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FORM lO-Q
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-5869-1
SUPERIOR UNIFORM GROUP, INC.
Incorporated - Florida Employer Identification No.
11-1385670
10099 Seminole Boulevard
Post Office Box 4002
Seminole, Florida 33775-0002
Telephone No.: 813-397-9611
Formerly Superior Surgical Mfg. Co., Inc.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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As of the date of this report, the registrant had 7,897,452 shares of
common stock outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
SUPERIOR UNIFORM GROUP, INC.
(Formerly Superior Surgical Mfg. Co., Inc.)
CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS
Three Months Ended June 30,
----------------------------------
1998 1997
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(Unaudited)
Net sales $ 38,704,155 $ 37,518,173
------------ ------------
Costs and expenses:
Cost of goods sold 25,633,498 24,956,939
Selling and administrative expenses 8,948,720 8,543,667
Business process re-engineering costs 1,055,171 --
Interest expense 242,275 298,965
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35,879,664 33,799,571
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Earnings before taxes on income 2,824,491 3,718,602
Taxes on income 1,020,000 1,395,000
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Net earnings $ 1,804,491 $ 2,323,602
============ ============
Weighted average number of shares out-
standing during the period (Basic) 7,892,173 Shs. 7,992,148 Shs.
(Diluted) 8,005,644 Shs. 8,020,928 Shs.
Basic earnings per common share $ 0.23 $ 0.29
============ ============
Diluted earnings per common share $ 0.23 $ 0.29
============ ============
Cash dividends declared per common
share $ 0.125 $ 0.11
============ ============
Six Months Ended June 30,
----------------------------------
1998 1997
------------ ------------
(Unaudited)
Net sales $ 76,136,662 $ 71,031,804
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Costs and expenses:
Cost of goods sold 50,424,783 47,200,634
Selling and administrative expenses 17,851,359 16,588,949
Business process re-engineering costs 2,150,083 --
Interest expense 434,825 603,563
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70,861,050 64,393,146
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Earnings before taxes on income 5,275,612 6,638,658
Taxes on income 1,910,000 2,490,000
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Net earnings $ 3,365,612 $ 4,148,658
============ ============
Weighted average number of shares out-
standing during the period (Basic) 7,881,636 Shs. 8,023,353 Shs.
(Diluted) 8,002,485 Shs. 8,068,430 Shs.
Basic earnings per common share $ 0.43 $ 0.52
============ ============
Diluted earnings per common share $ 0.42 $ 0.51
============ ============
Cash dividends declared per common
share $ 0.25 $ 0.22
============ ============
The results of the six months ended June 30, 1998 are not necessarily indicative
of results to be expected for the full year ending December 31, 1998.
See accompanying notes to summarized interim financial statements.
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SUPERIOR UNIFORM GROUP, INC.
(Formerly Superior Surgical Mfg. Co., Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
1998 December 31,
(Unaudited) 1997
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(1)
CURRENT ASSETS:
Cash and cash equivalents $ 641,087 $ 8,889,948
Accounts receivable and other current assets 29,079,270 26,722,727
Inventories* 49,605,036 42,523,009
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TOTAL CURRENT ASSETS 79,325,393 78,135,684
PROPERTY, PLANT AND EQUIPMENT, NET 26,638,895 26,772,477
EXCESS OF COST OVER FAIR VALUE OF
ASSETS ACQUIRED 2,827,075 813,626
OTHER ASSETS 2,973,230 2,633,068
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$111,764,593 $108,354,855
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,484,328 $ 6,806,955
Other current liabilities 5,643,733 5,297,452
Current portion of long-term debt 2,266,667 2,266,667
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TOTAL CURRENT LIABILITIES 18,394,728 14,371,074
LONG-TERM DEBT 12,333,333 13,466,666
DEFERRED INCOME TAXES 2,435,000 2,400,000
SHAREHOLDERS' EQUITY 78,601,532 78,117,115
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$111,764,593 $108,354,855
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* Inventories consist of the following:
June 30,
1998 December 31,
(Unaudited) 1997
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Finished goods $ 30,760,118 $ 25,835,299
Work in process 5,580,530 4,627,273
Raw materials 13,264,388 12,060,437
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$ 49,605,036 $ 42,523,009
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(1) The balance sheet as of December 31, 1997 has been taken from the audited
financial statement as of that date and has been condensed.
See accompanying notes to summarized interim financial statements.
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SUPERIOR UNIFORM GROUP, INC.
(Formerly Superior Surgical Mfg. Co., Inc.)
CONSOLIDATED SUMMARY OF CASH FLOWS
Six Months Ended June 30,
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1998 1997
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(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 3,365,612 $ 4,148,658
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 2,175,187 2,176,500
Deferred income taxes 35,000 240,000
Changes in assets and liabilities:
Accounts receivable and other current
assets (2,356,543) (2,224,886)
Inventories (7,082,027) 142,563
Accounts payable 3,677,373 670,798
Other current liabilities 346,281 (150,458)
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Net cash flows provided from operating
activities 160,883 5,003,175
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CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property, plant and equipment (1,987,593) (739,323)
Goodwill acquired (2,067,461)
Other assets (340,162) (186,361)
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Net cash (used) in investing activities (4,395,216) (925,684)
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CASH FLOWS FROM FINANCING ACTIVITIES
Reduction in long-term debt (1,133,333) (1,133,333)
Declaration of cash dividends (1,965,401) (1,763,290)
Proceeds received on exercised stock options 864,907 235,013
Common stock reacquired and retired (1,780,701) (1,181,000)
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Net cash (used) in financing activities (4,014,528) (3,842,610)
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Net increase (decrease) in cash and
cash equivalents (8,248,861) 234,881
Cash and cash equivalents balance,
beginning of period 8,889,948 4,718,632
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Cash and cash equivalents balance,
end of period $ 641,087 $ 4,953,513
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ 565,207 $ 650,406
============ ============
Income taxes paid $ 3,080,458 $ 2,198,334
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See accompanying notes to summarized interim financial statements.
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SUPERIOR UNIFORM GROUP, INC.
(Formerly Superior Surgical Mfg. Co., Inc.)
NOTES TO SUMMARIZED INTERIM FINANCIAL STATEMENTS
Note 1 - Summary of Significant Interim Accounting Policies:
a) Recognition of costs and expenses
Costs and expenses other than product costs are charged to income in interim
periods as incurred, or allocated among interim periods based on an estimate of
time expired, benefit received or activity associated with the periods.
Procedures adopted for assigning specific cost and expense items to an interim
period are consistent with the basis followed by the registrant in reporting
results of operations at annual reporting dates. However, when a specific cost
or expense item charged to expense for annual reporting purposes benefits more
than one interim period, the cost or expense item is allocated to the interim
periods.
b) Inventories
Inventories at interim dates are determined by using both perpetual records and
gross profit calculations.
c) Accounting for income taxes
The provision for income taxes is calculated by using the effective tax rate
anticipated for the full year.
d) Earnings per share
The Company adopted the provisions of the Financial Accounting Standards Board
Opinion No. 128, "Earnings Per Share," ("FAS 128"), during the fourth quarter of
1997, as required. Historical basic per share data under FAS 128 is based on the
weighted average number of shares outstanding. Historical diluted per share data
under FAS 128 is reconciled by adding to weighted average shares outstanding the
dilutive impact of the exercise of outstanding stock options. Dilutive potential
common shares for the three month periods ended June 30, 1998 and 1997 were
113,471 and 28,780, respectively. Dilutive potential common shares for the six
month periods ended June 30, 1998 and 1997 were 120,849 and 45,077,
respectively.
e) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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f) Comprehensive Income
The Company adopted the provisions of FAS 130, "Reporting Comprehensive Income"
in the first quarter of 1998. FAS No. 130 requires disclosures of comprehensive
income including per-share amounts in addition to the existing income statement.
Comprehensive income is defined as the change in equity during a period, from
transactions and other events, excluding changes resulting from investments by
owners (e.g., supplemental stock offering) and distributions to owners (e.g.,
dividends). As of June 30, 1998, there are no items requiring separate
disclosure in accordance with this statement.
g) Operating Segments
The Company adopted the provisions of FAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information." in the first quarter of 1998. FAS No.
131 requires disclosures of certain information about operating segments and
about products and services, geographic areas in which the Company operates, and
their major customers. The Company has evaluated the effect of this new standard
and has determined that currently they operate in one segment, as defined in
this statement.
Note 2 - Acquisition:
Effective January 2, 1998, the Company acquired the net assets of J & L Group,
Inc. ("J&L"), a manufacturer of embroidered sportswear, with revenues for the
year ended December 1997 of approximately $6,700,000.
Note 3 - Business Process Re-Engineering:
The condensed summaries of operations for the three and six month periods ended
June 30, 1998 include pre-tax charges (in compliance with an Emerging Issues
Task Force Consensus issued November 20, 1997) in the amounts of $1,055,171and
$2,150,083, respectively, as part of the Company's 1998 commitment to business
process re-engineering activities (integrated SAP systems). The Company expects
that for the balance of 1998 additional re-engineering process charges will be
incurred as the project is concluded. The total pre-tax charge for such matters
is expected to approximate $3,500,000 - $4,000,000 and will be substantially
completed by the end of 1998. The actual charges may differ from the amount
estimated based upon changes in the cost of hardware, software and
implementation.
The interim information contained above is not certified or audited; it reflects
all adjustments (consisting of normal recurring accruals) which are, in the
opinion of management, necessary to a fair statement of the operating results
for the periods presented, stated on a basis consistent with that of the audited
financial statements.
The financial information included in this form has been reviewed by Deloitte &
Touche LLP, independent certified public accountants; such review was made in
accordance with established professional standards and procedures for such a
review.
All financial information has been prepared in accordance with the accounting
principles or practices reflected in the financial statements for the year ended
December 31, 1997, filed with the Securities and Exchange Commission. Reference
is hereby made to registrant's Financial Statements for 1997, heretofore filed
with registrant's Form 10-K.
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[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors of
Superior Uniform Group, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Superior Uniform Group, Inc. (the "Company") as of June 30, 1998, the condensed
consolidated summaries of operations for the six months and three months ended
June 30, 1998 and 1997, and the condensed consolidated summaries of cash flows
for the six months ended June 30, 1998 and 1997. This condensed financial
information is the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed financial information for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Superior Uniform Group, Inc. as of
December 31, 1997; and the related consolidated statements of earnings,
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 19, 1998, we expressed an unqualified
opinion on those financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31, 1997
is fairly stated, in all material respects, in relation to the balance sheet
from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
July 24, 1998
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(DELOITTE TOUCHE TOHMATSU INTERNATIONAL LOGO)
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ITEM 2. Management's Discussion And Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Net sales of the registrant increased by approximately 12% in the first quarter
of 1998 compared to the first quarter of 1997. For the second quarter of 1998
compared to the second quarter of 1997, sales increased by approximately 3% due
to new customers and new uniform programs. Accordingly, for the six months ended
June 30, 1998, sales were approximately 7% more than the six months ended June
30, 1997.
Cost of goods sold approximated 33.8% for the six months ended June 30, 1998
compared to 33.5% for the six months ended June 30, 1997.
Selling and administrative expenses, as a percentage of sales, were
approximately 23.4% for the first six months of 1998 and 1997.
Interest expense of $434,825 for the six month period ended June 30, 1998
decreased 28% from $603,563 for the similar period ended June 30, 1997 due to
scheduled repayments of debt.
Net earnings decreased 22% to $1,804,491 for the three months ended June 30,
1998 as compared to net earnings of $2,323,602 for the same period in 1997. Net
earnings for the six months ended June 30, 1998 decreased 19% to $3,365,612 as
compared to net earnings of $4,148,658 for the same period in 1997. Included in
our earnings for the three and six months ended June 30, 1998 are pre-tax
charges (in accordance with an Emerging Issues Task Force Consensus issued
November 20, 1997) in the amounts of $1,055,171 and $2,150,083, respectively, as
part of our 1998 commitment to business process re-engineering activities
(integrated SAP systems). On a net of tax basis, these charges approximate $.08
and $.17 per share (diluted) for the three and six months ended June 30, 1998,
respectively. The Company expects that for the balance of 1998 additional
re-engineering process charges will be incurred as we conclude our project. The
total pre-tax charge for such matters is expected to approximate between
$3,500,000 and $4,000,000 and will be substantially completed by the end of
1998. The actual charges may differ from the amount estimated based upon changes
in the cost of hardware, software and implementation.
Accounts receivable and other current assets increased 9% from $26,722,727 on
December 31, 1997 to $29,079,270 as of June 30, 1998.
Inventories as of June 30, 1998 increased 17% to $49,605,036 from $42,523,009 on
December 31, 1997 due to unusually low inventory levels at December 31, 1997 and
to meet expected increases in sales.
Accounts payable increased 54% from $6,806,955 on December 31, 1997 to
$10,484,328 on June 30, 1998 primarily due to increases in purchases of
inventories.
The registrant's current portion of long-term debt of $2,266,667 and long-term
debt of $12,333,333 for June 30, 1998 is $1,133,333 less than it was at December
31, 1997, due to scheduled repayments of debt.
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $8,248,861 from $8,889,948 on December
31, 1997 to $641,087 as of June 30, 1998. The change is primarily a result of
increased inventory levels and expenditures related to the business
re-engineering process. Additionally, as of June 30, 1998, under its existing
revolving Credit Agreement, the registrant had $10,000,000 available to it. The
registrant has operated without hindrance or restraint with its present working
capital, as income generated from operations and outside sources of credit, both
trade and institutional, have been more than adequate.
In the foreseeable future, the registrant will continue its ongoing capital
expenditure program designed to maintain and improve its facilities. The
registrant at all times evaluates its capital expenditure program in light of
prevailing economic conditions. The registrant believes that its cash flow from
operating activities together with other capital resources and funds from credit
sources are adequate to meet all of its funding requirements for the foreseeable
future.
This quarterly report contains certain forward-looking statements that involve a
number of risks and uncertainties. Among the factors that could cause actual
results to differ materially are the following general economic conditions in
the areas of the United States in which the Company's customers are located;
changes in the healthcare, resort and commercial industries where uniforms and
service apparel are worn; the impact of competition; and the availability of
manufacturing materials.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults Upon Senior Securities
Inapplicable.
ITEM 4. Submission of matters to a vote of security-holders
The Annual Meeting of Shareholders was held on May 8, 1998. Of the
7,852,052 shares outstanding and entitled to vote at the meeting, 7,332,197
shares were present at the meeting, in person or by proxy. At the meeting the
shareholders:
a) Voted for the nomination of all proposed Directors being, Messrs. G.M.
Benstock, A.D. Schwartz, M. Benstock, S. Schechter, P. Benstock, M. Gaetan,
PhD, and S. Kirschner. The votes on all directors nominated were as
follows:
NOMINEE VOTES FOR: VOTES WITHHELD:
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Gerald M. Benstock 7,296,297 35,900
Saul Schechter 7,296,297 35,900
Alan D. Schwartz 7,296,697 35,500
Michael Benstock 7,296,697 35,500
Peter Benstock 7,296,697 35,500
Manuel Gaetan 7,278,097 54,100
Sidney Kirschner 7,277,697 54,500
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b) Approved the merger of the Company into its wholly-owned subsidiary,
Superior Uniform Group, Inc., a Florida corporation for the purpose of
changing the state of incorporation of the Company from New York to
Florida with 6,258,364 votes for the motion; 522,700 votes against and
7,000 votes abstaining.
c) Approved the change of the name of the Company to "Superior Uniform
Group, Inc." with 7,313,620 votes for the motion; 13,149 votes against
and 5,428 votes abstaining.
d) Ratified the appointment of Deloitte & Touche LLP, independent
certified public accountants, as auditors for the Company's financial
statements for the year ending December 31, 1998 with 7,314,534 votes
for the motion, 11,370 votes against and 6,293 votes abstaining.
ITEM 5. Other Information
Notice of Shareholder Proposal Deadline Date Under New Proxy Rule 14a-4 for the
1999 Annual Meeting
The Company hereby notifies all shareholders that February 10, 1999
(the "Deadline") is the date after which notice of a shareholder sponsored
proposal for consideration at the Company's 1999 annual meeting of shareholders
(other than in respect of a nominee for election to the Board of Directors)
submitted outside the processes of Rule 14a-8 under the Securities Exchange Act
of 1934, as amended (i.e., a proposal to be presented at the next annual meeting
of shareholders but not submitted for inclusion in the Company's proxy
statement) will be considered untimely under the new proxy Rule 14a-4(c)(1)
issued by the Securities and Exchange Commission. Under Rule 14a-4(c)(1), if a
proponent fails to notify the Company by the Deadline, then the management
proxies will be permitted to use their discretionary voting authority if such
proposal is raised at the annual meeting, without any discussion of the matter
in the proxy statement.
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits
3.1 Amended and Restated Articles of Incorporation of Superior Uniform Group, Inc.
3.2 By-Laws of Superior Uniform Group, Inc.
15 Letter re: Unaudited Interim Financial Information.
27 Financial Data Schedule for Six Months ended June 30, 1998. (For SEC use only.)
b) Reports on Form 8-K
None.
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: August 4, 1998 SUPERIOR UNIFORM GROUP, INC.
By /s/ Gerald M. Benstock
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Gerald M. Benstock
Chairman and Chief Executive Officer
By /s/ Andrew D. Demott, Jr.
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Andrew D. Demott, Jr.
Vice President, Chief Financial Officer
and Treasurer (Principal Accounting Officer)
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