<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-8183
SUPREME INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1670945
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
65140 U.S. 33 East, P.O. Box 237, Goshen, Indiana 46528
(Address of principal executive offices)
Registrant's telephone number, including area code:(219) 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
Indicate the number 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 November 9, 1998
Class A 9,351,018
Class B 1,607,937
The index to Exhibits is at page 15 in the sequential numbering system.
Total number of pages: 15.
Page 1 of 15
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SUPREME INDUSTRIES, INC.
CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets 3 & 4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7 & 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of 9, 10,
Operations 11 & 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Index to Exhibits 15
Page 2 of 15
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Part I. Financial Information
Item 1. Financial Statements
Supreme Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, December 31,
1998 1997
------------- ------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents.............. $158,941 $159,044
Accounts receivable, net............... 24,516,717 23,188,066
Inventories............................ 28,605,095 28,404,786
Deferred income taxes.................. 973,657 973,657
Other current assets................... 642,233 803,442
------------ ------------
Total current assets................ 54,896,643 53,528,995
------------ ------------
Property, plant and equipment, at cost.... 50,245,561 46,083,344
Less, Accumulated depreciation and
amortization...................... 18,380,847 16,522,903
------------ ------------
Property, plant and equipment, net.. 31,864,714 29,560,441
Intangible assets, net.................... 1,552,903 1,705,385
Other assets.............................. 1,023,608 1,079,491
------------ ------------
Total assets........................ $89,337,868 $85,874,312
============ ============
The accompanying notes are a part of the consolidated financial statements.
Page 3 of 15
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Supreme Industries, Inc. and Subsidiaries
Consolidated Balance Sheets, Concluded
September 30, December 31,
1998 1997
------------- ------------
Liabilities and Stockholders' Equity (Unaudited)
Current liabilities:
Current maturities of long-term debt.... $2,509,508 $2,119,692
Trade accounts payable.................. 7,542,513 10,433,051
Accrued income taxes.................... 743,162 1,098,111
Other accrued liabilities............... 7,943,499 9,514,186
------------ ------------
Total current liabilities............ 18,738,682 23,165,040
Long-term debt............................. 17,557,769 17,359,703
Deferred income taxes...................... 898,825 898,825
------------ ------------
Total liabilities.................... 37,195,276 41,423,568
Stockholders' equity....................... 52,142,592 44,450,744
------------ ------------
Total liabilities and stockholders'
equity............................. $89,337,868 $85,874,312
============ ============
The accompanying notes are a part of the consolidated financial statements.
Page 4 of 15
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Supreme Industries, Inc. and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
Revenues................. $51,406,038 $45,691,254 $168,221,575 $146,140,460
Costs and expenses:
Cost of sales......... 43,165,665 38,648,059 138,891,672 121,564,238
Selling, general
and administrative.. 4,907,523 3,909,345 15,142,831 12,328,511
Interest.............. 397,766 299,194 1,304,205 1,062,419
------------ ------------ ------------ ------------
48,470,954 42,856,598 155,338,708 134,955,168
------------ ------------ ------------ ------------
Income before
income taxes..... 2,935,084 2,834,656 12,882,867 11,185,292
Income taxes............. 1,222,000 1,134,000 5,291,000 4,468,000
------------ ------------ ------------ ------------
Net income......... $1,713,084 $1,700,656 $7,591,867 $6,717,292
============ ============ ============ ============
Earnings per share:
Basic.............. $.15 $.14 $.66 $.58
Diluted............ .15 .14 .66 .58
Shares used in the
computation of earnings
per share:
Basic.............. 11,511,629 11,526,128 11,478,217 11,511,598
Diluted............ 11,562,073 11,528,040 11,556,819 11,525,165
The accompanying notes are a part of the consolidated financial statements.
Page 5 of 15
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Supreme Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
-------------------------------
1998 1997
--------------- ---------------
Cash flows from operating activities:
Net income........................... $7,591,867 $6,717,292
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization... 2,225,910 2,092,984
Loss on disposal of equipment... 86,998 11,679
Changes in operating assets and
liabilities................... (6,183,925) (2,402,057)
--------------- ---------------
Net cash provided by operating
activities...................... 3,720,850 6,419,898
--------------- ---------------
Cash flows from investing activities:
Additions to property, plant and
equipment.......................... (4,574,599) (3,268,554)
Proceeds from disposal of property,
plant and equipment................ 109,900 53,150
(Increase) decrease in other assets.. 55,883 (6,952)
--------------- ---------------
Net cash (used in) investing
activities...................... (4,408,816) (3,222,356)
--------------- ---------------
Cash flows from financing activities:
Proceeds from revolving line of
credit and other long-term debt.... 77,312,374 58,559,938
Repayments of revolving line of
credit and other long-term debt.... (76,724,492) (61,802,447)
Proceeds from exercise of stock
options............................ 114,101 50,609
Acquisition of treasury stock........ (14,120) ---
--------------- ---------------
Net cash provided by (used in)
financing activities............ 687,863 (3,191,900)
--------------- ---------------
Increase (decrease) in cash and cash
equivalents........................... (103) 5,642
Cash and cash equivalents, beginning of
period................................ 159,044 220,678
--------------- ---------------
Cash and cash equivalents, end of
period................................ $158,941 $226,320
=============== ===============
Noncash investing and financing
activities:
Common Stock dividends............. $11,947,665 $7,866,397
Class A Common Stock exchanged in
exercise of stock options
(12,843 shares).................. 185,950 ---
The accompanying notes are a part of the consolidated financial statements.
Page 6 of 15
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SUPREME INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION AND OPINION OF MANAGEMENT
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do
not include all of the information and financial statement disclosures
necessary for a fair presentation of consolidated financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. In the opinion of management, the information furnished herein
includes all adjustments necessary to reflect a fair statement of the interim
periods reported. All adjustments are of a normal and recurring nature. The
December 31, 1997 consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
NOTE B - INVENTORIES
Inventories, which are stated at the lower of cost or market with cost
determined on the first-in-first-out method, consist of the following:
September 30, December 31,
1998 1997
------------- ------------
Raw materials.............. $ 16,743,214 $ 16,896,669
Work-in-progress........... 4,656,134 4,553,082
Finished goods............. 7,205,747 6,955,035
------------- ------------
$ 28,605,095 $ 28,404,786
============= ============
The valuation of raw materials, work-in-progress and finished goods
inventories at interim dates is based upon a gross profit percentage method
and bills of materials. The Company has historically had favorable and
unfavorable adjustments in the third and fourth quarters resulting from the
annual physical inventories. The Company is continuing to refine its costing
procedures for valuation of interim inventories in an effort to minimize the
annual book to physical inventory adjustments.
NOTE C - DEBT
On June 23, 1998 the Company signed an amendment to it's revolving credit
agreement that increased it's borrowing availability to $18,000,000 from
$14,000,000 for the period July 1 through January 31 and to $25,000,000 from
$20,000,000 for the period February 1 through June 30. The amendment also
provides for the Company to reduce it's interest rate and commitment fee
based on it's leverage ratio, as defined by the bank. The amendment requires
that working capital not fall below $10,000,000 ($36.2 million at
September 30, 1998) and tangible capital funds not be less than $30,000,000
plus an amount equal to 50% of cumulative net income ($50.6 million at
September 30, 1998). The amendment also deleted the covenants restricting
dividend payments and limiting capital expenditures. The term of the credit
agreement has been extended through April 30, 2001. The Company had $11.5
million available under its revolving credit agreement on September 30, 1998.
Page 7 of 15
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On September 30, 1998 the Company borrowed $7,000,000 repayable in equal
monthly principal payments of $116,667 through September 30, 2003. The terms
and conditions of the loan are subject to the Credit Agreement dated
April 25, 1994, and as amended by the fourth amendment to the Credit
Agreement dated September 30, 1998. The Company also entered into an
interest rate swap agreement that fixes the interest rate at 6.705% over the
term of the loan.
NOTE D - STOCK DIVIDEND
On May 12, 1998, the Board of Directors declared a 5% common stock dividend
payable on June 1, 1998, to shareholders of record on May 25, 1998. On
November 3, 1998, the Board of Directors declared a 5% common stock dividend
to shareholders of record as of November 13, 1998 payable on November 20,
1998. All share and per share data have been adjusted to reflect these stock
dividends on a retroactive basis.
NOTE E - STOCK REPURCHASE PROGRAM
On September 2, 1998 the Board of Directors authorized the Company to
repurchase up to 500,000 shares of Class A Common Stock in open market
purchases or privately negotiated transactions through the close of business
on February 26, 1999.
Page 8 of 15
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NOTE F - EARNINGS PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share," retroactively for all
periods presented. SFAS No. 128 requires the Company to present "basic" and
"diluted" earnings per share. Basic earnings per share is computed by
dividing net income by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share is computed by
reflecting potential dilution from the exercise of outstanding stock options.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
Revenues for the quarter ended September 30, 1998 increased $5.7 million to
$51.4 million while revenues for the nine months ended September 30, 1998
increased $22.1 million to $168.2 million. This compares to $45.7 million
for the quarter and $146.1 million for the nine months ended September 30,
1997. Both basic and diluted earnings per share were $.15 for the quarter
ended September 30, 1998 compared to $.14 for the quarter ended September 30,
1997 while for the nine months ended September 30, 1998 both basic and
diluted earnings per share were $.66 compared to $.58 for the comparable
prior year period. Basic and diluted earnings per share for all periods
presented have been adjusted for the common stock dividends declared and paid
in 1998 and 1997. Each of the Company's product lines contributed to the
increased revenues for both the quarter and nine months ended September 30,
1998. In addition each of the Company's manufacturing facilities experienced
revenue growth for both the quarter and nine months ended September 30, 1998.
The Company's new product lines, trolley cars, armored trucks and Spartan
service van were responsible for approximately 6% of the Company's revenue
growth for the nine months ended September 30, 1998.
The Company's gross profit percentage improved .6% for both the quarter and
nine months ended September 30, 1998 to 16.0% from 15.4% for the quarter and
to 17.4% from 16.8% for the nine months ended September 30, 1998. Slight
decreases in material costs, labor and overhead were responsible for the
improvement in gross profit.
Page 9 of 15
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Selling, general and administrative expenses as a percentage of revenues were
9.5% for the quarter ended September 30, 1998 and 9.0% for the nine months
ended September 30, 1998. The comparable prior year percentages were 8.6%
for the quarter and 8.4% for the nine months ended September 30, 1997.
Contributing to the increase were advertising and promotional costs in
connection with the Company's new product lines as well as increased
commissions related to the higher revenues. Additionally, the Company is
incurring expenses in connection with the implementation of a completely new
operating information system that will enable the Company to process
transactions in the year 2000 as well as provide better and more detailed
analysis of the Company's product lines and operating facilities.
Interest expense as a percentage of revenues for the quarter and nine months
ended September 30, 1998 increased .1% to .8% compared to the comparable
prior year periods. The increase of $98,572 in the quarter and $241,786 for
the nine months ended September 30, 1998 is a combination of pool chassis
interest and borrowings under the Company's revolving credit line to finance
higher levels of inventory and accounts receivable resulting from the
increased revenues in 1998.
The effective income tax rate for the three and nine months ended
September 30, 1998 was 41.6% and 41.1%, respectively, compared to 40.0% and
39.9% for the three and nine months ended September 30, 1997. The lower
effective tax rate in 1997 was principally attributable to research and
experimentation tax credits.
Liquidity and Capital Resources
Cash flows from operating activities combined with funds available under the
Company's revolving credit agreement were adequate to finance operations and
provide for capital expenditures during the nine months ended September 30,
1998. Net income of $7.6 million and depreciation and amortization of $2.1
million were the primary sources of cash flow. Higher levels of inventory
and accounts receivable, as a result of the Company's increased revenues,
were the most significant uses of cash flow during the nine months ended
September 30, 1998.
The Company has invested $4.6 million in capacity expansions and equipment
during the nine months ended September 30, 1998. The largest expenditures
were made at the Company's Goshen, Indiana; Jonestown, Pennsylvania and
Griffin, Georgia manufacturing plants. These additions were necessary to
provide capacity for the increased demand for the Company's existing product
lines as well as provide manufacturing space for the Company's new product
lines, trolley cars, armored trucks and Spartan service vans.
Page 10 of 15
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The Company amended it's banking agreement on June 23, 1998 to increase the
amount available under it's revolving credit facility and to provide for
covenants more favorable to the Company. The Company further amended it's
bank agreement on September 30, 1998 to take advantage of the current low
interest rates. The amendment and a interest rate swap agreement provides
for a $7 million dollar fixed rate loan at 6.7%. These amendments are
discussed further in Note C of the Notes To Consolidated Financial Statements.
The Company anticipates that cash flows from operations and amounts available
under it's revolving line of credit will be sufficient to meet the Company's
cash needs during the remaining part of 1998 and for the next twelve months.
The Company began preparation for the year 2000 issues during 1996. An
independent consulting group was engaged to conduct a complete analysis of
the Company's system and operating requirements. After review and approval
by management, this analysis formed the basis for a request for quotation
that was sent to several major software providers. The final decision was
made on the strength of the manufacturing software combined with the quality
and level of expertise the software provider could furnish.
In late 1997 and continuing, the Company began devoting substantial time and
resources to install a new information system. Total cost of the operating
software and consulting fees is approximately $600,000. In addition, the
Company has dedicated certain of it's personnel to the project. An
implementation team was formed of key employees from every major operating and
support area of the Company. The Company has an implementation schedule that
has all of its operating systems year 2000 compliant by July 1, 1999. The
Company has successfully implemented the new operating software at it's
fiberglass manufacturing facility.
Due to the uncertainty of the year 2000 readiness of third-party suppliers
and customers, the Company is currently unable to determine whether the
consequences of year 2000 failures by third-parties could have a material
impact on the Company's operations. The failure of third-parties to correct
a material year 2000 problem could result in an interruption in, or failure
of, certain normal business activities or operations of the Company.
Page 11 of 15
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The Company's hardwood flooring plant is located in La Ceiba, Honduras, which
suffered major damage as a result of hurricane Mitch. Though communication
with the plant have been sporadic we have been in contact with our Honduran
management. At this time though it is difficult to estimate when the plant
will resume supplying flooring to our domestic operations. Electric power
is still out. Bridges and roads around the area have been destroyed. Until
repaired the Company will not be able to receive wood from the rain forest
nor will it be able to move flooring from the plant to the port for shipment.
The Honduran plant had been supplying between 40 to 50% of the Company's
flooring requirements. Alternative supply arrangements have been made that
will provide flooring on a timely basis to the Company under favorable terms.
The Company will closely monitor development and information coming out of
Honduras. Due to the extensive damage and devastation to the Honduran
infrastructure the Company can not reasonably predict when the plant will
resume supplying hardwood flooring. Even if the decision is made to close
down this operation management believes there will not be a material adverse
effect to it's operations.
This report contains forward-looking statements, other than historical facts,
which reflect the view of the Company's management with respect to future
events. Although management believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that the
expectations reflected in such forward-looking statements are reasonable, and
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from
such expectations include, without limitation, limitations on the
availability of chassis on which the Company's product is dependent,
availability of raw materials and severe interest rate increases. The
Company assumes no obligation to update the forward-looking statements or to
update the reasons actual results could differ from those contemplated by
such forward-looking statements.
Page 12 of 15
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits:
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K: None
Page 13 of 15
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPREME INDUSTRIES, INC.
DATE: November 16, 1998 BY: /s/ROBERT W. WILSON
--------------- -------------------------
Robert W. Wilson
Executive Vice President,
Treasurer, Chief Financial Officer
and Director (Principal Financial
and Accounting Officer)
(Signing on behalf of the Registrant
and as Principal Financial Officer.)
Page 14 of 15
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SUPREME INDUSTRIES, INC.
FORM 10-Q
INDEX TO EXHIBITS
Sequential
Number Assigned Numbering System
in Regulation S-K Page Number
Item 601 Description of Exhibit of Exhibit
- ----------------- ---------------------- ----------------
(2) No exhibit.
(3) No exhibit.
(4) No exhibit.
(10) No exhibit.
(15) No exhibit.
(18) No exhibit.
(19) No exhibit.
(22) No exhibit.
(23) No exhibit.
(24) No exhibit.
(27) Financial data schedule.
(99) No exhibit.
Page 15 of 15
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 158,941
<SECURITIES> 0
<RECEIVABLES> 24,996,717
<ALLOWANCES> 480,000
<INVENTORY> 28,605,095
<CURRENT-ASSETS> 54,896,643
<PP&E> 50,245,561
<DEPRECIATION> 18,380,847
<TOTAL-ASSETS> 89,337,868
<CURRENT-LIABILITIES> 18,738,682
<BONDS> 17,557,769
0
0
<COMMON> 1,101,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 89,337,868
<SALES> 168,221,575
<TOTAL-REVENUES> 168,221,575
<CGS> 138,891,672
<TOTAL-COSTS> 138,891,672
<OTHER-EXPENSES> 15,142,831
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,304,205
<INCOME-PRETAX> 12,882,867
<INCOME-TAX> 5,291,000
<INCOME-CONTINUING> 7,591,867
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,591,867
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.66
</TABLE>
