<PAGE> 1
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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 June 30, 2000
OR
[ ] 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 Employer Identification No.
11-1385670
10099 Seminole Boulevard
Post Office Box 4002
Seminole, Florida 33775-0002
Telephone No.: 727-397-9611
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 August 1, 2000, the registrant had 7,123,327 common shares
outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
SUPERIOR UNIFORM GROUP, INC.
CONDENSED SUMMARY OF OPERATIONS
Three Months Ended June 30,
--------------------------------
2000 1999
----------- -----------
(Unaudited)
Net sales $44,732,763 $42,826,112
----------- -----------
Costs and expenses:
Cost of goods sold 29,523,720 28,339,514
Selling and administrative expenses 11,569,230 10,567,764
Interest expense 548,472 461,722
----------- -----------
41,641,422 39,369,000
----------- -----------
Earnings before taxes on income 3,091,341 3,457,112
Taxes on income 1,130,000 1,268,000
----------- -----------
Net earnings $ 1,961,341 $ 2,189,112
=========== ===========
Weighted average number of shares out-
standing during the period (Basic) 7,123,327 Shs. 7,779,473 Shs.
(Diluted) 7,127,588 Shs. 7,817,253 Shs.
Basic earnings per common share $ 0.28 $ 0.28
=========== ===========
Diluted earnings per common share $ 0.28 $ 0.28
=========== ===========
Cash dividends declared per common
share $ 0.135 $ 0.135
=========== ===========
--------------------------------------------------------------------------
Six Months Ended June 30,
--------------------------------
2000 1999
----------- -----------
(Unaudited)
Net sales $83,554,033 $80,330,216
----------- -----------
Costs and expenses:
Cost of goods sold 55,145,662 53,217,965
Selling and administrative expenses 22,316,827 19,984,316
Interest expense 908,858 807,828
----------- -----------
78,371,347 74,010,109
----------- -----------
Earnings before taxes on income 5,182,686 6,320,107
Taxes on income 1,890,000 2,319,000
----------- -----------
Net earnings $ 3,292,686 $ 4,001,107
=========== ===========
Weighted average number of shares out-
standing during the period (Basic) 7,294,585 Shs. 7,813,364 Shs.
(Diluted) 7,300,897 Shs. 7,856,305 Shs.
Basic earnings per common share $ 0.45 $ 0.51
=========== ===========
Diluted earnings per common share $ 0.45 $ 0.51
=========== ===========
Cash dividends declared per common
share $ 0.27 $ 0.27
=========== ===========
The results of the six months ended June 30, 2000 are not necessarily
indicative of results to be expected for the full year ending December 31,
2000.
See accompanying notes to condensed interim financial statements.
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SUPERIOR UNIFORM GROUP, INC.
CONDENSED BALANCE SHEETS
ASSETS
------
June 30,
2000 December 31,
(Unaudited) 1999
------------ ------------
(1)
CURRENT ASSETS:
Cash and cash equivalents $ 116,315 $ 3,021,376
Accounts receivable and other current assets 36,497,019 32,616,210
Inventories* 51,623,981 46,063,039
------------ ------------
TOTAL CURRENT ASSETS 88,237,315 81,700,625
PROPERTY, PLANT AND EQUIPMENT, NET 28,778,818 29,460,159
EXCESS OF COST OVER FAIR VALUE OF
ASSETS ACQUIRED 8,434,400 8,646,163
OTHER ASSETS 3,148,029 3,045,165
------------ ------------
$128,598,562 $122,852,112
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 9,366,136 $ 9,033,483
Other current liabilities 5,884,145 6,810,227
Current portion of long-term debt 3,196,239 3,162,986
------------ ------------
TOTAL CURRENT LIABILITIES 18,446,520 19,006,696
LONG-TERM DEBT 29,057,520 19,472,577
DEFERRED INCOME TAXES 1,640,000 1,655,000
SHAREHOLDERS' EQUITY 79,454,522 82,717,839
------------ ------------
$128,598,562 $122,852,112
============ ============
* Inventories consist of the following:
June 30,
2000 December 31,
(Unaudited) 1999
------------ ------------
Finished goods $ 36,496,140 $ 34,343,293
Work in process 4,832,658 3,698,341
Raw materials 10,295,183 8,021,405
------------ ------------
$ 51,623,981 $ 46,063,039
============ ============
(1) The balance sheet as of December 31, 1999 has been derived from the audited
balance sheet as of that date and has been condensed.
See accompanying notes to condensed interim financial statements.
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SUPERIOR UNIFORM GROUP, INC.
CONDENSED SUMMARY OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------ ------------
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 3,292,686 $ 4,001,107
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Depreciation and amortization 2,428,273 2,015,675
Deferred income taxes (15,000) (135,000)
Changes in assets and liabilities, net of acquisition:
Accounts receivable and other current
assets (3,880,809) 4,767,582
Inventories (5,560,942) 3,004,426
Accounts payable 332,653 (2,146,123)
Other current liabilities (926,082) 40,200
------------ ------------
Net cash flows (used in) provided from operating
activities (4,329,221) 11,547,867
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (1,535,599) (2,762,223)
Proceeds from disposal of property, plant & equipment 430 28,463
Purchase of businesses, net of cash acquired -- (8,959,181)
Other assets (102,864) (93,949)
------------ ------------
Net cash used in investing activities (1,638,033) (11,786,890)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 11,192,000 12,000,000
Reduction in long-term debt (1,573,804) (7,672,019)
Declaration of cash dividends (1,984,049) (2,109,357)
Proceeds received on exercised stock options -- 15,188
Common stock reacquired and retired (4,571,954) (1,659,390)
------------ ------------
Net cash provided from financing activities 3,062,193 574,422
------------ ------------
Net (decrease) increase in cash and
cash equivalents (2,905,061) 335,399
Cash and cash equivalents balance,
beginning of period 3,021,376 514,001
------------ ------------
Cash and cash equivalents balance,
end of period $ 116,315 $ 849,400
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ 900,077 $ 782,935
============ ============
Income taxes paid $ 3,170,000 $ 3,190,000
============ ============
</TABLE>
See accompanying notes to condensed interim financial statements.
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SUPERIOR UNIFORM GROUP, 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 Company 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
Historical basic per share data is based on the weighted average
number of shares outstanding. Historical diluted per share data is
reconciled by adding to weighted average shares outstanding the
dilutive impact of the exercise of outstanding stock options.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $1,961,341 $2,189,112 $3,292,686 $4,001,107
Weighted average shares
outstanding 7,123,327 7,779,473 7,294,585 7,813,364
Basic earnings per common
share $ 0.28 $ 0.28 $ 0.45 $ 0.51
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income $1,961,341 $2,189,112 $3,292,686 $4,001,107
Weighted average shares
outstanding 7,123,327 7,779,473 7,294,585 7,813,364
Common stock equivalents 4,261 37,780 6,312 42,941
Total weighted average shares
outstanding 7,127,588 7,817,253 7,300,897 7,856,305
Diluted earnings per common
share $ 0.28 $ 0.28 $ 0.45 $ 0.51
</TABLE>
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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) Comprehensive Income
The Company adopted the provisions of FAS 130, "Reporting
Comprehensive Income" in the first quarter of 1998. FAS 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., supplemental stock offering) and
distributions to owners (e.g., dividends). As of June 30, 2000, there
are no items requiring separate disclosure in accordance with this
statement.
g) Operating Segments
The Company adopted the provisions of FAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information" in the first
quarter of 1998. FAS 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.
h) Reclassifications
Certain reclassifications to the 1999 financial information have been
made to conform to the 2000 presentation.
Note 2 - Acquisitions:
On April 1, 1999, the Company acquired substantially all of the net
assets of The Empire Company, ("Empire") a supplier of uniforms,
corporate I.D. wear and promotional products with revenues for the
year ended December 1998 of approximately $14,000,000. The acquisition
has been accounted for utilizing the purchase method of accounting.
The purchase price for this acquisition was approximately $9,134,000
and was allocated as follows:
Cash $ 264,326
Accounts Receivable 1,813,291
Other Current Assets 78,684
Inventories 1,690,688
Property, Plant & Equipment 577,429
Other Assets 5,318
Excess of Cost Over Fair Value
of Assets Acquired 6,211,607
-----------
TOTAL ASSETS $10,641,343
===========
Accounts Payable and
Accrued Expenses $ 1,507,836
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Note 3 - Long-Term Debt:
<TABLE>
<CAPTION>
June 30,
2000 1999
----------- -----------
<S> <C> <C>
Note payable - bank, pursuant to revolving
credit agreement, maturing March 26, 2002 $11,192,000 $ --
6.75% term loan payable to First Union, with
monthly payments of principal and
interest, maturing April 1, 2009 10,994,900 11,861,314
6.65% note payable to MassMutual
Life Insurance Company due $1,666,667
annually, 1998-2005 9,166,859 10,833,334
9.9% note payable to MassMutual
Life Insurance Company due $600,000
annually, 1998-2001 900,000 1,500,000
----------- -----------
32,253,759 24,194,648
Less payments due within one year included
in current liabilities 3,196,239 3,147,891
----------- -----------
$29,057,520 $21,046,757
=========== ===========
</TABLE>
On March 26, 1999, the Company entered into a new 3-year credit
agreement that made available to the Company up to $15,000,000 on a
revolving credit basis. Interest is payable at LIBOR plus 0.60% based
upon the one-month LIBOR rate for U.S. dollar based borrowings. The
Company pays an annual commitment fee of 0.15% on the average unused
portion of the commitment. The available balance under the credit
agreement is reduced by outstanding letters of credit. As of June 30,
2000, approximately $2,779,000 was outstanding under letters of credit.
The Company also entered into a $12,000,000 10-year term loan on March
26, 1999 with the same bank. The term loan is an amortizing loan, with
monthly payments of principal and interest, maturing on April 1, 2009.
The term loan carries a variable interest rate of LIBOR plus 0.80%
based upon the one-month LIBOR rate for U.S. dollar based borrowings.
Concurrent with the execution of the term loan agreement, the Company
entered into an interest rate swap with the bank under which the
Company receives a variable rate of interest on a notional amount equal
to the outstanding balance of the term loan from the bank and the
Company pays a fixed rate of 6.75% on a notional amount equal to the
outstanding balance of the term loan to the bank.
The credit agreement and the term loan with First Union and the
agreements with MassMutual Life Insurance Company contain restrictive
provisions concerning debt to net worth ratios, other borrowings,
capital expenditures, rental commitments, tangible net worth
($60,727,000 at June 30, 2000); working capital ratio (2.5:1), fixed
charges coverage ratio (2.5:1), stock repurchases and payment of
dividends. At June 30, 2000, under the most restrictive terms of the
debt agreements, retained earnings of approximately $10,293,000 were
available for declaration of dividends. The Company is in full
compliance with all terms, conditions and covenants of the various
credit agreements.
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In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," (later amended by SFAS 138), which will be in effect on
January 1, 2001 for the Company. SFAS 133 requires, among other
things, that all derivatives be recognized in the balance sheets as
either assets or liabilities and measured at fair value. The
corresponding derivative gains and losses should be reported based upon
the hedge relationship, if such a relationship exists. Changes in the
fair value of derivatives that are not designated as hedges or that do
not meet the hedge accounting criteria in SFAS 133 are required to be
reported in income. Management does not believe that the adoption of
SFAS 133 will have a significant impact on the Company's financial
statements.
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, 1999, filed with the
Securities and Exchange Commission. Reference is hereby made to
registrant's Financial Statements for 1999, heretofore filed with
registrant's Form 10-K.
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INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Superior Uniform Group, Inc.
Seminole, Florida
We have reviewed the accompanying condensed balance sheet of Superior Uniform
Group, Inc. (the "Company") as of June 30, 2000 and the related condensed
summaries of operations and cash flows for the six-month periods ended June 30,
2000 and 1999. These financial statements are 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 auditing standards generally accepted in the United States
of America, 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 such condensed financial statements for them to be in conformity
with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the balance sheet of Superior Uniform
Group, Inc. as of December 31, 1999, and the related statements of earnings,
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 18, 2000, we expressed an unqualified
opinion on those financial statements. In our opinion, the information set
forth in the accompanying condensed balance sheet as of December 31, 1999 is
fairly stated, in all material respects, in relation to the balance sheet from
which it has been derived.
/s/ Deloitte & Touche, LLP
Tampa, Florida
July 20, 2000
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
For the second quarter of 2000 compared to the second quarter of 1999, net
sales increased by approximately 4%. For the six months ended June 30, 2000,
sales were approximately 4% more than the six months ended June 30, 1999.
Cost of goods sold, as a percentage of sales, approximated 66.0% for the six
months ended June 30, 2000 compared to 66.2% for the six months ended June 30,
1999.
Selling and administrative expenses, as a percentage of sales, were
approximately 26.7% and 24.9%, respectively, for the first six months of 2000
and 1999. The increase is primarily attributed to costs associated with the
company's February 3, 2000 implementation of its new SAP/AFS (Apparel Footwear
Solution) computer system. The most significant components of the increase are
attributed to the costs of computer consultants engaged to assist with the
implementation and overtime costs for the Company's employees working on the
project. We are beginning to see reductions in these additional expenses and
expect that they will continue to decline over the remainder of the current
year.
Interest expense of $908,858 for the six month period ended June 30, 2000
increased 13% from $807,828 for the similar period ended June 30, 1999 due to
higher outstanding borrowings in the current period.
Net earnings decreased 10% to $1,961,341 for the three months ended June 30,
2000 as compared to net earnings of $2,189,112 for the same period in 1999. Net
earnings for the six months ended June 30, 2000 decreased 18% to $3,292,686 as
compared to net earnings of $4,001,107 for the same period in 1999.
Accounts receivable and other current assets increased 12% from $32,616,210 on
December 31, 1999 to $36,497,019 as of June 30, 2000.
Inventories increased 12% from $46,063,039 on December 31, 1999 to $51,623,981
as of June 30, 2000.
Accounts payable increased 4% from $9,033,483 on December 31, 1999 to $9,366,136
on June 30, 2000 primarily due to increases in purchases of raw material
inventories.
THE YEAR 2000 PROJECT: The Company recognized the need to ensure that its
systems, applications and hardware would 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 consisted 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 project was completed and systems found to be non-compliant were
remedied or replaced.
The cost to repair or replace affected systems was approximately $650,000. Of
this amount, approximately $380,000 was incurred and expensed in 1999 and
$270,000 was incurred and expensed prior to December 31, 1998. The Company does
not expect to incur significant costs during 2000 related to ongoing monitoring
and support activities for the Year 2000 issue.
To date, the Company has not encountered any significant adverse impact from
Year 2000 computer problems. The Company will continue to monitor all business
processes throughout 2000 to address any issues and ensure all processes
continue to function properly. Contingency plans to address potential risks in
the event of Year 2000 failures will be developed as needed.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $2,905,061 from $3,021,376 on December
31, 1999 to $116,315 as of June 30, 2000. Additionally, total borrowings under
long-term debt agreements increased by $9,618,196 from $22,635,563 on December
31, 1999 to $32,253,759 as of June 30, 2000. The Company 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 Company will continue its ongoing capital
expenditure program designed to maintain and improve its facilities. The
Company at all times evaluates its capital expenditure program in light of
prevailing economic conditions. The Company 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.
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During the six months ended June 30, 2000 and 1999, respectively, the Company
paid cash dividends of $1,984,049 and $2,109,357. During those same periods,
the Company reacquired and retired 471,500 and 120,400 shares, respectively,
with costs of $4,571,954 and $1,659,390. The Company anticipates that it will
continue to pay dividends and that it will reacquire and retire additional
shares of its common stock in the future as financial conditions permit.
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.
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
The Annual Meeting of Shareholders was held on May 5, 2000. Of the
7,316,827 shares outstanding and entitled to vote at the meeting, 6,763,825
shares were present at the meeting, in person or by proxy. At the meeting the
shareholders:
a) Voted for the nomination of all proposed Directors being, Messrs. G. M.
Benstock, A. D. Schwartz, M. Benstock, S. Schechter, P. Benstock, M.
Gaetan, PhD, and S. Kirschner. The votes on all directors nominated
were as follows:
NOMINEE VOTES FOR: VOTES WITHHELD:
------- ---------- ---------------
Gerald M. Benstock 6,528,127 235,698
Saul Schechter 6,544,277 219,548
Alan D. Schwartz 6,544,277 219,548
Michael Benstock 6,529,277 234,548
Peter Benstock 6,544,277 219,548
Manuel Gaetan 6,720,847 42,978
Sidney Kirschner 6,720,847 42,978
b) Ratified the appointment of Deloitte & Touche LLP, independent
certified public accountants, as auditors for the Company's financial
statements for the year ending December 31, 2000 with 6,736,485 votes
for the motion, 1,724 votes against and 25,616 votes abstaining.
ITEM 5. None
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits
15 Letter re: Unaudited Interim Financial Information.
27 Financial Data Schedule for Six Months ended June 30,
2000. (For SEC use only.)
b) Reports on Form 8-K
None.
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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: August 4, 2000 SUPERIOR UNIFORM GROUP, INC.
By /s/ Gerald M. Benstock
---------------------------------------------
Gerald M. Benstock
Chairman and Chief Executive Officer
By /s/ Andrew D. Demott, Jr.
---------------------------------------------
Andrew D. Demott, Jr.
Vice President, Chief Financial Officer
and Treasurer (Principal Accounting Officer)
Page 12
