1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-5869-1 SUPERIOR SURGICAL MFG. CO., INC. Incorporated - New York Employer Identification No. 11-1385670 10099 Seminole Boulevard Post Office Box 4002 Seminole, Florida 33775-0002 Telephone No.: 813-397-9611 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- As of the date of this report, the registrant had 7,959,752 common shares outstanding.
2 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements SUPERIOR SURGICAL MFG. CO., INC. CONDENSED SUMMARY OF OPERATIONS <TABLE> <CAPTION> Three Months Ended March 31, ------------------------------ 1997 1996 ------------ ------------ (Unaudited) <S> <C> <C> Net sales .................................... $ 33,513,631 $ 34,672,192 ------------ ------------ Costs and expenses: Cost of goods sold ......................... $ 22,243,695 $ 23,191,176 Selling and administrative expenses ........ 8,045,282 8,096,154 Interest expense ........................... 304,598 293,545 ------------ ------------ $ 30,593,575 $ 31,580,875 ------------ ------------ Earnings before taxes on income .............. $ 2,920,056 $ 3,091,317 Taxes on income .............................. 1,095,000 1,175,000 ------------ ------------ Net earnings ................................. $ 1,825,056 $ 1,916,317 ============ ============ Weighted average number of shares out- standing during the period ................. 8,054,905 Shs 8,133,552 Shs Net earnings per common share .............. $ 0.23 $ 0.24 ============ ============ Cash dividends declared per common share .................................... $ 0.11 $ 0.09 ============ ============ </TABLE> The results of the three months ended March 31, 1997 are not necessarily indicative of results to be expected for the full year ending December 31, 1997. See accompanying notes to summarized interim financial statements. Page 2
3 SUPERIOR SURGICAL MFG. CO., INC. CONDENSED BALANCE SHEETS ASSETS <TABLE> <CAPTION> March 31, 1997 December 31, (Unaudited) 1996 ----------- ------------ (1) <S> <C> <C> CURRENT ASSETS: Cash and certificates of deposit ........... $ 3,694,650 $ 4,718,632 Accounts receivable and other current assets 25,171,839 24,550,365 Inventories* ............................... 46,776,554 44,112,968 ------------ ------------ TOTAL CURRENT ASSETS ................ $ 75,643,043 $ 73,381,965 PROPERTY, PLANT AND EQUIPMENT ................ 28,302,184 28,995,394 EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED ........................... 817,113 818,276 OTHER ASSETS ................................. 2,554,566 2,463,459 ------------ ------------ $107,316,906 $105,659,094 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ........................... $ 7,510,070 $ 6,417,139 Other current liabilities .................. 4,340,967 4,455,531 Current portion of long-term debt .......... 2,266,667 2,266,667 ------------ ------------ TOTAL CURRENT LIABILITIES ........... $ 14,117,704 $ 13,139,337 LONG-TERM DEBT ............................... 15,316,666 15,733,333 DEFERRED INCOME TAXES ........................ 2,720,000 2,630,000 SHAREHOLDERS' EQUITY ......................... 75,162,536 74,156,424 ------------ ------------ $107,316,906 $105,659,094 ============ ============ * Inventories consist of the following: March 31, 1997 December 31, (Unaudited) 1996 ------------ ------------ Finished goods ....................... $ 28,056,504 $ 27,926,040 Work in process ...................... 3,440,119 3,577,252 Raw materials ........................ 15,279,931 12,609,676 ------------ ------------ $ 46,776,554 $ 44,112,968 ============ ============ </TABLE> (1) The balance sheet as of December 31, 1996 has been taken from the audited financial statement as of that date and has been condensed. See accompanying notes to summarized interim financial statements. Page 3
4 SUPERIOR SURGICAL MFG. CO., INC. SUMMARY OF CASH FLOWS <TABLE> <CAPTION> Three Months Ended March 31, --------------------------- 1997 1996 ------------ ----------- (Unaudited) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net earnings .................................... $ 1,825,056 $ 1,916,317 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization ................ 1,090,109 1,037,293 Deferred income taxes ........................ 90,000 185,000 Changes in assets and liabilities: Accounts receivable and other current assets ................................... (621,474) 304,217 Inventories ................................ (2,663,586) (1,094,735) Accounts payable ........................... 1,092,931 2,161,424 Other current liabilities .................. (114,564) 1,502,465 ----------- ----------- Net cash flows provided from operating activities ..................................... $ 698,472 $ 6,011,981 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant, and equipment ..... $ (395,735) $ (472,922) Other assets .................................... (91,107) (575,367) ----------- ----------- Net cash (used) in investing activities ......... $ (486,842) $(1,048,289) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Declaration of cash dividends ................... $ (885,957) $ (732,020) Reduction in Long-Term Debt ..................... (416,667) -0- Proceeds received on exercised stock options .... 67,012 -0- ----------- ----------- Net cash (used) provided in financing activities $(1,235,612) $ (732,020) ----------- ----------- Net (decrease) increase in cash and certificates of deposit ...................... $(1,023,982) $ 4,231,672 Cash and certificates of deposit balance, beginning of year ................................. 4,718,632 5,421,553 ----------- ----------- Cash and certificates of deposit balance, end of period ..................................... $ 3,694,650 $ 9,653,225 =========== =========== </TABLE> See accompanying notes to summarized interim financial statements. Page 4
5 SUPERIOR SURGICAL MFG. CO., INC. NOTES TO SUMMARIZED INTERIM FINANCIAL STATEMENTS Note 1 - Summary of Significant Interim Accounting Policies: a) Recognition of costs and expenses Costs and expenses other than product costs are charged to income in interim periods as incurred, or allocated among interim periods based on an estimate of time expired, benefit received or activity associated with the periods. Procedures adopted for assigning specific cost and expense items to an interim period are consistent with the basis followed by the registrant in reporting results of operations at annual reporting dates. However, when a specific cost or expense item charged to expense for annual reporting purposes benefits more than one interim period, the cost or expense item is allocated to the interim periods. b) Inventories Inventories at interim dates are determined by using both perpetual records and gross profit calculations. c) Accounting for income taxes The provision for income taxes is calculated by using the effective tax rate anticipated for the full year. d) Earnings per share Earnings per share have been computed based on the weighted average number of shares outstanding during each period. The exercise of outstanding stock options would not have a significant effect on earnings per share. e) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Page 5
6 The interim information contained above is not certified or audited; it reflects all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the operating results for the periods presented, stated on a basis consistent with that of the audited financial statements. The financial information included in this form has been reviewed by Deloitte & Touche LLP, independent certified public accountants; such review was made in accordance with established professional standards and procedures for such a review. All financial information has been prepared in accordance with the accounting principles or practices reflected in the financial statements for the year ended December 31, 1996, filed with the Securities and Exchange Commission. Reference is hereby made to registrant's Financial Statements for 1996, heretofore filed with registrant's Form 10-K. Page 6
7 [DELOITTE & TOUCHE LLP LETTERHEAD] Board of Directors Superior Surgical Mfg. Co., Inc. Seminole, Florida We have reviewed the accompanying condensed balance sheet of Superior Surgical Mfg. Co., Inc. (the "Company") as of March 31, 1997, the condensed summaries of operations and cash flows for the three-months ended March 31, 1997 and 1996. This condensed financial information is the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed financial information for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of Superior Surgical Mfg. Co., Inc. as of December 31, 1996, and the related statements of earnings, shareholders' equity, and cash flows for the year ended (not presented herein); and in our report dated February 20, 1997, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of December 31, 1996 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. Deloitte & Touche LLP April 25, 1997 Page 7
8 ITEM 2. Management's Discussion And Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS While the registrant's sales of employee identification and career apparel increased, net sales have declined due to weaknesses in healthcare markets. Cost of goods sold approximated 66.7% for the three months ended March 31, 1997 and 1996. Selling and administrative expenses, as a percentage of sales, were approximately 23.7% for the first three months of 1997 and 1996. Interest expense of $304,598 for the three month period ended March 31, 1997 increased 4% from $293,545 for the similar period ended March 31, 1996 due to lesser cash balances invested in certificates of deposit in 1997. . Net earnings decreased 5% to $1,825,056 for the three months ended March 31, 1997 as compared to net earnings of $1,916,317 for the same period ended March 31, 1996 as a result of decreased sales in healthcare markets. Accounts receivable and other current assets increased 3% from $24,550,365 on December 31, 1996 to $25,171,839 as of March 31, 1997. Inventories as of March 31, 1997 increased 6% to $46,776,554 from $44,112,968 on December 31, 1996 mainly to support expected customer demand. Accounts payable increased 17% from $6,417,139 on December 31, 1996 to $7,510,070 on March 31, 1997 primarily due to increases in purchases of inventories. The registrant's current portion of long-term debt of $2,266,667 is unchanged, and its long-term debt of $17,583,333 reflects first quarter principal reduction payments for March 31, 1997, as compared to December 31, 1996. LIQUIDITY AND CAPITAL RESOURCES Cash and certificates of deposit decreased by $1,023,982 from $4,718,632 on December 31, 1996 to $3,694,650 as of March 31, 1997. The change is a result of acquiring inventories and principal reductions of long-term debt. Additionally, as of March 31, 1997, under its existing revolving Credit Agreement, the registrant had $10,000,000 available to it. The registrant has operated without hindrance or restraint with its present working capital, as income generated from operations and outside sources of credit, both trade and institutional, have been more than adequate. In the foreseeable future, the registrant will continue its ongoing capital expenditure program designed to maintain and improve its facilities. The registrant at all times evaluates its capital expenditure program in light of prevailing economic conditions. The registrant believes that its cash flow from operating activities together with other capital resources and funds from credit sources will be adequate to meet all of its funding requirements for the remainder of the year and for the foreseeable future. Page 8
9 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings None. ITEM 2. Changes in Securities None. ITEM 3. Defaults Upon Senior Securities Inapplicable. ITEM 4. Submission of Matters to a Vote of Security-Holders None. ITEM 5. Other Information Inapplicable. ITEM 6. Exhibits and Reports on Form 8-K a) Exhibits 15 Letter re: unaudited interim financial information. 27 Financial Data Schedule for the quarter ended March 31, 1997 (for SEC use only). b) Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: April 28, 1997 SUPERIOR SURGICAL MFG. CO., INC. By /s/ Gerald M. Benstock ---------------------- Gerald M. Benstock Chairman and Chief Executive Officer By /s/ John W. Johansen -------------------- John W. Johansen Chief Financial Officer and Principal Accounting Officer, Sr. Vice President and Treasurer Page 9