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, 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 August 2, 1999
Class A 8,563,848
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, 8 & 9
Item 2. Management's Discussion and Analysis of 9, 10, 11
Financial Condition and Results of 12 & 13
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
June 30, December 31,
1999 1998
--------------- ---------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents............... $232,208 $185,424
Accounts receivable, net................ 33,054,356 28,709,559
Inventories............................. 39,065,712 28,792,650
Deferred income taxes................... 1,081,839 1,081,839
Other current assets.................... 1,407,095 1,465,237
--------------- ---------------
Total current assets............... 74,841,210 60,234,709
--------------- ---------------
Property, plant and equipment, at cost....... 53,189,952 50,030,906
Less, Accumulated depreciation and
amortization..................... 20,056,945 18,688,584
--------------- ---------------
Property, plant and equipment, net. 33,133,007 31,342,322
--------------- ---------------
Intangible assets, net....................... 1,400,421 1,502,076
Other assets................................. 936,367 991,947
--------------- ---------------
Total assets....................... $110,311,005 $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
June 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.................. 11,988,083 10,235,964
Accrued income taxes.................... 1,255,484 961,628
Other accrued liabilities............... 8,786,938 7,736,198
--------------- ---------------
Total current liabilities.......... 27,198,756 20,948,765
Long-term debt............................... 40,035,702 18,303,207
Deferred income taxes........................ 1,333,007 1,333,007
--------------- ---------------
Total liabilities.................. 68,567,465 40,584,979
--------------- ---------------
Stockholders' equity.......................... 41,743,540 53,486,075
--------------- ---------------
Total liabilities and stockholders'
equity............................ $110,311,005 $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 Six Months Ended
June 30, June 30,
------------------------ --------------------------
1999 1998 1999 1998
----------- ----------- ------------ ------------
Revenues............... $66,485,606 $61,322,192 $122,861,648 $116,815,537
----------- ----------- ------------ ------------
Costs and expenses:
Cost of sales..... 55,654,732 49,605,633 102,489,130 95,726,007
Selling, general
and
administrative.. 5,563,377 5,289,083 10,718,152 10,235,308
Interest.......... 599,618 489,426 938,622 906,439
----------- ----------- ------------ ------------
61,817,727 55,384,142 114,145,904 106,867,754
----------- ----------- ------------ ------------
Income before
income
taxes........ 4,667,879 5,938,050 8,715,744 9,947,783
Income taxes............ 1,825,000 2,447,000 3,475,000 4,069,000
----------- ----------- ------------ ------------
Net income.... $2,842,879 $3,491,050 $5,240,744 $5,878,783
=========== =========== ============ ============
Earnings per share:
Basic......... $.26 $.29 $.45 $.49
Diluted....... .25 .29 .45 .48
Shares used in the
computation of
earnings per share:
Basic......... 11,061,863 12,062,554 11,529,466 12,035,913
Diluted....... 11,153,076 12,154,764 11,622,465 12,140,286
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)
Six Months Ended
June 30,
-------------------------------
1999 1998
--------------- ---------------
Cash flows from operating activities:
Net income.............................. $5,240,744 $5,878,783
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization. 1,523,976 1,467,972
Loss (gain) on disposal of
equipment................... (2,993) 84,087
Changes in operating assets
and liabilities............. (11,463,002) (8,284,348)
--------------- ---------------
Net cash (used in) operating
activities....................... (4,701,275) (853,506)
--------------- ---------------
Cash flows from investing activities:
Additions to property, plant and
equipment............................. (3,213,338) (3,310,629)
Proceeds from disposal of property,
plant and equipment................... 3,325 108,900
Decrease in other assets................ 55,580 39,464
--------------- ---------------
Net cash (used in) investing
activities....................... (3,154,433) (3,162,265)
--------------- ---------------
Cash flows from financing activities:
Proceeds from revolving line of credit
and other long-term debt........... 67,070,742 50,996,113
Repayments of revolving line of credit
and other long-term debt........... (42,184,971) (47,056,658)
Proceeds from exercise of stock options. --- 114,101
Acquisiton of treasury stock............ (16,983,279) ---
--------------- ---------------
Net cash provided by financing
activities....................... 7,902,492 4,053,556
--------------- ---------------
Increase in cash and cash equivalents........ 46,784 37,785
Cash and cash equivalents, beginning of
period..................................... 185,424 159,044
--------------- ---------------
Cash and cash equivalents, end of period..... $232,208 $196,829
=============== ===============
Noncash investing and financing activities:
Class A Common Stock exchanged in
exercise of stock options (12,843
shares)............................... --- 185,950
The accompanying notes are a part of the consolidated financial statements.
Page 6 of 16
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SUPREME INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION AND OPINION OF MANAGEMENT
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do
not include all of the information and financial statement disclosures
necessary for a fair presentation of consolidated financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. In the opinion of management, the information furnished herein
includes all adjustments necessary to reflect a fair statement of the interim
periods reported. All adjustments are of a normal and recurring nature. The
December 31, 1998 consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
NOTE B - INVENTORIES
Inventories, which are stated at the lower of cost or market with cost
determined on the first-in first-out method, consist of the following:
June 30, December 31,
1999 1998
------------ ------------
Raw materials.................$ 25,754,147 $ 18,419,217
Work-in-progress.............. 5,759,124 4,154,914
Finished goods................ 7,552,441 6,218,519
------------ ------------
$ 39,065,712 $ 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 June 30, 1999 was
39.1% compared to 41.2% for the three months ended June 30, 1998. The
effective tax rate for the six months ended June 30, 1999 was 39.9% compared
to 40.9% for the six months ended June 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 Company's computation of diluted
earnings per share are as follows:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
Weighted average number of
shares outstanding (used in
computation of basic
earnings per share) 11,062 12,063 11,529 12,036
Effect of dilutive securities:
Options and warrants 91 92 93 104
Diluted shares outstanding
(used in computation of
diluted earnings per share) 11,153 12,155 11,622 12,140
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 can not 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
Revenues for the quarter ended June 30, 1999 rose $5.2 million to $66.5
million from $61.3 million for the quarter ended June 30, 1998. Revenues for
the six months ended June 30, 1999 rose $6.1 million to $122.9 million from
$116.8 million for the six months ended June 30, 1998. This growth is
primarily attributed to the Company's dry freight and Spartan product lines.
The Company would have experienced an even stronger second quarter as
approximately $10 million in fleet orders were delayed until the third
quarter. The delays were caused by a combination of extremely tight labor
conditions, chassis delays and late specification changes on certain large
fleet orders.
Gross profit declined to 16.3% for the three months ended June 30, 1999 from
19.1% for the comparable prior year period. Gross profit for the six months
ended June 30, 1999 was 16.6% compared to 18.1% for the six months ended June
30, 1998. The Company has experienced increased labor costs for both the
three months and six months ended June 30, 1999. These costs are attributed
to the very tight and extremely competitive labor environment particularly at
its Indiana operations where the unemployment rate has been as low as 1.6%.
Labor turnover and training cost have also hampered productivity. Material
cost was relatively unchanged for the quarter ended June 30, 1999 when
compared to the quarter ended June 30, 1998 and was down slightly for the six
months ended June 30, 1999 when compared to the comparable prior year period.
Overhead expenses were up for both the quarter and six months ended June 30,
1999 when compared to the prior year comparable periods. It is anticipated
that overhead expenses will decline as a percentage of revenues when the
Company ships the delayed fleet orders discussed earlier.
Page 9 of 16
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Selling, general and administrative expenses as a percentage of revenues were
relatively unchanged for the three months and six months ended June 30, 1999
when compared to the comparable prior year periods. Interest expense was up
slightly to .9% for the three months ended June 30, 1999 compared to .8% of
revenues for the comparable prior year period. The increase in the quarter
related to the $17.1 million term loan used to finance the Company's stock
repurchase. Interest expense for the six months ended June 30, 1999 and June
30, 1998 was .8% of revenues. Interest expense did not increase in the six
months ended June 30, 1999 as the term loan was only outstanding for the last
43 days of the period.
The Company's effective income tax rate was 39.1% for the three months ended
June 30, 1999 and 39.9% for the six months ended June 30, 1999. This
compares to 41.2% and 40.9% 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 $2.8 million for the quarter ended June 30, 1999 and $3.5
million for the quarter ended June 30, 1998. This resulted in diluted
earnings per share of $.25 and $.29, respectively. For the six months ended
June 30, 1999, net income was $5.2 million compared to $5.9 million for the
six months ended June 30, 1998. This resulted in diluted earnings per share
of $.45 and $.48, respectively.
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, 1999. Net income and depreciation and amortization
continue to be the most significant components of operating cash flow. The
increase of $10.3 million in inventories and $4.3 million in accounts
receivable were the most significant uses of operating cash flows during the
period. The increase in both inventories and receivables are related to
increased business in the quarter when compared to last year. Inventories
should decline as the Company delivers approximately $10 million in delayed
fleet orders in the third quarter.
The Company spent $3.2 million on capital expenditures during the six months
ended June 30, 1999. Major capital projects in the period are expansions at
the Ligonier, Indiana, Pennsylvania and California manufacturing operations.
The Company also purchased a manufacturing facility in Griffin, Georgia to
increase capacity in the Southeast. In addition, the Company has a corporate
office facility under construction. The Company plans to purchase the North
Carolina manufacturing facility it currently leases for $2.1 million in the
third quarter.
Page 10 of 16
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The principal financing activity during the quarter ended June 30, 1999 was a
$17.1 million 5 year term loan to finance the purchase of 1,688,823 shares of
Class A Common Stock in connection with the Dutch Auction offer that expired
May 10, 1999. The loan requires equal quarterly installments of $609,143
through May 11, 2004 with the remaining principal due at that time. In
addition, the Company is required to make an annual prepayment of up to $1
million if the Company's net income exceeds $5 million. The prepayment is
due 105 days after December 31. In connection with the term loan the Company
entered an interest rate swap agreement that fixed the interest rate at 6.9%
over the life of the loan.
The other significant financing activity during the quarter was the use of
the Company's revolving credit agreement to finance operations and capital
expenditures.
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 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. The software
purchased is Year 2000 compliant.
The total cost of the operating software and consulting fees is approximately
$1,000,000. In addition the Company has spent $200,000 on hardware upgrades.
The expenditures were funded from operating activities combined with funds
available under the Company's revolving credit agreement. The majority of
the costs were incurred during 1998 and the Company does not anticipate
significant additional expenditures.
The Company's goal is not only to be able to process transactions in the Year
2000, but also to significantly improve its overall information systems.
When fully implemented the Company will have more detailed operating and
financial information by facility, product line and customer. For this
purpose the project was divided into two phases. Phase I provides Year 2000
compliance and Phase II develops the system and procedures necessary to
provide the more meaningful operating and financial information. Phase II
will be an ongoing project.
Page 11 of 16
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The Company has completed the assessment and testing phase of its Year 2000
project and is currently in the implementation phase. Based on the results
of the successful implementation of the Company's Year 2000 compliant
software at six of its eight operations the Company believes that all of its
operating locations will be fully Year 2000 compliant by October 1, 1999.
The Company has two remaining operations to be converted to the new Year 2000
compliant operating software. They are on schedule to be implemented on
September 1 and October 1, 1999.
The Company has developed a contingency plan that would enable it to use its
existing software after December 31, 1999. The Company has the ability to
reprogram dates in its existing financial software. The software would then
act as if it were in a year other than 1999 enabling it to continue to
process transactions. The Company's production facilities do not rely on the
Company's financial software for the ability to produce products. The
Company has not pursued this alternative plan as it has successfully
implemented six of its eight facilities on Year 2000 compliant software. The
remaining two facilities will use the identical software the other six are
currently operating on.
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.
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 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: August 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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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 232,208
<SECURITIES> 0
<RECEIVABLES> 33,660,356
<ALLOWANCES> 606,000
<INVENTORY> 39,065,712
<CURRENT-ASSETS> 74,841,210
<PP&E> 53,189,952
<DEPRECIATION> 20,056,945
<TOTAL-ASSETS> 110,311,005
<CURRENT-LIABILITIES> 27,198,756
<BONDS> 40,035,702
0
0
<COMMON> 1,039,148
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 110,311,005
<SALES> 122,861,648
<TOTAL-REVENUES> 122,861,648
<CGS> 102,489,130
<TOTAL-COSTS> 102,489,130
<OTHER-EXPENSES> 10,718,152
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 938,622
<INCOME-PRETAX> 8,715,744
<INCOME-TAX> 3,475,000
<INCOME-CONTINUING> 5,240,744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,240,744
<EPS-BASIC> .45
<EPS-DILUTED> .45
</TABLE>
