1 FORM lO-Q --------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 1996 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 8,133,552 common shares outstanding. Page 1
2 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements SUPERIOR SURGICAL MFG. CO., INC. CONDENSED SUMMARY OF OPERATIONS <TABLE> <CAPTION> Three Months Ended September 30, ------------------------------------ 1996 1995 ------------- ------------- (Unaudited) <S> <C> <C> Net sales................................. $ 35,433,226 $ 33,267,467 ------------ ------------ Costs and expenses: Cost of goods sold...................... $ 23,261,706 $ 22,221,843 Selling and administrative expenses..... 8,161,832 7,548,589 Interest expense........................ 339,971 250,601 ------------ ------------ $ 31,763,509 $ 30,021,033 ------------ ------------ Earnings before taxes on income........... $ 3,669,717 $ 3,246,434 Taxes on income........................... 1,390,000 1,235,000 ------------ ------------ Net earnings.............................. $ 2,279,717 $ 2,011,434 ============ ============ Weighted average number of shares out- standing during the period.............. 8,133,552 Shs. 8,363,552 Shs. Net earnings per common share........... $0.28 $0.24 ============ ============ Cash dividends declared per common share................................. $0.09 $0.09 ============ ============ </TABLE> - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Nine Months Ended September 30, ------------------------------------ 1996 1995 ------------- ------------- (Unaudited) <S> <C> <C> Net sales................................. $105,002,376 $100,429,444 ------------ ------------ Costs and expenses: Cost of goods sold...................... $ 69,713,756 $ 66,983,969 Selling and administrative expenses..... 24,134,067 22,656,524 Interest expense........................ 973,663 697,574 ------------ ------------ $ 94,821,486 $ 90,338,067 ------------ ------------ Earnings before taxes on income........... $ 10,180,890 $ 10,091,377 Taxes on income........................... 3,865,000 3,835,000 ------------ ------------ Net earnings.............................. $ 6,315,890 $ 6,256,377 ============ ============ Weighted average number of shares out- standing during the period.............. 8,133,552 Shs. 8,363,552 Shs. Net earnings per common share........... $0.78 $0.75 ============ ============ Cash dividends declared per common share................................. $0.27 $0.27 ============ ============ </TABLE> The results of the nine months ended September 30, 1996 are not necessarily indicative of results to be expected for the full year ending December 31, 1996. Page 2
3 SUPERIOR SURGICAL MFG. CO., INC. CONDENSED BALANCE SHEETS ASSETS <TABLE> <CAPTION> September 30, 1996 December 31, (Unaudited) 1995(1) -------------- ------------ <S> <C> <C> CURRENT ASSETS: Cash and certificates of deposit............. $ 5,078,758 $ 5,421,553 Accounts receivable and other current assets. 24,617,734 25,876,100 Inventories*................................. 45,616,415 41,089,948 ------------ ------------ TOTAL CURRENT ASSETS.................. $ 75,312,907 $ 72,387,601 PROPERTY, PLANT AND EQUIPMENT.................. 29,690,220 30,734,584 EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED............................. 819,439 822,926 OTHER ASSETS................................... 2,807,890 2,188,526 ------------ ------------ $108,630,456 $106,133,637 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............................. $ 8,641,482 $ 6,630,608 Other current liabilities.................... 5,826,265 3,575,151 Liability for dispute settlement............. - 6,500,000 Current portion of long-term debt............ 1,850,000 600,000 ------------ ------------ TOTAL CURRENT LIABILITIES............. $ 16,317,747 $ 17,305,759 LONG-TERM DEBT................................. 16,450,000 18,000,000 DEFERRED INCOME TAXES.......................... 2,225,000 1,310,000 SHAREHOLDERS' EQUITY........................... 73,637,709 69,517,878 ------------ ------------ $108,630,456 $106,133,637 ============ ============ </TABLE> * Inventories consist of the following: <TABLE> <CAPTION> September 30, 1996 December 31, (Unaudited) 1995 ------------ ------------ <S> <C> <C> Finished goods................. $ 27,210,739 $ 24,783,647 Work in process................... 3,816,668 3,515,698 Raw materials..................... 14,589,008 12,790,603 ------------ ------------ $ 45,616,415 $ 41,089,948 ============ ============ </TABLE> (1) The balance sheet as of December 31, 1995 has been taken from the audited financial statement as of that date and has been condensed. Page 3
4 SUPERIOR SURGICAL MFG. CO., INC. SUMMARY OF CASH FLOWS <TABLE> <CAPTION> Nine Months Ended September 30, ------------------------------- 1996 1995 ------------ ------------ (Unaudited) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net earnings................................. $ 6,315,890 $ 6,256,377 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization............. 3,170,941 2,654,432 Deferred income taxes..................... 915,000 290,000 Changes in assets and liabilities: Accounts receivable and other current assets................................ 1,258,366 16,258 Inventories............................. (4,526,467) (3,691,179) Accounts payable ....................... 2,010,874 232,140 Other current liabilities............... 2,251,114 435,582 Liability for dispute settlement....... (6,500,000) - ----------- ----------- Net cash flows provided from operating activities.................................. $ 4,895,718 $ 6,193,610 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant, and equipment.. $(2,123,090) $(5,551,768) Other assets................................. (619,364) (242,982) ----------- ----------- Net cash (used) in investing activities...... $(2,742,454) $(5,794,750) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Reduction in long-term debt.................. $ (300,000) $ (300,000) Declaration of cash dividends................ (2,196,059) (2,258,159) ----------- ----------- Net cash (used) in financing activities...... $(2,496,059) $(2,558,159) ----------- ----------- Net (decrease) in cash and certificates of deposit.................. $ (342,795) $(2,159,299) Cash and certificates of deposit balance, beginning of year.............................. 5,421,553 11,233,700 ----------- ----------- Cash and certificates of deposit balance, end of period.........................,,,,,.... $ 5,078,758 $ 9,074,401 =========== =========== </TABLE> 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. Note 2 - Capital Stock: Pursuant to authorization by the Board of Directors in July, 1995, during October, 1995, the registrant re-acquired and retired 230,000 shares of its common stock for an aggregate consideration of $2,191,900. 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, 1995, filed with the Securities and Exchange Commission. Reference is hereby made to registrant's Financial Statements for 1995, heretofore filed with registrant's Form 10-K. Page 6
7 [LETTERHEAD OF DELOITTE & TOUCHE LLP] 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 September 30, 1996, the condensed summaries of operations for the nine-months and three-months ended September 30, 1996 and 1995 and the condensed summaries of cash flows for the nine-months ended September 30, 1996 and 1995. 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 as of December 31, 1995, and the related statements of earnings, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated March 8, 1996, 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, 1995 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. /s/ Deloitte & Touche LLP October 17, 1996 Page 7
8 ITEM 2. Management's Discussion And Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Net sales of the registrant increased by approximately 2% in the first quarter of 1996 compared to the first quarter of 1995 due to new customers and new uniform programs. For the second and third quarters of 1996 compared to 1995, sales increased by approximately 6% and 7% respectively due to continued momentum in the economic activities in the marketplaces served by the registrant. Accordingly, for the nine months ended September 30, 1996, sales were approximately 5% more than the nine months ended September 30, 1995. Cost of goods sold approximated 66-1/2% for the nine months ended September 30, 1996 and 1995. Selling and administrative expenses, as a percentage of sales, were approximately 22-3/4% for the first nine months of 1996 and 1995. Interest expense of $973,663 for the nine month period ended September 30, 1996 increased 40% from $697,574 for the similar period ended September 30, 1995 due to repayment of debt and lesser cash balances invested in certificates of deposit. Net earnings increased 13% to $2,279,717 for the three months ended September 30, 1996 as compared to net earnings of $2,011,434 for the same period ended September 30, 1995 as a result of increased sales. Accounts receivable and other current assets decreased 5% from $25,876,100 on December 31, 1995 to $24,617,734 as of September 30, 1996. Inventories as of September 30, 1996 increased 11% to $45,616,415 from $41,089,948 on December 31, 1995 mainly to support expected future customer demand. Accounts payable increased 30% from $6,630,608 on December 31, 1995 to $8,641,482 on September 30, 1996 primarily due to increases in purchases of inventories. The registrant's current portion of long-term debt of $1,850,000 and long-term debt of $16,450,000 for September 30, 1996 is $300,000 less than it was at December 31, 1995, due to scheduled repayments of debt. LIQUIDITY AND CAPITAL RESOURCES Cash and certificates of deposit decreased by $342,795 from $5,421,553 on December 31, 1995 to $5,078,758 as of September 30, 1996. The change is primarily a result of normal operations and the payment in the third quarter of 1996 of $6,500,000 to settle and finalize the previously announced dispute with the federal government. Additionally, as of September 30, 1996, 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 are adequate to meet its anticipated funding requirements 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. Page 9
10 ITEM 5. Other Information Inapplicable. ITEM 6. Exhibits and Reports on Form 8-K a) Exhibits 3 By-Laws of Registrant as amended August 9, 1996. 15 Letter re: Unaudited Interim Financial Information. 27 Financial Data Schedule (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: October 30, 1996 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 10