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 30,
2017
|
|
December 31,
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,249
|
)
|
$
|
(4,322
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
|
|
|
2,993
|
|
Bad debt expense (recovery)
|
|
|
1,558
|
|
|
(16
|
)
|
Depreciation and amortization
|
|
|
4,197
|
|
|
5,011
|
|
Stock-based compensation
|
|
|
494
|
|
|
482
|
|
Loss on asset disposal
|
|
|
|
|
|
37
|
|
Deferred income taxes
|
|
|
1,911
|
|
|
(1,384
|
)
|
Changes in assets and liabilities, net of effects of acquisitions
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
(3,859
|
)
|
|
6,167
|
|
Decrease in inventory
|
|
|
2,353
|
|
|
344
|
|
Decrease (increase) in prepaids and other current assets
|
|
|
790
|
|
|
(44
|
)
|
(Increase) decrease in other assets
|
|
|
19
|
|
|
164
|
|
Decrease in accounts payable and accrued expenses
|
|
|
(4,003
|
)
|
|
(644
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,211
|
|
|
8,788
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Acquisitions of property and equipment
|
|
|
(3,103
|
)
|
|
(2,266
|
)
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,103
|
)
|
|
(2,266
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Repayment of Term Loan Facility
|
|
|
(2,000
|
)
|
|
(1,500
|
)
|
Repayment of FILO Facility
|
|
|
(2,500
|
)
|
|
(1,250
|
)
|
Net borrowings (repayments) on revolving facilities
|
|
|
5,815
|
|
|
(3,798
|
)
|
Issuance of common stock upon exercise of stock options
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1,321
|
|
|
(6,548
|
)
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
253
|
|
|
102
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(318
|
)
|
|
76
|
|
Cash and cash equivalents at beginning of year
|
|
|
999
|
|
|
923
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
681
|
|
$
|
999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
2,274
|
|
$
|
1,963
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes
|
|
$
|
358
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-6
Table of Contents
Consolidated Statements of Stockholders' Equity
For the Fiscal Years Ended December 30, 2017 and December 31, 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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon vesting of restricted shares
|
|
|
118,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of stock options
|
|
|
4,500
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
494
|
|
|
|
|
|
|
|
|
|
|
|
494
|
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,249
|
)
|
|
|
|
|
(2,249
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
571
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2017
|
|
|
18,629,737
|
|
$
|
2
|
|
$
|
76,848
|
|
$
|
(1,283
|
)
|
$
|
(59,634
|
)
|
$
|
(2,291
|
)
|
$
|
13,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-7
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
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 30, 2017 and December 31, 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 SUBSIDIARIES
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.
Changes
in the allowance for doubtful accounts are as follows:
|
|
|
|
|
|
|
|
|
|
For the
fiscal year ended
|
|
|
|
December 30,
2017
|
|
December 31,
2016
|
|
Allowance for doubtful accounts, beginning of period
|
|
$
|
64
|
|
$
|
149
|
|
Charges to costs and expenses
|
|
|
1,646
|
|
|
46
|
|
Account write-offs and other
|
|
|
(88
|
)
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts, end of period
|
|
$
|
1,622
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 on an asset group level 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
F-9
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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. See Note 3 for a discussion on the fiscal year
2016 impairment charge. No impairment charge was recorded for fiscal 2017.
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.
F-10
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 since the stated rate is similar to rates currently available to the Company for debt with similar terms and remaining maturities.
The
Company's assets measured at fair value on a nonrecurring basis include long-lived assets and finite-lived intangibles. The Company tests its indefinite-lived assets for impairment
at least annually and whenever 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."
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 $1,591 and $1,477 for the fiscal years ended
December 30, 2017 and December 31, 2016, respectively.
F-11
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 $11,970 and $12,863 for the fiscal years ended December 30, 2017 and December 31, 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 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 1,052,026 and 1,023,825 shares of the Company's common stock and 331,516 and
268,432 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 30, 2017 and December 31,
2016, respectively.
New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" providing 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. Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount
that reflects the consideration the entity expects to receive in exchange for those goods or services. The Company has evaluated the new standard against its existing accounting policies and
practices, including reviewing purchase orders, invoices, shipping terms, conducting questionnaires with its sales team and reviewing other agreements and contracts with customers. Based on the
evaluation of the Company's current contracts and revenue streams, the Company does not expect the adoption of the standard to have a material impact on the company's consolidated financial position,
results of operations, or cash flow on an ongoing basis. The Company expects to have enhanced disclosures related to disaggregation of revenue sources and accounting policies. The Company has elected
to use the modified retrospective transition method to apply the new guidance and will adopt the new revenue guidance effective the first day of fiscal 2018 and the impact was immaterial.
In
July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory." This guidance required inventory within the scope of ASU 2015-11 to be measured at
the lower of cost and
F-12
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 was effective for fiscal years beginning after December 15, 2016. The Company adopted this guidance in the first quarter of 2017 and the impact on its consolidated financial
statements was immaterial.
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
March 2016, the FASB issued ASU 2016-09, "CompensationStock Compensation: Improvements to Employee Share-Based Payment Accounting." The guidance simplified the
accounting and financial reporting of the income tax impact of stock-based compensation arrangements. This guidance required excess tax benefits to be recorded as a discrete item within income tax
expense rather than additional paid-in-capital. In addition, excess tax benefits are required to be classified as cash from operating activities rather than cash from financing activities. The Company
adopted this guidance as of the beginning of fiscal 2017. The Company also elected to continue to estimate forfeitures, as permitted by ASU 2016-09, rather than electing to account for
forfeitures as they occur. The impact of adopting this guidance in the first quarter of 2017 was immaterial to the Company's 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.
F-13
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year
ended
|
|
|
|
|
December 30,
2017
|
|
December 31,
2016
|
|
Depreciation/
Amortization Period
|
Computer-related
|
|
$
|
3,994
|
|
$
|
3,861
|
|
5 years
|
Tools, dies, prototypes, and molds
|
|
|
28,445
|
|
|
28,342
|
|
1 - 5 years
|
Building
|
|
|
4,156
|
|
|
4,156
|
|
30 years
|
Other
|
|
|
6,246
|
|
|
6,145
|
|
1 - 15 years
|
|
|
|
|
|
|
|
|
|
|
|
|
42,841
|
|
|
42,504
|
|
|
Less: accumulated depreciation
|
|
|
33,201
|
|
|
32,539
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
9,640
|
|
$
|
9,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
depreciation expense was $3,430 and $4,304 for the fiscal years ended December 30, 2017 and December 31, 2016, respectively. Property and equipment does not include
amounts acquired under capital leases.
3. INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
For the
fiscal year ended
|
|
|
|
December 30,
2017
|
|
December 31,
2016
|
|
Brand names
|
|
$
|
11,819
|
|
$
|
11,819
|
|
Patents and licenses
|
|
|
3,766
|
|
|
3,766
|
|
Customer relationships
|
|
|
6,946
|
|
|
6,946
|
|
Other intangibles
|
|
|
1,882
|
|
|
1,882
|
|
|
|
|
|
|
|
|
|
|
|
|
24,413
|
|
|
24,413
|
|
Less: accumulated amortization
|
|
|
(10,367
|
)
|
|
(9,600
|
)
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
14,046
|
|
$
|
14,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (a
brand name). Total of intangibles not subject to amortization amounted to $8,400 and $8,400 for the fiscal years ended December 30, 2017 and December 31, 2016, respectively.
Amortization
expense amounted to $768 and $707 for the fiscal years ended December 30, 2017 and December 31, 2016, respectively.
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 2017 and 2016. No asset impairment was recorded for the fiscal year ended December 30, 2017. For fiscal 2016, the Company
determined that the estimated
F-14
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. INTANGIBLE ASSETS (Continued)
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 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.
Estimated
amortization expense for the remaining definite-lived assets for the next five years is as follows:
|
|
|
|
|
Fiscal Year ending
|
|
|
|
2018
|
|
$
|
746
|
|
2019
|
|
|
738
|
|
2020
|
|
|
488
|
|
2021
|
|
|
488
|
|
2022
|
|
|
488
|
|
4. DEBT
Credit Facilities
The Company and its wholly owned subsidiary, Summer Infant (USA), Inc., are parties to an amended and restated loan and security
agreement with Bank of America, N.A., as agent, which provides for an asset-based credit facility The amended and restated loan and security agreement was entered into in April 2015 and has been
subsequently amended, with the most recent amendment dated November 29, 2017 (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. 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
F-15
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. DEBT (Continued)
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.
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 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. In addition, the Credit Facility contains
cash dominion provisions that apply if an event of default occurs or if the Company's availability is less than an amount equal to 10% of the lesser of (i) the aggregate revolver commitments
and (B) the revolver borrowing base under the Credit Facility. For certain events of default relating to insolvency and receivership, all outstanding obligations immediately become due and
payable.
As
of December 30, 2017, the rate on base-rate loans was 5.50% and the rate on LIBOR-rate loans was 4.125%. The amount outstanding on the Revolving Facility at December 30,
2017 was $41,899. Total borrowing capacity under the Revolving Facility at December 30, 2017 was $45,098 and borrowing availability was $3,199. The amounts outstanding on the Term Loan Facility
and FILO Facility at December 30, 2017 were $5,000 and $1,250, respectively.
Aggregate
maturities of bank debt related to the credit facility:
|
|
|
|
|
Fiscal Year ending:
|
|
|
|
2018
|
|
$
|
3,250
|
|
2019
|
|
|
2,000
|
|
2020
|
|
|
42,899
|
|
|
|
|
|
|
Total
|
|
$
|
48,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
debt issuance costs were $1,127 at December 30, 2017 and $1,226 at December 31, 2016, and are presented as a direct deduction of long-term debt on the
consolidated balance sheets.
F-16
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. DEBT (Continued)
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 owner of which is Jason Macari, the former Chief
Executive Officer of the Company and current investor), 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.
At
December 30, 2017, approximately $106 of the lease obligation was included in accrued expenses, with the balance of approximately $2,581 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.
On
January 22, 2018, Summer USA entered into a second amendment (the "Second Amendment") to the Lease. Pursuant to the Second Amendment, (i) the term of the Lease was
extended to March 31, 2021, with no further rights of extension, (ii) the annual rent for the last three
F-17
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. DEBT (Continued)
years
of the newly amended term was set at $468, (iii) Summer Infant no longer has the option to purchase the property subject to the Lease and (iv) the Landlord and Summer USA agreed to
certain expenses, repairs and modifications to the property that is subject to the Lease. The Second Amendment was reviewed and approved by the audit committee because it was a related party
transaction.
Approximate
future minimum sale-leaseback payments due under the lease is as follows:
|
|
|
|
|
Fiscal Year Ending:
|
|
|
|
2018
|
|
$
|
458
|
|
2019
|
|
|
468
|
|
2020
|
|
|
468
|
|
2021
|
|
|
117
|
|
|
|
|
|
|
Total
|
|
$
|
1,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. INCOME TAXES
In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act") that significantly revised the U.S. tax code
effective January 1, 2018 by, among other things, lowering the corporate income tax rate from a top marginal rate of 35% to a flat 21%, limiting deductibility of interest expense and
performance based incentive compensation and implementing a territorial tax system. As a result of the Tax Act in the fiscal quarter ending December 30, 2017 we recorded a tax or "toll charge"
of $734 on previously unremitted earnings of foreign subsidiaries, a writedown of $882 related to foreign tax credits and a writedown of the value of our deferred tax assets of $115.
Under
the guidance set forth in the SEC's Staff Accounting Bulletin No. 118, the Company may record provisional amounts for the impact of the Tax Act. At December 30, 2017,
the Company made a reasonable estimate of the effects of the Tax Act on its existing deferred tax balances. The final impact of the Tax Act may differ from this estimate, possibly materially, due to,
among other things, changes in interpretations and assumptions the Company has made and guidance that may be issued.
F-18
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INCOME TAXES (Continued)
The
provision (benefit) for income taxes is summarized as follows:
|
|
|
|
|
|
|
|
|
|
Fiscal 2017
|
|
Fiscal 2016
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
$
|
|
|
Foreign
|
|
|
256
|
|
|
185
|
|
State and local
|
|
|
5
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
261
|
|
|
191
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,631
|
|
$
|
(406
|
)
|
Foreign
|
|
|
175
|
|
|
(910
|
)
|
State and local
|
|
|
105
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
1,911
|
|
|
(1,365
|
)
|
|
|
|
|
|
|
|
|
Total provision (benefit)
|
|
$
|
2,172
|
|
$
|
(1,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
tax effects of temporary differences that comprise the deferred tax liabilities and assets are as follows:
|
|
|
|
|
|
|
|
|
|
December 30,
2017
|
|
December 31,
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
7
|
|
$
|
17
|
|
Inventory and Unicap reserve
|
|
|
477
|
|
|
676
|
|
Research and development credit, foreign tax credit and net operating loss carry-forward
|
|
|
6,338
|
|
|
7,658
|
|
Other
|
|
|
0
|
|
|
102
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
6,822
|
|
|
8,453
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Intangible assets and other
|
|
|
(1,905
|
)
|
|
(2,595
|
)
|
Property, plant and equipment
|
|
|
(193
|
)
|
|
(653
|
)
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(2,098
|
)
|
|
(3.248
|
)
|
Valuation allowance
|
|
|
(2,789
|
)
|
|
(1,357
|
)
|
|
|
|
|
|
|
|
|
Deferred tax liabilities and valuation allowance
|
|
|
(4,887
|
)
|
|
(4,605
|
)
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
1,935
|
|
$
|
3,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INCOME TAXES (Continued)
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 2017
|
|
Fiscal 2016
|
|
Tax benefit at statutory rate
|
|
$
|
(26
|
)
|
$
|
(1,869
|
)
|
State income taxes, net of U.S. federal income tax benefit
|
|
|
87
|
|
|
(28
|
)
|
Adjustment to uncertain tax position
|
|
|
(16
|
)
|
|
14
|
|
Stock options
|
|
|
52
|
|
|
70
|
|
Foreign tax rate differential
|
|
|
(14
|
)
|
|
133
|
|
Tax credits
|
|
|
(172
|
)
|
|
(123
|
)
|
Non-deductible expenses
|
|
|
315
|
|
|
498
|
|
Foreign repatriation/toll tax
|
|
|
734
|
|
|
|
|
Foreign tax credit valuation allowance
|
|
|
882
|
|
|
|
|
Foreign dividends/section 956
|
|
|
86
|
|
|
|
|
Tax rate changes
|
|
|
115
|
|
|
|
|
Other
|
|
|
129
|
|
|
131
|
|
|
|
|
|
|
|
|
|
Total benefit
|
|
$
|
2,172
|
|
$
|
(1,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 30, 2017, the Company had approximately $5,996 of federal and state net operating loss carry forwards (or "NOLs") to offset future federal taxable income. The
federal NOL will begin to expire in 2031 and the state NOL began to expire in 2018. The Company also has approximately $1,470, $328, $2,655, and $564 of NOLs in Canada, Australia, Israel, 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 $1,907 relating to certain state tax credits and foreign NOL's is
necessary at December 30, 2017 and $1,357 at December 31, 2016. Due to the Tax Act, the Company determined an additional provisional valuation allowance in the amount of $882 relating to
foreign tax credits was necessary at December 30, 2017.
A
summary of the Company's adjustment to its uncertain tax positions in fiscal years ended December 30, 2017 and December 31, 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
December 30,
2017
|
|
December 31,
2016
|
|
Balance, at beginning of the year
|
|
$
|
341
|
|
$
|
327
|
|
Increase for tax positions related to the current year
|
|
|
|
|
|
|
|
Increase for tax positions related to prior years
|
|
|
|
|
|
|
|
Increase for interest and penalties
|
|
|
13
|
|
|
14
|
|
Decrease for lapses of statute of limitations
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, at end of year
|
|
$
|
325
|
|
$
|
341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. INCOME TAXES (Continued)
The unrecognized tax benefits mentioned above include an aggregate of $52 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 $13, net of federal tax expense, was recorded as a tax expense
during the current fiscal year. The Company anticipates the remaining liability of $325 may reverse as of March 31, 2018 due to lapse of statute of limitations at that time.
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 currently authorized to issue up to 1,700,000 shares for equity awards under the Company's 2012 Incentive Compensation Plan (as amended, "2012 Plan"). Periodically, the
Company may also grant equity awards outside of its 2012 Plan as inducement grants for new hires. The Company was authorized to issue up to 3,000,000 shares for equity awards under its 2006
Performance Equity Plan ("2006 Plan"). In March 2017, the 2006 Plan expired and no additional equity awards can be granted under the 2006 Plan.
Under
the 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 30, 2017 and December 31,
2016 of $494 and $482, respectively. Share based compensation expense is included in selling, general and administrative expenses.
As
of December 30, 2017, there are 1,338,583 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 2017 and 2016 is based on awards that are ultimately expected to vest.
F-21
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. SHARE BASED COMPENSATION (Continued)
The
following table summarizes the weighted average assumptions used for options granted during the fiscal years ended December 30, 2017 and December 31, 2016.
|
|
|
|
|
|
|
|
|
|
Fiscal
2017
|
|
Fiscal
2016
|
|
Expected life (in years)
|
|
|
4.9
|
|
|
5.1
|
|
Risk-free interest rate
|
|
|
1.9
|
%
|
|
1.3
|
%
|
Volatility
|
|
|
71.4
|
%
|
|
70.8
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
0.0
|
%
|
Forfeiture rate
|
|
|
22.6
|
%
|
|
21.0
|
%
|
The
weighted-average grant date fair value of options granted during the year ended December 30, 2017 was $1.16 per share which totaled $453 for the 390,500 options granted during
such period. 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
A
summary of the status of the Company's options as of December 30, 2017 and changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
Number Of
Shares
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at beginning of year
|
|
|
1,023,825
|
|
$
|
2.93
|
|
Granted
|
|
|
390,500
|
|
$
|
1.97
|
|
Exercised
|
|
|
4,500
|
|
$
|
1.29
|
|
Canceled or expired
|
|
|
357,799
|
|
$
|
3.69
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
1,052,026
|
|
$
|
2.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 30, 2017
|
|
|
416,030
|
|
$
|
2.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
stock options vested and expected to vest as of December 30, 2017 is 871,062. The intrinsic value of options exercised totaled was $3 and zero for the fiscal years
ended December 30, 2017 and December 31, 2016, respectively.
The
following table summarizes information about stock options at December 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
650,000
|
|
|
8.6
|
|
$
|
1.79
|
|
|
109,004
|
|
|
7.4
|
|
$
|
1.67
|
|
|
$2.01 - $3.00
|
|
|
275,000
|
|
|
5.0
|
|
$
|
2.35
|
|
|
185,000
|
|
|
3.6
|
|
$
|
2.29
|
|
|
$3.01 - $4.00
|
|
|
63,250
|
|
|
5.9
|
|
$
|
3.30
|
|
|
58,250
|
|
|
5.8
|
|
$
|
3.32
|
|
|
$4.01 - $6.00
|
|
|
14,076
|
|
|
4.3
|
|
$
|
5.52
|
|
|
14,076
|
|
|
4.3
|
|
$
|
5.52
|
|
|
$6.01 - $8.00
|
|
|
49,700
|
|
|
3.0
|
|
$
|
7.04
|
|
|
49,700
|
|
|
3.0
|
|
$
|
7.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,052,026
|
|
|
7.2
|
|
$
|
2.32
|
|
|
416,030
|
|
|
4.8
|
|
$
|
2.95
|
|
F-22
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. SHARE BASED COMPENSATION (Continued)
The
aggregate intrinsic value of options outstanding and exercisable at December 30, 2017 and December 31, 2016 are $5 and $9, respectively. As of December 30, 2017,
there was approximately $364 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 vesting period. A summary of restricted stock awards made in the year ended December 30, 2017, is as follows:
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Grant Date
Fair Value
|
|
Non-vested restricted stock awards as of December 31, 2016
|
|
|
268,432
|
|
$
|
1.96
|
|
Granted
|
|
|
234,000
|
|
$
|
1.86
|
|
Vested and released
|
|
|
126,591
|
|
$
|
1.94
|
|
Forfeited
|
|
|
44,325
|
|
$
|
2.05
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock awards as of December 30, 2017
|
|
|
331,516
|
|
$
|
1.88
|
|
|
|
|
|
|
|
|
|
As
of December 30, 2017, there was approximately $314 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 did not
recognize any compensation expense in fiscal 2017 and fiscal 2016 related to this award as it is unlikely that performance metrics will be achieved.
7. 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
F-23
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. PROFIT SHARING PLAN (Continued)
funded
throughout the year. For the years ended December 30, 2017 and December 31, 2016, the Company recorded 401(k) matching expense of $386 and $356, respectively.
8. MAJOR CUSTOMERS
Sales to the Company's top seven customers together comprised approximately 77% of our sales in fiscal 2017 and 75% of our sales in fiscal 2016. Of these customers, four generated more
than 10% of sales for fiscal 2017: Amazon.com (25%), Babies R Us/Toys R Us (17%), Walmart (16%), and Target (11%). In fiscal 2016, four customers generated more than
10% of sales: Amazon.com (20%), Babies R Us/Toys R Us (20%), Walmart (15%), and Target (11%).
9. 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 2020. Royalty expense under these licensing agreements for the years
ended December 30, 2017 and December 31, 2016 were approximately $69 and $315, 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 March 2022, 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 2023. 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 $25 over the course of the
lease term. Summer Infant
F-24
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. COMMITMENTS AND CONTINGENCIES (Continued)
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 expires in September 2021. Monthly payments were $170 in fiscal 2017 and escalate
to $186 over the remaining life of the lease.
During
November 2017, Summer Infant Asia entered into a two year office lease which requires monthly payments of $10 through 2019.
Approximate
future minimum rental payments due under these leases are as follows(a):
|
|
|
|
|
Fiscal Year Ending:
|
|
|
|
2018
|
|
$
|
2,561
|
|
2019
|
|
|
2,625
|
|
2020
|
|
|
2,554
|
|
2021
|
|
|
2,045
|
|
2022 and beyond
|
|
|
478
|
|
|
|
|
|
|
Total
|
|
$
|
10,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(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 30, 2017 and December 31, 2016 totaled approximately $2,654 and $2,692, 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 1-7% 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 current routine litigation and administrative complaints is likely to have a material adverse effect on the Company's financial condition or results of operations.
10. 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.
F-25
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. GEOGRAPHICAL INFORMATION (Continued)
The
following is a table that presents net revenue by geographic area:
|
|
|
|
|
|
|
|
|
|
For the fiscal year
ended
|
|
|
|
December 30,
2017
|
|
December 31,
2016
|
|
United States
|
|
$
|
157,159
|
|
$
|
163,381
|
|
All Other
|
|
|
32,710
|
|
|
30,947
|
|
|
|
|
|
|
|
|
|
|
|
$
|
189,869
|
|
$
|
194,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following is a table that presents total assets by geographic area:
|
|
|
|
|
|
|
|
|
|
December 30,
2017
|
|
December 31,
2016
|
|
United States
|
|
$
|
82,851
|
|
$
|
84,519
|
|
All Other
|
|
|
15,179
|
|
|
17,218
|
|
|
|
|
|
|
|
|
|
|
|
$
|
98,030
|
|
$
|
101,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following is a table that presents total long lived assets by geographic area:
|
|
|
|
|
|
|
|
|
|
December 30,
2017
|
|
December 31,
2016
|
|
United States
|
|
$
|
22,763
|
|
$
|
24,512
|
|
All Other
|
|
|
2,961
|
|
|
4,212
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,724
|
|
$
|
28,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. SUBSEQUENT EVENTS
The Company has evaluated all events or transactions that occurred after December 30, 2017 through the date of this Annual Report. No subsequent event disclosures are required.
F-26
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