**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

**(Mark One)**

 
| **ý**                                                                                                                                                                                                                          | ** ** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                          |
| **For the  fiscal year ended December 31, 2005.**                                                                                                                                                                                   |
| ** **                                                                                                                                                                                                                          |
| **or**                                                                                                                                                                                                                              |
| ** **                                                                                                                                                                                                                          |
| **o**                                                                                                                                                                                                                               | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                          | ** ** | ** **                                                                                    |
| **For the  transition period from                  to                .** |

 

**Commission File No. 1-8183**

 

**SUPREME INDUSTRIES, INC.**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                                             | ** ** | **75-1670945**                             |
|----------------------------------------------------------|------------|--------------------------------------------|
| (State of Incorporation)                                 |       | (IRS Employer IdentificationNo.) |
|                                                     |       |                                       |
| **P.O.  Box 237, 2581 E. Kercher Road, Goshen, Indiana** | ** ** | **46528**                                  |
| (Address of principal executive offices)                 |       | (Zip Code)                                 |

 

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

 

Securities registeredpursuant to Section 12(b) of the Act:

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

 

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

 
| Indicate by check mark  if the registrant is a well-known seasoned issuer, as defined in Rule 405 of  the Securities Act. | Yes o  No ý |
|---------------------------------------------------------------------------------------------------------------------------|--------------------------------------|

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

 

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

 

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

 

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

Large accelerated filer  o  Acceleratedfiler  o  Non-accelerated filer ý

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

 

The aggregate marketvalue of the voting stock held by non-affiliates of the registrant at June 25,2005:  $64,557,881

 

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

 
| **Class**                                  | ** ** | **Outstanding at March 20, 2006** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------------|------------|
| **Class A Common Stock ($.10 Par  Value)** | ** ** | **10,585,826  shares**                                |       |
| **Class B Common Stock ($.10 Par  Value)** | ** ** | **2,109,133  shares**                                 |       |

 

DocumentsIncorporated by Reference

 
| ** **                                                                                         | ** ** | **Parts of Form 10-K Into Which the** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| **Document**                                                                                       | ** ** | **Document is Incorporated**                              | ** ** |
| **Portions of the Proxy Statement for Annual  Meeting of  Shareholders to be held on May 4, 2006** | ** ** | **Part III**                                                        | ** ** |

 

The Index to Exhibits ison page 47 in the sequential numbering system. Total pages 57.

 

 

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**PART I**

 

**ITEM1.**                **BUSINESS.**

 

**History**

 

SupremeIndustries, Inc., a Delaware Corporation (the “Company” or “Supreme”), is oneof the nation’s leading manufacturers of specialized vehicles, including truckbodies and shuttle buses. The Company was incorporated in 1979 and originallyhad one operating subsidiary, TGC Industries, Inc., which was spun-off tostockholders of the Company effective July 31, 1986.

 

SupremeCorporation, the Company’s wholly-owned operating subsidiary, was formed inJanuary 1984 to acquire a company engaged in the business of manufacturing,selling and repairing specialized truck bodies, shuttle buses and relatedequipment.

 

**Financial Information About Operating Segments**

 

TheCompany has two operating segments, specialized vehicles and verticallyintegrated fiberglass products. The vertically integrated fiberglass productssegment does not meet the quantitative thresholds for separate disclosure. Seesegment information in Note 1, “Nature of Operations and Accounting Policies,”of the Notes to Consolidated Financial Statements (Item 8).

 

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

 

Thespecialized vehicle industry consists of companies that manufacture and/ordistribute specialized truck bodies and shuttle buses. Depending on theproduct, it is either built directly on a truck chassis or built separately andinstalled at a later date. The truck chassis, which consists of an engine,frame with wheels, and in some cases a cab, is manufactured by third partieswho are major automotive or truck companies. Such companies typically do notbuild specialized truck bodies. See “RISK FACTORS - Competition.”

 

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

 

Supremealso makes its own fiberglass wind deflectors under the name of Fuel Shark,which reduce wind resistance and improve fuel efficiency. Supreme is not in thebusiness of manufacturing recreational vehicles or long-distancetruck-trailers. The following is a brief summary of Supreme’s products:

 

Van bodies. Supreme’svan bodies are typically fabricated up to 28 feet in length with pre-paintedaluminum or FRP panels, aerodynamic front and side corners, hardwood floors andvarious door configurations to accommodate end-user loading and unloadingrequirements. This product is used for diversified dry freight transportation.

 

Iner-City® cutawayvan bodies. An ideal route truck for a variety of commercialapplications, the Iner-City’s aluminum or FRP bodies are manufactured oncutaway chassis, which allow access from the cab to the cargo area. Borrowingmany design elements from Supreme’s larger van body, the Iner-City is shorterin length (10 to 17 feet) than a van body.

 

2

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Spartan servicebodies. Built on the cutaway chassis out of durable FRP, theSpartan Service Body is a virtual workshop on wheels. In lengths from 10 to 14feet, the Spartan’s selection of compartments, shelves, doors, and pre-designedoptions provides job-site protection from the weather while offering a securelockable workspace.

 

Spartan cargovans. Built on a cutaway chassis and constructed of FRP, theSpartan Cargo Van provides the smooth maneuverability of a commercial van withthe full-height, spacious cargo area of a truck body. In lengths of 10 to 14feet and available with a variety of pre-designed options, the Spartan CargoVan is a bridge product for those moving up from a traditional cargo van intothe truck body category.

 

Kold King®insulated van bodies. Kold King insulated bodies, in lengthsup to 28 feet, provide versatility and dependability for temperature controlledapplications. Flexible for either hand-load or pallet load requirements, theyare ideal for multi-stop distribution of both fresh and frozen products.

 

IceOTherm insulatedbodies. IceOTherm is the high efficiency, lightweightinsulated body that provides superior load protection for hand-loadapplications. Available in lengths of 10 to 16 feet, the IceOTherm’s uniqueurethane foam and fiberglass body design creates a lighter body, superiorthermal efficiency, and a cleaner appearance than traditional insulated bodies.

 

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

 

Armored trucks. Supreme’sarmored trucks are built to customer specifications in either aluminum,galvaneal or stainless steel.

 

StarTrans® shuttlebuses. The StarTrans® shuttle buses have seating capacitiesfor 12 to 29 people and are offered with a variety of seating arrangements andwith options such as wheelchair lifts, custom interiors, and special exteriorpaint schemes. The shuttle bus line features an aerodynamic exterior design andis intended for use by hotels, nursing homes, car leasing companies, andairport-related users.

 

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

 

StarTrans®trolleys. Supreme’s StarTrans® trolley line is similar insize to the mid-size bus line but resembles a San Francisco trolley car. It ismarketed to resort areas, theme parks and cities desiring unique transportationvehicles.

 

Kold King®,Nordica®, Iner-City®, Spartan, StarTrans®, and Fuel Shark are trademarks usedby Supreme in its marketing of truck bodies and buses. Kold King®, Nordica®,Iner-City®, and StarTrans® are trademarks registered in the U.S. Patent andTrademark Office.

 

Someexamples of specialized vehicles that are not manufactured by Supreme are dumpbodies, utility bodies and garbage packers. Neither Supreme nor any of itscompetitors manufacture every type of specialized vehicle. Supreme intends tocontinue to expand its products line, but there is no assurance that it will doso.

 

3

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**Manufacturing**

 

Supreme’smanufacturing facilities are located in Goshen, Indiana; Griffin, Georgia;Cleburne, Texas; Moreno Valley, California; Jonestown, Pennsylvania andWoodburn, Oregon. Supreme’s management estimates that the capacity utilizationof its plants and equipment ranges from 60% to 90% of capacity when annualizedon a one-shift basis. At various times during the year, several of theCompany’s plants operate at 100% capacity to fulfill large fleet ordercontracts.

 

Supremebuilds specialized truck bodies and installs other equipment on truck chassis,most of which are provided by converter pool agreements or are owned by dealersor end-users. These truck bodies are built on an assembly line from engineeredstructural components, such as floors, roofs, and wall panels. These componentsare manufactured from Supreme’s proprietary designs and are installed on thetruck chassis. Supreme then installs optional equipment and applies any specialfinishes 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 aregenerally produced to firm orders and are designed and engineered by Supreme.Order levels will vary depending upon price, competition, prevailing economicconditions and other factors.

 

Supremeis more vertically integrated than many of its competitors. The Companymanufactures its own fiberglass reinforced plywood, fiberglass parts, and hasextensive roll forming and metal bending capabilities. A portion of the excesscapacity of these fabrication capabilities is used to supply products to therecreational vehicle and marine industries. These supply facilities are locatedin Goshen and Ligonier, Indiana.

 

Supremeprovides limited warranties against construction defects in its products. Thesewarranties generally provide for the replacement or repair of defective partsor workmanship for periods of up to five years following the date of retailsale.

 

**Marketing**

 

Supremenormally sells the vehicle and/or equipment that has been installed on thechassis to either truck dealers, truck equipment distributors, fleet leasingcompanies or directly to end-users. Truck bodies purchased by a truck dealerfrom Supreme are sold by the dealer to its own customers. Since Supreme or itsdistributors generally service all Supreme products sold by the truck dealers,each truck dealer is normally located within relatively close geographicproximity to Supreme or the distributor supplying such dealer.

 

Supreme’sdistributor/dealer network consists of approximately 40 bus distributors, alimited number of truck equipment distributors and approximately 500 truckdealers. Management believes that this large distributor/dealer network,coupled with Supreme’s geographically-dispersed plant and distribution sites,gives Supreme a distinct marketing advantage over its competitors. Supremegenerally delivers its products within 4 to 8 weeks after the receipt oforders.

 

Suprememarkets products in geographic areas where the Company does not have adistributor. The Company currently has distribution/mounting facilities in ornear the cities of St. Louis, Missouri; Louisville, Kentucky; Cleveland andColumbus, Ohio; Orlando, Florida; Houston and San Antonio, Texas; Denver,Colorado; San Francisco, California and Harrisville, Rhode Island.

 

Approximately85 employees are engaged in direct sales. Supreme engages in direct advertisingin trade publications, trade shows and cooperative advertising campaigns withdistributors.

 

4

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**Trademarks**

 

TheCompany owns and maintains trademarks that are used in marketing specializedproducts manufactured by Supreme. Management believes that these trademarks havesignificant customer goodwill.

 

**Working Capital**

 

TheCompany utilizes its revolving line of credit to finance its accountsreceivable and inventories. The Company believes its days sales outstanding andits days inventories on hand are within normal industry levels. The Company hadworking capital of $60.8 million and $50.9 million at December 31, 2005 andDecember 25, 2004, respectively.

 

**Major Customers**

 

Nosingle customer, or group of customers, accounted for 10% or more of theCompany’s revenues for the fiscal years ended in 2005, 2004 and 2003. TheCompany’s export sales are not significant.

 

**Seasonality of Business**

TheCompany’s business is generally not seasonal in nature due to the normalreplacement cycle of its products being approximately seven years. However, theCompany historically has participated in bids for large fleet contracts and, ifsuccessful, is generally required to ship these fleet units in the first andsecond quarters. Additionally, our business depends on various factors that areparticularly sensitive to general economic conditions and business cyclesincluding: corporate profitability, interest rates, fuel costs, changes ingovernment regulations (i.e. fuel standards), customer preferences, industrial,commercial, and consumer spending patterns, and availability of truck chassis.

 

**Employees**

 

Asof December 31, 2005 and December 25, 2004, the Company employed approximately2,300 employees, none of whom are represented by a collective bargaining unit.The Company considers its relations with its employees to be satisfactory.

 

**Back Log**

 

TheCompany’s backlog of firm orders was $90.3 million at December 31, 2005compared to $89.1 million at December 25, 2004.

 

5

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**Executive Officers of the Registrant**

 

Thename, age, business background, positions held with the Registrant and tenureof each of the Registrant’s executive officers are set forth below. No familyrelationship exists among any of the executive officers.

 
| **Name, Age, and Business  Experience**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | ** ** | **Served as  Executive  Officer Since** | ** ** | **Position(s) With  Company**                                               |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------------------------------------------|
| Herbert M. Gardner, 66  Executive Vice President of Barrett-Gardner Associates, Inc., an investment  banking firm since November 2002 and previously Senior Vice President of  Janney Montgomery Scott LLC, investment bankers; Chairman of the Board of the  Company since 1979 and President of the Company from June 1992 to February  2006; Director of Rumson-Fair Haven Bank and Trust Company, a New Jersey  state independent, commercial bank and trust company; Director of Nu Horizons  Electronics Corp., an electronic component distributor; Director of TGC  Industries, Inc., a company engaged in the geophysical services industry; and  Director of Co-Active Marketing Group, Inc., a marketing and sales promotion  company. |       | 1979                                    |       | Chairman of the Board                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       |                                    |       |                                                                        |
| Robert W. Wilson, 61  President and Chief Operating Officer of the Company since February 2006;  Executive Vice President of the Company from December 1992 through February  2006; Treasurer and Chief Financial Officer of the Company from December 1992  through April 2005; Vice President of Finance, Treasurer, and Assistant  Secretary of Supreme Corporation, a subsidiary of the Company, from 1998  through April 2005; co-holder of Office of the President of Supreme  Corporation from November 2000 through April 2005.                                                                                                                                                                                                           |       | 1992                                    |       | President and Chief  Operating Officer                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       |                                    |       |                                                                        |
| William J. Barrett, 66  President of Barrett-Gardner Associates, Inc., an investment banking firm  since November 2002, and previously Senior Vice President of Janney  Montgomery Scott LLC, investment bankers; Secretary and Assistant Treasurer  of the Company and a Director since 1979 and Executive Vice President (Long  Range and Strategic Planning) of the Company since 2004; Chairman of the  Board and Director of Rumson-Fair Haven Bank and Trust Company, a New Jersey  state independent, commercial bank and trust company; and a Director of TGC  Industries, Inc., a company engaged in the geophysical services industry.                                                                                                  |       | 1979                                    |       | Executive Vice  President (Long Range and Strategic Planning) and Secretary |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       |                                    |       |                                                                        |
| Jeffery D. Mowery, 43  Treasurer and Chief Financial Officer of the Company since May 2005; Vice  President of Finance of Supreme Corporation, a subsidiary of the Company,  since May 2005; and Controller of Supreme Corporation from April 1998 to May  2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | 2005                                    |       | Treasurer, Chief  Financial Officer and Assistant Secretary                 |

 

6

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**ITEM1A.**              **RISK FACTORS.**

 

Anyinvestment in our Common Stock involves a high degree of risk. You shouldcarefully consider the risks and uncertainties described below and the otherinformation included in this Form 10-K before purchasing our Common Stock.Although the risks described below are the risks that we believe are material,they are not the only risks relating to our business and our Common Stock.Additional risks and uncertainties, including those that are not yet identifiedor that we currently believe are immaterial, may also adversely affect ourbusiness, financial condition, or results of operations. If any of the eventsdescribed below occur, our business and financial results could be materiallyand adversely affected. The market price of our Common Stock could decline dueto any of these risks, perhaps significantly, and you could lose all or part ofyour investment.

 

**Raw materials**

 

Supremedoes not have long-term raw material contracts and is dependent upon suppliersof steel, aluminum, wood products and fiberglass materials, for itsmanufacturing operations. Consequently, our ability to produce and deliver ourproducts could be affected by disruptions encountered by our raw materialsuppliers or freight carriers. Additionally, competitive market conditions mayprevent the Company from implementing price increases to offset raw materialcost increases.

 

**Chassis availability**

 

Supremegenerally does not purchase vehicle chassis for its inventory. Supreme acceptsshipment of vehicle chassis owned by dealers or end-users, for the purpose ofinstalling and/or manufacturing its specialized truck bodies and buses on suchchassis. In the event of a labor disruption or other uncontrollable eventadversely affecting the limited number of companies which manufacture and/ordeliver such chassis, Supreme’s level of manufacturing could be substantiallyreduced. The Company has established relationships with all major chassismanufacturers, and in the event of a disruption in supply from one manufacturerthe Company would attempt to divert its demand to the other manufacturers.Approximately 30% of the chassis involved in Supreme’s manufacturing have beensecured through converter pool agreements with three major chassismanufacturers that provide for truck chassis pools at each of Supreme’smanufacturing facilities.

 

**Competition**

 

Thecompetitive nature of the specialized vehicle industry creates a number ofchallenges for the Company. Important factors include product pricing, qualityof product, lead times, geographic proximity to customers and the ability tomanufacture a product customized to customer specifications. Managementbelieves that the Company has a competitive advantage in each of these areasdue to its years of experience in the industry, established dealer/distributorrelationships, strong relationships with chassis manufacturers and its nationwidepresence. However, specialized vehicles are produced by a number of smaller,regional companies, which create product pricing pressures that could adverselyimpact the Company’s profits. Chassis manufacturers have not generally shown aninterest in manufacturing specialized vehicles, including truck bodies andshuttle buses, because such manufacturers’ highly-automated assembly lineoperations do not lend themselves to the efficient production of a wide varietyof highly specialized vehicles with various options and equipment.

 

**Environmentaland health and safety liabilities**

 

Our operations are subjectto a variety of federal, state, and local environmental and health and safetystatutes and regulations, including those relating to emissions to the air,discharges to water, treatment, storage and disposal of waste, and remediationof contaminated sites. In certain cases, these requirements may limit theproductive capacity of our operations. However, since other companies aresubject to similar regulations, such regulations are not believed to have anadverse effect on the Company’s competitive position.

 

7

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

 

From time to time, we havereceived notices of noncompliance with respect to our operations. These havetypically been resolved by investigating the alleged noncompliance andcorrecting 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.

 

**Possibilityof material losses from product liability and warranty claims**

 

We face an inherent risk ofexposure to product liability claims if the use of our current and formallymanufactured products result, or are alleged to result, in personal injuryand/or property damage. If we manufacture a defective product, we mayexperience material product liability losses in the future. In addition, we mayincur significant costs to defend product liability claims. We could also incurdamages and significant costs in correcting any defects, lost sales, and sufferdamage to our reputation. Our product liability insurance coverage may not beadequate for liabilities we could incur and may not continue to be available onterms acceptable to us.

 

We are also subject toproduct warranty claims in the ordinary 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 a material adverse affect on our businessand operating cash flows.

 

**We dependon the services of key management personnel, the loss of whom could materiallyharm us**

 

Our ability to competesuccessfully and implement our business strategy depends on the efforts of oursenior management personnel. The loss of the services of any one or more ofthese individuals could have a material adverse effect on our business. We donot maintain key-man life insurance policies 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.

 

**Pricevolatility and low trading volumes**

 

Our Class A Common Stock hasexperienced, and may continue to experience, price volatility and low tradingvolumes. Overall market conditions, and other risk factors described herein,may cause the market price of our Class A Common Stock to fall. Our high andlow sales prices for the twelve months period ended December 31, 2005, were$9.56 and $5.90, respectively. Our Class A Common Stock is listed on theAmerican Stock Exchange under the symbol “STS.” However, daily trading volumes for our Class A Common Stock are, and maycontinue to be, relatively small compared to many other public-tradedsecurities. For example, during the twelve months period ended December 31,2005, our daily trading volume has been as low as zero. It may be difficult foryou to sell your shares in the public market at any given time at prevailingprices, and the price of our Class A Common Stock may, therefore, be volatile.

 

8

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**Ourofficers and directors own a large percentage of our Common Stock, and they maycontrol our business and affairs**.

 

Our officers and directorsas a group beneficially own approximately 33.2% of our Class A Common Stock and90.9% of our Class B Common Stock. As a result, they will continue to be ableto exercise significant influence, and in most cases, control, over mattersrequiring shareholder approval, including the election of directors, changes toour charter documents, and significant corporate transactions. This concentrationof ownership makes it unlikely that any other holder or group of holders of ourClass A Common Stock will be able to affect the way we are managed or thedirection of our business.

 

**Splitclasses of stock make it difficult for a third party to acquire the company**

 

Our outstanding Common Stockis split into two classes. The Class A Common Stock is listed on the AmericanStock Exchange, and the holders thereof are entitled to elect three members ofthe Company’s Board of Directors. The majority (90.9%) of the Class B CommonStock is owned or controlled by the Company’s officers and directors and isentitled to elect the remaining six members of the Company’s Board ofDirectors. The continuing ability of the holders of our Class B Common Stock toelect a majority of the members of the Company’s Board of Directors will makeit difficult for another company to acquire us and for you to receive anyrelated take-over premium for your shares (unless the controlling groupapproves the acquisition).

 

(Seeother risk factors listed under the following captions:  Critical Accounting Policies and Estimates,Forward-Looking Statements, and Control Risks)

 

**ITEM 1B.**              **UNRESOLVED STAFFCOMMENTS.**

 

None

 

**ITEM2.**                 **PROPERTIES.**

 

Setforth below is a brief summary of the properties which are owned or leased bythe Registrant as of December 31, 2005.

 
| ** **                       | ** ** | **Square  Footage** | ** ** | **Owned or  Leased** | ** ** | **Operating Segment** | ** ** |
|----------------------------------|------------|---------------------|------------|----------------------|------------|-----------------------|------------|
| Manufacturing of Products        |       |                |       |                 |       |                  |       |
| Jonestown, Pennsylvania          |       | 429,376             |       | Owned                |       | Specialized Vehicles  |       |
| Goshen, Indiana                  |       | 287,796             |       | Leased               |       | Specialized Vehicles  |       |
| Goshen, Indiana                  |       | 194,739             |       | Owned                |       | Specialized Vehicles  |       |
| Cleburne, Texas                  |       | 175,235             |       | Owned                |       | Specialized Vehicles  |       |
| Woodburn, Oregon                 |       | 131,160             |       | Owned                |       | Specialized Vehicles  |       |
| Griffin, Georgia                 |       | 105,379             |       | Leased               |       | Specialized Vehicles  |       |
| Moreno Valley, California        |       | 103,200             |       | Owned                |       | Specialized Vehicles  |       |
| Griffin, Georgia                 |       | 86,400              |       | Owned                |       | Specialized Vehicles  |       |
| Cleburne, Texas                  |       | 1,440               |       | Leased               |       | Specialized Vehicles  |       |
|                             |       | 1,514,725           |       |                 |       |                  |       |
|                             |       |                |       |                 |       |                  |       |
| Manufacturing of Component Parts |       |                |       |                 |       |                  |       |
| Goshen, Indiana                  |       | 57,570              |       | Owned                |       | Fiberglass Products   |       |
| Ligonier, Indiana                |       | 55,682              |       | Owned                |       | Fiberglass Products   |       |
|                             |       | 113,252             |       |                 |       |                  |       |

 

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| ** **                  | ** ** | **Square  Footage** | ** ** | **Owned or  Leased** | ** ** | **Operating Segment** | ** ** |
|-----------------------------|------------|---------------------|------------|----------------------|------------|-----------------------|------------|
|                        |       |                |       |                 |       |                  |       |
| Distribution                |       |                |       |                 |       |                  |       |
| Harrisville, Rhode Island   |       | 20,000              |       | Owned                |       | Specialized Vehicles  |       |
| Houston, Texas              |       | 14,533              |       | Owned                |       | Specialized Vehicles  |       |
| Streetsboro, Ohio           |       | 11,900              |       | Owned                |       | Specialized Vehicles  |       |
| Denver, Colorado            |       | 11,575              |       | Leased               |       | Specialized Vehicles  |       |
| Springfield, Ohio           |       | 11,200              |       | Owned                |       | Specialized Vehicles  |       |
| Vallejo, California         |       | 8,540               |       | Leased               |       | Specialized Vehicles  |       |
| San Antonio, Texas          |       | 7,000               |       | Owned                |       | Specialized Vehicles  |       |
| Louisville, Kentucky        |       | 6,664               |       | Owned                |       | Specialized Vehicles  |       |
| Apopka, Florida             |       | 5,200               |       | Owned                |       | Specialized Vehicles  |       |
| St. Louis, Missouri         |       | 4,800               |       | Owned                |       | Specialized Vehicles  |       |
|                        |       | 101,412             |       |                 |       |                  |       |
|                        |       |                |       |                 |       |                  |       |
| Properties Held for Sale    |       |                |       |                 |       |                  |       |
| Wilson, North Carolina (1)  |       | 113,694             |       | Owned                |       | Not Applicable        |       |
| Jonestown, Pennsylvania (2) |       | 78,477              |       | Owned                |       | Not Applicable        |       |
|                        |       | 192,171             |       |                 |       |                  |       |
| Corporate Office Building   |       |                |       |                 |       |                  |       |
| Goshen, Indiana             |       | 26,000              |       | Owned                |       | Not Applicable        |       |
|                        |       |                |       |                 |       |                  |       |
| Total square footage        |       | 1,947,560           |       |                 |       |                  |       |

 

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(1) During the third quarter of 2002, the Company ceased business operationsat its facility in Wilson, North Carolina. Since then, the property has been,and continues to be, listed for sale; however, the Company has been unable tosell the property because of the economic conditions and excess buildingfacilities in this region of the country.

 

(2) During 2005, the Company relocated a portion of the business operationsat its facility in Jonestown, Pennsylvania. The sale of this property ispending and the Company expects to record a small gain on sale in the 2006operating results.

 

**ITEM3.**                 **LEGAL PROCEEDINGS.**

 

TheCompany is subject to various investigations, claims and legal proceedingscovering a wide range of matters that arise in the ordinary course of itsbusiness activities. Each of these matters is subject to various uncertainties,and it is possible that some of these matters may be resolved unfavorably tothe Company. The Company has established accruals for matters that are probableand reasonably estimable. Management believes that any liability that mayultimately result from the resolution of these matters in excess of accrualsand or amounts provided by insurance coverage will not have a material adverseeffect on the consolidated financial position or results of operations of the Company.

 

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

 

Nomatters were submitted by the Company to a vote of the Company’s securityholders, through the solicitation of proxies or otherwise, during the fourthquarter of the year ended December 31, 2005.

 

10

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**PART II**

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

 

TheCompany’s Class A Common Stock is traded on the American Stock Exchange (tickersymbol STS). The number of record holders of the Class A Common Stock as ofMarch 20, 2006 was approximately 289. Due to the number of shares held innominee or street name, it is likely that there are more than 289 beneficial ownersof the Company’s Class A Common Stock.

 

TheCompany’s Class A Common Stock closed at a price of $7.30 per share on theAmerican Stock Exchange on March 20, 2006 on which date there were 10,585,826shares of Class A Common Stock outstanding. High and low sales prices of theClass A Common Stock for the two-year period ended December 31, 2005 were:

 

| ** **  | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| ** **  | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| 1st Quarter |       | $        | 7.25       |     | $          | 6.20 |   | $ | 7.80 |   | $ | 5.95 |   |
| 2nd Quarter |       | 8.35     |       | 5.90     |       | 7.26 |   | 6.25 |   |
| 3rd Quarter |       | 9.50     |       | 7.27     |       | 6.65 |   | 5.95 |   |
| 4th Quarter |       | 9.56     |       | 7.35     |       | 6.81 |   | 5.90 |   |
|             |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

Allof the 2,109,133 outstanding shares of the Company’s Class B Common Stock wereheld by a total of 13 persons as of March 20, 2006. There is no establishedtrading market for the Class B Common Stock. Class B Common Stock is freelyconvertible on a one-for-one basis into an equal number of shares of Class ACommon Stock, and ownership of the Class B shares is deemed to be beneficialownership of the Class A shares under Rule 13d-3(d) (1) promulgated under theSecurities Exchange Act of 1934.

 

TheBoard of Directors approved the following cash dividends on its outstandingClass A and Class B Common Stock during the years ended December 31, 2005 andDecember 25, 2004:

 
| ** **                | ** ** | ** **           | ** ** | ** **         | ** ** | **Cash Dividend** | ** ** |
|---------------------------|------------|----------------------|------------|--------------------|------------|------------------------|------------|
| **Declaration Date** | ** ** | **Record Date** | ** ** | **Paid Date** | ** ** | **Per Share**     | ** ** |
|                      |       |                 |       |               |       |                   |       |
| 2004                      |       |                 |       |               |       |                   |       |
| January 23, 2004          |       | February 6, 2004     |       | February 16, 2004  |       | $                      | .030       |   |
| April 29, 2004            |       | May 10, 2004         |       | May 17, 2004       |       | $                      | .035       |   |
| July 20, 2004             |       | August 2, 2004       |       | August 9, 2004     |       | $                      | .035       |   |
| October 21, 2004          |       | November 1, 2004     |       | November 8, 2004   |       | $                      | .035       |   |
|                      |       |                 |       |               |       |                   |       |
| 2005                      |       |                 |       |               |       |                   |       |
| January 28, 2005          |       | February 7, 2005     |       | February 14, 2005  |       | $                      | .035       |   |
| May 2, 2005               |       | May 16, 2005         |       | May 23, 2005       |       | $                      | .035       |   |
| June 6, 2005              |       | July 25, 2005        |       | August 1, 2005     |       | $                      | .095       |   |
| October 28, 2005          |       | November 14, 2005    |       | November 21, 2005  |       | $                      | .095       |   |

 

TheBoard of Directors has expressed its intentions to continue the $.095 per sharequarterly cash dividend indefinitely, business conditions permitting.

 

11

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**ITEM6.**                  **SELECTED FINANCIAL DATA.**

 
| ** **                                     | ** ** | **For Fiscal Years Ended** | ** ** |
|------------------------------------------------|------------|----------------------------|------------|
| ** **                                     | ** ** | **2005**                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| **Consolidated Income Statement Data:**        |       |                       |       |   |   |   |   |   |   |   |   |
| (in millions,  except per share amounts)       |       |                       |       |   |   |   |   |   |   |   |   |
| Revenue                                        |       | $                          | 342.1      |   | $ | 308.0 |   | $ | 226.9 |   | $ | 210.1 |   | $ | 226.7 |   |
|                                           |       |                       |       |   |   |   |   |   |   |   |   |
| Net income                                     |       | 8.3                        |       | 4.7 |   | 4.6 |   | 3.6 |   | 4.9 |   |
|                                           |       |                       |       |   |   |   |   |   |   |   |   |
| Net income per  share: (a)                     |       |                       |       |   |   |   |   |   |   |   |   |
| Basic earnings  per share                      |       | .67                        |       | .39 |   | .39 |   | .30 |   | .41 |   |
| Diluted earnings  per share                    |       | .65                        |       | .38 |   | .38 |   | .30 |   | .41 |   |
|                                           |       |                       |       |   |   |   |   |   |   |   |   |
| Cash dividends per common share                |       | .26                        |       | .135 |   | .025 |   | — |   | — |   |
|                                           |       |                       |       |   |   |   |   |   |   |   |   |
| **Consolidated Balance Sheet Data:**           |       |                       |       |   |   |   |   |   |   |   |   |
| (in millions)                                  |       |                       |       |   |   |   |   |   |   |   |   |
|                                           |       |                       |       |   |   |   |   |   |   |   |   |
| Working capital                                |       | $                          | 60.8       |   | $ | 50.9 |   | $ | 42.9 |   | $ | 29.3 |   | $ | 29.4 |   |
|                                           |       |                       |       |   |   |   |   |   |   |   |   |
| Total assets                                   |       | 137.4                      |       | 129.2 |   | 106.3 |   | 87.9 |   | 91.6 |   |
|                                           |       |                       |       |   |   |   |   |   |   |   |   |
| Long-term debt  (excluding current maturities) |       | 31.4                       |       | 28.8 |   | 17.4 |   | 7.4 |   | 13.1 |   |
|                                           |       |                       |       |   |   |   |   |   |   |   |   |
| Stockholders’  equity                     |       | 75.2                       |       | 67.6 |   | 63.6 |   | 59.0 |   | 55.1 |   |

 

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(a)  All per share amounts havebeen adjusted for the common stock dividend paid on October 16, 2003.

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

 

**Comparison of 2005 with 2004**

 

***Revenue (includes net sales and otherincome)***

Net sales for the year endedDecember 31, 2005 increased $34.0 million, or 11.1%, to $341.3 million comparedto $307.3 for the year ended December 25, 2004. The increase in net sales wasprimarily attributable to selling price increases implemented in 2004 and 2005.These selling price increases were implemented in an effort to combatescalating raw material costs. Prior to these increases, the Company had nothad a price increase since June 2000. Net sales for our core dry freightproduct line increased 9.5%, including an increase in shipments to our majorfleet customers of 19%. Additionally, net sales of our bus division increased19% and our armored division net sales increased 46%. Our sales backlog was astrong $90.3 million at December 31, 2005 slightly higher than the $89.1million backlog at December 25, 2004.

 

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

 

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

Gross profit increased by$10.3 million, or 33.4%, to $41.1 million (12.1% of net sales) for the yearended December 31, 2005 compared to $30.8 million (10.0% of net sales) for theyear ended December 25, 2004. The following table presents the components ofcost of sales as a percentage of net sales and the changes from year-to-year:

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

 

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

 

Due to thecomplexity of our manufacturing processes and diverse product line, Supreme hashistorically recorded both favorable and unfavorable annual physical inventoryadjustments. To a large degree, this situation relates to Supreme’s commitmentto provide a high level of product customization through engineering and designin order to meet the particular and unique transportation needs of ourcustomers. The 2005 physical inventory adjustments were a net unfavorableadjustment in the third quarter of $1.1 million and a net favorable adjustmentin the fourth quarter of $.2 million. For 2006, management has scheduledperiodic physical inventories to provide analyses of improved reportingprocedures and their related effect on inventories. These more frequentphysical inventories, combined with other initiatives relating to improvedpractices, should enable Supreme to reduce the physical inventory adjustmentsand obtain this information on a more timely basis.

 

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

 

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

 

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**Delivery**- Delivery expense as a percentage of net sales was 2.8% compared to 3.1% in2004. Delivery expenses remained relatively flat as the Company utilized morecost effective outside delivery methods versus using its employees and ownedequipment to deliver units.

 

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

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

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

 

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

 

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

 

***Interest expense***

Interest expense increasedby $1.1 million, or 110.0%, to $2.1 million (.6% of net sales) for the yearended December 31, 2005 from $1.0 million (.3% of net sales) for the year endedDecember 25, 2004. The increase in interest expense resulted from higher levelsof borrowings against the Company’s revolving line of credit and highershort-term interest rates. The additional borrowings were utilized to financestrategic plant expansions and additional levels of working capital. In June2005, the Company entered into a derivative swap agreement in an effort tomitigate the effect of the rising interest rate environment. The swap agreementexchanges the debt obligation’s floating rate for fixed interest payments.

 

***Income taxes***

The Company’s effectiveincome tax rate was 34.2% for 2005 compared to 22.2% for 2004. The 2005 ratewas favorably impacted by tax-exempt underwriting income of our wholly-ownedsmall captive insurance subsidiary and by the additional tax deduction allowedmanufacturer’s under the 2004 American Jobs Creation Act and certain taxcredits. The 2004 rate was favorably impacted by research and development taxcredits claimed on amended tax filings and the reversal of tax reserves nolonger required. The Company expects its 2006 effective rate to approximate36.0%.

 

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

Net income increased by $3.6million, or 76.6%, to $8.3 million (2.4% of net sales) for the year endedDecember 31, 2005 from $4.7 million (1.5% of net sales) for the year endedDecember 25, 2004.

 

14

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Basic earnings increased$.28 cents per share, or 71.8%, to $.67 cents per share for the year endedDecember 31, 2005 from $.39 cents per share for the year ended December 25,2004.

 

Diluted earnings increased$.27 cents per share, or 71.1%, to $.65 cents per share for the year endedDecember 31, 2005 from $.38 cents per share for the year ended December 25,2004.

 

**Liquidity and Capital Resources**

 

Cash generated fromoperations and borrowings from the Company’s revolving line of credit were themajor sources of cash flows during 2005. The Company’s cash management systemand revolving line of credit are designed to maintain zero cash balances and,accordingly, excess cash generated from operations is utilized to reduceborrowings.

 

***Operating activities***

Operating activities generatedcash of $4.9 million in 2005 compared to $3.2 million in 2004. Net income wasthe largest source of cash generated from operations in 2005. Working capitalincreased $9.9 million during 2005, principally due to higher levels ofinventories. The inventories increased as a result of higher cost of rawmaterials, higher levels of finished goods related to the pre-building of largefleet orders to avoid the necessity of a second shift to meet demand, andhigher levels of purchased chassis in our bus and armored divisions.

 

***Investing activities***

Investing activities used$6.8 million of cash in 2005 compared to $10.9 million in 2004. Major capitalexpenditures in 2005 related to additional plant expansions at our Georgia,Pennsylvania and Texas locations. Also, the Company purchased a storagefacility adjacent to its fiberglass reinforced plywood operations in Indiana.This acquisition replaced a previously leased facility. The Company intends tohave lower levels of additions to property, plant and equipment in 2006 ascompared to 2005, however, we will consider strategic acquisitions should theypresent themselves.

 

***Financing activities***

Financing activitiesprovided cash of $1.7 million in 2005 compared to $9.4 million in 2004. Thelower level of financing activity occurred primarily as a result of the $5.4million reduction in capital expenditures in 2005 as compared to 2004, combinedwith the increased operating income. The Company paid cash dividends of $3.3million in 2005 compared to $1.6 million in 2004. Our board of directorsapproved an increase from $.035 per share to $.095 per share beginning with thethird quarter 2005 dividend. Business conditions permitting, the quarterly cashdividend will remain at $.095 per share during 2006 which will approximate $4.8million of cash dividends to be paid to our shareholders. The Company receivedproceeds from stock option exercises of $2.2 million during 2005 as compared to$.5 million received in 2004.

 

The Company’s creditagreement was amended in September 2005 to delete negative covenants related tothe declaration or authorization of dividends and the entering into or theassumption of operating lease obligations. The amendment also included morefavorable performance pricing based on the Company’s strong balance sheet. Allborrowings under the revolving line of credit remain unsecured.

 

During 2005, the Companyobtained financing for the acquisition of real estate and equipment for its newfacility adjacent to our existing facility in Pennsylvania. The funds borrowedtotaled $2.3 million at a fixed rate of 2.5%. These funds were obtained througha job creation and retention program created as a part of the Governor ofPennsylvania’s economic stimulus program.

 

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**Comparison of 2004 with 2003**

 

Revenueincludes net sales and other income. Net sales for the year ended December 25,2004 were $307.3 million, an increase of $82.4 million over the $224.9 millionfor the year ended December 27, 2003. All of the Company’s major product linesincreased over the levels experienced in 2003. The largest increase in netsales was in the Company’s dry freight product line which grew $61.6 millionover 2003. The balance of the increase in net sales was spread over its remainingproduct lines. The opening of the Company’s Northwest production facility inOregon during 2004 contributed $9.9 million to the increase in net sales,primarily in the dry freight area.

 

Theimproved market conditions experienced in the fourth quarter of 2003 carriedover into 2004. On a unit basis, new orders increased approximately 52%, andbacklog grew to a record $89.1 million. While the Company implemented severalprice increases during 2004, these price increases only impacted revenues by anestimated 3 to 4% due to the Company’s significant backlog and policy ofhonoring quotes outstanding at the time of the increase.

 

Otherincome decreased $1.4 million to $.6 million in 2004 from $2.0 million in 2003.Gains on sale of property, plant and equipment were $87,000 in 2004 compared to$1.1 million in 2003 and this accounted for most of the decrease in otherincome. The $1.1 million of gains in 2003 was principally attributable to thesale of two buildings no longer used in the business operations.

 

Grossprofit as a percentage of net sales declined 2.7% in 2004 to 10.0% from 12.7%in 2003. The startup and training costs of approximately $1.5 million at theCompany’s new Oregon manufacturing facility impacted 2004 margins; however, themost significant cause for the decrease in gross profit was the unprecedentedrise in the Company’s raw material costs. The following table presents thecomponents of cost of sales as a percentage of net sales and their change fromyear-to-year:

 
| ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | **Percent** | ** ** |
|---------------|------------|------------|------------|------------|------------|-------------|------------|
| ** **    | ** ** | **2004**   | ** ** | **2003**   | ** ** | **Change**  | ** ** |
| Material      |       | 57.6       | %          | 53.9       | %          | 3.7         | %          |
| Direct labor  |       | 15.0       |       | 14.8       |       | 0.2         |       |
| Overhead      |       | 14.3       |       | 15.4       |       | -1.1        |       |
| Delivery      |       | 3.1        |       | 3.2        |       | -0.1        |       |
|          |       |       |       |       |       |        |       |
| Cost of sales |       | 90.0       | %          | 87.3       | %          | 2.7         | %          |
|          |       |       |       |       |       |        |       |
| Gross profit  |       | 10.0       | %          | 12.7       | %          | -2.7        | %          |

 

TheCompany experienced rapidly escalating raw material costs throughout 2004. Themost significant increases were encountered in the Company’s steel purchaseswhich aggregate approximately 20% of total raw material purchases. Steel costs,on average, increased approximately 71% during 2004 from the levels paid during2003. Cost of all other major raw material items also increased significantlyin 2004 from the levels experienced in 2003. Cost of resins and gelcoats usedin the Company’s composites products increased 58% and 21%, respectively.Plywood costs spiked as high as 31%, but leveled off at 19% over prices paid in2003. Other items experiencing cost increases as compared with 2003 wereflooring at 10% and aluminum at 8 to 9%.

 

Atthe end of 2004, the Company’s major suppliers were indicating that they didnot see an end to escalating raw material costs. Raw materials anticipated tobe most affected in 2005 were steel, resins and gelcoats. The Company seeks topurchase its raw material requirements at the best terms and prices possibleand continues to expand vendor relationships both domestically andinternationally.

 

Theslight increase in direct labor of .2% was attributed primarily to startup andtraining costs at the Company’s bus operation in California, its new Oregonfacility and, to a lesser extent, the Armored plant startup in Texas.

 

16

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Bothoverhead and delivery expenses improved as a percentage of net sales in 2004when compared to 2003. The improvement in overhead was due to the fixed natureof certain expenses that do not fluctuate when volume changes. The Company hasbeen unfavorably impacted since 2000 by rising overhead expenses that theCompany has been unable to pass on due to competitive market conditions. Thecategories that have felt the most pressure are commercial and generalliability insurance, workers’ compensation insurance and group healthinsurance.

 

Toimprove gross profit and mitigate rising material costs, the Companyimplemented a series of price increases beginning March 2004. The most recentprice increase was effective January 1, 2005. The cumulative effect of theseprice increases totaled approximately 20%. Product lines containing largeamounts of steel and composite materials had price increases significantlyabove average. Prior to the March 2004 increases, the Company had not had aprice increase since June 2000.

 

Industrypractice is such that price increases take effect approximately 30 days afterannouncement. In addition, firm backlogged orders historically have beenhonored and not subject to price increases for either escalating material costincreases or otherwise. As a result of significant backlogs (approximately 70to 90 days throughout the year), each of the price increases did not takeeffect for 4 to 6 months after announcement. Therefore, we estimate thatapproximately $11.4 million of material cost increases were not recoveredthrough price increases in 2004. To help eliminate the effect of the aboveindustry practices, the Company now makes its price increases effectiveimmediately, while attempting to include escalation provisions in large fleetorders. With regard to dealer and direct non-fleet backlogged business, theCompany evaluated various strategies for more post-order pricing flexibility.Changing historical industry practices is a long-term effort and thereforeshould material costs continue to escalate, there will continue to be a degreeof material cost increase absorption due to the delay in effectiveness of priceincreases. In addition, competitive conditions in certain markets and productsaffect the net selling price the Company may realize and it is difficult topredict the effect our price increases may have on customer demand.

 

Selling,general and administrative expenses were $24.3 million or 7.9% of net sales in2004 compared to $22.2 million or 9.9% of net sales in 2003. The largestcomponent of selling, general and administrative expense wascompensation-related expense which comprised approximately 72% and 71% of totalselling, general and administrative expenses in 2004 and 2003, respectively.The dollar increase in 2004 related to additional commission expense onincreased net sales, additional incentive programs that resulted in highervolume and investment in upgrading the Company’s sales literature. The Companybenefited from cooperative marketing income in both 2004 and 2003 inapproximately the same dollar amounts. These cooperative marketing funds,received from original equipment manufacturers (“OEM”), are used to offsetmarketing and promotional expenses for the Company’s products. There is noassurance that these programs will continue or that the Company will benefitfrom these programs as the OEM tend to reduce them as their business improves.

 

Interestexpense increased $234,070 in 2004 to $1,016,732 from $782,662 in 2003. Theincrease in interest expense was primarily the result of gradually increasinginterest rates and additional borrowings under the Company’s revolving creditagreement to fund increases in accounts receivable and inventories associatedwith substantially higher net sales throughout 2004.

 

TheCompany’s effective income tax rate was 22.2% for 2004 compared to 38.6% in2003. The favorable rate reduction in 2004 resulted from federal and stateresearch and development tax credits claimed on amended tax filings.Additionally, other tax reserves were credited to income as they were no longerrequired as the result of the favorable conclusion of tax audits or theexpiration of the statute of limitations on open years (See Note 8 of the Notesto Consolidated Financial Statements).

 

Netincome for 2004 was $4.7 million, or $.38 per diluted share compared to $4.6million, or $.38 per diluted share in 2003. Net income was negatively impactedprincipally by raw material cost increases and positively impacted by the lowereffective tax rate as previously discussed.

 

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**Contractual Obligations**

 

Ourfixed, noncancelable obligations as of December 31, 2005 were as follows:

 
| ** **           | ** ** | **Payments due by period** | ** ** |
|----------------------|------------|----------------------------|------------|
| ** **           | ** ** | ** **                 | ** ** | **Less than** | ** ** | **1-3** | ** ** | **3-5** | ** ** | **More than** | ** ** |
| ** **           | ** ** | **Total**                  | ** ** | **1 Year** | ** ** | **Years** | ** ** | **Years** | ** ** | **5 Years** | ** ** |
| Debt (a)             |       | $                          | 33,194,459 |   | $ | 1,816,092 |   | $ | 27,900,811 |   | $ | 2,469,222 |   | $ | 1,008,334 |   |
| Operating leases (b) |       | 3,603,100                  |       | 789,000 |   | 1,523,300 |   | 1,237,300 |   | 53,500 |   |
| Total                |       | $                          | 36,797,559 |   | $ | 2,605,092 |   | $ | 29,424,111 |   | $ | 3,706,522 |   | $ | 1,061,834 |   |

 

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(a)          Amounts are included on theConsolidated Balance Sheets. See Note 5 of the Notes to Consolidated FinancialStatements for additional information regarding debt and related matters.

 

(b)         See Note 9 of the Notes toConsolidated Financial Statements for additional information regardingoperating leases.

 

**Critical Accounting Policies and Estimates**

 

Management’sdiscussion and analysis of its financial position and results of operations arebased upon the Company’s consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States of America. The preparation of these financial statementsrequires management to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses and related disclosure ofcontingent assets and liabilities. The Company’s significant accounting policiesare discussed in Note 1 of the Notes to Consolidated Financial Statements. Inmanagement’s opinion, the Company’s critical accounting policies includeallowance for doubtful accounts, excess and obsolete inventories, inventoryrelief, accrued insurance and accrued warranty.

 

Allowancefor Doubtful Accounts - The Company maintains an allowance for doubtfulaccounts for estimated losses resulting from the inability of our customers tomake required payments. If the financial condition of our customers were todeteriorate, resulting in an impairment of their ability to make payments,additional allowances may be required which would affect our future operatingresults.

 

Excessand Obsolete Inventories - The Company must make estimates regarding the futureuse of products and provides a provision for obsolete or slow-movinginventories. If actual product life-cycles, product demand or market conditionsare less favorable than those projected by management, additional inventorywrite-downs may be required which would affect future operating results.

 

InventoryRelief - For monthly and quarterly financial reporting, cost of sales isrecorded and inventories are relieved by the use of standard bills of material.Because of the customized nature of the Company’s products, it is difficult toplace full reliance on the bills of material for accurate relief ofinventories. Although the Company continues to refine the process of creatingaccurate bills of materials, manual adjustments, which are based on estimates,are necessary in an effort to assure correct relief of inventories for productssold. The estimate calculations consider the customized nature of products,historical inventory relief percentages, scrap variances and other factorswhich could impact inventory relief. The accuracy of the inventory relief isnot known until the annual physical inventories. In prior years, management hadconcluded that it is not practical to consider more frequent physicalinventories because of the sales order backlog and the costs associated withceasing production for the purpose of conducting physical inventories. During2005, the Company’s annual physical inventories resulted in a net unfavorableadjustment of $1.1 million which was recorded in the third quarter. Subsequently,management has dedicated significant in-house resources refining bills ofmaterials, improving cost accounting functions and instituting new inventorypolicies and procedures. In addition, management has implemented more frequentphysical inventories and expects the new policies, procedures and frequentphysical inventories will minimize favorable or unfavorable inventory and costof sales adjustments.

 

18

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AccruedInsurance - The Company has a self-insured retention against product liabilityclaims with insurance coverage over and above the retention. The Company isalso self-insured for a portion of its employee medical benefits 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, managementmust determine estimated liability for claims incurred but not reported. Suchestimates and any subsequent changes in estimates may result in adjustments toour operating results in the future.

 

EffectiveJanuary 1, 2005, the Company began utilizing its newly formed and wholly-ownedsmall captive insurance company to insure certain of its business risks.Certain risks, previously self insured by the Company and its subsidiaries, arenow insured by the captive insurance subsidiary. In addition, certain businessrisks not previously insured are now insured by the captive insurance subsidiary.Since the captive insurance company has not reinsured any of its coverages, theCompany’s overall self insurance risk has not changed. The captive insurancesubsidiary is expected to help the Company manage its risk exposures and underthe Internal Revenue Code the net underwriting income of a small captive, asdefined, is not taxable.

 

AccruedWarranty - The Company provides limited warranties for periods of up to fiveyears from the date of retail sale. Estimated warranty costs are provided atthe time of sale and are based upon historical experience.

 

**Pending Accounting Pronouncements**

 

SeeNew Accounting Standards to be Adopted in Note 1 of Notes to ConsolidatedFinancial Statements.

 

**Forward-Looking Statements**

 

Thisreport contains forward-looking statements, other than historical facts, whichreflect the view of the Company’s management with respect to future events.When used in this report, words such as “believe,” “expect,” “anticipate,”“estimate,” “intend,” and similar expressions, as they relate to the Company orits plans or operations, identify forward-looking statements. Suchforward-looking statements are based on assumptions made by, and informationcurrently available to, the Company’s 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 causeactual results to differ materially from such expectations include, withoutlimitation, limitations on the availability of chassis on which the Company’sproduct is dependent, availability of raw materials, raw material costincreases and severe interest rate increases. Furthermore, the Company canprovide no assurance that such raw material cost increases can be passed on toits customers through implementation of price increases for the Company’sproducts. The forward-looking statements contained herein reflect the currentview of the Company’s management with respect to future events and are subjectto those factors and other risks, uncertainties and assumptions relating to theoperations, results of operations, cash flows and financial position of theCompany. The Company assumes no obligation to update the forward-lookingstatements or to update the reasons actual results could differ from thosecontemplated by such forward-looking statements.

 

**Control Risks**

 

Whilethe Company believes its control systems are effective, there are inherentlimitations in all control systems, and misstatements due to error or fraud mayoccur and not be detected. The Company continues to take action to assurecompliance with the internal controls, disclosure controls, and otherrequirements of the Sarbanes-Oxley Act of 2002. Our management, including ourChief Executive Officer and Chief Financial

 

19

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Officer,cannot guarantee that our internal controls and disclosure controls willprevent all possible errors or all fraud. A control system, no matter how wellconceived and operated, can provide only reasonable, not absolute, assurancethat the objectives of the control system are met. In addition, the design of acontrol system must reflect the fact that there are resource constraints, andthe benefit of controls must be relative to their costs. Because of theinherent limitations in all control systems, no system of controls can provideabsolute assurance that all control issues and instances of fraud, if any,within the Company 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 becircumvented by individual acts of some persons, by collusion of two or morepersons, or by management override of the controls. The design of any system ofcontrols also is 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, acontrol may be inadequate because of changes in conditions or the degree of compliancewith the policies or procedures may deteriorate. Because of inherentlimitations in a cost-effective control system, misstatements due to error orfraud may occur and not be detected.

 

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

 

Inthe normal course of business, operations of the Company are exposed tofluctuations in interest rates. These fluctuations can vary the cost ofinvesting, financing and operating. The Company’s primary risk exposure resultsfrom changes in short-term interest rates. In an effort to manage riskexposures, the Company strives to achieve an acceptable balance between fixedand floating rate debt positions. The Company’s revolving line of  credit is floating rate debt and bearsinterest at the bank’s prime rate or LIBOR plus certain basis points dependingon the pricing option selected and the Company’s leverage ratio. At December31, 2005, the Company was  party to aninterest rate swap agreement dated July 28, 2005. The interest rate swapagreement is a contract to exchange floating rate for fixed rate interestpayments over the life of the interest rate swap agreement and is used tomeasure interest to be paid or received and does not represent the amount ofexposure of credit loss. The differential paid or received under the interestrate swap agreement is recognized as an adjustment to interest expense. Thefollowing is a summary of the interest rate swap agreement outstanding atDecember 31, 2005.

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

 

Basedon the Company’s overall interest rate exposure at December 31, 2005, ahypothetical 10 percent change in interest rates applied to the fair value ofthe financial instruments as of December 31, 2005, would have no materialimpact on earnings, cash flows or fair values of interest rate risk sensitiveinstruments over a one-year period.

 

20

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

 

Index to Financial Statements

 
| 1.     | Financial Statements:         |                                                                                                                                  |
|--------|-------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|
|   |                          |                                                                                                                                  |
|   |                          | Report  of Crowe Chizek and Company LLC, Independent Registered Public Accounting  Firm                                               |   |
|   |                          |                                                                                                                                  |   |
|   |                          | Consolidated Balance Sheets at  December 31, 2005 and December 25, 2004                                                               |   |
|   |                          |                                                                                                                                  |   |
|   |                          | Consolidated Statements of  Income for the years ended December 31, 2005, December 25, 2004 and December  27, 2003                    |   |
|   |                          |                                                                                                                                  |   |
|   |                          | Consolidated Statements of  Stockholders’ Equity for the years ended December 31, 2005, December 25, 2004  and December 27, 2003 |   |
|   |                          |                                                                                                                                  |   |
|   |                          | Consolidated Statements of  Cash Flows for the years ended December 31, 2005, December 25, 2004 and  December 27, 2003                |   |
|   |                          |                                                                                                                                  |   |
|   |                          | Notes to  Consolidated Financial Statements                                                                                           |   |
|   |                          |                                                                                                                                  |   |
| 2.     | Financial Statement Schedule: |                                                                                                                                  |
|   |                          |                                                                                                                                  |   |
|   |                          | Schedule II  - Valuation and Qualifying Accounts for the years ended December 31, 2005,  December 25, 2004 and December 27, 2003      |   |
|   |                          |                                                                                                                                  |   |
|   |                          | All other schedules are omitted because they are not  applicable.                                                                     |   |
|   |                          |                                                                                                                                  |   |
| 3.     | Supplementary Data            |                                                                                                                                  |
|   |                          |                                                                                                                                  |   |
|   |                          | Quarterly Results  (Unaudited)                                                                                                        |   |

 

21

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REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Tothe Board of Directors and Stockholders of

Supreme Industries, Inc.:

 

Wehave audited the accompanying consolidated balance sheets of SupremeIndustries, Inc. and its subsidiaries as of December 31, 2005 and December 25,2004, and the related consolidated statements of income, stockholders’ equityand cash flows for each of the three years in the period ended December 31,2005. Our audits also included the financial statement schedule, Schedule II -Valuation and Qualifying Accounts. These financial statements and financialstatement schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements andfinancial statement schedule based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits 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 31, 2005 and December 25, 2004, andthe results of their operations and their cash flows for each of the threeyears in the period ended December 31, 2005 in conformity with accountingprinciples generally accepted in the United States of America. In addition, inour opinion, the financial statement schedule referred to above, whenconsidered in relation to the basic financial statements taken as a whole,presents fairly, in all material respects, the information required to beincluded therein.

 

 
|   | /s/Crowe Chizek and Company LLC |
|--------|---------------------------------|

 

 

South Bend,Indiana

January 27, 2006

 

22

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**Supreme Industries, Inc. And Subsidiaries**

 

**Consolidated Balance Sheets**

*December 31, 2005 and December 25, 2004*

 
| ** **                                                                                                                                                                            | ** ** | **2005**    | ** **  | **2004**    | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| **ASSETS**                                                                                                                                                                            |       |        |        |        |       |
| **Current  assets:**                                                                                                                                                                  |       |        |        |        |       |
| Cash and cash  equivalents                                                                                                                                                            |       | $           | 1,515,532   |        | $          | 1,736,483 |   |
| Investments                                                                                                                                                                           |       | 1,168,922   |        | —      |       |
| Accounts  receivable, net of allowance for doubtful accounts of $252,000 in 2005 and  $296,000 in 2004                                                                                |       | 29,594,819  |        | 28,432,715  |       |
| Refundable  income taxes                                                                                                                                                              |       | 904,291     |        | 1,246,500   |       |
| Inventories                                                                                                                                                                           |       | 50,730,205  |        | 45,441,189  |       |
| Property held  for sale                                                                                                                                                               |       | 1,877,234   |        | —      |       |
| Deferred income  taxes                                                                                                                                                                |       | 827,669     |        | 847,012     |       |
| Other current  assets                                                                                                                                                                 |       | 1,991,105   |        | 2,976,136   |       |
| **Total  current assets**                                                                                                                                                             |       | 88,609,777  |        | 80,680,035  |       |
|                                                                                                                                                                                  |       |        |        |        |       |
| **Property,  plant and equipment, net**                                                                                                                                               |       | 47,457,713  |        | 47,190,964  |       |
|                                                                                                                                                                                  |       |        |        |        |       |
| **Intangible  assets, net**                                                                                                                                                           |       | —      |        | 30,066      |       |
|                                                                                                                                                                                  |       |        |        |        |       |
| **Goodwill**                                                                                                                                                                          |       | 735,014     |        | 735,014     |       |
|                                                                                                                                                                                  |       |        |        |        |       |
| **Other  assets**                                                                                                                                                                     |       | 549,350     |        | 560,540     |       |
| **Total  assets**                                                                                                                                                                     |       | $           | 137,351,854 |        | $          | 129,196,619 |   |
|                                                                                                                                                                                  |       |        |        |        |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                         |       |        |        |        |       |
|                                                                                                                                                                                  |       |        |        |        |       |
| **Current  liabilities:**                                                                                                                                                             |       |        |        |        |       |
| Current  maturities of long–term debt                                                                                                                                            |       | $           | 1,816,092   |        | $          | 1,633,333 |   |
| Trade accounts  payable                                                                                                                                                               |       | 15,675,073  |        | 18,717,757  |       |
| Accrued wages  and benefits                                                                                                                                                           |       | 4,257,201   |        | 3,463,823   |       |
| Accrued self  insurance                                                                                                                                                               |       | 2,664,746   |        | 2,939,224   |       |
| Accrued warranty                                                                                                                                                                      |       | 1,385,000   |        | 1,209,344   |       |
| Accrued income  taxes                                                                                                                                                                 |       | 380,721     |        | 312,415     |       |
| Other accrued  liabilities                                                                                                                                                            |       | 1,640,923   |        | 1,505,868   |       |
| **Total  current liabilities**                                                                                                                                                        |       | 27,819,756  |        | 29,781,764  |       |
|                                                                                                                                                                                  |       |        |        |        |       |
| **Long–term  debt**                                                                                                                                                              |       | 31,378,367  |        | 28,766,667  |       |
|                                                                                                                                                                                  |       |        |        |        |       |
| **Deferred  income taxes**                                                                                                                                                            |       | 2,988,275   |        | 3,085,179   |       |
| **Total  liabilities**                                                                                                                                                                |       | 62,186,398  |        | 61,633,610  |       |
|                                                                                                                                                                                  |       |        |        |        |       |
| **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 13,041,826 shares  in 2005 and 12,400,102 shares in 2004                                                  |       | 1,304,183   |        | 1,240,010   |       |
| 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 2,109,133 shares in 2005 and 2004 |       | 210,913     |        | 210,913     |       |
| Additional paid–in  capital                                                                                                                                                      |       | 65,259,480  |        | 62,293,094  |       |
| Retained  earnings                                                                                                                                                                    |       | 29,236,254  |        | 24,155,562  |       |
| Treasury stock,  Class A Common Stock, at cost, 2,462,496 shares in 2005 and 2,386,841 shares  in 2004                                                                                |       | (20,857,438 | )           | (20,336,570 | )          |
| Accumulated  other comprehensive income                                                                                                                                               |       | 12,064      |        | —      |       |
| **Total  stockholders’ equity**                                                                                                                                                  |       | 75,165,456  |        | 67,563,009  |       |
| **Total  liabilities and stockholders’ equity**                                                                                                                                  |       | $           | 137,351,854 |        | $          | 129,196,619 |   |
|                                                                                                                                                                                       |            |             |             |             |            |  |  |  |

 

*See accompanying notes to consolidated financial statements.*

 

23

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**Supreme Industries, Inc. And Subsidiaries**

 

**Consolidated Statements of Income**

*for the years ended December 31, 2005, December 25, 2004 andDecember 27, 2003*

 
| ** **                                                 | ** ** | **2005**    | ** **  | **2004**    | ** ** | **2003**    | ** ** |
|------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
| **Revenue:**                                               |       |        |        |        |       |        |       |
| Net sales                                                  |       | $           | 341,252,852 |        | $          | 307,326,310 |       | $ | 224,853,226 |   |
| Other income                                               |       | 806,005     |        | 636,145     |       | 2,022,954   |       |
|                                                       |       | 342,058,857 |        | 307,962,455 |       | 226,876,180 |       |
|                                                       |       |        |        |        |       |        |       |
| **Costs and expenses:**                                    |       |        |        |        |       |        |       |
| Cost of sales                                              |       | 300,114,755 |        | 276,556,076 |       | 196,290,476 |       |
| Selling, general  and administrative                       |       | 27,137,573  |        | 24,287,530  |       | 22,247,343  |       |
| Interest                                                   |       | 2,129,149   |        | 1,016,732   |       | 782,662     |       |
|                                                       |       | 329,381,477 |        | 301,860,338 |       | 219,320,481 |       |
| **Income  before income taxes**                            |       | 12,677,380  |        | 6,102,117   |       | 7,555,699   |       |
|                                                       |       |        |        |        |       |        |       |
| Income taxes                                               |       | 4,336,000   |        | 1,354,000   |       | 2,914,000   |       |
| **Net  income**                                            |       | $           | 8,341,380   |        | $          | 4,748,117   |       | $ | 4,641,699 |   |
|                                                       |       |        |        |        |       |        |       |
| **Earnings per share:**                                    |       |        |        |        |       |        |       |
| Basic                                                      |       | $           | .67         |        | $          | .39         |       | $ | .39 |   |
| Diluted                                                    |       | .65         |        | .38         |       | .38         |       |
|                                                       |       |        |        |        |       |        |       |
| **Shares used in the computation of earnings per  share:** |       |        |        |        |       |        |       |
| Basic                                                      |       | 12,455,818  |        | 12,083,601  |       | 11,921,777  |       |
| Diluted                                                    |       | 12,835,405  |        | 12,477,333  |       | 12,139,590  |       |
|                                                       |       |        |        |        |       |        |       |
| **Cash dividends per common share**                        |       | $           | .26         |        | $          | .135        |       | $ | .025 |   |

 

*See accompanying notes to consolidated financial statements.*

 

24

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**Supreme********Industries, Inc. And Subsidiaries**

 

**Consolidated Statements of Stockholders’ Equity**

*for the years ended December 31, 2005, December 25, 2004 andDecember 27, 2003*

 
| ** **                                              |   |                                    |       |                                    |       |        |       |         |       | ** **     | ** ** | ** **   | ** ** | ** **       | ** ** | **Accumulated**        | ** ** | ** ** |        |
|---------------------------------------------------------|--------|-----------------------------------------|------------|-----------------------------------------|------------|-------------|------------|--------------|------------|----------------|------------|--------------|------------|------------------|------------|------------------------|------------|------------|-------------|
| ** **                                              |   |                                    |       |                                    |       |        |       |         |       | ** **     | ** ** | ** **   | ** ** | ** **       | ** ** | **Other**              | ** ** | **Total**  |        |
| ** **                                              |   |                                    |       |                                    |       |        |       |         |       | **Additional** | ** ** | ** **   | ** ** | ** **       | ** ** | **Compre-**            | ** ** | **Stock-** |        |
| ** **                                              |   | **Class A Common Stock** |       | **Class B Common Stock** |       | **Paid-In** | ** ** | **Retained** | ** ** | **Treasury**   | ** ** | **hensive**  | ** ** | **holder’** |       |
| ** **                                              |   | **Shares**                              | ** ** | **Amount**                              | ** ** | **Shares**  | ** ** | **Amount**   | ** ** | **Capital**    | ** ** | **Earnings** | ** ** | **Stock**        | ** ** | **Income (Loss)** | ** ** | **Equity** |        |
| **Balance,  December 29, 2002**                         |   | 11,284,827                              |       | $                                       | 1,128,483  |        | 1,917,394  |         | $          | 191,739        |       | $            | 55,861,169 |             | $          | 22,112,707             |       | $          | (20,151,979 | ) | $ | (129,769 | ) | $ | 59,012,323 |   |
|                                                    |   |                                    |       |                                    |       |        |       |         |       |           |       |         |       |             |       |                   |       |       |        |
| Net income                                              |   | —                                  |       | —                                  |       | —      |       | —       |       | —         |       | 4,641,699    |       | —           |       | —                 |       | 4,641,699  |        |
| Unrealized gain  on hedge activity, net of tax          |   | —                                  |       | —                                  |       | —      |       | —       |       | —         |       | —       |       | —           |       | 111,699                |       | 111,699    |        |
| Total  comprehensive income                             |   |                                    |       |                                    |       |        |       |         |       |           |       |         |       |             |       |                   |       | 4,753,398  |        |
| 10% common stock  dividend                              |   | 891,634                                 |       | 89,163                                  |       | 191,739     |       | 19,174       |       | 5,308,529      |       | (5,416,866   | )          | —           |       | —                 |       | —     |        |
| Cash dividend  ($.025 per share)                        |   | —                                  |       | —                                  |       | —      |       | —       |       | —         |       | (298,094     | )          | —           |       | —                 |       | (298,094   | )           |
| Exercise of stock  options                              |   | 74,508                                  |       | 7,451                                   |       | —      |       | —       |       | 278,482        |       | —       |       | —           |       | —                 |       | 285,933    |        |
| Tax benefit of  disqualifying stock option dispositions |   | —                                  |       | —                                  |       | —      |       | —       |       | 74,000         |       | —       |       | —           |       | —                 |       | 74,000     |        |
| Acquisition of  45,366 shares of treasury stock         |   | —                                  |       | —                                  |       | —      |       | —       |       | —         |       | —       |       | (184,591         | )          | —                 |       | (184,591   | )           |
| **Balance,  December 27, 2003**                         |   | 12,250,969                              |       | 1,225,097                               |       | 2,109,133   |       | 210,913      |       | 61,522,180     |       | 21,039,446   |       | (20,336,570      | )          | (18,097                | )          | 63,642,969 |        |
|                                                    |   |                                    |       |                                    |       |        |       |         |       |           |       |         |       |             |       |                   |       |       |        |
| Net income                                              |   | —                                  |       | —                                  |       | —      |       | —       |       | —         |       | 4,748,117    |       | —           |       | —                 |       | 4,748,117  |        |
| Unrealized gain  on hedge activity, net of tax          |   | —                                  |       | —                                  |       | —      |       | —       |       | —         |       | —       |       | —           |       | 18,097                 |       | 18,097     |        |
| Total  comprehensive income income                      |   |                                    |       |                                    |       |        |       |         |       |           |       |         |       |             |       |                   |       | 4,766,214  |        |
| Cash dividends  ($.135 per share) share)                |   | —                                  |       | —                                  |       | —      |       | —       |       | —         |       | (1,632,001   | )          | —           |       | —                 |       | (1,632,001 | )           |
| Exercise of stock  options                              |   | 149,133                                 |       | 14,913                                  |       | —      |       | —       |       | 577,731        |       | —       |       | —           |       | —                 |       | 592,644    |        |
| Tax benefit of  disqualifying stock option dispositions |   | —                                  |       | —                                  |       | —      |       | —       |       | 193,183        |       | —       |       | —           |       | —                 |       | 193,183    |        |
| **Balance,  December 25, 2004**                         |   | 12,400,102                              |       | 1,240,010                               |       | 2,109,133   |       | 210,913      |       | 62,293,094     |       | 24,155,562   |       | (20,336,570      | )          | —                 |       | 67,563,009 |        |
|                                                    |   |                                    |       |                                    |       |        |       |         |       |           |       |         |       |             |       |                   |       |       |        |
| Net income                                              |   | —                                  |       | —                                  |       | —      |       | —       |       | —         |       | 8,341,380    |       | —           |       | —                 |       | 8,341,380  |        |
| Unrealized gain  on hedge activity, net of tax          |   | —                                  |       | —                                  |       | —      |       | —       |       | —         |       | —       |       | —           |       | 22,166                 |       | 22,166     |        |
| Unrealized  holding loss on                             |   |                                    |       |                                    |       |        |       |         |       |           |       |         |       |             |       |                   |       |       |        |
| investments, net  of tax                                |   | —                                  |       | —                                  |       | —      |       | —       |       | —         |       | —       |       | —           |       | (10,102                | )          | (10,102    | )           |
| Total  comprehensive income                             |   |                                    |       |                                    |       |        |       |         |       |           |       |         |       |             |       |                   |       | 8,353,444  |        |
| Cash dividends  ($.26 per share)                        |   | —                                  |       | —                                  |       | —      |       | —       |       | —         |       | (3,260,688   | )          | —           |       | —                 |       | (3,260,688 | )           |
| Exercise of stock  options                              |   | 641,724                                 |       | 64,173                                  |       | —      |       | —       |       | 2,706,286      |       | —       |       | (520,868         | )          | —                 |       | 2,249,591  |        |
| Tax benefit of  disqualifying stock option dispositions |   | —                                  |       | —                                  |       | —      |       | —       |       | 260,100        |       | —       |       | —           |       | —                 |       | 260,100    |        |
|                                                    |   |                                    |       |                                    |       |        |       |         |       |           |       |         |       |             |       |                   |       |       |        |
| **Balance,  December 31, 2005**                         |   | 13,041,826                              |       | $                                       | 1,304,183  |        | 2,109,133  |         | $          | 210,913        |       | $            | 65,259,480 |             | $          | 29,236,254             |       | $          | (20,857,438 | ) | $ | 12,064 |   | $ | 75,165,456 |   |

 

*See accompanying notes to consolidated financial statements.*

 

25

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**Supreme Industries, Inc. And Subsidiaries**

 

**Consolidated Statements of Cash Flows**

*for the years ended December 31, 2005, December 25, 2004 andDecember 27, 2003*

 
| ** **                                                                                        | ** ** | **2005**     | ** ** | **2004**     | ** ** | **2003**    | ** ** |
|---------------------------------------------------------------------------------------------------|------------|--------------|------------|--------------|------------|-------------|------------|
| **Cash  flows from operating activities:**                                                        |       |         |       |         |       |        |       |
| Net income                                                                                        |       | $            | 8,341,380  |         | $          | 4,748,117   |       | $ | 4,641,699 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |       |         |       |         |       |        |       |
| Depreciation and  amortization                                                                    |       | 4,129,376    |       | 3,537,796    |       | 3,366,764   |       |
| Impairment  charge                                                                                |       | —       |       | —       |       | 497,406     |       |
| Amortization of  intangibles                                                                      |       | 30,066       |       | 51,542       |       | 51,542      |       |
| Provision for  losses on doubtful receivables receivables                                         |       | 33,902       |       | 54,152       |       | 25,983      |       |
| Deferred income  taxes                                                                            |       | (13,000      | )          | 796,000      |       | 565,000     |       |
| Tax benefit of  disqualifying stock optiondispositions                                            |       | 260,100      |       | 193,183      |       | 74,000      |       |
| Gain on sale of  property, plant and equipment                                                    |       | (6,199       | )          | (86,946      | )          | (1,084,868  | )          |
| Changes in  operating assets and liabilities:                                                     |       |         |       |         |       |        |       |
| Accounts  receivable                                                                              |       | (1,196,006   | )          | (4,342,116   | )          | (4,923,856  | )          |
| Inventories                                                                                       |       | (5,289,016   | )          | (9,244,786   | )          | (12,397,115 | )          |
| Other current  assets                                                                             |       | 727,240      |       | (596,506     | )          | (261,165    | )          |
| Trade accounts  payable                                                                           |       | (3,042,684   | )          | 8,265,577    |       | 3,652,015   |       |
| Other current  liabilities                                                                        |       | 916,165      |       | (216,417     | )          | 2,100,683   |       |
|                                                                                              |       |         |       |         |       |        |       |
| **Net  cash provided by (used in) operating**** activities**                                 |       | 4,891,324    |       | 3,159,596    |       | (3,691,912  | )          |
|                                                                                              |       |         |       |         |       |        |       |
| **Cash  flows from investing activities:**                                                        |       |         |       |         |       |        |       |
| Proceeds from  sale of property, plant and equipment                                         |       | 87,362       |       | 438,694      |       | 2,276,274   |       |
| Additions to  property, plant and equipment                                                  |       | (6,354,522   | )          | (11,775,607  | )          | (5,823,006  | )          |
| Purchases of  investments                                                                         |       | (1,185,224   | )          | —       |       | —      |       |
| Decrease in  restricted cash deposit                                                              |       | 600,000      |       | 400,000      |       | —      |       |
| Decrease  (increase) in other assets                                                              |       | 44,856       |       | 39,301       |       | (414,679    | )          |
|                                                                                              |       |         |       |         |       |        |       |
| **Net  cash used in investing activities**                                                        |       | (6,807,528   | )          | (10,897,612  | )          | (3,961,411  | )          |
|                                                                                              |       |         |       |         |       |        |       |
| **Cash  flows from financing activities:**                                                        |       |         |       |         |       |        |       |
| Proceeds from  revolving line of credit and other long—term debt                        |       | 114,267,879  |       | 139,580,529  |       | 93,148,890  |       |
| Repayments of  revolving line of credit and other long—term debt                        |       | (111,473,420 | )          | (129,105,231 | )          | (85,251,160 | )          |
| Payment of cash  dividends                                                                        |       | (3,260,688   | )          | (1,632,001   | )          | (298,094    | )          |
| Proceeds from  exercise of stock options                                                          |       | 2,161,482    |       | 524,948      |       | 231,634     |       |
| Acquisition of  treasury stock                                                                    |       | —       |       | —       |       | (184,591    | )          |
|                                                                                              |       |         |       |         |       |        |       |
| **Net  cash provided by financing activities**                                                    |       | 1,695,253    |       | 9,368,245    |       | 7,646,679   |       |
|                                                                                              |       |         |       |         |       |        |       |
| **Change  in cash and cash equivalents**                                                          |       | (220,951     | )          | 1,630,229    |       | (6,644      | )          |
|                                                                                              |       |         |       |         |       |        |       |
| **Cash  and cash equivalents, beginning of year**                                                 |       | 1,736,483    |       | 106,254      |       | 112,898     |       |
|                                                                                              |       |         |       |         |       |        |       |
| **Cash  and cash equivalents, end of year**                                                       |       | $            | 1,515,532  |         | $          | 1,736,483   |       | $ | 106,254 |   |
|                                                                                              |       |         |       |         |       |        |       |
| **Supplemental  disclosures of cash flow information:**                                           |       |         |       |         |       |        |       |
| Cash paid during  the year for:                                                                   |       |         |       |         |       |        |       |
| Interest                                                                                          |       | $            | 2,125,857  |         | $          | 930,438     |       | $ | 798,935 |   |
| Income taxes                                                                                      |       | 3,748,145    |       | 1,290,970    |       | 2,126,821   |       |

 

*See accompanying notes to consolidated financial statements.*

 

26

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**Supreme Industries, Inc. And Subsidiaries**

**Notes to Consolidated Financial Statements**

 

**1.**          **NATURE OF OPERATIONS AND ACCOUNTING POLICIES.**

 

Supreme Industries, Inc.and its subsidiaries (collectively the “Company”) manufacture specialized truckbodies that are mounted on new truck chassis produced by others. The Company’struck body products include cutaway and dry freight van bodies, refrigeratedunits, stake bodies and other specialized vehicles, including shuttle buses. AtDecember 31, 2005, the Company had 18 manufacturing, distribution andsupply facilities. The Company’s customers are located principally in theUnited States of America.

 

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

 

**Principlesof****Consolidation** -The accompanying consolidated financial statements include the accounts ofSupreme Industries, Inc. and its wholly-owned subsidiaries. Allsignificant intercompany accounts and transactions have been eliminated inconsolidation.

 

**FiscalYear End** - The Company’s fiscal year ends the last Saturdayin December. The fiscal year ended December 31, 2005 contained 53 weekswhile the fiscal years ended December 25, 2004  and December 27, 2003 each contained 52weeks.

 

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

 

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

 

Net sales are netof cash discounts which the Company offers its customers in the ordinary courseof business.

 

**Concentrationof Credit Risk** - Concentration of credit risk is limited dueto the large number of customers and their dispersion among many differentindustries and geographic regions. 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 theyears ended December 31, 2005, December 25, 2004 and December 27,2003 were $255,301, $280,996 and $467,813, respectively.

 

27

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**FinancialInstruments and Fair Values** - The Company has utilizedinterest rate swap agreements to reduce the impact of changes in interest rateson certain of its floating rate debt. The swap agreements are contracts toexchange the debt obligation’s LIBOR floating rate (exclusive of the applicablespread) for fixed rate interest payments over the term of the swap agreementwithout exchange of the underlying notional amounts. The notional amounts ofthe interest rate swap agreements are used to measure interest to be paid orreceived and do not represent the amount of exposure of credit loss. Thedifferential paid or received under interest rate swap agreements is recognizedas an adjustment to interest expense.

 

At December 31,2005, the Company had an interest rate swap agreement outstanding with anotional amount of $15,000,000. The interest rate swap agreement provides a4.71% fixed interest rate and matures on July 28, 2010. There were nointerest rate swap agreements outstanding at December 25, 2004. Inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 133,“Accounting for Derivative Instruments and Hedging Activities,” the interestrate swap agreement is designated and qualified as a cash flow hedginginstrument. It is fully effective, resulting in no net gain or loss recorded inthe consolidated statements of income. The fair value of the contract at December 31,2005 was a $33,666 asset and under SFAS No. 133 changes in fair value ofthe financial instrument, net of applicable income taxes, are adjusted throughaccumulated other comprehensive income.

 

The carryingamounts of cash and cash equivalents, accounts receivable and trade accountspayable approximated fair value as of December 31, 2005 and December 25,2004 because of the relatively short maturities of these financial instruments.The carrying amount of long-term debt, including current maturities,approximated fair value as of December 31, 2005 and December 25,2004, based upon terms and conditions available to the Company at those datesin comparison to the terms and conditions of its outstanding long-term debt.

 

**Cashand Cash Equivalents** - The Company considers all highlyliquid investments with original maturities of three months or less to be cashequivalents. During 2002, the Company made a $1.0 million interest bearing cashdeposit to secure the payment of amounts due under certain insurance policies.The deposit was refunded to the Company during 2004 and 2005. The deposit of$600,000 was included in other current assets at December 25, 2004.

 

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

 

**AccountsReceivable** - The Company accounts for trade receivables basedon the amounts billed to customers. Past due receivables are determined basedon contractual terms. The Company does not accrue interest on any of its tradereceivables.

 

28

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**Allowancefor Doubtful Accounts** - The allowance for doubtful accountsis determined by management based on the Company’s historical losses, specificcustomer circumstances and general economic conditions. Periodically,management reviews accounts receivable and adjusts the allowance based oncurrent circumstances and charges off uncollectible receivables against theallowance when all attempts to collect the receivable have failed.

 

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

 

**Property,Plant and Equipment** - Property, plant and equipment arerecorded at cost. For financial reporting purposes, depreciation is providedbased on the straight-line method over the estimated useful lives of theassets. Amortization of leasehold improvements, for financial reportingpurposes, is determined by the straight-line method over the lesser of theuseful life of the asset or term of the lease. Upon sale or other dispositionof assets, the cost and related accumulated depreciation and amortization areremoved from the accounts and any resulting gain or loss is reflected inoperations (included in other income in the consolidated statements of income).Expenditures for maintenance and repairs are charged to operations as incurred.Betterments and major renewals are capitalized and recorded in the appropriateasset accounts.

 

**PropertyHeld for Sale** - During 2002, the Company ceased businessoperations at its North Carolina manufacturing facility and reclassified thisfacility to property held for sale. The closing of the facility did not resultin discontinued operations because the operations and cash flows of thefacility were absorbed by the Company’s other locations. In the fourth quarterof 2003, the Company recognized an impairment loss of $497,406 as it loweredthe sales price of the property. In the fourth quarter of 2004, the Companyreclassified this asset to property, plant and equipment and resumeddepreciation. Although the property continues to be listed for sale, theeconomic conditions in the region where this building is located has createddifficulty in selling this property and prompted the reclassification. At December 31,2005, the carrying value of this property is $1,794,000 and management is ofthe opinion that no additional impairment charge is required.

 

During 2005, theCompany relocated a portion of the business operations of its Pennsylvaniamanufacturing facility to a new facility and committed to a plan to sell theformer facility. At December 31, 2005, the net carrying value of$1,877,234 is recorded as property held for sale. The sale of this property ispending and the Company expects to record a small gain on sale in the 2006operating results.

 

**IntangibleAssets** - At December 31, 2004, intangible assets subjectto amortization consisted of favorable lease agreements with a cost of $1,048,167less accumulated amortization of $1,018,101. The favorable leases were beingamortized using the straight-line method over the twenty-five year term of thelease which included renewal terms and the asset became fully amortized during2005. Amortization expense for the years ended December 31, 2005, December 25,2004 and December 27, 2003 was $30,066, $51,542 and $51,542, respectively.

 

29

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**Goodwill**- The carrying value of goodwill at December 31, 2005 and December 25,2004 aggregates $735,014. The Company accounts for goodwill under theprovisions of SFAS No. 142, “Goodwill and Other Intangible Assets.” Underthe provisions of  SFAS No. 142,goodwill is no longer amortized. SFAS No. 142 requires the Company to testgoodwill for impairment at least annually at the reporting unit level. At December 31,2005 and 2004, management determined there was no impairment of goodwill.

 

**Evaluationof Impairment of Long-Lived Assets** - In accordance with SFAS No. 144,“Impairment or Disposal of Long-Lived Assets,” the Company evaluates the carrying value of long-lived assets wheneversignificant events or changes in circumstances indicate the carrying value ofthese assets may be impaired. The Company evaluates potential impairmentof long-lived assets by comparing the carrying value of the assets to theexpected net future cash inflows resulting from use of the assets.

 

**Stock-BasedCompensation** - The Company has adopted the disclosure-onlyprovisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” asamended by SFAS No. 148, “Accounting for Stock-Based Compensation -Transition and Disclosure,” and, accordingly, accounts for its stock optionplans using the intrinsic value method of Accounting Principles Board Opinion (“APB”)No. 25, “Accounting for Stock Issued to Employees.”

 

On August 4,2005, the Company’s Board of Directors approved a plan to accelerate vesting ofall outstanding stock options which were unvested at December 31, 2005.Under the provisions of APB No. 25, there was no compensation expenserelating to accelerating the vesting of these options. As a result of the Board’saction, stock options to purchase 430,831 shares of the Company’s common stockbecame exercisable effective December 31, 2005. The pro forma disclosurebelow reflects recognition of the remaining pro forma expense related to theseoptions.

 

The followingtable illustrates the effect on net income and earnings per share ifcompensation expense was measured using the fair value recognition provisionsof SFAS No. 123.

 
| ** **                                                                                      | ** ** | **2005**   | ** ** | **2004** | ** ** | **2003**  | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|-----------|------------|
| Net  income, as reported                                                                        |       | $          | 8,341,380  |     | $          | 4,748,117 |       | $ | 4,641,699 |   |
| Add:  Stock-based compensation expense included in reported net income, net of tax              |       | —     |       | —   |       | 50,706    |       |
| Deduct:  Stock-based compensation expense determined under fair value based method,  net of tax |       | (1,000,556 | )          | (436,009 | )          | (381,782  | )          |
|                                                                                            |       |       |       |     |       |      |       |
| Pro  forma net income                                                                           |       | $          | 7,340,824  |     | $          | 4,312,108 |       | $ | 4,310,623 |   |
|                                                                                            |       |       |       |     |       |      |       |
| Basic  earnings per share, as reported                                                          |       | $          | .67        |     | $          | . 39      |       | $ | .39 |   |
| Pro  forma basic earnings per share                                                             |       | .59        |       | . 36     |       | .36       |       |
|                                                                                            |       |       |       |     |       |      |       |
| Diluted  earnings per share, as reported                                                        |       | .65        |       | . 38     |       | .38       |       |
| Pro  forma diluted earnings per share                                                           |       | .57        |       | . 35     |       | .36       |       |

 

30

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The pro formaamounts shown above and the weighted-average grant-date fair values of optionsgranted were estimated using the Black-Scholes option-pricing model with thefollowing assumptions:

 
| ** **               | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|----------|------------|
| Risk  free interest rate |       | 3.73     | %          | (a)      |       | 2.6      | %          |
| Expected  life           |       | 5 years  |       | (a)      |       | 5 years  |       |
| Expected  volatility     |       | 36.1     | %          | (a)      |       | 37.2     | %          |
| Expected  dividends      |       | 5.71     | %          | (a)      |       | —   |       |

 

----

(a)  Therewere no grants of options made by the Company during 2004.

 

**Warranty**- The Company provides limited product warranties for periods of up to fiveyears from the date of retail sale. Estimated warranty costs are provided atthe time of sale and are based upon historical experience. Warranty activityfor the years ended December 31, 2005, December 25, 2004 and December 27,2003 is as follows:

 
| ** **                           | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Accrued  warranty, beginning of year |       | $          | 1,209,344  |       | $          | 1,059,000  |       | $ | 1,000,000 |   |
| Warranty  expense                    |       | 1,821,765  |       | 1,485,504  |       | 1,129,671  |       |
| Warranty  claims paid                |       | (1,646,109 | )          | (1,335,160 | )          | (1,070,671 | )          |
| Accrued  warranty, end of year       |       | $          | 1,385,000  |       | $          | 1,209,344  |       | $ | 1,059,000 |   |

 

**IncomeTaxes** - Deferred income taxes are determined using theliability method.

 

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

 

**ComprehensiveIncome** - Other comprehensive income refers to revenues,expenses, gains and losses that under generally accepted accounting principlesare included in comprehensive income but are excluded from net income as theseamounts are recorded directly as an adjustment to stockholders’ equity. TheCompany’s other comprehensive income is comprised of unrealized gain on hedgeactivity and unrealized losses on available-for-sale securities, net of tax.

 

**SegmentInformation** - The Company’s principal business ismanufacturing specialized vehicles. Management has not separately organized thebusiness beyond specialized vehicles and vertically integrated fiberglassmanufacturing 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 vertically integrated fiberglass manufacturingsubsidiary’s revenues are less than 10 percent of consolidated revenues, theabsolute amount of its reported income is less than 10 percent of the absoluteamount of consolidated net income, and finally, its assets are less than 10percent of consolidated assets.

 

31

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Net sales consistof the following:

 
| ** **                | ** ** | **2005**  | ** **        | **2004**  | ** ** | **2003**          | ** ** |
|---------------------------|------------|-----------|-------------------|-----------|------------|-------------------|------------|
| Specialized vehicles |       | $         |  332,879,565 |      | $          |  297,992,286 |       | $ |  216,076,110 |   |
| Fiberglass  manufacturing |       | 8,373,287 |              | 9,334,024 |       | 8,777,116         |       |
| Net  sales                |       | $         | 341,252,852       |      | $          | 307,326,310       |       | $ | 224,853,226 |   |

 

**Reclassifications**- Certain amounts in the prior years’ consolidated financial statements havebeen reclassified to conform with the 2005 presentation. Thesereclassifications had no effect on stockholders’ equity or net income aspreviously reported.

 

**NewAccounting Standards to be Adopted** - Effective January 1,2006, the Company adopted SFAS No. 123R, “Share Based Payments,” whichapplies to awards granted, modified, repurchased or canceled after the effectivedate as well as awards that are unvested at the effective date and includes,among other things, the requirements to expense the fair value of stockoptions. As previously noted, all outstanding stock options became fully vestedDecember 31, 2005 and will result in no future compensation expense unlessmodified, repurchased or canceled.

 

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

 

At December 31,2005, investment securities consisted of the following:

 
| ** **              | ** ** | ** ** | ** ** | **Unrealized** | ** ** | **Fair**  | ** ** |
|-------------------------|------------|------------|------------|----------------|------------|-----------|------------|
| ** **              | ** ** | **Cost**   | ** ** | **Losses**     | ** ** | **Value** | ** ** |
| Intermediate  bond fund |       | $          | 1,185,224  |           | $          | (16,302   | )          | $ | 1,168,922 |   |
|                         |            |            |            |                |            |           |            |  |  |  |

 

There were nosales of securities during the year end December 31, 2005. Investmentincome (included in other income) consisted of dividend income and was $22,224for the year ended December 31, 2005.

 

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

 

Inventoriesconsist of the following:
| ** **         | ** ** | **2005**   | ** **       | **2004**  | ** ** |
|--------------------|------------|------------|------------------|-----------|------------|
| Raw materials |       | $          |  28,160,860 |      | $          |  26,390,350 | ** ** |
| Work-in-progress   |       | 8,880,436  |             | 9,795,961 |       |
| Finished  goods    |       | 13,688,909 |             | 9,254,878 |       |
|               |       |       |             |      |       |
| Total              |       | $          | 50,730,205       |      | $          | 45,441,189 |   |

 

32

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**4.**          **PROPERTY, PLANT AND EQUIPMENT.**

 

Property, plantand equipment consists of the following:

 
| ** **                                       | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|--------------------------------------------------|------------|------------|------------|------------|------------|
| Land  and improvements                           |       | $          | 10,258,792 |       | $          | 10,077,891 |   |
| Buildings  and improvements                      |       | 27,428,748 |       | 26,822,694 |       |
| Leasehold  improvements                          |       | 7,239,733  |       | 7,352,740  |       |
| Machinery  and equipment                         |       | 41,874,081 |       | 39,942,652 |       |
|                                             |       | 86,801,354 |       | 84,195,977 |       |
| Less,  Accumulated depreciation and amortization |       | 39,343,641 |       | 37,005,013 |       |
|                                             |       |       |       |       |       |
| Property,  plant and equipment, net              |       | $          | 47,457,713 |       | $          | 47,190,964 |   |

 

During 2003, theCompany sold two buildings and recognized aggregate gains of $1,084,868(included in other income in the consolidated statement of income).

 

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

 

Long-term debtconsists of the following:

 
| ** **                                                                                                                                                                                                                                                                                                   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Revolving  line of credit                                                                                                                                                                                                                                                                                    |       | $          | 25,432,565 |       | $          | 23,200,000 |   |
|                                                                                                                                                                                                                                                                                                         |       |       |       |       |       |
| Term  note payable in quarterly installments of $300,000 plus interest at LIBOR  plus certain basis points determined by the Company’s leverage ratio  (effective rate of 5.66% and 4.16% at December 31, 2005 and December 25,  2004, respectively), with final maturity in August 2007 |       | 2,200,000  |       | 3,400,000  |       |
|                                                                                                                                                                                                                                                                                                         |       |       |       |       |       |
| Obligations  under industrial development revenue bonds, variable rates, with maturities  in August 2010 and April 2015, collateralized by real estate                                                                                                                                             |       | 3,375,000  |       | 3,800,000  |       |
|                                                                                                                                                                                                                                                                                                         |       |       |       |       |       |
| 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                                                                                                                             |       | 1,734,587  |       | —     |       |
|                                                                                                                                                                                                                                                                                                         |       |       |       |       |       |
| Term  loan, payable in monthly installments including interest at a fixed rate of  2.5%, with final maturity in October 2010, collateralized by specific  equipment                                                                                                                                     |       | 452,307    |       | —     |       |
|                                                                                                                                                                                                                                                                                                         |       |       |       |       |       |
| Total                                                                                                                                                                                                                                                                                                        |       | 33,194,459 |       | 30,400,000 |       |
|                                                                                                                                                                                                                                                                                                         |       |       |       |       |       |
| Less,  Current maturities                                                                                                                                                                                                                                                                                    |       | 1,816,092  |       | 1,633,333  |       |
|                                                                                                                                                                                                                                                                                                         |       |       |       |       |       |
| Long-term  debt                                                                                                                                                                                                                                                                                              |       | $          | 31,378,367 |       | $          | 28,766,667 |   |

 

33

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The revolving lineof credit, term note and a letter of credit facility are part of a CreditAgreement dated January 5, 2004 and as amended through September 22,2005 (the “Credit Agreement”). All borrowings under the Credit Agreement areunsecured. The Credit Agreement provides for a revolving line of creditfacility, as defined, up to $30 million and increasing to $40 million duringthe period each year from January 1 to June 30. Interest onoutstanding borrowings under the revolving line of credit is based on the bank’sprime rate or certain basis points above LIBOR depending on the pricing optionselected and the Company’s leverage ratio, as defined (effective rate of 5.85%and 4.13% at December 31, 2005 and December 25, 2004, respectively).The Company’s cash management system and revolving line of credit are designedto maintain zero cash balances and, accordingly, checks outstanding in excessof bank balances are classified as additional borrowings under the revolvingline of credit. Checks outstanding in excess of bank balances were $4,032,565at December 31, 2005 (none at December 25, 2004). The revolving lineof credit also requires a quarterly commitment fee ranging from 1/8% to 1/4%per annum depending on the Company’s financial ratios and based upon theaverage daily unused portion. Any amounts outstanding under the revolving lineof credit will be due at maturity, June 30, 2008.

 

Outstandingletters of credit, which reduce availability under the credit facility,aggregated $3.1 million and $2.8 million at December 31, 2005 and December 25,2004, respectively. Under separate agreements, at December 31, 2005 theCompany had outstanding $3.4 million ($3.8 million at December 25, 2004)of irrevocable letters of credit in favor of bond trustees as a creditenhancement for bondholders of two industrial development revenue bonds.

 

The CreditAgreement contains, among other matters, certain restrictive covenantsincluding required financial ratios.

 

Maturities oflong-term debt for each of the next five years are as follows:  2006 - $1,816,092; 2007 - $1,764,221; 2008 -$26,136,590; 2009 - $777,327 and 2010 - $1,691,895.

 

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

 

The Companymaintains a defined contribution plan which covers substantially all employeesof the Company who have reached the age of twenty-one years and have completedthirty days of credited service. The plan provides that eligible employees cancontribute from one to fifteen percent of their annual compensation and theCompany will match thirty percent of employee’s contributions up to sevenpercent of the employee’s compensation. The Board of Directors may increaseor decrease the Company’s contribution on a year-to-year basis. Expense  related to this plan was $612,145, $570,721and $479,144 for the fiscal years ended 2005, 2004 and 2003, respectively.

 

34

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

 

**PreferredStock**

 

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

 

**ConvertibleClass B Common Stock**

 

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

 

**StockOptions**

 

On October 29,1998, the Company’s Board of Directors approved, and the Company’s stockholderssubsequently ratified, the 1998 Stock Option Plan under which 869,087 shares ofClass A Common Stock were reserved for grant. On January 31, 2001,the Company’s Board of Directors approved, and the Company’s stockholderssubsequently ratified, the 2001 Stock Option Plan under which 825,000 shares ofClass A Common Stock were reserved for grant. On January 23, 2004,the Company’s Board of Directors approved, and the Company’s stockholderssubsequently ratified, the 2004 Stock Option Plan under which 600,000 shares ofClass A Common Stock were reserved for grant. Under the terms of the stockoption plans, both incentive stock options and non-statutory stock options canbe granted by a specially designated Stock Option Committee. On August 4,2005, the Company’s Board of Directors approved a plan to accelerate vesting ofall outstanding stock options which were unvested at December 31, 2005.Under the provisions of APB No. 25, there was no compensation expenserelated to the acceleration of these options. As a result of the Board’saction, stock options to purchase 430,831 shares of the Company’s common stockbecame exercisable effective December 31, 2005. Options granted under thestock option plans expire five years after the date of grant.

 

35

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The followingtable summarizes stock option activity:

 
| ** **                           | ** ** | **Number of   Shares** | ** ** | **Weighted - Average   Exercise Price** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|-------------------------------------------------------------|------------|
| Outstanding,  December 29, 2002 |       | 1,333,172                        |       | $                                                           | 4.59       |   |
|                                 |       |                             |       |                                                        |       |
| Granted                              |       | 368,500                          |       | 4.54                                                        |       |
| Exercised                            |       | (74,508                          | )          | 3.11                                                        |       |
| Expired  or canceled                 |       | (294,417                         | )          | 6.10                                                        |       |
|                                 |       |                             |       |                                                        |       |
| Outstanding,  December 27, 2003 |       | 1,332,747                        |       | 4.36                                                        |       |
|                                 |       |                             |       |                                                        |       |
| Exercised                            |       | (149,133                         | )          | 3.52                                                        |       |
|                                 |       |                             |       |                                                        |       |
| Outstanding,  December 25, 2004 |       | 1,183,614                        |       | 4.47                                                        |       |
|                                 |       |                             |       |                                                        |       |
| Granted                              |       | 395,655                          |       | 6.77                                                        |       |
| Exercised                            |       | (641,724                         | )          | 4.18                                                        |       |
| Expired  or canceled                 |       | (15,722                          | )          | 4.87                                                        |       |
|                                 |       |                             |       |                                                        |       |
| Outstanding,  December 31, 2005 |       | 921,823                          |       | 5.67                                                        |       |
|                                      |            |                                  |            |                                                             |            |  |

 

In connection withthe exercise of certain stock options in 2005, three officers and directorsexchanged 75,655 shares of Class A Common Stock owned by these officers anddirectors as consideration for their exercise of 129,525 stock options andreceived 75,655 new stock options pursuant to the reload feature included inthe stock option plan. This exercise of stock options and the related issuanceof shares of Class A Common Stock in exchange for the 75,655 shares of Class ACommon Stock, with a fair market value of $520,868, was a noncash financingactivity in 2005.

 

As of December 31,2005, 436,211 shares were reserved for the granting of future stock optionscompared to 816,144 shares at December 25, 2004.

 

Optionsoutstanding at December 31, 2005 have a weighted-average remainingcontractual life of 2.99 years. Information about stock options outstanding andexercisable at December 31, 2005 is as follows:

 

36

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| ** **                     | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**                               | ** ** |
|--------------------------------|------------|------------------------------|------------|------------------------------------------------------------|------------|
| **Range of   Exercise Prices** | ** ** | **Number  Outstanding**      | ** ** | **Weighted  -   Average   Remaining   Contractual   Life** | ** ** | **Weighted  - Average   Exercise   Price** | ** ** | **Number  Exercisable** | ** ** | **Weighted  - Average  Exercise   Price** | ** ** |
| $ 5.09 - $5.60                 |       | 231,000                      |       | 1.33 years                                                 |       | $ | 5.16 |   | 231,000 |   | $ | 5.16 |   |
| 3.78                           |       | 3,667                        |       | 1.79 years                                                 |       | 3.78 |   | 3,667 |   | 3.78 |   |
| 4.50 - 4.95                    |       | 291,501                      |       | 2.35 years                                                 |       | 4.54 |   | 291,501 |   | 4.54 |   |
| 6.05-6.66                      |       | 53,406                       |       | 4.30 years                                                 |       | 6.35 |   | 53,406 |   | 6.35 |   |
| 6.84                           |       | 25,000                       |       | 4.34 years                                                 |       | 6.84 |   | 25,000 |   | 6.84 |   |
| 6.65-7.32                      |       | 295,000                      |       | 4.43 years                                                 |       | 6.71 |   | 295,000 |   | 6.71 |   |
| 8.87-9.76                      |       | 22,249                       |       | 4.82 years                                                 |       | 9.34 |   | 22,249 |   | 9.34 |   |
|                           |       | 921,823                      |       |                                                       |       |   |   | 921,823 |   | 5.67 |   |
|                                |            |                              |            |                                                            |            |  |  |  |  |  |  |  |  |

 

At December 25,2004 and December 27, 2003, there were exercisable options outstanding topurchase 848,106 and 734,157 shares at weighted-average exercise prices of$4.36 and $4.12, respectively.

 

Theweighted-average grant-date fair values of options granted during the yearended December 31, 2005 was $1.40. There were no options granted during2004.

 

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

 

Income taxesconsist of the following:

 
| ** ** | ** ** | **2005**  | ** ** | **2004**  | ** ** | **2003**  | ** ** |
|------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Federal:   |       |      |       |      |       |      |       |
| Current    |       | $         | 3,617,000  |      | $          | 1,056,000 |       | $ | 2,090,000 |   |
| Deferred   |       | (11,000   | )          | 708,000   |       | 444,000   |       |
|       |       | 3,606,000 |       | 1,764,000 |       | 2,534,000 |       |
|       |       |      |       |      |       |      |       |
| State:     |       |      |       |      |       |      |       |
| Current    |       | 732,000   |       | (498,000  | )          | 259,000   |       |
| Deferred   |       | (2,000    | )          | 88,000    |       | 121,000   |       |
|       |       | 730,000   |       | (410,000  | )          | 380,000   |       |
| Total      |       | $         | 4,336,000  |      | $          | 1,354,000 |       | $ | 2,914,000 |   |

 

37

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The deferred taxassets and the deferred tax liabilities were as follows:

 
| ** **                                        | ** ** | **2005**   | ** **  | **2004**   | ** ** |
|---------------------------------------------------|------------|------------|-------------|------------|------------|
| Deferred  tax assets:                             |       |       |        |       |       |
| Receivables                                       |       | $          | 97,020      |       | $          | 113,960 |   |
| Inventories                                       |       | 347,712    |        | 368,315    |       |
| Accrued  liabilities                              |       | 1,263,754  |        | 1,261,190  |       |
| Other                                             |       | 76,061     |        | —     |       |
| Total  deferred tax assets                        |       | 1,784,547  |        | 1,743,465  |       |
|                                              |       |       |        |       |       |
| Deferred  tax liabilities:                        |       |       |        |       |       |
| Depreciation                                      |       | (2,976,775 | )           | (3,085,179 | )          |
| Prepaids  and other                               |       | (956,878   | )           | (896,453   | )          |
| Unrealized  hedge gain                            |       | (11,500    | )           | —     |       |
| Total  deferred tax liabilities                   |       | (3,945,153 | )           | (3,981,632 | )          |
|                                              |       |       |        |       |       |
| Net  deferred income tax liabilities              |       | $          | (2,160,606  | )          | $          | (2,238,167 | ) |
|                                              |       |       |        |       |       |
| Presented  in the consolidated balance sheets as: |       |       |        |       |       |
| Current  deferred tax assets                      |       | $          | 827,669     |       | $          | 847,012 |   |
| Long-term  deferred tax liabilities               |       | (2,988,275 | )           | (3,085,179 | )          |
|                                              |       | $          | (2,160,606) |       | $          | (2,238,167 | ) |

 

A reconciliationof the provision for income taxes to the amount computed by applying thestatutory federal income tax rate (35% in 2005 and 34% in 2004 and 2003) toincome before income taxes is as follows:

 
| ** **                                                                          | ** ** | **2005** | ** ** | **2004** | ** ** | **2003**  | ** ** |
|-------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
| Income  taxes at statutory rate                                                     |       | $        | 4,437,100  |     | $          | 2,074,700 |       | $ | 2,568,900 |   |
| State  income taxes, net of federal tax effect                                      |       | 474,500  |       | (270,600 | )          | 250,800   |       |
| Manufacturer’s  deduction                                                      |       | (105,000 | )          | —   |       | —    |       |
| Tax-exempt  underwriting income of wholly- owned small captive insurance subsidiary |       | (359,600 | )          | —   |       | —    |       |
| Research  and development tax credits                                               |       | (26,000  | )          | (282,600 | )          | —    |       |
| Tax  benefit, reversal of reserves                                                  |       | —   |       | (307,600 | )          | —    |       |
| Other,  net                                                                         |       | (85,000  | )          | 140,100  |       | 94,300    |       |
| Total                                                                               |       | $        | 4,336,000  |     | $          | 1,354,000 |       | $ | 2,914,000 |   |

 

For the year endedDecember 25, 2004, the effective federal tax rate was favorably impactedby the recognition of $256,600 of research and development tax creditsresulting from the filing of amended federal income tax returns for the years2000 - 2003, current year’s research and development tax credits of $26,000,and the reversal of $307,600 of federal tax reserves established in prior yearsand credited to income in 2004 as the reserves were no longer required as aresult of favorable tax audits or the expiration of the statute of limitations.For the year ended December 25, 2004, the effective state tax rate wasfavorably affected by the recognition of $166,200 of state research anddevelopment tax credits for the years 1998-2003. In addition, the 2004effective state tax rate was favorably affected by the release of certainreserves for state income taxes which were no longer required based onsatisfactory completion of certain state tax audits.

 

38

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**9.**         **COMMITMENTS AND CONTINGENCIES.**

 

**LeaseCommitments and Related Party Transactions**

 

The Company leasescertain office and manufacturing facilities under operating lease agreementswhich expire at various dates from February 2006 through July 2011.Certain of the lease agreements are with related parties for which relatedparty rent expense was $759,678, $711,030 and $731,306 for the fiscal yearsended 2005, 2004 and 2003, respectively.

 

Rent expense underall operating leases aggregated $998,156, $922,418 and $937,449 for the fiscalyears ended 2005, 2004 and 2003, respectively.

 

At December 31,2005, future minimum rental payments under noncancelable operating leasesaggregated $3,603,100 and are payable as follows:  2006 - $789,000; 2007 - $762,100; 2008 -$761,200; 2009 - $757,300; 2010 - $480,000 and thereafter $53,500.

 

In addition to theabove related party lease transactions, the Company purchases delivery servicesfrom a company owned by an officer/director of the Company. Related partypurchased delivery services aggregated $3,690,777, $3,219,454 and $3,089,983for the fiscal years ended 2005, 2004 and 2003, respectively. Amounts due torelated parties, included in accounts payable, aggregated $89,133 and  $129,968 as of December 31, 2005 and December 252004, respectively.

 

**ConsignedInventories**

 

The Companyobtains vehicle chassis for its specialized vehicle products directly from thechassis manufacturer under converter pool agreements. Chassis are obtained fromthe manufacturers based on orders from customers, and to a lesser extent, forunallocated orders. Although each manufacturer’s agreement has different termsand conditions, the agreements generally provide that the manufacturer willprovide a supply of chassis to be maintained from time to time at the Company’svarious facilities under the conditions that the Company will store suchchassis and will not move, sell or otherwise dispose of such chassis, exceptunder 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 theseagreements if the chassis is not delivered to a customer within a specifiedtime frame, the Company is required to pay a finance charge on the chassis. Thefinance charges incurred on consigned chassis inventory, included in interestexpense in the consolidated statements of income, aggregated $466,392, $250,472and $276,595 for the fiscal years ended 2005, 2004 and 2003, respectively. At December 31,2005 and December 25, 2004, chassis inventory, accounted for as consignedinventory to the Company by the manufacturers, aggregated approximately $48.3million and $60.0 million, respectively. Typically, chassis are converted anddelivered to customers within 90 days of the receipt of the chassis by theCompany.

 

39

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**Self-Insurance**

 

The Company isself-insured for a portion of product liability ($100,000 per occurrence with a$2,000,000 annual aggregate), certain employee health benefits ($200,000annually per employee with an annual aggregate of approximately $6,700,000) andworkers’ compensation in certain states ($250,000 per occurrence with no annualaggregate). The Company accrues for the estimated losses occurring from bothasserted 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 issubject to various investigations, claims and legal proceedings covering a widerange of matters that arise in the ordinary course of its business activities.Each of these matters is subject to various uncertainties, and it is possiblethat some of these matters may be resolved unfavorably to the Company. TheCompany has established accruals for matters that are probable and reasonablyestimable. Management believes that any liability that may ultimately resultfrom the resolution of these matters in excess of accruals and or amountsprovided by insurance coverage will not have a material adverse effect on theconsolidated financial position or results of operation of the Company.

 

40

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

**SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS**

 
| **Column A   Description**                   | ** ** | **Column B   Balance   Beginning   of Period** | ** ** | **Column C   Additions   Charged to   Costs and   Expenses** | ** ** | **Column D   Deductions(1)** | ** ** | **Column E   Balance End   of Period** | ** ** |
|--------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|-----------------------------------------------------------------|------------|
| Year  ended December 31, 2005:                    |       |                                                                    |       |                                                                                            |       |                                   |       |                                                            |       |
| Reserves  and allowances deducted from asset accounts: |       |                                                                    |       |                                                                                            |       |                                   |       |                                                            |       |
| Allowance  for doubtful receivables                    |       | $                                                                       | 296,000    |                                                                                            | $          | 34,000                                 |       | $                                                               | 78,000     |   | $ | 252,000 |   |
|                                                   |       |                                                                    |       |                                                                                            |       |                                   |       |                                                            |       |
| Year  ended December 25, 2004:                    |       |                                                                    |       |                                                                                            |       |                                   |       |                                                            |       |
| Reserves  and allowances deducted from asset accounts: |       |                                                                    |       |                                                                                            |       |                                   |       |                                                            |       |
| Allowance  for doubtful receivables                    |       | $                                                                       | 362,000    |                                                                                            | $          | 54,000                                 |       | $                                                               | 120,000    |   | $ | 296,000 |   |
|                                                   |       |                                                                    |       |                                                                                            |       |                                   |       |                                                            |       |
| Year  ended December 27, 2003:                    |       |                                                                    |       |                                                                                            |       |                                   |       |                                                            |       |
| Reserves  and allowances deducted from asset accounts: |       |                                                                    |       |                                                                                            |       |                                   |       |                                                            |       |
| Allowance  for doubtful receivables                    |       | $                                                                       | 420,000    |                                                                                            | $          | 26,000                                 |       | $                                                               | 84,000     |   | $ | 362,000 |   |

 

----

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

 

41

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

**SUPPLEMENTARY DATA**

 

**QuarterlyResults (Unaudited)**

 
| ** **    | ** ** | **First**  | ** ** | **Second** | ** ** | **Third**  | ** ** | **Fourth** | ** ** |
|---------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| 2005  Quarter |       |       |       |       |       |       |       |       |       |
| Revenue       |       | $          | 90,483,608 |       | $          | 95,355,321 |       | $          | 77,286,957 |   | $ | 78,932,971 |   |
| Gross  profit |       | 11,625,768 |       | 12,246,112 |       | 8,257,972  |       | 9,008,245  |       |
| Net  income   |       | 3,094,344  |       | 2,900,305  |       | 1,285,808  |       | 1,060,923  |       |
| Per  share:   |       |       |       |       |       |       |       |       |       |
| Basic         |       | .25        |       | .23        |       | .10        |       | .08        |       |
| Diluted       |       | .25        |       | .23        |       | .10        |       | .08        |       |
|          |       |       |       |       |       |       |       |       |       |
| 2004  Quarter |       |       |       |       |       |       |       |       |       |
| Revenue       |       | $          | 73,564,467 |       | $          | 90,845,945 |       | $          | 70,778,471 |   | $ | 72,773,572 |   |
| Gross  profit |       | 7,150,616  |       | 9,615,050  |       | 7,656,903  |       | 6,347,665  |       |
| Net  income   |       | 989,769    |       | 1,887,747  |       | 892,540    |       | 978,061    |       |
| Per  share:   |       |       |       |       |       |       |       |       |       |
| Basic         |       | .08        |       | .16        |       | .07        |       | .08        |       |
| Diluted       |       | .08        |       | .15        |       | .07        |       | .08        |       |

 

Operating results for the third quarter of 2005 were adversely impactedby unfavorable book-to-physical inventory adjustments aggregating $1.1 million(pre-tax).

 

Net income for the fourth quarter of 2004 was favorably impacted by therecognition of prior years’ research and development tax credits and taxbenefits resulting from the reversal of certain tax reserves (see Note 8 of theNotes to Consolidated Financial Statements).

 

The sum of quarterly earnings per share for the four quarters may notequal annual earnings per share due to rounding and changes in the dilutedpotential common shares.

 

42

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| **ITEM 9.**       | **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE**                                                                                                                                                                                                                                                                             |
|-------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |                                                                                                                                                                                                                                                                                                                                                                  |   |
|              | Not applicable.                                                                                                                                                                                                                                                                                                                                                       |   |
|              |                                                                                                                                                                                                                                                                                                                                                                  |   |
| **ITEM 9A.**      | **CONTROLS AND PROCEDURES**                                                                                                                                                                                                                                                                                                                                           |
|              |                                                                                                                                                                                                                                                                                                                                                                  |
|              | a.                                                                                                                                                                                                                                                                                                                                                                    | Evaluation of disclosure controls and procedures. |
|              |                                                                                                                                                                                                                                                                                                                                                                  |   |
|              |                                                                                                                                                                                                                                                                                                                                                                  | The Company’s chief  executive officer and its chief financial officer, after evaluating the  effectiveness of the Company’s disclosure controls and procedures (as defined  in Securities Exchange Act Rules 13a-14(c) and 15-d-14(c)) as of a  date within 90 days of the filing date of this annual report (the “Evaluation  Date”) have concluded that as of the Evaluation Date, the Company’s  disclosure controls and procedures were adequate and effective to ensure that  material information relating to the Company and its consolidated  subsidiaries would be made known to them by others within those entities,  particularly during the period in which this annual report was being  prepared. |
|              |                                                                                                                                                                                                                                                                                                                                                                  |   |
|              | b.                                                                                                                                                                                                                                                                                                                                                                    | Changes in internal  controls. |
|              |                                                                                                                                                                                                                                                                                                                                                                  |   |
|              |                                                                                                                                                                                                                                                                                                                                                                  | There were no significant  changes in the Company’s internal controls or in other factors that could  significantly affect the Company’s disclosure controls and procedures  subsequent to the Evaluation Date, nor any significant deficiencies or  material weaknesses in such disclosure controls and procedures requiring  corrective actions. As a result, no corrective actions were taken. |
|              |                                                                                                                                                                                                                                                                                                                                                                  |   |
| **ITEM 9B.**      | **OTHER INFORMATION**                                                                                                                                                                                                                                                                                                                                                 |
|              |                                                                                                                                                                                                                                                                                                                                                                  |   |
|              | Not applicable.                                                                                                                                                                                                                                                                                                                                                       |
|              |                                                                                                                                                                                                                                                                                                                                                                  |   |
| **PART III** |
|              |                                                                                                                                                                                                                                                                                                                                                                  |   |
| **ITEM 10.**      | **DIRECTORS AND EXECUTIVE OFFICERS OF THE  REGISTRANT.**                                                                                                                                                                                                                                                                                                              |
|              |                                                                                                                                                                                                                                                                                                                                                                  |
|              | a.                                                                                                                                                                                                                                                                                                                                                                    | Directors - Certain  information required by Item 10 of Form 10-K is hereby incorporated by  reference from the Company’s definitive proxy statement, which will be filed  pursuant to Regulation 14A within 120 days after the Company’s year end for  the year covered by this report, under caption “Election of Directors” of the  proxy statement. |
|              |                                                                                                                                                                                                                                                                                                                                                                  |   |
|              | b.                                                                                                                                                                                                                                                                                                                                                                    | Executive Officers - See  “Executive Officers of the Registrant” in Item 1 of Part I of this  Form 10-K. |
|              |                                                                                                                                                                                                                                                                                                                                                                  |   |
| **ITEM 11.**      | **EXECUTIVE COMPENSATION.**                                                                                                                                                                                                                                                                                                                                           |
|              |                                                                                                                                                                                                                                                                                                                                                                  |   |
|              | The information  required by Item 11 of Form 10-K is hereby incorporated by reference  from the Company’s definitive proxy statement, which will be filed pursuant  to Regulation 14A within 120 days after the Company’s year end for the year  covered by this report, under the caption “Executive Compensation” of the  proxy statement. |
|                   |                                                                                                                                                                                                                                                                                                                                                                       |  |  |

 

43

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| **ITEM 12.** | **SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS  AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.**                                                                                                                                                                                                                                                                                                          |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|         | The information  required by Item 12 of Form 10-K is hereby incorporated by reference  from the Company’s definitive proxy statement, which will be filed pursuant  to Regulation 14A within 120 days after the Company’s year end for the year  covered by this report, under the caption “Security Ownership of Certain  Beneficial Owners and Management” of the proxy statement. |
|         |                                                                                                                                                                                                                                                                                                                                                                                                          |   |
| **ITEM 13.** | **CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**                                                                                                                                                                                                                                                                                                                                                           |
|         |                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|         | The information  required by Item 13 of Form 10-K is hereby incorporated by reference  from the Company’s definitive proxy statement, which will be filed pursuant  to Regulation 14A within 120 days after the Company’s year end for the year  covered by this report, under the caption “Transactions with Management” of  the proxy statement.                                   |
|         |                                                                                                                                                                                                                                                                                                                                                                                                          |   |
| **ITEM 14.** | **PRINCIPAL ACCOUNTING FEES AND SERVICES.**                                                                                                                                                                                                                                                                                                                                                                   |
|         |                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|         | The information  required by Item 14 of Form 10-K is hereby incorporated by reference  from the Company’s definitive proxy statement, which will be filed pursuant  to Regulation 14A within 120 days after the Company’s year-end for the year  covered by this report, under the caption “Principal Accounting Fees and  Services” of the proxy statement.                         |

 

44

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**PART IV**

 

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

 

(a)   The followingfinancial statements and financial statement schedule are included in Item8 herein:

(1)   FinancialStatements

 

Reportof Crowe Chizek and Company LLC, Independent Registered Public Accounting Firm

 

ConsolidatedBalance Sheets as of December 31, 2005 and December 25, 2004

 

ConsolidatedStatements of Income for the years ended December 31, 2005, December 25,2004 and December 27, 2003

 

ConsolidatedStatements of Stockholders’ Equity for the years ended December 31, 2005, December 25,2004 and December 27, 2003

 

ConsolidatedStatements of Cash Flows for the years ended December 31, 2005, December 25,2004 and December 27, 2003

 

Notesto Consolidated Financial Statements

 

(2)   FinancialStatement Schedule

 

Schedule II- Valuation and Qualifying Accounts

 

(3)   Exhibits

 

SeeIndex to Exhibits

 

45

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, therunto duly authorized.

 
|   |                      | SUPREME INDUSTRIES, INC. |
|--------|---------------------------|-------------------------------|
|   |                      |                          |   |
|   |                      |                          |   |
| Date:  |  March 30, 2006 |                          |   | By: |   /s/Herbert M. Gardner |   |
|   |                      |                          | Herbert M. Gardner, Chairman   of the Board |
|        |                           |                               |  |  |  |  |

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.

 
|   /s/Herbert M. Gardner |   | Chairman of the Board and                                               | March 30, 2006 |   |
|-----------------------------------|--------|-------------------------------------------------------------------------|---------------------|--------|
|   Herbert M.  Gardner   |   | Director                                                                |                |   |
|                              |   |                                                                    |                |   |
|   /s/Robert W. Wilson   |   | President, Chief Operating Officer                                      | March 30, 2006 |   |
|   Robert W.  Wilson     |   | and  Director                                                           |                |   |
|                              |   |                                                                    |                |   |
|   /s/William J. Barrett |   | Secretary, Assistant Treasurer and                                      | March 30, 2006 |   |
|   William J.  Barrett   |   | Director                                                                |                |   |
|                              |   |                                                                    |                |   |
|   /s/Jeffery D. Mowery  |   | Treasurer, Chief Financial Officer                                      | March 30, 2006 |   |
|   Jeffery D.  Mowery    |   | and Assistant  Secretary (Principal   Financial and Accounting Officer) |                |   |
|                              |   |                                                                    |                |   |
|   /s/Arthur M. Borden   |   | Director                                                                | March 30, 2006 |   |
|   Arthur M.  Borden     |   |                                                                    |                |   |
|                              |   |                                                                    |                |   |
|   /s/Robert J. Campbell |   | Director                                                                | March 30, 2006 |   |
|   Robert J.  Campbell   |   |                                                                    |                |   |
|                              |   |                                                                    |                |   |
|   /s/Thomas Cantwell    |   | Director                                                                | March 30, 2006 |   |
|   Thomas  Cantwell      |   |                                                                    |                |   |
|                              |   |                                                                    |                |   |
|   /s/Omer G. Kropf      |   | Director                                                                | March 30, 2006 |   |
|   Omer G.  Kropf        |   |                                                                    |                |   |
|                              |   |                                                                    |                |   |
|   /s/Mark C. Neilson    |   | Director                                                                | March 30, 2006 |   |
|   Mark C.  Neilson      |   |                                                                    |                |   |
|                              |   |                                                                    |                |   |
|   /s/H. Douglas Schrock |   | Director                                                                | March 30, 2006 |   |
|   H. Douglas  Schrock   |   |                                                                    |                |   |

 

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INDEX TO EXHIBITS

 
| **Exhibit** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                 |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1         |       | Certificate of Incorporation of the Company, filed as Exhibit 3(a) to  the Company’s Registration Statement on Form 8-A, filed with the  Commission on September 18, 1989, and incorporated herein by reference.                                                                                                       |
|        |       |                                                                                                                                                                                                                                                                                                                                            |
| 3.2         |       | Certificate of Amendment of Certificate of Incorporation of the  Company filed with the Secretary of State of Delaware on June 10, 1993  filed as Exhibit 3.2 to the Company’s annual report on Form 10-K  for the fiscal year ended December 31, 1993, and incorporated herein by  reference.                         |
|        |       |                                                                                                                                                                                                                                                                                                                                            |
| 3.3         |       | Certificate of Amendment of Certificate of Incorporation of the  Company filed with the Secretary of State of Delaware on May 29, 1996  filed as Exhibit 3.3 to the Company’s annual report on Form 10-K  for the fiscal year ended December 31, 1996, and incorporated herein by  reference.                          |
|        |       |                                                                                                                                                                                                                                                                                                                                            |
| 3.4         |       | Bylaws of the Company, filed as Exhibit 3(b) to the Company’s  Registration Statement on Form 8-A, filed with the Commission on September 18,  1989, and incorporated herein by reference.                                                                                                                             |
|        |       |                                                                                                                                                                                                                                                                                                                                            |
| 4.1         |       | Credit Agreement dated January 5, 2004, between the Company,  Supreme Corporation, and Bank One, NA, signed in connection with certain  long-term indebtedness, filed as Exhibit 4.10 to the Company’s annual  report on Form 10-K for the fiscal year ended December 27, 2003,  and incorporated herein by reference. |
|        |       |                                                                                                                                                                                                                                                                                                                                            |
| 4.2         |       | First Amendment to the Credit Agreement dated March 19, 2004  signed in connection with certain long term indebtedness, filed as Exhibit 4.1  to the Company’s quarterly report on Form 10-Q for the fiscal period  ended March 27, 2004, and incorporated herein by reference.                                        |
|        |       |                                                                                                                                                                                                                                                                                                                                            |
| 4.3         |       | Second Amendment to the Credit Agreement dated December 17, 2004  signed in connection with certain indebtedness, filed as Exhibit 99.1 on  Form 8-K dated December 27, 2004.                                                                                                                                               |
|        |       |                                                                                                                                                                                                                                                                                                                                            |
| 4.4         |       | Third Amendment to the Credit Agreement dated September 22, 2005  signed in connection with certain indebtedness, filed as Exhibit 10.1 to  the Company’s quarterly report on Form 10-Q for the fiscal period ended September 24,  2005, and incorporated herein by reference.                                         |
|        |       |                                                                                                                                                                                                                                                                                                                                            |
| 10.1        |       | The Company’s 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.                                                                                                  |

 

47

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| 10.4   |   | The Company’s 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   |   | The Company’s 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   |   | Inventory Loan and Security Agreement dated October 12, 1988,  among General Motors Acceptance Corporation and the Company, its  subsidiaries, and certain subsidiaries of Supreme Corporation, filed as Exhibit 10.19  to the Company’s annual report on Form 10-K for the fiscal year ended December 31,  1988, and incorporated herein by reference.                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.8   |   | Pool Company Wholesale Finance Plan Application for Wholesale  Financing and Security Agreements, dated December 5, 1990, among Ford  Motor Credit Company and each of Supreme Corporation, Supreme Truck Bodies of  California, Inc., Supreme Corporation of Texas, and Supreme Mid-Atlantic  Corporation, filed as Exhibit 10.15 to the Company’s annual report on form 10-K  for the fiscal year ended December 31, 1991, and incorporated herein by  reference. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.9   |   | 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.                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.10  |   | 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.                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.11  |   | Employment Contract dated to be effective May 1, 2005, between Supreme  Corporation and Robert W. Wilson, filed as Exhibit 10.3 to the Company’s  quarterly report on Form 10-Q for the fiscal period ended June 25,  2005, and incorporated herein by reference.                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.12  |   | Employment Contract dated to be effective May 1, 2005, between  Supreme Corporation and Omer G. Kropf, filed as Exhibit 10.4 to the  Company’s quarterly report on Form 10-Q for the fiscal period ended June 25,  2005, and incorporated herein by reference.                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.13  |   | 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.                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.14  |   | 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.                                                                                                                                                                                    |

 

48

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| 10.15  |   | Amended and Restated Employment Contract by and among Supreme  Industries, Inc. and Robert W. Wilson dated to be effective January 1,  2006, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K  dated February 10, 2006, and incorporated herein by reference. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                         |
| 21.1   |   | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                         |
| 23.1   |   | Consent of Crowe Chizek and Company LLC, Independent Registered  Public Accounting Firm                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                         |
| 31.1   |   | Certification of Chief Executive Officer pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                         |
| 31.2   |   | Certification of Chief Financial Officer pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                         |
| 32.1   |   | Certification of Chief Executive Officer pursuant to Section 906  of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                         |
| 32.2   |   | Certification of Chief Financial Officer pursuant to Section 906  of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                    |

 

49

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