Note 7 - Acquisition of Business

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Business Combination Disclosure [Text Block]

NOTE 7 – Acquisition of Business:

On March 8, 2016, the Company closed on the acquisition of substantially all of the assets of BAMKO, Inc. (“BAMKO”). The transaction had an effective date of March 1, 2016. BAMKO is a full-service merchandise sourcing and promotional products company based in Los Angeles, CA. With sales offices in the United States, England and Brazil, as well as support offices in China, Hong Kong, and India, BAMKO serves many of the world’s most successful brands. The purchase price for the asset acquisition consists of approximately $15,800,000 in cash, subject to adjustment, the issuance of approximately 324,000 restricted shares of Superior Uniform Group, Inc.’s common stock that will vest over a five year period, the potential future payment of approximately $5,500,000 in additional contingent consideration through 2021, and the assumption of certain liabilities of BAMKO. The transaction also includes the acquisition of BAMKO’s subsidiaries in Hong Kong, China, Brazil and England as well as an affiliate in India.

The foregoing description of the asset purchase agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the agreement, which is filed as an exhibit to the Quarterly Report on Form 10-Q filed on April 28, 2016. The agreement has been attached to provide investors with information regarding its terms. It is not intended to modify or supplement any factual disclosures about the Company in its public reports filed with the Securities and Exchange Commission and it is not intended to be, and should not be relied upon as, disclosure regarding any facts and circumstances relating to the Company or BAMKO. In particular, the representations, warranties and covenants set forth in the agreement (a) were made solely for purposes of the agreement and solely for the benefit of the contracting parties, (b) may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made to a contracting party in connection with the agreement, (c) in certain cases, will survive for only a limited period of time, (d) are qualified in certain circumstances by a materiality standard which may differ from what may be viewed as material by investors, (e) were made only as of the date of the agreement or such other date as is specified in the agreement, and (f) may have been included in the agreement for the purpose of allocating risk between the parties rather than establishing matters as facts. Investors are not third-party beneficiaries under the agreement, and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or conditions of the parties. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the agreement, which subsequent information may or may not be fully reflected in subsequent public disclosures. Accordingly, the representations and warranties in the agreement should not be viewed or relied upon as statements of actual facts or the actual state of affairs of the Company or any of its subsidiaries or affiliates.

Fair Value of Consideration Transferred

A summary of the purchase price is as follows:

Cash consideration at closing, net of cash acquired	$	15,161,000
Restricted shares of Superior common stock issued		4,558,000
Total Considerations	$	19,719,000

Assets Acquired and Liabilities Assumed

The total purchase price was allocated to the acquired tangible and intangible assets and assumed liabilities of BAMKO based on their estimated fair values as of March 1, 2016. The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was allocated to goodwill.

The following table presents the preliminary allocation of the total fair value of consideration transferred, as shown above, to the acquired tangible and intangible assets and assumed liabilities of BAMKO based on their estimated fair values as of the effective date of the transaction.

The assets and liabilities of BAMKO shown below are based on our preliminary estimates of their acquisition effective date fair values. Our final fair value determinations may be significantly different than those shown below.

The following is our preliminary assignment of the aggregate consideration:

Accounts receivable	$	4,885,000
Prepaid expenses and other current assets		3,200,000
Inventories		236,000
Property, plant and equipment		199,000
Other assets		100,000
Identifiable intangible assets		11,360,000
Goodwill		6,994,000
Total assets	$	26,974,000
Accounts payable	$	1,314,000
Other current liabilities		736,000
Future contingent liabilities		5,205,000
Total liabilities	$	7,255,000

The Company recorded $11,360,000 in identifiable intangibles at fair value, consisting of $2,090,000 in acquired customer relationships, $370,000 in non-compete agreements from the former owners of BAMKO, and $8,900,000 for the acquired trade name.

The estimated value for acquisition-related contingent consideration payable is $5,205,000. The Company will continue to evaluate this liability for remeasurement at the end of each reporting period and any change will be recorded in the Company’s consolidated statement of comprehensive income. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the estimated value of the liability.

Goodwill was calculated as the difference between the fair value of the consideration and the preliminary values assigned to the assets acquired and liabilities assumed. The purchase price and goodwill allocation are expected to be finalized during the remainder of 2016 as the Company completes its process of evaluating all relevant data associated with the transaction.

The intangible assets associated with the customer relationships will be amortized for seven years beginning on March 1, 2016 and the non-compete agreement will be amortized for five years and ten months. The trade name is considered an indefinite-life asset and as such will not be amortized.

The Company recognized amortization expense on these acquired intangible assets of $90,000 and $211,000 for the three and nine-month periods ended September 30, 2016, respectively.

For the three and nine-month periods ended September 30, 2016, the Company incurred and expensed transaction related expenses of approximately $44,000 and $1,116,000, respectively. These amounts are included in selling and administrative expenses on the consolidated statements of comprehensive income.

Net revenues for BAMKO of $6,215,000 and $19,854,000, respectively, are included in the Company’s consolidated statements of comprehensive income for the three-month period ended September 30, 2016 and for the period from the effective date of the acquisition, March 1, 2016, through September 30, 2016, respectively. For the three-month period ended September 30, 2016, and for the period from the effective date of the acquisition, March 1, 2016, through September 30, 2016, respectively, income (loss) before taxes on income of ($19,000) and ($428,000), respectively are included in the Company’s consolidated statements of comprehensive income. These amounts are inclusive of the acquisition related expenses discussed above.

On a pro forma basis as if the results of this acquisition had been included in our consolidated results for the entire nine-month periods ended September 30, 2016 and 2015, net sales would have increased approximately $6,587,000 in 2016 and $20,865,000 in 2015. Net income for the nine-month period ended September 30, 2016 would have increased approximately $1,021,000 and net income for the nine-month period ended September 30, 2015 would have decreased approximately $1,344,000 from our reported net income for these periods. Pre-tax acquisition related expenses of $1,116,000 have been recorded as though they were incurred as of January 1, 2015 for this comparison.