Summer Infant, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Note that all amounts presented in the table below are in thousands of U.S. dollars.
|
|
|
|
|
|
|
|
|
|
For the fiscal year ended
|
|
|
|
December 31,
2016
|
|
January 2,
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,322
|
)
|
$
|
(8,651
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
2,993
|
|
|
|
|
Depreciation and amortization
|
|
|
5,011
|
|
|
6,780
|
|
Stock-based compensation
|
|
|
482
|
|
|
865
|
|
Loss on asset disposal
|
|
|
37
|
|
|
42
|
|
Deferred income taxes
|
|
|
(1,384
|
)
|
|
(3,685
|
)
|
Changes in assets and liabilities, net of effects of acquisitions
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
6,151
|
|
|
(1,715
|
)
|
Decrease in inventory
|
|
|
344
|
|
|
7,170
|
|
(Increase) decrease in prepaids and other current assets
|
|
|
(44
|
)
|
|
250
|
|
Decrease (increase) in other assets
|
|
|
164
|
|
|
(342
|
)
|
(Decrease) increase in accounts payable and accrued expenses
|
|
|
(644
|
)
|
|
8,625
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
8,788
|
|
|
9,339
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Acquisitions of property and equipment
|
|
|
(2,266
|
)
|
|
(3,033
|
)
|
Acquisitions of other intangible assets
|
|
|
|
|
|
(472
|
)
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,266
|
)
|
|
(3,505
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds from New Term Loan Facility
|
|
|
|
|
|
10,000
|
|
Proceeds from New FILO Facility
|
|
|
|
|
|
5,000
|
|
(Repayment) of Prior Term Loan
|
|
|
|
|
|
(12,500
|
)
|
(Repayment) of New Term Loan Facility
|
|
|
(1,500
|
)
|
|
(1,500
|
)
|
(Repayment) of New FILO Facility
|
|
|
(1,250
|
)
|
|
|
|
Net (repayments) borrowings on revolving facilities
|
|
|
(3,798
|
)
|
|
(6,163
|
)
|
Issuance of common stock upon exercise of stock options
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(6,548
|
)
|
|
(5,116
|
)
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
102
|
|
|
(1,067
|
)
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
76
|
|
|
(349
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
923
|
|
|
1,272
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
999
|
|
$
|
923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
1,963
|
|
$
|
2,318
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes
|
|
$
|
100
|
|
$
|
158
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-6
Table of Contents
Consolidated Statements of Stockholders' Equity
For the Fiscal Years Ended December 31, 2016 and January 2, 2016
Note that all amounts presented in the table below are in thousands of U.S. dollars, except share and per share data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid in
Capital
|
|
Treasury
Stock
|
|
Retained
Earnings
|
|
Accumulated
Comprehensive
Loss
|
|
Total
Equity
|
|
|
|
Shares
|
|
Amount
|
|
Balance at January 3, 2015
|
|
|
18,144,285
|
|
$
|
2
|
|
$
|
74,954
|
|
$
|
(1,283
|
)
|
$
|
(44,412
|
)
|
$
|
(1,410
|
)
|
$
|
27,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon vesting of restricted shares
|
|
|
198,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of stock options
|
|
|
25,000
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
811
|
|
|
|
|
|
|
|
|
|
|
|
811
|
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,651
|
)
|
|
|
|
|
(8,651
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,092
|
)
|
|
(1,092
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2016
|
|
|
18,367,758
|
|
$
|
2
|
|
$
|
75,812
|
|
$
|
(1,283
|
)
|
$
|
(53,063
|
)
|
$
|
(2,502
|
)
|
$
|
18,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon vesting of restricted shares
|
|
|
138,859
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
456
|
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,322
|
)
|
|
|
|
|
(4,322
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(360
|
)
|
|
(360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
18,506,617
|
|
$
|
2
|
|
$
|
76,348
|
|
$
|
(1,283
|
)
|
$
|
(57,385
|
)
|
$
|
(2,862
|
)
|
$
|
14,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-7
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company designs, markets and distributes branded juvenile health, safety and wellness products that are sold globally to large national
retailers as well as independent retailers, primarily in North America. The Company currently markets its products in several product categories including monitoring, safety, nursery, baby gear, and
feeding products. Most products are sold under our core brand names of Summer®, SwaddleMe®, and Born Free®.
Basis of Presentation and Principles of Consolidation
It is the Company's policy to prepare its financial statements on the accrual basis of accounting in conformity with accounting principles
generally accepted in the United States of America. The consolidated financial statements include the accounts of its wholly-owned subsidiaries. All significant intercompany accounts and transactions
have been eliminated in the consolidation.
All
dollar amounts included in the Notes to Consolidated Financial Statements are in thousands of U.S. dollars except share and per share amounts.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to December 31 of each calendar year. There were fifty two weeks in the fiscal
years ended December 31, 2016 and January 2, 2016.
Summary of Significant Accounting Policies
Revenue Recognition
The Company records revenue when all of the following occur: persuasive evidence of an arrangement exists, product delivery has occurred, the
sales price to the customer is fixed or determinable, and collectability is reasonably assured. Sales are recorded net of provisions for returns and allowances, customer discounts, and other sales
related discounts. The Company bases its estimates for discounts, returns and allowances on negotiated customer terms and historical experience.
Customers do not have the right to return products unless the products are defective. The Company records a reduction of sales for estimated future defective product deductions based on contractual
terms and historical experience.
Sales
incentives or other consideration given by the Company to customers that are considered adjustments of the selling price of products, such as markdowns, are reflected as reductions
of revenue. Sales incentives and other consideration that represent costs incurred by the Company for assets or services received, such as the appearance of the Company's products in a customer's
national circular ad, are reflected as selling and marketing expenses in the accompanying statements of operations.
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 certain reported amounts and disclosures. These estimates are based on management's best knowledge of current events and actions the Company
may undertake in the future. Accordingly, actual results could differ from those estimates.
F-8
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
Cash flows, cash and cash equivalents include money market accounts and investments with an original maturity of three months or less. At times,
the Company possesses cash balances in excess of federally-insured limits.
Trade Receivables
Trade receivables are carried at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts. The Company
estimates doubtful accounts based on historical bad debts, factors related to specific customers' ability to pay and current economic trends. The Company writes off accounts receivable against the
allowance when a balance is determined to be uncollectible. Amounts are considered to be uncollectable based upon historical experience and management's evaluation of outstanding accounts receivable.
Inventory Valuation
Inventory is comprised mostly of finished goods and some component parts and is stated at the lower of cost using the first-in, first-out (FIFO)
method, or market (net realizable value). The Company regularly reviews slow-moving and excess inventories, and writes down inventories to net realizable value if the ultimate expected net proceeds
from the disposals of excess inventory are less than the carrying cost of the merchandise.
Property and Equipment
Property and equipment are recorded at cost. The Company owns the tools and molds used in the production of its products by third party
manufacturers. Capitalized mold costs include costs incurred for the pre-production design and development of the molds.
Depreciation
is provided over the estimated useful lives of the respective assets using either straight-line or accelerated methods.
Long-Lived Assets with Finite Lives
The Company reviews long-lived assets with finite lives for impairment (using the group concept) whenever events or changes in circumstances
indicate that the carrying amount of a long-lived asset may not be recoverable. An asset is considered to be impaired when its carrying amount exceeds both the sum of the undiscounted future net cash
flows expected to result from the use of the asset and its eventual disposition and the assets' fair value. Long-lived assets include property and equipment and finite-lived intangible assets. The
amount of impairment loss, if any, is charged by the Company to current operations.
Indefinite-Lived Intangible Assets
The Company accounts for intangible assets in accordance with accounting guidance that requires that intangible assets with indefinite useful
lives be tested annually for impairment and more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company's annual impairment testing is conducted in the
fourth quarter of every year.
F-9
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The
Company tests indefinite-lived intangible assets for impairment by comparing the asset's fair value to its carrying amount. If the fair value is less than the carrying amount, the
excess of the carrying amount over fair value is recognized as an impairment charge and the adjusted carrying amount becomes the assets' new cost basis.
Management
also evaluates the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue to
support an indefinite useful life. If an intangible asset that is not being amortized is subsequently determined to have a finite useful life, it is amortized prospectively over its estimated
remaining useful life.
For
the year ended December 31, 2016, the Company determined that certain indefinite-lived intangible assets were impaired. For the year ended January 2, 2016, the Company
determined that no impairment
existed on its indefinite-lived intangible assets. See Note 3 for a discussion on the fiscal year 2016 impairment charge.
Fair Value Measurements
The Company follows ASC 820, "Fair Value Measurements and Disclosures" which includes a framework for measuring fair value and expanded
related disclosures. Broadly, the framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The standard established a three-level valuation hierarchy based upon observable
and non-observable inputs.
Observable
inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two
types of inputs create the following fair value hierarchy:
Level 1Quoted
prices for identical instruments in active markets.
Level 2Quoted
prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived
valuations whose inputs are observable or whose significant value drivers are observable.
Level 3Significant
inputs to the valuation model are unobservable.
The
Company maintains policies and procedures to value instruments using the best and most relevant data available. In addition, the Company utilizes third party specialists that review
valuation, including independent price validation.
The
Company's financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable, accrued expenses, and short and long-term borrowings. Because of
their short maturity, the carrying amounts of cash and cash equivalents, accounts and notes receivable, accounts payable, accrued expenses and short-term borrowings approximate fair value. The
carrying value of long-term borrowings approximates fair value.
Non-recurring Fair Value Measurements
The Company's assets measured at fair value on a nonrecurring basis include long-lived assets and intangible assets. The Company tests its
long-lived assets for impairment at least annually and whenever
F-10
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
events
or changes in circumstances indicate that the carrying value may not be recoverable or that the carrying value may exceed its fair value. The resulting fair value measurements are considered to
be Level 3 inputs. During the fourth quarter of fiscal 2016, the Company determined that the estimated fair value of an indefinite lived asset was lower than its carrying value and the Company
recorded a non-cash impairment charge of $2,993 which reduced the value of the intangible asset to approximately $915, as more fully described in "Note 3 to the Consolidated Financial
StatementsIntangible Assets." The Company did not incur an impairment charge in fiscal 2015.
Income taxes
Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or
liability is recognized for estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if
necessary, to recognize future tax benefits only to the extent, based on available evidence, it is more likely than not that such benefits will be realized.
The
Company follows the applicable guidance relative to uncertain tax positions. This standard provides detailed guidance for the financial statement recognition, measurement and
disclosure of uncertain tax positions recognized in the financial statements. Uncertain tax positions must meet a recognition threshold of more-likely-than-not in order for those tax positions to be
recognized in the financial statements.
Translation of Foreign Currencies
The assets and liabilities of the Company's European, Canadian, Israeli, and Asian operations have been translated into U.S. dollars at year-end
exchange rates and the income and expense accounts of these subsidiaries have been translated at average rates prevailing during each respective year. Resulting translation adjustments are made to a
separate component of stockholders' equity within accumulated other comprehensive loss. Foreign exchange transaction gains and losses are included in the accompanying consolidated statements of
operations.
Shipping Costs
Shipping costs to customers are included in selling expenses and amounted to approximately $1,477 and $1,882 for the fiscal years ended
December 31, 2016 and January 2, 2016, respectively.
Advertising Costs
The Company charges advertising costs to selling expense as incurred. Advertising expense, which consists primarily of promotional and
cooperative advertising allowances provided to customers, was approximately $12,863 and $14,743 for the fiscal years ended December 31, 2016 and January 2, 2016, respectively.
Segment Information
Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for
evaluation by the chief operating decision-maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company
F-11
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
views
its operations and manages its business as one operating segment utilizing an omni-channel distribution strategy.
Net Loss Per Share
Basic earnings per share is calculated by dividing net loss for the period by the weighted average number of common stock outstanding during the
period.
Diluted
loss per share for the Company is computed by dividing net loss by the dilutive weighted average shares outstanding which includes: the dilutive impact (using the "treasury
stock" method) of "in the money" stock options and unvested restricted shares issued to employees. Options to purchase 1,023,825 and 1,380,147 shares of the Company's common stock and 268,432 and
197,572 of restricted shares were not included in the calculation, due to the fact that these instruments were anti-dilutive for the fiscal years ended December 31, 2016 and January 2,
2016, respectively.
New Accounting Pronouncements
In May 2014, the FASB issued new accounting guidance related to revenue recognition. This guidance was originally proposed to be effective for
reporting periods beginning after December 15, 2016, however in July 2015, the FASB approved the delay in this guidance until reporting periods beginning after December 15, 2017. We are
still finalizing the analysis to quantify the adoption impact of the provisions of the new standard, but we do not currently expect it to have a material impact on our consolidated financial position
or results of operations. Based on the evaluation of our current contracts and revenue streams, most will be recorded consistently under both the current and new standard. The FASB has issued, and may
issue in the future, interpretive guidance which may cause our evaluation to change. We believe we are following an appropriate timeline to allow for proper recognition, presentation and disclosure
upon adoption effective the beginning of fiscal year 2018.
In
April 2015, the FASB issued ASU 2015-03, "Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs." This guidance requires debt
issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability. This guidance is effective for fiscal
years beginning after December 15, 2015. The Company adopted this guidance in the first quarter of 2016 and it resulted in the retrospective reclassification of $1,489 as of January 2,
2016 in unamortized debt issuance costs from other assets to a direct reduction of long-term debt.
In
July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory." This guidance requires inventory within the scope of ASU 2015-11 to be measured at the lower of
cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and
transportation. This guidance is effective for fiscal years beginning after December 15, 2016. The Company has evaluated the impact this guidance will have on its consolidated financial
statements and expects the impact to be immaterial.
In
November 2015, the FASB issued ASU 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes." This guidance eliminates the current requirement for an entity
to separate deferred income tax liabilities and deferred tax assets into current and non-current amounts in a classified balance sheet. Instead, this guidance requires deferred tax liabilities,
deferred tax assets, and
F-12
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
valuation
allowances be classified as noncurrent in a classified balance sheet. This ASU is effective for annual reporting periods beginning after December 15, 2016 and interim periods within
those annual periods. Early adoption is permitted. The Company adopted this guidance in the first quarter of 2016 and it resulted in the retrospective reclassification of $799 as of January 2,
2016 in current deferred tax assets to noncurrent deferred tax assets.
In
February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize assets and liabilities on the balance sheet
for leases with lease terms greater than twelve months and disclose key information about leasing arrangements. The effective date will be the first quarter of fiscal year 2019, with early adoption
permitted. The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial statements.
In
August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (A Consensus of the FASB Emerging Issues Task
Force). In an effort to reduce diversity in practice, ASU 2016-15 provides solutions for eight specific statement of cash flow classification issues. The ASU is effective for public companies
beginning after December 15,
2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company has evaluated the impact this guidance will have on its
consolidated financial statements and expects the impact to be immaterial.
Management
does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial
statements.
2. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year
ended
|
|
|
|
|
December 31,
2016
|
|
January 2,
2016
|
|
Depreciation/
Amortization Period
|
Computer-related
|
|
$
|
3,861
|
|
$
|
6,327
|
|
5 years
|
Tools, dies, prototypes, and molds
|
|
|
28,342
|
|
|
31,052
|
|
1 - 5 years
|
Building
|
|
|
4,156
|
|
|
4,156
|
|
30 years
|
Other
|
|
|
6,145
|
|
|
5,793
|
|
various
|
|
|
|
|
|
|
|
|
|
|
|
|
42,504
|
|
|
47,328
|
|
|
Less: accumulated depreciation
|
|
|
32,539
|
|
|
35,321
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
9,965
|
|
$
|
12,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment included amounts acquired under capital leases of approximately $0 and $470 at December 31, 2016 and January 2, 2016, respectively, with related
accumulated depreciation of approximately $0 and $257, respectively. Total depreciation expense was $4,304 and $4,142 for the fiscal years ended December 31, 2016 and January 2, 2016,
respectively.
F-13
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
For the
fiscal year ended
|
|
|
|
December 31,
2016
|
|
January 2,
2016
|
|
Brand names
|
|
$
|
11,819
|
|
$
|
14,812
|
|
Patents and licenses
|
|
|
3,766
|
|
|
3,766
|
|
Customer relationships
|
|
|
6,946
|
|
|
6,946
|
|
Other intangibles
|
|
|
1,882
|
|
|
1,882
|
|
|
|
|
|
|
|
|
|
|
|
|
24,413
|
|
|
27,406
|
|
Less: accumulated amortization
|
|
|
(9,600
|
)
|
|
(8,894
|
)
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
14,813
|
|
$
|
18,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
amortization period for the majority of the intangible assets ranges from 5 to 20 years for those assets that have an estimated life; certain assets have indefinite lives
(certain brand names). Total of intangibles not subject to amortization amounted to $8,400 and $12,308 for the fiscal years ended December 31, 2016 and January 2, 2016, respectively.
Amortization
expense amounted to $707 and $2,638 for the fiscal years ended December 31, 2016 and January 2, 2016, respectively. In the fourth quarter of the year ended
January 2, 2016, the Company recorded $1,532 of accelerated amortization due to the shortened estimated useful life on older technology as we moved to our next generation of technology that was
being developed in our product lines.
The
Company undertook its annual indefinite-lived intangible asset impairment analysis and engaged a third party to assist management in valuing the infinite lived intangible assets
recorded on the balance sheet in the fourth quarter of fiscal 2016. The Company determined that the estimated fair value of that indefinite lived asset was lower than its carrying value, and the
Company recorded a non-cash impairment charge of $2,993 in fiscal 2016. In addition, the Company deemed the remaining value of the indefinite lived asset to have a finite life subject to amortization
over its remaining useful life
estimated to be 15 years. This was a change in estimate and the financial impact was zero as of December 31, 2016. The Company also considered whether other long-lived assets in the
asset group were impaired and concluded that they were not. No impairment was recorded for the fiscal year ended January 2, 2016.
Estimated
amortization expense for the remaining indefinite-lived assets for the next five years is as follows:
|
|
|
|
|
Fiscal Year ending
|
|
|
|
2017
|
|
$
|
767
|
|
2018
|
|
|
746
|
|
2019
|
|
|
738
|
|
2020
|
|
|
488
|
|
2021
|
|
|
488
|
|
F-14
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. DEBT
Credit Facilities
In April 2015, the Company and its wholly owned subsidiary, Summer Infant (USA), Inc., entered into an amended and restated loan and
security agreement with Bank of America, N.A., as agent, providing for an asset-based credit facility. The amended and restated Credit Facility replaced the Company's prior credit facility with Bank
of America. The amended and restated credit facility was subsequently amended in December 2015 and May 2016 to (i) modify the interest rate under each of the Revolving Facility, FILO Facility
and Term Loan Facility (each as defined below), (ii) modify the maximum leverage ratio financial covenant; (iii) amend the definition of EBITDA with respect to certain fees and expenses
included within the definition; (iv) modify certain reporting requirements and (v) remove the occurrence of an event having a material adverse effect on the Company as an event of
default (as amended, the "Credit Facility").
The
Credit Facility consists of a $60,000 asset-based revolving credit facility, with a $10,000 letter of credit sub-line facility (the "Revolving Facility"), a $5,000 "first in last
out" (FILO) revolving credit facility (the "FILO Facility") and a $10,000 term loan facility (the "Term Loan Facility"). Pursuant to an accordion feature, the Credit Facility includes the ability to
increase the Revolving Facility by an additional $15,000 upon the Company's request and the agreement of the lenders participating in the increase. The total borrowing capacity under the Revolving
Facility is based on a borrowing base, generally defined as 85% of the value of eligible accounts plus the lesser of (i) 70% of the value of eligible inventory or (ii) 85% of the net
orderly liquidation value of eligible inventory, less reserves. The total borrowing capacity under the FILO Facility is based on a borrowing base, generally defined as a specified percentage of the
value of eligible accounts that steps down over time, plus a specified percentage of the value of eligible inventory that steps down over time.
The
scheduled maturity date of the loans under the Revolving Facility and the Term Loan Facility is April 21, 2020, and loans under the FILO Facility terminate April 21,
2018, subject in each case to customary early termination provisions. Any termination of the Revolving Facility would require termination of the Term Loan Facility and the FILO Facility.
All
obligations under the Credit Facility are secured by substantially all of the Company's assets. In addition, Summer Infant Canada Limited and Summer Infant Europe Limited,
subsidiaries of the Company, are guarantors under the Credit Facility. Proceeds from the loans were used to (i) repay the Company's then outstanding term loan, (ii) pay fees and
transaction expenses associated with the closing of the Credit Facility, (iii) pay obligations under the Credit Facility, and (iv) pay for lawful corporate purposes, including working
capital.
Borrowings
under the Revolving Facility bear interest, at the Company's option, at a base rate or at LIBOR, plus applicable margins based on average quarterly availability and ranging
between 2.0% and 2.5% on LIBOR borrowings and 0.5% and 1.0% on base rate borrowings. Loans under the FILO Facility and Term Loan Facility will bear interest, at the Company's option, at a base rate or
at LIBOR, plus a margin of 4.25% on LIBOR borrowings and 2.75% on base rate borrowings.
Beginning
on July 1, 2015, the Company was required to begin repaying the Term Loan Facility in quarterly installments of $500. Beginning with the fiscal year ending
January 2, 2016, the Company was required to prepay the Term Loan Facility in an amount equal to 50% of the Company's "excess cash flow," as such term is defined in the Credit Facility, at the
end of each fiscal year.
F-15
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. DEBT (Continued)
Under
the Credit Facility, the Company must comply with certain financial covenants, including that the Company (i) maintain a fixed charge coverage ratio of at least 1.0 to 1.0
for the twelve consecutive fiscal months most recently ended and (ii) maintain a certain leverage ratio at the end of each fiscal quarter. For purposes of the financial covenants, consolidated
EBITDA is defined as net income before interest, taxes, depreciation and amortization, plus certain customary expenses, fees, non-cash charges and up to $2,000 of specified inventory dispositions in
2015, and minus certain customary non-cash items increasing net income and other specified items.
The
Credit Facility contains customary affirmative and negative covenants. Among other restrictions, the Company is restricted in its ability to incur additional debt, make acquisitions
or investments, dispose of assets, or make distributions unless in each case certain conditions are satisfied. The Credit Facility also contains customary events of default, including the occurrence
of a change of control. In the event of a default, all of the Company's obligations under the Credit Facility may be declared
immediately due and payable. For certain events of default relating to insolvency and receivership, all outstanding obligations immediately become due and payable.
As
of December 31, 2016, the rate on base-rate loans was 4.75% and the rate on LIBOR-rate loans was 3.375%. The amount outstanding on the Revolving Facility at December 31,
2016 was $36,182. Total borrowing capacity under the Revolving Facility at December 31, 2016 was $47,196 and borrowing availability was $11,014. The amounts outstanding on the Term Loan
Facility and FILO Facility at December 31, 2016 were $7,000 and $3,750, respectively.
Aggregate
maturities of bank debt related to the BofA credit facility:
|
|
|
|
|
Fiscal Year ending:
|
|
|
|
2017
|
|
$
|
4,500
|
|
2018
|
|
|
3,250
|
|
2019
|
|
|
2,000
|
|
2020
|
|
|
37,182
|
|
|
|
|
|
|
Total
|
|
$
|
46,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
debt issuance costs were $1,226 at December 31, 2016 and $1,489 at January 2, 2016, and are presented as a direct deduction of long-term debt on the
consolidated balance sheets.
Subsequent
to fiscal year end, on February 17, 2017, the Company amended the Credit Facility to provide additional flexibility under its covenant requirements to the Company
during fiscal 2017. See Note 12 for additional information regarding the amendment.
Prior Credit Facility and Term Loan
The Credit Facility replaced the Company's prior credit facility with Bank of America and the Company's prior term loan agreement with Salus
Capital Partners, LLC. Prior to April 2015, the Company had a loan and security agreement with Bank of America N.A. that provided for an $80,000, asset-based revolving credit facility, with a
$10,000 letter of credit sub-line facility.
The
Company evaluated the Credit Facility, by lender, to determine the proper accounting treatment for the transaction. Accordingly, debt extinguishment accounting was used to account
for the pay off of the prior term loan agreement with Salus Capital Partners, LLC and for the pay off of a
F-16
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. DEBT (Continued)
member
of the prior credit facility with Bank of America who did not continue in the Credit Facility resulting in the write off of $549 in remaining unamortized deferred financing costs and $135 in
termination fees. Debt modification accounting was used for the remaining members of the prior credit facility resulting in their remaining unamortized deferred financing costs of $601 and the new
financing costs of $1,134 to be capitalized and amortized over the life of the new debt beginning in the second quarter of fiscal 2015.
Sale-Leaseback
On March 24, 2009, Summer Infant (USA), Inc., the Company's wholly owned subsidiary ("Summer USA"), entered into a definitive
agreement with Faith Realty II, LLC, a Rhode Island limited liability company ("Faith Realty") (the members of which are Jason Macari, the former Chief Executive Officer of the Company and
current investor, and his spouse), pursuant to which Faith Realty purchased the corporate headquarters of the Company located at 1275 Park East Drive, Woonsocket, Rhode Island (the "Headquarters"),
for $4,052 and subsequently leased the Headquarters back to Summer USA for an annual rent of $390 during the initial seven year term of the lease, payable monthly and in advance. The original lease
was to expire on the seventh anniversary of its commencement. Mr. Macari had given a personal guarantee to secure the Faith Realty debt on its mortgage; therefore, due to his continuing
involvement in the building transaction, the transaction had been recorded as a financing lease, with no gain recognition.
On
February 25, 2009, the Company's Board of Directors (with Mr. Macari abstaining from such action) approved the sale leaseback transaction. In connection therewith, the
Board of Directors granted a potential waiver, to the extent necessary, if at all, of the conflict of interest provisions of the Company's Code of Ethics, effective upon execution of definitive
agreements within the parameters approved by the Board. In connection with granting such potential waiver, the Board of Directors engaged independent counsel to review the sale leaseback transaction
and an independent appraiser to ascertain (i) the value of the Headquarters and (ii) the market rent for the Headquarters. In reaching its conclusion that the sale leaseback transaction
is fair to the Company, the Board of Directors considered a number of factors, including Summer USA's ability to repurchase the headquarters at 110% of the initial sale price at the end of the initial
term. The Company's Audit Committee approved the sale leaseback transaction (as a related party transaction) and the potential waiver and recommended the matter to a vote of the entire Board of
Directors (which approved the transaction).
On
May 13, 2015, Summer USA entered into an amendment (the "Amendment") to its lease dated March 24, 2009 (the "Lease") with Faith Realty (the "Landlord"). Pursuant to the
Amendment, (i) the initial term of the Lease was extended for two additional years, such that the initial term now ends on March 31, 2018, and the term of the Lease may be extended at
Summer USA's election for one additional term of three years (rather than five years) upon twelve months' prior notice, (ii) the annual rent for the last two years of the newly amended initial
term was set at $429 and the annual rent for the extension period, if elected, was set at $468 and (iii) the Landlord agreed to provide an aggregate improvement allowance of not more than $78
for the newly amended initial term, to be applied against Summer USA's monthly rent, and an additional improvement allowance of $234 for the extension term, if elected, to be applied against Summer
USA's monthly rent during such extension term. The Amendment was reviewed and approved by the audit committee because it was a related party transaction.
F-17
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. DEBT (Continued)
At
December 31, 2016, approximately $404 of the lease obligation was included in accrued expenses, with the balance of approximately $2,429 included in other liabilities, in the
accompanying consolidated balance sheet. This obligation is reduced each month (along with a charge to interest expense) as the rent payment is made to Faith Realty.
Approximate
future minimum sale-leaseback payments due under the lease is as follows:
|
|
|
|
|
Fiscal Year Ending:
|
|
|
|
2017
|
|
$
|
429
|
|
2018
|
|
|
107
|
|
2019 and beyond
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. INCOME TAXES
The provision (benefit) for income taxes is summarized as follows:
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
Fiscal 2015
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
$
|
(150
|
)
|
Foreign
|
|
|
185
|
|
|
389
|
|
State and local
|
|
|
6
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
191
|
|
|
244
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(406
|
)
|
$
|
(3,386
|
)
|
Foreign
|
|
|
(910
|
)
|
|
175
|
|
State and local
|
|
|
(49
|
)
|
|
(457
|
)
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(1,365
|
)
|
|
(3,668
|
)
|
|
|
|
|
|
|
|
|
Total benefit
|
|
$
|
(1,174
|
)
|
$
|
(3,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INCOME TAXES (Continued)
The
tax effects of temporary differences that comprise the deferred tax liabilities and assets are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
January 2,
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
17
|
|
$
|
7
|
|
Inventory and Unicap reserve
|
|
|
676
|
|
|
689
|
|
Research and development credit, foreign tax credit and net operating loss carry-forward
|
|
|
7,658
|
|
|
7,183
|
|
Other
|
|
|
102
|
|
|
103
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
8,453
|
|
|
7,982
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Intangible assets and other
|
|
|
(2,595
|
)
|
|
(3,233
|
)
|
Property, plant and equipment
|
|
|
(653
|
)
|
|
(748
|
)
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(3,248
|
)
|
|
(3.981
|
)
|
Valuation allowance
|
|
|
(1,357
|
)
|
|
(1,518
|
)
|
|
|
|
|
|
|
|
|
Deferred tax liabilities and valuation allowance
|
|
|
(4,605
|
)
|
|
(5,499
|
)
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
3,848
|
|
$
|
2,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following reconciles the benefit for income taxes at the U.S. federal income tax statutory rate to the benefit in the consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
Fiscal 2015
|
|
Tax benefit at statutory rate
|
|
$
|
(1,869
|
)
|
$
|
(4,093
|
)
|
State income taxes, net of U.S. federal income tax benefit
|
|
|
(28
|
)
|
|
(298
|
)
|
Adjustment to uncertain tax position
|
|
|
14
|
|
|
327
|
|
Stock options
|
|
|
70
|
|
|
92
|
|
Foreign tax rate differential
|
|
|
133
|
|
|
289
|
|
Tax credits
|
|
|
(123
|
)
|
|
(150
|
)
|
Non-deductible expenses
|
|
|
498
|
|
|
438
|
|
Other
|
|
|
131
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
Total benefit
|
|
$
|
(1,174
|
)
|
$
|
(3,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company had undistributed earnings from certain foreign subsidiaries (Summer Infant Asia, Summer Infant Australia, and Born Free Holdings, Ltd) of approximately $12,588 at
December 31, 2016, and all of these earnings are considered to be permanently reinvested due to the Company's plans to reinvest such earnings for future expansion in certain foreign
jurisdictions. Earnings and profits from Summer Infant Europe and Summer Infant Canada are not considered to be permanently reinvested due to the bank refinancing as discussed in
Note 4Debt. The amount of taxes attributable to the permanently reinvested undistributed earnings is not practicably determinable.
As
of December 31, 2016, the Company has approximately $7,016,000 of federal and state net operating loss carry forwards (or "NOLs") to offset future federal taxable income. The
federal NOL
F-19
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INCOME TAXES (Continued)
will
begin to expire in 2028 and the state NOL began to expire in 2016. The Company also has approximately $1,839, $530, and $708 of NOLs in Canada, Australia, and the United Kingdom, which can be
carried forward indefinitely.
Authoritative
guidance requires a valuation allowance to reduce the deferred tax assets reported, if based on the weight of the evidence, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. After consideration of all evidence, including the Company's past
earnings history and future earnings forecast, management has determined that a valuation allowance in the amount of $1,357 relating to certain state tax credits is necessary at December 31,
2016 and $1,518 at January 2, 2016.
A
summary of the Company's adjustment to its uncertain tax positions in fiscal years ended December 31, 2016 and January 2, 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
January 2,
2016
|
|
Balance, at beginning of the year
|
|
$
|
327
|
|
$
|
|
|
Increase for tax positions related to the current year
|
|
|
|
|
|
|
|
Increase for tax positions related to prior years
|
|
|
|
|
|
283
|
|
Increase for interest and penalties
|
|
|
14
|
|
|
44
|
|
Decrease for lapses of statute of limitations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at end of year
|
|
$
|
341
|
|
$
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
unrecognized tax benefits mentioned above include an aggregate of $58 of accrued interest and penalty balances related to uncertain tax positions. The Company recognizes interest and
penalties related to uncertain tax positions in income tax expense. An increase in accrued interest and penalty charges of approximately $14, net of federal tax expense, was recorded as a tax expense
during the current fiscal year. The Company does not anticipate that its accrual for uncertain tax positions will be reduced by a material amount over the next twelve month period, as it does not
expect to settle any potential disputed items with the appropriate taxing authorities nor does it expect the statute of limitations to expire for any items.
The
Company is subject to U.S. federal income tax, as well as to income tax of multiple state and foreign tax jurisdictions. On a global basis, the open tax years subject to examination
by major taxing jurisdictions in which the Company operates is between two to six years.
6. SHARE BASED COMPENSATION
The Company is authorized to issue up to 3,000,000 shares for equity awards under the Company's 2006 Performance Equity Plan ("2006 Plan") and 1,700,000 shares for equity awards under
the Company's 2012 Incentive Compensation Plan (as amended, "2012 Plan"). Periodically, the Company also provides equity awards outside of the plans.
F-20
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. SHARE BASED COMPENSATION (Continued)
Under the 2006 Plan and 2012 Plan, awards may be granted to participants in the form of non-qualified stock options, incentive stock options, restricted stock, deferred stock, restricted
stock units and other stock-based awards. Subject to the provisions of the Plans, awards may be granted to employees, officers, directors, advisors and consultants who are deemed to have rendered or
are able to render significant services to the Company or its subsidiaries and who are deemed to have contributed or to have the potential to contribute to the Company's success. The Company accounts
for options under the fair value recognition standard. The application of this standard resulted in share-based
compensation expense for the twelve months ended December 31, 2016 and January 2, 2016 of $482 and $865, respectively. Share based compensation expense is included in selling, general
and administrative expenses.
As
of December 31, 2016, there are 561,729 shares available to grant under the 2006 Plan and 1,393,797 shares available to grant under the 2012 Plan.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions
noted in the table below. The Company uses the simplified method to estimate the expected term of the options for grants of "plain vanilla" stock options as prescribed by the Securities and Exchange
Commission. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Share-based compensation expense
recognized in the consolidated financial statements in fiscal 2016 and 2015 is based on awards that are ultimately expected to vest.
The
following table summarizes the weighted average assumptions used for options granted during the fiscal years ended December 31, 2016 and January 2, 2016.
|
|
|
|
|
|
|
|
|
|
Fiscal
2016
|
|
Fiscal
2015
|
|
Expected life (in years)
|
|
|
5.1
|
|
|
5.3
|
|
Risk-free interest rate
|
|
|
1.3
|
%
|
|
1.6
|
%
|
Volatility
|
|
|
70.8
|
%
|
|
67.4
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
0.0
|
%
|
Forfeiture rate
|
|
|
21.0
|
%
|
|
16.5
|
%
|
The
weighted-average grant date fair value of options granted during the year ended December 31, 2016 was $0.92 per share which totaled $316 for the 343,300 options granted during
such period. During the year ended January 2, 2016, the weighted-average grant date fair value of options granted was $1.58 per share which totaled $767 for the 485,750 options granted during
the year.
F-21
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. SHARE BASED COMPENSATION (Continued)
A
summary of the status of the Company's options as of December 31, 2016 and changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
Number Of
Shares
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at beginning of year
|
|
|
1,302,213
|
|
$
|
3.45
|
|
Granted
|
|
|
343,300
|
|
$
|
1.56
|
|
Canceled
|
|
|
621,688
|
|
$
|
3.23
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
1,023,825
|
|
$
|
2.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2016
|
|
|
515,407
|
|
$
|
3.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
stock options expected to vest as of December 31, 2016 is 882,342. The intrinsic value of options exercised totaled was zero and $27 for the fiscal years ended
December 31, 2016 and January 2, 2016, respectively.
The
following table summarizes information about stock options at December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Range of
Exercise Prices
|
|
Number
Outstanding
|
|
Remaining
Contractual
Life (years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
$1.29 - $2.00
|
|
|
355,300
|
|
|
8.9
|
|
$
|
1.56
|
|
|
50,750
|
|
|
7.4
|
|
$
|
1.82
|
|
$2.01 - $3.00
|
|
|
310,500
|
|
|
6.3
|
|
$
|
2.36
|
|
|
152,630
|
|
|
3.7
|
|
$
|
2.25
|
|
$3.01 - $4.00
|
|
|
134,000
|
|
|
7.0
|
|
$
|
3.32
|
|
|
88,002
|
|
|
6.8
|
|
$
|
3.34
|
|
$4.01 - $6.00
|
|
|
174,325
|
|
|
1.1
|
|
$
|
5.28
|
|
|
174,325
|
|
|
1.1
|
|
$
|
5.28
|
|
$6.01 - $8.00
|
|
|
49,700
|
|
|
4.0
|
|
$
|
7.04
|
|
|
49,700
|
|
|
4.0
|
|
$
|
7.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,023,825
|
|
|
6.3
|
|
$
|
2.93
|
|
|
515,407
|
|
|
3.8
|
|
$
|
3.88
|
|
The
aggregate intrinsic value of options outstanding and exercisable at December 31, 2016 and January 2, 2016 are $9 and $36, respectively. As of December 31, 2016,
there was approximately $322 of unrecognized compensation cost related to non-vested stock option awards, which is expected to be recognized over a remaining weighted-average vesting period of
2.7 years.
Restricted stock awards require no payment from the grantee. The related compensation cost of each award is calculated using the market price on
the grant date and is expensed equally over the
F-22
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. SHARE BASED COMPENSATION (Continued)
vesting
period. A summary of restricted stock awards made in the year ended December 31, 2016, is as follows:
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Grant Date
Fair Value
|
|
Non-vested restricted stock awards as of January 2, 2016
|
|
|
175,844
|
|
$
|
2.70
|
|
Granted
|
|
|
236,900
|
|
$
|
1.63
|
|
Vested
|
|
|
102,524
|
|
$
|
2.39
|
|
Forfeited
|
|
|
41,788
|
|
$
|
2.09
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock awards as of December 31, 2016
|
|
|
268,432
|
|
$
|
1.96
|
|
|
|
|
|
|
|
|
|
As
of December 31, there was approximately $282 of unrecognized compensation cost related to non-vested stock compensation arrangements granted under the Company's stock incentive
plan for restricted stock awards. That cost is expected to be recognized over the next 2.6 years.
In December 2015, the Company's Board of Directors granted restricted stock units ("RSUs") to the executive Chairman of the Board. The RSUs
represent the right to receive shares of the Company's common stock upon achievement of specified stock price performance metrics, and only vest if such market-based performance metrics are achieved.
There was $26 of recognized compensation cost for the year ended December 31, 2016. The RSUs expired on August 3, 2016.
On
July 13, 2016, the Company granted 100,000 performance-based RSUs to its new Chief Executive Officer. The RSUs represent the right to receive shares of the Company's common
stock upon achievement of specified performance metrics, and only vest if such performance metrics are achieved for fiscal year 2017 and fiscal year 2018. The RSU's expire if the performance metrics
are not achieved or if employment is terminated. The fair value of the RSUs will be recognized as it is earned and when it is probable that the performance conditions will be met. The Company has not
recognized any compensation expense in 2016 related to this award.
7. CAPITAL LEASE OBLIGATIONS
The Company leased certain equipment under capital leases which expired in December 2016. The capital lease liability balance of approximately $0 and $71 is included in debt on the
consolidated balance sheets as of December 31, 2016 and January 2, 2016, of which approximately $0 and $2 is included in long-term liabilities as of December 31, 2016 and
January 2, 2016, respectively.
8. PROFIT SHARING PLAN
Summer Infant (USA), Inc. maintains a defined contribution salary deferral plan under Section 401(k) of the Internal Revenue Code. All employees who meet the plan's
eligibility requirements can participate. Employees may elect to make contributions up to federal limitations. In 2007, the Company adopted a matching plan which was further amended in 2013, and which
was funded throughout the year. For the years ended December 31, 2016 and January 2, 2016, the Company recorded 401(k) matching expense of $356 and $366, respectively.
F-23
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. MAJOR CUSTOMERS
Sales to the Company's top seven customers together comprised more than 75% of our sales in fiscal 2016 and 73% of our sales in fiscal 2015. Of these customers, four generated more than
10% of sales for fiscal 2016: Babies R Us/Toys R Us (20%), Amazon.com (20%), Walmart (15%), and Target (11%). In fiscal 2015, four customers generated more than 10% of sales:
Babies R Us/Toys R Us (23%), Walmart (14%), Amazon.com (14%) and Target (12%).
10. COMMITMENTS AND CONTINGENCIES
Royalty Commitments
Summer Infant (USA), Inc. has entered into various license agreements with third parties for the use of product designs, software
licenses, and trade names for the products manufactured by the Company. These agreements have termination dates through December 2017. Royalty expense under these licensing agreements for the years
ended December 31, 2016 and January 2, 2016 were approximately $315 and $735, respectively.
Customer Agreements
The Company enters into annual agreements with its customers in the normal course of business. These agreements define the terms of product
sales including, in some instances, cooperative advertising costs and product return privileges (for defective products only) or defective allowances (which are based upon historical experience).
These contracts are generally annual in nature and obligate the Company only as to products actually sold to the customer pursuant to a purchase order.
Lease Commitments
For lease agreements with escalation clauses, the Company records the total rent to be paid under the lease on a straight-line basis over the
term of the lease, with the difference between the expense recognized and the cash paid recorded as a deferred rent liability included in accrued expenses on the balance sheet for amounts to be
recognized within twelve months and in other liabilities for amounts to be recognized after twelve months from the balance sheet date, in the consolidated balance sheets. Lease incentives are recorded
as deferred rent at the beginning of the lease term and recognized as a reduction of rent expense over the term of the lease.
Summer
Infant Europe Limited leases office space under a non-cancelable operating lease agreement. This lease is for a five-year term through April 2017, and requires monthly payments of
approximately $6. In addition, Summer Infant Europe Limited is required to pay its proportionate share of property taxes.
Summer
Infant Canada, Ltd. entered into a five-year lease for office and warehouse space under a non-cancelable operating lease agreement expiring June 2018. The Company is
obligated as part of the lease to pay maintenance expenses as well as property taxes and insurance costs as defined in the agreement. Monthly payments are approximately $27 over the course of the
lease term. Summer Infant Canada, Ltd. has the option to renew this lease for one additional period of five years under similar terms and conditions.
Summer
Infant (USA) Inc. entered into a 72 month lease in September 2010 for warehouse space under a non-cancelable operating lease agreement. The Company is obligated to
pay certain common area maintenance charges including insurance and utilities. The lease was extended in 2015 and now
F-24
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. COMMITMENTS AND CONTINGENCIES (Continued)
expires
in September 2021. Monthly payments were $166 in fiscal 2016 and escalate to $186 over the remaining life of the lease.
During
November 2015, Summer Infant Asia entered into a two year office lease which requires monthly payments of $10 through 2017.
Approximate
future minimum rental payments due under these leases are as follows(a):
|
|
|
|
|
Fiscal Year Ending:
|
|
|
|
2017
|
|
$
|
2,415
|
|
2018
|
|
|
2,215
|
|
2019
|
|
|
2,140
|
|
2020
|
|
|
2,185
|
|
2021 and beyond
|
|
|
1,676
|
|
|
|
|
|
|
Total
|
|
$
|
10,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Amounts
exclude payments for sales-leaseback transaction as described in Note 4.
Rent
expense (excluding taxes, fees and other charges) for the years ended December 31, 2016 and January 2, 2016 totaled approximately $2,692 and $1,906, respectively.
Employment Contracts
In accordance with United Kingdom and EU law, Summer Infant Europe Limited is required to have employment contracts with all of its employees.
In connection with these contracts, Summer Infant Europe Limited makes individual pension contributions to certain employees at varying rates from 3-7% of the employee's annual salary, as part of
their total compensation package. These pension contributions are expensed as incurred. There are no termination benefit provisions in these contracts.
Litigation
The Company is a party to routine litigation and administrative complaints incidental to its business. The Company does not believe that the
resolution of any or all of such routine litigation and administrative complaints is likely to have a material adverse effect on the Company's financial condition or results of operations.
On
May 27, 2015, the Company filed a Complaint against Carol E. Bramson, Annamaria Dooley, Kenneth N. Price, Carson J. Darling, Dulcie M. Madden, and Bruce Work in the United
States District Court for the District of Rhode Island (Civil Action No. 1:15-CV-00218-5-LDA) (the "Complaint"). The Complaint alleged theft and misappropriation of the Company's confidential
and proprietary trade secrets, intellectual property, and business, branding and marketing strategies. Ms. Bramson is a former member of the Company's Board of Directors and the Company's
former Chief Executive Officer, Ms. Dooley is the Company's former Senior Vice President of Product Development, and Mr. Price is the former President of Global Sales & Marketing
of the Company. Mr. Darling and Ms. Madden are principals of Rest Devices, Inc., a former consultant to the Company (the "Rest Defendants").
On
August 25, 2015, the Company and the Rest Defendants reached an agreement-in-principle with regard to a proposed settlement, and the Company subsequently withdrew its motion
for a
F-25
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. COMMITMENTS AND CONTINGENCIES (Continued)
preliminary
injunction. On November 1, 2015, the Company and the Rest Defendants entered into a confidential settlement agreement (the "Rest Settlement Agreement") pursuant to which the Company
and the Rest Defendants mutually released claims against each other, and the Company voluntarily dismissed all claims in the Complaint against the Rest Defendants. The Rest Settlement Agreement did
not release any claims against Mmes. Bramson or Dooley or Mr. Price.
In
December 2016, the remaining parties in the action resolved their claims against each other, and the Court entered a Stipulation and Order of Voluntary Dismissal on January 19,
2017. There there was no material impact on the financial statements as a result of the settlement.
11. GEOGRAPHICAL INFORMATION
The Company sells products throughout the United States, Canada, and the United Kingdom, and various other parts of the world. The Company does not disclose product line revenues as it
is not practicable for the Company to do so.
The
following is a table that presents net revenue by geographic area:
|
|
|
|
|
|
|
|
|
|
For the fiscal year
ended
|
|
|
|
December 31,
2016
|
|
January 2,
2016
|
|
United States
|
|
$
|
163,381
|
|
$
|
171,310
|
|
All Other
|
|
|
30,947
|
|
|
34,494
|
|
|
|
|
|
|
|
|
|
|
|
$
|
194,328
|
|
$
|
205,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following is a table that presents total assets by geographic area:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
January 2,
2016
|
|
United States
|
|
$
|
84,519
|
|
$
|
90,890
|
|
All Other
|
|
|
17,218
|
|
|
22,248
|
|
|
|
|
|
|
|
|
|
|
|
$
|
101,737
|
|
$
|
113,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following is a table that presents total long lived assets by geographic area:
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
January 2,
2016
|
|
United States
|
|
$
|
24,512
|
|
$
|
25,375
|
|
All Other
|
|
|
4,212
|
|
|
7,722
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,724
|
|
$
|
33,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. SUBSEQUENT EVENTS
The Company has evaluated all events or transactions that occurred after December 31, 2016 through the date of this Annual Report.
F-26
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. SUBSEQUENT EVENTS (Continued)
On
February 17, 2017, the Company and its subsidiaries, Summer Infant (USA), Inc., Summer Infant Canada, Limited and Summer Infant Europe Limited, entered into an amendment and waiver
(the "Loan Amendment") to the Credit Facility. Pursuant to the Loan Amendment, the Lenders agreed to waive the existing delivery date by which the Company must deliver projections for the 2017 fiscal
year, and extended the date to March 1, 2017. In addition, the Loan Amendment amended certain provisions of the Credit Facility to provide additional flexibility to the Company during fiscal 2017,
including (i) amending the definitions of "Availability," "Availability Reserve" and "Eligible Account"; (ii) amending the definition of EBITDA with respect to bonus payments and certain fees and
expenses that can be added back to the calculation of EBITDA; and (iii) amending the definition of "Fixed Charges" and
revised the maximum leverage ratio financial covenant to be maintained as of the end of each fiscal quarter.
F-27
Table of Contents
Index to Exhibits
|
|
|
|
Exhibit
No.
|
|
Description
|
|
2.1
|
|
Agreement and Plans of Reorganization, dated as of September 1, 2006, by and among KBL Healthcare Acquisition Corp. II, and its wholly owned subsidiary, SII Acquisition Inc., and Summer Infant, Inc., Summer
Infant Europe Limited, Summer Infant Asia, Ltd. and their respective stockholders (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on September 5, 2006, SEC File No. 000-
51228)
|
|
2.2
|
|
Purchase and Sale Agreement, dated March 24, 2009, between Summer Infant (USA), Inc. and Faith Realty II, LLC (Incorporated by reference to Exhibit 2.1 to the Registrant's Quarterly Report on
Form 10-Q/A filed on August 18, 2009, SEC File No. 001-33346)
|
|
2.3
|
|
Lease Agreement, dated March 24, 2009, between Summer Infant (USA), Inc. and Faith Realty II, LLC (Incorporated by reference to Exhibit 2.2 to the Registrant's Quarterly Report on Form 10-Q/A
filed on August 18, 2009, SEC File No. 001-33346)
|
|
2.4
|
|
Stock Purchase Agreement, dated as of March 24, 2011, by and among the Registrant, Summer Infant (USA), Inc., Born Free Holdings Ltd., and each stockholder of Born Free Holdings Ltd. (Incorporated
by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on March 28, 2011, File No. 001-33346)
|
|
3.1
|
+
|
Amended and Restated Certificate of Incorporation, as amended
|
|
3.2
|
|
Amended and Restated Bylaws, as amended through May 5, 2016 (Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed on May 9, 2016)
|
|
4.1
|
|
Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.2 to the Registrant's Form 8-A filed on March 6, 2007, SEC File No. 001-33346)
|
|
10.1
|
|
Registration Rights Agreement by and among the Registrant, Jason Macari and Steven Gibree (Incorporated by reference to Exhibit 10.9 to the Registrant's Current Report on Form 8-K filed on September 5,
2006, SEC File No. 000-51228)
|
|
10.2
|
*
|
2006 Performance Equity Plan (Incorporated by reference to Appendix A to the Registrant's Definitive Proxy Statement on Schedule 14A filed on April 29, 2008, SEC File No. 001-33346)
|
|
10.3
|
|
Amended and Restated Loan and Security Agreement, dated as of April 21, 2015, among Summer Infant, Inc. and Summer Infant (USA), Inc. as Borrowers, the Guarantors from time to time party thereto,
Certain Financial Institutions as Lenders, Bank of America, N.A. as Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Sole Lead Arranger and Sole Book Runner (Incorporated by reference to Exhibit 10.1 to the Registrant's
Current Report on Form 8-K filed on April 22, 2015)
|
|
10.4
|
|
Amendment to Amended and Restated Loan and Security Agreement, dated as of December 10, 2015, among Summer Infant, Inc. and Summer Infant (USA), Inc., as Borrowers, Summer Infant Canada, Limited and
Summer Infant Europe Limited, as Guarantors, Certain Financial Institutions as Lenders and Bank of America, N.A. as Agent (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on December 14,
2015)
|
|
10.5
|
|
Second Amendment to Amended and Restated Loan and Security Agreement, dated as of May 24, 2016, among Summer Infant, Inc. and Summer Infant (USA), Inc., as Borrowers, Summer Infant Canada, Limited and
Summer Infant Europe Limited, as Guarantors, Certain Financial Institutions as Lenders and Bank of America, N.A. as Agent (Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on August 2,
2016)
|
|
10.6
|
*
|
2012 Incentive Compensation Plan, as amended (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on August 5, 2015)
|
Table of Contents
|
|
|
|
Exhibit
No.
|
|
Description
|
|
10.7
|
*
|
Form of Change of Control Agreement with Chief Financial Officer, Chief Operating Officer and other key employees (Incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed
on December 14, 2015)
|
|
10.8
|
|
Separation Agreement and Release, dated as of January 15, 2014, by and between the Registrant and Jason Macari (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K
filed on January 17, 2014)
|
|
10.9
|
*
|
Summer Infant, Inc. Form of Indemnification Agreement (for officers and directors) (Incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on January 17,
2014)
|
|
10.10
|
*
|
Offer Letter and Change of Control Agreement by and between the Registrant and William E. Mote (Incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K filed on March 4,
2015)
|
|
10.11
|
*
|
Offer Letter and Change of Control Agreement by and between the Registrant and Robert Stebenne (Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on May 7,
2015)
|
|
10.12
|
|
Amendment to Lease, dated May 13, 2015, by and between Faith Realty II, LLC and Summer Infant (USA), Inc. (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on
Form 8-K filed on May 19, 2015)
|
|
10.13
|
*
|
Employment Agreement, dated as of June 27, 2016, by and between the Registrant and Mark Messner (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on
June 29, 2016)
|
|
10.14
|
+
|
Third Amendment and Waiver to Amended and Restated Loan and Security Agreement, dated as of February 17, 2017, among Summer Infant, Inc. and Summer Infant (USA), Inc., as Borrowers, Summer Infant Canada, Limited and
Summer Infant Europe Limited, as Guarantors, Certain Financial Institutions as Lenders and Bank of America, N.A. as Agent
|
|
21.1
|
|
List of Subsidiaries (Incorporated by reference to Exhibit 21.1 to the Registrant's Annual Report on Form 10-K filed on March 13, 2013)
|
|
23.1
|
+
|
Consent of Independent Registered Public Accounting Firm
|
|
31.1
|
+
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2
|
+
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1
|
+
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
|
|
32.2
|
+
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
|
|
101.INS
|
|
XBRL Instance Document
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB
|
|
XBRL Taxonomy Extension Labels Linkbase Document
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
-
*
-
Management
contract or compensatory plan or arrangement.
-
+
-
Filed
herewith.
Summer Infant (NASDAQ:SUMR)
Historical Stock Chart
From Aug 2024 to Sep 2024
Summer Infant (NASDAQ:SUMR)
Historical Stock Chart
From Sep 2023 to Sep 2024