Notes to Consolidated Financial Statements
NOTE 1 – Summary of Significant Accounting Policies:
a) Business description
Superior’s Uniforms and Related Products segment, through its signature marketing brands Fashion Seal Healthcare
®
,
HPI Direct
®
, Superior I.D.™, Worklon
®
, and UniVogue
®,
manufactures and sells a wide range of uniforms, corporate identity apparel, career apparel and accessories for the hospital and healthcare fields; hotels; fast food and other restaurants; transportation; and the private security, industrial and commercial markets. In excess of 95% of Superior’s Uniforms and Related Products segment’s net sales are from the sale of uniforms and service apparel and directly-related products.
Superior services its Remote Staffing Solutions segment through multiple The Office Gurus entities, including its direct and indirect subsidiaries in El Salvador, Belize, and the United States, (collectively, “TOG”). TOG is a near-shore premium provider of cost effective multilingual telemarketing and total office support solutions.
The Promotional Products segment, through the BAMKO brand, services customers that purchase primarily promotional and related products. The segment currently has sales offices in the United States, England and Brazil with support services in China, Hong Kong and India.
b) Basis of presentation
The consolidated 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; and 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.
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) Revenue recognition and allowance for doubtful accounts
The Company recognizes revenue as products are shipped and title passes and as services are provided.
The Company collects sales tax for various taxing authorities. It is the Company’s policy to record these amounts on a net basis. Therefore, these amounts are not included in net sales for the Company. A provision for estimated returns and allowances is recorded based upon historical experience and current allowance programs. Judgments and estimates are used in determining the collectability of accounts receivable. The Company analyzes specific accounts receivable and historical bad debt experience, customer credit worthiness, current economic trends and the age of outstanding balances when evaluating the adequacy of the allowance for doubtful accounts. Management judgments and estimates are used in connection with establishing the allowance in any accounting period. Changes in estimates are reflected in the period they become known. Charge-offs of accounts receivable are made once all collection efforts have been exhausted. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
e) Accounts receivable-other
The Company purchases raw materials and has them delivered to certain suppliers of the Company. The Company pays for the raw materials and then deducts the cost of these materials from payments to the suppliers at the time the related finished goods are invoiced to the Company by those suppliers.
f) Advertising expenses
The Company expenses advertising costs as incurred. Advertising costs for the years ended December 31, 2016, 2015 and 2014, respectively, were $61,000, $135,000 and $114,000.
g) Cost of goods sold and shipping and handling fees and costs
Cost of goods sold consists primarily of direct costs of acquiring inventory, including cost of merchandise, inbound freight charges, purchasing, receiving and inspection costs, for our Uniforms and Related Products segment and our Promotional Products segment. Cost of goods sold for our Remote Staffing Solutions segment includes salaries and payroll related benefits for agents. The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with out-bound freight are generally recorded in cost of goods sold. Other shipping and handling costs are included in selling and administrative expenses and totaled $10,577,000, $9,327,000 and $9,170,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
h) Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market value. Judgments and estimates are used in determining the likelihood that goods on hand can be sold to customers. Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
i) Property, plant and equipment
Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. 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 on a current basis. 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 consolidated statements of comprehensive income within selling and administrative expenses.
j) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. The Company tests goodwill for impairment annually as of December 31st and/or when an event occurs or circumstances change such that it is more likely than not that impairment may exist. Examples of such events and circumstances that the Company would consider include the following:
•
|
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;
|
•
|
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.
|
Goodwill is tested at a level of reporting referred to as "the reporting unit." The Company's reporting units are defined as each of its three reporting segments with its goodwill included in the Uniforms and Related Products segment of $4,135,000 and $7,134,000 in the Promotional Products segment.
An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the impairment test is unnecessary. The Company completed its assessment of the qualitative factors as of December 31, 2016 and determined that it was not more likely than not that the fair value of the reporting unit was less than its carrying value.
k) Other intangible assets
Other intangible assets consist of customer relationships, a non-compete agreement and trade names acquired in previous business acquisitions.
The cost, amortization and net value of customer relationships and non-compete agreement as of December 31, 2016 and 2015
were as follows:
|
|
Customer
Relationships
|
|
|
Weighted
Average Life
(years)
|
|
|
Non-Compete Agreement
|
|
|
Weighted
Average Life (years)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
$
|
12,311,000
|
|
|
|
9.4
|
|
|
$
|
5,370,000
|
|
|
|
5.1
|
|
Accumulated amortization
|
|
|
(4,490,000
|
)
|
|
|
|
|
|
|
(3,553,000
|
)
|
|
|
|
|
Net
|
|
$
|
7,821,000
|
|
|
|
|
|
|
$
|
1,817,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
$
|
10,221,000
|
|
|
|
9.6
|
|
|
$
|
5,000,000
|
|
|
|
5
|
|
Accumulated amortization
|
|
|
(3,199,000
|
)
|
|
|
|
|
|
|
(2,500,000
|
)
|
|
|
|
|
Net
|
|
$
|
7,022,000
|
|
|
|
|
|
|
$
|
2,500,000
|
|
|
|
|
|
Amortization expense for other intangible assets was $2,343,000, $2,066,000 and $2,065,000 for the years ended December 31, 2016, 2015 and 2014, respectively. Amortization expense for other intangible assets is expected to be $2,282,000 for the year ending December 31, 2017; $1,782,000 in 2018; $1,282,000 in each of the years ending December 31, 2019 through 2021; $1,218,000 in 2022; and $510,000 in 2023.
As part of the acquisition of HPI in 2013, the Company recorded $4,700,000 as the fair value of the acquired trade name in other intangible assets. This asset is considered to have an indefinite life and as such is not being amortized.
As part of the acquisition of BAMKO in 2016, the Company recorded $8,900,000 as the fair value of the acquired trade name in other intangible assets. This asset is considered to have an indefinite life and as such is not being amortized.
l) Depreciation and amortization
Plant and equipment are depreciated on the straight-line basis at 2.5% to 5% for buildings, 2.5% to 20% for improvements, 10% to 33.33% for machinery, equipment and fixtures and 20% to 33.33% for transportation equipment. Leasehold improvements are amortized over the terms of the leases inasmuch as such improvements have useful lives of at least the terms of the respective leases.
m) Employee benefits
Pension plan costs are funded currently based on actuarial estimates, with prior service costs amortized over 20 years. The Company recognizes settlement gains and losses in its consolidated 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.
n) Insurance
The Company self-insures for certain obligations related to employee health programs. The Company also purchases stop-loss insurance policies to protect it from catastrophic losses. Judgments and estimates are used in determining the potential value associated with reported claims and for losses that have occurred, but have not been reported. The Company's estimates consider historical claim experience and other factors. The Company's liabilities are based on estimates, and, while the Company believes that the accrual for loss is adequate, the ultimate liability may be in excess of or less than the amounts recorded. Changes in claim experience, the Company's ability to settle claims or other estimates and judgments used by management could have a material impact on the amount and timing of expense for any period.
o) Taxes on income
Income taxes are provided for under the liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The calculation of the Company’s tax liabilities also involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain income tax positions based on estimates of whether, and the extent to which, additional taxes will be required. The Company also reports interest and penalties related to uncertain income tax positions as income taxes. Refer to Note 7.
p) Impairment of long-lived assets
Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to future net cash flows the asset is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. There was no impairment of long-lived assets for the years ended December 31, 2016, 2015, and 2014.
q) 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 issuing performance shares as well. At December 31, 2016, the Company had 3,945,981 shares of common stock available for grant of awards of share-based compensation under its 2013 Incentive Stock and Awards Plan.
The Company recognizes share-based compensation expense for all awards granted to employees, which is based on the fair value of the award on the date of grant. Determining the appropriate fair value model and calculating the fair value of stock compensation awards requires the input of certain highly complex and subjective assumptions, including the expected life of the stock compensation awards and the Company’s common stock price volatility, risk free interest rate and dividend rate. The assumptions used in calculating the fair value of stock compensation awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and the Company deems it necessary to use different assumptions, stock compensation expense could be materially different from what has been recorded in the current period.
r) 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-settled stock appreciation rights, and restricted stock.
s) Comprehensive income
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).
t) Operating segments
The Financial Accounting Standards Board (“FASB”) establishes standards for the way that public companies report information about operating segments in annual financial statements and establishes standards for related disclosures about product and services, geographic areas and major customers. The Company has reviewed the standard and determined that it has three reportable segments, Uniforms and Related Products, Remote Staffing Solutions and Promotional Products.
u) Risks and concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk include cash in banks in excess of federally insured amounts. The Company manages this risk by maintaining all deposits in high quality financial institutions and periodically performing evaluations of the relative credit standing of the financial institutions.
When assessing credit risk the Company considers whether the credit risk exists at both the individual and group level. Consideration is given to the activity, region and economic characteristics when assessing if there exists a group concentration risk. At December 31, 2016 and 2015, the Company had no customers with an accounts receivable balance greater than 7.8% of the total accounts receivable. At December 31, 2016 and 2015, the top five accounts receivable customer balances totaled $12,870,000 and $7,702,000, respectively, or approximately 30.8% and 25.7% of the respective total accounts receivable balances. The Company’s largest customer for each of the years ended December 31, 2016, 2015, and 2014 had net sales of approximately $19,312,000, $12,537,000 and $11,215,000, respectively, or approximately 7.6%, 6.0% and 5.7% of the respective total net sales for the Company. The Company’s five largest customers for the years ended December 31, 2016, 2015 and 2014 had net sales of approximately $57,632,000, $48,900,000 and $43,153,000, respectively, or approximately 22.8%, 23.3% and 22.0% of the respective total net sales for the Company.
Included in accounts receivable-other on the Company’s consolidated balance sheets at December 31, 2016 and 2015 are receivable balances from a supplier in Haiti totaling $2,253,000 and $2,569,000, respectively.
In 2016 and 2015 approximately 31% and 26%, respectively, of our products for our Uniform and Related Products segment were sourced from or contained raw materials sourced from China. In 2016 and 2015, approximately 32% and 42%, respectively, of our products for our Uniform and Related Products segment were obtained from suppliers located in Central America and Haiti. In 2016 59% of our products for our Promotional Products segment were sourced from China. Any inability by the Company to continue to obtain its products from Central America and Haiti could significantly disrupt the Company’s business. Because the Company manufactures and sources products in Central America and Haiti, the Company is affected by economic conditions in those countries, including increased duties, possible employee turnover, labor unrest and lack of developed infrastructure.
v) Fair value of financial instruments
The carrying amounts of cash and cash equivalents, receivables and accounts payable approximated fair value as of December 31, 2016 and 2015, because of the relatively short maturities of these instruments. The carrying amount of the Company’s long-term debt approximated fair value as the rates are adjustable based upon current market conditions.
w) 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.
x) 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 materially from those estimates.
y) 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, 2018. Transition to the new guidance may be done using either a full or modified retrospective method. The Company is still evaluating the impact of this ASU on the Company’s consolidated financial statements and expects to complete the assessment process by the end of the third quarter 2017 prior to the adoption of this ASU on January 1, 2018.
In April 2015, the FASB issued ASU No. 2015-03 to simplify the presentation of debt issuance costs. The amendments in this ASU 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 ASU is to be applied retrospectively and is effective for interim and annual reporting periods beginning after December 15, 2015. The Company adopted this ASU retrospectively effective January 1, 2016, and has 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 6.)
In February 2016, the FASB issued ASU 2016-02 that amends the accounting guidance on leases. The primary change in this ASU 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 ASU are to be applied using a modified retrospective approach and are effective for fiscal years beginning after December 15, 2018. The Company is in the preliminary phases of assessing the effect of this ASU. We have not yet selected a transition date nor have we yet determined the effect of this ASU on our results of operations, financial condition, or cash flows.
In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. This update was issued as part of FASB’s simplification initiative and affects all entities that issue share-based payment awards to their employees. The amendment requires that excess tax benefits for share-based payments be recorded as a reduction of income tax expense and reflected within operating cash flows rather than being recorded in paid-in-capital and reflected within financing cash flows. The standard also clarifies that all cash payments when directly withholding shares for tax-withholding purposes should be classified as a financing activity on the statement of cash flows and provides for an accounting policy election to account for forfeitures when they occur. The amendments in this update are effective for annual and interim periods beginning after December 15, 2016. Early adoption is permitted in any interim or annual period but must be reflected as of the beginning of the fiscal year. The Company elected to early adopt the standard in the fourth quarter of 2016 which requires us to reflect the adjustments as of January 1, 2016. The recognition of excess tax benefits in our provision for income taxes rather than paid-in-capital resulted in an income tax benefit of $407,000 for the three months ended December 31, 2016. Additionally, the adoption in the fourth quarter resulted in an income tax benefit of $182,000 for the three months ended March 31, 2016, $233,000 for the three months ended June 30, 2016, and $61,000 for the three months ended September 30, 2016, from the previously reported income tax provisions in the consolidated statements of comprehensive income for the first, second, and third quarters of fiscal year 2016. For the year ended December 31, 2016 the benefit was $882,000 or $0.06 per share. In addition, the adoption of this standard resulted in reclassifying $1,575,000 and $263,000 of excess tax benefits in fiscal year 2015 and 2014 previously recorded in financing activities to operating activities in the consolidated statements of cash flows. Lastly, the company has made an accounting policy election to account for forfeitures in compensation cost when they occur. There was no material impact of this election in fiscal 2016.
NOTE 2 - Allowance for Doubtful Accounts Receivable:
The activity in the allowance for doubtful accounts receivable was as follows:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance at the beginning of year
|
|
$
|
848,000
|
|
|
$
|
680,000
|
|
|
$
|
560,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for bad debts
|
|
|
523,000
|
|
|
|
266,000
|
|
|
|
197,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(96,000
|
)
|
|
|
(98,000
|
)
|
|
|
(105,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
1,000
|
|
|
|
-
|
|
|
|
28,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of year
|
|
$
|
1,276,000
|
|
|
$
|
848,000
|
|
|
$
|
680,000
|
|
NOTE 3 - Reserve for Sales Returns and Allowances:
The activity in the reserve for sales returns and allowances was as follows:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance at the beginning of year
|
|
$
|
1,384,000
|
|
|
$
|
1,308,000
|
|
|
$
|
793,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for returns and allowances
|
|
|
4,445,000
|
|
|
|
4,547,000
|
|
|
|
6,024,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual returns and allowances paid to customers
|
|
|
(3,862,000
|
)
|
|
|
(4,471,000
|
)
|
|
|
(5,509,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of year
|
|
$
|
1,967,000
|
|
|
$
|
1,384,000
|
|
|
$
|
1,308,000
|
|
NOTE 4 - Inventories:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Finished goods
|
|
$
|
57,887,000
|
|
|
$
|
48,206,000
|
|
Work in process
|
|
|
853,000
|
|
|
|
860,000
|
|
Raw materials
|
|
|
10,500,000
|
|
|
|
14,507,000
|
|
|
|
$
|
69,240,000
|
|
|
$
|
63,573,000
|
|
NOTE 5 - Property, Plant and Equipment:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Land
|
|
$
|
4,485,000
|
|
|
$
|
4,485,000
|
|
Buildings, improvements and leaseholds
|
|
|
19,140,000
|
|
|
|
16,601,000
|
|
Machinery, equipment and fixtures
|
|
|
48,840,000
|
|
|
|
43,791,000
|
|
|
|
|
72,465,000
|
|
|
|
64,877,000
|
|
Accumulated depreciation and amortization
|
|
|
(44,932,000
|
)
|
|
|
(42,353,000
|
)
|
|
|
$
|
27,533,000
|
|
|
$
|
22,524,000
|
|
Depreciation and amortization charges were approximately $2,592,000, $1,807,000 and $1,774,000 in 2016, 2015 and 2014 respectively.
NOTE 6 - Long-Term Debt:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Term loan payable to Fifth Third Bank, maturing
March 8, 2021
|
|
$
|
39,643,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Note payable to Fifth Third Bank, pursuant to revolving
credit agreement, maturing March 8, 2021
|
|
$
|
2,540,000
|
|
|
$
|
2,200,000
|
|
|
|
|
|
|
|
|
|
|
Term loan payable to Fifth Third Bank,
paid March 8, 2016
|
|
$
|
-
|
|
|
$
|
21,750,000
|
|
|
|
$
|
42,183,000
|
|
|
$
|
23,950,000
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Payments due within one year included
in current liabilities
|
|
$
|
5,893,000
|
|
|
$
|
2,750,000
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
|
$
|
63,000
|
|
|
$
|
69,000
|
|
Long-term debt less current maturities
|
|
$
|
36,227,000
|
|
|
$
|
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% (1.57% at December 31, 2016) and on the revolving credit facility at LIBOR (rounded up to the next 1/8
th
of 1%) plus 0.85% (1.60% at December 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 December 31, 2016, there was $-0- 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 is being amortized as an expense over the remaining life of the swap agreement. At December 31, 2016, the interest rate swap had a negative fair value of $50,000, which is presented within other current liabilities within the consolidated balance sheet. Approximately $55,000 of this cumulative loss has been recognized in earnings in the year ended December 31, 2016. The remaining balance net of tax benefit of $21,000, since the inception of the hedge in July 2013 has been recorded within the OCI through December 31, 2016.
The remaining scheduled amortization for the term loan is as follows: 2017 $5,893,000, 2018 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 $70,000 of debt issuance 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 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 7 – Taxes on Income:
Aggregate income tax provisions consist of the following:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
5,642,000
|
|
|
$
|
6,527,000
|
|
|
$
|
5,576,000
|
|
State and local
|
|
|
628,000
|
|
|
|
519,000
|
|
|
|
603,000
|
|
|
|
|
6,270,000
|
|
|
|
7,046,000
|
|
|
|
6,179,000
|
|
Deferred tax provision (benefit)
|
|
|
(1,010,000
|
)
|
|
|
(1,216,000
|
)
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,260,000
|
|
|
$
|
5,830,000
|
|
|
$
|
6,180,000
|
|
The significant components of the deferred income tax asset (liability) are as follows:
|
|
2016
|
|
|
2015
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Pension accruals
|
|
$
|
3,581,000
|
|
|
$
|
3,678,000
|
|
Operating reserves and other accruals
|
|
|
3,656,000
|
|
|
|
1,231,000
|
|
Tax carrying value in excess of book basis of goodwill
|
|
|
1,377,000
|
|
|
|
1,514,000
|
|
Tax credits
|
|
|
99,000
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Book carrying value in excess of tax basis of property
|
|
|
(827,000
|
)
|
|
|
(691,000
|
)
|
Deferred expenses
|
|
|
(1,086,000
|
)
|
|
|
(752,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
6,800,000
|
|
|
$
|
4,980,000
|
|
The difference between the total statutory Federal income tax rate and the actual effective income tax rate is
accounted for as follows:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory Federal income tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State and local income taxes, net of Federal income tax benefit
|
|
|
1.9
|
|
|
|
1.6
|
|
|
|
2.2
|
|
Effect of change in unrecognized tax benefit
|
|
|
-
|
|
|
|
(0.1
|
)
|
|
|
-
|
|
Untaxed foreign income
|
|
|
(5.1
|
)
|
|
|
(6.0
|
)
|
|
|
(3.3
|
)
|
Non-deductible share-based employee compensation expense
|
|
|
1.2
|
|
|
|
1.3
|
|
|
|
1.6
|
|
Excess tax benefit from stock compensation
|
|
|
(4.4
|
)
|
|
|
-
|
|
|
|
-
|
|
Federal tax credits
|
|
|
(0.8
|
)
|
|
|
-
|
|
|
|
-
|
|
Other items
|
|
|
(0.4
|
)
|
|
|
0.1
|
|
|
|
0.8
|
|
Effective income tax rate
|
|
|
26.4
|
%
|
|
|
30.9
|
%
|
|
|
35.3
|
%
|
Only tax positions that meet the more-likely-than-not recognition threshold are recognized in the consolidated financial statements.
As of December 31, 2016 and 2015, respectively, we have $500,000 of unrecognized tax benefits, all of which, if recognized, would favorably affect the annual effective income tax rate. We do not expect any significant amount of this liability to be paid in the next twelve months. Accordingly, the balance of $500,000 is included in other long-term liabilities.
Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, were as follows:
|
|
2016
|
|
|
2015
|
|
Balance at January 1,
|
|
$
|
399,000
|
|
|
$
|
462,000
|
|
Additions based on tax positions related to the current year
|
|
|
55,000
|
|
|
|
58,000
|
|
Additions for tax positions of prior years
|
|
|
4,000
|
|
|
|
2,000
|
|
Reductions due to lapse of statute of limitations
|
|
|
(59,000
|
)
|
|
|
(123,000
|
)
|
Balance at December 31,
|
|
$
|
399,000
|
|
|
$
|
399,000
|
|
We recognize interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes. During 2016, 2015 and 2014, we recorded $28,000, $27,000 and $28,000 respectively, for interest and penalties, net of tax benefits. During 2016, 2015 and 2014, we reduced the liability by $28,000, $44,000 and $38,000 respectively, of interest and penalties due to lapse of statute of limitations. At December 31, 2016 and 2015, we had $101,000 and $101,000 respectively, accrued for interest and penalties, net of tax benefit.
We anticipate that it is reasonably possible that the total amount of unrecognized tax benefits could decrease by approximately $58,000 within the next 12 months due to the closure of tax years by expiration of the statute of limitations and audit settlements related to various state tax filing positions. The earliest year open to federal examinations is 2013 and significant state examinations is 2010.
We have not provided deferred taxes on undistributed earnings attributable to foreign operations that have been considered to be reinvested indefinitely. These earnings relate to ongoing operations and were $15,036,000 and $12,236,000 at December 31, 2016 and 2015, respectively. It is not practical to determine the income tax liability that would be payable if such earnings were not indefinitely reinvested.
NOTE 8 – Benefit Plans:
Defined Benefit Plans
The Company is the sponsor of two noncontributory qualified defined benefit pension plans, providing for normal retirement at age 65, covering all eligible employees (as defined). Periodic benefit payments on retirement are determined based on a fixed amount applied to service or determined as a percentage of earnings prior to retirement. The Company is also the sponsor of an unfunded supplemental executive retirement plan (SERP) in which several of its employees are participants. Pension plan assets for retirement benefits consist primarily of fixed income securities and common stock equities.
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.
The Company recognizes the funded status of its defined benefit post retirement plans in the Company’s consolidated balance sheets.
At December 31, 2016, the Company’s projected benefit obligation under its pension plans exceeded the fair value of the plans’ assets by $9,467,000 and thus the plans are underfunded.
It is our policy to make contributions to the various plans in accordance with statutory funding requirements and any additional funding that may be deemed appropriate.
The following tables present the changes in the benefit obligations and the various plan assets, the funded status of the plans, and the amounts recognized in the Company's consolidated balance sheets
at December 31, 2016 and 2015:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Changes in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
24,790,000
|
|
|
$
|
25,470,000
|
|
Service cost
|
|
|
57,000
|
|
|
|
48,000
|
|
Interest cost
|
|
|
988,000
|
|
|
|
951,000
|
|
Actuarial loss
|
|
|
1,288,000
|
|
|
|
327,000
|
|
Benefits paid
|
|
|
(1,865,000
|
)
|
|
|
(2,006,000
|
)
|
Benefit obligation at end of year
|
|
|
25,258,000
|
|
|
|
24,790,000
|
|
|
|
|
|
|
|
|
|
|
Changes in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
15,865,000
|
|
|
|
17,386,000
|
|
Actual return on assets
|
|
|
1,291,000
|
|
|
|
(515,000
|
)
|
Employer contributions
|
|
|
500,000
|
|
|
|
1,000,000
|
|
Benefits paid
|
|
|
(1,865,000
|
)
|
|
|
(2,006,000
|
)
|
Fair value of plan assets at end of year
|
|
|
15,791,000
|
|
|
|
15,865,000
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(9,467,000
|
)
|
|
$
|
(8,925,000
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in consolidated balance sheet
|
|
|
|
|
|
|
|
|
Long-term pension liability
|
|
$
|
(9,467,000
|
)
|
|
$
|
(8,925,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive
income consist of:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
9,819,000
|
|
|
$
|
10,106,000
|
|
Information for pension plans with projected benefit obligation in excess of plan assets
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Projected benefit obligation
|
|
$
|
25,258,000
|
|
|
$
|
24,790,000
|
|
Fair value of plan assets
|
|
|
(15,791,000
|
)
|
|
|
(15,865,000
|
)
|
|
|
$
|
9,467,000
|
|
|
$
|
8,925,000
|
|
Components of net periodic benefit cost:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Service cost - benefits earned during the period
|
|
$
|
57,000
|
|
|
$
|
48,000
|
|
|
$
|
81,000
|
|
Interest cost on projected benefit obligation
|
|
|
988,000
|
|
|
|
951,000
|
|
|
|
1,001,000
|
|
Expected return on plan assets
|
|
|
(1,188,000
|
)
|
|
|
(1,343,000
|
)
|
|
|
(1,395,000
|
)
|
Recognized actuarial loss
|
|
|
1,027,000
|
|
|
|
772,000
|
|
|
|
322,000
|
|
Settlement loss
|
|
|
445,000
|
|
|
|
460,000
|
|
|
|
208,000
|
|
Net periodic pension cost after settlements
|
|
$
|
1,329,000
|
|
|
$
|
888,000
|
|
|
$
|
217,000
|
|
The pension settlement losses included in the table above relates to lump sum payments made to various employees upon their retirement or termination each year.
The estimated net actuarial loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $1,108,000.
The table below presents various assumptions used in determining the benefit obligation for each year and reflects the percentages for the various plans.
Weighted-average assumptions used to determine benefit obligations at December 31,
|
|
|
|
|
|
|
|
|
|
Long Term Rate
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
of Return
|
|
|
Salary Scale
|
|
|
|
Corp.
|
|
|
Plants
|
|
|
Corp.
|
|
|
Plants
|
|
|
Corp.
|
|
|
Plants
|
|
2015
|
|
|
4.19
|
%
|
|
|
4.09
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
2016
|
|
|
4.04
|
%
|
|
|
3.91
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Weighted-average assumptions used to determine net periodic benefit cost for years ending December 31,
|
|
|
|
|
|
|
|
|
|
Long Term Rate
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
of Return
|
|
|
Salary Scale
|
|
|
|
Corp.
|
|
|
Plants
|
|
|
Corp.
|
|
|
Plants
|
|
|
Corp.
|
|
|
Plants
|
|
2014
|
|
|
4.82
|
%
|
|
|
4.66
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
2015
|
|
|
3.86
|
%
|
|
|
3.74
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
2016
|
|
|
4.19
|
%
|
|
|
4.09
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
The methodology used to determine the expected rate of return on the pension plan assets was based on a review of actual returns in the past and consideration of projected returns based upon our projected asset allocation. Our strategy with respect to our investments in pension plan assets is to be invested with a long-term outlook. Therefore, the risk and return balance of our asset portfolio should reflect a long-term horizon. Our pension plan asset allocation at December 31, 2016, 2015 and target allocation for 2017 are as follows:
|
|
Percentage of Plan
|
|
|
|
|
|
|
|
Assets at
|
|
|
Target
|
|
|
|
December 31,
|
|
|
Allocation
|
|
Investment description
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
Equity securities
|
|
|
68%
|
|
|
|
64%
|
|
|
|
68%
|
|
Fixed income
|
|
|
13%
|
|
|
|
15%
|
|
|
|
13%
|
|
Other
|
|
|
19%
|
|
|
|
21%
|
|
|
|
19%
|
|
Total
|
|
|
100%
|
|
|
|
100%
|
|
|
|
100%
|
|
The Company plans to contribute $1,500,000 to our defined benefit pension plans in 2017.
The following table includes projected benefit payments for the years indicated:
Year
|
Projected Benefit Payments
|
|
|
|
|
|
|
|
|
2017
|
|
$
|
2,259,000
|
|
|
2018
|
|
$
|
1,369,000
|
|
|
2019
|
|
$
|
1,489,000
|
|
|
2020
|
|
$
|
2,127,000
|
|
|
2021
|
|
$
|
1,691,000
|
|
2022
|
-
|
2026
|
$
|
8,059,000
|
|
Rabbi Trust
In connection with the Company’s unfunded SERP, we have life insurance contracts on the lives of designated individuals. The insurance contracts associated with the SERP are held in a Rabbi trust.
The trust is the owner and beneficiary of such insurance contracts. The policies are being utilized to help offset the costs and liabilities of the SERP. The cash surrender value of the life insurance contracts was $972,000 at December 31, 2016. We recognized an investment gain on the cash surrender value of these life insurance contracts of $78,000 in 2016. The cash surrender value of these policies is included in other assets in the Consolidated Balance Sheets as of December 31, 2016 and 2015.
In 2013 we initiated a Non-Qualified Deferred Compensation Plan, and we have purchased life insurance contracts on the lives of designated individuals during 2016. The insurance contracts associated with the Non-Qualified Deferred Compensation Plan are also held in a Rabbi trust. The trust is the owner and beneficiary of such insurance contracts. The policies are being utilized to help offset the costs and liabilities of the Non-Qualified Deferred Compensation Plan. The cash surrender value of the life insurance contracts was $960,000 at December 31, 2016. The cash surrender value of these policies is included in other assets in the Consolidated Balance Sheet as of December 31, 2016. The liability for participant deferrals of $962,000 is included in other long-term liabilities in the Consolidated Balance Sheet as of December 31, 2016.
Defined Contribution Plan
The Company provides a defined contribution plan covering qualified employees. The plan includes a provision that allows employees to make pre-tax contributions under Section 401(k) of the Internal Revenue Code. The plan provides for the Company to make a guaranteed match equal to 25% of each employee’s eligible contributions. The plan also provides the Company with the option of making an additional discretionary contribution to the plan each year. Currently the discretionary contribution is set at 3% of eligible employees’ payroll. The Company contributions for the years ended December 31, 2016, 2015 and 2014 were approximately $1,069,000, $903,000 and $782,000 respectively.
NOTE 9 – Quarterly Results for 2014, 2015 and 2016 (Unaudited):
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
2016
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
|
Net sales
|
|
$
|
57,968,000
|
|
|
$
|
64,660,000
|
|
|
$
|
65,282,000
|
|
|
$
|
64,686,000
|
|
Gross profit
|
|
$
|
20,021,000
|
|
|
$
|
21,763,000
|
|
|
$
|
23,140,000
|
|
|
$
|
22,058,000
|
|
Income before taxes on income
|
|
$
|
3,410,000
|
|
|
$
|
4,615,000
|
|
|
$
|
6,006,000
|
|
|
$
|
5,867,000
|
|
Net income
|
|
$
|
2,442,000
|
|
|
$
|
3,308,000
|
|
|
$
|
4,447,000
|
|
|
$
|
4,441,000
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.18
|
|
|
$
|
0.23
|
|
|
$
|
0.31
|
|
|
$
|
0.31
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.17
|
|
|
$
|
0.22
|
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
Average Outstanding Shares (Basic)
|
|
|
13,927,063
|
|
|
|
14,120,617
|
|
|
|
14,118,354
|
|
|
|
14,162,939
|
|
Average Outstanding Shares (Diluted)
|
|
|
14,668,658
|
|
|
|
14,957,469
|
|
|
|
14,984,084
|
|
|
|
14,979,746
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2015
|
|
|
2015
|
|
|
2015
|
|
Net sales
|
|
$
|
46,347,000
|
|
|
$
|
54,116,000
|
|
|
$
|
56,662,000
|
|
|
$
|
53,192,000
|
|
Gross profit
|
|
$
|
15,796,000
|
|
|
$
|
18,531,000
|
|
|
$
|
19,224,000
|
|
|
$
|
17,882,000
|
|
Income before taxes on income
|
|
$
|
3,223,000
|
|
|
$
|
5,394,000
|
|
|
$
|
5,581,000
|
|
|
$
|
4,698,000
|
|
Net income
|
|
$
|
2,043,000
|
|
|
$
|
3,624,000
|
|
|
$
|
4,031,000
|
|
|
$
|
3,368,000
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.15
|
|
|
$
|
0.26
|
|
|
$
|
0.29
|
|
|
$
|
0.24
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.14
|
|
|
$
|
0.25
|
|
|
$
|
0.28
|
|
|
$
|
0.23
|
|
Average Outstanding Shares (Basic)
|
|
|
13,584,922
|
|
|
|
13,730,646
|
|
|
|
13,833,561
|
|
|
|
13,894,907
|
|
Average Outstanding Shares (Diluted)
|
|
|
14,548,084
|
|
|
|
14,577,342
|
|
|
|
14,585,688
|
|
|
|
14,603,464
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2014
|
|
|
2014
|
|
|
2014
|
|
Net sales
|
|
$
|
41,027,000
|
|
|
$
|
53,230,000
|
|
|
$
|
52,291,000
|
|
|
$
|
49,701,000
|
|
Gross profit
|
|
$
|
14,056,000
|
|
|
$
|
19,006,000
|
|
|
$
|
18,433,000
|
|
|
$
|
17,242,000
|
|
Income before taxes on income
|
|
$
|
1,878,000
|
|
|
$
|
5,867,000
|
|
|
$
|
5,168,000
|
|
|
$
|
4,616,000
|
|
Net income
|
|
$
|
1,218,000
|
|
|
$
|
3,907,000
|
|
|
$
|
3,368,000
|
|
|
$
|
2,856,000
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.09
|
|
|
$
|
0.30
|
|
|
$
|
0.25
|
|
|
$
|
0.21
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.09
|
|
|
$
|
0.29
|
|
|
$
|
0.24
|
|
|
$
|
0.20
|
|
Average Outstanding Shares (Basic)
|
|
|
13,128,946
|
|
|
|
13,207,804
|
|
|
|
13,375,566
|
|
|
|
13,481,494
|
|
Average Outstanding Shares (Diluted)
|
|
|
13,553,740
|
|
|
|
13,648,540
|
|
|
|
14,004,202
|
|
|
|
14,252,310
|
|
The Company elected to early adopt ASU 2016-09 in the fourth quarter of 2016. As a result, there was an increase in the income tax benefit of $182,000 for the three months ended March 31, 2016, $233,000 for the three months ended June 30, 2016, and $61,000 for the three months ended September 30, 2016, from the previously reported income tax provisions in the consolidated statements of comprehensive income for the first, second, and third quarters of fiscal year 2016. See Note 1(y).
NOTE 10
– Rentals:
Aggregate rent expense, including month-to-month rentals, approximated $1,093,000, $339,000 and $342,000 for the years ended December 31, 2016, 2015, and 2014, respectively. Long-term lease commitments totaling $1,472,000 are as follows: 2017 - $582,000, 2018 - $342,000, 2019 - $281,000, and 2020 - $267,000.
On July 1, 2015 the Company entered into a lease agreement for certain property in Haiti for its uniform and related products business. The initial term of the lease is for 104 months beginning February 1, 2016, with a total rent payment of approximately $1,127,000 of which $1,008,000 was prepaid as of December 31, 2016.
On October 24, 2016 the Company entered into a lease agreement for certain property in Georgia for its uniform and related products business. The initial term of the lease is for 24 months beginning October 8, 2016, with a total rent payment of approximately $196,000 of which $170,000 was prepaid as of December 31, 2016.
NOTE 11 – 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.
During 2005, the Company entered into severance protection agreements with senior management. The terms of these agreements require the Company to potentially make certain payments to members of senior management in the event of a change in control of the Company.
NOTE 12 – Share-Based Compensation:
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 (“SARS”), 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, SARS, restricted stock, performance shares 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 and SARS 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 December 31, 2016, the Company had 3,945,981 shares of common stock available for grant of share-based compensation under the 2013 Plan.
Share-based compensation is recorded in selling and administrative expense in the consolidated statements of comprehensive income. The following table details the share-based compensation expense by plan and the total related tax benefit for the periods presented:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Stock options and SARS
|
|
$
|
1,071,000
|
|
|
$
|
1,079,000
|
|
|
$
|
1,175,000
|
|
Restricted stock
|
|
|
317,000
|
|
|
|
282,000
|
|
|
|
229,000
|
|
Performance shares
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
Total share-based compensation expense
|
|
$
|
1,638,000
|
|
|
$
|
1,361,000
|
|
|
$
|
1,404,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related income tax benefit
|
|
$
|
325,000
|
|
|
$
|
203,000
|
|
|
$
|
219,000
|
|
Stock options and SARS
The Company grants stock options and stock settled 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.
A summary of stock option transactions during the two years ended December 31, 2016 follows:
|
|
No. of
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding December 31, 2014
|
|
|
1,118,058
|
|
|
$
|
6.63
|
|
Granted
|
|
|
153,618
|
|
|
|
18.11
|
|
Exercised
|
|
|
(309,230
|
)
|
|
|
6.90
|
|
Lapsed
|
|
|
(10,900
|
)
|
|
|
6.00
|
|
Cancelled
|
|
|
(5,000
|
)
|
|
|
11.22
|
|
Outstanding December 31, 2015
|
|
|
946,546
|
|
|
$
|
8.39
|
|
Granted
|
|
|
172,862
|
|
|
$
|
16.53
|
|
Exercised
|
|
|
(279,766
|
)
|
|
|
7.31
|
|
Lapsed
|
|
|
(11,131
|
)
|
|
|
5.92
|
|
Cancelled
|
|
|
(3,260
|
)
|
|
|
17.53
|
|
Outstanding December 31, 2016
|
|
|
825,251
|
|
|
$
|
10.46
|
|
At December 31, 2016, options outstanding, all of which were fully vested and exercisable, had an intrinsic value of $7,563,000. The weighted-average remaining contractual term was 41 months.
Options exercised during the years ended December 31, 2016, 2015 and 2014, had intrinsic values of $3,129,000, $3,528,000 and $1,356,000 respectively.
The weighted average fair values of the Company’s 172,862, 153,618 and 397,218 options granted during the years ended December 31, 2016, 2015 and 2014 were $4.69 and $5.22 and $2.26, respectively.
During the years ended December 31, 2016, 2015 and 2014, respectively, the Company received $1,504,000, $1,840,000, and $1,855,000 in cash from stock option exercises. Current tax benefits of $361,000, $618,000 and $231,000, respectively, were recognized for these exercises. Additionally, during the years ended December 31, 2016, 2015 and 2014, respectively, the Company received 27,770, 14,571 and 20,256 shares of its common stock as payment of the exercise price in the exercise of stock options for 81,608, 50,224 and 40,816 shares of its common stock related to the exercise of stock options.
The following table summarizes information about stock options outstanding as of December 31, 2016:
Range of
|
|
|
|
|
|
|
Weighted Average Remaining
|
|
|
Weighted Average
|
|
Exercise Price
|
|
|
Shares
|
|
|
Contractual Life (Years)
|
|
|
Exercise Price
|
|
|
$3.82
|
-
|
$5.55
|
|
|
|
74,166
|
|
|
|
2.94
|
|
|
$
|
4.75
|
|
|
$5.65
|
-
|
$7.36
|
|
|
|
388,685
|
|
|
|
2.03
|
|
|
$
|
6.47
|
|
|
$7.96
|
-
|
$10.38
|
|
|
|
62,800
|
|
|
|
4.70
|
|
|
$
|
9.30
|
|
|
$16.35
|
-
|
$18.66
|
|
|
|
299,600
|
|
|
|
4.96
|
|
|
$
|
17.28
|
|
|
$3.82
|
-
|
$18.66
|
|
|
|
825,251
|
|
|
|
3.38
|
|
|
$
|
10.46
|
|
A summary of stock-settled SARS transactions during the two years ended December 31, 2016 follows:
|
|
No. of
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding December 31, 2014
|
|
|
522,024
|
|
|
$
|
6.17
|
|
Granted
|
|
|
53,292
|
|
|
|
18.66
|
|
Exercised
|
|
|
(193,750
|
)
|
|
|
5.73
|
|
Lapsed
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2015
|
|
|
381,566
|
|
|
$
|
8.14
|
|
Granted
|
|
|
58,108
|
|
|
$
|
16.35
|
|
Exercised
|
|
|
(114,168
|
)
|
|
|
6.27
|
|
Lapsed
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2016
|
|
|
325,506
|
|
|
$
|
10.26
|
|
At December 31, 2016, SARS outstanding, all of which were fully vested and exercisable, had an aggregate intrinsic value of $3,048,000. The weighted-average remaining contractual term was 27 months.
SARS exercised during the years ended December 31, 2016, 2015 and 2014, respectively, had intrinsic values of $1,472,000, $2,602,000 and $275,000 respectively. Current tax benefits of $521,000, $957,000 and $32,000 respectively, were recognized for these exercises. The weighted average grant date fair values of the Company’s SARS granted during the years ended December 31, 2016, 2015 and 2014 was $4.49, $5.20 and $2.02, respectively.
The following table summarizes information about SARS outstanding as of December 31, 2016:
Range of
|
|
|
|
|
|
|
Weighted Average Remaining
|
|
|
Weighted Average
|
|
Exercise Price
|
|
|
SARS
|
|
|
Contractual Life (Years)
|
|
|
Exercise Price
|
|
|
$5.65
|
-
|
$7.36
|
|
|
|
214,106
|
|
|
|
1.55
|
|
|
$
|
6.51
|
|
|
$16.35
|
-
|
$18.66
|
|
|
|
111,400
|
|
|
|
3.60
|
|
|
$
|
17.46
|
|
|
$5.65
|
-
|
$18.66
|
|
|
|
325,506
|
|
|
|
2.26
|
|
|
$
|
10.26
|
|
At December 31, 2016 shares available for grant as awards under the plan were 3,945,981. Options and SARS have never been repriced by the Company in any year.
The following table summarizes significant assumptions utilized to determine the fair value of options and SARS:
Years ended
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
SARS
|
|
|
Options
|
|
Exercise price
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
$16.35
|
|
|
|
$16.35
|
-
|
$18.55
|
|
2015
|
|
|
$18.66
|
|
|
|
$16.78
|
-
|
$18.66
|
|
2014
|
|
|
$7.36
|
|
|
|
$7.36
|
-
|
$10.38
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
$16.35
|
|
|
|
$16.35
|
-
|
$18.55
|
|
2015
|
|
|
$18.66
|
|
|
|
$16.78
|
-
|
$18.66
|
|
2014
|
|
|
$7.36
|
|
|
|
$7.36
|
-
|
$10.38
|
|
Risk free interest rate
1
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
1.3%
|
|
|
|
1.1%
|
-
|
1.8%
|
|
2015
|
|
|
1.5%
|
|
|
|
1.5%
|
-
|
2.1%
|
|
2014
|
|
|
1.5%
|
|
|
|
1.5%
|
-
|
2.6%
|
|
Expected award life (years)
2
|
|
|
5
|
|
|
|
5
|
-
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
3
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
36.5%
|
|
|
|
36.5%
|
-
|
40.3%
|
|
2015
|
|
|
34.9%
|
|
|
|
34.9%
|
-
|
39.0%
|
|
2014
|
|
|
42.5%
|
|
|
|
37.3%
|
-
|
42.5%
|
|
Expected dividend yield
4
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2.0%
|
|
|
|
1.8%
|
-
|
2.1%
|
|
2015
|
|
|
1.6%
|
|
|
|
1.6%
|
-
|
1.9%
|
|
2014
|
|
|
3.7%
|
|
|
|
2.9%
|
-
|
3.7%
|
|
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 years ended December 31, 2016, 2015 and 2014 was based on historical Superior common stock prices 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.
Restricted Stock
The Company has granted restricted stock to directors and certain employees under the terms of the 2013 Plan which vest at a specified future date, generally after three years, or when certain conditions are met. The shares are subject to accelerated vesting under certain circumstances pursuant to the 2013 Plan. Expense for each of these grants is based on the fair value at the date of the grant and is being recognized on a straight-line basis over the respective service period. As of December 31, 2016, the Company had $234,000 of unrecognized compensation cost related to nonvested grants expected to be recognized over the weighted average service period of 0.5 years.
A summary of restricted stock transactions during the years ended December 31, 2016 follows:
|
|
No. of
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Grant Date Fair Value
|
|
Outstanding December 31, 2014
|
|
|
106,016
|
|
|
$
|
7.62
|
|
Granted
|
|
|
8,326
|
|
|
|
18.14
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2015
|
|
|
114,342
|
|
|
$
|
8.39
|
|
Granted
|
|
|
10,396
|
|
|
|
16.35
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(1,050
|
)
|
|
|
21.92
|
|
Outstanding December 31, 2016
|
|
|
123,688
|
|
|
$
|
8.94
|
|
Performance Shares
In 2016, the Compensation Committee of the Board of Directors approved grants of performance shares under the terms of the 2013 Plan. Under the terms of the grants, certain employees received service-based or service-based and performance-based shares. The service-based awards vest after the service period is met, which is generally three to five years. Expense for these grants is based on the fair value on the date of the grant and is being recognized on a straight-line basis over the respective service period. The performance-based shares generally vest after five years if the performance and service targets are met. The Company evaluates the performance conditions associated with these grants each reporting period to determine the expected number of shares to be issued. Based upon this evaluation, expected expenses for these grants are being recognized based on the fair value on the date of the grant on a straight-line basis over the respective service period. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan. As of December 31, 2016, the Company had $1,129,000 of unrecognized compensation cost related to nonvested grants expected to be recognized over the weighted average service period of 4.1 years.
A summary of performance share transactions during the year ended December 31, 2016 follows:
|
|
No. of
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Grant Date Fair Value
|
|
Outstanding December 31, 2015
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
101,000
|
|
|
|
16.36
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2016
|
|
|
101,000
|
|
|
$
|
16.36
|
|
NOTE 13 – Earnings Per Share:
The following table represents a reconciliation of basic and diluted earnings per share:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings used in the computation of
basic and diluted earnings per share
|
|
$
|
14,638,000
|
|
|
$
|
13,066,000
|
|
|
$
|
11,349,000
|
|
Weighted average shares
outstanding - basic
|
|
|
14,082,243
|
|
|
|
13,761,009
|
|
|
|
13,298,452
|
|
Common stock equivalents
|
|
|
815,246
|
|
|
|
817,635
|
|
|
|
566,246
|
|
Total weighted average shares
outstanding - diluted
|
|
|
14,897,489
|
|
|
|
14,578,644
|
|
|
|
13,864,698
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
1.04
|
|
|
$
|
0.95
|
|
|
$
|
0.85
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
0.98
|
|
|
$
|
0.90
|
|
|
$
|
0.82
|
|
Awards to purchase an average of 124,000 shares of common stock with a weighted average exercise price of $18.53 per share were outstanding during 2016 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 . Awards to purchase an average of 108,400 shares of common stock with a weighted average exercise price of $17.98 per share were outstanding during 2015 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. Awards to purchase an average of 34,400 shares of common stock with a weighted average exercise price of $10.03 per share were outstanding during 2014 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.
NOTE 14 – Other Current Liabilities:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Salaries, wages, commissions and vacation pay
|
|
$
|
5,600,000
|
|
|
$
|
5,371,000
|
|
Accrued rebates
|
|
|
1,932,000
|
|
|
|
1,349,000
|
|
Defined contribution plan accrual
|
|
|
897,000
|
|
|
|
610,000
|
|
Customer deposits
|
|
|
670,000
|
|
|
|
84,000
|
|
Other accrued expenses
|
|
|
1,617,000
|
|
|
|
893,000
|
|
|
|
$
|
10,716,000
|
|
|
$
|
8,307,000
|
|
NOTE 15 – Supplemental Cash Flow Information:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income taxes paid
|
|
$
|
5,076,000
|
|
|
$
|
6,897,000
|
|
|
$
|
5,274,000
|
|
Interest paid
|
|
$
|
694,000
|
|
|
$
|
523,000
|
|
|
$
|
466,000
|
|
During the years ended December 31, 2016, 2015, and 2014 the Company received 27,770, 14,571, and 20,256 shares, respectively, of its common stock as payment for the exercise of stock options for 81,608, 50,224, and 40,816 shares, respectively.
NOTE 16 – Stock Repurchase Plan:
On August 1, 2008, the Company’s Board of Directors approved an increase to the outstanding authorization under its common stock repurchase program to allow for the repurchase of 1,000,000 additional shares of the Company’s outstanding shares of common stock. Under this program the Company reacquired and retired 45,100, -0- and -0- shares of its common stock in the years ended December 31, 2016, 2015 and 2014, respectively. At December 31, 2016, the Company had 216,575 shares remaining on its common stock repurchase program. Shares purchased under the common stock repurchase program are constructively retired and returned to unissued status. The Company considers several factors in determining when to make share repurchases, including among other things, the cost of equity, the after-tax cost of borrowing, the debt to total capitalization targets and the expected future cash needs. There is no expiration date or other restriction governing the period over which the Company can make its share repurchases under the program.
NOTE 17
–
Operating Segment Information
:
The Company classifies its businesses into three 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. The Remote Staffing Solutions segment consists of sales of staffing solutions. The Promotional Products segment consists of sales to customers of promotional products and other branded merchandise.
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 earnings before income taxes. The accounting policies of the operating segments are the same as those described in Note 1 entitled Summary of Significant 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:
Twelve Months Ended
December 31, 2016
|
|
Uniforms and
Related
Products
|
|
|
Remote
Staffing
Solutions
|
|
|
Promotional
Products
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
210,373,000
|
|
|
|
17,953,000
|
|
|
|
27,816,000
|
|
|
|
(3,546,000
|
)
|
|
$
|
252,596,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
69,987,000
|
|
|
|
9,616,000
|
|
|
|
9,690,000
|
|
|
|
(2,311,000
|
)
|
|
$
|
86,982,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
52,225,000
|
|
|
|
6,096,000
|
|
|
|
10,386,000
|
|
|
|
(2,311,000
|
)
|
|
|
66,396,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
462,000
|
|
|
|
-
|
|
|
|
226,000
|
|
|
|
-
|
|
|
|
688,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes on income (loss)
|
|
$
|
17,300,000
|
|
|
|
3,520,000
|
|
|
|
(922,000
|
)
|
|
|
-
|
|
|
$
|
19,898,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
4,023,000
|
|
|
|
494,000
|
|
|
|
418,000
|
|
|
|
-
|
|
|
$
|
4,935,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
3,383,000
|
|
|
|
3,872,000
|
|
|
|
130,000
|
|
|
|
-
|
|
|
$
|
7,385,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
176,070,000
|
|
|
|
19,752,000
|
|
|
|
28,480,000
|
|
|
|
(27,454,000
|
)
|
|
$
|
196,848,000
|
|
Twelve Months Ended
December 31, 2015
|
|
Uniforms and
Related
Products
|
|
|
Remote
Staffing
Solutions
|
|
|
Promotional
Products
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
198,319,000
|
|
|
$
|
15,604,000
|
|
|
$
|
-
|
|
|
$
|
(3,606,000
|
)
|
|
$
|
210,317,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
65,247,000
|
|
|
$
|
8,579,000
|
|
|
$
|
-
|
|
|
$
|
(2,393,000
|
)
|
|
$
|
71,433,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
49,225,000
|
|
|
|
5,186,000
|
|
|
|
-
|
|
|
|
(2,393,000
|
)
|
|
|
52,018,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
519,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
519,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes on income
|
|
$
|
15,503,000
|
|
|
$
|
3,393,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,896,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
3,561,000
|
|
|
$
|
312,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,873,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
3,003,000
|
|
|
$
|
5,066,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,069,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
140,710,000
|
|
|
$
|
14,551,000
|
|
|
$
|
-
|
|
|
$
|
(3,530,000
|
)
|
|
$
|
151,731,000
|
|
Twelve Months Ended
December 31, 2014
|
|
Uniforms and
Related
Products
|
|
|
Remote
Staffing
Solutions
|
|
|
Promotional
Products
|
|
|
Intersegment
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
188,199,000
|
|
|
$
|
11,424,000
|
|
|
$
|
-
|
|
|
$
|
(3,374,000
|
)
|
|
$
|
196,249,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
64,480,000
|
|
|
$
|
6,487,000
|
|
|
$
|
-
|
|
|
$
|
(2,230,000
|
)
|
|
$
|
68,737,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
48,924,000
|
|
|
|
4,030,000
|
|
|
|
-
|
|
|
|
(2,230,000
|
)
|
|
|
50,724,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
484,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
484,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes on income
|
|
$
|
15,072,000
|
|
|
$
|
2,457,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
17,529,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
3,581,000
|
|
|
$
|
258,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,839,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
2,187,000
|
|
|
$
|
2,749,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,936,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
131,627,000
|
|
|
$
|
9,797,000
|
|
|
$
|
-
|
|
|
$
|
(1,570,000
|
)
|
|
$
|
139,854,000
|
|
NOTE 18 – 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 consisted of approximately $15,161,000 in cash, net of cash acquired, the issuance of approximately 324,000 restricted shares of Superior’s common stock that will vest over a five year period, the potential future payment of approximately $5,500,000 in additional contingent consideration through 2021, and the assumption of certain liabilities of BAMKO. The transaction also included 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 the Quarterly Report on Form 10-Q filed on April 28, 2016.
Fair Value of Consideration Transferred
A Summary of the purchase price is as follows:
|
|
|
|
|
|
|
|
|
|
Cash consideration at closing, net of cash acquired
|
|
$
|
15,161,000
|
|
|
|
|
|
|
Restricted shares of Superior common stock issued
|
|
|
4,558,000
|
|
|
|
|
|
|
Contingent consideration
|
|
|
5,205,000
|
|
|
|
|
|
|
Total Considerations
|
|
$
|
24,924,000
|
|
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 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 fair values as of the effective date of the transaction.
The following is our assignment of the aggregate consideration:
Accounts receivable
|
|
$
|
4,885,000
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
3,200,000
|
|
|
|
|
|
|
Inventories
|
|
|
236,000
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
199,000
|
|
|
|
|
|
|
Other Assets
|
|
|
100,000
|
|
|
|
|
|
|
Identifiable intangible assets
|
|
|
11,360,000
|
|
|
|
|
|
|
Goodwill
|
|
|
6,994,000
|
|
|
|
|
|
|
Total assets
|
|
$
|
26,974,000
|
|
|
|
|
|
|
Accounts Payables
|
|
|
1,314,000
|
|
|
|
|
|
|
Other current liabilities
|
|
|
736,000
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,050,000
|
|
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.
The estimated fair value for acquisition-related contingent consideration payable is $5,288,000 as of December 31, 2016. 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 values assigned to the assets acquired and liabilities assumed.
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 $302,000 for the year ended December 31, 2016.
For the year ended December 31, 2016, the Company incurred and expensed transaction related expenses of approximately $1,119,000. This amount is included in selling and administrative expenses on the consolidated statements of comprehensive income.
Net sales for BAMKO of $27,816,000, is included in the Company’s consolidated statements of comprehensive income for the year ended December 31, 2016. For the year ended December 31, 2016, loss before taxes on income of $922,000 is included in the Company’s consolidated statements of comprehensive income. This amount is inclusive of the acquisition related expenses discussed above.
On a pro forma basis as if the results of this acquisition had been included in our consolidated results for the years ended December 31, 2016, 2015 and 2014, net sales would have increased approximately $6,587,000, $31,489,000 and $32,222,000, respectively. Net income would have increased $1,052,000 for the year ended December 31, 2016 and decreased by $427,000 and $182,000 for the years ended December 31, 2015 and, 2014, respectively. Pre-tax acquisition related expenses of $1,119,000 have been recorded as though they were incurred as of January 1, 2014 for this comparison.