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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