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FORM 10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-5869-1

SUPERIOR UNIFORM GROUP, INC.

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

                     Yes [X]           No

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

     As of March 13, 2002, 7,038,137 common shares were outstanding, and the aggregate market value of the registrant’s common shares held by non-affiliates was approximately $55 million (based on the closing price of the registrant’s common shares on the American Stock Exchange on said date).

Documents Incorporated by Reference:

     Registrant’s Proxy Statement to be filed on or before March 30, 2002, for its Annual Meeting of Shareholders to be held May 3, 2002, is incorporated by reference to furnish the information required by Items 10, 11, 12 and 13 of Part III.

     Exhibit index may be found on Page 26.

PART I

Item 1. Business

	(a)		Superior Uniform Group, Inc. (“registrant” or the “Company”) was organized in 1920 and was incorporated in 1922 as a New York company under the name Superior Surgical Mfg. Co., Inc. In 1998, the Company changed its name to Superior Uniform Group, Inc. and its state of incorporation to Florida. Registrant’s business has not changed in any significant way during the past five years.
	(b)		Although registrant operates, for selling, promotional and other reasons through various divisions, nevertheless there are no significant distinct segments or lines of business; approximately 95% of registrant’s business consists of the sale of uniforms and service apparel, and miscellaneous products directly related thereto.
	(c)		Registrant manufactures and sells a wide range of apparel and accessories for the medical and health fields as well as for the industrial, commercial, leisure, and public safety markets. Its principal products are:

	1.		Uniforms and service apparel for personnel of:

	A)		Hospitals and health facilities;
	B)		Hotels, commercial buildings, residential buildings, and food service facilities;
	C)		General and special purpose industrial uses;
	D)		Commercial enterprises (career apparel for banks, airlines, etc.);
	E)		Public and private safety and security organizations;
	F)		Miscellaneous service uses.

	2.		Miscellaneous products directly related to:

	A)		Uniforms and service apparel specified above (e.g. operating room masks, boots, and sheets);
	B)		Linen suppliers and industrial launderers, to whom a substantial portion of the registrant’s uniforms and service apparel are sold; such products being primarily industrial laundry bags.

	3.		Corporate and resort embroidered sportswear.

			Uniforms and service apparel account for 90-95% of total sales and revenues; no other single class of product listed above accounts for more than 10% of total sales and revenues.
			Registrant competes with national and regional manufacturers and also with local firms in most major metropolitan areas. Industry statistics are not available, but the registrant believes that it is one of the leading suppliers of garments to hospitals and industrial clean rooms, hotels and motels, food service establishments and uniforms to linen suppliers. Registrant experiences competition primarily in the areas of product development, styling and pricing.
			Registrant competes with more than three dozen firms including divisions of larger corporations. The nature and degree of competition varies with the customer and market where it occurs.

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			Registrant has a substantial number of customers, the largest of which accounted for no more than 5% of registrant’s 2001 sales. Although registrant at all times has a substantial backlog of orders, registrant does not consider this significant since its backlog of orders at any time consists primarily of recurrent firm orders being processed and filled. Registrant normally completes shipments of orders from stock between 1 and 2 weeks after their receipt. As of February 16, 2002, the backlog of all orders was approximately $5,200,000, compared to approximately $6,600,000 a year earlier.
			Registrant markets itself to its customers as a “stock house”. Therefore, registrant at all times carries substantial inventories of raw materials (principally piece goods) and finished garments which requires substantial working capital. Registrant’s principal raw materials are textile products, generally available from a number of sources.
			While registrant owns and uses several trademarks, its mark “Fashion Seal Uniforms” (presently registered to August 7, 2007, subject to renewal) is important since more than 50% of registrant’s products are sold under that name. In view of the nature of registrant’s business, compliance with Federal, state, or local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has had no material effect upon its operations or earnings. Substantially all of registrant’s business is non-seasonal in nature. The registrant has approximately 1,243 employees.

Item 2. Properties

     The Company has an ongoing program designed to maintain and improve its facilities. Generally, all properties are in satisfactory condition. The Company’s properties are currently fully utilized (except as otherwise noted), and have aggregate productive capacity to meet registrant’s present needs as well as those of the foreseeable future. The material manufacturing locales are rented for nominal amounts due to cities providing incentives for manufacturers to locate in their area – all such properties may be purchased for nominal amounts. As a result, it is believed that the subject lease expirations and renewal terms thereof are not material.

	(a)		Seminole, Florida – Plant of approximately 60,000 square feet owned by the registrant; used as principal administrative office and for warehousing and shipping, as well as the corporate design center.
	(b)		Eudora, Arkansas – Plant of approximately 217,000 square feet, partially leased from the City of Eudora under lease requiring payment of only a nominal rental; used for manufacturing, warehousing, and shipping.
	(c)		Lake Village, Arkansas – Plant of approximately 35,000 square feet, leased from the City of Lake Village under lease requiring payment of only a nominal amount; used for manufacturing.
	(d)		Tampa, Florida – Plant of approximately 111,000 square feet, owned by the registrant; used for regional administrative offices, warehousing, shipping and small retail operation.
	(e)		Miami, Florida – Plant of approximately 9,000 square feet, leased from private owners under a lease expiring in 2002; used for regional sales office, warehousing, shipping, and small retail operation.

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	(f)		McGehee, Arkansas – Plant of approximately 26,000 square feet, leased from the City of McGehee under lease requiring payment of only a nominal rental; used for manufacturing.
	(g)		Marietta, Georgia – Plant and warehouse of approximately 33,000 square feet leased from private owners.
	(h)		Portland, Oregon – Plant and warehouse of approximately 40,000 square feet leased from private owners.
	(i)		Miscellaneous – Atlanta, Georgia, warehouse and sales office – leased; San Antonio, Texas, sales office – leased; Delhi, Louisiana, used for manufacturing – leased; Lexington, Mississippi, used for manufacturing – owned.

Item 3. Legal Proceedings

     None.

Item 4. Submission of Matters to a Vote of Security Holders

     (a)  None

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PART II

Item 5. Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters.

			The principal market on which registrant’s common shares are traded is the American Stock Exchange; said shares have also been admitted to unlisted trading on the Midwest Stock Exchange.
			The table below presents, for registrant’s common shares, dividend information and high and low sales prices as reported in the consolidated transaction reporting system of the American Stock Exchange.

     Long-term debt agreements of the registrant include covenants which, among other things, restrict dividends payable. Under the most restrictive debt agreement, retained earnings of approximately $10,261,000 were available at December 31, 2001 for declaration of dividends. Registrant expects that, so long as earnings and business conditions warrant, it will continue to pay dividends and that the amount thereof, as such conditions permit, and as the Directors approve, will increase from time to time.

     On March 13, 2002, registrant had 321 shareholders of record and the closing price for registrant’s common shares on the American Stock Exchange was $10.30 per share.

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Item 6. Selected Financial Data

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

			OPERATIONS: In 2001 net sales decreased 8.6% in comparison to 2000 and in 2000, net sales were essentially flat in comparison to 1999. The 2001 decrease was attributed to the economic slowdown as our customers postponed or cancelled orders in an effort to reduce the impact of the slowdown on their own operations.
			As a percentage of sales, cost of goods sold were 65.7% in 2001, 65.5% in 2000, and 66.0% in 1999. The increase in 2001 was attributed to the reduction in production levels and accordingly less efficient absorption of overhead costs offset by the continued transition of production to offshore contractors. The decrease in 2000 was primarily the result of increased manufacturing and sourcing efficiencies.
			As a percentage of sales, selling and administrative expenses were 26.6% in 2001, 26.2% in 2000, and 24.5% in 1999. The increase in this percentage in 2001 was primarily attributed to the reduction in sales volume that more than offset the impact of the reductions in selling and administrative costs in the current year. The Company has made significant reductions in staffing in this area. However, the full impact of these reductions will not be felt until fiscal year 2002. Selling and administrative expenses were reduced in the current year by the effect of the vendor settlement recorded in the second quarter while the prior year selling and administrative expenses were reduced by the impact of the settlement gain discussed below. The increase in 2000 was primarily attributable to

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			Management’ s Discussion and Analysis of Financial Condition and Results of Operations (con’t)
			consulting costs expended as post go-live support from our February 2000 implementation of our SAP/AFS (Apparel Footwear Solution) computer system and additional depreciation expense as we began depreciating the computer system in February 2000. These costs as a percentage of sales were also adversely impacted by the overall flat sales in 2000. These additional costs were offset by the settlement gain recorded relative to the Company’s pension plan in 2000.
			Interest expense as a percentage of sales was 1.1% in 2001, 1.3% in 2000, and 1.0% in 1999. The decrease in 2001 is due to lower average borrowings outstanding and lower interest rates. The increase in 2000 is attributed primarily to higher average borrowings outstanding on the Company’s revolving credit agreement as a result of the increased working capital carried in 2000.
			The effective income tax rate in 2001 was 36.6%; in 2000 it was 36.5%; and in 1999 it was 36.2%.
			In 2001, the Company reported net income of 4.2% of sales with a return of 7.9% on average shareholders’ equity. In 2000, the Company reported net income of 4.4% of sales with a return of 9.0% on average shareholders’ equity. In 1999, the Company reported net income of 5.4% of sales with a return of 11.2% on average shareholders’ equity.
			LIQUIDITY AND CAPITAL RESOURCES: The Company uses a number of standards for its own purposes in measuring its liquidity: working capital, profitability ratios, long-term debt as a percentage of long-term debt and equity, and activity ratios. In its computations, as in this report, all inventory figures are on a FIFO basis.
			The working capital of the Company in 2001 was approximately $65,118,000 and the working capital ratio 5.5:1; for 2000, it was approximately $74,361,000 and the working capital ratio 5.5:1. The Company has operated without hindrance or restraint with its present working capital, believing that income generated from operations and outside sources of credit, both trade and institutional, are more than adequate to fund the Company’s operations.
			In 2001, the Company’s percentage of total debt to total debt and equity was 16.4% and in 2000 it was 29.3%. The decrease is attributed primarily to decreased borrowings under the Company’s revolving credit agreement as a result of the reduced working capital requirements in 2001.
			The Company has an on-going capital expenditure program designed to maintain and improve its facilities. Capital expenditures were approximately $1,349,000, $2,826,000, and $4,941,000, in the years 2001, 2000, and 1999, respectively. The Company at all times evaluates its capital expenditure programs in light of prevailing economic conditions.
			During the years ended December 31, 2001 and 2000, the Company paid cash dividends of approximately $3,835,000 and $3,907,000, respectively, on a quarterly dividend of $.135 per share. The Company reacquired and retired 94,440 and 471,500 of its common shares in the years ended December 31, 2001 and 2000, respectively, with costs of $883,000 and $4,572,000, respectively. The Company anticipates that it will repurchase additional shares of its common stock in the future as financial conditions allow.
			In 2001, cash and cash equivalents increased by $3,026,000. This increase is attributed to approximately $24,324,000 in cash provided from operations, approximately $895,000 provided from investing activities, offset by approximately $22,193,000 utilized in financing activities. In 2000, cash and cash equivalents decreased by approximately $2,833,000. This decrease is attributed to approximately $2,645,000 in cash utilized by operations and approximately $2,828,000 utilized in investing activities, primarily for computer system implementation and recurring fixed asset additions, offset by approximately $2,640,000 provided from financing activities.
			On March 26, 1999, the Company entered into a new 3-year credit agreement that made available to the Company up to $15,000,000 on a revolving credit basis. Interest is payable at LIBOR plus 0.60% based upon the one-month LIBOR rate for U.S. dollar based borrowings (2.47% at December 31, 2001). The Company pays an annual commitment fee of 0.15% on the average unused portion of the commitment. The available balance under the credit agreement is reduced by outstanding letters of credit. As of December 31, 2001, approximately $463,000 was

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			Management’ s Discussion and Analysis of Financial Condition and Results of Operations (con’t)
			outstanding under letters of credit. On March 27, 2001, the Company entered into an agreement with First Union to extend the maturity of the revolving credit agreement. The revolving credit agreement matures on March 26, 2004. At the option of the Company, any outstanding balance on the agreement at that date will convert to a one-year term loan. The remaining terms of the original revolving credit agreement remain unchanged.
			The Company also entered into a $12,000,000 10-year term loan on March 26, 1999 with the same bank. The term loan is an amortizing loan, with monthly payments of principal and interest, maturing on April 1, 2009. The term loan carries a variable interest rate of LIBOR plus 0.80% based upon the one-month LIBOR rate for U.S. dollar based borrowings. Concurrent with the execution of the term loan agreement, the Company entered into an interest rate swap with the bank under which the Company receives a variable rate of interest on a notional amount equal to the outstanding balance of the term loan from the bank and the Company pays a fixed rate of 6.75% on a notional amount equal to the outstanding balance of the term loan to the bank.
			On October 16, 2000, the Company entered into a 5-year term loan with First Union. The term loan is an amortizing loan, with monthly payments of principal in the amount of $83,333 plus interest, maturing on November 1, 2005. The term loan carried a variable interest rate of LIBOR plus 0.80% based upon the one-month LIBOR rate for U.S. dollar based borrowings. The proceeds of this term loan were utilized to reduce the outstanding balance on the Company’s revolving credit agreement. Concurrent with the execution of the new term loan agreement, First Union and the Company amended the March 26, 1999 term loan and the revolving credit agreement to revise the net worth requirements. The net worth requirements included below reflect this amendment. This term loan was paid in full in June 2001.
			The credit agreement and the term loans with First Union and the agreements with MassMutual Life Insurance Company contain restrictive provisions concerning debt to net worth ratios, other borrowings, capital expenditures, rental commitments, tangible net worth ($65,135,000 at December 31, 2001); working capital ratio (2.5:1), fixed charges coverage ratio (2.5:1), stock repurchases and payment of dividends.
			At December 31, 2001, under the most restrictive terms of the debt agreements, retained earnings of approximately $10,261,000 were available for declaration of dividends. The Company is in full compliance with all terms, conditions and covenants of the various credit agreements. On February 15, 2002, the Company provided notice to MassMutual that the Company intends to prepay the 6.65% note payable on March 18, 2002. The Company prepaid the balance, including a prepayment penalty of approximately $283,000, on March 18, 2002 utilizing cash balances on hand as of December 31, 2001 and additional cash generated from operations in the first quarter of 2002. With funds from the credit agreement, anticipated cash flows generated from operations and other credit sources readily available, the Company believes that its liquidity is satisfactory, its working capital adequate and its capital resources sufficient for funding its ongoing capital expenditure program and its operations, including planned expansion for 2002.
			RECENT ACCOUNTING PRONOUNCEMENTS: In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“FAS”) No. 141, Business Combinations, and FAS No. 142, Goodwill and Other Intangible Assets. FAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is prohibited. FAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Thus, effective January 1, 2002, the Company will be required to cease amortization of goodwill, including goodwill recorded in past business combinations, and adopt the new impairment approach. In June 2001, the FASB issued FAS No. 143, Accounting for Asset Retirement Obligations. This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The purpose of this statement is to develop consistent accounting of asset retirement obligations and related costs in financial statements and provide more information about future cash outflows, leverage and liquidity regarding retirement obligations and the gross investment in long-lived assets. FAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. In October 2001, the FASB issued FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years beginning after December 15, 2001. FAS No. 144 replaces FAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, the accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the

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			Management’ s Discussion and Analysis of Financial Condition and Results of Operations (con’t)
			provisions of APB Opinion No. 30, Reporting Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, for the disposal of segments of a business. FAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less costs to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. FAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The Company has not evaluated the effect, if any, that the adoption of FAS No. 141, FAS No. 142, FAS No 143 and FAS No. 144 will have on the Company’s consolidated financial statements.
			THE YEAR 2000 PROJECT: The Company recognized the need to ensure that its systems, applications and hardware would recognize and process transactions for the Year 2000 and beyond and therefore initiated a project to identify its risks with regard to Year 2000. This project consisted of four phases including: collecting an inventory of potential risks, assessing the actual risk, remedial work to correct identified problems, and testing for proper operation. The project was completed and systems found to be non-compliant were remedied or replaced.
			The cost to repair or replace affected systems was approximately $650,000. Of this amount, approximately $380,000 was incurred and expensed in 1999 and $270,000 was incurred and expensed prior to December 31, 1998.
			FORWARD LOOKING STATEMENTS: Statements contained in this Annual Report contain certain forward-looking statements that involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following — general economic conditions in the areas of the United States in which the Company’s customers are located; changes in the healthcare, resort and commercial industries where uniforms and service apparel are worn; the impact of competition; and the availability of manufacturing materials.

Item 7a – Quantitative and Qualitative Disclosures About Market Risks

			The Company is exposed to market risk from changes in interest rates, which may adversely affect its results of operations and financial condition. The Company seeks to minimize the risks from these interest rates when considered appropriate, through the limited use of derivative financial instruments. The Company’s policy is to not use financial instruments for trading or other speculative purposes and is not a party to any leveraged financial instruments. The Company has debt obligations with variable interest rates tied to LIBOR which are described in “Liquidity and Capital Resources” as well as Note 5 of the Notes to Consolidated Financial Statements. The Company estimates that a hypothetical increase in interest rates of 1% would have resulted in an increase in the Company’s interest expense for the year ended December 31, 2001 of approximately $42,000.
			The Company has one interest rate swap agreement to hedge against the potential impact on earnings from increases in market interest rates of a variable rate term loan. Under the interest rate swap agreement, the Company receives or makes payments on a monthly basis, based on the differential between a specified interest rate and one month LIBOR. A term loan of $9,580,962 is designated as a hedged item for interest rate swaps at December 31, 2001. This interest rate swap is accounted for as a cash flow hedge in accordance with FAS 133 and FAS 138 which were implemented as of the beginning of the fiscal year. As of the report date, the swap met the effectiveness test, and as such no gains or losses were included in net income during the quarter related to hedge ineffectiveness and there was no income adjustment related to any portion excluded from the assessment of hedge effectiveness. A loss of $440,000, which includes the transition adjustment of $48,000, was included in other comprehensive income (loss) for the year ended December 31, 2001. The original term of the contract is ten years.
			The Company is also exposed to changes in prevailing market interest rates affecting the return on its investments but does not consider this interest rate market risk exposure to be material to its financial condition or results of operations. The Company invests primarily in highly liquid debt instruments with strong credit ratings and short-term (less than three months) maturities.

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Item 8. – Financial Statements and Supplementary Data

Superior Uniform Group, Inc. and Subsidiary

Consolidated Statements of Earnings

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Superior Uniform Group, Inc. and Subsidiary

Consolidated Balance Sheets

ASSETS

See Notes to Consolidated Financial Statements.

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Superior Uniform Group, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS

See Notes to Consolidated Financial Statements.

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Superior Uniform Group, Inc. and Subsidiary

Notes to Consolidated Financial Statements

NOTE 1 – Summary of Significant Accounting Policies:

a) Business description

Superior Uniform Group, Inc. and subsidiary (“the Company”) manufactures and sells a wide range of uniforms, corporate I.D., career apparel and accessories for the hospital and healthcare fields; hotels; fast food and other restaurants; and public safety, industrial, transportation and commercial markets, as well as corporate and resort embroidered sportswear. Revenue recognition from the sale of products is recorded at the time the finished goods are shipped.

b) Basis of presentation

The consolidated financial statements include the accounts of Superior Uniform Group, Inc. and its wholly-owned subsidiary, formed by contribution of assets in April 2001. Intercompany items have been eliminated in consolidation.

c) Cash and cash equivalents

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

d) Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or market.

e) Property, plant and equipment

Property, plant and equipment are stated at cost. Major renewals and improvements are capitalized, while replacements, maintenance and repairs which do not improve or extend the life of the respective assets are expensed currently. Costs of assets sold or retired and the related accumulated depreciation and amortization are eliminated from accounts and the net gain or loss is reflected in the statement of earnings.

f) Excess of cost over fair value of assets acquired

Excess costs over fair value of assets acquired arising prior to 1972 (approximately $742,000) are being carried until such time as there may be evidence of diminution of value or the term of existence of such value becomes limited. The Company’s policy is to amortize excess costs arising subsequent to 1971 between 20 and 40 years.

g) Impairment of long-lived assets

The Company evaluates the carrying amount of long-lived assets to be held and used, including excess of cost over fair value of assets acquired, when events and circumstances warrant such a review. The carrying amount of a long-lived asset is considered impaired when the estimated undiscounted cash flow from each asset is estimated to be less than its carrying amount.

h) Depreciation and amortization

Plants and equipment are depreciated on the straight-line basis at 2-1/2% to 5% for buildings, 2-1/2% to 20% for improvements, 10% to 20% for machinery, equipment and fixtures and 20% to 33-1/3% for transportation equipment. Leasehold improvements are amortized over the terms of the leases inasmuch as such improvements have useful lives equivalent to the terms of the respective leases.

i) Employee benefits

Pension plan costs are funded currently based on actuarial estimates, with prior service costs amortized over 20 years.

j) Taxes on income

The Company computes taxes currently payable upon determination of taxable income which differs from pre-tax financial statement income. Deferred taxes are provided on this difference, primarily the effect of computing depreciation of plant and equipment by accelerated methods for tax purposes and by the straight-line method for financial reporting purposes.

k) Earnings per share

Historical basic per share data under FAS 128 is based on the weighted average number of shares outstanding. Historical diluted per share data under FAS 128 is reconciled by adding to weighted average shares outstanding the dilutive impact of the exercise of outstanding stock options.

l) Comprehensive Income

FAS 130, “Reporting Comprehensive Income” requires disclosure of comprehensive income in addition to the existing income statement. Other comprehensive income (loss) is defined as the change in equity during a period, from transactions and other events, excluding changes resulting from investments by owners (e.g., supplemental stock offering) and distributions to owners (e.g., dividends).

m) Operating Segments

The Company adopted the provisions of FAS 131 “Disclosures about Segments of an Enterprise and Related Information.” in the first quarter of 1998. FAS 131 requires 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 the effect of this standard and has determined that currently they operate in one segment, as defined in this statement.

n) Derivative Financial Instruments

Effective January 1, 2001, the Company adopted FAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” as amended by FAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities - - an Amendment to FASB Statement No. 133.” FAS 133 and FAS 138 established new accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The cumulative effect of the adoption of FAS 133 and FAS 138, as of January 1, 2001 resulted in a $48,000 decrease in other comprehensive income and had no impact on net income. The Company has only limited involvement with derivative financial instruments. The Company has one interest rate swap agreement to hedge against the potential impact on earnings from increases in market interest rates of a variable rate term loan. Under the interest rate swap agreement, the Company receives or makes payments on a monthly basis, based on the differential between a specified interest rate and one month LIBOR. A term loan of $9,580,962 is designated as a hedged item for interest rate swaps at December 31, 2001. This interest rate swap is accounted for as a

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cash flow hedge in accordance with FAS 133 and FAS 138. As of the report date, the swap met the effectiveness test, and as such no gains or losses were included in net income during the year related to hedge ineffectiveness and there was no income adjustment related to any portion excluded from the assessment of hedge effectiveness. A loss of $440,000, which includes the transition adjustment of $48,000, was included in other comprehensive income (loss) for the year ended December 31, 2001. The fair market value of the interest swap of $440,000 is included in included expenses in the accompanying consolidated balance sheet as of December 31, 2001. The original term of the contract is ten years.

o) 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.

p) New Accounting Standards

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“FAS”) No. 141, Business Combinations, and FAS No. 142, Goodwill and Other Intangible Assets. FAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is prohibited. FAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Thus, effective January 1, 2002, the Company will be required to cease amortization of goodwill, including goodwill recorded in past business combinations, and adopt the new impairment approach. In June 2001, the FASB issued FAS No. 143, Accounting for Asset Retirement Obligations. This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The purpose of this statement is to develop consistent accounting of asset retirement obligations and related costs in financial statements and provide more information about future cash outflows, leverage and liquidity regarding retirement obligations and the gross investment in long-lived assets. FAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. In October 2001, the FASB issued FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years beginning after December 15, 2001. FAS No. 144 replaces FAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, the accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, Reporting Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, for the disposal of segments of a business. FAS No. 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less costs to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. FAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The Company has not evaluated the effect, if any, that the adoption of FAS No. 141, FAS No. 142, FAS No 143 and FAS No. 144 will have on the Company’s consolidated financial statements.

q) Reclassifications

Certain reclassifications to the 2000 and 1999 consolidated financial statements have been made to conform to the 2001 presentation.

NOTE 2 – Acquisitions:

Effective April 1, 1999, the Company acquired substantially all of the net assets of The Empire Company, a supplier of uniforms, corporate I.D. wear and promotional products with revenues for the year ended December 1998 of approximately $14,000,000. The acquisition was accounted for utilizing the purchase method of accounting. The purchase price for this acquisition was approximately $9,134,000 and was allocated as follows:

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NOTE 3 – Inventories:

NOTE 4 – Property, Plant and Equipment: