<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, 1999
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 8, 1999
Class A 8,584,207
Class B 1,739,140
The index to Exhibits is at page 16 in the sequential numbering system.
Total number of pages: 16.
Page 1 of 16
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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 7-9
Item 2. Management's Discussion and Analysis of 9-13
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Index to Exhibits 16
Page 2 of 16
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Part I. Financial Information
Item 1. Financial Statements
Supreme Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, December 31,
1999 1998
--------------- ---------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents............... $237,396 $185,424
Accounts receivable, net................ 30,084,566 28,709,559
Inventories............................. 33,026,638 28,792,650
Deferred income taxes................... 1,081,839 1,081,839
Other current assets.................... 1,690,283 1,465,237
--------------- ---------------
Total current assets............... 66,120,722 60,234,709
--------------- ---------------
Property, plant and equipment, at cost....... 56,558,606 50,030,906
Less, Accumulated depreciation and
amortization..................... 20,759,618 18,688,584
--------------- ---------------
Property, plant and equipment, net. 35,798,988 31,342,322
--------------- ---------------
Intangible assets, net....................... 1,349,593 1,502,076
Other assets................................. 905,691 991,947
--------------- ---------------
Total assets....................... $104,174,994 $94,071,054
=============== ===============
The accompanying notes are a part of the consolidated financial statements.
Page 3 of 16
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Supreme Industries, Inc. and Subsidiaries
Consolidated Balance Sheets, Concluded
September 30, December 31,
1999 1998
--------------- ---------------
Liabilities and Stockholders' Equity (Unaudited)
Current liabilities:
Current maturities of long-term debt.... $5,168,251 $2,014,975
Trade accounts payable.................. 10,058,584 10,235,964
Accrued income taxes.................... 2,082,407 961,628
Other accrued liabilities............... 10,217,165 7,736,198
--------------- ---------------
Total current liabilities.......... 27,526,407 20,948,765
Long-term debt............................... 30,558,208 18,303,207
Deferred income taxes........................ 1,333,007 1,333,007
--------------- ---------------
Total liabilities.................. 59,417,622 40,584,979
--------------- ---------------
Stockholders' equity.......................... 44,757,372 53,486,075
--------------- ---------------
Total liabilities and stockholders'
equity............................ $104,174,994 $94,071,054
=============== ===============
The accompanying notes are a part of the consolidated financial statements.
Page 4 of 16
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Supreme Industries, Inc. and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ --------------------------
1999 1998 1999 1998
----------- ----------- ------------ ------------
Revenues............... $67,013,683 $51,406,038 $189,875,331 $168,221,575
----------- ----------- ------------ ------------
Costs and expenses:
Cost of sales..... 55,397,138 43,165,665 157,886,268 138,891,672
Selling, general
and
administrative.. 5,895,528 4,907,523 16,613,680 15,142,831
Interest.......... 769,230 397,766 1,707,852 1,304,205
----------- ----------- ------------ ------------
62,061,896 48,470,954 176,207,800 155,338,708
----------- ----------- ------------ ------------
Income before
income taxes. 4,951,787 2,935,084 13,667,531 12,882,867
Income taxes........... 2,022,000 1,222,000 5,497,000 5,291,000
----------- ----------- ------------ ------------
Net income..... $2,929,787 $1,713,084 $8,170,531 $7,591,867
=========== =========== ============ ============
Earnings per share:
Basic......... $.28 $.14 $.73 $.63
Diluted....... .28 .14 .73 .63
Shares used in the
computation of
earnings per share:
Basic......... 10,338,495 12,087,210 11,128,113 12,052,128
Diluted....... 10,368,929 12,140,177 11,188,624 12,134,660
The accompanying notes are a part of the consolidated financial statements.
Page 5 of 16
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Supreme Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
-------------------------------
1999 1998
--------------- ---------------
Cash flows from operating activities:
Net income.............................. $8,170,531 $7,591,867
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization..... 2,322,502 2,225,910
Loss (gain) on disposal of
equipment....................... (10,750) 86,998
Changes in operating assets and
liabilities..................... (2,409,675) (6,183,925)
--------------- ---------------
Net cash provided by operating
activities......................... 8,072,608 3,720,850
--------------- ---------------
Cash flows from investing activities:
Additions to property, plant and
equipment............................. (6,619,260) (4,574,599)
Proceeds from disposal of property,
plant and equipment................... 3,325 109,900
Decrease in other assets................ 86,256 55,883
--------------- ---------------
Net cash (used in) investing
activities......................... (6,529,679) (4,408,816)
--------------- ---------------
Cash flows from financing activities:
Proceeds from revolving line of credit
and other long-term debt.............. 91,079,810 77,312,374
Repayments of revolving line of credit
and other long-term debt.............. (75,671,533) (76,724,492)
Proceeds from exercise of stock options. 95,625 114,101
Acquisiton of treasury stock............ (16,994,859) (14,120)
--------------- ---------------
Net cash provided by (used in)
financial activities............... (1,490,957) 687,863
--------------- ---------------
Increase (decrease) in cash and cash
equivalents................................ 51,972 (103)
Cash and cash equivalents, beginning of
period..................................... 185,424 159,044
--------------- ---------------
Cash and cash equivalents, end of period..... $237,396 $158,941
=============== ===============
Noncash investing and financing activities:
Common Stock dividends.................. $4,843,391 $11,947,665
Class A Common Stock exchanged in
exercise of stock options (12,843
shares)............................... --- 185,950
The accompanying notes are a part of the consolidated financial statements.
Page 6 of 16
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SUPREME INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION AND OPINION OF MANAGEMENT
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do
not include all of the information and financial statement disclosures
necessary for a fair presentation of consolidated financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. In the opinion of management, the information furnished herein
includes all adjustments necessary to reflect a fair statement of the interim
periods reported. All adjustments are of a normal and recurring nature. The
December 31, 1998 consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
NOTE B - INVENTORIES
Inventories, which are stated at the lower of cost or market with cost
determined on the first-in first-out method, consist of the following:
September 30, December 31,
1999 1998
------------- -------------
Raw materials.................$ 21,372,099 $ 18,419,217
Work-in-progress.............. 6,348,756 4,154,914
Finished goods................ 5,305,783 6,218,519
------------ ------------
$ 33,026,638 $ 28,792,650
============ ============
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 - INCOME TAXES
The effective income tax rate for the three months ended September 30, 1999
was 40.8% compared to 41.6% for the three months ended September 30, 1998.
The effective tax rate for the nine months ended September 30, 1999 was 40.2%
compared to 41.1% for the nine months ended September 30, 1998. The decrease
in the effective tax rate in both the 1999 periods is a result of pretax
losses in 1998 of the Honduran hardwood flooring facility (closed during the
1998 fourth quarter) that were not recognized in computing the U.S. tax
liability.
Page 7 of 16
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NOTE D - 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 gives effect to all potentially dilutive
securities that were outstanding during the period. The weighted average
number of shares of common stock used in the computation of diluted earnings
per share are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
-------- -------- ------- --------
Weighted average number of
shares outstanding (used in
computation of basic
earnings per share) 10,338 12,087 11,128 12,052
Effect of dilutive securities:
Options and warrants 31 53 61 83
-------- ------- ------- -------
Diluted shares outstanding
(used in computation of
diluted earnings per share) 10,369 12,140 11,189 12,135
======== ======= ======= =======
The computations of the number of common shares used in the determination of
basic and diluted earnings per share give retroactive recognition to the 5%
common stock dividend paid on July 19, 1999 (see Note F).
NOTE E - STOCK REPURCHASE
On April 12, 1999, the Company announced an offer to its stockholders to
acquire up to 2,000,000 shares of its Class A and Class B Common Stock at a
cash purchase price not greater than $10.00 per share nor less than $8.75 per
share. The Company purchased 1,688,823 shares at $10.00 per share through
the offer. To finance the stock repurchase the Company borrowed $17,056,000
repayable quarterly in equal installments of $609,143 through May 11, 2004
when the entire remaining principal amount is due. The Company is also
required to make an additional annual principal payment equal to 20% of the
preceding year's net income which exceeds $5,000,000, within 105 days after
December 31. The additional principal payment cannot exceed $1,000,000 in
any year. Concurrently the Company entered into an interest rate swap
agreement for the entire $17,056,000 that fixes the interest rate at 6.9%
over the term of the loan.
Page 8 of 16
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NOTE F - STOCK DIVIDEND
On June 30, 1999, the Company's Board of Directors declared a 5% common stock
dividend payable on July 19, 1999 to stockholders of record on July 12, 1999.
NOTE G - SUBSEQUENT EVENT
On October 28, 1999 the Company announced an offer to repurchase shares from
its odd lot holders who own less than 100 shares of Class A Common Stock.
Under the terms of the offer odd lot holders must tender all of the shares
held by them. The Company will pay the closing price of the Class A Common
Stock on the American Stock Exchange plus $.125 on the date the Company
receives the holders' certificates accompanied by the letter of transmittal.
The offer will remain open through 5:00 P.M. Eastern Standard Time on
December 15, 1999. There will be no transaction or administrative costs to
the holders.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
The Company experienced it's largest revenue quarter ever. Revenues
increased $15.6 million to $67.0 million for the quarter ended September 30,
1999 from $51.4 million for the quarter ended September 30, 1998. Revenues
for the nine months ended September 30, 1999 increased $21.7 million to 189.9
million, a new record, compared to $168.2 million for the nine months ended
September 30, 1998. The Company's dry freight and Spartan product lines
continue to be the drivers of the Company's revenue growth. Within the
Company's dry freight product line, revenue from the Company's fiberglass
reinforced panels ("FRP") products more than doubled for the nine months
ended September 30, 1999 when compared to the comparable prior year period.
Revenues from the Company's Spartan line increased 73% for the nine months
ended September 30, 1999 when compared to the nine months ended September 30,
1998. These product lines consumed 100% of the Company's FRP production
through September 30, 1999.
Gross profit for the three months ended September 30, 1999 improved to 17.3%
from 16.0% for the three months ended September 30, 1998. Responsible for
the improvement were the Company's material and overhead expenses which
declined as a percentage of revenues. Contributing to the overhead
improvement were the record revenues in the quarter as those items that do
not vary directly with volume declined as a percentage of total revenues.
Direct and indirect labor costs continue to be issues, particularly at the
Company's largest
Page 9 of 16
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manufacturing plant located in Goshen, Indiana. Labor turnover and training
costs hampered productivity in both the quarter and nine months ended
September 30, 1999.
The Company's gross profit percentage for the nine months ended September 30,
1999 was 16.8% compared to 17.4% for the prior year's nine month period. A
decrease in material as a percentage of revenues was offset by increases in
both direct labor and overhead. As discussed earlier, a very competitive
labor market, particularly at the Company's largest facility in Goshen,
Indiana, has negatively impacted productivity due to excessive turnover and
training costs. The increase in overhead costs was caused by increased
indirect labor cost and those items in the overhead pool that fluctuate
directly with labor costs.
Selling, general and administrative expenses as a percentage of revenues
declined .7% to 8.8% for the quarter ended September 30, 1999 from 9.5% for
the prior year quarter while for the nine months they were also 8.7% compared
to 9.0% for the prior year's nine month period. The primary reason for the
decline in both periods is the higher revenues experienced when compared to
the prior year.
Interest expense for the quarter ended September 30, 1999 increased $371,464
to $769,230 while for the nine months it increased $403,647 to $1,707,852.
The increase in interest expense in both periods is primarily attributable to
the $17,056,000 term loan borrowed in May 1999 to finance the Company's stock
repurchase program.
The Company's effective income tax rate was 40.8% for the three months ended
September 30, 1999 and 40.2% for the nine months ended September 30, 1999.
This compares to 41.6% and 41.1% for the comparable prior year periods. The
effective income tax rate declined in both 1999 periods due to pretax losses
in 1998 of the Company's Honduran hardwood facility that were not deductible
for U.S. income tax purposes in the prior year periods.
Net income was $2.9 million for the quarter ended September 30, 1999 and $1.7
million for the quarter ended September 30, 1998. This resulted in diluted
earnings per share of $.28 and $.14, respectively. For the nine months ended
September 30, 1999, net income was $8.2 million compared to $7.6 million for
the nine months ended September 30, 1998. This resulted in diluted earnings
per share of $.73 and $.63, respectively.
Page 10 of 16
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Liquidity and Capital Resources
Cash flows from operating activities and 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, 1999.
Net income and depreciation and amortization continue to be the most
significant sources of operating cash flow. The increase of $1.4 million in
accounts receivable and $4.2 million in inventories were the primary uses of
operating cash flow in the period. The increases in both accounts receivable
and inventories are a result of the significantly higher revenues experienced
in the period.
The Company has spent $6.6 million on capital expenditures during the year.
Major capital projects during the year include $1.3 million for Enterprise
Resource Planning software that is Year 2000 compliant and will also provide
improved operating information; $1.6 million for office facilities that will
be completed in the fourth quarter; $0.7 million for a manufacturing facility
to provide needed capacity in Georgia; $0.7 million at the Company's FRP
facility for improved handling and additional storage as well as improvements
at our Pennsylvania, Georgia and California manufacturing plants.
Additionally, the Company is in the process of negotiating for an Industrial
Revenue Bond to purchase the North Carolina facility it currently leases.
The transaction is not expected to close until early in the year 2000.
The principal financing activities during the nine months ended September 30,
1999 were the use of the Company's revolving credit facility to finance
operations and capital expenditures and a $17.1 million five year term loan
used to purchase 1,688,823 shares of the Company's Class A Common Stock in
the Dutch Auction offer that expired May 10, 1999.
The Company anticipates that cash flows from operations and funds available
under the Company's revolving credit agreement will be sufficient to meet the
Company's cash needs during 1999.
Year 2000
The Company has successfully completed the installation of certified Year
2000 compliant software for all major functions and all operating facilities
at a combined software and hardware cost of $1.3 million. Expenditures for
the investment in the new hardware and software Year 2000 were funded from
operating activities combined with funds available under the Company's
revolving credit agreement. The successful implementation of the new
information system is the completion of a project that was commenced during
1996. With the assistance of an independent consulting group, the Company
conducted a complete analysis of it's system and operating requirements. The
selection of the software was based on the strength of the
Page 11 of 16
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manufacturing software modules combined with the quality and level of
expertise the software provider could furnish. During the last quarter of
1998 and the first three quarters of 1999, the Company completed the
implementation and testing of the software at all of its locations. The
Company had developed a contingency plan that would have permitted the
Company to use its prior software after December 31, 1999 by reprogramming
dates in its prior software. However, with the successful implementation of
the new Year 2000 compliant software, management believes there is no longer
a real need for the contingency plan.
While the Company's most urgent goal was to obtain Year 2000 compliance, an
equally important goal to improve the Company's information systems to
provide more timely and accurate financial and operating reports to better
manage the Company was set. The business and process improvement will be an
ongoing project. The Company will continue to provide the education and
training necessary to its personnel to achieve these goals.
The Company's major suppliers of raw materials used in the Company's products
have indicated that they are Year 2000 compliant. The raw materials used in
the Company's products are commodity in nature and are readily available
across the country from a large number of suppliers. The Company does not
believe it will have difficulty obtaining raw materials because of
established relations with multiple sources for its raw materials and the
fact that they are readily available from a large number of sources.
The Company also believes there is not significant risk from the failure of
its customers to become Year 2000 compliant because of the large number of
active accounts and the fact that no single account is more than 6% of
revenues. The Company's products are sold direct to large users; there are
approximately 85 truck distributors and 37 bus distributors as well as
approximately 500 truck dealers throughout the country who are customers of
the Company.
The Company believes the worst case scenario relating to Year 2000 issues
would be the disruption or unavailability of utility services. The Company
also believes that this possibility is remote. Additionally, the Company's
seven manufacturing plants and eight distribution facilities are all served
by different utility companies and it is unlikely that all would suffer from
a Year 2000 problem.
As noted in the next section, "Forward Looking Statements", a major risk
factor for the Company is the availability of chassis. The Company's major
sources of chassis have indicated that they are Year 2000 compliant and that
their chassis are also Year 2000 compliant.
Page 12 of 16
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Forward-Looking Statements
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
it 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, severe interest rate increases and the
Company's and its suppliers and customers' ability to make its and there
respective operating and financial systems Year 2000 compliant. 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 13 of 16
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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 14 of 16
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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 12, 1999 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 15 of 16
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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 16 of 16
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 237,396
<SECURITIES> 0
<RECEIVABLES> 30,765,566
<ALLOWANCES> 681,000
<INVENTORY> 33,026,638
<CURRENT-ASSETS> 66,120,722
<PP&E> 56,558,606
<DEPRECIATION> 20,759,618
<TOTAL-ASSETS> 104,174,994
<CURRENT-LIABILITIES> 27,526,407
<BONDS> 30,558,208
0
0
<COMMON> 1,041,189
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 104,174,994
<SALES> 189,875,331
<TOTAL-REVENUES> 189,875,331
<CGS> 157,886,268
<TOTAL-COSTS> 157,886,268
<OTHER-EXPENSES> 16,613,680
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,707,852
<INCOME-PRETAX> 13,667,531
<INCOME-TAX> 5,497,000
<INCOME-CONTINUING> 8,170,531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,170,531
<EPS-BASIC> 0.73
<EPS-DILUTED> 0.73
</TABLE>
