Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

**(Mark One)**

** **

| **x**      | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------|---------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                              |
| ** ** | **For the  quarterly period ended June 27, 2009**                                                  |
| ** ** | ** **                                                                                              |
| ** ** | **or**                                                                                                  |
| ** ** | ** **                                                                                              |
| **o**      | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

** **

**For thetransition period from          to         **

** **

**Commission File Number: 1-8183**

 

**SUPREMEINDUSTRIES, INC.**

(Exact name of registrantas 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 telephonenumber, including area code:  **(574) 642-3070**

 

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

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).  Yes  o  No  o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer or asmaller reporting company.  See thedefinitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of 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) |   |                         |

 

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

 

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

 

| **Common Stock ($.10 Par Value)** | ** ** | **Outstanding at August 3, 2009** |
|-------------------------------------------------------|------------|-------------------------------------------------------|
| **Class A**                                      | ** ** | **12,158,823**                                        |
| **Class B**                                      | ** ** | **2,188,490**                                         |

 

 

 

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SUPREMEINDUSTRIES, 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                                                                    | 18                |
|                                           |                                                                                        |              |
| PART II.  OTHER  INFORMATION    |                                                                                        |
|                                           |                                                                                        |
| ITEM 1.                                        | Legal Proceedings                                                                           | 19                |
|                                           |                                                                                        |              |
| ITEM 1A.                                       | Risk Factors                                                                                | 19                |
|                                           |                                                                                        |              |
| ITEM  2.                                       | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 20                |
|                                           |                                                                                        |              |
| ITEM  3.                                       | Defaults Upon  Senior Securities                                                            | 20                |
|                                           |                                                                                        |              |
| 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

 
| ** **                                      | ** ** | **June 27,** | ** **  | **December 27,** | ** ** |
|-------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                      | ** ** | **2009**          | ** **  | **2008**              | ** ** |
| ** **                                      | ** ** | **(Unaudited)**   | ** **  | ** **            | ** ** |
| **ASSETS**                                      |       |              |        |                  |       |
|                                            |       |              |        |                  |       |
| **Current assets:**                             |       |              |        |                  |       |
| Cash and cash equivalents                       |       | $                 | 61,416      |                  | $          | 932,608 |   |
| Investments                                     |       | 2,333,496         |        | 2,509,848             |       |
| Accounts receivable, net                        |       | 20,622,395        |        | 25,423,842            |       |
| Inventories                                     |       | 36,067,546        |        | 44,248,516            |       |
| Other current assets                            |       | 6,961,407         |        | 6,335,740             |       |
|                                            |       |              |        |                  |       |
| **Total current assets**                        |       | 66,046,260        |        | 79,450,554            |       |
|                                            |       |              |        |                  |       |
| **Property, plant and equipment, at cost**      |       | 89,705,785        |        | 94,128,405            |       |
| Less, Accumulated depreciation and amortization |       | 45,837,343        |        | 48,349,497            |       |
|                                            |       |              |        |                  |       |
| **Property, plant and equipment, net**          |       | 43,868,442        |        | 45,778,908            |       |
|                                            |       |              |        |                  |       |
| **Other assets**                                |       | 1,185,730         |        | 295,109               |       |
|                                            |       |              |        |                  |       |
| **Total assets**                                |       | $                 | 111,100,432 |                  | $          | 125,524,571 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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**Supreme Industries, Inc. and Subsidiaries**

ConsolidatedBalance Sheets, Concluded

 
| ** **                                          | ** ** | **June 27,** | ** **  | **December 27,** | ** ** |
|-----------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                          | ** ** | **2009**          | ** **  | **2008**              | ** ** |
| ** **                                          | ** ** | **(Unaudited)**   | ** **  | ** **            | ** ** |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**       |       |              |        |                  |       |
|                                                |       |              |        |                  |       |
| **Current liabilities:**                            |       |              |        |                  |       |
| Current maturities of long-term debt                |       | $                 | 877,335     |                  | $          | 823,297 |   |
| Trade accounts payable                              |       | 11,895,764        |        | 8,266,945             |       |
| Accrued income taxes                                |       | 582,575           |        | 675,200               |       |
| Other accrued liabilities                           |       | 7,155,920         |        | 9,349,112             |       |
|                                                |       |              |        |                  |       |
| **Total current liabilities**                       |       | 20,511,594        |        | 19,114,554            |       |
|                                                |       |              |        |                  |       |
| **Long-term debt**                                  |       | 19,173,369        |        | 32,805,350            |       |
|                                                |       |              |        |                  |       |
| **Deferred income taxes**                           |       | 2,403,698         |        | 2,403,698             |       |
| ** **                                          |       |              |        |                  |       |
| **Other long-term liabilities**                     |       | 671,689           |        | 818,053               |       |
| ** **                                          |       |              |        |                  |       |
| **Total liabilities**                               |       | 42,760,350        |        | 55,141,655            |       |
|                                                |       |              |        |                  |       |
| **Stockholders’ equity**                       |       | 68,340,082        |        | 70,382,916            |       |
|                                                |       |              |        |                  |       |
| **Total liabilities and stockholders’ equity** |       | $                 | 111,100,432 |                  | $          | 125,524,571 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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**Supreme Industries, Inc. and Subsidiaries**

Consolidated Statements of Operations (Unaudited)

 
| ** **                                                        | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                        | ** ** | **June 27,**      | ** ** | **June 28,**    | ** ** | **June 27,** | ** ** | **June 28,** | ** ** |
| ** **                                                        | ** ** | **2009**               | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                        | ** ** | ** **             | ** ** | ** **           |       |   |   |   |   |
| Net sales                                                         |       | $                      | 49,604,631 |                 | $          | 75,307,068 |   | $ | 98,877,171 |   | $ | 151,231,424 |   |
| Cost of sales                                                     |       | 45,968,727             |       | 67,907,997           |       | 92,436,903 |   | 136,241,215 |   |
| **Gross profit**                                                  |       | 3,635,904              |       | 7,399,071            |       | 6,440,268 |   | 14,990,209 |   |
| ** **                                                        | ** ** | ** **             | ** ** | ** **           |       |   |   |   |   |
| Selling, general and administrative expenses                      |       | 5,382,053              |       | 7,041,110            |       | 11,182,553 |   | 13,989,722 |   |
| Other income                                                      |       | (378,274               | )          | (264,563             | )          | (678,026 | ) | (509,511 | ) |
| **Operating income (loss)**                                       |       | (1,367,875             | )          | 622,524              |       | (4,064,259 | ) | 1,509,998 |   |
|                                                              |       |                   |       |                 |       |   |   |   |   |
| Interest expense                                                  |       | 600,171                |       | 530,945              |       | 1,156,764 |   | 1,116,905 |   |
| **Income (loss) before income taxes**                             |       | (1,968,046             | )          | 91,579               |       | (5,221,023 | ) | 393,093 |   |
|                                                              |       |                   |       |                 |       |   |   |   |   |
| Income tax (benefit)                                              |       | (861,000               | )          | (125,000             | )          | (2,716,000 | ) | (50,000 | ) |
| **Net income (loss)**                                             |       | $                      | (1,107,046 | )                    | $          | 216,579 |   | $ | (2,505,023 | ) | $ | 443,093 |   |
| ** **                                                        | ** ** | ** **             | ** ** | ** **           |       |   |   |   |   |
| **Earnings (Loss) Per Share:**                                    | ** ** | ** **             | ** ** | ** **           |       |   |   |   |   |
| Basic                                                             |       | $                      | (0.08      | )                    | $          | 0.02 |   | $ | (0.18 | ) | $ | 0.03 |   |
| Diluted                                                           |       | (0.08                  | )          | 0.02                 |       | (0.18 | ) | 0.03 |   |
|                                                              |       |                   |       |                 |       |   |   |   |   |
| **Shares used in the computation of earnings (loss)  per share:** | ** ** | ** **             | ** ** | ** **           |       |   |   |   |   |
| Basic                                                             |       | 14,185,065             |       | 14,080,423           |       | 14,165,215 |   | 14,028,428 |   |
| Diluted                                                           |       | 14,185,065             |       | 14,260,473           |       | 14,165,215 |   | 14,173,133 |   |
|                                                              |       |                   |       |                 |       |   |   |   |   |
| **Cash dividends per common share**                               |       | $                      | —     |                 | $          | 0.088 |   | $ | — |   | $ | 0.176 |   |

 

See accompanying notes to consolidated financial statements.

 

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**Supreme Industries, Inc. and Subsidiaries**

Consolidated Statements of Cash Flows (Unaudited)

 
| ** **                                                                                | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                | ** ** | **June 27,**    | ** ** | **June 28,** | ** ** |
| ** **                                                                                | ** ** | **2009**             | ** ** | **2008** | ** ** |
| **Cash flows from operating activities:**                                                 |       |                 |       |   |   |
| Net income (loss)                                                                         |       | $                    | (2,505,023 | ) | $ | 443,093 |   |
| Adjustments to reconcile net income (loss) to net cash provided by  operating activities: |       |                 |       |   |   |
| Depreciation and amortization                                                             |       | 2,116,500            |       | 2,131,425 |   |
| Amortization of intangibles                                                               |       | —               |       | 24,185 |   |
| Provision for losses on doubtful receivables                                              |       | 43,035               |       | 63,288 |   |
| Stock-based compensation expense                                                          |       | 331,631              |       | 291,552 |   |
| Losses (gains) on sale of property, plant and equipment, net                              |       | (231,150             | )          | 2,233 |   |
| Changes in operating assets and liabilities                                               |       | 13,672,266           |       | 510,402 |   |
|                                                                                      |       |                 |       |   |   |
| **Net cash provided by operating activities**                                             |       | 13,427,259           |       | 3,466,178 |   |
|                                                                                      |       |                 |       |   |   |
| **Cash flows from investing activities:**                                                 |       |                 |       |   |   |
| Additions to property, plant and equipment                                                |       | (1,349,694           | )          | (2,016,157 | ) |
| Proceeds from sale of property, plant and equipment                                       |       | 479,816              |       | 58,402 |   |
| Purchases of investments                                                                  |       | (28,833              | )          | (1,174,858 | ) |
| Proceeds from sales of investments                                                        |       | 173,830              |       | 832,670 |   |
| Decrease in other assets                                                                  |       | 4,373                |       | 4,373 |   |
|                                                                                      |       |                 |       |   |   |
| **Net cash used in investing activities**                                                 |       | (720,508             | )          | (2,295,570 | ) |
|                                                                                      |       |                 |       |   |   |
| **Cash flows from financing activities:**                                                 |       |                 |       |   |   |
| Proceeds from revolving line of credit and other long-term debt                           |       | 35,135,643           |       | 61,423,636 |   |
| Repayments of revolving line of credit and other long-term debt                           |       | (48,713,586          | )          | (61,606,292 | ) |
| Payment of cash dividends                                                                 |       | —               |       | (2,490,943 | ) |
| Proceeds from exercise of stock options                                                   |       | —               |       | 247,500 |   |
|                                                                                      |       |                 |       |   |   |
| **Net cash used in financing activities**                                                 |       | (13,577,943          | )          | (2,426,099 | ) |
|                                                                                      |       |                 |       |   |   |
| **Change in cash and cash equivalents**                                                   |       | (871,192             | )          | (1,255,491 | ) |
|                                                                                      |       |                 |       |   |   |
| **Cash and cash equivalents, beginning of period**                                        |       | 932,608              |       | 1,266,133 |   |
|                                                                                      |       |                 |       |   |   |
| **Cash and cash equivalents, end of period**                                              |       | $                    | 61,416     |   | $ | 10,642 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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**SUPREMEINDUSTRIES, INC. AND SUBSIDIARIES**

NotesTo Consolidated Financial Statements

 

NOTE 1 - BASIS OFPRESENTATION AND OPINION OF MANAGEMENT

 

The accompanying unaudited consolidatedfinancial statements have been prepared in accordance with the instructions to Form 10-Qand therefore do not include all of the information and financial statementdisclosures necessary for a fair presentation of consolidated financialposition, results of operations, and cash flows in conformity with accountingprinciples generally accepted in the United States of America.  In the opinion of management, the informationfurnished herein includes all adjustments necessary to reflect a fair statementof the interim periods reported.  Alladjustments are of a normal and recurring nature.  The December 27, 2008 consolidatedbalance sheet data was derived from audited financial statements, but does notinclude all disclosures required by accounting principles generally accepted inthe United States of America.  Referencesto “we,” “us,” “our,” “its,” “Supreme,” or the “Company” refer to SupremeIndustries, Inc. and its subsidiaries.

 

The Company has adopted a 52- or 53-weekfiscal year ending the last Saturday in December.  The results of operations for the three andsix months ended June 27, 2009 and June 28, 2008 are for 13- and26-week periods, respectively.

 

NOTE 2 — RECENT ACCOUNTINGPRONOUNCEMENTS

 

In June 2009, the FASB issued SFAS No. 168, “The FASBAccounting Standards CodificationTM and theHierarchy of Generally Accepted Accounting Principles - a replacement of FASBStatement No. 162.”  SFAS No. 168modifies the hierarchy of Generally Accepted Accounting Principles in theUnited States (“GAAP”) to include only two levels of GAAP: authoritative andnonauthoritative.  All of the contentincluded in the FASB Accounting Standards CodificationTM (the “Codification”) will be consideredauthoritative.  SFAS No. 168 is notintended to amend GAAP but codifies previous accounting literature.  SFAS No. 168 is effective for our thirdquarter 2009 consolidated financial statements and will change the referencingof authoritative accounting literature to conform to the Codification.

 

In May 2009, the FASB issued SFAS No. 165, “SubsequentEvents.”  The objective of SFAS No. 165is to establish general standards of accounting for and disclosure of eventsthat occur after the balance sheet date but before financial statements areissued or are available to be issued. SFAS No. 165 discusses two types of subsequent events: (1) eventsthat provide additional evidence about conditions that existed at the date ofthe balance sheet, and is recognized in the financial statements and (2) eventsthat provide evidence about conditions that did not exist at the date of thebalance sheet but arose after the balance sheet date but before financialstatements are issued or are available to be issued, and not recognized at thebalance sheet date.  An entity shall alsodisclose the date through which subsequent events have been evaluated, as wellas whether that date is the date the financial statements were issued or the datethe financial statements were available to be issued.  The requirements of SFAS No. 165 are effectivefor interim and annual financial periods ending after June 15, 2009.  The requirements do not have a materialimpact on the Company’s consolidated financial statements.  The Company evaluated its June 27, 2009consolidated financial statements for subsequent events through August 11,2009, the date the consolidated financial statements were issued.

 

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**SUPREMEINDUSTRIES, INC. AND SUBSIDIARIES**

Notes To Consolidated Financial Statements,Continued

 

In April 2009, the FASB issued FASB Staff Position 107-1 and APB28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS107-1 and APB 28-2”), to require fair value disclosures of financialinstruments for interim reporting periods for publicly traded companies as wellas in annual financial statements.  ThisFSP also amends APB Opinion No. 28-1, “Interim Financial Reporting,” torequire those disclosures in summarized financial information at interimreporting periods and is effective for interim reporting periods ending after June 15,2009, with early adoption permitted for periods ending after March 15,2009.  The provisions of FSP FAS 107-1and APB 28-1 did not have a material impact on the Company’s consolidatedfinancial statements.

 

NOTE 3 — OTHER COMPREHENSIVEINCOME (LOSS)

 

Other comprehensive income (loss) includesunrealized losses on hedge-activity, net of tax, and unrealized gains (losses)on available-for-sale securities, net of tax. Total comprehensive income (loss) combines net income (loss) and othercomprehensive income (loss).

 

For the three- and six-month periods ended June 27,2009 and June 28, 2008, total and other comprehensive income (loss) are asfollows:

 
| ** **                         | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                         | ** ** | **June 27,**      | ** ** | **June 28,**    | ** ** | **June 27,** | ** ** | **June 28,** | ** ** |
| ** **                         | ** ** | **2009**               | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net income  (loss)                 |       | $                      | (1,107,046 | )                    | $          | 216,579 |   | $ | (2,505,023 | ) | $ | 443,093 |   |
| Other  comprehensive income (loss) |       | 62,636                 |       | 217,227              |       | 130,558 |   | (117,200 | ) |
| Total  comprehensive income (loss) |       | $                      | (1,044,410 | )                    | $          | 433,806 |   | $ | (2,374,465 | ) | $ | 325,893 |   |

 

NOTE 4 - INVENTORIES

 

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

 

| ** **       | ** ** | **June 27,** | ** ** | **December 27,** | ** ** |
|------------------|------------|-------------------|------------|-----------------------|------------|
| ** **       | ** ** | **2009**          | ** ** | **2008**              | ** ** |
| Raw materials    |       | $                 | 20,553,167 |                  | $          | 24,596,110 |   |
| Work-in-progress |       | 6,982,047         |       | 8,204,857             |       |
| Finished goods   |       | 8,532,332         |       | 11,447,549            |       |
|             |       | $                 | 36,067,546 |                  | $          | 44,248,516 |   |

 

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**SUPREMEINDUSTRIES, INC. AND SUBSIDIARIES**

Notes To Consolidated Financial Statements,Continued

 

NOTE 5 — FAIR VALUEMEASUREMENT

 

SFAS No. 157, “Fair Value Measurements,”defines fair value as the exchange price that would be received for an asset orpaid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset or liability in an orderly transactionbetween market participants on the measurement date.  SFAS No. 157also establishes a fair value hierarchy which requires an entity to maximizethe use of observable inputs and minimize the use of unobservable inputs whenmeasuring fair value.  The standard describes three levels of inputs thatmay be used to measure fair value:

 

Level 1: Quoted prices(unadjusted) for identical assets or liabilities in active markets that theentity has the ability to access as of the measurement date.

 

Level 2: Significant otherobservable inputs other than Level 1 prices such as quoted prices for similarassets or liabilities; quoted prices in markets that are not active; or otherinputs that are observable or can be corroborated by observable market data.

 

Level 3: Significantunobservable inputs that reflect a company’s own assumptions about theassumptions that market participants would use in pricing an asset orliability.

 

The Company used the following methods andsignificant assumptions to estimate the fair value of items:

 

Investments: The fair valuesof investments available for sale are determined by obtaining quoted prices onnationally recognized securities exchanges (Level 1 inputs).

 

Derivatives: Our derivativeinstruments consist of interest rate swaps, currently reflected as othertong-term liabilities on the Consolidated Balance Sheets.  The Company obtains fair values fromfinancial institutions who utilize internal models with observable market datainputs to estimate the fair value of these instruments (Level 2 inputs).

 

NOTE 6 — LONG-TERM DEBT

 

Supreme Corporation, the Company’swholly-owned subsidiary, amended its existing credit facility effective May 12,2009.  The terms of the credit facilityare substantially the same as the previous credit facility disclosed in theAnnual Report on Form 10-K for the year ended December 27, 2008.  The Credit Agreement contains, among othermatters, requirements for compliance with certain financial covenants. During the quarter ended June 27, 2009, Supreme Corporation was not incompliance with the earnings-related covenant. However, the Company obtained a waiver from its lender and is in theprocess of resetting certain existing covenant measurements to provide temporaryrelief during the ongoing recession.  Effective May 12, 2009, the creditfacility maturity date was extended to July 31, 2010, and as a result allborrowings under the credit facility at June 27, 2009 are classified aslong-term debt.

 

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**SUPREMEINDUSTRIES, INC. AND SUBSIDIARIES**

Notes To Consolidated Financial Statements,Continued

 

NOTE 7 - EARNINGS (LOSS) PERSHARE

 

The number of shares used in the computationof basic and diluted earnings (loss) per share are as follows:

 
| ** **                                                                                               | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                                                               | ** ** | **June 27,**      | ** ** | **June 28,**    | ** ** | **June 27,** | ** ** | **June 28,** | ** ** |
| ** **                                                                                               | ** ** | **2009**               | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
| Weighted average  number of shares outstanding (used in computation of basic earnings (loss)  per share) |       | 14,185,065             |       | 14,080,423           |       | 14,165,215 |   | 14,028,428 |   |
|                                                                                                     |       |                   |       |                 |       |   |   |   |   |
| Assumed exercise  or issuance of shares relating to stock plans                                          |       | —                 |       | 180,050              |       | — |   | 144,705 |   |
|                                                                                                     |       |                   |       |                 |       |   |   |   |   |
| Diluted shares  outstanding (used in computation of diluted earnings (loss) per share)                   |       | 14,185,065             |       | 14,260,473           |       | 14,165,215 |   | 14,173,133 |   |

 

As of June 27, 2009, the assumed exercise or issuance of 164,238shares and 180,928 shares for the three- and six-month periods, respectively,relating to stock plans were not included in the computation of dilutedearnings (loss) per share because to do so would have been antidilutive.

 

All basic and diluted sharesoutstanding have been adjusted to reflect the two percent (2%) common stockdividend declared on August 11, 2008 and the six percent (6%) common stockdividend declared on November 10, 2008.

 

NOTE 8 - STOCK-BASEDCOMPENSATION

 

The following tablesummarizes the activity for the unvested restricted stock units and restrictedstock for the six months ended June 27, 2009:

 

| ** **                       | ** ** | ** **    | ** ** | **Weighted -** | ** ** |
|----------------------------------|------------|---------------|------------|----------------|------------|
| ** **                       | ** ** | ** **    | ** ** | **Average**    | ** ** |
| ** **                       | ** ** | **Number of** | ** ** | **Grant Date** | ** ** |
| ** **                       | ** ** | **Shares**    | ** ** | **Fair Value** | ** ** |
| Unvested, December 27, 2008 |       | 202,069       |       | $              | 4.81       |   |
| Granted                          |       | —        |       | n/a            |       |
| Vested                           |       | (45,167       | )          | 5.04           |       |
| Unvested, June 27, 2009     |       | 156,902       |       | 4.74           |       |
|                                  |            |               |            |                |            |  |

 

The total fair value of theshares vested during the six months ended June 27, 2009 was $227,499.

 

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**SUPREMEINDUSTRIES, INC. AND SUBSIDIARIES**

Notes To Consolidated Financial Statements,Concluded

 

A summary of the status of the Company’soutstanding stock options as of June 27, 2009, and changes during the sixmonths ended June 27, 2009, are as follows:

 

| ** **                          | ** ** | ** **    | ** ** | **Weighted -** | ** ** |
|-------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                          | ** ** | ** **    | ** ** | **Average**    | ** ** |
| ** **                          | ** ** | **Number of** | ** ** | **Exercise**   | ** ** |
| ** **                          | ** ** | **Shares**    | ** ** | **Price**      | ** ** |
| Outstanding, December 27, 2008 |       | 1,061,975     |       | $              | 5.65       |   |
| Granted                             |       | 196,000       |       | 1.56           |       |
| Exercised                           |       | —        |       | n/a            |       |
| Forfeited                           |       | (11,893       | )          | 6.32           |       |
| Outstanding, June 27, 2009     |       | 1,246,082     |       | 5.00           |       |
|                                     |            |               |            |                |            |  |

 

As of June 27, 2009, outstanding optionshad an intrinsic value of $450 and a weighted-average remaining contractuallife of 3.96 years.

 

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**SUPREMEINDUSTRIES, INC. AND SUBSIDIARIES**

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

 

**Overview**

 

Established in 1974 as a truck body manufacturer, Supreme Industries, Inc.,through its wholly-owned subsidiary Supreme Corporation, is one of the nation’sleading manufacturers of specialized commercial vehicles. Utilizing anationwide direct sales and distribution network, as well as manufacturing andservice facilities in 10 states across the continental United States, Supremeis able to meet the needs of customers across all of North America.

 

The Company engages principally in the production and sale ofcustomized truck bodies, shuttle buses, and other specialty vehicles. Buildingon its expertise in providing both cargo and passenger transportation solutions,the Company’s specialty offerings include products such as customized armoredvehicles, homeland response vehicles, portable storage units, and luxury motorcoaches. Through vertical integration and proprietary processes, the Companyalso is a producer of high quality fiberglass and fiberglass-reinforcedcomponents.

 

The Company and its product offerings are sensitive to various factorswhich include, but are not limited to, economic conditions, interest ratefluctuations, volatility in the supply chain of vehicle chassis and theavailability, or lack thereof, of credit and financing to the Company, ourvendors, dealers, or end users. Though we can give no assurance of the successof our efforts, the Company is attempting a variety of strategies to mitigateany chassis supply disruption from the original equipment manufacturers,particularly General Motors which recently emerged from bankruptcy.  TheCompany’s business is also affected by the availability and costs of certainraw materials that serve as significant components of its productofferings.  The Company’s risk factors are disclosed in Item 1A “RiskFactors” in the Company’s Annual Report on Form 10-K for the year ended December 27,2008 and herein in Item 1A.

 

The following discussion should be read in conjunction with theunaudited consolidated financial statements and related notes thereto elsewherein this document.

 

**Results of Operations**

 

Supreme continued to experience the impact of the economic recessionparticularly in its core truck business and motorhome operations. Management began executing a strategy in 2008 to navigate through theseconditions and position the Company to emerge from the current economicenvironment even stronger.  Throughout 2009, management has remained focusedon executing this strategy.

 

During the second quarter of 2009, management continued to reduce costsin an attempt to right-size our operations to match the current marketconditions.  Despite the continued recession in the commercial vehiclemarket, we reduced our operating loss by nearly 50% for the second quarter of2009, when compared to the first quarter of 2009, on relatively comparablesales quarter-over-quarter.  A largecomponent of our cost reduction initiatives resulted from a 29%

 

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headcount reduction year-over-year. The Company continues to review its cost structure and will adjust thescale of operations as economic conditions warrant.

 

Supreme’s bus and armored business has helped to partially offset thedecline in the core dry freight truck business. To meet anticipated increased customer demand for our bus segment, theCompany has recently expanded its bus capacity on both the East and West coaststo better serve these markets.  Salesorder backlog for both the bus and armored divisions remains strong and weanticipate positive demand for these product lines for the remainder of theyear.

 

Additionally, the Company’s focus on our asset management strategycontinues as evidenced by our debt-to-equity ratio which improved byapproximately 40% since the beginning of the year, along with an overalllong-term debt level decrease of $13.6 million, or 42%.

 

***Net Sales***

 

Net sales for the three months ended June 27, 2009 decreased $25.7million to $49.6 million compared to $75.3 million for the three months ended June 28,2008.  Net sales for the six months endedJune 27, 2009 decreased $52.3 million to $98.9 million compared to $151.2million for the six months ended June 28, 2008.  The decrease in netsales for the three and six months was primarily related to our truck bodysales, our largest product group, which declined by $23.9 million and $44.9million, respectively.  Our StarTrans bus division and our motorhomedivision experienced declines in net sales of $2.6 million and $1.0 million,respectively, for the three months ended June 27, 2009.  For the sixmonths ended June 27, 2009, our StarTrans bus division and our motorhomedivision experienced declines in net sales of $7.4 million and $4.8 million,respectively, when compared to the prior periods.  Our vertically-integrated composites divisionexperienced declines in net sales of $1.5 million and $2.5 million for thethree and six months ended June 27, 2009, respectively.  Partiallyoffsetting these decreases was an increase in net sales by our armored divisionof $3.4 million and $7.2 million, respectively, for the three and six months.

 

The following table presents the components of net sales and thechanges from period-to-period:

 
| ** **                | ** ** | **Three Months Ended**  | ** ** | **Six Months Ended**    | ** ** |
|---------------------------|------------|-------------------------|------------|-------------------------|------------|
| **($000’s omitted)** | ** ** | **June 27,  2009** | ** ** | **June 28,  2008** | ** ** | **Change** | ** ** | **June 27,  2009** | ** ** | **June 28,  2008** | ** ** | **Change** | ** ** |
| Specialized vehicles:     |       |                    |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Trucks                    |       | $                       | 25,095     |                    | $          | 48,983 |   | $ | (23,888 | ) | -48.8 | % | $ | 51,539 |   | $ | 96,401 |   | $ | (44,862 | ) | -46.5 | % |
| Buses                     |       | 16,656                  |       | 19,304                  |       | (2,648 | ) | -13.7 | % | 30,675 |   | 38,123 |   | (7,448 | ) | -19.5 | % |
| Armored vehicles          |       | 4,348                   |       | 965                     |       | 3,383 |   | 350.6 | % | 10,491 |   | 3,266 |   | 7,225 |   | 221.2 | % |
| Motorhomes                |       | 2,135                   |       | 3,164                   |       | (1,029 | ) | -32.5 | % | 2,786 |   | 7,585 |   | (4,799 | ) | -63.3 | % |
|                      |       | 48,234                  |       | 72,416                  |       | (24,182 | ) | -33.4 | % | 95,491 |   | 145,375 |   | (49,884 | ) | -34.3 | % |
| Composites                |       | 1,371                   |       | 2,891                   |       | (1,520 | ) | -52.6 | % | 3,386 |   | 5,856 |   | (2,470 | ) | -42.2 | % |
|                      |       | $                       | 49,605     |                    | $          | 75,307 |   | $ | (25,702 | ) | -34.1 | % | $ | 98,877 |   | $ | 151,231 |   | $ | (52,354 | ) | -34.6 | % |

 

We attribute the decrease in our truck product sales to the economicrecession which resulted in an industry-wide decline in the retail truckmarket.  As a result of these market conditions, our retail and majorfleet customers ordered fewer units resulting in a revenue decrease of 49% forthe quarter and 47% for the six months when compared to 2008.  The declinein the truck market began in early 2007, and the current prevailing industryexpectation is that this market may begin to stabilize at the earliest duringlate 2009, though we can give no assurances this will occur.

 

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Our StarTrans bus division continues to experience strong demand forits products resulting from the availability of funds from the recent Federaleconomic stimulus package and increased use of less expensive publictransportation.  With our recently expandedcapacity and our strong backlog for this segment, we anticipate favorablecontributions for the remainder of 2009 and into 2010.

 

The armored division sales increase was primarily the result of ourpreviously announced armored Suburban contract with the Department of State(DOS).  We believe that the armored division is well positioned toincrease its revenue year-over-year for the remainder of 2009 due to the DOScontract and the positive feedback we are receiving from other governmentalagencies regarding our products and quality.

 

The decrease in composite sales of fiberglass reinforced plywood andother fiberglass products is due to the overall decline in the commercial truckand recreational vehicle markets.

 

Our total sales backlog was $61.2 million at June 27, 2009compared to $73.6 million at June 28, 2008.

 

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

 

Gross profit decreased by $3.8 million, or 51.4%, to $3.6 million forthe three months ended June 27, 2009 compared to $7.4 million for thethree months ended June 28, 2008.  For the six months ended June 27,2009, gross profit decreased by $8.6 million, or 57.3%, to $6.4 millioncompared to $15.0 million for the six months ended June 28, 2008.  The following table presents the componentsof cost of sales as a percentage of net sales and the changes fromperiod-to-period:

 
| ** **    | ** ** | **Three  Months Ended** | ** ** | **Six  Months Ended**   | ** ** |
|---------------|------------|-------------------------|------------|-------------------------|------------|
| ** **    | ** ** | **June 27,  2009** | ** ** | **June 28,  2008** | ** ** | **Percent********Change** | ** ** | **June 27,  2009** | ** ** | **June 28,  2008** | ** ** | **Percent********Change** | ** ** |
| Material      |       | 59.9                    | %          | 57.7                    | %          | 2.2 | % | 59.1 | % | 57.5 | % | 1.6 | % |
| Direct Labor  |       | 13.6                    |       | 14.0                    |       | (0.4 | ) | 13.8 |   | 14.0 |   | (0.2 | ) |
| Overhead      |       | 17.0                    |       | 15.5                    |       | 1.5 |   | 18.4 |   | 15.8 |   | 2.6 |   |
| Delivery      |       | 2.2                     |       | 3.0                     |       | (0.8 | ) | 2.2 |   | 2.8 |   | (0.6 | ) |
| Cost of sales |       | 92.7                    |       | 90.2                    |       | 2.5 |   | 93.5 |   | 90.1 |   | 3.4 |   |
| Gross profit  |       | 7.3                     | %          | 9.8                     | %          | (2.5 | )% | 6.5 | % | 9.9 | % | (3.4 | )% |

 

**Material** — Materialcost as a percentage of net sales increased for the three and six months ended June 27,2009 when compared to the corresponding periods in 2008. The change in thematerial percentage is primarily related to changes in our product mix as aresult of increased sales in our bus division, which has a higher materialpercentage, and accounted for 33.6% and 31.0% of our total net sales for thethree and six months in 2009 compared to 25.6% and 25.2% for the same periodsin 2008, respectively.  The material percentage for trucks remained relativelyconsistent from period-to-period.

 

Raw material costs haverecently stabilized and have even begun to decrease for certain commodities,particularly for aluminum, steel, and petroleum-based products.  TheCompany closely monitors all major commodities and is continually reviewing thefinancial viability of its primary vendors.  We also strive to reducemanufacturing costs 

 

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through the use of improvedtechnologies, processes, and supply chain management tactics and strategies.

 

**DirectLabor** — Direct labor as a percentage of net sales decreased slightly for thethree and six months ended June 27, 2009 when compared to thecorresponding periods in 2008.  The slight decrease in the direct laborpercentage was the result of efficiencies gained from using internal laborversus temporary labor as we have typically done to produce large fleetorders.  Historically, the labor percentage increases from startuptraining costs.  However, due to the reduction in fleet and retail ordersfor 2009 and the availability of experienced workers, the labor percentagedecreased for both periods.

 

**Overhead** — Overhead asa percentage of net sales increased for the three and six months ended June 27,2009 when compared to the corresponding periods 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 for both periods as aresult of a few high dollar claims.  In an effort to control future claimcosts, the Company continues to implement changes to its employee healthinsurance plan design with a focus on preventive care.  We continue to focus on reducing expenses andmanaging our overhead cost structure based on sales volume levels.

 

**Delivery** — Delivery asa percentage of net sales decreased for the three and six months ended June 27,2009 when compared to the corresponding period in 2008.  The Companycontinues to research and utilize more cost-effective delivery methods toreduce the adverse impact of high fuel costs.

 

***Selling, general and administrativeexpenses***

 

Selling, general and administrative (“G&A”) expenses decreased by$1.6 million, or 22.9%, to $5.4 million for the three months ended June 27,2009 compared to $7.0 million for the three months ended June 28,2008.  For the six months ended June 27, 2009, selling, general andadministrative expenses decreased by $2.8 million, or 20.0%, to $11.2 millioncompared to $14.0 million for the six months ended June 28, 2008.  The following table presents selling andG&A expenses as a percentage of net sales and the changes fromperiod-to-period:

 
| ** **                 | ** ** | **Three  Months Ended** | ** ** | **Six  Months Ended**   | ** ** |
|----------------------------|------------|-------------------------|------------|-------------------------|------------|
| **($000’s  omitted)** | ** ** | **June 27,  2009** | ** ** | **June 28,  2008** | ** ** | **Change** | ** ** | **June 27,  2009** | ** ** | **June 28,  2008** | ** ** | **Change** | ** ** |
| Selling expenses           |       | $                       | 1,859      |                    | 3.7        | % | $ | 2,768 |   | 3.7 | % | $ | (909 | ) | — | % | $ | 3,930 |   | 4.0 | % | $ | 5,188 |   | 3.4 | % | $ | (1,258 | ) | 0.6 | % |
| G&A expenses           |       | 3,523                   |       | 7.1                     |       | 4,273 |   | 5.6 |   | (750 | ) | 1.5 |   | 7,253 |   | 7.3 |   | 8,802 |   | 5.9 |   | (1,549 | ) | 1.4 |   |
| Total                      |       | $                       | 5,382      |                    | 10.8       | % | $ | 7,041 |   | 9.3 | % | $ | (1,659 | ) | 1.5 | % | $ | 11,183 |   | 11.3 | % | $ | 13,990 |   | 9.3 | % | $ | (2,807 | ) | 2.0 | % |

 

**Sellingexpenses** — Selling expenses declined for the three and sixmonths end June 27, 2009 when compared to corresponding periods in2008.  The decrease is a result of lowercommission expense, selling wages, and employee-related expenses due to lowersales volumes and several proactive cost reduction efforts.  Thesedeclines were partially offset by fewer cooperative marketing credits theCompany received from chassis manufacturers.  These credits, determinedsolely by programs established by the chassis manufacturers, are used to offsetmarketing and promotional expenses.

 

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**G&Aexpenses** — General and administrative expenses decreased forthe three and six months ended June 27, 2009 when compared tocorresponding periods in 2008.  Thedecrease was primarily attributable to headcount and wage reductions which area large part of our cost savings initiatives which began in late 2008.

 

***Other income***

 

For the three months ended June 27, 2009, other income was $0.4million (0.8% of net sales) compared to $0.3 million (0.4% of net sales) forthe three months ended June 28, 2008. For the six months ended June 27, 2009, other income was $0.7million (0.7% of net sales) compared to $0.5 million (0.3% of net sales) forthe six months ended June 28, 2008. Other income consisted of rentalincome, gain on sale of assets, and other miscellaneous income received by theCompany through its various business activities.

 

***Interest expense***

 

Interest expense was $0.6 million (1.2% of net sales) for the threemonths ended June 27, 2009 compared to $0.5 million (0.7% of net sales)for the three months ended June 28, 2008. Interest expense remained relatively flat at $1.2 million (1.2% of netsales) and $1.1 million (0.7% of net sales) for the six months ended June 27,2009 and June 28, 2008, respectively.   Interest expensereflects lower prevailing LIBOR and prime interest rates coupled with reduceddebt levels due to lower working capital requirements.  This was offset byhigher performance-based pricing provisions under the Company’s credit facilityas recent operating losses triggered an increase in rate.

 

***Income taxes***

 

The Company’s estimated effective income tax rate was favorablyimpacted by tax benefits associated with the Company’s wholly-owned captiveinsurance subsidiary, federal alternative fuel tax credits, and research anddevelopment tax credits.  The combinationof these tax benefits along with the incurred pretax losses resulted in anoverall tax benefit position for the Company in each of the 2009 and 2008periods presented.  The Company isestimating a 52.0% effective tax rate for the year ending December 26,2009.  The effective tax rate for theyear ended December 27, 2008 was 41.5%. The increase in the effective tax rate is due to the fixed nature of thenoted tax benefits along with the estimated pretax loss for the full yearending December 26, 2009.

 

***Net income (loss) and earnings(loss) per share***

 

Net income decreased by $1.3 million to ($1.1 million) (-2.2% of netsales) for the three months ended June 27, 2009, from $0.2 million (0.3%of net sales) for the three months ended June 28, 2008.  For the sixmonths ended June 27, 2009, net income was ($2.5 million) (-2.5% of netsales) compared to $0.4 million (0.3% of net sales) for the six months ended June 28,2008.  The following table presents basicand diluted earnings (loss) per share and the changes from period-to-period:

 

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| ** **                | ** ** | **Three Months Ended**  | ** ** | **Six Months Ended**    | ** ** |
|---------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                | ** ** | **June 27,  2009** | ** ** | **June 28,  2008** | ** ** | **Change** | ** ** | **June 27,  2009** | ** ** | **June 28,  2008** | ** ** | **Change** | ** ** |
| Earning (loss) per share: |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Basic                     |       | $                       | (0.08      | )                       | $          | 0.02 |   | $ | (0.10 | ) | $ | (0.18 | ) | $ | 0.03 |   | $ | (0.21 | ) |
| Diluted                   |       | $                       | (0.08      | )                       | $          | 0.02 |   | $ | (0.10 | ) | $ | (0.18 | ) | $ | 0.03 |   | $ | (0.21 | ) |

 

**Liquidity and Capital Resources**

 

The Company believes that it has adequate availability in its creditfacility to finance future foreseeable working capital requirements.  TheCompany’s cash management system and revolving line of credit are designed tomaintain zero cash balances and, accordingly, checks outstanding in excess ofbank balances are classified as additional borrowings under the revolving lineof credit.

 

The Credit Agreement provides for a revolving line of credit facilityof up to $30 million and which increases to $33 million during the period eachyear from January 1 to June 30.  Interest on outstandingborrowings under the revolving line of credit is based on the bank’s primerate, or certain basis points above LIBOR, depending on the pricing optionselected and the Company’s leverage ratio.  All borrowings under theCredit Agreement are secured by security interests covering certaininventories, trade receivables, and selected other assets of the Company. As of June 27, 2009, the Company had $16.8 million utilized under itscredit facility.

 

The Credit Agreement contains, among other matters, requirements forcompliance with certain financial covenants. During the quarter ended June 27, 2009, Supreme Corporation, theCompany’s wholly-owned subsidiary, was not in compliance with theearnings-related covenant.  However, theCompany obtained a waiver from its lender and is in the process of resettingcertain existing covenant measurements to provide temporary relief during theongoing recession.  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 June 27,2009 are classified as long-term debt.

 

***Operating activities***

 

Operating activities provided $13.4 million of cash for the six monthsended June 27, 2009 compared to cash provided of $3.5 million for the sixmonths ended June 28, 2008.  Through the second quarter of 2009, cashprovided by operating activities was favorably impacted by a $4.8 millionreduction in accounts receivable, an $8.2 million decrease in inventories, andan increase in accounts payable of $3.6 million.  This was offset by a$2.2 million decrease in other accrued liabilities and an increase in othercurrent assets of $0.6 million.  Net income (loss), adjusted fordepreciation and amortization, resulted in negative cash flows of $0.4 millionand generated positive cash flows of $2.6 million during the first half of 2009and 2008, respectively.

 

***Investing activities***

 

Cash used in investing activities was $0.7 million for the six monthsended June 27, 2009 compared to $2.3 million for the six months ended June 28,2008. Capital expenditures for the first half of 2009 were $1.3 millionand consisted primarily of machinery to improve efficiencies 

 

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at our armored truck division.  The Company expects and intends toinvest primarily in replacement equipment for the remainder of 2009.

 

***Financing activities***

 

Financing activities used $13.6 million of cash for the six monthsended June 27, 2009 compared to cash used of $2.4 million for the sixmonths ended June 28, 2008.  The lower level of bank borrowing forthe first half of the year primarily occurred as a result of the decrease inaccounts receivable and inventory levels due to lower sales and productionlevels.  Due to the present industry conditions and ongoing economicrecession, the Board of Directors has decided to suspend its dividend program.Future dividends will necessarily be subject to business conditions, theCompany’s financial position, and requirements for working capital, property,plant, and equipment expenditures, and other corporate purposes.

 

**Critical Accounting Policies and Estimates**

 

Management’s discussion and analysis of itsfinancial position and results of operations are based upon the Company’sconsolidated financial statements which have been prepared in accordance withaccounting principles generally accepted in the United States of America.  The preparation of these financial statementsrequires management to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses, and related disclosureof contingent assets and liabilities. The Company’s significant accounting policies are discussed in Note 1 ofthe Notes to Consolidated Financial Statements included in the Annual Report onForm 10-K for the year ended December 27, 2008.  In management’s opinion, the Company’scritical accounting policies include revenue recognition, allowance fordoubtful accounts, excess and obsolete inventories, inventory relief, accruedinsurance, and accrued warranty.

 

***Revenue Recognition*** — The Companygenerally recognizes revenue when products are shipped to the customer. Revenue on certain customer requested bill and hold transactions is recognizedafter the customer is notified that the products have been completed accordingto customer 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 Company maintains anallowance for doubtful accounts for estimated losses resulting from theinability of our customers to make required payments.  If the financialconditions of our customers were to deteriorate, resulting in an impairment oftheir ability to make payments, additional allowances may be required whichwould adversely affect our future operating results.

 

***Excess and Obsolete Inventories*** — The Company must makeestimates regarding the future use of raw materials and finished products andprovide for obsolete or slow-moving inventories.  If actual product lifecycles, product demand, and/or market conditions are less favorable than thoseprojected by management, additional inventory write-downs may be required whichwould adversely affect future operating results.

 

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***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.

 

The accuracy of theinventory relief is not fully known until physical inventories are conducted ateach of the Company’s locations. We conduct semi-annual physical inventories atall locations and schedule them in a manner that provides coverage in each ofour calendar quarters. We have invested significant resources in our continuingeffort to improve the physical inventory process and accuracy of our inventoryaccounting 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 inadjustments to our operating results in the future.

 

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

 

***Accrued Warranty*****— The Companyprovides limited warranties for periods of up to five years from the date ofretail sale.  Estimated warranty costs are accrued at the time of sale andare based upon historical experience.

 

**Forward-Looking Statements**

 

This report contains forward-lookingstatements, other than historical facts, which reflect the view of managementwith respect to future events.  When used in this report, words such as “believe,”“expect,” “anticipate,” “estimate,” “intend,” and similar expressions, as theyrelate to the Company or its plans or operations, identify forward-lookingstatements.  Such forward-looking statements are based on assumptions madeby, and information currently available to, management.  Althoughmanagement believes that the expectations reflected in such forward-lookingstatements are reasonable, it can give no assurance that the expectationsreflected in such forward-looking statements are reasonable, and it can give noassurance that such expectations will prove to be correct.  Importantfactors that could cause actual results to differ materially

 

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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 those contemplatedby such forward-looking statements.

 

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

 

There has been no material change from theinformation provided in the Company’s Annual Report on Form 10-K, “Item7A: Quantitative and Qualitative Disclosures About Market Risk,” for the yearended December 27, 2008.

 

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

 

a.                                       Evaluation ofDisclosure Controls and Procedures.

 

In connection with thepreparation of this Form 10-Q, an evaluation was performed under thesupervision and with the participation of the Company’s management, includingthe Company’s Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe 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 June 27, 2009.

 

b.                                      Changes in Internal Control over FinancialReporting.

 

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

 

The Company continues totake action to assure compliance with the internal controls, disclosurecontrols, and other requirements of the Sarbanes-Oxley Act of 2002. Management, including the Company’s Chief Executive Officer and Chief FinancialOfficer, cannot guarantee that the internal controls and disclosure controlswill prevent all possible errors or fraud.  A control system, no matterhow 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 there are resourceconstraints, and the

 

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benefit of controls must berelative to their costs.  Because of the inherent limitations in allcontrol systems, no system of controls can provide absolute assurance that allcontrol issues and instances of fraud, if any, within the Company will bedetected.  These inherent limitations include the realities that judgmentsin decision-making can be faulty and that breakdowns can occur because of simpleerror or mistake.  Further, controls can be circumvented by individualacts of some persons, by collusion of two or more persons, or by managementoverride of the controls.

 

The design of any system ofcontrols is also based in part upon certain assumptions about the likelihood offuture events, and there can be no assurance that any design will succeed inachieving its stated goals under all potential future conditions.  Overtime, a control may be inadequate because of changes in conditions, or the degreeof compliance with the policies or procedures may deteriorate.  Because ofinherent limitations in any cost-effective control system, misstatements due toerror or fraud may occur and not be detected.

 

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

 

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

 

The Company is subject to various investigations, claims, and legalproceedings covering a wide range of matters that arise in the ordinary courseof its business activities.  Each ofthese matters is subject to various uncertainties, and it is possible that someof these matters may be resolved unfavorably tothe Company.  The Company has establishedaccruals for matters that are probable and reasonably estimable.  Management believes that any liability thatmay ultimately result from the resolution of these matters in excess ofaccruals and 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.**

 

For a discussion of those “RiskFactors” affecting the Company, you should carefully consider the “Risk Factors”discussed in Part I, under “Item 1A: Risk Factors” contained in our AnnualReport on Form 10-K for the year ended December 27, 2008, which isherein 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 negative impacton our industry.**

 

The recession and theuncertainty over its breadth, depth, and duration have had a negative impact onthe specialized commercial vehicle industry. Accordingly, our financial resultshave been negatively impacted by the economic downturn notwithstanding cost-cuttingmeasures taken by the Company in response to such downturn. Both our financialresults and potential for growth could be further hindered if the recessioncontinues for a significant period or becomes

 

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worse. The Company may beforced to take additional cost-cutting measures which may adversely affect theCompany’s ability to execute its business plan.

 

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

 

The recession may have amaterial adverse effect on the Company’s liquidity and financial condition if,under its current bank credit agreement, the Company’s ability to borrow moneyfrom its existing lender to finance its operations is reduced or eliminated.Similarly adverse effects may also result if the Company realizes lessenedcredit availability from trade creditors. Additionally, many of our customersrequire the availability of financing to facilitate the purchase of ourproducts. As a result, a continuing period of reduced credit availability inthe marketplace could have further adverse effects on the Company’s business.

 

**Volatility in the supply of vehicle chassis and other vehiclecomponents resulting from the current recession could adversely affect ourbusiness.**

 

With the exception of someStarTrans bus products, Supreme generally does not purchase vehicle chassis forits inventory.  Supreme accepts shipments of vehicle chassis owned bydealers or end-users for the purpose of installing and/or manufacturing itsspecialized truck bodies and buses on such chassis. Recently emerging frombankruptcy, General Motors Corp. (“GM”) has historically been the Company’sprimary supplier of truck chassis, while Ford Motor Company (“Ford”) has beenthe primary supplier of bus chassis.  In the event of a disruption insupply from one major supplier, the Company would attempt to use another majorsupplier, but there can be no assurance that this attempt would be successful.Nevertheless, in the event of chassis supply disruptions, there could beunforeseen consequences that may have a significant adverse effect on theCompany’s business operations.

 

The Company also faces riskrelative to finance and storage charges for maintaining excess consignedchassis inventory from GM and Ford.  Under these consigned inventoryagreements, if a chassis is not delivered to a customer within a specified timeframe, the Company is required to pay finance or storage charges on suchchassis.

 

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

 

Not applicable.

 

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

 

Not applicable.

 

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

 

Supreme Industries, Inc.’sannual meeting of stockholders was held on May 5, 2009.  Below is asummary of matters voted upon at that meeting.

 

a.               The following individualswere elected directors by the holders of the Company’s Class A CommonStock for a one-year term.

 
| ** **                | ** ** | **Votes For (%)** | ** ** | **Votes Withheld** | ** ** |
|---------------------------|------------|-----------------------------|------------|-------------------------|------------|
| Edward L. Flynn |       | 9,081,085  (92.45           | )%         | 741,388                 |       |
| Mark C. Neilson           |       | 9,087,070  (92.51           | )%         | 735,403                 |       |

 

Each of the followingindividuals was elected director by the holders of the Company’s Class BCommon Stock for a one-year term by a vote of 2,134,166 in favor with 54,324votes unvoted.

 

William J. Barrett

Robert J. Campbell

Thomas Cantwell

Herbert M. Gardner

Wayne A. Whitener

Robert W. Wilson

 

b.              Crowe Horwath LLP wasratified as the Company’s independent registered public accounting firm by acombined vote of the holders of the Company’s Class A and Class BCommon Stock of 9,144,980 shares (93%) in favor, 495,223 shares against, and182,268 shares abstaining.

 

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

 

The Credit Agreement contains, among other matters, requirements forcompliance with certain financial covenants. During the quarter ended June 27, 2009, Supreme Corporation, theCompany’s wholly-owned subsidiary, was not in compliance with theearnings-related covenant.  However, theCompany obtained a waiver from its lender and is in the process of resettingcertain existing covenant measurements to provide temporary relief during theongoing recession.  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 June 27,2009 are classified as long-term debt.

 

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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 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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*Filed herewith.

 

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SIGNATURES

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

 
|                       |   | SUPREME INDUSTRIES, INC.                               |
|----------------------------|--------|--------------------------------------------------------|
|                       |   |                                                   |
|                       |   |                                                   |
|                       |   | BY:                                                    | /s/ Herbert M. Gardner |
| DATE: August 11, 2009 |   |                                                   | Herbert M. Gardner |
|                       |   |                                                   | Chairman of the Board and  Chief Executive Officer |
|                       |   |                                                   |   |   |
|                       |   |                                                   |   |   |
|                       |   |                                                   | BY: | /s/ Jeffery D. Mowery |
| DATE: August 11, 2009 |   |                                                   | Jeffery D. Mowery |
|                       |   | Vice President of Finance  and Chief Financial Officer |

 

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INDEXTO 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 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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*Filed herewith.

 

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