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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-K

For the fiscal year ended: December 27, 2008

OR

COMMISSION FILE NUMBER: 1-8183

SUPREME INDUSTRIES, INC.

(Exact name of Registrant as specified in its charter)

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

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

Securities registered pursuant to Section 12(g) of the Exchange 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 x

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

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

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

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

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

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

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

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

Documents incorporated by reference

Listed below are documents, parts of which are incorporated herein by reference, and the part of this report into which the document is incorporated:

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

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PART I

History

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

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

Financial Information About Operating Segments

The Company has two operating segments — specialized vehicles and vertically integrated fiberglass products.  The vertically integrated fiberglass products segment does not meet the quantitative thresholds for separate disclosure.  See segment 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

The specialized vehicle industry consists of companies that manufacture and/or distribute specialized truck bodies and shuttle buses.  Depending on the product, it is either built directly on a truck chassis or built separately and installed 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 parties who are major automotive or truck companies.  Such companies typically do not build specialized truck bodies.

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

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

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

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

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

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

Portable Storage Containers.  Supreme has also applied its truck body competencies in developing multiple sizes of storage containers for companies in the expanding market of portable storage containers, which provide warehouse storage of household goods.

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

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

Spartan MX insulated bodies.  Designed for companies which make frequent hand-loaded refrigerated deliveries, the 10-foot and 12-foot Spartan MX insulated body provides superb thermal efficiency and maximum cubic load capacity compared to an insulated OEM cargo van.

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

Kold King® insulated van bodies.  Kold King insulated bodies, in lengths up to 28 feet, provide versatility and dependability for temperature controlled applications.  Flexible for either hand-load or pallet load requirements, they are ideal for multi-stop distribution of both fresh and frozen products.

Stake bodies.  Stake bodies are flatbeds with various configurations of removable sides.  The stake body is utilized for a broad range of agricultural and construction industries transportation needs.

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

Supreme Specialty Vehicles.  The Supreme Specialty Vehicles (“SSV”) product line specializes in meeting the transportation needs of emergency response and homeland security personnel.  Sample products include SWAT rapid deployment vehicles, prisoner transport, mobile command centers, and mobile medical units.

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

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

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the public transit and tour markets and provides the Company’s dealer network with a more comprehensive product line.

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

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

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

Silver Crown.  Silver Crown luxury motorcoaches are custom designed for the enthusiast in the race car, show horse, sports car, and motorcycle industries.  The custom Silver Crown design combines large trailer towing capacity with the comforts of a high-end recreational vehicle.

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

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

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

Manufacturing

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

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

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

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

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Marketing

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

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

Supreme directly markets products in geographic areas where the Company does not have a distributor.  The Company currently operates distribution/mounting facilities in or near the cities of St. Louis, Missouri; Columbus, Ohio; Orlando, Florida and Harrisville, Rhode Island.

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

Trademarks

The Company owns and maintains trademarks that are used in marketing specialized products manufactured by Supreme.  Management believes that these trademarks have significant customer goodwill.  For this reason, management anticipates renewing each trademark discussed above for an additional ten-year period prior to such trademark’s expiration.

Working Capital

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

Major Customers

No single customer, or group of customers, accounted for 10% or more of the Company’s net sales for the fiscal years ended in 2008, 2007, and 2006.  The Company’s export sales are not significant.

Competitive Conditions

The highly competitive nature of the specialized vehicle industry presents a number of challenges. With only a few national competitors, the Company often competes with smaller, regional companies. As a result of this broad competition, the Company is often faced with competitive pricing pressures. Other competitive factors include quality of product, lead times, geographic proximity to customers, and the ability to manufacture a product customized to customer specifications.

During favorable business cycles, the industry tends to see an increase in smaller, regional competitors, and then a similar decrease during times of challenging economic pressures. With its national presence, diverse product offerings, and strong financial position, the Company believes that it is well-positioned to meet the competitive challenges presented.

Governmental Regulation

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

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Seasonality of Business

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

Employees

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

Back Log

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

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Any investment in our Common Stock involves a high degree of risk.  You should carefully consider the risks and uncertainties described below and the other information 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 identified or that we currently believe are immaterial, may also adversely affect our business, financial condition, or results of operations.  If any of the events described below occur, our business and financial results could be materially and adversely affected.  The market price of our Common Stock could decline due to any of these risks, perhaps significantly, and you could lose all or part of your investment.

A sustained or substantially deep recession could have a significantly negative impact on our industry.

The present economic recession and the uncertainty over its breadth, depth, and duration have had a negative impact on the specialized vehicle industry. Accordingly, our financial results have been negatively impacted by the economic slowdown. Both our financial results and potential for growth could be further harmed if the economic recession continues for a significant period or becomes worse.

A lack of credit and financing availability to the Company, its vendors, dealers, or end users could adversely affect our business.

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

Increases in the price and demand for raw materials could lower our margins and profitability.

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

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

With the exception of some StarTrans products, Supreme generally does not purchase vehicle chassis for its inventory.  Supreme accepts shipments of vehicle chassis owned by dealers or end-users for the purpose of installing and/or manufacturing its specialized truck bodies and buses on such chassis.  In the event of a labor disruption or other uncontrollable event adversely affecting all or most of the companies which manufacture and/or deliver such chassis, Supreme’s level of manufacturing could be substantially reduced.  The Company has established relationships with all major chassis manufacturers.  In the event of a disruption in supply from one manufacturer, the Company would attempt to divert its demand to the other manufacturers.  Approximately 30% of the chassis involved in Supreme’s manufacturing have been secured through converter pool agreements with three major chassis manufacturers.  These agreements provide for truck chassis pools at each of Supreme’s manufacturing facilities.

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

We compete in the highly competitive specialized vehicle industry which may impact our financial results.

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

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

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

Our operations are subject to a variety of federal, state, and local environmental and health and safety statutes and regulations, including those relating to emissions to the air, discharges to water, treatment, storage, and disposal of waste, and remediation of contaminated sites.  In certain cases, these requirements may limit the productive capacity of our operations.

Certain laws, including the Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, have imposed strict and, under certain circumstances, joint and several liability for costs to remediate contaminated sites upon designated responsible parties including site owners or operators and persons who dispose of wastes at, or transport wastes to, such sites.

From time to time, we have received notices of noncompliance with respect to our operations. These have typically been resolved by investigating the alleged noncompliance and correcting any non-compliant conditions.  New environmental requirements, more aggressive enforcement of existing ones, or discovery of presently unknown conditions could require material expenditures or result in liabilities which could limit expansion or otherwise have a material adverse effect on our business, financial condition, and operating cash flows.

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

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

Our manufacturer’s warranties expose us to potentially significant claims.

We are subject to product warranty claims in the ordinary course of our business.  If we manufacture poor quality products or receive defective materials, we may incur unforeseen costs in excess of what we have reserved in our financial statements.  These costs could have a material adverse affect on our business and operating cash flows.

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

Our ability to compete successfully and implement our business strategy depends on the efforts of our senior management personnel.  The loss of the services of any one or more of these individuals could have a material adverse effect on our business.  We do not maintain key-man life insurance policies on any of our executives.  If we were unable to attract qualified personnel to our management, our existing management resources could become strained which would harm our business and our ability to implement our strategies.

Our relatively low trading volumes may limit our stockholders’ ability to sell their shares.

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

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

Our officers and directors own a large percentage of our common stock.  They may vote their shares in ways with which you disagree.

As of March 6, 2009, our officers and directors as a group beneficially own 28.8 % of our Class A Common Stock and 90.1% of our Class B Common Stock.  As a result, they will continue to be able to exercise significant influence, and in most cases, control, over matters requiring shareholder approval, including the election of directors, changes to our charter documents, and significant corporate transactions.  This concentration of ownership makes it unlikely that any other holder or group of holders of our Class A Common Stock will be able to affect the way we are managed or the direction of our business.

Our split classes of stock may make it more difficult or expensive for a third party to acquire the Company which may adversely affect our stock price.

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

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

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

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

Not applicable.

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

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

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

(3)          During the third quarter of 2002, the Company ceased business operations at 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 to sell the property because of weak economic conditions and excess building facilities in this region of the country.  While retaining the right to sell the property to interested buyers, the Company does currently lease a portion of this property to an unrelated business.

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

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

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

PART II

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

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

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

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

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

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

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

Equity Compensation Plan Information

The following table provides information as of December 27, 2008 with respect to the shares of the Company’s Class A Common Stock that may be issued under the Company’s equity compensation plans:

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The following selected financial data has been derived from our consolidated financial statements. The data set forth below should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and notes thereto.

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

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

Overview

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

The Company engages principally in the production and sale of customized truck bodies, shuttle buses, and other specialty vehicles. Building on its expertise in providing both cargo and passenger transportation solutions, the Company’s specialty offerings include products such as customized armored vehicles, homeland response vehicles, portable storage units and luxury motor coaches. Through vertical integration and proprietary processes, the Company also is a producer of high quality fiberglass and fiberglass-reinforced components.  For more detailed information related to the Company and its products, see Business (Item 1) of this document.

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During 2008, Supreme continued to experience the impact of the economic recession and the unprecedented tight credit markets, particularly in its core truck business and motorhome operations.  Although management foresaw a difficult environment, the downturn has been far more severe than anticipated. In response, the Company has been executing a strategy to navigate through these conditions and position the Company to emerge from the current economic environment even stronger.

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

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

The Company and its product offerings are sensitive to various factors which include, but are not limited to, economic conditions, interest rate fluctuations, changes in governmental regulations, and volatility in the supply chain of vehicle chassis. The Company’s business is also affected by the availability and costs of certain raw materials that serve as significant components of its product offerings.  The Company’s risk factors are disclosed in Item 1A “Risk Factors” of this document.

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

Results of Operations

Comparison of 2008 with 2007

Net Sales

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

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

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We attribute the decrease in our truck product sales to the economic recession which resulted in an industry-wide decline in the retail truck market.  The decline in the truck market began in early 2007, and the prevailing expectation is that it will likely continue until at least 2010.  Additionally, truck products were negatively impacted in the first half of the year by the cancellation of approximately $2.6 million of orders from a major fleet customer due to the disruption in the supply of General Motors (“GM”) chassis resulting from a labor dispute between the United Auto Workers and GM’s axle supplier. This labor dispute was settled in the second quarter, although returning to normal conditions was further delayed by a second labor strike against a chassis delivery provider which has since been resolved. The disruption adversely affected our profitability and resulted in excess inventory carrying costs for both our fleet and retail business during the first half of 2008.  We anticipate that the decrease in our truck business activity will create pent-up demand and we are poised to capitalize on the eventual expected recovery.

The armored division sales decline was the result of the economic environment and the highly competitive nature of the cash-in-transit business.  We believe that the armored division is well positioned to increase its revenue in 2009 as a result of the U.S. Department of State contract mentioned above.

Our StarTrans bus division continues to experience strong demand resulting from increased use of mass transit due to the volatility of fuel prices and increased ridership as more individuals conserve energy to live a “green” life style.

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

Cost of sales and gross profit

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

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

Raw material costs, particularly for aluminum, steel, and petroleum-based products, increased in 2008. We attempted to address the unavoidable raw material cost increases by increasing the prices of our products to the limited extent that our highly competitive markets permitted. We announced price increases of 3.0% and 5.0% in March and June, respectively, on all core truck product lines.  Our StarTrans bus division implemented price increases of 2.5% and 3.0% effective in January and June, respectively.  We also strived to reduce manufacturing costs through the use of technology (i.e., robotics, innovative materials, etc.), lean manufacturing, and improved processes.  These ongoing efforts, as well as product diversification and the introduction of our Signature Van Body, should help us to mitigate the effect of any future increases in raw material costs.

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

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

Overhead — Overhead as a percentage of net sales increased for the year ended December 27, 2008 when compared to the corresponding period in 2007.  The majority of the increase in the overhead percentage was due to the fixed nature of certain expenses that do not fluctuate when sales volume changes.  The Company also experienced higher costs for research and development which was associated with the investments in Signature Van Body and the armored suburban contract.  During 2008, the Company reduced its cost and is benefiting from changes to its group health insurance plan design.  Additionally, the Company’s continued safety efforts decreased our workers compensation expense year-over-year as additional programs were implemented.  We continue to focus on reducing expenses and managing our overhead cost structure based on our level of sales volume.

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

Selling, general and administrative expenses

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

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

G&A expenses — General and administrative expenses decreased by $0.7 million, or 4.0%, to $16.8 million for the year ended December 27, 2008 from $17.5 million for the year ended December 29, 2007.  This decrease in general and administrative expenses was primarily due to lower incentive compensation accruals as a result of the decrease in pretax income.  Additionally, we incurred one-time professional fees during 2007 related to complying with the requirements of the Sarbanes-Oxley Act of 2002.

Intangible Asset Impairments

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

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

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

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significant downturn in the economy, motorhome industry, and selected customers’ financial positions, the Company recorded an impairment charge against the remaining balance of this asset in the fourth quarter of 2008.  As a result of total impairment, no future amortization expense will be recorded against this intangible asset.

Other income

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

Interest expense

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

Income taxes

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

Net income and earnings per share

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

Comparison of 2007 with 2006

Net Sales

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

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Cost of Sales and Gross Profit

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

Material — Material cost as a percentage of net sales was 57.4% in 2007 compared to 56.8% in 2006.  The increase of 0.6% was attributable to our growing StarTrans bus division and our Silver Crown division which have a higher material content and accounted for a larger portion of our total sales volume in 2007.  Partially offsetting the increase in the material percentage was an improvement of 2.2% in our core truck divisions which resulted from working with our material suppliers to strengthen our supply chain logistics while controlling material costs. However, raw material costs continued to remain a concern as costs increased for aluminum, steel, and petroleum-based raw materials.  The Company closely monitored and managed all material costs through timely communication and negotiation with key suppliers and continued to make efforts to recover raw material cost increases through the pricing of our products.  The Company also continued to strive to reduce the costs of its products through research into innovative materials and the use of robotics.

Historically, the Company has experienced and recorded both favorable and unfavorable physical inventory adjustments.  Due to our product diversity, complexity, customization, and on-line engineering, inventory relief using standard bills of material does not provide full relief of our inventory.  Therefore, the Company records an additional cost relief adjustment based on various factors. In addition, the Company intensified its bills of material accuracy initiatives and cost relief systems and methods in conjunction with performing additional interim physical inventories and recording any adjustments relating thereto.  In 2007, the Company recorded favorable inventory adjustments of $0.2 million.  In the third quarter of fiscal year 2006, the Company recorded a $1.9 million favorable inventory adjustment.  In 2006, the Company improved its bills of materials accuracy without changing its cost relief adjustment to account for these improvements resulting in a favorable inventory adjustment for the year. The more frequent physical inventories, and the continued improvements from the process improvement initiatives, should enable the Company to continue to minimize the physical inventory adjustments (See “Inventory Relief” below in our discussion of “Critical Accounting Policies and Estimates”).

Direct Labor — Direct labor as a percentage of net sales was 13.6% in 2007 compared to 14.3% in 2006.  The direct labor improvement was the result of the efficiencies realized from contracting fewer, more costly temporary workers at our core truck divisions due to reduced sales volume.  Additionally, in the first half of 2006 we experienced a delay in OEM-supplied chassis which caused the Company to temporarily suspend production, thereby negatively affecting labor and overhead absorption.  As noted earlier, while our StarTrans bus division and Silver Crown division material content is higher than our core truck products, the labor percentage is lower in these divisions further reducing the overall Company labor percentage as a result of the our change in product mix for 2007.

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

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Delivery — Delivery as a percentage of net sales was 2.6% in 2007 compared to 2.8% in 2006.  The Company continued to utilize more cost effective outside delivery methods versus using its employees and owned equipment to deliver units.  Fuel costs remained a concern, and the Company continued its efforts to attempt to pass on higher fuel costs despite competitive pressures in the marketplace.

Selling, General and Administrative Expenses

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

Selling expenses — Selling expenses decreased by $1.2 million, or 10.4%, to $10.3 million for the year ended December 29, 2007 from $11.5 million for the year ended December 30, 2006.  Selling expenses declined due to increased cooperative marketing credits the Company received from chassis manufacturers.  These credits, determined solely by programs established by the chassis manufacturers, were used to offset marketing and promotional expenses.  Additionally, sales commission expense decreased due to the lower sales volume experienced during 2007 compared to 2006.

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

Other Income

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

Interest Expense

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

Income Taxes

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

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Net Income and Earnings Per Share

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

Liquidity and Capital Resources

The Company believes that it has adequate availability in its credit facility to finance future foreseeable working capital requirements and intends to invest only in replacement equipment during 2009.  The Company’s cash management system and revolving line of credit are designed to maintain zero cash balances and, accordingly, checks outstanding in excess of bank balances are classified as additional borrowings under the revolving line of credit.

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

The Credit Agreement contains, among other matters, certain restrictive covenants including compliance with financial measurements.  As of December 27, 2008, the Company was in compliance with all covenants.  Subsequent to year-end, the Company violated a covenant and entered into an amendment to the Credit Agreement with its lender to waive the covenant violation and to reset certain existing covenant measurements to provide temporary relief during this economic downturn.

Operating activities

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

Investing activities

Cash used in investing activities was $3.1 million for the year ended December 27, 2008 compared to $3.6 million for the year ended December 29, 2007. Capital expenditures for 2008 were $3.6 million and consisted, in part, of investments in replacement equipment.  The company received proceeds of $1.0 million from the sale of two service and distribution centers in the fourth quarter of 2008.

Financing activities

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

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

Contractual Obligations

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

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

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

Critical Accounting Policies and Estimates

Management’s discussion and analysis of its financial position and results of operations are based upon the Company’s consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosure of contingent assets and liabilities.  The Company’s significant accounting policies are discussed in Note 1 of the Notes to Consolidated Financial Statements.  In management’s opinion, the Company’s critical accounting policies include revenue recognition, allowance for doubtful accounts, excess and obsolete inventories, inventory relief, accrued insurance, accrued warranty, and impairment of goodwill and intangible assets.

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

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

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

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

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full reliance on the bills of material for accurate relief of inventories.  Although the Company continues to refine the process of creating accurate bills of materials, manual adjustments (which are based on estimates) are necessary in an effort to assure correct relief of inventories for products sold.  The calculations to estimate costs not captured in the bill of materials take into account the customized nature of products, historical inventory relief percentages, scrap variances, and other factors which could impact inventory relief.

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

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

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

Accrued Warranty - The Company provides limited warranties for periods of up to five years from the date of retail sale.  Estimated warranty costs are accrued at the time of sale and are based upon historical experience.

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

Impairment of Intangible Assets - The Company evaluates the recoverability of identifiable intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable.  Such circumstances could include, but are not limited to (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset.  The Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it.  Should the sum of the expected future net cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized.  The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value.  The Company estimated the value of its customer list based on various valuation techniques, including the discounted value of estimated future cash flows.  The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated.  These assumptions require significant judgment and actual results may differ from assumed and estimated amounts.  The Company recorded an impairment charge for the full carrying amount of its customer list acquired in 2006 during the fourth quarter of 2008, which totaled $588,507.

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Pending Accounting Pronouncements

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

Forward-Looking Statements

This report contains forward-looking statements, other than historical facts, which reflect the view of management with respect to future events.  When used in this report, words such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” and similar expressions, as they relate to the Company or its plans or operations, identify forward-looking statements.  Such forward-looking statements are based on assumptions made by, and information currently available to, management.  Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that the expectations reflected in such forward-looking statements are reasonable, and it can give no assurance that such expectations will prove to be correct.  Important factors that could cause actual results to differ materially from such expectations include, without limitation, an economic slowdown in the specialized vehicle industry, limitations on the availability of chassis on which the Company’s product is dependent, availability of raw materials, raw material cost increases and severe interest rate increases.  Furthermore, the Company can provide no assurance that such raw material cost increases can be passed on to its customers through implementation of price increases for the Company’s products.  The forward-looking statements contained herein reflect the current view of management with respect to future events and are subject to those factors and other risks, uncertainties, and assumptions relating to the operations, results of operations, cash flows and financial position of the Company.  The Company assumes no obligation to update the forward-looking statements or to update the reasons actual results could differ from those contemplated by such forward-looking statements.

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In the normal course of business, operations of the Company are exposed to fluctuations in interest rates.  These fluctuations can vary the cost of investing, financing, and operating.  The Company’s primary risk exposure results from changes in short-term interest rates.  In an effort to manage risk exposures, the Company strives to achieve an acceptable balance between fixed and floating rate debt positions.  The Company’s revolving line of credit is floating rate debt and bears interest at the bank’s prime rate or LIBOR plus certain basis points depending on the pricing option selected and the Company’s leverage ratio.  At December 27, 2008, the Company had in effect an interest rate swap agreement dated July 28, 2005.  The interest rate swap agreement is a contract to exchange floating rate for fixed rate interest payments over the life of the interest rate swap agreement and is used to measure interest to be paid or received and does not represent the amount of exposure of credit loss.  The differential paid or received under the interest rate swap agreement is recognized as an adjustment to interest expense.  The following is a summary of the interest rate swap agreement outstanding at December 27, 2008.

Based on the Company’s overall interest rate exposure at December 27, 2008, a hypothetical 10 percent change in interest rates applied to the fair value of the financial instruments as of December 27, 2008, would have no material impact on earnings, cash flows, or fair values of interest rate risk sensitive instruments over a one-year period.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of  Supreme Industries, Inc.

We have audited the accompanying consolidated balance sheets of Supreme Industries, Inc. and its subsidiaries as of December 27, 2008 and December 29, 2007, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 27, 2008.  In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule, Schedule II — Valuation and Qualifying Accounts.  These financial statements and financial statement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

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

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Supreme Industries, Inc. And Subsidiaries

Consolidated Balance Sheets

December 27, 2008 and December 29, 2007