| UNITED STATES | ||||||
| SECURITIES AND EXCHANGE COMMISSION | ||||||
| Washington, D.C. 20549 | ||||||
| FORM 10-Q | ||||||
| (Mark One) | ||||||
| (X) | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | |||||
| SECURITIES EXCHANGE ACT OF 1934 | ||||||
| For the Quarterly Period Ended March 26, 2005 | ||||||
| OR | ||||||
| ( ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | |||||
| SECURITIES EXCHANGE ACT OF 1934 | ||||||
| For the transition period from _____ to _____ | ||||||
| Commission File No. 1-8183 | ||||||
| SUPREME INDUSTRIES, INC. | ||||||
| (Exact name of registrant as specified in its charter) | ||||||
| Delaware | 75-1670945 | |||||
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |||||
| incorporation or organization) | ||||||
| 2581 E. Kercher Rd., P.O. Box 237, Goshen, Indiana 46528 | ||||||
| (Address of principal executive offices) | ||||||
| Registrant's telephone number, including area code: (574) 642-3070 | ||||||
| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No | ||||||
| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No X | ||||||
| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. | ||||||
| Common Stock ($.10 Par Value) | Outstanding at May 2, 2005 | |||||
| Class A | 10,383,424 | |||||
| Class B | 2,109,133 | |||||
| Page 1 of 22 | ||||||
| SUPREME INDUSTRIES, INC. | ||||||
| CONTENTS | ||||||
| Page No. | ||||||
| PART I. | FINANCIAL INFORMATION | |||||
| Item 1. | Financial Statements: | |||||
| Consolidated Balance Sheets | 3 - 4 | |||||
| Consolidated Statements of Income | 5 | |||||
| Consolidated Statements of Cash Flows | 6 | |||||
| Notes to Consolidated Financial Statements | 7 - 9 | |||||
| Item 2. | Management's Discussion and Analysis of | |||||
| Financial Condition and Results of Operations | 10 - 14 | |||||
| Item 3. | Quantitative and Qualitative Disclosures About | |||||
| Market Risk | 15 | |||||
| Item 4. | Controls and Procedures | 15 | ||||
| PART II. | OTHER INFORMATION | |||||
| Item 5. | Other Information | 15 - 16 | ||||
| Item 6. | Exhibits | 16 | ||||
| SIGNATURES | 16 | |||||
| EXHIBITS | 17 - 22 | |||||
| Page 2 of 22 | ||||||
| Part I. Financial Information | ||||||||||
| Item 1. Financial Statements | ||||||||||
| Supreme Industries, Inc. and Subsidiaries | ||||||||||
| Consolidated Balance Sheets | ||||||||||
| March 26, | December 25, | |||||||||
| 2005 | 2004 | |||||||||
| Assets | (Unaudited) | |||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 1,510,066 | $ | 1,736,483 | ||||||
| Accounts receivable, net | 37,325,456 | 28,432,715 | ||||||||
| Inventories | 53,294,340 | 45,441,189 | ||||||||
| Deferred income taxes | 847,012 | 847,012 | ||||||||
| Other current assets | 3,777,274 | 4,222,636 | ||||||||
| Total current assets | 96,754,148 | 80,680,035 | ||||||||
| Property, plant and equipment, at cost | 85,549,797 | 84,195,977 | ||||||||
| Less, Accumulated depreciation and | ||||||||||
| amortization | 37,720,341 | 37,005,013 | ||||||||
| Property, plant and equipment, net | 47,829,456 | 47,190,964 | ||||||||
| Intangible assets, net | 17,181 | 30,066 | ||||||||
| Goodwill | 735,014 | 735,014 | ||||||||
| Other assets | 547,243 | 560,540 | ||||||||
| Total assets | $ | 145,883,042 | $ | 129,196,619 | ||||||
| The accompanying notes are a part of the consolidated financial statements. | ||||||||||
| Page 3 of 22 | ||||||||||
| Supreme Industries, Inc. and Subsidiaries | ||||||||||
| Consolidated Balance Sheets, Concluded | ||||||||||
| March 26, | December 25, | |||||||||
| 2005 | 2004 | |||||||||
| Liabilities and Stockholders' Equity | (Unaudited) | |||||||||
| Current liabilities: | ||||||||||
| Current maturities of long-term debt | $ | 1,658,333 | $ | 1,633,333 | ||||||
| Trade accounts payable | 16,548,280 | 18,717,757 | ||||||||
| Accrued income taxes | 2,028,865 | 312,415 | ||||||||
| Other accrued liabilities | 8,857,640 | 9,118,259 | ||||||||
| Total current liabilities | 29,093,118 | 29,781,764 | ||||||||
| Long-term debt | 42,939,008 | 28,766,667 | ||||||||
| Deferred income taxes | 3,085,179 | 3,085,179 | ||||||||
| Total liabilities | 75,117,305 | 61,633,610 | ||||||||
| Stockholders' equity | 70,765,737 | 67,563,009 | ||||||||
| Total liabilities and stockholders' equity | $ | 145,883,042 | $ | 129,196,619 | ||||||
| The accompanying notes are a part of the consolidated financial statements. | ||||||||||
| Page 4 of 22 | ||||||||||
| Supreme Industries, Inc. and Subsidiaries | |||||||||||
| Consolidated Statements of Income (Unaudited) | |||||||||||
| Three Months Ended | |||||||||||
| March 26, | March 27, | ||||||||||
| 2005 | 2004 | ||||||||||
| Revenue: | |||||||||||
| Net sales | $ | 90,322,304 | $ | 73,481,105 | |||||||
| Other income | 161,304 | 83,362 | |||||||||
| 90,483,608 | 73,564,467 | ||||||||||
| Costs and expenses: | |||||||||||
| Cost of sales | 78,696,536 | 66,330,489 | |||||||||
| Selling, general and administrative | 6,458,082 | 5,439,294 | |||||||||
| Interest | 488,646 | 191,915 | |||||||||
| 85,643,264 | 71,961,698 | ||||||||||
| Income before income taxes | 4,840,344 | 1,602,769 | |||||||||
| Income taxes | 1,746,000 | 613,000 | |||||||||
| Net income | $ | 3,094,344 | $ | 989,769 | |||||||
| Earnings per share: | |||||||||||
| Basic | $.25 | $.08 | |||||||||
| Diluted | .25 | .08 | |||||||||
| Shares used in the computation of | |||||||||||
| earnings per share: | |||||||||||
| Basic | 12,184,495 | 12,030,316 | |||||||||
| Diluted | 12,535,450 | 12,485,701 | |||||||||
| Cash dividend per common share | $.035 | $.03 | |||||||||
| The accompanying notes are a part of the consolidated financial statements. | |||||||||||
| Page 5 of 22 | |||||||||||
| Supreme Industries, Inc. and Subsidiaries | ||||||||||
| Consolidated Statements of Cash Flows (Unaudited) | ||||||||||
| Three Months Ended | ||||||||||
| March 26, | March 27, | |||||||||
| 2005 | 2004 | |||||||||
| Cash flows from operating activities: | ||||||||||
| Net income | $ | 3,094,344 | $ | 989,769 | ||||||
| Adjustments to reconcile net income to net cash | ||||||||||
| provided by (used in) operating activities: | ||||||||||
| Depreciation and amortization | 1,006,693 | 872,938 | ||||||||
| Gain on disposal of equipment | (2,310) | (15,369) | ||||||||
| Changes in operating assets and liabilities | (17,005,486) | (10,657,723) | ||||||||
| Net cash (used in) operating activities | (12,906,759) | (8,810,385) | ||||||||
| Cash flows from investing activities: |
|
| ||||||||
| Additions to property, plant and equipment | (1,632,300) | (1,113,092) | ||||||||
| Proceeds from disposal of equipment | 2,310 | 17,608 | ||||||||
| Decrease in other assets | 13,297 | 10,519 | ||||||||
|
|
| |||||||||
| Net cash (used in) investing activities | (1,616,693) | (1,084,965) | ||||||||
| Cash flows from financing activities: |
|
| ||||||||
| Proceeds from revolving line of credit and other |
|
| ||||||||
| long-term debt | 34,397,341 | 35,731,005 | ||||||||
| Repayments of revolving line of credit and | ||||||||||
| other long-term debt | (20,200,000) | (25,822,563) | ||||||||
| Payment of cash dividends | (426,679) | (361,052) | ||||||||
| Proceeds from exercise of stock options | 526,373 | 304,797 | ||||||||
| Net cash provided by financing activities | 14,297,035 | 9,852,187 | ||||||||
| Change in cash and cash equivalents | (226,417) | (43,163) | ||||||||
| Cash and cash equivalents, beginning of period | 1,736,483 | 106,254 | ||||||||
| Cash and cash equivalents, end of period | $ | 1,510,066 | $ | 63,091 | ||||||
| The accompanying notes are a part of the consolidated financial statements. | ||||||||||
| Page 6 of 22 | ||||||||||
| Supreme Industries, Inc. And Subsidiaries | |||||||||
| Notes to Consolidated Financial Statements | |||||||||
| NOTE 1 - BASIS OF PRESENTATION AND OPINION OF MANAGEMENT | |||||||||
| The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all of the information and financial statement disclosures necessary for a fair presentation of consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, the information furnished herein includes all adjustments necessary to reflect a fair statement of the interim periods reported. All adjustments are of a normal and recurring nature. The December 25, 2004 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. | |||||||||
| The Company has adopted a 52 or 53 week fiscal year ending the last Saturday in December. The results of operations for the three months ended March 26, 2005 and March 27, 2004 are for 13 week periods. | |||||||||
| NOTE 2 - INVENTORIES | |||||||||
| Inventories, which are stated at the lower of cost or market with cost determined using the first-in, first-out method, consist of the following: | |||||||||
| March 26, | December 25, | ||||||||
| 2005 | 2004 | ||||||||
| Raw materials | $ | 32,063,862 | $ | 26,390,350 | |||||
| Work-in-progress | 9,568,751 | 9,795,961 | |||||||
| Finished goods | 11,661,727 | 9,254,878 | |||||||
| $ | 53,294,340 | $ | 45,441,189 | ||||||
| The valuation of raw materials, work-in-progress and finished goods inventories at interim dates is based upon a gross profit percentage method and bills of materials. The Company has historically had favorable and unfavorable adjustments resulting from physical inventories. The Company continues to refine its costing procedures for valuation of interim inventories in an effort to minimize book to physical inventory adjustments. | |||||||||
| Page 7 of 22 | |||||||||
| NOTE 3 - EARNINGS PER SHARE | |||||||||||
| The number of shares used in the computation of basic and diluted earnings per share are as follows: | |||||||||||
| Three Months Ended | |||||||||||
| March 26, | March 27, | ||||||||||
| 2005 | 2004 | ||||||||||
| Weighted average number of shares outstanding (used | |||||||||||
| in computation of basic earnings per share) | 12,184,495 | 12,030,316 | |||||||||
| Effect of dilutive stock options | 350,955 | 455,385 | |||||||||
| Diluted shares outstanding (used in computation of | |||||||||||
| diluted earnings per share) | 12,535,450 | 12,485,701 | |||||||||
| NOTE 4 - STOCK-BASED COMPENSATION | |||||||||||
| The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," and, accordingly, accounts for its stock option plans using the intrinsic value method of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." | |||||||||||
| The following table illustrates the effect on net income and earnings per share if compensation expense was measured using the fair value recognition provisions of SFAS No. 123. | |||||||||||
| Page 8 of 22 | |||||||||||
| NOTE 4 - STOCK-BASED COMPENSATION, Continued | |||||||||||
| Three Months Ended | |||||||||||
| March 26, | March 27, | ||||||||||
| 2005 | 2004 | ||||||||||
| Net income, as reported | $ 3,094,344 | $ 989,769 | |||||||||
| Deduct, Stock-based compensation expense determined | |||||||||||
| under fair value based method, net of tax | (70,865) | (83,848) | |||||||||
| Pro forma net income | $ 3,023,479 | $ 905,921 | |||||||||
| Basic earnings per share, as reported | $.25 | $.08 | |||||||||
| Pro forma basic earnings per share | .25 | .08 | |||||||||
| Diluted earnings per share, as reported | .25 | .08 | |||||||||
| Pro forma diluted earnings per share | .24 | .07 | |||||||||
| NOTE 5 - COMMON STOCK | |||||||||||
| The Company paid a three and one-half cent ($.035) per share and a three cent ($.03) per share cash dividend to all Class A and Class B common stockholders during the quarters ended March 26, 2005 and March 27, 2004, respectively. | |||||||||||
| NOTE 6 - SUBSEQUENT EVENT | ||||||||||||||
| On April 14, 2005, the Company entered into a third extension of an existing lease agreement with a related party. The third extension extends the lease term for certain of the Company's leased facilities in Goshen, Indiana and Griffin, Georgia for an additional five years, with a new expiration date of July 2010. Monthly rental payments under the related party lease agreement are $54,108 and increase in July of each successive year by a ratio defined in the lease agreement. All other terms and conditions of the existing lease agreement remain unchanged. | ||||||||||||||
| On May 2, 2005, the Company's Board of Directors declared a three and one-half cent ($.035) per share cash dividend payable on May 23, 2005 to all Class A and B common stockholders of record on May 16, 2005. | ||||||||||||||
| Page 9 of 22 | ||||||||||||||
| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |||||||||||||
| Results of Operations | ||||||||||||||
| Net sales for the quarter ended March 26, 2005 increased $16.8 million to $90.3 million from $73.5 million for the quarter ended March 27, 2004. A majority of the increase in net sales was attributable to higher levels of fleet revenues. The elevated fleet revenues are expected to continue throughout the second quarter of 2005 as the Company looks to complete two large fleet contracts during the quarter. Non-fleet sales increased approximately 9.3% for the first quarter of 2005 versus the first quarter of 2004 with a majority of the increase attributable to the price increases implemented during 2004. These price increases were instituted as a result of the higher raw material costs experienced in 2004 for virtually all of the Company's major raw material commodities. First quarter 2005 revenues benefited from the 13% price increase implemented throughout 2004, and revenues for the remainder of 2005 should benefit additionally from at least a portion of the 7 % price increase instituted effective January 1, 2005. The delay in the benefit of price increases occurs as a result of the Company's backlog of sales orders. With a strong sales backlog at the end of the first quarter, the Company has turned its attention to revenues for the second half of 2005. The competitive landscape remains challenging, and the significant price increases passed on to customers could negatively impact second half revenues. | ||||||||||||||
| Gross profit as a percentage of net sales was 12.9% for the quarter ended March 26, 2005, an increase of 3.2% from the 9.7% for the quarter ended March 27, 2004. The following table presents the components of cost of sales as a percentage of net sales and the change from period to period: | ||||||||||||||
| Three Months Ended | ||||||||||||
| March 26, | March 27, | |||||||||||
| 2005 | 2004 | Change | ||||||||||
| Materials | 56.4% | 58.4% | -2.0% | |||||||||
| Direct labor | 14.0 | 15.5 | -1.5 | |||||||||
| Overhead | 14.0 | 13.6 | 0.4 | |||||||||
| Delivery | 2.7 | 2.8 | -0.1 | |||||||||
| Cost of sales | 87.1 | 90.3 | -3.2 | |||||||||
| Gross profit | 12.9% | 9.7% | 3.2% | |||||||||
| Following a year of escalating raw material costs, a majority of the Company's primary commodities have stabilized in terms of price and availability. The stabilization of these costs, coupled with the 2004 selling price increases, resulted in a reduction of material costs as a percentage of net sales for the first quarter of 2005 versus the first quarter of 2004. The Company anticipates continued reduction of its material cost percentage due to the prospective benefit from at least a portion of the 7% selling price increase effective at the start of 2005 coupled with the second quarter completion of lower margin fleet contracts. The Company continues to experience upward cost pressure in the petroleum-based commodities of resin and gelcoat and there are concerns involving laminated hardwood flooring, the supply of which is currently adequate but at increasing costs. | ||||||||||||
| Page 10 of 22 | ||||||||||||
| Direct labor as a percentage of net sales also benefited from the increased revenues and the production of standardized fleet units. As the fleet contracts are completed and the future revenues reflect a greater percentage of customized retail units, direct labor as a percentage of net sales is expected to increase. | ||||||||||||
| Despite the additional revenues, overhead remained relatively constant as a percentage of net sales. The Company continued to implement perpetual inventory systems at its supply facilities which resulted in more accurate overhead absorption based upon the improved financial data. | ||||||||||||
| Delivery expenses remained relatively unchanged as a percentage of revenues despite higher fuel costs. These higher fuel costs were offset by the increased number of fleet units produced in the first quarter of 2005. Such products are generally not delivered by the Company but are picked up by the customers. | |||||||||||||||||||||
| Selling, general and administrative expenses increased by $1.0 million but declined to 7.2% of net sales for the quarter ended March 26, 2005 compared to 7.4% for the quarter ended March 27, 2004. Selling expenses increased primarily due to a reduction in cooperative marketing funds the Company received from chassis manufacturers in the first quarter of 2005 versus the first quarter of 2004. These funds, used to offset marketing and promotional expenses, were reduced by the chassis manufacturers due to their improving business conditions. Additionally, the Company experienced higher sales commission expense as a result of the additional revenues recorded in the first quarter of 2005 compared to the first quarter of 2004. General and administrative expenses increased primarily as a result of additional compensation expense related to the Company's incentive bonus plan which is based on pretax earnings. | |||||||||||||||||||||
| Interest expense for the quarter ended March 26, 2005 was $.5 million compared to $.2 million for the quarter ended March 27, 2004. The increase in interest expense was attributable to higher levels of borrowings and the rise in interest rates. The increased borrowings resulted from carrying higher levels of inventories and accounts receivable as well as borrowings to fund 2004 capital expenditures of $11.8 million. The increase in inventories resulted from the elevated costs of our major commodities, as discussed throughout our 2004 reports, and also from the increased inventory quantities necessary to support the Company's sales backlog. The higher accounts receivable level reflected the increase in net sales. | |||||||||||||||||||||
| The Company's effective income tax rate was 36.0% for the first quarter of 2005 compared to 38.2% experienced in the first quarter of 2004. The decrease in the Company's effective tax rate is attributable to additional tax deductions allowed manufacturers resulting from the 2004 American Jobs Creation Act and certain tax benefits resulting from the formation of a captive insurance company. The manufacturers' deduction will lower the Company's effective tax rate by approximately one percent. In late 2004, after a review of insurance risk management alternatives, the Company restructured certain of its legal entities and formed a wholly owned captive insurance company which resulted in a further reduction in the Company's effective tax rate. | |||||||||||||||||||||
| Net income for the quarter ended March 26, 2005 was $3.1 million compared to $1.0 million for the quarter ended March 27, 2004. Basic and diluted earnings per share were $.25 for the quarter ended March 26, 2005 compared to $.08 per share for the quarter ended March 27, 2004. |
| Page 11 of 22 | ||||||||||||||
| Liquidity and Capital Resources | ||||||||||||||
| The Company's revolving line of credit, net income and depreciation and amortization were the major sources of cash flows during the first quarter of 2005. The revolving line of credit was used extensively during the first quarter of 2005 as accounts receivable increased $8.9 million and inventories increased $7.9 million. These increases were attributable to the higher levels of fleet orders being produced and shipped during the first two quarters of 2005. Two large fleet contracts | ||||||||||||||
| were close to the mid-point of order fulfillment at the end of the first quarter and are scheduled to be completed by the end of the second quarter. As we cross this mid-point early in the second quarter, we expect accounts receivable and inventories to begin declining to lower working capital levels and anticipate a decline in borrowings under the revolving line of credit. | ||||||||||||||
| Capital expenditures for the first quarter of 2005 were $1.6 million. The Company continued the construction of an additional manufacturing facility at its Griffin, Georgia location and expended $.7 million on this building project during the first quarter. With construction nearing completion, operations at this facility are expected to begin during the second quarter. Our Jonestown, Pennsylvania location expended $.4 million in capital expenditures to continue improving operations at its recently acquired manufacturing plant adjacent to our other facilities. Additionally, machinery and equipment purchases at our Cleburne, Texas location included $.2 million spent on a CNC laser cutting system. With the near completion of the facility projects, we anticipate that the remaining quarters of 2005 will have lower levels of capital expenditures than experienced during the first quarter. Our 2005 capital expenditures are expected to approximate our 2005 depreciatio n expense of $4.0 million. | ||||||||||||||
| The Company believes that cash flow generated from operations and funds available under the Company's revolving line of credit will be sufficient to meet the Company's cash needs during the remainder of 2005. | ||||||||||||||
| Contractual Obligations | |||||||||||||||
| Our fixed, noncancelable obligations as of March 26, 2005 and reflecting the subsequent lease extension described in Note 6 of this Quarterly Report on Form 10-Q, were as follows: | |||||||||||||||
| Payments due by period | |||||||||||||||
| Less than | More than | ||||||||||||||
| Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||
| Debt (a) | $44,597,341 | $1,658,333 | $40,472,341 | $950,000 | $1,516,667 | ||||||||||
| Operating leases (b) | 3,462,912 | 649,296 | 1,298,592 | 1,298,592 | 216,432 | ||||||||||
| Total | $48,060,253 | $2,307,629 | $41,770,933 | $2,248,592 | $1,733,099 | ||||||||||
| (a) Amounts are included on the Consolidated Balance Sheets. For additional information regarding debt and related matters, see Note 4 of the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 25, 2004. | |||||||||||||||
| (b) For additional information regarding operating leases, see Note 8 of the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 25, 2004 and Note 6 of this Quarterly Report on Form 10-Q. | |||||||||||||||
| Page 12 of 22 | |||||||||||||||
| Critical Accounting Policies and Estimates | |||||||||||||||
| Management's discussion and analysis of its financial position and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The Company's significant accounting policies are discussed in Note 1 of the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 25, 2004. In management's opinion, the Company's critical accounting policies include allowance for doubtful accounts, excess and obsolete inventories, inventory relief, accrued insurance and accrued warranty. | |||||||||||||||
| Allowance for Doubtful Accounts - The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required which would affect future operating results. | ||||||||||||||
| Excess and Obsolete Inventories - The Company must make estimates regarding the future use of products and provides a provision for obsolete or slow-moving inventories. If actual product life-cycles, product demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required which would affect future operating results. | ||||||||||||||
| Inventory Relief - For monthly and quarterly financial reporting, cost of sales is recorded and inventories are relieved by the use of standard bills of material. Because of the customized nature of the Company's products, it is difficult to place full reliance on the bills of material for accurate relief of inventories. Although the Company continues to refine the process of creating accurate bills of materials, manual adjustments, which are based on estimates, are necessary to assure correct relief of inventories for products sold. The estimate calculations consider the customized nature of products, historical inventory relief percentages, scrap variances and other factors which could impact inventory relief. The accuracy of the inventory relief is not known until completion of the annual physical inventories and it is not practical to consider more frequent physical inventories because of the sales order backlog and the costs associated with ceasing produc tion for the purpose of conducting physical inventories. If the annual physical inventories result in significant favorable or unfavorable adjustments, such adjustments will affect future operating results. | ||||||||||||||
| Accrued Insurance - The Company has a self-insured retention against product liability claims with insurance coverage over and above the retention. The Company is also self-insured for a portion of its employee medical benefits and workers' compensation. Product liability claims are routinely reviewed by the Company's insurance carrier and management routinely reviews other self-insurance risks for purposes of establishing ultimate loss estimates. In addition, management must determine estimated liability for claims incurred but not reported. Such estimates and any subsequent changes in estimates may result in adjustments to the Company's operating results in the future. | ||||||||||||||
| Page 13 of 22 | ||||||||||||||
| Accrued Warranty - The Company provides limited warranties for periods of up to five years from the date of retail sales. Estimated warranty costs are provided for at the time of sale and are based upon historical experience. | ||||||||||||||
| 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. When used in this report, words such as "believe," "expect," "anticipate," "estimate," "intend," and similar expressions, as they relate to the Company or its plans or operations, identify forward-looking statements. 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 such expectations 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 depend ent, availability of raw materials, raw material cost increases, and severe interest rate increases. Furthermore, the Company can provide no assurance that such raw material cost increases can be passed on to its customers through implementation of price increases for the Company's products. 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. | ||||||||||||||
| Control Risks | ||||||||||||||
| While the Company believes its control systems are effective, there are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected. The Company continues to take action to assure compliance with the internal controls, disclosure controls, and other requirements of the Sarbanes-Oxley Act of 2002. Our management, including our Chief Executive Officer and Chief Financial Officer, cannot guarantee that our internal controls and disclosure controls will prevent all possible errors or all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may be inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. | ||||||||||||||
| Page 14 of 22 | ||||||||||||||
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET | |||||||||||||
| RISK | ||||||||||||||
| There has been no material change from the information provided in the Company's Annual Report on Form 10-K for the year ended December 25, 2004. | ||||||||||||||
| ITEM 4. | CONTROLS AND PROCEDURES | |||||||||||||
| a) | Evaluation of Disclosure Controls and Procedures - The Company's chief executive officer and its chief financial officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in the rules of the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report (the "Evaluation Date"), have concluded that as of the Evaluation Date the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this quarterly report was being prepared. | |||||||||||||
| b) | Changes in Internal Controls - There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's disclosure controls and procedures during the Company's last fiscal quarter, nor any significant deficiencies or material weaknesses in such disclosure controls and procedures requiring corrective actions. As a result, no corrective actions were taken. | |||||||||||||
| PART II. OTHER INFORMATION | ||||||||||||||
| ITEM 5. | OTHER INFORMATION | |||||||||||||
| a) | Reports on Form 8-K: | |||||||||||||
| 1. | A Report on Form 8-K dated February 2, 2005, was filed by the Company to report the issuance of a press release announcing a three and one-half cent ($.035) cash dividend. | |||||||||||||
| 2. | A Report on Form 8-K dated February 8, 2005 was filed by the Company to report the issuance of a press release containing the Company's financial results for the fiscal quarter and full year ended December 25, 2004. | |||||||||||||
| 3. | A Report on Form 8-K dated February 25, 2005 was filed by the Company to report the resignation of Rice M. Tilley, Jr. as a member of the Company's Board of Directors. | |||||||||||||
| Page 15 of 22 | ||||||||||||||
| 4. | A Report on Form 8-K dated March 15, 2005 was filed by the Company to report the election of Arthur M. Borden as a member of the Company's Board of Directors and as a member of the Company's Audit Committee. | |||||||||||||
| ITEM 6. | EXHIBITS | |||||||||||||
| Exhibits: | ||||||||||||||
| Exhibit 31.1 | Certification of Chief Executive Officer Pursuant to | |||||||||||||
| Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||||||||
| Exhibit 31.2 | Certification of Chief Financial Officer Pursuant to | |||||||||||||
| Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||||||||
| Exhibit 32.1 | Certification of Chief Executive Officer Pursuant to | |||||||||||||
| Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||||||||
| Exhibit 32.2 | Certification of Chief Financial Officer Pursuant to | |||||||||||||
| Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||||||||
| SIGNATURES | ||||||||||||||
| Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | ||||||||||||||
| SUPREME INDUSTRIES, INC. | ||||||||||||||
| BY: /s/ Jeffery D. Mowery | ||||||||||||||
| DATE: May 9, 2005 | Jeffery D. Mowery | |||||||||||||
| Vice President of Finance and Chief Financial Officer | ||||||||||||||
| (Signing on behalf of the Registrant and as Principal Financial Officer) | ||||||||||||||
| Page 16 of 22 | ||||||||||||||
| Exhibit 31.1 | ||||||||||||||
| CERTIFICATION OF CHIEF EXECUTIVE OFFICER | ||||||||||||||
| I, Herbert M. Gardner, Chief Executive Officer of Supreme Industries, Inc. ("registrant"), certify that: | ||||||||||||||
| 1. | I have reviewed this quarterly report on Form 10-Q of the registrant; | |||||||||||||
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |||||||||||||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |||||||||||||
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: | |||||||||||||
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | |||||||||||||
| b) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and | |||||||||||||
| c) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. | |||||||||||||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): | |||||||||||||
| Page 17 of 22 | ||||||||||||||
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||||||||||||
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||||||||||||
| DATE: May 9, 2005 | ||||||||||||||
| /s/ Herbert M. Gardner | ||||||||||||||
| Chief Executive Officer | ||||||||||||||
| Page 18 of 22 | ||||||||||||||
| Exhibit 31.2 | ||||||||||||||
| CERTIFICATION OF CHIEF FINANCIAL OFFICER | ||||||||||||||
| I, Jeffery D. Mowery, Chief Financial Officer of Supreme Industries, Inc. ("registrant"), certify that: | ||||||||||||||
| 1. | I have reviewed this quarterly report on Form 10-Q of the registrant; | |||||||||||||
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |||||||||||||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |||||||||||||
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: | |||||||||||||
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | |||||||||||||
| b) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and | |||||||||||||
| c) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. | |||||||||||||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): | |||||||||||||
| Page 19 of 22 | ||||||||||||||
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||||||||||||
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||||||||||||
| DATE: May 9, 2005 | ||||||||||||||
| /s/ Jeffery D. Mowery | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
| Page 20 of 22 | ||||||||||||||
| Exhibit 32.1 |
| Certification of Chief Executive Officer of Supreme Industries, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the quarterly report on Form 10-Q (the "Form 10-Q") for the quarter ended March 26, 2005 of Supreme Industries, Inc. (the "Company"). I, Herbert M. Gardner, the Chief Executive Officer of the Company, certify that, based on my knowledge: |
| (1) The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and |
| (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in this report. |
| DATE: May 9, 2005 |
| /s/ Herbert M. Gardner |
| Chief Executive Officer |
| Page 21 of 22 |
| Exhibit 32.2 | ||||||||||||||
| Certification of Chief Financial Officer of Supreme Industries, Inc. Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||||||||
| This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the quarterly report on Form 10-Q (the "Form 10-Q") for the quarter ended March 26, 2005 of Supreme Industries, Inc. (the "Company"). I, Jeffery D. Mowery, the Chief Financial Officer of the Company, certify that, based on my knowledge: | ||||||||||||||
| (1) The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and | ||||||||||||||
| (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in this report. | ||||||||||||||
| DATE: May 9, 2005 | ||||||||||||||
| /s/ Jeffery D. Mowery | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
| Page 22 of 22 | ||||||||||||||