10-Q 1 g64805e10-q.txt SUPERIOR UNIFORM GROUP, INC. 1 FORM lO-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-5869-1 SUPERIOR UNIFORM GROUP, INC. Incorporated - Florida Employer Identification No. ---------------------- --------------------------- 11-1385670 10099 Seminole Boulevard Post Office Box 4002 Seminole, Florida 33775-0002 Telephone No.: 727-397-9611 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of October 27, 2000, the registrant had 7,123,327 common shares outstanding. Page 1 2 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements SUPERIOR UNIFORM GROUP, INC. CONDENSED SUMMARY OF OPERATIONS Three Months Ended September 30, -------------------------------- 2000 1999 ----------- ----------- (Unaudited) Net sales $42,496,735 $42,133,377 ----------- ----------- Costs and expenses: Cost of goods sold 28,047,847 27,913,067 Selling and administrative expenses 11,204,306 10,371,488 Interest expense 597,188 414,701 ----------- ----------- 39,849,341 38,699,256 ----------- ----------- Earnings before taxes on income 2,647,394 3,434,121 Taxes on income 960,000 1,261,000 ----------- ----------- Net earnings $ 1,687,394 $ 2,173,121 =========== =========== Weighted average number of shares out- standing during the period (Basic) 7,123,327 Shs. 7,727,657 Shs. (Diluted) 7,123,327 Shs. 7,747,840 Shs. Basic earnings per common share $ 0.24 $ 0.28 =========== =========== Diluted earnings per common share $ 0.24 $ 0.28 =========== =========== Cash dividends declared per common share $ 0.135 $ 0.135 =========== =========== Nine Months Ended September 30, --------------------------------- 2000 1999 ------------ ------------ (Unaudited) Net sales $126,050,768 $122,463,593 ------------ ------------ Costs and expenses: Cost of goods sold 83,193,509 81,131,032 Selling and administrative expenses 33,521,133 30,355,804 Interest expense 1,506,046 1,222,529 ------------ ------------ 118,220,688 112,709,365 ------------ ------------ Earnings before taxes on income 7,830,080 9,754,228 Taxes on income 2,850,000 3,580,000 ------------ ------------ Net earnings $ 4,980,080 $ 6,174,228 ============ ============ Weighted average number of shares out- standing during the period (Basic) 7,237,499 Shs. 7,784,795 Shs. (Diluted) 7,241,707 Shs. 7,820,150 Shs. Basic earnings per common share $ 0.69 $ 0.79 ============ ============ Diluted earnings per common share $ 0.69 $ 0.79 ============ ============ Cash dividends declared per common share $ 0.405 $ 0.405 ============ ============ The results of the nine months ended September 30, 2000 are not necessarily indicative of results to be expected for the full year ending December 31, 2000. See accompanying notes to condensed interim financial statements. Page 2 3 SUPERIOR UNIFORM GROUP, INC. CONDENSED BALANCE SHEETS
September 30, 2000 December 31, (Unaudited) 1999 ------------ ------------ (1) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 195,895 $ 3,021,376 Accounts receivable and other current assets 35,246,526 32,616,210 Inventories(*) 55,203,560 46,063,039 ------------ ------------ TOTAL CURRENT ASSETS 90,645,981 81,700,625 PROPERTY, PLANT AND EQUIPMENT, NET 28,582,217 29,460,159 EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED 8,329,749 8,646,163 OTHER ASSETS 3,227,900 3,045,165 ------------ ------------ $130,785,847 $122,852,112 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 9,619,619 $ 9,033,483 Other current liabilities 5,487,348 6,810,227 Current portion of long-term debt 3,206,821 3,162,986 ------------ ------------ TOTAL CURRENT LIABILITIES 18,313,788 19,006,696 LONG-TERM DEBT 30,696,791 19,472,577 DEFERRED INCOME TAXES 1,595,000 1,655,000 SHAREHOLDERS' EQUITY 80,180,268 82,717,839 ------------ ------------ $130,785,847 $122,852,112 ============ ============ (*) Inventories consist of the following: September 30, 2000 December 31, (Unaudited) 1999 ------------ ------------ Finished goods $ 37,372,875 $ 34,343,293 Work in process 5,932,604 3,698,341 Raw materials 11,898,081 8,021,405 ------------ ------------ $ 55,203,560 $ 46,063,039 ============ ============
(1) The balance sheet as of December 31, 1999 has been derived from the audited balance sheet and has been condensed. See accompanying notes to condensed interim financial statements. Page 3 4 SUPERIOR UNIFORM GROUP, INC. CONDENSED SUMMARY OF CASH FLOWS
Nine Months Ended September 30, ------------------------------- 2000 1999 ------------ ------------ (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 4,980,080 $ 6,174,228 Adjustments to reconcile net earnings to net cash (used in) provided from operating activities: Depreciation and amortization 3,627,043 3,082,083 Deferred income taxes (60,000) (45,000) Changes in assets and liabilities, net of acquisition: Accounts receivable and other current assets (2,630,316) 5,583,805 Inventories (9,140,521) 3,770,918 Accounts payable 586,136 (1,451,480) Other current liabilities (1,322,879) 515,240 ------------ ------------ Net cash flows (used in) provided from operating activities (3,960,457) 17,629,794 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant, and equipment (2,458,582) (3,975,371) Proceeds from disposals of property, plant and equipment 25,895 111,078 Purchase of business, net of cash acquired -- (8,959,181) Other assets (182,735) (140,062) ------------ ------------ Net cash used in investing activities (2,615,422) (12,963,536) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 13,483,574 12,000,000 Reduction in long-term debt (2,215,525) (8,298,649) Declaration of cash dividends (2,945,697) (3,152,600) Proceeds received on exercised stock options -- 20,563 Common stock reacquired and retired (4,571,954) (1,659,390) ------------ ------------ Net cash provided from (used in) financing activities 3,750,398 (1,090,076) ------------ ------------ Net (decrease) increase in cash and cash equivalents (2,825,481) 3,576,182 Cash and cash equivalents balance, beginning of period 3,021,376 514,001 ------------ ------------ Cash and cash equivalents balance, end of period $ 195,895 $ 4,090,183 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 1,512,129 $ 1,202,808 ============ ============ Income taxes paid $ 5,402,093 $ 4,623,314 ============ ============
See accompanying notes to condensed interim financial statements. Page 4 5 SUPERIOR UNIFORM GROUP, INC. NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS Note 1 - Summary of Significant Interim Accounting Policies: a) Recognition of costs and expenses Costs and expenses other than product costs are charged to income in interim periods as incurred, or allocated among interim periods based on an estimate of time expired, benefit received or activity associated with the periods. Procedures adopted for assigning specific cost and expense items to an interim period are consistent with the basis followed by the registrant in reporting results of operations at annual reporting dates. However, when a specific cost or expense item charged to expense for annual reporting purposes benefits more than one interim period, the cost or expense item is allocated to the interim periods. b) Inventories Inventories at interim dates are determined by using both perpetual records and gross profit calculations. c) Accounting for income taxes The provision for income taxes is calculated by using the effective tax rate anticipated for the full year. d) Earnings per share Historical basic per share data is based on the weighted average number of shares outstanding. Historical diluted per share data is reconciled by adding to weighted average shares outstanding the dilutive impact of the exercise of outstanding stock options.
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- -------------------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Net income $1,687,394 $2,173,121 $4,980,080 $6,174,228 Weighted average shares outstanding 7,123,327 7,727,657 7,237,499 7,784,795 Basic earnings per common share $ .24 $ .28 $ .69 $ .79 Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Net Income $1,687,394 $2,173,121 $4,980,080 $6,174,228 Weighted average shares outstanding 7,123,327 7,727,657 7,237,499 7,784,795 Common stock equivalents -- 20,183 4,208 35,355 Total weighted average shares outstanding 7,123,327 7,747,840 7,241,707 7,820,150 Diluted earnings per common share $ .24 $ .28 $ .69 $ .79
Page 5 6 e) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. f) Comprehensive Income The Company adopted the provisions of FAS 130, "Reporting Comprehensive Income" in the first quarter of 1998. FAS No. 130 requires disclosures of comprehensive income including per-share amounts in addition to the existing income statement. Comprehensive income is defined as the change in equity during a period, from transactions and other events, excluding changes resulting from investments by owners (e.g., supplemental stock offering) and distributions to owners (e.g., dividends). As of September 30, 2000, there are no items requiring separate disclosure in accordance with this statement. g) Operating Segments The Company adopted the provisions of FAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" in the first quarter of 1998. FAS No. 131 requires disclosures of certain information about operating segments and about products and services, geographic areas in which the Company operates, and their major customers. The Company has evaluated the effect of this new standard and has determined that currently it operates in one segment, as defined in this statement. h) Reclassifications Certain reclassifications to the 1999 financial information have been made to conform to the 2000 presentation. Note 2 - Acquisition: On April 1, 1999, the Company acquired substantially all of the net assets of The Empire Company, ("Empire") a supplier of uniforms, corporate I.D. wear and promotional products with revenues for the year ended December 1998 of approximately $14,000,000. The acquisition has been accounted for utilizing the purchase method of accounting. The purchase price for this acquisition was approximately $9,134,000 and was allocated as follows: Cash $ 264,326 Accounts Receivable 1,813,291 Other Current Assets 78,684 Inventories 1,690,688 Property, Plant & Equipment 577,429 Other Assets 5,318 Excess of Cost Over Fair Value of Assets Acquired 6,211,607 ----------- TOTAL ASSETS $10,641,343 =========== Accounts Payable and Accrued Expenses $ 1,507,836 =========== Page 6 7 Note 3 - Long-Term Debt: September 30, December 31, 2000 1999 ----------- ----------- Note payable - bank, pursuant to revolving credit agreement, maturing March 26, 2002 $13,483,484 $ -- 6.75% term loan payable to First Union, with monthly payments of principal and interest, maturing April 1, 2009 10,770,128 11,435,563 6.65% note payable to MassMutual Life Insurance Company due $1,666,667 annually through 2005 8,750,000 10,000,000 9.9% note payable to MassMutual Life Insurance Company due $600,000 annually through 2001 900,000 1,200,000 ----------- ----------- $33,903,612 $22,635,563 Less payments due within one year included in current liabilities 3,206,821 3,162,986 ----------- ----------- $30,696,791 $19,472,577 =========== =========== On March 26, 1999, the Company entered into a new 3-year credit agreement that made available to the Company up to $15,000,000 on a revolving credit basis. Interest is payable at LIBOR plus 0.60% based upon the one-month LIBOR rate for U.S. dollar based borrowings. The Company pays an annual commitment fee of 0.15% on the average unused portion of the commitment. The available balance under the credit agreement is reduced by outstanding letters of credit. As of September 30, 2000, approximately $1,461,000 was outstanding under letters of credit. The Company also entered into a $12,000,000 10-year term loan on March 26, 1999 with the same bank. The term loan is an amortizing loan, with monthly payments of principal and interest, maturing on April 1, 2009. The term loan carries a variable interest rate of LIBOR plus 0.80% based upon the one-month LIBOR rate for U.S. dollar based borrowings. Concurrent with the execution of the term loan agreement, the Company entered into an interest rate swap with the bank under which the Company receives a variable rate of interest on a notional amount equal to the outstanding balance of the term loan from the bank and the Company pays a fixed rate of 6.75% on a notional amount equal to the outstanding balance of the term loan to the bank. The credit agreement and the term loan with First Union and the agreements with MassMutual Life Insurance Company contain restrictive provisions concerning debt to net worth ratios, other borrowings, capital expenditures, rental commitments, tangible net worth ($61,570,000 at September 30, 2000); working capital ratio (2.5:1), fixed charges coverage ratio (2.5:1), stock repurchases and payment of dividends. At September 30, 2000, under the most restrictive terms of the debt agreements, retained earnings of approximately $10,280,000 were available for declaration of dividends. The Company is in full compliance with all terms, conditions and covenants of the various credit agreements. Page 7 8 In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," (later amended by SFAS 138), which will be in effect on January 1, 2001 for the Company. SFAS 133 requires, among other things, that all derivatives be recognized in the balance sheets as either assets or liabilities and measured at fair value. The corresponding derivative gains and losses should be reported based upon the hedge relationship, if such a relationship exists. Changes in the fair value of derivatives that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS 133 are required to be reported in income. Management does not believe that the adoption of SFAS 133 will have a significant impact on the Company's financial statements. Note 4 - Subsequent Event: On October 16, 2000, the Company entered into a 5-year term loan with First Union. The term loan is an amortizing loan, with monthly payments of principal in the amount of $83,333 plus interest, maturing on November 1, 2005. The term loan carries a variable interest rate of LIBOR plus 0.80% based upon the one-month LIBOR rate for U.S. dollar based borrowings. The proceeds of this term loan were utilized to reduce the outstanding balance on the Company's revolving credit agreement. Concurrent with the execution of the new term loan agreement, First Union and the Company amended the March 26, 1999 term loan and the revolving credit agreement to revise the net worth requirements. The net worth requirement included in Note 3 reflects this amendment. The interim information contained above is not certified or audited; it reflects all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the operating results for the periods presented, stated on a basis consistent with that of the audited financial statements. The financial information included in this form has been reviewed by Deloitte & Touche LLP, independent certified public accountants; such review was made in accordance with established professional standards and procedures for such a review. All financial information has been prepared in accordance with the accounting principles or practices reflected in the financial statements for the year ended December 31, 1999, filed with the Securities and Exchange Commission. Reference is hereby made to registrant's Financial Statements for 1999, heretofore filed with registrant's Form 10-K. Page 8 9 INDEPENDENT ACCOUNTANTS' REPORT Board of Directors Superior Uniform Group, Inc. Seminole, Florida We have reviewed the accompanying condensed balance sheet of Superior Uniform Group, Inc. (the "Company") as of September 30, 2000 and the related condensed summaries of operations for the three-month and nine-month periods ended September 30, 2000 and 1999 and of cash flows for the nine-month periods ended September 30, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the balance sheet of Superior Uniform Group, Inc. as of December 31, 1999, and the related statements of earnings, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 18, 2000, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of December 31, 1999 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. /s/ Deloitte & Touche, LLP -------------------------- Tampa, Florida October 24, 2000 Page 9 10 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Net sales of $42,496,735 for the three months ended September 30, 2000 increased approximately 1% from $42,133,377 for the comparable period ended September 30, 1999. For the nine months ended September 30, 2000, net sales were approximately 3% more than the comparable period ended September 30, 1999. Cost of goods sold as a percentage of sales approximated 66.0% for the nine months ended September 30, 2000 compared to 66.2% for the nine months ended September 30, 1999. Selling and administrative expenses, as a percentage of sales, were approximately 26.6 % for the first nine months of 2000 compared to 24.8% for the nine months ended September 30, 1999. The increase is primarily attributed to costs associated with the Company's February 3, 2000 implementation of its new SAP/AFS (Apparel Footwear Solution) computer system. The most significant components of the increase are attributed to the costs of computer consultants engaged to assist with the implementation and overtime costs for the Company's employees working on the project. We are beginning to see reductions in these additional expenses and expect that they will continue to decline over the remainder of the current year. Interest expense of $1,506,046 for the nine month period ended September 30, 2000 increased 23% from $1,222,529 for the similar period ended September 30, 1999 due to higher outstanding borrowings in the current period. Net earnings decreased 22% to $1,687,394 for the three months ended September 30, 2000 as compared to net earnings of $2,173,121 for the same period ended September 30, 1999. Net earnings for the nine months ended September 30, 2000 decreased 19% to $4,980,080 as compared to net earnings of $6,174,228 for the same period in 1999. Accounts receivable and other current assets increased 8% from $32,616,210 on December 31, 1999 to $35,246,526 as of September 30, 2000. Inventories increased 20% from $46,063,039 on December 31, 1999 to $55,203,560 as of September 30, 2000. Accounts payable increased 6% from $9,033,483 on December 31, 1999 to $9,619,619 on September 30, 2000 primarily due to increases in purchases of inventories. THE YEAR 2000 PROJECT: The Company recognized the need to ensure that its systems, applications and hardware would recognize and process transactions for the Year 2000 and beyond and therefore initiated a project to identify its risks with regard to Year 2000. This project consisted of four phases including: collecting an inventory of potential risks, assessing the actual risk, remedial work to correct identified problems, and testing for proper operation. The project was completed and systems found to be non-compliant were remedied or replaced. The cost to repair or replace affected systems was approximately $650,000. Of this amount, approximately $380,000 was incurred and expensed in 1999 and $270,000 was incurred and expensed prior to December 31, 1998. The Company does not expect to incur significant costs during 2000 related to ongoing monitoring and support activities for the Year 2000 issue. To date, the Company has not encountered any significant adverse impact from Year 2000 computer problems. The Company will continue to monitor all business processes throughout 2000 to address any issues and ensure all processes continue to function properly. Contingency plans to address potential risks in the event of Year 2000 failures will be developed as needed. Page 10 11 LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased by $2,825,481 from $3,021,376 on December 31, 1999 to $195,895 as of September 30, 2000. Additionally, total borrowings under long-term debt agreements increased by $11,268,049 from $22,635,563 on December 31, 1999 to $33,903,612 on September 30, 2000. The Company has operated without hindrance or restraint with its present working capital, as income generated from operations and outside sources of credit, both trade and institutional, have been more than adequate. In the foreseeable future, the registrant will continue its ongoing capital expenditure program designed to maintain and improve its facilities. The registrant at all times evaluates its capital expenditure program in light of prevailing economic conditions. The registrant believes that its cash flow from operating activities together with other capital resources and funds from credit sources are adequate to meet its anticipated funding requirements for the foreseeable future. During the nine months ended September 30, 2000 and 1999, the Company paid cash dividends of $2,945,697 and $3,152,600, respectively. The Company reacquired and retired 471,500 and 120,400 shares in the nine month periods ended September 30, 2000 and 1999, respectively, with costs of $4,571,954 and $1,659,390. This quarterly report contains certain forward-looking statements that involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following - general economic conditions in the areas of the United States in which the Company's customers are located; changes in the healthcare, resort and commercial industries where uniforms and service apparel are worn; the impact of competition; and the availability of manufacturing materials. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings None. ITEM 2. Changes in Securities None. ITEM 3. Defaults Upon Senior Securities Inapplicable. ITEM 4. Submission of Matters to a Vote of Security-holders None. ITEM 5. Other Information Inapplicable. ITEM 6. Exhibits and Reports on Form 8-K a) Exhibits 4.1 Term Promissory Note dated October 16, 2000 between the Company and First Union 4.2 First Amendment to March 26, 1999 Loan Agreement and Revolving Credit Note between the Company and First Union 15 Letter re: Unaudited Interim Financial Information. 27 Financial Data Schedule. b) Reports on Form 8-K None. Page 11 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 3, 2000 SUPERIOR UNIFORM GROUP, INC. By: /s/ Gerald M. Benstock ------------------------------------- Gerald M. Benstock Chairman and Chief Executive Officer By: /s/ Andrew D. Demott, Jr. ------------------------------------- Andrew D. Demott, Jr. Chief Financial Officer and Principal Accounting Officer, Vice President and Treasurer