-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TemWi9ZxUeHO9uOzbCADgzKgKMTQgXhbz3bqGx2GnNgTWfxR9YKgG3hbuutHqnJ3 PWAxa/EF11/exaXZBBYXoQ== 0000350846-00-000008.txt : 20000322 0000350846-00-000008.hdr.sgml : 20000322 ACCESSION NUMBER: 0000350846-00-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUPREME INDUSTRIES INC CENTRAL INDEX KEY: 0000350846 STANDARD INDUSTRIAL CLASSIFICATION: TRUCK & BUS BODIES [3713] IRS NUMBER: 751670945 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08183 FILM NUMBER: 574475 BUSINESS ADDRESS: STREET 1: 65140 US 33 E STREET 2: PO BOX 237 CITY: GOSHEN STATE: IN ZIP: 46526 BUSINESS PHONE: 2196423070 MAIL ADDRESS: STREET 1: P O BOX 237 STREET 2: 65140 U S 33 EAST CITY: GOSHEN STATE: IN ZIP: 46526 FORMER COMPANY: FORMER CONFORMED NAME: EXPLORATION SURVEYS INC DATE OF NAME CHANGE: 19850813 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1999. or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 of Incorporation) (IRS Employer Identification No.) P.O. Box 237, 16441 CR 38, Goshen, Indiana 46528 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) - (219) 642-3070 Securities registered pursuant to Section 12(b) of the Act: Class A Common Stock ($.10 Par Value) American Stock Exchange (Title of each class) (Name of Each Exchange on Which Registered) Securities registered pursuant to Section 12(g) of the Act: None 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 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment hereto. X The aggregate market value of the voting stock held by non-affiliates of the registrant at February 25, 2000: $39,042,593 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at February 25, 2000 - ------------------------------------- -------------------------------- Class A Common Stock ($.10 Par Value) 8,994,052 shares Class B Common Stock ($.10 Par Value) 1,826,092 shares Documents Incorporated by Reference Parts of Form 10-K Into Which the Document Document is Incorporated Portions of the Proxy Statement for Annual Meeting of Shareholders to be held on April 27, 2000 Part III The Index to Exhibits is on page in the sequential numbering system. Total pages PAGE 1 of 59 PART I ------ ITEM 1. BUSINESS. - ------- --------- History - ------- Supreme Industries, Inc., a Delaware Corporation, formerly ESI Industries, Inc. (the "Company") is one of the nation's leading manufacturers of specialized vehicles, including truck bodies and shuttle buses. The Company was incorporated in 1979 and originally had one operating subsidiary TGC Industries, Inc., which was spun-off to stockholders of the Company effective July 31, 1986. Supreme Corporation, the Company's wholly-owned operating subsidiary, was formed in January 1984 to acquire a company engaged in the business of manufacturing, selling and repairing specialized truck bodies, shuttle buses and related equipment. In August 1994, the Company acquired the business operations and substantially all of the operating assets of Murphy Body Company, Inc., Wilson, North Carolina. The acquisition provided additional refrigerated product lines that the Company did not currently produce and added additional capacity for the Company's existing product lines. The acquisition also provided better market penetration for all of the Company's product lines into Virginia and North and South Carolina. During 1998 the Company reached the decision to close two operating facilities. The paratransit van line acquired in March 1996 never reached the volumes anticipated. In addition, as a result of the damage to the Honduran infrastructure caused by Hurricane Mitch, the Company decided to close its hardwood flooring operation in Honduras. Neither closing had an unfavorable effect on the Company's operations. Financial Information About Operating Segments - ---------------------------------------------- The Company has two operating segments, specialized vehicles and vertically integrated fiberglass products. The vertically integrated fiberglass products segment does not meet the qualitative thresholds for separate disclosure. General Description of the Company's Business - --------------------------------------------- The specialized vehicle industry consists of companies that manufacture and/or distribute specialized truck bodies and shuttle buses. Depending on the product, it is either built directly on a truck chassis or built separately and installed at a later date. The truck chassis, which consists of an engine, frame with wheels, and in some cases a cab, is manufactured by third parties who are major automotive or truck companies. Such companies typically do not build specialized truck bodies. See "Competition." Supreme's products are medium-priced with prices generally ranging from $2,500 to $100,000. Supreme's truck bodies and custom trailers are offered in aluminum or fiberglass reinforced plywood panel ("FRP") construction and are available in lengths of 9 to 45 feet and heights up to 13 feet, 6 inches. Examples of optional equipment offered by Supreme include lift gates, cargo-handling equipment, customized doors, special bumpers, ladder racks, and Page 2 of 59 refrigeration equipment, which are configured with the truck bodies to meet the end-user's needs. Supreme also makes its own fiberglass wind deflectors under the name of Fuel Shark, which reduce wind resistance and improve fuel efficiency. Supreme is not in the business of manufacturing recreational vehicles or long-distance truck-trailers. The following is a brief summary of Supreme's products: Van bodies. Supreme's van bodies are typically fabricated up to 28 feet in length with pre painted aluminum or FRP panels, aerodynamic front and side corners, hardwood floors and various door configurations to accommodate end-user loading and unloading requirements. This product is used for diversified dry freight transportation. Refrigerated Chiller (trademark) insulated van bodies. Chiller (trademark) vans are insulated FRP bodies which can accommodate controlled temperature and refrigeration needs of end-users. All fiberglass exterior laminated walls are corrosion resistant and utilize foam insulation which permits varying levels of temperature to as low as minus twenty degrees Fahrenheit. Kold King (trademark) aluminum insulated van bodies. Supreme's advances in insulated foam technology have created this aluminum insulated body with greater strength, less weight and better thermal efficiency. Iner-City (trademark) cutaway van bodies. Aluminum or FRP cutaway van bodies are manufactured on cutaway chassis which are available with access to the cargo area from the cab. The Iner-City (trademark) cutaway van body is similar to the regular van body except for floor construction and shorter lengths (10 feet to 15 feet) as compared with van bodies which are constructed to lengths of up to 28 feet. Iner-City (trademark) walk-in van bodies. Supreme manufactures its walk-in vans on a rail truck chassis having no cab. Supreme fabricates the driver's compartment and body using FRP panels and aluminum. Some uses for this product include the distribution of food products and small packages. Commander (trademark) fiberglass van bodies. The Commander (trademark) is a one-piece fiberglass molded body used principally in the lawn care industry. The corrosion resistant body has an interior design which helps control chemical spills and enhances the clean-up process. Pro Fleet commercial conversions. Supreme's Pro Fleet product line meets the needs of a wide array of commercial users. Pro Fleet customizes Chrysler, Ford, and General Motors full-size vans, minivans and a full line of trucks. These products are used as mobile offices, mobile workstations, commuter and executive vans as well as service and delivery vehicles. Spartan mini-bodies. Spartan mini-bodies are produced in three different configurations and designed to be mounted on small trucks for diversified commercial use. Armored Trucks. Supreme's armored trucks are built to customer specifications in either aluminum, galvaneal or stainless steel. Page 3 of 59 StarTrans (trademark) shuttle buses. The StarTrans (trademark) shuttle buses have seating capacities for 12 to 29 people and are offered with a variety of seating arrangements and with options such as wheelchair lifts, custom interiors, and special exterior paint schemes. The shuttle bus line features an improved aerodynamic exterior design and is intended for use by hotels, nursing homes, car leasing companies, and airport-related users. StarTrans (trademark) mid-size buses. Supreme's StarTrans (trademark) mid-size buses (President and Ambassador) are offered in lengths of up to 31 feet with capacities of up to 35 passengers. This product serves the public transit and tour markets and provides the Company's dealer network with a more comprehensive product line. StarTrans (trademark) trolleys. Supreme's StarTrans (trademark) trolley line is similiar in size to the mid-size bus line but resembles a San Francisco trolley car. It is marketed to resort areas, theme parks and cities desiring unique transportation vehicles. Customized trailers. Supreme manufactures a variety of customized trailers for special needs, including mobile laboratories, antique and race car haulers, and trailers for the broadcasting industry. Stake bodies. Stake bodies are flatbeds with various configurations of removable sides. The stake body is utilized for a broad range of agricultural transportation needs. Chiller (trademark), Kold King (trademark), Nordica (trademark), Iner-City (trademark), Commander (trademark), Spartan, StarTrans (trademark), Freedom One (trademark), and Fuel Shark are trademarks used by Supreme in its marketing of truck bodies and buses. Chiller (trademark), Kold King (trademark), Nordica (trademark), Iner-City (trademark), Commander (trademark), StarTrans (trademark) and Freedom One (trademark) are trademarks registered in the U.S. Patent and Trademark Office. Some examples of specialized vehicles that are not manufactured by Supreme are dump bodies, utility bodies and garbage packers. Neither Supreme nor any of its competitors manufacture every type of specialized vehicles. Supreme intends to continue to expand its product line, but there is no assurance that it will do so. Manufacturing - ------------- Supreme's manufacturing facilities are located in Goshen and Ligonier Indiana; Griffin, Georgia; Cleburne, Texas; Moreno Valley, California; Jonestown, Pennsylvania and Wilson, North Carolina. Supreme's management estimates that the capacity utilization of its plants and equipment range from 60% to 90% of capacity when annualized on a one-shift basis. During the first and second quarter several of the Company's plants operate at 100% capacity to meet fleet requirements. Page 4 of 59 Supreme builds specialized truck bodies and installs other equipment on truck chassis, most of which are provided by bailment pool arrangements or are owned by dealers or end-users. These truck bodies are built on an assembly line from engineered structural components, such as floors, roofs, and wall panels. These components are manufactured from Supreme's proprietary designs and are installed on the truck chassis. Supreme then installs optional equipment and applies any special finishes that the customer has specified. At each step of the manufacturing and installation process, Supreme conducts quality control procedures to insure that the products meet its customers' specifications. Supreme's products are generally produced to firm orders and are designed and engineered by Supreme. Order levels will vary depending upon price, competition, prevailing economic conditions and other factors. Supreme has designed and built its own fabricating equipment for many of its manufacturing processes. Supreme has its own fiberglass manufacturing facilities that process and assemble the Fiberglass Reinforced Panel ("FRP") and other fiberglass products as required. Demand for the Company's FRP products was up $26.7 million in 1999 when compared to 1998 utilizing the Company's entire production capacity internally. The Company was able to increase its FRP production rate by 40% during 1999 at times running on a three shift basis but encountered significant problems with employee turnover that resulted in extremely high scrap rates. Employee turnover has stabilized and the Company is working diligently to improve scrap rates going forward. The Company is now able to meet its internal requirements at favorable cost when compared to the external market price. There is also sufficient capacity to allow for sales of FRP to third parties. The Company is currently in negotiations with two potential customers for up to $200,000 in monthly sales. Supreme provides limited warranties against construction defects in its products. These warranties generally provide for the replacement or repair of defective parts or workmanship for five years following the date of retail sale. Supreme generally does not purchase vehicle chassis for its inventory. Supreme accepts shipment of vehicle chassis owned by dealers or end-users, for the purpose of installing and/or manufacturing its specialized truck bodies and buses on such chassis. In the event of a labor disruption or other uncontrollable event adversely affecting the limited number of companies which manufacture and/or deliver such chassis, Supreme's level of manufacturing could be substantially reduced. The Company has established relationships with all major chassis manufacturers and in the event of a disruption in supply from one manufacturer the Company would attempt to divert its demand to the other manufacturer. Approximately 20% of the chassis involved in Supreme's manufacturing have been secured through bailment or consignment agreements with three major chassis manufacturers that provide for truck chassis pools at each of Supreme's manufacturing facilities. Raw Materials - ------------- Supreme does not have any long-term raw material contracts and is dependent upon suppliers of lumber, fiberglass, aluminum and steel for its manufacturing. However, there are several readily available sources for these raw materials. Supreme's operations could be affected by labor disruptions at its raw material suppliers or freight carriers. The single greatest threat to Supreme would be the disruption of chassis availability as virtually all of Supreme's products are Page 5 of 59 built on chassis. The Company believes it enjoys good relationships with all the chassis manufactureres that supply the chassis that its products are built on. In the event of a problem with one chassis supplier the Company would attempt to divert its products to other chassis suppliers. Marketing - --------- Supreme normally sells the vehicle and/or equipment that has been installed on the chassis to either truck equipment distributors, truck dealers or directly to end-users. Truck bodies purchased by a truck dealer from Supreme are sold by the dealer to its own customers. Since Supreme or its distributors (and not the truck dealers) generally service all Supreme products sold by the truck dealers, each truck dealer is normally located within relatively close geographic proximity to Supreme or the distributor supplying such dealer. Supreme's distributor/dealer network consists of approximately 40 bus distributors, 85 truck equipment distributors and 500 truck dealers. Management believes that this large distributor/dealer network, coupled with Supreme's geographically-dispersed plant and distribution sites, gives Supreme a distinct marketing advantage over its competitors. Supreme generally delivers its products within 3 to 6 weeks after the receipt of orders. Approximately 72 employees are engaged in direct sales. Supreme engages in direct advertising in trade publications, trade shows and cooperative advertising campaigns with distributors. Competition - ----------- Specialized vehicles are produced by many companies, most of which compete on a regional basis. Management believes that Supreme enjoys a competitive advantage based upon its established distributor/dealer network and six manufacturing facilities and eight distribution centers. Chassis manufacturers have not generally shown an interest in manufacturing specialized vehicles, including truck bodies and shuttle buses, because such manufacturers' highly-automated assembly line operations do not lend themselves to the efficient production of a wide variety of highly specialized vehicles with various options and equipment. Trademarks - ---------- The Company owns and maintains trademarks that are used in marketing specialized products manufactured by Supreme. Management believes that these trademarks have significant customer goodwill. Page 6 of 59 Working Capital - --------------- The Company utilizes its revolving line of credit to finance its accounts receivable and inventories. The Company's Credit Agreement requires the Company to maintain a minimum working capital of not less than $10 million. The Company had working capital of $42.7 million at December 31, 1999. Major Customers - --------------- The Company had one customer, Budget Group Inc., that accounted for approximately 11% of the Company's revenues during 1999. No single or group of customers accounted for 10% or more of the Company's revenues for the years ended December 31, 1998 and 1997. The Company's export sales are not significant. Environment Regulation - ---------------------- The Company's manufacturing operations are subject to federal, state, and local statutes and regulations relating to the protection of the environment, work site safety standards, and product size and weight limitations. Such regulations increase the Company's cost of doing business. Because other companies are subject to similar regulations, such regulations are not believed to have an adverse effect on the Company's competitive position. Employees - --------- As of December 31, 1999, the Company employed approximately 2,200 employees, none of whom are represented by a collective bargaining unit. The Company considers its relations with its employees to be satisfactory. Back Log - -------- The Company's backlog of firm orders was $74.0 million at December 31, 1999 compared to $57.0 million at December 31, 1998. Executive Officers of the Registrant - ------------------------------------ The name, age, business background, position held with the Registrant and tenure of each of the Registrant's executive officers are set forth below. No family relationship exists among any of the executive officers. Page 7 of 59 Served as Executive Positions With Name, Age, and Business Experience Officer Since Company - ------------------------------------------------------------------------------ Herbert M. Gardner, 60 1979 Chairman of the Senior Vice President of Janney Board, President Montgomery Scott Inc., investment bankers, since 1978; Chairman of the Board of the Company, since 1979 and President of the Company since June 1992. Also a Director of: Nu Horizons Electronics Corp., an electronic component distributor; Transmedia Network, Inc., a company that develops and markets transaction-based dining and other consumer savings programs; Hirsch International Corp., importer of computerized embroidery machines, supplies, and developer of embroidery machine application software; Co-Active Marketing Group, Inc., a marketing and sales promotion company; and TGC Industries, Inc., a company engaged in the geophysical services industry. Omer G. Kropf, 58 1984 Executive Vice Executive Vice President of the Company President since August 1985; President and Chief Executive Officer of Supreme Corporation, a subsidiary of the Company, since January 19, 1984. Page 8 of 59 Served as Executive Positions With Name, Age, and Business Experience Officer Since Company - ------------------------------------------------------------------------------ William J. Barrett, 60 1979 Secretary and Senior Vice President of Janney Assistant Montgomery Scott Inc., investment Treasurer bankers, since 1976; Secretary and Assistant Treasurer of the Company and a Director since 1979. Also a Director of: TGC Industries, Inc., a company engaged in the geophysical services industry and American Country Holdings, Inc., a specialized property and casualty insurance company. Robert W. Wilson, 55 1990 Executive Vice Treasurer, Executive Vice President, President, and Chief Financial Officer of the Treasurer, Chief Company since December 1992; Vice Financial President of Finance of Supreme Officer, and Corporation since 1988. Assistant Secretary Page 9 of 59 ITEM 2. PROPERTIES. - ------- ----------- Set forth below is a brief summary of the properties which are owned or leased by the Registrant as of December 31, 1999. Square Owned or Operating Footage Leased Segment ------- -------- --------- Manufacturing of Products - ------------------------- Goshen, Indiana 198,556 Leased Specialized Vehicles Goshen, Indiana 237,154 Owned Specialized Vehicles Jonestown, Pennsylvania 246,848 Owned Specialized Vehicles Wilson, North Carolina 113,694 Leased Specialized Vehicles Moreno Valley, California 100,147 Owned Specialized Vehicles Cleburne, Texas 115,060 Owned Specialized Vehicles Griffin, Georgia 102,795 Leased Specialized Vehicles Griffin, Georgia 26,150 Owned Specialized Vehicles --------- 1,140,404 --------- Manufacturing of Component Parts - -------------------------------- Goshen, Indiana 57,570 Owned Fiberglass Products Ligonier, Indiana 31,134 Owned Fiberglass Products --------- 88,704 --------- Distribution - ------------ St. Louis, Missouri 15,000 Leased Specialized Vehicles Houston, Texas 12,841 Owned Specialized Vehicles Denver, Colorado 12,500 Leased Specialized Vehicles Woonsocket, Rhode Island 10,720 Owned Specialized Vehicles San Antonio, Texas 7,000 Owned Specialized Vehicles Louisville, Kentucky 6,664 Owned Specialized Vehicles Apopka, Florida 6,600 Owned Specialized Vehicles Vallejo, California 8,400 Leased Specialized Vehicles --------- 79,725 --------- Total square footage 1,308,833 ========= Of the leased properties, approximately 280,000 square feet of buildings and approximately 63 acres of land located in Goshen, Indiana and Griffin, Georgia are leased from a limited partnership controlled by certain members of the Company's Board of Directors. Such board members are herein referred to as the "Affiliated Lessors." The Company's leases with the Affiliated Lessors continue through July 25, 2000. Supreme has the right to renew the leases for one additional five-year period through July 25, 2005. Page 10 of 59 Supreme has an option to purchase all of the properties leased to Supreme by the Affiliated Lessors any time during the lease period or renewal period. The purchase price will be equal to the higher of: (a) $2,765,000; or (b) $2,765,000 times the figure obtained as a result of dividing (i) the Consumer Price Index for the month preceding the month during which the option is exercised, by (ii) the Consumer Price Index for June 1988. ITEM 3. LEGAL PROCEEDINGS. - ------- ------------------ The Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably to the Company. The Company has established accruals for matters that are probable and reasonably estimable. Management believes that any liability that may ultimately result from the resolution of these matters in excess of accruals and or amounts provided by insurance coverage will not have a material adverse effect on the consolidated financial position or results of operation of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ------- ---------------------------------------------------- No matters were submitted by the Company to a vote of the Company's security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the year ended December 31, 1999. PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. - ------- ------------------------------------------------------------- The Company's Class A Common Stock is traded on the American Stock Exchange (ticker symbol STS). The number of record holders of the Class A Common Stock as of February 25, 2000 was approximately 372. Due to the number of shares held in nominee or street name, it is likely that there are more than 372 beneficial owners of the Company's Class A Common Stock. Page 11 of 59 The Company's Class A Common Stock closed at $5.25 on the American Stock Exchange on February 25, 2000 on which date there were 8,994,052 shares of Class A Common Stock outstanding. High and low closing prices of the Class A Common Stock for the two year period ended December 31, 1999 were: 1999 1998 High Low High Low ------- ------- ------- ------- 1st Quarter 9 7/16 6 11/16 10 7/16 7 3/16 2nd Quarter 9 7/8 8 5/16 13 9 13/16 3rd Quarter 7 3/4 6 1/2 10 11/16 7 3/8 4th Quarter 7 5/8 5 3/4 9 6 11/16 All of the 1,826,092 outstanding shares of the Company's Class B Common Stock were held by a total of 14 persons as of February 25, 2000. There is no established trading market for the Class B Common Stock. Class B Common Stock is freely convertible on a one-for-one basis into an equal number of shares of Class A Common Stock and ownership of the Class B shares is deemed to be beneficial ownership of the Class A shares under Rule 13d-3(d) (1) promulgated under the Securities Exchange Act of 1934. No cash dividends were paid in 1999 or 1998. The Company paid two 5% stock dividends during 1998, one on June 1 and one on November 20 and two 5% stock dividends during 1999, one on July 19 and one on December 6. Page 12 of 59 ITEM 6. SELECTED FINANCIAL DATA. - ------- ------------------------ For the Years Ended December 31, ----------------------------------------------- Consolidated Income Statement Data: (in millions, except per share amounts) 1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- Net revenue $ 246.0 $ 223.7 $ 198.0 $ 159.9 $ 164.5 Net income 8.3 9.0(a) 8.6 5.1 7.2 Net income per share:(b) Basic earnings per share .71 .71 .68 .42 .66 Diluted earnings per share .71 .71 .67 .40 .60 Consolidated Balance Sheet Data: (in millions) Working capital $ 42.7 $ 39.4 $ 30.4 $ 23.4 $ 23.1 Total assets 110.6 94.2 85.9 68.8 62.4 Long-term debt (excluding current maturities) 35.3 18.3 17.4 16.1 18.0 Stockholders' equity 44.8 53.5 44.5 35.8 28.8 (a) Net income for 1998 was reduced by a $1.3 million extraordinary loss (see Note B of Notes to Consolidated Financial Statements). (b) All per share amounts have been restated for all common stock dividends paid. Page 13 of 59 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - ------- ------------------------------------------------- Comparison of 1999 with 1998 - ---------------------------- Revenues increased $22.3 million to $246.0 million for the year ended December 31, 1999 from $223.7 million for the year ended December 31, 1998. Strong growth in the Company's fiberglass reinforced product lines (FRP) was primarily responsible for the increased revenues. These product lines, consisting primarily of Iner City (trademark), Van and Spartan Service Bodies, grew $26.7 million over 1998. The increased FRP Iner Cities (trademark) and vans replaced aluminum Iner Cities (trademark) and vans which declined $2.8 million from 1998. A decline of $3.5 million in specialized refrigerated products is attributed to the loss of a customer who elected to consolidate their purchases with one supplier. There were no significant changes either up or down in the Company's other product lines. Each of the Company's manufacturing locations experienced revenue growth in 1999 over 1998, except the refrigerated manufacturing plant in North Carolina. While the loss of one customer was responsible for a $3.5 million revenue decline, total revenues at this plant only declined $1.3 million. On a unit basis, total shipments for the Company increased approximately 9% in 1999 over 1998. The Company's gross profit percentage declined 2.2% in 1999 to 15.4% from 17.6% in 1998. This decline was caused primarily by increases in direct and indirect labor. Expenses associated with labor, particularly group health and workers' compensation insurance, also increased substantially. The Company attributes these increases to significant employee turnover caused by tight labor markets and low unemployment rates at each of its manufacturing facilities. The specialized nature of the Company's product lines requires skilled employees and significant training. Productivity was adversely effected as the Company hired 1,716 employees during 1999 to realize a net gain of 197 employees. The cost of raw materials was relatively unchanged from the prior year. Selling, general and administrative expenses were $22.0 million, or 9.0% of revenues, in 1999 compared to $20.7 million, or 9.2% of revenues, in 1998. Approximately two-thirds of selling, general and administrative expenses are employee or employee-related, a portion of which fluctuated directly with revenues. Interest expense increased $.6 million to $2.2 million in 1999 from $1.6 million in 1998. The increase was principally attributable to the $17.1 million five-year term loan which was used to finance the repurchase of 1,688,823 shares of the Company's Class A common stock through a Dutch Auction in May 1999. Also contributing to the increased interest expense during 1999, were slightly higher interest rates during the later part of 1999 and increased use of the Company's revolving line of credit to finance higher levels of accounts receivable and inventories which were related to the increased revenues experienced in 1999 over 1998. The Company's effective income tax rate was 39.7% in 1999 as compared to 39.4% in 1998. Page 14 of 59 Comparison of 1998 with 1997 - ---------------------------- Revenues increased $25.8 million to $223.7 million for the year ended December 31, 1998 from $198.0 million for the year ended December 31, 1997. The Company experienced revenue growth at each of its manufacturing facilities. Additionally, each of the Company's major product lines experienced growth when compared to 1997. New product lines, including armored trucks, trolleys and Spartan service vans accounted for approximately 50% of the revenue growth in 1998. Actual units shipped increased 10% when compared to 1997. The Company's gross profit percentage increased 1.0% to 17.6% for 1998 from 16.6% in 1997. The Company experienced slight percentage declines in raw material cost and overhead expenses while direct labor was unchanged as a percentage of revenues. Selling, general and administrative expenses were $20.7 million or 9.2% of revenues in 1998 when compared to $17.2 million or 8.7% of revenues in 1997. The $3.4 million increase was related to the increased revenues in 1998 as well as a substantial commitment by the Company to upgrade its information and operating systems. Interest expense increased $.2 million to $1.6 million in 1998 from $1.4 million in 1997. The increase related to additional borrowings to finance the higher levels of accounts receivable and inventories as well as increased interest on the Company's chassis pools. Both these increases are a result of the increased revenues for 1998 when compared to 1997. The Company's effective tax rate on income before extraordinary loss was 39.4% in 1998 and 39.5% in 1997. In the fourth quarter of 1998, the Company recognized a $1.3 million extraordinary loss, net of tax benefit, as a result of the closing of its Honduran hardwood flooring manufacturing facility. Because of the damage to the Honduran roads and bridges caused by Hurricane Mitch, the Company was unable to cost effectively obtain raw materials for its hardwood flooring plant and export finished product to its U.S. plants. The Company was able to obtain other sources of hardwood flooring at competitive prices. Liquidity and Capital Resources - ------------------------------- Cash flows from operations and availability under the Company's revolving credit agreement were the major sources of funds for operations and capital expenditures during 1999. Net income of $8.3 million and depreciation and amortization of $3.0 million are the largest components of cash flows from operating activities. Inventories increased $9.8 million during the year ended December 31, 1999 while accounts receivable rose $.3 million. The increase in inventories relates to the higher revenue during the year and preparation for large fleet orders that must be delivered in a relatively short time-frame. The fleet orders will be delivered earlier in calendar year 2000 than they were in 1999 which caused the increase at December 31, 1999. The increased inventories of $1.0 million in 1998 and $7.2 million in 1997 were attributed to increased revenues and the introduction of new product lines. Days sales outstanding were 48 at December 31, 1999 compared to 43 at December 31, 1998 and 39 at December 31, 1997. The Page 15 of 59 increase in 1999 over 1998 relates to state contracts for the Company's bus products and increased amounts due from large fleet and leasing companies which typically take up to 60 days to pay. Current liabilities increased $7.3 million in 1999 when compared to 1998. The increase consisted of $2.8 million in current maturities of long-term debt, $1.8 million in accounts payable and $2.7 million in other current liabilities. The increase in current maturities of long-term debt relates entirely to the new five-year term loan which was used to finance the purchase of treasury shares in May 1999. The increase in accounts payable relates to increased inventories in 1999 and the increase in other accrued liabilities was caused by increases in accrued payroll, increased accruals for self-insured group health and workers' compensation insurance and amounts due in connection with a rebate program with a large fleet customer. The Company used operating cash flows to reduce accounts payable and other current liabilities in 1998 while in 1997, operating cash flows were increased by the changes in accounts payable and other current liabilities. The Company invested $9.1 million in property, plant and equipment in 1999. Significant additions during the year were the construction and furnishing of a new corporate office facility in Goshen, Indiana for $1.8 million; the purchase and installation of new operating software for $1.5 million; plant acquisition and expansion in Griffin, Georgia for $.8 million; the purchase of a labor-saving laser machine for $.6 million; construction of a storage and cutting building for $.2 million; cutting machinery at the Company's Ligonier, Indiana facility for $.3 million; and capacity expansion at the Company's Jonestown, Pennsylvania, Cleburne, Texas and Moreno Valley, California plants for $.3 million, $.2 million and $.2 million, respectively. The major financing activities during the year were the use of the Company's revolving line of credit and the previously mentioned $17.1 million five-year term loan used to purchase $17.0 million of treasury stock. The Company entered into an interest rate swap agreement for the entire $17.1 million that fixes the interest rate at 6.9% over the term of the loan. On December 28, 1999, the Company announced an offer to purchase up to 500,000 shares of Class A Common Stock in open market purchases or privately negotiated transactions through the close of business on June 30, 2000. During January 2000, 18,400 shares were purchased under this offer. The Company believes that cash flows generated from operations during 2000 and funds available under the Company's revolving line of credit will be sufficient to meet the Company's cash needs during the year 2000. Year 2000 - --------- The Company has met its primary goal of being able to process transactions in the year 2000. The total cost paid to the supplier of the software and consultants was $1,572,000. The Company also spent $200,000 on hardware upgrades. In addition, the Company capitalized internal costs of $400,000 relating to a dedicated team of employees from each major discipline including operations, sales, financial and administrative personnel who spent 80% of their time over a two-year period on selection and implementation of the new management information system. In addition to a change to a system that was Y2K compliant, an important goal of the Company's new information system was to significantly improve its overall information systems. Page 16 of 59 This is an ongoing project that will result in better and more detailed operating and financial information by facility, product line and customer. This information will allow the Company to make better and more timely operating and financial decisions. The Company has not encountered any problems with its suppliers or customers relating to Y2K and there was no disruption of utility services to its manufacturing and distribution facilities. Pending Accounting Pronouncements - --------------------------------- The Company does not believe the implementation of pending accounting pronouncements (see Note A of Notes to Consolidated Financial Statements) on or before the effective date will have a significant effect on the Company's financial reporting. 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. Such forward-looking statements are based on assumptions made by and information currently available to the Company's management. 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 and severe interest rate increases. The forward-looking statements contained herein reflect the current views of the Company's management with respect to future events and are subject to those factors and other risks, uncertainties and assumptions relating to the operations, results of operations, cash flows and financial position of the Company. 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 17 of 59 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------- ---------------------------------------------------------- In the normal course of business, operations of the Company is exposed to fluctuations in interest rates. These fluctuations can vary the cost of investing, financing and operating. The Company's primary risk exposure results from changes in short-term interest rates. In an effort to manage risk exposures, the Company strives to achieve an acceptable balance between fixed and floating rate debt positions. The Company's revolving line of credit is floating rate debt and bears interest at the bank's prime rate or LIBOR plus certain basis points depending on the pricing option selected and the Company's leverage ratio. At December 31, 1999, the Company is party to two (2) interest rate swap agreements dated September 30, 1998 and May 11, 1999. The September 30, 1998 interest rate swap agreement relates to a five-year term loan (original principal balance of $7 million) and the May 11, 1999 interest rate swap agreement relates to a five-year term loan (original principal balance of $17.1 million). Both these term loans bear interest at LIBOR plus certain basis points determined by the Company's leverage ratio. The effective interest rates at December 31, 1999 for these term loans were 7.48%, on outstanding principal balance of $5,249,995, and 7.26%, on outstanding principal balance of $15,837,714. The interest rate swap agreements are contracts to exchange floating rate for fixed rate interest payments over the lives of the interest rate swap agreements, which coincide with the terms of the related debt, without exchange of the underlying notional amounts. The notional amounts of the interest rate swap agreement are used to measure interest to be paid or received and do not represent the amount of exposure of credit loss. The differential paid or received under the interest rate swap agreements is recognized as an adjustment to interest expense. The following is a summary of interest rate swap agreements outstanding at December 31, 1999: Notional Amount Fixed Rate Maturity ------------------- --------------- ------------------ $5,250,000 6.7% September 30, 2003 15,837,700 6.9 May 11, 2004 Based on the Company's overall interest rate exposure at December 31, 1999, including floating rate debt and the related interest rate swap agreements, a hypothetical 10 percent change in interest rates applied to the fair value of the financial instruments as of December 31, 1999, would have no material impact on earnings, cash flows or fair values of interest rate risk sensitive instruments over a one-year period. Page 18 of 59 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. - ------- -------------------------------------------- Index to Financial Statements Page --------- 1. Financial Statements: Report of Independent Accountants 20 Consolidated Balance Sheets at December 31, 1999 and 1998 21 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 22 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 23 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 24 Notes to Consolidated Financial Statements 25 - 37 2. Financial Statement Schedule: II - Valuation and Qualifying Accounts for the three years ended December 31, 1999, 1998 and 1997 38 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 3. Supplementary Data Quarterly Results REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Supreme Industries, Inc.: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Supreme Industries, Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As more fully described in Note A to the consolidated financial statements, effective January 1, 1999, the Company adopted Statement of Position No. 98-1, "Accounting for Costs of Computer Software Developed or Obtained for Internal Use". /s/PricewaterhouseCoopers LLP South Bend, Indiana February 3, 2000 Page 20 of 59 Supreme Industries, Inc. And Subsidiaries Consolidated Balance Sheets December 31, 1999 and 1998 ASSETS 1999 1998 ------------- ------------- Current assets: Cash and cash equivalents $ 270,935 $ 185,424 Accounts receivable, net of allowance for doubtful accounts of $609,000 in 1999 and $456,000 in 1998 29,026,385 28,709,559 Refundable income taxes 1,385,000 1,170,000 Inventories 38,552,339 28,792,650 Deferred income taxes 1,268,284 1,081,839 Other current assets 436,381 430,237 ------------- ------------- Total current assets 70,939,324 60,369,709 Property, plant and equipment, net 37,464,092 31,342,322 Intangible assets, net 1,298,766 1,502,076 Other assets 880,246 991,947 ------------- ------------- Total assets $ 110,582,428 $ 94,206,054 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 4,805,107 $ 2,014,975 Trade accounts payable 12,001,927 10,235,964 Accrued wages and benefits 4,822,619 4,568,062 Accrued income taxes 947,776 961,628 Other accrued liabilities 5,708,118 3,168,136 ------------- ------------- Total current liabilities 28,285,547 20,948,765 Long-term debt 35,319,246 18,303,207 Deferred income taxes 2,128,452 1,468,007 ------------- ------------- Total liabilities 65,733,245 40,719,979 ------------- ------------- Commitments and contingencies (Note I) Stockholders' equity: Preferred Stock, $1 par value; authorized 1,000,000 shares, none issued Class A Common Stock, $.10 par value; authorized 20,000,000 shares, issued 10,779,766 shares in 1999 and 9,890,653 shares in 1998 1,077,977 989,065 Class B Common Stock, convertible into Class A Common Stock on a one-for-one basis, $.10 par value; authorized 5,000,000 shares, issued 1,826,092 shares in 1999 and 1,688,328 shares in 1998 182,609 168,833 Additional paid-in capital 52,975,153 44,107,645 Retained earnings 8,328,929 8,935,827 Treasury stock, Class A Common Stock, at cost, 1,765,797 shares in 1999 and 75,934 shares in 1998 (17,715,485) (715,295) ------------- ------------- Total stockholders' equity 44,849,183 53,486,075 ------------- ------------- Total liabilities and stockholders' equity $ 110,582,428 $ 94,206,054 ============= ============= The accompanying notes are a part of the consolidated financial statements. Page 21 of 59 Supreme Industries, Inc. And Subsidiaries Consolidated Statements Of Income for the years ended December 31, 1999, 1998 and 1997 1999 1998 1997 ------------- ------------- ------------- Revenue: Net sales $ 244,953,480 $ 222,566,601 $ 197,429,917 Other income 1,058,515 1,161,320 538,242 ------------- ------------- ------------- 246,011,995 223,727,921 197,968,159 ------------- ------------- ------------- Costs and expenses: Cost of sales 208,011,870 184,433,390 165,197,662 Selling, general and administrative 22,039,388 20,655,625 17,228,565 Interest 2,242,064 1,647,878 1,409,713 ------------- ------------- ------------- 232,293,322 206,736,893 183,835,940 Income before income taxes and extraordinary loss 13,718,673 16,991,028 14,132,219 Income taxes 5,451,000 6,700,000 5,577,000 ------------- ------------- ------------- Income before extraordinary loss 8,267,673 10,291,028 8,555,219 Extraordinary loss, net of income tax benefit of $860,000 - 1,280,115 - ------------- ------------- ------------- Net income $ 8,267,673 $ 9,010,913 $ 8,555,219 ============= ============= ============= Earnings per share - Basic: Income before extraordinary loss $ .71 $ .81 $ .68 Extraordinary loss - (.10) $ - ------------- ------------- ------------- Net income $ .71 $ .71 $ .68 ============= ============= ============= Earnings per share - Diluted: Income before extraordinary loss $ .71 $ .81 $ .67 Extraordinary loss - (.10) - ------------- ------------- ------------- Net income $ .71 $ .71 $ .67 ============= ============= ============= Shares used in the computation of earnings per share: Basic 11,610,624 12,629,952 12,591,929 Diluted 11,659,646 12,764,604 12,697,023 The accompanying notes are a part of the consolidated financial statements. Page 22 of 59 Supreme Industries, Inc. And Subsidiaries Consolidated Statements Of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 Total Class A Common Stock Class B Common Stock Additional Retained Treasury Stockholders' Shares Amount Shares Amount Paid-In-Capital Earnings Stock Equity ----------------------- ---------------------- --------------- ------------ ------------ ------------ Balance, January 1, 1997 8,012,767 $ 801,277 1,402,975 $ 140,297 $ 23,901,587 $ 11,228,933 $ (250,536) $ 35,821,558 Net income - - - - - 8,555,219 - 8,555,219 Exercise of stock options 21,505 2,150 - - 71,817 - - 73,967 5% Common Stock dividends 821,718 82,172 143,798 14,380 7,769,845 (7,866,397) - - ---------- ---------- --------- --------- ------------ ------------ ------------ ------------ Balance, December 31, 1997 8,855,990 885,599 1,546,773 154,677 31,743,249 11,917,755 (250,536) 44,450,744 Net income - - - - - 9,010,913 - 9,010,913 Conversion of 16,165 shares of Class B Common Stock to Class A Common Stock 16,165 1,616 (16,165) (1,616) - - - - Exercise of stock options (12,843 shares of treasury stock) 110,497 11,050 - - 391,127 - (185,950) 216,227 5% Common Stock dividends 908,001 90,800 157,720 15,772 11,886,269 (11,992,841) - - Tax benefit from exercise of stock options - - - - 87,000 - - 87,000 Acquisition of 30,859 shares of treasury stock - - - - - - (278,809) (278,809) ---------- ----------- --------- --------- ------------ ------------ ------------- ------------ Balance, December 31, 1998 9,890,653 989,065 1,688,328 168,833 44,107,645 8,935,827 (715,295) 53,486,075 Net income - - - - - 8,267,673 - 8,267,673 Conversion of 32,003 shares of Class B Common Stock to Class A Common Stock 32,003 3,200 (32,003) (3,200) - - - - Exercise of stock options 20,416 2,042 - - 93,583 - - 95,625 5% Common Stock dividends 836,694 83,670 169,767 16,976 8,773,925 (8,874,571) - - Acquisition of 1,689,863 shares of treasury stock - - - - - - (17,000,190) (17,000,190) ---------- ----------- --------- --------- ------------ ------------ ------------- ------------ Balance, December 31, 1999 10,779,766 $ 1,077,977 1,826,092 $ 182,609 $ 52,975,153 $ 8,328,929 $ (17,715,485)$ 44,849,183 The accompanying notes are a part of the consolidated financial statements. Page 23 of 59 Supreme Industries, Inc. And Subsidiaries Consolidated Statements Of Cash Flows for the years ended December 31, 1999, 1998 and 1997 1999 1998 1997 ------------- ------------- ------------- Cash flows from operating activities: Net income $ 8,267,673 $ 9,010,913 $ 8,555,219 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary loss - 1,280,115 - Depreciation and amortization 2,985,064 2,731,510 2,581,650 Amortization of intangibles 203,310 203,309 203,309 Provision for losses on doubtful receivables 343,438 532,963 54,954 Deferred income taxes 474,000 461,000 78,000 Loss (gain) on sale of property, plant and equipment (7,870) 139,496 47,234 Changes in operating assets and liabilities, excluding effect of disposition of business in 1998: Accounts receivable (660,264) (5,944,456) (6,686,762) Inventories (9,759,689) (970,035) (7,196,079) Other current assets (221,144) (802,776) (380,205) Trade accounts payable 1,765,963 (438,163) 3,654,109 Other current liabilities 2,780,687 (1,054,471) 3,738,742 ------------ ----------- ----------- Net cash provided by operating activities 6,171,168 5,149,405 4,650,171 ------------ ----------- ----------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment 34,759 113,745 107,934 Additions to property, plant and equipment (9,133,723) (6,062,276) (5,867,622) Decrease (increase) in other assets 111,701 (37,699) (40,744) ----------- ----------- ----------- Net cash (used in) investing activities (8,987,263) (5,986,230) (5,800,432) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from revolving line of credit and other long-term debt 114,786,099 96,031,172 84,443,759 Repayments of revolving line of credit and other long-term debt (94,979,928) (95,192,385) (83,429,099) Proceeds from exercise of stock options 95,625 216,227 73,967 Tax benefit from exercise of stock options - 87,000 - Acquisition of treasury stock (17,000,190) (278,809) - ----------- ----------- ----------- Net cash provided by financing activities 2,901,606 863,205 1,088,627 ----------- ----------- ----------- Increase (decrease) in cash and cash equivalents 85,511 26,380 (61,634) Cash and cash equivalents, beginning of year 185,424 159,044 220,678 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 270,935 $ 185,424 $ 159,044 =========== =========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest, net of amount capitalized $ 2,335,105 $ 1,693,904 $ 1,500,077 Income taxes 5,205,852 6,226,972 5,731,640 Noncash investing and financing activities: Common Stock dividends 8,874,571 11,992,841 7,866,397 Class A Common Stock exchanged in exercise of stock options - 185,950 - Conversion of Class B Common Stock to Class A Common Stock 3,200 1,616 - The accompanying notes are a part of the consolidated financial statements. Page 24 of 59 Supreme Industries, Inc. And Subsidiaries Notes to Consolidated Financial Statements A. NATURE OF OPERATIONS AND ACCOUNTING POLICIES. Supreme Industries, Inc. and its subsidiaries (collectively the "Company") manufacture specialized truck bodies that are mounted on new truck chassis produced by others. The Company's truck body products include cut-away and dry freight van bodies, refrigerated units, stake bodies and other specialized trucks. The Company also manufactures shuttle buses and trailers. At December 31, 1999, the Company has 16 manufacturing, distribution and supply facilities. The Company's customers are located principally in the United States. The following is a summary of the significant accounting policies used in the preparation of the accompanying consolidated financial statements: Principles of Consolidation - The accompanying consolidated financial statements include the accounts of Supreme Industries, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Accounting Change - Effective January 1, 1999, the Company adopted American Institute of Certified Public Accountants' Statement of Position ("SOP") No. 98-1, "Accounting for Costs of Computer Software Developed or Obtained for Internal Use". For years beginning after December 15, 1998, SOP 98-1 requires internal and external costs incurred to develop internal use computer software during the application development stage to be capitalized and amortized over the software's useful life. Prior to January 1, 1999, these costs were expensed as incurred. During the year ended December 31, 1999, the Company capitalized $400,000 of internal costs which previously would have been expensed under generally accepted accounting principles. These capitalized costs are related to the Company's new management information system which was implemented during 1998-1999. The effect of this change in accounting principle for the year ended December 31, 1999 was to increase net income by approximately $241,000 or $.02 per share (basic and diluted). Revenue Recognition and Concentration of Credit Risk - The production of specialized truck bodies and shuttle buses starts when an order is received from the customer. Revenue is recognized when the unit is shipped to the customer. Concentration of credit risk is limited due to the large number of customers and their dispersion among many different industries and geographic regions. In 1999, the Company had one customer that accounted for approximately 11% of the Company's net sales. The Company performs an ongoing credit evaluation of its customers' financial condition, and credit is extended to customers on an unsecured basis. Future credit losses are provided for currently through the allowance for doubtful accounts and actual credit losses are charged to the allowance when incurred. Cash and Cash Equivalents - The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Page 25 of 59 Supreme Industries, Inc. And Subsidiaries Notes to Consolidated Financial Statements, Continued A. NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued. Fair Value of Financial Instruments - The carrying amounts of cash and cash equivalents, accounts receivable and trade accounts payable approximated fair value as of December 31, 1999 and 1998 because of the relatively short maturities of these instruments. The carrying amount of long-term debt, including current maturities, approximated fair value as of December 31, 1999 and 1998, based upon terms and conditions available to the Company at those dates in comparison to terms and conditions of its outstanding long-term debt. The estimated fair value of the outstanding interest rate swap agreements (see Note I), based on current market rates, approximated a net asset (liability) at December 31, 1999 and 1998 of $405,000 and $(103,000), respectively, which are not recorded on the consolidated balance sheets. Inventories - Inventories are stated at the lower of cost or market, with cost determined using the first-in, first-out method. Property, Plant and Equipment - Property, plant and equipment are recorded at cost. For financial reporting purposes, depreciation is provided based on the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements, for financial reporting purposes, is determined by the straight-line method over the lesser of the useful life of the asset or term of the lease. Upon sale or other disposition of assets, the cost and related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in operations. Expenditures for maintenance and repairs are charged to operations as incurred. Betterments and major renewals are capitalized and recorded in the appropriate asset accounts. Capitalized Interest - Interest costs capitalized during the construction period of plant and equipment were $100,000 for the year ended December 31, 1999. Intangible Assets - Intangible assets consist of goodwill - $3,379,031 and patents - $325,000, and are recorded at cost and shown net of accumulated amortization. Amortization of goodwill is provided using the straight-line method over the estimated benefit period (16 to 25 years), and patents are amortized over seven years using the straight-line method. Accumulated amortization at December 31, 1999 and 1998 was $2,405,265 and $2,201,955, respectively. Evaluation of Impairment of Long-Lived Assets - In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," the Company evaluates the carrying value of long-lived assets whenever significant events or changes in circumstances indicate the carrying value of these assets may be impaired. The Company evaluates potential impairment of long-lived assets by comparing the carrying value of the assets to the expected net future cash inflows resulting from use of the assets. Management believes that no material impairment of long-lived assets exists at December 31, 1999. Page 26 of 59 Supreme Industries, Inc. And Subsidiaries Notes to Consolidated Financial Statements, Continued A. NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued. Stock-Based Compensation - The Company has adopted the disclosure only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" and, accordingly, accounts for its stock option plans under the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Warranty - Estimated warranty costs are provided at the time of sale and are based upon historical experience and have averaged less than one percent (1%) of net sales. Income Taxes - Deferred income taxes are determined using the liability method. Use of Estimates in the Preparation of Financial Statements - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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 dividing net income by the weighted average number of shares of common stock outstanding plus the dilutive effect of stock options. The computations of the number of shares used in the determination of basic and diluted earnings per share give retroactive recognition to all common stock dividends declared and paid during the periods. Segment Information - The Company's principal business is manufacturing specialized vehicles. Management has not separately organized the business beyond specialized vehicles and vertically integrated fiberglass manufacturing processes. The vertically integrated fiberglass manufacturing subsidiary constitutes a segment by definition of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information"; however, this segment does not meet the quantitative thresholds for separate disclosure as set forth in this Statement. The vertically integrated fiberglass manufacturing subsidiaries' revenues are less than 10 percent of consolidated revenues, the absolute amount of their reported income is less than 10 percent of the absolute amount of consolidated net income, and finally, their assets are less than 10 percent of consolidated assets. Page 27 of 59 Supreme Industries, Inc. And Subsidiaries Notes to Consolidated Financial Statements, Continued A. NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Concluded. New Accounting Pronouncement - On June 15, 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company's interest rate swap agreements (see Note I) are derivative instruments and the changes in fair value of these financial instruments, which are cash flow hedges, will be reported in other comprehensive income. Management of the Company anticipates that, due to its limited use of derivative instruments, the adoption of SFAS No. 133 will not have a significant effect on the Company's financial position. B. EXTRAORDINARY LOSS. During the fourth quarter of 1998, the Company ceased manufacturing operations at its subsidiary located in Honduras as a direct result of the damage to the Honduran roads and bridges caused by Hurricane Mitch. Because of the damage to the Honduran infrastructure, the Company was unable to cost-effectively obtain raw materials for its hardwood flooring plant and export finished product to its U.S. plants. The extraordinary loss of $1,280,115, net of a $860,000 tax benefit, primarily represents the carrying value of the abandoned inventory and machinery and equipment which the Company was unable to remove from Honduras. C. INVENTORIES. Inventories consist of the following: 1999 1998 ------------ ------------ Raw materials $ 23,687,824 $ 18,419,217 Work-in-progress 5,175,269 4,154,914 Finished goods 9,689,246 6,218,519 ------------ ------------ Total $ 38,552,339 $ 28,792,650 ============ ============ Page 28 of 59 Supreme Industries, Inc. And Subsidiaries Notes to Consolidated Financial Statements, Continued D. PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment consists of the following: 1999 1998 ------------ ------------ Land and improvements $ 5,306,675 $ 4,468,871 Buildings and improvements 15,109,701 13,602,971 Leasehold improvements 8,586,077 6,773,141 Machinery and equipment 29,891,747 24,030,961 Construction in progress 178,194 1,154,962 ------------- ------------ 59,072,394 50,030,906 Less, Accumulated depreciation and amortization 21,608,302 18,688,584 ------------ ------------ Property, plant and equipment, net $ 37,464,092 $ 31,342,322 ============ ============ E. LONG-TERM DEBT. Long-term debt consists of the following: 1999 1998 ------------ ----------- Revolving line of credit $ 15,402,454 $ 9,419,820 Term Note C, payable in quarterly installments of $609,143 plus interest at LIBOR plus certain basis points determined by the Company's leverage ratio (effective rate of 7.26% at December 31, 1999), with final maturity in May 2004 15,837,714 - Term Note B, payable in monthly installments of $116,667 plus interest at LIBOR plus certain basis points determined by the Company's leverage ratio (effective rate of 7.48%, and 6.38% at December 31, 1999 and 1998, respectively), with final maturity in September 2003 5,249,995 6,650,000 Term Note A, payable in monthly installments of $83,333 plus interest at 6.4%, with final maturity in April 1999 - 333,309 Obligations under industrial development revenue bonds, variable rates, with maturities in August 2010 and April 2011, collateralized by specific real estate 3,170,996 3,403,525 Real estate mortgage, variable rate (6.36% at December 31, 1999), with maturity in July 2001 463,194 511,528 ------------ ------------ Total 40,124,353 20,318,182 Less, Current maturities 4,805,107 2,014,975 ------------ ------------ Long-term debt $ 35,319,246 $ 18,303,207 ============ ============ Page 29 of 59 Supreme Industries, Inc. And Subsidiaries Notes to Consolidated Financial Statements, Continued E. LONG-TERM DEBT, Concluded. The revolving line of credit, term notes and a letter of credit facility are part of a master credit agreement (the "Credit Agreement"). All borrowings under the Credit Agreement are unsecured. The Credit Agreement provides for a revolving line of credit facility as defined, up to $18 million and increasing to $25 million during the period each year from February 1 to June 30. Interest on outstanding borrowings under the revolving line of credit is based on the bank's prime rate or certain basis points above LIBOR depending on the pricing option selected and the Company's leverage ratio, as defined. The weighted average interest rate on borrowings outstanding at December 31, 1999 and 1998 was 8.2% and 7.2%, respectively. The revolving line of credit also requires a quarterly commitment fee ranging from 1/8% to 3/16% per annum depending on the Company's leverage ratio and based upon the annualized average unused portion. All amounts outstanding under the revolving line of credit will be due at maturity, April 30, 2001. In addition to the required quarterly installments, Term Note C requires an additional annual principal payment to be paid within 105 days after year-end, equal to 20% of the preceding year's net income which exceeds $5.0 million, with such additional annual payment not to exceed $1.0 million in any year. At December 31, 1999, current maturities of long-term debt include $653,535, the additional principal payment required for the year ended December 31, 1999. Outstanding letters of credit, which reduce availability under the credit facility, aggregated $1.2 million at December 31, 1999 and 1998. Under a separate agreement, at December 31, 1999, the Company has an outstanding $2.6 million ($3.0 million at December 31, 1998) irrevocable letter of credit in favor of the bond trustee as a credit enhancement for bondholders of one of the industrial development revenue bonds. The Credit Agreement contains, among other matters, certain restrictive covenants including maintenance of a minimum consolidated tangible net worth of $28 million plus 50% of cumulative net income of the Company, as defined, commencing with the year ended December 31, 1999 ($32.1 million at December 31, 1999), minimum consolidated working capital of $10 million and required financial ratios. The Company's cash management system and revolving line of credit are designed to maintain zero cash balances and, accordingly, checks outstanding in excess of bank balances are classified as additional borrowings under the revolving line of credit. Checks outstanding in excess of bank balances at December 31, 1999 and 1998 aggregated $4,402,000 and $4,320,000, respectively. Maturities of long-term debt for each of the next five years are as follows: 2000 - $4,805,107; 2001 - $19,887,220; 2002 - $4,103,239; 2003 - $3,719,900 and 2004 - $5,704,558. Page 30 of 59 Supreme Industries, Inc. And Subsidiaries Notes to Consolidated Financial Statements, Continued F. RETIREMENT PLAN. The Company maintains a defined contribution plan which covers substantially all employees of the Company and its participating subsidiaries who have reached the age of twenty-one years and have completed one year of credited service. The plan provides that eligible employees can contribute from one to fifteen percent of their annual compensation and the Company will match twenty-five percent (fifteen percent prior to December 1, 1997) of employees' contributions up to six percent of the employees' compensation. The Board of Directors may increase or decrease the Company's contribution on a year-by-year basis. Expense related to this plan for the years ended December 31, 1999, 1998 and 1997 was $413,829, $317,632 and $172,740, respectively. G. STOCKHOLDERS' EQUITY. Preferred Stock --------------- The Company is authorized to issue 1,000,000 shares of preferred stock ($1 par value), of which none has been issued. The Board of Directors is vested with the authority to determine and state the designations and relative preferences, limitations, voting rights, if any, and other rights of the preferred shares. Common Stock ------------ The Board of Directors approved the following 5% common stock dividends during the years ended December 31, 1999, 1998 and 1997: Declaration Record Paid Date Date Date ----------------- ----------------- ----------------- April 29, 1997 May 12, 1997 May 19, 1997 October 29, 1997 November 10, 1997 November 17, 1997 May 12, 1998 May 25, 1998 June 1, 1998 October 29, 1998 November 13, 1998 November 20, 1998 June 29, 1999 July 12, 1999 July 19, 1999 November 17, 1999 November 29, 1999 December 6, 1999 All per share data have been adjusted to reflect the stock dividends on a retroactive basis. Convertible Class B Common Stock -------------------------------- Class B Common Stock is convertible into Class A Common Stock on a one-for-one basis. Holders of Class A Common Stock are entitled to elect one-third of the Board of Directors, rounded to the lowest whole number. Holders of Class B Common Stock elect the remainder of the directors. Page 31 of 59 Supreme Industries, Inc. And Subsidiaries Notes to Consolidated Financial Statements, Continued G. STOCKHOLDERS' EQUITY, Continued. Stock Options ------------- During 1992, the Company adopted the 1992 Stock Option Plan under which 401,117 (adjusted for all subsequent stock dividends through December 1998) shares of Class A Common Stock were reserved for grant. At December 31, 1998, there were no options available for granting under the 1992 Stock Option Plan. On October 29, 1998, the Company's Board of Directors approved, and the Company's stockholders subsequently ratified, the 1998 Stock Option Plan under which 752,456 (adjusted for all subsequent stock dividends) shares of Class A Common Stock were reserved for grant. Under the terms of the stock option plans, both incentive stock options and non-statutory stock options can be granted by a specially designated Stock Option Committee. No options may be exercised during the first year after the date of grant. Options are exercisable cumulatively in three installments of 33 1/3 % each year thereafter. Options granted under the stock option plans expire five years after the date of grant. The following table summarizes stock option activity: Weighted - Average Number Exercise of Shares Price --------- ---------- Outstanding, January 1, 1997 259,476 $ 3.69 Granted 2,679 5.41 Exercised (28,007) 2.64 Expired or canceled (7,100) 4.28 -------- Outstanding, December 31, 1997 227,048 3.83 Granted 258,729 7.50 Exercised (129,037) 3.12 Expired or cancelled (25,327) 4.43 -------- Outstanding, December 31, 1998 331,413 6.93 Exercised (20,416) 4.68 Expired or canceled (14,255) 7.11 -------- Outstanding, December 31, 1999 296,742 7.09 ======== As of December 31, 1999, 682,260 shares were reserved for the granting of future stock options, compared to 668,005 shares at December 31, 1998. Page 32 of 59 Supreme Industries, Inc. And Subsidiaries Notes to Consolidated Financial Statements, Continued G. STOCKHOLDERS' EQUITY, Concluded. Options outstanding at December 31, 1999 are exercisable at prices of $5.32 and $7.50 per share and have a weighted-average remaining contractual life of 3.2 years. Information about stock options outstanding and exercisable at December 31, 1999 is as follows: Options Outstanding Options Exercisable ------------------------------------- ------------------------ Number Weighted - Number Outstanding Average Weighted - Exercisable Weighted - At Remaining Average At Average Exercise December 31, Contractual Exercise December 31, Exercise Price 1999 Life Price 1999 Price -------- ------------ ----------- ---------- ----------- ---------- $5.32 55,377 1.34 years $5.32 55,377 $5.32 7.50 241,365 3.65 years 7.50 80,455 7.50 ------- ------- 296,742 135,832 ======= ======= December 31, 1998 and 1997 there were exercisable options outstanding to purchase 57,010 and 182,548 shares at weighted-average exercise prices of $5.00 and $3.46, respectively. The weighted-average grant-date fair values of options granted during the years ended December 31, 1998 and 1997 were $2.60 and $2.04, respectively. Had the Company adopted the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and net income per share would have been: 1999 1998 1997 ---------- ---------- ---------- Pro forma net income $8,172,275 $8,948,357 $8,538,715 Pro forma net income per share: Basic .70 .71 .67 Diluted .70 .71 .67 The pro forma amounts shown above and the weighted-average grant-date fair values of options granted were estimated using the Black-Scholes option-pricing model with the following assumptions: 1999 1998 1997 ------- ------- ------- Risk free interest rate 4.6% 4.5% 6.5% Expected life 5 years 5 years 5 years Expected volatility 34.5% 29.8% 28.4% Expected dividends - - - Page 33 of 59 Supreme Industries, Inc. And Subsidiaries Notes to Consolidated Financial Statements, Continued H. INCOME TAXES. Income taxes applicable to income before income taxes and extraordinary loss consist of the following: 1999 1998 1997 ----------- ----------- ----------- Federal: Current $ 3,978,000 $ 4,987,000 $ 4,441,000 Deferred 389,000 380,000 63,000 ----------- ----------- ----------- 4,367,000 5,367,000 4,504,000 ----------- ----------- ----------- State: Current 999,000 1,252,000 1,058,000 Deferred 85,000 81,000 15,000 ----------- ----------- ----------- 1,084,000 1,333,000 1,073,000 ----------- ----------- ----------- Total $ 5,451,000 $ 6,700,000 $ 5,577,000 =========== =========== =========== Although not affecting the total provision, the amounts previously reported for the allocation of federal and state income taxes between current and deferred for 1998 have been revised based upon determinations made when the related tax returns were filed. The components of the net deferred tax asset and the net deferred tax liability were as follows: 1999 1998 ----------- ----------- Current deferred tax asset (liability): Receivables $ 161,366 $ 100,586 Inventories 217,447 197,588 Accrued liabilities 902,264 788,228 Other (12,793) (4,563) ----------- ----------- Deferred tax asset $ 1,268,284 $ 1,081,839 =========== =========== Long-term deferred tax liability (asset): Depreciation $ 2,119,101 $ 1,363,330 Other 9,351 104,677 ----------- ----------- Deferred tax liability $ 2,128,452 $ 1,468,007 =========== =========== A reconciliation of the provision for income taxes to the amount computed by applying the statutory Federal income tax rate (35%) to income before income taxes and extraordinary loss is as follows: 1999 1998 1997 ----------- ----------- ----------- Income taxes at statutory rate $ 4,801,500 $ 5,946,900 $ 4,946,300 State income taxes, net of federal benefit 704,600 866,500 697,500 Amortization of goodwill 36,900 36,900 36,900 Earnings of Honduran subsidiary (operating in government free zone), not subject to U.S. income taxes - (116,900) - Other (92,000) (33,400) (103,700) ----------- ----------- ----------- Total $ 5,451,000 $ 6,700,000 $ 5,577,000 =========== =========== =========== Page 34 of 59 Supreme Industries, Inc. And Subsidiaries Notes to Consolidated Financial Statements, Continued I. COMMITMENTS AND CONTINGENCIES. Lease Commitments and Related Party Transactions ------------------------------------------------ The Company leases certain office and manufacturing facilities under operating lease agreements which expire at various dates from July 2000 through June 2004. Certain of the lease agreements are with a related party (a partnership in which certain directors of the Company are the partners) for which related party rent expense was $499,762, $477,462 and $478,162 for the years ended December 31, 1999, 1998 and 1997, respectively. The rent expense under all operating leases aggregated $1,019,714, $1,026,699 and $1,004,762 for the years ended December 31, 1999, 1998 and 1997, respectively. At December 31, 1999, future minimum rental payments under noncancelable operating leases aggregated $873,614, and are payable as follows: 2000 - $570,223; 2001 - $156,891; 2002 - $69,100; 2003 - $51,600 and 2004 - $25,800. In addition to the above related party lease transaction, the Company purchases delivery services from a company owned by an officer/director of the Company. During the years ended December 31, 1999, 1998 and 1997, the Company purchased delivery services from this related party aggregating $2,810,000, $2,498,000 and $2,152,000, respectively. Obligation To Purchase Consigned Inventories -------------------------------------------- The Company obtains vehicle chassis for its specialized vehicle products directly from the chassis manufacturer under converter pool agreements. Chassis are obtained from the manufacturers based on orders from customers, and to a lesser extent, for unallocated orders. Although each manufacturer's agreement has different terms and conditions, the agreements generally provide that the manufacturer will provide a supply of chassis to be maintained from time to time at the Company's various production facilities under the conditions that the Company will store such chassis and will not make any additions or modifications to such chassis and will not move, sell or otherwise dispose of such chassis, except under the terms of the agreement. The manufacturer does not transfer the certificate of origin to the Company and, accordingly, the Company accounts for the chassis as consigned inventory belonging to the manufacturer. Under these agreements if the chassis is not delivered to a customer within 90 days of delivery to the Company, the Company is required to pay a finance charge on the chassis. At December 31, 1999 and 1998, chassis inventory, accounted for as consigned inventory to the Company by the manufacturers, aggregated $34.9 million and $17.9 million, respectively. Typically, chassis are converted and delivered to customers within 90 days of the receipt of the chassis by the Company. Page 35 of 59 Supreme Industries, Inc. And Subsidiaries Notes to Consolidated Financial Statements, Continued I. COMMITMENTS AND CONTINGENCIES, Continued. Self-Insurance -------------- The Company is self-insured for a portion of product liability ($100,000 per occurrence with an annual aggregate of $500,000), certain employee health benefits ($75,000 annually per employee with an annual aggregate of approximately $2,000,000) and workers' compensation in certain states ($250,000 per occurrence with an annual aggregate of approximately $3,500,000). The Company accrues for the estimated losses occurring from both asserted and unasserted claims. The estimate of the liability for unasserted claims arising from incurred but not reported claims is based on an analysis of historical claims data. Stock Repurchase Programs ------------------------- On September 2, 1998, the Board of Directors authorized the Company to repurchase up to 500,000 shares of Class A Common Stock in open market purchases or privately negotiated transactions through the close of business on February 26, 1999. The Company purchased 30,859 shares under this repurchase program through December 31, 1998. 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 of Class A Common Stock at $10.00 per share, plus expenses of $103,653, through the offer. The Company financed this stock repurchase program with a term note (see Note E). During the year ended December 31, 1999, the Company also purchased 1,040 shares of Class A Common Stock for $8,307. On December 28, 1999, the Board of Directors authorized the Company to repurchase up to 500,000 shares of Class A Common Stock in open market purchases or privately negotiated transactions through the close of business on June 30, 2000. As of December 31, 1999, the Company had acquired no treasury shares under this stock repurchase program. Financial Instruments With Off Balance Sheet Risk ------------------------------------------------- The Company has entered into interest rate swap agreements to reduce the impact of changes in interest rates on certain of its floating rate debt (Term Notes B and C). The swap agreements are contracts to exchange the debt obligation's LIBOR floating rate (exclusive of the applicable spread) for fixed rate interest payments over the life of the debt obligations without exchange of the underlying notional amounts. The notional amounts of the interest rate swap agreements are used to measure interest to be paid or received and do not represent the amount of exposure of credit loss. The differential paid or received under interest rate swap agreements is recognized as an adjustment to interest expense. The following is a summary of interest rate swap agreements outstanding at December 31, 1999: Notional Amount Fixed Rate Maturity --------------- ---------- ------------------ $ 5,250,000 6.7% September 30, 2003 15,837,700 6.9% May 11, 2004 Page 36 of 59 Supreme Industries, Inc. And Subsidiaries Notes to Consolidated Financial Statements, Concluded I. COMMITMENTS AND CONTINGENCIES, Concluded. The actual market or credit exposure of these types of financial instruments are significantly less than the notional amounts. The primary risk associated with the swaps is the inability of counterparties to meet the terms of the contracts. The Company does not expect the counterparties to fail to meet their respective obligations. Other ----- The Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably to the Company. The Company has established accruals for matters that are probable and reasonably estimable. Management believes that any liability that may ultimately result from the resolution of these matters in excess of accruals and or amounts provided by insurance coverage will not have a material adverse effect on the consolidated financial position or results of operation of the Company. Page 37 of 59 SUPREME INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS Column C Column B Additions Balance Charged to Column E Column A Beginning Costs and Column D Balance Description Period Expenses Deductions End of Period - ------------------------- --------- ---------- ---------- ------------- Year ended December 31, 1999: Reserves and allowances deducted from asset accounts: Allowance for doubtful receivables: $ 691,000 $ 300,000 $ 147,000(1) $ 844,000(2) Year ended December 31, 1998: Reserves and allowances deducted from asset accounts: Allowance for doubtful receivables: $ 555,000 $ 533,000 $ 397,000(1) $ 691,000(2) Year ended December 31, 1997: Reserves and allowances deducted from asset accounts: Allowance for doubtful receivables: $ 555,000 $ 55,000 $ 55,000(1) $ 555,000(2) (1) Uncollectible accounts written off, net of recoveries. (2) Reflected in the consolidated balance sheet as follows: deducted from accounts receivable - $609,000 at December 31, 1999, $456,000 at December 31, 1998 and $430,000 at December 31, 1997; deducted from other receivables included in other assets - $235,000 at December 31, 1999 and 1998 and $125,000 at December 31, 1997. Page 38 of 59 SUPREME INDUSTRIES, INC. AND SUBSIDIARIES SUPPLEMENTARY DATA Quarterly Results 1999 Quarter First Second Third Fourth - ----------------------------------------------------------------------------- Net revenue $56,376,042 $66,485,606 $67,013,683 $56,136,664 Gross profit 9,541,644 10,830,874 11,616,545 6,011,062 Net income 2,397,865 2,842,879 2,929,787 97,142 Per share: Basic .19 .24 .27 .01 Diluted .19 .24 .27 .01 - ----------------------------------------------------------------------------- 1998 Quarter - ----------------------------------------------------------------------------- Net revenue $55,493,345 $61,322,192 $51,406,038 $55,506,346 Gross profit 9,372,971 11,716,559 8,240,373 9,964,628 Income before extraordinary loss 2,387,733 3,491,050 1,713,084 2,699,161 Net income 2,387,773 3,491,050 1,713,084 1,419,046 Per share: Income before extraordinary loss Basic .19 .28 .13 .21 Diluted .19 .28 .13 .21 Net income Basic .19 .28 .13 .11 Diluted .19 .28 .13 .11 - ----------------------------------------------------------------------------- 1997 Quarter - ----------------------------------------------------------------------------- Net revenue $44,173,303 $56,275,903 $45,691,254 $51,827,699 Gross profit 7,136,622 10,396,405 7,043,195 8,194,275 Net income 1,685,399 3,331,237 1,700,656 1,837,927 Per share: Basic .13 .26 .13 .15 Diluted .13 .26 .13 .15 - ----------------------------------------------------------------------------- Accounting adjustments, net of tax effect, for book to physical inventory results and year-end adjustments to certain assets and accrued liabilities had a favorable (unfavorable) impact on fourth quarter results as follows: 1999 $(1,748,000) and 1997 - $436,000. The sum of quarterly earnings per share for the four quarters may not equal annual earnings per share due to rounding in retroactive statements for stock dividends and changes in the diluted potential common shares. Net income for the fourth quarter of 1998 was reduced by a $1.3 million extraordinary loss, net of tax, (see Note B of Notes to Consolidated Financial Statements). Page 39 of 59 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. - ------- --------------------------------------------------------------- Not applicable. PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. - -------- --------------------------------------------------- (a) Directors - Certain information required by Item 10 of Form 10-K is hereby incorporated by reference from the Company's definitive proxy statement, which will be filed pursuant to Regulation 14A within 120 days after the Company's year end for the year covered by this report, under the caption "Election of Directors" of the proxy statement. (b) Executive Officers - See "Executive Officers of the Registrant" in Item 1 of Part I of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. - -------- ----------------------- The information required by Item 11 of Form 10-K is hereby incorporated by reference from the Company's definitive proxy statement, which will be filed pursuant to Regulation 14A within 120 days after the Company's year end for the year covered by this report, under the caption "Executive Compensation" of the proxy statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- -------------------------------------------------------------- The information required by Item 12 of Form 10-K is hereby incorporated by reference from the Company's definitive proxy statement, which will be filed pursuant to Regulation 14A within 120 days after the Company's year end for the year covered by this report, under the caption "Security Ownership of Certain Beneficial Owners and Management" of the proxy statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. - -------- ----------------------------------------------- The information required by Item 13 of Form 10-K is hereby incorporated by reference from the Company's definitive proxy statement, which will be filed pursuant to Regulation 14A within 120 days after the Company's year end for the year covered by this report, under the caption "Transactions with Management" of the proxy statement. Page 40 of 59 PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. - -------- ----------------------------------------------------------------- a. The following financial statements and financial statement schedule are included in Item 8 herein: 1. Financial Statements -------------------- Report of Independent Accountants Consolidated Balance Sheets as of December 31, 1999 and 1998 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 Notes to the Consolidated Financial Statements 2. Financial Statement Schedule: ----------------------------- Schedule II - Valuation and Qualifying Accounts 3. Exhibits: --------- See Index to Exhibits b. Reports on Form 8-K No report on Form 8-K was filed during the three-month period ended December 31, 1999. Page 41 of 59 SIGNATURES ---------- Pursuant to the requirements of the Section 13 and 15(d) 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 authorize. SUPREME INDUSTRIES, INC. Date: March 21, 2000 By: /s/Herbert M. Gardner -------------- --------------------- Herbert M. Gardner, Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in capacities and on the dates indicated. /s/Herbert M. Gardner Chairman of the Board March 21, 2000 Herbert M. Gardner and President (Principal Executive Officer) /s/Omer G. Kropf Executive Vice President March 21, 2000 Omer G. Kropf and Director /s/William J. Barrett Secretary, Assistant March 21, 2000 William J. Barrett Treasurer and Director /s/Robert W. Wilson Executive Vice President March 21, 2000 Robert W. Wilson Treasurer, Chief Financial Officer and Director (Principal Financial and Accounting Officer) /s/Robert J. Campbell Director March 21, 2000 Robert J. Campbell /s/Thomas Cantwell Director March 21, 2000 Thomas Cantwell /s/Rice M. Tilley, Jr. Assistant Secretary March 21, 2000 Rice M. Tilley, Jr. /s/H. Douglas Schrock Director March 21, 2000 H. Douglas Schrock /s/Rick L. Horn Director March 21, 2000 Rick L. Horn Page 42 of 59 INDEX TO EXHIBITS ----------------- Exhibit Description - ------- ----------- 3.1 Certificate of Incorporation of the Company, filed as Exhibit 3(a) to the Company's Registration Statement on Form 8-A, filed with the Commission on September 18, 1989, and incorporated herein by reference. 3.2 Certificate of Amendment of Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on June 10, 1993 filed as Exhibit 3.2 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference. 3.3 Certificate of Amendment of Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on May 29, 1996 filed as exhibit 3.3 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference. 3.4 Bylaws of the Company, filed as Exhibit 3(b) to the Company's Registration Statement on Form 8-A, filed with the Commission on September 18, 1989, and incorporated herein by reference. 4.1 Credit Agreement dated as of April 25, 1994, between the Company, Supreme Corporation, and NBD Bank and signed in connection with certain long-term indebtedness, filed as Exhibit 4.25 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference. 4.2 First Amendment to Credit Agreement dated April 25, 1994 filed as exhibit 4.2 to the Company's annual report on form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference. 4.3 Second Amendment to Credit Agreement dated April 25, 1994 filed as exhibit 4.3 to the Company's annual report on form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference. Page 43 of 59 4.4 Third Amendment to Credit Agreement dated June 23, 1998, filed as exhibit 4.4 to to the Company's annual report on form 10-K for the fiscal year ended December 31, 1998. 4.5 Fourth Amendment to the Credit Agreement dated September 30, 1998 signed in connection with certain long term indebtedness, filed as exhibit 4.5 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1998 and incorporated herein by reference. 4.6 Fifth Amendment to the Credit Agreement dated May 12, 1999 signed in connection with certain long term indebtedness. 10.1 The Company's 1992 Stock Option Plan, filed as Exhibit 10.7 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated herein by reference. 10.2 Form of Stock Option grant agreement used to evidence options granted under the Company's 1992 Stock Option Plan, filed as Exhibit 10.8 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated herein by reference. 10.3 The Company's 1998 Stock Option Plan, filed as exhibit 10.3 to the Company's annual report on Form 10K for the fiscal year ended December 31, 1998 and incorporated herein by reference. 10.4 Amendment No. 1 to the Company's 1998 Stock Option Plan. 10.5 Inventory Loan and Security Agreement dated October 12, 1998, among General Motors Acceptance Corporation and the Company, its subsidiaries, and certain subsidiaries of Supreme Corporation, filed as Exhibit 10.19 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1988, and incorporated herein by reference. Page 44 of 59 10.6 Form of Demand Promissory Note dated September 28, 1988, from the Company, and relating to the Agreement described 10.3 above, filed as Exhibit 10.20 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1988, and incorporated herein by reference. 10.7 Intercreditor Agreement dated as of December 31, 1991, among General Motors Acceptance Corporation and Congress Financial Corporation, and relating to the Agreement described in 10.3 above filed as Exhibit 10.14 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1991, and incorporated herein by reference. 10.8 Pool Company Wholesale Finance Plan Application for Wholesale Financing and Security Agreements, dated December 5, 1990, among Ford Motor Credit Company and each of Supreme Corporation, Supreme Truck Bodies of California, Inc., Supreme Corporation of Texas, and Supreme Mid-Atlantic Corporation, filed as Exhibit 10.15 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1991, and incorporated herein by reference. 10.9 Lease dated July 25, 1988, between Supreme Corporation and G-2, Ltd., a Texas limited partnership, relating to Supreme Corporation's Goshen, Indiana facilities, filed as exhibit 10.22 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1988, and incorporated herein by reference. 10.1 Lease dated July 25, 1988, between Supreme Corporation and G-2, Ltd., a Texas limited partnership, relating to Supreme Corporation's Griffin, Georgia facilities, filed as Exhibit 10.23 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1988, and incorporated herein by reference. 10.11 Lease dated August 27, 1990, between Supreme Truck Bodies of California, Inc. and Edgar Maas, individually and as Trustee of the Marsha Maas Testamentary Trust, relating to Supreme Corporation's Riverside, California facility, filed as Exhibit 10.19 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1991, and incorporated herein by reference. 10.12 License Agreement dated to be effective November 5, 1992, between Supreme Corporation as licensee and ACCGRUPPENAB, a Swedish Corporation, as licensor, with respect to certain know-how and patent rights, filed as exhibit 10.19 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference. Page 45 of 59 10.13 Employment Contract dated to be effective May 1, 1998, between Supreme Corporation and Omer G. Kropf, filed as exhibit 10.12 to the Company's annual report on form 10-K for the fiscal year ended December 31, 1998. 10.14 Consulting Agreement dated to be effective January 1, 1993, between the Company and William J. Barrett, filed as Exhibit 10.21 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference. 10.15 Consulting Agreement dated to be effective January 1, 1993, between the Company and Herbert M. Gardner, filed as Exhibit 10.22 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference. 10.16 Consulting Agreement dated to be effective April 15, 1993, between the Company and Rice M. Tilley, Jr., filed as Exhibit 10.23 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference. 10.17 Consulting Agreement dated to be effective April 15, 1993, between the Company and H. Douglas Schrock, filed as Exhibit 10.24 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference. 10.18 Employment Contract dated to be effective January 1, 1998, between Supreme Corporation and Robert W. Wilson, filed as exhibit 10.16 to the Company's annual report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference. 21.1 Subsidiaries of the Company. 23.1 Consent of Independent Accountants. 27.1 Financial data schedule. Page 46 of 59 Exhibit 4.6 - ----------- FIFTH AMENDMENT TO CREDIT AGREEMENT ----------------------------------- THIS FIFTH AMENDMENT TO CREDIT AGREEMENT, dated as of May 11, 1999 (this "Amendment"), is among SUPREME INDUSTRIES, INC., a Delaware corporation ("SI") and SUPREME CORPORATION, a Texas corporation ("SC" and together with SI referred to collectively as the "Borrowers" and each individually as a "Borrower") and NBD BANK, an Indiana banking corporation (the "Bank"). RECITALS A. The Borrowers and the Bank are parties to a Credit Agreement, dated as of April 25, 1994, as amended by a First Amendment to Credit Agreement dated as of February 20, 1996, a Second Amendment to Credit Agreement dated as of October 25, 1996, a Third Amendment to Credit Agreement dated as of June 23, 1998 and a Fourth Amendment to Credit Agreement dated as of September 30, 1998 (as now and hereafter amended, the "Credit Agreement"), pursuant to which the Bank agreed, subject to the terms and conditions thereof, to extend credit to the Borrowers. B. The Borrowers desire to amend the Credit Agreement to provide for an additional term loan in the original principal amount of $17,056,000 and the Bank is willing to do so strictly in accordance with the terms hereof. TERMS In consideration of the premises and of the mutual agreements herein contained, the parties agree as follows: ARTICLE I. AMENDMENTS. Upon fulfillment of the conditions set forth in Article III hereof, the Credit Agreement shall be amended as follows: 1.1 Section 1.1 shall be amended as follows: (a) The definition of "Applicable Margin" shall be deleted in its entirety and the following shall be inserted: Page 47 of 59 "Applicable Margin" shall mean the percentage per annum set forth in accordance with the then-applicable Leverage Ratio: Eurodollar Rate Loans- Revolving Credit Loans Eurodollar and Term Rate Loans- Commitment Leverage Ratio Loan B Term Loan C Fee -------------------------------------------------------------------- Greater than or equal to 1.25 to 1.0 1.00% 1.15% .1875% Less than 1.25 to 1.0 but greater than or equal to .75 to 1.0 .875% 1.00% .125% Less than .75 to 1.0 .75% .90% .125% (b) The definition of "Commitment" shall be amended by deleting the last sentence and inserting the following in place thereof: "Term Loan A was disbursed on the Effective Date, Term Loan B was disbursed on the Fourth Amendment Effective Date and Term Loan C shall be disbursed on the Fifth Amendment Effective Date in the original principal amount of $17,056,000." (c) The definition of "Maturity Date" shall be deleted and the following shall be inserted in place thereof: "Maturity Date" shall mean, with respect to Term Loan B, September 30, 2003, and, with respect to Term Loan C, May 11, 2004. (d) The definitions of "Term Loan" and "Term Note" shall be deleted and the following shall be inserted in place thereof: "Term Loan" shall mean Term Loan A, Term Loan B and Term Loan C. "Term Note" shall mean any promissory note of the Borrower evidencing the Term Loan in substantially the form annexed hereto as Exhibit A-2 with respect to Term Loan A ("Term Note A"), Exhibit A-3 with respect to Term Loan B ("Term Note B"), and Exhibit A-4 with respect to Term Loan C ("Term Note C"), in each case as amended or modified form time to time and together with any promissory note or notes issued in exchange or replacement therefor. Page 48 of 59 (e) The following definitions shall be added in appropriate alphabetical order: "Fifth Amendment Effective Date" shall mean May 11, 1999. "Term Loan C" shall mean the borrowing under Section 2.4 evidenced by Term Note C and made on the Fifth Amendment Effective Date pursuant to Section 2.1. 1.2 Section 2.1(b) shall be deleted and the following shall be inserted in place thereof: (b) Term Loan. The Bank made Term Loan A to the Borrower on the Effective Date and Term Loan B to the Borrower on the Fourth Amendment Effective Date. The Bank further agrees, subject to the terms and conditions of this Agreement, to make Term Loan C to the Borrower on the Fifth Amendment Effective Date in an original principal amount of $17,056,000. 1.3 Section 3.1(a) shall be amended by adding a new clause 3.1(a) (iv) at the end thereof to read as follows: "and (iv) the Company shall pay to the Bank the outstanding principal amount of Term Loan C in 19 equal quarterly installments in the amount of $609,143 payable on the last Business Day of each August, November, February and May, commencing on August 31, 1999 and a final installment on the Maturity Date, when the entire outstanding principal amount of Term Loan C shall be due and payable. Term Loan A has been paid in full as of the Fifth Amendment Effective Date. 1.4 A new Section 3.1(f) shall be added at the end of Section 3.1 to read as follows: (f) In addition to all other payments of Term Loan C hereunder, the Borrowers shall make a mandatory prepayment of principal on Term Loan C in an amount equal to 20% of the annual consolidated net income of the Borrowers in excess of $5,000,00 for each fiscal year of the Borrowers, commencing with fiscal year 1999, such payment to be due 105 days after the end of each fiscal year. The mandatory prepayment required pursuant to this Section 3.1(f) shall not exceed $1,000,000 in any fiscal year. 1.5 Section 3.2 shall be amended by adding the following language at the end of clause (a): "and Term Loan C". Page 49 of 59 1.6 Sections 5.2(b), (c), (d) and (e) shall be amended and restated in their entirety to read as follows: (b) [Intentionally Reserved]. (c) Tangible Capital Funds. Permit or suffer Consolidated Tangible Capital Funds of the Borrower and its Subsidiaries to be less than the sum of (i) $28,000,000 plus (ii) an amount equal to 50% of Cumulative Net Income of the Borrower and its Subsidiaries for each fiscal year of the Borrower commencing with the fiscal year ending December 31, 1999. (d) Total Liabilities to Tangible Capital Funds. Permit or suffer the ratio of Consolidated Total Liabilities of the Borrower and its Subsidiaries to Consolidated Tangible Capital Funds of the Borrower and its Subsidiaries to be greater than 2.50 to 1.00 as of the end of any fiscal quarter of the Borrower, commencing with the fiscal quarter ending June 30, 1999. (e) Debt Coverage Ratio. Permit or suffer the ratio of Consolidated Debt Coverage Ratio of the Borrower and its Subsidiaries to be less than 1.40 to 1.00 as of the end of any fiscal year of the Borrower, commencing with the fiscal year ending December 31, 1999. 1.7 Exhibit A-4 shall be added to the Credit Agreement in the form attached hereto as Exhibit A-4. ARTICLE II. REPRESENTATIONS. Each Borrower represents and warrants to the Bank that: 2.1 The execution, delivery and performance of this Amendment and Term Note C are within its powers, have been duly authorized and are not in contravention with any law, of the terms of its Articles of Incorporation or By-laws, or any undertaking to which it is a party or by which it is bound. 2.2 This Amendment is and the Term Note C when issued hereunder will be, the legal, valid and binding obligations of the Borrower enforceable against it in accordance with the terms thereof. 2.3 After giving effect to the amendments herein contained, the representations and warranties contained in Article IV of the Credit Agreement are true on and as of the date hereof with the same force and effect as if made on and as of the date hereof. 2.4 No Event of Default or any event or condition which might become an Event of Default with notice or lapse of time, or both, exists or has occurred and is continuing on the date hereof. Page 50 of 59 ARTICLE III. CONDITIONS OF EFFECTIVENESS. This Amendment shall not become effective until each of the following has been satisfied: 3.1 This Amendment shall be signed by the Borrowers and the Bank. 3.2 Term Note C shall be signed and delivered by the Borrowers to the Bank. 3.3 The Borrowers shall have paid a facility fee to the Bank in the amount of $42,500. 3.4 Each of the Guarantors shall have executed the Consent and Agreement at the end of this Amendment. ARTICLE IV. MISCELLANEOUS. 4.1 References in the Credit Agreement or in any note, certificate, instrument or other document to the "Credit Agreement" shall be deemed to be references to the Credit Agreement as amended hereby and as further amended from time to time. 4.2 The Borrowers agree to pay and to save the Bank harmless for the payment of all costs and expenses arising in connection with this Amendment, including the reasonable fees of counsel to the Bank in connection with preparing this Amendment and the related documents. 4.3 Each Borrower acknowledges and agrees that the Bank has fully performed all of their obligations under all documents executed in connection with the Credit Agreement and all actions taken by the Bank are reasonable and appropriate under the circumstances and within their rights under the Credit Agreement and all other documents executed in connection therewith and otherwise available. Each Borrower represents and warrants that it is not aware of any claims or causes of action against the Bank, any participant lender or any of their successors or assigns. 4.4 Except as expressly amended hereby, each Borrower agrees that the Credit Agreement, the Notes, the Security Documents and all other documents and agreements executed by the Company in connection with the Credit Agreement in favor of the Bank are ratified and confirmed and shall remain in full force and effect and that it has no set off, counterclaim or defense with respect to any of the foregoing. Terms used but not defined herein shall have the respective meanings ascribed thereto in the Credit Agreement. 4.5 This Amendment may be signed upon any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. Page 51 of 59 IN WITNESS WHEREOF, the parties signing this Amendment have caused this Amendment to be executed and delivered as of May __, 1999. SUPREME INDUSTRIES, INC. By: /s/Robert W. Wilson Its: CFO & Asst. Secretary SUPREME CORPORATION By: /s/Robert W. Wilson Its: Vice President of Finance & Asst. Secretary NBD BANK By: /s/Daniel C. Oakley Its: Vice President Page 52 of 59 CONSENT AND AGREEMENT --------------------- As of the date and year first above written, each of the undersigned hereby: (a) fully consents to the terms and provisions of the above Amendment and the consummation of the transactions contemplated hereby and agrees to all terms and provisions of the above Amendment applicable to it; (b) agrees that each Guaranty and all other agreements executed by any of the undersigned in connection with the Credit Agreement or otherwise in favor of the Bank (collectively, the "Security Documents") are hereby ratified and confirmed and shall remain in full force and effect, and each of the undersigned acknowledges that it has no setoff, counterclaim or defense with respect to any Security Document and that "Guaranteed Obligations", as defined in the Guaranty, also includes Term Loan B; and (c) acknowledges that its consent and agreement hereto is a condition to the Bank's obligation under this Amendment and it is in its interest and to its financial benefit to execute this consent and agreement. SUPREME CORPORATION OF TEXAS By: /s/Robert W. Wilson Its: Vice President of Finance & Asst. Secretary SUPREME TRUCK BODIES OF CALIFORNIA, INC. By: /s/Robert W. Wilson Its: Vice President of Finance & Asst. Secretary Page 53 of 59 SUPREME MID-ATLANTIC CORPORATION By: /s/Robert W. Wilson Its: Vice President of Finance & Asst. Secretary SC FREEDOM ONE, INC. By: /s/Robert W. Wilson Its: Vice President of Finance & Asst. Secretary ATLANTIC SALES CORPORATION By: /s/Robert W. Wilson Its: Vice President of Finance & Asst. Secretary SUPREME/MURPHY TRUCK BODIES, INC. By: /s/Robert W. Wilson Its: Vice President of Finance & Asst. Secretary SC TOWER LAMINATING, INC. By: /s/Robert W. Wilson Its: Vice President of Finance & Asst. Secretary Page 54 of 59 EXHIBIT A-4 TERM NOTE C ----------- $17,056,000 May 11, 1999 FOR VALUE RECEIVED, SUPREME INDUSTRIES, INC., a Delaware corporation, and SUPREME CORPORATION, a Texas corporation (together, the "Borrower"), hereby jointly and severally promise to pay to the order of NBD BANK, an Indiana banking corporation (the "Bank"), at its principal office in the City of Elkhart, Indiana , or such other place as the Bank or the holder hereof may from time to time specify, in lawful money of the United States of America and in immediately available funds, the principal sum of Seventeen Million Fifty-Six Thousand Dollars ($17,056,000), or such lesser amount as is recorded on the books and records of the Bank in nineteen equal quarterly installments of principal in the amount of $609,143 payable on the last Business Day of each August, November, February and May, commencing on the last Business Day of August, 1999 and a final installment on the Maturity Date when the entire outstanding principal amount of the Term Loan C evidenced hereby, and all accrued interest thereon, shall be due and payable; and to pay interest on the unpaid principal balance hereof from time to time outstanding, in like money and funds, for the period from the date hereof until the Term Loan C evidenced hereby shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement referred to below. The Bank is hereby authorized by the Borrower to record on its books and records, the date and the amount of the Term Loan C, the applicable interest rate and type and the duration of the related Interest Period (if applicable), the amount of each payment or prepayment of principal thereon, and the other information provided for on such books and records, which books and records shall constitute prime facie evidence of the information so recorded, provided, however, that any failure by the Bank to record any such notation shall not relieve the Borrower of its obligation to repay the outstanding principal amount of this Term Loan C, all accrued interest hereon and any amount payable with respect hereto in accordance with the terms of this Term Note C and the Credit Agreement. The Borrower and each endorser or guarantor hereof waives presentment, protest, notice of dishonor and any other formality in connection with this Term Note C. Should the indebtedness evidenced by this Term Note C or any part thereof be collected in any proceeding or be placed in the hands of attorneys for collection, the Borrower agrees to pay, in addition to the principal, interest and other sums due and payable hereon, all costs of collection this Term Note C, including attorneys' fees and expenses. This Term Note C evidences a Term Loan C made under a Credit Agreement, dated as of April 25, 1994, as amended (as amended or modified from time to time, the "Credit Agreement"), by and between the Borrower and the Bank, to which reference is hereby made for a statement of the circumstances under which this Term Note C is subject to prepayment and under which its due date may be accelerated and a description of the collateral and security Page 55 of 59 securing this Term Note C. Capitalized terms used but not defined in this Term Note C shall have the respective meanings assigned to them in the Credit Agreement. This Term Note C is made under, and shall be governed by and construed in accordance with, the laws of the State of Indiana in the same manner applicable to contracts made and to be performed entirely within such State and without giving effect to choice of law principles of such State. SUPREME INDUSTRIES, INC. By: /s/Robert W. Wilson Its: CFO & Asst. Secretary SUPREME CORPORATION By: /s/Robert W. Wilson Its: Vice President of Finance & Asst. Secretary Page 56 of 59 Exhibit 10.4 - ------------ AMENDMENT NO. 1 TO 1998 STOCK OPTION PLAN OF SUPREME INDUSTRIES, INC. By means of a 1998 Stock Option Plan (the "Plan") dated October 29, 1998, Supreme Industries, Inc. (the "Company") put into effect a Stock Option Plan for the benefit of its officers, employees, and advisors. Article VIII of the Plan permits the Board of Directors of the Company to amend the Plan from time to time. It has been recommended to the Company's Board of Directors by the Company's independent accounting firm that Section 6:3.A.3. (which permits a cashless exercise of a stock option using the "net method") be deleted so as to avoid potential accounting difficulties. In view of that recommendation, at its meeting held on November 11, 1999, the Company's Board of Directors passed a resolution agreeing to amend the Plan as suggested. The purpose of this Amendment is to amend the Plan be deleting Section 6:3.A.3. DATED to be effective November 11, 1999. SUPREME INDUSTRIES, INC. By: /s/Herbert M. Gardner Herbert M. Gardner Chairman of the Board Page 57 of 59 Exhibit 21.1 - ------------ Subsidiaries of the Registrant (a) - ---------------------------------- Supreme Corporation Supreme Corporation of Texas, a Texas Corporation Supreme Truck Bodies of California, Inc., a California Corporation Supreme Mid-Atlantic Corporation, a Texas Corporation Supreme/Murphy Truck Bodies, Inc., a North Carolina Corporation Atlantic Wood Products, S.A. PA Land Holding Corp., a Texas Corporation SC Freedom One, Inc. SC Tower Structural Laminating, Inc. (a) All subsidiaries are 100% owned by the Registrant. Page 58 of 59 Exhibit 23.1 - ------------ CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Supreme Industries, Inc. (formerly ESI Industries, Inc.) on Form S-3 (File No. 33-64047) and on Form S-8 (File Nos. 333-89867 and 33-59343) and in the related Prospectus of our report dated February 3, 2000, on our audits of the consolidated financial statements and financial statement schedule of Supreme Industries, Inc. and subsidiaries at December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, which report is included in this Annual Report on Form 10-K. /s/PricewaterhouseCoopers LLP South Bend, Indiana March 17, 2000 Page 59 of 59
EX-27 2
5 YEAR 3-MOS 6-MOS 9-MOS YEAR DEC-31-1999 DEC-31-1999 DEC-31-1999 DEC-31-1999 DEC-31-1998 DEC-31-1999 MAR-31-1999 JUN-30-1999 SEP-30-1999 DEC-31-1998 270,935 65,344 232,208 237,396 185,424 0 0 0 0 0 29,635,385 27,442,791 33,660,356 30,765,566 29,165,559 609,000 531,000 606,000 681,000 456,000 38,552,339 36,123,983 39,065,712 33,026,638 28,792,650 70,939,324 65,564,122 74,841,210 66,120,722 60,369,709 59,072,394 51,320,369 53,189,952 56,558,606 50,030,906 21,608,302 19,378,273 20,056,945 20,759,618 18,688,584 110,582,428 99,934,900 110,311,005 104,174,994 94,206,054 28,285,547 23,071,336 27,198,756 27,526,407 20,948,765 35,319,246 19,649,592 40,035,702 30,558,208 18,303,207 0 0 0 0 0 0 0 0 0 0 1,260,586 1,157,898 992,266 1,041,189 1,157,898 0 0 0 0 0 110,582,428 99,934,900 110,311,005 104,174,994 94,206,054 246,011,995 56,376,042 122,861,648 189,875,331 223,727,921 246,011,995 56,376,042 122,861,648 189,875,331 223,727,921 208,011,870 46,834,398 102,489,130 157,886,268 184,433,390 208,011,870 46,834,398 102,489,130 157,886,268 184,433,390 22,039,388 5,154,775 10,718,152 16,613,680 20,655,625 0 0 0 0 0 2,242,064 339,004 938,622 1,707,852 1,647,878 13,718,673 4,047,865 8,715,744 13,667,531 16,991,028 5,451,000 1,650,000 3,475,000 5,497,000 6,700,000 8,267,673 2,397,865 5,240,744 8,170,531 10,291,028 0 0 0 0 0 0 0 0 0 1,280,115 0 0 0 0 0 8,267,673 2,397,865 5,240,744 8,170,531 9,010,913 0.71 0.19 0.43 0.70 0.71 0.71 0.19 0.43 0.70 0.71
EX-27 3
5 YEAR DEC-31-1997 DEC-31-1997 159,044 0 23,188,066 430,000 28,404,786 53,528,995 46,083,344 16,522,903 85,874,312 23,165,040 17,359,703 0 0 1,040,276 0 85,874,312 197,968,159 197,968,159 165,197,662 165,197,662 17,228,565 0 1,409,713 14,132,219 5,577,000 8,555,219 0 0 0 8,555,219 0.68 0.67
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