**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

**FORM 10-Q**

**(Mark One)**

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

**For the quarterly period ended March 31, 2007**

**OR**

**o****                            ****TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the transition period from              to              **

**CommissionFile No. 1-8183**

**SUPREMEINDUSTRIES, INC.**

(Exact name ofregistrant as specified in its charter)

| **Delaware**                     |   | **75-1670945**                        |
|----------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)  |   |                                  |

 

**2581 E. Kercher Rd., P.O. Box237, Goshen, Indiana  46528**

(Address ofprincipal executive offices)

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

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

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act (check one):

Large acceleratedfiler  o  Acceleratedfiler  o  Non-acceleratedfiler  x

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

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

| **Common Stock ($.10 Par Value)** |   | **Outstanding at April 26, 2007** |
|-------------------------------------------------------|--------|-------------------------------------------------------|
| **Class A**                                           |   | **10,761,994**                                        |
| **Class B**                                           |   | **2,024,133**                                         |

 

 

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SUPREMEINDUSTRIES, INC.

CONTENTS
|                                                                                                                                           | ** **            | **Page No.** |
|-------------------------------------------------------------------------------------------------------------------------------------------|-----------------------|--------------|
| PART I.                                                                                                                                   | FINANCIAL INFORMATION |         |
|                                                                                                                                      |                  |         |
| ITEM 1.        Financial Statements.                                                                   |                  |
|                                                                                                                                      |                  |
| Consolidated Balance  Sheets                                                                                                              | 1                     |
|                                                                                                                                      |                  |
| Consolidated  Statements of Income                                                                                                        | 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. | 7                     |
|                                                                                                                                      |                  |
| ITEM 3.        Quantitative and  Qualitative Disclosures About Market Risk.                            | 13                    |
|                                                                                                                                      |                  |
| ITEM 4.        Controls and Procedures.                                                                | 13                    |
|                                                                                                                                      |                  |
| PART II.                                                                                                                                  | OTHER INFORMATION     |         |
|                                                                                                                                      |                  |         |
| ITEM 1.        Legal Proceedings.                                                                      | 14                    |
|                                                                                                                                      |                  |
| ITEM 1A.     Risk Factors.                                                                                            | 14                    |
|                                                                                                                                      |                  |
| ITEM 2.        Unregistered Sales of  Equity Securities and Use of Proceeds.                           | 14                    |
|                                                                                                                                      |                  |
| ITEM 3.        Defaults Upon Senior  Securities.                                                       | 15                    |
|                                                                                                                                      |                  |
| ITEM 4.        Submission of Matters to  a Vote of Security Holders.                                   | 15                    |
|                                                                                                                                      |                  |
| ITEM 5.        Other Information.                                                                      | 15                    |
|                                                                                                                                      |                  |
| ITEM 6.        Exhibits.                                                                               | 15                    |
|                                                                                                                                      |                  |
| SIGNATURES                                                                                                                                |                  |
|                                                                                                                                      |                  |
| INDEX  TO EXHIBITS                                                                                                                        |                  |
|                                                                                                                                      |                  |
| EXHIBITS                                                                                                                                  |                  |

 

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**PART I. FINANCIAL INFORMATION**

**ITEM 1.      FINANCIAL STATEMENTS.**

**Supreme Industries, Inc. andSubsidiaries**

ConsolidatedBalance Sheets
| ** **                                      | ** ** | **March 31,** | ** **  | **December 30,** | ** ** |
|-------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                      | ** ** | **2007**           | ** **  | **2006**              | ** ** |
| ** **                                      | ** ** | **(Unaudited)**    | ** **  | ** **            | ** ** |
| **Assets**                                      | ** ** | ** **         | ** **  | ** **            | ** ** |
|                                            |       |               |        |                  |       |
| Current assets:                                 |       |               |        |                  |       |
| Cash and cash equivalents                       |       | $                  | 110,919     |                  | $          | 1,307,463 |   |
| Investments                                     |       | 2,742,101          |        | 1,542,101             |       |
| Accounts receivable, net                        |       | 32,502,174         |        | 31,116,276            |       |
| Inventories                                     |       | 53,052,144         |        | 53,506,367            |       |
| Other current assets                            |       | 3,779,548          |        | 4,222,705             |       |
|                                            |       |               |        |                  |       |
| **Total current assets**                        |       | 92,186,886         |        | 91,694,912            |       |
|                                            |       |               |        |                  |       |
| **Property,  plant and equipment, at cost**     |       | 91,011,825         |        | 91,471,500            |       |
| Less, Accumulated depreciation and amortization |       | 42,698,267         |        | 43,082,017            |       |
|                                            |       |               |        |                  |       |
| **Property, plant and equipment, net**          |       | 48,313,558         |        | 48,389,483            |       |
|                                            |       |               |        |                  |       |
| **Goodwill  and intangible assets, net**        |       | 1,408,168          |        | 1,420,261             |       |
| **Other  assets**                               |       | 532,187            |        | 620,064               |       |
|                                            |       |               |        |                  |       |
| **Total  assets**                               |       | $                  | 142,440,799 |                  | $          | 142,124,720 |   |

 

The accompanying notesare a part of the consolidated financial statements.

1

----

 
| ** **                                           | ** ** | **March 31,** | ** **  | **December 30,** | ** ** |
|------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                           | ** ** | **2007**           | ** **  | **2006**              | ** ** |
| ** **                                           | ** ** | **(Unaudited)**    | ** **  | ** **            | ** ** |
| **Liabilities  and Stockholders’ Equity**       | ** ** | ** **         | ** **  | ** **            | ** ** |
|                                                 |       |               |        |                  |       |
| **Current  liabilities:**                            | ** ** | ** **         | ** **  | ** **            | ** ** |
| Current maturities of long-term debt                 |       | $                  | 1,534,193   |                  | $          | 1,807,425 |   |
| Trade accounts payable                               |       | 15,987,159         |        | 13,508,441            |       |
| Accrued income taxes                                 |       | 896,678            |        | 495,678               |       |
| Other accrued liabilities                            |       | 9,125,611          |        | 9,318,050             |       |
|                                                 |       |               |        |                  |       |
| **Total current liabilities**                        |       | 27,543,641         |        | 25,129,594            |       |
|                                                 |       |               |        |                  |       |
| **Long-term  debt**                                  |       | 36,671,100         |        | 38,863,229            |       |
|                                                 |       |               |        |                  |       |
| **Deferred  income taxes**                           |       | 2,896,216          |        | 2,923,216             |       |
| ** **                                           | ** ** | ** **         | ** **  | ** **            | ** ** |
| **Total liabilities**                                |       | 67,110,957         |        | 66,916,039            |       |
|                                                 |       |               |        |                  |       |
| **Stockholders’  equity**                       |       | 75,329,842         |        | 75,208,681            |       |
|                                                 |       |               |        |                  |       |
| **Total  liabilities and stockholders’ equity** |       | $                  | 142,440,799 |                  | $          | 142,124,720 |   |

 

The accompanying notesare a part of the consolidated financial statements.

2

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**Supreme Industries, Inc. andSubsidiaries**

ConsolidatedStatements of Income (Unaudited)
| ** **                                                 | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                 | ** ** | **March 31,**               | ** ** | **April 1,** | ** ** |
| ** **                                                 | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| ** **                                                 | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net sales                                                  |       | $                                | 83,891,983 |   | $ | 85,747,138 |   |
| Cost of sales                                              |       | 74,920,597                       |       | 76,141,452 |   |
| Gross profit                                               |       | 8,971,386                        |       | 9,605,686 |   |
| ** **                                                 | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Selling, general  and administrative expenses              |       | 6,929,747                        |       | 6,858,966 |   |
| Other expense  (income)                                    |       | (89,977                          | )          | (107,240 | ) |
| Operating income                                           |       | 2,131,616                        |       | 2,853,960 |   |
|                                                       |       |                             |       |   |   |
| Interest expense                                           |       | 743,171                          |       | 700,925 |   |
| Income before income taxes                                 |       | 1,388,445                        |       | 2,153,035 |   |
|                                                       |       |                             |       |   |   |
| Income taxes                                               |       | 424,000                          |       | 780,000 |   |
| Net income                                                 |       | $                                | 964,445    |   | $ | 1,373,035 |   |
| ** **                                                 | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Earnings  Per Share:**                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Basic                                                      |       | $                                | .08        |   | $ | .11 |   |
| Diluted                                                    |       | .08                              |       | .11 |   |
|                                                       |       |                             |       |   |   |
| **Shares  used in the computation of earnings per share:** | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Basic                                                      |       | 12,726,845                       |       | 12,689,654 |   |
| Diluted                                                    |       | 12,835,053                       |       | 12,919,433 |   |
|                                                       |       |                             |       |   |   |
| **Cash dividends per common share**                        |       | $                                | .095       |   | $ | .095 |   |

 

The accompanying notesare a part of the consolidated financial statements.

3

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**Supreme Industries, Inc. andSubsidiaries**

ConsolidatedStatements of Cash Flows (Unaudited)
| ** **                                                                                   | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                   | ** ** | **March 31,**               | ** ** | **April 1,** | ** ** |
| ** **                                                                                   | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| **Cash  flows from operating activities:**                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net income                                                                                   |       | $                                | 964,445    |   | $ | 1,373,035 |   |
| Adjustments to reconcile net income to net cash  provided by (used in) operating activities: |       |                             |       |   |   |
| Depreciation and amortization                                                                |       | 1,075,893                        |       | 1,076,163 |   |
| Amortization of intangibles                                                                  |       | 12,093                           |       | — |   |
| Provision for losses on doubtful receivables                                                 |       | 42,293                           |       | 46,656 |   |
| Stock-based compensation expense                                                             |       | 48,668                           |       | — |   |
| Loss (gain) on disposal of property and equipment                                            |       | (70                              | )          | 13,541 |   |
| Changes in operating assets and liabilities, net of  effect of business acquisition in 2006  |       | 2,156,468                        |       | (7,353,421 | ) |
|                                                                                         |       |                             |       |   |   |
| **Net cash provided by (used in) operating  activities**                                     |       | 4,299,790                        |       | (4,844,026 | ) |
|                                                                                         |       |                             |       |   |   |
| **Cash  flows from investing activities:**                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Business acquisition                                                                         |       | —                           |       | (1,050,000 | ) |
| Additions to property, plant and equipment                                                   |       | (999,968                         | )          | (1,343,090 | ) |
| Proceeds from disposal of property and equipment                                             |       | 70                               |       | 4,700 |   |
| Purchase of short-term investments                                                           |       | (1,200,000                       | )          | (1,185,000 | ) |
| Decrease (increase) in other assets                                                          |       | 13,978                           |       | (75,880 | ) |
|                                                                                         |       |                             |       |   |   |
| **Net cash used in investing activities**                                                    |       | (2,185,920                       | )          | (3,649,270 | ) |
|                                                                                         |       |                             |       |   |   |
| **Cash  flows from financing activities:**                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Proceeds from revolving line of credit and other  long-term debt                             |       | 31,577,297                       |       | 27,270,784 |   |
| Repayments of revolving line of credit and other  long-term debt                             |       | (34,042,658                      | )          | (18,781,723 | ) |
| Payment of cash dividends                                                                    |       | (1,204,866                       | )          | (1,205,626 | ) |
| Proceeds from exercise of stock options                                                      |       | 359,813                          |       | — |   |
|                                                                                         |       |                             |       |   |   |
| **Net cash provided by (used in) financing  activities**                                     |       | (3,310,414                       | )          | 7,283,435 |   |
|                                                                                         |       |                             |       |   |   |
| **Change  in cash and cash equivalents**                                                     |       | (1,196,544                       | )          | (1,209,861 | ) |
| ** **                                                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Cash  and cash equivalents, beginning of period**                                          |       | 1,307,463                        |       | 1,515,532 |   |
|                                                                                         |       |                             |       |   |   |
| **Cash  and cash equivalents, end of period**                                                |       | $                                | 110,919    |   | $ | 305,671 |   |
| ** **                                                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Supplemental  disclosure of noncash investing and financing activities:**                  | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Liabilities  assumed in business acquisition                                                 |       | $                                | —     |   | $ | 163,222 |   |

 

The accompanying notesare a part of the consolidated financial statements.

4

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**SUPREME INDUSTRIES, INC. ANDSUBSIDIARIES**

Notes ToConsolidated Financial Statements

NOTE 1 - BASIS OF PRESENTATION AND OPINION OF MANAGEMENT

The accompanyingunaudited consolidated financial statements have been prepared in accordancewith the instructions to Form 10-Q and therefore do not include all of theinformation and financial statement disclosures necessary for a fairpresentation of consolidated financial position, results of operations and cashflows in conformity with accounting principles generally accepted in the UnitedStates of America.  In the opinion ofmanagement, the information furnished herein includes all adjustments necessaryto reflect a fair statement of the interim periods reported.  All adjustments are of a normal and recurringnature.  The December 30, 2006consolidated balance sheet data was derived from audited financial statements,but does not include all disclosures required by accounting principlesgenerally accepted in the United States of America.

The Company has adopted a52 or 53 week fiscal year ending the last Saturday in December.  The results of operations for the threemonths ended March 31, 2007 and April 1, 2006 are for 13 week periods.

Certain amounts in theconsolidated statements of income for 2006 have been reclassified to conform tothe presentation of the 2007 consolidated statements of income.  The reclassifications had no impact on netsales, cost of sales, pretax income or net income as previously reported. Forfurther information, refer to the consolidated financial statements andfootnotes thereto included in our Annual Report on Form 10-K for the year endedDecember 30, 2006.

NOTE 2 - OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensiveincome (loss) includes unrealized gains on hedge-activity, net of tax, andunrealized depreciation on available-for-sale securities, net of tax.  Other comprehensive income (loss) for thethree month periods ended March 31, 2007 and April 1, 2006 was $(46,899) and$151,927, respectively.  Totalcomprehensive income combines net income and other comprehensive income(loss).  Total comprehensive income forthe three month periods ended March 31, 2007 and April 1, 2006 was $917,546 and$1,524,962, respectively.

NOTE 3 - INVENTORIES

Inventories, which arestated at the lower of cost or market with cost determined using the first-in,first-out method, consist of the following:
|                  | ** ** | **March 31,** | ** ** | **December 30,** | ** ** |
|------------------|------------|--------------------|------------|-----------------------|------------|
| ** **       | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Raw materials    |       | $                  | 29,438,259 |                  | $          | 29,569,267 |   |
| Work-in-progress |       | $                  | 10,493,038 |                  | $          | 11,199,112 |   |
| Finished goods   |       | $                  | 13,120,847 |                  | $          | 12,737,988 |   |
|             |       | $                  | 53,052,144 |                  | $          | 53,506,367 |   |

 

5

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The valuation of rawmaterials, work-in-progress and finished goods inventories at interim dates isbased upon a gross profit percentage method, bills of materials, scrap andother estimated factors that affect inventory relief.  The Company has historically experienced bothfavorable and unfavorable adjustments resulting from physical inventories.  The Company continues to refine its inventoryrelief in an effort to minimize book to physical inventory adjustments.

NOTE 4 - EARNINGS PER SHARE

The number of shares usedin the computation of basic and diluted earnings per share are as follows:
|                                                                                                  | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                       | ** ** | **March 31,**               | ** ** | **April 1,** | ** ** |
| ** **                                                                                       | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| Weighted average number  of shares outstanding (used in computation of basic earnings per share) |       | 12,726,845                       |       | 12,689,654 |   |
|                                                                                             |       |                             |       |   |   |
| Effect of dilutive  stock options                                                                |       | 108,208                          |       | 229,779 |   |
|                                                                                             |       |                             |       |   |   |
| Diluted shares outstanding (used in computation of diluted earnings per  share)                  |       | 12,835,053                       |       | 12,919,433 |   |

 

NOTE 5 - STOCK-BASED COMPENSATION

A summary of the statusof the Company’s outstanding stock options as of March 31, 2007, and changesduring the three month period ended March 31, 2007 are as follows:
|                               | ** ** | ** **         | ** ** | **Weighted -** | ** ** |
|-------------------------------|------------|--------------------|------------|---------------------|------------|
| ** **                    | ** ** | ** **         | ** ** | **Average**         | ** ** |
| ** **                    | ** ** | **Number of** | ** ** | **Exercise**        | ** ** |
| ** **                    | ** ** | **Shares**         | ** ** | **Price**           | ** ** |
| Outstanding,  January 1, 2007 |       | 1,228,320          |       | $                   | 6.12       |   |
| Granted                       |       | —             |       | —              |       |
| Exercised                     |       | (73,334            | )          | 4.91                |       |
| Outstanding, March 31,  2007  |       | 1,154,986          |       | 6.19                |       |
|                               |            |                    |            |                     |            |  |

 

The intrinsic value ofthe options exercised during the three months ended March 31, 2007 was$69,141.  The intrinsic value of alloptions outstanding at March 31, 2007 was $430,975 and outstanding options hada weighted-average remaining contractual life of 2.88 years.

6

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NOTE 6 - COMMON STOCK

The Company paid cashdividends, to all Class A and Class B common stockholders, of nine and one-halfcents ($0.095) per share for each of the three month periods ended March 31,2007 and April 1, 2006.

NOTE 7 - SUBSEQUENT EVENT

On May 3, 2007, the Company’sBoard of Directors declared a nine and one-half cent ($0.095) per share cashdividend payable on May 24, 2007 to all class A and B common stockholders ofrecord on May 17, 2007.

NOTE 8 – ADOPTION OF NEWACCOUNTING STANDARD

In July 2006, the FinancialAccounting Standards Board issued Financial Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes” (“FIN 48”). This Interpretation revises the recognition test for tax positions takenin tax returns such that a tax benefit is recorded only when it is more likelythan not that the tax position will be allowed upon examination by taxingauthorities, which is presumed to occur. The amount of such a tax benefit to be recorded is the largest amountthat is more likely than not to be allowed. The adoption of FIN 48 did not have a material impact on the Company’sfinancial position or results of operations. The amount of unrecognized tax benefits at January 1, 2007 totaledapproximately $500,000, and the full amount would increase operating incomethus impacting the Company’s effective tax rate, if ultimately recognized inincome.

The Company is subject toU.S. federal income tax as well as various state taxes and is no longer subjectto examination by taxing authorities for years before 2003.  The Company does not expect the total amountof unrecognized tax benefits to significantly increase in the next twelvemonths.  Interest and penalties relatedto income tax matters are recognized in income tax expense.  Interest and penalties accrued for at March31, 2007 were insignificant.

**ITEM 2.****        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS.**

**Resultsof Operations**

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

***Net Sales***

Net sales for the threemonths ended March 31, 2007 decreased $1.8 million, or 2.1%, to $83.9 millioncompared to $85.7 million for the three months ended April 1, 2006.  The decrease in net sales was attributable toa reduction of $3.1 million, or 5.3%, in our core truck sales and a reductionof $1.1 million, or 33.3%, in armored vehicle sales. These decreases werepartially offset by higher net sales in our composites divisions of $2.3million, a 101.5% increase from 2006, and $1.1 million, a 117.1% increase from2006, in our Silver Crown motorhome division.

7

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Net sales in ourStarsTrans bus division remained relatively constant fromquarter-to-quarter.  The anticipateddecrease in core truck sales was the result of an industry-wide reduction intruck sales due to the increased cost of chassis.  New and more stringent diesel engine emissionstandards, which became effective for engines produced beginning January 1,2007, caused truck buyers to accelerate their purchases into 2006. However,because of our broad and diverse product line, we are hopeful of mitigating theeffect of the accelerated truck purchases which occurred during 2006.  The reduction in armored vehicle sales forthe quarter was primarily attributable to the timing of the placement of ordersby our cash-in-transit customers. The backlog for the armored vehicle sales hasimproved and we now anticipate exceeding our 2006 armored vehicle sales in2007. The strong increase in sales in the composites divisions was primarilydue to increased sales of our fiberglass reinforced plywood (“FRP”) productwhile the increase in our Silver Crown motorhome division sales was due to thedivision being a startup operation in 2006. Our total sales backlog was $81.3million at March 31, 2007 compared to $90.9 million at April 1, 2006.

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

Gross profit decreased by$.6 million, or 6.3%, to $9.0 million (10.7% of net sales) for the three monthsended March 31, 2007 compared to $9.6 million (11.2% of net sales) for thethree months ended April 1, 2006.  Thefollowing table presents the components of cost of sales as a percentage of netsales for the first quarter of 2007 and 2006 and the changes from 2006:
|               | ** ** | **March 31,** | ** ** | **April 1,** | ** ** | **Percent** | ** ** |
|---------------|------------|--------------------|------------|-------------------|------------|-------------|------------|
| ** **    | ** ** | **2007**           | ** ** | **2006**          | ** ** | **Change**  | ** ** |
| Material      |       | 58.7               | %          | 56.9              | %          | 1.8         | %          |
| Direct labor  |       | 13.5               |       | 14.1              |       | -0.6        |       |
| Overhead      |       | 14.8               |       | 15.2              |       | -0.4        |       |
| Delivery      |       | 2.3                |       | 2.6               |       | -0.3        |       |
| Cost of sales |       | 89.3               |       | 88.8              |       | 0.5         |       |
| Gross profit  |       | 10.7               | %          | 11.2              | %          | -0.5        | %          |

 

**Material** – Materialcost as a percentage of net sales for the three months ended March 31, 2007 was58.7% compared to 56.9% for the corresponding period in 2006.  The increase of 1.8% is due to our StarTransBus division, our Silver Crown division and our Composites divisions, whichhave a higher material content and accounted for 28.7% of our net sales in thefirst quarter of 2007 compared to 21.7% of our net sales in the first quarterof 2006.  The Company’s core truckdivision’s material percentage decreased .6% from quarter-to-quarter butescalating steel and aluminum raw material costs remain a concern. We continueto closely monitor and manage our major raw material costs through closecommunication and negotiation with key suppliers, utilizing cost monitoringtools and developing strategies to mitigate cost and availability issues.  The Company also continually strives toreduce the cost of its product offerings through the development and use ofinnovative materials, robotics and other manufacturing process improvements.

8

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**Direct Labor** –Direct labor as a percentage of net sales was 13.5% for the three months endedMarch 31, 2007 compared to 14.1% for the three months ended April 1, 2006.  The direct labor improvement of .6% was theresult of the efficiencies realized from using our more experienced workforceand contracting fewer temporary employees at our core truck divisions.Additionally, in the first quarter of 2006 we experienced a delay in OEMsupplied chassis which caused the Company to temporarily shut down productionlines, thereby negatively affecting labor and overhead absorption in the 2006quarter.

**Overhead** – Overheadas a percentage of net sales was 14.8% for the three months ended March 31,2007 compared to 15.2% for the three months ended April 1, 2007.  The improvement of .4% was primarily due toreductions in indirect payroll, small tools purchases, utilities and repairsand maintenance costs for the first quarter of 2007 compared to the first quarterof 2006.  However, these improvementswere somewhat offset by an increase in group health insurance claims. To combatthe increase in group health insurance claims, the Company continues toimplement changes to its group health insurance plan in an effort to controlfuture claim costs.

**Delivery** – Delivery expense as apercentage of net sales was 2.3% for the three months ended March 31, 2007compared to 2.6% for the three months ended April 1, 2007.

**Selling, general and administrative expenses**

Selling, general andadministrative (“G&A”) expenses remained flat at $6.9 million (8.3% of netsales) for the three months ended March 31, 2007 and (8.0% of net sales) forthe three months ended April 1, 2006. The following table presents selling andG&A expenses as a percentage of net sales and the changes fromquarter-to-quarter:
|                  | ** ** | **March 31,** | ** ** | **April 1,** | ** ** | **Percent** | ** ** |
|------------------|------------|--------------------|------------|-------------------|------------|-------------|------------|
| ** **       | ** ** | **2007**           | ** ** | **2006**          | ** ** | **Change**  | ** ** |
| Selling expenses |       | 3.1                | %          | 2.8               | %          | 0.3         | %          |
| G&A expenses |       | 5.2                |       | 5.2               |       | —      |       |
| Total            |       | 8.3                | %          | 8.0               | %          | 0.3         | %          |

 

**Selling expenses** –Selling expenses increased by $.2 million, or 8.3%, to $2.6 million for thethree months ended March 31, 2007 from $2.4 million for the three months endedApril 1, 2006.  The increased sellingexpenses related primarily to a reduction in cooperative marketing fundsreceived from chassis manufacturers. These funds, determined solely by programsestablished by the chassis manufacturers, have historically been used to helpoffset marketing and promotional expenses. Additionally, to promote its expanding and extensive product lines, theCompany also incurred higher show and related expenses in the first quarter of2007 compared to the first quarter of 2006.

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**G&A expenses** – General andadministrative expenses decreased by $.1 million, or 2.3% to $4.3 for the threemonths ended March 31, 2007 from $4.4 million for the three months ended April1, 2006. The decrease in general and administrative expenses was due to acontinued focus to reduce expenses in 2007 compared to 2006.

***OtherIncome***

Other income wasrelatively constant at $.1 million for the three months ended March 31, 2007and April 1, 2006. Other income consists of rental income, gain on sale ofassets and other miscellaneous income received by the Company through itsvarious business activities.

***Interest expense***

Interest expense was relativelyconstant at $.7 million (.8% of net sales) for the three months ended March 31,2007 and April 1, 2006, respectively. Bank interest expense increased $.1 million to $.6 million for the firstquarter of 2007 compared to $.5 million for the first quarter of 2006.  The increase resulted from increasedborrowings under the Company’s working capital line of credit and higherinterest rates.  Chassis interest expensewas $.1 million for the first quarter of 2007 compared to $.2 million for thefirst quarter of 2006.  The decrease wasdue to reduced consigned chassis inventory levels relating to light-dutychassis.  In 2006, we experienced anunanticipated slow down in the light-duty truck market causing a build up ofconsigned chassis inventory which resulted in increased interest expense.

***Incometaxes***

The Company’s effectiveincome tax rate was 30.5% for the three months ended March 31, 2007 compared to36.2% for the three months ended April 1, 2006. The 2006 effective income tax rate was subsequently reduced during thethird and fourth quarters of 2006 and was 30.2% for the year ended December 30,2006. In addition to being in a lower tax bracket, the effective income taxrate was favorably impacted by tax-exempt underwriting income of a wholly-ownedsmall captive insurance subsidiary, by the additional tax deduction allowedmanufacturers under the 2004 American Jobs Creation Act and federal and stateresearch and development tax credits.

***Netincome and earnings per share***

Net income decreased by$.4 million, or 29%, to $1.0 million (1.2% of net sales) for the three monthsended March 31, 2007 from $1.4 million (1.6% of net sales) for the three monthsended April 1, 2006.

Basic and dilutedearnings per share decreased $.03 per share, or 27% to $.08 per share for thethree months ended March 31, 2007 from $.11 per share for the three monthsended April 1, 2006.

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**Liquidityand Capital Resources**

Cash generated fromoperations and reductions in working capital were major sources of cash flowsduring the first quarter of 2007.  TheCompany’s cash management system and revolving line of credit are designed tomaintain zero cash balances and, accordingly, excess cash generated fromoperations is utilized to reduce borrowings.

***Operatingactivities***

Operating activitiesprovided $4.3 million for the three months ended March 31, 2007 compared to ause of cash of $4.8 million for the three months ended April 1, 2006.  Working capital decreased $1.9 million duringthe three months ended March 31, 2007, principally due to higher levels oftrade accounts payable and, to a lesser extent, a decrease in inventories whichwere somewhat offset by an increase in trade accounts receivable.  Net income, adjusted for depreciation andamortization, also provided $2.1 million and $2.4 million, respectively, forthe first quarter of 2007 and 2006.

***Investingactivities***

Investing activities used$2.2 million for the three months ended March 31, 2007 compared to $3.6 millionfor the three months ended April 1, 2006. Capital expenditures totaled $1.0 million for first quarter of 2007 andconsisted principally of replacement equipment. Additionally, the Company had an increase in its short-term investmentsof $1.2 million in its captive insurance subsidiary for the three months endedMarch 31, 2007.

***Financing******activities***

Financing activities used$3.3 million for the three months ended March 31, 2007 compared to cashprovided of $7.3 for the three months ended April 1, 2006.  The lower levels of financing activitiesoccurred as a result of a reduction of $1.9 million in working capital in thefirst quarter of 2007 compared to a $7.2 million increase for the first quarterof 2006. The Company also received $.4 million from the exercise of stockoptions in the first quarter of 2007. The Company’s board of directors approveda quarterly cash dividend of nine and one-half cents per share, or $1.2million, for the first quarter of 2007 and 2006.

**CriticalAccounting Policies and Estimates**

Management’s discussionand analysis of its financial position and results of operations are based uponthe Company’s consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United Statesof America.  The preparation of thesefinancial statements requires Management to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses andrelated disclosure of contingent assets and liabilities.  The Company’s significant accounting policiesare discussed in Note 1 of the Notes to Consolidated Financial Statementsincluded in the Annual Report on Form 10-K for the year ended December 30,2006.  In Management’s opinion, theCompany’s critical accounting policies include revenue recognition, allowancefor doubtful accounts, excess and obsolete inventories, inventory relief,accrued insurance and accrued warranty.

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***RevenueRecognition*** – The Company generally recognizes revenuewhen the unit is shipped to the customer. Revenue on certain customer requested bill and hold transactions isrecognized subsequent to when the customer is notified that the product(s) havebeen completed according to customer specifications, have passed all of theCompany’s quality control inspections, and are ready for delivery based onestablished delivery terms.

***Allowance for Doubtful Accounts*** – TheCompany maintains an allowance for doubtful accounts for estimated lossesresulting from the inability of our customers to make required payments.  If the financial condition of our customerswere to deteriorate, resulting in an impairment of their ability to makepayments, additional allowances may be required which would affect our futureoperating results.

***Excess and Obsolete Inventories*** – TheCompany must make estimates regarding the future use of raw materials andfinished products and provides a provision for obsolete or slow-movinginventories.  If actual product lifecycles, product demand or market conditions are less favorable than thoseprojected by Management, additional inventory write-downs may be required whichwould affect future operating results.

***Inventory Relief*** – For monthly andquarterly financial reporting, cost of sales is recorded and inventories arerelieved by the use of gross profit percentage method, standard bills of material,adjusted for scrap and other estimated factors affecting inventory relief.  Because of the customized nature of theCompany’s products, it is difficult to place full reliance on the bills ofmaterial for accurate relief of inventories. Although the Company continues to refine the process of creatingaccurate bills of materials, manual adjustments, which are based on estimates,are necessary in an effort to assure correct relief of inventories for productssold.  The estimate calculations considerthe customized nature of products, historical inventory relief percentages,scrap variances and other factors which could impact inventory relief.  The accuracy of the inventory relief is notknown until interim and or annual physical inventories are conducted at each ofthe Company’s plant locations.

Management has dedicatedsignificant in-house resources to refining bills of materials, improving costaccounting functions and instituting new inventory policies andprocedures.  In addition, Management hasimplemented more frequent physical inventories.

***Accrued Insurance*** - The Company has aself-insured retention against product liability claims with insurance coverageover and above the retention.  TheCompany is also self-insured for a portion of its employee medical benefits andworkers’ compensation.  Product liabilityclaims are routinely reviewed by the Company’s insurance carrier and Managementroutinely reviews other self-insurance risks for purposes of establishingultimate loss estimates.  In addition,Management must determine estimated liability for claims incurred but notreported.  Such estimates and anysubsequent changes in estimates may result in adjustments to our operatingresults in the future.

The Company utilizes awholly-owned small captive insurance company to insure certain of its businessrisks.  Certain risks, traditionallyself-insured by the Company and its subsidiaries, are insured by the captiveinsurance subsidiary.  In addition,certain business risks not traditionally insured are insured by the captiveinsurance subsidiary.  Since the captiveinsurance company has not reinsured any of its coverages, the Company’s overallself-insurance risk has not changed.  Thecaptive insurance subsidiary helps the Company manage its risk exposures andunder the Internal Revenue Code the net underwriting income of a small captive,as defined, is not taxable.

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***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 containsforward-looking statements, other than historical facts, which reflect the viewof Management with respect to future events. When used in this report, words such as “believe,” “expect,” “anticipate,”“estimate,” “intend,” and similar expressions, as they relate to the Company orits plans or operations, identify forward-looking statements.  Such forward-looking statements are based onassumptions made by, and information currently available to, Management.  Although Management believes that theexpectations reflected in such forward-looking statements are reasonable, itcan give no assurance that the expectations reflected in such forward-lookingstatements are reasonable, and it can give no assurance that such expectationswill prove to be correct.  Importantfactors that could cause actual results to differ materially from suchexpectations include, without limitation, limitations on the availability ofchassis on which the Company’s product is dependent, availability of rawmaterials, raw material cost increases and severe 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 statementscontained herein reflect the current view of Management with respect to futureevents and are subject to those factors and other risks, uncertainties andassumptions relating to the operations, results of operations, cash flows andfinancial position of the Company.  TheCompany assumes no obligation to update the forward-looking statements or toupdate the reasons actual results could differ from those contemplated by suchforward-looking statements.

**ITEM3.****                         QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

There has been nomaterial change from the information provided in the Company’s Annual Report onForm 10-K, “Item 7A: Quantitative and Qualitative Disclosures About MarketRisk,” for the year ended December 30, 2006.

**ITEM4.****                         CONTROLSAND PROCEDURES.**

a.                                       Evaluationof Disclosure Controls and Procedures.

In connection with the preparation of this Form 10-Q, an evaluation wasperformed under the supervision and with the participation of the Company’sManagement, including the Company’s Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of the Company’sdisclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)under the Securities Exchange Act of 1934, as amended).

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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 the realitiesthat judgments in decision-making can be faulty and that breakdowns can occurbecause of simple error or mistake.  Further, controls can be circumventedby individual acts of some persons, by collusion of two or more persons, or bymanagement 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 conditions, or the degree of compliance with the policiesor procedures may deteriorate.  Because of inherent limitations in anycost-effective control system, misstatements due to error or fraud may occurand not be detected.

**PARTII.     OTHER INFORMATION**

**ITEM 1.****                             LEGALPROCEEDINGS.**

Not applicable.

**ITEM 1A.****                    RISKFACTORS.**

There have been nomaterial changes in our risk factors from those previously disclosed in ourAnnual Report on Form 10-K for the year ended December 30, 2006.

**ITEM 2.****                             UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**

Not applicable.

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**ITEM 3.****                             DEFAULTSUPON SENIOR SECURITIES.**

Not applicable.

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

Not applicable.

**ITEM 5.****                             OTHERINFORMATION.**

Not applicable.

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

Exhibits:
| 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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SIGNATURES

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                     |   | SUPREME INDUSTRIES, INC.                                                                    |
|--------------------------|--------|---------------------------------------------------------------------------------------------|
|                     |   |                                                                                        |
|                     |   |                                                                                        |
|                          |   |  BY: /s/ Jeffery D. Mowery                                                             |
|  DATE: May 14, 2007 |   |  Jeffery D. Mowery                                                                     |
|                     |   |                                                                                        |
|                     |   | Vice President of Finance and Chief   Financial Officer                                     |
|                     |   |                                                                                        |
|                     |   | (Signing on behalf of the Registrant   and as Principal Financial and   Accounting Officer) |

 

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INDEX TO EXHIBITS
| Exhibit   Number | ** ** | **Description of Document**                                                                          |
|------------------|------------|------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                 |
| 31.1             |       | Certification of Chief Executive Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002. |
|             |       |                                                                                                 |
| 31.2             |       | Certification of Chief Financial Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002. |
|             |       |                                                                                                 |
| 32.1             |       | Certification of Chief Executive Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |
|             |       |                                                                                                 |
| 32.2             |       | Certification of Chief Financial Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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