SUPERIOR UNIFORM GROUP INC (Form: 10-Q, Received: 04/28/2016 09:34:23)

ITEM 1. Financial Statements

SUPERIOR UNIFORM GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended March 31,

(Unaudited)

	2016			2015

Net sales	$	57,968,000		$	46,347,000

Costs and expenses:
Cost of goods sold		37,947,000			30,551,000
Selling and administrative expenses		16,463,000			12,437,000
Interest expense		148,000			136,000
		54,558,000			43,124,000

Income before taxes on income		3,410,000			3,223,000
Income tax expense		1,150,000			1,180,000

Net income	$	2,260,000		$	2,043,000

Weighted average number of shares outstanding during the period
(Basic)		13,927,063			13,584,922
(Diluted)		14,668,658			14,548,084
Per Share Data:
Basic
Net income	$	0.16		$	0.15
Diluted
Net income	$	0.15		$	0.14

Other comprehensive income, net of tax:
Defined benefit pension plans:

Recognition of net losses included in net periodic pension costs		171,000			128,000

Recognition of settlement loss included in net periodic pension costs		165,000			-

Loss on cash flow hedging activities		(15,000	)		(22,000	)

Foreign currency translation adjustment		121,000			-
Other comprehensive income		442,000			106,000

Comprehensive income	$	2,702,000		$	2,149,000

Cash dividends per common share	$	0.0825		$	0.075

See accompanying notes to consolidated interim financial statements.

SUPERIOR UNIFORM GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31,
	2016			December 31,
	(Unaudited)			2015
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	2,289,000		$	1,036,000
Accounts receivable, less allowance for doubtful accounts of $1,060,000 and $848,000, respectively		38,554,000			29,914,000
Accounts receivable - other		3,305,000			3,262,000
Prepaid expenses and other current assets		9,625,000			6,214,000
Inventories*		62,810,000			63,573,000
TOTAL CURRENT ASSETS		116,583,000			103,999,000

PROPERTY, PLANT AND EQUIPMENT, NET		24,874,000			22,524,000
OTHER INTANGIBLE ASSETS, NET		25,035,000			14,222,000
GOODWILL		11,408,000			4,135,000
DEFERRED INCOME TAXES		5,218,000			4,980,000
OTHER ASSETS		2,320,000			1,871,000
	$	185,438,000		$	151,731,000

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable	$	11,324,000		$	11,775,000
Other current liabilities		6,794,000			8,307,000
Current portion of long-term debt		6,429,000			2,750,000
Current portion of acquisition-related contigent liabilities		-			1,787,000
TOTAL CURRENT LIABILITIES		24,547,000			24,619,000

LONG-TERM DEBT, net of issuance costs		41,634,000			21,131,000
LONG-TERM PENSION LIABILITY		8,889,000			8,925,000
LONG-TERM ACQUISITION-RELATED CONTINGENT LIABILITIES		9,284,000			3,866,000
OTHER LONG-TERM LIABILITIES		520,000			500,000
COMMITMENTS AND CONTINGENCIES (NOTE 6)
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 - 14,312,146 and 13,917,465, respectively.		14,000			14,000
Additional paid-in capital		40,110,000			33,806,000
Retained earnings		66,520,000			65,392,000
Accumulated other comprehensive loss, net of tax:
Pensions		(6,112,000	)		(6,448,000	)
Cash flow hedges		(89,000	)		(74,000	)
Foreign currency translation adjustment		121,000			-
TOTAL SHAREHOLDERS' EQUITY		100,564,000			92,690,000
	$	185,438,000		$	151,731,000

* Inventories consist of the following:

	March 31,
	2016		December 31,
	(Unaudited)		2015
Finished goods	$	49,009,000	$	48,206,000
Work in process		668,000		860,000
Raw materials		13,133,000		14,507,000
	$	62,810,000	$	63,573,000

See accompanying notes to consolidated interim financial statements.

SUPERIOR UNIFORM GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

(Unaudited)

	2016			2015

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,260,000		$	2,043,000
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		1,103,000			953,000
Provision for bad debts - accounts receivable		67,000			59,000
Share-based compensation expense		831,000			824,000
Deferred income tax provision		(479,000	)		62,000
Loss on sales of property, plant and equipment		-			12,000
Accretion of acquisition-related contingent liability		35,000			33,000

Changes in assets and liabilities, net of acquisition of business:
Accounts receivable - trade		(3,650,000	)		804,000
Accounts receivable - other		(43,000	)		(435,000	)
Inventories		1,001,000			(1,639,000	)
Prepaid expenses and other current assets		(184,000	)		(2,230,000	)
Other assets		(281,000	)		(2,000	)
Accounts payable		(1,833,000	)		1,142,000
Other current liabilities		(2,245,000	)		(2,887,000	)
Long-term pension liability		485,000			127,000
Other long-term liabilities		20,000			20,000
Net cash used in operating activities		(2,913,000	)		(1,114,000	)

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment		(2,707,000	)		(906,000	)
Acquisition of business, net of acquired cash		(15,252,000	)		-
Net cash used in investing activities		(17,959,000	)		(906,000	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt		74,363,000			13,220,000
Repayment of long-term debt		(50,250,000	)		(10,255,000	)
Payment of cash dividends		(1,133,000	)		(1,000,000	)
Payment of contingent liability		(1,800,000	)		-
Proceeds received on exercise of stock options		322,000			356,000
Excess tax benefit from equity-related transactions		593,000			132,000

Net cash provided by financing activities		22,095,000			2,453,000

Effect of currency exchange rates on cash		30,000			-

Net increase in cash and cash equivalents		1,253,000			433,000

Cash and cash equivalents balance, beginning of year		1,036,000			4,586,000

Cash and cash equivalents balance, end of period	$	2,289,000		$	5,019,000

See accompanying notes to consolidated interim financial statements.

SUPERIOR UNIFORM GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2016 AND 2015

(Unaudited)

NOTE 1 – Summary of Significant Interim Accounting Policies:

a) Basis of presentation

The consolidated interim financial statements include the accounts of Superior Uniform Group, Inc. and its wholly-owned subsidiaries, The Office Gurus, LLC, SUG Holding, Fashion Seal Corporation, and BAMKO, LLC; The Office Gurus, Ltda., de C.V., The Office Masters, Ltda., de C.V. and The Office Gurus, Ltd., each a subsidiary of Fashion Seal Corporation and SUG Holding; Power Three Web, Ltda. and Superior Sourcing, each a wholly-owned subsidiary of SUG Holding; BAMKO Importação, Exportação e Comércio de Brindes Ltda., a subsidiary of BAMKO, LLC and SUG Holding; Guangzhou Ben Gao Trading Limited, Worldwide Sourcing Solutions Limited, and BAMKO UK, Limited, each a direct or indirect subsidiary of BAMKO, LLC, and BAMKO India Private Limited, a 99%-owned subsidiary of BAMKO, LLC. All of these entities are referred to collectively as “the Company”. Intercompany items have been eliminated in consolidation. The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, and filed with the Securities and Exchange Commission. The interim financial information contained herein is not certified or audited; it reflects all adjustments (consisting of only normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of the operating results for the periods presented, stated on a basis consistent with that of the audited financial statements. The results of operations for any interim period are not necessarily indicative of results to be expected for the full year.

b) Revenue recognition

The Company records revenue as products are shipped and title passes and as services are provided. A provision for estimated returns and allowances is recorded based on historical experience and current allowance programs.

c) Recognition of costs and expenses

Costs and expenses other than product costs are charged to income in interim periods as incurred, or allocated among interim periods based on an estimate of time expired, benefit received or activity associated with the periods. Procedures adopted for assigning specific cost and expense items to an interim period are consistent with the basis followed by the registrant in reporting results of operations at annual reporting dates. However, when a specific cost or expense item charged to expense for annual reporting purposes benefits more than one interim period, the cost or expense item is allocated to the interim periods.

d) Amortization of other intangible assets

The Company amortizes identifiable intangible assets on a straight line basis over their expected useful lives. Amortization expense for other intangible assets was $547,000 for the three-month period ended March 31, 2016, and $516,000 for the three-month period ended March 31, 2015.

e) Advertising expenses

The Company expenses advertising costs as incurred. Advertising costs for the three-month periods ended March 31, 2016 and 2015, respectively, were $10,000 and $26,000.

f) Shipping and handling fees and costs

The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with in-bound and out-bound freight are generally recorded in cost of goods sold. Other shipping and handling costs such as labor and overhead are included in selling and administrative expenses and totaled $2,655,000 and $2,397,000 for the three months ended March 31, 2016 and 2015, respectively.

g) Inventories

Inventories at interim dates are determined by using both perpetual records on a first-in, first-out basis and gross profit calculations.

h) Accounting for income taxes

The provision for income taxes is calculated by using the effective tax rate anticipated for the full year.

i) Employee benefit plan settlements

The Company recognizes settlement gains and losses in its financial statements when the cost of all settlements in a year is greater than the sum of the service cost and interest cost components of net periodic pension cost for the plan for the year.

j) Earnings per share

Historical basic per share data is based on the weighted average number of shares outstanding. Historical diluted per share data is reconciled by adding to weighted average shares outstanding the dilutive impact of the exercise of outstanding stock options, stock appreciation rights, unvested shares, and performance shares.

	Three Months Ended March 31,
	2016		2015
Net earnings used in the computation of basic and diluted earnings per share	$	2,260,000	$	2,043,000

Weighted average shares outstanding - basic		13,927,063		13,584,922
Common stock equivalents		741,595		963,162
Weighted average shares outstanding - diluted		14,668,658		14,548,084
Per Share Data:
Basic
Net earnings	$	0.16	$	0.15
Diluted
Net earnings	$	0.15	$	0.14

Awards to purchase 193,150 and 145,600 shares of common stock with weighted average exercise prices of $18.34 and $18.66 per share were outstanding during the three-month periods ending March 31, 2016 and 2015, respectively, but were not included in the computation of diluted EPS because the awards’ exercise prices were greater than the average market price of the common shares.

k) Derivative financial instruments

The Company uses certain financial derivatives to mitigate its exposure to volatility in interest rates. The Company records derivatives on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. On the date a derivative contract is entered into, the Company may elect to designate the derivative as a fair value hedge, a cash flow hedge, or the hedge of a net investment in a foreign operation. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative that is used in the hedging transaction is highly effective. For those instruments that are designated as a cash flow hedge and meet certain documentary and analytical requirements to qualify for hedge accounting treatment, changes in the fair value for the effective portion are reported in other comprehensive income (“OCI”), net of related income tax effects, and are reclassified to the income statement when the effects of the item being hedged are recognized in the income statement. The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, or management determines that designation of the derivative as a hedging instrument is no longer appropriate. In situations in which the Company does not elect hedge accounting or hedge accounting is discontinued and the derivative is retained, the Company carries or continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value through earnings.

The nature of the Company’s business activities involves the management of various financial and market risks, including those related to changes in interest rates. The Company does not enter into derivative instruments for speculative purposes. The Company manages market and credit risks associated with its derivative instruments by establishing and monitoring limits as to the types and degree of risk that may be undertaken, and by entering into transactions with high-quality counterparties. As of March 31, 2016, the Company’s derivative counterparty had investment grade credit ratings.

In July 2013, the Company entered into an interest rate swap agreement whereby the interest rate payable by the Company on a portion of the outstanding balance of the term loan was effectively converted to a fixed rate beginning July 1, 2014. The Company entered into this interest rate swap arrangement to mitigate future interest rate risk associated with its borrowings and has designated it as a cash flow hedge. (See Note 2.)

l) Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

m) Comprehensive income

Total comprehensive income represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net earnings. For the Company, the only other components of total comprehensive income are the change in pension costs, change in fair value of qualifying hedges, and foreign currency translation adjustments.

n) Operating segments

Accounting standards require disclosures of certain information about operating segments and about products and services, geographic areas in which the Company operates, and their major customers. The Company has evaluated its operations and has determined that it has two reportable segments - uniforms and related products and remote staffing solutions. (See Note 6.)

o) Share-Based Compensation

The Company awards share-based compensation as an incentive for employees to contribute to the Company’s long-term success. Historically, the Company has granted options, stock settled stock appreciation rights, and restricted stock. In 2016, the Company began granting performance shares as well.

In 2003, the stockholders of the Company approved the 2003 Incentive Stock and Awards Plan (the “2003 Plan”), authorizing the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, performance stock and other stock based compensation. This plan expired in May of 2013, at which time, the stockholders of the Company approved the 2013 Incentive Stock and Awards Plan (the “2013 Plan”), authorizing the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, performance stock and other stock based compensation. A total of 5,000,000 shares of common stock (subject to adjustment for expirations and cancellations of options outstanding from the 2003 Plan subsequent to its termination) have been reserved for issuance under the 2013 Plan. All options under both plans 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 March 31, 2016, the Company had 3,995,662 shares of common stock available for grant of share-based compensation under the 2013 Plan.

The Company grants stock options and stock settled stock appreciation rights (“SARS”) to employees that allow them to purchase shares of the Company’s common 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.

All options and SARS vest immediately at the date of grant. Awards generally expire five years after the date of grant with the exception of options granted to outside directors, which expire ten years after the date of grant. The Company issues new shares upon the exercise of stock options and SARS.

For the three months ended March 31, 2016 and 2015, respectively, the Company recognized $751,000 and $757,000 of pre-tax share-based compensation expense related to options and SARS, recorded in selling and administrative expense in the Consolidated Statements of Comprehensive Income. These expenses were partially offset by deferred tax benefits of $91,000 and $97,000 (excluding restricted stock) for the three months ended March 31, 2016 and 2015, respectively.

On February 7, 2014, the Compensation Committee of the Board of Directors approved a restricted stock grant under the terms of the 2013 Plan to four members of senior management for a total of 100,000 shares. The fair value of the stock on the date of grant was $7.36 per share for a total value of $736,000. These shares were unvested at the time of grant and will vest if the executives are still employed by the Company on February 7, 2017. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan. On November 6, 2015, the Board of Directors approved a restricted stock grant under the terms of the 2013 Plan to the four independent members of the Board of Directors for a total of 7,276 shares. The fair value of the stock on the date of grant was $17.59 per share for a total value of $127,985. These shares were unvested at the time of grant and will vest if the directors are still serving on the Company’s Board of Directors on November 6, 2018. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan.

Expense for each of these grants is being recognized on a straight-line basis over the respective service period. The Company recognized approximately $80,000 and $67,000 in expense associated with the grants for the three month periods ended March 31, 2016 and 2015, respectively. These expenses were offset by deferred tax benefits of $28,000 and $24,000 for the three month periods ended March 31, 2016 and 2015, respectively. As of March 31, 2016, the Company had $368,000 of unrecognized compensation cost expected to be recognized in the future for such prior share-based awards.

On February 5, 2016, the Compensation Committee of the Board of Directors approved a grant of performance shares under the terms of the 2013 Stock and Awards Plan of the Company to three members of management. Under the terms of the agreement, a total of 50,000 of these shares are unvested at the date of grant and will vest if the respective executives are still employed by the Company on February 5, 2021. The fair value of these shares on the date of grant was $16.35 for a total value of $818,000. Expenses for these grants are being recognized on a straight line basis over the respective service period. Under the terms of the agreement, an additional total of 50,000 of these shares are unvested at the date of grant and will vest if the respective executives meet certain performance targets over the five year period from January 1, 2016 through December 31, 2020 and are still employed by the Company on February 5, 2021. The fair value of these shares on the date of grant was $16.35 for a total value of $818,000. The Company evaluates the performance conditions associated with these grants each reporting period to determine the expected number of shares to be granted. Based upon this evaluation, expected expenses for these grants are being recognized on a straight line basis over the respective service period. The company recognized expense of $45,000 associated with these grants for the three-month period ended March 31, 2016. These expenses were offset by deferred tax benefits of $16,000 for the three-month period ended March 31, 2016. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 Stock and Awards Plan. As of March 31, 2016, the Company had $1,317,000 of unrecognized compensation cost expected to be recognized in the future for these awards.

During the three-month periods ended March 31, 2016 and 2015, respectively, the Company received $322,000 and $356,000 in cash from stock option exercises. No tax benefit was recognized for these exercises, as the options exercised were qualified incentive stock options.

A summary of options transactions during the three months ended March 31, 2016 follows:

	No. of			Weighted Average
	Shares			Exercise Price
Outstanding December 31, 2015		946,546		$	8.39
Granted		109,332			16.35
Exercised		(52,984	)		6.06
Lapsed		(1,592	)		5.62
Cancelled		-			-
Outstanding March 31, 2016		1,001,302		$	9.38

At March 31, 2016, options outstanding, all of which were fully vested and exercisable, had an aggregate intrinsic value of $8,609,000.

Options exercised during the three-month period ended March 31, 2016 had an intrinsic value of $601,000. Options exercised during the three-month period ended March 31, 2015 had an intrinsic value of $585,000. The weighted average grant date fair value of the Company’s options granted during the three month periods ended March 31, 2016 and 2015 was $4.49 and $5.20, respectively.

A summary of SARS transactions during the three months ended March 31, 2016 follows:

	No. of			Weighted Average
	Shares			Exercise Price
Outstanding December 31, 2015		381,566		$	8.14
Granted		58,108			16.35
Exercised		(36,208	)		5.62
Lapsed		-			-
Cancelled		-			-
Outstanding March 31, 2016		403,466		$	9.54

At March 31, 2016, SARS outstanding, all of which were fully vested and exercisable, had an aggregate intrinsic value of $3,298,000.

SARS exercised during the three-month period ended March 31, 2016 had an intrinsic value of $442,000. SARS exercised during the three-month period ended March 31, 2015 had an intrinsic value of $1,231,000. There were 58,108 and 53,292 SARS granted during the three-month periods ended March 31, 2016 and 2015, respectively. The weighted average grant date fair value of the Company’s SARS granted during the three months ended March 31, 2016 and 2015 was $4.49 and $5.20, respectively.

The following table summarizes significant assumptions utilized to determine the fair value of share-based compensation awards.

Three months ended
March 31,	SARS		Options

Exercise price
2016		$16.35		$16.35
2015		18.66		18.66

Market price
2016		16.35		16.35
2015		18.66		18.66

Risk free interest rate ¹
2016		1.3%		1.3%
2015		1.5%		1.5%

Expected award life (years) ²		5		5

Expected volatility ³
2016		36.5%		36.5%
2015		34.9%		34.9%

Expected dividend yield ⁴
2016		2.0%		2.0%
2015		1.6%		1.6%

¹	The risk-free interest rate is based on the yield of a U.S. treasury bond with a similar maturity as the expected life of the awards.
²	The expected life in years for awards granted was based on the historical exercise patterns experienced by the Company when the award is made.
³	The determination of expected stock price volatility for awards granted in each of the three-month periods ending March 31, was based on historical prices of Superior’s common stock over a period commensurate with the expected life.
⁴	The dividend yield assumption is based on the history and expectation of the Company’s dividend payouts.

p) Stock Split

On December 29, 2014, the Board of Directors declared a 2-for-1 stock split of the Company’s common stock. The record date of the split was January 12, 2015, and the stock split became effective February 4, 2015. All share and per share information in these consolidated interim financial statements have been restated for all periods presented, giving retroactive effect to the stock split. The Company revised certain historical amounts when it recorded the 2-for-1 stock split. The amounts were immaterial and reclassified within shareholders’ equity between par value and additional paid in capital.

q) Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) that will supersede most current revenue recognition guidance, including industry-specific guidance. The core principle of the new guidance is that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. Additionally, the guidance requires disaggregated disclosures related to the nature, amount, timing, and uncertainty of revenue that is recognized. The amendments are required to be adopted by the Company on January 1, 2017. The FASB has proposed a one year delay in the effective date of Topic 606. Transition to the new guidance may be done using either a full or modified retrospective method. The Company is currently evaluating the full effect that the adoption of this standard will have on the Company’s consolidated financial statements.

In April 2015, the FASB issued an accounting standard update to simplify the presentation of debt issuance costs. The amendments in this accounting standard update require debt issuance costs to be presented on the balance sheet as a reduction from the carrying amount of the related debt liability. The amendment in this accounting standard update is to be applied retrospectively and is effective for interim and annual reporting periods beginning after December 15, 2015. We adopted this accounting standard update retrospectively effective January 1, 2016, and have reclassified all debt issuance costs as a reduction from the carrying amount of the related debt liability for both the current and prior period. See Note 2 of the Notes to Unaudited Consolidated Financial Statements for additional information.

In February 2016, the FASB issued an accounting standard update that amends the accounting guidance on leases. The primary change in this accounting standard update requires lessees to recognize, in the balance sheet, a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset over the lease term. The amendments in this accounting standard update are to be applied using a modified retrospective approach and are effective for fiscal years beginning after December 15, 2018. We are currently evaluating the impact of the provisions of this accounting standard update.

In March 2016, the FASB issued an accounting standard update that amends several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification within the statement of cash flows. Certain of the amendments in this accounting standard update are to be applied using a modified retrospective approach by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted, while other amendments can be applied prospectively or retrospectively. The amendments in this accounting standard update are effective for periods beginning after December 15, 2016. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments will be reflected as of the beginning of the fiscal year that includes that interim period. We are currently evaluating the impact of the provisions of this accounting standard update.

NOTE 2 - Long-Term Debt:

	March 31,		December 31,
	2016		2015


Term loan payable to Fifth Third Bank, maturing March 8, 2021	$	45,000,000	$	-

Note payable to Fifth Third Bank, pursuant to revolving credit agreement, maturing March 8, 2021		3,120,000		2,200,000

Term loan payable to Fifth Third Bank, paid March 8, 2016		-		21,750,000

	$	48,120,000	$	23,950,000
Less:
Payments due within one year included in current liabilities	$	6,429,000	$	2,750,000

Deferred borrowing costs		57,000		69,000

Long-term debt less current maturities	$	41,634,000	$	21,131,000

Effective July 1, 2013, the Company entered into an amended and restated 5-year credit agreement with Fifth Third Bank that made available to the Company up to $15,000,000 on a revolving credit basis (the “Initial Credit Facility”) in addition to a $30,000,000 term loan utilized to finance the acquisition of substantially all of the assets of HPI Direct, Inc.

Effective March 8, 2016, the Company entered into an amended and restated 5-year credit agreement with Fifth Third Bank (the “Amended Credit Agreement”) that increased its revolving credit facility from $15,000,000 to $20,000,000 (the “Amended Credit Facility”) and refinanced its then-existing term loan with a new $45,000,000 term loan to help finance the acquisition of substantially all of the assets of BAMKO, Inc. Interest is payable on the new term loan at LIBOR plus 0.85% (1.29% at March 31, 2016) and on the revolving credit facility at LIBOR (rounded up to the next 1/8 ^th of 1%) plus 0.85% (1.35% at March 31, 2016). Both loans are based upon the one-month LIBOR rate for U.S. dollar based borrowings. The Company pays a commitment fee of 0.10% per annum on the average unused portion of the commitment under the Amended Credit Facility. The available balance under the Amended Credit Facility is reduced by outstanding letters of credit. As of March 31, 2016, there was $19,000 outstanding under letters of credit.

In order to reduce interest rate risk on its debt, the Company entered into an interest rate swap agreement with Fifth Third Bank, N.A. in July 2013 that was designed to effectively convert or hedge the variable interest rate on a portion of its borrowings to achieve a net fixed rate of 2.53% per annum, beginning July 1, 2014 with a notional amount of $14,250,000. The notional amount of the interest rate swap is reduced by the scheduled amortization of the principal balance of the original term loan of $187,500 per month through July 1, 2015 and $250,000 per month through June 1, 2018 with the remaining notional balance of $3,250,000 to be eliminated on July 1, 2018. Effective at the inception of the new term loan, the fixed rate on the notional amount was reduced to 2.43%.

Under the terms of the interest rate swap, the Company receives variable interest rate payments and makes fixed interest rate payments on an amount equal to the notional amount at that time. Changes in the fair value of the interest rate swap designated as the hedging instrument that effectively offset the variability of cash flows associated with the variable-rate, long-term debt obligation are reported in OCI, net of related income tax effects. As a result of the acquisition of substantially all of the assets of BAMKO, Inc. on March 8, 2016, the original term loan associated with this hedge was paid in full and replaced with the new $45,000,000 term loan discussed above. At that time, the Company undesignated the original term loan as the hedged instrument and elected the new term loan as the designated hedged instrument. The negative fair value at that time of the interest rate swap of $152,000 will be amortized as an expense over the remaining life of the swap agreement. At March 31, 2016, the interest rate swap had a negative fair value of $145,000, which is presented within other current liabilities within the consolidated balance sheet. Approximately $5,000 of this cumulative loss has been recognized in earnings in 2016. The balance of $145,000, net of tax benefit of $51,000, since the inception of the hedge in July 2013 has been recorded within OCI through March 31, 2016. The Company expects that approximately $65,000 of these losses will be reclassified into earnings over the subsequent twelve-month period.

The remaining scheduled amortization for the term loan is as follows: 2016 $4,821,000; 2017 through 2020 $6,429,000 per year; 2021 $14,463,000. The term loan does not include a prepayment penalty. In connection with the Amended Credit Agreement, the Company incurred approximately $58,000 of debt financing costs, which primarily consisted of legal fees. These costs are being amortized over the life of the Amended Credit Agreement and are recorded as additional interest expense.

The Company’s obligations under the Amended Credit Agreement are secured by substantially all of the operating assets of Superior Uniform Group, Inc. and are guaranteed by all domestic subsidiaries of Superior Uniform Group, Inc. The agreement contains restrictive provisions concerning a maximum funded senior indebtedness to EBITDA ratio as defined in the agreement (3.5:1), a maximum funded indebtedness to EBITDA ratio as defined in the agreement (4.0:1) and a fixed charge coverage ratio (1.25:1). The Company is in full compliance with all terms, conditions and covenants of the Amended Credit Agreement.

NOTE 3 – Periodic Pension Expense:

The following table presents the net periodic pension expense under our plans for the three month periods ended March 31:

	2016			2015

Service cost - benefits earned during the period	$	14,000		$	26,000
Interest cost on projected benefit obligation		247,000			238,000
Expected return on plan assets		(297,000	)		(336,000	)
Recognized actuarial loss		266,000			199,000
Settlement loss		255,000			-
Net periodic pension cost	$	485,000		$	127,000

Effective June 30, 2013, the Company no longer accrues additional benefits for future service or for future increases in compensation levels for the Company’s primary defined benefit pension plan.

Effective December 31, 2014, the Company no longer accrues additional benefits for future service for the Company’s hourly defined benefit plan.

NOTE 4 - Sup plemental Cash Flow Information

Cash paid for income taxes was $29,000 and $18,000, respectively, for the three-month periods ended March 31, 2016 and 2015. Cash paid for interest was $99,000 and $95,000, respectively for the three-month periods ended March 31, 2016 and 2015. During the three months ended March 31, 2015, the Company received 3,432 shares of its common stock as payment of the exercise price in the exercise of stock options for 9,640 shares.

NOTE 5 – Contingencies:

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 will not have a material impact on the Company’s results of operations, cash flows, or financial position.

NOTE 6 – Operating Segment Information :

The Company classifies its businesses into two operating segments based on the types of products and services provided. The Uniforms and Related Products segment consists of the sale of uniforms and related items, including promotional products. The Remote Staffing Solutions segment consists of sales of staffing solutions.

The Company evaluates the performance of each operating segment based on several factors of which the primary financial measures are operating segment net sales and income before income taxes. The accounting policies of the operating segments are the same as those described in Note 1 entitled Summary of Significant Interim Accounting Policies. Amounts for corporate expenses are included in the Uniforms and Related Products segment totals. Information related to the operations of the Company's operating segments is set forth below.

	Uniforms and Related Products		Remote Staffing Solutions		Intersegment Eliminations			Total
As of and For the Three Months Ended
March 31, 2016
Net sales	$	54,483,000	$	4,358,000	$	(873,000	)	$	57,968,000

Gross margin	$	18,277,000	$	2,316,000	$	(572,000	)	$	20,021,000

Selling and administrative expenses		15,628,000		1,407,000		(572,000	)		16,463,000

Interest expense		148,000		-		-			148,000

Income before income taxes	$	2,501,000	$	909,000	$	-		$	3,410,000

Depreciation and amortization	$	1,010,000	$	93,000	$	-		$	1,103,000

Capital expenditures	$	853,000	$	1,854,000	$	-		$	2,707,000

Total assets	$	173,820,000	$	16,573,000	$	(4,955,000	)	$	185,438,000

	Uniforms and Related Products		Remote Staffing Solutions		Intersegment Eliminations			Total
As of and For the Three Months Ended
March 31, 2015
Net sales	$	43,788,000	$	3,466,000	$	(907,000	)	$	46,347,000

Gross margin	$	14,415,000	$	1,996,000	$	(615,000	)	$	15,796,000

Selling and administrative expenses		11,933,000		1,119,000		(615,000	)		12,437,000

Interest expense		136,000		-		-			136,000

Income before income taxes	$	2,346,000	$	877,000	$	-		$	3,223,000

Depreciation and amortization	$	884,000	$	69,000	$	-		$	953,000

Capital expenditures	$	693,000	$	213,000	$	-		$	906,000

Total assets	$	135,061,000	$	10,746,000	$	(2,143,000	)	$	143,664,000

NOTE 7 – Acquisition of Business:

On March 8, 2016 , the Company closed on the acquisition of substantially all of the assets of BAMKO, Inc. (“BAMKO”). The transaction had an effective date of March 1, 2016. BAMKO is a full-service merchandise sourcing and promotional products company based in Los Angeles, CA. With sales offices in the United States, England and Brazil, as well as support offices in China, Hong Kong, and India, BAMKO serves many of the world’s most successful brands. The purchase price for the asset acquisition consists of approximately $15.8 million in cash, subject to adjustment, the issuance of approximately 324,000 restricted shares of Superior Uniform Group’s common stock that will vest over a five year period, the potential future payment of approximately $5.5 million in additional contingent consideration through 2021, and the assumption of certain liabilities of BAMKO. The transaction also includes the acquisition of BAMKO’s subsidiaries in Hong Kong, China, Brazil and England as well as an affiliate in India.

The foregoing description of the asset purchase agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the agreement, which is filed as an exhibit to this Quarterly Report on Form 10-Q. The agreement has been attached to provide investors with information regarding its terms. It is not intended to modify or supplement any factual disclosures about the Company in its public reports filed with the Securities and Exchange Commission and it is not intended to be, and should not be relied upon as, disclosure regarding any facts and circumstances relating to the Company or BAMKO. In particular, the representations, warranties and covenants set forth in the agreement (a) were made solely for purposes of the agreement and solely for the benefit of the contracting parties, (b) may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made to a contracting party in connection with the agreement, (c) in certain cases, will survive for only a limited period of time, (d) are qualified in certain circumstances by a materiality standard which may differ from what may be viewed as material by investors, (e) were made only as of the date of the agreement or such other date as is specified in the agreement, and (f) may have been included in the agreement for the purpose of allocating risk between the parties rather than establishing matters as facts. Investors are not third-party beneficiaries under the agreement, and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or conditions of the parties. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the agreement, which subsequent information may or may not be fully reflected in subsequent public disclosures. Accordingly, the representations and warranties in the agreement should not be viewed or relied upon as statements of actual facts or the actual state of affairs of the Company or any of their its subsidiaries or affiliates.

Fair Value of Consideration Transferred

A summary of the purchase price is as follows:

Cash consideration at closing, net of cash acquired	$	15,252,000

Restricted shares of Superior common stock issued		4,558,000

Total Considerations	$	19,810,000

Assets Acquired and Liabilities Assumed

The total purchase price was allocated to the acquired tangible and intangible assets and assumed liabilities of BAMKO based on their estimated fair values as of March 1, 2016. The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was allocated to goodwill.

The following table presents the preliminary allocation of the total fair value of consideration transferred, as shown above, to the acquired tangible and intangible assets and assumed liabilities of BAMKO based on their estimated fair values as of the effective date of the transaction.

The assets and liabilities of BAMKO shown below are based on our preliminary estimates of their acquisition effective date fair values. Our final fair value determinations may be significantly different than those shown below.

The following is our preliminary assignment of the aggregate consideration:

Accounts receivable	$	5,000,000

Prepaid expenses and other current assets		3,186,000

Inventories		236,000

Property, plant and equipment		199,000

Other assets		100,000

Identifiable intangible assets		11,360,000

Goodwill		7,185,000

Total assets	$	27,266,000

Accounts payable	$	1,324,000

Other current liabilities		736,000

Future contingent liabilities		5,396,000

Total liabilities	$	7,456,000

The Company recorded $11,360,000 in identifiable intangibles at fair value, consisting of $2,090,000 in acquired customer relationships, $370,000 in non-compete agreements from the former owners of BAMKO, and $8,900,000 for the acquired trade name.

On the effective date, the estimated value for acquisition-related contingent consideration payable was $5,396,000. The Company will continue to evaluate this liability for remeasurement at the end of each reporting period and any change will be recorded in the Company's consolidated statement of comprehensive income. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the estimated value of the liability.

Goodwill was calculated as the difference between the fair value of the consideration and the preliminary values assigned to the assets acquired and liabilities assumed. The purchase price and goodwill allocation are expected to be finalized during the remainder of 2016 as the Company completes its process of evaluating all relevant data associated with the transaction.

The intangible assets associated with the customer relationships will be amortized for seven years beginning on March 1, 2016 and the non-compete agreement will be amortized for five years and ten months. The trade name is considered an indefinite-life asset and as such will not be amortized.

The Company recognized amortization expense on these acquired intangible assets of $30,000 for the three month period ended March 31, 2016.

For the three month period ended March 31, 2016, the Company incurred and expensed transaction related expenses of approximately $898,000. These amounts are included in selling and administrative expenses on the consolidated statements of comprehensive income.

Net revenues and net loss for BAMKO of $3,800,000 and $498,000, respectively, are included in the Company's consolidated statements of comprehensive income from the effective date of the acquisition, March 1, 2016 , through March 31, 2016. Pre-tax acquisition related expenses of $898,000 are included in this net loss for BAMKO.

On a pro forma basis as if the results of these acquisitions had been included in our consolidated results for the entire three-month periods ended March 31, 2016 and 2015, net sales would have increased approximately $6,585,000 in 2016 and $7,100,000 in 2015. Net income for the three-month period ended March 31, 2016 would have increased approximately $900,000 and net income for the three-month period ended March 31, 2015 would have decreased approximately $623,000 from our reported net income for these periods. Pre-tax acquisition related expenses of $898,000 have been recorded as though they were incurred as of January 1, 2015 for this comparison.

Large accelerated filer [_]				Accelerated filer [X]
Non-accelerated filer [_] (Do not check if a smaller reporting company)				Smaller Reporting Company [ ]


•	overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods;

•	other relevant entity-specific events such as changes in management, key personnel, strategy, or customers;

Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Month #1
(January 1, 2016 to	-	-	-	-
January 31, 2016)
Month #2
(February 1, 2016 to	-	-	-	-
February 29, 2016)
Month #3
(March 1, 2016 to	-	-	-	-
March 31, 2016)
TOTAL	-	-	-	-

Date: April 28, 2016	SUPERIOR UNIFORM GROUP, INC.


	By:	/s/ Michael Benstock
		Michael Benstock
		Chief Executive Officer (Principal Executive Officer)

Date: April 28, 2016	By:	/s/ Andrew D. Demott, Jr.
		Andrew D. Demott, Jr.
		Chief Operating Officer, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

(Mark One)

X		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934


•	macroeconomic conditions such as deterioration in general economic conditions, limitations on accessing capital, or other developments in equity and credit markets;


•	industry and market considerations such as a deterioration in the environment in which the Company operates, an increased competitive environment, a decline in market-dependent multiples or metrics (considered in both absolute terms and relative to peers), a change in the market for the Company's products or services, or a regulatory or political development;


•	cost factors such as increases in raw materials, labor, or other costs that have a negative effect on earnings and cash flows;

Exhibit No.		Description
2.1*		Asset Purchase Agreement, by and among BAMKO, Inc., the Shareholders of BAMKO, Inc., and Prime Acquisition I, LLC, dated as of March 1, 2016.

10.1*		Third Amended and Restated Credit Agreement, dated March 8, 2016, among Fifth Third Bank, as lender, and Superior Uniform Group, Inc., as borrower, and each other loan party from time to time party thereto, and Exhibits thereto.

31.1		Certification by the Chief Executive Officer (Principal Executive Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by the Chief Financial Officer (Principal Financial and Accounting Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32**		Certification by the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 .


101.INS**+		XBRL Instance

101.SCH**+		XBRL Taxonomy Extension Schema

101.CAL**+		XBRL Taxonomy Extension Calculation

101.DEF**+		XBRL Taxonomy Extension Definition

101.LAB**+		XBRL Taxonomy Extension Labels

101.PRE**+		XBRL Taxonomy Extension Presentation

	To the Loan Parties:		Superior Uniform Group, Inc.
			10055 Seminole Boulevard
			Seminole, Florida 33772
			Attention: Andrew D. Demott, Jr.

			Facsimile Number: (727) 803-2642

	With a copy to:		Hill Ward Henderson
			101 East Kennedy Boulevard
			Suite 3700
			Tampa, Florida 33602
			Attention: David S. Felman, Esq.

			Facsimile Number: 813-221-2900


	To the Lender:		Fifth Third Bank
			201 East Kennedy Boulevard
			18 ^th Floor
			Tampa, Florida 33602
			Attention: Andrew D. Hahn,
			Vice President

			Facsimile Number: 813-306-2529

	With a copy to:		Shumaker, Loop & Kendrick, LLP
			101 East Kennedy Boulevard
			Suite 2800
			Tampa, Florida 33602
			Attention: W. Kent Ihrig, Esq.

			Facsimile Number: 813-229-1660

	SUPERIOR UNIFORM GROUP, INC.


	By: ______________________________ Name: ______________________________ Title: ______________________________

	Very truly yours, SUPERIOR UNIFORM GROUP, INC.


	By: ________________________ Name: ________________________ Title: ________________________

Name of Grantor	State	Office(s)
Superior Uniform Group, Inc.	Florida	Florida Secured Transaction Registry
Fashion Seal Corporation	Nevada	Nevada Secretary of State
The Office Gurus, LLC	Florida	Florida Secured Transaction Registry
Prime Acquisition I, LLC	Delware	Delaware Secretary of State

Grantor’s Exact Legal Name	State of Organization	Taxpayer ID Number	Organizational ID Number
Superior Uniform Group, Inc.	Florida	11-1385670	P97000046412

Fashion Seal Corporation	Nevada	88-0492666	C9476-2001

The Office Gurus, LLC	Florida	45-2599915	L11000072974

Prime Acquisition I, LLC	Delaware	81-1493127	5966234

Motor Vehicles:	Yes	No

Aircraft:	Yes	No

Vessels, Boats or Ships:	Yes	No

Railroad Rolling Stock:	Yes	No

Superior Uniform Group, Inc. Subsidiary Ownership Interests ⁵
Issuer Name	Entity Type	Jurisdiction of Organization	Class of Securities	Number of Shares/Units	Certificate No.
Fashion Seal Corporation	Corporation	Nevada	Common Stock	10,000	1
SUG Holding	Cayman Islands exempted company	Cayman Islands	Ordinary Shares	1	N/A
The Office Gurus, LLC	Limited liability company	Florida	Membership interests	N/A - Sole Member	N/A

Superior Office Solutions , Inc. Subsidiary Ownership Interests ⁶
Issuer Name	Entity Type	Jurisdiction of Organization	Class of Securities	Number of Shares/Units	Certificate No.
The Office Gurus, LTDA	Limited liability	Costa Rica	Membership/ ownership interests	100	No number.
Scratt Kit S.R.L. ⁷	Limited liability	Costa Rica	Membership/ ownership interests	N/A - 100%	N/A
The Office Masters, LTDA DE C.V.	Limited liability	El Salvador	Membership/ ownership interests	N/A – 99..9%	N/A
The Office Gurus, LTDA DE C.V.	Limited liability	El Salvador	Membership/ ownership interests	N/A – 99.9%	N/A

Fashion Seal Corporation Subsidiary Ownership Interests
Issuer Name	Entity Type	Jurisdiction of Organization	Class of Securities	Number of Shares/Units	Certificate No.
The Office Masters, LTDA DE C.V.	Limited liability	El Salvador	Membership/ ownership interests	N/A – 0.1%	N/A
The Office Gurus, LTDA DE C.V.	Limited liability	El Salvador	Membership/ ownership interests	N/A - 0.1%	N/A
The Office Gurus, LTDA	Limited liability	Belize	Membership/ ownership interests	N/A - 0.1%	N/A

	[Name of Grantor] By: Name: Title: Address:




	FIFTH THIRD BANK, an Ohio banking corporation By: Name: Title:

*Country or Territory	Licensor	Licensee	Effective Date	Expiration Date	Subject Matter

Guarantors	Address

FASHION SEAL CORPORATION, a Nevada corporation	c/o Superior Uniform Group, Inc. 10055 Seminole Boulevard Seminole, Florida 33772 Attention: Andrew D. Demott, Jr. Facsimile Number: (727) 803-2642

THE OFFICE GURUS, LLC, a Florida limited liability company	c/o Superior Uniform Group, Inc. 10055 Seminole Boulevard Seminole, Florida 33772 Attention: Andrew D. Demott, Jr. Facsimile Number: (727) 803-2642

PRIME ACQUISITION I, LLC, a Delaware limited liability company	c/o Superior Uniform Group, Inc. 10055 Seminole Boulevard Seminole, Florida 33772 Attention: Andrew D. Demott, Jr. Facsimile Number: (727) 803-2642

	[Name of New Guarantor] By: Name: Title: Address:




	FIFTH THIRD BANK, an Ohio banking corporation By: Name: Title:

4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

	c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.