SUPERIOR GROUP OF COMPANIES INC

NOTE1 – Description of Business, Basis of Presentation and Summary of Accounting Policies:

Description of business

Superior Group of Companies, Inc. (together with its subsidiaries, “the Company,” “Superior,” “we,” “our,” or “us”) was organized in1920 and was incorporated in1922 as a New York company under the name Superior Surgical Mfg. Co., Inc. In1998, the Company changed its name to Superior Uniform Group, Inc. and redomiciled to Florida. Effective on* May 3, 2018,*Superior Uniform Group, Inc. changed its name to Superior Group of Companies, Inc.

Superior’s Branded Products segment, primarily through its signature marketing brands BAMKO® and HPI®, produces and sells customized merchandising solutions, promotional products and branded uniform programs. Branded products are manufactured throughthird parties or in Superior’s own facilities, and are sold to customers in a wide range of industries, including retail, hotel, food service, entertainment, technology, transportation and other industries. The segment currently has sales offices in the United States, Canada, Brazil, the United Kingdom and Colombia, with support services in China and India.

Superior’s Healthcare Apparel segment, primarily through its signature marketing brands Fashion Seal Healthcare®, Wink™ and CID Resources, manufactures (throughthird parties or in its own facilities) and sells a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient gowns. This segment sells healthcare service apparel to healthcare laundries, dealers, distributors, retailers and consumers primarily in the United States.

Superior’s Contact Centers segment, through multiple The Office Gurus® entities, including subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”), provides outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers.

Basis of presentation

The accompanying consolidated financial statements of Superior included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) (“U.S.” or “United States”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company refers to the consolidated financial statements collectively as “financial statements,” and individually as “statements of comprehensive income (loss),” “balance sheets,” “statements of shareholders’ equity,” and “statements of cash flows” herein.

Reportable Segments

Beginning in thesecond quarter of2022, the Company realigned its reportable segments to correspond with changes to its organizational responsibilities, management structure and operating model. Prior to implementing the current segment reporting, the Company’s Uniforms and Related Products segment included healthcare apparel, uniforms and corporate overhead. As part of the change in reportable segments, the branded portion of the uniforms business was combined with the previous Promotional Products segment to form the Branded Products segment, the healthcare apparel business became its own segment named Healthcare Apparel and income and expenses related to corporate functions that arenot specifically attributable to an individual reportable segment areno longer presented in segment results. The previous Remote Staffing Solutions segment was renamed the Contact Centers segment. As a result of this re-segmentation, the Company performed a quantitative goodwill impairment test. Refer to Note6 for additional information.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue and expenses, as well as the disclosures of contingent assets and liabilities. Because of the inherent uncertainties in this process, actual future results could differ from those expected at the reporting date.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity ofthree months or less at the time of purchase to be cash equivalents.

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Revenue recognition

Revenue is recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. See Note15 for further discussion on revenue recognition.

Accounts receivable and allowance for doubtful accounts

Judgments and estimates are used in determining the collectability of accounts receivable and in establishing allowances for doubtful accounts. The Company analyzes specific accounts receivable and historical bad debt experience, customer credit worthiness, current economic trends and the age of outstanding balances when evaluating the adequacy of the allowance for doubtful accounts. Changes in estimates are reflected in the period they become known. Charge-offs of accounts receivable are made once all collection efforts have been exhausted. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances* may*be required.

Cost of goods sold and shipping and handling fees and costs

Cost of goods sold for our Branded Products segment and our Healthcare Apparel segment consist primarily of direct costs of acquiring inventory, including cost of merchandise, inbound freight charges, purchasing, receiving and inspection costs. Cost of goods sold for our Contact Centers segment includes salaries and payroll related benefits for agents. The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with out-bound freight are recorded in cost of goods sold. The cost of occupancy and operating the Company’s distribution centers are included in selling and administrative expenses.

Inventories

Inventories are stated at the lower of cost (first-in,first-out method or average cost) or net realizable value. Judgments and estimates are used in determining the likelihood that goods on hand can be sold to customers. Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs* may*be required.

Property, plant and equipment

Property, plant and equipment are stated at cost, less accumulated depreciation. Major renewals and improvements are capitalized, while replacements, maintenance and repairs which donot improve or extend the life of the respective assets are expensed in the period incurred. Costs of assets sold or retired and the related accumulated depreciation are eliminated from accounts and the net gain or loss is reflected in the statements of comprehensive income (loss) within selling and administrative expenses. During the year ended December31, 2022, the Company sold its corporate headquarters building and related assets for net proceeds of $4.8 million and realized a gain on the sale of $3.4 million. This sale was part of management’s plan to relocate the Company’s corporate headquarters to St. Petersburg, Florida. This sale is presented within our statements of comprehensive income (loss) as a separate line item titled “gain on sale of property, plant and equipment.”

Property, plant and equipment is recorded at cost and depreciated using the straight-line method over its estimated useful life as follows:

Leasehold improvements are depreciated over the terms of the leases to the extent that such improvements have useful lives of at least the terms of the respective leases.

Impairment of long-lived assets

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset* may* not be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to future net cash flows the asset is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. There wereno impairments of long-lived assets for the years ended* December 31, 2023* and2022.

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Goodwill and indefinite-lived intangible assets

The Company has made acquisitions in the past that included goodwill and indefinite-lived intangible assets. Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill and indefinite-lived intangible assets such as trade names arenot amortized but are subject to an annual (or under certain circumstances more frequent) impairment test in thefourth quarter based on their estimated fair value. We test more frequently if there are indicators of impairment, or whenever such circumstances suggest that the carrying value of goodwill or trade names* may**not* be recoverable. Examples of such events and circumstances that the Company would consider include the following:

An entity has the option tofirst assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely thannot (that is, a likelihood of more than50%) that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it isnot more likely thannot that the fair value of a reporting unit is less than its carrying amount, then performing the impairment test is unnecessary. Goodwill and indefinite-lived intangible assets are tested at a level of reporting referred to as “the reporting unit.” The Company’s reporting units are defined as each of itsthree reporting segments.

In conjunction with the re-segmentation during thesecond quarter of2022, the Company performed a goodwill impairment analysis and determined that the estimated fair value of the previous Uniforms and Related Products segment was lower than its carrying value primarily as the result of current market conditions, decline in expected cash flows and decrease in the Company’s stock price. During thethird quarter of2022, the Company determined that a triggering event occurred in relation to the depressed market price of the Company’s common stock and corresponding significant decline in the Company’s market capitalization. As a result, the Company performed a goodwill impairment analysis and determined that the estimated fair value of the Branded Products segment was lower than its carrying value. Consequently, the Company recorded a non-cash goodwill impairment charge of $45.9 million during the year ended* December 31, 2022.As of December 31, 2022,the Company hadno* remaining goodwill balance.

In conjunction with the Company’s realignment of its reportable segments during thesecond quarter of2022, the Company began an effort to centralize certain branding and go-to-market strategies under the BAMKO brand and determined that it wouldno longer use certain trade names associated with branded products. The Company’s rebranding efforts resulted in a $5.6 million impairment of indefinite-lived trade names related to its Branded Products segment during the year ended* December 31, 2022.*

For the year ended* December 31, 2023,the Company completed its testing of indefinite-lived intangible assets and determined that the fair value of each indefinite-lived intangible asset was more than its carrying value. As of December 31, 2023* and2022, indefinite-lived intangible assets of $13.6 million and $14.2 million were included in the Branded Products segment and the Healthcare Apparel segment, respectively.

Contingent Consideration

Contingent consideration relating to consideration transferred in exchange for an acquired business is recognized at its estimated fair value at the acquisition date. The contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. Recognition of any changes in fair value are included in selling and administrative expenses in our statements of comprehensive income (loss).

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SERP

The Company is the sponsor of an unfunded supplemental executive retirement plan (“SERP”) which includesone active participant. In calculating our obligations and related expense, we make various assumptions and estimates, after consulting with outside actuaries and advisors. The annual determination of expense involves calculating the estimated total benefits ultimately payable to plan participants. Significant assumptions related to the calculation of our obligations include the discount rates used to calculate the present value of benefit obligations to be paid in the future. We review these assumptions annually based upon currently available information, including information provided by our actuaries.

Insurance

The Company self-insures for certain obligations related to employee health programs. The Company also purchases stop-loss insurance policies to protect it from catastrophic losses. Judgments and estimates are used in determining the potential value associated with reported claims and for losses that have occurred, but havenot been reported. The Company’s estimates consider historical claim experience and other factors. The Company’s liabilities are based on estimates, and, while the Company believes that the accrual for loss is adequate, the ultimate liability* may* be in excess of or less than the amounts recorded. Changes in claim experience, the Company’s ability to settle claims or other estimates and judgments used by management could have a material impact on the amount and timing of expense for any period.

Taxes on income

Income taxes are provided for under the asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely thannot that some portion or all of the deferred tax assets willnot be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The calculation of the Company’s tax liabilities also involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain income tax positions based on estimates of whether, and the extent to which, additional taxes will be required. The Company also accrues interest and penalties related to uncertain income tax positions as income taxes. Refer to Note9 for additional details.

Share-based compensation

The Company awards share-based compensation as an incentive for employees to contribute to the Company’s long-term success. The Company grants options, stock-settled stock appreciation rights, restricted stock and performance shares. The Company recognizes share-based compensation expense for all awards granted to employees, which is based on the fair value of the award on the date of grant. Determining the appropriate fair value model and calculating the fair value of stock compensation awards requires the input of certain highly complex and subjective assumptions, including the expected life of the stock compensation awards and the Company’s common stock price volatility, risk free interest rate and dividend rate. The assumptions used in calculating the fair value of stock compensation awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and the Company deems it necessary to use different assumptions, stock compensation expense could be materially different from what has been recorded in the current period.

Other comprehensive income (loss)

Comprehensive income (loss) includes net income (loss) and all other changes in equity during a period except those resulting from investments by or distributions to shareholders. Other comprehensive income (loss) consists of defined benefit pension plans activities, cash flow hedging activities and foreign currency translation adjustment. The related tax effects of these items are recorded in income tax expense (benefit) within the statements of comprehensive income (loss), upon reclassification from accumulated other comprehensive income (loss), net of tax.

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Foreign Currency Translations and Transactions

Assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the current rate of exchange on the last day of the reporting period. Changes in the carrying values of these assets and liabilities attributable to fluctuations in spot rates are recognized in net foreign currency translation adjustment, a component of accumulated other comprehensive income (loss), net of tax. Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency are remeasured from the applicable currency to the reporting entity’s functional currency. Gains or losses resulting from transactions denominated in other currencies are recognized in net income (loss) each period. The majority of the Company’s transactions are settled in U.S. dollars.

Risks and concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk include cash in banks in excess of federally insured amounts. The Company manages this risk by maintaining all deposits in high quality financial institutions and periodically performing evaluations of the relative credit standing of the financial institutions. When assessing credit risk the Company considers whether the credit risk exists at both the individual and group level. Consideration is given to the activity, region and economic characteristics when assessing if there exists a group concentration risk. At* December 31, 2023* and2022, the Company hadno customer with an accounts receivable balance greater than10% of the total accounts receivable. At* December 31, 2023* and2022, thefive largest customer accounts receivable balances totaled $17.9 million and $21.4 million, respectively, or approximately 17% and 20% of the respective total accounts receivable balances. The Branded Products segment has a substantial number of customers,none of which accounted for more than10% of the segment’s2023 net sales andno customer accounted for more than10% of the Healthcare Apparel or Contact Center segment's2023 net sales.

Principal raw materials used to manufacture the Company’s finished goods include cotton, polyester, spandex, cotton-synthetic, poly-synthetic blends, textiles, plastic, glass, fabric and metal. The majority of such fabrics are sourced in China, either directly by us or our suppliers. If we are unable to continue to obtain our raw materials and finished products from China or if our suppliers are unable to source raw materials from China, it could significantly disrupt our business. Further, the Company and the Company’s suppliers generally source or manufacture finished goods in parts of the world that* may*be affected by economic uncertainty, political unrest, logistical challenges (such as port strikes and embargos), foreign currency fluctuations, labor disputes, health emergencies, or the imposition of duties, tariffs or other import regulations by the United States, any of which could result in additional cost or limit our supply of necessary goods and raw materials.

Written Put Options

During thesecond quarter of2022, the Company entered into written put options with a former employee that, if exercised by the former employee, requires the Company to repurchase up to 207,970 shares of its common stock at fair market value (as defined in the agreement), subject to certain limitations. The original fair value of the written put options upon entering into the agreement was $3.6 million. The written put options expire after twenty-four months and contain certain quarterly maximums. During the year ended* December 31, 2023*, a total of 75,046 written put options expired unexercised resulting in a $0.8 million reduction in other current liabilities with an offset to additional paid-in capital. The written put options are liabilities under ASC480, Distinguishing Liabilities from Equity, because the options embody obligations to repurchase the Company’s shares by paying cash. As of* December 31, 2023* and2022, the fair value of the written put options was $1.8 million and $2.0 million, respectively. The fair value of the written put options is based directly on the Company’s stock price and included in other current liabilities in our balance sheets. We recognized unrealized losses of $0.5 million and unrealized gains of $1.6 million on written put options during the years ended December31, 2023 and2022, respectively. Unrealized gains and losses from changes in the fair value of the written put options are included within selling and administrative expenses in our statements of comprehensive income (loss). At* December 31, 2023*, the Company’s remaining repurchase obligation under the written put options was 132,924 shares of its common stock.

Fair value of financial instruments** **

The carrying amounts of cash and cash equivalents, receivables and accounts payable approximated fair value as of* December 31, 2023* and2022, because of the relatively short maturities of these instruments. The carrying amount of the Company’s long-term debt approximated fair value as the rates are adjustable based upon current market conditions.

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Recent Accounting Pronouncements

We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUsnot listed below were assessed and determined to benot applicable.

Recently Issued Accounting PronouncementsNot* Yet Adopted*

In* November 2023,the FASB issued ASU2023*-07, "Segment Reporting (Topic280*)—Improvements to Reportable Segment Disclosures". The ASU requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker ("CODM"). The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024.Early adoption is permitted. The adoption of this guidance willnot* affect the Company’s consolidated results of operations, financial position or cash flows and the Company is currently evaluating the effect the guidance will have on its disclosures.

In* December 2023,the FASB issued ASU2023*-09, "Income Taxes (Topic740*)—Improvements to Income Tax Disclosures". The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024.Early adoption is permitted for annual financial statements that havenot* yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. The adoption of this guidance willnot affect the Company’s consolidated results of operations, financial position or cash flows and the Company is currently evaluating the effect the guidance will have on its disclosures.

NOTE 2 - Allowance for Doubtful Accounts Receivable:

The activity in the allowance for doubtful accounts receivable was as follows (in thousands):

NOTE 3 - Reserve for Sales Returns and Allowances:

The activity in the reserve for sales returns and allowances was as follows (in thousands):

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NOTE 4 - Inventories:

Inventories consisted of the following amounts (in thousands):

NOTE 5 - Property, Plant and Equipment, Net:

Property, plant and equipment, net, consisted of the following (in thousands):

Depreciation expense was $9.4 million and $7.9 million in2023 and2022, respectively.

NOTE 6 - Goodwill and Intangible Assets:

Goodwill

Beginning in thesecond quarter of2022, the Company realigned its reportable segments to Branded Products, Healthcare Apparel and Contact Centers. Refer to Note17 for further information on the Company’s reportable segments. As a result of this re-segmentation, and in accordance with ASC350, the Company performed a quantitative goodwill impairment test.

During thethird quarter of2022, the Company determined that a triggering event occurred in relation to the depressed market price of the Company’s common stock and corresponding significant decline in the Company’s market capitalization. As a result, the Company performed a quantitative goodwill impairment test.

The fair value of goodwill in each impairment test was determined using a combination of an income approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to their respective present values, and a market approach. The valuation methodology and underlying financial information included in the Company’s determination of fair value required significant judgments by management. The principal assumptions used in the Company’s discounted cash flow analysis consisted of (a) long-term projections of financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the Company and the industry in which it operates. Under the market approach, the principal assumption included an estimate of a control premium.

Based on the goodwill impairment analysis performed, the Company determined that the estimated fair values of the previous Uniforms and Related Products segment and current Branded Products segment were lower than their carrying value primarily as the result of current market conditions, decline in expected cash flows and/or decrease in the Company’s stock price. Consequently, the Company recorded a non-cash goodwill impairment charge of $45.9 million during the year ended* December 31, 2022.*

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The following table presents the carrying amounts of goodwill attributable to each of the Company’s reportable segments (dollars in thousands):

Intangible Assets

In conjunction with the Company’s realignment of its reportable segments during thesecond quarter of2022, the Company began an effort to centralize certain branding and go-to-market strategies under the BAMKO brand and determined that it wouldno longer use certain trade names associated with branded products. The Company’s rebranding efforts resulted in a $5.6 million impairment of indefinite-lived trade names related to its Branded Products segment during the year ended* December 31, 2022.*The carrying amounts of indefinite-lived trade names are summarized as follows (dollars in thousands):

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Intangible assets as of* December 31, 2023* and* December 31, 2022* are summarized as follows (dollars in thousands):

Amortization expense for intangible assets for the years ended* December 31, 2023* and2022 was $4.6 million and $5.1 million, respectively.

Estimated future intangible amortization expense is as follows (in thousands):

NOTE 7 – Other Current Liabilities:

Other current liabilities consisted of the following (in thousands)

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NOTE8 – Long-Term Debt:

Debt consisted of the following (in thousands):

On* August 23, 2022,the Company entered into a Credit Agreement (the “Credit Agreement”) among the Company, the domestic subsidiaries of the Company, as guarantors, the lenders party thereto (the “Lenders”), and PNC Bank, National Association, as administrative agent for the Lenders (the “Administrative Agent”), pursuant to which the Lenders are providing the Company senior secured credit facilities maturing in August 2027*consisting of a revolving credit facility in the aggregate maximum principal amount of $125.0 million and a term loan in the original aggregate principal amount of $75.0 million (collectively, the “Credit Facilities”), and the ability to request incremental revolving credit or term loan facilities in an aggregate amount of up to an additional $75.0 million, subject to obtaining additional lender commitments and satisfying certain other conditions.

Obligations outstanding under the Credit Facilities accrue interest at a variable rate equal to the secured overnight financing rate (“SOFR”) plus an adjustment between 0.10% and 0.25% (depending on the applicable interest period) plus a margin between 1.0% and 2.0% (depending on the Company’s net leverage ratio). The weighted average interest rate on our outstanding borrowings under the Credit Facilities was 6.7% at* December 31, 2023*. During the term of the revolving credit facility, the Company will pay a commitment fee on the unused portion of the revolving credit facility equal to between 0.125% and 0.250% (depending on the Company’s net leverage ratio). The available balance under the revolving credit facility is reduced by outstanding letters of credit. As of* December 31, 2023*, there wereno outstanding letters of credit under the revolving credit facility.

Contractual principal payments for the term loan are as follows:2024 - $4.6 million;2025 - $5.6 million;2026 - $6.6 million; and2027 - $52.5 million. The term loan doesnot contain pre-payment penalties.

The Credit Facilities are secured by substantially all of the operating assets of the Company, and the Company’s obligations under the Credit Facilities are guaranteed by all of its domestic subsidiaries. The Company’s obligations under the Credit Facilities are subject to acceleration upon the occurrence of an event of default as defined in the Credit Agreement. The Credit Agreement contains customary events of default and negative covenants, including butnot limited to those governing indebtedness, liens, fundamental changes, investments, restricted payments (including dividends and related distributions), liquidations, mergers, consolidations or acquisitions, affiliate transactions and sales of assets or subsidiaries. The Credit Agreement also requires the Company to comply with a fixed charge coverage ratio of at least 1.25 to1.0 and a net leverage rationot to exceed 4.0 to1.0. The Company’s net leverage ratio (as defined in the Credit Agreement) is generally calculated as the ratio of (a) indebtedness minus unrestricted cash to (b) consolidated EBITDA for thefour most recently ended fiscal quarters. As of* December 31, 2023*, the Company was in compliance with these ratios.

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Debt Maturity Schedule

Contractual maturities of debt (excluding interest to be accrued thereon) at* December 31, 2023* are as follows (in thousands):

NOTE9 – Income Tax Expense (Benefit):

The components of income (loss) before income tax expense are as follows (in thousands):

In2022, the Company generated a loss before income tax expense of $38.0 million primarily due to goodwill and indefinite-lived intangible assets impairment charges totaling $51.5 million, these impairment charges were nonrecurring in2023.

Aggregate income tax provisions consists of the following (in thousands):

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The significant components of the deferred income tax asset (liability) are as follows (in thousands):

The difference between the total statutory Federal income tax rate and the actual effective income tax rate is accounted for as follows:

The effective tax rate is the result of a variety of factors, and is primarily dependent on our jurisdictional mix of earnings across the Company’s domestic and foreign operations as well as applicable statutory tax rates, the impact of goodwill and indefinite lived intangible impairments, and unrealized gains and losses associated with share-based compensation.

The Tax Cuts and Jobs Act of2017 (“TCJA”) included certain provisions that continue to affect our income taxes, which, among other things, include interest deduction limitations and global intangible low taxed income regulations (“GILTI”).

The2023 increase in the interest rates on our outstanding borrowings, along with the Company’s level of income resulted in a current year limitation of interest expense deductibility. The deferred tax assets associated with the disallowed interest expense have an indefinite life and donot expire. Management believes these deferred tax assets are more likely thannot to be realized and thereforeno valuation allowance has been recorded.

The TCJA imposed a U.S. tax on GILTI that is earned by certain foreign affiliates owned by a U.S. shareholder. The computation of GILTI is generally intended to impose tax on the earnings of a foreign corporation that are deemed to exceed a certain threshold return relative to the underlying business investment. In accordance with guidance issued by FASB, the Company made a policy election to treat future taxes related to GILTI as a current period expense in the reporting period in which the tax is incurred. Deferred income taxes are provided on undistributed earnings of foreign subsidiaries in the period in which the Company determines itno longer intends to permanently reinvest such earnings outside the United States. The Company expects to permanently reinvest the earnings from its wholly-owned Brazilian and UK subsidiaries, and accordingly, hasnot provided deferred taxes on the subsidiaries’ undistributed net earnings or basis differences. The Company believes that the tax liability that would be incurred upon repatriation of the earnings from its Brazilian and UK subsidiaries is immaterial at* December 31, 2023*.

Only tax positions that meet the more-likely-than-not recognition threshold are recognized in the financial statements. As of* December 31, 2023* and2022, we had $0.8 million of unrecognized tax benefits, all of which, if recognized, would favorably affect the annual effective income tax rate. We donot expect any significant amount of this liability to be paid in the nexttwelve months. Accordingly, the balance of*$0.8* million as of* December 31, 2023* is included in other long-term liabilities.

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Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, are as follows (in thousands):

We accrue interest and penalties related to unrecognized tax benefits in income tax expense, and the related liability is included in other long-term liabilities in our balance sheet. During the years ended* December 31,2023 and2022 there wasno significant reduction to the liability for interest and penalties due to any lapses in statute of limitations. At December 31,*2023 and2022, we had $0.3 million and $0.2 million, respectively, accrued for interest and penalties, net of tax benefit.

We anticipate that it is reasonably possible that the total amount of unrecognized tax benefits could decrease by approximately*$0.1* million within the nexttwelve months due to the closure of tax years by expiration of the statute of limitations and audit settlements related to various state tax filing positions.

As a global organization, we file a U.S. federal income tax return as well as income tax returns in various states, and in non U.S. jurisdictions. As of* December 31, 2023*, the statute of limitations for the U.S. federal tax years2020 through2022 remain open to examination. For U.S. state and local jurisdictions tax years2017 through2022 are open to examination. We are also subject to examination in various foreign jurisdictions for tax years2017 through2022.

NOTE10 – Benefit Plans:

Defined Benefit Plans

The Company is the sponsor of an unfunded supplemental executive retirement plan (“SERP”) which includesone active participant. As of* December 31, 2023*, the Company’s projected benefit obligation under the unfunded SERP was $13.6 million. Contributions to the plan are made in accordance with statutory funding requirements and any additional funding that* may*be deemed appropriate.

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The following tables present the changes in the benefit obligations and the various plan assets, the funded status of the plans, and the amounts recognized in the Company’s balance sheets* at December 31, 2023* and2022 (in thousands):

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Information for benefit plans with projected benefit obligation in excess of plan assets depicted as follows (in thousands):

Components of net periodic benefit cost related to the SERP were as follows (in thousands):

The service cost component is included in selling and administrative expenses in our statements of comprehensive income (loss) and the other components of net periodic pension cost are included in other periodic pension costs in our statements of comprehensive income (loss). The estimated net actuarial loss for the SERP that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $0.1 million.

The following table presents the weighted-average assumptions used to determine benefit obligations as of* December 31, 2023* and2022:

The following table presents the weighted-average assumptions used to determine net periodic benefit cost for years ended* December 31, 2023* and2022:

The following table includes projected benefit payments for the years indicated (in thousands):

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Rabbi Trust

In connection with the Company’s unfunded SERP, we have life insurance contracts on the lives of designated individuals. The insurance contracts associated with the SERP are held in a Rabbi trust. The trust is the owner and beneficiary of such insurance contracts. The policies are being utilized to help offset the costs and liabilities of the SERP. The cash surrender value of the life insurance contracts was $4.5 million and $3.9 million at* December 31, 2023* and2022, respectively. The cash surrender value of these policies is included in other assets in the balance sheets. During the years ended* December 31, 2023* and2022 we recognized an investment gain of $0.6 million and an investment loss of $0.8 million, respectively, on the cash surrender value of these life insurance contracts.

In2013, we initiated a Non-Qualified Deferred Compensation Plan, and we have purchased life insurance contracts on the lives of designated individuals. The insurance contracts associated with the Non-Qualified Deferred Compensation Plan are also held in a Rabbi trust. The trust is the owner and beneficiary of such insurance contracts. The policies are being utilized to help offset the costs and liabilities of the Non-Qualified Deferred Compensation Plan. The cash surrender value of the life insurance contracts was $9.2 million and $7.7 million at* December 31, 2023* and2022, respectively. The cash surrender value of these policies is included in other assets in the balance sheets. The liability for participant deferrals was $7.9 million and $7.7 million as of* December 31, 2023* and2022, respectively, and is included in other long-term liabilities in the balance sheets.

Defined Contribution Plan

The Company provides a defined contribution plan covering qualified employees. The plan includes a provision that allows employees to make pre-tax contributions under Section401(k) of the Internal Revenue Code. The plan provides for the Company to make a guaranteed match equal to 25% of each employee’s eligible contributions. The plan also provides the Company with the option of making an additional discretionary contribution to the plan each year. The Company expensed employer matching contributions of $0.5 million and $0.6 million during the years ended* December 31, 2023* and2022, respectively.

NOTE11 – Leases:

The Company primarily leases factories, warehouses, call centers, office space and equipment for various terms under long-term, non-cancelable operating lease agreements. A right-of-use asset represents the Company’s right to use an underlying asset for the lease term and a lease liability represents the Company’s obligation to make lease payments arising from the lease. The Company’s leases generally have expected lease terms ofone toeight years. In the normal course of business, it is expected that the Company’s leases will be renewed or replaced by leases on other properties. Options to renew lease terms are included in determining the right-of-use asset and lease liability when it is reasonably certain that the Company will exercise that option. Certain of the lease agreements include rental payments adjusted periodically for inflation and generally require the Company to pay real estate taxes, insurance, and repairs. The Company’s lease agreements generally donot contain any material residual value guarantees or material restrictive covenants. As of* December 31, 2023*, the Company had $17.0 million of operating lease liabilities ($4.2 million in other current liabilities and $12.8 million in long-term operating lease liabilities), which represents the present value of the remaining lease payments, and $17.9 million of operating lease right-of-use assets, which includes prepaid rent of $1.6 million. As of* December 31, 2022*, the Company $7.0 million of operating lease liabilities ($3.1 million in other current liabilities and $3.9 million in long-term operating lease liabilities), which represents the present value of the remaining lease payments, and $9.1 million of operating lease right-of-use assets, which includes prepaid rent of $2.0 million. The depreciable-life of right-of-use assets is generally limited by the expected lease term. The Company doesnot have any material leases, individually or in the aggregate, classified as a finance leasing arrangement.

The components of lease cost were as follows (in thousands):

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Cash flow and noncash information related to our operating leases were as follows (in thousands):

Other supplemental information related to our operating leases was as follows:

Maturities of operating lease liabilities as of* December 31, 2023* were as follows (in thousands):

NOTE12 – Contingencies:

The purchase price to acquire substantially all of the assets of Sutter’s Mill Specialties, Inc. (“Sutter’s Mill”) in* December 2021included contingent consideration based on varying levels of Sutter’s Mill’s EBITDA in each measurement period from2022* to2024. In* July 2023,management agreed to settle the remaining contingent consideration obligation associated with this acquisition for $0.5 million payable in thefirst* quarter of2024. The purchase price to acquire substantially all of the assets of Guardian Products, Inc. (“Guardian”) in* May 2022included contingent consideration based on varying levels of Guardian’s EBITDA in each measurement period through April 2025.The estimated fair value of Guardian acquisition-related contingent consideration payable as of December 31, 2023* was $1.4 million, of which $0.9 million is expected to be paid in thethird quarter of2024. During the year ended* December 31, 2023*$0.8 million was paid for the2022 measurement period. The total estimated undiscounted remaining payment related to this contingent consideration payable is between $1.9 million and $2.2 million. The Company will continue to evaluate the Guardian liability for remeasurement at the end of each reporting period and any changes will be recorded in the Company’s statements of comprehensive income (loss). The carrying amount of the liability* mayfluctuate significantly and actual amounts paid may*be different from the estimated value of the liability.

The Company is involved in various legal actions and claims arising from the normal course of business. In the opinion of management, the ultimate outcome of these matters isnot expected to have a material impact on the Company’s results of operations, cash flows, or financial position.

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NOTE13 – Share-Based Compensation:

In* May 2013,the shareholders of the Company approved the2013* Incentive Stock and Awards Plan (the*“2013* Plan”), authorizing the granting of incentive stock options, non-qualified stock options, stock appreciation rights (“SARs”), restricted stock, performance shares and other stock based compensation. In* May 2022,the shareholders of the Company approved the2022* Equity Incentive and Awards Plan (the*“2022* Plan”), authorizing the granting of incentive stock options, non-qualified stock options, stock appreciation rights (“SARs”), restricted stock, performance shares and other stock based compensation. A total of 2,000,000 shares of common stock have been reserved for issuance under the2022 Plan. All options and SARs have been or will be granted with exercise prices at least equal to the fair market value of the shares on the date of grant. At* December 31, 2023*, the Company had 1,262,209 shares of common stock available for grant of share-based compensation under the2022 Plan. The2022 Plan replaced the2013 Plan.No new awards will be granted under the2013 Plan, but outstanding awards granted under the2013 Plan will continue unaffected.

Share-based compensation is recorded in selling and administrative expense in the statements of comprehensive income (loss). The following table details the share-based compensation expense by type of award and the total related tax benefit for the periods presented (in thousands):

Stock Options and Stock Appreciation Rights (“SARs”)

The Company grants stock options and stock-settled SARs to employees that allow them to purchase shares of the Company’s common stock. Stock options are also granted to outside members of the Board of Directors of the Company. The Company determines the fair value of stock options and SARs at the date of grant using the Black-Scholes valuation model. Assumptions regarding volatility, risk-free interest rate, expected term and dividend yield are required for the Black-Scholes model. The risk-free interest rate is based on the yield of a U.S. treasury bond with a similar maturity to the award’s expected life. The expected life for awards granted is based on the historical exercise patterns experienced by the Company when the award is made. The determination of expected stock price volatility for awards is based on historical Superior common stock prices over a period commensurate with the expected life. The dividend yield assumption is based on the history and expectation of the Company’s dividend payouts.

The following table summarizes significant assumptions utilized to determine the fair value of stock options and SARs:

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All stock options and SARs granted prior to* August 3, 2018vested immediately when granted. Awards issued thereafter vest betweenone* andthree years after the grant date. Employee awards expire five years after the grant date, and those issued to directors expireten years after the grant date. The Company issues new shares upon the exercise of stock options and SARs. Stock options and SARs granted in tandem with stock options are subject to accelerated vesting under certain circumstances as outlined in the2013 Plan and the2022 Plan, as applicable.

A summary of stock option transactions during the year ended* December 31, 2023* follows:

Intrinsic value is the difference between the market value of our common stock and the exercise price of each stock option multiplied by the number of stock options outstanding for those stock options where the market value exceeds their exercise price. Options exercised during the years ended* December 31, 2023* and2022 had intrinsic values of $0.1 million and $0.5 million, respectively. During the years ended* December 31, 2023* and2022 the Company received $0.2 million and $0.7 million, respectively, in cash from stock option exercises.No current tax benefits on stock option exercises were recognized during the years ended* December 31,2023 and2022. Additionally, during the years ended December 31, 2023* and2022 the Company received 7,627 and 9,738 shares, respectively, of its common stock as payment of the exercise price in the exercise of stock options for 9,115 and 11,784 shares, respectively, of its common stock. As of* December 31, 2023*, the Company had $0.9 million in unrecognized compensation related to nonvested stock options to be recognized over the remaining weighted average vesting period of 1.2 years.

A summary of stock-settled SARs transactions during the year ended* December 31, 2023* follows:

SARs exercised during the years ended* December 31, 2023* and2022 had intrinsic values of $0.2 million and $0.1 million, respectively. No current tax benefits on SAR exercises were recognized during the years ended* December 31,2023 and2022. As of December 31, 2023*, the Company had $0.2 million in unrecognized compensation related to nonvested SARs to be recognized over the remaining weighted average vesting period ofone year.

Restricted Stock

The Company has granted shares of restricted stock to directors and certain employees, which vest at a specified future date, generally after three years, over five years or when certain conditions are met. The shares are subject to accelerated vesting under certain circumstances as outlined in the2013 Plan and the2022 Plan, as applicable. Expense for each of these grants is based on the fair value at the date of the grant and is being recognized on a straight-line basis over the respective service period.

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A summary of restricted stock transactions during the year ended* December 31, 2023* follows:

As of* December 31, 2023*, the Company had $3.8 million of unrecognized compensation cost related to nonvested restricted stock grants expected to be recognized over the remaining weighted average vesting period of 1.8 years.

Performance Shares

The Company has granted performance shares, which either contain only service-based vesting conditions or service-based and performance-based vesting conditions. The service-based awards vest after the service period is met, which is generally three tofive years. Expense for these grants is based on the fair value on the date of the grant and is being recognized on a straight-line basis over the respective service period. The performance-based awards generally vest after five years if the performance and service targets are met. The Company evaluates the performance conditions associated with these grants each reporting period to determine the expected number of shares to be issued. Expenses for grants of performance shares are recognized on a straight-line basis over the respective service period based on the grant date fair value and expected number of shares to be issued. The awards are subject to accelerated vesting on a pro rata basis under certain circumstances as outlined in the2013 Plan and the2022 Plan, except in those circumstances in which award agreements or change in control agreements specify full vesting.

A summary of performance share transactions during the year ended* December 31, 2023* follows:

As of* December 31, 2023*, the Company had $1.1 million of unrecognized compensation cost related to nonvested performance share grants expected to be recognized over the remaining weighted average service period of 2.3 years.

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NOTE 14 – Net Income (Loss) Per Share:

The Company’s basic net income (loss) per share is computed based on the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per share includes the effect of the Company’s outstanding stock options, stock appreciation rights, unvested shares of restricted stock and unvested performance shares, if the inclusion of these items is dilutive.

The following table presents a reconciliation of basic and diluted net income (loss) per share for the years ended* December 31, 2023* and2022:

Diluted weighted average shares outstanding excludes shares of common stock of 400,381 for the year ended* December 31, 2022*as their inclusion would have been antidilutive given the Company’s net loss.

Awards to purchase 1,113,935 and 687,117 shares of common stock with weighted average exercise prices of $15.95 and $21.06, were outstanding during the years ended* December 31, 2023* and2022, respectively, but werenot included in the computation of diluted net income (loss) per share because the awards’ exercise prices were greater than the average market price of the common shares.

NOTE15 – Net Sales:

For our Branded Products and Healthcare Apparel segments, revenue is primarily generated from the sale of finished products to customers. Revenues for our Branded Products and Healthcare Apparel segments are recognized when the performance obligations under the contract terms are satisfied. For certain contracts with customers in which the Company has an enforceable right to payment for goods withno alternative use, revenue is recognized over time upon receipt of finished goods into inventory. Revenue for goods that do have an alternative use or that the customer isnot obligated to purchase under the terms of a contract is generally recognized when the goods are transferred to the customer. Revenue from the sale of personal protective equipment, including facemasks, isolation gowns, sanitizers and gloves, is generally recognized at a point in time when the goods are transferred to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contract. The Company includes shipping and handling fees billable to customers in net sales. Shipping and handling activities that occur after the transfer of promised goods are accrued as control is transferred to the customer rather than being treated as a separate performance obligation.

For our Contact Centers segment, revenue is generated from providing our customers with contact center services. Revenue for our Contact Centers segment is recognized as services are delivered.

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Revenue is measured at the amount of consideration we expect to receive in exchange for the goods or services. Variable consideration for estimated returns, allowances and other price variances is recorded based upon historical experience and current allowance programs. Contract terms* mayinvolve variable consideration clauses such as sales discounts and customer rebates, and revenue is adjusted accordingly for these provisions. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized willnot* occur when the uncertainty associated with the variable consideration is resolved. The promised amount of consideration in a contract isnot adjusted for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised good or service to a customer and when the customer pays for that product or service will beone year or less. Sales taxes are excluded from the measurement of a performance obligation’s transaction price. Sales commissions are expensed as incurred when we expect that the amortization period of such costs will beone year or less.

The following table presents disaggregated revenue by operating segment for the periods presented (in thousands):

Contract Assets and Contract Liabilities

The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers (in thousands):

Contract assets relate to goods produced without an alternative use for which the Company has an enforceable right to payment but which hasnot yet been invoiced to the customer. The majority of the amounts included in contract assets on* December 31, 2022* were transferred to accounts receivable during the year ended* December 31, 2023*. Contract liabilities relate to payments received in advance of the Company completing its performance under a contract. Contract liabilities are included in other current liabilities in our balance sheets. During the year ended* December 31, 2023*, $2.2 million of revenue was recognized from the contract liabilities balance as of* December 31, 2022*.

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NOTE*16*** – Stock Repurchase Plan:**

On* May 2, 2019,the Company’s Board of Directors approved a stock repurchase program of up to 750,000 shares of the Company’s outstanding common stock. There isno* expiration date or other restriction governing the period over which the Company can make share repurchases under the program. All purchases under this program will be open market transactions. The Company didnot reacquire and retire shares of its common stock under this program during the years ended* December 31, 2023* and2022. At* December 31, 2023*, the Company had 657,451 shares remaining under its common stock repurchase program. Shares purchased under the common stock repurchase program are constructively retired and returned to unissued status. The Company considers several factors in determining when to make share repurchases, including among other things, the cost of equity, the after-tax cost of borrowing, the debt to total capitalization targets and its expected future cash needs.

NOTE17 – Operating Segment Information:

The Company manages and reports the following segments:

Branded Products segment: Primarily through our signature marketing brands BAMKO® and HPI®, we produce and sell customized merchandising solutions, promotional products and branded uniform programs. Branded products are sold to customers in a wide range of industries, including retail, hotel, food service, entertainment, technology, transportation and other industries. The segment currently has sales offices in the United States, Canada, Brazil, the United Kingdom and Colombia, with support services in China and India.

***Healthcare Apparel segment:*Primarily through our signature marketing brands Fashion Seal Healthcare®, Wink™ and CID Resources, we manufacture (throughthird parties or in our own facilities) and sell a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient gowns. This segment sells healthcare service apparel to healthcare laundries, dealers, distributors and retailers primarily in the United States.

***Contact Centers:***Through multiple The Office Gurus® entities, including our subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”), we provide outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers.

Intersegment eliminations include the elimination of revenues and costs from services provided by the Contact Centers segment to the Company’stwo other segments. Such costs are recognized as selling and administrative expenses in the Branded Products and Healthcare Apparel segments. Income and expenses related to corporate functions that arenot specifically attributable to an individual reportable segment are presented within Other in the tables below.

No customer accounted for more than10% of the Company’s total net sales in2023 or2022.

During thefourth quarter of2023, our chief operating decision maker began to evaluate the performance of our segments using Segment Adjusted EBITDA instead of income before income taxes. The Company has modified its presentation of segment performance to be consistent with this change, including prior periods presented for consistent and comparable presentation. Amounts included in income (loss) before income tax expense and excluded from Segment Adjusted EBITDA include: interest expense, depreciation and amortization expense, impairment charges and the other itemsnot tied to the operational performance of the segment.

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The following tables set forth financial information related to the Company’s operating segments (in thousands):

The following table reconciles total Segment Adjusted EBITDA to income (loss) before income tax expense:

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NOTE18 – Acquisition of Businesses**:**

Guardian Products, Inc.

On* May 1, 2022,the Company, through BAMKO, acquired substantially all of the assets of Guardian Products, Inc. (“Guardian”) based in Norcross, Georgia. Guardian is a branded merchandise company that isone* of the leading providers of promotional products to automotive dealers nationwide. The purchase price for the acquisition consisted of the following: (a) $11.1 million in cash, (b) the issuance of 116,550 restricted shares of Superior’s common stock (the “Guardian Stock”) that vest ratably over athree-year period, and (c) estimated potential future payments of approximately $2.3 million in additional contingent consideration based on the results of the acquired business through* April 2025.The Guardian Stock is subject to transfer restrictions over thethree*-year period following the closing of the acquisition.

Fair Value of Consideration Transferred

A summary of the purchase price is as follows (in thousands):

Assets Acquired and Liabilities Assumed

The following table presents the allocation of the total fair value of consideration transferred, as shown above, to the acquired tangible and intangible assets and liabilities of Guardian based on their estimated fair values as of the effective date of the transaction (in thousands):

The Company recorded $5.9 million in identifiable intangibles at fair value, consisting of $5.0 million in acquired customer relationships, $0.2 million for a non-compete agreement and $0.7 million for the Guardian Products trade name. The intangible assets associated with the customer relationships are being amortized forseven years, the non-compete agreement is being amortized forfive years and the trade name is being amortized fortwo years.

The difference between the fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities. The acquisition of Guardian was treated as an asset purchase for income tax purpose, and therefore, the resulting goodwill from this acquisition is deductible for U.S. income tax purposes. The goodwill associated with the Guardian acquisition was fully impaired during the year ended* December 31, 2022as a result of the Company’s goodwill impairment test performed during thethird* quarter of2022, which was triggered by the depressed market price of the Company’s common stock and corresponding significant decline in the Company’s market capitalization. See Note6 for further details.

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