<PAGE> 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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-5869-1
SUPERIOR SURGICAL MFG. CO., INC.
Incorporated - New York Employer Identification No.
11-1385670
10099 Seminole Boulevard
Post Office Box 4002
Seminole, Florida 33775-0002
Telephone No.: 813-397-9611
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 7,890,752 common
shares outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
SUPERIOR SURGICAL MFG. CO., INC.
CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
1998 1997
--------------- ---------------
(Unaudited)
<S> <C> <C>
Net sales......................................... $ 37,432,507 $ 33,513,631
--------------- ---------------
Costs and expenses:
Cost of goods sold............................... $ 24,791,285 $ 22,243,695
Selling and administrative expenses.............. 8,902,639 8,045,282
Business process re-engineering costs 1,094,912
Interest expense................................. 192,550 304,598
--------------- ---------------
$ 34,981,386 $ 30,593,575
--------------- ---------------
Earnings before taxes on income................... $ 2,451,121 $ 2,920,056
Taxes on income................................... 890,000 1,095,000
--------------- ---------------
Net earnings...................................... $ 1,561,121 $ 1,825,056
=============== ===============
Weighted average number of shares out-
standing during the period (Basic)............... 7,871,098 Shs. 8,054,905 Shs.
(Diluted).............. 8,001,605 Shs. 8,115,932 Shs.
Basic earnings per common share.................. $ 0.20 $ 0.23
=============== ===============
Diluted earnings per common share................ $ 0.20 $ 0.22
=============== ===============
Cash dividends declared per common
share........................................... $ 0.125 $ 0.11
=============== ===============
</TABLE>
The results of the three months ended March 31, 1998 are not necessarily
indicative of results to be expected for the full year ending December 31, 1998.
See accompanying notes to summarized interim financial statements.
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SUPERIOR SURGICAL MFG. CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
---------------- ---------------
(1)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 5,785,046 $ 8,889,948
Accounts receivable and other current assets........ 27,603,605 26,722,727
Inventories*........................................ 45,585,662 42,523,009
---------------- ---------------
TOTAL CURRENT ASSETS............................ $ 78,974,313 $ 78,135,684
PROPERTY, PLANT AND EQUIPMENT........................ 26,544,928 26,772,477
EXCESS OF COST OVER FAIR VALUE OF
ASSETS ACQUIRED................................... 2,854,081 813,626
OTHER ASSETS......................................... 2,678,882 2,633,068
---------------- ---------------
$ 111,052,204 $ 108,354,855
================ ===============
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable.................................... $ 9,612,113 $ 6,806,955
Other current liabilities........................... 6,365,592 5,297,452
Current portion of long-term debt................... 2,266,667 2,266,667
---------------- ---------------
TOTAL CURRENT LIABILITIES....................... $ 18,244,372 $ 14,371,074
LONG-TERM DEBT....................................... 13,050,000 13,466,666
DEFERRED INCOME TAXES................................ 2,360,000 2,400,000
SHAREHOLDERS' EQUITY................................. 77,397,832 78,117,115
---------------- ---------------
$ 111,052,204 $ 108,354,855
================ ===============
</TABLE>
* Inventories consist of the following:
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(Unaudited) 1997
---------------- ---------------
<S> <C> <C>
Finished goods............................. $ 27,566,187 $ 25,835,299
Work in process............................ 4,857,226 4,627,273
Raw materials.............................. 13,162,249 12,060,437
---------------- ---------------
$ 45,585,662 $ 42,523,009
================ ===============
</TABLE>
(1) The balance sheet as of December 31, 1997 has been taken from the audited
financial statement as of that date and has been condensed.
See accompanying notes to summarized interim financial statements.
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SUPERIOR SURGICAL MFG. CO., INC.
CONSOLIDATED SUMMARY OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------
1998 1997
----------------- ----------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings.................................................... $ 1,561,121 $ 1,825,056
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization................................. 959,947 1,090,109
Other......................................................... 83,863
Deferred income taxes......................................... (40,000) 90,000
Changes in assets and liabilities:
Accounts receivable and other current
assets...................................................... (880,878) (621,474)
Inventories.................................................. (3,062,653) (2,663,586)
Accounts payable ............................................ 2,805,158 1,092,931
Other current liabilities.................................... 1,068,140 (114,564)
----------------- ----------------
Net cash flows provided from operating
activities.................................................. $ 2,494,698 $ 698,472
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, and equipment - net.............. $ (789,256) $ (395,735)
Goodwill acquired.............................................. (2,067,461)
Other assets................................................... (45,814) (91,107)
----------------- ----------------
Net cash (used) in investing activities........................ $ (2,902,531) $ (486,842)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Declaration of cash dividends.................................. $ (979,363) $ (885,957)
Reduction in Long-Term Debt.................................... (416,666) (416,667)
Common stock acquired and retired.............................. (1,780,701)
Proceeds received on exercised stock options................... 479,661 67,012
----------------- ----------------
Net cash (used) in financing activities........................ $ (2,697,069) $ (1,235,612)
----------------- ----------------
Net (decrease) in cash and cash
equivalents................................................... $ (3,104,902) $ (1,023,982)
Cash and cash equivalents balance,
beginning of year.............................................. 8,889,948 4,718,632
----------------- ----------------
Cash and cash equivalents balance,
end of period.................................................. $ 5,785,046 $ 3,694,650
================= ================
</TABLE>
See accompanying notes to summarized interim financial statements.
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SUPERIOR SURGICAL MFG. CO., INC.
NOTES TO SUMMARIZED INTERIM FINANCIAL STATEMENTS
Note 1 - Summary of Significant Interim Accounting Policies:
a) Recognition of costs and expenses
Costs and expenses other than product costs are charged to income in interim
periods as incurred, or allocated among interim periods based on an estimate of
time expired, benefit received or activity associated with the periods.
Procedures adopted for assigning specific cost and expense items to an interim
period are consistent with the basis followed by the registrant in reporting
results of operations at annual reporting dates. However, when a specific cost
or expense item charged to expense for annual reporting purposes benefits more
than one interim period, the cost or expense item is allocated to the interim
periods.
b) Inventories
Inventories at interim dates are determined by using both perpetual records and
gross profit calculations.
c) Accounting for income taxes
The provision for income taxes is calculated by using the effective tax rate
anticipated for the full year.
d) Earnings per share
The Company adopted the provisions of the Financial Accounting Standards Board
Opinion No. 128, "Earnings Per Share," ("FAS 128"), during the fourth quarter of
1997, as required. Historic basic per share data under FAS 128 is based on the
weighted average number of shares outstanding. Historical diluted per share data
under FAS 128 is reconciled by adding to weighted average shares outstanding the
dilutive impact of the exercise of outstanding stock options. The weighted
average number of shares outstanding during 1998 and 1997 were 7,871,098 and
8,054,905, respectively. Dilutive potential common shares were 130,507 and
61,027, respectively.
e) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
f) New Accounting Pronouncements
Comprehensive Income. In June of 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS 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.,
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supplemental stock offering) and distributions to owners (e.g., dividends). This
statement is effective for financial statement periods beginning after December
15, 1997. As of March 31, 1998, there are no items requiring separate disclosure
in accordance with this statement.
Operating Segments. In June of 1997, the FASB issued SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131 requires
disclosures of certain information about operating segments and about products
and services, geographic areas in which the Company operates, and their major
customers. The Company has evaluated the effect of this new standard and has
determined that currently they operate in one segment, as defined in this
statement.
Note 2 - Acquisition:
Effective January 2, 1998, the Company acquired the net assets of J & L Group,
Inc. ("J&L"), a manufacturer of embroidered sportswear, with revenues for the
year ended December 1997 of approximately $6,700,000.
The interim information contained above is not certified or audited; it reflects
all adjustments (consisting of normal recurring accruals) which are, in the
opinion of management, necessary to a fair statement of the operating results
for the periods presented, stated on a basis consistent with that of the audited
financial statements.
The financial information included in this form has been reviewed by Deloitte &
Touche LLP, independent certified public accountants; such review was made in
accordance with established professional standards and procedures for such a
review.
All financial information has been prepared in accordance with the accounting
principles or practices reflected in the financial statements for the year ended
December 31, 1997, filed with the Securities and Exchange Commission. Reference
is hereby made to registrant's Financial Statements for 1997, heretofore filed
with registrant's Form 10-K.
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Board of Directors
Superior Surgical Mfg. Co., Inc.
Seminole, Florida
We have reviewed the accompanying condensed consolidated balance sheet of
Superior Surgical Mfg. Co., Inc. (the "Company") as of March 31, 1998 and the
condensed consolidated summaries of operations and cash flows for the
three-months ended March 31, 1998 and 1997. This condensed financial
information is the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted 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 them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Superior Surgical Mfg. Co., Inc.
as of December 31, 1997, and the related consolidated statements of earnings,
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 19, 1998, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1997 is fairly stated, in all material respects, in relation
to the balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Tampa, Florida
April 27, 1998
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ITEM 2. Management's Discussion And Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Net sales of the registrant have increased by 12%, from $33,513,631 to
$37,432,507, due to new customers and new uniform programs.
Cost of goods sold approximated 66.3% for the three months ended March 31, 1998
and 1997.
Selling and administrative expenses, as a percentage of sales, were
approximately 23.9% for the first three months of 1998 and 1997.
Interest expense of $192,550 for the three month period ended March 31, 1998
decreased 37% from $304,598 for the similar period ended March 31, 1997 due to
more cash balances invested in cash equivalents in 1998.
Net earnings decreased 14% to $1,561,121 for the three months ended March 31,
1998 as compared to net earnings of $1,825,056 for the same period ended March
31, 1997. 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 1998 commitment to
business process re-engineering activities (integrated SAP systems). This charge
on an after-tax basis approximates $.09 per share. The Company expects that for
the balance of 1998 additional re-engineering process charges will be incurred
as we conclude our project. The total pre-tax charge for such matters is
expected to approximate $3,500,000 - $4,000,000 and will be significantly
completed by the end of 1998. The actual charges may differ from the amount
estimated based upon changes in the cost of hardware, software and
implementation. The effects of the re-engineering process had no material impact
on operational results earlier reported upon.
Accounts receivable and other current assets increased 3% from $26,722,727 on
December 31, 1997 to $27,603,605 as of March 31, 1998, primarily due to
increased sales.
Inventories as of March 31, 1998 increased 7% to $45,585,662 from $42,523,009 on
December 31, 1997 mainly to support expected customer demand.
Accounts payable increased 41% from $6,806,955 on December 31, 1997 to
$9,612,113 on March 31, 1998 primarily due to increases in purchases of
inventories.
The registrant's current portion of long-term debt of $2,266,667 is unchanged,
and its long-term debt of $13,050,000 reflects first quarter principal reduction
payments for March 31, 1998, as compared to December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $3,104,902 from $8,889,948 on December
31, 1997 to $5,785,046 as of March 31, 1998. The change is a result of the
acquisition of the J & L Group, acquiring inventories and principal reductions
of long-term debt. Additionally, as of March 31, 1998, under its existing
revolving Credit Agreement, the registrant had $10,000,000 available to it. The
registrant has operated without hindrance or restraint with its present working
capital, as income generated from operations and outside sources of credit, both
trade and institutional, have been more than adequate.
In the foreseeable future, the registrant will continue its ongoing capital
expenditure program designed to maintain and improve its facilities. The
registrant at all times evaluates its capital expenditure program in light of
prevailing economic conditions. The registrant believes that its cash flow from
operating activities together with other capital resources and funds from credit
sources will be adequate to meet all of its funding requirements for the
remainder of the year and for the foreseeable future.
This quarterly report contains certain forward-looking statements that involve a
number of risks and uncertainties. Among the factors that could cause actual
results to differ materially are the following - general economic conditions in
the areas of the United States in which the Company's customers are located;
changes in the healthcare, resort and commercial industries where uniforms and
service apparel are worn; the impact of competition; and the availability of
manufacturing materials.
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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
15 Letter re: unaudited interim financial information.
27 Financial Data Schedule for the quarter ended March 31, 1998
(for SEC use only).
b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 1, 1998 SUPERIOR SURGICAL MFG. CO., INC.
By /s/ Gerald M. Benstock
--------------------------------------
Gerald M. Benstock
Chairman and Chief Executive Officer
By /s/ Saul Schechter
--------------------------------------
Saul Schechter
Executive Vice President, Treasurer
And Principal Accounting Officer
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EXHIBIT 15
LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
Board of Directors
Superior Surgical Mfg. Co., Inc.
Seminole, Florida
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Superior Surgical Mfg. Co., Inc. for the periods ended March 31,
1998 and 1997, as indicated in our report dated April 27, 1998; because we did
not perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, is
incorporated by reference in Registration Statement No. 2-85796 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Tampa, Florida
April 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 5,785,046
<SECURITIES> 0
<RECEIVABLES> 27,603,605
<ALLOWANCES> 0
<INVENTORY> 45,585,662
<CURRENT-ASSETS> 78,974,313
<PP&E> 26,544,928
<DEPRECIATION> 0
<TOTAL-ASSETS> 111,052,204
<CURRENT-LIABILITIES> 18,244,372
<BONDS> 13,050,000
0
0
<COMMON> 8,001,605
<OTHER-SE> 79,757,832
<TOTAL-LIABILITY-AND-EQUITY> 111,052,204
<SALES> 37,432,507
<TOTAL-REVENUES> 0
<CGS> 24,791,285
<TOTAL-COSTS> 34,981,386
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 192,550
<INCOME-PRETAX> 2,451,121
<INCOME-TAX> 890,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,561,121
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
