<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 June 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 August 6, 1998
Class A 9,381,772
Class B 1,624,102
The index to Exhibits is at page 14 in the sequential numbering system.
Total number of pages: 14.
Page 1 of 14
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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
Operations 9, 10 & 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Index to Exhibits 14
Page 2 of 14
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Part I. Financial Information
Item 1. Financial Statements
Supreme Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, December 31,
1998 1997
--------------- ---------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents............... $196,829 $159,044
Accounts receivable, net................ 25,524,659 23,188,066
Inventories............................. 30,128,247 28,404,786
Deferred income taxes................... 973,657 973,657
Other current assets.................... 401,384 803,442
--------------- ---------------
Total current assets............... 57,224,776 53,528,995
--------------- ---------------
Property, plant and equipment, at cost.... 49,003,504 46,083,344
Less, Accumulated depreciation and
amortization..................... 17,691,739 16,522,903
--------------- ---------------
Property, plant and equipment,
net.............................. 31,311,765 29,560,441
Intangible assets, net.................... 1,603,731 1,705,385
Other assets.............................. 1,040,027 1,079,491
--------------- ---------------
Total assets....................... $91,180,299 $85,874,312
=============== ===============
The accompanying notes are a part of the consolidated financial statements.
Page 3 of 14
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Supreme Industries, Inc. and Subsidiaries
Consolidated Balance Sheets, Concluded
June 30, December 31,
1998 1997
--------------- ---------------
Liabilities and Stockholders' Equity (Unaudited)
Current liabilities:
Current maturities of long-term debt.... $2,124,609 $2,119,692
Trade accounts payable.................. 8,549,961 10,433,051
Accrued income taxes.................... 1,034,905 1,098,111
Other accrued liabilities............... 6,834,130 9,514,186
--------------- ---------------
Total current liabilities.......... 18,543,605 23,165,040
Long-term debt............................ 21,294,241 17,359,703
Deferred income taxes..................... 898,825 898,825
--------------- ---------------
Total liabilities.................. 40,736,671 41,423,568
--------------- ---------------
Stockholders' equity:
Class A Common Stock, $.10 par value.... 938,589 885,599
Class B Common Stock, convertible into
Class A Common Stock on a one-for-one
basis, $.10 par value................. 162,410 154,677
Additional paid-in capital.............. 39,716,642 31,743,249
Retained earnings....................... 10,062,473 11,917,755
Treasury stock, at cost................. (436,486) (250,536)
--------------- ---------------
Total stockholders' equity......... 50,443,628 44,450,744
--------------- ---------------
Total liabilities and stockholders'
equity........................... $91,180,299 $85,874,312
=============== ===============
The accompanying notes are a part of the consolidated financial statements.
Page 4 of 14
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Supreme Industries, Inc. and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------- ----------- ------------ ------------
1998 1997 1998 1997
----------- ----------- ------------ ------------
Revenues................ $61,322,192 $56,275,903 $116,815,537 $100,449,206
Costs and expenses:
Cost of sales......... 49,605,633 45,879,498 95,726,007 82,916,179
Selling, general and
administrative...... 5,289,083 4,469,788 10,235,308 8,419,166
Interest.............. 489,426 413,380 906,439 763,225
----------- ----------- ------------ ------------
55,384,142 50,762,666 106,867,754 92,098,570
----------- ----------- ------------ ------------
Income before
income taxes..... 5,938,050 5,513,237 9,947,783 8,350,636
Income taxes............ 2,447,000 2,182,000 4,069,000 3,334,000
----------- ----------- ------------ ------------
Net income......... $3,491,050 $3,331,237 $5,878,783 $5,016,636
=========== =========== ============ ============
Earnings per share:
Basic.............. $.32 $.31 $.54 $.46
Diluted............ .32 .30 .53 .46
Shares used in the
computation of
earnings per share:
Basic.............. 10,941,092 10,876,156 10,916,928 10,874,321
Diluted............ 11,024,729 10,951,528 11,011,597 10,942,833
The accompanying notes are a part of the consolidated financial statements.
Page 5 of 14
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Supreme Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
--------------- ---------------
1998 1997
--------------- ---------------
Cash flows from operating activities:
Net income.............................. $5,878,783 $5,016,636
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization....... 1,467,972 1,399,695
Loss on disposal of equipment....... 84,087 11,094
Changes in operating assets and
liabilities....................... (8,284,348) (4,826,360)
--------------- ---------------
Net cash provided by (used in)
operating activities............. (853,506) 1,601,065
--------------- ---------------
Cash flows from investing activities:
Additions to property, plant and
equipment............................. (3,310,629) (1,965,013)
Proceeds from disposal of property,
plant and equipment................... 108,900 53,150
(Increase) decrease in other assets..... 39,464 (8,858)
--------------- ---------------
Net cash (used in) investing
activities....................... (3,162,265) (1,920,721)
--------------- ---------------
Cash flows from financing activities:
Proceeds from revolving line of credit
and other long-term debt.............. 50,996,113 40,163,003
Repayments of revolving line of credit
and other long-term debt.............. (47,056,658) (39,906,108)
Proceeds from exercise of stock
options............................... 114,101 50,609
--------------- ---------------
Net cash provided by financing
activities....................... 4,053,556 307,504
--------------- ---------------
Increase (decrease) in cash and cash
equivalents............................. 37,785 (12,152)
Cash and cash equivalents, beginning of
period.................................. 159,044 220,678
--------------- ---------------
Cash and cash equivalents, end of period.. $196,829 $208,526
=============== ===============
Noncash investing and financing
activities:
Common Stock dividends................ $7,734,065 $3,385,720
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 14
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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:
June 30, December 31,
1998 1997
--------------- ---------------
Raw materials........... $ 17,332,087 $ 16,896,669
Work-in-progress........ 4,588,421 4,553,082
Finished goods.......... 8,207,739 6,955,035
--------------- ---------------
$ 30,128,247 $ 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 ($38.7 million at June 30,
1998) and tangible capital funds not be less than $30,000,000 plus an amount
equal to 50% of cumulative net income ($48.8 million at June 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 $3.3 million available
under its revolving credit agreement on June 30, 1998.
Page 7 of 14
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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.
NOTE E - 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.
All share and per share data have been adjusted to reflect the stock dividends
declared and paid in 1998 and 1997.
Page 8 of 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Results of Operations
Revenues for the quarter ended June 30, 1998 increased $5.0 million to $61.3
million from $56.3 for the quarter ended June 30, 1997. Revenue for the six
months ended June 30, 1998 increased $16.4 million to $116.8 million from
$100.4 million for the six months ended June 30, 1997. Basic earnings per
share were $.32 cents for the quarter ended June 30, 1998 compared to $.31
cents for the comparable prior year quarter. Diluted earnings per share were
$.32 cents for the quarter ended June 30, 1998 compared to $.30 cents for
comparable prior year quarter. Basic earnings per share increased $.08 cents
to $.54 cents from $.46 cents for the six months ended June 30, 1998 while
diluted earnings per share increased $.07 cents to $.53 cents from 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.
The Company continues to experience growth in all of it's product lines with
the most significant gains coming from its dry freight, insulated and bus
products. The Company's new product lines, trolley cars, armored trucks and
Spartan service vans, accounted for 5.4% of the Company's revenue during the
six months ended June 30, 1998. The armored truck growth is being hampered
by a chassis shortage caused by increased demand for Allison heavy duty
transmissions.
The Company's gross profit percentage increased .6% to 19.1% from 18.5% for
the three months ended June 30, 1998 and .6% to 18.0% from 17.4% for the six
months ended June 30, 1998 when compared to the comparable prior year
periods. The Company's raw material and direct labor costs were relatively
unchanged as a percentage of revenues when compared to the comparable prior
year periods. The improvement in gross profit for both the quarter and six
months ended June 30, 1998 is attributed to fixed expenses in the overhead
pool that do not increase when revenues increase.
Selling, general and administrative expense were 8.6% and 8.8% for the
quarter and six months ended June 30, 1998 respectively compared to 7.9% and
8.4% for the prior year comparable periods.
Interest expense was .8% of revenues for the quarter ended June 30, 1998
compared to .7% for the quarter ended June 30, 1997 and .8% of revenues for
the six months ended June 30, 1998 and June 30, 1997. The increase of
$76,046 in the quarter ended June 30, 1998 and $143,214 for the six months
ended June 30, 1998 is attributed to increased pool chassis interest combined
with higher borrowings under the Company's revolving credit line to finance
the increase in inventories and accounts receivable resulting from the
increase in revenues in 1998.
Page 9 of 14
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The effective income tax rate for the three and six months ended June 30,
1998 was 41.2% and 40.9%, respectively, compared to 39.6% and 39.9% for the
three and six months ended June 30, 1997. The lower effective tax rate in
1997 was principally attributable to research and experimentation tax credits.
Liquidity and Capital Resources
Funds available under the Company's revolving credit agreement were adequate
to finance operations and provide for capital expenditures during the six
months ended June 30, 1998. Net income of $5.9 million and depreciation and
amortization of $1.5 million were the most significant components of
operating cash flow. Increases in both inventories and accounts receivable
were the most significant uses of operating cash flows during the six months
ended June 30, 1998.
The Company invested $3.3 million in property, plant and equipment during the
first six months of 1998. Major capacity additions were completed in Goshen,
Indiana; Jonestown, Pennsylvania; and Griffin, Georgia. These additions
increased the Company's capacity by approximately 20% over that available in
1997.
As discussed in Note C of the Notes to Consolidated Financial Statements, on
June 23, 1998 the Company amended its credit agreement.
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 is in the process of implementing new computer software that will
allow it to process transactions in the year 2000 and beyond as well as
provide better operating information more timely once completely installed.
The Company has established an implementation team and provided them with the
training and resources necessary to have all Company facilities year 2000
compliant well in advance of December 31, 1999.
Page 10 of 14
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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 11 of 14
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Supreme Industries, Inc.'s annual meeting of stockholders was held on May 12,
1998. Below is a summary of matters voted upon at that meeting.
a) The following individuals were elected Directors by the holders
of the Company's Class A Common Stock by a vote of 7,386,579 to
25,737 with no abstentions:
Rice M. Tilley, Jr.
Rick L. Horn
H. Douglas Schrock was elected Director by the holders of the
Company's Class A Common Stock by a vote of 7,385,909 to 26,407
with no abstentions.
The following individuals were elected Directors by the holders
of the Company's Class B Common Stock by a vote of 1,546,773 to
0 with no abstentions:
William J. Barrett
Robert J. Campbell
Thomas Cantwell
Herbert M. Gardner
Omer G. Kropf
Robert W. Wilson
b) PricewaterhouseCoopers LLP was ratified as the Company's
independent auditors by a vote of 7,379,686 to 21,300 with
11,330 abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits:
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K: None
Page 12 of 14
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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: August 13, 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 13 of 14
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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 14 of 14
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 196,829
<SECURITIES> 0
<RECEIVABLES> 25,954,659
<ALLOWANCES> 430,000
<INVENTORY> 30,128,247
<CURRENT-ASSETS> 57,224,776
<PP&E> 49,003,504
<DEPRECIATION> 17,691,739
<TOTAL-ASSETS> 91,180,299
<CURRENT-LIABILITIES> 18,543,605
<BONDS> 21,294,241
0
0
<COMMON> 1,100,999
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 91,180,299
<SALES> 116,815,537
<TOTAL-REVENUES> 116,815,537
<CGS> 95,726,007
<TOTAL-COSTS> 95,726,007
<OTHER-EXPENSES> 10,235,308
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 906,439
<INCOME-PRETAX> 9,947,783
<INCOME-TAX> 4,069,000
<INCOME-CONTINUING> 5,878,783
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,878,783
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.53
</TABLE>
