Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 
| **x**                                                                                               | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|-----------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
|                                                                                                |                                                                                                    |
| **For the quarterly period ended March 28,  2009**                                             |
|                                                                                                |                                                                                                    |
| **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 Number: 1-8183**

 

**SUPREMEINDUSTRIES, INC.**

(Exact name of registrant as specified in its charter)

** **

| **Delaware**                                                    | ** ** | **75-1670945**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of

incorporation or organization) |       | (I.R.S. Employer Identification No.) |
|                                                            |       |                                 |
| **2581 E. Kercher Rd., P.O. Box 237, Goshen,  Indiana**    |       | **46528**                            |
| (Address of principal executive offices)                        |       | (Zip Code)                           |

 

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

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes  x   No  o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes  o   No  o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large accelerated filer o                |   | Accelerated filer o         |
|-----------------------------------------------|--------|----------------------------------|
|                                          |   |                             |
| Non-accelerated filer o                  |   | Smaller reporting company x |
| (Do not check if a smaller reporting company) |   |                             |

 

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

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date.

 

| **Common Stock ($.10 Par Value)** | ** ** | **Outstanding at May 1, 2009** |
|-----------------------------------|------------|-------------------------------------|
| **Class A**                  | ** ** | **12,150,823**                      |
| **Class B**                  | ** ** | **2,188,490**                       |

 

 

 

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SUPREME INDUSTRIES,INC.

 

CONTENTS

 
| ** **         | ** **                                                                                   | **Page No.** |
|--------------------|----------------------------------------------------------------------------------------------|-------------------|
|               |                                                                                         |              |
| PART I.       | FINANCIAL INFORMATION                                                                        |              |
|               |                                                                                         |              |
| ITEM 1.            | Financial Statements.                                                                        |              |
|               |                                                                                         |              |
|               | Consolidated Balance Sheets                                                                  | 1                 |
|               |                                                                                         |              |
|               | Consolidated  Statements of Operations                                                       | 3                 |
|               |                                                                                         |              |
|               | Consolidated  Statements of Cash Flows                                                       | 4                 |
|               |                                                                                         |              |
|               | Notes to  Consolidated Financial Statements                                                  | 5                 |
|               |                                                                                         |              |
| ITEM  2.           | Management’s Discussion and Analysis of  Financial Condition and Results of Operations. | 10                |
|               |                                                                                         |              |
| ITEM 3.            | Quantitative and Qualitative Disclosures  About Market Risk.                                 | 18                |
|               |                                                                                         |              |
| ITEM 4.            | Controls and Procedures.                                                                     | 19                |
|               |                                                                                         |              |
| PART II.      | OTHER INFORMATION                                                                            |              |
|               |                                                                                         |              |
| ITEM 1.            | Legal Proceedings.                                                                           | 20                |
|               |                                                                                         |              |
| ITEM 1A.           | Risk Factors.                                                                                | 20                |
|               |                                                                                         |              |
| ITEM 2.            | Unregistered Sales of Equity Securities and  Use of Proceeds.                                | 21                |
|               |                                                                                         |              |
| ITEM 3.            | Defaults Upon Senior Securities.                                                             | 21                |
|               |                                                                                         |              |
| ITEM 4.            | Submission of Matters to a Vote of Security  Holders.                                        | 21                |
|               |                                                                                         |              |
| ITEM 5.            | Other Information.                                                                           | 21                |
|               |                                                                                         |              |
| ITEM 6.            | Exhibits.                                                                                    | 22                |
|               |                                                                                         |              |
| SIGNATURES         |                                                                                         |              |
|               |                                                                                         |              |
| INDEX TO  EXHIBITS |                                                                                         |
|               |                                                                                         |              |
| EXHIBITS           |                                                                                         |              |
|                    |                                                                                              |                   |  |

 

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**PART I. FINANCIAL INFORMATION**

 

**ITEM 1.****            FINANCIAL STATEMENTS.**

 

**Supreme Industries, Inc. and Subsidiaries**

Consolidated Balance Sheets

 
| ** **                                      | ** ** | **March 28,** | ** **  | **December 27,** | ** ** |
|-------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                      | ** ** | **2009**           | ** **  | **2008**              | ** ** |
| ** **                                      | ** ** | **(Unaudited)**    | ** **  | ** **            | ** ** |
| **ASSETS**                                      |       |               |        |                  |       |
|                                            |       |               |        |                  |       |
| **Current assets:**                             |       |               |        |                  |       |
| Cash and cash equivalents                       |       | $                  | 832,169     |                  | $          | 932,608 |   |
| Investments                                     |       | 2,538,681          |        | 2,509,848             |       |
| Accounts receivable, net                        |       | 20,771,044         |        | 25,423,842            |       |
| Inventories                                     |       | 39,615,460         |        | 44,248,516            |       |
| Other current assets                            |       | 7,863,892          |        | 6,335,740             |       |
|                                            |       |               |        |                  |       |
| **Total current assets**                        |       | 71,621,246         |        | 79,450,554            |       |
|                                            |       |               |        |                  |       |
| **Property, plant and equipment, at cost**      |       | 90,190,341         |        | 94,128,405            |       |
| Less, Accumulated depreciation and amortization |       | 45,065,700         |        | 48,349,497            |       |
|                                            |       |               |        |                  |       |
| **Property, plant and equipment, net**          |       | 45,124,641         |        | 45,778,908            |       |
|                                            |       |               |        |                  |       |
| **Other assets**                                |       | 817,638            |        | 295,109               |       |
|                                            |       |               |        |                  |       |
| **Total assets**                                |       | $                  | 117,563,525 |                  | $          | 125,524,571 |   |

 

See accompanying notes to consolidated financial statements.

 

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**Supreme Industries, Inc. and Subsidiaries**

Consolidated Balance Sheets, Concluded

 
| ** **                                          | ** ** | **March 28,** | ** **  | **December 27,** | ** ** |
|-----------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                          | ** ** | **2009**           | ** **  | **2008**              | ** ** |
| ** **                                          | ** ** | **(Unaudited)**    | ** **  | ** **            | ** ** |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**       |       |               |        |                  |       |
|                                                |       |               |        |                  |       |
| **Current liabilities:**                            |       |               |        |                  |       |
| Current maturities of long-term debt                |       | $                  | 850,298     |                  | $          | 823,297 |   |
| Trade accounts payable                              |       | 8,621,422          |        | 8,266,945             |       |
| Accrued income taxes                                |       | 654,076            |        | 675,200               |       |
| Other accrued liabilities                           |       | 7,170,968          |        | 9,349,112             |       |
|                                                |       |               |        |                  |       |
| **Total current liabilities**                       |       | 17,296,764         |        | 19,114,554            |       |
|                                                |       |               |        |                  |       |
| **Long-term debt**                                  |       | 27,876,910         |        | 32,805,350            |       |
|                                                |       |               |        |                  |       |
| **Deferred income taxes**                           |       | 2,403,698          |        | 2,403,698             |       |
|                                                |       |               |        |                  |       |
| **Other long-term liabilities**                     |       | 745,089            |        | 818,053               |       |
|                                                |       |               |        |                  |       |
| **Total liabilities**                               |       | 48,322,461         |        | 55,141,655            |       |
|                                                |       |               |        |                  |       |
| **Stockholders’ equity**                       |       | 69,241,064         |        | 70,382,916            |       |
|                                                |       |               |        |                  |       |
| **Total liabilities and stockholders’ equity** |       | $                  | 117,563,525 |                  | $          | 125,524,571 |   |

 

See accompanying notes to consolidated financial statements.

 

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**Supreme Industries, Inc. and Subsidiaries**

Consolidated Statements ofOperations (Unaudited)

 
| ** **                                                        | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                        | ** ** | **March 28,**     | ** ** | **March 29,** | ** ** |
| ** **                                                        | ** ** | **2009**               | ** ** | **2008** | ** ** |
|                                                              |       |                   |       |   |   |
| Net sales                                                         |       | $                      | 49,272,540 |   | $ | 75,924,356 |   |
| Cost of sales                                                     |       | 46,468,176             |       | 68,333,218 |   |
| **Gross profit**                                                  |       | 2,804,364              |       | 7,591,138 |   |
|                                                              |       |                   |       |   |   |
| Selling, general and administrative expenses                      |       | 5,800,500              |       | 6,948,612 |   |
| Other income                                                      |       | (299,752               | )          | (244,948 | ) |
| **Operating income (loss)**                                       |       | (2,696,384             | )          | 887,474 |   |
|                                                              |       |                   |       |   |   |
| Interest expense                                                  |       | 556,593                |       | 585,960 |   |
| **Income (loss) before income taxes**                             |       | (3,252,977             | )          | 301,514 |   |
|                                                              |       |                   |       |   |   |
| Income tax expense (benefit)                                      |       | (1,855,000             | )          | 75,000 |   |
| **Net income (loss)**                                             |       | $                      | (1,397,977 | ) | $ | 226,514 |   |
|                                                              |       |                   |       |   |   |
| **Earnings (Loss) Per Share:**                                    |       |                   |       |   |   |
| Basic                                                             |       | $                      | (0.10      | ) | $ | .02 |   |
| Diluted                                                           |       | (0.10                  | )          | .02 |   |
|                                                              |       |                   |       |   |   |
| **Shares used in the computation of earnings  (loss) per share:** |       |                   |       |   |   |
| Basic                                                             |       | 14,156,657             |       | 13,979,674 |   |
| Diluted                                                           |       | 14,156,657             |       | 14,139,532 |   |
|                                                              |       |                   |       |   |   |
| **Cash dividends per common share**                               |       | $                      | —     |   | $ | .088 |   |

 

See accompanying notes to consolidated financial statements.

 

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**Supreme Industries, Inc. and Subsidiaries**

Consolidated Statements ofCash Flows (Unaudited)

 
| ** **                                                                                          | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                          | ** ** | **March 28,**     | ** ** | **March 29,** | ** ** |
| ** **                                                                                          | ** ** | **2009**               | ** ** | **2008** | ** ** |
| **Cash flows from operating activities:**                                                           |       |                   |       |   |   |
| Net income (loss)                                                                                   |       | $                      | (1,397,977 | ) | $ | 226,514 |   |
| Adjustments to reconcile net income (loss) to net cash provided by  (used in) operating activities: |       |                   |       |   |   |
| Depreciation and amortization                                                                       |       | 1,065,384              |       | 1,068,221 |   |
| Amortization of intangibles                                                                         |       | —                 |       | 12,093 |   |
| Provision for losses on doubtful receivables                                                        |       | 9,640                  |       | 38,180 |   |
| Stock-based compensation expense                                                                    |       | 188,203                |       | 131,632 |   |
| Losses (gains) on sale of property, plant and equipment, net                                        |       | (10,589                | )          | 532 |   |
| Changes in operating assets and liabilities                                                         |       | 5,898,229              |       | (5,800,025 | ) |
|                                                                                                |       |                   |       |   |   |
| **Net cash provided by (used in) operating  activities**                                            |       | 5,752,890              |       | (4,322,853 | ) |
|                                                                                                |       |                   |       |   |   |
| **Cash flows from investing activities:**                                                           |       |                   |       |   |   |
| Additions to property, plant and equipment                                                          |       | (936,593               | )          | (954,444 | ) |
| Proceeds from sale of property, plant and equipment                                                 |       | 11,350                 |       | 17,551 |   |
| Purchases of investments                                                                            |       | (28,833                | )          | (1,226,173 | ) |
| Decrease in other assets                                                                            |       | 2,186                  |       | 2,186 |   |
|                                                                                                |       |                   |       |   |   |
| **Net cash used in investing activities**                                                           |       | (951,890               | )          | (2,160,880 | ) |
|                                                                                                |       |                   |       |   |   |
| **Cash flows from financing activities:**                                                           |       |                   |       |   |   |
| Proceeds from revolving line of credit and other long-term debt                                     |       | 22,792,300             |       | 34,408,551 |   |
| Repayments of revolving line of credit and other long-term debt                                     |       | (27,693,739            | )          | (27,909,854 | ) |
| Payment of cash dividends                                                                           |       | —                 |       | (1,238,017 | ) |
| Proceeds from exercise of stock options                                                             |       | —                 |       | 24,750 |   |
|                                                                                                |       |                   |       |   |   |
| **Net cash provided by (used in) financing  activities**                                            |       | (4,901,439             | )          | 5,285,430 |   |
|                                                                                                |       |                   |       |   |   |
| **Change in cash and cash equivalents**                                                             |       | (100,439               | )          | (1,198,303 | ) |
|                                                                                                |       |                   |       |   |   |
| **Cash and cash equivalents, beginning of period**                                                  |       | 932,608                |       | 1,266,133 |   |
|                                                                                                |       |                   |       |   |   |
| **Cash and cash equivalents, end of period**                                                        |       | $                      | 832,169    |   | $ | 67,830 |   |

 

See accompanying notes to consolidated financial statements.

 

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**SUPREMEINDUSTRIES, INC. AND SUBSIDIARIES**

NotesTo Consolidated Financial Statements

 

NOTE1 - BASIS OF PRESENTATION AND OPINION OF MANAGEMENT

 

Theaccompanying unaudited consolidated financial statements have been prepared inaccordance with the instructions to Form 10-Q and therefore do not includeall of the information and financial statement disclosures necessary for a fairpresentation of consolidated financial position, results of operations, andcash flows in conformity with accounting principles generally accepted in theUnited States of America.  In the opinionof management, the information furnished herein includes all adjustmentsnecessary to reflect a fair statement of the interim periods reported.  All adjustments are of a normal and recurringnature.  The December 27, 2008consolidated balance sheet data was derived from audited financial statements,but does not include all disclosures required by accounting principlesgenerally accepted in the United States of America.  References to “we,” “us,” “our,” “its,” “Supreme,”or the “Company” refer to Supreme Industries, Inc. and its subsidiaries.

 

TheCompany has adopted a 52- or 53-week fiscal year ending the last Saturday inDecember.  The results of operations forthe three months ended March 28, 2009 and March 29, 2008 are for13-week periods.

 

NOTE2 — RECENT ACCOUNTING PRONOUNCEMENTS

 

InDecember 2007, the Financial Accounting Standards Board (“FASB”) issuedSFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”).SFAS No. 141R establishes principles and requirements for how an acquirerrecognizes and measures in its financial statements the identifiable assetsacquired, the liabilities assumed, any noncontrolling interest in the acquireeand the goodwill acquired. SFAS No. 141R also establishes disclosurerequirements to enable the evaluation of the nature and financial effects ofthe business combination. This statement was effective for us beginning infiscal 2009.  The adoption of thisstandard did not have a material impact on our consolidated financialstatements.

 

Statementof Financial Accounting Standards (“SFAS”) No. 157, “Fair ValueMeasurements,” clarifies the definition of fair value, establishes a frameworkfor measuring fair value, and expands the disclosures on fair valuemeasurements. We have adopted SFAS No. 157 and FASB Staff Position FAS No. 157-2.The adoption of SFAS No. 157 for financial instruments as required at thebeginning of fiscal 2008 did not have a material effect on our consolidatedfinancial statements. However, we were required to provide additionaldisclosure as part of our consolidated financial statements. Effective thebeginning of fiscal 2009, we adopted SFAS No. 157 for non-financial assetsand non-financial liabilities, such as goodwill and other intangible assetsheld by us and measured annually for impairment testing purposes.  The adoption of this standard did not have amaterial impact on our consolidated financial statements.

 

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

NotesTo Consolidated Financial Statements, Continued

 

InDecember 2007, the FASB issued SFAS No. 160, “NoncontrollingInterests in Consolidated Financial Statements — an amendment of AccountingResearch Bulletin No. 51.” SFAS No. 160 establishes accounting andreporting standards for ownership interests in subsidiaries held by partiesother than the parent, the amount of consolidated net income attributable tothe parent and to the noncontrolling interest, changes in a parent’s ownershipinterest, and the valuation of retained noncontrolling equity investments whena subsidiary is deconsolidated. SFAS No. 160 also establishes disclosurerequirements that clearly identify and distinguish between the interests of theparent and the interests of the noncontrolling owners. This statement was effectivefor us beginning in fiscal 2009.  Theadoption of this standard did not have a material impact on our consolidatedfinancial statements.

 

SFASNo. 161, “Disclosures about Derivative Instruments and Hedging Activities,an amendment of FASB Statement No. 133,” amends and expands the disclosurerequirements of SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities,” by requiring enhanced disclosures about how and why anentity uses derivative instruments, how derivative instruments and relatedhedged items are accounted for under SFAS No. 133 and its relatedinterpretations, and how derivative instruments and related hedged items affectan entity’s financial position, financial performance, and cash flows. SFAS No. 161requires qualitative disclosures about objectives and strategies for usingderivatives, quantitative disclosures about fair value amounts of gains andlosses on derivative instruments, and disclosures about credit —risk-relatedcontingent features in derivative agreements. SFAS No. 161 was effectivefor the first quarter of 2009. The adoption of this standard did not have amaterial impact on our consolidated financial statements.

 

NOTE3 — OTHER COMPREHENSIVE INCOME (LOSS)

 

Othercomprehensive income (loss) includes unrealized losses on hedge-activity, netof tax, and unrealized gains (losses) on available-for-sale securities, net oftax.  Total comprehensive income (loss)combines net income (loss) and other comprehensive income (loss).

 

Forthe three-month periods ended March 28, 2009 and March 29, 2008,total and other comprehensive income (loss) are as follows:

 
| ** **                        | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------|------------|------------------------|------------|
| ** **                        | ** ** | **March 28,**     | ** ** | **March 29,** | ** ** |
| ** **                        | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Net income (loss)                 |       | (1,397,977             | )          | 226,514 |   |
| Other comprehensive income (loss) |       | 67,922                 |       | (334,427 | ) |
| Total comprehensive loss          |       | $                      | (1,330,055 | ) | $ | (107,913 | ) |
|                                   |            |                        |            |  |  |  |  |

 

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

NotesTo Consolidated Financial Statements, Continued

 

NOTE4 - INVENTORIES

 

Inventories,which are stated at the lower of cost or market with cost determined using thefirst-in, first-out method, consist of the following:

 
| ** **       | ** ** | **March 28,** | ** **       | **December 27,** | ** ** |
|------------------|------------|--------------------|------------------|-----------------------|------------|
| ** **       | ** ** | **2009**           | ** **       | **2008**              | ** ** |
| Raw materials    |       | $                  | 21,725,055       |                  | $          | 24,596,110 |   |
| Work-in-progress |       | 7,643,072          |             | 8,204,857             |       |
| Finished goods   |       | 10,427,333         |             | 11,447,549            |       |
|             |       | $                  |  39,615,460 |                  | $          | 44,248,516 |   |

 

NOTE5 — FAIR VALUE MEASUREMENT

 

SFASNo. 157, “Fair Value Measurements,” defines fair value as the exchangeprice that would be received for an asset or paid to transfer a liability (anexit price) in the principal or most advantageous market for the asset orliability in an orderly transaction between market participants on themeasurement date.  SFAS No. 157 also establishes a fair valuehierarchy which requires an entity to maximize the use of observable inputs andminimize the use of unobservable inputs when measuring fair value.  Thestandard describes three levels of inputs that may be used to measure fairvalue:

 

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

 

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

 

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

 

TheCompany used the following methods and significant assumptions to estimate thefair value of items:

 

Investments:The fair values of investments available for sale are determined by obtainingquoted prices on nationally recognized securities exchanges (Level 1 inputs).

 

Derivatives:Our derivative instruments consist of interest rate swaps.  As such, significant fair value inputs cangenerally be verified and do not typically involve significant managementjudgments (Level 2 inputs).

 

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

NotesTo Consolidated Financial Statements, Continued

 

NOTE6 — LONG-TERM DEBT

 

TheCompany amended its existing credit facility effective May 12, 2009.  The terms of the credit facility aresubstantially the same as the previous credit facility disclosed in the AnnualReport on Form 10-K for the year ended December 27, 2008.  Certain debt covenants have been modified toprovide temporary relief to the Company during the recession.  Effective May 12, 2009, the creditfacility maturity date was extended an additional 180 days to July 31,2010, and as a result all borrowings under the credit facility at March 28,2009 are classified as long-term debt.

 

NOTE7 - EARNINGS PER SHARE

 

Thenumber of shares used in the computation of basic and diluted earnings pershare are as follows:

 
| ** **                                                                                              | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                              | ** ** | **March 28,**     | ** ** | **March 29,** | ** ** |
| ** **                                                                                              | ** ** | **2009**               | ** ** | **2008** | ** ** |
| Weighted average number of shares outstanding (used in computation of  basic earnings (loss) per share) |       | 14,156,657             |       | 13,979,674 |   |
|                                                                                                    |       |                   |       |   |   |
| Assumed exercise or issuance of shares relating to stock plans                                          |       | —                 |       | 159,858 |   |
|                                                                                                    |       |                   |       |   |   |
| Diluted shares outstanding (used in computation of diluted earnings per  share)                         |       | 14,156,657             |       | 14,139,532 |   |

 

As of March 28, 2009,the assumed exercise or issuance of 179,486 shares relating to stock plans wasnot included in the computation of diluted earnings per share because to do sowould have been antidilutive.

 

Allbasic and diluted shares outstanding have been adjusted to reflect the twopercent (2%) common stock dividend declared on August 11, 2008 and the sixpercent (6%) common stock dividend declared on November 10, 2008.

 

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

NotesTo Consolidated Financial Statements, Continued

 

NOTE8 - STOCK-BASED COMPENSATION

 

Thefollowing table summarizes the activity for the unvested restricted stock unitsand restricted stock for the three months ended March 28, 2009:

 
| ** **                       | ** ** | ** **    | ** ** | **Weighted -** | ** ** |
|----------------------------------|------------|---------------|------------|----------------|------------|
| ** **                       | ** ** | ** **    | ** ** | **Average**    | ** ** |
| ** **                       | ** ** | **Number of** | ** ** | **Grant Date** | ** ** |
| ** **                       | ** ** | **Shares**    | ** ** | **Fair Value** | ** ** |
| Unvested, December 27, 2008 |       | 202,069       |       | $              | 4.81       |   |
| Granted                          |       | —        |       | n/a            |       |
| Vested                           |       | (22,583       | )          | 5.04           |       |
| Unvested, March 28, 2009    |       | 179,486       |       | 4.78           |       |
|                                  |            |               |            |                |            |  |

 

Thetotal fair value of the shares vested during the three months ended March 28,2009 was $113,750.

 

Asummary of the status of the Company’s outstanding stock options as of March 28,2009, and changes during the three months ended March 28, 2009 are asfollows:

 
| ** **                          | ** ** | ** **    | ** ** | **Weighted -** | ** ** |
|-------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                          | ** ** | ** **    | ** ** | **Average**    | ** ** |
| ** **                          | ** ** | **Number of** | ** ** | **Exercise**   | ** ** |
| ** **                          | ** ** | **Shares**    | ** ** | **Price**      | ** ** |
| Outstanding, December 27, 2008 |       | 1,061,975     |       | $              | 5.65       |   |
| Granted                             |       | —        |       | n/a            |       |
| Exercised                           |       | —        |       | n/a            |       |
| Forfeited                           |       | (11,893       | )          | 6.32           |       |
| Outstanding, March 28, 2009    |       | 1,050,082     |       | 5.64           |       |
|                                     |            |               |            |                |            |  |

 

Theexercise price for all options outstanding at March 28, 2009 exceeded thelast closing price of the Company’s Class A Common Stock, resulting in nointrinsic value of options outstanding at March 28, 2009. As of March 28,2009, outstanding options had a weighted-average remaining contractual life of2.80 years.

 

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

 
| **ITEM 2****.** | **MANAGEMENT’S DISCUSSION AND  ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.** |
|-----------------|--------------------------------------------------------------------------------------------------|

 

**Overview**

 

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

 

TheCompany engages principally in the production and sale of customized truckbodies, shuttle buses, and other specialty vehicles. Building on its expertisein providing both cargo and passenger transportation solutions, the Company’sspecialty 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 aproducer of high quality fiberglass and fiberglass-reinforced components.

 

Duringthe first quarter of 2009, Supreme continued to experience the impact of theeconomic recession and the unprecedented tight credit markets, particularly inits core truck business and motorhome operations.  Management began executinga strategy in 2008 to navigate through these conditions and position theCompany to emerge from the current economic environment even stronger.  Given the further decline in operatinglevels, management has continued an execution of this strategy.

 

Firstand foremost, management continues to take costs out of the business,right-sizing operations to fit the current market conditions.  With further contraction in our core productrevenues during the fiscal first quarter of 2009, we implemented additionalannualized cost reductions of $3.3 million during the quarter.  When compared with 2008, the anticipatedannualized cost reductions should total approximately $12.3 million for all of2009, with a large component of the savings resulting from our year-over-year36% headcount reduction.  The Companycontinues to review its cost structure and will reduce the size of operationsas economic conditions warrant.

 

Despitecurrent business conditions, Supreme remains committed to investing for boththe short and long-term to improve our competitiveness.  In 2008, we introduced the Signature Van Bodywhich enables easier and less expensive construction and invested in thedevelopment of an armored Suburban vehicle for the U.S. Department of State (“DOS”)with the contract calling for a potential of $100 million of vehicles to beproduced over a five year period.  Duringthe first quarter of 2009, our armored Suburban sales totaled $3.3 million andwe anticipate consistent demand for the product for the remainder of 2009.

 

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Additionally,Supreme’s healthy bus business has improved its market share in 2009 and helpedto partially offset the 44% decline in the core dry freight truckbusiness.  However, bus revenues were down 26% for the quarter whencompared with the 2008 fiscal first quarter, due in part, in management’sjudgment, to delays in purchases as customers waited for Federal stimulusfunding promoting mass transit.  To meetanticipated increased customer demand, the Company has recently expanded itsbus capacity on both the East and West coasts to better serve these markets.

 

TheCompany and its product offerings are sensitive to various factors whichinclude, but are not limited to, economic conditions, interest ratefluctuations, volatility in the supply chain of vehicle chassis and the lack ofcredit and financing availability to the Company, our vendors, dealers or endusers. Though we can give no assurance of the success of our efforts, theCompany is attempting a variety of strategies to mitigate any chassis supplydisruption from the original equipment manufacturers, particularly GeneralMotors which has publicly discussed the possibility of filing forbankruptcy.  The Company’s business isalso affected by the availability and costs of certain raw materials that serveas significant components of its product offerings.  The Company’s riskfactors are disclosed in Item 1A “Risk Factors” in the Company’s Annual Reporton Form 10-K for the year ended December 27, 2008 and herein in Item1A.

 

Thefollowing discussion should be read in conjunction with the unauditedconsolidated financial statements and related notes thereto elsewhere is thisdocument.

 

**Results of Operations**

 

***Net Sales***

 

Netsales for the three months ended March 28, 2009 decreased $26.6 million to$49.3 million compared to $75.9 million for the three months ended March 29,2008.  The decrease in net sales was primarily related to our truck bodysales, our largest product group, which declined by $21.0 million.  OurStarTrans bus division and motorhome division experienced declines in net salesof $4.8 million and $3.8 million, respectively.  Our vertically-integratedcomposites division correspondingly experienced a decline in net sales of $1.0million for the quarter.  Partiallyoffsetting these decreases was an increase in net sales by our armored divisionof $3.8 million, or 167%, to $6.1 million for the three months ended March 28,2009.

 

Thefollowing table presents the components of net sales and the changes fromperiod-to-period:

 
| ** **                | ** ** | **Three Months Ended** | ** **   |
|---------------------------|------------|------------------------|--------------|
| ** **                | ** ** | **March 28,**     | ** **   | **March 29,** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **($000’s omitted)** | ** ** | **2009**               | ** **   | **2008** | ** ** | **Change** | ** ** |
| Specialized vehicles:     |       |                   |         |   |   |   |   |   |   |
| Trucks                    |       | $                      | 26,444       |   | $ | 47,418 |   | $ | (20,974 | ) | (44.2 | )% |
| Buses                     |       | 14,020                 |         | 18,819 |   | (4,799 | ) | (25.5 | ) |
| Armored vehicles          |       | 6,142                  |         | 2,301 |   | 3,841 |   | 167.0 |   |
| Motorhomes                |       | 651                    |         | 4,421 |   | (3,770 | ) | (85.3 | ) |
|                      |       | 47,257                 |         | 72,959 |   | (25,702 | ) | (35.2 | ) |
| Composites                |       | 2,016                  |         | 2,965 |   | (949 | ) | (32.0 | ) |
|                      |       | $                      |  49,273 |   | $ | 75,924 |   | $ | (26,651 | ) | (35.1 | )% |

 

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Weattribute the decrease in our truck product sales to the economic recessionwhich resulted in an industry-wide decline in the retail truck market.  Asa result of the economic environment, major fleet customers ordered fewer unitsin 2009 resulting in a decrease of 53% for the quarter when compared to 2008which we considered an average order year. The decline in the truck market began in early 2007, and the prevailingexpectation is that this market will begin to stabilize during 2009.

 

Despitethe downturn in revenues for the 2009 first quarter, our StarTrans bus divisioncontinues to experience strong demand for its products resulting from theavailability of funds from the newly signed Federal economic stimulus packageand increased ridership as more individuals conserve energy to live a “green”life style.

 

Thearmored division sales increase was primarily the result of our armoredSuburban contract with the DOS.  We believe that the armored division iswell positioned to increase its revenue year-over-year for the remainder of2009 due to the DOS contract and the positive feedback we are receiving fromother governmental agencies regarding our products and quality.

 

Thedecrease in composite sales of fiberglass reinforced plywood and otherfiberglass products is due to the overall decline in the commercial truck andrecreational vehicle markets.

 

Ourtotal sales backlog was $58.6 million at March 28, 2009 compared to $85.8million at March 29, 2008.

 

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

 

Grossprofit decreased by $4.8 million, or 63.2%, to $2.8 million for the three monthsended March 28, 2009 compared to $7.6 million for the three months ended March 29,2008.  The following table presents the components of cost of sales as apercentage of net sales and the changes from period-to-period:

 
| ** **    | ** ** | **Three Months Ended** | ** ** |
|---------------|------------|------------------------|------------|
| ** **    | ** ** | **March 28,**     | ** ** | **March 29,** | ** ** | **Percent** | ** ** |
| ** **    | ** ** | **2009**               | ** ** | **2008** | ** ** | **Change** | ** ** |
| Material      |       | 58.4                   | %          | 57.3 | % | 1.1 | % |
| Direct labor  |       | 13.9                   |       | 14.0 |   | (0.1 | ) |
| Overhead      |       | 19.8                   |       | 16.1 |   | 3.7 |   |
| Delivery      |       | 2.2                    |       | 2.6 |   | (0.4 | ) |
| Cost of sales |       | 94.3                   |       | 90.0 |   | 4.3 |   |
| Gross profit  |       | 5.7                    | %          | 10.0 | % | (4.3 | )% |

 

**Material** — Materialcost as a percentage of net sales increased for the three months ended March 28,2009 when compared to the corresponding period in 2008. The change in thematerial percentage is primarily related to our product mix. Our change inproduct mix relates to our bus division, which has a higher materialpercentage, and accounted for 28.5% of our total net sales in 2009 compared to24.8% for the same period in 2008.  Thematerial percentage for trucks remained relatively flat from period-to-period.

 

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Raw material costs havebegun to stabilize and decrease for certain commodities, particularly foraluminum, steel, and petroleum-based products. The Company closely monitors all major commodities and is continuallyreviewing the financial viability of its primary vendors.  We also strived to reduce manufacturing coststhrough the use of technology and improved processes.  These ongoingefforts, as well as product diversification and the introduction of ourSignature Van Body, should help us to mitigate the effect of 2009 increases inraw material costs, should they arise.

 

**DirectLabor** — Direct labor as a percentage of net sales decreased slightly for thethree months ended March 28, 2009 when compared to the correspondingperiod in 2008.  The slight decrease in the direct labor percentage wasthe result of efficiencies gained from not hiring temporary labor to produceour fleet run.  Historically, the laborpercentage increases during the first quarter from startup training costs.  However, due to the reduction in fleet ordersfor 2009 and the availability of experienced workers, the labor percentagedecreased quarter-over-quarter.

 

**Overhead** — Overhead asa percentage of net sales increased for the three months ended March 28,2009 when compared to the corresponding period in 2008.  The majority ofthe increase in the overhead percentage was due to the fixed nature of certainexpenses that do not fluctuate when sales volume changes. Additionally, grouphealth insurance expense was higher than anticipated as a result of a few highdollar claims.  In an effort to controlfuture claim costs, the Company continues to implement changes to its grouphealth insurance plan design with a focus on a consumer-driven healthplan. We continue to focus on reducing expenses and managing our overheadcost structure based on our level of sales volume.

 

**Delivery** — Delivery asa percentage of net sales decreased for the three months ended March 28,2009 when compared to the corresponding period in 2008.  The Companycontinues to research and utilize more cost-effective delivery methods toreduce the adverse impact of volatile fuel costs.

 

***Selling, general and administrativeexpenses***

 

Selling,general and administrative (“G&A”) expenses decreased by $1.1 million, or16.5%, to $5.8 million for the three months ended March 28, 2009 comparedto $6.9 million for the three months ended March 29, 2008.  Thefollowing table presents selling and G&A expenses as a percentage of netsales and the changes from period-to-period:

 
| ** **       | ** ** | **Three Months Ended** | ** ** |
|------------------|------------|------------------------|------------|
| ** **       | ** ** | **March 28,**     | ** ** | **March 29,** | ** ** | **Percent** | ** ** |
| ** **       | ** ** | **2009**               | ** ** | **2008** | ** ** | **Change** | ** ** |
| Selling expenses |       | 4.2                    | %          | 3.2 | % | 1.0 | % |
| G&A expenses |       | 7.6                    |       | 6.0 |   | 1.6 |   |
| Total            |       | 11.8                   | %          | 9.2 | % | 2.6 | % |

 

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**Sellingexpenses** — Selling expenses decreased by $0.3 million, or12.5%, to $2.1 million for the three months ended March 28, 2009 from $2.4million for the three months ended March 29, 2008.  Selling expensesdeclined as a result of lower commission expense and selling wages due to lowersales volumes and implemented cost reductions. These declines were partially offset by fewer cooperative marketingcredits the Company received from chassis manufacturers.  These credits, determined solely by programsestablished by the chassis manufacturers, are used to offset marketing andpromotional expenses.

 

**G&Aexpenses** — General and administrative expenses decreased by$0.8 million, or 17.8%, to $3.7 million for the three months ended March 28,2009 from $4.5 million for the three months ended March 29, 2008. This decrease in general and administrative expenses was primarily attributableto headcount and wage reductions which are a large part of our cost savingsinitiatives.

 

***Other income***

 

Forthe three months ended March 28, 2009, other income was $0.3 million (0.6%of net sales) compared to $0.2 million (0.3% of net sales) for the three monthsended March 29, 2008.  Other income consisted of rental income, gainon sale of assets, and other miscellaneous income received by the Companythrough its various business activities.

 

***Interest expense***

 

Interestexpense remained relatively flat at $0.6 million (1.2% and 0.8% of net sales)for the three months ended March 28, 2009 and March 29, 2008,respectively.   Interest expense reflects lower prevailing LIBOR andprime interest rates coupled with reduced debt levels due to lower workingcapital requirements.  This was offset byhigher performance-based pricing required under the Company’s credit facility.

 

***Income taxes***

 

TheCompany’s effective income tax rate was 57.0% for the three months ended March 28,2009, compared to 24.9% for the three months ended March 29, 2008. The estimated effective income tax rate for both periods was favorably impactedby tax benefits associated with the Company’s wholly-owned captive insurancesubsidiary, federal alternative fuel tax credits, and research and developmenttax credits.  The pretax loss for the first quarter of 2009 resulted in atax benefit position for the Company.

 

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*** ***

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

 

Netincome (loss) decreased by $1.6 million to $(1.4) million (-2.8% of net sales)for the three months ended March 28, 2009, from $0.2 million (0.3% of netsales) for the three months ended March 29, 2008.  The followingtable presents basic and diluted earnings (loss) per share and the changes fromperiod-to-period:

 
| ** **                 | ** ** | **Three Months Ended** | ** ** |
|----------------------------|------------|------------------------|------------|
| ** **                 | ** ** | **March 28,**     | ** ** | **March 29,** | ** ** | ** ** | ** ** |
| ** **                 | ** ** | **2009**               | ** ** | **2008** | ** ** | **Change** | ** ** |
| Earnings (loss) per share: |       |                   |       |   |   |   |   |
| Basic                      |       | $                      | (0.10      | ) | $ | 0.02 |   | $ | (0.12 | ) |
| Diluted                    |       | $                      | (0.10      | ) | $ | 0.02 |   | $ | (0.12 | ) |

 

**Liquidity and Capital Resources**

 

TheCompany believes that it has adequate availability in its credit facility tofinance future foreseeable working capital requirements.  The Company’scash management system and revolving line of credit are designed to maintainzero cash balances and, accordingly, checks outstanding in excess of bankbalances are classified as additional borrowings under the revolving line ofcredit.

 

TheCredit Agreement provides for a revolving line of credit facility of up to $30million and increasing to $33 million during the period each year from January 1to June 30.  Interest on outstanding borrowings under the revolvingline of credit is based on the bank’s prime rate, or certain basis points aboveLIBOR, depending on the pricing option selected and the Company’s leverageratio.  All borrowings under the Credit Agreement are secured bysecurity interests covering certain inventories, trade receivables, andselected other assets of the Company.  Asof March 28, 2009, the Company had $25.1 million utilized under its creditfacility.

 

TheCredit Agreement contains, among other matters, certain restrictive covenantsincluding compliance with financial measurements.  During the quarter ended March 28, 2009,the Company violated a covenant and entered into an amendment to the CreditAgreement with its lender to waive the covenant violation and to reset certainexisting covenant measurements to provide temporary relief during therecession.  Effective May 12, 2009,the credit facility maturity date was extended an additional 180 days to July 31,2010, and as a result all borrowings under the credit facility at March 28,2009 are classified as long-term debt.

 

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***Operating activities***

 

Operatingactivities provided $5.8 million of cash for the three months ended March 28,2009 compared to cash used of $4.3 million for the three months ended March 29,2008.  For the first quarter of 2009, operating cash was favorablyimpacted by a $4.7 million reduction in accounts receivable, a $4.6 milliondecrease in inventories, and an increase in accounts payable of $0.4million.  This was offset by a $2.2million decrease in other accrued liabilities and an increase in other currentassets of $1.5 million.  Net income, adjusted for depreciation andamortization, used cash flows from operating activities totaling $0.3 millionand provided $1.3 million during the first quarter of 2009 and 2008,respectively.

 

***Investing activities***

 

Cashused in investing activities was $1.0 million for the three months ended March 28,2009 compared to $2.2 million for the three months ended March 29,2008. Capital expenditures for the first quarter of 2009 were $0.9 millionand consisted primarily of machinery to improve efficiencies at our armoreddivision.  The Company expects to invest in only replacement equipment forthe remainder of 2009.

 

***Financing activities***

 

Financing activities used$4.9 million of cash for the three months ended March 28, 2009 compared tocash provided of $5.3 million for the three months ended March 29,2008.  The lower level of financing activities for the quarter primarilyoccurred as a result of the decrease in accounts receivable and inventorylevels.  Due to the present industryconditions and economic recession, the Board of Directors has decided tosuspend all dividend programs. Future dividends will necessarily be subject tobusiness conditions, the Company’s financial position and requirements forworking capital, property, plant, and equipment expenditures, and othercorporate purposes.

 

**Critical Accounting Policies andEstimates**

 

Management’sdiscussion and analysis of its financial position and results of operations arebased upon the Company’s consolidated financial statements which have beenprepared in accordance with accounting principles generally accepted in theUnited States of America.  Thepreparation of these financial statements requires management to make estimatesand judgments that affect the reported amounts of assets, liabilities, revenuesand expenses and related disclosure of contingent assets and liabilities.  The Company’s significant accounting policiesare discussed in Note 1 of the Notes to Consolidated Financial Statementsincluded in the Annual Report on Form 10-K for the year ended December 27,2008.  In management’s opinion, theCompany’s critical accounting policies include revenue recognition, allowancefor doubtful accounts, excess and obsolete inventories, inventory relief,accrued insurance, and accrued warranty.

 

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***Revenue Recognition*** — The Company generallyrecognizes revenue when products are shipped to the customer.  Revenue oncertain customer requested bill and hold transactions is recognized after thecustomer is notified that the products have been completed according tocustomer specifications, have passed all of the Company’s quality controlinspections, and are ready for delivery based on established delivery terms.

 

***Allowance for Doubtful Accounts*** — The Companymaintains an allowance for doubtful accounts for estimated losses resultingfrom the inability of our customers to make required payments.  If thefinancial conditions of our customers were to deteriorate, resulting in animpairment of their ability to make payments, additional allowances may berequired which would adversely affect our future operating results.

 

***Excess and Obsolete Inventories*** — The Companymust make estimates regarding the future use of raw materials and finishedproducts and provide for obsolete or slow-moving inventories.  If actualproduct life cycles, product demand, and/or market conditions are lessfavorable than those projected by management, additional inventory write-downsmay be required which would adversely affect future operating results.

 

***Inventory Relief*** — For monthlyand quarterly financial reporting, cost of sales is recorded and inventoriesare relieved by the use of standard bills of material adjusted for scrap andother estimated factors affecting inventory relief.  Because of our largeand diverse product line and the customized nature of each order, it isdifficult to place full reliance on the bills of material for accurate reliefof inventories.  Although the Company continues to refine the process ofcreating accurate bills of materials, manual adjustments (which are based onestimates) are necessary in an effort to assure correct relief of inventoriesfor products sold.  The calculations to estimate costs not captured in thebill of materials take into account the customized nature of products,historical inventory relief percentages, scrap variances, and other factorswhich could impact inventory relief.

 

Theaccuracy of the inventory relief is not fully known until physical inventoriesare conducted at each of the Company’s locations. We conduct semi-annualphysical inventories at all locations and schedule them in a manner thatprovides coverage in each of our calendar quarters. We have investedsignificant resources in our continuing effort to improve the physicalinventory process and accuracy of our inventory accounting system.

 

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

 

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TheCompany utilizes a wholly-owned small captive insurance company to insurecertain of its business risks.  Certain risks, traditionally self-insuredby the Company and its subsidiaries, are insured by the captive insurancesubsidiary.  The captive insurance subsidiary helps the Company manage itsrisk exposures and, under the Internal Revenue Code, the net underwritingincome of such a small captive is not taxable.

 

***Accrued Warranty*****— The Company provides limited warranties for periods of up to fiveyears from the date of retail sale.  Estimated warranty costs are accruedat the time of sale and are based upon historical experience.

 

**Forward-LookingStatements**

 

Thisreport contains forward-looking statements, other than historical facts, whichreflect the view of management with respect to future events.  When usedin this report, words such as “believe,” “expect,” “anticipate,” “estimate,” “intend,”and similar expressions, as they relate to the Company or its plans oroperations, identify forward-looking statements.  Such forward-lookingstatements are based on assumptions made by, and information currentlyavailable to, management.  Although management believes that theexpectations reflected in such forward-looking statements are reasonable, itcan give no assurance that the expectations reflected in such forward-lookingstatements are reasonable, and it can give no assurance that such expectationswill prove to be correct.  Important factors that could cause actualresults to differ materially from such expectations include, withoutlimitation, an economic slowdown in the specialized vehicle industry,limitations on the availability of chassis on which the Company’s product isdependent, availability of raw materials, raw material cost increases, andsevere interest rate increases.  Furthermore, the Company can provide noassurance that such raw material cost increases can be passed on to itscustomers through implementation of price increases for the Company’sproducts.  The forward-looking statements contained herein reflect thecurrent view of management with respect to future events and are subject tothose 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.

 

**ITEM 3.**              **QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

 

Therehas been no material change from the information provided in the Company’sAnnual Report on Form 10-K, “Item 7A: Quantitative and QualitativeDisclosures About Market Risk,” for the year ended December 27, 2008.

 

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**ITEM 4.****                 ****CONTROLSAND PROCEDURES.**

 

a.             Evaluation of DisclosureControls and Procedures.

 

Inconnection with the preparation of this Form 10-Q, an evaluation wasperformed under the supervision and with the participation of the Company’smanagement, including the Company’s Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of the Company’sdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended).  Based upon that evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures are effective as of March 28, 2009.

 

b.             Changes in Internal Control over FinancialReporting.

 

Therehas been no change in the Company’s internal control over financial reportingduring our last fiscal quarter that has materially affected, or is reasonablylikely to materially affect, the Company’s internal control over financialreporting.

 

TheCompany continues to take action to assure compliance with the internalcontrols, disclosure controls, and other requirements of the Sarbanes-Oxley Actof 2002.  Management, including the Company’s Chief Executive Officer andChief Financial Officer, cannot guarantee that the internal controls anddisclosure controls will prevent all possible errors or fraud.  A controlsystem, no matter how well conceived and operated, can provide only reasonable,not absolute, assurance that the objectives of a control system have been met.In addition, the design of a control system must reflect the fact that thereare resource constraints, and the benefit of controls must be relative to theircosts.  Because of the inherent limitations in all control systems, nosystem of controls can provide absolute assurance that all control issues andinstances of fraud, if any, within the Company will be detected.  Theseinherent limitations include the realities that judgments in decision-makingcan 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.

 

Thedesign of any system of controls is also based in part upon certain assumptionsabout the likelihood of future events, and there can be no assurance that anydesign will succeed in achieving its stated goals under all potential futureconditions.  Over time, a control may be inadequate because of changes inconditions, or the degree of compliance with the policies or procedures maydeteriorate.  Because of inherent limitations in any cost-effectivecontrol system, misstatements due to error or fraud may occur and not bedetected.

 

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**PART II.****           ****OTHER INFORMATION**

 

**ITEM 1.****             ****LEGAL PROCEEDINGS.**

 

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

 

**ITEM 1A.****          ****RISK FACTORS.**

 

Fora discussion of those “Risk Factors” affecting the Company, you shouldcarefully consider the “Risk Factors” discussed in Part I, under “Item 1A:Risk Factors” contained in our Annual Report on Form 10-K for the yearended December 27, 2008, which is herein incorporated by reference.  We have updated three of the risk factorspreviously disclosed in such Annual Report to reflect the impact of the currentrecession on the Company and its industry, as follows:

 

**The current recession is having a significant negativeimpact on our industry.**

 

The recession and the uncertainty over itsbreadth, depth, and duration have had a negative impact on the specializedcommercial vehicle industry. Accordingly, our financial results have beennegatively impacted by the economic downturn notwithstanding cost-cuttingmeasures taken by the Company in response to such downturn. Both our financial results and potential forgrowth could be further hindered if the recession continues for a significantperiod or becomes worse. The Company may be forced to take additionalcost-cutting measures which may adversely affect the Company’s ability toexecute its business plan.

 

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

 

The recession may have a material adverseeffect on the Company’s liquidity and financial condition if, under its currentbank credit agreement, the Company’s ability to borrow money from its existinglender to finance its operations is reduced or eliminated. Similarly adverseeffects may also result if the Company realizes lessened credit availabilityfrom trade creditors. Additionally,many of our customers require the availability of financing to facilitate thepurchase of our products. As a result, a continuing period of reduced creditavailability in the marketplace could have further adverse effects on theCompany’s business.

 

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**Volatility in the supply of vehicle chassis and othervehicle components resulting from the current recession coul****d****adversely affect our business.**

 

Withthe exception of some StarTrans bus products, Supreme generally does notpurchase vehicle chassis for its inventory. Supreme accepts shipments of vehicle chassis owned by dealers orend-users for the purpose of installing and/or manufacturing its specializedtruck bodies and buses on such chassis. As reported in the press, GeneralMotors Corp. (“GM”) may seek, or be forced into, a bankruptcy proceeding;historically GM has been the Company’s primary supplier of truck chassis, whileFord Motor Company (“Ford”) has been the primary supplier of bus chassis.  There is no way to predict what impact, ifany, this might have on our Company.  Inthe event of a disruption in supply from one major supplier, the Company wouldattempt to use another major supplier. Nevertheless, in the event of abankruptcy proceeding involving GM or Ford there could be unforeseenconsequences that may have a significant adverse effect on the Company’sbusiness operations.

 

TheCompany also faces risk relative to finance and storage charges for maintainingexcess consigned chassis inventory from GM and Ford.  Under these consigned inventory agreements,if a chassis is not delivered to a customer within a specified time frame, theCompany is required to pay finance or storage charges on such chassis.

 

**ITEM 2.****             ****UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**

 

Notapplicable.

 

**ITEM 3.****             ****DEFAULTS UPON SENIOR SECURITIES.**

 

Notapplicable.

 

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

 

Notapplicable.

 

**ITEM 5.****             ****OTHER INFORMATION.**

 

OnMay 12, 2009, Supreme Corporation, the wholly-owned subsidiary of theCompany, entered into an Amendment to the Credit Agreement with its lender,JPMorgan Chase Bank, N.A.  The amendment provides for additionalcovenants regarding the Company’s projected financial statements and amendingthe definitions of “Tangible Net Worth” and “Adjusted EBITDA.”  In addition, a Note Modification Agreementwas entered into by and between these parties to extend the maturity datefrom January 31, 2010 to July 31, 2010.  Copies of the Amendment to the CreditAgreement and Note Modification Agreement are being filed as Exhibit 10.2and Exhibit 10.3, respectively to its report on Form 10-Q andincorporated herein by reference.

 

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**ITEM 6.****             ****EXHIBITS.**

 

Exhibits:

 
| Exhibit 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.                                                                               |
|--------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Exhibit 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. |
| Exhibit 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.   |
| Exhibit 3.4   |   | Amended  and Restated Bylaws of the Company dated May 7, 2008, filed as  Exhibit 3.1 to the Company’s Form 8-K filed with the Securities and  Exchange Commission on May 7, 2008, and incorporated herein by  reference.                                                                        |
| Exhibit 10.1  |   | Amendment  to Credit Agreement, dated March 11, 2009, by and between Supreme  Corporation and JPMorgan Chase Bank, N.A., filed as Exhibit 10.1 to the  Company’s Form 8-K filed with the Securities and Exchange Commission on  March 13, 2009, and incorporated herein by reference.           |
| Exhibit 10.2* |   | Amendment  to Credit Agreement dated May 12, 2009, by and between Supreme  Corporation and JPMorgan Chase Bank, N.A.                                                                                                                                                                                                |
| Exhibit 10.3* |   | Note  Modification Agreement dated May 12, 2009, by and between Supreme  Corporation and JPMorgan Chase Bank, N.A.                                                                                                                                                                                                  |
| Exhibit 31.1* |   | Certification  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                                                                               |
| Exhibit 31.2* |   | Certification  of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                                                                               |
| Exhibit 32.1* |   | Certification  of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                                                                               |
| Exhibit 32.2* |   | Certification  of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                                                                               |

 

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*Filedherewith.

 

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SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 

|   |               | SUPREME  INDUSTRIES, INC.                              |
|--------|--------------------|--------------------------------------------------------|
|   |               |                                                   |
|   |               |                                                   |
|   |               | BY:                                                    | /s/  Herbert M. Gardner |
| DATE:  | May 12,  2009 |                                                   | Herbert  M. Gardner |
|   |               | Chairman  of the Board and Chief Executive Officer     |
|   |               |                                                   |
|   |               |                                                   |
|   |               | BY:                                                    | /s/  Jeffery D. Mowery |
| DATE:  | May 12,  2009 |                                                   | Jeffery  D. Mowery |
|   |               | Vice  President of Finance and Chief Financial Officer |

 

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INDEX TO EXHIBITS

 
| **Exhibit****Number** | ** ** | **Description of Document**                                                                                                                                                                                                                                                                                    |
|-----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |       |                                                                                                                                                                                                                                                                                                                     |
| Exhibit 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.                                                                               |
| Exhibit 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. |
| Exhibit 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.   |
| Exhibit 3.4      |       | Amended  and Restated Bylaws of the Company dated May 7, 2008, filed as  Exhibit 3.1 to the Company’s Form 8-K filed with the Securities and  Exchange Commission on May 7, 2008, and incorporated herein by  reference.                                                                        |
| Exhibit 10.1     |       | Amendment  to Credit Agreement, dated March 11, 2009, by and between Supreme  Corporation and JPMorgan Chase Bank, N.A., filed as Exhibit 10.1 to the  Company’s Form 8-K filed with the Securities and Exchange Commission on  March 13, 2009, and incorporated herein by reference.           |
| Exhibit 10.2*    |       | Amendment  to Credit Agreement dated May 12, 2009, by and between Supreme Corporation  and JPMorgan Chase Bank, N.A.                                                                                                                                                                                                |
| Exhibit 10.3*    |       | Note  Modification Agreement dated May 12, 2009, by and between Supreme  Corporation and JPMorgan Chase Bank, N.A.                                                                                                                                                                                                  |
| Exhibit 31.1*    |       | Certification  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                                                                               |
| Exhibit 31.2*    |       | Certification  of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                                                                               |
| Exhibit 32.1*    |       | Certification  of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                                                                               |
| Exhibit 32.2*    |       | Certification  of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.                                                                                                                                                                                                               |

 

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*Filedherewith.

 

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