10-Q 1 r10q-901.txt THIRD QUARTER 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-8183 SUPREME INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 75-1670945 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) 16441 C.R. 38, P.O. Box 237, Goshen, Indiana 46528 (Address of principal executive offices) Registrant's telephone number, including area code: (219) 642-3070 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock ($.10 Par Value) Outstanding at October 29, 2001 Class A 8,887,417 Class B 1,917,394 Page 1 of 13 SUPREME INDUSTRIES, INC. CONTENTS Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets 3 & 4 Consolidated Statements of Income 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7, 8 & 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9, 10 & 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 Page 2 of 13 Part I. Financial Information Item 1. Financial Statements Supreme Industries, Inc. and Subsidiaries Consolidated Balance Sheets September 30, December 31, 2001 2000 -------------- ------------- Assets (Unaudited) Current assets: Cash and cash equivalents...... $203,219 $184,004 Accounts receivable, net....... 21,149,948 25,566,117 Inventories.................... 29,502,818 31,815,470 Deferred income taxes.......... 1,315,298 1,315,298 Other current assets........... 993,803 670,524 -------------- --------------- Total current assets.... 53,165,086 59,551,413 -------------- --------------- Property, plant and equipment, at cost 67,946,629 66,836,744 Less, Accumulated depreciation and amortization............. 28,541,059 25,442,612 -------------- --------------- Property, plant and equipment, net.......................... 39,405,570 41,394,132 -------------- --------------- Intangible assets, net............... 977,796 1,095,456 Other assets......................... 976,060 932,514 -------------- --------------- Total assets........... $94,524,512 $102,973,515 ============== =============== The accompanying notes are a part of the consolidated financial statements. Page 3 of 13 Supreme Industries, Inc. and Subsidiaries Consolidated Balance Sheets, Concluded September 30, December 31, 2001 2000 --------------- --------------- Liabilities and Stockholders' Equity (Unaudited) Current liabilities: Current maturities of long- term debt...................... $4,328,239 $5,181,761 Trade accounts payable........... 9,693,036 8,111,788 Accrued income taxes............. 1,014,164 1,148,415 Other accrued liabilities........ 8,357,289 9,874,302 --------------- --------------- Total current liabilities 23,392,728 24,316,266 Long-term debt......................... 15,535,693 25,859,972 Deferred income taxes.................. 1,984,466 1,984,466 --------------- --------------- Total liabilities....... 40,912,887 52,160,704 --------------- --------------- Stockholders' equity.................... 53,611,625 50,812,811 --------------- --------------- Total liabilities and stockholders' equity... $94,524,512 $102,973,515 =============== =============== The accompanying notes are a part of the consolidated financial statements. Page 4 of 13 Supreme Industries, Inc. and Subsidiaries Consolidated Statements of Income (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ----------- ----------- ------------ ------------ 2001 2000 2001 2000 ----------- ----------- ------------ ------------ Revenues............ $52,580,066 $56,760,638 $167,790,621 $201,290,743 ----------- ----------- ------------ ------------ Costs and expenses: Cost of sales... 45,228,641 47,741,214 142,125,546 168,903,235 Selling, general and administrative.... 5,550,783 6,319,055 17,823,405 19,687,176 Interest............ 428,501 752,483 1,799,626 2,414,410 ----------- ---------- ------------ ------------ 51,207,925 54,812,752 161,748,577 191,004,821 ----------- ---------- ------------ ------------ Income before income taxes............. 1,372,141 1,947,886 6,042,044 10,285,922 Income taxes........ 506,000 776,000 2,401,000 4,129,000 ----------- ---------- ------------ ------------ Net income.......... $866,141 $1,171,886 $3,641,044 $6,156,922 =========== ========== ============ ============ Earnings per share: Basic...... $.08 $.11 $.34 $.55 Diluted.... .08 .11 .34 .55 Shares used in the computation of earnings per share: Basic...... 10,798,384 11,105,846 10,812,758 11,187,470 Diluted.... 10,875,809 11,105,846 10,881,497 11,191,361 The accompanying notes are a part of the consolidated financial statements. Page 5 of 13 Supreme Industries, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, ------------------------------- 2001 2000 --------------- --------------- Cash flows from operating activities: Net income........................ $3,641,044 $6,156,922 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. 3,392,916 3,122,785 Gain on disposal of equipment. (10,367) (3,644) Changes in operating assets and liabilities..... 5,900,289 6,096,157 --------------- --------------- Net cash provided by operating activities.............. 12,923,882 15,372,220 --------------- --------------- Cash flows from investing activities: Additions to property, plant and equipment..................... (1,303,522) (6,879,339) Proceeds from disposal of equipment. 27,196 --- (Increase) decrease in other assets. (43,546) 56,330 -------------- --------------- Net cash used in investing activities............ (1,319,872) (6,823,009) --------------- --------------- Cash flows from financing activities: Proceeds from revolving line of credit and other long-term debt.. 46,724,607 79,533,511 Repayments of revolving line of credit and other long-term debt.. (57,902,408) (86,615,939) Acquisition of treasury stock...... (406,994) (1,480,701) --------------- --------------- Net cash used in financing activities.................. (11,584,795) (8,563,129) --------------- --------------- Increase (decrease) in cash and cash equivalents........................... 19,215 (13,918) Cash and cash equivalents, beginning of period................................ 184,004 270,935 --------------- --------------- Cash and cash equivalents, end of period................................ $203,219 $257,017 =============== =============== The accompanying notes are a part of the consolidated financial statements. Page 6 of 13 SUPREME INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION AND OPINION OF MANAGEMENT The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all of the information and financial statement disclosures necessary for a fair presentation of consolidated financial position, results of operations and cash flows in conformity with generally accepted accounting principles. In the opinion of management, the information furnished herein includes all adjustments necessary to reflect a fair statement of the interim periods reported. All adjustments are of a normal and recurring nature. The December 31, 2000 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. NOTE B - INVENTORIES Inventories, which are stated at the lower of cost or market with cost determined using the first-in, first-out method, consist of the following: September 30, December 31, 2001 2000 _____________ ____________ Raw materials.................$ 18,193,266 $ 19,822,278 Work-in-progress.............. 3,811,727 5,384,975 Finished goods................ 7,497,825 6,608,217 ____________ ____________ $ 29,502,818 $ 31,815,470 ============ ============ The valuation of raw materials, work-in-progress and finished goods inventories at interim dates is based upon a gross profit percentage method and bills of materials. The Company has historically had both favorable and unfavorable quarterly adjustments resulting from periodic physical inventories. The Company is continuing to refine its costing procedures for valuation of interim inventories in an effort to minimize book to physical inventory adjustments. Page 7 of 13 NOTE C - INCOME TAXES The effective income tax rate for the three months ended September 30, 2001 was 36.9% compared to 39.8% for the three months ended September 30, 2000. For the nine months ended September 30, 2001, the effective income tax rate was 39.7% compared to 40.1% for the nine months ended September 30, 2000. The changes are primarily the result of fluctuations in taxable income and varying tax rates in the states in which the Company transacts business. NOTE D - EARNINGS PER SHARE The number of shares used in the computation of basic and diluted earnings per share are as follows (in Thousands): Three Nine Months Ended Months Ended September 30, September 30, _____________ _____________ 2001 2000 2001 2000 Weighted average number of shares outstanding (used in computation of basic earnings per share) 10,798 11,106 10,813 11,187 Effect of dilutive stock options 78 -- 68 4 ______ ______ ______ ______ Diluted shares outstanding (used in computation of diluted earnings per share) 10,876 11,106 10,881 11,191 ====== ====== ====== ====== NOTE E - NEW ACCOUNTING PRONOUNCEMENTS The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective January 1, 2001. The Company's interest rate swap agreements are derivative instruments and the changes in fair value of these financial instruments, which are accounted for as cash flow hedges, are reported in other comprehensive income until the hedged items affect earnings. Based on the Company's derivative positions at September 30, 2001, the Company recorded a net liability of $435,000 for the fair value of its derivative portfolio with a corresponding charge to other comprehensive income. Page 8 of 13 On July 20, 2001, the Financial Accounting Standards Board issued SFAS No, 142, "Goodwill and Other Intangible Assets", which is effective for fiscal years beginning after December 15, 2001. SFAS No. 142 primarily addresses the accounting for goodwill and other intangible assets subsequent to their acquisition. The most significant changes made by SFAS 142 are (1) goodwill and indefinite lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least annually at the reporting unit level, (3) other intangible assets deemed to have an indefinite life will be tested for impairment at least annually, and (4) the amortization period of intangible assets with finite lives will no longer be limited to forty years. Management is in the process of assessing the impact that the adoption of SFAS No. 142 will have on the Company's results of operations and financial position. NOTE F - RECLASSIFICATIONS Certain items in the accompanying September 30, 2000 consolidated financial statements have been reclassified to conform to the 2001 presentation. The reclassifications had no impact on stockholders' equity, net income or cash flows as previously presented. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations Revenues for the quarter ended September 30, 2001 decreased to $52.6 million from $56.8 million for the quarter ended September 30, 2000. Revenues for the nine months ended September 30, 2001 decreased $33.5 million to $167.8 million from $201.3 million for the nine months ended September 30, 2000. The 2001 third quarter revenue decrease reflects the impact that the general slowing of the economy has had on our core business with truck dealers and distributors. The economic slowdown also negatively impacted the nine-month revenues, accounting for approximately 41% of the nine-month decrease. The remaining 59% reduction resulted from fewer orders from our national fleet customers through the first nine months of 2001 compared to the first nine months of 2000. Based on current backlog and recent order levels, we believe that revenues in the fourth quarter of 2001 will be similar to those experienced in the third quarter of 2001. Included in revenues and cost of sales for the quarter and nine months ended September 30, 2001 are purchased chassis. Comparable amounts for the quarter and nine months ended September 30, 2000 have been reclassified to conform with this presentation. Page 9 of 13 Gross profit as a percentage of revenues decreased to 14.0% and 15.3% for the quarter and nine months ended September 30, 2001 compared to 15.9% and 16.1% for the comparable periods ended September 30, 2000. For both the three-month and nine-month comparisons, pricing pressures in the marketplace continued to adversely affect the Company's material cost as a percentage of revenues. However, this was partially mitigated by the favorable results of cost savings initiatives implemented to control costs in the areas of direct labor and overhead. Selling, general and administrative expenses as a percentage of revenues decreased to 10.6% for the quarter ended September 30, 2001 from 11.1% for the quarter ended September 30, 2000. For the nine months ended September 30, 2001, selling, general and administrative expenses were 10.6% of revenues compared to 9.8% for the nine months ended September 30, 2000. The decreases of $.8 million and $1.9 million for the three and nine months ended September 30, 2001 in selling, general and administrative expenses is related to the Company's continuing effort to manage and control costs as well as placing less reliance on outside consulting services related to the implementation of new operating software. Interest expense decreased $323,982 to $428,501 for the quarter ended September 30, 2001 from $752,483 for the prior year comparable quarter. For the nine months ended September 30, 2001, interest expense decreased $614,784 to $1,799,626 from $2,414,410 for the nine months ended September 30, 2000. The interest expense reduction reflects the debt reduction the Company has been able to achieve primarily as a result of improved days sales outstanding and inventory management. Net income for the three months ended September 30, 2001 was $866,141 compared to $1,171,886 for the quarter ended September 30, 2000 while for the nine months ended September 30, 2001 net income was $3,641,044 compared to $6,156,922 for the nine months ended September 30, 2000. Basic and diluted earnings per share were $.08 for the three months ended September 30, 2001 compared to $.11 for the prior year quarter while for the nine months ended September 30, 2001 basic and diluted earnings per share were $.34 compared to $.55 for the comparable prior year period. Page 10 of 13 Liquidity and Capital Resources Cash flows from operating activities were the major sources of funds for operations, capital expenditures and to service debt during the first nine months of 2001. The largest components of cash provided by operations were decreased accounts receivable of $4.4 million, net income of $3.6 million, depreciation and amortization of $3.4 million and decreased inventories of $2.3 million. The Company invested $1.3 million in property, plant and equipment during the first nine months of 2001 compared to $6.9 million during the first nine months of 2000. This reduction reflects the Company's efforts to limit 2001 capital expenditures to no more than the estimated 2001 annual depreciation and amortization expenses of $4.0 million, assuming no plant purchases or acquisitions. The significant financing activity which used cash was an $11.2 million reduction in long-term debt. The Company believes that cash flows generated from operations and funds available under the Company's revolving line of credit will be sufficient to meet the Company's cash needs during the remainder of 2001. Forward-Looking Statements This report contains forward-looking statements, other than historical facts, which reflect the view of the Company's management with respect to future events. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that the expectations reflected in such forward- looking statements are reasonable, and it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from such expectations include, without limitation, limitations on the availability of chassis on which the Company's product is dependent, availability of raw materials and severe interest rate increases. The Company assumes no obligation to update the forward-looking statements or to update the reasons actual results could differ from those contemplated by such forward-looking statements. Page 11 of 13 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a) Exhibits: None b) Reports on Form 8-K: A Report on Form 8-K dated October 9, 2001 was filed by the Company on October 12, 2001, to report a change in the Company's certifying accountant. Page 12 of 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SUPREME INDUSTRIES, INC. DATE: November 5, 2001 BY: /s/ROBERT W. WILSON Robert W. Wilson Executive Vice President, Treasurer, Chief Financial Officer and Director (Principal Financial and Accounting Officer) (Signing on behalf of the Registrant and as Principal Financial Officer.) Page 13 of 13