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 March 31, 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 May 7, 1999
Class A 9,819,305
Class B 1,682,328
The index to Exhibits is at page 15 in the sequential numbering system.
Total number of pages: 15.
Page 1 of 15
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 9, 10,
Financial Condition and Results of Operations 11 & 12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Index to Exhibits 15
Page 2 of 15
Part I. Financial Information
Item 1. Financial Statements
Supreme Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, December 31,
1999 1998
-------------- ------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents.................. $65,344 $185,424
Accounts receivable, net................... 26,911,791 28,709,559
Inventories................................ 36,123,983 28,792,650
Deferred income taxes...................... 1,081,839 1,081,839
Other current assets....................... 1,381,165 1,465,237
------------- -------------
Total current assets.................... 65,564,122 60,234,709
------------- -------------
Property, plant and equipment, at cost....... 51,320,369 50,030,906
Less, Accumulated depreciation and
amortization.......................... 19,378,273 18,688,584
------------- -------------
Property, plant and equipment, net...... 31,942,096 31,342,322
Intangible assets, net....................... 1,451,248 1,502,076
Other assets................................. 977,434 991,947
------------- -------------
Total assets............................ $99,934,900 $94,071,054
============= =============
The accompanying notes are a part of the consolidated financial statements.
Page 3 of 15
Supreme Industries, Inc. and Subsidiaries
Consolidated Balance Sheets, Concluded
March 31, December 31,
1999 1998
------------- ------------
Liabilities and Stockholders' Equity (Unaudited)
Current liabilities:
Current maturities of long-term debt....... $1,764,973 $2,014,975
Trade accounts payable..................... 11,465,586 10,235,964
Accrued income taxes....................... 2,450,284 961,628
Other accrued liabilities.................. 7,390,493 7,736,198
------------- -------------
Total current liabilities............... 23,071,336 20,948,765
Long-term debt............................... 19,649,592 18,303,207
Deferred income taxes........................ 1,333,007 1,333,007
------------- -------------
Total liabilities....................... 44,053,935 40,584,979
Stockholders' equity......................... 55,880,965 53,486,075
------------- -------------
Total liabilities and stockholders'
equity................................ $99,934,900 $94,071,054
============= =============
The accompanying notes are a part of the consolidated financial statements.
Page 4 of 15
Supreme Industries, Inc. and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended
March 31,
------------- --------------
1999 1998
------------- --------------
Revenues.................................... $56,376,042 $55,493,345
Costs and expenses:
Cost of sales............................. 46,834,398 46,120,374
Selling, general and administrative....... 5,154,775 4,946,225
Interest.................................. 339,004 417,013
------------- -------------
52,328,177 51,483,612
------------- -------------
Income before income taxes............. 4,047,865 4,009,733
Income taxes................................ 1,650,000 1,622,000
------------- -------------
Net income............................. $2,397,865 $2,387,733
============= =============
Earnings per share:
Basic.................................. $.21 $.21
Diluted................................ .21 .21
Shares used in the computation of earnings
per share:
Basic.................................. 11,427,113 11,447,338
Diluted................................ 11,509,333 11,549,796
The accompanying notes are a part of the consolidated financial statements.
Page 5 of 15
Supreme Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
March 31,
------------- ------------
1999 1998
------------- ------------
Cash flows from operating activities:
Net income................................. $2,397,865 $2,387,733
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.......... 771,076 732,620
(Gain) loss on disposal of equipment... (2,317) 84,087
Changes in operating assets and
liabilities.......................... (3,076,920) (7,548,434)
------------- ------------
Net cash provided by (used in) operating
activities............................ 89,704 (4,343,994)
------------- ------------
Cash flows from investing activities:
Additions to property, plant and equipment. (1,321,030) (2,068,787)
Proceeds from disposal of property, plant
and equipment............................ 3,325 108,900
Decrease in other assets................... 14,513 23,045
------------- ------------
Net cash (used in) investing activities. (1,303,192) (1,936,842)
------------- ------------
Cash flows from financing activities:
Proceeds from revolving line of credit
and other long-term debt................. 22,569,011 25,405,232
Repayments of revolving line of credit
and other long-term debt................. (21,472,628) (19,245,872)
Proceeds from exercise of stock options.... --- 98,649
Acquisition of treasury stock.............. (2,975) ---
------------- ------------
Net cash provided by financing
activities............................ 1,093,408 6,258,009
------------- ------------
Decrease in cash and cash equivalents........ (120,080) (22,827)
Cash and cash equivalents, beginning of
period..................................... 185,424 159,044
------------- ------------
Cash and cash equivalents, end of period..... $65,344 $136,217
============= ============
The accompanying notes are a part of the consolidated financial statements.
Page 6 of 15
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:
March 31, December 31,
1999 1998
------------ ------------
Raw materials.............. $ 24,453,828 $ 18,419,217
Work-in-progress........... 5,032,365 4,154,914
Finished goods............. 6,637,790 6,218,519
------------ ------------
$ 36,123,983 $ 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 March 31, 1999 was
40.8% compared to 40.5% for the three months ended March 31, 1998.
Page 7 of 15
NOTE D - 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 gives effect to
all potentially dilutive securities that were outstanding during the period.
The Company's diluted earnings per share is computed as follows:
Three Months Ended March 31,
----------------------------
1999 1998
------------ -------------
Net Income $2,398 $2,388
------ ------
Weighted average number of shares
outstanding (used in computation
of basic earnings per share) 11,427 11,447
Effect of dilutive securities:
Options and warrants 82 103
Diluted shares outstanding (used
in computation of diluted
earnings per share) 11,509 11,550
====== ======
The computations of the number of common shares used in the determination of
1998 basic and diluted earnings per share give retroactive recognition to the
two (2) 5% common stock dividends declared and paid in 1998.
NOTE E - SUBSEQUENT EVENTS AND COMMITMENTS
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 offer to purchase shares expired May 10, 1999. The transfer agent
reports that 1,689,423 shares were tendered, and, pursuant to the terms of the
offer, the Company will purchase all of such shares at $10.00 per share. In
connection with the stock repurchase program, the Company obtained a
financing commitment for a five-year unsecured $20,000,000 term loan. The
term loan requires quarterly principal and interest payments over the term of
the loan, with interest at certain basis points above LIBOR depending on the
Company's leverage ration, as defined.
Page 8 of 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Results of Operations
Revenues for the quarter ended March 31, 1999 increased $882,697 to
$56,376,042 from $55,493,345 for the quarter ended March 31, 1998. Revenues
were somewhat restrained during the quarter due to delays in chassis arrivals
as well as lack of specifications for certain large fleet orders.
Gross profit as a percentage of revenues for both the quarter ended March 31,
1999 and 1998 was 16.9% as a percentage of revenues. A slight decrease in
material cost as a percentage of revenues was offset by increases in both
direct labor and overhead.
Selling, general and administrative expenses as a percentage of revenues
increased slightly to 9.1% for the quarter ended March 31, 1999 from 8.9% for
the quarter ended March 31, 1998.
Interest expense for the quarter ended March 31, 1999 was .6% of revenues or
$339,000, compared to .8% or $417,000 for the quarter ended March 31, 1998.
More favorable interest rates as well as a decline in interest on pool
chassis were responsible for the decline.
Net income for the quarter ended March 31, 1999 was $2,397,865 compared to
$2,387,733 for the quarter ended March 31, 1998. Both basic and diluted
earnings per share were $.21 for the quarters ended March 31, 1999 and March
31, 1998.
Liquidity and Capital Resources
Net income and funds available under the Company's revolving credit agreement
were adequate to finance operations during the quarter ended March 31, 1999.
Net income and depreciation and amortization were the significant components
of cash flow. The inventory increase of $7.3 million was the most
significant use of operating cash flow during the period. The inventory
increase is related to both higher levels of fleet orders as well as delivery
delays due to chassis delays and product specifications not being finalized
timely. Accounts receivable declined $1.8 million in the period.
The Company spent $1.3 million on capital expenditures during the quarter
ended March 31, 1999. Major projects under way are the construction of a
corporate office facility in Goshen, Indiana, an addition to our Ligonier
facility and expansions at our Pennsylvania and California operations.
Page 9 of 15
The principal financing activity during the quarter was the use of the
Company's revolving credit agreement to finance operations and capital
expenditures. 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 offer to purchase shares expired May 10, 1999.
The transfer agent reports that 1,689,423 shares were tendered, and, pursuant
to the terms of the offer, the Company will purchase all of such shares at
$10.00 per share. In connection with the stock repurchase program, the
Company obtained a financing commitment for a five-year unsecured $20,000,000
term loan. The term loan requires quarterly principal and interest payments
over the term of the loan, with interest at certain basis points above LIBOR
depending on the Company's leverage ration, as defined.
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 10 of 15
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 three of its operations the Company believes that all of its
operating locations will be fully Year 2000 compliant by October 1, 1999.
The Company has a contingency plan that would enable it to use its existing
software after December 31, 1999, but as indicated earlier based on the
results of successful implementations the Company believes it will be fully
Year 2000 compliant by October 1, 1999.
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 the 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 11 of 15
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, and it can give no assurance that
the expectations reflected in such forward-looking statements are reasonable,
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 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 12 of 15
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
April 29, 1999. 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 8,375,758 to 15,913
with no abstentions:
Rice M. Tilley, Jr.
Rick L. Horn
H. Douglas Schrock
The following individuals were elected Directors by the holders of
the Company's Class B Common Stock by a vote of 1,682,328 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 8,355,866 to 23,472 with 12,333 abstaining.
c) The Company's 1998 Stock Option Plan was approved by a vote of
7,278,157 to 436,862 against with 32,328 abstentions.
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
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: May 13, 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 14 of 15
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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 65,344
<SECURITIES> 0
<RECEIVABLES> 27,442,791
<ALLOWANCES> 531,000
<INVENTORY> 36,123,983
<CURRENT-ASSETS> 65,564,122
<PP&E> 51,320,369
<DEPRECIATION> 19,378,273
<TOTAL-ASSETS> 99,934,900
<CURRENT-LIABILITIES> 23,071,336
<BONDS> 19,649,592
0
0
<COMMON> 1,157,898
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 99,934,900
<SALES> 56,376,042
<TOTAL-REVENUES> 56,376,042
<CGS> 46,834,398
<TOTAL-COSTS> 46,834,398
<OTHER-EXPENSES> 5,154,775
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 339,004
<INCOME-PRETAX> 4,047,865
<INCOME-TAX> 1,650,000
<INCOME-CONTINUING> 2,397,865
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,397,865
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
