<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] 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 I.R.S. Employer Identification
No. 11-1385670
10099 Seminole Blvd.
Seminole, Florida 33772
Telephone (727) 397-9611
Securities registered pursuant to Section 12(b) of the Act:
Common Shares with a par value Listed on
of $.001 each American Stock Exchange
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ____
As of March 19, 1999, 7,847,627 common shares were outstanding, and the
aggregate market value of the registrant's common shares held by non-affiliates
was approximately $66 million (based on the closing price of the registrant's
common shares on the American Stock Exchange on said date).
Documents Incorporated by Reference:
Registrant's Proxy Statement to be filed on or before March 30, 1999,
for its Annual Meeting of Shareholders to be held May 7, 1999, is incorporated
by reference to furnish the information required by Items 10, 11, 12 and 13 of
Part III.
Exhibit index may be found on Page 22.
Page 1
<PAGE> 2
PART I
Item 1. Business
(a) Superior Uniform Group, Inc. ("registrant" or the "Company") was
organized in 1920 and was incorporated in 1922 as a New York
company under the name Superior Surgical Mfg. Co., Inc. In 1998,
the Company changed its state of incorporation to Florida.
Registrant's business has not changed in any significant way
during the past five years.
(b) Although registrant operates, for selling, promotional and other
reasons through various divisions, nevertheless there are no
significant distinct segments or lines of business; over 95% of
registrant's business consists of the sale of uniforms and service
apparel, and miscellaneous products directly related thereto.
(c) Registrant manufactures and sells a wide range of apparel and
accessories for the medical and health fields as well as for the
industrial, commercial, leisure, and public safety markets. Its
principal products are:
1. Uniforms and service apparel for personnel of:
A) Hospitals and health facilities;
B) Hotels, commercial buildings, residential buildings, and
food service facilities;
C) General and special purpose industrial uses;
D) Commercial enterprises (career apparel for banks, airlines,
etc.);
E) Public and private safety and security organizations;
F) Miscellaneous service uses.
2. Miscellaneous products directly related to:
A) Uniforms and service apparel specified above (e.g. operating
room masks, boots, and sheets);
B) Linen suppliers and industrial launderers, to whom a
substantial portion of the registrant's uniforms and service
apparel are sold; such products being primarily industrial
laundry bags.
3. Corporate and resort embroidered sportswear.
Uniforms and service apparel account for 90-95% of total sales
and revenues; no other single class of product listed above
accounts for more than 10% of total sales and revenues.
Registrant competes with national and regional manufacturers
and also with local firms in most major metropolitan areas.
Industry statistics are not available, but the registrant
believes that it is one of the leading suppliers of garments to
hospitals and industrial clean rooms, hotels and motels, food
service establishments and uniforms to linen suppliers.
Registrant experiences competition primarily in the areas of
product development, styling and pricing.
Registrant competes with more than three dozen firms including
divisions of larger corporations. The nature and degree of
competition varies with the customer and market where it
occurs.
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Registrant has a substantial number of customers, the largest
of which accounted for no more than 5% of registrant's 1998
sales. Although registrant at all times has a substantial
backlog of orders, registrant does not consider this
significant since its backlog of orders at any time consists
primarily of recurrent firm orders being processed and filled.
Registrant normally completes shipments of orders from stock
between 1 and 2 weeks after their receipt. As of February 26,
1999, the backlog of all orders was approximately $6,700,000,
compared to approximately $8,500,000 a year earlier.
Registrant markets itself to its customers as a "stock house".
Therefore, registrant at all times carries substantial
inventories of raw materials (principally piece goods) and
finished garments which requires substantial working capital.
Registrant's principal raw materials are textile products,
generally available from a number of sources.
While registrant owns and uses several trademarks, its mark
"Fashion Seal Uniforms" (presently registered to August 7,
2007, subject to renewal) is important since more than 50% of
registrant's products are sold under that name. In view of the
nature of registrant's business, compliance with Federal,
state, or local laws regulating the discharge of materials into
the environment, or otherwise relating to the protection of the
environment, has had no material effect upon its operations or
earnings. Substantially all of registrant's business is
non-seasonal in nature. The registrant has approximately 1,800
employees.
Item 2. Properties
The Company has an ongoing program designed to maintain and improve
its facilities. Generally, all properties are in satisfactory condition. The
Company's properties are currently fully utilized (except as otherwise noted),
and have aggregate productive capacity to meet registrant's present needs as
well as those of the foreseeable future. The material manufacturing locales are
rented for nominal amounts due to cities providing incentives for manufacturers
to locate in their area - all such properties may be purchased for nominal
amounts. As a result, it is believed that the subject lease expirations and
renewal terms thereof are not material.
(a) Seminole, Florida - Plant of approximately 60,000 square feet
owned by the registrant; used as principal administrative office
and for warehousing and shipping, as well as the corporate design
center.
(b) Eudora, Arkansas - Plant of approximately 217,000 square feet,
partially leased from the City of Eudora under lease requiring
payment of only a nominal rental; used for manufacturing,
warehousing, and shipping.
(c) Lake Village, Arkansas - Plant of approximately 35,000 square
feet, leased from the City of Lake Village under lease requiring
payment of only a nominal amount; used for manufacturing.
(d) Tampa, Florida - Plant of approximately 111,000 square feet, owned
by the registrant; used for regional administrative offices,
warehousing, shipping and small retail operation.
(e) Miami, Florida - Plant of approximately 9,000 square feet, leased
from private owners under a lease expiring in 2002; used for
regional sales office, warehousing, shipping, and small retail
operation.
I-2 Page 3
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(f) McGehee, Arkansas - Plant of approximately 26,000 square feet,
leased from the City of McGehee under lease requiring payment of
only a nominal rental; used for manufacturing.
(g) Marietta, Georgia - Plant and warehouse of approximately 26,000
square feet leased from private owners.
(h) Memphis, Tennessee - Plant of approximately 4,000 square feet,
leased from private owners under lease expiring 2002; used for
warehousing, shipping and retail sales.
(i) Miscellaneous - New Orleans, Louisiana, sales office - leased;
Burbank, California, sales office - leased; Las Vegas, Nevada,
warehouse and sales office - leased; Atlanta, Georgia, warehouse
and sales office - leased; San Antonio, Texas, sales office -
leased; Yazoo City, Mississippi, used for manufacturing - leased;
Hamburg, Arkansas, used for manufacturing - owned; Delhi,
Louisiana, used for manufacturing - leased; Lexington,
Mississippi, used for manufacturing - owned.
Item 3. Legal Proceedings
None.
I-3 Page 4
<PAGE> 5
Item 4. Submission of Matters to a Vote of Security Holders
(a) None
PART II
Item 5. Market Price of and Dividends on Registrant's Common Equity and
Related Stockholder Matters.
The principal market on which registrant's common shares are traded is
the American Stock Exchange; said shares have also been admitted to
unlisted trading on the Midwest Stock Exchange.
The table below presents, for registrant's common shares, dividend
information and high and low sales prices as reported in the
consolidated transaction reporting system of the American Stock
Exchange.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------------------
1998 1997
----------------------------------------------- --------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
------- ------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Shares:
High $17-1/2 $18-5/8 $16-3/4 $14-3/4 $14-3/8 $13 $16-3/4 $16
Low $15-1/4 $15-5/16 $12-3/8 $11-5/8 $12-7/8 $11 $11-3/8 $13-1/2
Dividends (total
for 1998-$.51;
1997-$.455) $.125 $.125 $.125 $.135 $.11 $.11 $.11 $.125
</TABLE>
Long-term debt agreements of the registrant include covenants which,
among other things, restrict dividends payable. Under the most restrictive debt
agreement, retained earnings of approximately $18,248,000 were available at
December 31, 1998 for declaration of dividends. Registrant expects that, so
long as earnings and business conditions warrant, it will continue to pay
dividends and that the amount thereof, as such conditions permit, and as the
Directors approve, will increase from time to time.
On March 19, 1999, registrant had 394 shareholders of record and the
closing price for registrant's common shares on the American Stock Exchange was
$13.00 per share.
I-4, II- 1 Page 5
<PAGE> 6
Item 6.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $160,717,583 $144,607,048 $141,420,626 $135,197,798 $135,067,397
------------ ------------ ------------ ------------ ------------
Costs and expenses:
Cost of goods sold 106,620,626 96,213,237 93,897,373 91,169,728 89,308,729
Selling and administrative
expenses 36,991,002 32,903,249 32,333,924 30,162,203 28,537,946
Business process re-
engineering charge 3,474,391 -- -- -- --
Provision for dispute
settlement -- -- -- 4,250,000 --
Interest expense 1,115,724 1,100,553 1,295,233 968,830 959,715
------------ ------------ ------------ ------------ ------------
148,201,643 130,217,039 127,526,530 126,550,761 118,806,390
------------ ------------ ------------ ------------ ------------
Earnings before taxes on
income 12,515,940 14,390,009 13,894,096 8,647,037 16,261,007
Taxes on income 4,570,000 5,220,000 5,200,000 4,885,000 6,180,000
Net earnings $ 7,945,940 $ 9,170,009 $ 8,694,096 $ 3,762,037 $ 10,081,007
============ ============ ============ ============ ============
Basic earnings per common
share $1.01 $1.15 $1.07 $0.45 $1.17
============ ============ ============ ============ ============
Diluted earnings per common
share $1.00 $1.14 $1.07 $0.45 $1.17
============ ============ ============ ============ ============
Cash dividends per common
share $0.51 $0.455 $0.38 $0.36 $0.32
============ ============ ============ ============ ============
At year end:
Total assets $119,038,910 $108,354,855 $105,659,094 $106,133,637 $104,864,385
------------ ------------ ------------ ------------ ------------
Long-term debt $ 17,600,000 $ 13,466,666 $ 15,733,333 $ 18,000,000 $ 18,600,000
------------ ------------ ------------ ------------ ------------
Working capital $ 67,040,464 $ 63,764,610 $ 60,242,628 $ 55,081,842 $ 64,295,804
------------ ------------ ------------ ------------ ------------
Shareholders' equity $ 80,503,405 $ 78,117,115 $ 74,156,424 $ 69,517,878 $ 70,937,920
------------ ------------ ------------ ------------ ------------
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OPERATIONS: In 1998 and 1997, net sales increased 11% and 2%, respectively. The
increases were attributed to the continuation of new uniform programs (the
Company manufactures and sells a wide range of uniforms, career apparel and
accessories for the hospital and healthcare fields; hotels; fast food and other
restaurants; and public safety, industrial, transportation and commercial
markets as well as corporate and resort embroidered sportswear). The 1998
increase was also attributed to the acquisition of Sope Creek in January of
1998.
As a percent of sales, cost of goods sold were 66.3% in 1998, 66.5% in 1997,
and 66.4% in 1996. The decrease in 1998 was primarily the result of increased
manufacturing efficiencies.
Selling and administrative expenses increased by 12% in 1998 and 2% in 1997.
The increases were primarily attributable to increases in costs associated with
the Company's growth in sales.
II-2 Page 6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONT'D)
As a percentage of sales, selling and administrative expenses have not changed
significantly over the past several years and no material change is expected in
1999.
Included in earnings for the year ended December 31, 1998 are pre-tax charges
(in accordance with an Emerging Issues Task Force Consensus issued November 20,
1997) in the amount of $3,474,391, as part of our 1998 commitment to business
process re-engineering activities (integrated SAP systems). The business
process re-engineering activities extend across substantially all operating
processes of the Company's business, including inventory management,
manufacturing, sales and distribution, and human resources. The Company will be
utilizing SAP's R/3 product along with apparel specific enhancements in the
apparel/footwear solution. The Company expects to be on the leading edge of
integrated business process technology in the apparel industry. The costs
associated with the charge consist primarily of charges from external
consultants assisting with the implementation and external costs associated
with training users. The Company expects that the project will be completed
during the second quarter of 1999 and that the total remaining charge
associated with the project will not be significant.
Interest expense as a percentage of sales was 0.7% in 1998, 0.8% in 1997; and
in 1996 was 0.9%. The decreases in 1998 and 1997 were due to reduced fixed rate
long-term debt, offset by higher borrowings outstanding on the long-term
revolving credit agreement in 1998.
The effective income tax rate in 1998 was 36.5%; in 1997 it was 36.3%; and in
1996, it was 37.4%.
In 1998, the Company reported net income of 4.9% of sales with a return of 10%
on average shareholders' equity. Excluding the impact of the pre-tax charge
discussed above, these amounts would have been 6.3% and 12.8%, respectively. In
1997, the Company reported net income of 6.3% of sales with a return of 12.0%
on average equity; for 1996, the corresponding figures were 6.2% and 12.1%.
LIQUIDITY AND CAPITAL RESOURCES: The Company uses a number of standards for its
own purposes in measuring its liquidity: working capital, profitability ratios,
long-term debt as a percentage of long-term debt and equity, and activity
ratios. In its computations, as in this report, all inventory figures are on a
FIFO basis.
The working capital of the Company in 1998 was $67,040,464 and the working
capital ratio 4.6:1; for 1997, it was $63,764,610 and the ratio 5.4:1. The
Company has operated without hindrance or restraint with its present working
capital, believing that income generated from operations and outside sources of
credit, both trade and institutional, are more than adequate to fund the
Company's operations.
In 1998, the Company's percentage of long-term debt to long-term debt and
equity was 19.8%; and in 1997, it was 16.8%.
The Company has an on-going capital expenditure program designed to maintain
and improve its facilities. Capital expenditures were approximately $6,260,000,
$2,240,000, and $2,625,000, in the years 1998, 1997 and 1996, respectively.
Capital expenditures for 1998 included approximately $4,900,000 related to the
acquisition and implementation of new computer hardware and software. The
Company at all times evaluates its capital expenditure programs in light of
prevailing economic conditions.
In 1996, the accumulation of cash balances which would normally be placed in
cash equivalents were depleted significantly by the one-time payment of
$6,500,000 to settle the government dispute. In addition, the repurchase of
80,000 common shares of the Company's
II-3 Page 7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONT'D)
stock had the effect of decreasing cash balances by approximately $965,000. In
1997, cash and cash equivalents increased by approximately $4,200,000 due
primarily to scheduled reductions in long-term debt of approximately
$2,300,000, the repurchase of 151,900 common shares of the Company's stock for
a net impact of approximately $1,970,000, and the offset of cash flows from
operating activities. Cash and cash equivalents decreased by approximately
$8,400,000 during 1998. This decrease is attributed to scheduled reductions of
fixed rate long-term debt offset by additional borrowings under the Company's
long-term revolving credit agreement, the repurchase of 168,700 common shares
of the Company's stock for a net impact of approximately $2,435,000,
approximately $8,330,000 utilized in investing activities primarily for the
computer system implementation, the acquisition of Sope Creek and recurring
fixed asset additions, offset by approximately $1,380,000 of cash generated
from operations.
As of December 31, 1998, under its existing $10,000,000 revolving credit
agreement, the Company had available to it approximately $1,965,000. In
addition, under the most restrictive terms of its agreements with its lenders,
the Company could avail itself of $6,000,000 in short-term credit (see Note 6
of Notes to Financial Statements). The revolving credit agreement 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 ($55,000,000), working
capital ratio (2.5:1) and payment of dividends. On December 31, 1998, under the
most restrictive terms of the debt agreements, retained earnings of
approximately $18,248,000 were available for declaration of dividends. The
Company is currently in full compliance with all terms, conditions and
covenants of its various credit agreements. With funds from such credit
facility, anticipated cash flows generated from operations and other credit
sources readily available, the Company believes that its liquidity is
satisfactory, its working capital adequate and its capital resources sufficient
for funding its ongoing capital expenditure program and its operations,
including planned expansion for 1999.
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
II-4 Page 8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONT'D)
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.
The cost to repair or replace affected systems, exclusive of the SAP R/3
implementation, is estimated at $670,000. Of this amount approximately $270,000
has been incurred and expensed as of December 31, 1998. 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.
Statements contained in this Annual Report contain 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; the availability of manufacturing materials; and the impact of
Year 2000 issues.
II-5 Page 9
<PAGE> 10
Item 8 - Financial Statements and Supplementary Data
SUPERIOR UNIFORM GROUP, INC.
STATEMENTS OF EARNINGS
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $160,717,583 $144,607,048 $141,420,626
------------ ------------ ------------
Costs and expenses:
Cost of goods sold 106,620,526 96,213,237 93,897,373
Selling and administrative expenses 36,991,002 32,903,249 32,333,924
Business process re-engineering charge 3,474,391 -- --
Interest expense 1,115,724 1,100,553 1,295,233
------------ ------------ ------------
148,201,643 130,217,039 127,526,530
------------ ------------ ------------
Earnings before taxes on income 12,515,940 14,390,009 13,894,096
Taxes on income 4,570,000 5,220,000 5,200,000
------------ ------------ ------------
Net earnings $ 7,945,940 $ 9,170,009 $ 8,694,096
============ ============ ============
Basic earnings per common share $1.01 $1.15 $1.07
============ ============ ============
Diluted earnings per common share $1.00 $1.14 $1.07
============ ============ ============
Dividends per common share $0.51 $0.455 $0.38
============ ============ ============
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Additional Total
Common Common Paid-In Retained Shareholders'
Shares Stock Capital Earnings Equity
--------- ------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 8,133,552 $8,134 $ 9,877,548 $59,632,196 $69,517,878
Net earnings 8,694,096 8,694,096
Purchase and retirement of common shares (80,000) (80) (97,154) (867,566) (964,800)
Cash dividends declared ($.38 per share) (3,090,750) (3,090,750)
--------- ------ ----------- ----------- -----------
Balance, December 31, 1996 8,053,552 8,054 9,780,394 64,367,976 74,156,424
Net earnings 9,170,009 9,170,009
Common shares issued upon
exercise of options 34,850 35 374,484 374,519
Purchase and retirement of common shares (151,900) (152) (187,190) (1,778,886) (1,966,228)
Cash dividends declared ($.455 per share) (3,617,609) (3,617,609)
--------- ------ ----------- ----------- -----------
Balance, December 31, 1997 7,936,502 7,937 9,967,688 68,141,490 78,117,115
Net earnings 7,945,940 7,945,940
Common shares issued upon exercise
of options 78,725 79 907,494 907,573
Purchase and retirement of common shares (168,700) (169) (218,022) (2,217,294) (2,435,485)
Cash dividends declared ($.51 per share) (4,031,738)
--------- ------ ----------- ----------- -----------
Balance, December 31, 1998 7,846,527 $7,847 $10,657,160 $69,838,398 $80,503,405
--------- ------ ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
II-6 Page 10
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SUPERIOR UNIFORM GROUP, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 514,001 $ 8,889,948
Accounts receivable, less allowance for doubtful accounts of $250,000 32,547,966 25,585,915
Inventories 50,761,088 42,523,009
Prepaid expenses and other current assets 1,887,914 1,136,812
------------ ------------
TOTAL CURRENT ASSETS 85,710,969 78,135,684
PROPERTY, PLANT AND EQUIPMENT, NET 27,934,411 26,772,477
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED 2,773,063 813,626
OTHER ASSETS 2,620,467 2,633,068
------------ ------------
$119,038,910 $108,354,855
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,659,144 $ 6,806,955
Accrued expenses 5,008,606 4,380,174
Taxes on income 736,088 917,278
Current portion of long-term debt 2,266,667 2,266,667
------------ ------------
TOTAL CURRENT LIABILITIES 18,670,505 14,371,074
LONG-TERM DEBT 17,600,000 13,466,666
DEFERRED INCOME TAXES 2,265,000 2,400,000
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value - authorized 300,000 shares (none issued) -- --
Common stock, $.001 par value - authorized 50,000,000 shares, issued
and outstanding - 7,846,527 and 7,936,502, respectively 7,847 7,937
Additional paid-in capital 10,657,160 9,967,688
Retained earnings 69,838,398 68,141,490
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 80,503,405 78,117,115
------------ ------------
$119,038,910 $108,354,855
============ ============
</TABLE>
See Notes to Financial Statements.
II-7 Page 11
<PAGE> 12
SUPERIOR UNIFORM GROUP, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 7,945,940 $ 9,170,009 $ 8,694,096
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 4,543,881 4,427,422 4,354,477
Deferred income taxes (135,000) (230,000) 1,320,000
Changes in assets and liabilities, net of acquisition:
Accounts receivable (6,059,297) (2,318,678) 1,515,980
Inventories (7,080,644) 1,589,959 (3,023,020)
Prepaid expenses and other current assets (751,102) 146,316 (190,245)
Accounts payable 3,511,986 389,816 (213,469)
Accrued expenses (413,880) 271,972 1,047,184
Liability for dispute settlement - - (6,500,000)
Taxes on income (181,190) 569,949 (166,804)
----------- ----------- -----------
Net cash flows provided by operating activities 1,380,694 14,016,765 6,838,199
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (6,259,024) (2,241,544) (2,623,072)
Disposals of property, plant and equipment 753,254 41,689 12,435
Purchase of business, net of cash acquired (2,837,155) -- --
Other assets 12,601 (169,609) (274,933)
----------- ----------- -----------
Net cash used in investing activities (8,330,324) (2,369,464) (2,885,570)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 6,400,000 -- --
Repayment of long-term debt (2,266,667) (2,266,667) (600,000)
Declaration of cash dividends (4,031,738) (3,617,609) (3,090,750)
Proceeds received on exercise of stock options 907,573 374,519 --
Common stock reacquired and retired (2,435,485) (1,966,228) (964,800)
----------- ----------- -----------
Net cash used in financing activities (1,426,317) (7,475,985) (4,655,550)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (8,375,947) 4,171,316 (702,921)
Cash and cash equivalents balance, beginning of year 8,889,948 4,718,632 5,421,553
Cash and cash equivalents balance, end of year $ 514,001 $ 8,889,948 $ 4,718,632
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
II-8 Page 12
<PAGE> 13
SUPERIOR UNIFORM GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a) BUSINESS DESCRIPTION--The Company manufactures and sells a wide range of
apparel and accessories for the medical and health fields as well as for
the industrial, leisure and public safety markets. Revenue recognition from
the sale of products is recorded at the time the finished goods are
shipped.
b) BASIS OF PRESENTATION--On May 8, 1998, the shareholders of the Company
approved a Plan of Merger between the Company and its wholly-owned
subsidiary Superior Uniform Group, Inc., a Florida corporation. Superior
Uniform Group, Inc. is the surviving corporation. Concurrent with the
merger, the capitalization of the Company was revised to change the par
value of the common stock from $1 par value to $.001 par value. All share
and per share amounts in the accompanying financial statements have been
retroactively adjusted to reflect this change.
c) CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments with an original maturity of three months or less at the time
of purchase to be cash equivalents.
d) INVENTORIES--Inventories are stated at the lower of cost (first-in,
first-out method) or market.
e) PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Major renewals and improvements are capitalized, while replacements,
maintenance and repairs which do not improve or extend the life of the
respective assets are expensed currently. Costs of assets sold or retired
and the related accumulated depreciation and amortization are eliminated
from accounts and the net gain or loss is reflected in the statement of
earnings.
f) EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED--Excess costs over fair
value of assets acquired arising prior to 1972 (approximately $742,000) are
being carried until such time as there may be evidence of diminution of
value or the term of existence of such value becomes limited. The Company's
policy is to amortize excess costs arising subsequent to 1971 between 20
and 40 years.
g) IMPAIRMENT OF LONG-LIVED ASSETS--The Company evaluates the carrying amount
of long-lived assets to be held and used, including excess of cost over
fair value of assets acquired, when events and circumstances warrant such a
review. The carrying amount of a long-lived asset is considered impaired
when the estimated undiscounted cash flow from each asset is estimated to
be less than its carrying amount.
h) DEPRECIATION AND AMORTIZATION--Plants and equipment are depreciated on the
straight-line basis at 2-1/2% to 5% for buildings, 2-1/2% to 20% for
improvements, 10% to 20% for machinery, equipment and fixtures and 20% to
33-1/3% for transportation equipment. Leasehold improvements are amortized
over the terms of the leases inasmuch as such improvements have useful
lives equivalent to the terms of the respective leases.
i) EMPLOYEE BENEFITS--Pension plan costs are funded currently based on
actuarial estimates, with prior service costs amortized over 20 years. The
Company has no post-retirement benefit plans other than pensions.
j) TAXES ON INCOME--The Company computes taxes currently payable upon
determination of taxable income which differs from pre-tax financial
statement income. Deferred taxes are provided on this difference, primarily
the effect of computing depreciation of plant and equipment by accelerated
methods for tax purposes and by the straight-line method for financial
reporting purposes.
k) 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. Historical 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.
l) COMPREHENSIVE INCOME--The Company adopted the provisions of FAS 130,
"Reporting Comprehensive Income" in the first quarter of 1998. FAS 130
requires disclosures of comprehensive income including per-share amounts in
addition to the existing statement of earnings. 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).
For the year ending December 31, 1998, there are no items requiring
separate disclosure in accordance with this statement.
m) OPERATING SEGMENTS--The Company adopted the provisions of FAS 131
"Disclosures about Segments of an Enterprise and Related Information." in
the first quarter of 1998. FAS 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.
II-9 Page 13
<PAGE> 14
n) 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.
NOTE 2 - ACQUISITION OF SOPE CREEK DIVISION:
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 acquisition was accounted
for under the purchase method of accounting and the purchase price of
$2,873,929 was allocated as follows:
<TABLE>
<S> <C>
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
==========
</TABLE>
NOTE 3 - BUSINESS PROCESS RE-ENGINEERING CHARGE:
The statement of earnings for the year ended December 31, 1998 includes pre-tax
charges (in compliance with an Emerging Issues Task Force Consensus issued
November 20, 1997) in the amount of $3,474,391 as part of the Company's 1998
commitment to business process re-engineering activities (integrated SAP
systems).
NOTE 4 - INVENTORIES:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Finished goods $ 34,844,679 $ 25,835,299
Work in process 3,452,278 4,627,273
Raw materials 12,464,131 12,060,437
------------ ------------
$ 50,761,088 $ 42,523,009
============ ============
</TABLE>
The opening inventory used in computing cost of goods sold for 1996 was
$41,089,948. General and administrative costs capitalized to inventories are not
material.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Land $ 2,080,661 $ 2,116,331
Buildings, improvements and leaseholds 10,297,967 10,944,221
Machinery, equipment and fixtures 45,838,502 41,094,918
------------ ------------
58,217,130 54,155,470
Accumulated depreciation and amortization 30,282,719 27,382,993
------------ -------------
$ 27,934,411 $ 26,772,477
============ =============
</TABLE>
Depreciation and amortization charges were $4,435,857, $4,422,773, and
$4,349,827 in 1998, 1997 and 1996, respectively.
NOTE 6 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Note payable-bank, pursuant to
revolving credit and term loan
agreement $ 6,400,000 $ --
6.65% note payable to MassMutual
Life Insurance Company, due
$1,666,667 annually, 1998-2005 11,666,667 13,333,333
9.9% note payable to MassMutual
Life Insurance Company, due
$600,000 annually, 1998-2001 1,800,000 2,400,000
------------ -------------
19,866,667 15,733,333
Less payments due within one year
included in current liabilities 2,266,667 2,266,667
------------ -------------
$ 17,600,000 $ 13,466,666
============ =============
</TABLE>
II-10 Page 14
<PAGE> 15
On January 31, 1996, the Company entered into a 7-year Credit Agreement which
made available to the Company up to $10,000,000 for 4 years on a revolving
credit basis and thereafter for 3 years as a term loan with installment
repayments of principal. Interest is payable at the prime rate of the lender
(7.75% at December 31, 1998) for funds borrowed in domestic currency and at the
lender's Eurodollar rate plus 1/2% for funds borrowed in the Eurodollar market.
The Company pays a 1/10% commitment fee per annum on funds not borrowed during
the 4 year revolving credit period. The debt due under the credit agreement may
be prepaid, in part or in full at any time without penalty; in addition, any
amount prepaid during the 4 year revolving credit term may be reborrowed
without penalty. The available balance under the credit agreement is reduced by
outstanding letters of credit. As of December 31, 1998, approximately
$1,635,000 was outstanding under the letters of credit. The Credit Agreement
also permits additional unsecured short-term borrowing from banks up to
$6,000,000 without any "clean-up" requirements.
The Credit Agreement 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
($55,000,000), working capital ratio (2.5:1), and payment of dividends. At
December 31, 1998, under the most restrictive terms of the debt agreements,
retained earnings of approximately $18,248,000 were available for declaration
of dividends. The Company is currently in full compliance with all terms,
conditions and covenants of the various credit agreements.
Principal payments on long-term obligations are $2,266,667 in 1999; $4,400,000
in 2000 and 2001; $3,800,000 in 2002; and $1,666,667 in each of the years from
2003 through 2005, assuming the balance outstanding on the revolving credit
loan converts to a term loan in 2000.
NOTE 7 - TAXES ON INCOME:
Aggregate income tax provisions (benefits) consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ 4,165,000 $ 4,960,000 $ 3,205,000
State and local 540,000 490,000 675,000
----------- ------------ -----------
4,705,000 5,450,000 3,880,000
Deferred (135,000) (230,000) 1,320,000
=========== =========== ===========
$ 4,570,000 $ 5,220,000 $ 5,200,000
=========== =========== ===========
</TABLE>
The significant components of the deferred income tax liability are as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Deferred income tax assets:
Operating reserves and other accruals $ 815,000 $ 725,000
Deferred income tax liabilities:
Book carrying value in excess of tax basis of property 2,630,000 2,839,000
Deferred expenses 450,000 286,000
----------- -----------
Net deferred income tax liability $ 2,265,000 $ 2,400,000
=========== ===========
</TABLE>
The difference between the total statutory Federal income tax rate and the
actual effective income tax rate is accounted for as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax rate 34.2% 34.3% 34.2%
State and local income taxes, net of Federal
income tax benefit 2.8 2.2 3.2
Other items (0.5) (0.2) --
---- ---- ----
Effective income tax rate 36.5% 36.3% 37.4%
==== ==== ====
</TABLE>
II-11 Page 15
<PAGE> 16
NOTE 8 - PENSION PLANS:
Noncontributory qualified defined benefit pension plans, providing for normal
retirement at age 65, cover all eligible employees (as defined). Periodic
benefit payments on retirement are determined based on a fixed amount applied
to service or determined as a percentage of earnings prior to retirement.
Pension plan assets for retirement benefits consist primarily of fixed income
securities and common stock equities.
Net periodic pension cost for 1998, 1997 and 1996 included the following
components:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 664,000 $ 683,000 $ 702,000
Interest cost on projected benefit obligation 989,000 1,014,000 1,041,000
Expected return on plan assets (1,144,000) (1,072,000) (991,000)
Amortization of transition obligation 33,000 53,000 53,000
Amortization of prior service cost 296,000 394,000 373,000
Recognized actuarial gain (310,000) (278,000) (56,000)
Settlement gain (421,000) (66,000) --
Curtailment loss -- 440,000 --
----------- ----------- ----------
Net periodic pension cost after curtailments
and settlements $ 107,000 $ 1,168,000 $1,122,000
=========== =========== ==========
</TABLE>
Assumptions used in the calculation of net periodic pension cost (one corporate
plan and four plant/factory plans) for the three years ended December 31, 1998
were:
<TABLE>
<CAPTION>
Long Term Rate
Discount Rate of Return Salary Scale
------------------- -------------- ------------
Corp. Plants Corp. Plants Corp. Plants
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
1996 7.00% 7.00% 8.00% 8.00% 4.50% N/A
1997 7.50% 7.50% 8.00% 8.00% 4.50% N/A
1998 7.25% 7.25% 8.00% 8.00% 4.50% N/A
</TABLE>
II-12 Page 16
<PAGE> 17
The following table sets forth the plans' funded status and amounts recognized
in the Company's balance sheets at December 31, 1998 and 1997, for its pension
plans:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
---------------------------------- --------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CHANGES IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $15,337,495 $ 375,080 $12,647,183 $2,923,243
Service Cost 642,947 20,879 632,725 50,694
Interest Cost 954,638 34,802 831,837 182,586
Actuarial (gain) or loss 536,258 223,588 (94,328) (241,761)
Settlement/Curtailment (2,013,444) -- (25,311) 21,631
Benefits Paid (883,451) -- (1,050,301) (165,623)
----------- --------- ----------- ----------
Benefit obligation end of year 14,574,443 654,349 12,941,805 2,770,770
----------- --------- ----------- ----------
CHANGES IN PLAN ASSETS
Fair value of plan assets at beginning of year 16,075,964 -- 12,395,400 2,034,865
Actual return on assets 3,201,766 -- 2,314,183 293,581
Employer contributions -- -- 108,327 145,532
Benefits paid (883,451) -- (1,050,301) (165,623)
Settlements (1,901,234) -- -- --
----------- --------- ----------- ----------
Fair value of plan assets at end of year 16,493,045 -- 13,767,609 2,308,355
----------- --------- ----------- ----------
Funded Status 1,918,602 (654,349) 825,804 (462,415)
Unrecognized transition obligation 33,220 -- 1,381 64,592
Unrecognized actuarial gain (3,676,048) (129,184) (3,129,054) (339,153)
Unrecognized prior service costs 823,958 366,862 1,250,909 577,928
Additional minimum liability -- -- -- (269,624)
----------- --------- ----------- ----------
Accrued benefit costs $ (900,268) $(416,671) $ 1,050,960 $ (428,672)
=========== ========= =========== ==========
</TABLE>
NOTE 9 - QUARTERLY RESULTS FOR 1997 AND 1998:
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
(Unaudited)
Net sales 33,513,631 37,518,173 37,117,239 36,458,005
Gross profit 11,269,936 12,561,234 12,486,253 12,076,388
---------- ---------- ---------- ----------
Earnings before taxes on income 2,920,056 3,718,602 3,932,193 3,819,158
---------- ---------- ---------- ----------
Net earnings 1,825,056 2,323,602 2,458,193 2,563,158
========== ========== ========== ==========
Basic earnings per common share $0.23 $0.29 $0.31 $0.32
========== ========== ========== ==========
Diluted earnings per common share $0.22 $0.29 $0.30 $0.32
========== ========== ========== ==========
Dividends per common share $0.11 $0.11 $0.11 $0.125
========== ========== ========== ==========
Average outstanding shares (Basic) 8,054,905 7,992,148 7,975,914 7,964,398
========== ========== ========== ==========
Average outstanding shares (Diluted) 8,115,932 8,020,928 8,063,110 7,927,886
========== ========== ========== ==========
</TABLE>
II-13 Page 17
<PAGE> 18
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
(Unaudited)
Net sales 37,432,507 38,704,155 41,675,244 42,905,677
Gross profit 12,641,222 13,070,657 13,943,285 14,441,893
---------- ---------- ---------- ----------
Earnings before taxes on income 2,451,121 2,824,491 3,376,479 3,863,849
---------- ---------- ---------- ----------
Net earnings 1,561,121 1,804,491 2,156,479 2,423,849
========== ========== ========== ==========
Basic earnings per common share $0.20 $0.23 $0.27 $0.31
========== ========== ========== ==========
Diluted earnings per common share $0.20 $0.23 $0.27 $0.31
========== ========== ========== ==========
Dividends per common share $0.125 $0.125 $0.125 $0.135
========== ========== ========== ==========
Average outstanding shares (Basic) 7,871,098 7,892,173 7,896,163 7,848,660
========== ========== ========== ==========
Average outstanding shares (Diluted) 8,001,605 8,005,644 7,967,220 7,891,511
========== ========== ========== ==========
</TABLE>
The independent certified public accountants made a limited review of the 1997
and 1998 quarterly financial information in accordance with standards
established by the American Institute of Certified Public Accountants. Such
review was substantially less in scope than an examination in accordance with
generally accepted auditing standards, the objective of which is the expression
of opinion regarding the financial statements taken as a whole, and
accordingly, no such opinion was expressed.
NOTE 10 - RENTALS:
Aggregate rent expense, including month-to-month rentals, approximated
$767,000, $520,000 and $550,000, for the years ended December 31, 1998, 1997,
and 1996, respectively. Long-term lease commitments are as follows: 1999 -
$607,000; 2000 - $566,000; 2001 - $412,000; 2002 - $213,000; 2003 and
thereafter - $208,000.
NOTE 11 - DISPUTE WITH GOVERNMENTAL AGENCY:
The Company reached agreements in 1996 with the Department of Justice and the
United States Attorney's Office in Tampa, Florida, to resolve its previously
announced disputes with the Federal government arising out of certain
contractual relations with the Department of Veterans Affairs (formerly the
Veterans Administration) from 1983 to 1992. The agreements and $6,500,000
payment resolved investigations of the Company arising from the VA contracts.
The Company charged $4,250,000, or approximately $.51 per share against its
earnings in the fourth quarter of 1995 in anticipation of the settlements. No
additional charges resulted from the settlements in 1996 and the Company is
free to continue to sell to all Federal agencies, including the VA.
NOTE 12 - STOCK OPTIONS:
In 1993 the Company adopted an Incentive Stock Option Plan under which options
on 1,500,000 shares were reserved for grant. All options under the Plan have or
will be granted at prices at least equal to the fair market value of the shares
on the date of grant. Options (all of which are exercisable at each respective
year end) granted to date under the Plan are exercisable in part or in full
within five years of grant date. Proceeds from the exercise of options are
credited to common stock to the extent of par value, and the balance is
credited to additional paid-in capital. A summary of option transactions during
the three years ended December 31, 1998 follows:
II-14 Page 18
<PAGE> 19
<TABLE>
<CAPTION>
No. of Weighted Average Market
Shares Exercise Price Total Price
------- ---------------- ----------- ----------
<S> <C> <C> <C> <C>
Outstanding January 1, 1996 550,050 $14.59 $ 8,027,528
Granted 163,825 10.56 1,730,449 $1,721,378
Cancelled (11,550) 13.49 (155,763)
------- ------ -----------
Outstanding December 31, 1996 702,325 13.67 9,602,214
Granted 137,275 13.88 1,905,347 $1,896,272
Exercised (34,850) 10.75 (374,519)
Lapsed (277,200) 16.59 (4,598,087)
Cancelled (48,375) 14.98 (724,834)
------- ------ -----------
Outstanding December 31, 1997 479,175 12.13 5,810,121
Granted 135,050 15.72 2,122,525 $2,113,450
Exercised (78,725) 11.53 (907,573)
Cancelled (11,975) 13.32 (159,527)
------- ------ -----------
Outstanding December 31, 1998 523,525 $13.11 $ 6,865,546
======= ====== ===========
</TABLE>
The weighted average remaining life for options outstanding at December 31,
1998 was 2.7 years. At December 31, options available to issue were 1,102,875
for 1996, 1,291,175 for 1997 and 1,168,100 for 1998. Options have never been
repriced by the Company in any year.
The effect on compensation expense, if determined under the provisions of FAS
123, "Accounting for Stock-Based Compensation" based on the fair value at the
grant date consistent with those provisions is not material to net earnings or
net earnings per common share. The fair value of options granted is not
significant. The Company estimated the fair value of options utilizing the
Black-Scholes option pricing model based on the following assumptions:
<TABLE>
<CAPTION>
Related Party
Options Other Options
------------- -------------
<S> <C> <C> <C>
Exercise price
1998 $18.15 $15.00 - $16.50
1997 $15.13 $13.75 - $13.88
1996 $11.28 $10.25 - $10.88
Market price
1998 $16.50 $15.00 - $16.50
1997 $13.75 $13.75 - $13.88
1996 $10.25 $10.25 - $10.88
Risk free interest rate
1998 5.43% 5.43% - 5.62%
1997 6.17% 6.08% - 6.17%
1996 5.25% 5.25% - 6.55%
Expected option life 5 years 5 years
Expected volatility
1998 26.2% 24.9% - 26.2%
1997 26.5% 26.2% - 26.5%
1996 25.2% 25.2% - 25.7%
Dividend yield 3% 3%
</TABLE>
II-15 Page 19
<PAGE> 20
NOTE 13 - EARNINGS PER SHARE:
The following table represents the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income $7,945,940 $9,170,009 $8,694,096
Weighted average shares outstanding 7,877,024 7,996,536 8,125,465
Basic earnings per common share $1.01 $1.15 $1.07
========== ========== ==========
1998 1997 1996
---------- ---------- ----------
Net Income $7,945,940 $9,170,009 $8,694,096
Weighted average shares outstanding 7,877,024 7,996,536 8,125,465
Common stock equivalents 88,901 65,428 17,493
---------- ---------- ----------
Total weighted average shares outstanding 7,965,925 8,061,964 8,142,958
Diluted earnings per common share $1.00 $1.14 $1.07
========== ========== ==========
</TABLE>
NOTE 14 - ACCRUED EXPENSES:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Salaries, wages, commissions and vacation pay $2,574,205 $2,071,405
Other accrued expenses 2,434,401 2,308,769
---------- ----------
$5,008,606 $4,380,174
========== ==========
</TABLE>
NOTE 15 - SUPPLEMENTAL INFORMATION:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income taxes paid $4,586,097 $4,680,144 $3,846,804
========== ========== ==========
Interest paid $1,200,456 $1,248,171 $1,453,201
========== ========== ==========
</TABLE>
II-16 Page 20
<PAGE> 21
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Superior Uniform Group, Inc.
Seminole, Florida
We have audited the accompanying balance sheets of Superior Uniform Group,
Inc. (formerly Superior Surgical Mfg. Co., Inc.) (the "Company") as of December
31, 1998 and 1997, and the related statements of earnings, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998, and
1997, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Tampa, Florida
February 19, 1999
II-17 Page 21
<PAGE> 22
PART II
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
NONE
PART III
Items 10, 11, Directors and Executive Officers; Executive Compensation;
12 and 13 Security Ownership of Management and others; Certain
Transactions.
The information required by Items 10, 11, 12 and 13 of Form 10-K is
incorporated by reference to the information contained in the sections
captioned "Directors and Officers, Executive Compensation," "Security Ownership
of Certain Beneficial Owners and Management," and "Certain Relationships and
Related Transactions" in the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held May 7, 1999, a copy of which will be
filed with the Securities and Exchange Commission on or before March 30, 1999.
II-18, III-1 Page 22
<PAGE> 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
(a) 1. Financial Statements
The following financial statements of Superior Uniform Group, Inc.
are included in Part II, Item 8:
Statements of earnings - years ended
December 31, 1998, 1997 and 1996...................................................... 11-6
Statements of shareholders' equity - years
ended December 31, 1998, 1997 and 1996................................................ 11-6
Balance sheets - December 31, 1998 and 1997............................................. 11-7
Statements of cash flows - years ended
December 31, 1998, 1997 and 1996...................................................... 11-8
Notes to financial statements........................................................... 11-9 to 11-16
Opinion of independent certified public accountants..................................... 11-17
(a) 2. Financial Statement Schedules
All schedules are omitted because they are not applicable, or not required,
or because the required information is included in the financial statements or notes
thereto.
(a) 3. Exhibits
See Exhibit Index
(b) Reports on Form 8-K:
There were no reports on Form 8-K for the three months
ended December 31, 1998.
(c) See (a) 3. above.
(d) None
</TABLE>
IV-1 Page 23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SUPERIOR UNIFORM GROUP, INC.
/s/ Gerald M. Benstock
------------------------------------
BY: Gerald M. Benstock
(Chairman and Chief Executive
Officer)
/s/ Andrew D. DeMott, Jr.
------------------------------------
BY: Andrew D. Demott, Jr.
(Treasurer and Principal Accounting
Officer)
DATE: March 25, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ Michael Benstock /s/ Alan D. Schwartz
- ------------------------------------- --------------------------------
Michael Benstock, March 25, 1999 Alan D. Schwartz, March 25, 1999
(Director) (Director)
/s/ Saul Schechter /s/ Peter Benstock
- ------------------------------------- --------------------------------
Saul Schechter, March 25, 1999 Peter Benstock, March 25, 1999
(Director) (Director)
/s/ Manuel Gaetan /s/ Sidney Kirschner
- ------------------------------------- --------------------------------
Manuel Gaetan, March 25, 1999 Sidney Kirschner, March 25, 1999
(Director) (Director)
IV-2 Page 24
<PAGE> 25
SUPERIOR UNIFORM GROUP, INC.
EXHIBIT INDEX
(a) 3. Exhibits
Exhibit No.: Description
------------ -----------
3.1 Amended and restated Articles of
Incorporation of the Registrant filed as
Exhibit 3.1 to the Registrant's Interim
Report on Form 10-Q for the quarter ended
June 30, 1998 and incorporated herein by
reference.
3.2 By-Laws of the Registrant filed as Exhibit
3.2 to the Registrant's 1998 Interim Report
on Form 10-Q for the quarter ended June 30,
1998 and incorporated herein by reference.
4.1 Credit Agreement dated January 31, 1996,
between the Registrant and Chemical Bank,
filed with the Commission as Exhibit 4.1 in
Registrant's 1995 Form 10-K which is hereby
incorporated herein by reference.
4.2 Note Agreement dated January 5, 1994 between
the registrant and Massachusetts Mutual Life
Insurance Company filed with the Commission
as Exhibit 4.2 in registrant's 1994 Form 10-Q
for the quarter ended March 31, 1994 which is
hereby incorporated herein by reference. (The
Registrant, by signing this Registration
Statement, agrees to furnish the Commission
upon its request a copy of any instrument
which defines the rights of holders of
long-term debt of the Registrant and which
authorizes a total amount of securities not
in excess of 10% of the total assets of the
Registrant.)
10.1 Description of the informal bonus plan for
officers of the Registrant filed as Exhibit
10 to the Registrant's 1992 Annual Report on
Form 10-K and incorporated herein by
reference.
10.2 1993 Incentive Stock Option Plan of the
Registrant filed as Exhibit 4.3 to the
Registrant's August 18, 1993 Registration
Statement on Form S-8 and incorporated herein
by reference.
10.3 1994 Superior Surgical Mfg. Co., Inc.
Supplemental Pension Plan filed as Exhibit
10.3 to the Registrant's 1994 Annual Report
on Form 10-K and incorporated herein by
reference.
13. Forms 10-Q for the first three quarters of
1998 - herein incorporated by reference to
Registrant's filings thereof with the
Securities and Exchange Commission.
23. Consent of independent accountants.
27. Financial Data Schedule for year ended
December 31, 1998 (For SEC use only.)
99. The information contained under the headings
"Directors and Executive Officers, Executive
Compensation"; "Security Ownership of Certain
Beneficial Owners and Management"; and
"Certain Relationships and Related
Transactions" in the definitive Proxy
Statement of the Registrant to be used in
connection with the Registrant's 1999 Annual
Meeting of Stockholders, to be filed on or
before March 30, 1999 is hereby incorporated
herein by reference.
IV-3 Page 25
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 1 to Registration Statement No. 2-85796 of Superior Uniform Group, Inc.
(formerly Superior Surgical Mfg. Co., Inc.) on Form S-8 of our report dated
February 19, 1999, appearing in the Annual Report on Form 10-K of Superior
Uniform Group, Inc. for the year ended December 31, 1998.
Tampa, Florida
March 24, 1999
IV-4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 514,001
<SECURITIES> 0
<RECEIVABLES> 32,797,966
<ALLOWANCES> 250,000
<INVENTORY> 50,761,088
<CURRENT-ASSETS> 85,710,969
<PP&E> 27,934,411
<DEPRECIATION> 0
<TOTAL-ASSETS> 119,038,910
<CURRENT-LIABILITIES> 18,670,505
<BONDS> 17,600,000
0
0
<COMMON> 7,847
<OTHER-SE> 80,495,558
<TOTAL-LIABILITY-AND-EQUITY> 119,038,910
<SALES> 160,717,583
<TOTAL-REVENUES> 0
<CGS> 106,620,526
<TOTAL-COSTS> 148,201,643
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,115,724
<INCOME-PRETAX> 12,515,940
<INCOME-TAX> 4,570,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,945,940
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.00
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