**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C.  20549**

**FORM 10-Q**
| **(Mark One)** |
|----------------|
| **x**          | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE  SECURITIES EXCHANGE ACT OF 1934** |
| ** **     | ** ** | ** ** |
|           | ** ** | **For the quarterly period ended June 30, 2007** |
|           |   |   |
|           | ** ** | **OR** |
|           |   |   |
| **o**          | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
| ** **     | ** ** | ** ** |
| ** **     | ** ** | **For the transition period  from             to             ** |

 

**CommissionFile Number:****1-8183**

**SUPREME INDUSTRIES, INC.**

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

 

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the ExchangeAct (check one):
| Large accelerated filer  o | Accelerated filer  o | Non-accelerated filer  x |
|--------------------------------------|--------------------------------|------------------------------------|

 

Indicate by check markwhether 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 July 25,2007** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------|------------|
| **Class A**                                       | ** ** | **10,833,299**                                 | ** ** |
| **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. | 14 |
|               |         |   |   |
|               |         |   |   |
| PART II.      |         | OTHER INFORMATION |   |
|               |         |   |   |
| ITEM 1.            |         | Legal Proceedings. | 14 |
|               |         |   |   |
| ITEM 1A.           |         | Risk Factors. | 15 |
|               |         |   |
| ITEM 2.            |         | Unregistered  Sales of Equity Securities and Use of Proceeds. | 15 |
|               |         |   |   |
| ITEM 3.            |         | Defaults  Upon Senior Securities. | 15 |
|               |         |   |   |
| ITEM 4.            |         | Submission of  Matters to a Vote of Security Holders. | 15 |
|               |         |   |   |
| ITEM 5.            |         | Other Information. | 16 |
|               |         |   |   |
| ITEM 6.            |         | Exhibits. | 16 |
|               |         |   |
|               |         |   |
| SIGNATURES         |         |
|               |         |
| INDEX  TO EXHIBITS |         |
|               |         |
| EXHIBITS           |         |
|                    |              |  |  |  |  |  |  |

 

----

**PART I. FINANCIAL INFORMATION**

**ITEM1.    FINANCIALSTATEMENTS.**

**Supreme Industries, Inc. andSubsidiaries**

ConsolidatedBalance Sheets
| ** **                                       | ** ** | **June 30,** | ** **  | **December 30,** | ** ** |
|--------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                       | ** ** | **2007**          | ** **  | **2006**              | ** ** |
| ** **                                       | ** ** | **(Unaudited)**   | ** **  | ** **            | ** ** |
| **Assets**                                       | ** ** | ** **        | ** **  | ** **            | ** ** |
|                                             |       |              |        |                  |       |
| **Current assets:**                              | ** ** | ** **        | ** **  | ** **            | ** ** |
| Cash and cash  equivalents                       |       | $                 | 112,316     |                  | $          | 1,307,463 |   |
| Investments                                      |       | 2,675,947         |        | 1,542,101             |       |
| Accounts  receivable, net                        |       | 28,832,776        |        | 31,116,276            |       |
| Inventories                                      |       | 47,230,407        |        | 53,506,367            |       |
| Other current  assets                            |       | 3,114,115         |        | 4,222,705             |       |
|                                             |       |              |        |                  |       |
| **Total  current assets**                        |       | 81,965,561        |        | 91,694,912            |       |
|                                             |       |              |        |                  |       |
| **Property, plant and equipment,  at cost**      |       | 91,368,323        |        | 91,471,500            |       |
| Less,  Accumulated depreciation and amortization |       | 43,566,680        |        | 43,082,017            |       |
|                                             |       |              |        |                  |       |
| **Property,  plant and equipment, net**          |       | 47,801,643        |        | 48,389,483            |       |
|                                             |       |              |        |                  |       |
| **Goodwill and intangible assets,  net**         |       | 1,396,076         |        | 1,420,261             |       |
| **Other assets**                                 |       | 705,368           |        | 620,064               |       |
|                                             |       |              |        |                  |       |
| **Total  assets**                                |       | $                 | 131,868,648 |                  | $          | 142,124,720 |   |

 

The accompanying notesare a part of the consolidated financial statements.

1

----

**Supreme Industries, Inc. andSubsidiaries**

Consolidated BalanceSheets, Concluded
| ** **                                     | ** ** | **June 30,** | ** **  | **December 30,** | ** ** |
|------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                     | ** ** | **2007**          | ** **  | **2006**              | ** ** |
| ** **                                     | ** ** | **(Unaudited)**   | ** **  | ** **            | ** ** |
| **Liabilities  and Stockholders' Equity**      | ** ** | ** **        | ** **  | ** **            | ** ** |
|                                           |       |              |        |                  |       |
| **Current  liabilities:**                      | ** ** | ** **        | ** **  | ** **            | ** ** |
| Current maturities of long-term debt           |       | $                 | 1,261,229   |                  | $          | 1,807,425 |   |
| Trade accounts payable                         |       | 13,532,552        |        | 13,508,441            |       |
| Accrued income taxes                           |       | 543,041           |        | 495,678               |       |
| Other accrued liabilities                      |       | 9,555,113         |        | 9,318,050             |       |
|                                           |       |              |        |                  |       |
| **Total current liabilities**                  |       | 24,891,935        |        | 25,129,594            |       |
|                                           |       |              |        |                  |       |
| **Long-term  debt**                            |       | 27,398,096        |        | 38,863,229            |       |
|                                           |       |              |        |                  |       |
| **Deferred  income taxes**                     |       | 2,962,616         |        | 2,923,216             |       |
| ** **                                     | ** ** | ** **        | ** **  | ** **            | ** ** |
| **Total liabilities**                          |       | 55,252,647        |        | 66,916,039            |       |
|                                           |       |              |        |                  |       |
| **Stockholders'  equity**                      |       | 76,616,001        |        | 75,208,681            |       |
|                                           |       |              |        |                  |       |
| **Total liabilities and stockholders' equity** |       | $                 | 131,868,648 |                  | $          | 142,124,720 |   |

 

The accompanying notesare a part of the consolidated financial statements.

2

----

**Supreme Industries, Inc. andSubsidiaries**

ConsolidatedStatements of Income (Unaudited)
| ** **                                                 | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                 | ** ** | **June 30,**                | ** ** | **July 1,**               | ** ** | **June 30,** | ** ** | **July 1,** | ** ** |
| ** **                                                 | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                 | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                  |       | $                                | 88,161,027 |                           | $          | 98,863,512 |   | $ | 172,053,010 |   | $ | 184,610,650 |   |
| Cost of sales                                              |       | 77,071,811                       |       | 88,332,555                     |       | 151,992,408 |   | 164,474,007 |   |
| Gross profit                                               |       | 11,089,216                       |       | 10,530,957                     |       | 20,060,602 |   | 20,136,643 |   |
| ** **                                                 | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Selling, general  and administrative expenses              |       | 7,599,884                        |       | 7,341,767                      |       | 14,529,631 |   | 14,200,733 |   |
| Other expense  (income)                                    |       | (139,164                         | )          | (96,851                        | )          | (229,141 | ) | (204,091 | ) |
| Operating income                                           |       | 3,628,496                        |       | 3,286,041                      |       | 5,760,112 |   | 6,140,001 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Interest expense                                           |       | 667,819                          |       | 834,660                        |       | 1,410,990 |   | 1,535,585 |   |
| Income before income taxes                                 |       | 2,960,677                        |       | 2,451,381                      |       | 4,349,122 |   | 4,604,416 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| Income taxes                                               |       | 917,000                          |       | 886,000                        |       | 1,341,000 |   | 1,666,000 |   |
| Net income                                                 |       | $                                | 2,043,677  |                           | $          | 1,565,381 |   | $ | 3,008,122 |   | $ | 2,938,416 |   |
| ** **                                                 | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Earnings  Per Share:**                                   | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                      |       | $                                | .16        |                           | $          | .12 |   | $ | .24 |   | $ | .23 |   |
| Diluted                                                    |       | .16                              |       | .12                            |       | .23 |   | .23 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| **Shares  used in the computation of earnings per share:** | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                      |       | 12,818,569                       |       | 12,692,632                     |       | 12,772,457 |   | 12,691,143 |   |
| Diluted                                                    |       | 12,902,531                       |       | 12,892,625                     |       | 12,870,298 |   | 12,913,984 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| **Cash  dividends per common share**                       |       | $                                | .095       |                           | $          | .095 |   | $ | .19 |   | $ | .19 |   |

 

The accompanying notesare a part of the consolidated financial statements.

3

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**Supreme Industries, Inc. andSubsidiaries**

ConsolidatedStatements of Cash Flows (Unaudited)
| ** **                                                                                  | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                  | ** ** | **June 30,**              | ** ** | **July 1,** | ** ** |
| ** **                                                                                  | ** ** | **2007**                       | ** ** | **2006** | ** ** |
| **Cash  flows from operating activities:**                                                  | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Net income                                                                                  |       | $                              | 3,008,122  |   | $ | 2,938,416 |   |
| Adjustments to reconcile net income to net cash provided  by operating activities:          |       |                           |       |   |   |
| Depreciation and amortization                                                               |       | 2,139,922                      |       | 2,132,269 |   |
| Amortization of intangibles                                                                 |       | 24,185                         |       | — |   |
| Provision for losses on doubtful receivables                                                |       | 96,341                         |       | 101,766 |   |
| Stock-based compensation expense                                                            |       | 154,610                        |       | — |   |
| Loss on disposal of property and equipment                                                  |       | 15,641                         |       | 21,045 |   |
| Changes in operating assets and liabilities, net of  effect of business acquisition in 2006 |       | 9,880,246                      |       | (2,355,210 | ) |
| **Net cash provided by operating activities**                                               |       | 15,319,067                     |       | 2,838,286 |   |
| ** **                                                                                  |       |                           |       |   |   |
| **Cash  flows from investing activities:**                                                  | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Business acquisition                                                                        |       | —                         |       | (1,050,000 | ) |
| Additions to property, plant and equipment                                                  |       | (1,574,217                     | )          | (2,181,914 | ) |
| Proceeds from disposal of property and equipment                                            |       | 6,494                          |       | 1,936,518 |   |
| Purchase of short-term investments                                                          |       | (1,131,492                     | )          | (1,232,457 | ) |
| Decrease (increase) in other assets                                                         |       | 24,497                         |       | (127,160 | ) |
| **Net cash used in investing activities**                                                   |       | (2,674,718                     | )          | (2,655,013 | ) |
|                                                                                        |       |                           |       |   |   |
| **Cash  flows from financing activities:**                                                  | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Proceeds from revolving line of credit and other  long-term debt                            |       | 60,102,739                     |       | 47,220,558 |   |
| Repayments of revolving line of credit and other  long-term debt                            |       | (72,114,068                    | )          | (46,109,305 | ) |
| Payment of cash dividends                                                                   |       | (2,423,710                     | )          | (2,411,647 | ) |
| Proceeds from exercise of stock options                                                     |       | 595,543                        |       | — |   |
| **Net cash used in financing activities**                                                   |       | (13,839,496                    | )          | (1,300,394 | ) |
|                                                                                        |       |                           |       |   |   |
| **Change  in cash and cash equivalents**                                                    |       | (1,195,147                     | )          | (1,117,121 | ) |
| ** **                                                                                  | ** ** | ** **                     | ** ** | ** ** | ** ** |
| **Cash  and cash equivalents, beginning of period**                                         |       | 1,307,463                      |       | 1,515,532 |   |
|                                                                                        |       |                           |       |   |   |
| **Cash  and cash equivalents, end of period**                                               |       | $                              | 112,316    |   | $ | 398,411 |   |
| ** **                                                                                  | ** ** | ** **                     | ** ** | ** ** | ** ** |
| **Supplemental  disclosure of noncash investing and financing activities:**                 | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Liabilities assumed in business acquisition                                                 |       | $                              | —     |   | $ | 163,222 |   |

 

The accompanyingnotes are a part of the consolidated financial statements.

4

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**SUPREMEINDUSTRIES, INC. AND SUBSIDIARIES**

Notes ToConsolidated Financial Statements

NOTE1 - BASIS OF PRESENTATION AND OPINION OF MANAGEMENT

Theaccompanying unaudited consolidated financial statements have been prepared inaccordance with the instructions to Form 10-Q and therefore do not include allof the information 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.

TheCompany has adopted a 52 or 53 week fiscal year ending the last Saturday inDecember.  The results of operations forthe three and six months ended June 30, 2007 and July 1, 2006 are for 13 and 26week periods, respectively.

Certainamounts in the consolidated statements of income for 2006 have beenreclassified to conform to the presentation of the 2007 consolidated statementsof income.  The reclassifications had noimpact on net sales, cost of sales, pretax income or net income as previouslyreported. For further information, refer to the consolidated financialstatements and footnotes thereto included in our Annual Report on Form 10-K forthe year ended December 30, 2006.

NOTE2 - OTHER COMPREHENSIVE INCOME

Othercomprehensive income includes unrealized gains on hedge-activity, net of tax,and unrealized depreciation on available-for-sale securities, net of tax.  Other comprehensive income for the three andsix month periods ended June 30, 2007 was $119,655 and $72,756, respectively.  Other comprehensive income for the three andsix month periods ended July 1, 2006 was $109,580 and $261,507, respectively.Total comprehensive income combines net income and other comprehensiveincome.  Total comprehensive income forthe three and six month periods ended June 30, 2007 was $2,163,332 and$3,080,878, respectively.  Totalcomprehensive income for the three and six month periods ended July 1, 2006 was$1,674,961 and $3,199,923, respectively.

NOTE3 - INVENTORIES

Inventories,which are stated at the lower of cost or market with cost determined using thefirst-in, first-out method, consist of the following:
|                  | ** ** | **June 30,  2007** | ** ** | **December 30,  2006** | ** ** |
|------------------|------------|-------------------------|------------|-----------------------------|------------|
| Raw materials    |       | $                       | 27,376,917 |                        | $          | 29,569,267 |   |
| Work-in-progress |       | 9,256,012               |       | 11,199,112                  |       |
| Finished goods   |       | 10,597,478              |       | 12,737,988                  |       |
|             |       | $                       | 47,230,407 |                        | $          | 53,506,367 |   |

 

5

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The valuation ofraw materials, work-in-progress and finished goods inventories at interim datesis based 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.

NOTE4 - EARNINGS PER SHARE

Thenumber of shares used in the computation of basic and diluted earnings pershare are as follows:
| ** **                                                                                         | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                         | ** ** | **June 30,  2007**          | ** ** | **July 1,  2006**         | ** ** | **June 30,  2007** | ** ** | **July 1,  2006** | ** ** |
| Weighted average number of  shares outstanding (used in  computation of basic earnings  per share) |       | 12,818,569                       |       | 12,692,632                     |       | 12,772,457 |   | 12,691,143 |   |
|                                                                                               |       |                             |       |                           |       |   |   |   |   |
| Effect of dilutive stock options                                                                   |       | 83,962                           |       | 199,993                        |       | 97,841 |   | 222,841 |   |
|                                                                                               |       |                             |       |                           |       |   |   |   |   |
| Diluted shares outstanding (used in computation of  diluted earnings per share)                    |       | 12,902,531                       |       | 12,892,625                     |       | 12,870,298 |   | 12,913,984 |   |

 

NOTE5 - STOCK-BASED COMPENSATION

Asummary of the status of the Company’s outstanding stock options as of June 30,2007, and changes during the six months ended June 30, 2007 are as follows:
|                              | ** ** | ** **         | ** ** | **Weighted -** | ** ** |
|------------------------------|------------|--------------------|------------|---------------------|------------|
| ** **                   | ** ** | ** **         | ** ** | **Average**         | ** ** |
| ** **                   | ** ** | **Number of** | ** ** | **Exercise**        | ** ** |
| ** **                   | ** ** | **Shares**         | ** ** | **Price**           | ** ** |
| Outstanding, January 1, 2007 |       | 1,228,320          |       | $                   | 6.12       |   |
| Granted                      |       | 110,195            |       | 6.42                |       |
| Exercised                    |       | (254,834           | )          | 5.04                |       |
| Forfeited                    |       | (25,500            | )          | 6.47                |       |
| Outstanding, June 30, 2007   |       | 1,058,181          |       | 6.53                |       |
|                              |            |                    |            |                     |            |  |

 

Theintrinsic value of the options exercised during the three and six month periodsended June 30, 2007 was $227,480 and $311,705, respectively.  The intrinsic value of all optionsoutstanding at June 30, 2007 was $664,222 and outstanding options had aweighted-average remaining contractual life of 2.46 years.

6

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NOTE 6 - COMMONSTOCK

TheCompany paid cash dividends, to all Class A and Class B common stockholders, ofnine and one-half cents ($0.095) and nineteen cents ($0.19) per share for eachof the three and six month periods ended June 30, 2007 and July 1, 2006.

NOTE7 - SUBSEQUENT EVENT

OnAugust 7, 2007, the Company’s Board of Directors declared a nine and one-halfcents ($0.095) per share cash dividend payable on August 28, 2007 to all classA and B common stockholders of record on August 21, 2007.

NOTE8 – ADOPTION OF NEW ACCOUNTING STANDARD

InJuly 2006, the Financial Accounting Standards Board issued FinancialInterpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”).  This Interpretation revises the recognitiontest for tax positions taken in tax returns such that a tax benefit is recordedonly when it is more likely than not that the tax position will be allowed uponexamination by taxing authorities, which is presumed to occur.  The amount of such a tax benefit to berecorded is the largest amount that is more likely than not to be allowed.  The adoption of FIN 48 did not have amaterial impact on the Company’s financial position or results ofoperations.  The amount of unrecognizedtax benefits at January 1, 2007 totaled approximately $500,000, and the fullamount would increase operating income thus impacting the Company’s effectivetax rate, if ultimately recognized in income.

TheCompany is subject to U.S. federal income tax as well as various state taxesand is no longer subject to examination by taxing authorities for years before2003.  The Company does not expect thetotal amount of unrecognized tax benefits to significantly increase in the nexttwelve months.  Interest and penaltiesrelated to income tax matters are recognized in income tax expense.  Interest and penalties accrued for at June30, 2007 were insignificant.
| **ITEM 2.** | ** ** | **MANAGEMENT’S DISCUSSION AND  ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.** |
|-------------|------------|--------------------------------------------------------------------------------------------------|

 

**Resultsof Operations**

The following discussion should be read inconjunction with the unaudited consolidated financial statements and relatednotes thereto elsewhere in this document.

7

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***Net Sales***

Net salesfor the three months ended June 30, 2007 decreased $10.7 million, or 10.8%, to$88.2 million compared to $98.9 million for the three months ended July 1,2006.  Net sales for the six months endedJune 30, 2007 decreased $12.5 million, or 6.8%, to $172.1 million from $184.6million for the six months ended July 1, 2006.** **The decrease in net sales for thethree and six months ended June  30, 2007 was primarily attributable to areduction of $16.3 million and $20.6 million, respectively, in our core trucksales.****The decrease was partially offset byhigher net sales for the three and six months ended June 30, 2007, in ourSilver Crown division of $3.0 million and $4.1 million, respectively, and ourComposites division of $.8 million and $3.1 million, respectively. Net sales inour StarsTrans bus division remained relatively constant fromperiod-to-period.  We attribute thedecrease in our core truck sales to an industry-wide downturn in truck salesdue to the increased cost of chassis and an overall soft truck market.  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.  Assuming the continuation of these businessconditions, we are anticipating that net sales in the second half of 2007 willbe lower than the comparable 2006 period. The increase in sales in our Silver Crown motorhome division sales wasthe result of the operation being a startup during 2006. Our total salesbacklog was $72.2 million at June 30, 2007 compared to $81.1 million at July 1,2006.

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

Grossprofit increased by $.6 million, or 5.7%, to $11.1 million (12.6% of net sales)for the three months ended June 30, 2007 compared to $10.5 million (10.7% ofnet sales) for the three months ended July 1, 2006.  For the six months ended June 30, 2007, grossprofit was unchanged at $20.1 million (11.7% of net sales) compared to $20.1million (10.9% of net sales) for the six months ended July 1, 2006.  The following table presents the componentsof cost of sales as a percentage of net sales and the changes fromperiod-to-period:
|               | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **    | ** ** | **June 30,  2007**          | ** ** | **July 1,  2006**         | ** ** | **Percent  Change** | ** ** | **June 30,  2007** | ** ** | **July 1,  2006** | ** ** | **Percent  Change** | ** ** |
|          |       |                             |       |                           |       |   |   |   |   |   |   |   |   |
| Material      |       | 57.0                             | %          | 58.5                           | %          | -1.5 | % | 57.8 | % | 57.8 | % | 0.0 | % |
| Direct labor  |       | 13.4                             |       | 13.9                           |       | -0.5 |   | 13.5 |   | 14.0 |   | -0.5 |   |
| Overhead      |       | 14.5                             |       | 14.4                           |       | 0.1 |   | 14.6 |   | 14.8 |   | -0.2 |   |
| Delivery      |       | 2.5                              |       | 2.5                            |       | 0.0 |   | 2.4 |   | 2.5 |   | -0.1 |   |
| Cost of sales |       | 87.4                             |       | 89.3                           |       | -1.9 |   | 88.3 |   | 89.1 |   | -0.8 |   |
| Gross profit  |       | 12.6                             | %          | 10.7                           | %          | 1.9 | % | 11.7 | % | 10.9 | % | 0.8 | % |

 

**Material**– Material cost as a percentage of net sales decreased 1.5% for the threemonths ended June 30, 2007 and was unchanged for the six months ended June 30,2007 when compared to corresponding periods in 2006. ** **The Company’s core truck division’smaterial percentage decreased 3.3% and 2.0% for the three and six months endedJune 30, 2007, respectively**,**primarily dueto favorable truck product mix.  However,the change in the consolidated material percentages was impacted by product mixas our StarTrans Bus division, our Silver Crown division and our Compositesdivisions, which have higher material content, accounted for 29.2% of our netsales in the first six months of 2007 compared to****22.8%of our net sales in the first six months of 2006.  Raw material prices continue to remain aconcern. However, we are closely monitoring and managing material costs throughclose communication and negotiation with key suppliers. 

8

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**Direct Labor** –Direct labor as a percentage of net sales decreased .5% for the three and sixmonths ended June 30, 2007, respectively, when compared to correspondingperiods in 2006.  The direct laborimprovement was the result of the efficiencies realized from contracting fewertemporary employees at our core truck divisions due to reduced sales volume.Additionally, in the first half of 2006, we experienced a delay in OEM suppliedchassis which caused the Company to temporarily shut down production lines,thereby negatively affecting labor and overhead absorption.

**Overhead**–  Overhead as a percentage of net salesincreased .1% and decreased .2% for the three and six months ended  June30, 2007, respectively, when compared to the same periods in 2006.** **The improvement of..2% for the six months ended  June 30, 2007 was primarily due to acontinued focus to reduce expenses and manage our overhead structure for thelower sales volume experienced in the first half of the year.  However, the improvement was somewhat offsetby an increase in group health insurance claims. To combat the increase ingroup health insurance claims, the Company continues to implement changes toits group health insurance plan in an effort to control future claim costs.

**Delivery** –Delivery expense as a percentage of net sales was unchanged for the threemonths ended June 30, 2007 and decreased .1% for the six months ended July 1,2007 when compared to corresponding periods in 2006.

**Selling, general and administrative expenses**

Selling,general and administrative (“G&A”) expenses were $7.6 million (8.6% of netsales) for the three months ended June 30, 2007 compared to $7.3 million (7.4%of net sales) for the three months ended July 1, 2006. For the six months endedJune 30, 2007, selling and G&A expenses were $14.5 million (8.4% of netsales) compared to $14.2 million (7.7% of net sales) for the six months endedJuly 1, 2006.  The following tablepresents selling and G&A expenses as a percentage of net sales and thechanges from period-to-period:
|                  | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **       | ** ** | **June 30,**                | ** ** | **July 1,**               | ** ** | **Percent** | ** ** | **June 30,** | ** ** | **July 1,** | ** ** | **Percent** | ** ** |
| ** **       | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **Change** | ** ** | **2007** | ** ** | **2006** | ** ** | **Change** | ** ** |
| Selling expenses |       | 3.3                              | %          | 3.0                            | %          | 0.3 | % | 3.2 | % | 3.0 | % | 0.2 | % |
| G&A expenses |       | 5.3                              |       | 4.3                            |       | 1.0 |   | 5.2 |   | 4.7 |   | 0.5 |   |
| Total            |       | 8.6                              | %          | 7.3                            | %          | 1.3 | % | 8.4 | % | 7.7 | % | 0.7 | % |

 

**Selling expenses** –Selling expenses decreased by $.1 million, or 5.2%, to $2.9 million for thethree months ended June 30, 2007 from $3.0 million for the three months endedJuly 1, 2006.  For the six months endedJune 30, 2007 and July 1, 2007, selling expenses remained unchanged at $5.5million.  

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**G&A expenses** – General andadministrative expenses increased by $.4 million, or 9.7% to $4.7 million forthe three months ended June 30, 2007 from $4.3 million for the three monthsended July 1, 2006. For the six months ended June 30, 2007, general andadministrative expenses increased $.3 million, or 3.4%, to $9.0 million from$8.7 million for the six months ended July 1, 2006. The increase in general andadministrative expenses was primarily due to fees associated with complyingwith the requirements of the Sarbanes-Oxley Act of 2002.

***OtherIncome***

Otherincome was relatively constant at $.1 million and $.2 million for the three andsix months ended June 30, 2007 and July 1, 2006, respectively. Other incomeconsists of rental income, gain on sale of assets and other miscellaneousincome received by the Company through its various business activities.

***Interestexpense***

Interestexpense was $.7 million (.8% of net sales) for the three months ended June 30,2007 compared to $.8 million (.8% of net sales) for the three months ended July1, 2006. For the six months ended June 30, 2007, interest expense was $1.4million (.8% of net sales) compared to $1.5 million (.8% of net sales) for thesix months ended July 1, 2006.  Thedecrease in interest expense is due to less borrowing under the Company’sworking capital line of credit and a decrease in chassis interest expense.  The decrease in chassis interest expense 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***

TheCompany’s effective income tax rate was 31% for the three and six months endedJune 30, 2007 compared to 36% for the three and six months ended July 1,2006.  The 2006 effective income tax ratewas subsequently reduced during the third and fourth quarters of 2006 and was30% for the year ended December 30, 2006. In addition to being in a lower taxbracket, the effective income tax rate was favorably impacted by tax-exemptunderwriting income of a wholly-owned small captive insurance subsidiary, bythe additional tax deduction allowed manufacturers under the 2004 American JobsCreation Act and federal and state research and development tax credits.

***Netincome and earnings per share***

Netincome increased by $.4 million for the three months ended June 30, 2007 to$2.0 million (2.3% of net sales) from $1.6 million (1.6% of net sales) for thethree months ended July 1, 2006. For the six months ended June 30, 2007, netincome increased by $.1 million to $3.0 million (1.7% of net sales) from $2.9million (1.6% of net sales) for the six months ended July 1, 2006.

Basicand diluted earnings per share increased $.04 per share, or 33% to $.16 pershare for the three months ended June 30, 2007 from $.12 per share for thethree months ended July 1, 2006.  Basicearnings per share were $.24 for the six months ended June 30, 2007 compared to$.23 for the six months ended July 1, 2007. Diluted earnings per share remained constant at $.23 per share for thesix months ended June 30, 2007 and July 1, 2006.

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**Liquidityand Capital Resources**

Cashgenerated from operations and reductions in working capital were major sourcesof cash flows during the first six months of 2007.  The Company’s cash management system andrevolving line of credit are designed to maintain zero cash balances and,accordingly, excess cash generated from operations is utilized to reduceborrowings.

***Operatingactivities***

Operatingactivities provided $15.3 million for the six months ended June 30, 2007compared to a $2.8 million for the six months ended July 1, 2006.  Working capital decreased $9.5 million duringthe six months ended June 30, 2007, principally due to lower inventories of$6.3 million and lower accounts receivables of $2.3 million.  Net income, adjusted for depreciation andamortization, also provided $5.2 million and $5.1 million for the first half of2007 and 2006, respectively.

***Investingactivities***

Investingactivities used $2.7 million for the six months ended June 30, 2007 and July 1,2006.  Capital expenditures totaled $1.6million for first half of 2007 and consisted principally of replacementequipment.

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

Financingactivities used $13.8 million for the six months ended June 30, 2007 comparedto $1.3 for the six months ended July 1, 2006. Our positive cash flow, used to significantly reduce our bank borrowingsduring the second quarter of 2007, occurred as a result of a reduction of $9.5million in working capital in the first half of 2007 compared to a $1.0 millionincrease in working capital for the first half of 2006. The Company alsoreceived $.6 million from the exercise of stock options in the first half of2007. The Company’s board of directors approved quarterly cash dividends ofnine and one-half cents per share, or $2.4 million, for the first two quartersof 2007 and 2006.

**CriticalAccounting Policies and Estimates**

Management’sdiscussion and analysis of its financial position and results of operations arebased upon the Company’s consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States of America.  Thepreparation of these financial statements requires Management to make estimatesand judgments that affect the reported amounts of assets, liabilities, revenuesand expenses and related disclosure of contingent assets and liabilities.  The Company’s significant accounting policiesare discussed in Note 1 of the Notes to Consolidated Financial Statementsincluded in the Annual Report on Form 10-K for the year ended December 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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***Revenue Recognition*** – The Company generallyrecognizes revenue when the unit is shipped to the customer.  Revenue on certain customer requested billand hold transactions is recognized subsequent to when the customer is notifiedthat the product(s) have been completed according to customer specifications,have passed all of the Company’s quality control inspections, and are ready fordelivery based on established delivery terms.

***Allowance for Doubtful Accounts***– The Company 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***– The Company must make estimates regarding the future use of raw materials andfinished products and provides a provision for obsolete or slow-moving inventories.  If actual product life cycles, product demandor market conditions are less favorable than those projected by Management,additional inventory write-downs may be required which would affect futureoperating results.

***Inventory Relief*** –For monthly and quarterly financial reporting, cost of sales is recorded andinventories are relieved by the use of a gross profit percentage method andstandard 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 assure correct relief of inventories for products sold.  The estimate calculations consider thecustomized nature of products, historical inventory relief percentages, scrapvariances and other factors which could impact inventory relief.

The accuracy of the inventory relief is not knownuntil physical inventories are conducted at each of the Company’s plantlocations.  We have recently adopted apolicy of conducting semi-annual physical inventories at all locations andrecording any adjustments relating thereto. We are not performing quarterly physical inventories at all locationsdue to the excessive costs and severe disruption to our production process. Wehave dedicated significant in-house resources in our continuing effort torefine our approach to these physical inventories so as to enable us to improvethe accuracy of our inventory accounting system.

***Accrued Insurance*** -The Company has a self-insured retention against product liability claims withinsurance 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.

12

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TheCompany utilizes a wholly-owned small captive insurance company to insurecertain of its business risks.  Certainrisks, traditionally self-insured by the Company and its subsidiaries, areinsured by the captive insurance subsidiary. In addition, certain business risks not traditionally insured areinsured by the captive insurance subsidiary. Since the captive insurance company has not reinsured any of itscoverages, the Company’s overall self-insurance risk has not changed.  The captive insurance subsidiary helps theCompany manage its risk exposures and under the Internal Revenue Code the netunderwriting income of a small captive, as defined, is not taxable.

***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**

Thisreport contains forward-looking statements, other than historical facts, whichreflect 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 currently availableto, Management.  Although Managementbelieves that the expectations reflected in such forward-looking statements arereasonable, it can give no assurance that the expectations reflected in suchforward-looking statements are reasonable, and it can give no assurance thatsuch expectations will prove to be correct. Important factors that could cause actual results to differ materiallyfrom such expectations include, without limitation, limitations on theavailability of chassis on which the Company’s product is dependent,availability of raw materials, raw material cost increases and severe interestrate increases.  Furthermore, the Companycan provide no assurance that such raw material cost increases can be passed onto its customers 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 such forward-lookingstatements.

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

Therehas been no material change from the information provided in the Company’sAnnual Report on Form 10-K, “Item 7A: Quantitative and Qualitative DisclosuresAbout Market Risk,” for the year ended December 30, 2006.

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**ITEM 4.****         ****CONTROLS AND PROCEDURES.**

a.             Evaluation ofDisclosure Controls and Procedures.

In connection with thepreparation of this Form 10-Q, an evaluation was performed under thesupervision and with the participation of the Company’s Management, includingthe Company’s Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, as amended).

b.             Changes inInternal Control over Financial Reporting.

There has been no changein the Company’s internal control over financial reporting during our lastfiscal quarter that has materially affected, or is reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

The Company continues totake action to assure compliance with the internal controls, disclosurecontrols and other requirements of the Sarbanes-Oxley Act of 2002. Management, including the Company’s Chief Executive Officer and Chief FinancialOfficer, cannot guarantee that the internal controls and disclosure controlswill prevent all possible errors or fraud.  A control system, no matterhow well conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of a control system have been met. In addition,the design of a control system must reflect the fact that there are resourceconstraints, and the benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, no system ofcontrols can provide absolute assurance that all control issues and instancesof fraud, if any, within the Company will be detected.  These inherentlimitations include the realities that judgments in decision-making can befaulty and that breakdowns can occur because of simple error or mistake. Further, controls can be circumvented by individual acts of some persons,by collusion of two or more persons, or by management override of the controls.

The design of any systemof controls is also based in part upon certain assumptions about the likelihoodof future events, and there can be no assurance that any design will succeed inachieving its stated goals under all potential future conditions.  Overtime, a control may be inadequate because of changes in conditions, or thedegree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in any cost-effective control system, misstatementsdue to error or fraud may occur and not be detected.

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

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

Notapplicable.

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

Therehave been no material changes in our risk factors from those previouslydisclosed in our Annual Report on Form 10-K for the year ended December 30,2006.

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

Notapplicable.

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

Notapplicable.

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

SupremeIndustries, Inc.’s annual meeting of stockholders was held on May 3, 2007.  Below is a summary of matters voted upon atthat meeting.

a)     The followingindividuals were elected Directors by the holders of the Company’s Class ACommon Stock for a one year term.
|                           | ** ** | **For**   | ** ** | **Withheld** | ** ** |
|---------------------------|------------|-----------|------------|--------------|------------|
| Arthur M. Borden          |       | 8,252,963 |       | 701,559      |       |
| William C. Hurtt, Jr. (*) |       | 8,259,266 |       | 695,256      |       |
| Mark C. Neilson           |       | 8,258,874 |       | 695,648      |       |

 

(*) The Company has fileda Form 8-K to announce the election of Edward L. Flynn as a member of theCompany’s Board of Directors, and as a member of the Company’s Audit Committee,effective May 15, 2007, to succeed William C. Hurtt, Jr., who died on April 25,2007.

The following individualswere elected Directors by the holders of the Company’s Class B Common Stock bya vote of 1,973,889 for, 50,244 withheld.

WilliamJ. Barrett

RobertJ. Campbell

ThomasCantwell

HerbertM. Gardner

OmerG. Kropf

Robert W. Wilson

b)    An amendment to the Company’sAmended and Restated 2004 Stock Option Plan was approved by the holders of theCompany’s Class A and Class B Common Stock by a vote of 6,910,491 for,1,174,925 against, 13,582 abstentions and 2,879,657 unvoted.

c)     Crowe Chizekand Company LLC was ratified as the Company’s independent registered publicaccounting firm by the holders of the Company’s Class A and Class B CommonStock by a vote of 10,523,805 in favor, 400,970 against, 3,636 abstaining, and50,244 unvoted.

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

Notapplicable.

**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: August 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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