SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21764
SUPREME INTERNATIONAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
FLORIDA 59-1162998
(State of other jurisdiction of (IRS Employer Identification
Incorporation or organization) Number)
7495 NW 48TH STREET
MIAMI, FLORIDA 33166
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 592-2830
Former name, former address and fiscal year, if changed since last report
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 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 ___
The number of shares outstanding of the registrant's common stock is 4,351,287
(as of September 12, 1996).
<PAGE>
SUPREME INTERNATIONAL CORPORATION
INDEX
PART I: FINANCIAL INFORMATION
ITEM 1:
Consolidated Balance Sheets
as of July 31, 1996 (Unaudited) and January 31, 1996 1
Consolidated Statements of Income (Unaudited)
for the three and six months ended July 31, 1996 and July 31, 1995 2
Consolidated Statements of Cash Flows (Unaudited)
for the six months ended July 31,1996 and July 31,1995 3
Notes to Consolidated Financial Statements 4
ITEM 2:
Management's Discussion and Analysis
of Financial Condition and Results of Operations 5
PART II: OTHER INFORMATION 9
Signatures 10
<PAGE>
SUPREME INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1996 AND JANUARY 31, 1996 July 31,
1996 January 31,
(Unaudited) 1996
----------- ----------
ASSETS
CURRENT ASSETS
Cash $ 375,345 $ 258,533
Accounts receivable, net 21,838,215 18,101,151
Inventories 27,192,496 30,352,993
Deferred income taxes 828,313 828,313
Other current assets 2,020,484 1,153,785
---------- ----------
Total current assets $52,254,853 $50,694,775
PROPERTY AND EQUIPMENT, net 2,135,567 2,078,327
INTANGIBLE ASSETS, net 1,090,856 674,199
OTHER 641,057 288,123
---------- -----------
TOTAL $56,122,333 $53,735,424
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,312,588 $ 1,523,560
Accrued expenses 979,126 1,189,171
Other current liabilities 111,628 221,666
--------- ----------
Total current liabilities 3,403,342 2,934,397
LONG-TERM DEBT 8,483,595 6,967,943
----------- -----------
Total liabilities $11,886,937 $ 9,902,340
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock-$.01 par value; 1,000,000
shares authorized; no shares issued or
outstanding $ - $ -
Common stock-$.01 par value; 10,000,000
shares authorized; 4,533,333 shares issued
less 184,300 of treasury stock at July 31,
1996 and 4,533,333 shares issued and
outstanding at January 31, 1996 43,490 45,333
Additional paid-in capital $27,419,474 29,319,261
Retained earnings 16,772,432 14,468,490
---------- ----------
Total stockholders' equity 44,235,396 43,833,084
---------- ----------
TOTAL $56,122,333 $53,735,424
========== ==========
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SUPREME INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
July 31, July 31,
1996 1995 1996 1995
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $31,011,566 $25,168,465 $68,366,693 $60,211,161
COST OF GOODS SOLD 24,405,469 18,763,112 53,568,705 45,150,262
---------- ---------- ---------- ----------
GROSS PROFIT 6,606,097 6,405,353 14,797,988 15,060,899
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,245,154 3,994,648 10,621,052 9,426,266
---------- ---------- ---------- ----------
OPERATING INCOME 1,360,943 2,410,705 4,176,936 5,634,633
INTEREST EXPENSE 239,931 750,886 452,994 1,402,016
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,121,012 1,659,819 3,723,942 4,232,617
PROVISION FOR INCOME TAXES 432,000 636,253 1,420,000 1,613,916
---------- --------- ---------- ----------
NET INCOME $ 689,012 $ 1,023,566 $ 2,303,942 $ 2,618,701
========== ========= ========= =========
NET INCOME PER SHARE $ 0.16 $ 0.29 $ 0.52 $ 0.74
========== ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 4,407,800 3,562,011 4,391,942 3,543,007
========== ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
SUPREME INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
JULY 31,
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,303,942 $ 2,618,701
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 60,732 189,530
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable, net (2,278,796) 2,830,534
Decrease (Increase) in inventories 4,998,707 (4,364,952)
(Increase) Decrease in other current assets (854,731) 49,268
(Increase) Decrease in other assets (352,934) 2,818
Increase (Decrease) in accounts payable and
accrued expenses 478,983 (1,211,542)
(Decrease) increase in other current liabilities (110,038) 150,489
----------- -----------
Net cash provided by operating activities 4,245,865 264,846
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of fixed and intangible assets (85,640) (729,886)
Purchase of an apparel manufacturer and
distributor (3,657,435) -
----------- -----------
Net cash used for investing activities (3,743,075) (729,886)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in borrowings under credit facilities - (2,593,975)
Proceeds from long-term debt 1,515,652 2,999,967
Purchase of treasury stock (1,901,630) -
----------- -----------
Net cash (used) provided by financing
activities (385,978) 405,992
----------- -----------
NET INCREASE (DECREASE) IN CASH 116,812 (59,048)
CASH AT BEGINNING OF PERIOD 258,533 341,626
----------- -----------
CASH AT END OF PERIOD $ 375,345 $ 282,578
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 431,227 $ 1,280,865
=========== ===========
Income taxes $ 1,894,659 $ 1,756,015
=========== ===========
See notes to consolidated financial statements.
3
<PAGE>
SUPREME INTERNATIONAL CORPORATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions for Form 10-Q
and therefore do not include all information and footnotes
necessary for a fair presentation of financial position, results
of operations and changes in cash flows in conformity with
generally accepted accounting principles. The unaudited
consolidated financial statements should be read in conjunction
with the audited financial statements and related notes included
in the Registrant's Annual Report on Form 10-K for the year ended
January 31, 1996. In the opinion of management, the unaudited
consolidated financial statements contain all adjustments
necessary for a fair presentation for the interim period
presented and all such adjustments are of a normal and recurring
nature. The results of operations for the six months ended July
31, 1996 are not necessarily indicative of the results which may
be expected for the entire fiscal year.
Certain amounts of the prior year have been reclassified to
conform to current year presentations.
In February 1996, Supreme International Corporation's (the
"Company") Board of Directors authorized a stock repurchase
program for up to 500,000 shares of its outstanding common stock.
See schedule related to treasury stock in Note 5.
2. INVENTORY
Inventories are stated at lower of cost or market on a First-in
First-out basis and consist of:
JULY 31, 1996 JANUARY 31, 1996
------------- ----------------
Finished goods $22,687,908 $26,673,903
Raw materials and in process 3,116,542 3,040,737
Merchandise in transit 1,388,046 638,353
----------- -----------
TOTAL $27,192,496 $30,352,993
=========== ===========
3. LETTER OF CREDIT FACILITIES
JULY 31, 1996 JANUARY 31, 1996
------------- ----------------
Total letter of credit facilities $ 30,000,000 $35,000,000
Borrowings -- --
Outstanding letters of credit (17,861,338) (11,758,074)
------------ ------------
Total Available $ 12,138,662 $ 23,241,926
============ ============
4
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4. EARNINGS PER SHARE
Earnings per common share and common equivalent share were
computed by dividing net income by the weighted average number of
shares of common stock and common stock equivalents outstanding
during the year. The number of common shares was increased by the
number of shares issuable on the exercise of warrants and stock
options when the market price of the common stock exceeds the
exercise price of the warrants or options. This increase in the
number of common shares was reduced by the number of common
shares that are assumed to have been purchased with the proceeds
from the exercise of the warrants or options; those purchases
were assumed to have been made at the average price of common
stock during the year. Earnings per share assuming full dilution
was determined in the same manner as earnings per common share
and common equivalent share except that the period-end stock
price was used.
5. STOCKHOLDERS' EQUITY
The following is a schedule of the transactions in the common
stock and the additional paid-in capital as a result of the stock
repurchase program:
COMMON STOCK ADDITIONAL
------------- -----------
SHARES AMOUNT PAID-IN CAPITAL
------ ------ ---------------
Balance, February 1, 1996 4,533,333 $ 45,333 $ 29,319,261
Less purchase of 184,300
shares of common stock 184,300 1,843 1,899,787
--------- -------- ------------
Balance, July 31, 1996 4,349,033 $ 43,490 $ 27,419,474
========= ======== ============
6. SUBSEQUENT EVENT
On September 6, 1996, the Company acquired certain assets of
Munsingwear, Inc. ("Munsingwear"), a manufacturer of men's casual apparel
for approximately $18.0 milion. The assets purchased consisted of the
intellectual property and other rights related to Munsingwear's retail
and golf businesses. The acquisition was accounted for under the purchase
method.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains, in addition to historical
information, forward looking statements with respect to Supreme
International Corporation (the "Company") that involve risks and
uncertainties. The Company's actual results could differ materially.
Factors that could cause or contribute to such difference include, but
are not limited to, risks related to fashion trends; the retail industry;
reliance on key customers; contract manufacturing; foreign sourcing;
imports and import restrictions; competition; seasonality; rapid
expansion of business;
5
<PAGE>
dependence on key personnel and other factors discussed in the Company's
filings with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JULY 31, 1996 AS COMPARED TO THREE AND SIX
MONTHS ENDED JULY 31, 1995 .
Net sales for the three and six months ended July 31,
1996 increased $5,843,101 and $8,155,532, respectively, to
$31,011,586 and $68,366,693 from $25,168,465 and $60,211,161 for
the three and six months ended July 31, 1995, respectively. Such
increases are attributable to the broad-based growth in the
Company's product lines to existing customers as well as the
addition of new customers.
Cost of goods sold increased to $24,405,469 and
$53,568,705, respectively, for the three and six months ended
July 31, 1996 from $18,763,112 and $45,150,262 for the three and
six months ended July 31, 1995, reflecting the increased level of
sales. As a percentage of sales, cost of sales increased to 78.7%
in the three months ended July 31, 1996 from 74.6% in the three
months ended July 31, 1995 and to 78.4% for the six months ended
July 31, 1996 from 75.0% in the six months ended July 31, 1995.
Gross profits were $6,606,097 (21.3% of sales) and $14,797,988
(21.6% of sales) in the three and six month period ended July 31,
1996, as compared to $6,405,353 (25.4% of sales) and $15,060,899
(25.0% of sales) in the three and six month period ended July 31,
1995. Both the increase in cost of sales and the decrease in
gross profits is mainly attributable to higher shipping costs
coupled with increased sales of low-margin inventory.
Selling, general and administrative expenses increased by
$1,250,506 or 31.3% from $3,994,648 in the three months ended
July 31, 1995 to $5,245,154 in the three month period ended July
31, 1996 and by $1,194,786 or 12.7% from $9,426,266 for the six
months ended July 31, 1995 to $10,621,052 for the six months
ended July 31, 1996. This increase was due to increased levels of
business as well as partial absorption of certain operating
expenses as a result of the acquisition of Jolem Imports, Inc.
("Jolem") in May 1996. Additionally, during the three months
ended July 31, 1996 the Company began to integrate the
purchasing, marketing and design functions of Munsingwear, Inc.
("Munsingwear") into its operations in Miami in anticipation of
the completion of the purchase of certain assets of Munsingwear,
which acquisition closed in September 1996. See "Liquidity and
Capital Resources". Such integration directly impacted the
selling, general and administrative expenses for the quarter. As
a percentage of sales, selling, general and administrative
expenses were 16.9% and 15.5% for the three and six month period
ended July 31, 1996 and 15.8% and 15.7% for the three and six
months ended July 31, 1995.
Interest expense decreased to $239,931 and to $452,994
for the three and six months ended July 31, 1996 from $750,886
and $1,402,016 in the three and six months ended July 31, 1995.
This decrease was due to the repayment of a portion of the amount
outstanding under the Company's $35.0 million revolving credit
agreement with a bank following completion by the Company of a
public offering in September 1995.
Income before taxes for the three and six months ended
July 31, 1996 was $1,121,012 and $3,723,942, respectively, as
compared to income before taxes for the three and six months
ended July 31, 1995 of $1,659,819 and $4,232,617, respectively.
Net income was $689,012 and $2,303,942 for the three and six
months ended July 31, 1996 representing earnings per common share
of $0.16 and $0.52, respectively, as compared to $1,023,566 and
$2,618,701 for the three and six months ended July 31, 1995,
representing earnings per common share of $0.29 and $0.74,
respectively. The decrease in net income in the 1996 periods is
due to the reasons set forth above. Net income per share was
computed using the weighted average number of
6
<PAGE>
common shares outstanding of 4,407,800 and 4,391,942 for the three and
six months ended July 31, 1996, and 3,562,011 and 3,543,007 for the
three and six months ended July 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth in sales and other
working capital requirements principally from operating cash flows and
borrowings under a $35.0 million revolving credit agreement with a bank
(the "Revolving Credit Agreement"). The amount available for borrowings
under the Revolving Credit Agreement is determined pursuant to a formula
based upon the levels of eligible accounts receivable and finished goods
inventory, subject to a maximum of $35.0 million. The Revolving Credit
Agreement bears interest at the bank's prime rate or LIBOR plus 1.5%.
Substantially all the assets of the Company are pledged as collateral
under the Revolving Credit Agreement. As of July 31, 1996, $8,483,595
was outstanding under the Revolving Credit Agreement, and the Company
had $26,516,405 available for additional borrowings based on eligible
receivables and inventory.
Cash flows provided by operating activities were $4,245,865 for
the six months ended July 31, 1996 principally representing cash
provided by net income of $2,303,942, a decrease in inventories of
$4,998,707 and a net increase in current liabilities of $368,945, offset
by cash used to finance increases in accounts receivable and other
current assets of $2,278,796 and $854,731, respectively. For the six
months ended July 31, 1995, cash flows provided by operating activities
were $264,846 primarily consisting of cash provided by net income of
$2,618,701 and a decrease in accounts receivable of $2,830,534 offset by
an increase in inventories of $4,364,952 and a net increase in current
liabilities of $1,061,053.
Cash flows used in investing activities were $3,743,075 for the
six months ended July 31, 1996 principally as a result of the Jolem
acquisition (see "Results of Operations") in the amount of $3,657,435.
Cash flows used in investing activities for the six months ended July
31, 1995 were $729,886 representing normal requirements for capital
expenditures.
Cash flows used by financing activities were $385,978 for the
six months ended July 31, 1996 primarily as a result of proceeds from
long-term debt of $1,515,652 offset by the purchase of treasury stock of
$1,901,630. During the six months ended July 31,1996, the Company
repurchased an aggregate of 184,300 shares of its common stock in the
open market. For the three months ended July 31,1995, cash flows
provided by financing activities were $405,992 principally due to
proceeds from long-term debt of $ 2,999,967 offset by a reduction in
borrowings under credit facilities of $2,593,975. At July 31, 1996, the
Company had cash of $375,345, as compared to $258,533 at January 31,
1996, as a result of the activities described above.
The Revolving Credit Agreement contains significant financial
and operating covenants, including requirements that the Company
maintain minimum net worth levels and certain financial ratios,
prohibitions on the ability of the Company to incur certain additional
indebtedness and restrictions on its ability to make capital
expenditures, to incur or suffer to exist certain liens, to pay
dividends or to take certain other corporate actions. Amounts will only
be available under the Revolving Credit Agreement if such financial
maintenance and other covenants are satisfied and the borrowing base
calculation (which is based upon the amount of eligible accounts
receivable and eligible inventory) are satisfied. The Company is
currently in compliance with all covenants under the Revolving Credit
Agreement.
The Company had working capital of $48,851,511 at July 31,
1996. Outstanding indebtedness of $8,483,595 is classified as long-term
debt under the Revolving Credit Agreement and therefore is not included
for purposes of calculating working capital. At January 31, 1996 the
Company had working capital of $47,760,378 with outstanding indebtedness
under the Revolving Credit Agreement of $6,967,943. The Company's
current ratio was 15.4 at July 31, 1996 compared to 17.3 at January 31,
1996.
7
<PAGE>
The Company maintains three facilities with a combined limit of
$30.0 million for letters of credit. The facilities further provide the
Company with an aggregate sublimit of $7.2 million for advances to
refinance letters of credit up to 120 days. These facilities are secured
by the consignment of merchandise in transit under each letter of
credit. Indebtedness under these facilities bears interest at variable
rates substantially equal to the lenders' specified base lending rates
plus a 1.5% per annum acceptance commission fee. Letters of credit under
these facilities totaled $17,861,338 and $11,758,074 as of July 31, 1996
and January 31,1996, respectively.
In May 1996, the Company acquired all the assets of Jolem, a
Miami-based manufacturer and distributor of men's and boys' casual
apparel. Also in May 1996, the Company had entered into a definitive
purchase agreement to acquire certain assets of Munsingwear, a
manufacturer of men's casual apparel sold primarily to department stores
and golf pro shops for approximately $18.0 million. The Munsingwear
transaction closed on September 6, 1996. The assets purchased consisted
of the intellectual property and other rights related to Munsingwear's
retail and golf businesses. The purchase price was paid principally
through borrowings under the Revolving Credit Agreement. The Company
intends to commence shipment of lines under the Munsingwear trademarks
in the Fall of 1996.
Management believes that the combination of the borrowing
availability under the Revolving Credit Agreement, existing working
capital and funds anticipated to be generated from operating activities
will be sufficient to meet the Company's anticipated operating and
capital needs for the foreseeable future.
EFFECTS OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
The Company does not believe that inflation significantly
affected its results of operations for the six months ended July 31,
1996 and 1995.
The Company's purchases from foreign suppliers are made in U.S.
dollars. Accordingly, the Company, to date, has not been materially
adversely affected by foreign currency fluctuations.
8
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. Legal Proceedings
Not applicable.
ITEM 2. Changes in Securities
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K - None
9
<PAGE>
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: September 12, 1996 By: RICHARD L. DUNN
Richard L. Dunn
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
<CASH> 375,345
<SECURITIES> 0
<RECEIVABLES> 21,838,215
<ALLOWANCES> 0
<INVENTORY> 27,192,496
<CURRENT-ASSETS> 52,254,853
<PP&E> 2,135,567
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,122,333
<CURRENT-LIABILITIES> 3,403,342
<BONDS> 8,483,595
0
0
<COMMON> 43,490
<OTHER-SE> 44,191,906
<TOTAL-LIABILITY-AND-EQUITY> 56,122,333
<SALES> 68,366,693
<TOTAL-REVENUES> 68,366,693
<CGS> 53,568,705
<TOTAL-COSTS> 53,568,705
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 452,994
<INCOME-PRETAX> 3,723,942
<INCOME-TAX> 1,420,000
<INCOME-CONTINUING> 2,303,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,303,942
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
