Tableof Contents

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** **

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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

** **

**FORM 10-Q**

** **

**(MarkOne)**

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

** **

**For the quarterly period ended September 27, 2008**

** **

**or**

** **

**o****                            ****TRANSITION REPORT PURSUANT TO SECTION 13OR 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**

                 (Addressof principal executive offices)       (ZipCode)

 

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 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 |

(Donot 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 November 4, 2008** |
|-----------------------------------|------------|------------------------------------------|
| **Class A**                  | ** ** | **11,421,371**                           |
| **Class B**                  | ** ** | **2,064,607**                            |

 

 

 

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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 Income (Loss)                                                    | 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 | 9 |
|              |                  |                                                                                        |   |
|              | 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                                | 19 |
|              |                  |                                                                                        |   |
|              | ITEM 3.               | Defaults Upon Senior Securities                                                             | 19 |
|              |                  |                                                                                        |   |
|              | ITEM 4.               | Submission of Matters to a Vote of Security  Holders                                        | 20 |
|              |                  |                                                                                        |   |
|              | ITEM 5.               | Other Information                                                                           | 20 |
|              |                  |                                                                                        |   |
|              | ITEM 6.               | Exhibits                                                                                    | 21 |
|              |                  |                                                                                        |   |
| SIGNATURES        |                  |                                                                                        |
|              |                  |                                                                                        |
| INDEX TO EXHIBITS |                  |
|              |                  |                                                                                        |
| EXHIBITS          |                  |                                                                                        |
|                   |                       |                                                                                             |  |  |  |  |

 

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**PART I. FINANCIAL INFORMATION**

 

**ITEM 1.    FINANCIAL STATEMENTS.**

 

**Supreme Industries, Inc. andSubsidiaries**

ConsolidatedBalance Sheets

 
| ** **                                       | ** ** | **September 27,  2008** | ** **  | **December 29,  2007** | ** ** |
|--------------------------------------------------|------------|------------------------------|-------------|-----------------------------|------------|
| ** **                                       | ** ** | ** **                   | ** **  |
| ** **                                       | ** ** | **(Unaudited)**              | ** **  | ** **                  | ** ** |
| **ASSETS**                                       |       |                         |        |                        |       |
|                                             |       |                         |        |                        |       |
| **Current assets:**                              |       |                         |        |                        |       |
| Cash and cash equivalents                        |       | $                            | 81,231      |                        | $          | 1,266,133 |   |
| Investments                                      |       | 2,524,913                    |        | 2,215,267                   |       |
| Accounts receivable, net                         |       | 20,585,132                   |        | 28,628,324                  |       |
| Inventories                                      |       | 45,649,500                   |        | 46,643,480                  |       |
| Other current assets                             |       | 6,552,310                    |        | 5,171,503                   |       |
|                                             |       |                         |        |                        |       |
| **Total current assets**                         |       | 75,393,086                   |        | 83,924,707                  |       |
|                                             |       |                         |        |                        |       |
| **Property, plant and equipment, at cost**       |       | 95,037,969                   |        | 92,530,190                  |       |
| Less, Accumulated depreciation and  amortization |       | 48,068,283                   |        | 45,100,465                  |       |
|                                             |       |                         |        |                        |       |
| **Property, plant and equipment, net**           |       | 46,969,686                   |        | 47,429,725                  |       |
|                                             |       |                         |        |                        |       |
| **Goodwill and intangible assets, net**          |       | 1,335,613                    |        | 1,371,891                   |       |
| **Other assets**                                 |       | 58,301                       |        | 64,860                      |       |
|                                             |       |                         |        |                        |       |
| **Total assets**                                 |       | $                            | 123,756,686 |                        | $          | 132,791,183 |   |

 

See accompanying notes to consolidated financial statements.

 

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**Supreme Industries, Inc. andSubsidiaries**

Consolidated Balance Sheets, Concluded

 
| ** **                                          | ** ** | **September 27,  2008** | ** **  | **December 29,  2007** | ** ** |
|-----------------------------------------------------|------------|------------------------------|-------------|-----------------------------|------------|
| ** **                                          | ** ** | ** **                   | ** **  |
| ** **                                          | ** ** | **(Unaudited)**              | ** **  | ** **                  | ** ** |
| **LIABILITIES AND STOCKHOLDER’S EQUITY**       |       |                         |        |                        |       |
|                                                |       |                         |        |                        |       |
| **Current liabilities:**                            |       |                         |        |                        |       |
| Current maturities of long-term debt                |       | $                            | 696,263     |                        | $          | 748,406 |   |
| Trade accounts payable                              |       | 8,395,605                    |        | 14,642,616                  |       |
| Accrued income taxes                                |       | 353,204                      |        | 498,162                     |       |
| Other accrued liabilities                           |       | 9,069,805                    |        | 9,510,095                   |       |
|                                                |       |                         |        |                        |       |
| **Total current liabilities**                       |       | 18,514,877                   |        | 25,399,279                  |       |
|                                                |       |                         |        |                        |       |
| **Long-term debt**                                  |       | 28,926,786                   |        | 29,002,718                  |       |
|                                                |       |                         |        |                        |       |
| **Deferred income taxes**                           |       | 2,589,055                    |        | 2,589,055                   |       |
|                                                |       |                         |        |                        |       |
| **Other long-term liabilities**                     |       | 412,783                      |        | 333,046                     |       |
|                                                |       |                         |        |                        |       |
| **Total liabilities**                               |       | 50,443,501                   |        | 57,324,098                  |       |
|                                                |       |                         |        |                        |       |
| **Stockholders’ equity**                       |       | 73,313,185                   |        | 75,467,085                  |       |
|                                                |       |                         |        |                        |       |
| **Total liabilities and stockholders’ equity** |       | $                            | 123,756,686 |                        | $          | 132,791,183 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

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**Supreme Industries, Inc. andSubsidiaries**

ConsolidatedStatements of Income (Loss) (Unaudited)

 
| ** **                                                        | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                        | ** ** | **September 27,  2008**     | ** ** | **September 29,  2007**    | ** ** | **September 27,  2008** | ** ** | **September 29,  2007** | ** ** |
| ** **                                                        | ** ** | ** **                       | ** ** | ** **                      | ** ** |
|                                                              |       |                             |       |                            |       |   |   |   |   |
| Net sales                                                         |       | $                                | 61,086,346 |                            | $          | 67,540,998 |   | $ | 212,317,770 |   | $ | 239,594,008 |   |
| Cost of sales                                                     |       | 55,666,495                       |       | 60,201,848                      |       | 191,907,710 |   | 212,194,256 |   |
| **Gross profit**                                                  |       | 5,419,851                        |       | 7,339,150                       |       | 20,410,060 |   | 27,399,752 |   |
|                                                              |       |                             |       |                            |       |   |   |   |   |
| Selling, general and administrative  expenses                     |       | 6,797,403                        |       | 6,576,660                       |       | 20,787,125 |   | 21,106,291 |   |
| Other income                                                      |       | (160,959                         | )          | (161,093                        | )          | (670,470 | ) | (390,234 | ) |
| **Operating income (loss)**                                       |       | (1,216,593                       | )          | 923,583                         |       | 293,405 |   | 6,683,695 |   |
|                                                              |       |                             |       |                            |       |   |   |   |   |
| Interest expense                                                  |       | 508,368                          |       | 520,718                         |       | 1,625,273 |   | 1,931,708 |   |
| **Income (loss) before income taxes**                             |       | (1,724,961                       | )          | 402,865                         |       | (1,331,868 | ) | 4,751,987 |   |
|                                                              |       |                             |       |                            |       |   |   |   |   |
| Income taxes (benefit)                                            |       | (1,094,910                       | )          | 129,000                         |       | (1,144,910 | ) | 1,470,000 |   |
| **Net income (loss)**                                             |       | $                                | (630,051   | )                               | $          | 273,865 |   | $ | (186,958 | ) | $ | 3,281,987 |   |
|                                                              |       |                             |       |                            |       |   |   |   |   |
| **Earnings (loss) Per Share:**                                    |       |                             |       |                            |       |   |   |   |   |
| Basic                                                             |       | $                                | (0.04      | )                               | $          | .02 |   | $ | (0.01 | ) | $ | .24 |   |
| Diluted                                                           |       | (0.04                            | )          | .02                             |       | (0.01 | ) | .24 |   |
|                                                              |       |                             |       |                            |       |   |   |   |   |
| **Shares used in the computation of earnings  (loss) per share:** |       |                             |       |                            |       |   |   |   |   |
| Basic                                                             |       | 14,186,973                       |       | 13,915,481                      |       | 14,073,863 |   | 13,844,880 |   |
| Diluted                                                           |       | 14,387,642                       |       | 14,029,157                      |       | 14,245,618 |   | 13,951,610 |   |
|                                                              |       |                             |       |                            |       |   |   |   |   |
| **Cash dividends per common share**                               |       | $                                | —     |                            | $          | .095 |   | $ | .19 |   | $ | .285 |   |

 

See accompanying notes to consolidated financial statements.

 

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**Supreme Industries, Inc. andSubsidiaries**

ConsolidatedStatements of Cash Flows (Unaudited)

 
| ** **                                                                                | ** ** | **Nine Months Ended**        | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                | ** ** | **September 27,  2008** | ** ** | **September 29,  2007** | ** ** |
| **Cash flows from operating activities:**                                                 | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Net income (loss)                                                                         |       | $                            | (186,958   | ) | $ | 3,281,987 |   |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities: |       |                         |       |   |   |
| Depreciation and amortization                                                             |       | 3,194,638                    |       | 3,220,196 |   |
| Amortization of intangibles                                                               |       | 36,278                       |       | 36,278 |   |
| Provision for losses on doubtful  receivables                                             |       | 170,918                      |       | 127,127 |   |
| Stock-based compensation expense                                                          |       | 465,616                      |       | 227,638 |   |
| Losses (gains) on disposal of property,  plant and equipment                              |       | 28,868                       |       | (11,043 | ) |
| Changes in operating assets and liabilities                                               |       | 544,351                      |       | 11,806,099 |   |
|                                                                                      |       |                         |       |   |   |
| **Net cash provided by operating activities**                                             |       | 4,253,711                    |       | 18,688,282 |   |
|                                                                                      |       |                         |       |   |   |
| **Cash flows from investing activities:**                                                 | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Additions to property, plant and equipment                                                |       | (2,823,868                   | )          | (2,428,880 | ) |
| Proceeds from sale of property, plant and  equipment                                      |       | 60,401                       |       | 33,244 |   |
| Proceeds from sale of investments                                                         |       | 832,670                      |       | 544,804 |   |
| Purchases of investments                                                                  |       | (1,142,316                   | )          | (1,180,858 | ) |
| Decrease in other assets                                                                  |       | 6,559                        |       | 35,017 |   |
|                                                                                      |       |                         |       |   |   |
| **Net cash used in investing activities**                                                 |       | (3,066,554                   | )          | (2,996,673 | ) |
|                                                                                      |       |                         |       |   |   |
| **Cash flows from financing activities:**                                                 | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Proceeds from revolving line of credit and  other long-term debt                          |       | 89,915,986                   |       | 85,466,828 |   |
| Repayments of revolving line of credit and  other long-term debt                          |       | (90,044,061                  | )          | (99,499,728 | ) |
| Payment of cash dividends                                                                 |       | (2,491,484                   | )          | (3,646,592 | ) |
| Proceeds from exercise of stock options                                                   |       | 247,500                      |       | 744,793 |   |
|                                                                                      |       |                         |       |   |   |
| **Net cash used in financing activities**                                                 |       | (2,372,059                   | )          | (16,934,699 | ) |
|                                                                                      |       |                         |       |   |   |
| **Change in cash and cash equivalents**                                                   |       | (1,184,902                   | )          | (1,243,090 | ) |
| ** **                                                                                | ** ** | ** **                   | ** ** | ** ** | ** ** |
| **Cash and cash equivalents, beginning of  period**                                       |       | 1,266,133                    |       | 1,307,463 |   |
|                                                                                      |       |                         |       |   |   |
| **Cash and cash equivalents, end of period**                                              |       | $                            | 81,231     |   | $ | 64,373 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

 

Notes To Consolidated Financial Statements

 

NOTE 1 - BASIS OF PRESENTATION AND OPINION OF MANAGEMENT

 

The accompanying unaudited consolidated financial statements have beenprepared in accordance with the instructions to Form 10-Q and therefore donot include all of the information and financial statement disclosuresnecessary for a fair presentation of consolidated financial position, resultsof operations, and cash flows in conformity with accounting principlesgenerally 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 29, 2007 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-week fiscal year ending the lastSaturday in December.  The results ofoperations for the three and nine months ended September 27, 2008 and September 29,2007 are for 13- and 39-week periods, respectively.

 

NOTE 2 - OTHER COMPREHENSIVE INCOME (LOSS)

 

Other comprehensive income (loss) includes unrealized losses onhedge-activity, net of tax, and unrealized gains (losses) on available-for-salesecurities, net of tax.  Totalcomprehensive income (loss) combines net income (loss) and other comprehensiveincome (loss).

 

For the three- and nine-month periods ending September 27, 2008and September 29, 2007, total and other comprehensive income (loss) are asfollows:

 
| ** **                        | ** ** | **Three Months Ended**       | ** ** | **Nine Months Ended**        | ** ** |
|-----------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                        | ** ** | **September 27,  2008** | ** ** | **September 29,  2007** | ** ** | **September 27,  2008** | ** ** | **September 29,  2007** | ** ** |
| Net Income (Loss)                 |       | (630,051                     | )          | 273,865                      |       | (186,958 | ) | 3,281,987 |   |
| Other Comprehensive Income (Loss) |       | (71,374                      | )          | (183,541                     | )          | (188,574 | ) | (110,785 | ) |
| Total Comprehensive Income (Loss) |       | $                            | (701,425   | )                            | $          | 90,324 |   | $ | (375,532 | ) | $ | 3,171,202 |   |
|                                   |            |                              |            |                              |            |  |  |  |  |  |  |  |  |

 

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

 

Notes To Consolidated Financial Statements, Continued

 

NOTE 3 - INVENTORIES

 

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

 
| ** **       | ** ** | **September 27,  2008** | ** ** | **December 29,  2007** | ** ** |
|------------------|------------|------------------------------|------------|-----------------------------|------------|
| Raw materials    |       | $                            | 24,682,749 |                        | $          | 25,042,022 |   |
| Work-in-progress |       | 9,644,697                    |       | 9,676,041                   |       |
| Finished goods   |       | 11,322,054                   |       | 11,925,417                  |       |
|             |       | $                            | 45,649,500 |                        | $          | 46,643,480 |   |

 

NOTE 4 – FAIR VALUE MEASUREMENT

 

Statement of Financial Accounting Standards (“SFAS”) No. 157, “FairValue Measurements,” defines fair value as the exchange price that would be receivedfor an asset or paid to transfer a liability (an exit price) in the principalor most advantageous market for the asset or liability in an orderlytransaction between market participants on the measurement date.  SFAS No. 157 also establishes a fairvalue hierarchy which requires an entity to maximize the use of observableinputs and minimize the use of unobservable inputs when measuring fairvalue.  The standard describes threelevels of inputs that may be used to measure fair value:

 

Level 1: Quoted prices (unadjusted) or identical assets or liabilitiesin active markets that the entity has the ability to access as of themeasurement date.

 

Level 2: Significant other observable inputs other than Level 1 pricessuch as quoted prices for similar assets or liabilities; quoted prices inmarkets that are not active; or other inputs that are observable or can becorroborated by observable market data.

 

Level 3: Significant unobservable inputs that reflect a company’s ownassumptions about the assumptions that market participants would use in pricingan asset or liability.

 

The Company used the following methods and significant assumptions toestimate the fair value of items:

 

Investments: The fair values of investments available for sale aredetermined by obtaining quoted prices on nationally recognized securitiesexchanges (Level 1 inputs).

 

Derivatives: Our derivative instruments consist of interest rateswaps.  As such, significant fair valueinputs can generally be verified and do not typically involve significantmanagement judgments (Level 2 inputs).

 

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

 

Notes To Consolidated Financial Statements, Continued

 

NOTE 5 – LONG-TERM DEBT

 

The Company amended its existing credit facility effective September 26,2008.  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 29, 2007.  Certain debt covenants have been modified toprovide temporary relief to the Company during the current economicdownturn.  Effective August 11,2008, the credit facility maturity date was extended to October 31, 2009,and as a result all borrowings under the credit facility at September 27,2008 are classified as long-term debt. The Company is working with its lenderto extend the credit facility with the expectation that the credit facilitywill remain classified as long-term debt, although no assurance can be giventhat this will occur. (See Item 1A. RISK FACTORS)

 

NOTE 6 - EARNINGS PER SHARE

 

The number of shares used in the computation of basic and dilutedearnings per share are as follows:

 
| ** **                                                                                       | ** ** | **Three Months Ended**       | ** ** | **Nine Months Ended**        | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                       | ** ** | **September 27,  2008** | ** ** | **September 29,  2007** | ** ** | **September 27,  2008** | ** ** | **September 29,  2007** | ** ** |
| Weighted average number of shares  outstanding (used in computation of basic earnings per share) |       | 14,186,973                   |       | 13,915,481                   |       | 14,073,863 |   | 13,844,880 |   |
|                                                                                             |       |                         |       |                         |       |   |   |   |   |
| Assumed exercise or issuance of shares  relating to stock plans                                  |       | 200,669                      |       | 113,676                      |       | 171,755 |   | 106,730 |   |
|                                                                                             |       |                         |       |                         |       |   |   |   |   |
| Diluted shares outstanding (used in  computation of diluted earnings per share)                  |       | 14,387,642                   |       | 14,029,157                   |       | 14,245,618 |   | 13,951,610 |   |

 

All basic and diluted shares outstanding have been adjusted to reflectthe two percent (2%) common stock dividend declared on August 11, 2008 andthe six percent (6%) common stock dividend declared on November 10, 2008(see Note 8).

 

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

 

Notes To Consolidated Financial Statements, Continued

 

NOTE 7 - STOCK-BASED COMPENSATION

 

The following table summarizes the activity for the unvested restrictedstock units and restricted stock for the nine months ended September 27,2008:

 
| ** **                        | ** ** | **Shares** | ** ** | **Weighted -   Average  Grant Date  Fair Value** | ** ** |
|-----------------------------------|------------|------------|------------|--------------------------------------------------|------------|
| Unvested, December 30, 2007  |       | 120,359    |       | $                                                | 5.76       |   |
| Granted                           |       | 129,203    |       | 4.68                                             |       |
| Vested                            |       | (48,894    | )          | 5.47                                             |       |
| Unvested, September 27, 2008 |       | 200,668    |       | 5.26                                             |       |
|                                   |            |            |            |                                                  |            |  |

 

The total fair value of the shares vested during the nine months ended September 27,2008 was $267,560.

 

A summary of the status of the Company’s outstanding stock options asof September 27, 2008, and changes during the nine months ended September 27,2008 are as follows:

 
| ** **                           | ** ** | **Number of  Shares** | ** ** | **Weighted -  Average  Exercise  Price** | ** ** |
|--------------------------------------|------------|-----------------------|------------|------------------------------------------|------------|
| Outstanding, December 30, 2007  |       | 1,069,503             |       | $                                        | 5.95       |   |
| Granted                              |       | 103,285               |       | 4.89                                     |       |
| Exercised                            |       | (160,558              | )          | 4.25                                     |       |
| Forfeited                            |       | (81,474               | )          | 4.84                                     |       |
| Outstanding, September 27, 2008 |       | 930,756               |       | 6.24                                     |       |
|                                      |            |                       |            |                                          |            |  |

 

The intrinsic value of the options exercised during the nine-monthperiod ended September 27, 2008 was $67,540.  There was no intrinsic value of the optionsoutstanding at September 27, 2008 and outstanding options had aweighted-average remaining contractual life of 4.31 years.

 

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**SUPREME INDUSTRIES, INC. AND SUBSIDIARIES**

 

Notes To Consolidated Financial Statements, Concluded

 

NOTE 8 - COMMON STOCK

 

On August 11, 2008, the Company’s Board of Directors declared atwo percent (2%) stock dividend on its outstanding Class A and Class BCommon Stock.  Stockholders of record on August 22,2008 received a stock dividend for each share owned on that date, paid on August 29,2008.  All share and per share data havebeen adjusted to reflect the stock dividend on a retroactive basis.

 

On November 10, 2008, the Company’s Board of Directors declared asix percent (6%) stock dividend on its outstanding Class A and Class BCommon Stock, an increase from the prior two percent (2%) stock dividend totake into account the recent decline in the current market value of the Company’sClass A Common Stock. Stockholders of record on November 21, 2008will receive a stock dividend for each share owned on that date, payable on November 28,2008.  All share and per share data havebeen adjusted to reflect the stock dividend on a retroactive basis.

 

A quarterly cash dividend was not paid for the three months ended September 27,2008.  For the nine months ended September 27,2008, the Company paid quarterly cash dividends totaling nineteen cents ($0.19)per share to all Class A and Class B common stockholders.  For the three and nine months ended September 29,2007, the Company paid quarterly dividends of nine and one-half cents ($0.095)and twenty eight and one-half cents ($0.285) per share, respectively.

 

**ITEM2.**       **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS.**

 

**Overview**

 

Established in1974 as a truck body manufacturer, Supreme Industries, Inc., through itswholly-owned subsidiary Supreme Corporation, is one of the nation’s leadingmanufacturers of specialized vehicles. Utilizing a nationwide direct sales anddistribution network, as well as manufacturing and service facilities in 12states across the continental United States, Supreme is able to meet the needsof customers across all of North America.

 

The Companyengages principally in the production and sale of customized truck bodies,shuttle buses, and other specialty vehicles. Building on its expertise inproviding both cargo and passenger transportation solutions, the Company’sspecialty vehicle offerings include products such as customized armoredvehicles, homeland response vehicles, and luxury motor coaches. Throughvertical integration and proprietary processes, the Company also supplies bothinternal and external customers with high quality fiberglass andfiberglass-reinforced components. The Company operates only in businessesrelated to its core competencies and currently has no plans to deviate fromthis strategy.

 

The Companyand its product offerings are sensitive to various factors which include, butare not limited to, economic conditions, interest rate fluctuations, changes ingovernmental regulations, and the volatility in the supply chain of vehiclechassis. The Company’s business is also affected by the availability and costsof certain raw materials that are significant components of its

 

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productofferings.  The Company’s risk factorsare disclosed in Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-Kfor the year ended December 29, 2007 and herein in Item 1A.

 

Supreme continues to feel the impact of the persistently slow economicenvironment and the unprecedented tight credit markets. Although we foresaw adifficult environment, the downturn has been far more severe than anticipated.In response to these recessionary-like conditions, we have been executing astrategy to navigate through these conditions and position the Company toemerge from the current cycle even stronger. First and foremost, we have takenand continue to take costs out of our business to right-size operations to fitthe current market conditions. These annualized cost reductions totaledapproximately $6.5 million and were minimally beneficial for the third quarterof 2008 but will contribute proportionally in the fourth quarter and will befully realized in 2009.  There is astrategic ongoing effort to identify and reduce costs to further combat thesteep decline in our core business and motor home operations. We anticipate aminimum of $1.5 million of additional annualized cost reductions to beimplemented during the fourth quarter of 2008. Our healthy bus business ishelping to partially offset the significant downturn in the core dry freighttruck markets.

 

The discussionherein should be read in conjunction with the unaudited consolidated financialstatements and related notes thereto elsewhere in this document.

 

**Results of Operations**

 

***NetSales***

 

Net sales forthe three months ended September 27, 2008 decreased $6.4 million to $61.1million compared to $67.5 million for the three months ended September 29,2007. Net sales for the nine months ended September 27, 2008 decreased$27.3 million, to $212.3 million from $239.6 million for the nine months ended September 29,2007. The decrease in net sales for the three and nine months ended September 27,2008 was primarily related to our truck body sales, our largest product group,which declined by $8.5 million and $34.0 million, respectively.  Our armored truck division experienced adecline in net sales of $2.6 million and $4.4 million for the three and ninemonths, respectively.  Additionally, ourSilver Crown division experienced a decrease in net sales for the three andnine months ended September 27, 2008 of $0.1 million and $1.4 millionrespectively.  Partially offsetting thesedecreases was an increase in net sales by our StarTrans bus division to $20.7million for the three months ended September 27, 2008 and $58.8 millionfor the nine months ended September 27, 2008 compared to $15.5 million forthe three months ended September 29, 2007 and $46.6 million for the ninemonths ended September 29, 2007.

 

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The followingtable presents the components of net sales and the changes from period toperiod:

 
| ** **             | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **             | ** ** | **September 27,**           | ** ** | **September 29,**          | ** ** | ** ** | ** ** | ** ** | ** ** | **September 27,** | ** ** | **September 29,** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **($000)**             | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| Specialized  vehicles: |       |                             |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Trucks                 |       | $                                | 34,576     |                            | $          | 43,118 |   | $ | (8,542 | ) | (19.8 | )% | $ | 130,976 |   | $ | 164,984 |   | $ | (34,008 | ) | (20.6 | )% |
| Buses                  |       | 20,721                           |       | 15,524                          |       | 5,197 |   | 33.5 |   | 58,844 |   | 46,574 |   | 12,270 |   | 26.3 |   |
| Armored vehicles       |       | 932                              |       | 3,572                           |       | (2,640 | ) | (73.9 | ) | 4,197 |   | 8,614 |   | (4,417 | ) | (51.3 | ) |
| Motorhomes             |       | 2,827                            |       | 2,990                           |       | (163 | ) | (5.5 | ) | 10,413 |   | 8,992 |   | 1,421 |   | 15.8 |   |
|                   |       | 59,056                           |       | 65,204                          |       | (6,148 | ) | (9.4 | )  | 204,430 |   | 229,164 |   | (24,734 | ) | (10.8 | )  |
| Composites             |       | 2,031                            |       | 2,337                           |       | (306 | ) | (13.1 | ) | 7,888 |   | 10,430 |   | (2,542 | ) | (24.4 | ) |
|                   |       | $                                | 61,087     |                            | $          | 67,541 |   | $ | (6,454 | ) | (9.6 | )% | $ | 212,318 |   | $ | 239,594 |   | $ | (27,276 | ) | (11.4 | )%  |

 

We attributethe decrease in our truck product sales to the continued industry-wide declinein the retail truck market which began in early 2007 and the prevailingexpectation is that it will continue well into 2009. Additionally, we werenegatively impacted in the first half of the year by the cancellation ofapproximately $2.6 million of orders from a major fleet customer due to thedisruption in the supply of General Motors (“GM”) chassis resulting from alabor dispute between the United Auto Workers and GM’s axle supplier. Thislabor dispute was settled in the second quarter although returning to normalconditions was further delayed by a second labor strike against a chassisdelivery provider which has since been resolved. The disruption adverselyaffected our profitability and resulted in excess inventory carrying costs forboth our fleet and retail business during the first half of 2008.

 

We anticipatethe decrease in our truck business activity will create pent-up demand and weare poised to capitalize on the eventual expected recovery. However, weanticipate that our core products in particular will experience highlycompetitive pricing conditions well into 2009. Our new redesigned Signature Van Body is expected to help ourcompetitiveness in this considerably diminished market in that it enableseasier and less expensive construction, improved inventory turns, and reducedlead-time required to deliver the finished product. Our progress on theredesign remains on schedule with production set to begin during the fourthquarter of 2008.

 

Our StarTransbus division continues to experience strong demand resulting from increased useof mass transit due to the volatility of fuel prices.  The Company has recently added bus productioncapacity in Pennsylvania and Indiana to meet customer demand.

 

Our totalsales backlog was $64.9 million at September 27, 2008 compared to $72.6million at September 29, 2007.

 

***Cost of sales andgross profit***

 

Gross profitdecreased by $1.9 million, or 26.0%, to $5.4 million for the three months endedSeptember 27, 2008 compared to $7.3 million for the three months ended September 29,2007. For the nine months ended September 27, 2008, gross profit decreasedby $7.0 million or 25.5%, to $20.4 million compared to $27.4 million for thenine months ended September 29, 2007. We anticipated a difficultenvironment very early in the year, however the conditions worsened during thethird quarter and we implemented a modified strategy to right-size ouroperations in the form of annualized cost reductions.

 

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The followingtable presents the components of cost of sales as a percentage of net sales andthe changes from period to period:

 
| ** **    | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **    | ** ** | **September 27,**           | ** ** | **September 29,**          | ** ** | **Percent** | ** ** | **September 27,** | ** ** | **September 29,** | ** ** | **Percent** | ** ** |
| ** **    | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| Material      |       | 59.0                             | %          | 55.8                            | %          | 3.2 | % | 57.9 | % | 57.3 | % | 0.6 | % |
| Direct labor  |       | 13.6                             |       | 14.1                            |       | -0.5 |   | 13.9 |   | 13.7 |   | 0.2 |   |
| Overhead      |       | 15.7                             |       | 16.2                            |       | -0.5 |   | 15.8 |   | 15.1 |   | 0.7 |   |
| Delivery      |       | 2.8                              |       | 3.0                             |       | -0.2 |   | 2.8 |   | 2.5 |   | 0.3 |   |
| Cost of sales |       | 91.1                             |       | 89.1                            |       | 2.0 |   | 90.4 |   | 88.6 |   | 1.8 |   |
| Gross profit  |       | 8.9                              | %          | 10.9                            | %          | -2.0 | % | 9.6 | % | 11.4 | % | -1.8 | % |

 

**Material**– Material cost as a percentage of net sales increased for the three months andnine months ended September 29, 2008 when compared to correspondingperiods in 2007. The change in the material percentage for the three and ninemonths is primarily related to higher raw material costs, product mix andhigher freight costs resulting from escalating fuel prices. Our change inproduct mix relates to our bus division, which has a higher materialpercentage, and accounted for a greater percentage of our net sales in thequarter and year-to-date in comparison to the same periods in 2007.

 

Raw materialcosts, particularly for aluminum, steel, and petroleum-based products, havecontinued to increase. We have attempted to address the unavoidable rawmaterial cost increases by increasing the price of our products, to the limitedextent that our highly competitive markets have permitted. We have also strivedto reduce the manufacturing costs through the use of technology (i.e.,robotics, innovative materials, etc.), lean manufacturing and improvedprocesses. We announced price increases of 3.0% and 5.0% in March andJune, respectively, on all core truck product lines.  Our StarTrans busdivision implemented price increases of 2.5% and 3.0% effective in January andJune, respectively.  These ongoing efforts as well as productdiversification and the introduction of our Signature Van Body, should help usto mitigate the effect of rising raw material costs.

 

**DirectLabor** – Directlabor as a percentage of net sales decreased for the three months and increasedfor the nine months ended September 27, 2008 when compared tocorresponding periods in 2007.  The improvement in the direct laborpercentage for the third quarter was due to product mix as it relates to ourbus division, which has a lower labor percentage, and accounted for a greaterpercentage of our net sales. Additionally, price increases in the bus and truck divisions had theeffect of reducing the overall labor percentage.  The slight increase in the direct laborpercentage for the nine months was the result of inefficiencies resulting fromthe labor strikes (as discussed previously), timing of fleet customer buyingpatterns and the normal startup costs of additional production lines to fulfillfleet orders.  Additionally, in the firsthalf of the year, our StarTrans bus division experienced an increase in itslabor percentage due to employee training costs associated with one of ourregional plant’s bus production line start-up costs. The expanded capacity willimprove plant utilization while accelerating delivery to satisfy our strong busbacklog.

 

**Overhead**– Overhead as a percentage ofnet sales decreased for the three months and increased for the nine monthsended September 27, 2008 when compared to corresponding periods in2007.  The decrease for the quarter is primarily related to

 

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reductions inour group health expense, lower payroll costs and fewer repairs andmaintenance.  During 2007, the Companyimplemented changes to its group health insurance plan design in an effort tocontrol claim costs and these changes are now benefiting the current year.  For the nine months, the increase in theoverhead percentage was due to the fixed nature of certain expenses that do notfluctuate when sales volume changes.  Additionally, the Company wasunfavorably impacted in the first quarter by higher utility costs as a resultof an unusually cold winter in the Northeast and Midwest.  We continue to focus on reducing expenses andmanaging our overhead cost structure based on our level of sales volumeachieved during the first nine months of the year.

 

**Delivery**– Delivery as a percentage ofnet sales decreased for the three months and increased for the nine monthsended September 27, 2008 when compared to corresponding periods in2007.  The Company continues to research and utilize more cost-effectivedelivery methods to reduce the adverse impact of higher fuel costs. We willcontinue to attempt to pass on the higher costs despite competitive pricingpressures in the marketplace.

 

***Selling, general andadministrative expenses***

 

Selling,general and administrative (“G&A”) expenses increased by $0.2 million, or3.0%, to $6.8 million for the three months ended September 27, 2008compared to $6.6 million for the three months ended September 29,2007.  For the nine months ended September 27, 2008, selling andG&A expenses decreased by $0.3 million, 1.4%, to $20.8 million compared to$21.1 million for the nine months ended September 29, 2007.  The following table presents selling and G&A expenses as a percentage ofnet sales and the changes from period to period:

 
| ** **       | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **       | ** ** | **September 27,**           | ** ** | **September 29,**          | ** ** | **Percent** | ** ** | **September 27,** | ** ** | **September 29,** | ** ** | **Percent** | ** ** |
| ** **       | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| Selling expenses |       | 4.6                              | %          | 3.6                             | %          | 1.0 | % | 3.8 | % | 3.3 | % | 0.5 | % |
| G&A expenses |       | 6.5                              |       | 6.1                             |       | 0.4 |   | 6.0 |   | 5.5 |   | 0.5 |   |
| Total            |       | 11.1                             | %          | 9.7                             | %          | 1.4 | % | 9.8 | % | 8.8 | % | 1.0 | % |

 

**Sellingexpenses** – Selling expenses increased by $0.4 million,or 16.7%, to $2.8 million for the three months ended September 27, 2008from $2.4 million for the three months ended September 29, 2007.  Forthe nine months ended September 27, 2008, selling expenses remainedconstant with the prior period at $8.0 million.  For the quarter, sellingexpenses increased due to less cooperative marketing credits the Companyreceived from chassis manufacturers.  These credits, determined solely byprograms established by the chassis manufacturers, are used to offset marketingand promotional expenses.  For the threeand nine months, the Company invested in training costs, literature, promotionand advertising expenses resulting from the anticipated fourth quarter roll outof our re-designed core truck body named our “Signature Van Body.”  Additionally, both periods experienced adecrease in commission expense resulting from the reduced sales volume in 2008when compared to 2007.

 

**G&Aexpenses** – General and administrative expensesdecreased by $0.1 million, or 2.4%, to $4.0 million for the three months ended September 27,2008 from $4.1 million

 

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for the threemonths ended September 29, 2007.  For the nine months ended September 27,2008, general and administrative expenses decreased by $0.3 million, or 2.3%,to $12.8 million from $13.1 million for the nine months ended September 29,2007. The decrease in general and administrative expenses was primarily due tolower incentive compensation accruals as a result of the decrease in pretaxincome.  Additionally, we incurred one-time professional fees during 2007related to complying with the requirements of the Sarbanes-Oxley Act of 2002.

 

***Other income***

 

Other incomeremained constant at $0.2 million for the three months ended September 27,2008 compared to the corresponding period in 2007.  For the nine monthsended September 27, 2008, other income increased by $0.3 million to $0.7million compared to the corresponding period in 2007.  Other incomeconsisted of rental income, gain on sale of assets, and other miscellaneousincome received by the Company through its various business activities.

 

***Interest expense***

 

Interestexpense was $0.5 million (0.8% of net sales) for the three months ended September 27,2008 compared to $0.5 million (0.7% of net sales) for the three months ended September 29,2007.  For the nine months ended September 27, 2008, interest expensewas $1.6 million (0.8% of net sales) compared to $1.9 million (0.8% of netsales) for the nine months ended September 29, 2007.   Thedecrease in bank interest expense reflects lower prevailing interest ratescoupled with lower working capital requirements related to the lower salesvolume.

 

***Income taxes***

 

The Company’seffective income tax rate was (63.5)% for the three months ended September 27,2008, compared to 32.0% for the three months ended September 29,2007.   For the nine months ended September 27, 2008, theeffective income tax rate was (86.0) % compared to 30.9% for the nine monthsended September 29, 2007.  The estimated effective income tax ratefor both periods was favorably impacted by tax benefits associated with theCompany’s wholly-owned captive insurance subsidiary, additional manufacturingtax deductions allowed under the 2004 American Jobs Creation Act, federalalternative fuel tax credits, and research and development tax credits. The substantially lower estimated pretax income for fiscal 2008 will result ina tax benefit position for the Company.  The effective income tax rate forthe previous year ended December 29, 2007 was 22.9%.

 

***Net income and earnings pershare***

 

Net income(loss) decreased by $0.9 million to $(0.6) million (-1.0% of net sales) for thethree months ended September 27, 2008, from $0.3 million (0.4% of netsales) for the three months ended September 29, 2007. For the nine monthsended September 27, 2008, net income (loss) decreased by $3.5 million to$(0.2) million (-0.0% of net sales) compared to $3.3 million (1.4% of netsales) for the nine months ended September 29, 2007.  The followingtable presents basic and diluted earnings per share and the changes from periodto period:

 

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| ** **          | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **          | ** ** | **September 27,**           | ** ** | **September 29,**          | ** ** | ** ** | ** ** | **September 27,** | ** ** | **September 29,** | ** ** | ** ** | ** ** |
| ** **          | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **Change** | ** ** |
| Earnings per share: |       |                             |       |                            |       |   |   |   |   |   |   |   |   |
| Basic               |       | $                                | (0.04      | )                               | $          | 0.02 |   | $ | (0.06 | ) | $ | (0.01 | ) | $ | 0.24 |   | $ | (0.25 | ) |
| Diluted             |       | $                                | (0.04      | )                               | $          | 0.02 |   | $ | (0.06 | ) | $ | (0.01 | ) | $ | 0.24 |   | $ | (0.25 | ) |

 

**Liquidity and CapitalResources**

 

The Company’scash management system and revolving line of credit have been designed tomaintain zero cash balances and, accordingly, excess cash generated fromoperations is utilized to reduce borrowings.

 

***Operating activities***

 

Operatingactivities provided $4.3 million of cash for the nine months ended September 27,2008 compared to cash provided of $18.7 million for the nine months ended September 29,2007.  For the nine months of 2008, operating cash was favorably impactedby an $8.0 million reduction in accounts receivable and a $1.0 million decreasein inventory offset by a $6.2 million decrease in accounts payable.  Netincome, adjusted for depreciation and amortization, provided cash flows fromoperating activities totaling $2.9 million and $6.5 million in nine months of2008 and 2007, respectively.

 

***Investing activities***

 

Cash used ininvesting activities was $3.1 million for the nine months ended September 27,2008 compared to $3.0 million for the nine months ended September 29,2007. Capital expenditures were $2.8 million during the first nine monthsof 2008 and consisted principally of investments in replacementequipment.  For the remainder of 2008, the Company plans to investprimarily in replacement equipment.

 

***Financing activities***

 

Financingactivities used $2.4 million for the nine months ended September 27, 2008compared to cash used of $16.9 million for the nine months ended September 29,2007.  The lower levels of financing activities for the nine months of2008 occurred as a result of the decrease in accounts receivable levels. TheCompany also received $248,000 and $745,000 from the exercise of stock optionsfor the nine months of 2008 and 2007, respectively.  The Company paid cashdividends of nine and one-half cents per share, or $2.5 million, for each ofthe first and second quarters of 2008 and a declared a two percent stockdividend on its outstanding Class A and Class B stock in the thirdquarter.  For 2007, the Company paid cashdividends of nine and one-half cents per share for each of the three quarters,totaling $3.6 million.  Due to thepresent industry conditions, the Board of Directors has decided to initiate astock dividend program replacing cash dividend distributions. The Board intendsto continue this stock dividend program until industry conditions improve andcash dividends can be resumed. Future dividends are necessarily subject tobusiness conditions, the Company’s financial position and requirements forworking capital, property, plant, and equipment expenditures and othercorporate purposes.

 

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The Company amended its existing credit agreement to extend thematurity date to October 31, 2009. Certain debt covenants have beenmodified to provide temporary relief to the Company during the current economicdownturn and the Company expects to remain in compliance with the modifiedcovenants. The Company is working with its lender to extend the credit facilitywith the expectation that the credit facility will remain classified aslong-term debt, although no assurance can be given that this will occur. (SeeItem 1A. RISK FACTORS) The credit facility is expected to provide sufficientliquidity to meet the Company’s financing needs and is secured by tradeaccounts receivable and a portion of inventories.

 

**Critical AccountingPolicies and Estimates**

 

Management’s discussion and analysis of its financial position andresults of operations are based upon the Company’s consolidated financialstatements which have been prepared in accordance with accounting principlesgenerally accepted in the United States of America.  The preparation of these financial statementsrequires management to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses and related disclosure ofcontingent assets and liabilities.  TheCompany’s significant accounting policies are discussed in Note 1 of the Notesto Consolidated Financial Statements included in the Annual Report on Form 10-Kfor the year ended December 29, 2007. In management’s opinion, the Company’s critical accounting policiesinclude revenue recognition, allowance for doubtful accounts, excess andobsolete inventories, inventory relief, accrued insurance, and accruedwarranty.

 

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

 

***Allowance forDoubtful Accounts*** – The Company maintains anallowance for doubtful accounts for estimated losses resulting from theinability of our customers to make required payments.  If the financial conditions of our customerswere to deteriorate, resulting in an impairment of their ability to makepayments, additional allowances may be required which would adversely affectour future operating results.

 

***Excess and ObsoleteInventories*** – The Company must make estimatesregarding the future use of raw materials and finished products and provide forobsolete or slow-moving inventories.  Ifactual product 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 monthly and quarterly financialreporting, cost of sales is recorded and inventories are relieved by the use ofstandard bills of material adjusted for scrap and other estimated factorsaffecting inventory relief.  Because ofour large and diverse product line and the customized nature of each order, itis difficult to place full reliance on the bills of material for accuraterelief of inventories.  Although theCompany continues to refine the process of creating accurate bills ofmaterials, manual adjustments (which are based on estimates) are necessary inan effort to provide correct relief of inventories for products sold.  The calculations to estimate costs notcaptured in the bill of materials take into account the customized nature ofproducts,

 

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historical inventory relief percentages,scrap variances, and other factors which could impact inventory relief.

 

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

 

The Company utilizes a wholly-owned small captive insurance company toinsure certain of its business risks. Certain risks, traditionally self-insured by the Company and itssubsidiaries, are insured by the captive insurance subsidiary.  In addition, certain business risks nottraditionally insured are insured by the captive insurance subsidiary.  Since the captive insurance company has notreinsured any of its coverages, the Company’s overall self-insurance risk hasnot changed.  The captive insurancesubsidiary helps the Company manage its risk exposures and, under the InternalRevenue Code, the net underwriting income of such a small captive is nottaxable.

 

***Accrued Warranty*****– The Company provides limited warrantiesfor periods of up to five years from the date of retail sale.  Estimated warranty costs are provided at thetime of sale and are based upon historical experience.

 

**Forward-Looking Statements**

 

This report contains forward-looking statements, other than historicalfacts, which reflect the view of management with respect to future events.  When used in this report, words such as “believe,”“expect,” “anticipate,” “estimate,” “intend,” and similar expressions, as theyrelate to the Company or its plans or operations, identify forward-lookingstatements.  Such forward-lookingstatements are based on assumptions made by, and information currentlyavailable 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.  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 no assurance that such raw materialcost increases can be passed on to its customers through implementation ofprice increases for the Company’s products. The forward-looking statements contained herein reflect the current viewof management with respect to future events and are subject to those factorsand other risks, uncertainties, and assumptions relating to the operations,results of operations, cash flows and financial position of the Company.  The Company assumes no obligation to updatethe forward-looking statements or to update the reasons actual results coulddiffer from those contemplated by such forward-looking statements.

 

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| **ITEM 3.** | ** ** | **QUANTITATIVE AND  QUALITATIVE DISCLOSURES ABOUT MARKET RISK.** |
|-------------|------------|------------------------------------------------------------------|

 

There has been no material change from the information provided in theCompany’s Annual Report on Form 10-K, “Item 7A: Quantitative andQualitative Disclosures About Market Risk,” for the year ended December 29,2007.

 
| **ITEM 4.** | ** ** | **CONTROLS  AND PROCEDURES.** |
|-------------|------------|-------------------------------|

 

a.             Evaluation of Disclosure Controls andProcedures.

 

In connection with the preparation of this Form 10-Q, anevaluation was performed under the supervision and with the participation ofthe Company’s management, including the Company’s Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation ofthe Company’s disclosure 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 September 27, 2008.

 

b.             Changes inInternal Control over Financial Reporting.

 

There has been no change in the Company’s internal control overfinancial reporting during our last fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

The Company continues to take action to assure compliance with theinternal controls, disclosure controls, and other requirements of theSarbanes-Oxley Act of 2002.  Management, including the Company’s ChiefExecutive Officer and Chief Financial Officer, cannot guarantee that theinternal controls and disclosure controls will prevent all possible errors orfraud.  A control system, no matter how well conceived and operated, canprovide only reasonable, not absolute, assurance that the objectives of acontrol system have been met. In addition, the design of a control system mustreflect the fact that there are resource constraints, and the benefit ofcontrols must be relative to their costs.  Because of the inherentlimitations in all control systems, no system of controls can provide absoluteassurance that all control issues and instances of fraud, if any, within theCompany will be detected.  These inherent limitations include therealities that judgments in decision-making can be faulty and that breakdownscan occur because of simple error or mistake.  Further, controls can becircumvented by individual acts of some persons, by collusion of two or morepersons, or by management override of the controls.

 

The design of any system of controls is also based in part upon certainassumptions about the likelihood of future events, and there can be noassurance that any design will succeed in achieving its stated goals under allpotential future conditions.  Over time, a control may be inadequatebecause of changes in

 

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conditions, or the degree of compliance with the policies or proceduresmay deteriorate.  Because of inherent limitations in any cost-effectivecontrol system, misstatements due to error or fraud may occur and not bedetected.

 

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

 

**ITEM1.****              LEGALPROCEEDINGS.**

 

The Company is subject to variousinvestigations, claims, and legal proceedings covering a wide range of mattersthat 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**

 

There have been no material changes in ourrisk factors from those previously disclosed in our Annual Report on Form 10-Kfor the year ended December 29, 2007, except as follows:

 

(i) The present economic slowdown andthe uncertainty over its breadth, depth, and duration has had a negative impacton the specialized vehicle industry. Many economists have reported that theU.S. economy is slowing and may be in, or nearing, a recession. Accordingly,our financial results have been negatively impacted by the economic slowdownand both our financial results and potential for growth could be further harmedif the economic slowdown continues for a significant period or becomes worse.

 

(ii) The Company is working with its lender to extend the creditfacility with the expectation that the credit facility will remain classifiedas long-term debt, although no assurance can be given that this will occur.(See Item 1A. RISK FACTORS)

 

**ITEM2.****              UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**

 

Not applicable.

 

**ITEM3.****              DEFAULTSUPON SENIOR SECURITIES.**

 

Not applicable.

 

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**ITEM4.****              SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS.**

 

Not applicable.

 

**ITEM5.****              OTHERINFORMATION.**

 

Not applicable.

 

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**ITEM6.****              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 September 26, 2008, by and  between Supreme Corporation and JPMorgan Chase Bank, N.A.                                                                                                                                                                                           |
| Exhibit 10.2* |   | Note Modification Agreement dated September 26, 2008, 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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*Filed herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|                         |   | SUPREME INDUSTRIES, INC.                               |
|------------------------------|--------|--------------------------------------------------------|
|                         |   |                                                   |
|                         |   |                                                   |
|                         |   | BY: /s/ Herbert M. Gardner                             |
| DATE: November 10, 2008 |   | Herbert M. Gardner                                     |
|                         |   | Chairman of the Board and Chief  Executive Officer     |
|                         |   |                                                   |
|                         |   |                                                   |
|                         |   | BY: /s/ Jeffery D. Mowery                              |
| DATE: November 10, 2008 |   | 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 September 26, 2008, by and  between Supreme Corporation and JPMorgan Chase Bank, N.A.                                                                                                                                                                                          |
| Exhibit 10.2*  |       | Note Modification Agreement dated September 26, 2008, 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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*Filed herewith.

 

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