NOTE 1 – Summary of Significant Interim Accounting Policies:

Basis of presentation

The consolidated interim financial statements include the accounts of Superior Uniform Group, Inc. and its wholly-owned subsidiaries, The Office Gurus, LLC, SUG Holding and Fashion Seal Corporation; The Office Gurus, LTDA, De C.V., The Office Masters, LTDA, De C.V. and The Office Gurus, Ltd., each a subsidiary of Fashion Seal Corporation and SUG Holding; and Power Three Web Ltda. and Superior Sourcing, each a wholly-owned subsidiary of SUG Holding. All of these entities are referred to collectively as “the Company”. Intercompany items have been eliminated in consolidation. The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, and filed with the Securities and Exchange Commission. The interim financial information contained herein is not certified or audited; it reflects all adjustments (consisting of only normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of the operating results for the periods presented, stated on a basis consistent with that of the audited financial statements. The results of operations for any interim period are not necessarily indicative of results to be expected for the full year.

Revenue recognition

The Company records revenue as products are shipped and title passes and as services are provided. A provision for estimated returns and allowances is recorded based on historical experience and current allowance programs.

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.

Amortization of other intangible assets

The Company amortizes identifiable intangible assets on a straight line basis over their expected useful lives. Amortization expense for other intangible assets was $516,000 for the three-month periods ended September 30, 2015 and 2014, respectively, and $1,549,000 for the nine-month periods ended September 30, 2015 and 2014, respectively.

Advertising expenses

The Company expenses advertising costs as incurred. Advertising costs for the three-month periods ended September 30, 2015 and 2014, respectively were $11,000 and $28,000. Advertising costs for the nine-month periods ended September 30, 2015 and 2014, respectively were $101,000 and $92,000.

Shipping and handling fees and costs

The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with in-bound and out-bound freight are generally recorded in cost of goods sold. Other shipping and handling costs such as labor and overhead are included in selling and

administrative expenses

and totaled $2,443,000 and $2,418,000 for the three months ended September 30, 2015 and 2014, respectively. Other shipping and handling costs included in selling and administrative expenses

totaled $7,069,000 and $6,791,000 for the nine months ended September 30, 2015 and 2014, respectively.

Inventories

Inventories at interim dates are determined by using both perpetual records on a first-in, first-out basis and gross profit calculations.

Accounting for income taxes

The provision for income taxes is calculated by using the effective tax rate anticipated for the full year.

Employee benefit plan settlements

The Company recognizes settlement gains and losses in its financial statements when the cost of all settlements in a year is greater than the sum of the service cost and interest cost components of net periodic pension cost for the plan for the year.

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 and stock appreciation rights.

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2015		2014		2015		2014
Net earnings used in the computation of basic and diluted earnings per share	$	4,031,000	$	3,368,000	$	9,698,000	$	8,493,000

Weighted average shares outstanding - basic		13,833,561		13,375,566		13,716,376		13,237,438
Common stock equivalents		752,127		628,636		853,995		498,056
Weighted average shares outstanding - diluted		14,585,688		14,004,202		14,570,371		13,735,494

Per Share Data :
Basic
Net earnings	$	0.29	$	0.25	$	0.71	$	0.64

Diluted
Net earnings	$	0.28	$	0.24	$	0.67	$	0.62

Awards to purchase approximately 144,000

and 118,000

shares of common stock with weighted average exercise prices of $17.71

and $10.38

per share were outstanding during the three-month periods ending September 30, 2015 and 2014, respectively, but were not included in the computation of diluted EPS because the awards’ exercise prices were greater than the average market price of the shares of common stock.

Awards to purchase approximately 97,000

and 46,000

shares of common stock with weighted average exercise prices of $18.19 and $10.03

per share were outstanding during the nine-month periods ending September 30, 2015 and 2014, respectively, but were not included in the computation of diluted EPS because the awards’ exercise prices were greater than the average market price of the shares of common stock.

Derivative financial instruments

The Company uses certain financial derivatives to mitigate its exposure to volatility in interest rates. The Company records derivatives on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. On the date a derivative contract is entered into, the Company may elect to designate the derivative as a fair value hedge, a cash flow hedge, or the hedge of a net investment in a foreign operation. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative that is used in the hedging transaction is highly effective. For those instruments that are designated as a cash flow hedge and meet certain documentary and analytical requirements to qualify for hedge accounting treatment, changes in the fair value for the effective portion are reported in other comprehensive income (“OCI”), net of related income tax effects, and are reclassified to the income statement when the effects of the item being hedged are recognized in the income statement. The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, or management determines that designation of the derivative as a hedging instrument is no longer appropriate. In situations in which the Company does not elect hedge accounting or hedge accounting is discontinued and the derivative is retained, the Company carries or continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value through earnings.

The nature of the Company’s business activities involves the management of various financial and market risks, including those related to changes in interest rates. The Company does not enter into derivative instruments for speculative purposes. The Company manages market and credit risks associated with its derivative instruments by establishing and monitoring limits as to the types and degree of risk that may be undertaken, and by entering into transactions with high-quality counterparties. As of September 30, 2015, the Company’s derivative counterparty had investment grade credit ratings.

In July 2013, the Company entered into an interest rate swap agreement whereby the interest rate payable by the Company on a portion of the outstanding balance of the term loan was effectively converted to a fixed rate of 2.53% beginning July 1, 2014. The Company entered into this interest rate swap arrangement to mitigate future interest rate risk associated with its borrowings and has designated it as a cash flow hedge. (See Note 2).

Use of estimates

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.

Comprehensive income

Total comprehensive income represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net earnings. For the Company, the only other components of total comprehensive income are the change in pension costs and the change in fair value of qualifying hedges.

Operating segments

Accounting standards

require 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 its operations and has determined that it has two reportable segments – uniforms and related products and remote staffing solutions. (See Note 6).

Share-Based Compensation

The Company awards share-based compensation as an incentive for employees to contribute to the Company’s long-term success. Historically, the Company has granted options and stock settled stock appreciation rights. In 2015 and 2014, the Company also granted restricted stock awards.

In 2003, the stockholders of the Company approved the 2003 Incentive Stock and Awards Plan (the “2003 Plan”), authorizing the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, performance stock and other stock based compensation. This plan expired in May of 2013, at which time, the stockholders of the Company approved the 2013 Incentive Stock and Awards Plan (the “2013 Plan”), authorizing the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, performance stock and other stock based compensation. A total of 5,000,000 shares of common stock (subject to adjustment for expirations and cancellations of options outstanding from the 2003 Plan subsequent to its termination) have been reserved for issuance under the 2013 Plan. All options under both plans have been or will be granted at prices at least equal to the fair market value of the shares on the date of grant. At September 30, 2015, the Company had 4,159,306 shares of common stock available for grants of share-based compensation awards under the 2013 Plan.

The Company grants stock options and stock settled stock appreciation rights (“SARS”) to employees that allow them to purchase shares of the Company’s common stock. Options are also granted to outside members of the Board of Directors of the Company. The Company determines the fair value of stock options and SARS at the date of grant using the Black-Scholes valuation model.

All options and SARS vest immediately at the date of grant. Awards generally expire five years after the date of grant with the exception of options granted to outside directors, which expire ten years after the date of grant. The Company issues new shares upon the exercise of stock options and SARS.

For the three months ended September 30, 2015 and 2014, respectively, the Company recognized $251,000 and $323,000 of share-based compensation related to stock options and SARS recorded in selling and administrative expense in the Consolidated Statements of Comprehensive Income.

For the nine months ended September 30, 2015 and 2014, respectively, the Company recognized $1,079,000 and $1,175,000 of share-based compensation related to stock options and SARS recorded in selling and administrative expense in the Consolidated Statements of Comprehensive Income. These expenses were partially offset by a $122,000 and a $127,000 deferred tax benefit for non-qualified share-based compensation for the nine-month periods ended September 30, 2015 and 2014, respectively.

On February 7, 2014, the Compensation Committee of the Board of Directors approved a restricted stock grant under the terms of the 2013 Plan of the Company to four members of senior management for a total of 100,000 shares. The fair value of the stock on the date of the grant was $7.36 per share for a total value of $736,000. These shares were unvested at the time of grant and will vest if the executives are still employed by the Company on February 7, 2017. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan. On November 7, 2014, the Board of Directors approved a restricted stock grant under the terms of the 2013 Plan to the four independent members of the Board of Directors for a total of 6,016 shares. The fair value of the stock on the date of grant was $11.96 per share for a total value of $72,000. These shares were unvested at the time of grant and will vest if the directors are still serving on the Company’s Board of Directors on November 7, 2017. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan. On April 15, 2015, the Compensation Committee of the Board of Directors approved a restricted stock grant under the terms of the 2013 Plan to a member of management for a total of 1,050 shares. The fair value of the stock on the date of grant was $21.92 per share for a total value of $23,000. These shares were unvested at the time of grant and will vest if the executive is still employed by the Company on April 15, 2018. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan.

Expense for all such grants of restricted stock is being recognized on a straight-line basis over the respective service periods. The Company recognized approximately $69,000 and $61,000 in expense associated with such grants for the three-month periods ended September 30, 2015 and 2014, respectively, and approximately $206,000 and $163,000 for the nine-month periods ended September 30, 2015 and 2014, respectively. These expenses were offset by deferred tax benefits of $25,000 and $22,000 for the three-month periods ended September 30, 2015 and 2014, respectively, and $73,000 and $51,000 for the nine-month periods ended September 30, 2015 and 2014, respectively. As of September 30, 2015, the Company had $397,000 of unrecognized compensation cost expected to be recognized in the future for prior share-based awards.

During the nine-month periods ended September 30, 2015 and 2014, respectively, the Company received $1,501,000 and $1,461,000 in cash from stock option exercises. Additionally, during the nine-month periods ended September 30, 2015 and 2014, the Company received 14,571 and 20,256 shares of its common stock as payment for the issuance of 50,224 and 40,816 shares of its common stock related to the exercise of stock options.

A summary of options transactions during the nine months ended September 30, 2015 follows:

	No. of			Weighted Average
	Shares			Exercise Price
Outstanding December 31, 2014		1,118,058		$	6.63
Granted		153,618		$	18.11
Exercised		(255,332	)	$	7.03
Lapsed		(5,900	)	$	5.64
Cancelled		(520	)	$	17.40
Outstanding September 30, 2015		1,009,924		$	8.27

At September 30, 2015, options outstanding, all of which were fully vested and exercisable, had an aggregate intrinsic value of

$9,818,000.

Options exercised during the three-month periods ended September 30, 2015 and 2014 had aggregate intrinsic values of $519,000 and $692,000, respectively. Options exercised during the nine-month periods ended September 30, 2015 and 2014 had aggregate intrinsic values of $2,896,000 and $977,000, respectively. The weighted average grant date fair value of the Company’s options granted during the three-month periods ended September 30, 2015 and 2014 was $4.97 and $2.74, respectively. The weighted average grant date fair value of the Company’s options granted during the nine-month periods ended September 30, 2015 and 2014 was $5.22 and $2.26, respectively.