SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1997
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 or 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 4,356,287
(as of June 13, 1997).
<PAGE>
SUPREME INTERNATIONAL CORPORATION
INDEX
PART 1: FINANCIAL INFORMATION
ITEM 1:
Consolidated Balance Sheets
as of April 30, 1997 (Unaudited) and January 31, 1997 1
Consolidated Statements of Income (Unaudited)
for the three months ended April 30, 1997 and April 30, 1996 2
Consolidated Statements of Cash Flows (Unaudited)
for the three months ended April 30, 1997 and April 30, 1996 3
Notes to Consolidated Financial Statements 4
ITEM 2:
Management's Discussion and Analysis
of Financial Condition and Results of Operations 6
PART II: OTHER INFORMATION 9
Signatures 10
<PAGE>
<TABLE>
<CAPTION>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30,
1997 JANUARY 31,
ASSETS (UNAUDITED) 1997
----------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 964,205 $ 755,798
Accounts receivable, net 34,608,189 28,807,236
Inventories 33,356,647 32,200,522
Deferred income taxes 668,658 668,658
Other current assets 1,512,965 1,525,695
----------- ------------
Total current assets 71,110,664 63,957,909
PROPERTY AND EQUIPMENT, net 2,068,436 2,138,088
INTANGIBLE ASSETS, net 19,731,174 19,858,692
OTHER 2,461,729 2,203,601
----------- ------------
TOTAL $95,372,003 $88,158,290
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,541,822 $ 5,584,924
Accrued expenses 3,892,740 2,063,040
Borrowings under credit facilities 9,666,103 6,812,629
Current portion of long-term debt 25,905,978 25,136,801
Other current liabilities 383,845 785,422
----------- -----------
Total liabilities 45,390,488 40,382,816
----------- -----------
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; 4,543,333 and 4,535,587 shares issued and
outstanding less 187,046 and 184,300 of treasury stock
at April 30 and January 31, 1997, respectively 43,563 43,513
Additional paid-in capital 27,476,902 27,419,452
Retained earnings 22,461,050 20,312,509
------------ -------------
Total stockholders' equity 49,981,515 47,775,474
------------ -------------
TOTAL $95,372,003 $88,158,290
============ =============
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE>
<TABLE>
<CAPTION>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
APRIL 30,
1997 1996
-------------- -------------
<S> <C> <C>
NET SALES $ 48,840,713 $ 37,807,420
COST OF SALES 37,000,939 29,163,236
-------------- -------------
GROSS PROFIT 11,839,774 8,644,184
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 7,640,511 5,828,191
-------------- -------------
OPERATING INCOME 4,199,263 2,815,993
INTEREST EXPENSE 704,455 213,063
-------------- -------------
INCOME BEFORE INCOME
TAX PROVISION 3,494,808 2,602,930
INCOME TAX PROVISION 1,346,267 988,000
-------------- -------------
NET INCOME $ 2,148,541 $ 1,614,930
============== =============
NET INCOME PER SHARE $ 0.49 $ 0.37
============== =============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 4,393,053 4,385,923
============== =============
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
APRIL 30,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,148,541 $ 1,614,930
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 412,374 57,166
Loss on abandonment of property 106,975 -
Changes in assets and liabilities:
Increase in accounts receivable, net (5,800,952) (9,580,279)
(Increase) Decrease in inventories (1,156,125) 2,916,575
Decrease in other current assets 12,732 401,797
Increase in other assets (258,128) (214,014)
Increase in accounts payable and
accrued expenses 1,786,597 3,887,955
(Decrease) Increase in other current liabilities (401,577) 944,033
------------- ------------
Net cash (used in) provided by operating activities (3,149,563) 28,163
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed and intangible assets (322,181) (77,289)
------------- ------------
Net cash used by investing activities (322,181) (77,289)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in borrowings under credit facilities 2,853,474 -
Proceeds from long-term debt 12,553,481 1,961,994
Payments on long-term debt (11,784,304) -
Purchase of treasury stock - (1,901,630)
Proceeds from exercise of stock options 57,500 -
-------------- ------------
Net cash provided by financing activities 3,680,151 60,364
-------------- ------------
NET INCREASE IN CASH 208,407 11,238
CASH AT BEGINNING OF PERIOD 755,798 258,533
-------------- ------------
CASH AT END OF PERIOD $ 964,205 $ 269,771
============== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period :
Interest $ 696,296 $ 176,760
============== ============
Income taxes $ 74,577 $ 14,549
============== ============
</TABLE>
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, 1997. 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 three months ended April 30, 1997 are not
necessarily indicative of the results which may be expected for the
entire fiscal year.
Certain amounts of the prior period have been reclassified to conform
to current year presentations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
EARNINGS PER SHARE. The statement is effective for financial statements
for periods ending after December 15, 1997, and changes the method in
which earnings per share will be determined. Adoption of this statement
by the Company will not have a material impact on earnings per share.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129 ("SFAS No. 129"),
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. The statement is
effective for financial statements for periods ending after December
15, 1997, and requires explanation of the pertinent rights and
privileges of the various securities outstanding. Adoption of this
statement by the Company will not have a material impact on its
consolidated financial statements.
2. INVENTORY
Inventories are stated at lower of cost or market on a First-in
First-out basis and consist of:
APRIL 30, 1997 JANUARY 31, 1997
-------------- ----------------
Finished goods $28,324,231 $27,445,635
Raw materials and in process 3,560,703 3,629,940
Merchandise in transit 1,471,713 1,124,947
----------- -----------
TOTAL $33,356,647 $32,200,522
=========== ===========
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<PAGE>
3. LETTER OF CREDIT FACILITIES
APRIL 30, 1997 JANUARY 31, 1997
-------------- ----------------
Total letter of credit facilities $37,000,000 $33,000,000
Borrowings (9,666,103) (6,812,629)
Outstanding letters of credit (16,951,608) (16,978,256)
------------ ------------
Total Available $10,382,289 $ 9,209,115
============ ============
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:
COMMON STOCK ADDITIONAL
SHARES AMOUNT PAID-IN CAPITAL
------ ------ ---------------
Balance, February 1, 1997 4,351,287 $43,513 $27,419,452
Exercise of stock options 5,000 50 57,450
--------- ------- -----------
Balance, April 30, 1997 4,356,287 $43,563 $27,476,902
========= ======= ===========
6. ACQUISITIONS
On September 6, 1996, the Company acquired certain assets of
Munsingwear, Inc. ("Munsingwear") a manufacturer of men's casual
apparel for approximately $18,400,000. The assets acquired consisted of
brand names including Grand Slam, Grand Slam Tour, Penguin Sport, and
other intangible assets. The purchase price amounted to approximately
$19,800,000, which included $1,400,000 of transaction costs, and was
primarily allocated to working capital and intangible assets as
follows: inventories $300,000; accounts receivable $300,000; and brand
names $19,200,000. The acquisition was accounted for under the purchase
method of accounting and was financed with borrowings from the
revolving credit agreement (See Liquidity and Capital Resources).
-5-
<PAGE>
On May 6, 1996, the Company acquired all of the assets of Jolem
Imports, Inc. ("Jolem") a Miami based manufacturer of men's and boys'
casual apparel. The purchase price amounted to approximately
$3,700,000, and was primarily allocated to working capital and
intangible assets as follows: inventories $1,800,000; accounts
receivable $1,500,000; and brand names $400,000. The acquisition was
accounted for under the purchase method of accounting.
The following unaudited information presents the Company's pro forma
operating data for the period ended April 30, 1996 as if the
acquisitions had been consummated at the beginning of the period
presented. It includes certain adjustments to the historical
consolidated statements of operations of the Company to give effect to
the acquisition of brand names and associated rights, license
agreements and other acquired net assets, the related issuance of
additional indebtedness by the Company and the increased amortization
of the intangible assets. The unaudited pro forma financial data are
not necessarily indicative of the results of operations that would have
been achieved had the transactions reflected therein been consummated
prior to the period in which they were completed, or that might be
attained in the future.
PRO FORMA THREE MONTHS ENDED
----------------------------
APRIL 30, 1996
--------------
Net sales $ 49,815,420
Net income $ 2,438,591
Net income per share $ .56
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; dependence on key personnel and other
factors discussed in the Company's filings with the Securities and
Exchange Commission.
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1997 AS COMPARED TO THREE MONTHS ENDED
APRIL 30, 1996
Net sales for the three months ended April 30, 1997 increased
$11,033,293 or 29% to $48,840,713 from $37,807,420 for the three months
ended April 30, 1996. Such increase is mainly attributable to the
Munsingwear and Jolem acquisitions. Net sales were $6,840,642 and
$2,427,324 for Munsingwear and Jolem, respectively, for the quarter
ended April 30, 1997, with the rest of the increase representing
existing business. Since the acquisitions of both Munsingwear and
Jolem occurred subsequent to the quarter ended April 30, 1996, there
are no comparable sales for that period.
Cost of sales increased to $37,000,939 for the three months
ended April 30, 1997 from $29,163,236 for the three months ended April
30, 1996 reflecting the increased level of sales. As a percentage of
sales, cost of sales decreased to 75.8% for the three months ended
April 30, 1997 from 77.1% for the three months ended April 30, 1996.
Gross profits were $11,839,774 (24.2% of sales) for the three months
ended April 30, 1997, as compared to $8,644,184 (22.9% of sales) for
the three months ended April 30, 1996. The increase in the gross profit
as a percentage of sales is principally due to an increase in sales of
higher margin merchandise resulting from the introduction of new brand
names coupled with better margins on sales of discounted merchandise.
-6-
<PAGE>
Selling, general and administrative expenses increased by
$1,812,320 or 31.1% from $5,828,191 for the three months ended April
30,1996 to $7,640,511 for the three months ended April 30, 1997. As a
percentage of sales, selling, general and administrative expenses were
15.6% for the three months ended April 30, 1997 and 15.4% for the three
months ended April 30, 1996. The increase in the selling, general and
administrative expenses is mainly attributable to the increase in
personnel, travel and advertising costs required by the increased
levels of sales.
Interest expense increased to $704,455 for the three months
ended April 30, 1997 from $213,063 for the three months ended April 30,
1996. This increase is as a result of the additional indebtedness by
the Company related to the acquisitions discussed in Note 6.
Income before taxes for the three months ended April 30, 1997
was $3,494,808 compared to income before taxes for the three months
ended April 30, 1996 of $2,602,930. Net income for the three months
ended April 30, 1997 was $2,148,541( $0.49 per share) as compared to
net income for the three months ended April 30, 1996 of $1,614,930 (
$0.37 per share). Net income per share was computed using the weighted
average number of common shares outstanding of 4,393,053 and 4,385,923
at April 30, 1997 and 1996, respectively.
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 April
30, 1997, $25,905,978 was outstanding under the Revolving Credit
Agreement, and the Company had $9,094,022 available for additional
borrowings based on eligible receivables and inventory.
Cash flows used in operating activities were $3,149,563 for
the three months ended April 30, 1997 principally representing cash
provided by net income of $2,148,541 and an increase in accounts
payable and accrued expenses of $1,786,597 offset by cash used to
finance increases in accounts receivable of $5,800,952 and an increase
in inventories of $1,156,125. The increase in accounts receivable is
directly attributable to the increase in sales for the period. For the
three months ended April 30, 1996 cash flows provided by operating
activities were $28,163 primarily consisting of cash provided by net
income of $1,614,930, a decrease in inventories of $2,916,575 and
increases in current liabilities of $4,831,988, offset by cash used to
finance increases in accounts receivable of $9,580,279.
Cash flows used in investing activities were $322,181 and
$77,289 for the three months ended April 30, 1997 and 1996,
respectively, representing normal requirements for capital
expenditures.
Cash flows provided by financing activities were $3,680,151
for the three months ended April 30, 1997 primarily as a result of
proceeds from long-term debt of $12,553,481 and borrowings under credit
facilities of $2,853,474 offset by payment on long-term debt of
$11,784,304. For the three months ended April 30, 1996, cash flows
provided by financing activities were $60,364 principally due to
proceeds from long-term debt of $ 1,961,994 offset by purchase of
treasury stock of $1,901,630. During the three months ended April 30,
1996, the Company repurchased an aggregate of 184,300 shares of its
common stock in the open market. At April 30, 1997, the Company had
cash of $964,205, as compared to $755,798 at January 31, 1997, as a
result of the activities described above.
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<PAGE>
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 $25,720,000 and $23,575,000
at April 30, 1997 and January 31, 1997, respectively. The outstanding
balance under the Revolving Credit Agreement was $25,905,978 and
$25,136,801 at April 30, 1997 and January 31, 1997, respectively and
was classified as a current liability as it will mature in October
1997. The Company intends to refinance the Revolving Credit Agreement
prior to its maturity. The Company's current ratio was 1.57 at April
30, 1997 compared to 1.58 at January 31, 1997.
The Company maintains three facilities with a combined limit
of $37.0 million for letters of credit. The facilities further provide
the Company with an aggregate sub limit 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 $16,951,608 and $16,978,256 as
of April 30, 1997 and January 31,1997, respectively.
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.
During Fiscal 1998, the Company intends to consolidate its
administrative offices and warehouse and distribution facilities into a
new 238,000 square foot facility in Miami. The Company is party to an
agreement to purchase this facility which is being built to the
Company's specifications. The Company is seeking to finance the
facility with a financial institution in a transaction where the
financial institution will assume the Company's obligation to purchase
the facility and will then enter into a long term lease with the
Company for the facility. The Company anticipates that the lease will
have an initial term of five years and a minimum annual rental of
approximately $1,300,000.
EFFECTS OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
The Company does not believe that inflation significantly
affected its results of operations for the three months ended April 30,
1997 and 1996.
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: June 13, 1997 By: /S/ RICHARD L. DUNN
---------------------------
Richard L. Dunn
Chief Financial Officer
-10-
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-30-1997
<CASH> 964,205
<SECURITIES> 0
<RECEIVABLES> 34,608,189
<ALLOWANCES> 0
<INVENTORY> 33,356,647
<CURRENT-ASSETS> 71,110,664
<PP&E> 2,068,436
<DEPRECIATION> 0
<TOTAL-ASSETS> 95,372,003
<CURRENT-LIABILITIES> 45,390,488
<BONDS> 0
0
0
<COMMON> 43,563
<OTHER-SE> 49,937,952
<TOTAL-LIABILITY-AND-EQUITY> 95,372,003
<SALES> 48,840,713
<TOTAL-REVENUES> 48,840,713
<CGS> 37,000,939
<TOTAL-COSTS> 37,000,939
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 704,455
<INCOME-PRETAX> 3,494,808
<INCOME-TAX> 1,346,267
<INCOME-CONTINUING> 2,148,541
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,148,541
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
