UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM ~~10-Q/A~~

~~Amendment No. 1~~10-Q

(Mark One)

☒		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~September~~June 30, ~~2021~~2022

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to __________

Commission file number: 001-05869

Exact name of registrant as specified in its charter:

SUPERIOR GROUP OF COMPANIES, INC.

State or other jurisdiction of incorporation or organization:	I.R.S. Employer Identification No.:
Florida	11-1385670

Address of principal executive offices:
10055 Seminole Boulevard
Seminole, Florida 33772-2539

Registrant’s telephone number, including area code:
727-397-9611

Former name, former address and former fiscal year, if changed since last report: ___________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock $0.001 par value per share		SGC		NASDAQ

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☒
Non-accelerated filer ☐		Smaller Reporting Company ☒
		Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of common stock of the registrant outstanding as of ~~October 26, 2021~~July 28, 2022 was ~~15,971,211~~16,318,059 shares.

~~EXPLANATORY NOTE~~

Superior Group of Companies, Inc. (the “Company,” “we,” “us” or “our”) is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021 (the “Amendment” or “Form 10-Q/A”) to amend and restate certain financial information and related footnote and MD&A disclosures in its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021 originally filed with the Securities and Exchange Commission (the “SEC”) on November 3, 2021 (the “Existing Quarterly Report” or “original Form 10-Q”). This Amendment also amends the disclosure regarding disclosure controls and procedures and internal control over financial reporting in Item 4 of Part I of the Existing Quarterly Report, amends the disclosure regarding Risk Factors in Item 1A of Part II of the Existing Quarterly Report, and includes as exhibits new certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as amended, from the Company's Chief Executive Officer and Chief Financial Officer dated as of the filing date of this Form 10-Q/A. Item 6 of Part II of the Existing Quarterly Report is amended to reflect the filing of these new certifications.

~~Background of Restatement~~

On March 21, 2022, the management and the Audit Committee of the Board of Directors of the Company concluded that, due to a failure to reverse deferred tax liabilities associated with the termination of the Company’s two qualified defined benefit pension plans in the second quarter 2021, the Company's previously issued unaudited interim condensed consolidated financial statements (collectively “financial statements,” and individually “statements of comprehensive income,” “balance sheets,” “statements of shareholders’ equity,” and “statements of cash flows”) as of and for the three and nine months ended September 30, 2021 included in the Existing Quarterly Report should be restated in this Form 10-Q/A. This restatement results in non-cash, non-operating financial statement corrections.

Specifically, management and the Audit Committee concluded that deferred tax liabilities on the Company’s balance sheet related to previous contributions to the pension plans in excess of book expense recognized should have been reversed when the Company recognized the $6.9 million pension termination charge in the second quarter 2021. The impact of this reversal on the Company’s:

~~• statement of comprehensive income for the nine months ended September 30, 2021 is an additional tax benefit of approximately $1.8 million, and~~

~~• balance sheet as of September 30, 2021 is an increase in deferred tax assets of approximately $0.4 million and a decrease in deferred tax liabilities of approximately $1.4 million.~~

~~With corresponding impacts on the statement of cash flows and statements of shareholders’ equity. Each of these adjustments is a non-cash item.~~

The financial information that has been previously filed or otherwise reported for this period is superseded by the information in this Form 10-Q/A, and the financial statements and related financial information contained in the Existing Quarterly Report should no longer be relied upon. On March 23, 2022, the Company filed a Current Report on Form 8-K disclosing the non-reliance on the financial statements included in the Existing Quarterly Report.

This Amendment amends and restates Items 1, 2 and 4 of Part I and Items 1A and 6 of Part II of the Existing Quarterly Report, and no other information included in the Existing Quarterly Report is amended hereby. The explanatory caption, if any, at the beginning of each item of this Amendment sets forth the nature of any revisions to that item.

~~All referenced amounts in this Amendment for prior periods and prior period comparisons reflect the balances and amounts on a restated basis.~~

Except as described above, no other information included in the Existing Quarterly Report is being amended or updated by this Amendment and this Amendment does not purport to reflect any information or events subsequent to the Existing Quarterly Report.

This Amendment continues to describe the conditions as of the date of the Existing Quarterly Report and, except as expressly contained herein, we have not updated, modified or supplemented the disclosures contained in the Existing Quarterly Report. Accordingly, this Amendment should be read in conjunction with the Existing Quarterly Report and with our filings with the SEC subsequent to the Existing Quarterly Report.

~~Internal Control Considerations~~

In connection with the restatement, management has reevaluated the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting as of September 30, 2021. The Company’s management has concluded that in light of the error described above, a material weakness existed in the Company’s internal control over financial reporting related to accounting for income taxes as of September 30, 2021, and that the Company’s disclosure controls and procedures were not effective as of such date.

~~Remediation Efforts with Respect to the Material Weakness~~

~~The Company’s management, under the oversight of the Audit Committee, is in the process of developing a plan to remediate the material weakness which is expected to include the following measures:~~

~~• implement a tax reporting software solution to streamline our income tax process and enhance our state and federal income tax reporting capabilities;~~

~~• hire additional qualified personnel to bolster the Company's in-house tax capabilities and capacity; and~~

~~• evaluate and, if necessary, enhance the level of precision in the management review controls related to income taxes.~~

The material weakness will not be considered remediated until management completes the remediation plan above, the enhanced controls operate for a sufficient period of time, and management has concluded, through testing, that the related controls are effective. The Company will monitor the effectiveness of its remediation plan and will refine its remediation plan as appropriate.

For a discussion of management’s consideration of our disclosure controls and procedures, internal control over financial reporting, and the material weakness identified, see Part I, Item 4, “Controls and Procedures” of this Form 10-Q/A.

TABLE OF CONTENTS



	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements ~~(Restated)~~	43
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	43
Condensed Consolidated Balance Sheets (Unaudited)	65
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)	76
Condensed Consolidated Statements of Cash Flows (Unaudited)	98
Notes to the Condensed Consolidated Financial Statements (Unaudited)	109
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2326
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3236
Item 4. Controls and Procedures	3236
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	3438
Item 1A. Risk Factors	3438
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3538
Item 3. Defaults Upon Senior Securities	3539
Item 4. Mine Safety Disclosures	3539
Item 5. Other Information	3539
Item 6. Exhibits	3639
SIGNATURES	3740

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

The restated condensed consolidated financial statements, including the notes to the restated condensed consolidated financial statements, set forth in this Item 1, have been revised to reflect the restatement occurring subsequent to the filing of the original Form 10-Q.

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except shares and per share data)

	Three Months Ended September 30,						Three Months Ended June 30,
	*2021*			2020			*2022*			2021
Net sales	$	123,326		$	127,737		$	147,933		$	130,787

Costs and expenses:
Cost of goods sold		77,512			80,285			99,800			83,629
Selling and administrative expenses		35,059			34,917			45,969			33,906
Goodwill impairment charge								24,458			0
Intangible assets impairment charge								5,581			0
Other periodic pension costs		459			212			528			440
Pension plan termination charge								0			6,945
Interest expense		320			239			583			330
		113,350			115,653			176,919			125,250
Income before taxes on income		9,976			12,084
Income tax expense		1,780			2,140
Net income	$	8,196		$	9,944
Income (loss) before taxes on income								(28,986	)		5,537
Income tax benefit								(2,311	)		(840	)
Net income (loss)							$	(26,675	)	$	6,377

Net income per share:
Net income (loss) per share:
Basic	$	0.53		$	0.66		$	(1.70	)	$	0.41
Diluted	$	0.51		$	0.63		$	(1.70	)	$	0.40

Weighted average shares outstanding during the period:
Basic		15,528,534			15,084,300			15,732,264			15,433,412
Diluted		16,099,850			15,711,122			15,732,264			16,087,736

Other comprehensive income (loss), net of tax:
Defined benefit pension plans:
Recognition of net losses included in net periodic pension costs	$	278		$	232		$	319		$	391
Recognition of settlement loss included in net periodic pension costs		0			62
Recognition of net losses included in pension plan termination charges								0			5,230
Loss on cash flow hedging activities		(5	)		(5	)		(5	)		(6	)
Foreign currency translation adjustment		(570	)		(145	)		(763	)		1,033
Other comprehensive income		(297	)		144
Comprehensive income	$	7,899		$	10,088
Other comprehensive income (loss)								(449	)		6,648
Comprehensive income (loss)							$	(27,124	)	$	13,025

Cash dividends per common share	$	0.12		$	0.20		$	0.14		$	0.12

See accompanying Notes to the Condensed Consolidated Financial Statements.

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except shares and per share data)

	Nine Months Ended September 30,
	*2021*			2020			Six Months Ended June 30,
		(Restated)					*2022*			2021
Net sales	$	394,960		$	381,341		$	291,515		$	271,634

Costs and expenses:								��
Cost of goods sold		252,945			244,500			193,601			175,433
Selling and administrative expenses		104,076			98,704			88,183			69,017
Goodwill impairment charge								24,458			0
Intangible assets impairment charge								5,581			0
Other periodic pension costs		1,328			830			1,056			869
Pension plan termination charge		6,945			0			0			6,945
Interest expense		925			1,732			882			605
		366,219			345,766			313,761			252,869
Income before taxes on income		28,741			35,575
Income tax expense		3,690			7,090
Net income	$	25,051		$	28,485
Income (loss) before taxes on income								(22,246	)		18,765
Income tax expense (benefit)								(801	)		1,910
Net income (loss)							$	(21,445	)	$	16,855

Net income per share:
Net income (loss) per share:
Basic	$	1.63		$	1.89		$	(1.37	)	$	1.10
Diluted	$	1.56		$	1.85		$	(1.37	)	$	1.05

Weighted average shares outstanding during the period
Weighted average shares outstanding during the period:
Basic		15,394,427			15,041,738			15,705,646			15,327,374
Diluted		16,059,686			15,361,035			15,705,646			16,039,605

Other comprehensive income (loss), net of tax:
Defined benefit pension plans:
Recognition of net losses included in net periodic pension costs	$	1,383		$	712		$	638		$	1,105
Recognition of settlement loss included in net periodic pension costs		0			314
Recognition of net losses included in pension plan termination charges		5,230			0			0			5,230
Loss on cash flow hedging activities		(16	)		(16	)		(10	)		(11	)
Foreign currency translation adjustment		(184	)		(1,546	)		99			386
Other comprehensive income (loss)		6,413			(536	)
Comprehensive income	$	31,464		$	27,949
Other comprehensive income								727			6,710
Comprehensive income (loss)							$	(20,718	)	$	23,565

Cash dividends per common share	$	0.34		$	0.30		$	0.26		$	0.22

See accompanying Notes to the Condensed Consolidated Financial Statements.

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
~~(Unaudited)~~
(In thousands, except share and par value data)

	*September 30,*			December 31,			*June 30,*			December 31,
	*2021*			2020			*2022*			2021
	(Restated)							(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	6,408		$	5,172		$	10,305		$	8,935
Accounts receivable, less allowance for doubtful accounts of $5,852 and $7,667, respectively		92,500			101,902
Accounts receivable, less allowance for doubtful accounts of $7,248 and $6,393, respectively								110,375			107,053
Accounts receivable - other		2,338			1,356			4,217			5,546
Inventories		103,371			89,766			127,036			120,555
Contract assets		37,575			39,231			46,088			38,018
Prepaid expenses and other current assets		15,633			11,030			20,367			19,162
Total current assets		257,825			248,457			318,388			299,269
Property, plant and equipment, net		46,928			36,644			52,970			49,690
Operating lease right-of-use assets		6,299			3,826			9,513			8,246
Deferred tax asset		352			0			1,440			0
Intangible assets, net		59,414			58,746			58,429			60,420
Goodwill		38,557			36,116			21,587			39,434
Other assets		13,154			10,135			11,353			13,186
Total assets	$	422,529		$	393,924		$	473,680		$	470,245

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	38,096		$	39,327		$	48,569		$	52,340
Other current liabilities		36,069			44,670			40,630			38,989
Current portion of long-term debt		15,286			15,286			15,286			15,286
Current portion of acquisition-related contingent liabilities		3,929			5,589			1,304			4,507
Total current liabilities		93,380			104,872			105,789			111,122
Long-term debt		80,882			72,372			133,407			100,845
Long-term pension liability		14,548			14,574			15,679			15,420
Long-term acquisition-related contingent liabilities		0			1,892			2,754			2,569
Long-term operating lease liabilities		2,189			1,599			4,495			3,729
Deferred tax liability		0			450			0			359
Other long-term liabilities		8,795			6,535			8,411			9,211
Commitments and contingencies (Note 6)
Shareholders’ equity:
Preferred stock, $.001 par value - authorized 300,000 shares (none issued)		0			0			0			0
Common stock, $.001 par value - authorized 50,000,000 shares, issued and outstanding 15,960,253 and 15,391,660 shares, respectively.		16			15
Common stock, $.001 par value - authorized 50,000,000 shares, issued and outstanding 16,318,059 and 16,127,505 shares, respectively								16			16
Additional paid-in capital		66,996			61,844			70,629			69,351
Retained earnings		161,511			141,972			137,986			163,836
Accumulated other comprehensive income (loss), net of tax:
Pensions		(4,285	)		(10,898	)		(3,939	)		(4,577	)
Cash flow hedges		53			69			37			47
Foreign currency translation adjustment		(1,556	)		(1,372	)		(1,584	)		(1,683	)
Total shareholders’ equity		222,735			191,630			203,145			226,990
Total liabilities and shareholders’ equity	$	422,529		$	393,924		$	473,680		$	470,245

See accompanying Notes to the Condensed Consolidated Financial Statements.

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE MONTHS ENDED ~~September~~June 30, ~~2021~~2022 AND ~~2020~~2021

(Unaudited)

(In thousands, except shares and per share data)

Accumulated

Other

Additional

Comprehensive

Total

Common

Common

Paid-In

Retained

(Loss) Income,

Shareholders’

Shares

Stock

Capital

Earnings

net of tax

Equity

Balance, July 1, 2020
15,231,781 $ 15 $ 58,381 $ 124,243 $ (8,164 ) $ 174,475
Common shares issued upon exercise of options, net
109,168 1,540 (166 ) 1,374
Share-based compensation expense
729 729
Tax withheld on exercise of Stock Appreciation Rights (SARS)
(32 ) (32 )
Cash dividends declared ($0.20 per share)
(3,053 ) (3,053 )
Comprehensive income (loss):

Net earnings
9,944 9,944
Cash flow hedges, net of taxes of $1
(5 ) (5 )
Pensions, net of taxes of $92
294 294
Change in currency translation adjustment, net of taxes of $0
(145 ) (145 )
Balance, September 30, 2020
15,340,949 $ 15 $ 60,618 $ 130,968 $ (8,020 ) $ 183,581

(Restated)
Balance, July 1, 2021
15,824,530 $ 16 $ 65,578 $ 155,212 $ (5,491 ) $ 215,315
Common shares issued upon exercise of options and SARs, net
31,446 330 0 330
Restricted shares issued
104,277 0
Share-based compensation expense
1,088 1,088
Cash dividends declared ($0.12 per share)
(1,897 ) (1,897 )
Comprehensive income (loss):

Net earnings
8,196 8,196
Cash flow hedges, net of taxes of $0
(5 ) (5 )
Pensions, net of taxes of $96
278 278
Change in currency translation adjustment, net of taxes of $0
(570 ) (570 )
Balance, September 30, 2021
15,960,253 $ 16 $ 66,996 $ 161,511 $ (5,788 ) $ 222,735

												Accumulated
												Other
						Additional						Comprehensive			Total
	Common			Common		Paid-In			Retained			(Loss) Income,			Shareholders’
	Shares			Stock		Capital			Earnings			net of tax			Equity
Balance, April 1, 2021		15,582,835		$	15	$	62,773		$	150,734		$	(12,139	)	$	201,383
Common shares issued upon exercise of options and SARs, net		219,412			1		2,001			(10	)					1,992
Performance based shares issued		3,148														0
Restricted shares issued		19,135														0
Share-based compensation expense							837									837
Tax withheld on vesting of performance based shares							(33	)								(33	)
Cash dividends declared ($0.12 per share)										(1,889	)					(1,889	)
Comprehensive income (loss):
Net income										6,377						6,377
Cash flow hedges, net of taxes of $1													(6	)		(6	)
Pensions, net of taxes of $2,755													5,621			5,621
Change in currency translation adjustment, net of taxes of $0													1,033			1,033
Balance, June 30, 2021		15,824,530		$	16	$	65,578		$	155,212		$	(5,491	)	$	215,315

Balance, April 1, 2022		16,171,034		$	16	$	70,685		$	166,914		$	(5,037	)	$	232,578
Common shares issued upon exercise of options and SARs, net		32,309					299									299
Restricted shares issued, net of forfeitures		(1,834	)													0
Restricted shares issued in conjunction with acquisition of business		116,550					2,000									2,000
Share-based compensation expense							1,242									1,242
Written put option							(3,597	)								(3,597	)
Cash dividends declared ($0.14 per share)										(2,253	)					(2,253	)
Comprehensive income (loss):
Net loss										(26,675	)					(26,675	)
Cash flow hedges, net of taxes of $0													(5	)		(5	)
Pensions, net of taxes of $110													319			319
Change in currency translation adjustment, net of taxes of $0													(763	)		(763	)
Balance, June 30, 2022		16,318,059		$	16	$	70,629		$	137,986		$	(5,486	)	$	203,145

See accompanying Notes to the Condensed Consolidated Financial Statements.

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

~~CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY~~

~~Nine MONTHS ENDED September 30, 2021 AND 2020~~

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Six MONTHS ENDED June 30, 2022 AND 2021

(Unaudited)

(In thousands, except shares and per share data)

Accumulated

Other

Additional

Comprehensive

Total

Common

Common

Paid-In

Retained

(Loss) Income,

Shareholders’

Shares

Stock

Capital

Earnings

net of tax

Equity

Balance, January 1, 2020
15,227,604 $ 15 $ 57,442 $ 107,581 $ (7,484 ) $ 157,554
Common shares issued upon exercise of options
118,788 1,590 (183 ) 1,407
Restricted shares issued
38,015 0
Share-based compensation expense
1,790 1,790
Tax benefit from vesting of acquisition-related restricted stock
(13 ) (13 )
Tax withheld on exercise of Stock Appreciation Rights (SARS)
(32 ) (32 )
Cash dividends declared ($0.30 per share)
(4,574 ) (4,574 )
Common stock reacquired and retired
(43,458 ) (159 ) (341 ) (500 )
Comprehensive income (loss):

Net earnings
28,485 28,485
Cash flow hedges, net of taxes of $2
(16 ) (16 )
Pensions, net of taxes of $322
1,026 1,026
Change in currency translation adjustment, net of taxes of $449
(1,546 ) (1,546 )
Balance, September 30, 2020
15,340,949 $ 15 $ 60,618 $ 130,968 $ (8,020 ) $ 183,581

(Restated)
Balance, January 1, 2021
15,391,660 $ 15 $ 61,844 $ 141,972 $ (12,201 ) $ 191,630
Common shares issued upon exercise of options and SARs, net
261,604 1 2,629 (178 ) 2,452
Performance based shares issued
42,823 0
Restricted shares issued
264,166 0
Share-based compensation expense
2,757 2,757
Tax withheld on exercise of performance based shares
(405 ) (405 )
Tax benefit from vesting of acquisition-related restricted stock
171 171
Cash dividends declared ($0.34 per share)
(5,334 ) (5,334 )
Comprehensive income (loss):

Net earnings
25,051 25,051
Cash flow hedges, net of taxes of $2
(16 ) (16 )
Pensions, net of taxes of $2,737
6,613 6,613
Change in currency translation adjustment, net of taxes of $0
(184 ) (184 )
Balance, September 30, 2021
15,960,253 $ 16 $ 66,996 $ 161,511 $ (5,788 ) $ 222,735

												Accumulated
												Other
						Additional						Comprehensive			Total
	Common			Common		Paid-In			Retained			(Loss) Income,			Shareholders’
	Shares			Stock		Capital			Earnings			net of tax			Equity
Balance, January 1, 2021		15,391,660		$	15	$	61,844		$	141,972		$	(12,201	)	$	191,630
Common shares issued upon exercise of options and SARs, net		230,158			1		2,299			(178	)					2,122
Performance based shares issued		42,823														0
Restricted shares issued		159,889														0
Share-based compensation expense							1,669									1,669
Tax withheld on vesting of performance based shares							(405	)								(405	)
Tax benefit from vesting of acquisition-related restricted stock							171									171
Cash dividends declared ($0.22 per share)										(3,437	)					(3,437	)
Comprehensive income (loss):
Net income					0		0			16,855			0			16,855
Cash flow hedges, net of taxes of $2													(11	)		(11	)
Pensions, net of taxes of $2,641													6,335			6,335
Change in currency translation adjustment, net of taxes of $0													386			386
Balance, June 30, 2021		15,824,530		$	16	$	65,578		$	155,212		$	(5,491	)	$	215,315

Balance, January 1, 2022		16,127,505		$	16	$	69,351		$	163,836		$	(6,213	)	$	226,990
Cumulative-effect adjustment from adoption of ASU 2016-13										(76	)					(76	)
Common shares issued upon exercise of options and SARs, net		48,011					653			(158	)					495
Performance based shares issued		11,707														0
Restricted shares issued, net of forfeitures		21,843														0
Restricted shares issued in conjunction with acquisition of business		116,550					2,000									2,000
Share-based compensation expense							2,454									2,454
Tax withheld on vesting of restricted shares and performance based shares		(7,557	)				(232	)								(232	)
Written put option							(3,597	)								(3,597	)
Cash dividends declared ($0.26 per share)										(4,171	)					(4,171	)
Comprehensive income (loss):
Net loss					0		0			(21,445	)		0			(21,445	)
Cash flow hedges, net of taxes of $1													(10	)		(10	)
Pensions, net of taxes of $220													638			638
Change in currency translation adjustment, net of taxes of $0													99			99
Balance, June 30, 2022		16,318,059		$	16	$	70,629		$	137,986		$	(5,486	)	$	203,145

See accompanying Notes to the Condensed Consolidated Financial Statements.

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	*2021*			2020			Six Months Ended June 30,
		(Restated)					*2022*			2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	25,051		$	28,485
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net income (loss)							$	(21,445	)	$	16,855
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		6,719			5,972			6,103			4,373
Goodwill impairment charge								24,458			0
Intangible assets impairment charge								5,581			0
Inventory write-downs								4,795			924
Provision for bad debts - accounts receivable		1,715			6,099			1,282			1,244
Share-based compensation expense		2,757			1,790			2,454			1,669
Deferred income tax benefit		(2,927	)		(3,654	)		(2,018	)		(2,926	)
Change in fair value of acquisition-related contingent liabilities		2,310			2,759			626			1,741
Pension plan termination charge		6,945			0			0			6,945
Changes in assets and liabilities, net of acquisition of business:
Changes in assets and liabilities, net of acquisition of businesses:
Accounts receivable		7,544			(12,225	)		(3,025	)		(896	)
Accounts receivable - other		(732	)		(1,121	)		458			(1,392	)
Contract assets		1,656			3,049			(8,176	)		(1,868	)
Inventories		(13,667	)		(7,306	)		(9,377	)		(9,662	)
Prepaid expenses and other current assets		(4,445	)		(3,592	)		(925	)		(2,565	)
Other assets		(1,462	)		1			1,812			(1,401	)
Accounts payable and other current liabilities		(12,287	)		29,167			(7,325	)		(14,535	)
Payment of acquisition-related contingent liabilities		(4,220	)		0			(3,346	)		(4,220	)
Long-term pension liability		860			864			1,116			384
Other long-term liabilities		2,344			779			(693	)		2,320
Net cash provided by operating activities		18,161			51,067
Net cash used in operating activities								(7,645	)		(3,010	)

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment		(14,455	)		(5,711	)		(7,039	)		(11,326	)
Acquisition of business		(6,026	)		0
Acquisition of businesses								(11,202	)		(6,026	)
Net cash used in investing activities		(20,481	)		(5,711	)		(18,241	)		(17,352	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings of debt		173,436			137,559			117,790			127,574
Repayment of debt		(165,023	)		(180,112	)		(85,299	)		(101,801	)
Payment of cash dividends		(5,334	)		(4,574	)		(4,171	)		(3,437	)
Payment of acquisition-related contingent liability		(1,641	)		(1,966	)
Payment of acquisition-related contingent liabilities								(1,416	)		(1,641	)
Proceeds received on exercise of stock options		2,452			1,407			495			2,122
Tax withholdings on exercise of performance based stock		(405	)		(32	)
Tax (provision) benefit from vesting of acquisition-related restricted stock		171			(13	)
Common stock reacquired and retired		0			(500	)
Net cash provided by (used in) financing activities		3,656			(48,231	)
Tax withholdings on vesting of restricted shares and performance based shares								(232	)		(405	)
Tax benefit from vesting of acquisition-related restricted stock								0			171
Net cash provided by financing activities								27,167			22,583

Effect of currency exchange rates on cash		(100	)		(512	)		89			137
Net increase (decrease) in cash and cash equivalents		1,236			(3,387	)
Net increase in cash and cash equivalents								1,370			2,358
Cash and cash equivalents balance, beginning of period		5,172			9,038			8,935			5,172
Cash and cash equivalents balance, end of period	$	6,408		$	5,651		$	10,305		$	7,530

See accompanying Notes to the Condensed Consolidated Financial Statements.

Superior Group of Companies, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)

~~Throughout these notes to the restated condensed consolidated financial statements, all referenced amounts for the quarterly period ended~~ ~~September~~ ~~30,~~~~2021~~ ~~reflect the balances and amounts on a restated basis.~~

NOTE 1 – Description of Business and Basis of Presentation ~~(Restated)~~:

Description of business

Superior Group of Companies, Inc. (together with its subsidiaries, “the Company,” “Superior,” “we,” “our,” or “us”) was organized in 1920 and was incorporated in 1922 as a New York company under the name Superior Surgical Mfg. Co., Inc. In 1998, the Company changed its name to Superior Uniform Group, Inc. and its state of incorporation to Florida. Effective on May 3, 2018, Superior Uniform Group, Inc. changed its name to Superior Group of Companies, Inc.

Superior’s ~~Uniforms and Related~~Branded Products segment, primarily through its ~~primary~~signature marketing brands BAMKO® and HPI®, produces and sells customized merchandising solutions, promotional products and branded uniform programs. Branded products are sold to customers in a wide range of industries, including retail, hotel, food service, entertainment, tech, transportation and other industries. The segment currently has sales offices in the United States, Brazil and Canada, with support services in China and India.

Superior’s Healthcare Apparel segment, primarily through its signature marketing brands Fashion Seal Healthcare®~~, HPI®,~~ and WonderWink®, manufactures (through third parties or its own facilities) and sells a wide range of ~~uniforms, corporate identity~~healthcare apparel, ~~career~~such as scrubs, lab coats, protective apparel and ~~accessories that are worn by employees~~patient gowns. This segment sells healthcare service apparel to healthcare laundries, dealers, distributors and retailers primarily in the ~~hospital and healthcare fields; hotels; fast food and other restaurants; transportation; and the private security, industrial and commercial markets.~~United States.

~~Superior services its Remote Staffing Solutions~~Superior’s Contact Centers segment, through multiple The Office Gurus® entities, including ~~its~~ subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”)~~. TOG is primarily a near-shore premium provider of cost effective multilingual telemarketing and~~, provides outsourced, nearshore business process ~~outsourced solutions.~~outsourcing, contact and call-center support services to North American customers.

~~The~~

Change in Reportable Segments

Beginning with the second quarter of 2022, the Company realigned its reportable segments to correspond with changes to its organizational responsibilities, management structure and operating model. Prior to implementing the current segment reporting, the Company’s Uniforms and Related Products segment included healthcare apparel, uniforms and corporate overhead. As part of the change in reportable segments, the uniforms business was combined with the previous Promotional Products segment ~~through~~to form the ~~BAMKO®, Public Identity®, Tangerine®~~Branded Products segment, the healthcare apparel business became its own segment named Healthcare Apparel and ~~Gifts by Design brands, services customers~~income and expenses related to corporate functions that ~~purchase primarily promotional and related products.~~are not specifically attributable to an individual reportable segment are no longer presented in segment results. The previous Remote Staffing Solutions segment ~~currently~~was renamed Contact Centers segment. All prior period segment information has ~~sales offices~~been recast to reflect this change in reportable segments. Refer to Note 10 for additional information. Additionally, as a result of this re-segmentation, the ~~United States, Brazil and Canada with support services in China, Hong Kong and India.~~Company performed a quantitative goodwill impairment test. Refer to Note 11 for additional information.

Basis of presentation

The accompanying unaudited 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 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. Intercompany items have been eliminated in consolidation. These condensed 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, ~~2020~~2021, and filed with the Securities and Exchange Commission. Management believes that the information furnished includes all adjustments of a normal recurring nature that are necessary to fairly present our consolidated financial position, results of operations and cash flows for the periods indicated. The results of operations for any interim period are not necessarily indicative of results to be expected for the full year.

~~We refer~~The Company refers to the condensed consolidated financial statements collectively as “financial statements,” and individually as “statements of comprehensive income (loss),” “balance sheets,” “statements of shareholders’ equity,” and “statements of cash flows” herein.

~~Restatement of Previously Issued Financial Statements~~Reclassifications

~~Subsequent~~The accompanying financial statements for the previous year contain certain reclassifications to conform to the ~~filing of its Form~~ 10~~-Q, the Company identified an error in its accounting for income taxes associated with the termination of the Company’s~~ ~~two~~ ~~qualified defined benefit pension plans~~presentation used in the current period. Reclassifications only impact items within net cash used in operating activities and Note ~~second~~11 ~~quarter~~and had ~~2021.~~no ~~Specifically, management~~effect on reported total net cash provided by (used in) operating, financing and the Audit Committee concluded that deferred tax liabilities on the Company’s balance sheet related to previous contributions to the pension plans in excess of book expense recognized should have been reversed when the Company recognized the $6.9 million pension termination charge in the ~~second~~ ~~quarter~~ ~~2021.~~ ~~The impact of this reversal on the Company’s:~~

~~• statement~~investing activities, statements of comprehensive income, ~~for the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2021~~ ~~is an additional tax benefit of approximately $1.8 million, and~~

• balance ~~sheet as of~~ ~~September 30, 2021~~ ~~is an increase in deferred tax assets of approximately $0.4 million and a decrease in deferred tax liabilities of approximately $1.4 million.~~

~~With corresponding impacts on the statement of cash flows and~~sheets or statements of shareholders’ equity. ~~Each of these adjustments is a non-cash item.~~

~~The following tables summarize the effects of the restatement on the statement of comprehensive income for the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2021,~~ ~~balance sheet as of~~ ~~September~~ ~~30,~~~~2021,~~ ~~statement of cash flows for the~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2021~~ ~~and statements of shareholders’ equity for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~September~~ ~~30,~~~~2021~~ ~~(in thousands, except per share data):~~

Nine Months Ended September 30, 2021

As Previously Reported

Restated Adjustment

As Restated

Income tax expense
$ 5,490 $ (1,800 ) $ 3,690
Net income
23,251 1,800 25,051
Comprehensive income
29,664 1,800 31,464
Net income per basic share
1.51 0.12 1.63
Net income per diluted share
1.45 0.11 1.56

As of September 30, 2021

As Previously Reported

Restated Adjustment

As Restated

Deferred tax asset
$ 0 $ 352 $ 352
Total assets
422,177 352 422,529
Deferred tax liability 1,448 (1,448 ) 0
Retained earnings
159,711 1,800 161,511
Total shareholders’ equity
220,935 1,800 222,735
Total liabilities and shareholders’ equity
422,177 352 422,529

Nine Months Ended September 30, 2021

As Previously Reported

Restated Adjustment

As Restated

CASH FLOWS FROM OPERATING ACTIVITIES

Net income
$ 23,251 $ 1,800 $ 25,051
Deferred income tax benefit
(1,127 ) (1,800 ) (2,927 )

Three Months Ended September 30, 2021

As Previously Reported

Restated Adjustment

As Restated

Balance, July 1, 2021:
Retained earnings $ 153,412 $ 1,800 $ 155,212
Total shareholders’ equity 213,515 1,800 215,315
Balance, September 30, 2021:
Retained earnings 159,711 1,800 161,511
Total shareholders’ equity 220,935 1,800 222,735

Nine Months Ended September 30, 2021

As Previously Reported

Restated Adjustment

As Restated

Net earnings:
Retained earnings $ 23,251 $ 1,800 $ 25,051
Total shareholders’ equity 23,251 1,800 25,051
Balance, September 30, 2021:
Retained earnings 159,711 1,800 161,511
Total shareholders’ equity 220,935 1,800 222,735

Recent Accounting Pronouncements

We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not listed below were assessed and determined to be not applicable.

11

Recently Adopted Accounting Pronouncements
In ~~December 2019,~~ ~~the FASB issued ASU~~ ~~2019~~-~~12,~~ “~~Income Taxes (Topic~~ ~~740~~~~): Simplifying the Accounting of Income Taxes~~~~”, which is intended to simplify various aspects related to accounting for income taxes. ASU~~ ~~2019~~-12 ~~removes certain exceptions to the general principles in Topic~~ ~~740~~ ~~and also clarifies and amends existing guidance to improve consistent application. On~~ ~~January 1, 2021,~~ ~~the Company adopted this standard on a prospective basis. The Company’s adoption of this standard did~~ ~~not~~ ~~have a material impact on its financial statements.~~
~~Recently Issued Accounting Pronouncements~~ ~~Not~~ ~~Yet Adopted~~

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326).” The update changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. InThe Company adopted the new standard on ~~February 2020,~~January 1, 2022 ~~the FASB issued ASU~~ ~~2020~~-2, “~~Financial Instruments – Credit Losses (Topic~~ ~~326~~~~) and Leases (Topic~~ ~~842~~~~): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin~~ ~~No.~~~~119~~ ~~and Update to SEC Section on Effective Date Related to Accounting Standards Update~~ ~~No.~~~~2016~~-~~02,~~ ~~Leases (Topic~~ ~~842~~)~~.” The update delayed the effective date of ASU~~ ~~2016~~-~~13,~~ “~~Financial Instruments—Credit Losses (Topic~~ ~~326~~)” ~~for Smaller Reporting Companies until fiscal years beginning after~~ ~~December 15, 2022.~~ ~~Adoption will require~~using a modified retrospective transition approach ~~beginning with~~by recognizing a cumulative-effect adjustment of $0.1 million to reduce our opening balance of retained earnings as of the ~~earliest~~adoption date. Prior period ~~presented. The Company is currently evaluating the potential impact this standard will~~amounts have ~~on its financial statements.~~not been adjusted and continue to reflect our historical accounting.
Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR. This guidance includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. This guidance may be applied through December 31, 2022. The Company will apply this guidance to transactions and modifications to contracts and hedging relationships that reference LIBOR.

10

NOTE 2 – Inventories:

Inventories consisted of the following amounts (in thousands):

September 30,

December 31,

June 30,

December 31,

2021

2020

2022

2021

Finished goods
$ 86,455 $ 73,979 $ 97,835 $ 90,395
Work in process
2,288 1,634 1,008 1,351
Raw materials
14,628 14,153 28,193 28,809
Inventories
$ 103,371 $ 89,766 $ 127,036 $ 120,555

NOTE 3 – Long-Term Debt:

Debt consisted of the following (in thousands):

September 30,

December 31,

June 30,

December 31,

2021 2020 2022 2021
Credit Facilities:

Revolving credit facility due February 2026
$ 37,768 $ 17,589 $ 101,651 $ 61,517
Term loan due February 2024 (“2017 Term Loan”)
16,500 21,000 12,000 15,000
Term loan due January 2026 (“2018 Term Loan”)
42,560 49,524 35,595 40,238
96,828 88,113 149,246 116,755
Less:

Payments due within one year included in current liabilities
15,286 15,286 15,286 15,286
Debt issuance costs
660 455 553 624
Long-term debt less current maturities
$ 80,882 $ 72,372 $ 133,407 $ 100,845

12

The Company is party to a credit agreement with Truist Bank, consisting of a revolving credit facility, a term loan maturing in February 2024 (“2017 Term Loan”) and a term loan maturing in January 2026 (“2018 Term Loan”). The revolving credit facility, 2017 Term Loan and 2018 Term Loan are collectively referred to as the “Credit Facilities.”

On February 8, 2021, the Company entered into a Second Amended and Restated Credit Agreement with Truist Bank (the “Credit Agreement”), pursuant to which the maximum availability under the Company’s existing revolving credit facility was increased from $75.0 million to $125.0 million and its maturity date was extended until February 8, 2026. The 2017 Term Loan and the 2018 Term Loan remain outstanding with the same amortization schedules. The floor on LIBOR for the revolving credit facility was increased from zero to 0.25%, but the interest rates on the revolving credit facility and the term loans were not otherwise modified. Except as described above, the covenants, events of default and substantially all of the other terms that were contained in the Company’s prior credit agreement with Truist Bank remain unchanged in the Credit Agreement. The Credit Facilities continue to be secured by substantially all of the operating assets of the Company as collateral, and the Company’s obligations thereunder continue to be guaranteed by all of its domestic subsidiaries.

Obligations outstanding under the 2018 Term Loan have a variable interest rate of LIBOR plus a margin of between 0.85% and 1.65% (based on the Company’s funded debt to EBITDA ratio) ~~(0.93%~~(2.30% at ~~September~~June 30, ~~2021~~2022). Obligations outstanding under the revolving credit facility and the 2017 Term Loan generally have a variable interest rate of one-month LIBOR (with a 0.25% floor on LIBOR for the revolving credit facility) plus a margin of between 0.68% and 1.50% (based on the Company’s funded debt to EBITDA ratio) ~~(0.93%~~(2.13% for the revolving credit facility and ~~0.76% for the~~ 2017 Term Loan at ~~September~~June 30, ~~2021~~2022). The Company is obligated to pay a commitment fee of 0.15% per annum on the average unused portion of the commitment under the revolving credit facility. The available balance under the revolving credit facility is reduced by outstanding letters of credit. As of ~~September~~June 30, ~~2021~~2022, there were 0 outstanding letters of credit under the revolving credit facility.

Contractual principal payments for the 2017 Term Loan are as follows: remainder of ~~2021~~2022 - ~~$1.5~~$3.0 million;~~2022~~ ~~through~~ 2023 - $6.0 ~~million per year;~~million; and 2024 - $3.0 million. Contractual principal payments for the 2018 Term Loan are as follows: remainder of ~~2021~~2022 - ~~$2.3~~$4.6 million; ~~2022~~2023 through 2025 - $9.3 million per year; and 2026 - $3.1 million. The term loans do not contain pre-payment penalties.

11
The Credit Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments, restricted payments, and sales of assets. The Credit Agreement also requires the Company to maintain a fixed charge coverage ratio (as defined in the Credit Agreement) of at least 1.25:1 and a funded debt to EBITDA ratio (as defined in the Credit Agreement) not to exceed 5.0:1. As of June 30, 2022, the Company was in compliance with these ratios. The Credit Facilities are secured by substantially all of the operating assets of the Company as collateral, and the Company’s obligations under the Credit Facilities are guaranteed by all of its domestic subsidiaries. The Company’s obligations under the Credit Facilities are subject to acceleration upon the occurrence of an event of default as defined in the Credit Agreement.
The Company is a party to an interest rate swap with a total notional value of ~~$7.5~~$5.3 million as of ~~September~~June 30, ~~2021~~2022 pursuant to which it makes fixed payments and receives floating payments. The Company entered into the interest rate swap to offset changes in expected cash flows due to fluctuations in the associated variable interest rates. The Company’s interest rate swap expires in February 2024. The interest rate swap is not designated as a hedge transaction. Changes in fair value and gains and losses on settlement on the interest rate swap are recognized in interest expense in our statements of comprehensive ~~income.~~income (loss). During the Nosix months ended June 30, 2022, a gain of $0.1 million was recognized on the interest rate swap. NaN gain or loss was recognized on the interest rate swap during the ~~nine~~six months ended ~~September~~June 30, 2021. ~~During the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2020~~~~, a loss of $0.3 million was recognized on the interest rate swap.~~

NOTE 4 – Periodic Pension Expense:

The Company is the sponsor of an unfunded supplemental executive retirement plan in which several employees participate.
The Company had previously sponsored ~~two~~2 noncontributory qualified defined benefit pension plans, providing for normal retirement at age 65, covering all eligible employees (as defined). ~~Effective~~During ~~June 30, 2013,~~ 2021,the Company no ~~longer accrues additional benefits for future service or for future increases in compensation levels for~~completed the ~~Company’s primary defined benefit pension plan. Effective on~~ ~~December 31, 2014,~~ ~~the Company~~ no ~~longer accrues additional benefits for future service for the Company’s hourly defined benefit plan. As discussed below, the Company has terminated~~termination of its ~~two~~2 noncontributory qualified defined benefit pension ~~plans.~~plans, which were fully funded.

~~The Company is also the sponsor of an unfunded supplemental executive retirement plan in which several of its employees are participants.~~
13

The following table details the net periodic pension expense under the Company’s plans for the periods presented (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

2022

2021

2022

2021

Service cost - benefits earned during the period
$ 46 $ 38 $ 138 $ 114 $ 51 $ 46 $ 102 $ 92
Interest cost on projected benefit obligation
84 216 424 648 100 153 200 340
Expected return on plan assets
0 (389 ) (597 ) (1,167 ) 0 (239 ) 0 (597 )
Recognized actuarial loss
375 305 1,501 938 428 526 856 1,126
Settlement loss
0 82 0 413
Pension plan termination charge
0 0 6,945 0 - 6,945 - 6,945
Net periodic pension cost after settlements
$ 505 $ 252 $ 8,411 $ 946
Net periodic pension cost
$ 579 $ 7,431 $ 1,158 $ 7,906

The pension settlement losses included in the table above resulted from lump sum pension payments made to various employees upon their retirement or termination during the periods specified. The pension settlement losses did ~~not~~ ~~require a cash outlay by the Company.~~ The service cost component is included in selling and administrative expenses in our statements of comprehensive income (loss) and the other components of net periodic pension cost are included in other periodic pension costs in our statements of comprehensive ~~income.~~income (loss).

In the second quarter of 2021, the Company ~~completed the termination of~~terminated its two noncontributory qualified defined benefit pension plans, which were fully funded. The Company settled its obligations under the plans by providing lump-sum payments of $13.8 million to eligible participants who elected to receive them and entering into an annuity purchase contract for the remaining liability of $3.0 million. Consequently, the Company recognized a settlement charge of $6.9 million during the ~~nine~~three and six months ended ~~September~~June 30, 2021,, which represents the acceleration of deferred charges previously included within accumulated other comprehensive loss and the impact of remeasuring the plan assets and obligations at termination. The pension plan terminations did not require a cash outlay by the Company. ~~As of~~ ~~September~~ ~~30,~~~~2021,~~ ~~an asset surplus of $1.3 million remained undistributed in the pension plans that were terminated.~~

12

NOTE 5 – Net Sales:

For our ~~Uniforms and Related~~Branded Products and ~~Promotional Products~~Healthcare Apparel segments, revenue is primarily generated from the sale of finished products to customers. ~~Revenue~~Revenues for our ~~Uniforms and Related~~Branded Products and ~~Promotional Products~~Healthcare Apparel segments isare recognized when the performance obligations under the contract terms are satisfied. For certain contracts with customers in which the Company has an enforceable right to payment for goods with no alternative use, revenue is recognized over time upon receipt of finished goods into inventory. Revenue for goods that do have an alternative use or that the customer is not obligated to purchase under the terms of a contract is generally recognized when the goods are transferred to the customer. Revenue from the sale of personal protective equipment, including ~~face masks,~~facemasks, isolation gowns, sanitizers, gloves and ~~gloves,~~COVID-19 testing kits, is generally recognized at a point in time when the goods are transferred to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contract. The Company includes shipping and handling fees billable to customers in net sales. Shipping and handling activities that occur after the transfer of promised goods are accrued as control is transferred to the customer rather than being treated as a separate performance obligation.

For our ~~Remote Staffing~~Contact Centers segment, revenue is generated from providing our customers with ~~staffing solution~~contact center services. Revenue for our ~~Remote Staffing~~Contact Centers segment is recognized as services are delivered.

Revenue is measured at the amount of consideration we expect to receive in exchange for the goods or services. Variable consideration for estimated returns, allowances and other price variances is recorded based upon historical experience and current allowance programs. Contract ~~termination~~ terms may involve variable consideration clauses such as sales discounts and customer rebates, and revenue is adjusted accordingly for these provisions. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The promised amount of consideration in a contract is not adjusted for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised good or service to a customer and when the customer pays for that product or service will be one year or less. Sales taxes are excluded from the measurement of a performance obligation’s transaction price. Sales commissions are expensed as incurred when we expect that the amortization period of such costs will be one year or less.

Consistent with the Company’s change in reportable segments described in Note 1410

, the Company has changed its presentation of disaggregated revenue to align with the new segment structure. The following table presents disaggregated revenue by operating segment for the periods presented (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Uniforms and Related Products Segment:

Uniforms and related products
$ 61,621 $ 59,296 $ 182,080 $ 184,909
Personal protective equipment
269 13,938 18,571 24,269
Total Uniforms and Related Products Segment
$ 61,890 $ 73,234 $ 200,651 $ 209,178

Remote Staffing Solutions Segment:

Remote staffing solutions services
$ 18,040 $ 11,636 $ 46,723 $ 30,187
Net intersegment eliminations
(1,847 ) (1,309 ) (5,209 ) (3,834 )
Total Remote Staffing Solutions Segment
$ 16,193 $ 10,327 $ 41,514 $ 26,353

Promotional Products Segment:

Promotional products
$ 44,296 $ 24,769 $ 136,682 $ 76,719
Personal protective equipment
947 19,407 16,113 69,091
Total Promotional Products Segment
$ 45,243 $ 44,176 $ 152,795 $ 145,810

Consolidated Net Sales
$ 123,326 $ 127,737 $ 394,960 $ 381,341

Three Months Ended June 30,

Six Months Ended June 30,

2022

2021

2022

2021

Branded Products Segment:

Branded products
$ 101,078 $ 74,567 $ 194,245 $ 146,399
Personal protective equipment
961 4,654 4,877 26,614
Total Branded Products Segment
$ 102,039 $ 79,221 $ 199,122 $ 173,013

Healthcare Apparel Segment:

Healthcare apparel
$ 25,635 $ 35,593 $ 55,493 $ 66,446
Personal protective equipment
653 2,057 1,363 6,854
Total Healthcare Apparel Segment
$ 26,288 $ 37,650 $ 56,856 $ 73,300

Contact Centers Segment:

Contact centers services
$ 21,466 $ 15,653 $ 39,440 $ 28,683
Net intersegment eliminations
(1,860 ) (1,737 ) (3,903 ) (3,362 )
Total Contact Centers Segment
$ 19,606 $ 13,916 $ 35,537 $ 25,321

Consolidated Net Sales
$ 147,933 $ 130,787 $ 291,515 $ 271,634

13
Contract Assets and Contract Liabilities

The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers (in thousands):

September 30,

December 31,

June 30,

December 31,

2021

2020

2022

2021

Accounts receivable
$ 92,500 $ 101,902 $ 110,375 $ 107,053
Current contract assets
37,575 39,231 46,088 38,018
Current contract liabilities
7,367 5,074 7,910 8,804

Contract assets relate to goods produced without an alternative use for which the Company has an enforceable right to payment but which ~~have~~has not yet been invoiced to the customer. The majority of the amounts included in contract assets on December 31, ~~2020~~2021 were transferred to accounts receivable during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022. Contract liabilities relate to payments received in advance of the Company completing its performance under a contract. Contract liabilities are included in other current liabilities in our balance sheets. During the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022, ~~$4.2~~$6.7 million of revenue was recognized from the contract liabilities balance as of December 31, ~~2020~~2021.

15

NOTE 6 – Contingencies:

The purchase price to acquire substantially all of the assets of ~~BAMKO,~~Sutter’s Mill Specialties, Inc. (“~~BAMKO”~~Sutter’s Mill”) in ~~2016~~2021 included contingent consideration based on varying levels of ~~BAMKO’s consolidated~~Sutter’s Mill’s EBITDA in each measurement period ~~through~~from ~~2021.~~2022 to 2024. The estimated fair value ~~for BAMKO~~of Sutter’s Mill acquisition-related contingent consideration payable as of ~~September~~June 30, ~~2021~~2022 was ~~$2.7~~$2.9 million, of which $1.3 million is expected to be paid in the second quarter of ~~2022.~~2023. The total estimated undiscounted remaining payment related to this contingent consideration payable is between ~~$2.7~~$2.2 million and ~~$3.2~~$4.7 million. The purchase price to acquire substantially all of the assets of ~~Tangerine Promotions, Ltd. and Tangerine Promotions West,~~Guardian Products, Inc. ~~(collectively “Tangerine”~~(“Guardian”) in ~~2017~~May 2022 included contingent consideration based on varying levels of ~~Tangerine’s~~Guardian’s EBITDA in each measurement period through ~~2021.~~April 2025. The estimated fair value ~~for Tangerine~~of Guardian acquisition-related contingent consideration payable as of ~~September~~June 30, ~~2021~~2022 was $1.2 ~~million, which is expected to be paid in the~~ ~~second~~ ~~quarter of~~ ~~2022.~~million. The total estimated undiscounted remaining payment related to this contingent consideration payable is between ~~$1.2~~$1.5 million and ~~$1.4~~$2.4 million. The Company will continue to evaluate ~~these liabilities~~this liability for remeasurement at the end of each reporting period and any changes will be recorded in the Company’s statements of comprehensive ~~income.~~income (loss). The carrying amount of the ~~liabilities~~liability may fluctuate significantly and actual amounts paid may be ~~materially~~ different from the estimated value of the ~~liabilities.~~liability.

The Company is involved in various legal actions and claims arising from the normal course of business. In the opinion of management, the ultimate outcome of these matters is not expected to have a material impact on the Company’s results of operations, cash flows, or financial position.

NOTE 7 – Share-Based Compensation:

Share-based compensation is recorded in selling and administrative expense in the statements of comprehensive ~~income.~~income (loss). The following table details the share-based compensation expense by type of award ~~and the total related tax benefit~~ for the periods presented (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

2022

2021

2022

2021

Stock options and SARs
$ 327 $ 412 $ 1,105 $ 921 $ 381 $ 326 $ 741 $ 778
Restricted stock
545 203 1,183 566 985 435 1,604 638
Performance shares
216 114 469 303 (124 ) 76 109 253
Total share-based compensation expense
$ 1,088 $ 729 $ 2,757 $ 1,790 $ 1,242 $ 837 $ 2,454 $ 1,669

1614

Stock ~~options~~Options and Stock Appreciation Rights (“SARs”)

The Company grants stock options and stock-settled SARs to employees that allow them to purchase shares of the Company’s common stock. 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 stock options and SARs granted prior to August 3, 2018 vested immediately when granted. Awards issued thereafter vest either one or two years after the grant date. Employee awards expire five years after the grant date, and those issued to directors expire ten years after the grant date. The Company issues new shares upon the exercise of stock options and SARs. Stock options and SARs granted in tandem with stock options are subject to accelerated vesting under certain circumstances as outlined in the 2013 Incentive Stock and Awards Plan (the “2013 Plan”). or 2022 Equity Incentive and Awards Plan (the “2022 Plan”), as applicable.

A summary of stock option transactions during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 follows:

Weighted Average Aggregate Weighted Average Aggregate

No. of

Weighted Average

Remaining Life

Intrinsic Value

No. of

Weighted Average

Remaining Life

Intrinsic Value

Shares

Exercise Price

(in years)

(in thousands)

Shares

Exercise Price

(in years)

(in thousands)

Outstanding, January 1, 2021
970,022 $ 12.92 3.74 $ 11,128
Outstanding, January 1, 2022
779,938 $ 16.12 3.27 $ 5,097
Granted⁽¹⁾
143,543 25.02 103,203 20.13
Exercised
(262,960 ) 10.10 (53,417 ) 11.95
Lapsed or cancelled
(19,126 ) 14.90 (7,572 ) 17.89
Outstanding, September 30, 2021
831,479 15.86 3.43 6,487
Exercisable, September 30, 2021
487,161 14.66 2.83 4,231
Outstanding, June 30, 2022
822,152 16.88 3.13 2,608
Exercisable, June 30, 2022
550,456 13.96 2.58 2,608

⁽¹⁾
The weighted average grant date fair value of stock options granted was ~~$9.91~~$7.84 per share.

As of ~~September~~June 30, ~~2021~~2022, the Company had $1.2 million in unrecognized compensation cost related to ~~nonvested~~unvested stock options ~~to be recognized over the remaining weighted average vesting period of 1.4 years.~~
~~A summary of stock-settled SARs transactions during the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2021~~ ~~follows:~~
Weighted Average Aggregate

No. of

Weighted Average

Remaining Life

Intrinsic Value

Shares

Exercise Price

(in years)

(in thousands)

Outstanding, January 1, 2021
317,128 $ 13.47 3.36 $ 2,031
Granted⁽¹⁾
31,687 25.75
Exercised
(26,438 ) 14.74
Outstanding, September 30, 2021
322,377 14.57 2.88 2,899
Exercisable, September 30, 2021
160,586 15.29 2.20 1,296
(1)
~~The weighted average grant date fair value of SARs granted was $10.09 per share.~~
~~As of~~ ~~September 30, 2021~~~~, the Company had $0.3 million in unrecognized compensation related to nonvested SARs~~ to be recognized over the remaining weighted average vesting period of 1.2 years.

A summary of stock-settled SARs transactions during the six months ended June 30, 2022 follows:
Weighted Average Aggregate

No. of

Weighted Average

Remaining Life

Intrinsic Value

Shares

Exercise Price

(in years)

(in thousands)

Outstanding, January 1, 2022
291,059 $ 14.99 2.65 $ 2,205
Granted⁽¹⁾
37,297 20.13
Exercised
(24,836 ) 15.16
Lapsed or cancelled
(2,308 ) 16.97
Outstanding, June 30, 2022
301,212 15.60 2.63 1,208
Exercisable, June 30, 2022
232,228 13.48 2.18 1,208
⁽¹⁾
The weighted average grant date fair value of SARs granted was $7.84 per share.
As of June 30, 2022, the Company had $0.3 million in unrecognized compensation cost related to unvested SARs to be recognized over the remaining weighted average vesting period of 1.3 years.
1715

Restricted Stock

The Company has granted shares of restricted stock to directors and certain employees, which vest at a specified future date, generally after three years, ~~ratably~~ over five years or when certain conditions are met. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 ~~Plan.~~Plan or 2022 Plan, as applicable. Expense for each of these grants is based on the fair value at the date of the grant and is being recognized on a straight-line basis over the respective service period.

A summary of restricted stock transactions during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 follows:

Weighted Average

Weighted Average

No. of

Grant Date

No. of

Grant Date

Shares

Fair Value

Shares

Fair Value

Outstanding, January 1, 2021
157,244 $ 16.84
Outstanding, January 1, 2022
458,166 $ 19.51
Granted
264,166 23.16 30,343 19.97
Vested
(24,908 ) 23.55 (113,039 ) 15.22
Outstanding, September 30, 2021
396,502 20.63
Forfeited
(8,500 ) 13.11
Outstanding, June 30, 2022
366,970 21.02

As of ~~September~~June 30, ~~2021~~2022, the Company had ~~$6.2~~$5.4 million of unrecognized compensation cost related to ~~nonvested~~unvested restricted stock grants expected to be recognized over the remaining weighted average vesting period of ~~3.6~~2.9 years.

Performance Shares

The Company has granted performance shares, which either contain only service-based vesting conditions or service-based and performance-based vesting conditions. The service-based awards vest after the service period is met, which is generally three to five years. Expense for these grants is based on the fair value on the date of the grant and is being recognized on a straight-line basis over the respective service period. The performance-based awards generally vest after five years if the performance and service targets are met. The Company evaluates the performance conditions associated with these grants each reporting period to determine the expected number of shares to be issued. Expenses for grants of performance shares are recognized on a straight-line basis over the respective service period based on the grant date fair value and expected number of shares to be issued. The awards are subject to accelerated vesting on a pro rata basis under certain circumstances as outlined in the 2013 Plan or 2022 Plan, as applicable, except in those circumstances in which award agreements or change in control agreements specify full vesting.

A summary of performance share transactions during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 follows:

Weighted Average

Weighted Average

No. of

Grant Date

No. of

Grant Date

Shares

Fair Value

Shares

Fair Value

Outstanding, January 1, 2021
186,264 $ 18.28
Outstanding, January 1, 2022
193,523 $ 21.50
Granted
116,405 22.13 59,578 19.55
Vested
(57,255 ) 17.54 (15,750 ) 16.97
Forfeited
(36,141 ) 15.19 (37,300 ) 24.98
Outstanding, September 30, 2021
209,273 21.16
Outstanding, June 30, 2022
200,051 20.63

As of ~~September~~June 30, ~~2021~~2022, the Company had ~~$2.9~~$3.2 million of unrecognized compensation cost related to ~~nonvested~~unvested performance share grants expected to be recognized over the remaining weighted average service period of ~~4.1~~4.0 years.

1816

NOTE 8 – Income ~~Taxes (Restated):~~Taxes:

The Company calculates its interim income tax provision in accordance with the accounting guidance for income taxes in interim periods. At the end of each interim period, the Company makes its best estimate of the annual expected effective tax rate and applies that rate to its ordinary year-to-date income or loss. The tax expense or benefit related to significant, unusual, or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur.

The computation of the annual expected effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income for the year and permanent and temporary differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or the tax environment changes.

For the three months ended ~~September~~June 30, 2022, the Company recorded a benefit from income taxes of $2.3 million, which represents an effective tax rate of 8.0%. For the three months ended June 30, 2021, the Company recorded a benefit from income taxes of $0.8 million, which represents an effective tax rate of (15.2%). For the six months ended June 30, 2022, the Company recorded a benefit from income taxes of $0.8 million, which represents an effective tax rate of 3.6%. For the six months ended June 30, 2021, the Company recorded a provision for income taxes of ~~$1.8~~$1.9 million, which represents an effective tax rate of ~~17.8%. For the~~ ~~three~~ ~~months ended~~ ~~September 30, 2020~~~~, the Company recorded a provision for income taxes of $2.1 million, which represents an effective tax rate of 17.7%. For the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2021~~~~, the Company recorded a provision for income taxes of $3.7 million, which represents an effective tax rate of 12.8%. For the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2020~~~~, the Company recorded a provision for income taxes of $7.1 million, which represents an effective tax rate of 19.9%~~10.2%. Income tax expense for the ~~nine~~three and six months ended ~~September~~June 30, 2022 was impacted by a tax benefit of $2.0 million relating to the impairment of intangible assets and a portion of the goodwill impairment. The effective tax rate for the three and six months ended June 30, 2022 was impacted by the nondeductible portion of the goodwill impairment charge totaling $20.3 million. Income tax expense for the three and six months ended June 30, 2021 was favorably impacted by a reversal of $1.8 million in deferred tax liabilities associated with the termination of the Company’s two qualified defined benefit pension plans, $0.8 million of windfall tax benefits from stock options exercised and $0.6 million of stranded tax benefits recognized as a result of the Company’s termination of its pension plans.

NOTE 9 – Net Income (Loss) Per ~~Share (Restated):~~Share:

The Company’s basic net income per share is computed based on the weighted average number of shares of common stock outstanding for the period. Diluted net income per share includes the effect of the Company’s outstanding stock options, stock appreciation rights, unvested shares of restricted stock and unvested performance shares, if the inclusion of these items is dilutive.

The following table presents a reconciliation of basic and diluted net income per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

2022

2021

2022

2021

Net income used in the computation of basic and diluted net income per share (in thousands)
$ 8,196 $ 9,944 $ 25,051 $ 28,485
Net income (loss) used in the computation of basic and diluted net income (loss) per share (in thousands)
$ (26,675 ) $ 6,377 $ (21,445 ) $ 16,855

Weighted average shares outstanding - basic
15,528,534 15,084,300 15,394,427 15,041,738 15,732,264 15,433,412 15,705,646 15,327,374
Dilutive common stock equivalents
571,316 626,822 665,259 319,297 0 654,324 0 712,231
Weighted average shares outstanding - diluted
16,099,850 15,711,122 16,059,686 15,361,035 15,732,264 16,087,736 15,705,646 16,039,605
Net income per share:

Net income (loss) per share:

Basic
$ 0.53 $ 0.66 $ 1.63 $ 1.89 $ (1.70 ) $ 0.41 $ (1.37 ) $ 1.10
Diluted
$ 0.51 $ 0.63 $ 1.56 $ 1.85 $ (1.70 ) $ 0.40 $ (1.37 ) $ 1.05
Diluted weighted average shares outstanding excludes shares of common stock of 491,168 and 488,705 for the three and six months ended June 30, 2022, respectively, as their inclusion would have been antidilutive given the Company’s net loss.

Awards to purchase ~~251,989~~633,408 and ~~152,110~~145,950 shares of common stock with weighted average exercise prices of ~~$24.88~~$21.85 and ~~$23.26~~$25.79 per share were outstanding during the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~~~, respectively, but were~~ ~~not~~ ~~included in the computation of diluted net income per share because the awards’ exercise prices were greater than the average market price of the common shares.~~
~~Awards to purchase 176,713 and 348,077 shares of common stock with weighted average exercise prices of $25.35 and $19.68 per share were outstanding during the~~ ~~nine~~ ~~months ended~~ ~~September 30,~~ 2021~~and~~ ~~2020~~, respectively, but were not included in the computation of diluted net income per share because the awards’ exercise prices were greater than the average market price of the common shares.

1917

Awards to purchase 524,568 and 139,075 shares of common stock with weighted average exercise prices of $22.57 and $25.77 per share were outstanding during the six months ended June 30, 2022 and 2021, respectively, but were not included in the computation of diluted net income per share because the awards’ exercise prices were greater than the average market price of the common shares.

NOTE 10 – Operating Segment Information ~~(Restated)~~:

~~The~~As described in Note 1, effective in the second quarter of 2022, the Company ~~classifies~~realigned its ~~businesses into 3~~reportable segments to correspond with changes to its organizational responsibilities, management structure and operating ~~segments based on~~model. We have reclassified prior period segment disclosures to conform to the ~~types~~current period presentation. As a result of ~~products~~the change, the Company manages and ~~services provided. The Uniforms~~reports the following segments:
Branded Products segment: Primarily through our signature marketing brands BAMKO® and ~~Related Products segment consists of sales to customers of uniforms~~HPI®, we produce and ~~related items. The Remote Staffing Solutions segment consists of sales of staffing solutions. The Promotional Products segment consists of sales to customers of~~sell customized merchandising solutions, promotional products and branded uniform programs. Branded products are sold to customers in a wide range of industries, including retail, hotel, food service, entertainment, tech, transportation and other ~~branded merchandise.~~industries. The segment currently has sales offices in the United States, Brazil and Canada, with support services in China and India.
Healthcare Apparel segment: Primarily through our signature marketing brands Fashion Seal Healthcare® and WonderWink®, we manufacture (through third parties or our own facilities) and sell a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient gowns. This segment sells healthcare service apparel to healthcare laundries, dealers, distributors and retailers primarily in the United States.
Contact Centers: Through multiple The Office Gurus® entities, including our subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”), we provide outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers.
Intersegment eliminations include the elimination of revenues and costs from services provided by the Contact Centers segment to the Company’s two other segments. Such costs are recognized as selling and administrative expenses in the Branded Products and Healthcare Apparel segments. Income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment are presented within Other in the tables below.

The Company evaluates the performance of each operating segment based on several factors of which the primary financial measures are net sales and income before taxes on income. ~~Amounts for corporate expenses are included in the totals for the Uniforms and Related Products segment.~~

18
The following tables set forth financial information related to the Company’s operating segments (in thousands):

Uniforms and Related Products Remote Staffing Solutions Promotional Products Intersegment Eliminations Total
Branded Products

Healthcare Apparel

Contact Centers

Intersegment Eliminations

Other

Total

As of and For the Three Months Ended September 30, 2021:

As of and For the Three Months Ended June 30, 2022:

Net sales
$ 61,890 $ 18,040 $ 45,243 $ (1,847 ) $ 123,326 $ 102,039 $ 26,288 $ 21,466 $ (1,860 ) $ 0 $ 147,933
Cost of goods sold
39,708 7,555 31,092 (843 ) 77,512 72,954 18,904 8,692 (750 ) 0 99,800
Gross margin
22,182 10,485 14,151 (1,004 ) 45,814 29,085 7,384 12,774 (1,110 ) 0 48,133
Selling and administrative expenses
19,244 6,576 10,243 (1,004 ) 35,059 24,004 9,801 8,402 (1,110 ) 4,872 45,969
Goodwill impairment charge
4,135 20,323 0 0 0 24,458
Intangible assets impairment charge
5,581 0 0 0 0 5,581
Other periodic pension cost
459 0 0 0 459 0 0 0 0 528 528
Interest expense
309 0 11 0 320 63 34 0 0 486 583
Income before taxes on income
$ 2,170 $ 3,909 $ 3,897 $ 0 $ 9,976
Income (loss) before taxes on income
$ (4,698 ) $ (22,774 ) $ 4,372 $ 0 $ (5,886 ) $ (28,986 )

Depreciation and amortization
$ 1,487 $ 398 $ 461 $ 0 $ 2,346 $ 1,589 $ 988 $ 549 $ 0 $ 54 $ 3,180
Capital expenditures
$ 1,214 $ 1,733 $ 182 $ 0 $ 3,129 $ 1,401 $ 539 $ 840 $ 0 $ 71 $ 2,851
Total assets
$ 289,380 $ 28,062 $ 105,087 $ 0 $ 422,529 $ 253,608 $ 156,155 $ 37,815 $ 0 $ 26,102 $ 473,680

Uniforms and Related Products Remote Staffing Solutions Promotional Products Intersegment Eliminations Total
Branded Products

Healthcare Apparel

Contact Centers

Intersegment Eliminations

Other

Total

As of and For the Three Months Ended September 30, 2020:

As of and For the Three Months Ended June 30, 2021:

Net sales
$ 73,234 $ 11,636 $ 44,176 $ (1,309 ) $ 127,737 $ 79,221 $ 37,650 $ 15,653 $ (1,737 ) $ 0 $ 130,787
Cost of goods sold
48,715 4,653 27,424 (507 ) 80,285 55,267 22,753 6,369 (760 ) 0 83,629
Gross margin
24,519 6,983 16,752 (802 ) 47,452 23,954 14,897 9,284 (977 ) 0 47,158
Selling and administrative expenses
21,987 3,927 9,805 (802 ) 34,917 16,027 8,567 5,562 (977 ) 4,727 33,906
Other periodic pension cost
212 0 0 0 212 0 0 0 0 440 440
Pension plan termination charge
0 0 0 0 6,945 6,945
Interest expense
210 0 29 0 239 38 46 0 0 246 330
Income before taxes on income
$ 2,110 $ 3,056 $ 6,918 $ 0 $ 12,084
Income (loss) before taxes on income
$ 7,889 $ 6,284 $ 3,722 $ 0 $ (12,358 ) $ 5,537

Depreciation and amortization
$ 1,430 $ 243 $ 340 $ 0 $ 2,013 $ 923 $ 880 $ 322 $ 0 $ 31 $ 2,156
Capital expenditures
$ 319 $ 404 $ 95 $ 0 $ 818 $ 2,288 $ 1,593 $ 709 $ 0 $ - $ 4,590
Total assets
$ 269,776 $ 22,719 $ 74,743 $ 0 $ 367,238 $ 220,532 $ 161,113 $ 26,346 $ - $ 21,202 $ 429,193
19

Branded Products

Healthcare Apparel

Contact Centers

Intersegment Eliminations

Other

Total

As of and For the Six Months Ended June 30, 2022:

Net sales
$ 199,122 $ 56,856 $ 39,440 $ (3,903 ) $ 0 $ 291,515
Cost of goods sold
141,822 37,457 15,985 (1,663 ) 0 193,601
Gross margin
57,300 19,399 23,455 (2,240 ) 0 97,914
Selling and administrative expenses
45,561 19,888 14,774 (2,240 ) 10,200 88,183
Goodwill impairment charge
4,135 20,323 0 0 0 24,458
Intangible assets impairment charge
5,581 0 0 0 0 5,581
Other periodic pension cost
0 0 0 0 1,056 1,056
Interest expense
118 52 0 0 712 882
Income (loss) before taxes on income
$ 1,905 $ (20,864 ) $ 8,681 $ 0 $ (11,968 ) $ (22,246 )

Depreciation and amortization
$ 2,972 $ 1,969 $ 1,044 $ 0 $ 118 $ 6,103
Capital expenditures
$ 2,944 $ 1,250 $ 2,771 $ 0 $ 74 $ 7,039
Total assets
$ 253,608 $ 156,155 $ 37,815 $ 0 $ 26,102 $ 473,680

Branded Products

Healthcare Apparel

Contact Centers

Intersegment Eliminations

Other

Total

As of and For the Six Months Ended June 30, 2021:

Net sales
$ 173,013 $ 73,300 $ 28,683 $ (3,362 ) $ 0 $ 271,634
Cost of goods sold
119,393 45,810 11,678 (1,448 ) 0 175,433
Gross margin
53,620 27,490 17,005 (1,914 ) 0 96,201
Selling and administrative expenses
33,319 17,181 10,284 (1,914 ) 10,147 69,017
Other periodic pension cost
0 0 0 0 869 869
Pension plan termination charge
0 0 0 0 6,945 6,945
Interest expense
52 118 0 0 435 605
Income (loss) before taxes on income
$ 20,249 $ 10,191 $ 6,721 $ 0 $ (18,396 ) $ 18,765

Depreciation and amortization
$ 1,947 $ 1,748 $ 616 $ 0 $ 62 $ 4,373
Capital expenditures
$ 5,909 $ 4,301 $ 1,116 $ 0 $ 0 $ 11,326
Total assets
$ 220,532 $ 161,113 $ 26,346 $ 0 $ 21,202 $ 429,193

20

Uniforms and Related Products

Remote Staffing Solutions

Promotional Products

Intersegment Eliminations

Total

As of and For the Nine Months Ended September 30, 2021:

Net sales
$ 200,651 $ 46,723 $ 152,795 $ (5,209 ) $ 394,960
Cost of goods sold
131,730 19,233 104,273 (2,291 ) 252,945
Gross margin
68,921 27,490 48,522 (2,918 ) 142,015
Selling and administrative expenses
58,046 16,860 32,088 (2,918 ) 104,076
Other periodic pension cost
1,328 0 0 0 1,328
Pension plan termination charge
6,945 0 0 0 6,945
Interest expense
862 0 63 0 925
Income before taxes on income
$ 1,740 $ 10,630 $ 16,371 $ 0 $ 28,741

Depreciation and amortization
$ 4,373 $ 1,014 $ 1,332 $ 0 $ 6,719
Capital expenditures
$ 11,125 $ 2,849 $ 481 $ 0 $ 14,455
Total assets
$ 289,380 $ 28,062 $ 105,087 $ 0 $ 422,529
NOTE 11 – Goodwill and Intangible Assets:

Uniforms and Related Products

Remote Staffing Solutions

Promotional Products

Intersegment Eliminations

Total

As of and For the Nine Months Ended September 30, 2020:

Net sales
$ 209,178 $ 30,187 $ 145,810 $ (3,834 ) $ 381,341
Cost of goods sold
135,324 12,880 97,748 (1,452 ) 244,500
Gross margin
73,854 17,307 48,062 (2,382 ) 136,841
Selling and administrative expenses
60,226 10,840 30,020 (2,382 ) 98,704
Other periodic pension cost
830 0 0 0 830
Interest expense
1,420 0 312 0 1,732
Income before taxes on income
$ 11,378 $ 6,467 $ 17,730 $ 0 $ 35,575

Depreciation and amortization
$ 4,291 $ 657 $ 1,024 $ 0 $ 5,972
Capital expenditures
$ 4,771 $ 750 $ 190 $ 0 $ 5,711
Total assets
$ 269,776 $ 22,719 $ 74,743 $ 0 $ 367,238
Goodwill
Beginning with the second quarter of fiscal 2022, the Company realigned its reportable segments to Branded Products, Healthcare Apparel and Contact Centers. Refer to Note 10 for further information on the Company’s reportable segments. As a result of this re-segmentation, and in accordance with ASC 350, the Company performed a quantitative goodwill impairment test.
The fair value of goodwill was determined using a combination of an income approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to their respective present values, and a market approach. The valuation methodology and underlying financial information included in the Company’s determination of fair value required significant judgments by management. The principal assumptions used in the Company’s discounted cash flow analysis consisted of (a) long-term projections of financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the Company and the industry in which it operates. Under the market approach, the principal assumption included an estimate of a control premium.
Based on the goodwill impairment analysis performed, the Company determined that the estimated fair value of the previous Uniforms and Related Products segment was lower than its carrying value primarily as the result of current market conditions, decline in expected cash flows and decrease in the Company’s stock price. Consequently, the Company recorded a non-cash goodwill impairment charge of $24.5 million during the three and six months ended June 30, 2022.
We have reclassified prior period goodwill disclosures to conform to the current period presentation. The following table presents the carrying amounts of goodwill attributable to each of the Company’s reportable segments (dollars in thousands):

Branded Products

Healthcare Apparel

Total

As of December 31, 2021:

Gross goodwill
$ 19,111 $ 20,323 $ 39,434
Accumulated impairment losses
0 0 0
Net goodwill
$ 19,111 $ 20,323 $ 39,434

Additions
$ 6,463 $ 0 $ 6,463
Impairment charge
(4,135 ) (20,323 ) (24,458 )
Foreign currency translation
148 0 148
Net goodwill, June 30, 2022
$ 21,587 $ 0 $ 21,587

As of June 30, 2022:

Gross goodwill
$ 25,722 $ 20,323 $ 46,045
Accumulated impairment losses
(4,135 ) (20,323 ) (24,458 )
Net goodwill
$ 21,587 $ 0 $ 21,587

21

Intangible Assets
In conjunction with the Company’s realignment of its reportable segments, the Company began an effort to centralize certain branding and go-to-market strategies under the BAMKO brand and determined that it would no longer use certain trade names associated with branded products. The Company’s rebranding efforts resulted in a $5.6 million impairment of indefinite-lived trade names related to its Branded Products segment during the three and six months ended June 30, 2022. The carrying amounts of indefinite-lived trade names as of June 30, 2022 and December 31, 2021 are summarized as follows (dollars in thousands):
Indefinite-lived Intangible Assets

Segment
Carrying Amount, December 31, 2021 Impairment Charges Carrying Amount, June 30, 2022
Trade names:

HPI

Branded Products
$ 4,700 $ 0 $ 4,700
BAMKO

Branded Products
8,900 0 8,900
Public Identity

Branded Products
470 (470 ) 0
Tangerine

Branded Products
3,200 (3,200 ) 0
Gifts By Design

Branded Products
1,170 (1,170 ) 0
Sutter’s Mill

Branded Products
741 (741 ) 0
CID Resources

Healthcare Apparel
14,160 0 14,160
Total
$ 33,341 $ (5,581 ) $ 27,760
Intangible assets as of June 30, 2022 and December 31, 2021 are summarized as follows (dollars in thousands):

June 30, 2022

December 31, 2021

Item
Weighted Average Life (In years)

Gross Carrying Amount

Accumulated Amortization

Gross Carrying Amount

Accumulated Amortization

Definite-lived intangible assets:

Customer relationships (7-15 year life)
11.7 $ 50,198 $ (20,933 ) $ 45,198 $ (18,772 )
Non-compete agreements (3-7 year life)
5.4 1,712 (1,238 ) 1,536 (1,121 )
Trademarks
10.0 332 (53 ) 275 (37 )
Trade names
2.0 710 (59 ) 0 0
Total
$ 52,952 $ (22,283 ) $ 47,009 $ (19,930 )

Indefinite-lived intangible assets:

Trade names
$ 27,760 $ 33,341

Total intangible assets
$ 80,712 $ (22,283 ) $ 80,350 $ (19,930 )

NOTE 1112 – Acquisition of Businesses:

Gifts By Design, Inc.

On January 29, 2021, the Company, through BAMKO, acquired substantially all of the assets of Gifts By Design, Inc. (“Gifts by Design”) of Seattle, Washington. Gifts by Design is a promotional products and branded merchandise agency that is well-established as a developer and supplier of corporate awards, incentives, and recognition programs for some of the world’s biggest brands. The purchase price for the acquisition consisted of $6.0 million in cash at closing.

Assets Acquired and Liabilities Assumed

The total purchase price was allocated to the tangible and intangible assets and liabilities of Gifts by Design based on their estimated fair values as of the acquisition date. The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was allocated to goodwill.

22
The following table presents the allocation of the total fair value of consideration transferred, as shown above, to the acquired tangible and intangible assets and liabilities of Gifts by Design based on their estimated fair values as of the effective date of the transaction (in thousands):

Accounts receivable
$ 251
Prepaid expenses and other current assets
196
Property, plant and equipment
60
Identifiable intangible assets
3,673
Goodwill
2,417
Total assets
$ 6,597
Accounts payable
199
Other current liabilities
372
Total liabilities
$ 571
~~The amounts in the table above are reflective of measurement period adjustments made during the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2021~~ ~~to previously provisional estimates, which included an increase of $2.3 million to goodwill and a decrease of~~ ~~$2.3~~ ~~million to identifiable intangible assets. The measurement period adjustments did~~ ~~not~~ ~~have a significant impact on the Company’s statements of operations or cash flows.~~
Accounts receivable
$ 251
Prepaid expenses and other current assets
196
Property, plant and equipment
60
Intangible assets
3,673
Goodwill
2,417
Total assets
$ 6,597
Accounts payable
199
Other current liabilities
372
Total liabilities
$ 571

The Company recorded $3.7 million in identifiable intangibles at fair value, consisting of $2.5 million in acquired customer relationships and $1.2 million for the brand name. The intangible assets associated with the customer relationships are being amortized for seven years. The ~~brand~~Gifts by Design trade name ~~is considered an indefinite-life asset and as such is~~ ~~not~~ ~~being amortized. The Company recognized amortization expense on these acquired intangible assets of $0.2 million~~was fully impaired during the ~~nine~~three and six months ended ~~September~~June 30, ~~2021~~2022 .
as a result of the Company’s rebranding efforts during the second quarter of 2022. See Note 11 for further details. The difference between the fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities.

Sutter’s Mill Specialties, Inc.
On December 2, 2021, the Company, principally through BAMKO, acquired substantially all of the assets of Sutter’s Mill Specialties, Inc. (“Sutter’s Mill”) of Tempe, Arizona. Sutter’s Mill is a vertically integrated manufacturer of high quality, decorated promotional products. Sutter’s Mill has the capability to print on demand and create customized promotional programs and products for customers of any size.
The purchase price of the acquisition consisted of the following: (a) approximately $10.5 million in cash, (b) the issuance of 45,620 restricted shares of Superior’s common stock that vest ratably over a three year period, and (c) potential future payments of approximately $4.5 million in additional contingent consideration for calendar years 2022 through 2024 based on the results of the acquired business.
Fair Value of Consideration Transferred
A summary of the purchase price is as follows (in thousands):
Cash consideration
$ 10,533
Restricted shares of Superior common stock issued
869
Contingent consideration
2,520
Total Consideration
$ 13,922
Assets Acquired and Liabilities Assumed
The table below presents the allocation of the total fair value of consideration transferred, as shown above, to the acquired tangible and intangible assets and liabilities of Sutter’s Mill based on their estimated fair values as of the effective date of the transaction. The assets and liabilities of Sutter’s Mill shown below are based on our preliminary estimates of their acquisition date fair values. Our final fair value determination may be different than those shown below.
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The following is our preliminary assignment of the aggregate consideration (in thousands):
Accounts receivable
$ 4,701
Inventories
9,149
Prepaid expenses and other current assets
135
Property, plant and equipment
1,043
Operating lease right-of-use assets
648
Intangible assets
2,031
Goodwill
1,019
Other assets
41
Total assets
$ 18,767
Accounts payable
3,209
Other current liabilities
389
Long-term debt
758
Long-term operating lease liabilities
489
Total liabilities
$ 4,845
In the first quarter of 2022, an adjustment to increase goodwill by $0.1 million was made to the initial amounts recorded, which relates to additional consideration paid by the Company to the seller.
The Company recorded $2.0 million in identifiable intangibles at fair value, consisting of $1.2 million in acquired customer relationships, $0.1 million for a non-compete agreement and $0.7 million for the Sutter’s Mill Specialties trade name. The intangible assets associated with the customer relationships are being amortized for seven years and the non-compete agreement is being amortized for five years. The Sutter’s Mill Specialties trade name was fully impaired during the three and six months ended June 30, 2022 as a result of the Company’s rebranding efforts during the second quarter of 2022. See Note 11 for further details. The difference between the fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities. The acquisition of Sutter’s Mill was treated as an asset purchase for income tax purpose, and therefore, the resulting goodwill from this acquisition was deductible for U.S. income tax purposes.
Guardian Products, Inc.
On May 1, 2022, the Company, through BAMKO, acquired substantially all of the assets of Guardian Products, Inc. (“Guardian”) of Norcross, Georgia. Guardian is a branded merchandise company that is one of the leading providers of promotional products to automotive dealers nationwide. The purchase price for the acquisition consisted of the following: (a) $11.1 million in cash at closing, subject to a working capital adjustment, (b) the issuance of 116,550 restricted shares of Superior’s common stock (the “Guardian Stock”), and (c) estimated potential future payments of approximately $2.3 million in additional contingent consideration based on the results of the acquired business through April 2025. The Guardian Stock is subject to transfer restrictions over the three-year period following the closing of the acquisition.
Fair Value of Consideration Transferred
A summary of the purchase price is as follows (in thousands):
Cash consideration
$ 11,077
Restricted shares of Superior common stock issued
2,000
Contingent consideration
1,119
Total Consideration
$ 14,196
Assets Acquired and Liabilities Assumed
The table below presents the allocation of the total fair value of consideration transferred, as shown above, to the acquired tangible and intangible assets and liabilities of Guardian based on their estimated fair values as of the effective date of the transaction. The assets and liabilities of Guardian shown below are based on our preliminary estimates of their acquisition date fair values. Our final fair value determination may be different than those shown below.
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The following is our preliminary assignment of the aggregate consideration (in thousands):
Accounts receivable
$ 1,656
Inventories
621
Prepaid expenses and other current assets
272
Property, plant and equipment
15
Intangible assets
5,886
Goodwill
6,463
Total assets
$ 14,913
Accounts payable
533
Other current liabilities
184
Total liabilities
$ 717
The Company recorded $5.9 million in identifiable intangibles at fair value, consisting of $5.0 million in acquired customer relationships, $0.2 million for a non-compete agreement and $0.7 million for the Guardian Products trade name. The intangible assets associated with the customer relationships are being amortized for seven years, the non-compete agreement is being amortized for five years and the trade name is being amortized for two years. The difference between the fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities. The acquisition of Guardian was treated as an asset purchase for income tax purpose, and therefore, the resulting goodwill from this acquisition is deductible for U.S. income tax purposes.
2225

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
~~The Management~~’s Discussion and Analysis of Financial Condition and Results of Operations set forth in this Item 2 has been revised to reflect the restatement occurring subsequent to the filing of the original Form 10-Q.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the Condensed Consolidated Financial Statements in Part I, Item 1 (“Financial Statements”) of this report and in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Cautionary Note Regarding Forward Looking Statements

Certain matters discussed in this Form 10-Q are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified by use of the words “may,” “will,” “should,” “could,” “expect,” anticipate,” “estimate,” “believe,” “intend,” “project,” “potential,” or “plan” or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements in this Quarterly Report on Form 10-Q may include, without limitation: (1) the projected impact of the COVID-19 pandemic on our, our customers’, and our suppliers’ businesses, (2) projections of revenue, income, and other items relating to our financial position and results of operations, (3) statements of our plans, objectives, strategies, goals and intentions, (4) statements regarding the capabilities, capacities, market position and expected development of our business operations, and (5) statements of expected industry and general economic trends.

Such forward-looking statements are subject to certain risks and uncertainties that may materially adversely affect the anticipated results. Such risks and uncertainties include, but are not limited to, the following: the impact of competition; the effect of uncertainties related to the COVID-19 pandemic, including existing and possible future variants, on the United States of America (“U.S.” or “United States”) and global markets, our business, operations, customers, suppliers and employees, including without limitation our ability to navigate successfully the challenges posed by current global supply disruptions; general economic conditions, including employment levels, in the areas of the United States in which the Company’s customers are located; the length and scope of restrictions imposed by various governments and organizations and the success of efforts to deliver effective vaccines on a timely basis to a number of people sufficient to prevent or substantially lower the severity of incidents of infection or variants, among other factors; our ability to navigate successfully the challenges posed by current global supply disruptions; general economic conditions, including employment levels, in the areas of the United States in which the Company’s customers are located; changes in the healthcare, retail, ~~hotels,~~hotel, food service, transportation and other industries where uniforms and service apparel are worn; our ability to identify suitable acquisition targets, ~~successfully integrate any acquired businesses, successfully manage our expanding operations, or~~ discover liabilities associated with such businesses during the diligence ~~process;~~process, successfully integrate any acquired businesses, or successfully manage our expanding operations; the price and availability of cotton and other manufacturing materials; attracting and retaining senior management and key personnel; the effect of the Company’s material weakness in internal control over financial ~~reporting and/or the restatement of its financial statements for the periods ended June 30 and September 30, 2021;~~ reporting;the Company’s ability to successfully remediate its material weakness in internal control over financial reporting and to maintain effective internal control over financial reporting; and other factors described in the Company’s filings with the Securities and Exchange Commission, including those described in the “Risk Factors” section herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this Form 10-Q and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances, except as may be required by law.

Recent ~~Acquisition~~Acquisitions

On January 29, 2021, the Company, through BAMKO, acquired substantially all of the assets of Gifts By Design, Inc. (“Gifts by Design”) of Seattle, Washington. Gifts by Design is a promotional products and branded merchandise agency that is well-established as a developer and supplier of corporate awards, incentives, and recognition programs for some of the world’s biggest brands. The purchase price for the acquisition consisted of $6.0 million in cash at closing.

On December 2, 2021, the Company, principally through BAMKO, acquired substantially all of the assets of Sutter’s Mill Specialties, Inc. (“Sutter’s Mill”) of Tempe, Arizona. Sutter’s Mill is a vertically integrated manufacturer of high quality, decorated promotional products. Sutter's Mill has the capability to print on demand and create customized promotional programs and products for customers of any size. The purchase price of the acquisition consisted of the following: (a) approximately $10.5 million in cash, (b) the issuance of 45,620 restricted shares of Superior’s common stock that vest ratably over a three-year period, and (c) potential future payments of approximately $4.5 million in additional contingent consideration for calendar years 2022 through 2024 based on the results of the acquired business.
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On May 1, 2022, the Company, through BAMKO, acquired substantially all of the assets of Guardian Products, Inc. (“Guardian”) of Norcross, Georgia. Guardian is a branded merchandise company that is one of the leading providers of promotional products to automotive dealers nationwide. The purchase price for the acquisition consisted of the following: (a) $11.1 million in cash at closing, subject to a working capital adjustment, (b) the issuance of 116,550 restricted shares of Superior’s common stock (the “Guardian Stock”), and (c) estimated potential future payments of approximately $2.3 million in additional contingent consideration based on the results of the acquired business through April 2025. The Guardian Stock is subject to transfer restrictions over the three-year period following the closing of the acquisition.
Business Outlook

Superior Group of Companies, Inc. (together with its subsidiaries, the “Company,” “Superior,” “we,” “our,” or “us”) is comprised of three reportable business segments: (1) Branded Products, (2) Healthcare Apparel and (3) Contact Centers. Beginning with the second quarter of 2022, the Company realigned its reportable segments to correspond with changes to its organizational responsibilities, management structure and operating model. Prior to implementing the current segment reporting, the Company’s Uniforms and Related Products ~~(2)~~segment included both healthcare apparel and uniforms. As part of the change in reportable segments, the uniforms business was combined with the previous Promotional Products segment to form the Branded Products segment, the healthcare apparel business became its own segment named Healthcare Apparel and income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment are no longer presented in segment results. The previous Remote Staffing Solutions ~~and (3) Promotional Products.~~segment was renamed Contact Centers segment. All prior period segment information has been recast to reflect this change in reportable segments.
23

~~Uniforms and Related~~Branded Products

In our ~~Uniforms and Related~~Branded Products segment, we produce and sell customized merchandising solutions, promotional products and branded uniform programs to our customers. As a strategic branding partner, we offer our customers customized branding solutions and strategies that generate favorable brand impressions, bolster customer retention and enhance employee engagement. Our products are sold to customers in a wide range of industries, including retail, hotel, food service, entertainment, tech, transportation and other industries. Sales volumes in this segment are impacted by a number of factors, including marketing programs of our customers and turnover of our customers’ employees, often times driven by the opening and closing of locations. The COVID-19 pandemic reduced demand for our products in many of our customers’ industries, such as the restaurant, transportation, hospitality and entertainment industries. This, however, was more than offset by demand from customers in the delivery service industry and certain retail industries, such as grocery and pharmacy. The COVID-19 pandemic initially also created significant opportunities for us within the personal protective equipment market; while we continue to source some personal protective equipment for our customers, we anticipate that demand for personal protective equipment will continue to decline. From a long-term perspective, we believe that synergies within this segment will create opportunities to cross-sell products to new and existing customers.
Healthcare Apparel
In our Healthcare Apparel segment, we manufacture (through third parties or our own facilities) and sell a wide range of ~~uniforms, career apparel and accessories. Our primary products are service~~healthcare apparel, such as scrubs, lab coats, protective apparel and patient gowns, provided to the healthcare industry, and service apparel, such as uniforms, provided to workers employed by our customers in various industries, including retail, hotels, food service, transportation and other industries.gowns. We sell our brands of healthcare service apparel ~~primarily~~ to healthcare laundries, dealers, distributors and ~~retailers.~~retailers primarily in the United States, and recently, have begun expansion into the European market. The COVID-19 pandemic initially created increased demand for healthcare service apparel from laundries, dealers and distributors that service hospitals and other medical facilities. However, as a result of the pandemic the healthcare apparel market has been oversupplied creating a slowdown in recent demand. Additionally, the market demand for personal protective equipment has declined as a result of the progression of the COVID-19 pandemic. From a long-term perspective, we expect that demand for our signature marketing brands, including Fashion Seal Healthcare® and WonderWink®, will continue to provide opportunities for growth and increased market share. Sales of uniforms are impacted by our customers’ opening and closing of locations and reductions, increases, and turnover of employees. The COVID-19 pandemic reduced demand for uniform apparel in many of our customers’ industries, such as the restaurant, transportation and hospitality industries. This, however, was partially offset by demand from customers in certain retail industries, such as grocery and pharmacy customers. The economic environment in the United States is beginning to return to pre-pandemic economic activity levels. While we continue to source some personal protective equipment for our customers, we anticipate that opportunities to supply personal protective equipment, including through our Uniforms and Related Products segment, will continue to decline. Based on the longer-term fundamentals of our uniforms business, we believe that we have growth opportunities to expand our market share.
27

~~Remote Staffing Solutions~~Contact Centers

This business segment (also known as “The Office Gurus”), which operates in El Salvador, Belize, Jamaica, Dominican Republic, and the United States, ~~initially started~~provides outsourced, nearshore business process outsourcing, contact and call-center support services to ~~support~~North American customers. These services are also provided internally to the Company’s ~~back office needs while improving overall efficiencies and lowering~~other two operating costs. After years of consistently improving key performance indicators, lowering costs and providing exceptional service to our Uniforms and Related Products segment in areas such as order entry, cash collections, vendor payables processing, customer service, sales, and others, The Office Gurus started selling their services to outside companies in 2009.segments. The Office Gurus has become an award-winning business process outsourcer offering inbound and outbound voice, email, text, chat and social media support. ~~Although~~The nearshore call-center market has experienced a period of growth as businesses look to reduce operating costs while maintaining high-quality customer support. Nearshore operators are able to provide comparable service to their U.S. counterparts at a fraction of the price. COVID-19 ~~pandemic~~ has ~~generated uncertainties~~acted as a catalyst for ~~our customers and their industries, we have recently seen increased demand for our services.~~rapid transformation within the traditional business process outsourcing model. With an environment and career path designed to attract and maintain top talent across all sites, we believe The Office Gurus is positioned well to continue growing this business.

~~Promotional Products~~
For more than a decade, we sold promotional products on a limited basis to our existing Uniforms and Related Products customer base. While there were substantial opportunities to sell promotional products to those customers, it was not an area of focus, specialization, or expertise for us. On March 1, 2016, that changed with our acquisition of substantially all of the assets of BAMKO, Inc. (“BAMKO”). BAMKO has many strengths, well-developed systems, and time-tested processes that offer significant competitive advantages. With a robust back-office support platform operated out of India, direct-to-factory sourcing operations based in China, and proprietary technological platforms and programming capabilities that we believe are competitive, BAMKO is well positioned in the promotional products industry and continues to be a platform for potential future acquisitions. We completed two additional acquisitions in this segment in late 2017, as well as an acquisition in January 2021, and remain open to additional acquisitions going forward. In recent years we have seen an increase in customer orders in our promotional products business and expect growth opportunities for our core promotional products business to continue. The COVID-19 pandemic created significant opportunities for us within the personal protective equipment market. And although we will continue to source some personal protective equipment for our customers, we anticipate, based on supply and demand factors, that opportunities to supply personal protective equipment, including through our Promotional Products segment, will continue to decline. Our core promotional products business has not experienced the same downturn during the pandemic that many of our competitors experienced as increased activities from customers in certain industries, such as the delivery service industry, more than offset reduced activities from customers in other industries, such as the restaurant and entertainment industries. From a long-term perspective, we believe that this segment’s synergistic fit with our uniforms business will create opportunities to cross-sell the products of each of these business segments to new and existing customers.
24

COVID-19 Impact

The COVID-19 pandemic continues to affect our operations around the world and financial performance, and likely will continue to do so for an undetermined period of time. International, federal, state and local efforts to contain the spread of COVID-19 have continued. Government actions to address the situation remain in effect and new actions continue to be enacted or modified, including safety requirements such as recommended or mandatory use of ~~face masks~~facemasks and other personal protective equipment and related products, recommended or mandated vaccinations, social distancing rules and guidelines, travel restrictions, temporary closures of non-essential businesses and other restrictive measures.

In responding to the needs of our customers, we have sourced personal protective equipment, including ~~face masks,~~facemasks, isolation gowns, sanitizers, gloves and ~~gloves,~~COVID-19 testing kits, which contributed ~~$18.6~~$4.9 million and ~~$16.1~~$1.4 million to net sales during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 for our ~~Uniforms and Related~~Branded Products segment and ~~Promotional~~Healthcare Apparel segment, respectively. Personal protective equipment net sales for our Branded Products segment ~~respectively.~~
~~However,~~and Healthcare Apparel segment were $26.6 million and $6.9 million, respectively, during the pandemic also had and could continue to have a number of adverse impacts on our business, including, but not limited to, disruption to the economy and our customers’ willingness and/or ability to spend, temporary or permanent closures of businesses that consume our products and services, additional work restrictions, and supply chains being interrupted, slowed, or rendered inoperable. Our employees and the employees and contractors of our suppliers and customers also could become ill, quarantined, or otherwise unable to work or travel due to health reasons or governmental restrictions.six months ended June 30, 2021.

Prolonged or recurring disruptions or instability in the United States and global economies, and how the world reacts to those disruptions or instability, could have long-term impacts on our business. These business impacts could negatively affect us in a number of ways, including, but not limited to, reduced demand for our core products and services, reductions to our revenue and profitability, costs associated with complying with new or amended laws and regulations affecting our business, declines in our stock price, reduced availability and less favorable terms of future borrowings, valuation of our pension obligations, reduced credit-worthiness of our customers, and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets. The extent to which the COVID-19 pandemic ultimately impacts our business, financial condition, results of operations or cash flows will depend on numerous ~~evolving~~ factors that continue to evolve and which we ~~are unable~~may not be able to accurately predict at this time, including the delivery of effective vaccines on a timely basis to a number of people sufficient to prevent or substantially lower the severity of incidents of infection or possible future variants of the virus, the extent and effectiveness of containment actions, availability of widespread rapid testing and effective treatment alternatives. Prolonged or recurring periods of difficult market conditions could have material adverse impacts on our business, financial condition, results of operations and cash flows.

Sourcing of Goods and Raw Materials

Along with many manufacturers that source goods and raw materials from abroad, we are currently experiencing continued significant supply disruptions and delays due to a variety of reasons. These changes are partially driven by interruptions in global supply chains (including as a result of port ~~congestion)~~congestion and trucking shortages) and partially by a shift in customer buying habits to e-commerce, which has the effect of increasing demand for shipping capacity from Asia, leading to capacity constraints. Both factors have increased shipping times as well as the price of shipping, whether by sea, air, rail, or vehicle, this year. Shipping delays combined with significant increases in orders for our products have recently created, and are expected to continue to create, inventory pressure for us. See also “Item 1A. Risk Factors - Our results of operations could be adversely affected by economic and political conditions globally and the effects of these conditions on our customers’ businesses and levels of business activity,” which disclosure is incorporated herein by reference.
28

An interruption in any of our supply sources or facilities could ~~temporarily~~ adversely affect our results of operations until alternate sources or facilities can be secured. ~~The Uniforms and Related Products segment’s principal~~Principal fabrics used in the manufacture of ~~its~~the Company’s finished goods ~~are~~include cotton, polyester, cotton-synthetic, poly-synthetic blends, textiles, plastic, glass, fabric and ~~poly-synthetic blends.~~metal. The majority of such fabrics are sourced in China. The Promotional Products segment relies on the supply of different types of raw materials as well as textiles, including plastic, glass, fabric and metal. The vast majority of these raw materials are principally sourced from China, either directly by ~~BAMKO~~us or ~~its~~our suppliers. If we are unable to continue to obtain our raw materials and finished products from China or if our suppliers are unable to source raw materials from China, it could significantly disrupt our business. Further, the Company and the Company’s suppliers generally source or manufacture finished goods in parts of the world that may be affected by economic uncertainty, political unrest, logistical challenges (such as port strikes and embargos), foreign currency fluctuations, labor disputes, health emergencies, or the imposition of duties, tariffs or other import regulations by the United States, any of which could result in additional cost or limit our supply of necessary goods and raw materials.

We currently believe challenges created by such supply chain disruptions are manageable. However, we have limited insight into the extent to which COVID-19 or other factors could further impair our sourcing of goods and materials.
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Results of Operations

Three Months Ended ~~September~~June 30, ~~2021~~2022 Compared to Three Months Ended ~~September~~June 30, ~~2020~~2021

Net Sales (in thousands):

Three Months Ended September 30,

2021

2020

% Change

Uniforms and Related Products
$ 61,890 $ 73,234 (15.5 %)
Remote Staffing Solutions
18,040 11,636 55.0 %
Promotional Products
45,243 44,176 2.4 %
Net intersegment eliminations
(1,847 ) (1,309 ) 41.1 %
Consolidated Net Sales
$ 123,326 $ 127,737 (3.5 %)

Three Months Ended June 30,

2022

2021

% Change

Branded Products
$ 102,039 $ 79,221 28.8 %
Healthcare Apparel
26,288 37,650 (30.2 %)
Contact Centers
21,466 15,653 37.1 %
Net intersegment eliminations
(1,860 ) (1,737 ) 7.1 %
Consolidated Net Sales
$ 147,933 $ 130,787 13.1 %

Net sales for the Company ~~decreased 3.5%~~increased 13.1% from ~~$127.7~~$130.8 million for the three months ended ~~September~~June 30, ~~2020~~2021 to ~~$123.3~~$147.9 million for the three months ended ~~September~~June 30, ~~2021.~~2022. The principal components of this aggregate ~~decrease~~increase in net sales were as follows: (1) an increase in net sales for our Branded Products segment (contributing 17.4%), (2) a decrease in net sales for our ~~Uniforms and Related Products~~Healthcare Apparel segment (contributing ~~(8.9%~~(8.7%)~~), (2) an increase in net sales for our Promotional Products segment (contributing 0.8%~~), and (3) an increase in net sales for our ~~Remote Staffing Solutions~~Contact Centers segment after intersegment eliminations (contributing ~~4.6%~~4.4%).

~~Uniforms and Related~~Branded Products net sales ~~decreased 15.5%~~increased 28.8%, or ~~$11.3~~$22.8 million, for the three months ended ~~September~~June 30, ~~2021~~2022 compared to the three months ended ~~September~~June 30, ~~2020.~~2021. The ~~decrease~~increase was primarily due to growth of our promotional products customer base through continued market penetration contributing to a net sales increase of $13.3 million and net sales of $12.1 million attributable to the acquisitions of Sutter’s Mill in December 2021 and Guardian in May 2022. These increases were partially offset by a decrease of ~~$13.7~~$3.7 million in net sales of personal protective equipment driven by the progression of the COVID-19 pandemic. ~~This~~
Healthcare Apparel net sales decreased 30.2%, or $11.4 million, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The decrease was ~~partially offset by an increase~~primarily due to a decrease in demand for ~~uniform~~healthcare apparel asresulting from current market conditions, most notably, a ~~number of our customers’ industries, such~~market saturated with inventory as the ~~restaurant, transportation and hospitality industries, have begun to show signs~~COVID-19 pandemic progressed. Additionally, net sales of ~~recovery from the effects of the COVID-19 pandemic.~~personal protective equipment decreased by $1.4 million.

~~Remote Staffing Solutions~~Contact Centers net sales increased ~~55.0%~~37.1% before intersegment eliminations and ~~56.8%~~40.9% after intersegment eliminations for the three months ended ~~September~~June 30, ~~2021~~2022 compared to the three months ended ~~September~~June 30, ~~2020.~~2021. These increases were primarily attributed to ~~our~~ providing ~~continued~~expanded services ~~in the current year period~~ to our ~~customer base that was expanded during 2020~~existing customers and the onboarding of new customers in ~~2021.~~
Promotional Products net sales increased 2.4%, or $1.1 million, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was primarily due to an increase of $19.5 million in net sales in our core promotional products business and an increase of net sales of $4.4 million due to the acquisition of Gifts by Design on January 29, 2021, partially offset by a decrease of $18.5 million in net sales of personal protective equipment. The increase in net sales in our core promotional products business was primarily driven by the growth of our customer base through continued market penetration experienced in 2020 and 2021 and improved market conditions. The sale of personal protective equipment during the three months ended September 30, 2020 was driven by market demand as a result of the COVID-19 pandemic.2022.

Cost of Goods Sold

Cost of goods sold consists primarily of direct costs of acquiring inventory, including cost of merchandise, inbound freight charges, purchasing costs, and inspection costs for our ~~Uniforms and Related~~Branded Products and ~~Promotional Products~~Healthcare Apparel segments. Cost of goods sold for our ~~Remote Staffing Solutions~~Contact Centers segment includes salaries and payroll related benefits for agents. The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with out-bound freight are recorded in cost of goods sold. Other shipping and handling costs are included in selling and administrative expenses.

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As a percentage of net sales, total cost of goods sold was 67.5% for the three months ended June 30, 2022 and 63.9% for the three months ended June 30, 2021. The percentage increase was primarily driven by $4.5 million in inventory write-downs of excess inventory related to personal protective equipment and discontinued styles during the three months ended June 30, 2022.
As a percentage of net sales, cost of goods sold for our ~~Uniforms and Related~~Branded Products segment was ~~64.2%~~71.5% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~66.5%~~69.8% for the three months ended ~~September~~June 30, ~~2020.~~2021. The percentage ~~decrease~~increase was primarily driven by ~~the decrease~~$1.3 million in inventory write-downs of personal protective equipment ~~sales, partially offset by~~during the three months ended June 30, 2022. Additionally, interruptions in global supply chains have led to higher logistical ~~costs during the current year period.~~costs. The extent to which we will be impacted is dependent on a number of factors that are difficult to predict. For additional information related to logistical challenges, please refer to the section “ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Outlook – Sourcing of Goods and Raw Materials.”

As a percentage of net sales, cost of goods sold for our ~~Remote Staffing Solutions~~Healthcare Apparel segment was ~~41.9%~~71.9% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~40.0%~~60.4% for the three months ended ~~September~~June 30, ~~2020.~~2021. The percentage increase was primarily ~~due~~driven by $3.2 million in inventory write-downs of excess inventory related to ~~costs associated with~~personal protective equipment and discontinued styles during the ~~onboarding of new customers in the current year period.~~three months ended June 30, 2022.

As a percentage of net sales, cost of goods sold for our ~~Promotional Products~~Contact Centers segment was ~~68.7%~~40.5% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~62.1%~~40.7% for the three months ended ~~September~~June 30, ~~2020. The~~2021. As a percentage ~~increase was primarily the result~~ of ~~differences in the mix~~net sales, cost of ~~products and customers.~~goods sold remained relatively flat.

Selling and Administrative Expenses
~~Selling~~As a percentage of net sales, total selling and administrative expenses ~~increased 0.4%, or $0.2 million,~~was 31.1% for the three months ended ~~September~~June 30, ~~2021 compared to~~2022 and 25.9% for the three months ended ~~September~~June 30, ~~2020.~~ 2021. The increase was primarily due to expense deleverage resulting from the 30.2% decrease in Healthcare Apparel net sales, an increase in employee costs, which was mostly driven by an increase in headcount to support growth in our Branded Products and Contact Centers segments, an increase in depreciation and amortization expense and investment losses related to Company’s supplemental executive retirement plan.

As a percentage of net sales, selling and administrative expenses for our ~~Uniforms and Related~~Branded Products segment was ~~31.1%~~23.5% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~30.0%~~20.2% for the three months ended ~~September~~June 30, ~~2020.~~2021. The percentage increase was primarily ~~due~~attributed to increased investment to support future growth of this segment, including the ~~decrease in net sales explained above.~~expansion of our workforce.

As a percentage of net sales, selling and administrative expenses for our ~~Remote Staffing Solutions~~Healthcare Apparel segment was ~~36.5%~~37.3% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~33.7%~~22.8% for the three months ended ~~September~~June 30, ~~2020.~~2021. The percentage increase was primarily attributed to ~~investments~~the decrease in ~~the business to~~sales explained above and an increase in selling administrative expenses resulting from increased employee related costs, customer support ~~continued sales growth.~~costs, travel expenses and advertising activities.

As a percentage of net sales, selling and administrative expenses for our ~~Promotional Products~~Contact Centers segment was ~~22.6%~~39.1% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~22.2%~~35.5% for the three months ended ~~September~~June 30, ~~2020. As a~~2021. The percentage increase was primarily attributed to increased investment in organizational infrastructure, including facilities and personnel, to support future growth of ~~net sales, selling and administrative expenses remained relatively flat.~~this segment.

~~Interest Expense~~Goodwill Impairment Charge
~~Interest expense~~In conjunction with the re-segmentation during the second quarter of 2022, the Company performed a goodwill impairment analysis and determined that the estimated fair value of the previous Uniforms and Related Products segment was ~~$0.3~~lower than its carrying value primarily as the result of current market conditions, decline in expected cash flows and decrease in the Company’s stock price. Consequently, the Company recorded a non-cash goodwill impairment charge of $24.5 million ~~and $0.2 million for~~during the three months ended ~~September~~June 30, ~~2021~~2022. This charge was non-cash in nature and ~~2020.~~does not affect our liquidity or debt covenants.

~~Income Taxes~~Intangible Assets Impairment Charge
In conjunction with the Company’s realignment of its reportable segments, the Company began an effort to centralize certain branding and go-to-market strategies under the BAMKO brand and determined that it would no longer use certain trade names associated with branded products. The ~~effective income tax rate was 17.8% and 17.7% for~~Company’s rebranding efforts resulted in a $5.6 million impairment of indefinite-lived trade names related to its Branded Products segment during the three months ended ~~September~~June 30, ~~2021~~2022. This charge was non-cash in nature and ~~2020, respectively. The effective tax rate may vary from quarter to quarter due to unusual~~does not affect our liquidity or infrequently occurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, taxes incurred in connection to the territorial style tax system, or other items.debt covenants.

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~~Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020~~
~~Net Sales (in thousands):~~

Nine Months Ended September 30,

2021

2020

% Change

Uniforms and Related Products
$ 200,651 $ 209,178 (4.1 %)
Remote Staffing Solutions
46,723 30,187 54.8 %
Promotional Products
152,795 145,810 4.8 %
Net intersegment eliminations
(5,209
)
(3,834 ) 35.9 %
Consolidated Net Sales
$ 394,960 $ 381,341 3.6 %
Net sales for the Company increased 3.6% from $381.3 million for the nine months ended September 30, 2020 to $395.0 million for the nine months ended September 30, 2021. The principal components of this aggregate increase in net sales were as follows: (1) a decrease in net sales for our Uniforms and Related Products segment (contributing (2.2%)), (2) an increase in net sales for our Promotional Products segment (contributing 1.8%), and (3) an increase in net sales for our Remote Staffing Solutions segment after intersegment eliminations (contributing 4.0%).
Uniforms and Related Products net sales decreased 4.1%, or $8.5 million, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The decrease was primarily due to a decrease of $5.7 million in sales of personal protective equipment and lower market demand for healthcare service apparel when compared to the spike in demand during the early phases of the COVID-19 pandemic that began in the second quarter of 2020. These decreases were partially offset by an increase in demand for uniform apparel.
Remote Staffing Solutions net sales increased 54.8% before intersegment eliminations and 57.5% after intersegment eliminations for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. These increases were primarily attributed to our providing continued services in the current year period to our customer base that was expanded during 2020, the onboarding of new customers in 2021 and the negative impact of disruptions experienced in 2020 resulting from COVID-19.
Promotional Products net sales increased 4.8%, or $7.0 million, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily due to an increase of $60.0 million in net sales in our core promotional products business, partially offset by a decrease of $53.0 million in the sale of personal protective equipment. The increase in net sales in our core promotional products business was driven by the timing of promotional programs launched for certain customers, growth of our customer base through continued market penetration experienced in 2020 and 2021 and improved market conditions. Additionally, the acquisition of Gifts by Design on January 29, 2021 resulted in an increase of net sales of $9.1 million during the nine months ended September 30, 2021. The robust personal protective equipment sales during the nine months ended September 30, 2020 was driven by market demand during the early phases of the COVID-19 pandemic.
~~Cost of Goods Sold~~
As a percentage of net sales, cost of goods sold for our Uniforms and Related Products segment was 65.7% for the nine months ended September 30, 2021 and 64.7% for the nine months ended September 30, 2020. The percentage increase was primarily driven by higher logistical costs during the current year period, partially offset by the decrease in personal protective equipment sales. For additional information related to logistical challenges, please refer to the section ~~“ITEM 2. Management~~’~~s Discussion and Analysis of Financial Condition and Results of Operations~~ – ~~Business Outlook~~ – ~~Sourcing of Goods and Raw Materials.~~”
As a percentage of net sales, cost of goods sold for our Remote Staffing Solutions segment was 41.2% for the nine months ended September 30, 2021 and 42.7% for the nine months ended September 30, 2020. The percentage decrease was primarily driven by disruptions resulting from COVID-19 during the nine months ended September 30, 2020.
As a percentage of net sales, cost of goods sold for our Promotional Products segment was 68.2% for the nine months ended September 30, 2021 and 67.0% for the nine months ended September 30, 2020. The percentage increase was primarily the result of differences in the mix of products and customers.
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~~Selling and Administrative Expenses~~
Selling and administrative expenses increased 5.4%, or $5.4 million, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily due to an increase in employee costs driven mostly by increased headcount and a reduction in expenses of $1.2 million in the prior year period that was the result of the Company’s decision to forgo its discretionary matching contribution under its defined contribution plan in 2020, partially offset by a decrease in bad debt expense of $4.4 million on outstanding trade accounts receivable.
As a percentage of net sales, selling and administrative expenses for our Uniforms and Related Products segment was 28.9% for the nine months ended September 30, 2021 and 28.8% for the nine months ended September 30, 2020. As a percentage of net sales, selling and administrative expenses remained relatively flat.
As a percentage of net sales, selling and administrative expenses for our Remote Staffing Solutions segment was 36.1% for the nine months ended September 30, 2021 and 35.9% for the nine months ended September 30, 2020. As a percentage of net sales, selling and administrative expenses remained relatively flat.
As a percentage of net sales, selling and administrative expenses for our Promotional Products segment was 21.0% for the nine months ended September 30, 2021 and 20.6% for the nine months ended September 30, 2020. As a percentage of net sales, selling and administrative expenses remained relatively flat.

Pension Plan Terminations

In the second quarter of 2021, the Company ~~completed the termination of~~terminated its two noncontributory qualified defined benefit pension plans, which were fully funded. Consequently, the Company recognized a settlement charge of $6.9 million during the ~~nine~~three months ended ~~September~~June 30, 2021, which represents the acceleration of deferred charges previously included within accumulated other comprehensive loss and the impact of remeasuring the plan assets and obligations at termination. The pension plan terminations did not require a cash outlay by the Company.

Interest Expense

Interest expense ~~decreased~~increased to ~~$0.9~~$0.6 million for the ~~nine~~three months ended ~~September~~June 30, 2022 from $0.3 million for three months ended June 30, 2021. This increase was primarily due to an increase in LIBOR rates on our outstanding borrowings and an increase in outstanding borrowings.
Income Taxes
The effective income tax rate was 8.0% and (15.2%) for the three months ended June 30, 2022 and 2021, respectively. Income tax expense for the three months ended June 30, 2022 was impacted by a tax benefit of $2.0 million relating to the impairment of intangible assets and a portion of the goodwill impairment. The effective tax rate for the three months ended June 30, 2022 was impacted by the nondeductible portion of the goodwill impairment charge totaling $20.3 million. Income tax expense for the three months ended June 30, 2021 was favorably impacted by a reversal of $1.8 million in deferred tax liabilities associated with the termination of the Company’s two qualified defined benefit pension plans, $0.8 million of windfall tax benefits from ~~$1.7~~stock options exercised and $0.6 million of stranded tax benefits recognized as a result of the Company’s termination of its pension plans. The effective tax rate may vary from quarter to quarter due to unusual or infrequently occurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, taxes incurred in connection to the territorial style tax system, or other items.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Net Sales (in thousands):

Six Months Ended June 30,

2022

2021

% Change

Branded Products
$ 199,122 $ 173,013 15.1 %
Healthcare Apparel
56,856 73,300 (22.4 %)
Contact Centers
39,440 28,683 37.5 %
Net intersegment eliminations
(3,903 ) (3,362 ) 16.1 %
Consolidated Net Sales
$ 291,515 $ 271,634 7.3 %
Net sales for the Company increased 7.3% from $271.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020. This~~2021 to $291.5 million for the six months ended June 30, 2022. The principal components of this aggregate increase in net sales were as follows: (1) an increase in net sales for our Branded Products segment (contributing 9.6%), (2) a decrease in net sales for our Healthcare Apparel segment (contributing (6.1%)), and (3) an increase in net sales for our Contact Centers segment after intersegment eliminations (contributing 3.8%).

Branded Products net sales increased 15.1%, or $26.1 million, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase was primarily due to growth of our promotional products customer base through continued market penetration contributing to a net sales increase of $23.2 million, net sales of $19.3 million attributable to the acquisitions of Sutter’s Mill in December 2021 and Guardian in May 2022 and an increase in net sales of branded uniform programs of $5.3 million. These increases were partially offset by a decrease of $21.7 million in net sales of personal protective equipment driven by the progression of the COVID-19 pandemic.
Healthcare Apparel net sales decreased 30.2%, or $11.4 million, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease was primarily due to a decrease in demand for healthcare apparel resulting from current market conditions, most notably, a market saturated with inventory as the COVID-19 pandemic progressed. Additionally, net sales of personal protective equipment decreased by $5.5 million. The sale of personal protective equipment during the six months ended June 30, 2021 was driven by market demand as a result of the progression of the COVID-19 pandemic.
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Contact Centers net sales increased 37.1% before intersegment eliminations and 40.9% after intersegment eliminations for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. These increases were primarily attributed to providing expanded services to our existing customers and the onboarding of new customers in 2022.
Cost of Goods Sold
As a percentage of net sales, total cost of goods sold was 66.4% for the six months ended June 30, 2022 and 64.6% for the six months ended June 30, 2021. The percentage increase was primarily driven by $4.5 million in inventory write-downs of excess inventory related to personal protective equipment and discontinued styles in the second quarter of 2022.
As a percentage of net sales, cost of goods sold for our Branded Products segment was 71.5% for the six months ended June 30, 2022 and 69.8% for the six months ended June 30, 2021. The percentage increase was primarily driven by differences in the mix of products and customers, $1.3 million in inventory write-downs of personal protective equipment and interruptions in global supply chains have led to higher logistical costs.
As a percentage of net sales, cost of goods sold for our Healthcare Apparel segment was 71.9% for the six months ended June 30, 2022 and 60.4% for the six months ended June 30, 2021. The percentage increase was primarily driven by $3.2 million in inventory write-downs of excess inventory related to personal protective equipment and discontinued styles.
As a percentage of net sales, cost of goods sold for our Contact Centers segment was 40.5% for the six months ended June 30, 2022 and 40.7% for the six months ended June 30, 2021. As a percentage of net sales, cost of goods sold remained relatively flat.
Selling and Administrative Expenses
As a percentage of net sales, total selling and administrative expenses was 30.2% for the six months ended June 30, 2022 and 25.4% for the six months ended June 30, 2021. The increase was primarily due to expense deleverage resulting from the 22.4% decrease in Healthcare Apparel net sales, an increase in employee costs, which was mostly driven by an increase in headcount to support growth in our Branded Products and Contact Centers segments, an increase in depreciation and amortization expense and investment losses related to Company’s supplemental executive retirement plan.
As a percentage of net sales, selling and administrative expenses for our Branded Products segment was 23.5% for the six months ended June 30, 2022 and 20.2% for the six months ended June 30, 2021. The percentage increase was primarily attributed to increased investment to support future growth of this segment, including the expansion of our workforce, and decrease in personal protective equipment net sales, which have disproportionately lower selling and administrative expenses associated with them.
As a percentage of net sales, selling and administrative expenses for our Healthcare Apparel segment was 37.3% for the six months ended June 30, 2022 and 22.8% for the six months ended June 30, 2021. The percentage increase was primarily attributed to the decrease in sales explained above and an increase in selling administrative expenses resulting from increased employee related costs, customer support costs, travel expenses and advertising activities. The decrease in sales included a decrease in personal protective equipment net sales, which have disproportionately lower selling and administrative expenses associated with them.
As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 39.1% for the six months ended June 30, 2022 and 35.5% for the six months ended June 30, 2021. The percentage increase was primarily attributed to increased investment in organizational infrastructure, including facilities and personnel, to support future growth of this segment.
Goodwill Impairment Charge
In conjunction with the re-segmentation during the second quarter of 2022, the Company performed a goodwill impairment analysis and determined that the estimated fair value of the previous Uniforms and Related Products segment was lower than its carrying value primarily as the result of current market conditions, decline in expected cash flows and decrease in the Company’s stock price. Consequently, the Company recorded a non-cash goodwill impairment charge of $24.5 million during the six months ended June 30, 2022. This charge was non-cash in nature and does not affect our liquidity or debt covenants.
32
Intangible Assets Impairment Charge
In conjunction with the Company’s realignment of its reportable segments, the Company began an effort to centralize certain branding and go-to-market strategies under the BAMKO brand and determined that it would no longer use certain trade names associated with branded products. The Company’s rebranding efforts resulted in a $5.6 million impairment of indefinite-lived trade names related to its Branded Products segment during the six months ended June 30, 2022. This charge was non-cash in nature and does not affect our liquidity or debt covenants.
Pension Plan Terminations
In the second quarter of 2021, the Company terminated its two noncontributory qualified defined benefit pension plans, which were fully funded. Consequently, the Company recognized a settlement charge of $6.9 million during the six months ended June 30, 2021, which represents the acceleration of deferred charges previously included within accumulated other comprehensive loss and the impact of remeasuring the plan assets and obligations at termination. The pension plan terminations did not require a cash outlay by the Company.
Interest Expense
Interest expense increased to $0.9 million for the six months ended June 30, 2022 from $0.6 million for six months ended June 30, 2021. This increase was primarily due to an increase in LIBOR rates on our outstanding borrowings and ~~a loss of $0.3 million recognized on our interest rate swap during the nine months ended September 30, 2020.~~an increase in outstanding borrowings.

Income Taxes
The effective income tax rate was ~~12.8%~~8.0% and ~~19.9%~~15.2% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Income tax expense for the ~~nine~~six months ended ~~September~~June 30, 2022 was impacted by a tax benefit of $2.0 million relating to the impairment of intangible assets and a portion of the goodwill impairment. The effective tax rate for the six months ended June 30, 2022 was impacted by the nondeductible portion of the goodwill impairment charge totaling $20.3 million. Income tax expense for the six months ended June 30, 2021 was favorably impacted by a reversal of $1.8 million in deferred tax liabilities associated with the termination of the Company’s two qualified defined benefit pension plans, $0.8 million of windfall tax benefits from stock options exercised and $0.6 million of stranded tax benefits recognized as a result of the Company’s termination of its pension plans. The effective tax rate may vary from quarter to quarter due to unusual or infrequently occurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, taxes incurred in connection to the territorial style tax system, or other items.

Liquidity and Capital Resources

Overview

Management uses a number of standards in measuring the Company’s liquidity, such as: working capital, profitability ratios, cash flows from operating activities, and activity ratios. The Company’s balance sheet generally provides the ability to pursue acquisitions, invest in new product lines and technologies and invest in additional working capital as necessary.

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The Company’s primary source of liquidity has been its net income and the use of credit facilities and term loans as described further below. Management currently believes that cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the Company’s anticipated working capital requirements and capital expenditures for the next twelve months. Management also currently believes that cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the Company’s anticipated working capital requirements and capital expenditures beyond the next twelve months. In the future, the Company may continue to use credit facilities and other secured and unsecured borrowings as a source of liquidity. The Company may also begin relying on the issuance of equity or debt securities, including under its universal shelf registration statement (File No. 333-249760)., to the extent available. There can be no assurance that any such financings would be available to us on reasonable terms. Any future issuances of equity securities or securities convertible into or exercisable for equity securities may be dilutive to our shareholders. Additionally, the cost of the Company’s future sources of liquidity may differ from the costs of the Company’s sources of liquidity to date.

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Working Capital

Superior’s ~~Uniforms~~Branded Products and ~~Related Products segment markets itself~~Healthcare Apparel segments market themselves to ~~its~~their customers as a “stock house.” Therefore, Superior carries inventories of both raw materials and finished products, the practice of which requires substantial working capital, which we believe to be common in the industry.

Cash and cash equivalents increased by ~~$1.2~~$1.4 million to ~~$6.4~~$10.3 million as of ~~September~~June 30, ~~2021~~2022 from ~~$5.2~~$8.9 million on December 31, ~~2020.~~2021. Working capital increased to ~~$164.4~~$212.6 million at ~~September~~June 30, ~~2021~~2022 from ~~$143.6~~$188.1 million at December 31, ~~2020.~~2021. The increase in working capital was primarily due to an ~~increase~~increases in ~~inventories, a decrease in other current liabilities~~contract assets and ~~an increase in prepaid expenses and other current assets, partially offset by a decrease~~accounts receivable combined with decreases in accounts ~~receivable.~~payable and current portion of acquisition-related contingent liabilities. The increase in ~~inventories~~inventory was primarily driven by the timing of inventory purchases within our Promotional Products and Uniforms and Related Products segments. The decrease in other current liabilities was primarily related to significant accruals as of December 31, 2020, associated with the Company’s performance in 2020, that were paid in the current year period, including accrued compensation and income taxes.Healthcare Apparel segment. The increase in ~~prepaid expenses and other current~~contract assets was primarily related to ~~prepaid taxes~~the timing of shipments to customers and ~~insurance.~~receipts from suppliers for finished goods with no alternative use within our Branded Products segment. The decrease in accounts payable was primarily driven by the timing of inventory purchases. The increase in accounts receivable was primarily driven by increases in net sales in our Branded Product and Contact Centers segments, partially offset by a decrease in net sales in our Healthcare Apparel segment. The decrease in current portion of acquisition-related contingent liabilities was primarily driven by contractual payments made in the ~~timing of customer payments received within our Uniforms and Related Products segment.~~current year period.

Cash Flows

Our cash flows from operating, investing and financing activities, as reflected in the statements of cash flows, are summarized in the following table (in thousands):

Nine Months Ended September 30,

Six Months Ended June 30,

2021

2020

2022

2021

Net cash provided by (used in):

Operating activities
$ 18,161 $ 51,067 $ (7,645 ) $ (3,010 )
Investing activities
(20,481 ) (5,711 ) (18,241 ) (17,352 )
Financing activities
3,656 (48,231 ) 27,167 22,583
Effect of exchange rates on cash
(100 ) (512 ) 89 137
Net increase (decrease) in cash and cash equivalents
$ 1,236 $ (3,387 ) $ 1,370 $ 2,358

Operating Activities. The ~~decrease~~increase in net cash ~~provided by~~used in operating activities during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was primarily attributable to ~~payments made in the~~increased contract assets and increased cash outflows for selling and administrative expenses, partially offset by decreased cash outflows for accounts payable and other current year period related to significant accruals as of December 31, 2020 associated with the Company’s performance in 2020, including accrued compensation and income taxes, advanced customer payments received on personal protective equipment contracts in the prior year period and a $4.2 million contingent consideration payment representing the excess of the total contingent consideration payment made in the current year period over the fair value of the liability estimated at the time of acquisition.liabilities. Working capital cash changes during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 included an increase of ~~$13.7~~$9.4 million in ~~inventories,~~inventory, an increase of $8.2 million in contract assets and a decrease of ~~$12.3~~$7.3 million in accounts payable and other current ~~liabilities and a decrease of $7.5 million in accounts receivable.~~liabilities. Working capital cash changes during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 included ~~an increase~~a decrease of ~~$29.2~~$14.5 million in accounts payable and other current liabilities and an increase of ~~$12.2~~$9.4 million in ~~accounts receivable.~~

inventory.
Investing Activities. The increase in net cash used in investing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was attributable to ~~an increase~~$11.1 million of cash paid for the acquisition of Guardian in 2022, partially offset by $6.0 million of cash paid for the acquisition of Gifts by Design in 2021 and a decrease in capital expenditures of ~~$8.7~~$4.3 million primarily related to the expansion of our distribution facility in Eudora, Arkansas, ~~and $6.0 million of cash paid for the acquisition of Gifts by Design~~ in 2021. From a long-term perspective, the Company expects to continue its ongoing capital expenditure program designed to improve the effectiveness and capabilities of its facilities and technology.

30

Financing Activities. The increase in net cash provided by financing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was primarily attributable to an increase in net borrowings of ~~$8.4~~$7.0 million in debt, ~~during the current year period compared to net repayments in debt~~partially offset by a decrease of ~~$42.6~~$1.6 million in ~~the prior year period.~~proceeds received on exercise of stock options.

Credit Facilities (See Note 3 to the Financial Statements)

As of ~~September~~June 30, ~~2021,~~2022, the Company had approximately ~~$96.8~~$149.2 million in outstanding borrowings under its credit facilities with Truist Bank, consisting of ~~$37.8~~$101.7 million outstanding under the revolving credit facility, ~~$16.5~~$12.0 million outstanding under a term loan maturing in February 2024 (“2017 Term Loan”) and ~~$42.6~~$35.6 million outstanding under a term loan maturing in January 2026 (“2018 Term Loan”). The revolving credit facility, 2017 Term Loan and 2018 Term Loan are collectively referred to as the “Credit Facilities.”
34

On February 8, 2021, the Company entered into a Second Amended and Restated Credit Agreement with Truist Bank (the “Credit Agreement”), pursuant to which the maximum availability under the Company’s existing revolving credit facility was increased from $75.0 million to $125.0 million and its maturity date was extended until February 8, 2026. The 2017 Term Loan and the 2018 Term Loan remain outstanding with the same amortization schedules. The floor on LIBOR for the revolving credit facility was increased from zero to 0.25%, but the interest rates on the revolving credit facility and the term loans were not otherwise modified. Except as described above, the covenants, events of default and substantially all of the other terms that were contained in the Company’s prior credit agreement with Truist Bank remain unchanged in the Credit Agreement.

Obligations outstanding under the 2018 Term Loan have a variable interest rate of LIBOR plus a margin of between 0.85% and 1.65% (based on the Company’s funded debt to EBITDA ratio) ~~(0.93%~~(2.30% at ~~September~~June 30, ~~2021)~~2022). Obligations outstanding under the revolving credit facility and the 2017 Term Loan generally have a variable interest rate of one-month LIBOR (with a 0.25% floor on LIBOR for the revolving credit facility) plus a margin of between 0.68% and 1.50% (based on the Company’s funded debt to EBITDA ratio) ~~(0.93%~~(2.13% for the revolving credit facility and ~~0.76% for the~~ 2017 Term Loan at ~~September~~June 30, ~~2021)~~2022). The Company is obligated to pay a commitment fee of 0.15% per annum on the average unused portion of the commitment under the revolving credit facility. The available balance under the revolving credit facility is reduced by outstanding letters of credit. At ~~September~~June 30, ~~2021,~~2022, the Company had undrawn capacity of ~~$87.2~~$23.3 million under the revolving credit facility.
Interest rates on our outstanding borrowings increased significantly during the three month ended June 30, 2022. For instance, interest rates on the 2018 Term Loan were 2.30% at June 30, 2022 compared to 1.25% at March 31, 2022 and interest rates on the revolving credit facility ~~subject~~and 2017 Term Loan were 2.13% at June 30, 2022 compared to ~~the Company's compliance with the financial covenants described below.~~1.08% at March 31, 2022. Rising interest rates could negatively impact our borrowing costs or refinancing activity.

Contractual principal payments for the 2017 Term Loan are as follows: remainder of ~~2021~~2022 - ~~$1.5~~$3.0 million; ~~2022 through~~ 2023 - $6.0 ~~million per year;~~million; and 2024 - $3.0 million. Contractual principal payments for the 2018 Term Loan are as follows: remainder of ~~2021~~2022 - ~~$2.3~~$4.6 million; ~~2022~~2023 through 2025 - $9.3 million per year; and 2026 - $3.1 million. The term loans do not contain pre-payment penalties.

The Credit Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments, restricted payments, and sales of assets. The Credit Agreement also requires the Company to maintain a fixed charge coverage ratio (as defined in the Credit Agreement) of at least 1.25:1 and a funded debt to EBITDA ratio (as defined in the Credit Agreement) not to exceed 5.0:1. As of ~~September~~June 30, ~~2021,~~2022, the Company was in compliance with these ratios. The Credit Facilities are secured by substantially all of the operating assets of the Company as collateral, and the Company’s obligations under the Credit Facilities are guaranteed by all of its domestic subsidiaries. The Company’s obligations under the Credit Facilities are subject to acceleration upon the occurrence of an event of default as defined in the Credit Agreement.

Dividends and Share Repurchase Program

During the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, the Company paid cash dividends of ~~$5.3~~$4.2 million and ~~$4.6~~$3.4 million, respectively. The Company anticipates that it will continue to pay dividends in the future as financial conditions ~~permit, but can provide no assurances to this effect.~~permit.

On May 2, 2019, the Company’s Board of Directors approved a stock repurchase program of up to 750,000 shares of the Company’s outstanding common stock. There is no expiration date or other restriction governing the period over which the Company can make share repurchases under the program. All purchases under this program will be open market transactions. At ~~September~~June 30, ~~2021,~~2022, the Company’s remaining repurchase capacity under its common stock repurchase program was 657,451 shares. Shares purchased under the common stock repurchase program are constructively retired and returned to unissued status. The Company considers several factors in determining when to make share repurchases, including among other things, the cost of equity, the after-tax cost of borrowing, the debt to total capitalization targets and ~~the~~its expected future cash needs.

3135

~~Off-Balance Sheet Arrangements~~
The Company does not engage in any off-balance sheet financing arrangements. In particular, the Company does not have any interest in variable interest entities, which include special purpose entities and structured finance entities.

ITEM 3.          Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We are subject to market risk exposure related to changes in interest rates on our debt. Interest on our Credit Facilities are based upon the one-month LIBOR rate. In order to reduce the interest rate risk on our debt, the Company entered into an interest rate swap agreement on a portion of its borrowings. Excluding the effect of the interest rate swap agreement, a hypothetical increase in the LIBOR rate of 100 basis points as of January 1, ~~2021~~2022 would have resulted in approximately ~~$0.9~~$0.7 million in additional pre-tax interest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. For further information regarding our debt instruments, see Note 3 to the Financial Statements.

Foreign Currency Exchange Risk

Sales to customers outside of the United States are subject to fluctuations in foreign currency exchange rates, which may negatively impact gross margin realized on our sales. Less than 5% of our sales contracts are not denominated in U.S. ~~dollar.~~dollars. We cannot predict the effect of exchange rate fluctuations on our operating results. In certain cases, we may enter into foreign currency cash flow hedges to reduce the variability of cash flows associated with our sales and expenses denominated in foreign currency. As of ~~September~~June 30, ~~2021,~~2022, we had no foreign currency exchange hedging contracts. There can be no assurance that our strategies will adequately protect our operating results from the effect of exchange rate fluctuations.

Financial results of our foreign subsidiaries in the ~~Promotional~~Branded Products segment are denominated in their local currencies, which include the Hong Kong dollar, the Chinese renminbi, the British pound, the Indian rupee, the Brazilian real and the Canadian dollar. These operations may also have net assets and liabilities not denominated in their functional currency, which exposes us to changes in foreign currency exchange rates that impact income. Excluding intercompany payables and receivables considered to be long-term investments, changes in exchange rates for assets and liabilities not denominated in their functional currency are reported as foreign currency gains (losses) within selling and administrative expenses in our statements of comprehensive ~~income.~~income (loss). During the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, foreign currency losses were not significant. We also have exposure to foreign currency exchange risk from the translation of foreign subsidiaries from the local currency into the U.S. dollar. Comprehensive income (loss) during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 included a foreign currency translation adjustment ~~loss~~gain of ~~$0.2~~$0.8 and $1.0 million, ~~and $1.5 million, respectively, primarily related to exchange rate movements of the Brazilian real.~~respectively.

ITEM 4.          Controls and Procedures
~~Information pertaining to controls and procedures in this Item 4 has been updated for events and developments occurring subsequent to the filing of the original Form 10-Q.~~

Disclosure Controls and Procedures

The Company conducted an evaluation, under supervision and with the participation of the Company’s principal executive officer, Michael Benstock, and the Company’s principal financial officer, ~~Andrew D. Demott, Jr.,~~Michael Koempel, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report (the “Evaluation Date”). ~~This~~Based on such evaluation, ~~initially resulted in a determination by our Chief Executive Officer~~the Company’s principal executive officer and ~~Chief Financial Officer~~principal financial officer concluded that, ~~our disclosure controls and procedures were effective~~ as of the Evaluation ~~Date.~~
32

In connection with the restatement, management has reevaluated the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting as of June 30, 2021 and as of the Evaluation Date. The Company’s management has concluded that in light of the Company’s failure to reverse deferred tax liabilities associated with the termination of the Company’s two qualified defined benefit pension plans in the second quarter 2021, a material weakness existed in the Company’s internal control over financial reporting related to accounting for income taxes as of June 30, 2021 and as of the Evaluation Date, ~~and~~ the Company’s disclosure controls and procedures were not effective because of the material weakness in the Company’s internal control over financial reporting described below and as previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Management identified a material weakness relating to the accounting for income taxes as of ~~such date.~~December 31, 2021, principally related to the income tax provision and deferred tax accounts (liabilities and assets). The Company determined that management’s review controls over income taxes are not operating effectively to detect a material misstatement in the financial statements related to the completeness, accuracy, and presentation of the aforementioned areas of income taxes. As of June 30, 2022, this material weakness has not been remediated.

Notwithstanding the identified material weakness, management, including the Company’s principal executive officer and principal financial officer, have determined, based on the procedures they have performed, that the consolidated financial statements included in this Form ~~10-Q/A~~10-Q present fairly, in all material respects, the Company’s financial condition, results of operations and cash flows at the Evaluation Date, and for the periods presented, in accordance with U.S. GAAP.

36
Remediation Efforts with Respect to the Material Weakness

The Company’s management, under the oversight of the Audit Committee, is in the process of ~~developing~~executing a plan to remediate the material weakness which ~~is expected to include~~includes the following measures:

•
• implement a tax reporting software solution to streamline our income tax process and enhance our state and federal income tax reporting capabilities;

•
~~hire additional qualified personnel to bolster the Company's~~
• hire additional qualified personnel to bolster the Company’s in-house tax capabilities and capacity; and

•
• evaluate and, if necessary, enhance the level of precision in the management review controls related to income taxes.

The material weakness will not be considered remediated until management completes the remediation plan above, the enhanced controls operate for a sufficient period of time, and management has concluded, through testing, that the related controls are effective. The Company will monitor the effectiveness of its remediation plan and will refine its remediation plan as appropriate. ~~The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.~~

Changes in Internal Control over Financial Reporting

There were no changes in ~~our~~the Company’s internal control over financial reporting ~~as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act,~~ during the quarter ended ~~September~~June 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, ~~our~~the Company’s internal control over financial reporting as the circumstances that led to the material weakness described above had not yet been identified. We are in the process of implementing changes to our internal control over financial reporting to remediate the material weakness, as more fully described above. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.reporting.

3337

PART II - OTHER INFORMATION

ITEM 1.        Legal Proceedings

We are a party to certain lawsuits in the ordinary course of business. We do not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations or cash flows.

ITEM 1A.     Risk Factors

~~Information pertaining to our risk factors has been updated in connection with the restated condensed consolidated financial statements (collectively "financial statements") included herein.~~
We are exposed to certain risks and uncertainties that could have a material adverse impact on our business, financial condition and operating results. Except as set forth below, there have been no material changes to the Risk Factors described in Part I, Item 1A-Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.
~~Shortages~~Our results of ~~sourced goods or raw materials from suppliers, interruptions in~~operations could be adversely affected by economic and political conditions globally and the effects of these conditions on our ~~manufacturing,~~customers’ businesses and ~~local conditions in~~levels of business activity.

Economic and political events this year have altered the ~~countries~~landscape in which we and other U.S. companies operate ~~could adversely affect our results of operations.~~

~~Along with many manufacturers that source goods and raw materials from abroad, we are currently experiencing continued significant supply disruptions and delays due to~~in a variety of ~~reasons. These changes are partially driven by interruptions~~ways. In response to inflationary pressures, the U.S. Federal Reserve has raised interest rates, resulting in ~~global supply chains (including as a result~~an increase in the cost of ~~port congestion)~~borrowing for us, our customers, our suppliers, and partially by a shift in customer buying habits to e-commerce, which has the effect of increasing demand for shipping capacity from Asia, leading to capacity constraints. Both factors have increased shipping times as wellother companies relying on debt financing. World events, such as the ~~price~~Russian invasion of ~~shipping, whether~~Ukraine and the resulting economic sanctions, have impacted the global economy, including by ~~sea, air, rail,~~ exacerbating inflationary and other pressures linked to COVID-related supply chain disruptions. Prolonged inflationary conditions, high and/or ~~vehicle,~~increased interest rates, and additional sanctions or retaliatory measures related to the Russia-Ukraine crisis, or other situations, could further negatively affect U.S. and international commerce and exacerbate or prolong the period of high energy prices and supply chain constraints. At this ~~year. Shipping delays combined with significant increases in orders for our products have recently created,~~time, the extent and ~~are expected to continue to create, inventory pressure for us.~~

~~An interruption in any~~duration of ~~our supply sources or facilities could temporarily adversely affect our results of operations until alternate sources or facilities can be secured. The Uniforms~~these economic and ~~Related Products segment’s principal fabrics used in the manufacture of its finished goods are cotton, polyester, cotton-synthetic~~political events and ~~poly-synthetic blends. The majority of such fabrics are sourced in China. The Promotional Products segment relies~~their effects on the ~~supply of different types of raw materials as well as textiles, including plastic, glass, fabric~~economy and metal. The vast majority of these raw materials are principally sourced from China, either directly by BAMKO or its suppliers. If we are unable to continue to obtain our raw materials and finished products from China or if our suppliers are unable to source raw materials from China, it could significantly disrupt our business. Further, the Company and the Company’s suppliers generally source or manufacture finished goods in parts of the world that may be affected by economic uncertainty, political unrest, logistical challenges (such as port strikes and embargos), foreign currency fluctuations, labor disputes, health emergencies, or the imposition of duties, tariffs or other import regulations by the United States. For example, political and civil unrest in Haiti may worsen, which could cause manufacturing disruptions in our Haiti facilities and those of our suppliers. The materialization of any of these risks could result in additional expenseare impossible to ~~us or limit our supply of necessary goods and raw materials, which effects may be material.~~

~~In connection with the recent restatement of our financial statements, our management has concluded that certain of our disclosure controls and procedures were not effective as of June~~30, 2021 and September 30, 2021 due to a material weakness in our internal control over financial reporting for income taxes. If we are unable to remediate the material weakness and otherwise maintain an effective system of internal control over financial reporting, it could result in us not preventing or detecting on a timely basis a material misstatement of the Company’~~s financial statements.~~

Management and the Audit Committee of the Board of Directors concluded that it was appropriate to restate the Company’s previously issued unaudited interim financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, filed with the SEC on July 28, 2021, and the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, filed with the SEC on November 3, 2021, due to a failure to reverse deferred tax liabilities associated with the termination of the Company’s two qualified defined benefit pension plans in the second quarter 2021.

As part of that process, management identified a material weakness in the Company’s internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Although we intend to implement a plan to remediate this material weakness, we cannot be certain of the success of the plan. If our remedial measures are insufficient to address the material weakness, or if one or more additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, or our disclosure controls and procedures are again determined to be ineffective, we may not be able to prevent or identify irregularities or ensure the fair and accurate presentation of our financial statements included in our periodic reports filed with the U.S. Securities and Exchange Commission. Additionally, the occurrence of, or failure to remediate, a material weakness and any future material weaknesses in our internal control over financial reporting or determination that our disclosure controls and procedures are ineffective may have other consequences that could materially and adversely affect our business, including an adverse impact on the market price of our common stock, potential actions or investigations by the U.S. Securities and Exchange Commission or other regulatory authorities, shareholder lawsuits, a loss of investor confidence and damage to our reputation.

predict.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities during the quarter ended ~~September~~June 30, ~~2021,~~2022, that were not previously reported in a current report on Form 8-K.

The table below sets forth ~~the~~ information with respect to purchases made by or on behalf of Superior Group of Companies, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our ~~shares of~~ common stock during the three months ended ~~September~~June 30, ~~2021.~~2022.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
~~July~~April 1, ~~2021~~2022 to ~~July 31, 2021~~April 30, 2022		-	$	-		-
~~August~~May 1, ~~2021~~2022 to ~~August~~May 31, ~~2021~~2022		-		-		-
~~September~~June 1, ~~2021~~2022 to ~~September~~June 30, ~~2021~~2022		-		-		-
Total		-		-		-		657,451

⁽¹⁾

On May 2, 2019, the Company’s Board of Directors approved a stock repurchase program of up to 750,000 shares of the Company’s outstanding common stock. There is no expiration date or other restriction governing the period over which the Company can make share repurchases under the program. All purchases under this program will be open market transactions.

Under our Credit Agreement, as amended, with Truist Bank, if an event of default exists, we may not make distributions to our shareholders. The Company is in full compliance with all terms, conditions and covenants of such agreement.

ITEM 3. Defaults upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

The Chief Executive Officer and Chief Financial Officer certifications pursuant to Sections 302 and 906 of the Sarbanes Oxley Act of 2002 have been updated to reflect the date of filing of this Form 10-Q/A.

Exhibit No.		Description
3.110.1†		~~Amended and Restated Articles~~Form of ~~Incorporation of Superior Group of Companies, Inc., as amended on May 3, 2018.~~Incentive Stock Option Agreement
~~10.1~~^++,#10.2†*		~~Employment Agreement, effective July 1, 2021, between Superior Group~~Form of ~~Companies, Inc. and Philip Koosed.~~Non-Qualified Stock Option Grant For Outside Directors
~~10.2~~^++,#10.3†*		~~Employment~~Form of Restricted Stock Agreement ~~effective July 1, 2021, between The Office Gurus, LLC and Dominic Leide.~~
~~10.3~~^++,#10.4†*		~~Change in Control~~Form of Performance Share Agreement ~~made as of July 8, 2021, between Superior Group of Companies, Inc. and Jordan Alpert.~~
~~10.4~~^++,#10.5†*		~~Retention~~Form of Stock Appreciation Rights Agreement ~~made as of July 8, 2021, between Superior Group of Companies, Inc. and Jordan Alpert.~~
~~10.5~~^++,#		~~Amended and Restated Performance Share Award, dated July 1, 2021, granted to Dominic Leide.~~
~~10.6~~^{++, #}		~~Performance Share Award, dated July 1, 2021, granted to Philip Koosed.~~
~~10.7~~⁺⁺		~~Restricted Stock Award, dated July 1, 2021, granted to Philip Koosed.~~
~~10.8~~⁺⁺		~~Restricted Stock Award, dated July 8, 2021, granted to Jordan Alpert.~~
10.9*^,++,#		~~Performance Share Award, dated July 1, 2021, granted to Jake Himelstein.~~
10.10*^,++		~~Restricted Stock Award, dated July 1, 2021, granted to Jake Himelstein.~~
10.11*^,++,#		~~Employment Agreement, effective July 1, 2021, between BAMKO, LLC and Jake Himelstein.~~
31.1*		Certification by the Chief Executive Officer (Principal Executive Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~***~~
31.2*		Certification by the Chief Financial Officer (Principal Financial Officer and Accounting Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~***~~
32**		Certification by the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~***~~
101.INS+		Inline XBRL Instance Document.
101.SCH+		Inline XBRL Taxonomy Extension Schema.
101.CAL+		Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF+		Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB+		Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE+		Inline XBRL Taxonomy Extension Presentation Linkbase.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Filed herewith.

**Furnished, not filed.

***The certifications have been updated and no other changes were made.

~~+ Submitted electronically with this Quarterly Report.~~

++† Management contracts and compensatory plans and ~~agreements.~~arrangements.

~~# Portions omitted in accordance with Item 601(b) of Regulation S-K.~~* Filed herewith.

**Furnished herewith.

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: ~~March 23,~~August 8, 2022	SUPERIOR GROUP OF COMPANIES, INC.

	By	/s/ Michael Benstock
		Michael Benstock
		Chief Executive Officer
		(Principal Executive Officer)


Date: ~~March 23,~~August 8, 2022
	By	/s/ ~~Andrew D. Demott, Jr.~~Michael Koempel
		~~Andrew D. Demott, Jr.~~Michael Koempel
		~~Chief Operating Officer and~~ Chief Financial Officer (Principal Financial Officer)

3740

	Nine Months Ended September 30, 2021
	As Previously Reported		Restated Adjustment			As Restated
Income tax expense	$	5,490	$	(1,800	)	$	3,690
Net income		23,251		1,800			25,051
Comprehensive income		29,664		1,800			31,464
Net income per basic share		1.51		0.12			1.63
Net income per diluted share		1.45		0.11			1.56

	As of September 30, 2021
	As Previously Reported		Restated Adjustment			As Restated
Deferred tax asset	$	0	$	352		$	352
Total assets		422,177		352			422,529
Deferred tax liability		1,448		(1,448	)		0
Retained earnings		159,711		1,800			161,511
Total shareholders’ equity		220,935		1,800			222,735
Total liabilities and shareholders’ equity		422,177		352			422,529

	Three Months Ended September 30, 2021
	As Previously Reported		Restated Adjustment		As Restated
Balance, July 1, 2021:
Retained earnings	$	153,412	$	1,800	$	155,212
Total shareholders’ equity		213,515		1,800		215,315
Balance, September 30, 2021:
Retained earnings		159,711		1,800		161,511
Total shareholders’ equity		220,935		1,800		222,735

	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Finished goods	$	86,455	$	73,979	$	97,835	$	90,395
Work in process		2,288		1,634		1,008		1,351
Raw materials		14,628		14,153		28,193		28,809
Inventories	$	103,371	$	89,766	$	127,036	$	120,555

						Weighted Average		Aggregate							Weighted Average		Aggregate
	No. of			Weighted Average		Remaining Life		Intrinsic Value		No. of			Weighted Average		Remaining Life		Intrinsic Value
	Shares			Exercise Price		(in years)		(in thousands)		Shares			Exercise Price		(in years)		(in thousands)
Outstanding, January 1, 2021		970,022		$	12.92		3.74	$	11,128
Outstanding, January 1, 2022											779,938		$	16.12		3.27	$	5,097
Granted⁽¹⁾		143,543			25.02						103,203			20.13
Exercised		(262,960	)		10.10						(53,417	)		11.95
Lapsed or cancelled		(19,126	)		14.90						(7,572	)		17.89
Outstanding, September 30, 2021		831,479			15.86		3.43		6,487
Exercisable, September 30, 2021		487,161			14.66		2.83		4,231
Outstanding, June 30, 2022											822,152			16.88		3.13		2,608
Exercisable, June 30, 2022											550,456			13.96		2.58		2,608

	Uniforms and Related Products		Remote Staffing Solutions		Promotional Products		Intersegment Eliminations			Total		Branded Products			Healthcare Apparel			Contact Centers		Intersegment Eliminations			Other			Total
As of and For the Three Months Ended September 30, 2021:
As of and For the Three Months Ended June 30, 2022:
Net sales	$	61,890	$	18,040	$	45,243	$	(1,847	)	$	123,326	$	102,039		$	26,288		$	21,466	$	(1,860	)	$	0		$	147,933
Cost of goods sold		39,708		7,555		31,092		(843	)		77,512		72,954			18,904			8,692		(750	)		0			99,800
Gross margin		22,182		10,485		14,151		(1,004	)		45,814		29,085			7,384			12,774		(1,110	)		0			48,133
Selling and administrative expenses		19,244		6,576		10,243		(1,004	)		35,059		24,004			9,801			8,402		(1,110	)		4,872			45,969
Goodwill impairment charge													4,135			20,323			0		0			0			24,458
Intangible assets impairment charge													5,581			0			0		0			0			5,581
Other periodic pension cost		459		0		0		0			459		0			0			0		0			528			528
Interest expense		309		0		11		0			320		63			34			0		0			486			583
Income before taxes on income	$	2,170	$	3,909	$	3,897	$	0		$	9,976
Income (loss) before taxes on income												$	(4,698	)	$	(22,774	)	$	4,372	$	0		$	(5,886	)	$	(28,986	)

Depreciation and amortization	$	1,487	$	398	$	461	$	0		$	2,346	$	1,589		$	988		$	549	$	0		$	54		$	3,180
Capital expenditures	$	1,214	$	1,733	$	182	$	0		$	3,129	$	1,401		$	539		$	840	$	0		$	71		$	2,851
Total assets	$	289,380	$	28,062	$	105,087	$	0		$	422,529	$	253,608		$	156,155		$	37,815	$	0		$	26,102		$	473,680

Indefinite-lived Intangible Assets	Segment		Carrying Amount, December 31, 2021		Impairment Charges			Carrying Amount, June 30, 2022
Trade names:
HPI	Branded Products	$	4,700	$	0		$	4,700
BAMKO	Branded Products		8,900		0			8,900
Public Identity	Branded Products		470		(470	)		0
Tangerine	Branded Products		3,200		(3,200	)		0
Gifts By Design	Branded Products		1,170		(1,170	)		0
Sutter’s Mill	Branded Products		741		(741	)		0
CID Resources	Healthcare Apparel		14,160		0			14,160
Total		$	33,341	$	(5,581	)	$	27,760

			June 30, 2022					December 31, 2021
Item	Weighted Average Life (In years)		Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Definite-lived intangible assets:
Customer relationships (7-15 year life)		11.7	$	50,198	$	(20,933	)	$	45,198	$	(18,772	)
Non-compete agreements (3-7 year life)		5.4		1,712		(1,238	)		1,536		(1,121	)
Trademarks		10.0		332		(53	)		275		(37	)
Trade names		2.0		710		(59	)		0		0
Total			$	52,952	$	(22,283	)	$	47,009	$	(19,930	)

Indefinite-lived intangible assets:
Trade names			$	27,760				$	33,341

Total intangible assets			$	80,712	$	(22,283	)	$	80,350	$	(19,930	)

Accounts receivable	$	251
Prepaid expenses and other current assets		196
Property, plant and equipment		60
Identifiable intangible assets		3,673
Goodwill		2,417
Total assets	$	6,597
Accounts payable		199
Other current liabilities		372
Total liabilities	$	571

Cash consideration	$	10,533
Restricted shares of Superior common stock issued		869
Contingent consideration		2,520
Total Consideration	$	13,922

Accounts receivable	$	4,701
Inventories		9,149
Prepaid expenses and other current assets		135
Property, plant and equipment		1,043
Operating lease right-of-use assets		648
Intangible assets		2,031
Goodwill		1,019
Other assets		41
Total assets	$	18,767
Accounts payable		3,209
Other current liabilities		389
Long-term debt		758
Long-term operating lease liabilities		489
Total liabilities	$	4,845

Cash consideration	$	11,077
Restricted shares of Superior common stock issued		2,000
Contingent consideration		1,119
Total Consideration	$	14,196

	Three Months Ended September 30,
	2021			2020			% Change
Uniforms and Related Products	$	61,890		$	73,234			(15.5	%)
Remote Staffing Solutions		18,040			11,636			55.0	%
Promotional Products		45,243			44,176			2.4	%
Net intersegment eliminations		(1,847	)		(1,309	)		41.1	%
Consolidated Net Sales	$	123,326		$	127,737			(3.5	%)

	Three Months Ended June 30,
	2022			2021			% Change
Branded Products	$	102,039		$	79,221			28.8	%
Healthcare Apparel		26,288			37,650			(30.2	%)
Contact Centers		21,466			15,653			37.1	%
Net intersegment eliminations		(1,860	)		(1,737	)		7.1	%
Consolidated Net Sales	$	147,933		$	130,787			13.1	%

	Nine Months Ended September 30,
	2021			2020			% Change
Uniforms and Related Products	$	200,651		$	209,178			(4.1	%)
Remote Staffing Solutions		46,723			30,187			54.8	%
Promotional Products		152,795			145,810			4.8	%
Net intersegment eliminations		(5,209	)		(3,834	)		35.9	%
Consolidated Net Sales	$	394,960		$	381,341			3.6	%

	Six Months Ended June 30,
	2022			2021			% Change
Branded Products	$	199,122		$	173,013			15.1	%
Healthcare Apparel		56,856			73,300			(22.4	%)
Contact Centers		39,440			28,683			37.5	%
Net intersegment eliminations		(3,903	)		(3,362	)		16.1	%
Consolidated Net Sales	$	291,515		$	271,634			7.3	%