SUPERIOR GROUP OF COMPANIES INC
For the period ended Dec 31, 2023. Filed Mar 14, 2024.
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FY2023 · Filed Mar 14, 2024
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Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | |
|---|---|
| Report of Independent Registered Public Accounting Firm (PCAOB ID 248) | 33 |
| Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023 and 2022 | 37 |
| Consolidated Balance Sheets as of December 31, 2023 and 2022 | 38 |
| Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2023 and 2022 | 39 |
| Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 | 40 |
| Notes to the Consolidated Financial Statements | 41 |
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Superior Group of Companies, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Superior Group of Companies, Inc. (a Florida corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of comprehensive income (loss), shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, 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) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 13, 2024 expressed an adverse opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Indefinite-lived Intangible Assets – CID Resources Trade name
As described further in note 6 to the financial statements, the Company has an indefinite-lived intangible asset related to the CID Resources trade name of approximately $14.2 million. This indefinite-lived intangible asset is reviewed at least quarterly by the Company for impairment assessment. The Company considers historical and projected financial performance as well as industry information. We identified the quantitative fair value assessment of the CID Resources trade name in the fourth quarter as a critical audit matter.
The principal considerations for our determination that the impairment assessment of this indefinite-lived intangible asset is a critical audit matter are that the impairment assessment requires the Company to utilize subjective assumptions to estimate the discounted cash flows attributable to the CID Resources trade name, such as royalty rate and discount rate. This estimation process required a high degree of auditor judgement and an increased extent of effort.
Our audit procedures related to the CID Resources trade name included the following, among others.
| • | We obtained an understanding, evaluated the design and tested the operating effectiveness of key controls relating to management’s quantitative impairment assessment process including review of assumptions used in the model and the completeness and accuracy of forecasted information. |
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| • | We reviewed revenue forecasts prepared by management that were utilized in the model and performed sensitivity analyses on those forecasts. |
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| • | We utilized a valuation specialist to assess the appropriateness of the model utilized and underlying assumptions including the royalty rate and discount rate. |
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/s/GRANT THORNTON LLP
We have served as the Company's auditor since 2022.
Tampa, Florida
March 13, 2024
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Superior Group of Companies, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Superior Group of Companies, Inc. (a Florida corporation) and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in the 2013Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, because of the effect of the material weakness described in the following paragraphs on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013Internal Control—Integrated Framework issued by COSO.
A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment.
As of December 31, 2023, management identified a material weakness relating to segregation of duties, change management and user access within certain proprietary information technology systems of the Contact Centers segment. The Company determined that management’s review controls over these areas are not designed effectively to detect a material misstatement related to the completeness, accuracy, and presentation of the financial statements.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2023. The material weakness identified above was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report dated March 13, 2024 which expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’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, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
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.
Other information
We do not express an opinion or any other form of assurance on management’s remediation plans related to the currently reported material weakness in internal control over financial reporting as of December 31, 2023.
/s/ GRANT THORNTON LLP
Tampa, Florida
March 13, 2024
SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except shares and per share data)
| Years Ended December 31, | ||
|---|---|---|
| 2023 | 2022 | |
| Net sales | $543,302 | $578,831 |
| Costs and expenses: | ||
| Cost of goods sold | 339,755 | 385,472 |
| Selling and administrative expenses | 183,205 | 176,320 |
| Goodwill impairment charge | - | 45,918 |
| Intangible assets impairment charge | - | 5,581 |
| Other periodic pension costs | 855 | 2,116 |
| Interest expense | 9,718 | 4,894 |
| 533,533 | 620,301 | |
| Gain on sale of property, plant and equipment | - | 3,435 |
| Income (loss) before income tax expense | 9,769 | (38,035) |
| Income tax expense (benefit) | 997 | (6,065) |
| Net income (loss) | $8,772 | $(31,970) |
| Net income (loss) per share: | ||
| Basic | $0.55 | $(2.03) |
| Diluted | $0.54 | $(2.03) |
| Weighted average shares outstanding during the period: | ||
| Basic | 15,968,199 | 15,764,859 |
| Diluted | 16,159,308 | 15,764,859 |
| Other comprehensive income (loss), net of tax: | ||
| Defined benefit pension plans: | ||
| Recognition of net losses included in net periodic pension costs | $163 | $1,276 |
| Current period gain (loss) | (172) | 2,188 |
| Loss on cash flow hedging activities | - | (47) |
| Foreign currency translation adjustment | 735 | (215) |
| Other comprehensive income | 726 | 3,202 |
| Comprehensive income (loss) | $9,498 | $(28,768) |
| Cash dividends per common share | $0.56 | $0.54 |
See accompanying Notes to the Consolidated Financial Statements.
SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value data)
| December 31, | ||
|---|---|---|
| 2023 | 2022 | |
| ASSETS | ||
| Current assets: | ||
| Cash and cash equivalents | $19,896 | $17,722 |
| Accounts receivable, less allowance for doubtful accounts of $4,237 and $7,622, respectively | 103,494 | 104,813 |
| Accounts receivable - other | 307 | 3,326 |
| Inventories | 98,067 | 124,976 |
| Contract assets | 48,715 | 52,980 |
| Prepaid expenses and other current assets | 8,881 | 14,166 |
| Total current assets | 279,360 | 317,983 |
| Property, plant and equipment, net | 46,890 | 51,392 |
| Operating lease right-of-use assets | 17,909 | 9,113 |
| Deferred tax asset | 12,356 | 10,718 |
| Intangible assets, net | 51,160 | 55,753 |
| Other assets | 14,775 | 11,982 |
| Total assets | $422,450 | $456,941 |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||
| Current liabilities: | ||
| Accounts payable | $50,520 | $42,060 |
| Other current liabilities | 43,978 | 38,646 |
| Current portion of long-term debt | 4,688 | 3,750 |
| Current portion of acquisition-related contingent liabilities | 1,403 | 736 |
| Total current liabilities | 100,589 | 85,192 |
| Long-term debt | 88,789 | 151,567 |
| Long-term pension liability | 13,284 | 12,864 |
| Long-term acquisition-related contingent liabilities | 557 | 2,245 |
| Long-term operating lease liabilities | 12,809 | 3,936 |
| Other long-term liabilities | 8,784 | 8,538 |
| Total liabilities | 224,812 | 264,342 |
| Commitments and contingencies (Note 12) | ||
| Shareholders’ equity: | ||
| Preferred stock, $.001 par value - authorized 300,000 shares (none issued) | - | - |
| Common stock, $.001 par value - authorized 50,000,000 shares, issued and outstanding - 16,564,712 and 16,376,683 shares, respectively | 16 | 16 |
| Additional paid-in capital | 77,443 | 72,615 |
| Retained earnings | 122,464 | 122,979 |
| Accumulated other comprehensive income (loss), net of tax: | ||
| Pensions | (1,122) | (1,113) |
| Foreign currency translation adjustment | (1,163) | (1,898) |
| Total shareholders’ equity | 197,638 | 192,599 |
| Total liabilities and shareholders’ equity | $422,450 | $456,941 |
See accompanying Notes to the Consolidated Financial Statements.
SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except shares and per share data)
| Accumulated | ||||||
|---|---|---|---|---|---|---|
| Other | ||||||
| Additional · Comprehensive · Total | ||||||
| Common | Common | Paid-In | Retained | (Loss) Income, | Shareholders’ | |
| Shares | Stock | Capital | Earnings | net of tax | Equity | |
| Balance, January 1, 2022 | 16,127,505 | $16 | $69,351 | $163,836 | $(6,213) | $226,990 |
| Cumulative-effect adjustment from adoption of ASU 2016-13 | - | - | - | $(76) | - | $(76) |
| Common shares issued upon exercise of options and SARs, net | 80,434 | - | 886 | (158) | - | 728 |
| Performance based shares issued | 11,707 | - | - | - | - | - |
| Restricted shares issued, net of forfeitures | 48,044 | - | - | - | - | - |
| Restricted shares issued in conjunction with acquisition of business | 116,550 | - | 2,000 | - | - | 2,000 |
| Share-based compensation expense | - | - | 4,289 | - | - | 4,289 |
| Tax withheld on vesting of restricted shares and performance based shares | (7,557) | - | (314) | - | - | (314) |
| Written put options | - | - | (3,597) | - | - | (3,597) |
| Cash dividends declared ($0.54 per share) | - | - | - | (8,653) | - | (8,653) |
| Comprehensive income (loss): | ||||||
| Net loss | - | - | - | (31,970) | - | (31,970) |
| Cash flow hedges, net of taxes of $6 | - | - | - | - | (47) | (47) |
| Pensions, net of taxes of $1,281 | - | - | - | - | 3,464 | 3,464 |
| Change in currency translation adjustment, net of taxes of $0 | - | - | - | - | (215) | (215) |
| Balance, December 31, 2022 | 16,376,683 | $16 | $72,615 | $122,979 | $(3,011) | $192,599 |
| Common shares issued upon exercise of options and SARs, net | 29,835 | - | 274 | (99) | - | 175 |
| Performance based shares issued | 2,981 | - | - | - | - | - |
| Restricted shares issued, net of forfeitures | 155,213 | - | - | - | - | - |
| Share-based compensation expense | - | - | 3,787 | - | - | 3,787 |
| Written put options | - | - | 767 | - | - | 767 |
| Cash dividends declared ($0.56 per share) | - | - | - | (9,188) | - | (9,188) |
| Comprehensive income (loss): | ||||||
| Net income | - | - | - | 8,772 | - | 8,772 |
| Pensions, net of taxes of $3 | - | - | - | - | (9) | (9) |
| Change in currency translation adjustment, net of taxes of $0 | - | - | - | - | 735 | 735 |
| Balance, December 31, 2023 | 16,564,712 | $16 | $77,443 | $122,464 | $(2,285) | $197,638 |
See accompanying Notes to the Consolidated Financial Statements.
SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Years Ended December 31, | ||
|---|---|---|
| 2023 | 2022 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | ||
| Net income (loss) | $8,772 | $(31,970) |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
| Depreciation and amortization | 13,995 | 13,004 |
| Goodwill impairment charge | - | 45,918 |
| Intangible assets impairment charge | - | 5,581 |
| Inventory write-downs | 2,346 | 13,569 |
| Provision for bad debts - accounts receivable | 539 | 2,891 |
| Share-based compensation expense | 3,787 | 4,289 |
| Deferred income tax benefit | (1,635) | (12,352) |
| Gain on sale of property, plant and equipment | - | (3,435) |
| Change in fair value of acquisition-related contingent liabilities | (189) | (450) |
| Change in fair value of written put options | 489 | (1,565) |
| Changes in assets and liabilities, net of acquisition of businesses: | ||
| Accounts receivable | 1,051 | 680 |
| Accounts receivable - other | 3,019 | 1,347 |
| Contract assets | 4,310 | (15,092) |
| Inventories | 24,672 | (15,898) |
| Prepaid expenses and other current assets | 5,496 | 5,225 |
| Other assets | (2,012) | 1,858 |
| Accounts payable and other current liabilities | 13,310 | (14,614) |
| Payment of acquisition-related contingent liabilities | (279) | (3,346) |
| Long-term pension liability | 407 | 2,190 |
| Other long-term liabilities | 851 | (434) |
| Net cash provided by (used in) operating activities | 78,929 | (2,604) |
| CASH FLOWS FROM INVESTING ACTIVITIES | ||
| Additions to property, plant and equipment | (4,963) | (11,018) |
| Proceeds from disposals of property, plant and equipment | - | 4,795 |
| Acquisition of businesses | - | (11,202) |
| Other investments | (545) | - |
| Net cash used in investing activities | (5,508) | (17,425) |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||
| Proceeds from borrowings of debt | 6,000 | 332,143 |
| Repayment of debt | (67,750) | (292,773) |
| Debt issuance costs | (300) | (869) |
| Payment of cash dividends | (9,188) | (8,653) |
| Payment of acquisition-related contingent liabilities | (553) | (1,416) |
| Proceeds received on exercise of stock options | 175 | 728 |
| Tax withholdings on vesting of restricted shares and performance based shares and on exercise of stock rights | - | (314) |
| Net cash provided by (used in) financing activities | (71,616) | 28,846 |
| Effect of currency exchange rates on cash | 369 | (30) |
| Net increase in cash and cash equivalents | 2,174 | 8,787 |
| Cash and cash equivalents balance, beginning of year | 17,722 | 8,935 |
| Cash and cash equivalents balance, end of year | $19,896 | $17,722 |
| Supplemental disclosure of cash flow information: | ||
| Income taxes paid (refunded), net | $(978) | $1,348 |
| Interest paid | $9,588 | $4,767 |
See accompanying Notes to the Consolidated Financial Statements.
Superior Group of Companies**, Inc. and****Subsidiaries**
Notes to the Consolidated Financial Statements
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