UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20032005
| ¨ | 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 | |
10055 Seminole Blvd. Seminole, Florida 33772 | No. 11-1385670 | |
| Telephone | (727) 397-9611 |
Securities registered pursuant to Section 12 (b) of the Act:
| Securities registered pursuant to Section 12 (b) of the Act: | ||
| Common Shares with a par value | Listed on | |
| of $.001 each |
Indicate by check mark if the registrant is a well-known, seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes¨ No x
Indicate by check mark whether the RegistrantRegistrant: (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. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨
Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2d of the Exchange Act Rule 12b-2)Act). Yes ¨ No x
As of March 1, 2004, 7,400,3123, 2006, 7,153,054 common shares were outstanding, and the aggregate market value of the registrant’s common shares held by non-affiliates was approximately $58$76 million (based on the closing sale price of the registrant’s common shares on the American Stock Exchange on the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2003)2005) ). Shares of common stock held by each executive officer and director have been excluded in that such persons may be deemed to be affiliates. The determination of affiliate status is not necessarily a conclusive determination for other purposes.
Documents Incorporated by Reference:
Portions of the Registrant’s Proxy Statement to be filed on or before March 30, 2004,2006, for its Annual Meeting of Shareholders to be held May 7, 2004,5, 2006, are incorporated by reference to furnish the information required by Items 10, 11, 12, 1312,13 and 14 of Part III.
Exhibit index may be found on Page 32.
PART I
Special Note Regarding Forward-Looking Statements
References in this report to “the Company”, “Superior”, “we”, “our”, or “us” mean Superior Uniform Group, Inc. together with its subsidiary, except where the context otherwise requires. Certain matters discussed in this Form 10-K are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe,” “anticipate”,” expect” or words of similar import. Similarly, statements that describe our future plans, objectives, strategies or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that may materially adversely affect the anticipated results. Such risks and uncertainties include, but are not limited, to 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; our ability to successfully integrate operations following consummation of acquisitions and the availability of manufacturing materials.materials and those risks discussed under Item 1A of this report entitled “Risk Factors.” Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this Form 10-K and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Item 1. Business
Superior Uniform Group, Inc. 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 name to Superior Uniform Group, Inc. and its state of incorporation to Florida. Superior’s business has not changed in any significant way during
Superior, through its Signature marketing brands – Fashion Seal®, Fashion Seal Healthcare™, Martin’s®, Worklon®, Universal®, Sope Creek® and UniVogue™ – manufactures and sells a wide range of uniforms, corporate I.D., career apparel and accessories for the past five years.
Although Superior operates for selling, promotionalhospital and healthcare fields; hotels; fast food and other reasons through various divisions, nevertheless thererestaurants; and public safety, industrial, transportation and commercial markets, as well as corporate and resort embroidered sportswear. There are no significant distinct segments or lines of business; approximatelybusiness. Approximately 95% of its business consists of the sale of uniforms and service apparel, and miscellaneous products directly related thereto.
Products
Superior manufactures and sells a wide range of uniforms, corporate I.D., career 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:
Uniforms and service apparel account for 90-95%in excess of 95% of total sales and revenues; no other single class of product listed above accounts for more than 10% of total sales and revenues.
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Competition
Superior competes with national and regional manufacturers and also with local firms in most major metropolitan areas. Superior 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. Industry statistics are not available, but we believe that Superior 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. Superior experiences competition primarily in the areas of product development, styling and pricing.
We believe that the strength of our brands and marketing, coupled with the quality of our products, allow us to compete effectively.
Customers
Superior has a substantial number of customers, the largest of which accounted for no more thanonly 5% of its 20032005 sales.
Backlog
Although Superior at all times has a substantial backlog of orders, we do not consider this significant since our backlog of orders at any time consists primarily of recurrentrecurring firm orders being processed and filled.
Superior normally completes shipments of orders from stock between 1one and 2two weeks after their receipt. As of March 1, 2004,3, 2006, the backlog of all orders that we believe to be firm was approximately $5,038,000,$6.9 million, compared to approximately $4,132,000 a year earlier.
$8.9 million in the previous year.
Inventory
Superior markets itself to its customers as a “stock house”. Therefore, Superior at all times carries substantial inventories of raw materials (principally piece goods) and finished garments which requires substantial working capital. Superior’s principal raw materials are textile products. In 2005, 2004, and 2003, approximately 73%, 70% and 75%, respectively, of our products generally availablewere obtained from suppliers located in Central America. Superior does not believe that it is dependent upon any of its suppliers, despite the concentration of its purchasing from a numberfew sources, as other suppliers of sources.
the same or similar products are readily available.
Intellectual Property
While Superior owns and uses several trademarks, its mark “Fashion Seal Uniforms” (presently registered until August 7, 2007, subject to renewal) is important since more than 50% of Superior’s products are sold under that name.
Environmental Matters
In view of the nature of our 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 our operations or earnings and we do not expect it to have a material impact in the future.
Employees
Superior employed 897722 persons as of December 31, 2003.2005.
Item 1A. Risk Factors
Our business, operations and financial condition are subject to various risks, and many of those risks are driven by factors that we cannot control or predict. The following discussion addresses those risks that management believes are the most significant, and you should take these risks into account in evaluating us or any investment decision involving us. Additional risks and uncertainties not presently known or that we currently believe to be less significant may also adversely affect us.
Risks Relating To Our Industry
We face intense competition within our industry and our revenue may decrease if we are not able to respond to this competition accordingly.
Customers in the uniform and corporate identity apparel industry choose suppliers primarily based upon the quality, price and breadth of products offered. We encounter competition from a number of companies in the geographic areas we serve. Major
competitors include publicly held companies such as ARAMARK (a division of ARAMARK Corporation), Cintas Corporation, Unifirst Corporation and G&K Services. We also compete with a multitude of regional and local competitors that vary by market. If our existing or future competitors seek to gain or retain market share by reducing prices, we may be required to lower our prices, which would adversely affect our operating results.In addition, our competitors generally compete with us for acquisition candidates, which can increase the price for acquisitions and reduce the number of acquisition candidates available to us.
Regional or national economic slowdowns and high unemployment levels will likely have an adverse effect on our revenues and operating results.
National or regional economic slowdowns or certain industry specific slowdowns resulting in higher unemployment levels and overall weak economic conditions generally result in reductions of customers’ employees in uniform that, in turn, adversely affect our revenues. If we are unable to offset this effect through the addition of new customers (through acquisition or otherwise) or the penetration of existing customers with a broader mix of product and service offerings, our revenue growth rates will be negatively impacted. Events or conditions in a particular geographic area, such as adverse weather and other factors, could also hurt operating results. While we do not believe that our exposure is greater than that of our competitors, we could be adversely affected by increases in the prices of fabric, natural gas, gasoline, wages, employee benefits, insurance costs and other components of product cost unless we can recover such increases through increases in the prices for our products and services. Competitive and general economic conditions might limit our ability and that of our competitors to increase prices to cover such increases.
The uniform and corporate identity apparel industry is subject to pricing pressures that may cause us to lower the prices we charge for our products and adversely affect our financial performance.
Prices in the uniform and corporate identity apparel industry have been declining over the past several years primarily as a result of the trend to move sewing operations offshore, the introduction of new manufacturing technologies, and increased competition. Products sewn offshore generally cost less to manufacture than those made domestically primarily because labor costs are lower offshore. Many of our competitors source their product requirements from developing countries to achieve a lower cost operating environment, possibly in environments with lower costs than our offshore facilities, and those manufacturers may use these cost savings to reduce prices. To remain competitive, we must adjust our prices from time to time in response to these industry-wide pricing pressures. Moreover, increased customer demands for allowances, incentives and other forms of economic support reduce our gross margins and affect our profitability. Our financial performance may be negatively affected by these pricing pressures if we are forced to reduce our prices and if we cannot reduce our production costs or if our production costs increase and we cannot increase our prices.
Increases in the price of raw materials used to manufacture our products could materially increase our costs and decrease our profitability.
The principal fabrics used in our business are made from cotton, wool, silk, synthetic and cotton-synthetic blends. The prices we pay for these fabrics are dependent on the market price for the raw materials used to produce them, primarily cotton and chemical components of synthetic fabrics. These raw materials are subject to price volatility caused by weather, supply conditions, government regulations, economic climate and other unpredictable factors. Fluctuations in petroleum prices may also influence the prices of related items such as chemicals, dyestuffs and polyester yarn. Any raw material price increase could increase our cost of sales and decrease our profitability unless we are able to pass higher prices on to our customers. In addition, if one or more of our competitors is able to reduce their production costs by taking advantage of any reductions in raw material prices or favorable sourcing agreements, we may face pricing pressures from those competitors and may be forced to reduce our prices or face a decline in net sales, either of which could have a materially adverse effect on our business, results of operations or financial condition.
Changing international trade regulation and the elimination of quotas on imports of textiles and apparel may increase competition in our industry. Future quotas, duties or tariffs may increase our costs or limit the amount of products that we can import.
A portion of our operations are subject to quotas imposed by bilateral textile agreements between the countries from which we procure raw materials,and the countries where our products are manufactured. These quotas limit the amount of products that may be imported from a particular country.
In addition, the countries in which our products are manufactured or into which they are imported may from time to time impose additional new quotas, duties, tariffs and requirements as to where raw materials must be purchased, additional workplace regulations, or other restrictions on our imports or adversely modify existing restrictions. Adverse changes in these costs and restrictions could harm our business. We cannot assure you that future trade agreements will not provide our competitors an advantage over us, or increase our costs, either of which could have a material adverse effect on our business, results of operations or financial condition.
Our operations are also subject to various international trade agreements and regulations such as the North American Free Trade Agreement and the Caribbean Basin Initiative, and the activities and regulations of the World Trade Organization (“WTO”). Generally, these trade agreements benefit our business by reducing or eliminating the duties and/or quotas assessed on products manufactured in a particular country. However, trade agreements can also impose requirements that negatively affect our business, such as limiting the countries from which we can purchase raw materials and setting quotas on products that may be imported into the United States from a particular country. In addition, increased competition from developing countries could have a material adverse effect on our business, results of operations or financial condition.
The corporate identity apparel and uniform industry is subject to changing fashion trends and if we misjudge consumer preferences, the image of one or more of our brands may suffer and the demand for our products may decrease.
We believe our products are, in general, less subject to fashion trends compared to many other apparel manufacturers because we manufacture and sell uniforms, corporate identity apparel and other accessories. However, the apparel industry, including uniforms and corporate identity apparel is subject to shifting customer demands and evolving fashion trends and our success is also dependent upon our ability to anticipate and promptly respond to these changes. Failure to anticipate, identify or promptly react to changing trends or styles may result in decreased demand for our products, as well as excess inventories and markdowns, which could have a material adverse effect on our business, results of operations, and financial condition. In addition, if we misjudge consumer preferences, our brand image may be impaired.
RISKS RELATING TO OUR BUSINESS
Our success depends upon the continued protection of our trademarks and other intellectual property rights and we may be forced to incur substantial costs to maintain, defend, protect and enforce our intellectual property rights.
Our registered and common law trademarks, as well as certain of our licensed trademarks, have significant value and are instrumental to our ability to market our products. While we own and use several trademarks, our mark “Fashion Seal Uniforms” (presently registered until August 7, 2007, subject to renewal) is important to our business, as more than 50% of our products are sold under that name. We cannot assure you that third parties will not assert claims against any such intellectual property or that we will be able to successfully resolve all such claims. In addition, although we seek international protection of our intellectual property, the laws of some foreign countries may not allow us to protect, defend or enforce our intellectual property rights to the same extent as the laws of the United States. We could also incur substantial costs to defend legal actions relating to use of our intellectual property, which could have a material adverse effect on our business, results of operations or financial condition.
In addition, some of our license agreements with third parties will expire by their terms over the next several years. There can be no assurance that we will be able to negotiate and conclude extensions of such agreements on similar economic terms or at all.
Our customers may cancel or decrease the quantity of their orders, which could negatively impact our operating results.
Although we have long-standing customer relationships, we do not have long-term contracts with many of our customers. Sales to many of our customers are on an order-by-order basis. If we cannot fill customers’ orders on time, orders may be cancelled and relationships with customers may suffer, which could have an adverse effect on us, especially if the relationship is with a major customer. Furthermore, if any of our customers experience a significant downturn in their business, or fail to remain committed to our programs or brands, the customer may reduce or discontinue purchases from us. The reduction in the amount of our products purchased by several of our major customers could have a material adverse effect on our business, results of operations or financial condition.
In addition, some of our customers have experienced significant changes and difficulties, including consolidation of ownership, increased centralization of buying decisions, restructurings, bankruptcies and liquidations. A significant adverse change in a customer relationship or in a customer’s financial position could cause us to limit or discontinue business with that customer, require us to assume more credit risk relating to that customer’s receivables or limit our ability to collect amounts related to previous purchases by that customer, all of which could have a material adverse effect on our business, results of operations or financial condition.
We may undertake acquisitions to expand our business, which may pose risks to our business.
We selectively pursue acquisitions from time to time as part of our growth strategy. We compete with others within our industry for suitable acquisition candidates. This competition may increase the price for acquisitions and reduce the number of acquisition candidates available to us. As a result, acquisition candidates may not be available to us in the future on favorable terms. Even if we are able to acquire businesses on favorable terms, managing growth through acquisition is a difficult process that includes integration and training of personnel, combining plant and operating procedures, and additional matters related to the integration of acquired businesses within our existing organization. Unanticipated issues related to integration may result in additional expense or in disruption to our operations, either of which could negatively impact our ability to achieve anticipated benefits. While we believe we will be able to fully integrate acquired businesses, we can give no assurance that we will be successful in this regard.
We are subject to local laws and regulations.
We are subject to federal, state and local laws and regulations affecting our business, including those promulgated under the Occupational Safety and Health Act, the Consumer Product Safety Act, the Flammable Fabrics Act, the Textile Fiber Product Identification Act, the rules and regulations of the Consumer Products Safety Commission and various labor, workplace and related laws, as well as environmental laws and regulations. Failure to comply with such laws may expose us to potential liability and have an adverse effect on our results of operations.
Shortages of supply of sourced goods from suppliers or interruptions in our manufacturing could adversely affect our results of operations.
We utilize multiple supply sources and manufacturing facilities. However, an unexpected interruption in any of the sources or facilities could temporarily adversely affect our results of operations until alternate sources or facilities can be secured. In 2005, 2004 and 2003 approximately 73%, 70% and 75%, respectively, of our products were obtained from suppliers located in Central America. If we are unable to continue to obtain our products from Central America, it could significantly disrupt our business. Because we source products in Central America, we are affected by economic conditions in Central America, including increased duties, possible employee turnover, labor unrest and lack of developed infrastructure.
Certain of our existing stockholders have significant control.
At December 31, 2005, our executive officers and certain of their family members collectively beneficially owned 26.4% of our outstanding common stock, of which Gerald M. Benstock, our Chairman of the Board, beneficially owned 20.8%. As a result, our executive officers and certain of their family members have significant influence over the election of our Board of Directors, the approval or disapproval of any other matters requiring stockholder approval, and the affairs and policies of our company.
The success of our business depends on our ability to attract and retain qualified employees.
We need talented and experienced personnel in a number of areas including our core business activities. An inability to retain and attract qualified personnel, especially our key executives, could harm our business.
| Item 1B. Unresolved Staff | Comments |
None.
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 the Company’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 - 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. Set forth below are the locations of our facilities:
3
Item 3. Legal Proceedings
We are a party to certain lawsuits in the ordinary course of business. We do not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations or cash flows.
None.
Item 4. Submission of Matters to a Vote of Security Holders
| None |
PART II
Item 5. Market Price of and Dividends onFor Superior’s Common Equity, and Related Stockholder Matters.Matters and Superior Purchases of Equity Securities.
The principal market on which Superior’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 our common shares, dividend information and the quarterly high and low sales prices as reported in the consolidated transaction reporting system of the American Stock Exchange.
| QUARTER ENDED | ||||||||||||||||||||||||
| 2003 | 2002 | |||||||||||||||||||||||
| Mar. 31 | June 30 | Sept. 30 | Dec. 31 | Mar. 31 | June 30 | Sept. 30 | Dec. 31 | |||||||||||||||||
Common Shares: | ||||||||||||||||||||||||
High | $ | 12.48 | $ | 11.45 | $ | 14.80 | $ | 16.93 | $ | 10.90 | $ | 12.15 | $ | 11.30 | $ | 12.39 | ||||||||
Low | $ | 10.20 | $ | 10.45 | $ | 11.00 | $ | 13.20 | $ | 8.95 | $ | 9.90 | $ | 9.35 | $ | 10.66 | ||||||||
Dividends (total for 2003-$.54; 2002-$.54) | $ | .135 | $ | .135 | $ | .135 | $ | .135 | $ | .135 | $ | .135 | $ | .135 | $ | .135 | ||||||||
| QUARTER ENDED | ||||||||||||||||||||||||
| 2005 | 2004 | |||||||||||||||||||||||
| Mar. 31 | June 30 | Sept. 30 | Dec. 31 | Mar. 31 | June 30 | Sept. 30 | Dec. 31 | |||||||||||||||||
Common Shares: | ||||||||||||||||||||||||
High | $ | 14.95 | $ | 14.85 | $ | 13.70 | $ | 12.80 | $ | 16.90 | $ | 16.70 | $ | 15.85 | $ | 14.95 | ||||||||
Low | $ | 13.26 | $ | 10.92 | $ | 11.65 | $ | 9.95 | $ | 14.00 | $ | 14.50 | $ | 12.81 | $ | 13.65 | ||||||||
Dividends (total for 2005-$0.54; 2004-$0.54) | $ | 0.135 | $ | 0.135 | $ | 0.135 | $ | 0.135 | $ | 0.135 | $ | 0.135 | $ | 0.135 | $ | 0.135 | ||||||||
Our long-term debt agreements include covenants that, among other things, restrict dividends payable by us. Under the most restrictive debt agreement, retained earnings of approximately $14,255,000$5,379,000 were available at December 31, 20032005 for declaration of dividends. We have declared cash dividends of $.135$0.135 per share in each of the quarters for the fiscal years ending December 31, 20022004 and 2003.2005. We expect that, so long as earnings and business conditions warrant, we 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 1, 2004,3, 2006, registrant had 285232 shareholders of record and the closing price for registrant’s common shares on the American Stock Exchange was $15.20$11.36 per share.
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Equity Compensation Plan Information
The following table provides information about our common stock that may be issued upon the exercise of options, warrants, rights and restricted stock under all our existing equity compensation plans as of December 31, 2003,2005, including the 1993 Incentive Stock Option Plan and the 2003 Incentive Stock and Awards Plan:
Plan category | Number of securities to of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||||
| (a) | (b) | (c) | (a) | (b) | (c) | |||||||||
Equity compensation Plans approved by Security holders | 656,175 | $ | 10.72 | 2,418,725 | 849,750 | $ | 12.98 | 2,009,300 | ||||||
Equity compensation Plans not approved by Security holders | — | — | — | — | — | — | ||||||||
Total | 656,175 | $ | 10.72 | 2,418,725 | 849,750 | $ | 12.98 | 2,009,300 | ||||||
The table below sets forth the information with respect to purchases made by or on behalf of Superior Uniform Group, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act), of our common shares during the three months ended December 31, 2005.
ISSUER PURCHASES OF EQUITY SECURITIES | |||||||||
Period | (a) Total Number of Shares Purchased | (b) Average Price Paid per | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) | |||||
Month #1 (October 1, 2005 to October 31, 2005) | 46,630 | $ | 12.10 | 46,630 | |||||
Month #2 (November 1, 2005 to November 30, 2005) | 101,325 | $ | 11.96 | 101,325 | |||||
Month #3 (December 1, 2005 to December 31, 2005) | |||||||||
TOTAL | 147,955 | $ | 12.00 | 147,955 | 308,926 | ||||
| (1) | In July 2002, the Company’s Board of Directors approved a program to repurchase up to 750,000 shares of the Company’s outstanding shares of common stock. There is no expiration date or other restriction governing the period over which the Company can make share repurchases under the program. |
5The following selected data are derived from our consolidated financial statements. This data should be read in conjunction with the consolidated financial statements and notes thereto incorporated into Item 8, and with Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 6. Selected Financial Data
Superior Uniform Group, Inc. and Subsidiary
Years Ended December 31, | 2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||
Net sales | $ | 134,324,365 | $ | 144,999,254 | $ | 153,205,568 | $ | 167,710,399 | $ | 168,005,646 | ||||||
Costs and expenses: | ||||||||||||||||
Cost of goods sold | 86,207,906 | 95,221,013 | 100,698,472 | 109,904,587 | 110,902,060 | |||||||||||
Selling and administrative expenses | 38,616,045 | 40,932,512 | 40,682,374 | 43,984,724 | 41,202,030 | |||||||||||
Interest expense | 696,504 | 853,081 | 1,623,016 | 2,167,763 | 1,605,261 | |||||||||||
| 125,520,455 | 137,006,606 | 143,003,862 | 156,057,074 | 153,709,351 | ||||||||||||
Earnings before taxes on income, and cumulative effect of change in accounting principle | 8,803,910 | 7,992,648 | 10,201,706 | 11,653,325 | 14,296,295 | |||||||||||
Taxes on income | 3,100,000 | 2,895,000 | 3,730,000 | 4,250,000 | 5,180,000 | |||||||||||
Earnings before cumulative effect of change in accounting principle | 5,703,910 | 5,097,648 | 6,471,706 | 7,403,325 | 9,116,295 | |||||||||||
Cumulative effect of change in accounting principle, net of tax benefit of $2,560,000 | — | (4,504,563 | ) | — | — | — | ||||||||||
Net earnings | $ | 5,703,910 | $ | 593,085 | $ | 6,471,706 | $ | 7,403,325 | $ | 9,116,295 | ||||||
Basic net earnings per common share: | ||||||||||||||||
Earnings before cumulative effect of change in accounting principle | $ | 0.79 | $ | 0.72 | $ | 0.91 | $ | 1.03 | $ | 1.17 | ||||||
Cumulative effect of change in accounting principle, net of tax | — | (0.64 | ) | — | — | — | ||||||||||
Basic net earnings per common share | $ | 0.79 | $ | 0.08 | $ | 0.91 | $ | 1.03 | $ | 1.17 | ||||||
Diluted net earnings per common share: | ||||||||||||||||
Earnings before cumulative effect of change in accounting principle | $ | 0.78 | $ | 0.71 | $ | 0.91 | $ | 1.03 | $ | 1.17 | ||||||
Cumulative effect of change in accounting principle, net of tax | — | (0.63 | ) | — | — | — | ||||||||||
Diluted net earnings per common share | $ | 0.78 | $ | 0.08 | $ | 0.91 | $ | 1.03 | $ | 1.17 | ||||||
Cash dividends per common share | $ | 0.54 | $ | 0.54 | $ | 0.54 | $ | 0.54 | $ | 0.54 | ||||||
At year end: | ||||||||||||||||
Total assets | $ | 102,973,933 | $ | 99,826,952 | $ | 112,914,563 | $ | 130,039,204 | $ | 122,852,112 | ||||||
Long-term debt | $ | 6,266,047 | $ | 7,445,068 | $ | 13,549,147 | $ | 29,530,239 | $ | 19,472,577 | ||||||
Working capital | $ | 66,212,497 | $ | 61,688,699 | $ | 65,117,560 | $ | 74,360,573 | $ | 62,693,929 | ||||||
Shareholders' equity | $ | 84,884,482 | $ | 80,110,389 | $ | 82,762,205 | $ | 81,641,863 | $ | 82,717,839 | ||||||
Consolidated Statements of Earnings
Years Ended December 31,
Years Ended December 31, Net sales Costs and expenses: Cost of goods sold Selling and administrative expenses Interest expense Earnings before taxes on income, and cumulative effect of change in accounting principle Taxes on income Earnings before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle, net of tax benefit of $2,560,000 Net earnings Basic net earnings per common share: Earnings before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle, net of tax Basic net earnings per common share Diluted net earnings per common share: Earnings before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle, net of tax Diluted net earnings per common share Cash dividends per common share At year end: Total assets Long-term debt Working capital Shareholders’ equity6 2005 2004 2003 2002 2001 $ 133,312,351 $ 143,567,473 $ 137,326,341 $ 148,106,311 $ 156,134,944 93,596,828 96,279,784 90,334,765 99,859,787 104,967,460 37,610,557 38,524,803 37,491,162 39,400,795 39,342,762 610,781 624,199 696,504 853,081 1,623,016 131,818,166 135,428,786 128,522,431 140,113,663 145,933,238 1,494,185 8,138,687 8,803,910 7,992,648 10,201,706 250,000 2,760,000 3,100,000 2,895,000 3,730,000 1,244,185 5,378,687 5,703,910 5,097,648 6,471,706 — — — (4,504,563 ) — $ 1,244,185 $ 5,378,687 $ 5,703,910 $ 593,085 $ 6,471,706 $ 0.17 $ 0.72 $ 0.79 $ 0.72 $ 0.91 — — — (0.64 ) — $ 0.17 $ 0.72 $ 0.79 $ 0.08 $ 0.91 $ 0.17 $ 0.71 $ 0.78 $ 0.71 $ 0.91 — — — (0.63 ) — $ 0.17 $ 0.71 $ 0.78 $ 0.08 $ 0.91 $ 0.54 $ 0.54 $ 0.54 $ 0.54 $ 0.54 $ 97,261,057 $ 107,954,243 $ 102,973,933 $ 99,826,952 $ 112,914,563 $ 3,979,540 $ 5,662,569 $ 6,266,047 $ 7,445,068 $ 13,549,147 $ 57,968,139 $ 61,255,572 $ 66,212,497 $ 61,688,699 $ 65,117,560 $ 81,524,754 $ 87,068,494 $ 84,884,482 $ 80,110,389 $ 82,762,205
Item 7. Management’ s Discussion and Analysis of Financial Condition and Results of Operations
OPERATIONS: In 20032005, net sales decreased 7.4%7.1% in comparison to 20022004 and in 20022004, net sales decreased 5.4%increased 4.5% in comparison to 2001.2003. The 2005 decrease is attributed to several factors. First, the Company experienced shipping difficulties through the first quarter of 2005 as a result of issues created in the implementation of its new warehouse management system at its central distribution center. As a result of these difficulties, certain customers reduced the amount of purchases that they made with the Company through the remainder of 2005. Additionally, the Company and its customers were adversely affected by several major hurricanes later in the year. These decreases werehurricanes disrupted the Company’s supply lines for several months and more significantly affected certain of our customers operations and purchasing patterns. The 2004 increase is primarily attributed to the continued economic slowdown as ouracquisition of UniVogue during the first quarter of 2004, (+5.0%) which was offset by continuing soft demand from existing customers postponed or cancelled orders in an effort to reduce the impact of the slowdown on their own operations.(-0.5%).
As a percentage of sales, cost of goods sold were 64.2%was 70.2% in 2003, 65.7%2005, 67.1% in 20022004, and 65.8% in 2001.2003. The decreasepercentage increase in 2003 was2005 is primarily attributed to the continued transitionfollowing items. First, standard cost of goods sold increased 0.6% as a percentage of net sales as a result of increased product costs as well as the competitive pricing market in which we operated in 2005. Secondly, reductions in sales and production volumes without corresponding decreases in overheads added approximately 2.0% to offshore sources.
our cost of goods sold as a percentage of net sales. Finally, increased obsolescence in the current year, associated with the release of the newDefining Uniforms catalog and related product line changes, added 0.5% to cost of goods sold as a percentage of net sales. The percentage increase in 2004 was due to increased freight costs in 2004 of approximately $1,610,000 while the amounts invoiced to customers (included in net sales) for freight and handling charges only increased $651,000. Additionally, competitive pricing pressures in the market contributed to reduced margins in 2004.
As a percentage of sales, selling and administrative expenses were 28.8% in 2003, 28.2% in 2002,2005, 26.8% in 2004, and 26.6%27.3% in 2001.2003. The increase in this percentage is primarily attributed to the significant reductions in 2003sales with less significant reductions in selling and administrative expenses. 2005 selling and administrative expenses included increased depreciation, associated primarily with the new warehouse system, of approximately $476,000; $299,000 in pension settlement losses associated with staff reductions and corresponding lump sum pension payments to employees; and $206,000 in increased severance costs associated with the staff reductions. These increases were offset by a $355,000 reduction in professional fees, primarily associated with outside consulting fees for Sarbanes-Oxley section 404 compliance work and a $665,000 reduction in medical insurance expense as a result of lower headcounts and various modifications to the Company’s medical plans. The decrease in this percentage in 2004 is attributed to the overall declineincrease in sales volume, more than offsetting the impact of 2003 staffing and other cost reductions on selling administrative expenses. The increaseincluding the consolidation of our Martins division into our corporate offices. Additionally, we experienced a net recovery in this percentagebad debts in 2002 is attributed to the following factors: the overall decline in sales volume more than offset the impact2004 of staff reductions on selling administrative expenses; selling and administrative expenses for 2002 included$12,000 versus net bad debt expense of $218,000 in 2003. The impact of these cost savings were offset by approximately $1,165,000 versus $584,000$690,000 in the prior year due primarilyoutside consulting costs incurred in association with our efforts to the write off of one large account in 2002; during 2002, the Company incurred approximately $360,000 in costs associatedprepare for compliance with the review of a potential acquisition that we are no longer pursuing; and finally, the 2001 selling and administrative expenses were reduced by a gain of $1,683,000 recorded as a resultSection 404 of the settlement of vendor matters.
Sarbanes-Oxley Act.
Interest expense as a percentage of sales was 0.5% in 2003, 0.6%2005, 0.4% in 2002,2004, and 1.1%0.5% in 2001.2003. The decreasesincrease in 20032005 is due to lower sales volume and 2002 areincreased borrowings outstanding during the year on the Company’s revolving debt agreement. The decrease in 2004 was due to lower average borrowings outstanding and lower interest rates.
The effective income tax rate in 20032005 was 35.2%16.7%; in 2002 it2004 was 36.2%33.9%; and in 20012003 it was 36.6%35.2%. The decreases aredecrease in 2005 is primarily attributed to decreasesa reduction in the accrual for tax contingencies during the year (-12.4%) and due to other permanent differences between book and tax income (-4.6%) due to a decrease in taxable income. The decrease in 2004 is primarily attributed to a smaller addition to the accrual for tax contingencies in 2004 as compared to 2003 relative to state income taxes.
In 2003,2005, the Company reported earnings before cumulative effectnet income of change in accounting principle of 4.3%0.9% of sales with a return of 6.9%1.5% on average shareholders’ equity. In 2002,2004, the Company reported earnings before cumulative effectnet income of change in accounting principle of 3.5%3.7% of sales with a return of 6.3% on average shareholders’ equity. In 2001, the Company reported earnings before cumulative effect of change in accounting principle of 4.2% of sales with a return of 7.9% on average shareholders’ equity.
The cumulative effect of change in accounting principle charge in the amount of $4,504,563, net of tax benefit of $2,560,000 was recognized in 2002 as a result of the Company’s adoption of FAS No. 142. The Company completed its transitional impairment testing of goodwill during 2002 and determined that its goodwill for certain reporting units was impaired.
In 2003, the Company reported net income of 4.3% of sales with a return of 6.9% on average shareholders’ equity. In 2002, the Company reported net income of 0.4% of sales with a return of 0.7% on average shareholders’ equity. In 2001, the Company reported net income of 4.2% of sales with a return of 7.9%6.9% on average shareholders’ equity.
LIQUIDITY AND CAPITAL RESOURCES: The Company uses a number of standards for its own purposes in measuring its liquidity, such as: working capital, profitability ratios, long-term debt as a percentage of long-term debt and equity, and activity ratios. In its computations,
Accounts receivable decreased 4.6% from $26,938,861 on December 31, 2004 to $25,706,970 as of December 31, 2005. This decrease is primarily attributed to the decrease in this report, allsales in the current period.
Management’ s Discussion and Analysis of Financial Condition and Results of Operations
Inventories decreased 18.7% from $45,741,410 on December 31, 2004 to $37,186,779 as of December 31, 2005. This decrease is attributed to improved inventory figures aremanagement procedures and a focused effort by management to reduce inventory levels.
Accounts payable decreased 31.7% from $8,852,713 on December 31, 2004 to $6,046,575 on December 31, 2005 primarily due to the lower inventory levels discussed above.
Other current liabilities decreased 15.4% from $3,761,660 on December 31, 2004 to $3,182,159 on December 31, 2005. The decrease is primarily attributed to a FIFO basis.
decrease of $278,000 in accrued workers’ compensation liabilities as a result of a shift from a self-insured workers’ compensation program in 2004 to a fully insured plan in 2005 and a reduction of $230,000 in the liability related to the Company’s interest rate swap agreement.
The working capital of the Company at December 31, 20032005 was approximately $66,213,000$57,968,000 and the working capital ratio, 6.7:6.3:1; for 2002, it2004, our working capital was approximately $61,689,000$61,256,000 and the working capital ratio, 6.1:5.3:1. 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 2003,2005, the Company’s percentage of total debt to total debt and equity was 8.1%6.5% and in 20022004 it was 9.6%7.7%. The decrease is attributed primarily to decreased borrowings under the Company’s borrowing agreements as a result of the reduced working capital requirementsscheduled repayments in 2003.
2005.
The Company has an on-going capital expenditure program designed to maintain and improve its facilities. Capital expenditures were approximately $2,051,000, $2,820,000,$2,157,000, $6,162,000, and $1,349,000,$2,051,000, in the years 2005, 2004, and 2003, 2002,respectively. The significant increase in 2004, and 2001,subsequent decrease in 2005, was primarily attributed to an upgrade of the Company’s central warehouse distribution system in Eudora, Arkansas. This project was completed in January of 2005. Total capitalized expenditures for this project in 2005 and 2004, were approximately $830,000 and $5,237,000, respectively. During 2005 the Company also sold its warehouse and distribution facility in Tampa, Florida generating proceeds of approximately $3,093,000. Additionally, in 2004, the Company purchased certain software for approximately $990,000 that was 100% financed via long-term debt. The Company at all times evaluates its capital expenditure programs in light of prevailing economic conditions. During 2004, the Company anticipates completing an upgrade of its central warehouse distribution system in Eudora, Arkansas. This project has an expected total cost of approximately $4,600,000 and is expected to be completed during the fourth quarter of 2004.
7
Management’ s Discussion and Analysis of Financial Condition and Results of Operations (con’t)
During the years ended December 31, 20032005 and 2002,2004, the Company paid cash dividends of approximately $3,895,000$3,993,000 and $3,818,000,$4,015,000, respectively, on a quarterly dividend of $.135 per share. In July 2002, our Board of Directors reset the common stock repurchase program authorization so that the Company may make future repurchases of up to 750,000 of its common shares. The Company reacquired and retired 35,000295,124 and 16,00094,950 of its common shares in the years ended December 31, 20032005 and 2002,2004, respectively, with costs of $366,000$3,620,000 and $178,000,$1,312,000, respectively. At December 31, 2005, we had approximately 309,000 shares remaining on our common stock repurchase authorization. Shares purchased under our share repurchase program are constructively retired and returned to unissued status. We consider several factors in determining when to make share repurchases, including among other things, our cost of equity, our after-tax cost of borrowing, our debt to total capitalization targets and our expected future cash needs. There is no expiration date or other restriction governing the period over which we can make our share repurchases under the program. The Company anticipates that it will continue to pay dividends and that it will repurchase additional shares of its common stock in the future as financial conditions allow.
permit.
In 2003,2005, cash and cash equivalents increased by $7,444,000.approximately $3,069,000. This increase is attributed to approximately $12,826,000$11,239,000 in cash provided from operations, approximately $475,000 provided from investing activities and approximately $8,645,000 utilized in financing activities. Financing activities consisted primarily of dividends paid and common stock repurchases, as discussed above, as well as scheduled debt payments of approximately $1,594,000. These amounts were offset by approximately $562,000 in proceeds for the exercise of employee stock options.
In 2004, cash and cash equivalents decreased by approximately $14,765,000. This decrease is attributed to approximately $2,714,000 in cash provided from operations, offset by approximately $2,688,000$12,633,000 utilized in investing activities and approximately $2,693,000$4,846,000 utilized in financing activities.
In 2002, cash and cash equivalents increased by $4,256,000. This increase is attributed to approximately $18,816,000 in cash provided from operations, offset by approximately $3,855,000 Investing activities consisted primarily of $6,272,000 utilized in investing activitiesthe acquisition of UniVogue in the first quarter of 2004 and approximately $10,706,000$6,162,000 utilized in financing activities.
for fixed asset additions, primarily for the central warehouse distribution system.
On March 26, 1999, the Company entered into a 3-year credit agreement with Wachovia Bank 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 (1.72%(5.0% at December 31, 2003)2005). 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 December 31, 2003,2005, approximately $154,000$117,000 was outstanding under letters of credit. On
Management’ s Discussion and Analysis of Financial Condition and Results of Operations
March 27, 2001, and again on April 27, 2004, the Company entered into an agreementagreements with Wachovia Bank to extend the maturity of the revolving credit agreement. The revolving credit agreement matures on March 26, 2004.June 30, 2007. At the option of the Company, any outstanding balance on the agreement at that date will convert to a one-year term loan. The remaining terms of the original revolving credit agreement remain unchanged. The Company has received a verbal commitment from its lender to renew the revolving credit agreement for an additional 3-year period on terms substantially the same as the existing agreement. 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.
On October 16, 2000, the Company entered into a 5-year term loan with Wachovia Bank. The term loan was an amortizing loan, with monthly payments of principal in the amount of $83,333 plus interest, scheduled to mature on November 1, 2005. The term loan carried a variable interest rate of LIBOR plus 0.80% based upon the one-month LIBOR rate for U.S. dollar based borrowings. The proceeds of this term loan were utilized to reduce the outstanding balance on the Company’s revolving credit agreement. Concurrent with the execution of the new term loan agreement, Wachovia Bank and the Company amended the March 26, 1999 term loan and the revolving credit agreement to revise the net worth requirements. The net worth requirements included below reflect this amendment. This term loan was paid in full in June 2001.
The credit agreement and the term loansloan with Wachovia Bank contain restrictive provisions concerning debt to net worth ratios, other borrowings, capital expenditures, rental commitments, tangible net worth ($70,535,00073,379,000 at December 31, 2003)2005); working capital ratio (2.5:1), fixed charges coverage ratio (2.5:1), stock repurchases and payment of dividends. At December 31, 2003,2005, under the most restrictive terms of the debt agreements, retained earnings of approximately $14,255,000$5,379,000 were available for declaration of dividends. The Company is in full compliance with all terms, conditions and covenants of the various credit agreements.
The Company prepaid the balance of its 6.65% note payable to MassMutual, including a prepayment penalty of approximately $285,000, on March 18, 2002 utilizing cash balances on hand as of December 31, 2001 and additional cash generated from operations in the first quarter of 2002. With funds from the credit agreement, 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 2004.
8
Management’ s Discussion and Analysis of Financial Condition and Results of Operations (con’t)
2006.
The following table summarizes our fixed cash obligations as of December 31, 20032005 for the fiscal years ending December 31:following periods:
| 2004 | 2005 | 2006 | 2007 | 2008 | 2009 and thereafter | Total | |||||||||||||||
Variable rate term loans and revolving credit facility | $ | 1,179,000 | $ | 1,264,000 | $ | 1,352,000 | $ | 1,448,000 | $ | 1,551,000 | $ | 651,000 | $ | 7,445,000 | |||||||
Other debt arrangements, including capital leases | — | — | — | — | — | — | — | ||||||||||||||
Operating leases | 388,000 | 254,000 | 183,000 | 150,000 | 87,000 | — | 1,062,000 | ||||||||||||||
Total contractual cash obligations | $ | 1,567,000 | $ | 1,518,000 | $ | 1,535,000 | $ | 1,598,000 | $ | 1,638,000 | $ | 651,000 | $ | 8,507,000 | |||||||
| Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | |||||||||||
Variable rate term loans and revolving credit facility | $ | 1,353,000 | $ | 2,999,000 | $ | 650,000 | $ | — | $ | 5,002,000 | |||||
Other debt arrangements, including capital leases | 330,000 | 330,000 | — | — | $ | 660,000 | |||||||||
Operating leases | 377,000 | 552,000 | 267,000 | — | $ | 1,196,000 | |||||||||
Total contractual cash obligations | $ | 2,060,000 | $ | 3,881,000 | $ | 917,000 | $ | — | $ | 6,858,000 | |||||
The Company does not engage in any off-balance sheet financing arrangements. In particular, we do not have any interest in so-called limited purposevariable interest entities, which include special purpose entities and structured finance entities.
Critical Accounting Policies
Our significant accounting policies are described in Note 1 to the consolidated financial statements included in the Company’sthis Annual Report on Form 10-K for the year ended December 31, 2002.10-K. Our discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America for the preparation of interim financial statements.America. The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate the estimates that we have made. These estimates are based upon our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Our actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements.
Revenue Recognition and Allowance for Doubtful Accounts
The Company recognizesrecords revenue in the period in which the productas products are shipped and title passes. A provision for estimated returns and allowances is shipped.recorded based on historical experience and current allowance programs. Judgments and estimates are used in determining the
Management’s Discussion and Analysis of Financial Condition and Results of Operations
collectability of accounts receivable. The Company analyzes specific accounts receivable and historical bad debt experience, customer credit worthiness, current economic trends and the age of outstanding balances when evaluating the adequacy of the allowance for doubtful accounts. Management judgments and estimates are used in connection with establishing the allowance in any accounting period. Changes in estimates are reflected in the period they become known. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Material differences may result in the amount and timing of bad debt expense recognition for any given period if management makes different judgments or utilizes different estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market value. Judgments and estimates are used in determining the likelihood that new goods on hand can be sold to customers. Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
9
Management’ s Discussion and Analysis of Financial Condition and Results of Operations (con’t)
Insurance
The Company self-insures for certain obligations related to health and workers’ compensation programs. The Company also purchases stop-loss insurance policies to protect it from catastrophic losses. Judgments and estimates are used in determining the potential value associated with reported claims and for losses that have occurred, but have not been reported. The Company’s estimates consider historical claim experience and other factors. The Company’s liabilities are based on estimates, and, while the Company believes that the accrual for loss is adequate, the ultimate liability may be in excess of or less than the amounts recorded. Changes in claim experience, the Company’s ability to settle claims or other estimates and judgments used by management could have a material impact on the amount and timing of expense for any period.
Recent Accounting Pronouncements:
RECENT ACCOUNTING PRONOUNCEMENTS: In December 2002,2004, the FASB issued FAS No. 148, Accounting123 (revised 2004),“Share-Based Payment.” FAS 123(R) addresses the accounting for Stock-Based Compensation — Transitionshare-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. Statement 123(R) requires an entity to recognize the grant-date fair-value of stock options and Disclosure. FAS No. 148 amends FAS No. 123, Accountingother equity-based compensation issued to employees in the income statement. The revised Statement generally requires that an entity account for Stock-Based Compensation, to provide alternative voluntary methods of transition tothose transactions using the fairfair-value-based method, and eliminates the intrinsic value method of accounting in APB Opinion No. 25,“Accounting for stock-based employee compensation. In addition, FAS No. 148 amendsStock Issued to Employees”, which was permitted under Statement 123, as originally issued.
The revised Statement requires entities to disclose information about the disclosure provisionsnature of FAS No. 123 to require disclosure in the summary of significant accounting policies ofshare-based payment transactions and the effects of an entity’s accounting policy with respect to stock-based employee compensationthose transactions on the reported net income and earnings per share in annual and interim financial statements. FAS No. 148123(R) is effective for fiscal years beginning after December 31, 2002. The Company elected not to change to the fair value based method of accounting for stock-based employee compensation. The Company adopted the disclosure provisions of FAS No. 148 for the quarter ending March 31, 2003. The adoption of FAS No. 148 has not had a material impact on the Company’s financial position and results of operations.
On January 17, 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46,Consolidation of Variable Interest Entities(“FIN No. 46”). FIN No. 46 addresses consolidation of entitiespublic companies that are not controlled through voting interests or in which the equity investors do not bear the residual economic risks and rewards. These entities have been commonly referred tofile as special purpose entities. FIN No. 46 provides guidance related to identifying variable interest entities and determining whether such entities should be consolidated. It also provides guidance related to the initial and subsequent measurementsmall business issuers as of assets, liabilities and non-controlling interests in newly consolidated variable interest entities and requires disclosures for both the primary beneficiary of a variable interest entity and other beneficiaries of the entity. To date, the Company has not created any variable interest entities.
In April 2003, the FASB issued FAS No. 149,Amendment of Statement 133 on Derivative Instruments and Hedging Activities, which amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FAS No. 133,Accounting for Derivative Instruments and Hedging Activities. FAS No. 149 is generally effective for derivative instruments, including derivative instruments embedded in certain contracts, entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of FAS No. 149 has not had a material impact on the Company’s financial position and results of operations.
In May 2003, the FASB issued FAS No. 150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.FAS No. 150 establishes standards for how to classify and measure certain financial instruments with characteristics of both liabilities and equity. FAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period of the first annual reporting period that begins after June 15, 2005 (i.e., first quarter 2006 for the Company). All public companies must use either the modified prospective or the modified retrospective transition method. All share-based compensation awards granted by the Company are fully vested at the date of grant. The Company will utilize the modified prospective transition method to implement this standard. The Company utilizes the Black-Scholes option pricing model to determine the fair value of its share-based compensation awards as disclosed in Note 1 of the Notes to Consolidated Financial Statements. The impact of adopting this standard is expected to be consistent with the pro-forma amounts shown in Note 1 of the Notes to Consolidated Financial Statements, assuming that the share-based compensation awards granted in the future are consistent with recent grants.
In November 2004, the FASB issued FAS No. 151, “Inventory Costs - an Amendment of ARB No. 43, Chapter 4,” to provide clarification that abnormal amounts of idle facility expense, freight, handling costs, and wasted material be recognized as current-period charges. In addition, this standard requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this standard are effective for inventory costs incurred during fiscal years beginning after June 15, 2003.2005. The adoption of FAS No. 150 hasCompany does not had a materialexpect this standard to have any significant impact on the Company’s consolidated financial positionstatements.
A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and resultsvarious regulatory agencies. Because of operations.the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements.
Item 7a.7A. Quantitative and Qualitative Disclosures About Market Risks
The Company is exposed to market risk from changes in interest rates, which may adversely affect its results of operations and financial condition. The Company seeks to minimize the risks from these interest rates when considered appropriate, through the limited use of derivative financial instruments. The Company’s policy is to not use financial instruments for trading or other speculative purposes and is not a party to any leveraged financial instruments. The Company has debt obligations with variable interest rates tied to LIBOR which are described in “Liquidity and Capital Resources” as well as Note 57 of the Notes to Consolidated Financial Statements. The Company estimates that a hypothetical increase in interest rates of 1% would have resulted in an insignificant increase in the Company’s interest expense for the year ended December 31, 2003.
10
Management’ s Discussion and Analysis of Financial Condition and Results of Operations (con’t)
2005.
The Company has one interest rate swap agreement to hedge against the potential impact on earnings from increases in market interest rates of a variable rate term loan. Under the interest rate swap agreement, the Company receives or makes payments on a monthly basis, based on the differential between a specified interest rate and one month LIBOR. A term loan of $7,445,068$5,002,350 is designated as a hedged item for the interest rate swapsswap at December 31, 2003.
2005.
This interest rate swap is accounted for as a cash flow hedge in accordance with FAS 133 and FAS 138. As of the report date, the swap met the effectiveness test, and as such no gains or losses were included in net income during the year related to hedge ineffectiveness and there was no income adjustment related to any portion excluded from the assessment of hedge effectiveness. A gain of $230,000 associated with this interest rate swap agreement was included in other comprehensive income for the year ended December 31, 2005. A gain of $317,000 associated with this interest rate swap agreement was included in other comprehensive income for the year ended December 31, 2004. A gain of $256,000 associated with this interest rate swap agreement was included in other comprehensive income for the year ended December 31, 2003. A loss of $464,000 was included in other comprehensive loss for the year ended December 31, 2002. A loss of $440,000, which includes the transition adjustment of $48,000, was included in other comprehensive loss for the year ended December 31, 2001. The fair market values of the interest rate swap of $648,000$101,000 and $904,000$331,000 are included in accrued expenses in the accompanying consolidated balance sheets as of December 31, 20032005 and 2002,2004, respectively. The original term of the contract is ten years.
The Company is also exposed to changes in prevailing market interest rates affecting the return on its investments but does not consider this interest rate market risk exposure to be material to its financial condition or results of operations. The Company invests primarily in highly liquid debt instruments with strong credit ratings and short-term (less than three months) maturities.
11
Item 8. Financial Statements and Supplementary Data
Superior Uniform Group, Inc. and Subsidiary
Consolidated Statements of Earnings
Years Ended December 31,
| 2003 | 2002 | 2001 | ||||||||
Net sales | $ | 134,324,365 | $ | 144,999,254 | $ | 153,205,568 | ||||
Costs and expenses: | ||||||||||
Cost of goods sold | 86,207,906 | 95,221,013 | 100,698,472 | |||||||
Selling and administrative expenses | 38,616,045 | 40,932,512 | 40,682,374 | |||||||
Interest expense | 696,504 | 853,081 | 1,623,016 | |||||||
| 125,520,455 | 137,006,606 | 143,003,862 | ||||||||
Earnings before taxes on income and cumulative effect of change in accounting principle | 8,803,910 | 7,992,648 | 10,201,706 | |||||||
Taxes on income | 3,100,000 | 2,895,000 | 3,730,000 | |||||||
Earnings before cumulative effect of change in accounting principle | 5,703,910 | 5,097,648 | 6,471,706 | |||||||
Cumulative effect of change in accounting principle, net of tax benefit of $2,560,000 | — | (4,504,563 | ) | — | ||||||
Net earnings | $ | 5,703,910 | $ | 593,085 | $ | 6,471,706 | ||||
Basic net earnings per common share: | ||||||||||
Earnings before cumulative effect of change in accounting principle | $ | 0.79 | $ | 0.72 | $ | 0.91 | ||||
Cumulative effect of change in accounting principle, net of tax | — | (0.64 | ) | — | ||||||
Basic net earnings per common share | $ | 0.79 | $ | 0.08 | $ | 0.91 | ||||
Diluted net earnings per common share: | ||||||||||
Earnings before cumulative effect of change in accounting principle | $ | 0.78 | $ | 0.71 | $ | 0.91 | ||||
Cumulative effect of change in accounting principle, net of tax | — | (0.63 | ) | — | ||||||
Diluted net earnings per common share | $ | 0.78 | $ | 0.08 | $ | 0.91 | ||||
Dividends per common share | $ | 0.54 | $ | 0.54 | $ | 0.54 | ||||
See Notes to Consolidated Financial Statements.
12
Superior Uniform Group, Inc. and Subsidiary
Consolidated Balance Sheets
December 31,
| 2003 | 2002 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 14,915,079 | $ | 7,470,719 | ||||
Accounts receivable, less allowance for doubtful accounts of $475,000 and $565,000, respectively | 24,419,287 | 20,413,202 | ||||||
Inventories | 36,380,470 | 42,655,934 | ||||||
Prepaid expenses and other current assets | 2,156,065 | 3,270,339 | ||||||
TOTAL CURRENT ASSETS | 77,870,901 | 73,810,194 | ||||||
PROPERTY, PLANT AND EQUIPMENT, NET | 18,289,436 | 20,059,164 | ||||||
GOODWILL | 741,929 | 741,929 | ||||||
OTHER ASSETS | 6,071,667 | 5,215,665 | ||||||
| $ | 102,973,933 | $ | 99,826,952 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 5,400,401 | $ | 5,191,993 | ||||
Accrued expenses | 5,078,982 | 5,825,422 | ||||||
Current portion of long-term debt | 1,179,021 | 1,104,080 | ||||||
TOTAL CURRENT LIABILITIES | 11,658,404 | 12,121,495 | ||||||
LONG-TERM DEBT | 6,266,047 | 7,445,068 | ||||||
DEFERRED INCOME TAXES | 165,000 | 150,000 | ||||||
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11) | ||||||||
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 - 7,370,612 and 7,131,237, respectively. | 7,371 | 7,131 | ||||||
Additional paid-in capital | 13,641,223 | 10,620,073 | ||||||
Retained earnings | 71,883,888 | 70,387,185 | ||||||
Other comprehensive income (loss): | ||||||||
Cash flow hedges | (648,000 | ) | (904,000 | ) | ||||
TOTAL SHAREHOLDERS’ EQUITY | 84,884,482 | 80,110,389 | ||||||
| $ | 102,973,933 | $ | 99,826,952 | |||||
See Notes to Consolidated Financial Statements.
13
Superior Uniform Group, Inc. and Subsidiary
Consolidated Statements of Shareholders’ Equity
Years Ended December 31,
Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | ||||||||||||||||||
Balance, January 1, 2001 | 7,123,327 | $ | 7,123 | $ | 9,750,850 | $ | 71,883,890 | $ | $ | 81,641,863 | |||||||||||||
Common shares issued upon exercise of options | 4,000 | 4 | 32,496 | — | — | 32,500 | |||||||||||||||||
Purchase and retirement of common shares | (94,440 | ) | (94 | ) | (129,365 | ) | (753,555 | ) | — | (883,014 | ) | ||||||||||||
Cash dividends declared ($.54 per share) | — | — | — | (3,834,658 | ) | — | (3,834,658 | ) | |||||||||||||||
Comprehensive Income: | |||||||||||||||||||||||
Net earnings | — | — | — | 6,471,706 | — | 6,471,706 | |||||||||||||||||
Transition adjustment for FAS 133 related to cash flow hedges | — | — | — | — | (48,000 | ) | (48,000 | ) | |||||||||||||||
Net change during the period related to cash flow hedges | — | — | — | — | (392,000 | ) | (392,000 | ) | |||||||||||||||
Net change during the period related to minimum pension liability | — | — | — | — | (226,192 | ) | (226,192 | ) | |||||||||||||||
Other comprehensive loss | (666,192 | ) | |||||||||||||||||||||
Comprehensive Income | 5,805,514 | ||||||||||||||||||||||
Balance, December 31, 2001 | 7,032,887 | 7,033 | 9,653,981 | 73,767,383 | (666,192 | ) | 82,762,205 | ||||||||||||||||
Common shares issued upon exercise of options | 114,350 | 114 | 989,244 | — | — | 989,358 | |||||||||||||||||
Purchase and retirement of common shares | (16,000 | ) | (16 | ) | (23,152 | ) | (155,132 | ) | — | (178,300 | ) | ||||||||||||
Cash dividends declared ($.54 per share) | — | — | — | (3,818,151 | ) | — | (3,818,151 | ) | |||||||||||||||
Comprehensive Income: | |||||||||||||||||||||||
Net earnings | — | — | — | 593,085 | — | 593,085 | |||||||||||||||||
Net change during the period related to cash flow hedges | — | — | — | — | (464,000 | ) | (464,000 | ) | |||||||||||||||
Net change during the period related to minimum pension liability | — | — | — | — | 226,192 | 226,192 | |||||||||||||||||
Other comprehensive loss | (237,808 | ) | |||||||||||||||||||||
Comprehensive Income | 355,277 | ||||||||||||||||||||||
Balance, December 31, 2002 | 7,131,237 | 7,131 | 10,620,073 | 70,387,185 | (904,000 | ) | 80,110,389 | ||||||||||||||||
Common shares issued upon exercise of options | 274,375 | 275 | 2,671,396 | — | — | 2,671,671 | |||||||||||||||||
Tax benefit from exercise of stock options | — | — | 403,000 | — | — | 403,000 | |||||||||||||||||
Purchase and retirement of common shares | (35,000 | ) | (35 | ) | (53,246 | ) | (312,469 | ) | — | (365,750 | ) | ||||||||||||
Cash dividends declared ($.54 per share) | — | — | — | (3,894,738 | ) | — | (3,894,738 | ) | |||||||||||||||
Comprehensive Income: | |||||||||||||||||||||||
Net earnings | — | — | — | 5,703,910 | — | 5,703,910 | |||||||||||||||||
Net change during the period related to cash flow hedges | — | — | — | — | 256,000 | 256,000 | |||||||||||||||||
Other comprehensive income | 256,000 | ||||||||||||||||||||||
Comprehensive Income | 5,959,910 | ||||||||||||||||||||||
Balance, December 31, 2003 | 7,370,612 | $ | 7,371 | $ | 13,641,223 | $ | 71,883,888 | $ | (648,000 | ) | $ | 84,884,482 | |||||||||||
See Notes to Consolidated Financial Statements.
14
Superior Uniform Group, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
| 2003 | 2002 | 2001 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Earnings before cumulative effect of change in accounting principle | $ | 5,703,910 | $ | 5,097,648 | $ | 6,471,706 | ||||||
Adjustments to reconcile net earnings to net cash provided from operating activities: | ||||||||||||
Depreciation and amortization | 3,602,074 | 4,217,197 | 4,772,846 | |||||||||
Provision for bad debts | 218,000 | 1,165,536 | 584,000 | |||||||||
Tax benefit from exercise of stock options | 403,000 | — | — | |||||||||
Deferred income tax (benefit) provision | 15,000 | 460,000 | (50,000 | ) | ||||||||
Changes in assets and liabilities: | ||||||||||||
Accounts receivable | (4,224,085 | ) | 3,022,781 | 6,193,877 | ||||||||
Inventories | 6,275,464 | 5,437,225 | 9,817,135 | |||||||||
Prepaid expenses and other current assets | 1,114,274 | 291,162 | (2,111,804 | ) | ||||||||
Accounts payable | 208,408 | (1,609,806 | ) | (2,168,864 | ) | |||||||
Accrued expenses | (490,440 | ) | 734,683 | 815,250 | ||||||||
Net cash flows provided from operating activities | 12,825,605 | 18,816,426 | 24,324,146 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Additions to property, plant and equipment | (2,051,067 | ) | (2,820,406 | ) | (1,349,478 | ) | ||||||
Reduction in property, plant and equipment | 218,721 | 652,980 | 2,535,146 | |||||||||
Other assets | (856,002 | ) | (1,687,300 | ) | (290,777 | ) | ||||||
Net cash (used in) provided from investing activities | (2,688,348 | ) | (3,854,726 | ) | 894,891 | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Repayment of long-term debt | (1,104,080 | ) | (7,698,480 | ) | (17,507,561 | ) | ||||||
Payment of cash dividends | (3,894,738 | ) | (3,818,151 | ) | (3,834,658 | ) | ||||||
Proceeds received on exercise of stock options | 2,671,671 | 989,358 | 32,500 | |||||||||
Common stock reacquired and retired | (365,750 | ) | (178,300 | ) | (883,014 | ) | ||||||
Net cash used in financing activities | (2,692,897 | ) | (10,705,573 | ) | (22,192,733 | ) | ||||||
Net increase in cash and cash equivalents | 7,444,360 | 4,256,127 | 3,026,304 | |||||||||
Cash and cash equivalents balance, beginning of year | 7,470,719 | 3,214,592 | 188,288 | |||||||||
Cash and cash equivalents balance, end of year | $ | 14,915,079 | $ | 7,470,719 | $ | 3,214,592 | ||||||
| 2005 | 2004 | 2003 | |||||||
Net sales | $ | 133,312,351 | $ | 143,567,473 | $ | 137,326,341 | |||
Costs and expenses: | |||||||||
Cost of goods sold | 93,596,828 | 96,279,784 | 90,334,765 | ||||||
Selling and administrative expenses | 37,610,557 | 38,524,803 | 37,491,162 | ||||||
Interest expense | 610,781 | 624,199 | 696,504 | ||||||
| 131,818,166 | 135,428,786 | 128,522,431 | |||||||
Earnings before taxes on income | 1,494,185 | 8,138,687 | 8,803,910 | ||||||
Taxes on income | 250,000 | 2,760,000 | 3,100,000 | ||||||
Net earnings | $ | 1,244,185 | $ | 5,378,687 | $ | 5,703,910 | |||
Basic net earnings per common share | $ | 0.17 | $ | 0.72 | $ | 0.79 | |||
Diluted net earnings per common share | $ | 0.17 | $ | 0.71 | $ | 0.78 | |||
Dividends per common share | $ | 0.54 | $ | 0.54 | $ | 0.54 | |||
See Notes to Consolidated Financial Statements.
15
Superior Uniform Group, Inc. and Subsidiary
Consolidated Balance Sheets
Years Ended December 31,
| 2005 | 2004 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 3,220,174 | $ | 150,563 | ||||
Accounts receivable, net | 25,706,970 | 26,938,861 | ||||||
Inventories | 37,186,779 | 45,741,410 | ||||||
Prepaid expenses and other current assets | 2,765,979 | 2,632,918 | ||||||
TOTAL CURRENT ASSETS | 68,879,902 | 75,463,752 | ||||||
PROPERTY, PLANT AND EQUIPMENT, NET | 18,079,292 | 22,062,359 | ||||||
GOODWILL | 1,617,411 | 1,617,411 | ||||||
OTHER INTANGIBLE ASSETS | 1,250,333 | 1,488,492 | ||||||
OTHER ASSETS | 7,434,119 | 7,322,229 | ||||||
| $ | 97,261,057 | $ | 107,954,243 | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
| |||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 6,046,575 | $ | 8,852,713 | ||||
Accrued expenses | 3,182,159 | 3,761,660 | ||||||
Current portion of long-term debt | 1,683,029 | 1,593,807 | ||||||
TOTAL CURRENT LIABILITIES | 10,911,763 | 14,208,180 | ||||||
LONG-TERM DEBT | 3,979,540 | 5,662,569 | ||||||
DEFERRED INCOME TAXES | 845,000 | 1,015,000 | ||||||
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12) | ||||||||
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—7,202,338 and 7,436,512, respectively. | 7,202 | 7,437 | ||||||
Additional paid-in capital | 15,240,229 | 15,265,862 | ||||||
Retained earnings | 66,378,323 | 72,126,195 | ||||||
Other comprehensive income (loss): | ||||||||
Cash flow hedges | (101,000 | ) | (331,000 | ) | ||||
TOTAL SHAREHOLDERS’ EQUITY | 81,524,754 | 87,068,494 | ||||||
| $ | 97,261,057 | $ | 107,954,243 | |||||
See Notes to Consolidated Financial Statements.
Superior Uniform Group, Inc. and Subsidiary
Consolidated Statements of Shareholders’ Equity
Years Ended December 31,
| Common Shares | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | ||||||||||||||||||
Balance, January 1, 2003 | 7,131,237 | $ | 7,131 | $ | 10,620,073 | $ | 70,387,185 | $ | (904,000 | ) | $ | 80,110,389 | |||||||||||
Common shares issued upon exercise of options | 274,325 | 275 | 2,671,396 | 2,671,671 | |||||||||||||||||||
Tax benefit from exercise of stock options | 403,000 | 403,000 | |||||||||||||||||||||
Purchase and retirement of common shares | (35,000 | ) | (35 | ) | (53,246 | ) | (312,469 | ) | (365,750 | ) | |||||||||||||
Cash dividends declared ($.54 per share) | (3,894,738 | ) | (3,894,738 | ) | |||||||||||||||||||
Comprehensive Income: | |||||||||||||||||||||||
Net earnings | 5,703,910 | 5,703,910 | |||||||||||||||||||||
Net change during the period related to cash flow hedges | 256,000 | 256,000 | |||||||||||||||||||||
Other comprehensive Income | 256,000 | ||||||||||||||||||||||
Comprehensive Income | 5,959,910 | ||||||||||||||||||||||
Balance, December 31, 2003 | 7,370,562 | 7,371 | 13,641,223 | 71,883,888 | (648,000 | ) | 84,884,482 | ||||||||||||||||
Common shares issued upon exercise of options | 160,900 | 161 | 1,659,233 | 1,659,394 | |||||||||||||||||||
Tax benefit from exercise of stock options | 155,000 | 155,000 | |||||||||||||||||||||
Purchase and retirement of common shares | (94,950 | ) | (95 | ) | (189,594 | ) | (1,121,821 | ) | (1,311,510 | ) | |||||||||||||
Cash dividends declared ($.54 per share) | (4,014,559 | ) | (4,014,559 | ) | |||||||||||||||||||
Comprehensive Income: | |||||||||||||||||||||||
Net earnings | 5,378,687 | 5,378,687 | |||||||||||||||||||||
Net change during the period related to cash flow hedges | 317,000 | 317,000 | |||||||||||||||||||||
Other comprehensive Income | 317,000 | ||||||||||||||||||||||
Comprehensive Income | 5,695,687 | ||||||||||||||||||||||
Balance, December 31, 2004 | 7,436,512 | 7,437 | 15,265,862 | 72,126,195 | (331,000 | ) | 87,068,494 | ||||||||||||||||
Common shares issued upon exercise of options | 60,950 | 61 | 562,137 | 562,198 | |||||||||||||||||||
Tax benefit from exercise of stock options | 33,000 | 33,000 | |||||||||||||||||||||
Purchase and retirement of common shares | (295,124 | ) | (296 | ) | (620,770 | ) | (2,999,624 | ) | (3,620,690 | ) | |||||||||||||
Cash dividends declared ($.54 per share) | (3,992,433 | ) | (3,992,433 | ) | |||||||||||||||||||
Comprehensive Income: | |||||||||||||||||||||||
Net earnings | 1,244,185 | 1,244,185 | |||||||||||||||||||||
Net change during the period related to cash flow hedges | 230,000 | 230,000 | |||||||||||||||||||||
Other comprehensive Income | 230,000 | ||||||||||||||||||||||
Comprehensive Income | 1,474,185 | ||||||||||||||||||||||
Balance, December 31, 2005 | 7,202,338 | $ | 7,202 | $ | 15,240,229 | $ | 66,378,323 | $ | (101,000 | ) | $ | 81,524,754 | |||||||||||
Superior Uniform Group, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31,
| 2005 | 2004 | 2003 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net earnings | $ | 1,244,185 | $ | 5,378,687 | $ | 5,703,910 | ||||||
Adjustments to reconcile net earnings to net cash provided from operating activities: | ||||||||||||
Depreciation and amortization | 3,936,752 | 3,489,772 | 3,602,074 | |||||||||
Provision (recovery) for bad debts | 114,000 | (11,638 | ) | 218,000 | ||||||||
Tax benefit from exercise of stock options | 33,000 | 155,000 | 403,000 | |||||||||
Deferred income tax (benefit) provision | (170,000 | ) | 850,000 | 15,000 | ||||||||
Gain on sale of property, plant and equipment | (651,944 | ) | — | — | ||||||||
Changes in assets and liabilities, net of acquisition: | ||||||||||||
Accounts receivable | 1,117,891 | 506,861 | (4,224,085 | ) | ||||||||
Inventories | 8,554,631 | (7,295,496 | ) | 6,275,464 | ||||||||
Prepaid expenses and other current assets | (133,061 | ) | (216,142 | ) | 1,114,274 | |||||||
Other assets | 349,299 | (864,062 | ) | (406,838 | ) | |||||||
Accounts payable | (2,806,138 | ) | 1,721,251 | 208,408 | ||||||||
Accrued expenses | (349,501 | ) | (1,000,322 | ) | (490,440 | ) | ||||||
Net cash flows provided from operating activities | 11,239,114 | 2,713,911 | 12,418,767 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Additions to property, plant and equipment | (2,157,013 | ) | (6,162,371 | ) | (2,051,067 | ) | ||||||
Proceeds from disposal of property, plant and equipment | 3,093,431 | 176,656 | 218,721 | |||||||||
Purchase of business, net of cash acquired | — | (6,272,259 | ) | — | ||||||||
Other assets | (461,189 | ) | (374,757 | ) | (449,164 | ) | ||||||
Net cash provided from (used in) investing activities | 475,229 | (12,632,731 | ) | (2,281,510 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Repayment of long-term debt | (1,593,807 | ) | (1,179,021 | ) | (1,104,080 | ) | ||||||
Payment of cash dividends | (3,992,433 | ) | (4,014,559 | ) | (3,894,738 | ) | ||||||
Proceeds received on exercise of stock options | 562,198 | 1,659,394 | 2,671,671 | |||||||||
Common stock reacquired and retired | (3,620,690 | ) | (1,311,510 | ) | (365,750 | ) | ||||||
Net cash used in financing activities | (8,644,732 | ) | (4,845,696 | ) | (2,692,897 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 3,069,611 | (14,764,516 | ) | 7,444,360 | ||||||||
Cash and cash equivalents balance, beginning of year | 150,563 | 14,915,079 | 7,470,719 | |||||||||
Cash and cash equivalents balance, end of year | $ | 3,220,174 | $ | 150,563 | $ | 14,915,079 | ||||||
See Notes to Consolidated Financial Statements.
Superior Uniform Group, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Years Ended December 31, 2003, 2002,2005, 2004, and 2001
2003
NOTE 1 – Summary of Significant Accounting Policies:
a) Business description
Superior Uniform Group Inc.®, through its Signature marketing brands – Fashion Seal®, Fashion Seal Healthcare™, Martin’s®, Worklon®, Sope Creek® and subsidiary (“the Company”)UniVogue™ – manufactures and sells a wide range of uniforms, corporate I.D., careerimage apparel and accessories, forprimarily in domestic markets. Superior specializes in managing comprehensive uniform programs, and is dedicated to servicing the hospitalHealthcare, Hospitality, Restaurant/Food Services, Retail Employee I.D., Governmental/Public Safety, Entertainment, Commercial, Transportation, Cleanroom, Corporate Identity 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. Revenue recognition from the sale of products is recorded at the time the finished goods are shipped.
Resortwear markets.
b) Basis of presentation
The consolidated financial statements include the accounts of Superior Uniform Group, Inc. and its wholly-owned subsidiary, Fashion Seal Corporation.Corporation (collectively, the “Company”). Intercompany items have been eliminated in consolidation.
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) Revenue Recognition and Allowance for Doubtful Accounts
d)The Company recognizes revenue as products are shipped and title passes. Judgments and estimates are used in determining the collectability of accounts receivable. The Company analyzes specific accounts receivable and historical bad debt experience, customer credit worthiness, current economic trends and the age of outstanding balances when evaluating the adequacy of the allowance for doubtful accounts. Management judgments and estimates are used in connection with establishing the allowance in any accounting period. Changes in estimates are reflected in the period they become known. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
e) Advertising expenses
The Company expenses advertising costs as incurred. Advertising costs for the years ended December 31, 2005, 2004 and 2003, respectively were $171,041, $227,194 and $143,296.
f) Shipping and handling fees and costs
The Company follows EITF 00-10,Accounting for Shipping and Handling Fees and Costs,which requires shipping and handling fees billed to customers to be classified as revenue and shipping and handling costs to be either classified as cost of sales or disclosed in the notes to the financial statements. The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with in-bound and out-bound freight are generally recorded in cost of goods sold. Other shipping and handling costs are included in selling and administrative expenses and totaled $8,451,407, $7,521,935 and $6,624,113 for the years ended December 31, 2005, 2004 and 2003, respectively.
g) Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market.market value. Judgments and estimates are used in determining the likelihood that goods on hand can be sold to customers. Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
e)h) 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.
i) Goodwill and other intangible assets
f) Goodwill
Goodwill consistsThe Company follows FAS No. 142, “Goodwill and Other Intangible Assets,” which addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be separately disclosed from other intangible assets in the coststatement of acquired businesses in excess of the fair value of net assets acquired.financial position, and no longer be amortized but tested for impairment on a periodic basis. We annually evaluate the recoverability of goodwill and take into account events or circumstances that warrant revised estimates of useful lives or indicate that an impairment exists. ForThe Company has completed the year endedannual impairment test at December 31, 2001, we amortized goodwill over 20-40 years on a straight-line basis2005, 2004 and goodwill amortization2003 which indicated no impairment of the remaining goodwill. Amortization expense for other intangible assets was approximately $419,000. There was no amortization expense$238,159, $178,619 and $0, for the years ended December 31, 2005, 2004 and 2003, and 2002.
g) Impairment of long-livedrespectively. Other intangible assets
In October 2001, were recorded in the FASB issued FAS No. 144,Accounting foryear ended December 31, 2004 as the Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years beginning after December 15, 2001. FAS No. 144 replaces FAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. The accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30,Reporting Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, for the disposal of segments of a business. FAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less costs to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. FAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the restCompany completed its valuation of the entity and that will be eliminated fromUniVogue acquisition. Other intangible assets include the ongoing operationsvalue assigned to the customer list acquired in this acquisition of the entity in a disposal transaction. FAS No. 144 did not have a material effect on the Company’s consolidated financial statements.$1,667,111 less accumulated amortization of $416,778. The customer list is being amortized over 7 years.
h)j) Depreciation and amortization
PlantsPlant and equipment are depreciated on the straight-line basis at 2 1/2%2-1/2% to 5% for buildings, 2 1/2%2-1/2% to 20% for improvements, 10% to 20% for machinery, equipment and fixtures and 20% to 33 1/3%33-1/3% for transportation equipment. Leasehold improvements are amortized over the terms of the leases inasmuch as such improvements have useful lives equivalent toof at least the terms of the respective leases.
i)k) Employee benefits
Pension plan costs are funded currently based on actuarial estimates, with prior service costs amortized over 20 years. The Company recognizes settlement gains and losses in its financial statements when the cost of all settlements in a year is greater than the sum of the service cost and interest cost components of net periodic pension cost for the plan for the year.
l) Insurance
j)The Company self-insures for certain obligations related to health and workers’ compensation programs. The Company also purchases stop-loss insurance policies to protect it from catastrophic losses. Judgments and estimates are used in determining the potential value associated with reported claims and for losses that have occurred, but have not been reported. The Company’s estimates consider historical claim experience and other factors. The Company’s liabilities are based on estimates, and, while the Company believes that the accrual for loss is adequate, the ultimate liability may be in excess of or less than the amounts recorded. Changes in claim experience, the Company’s ability to settle claims or other estimates and judgments used by management could have a material impact on the amount and timing of expense for any period.
m) Taxes on income
The Company computes taxes currently payable upon determination of taxable income which differs from pre-tax financial statement income. DeferredIncome taxes are provided for under the liability method in accordance with FAS No. 109, “Accounting for Income Taxes”, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on this difference, primarily the effectdate of computing depreciationenactment.
n) Impairment of plantLong-Lived Assets
In accordance with FAS No. 144,Accounting for Impairment or Disposal of Long-lived Assets, long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by accelerated methods for tax purposes andcomparison of its carrying amount to future net cash flows the asset is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the straight-line method for financial reporting purposes.carrying amount of the asset exceeds its fair market value.
k)o) Stock based compensation
In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 148 (FAS) No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure.” This Statement amends FAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company continues to apply Accounting Principles Board OpinionAPB No. 25 for the method used to account for stock-based employee compensation arrangements, where applicable, but has adopted the disclosure requirements of SFASFAS No. 148 beginning with its first quarter ending March 31, 2003. The Company estimated the fair value of options utilizing the Black-Scholes option pricing model.
16
The following table illustrates the effect on net earnings and net earnings per common share as if the fair value based method had been applied to all awards in each period.period:
| December 31, | December 31, | |||||||||||||||||
| 2003 | 2002 | 2001 | 2005 | 2004 | 2003 | |||||||||||||
Net earnings, as reported | $ | 5,703,910 | $ | 593,085 | $ | 6,471,706 | $ | 1,244,185 | $ | 5,378,687 | $ | 5,703,910 | ||||||
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | 585,502 | 317,603 | 386,700 | 763,771 | 715,917 | 585,502 | ||||||||||||
Pro forma net earnings | $ | 5,118,408 | $ | 275,482 | $ | 6,085,006 | $ | 480,414 | $ | 4,662,770 | $ | 5,118,408 | ||||||
Net earnings per common share: | ||||||||||||||||||
Basic – as reported | $ | 0.79 | $ | 0.08 | $ | 0.91 | $ | 0.17 | $ | 0.72 | $ | 0.79 | ||||||
Basic – pro forma | $ | 0.71 | $ | 0.04 | $ | 0.86 | $ | 0.06 | $ | 0.63 | $ | 0.71 | ||||||
Diluted – as reported | $ | 0.78 | $ | 0.08 | $ | 0.91 | $ | 0.17 | $ | 0.71 | $ | 0.78 | ||||||
Diluted – pro forma | $ | 0.70 | $ | 0.04 | $ | 0.85 | $ | 0.06 | $ | 0.61 | $ | 0.70 | ||||||
l)p) Earnings per share
Historical basicBasic per share data under FAS 128 is based on the weighted average number of shares outstanding. Historical dilutedDiluted 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.
m)q) Comprehensive Income
FAS No. 130, “Reporting Comprehensive Income” requires disclosure of total comprehensive income in addition to the existing income statement.. Other comprehensive income (loss) 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).
n)r) Operating Segments
FAS No. 131 “Disclosures about Segments of an Enterprise and Related Information” requires disclosures of certain information about operating segments and about products and services, and geographic areas in which the Company operates, and their major customers. The Company has evaluated the effect of this standard and has determined that currently we operateit operates in one segment, as defined in this statement.
o)
s) Risks and Concentrations
In 2005, 2004 and 2003 approximately 73%, 70% and 75%, respectively, of the Company’s products were obtained from suppliers located in Central America. Any inability by the Company to continue to obtain its products from Central America could significantly disrupt the Company’s business. Because the Company manufactures and sources products in Central America, the Company is affected by economic conditions in those countries, including increased duties, possible employee turnover, labor unrest and lack of developed infrastructure. Included in the Company’s consolidated balance sheets at December 31, 2005 and 2004 are receivable balances from contractors in Central America totaling approximately $5.2 million and $4.5 million, respectively.
t) Derivative Financial Instruments
Effective January 1, 2001, theThe Company adoptedfollows FAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” as amended by FAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities - an—an Amendment to FASBFAS Statement No. 133.” FAS 133 and FAS 138 established new accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The cumulative effect of the adoption of FAS 133 and FAS 138, as of January 1, 2001 resulted in a $48,000 decrease in other comprehensive income and had no impact on net income. The Company has only limited involvement with derivative financial instruments. The Company has one interest rate swap agreement to hedge against the potential impact on earnings from increases in market interest rates of a variable rate term loan. Under the interest rate swap agreement, the Company receives or makes payments on a monthly basis, based on the differential between a specified interest rate and one month LIBOR. A term loan of $7,445,068$5,002,350 is designated as a hedged item for the interest rate swapsswap at December 31, 2003.2005. This interest rate swap is accounted for as a cash flow hedge in accordance with FAS No. 133 and FAS No. 138. As of the report date, the swap met the effectiveness test, and as such no gains or losses were included in net incomeearnings during the year related to hedge ineffectiveness and there was no income adjustment related to any portion excluded from the assessment of hedge effectiveness. A gainGains of $230,000, $317,000 and $256,000 waswere included in other comprehensive income for the year ended December 31, 2003. A loss of $464,000 was included in other comprehensive loss for the year ended December 31, 2002. A loss of $440,000, which includes the transition adjustment of $48,000, was included in other comprehensive loss for the year ended December 31, 2001.2005, 2004 and 2003, respectively. The fair market values of the interest rate swap of $648,000$101,000 and $904,000$331,000 are included in accrued expenses in the accompanying consolidated balance sheets as of December 31, 20032005 and 2002,2004, respectively. The original term of the contract is ten years.
p)u) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 materially from those estimates.
17
q)v) New Accounting Standards
In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“FAS”) No. 141,Business Combinations, and FAS No. 142,Goodwill and Other Intangible Assets. FAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is prohibited. FAS No. 142 changed the accounting for goodwill from an amortization method to an impairment-only approach. Thus, effective January 1, 2002, the Company was required to cease amortization of goodwill, including goodwill recorded in past business combinations, and to adopt the new impairment approach. In June 2001,December 2004, the FASB issued FAS No. 143,123 (revised 2004),Accounting“Share-Based Payment.” FAS No. 123(R) addresses the accounting for Asset Retirement Obligations. This statement addresses financialshare-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. FAS No. 123(R) requires an entity to recognize the grant-date fair-value of stock options and other equity-based compensation issued to employees in the income statement. The revised Statement generally requires that an entity account for those transactions using the fair-value-based method, and eliminates the intrinsic value method of accounting and reporting for obligations associated within APB Opinion No. 25, which was permitted under FAS No. 123, as originally issued.
The revised Statement requires entities to disclose information about the retirementnature of tangible long-lived assetsthe share-based payment transactions and the associated asset retirement costs. The purposeeffects of this statement is to develop consistent accounting of asset retirement obligations and related costs inthose transactions on the financial statements and provide more information about future cash outflows, leverage and liquidity regarding retirement obligations and the gross investment in long-lived assets.statements. FAS No. 143123(R) is effective for financial statementspublic companies that do not file as small business issuers as of the beginning of the first interim period of the first annual reporting period that begins after June 15, 2005 (i.e., first quarter 2006 for the Company). All public companies must use either the modified prospective or the modified retrospective transition method. All share-based compensation awards granted by the Company are fully vested at the date of grant. The Company will utilize the modified prospective transition method to implement this standard. The Company utilizes the Black-Scholes option pricing model to determine the fair value of its share-based compensation. The impact of adopting this standard is expected to be consistent with the pro-forma amounts shown in subsection (m) of this Note, assuming that the level of share-based compensation awards granted in the future are consistent with recent grants.
In November 2004, the FASB issued FAS No. 151, “Inventory Costs - an Amendment of ARB No. 43, Chapter 4,” to provide clarification that abnormal amounts of idle facility expense, freight, handling costs, and wasted material be recognized as current-period charges. In addition, this standard requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this standard are effective for inventory costs incurred during fiscal years beginning after June 15, 2002.2005. The adoption of FAS No. 143 didCompany does not expect this standard to have a materialsignificant impact on the Company’s consolidated financial statements. In April 2002,
A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the FASB issued FAS No. 145, “Rescissiontentative and preliminary nature of FAS No. 4, ‘Reporting Gains and Losses from Extinguishmentthese proposed standards, management has not determined whether implementation of Debt,’ Rescission of FAS No. 44, ‘Accounting for Intangible Assets of Motor Carriers,’ Rescission of FAS No. 64, ‘Extinguishment of Debt Madesuch proposed standards would be material to Satisfy Sinking-Fund Requirements,’ Amendment of FAS No. 13, ‘Accounting for Leases,’ and Technical Corrections”. FAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The rescission of FASB Statement No. 4 eliminates the requirement to report all gains and losses resulting from the early extinguishments of debt as extraordinary items. Statement 145 is effective for all transactions occurring after May 15, 2002. The Company adopted this Statement to be effective during the quarter ended March 31, 2003. As a result, the Company has reclassified an extraordinary loss on early extinguishment of debt of $292,000 to selling and administrative expenses and the related tax benefit of $105,000 to taxes on income in the accompanying 2002 statement of earnings. In June 2002, the FASB issued FAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. FAS No. 146 addresses the financial accounting and reporting for the costs associated with exit or disposal activities. FAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of FAS No. 146 did not have a material effect on the Company’s consolidated financial statements.
r)w) Reclassifications
Certain reclassifications to the 20022004 and 20012003 consolidated financial statements have been made to conform to the 20032005 presentation.
NOTE 2 – GoodwillAcquisitions:
On February 27, 2004, the Company acquired substantially all of the net assets of UniVogue, Inc. (“UniVogue”), a supplier of uniforms with a strong national presence, particularly in the hospitality, lodging, food service and Other Intangible Assets:culinary markets, with revenues for the year ended December 2003 of approximately $9,300,000. The acquisition has been accounted for utilizing the purchase method of accounting. The purchase price for this acquisition was approximately $6,293,000 and was allocated as follows:
Cash | $ | 20,431 | |
Accounts Receivable | 1,965,646 | ||
Other Current Assets | 260,711 | ||
Inventories | 2,065,444 | ||
Property, Plant & Equipment | 108,032 | ||
Other Assets | 11,743 | ||
Other Intangible Assets | 1,667,111 | ||
Goodwill | 875,482 | ||
TOTAL ASSETS | $ | 6,974,600 | |
Accounts Payable and Accrued Expenses | $ | 681,910 | |
In June 2001, the FASB issued FAS No. 141, “Business Combinations,” which eliminates the pooling methodRevenue and expenses of accounting for all business combinations initiated after June 30, 2001 and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. The Company has adopted this accounting standard.
Effective January 1, 2002, the Company adopted FAS No. 142, “Goodwill and Other Intangible Assets,” which addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be separately disclosed from other intangible assetsUniVogue are included in the statement ofconsolidated financial position, and no longer be amortized but tested for impairment on a periodic basis.
18
The following table displays a reconciliation of previously reported net income and earnings per share to the amounts adjusted to exclude amortization expense related to goodwill, that is no longer being amortized upon the adoption of FAS No. 142, net of the related tax effect:
| Year Ended December 31, | |||||||||
| 2003 | 2002 | 2001 | |||||||
Reported net earnings | $ | 5,703,910 | $ | 593,085 | $ | 6,471,706 | |||
Add: Goodwill amortization, net of tax | — | — | 265,815 | ||||||
Adjusted net earnings | $ | 5,703,910 | $ | 593,085 | $ | 6,737,521 | |||
Basic earnings per common share: | |||||||||
Reported net earnings | $ | 0.79 | $ | 0.08 | $ | 0.91 | |||
Goodwill amortization, net of tax | — | — | 0.04 | ||||||
Adjusted net earnings | $ | 0.79 | $ | 0.08 | $ | 0.95 | |||
Diluted earnings per common share: | |||||||||
Reported net earnings | $ | 0.78 | $ | 0.08 | $ | 0.91 | |||
Goodwill amortization, net of tax | — | — | 0.04 | ||||||
Adjusted net earnings | $ | 0.78 | $ | 0.08 | $ | 0.95 | |||
In accordance with FAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” the Company has historically evaluated goodwill for impairment by comparing the entity level balance of goodwill to projected undiscounted cash flows, which did not result in an indicated impairment. FAS No. 142 requires that goodwill be tested for impairment at the reporting unit level upon adoption and at least annually thereafter or more frequently, if indicators of impairment arise, utilizing a two-step methodology. The initial step requires the Company to determine the fair value of each reporting unit and compare it to the carrying value, including goodwill, of such unit. The Company determined the fair value of each reporting unit by using a combination of present value and multiple of earnings valuation techniques and compared it to the reporting units’ carrying values. If the fair value exceeds the carrying value, no impairment loss would be recognized. However, if the carrying value of the reporting unit exceeds its fair value, the goodwill of this unit may be impaired. The amount, if any, of the impairment would then be measured in the second step. The Company completed the first step during the second quarter of 2002 that indicated that goodwill recorded in the Empire and Sope Creek divisions was impaired as of Januarystatements beginning March 1, 2002. Due to the indicated impairment, the Company then completed step two of the test to measure the amount of the impairment. Based on that analysis, a transitional impairment loss of $7,065,000 ($4,505,000 after tax), or $0.63 per diluted share after tax, was recognized as the cumulative effect of a change in accounting principle. In accordance with FAS No. 142, this impairment loss was recorded as of January 1, 2002. We have also completed the annual impairment test at December 31, 2002 and 2003 which indicated no impairment of the remaining goodwill. We will continue to test goodwill and any identifiable intangible assets for impairment annually on December 31, or whenever events or changes in circumstances indicate that the carrying value may not be recovered.
2004.
NOTE 3 -Allowance for Doubtful Accounts Receivable:
The activity in the allowance for doubtful accounts receivable was as follows:
| 2005 | 2004 | 2003 | ||||||||||
Balance at the beginning of year | $ | 525,000 | $ | 475,000 | $ | 565,000 | ||||||
Provision (recovery) for doubtful accounts | 114,000 | (11,638 | ) | 218,000 | ||||||||
Charge-offs | (123,974 | ) | (112,006 | ) | (582,093 | ) | ||||||
Recoveries | 19,974 | 125,571 | 274,093 | |||||||||
Acquisition | — | 48,073 | — | |||||||||
Balance at the end of year | $ | 535,000 | $ | 525,000 | $ | 475,000 | ||||||
NOTE 4 - Inventories:
| December 31, | ||||||
| 2003 | 2002 | |||||
Finished goods | $ | 30,826,116 | $ | 34,202,220 | ||
Work in process | 386,517 | 2,037,316 | ||||
Raw materials | 5,167,837 | 6,416,398 | ||||
| $ | 36,380,470 | $ | 42,655,934 | |||
19
| December 31, | ||||||
| 2005 | 2004 | |||||
Finished goods | $ | 33,072,321 | $ | 39,347,976 | ||
Work in process | 277,162 | 648,197 | ||||
Raw materials | 3,837,296 | 5,745,237 | ||||
| $ | 37,186,779 | $ | 45,741,410 | |||
NOTE 45 - Property, Plant and Equipment:
| December 31, | ||||||
| 2003 | 2002 | |||||
Land | $ | 2,054,842 | $ | 2,080,661 | ||
Buildings, improvements and leaseholds | 10,233,075 | 10,390,362 | ||||
Machinery, equipment and fixtures | 43,235,243 | 47,349,368 | ||||
| 55,523,160 | 59,820,391 | |||||
Accumulated depreciation and amortization | 37,233,724 | 39,761,227 | ||||
| $ | 18,289,436 | $ | 20,059,164 | |||
| December 31, | ||||||
| 2005 | 2004 | |||||
| Land | $ | 727,416 | $ | 2,030,166 | ||
| Buildings, improvements and leaseholds | 8,041,336 | 9,746,252 | ||||
| Machinery, equipment and fixtures | 46,203,032 | 47,929,353 | ||||
| 54,971,784 | 59,705,771 | |||||
| Accumulated depreciation and amortization | 36,892,492 | 37,643,412 | ||||
| $ | 18,079,292 | $ | 22,062,359 | |||
Depreciation and amortization charges were approximately $3,699,000, $3,311,000, and $3,602,000, $4,217,000,in 2005, 2004, and $4,354,000, in 2003, 2002, and 2001, respectively.
NOTE 56 – Long-Term Debt:
December 31, 2003 | December 31, 2002 | |||||
Note payable to Wachovia Bank, pursuant to revolving credit agreement, maturing March 26, 2004 | $ | — | $ | — | ||
6.75% term loan payable to Wachovia Bank, with monthly payments of principal and interest, maturing April 1, 2009 | 7,445,068 | 8,549,148 | ||||
| 7,445,068 | 8,549,148 | |||||
Less payments due within one year included in current liabilities | 1,179,021 | 1,104,080 | ||||
| $ | 6,266,047 | $ | 7,445,068 | |||
| December 31, 2005 | December 31, 2004 | |||||
Note payable to Wachovia, pursuant to revolving credit agreement, maturing April 26, 2007 | $ | — | $ | — | ||
6.75% term loan payable to Wachovia, with monthly payments of principal and interest, maturing April 1, 2009 | 5,002,350 | 6,266,047 | ||||
Note payable to Bank of America, 0% interest payable in equal installments on January 1, 2006, and January 1, 2007 | 660,219 | 990,329 | ||||
| 5,662,569 | 7,256,376 | |||||
Less payments due within one year included in current liabilities | 1,683,029 | 1,593,807 | ||||
Long-term debt less current maturities | $ | 3,979,540 | $ | 5,662,569 | ||
On March 26, 1999, the Company entered into a 3-year credit agreement with Wachovia Bank 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 (1.72%(5.0% at December 31, 2003)2005). 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 December 31, 2003,2005, approximately $154,000$117,000 was outstanding under letters of credit. On March 27, 2001 and again on April 27, 2004, the Company entered into an agreementagreements with Wachovia Bank to extend the maturity of the revolving credit agreement. The revolving credit agreement matures on March 26, 2004.June 30, 2007. At the option of the Company, any outstanding balance on the agreement at that date will convert to a one-year term loan. The remaining terms of the original revolving credit agreement remain unchanged. The Company has received a verbal commitment from its lender to renew the revolving credit agreement for an additional 3-year period on terms substantially the same as the existing agreement.
The Company also entered into a $12,000,000 10-year term loan on March 26, 1999 with the same bank. 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.
On October 16, 2000, the Company entered into a 5-year term loan with Wachovia Bank. The term loan was an amortizing loan, with monthly payments of principal in the amount of $83,333 plus interest, scheduled to mature on November 1, 2005. The term loan carried a variable interest rate of LIBOR plus 0.80% based upon the one-month LIBOR rate for U.S. dollar based borrowings. The proceeds of this term loan were utilized to reduce the outstanding balance on the Company’s revolving credit agreement. Concurrent with the execution of the new term loan agreement, Wachovia Bank and the Company amended the March 26, 1999 term loan and the revolving credit agreement to revise the net worth requirements. The net worth requirements included below reflect this amendment. This term loan was paid in full in June 2001.
The credit agreement and the term loansloan with Wachovia Bank contain restrictive provisions concerning debt to net worth ratios, other borrowings, capital expenditures, rental commitments, tangible net worth ($70,535,00073,379,000 at December 31, 2003)2005); working capital ratio (2.5:1), fixed charges coverage ratio (2.5:1), stock repurchases and payment of dividends. At December 31, 2003,2005, under the most restrictive terms of the debt agreements, retained earnings of approximately $14,255,000$5,379,000 were available for declaration of dividends. The Company is in full compliance with all terms, conditions and covenants of the various credit agreements.
Scheduled principal payments on long-term obligations are $1,179,000 in 2004; $1,264,000 in 2005; $1,352,000$1,683,000 in 2006; $1,448,000$1,778,000 in 2007, $1,551,000 in 2008, and $651,000 in 2009 and thereafter.
202009.
NOTE 67 – Taxes on Income:
Aggregate income tax provisions (benefits) consist of the following:
| 2003 | 2002 | 2001 | ||||||||
Current: | ||||||||||
Federal | $ | 3,015,000 | $ | 2,244,000 | $ | 3,372,000 | ||||
State and local | 70,000 | 191,000 | 408,000 | |||||||
| 3,085,000 | 2,435,000 | 3,780,000 | ||||||||
Deferred | 15,000 | 460,000 | (50,000 | ) | ||||||
| $ | 3,100,000 | $ | 2,895,000 | $ | 3,730,000 | |||||
| 2005 | 2004 | 2003 | ||||||||
Current: | ||||||||||
Federal | $ | 408,000 | $ | 1,832,000 | $ | 3,015,000 | ||||
State and local | 12,000 | 78,000 | 70,000 | |||||||
| 420,000 | 1,910,000 | 3,085,000 | ||||||||
Deferred | (170,000 | ) | 850,000 | 15,000 | ||||||
| $ | 250,000 | $ | 2,760,000 | $ | 3,100,000 | |||||
The significant components of the deferred income tax liability are as follows:
| 2003 | 2002 | |||||
Deferred income tax assets: | ||||||
Operating reserves and other accruals | $ | 2,709,000 | $ | 2,807,000 | ||
Deferred income tax liabilities: | ||||||
Book carrying value in excess of tax basis of property | 2,231,000 | 2,560,000 | ||||
Deferred expenses | 643,000 | 397,000 | ||||
Net deferred income tax liability | $ | 165,000 | $ | 150,000 | ||
| 2005 | 2004 | |||||
Deferred income tax assets: | ||||||
Operating reserves and other accruals | $ | 2,192,000 | $ | 2,491,000 | ||
Deferred income tax liabilities: | ||||||
Book carrying value in excess of tax basis of property | 2,150,000 | 2,404,000 | ||||
Deferred expenses | 887,000 | 1,102,000 | ||||
Net deferred income tax liability | $ | 845,000 | $ | 1,015,000 | ||
The difference between the total statutory Federal income tax rate and the actual effective income tax rate is accounted for as follows:
| 2003 | 2002 | 2001 | |||||||
Statutory Federal income tax rate | 34.0 | % | 34.0 | % | 34.0 | % | |||
State and local income taxes, net of Federal income tax benefit | 0.5 | 1.6 | 2.6 | ||||||
Other items | 0.7 | 0.6 | 0.0 | ||||||
Effective income tax rate | 35.2 | % | 36.2 | % | 36.6 | % | |||
| 2005 | 2004 | 2003 | |||||||
Statutory Federal income tax rate | 34.0 | % | 34.0 | % | 34.0 | % | |||
State and local income taxes, net of Federal income tax benefit | 0.5 | 0.6 | 0.5 | ||||||
(Reduction) increase in accrual for tax contingencies | (12.1 | ) | 0.3 | 1.5 | |||||
Other items | (5.7 | ) | (1.0 | ) | (0.8 | ) | |||
Effective income tax rate | 16.7 | % | 33.9 | % | 35.2 | % | |||
NOTE 78 – Benefit Plans:
Defined Benefit 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.
It is our policy to make contributions to the various plans in accordance with statutory funding requirements and any additional funding that may be deemed appropriate. Plan liabilities and the market-related value of our corporate plan assets are determined based on a November 1st measurement date and our factory plans are determined based upon a December 31st measurement date.
21
The following tables present the changes in the benefit obligations and the various plan assets, the funded status of the plans, and the amounts recognized in the Company’sConsolidated Balance Sheetsat December 31, 20032005 and 2002:2004:
| December 31, | ||||||||
| 2003 | 2002 | |||||||
Changes in benefit obligation | ||||||||
Benefit obligation at beginning of year | $ | 17,317,000 | $ | 15,311,000 | ||||
Service cost | 699,000 | 760,000 | ||||||
Interest cost | 1,096,000 | 1,075,000 | ||||||
Actuarial (gain) loss | (458,000 | ) | 1,237,000 | |||||
Amendments | — | 187,000 | ||||||
Settlement | 129,000 | — | ||||||
Benefits paid | (1,676,000 | ) | (1,253,000 | ) | ||||
Benefit obligation at end of year | 17,107,000 | 17,317,000 | ||||||
Changes in plan assets | ||||||||
Fair value of plan assets at beginning of year | 12,614,000 | 12,376,000 | ||||||
Actual return on assets | 2,064,000 | (795,000 | ) | |||||
Employer contributions | 2,200,000 | 2,286,000 | ||||||
Benefits paid | (1,676,000 | ) | (1,253,000 | ) | ||||
Fair value of plan assets at end of year | 15,202,000 | 12,614,000 | ||||||
Reconciliation of funded status | ||||||||
Underfunded status | (1,905,000 | ) | (4,703,000 | ) | ||||
Unrecognized net actuarial loss | 1,993,000 | 3,782,000 | ||||||
Unrecognized prior service costs | 592,000 | 763,000 | ||||||
Prepaid (accrued) benefit costs | $ | 680,000 | $ | (158,000 | ) | |||
| 2003 | 2002 | |||||||
Amounts Recognized in Consolidated Balance Sheet | ||||||||
Prepaid benefit cost | $ | 2,030,000 | $ | 1,626,000 | ||||
Accrued benefit liability | (1,350,000 | ) | (1,966,000 | ) | ||||
Intangible asset | — | 182,000 | ||||||
Accumulated other comprehensive income (minimum pension liability adjustment) | — | — | ||||||
Net amount recognized | $ | 680,000 | $ | (158,000 | ) | |||
| December 31, | ||||||||
| 2005 | 2004 | |||||||
Changes in benefit obligation | ||||||||
Benefit obligation at beginning of year | $ | 18,282,000 | $ | 17,107,000 | ||||
Service cost | 647,000 | 672,000 | ||||||
Interest cost | 1,078,000 | 1,033,000 | ||||||
Actuarial (gain) loss | (722,000 | ) | 498,000 | |||||
Settlement | 348,000 | — | ||||||
Benefits paid | (2,432,000 | ) | (1,028,000 | ) | ||||
Benefit obligation at end of year | 17,201,000 | 18,282,000 | ||||||
Changes in plan assets | ||||||||
Fair value of plan assets at beginning of year | 17,274,000 | 15,202,000 | ||||||
Actual return on assets | 1,192,000 | 1,157,000 | ||||||
Employer contributions | 500,000 | 1,943,000 | ||||||
Benefits paid | (2,432,000 | ) | (1,028,000 | ) | ||||
Fair value of plan assets at end of year | 16,534,000 | 17,274,000 | ||||||
Reconciliation of funded status | ||||||||
Underfunded status | (667,000 | ) | (1,008,000 | ) | ||||
Unrecognized net actuarial loss | 1,927,000 | 2,550,000 | ||||||
Unrecognized prior service costs | 246,000 | 420,000 | ||||||
Prepaid benefit costs | $ | 1,506,000 | $ | 1,962,000 | ||||
| 2005 | 2004 | |||||||
Amounts Recognized in Consolidated Balance Sheet | ||||||||
Prepaid benefit cost | $ | 2,460,000 | $ | 2,886,000 | ||||
Accrued benefit liability | (954,000 | ) | (924,000 | ) | ||||
Net amount recognized | $ | 1,506,000 | $ | 1,962,000 | ||||
Included in the above table are pension plans with aggregate projected benefit obligations in excess of plan benefits.assets. The aggregate projected benefit obligations for these plans were $12,659,000$12,369,000 and $13,255,000$13,630,000 at December 31, 20032005 and 2002,2004, respectively. The fair value of plan assets for these plans were $9,889,000$10,707,000 and $8,416,000$11,574,000 at December 31, 20032005 and 2002,2004, respectively.
Included in the above table are pension plans with aggregate accumulated benefit obligations in excess of plan benefits.assets. The aggregate accumulated benefit obligations for these plans were $10,024,000$385,000 and $10,015,000$386,000 at December 31, 20032005 and 2002,2004, respectively. The fair value ofThere are no plan assets for these plans were $9,889,000 and $8,416,000 at December 31, 20032005 and 2002,2004, respectively.
The following table presents the net periodic pension expense under our plans:
| 2003 | 2002 | 2001 | 2005 | 2004 | 2003 | |||||||||||||||||||
Service cost - benefits earned during the period | $ | 699,000 | $ | 760,000 | $ | 663,000 | $ | 647,000 | $ | 672,000 | $ | 699,000 | ||||||||||||
Interest cost on projected benefit obligation | 1,096,000 | 1,075,000 | 1,039,000 | 1,078,000 | 1,033,000 | 1,096,000 | ||||||||||||||||||
Expected return on plan assets | (1,002,000 | ) | (953,000 | ) | (1,115,000 | ) | (1,366,000 | ) | (1,249,000 | ) | (1,002,000 | ) | ||||||||||||
Amortization of prior service cost | 171,000 | 166,000 | 277,000 | 175,000 | 172,000 | 171,000 | ||||||||||||||||||
Recognized actuarial loss (gain) | 214,000 | 61,000 | (182,000 | ) | ||||||||||||||||||||
Recognized actuarial loss | 84,000 | 34,000 | 214,000 | |||||||||||||||||||||
Settlement loss | 184,000 | — | — | 338,000 | — | 184,000 | ||||||||||||||||||
Curtailment loss | — | — | 35,000 | |||||||||||||||||||||
Termination loss | — | — | 22,000 | |||||||||||||||||||||
Net periodic pension cost after curtailments and settlements | $ | 1,362,000 | $ | 1,109,000 | $ | 739,000 | $ | 956,000 | $ | 662,000 | $ | 1,362,000 | ||||||||||||
22The pension settlement loss included in the table above relates to lump sum payments made to various employees upon their retirement or termination in the current year.
The table below presents various assumptions used in determining the benefit obligation for each year and reflects the percentages for the various plans: Weighted-average assumptions used to determine benefit obligations at December 31,
| Discount Rate | Long Term Rate of Return | Salary Scale | |||||||||||||||
| Corp. | Plants | Corp. | Plants | Corp. | Plants | ||||||||||||
2001 | 7.25 | % | 7.25 | % | 8.00 | % | 8.00 | % | 4.50 | % | N/A | ||||||
2002 | 6.50 | % | 6.50 | % | 8.00 | % | 8.00 | % | 4.50 | % | N/A | ||||||
2003 | 6.20 | % | 6.20 | % | 8.00 | % | 8.00 | % | 4.50 | % | N/A | ||||||
| Discount Rate | Long Term Rate of Return | Salary Scale | |||||||||||||||
| Corp. | Plants | Corp. | Plants | Corp. | Plants | ||||||||||||
2003 | 6.20 | % | 6.20 | % | 8.00 | % | 8.00 | % | 4.50 | % | N/A | ||||||
2004 | 6.00 | % | 6.00 | % | 8.00 | % | 8.00 | % | 4.50 | % | N/A | ||||||
2005 | 6.00 | % | 6.00 | % | 8.00 | % | 8.00 | % | 4.50 | % | N/A | ||||||
Weighted-average assumptions used to determine net periodic benefit cost for years ending December 31,
| Discount Rate | Long Term Rate of Return | Salary Scale | |||||||||||||||
| Corp. | Plants | Corp. | Plants | Corp. | Plants | ||||||||||||
2003 | 6.50 | % | 6.50 | % | 8.00 | % | 8.00 | % | 4.50 | % | N/A | ||||||
2004 | 6.20 | % | 6.20 | % | 8.00 | % | 8.00 | % | 4.50 | % | N/A | ||||||
2005 | 6.00 | % | 6.00 | % | 8.00 | % | 8.00 | % | 4.50 | % | N/A | ||||||
The methodology used to determine the expected rate of return on the pension plan assets was based on review of actual returns in the past and consideration of projected returns based upon our projected asset allocation. Our strategy with respect to our investments in pension plan assets is to be invested with a long-term outlook. Therefore, the risk and return balance of our asset portfolio should reflect a long-term horizon. Our pension plan asset allocation at December 31, 2003, 20022005, 2004 and target allocation for 20042006 are as follows:
Percentage of Plan Assets at December 31, | Target 2004 | ||||||||
Investment description | 2003 | 2002 | |||||||
Equity securities | 69 | % | 56 | % | 65 | % | |||
Fixed income | 31 | 44 | 35 | ||||||
Total | 100 | % | 100 | % | 100 | % | |||
Percentage of Plan Assets at December 31, | Target Allocation 2006 | ||||||||
Investment description | 2005 | 2004 | |||||||
Equity securities | 70 | % | 70 | % | 70 | % | |||
Fixed income | 30 | 30 | 30 | ||||||
Total | 100 | % | 100 | % | 100 | % | |||
We plan to contribute approximately $2,000,000$500,000 to our defined benefit pension plans in 2004.2006.
The following table includes projected benefit payments for the years indicated:
Year | Projected Benefit Payments | ||
2006 | $ | 994,000 | |
2007 | 501,000 | ||
2008 | 837,000 | ||
2009 | 626,000 | ||
2010 | 1,177,000 | ||
2011-2015 | $ | 6,138,000 | |
Defined Contribution Plan
The Company provides a defined contribution plan covering qualified employees. The plan includes a provision that allows employees to make pre-tax contributions under Section 401(k) of the Internal Revenue Code. The plan provides for the Company to make a guaranteed match equal to 25% of each employee’s eligible contributions. The plan also provides the Company with the option of making an additional discretionary contribution to the plan each year. The Company contributions for the years ended December 31, 2003, 20022005, 2004, and 20012003 were approximately $147,000, $147,000, and $148,000, $159,000 and $171,000, respectively.
NOTE 8 – Vendor Settlement:
On April 23, 2001, the Company received a one-time payment of $4.0 million in connection with the resolution of outstanding vendor matters. This resulted in a one time gain of $1,683,000 that is recorded as a reduction of selling and administrative expenses in the quarter ended June 30, 2001. The remaining amount of $2,317,000 was recorded as a reduction in the basis of certain property, plant and equipment.
23
NOTE 9 – Quarterly Results for 20022004 and 20032005 (Unaudited):
| Quarter Ended | Quarter Ended | ||||||||||||||||||||||||
| March 31, 2002 | June 30, 2002 | September 30, 2002 | December 31, 2002 | March 31, 2004 | June 30, 2004 | September 30, 2004 | December 31, 2004 | ||||||||||||||||||
Net sales | $ | 33,648,226 | $ | 38,442,104 | $ | 36,674,776 | $ | 36,234,148 | $ | 33,765,220 | $ | 35,400,090 | $ | 36,960,340 | $ | 37,441,823 | |||||||||
Earnings before taxes on income and cumulative effect of change in accounting principle | $ | 666,491 | $ | 2,339,494 | $ | 2,430,883 | $ | 2,555,780 | |||||||||||||||||
Earnings before cumulative effect of change in accounting principle | $ | 421,491 | $ | 1,489,494 | $ | 1,580,883 | $ | 1,605,780 | |||||||||||||||||
Net earnings (loss) | $ | (4,083,072 | ) | $ | 1,489,494 | $ | 1,580,883 | $ | 1,605,780 | ||||||||||||||||
Basic net earnings (loss) per common share | $ | (0.58 | ) | $ | 0.21 | $ | 0.22 | $ | 0.23 | ||||||||||||||||
Diluted net earnings (loss) per common share | $ | (0.58 | ) | $ | 0.21 | $ | 0.22 | $ | 0.22 | ||||||||||||||||
Dividends per common share | $ | 0.14 | $ | 0.14 | $ | 0.14 | $ | 0.14 | |||||||||||||||||
Average outstanding shares (Basic) | 7,035,154 | 7,064,423 | 7,086,098 | 7,112,066 | |||||||||||||||||||||
Average outstanding shares (Diluted) | 7,092,721 | 7,179,197 | 7,173,225 | 7,224,341 | |||||||||||||||||||||
| Quarter Ended | |||||||||||||||||||||||||
| March 31, 2003 | June 30, 2003 | September 30, 2003 | December 31, 2003 | ||||||||||||||||||||||
Net sales | $ | 30,954,947 | $ | 34,187,586 | $ | 35,212,248 | $ | 33,969,584 | |||||||||||||||||
Gross Profit | $ | 11,226,319 | $ | 11,571,513 | $ | 12,450,515 | $ | 12,039,343 | |||||||||||||||||
Earnings before taxes on income | $ | 966,186 | $ | 1,983,065 | $ | 3,059,887 | $ | 2,794,772 | $ | 1,750,468 | $ | 1,937,333 | $ | 2,763,113 | $ | 1,687,773 | |||||||||
Net earnings | $ | 626,186 | $ | 1,283,065 | $ | 1,989,887 | $ | 1,804,772 | $ | 1,130,468 | $ | 1,277,333 | $ | 1,803,113 | $ | 1,167,773 | |||||||||
Basic net earnings per common share | $ | 0.09 | $ | 0.18 | $ | 0.28 | $ | 0.25 | $ | 0.15 | $ | 0.17 | $ | 0.24 | $ | 0.16 | |||||||||
Diluted net earnings per common share | $ | 0.09 | $ | 0.18 | $ | 0.27 | $ | 0.24 | $ | 0.15 | $ | 0.17 | $ | 0.24 | $ | 0.15 | |||||||||
Dividends per common share | $ | 0.14 | $ | 0.14 | $ | 0.14 | $ | 0.14 | $ | 0.135 | $ | 0.135 | $ | 0.135 | $ | 0.135 | |||||||||
Average outstanding shares (Basic) | 7,150,767 | 7,138,115 | 7,225,470 | 7,339,229 | 7,394,795 | 7,442,372 | 7,464,850 | 7,448,794 | |||||||||||||||||
Average outstanding shares (Diluted) | 7,257,680 | 7,230,412 | 7,407,808 | 7,539,446 | 7,588,541 | 7,634,435 | 7,592,817 | 7,559,328 | |||||||||||||||||
Results for the quarter ended March 31, 2002 reflect the impact of the change in accounting principles relative to FAS No. 142 as discussed in Note 2 to the consolidated financial statements.
| Quarter Ended | ||||||||||||
| March 31, 2005 | June 30, 2005 | September 30, 2005 | December 31, 2005 | |||||||||
Net sales | $ | 31,857,089 | $ | 34,858,915 | $ | 34,194,000 | $ | 32,402,347 | ||||
Gross Profit | $ | 10,341,475 | $ | 10,801,684 | $ | 9,857,419 | $ | 8,714,945 | ||||
Earnings before taxes on income | $ | 219,443 | $ | 976,533 | $ | 228,550 | $ | 69,659 | ||||
Net earnings | $ | 139,443 | $ | 646,533 | $ | 158,550 | $ | 299,659 | ||||
Basic net earnings per common share | $ | 0.02 | $ | 0.09 | $ | 0.02 | $ | 0.04 | ||||
Diluted net earnings per common share | $ | 0.02 | $ | 0.09 | $ | 0.02 | $ | 0.04 | ||||
Dividends per common share | $ | 0.135 | $ | 0.135 | $ | 0.135 | $ | 0.135 | ||||
Average outstanding shares (Basic) | 7,445,442 | 7,446,900 | 7,447,700 | 7,241,855 | ||||||||
Average outstanding shares (Diluted) | 7,552,475 | 7,518,508 | 7,511,157 | 7,272,644 | ||||||||
The independent certifiedregistered public accountantsaccounting firm made limited reviews of the 20022004 and 20032005 quarterly financial information in accordance with standards established by the American Institute of Certified Public Accountants.Company Accounting Oversight Board (United States). Such reviews were substantially less in scope than examinations in accordance with auditing standards generally accepted inof the United States of America,Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole, and accordingly, no such opinions were expressed.
NOTE 10 – Rentals:
Aggregate rent expense, including month-to-month rentals, approximated $744,000, $1,081,000,$590,000, $751,000, and $1,289,000,$744,000, for the years ended December 31, 2003, 2002,2005, 2004, and 2001,2003, respectively. Long-term lease commitments totaling $1,062,000$1,196,000 are as follows: 2004 - $388,000; 2005 - - $254,000; 2006 - $183,000;$377,000; 2007 - $150,000; and$323,000; 2008 - $87,000.$229,000; 2009 - $132,000; and 2010 - $135,000.
24
NOTE 11 – Contingencies:
The Company is involved in various legal actions and claims arising from the normal course of business. In the opinion of management, the ultimate outcome of these matters will not have a material impact on the Company’s results of operations,
cash flows, or financial position.
During 2005, the Company entered into severance protection agreements with senior management. The terms of these agreements require the Company to potentially make certain payments to members of senior management in the event of a change in control of the Company.
NOTE 12 – Stock Options:
In 1993, the Company adopted an Incentive Stock Option Plan (the “1993 Plan)Plan”) under which options on 1,500,000 shares were reserved for grant. The 1993 Plan provided for the issuance of incentive stock options. This plan expired in February of 2003. In May, 2003, the stockholders of the Company approved the 2003 Incentive Stock and Awards Plan (the “2003 Plan)Plan”), authorizing the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, performance stock and other stock based compensation. A total of 2,500,000 shares of common stock (subject to adjustment for expirations and cancellations of options outstanding from the 1993 Plan subsequent to its termination) have been reserved for issuance under the 2003 Plan. All options under both plans have been 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 both plans 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, 20032005 follows:
| No. of Shares | Weighted Average Exercise Price | Total | Market Price | ||||||||||
Outstanding January 1, 2001 | 727,075 | $ | 11.79 | $ | 8,570,654 | ||||||||
Granted | 262,875 | 8.97 | 2,359,281 | $ | 2,349,294 | ||||||||
Exercised | (4,000 | ) | 8.13 | (32,500 | ) | ||||||||
Lapsed | (98,950 | ) | 10.57 | (1,045,559 | ) | ||||||||
Cancelled | (37,450 | ) | 11.57 | (433,316 | ) | ||||||||
Outstanding December 31, 2001 | 849,550 | 11.09 | 9,418,560 | ||||||||||
Granted | 214,500 | 9.66 | 2,071,511 | $ | 2,061,513 | ||||||||
Exercised | (114,350 | ) | 8.65 | (989,358 | ) | ||||||||
Lapsed | (105,575 | ) | 13.89 | (1,466,634 | ) | ||||||||
Cancelled | (46,325 | ) | 11.79 | (545,958 | ) | ||||||||
Outstanding December 31, 2002 | 797,800 | 10.64 | 8,487,823 | ||||||||||
Granted | 268,025 | 12.49 | 3,348,103 | $ | 3,338,099 | ||||||||
Exercised | (274,325 | ) | 9.74 | (2,671,671 | ) | ||||||||
Lapsed | (112,050 | ) | 15.76 | (1,765,525 | ) | ||||||||
Cancelled | (23,275 | ) | 10.81 | (251,663 | ) | ||||||||
Outstanding December 31, 2003 | 656,175 | $ | 10.72 | $ | 7,037,433 | ||||||||
| No. of Shares | Weighted Average Exercise Price | Total | Market Price | ||||||||||
Outstanding January 1, 2003 | 797,800 | $ | 10.64 | $ | 8,487,823 | ||||||||
Granted | 274,025 | 12.46 | 3,414,223 | $ | 3,404,219 | ||||||||
Exercised | (274,325 | ) | 9.74 | (2,671,671 | ) | ||||||||
Lapsed | (112,050 | ) | 15.76 | (1,765,525 | ) | ||||||||
Cancelled | (23,275 | ) | 10.81 | (251,663 | ) | ||||||||
Outstanding December 31, 2003 | 662,175 | 10.89 | 7,213,187 | ||||||||||
Granted | 244,475 | 14.97 | 3,659,918 | $ | 3,659,918 | ||||||||
Exercised | (160,900 | ) | 10.31 | (1,659,390 | ) | ||||||||
Lapsed | (22,175 | ) | 17.30 | (383,705 | ) | ||||||||
Cancelled | (13,750 | ) | 13.36 | (183,705 | ) | ||||||||
Outstanding December 31, 2004 | 709,825 | 12.18 | 8,646,305 | ||||||||||
Granted | 262,450 | 14.41 | 3,782,978 | $ | 3,782,978 | ||||||||
Exercised | (60,950 | ) | 9.22 | (562,198 | ) | ||||||||
Lapsed | (2,750 | ) | 8.13 | (22,344 | ) | ||||||||
Cancelled | (58,825 | ) | 13.86 | (815,407 | ) | ||||||||
Outstanding December 31, 2005 | 849,750 | $ | 12.98 | $ | 11,029,334 | ||||||||
The weighted average remaining lifefair value of options granted for options outstanding ateach of the years ended December 31, 2005, 2004, and 2003 was 2.8 years.$2.91, $2.93 and $2.18, respectively. At December 31, options available to issue were 531,2752,009,300 for 2001, 468,6752005, 2,210,175 for 20022004 and 2,418,725 for 2003. Options have never been repriced by the Company in any year.
The following table summarizes information about stock options outstanding as of December 31, 2005:
25
Range of Exercise Price | Shares | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | ||||
| $8.13 to $10.45 | 175,750 | 0.9 | $ | 9.30 | |||
| 11.02 to 13.55 | 283,975 | 3.3 | 12.50 | ||||
| 14.00 to 17.13 | 390,025 | 3.8 | 14.99 | ||||
| $8.13 to $17.13 | 849,750 | 3.0 | $ | 12.98 | |||
Options to purchase an average of 508,000 shares of common stock with a weighted average exercise price of $14.59 per share were outstanding during 2005, but were not included in the computation of diluted EPS because the options’ exercise prices were greater than the average market price of the common shares.
| Related Party Options | Other Options | |||||||
Exercise price | ||||||||
2003 | $ | 11.02-$13.37 | $ | 11.02-$13.55 | ||||
2002 | $ | 10.45 | $ | 9.50 - $9.75 | ||||
2001 | $ | 9.35 | $ | 8.50 - $9.35 | ||||
Market price | ||||||||
2003 | $ | 11.02-$12.15 | $ | 11.02-$13.55 | ||||
2002 | $ | 9.50 | $ | 9.50 - $9.75 | ||||
2001 | $ | 8.50 | $ | 8.50 - $9.35 | ||||
Risk free interest rate | ||||||||
2003 | 2.80%-2.90 | % | 2.80%-2.90 | % | ||||
2002 | 4.30 | % | 3.81% -4.30 | % | ||||
2001 | 4.89 | % | 4.76% -4.89 | % | ||||
Expected option life | 5 years | 5 years | ||||||
Expected volatility | ||||||||
2003 | 28.2%-28.3 | % | 28.2%-29.3 | % | ||||
2002 | 28.1 | % | 28.1% -28.3 | % | ||||
2001 | 28.4 | % | 27.9% -28.4 | % | ||||
Dividend yield | 4.5 | % | 4.5% - 4.9 | % | ||||
| Related Party Options | Other Options | |||||||
Exercise price | ||||||||
2005 | $ | 14.95 | $ | 11.55-$14.95 | ||||
2004 | $ | 15.11 | $ | 14.60- $16.00 | ||||
2003 | $ | 11.02-$13.37 | $ | 11.02-$13.55 | ||||
Market price | ||||||||
2005 | $ | 14.95 | $ | 11.55-$14.95 | ||||
2004 | $ | 15.11 | $ | 14.60-$16.00 | ||||
2003 | $ | 11.02-$12.15 | $ | 11.02-$13.55 | ||||
Risk free interest rate | ||||||||
2005 | 3.77 | % | 3.77%-3.98 | % | ||||
2004 | 3.07 | % | 3.07%-3.69 | % | ||||
2003 | 2.80%-2.90 | % | 2.80%-2.90 | % | ||||
Expected option life | 5 years | 5-10 years | ||||||
Expected volatility | ||||||||
2005 | 27.2 | % | 26.7%-36.0 | % | ||||
2004 | 29.2 | % | 28.1%-30.2 | % | ||||
2003 | 28.2%-28.3 | % | 28.2%-29.3 | % | ||||
Dividend yield | 3.6 | % | 4.0%-4.7 | % | ||||
NOTE 13 – Earnings Per Share:
The following table represents a reconciliation of basic and diluted earnings per share:
| The | following table represents a reconciliation of basic and diluted earnings per share: |
| 2003 | 2002 | 2001 | |||||||
Net Income used in the computation of basic and diluted earnings per share | $ | 5,703,910 | $ | 593,085 | $ | 6,471,706 | |||
Weighted average shares outstanding | 7,213,395 | 7,074,435 | 7,088,851 | ||||||
Common stock equivalents | 145,441 | 92,936 | 33,069 | ||||||
Total weighted average shares outstanding | 7,358,836 | 7,167,371 | 7,121,920 | ||||||
Earnings per share: | |||||||||
Basic | $ | 0.79 | $ | 0.08 | $ | 0.91 | |||
Diluted | $ | 0.78 | $ | 0.08 | $ | 0.91 | |||
| 2005 | 2004 | 2003 | |||||||
Net earnings used in the computation of basic and diluted earnings per share | $ | 1,244,185 | $ | 5,378,687 | $ | 5,703,910 | |||
Weighted average shares outstanding | 7,395,474 | 7,437,703 | 7,213,395 | ||||||
Common stock equivalents | 68,222 | 156,077 | 145,441 | ||||||
Total weighted average sharesoutstanding | 7,463,696 | 7,593,780 | 7,358,836 | ||||||
Net earnings per share: | |||||||||
Basic | $ | 0.17 | $ | 0.72 | $ | 0.79 | |||
Diluted | $ | 0.17 | $ | 0.71 | $ | 0.78 | |||
NOTE 14 – Accrued Expenses:
| December 31, | ||||||
| 2003 | 2002 | |||||
Salaries, wages, commissions and vacation pay | $ | 1,372,880 | $ | 1,656,592 | ||
Other accrued expenses | 3,706,102 | 4,168,830 | ||||
| $ | 5,078,982 | $ | 5,825,422 | |||
| December 31, | ||||||
| 2005 | 2004 | |||||
Salaries, wages, commissions and vacation pay | $ | 1,294,362 | $ | 1,311,731 | ||
Other accrued expenses | 1,887,797 | 2,449,929 | ||||
| $ | 3,182,159 | $ | 3,761,660 | |||
NOTE 15 – Subsequent Event (Unaudited):
Effective February 27, 2004, the Company acquired substantially all of the assets of UniVogue, Inc. (“UniVogue”), a uniform manufacturer with a strong national presence, particularly in the hospitality, lodging, food service and culinary markets. The acquisition will be accounted for utilizing the purchase method of accounting. The acquisition price, subject to adjustment, was approximately $6,300,000 in cash plus assumption of certain operating liabilities. Total net assets acquired were approximately $3,800,000 and total revenues for 2003 were approximately $9,300,000.
26
NOTE 16 – Supplemental Information:
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||
| 2003 | 2002 | 2001 | 2005 | 2004 | 2003 | |||||||||||||
Income taxes paid | $ | 2,351,386 | $ | 2,079,607 | $ | 3,148,495 | $ | 286,300 | $ | 2,724,263 | $ | 2,351,386 | ||||||
Interest paid | $ | 695,334 | $ | 876,826 | $ | 1,734,219 | $ | 617,087 | $ | 635,437 | $ | 695,334 | ||||||
Non-cash investing transactions are excluded from the consolidated statement of cash flows. The year ended December 31, 2005, does not include any such non-cash transactions. For the year ended December 31, 2004, non-cash activities included $990,329 in fixed asset acquisitions financed with long-term borrowings of the same amount. The year ended December 31, 2003 did not include any such non-cash transactions.
27NOTE 16 – Stock Repurchase Plan:
In July 2002, the Board of Directors reset the common stock repurchase program authorization so that the Company may make future repurchases of up to 750,000 of its common shares. The Company reacquired and retired 295,124 shares, 94,950 shares, and 35,000 shares of its common stock in the years ended December 31, 2005, 2004 and 2003, respectively, with approximate costs of $3,621,000, $1,312,000, and $366,000, respectively. 39,850 shares of the stock repurchased during 2004 were purchased from five members of senior management of the Company at $13.88 per share. At December 31, 2005, the Company had 308,926 shares remaining on its common stock repurchase authorization. Shares purchased under the share repurchase program are constructively retired and returned to unissued status. The Company considers several factors in determining when to make share repurchases, including among other things, the cost of equity, the after-tax cost of borrowing, the debt to total capitalization targets and the expected future cash needs. There is no expiration date or other restriction governing the period over which the Company can make its share repurchases under the program.
REPORT OF INDEPENDENT AUDITORS’ REPORTREGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Shareholders
Shareholders of Superior Uniform Group, Inc.
Seminole, Florida
We have audited the accompanying consolidated balance sheets of Superior Uniform Group, Inc. and subsidiary (the “Company”) as of December 31, 20032005 and 2002,2004, and the related consolidated statements of earnings, shareholders’ equity, and cash flows for each of the threetwo years in the period ended December 31, 2003.then ended. 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 auditingthe standards generally accepted inof the United States of America.Public Company Accounting Oversight Board (United States). 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Superior Uniform Group, Inc. and subsidiary as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the two years then ended in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Superior Uniform Group, Inc. and subsidiary’s internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 24, 2006 expressed an unqualified opinion.
| /s/ GRANT THORNTON LLP |
| Tampa, Florida |
| February 24, 2006 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Directors and Shareholders of Superior Uniform Group, Inc.Seminole, Florida
We have audited the accompanying consolidated statements of earnings, shareholders’ equity, and cash flows of Superior Uniform Group, Inc. and subsidiary (the ”Company”) for the year ended December 31, 2003. 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial positionresults of operations and cash flows of the Company as of December 31, 2003 and 2002, andfor the results of its operations and its cash flows for each of the three years in the periodyear ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements, as of January 1, 2002, the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142 and recorded a cumulative effect of a change in accounting principle as of January 1, 2002.
As discussed in Note 1 to the consolidated financial statements, in 2001, the Company changed its method of accounting for derivatives.
/s/ |
Certified Public Accountants |
Tampa, Florida |
February 27, 2004 |
28
PART II
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On June 8, 2004, with the approval of the Audit Committee of the Board of Directors, Superior Uniform Group, Inc., (the “Registrant”) engaged Grant Thornton LLP as its principal accountant to audit the financial statements of the Registrant. The Registrant dismissed Deloitte & Touche, LLP on June 8, 2004 as its principal accountant to audit the Registrant’s financial statements. Prior to the engagement of Grant Thornton, Deloitte & Touche LLP had served as the principal accountant to audit the Registrant’s financial statements for a period including the Registrant’s two most recent fiscal years. The decision to change accountants was approved by the Audit Committee of the Registrant’s Board of Directors.
NONEDeloitte & Touche LLP audited the Registrant’s financial statements for the year ended December 31, 2003, and issued its audit report dated February 27, 2004. During the fiscal year ended December 31, 2003 and the subsequent interim period preceding June 8, 2004 (date of dismissal), no report of Deloitte & Touche LLP on the Registrant’s financial statements contained an adverse opinion or a disclaimer of opinion, nor was one qualified as to uncertainty, audit scope, or accounting principles.
During the fiscal year ended December 31, 2003 and the subsequent interim period preceding June 8, 2004 (date of dismissal), there were no disagreements with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Deloitte & Touche LLP would have caused Deloitte & Touche LLP to make a reference to the subject matter of the disagreements in connection with its report on the Registrant’s financial statements for any such periods. Deloitte & Touche LLP has furnished the Registrant with a letter addressed to the Securities and Exchange Commission stating that it agrees with the above statements, which was filed as Exhibit 16 to a current report on Form 8-K filed on June 14, 2004.
Item 9A. Controls and Procedures
OurThe Chief Executive Officer, Michael Benstock, and ourthe Chief Financial Officer, after evaluatingAndrew D. Demott, Jr., evaluated the effectiveness of the Company’s “disclosureSuperior’s disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)procedures as of the end of the period covered by this report have(the “Evaluation Date”), and concluded that, ouras of the Evaluation Date, Superior’s disclosure controls and procedures arewere effective and are designed to ensure that the information we areSuperior is required to disclose in its filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the necessary time periods.
periods specified in the Commission’s rules and forms, and to ensure that information required to be disclosed by Superior in the reports that it files under the Exchange Act is accumulated and communicated to Superior’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. There have been no changes in the Company’s internal controls over financial reporting identified in connection with this evaluation that occurred during the period covered by this report and that have affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
Internal Control Over Financial Reporting
The reports required to be furnished pursuant to this item appear on pages 34-35.
Our Chief Executive Officer and our ChiefChanges in Internal Control Over Financial Officer have evaluated theReporting
There were no changes toin the Company’s internal control over financial reporting that occurred during our fiscalthe quarter ended December 31, 2003, as required by paragraph (d) of Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, and have concluded that there were no such changes2005, that materially affected, or are reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the Internal Control – Integrated Framework, management concluded that the internal control over financial reporting was effective as of December 31, 2005.
Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005 has been audited by Grant Thornton LLP, an independent registered certified public accounting firm, as stated in their report which is included in Item 8.
Report Of Independent Registered Public Accounting Firm
To The Board of Directors and
Shareholders of Superior Uniform Group, Inc.
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Superior Uniform Group, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Superior Uniform Group, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Superior Uniform Group, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control - Integrated Framework issued by COSO. Also in our opinion, Superior Uniform Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control - Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of Superior Uniform Group, Inc. and subsidiary as of December 31, 2005 and 2004, and the related consolidated statements of earnings, shareholders’ equity, and cash flows for each of the two years then ended and our report dated February 24, 2006 expressed an unqualified opinion on those financial statements.
| /s/ GRANT THORNTON LLP | ||
| Tampa, Florida | ||
| February 24, 2006 | ||
Item 9B. Other Information
NONE
PART III
Item 10. Directors and Executive Officers of the Registrant
BOARD OF DIRECTORS | ||
Gerald M. Benstock | Chairman of the Board and Executive Committee | |
Michael Benstock | Chief Executive Officer | |
Alan D. Schwartz | President | |
Peter Benstock | Executive Vice President | |
Manuel Gaetan, Ph.D. PE | President, CEO, MGR Enterprises, Inc. | |
Robin Hensley | President, Raising the Bar | |
Sidney Kirschner | Retired, President and CEO, Northside Hospital, Inc. | |
Paul V. Mellini | Chief Executive Officer and President, Nature Coast Bank | |
Arthur Wiener | Retired, Chief Executive Officer, Galey and Lord, Inc. | |
EXECUTIVE OFFICERS | ||
Gerald M. Benstock | Chairman of the Board and Executive Committee | |
Michael Benstock | Chief Executive Officer | |
Alan D. Schwartz | President | |
Peter Benstock | Executive Vice President | |
Andrew D. Demott, Jr. | Senior Vice President, Chief Financial Officer and Treasurer | |
| Richard T. Dawson | Vice President, General Counsel and Secretary | |
The remaining information required by this Item is incorporated herein by reference to the Company’s definitive proxy statement to be filed in connection with its 20042006 Annual Meeting of Shareholders.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to the Company’s definitive proxy statement to be filed in connection with its 20042006 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated herein by reference to the Company’s definitive proxy statement to be filed in connection with its 20042006 Annual Meeting of Shareholders.
Information regarding equity compensation plans is incorporated by reference to the information set forth in Item 5 of Part I of this report.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated herein by reference to the Company’s definitive proxy statement to be filed in connection with its 20042006 Annual Meeting of Shareholders.
29
Item 14. Principal Accountant Fees and Services
The information required-byrequired by this Item is incorporated herein by reference to the Company’s definitive proxy statement to be filed in connection with its 20042006 Annual Meeting of Shareholders.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
| Item 15. | Exhibits and Financial Statement Schedules and Reports on Form 8-K | |||||
| Page | ||||||
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|
| ||||
| (a) | Consolidated Financial Statements | |||||
The following financial statements of Superior Uniform Group, Inc. are included in Part II, Item 8: | ||||||
Consolidated statements of earnings - years ended December 31, | ||||||
Consolidated balance sheets - December 31, | ||||||
Consolidated statements of cash flows - years ended December 31, | ||||||
Reports of Independent | ||||||
|
|
| 31-32 | |||
| (b) | Exhibits |
| ||||
|
|
| ||||
See Exhibit Index | ||||||
|
| |||||
| (c) | Financial Statement Schedules |
| ||||
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| |||||
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30All schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto.
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/ Michael Benstock | |
BY: Michael. Benstock | ||
(Chief Executive Officer and Principal Executive Officer) | ||
| /s/ Andrew D. Demott, Jr. | |
BY: Andrew D. Demott, Jr. | ||
(Treasurer, Principal Accounting | ||
Officer and Principal | ||
DATE: March 15, 2004
10, 2006
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/ Gerald M. Benstock | /s/ Alan D. Schwartz | |
Gerald M. Benstock, March | Alan D. Schwartz, March | |
(Chairman) | (Director) | |
/s/ Peter Benstock | /s/ Robin Hensley | |
Peter Benstock, March | Robin Hensley, March | |
(Director) | (Director) | |
/s/ Manuel Gaetan | /s/ Sidney Kirschner | |
| Manuel Gaetan, March 13, 2006 | Sidney Kirschner, March 13, 2006 | |
| (Director) | (Director) | |
|
| |
| Paul Mellini, March 13, 2006 | |
| (Director) | (Director) | |
31
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, as amended by the Amendment to By-Laws of Registrant, filed as Exhibit 3 to the Registrant’s Interim Report on Form 10-Q for the quarter ended September 30, 2003, and incorporated herein by reference. | |
| 4.1 | Credit Agreement dated March 26, 1999, between the Registrant and First Union, filed with the Commission as Exhibit 4.1 in Registrant’s Form 10-Q for the quarter ended March 31, 1999 and is hereby incorporated herein by reference. | |
| 4.2 | ||
| Credit Agreement dated October 16, 2000, between the Registrant and First Union, filed with the Commission as Exhibit 4.2 in Registrant’s Form 10-Q for the quarter ended September 30, 2000 and is hereby incorporated herein by reference. | ||
| Second amendment to Loan Agreement and Other Loan Documents between Registrant and First Union filed with the Commission as Exhibit 4.1 and Renewal of Revolving Credit Note filed with the Commission as Exhibit 4.2 in Registrant’s 2001 Form 10-Q for the quarter ended March 31, 2001 which is hereby incorporated by reference. | ||
| 4.4 | Third amendment to Loan Agreement and Other Loan Documents between Registrant and Wachovia and Renewal of Revolving Credit Note as filed as Exhibit 4.4 to the Registrant’s 2004 Annual Report on Form 10-K and incorporated herein by reference. | |
| 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. | |
| 10.4 | ||
| 10.5 | Severance Protection Agreement with Michael Benstock filed with 8-K in November 2005. | |
| 10.6 | Severance Protection Agreement with Alan Schwartz filed with 8-K in November 2005. | |
| 10.7 | Severance Protection Agreement with Peter Benstock filed with 8-K in November 2005. | |
| 10.8 | Severance Protection Agreement with Andrew D. Demott, Jr. filed with 8-K in November 2005. | |
| 10.9 | Contract for sale of Tampa, Florida plant. | |
| 13. | Forms 10-Q for the first three quarters of | |
| 14 | Code of Ethics filed as Exhibit 10.4 to the Registrant’s 2003 Annual Report on Form 10-K and incorporated herein by reference. | |
| 21. | Subsidiaries of the | |
| Consent of Independent | ||
| 23.2 | Consent of Independent Registered Public Accounting Firm - Deloitte & Touche LLP | |
| 31.1 | Certification of Chief Executive Officer pursuant to 18 U.SC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Chief Financial Officer pursuant to 18 U.SC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Written Statement of Chief Executive Officer pursuant to 18 U.SC Section 1350 | |
| 32.2 | Written Statement of Chief Financial Officer pursuant to 18 U.SC Section 1350 | |
3239