In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company
as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control
-
Integrated Framework (2013)
issued by COSO.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect m
isstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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.
S
uperior 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, Public Identity and Tangerine brands, services customers that purchase primarily promotional and related products. The segment currently has sales offices in the United States 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
each of the years ended
December 31, 2017,
2016
and
2015,
respectively, were
$0.1
million.
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
$10.9
million,
$10.6
million and
$9.3
million for the years ended
December 31, 2017,
2016
and
2015,
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 pe
rsonnel, 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
$4.1
million and
$11.9
million 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,
201
7
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, 2017
and
2016
were as follows (In thousands):
|
|
Customer
Relationships
|
|
|
Weighted
Average Life
(years)
|
|
|
Non-Compete Agreemen
t
|
|
|
Weighted
Average Life (years
)
|
|
|
Customer
Backlo
g
|
|
|
Weighted
Average Life (years
)
|
|
December 31, 201
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cos
t
|
|
$
|
15,530
|
|
|
|
8.8
|
|
|
$
|
5,551
|
|
|
|
5.1
|
|
|
$
|
122
|
|
|
|
0.5
|
|
Accumulated amortizatio
n
|
|
|
(4,782
|
)
|
|
|
|
|
|
|
(4,619
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ne
t
|
|
$
|
10,748
|
|
|
|
|
|
|
$
|
932
|
|
|
|
|
|
|
$
|
112
|
|
|
|
|
|
December 31, 201
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cos
t
|
|
$
|
12,311
|
|
|
|
9.4
|
|
|
$
|
5,370
|
|
|
|
5.1
|
|
|
$
|
0
|
|
|
|
N/A
|
|
Accumulated amortizatio
n
|
|
|
(4,490
|
)
|
|
|
|
|
|
|
(3,553
|
)
|
|
|
|
|
|
|
0
|
|
|
|
|
|
Ne
t
|
|
$
|
7,821
|
|
|
|
|
|
|
$
|
1,817
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
Amortization expense for other intangible assets was
$2.4
million,
$2.3
million and
$2.1
million for the years ended
December 31, 2017,
2016
and
2015,
respectively.
Amortization expense for other intangible assets is expected to be
$2.5
million in
2018;
$1.9
million in each of the years ending
December 31, 2019
through
2021;
$1.8
million in
2022;
$1.1
million in
2023
and
$0.5
million in
2024.
As part of the acquisition of HPI in
2013,
the Company recorded
$4.7
million 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
$8.9
million 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 acquisitions of Public Identity and Tangerine in
2017,
the Company recorded
$0.5
million and
$3.2
million, respectively as the fair value of the acquired trade names in other intangible assets. These amounts are considered to have an indefinite life and as such are
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
L
ong-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, 2017,
2016,
and
2015.
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, 2017,
the Company had
3,667,577
shares of common stock available for grant of awards of share-based compensation under its
2013
Incentive Stock and Awards Plan.
T
he 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, 2017
and
2016,
the Company had
no
customers with an accounts receivable balance greater than
11.3%
of the total accounts receivable. At
December 31, 2017
and
2016,
the top
five
accounts receivable customer balances totaled
$14.2
million and
$12.9
million, respectively, or approximately
28.0%
and
30.8%
of the respective total accounts receivable balances. The Company’s largest customer for each of the years ended
December 31, 2017,
2016,
and
2015
had net sales of approximately
$20.6
million,
$19.3
million and
$12.5
million, respectively, or approximately
7.7%,
7.6%
and
6.0%
of the respective total net sales for the Company. The Company’s
five
largest customers for the years ended
December 31, 2017,
2016
and
2015
had net sales of approximately
$50.7
million,
$57.6
million and
$48.9
million, respectively, or approximately
19.0%,
22.8%
and
23.3%
of the respective total net sales for the Company.
Included in accounts receivable-other on the Company
’s consolidated balance sheets at
December 31, 2017
and
2016
are receivable balances from a supplier in Haiti totaling
$1.5
million and
$2.3
million, respectively.
In
201
7,
2016
and
2015,
approximately
28%,
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
2017,
2016
and
2015,
approximately
32%,
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
2017
and
2016,
approximately
67%
and
59%,
respectively, 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 f
air value as of
December 31, 2017
and
2016,
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 will use the modified retrospective transition method with the cumulative effect recorded to the opening balance of retained earnings. The Company’s assessment of the new standard is substantially complete. The timing of revenue recognition is
not
expected to change for our Remote Staffing Solutions segment. For our Uniforms and Related Products and Promotional Products segments, our revenue is generated from the sale of finished products to customers as products are shipped and title passes to the customers. For certain contracts with customers, the Company creates an asset with
no
alternative use to the Company, and the Company has enforceable right to payment for performance completed to date. For these contracts, we expect to move from a point in time model for revenue recognition to an over time model. We expect this to have a material impact on the timing of our revenue recognition. As of
December 31, 2017
we estimate a net cumulative increase to retained earnings between
$10.0
million and
$15.0
million. We expect the new standard will have
no
cash impact and does
not
affect the economics our underlying customer contracts. We do
not
expect this new guidance to have any other material impacts on our Consolidated Financial Statements but will significantly expand our disclosures.
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 was 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 required 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 for the years ended
December 31, 2017
and
December 31, 2016
of
$1.8
million or
$0.12
per share and
$0.9
million or
$0.06
per share, respectively. 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
2017.
NOTE
2
- Allowance for Doubtful Accounts Receivable
:
|
|
The activity in the allowance for doubtful accounts receivable was as follows (in thousands)
:
|
|
|
201
7
|
|
|
201
6
|
|
|
201
5
|
|
Balance at the beginning of yea
r
|
|
$
|
1,276
|
|
|
$
|
848
|
|
|
$
|
680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for bad debt
s
|
|
|
1,002
|
|
|
|
523
|
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-off
s
|
|
|
(901
|
)
|
|
|
(96
|
)
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoverie
s
|
|
|
5
|
|
|
|
1
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of yea
r
|
|
$
|
1,382
|
|
|
$
|
1,276
|
|
|
$
|
848
|
|
NOTE
3
- Reserve for Sales Returns and Allowances
:
|
|
The activity in the reserve for sales returns and allowances was as follows (in thousands)
:
|
|
|
201
7
|
|
|
201
6
|
|
|
201
5
|
|
Balance at the beginning of yea
r
|
|
$
|
1,967
|
|
|
$
|
1,384
|
|
|
$
|
1,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for returns and allowance
s
|
|
|
2,789
|
|
|
|
4,445
|
|
|
|
4,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual returns and allowances paid to customer
s
|
|
|
(3,631
|
)
|
|
|
(3,862
|
)
|
|
|
(4,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of yea
r
|
|
$
|
1,125
|
|
|
$
|
1,967
|
|
|
$
|
1,384
|
|
(In thousands)
|
|
December 31
,
|
|
|
|
201
7
|
|
|
201
6
|
|
Finished good
s
|
|
$
|
54,354
|
|
|
$
|
57,887
|
|
Work in proces
s
|
|
|
604
|
|
|
|
853
|
|
Raw material
s
|
|
|
10,021
|
|
|
|
10,500
|
|
|
|
$
|
64,979
|
|
|
$
|
69,240
|
|
|
NOTE
5
- Property, Plant and Equipment
:
|
(In thousands
)
|
|
|
December 31
,
|
|
|
|
201
7
|
|
|
201
6
|
|
Lan
d
|
|
$
|
3,635
|
|
|
$
|
4,485
|
|
Buildings, improvements and leasehold
s
|
|
|
18,192
|
|
|
|
19,140
|
|
Machinery, equipment and fixture
s
|
|
|
52,594
|
|
|
|
48,840
|
|
|
|
|
74,421
|
|
|
|
72,465
|
|
Accumulated depreciation and amortizatio
n
|
|
|
(47,577
|
)
|
|
|
(44,932
|
)
|
|
|
$
|
26,844
|
|
|
$
|
27,533
|
|
Depreciation and amortization charges were approximately
$3.3
million,
$2.6
million and
$1.8
million in
2017,
2016,
and
2015
respectively
.
|
NOTE
6
- Long-Term Debt
:
(In thousands
)
|
|
December 31
,
|
|
|
December 31
,
|
|
|
|
2017
|
|
|
2016
|
|
Term loan payable to Fifth Third Bank, pai
d
February 28, 201
7
|
|
$
|
-
|
|
|
$
|
39,643
|
|
|
|
|
|
|
|
|
|
|
Note payable to Fifth Third Bank, pursuant to revolvin
g
credit agreement, paid February 28, 201
7
|
|
$
|
-
|
|
|
$
|
2,540
|
|
|
|
|
|
|
|
|
|
|
Note payable to BB&T, pursuant to revolvin
g
credit agreement, maturing February 25, 202
2
|
|
$
|
1,475
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Term loan payable to BB&
T
maturing February 26, 202
4
|
|
$
|
37,500
|
|
|
$
|
-
|
|
|
|
$
|
38,975
|
|
|
$
|
42,183
|
|
|
|
|
|
|
|
|
|
|
Less
:
|
|
|
|
|
|
|
|
|
Payments due within one year include
d
in current liabilitie
s
|
|
$
|
6,000
|
|
|
$
|
5,893
|
|
|
|
|
|
|
|
|
|
|
Debt issuance cost
s
|
|
$
|
42
|
|
|
$
|
63
|
|
Long-term debt less current maturitie
s
|
|
$
|
32,933
|
|
|
$
|
36,227
|
|
Effective
July 1, 2013,
t
he Company entered into an amended and restated
5
-year credit agreement with Fifth Third Bank that made available to the Company up to
$15.0
million on a revolving credit basis (the “Initial Credit Facility”) in addition to a
$30.0
million 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
.0
million to
$20.0
million (the “Amended Credit Facility”) and refinanced its then-existing term loan with a new
$45.0
million term loan to help finance the acquisition of substantially all of the assets of BAMKO, Inc. Both loans were based upon the
one
-month LIBOR rate for U.S. dollar based borrowings. Interest was payable on the term loan at LIBOR plus
0.85%
and on the revolving credit facility at LIBOR (rounded up to the next
1/8
th
of
1%
) plus
0.85%.
The Company paid a commitment fee of
0.10%
per annum on the average unused portion of the commitment under the Amended Credit Facility. This credit agreement was paid in full on
February 28, 2017
with the proceeds from a new loan agreement with Branch Banking and Trust Company (“BB&T”).
Effective
February 28, 2017,
the Company entered into a new
7
-year credit agreement with BB&T (the “Credit Agreement”) that provides a new revolving credit facility of
$35
.0
million (the “Credit Facility”) which terminates on
February 25, 2022
and provides a new term loan of
$42.0
million (the “Term Loan”) which matures on
February 26, 2024.
Both loans are based upon the
one
-month LIBOR rate for U.S. dollar based borrowings. Interest is payable for each loan at LIBOR (rounded up to the next
1/100
th
of
1%
) plus
0.75%
(
2.25%
at
December 31, 2017).
The Company pays a commitment fee of
0.10%
per annum on the average unused portion of the commitment under the Credit Facility. The available balance under the Credit Facility is reduced by outstanding letters of credit. As of
December 31, 2017,
there were
no
amounts due under the Credit Facility and
no
outstanding letters of credit.
The remaining scheduled amortization fo
r the term loan is as follows:
2018
through
2023
$6.0
million per year;
2024
$1.5
million. The term loan does
not
include a prepayment penalty. In connection with the Amended Credit Agreement, the Company incurred approximately
$0.1
million 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 (
4.0:1
) as defined in the agreement and a fixed charge coverage ratio (
1.25:1
). The Company is in full compliance with all terms, conditions and covenants of the Amended Credit Agreement.
Effective
July 1, 2013,
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. that was designed to effectively convert or hedge the variable interest rate on a portion of it
s borrowings to achieve a net fixed rate of
2.53%
per annum, beginning
July 1, 2014
with a notional amount of
$14.3
million. The notional amount of the interest rate swap was reduced by the scheduled amortization of the principal balance of the original term loan of
$0.2
million per month through
July 1, 2015
and
$0.3
million per month through
June 1, 2018
with the remaining notional balance of
$3.3
million to be eliminated on
July 1, 2018.
Effective
March 8, 2016,
the fixed rate on the notional amount was reduced to
2.43%.
Effective
February 24, 2017,
this interest rate swap agreement was terminated. On this date the swap agreement had
$0.1
million in cumulative gains in OCI which was reversed to earnings.
Effective
March 3, 2017,
in order to reduce the
interest rate risk on its future debt, the Company entered into an interest rate swap agreement with BB&T that was designed to effectively convert or hedge the variable interest rate on a portion of its future borrowings to achieve a net fixed rate of
3.12%
per annum, beginning
March 1, 2018
with a notional amount of
$18.0
million. The notional amount of the interest rate swap is reduced by
$0.3
million per month beginning
April 1, 2018
through
February 26, 2024.
Under the terms of the interest rate swap, the Company will receive variable interest rate payments and make 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 recorded in OCI, net of related income tax effects. As of
December 31, 2017,
the swap agreement had a negative fair value of
$0.1
million which is presented within other current liabilities on the consolidated balance sheet.
NOTE
7
– Taxes on Income:
Aggregate income tax provisions consist of the following (in thousands):
|
|
201
7
|
|
|
201
6
|
|
|
201
5
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federa
l
|
|
$
|
2,846
|
|
|
$
|
5,642
|
|
|
$
|
6,527
|
|
Tax Cut and Jobs Ac
t
|
|
|
265
|
|
|
|
-
|
|
|
|
-
|
|
State and loca
l
|
|
|
647
|
|
|
|
628
|
|
|
|
519
|
|
Foreig
n
|
|
|
338
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
4,096
|
|
|
|
6,270
|
|
|
|
7,046
|
|
Long Term
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Cut and Jobs Ac
t
|
|
|
1,336
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Taxes
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision (benefit
)
|
|
|
1,899
|
|
|
|
(1,010
|
)
|
|
|
(1,216
|
)
|
Tax Cut and Jobs Act re-measuremen
t
|
|
|
2,429
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
4,328
|
|
|
|
(1,010
|
)
|
|
|
(1,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,760
|
|
|
$
|
5,260
|
|
|
$
|
5,830
|
|
The significant components of the deferred income tax asset (liability) are as follows (in thousands):
|
|
2017
|
|
|
2016
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Pension accruals
|
|
$
|
2,606
|
|
|
$
|
3,581
|
|
Operating reserves and other accruals
|
|
|
2,174
|
|
|
|
3,656
|
|
Tax carrying value in excess of book basis of goodwill
|
|
|
866
|
|
|
|
1,377
|
|
Tax credits
|
|
|
255
|
|
|
|
99
|
|
Valuation allowance on tax credits
|
|
|
(255
|
)
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Book carrying value in excess of tax basis of property
|
|
|
(937
|
)
|
|
|
(827
|
)
|
Deferred expenses
|
|
|
(1,809
|
)
|
|
|
(1,086
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
2,900
|
|
|
$
|
6,800
|
|
The difference between the total statutory Federal income tax rate and the actual effective income tax rate is
accounted for as follows:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory Federal income tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State and local income taxes, net of Federal income tax benefit
|
|
|
1.5
|
|
|
|
1.9
|
|
|
|
1.6
|
|
Effect of change in unrecognized tax benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.1
|
)
|
Current year untaxed foreign income
|
|
|
(6.5
|
)
|
|
|
(5.1
|
)
|
|
|
(6.0
|
)
|
Foreign Taxes
|
|
|
1.4
|
|
|
|
-
|
|
|
|
-
|
|
Non-deductible share-based employee compensation expense
|
|
|
1.1
|
|
|
|
1.2
|
|
|
|
1.3
|
|
Excess tax benefit from stock compensation
|
|
|
(7.2
|
)
|
|
|
(4.4
|
)
|
|
|
-
|
|
Federal tax credits
|
|
|
(0.5
|
)
|
|
|
(0.8
|
)
|
|
|
-
|
|
Tax Cut and Jobs Act deferred tax re-measurement
|
|
|
6.9
|
|
|
|
-
|
|
|
|
-
|
|
Tax on undistributed foreign earnings
|
|
|
2.9
|
|
|
|
-
|
|
|
|
-
|
|
Transition tax (repatriation)
|
|
|
5.9
|
|
|
|
-
|
|
|
|
-
|
|
Other items
|
|
|
(0.1
|
)
|
|
|
(0.4
|
)
|
|
|
0.1
|
|
Effective income tax rate
|
|
|
39.4
|
%
|
|
|
26.4
|
%
|
|
|
30.9
|
%
|
On
December 22, 2017,
the U.S. enacted the Tax Cuts and Jobs Act (“Tax Act”) that instituted fundamental changes to the U.S. tax system. The Tax Act includes changes to the taxation of foreign earnings by implementing a dividend exemption system, expansion of the current anti-deferral rules, a minimum tax on low-taxed foreign earnings and new measures to deter base erosion. The Tax Act also permanently reduces the corporate tax rate from
34%
to
21%,
imposes a
one
-time mandatory transition tax on the historical earnings of foreign affiliates and implements a territorial style tax system. In
2017,
income tax expense of
$9.8
million was unfavorably impacted by net discrete adjustments of
$4.0
million, due to a charge of
$3.3
million related to the enactment of the Tax Cut and Jobs Act (the “Tax Act”) in the United States and
$0.7
related to other miscellaneous discrete items.
Effective
January 1, 2018,
the Tax Act establishes a corporate income tax rate of
21%,
replacing the current
34%
rate, and creates a territorial tax system rather than a worldwide system, which generally eliminates the U.S. federal income tax on dividends from foreign subsidiaries. The transition to the territorial system includes a
one
-time transition tax on certain of our foreign earnings previously untaxed in the United States. Certain impacts of the new legislation would generally require accounting to be completed in the period of enactment, however, in response to the complexities of the new legislation, the Securities and Exchange Commission (“SEC”) issued guidance to provide companies with relief. Specifically, when the initial accounting for items under the new legislation is incomplete, the guidance allows us to include provisional amounts when reasonable estimates can be made. The SEC has provided up to a
one
-year measurement period for companies to finalize the accounting for the impacts of this new legislation and we anticipate finalizing our accounting over the coming quarters. While our accounting for the Tax Act is
not
complete, we have made reasonable estimates for certain provisions and we have recorded a net charge to tax expense of
$4.0
million related to its enactment. This net charge includes a deferred tax charge of
$1.7
million primarily from revaluing our net U.S. deferred tax assets to reflect the new U.S. corporate tax rate. We believe this calculation is complete except for changes in estimates that can result from finalizing the filing of our
2017
U.S. income tax return, which are
not
anticipated to be material, and changes that
may
be a direct impact of other provisional amounts recorded due to the enactment of the Tax Act.
In general, the
one
-time transition tax imposed by the Tax Act results in the taxation of our accumulated foreign earnings and profits (“E&P”) at a
15.5%
rate on liquid assets and
8%
on the remaining unremitted foreign E&P, both net of foreign tax credits. At this time, we have
not
yet gathered, prepared and analyzed the necessary information with respect to
2017
in sufficient detail to complete the complex calculations necessary to finalize the amount of our transition tax. We also anticipate that further guidance
may
become available in this and other areas. We believe that our preliminary calculations result in a reasonable estimate of the transition tax and related foreign tax credit and, as such have included an estimate of
$1.5
million in our year-end income tax provision. As the analysis of accumulated E&P and related foreign taxes paid are completed on an entity by entity basis and we finalize the amount held in cash or other specified assets, we will update our provisional estimate of the transition tax and related foreign tax credit. In addition, the Company
no
longer intends to permanently reinvest its historical foreign earnings and has recorded an additional deferred tax expense of
$0.7
million.
Only tax positions that m
eet the more-likely-than-
not
recognition threshold are recognized in the consolidated financial statements. As of
December 31, 2017
and
2016,
respectively, we have
$0.5
million 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
$0.5
million 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:
(In thousands
)
|
|
|
|
|
|
|
|
|
|
|
201
7
|
|
|
201
6
|
|
Balance at January 1,
|
|
$
|
399
|
|
|
$
|
399
|
|
Additions based on tax positions related to the current yea
r
|
|
|
59
|
|
|
|
55
|
|
Additions for tax positions of prior year
s
|
|
|
-
|
|
|
|
4
|
|
Reductions due to lapse of statute of limitation
s
|
|
|
(58
|
)
|
|
|
(59
|
)
|
Balance at December 31
,
|
|
$
|
400
|
|
|
$
|
399
|
|
W
e recognize interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes. During each of the years
2017,
2016
and
2015,
we recorded
$0.1
million for interest and penalties, net of tax benefits. During each of the years
2017,
2016
and
2015,
we reduced the liability
$0.1
million for interest and penalties due to lapse of statute of limitations. At
December 31, 2017
and
2016,
we had
$0.1
million accrued for interest and penalties, net of tax benefit.
We anticipate that it is reasonably possible that the total amount of unrecognized tax benefits cou
ld decrease by approximately
$0.1
million 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
2015
and significant state examinations is
2011.
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.
T
he Company recognizes the funded status of its defined benefit post retirement plans in the Company’s consolidated balance sheets.
At
December 31
,
2017,
the Company’s projected benefit obligation under its supplemental executive retirement pension plan exceeded the fair value of the plans’ assets by
$8.4
million and thus the plan is underfunded. The fair value of plan assets for the noncontributory qualified defined benefit pension plans exceeded their projected benefit obligations by
$2.2
million and thus the plans are overfunded.
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.
T
he 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,
2017
and
2016:
(In thousands
)
|
|
December 31,
|
|
|
|
201
7
|
|
|
201
6
|
|
|
|
|
|
|
|
|
|
|
Changes in benefit obligatio
n
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of yea
r
|
|
$
|
25,258
|
|
|
$
|
24,790
|
|
Service cos
t
|
|
|
65
|
|
|
|
57
|
|
Interest cos
t
|
|
|
965
|
|
|
|
988
|
|
Actuarial los
s
|
|
|
3,755
|
|
|
|
1,288
|
|
Benefits pai
d
|
|
|
(1,657
|
)
|
|
|
(1,865
|
)
|
Benefit obligation at end of yea
r
|
|
|
28,386
|
|
|
|
25,258
|
|
|
|
|
|
|
|
|
|
|
Changes in plan asset
s
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of yea
r
|
|
|
15,791
|
|
|
|
15,865
|
|
Actual return on asset
s
|
|
|
2,413
|
|
|
|
1,291
|
|
Employer contribution
s
|
|
|
5,598
|
|
|
|
500
|
|
Benefits pai
d
|
|
|
(1,657
|
)
|
|
|
(1,865
|
)
|
Fair value of plan assets at end of yea
r
|
|
|
22,145
|
|
|
|
15,791
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of yea
r
|
|
$
|
(6,241
|
)
|
|
$
|
(9,467
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in consolidated balance sheet
|
|
|
|
|
|
|
|
|
Other asset
s
|
|
$
|
2,181
|
|
|
$
|
-
|
|
Other current liabilitie
s
|
|
|
(103
|
)
|
|
|
-
|
|
Long-term pension liabilit
y
|
|
|
(8,319
|
)
|
|
|
(9,467
|
)
|
|
|
|
(6,241
|
)
|
|
|
(9,467
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive
income consist of
:
|
|
|
|
|
|
|
|
|
Net actuarial los
s
|
|
$
|
10,903
|
|
|
$
|
9,819
|
|
Information for pension plans with projecte
d
benefit obligation in excess of plan asset
s
|
|
December 31
,
|
|
|
|
201
7
|
|
|
201
6
|
|
Projected benefit obligatio
n
|
|
$
|
28,386
|
|
|
$
|
25,258
|
|
Fair value of plan asset
s
|
|
|
(22,145
|
)
|
|
|
(15,791
|
)
|
|
|
$
|
6,241
|
|
|
$
|
9,467
|
|
Components of net periodic benefit cost
|
|
201
7
|
|
|
201
6
|
|
|
201
5
|
|
Service cost - benefits earned during the perio
d
|
|
$
|
65
|
|
|
$
|
57
|
|
|
$
|
48
|
|
Interest cost on projected benefit obligatio
n
|
|
|
965
|
|
|
|
988
|
|
|
|
951
|
|
Expected return on plan asset
s
|
|
|
(1,218
|
)
|
|
|
(1,188
|
)
|
|
|
(1,343
|
)
|
Recognized actuarial los
s
|
|
|
1,042
|
|
|
|
1,027
|
|
|
|
772
|
|
Settlement los
s
|
|
|
435
|
|
|
|
445
|
|
|
|
460
|
|
Net periodic pension cost after settlement
s
|
|
$
|
1,289
|
|
|
$
|
1,329
|
|
|
$
|
888
|
|
The pension settlement loss
es 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
$1.1
million.
The table below presents various assumptions used in determining the benefit obligation for each year and reflects the percentages for the various plans.
W
eighted-average assumptions used to determine benefit obligations at
December 31,
|
|
|
|
|
|
|
|
|
|
Long Term Rat
e
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
of Retur
n
|
|
|
Salary Scale
|
|
|
|
Corp.
|
|
|
Plants
|
|
|
Corp.
|
|
|
Plants
|
|
|
Corp.
|
|
|
Plants
|
|
2016
|
|
|
4.04
|
%
|
|
|
3.91
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
2017
|
|
|
3.53
|
%
|
|
|
3.45
|
%
|
|
|
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 Retur
n
|
|
|
Salary Scale
|
|
|
|
Corp.
|
|
|
Plants
|
|
|
Corp.
|
|
|
Plant
s
|
|
|
Corp.
|
|
|
Plants
|
|
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
|
|
2017
|
|
|
4.04
|
%
|
|
|
3.91
|
%
|
|
|
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,
2017,
2016
and target allocation for
2018
are as follows:
|
|
Percentage of Plan
Assets at
December 31,
|
|
|
Target Allocation
|
|
Investment description
|
|
201
7
|
|
|
201
6
|
|
|
201
8
|
|
Equity securities
|
|
|
52
|
%
|
|
|
68
|
%
|
|
|
52
|
%
|
Fixed income
|
|
|
29
|
%
|
|
|
13
|
%
|
|
|
29
|
%
|
Other
|
|
|
19
|
%
|
|
|
19
|
%
|
|
|
19
|
%
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
The Company
plans to contribute
$0.1
million to our defined benefit pension plans in
2018.
The following table includes projected benefit payments for the years indicated:
Year
|
|
Projected Benefit Payments
|
|
|
|
(in thousands)
|
|
2018
|
|
$
|
1,467
|
|
2019
|
|
$
|
1,652
|
|
2020
|
|
$
|
2,135
|
|
2021
|
|
$
|
1,947
|
|
2022
|
|
$
|
1,979
|
|
202
3-2027
|
|
$
|
8,620
|
|
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
$2.2
million at
December 31, 2017.
We recognized an investment gain on the cash surrender value of these life insurance contracts of
$0.3
million in
2017.
The cash surrender value of these policies is included in other assets in the Consolidated Balance Sheets as of
December 31, 2017
and
2016.
In
2013
we initiated a Non-Qualified Deferred Compensation Plan, and we have purchased life insurance contracts on the lives of designated individuals during
2017.
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
$2.2
million at
December 31, 2017.
The cash surrender value of these policies is included in other assets in the Consolidated Balance Sheet as of
December 31, 2017.
The liability for participant deferrals of
$2.2
million is included in other long-term liabilities in the Consolidated Balance Sheet as of
December 31, 2017.
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, 2017,
2016
and
2015
were approximately
$1.0
million,
$1.1
million and
$0.9
million, respectively.
NOTE
9
– Quarterly Results for
2015
2016
and
2017
(Unaudited)
:
|
(In thousands, except shares and per share data
)
|
|
|
Quarter Ende
d
|
|
|
|
March 31
,
|
|
|
June 30
,
|
|
|
September 30
,
|
|
|
December 31
,
|
|
|
|
201
7
|
|
|
201
7
|
|
|
201
7
|
|
|
201
7
|
|
Net sale
s
|
|
$
|
60,987
|
|
|
$
|
65,604
|
|
|
$
|
67,773
|
|
|
$
|
72,450
|
|
Gross profi
t
|
|
$
|
22,214
|
|
|
$
|
23,374
|
|
|
$
|
24,789
|
|
|
$
|
25,975
|
|
Income before taxes on incom
e
|
|
$
|
5,405
|
|
|
$
|
5,701
|
|
|
$
|
6,842
|
|
|
$
|
6,834
|
|
Net incom
e
|
|
$
|
3,835
|
|
|
$
|
4,341
|
|
|
$
|
4,962
|
|
|
$
|
1,884
|
|
Per Share Data
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basi
c
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
0.27
|
|
|
$
|
0.30
|
|
|
$
|
0.34
|
|
|
$
|
0.13
|
|
Dilute
d
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
0.26
|
|
|
$
|
0.29
|
|
|
$
|
0.33
|
|
|
$
|
0.12
|
|
Average Outstanding Shares (Basic
)
|
|
|
14,350,721
|
|
|
|
14,501,399
|
|
|
|
14,573,813
|
|
|
|
14,614,691
|
|
Average Outstanding Shares (Diluted
)
|
|
|
14,929,695
|
|
|
|
15,040,431
|
|
|
|
15,229,722
|
|
|
|
15,275,222
|
|
|
|
Quarter Ende
d
|
|
|
|
March 31
,
|
|
|
June 30
,
|
|
|
September 30
,
|
|
|
December 31
,
|
|
|
|
201
6
|
|
|
201
6
|
|
|
201
6
|
|
|
201
6
|
|
|
|
(restated
)
|
|
|
(restated
)
|
|
|
(restated
)
|
|
|
|
|
|
Net sale
s
|
|
$
|
57,968
|
|
|
$
|
64,660
|
|
|
$
|
65,282
|
|
|
$
|
64,686
|
|
Gross profi
t
|
|
$
|
20,021
|
|
|
$
|
21,763
|
|
|
$
|
23,140
|
|
|
$
|
22,058
|
|
Income before taxes on incom
e
|
|
$
|
3,410
|
|
|
$
|
4,615
|
|
|
$
|
6,006
|
|
|
$
|
5,867
|
|
Net incom
e
|
|
$
|
2,442
|
|
|
$
|
3,308
|
|
|
$
|
4,447
|
|
|
$
|
4,441
|
|
Per Share Data
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basi
c
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
0.18
|
|
|
$
|
0.23
|
|
|
$
|
0.31
|
|
|
$
|
0.31
|
|
Dilute
d
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
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 Ende
d
|
|
|
|
March 31
,
|
|
|
June 30
,
|
|
|
September 30
,
|
|
|
December 31
,
|
|
|
|
201
5
|
|
|
201
5
|
|
|
201
5
|
|
|
201
5
|
|
Net sale
s
|
|
$
|
46,347
|
|
|
$
|
54,116
|
|
|
$
|
56,662
|
|
|
$
|
53,192
|
|
Gross profi
t
|
|
$
|
15,796
|
|
|
$
|
18,531
|
|
|
$
|
19,224
|
|
|
$
|
17,882
|
|
Income before taxes on incom
e
|
|
$
|
3,223
|
|
|
$
|
5,394
|
|
|
$
|
5,581
|
|
|
$
|
4,698
|
|
Net incom
e
|
|
$
|
2,043
|
|
|
$
|
3,624
|
|
|
$
|
4,031
|
|
|
$
|
3,368
|
|
Per Share Data
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basi
c
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
0.15
|
|
|
$
|
0.26
|
|
|
$
|
0.29
|
|
|
$
|
0.24
|
|
Dilute
d
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
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
|
|
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“
Tax Act”) that instituted fundamental changes to the U.S. tax system. In the fourth quarter of 2017, income tax expense of $5.0 million was unfavorably impacted by net discrete adjustments of $4.0 million related to the enactment Tax Act. See Note 7.
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
$0.2
million for the
three
months ended
March 31, 2016,
$0.2
million for the
three
months ended
June 30, 2016,
and
$0.1
million 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
$1.1
million,
$1.1
million and
$0.3
million for the years ended
December 31, 2017,
2016,
and
2015,
respectively. Long-term lease commitments totaling
$2.1
million are as follows:
2018
-
$0.9
million,
2019
-
$0.6
million,
2020
-
$0.5
million, and
2021
-
$0.1
million.
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
1
2
– 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, 2017,
the Company had
3,667,577
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
,
|
|
|
|
(In thousands
)
|
|
|
|
201
7
|
|
|
201
6
|
|
|
201
5
|
|
Stock options and SAR
S
|
|
$
|
1,093
|
|
|
$
|
1,071
|
|
|
$
|
1,079
|
|
Restricted stoc
k
|
|
|
331
|
|
|
|
317
|
|
|
|
282
|
|
Performance share
s
|
|
|
240
|
|
|
|
250
|
|
|
|
-
|
|
Total share-based compensation expens
e
|
|
$
|
1,664
|
|
|
$
|
1,638
|
|
|
$
|
1,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related income tax benefi
t
|
|
$
|
229
|
|
|
$
|
325
|
|
|
$
|
203
|
|
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, 2017
follows:
|
|
No. o
f
|
|
|
Weighted Averag
e
|
|
|
|
Share
s
|
|
|
Exercise Pric
e
|
|
Outstanding December 31, 201
5
|
|
|
946,546
|
|
|
$
|
8.39
|
|
Grante
d
|
|
|
172,862
|
|
|
|
16.53
|
|
Exercise
d
|
|
|
(279,766
|
)
|
|
|
7.31
|
|
Lapse
d
|
|
|
(11,131
|
)
|
|
|
5.92
|
|
Cancelle
d
|
|
|
(3,260
|
)
|
|
|
17.53
|
|
Outstanding December 31, 201
6
|
|
|
825,251
|
|
|
$
|
10.46
|
|
Grante
d
|
|
|
155,142
|
|
|
$
|
18.67
|
|
Exercise
d
|
|
|
(336,726
|
)
|
|
|
8.71
|
|
Lapse
d
|
|
|
(1,100
|
)
|
|
|
5.86
|
|
Cancelle
d
|
|
|
(8,690
|
)
|
|
|
15.82
|
|
Outstanding December 31, 201
7
|
|
|
633,877
|
|
|
$
|
13.33
|
|
At
December 31,
201
7,
options outstanding, all of which were fully vested and exercisable, had an intrinsic value of
$8.5
million. The weighted-average remaining contractual term was
46
months.
Options exercised during
the years ended
December 31, 2017,
2016
and
2015,
had intrinsic values of
$4.2
million,
$3.1
million and
$3.5
million respectively.
The weighted average fair value
s of the
Company’s 155,142,
172,862
and
153,618
options granted during the years ended
December 31, 2017,
2016
and
2015
were
$5.56
and
$4.69
and
$5.22,
respectively.
During the ye
ars ended
December 31, 2017,
2016
and
2015,
respectively, the Company received
$1.9
million,
$1.5
million and
$1.8
million in cash from stock option exercises. Current tax benefits of
$0.8
million,
$0.4
million and
$0.6
million, respectively, were recognized for these exercises. Additionally, during the years ended
December 31, 2017,
2016
and
2015,
respectively, the Company received
50,981,
27,770
and
14,571
shares of its common stock as payment of the exercise price in the exercise of stock options for
144,443,
81,608
and
50,224
shares of its common stock related to the exercise of stock options.
The following table summarizes information about stock options out
standing as of
December 31, 2017:
Range o
f
|
|
|
|
|
|
Weighted Average Remainin
g
|
|
|
Weighted Averag
e
|
|
Exercise Pric
e
|
|
Share
s
|
|
|
Contractual Life (Years
)
|
|
|
Exercise Pric
e
|
|
$3.82
|
-
|
$5.5
5
|
|
|
59,000
|
|
|
|
2.08
|
|
|
$
|
4.81
|
|
$5.65
|
-
|
$7.3
6
|
|
|
151,995
|
|
|
|
1.96
|
|
|
$
|
6.65
|
|
$7.96
|
-
|
$10.3
8
|
|
|
45,100
|
|
|
|
4.53
|
|
|
$
|
8.87
|
|
$16.35
|
-
|
$21.6
3
|
|
|
377,782
|
|
|
|
4.79
|
|
|
$
|
17.88
|
|
$3.82
|
-
|
$21.6
3
|
|
|
633,877
|
|
|
|
3.84
|
|
|
$
|
13.33
|
|
A summary of stock-settled SARS transactions during the
two
years ended
December 31, 2017
follows
:
|
|
|
No. o
f
|
|
|
Weighted Averag
e
|
|
|
|
Share
s
|
|
|
Exercise Pric
e
|
|
Outstanding December 31, 201
5
|
|
|
381,566
|
|
|
$
|
8.14
|
|
Grante
d
|
|
|
58,108
|
|
|
|
16.35
|
|
Exercise
d
|
|
|
(114,168
|
)
|
|
|
6.27
|
|
Lapse
d
|
|
|
-
|
|
|
|
-
|
|
Cancelle
d
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 201
6
|
|
|
325,506
|
|
|
$
|
10.26
|
|
Grante
d
|
|
|
43,988
|
|
|
|
16.97
|
|
Exercise
d
|
|
|
(222,990
|
)
|
|
|
6.90
|
|
Lapse
d
|
|
|
-
|
|
|
|
|
|
Cancelle
d
|
|
|
-
|
|
|
|
|
|
Outstanding December 31, 201
7
|
|
|
146,504
|
|
|
$
|
17.38
|
|
At
December 31, 2017,
SARS outstanding, all of which were fully vested and exercisable, had an aggregate intrinsic value of
$1.4
million. The weighted-average remaining contractual term was
35
months.
SARS exer
cised during the years ended
December 31, 2017,
2016
and
2015,
respectively, had intrinsic values of
$3.5
million,
$1.5
million and
$2.6
million respectively. Current tax benefits of
$1.3
million,
$0.5
million and
$1.0
million 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, 2017,
2016
and
2015
was
$4.83,
$4.49
and
$5.20,
respectively.
The following table summarizes information about
SARS outstanding as of
December 31, 2017:
Range o
f
|
|
|
|
|
|
Weighted Average Remainin
g
|
|
|
Weighted Averag
e
|
|
Exercise Pric
e
|
|
SAR
S
|
|
|
Contractual Life (Years
)
|
|
|
Exercise Pric
e
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$16.35
|
-
|
$18.66
|
|
|
146,504
|
|
|
|
2.92
|
|
|
$
|
17.38
|
|
At
December 31,
2017
shares available for grant as awards under the plan were
3,667,577.
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 ende
d
|
|
|
|
|
|
|
|
|
December 31
,
|
|
SAR
S
|
|
|
Option
s
|
|
Exercise pric
e
|
|
|
|
|
|
|
|
|
201
7
|
|
$16.97
|
|
|
$16.97
|
-
|
$21.6
3
|
|
201
6
|
|
$16.35
|
|
|
$16.35
|
-
|
$18.5
5
|
|
201
5
|
|
$18.66
|
|
|
$16.78
|
-
|
$18.6
6
|
|
|
|
|
|
|
|
|
|
|
Market pric
e
|
|
|
|
|
|
|
|
|
201
7
|
|
$16.97
|
|
|
$16.97
|
-
|
$21.6
3
|
|
201
6
|
|
$16.35
|
|
|
$16.35
|
-
|
$18.5
5
|
|
201
5
|
|
$18.66
|
|
|
$16.78
|
-
|
$18.6
6
|
|
Risk free interest rate
1
|
|
|
|
|
|
|
|
|
201
7
|
|
1.9%
|
|
|
1.8%
|
-
|
2.4%
|
|
201
6
|
|
1.3%
|
|
|
1.1%
|
-
|
1.8%
|
|
201
5
|
|
1.5%
|
|
|
1.5%
|
-
|
2.1%
|
|
Expected award life (years)
2
|
|
5
|
|
|
5
|
-
|
10
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
3
|
|
|
|
|
|
|
|
|
201
7
|
|
36.6%
|
|
|
36.6%
|
-
|
41.4%
|
|
201
6
|
|
36.5%
|
|
|
36.5%
|
-
|
40.3%
|
|
201
5
|
|
34.9%
|
|
|
34.9%
|
-
|
39.0%
|
|
Expected dividend yield
4
|
|
|
|
|
|
|
|
|
201
7
|
|
2.1%
|
|
|
1.8%
|
-
|
2.1%
|
|
201
6
|
|
2.0%
|
|
|
1.8%
|
-
|
2.1%
|
|
201
5
|
|
1.6%
|
|
|
1.6%
|
-
|
1.9%
|
|
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, 2017,
2016
and
2015
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, 2017,
the Company had
$0.7
million of unrecognized compensation cost related to nonvested grants expected to be recognized over the weighted average service period of
2.01
years.
A summary of restricted stock transactions during the years ended
December 31, 2017
follows
:
|
|
|
No. o
f
|
|
|
Weighted Averag
e
|
|
|
|
Share
s
|
|
|
Grant Date Fair Valu
e
|
|
Outstanding December 31, 201
5
|
|
|
114,342
|
|
|
$
|
8.39
|
|
Grante
d
|
|
|
10,396
|
|
|
|
16.35
|
|
Veste
d
|
|
|
-
|
|
|
|
-
|
|
Forfeite
d
|
|
|
(1,050
|
)
|
|
|
21.92
|
|
Outstanding December 31, 201
6
|
|
|
123,688
|
|
|
$
|
8.94
|
|
Grante
d
|
|
|
43,706
|
|
|
|
18.30
|
|
Veste
d
|
|
|
(106,016
|
)
|
|
|
7.62
|
|
Forfeite
d
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 201
7
|
|
|
61,378
|
|
|
$
|
17.89
|
|
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, 2017,
the Company had
$1.6
million of unrecognized compensation cost related to nonvested grants expected to be recognized over the weighted average service period of
3.25
years.
A summary of performance share transactions during the year ended
December 31, 2017
follows
:
|
|
|
No. o
f
|
|
|
Weighted Averag
e
|
|
|
|
Share
s
|
|
|
Grant Date Fair Valu
e
|
|
Outstanding December 31, 201
6
|
|
|
101,000
|
|
|
$
|
16.36
|
|
Grante
d
|
|
|
50,826
|
|
|
|
18.39
|
|
Veste
d
|
|
|
-
|
|
|
|
-
|
|
Forfeite
d
|
|
|
(33,334
|
)
|
|
|
16.35
|
|
Outstanding December 31, 201
7
|
|
|
118,492
|
|
|
$
|
17.24
|
|
NOTE
13
– Earnings Per Share
:
|
|
The following table represents a reconciliation of basic and diluted earnings per share
:
|
|
|
201
7
|
|
|
201
6
|
|
|
201
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings used in the computation of basic an
d
diluted earnings per share (in thousands
)
|
|
$
|
15,022
|
|
|
$
|
14,638
|
|
|
$
|
13,066
|
|
Weighted average share
s
outstanding - basi
c
|
|
|
14,510,156
|
|
|
|
14,082,243
|
|
|
|
13,761,009
|
|
Common stock equivalent
s
|
|
|
608,612
|
|
|
|
815,246
|
|
|
|
817,635
|
|
Total weighted average share
s
outstanding - diluted
|
|
|
15,118,768
|
|
|
|
14,897,489
|
|
|
|
14,578,644
|
|
Per Share Data
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basi
c
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earning
s
|
|
$
|
1.04
|
|
|
$
|
1.04
|
|
|
$
|
0.95
|
|
Dilute
d
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earning
s
|
|
$
|
0.99
|
|
|
$
|
0.98
|
|
|
$
|
0.90
|
|
Awards to purchase an average of
37,450
shares of common stock with a weighted average exercise price of
$18.65
per share were outstanding during
2017
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
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.
NOTE
14
– Other Current Liabilities
:
|
(In thousands
)
|
|
|
Year Ended December 31
,
|
|
|
|
201
7
|
|
|
201
6
|
|
Salaries, wages, commissions and vacation pay
|
|
$
|
7,851
|
|
|
$
|
5,600
|
|
Accrued rebate
s
|
|
|
1,089
|
|
|
|
1,932
|
|
Defined contribution plan accrua
l
|
|
|
104
|
|
|
|
897
|
|
Customer deposit
s
|
|
|
473
|
|
|
|
670
|
|
Other accrued expenses
|
|
|
2,892
|
|
|
|
1,617
|
|
|
|
$
|
12,409
|
|
|
$
|
10,716
|
|
NOTE
15
– Supplemental Cash Flow Information
:
|
(In thousands
)
|
|
Year Ended December 31,
|
|
|
|
201
7
|
|
|
201
6
|
|
|
201
5
|
|
Income taxes pai
d
|
|
$
|
7,173
|
|
|
$
|
5,076
|
|
|
$
|
6,897
|
|
Interest pai
d
|
|
$
|
727
|
|
|
$
|
694
|
|
|
$
|
523
|
|
During the year
s ended
December 31, 2017,
2016,
and
2015
the Company received
50,981,
27,770
and
14,571
shares, respectively, of its common stock as payment for the exercise of stock options for
144,443,
81,608
and
50,224
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 -
0
-,
45,100
and -
0
- shares of its common stock in the years ended
December 31, 2017,
2016
and
2015,
respectively. At
December 31, 2017,
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
1
7
–
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:
(In thousands
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uniforms and Related
Product
s
|
|
|
Remote
Staffing
Solution
s
|
|
|
Promotional Product
s
|
|
|
Intersegment Elimination
s
|
|
|
Tota
l
|
|
Twelve Months Ende
d
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 201
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sale
s
|
|
$
|
204,644
|
|
|
$
|
23,021
|
|
|
$
|
42,904
|
|
|
$
|
(3,755
|
)
|
|
$
|
266,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margi
n
|
|
$
|
72,463
|
|
|
$
|
12,460
|
|
|
$
|
13,860
|
|
|
$
|
(2,431
|
)
|
|
$
|
96,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expense
s
|
|
|
54,191
|
|
|
|
7,877
|
|
|
|
12,179
|
|
|
|
(2,431
|
)
|
|
|
71,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on sale of property, plant and equipmen
t
|
|
|
(2
|
)
|
|
|
1,050
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expens
e
|
|
|
387
|
|
|
|
-
|
|
|
|
415
|
|
|
|
-
|
|
|
|
802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes on incom
e
|
|
$
|
17,883
|
|
|
$
|
5,633
|
|
|
$
|
1,266
|
|
|
$
|
-
|
|
|
$
|
24,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortizatio
n
|
|
$
|
4,223
|
|
|
$
|
846
|
|
|
$
|
584
|
|
|
$
|
-
|
|
|
$
|
5,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure
s
|
|
$
|
2,870
|
|
|
$
|
1,156
|
|
|
$
|
219
|
|
|
$
|
-
|
|
|
$
|
4,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset
s
|
|
$
|
182,623
|
|
|
$
|
21,846
|
|
|
$
|
54,997
|
|
|
$
|
(40,528
|
)
|
|
$
|
218,938
|
|
|
|
Uniforms and Related
Product
s
|
|
|
Remote
Staffing
Solution
s
|
|
|
Promotional Product
s
|
|
|
Intersegment Elimination
s
|
|
|
Tota
l
|
|
Twelve Months Ende
d
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 201
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sale
s
|
|
$
|
210,373
|
|
|
$
|
17,953
|
|
|
$
|
27,816
|
|
|
$
|
(3,546
|
)
|
|
$
|
252,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margi
n
|
|
$
|
69,987
|
|
|
$
|
9,616
|
|
|
$
|
9,690
|
|
|
$
|
(2,311
|
)
|
|
$
|
86,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expense
s
|
|
|
52,225
|
|
|
|
6,096
|
|
|
|
10,386
|
|
|
|
(2,311
|
)
|
|
|
66,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expens
e
|
|
|
462
|
|
|
|
-
|
|
|
|
226
|
|
|
|
-
|
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes on income (loss
)
|
|
$
|
17,300
|
|
|
$
|
3,520
|
|
|
$
|
(922
|
)
|
|
$
|
-
|
|
|
$
|
19,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortizatio
n
|
|
$
|
4,023
|
|
|
$
|
494
|
|
|
$
|
418
|
|
|
$
|
-
|
|
|
$
|
4,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure
s
|
|
$
|
3,383
|
|
|
$
|
3,872
|
|
|
$
|
130
|
|
|
$
|
-
|
|
|
$
|
7,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset
s
|
|
$
|
176,070
|
|
|
$
|
19,752
|
|
|
$
|
28,480
|
|
|
$
|
(27,454
|
)
|
|
$
|
196,848
|
|
|
|
Uniforms and Related
Product
s
|
|
|
Remote
Staffing
Solution
s
|
|
|
Promotional Product
s
|
|
|
Intersegment Elimination
s
|
|
|
Tota
l
|
|
Twelve Months Ende
d
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 201
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sale
s
|
|
$
|
198,319
|
|
|
$
|
15,604
|
|
|
$
|
-
|
|
|
$
|
(3,606
|
)
|
|
$
|
210,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margi
n
|
|
$
|
65,247
|
|
|
$
|
8,579
|
|
|
$
|
-
|
|
|
$
|
(2,393
|
)
|
|
$
|
71,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expense
s
|
|
|
49,225
|
|
|
|
5,186
|
|
|
|
-
|
|
|
|
(2,393
|
)
|
|
|
52,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expens
e
|
|
|
519
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes on incom
e
|
|
$
|
15,503
|
|
|
$
|
3,393
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortizatio
n
|
|
$
|
3,561
|
|
|
$
|
312
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure
s
|
|
$
|
3,003
|
|
|
$
|
5,066
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset
s
|
|
$
|
140,710
|
|
|
$
|
14,551
|
|
|
$
|
-
|
|
|
$
|
(3,530
|
)
|
|
$
|
151,731
|
|
NOTE
18
– Acquisition of Business
es
:
BAMKO
On
March 8, 2016,
the Company closed on the acquisition of substantially all of the assets of BAMKO, Inc.
The transaction had an effective date of
March 1, 2016.
The purchase price for the asset acquisition consisted of approximately
$15.2
million in cash, net of cash acquired, the issuance of approximately
324,000
restricted shares of Superior’s common stock that vest over a
five
-year period, potential future payments of approximately
$5.5
million in additional contingent consideration through
2021,
and the assumption of certain liabilities of BAMKO, Inc. The transaction also included the acquisition of BAMKO, Inc.’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 Transferre
d
|
A Summary of the purchase price is as follows (in thousands)
:
|
|
|
|
|
|
|
|
|
|
Cash consideration at closing, net of cash acquire
d
|
|
$
|
15,161
|
|
|
|
|
|
|
Restricted shares of Superior common stock issue
d
|
|
|
4,558
|
|
|
|
|
|
|
Contingent consideratio
n
|
|
|
5,205
|
|
|
|
|
|
|
Total Consideration
s
|
|
$
|
24,924
|
|
Assets Acquired and Liabilities Assumed
The total purchase price was allocated to the acquired tangible and intangible assets and assumed liabilities of BAMKO
, Inc. 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 (in thousands):
Accounts receivabl
e
|
|
$
|
4,885
|
|
|
|
|
|
|
Prepaid expenses and other current asset
s
|
|
|
3,200
|
|
|
|
|
|
|
Inventorie
s
|
|
|
236
|
|
|
|
|
|
|
Property, plant and equipmen
t
|
|
|
199
|
|
|
|
|
|
|
Other Asset
s
|
|
|
100
|
|
|
|
|
|
|
Identifiable intangible asset
s
|
|
|
11,360
|
|
|
|
|
|
|
Goodwil
l
|
|
|
6,994
|
|
|
|
|
|
|
Total asset
s
|
|
$
|
26,974
|
|
|
|
|
|
|
Accounts Payable
s
|
|
|
1,314
|
|
|
|
|
|
|
Other current liabilitie
s
|
|
|
736
|
|
|
|
|
|
|
Total liabilitie
s
|
|
$
|
2,050
|
|
The Company recorded
$11.4
million
in identifiable intangibles at fair value, consisting of
$2.1
million in acquired customer relationships,
$0.4
million in non-compete agreements from the former owners of BAMKO, Inc., and
$8.9
million for the acquired trade name.
The estimated
fair value for acquisition-related contingent consideration payable is
$5.2
million as of
December 31, 2017.
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 intangibl
e assets of
$0.4
million for the year ended
December 31, 2017
and
$0.3
million for the year ended
December 31, 2016.
For the year ended
December 31,
201
6,
the Company incurred and expensed transaction related expenses of approximately
$1.1
million. This amount is included in selling and administrative expenses on the consolidated statements of comprehensive income.
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
and
2015,
net sales would have increased approximately
$6.6
million and
$31.5
million respectively.
Net income would have increased
$1.1
million or
$0.08
per share for the year ended
December 31, 2016,
and decreased by
$0.4
million or
$0.03
per share for the year ended
December 31, 2015.
Pre-tax acquisition related expenses of
$1.1
million have been recorded as though they were incurred as of
January 1, 2014
for this comparison.
Public Identity
On
August 21, 2017,
BAMKO acquired substantially all of the assets and assumed certain liabilities of PublicIdentity
, Inc. (“Public Identity”) of Los Angeles, CA. Public Identity is a promotional products and branded merchandise agency that provides innovative, high quality merchandise and promotional products to corporate clients and universities across the country.
The purchase price for the acquisition consisted of
$0.8
million in cash, the issuance of approximately
54,000
restricted shares of Superior
’s common stock and future payments of approximately
$0.4
million in additional consideration through
2020.
The majority of the shares issued vest over a
three
-year period. The preliminary estimated fair value of the consideration transferred is approximately
$2.3
million. Based upon our preliminary estimates of their acquisition date fair values, we have assigned approximately
$1.7
million to identifiable intangible assets and approximately
$0.6
million to goodwill. Our final fair value determinations
may
be significantly different.
Tangerine Promotions
On
November 30, 2017,
BAMKO closed on the acquisition of
substantially all of the assets of Tangerine Promotions, Ltd and Tangerine Promotions West, Inc. (collectively “Tangerine”). The transaction had an effective date of
December 1, 2017.
Tangerine is a promotional products and branded merchandise agency that serves many well-known brands. The company is
one
of the leading providers of Point-of-Purchase (POP) and Point-of-Sale (POS) merchandise in the country. The purchase price for the asset acquisition consisted of approximately
$7.2
million in cash, subject to adjustment, the issuance of approximately
83,000
restricted shares of Superior’s common stock that vests over a
four
-year period, the potential future payments of approximately
$5.5
million in additional contingent consideration through
2021,
and the assumption of certain liabilities.
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, whic
h is filed as an exhibit to this Annual Report.
Fair Value of Consideration Transferre
d
|
A Summary of the purchase price is as follows (in thousands)
:
|
|
|
|
|
|
|
|
|
|
Cash consideration at closin
g
|
|
$
|
7,222
|
|
|
|
|
|
|
Restricted shares of Superior common stock issue
d
|
|
|
1,657
|
|
|
|
|
|
|
Contingent consideratio
n
|
|
|
3,209
|
|
|
|
|
|
|
Total Consideration
s
|
|
$
|
12,088
|
|
Assets Acquired and Liabilities Assumed
The total purchase price was allocated to the acquired tangible and intangible assets and assumed liabilities of
Tangerine based on their estimated fair values as of
December 1, 2017.
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 o
f Tangerine based on their estimated fair values as of the effective date of the transaction.
The
assets and liabilities of Tangerine shown below are based on our preliminary estimates of their acquisition date fair values. Our final fair value determinations
may
be significantly different than those shown below.
The following is our
preliminary assignment of the aggregate consideration (in thousands):
Accounts receivabl
e
|
|
$
|
5,051
|
|
|
|
|
|
|
Prepaid expenses and other current asset
s
|
|
|
969
|
|
|
|
|
|
|
Property, plant and equipmen
t
|
|
|
131
|
|
|
|
|
|
|
Identifiable intangible asset
s
|
|
|
6,495
|
|
|
|
|
|
|
Goodwil
l
|
|
|
4,169
|
|
|
|
|
|
|
Total asset
s
|
|
$
|
16,815
|
|
|
|
|
|
|
Accounts Payable
s
|
|
|
3,374
|
|
|
|
|
|
|
Other current liabilitie
s
|
|
|
1,353
|
|
|
|
|
|
|
Total liabilitie
s
|
|
$
|
4,727
|
|
The Company recorded
$6.5
million in identifiable intangibles at fair value, consisting of
$3.1
million in acquired customer relationships,
$0.2
million in non-compete agreements from the former owners of Tangerine, and
$3.2
million for the acquired trade name.
The estimated fair value for acquisition-related contingent consideration payable is $
3.2
million as of
December 31, 2017.
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
December 1, 2017
and the non-compete agreement will be amortized for
seven
years. 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 $
0.1
million for the year ended
December 31, 2017.
For the year ended
December 31,
201
7,
the Company incurred and expensed transaction related expenses of approximately
$0.2
million. This amount is included in selling and administrative expenses on the consolidated statements of comprehensive income.
On a pro forma basis as if the results of this acquisition had been included in our consolidated results for the entire year ended
December 31, 2017
and years ended
December 31, 2016
and
2015,
net sales would have increased approximately
$35.1
million,
$43.1
million and
$48.0
million respectively. Net income would have increased
$0.1
million in
2017,
decreased
$2.4
million or
$0.17
per share in
2016,
and increased
$1.9
million or
$0.13
per share in
2015.
Pre-tax acquisition related expenses of
$0.2
million have been recorded as though they were incurred as of
January 1, 2015
for this comparison.