Supreme Industries (STS) 10-Q 2002 Q1 Quarterly report

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 EndedMarch 31, 2002
	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)
16441 C.R. 38, 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 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 3, 2002
	Class A		8,878,317
	Class B		1,917,394
SUPREME INDUSTRIES, INC.
CONTENTS
			Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets		3 & 4
	Consolidated Statements of Income		5
	Consolidated Statements of Cash Flows		6
	Notes to Consolidated Financial Statements		7, 8 & 9
Item 2.	Management's Discussion and Analysis of
	Financial Condition and Results of Operations		9 & 10
PART II.	OTHER INFORMATION
Item 6.	Exhibits and Reports on Form 8-K		11
SIGNATURES			12
Page 2 of 12

Part I. Financial Information
Item 1. Financial Statements
Supreme Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
					March 31,		December 31,
					2002		2001
Assets					(Unaudited)
Current assets:
	Cash and cash equivalents.......................................			$	192,621	$	192,662
	Accounts receivable, net..........................................				19,399,564		20,526,224
	Inventories...............................................................				29,036,774		26,741,761
	Deferred income taxes.............................................				1,353,315		1,353,315
	Other current assets.................................................				1,919,919		1,946,978
		Total current assets........................................			51,902,193		50,760,940
Property, plant and equipment, at cost......................					68,595,776		68,514,749
	Less, Accumulated depreciation and amortization..				30,013,106		29,578,346
		Property, plant and equipment, net..............			38,582,670		38,936,403
Intangible assets, net....................................................					920,973		938,576
Other assets...................................................................					965,381		973,139
		Total assets......................................................		$	92,371,217	$	91,609,058
The accompanying notes are a part of the consolidated financial statements.
Page 3 of 12
Supreme Industries, Inc. and Subsidiaries
Consolidated Balance Sheets, Concluded
					March 31,		December 31,
					2002		2001
Liabilities and Stockholders' Equity					(Unaudited)
Current liabilities:
	Current maturities of long-term debt.......................			$	4,278,239	$	4,303,239
	Trade accounts payable...........................................				9,804,828		7,906,418
	Accrued income taxes..............................................				815,717		660,607
	Other accrued liabilities...........................................				7,387,964		8,479,341
		Total current liabilities..................................			22,286,748		21,349,605
Long-term debt.............................................................					12,099,181		13,075,971
Deferred income taxes..................................................					1,761,476		1,710,718
Other long-term liabilities...........................................					277,351		396,834
		Total liabilities................................................			36,424,756		36,533,128
Stockholders' equity.....................................................					55,946,461		55,075,930
		Total liabilities and stockholders' equity.....		$	92,371,217	$	91,609,058
The accompanying notes are a part of the consolidated financial statements.
Page 4 of 12
Supreme Industries, Inc. and Subsidiaries
Consolidated Statements of Income (Unaudited)
					Three Months Ended
					March 31,
					2002		2001
Revenues.......................................................................				$	49,843,683	$	57,267,419
Costs and expenses:
	Cost of sales.............................................................				42,969,974		49,170,730
	Selling, general and administrative.........................				5,316,552		5,461,552
	Interest.....................................................................				274,351		742,926
					48,560,877		55,375,208
		Income before income taxes...........................			1,282,806		1,892,211
Income taxes...................................................................					481,000		718,000
		Net income......................................................		$	801,806	$	1,174,211
Earnings per share:
		Basic.................................................................			$.07		$.11
		Diluted..............................................................			.07		.11
Shares used in the computation of earnings per share:
		Basic.................................................................			10,798,384		10,841,567
		Diluted..............................................................			10,974,904		10,865,251
The accompanying notes are a part of the consolidated financial statements.
Page 5 of 12
Supreme Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
					Three Months Ended
					March 31,
					2002		2001
Cash flows from operating activities:
	Net income..............................................................			$	801,806	$	1,174,211
	Adjustments to reconcile net income to net cash
		provided by (used in) operating activities:
			Depreciation and amortization..................		1,075,870		1,111,650
			Loss (gain) on disposal of equipment........		3,114		(9,467)
			Changes in operating assets and liabilities		(179,151)		2,666,157
		Net cash provided by operating activities....			1,701,639		4,942,551
Cash flows from investing activities:
	Additions to property, plant and equipment............				(707,948)		(371,982)
	Proceeds from disposal of equipment......................				300		26,296
	(Increase) decrease in other assets...........................				7,758		(79,147)
		Net cash used in investing activities...............			(699,890)		(424,833)
Cash flows from financing activities:
	Proceeds from revolving line of credit and other
		long-term debt..................................................			6,820,993		20,160,095
	Repayments of revolving line of credit and other
		long-term debt..................................................			(7,822,783)		(24,185,211)
	Acquisition of treasury stock...................................				---		(392,425)
		Net cash used in financing activities..............			(1,001,790)		(4,417,541)
Increase (decrease) in cash and cash equivalents.......					(41)		100,177
Cash and cash equivalents, beginning of period........					192,662		184,004
Cash and cash equivalents, end of period...................				$	192,621	$	284,181
The accompanying notes are a part of the consolidated financial statements.
Page 6 of 12

Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
NOTE A - BASIS OF PRESENTATION AND OPINION OF MANAGEMENT
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all of the information and financial statement disclosures necessary for a fair presentation of consolidated financial position, results of operations and cash flows in conformity with generally accepted accounting principles. In the opinion of management, the information furnished herein includes all adjustments necessary to reflect a fair statement of the interim periods reported. All adjustments are of a normal and recurring nature. The December 31, 2001 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles.
NOTE B - INVENTORIES
Inventories, which are stated at the lower of cost or market with cost determined using the first-in, first-out method, consist of the following:
				March 31,		December 31,
				2002		2001
	Raw materials..............................		$	17,207,274	$	15,974,583
	Work-in-progress.........................			4,404,066		3,501,635
	Finished goods.............................			7,425,434		7,265,543
			$	29,036,774	$	26,741,761
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 quarterly adjustments resulting from periodic physical inventories. The Company is continuing to refine its costing procedures for valuation of interim inventories in an effort to minimize book to physical inventory adjustments.
NOTE C - INTANGIBLE ASSETS
Intangible assets at March 31, 2002 subject to amortization consist of favorable lease commitments aggregating $1,048,167 less accumulated amortization of $862,208. Amortization expense for the three months ended March 31, 2002 was $17,603 and annual amortization expense is estimated to be $70,412 for 2002, $51,542 for each of the years 2003 and 2004 and $30,066 for 2005.
Intangible assets at March 31, 2002 not subject to amortization because they have indefinite lives consist of goodwill aggregating $2,330,864 less accumulated amortization of $1,595,850.
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NOTE D - EARNINGS PER SHARE
The number of shares used in the computation of basic and diluted earnings per share are as follows (in Thousands):
				Three Months Ended
				March 31,
				2002		2001
	Weighted average number of
		shares outstanding (used in
		computation of basic earnings
		per share)		10,798		10,842
	Effect of dilutive stock options			177		23
	Diluted shares outstanding (used
		in computation of diluted
		earnings per share)		10,975		10,865
NOTE E - NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," effective January 1, 2002. SFAS No. 142 primarily addresses the accounting for goodwill and other intangible assets subsequent to their acquisition. The most significant changes made by SFAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least annually at the reporting unit level, (3) other intangible assets deemed to have an indefinite life will be tested for impairment at least annually, and (4) the amortization period of intangible assets with finite lives will no longer be limited to 40 years. The effect of adopting SFAS No. 142 was to increase net income for the three months ended March 31, 2002 by $25,942. Adjusted net income for the three months ended March 31, 2001, as if the provisions of SFAS No. 142 had been applied retroactively to the beginning of that period, would have been $1,200,153 or $.11 per basic and diluted share.
The Company also adopted SFAS No. 144, "Impairment or Disposal of Long-Lived Assets," effective January 1, 2002. The provisions of this statement provide a single accounting model for impairment of long-lived assets. The adoption of SFAS No. 144 is not expected to have any significant effect on the Company's financial position or results of operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for fiscal years beginning after June 15, 2002. The Company is currently assessing the impact of this new standard.
Page 8 of 12
NOTE F - RECLASSIFICATIONS
Certain items in the accompanying March 31, 2001 consolidated financial statements have been reclassified to conform to the 2002 presentation. The reclassifications had no impact on stockholders' equity, net income or cash flows as previously presented.
ITEM 2.		MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the quarter ended March 31, 2002 decreased $7.5 million to $49.8 million from $57.3 million for the quarter ended March 31, 2001. The decline in revenues relates primarily to an industry-wide weakness in demand for the Company's products and, to a lesser extent, a delay in the start of the spring fleet shipments. This delay resulted from the inability of the chassis manufacturer to meet the original start date of the production run.
Gross profit as a percentage of revenues decreased to 13.8% for the quarter ended March 31, 2002 compared to 14.1% for the quarter ended March 31, 2001. The Company incurs certain startup expenses when preparing for the production of a large national fleet. These expenses are primarily in the area of non bill of material items purchased and certain labor costs incurred in advance of the start of production. Due to the delay in the 2002 spring fleet shipments, the Company incurred expenses of this nature during the first three months of 2002 without the recognition of the corresponding revenues. These increases in material and labor costs were partially offset by declines in overhead and delivery expenses as a percentage of revenues. These declines resulted from the Company's ongoing efforts to reduce operating costs.
Selling, general and administrative expenses as a percentage of revenues increased to 10.7% for the quarter ended March 31, 2002 from 9.5% for the quarter ended March 31, 2001. Selling expenses remained unchanged as a percentage of revenues while general and administrative expenses increased slightly. While many of the expenses in the general and administrative category are relatively fixed, the Company expects to experience a decline in depreciation expense beginning in the fourth quarter of 2002. This decline in the second largest general and administrative expense is expected to result from the full amortization of the Company's investment in operating software in the fall of 1999.
Interest expense decreased $468,575 to $274,351 for the quarter ended March 31, 2002 from $742,926 for the prior year comparable quarter. The Company achieved the significant interest expense decline by reducing long-term debt by approximately 40% during the twelve months ended March 31, 2002 coupled with the decline in interest rates during the same period. The Company also achieved significant interest expense reductions by negotiating more favorable terms with chassis manufacturers on the Company's consigned chassis inventories.
Page 9 of 12
Net income for the three months ended March 31, 2002 was $801,806 compared to $1,174,211 for the three months ended March 31, 2001. Basic and diluted earnings were $.07 per share for the quarter ended March 31, 2002 compared to $.11 per share for the quarter ended March 31, 2001.
Liquidity and Capital Resources
Cash flows from operating activities were the major sources of funds for operations, capital expenditures and to service debt during the first three months of 2002. The largest components of cash provided by operations were increased trade accounts payable of $1.9 million, decreased accounts receivable of $1.1 million, depreciation and amortization of $1.1 million and net income of $.8 million. The largest components of cash used by operations were increased inventories of $2.3 million and a reduction in other accrued liabilities of $1.1 million. The increase in inventories relates to materials purchased for the production of a large fleet order in the second quarter of 2002.
The Company invested $.7 million in property, plant and equipment during the first three months of 2002 compared to $.4 million during the first three months of 2001.
The significant financing activity which used cash was a $1.0 million reduction in long-term debt.
The Company believes that cash flows generated from operations and funds available under the Company's revolving line of credit will be sufficient to meet the Company's cash needs during the remainder of 2002.
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 depende nt, 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 10 of 12
PART II. OTHER INFORMATION
ITEM 6.		EXHIBITS AND REPORTS ON FORM 8-K
	a)	Exhibits: None
	b)	Reports on Form 8-K: None
Page 11 of 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
				SUPREME INDUSTRIES, INC.
DATE: May 8, 2002				BY: /s/ ROBERT W. WILSON
				Robert W. Wilson
				Executive Vice President, Treasurer, Chief Financial Officer and Director (Principal Financial and Accounting Officer)
				(Signing on behalf of the Registrant and as Principal Financial Officer)
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