Business context and reporting period
Superior Uniform Group, Inc. (the registrant named in this filing; the request metadata identifies Superior Group of Companies, Inc.) filed this Form 10-K for the fiscal year ended December 31, 2012. The company operates in two segments: Uniforms and Related Products, which manufactures and sells uniforms and service apparel, and Remote Staffing Solutions, which provides near-shore bilingual contact-center and office-support services.
Financial performance and position
| Metric | 2012 | 2011 |
|---|---|---|
| Net sales | $119.486 million | $112.373 million |
| Gross profit | $39.763 million | $40.259 million |
| Gross margin | 33.3% | 35.8% |
| Income before taxes | $4.621 million | $5.586 million |
| Net income | $3.031 million | $4.136 million |
| Diluted earnings per share | $0.49 | $0.68 |
| Cash from operating activities | $9.158 million | $(0.855) million |
- Full-year sales grew 6.3%. Uniforms and Related Products sales were $116.029 million, up 6.0%; Remote Staffing Solutions sales were $7.196 million before $3.739 million of intersegment eliminations.
- Fourth-quarter sales were $31.044 million, versus $27.238 million a year earlier. Fourth-quarter net income was $0.485 million, versus $0.725 million.
- Net income declined 26.7%; gross profit fell despite higher sales. Cost of goods sold rose to 66.7% of consolidated sales from 64.2% in 2011.
- Cash and cash equivalents were $3.554 million at year-end, up $0.750 million. Working capital was $55.393 million and the working-capital ratio was 6.6:1.
- There was no long-term debt at year-end; the company had a $15 million revolving facility with no balance outstanding. The facility was due to expire June 24, 2013, and management expected to renew or replace it.
- Total assets were $78.913 million, shareholders’ equity $57.788 million, and the underfunded pension liability $10.468 million. Capital expenditures were $1.647 million.
- Cash dividends paid totaled $6.574 million, including a $0.54-per-share special dividend paid December 31, 2012. Regular quarterly dividends were $0.135 per share; the filing says the 2013 regular dividend was paid early and that regular distributions were intended to resume in the first quarter of 2014.
Material changes versus the prior comparable period
- Uniforms segment direct product costs increased, primarily because of raw-material costs and cotton shortages. Segment cost of goods sold rose to 67.4% of sales from 64.7%; management reported margin improvement late in 2012 as cotton prices stabilized.
- Remote Staffing Solutions sales increased 8.9% before intersegment eliminations and 17.9% after eliminations. Sales to outside customers were approximately $3.5 million; management reported 17.9% full-year growth and 55% fourth-quarter growth in those sales.
- The company recorded a $1.226 million non-cash, pre-tax impairment charge in the fourth quarter to write off the remaining balance of a licensing agreement after the product generated no significant revenue and the company could not establish recoverable cash flows.
- Operating cash flow improved to $9.158 million from cash used of $0.855 million in 2011, supported in part by a $1.962 million reduction in inventory-related cash use versus a $10.178 million inventory cash outflow in 2011.
- The pension liability increased from $8.086 million to $10.468 million, principally reflecting actuarial losses. Pension expense rose to $1.322 million from $0.808 million.
Outlook, commentary, risks and unusual items
- Management described the U.S. economic environment as challenging, citing customer headcount reductions and lower employee turnover as factors limiting uniform demand. It expected further improvement in Uniforms segment gross margins in 2013.
- Management anticipated significant Remote Staffing Solutions growth in 2013 and beyond, citing investment in management infrastructure and the addition of a Belize operation in place of Costa Rica. No numerical company-wide revenue or earnings guidance was provided.
- The company was pursuing acquisitions to increase uniform-market share and new product lines. A licensed image-apparel product had not generated significant revenue; renewal of the license was uncertain. A customer test was disrupted by Hurricane Sandy, and another customer had not moved to a full program.
- Key risks include competitive pricing, economic and employment conditions, fabric and other input-cost volatility, reliance on Central American sourcing (48% of products in 2012), supply interruptions, customer order reductions, pension funding needs, and regulation or public resistance affecting offshore outsourcing.
- The company planned to contribute $1.0 million to defined-benefit pension plans in 2013. Projected benefit payments included $2.063 million in 2013.
- Cash of approximately $2.710 million was held in foreign subsidiaries and could not be repatriated without federal income taxes. The filing reports ordinary-course legal claims that management did not expect to have a material effect; it also discloses change-in-control severance agreements for senior management.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded internal control over financial reporting was effective; the company was not required to obtain, and the auditor did not provide, an audit opinion on internal controls.
Important facts for investors to verify
- Whether the registrant should be identified as Superior Uniform Group, Inc. rather than Superior Group of Companies, Inc., as stated in the request metadata.
- Renewal or replacement of the revolving credit facility before its June 24, 2013 expiration, and subsequent availability and covenant compliance.
- Whether Remote Staffing Solutions’ external-customer growth continued and translated into segment profitability.
- Progress on the apparel licensing agreement, including renewal terms and any commercial customer launches after the 2012 impairment.
- Actual pension contributions, funding status, and sensitivity to discount-rate and asset-return assumptions.
- Dividend policy after the 2012 special dividend and the prepayment of the anticipated 2013 regular dividend.
- Collection of the approximately $2.966 million receivable from a Haiti-based supplier and ongoing dependence on Central American sourcing.