SECURITIES AND EXCHANGE COMMISSION
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 29, 2007
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-8183
(Exact name of Registrant as specified in its charter)
Delaware |
|
75-1670945 |
(State or other jurisdiction of incorporation) |
|
(I.R.S. Employer Identification Number) |
|
|
|
P.O. Box 237, 2581 E. Kercher Road Goshen, Indiana |
|
46528 |
(Address of principal executive office) |
|
(Zip Code) |
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class: |
|
Name of each exchange on which registered: |
Class A Common Stock ($.10 Par Value) |
|
American Stock Exchange |
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £ No x
Indicate by check 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 o
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 Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No x
The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrants most recently completed second fiscal quarter; based on the last closing sale price of $6.94 per share for the common stock on the American Stock Exchange on such date was approximately: $62,331,312
Indicate the number of shares outstanding of each of the registrants classes of common stock as of the latest practicable date.
Class |
|
Outstanding at March 13, 2008 |
Class A Common Stock ($.10 Par Value) Class B Common Stock ($.10 Par Value) |
|
11,012,944 shares 2,024,133 shares |
Documents incorporated by reference
Listed below are documents, parts of which are incorporated herein by reference, and the part of this report into which the document is incorporated:
Portions of the Proxy Statement for 2008 Annual Meeting of Stockholders to be held on May 8, 2008 Part III
TABLE OF CONTENTS
ii
History
Supreme Industries, Inc., a Delaware corporation (the Company or Supreme), is one of the nations leading manufacturers of specialized vehicles, including trucks, buses and armored vehicles. 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 Companys 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.
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 quantitative thresholds for separate disclosure. See segment information in Note 1 - Nature of Operations and Accounting Policies, of the Notes to Consolidated Financial Statements (Item 8).
General Description of the Companys 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.
Supremes core truck products are medium-priced although prices can range from $1,000 to $175,000. Supremes truck bodies 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 refrigeration equipment, which are configured with the truck bodies to meet the end-users 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 long-distance truck-trailers.
The following table shows net sales contributed by each of the Companys product categories:
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2007 |
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2006 |
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2005 |
|
|||
Specialized vehicles: |
|
|
|
|
|
|
|
|||
Trucks |
|
$ |
209,180,974 |
|
$ |
259,894,141 |
|
$ |
267,563,822 |
|
Buses |
|
65,409,725 |
|
59,396,203 |
|
56,112,684 |
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|||
Armored vehicles |
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13,813,434 |
|
8,361,974 |
|
9,203,059 |
|
|||
Motorhomes |
|
11,617,653 |
|
4,063,359 |
|
|
|
|||
|
|
300,021,786 |
|
331,715,677 |
|
332,879,565 |
|
|||
Composites |
|
13,250,937 |
|
9,031,112 |
|
8,373,287 |
|
|||
|
|
$ |
313,272,723 |
|
$ |
340,746,789 |
|
$ |
341,252,852 |
|
1
The following is a brief summary of Supremes products:
Van bodies. Supremes 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.
Iner-City® cutaway van bodies. An ideal route truck for a variety of commercial applications, the Iner-Citys aluminum or FRP bodies are manufactured on cutaway chassis which allow access from the cab to the cargo area. Borrowing many design elements from Supremes larger van body, the Iner-City is shorter in length (10 to 17 feet) than a van body.
Spartan service bodies. Built on the cutaway chassis out of durable FRP, the Spartan Service Body is a virtual workshop on wheels. In lengths from 10 to 14 feet, the Spartans selection of compartments, shelves, doors, and pre-designed options provides job-site protection from the weather while offering a secure lockable workspace.
Spartan cargo vans. Built on a cutaway chassis and constructed of FRP, the Spartan Cargo Van provides the smooth maneuverability of a commercial van with the full-height and spacious cargo area of a truck body. In lengths of 10 to 14 feet and available with a variety of pre-designed options, the Spartan Cargo Van is a bridge product for those moving up from a traditional cargo van into the truck body category.
Kold King® insulated van bodies. Kold King insulated bodies, in lengths up to 28 feet, provide versatility and dependability for temperature controlled applications. Flexible for either hand-load or pallet load requirements, they are ideal for multi-stop distribution of both fresh and frozen products.
Stake bodies. Stake bodies are flatbeds with various configurations of removable sides. The stake body is utilized for a broad range of agricultural and construction industries transportation needs.
Armored trucks. Supremes armored trucks are built to customer specifications in aluminum, galvaneal, or stainless steel.
StarTrans® shuttle buses. The StarTrans® 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 aerodynamic exterior design and is intended for use by hotels, nursing homes, car leasing companies, and airport-related users.
StarTrans® mid-size buses. Supremes StarTrans® 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 Companys dealer network with a more comprehensive product line.
StarTrans® trolleys. Supremes StarTrans® trolley line is similar 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.
StarTrans® Tourliner. StarTrans® introduced its Tourliner model in October 2006. This luxury touring coach provides transportation for up to 39 passengers and is marketed to church groups, retirement communities, colleges, and other touring organizations.
StarTrans® Activity Bus. The Activity Bus is a stylish replacement for the former 15 passenger van and is marketed to churches, schools, day care centers, and other organizations in need of shuttle bus capabilities.
Silver Crown. Silver Crown luxury motorcoaches are custom designed for the enthusiast in the race car, show horse, sports car, and motorcycle industries. The custom design along with the strength of a Freightliner chassis allows for towing capacity of large trailers with the comforts of a high-end recreational vehicle.
2
Pony Xpress. Pony Xpress manufacturers motorhomes, totorhomes, and garages on a variety of OEM chassis. The product provides towing capacity and mobility for a variety of hauling needs with the comforts of a traditional recreation vehicle.
Kold King®, Nordica®, Iner-City®, Spartan, StarTrans®, and Fuel Shark are tradenames used by Supreme in its marketing of truck bodies and buses. Kold King®, Nordica®, Iner-City®, and StarTrans® 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 vehicle.
Manufacturing
Supremes manufacturing facilities are located in Goshen and Ligonier, Indiana; Griffin, Georgia; Cleburne, Texas; Moreno Valley, California; Jonestown, Pennsylvania; Woodburn, Oregon, and White Pigeon, Michigan. Supremes management estimates that the capacity utilization of its plants and equipment ranges from 60% to 90% of capacity when annualized on a one-shift basis. At various times during the year, several of the Companys plants operate at near capacity to fulfill large fleet order contracts.
Supreme builds specialized vehicles and installs other equipment on truck chassis, most of which are provided by converter pool agreements 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 Supremes 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 ensure that the products meet its customers specifications. Supremes 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 is more vertically integrated than many of its competitors. The Company manufactures its own fiberglass reinforced plywood, fiberglass parts, and has extensive roll forming and metal bending capabilities. A portion of the excess capacity of these fabrication capabilities is used to supply products to the recreational vehicle and marine industries. These component manufacturing facilities are located in Goshen and Ligonier, Indiana.
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 periods of up to five years following the date of retail sale.
Marketing
Supreme normally sells the vehicle and/or equipment that has been installed on the chassis to commercial dealers, distributors, fleet leasing companies, or directly to end-users. Products purchased by a dealer from Supreme are sold by the dealer to its own customers. Since Supreme or its distributors generally service all Supreme products sold by the dealers, each dealer is normally located within relatively close geographic proximity to Supreme or the distributor supplying such dealer.
Supremes distributor/dealer network consists of approximately 40 bus distributors, a limited number of truck equipment distributors, and approximately 1,000 commercial dealers. Management believes that this large network, coupled with Supremes geographically-dispersed plant and distribution sites, gives Supreme a distinct marketing advantage over its competitors. Supreme generally delivers its products within 4 to 8 weeks after the receipt of orders.
Supreme directly markets products in geographic areas where the Company does not have a distributor. The Company currently has distribution/mounting facilities in or near the cities of St. Louis, Missouri; Louisville, Kentucky; Cleveland and Columbus, Ohio; Orlando, Florida; Houston and San Antonio, Texas; Denver, Colorado and Harrisville, Rhode Island.
Approximately 85 employees are engaged in direct sales. Supreme engages in direct advertising in trade publications, trade shows, and cooperative advertising campaigns with distributors.
3
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. For this reason, management anticipates renewing each trademark discussed above for an additional ten-year period prior to such trademarks expiration.
Working Capital
The Company utilizes its revolving line of credit to finance its accounts receivable and inventories. The Company believes its days sales outstanding and its days inventories on hand are within normal industry levels. The Company had working capital of $58.5 million and $66.6 million at December 29, 2007 and December 30, 2006, respectively.
Major Customers
No single customer, or group of customers, accounted for 10% or more of the Companys net sales for the fiscal years ended in 2007, 2006, and 2005. The Companys export sales are not significant.
Competitive Conditions
The highly competitive nature of the specialized vehicle industry presents a number of challenges. With only a few national competitors, the Company often competes with smaller, regional companies. As a result of this broad competition, the Company is often faced with competitive pricing pressures. Other competitive factors include quality of product, lead times, geographic proximity to customers, and the ability to manufacture a product customized to customer specifications.
During favorable business cycles, the industry tends to see an increase in smaller, regional competitors, and then a similar decrease during times of challenging economic pressures. With its national presence, diverse product offerings, and strong financial position, the Company believes it is well-positioned to meet the competitive challenges presented.
Governmental Regulation
Our operations are subject to a variety of federal, state, and local environmental and health and safety statutes and regulations, including those related to emissions to the air, discharges to the water, treatment, storage, and disposal of water, and remediation of contaminated sites. From time to time, we have received notices of noncompliance with respect to our operations. These have typically been resolved by investigating the alleged noncompliance and correcting any noncompliant conditions.
Seasonality of Business
The Companys business is generally not seasonal in nature due to the normal replacement cycle of its products (being approximately seven years). However, the Company historically has participated in bids for large fleet contracts and, if successful, is generally required to ship these fleet units in the first and second quarters. Additionally, our business depends on various factors that are particularly sensitive to general economic conditions and business cycles including: corporate profitability, interest rates, fuel costs, changes in government regulations (i.e. fuel standards), customer preferences, industrial, commercial, and consumer spending patterns, and availability of truck chassis.
Employees
As of December 29, 2007 and December 30, 2006, the Company employed approximately 2,100 and 2,400 employees, respectively, none of whom are represented by a collective bargaining unit. The Company considers its relations with its employees to be very favorable.
Back Log
The Companys backlog of firm orders was $87.0 million at December 29, 2007 compared to $97.5 million at December 30, 2006.
4
Any investment in our Common Stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below and the other information included in this Form 10-K before purchasing our Common Stock. Although the risks described below are the risks that we believe are material, they are not the only risks relating to our business and our Common Stock. Additional risks and uncertainties, including those that are not yet identified or that we currently believe are immaterial, may also adversely affect our business, financial condition, or results of operations. If any of the events described below occur, our business and financial results could be materially and adversely affected. The market price of our Common Stock could decline due to any of these risks, perhaps significantly, and you could lose all or part of your investment.
Increases in the price and demand for raw materials could lower our margins and profitability.
Supreme does not have long-term raw material contracts and is dependent upon suppliers of steel, aluminum, wood products, and fiberglass materials for its manufacturing operations. Consequently, our ability to produce and deliver our products could be affected by disruptions encountered by our raw material suppliers or freight carriers. Additionally, competitive market conditions may prevent the Company from implementing price increases to offset raw material cost increases.
Volatility in the supply of vehicle chassis and other vehicle components could adversely affect our business because they may reduce the number of truck bodies and buses that we can manufacture or result in excess inventory costs.
Supreme generally does not purchase vehicle chassis for its inventory. Supreme accepts shipments 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 all or most of the companies which manufacture and/or deliver such chassis, Supremes level of manufacturing could be substantially reduced. The Company has established relationships with all major chassis manufacturers. In the event of a disruption in supply from one manufacturer, the Company would attempt to divert its demand to the other manufacturers. Approximately 30% of the chassis involved in Supremes manufacturing have been secured through converter pool agreements with three major chassis manufacturers. These agreements provide for truck chassis pools at each of Supremes manufacturing facilities.
The Company also faces risk relative to finance charges for maintaining excess chassis inventory. Under these consigned inventory agreements, if the chassis is not delivered to a customer within a specified time frame, the Company is required to pay a finance charge on the chassis.
We compete in the highly competitive specialized vehicle industry which may impact our financial results.
The competitive nature of the specialized vehicle industry creates a number of challenges for the Company. Important factors include product pricing, quality of product, lead times, geographic proximity to customers, and the ability to manufacture a product customized to customer specifications. Specialized vehicles are produced by a number of smaller, regional companies which create product pricing pressures that could adversely impact the Companys profits. 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.
We have potential exposure to environmental and health and safety liabilities which may increase costs and lower profitability.
Our operations are subject to a variety of federal, state, and local environmental and health and safety statutes and regulations, including those relating to emissions to the air, discharges to water, treatment, storage, and disposal of waste, and remediation of contaminated sites. In certain cases, these requirements may limit the productive capacity of our operations.
Certain laws, including the Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, have imposed strict and, under certain circumstances, joint and several liability for costs to
5
remediate contaminated sites upon designated responsible parties including site owners or operators and persons who dispose of wastes at, or transport wastes to, such sites.
From time to time, we have received notices of noncompliance with respect to our operations. These have typically been resolved by investigating the alleged noncompliance and correcting any non-compliant conditions. New environmental requirements, more aggressive enforcement of existing ones, or discovery of presently unknown conditions could require material expenditures or result in liabilities which could limit expansion or otherwise have a material adverse effect on our business, financial condition, and operating cash flows.
A product liability claim in excess of our insurance coverage, or an inability to acquire or maintain insurance at commercially reasonable rates, could have a materially adverse effect upon our business.
We face an inherent risk of exposure to product liability claims if the use of our current and formally manufactured products result, or are alleged to result, in personal injury and/or property damage. If we manufacture a defective product, we may experience material product liability losses in the future. In addition, we may incur significant costs to defend product liability claims. We could also incur damages and significant costs in correcting any defects, lost sales, and suffer damage to our reputation. Our product liability insurance coverage may not be adequate for liabilities we could incur and may not continue to be available on terms acceptable to us.
Our manufacturers warranties expose us to potentially significant claims.
We are subject to product warranty claims in the ordinary course of our business. If we manufacture poor quality products or receive defective materials, we may incur unforeseen costs in excess of what we have reserved in our financial statements. These costs could have a material adverse affect on our business and operating cash flows.
We depend on the services of our key executives. Any loss of our key executives could have a material adverse effect on our operations.
Our ability to compete successfully and implement our business strategy depends on the efforts of our senior management personnel. The loss of the services of any one or more of these individuals could have a material adverse effect on our business. We do not maintain key-man life insurance policies on any of our executives. If we were unable to attract qualified personnel to our management, our existing management resources could become strained which would harm our business and our ability to implement our strategies.
Our relatively low trading volumes may limit our stockholders ability to sell their shares.
Our Class A Common Stock has experienced, and may continue to experience, price volatility and low trading volumes. Overall market conditions, and other risk factors described herein, may cause the market price of our Class A Common Stock to fall. Our high and low sales prices for the twelve month period ended December 29, 2007, were $8.10 and $5.50, respectively. Our Class A Common Stock is listed on the American Stock Exchange under the symbol STS. However, daily trading volumes for our Class A Common Stock are, and may continue to be, relatively small compared to many other public-traded securities. For example, during the twelve month period ended December 29, 2007, our daily trading volume has been as low as zero. It may be difficult for you to sell your shares in the public market at any given time at prevailing prices, and the price of our Class A Common Stock may, therefore, be volatile.
Our officers and directors own a large percentage of our common stock. They may vote their shares in ways with which you disagree.
As of March 20, 2008, our officers and directors as a group beneficially own 32.3% of our Class A Common Stock and 90.1% of our Class B Common Stock. As a result, they will continue to be able to exercise significant influence, and in most cases, control, over matters requiring shareholder approval, including the election of directors, changes to our charter documents, and significant corporate transactions. This concentration of ownership makes it unlikely that any other holder or group of holders of our Class A Common Stock will be able to affect the way we are managed or the direction of our business.
6
Our split classes of stock may make it more difficult or expensive for a third party to acquire the Company which may adversely affect our stock price.
Our outstanding Common Stock is split into two classes. The Class A Common Stock is listed on the American Stock Exchange, and the holders thereof are entitled to elect three members of the Companys Board of Directors. The majority (90.1%) of the Class B Common Stock is owned or controlled by the Companys officers and directors and is entitled to elect the remaining six members of the Companys Board of Directors. The continuing ability of the holders of our Class B Common Stock to elect a majority of the members of the Companys Board of Directors will make it difficult for another company to acquire us and for you to receive any related take-over premium for your shares (unless the controlling group approves the sale).
Our internal controls provide only reasonable assurance that objectives are met. Failure of one or more of these controls could adversely affect the Company.
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. 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 is also 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.
(See other risk factors listed under the following captions: Critical Accounting Policies and Estimates and Forward-Looking Statements)
7
Set forth below is a brief summary of the properties which are owned or leased by the Company as of December 29, 2007.
|
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Square |
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Owned or |
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Operating Segment |
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Manufacturing of Products |
|
|
|
|
|
|
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Jonestown, Pennsylvania |
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429,376 |
|
Owned |
|
Specialized Vehicles |
|
Goshen, Indiana |
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320,146 |
|
Leased |
|
Specialized Vehicles |
|
Goshen, Indiana |
|
195,939 |
|
Owned |
|
Specialized Vehicles |
|
Cleburne, Texas |
|
177,035 |
|
Owned |
|
Specialized Vehicles |
|
Woodburn, Oregon |
|
131,160 |
|
Owned |
|
Specialized Vehicles |
|
Griffin, Georgia |
|
105,379 |
|
Leased |
|
Specialized Vehicles |
|
Moreno Valley, California |
|
103,200 |
|
Owned |
|
Specialized Vehicles |
|
Griffin, Georgia |
|
86,400 |
|
Owned |
|
Specialized Vehicles |
|
White Pigeon, Michigan |
|
49,780 |
|
Owned |
|
Specialized Vehicles |
|
Ligonier, Indiana |
|
23,540 |
|
Owned |
|
Specialized Vehicles |
|
Cleburne, Texas |
|
1,440 |
|
Leased |
|
Specialized Vehicles |
|
|
|
1,623,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing of Component Parts |
|
|
|
|
|
|
|
Goshen, Indiana |
|
57,570 |
|
Owned |
|
Fiberglass Products |
|
Ligonier, Indiana |
|
52,142 |
|
Owned |
|
Fiberglass Products |
|
Ligonier, Indiana |
|
28,000 |
|
Leased |
|
Fiberglass Products |
|
|
|
137,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution |
|
|
|
|
|
|
|
Harrisville, Rhode Island |
|
20,000 |
|
Owned |
|
Specialized Vehicles |
|
Houston, Texas |
|
14,533 |
|
Owned |
|
Specialized Vehicles |
|
Streetsboro, Ohio |
|
11,900 |
|
Owned |
|
Specialized Vehicles |
|
Denver, Colorado |
|
11,575 |
|
Leased |
|
Specialized Vehicles |
|
Springfield, Ohio |
|
11,200 |
|
Owned |
|
Specialized Vehicles |
|
San Antonio, Texas |
|
7,000 |
|
Owned |
|
Specialized Vehicles |
|
Louisville, Kentucky |
|
6,664 |
|
Owned |
|
Specialized Vehicles |
|
Apopka, Florida |
|
5,200 |
|
Owned |
|
Specialized Vehicles |
|
St. Louis, Missouri |
|
4,800 |
|
Owned |
|
Specialized Vehicles |
|
|
|
92,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties Held for Sale |
|
|
|
|
|
|
|
Wilson, North Carolina (1) |
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113,694 |
|
Owned |
|
Not Applicable |
|
|
|
|
|
|
|
|
|
Corporate Office Building |
|
|
|
|
|
|
|
Goshen, Indiana |
|
26,000 |
|
Owned |
|
Not Applicable |
|
|
|
|
|
|
|
|
|
Total square footage |
|
1,993,673 |
|
|
|
|
|
(1) During the third quarter of 2002, the Company ceased business operations at its facility in Wilson, North Carolina. Since then, the property has been, and continues to be, listed for sale; however, the Company has been unable to sell the property because of weak economic conditions and excess building facilities in this region of the country.
The facilities owned or leased by the Company are well maintained, in good condition, and adequate for our purposes.
8
|
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 operations of the Company.
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
No matters were submitted by the Company to a vote of the Companys security holders, through the solicitation of proxies, or otherwise during the fourth quarter of the year ended December 29, 2007.
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES. |
The Companys 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 March 13, 2008 was approximately 258. Due to the number of shares held in nominee or street name, it is likely that there are substantially more than 258 beneficial owners of the Companys Class A Common Stock.
The Companys Class A Common Stock closed at a price of $5.70 per share on the American Stock Exchange on March 13, 2008 on which date there were 11,012,944 shares of Class A Common Stock outstanding. High and low sales prices of the Class A Common Stock for the two-year period ended December 29, 2007 were:
|
|
2007 |
|
2006 |
|
||||||||
|
|
High |
|
Low |
|
High |
|
Low |
|
||||
1st Quarter |
|
$ |
6.90 |
|
$ |
5.80 |
|
$ |
8.00 |
|
$ |
7.20 |
|
2nd Quarter |
|
7.10 |
|
5.77 |
|
7.61 |
|
6.10 |
|
||||
3rd Quarter |
|
7.25 |
|
6.77 |
|
7.28 |
|
6.05 |
|
||||
4th Quarter |
|
8.10 |
|
5.50 |
|
6.89 |
|
6.05 |
|
||||
All of the 2,024,133 outstanding shares of the Companys Class B Common Stock were held by a total of 14 persons as of March 13, 2008. There is no established trading market for the Class B Common Stock. The 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 Common Stock is deemed to be beneficial ownership of the Class A Common Stock under Rule 13d-3(d) (1) promulgated under the Securities Exchange Act of 1934.
9
The Board of Directors approved the following cash dividends on its outstanding Class A and Class B Common Stock during the years ended December 29, 2007 and December 30, 2006:
Declaration Date |
|
Record Date |
|
Paid Date |
|
Cash Dividend |
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
February 14, 2007 |
|
February 27, 2007 |
|
March 5, 2007 |
|
$.095 |
|
May 3, 2007 |
|
May 17, 2007 |
|
May 24, 2007 |
|
$.095 |
|
August 7, 2007 |
|
August 21, 2007 |
|
August 28, 2007 |
|
$.095 |
|
October 30, 2007 |
|
November 13, 2007 |
|
November 20, 2007 |
|
$.095 |
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
February 7, 2006 |
|
February 20, 2006 |
|
February 27, 2006 |
|
$.095 |
|
May 1, 2006 |
|
May 15, 2006 |
|
May 22, 2006 |
|
$.095 |
|
August 8, 2006 |
|
August 21, 2006 |
|
August 28, 2006 |
|
$.095 |
|
October 26, 2006 |
|
November 13, 2006 |
|
November 20, 2006 |
|
$.095 |
|
The Board of Directors has expressed its intention to continue the $.095 per share quarterly cash dividend indefinitely, business conditions permitting.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data has been derived from our consolidated financial statements. The data set forth below should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and notes thereto.
|
|
For Fiscal Y ears Ended |
|
|||||||||||||
|
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
|||||
Consolidated Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|||||
(in millions, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net sales (a) |
|
$ |
313.3 |
|
$ |
340.7 |
|
$ |
341.3 |
|
$ |
307.3 |
|
$ |
224.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income |
|
4.2 |
|
4.6 |
|
8.3 |
|
4.7 |
|
4.6 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Basic earnings per share |
|
.32 |
|
.36 |
|
.67 |
|
.39 |
|
.39 |
|
|||||
Diluted earnings per share |
|
.32 |
|
.36 |
|
.65 |
|
.38 |
|
.38 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash dividends per common share |
|
.38 |
|
.38 |
|
.26 |
|
.14 |
|
.03 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|||||
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Working capital |
|
$ |
58.5 |
|
$ |
66.6 |
|
$ |
60.8 |
|
$ |
50.9 |
|
$ |
42.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total assets |
|
132.8 |
|
142.1 |
|
137.4 |
|
129.2 |
|
106.3 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Long-term debt (excluding current maturities) |
|
29.0 |
|
38.9 |
|
31.4 |
|
28.8 |
|
17.4 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Stockholders equity |
|
75.5 |
|
75.2 |
|
75.2 |
|
67.6 |
|
63.6 |
|
(a) Net sales for 2003-2005 have been adjusted from amounts previously reported as Revenue to exclude other income and report only net sales.
10
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
Established in 1974 as a truck body manufacturer, Supreme Industries, Inc., through its wholly-owned subsidiary Supreme Corporation, is one of the nations leading manufacturers of specialized vehicles. Utilizing a nationwide direct sales and distribution network, as well as manufacturing and service facilities in 13 states across North America, Supreme is able to meet the needs of customers across all regions of the continental United States.
The Company engages principally in the production and sale of customized truck bodies, shuttle buses, and other specialty vehicles. Building on our expertise in providing both cargo and passenger transportation solutions, the Companys specialty vehicle offerings include products such as customized armored vehicles, homeland response vehicles, and luxury motor coaches. Through vertical integration and proprietary processes, the Company also supplies both internal and external customers with high quality fiberglass and fiberglass-reinforced components.
The Company and its product offerings are sensitive to various factors which include, but are not limited to, interest rate fluctuations, changes in governmental regulations, and industrial and commercial spending patterns. The Companys business is also affected by the availability and costs of certain raw materials that serve as significant components to our product offerings.
Company growth in recent years has been achieved through internal product development, business acquisitions, and joint ventures. The Company operates only in businesses related to its core competencies and currently has no plans to deviate from this strategy.
For more detailed information related to the Company and its products, see Business (Item 1) of this document.
The following discussion should be read in conjunction with the consolidated financial statements and related notes thereto, located at Item 8 of this document.
Results of Operations
Comparison of 2007 with 2006
Net Sales
Net sales for the year ended December 29, 2007 decreased $27.4 million, or 8.0%, to $313.3 million compared to $340.7 million for the year ended December 30, 2006. The decrease was primarily related to our core dry freight sales, our largest product group, which declined by $40.7 million, or 22.6%. We attribute the decrease in our core dry freight products to continued industry-wide softness in the retail truck market. Partially offsetting this decrease were favorable sales contributions from our StarTrans bus division which experienced a 10.1% increase to $65.4 million, and our armored division, which increased 64.3% over the prior year, to $13.8 million in 2007. Additionally, Silver Crown, one of our specialty product divisions, increased sales to $11.6 million, a 182.9% increase, resulting from the increased market penetration of this 2006 acquisition. Our total sales backlog was $87.0 million at December 29, 2007 compared to $97.5 million at December 30, 2006.
Cost of Sales and Gross Profit
Gross profit decreased by $2.4 million, or 6.4%, to $35.2 million (11.2% of net sales) for the year ended December 29, 2007 compared to $37.6 million (11.0% of net sales) for the year ended December 30, 2006. The following table presents the components of cost of sales as a percentage of net sales for 2007 and 2006 and the changes from 2006:
11
|
|
2007 |
|
2006 |
|
Percent Change |
|
Material |
|
57.4 |
% |
56.8 |
% |
0.6 |
% |
Direct labor |
|
13.6 |
|
14.3 |
|
-0.7 |
|
Overhead |
|
15.2 |
|
15.1 |
|
0.1 |
|
Delivery |
|
2.6 |
|
2.8 |
|
-0.2 |
|
Cost of sales |
|
88.8 |
|
89.0 |
|
-0.2 |
|
Gross profit |
|
11.2 |
% |
11.0 |
% |
0.2 |
% |
Material Material cost as a percentage of net sales was 57.4% in 2007 compared to 56.8% in 2006. The increase of 0.6% was attributable to our growing StarTrans bus division and our Silver Crown division which have a higher material content and accounted for a larger portion of our total sales volume in 2007. Partially offsetting the increase in the material percentage was an improvement of 2.2% in our core truck divisions which resulted from working with our material suppliers to strengthen our supply chain logistics while controlling material costs. However, raw material costs continue to remain a concern as costs are increasing for aluminum, steel, and petroleum-based raw materials. We are closely monitoring and managing all material costs through timely communication and negotiation with key suppliers, and will continue to make efforts to recover raw material cost increases through the pricing of our products. The Company also continues to strive to reduce the costs of its products through research into innovative materials and the use of robotics.
Historically, the Company has experienced and recorded both favorable and unfavorable physical inventory adjustments. Due to our product diversity, complexity, customization, and on-line engineering, inventory relief using standard bills of material does not provide full relief of our inventory. Therefore, the Company records an additional cost relief adjustment based on various factors. In addition, the Company intensified its bills of material accuracy initiatives and cost relief systems and methods in conjunction with performing additional interim physical inventories and recording any adjustments relating thereto. In 2007, the Company recorded favorable inventory adjustments of $0.2 million. In the third quarter of fiscal year 2006, the Company recorded a $1.9 million favorable inventory adjustment. In 2006, the Company improved its bills of materials accuracy without changing its cost relief adjustment to account for these improvements resulting in a favorable inventory adjustment for the year. The more frequent physical inventories and the continued improvements from the process improvement initiatives should enable the Company to continue to minimize the physical inventory adjustments (See Inventory Relief below in our discussion of Critical Accounting Policies and Estimates).
Direct Labor Direct labor as a percentage of net sales was 13.6% in 2007 compared to 14.3% in 2006. The direct labor improvement was the result of the efficiencies realized from contracting fewer, more costly temporary workers at our core truck divisions due to reduced sales volume. Additionally, in the first half of 2006 we experienced a delay in OEM-supplied chassis which caused the Company to temporarily suspend production, thereby negatively affecting labor and overhead absorption. As noted earlier, while our StarTrans bus division and Silver Crown division material content is higher than our core truck products, the labor percentage is lower in these divisions further reducing the overall Company labor percentage as a result of the our change in product mix for 2007.
Overhead Overhead as a percentage of net sales was 15.2% in 2007 compared to 15.1% in 2006. Overall, the Company was able to effectively manage its cost structure to the lower sales volume experienced in 2007. However, our group health insurance expense increased 6.3% when compared to 2006. To combat the increase in group health insurance, the Company continues to implement changes to its group health insurance plan design in an effort to control future claim costs. We will continue to focus on reducing expenses and managing our overhead cost structure based on our level of sales volume.
Delivery Delivery as a percentage of net sales was 2.6% in 2007 compared to 2.8% in 2006. The Company continues to utilize more cost effective outside delivery methods versus using its employees and owned equipment to deliver units. Fuel costs remain a concern, and we will continue to attempt to pass on higher fuel costs despite competitive pressures in the marketplace.
12
Selling, General and Administrative Expenses
Selling, general and administrative (G&A) expenses decreased by $0.7 million, or 2.5%, to $27.8 million (8.9% of net sales) for the year ended December 29, 2007, compared to $28.5 million (8.4% of net sales) for the year ended December 30, 2006. The following table presents selling and G&A expenses as a percentage of net sales and the changes from year to year:
|
|
2007 |
|
2006 |
|
Percent Change |
|
Selling expenses |
|
3.3 |
% |
3.4 |
% |
-0.1 |
% |
G&A expenses |
|
5.6 |
|
5.0 |
|
0.6 |
|
Total |
|
8.9 |
% |
8.4 |
% |
0.5 |
% |
Selling expenses Selling expenses decreased by $1.2 million, or 10.4%, to $10.3 million for the year ended December 29, 2007 from $11.5 million for the year ended December 30, 2006. Selling expenses declined due to increased cooperative marketing credits the Company received from chassis manufacturers. These credits, determined solely by programs established by the chassis manufacturers, are to be used to offset marketing and promotional expenses. Additionally, sales commission expense decreased due to the lower sales volume experienced during 2007 compared to 2006.
G&A expenses General and administrative expenses increased by $0.5 million, or 2.9%, to $17.5 million for the year ended December 29, 2007 from $17.0 million for the year ended December 30, 2006. The increase in general and administrative expenses was primarily due to non-recurring fees associated with complying with the requirements of the Sarbanes-Oxley Act of 2002.
Other Income
Other income remained relatively constant at $0.6 million for the year ended December 29, 2007 and December 30, 2006. Other income consisted of rental income, gain on sale of assets, and other miscellaneous income received by the Company through its various business activities.
Interest Expense
Interest expense decreased by $0.6 million, or 19.4%, to $2.5 million (0.8% of net sales) for the year ended December 29, 2007 compared to $3.1 million (0.9% of net sales) for the year ended December 30, 2006. The decrease in interest expense was due to less borrowing under the Companys working capital line of credit and a decrease in chassis interest expense. The decrease in bank interest expense also reflects lower prevailing interest rates, coupled with an increased focus on working capital management and managing our working capital levels in accordance with the lower sales volume experienced in 2007. Additionally, the decrease in chassis interest expense was due to reduced consigned chassis inventory levels relating to light-duty chassis. In 2006, we experienced an unanticipated slowdown in the light-duty truck market causing a build-up of consigned chassis inventory which resulted in increased chassis interest expense.
Income Taxes
The Companys effective income tax rate was 23.8% for the year ended December 29, 2007, compared to 30.2% for 2006. The effective income tax rates for both years were favorably impacted by tax-exempt underwriting income of a wholly-owned small captive insurance subsidiary, by the additional tax deduction allowed manufacturers under the 2004 American Jobs Creation Act, federal alternative fuel tax credits, and federal and state research and development tax credits.
Net Income and Earnings Per Share
Net income decreased by $0.4 million, or 8.7%, to $4.2 million (1.3% of net sales) for the year ended December 29, 2007 from $4.6 million (1.4% of net sales) for the year ended December 30, 2006. The following table presents basic and diluted earnings per share and the changes from year to year:
13
|
|
2007 |
|
2006 |
|
Change |
|
|||
Earnings per share: |
|
|
|
|
|
|
|
|||
Basic |
|
$ |
0.32 |
|
$ |
0.36 |
|
$ |
(0.04 |
) |
Diluted |
|
$ |
0.32 |
|
$ |
0.36 |
|
$ |
(0.04 |
) |
Comparison of 2006 with 2005
Net Sales
Net sales for the year ended December 30, 2006 decreased $0.6 million, or 0.2%, to $340.7 million compared to $341.3 million for the year ended December 31, 2005. The slight decrease in net sales was primarily attributable to an 18% reduction in our fleet sales. An industry-wide reduction in truck purchases contributed to lower fleet sales but this was offset by increases in our core dry freight product line and our StarTrans Bus Division which increased 3% and 6%, respectively. We partially attribute the increased retail demand of our dry freight product line to customers buying 2006 chassis to avoid the higher cost of 2007 chassis. New, more stringent diesel engine emission standards became effective for engines produced beginning January 1, 2007. The increased StarTrans Bus Division revenues were the result of a strong demand for mid-size buses and a new cycle of Transit Authority purchasing. Our total sales backlog was $97.5 million at December 30, 2006 compared to $90.3 million at December 31, 2005.
On February 28, 2006, we acquired the business operations and assets of Pony Xpress, Inc. (Pony Xpress), a manufacturer of highly-specialized vehicles. Though a relatively small acquisition, it provides us with the platform for our newly formed Silver Crown operations. Silver Crown has unique manufacturing expertise that will enable our entry into additional highly-specialized vehicle markets including Homeland Security. In the fourth quarter of 2006, the Company introduced a higher-end product which is being marketed under the Silver Crown name and has broadened the existing Pony Xpress product line. From the date of acquisition, Silver Crown sales for the year ended December 30, 2006 totaled $4.1 million.
Cost of Sales and Gross Profit
Gross profit decreased by $3.5 million, or 8.5%, to $37.6 million (11.0% of net sales) for the year ended December 30, 2006 compared to $41.1 million (12.1% of net sales) for the year ended December 31, 2005. The following table presents the components of cost of sales as a percentage of net sales for 2006 and 2005 and the changes from 2005:
|
|
2006 |
|
2005 |
|
Percent Change |
|
Material |
|
56.8 |
% |
56.6 |
% |
0.2 |
% |
Direct labor |
|
14.3 |
|
14.0 |
|
0.3 |
|
Overhead |
|
15.1 |
|
14.5 |
|
0.6 |
|
Delivery |
|
2.8 |
|
2.8 |
|
|
|
Cost of sales |
|
89.0 |
|
87.9 |
|
1.1 |
|
Gross profit |
|
11.0 |
% |
12.1 |
% |
-1.1 |
% |
Material - Material cost as a percentage of net sales was 56.8% in 2006 compared to 56.6% in 2005. The slight increase of 0.2% was primarily due to our growing StarTrans Bus Division and our newly acquired Silver Crown division, which have a higher material content and accounted for a larger portion of our total sales volume in 2006. Additionally, the Company experienced escalating steel and aluminum raw material costs throughout 2006 but was able to offset most of these increases with price increases on a majority of its truck division products effective in late April and August of 2006.
We continue to closely monitor and manage our major commodity costs through close communication and negotiation with key suppliers, utilizing cost monitoring tools, and developing strategies to mitigate cost and availability issues. The Company also continually strives to reduce the cost of its product offerings through the development and use of innovative materials, robotics and improved processes.
14
Historically, the Company has experienced and recorded both favorable and unfavorable physical inventory adjustments. In the third quarter of fiscal year 2006, the Company recorded a $1.9 million favorable inventory adjustment compared to a $1.1 million unfavorable adjustment recorded in the third quarter of fiscal year 2005. Due to our product diversity, complexity, customization, and on-line engineering, inventory relief using standard bills of material does not provide full relief of our inventory. Therefore, the Company records an additional cost relief adjustment based on various factors. Beginning in late 2005 and throughout 2006, the Company intensified its bills of material accuracy initiatives and cost relief systems and methods in conjunction with performing additional interim physical inventories and recording any adjustments relating thereto. In 2006, the Company improved its bills of materials accuracy without changing its cost relief adjustment to account for these improvements, resulting in the favorable inventory adjustment.
Direct Labor - Direct labor as a percentage of net sales was 14.3% in 2006 compared to 14.0% in 2005. The direct labor percentage increase was the result of a delay in OEM-supplied chassis in the first quarter that caused the Company to temporarily shut down production lines, thereby negatively affecting labor and overhead absorption. Despite these challenges, direct labor as a percentage of net sales remained relatively constant for both years.
Overhead - Overhead as a percentage of net sales was 15.1% in 2006 compared to 14.5% in 2005. The increase was primarily due to higher workers compensation costs. These costs increased $1.0 million, or 109%, year over year, due to increased high-dollar claims. In an effort to reduce future claims, the Company implemented additional safety programs. The Companys 2006 accident incident rate improved approximately 23% when compared to 2005. Other increases in overhead included higher repairs and maintenance costs and utility costs which increased 21% and 12%, respectively.
Delivery - Delivery expense as a percentage of net sales was constant at 2.8% for both years ended December 30, 2006 and December 31, 2005. The Company utilized more cost effective outside delivery methods versus using its employees and owned equipment to deliver units. However, fuel costs remain a concern, and the Company will continue to attempt to pass on higher fuel costs despite competitive pressures in the marketplace.
Selling, General and Administrative Expenses
Selling, general and administrative (G&A) expenses increased by $1.4 million, or 5.2%, to $28.5 million (8.4% of net sales) for the year ended December 30, 2006 from $27.1 million (8.0% of net sales) for the year ended December 31, 2005. The following table presents selling and G&A expenses as a percentage of net sales and the changes from year to year:
|
|
2006 |
|
2005 |
|
Percent Change |
|
Selling expenses |
|
3.4 |
% |
3.0 |
% |
0.4 |
% |
G&A expenses |
|
5.0 |
|
5.0 |
|
|
|
Total |
|
8.4 |
% |
8.0 |
% |
0.4 |
% |
Selling expenses - Selling expenses increased by $1.4 million, or 13.9%, to $11.5 million for the year ended December 30, 2006 from $10.1 million for the year ended December 31, 2005. The increased selling expenses relate primarily to higher compensation-related costs from adding corporate sales positions and a new sales force associated with our newly formed Silver Crown entity. In addition, the Company experienced a reduction in cooperative marketing funds received from chassis manufacturers. These funds, determined solely by programs established by the chassis manufacturers, are to be used to help offset marketing and promotional expenses. To promote the Companys expanding and extensive product lines, the Company also experienced higher trade show and related expenses in 2006.
General and administrative expenses - General and administrative expenses decreased by $0.1 million, or 0.6% to $17.0 million for the year ended December 30, 2006 from $17.1 million for the year ended December 31, 2005. The decrease in general and administrative expenses was primarily due to the decrease in incentive compensation tied directly to the decrease in pretax income. The decrease was partially offset by increases in G&A wages related to our newly formed Silver Crown entity and the addition of a new corporate position to focus on special projects.
15
Other Income
Other income for the year ended December 30, 2006 decreased to $0.6 million from $0.8 million for the year ended December 31, 2005. Other income consisted of rental income, gain on sale of assets and other miscellaneous income received by the Company through its various business activities.
Interest Expense
Interest expense increased by approximately $1.0 million, or 47.6%, to $3.1 million (0.9% of net sales) for the year ended December 30, 2006, from $2.1 million (0.6% of net sales) for the year ended December 31, 2005. The increase in interest expense resulted from increased borrowings under the Companys working capital line of credit, higher interest rates and increased levels of chassis inventory. The increased chassis levels related to the new Silver Crown product line, chassis from our armored product line and an unanticipated slow down in the light-duty truck market. To mitigate the effect of higher interest rates, in July of 2005, the Company entered into an interest rate swap agreement to reduce the impact of increasing interest rates on certain of its floating rate debt. The swap agreement exchanges the debt obligations floating rate for fixed rate interest payments over the term of the swap agreement.
Income Taxes
The Companys effective income tax rate was 30.2% for 2006 compared to 34.2% for 2005. The 2006 favorable reduction in the effective income tax rate was due to a change in the Companys applicable federal tax bracket to 34% compared to 35% in 2005 resulting from lower levels of pre-tax income. The 2006 rate was also favorably impacted by tax-exempt underwriting income of a wholly-owned small captive insurance subsidiary, by the additional tax deduction allowed manufacturers under the 2004 American Jobs Creation Act, and federal and state research and development tax credits.
Net Income and Earnings Per Share
Net income decreased by $3.7 million, or 45%, to $4.6 million (1.3% of net sales) for the year ended December 30, 2006 from $8.3 million (2.4% of net sales) for the year ended December 31, 2005.
Basic earnings per share decreased $0.31 per share, or 46%, to $0.36 per share for the year ended December 30, 2006 from $0.67 per share for the year ended December 31, 2005.
Diluted earnings per share decreased $0.29 per share, or 45%, to $0.36 per share for the year ended December 30, 2006 from $0.65 per share for the year ended December 31, 2005.
Liquidity and Capital Resources
Cash generated from operations and reductions in working capital were major sources of cash flows during 2007. The Companys cash management system and revolving line of credit have been designed to maintain zero cash balances and, accordingly, excess cash generated from operations has been utilized to reduce borrowings. All borrowings under the revolving line of credit remain unsecured.
Operating activities
Operating activities provided $18.4 million in 2007 compared to $1.7 million in 2006. In 2007, operating cash was favorably impacted by the $6.9 million decrease in inventory, the $2.3 million decrease in accounts receivable, and the $1.1 million increase in accounts payable. Net income, adjusted for depreciation and amortization, also provided cash flows from operating activities totaling $8.5 million and $8.9 million in 2007 and 2006, respectively. Working capital decreased $8.0 million in 2007, principally due to the lower inventories, lower accounts receivables, and the increase in accounts payable. The improvement was the result of an increased focus on working capital requirements and effectively managing our cost structure for the lower sales volume.
16
Investing activities
Investing activities used $3.6 million in cash in 2007 compared to $4.6 million in 2006. Capital expenditures totaled $3.4 million in 2007 and consisted, in part, of investments in replacing manufacturing equipment. Additionally, our manufacturing facility in Cleburne, Texas, invested in robotics and the reconfiguration of a plant to support a State Department award for up to $100 million to produce armored vehicles over a five-year period with sales subject to receipt of periodic orders. The Company intends to have similar levels of investment in property, plant, and equipment in 2008.
Financing activities
Financing activities used $14.9 million in 2007 and provided $2.7 million in 2006. Our 2007 positive cash flow, used to significantly reduce our bank borrowings, occurred as a result of a reduction of $8.0 million in working capital. The Company also received $844,000 from the exercise of stock options in 2007 compared to $33,000 in 2006. In both 2007 and 2006, the Company paid cash dividends of thirty-eight cents per share, or $4.9 million in 2007 and $4.8 million in 2006.
Contractual Obligations
Our fixed, noncancelable obligations as of December 29, 2007 were as follows:
|
|
Payments due by period |
|
|||||||||||||
|
|
|
|
Less than |
|
1-3 |
|
3-5 |
|
More than |
|
|||||
|
|
Total |
|
1 Year |
|
Years |
|
Years |
|
5 Years |
|
|||||
Debt (a) |
|
$ |
29,751,124 |
|
$ |
748,406 |
|
$ |
27,886,792 |
|
$ |
498,099 |
|
$ |
617,827 |
|
Operating leases (b) |
|
2,384,470 |
|
907,799 |
|
1,407,593 |
|
69,078 |
|
|
|
|||||
Total |
|
$ |
32,135,594 |
|
$ |
1,656,205 |
|
$ |
29,294,385 |
|
$ |
567,177 |
|
$ |
617,827 |
|
(a) Amounts are included on the Consolidated Balance Sheets. See Note 6 of the Notes to Consolidated Financial Statements for additional information regarding debt and related matters.
(b) See Note 10 of the Notes to Consolidated Financial Statements for additional information regarding property leases.
Critical Accounting Policies and Estimates
Managements discussion and analysis of its financial position and results of operations are based upon the Companys 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 Companys significant accounting policies are discussed in Note 1 of the Notes to Consolidated Financial Statements. In managements opinion, the Companys critical accounting policies include revenue recognition, allowance for doubtful accounts, excess and obsolete inventories, inventory relief, accrued insurance, and accrued warranty.
Revenue Recognition The Company generally recognizes revenue when the unit is shipped to the customer. Revenue on certain customer requested bill and hold transactions is recognized after the customer is notified that the products have been completed according to customer specifications, have passed all of the Companys quality control inspections, and are ready for delivery based on established delivery terms.
Allowance for Doubtful Accounts - The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial conditions of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required which would adversely affect our future operating results.
Excess and Obsolete Inventories - The Company must make estimates regarding the future use of raw materials and finished products and provide for obsolete or slow-moving inventories. If actual product life cycles, product
17
demand, and/or market conditions are less favorable than those projected by management, additional inventory write-downs may be required which would adversely 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 adjusted for scrap and other estimated factors affecting inventory relief. Because of our large and diverse product line and the customized nature of each order, 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 in an effort to assure correct relief of inventories for products sold. The calculations to estimate costs not captured in the bill of materials take into account 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 fully known until physical inventories are conducted at each of the Companys plant locations. We conduct semi-annual physical inventories at all locations and schedule them in a manner that provides coverage in each of our calendar quarters. We have invested significant resources in our continuing effort to improve the physical inventory process and accuracy of our inventory accounting system.
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 Companys 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 our operating results in the future.
The Company utilizes a wholly-owned small captive insurance company to insure certain of its business risks. Certain risks, traditionally self-insured by the Company and its subsidiaries, are insured by the captive insurance subsidiary. In addition, certain business risks not traditionally insured are insured by the captive insurance subsidiary. Since the captive insurance company has not reinsured any of its coverages, the Companys overall self-insurance risk has not changed. The captive insurance subsidiary helps the Company manage its risk exposures and, under the Internal Revenue Code, the net underwriting income of such a small captive is not taxable.
Accrued Warranty - The Company provides limited warranties for periods of up to five years from the date of retail sale. Estimated warranty costs are provided at the time of sale and are based upon historical experience.
Pending Accounting Pronouncements
See Recent Accounting Pronouncements in Note 1 of Notes to Consolidated Financial Statements.
Forward-Looking Statements
This report contains forward-looking statements, other than historical facts, which reflect the view of 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, 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 be 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 Companys product is dependent, 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 Companys products. The forward-looking statements contained herein reflect the current view of 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.
18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the normal course of business, operations of the Company are exposed to fluctuations in interest rates. These fluctuations can vary the cost of investing, financing, and operating. The Companys 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 Companys revolving line of credit is floating rate debt and bears interest at the banks prime rate or LIBOR plus certain basis points depending on the pricing option selected and the Companys leverage ratio. At December 29, 2007, the Company had in effect an interest rate swap agreement dated July 28, 2005. The interest rate swap agreement is a contract to exchange floating rate for fixed rate interest payments over the life of the interest rate swap agreement and is used to measure interest to be paid or received and does not represent the amount of exposure of credit loss. The differential paid or received under the interest rate swap agreement is recognized as an adjustment to interest expense. The following is a summary of the interest rate swap agreement outstanding at December 29, 2007.
Notional Amount |
|
Fixed Rate |
|
Maturity |
$15,000,000 |
|
4.71% |
|
July 28, 2010 |
Based on the Companys overall interest rate exposure at December 29, 2007, a hypothetical 10 percent change in interest rates applied to the fair value of the financial instruments as of December 29, 2007, would have no material impact on earnings, cash flows, or fair values of interest rate risk sensitive instruments over a one-year period.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements |
|
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|
||
|
|
|
Page |
||
|
1. |
Financial Statements: |
|
||
|
|
|
|
||
|
|
Report of Crowe Chizek and Company LLC, Independent Registered Public Accounting Firm |
20 |
||
|
|
|
|
||
|
|
Consolidated Balance Sheets as of December 29, 2007 and December 30, 2006 |
21 |
||
|
|
|
|
||
|
|
22 |
|||
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|
|
|
||
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|
23 |
|||
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||
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|
24 |
|||
|
|
|
|
||
|
|
25-42 |
|||
|
|
|
|
||
|
2. |
Financial Statement Schedule: |
|
||
|
|
|
|
||
|
|
43 |
|||
|
|
|
|
||
|
|
All other schedules are omitted because they are not applicable. |
|
||
|
|
|
|
||
|
3. |
Supplementary Data |
|
||
|
|
|
|
||
|
|
44 |
|||
19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Supreme Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Supreme Industries, Inc. and its subsidiaries as of December 29, 2007 and December 30, 2006, and the related consolidated statements of income, stockholders equity and cash flows for each of the three years in the period ended December 29, 2007. Our audits also included the financial statement schedule, Schedule II - Valuation and Qualifying Accounts. These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Supreme Industries, Inc. and its subsidiaries as of December 29, 2007 and December 30, 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 2007, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
/s/Crowe Chizek and Company LLC
South Bend, Indiana
February 1, 2008
20
Supreme Industries, Inc. And Subsidiaries
December 29, 2007 and December 30, 2006
|
|
2007 |
|
2006 |
|
||
ASSETS |
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
1,266,133 |
|
$ |
1,307,463 |
|
Investments |
|
2,215,267 |
|
1,542,101 |
|
||
Accounts receivable, net of allowance for doubtful accounts of $160,000 in 2007 and 2006 |
|
28,628,324 |
|
31,116,276 |
|
||
Refundable income taxes |
|
805,082 |
|
589,000 |
|
||
Inventories |
|
46,643,480 |
|
53,506,367 |
|
||
Deferred income taxes |
|
1,192,331 |
|
1,022,292 |
|
||
Other current assets |
|
3,174,090 |
|
2,611,413 |
|
||
Total current assets |
|
83,924,707 |
|
91,694,912 |
|
||
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
47,429,725 |
|
48,389,483 |
|
||
|
|
|
|
|
|
||
Intangible assets, net |
|
636,877 |
|
685,247 |
|
||
|
|
|
|
|
|
||
Goodwill |
|
735,014 |
|
735,014 |
|
||
|
|
|
|
|
|
||
Other assets |
|
64,860 |
|
620,064 |
|
||
Total assets |
|
$ |
132,791,183 |
|
$ |
142,124,720 |
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
||
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
||
Current maturities of long-term debt |
|
$ |
748,406 |
|
$ |
1,807,425 |
|
Trade accounts payable |
|
14,642,616 |
|
13,508,441 |
|
||
Accrued wages and benefits |
|
3,062,950 |
|
3,484,757 |
|
||
Accrued self-insurance |
|
2,652,350 |
|
2,716,101 |
|
||
Accrued warranty |
|
1,476,000 |
|
1,541,000 |
|
||
Accrued income taxes |
|
498,162 |
|
495,678 |
|
||
Other accrued liabilities |
|
2,318,795 |
|
1,576,192 |
|
||
Total current liabilities |
|
25,399,279 |
|
25,129,594 |
|
||
|
|
|
|
|
|
||
Long-term debt |
|
29,002,718 |
|
38,863,229 |
|
||
|
|
|
|
|
|
||
Deferred income taxes |
|
2,589,055 |
|
2,923,216 |
|
||
|
|
|
|
|
|
||
Other long-term liabilities |
|
333,046 |
|
|
|
||
Total liabilities |
|
57,324,098 |
|
66,916,039 |
|
||
|
|
|
|
|
|
||
Commitments and contingencies (Note 10) |
|
|
|
|
|
||
|
|
|
|
|
|
||
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 13,461,174 shares in 2007 and 13,155,160 in 2006 |
|
1,346,118 |
|
1,315,516 |
|
||
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 2,024,133 shares in 2007 and 2006 |
|
202,413 |
|
202,413 |
|
||
Additional paid-in capital |
|
67,348,018 |
|
65,499,875 |
|
||
Retained earnings |
|
28,285,847 |
|
29,008,233 |
|
||
Treasury stock, Class A Common Stock, at cost, 2,569,522 shares in 2007 and 2,469,327 in 2006 |
|
(21,515,892 |
) |
(20,910,173 |
) |
||
Accumulated other comprehensive income (loss) |
|
(199,419 |
) |
92,817 |
|
||
Total stockholders equity |
|
75,467,085 |
|
75,208,681 |
|
||
|
|
|
|
|
|
||
Total liabilities and stockholders equity |
|
$ |
132,791,183 |
|
$ |
142,124,720 |
|
See accompanying notes to consolidated financial statements.
21
Supreme Industries, Inc. And Subsidiaries
Consolidated Statements of Income
for the years ended December 29, 2007, December 30, 2006 and December 31, 2005
|
|
2007 |
|
2006 |
|
2005 |
|
|||
|
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
313,272,723 |
|
$ |
340,746,789 |
|
$ |
341,252,852 |
|
Cost of sales |
|
278,089,294 |
|
303,182,249 |
|
300,114,755 |
|
|||
Gross profit |
|
35,183,429 |
|
37,564,540 |
|
41,138,097 |
|
|||
|
|
|
|
|
|
|
|
|||
Selling, general and administrative expenses |
|
27,838,011 |
|
28,483,091 |
|
27,137,573 |
|
|||
Other income |
|
(594,654 |
) |
(560,045 |
) |
(806,005 |
) |
|||
Operating income |
|
7,940,072 |
|
9,641,494 |
|
14,806,529 |
|
|||
|
|
|
|
|
|
|
|
|||
Interest expense |
|
2,472,267 |
|
3,054,726 |
|
2,129,149 |
|
|||
Income before income taxes |
|
5,467,805 |
|
6,586,768 |
|
12,677,380 |
|
|||
|
|
|
|
|
|
|
|
|||
Income taxes |
|
1,304,000 |
|
1,992,000 |
|
4,336,000 |
|
|||
Net income |
|
$ |
4,163,805 |
|
$ |
4,594,768 |
|
$ |
8,341,380 |
|
|
|
|
|
|
|
|
|
|||
Earnings Per Share: |
|
|
|
|
|
|
|
|||
Basic |
|
$ |
.32 |
|
$ |
.36 |
|
$ |
.67 |
|
Diluted |
|
.32 |
|
.36 |
|
.65 |
|
|||
|
|
|
|
|
|
|
|
|||
Shares used in the computation of earnings per share: |
|
|
|
|
|
|
|
|||
Basic |
|
12,829,699 |
|
12,696,598 |
|
12,455,818 |
|
|||
Diluted |
|
12,933,545 |
|
12,872,638 |
|
12,835,405 |
|
|||
|
|
|
|
|
|
|
|
|||
Cash dividends per common share |
|
$ |
.38 |
|
$ |
.38 |
|
$ |
.26 |
|
See accompanying notes to consolidated financial statements.
22
Supreme Industries, Inc. And Subsidiaries
Consolidated Statements of Stockholders Equity
for the years ended December 29, 2007, December 30, 2006 and December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
Total |
|
|||||||
|
|
Class A Common Stock |
|
Class B Common Stock |
|
Additional |
|
Retained |
|
Treasury |
|
Comprehensive |
|
Stockholders |
|
|||||||||||
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Paid-In Capital |
|
Earnings |
|
Stock |
|
Income (Loss) |
|
Equity |
|
|||||||
Balance, December 26, 2004 |
|
12,400,102 |
|
$ |
1,240,010 |
|
2,109,133 |
|
$ |
210,913 |
|
$ |
62,293,094 |
|
$ |
24,155,562 |
|
$ |
(20,336,570 |
) |
$ |
|
|
$ |
67,563,009 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
8,341,380 |
|
|
|
|
|
8,341,380 |
|
|||||||
Unrealized gain on hedge activity, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,166 |
|
22,166 |
|
|||||||
Unrealized holding loss on investments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,102 |
) |
(10,102 |
) |
|||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,353,444 |
|
|||||||
Cash dividends ($.26 per share) |
|
|
|
|
|
|
|
|
|
|
|
(3,260,688 |
) |
|
|
|
|
(3,260,688 |
) |
|||||||
Exercise of stock options |
|
641,724 |
|
64,173 |
|
|
|
|
|
2,706,286 |
|
|
|
(520,868 |
) |
|
|
2,249,591 |
|
|||||||
Tax benefit of disqualifying stock option dispositions |
|
|
|
|
|
|
|
|
|
260,100 |
|
|
|
|
|
|
|
260,100 |
|
|||||||
Balance, December 31, 2005 |
|
13,041,826 |
|
1,304,183 |
|
2,109,133 |
|
210,913 |
|
65,259,480 |
|
29,236,254 |
|
(20,857,438 |
) |
12,064 |
|
75,165,456 |
|
|||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
4,594,768 |
|
|
|
|
|
4,594,768 |
|
|||||||
Unrealized gain on hedge activity, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,393 |
|
71,393 |
|
|||||||
Unrealized holding gain on investments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,360 |
|
9,360 |
|
|||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,675,521 |
|
|||||||
Cash dividends ($.38 per share) |
|
|
|
|
|
|
|
|
|
|
|
(4,822,789 |
) |
|
|
|
|
(4,822,789 |
) |
|||||||
Exercise of stock options |
|
18,334 |
|
1,833 |
|
|
|
|
|
83,915 |
|
|
|
(52,735 |
) |
|
|
33,013 |
|
|||||||
Conversion of 85,000 shares of Class B Common Stock to 85,000 shares of Class A Common Stock |
|
85,000 |
|
8,500 |
|
(85,000 |
) |
(8,500 |
) |
|
|
|
|
|
|
|
|
|
|
|||||||
Issuance of 10,000 shares of restricted stock |
|
10,000 |
|
1,000 |
|
|
|
|
|
(1,000 |
) |
|
|
|
|
|
|
|
|
|||||||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
123,000 |
|
|
|
|
|
|
|
123,000 |
|
|||||||
Tax benefit of disqualifying stock option dispositions |
|
|
|
|
|
|
|
|
|
34,480 |
|
|
|
|
|
|
|
34,480 |
|
|||||||
Balance, December 30, 2006 |
|
13,155,160 |
|
1,315,516 |
|
2,024,133 |
|
202,413 |
|
65,499,875 |
|
29,008,233 |
|
(20,910,173 |
) |
92,817 |
|
75,208,681 |
|
|||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
4,163,805 |
|
|
|
|
|
4,163,805 |
|
|||||||
Unrealized loss on hedge activity, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(300,888 |
) |
(300,888 |
) |
|||||||
Unrealized holding gain on investments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,652 |
|
8,652 |
|
|||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,871,569 |
|
|||||||
Cash dividends ($.38 per share) |
|
|
|
|
|
|
|
|
|
|
|
(4,873,991 |
) |
|
|
|
|
(4,873,991 |
) |
|||||||
Exercise of stock options |
|
302,834 |
|
30,284 |
|
|
|
|
|
1,502,229 |
|
|
|
(688,719 |
) |
|
|
843,794 |
|
|||||||
Issuance of 10,000 shares of common stock |
|
|
|
|
|
|
|
|
|
|
|
(12,200 |
) |
83,000 |
|
|
|
70,800 |
|
|||||||
Issuance of restricted stock |
|
3,180 |
|
318 |
|
|
|
|
|
16,631 |
|
|
|
|
|
|
|
16,949 |
|
|||||||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
255,899 |
|
|
|
|
|
|
|
255,899 |
|
|||||||
Tax benefit of disqualifying stock option dispositions |
|
|
|
|
|
|
|
|
|
73,384 |
|
|
|
|
|
|
|
73,384 |
|
|||||||
Balance, December 29, 2007 |
|
13,461,174 |
|
$ |
1,346,118 |
|
2,024,133 |
|
$ |
202,413 |
|
$ |
67,348,018 |
|
$ |
28,285,847 |
|
$ |
(21,515,892 |
) |
$ |
(199,419 |
) |
$ |
75,467,085 |
|
See accompanying notes to consolidated financial statements.
23
Supreme Industries, Inc. And Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 29, 2007, December 30, 2006 and December 31, 2005
|
|
2007 |
|
2006 |
|
2005 |
|
|||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|||
Net income |
|
$ |
4,163,805 |
|
$ |
4,594,768 |
|
$ |
8,341,380 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
4,295,739 |
|
4,260,632 |
|
4,129,376 |
|
|||
Amortization of intangibles |
|
48,370 |
|
40,309 |
|
30,066 |
|
|||
Provision for losses on doubtful receivables |
|
177,785 |
|
223,859 |
|
33,902 |
|
|||
Deferred income taxes |
|
(331,000 |
) |
(307,000 |
) |
(13,000 |
) |
|||
Stock-based compensation expense |
|
343,648 |
|
123,000 |
|
|
|
|||
Tax benefit of disqualifying stock option dispositions |
|
|
|
|
|
260,100 |
|
|||
Losses (gains) on sale of property, plant, and equipment, net |
|
24,284 |
|
(4,718 |
) |
(6,199 |
) |
|||
Changes in operating assets and liabilities, net of effect of business acquisition in 2006: |
|
|
|
|
|
|
|
|||
Accounts receivable |
|
2,310,167 |
|
(1,589,116 |
) |
(1,196,006 |
) |
|||
Inventories |
|
6,862,887 |
|
(2,534,290 |
) |
(5,289,016 |
) |
|||
Other current assets |
|
(778,759 |
) |
(275,712 |
) |
727,240 |
|
|||
Trade accounts payable |
|
1,134,175 |
|
(2,329,854 |
) |
(3,042,684 |
) |
|||
Other current liabilities |
|
194,529 |
|
(514,863 |
) |
916,165 |
|
|||
|
|
|
|
|
|
|
|
|||
Net cash provided by operating activities |
|
18,445,630 |
|
1,687,015 |
|
4,891,324 |
|
|||
|
|
|
|
|
|
|
|
|||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|||
Business acquisition |
|
|
|
(1,050,000 |
) |
|
|
|||
Proceeds from sale of property, plant, and equipment |
|
66,003 |
|
1,937,551 |
|
87,362 |
|
|||
Additions to property, plant and equipment |
|
(3,426,268 |
) |
(5,187,712 |
) |
(6,354,522 |
) |
|||
Proceeds from sale of investments |
|
544,804 |
|
893,285 |
|
|
|
|||
Purchases of investments |
|
(1,203,900 |
) |
(1,251,186 |
) |
(1,185,224 |
) |
|||
Decrease in restricted cash deposit |
|
|
|
|
|
600,000 |
|
|||
Decrease in other assets |
|
408,745 |
|
42,079 |
|
44,856 |
|
|||
|
|
|
|
|
|
|
|
|||
Net cash used in investing activities |
|
(3,610,616 |
) |
(4,615,983 |
) |
(6,807,528 |
) |
|||
|
|
|
|
|
|
|
|
|||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|||
Proceeds from revolving line of credit and other long-term debt |
|
105,717,892 |
|
100,172,242 |
|
114,267,879 |
|
|||
Repayments of revolving line of credit and other long-term debt |
|
(116,637,422 |
) |
(92,696,047 |
) |
(111,473,420 |
) |
|||
Payment of cash dividends |
|
(4,873,991 |
) |
(4,822,789 |
) |
(3,260,688 |
) |
|||
Tax benefit of disqualifying stock option dispositions |
|
73,384 |
|
34,480 |
|
|
|
|||
Proceeds from exercise of stock options |
|
843,793 |
|
33,013 |
|
2,161,482 |
|
|||
|
|
|
|
|
|
|
|
|||
Net cash provided by (used in) financing activities |
|
(14,876,344 |
) |
2,720,899 |
|
1,695,253 |
|
|||
|
|
|
|
|
|
|
|
|||
Change in cash and cash equivalents |
|
(41,330 |
) |
(208,069 |
) |
(220,951 |
) |
|||
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents, beginning of year |
|
1,307,463 |
|
1,515,532 |
|
1,736,483 |
|
|||
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents, end of year |
|
$ |
1,266,133 |
|
$ |
1,307,463 |
|
$ |
1,515,532 |
|
|
|
|
|
|
|
|
|
|||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|||
Cash paid during the year for: |
|
|
|
|
|
|
|
|||
Interest |
|
$ |
2,563,934 |
|
$ |
2,986,054 |
|
$ |
2,125,857 |
|
Income taxes |
|
1,794,197 |
|
1,834,272 |
|
3,748,145 |
|
|||
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|||
Liabilities assumed in business acquisition |
|
|
|
163,222 |
|
|
|
See accompanying notes to consolidated financial statements.
24
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
1. 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 Companys truck body products include cutaway and dry freight van bodies, refrigerated units, stake bodies and other specialized vehicles, including shuttle buses. At December 29, 2007, the Company operated at 19 manufacturing, distribution and component manufacturing locations. The Companys customers are located principally in the United States of America.
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.
Fiscal Year End - The Companys fiscal year ends the last Saturday in December. The fiscal years ended December 29, 2007 and December 30, 2006 each contained 52 weeks while the fiscal year ended December 31, 2005 contained 53 weeks.
Use of Estimates in the Preparation of Financial Statements - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
Revenue Recognition - The production of specialized truck bodies and shuttle buses starts when an order is received from the customer and revenue is recognized when the unit is shipped to the customer. Revenue on certain customer requested bill and hold transactions is recognized subsequent to when the customer is notified that the products have been completed according to customer specifications, have passed all of the Companys quality control inspections and are ready for delivery based upon established delivery terms. These transactions meet the requirements for bill and hold accounting under Securities and Exchange Commission Staff Accounting Bulletin Topic 13, Revenue Recognition.
Net sales are net of cash discounts which the Company offers its customers in the ordinary course of business.
Concentration of Credit Risk - Concentration of credit risk is limited due to the large number of customers and their dispersion among many different industries and geographic regions. The Company performs ongoing credit evaluations of its customers and credit is extended on an unsecured basis.
Advertising - The Company expenses advertising costs as incurred. Advertising costs for the years ended December 29, 2007, December 30, 2006 and December 31, 2005 were $230,634, $260,715, and $255,301, respectively.
25
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
1. NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.
Financial Instruments and Fair Values - The Company has utilized interest rate swap agreements to reduce the impact of changes in interest rates on certain of its floating rate debt. The swap agreements are contracts to exchange the debt obligations LIBOR floating rate (exclusive of the applicable spread) for fixed rate interest payments over the term of the swap agreement 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.
At December 29, 2007 and December 30, 2006, the Company had an interest rate swap agreement outstanding with a notional amount of $15,000,000. The interest rate swap agreement provides a 4.71% fixed interest rate and matures on July 28, 2010. In accordance with Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, the interest rate swap agreement is designated and qualified as a cash flow hedging instrument. It is fully effective, resulting in no net gain or loss recorded in the consolidated statements of income. The fair value of the contract at December 29, 2007 and December 30, 2006 was a liability of $333,046 and an asset of $146,459, respectively and under SFAS No. 133 changes in fair value of the financial instrument, net of applicable income taxes, are adjusted through accumulated other comprehensive income.
The carrying amounts of cash and cash equivalents, accounts receivable and trade accounts payable approximated fair value as of December 29, 2007 and December 30, 2006 because of the relatively short maturities of these financial instruments. The carrying amount of long-term debt, including current maturities, approximated fair value as of December 29, 2007 and December 30, 2006, based upon terms and conditions available to the Company at those dates in comparison to the terms and conditions of its outstanding long-term debt.
Cash and Cash Equivalents - The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Investments - The Company accounts for its investments in debt and equity securities under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, which requires certain securities to be categorized as either trading, available-for-sale or held-to-maturity. The Companys investments are comprised of available-for-sale securities and are carried at fair value with unrealized gains and losses, net of applicable income taxes, recorded within accumulated other comprehensive income (loss). Dividend and interest income are accrued as earned. The Company reviews its investments quarterly for declines in market value that are other than temporary.
Accounts Receivable - The Company accounts for trade receivables based on the amounts billed to customers. Past due receivables are determined based on contractual terms. The Company does not accrue interest on any of its trade receivables.
26
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
1. NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.
Allowance for Doubtful Accounts - The allowance for doubtful accounts is determined by management based on the Companys historical losses, specific customer circumstances and general economic conditions. Periodically, management reviews accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables against the allowance when all attempts to collect the receivable have failed.
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. The useful life of each class of property is as follows: land improvements (22 years); buildings (40 years); and machinery and equipment (3 to 10 years). For financial reporting purposes, leasehold improvements are amortized using the straight-line method over the lesser of the useful life of the asset or term of the lease, except for the leasehold improvements associated with the leased facilities in Goshen, Indiana and Griffin, Georgia which are leased from a related party (a partnership whose partners include five directors/stockholders of the Company). These related party leases include a provision whereby upon termination of the leases, the lessor is obligated to pay the lessee a cash payment equal to the unamortized balance of any leasehold improvements. Accordingly, leasehold improvements to these leased facilities are amortized over the useful life of the asset (15 to 40 years). 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 (included in other income in the consolidated statements of income). Expenditures for repairs and maintenance are charged to operations as incurred. Betterments and major renewals are capitalized and recorded in the appropriate asset accounts.
Intangible Assets - In connection with a business acquisition in February 2006 (see Note 2), the Company acquired a customer list with a cost of $725,556, which is being amortized using the straight-line method over the estimated useful life of the customer relationships, determined to be fifteen years. Amortization expense was $48,370 and $40,309 for the years ended December 29, 2007 and December 30, 2006, respectively. Amortization expense for the year ended December 31, 2005 was $30,066, and related to certain favorable lease agreements that became fully amortized during 2005. Estimated annual amortization expense is $48,370 for each of the next five years.
Goodwill - The carrying value of goodwill at December 29, 2007 and December 30, 2006 aggregates $735,014. The Company accounts for goodwill under the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. Under the provisions of SFAS No. 142, goodwill is no longer amortized. SFAS No. 142 requires the Company to test goodwill for impairment at least annually at the reporting unit level. At December 29, 2007 and December 30 2006, management determined there was no impairment of goodwill.
27
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
1. NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.
Evaluation of Impairment of Long-Lived Assets - In accordance with SFAS No. 144, Impairment or Disposal of Long-Lived Assets, 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.
Stock-Based Compensation - Effective January 1, 2006, the Company adopted SFAS No. 123R (revised 2004), Share-Based Payment as interpreted by SEC Staff Accounting Bulletin No. 107. SFAS No. 123R supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123R is similar to the approach described in SFAS No. 123, Accounting for Stock-Based Compensation. However, SFAS No. 123R requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values at the date of grant.
The Company has elected to use the modified prospective transition method for implementing SFAS No. 123R. Under this transition method, compensation expense will include: (a) compensation expense for all share-based payments granted prior to, but not yet vested as of, January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation expense for all share-based payments granted on or after January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. Because the Company elected to use the modified prospective transition method, results for prior periods have not been restated and new awards are valued and accounted for prospectively upon adoption.
The Company currently uses the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by stock price as well as assumptions regarding a number of complex and subjective variables. These variables include expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends.
Compensation expense (net of estimated forfeitures), relative to stock-based awards (see Note 8), included in the consolidated statements of income for the years ended December 29, 2007 and December 30, 2006 was $343,648 and $123,000, respectively. The following assumptions were utilized in the determination of stock-based compensation expense:
|
|
2007 |
|
2006 |
|
Risk free interest rate |
|
4.51 |
% |
5.03 |
% |
Expected life |
|
5 years |
|
5 years |
|
Expected volatility |
|
25.57 |
% |
32.23 |
% |
Expected dividends |
|
6.08 |
% |
5.39 |
% |
28
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
1. NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.
The risk-free interest rate is determined based on observed U.S. Treasury yields in effect at the time of grant for maturities equivalent to the expected life of the option. The expected life of the option (estimated average period of time the option will be outstanding) is estimated based on the historical exercise behavior of employees, with executives displaying somewhat longer holding periods than other employees. Expected volatility is based on historical volatility measured daily for a time period equal to the options expected life, ending on the day of grant. The expected dividend yield is estimated based on the dividend yield at the time of grant, adjusted for expected dividend increases and historical payout policy.
On August 4, 2005, the Companys Board of Directors approved a plan to accelerate vesting of all outstanding stock options which were unvested at December 31, 2005. Under APB Opinion No. 25, there was no compensation expense related to the vesting of these options. As a result of the boards action, stock options to purchase 430,831 shares of the Companys common stock became exercisable effective December 31, 2005.
Prior to January 1, 2006, the Company accounted for its stock options under the recognition and measurement principles of APB Opinion No. 25, and related interpretations. Accordingly, no stock-based employee compensation cost was reflected in net earnings prior to January 1, 2006 as all options to purchase common stock of the Company had an exercise price equal to, or greater than, the market value of the underlying common stock on the date of grant. The pro forma disclosure below reflects recognition of the remaining pro forma expense related to these options.
The following table illustrates the pro forma effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 in the previous years:
|
|
2005 |
|
|
Net income, as reported |
|
$ |
8,341,380 |
|
Deduct, Stock-based compensation expense determined under fair value based method, net of tax |
|
(1,000,556 |
) |
|
Pro forma net income |
|
$ |
7,340,824 |
|
|
|
|
|
|
Basic earnings per share, as reported |
|
$ |
.67 |
|
Pro forma basic earnings per share |
|
.59 |
|
|
|
|
|
|
|
Diluted earnings per share, as reported |
|
.65 |
|
|
Pro forma diluted earnings per share |
|
.57 |
|
29
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
1. NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.
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:
|
|
2005 |
|
Risk free interest rate |
|
3.73 |
% |
Expected life |
|
5 years |
|
Expected volatility |
|
36.10 |
% |
Expected dividends |
|
5.71 |
% |
Warranty - The Company provides limited product warranties for periods of up to five years from the date of retail sale. Estimated warranty costs are provided at the time of sale and are based upon historical experience. Warranty activity for the years ended December 29, 2007, December 30, 2006 and December 31, 2005 is as follows:
|
|
2007 |
|
2006 |
|
2005 |
|
|||
Accrued warranty, beginning of year |
|
$ |
1,541,000 |
|
$ |
1,385,000 |
|
$ |
1,209,344 |
|
Warranty expense |
|
1,344,327 |
|
1,794,057 |
|
1,821,765 |
|
|||
Warranty claims paid |
|
(1,409,327 |
) |
(1,638,057 |
) |
(1,646,109 |
) |
|||
Accrued warranty, end of year |
|
$ |
1,476,000 |
|
$ |
1,541,000 |
|
$ |
1,385,000 |
|
Income Taxes - Deferred income taxes are determined using the liability method.
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.
Comprehensive Income - Other comprehensive income refers to revenues, expenses, gains and losses that, under generally accepted accounting principles, are included in comprehensive income but are excluded from net income as these amounts are recorded directly as an adjustment to stockholders equity. The Companys other comprehensive income is comprised of unrealized gains and losses on hedge activities and available-for-sale securities, net of tax.
Segment Information - The Companys principal business is manufacturing specialized vehicles. Management has not separately organized the business beyond specialized vehicles (includes four categories of products) 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 subsidiarys revenues are less than 10 percent of consolidated revenues, the absolute amount of its reported income is less than 10 percent of the absolute amount of consolidated net income, and finally, its assets are less than 10 percent of consolidated assets.
30
Supreme Industries, Inc. And Subsidiaries
Notes to Consolidated Financial Statements, Continued
1. NATURE OF OPERATIONS AND ACCOUNTING POLICIES, Continued.
Net sales consist of the following:
|
|
2007 |
|
2006 |
|
2005 |
|
|||
Specialized vehicles: |
|
|
|
|
|
|
|
|||
Trucks |
|
$ |
209,180,974 |
|
$ |
259,894,141 |
|
$ |
267,563,822 |
|
Buses |
|
65,409,725 |
|
59,396,203 |
|
56,112,684 |
|
|||
Armored vehicles |
|
13,813,434 |
|
8,361,974 |
|
9,203,059 |
|
|||
Motorhomes |
|
11,617,653 |
|
4,063,359 |
|
|
|
|||
|
|
300,021,786 |
|
331,715,677 |
|
332,879,565 |
|
|||
Composites |
|
13,250,937 |
|
9,031,112 |
|
8,373,287 |
|
|||
|
|
$ |
313,272,723 |
|
$ |
340,746,789 |
|
$ |
341,252,852 |
|
Recent Accounting Pronouncements - In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS 157 is effective for fiscal years beginning after November 15, 2007; however, on February 12, 2008, the FASB issued FSP FAS 157-2 which delayed the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). This FSP partially deferred the effective date of Statement 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. Effective for 2008, we will adopt SFAS 157 except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in FSP FAS 157-2. The partial adoption of SFAS 157 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.