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 APRIL 30, 1998
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)
3000 N.W. 107 AVENUE
MIAMI, FLORIDA 33172
(Address of principle 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 6,708,248
(as of June 5, 1998).
<PAGE>
SUPREME INTERNATIONAL CORPORATION
INDEX
PART I: FINANCIAL INFORMATION
ITEM 1:
Consolidated Balance Sheets
as of April 30, 1998 (Unaudited) and January 31, 1998 1
Consolidated Statements of Operations (Unaudited)
for the three months ended April 30, 1998 and April 30, 1997 2
Consolidated Statements of Cash Flows (Unaudited)
for the three months ended April 30, 1998 and April 30, 1997 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
Signature 10
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30, 1998 JANUARY 31, 1998
-------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,565,559 $ 1,010,256
Accounts receivable, Net 41,959,784 35,502,607
Inventories 37,992,812 35,799,388
Deferred income taxes 872,000 872,000
Other current assets 2,022,238 2,253,328
------------------ ---------------------
Total current assets 84,412,393 75,437,579
PROPERTY AND EQUIPMENT, NET 6,505,611 4,899,656
INTANGIBLE ASSETS, NET 19,485,566 19,716,064
OTHER 1,720,110 1,313,747
------------------ ---------------------
TOTAL $ 112,123,680 $ 101,367,046
================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,943,049 $ 4,048,325
Accrued expenses 1,568,043 1,692,225
Borrowings under credit facilities 8,060,000 3,000,000
Other current liabilities 2,029,105 813,477
------------------ ---------------------
Total current liabilities 15,600,197 9,554,027
LONG TERM DEBT 38,399,518 36,658,174
------------------ ---------------------
Total liabilities 53,999,715 46,212,201
------------------ ---------------------
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value; 1,000,000
shares authorized; no shares issued or
outstanding
Common stock - $.01 par value; 15,000,000 66,193 65,556
shares authorized; 6,619,342 and 6,555,681
shares issued and outstanding as of
April 30, 1998 and January 31, 1998, respectively
Additional paid-in-capital 27,929,999 27,598,618
Retained earnings 30,127,773 27,490,671
------------------ ---------------------
Total stockholders' equity 58,123,965 55,154,845
------------------ ---------------------
TOTAL $ 112,123,680 $ 101,367,046
================== =====================
</TABLE>
See Notes to consolidated financial statements
1
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
APRIL 30, APRIL 30,
1998 1997
----------------- ----------------
<S> <C> <C>
REVENUES:
Net Sales $ 60,085,191 $ 48,840,713
Royalty Income 1,021,784 1,122,972
----------------- ----------------
TOTAL REVENUES 61,106,975 49,963,685
COST OF SALES 45,459,010 37,000,939
----------------- ----------------
GROSS PROFIT 15,647,965 12,962,746
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 10,646,848 8,763,483
----------------- ----------------
OPERATING INCOME 5,001,117 4,199,263
INTEREST EXPENSE 891,226 704,455
----------------- ----------------
INCOME BEFORE INCOME
TAX PROVISIONS 4,109,891 3,494,808
INCOME TAX PROVISIONS 1,472,789 1,346,267
----------------- ----------------
NET INCOME $ 2,637,102 $ 2,148,541
================= ================
NET INCOME PER SHARE:
BASIC $ 0.40 $ 0.33
DILUTED $ 0.39 $ 0.33
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING:
BASIC 6,585,168 6,530,470
DILUTED 6,760,770 6,605,345
</TABLE>
See Notes to consolidated financial statements.
2
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
APRIL 30, APRIL 30,
1998 1997
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 2,637,102 2,148,541
Adjustment to reconcile net income to net cash (used in)
operating activities:
Depreciation and amortization 492,977 412,374
Loss on sale and abandonment of property -- 106,975
Changes in operating assets and liabilities:
Accounts receivable, net (6,457,177) (5,800,952)
Inventories (2,193,424) (1,156,125)
Other current assets 231,090 12,732
Other assets (406,363) (258,128)
Accounts payable and accrued expenses (229,458) 1,786,597
Other current liabilities 1,215,628 (401,577)
----------------- -----------------
Net cash used in operating activities: (4,709,625) (3,149,563)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,831,419) (164,914)
Payment on purchase of intangible assets (37,015) (157,267)
----------------- -----------------
Net cash (used in) investing activities (1,868,434) (322,181)
----------------- -----------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase in borrowings under credit facilities 5,060,000 2,853,474
Proceeds from long-term debt 59,980,846 12,553,481
Payments on long-term debt (58,239,502) (11,784,304)
Proceeds from exercise of stock options 332,018 57,500
----------------- -----------------
Net cash provided by
financing activities: 7,133,362 3,680,151
----------------- -----------------
NET INCREASE IN CASH 555,303 208,407
CASH AT BEGINNING OF PERIOD 1,010,256 755,798
----------------- -----------------
CASH AT END OF PERIOD $ 1,565,559 $ 964,205
================= =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 831,583 $ 696,296
Income taxes $ 69,875 $ 74,577
</TABLE>
See Notes to consolidated financial statements.
3
<PAGE>
SUPREME INTERNATIONAL CORPORATION AND SUBSIDIARIES
ITEM 1. NOTES TO THE 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, 1998. In the opinion of management, the unaudited
consolidated financial statements contain all adjustments necessary for a fair
presentation of the interim periods presented and all adjustments are of a
normal and recurring nature. The results of operations for the three months
ended April 30, 1998 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 the
current periods' presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS No. 130"), REPORTING COMPREHENSIVE
INCOME. SFAS No. 130 requires that all components of comprehensive income be
reported on one of the following: (1) the statement of income; (2) the statement
of changes in stockholders' equity, or (3) a separate statement of comprehensive
income. Comprehensive income is comprised of net income and all changes to
stockholders' equity, except those due to investments by stockholders (changes
in paid-in capital) and distribution to stockholders (dividends). SFAS No. 130
is effective for fiscal years beginning after December 15, 1997. The Company
adopted this statement with no significant impact on its consolidated financial
statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), DISCLOSURE ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 changes the way
public companies report information about segments of their business in their
annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. SFAS No. 131 also
requires entity-wide disclosure about products and services an entity provides,
the foreign countries in which it holds assets and reports revenues, and its
major customers. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. The Company will adopt this standard for fiscal year ending
January 31, 1999.
4
<PAGE>
2. Inventories are stated at lower of cost or market on a first-in first-out
basis and consist of:
<TABLE>
<CAPTION>
APRIL 30, 1998 JANUARY 31, 1998
<S> <C> <C>
Finished goods $ 35,283,830 $ 31,972,723
Raw materials and in process 980,069 1,204,841
Merchandise in transit 1,728,913 2,621,824
------------------ ---------------------
$ 37,992,812 $ 35,799,388
================== =====================
</TABLE>
3. LETTERS OF CREDIT FACILITIES
<TABLE>
<CAPTION>
APRIL 30, 1998 JANUARY 31, 1998
<S> <C> <C>
Total letters of credit facilities $ 60,000,000 $ 60,000,000
Borrowings (8,060,000) (3,000,000)
Outstanding letters of credit (22,896,084) (26,673,016)
------------------ ---------------------
Total Available $ 29,043,916 $ 30,326,984
================== =====================
</TABLE>
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards NO. 128 ("SFAS No. 128"), EARNINGS PER SHARE,
which changes the method of calculating earnings per share. SFAS No. 128
requires the presentation of "basic" net income per share and "diluted" net
income per share on the face of the income statement. Basic net income per share
is computed by dividing net income by the weighted average shares of outstanding
common stock. The calculations of diluted net income per share is similar to
basic earnings per share except that the denominator includes dilutive potential
common stock. The dilutive potential common stock included in the Company's
computation of diluted net income per share includes the effects of stock
options and warrants, as determined using the treasury stock method. SFAS No.
128 was effective for financial statements for periods ending after December 15,
1997. The Company adopted SFAS No. 128 in the fourth quarter of fiscal 1998 and
restated its net income per share for prior periods presented to give effect to
SFAS No. 128.
5. STOCKHOLDERS' EQUITY
The following is a schedule of the activity in common stock and additional
paid-in capital:
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------ ----------
SHARES AMOUNT PAID-IN CAPITAL
------ ------ ---------------
<S> <C> <C> <C>
Balance, February 1, 1998 6,555,681 $ 65,556 $ 27,598,618
Exercise of stock options 63,661 637 331,381
----------- -------------- -----------------
Balance, April 30, 1998 6,619,342 $ 66,193 $ 27,929,999
=========== ============== =================
</TABLE>
5
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITON AND
RESULTS OF OPERATIONS
Supreme International Corporation (the "Company") cautions readers that certain
important factors may affect the Company's actual results and could cause such
results to differ materially from any forward-looking statements which may be
deemed to have been made in this report or which are otherwise made by or on
behalf of the Company. For this purpose, any statements contained in this report
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
"may", "will", "expect", "believe", "anticipate", "intend", "could", "would",
"estimate", or "continue" or the negative other variations thereof or comparable
terminology are intended to identify forward-looking statements. Factors which
may affect the Company's results include, but are not limited to, risk related
to fashion trends; the retail industry; reliance on key customers; contract
manufacturing; foreign sourcing; imports and export restrictions; competition;
seasonality; rapid expansion of business; dependence on key personnel and other
factors discussed herein and in the Company's filings with the Securities and
Exchange Commission (the "Commission").
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1998 AS COMPARED TO THREE MONTHS ENDED APRIL 30,
1997.
Revenue for the three months ended April 30, 1998 increased $11.1 million or
22.3% to $61.1 million from $50.0 million. The increase in revenue was
principally the result of the growth in net sales.
Net sales for three months ended April 30, 1998 increased $11.2 million or 23.0%
to $60.0 million from $48.8 million for the three months ended April 30, 1997.
Approximately 75 percent of the increase in the current period is attributable
to the Munsingwear labels. Net sales were approximately $19.7 million for the
Munsingwear label for the quarter ended April 30, 1998, compared with
approximately $11.3 million for the comparable period in 1997. The remainder of
the increase for the quarter came from increases in other company brands. The
increase in brand label sales were partially offset, by a decrease in private
label sales.
Within revenues, the Company also reported royalty income of $1.0 million for
the quarter ended April 30, 1998 compared to $1.1 million during the same period
a year ago. The decline was primarily due to the Company's relationship with a
customer which shifted primarily from a license basis to a primarily sales
basis.
Cost of sales increased to $45.5 million for the three months ended April 30,
1998 from $37.0 million for the three months ended April 30, 1997, reflecting
the increased level of sales. As a percentage of net sales, cost of sales
decreased slightly to 75.7% for the three months ended April 30, 1998 from 75.8
percent for the three months ended April 30, 1997. Gross profit was $15.6
million for the three months ended April 30, 1998 as compared to $12.9 million
for the three months ended April 30, 1997.
6
<PAGE>
Selling, general and administrative expenses increased $1.9 million or 21.5%
from $8.8 million for the three months ended April 30, 1997 to $10.6 million for
the three months ended April 30, 1998. As a percentage of net sales, selling,
general and administrative expenses were 17.7 percent for the three months ended
April 30, 1998 and 17.9 percent for the three months ended April 30, 1997. The
increase in selling, general and administrative expenses in absolute dollar
terms is primarily attributable to an increase in sales and support services for
the growth and anticipated growth in sales volume as well as the costs related
to the termination of certain leases relating to the Company's former
facilities. The Company believes that it will be able to achieve greater
efficiencies in its new corporate and warehouse facility during the balance of
the fiscal year ending January 31. 1999.
Interest expense increased to $891,000 for the three months ended April 30,
1998, from $704,000 for the three months ended April 30, 1997. The increase
resulted from additional indebtedness incurred to support the increase in
receivables and inventory resulting from sales growth.
Income before income tax provision for the three months ended April 30, 1998 was
$4.1 million compared to income before taxes for the three months ended April
30, 1997 of $3.5 million. Net income for the three months ended April 30, 1998
was $2.6 million as compared to net income for the three months ended April 30,
1997 of $2.1 million. Basic net income per common share was computed using the
basic weighted shares outstanding of 6,585,168 and 6,530,470 at April 30, 1998
and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company entered into a revolving credit agreement in March 1998 with a group
of banks giving it the right to borrow $55 million or a portion thereof for its
general corporate purposes. This revolving credit agreement expires in April
2001 and replaced the previous revolving credit agreement which expired in
October 1997. Borrowings are limited under the terms of a borrowing base
calculation which generally restricts the outstanding balance to 85% of eligible
receivables plus 50% of eligible inventories, as defined. Interest on borrowings
is variable, at the Company's option, based on LIBOR plus 1.5% or the bank's
prime rate. The agreement contains certain covenants, the most restrictive of
which requires the Company to maintain certain financial and net worth ratios.
In addition, the agreement restricts the payment of dividends. The agreements
are secured by the Company's assets. The outstanding balance under these
revolving credit agreements as of April 30, 1998 and 1997 amounted to $38.4
million and $36.7 million, respectively.
7
<PAGE>
The Company also maintains three letters of credit facilities totaling $60.0
million. The letters of credit 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 minus 1.0% per annum. As of April 30, 1998, there was $29.0
million available under these facilities.
Cash flows used in operating activities were $4.7 million for the three months
ended April 30, 1998, principally representing cash used to finance increases in
accounts receivable of $6.5 million and an increase in inventories of $2.2
million offset by net income of $2.6 million. The increase in accounts
receivable is directly attributable to the increase in sales for the period and
the increase in inventory related to anticipated future period sales.
Cash flows used in investing activities were $1.9 million and $0.3 million for
the three months ended April 30, 1998 and 1997, respectively, representing
normal requirements for capital expenditures as well as the expenditures for the
new corporate and distribution facility in the three months ended April 30,
1998.
Cash flows provided by financing activities were $7.1 million for the three
months ended April 30, 1998 and were provided by net proceeds from long-term
debt of $1.7 million and borrowings under credit facilities of $5.0 million. For
the three months ended April 30, 1997, cash flows provided by financing
activities were $3.7 million, principally due to proceeds from long-term debt of
$12.5 million offset by payments on long term debt of $11.8 million and
borrowings of $2.9 million under credit facilities.
The Company has working capital of $68.8 million and $65.8 million at April 30,
1998 and January 31, 1998, respectively. The Company's current ratio was 5.4 at
April 30, 1998 compared to 7.9 at January 31, 1998.
Management believes that the combination of 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 in 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 three months ended April 30, 1998 and 1997.
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 only)
(b) Reports on Form 8-K - None
9
<PAGE>
SIGNATURE
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 15, 1998 By: /S/ROSEMARY B. TRUDEAU
-------------------------
Vice President of Finance
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-31-1999
<PERIOD-START> FEB-1-1998
<PERIOD-END> APR-30-1998
<CASH> 1,565,559
<SECURITIES> 0
<RECEIVABLES> 41,959,784
<ALLOWANCES> 0
<INVENTORY> 37,992,812
<CURRENT-ASSETS> 84,412,393
<PP&E> 6,505,611
<DEPRECIATION> 0
<TOTAL-ASSETS> 112,123,680
<CURRENT-LIABILITIES> 15,600,197
<BONDS> 0
0
0
<COMMON> 66,193
<OTHER-SE> 58,123,965
<TOTAL-LIABILITY-AND-EQUITY> 112,123,680
<SALES> 60,085,191
<TOTAL-REVENUES> 61,106,975
<CGS> 45,459,010
<TOTAL-COSTS> 45,459,010
<OTHER-EXPENSES> 10,646,848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 891,226
<INCOME-PRETAX> 4,109,891
<INCOME-TAX> 1,472,789
<INCOME-CONTINUING> 2,637,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,637,102
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.39
</TABLE>
