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 29,
2018
|
|
December 30,
2017
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,251
|
)
|
$
|
(2,249
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Bad debt expense
|
|
|
1,963
|
|
|
1,558
|
|
Depreciation and amortization
|
|
|
4,182
|
|
|
4,197
|
|
Stock-based compensation
|
|
|
523
|
|
|
494
|
|
Write off of unamortized deferred financing costs
|
|
|
518
|
|
|
|
|
Deferred income taxes
|
|
|
(193
|
)
|
|
1,911
|
|
Changes in assets and liabilities, net of effects of acquisitions
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
3,035
|
|
|
(3,859
|
)
|
(Increase) decrease in inventory
|
|
|
(2,524
|
)
|
|
2,353
|
|
(Increase) decrease in prepaids and other current assets
|
|
|
(71
|
)
|
|
790
|
|
Decrease in other assets
|
|
|
(42
|
)
|
|
19
|
|
Increase (decrease) in accounts payable and accrued expenses
|
|
|
2,406
|
|
|
(4,003
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
5,546
|
|
|
1,211
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Acquisitions of property and equipment
|
|
|
(3,472
|
)
|
|
(3,103
|
)
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,472
|
)
|
|
(3,103
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Repayment of Prior Term Loan Facility
|
|
|
(5,000
|
)
|
|
(2,000
|
)
|
Repayment of Prior FILO Facility
|
|
|
(1,250
|
)
|
|
(2,500
|
)
|
Payment of financing fees and expenses
|
|
|
(1,958
|
)
|
|
|
|
Proceeds from New Term Loan Facility
|
|
|
17,500
|
|
|
|
|
Repayment of New Term Loan Facility
|
|
|
(219
|
)
|
|
|
|
Net borrowings (repayments) on revolving facilities
|
|
|
(11,097
|
)
|
|
5,815
|
|
Issuance of common stock upon exercise of stock options
|
|
|
25
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(1,999
|
)
|
|
1,321
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(35
|
)
|
|
253
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
40
|
|
|
(318
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
681
|
|
|
999
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
721
|
|
$
|
681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
2,944
|
|
$
|
2,274
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes
|
|
$
|
280
|
|
$
|
358
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-6
Table of Contents
Consolidated Statements of Stockholders' Equity
For the Fiscal Years Ended December 29, 2018 and December 30, 2017
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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon vesting of restricted shares
|
|
|
170,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon exercise of stock options
|
|
|
20,550
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
523
|
|
|
|
|
|
|
|
|
|
|
|
523
|
|
Net loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,251
|
)
|
|
|
|
|
(4,251
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(669
|
)
|
|
(669
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2018
|
|
|
18,820,602
|
|
$
|
2
|
|
$
|
77,396
|
|
$
|
(1,283
|
)
|
$
|
(63,885
|
)
|
$
|
(2,960
|
)
|
$
|
9,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, and baby gear.
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 29, 2018 and December 30, 2017.
Summary of Significant Accounting Policies
Revenue Recognition
As of December 31, 2017, the Company adopted FASB ASC Topic 606,
Revenue from Contracts with
Customers
("ASC 606"). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is
intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a
business or other
organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The
standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance.
The
Company reviewed all contracts at the date of initial application and elected to use the modified retrospective transition method, where the cumulative effect of the initial
application is recognized as an adjustment to opening retained earnings at December 31, 2017. Therefore, comparative prior periods have not been adjusted and continue to be reported under FASB
ASC Topic 605, Revenue Recognition, ("ASC 605"). The impact of the adoption was immaterial. Refer to Note 2 for additional information regarding the Company's adoption of ASC 606.
The
Company's principal activities from which it generates its revenue is product sales. The Company has one reportable segment of business.
Revenue
is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation in a contract by
transferring control over a product to a customer when product delivery occurs. Consideration is typically paid
F-8
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
approximately
60 days from the time control is transferred. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction,
that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer
are accounted for as a fulfillment cost and are included in selling costs.
A
performance obligation is a promise in a contract to transfer a distinct product to the customer, which for the Company is transfer of juvenile products to its customers. The
transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation.
A
transaction price is the amount of consideration the Company expects to receive under the arrangement. The Company is required to estimate variable consideration (if any) and to factor
that estimation into the determination of the transaction price. The Company conducts its business with customers through valid purchase or sales orders each of which is considered a separate contract
because individual orders are not interdependent on one another. Product transaction prices on a purchase or sale order are discrete and stand-alone. Purchase or sales orders may be issued under
either a customer master service agreement or a reseller allowance agreement. Purchase or sales orders, master service agreements, and reseller allowance agreements which are specific and unique to
each customers, may include product price discounts, markdown allowances, return allowances, and/or volume rebates which reduce the consideration due from customers. Variable consideration is
estimated using the most likely amount method, which is based on our historical experience as well as current information such as sales forecasts.
Contracts
may also include cooperative advertising arrangements where the Company allows a discount from invoiced product amounts in exchange for customer purchased advertising that
features the Company's products. These allowances are generally based upon product purchases or specific advertising campaigns. Such allowances are accrued when the related revenue is recognized.
These cooperative advertising arrangements provide a distinct benefit and fair value and are accounted for as direct selling expenses.
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.
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.
F-9
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 29,
2018
|
|
December 30,
2017
|
|
Allowance for doubtful accounts, beginning of period
|
|
$
|
1,622
|
|
$
|
64
|
|
Charges to costs and expenses
|
|
|
1,963
|
|
|
1,646
|
|
Account write-offs and other
|
|
|
(3,281
|
)
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts, end of period
|
|
$
|
304
|
|
$
|
1,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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.
F-10
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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, and accrued expenses approximate fair value. The carrying value of the
Company's debt 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
F-11
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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, each of which uses its local currency as the
their functional currency, 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 $2,045 and $1,591 for the fiscal years ended
December 29, 2018 and December 30, 2017, 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 $9,555 and $11,970 for the fiscal years ended December 29, 2018 and December 30, 2017, 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.
F-12
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 1,108,023 and 1,052,026 shares of the Company's common stock and 271,975 and
331,516 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 29, 2018 and December 30,
2017, respectively.
New Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," ("new lease standard"). The new lease standard will supersede
the current guidance for lease accounting and will require lessees to recognize right-to-use assets and related lease liabilities on the balance sheet for leases with lease terms greater than twelve
months. The objective is to increase transparency and comparability among organizations regarding lease accounting and disclosing key information about leasing arrangements. In July 2018, FASB issued
ASU 2018-10, Codification Improvements to Topic 842 (Leases), which provides narrow amendments to clarify how to apply certain aspects of the new lease standard. The amendments included
providing an optional modified retrospective transition method that allows the initial application of the lease standard at the adoption date using a cumulative-effect adjustment to the opening
balance sheet of retained earnings in the period of adoption. The Company adopted this standard on December 30, 2018 utilizing the optional modified retrospective transition method. As part of
transition, the Company elected the package of transitional practical expedients to not reassess if a contract contains a lease, lease classification, or initial direct cost for leases. Upon adoption
of the new leasing standard, we expect to recognize a lease liability of approximately $7,000 and related right-to-use asset on our consolidated balance sheet of approximately $6,400. The adoption of
the new lease standard will have an immaterial impact to our consolidated statement of income.
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. REVENUE
Disaggregation of Revenue
The Company's revenue is primarily from distinct fixed-price product sales in the juvenile product market, to similar customers and channels
utilizing similar types of contracts that are short term in nature (less than one year). The Company does not sell service agreements or goods over a period of time and does not sell or utilize
customer financing arrangements or time-and-material contracts.
F-13
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. REVENUE (Continued)
The
following is a table that presents net sales by geographical area:
|
|
|
|
|
|
|
|
|
|
For the
fiscal year ended
|
|
|
|
December 29,
2018
|
|
December 30,
2017
|
|
United States
|
|
$
|
145,534
|
|
$
|
157,159
|
|
All Other
|
|
|
28,085
|
|
|
32,710
|
|
|
|
|
|
|
|
|
|
|
|
$
|
173,619
|
|
$
|
189,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Other consists of Canada, Europe, South America, Mexico, Asia, and the Middle East.
Contract Balances
The Company does not have any contract assets such as work-in-process or contract liabilities such as customer advances. All trade receivables
on the Company's condensed consolidated balance sheet are from contracts with customers.
Contract Costs
Costs incurred to obtain a contract are capitalized unless short term in nature. As a practical expedient, costs to obtain a contract that are
short term in nature are expensed as incurred. All contract costs incurred in 2018 fall under the provisions of the practical expedient and have therefore been expensed.
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
For the fiscal year
ended
|
|
|
|
|
December 29,
2018
|
|
December 30,
2017
|
|
Depreciation/
Amortization Period
|
Computer-related
|
|
$
|
4,556
|
|
$
|
3,994
|
|
5 years
|
Tools, dies, prototypes, and molds
|
|
|
28,361
|
|
|
28,445
|
|
1 - 5 years
|
Building
|
|
|
4,156
|
|
|
4,156
|
|
30 years
|
Other
|
|
|
7,148
|
|
|
6,246
|
|
1 - 15 years
|
|
|
|
|
|
|
|
|
|
|
|
|
44,221
|
|
|
42,841
|
|
|
Less: accumulated depreciation
|
|
|
34,536
|
|
|
33,201
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
9,685
|
|
$
|
9,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment included amounts acquired under capital leases of approximately $589 and $0 at December 29, 2018 and December 30, 2017, respectively, with related
accumulated depreciation of approximately $31 and $0, respectively. Total depreciation expense was $3,436 and $3,430 for the fiscal years ended December 29, 2018 and December 30, 2017,
respectively.
F-14
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
For the
fiscal year ended
|
|
|
|
December 29,
2018
|
|
December 30,
2017
|
|
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
|
|
|
(11,113
|
)
|
|
(10,367
|
)
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
13,300
|
|
$
|
14,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 29, 2018 and December 30, 2017, respectively.
Amortization
expense amounted to $746 and $768 for the fiscal years ended December 29, 2018 and December 30, 2017, respectively.
The
Company performed its annual indefinite-lived intangible asset impairment analysis in the fourth fiscal quarter . No asset impairment was recorded for the fiscal years ended
December 29, 2018 and December 30, 2017.
Estimated
amortization expense for the remaining definite-lived assets for the next five years is as follows:
|
|
|
|
|
Fiscal Year ending
|
|
|
|
2019
|
|
$
|
738
|
|
2020
|
|
|
488
|
|
2021
|
|
|
488
|
|
2022
|
|
|
488
|
|
2023
|
|
|
488
|
|
5. DEBT
Bank of America Credit Facility.
On June 28, 2018, the Company and Summer Infant (USA), Inc., as borrowers, entered into a
Second
Amended and Restated Loan and Security Agreement with Bank of America, N.A., as agent, the financial institutions party to the agreement from time to time as lenders, and certain subsidiaries of the
Company as guarantors (the "Restated BofA Agreement"). The Restated BofA Agreement replaced the Company's prior credit facility with Bank of America, and
provides for a $60,000, asset-based revolving credit facility, with a $5,000 letter of credit sub-line facility. The total borrowing capacity is based on a borrowing base, which is defined as 85% of
eligible receivables 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 applicable reserves. The
scheduled maturity date of loans
F-15
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. DEBT (Continued)
under
the Restated BofA Agreement is June 28, 2023 (subject to customary early termination provisions).
All
obligations under the Restated BofA Agreement are secured by substantially all the assets of the Company, including a first priority lien on accounts receivable and inventory and a
junior lien on certain assets subject to the term loan lender's first priority lien described below. Summer Infant Canada Limited and Summer Infant Europe Limited, subsidiaries of the Company, are
guarantors under the Restated BofA Agreement. Proceeds from the loans were used to satisfy existing debt, pay fees and transaction expenses associated with the closing of the Restated BofA Agreement
and may be used to pay obligations under the Restated BofA Agreement, and for lawful corporate purposes, including working capital.
Loans
under the Restated BofA Agreement bear interest, at the Company's option, at a base rate or at LIBOR, plus applicable margins based on average quarterly availability under the
Restated BofA Agreement. Interest payments are due monthly, payable in arrears. The Company is also required to pay an annual non-use fee on unused amounts, as well as other customary fees as are set
forth in the Restated BofA Agreement. The Restated BofA Agreement 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. In addition, if availability falls below a specified
amount, a springing covenant would be in effect requiring the Company to maintain a fixed charge coverage ratio at the end of each fiscal month of at least 1.0 to 1.0 for the twelve-month period then
ended.
The
Restated BofA Agreement also contains customary events of default, including a cross default with the Term Loan and the occurrence of a change of control. In the event of a default,
all of the obligations of the Company and its subsidiaries under the Restated BofA Agreement may be declared immediately due and payable. For certain events of default relating to insolvency and
receivership, all outstanding obligations become due and payable.
As
of December 29, 2018, under the Restated BofA Agreement, the rate on base-rate loans was 6.50% and the rate on LIBOR-rate loans was 4.50%. The amount outstanding on the
Restated BofA Agreement at December 29, 2018 was $30,630. Total borrowing capacity at December 29, 2018 was $42,717 and borrowing availability was $12,087.
Prior
to entering into the Restated BofA Agreement, the Company and Summer Infant (USA), Inc. were parties to an amended and restated loan and security agreement with Bank of America,
N.A., as agent, which provided for an asset-based credit facility (the "Prior Credit Facility"). The Prior Credit Facility consisted 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" revolving credit facility (the "FILO Facility") and a $10,000 term loan facility (the "Term Loan Facility").
The total borrowing capacity under the Revolving Facility was 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 was 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. As
noted above, all obligations under the Revolving Facility and Term Loan Facility were repaid in connection with the Restated BofA Agreement and Term Loan Agreement described below. Loans under the
FILO Facility were repaid April 21, 2018.
F-16
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. DEBT (Continued)
Term Loan Agreement.
On June 28, 2018, the Company and Summer Infant (USA), Inc., as borrowers, entered into a Term Loan and
Security
Agreement (the "Term Loan Agreement") with Pathlight Capital LLC, as agent, each lender from time to time a party to the Term Loan Agreement, and certain subsidiaries of the Company as
guarantors, providing for a $17,500 term loan (the "Term Loan"). Proceeds from the Term Loan were used to satisfy existing debt, pay fees and transaction expenses associated with the closing of the
Term Loan and may be used to pay obligations under the Term Loan Agreement, and for lawful corporate purposes, including working capital. The Term Loan is secured by a lien on certain assets of the
Company, including a first priority lien on intellectual property, machinery and equipment, and a pledge of (i) 100% of the ownership interests of domestic subsidiaries and (ii) 65% of
the ownership interests in certain foreign subsidiaries of the Company, and a junior lien on certain assets subject to the liens under the Restated BofA Agreement described above. The Term Loan
matures on June 28, 2023. Summer Infant Canada Limited and Summer Infant Europe Limited, subsidiaries of the Company, are guarantors under the Term Loan Agreement.
The
principal of the Term Loan will be repaid, on a quarterly basis, in installments of $219, with the first installment paid on December 1, 2018, until paid in full on
termination. The Term Loan bears interest at an annual rate equal to LIBOR, plus 9.0%. Interest payments are due monthly, in arrears. Obligations under the Term Loan Agreement are also subject to
restrictions on prepayment and a prepayment penalty if the Term Loan is repaid prior to the third anniversary of the closing of the Term Loan.
The
Term Loan Agreement contains customary affirmative and negative covenants that are substantially the same as the Restated BofA Agreement. In addition, if availability falls below a
specified amount, then the Company must maintain a fixed charge coverage ratio at the end of each fiscal month of at least 1.0 to 1.0 for the twelve-month period then ended. The Term Loan Agreement
also contains events of default, including a cross default with the Restated BofA Agreement and the occurrence of a change of control. In the event of a default, all of the obligations of the Company
and its subsidiaries under the Term Loan Agreement may be declared immediately due and payable. For certain events of default relating to insolvency and receivership, all outstanding obligations
become due and payable.
As
of December 29, 2018, the interest rate on the Term Loan was 11.74%. The amount outstanding on the Term Loan at December 29, 2018 was $17,281.
The
refinancing transaction was evaluated to determine the proper accounting treatment for the transaction. Accordingly, debt extinguishment accounting was used to account for the
prepayment of the prior term loan facility and to prepay two members of the lender group for the prior credit facility with Bank of America that did not continue in the amended and restated credit
facility, resulting in the write off of $518 in remaining unamortized deferred financing costs for the twelve months ended December 29, 2018. Debt modification accounting was used for the
remaining member of the lender group for the prior credit facility, resulting in remaining unamortized deferred financing costs of $675 and the new financing costs of $1,958 to be capitalized and
amortized over the life of the new credit facility.
F-17
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. DEBT (Continued)
Aggregate
maturities of bank debt related to the credit facility:
|
|
|
|
|
Fiscal Year ending:
|
|
|
|
2019
|
|
$
|
875
|
|
2020
|
|
|
875
|
|
2021
|
|
|
875
|
|
2022
|
|
|
875
|
|
2023
|
|
|
44,411
|
|
|
|
|
|
|
Total
|
|
$
|
47,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
debt issuance costs were $2,395 at December 29, 2018 and $1,127 at December 30, 2017, and are presented as a direct deduction of long-term debt on the
consolidated balance sheets.
Sale-Leaseback
On March 24, 2009, Summer Infant (USA), Inc., ("Summer USA") the Company's wholly owned subsidiary, 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, former director 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 would end on March 31, 2018, and the term of the Lease could 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
F-18
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. DEBT (Continued)
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.
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 years of the newly amended term was set at $468, (iii) Summer USA 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.
At
December 29, 2018, approximately $406 of the lease obligation was included in accrued expenses, with the balance of approximately $2,164 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:
|
|
|
|
2019
|
|
|
468
|
|
2020
|
|
|
468
|
|
2021
|
|
|
117
|
|
|
|
|
|
|
Total
|
|
$
|
1,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. 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 29, 2018 the Company has non-deductible interest for tax
purposes resulting in a deferred tax asset in the amount of $933. The Company recorded a valuation allowance on the value of this deferred tax asset of $933 until such time as it becomes more likely
than not that this asset will be recognized. In the fiscal quarter ending December 30, 2017, the Company recorded a tax or "toll charge" of $734 on previously unremitted earnings of foreign
subsidiaries, a write-down of $882 related to foreign tax credits and a write-down of the value of our deferred tax assets of $115 which was a result of the change in federal tax rates from 35% to
21%.
F-19
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INCOME TAXES (Continued)
The
provision (benefit) for income taxes is summarized as follows:
|
|
|
|
|
|
|
|
|
|
Fiscal 2018
|
|
Fiscal 2017
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
$
|
|
|
Foreign
|
|
|
(382
|
)
|
|
256
|
|
State and local
|
|
|
11
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(371
|
)
|
|
261
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
114
|
|
$
|
1,631
|
|
Foreign
|
|
|
(109
|
)
|
|
175
|
|
State and local
|
|
|
(198
|
)
|
|
105
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(193
|
)
|
|
1,911
|
|
|
|
|
|
|
|
|
|
Total provision (benefit)
|
|
$
|
(564
|
)
|
$
|
2,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
tax effects of temporary differences that comprise the deferred tax liabilities and assets are as follows:
|
|
|
|
|
|
|
|
|
|
December 29,
2018
|
|
December 30,
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
43
|
|
$
|
7
|
|
Inventory and Unicap reserve
|
|
|
492
|
|
|
477
|
|
Interest deduction limitation
|
|
|
933
|
|
|
|
|
Research and development credit, foreign tax credit and net operating loss carry-forward
|
|
|
6,553
|
|
|
6,338
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
8,021
|
|
|
6,822
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Intangible assets and other
|
|
|
(1,834
|
)
|
|
(1,905
|
)
|
Property, plant and equipment
|
|
|
(42
|
)
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(1,876
|
)
|
|
(2,098
|
)
|
Valuation allowance
|
|
|
(4,018
|
)
|
|
(2,789
|
)
|
|
|
|
|
|
|
|
|
Deferred tax liabilities and valuation allowance
|
|
|
(5,894
|
)
|
|
(4,887
|
)
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
2,127
|
|
$
|
1,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. 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 2018
|
|
Fiscal 2017
|
|
Tax benefit at statutory rate
|
|
$
|
(1,014
|
)
|
$
|
(26
|
)
|
State income taxes, net of U.S. federal income tax benefit
|
|
|
(147
|
)
|
|
87
|
|
Adjustment to uncertain tax position
|
|
|
(325
|
)
|
|
(16
|
)
|
Stock options
|
|
|
46
|
|
|
52
|
|
Foreign tax rate differential
|
|
|
108
|
|
|
(14
|
)
|
Tax credits
|
|
|
(515
|
)
|
|
(172
|
)
|
Non-deductible expenses
|
|
|
158
|
|
|
315
|
|
Foreign repatriation/toll tax
|
|
|
|
|
|
734
|
|
Increase in valuation allowance
|
|
|
1,229
|
|
|
882
|
|
Foreign dividends/section 956
|
|
|
|
|
|
86
|
|
Tax rate changes
|
|
|
|
|
|
115
|
|
Other
|
|
|
(104
|
)
|
|
129
|
|
|
|
|
|
|
|
|
|
Total benefit
|
|
$
|
(564
|
)
|
$
|
2,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 29, 2018, the Company had approximately $4,758 of US 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 $1,043, $432, $2,823, $415, and $1,134 of NOLs in Canada, Australia, Israel,
Asia, 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 $2,290 relating to certain state tax credits and foreign NOLs is necessary at
December 29, 2018 and $1,907 at December 30, 2017. Due to the Tax Act, the Company determined a valuation allowance in the amount of $1,728 at December 29, 2018 and $882 at
December 30, 2017 relating to interest deduction limitations and foreign tax credits was necessary.
A
summary of the Company's adjustment to its uncertain tax positions in fiscal years ended December 29, 2018 and December 30, 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
December 29,
2018
|
|
December 30,
2017
|
|
Balance, at beginning of the year
|
|
$
|
325
|
|
$
|
341
|
|
Increase for tax positions related to the current year
|
|
|
|
|
|
|
|
Increase for tax positions related to prior years
|
|
|
|
|
|
|
|
Increase for interest and penalties
|
|
|
|
|
|
13
|
|
Decrease for lapses of statute of limitations
|
|
|
(325
|
)
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
Balance, at end of year
|
|
$
|
0
|
|
$
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INCOME TAXES (Continued)
The unrecognized tax benefits mentioned above include an aggregate of $65 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 prior fiscal year. The entire balance of $325 was reversed as of the year-ended December 29, 2018 due to lapse of statute of limitations.
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.
7. 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 29, 2018 and December 30,
2017 of $523 and $494, respectively. Share based compensation expense is included in selling, general and administrative expenses.
As
of December 29, 2018, there are 868,655 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 2018 and 2017 is based on awards that are ultimately expected to vest.
F-22
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. SHARE BASED COMPENSATION (Continued)
The
following table summarizes the weighted average assumptions used for options granted during the fiscal years ended December 29, 2018 and December 30, 2017.
|
|
|
|
|
|
|
|
|
|
Fiscal
2018
|
|
Fiscal
2017
|
|
Expected life (in years)
|
|
|
4.9
|
|
|
4.9
|
|
Risk-free interest rate
|
|
|
2.7
|
%
|
|
1.9
|
%
|
Volatility
|
|
|
64.1
|
%
|
|
71.4
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
0.0
|
%
|
Forfeiture rate
|
|
|
23.2
|
%
|
|
22.6
|
%
|
The
weighted-average grant date fair value of options granted during the year ended December 29, 2018 was $0.55 per share. The weighted-average grant date fair value of options
granted during the year ended December 30, 2017 was $1.16 per share.
A
summary of the status of the Company's options as of December 29, 2018 and changes during the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
Number Of
Shares
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at beginning of year
|
|
|
1,052,026
|
|
$
|
2.32
|
|
Granted
|
|
|
375,240
|
|
$
|
0.99
|
|
Exercised
|
|
|
20,550
|
|
$
|
1.21
|
|
Canceled or expired
|
|
|
298,693
|
|
$
|
1.94
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
1,108,023
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 29, 2018
|
|
|
568,513
|
|
$
|
2.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
stock options vested and expected to vest as of December 29, 2018 is 955,014. The intrinsic value of options exercised totaled was $2 and $3 for the fiscal years ended
December 29, 2018 and December 30, 2017, respectively.
The
following table summarizes information about stock options at December 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$0.81 - $1.00
|
|
|
189,000
|
|
|
9.4
|
|
$
|
0.84
|
|
|
0
|
|
|
|
|
|
|
|
|
$1.01 - $1.50
|
|
|
199,140
|
|
|
8.5
|
|
$
|
1.26
|
|
|
126,065
|
|
|
8.6
|
|
$
|
1.22
|
|
|
$1.51 - $2.00
|
|
|
462,000
|
|
|
7.6
|
|
$
|
1.89
|
|
|
224,750
|
|
|
7.2
|
|
$
|
1.86
|
|
|
$2.01 - $4.00
|
|
|
199,563
|
|
|
6.2
|
|
$
|
2.69
|
|
|
159,378
|
|
|
5.9
|
|
$
|
2.78
|
|
|
$4.01 - $8.00
|
|
|
58,320
|
|
|
2.2
|
|
$
|
6.75
|
|
|
58,320
|
|
|
2.2
|
|
$
|
6.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,108,023
|
|
|
7.6
|
|
$
|
2.00
|
|
|
568,513
|
|
|
6.6
|
|
$
|
2.48
|
|
The
aggregate intrinsic value of options outstanding and exercisable at December 29, 2018 and December 30, 2017 are $0 and $5, respectively. As of December 29, 2018,
there was approximately
F-23
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. SHARE BASED COMPENSATION (Continued)
$235
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 2.3 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 29, 2018, is as follows:
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Grant Date
Fair Value
|
|
Non-vested restricted stock awards as of December 30, 2017
|
|
|
331,516
|
|
$
|
1.88
|
|
Granted
|
|
|
188,000
|
|
$
|
1.27
|
|
Vested and released
|
|
|
173,391
|
|
$
|
1.52
|
|
Forfeited
|
|
|
74,150
|
|
$
|
1.78
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock awards as of December 29, 2018
|
|
|
271,975
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
|
As
of December 29, 2018, there was approximately $236 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 2.4 years.
On July 13, 2016, the Company granted 100,000 performance-based RSUs to its new Chief Executive Officer. The RSUs represented the right
to receive shares of the Company's common stock upon achievement of specified performance metrics and only vested if such performance metrics were achieved for fiscal year 2017 and fiscal year 2018.
The RSUs expire if the performance metrics are not achieved or if employment is terminated. As the performance metrics have not been achieved, the RSUs have expired and the Company did not recognize
any compensation expense in fiscal 2018 and 2017 related to this award.
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 29, 2018 and December 30, 2017, the Company recorded 401(k) matching expense of $380 and $386, respectively.
9. MAJOR CUSTOMERS
Sales to the Company's top seven customers together comprised approximately 77% of our sales in fiscal 2018 and 77% of our sales in fiscal 2017. Of these customers, three generated more
than 10% of sales for fiscal 2018: Amazon.com (23%), Walmart (23%), and Target (16%). In fiscal 2017, four
F-24
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. MAJOR CUSTOMERS (Continued)
customers
generated more than 10% of sales: Amazon.com (25%), Babies R Us/Toys R Us (17%), Walmart (16%), and Target (11%).
10. COMMITMENTS AND CONTINGENCIES
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 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 $175 in fiscal 2018 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:
|
|
|
|
2019
|
|
$
|
2,627
|
|
2020
|
|
|
2,556
|
|
2021
|
|
|
2,048
|
|
2022
|
|
|
323
|
|
2023 and beyond
|
|
|
154
|
|
|
|
|
|
|
Total
|
|
$
|
7,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
Amounts
exclude payments for sales-leaseback transaction as described in Note 5.
F-25
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. COMMITMENTS AND CONTINGENCIES (Continued)
Rent
expense (excluding taxes, fees and other charges) for the years ended December 29, 2018 and December 30, 2017 totaled approximately $2,736 and $2,654, 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.
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 29,
2018
|
|
December 30,
2017
|
|
United States
|
|
$
|
145,534
|
|
$
|
157,159
|
|
All Other
|
|
|
28,085
|
|
|
32,710
|
|
|
|
|
|
|
|
|
|
|
|
$
|
173,619
|
|
$
|
189,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following is a table that presents total assets by geographic area:
|
|
|
|
|
|
|
|
|
|
December 29,
2018
|
|
December 30,
2017
|
|
United States
|
|
$
|
82,631
|
|
$
|
82,851
|
|
All Other
|
|
|
11,585
|
|
|
15,179
|
|
|
|
|
|
|
|
|
|
|
|
$
|
94,216
|
|
$
|
98,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
Table of Contents
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. GEOGRAPHICAL INFORMATION (Continued)
The
following is a table that presents total long lived assets by geographic area:
|
|
|
|
|
|
|
|
|
|
December 29,
2018
|
|
December 30,
2017
|
|
United States
|
|
$
|
23,165
|
|
$
|
22,763
|
|
All Other
|
|
|
2,044
|
|
|
2,961
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,209
|
|
$
|
25,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. SUBSEQUENT EVENTS
The Company has evaluated all events or transactions that occurred after December 29, 2018 through the date of this Annual Report on Form 10-K. No subsequent event
disclosures are required.
F-27
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