Superior of panies(SGC) - 2022 Q2 - Quarterly Report

Financial Performance - Consolidated net sales increased by 13.1% from $130.8 million in Q2 2021 to $147.9 million in Q2 2022[114] - Total net sales increased by 7.3% from $271.6 million in the six months ended June 30, 2021 to $291.5 million in the same period of 2022[131] - Branded Products segment net sales rose by 28.8%, or $22.8 million, primarily due to growth in the promotional products customer base and acquisitions, contributing $13.3 million and $12.1 million respectively[115] - Healthcare Apparel segment net sales decreased by 30.2%, or $11.4 million, due to reduced demand and market saturation from the COVID-19 pandemic[116] - Contact Centers segment net sales increased by 37.1% before intersegment eliminations, attributed to expanded services and new customer onboarding[117] Acquisitions - The Company acquired Gifts By Design for $6.0 million in cash on January 29, 2021, enhancing its promotional products capabilities[100] - The acquisition of Sutter's Mill was completed for approximately $10.5 million in cash and additional contingent payments of up to $4.5 million based on performance[101] - Guardian Products was acquired for $11.1 million in cash, with potential future payments of approximately $2.3 million based on performance through April 2025[102] Supply Chain and Market Conditions - The Company is experiencing significant supply disruptions and delays, impacting inventory and shipping costs due to global supply chain issues[111] - The healthcare apparel market is currently oversupplied, leading to a slowdown in demand and affecting the Company's financial performance[105] Cost of Goods Sold and Expenses - Total cost of goods sold as a percentage of net sales was 66.4% for the six months ended June 30, 2022, up from 64.6% in 2021, driven by $4.5 million in inventory write-downs[135] - Cost of goods sold for the Branded Products segment was 71.5% for the six months ended June 30, 2022, an increase from 69.8% in 2021, influenced by product mix and logistical costs[136] - Cost of goods sold for the Healthcare Apparel segment was 71.9% for the six months ended June 30, 2022, up from 60.4% in 2021, primarily due to inventory write-downs[137] - Total selling and administrative expenses as a percentage of net sales increased to 30.2% for the six months ended June 30, 2022, from 25.4% in 2021, mainly due to expense deleverage from decreased Healthcare Apparel sales[139] Impairments and Taxation - Goodwill impairment charge of $24.5 million was recorded during the six months ended June 30, 2022, due to a decline in expected cash flows and market conditions[143] - The effective income tax rate for the six months ended June 30, 2022, was 8.0%, down from 15.2% in 2021, influenced by a $2.0 million tax benefit related to impairment charges[147] Cash Flow and Financing - Cash and cash equivalents increased by $1.4 million to $10.3 million as of June 30, 2022, compared to $8.9 million on December 31, 2021[151] - Working capital rose to $212.6 million at June 30, 2022, from $188.1 million at December 31, 2021, primarily due to increases in contract assets and accounts receivable[151] - Net cash provided by financing activities increased to $27.2 million for the six months ended June 30, 2022, compared to $22.6 million in 2021, driven by a $7.0 million increase in net borrowings[154] - The Company had approximately $149.2 million in outstanding borrowings under its credit facilities as of June 30, 2022, including $101.7 million under the revolving credit facility[155] - The Company paid cash dividends of $4.2 million during the six months ended June 30, 2022, compared to $3.4 million in 2021[161] Capital Expenditure and Borrowing Costs - The Company expects to continue its capital expenditure program to enhance facility effectiveness and technology capabilities[153] - Interest rates on the 2018 Term Loan increased to 2.30% at June 30, 2022, compared to 1.25% at March 31, 2022, indicating rising borrowing costs[158] - The Company had undrawn capacity of $23.3 million under the revolving credit facility as of June 30, 2022[157] Foreign Currency Adjustments - Foreign currency translation adjustments resulted in a gain of $0.8 million for the six months ended June 30, 2022[166]