861; 2011 - $248,484, 2012 -$249,848 and 2013 - $217,157.

 

**6.****                                     ****RETIREMENT PLAN.**

 

The Company maintains adefined contribution plan which covers substantially all employees of theCompany who have reached the age of twenty-one years and have completed thirtydays of credited service.  The planprovides that eligible employees can contribute from one to fifteen percent oftheir annual compensation.  The Companyformerly maintained a policy to match thirty percent of each employee’scontributions up to seven percent of the employee’s compensation.  Effective September 1, 2008, however,the Company temporarily suspended this contribution match.  The Board of Directors may reinstate,increase or decrease the Company’s contribution on a year-to-year basis and asbusiness conditions permit.  Expenserelated to this plan was $385,763, $583,793, and $657,563 for the fiscal yearsended 2008, 2007 and 2006, respectively.

 

**7.****                                     ****STOCKHOLDERS’ EQUITY.**

 

**Preferred Stock**

 

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

 

**Common Stock**

 

The Board of Directorsapproved the following common stock dividends during the year ended December 27,2008:

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

 

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** **

**SupremeIndustries, Inc. And Subsidiaries**

**Notesto Consolidated Financial Statements, Continued**

 

**7.****                                     ****STOCKHOLDERS’ EQUITY,Continued.**

 

**Convertible Class 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 CommonStock elect the remainder of the directors.

 

**Restricted Stock**

 

The following tablesummarizes the activity for our unvested restricted stock units and restrictedstock for the twelve months ended December 27, 2008.

 
| ** **                       | ** ** | ** ** | ** ** | **Weighted -** | ** ** |
|----------------------------------|------------|------------|------------|---------------------|------------|
| ** **                       | ** ** | ** ** | ** ** | **Average**         | ** ** |
| ** **                       | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                       | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Unvested, December 30, 2007 |       | 111,320    |       | $                   | 6.23       |   |
| Granted                          |       | 156,500    |       | 4.16                |       |
| Vested                           |       | (65,751    | )          | 5.68                |       |
| Unvested, December 27, 2008 |       | 202,069    |       | 4.81                |       |
|                                  |            |            |            |                     |            |  |

 

The total fair value ofshares vested during the year ended December 27, 2008 was $373,448.

 

**Stock Options**

 

On October 29, 1998,the Company’s Board of Directors approved, and the Company’s stockholderssubsequently ratified, the 1998 Stock Option Plan under which 886,469 shares ofClass A Common Stock were reserved for grant.  This plan was terminated on October 29,2008.  On January 31, 2001, theCompany’s Board of Directors approved, and the Company’s stockholders subsequentlyratified, the 2001 Stock Option Plan under which 891,990 shares of Class ACommon Stock were reserved for grant.  OnJanuary 23, 2004, the Company’s Board of Directors approved, and theCompany’s stockholders subsequently ratified, the 2004 Stock Option Plan, asrecently amended, under which 1,297,440 shares of Class A Common Stockwere reserved for grant.  Under the termsof the stock option plans, both incentive stock options and non-statutory stockoptions can be granted by a specially designated Stock Awards Committee.  The Amended and Restated 2004 Stock OptionPlan also allows for awards of common stock, including restricted stock awards.Options granted under the stock option plans generally vest and becomeexercisable in annual installments of 33 1/3% beginning on the firstanniversary date and the options expire five or seven years after the date ofgrant.  The Company generally issues newshares to satisfy stock option exercises.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notesto Consolidated Financial Statements, Continued**

 

**7.****                                     ****STOCKHOLDERS’ EQUITY,Continued.**

 

The following tablesummarizes stock option activity:

 
| ** **                          | ** ** | ** **  | ** ** | **Weighted - Average** | ** ** |
|-------------------------------------|------------|-------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **Options** | ** ** | **Exercise Price**          | ** ** |
| Outstanding, December 31, 2005 |       | 996,675     |       | $                                | 5.24       |   |
| Granted                             |       | 381,481     |       | 6.59                             |       |
| Exercised                           |       | (19,823     | )          | 4.33                             |       |
| Expired or canceled                 |       | (30,274     | )          | 4.80                             |       |
| Outstanding, December 30, 2006 |       | 1,328,060   |       | 5.66                             |       |
| Granted                             |       | 119,143     |       | 5.94                             |       |
| Exercised                           |       | (327,424    | )          | 4.68                             |       |
| Forfeited                           |       | (50,276     | )          | 6.22                             |       |
| Outstanding, December 29, 2007 |       | 1,069,502   |       | 5.96                             |       |
| Granted                             |       | 234,513     |       | 3.01                             |       |
| Exercised                           |       | (160,566    | )          | 4.25                             |       |
| Forfeited                           |       | (81,474     | )          | 4.84                             |       |
| Outstanding, December 27, 2008 |       | 1,061,975   |       | 5.65                             |       |
|                                     |            |             |            |                                  |            |  |

 

The weighted-averagegrant-date fair values of options granted during the fiscal years ended 2008,2007 and 2006 was $0.71, $0.86 and $1.47, respectively.  The total intrinsic value of optionsexercised during the fiscal years ended 2008, 2007 and 2006 approximated$67,540, $1,532,000 and $44,000, respectively. Total unrecognized compensation expense related to all share-basedawards outstanding at December 27, 2008 is approximately $1,079,314 and isto be recorded over a weighted-average contractual life of 2.00 years.

 

In connection with theexercise of certain stock options in 2008 and 2007, officers and directorsexchanged shares of Class A Common Stock as consideration for theirexercise of stock options and received new stock options pursuant to the reloadfeature included in the stock option plan. There were 93,500 and 132,000 stockoptions exercised using the reload feature during 2008 and 2007,respectively.  The officers and directorsexchanged 83,528 and 110,195 shares of Class A Common Stock and receivedthe same number of new stock options during 2008 and 2007, respectively.  The exercise of stock options and the relatedissuance of shares of Class A Common Stock in exchange for the shares of Class ACommon Stock, with a fair value of $435,605 and $688,719, for 2008 and 2007,respectively, was a noncash financing activity.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notesto Consolidated Financial Statements, Continued**

 

**7.****                                     ****STOCKHOLDERS’ EQUITY,Concluded.**

 

Information about stockoptions outstanding and exercisable at December 27, 2008 is as follows:

 
| ** **                                  | ** ** | **Outstanding**             | ** ** | **Exercisable**                  | ** ** |
|---------------------------------------------|------------|-----------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | ** **                  | ** ** | **Weighted -**

**Average** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | ** **                  | ** ** | **Remaining**                    | ** ** | **Weighted -** | ** ** | ** ** | ** ** | **Weighted -** | ** ** |
| ** **                                  | ** ** | ** **                  | ** ** | **Contractual**                  | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **Range of**

**Exercise Prices** | ** ** | **Number**

**Outstanding** | ** ** | **Life in**

**Years**      | ** ** | **Exercise**

**Price** | ** ** | **Number**

**Exercisable** | ** ** | **Exercise**

**Price** | ** ** |
| $5.60 – 6.16                           |       | 57,741                      |       | 1.31                             |       | 5.87 |   | 57,741 |   | 5.87 |   |
| 6.33                                        |       | 27,030                      |       | 1.35                             |       | 6.33 |   | 27,030 |   | 6.33 |   |
| 6.15 – 6.77                            |       | 285,436                     |       | 1.44                             |       | 6.21 |   | 285,436 |   | 6.21 |   |
| 8.20 – 9.03                            |       | 24,055                      |       | 1.83                             |       | 8.63 |   | 24,055 |   | 8.63 |   |
| 7.14                                        |       | 7,385                       |       | 2.19                             |       | 7.14 |   | 7,385 |   | 7.14 |   |
| 6.52 – 7.17                            |       | 340,578                     |       | 4.35                             |       | 6.58 |   | 248,676 |   | 6.61 |   |
| 5.78 – 6.36                            |       | 85,240                      |       | 5.34                             |       | 6.00 |   | 69,097 |   | 6.05 |   |
| 5.73                                        |       | 6,487                       |       | 6.06                             |       | 5.73 |   | 3,244 |   | 5.73 |   |
| 4.72 – 5.34                            |       | 96,795                      |       | 6.36                             |       | 4.99 |   | 32,112 |   | 5.11 |   |
| 1.42                                        |       | 131,228                     |       | 6.84                             |       | 1.42 |   | 0 |   | n/a |   |
|                                        |       | 1,061,975                   |       | 2.98                             |       | 5.65 |   | 754,775 |   | 6.34 |   |

 

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

 

At December 29, 2007and December 30, 2006, there were exercisable options outstanding topurchase 752,886 and 908,905 shares at weighted-average exercise prices of$6.31 and $5.77, respectively.

 

As of December 27,2008, 244,207 shares were reserved for the granting of future share-basedawards (stock options and restricted stock) compared to 173,185 shares at December 29,2007.

 

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**Supreme Industries, Inc. AndSubsidiaries**

**Notes toConsolidated Financial Statements, Continued**

 

**8.****                                     ****INCOME TAXES.**

 

Income taxes consist of thefollowing:

 
| ** ** | ** ** | **2008**   | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|------------|------------|------------|------------|-----------|------------|-----------|------------|
| Federal:   |       |       |       |      |       |      |       |
| Current    |       | $          | (1,881,985 | )         | $          | 1,525,000 |       | $ | 2,060,000 |   |
| Deferred   |       | (66,800    | )          | (318,000  | )          | (307,000  | )          |
|       |       | (1,948,785 | )          | 1,207,000 |       | 1,753,000 |       |
|       |       |       |       |      |       |      |       |
| State:     |       |       |       |      |       |      |       |
| Current    |       | 126,000    |       | 110,000   |       | 239,000   |       |
| Deferred   |       | (345,900   | )          | (13,000   | )          | —    |       |
|       |       | (219,000   | )          | 97,000    |       | 239,000   |       |
| Total      |       | $          | (2,168,685 | )         | $          | 1,304,000 |       | $ | 1,992,000 |   |

 

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

 
| ** **                                           | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|------------------------------------------------------|------------|------------|------------|------------|------------|
| Deferred tax assets:                                 |       |       |       |       |       |
| Receivables                                          |       | $          | 111,650    |       | $          | 61,600 |   |
| Inventories                                          |       | 618,601    |       | 457,340    |       |
| Accrued liabilities                                  |       | 1,417,145  |       | 1,656,487  |       |
| Stock-based compensation                             |       | 59,862     |       | 103,927    |       |
| Intangible asset                                     |       | 226,575    |       | —     |       |
| Unrealized hedge loss                                |       | 294,700    |       | 120,300    |       |
| State net operating losses and credit  carryforwards |       | 337,428    |       | —     |       |
| Other                                                |       | 48,242     |       | 455        |       |
| Total deferred tax assets                            |       | 3,114,203  |       | 2,400,109  |       |
|                                                 |       |       |       |       |       |
| Deferred tax liabilities:                            |       |       |       |       |       |
| Depreciation                                         |       | (2,984,835 | )          | (2,813,282 | )          |
| Prepaids and other                                   |       | (890,703   | )          | (983,551   | )          |
| Total deferred tax liabilities                       |       | (3,875,538 | )          | (3,796,833 | )          |
|                                                 |       |       |       |       |       |
| Net deferred income tax liabilities                  |       | $          | (761,335   | )          | $          | (1,396,724 | ) |
|                                                 |       |       |       |       |       |
| Presented in the consolidated balance  sheets as:    |       |       |       |       |       |
| Current deferred tax assets                          |       | $          | 1,642,363  |       | $          | 1,192,331 |   |
| Long-term deferred tax liabilities                   |       | (2,403,698 | )          | (2,589,055 | )          |
|                                                 |       | $          | (761,335   | )          | $          | (1,396,724 | ) |

 

A reconciliation of theprovision for income taxes to the amount computed by applying the statutoryfederal income tax rate (34% in 2008, 2007 and 2006) to income before incometaxes is as follows:

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notesto Consolidated Financial Statements, Continued**

 

**8.****                                     ****INCOME TAXES, Concluded.**

 
| ** **                                                                         | ** ** | **2008** | ** ** | **2007** | ** ** | **2006**  | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
| Income taxes at statutory rate                                                     |       | $        | (1,776,800 | )        | $          | 1,859,000 |       | $ | 2,239,500 |   |
| State income taxes, net of federal tax  effect                                     |       | (144,500 | )          | 64,000   |       | 157,700   |       |
| Manufacturer’s deduction                                                      |       | —   |       | (104,000 | )          | (65,600   | )          |
| Tax-exempt underwriting income of  wholly-owned small captive insurance subsidiary |       | (427,100 | )          | (421,800 | )          | (369,800  | )          |
| Research and development tax credits                                               |       | (157,500 | )          | (140,100 | )          | (81,000   | )          |
| Alternative fuel tax credit                                                        |       | (33,000  | )          | (48,600  | )          | —    |       |
| Nondeductible goodwill impairment                                                  |       | 249,900  |       | —   |       | —    |       |
| Stock-based compensation                                                           |       | 115,600  |       | 65,700   |       | 5,500     |       |
| Other, net                                                                         |       | 4,715    |       | 29,800   |       | 105,700   |       |
| Total                                                                              |       | $        | (2,168,685 | )        | $          | 1,304,000 |       | $ | 1,992,000 |   |

 

**UncertainTax Positions**

 

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

 

A reconciliation of the change in the unrecognizedtax benefits from December 31, 2006 to December 27, 2008 is asfollows:

 
| Unrecognized tax benefits at  December 31, 2006 |   | $       | 495,678 |   |
|------------------------------------------------------|--------|---------|---------|--------|
| Gross increases - tax positions in prior  periods    |   | 2,484   |    |
| Gross increases - tax positions in current  period   |   | —  |    |
| Settlements                                          |   | —  |    |
| Lapse of statute of limitations                      |   | —  |    |
| Unrecognized tax benefits at  December 29, 2007 |   | $       | 498,162 |   |
| Gross increases - tax positions in prior  periods    |   | 266,800 |    |
| Gross increases - tax positions in current  period   |   | —  |    |
| Settlements                                          |   | —  |    |
| Lapse of statute of limitations                      |   | (89,762 | )       |
| Unrecognized tax benefits at  December 27, 2008 |   | $       | 675,200 |   |

 

The entire December 27, 2008 balance ofapproximately $675,200 relates to unrecognized tax positions that, ifrecognized, would affect the annual effective tax rate.

 

The Company is subject to U.S. federal income taxas well as various state taxes.  TheCompany is no longer subject to examination by federal taxing authorities forthe fiscal year ended 2004 and earlier. The Company does not expect the total amount of unrecognized taxbenefits to significantly increase in the next twelve months.  Interest and penalties related to income taxmatters are recognized in income tax expense. Interest and penalties accrued for and recognized during the year ended December 27,2008 were immaterial.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notesto Consolidated Financial Statements, Continued**

 

**9.****                                     ****COMMITMENTS ANDCONTINGENCIES.**

 

**Lease Commitments and Related Party Transactions**

 

The Company leases certainoffice and manufacturing facilities under operating lease agreements whichexpire at various dates from October 2009 through July 2011.  Certain of the lease agreements are withrelated parties for which related party rent expense was $683,472, $669,999 and$677,408 for the fiscal years ended 2008, 2007 and 2006, respectively.

 

Rent expense under alloperating leases aggregated $1,178,992, $992,652 and $1,005,670 for the fiscalyears ended 2008, 2007 and 2006, respectively.

 

At December 27, 2008,future minimum rental payments under noncancelable operating leases aggregated$1,263,317 and are payable as follows: 2009 - $805,871; 2010 - $435,216; 2011 - $22,230.

 

In addition to the aboverelated party transactions, the Company purchases delivery services from acompany owned by a former director of the Company.  Related party purchased delivery servicesaggregated $2,878,190, $2,859,763, and $3,523,358 for the fiscal years ended2008, 2007, and 2006, respectively. Amounts due to related parties, included in accounts payable, aggregated$98,594 and $241,894 as of December 27, 2008 and December 29, 2007,respectively.

 

**Consigned Inventories**

 

The Company obtains vehiclechassis for its specialized vehicle products directly from the chassismanufacturers under converter pool agreements. Chassis are obtained from the manufacturers based on orders fromcustomers, and to a lesser extent, for unallocated orders.  Although each manufacturer’s agreement hasdifferent terms and conditions, the agreements generally provide that themanufacturer will provide a supply of chassis to be maintained from time totime at the Company’s various facilities under the conditions that the Companywill store such chassis and will not move, sell or otherwise dispose of suchchassis, except under the terms of the agreement.  The manufacturer does not transfer thecertificate of origin to the Company and, accordingly, the Company accounts forthe chassis as consigned inventory belonging to the manufacturer.  Under these agreements if the chassis is notdelivered to a customer within a specified time frame, the Company is requiredto pay a finance or storage charge on the chassis.  The finance or storage charges incurred onconsigned chassis inventory, included in interest expense in the consolidatedstatements of income, aggregated $498,344, $499,055 and $889,092 for the fiscalyears ended 2008, 2007 and 2006, respectively. At December 27, 2008 and December 29, 2007, chassis inventory,accounted for as consigned inventory to the Company by the manufacturers,aggregated approximately $32.5 million and $48.8 million, respectively.  Typically, chassis are converted anddelivered to customers within 90 days of the receipt of the chassis by theCompany.

 

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**SupremeIndustries, Inc. And Subsidiaries**

**Notesto Consolidated Financial Statements, Concluded**

 

**9.****                                     ****COMMITMENTS ANDCONTINGENCIES, Concluded.**

 

**Repurchase Commitments**

 

The Corporation wascontingently liable at December 27, 2008, under repurchase agreements withcertain financial institutions providing inventory financing for retailers ofits products.  Under these arrangements,which are customary in the industry, the Company agrees to repurchase vehiclesin the event of default by the retailer at declining prices over the term ofthe agreement, generally 12 months. The maximum repurchase liability is the total amount that would be paidupon the default of the Company’s independent dealers.  The maximum potential repurchase liability,without reduction for the resale value of the repurchased units, wasapproximately $4.7 million at December 27, 2008 and $6.2 millionat December 29, 2007.  The risk ofloss under these agreements is spread over many retailers and financialinstitutions.  The loss, if any, underthese agreements is the difference between the repurchase cost and the resalevalue of the units.  The Corporationbelieves that any potential loss under the agreements in effect at December 27,2008 will not be material.  The Companyhas not experienced any significant repurchases.

 

**Self-Insurance**

 

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

 

**Other**

 

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

 

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

**SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS**

 
| ** **                                             | ** ** | ** **         | ** ** | **Column C**   | ** ** | ** **        | ** ** | ** **           | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|---------------------|------------|-------------------|------------|----------------------|------------|
| ** **                                             | ** ** | **Column B**  | ** ** | **Additions**       | ** ** | ** **        | ** ** | ** **           | ** ** |
| ** **                                             | ** ** | **Balance**        | ** ** | **Charged to** | ** ** | ** **        | ** ** | **Column E**    | ** ** |
| **Column A**                                      | ** ** | **Beginning**      | ** ** | **Costs and**  | ** ** | **Column D** | ** ** | **Balance End** | ** ** |
| **Description**                                        | ** ** | **of Period** | ** ** | **Expenses**        | ** ** | **Deductions(1)** | ** ** | **of Period**   | ** ** |
| Year ended December 27, 2008:                     |       |               |       |                |       |              |       |                 |       |
| Reserves and allowances deducted from asset  accounts: |       |               |       |                |       |              |       |                 |       |
| Allowance for doubtful receivables                     |       | $                  | 160,000    |                | $          | 239,000           |       | $                    | 109,000    |   | $ | 290,000 |   |
|                                                   |       |               |       |                |       |              |       |                 |       |
| Year ended December 29, 2007:                     |       |               |       |                |       |              |       |                 |       |
| Reserves and allowances deducted from asset  accounts: |       |               |       |                |       |              |       |                 |       |
| Allowance for doubtful receivables                     |       | $                  | 160,000    |                | $          | 178,000           |       | $                    | 178,000    |   | $ | 160,000 |   |
|                                                   |       |               |       |                |       |              |       |                 |       |
| Year ended December 30, 2006:                     |       |               |       |                |       |              |       |                 |       |
| Reserves and allowances deducted from asset  accounts: |       |               |       |                |       |              |       |                 |       |
| Allowance for doubtful receivables                     |       | $                  | 252,000    |                | $          | 224,000           |       | $                    | 316,000    |   | $ | 160,000 |   |

 

----

(1)  Uncollectibleaccounts written off, net of recoveries.

 

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

**UNAUDITED SUPPLEMENTARY DATA**

** **
| ** **        | ** ** | **First** | ** ** | **Second** | ** ** | **Third**  | ** ** | **Fourth** | ** ** |
|-------------------|------------|-----------|------------|------------|------------|------------|------------|------------|------------|
| 2008 Quarter      |       |      |       |       |       |       |       |       |       |
| Net sales         |       | $         | 75,924,356 |       | $          | 75,307,068 |       | $          | 61,086,346 |   | $ | 56,431,883 |   |
| Gross profit      |       | 7,591,138 |       | 7,399,071  |       | 5,419,851  |       | 4,159,931  |       |
| Net income (loss) |       | 226,514   |       | 216,579    |       | (630,051   | )          | (2,874,461 | )          |
| Per share:        |       |      |       |       |       |       |       |       |       |
| Basic             |       | 0.02      |       | 0.02       |       | (0.04      | )          | (0.20      | )          |
| Diluted           |       | 0.02      |       | 0.01       |       | (0.04      | )          | (0.20      | )          |
|                   |            |           |            |            |            |            |            |            |            |  |  |  |  |

 
| ** **   | ** ** | **First** | ** ** | **Second** | ** ** | **Third**  | ** ** | **Fourth** | ** ** |
|--------------|------------|-----------|------------|------------|------------|------------|------------|------------|------------|
| 2007 Quarter |       |      |       |       |       |       |       |       |       |
| Net sales    |       | $         | 83,891,983 |       | $          | 88,161,027 |       | $          | 67,540,998 |   | $ | 73,678,715 |   |
| Gross profit |       | 8,971,386 |       | 11,089,216 |       | 7,339,150  |       | 7,783,677  |       |
| Net income   |       | 964,445   |       | 2,043,677  |       | 273,865    |       | 881,818    |       |
| Per share:   |       |      |       |       |       |       |       |       |       |
| Basic        |       | 0.07      |       | 0.14       |       | 0.02       |       | 0.06       |       |
| Diluted      |       | 0.07      |       | 0.14       |       | 0.02       |       | 0.06       |       |
|              |            |           |            |            |            |            |            |            |            |  |  |  |  |

 

The2008 fourth quarter operating results were unfavorably impacted by noncash,pre-tax impairment charges of $1.3 million against goodwill and intangibleassets.

 

The2007 fourth quarter operating results were favorably impacted by a $0.2 millionincome tax benefit, principally attributable to the true-up of the Company’sestimated effective federal and state tax rates during the first three quartersto the actual effective tax rates for the fiscal year.

 

Earningsper share data above are adjusted for the 2% and 6% common stock dividendsdeclared and paid in 2008.  The sum ofquarterly earnings (loss) per share for the four quarters may not equal annualearnings (loss) per share due to rounding and changes in the diluted potentialcommon shares.

 

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

** **

Notapplicable.

 

**ITEM 9A.**               CONTROLS ANDPROCEDURES.

** **

**Management’s Conclusions RegardingEffectiveness of Disclosure Controls and Procedures**

 

As of December 27, 2008, theCompany conducted an evaluation, under the supervision and participation ofmanagement including the Chief Executive Officer and Chief Financial Officer,of the effectiveness of the Company’s disclosure controls and procedures (asdefined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of1934). Based upon that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that the Company’s disclosure controls andprocedures are effective as of December 27, 2008.

 

**Management’s Report on InternalControl over Financial Reporting**

 

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

 

The Company’s internalcontrol over financial reporting includes policies and procedures that: pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the Company’s assets; providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that the Company’s receipts and expenditures arebeing made only in accordance with authorizations of management and directors;and provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use or disposition of the Company’s assets that couldhave a material effect on the financial statements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

Management of the Companyhas assessed the effectiveness of the Company’s internal control over financialreporting based on criteria established in *InternalControl-Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

Management’s assessmentincluded an evaluation of the design of the Company’s internal control overfinancial reporting, and testing of the operational effectiveness of theCompany’s internal control over financing reporting. Based on this assessment,management has concluded that the Company’s internal control over financialreporting was effective as of December 27, 2008.

 

This annual report doesnot include an attestation report of the Company’s registered public accountingfirm regarding internal control over financial reporting.  Management’s report was not subject toattestation by the Company’s registered public accounting firm pursuant totemporary rules of the Securities and Exchange Commission that permit theCompany to provide only management’s report in this annual report.

 

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**ITEM 9A.****              ****CONTROLSAND PROCEDURES, Concluded.**

 

**Changes in Internal Control overFinancial Reporting**

 

No change in the Company’sinternal control over financial reporting (as such term is defined in ExchangeAct Rule 13a-15(f) and Rule 15d-15(f)) occurred during the fiscal quarter endedDecember 27, 2008 that materially affected, or is reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

**ITEM9B.**               OTHER INFORMATION.

** **

Not applicable.

 

**PART III**

** **

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

** **

Theinformation required by Item 10 of Form 10-K is hereby incorporated byreference from the Company’s definitive proxy statement, which will be filed withthe Securities and Exchange Commission in connection with the Company’s 2009annual stockholders’ meeting.

 

**ITEM11.**               EXECUTIVE COMPENSATION.

** **

Theinformation required by Item 11 of Form 10-K is hereby incorporated byreference from the Company’s definitive proxy statement, which will be filedwith the Securities and Exchange Commission in connection with the Company’s2009 annual stockholders’ meeting.

 

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

** **

Theinformation required by Item 12 of Form 10-K is hereby incorporated byreference from the Company’s definitive proxy statement, which will be filedwith the Securities and Exchange Commission in connection with the Company’s2009 annual stockholders’ meeting.

 

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**ITEM 13.**               CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

** **

Theinformation required by Item 13 of Form 10-K is hereby incorporated byreference from the Company’s definitive proxy statement, which will be filedwith the Securities and Exchange Commission in connection with the Company’s2009 annual stockholders’ meeting.

 

**ITEM 14.**               PRINCIPALACCOUNTANT 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 with the Securities and Exchange Commission in connection withthe Company’s 2009 annual stockholders’ meeting.

 

**PART IV**

** **

**ITEM15.**               EXHIBITS AND FINANCIAL STATEMENTSCHEDULES.

** **

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

 

1.**            **Financial Statements

 

Reportof Crowe Horwath LLP, Independent Registered Public Accounting Firm

 

Consolidated Balance Sheets as of December 27, 2008and December 29, 2007

 

ConsolidatedStatements of Operations for the years ended December 27, 2008, December 29,2007 and December 30, 2006

 

ConsolidatedStatements of Stockholders’ Equity for the years ended December 27, 2008, December29, 2007 and December 30, 2006

 

ConsolidatedStatements of Cash Flows for the years ended December 27, 2008, December 29,2007 and December 30, 2006

 

Notes to Consolidated Financial Statements

** **

**2.            **Financial Statement Schedule

 

Schedule II - Valuation and Qualifying Accounts

 

3.**            **Exhibits

 

See Index to Exhibits

 

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**SIGNATURES**

 

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

 

 
|   | SUPREME INDUSTRIES, INC. |
|--------|--------------------------|
|   |                     |
|   |                     |
| Date:  | March 13,  2009     |   | By: | /s/Herbert  M. Gardner |
|   |                     |   |   | Herbert  M. Gardner, |
|   |                     |   |   | Chairman  of the Board |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.

 
| /s/Herbert M. Gardner |   | Chairman of  the Board and Chief Executive Officer |   | March 13, 2009 |
|-----------------------|--------|----------------------------------------------------|--------|---------------------|
| Herbert M. Gardner    |   | (Principal  Executive Officer)                     |   |                |
|                  |   |                                               |   |                |
| /s/Robert W. Wilson   |   | President,  Chief Operating Officer                |   | March 13, 2009 |
| Robert W. Wilson      |   | and Director                                       |   |                |
|                  |   |                                               |   |                |
| /s/William J. Barrett |   | Executive  Vice President, Secretary,              |   |                |
| William J. Barrett    |   | Assistant Treasurer and Director                   |   | March 13, 2009 |
|                  |   |                                               |   |                |
| /s/Jeffery D. Mowery  |   | Treasurer,  Chief Financial Officer and            |   | March 13, 2009 |
| Jeffery D. Mowery     |   | Assistant Secretary (Principal                     |   |                |
|                  |   | Financial and Accounting Officer)                  |   |                |
|                  |   |                                               |   |                |
| /s/Robert J. Campbell |   | Director                                           |   | March 13, 2009 |
| Robert J. Campbell    |   |                                               |   |                |
|                  |   |                                               |   |                |
| /s/Thomas Cantwell    |   | Director                                           |   | March 13, 2009 |
| Thomas Cantwell       |   |                                               |   |                |
|                  |   |                                               |   |                |
| /s/Edward L. Flynn    |   | Director                                           |   | March 13, 2009 |
| Edward L. Flynn       |   |                                               |   |                |
|                  |   |                                               |   |                |
| /s/Mark C. Neilson    |   | Director                                           |   | March 13, 2009 |
| Mark C. Neilson       |   |                                               |   |                |
|                  |   |                                               |   |                |
| /s/Wayne A. Whitener  |   | Director                                           |   | March 13, 2009 |
| Wayne A. Whitener     |   |                                               |   |                |

 

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INDEX TO EXHIBITS

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

 

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| **Exhibit** | ** ** | **Description** |
|-------------|------------|-----------------|
|        |       |            |   |
|        | 10.10      |            | Form of  Supreme Industries, Inc. Director and Officer Indemnification Agreement,  filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on  October 6, 2008, and incorporated herein by reference. |
|        |       |            |   |
| *           | 10.11      |            | Special  Vehicle Manufacturer Converters Agreement with General Motors Corporation,  effective February 29, 2008, between General Motors Corporation and Supreme  Corporation. |
|        |       |            |   |
| *           | 10.12      |            | Ford  Authorized Converter Pool Agreement, effective May 1, 2008, among Ford Motor  Company, Supreme Corporation and certain subsidiaries. |
|        |       |            |   |
| *           | 10.13      |            | Amended and  Restated Credit Agreement dated December 23, 2008, by and between Supreme  Corporation and JPMorgan Chase Bank, N.A. |
|        |       |            |   |
|        | 10.14      |            | 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. |
|        |       |            |   |
|        | 10.15      |            | 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. |
|        |       |            |   |
|        | 10.16      |            | 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. |
|        |       |            |   |
|        | 10.17      |            | Amended and  Restated Employment Contract by and among Supreme Industries, Inc. and  William J. Barrett dated to be effective January 1, 2005, filed as Exhibit 10.3  to the Company’s Current Report on Form 8-K dated February 10, 2006, and  incorporated herein by reference. |
|        |       |            |   |
|        | 10.18      |            | Amended and  Restated Employment Contract by and among Supreme Industries, Inc. and Robert  W. Wilson dated to be effective May 1, 2008, filed as exhibit 10.1 to the  Company’s Current Report on Form 8-K dated May 12, 2008, and incorporated  herein by reference. |
|        |       |            |   |
| *           | 21.1       |            | Subsidiaries  of the Registrant. |
|        |       |            |   |
| *           | 23.1       |            | Consent of  Crowe Horwath LLP, Independent Registered Public Accounting Firm. |
|        |       |            |   |
| *           | 31.1       |            | Certification  of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002. |
|        |       |            |   |
| *           | 31.2       |            | Certification  of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002. |
|        |       |            |   |
| *           | 32.1       |            | Certification  of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002. |
|        |       |            |   |
| *           | 32.2       |            | Certification  of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002. |

 

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*   Filedherewith.

 

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