1
FORM lO-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
-----
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1999
OR
-----
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-5869-1
SUPERIOR UNIFORM GROUP, INC.
Incorporated - Florida Employer Identification No.
11-1385670
10099 Seminole Boulevard
Post Office Box 4002
Seminole, Florida 33775-0002
Telephone No.: 727-397-9611
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of the date of this report, the registrant had 7,834,727 common
shares outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
SUPERIOR UNIFORM GROUP, INC.
CONDENSED SUMMARY OF OPERATIONS
Three Months Ended March 31,
----------------------------------------
1999 1998
----------------- -----------------
(Unaudited)
Net sales $ 37,504,104 $ 37,432,507
---------------- -----------------
Costs and expenses:
Cost of goods sold 24,878,451 24,791,285
Selling and administrative expenses 9,416,552 8,902,639
Business process re-engineering costs - 1,094,912
Interest expense 346,106 192,550
---------------- -----------------
34,641,109 34,981,386
---------------- -----------------
Earnings before taxes on income 2,862,995 2,451,121
Taxes on income 1,051,000 890,000
---------------- -----------------
Net earnings $ 1,811,995 $ 1,561,121
================ =================
Weighted average number of shares out-
standing during the period (Basic) 7,847,255 Shs. 7,871,098 Shs.
(Diluted) 7,895,357 Shs. 8,001,605 Shs.
Basic earnings per common share $ 0.23 $ 0.20
================ =================
Diluted earnings per common share $ 0.23 $ 0.20
================ =================
Cash dividends declared per common
share $ 0.135 $ 0.125
================ =================
The results of the three months ended March 31, 1999 are not
necessarily indicative of results to be expected for the full year
ending December 31, 1999.
See accompanying notes to condensed interim financial statements.
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SUPERIOR UNIFORM GROUP, INC.
CONDENSED BALANCE SHEETS
ASSETS
March 31,
1999 December 31,
(Unaudited) 1998
---------------- ----------------
(1)
CURRENT ASSETS:
Cash and cash equivalents $ 9,417,902 $ 514,001
Accounts receivable and other current assets 30,117,544 34,435,880
Inventories* 51,071,471 50,761,088
---------------- ----------------
TOTAL CURRENT ASSETS 90,606,917 85,710,969
PROPERTY, PLANT AND EQUIPMENT, net 28,032,029 27,934,411
EXCESS OF COST OVER FAIR VALUE OF
ASSETS ACQUIRED 2,746,057 2,773,063
OTHER ASSETS 2,706,721 2,620,467
---------------- ----------------
$ 124,091,724 $ 119,038,910
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,078,699 $ 10,659,144
Other current liabilities 6,591,867 5,744,694
Current portion of long-term debt 3,050,469 2,266,667
---------------- ----------------
TOTAL CURRENT LIABILITIES 18,721,035 18,670,505
LONG-TERM DEBT, net of current portion 21,999,531 17,600,000
DEFERRED INCOME TAXES 2,100,000 2,265,000
SHAREHOLDERS' EQUITY 81,271,158 80,503,405
----------------- ----------------
$ 124,091,724 $ 119,038,910
================= ================
* Inventories consist of the following:
March 31,
1999 December 31,
(Unaudited) 1998
---------------- ----------------
Finished goods $ 35,601,203 $ 34,844,679
Work in process 4,204,746 3,452,278
Raw materials 11,265,522 12,464,131
---------------- ----------------
$ 51,071,471 $ 50,761,088
================ ================
(1) The balance sheet as of December 31, 1998 has been derived from the
audited financial statement as of that date and has been condensed.
See accompanying notes to condensed interim financial statements.
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SUPERIOR UNIFORM GROUP, INC.
CONDENSED SUMMARY OF CASH FLOWS
Three Months Ended March 31,
---------------------------------
1999 1998
---------- ----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 1,811,995 $ 1,561,121
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 967,776 1,043,810
Deferred income taxes (165,000) (40,000)
Changes in assets and liabilities, net of acquisition:
Accounts receivable and other current assets 4,318,336 21,876
Inventories (310,383) (1,905,218)
Accounts payable (1,580,445) 2,464,955
Other current liabilities 847,173 25,828
-------------- -------------
Net cash flows provided by operating
activities 5,889,452 3,172,372
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, and equipment (1,052,051) (857,117)
Proceeds from disposals of property, plant and equipment 13,663 159,881
Purchase of business, net of cash acquired (2,837,155)
Other assets (86,254) (45,814)
-------------- -------------
Net cash (used) in investing activities (1,124,642) (3,580,205)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Declaration of cash dividends (1,059,430) (979,363)
Proceeds from long-term debt 12,000,000
Repayment of Long-Term Debt (6,816,667) (416,666)
Common stock acquired and retired - (1,780,701)
Proceeds received on exercised stock options 15,188 479,661
-------------- -------------
Net cash provided by (used in) financing activities 4,139,091 (2,697,069)
-------------- -------------
Net increase (decrease) in cash and cash
equivalents 8,903,901 (3,104,902)
Cash and cash equivalents balance,
beginning of year 514,001 8,889,948
-------------- -------------
Cash and cash equivalents balance,
end of period $ 9,417,902 $ 5,785,046
============== =============
See accompanying notes to condensed interim financial statements.
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SUPERIOR UNIFORM GROUP, INC.
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
Note 1 - Summary of Significant Interim Accounting Policies:
a) Recognition of costs and expenses
Costs and expenses other than product costs are charged to income in interim
periods as incurred, or allocated among interim periods based on an estimate of
time expired, benefit received or activity associated with the periods.
Procedures adopted for assigning specific cost and expense items to an interim
period are consistent with the basis followed by the registrant in reporting
results of operations at annual reporting dates. However, when a specific cost
or expense item charged to expense for annual reporting purposes benefits more
than one interim period, the cost or expense item is allocated to the interim
periods.
b) Inventories
Inventories at interim dates are determined by using both perpetual records and
gross profit calculations.
c) Accounting for income taxes
The provision for income taxes is calculated by using the effective tax rate
anticipated for the full year.
d) Earnings per share
Historical basic per share data is based on the weighted average number of
shares outstanding. Historical diluted per share data is reconciled by adding to
weighted average shares outstanding the dilutive impact of the exercise of
outstanding stock options.
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
Net income $1,811,995 $1,561,121
Weighted average shares
Outstanding 7,847,255 7,871,098
Basic earnings per common
Share $ .23 $ .20
Three Months Ended March 31,
----------------------------
1999 1998
---- ---
Net Income $1,811,995 $1,561,121
Weighted average shares
Outstanding 7,847,255 7,871,098
Common stock equivalents 48,102 130,507
Total weighted average shares
Outstanding 7,895,357 8,001,605
Diluted earnings per common $ .23 $ .20
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e) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
f) Comprehensive Income
The Company adopted the provisions of FAS 130, "Reporting Comprehensive Income"
in the first quarter of 1998. FAS No. 130 requires disclosures of comprehensive
income including per-share amounts in addition to the existing income statement.
Comprehensive income is defined as the change in equity during a period, from
transactions and other events, excluding changes resulting from investments by
owners (e.g., supplemental stock offering) and distributions to owners (e.g.,
dividends). As of March 31, 1999, 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.
h) Reclassifications
Certain reclassifications to the 1998 financial information have been made to
conform to the 1999 presentation.
Note 2 - Acquisition:
Effective January 2, 1998, the Company acquired the net assets of J & L Group,
Inc., a manufacturer of embroidered sportswear, with revenues for the year ended
December 1997 of approximately $6,700,000. The purchase price for this
acquisition was $2,873,929 and was allocated as follows:
Cash $ 36,773
Accounts Receivable 902,754
Inventories 1,157,435
Property, Plant & Equipment 92,021
Excess of Cost Over Fair Value
of Assets Acquired 2,067,461
----------
TOTAL ASSETS $4,256,444
==========
Accounts Payable and
Accrued Expenses $1,382,515
==========
Note 3 - Business Process Re-Engineering:
The condensed summaries of operations for the three month period ended March 31,
1998 includes a pre-tax charge (in compliance with an Emerging Issues Task Force
Consensus issued November 20, 1997) in the amount of $1,094,912, as part of the
Company's commitment to business process re-engineering activities (integrated
SAP systems).
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Note 5 - Subsequent Event:
7
NOTE 4 - Long-Term Debt:
March 31,
1999 1998
--------------- ---------------
Note payable - bank, pursuant to revolving
credit and term loan agreement $ $ 6,400,000
Note payable - bank, pursuant to revolving
credit agreement, maturing March 26, 2002 - -
6.75% term loan payable to First Union, with
monthly payments of principal and interest,
maturing April 1, 2009 12,000,000 -
6.65% note payable to Massachusetts Mutual
Life Insurance Company due $1,666,667
annually, 1998-2005 11,250,000 11,666,667
9.9% note payable to Massachusetts Mutual
Life Insurance Company due $600,000
annually, 1998-2001 1,800,000 1,800,000
---------------- --------------
$ 25,050,000 $ 19,866,667
Less payments due within one year included
in current liabilities 3,050,469 2,266,667
---------------- --------------
$ 21,999,531 $ 17,600,000
================ ==============
On March 26, 1999, the Company entered into a new 3-year credit agreement that
replaced the Company's existing revolving credit agreement and made available to
the Company up to $15,000,000 on a revolving credit basis. Interest is payable
at LIBOR plus 0.60% based upon the one-month LIBOR rate for U.S. dollar based
borrowings. The Company pays an annual commitment fee of 0.15% on the average
unused portion of the commitment. The Company also entered into a $12,000,000
10-year term loan on March 26, 1999 with the same bank. The term loan is an
amortizing loan, with monthly payments of principal and interest, maturing on
April 1, 2009. The term loan carries a variable interest rate of LIBOR plus
0.80% based upon the one-month LIBOR rate for U.S. dollar based borrowings.
Concurrent with the execution of the term loan agreement, the Company entered
into an interest rate swap with the bank under which the Company receives a
variable rate of interest on a notional amount equal to the outstanding balance
of the term loan from the bank and the Company pays a fixed rate of 6.75% on a
notional amount equal to the outstanding balance of the term loan to the bank.
The credit agreement and the term loan with First Union and the agreements with
MassMutual Life Insurance Company contain restrictive provisions concerning debt
to net worth ratios, other borrowing, capital expenditures, rental commitments,
tangible net worth ($60,000,000), working capital ratio (2.5:1), fixed charges
coverage ratio (2.5:1), stock repurchases and payment of dividends. At March 31,
1999, under the most restrictive terms of the debt agreements, retained earnings
of approximately $18,525,000 were available for declaration of dividends. The
Company is in full compliance with all terms, conditions and covenants of the
various credit agreements.
Note 5 - Subsequent Event:
On April 1, 1999, the Company acquired substantially all of the net assets of
The Empire Company, ("Empire") a supplier of uniforms, corporate I.D. wear and
promotional products. The acquisition will be accounted for utilizing the
purchase method of accounting. The acquisition price, subject to adjustment, was
approximately $9,100,000 in cash plus the assumption of certain liabilities.
Total assets of Empire were approximately $4,575,000 and total revenues for 1998
were approximately $14,000,000.
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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, 1998, filed with the Securities and Exchange Commission. Reference
is hereby made to registrant's Financial Statements for 1998, heretofore filed
with registrant's Form 10-K.
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INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Superior Uniform Group, Inc.
Seminole, Florida
We have reviewed the accompanying condensed balance sheet of Superior Uniform
Group, Inc. (the "Company") as of March 31, 1999 and the condensed summaries of
operations and of cash flows for the three months ended March 31, 1999 and
1998. 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
in accordance 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 it to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Superior Uniform Group, Inc. as of December 31,
1998, and the related statements of earnings, shareholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
February 19, 1999, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed balance sheet as of December 31, 1998 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
/s/ Deloitte & Touche LLP
April 28, 1999
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ITEM 2. Management's Discussion And Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Net sales have increased from $37,432,507 for the three months ended March 31,
1998 to $37,504,104 for the three months ended March 31, 1999.
Cost of goods sold approximated 66.3% and 66.2%, respectively for the three
months ended March 31, 1999 and 1998.
Selling and administrative expenses, as a percentage of sales, were
approximately 25% and 23.8%, respectively for the first three months of 1999 and
1998. The increase is primarily attributed to higher payroll related costs in
1999.
Interest expense of $346,106 for the three month period ended March 31, 1999
increased 79.7% from $192,550 for the similar period ended March 31, 1998 due
primarily to higher average borrowings outstanding under the revolving credit
agreement.
Net earnings increased 16.1% to $1,811,995 for the three months ended March 31,
1999 as compared to net earnings of $1,561,121 for the same period ended March
31, 1998. Included in our earnings for the first quarter of 1998 is a pre-tax
charge (in compliance with an Emerging Issues Task Force Consensus issued
November 20, 1997) in the amount of $1,094,912 as part of our commitment to
business process re-engineering activities (integrated SAP systems). The Company
does not expect to incur significant additional re-engineering process charges
during 1999.
Accounts receivable and other current assets decreased 12.5% from $34,435,880 on
December 31, 1998 to $30,117,544 as of March 31, 1999, primarily due to
decreased sales in the first three months of 1999 as compared to the last three
months of 1998.
Inventories as of March 31, 1999 increased 0.6% to $51,071,471 from $50,761,088
on December 31, 1998.
Accounts payable decreased 14.8% from $10,659,144 on December 31, 1998 to
$9,078,699 on March 31, 1999 primarily due to decreases in purchases of raw
material inventories.
THE YEAR 2000 PROJECT: The Company recognizes the need to ensure that its
systems, applications and hardware will recognize and process transactions for
the Year 2000 and beyond and therefore initiated a project to identify its risks
with regard to Year 2000. This project consists of four phases including:
collecting an inventory of potential risks, assessing the actual risk, remedial
work to correct identified problems, and testing for proper operation. The first
two phases of the project have been completed and systems found to be
non-compliant are either being remedied or are ready for testing. All systems
are expected to be tested and ready for Year 2000 operations by July 1, 1999.
There can be no assurance that the Company will successfully complete the Year
2000 project. While the Company does not consider the possibility of such
occurrence to be reasonably likely, if the Company does not complete significant
portions of the project on a timely basis, the Company's operations and
financial condition could be adversely impacted.
The Company started a project approximately two years ago to replace all of its
existing business information systems with enterprise resource planning software
as part of a business process re-engineering initiative. Having selected SAP
R/3, a fully Year 2000 compliant product, we expect to place this system in
operation in the second quarter of 1999. So as not to put the Company at risk in
the event of a delay in the SAP R/3 implementation, the company has begun, in
parallel, a project to bring its existing systems into compliance. If necessary,
these changes are expected to be ready for implementation by July 1, 1999.
All other systems, including warehouse management, shop floor data collection,
and computer aided design and manufacturing systems have been determined to be
compliant or have available upgrades that are compliant, and those upgrades are
currently in process. Due to the nature of the Company's business, its
operations generally do not include significant systems relying on embedded
technology, such as microcontrollers, which are difficult to evaluate and
repair.
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The cost to repair or replace affected systems, exclusive of the SAP R/3
implementation, is estimated at $670,000. Of this amount approximately $431,000
has been incurred and expensed as of March 31, 1999. This estimate, based on
currently available information, may need to be revised upon receipt of
additional information from vendors and suppliers.
The Company is also assessing the Year 2000 readiness of key third parties. The
Company is contacting critical suppliers of products and services and other
significant third parties regarding Year 2000 compliance to evaluate the extent
to which the Company may be vulnerable in the event of their failure to resolve
their own Year 2000 issues. If the Company does not receive reasonable
assurances from such third parties as to Year 2000 compliance, the Company will
assess the potential risks and where practicable, the Company will develop and
finalize contingency plans by June 30, 1999 to attempt to mitigate the extent of
the potential impact of the failure of these third parties to be Year 2000
ready. The Company has no means of ensuring that third parties will be Year 2000
ready and the failure by third parties to address Year 2000 issues could have a
material adverse effect on the Company's operations and financial results.
However, the effect, if any, on the Company from the failure of such parties to
be Year 2000 ready is unknown and not reasonably estimable. While the Company
believes its Year 2000 program is adequate to detect in advance compliance
issues, the Year 2000 issue has many aspects and potential consequences which
are not reasonably foreseeable and there can be no assurance that the Company
will not be adversely impacted.
Furthermore, the Company could also be adversely affected by the domino effect
of general disruptions in the general economy resulting from Year 2000 issues
and does not believe it can develop a contingency plan to protect the Company
from such event. Finally, although the Company's business requires the
availability of key public services and utilities, no contingency plans are
being developed to address any disruptions of such services and utilities.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $8,903,901 from $514,001 on December 31,
1998 to $9,417,902 as of March 31, 1999. Additionally, total borrowings under
long-term debt agreements increased by $4,399,531 from $17,600,000 on December
31, 1998 to $21,999,531 on March 31, 1999. On March 26, 1999, the Company
entered into a new 3-year credit agreement that replaced its existing revolving
credit agreement and made available to the Company up to $15,000,000 on a
revolving credit basis. Interest is payable at LIBOR plus 0.60% based upon the
one month LIBOR rate for U.S. dollar based borrowings. There were no borrowings
outstanding under this agreement as of March 31, 1999. On the same date, the
Company also entered into a $12,000,000 10-year term loan with the same bank.
The term loan is an amortizing loan, with monthly payments of principal and
interest, maturing April 1, 2009. The term loan carries a variable interest rate
of LIBOR plus 0.80%. Concurrent with the execution of the term loan agreement,
the Company entered into a matching interest rate swap agreement to fix the
interest rate on the term loan at 6.75%. The funds from the new term loan were
utilized to pay the outstanding balance on the existing revolver and the
remaining funds were subsequently utilized to fund the acquisition of The Empire
Company. The Company has operated without hindrance or restraint with its
present working capital, as income generated from operations and outside sources
of credit, both trade and institutional, have been more than adequate.
In the foreseeable future, the Company will continue its ongoing capital
expenditure program designed to maintain and improve its facilities. The Company
at all times evaluates its capital expenditure program in light of prevailing
economic conditions. The Company believes that its cash flow from operating
activities together with other capital resources and funds from credit sources
will be adequate to meet all of its funding requirements for the remainder of
the year and for the foreseeable future.
During the three months ended March 31, 1999 and 1998, respectively, the Company
paid cash dividends of $1,059,430 and $979,363. During those same periods, the
Company reacquired and retired 0 and 114,600 shares, respectively, with costs of
$0 and $1,780,701. The Company anticipates that it will continue to pay
dividends and that it will reacquire and retire additional shares of its common
stock in the future as financial conditions permit.
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.
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults Upon Senior Securities
Inapplicable.
ITEM 4. Submission of Matters to a Vote of Security-Holders
None.
ITEM 5. Other Information
Inapplicable.
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits
4.1 Loan Agreement dated March 26, 1999 between the
Registrant and First Union Bank
15 Letter re: unaudited interim financial information.
27 Financial Data Schedule for the quarter ended March
31, 1999 (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: May 3, 1999 SUPERIOR UNIFORM GROUP, INC.
By /s/ Gerald M. Benstock
----------------------------------------
Gerald M. Benstock
Chairman and Chief Executive Officer
By /s/ Andrew D. Demott, Jr.
----------------------------------------
Andrew D. Demott, Jr.
Vice President, CFO, Treasurer
and Principal Accounting Officer
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