Superior Group of Companies, Inc. — FY2021 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2021 (not just Q4). Superior operates Uniforms and Related Products, Remote Staffing Solutions, and Promotional Products. The company filed on March 23, 2022. Financial statements received an unqualified audit opinion, but the auditor concluded internal control over financial reporting was ineffective because of a material weakness in income-tax accounting.
Financial results
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $537.0 million | $526.7 million | +2.0% |
| Gross profit / gross margin | $186.0 million / 34.6% | $188.8 million / 35.8% | Margin down 1.2 percentage points |
| Income before tax | $33.1 million | $51.5 million | Down 35.6% |
| Net income | $29.4 million | $41.0 million | Down 28.2% |
| Diluted EPS | $1.83 | $2.65 | Down 30.9% |
| Operating cash flow | $17.1 million | $41.4 million | Down $24.3 million |
| Cash and cash equivalents | $8.9 million | $5.2 million | Up $3.7 million |
| Working capital | $188.1 million | $143.6 million | Up $44.5 million |
| Total debt | $116.8 million | $88.1 million | Up $28.6 million |
Segment sales: Uniforms and Related Products $263.9 million, down 8.1%; Remote Staffing Solutions $64.3 million, up 51.8% before intersegment eliminations; Promotional Products $215.8 million, up 6.8%. The filing reports no consolidated operating-margin measure; consolidated gross margin was 34.6%.
Material changes and unusual items
- Uniforms sales fell mainly because PPE revenue declined $28.9 million from pandemic-driven demand in 2020, partly offset by higher uniform-apparel demand. Promotional Products core sales rose $77.4 million, offset by a $63.7 million decline in PPE sales; the 2021 acquisitions added $16.9 million of sales.
- Profit included a noncash $7.8 million pension-plan termination charge. The two qualified defined-benefit plans were terminated and fully funded; management said termination required no company cash outlay. The 2020 comparison included a $2.2 million gain on sale of a distribution-center property.
- Higher logistics costs and $2.0 million of PPE inventory write-downs pressured Uniforms cost of goods; Promotional Products cost of goods as a share of sales also increased due to product and customer mix.
- Cash from operations declined amid working-capital investment, including a $21.8 million inventory cash use, payments of prior-year accruals, and a $4.2 million contingent-consideration payment. Investing cash outflow was $34.1 million, including $16.4 million for acquisitions and $17.7 million of capital expenditures. Financing provided $21.0 million, including net debt borrowing of $27.6 million.
- Superior acquired Gifts by Design for $6.0 million cash and acquired Sutter’s Mill for about $10.4 million cash, 45,620 restricted shares, and contingent consideration. Sutter’s Mill contingent consideration had a $2.6 million estimated fair value at year-end.
Liquidity, debt, and capital allocation
Debt comprised $61.5 million drawn on a $125 million revolving facility and $55.2 million of term loans. Undrawn revolving capacity was $63.5 million. The facility matures in February 2026; interest rates are variable and benchmarked to LIBOR. Superior reported compliance with required fixed-charge coverage and funded-debt-to-EBITDA covenants at year-end. Management believed operating cash flow and revolver availability would meet working-capital and capital-expenditure needs for at least the next 12 months and beyond.
The company paid $0.46 per share in dividends during 2021, totaling $7.2 million. Future dividends remain subject to board discretion and credit-agreement restrictions. It made no share repurchases in 2021; 657,451 shares remained authorized under its repurchase program.
Outlook, risks, and contingencies
- Management cited longer-term growth opportunities in uniform market share, Remote Staffing customer demand, core promotional products, cross-selling, and acquisitions. It expected PPE demand and related sales opportunities to continue declining.
- Management described supply-chain challenges as manageable but persistent, with port congestion, trucking shortages, longer lead times, higher freight costs, and inventory pressure. Many fabrics and promotional-product inputs are sourced from China; tariffs, geopolitical disruption, unrest in Haiti, and inflation could further raise costs or interrupt supply.
- Other risks include COVID-19 effects on customers and staffing, competition and pricing pressure, customer order cancellations or concentration, acquisition integration, cybersecurity and privacy, and variable-rate debt. LIBOR transition after June 2023 could affect borrowing and swap costs; the debt documents did not specify a replacement benchmark.
- The unfunded supplemental executive retirement plan obligation was $15.5 million. Acquisition-related contingent liabilities and ordinary-course litigation remain; management did not expect the legal matters to materially affect results or financial position.
- Interim 2021 financial statements were restated after deferred tax liabilities associated with pension-plan termination were not reversed. The correction increased tax benefit by about $1.8 million across the affected periods. The material weakness remained at December 31, 2021; planned remediation included tax software, additional qualified tax staff, and stronger review controls. Remediation was not yet complete.
Important facts for investors to verify
- Progress and independent testing of remediation for the income-tax control material weakness, and any subsequent reporting errors.
- Whether lower PPE revenue, freight inflation, inventory levels, and supply-chain delays affect margins and cash conversion in subsequent periods.
- Debt levels, covenant headroom, variable-rate exposure, and the LIBOR replacement terms; the filing does not provide a clear numerical covenant cushion.
- Performance and integration of Gifts by Design and Sutter’s Mill, including final purchase accounting and contingent payments.
- Whether operating cash flow recovers from 2021’s decline while supporting capital spending, dividends, and debt service.