| UNITED STATES |
| SECURITIES AND EXCHANGE COMMISSION |
| WASHINGTON, D.C. 20549 |
| FORM |
| (Mark One) |
| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
| For the quarterly period ended | |||||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
| For the transition period from ________ to __________ |
| Commission file number: |
| Exact name of registrant as specified in its charter: |
| SUPERIOR GROUP OF COMPANIES, INC. |
| State or other jurisdiction of incorporation or organization: | I.R.S. Employer Identification No.: |
| | |
| Address of principal executive offices: | ||||||||
| | ||||||||
| |
| Registrant’s telephone number, including area code: | ||||||||
| |
| Former name, former address and former fiscal year, if changed since last report: ___________________ |
| Securities registered pursuant to Section 12(b) of the Act: |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | |
| |
| Non-accelerated filer ☐ |
| Smaller Reporting Company | |
|
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| Emerging Growth Company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of common stock of the registrant outstanding as of July 22, 2020 was
TABLE OF CONTENTS
| PART I - FINANCIAL INFORMATION |
| SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| (Unaudited) |
| (In thousands, except shares and per share data) |
| Three Months Ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| Net sales | $ | $ | ||||||
| Costs and expenses: | ||||||||
| Cost of goods sold | ||||||||
| Selling and administrative expenses | ||||||||
| Other periodic pension costs | ||||||||
| Interest expense | ||||||||
| Income before taxes on income | ||||||||
| Income tax expense | ||||||||
| Net income | $ | $ | ||||||
| Net income per share: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Weighted average shares outstanding during the period: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
| Other comprehensive income (loss), net of tax: | ||||||||
| Defined benefit pension plans: | ||||||||
| Recognition of net losses included in net periodic pension costs | $ | $ | ||||||
| Recognition of settlement loss included in net periodic pension costs | ||||||||
| Loss on cash flow hedging activities | ( | ) | ( | ) | ||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Other comprehensive income | ||||||||
| Comprehensive income | $ | $ | ||||||
| Cash dividends per common share | $ | $ | ||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. |
| SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| (Unaudited) |
| (In thousands, except shares and per share data) |
| Six Months Ended June 30, |
||||||||
| 2020 |
2019 |
|||||||
| Net sales |
$ | $ | ||||||
| Costs and expenses: |
||||||||
| Cost of goods sold |
||||||||
| Selling and administrative expenses |
||||||||
| Other periodic pension costs |
||||||||
| Interest expense |
||||||||
| Income before taxes on income |
||||||||
| Income tax expense |
||||||||
| Net income |
$ | $ | ||||||
| Net income per share: |
||||||||
| Basic |
$ | $ | ||||||
| Diluted |
$ | $ | ||||||
| Weighted average shares outstanding during the period |
||||||||
| Basic |
||||||||
| Diluted |
||||||||
| Other comprehensive income (loss), net of tax: |
||||||||
| Defined benefit pension plans: |
||||||||
| Recognition of net losses included in net periodic pension costs |
$ | $ | ||||||
| Recognition of settlement loss included in net periodic pension costs |
||||||||
| Loss on cash flow hedging activities |
( |
) | ( |
) | ||||
| Foreign currency translation adjustment |
( |
) | ||||||
| Other comprehensive income (loss) |
( |
) | ||||||
| Comprehensive income |
$ | $ | ||||||
| Cash dividends per common share |
$ | $ | ||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
|||||||||
| (Unaudited) |
|||||||||
| (In thousands, except share and par value data) |
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, less allowance for doubtful accounts of $ and $, respectively | ||||||||
| Accounts receivable - other | ||||||||
| Inventories | ||||||||
| Contract assets | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Other current liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Current portion of acquisition-related contingent liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Long-term pension liability | ||||||||
| Long-term acquisition-related contingent liabilities | ||||||||
| Long-term operating lease liabilities | ||||||||
| Deferred tax liability | ||||||||
| Other long-term liabilities | ||||||||
| Commitments and contingencies (Note 6) | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock, $ par value - authorized shares ( issued) | ||||||||
| Common stock, $ par value - authorized shares, issued and outstanding and shares, respectively. | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income (loss), net of tax: | ||||||||
| Pensions | ( | ) | ( | ) | ||||
| Cash flow hedges | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. |
| CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY |
| THREE MONTHS ENDED JUNE 30, 2020 AND 2019 |
| (Unaudited) |
| (In thousands, except shares and per share data) |
| Accumulated | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Additional | Comprehensive | Total | ||||||||||||||||||||||
| Common | Common | Paid-In | Retained | (Loss) Income, | Shareholders’ | |||||||||||||||||||
| Shares | Stock | Capital | Earnings | net of tax | Equity | |||||||||||||||||||
| Balance, April 1, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common shares issued upon exercise of options, net | ( | ) | ||||||||||||||||||||||
| Restricted shares issued, net | ||||||||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||||||
| Cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock reacquired and retired | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Cash flow hedges, net of taxes of $ | ( | ) | ( | ) | ||||||||||||||||||||
| Pensions, net of taxes of $ | ||||||||||||||||||||||||
| Change in currency translation adjustment, net of taxes of $ | ||||||||||||||||||||||||
| Balance, June 30, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance, April 1, 2020 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Common shares issued upon exercise of options, net | ( | ) | ||||||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Cash flow hedges, net of taxes of $ | ( | ) | ( | ) | ||||||||||||||||||||
| Pensions, net of taxes of $ | ||||||||||||||||||||||||
| Change in currency translation adjustment, net of taxes of $ | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. |
| SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY |
|
SIX MONTHS ENDED JUNE 30, 2020 AND 2019
|
| (Unaudited) |
| (In thousands, except shares and per share data) |
| Accumulated | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Additional | Comprehensive | Total | ||||||||||||||||||||||
| Common | Common | Paid-In | Retained | (Loss) Income, | Shareholders’ | |||||||||||||||||||
| Shares | Stock | Capital | Earnings | net of tax | Equity | |||||||||||||||||||
| Balance, January 1, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common shares issued upon exercise of options, net | ( | ) | ||||||||||||||||||||||
| Restricted shares issued | ||||||||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||||||
| Tax benefit from vesting of acquisition-related restricted stock | ||||||||||||||||||||||||
| Cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock reacquired and retired | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Cash flow hedges, net of taxes of $ | ( | ) | ( | ) | ||||||||||||||||||||
| Pensions, net of taxes of $ | ||||||||||||||||||||||||
| Change in currency translation adjustment, net of taxes of $ | ||||||||||||||||||||||||
| Balance, June 30, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance, January 1, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common shares issued upon exercise of options | ( | ) | ||||||||||||||||||||||
| Restricted shares issued | ||||||||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||||||
| Tax benefit from vesting of acquisition-related restricted stock | ( | ) | ( | ) | ||||||||||||||||||||
| Cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock reacquired and retired | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Cash flow hedges, net of taxes of $ | ( | ) | ( | ) | ||||||||||||||||||||
| Pensions, net of taxes of $ | ||||||||||||||||||||||||
| Change in currency translation adjustment, net of taxes of $ | ( | ) | ( | ) | ||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Unaudited) |
| (In thousands) |
| Six Months Ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Provision for bad debts - accounts receivable | ||||||||
| Share-based compensation expense | ||||||||
| Deferred income tax benefit | ( | ) | ( | ) | ||||
| Gain on sale of property, plant and equipment | ( | ) | ||||||
| Change in fair value of acquisition-related contingent liabilities | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable - trade | ( | ) | ( | ) | ||||
| Accounts receivable - other | ||||||||
| Contract assets | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ||||||
| Accounts payable and other current liabilities | ( | ) | ||||||
| Long-term pension liability | ||||||||
| Other long-term liabilities | ||||||||
| Net cash provided by operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Additions to property, plant and equipment | ( | ) | ( | ) | ||||
| Proceeds from disposals of property, plant and equipment | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from borrowings of debt | ||||||||
| Repayment of debt | ( | ) | ( | ) | ||||
| Payment of cash dividends | ( | ) | ( | ) | ||||
| Payment of acquisition-related contingent liability | ( | ) | ( | ) | ||||
| Proceeds received on exercise of stock options | ||||||||
| Tax (provision) benefit from vesting of acquisition-related restricted stock | ( | ) | ||||||
| Common stock reacquired and retired | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of currency exchange rates on cash | ( | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents balance, beginning of period | ||||||||
| Cash and cash equivalents balance, end of period | $ | $ | ||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. |
Superior Group of Companies, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements (Unaudited)
NOTE 1 – Basis of Presentation:
Basis of presentation
The condensed consolidated financial statements include the accounts of Superior Group of Companies, Inc. and its wholly-owned subsidiaries, The Office Gurus, LLC, SUG Holding, Superior Group Holdings, Inc., Fashion Seal Corporation, BAMKO, LLC and CID Resources, Inc.; The Office Gurus, Ltda, de C.V., The Office Masters, Ltda., de C.V. and The Office Gurus, Ltd., each a subsidiary of Fashion Seal Corporation and SUG Holding; and Power Three Web, Ltda. and Superior Sourcing, each a wholly-owned subsidiary of SUG Holding; BAMKO Importação, Exportação e Comércio de Brindes Ltda., a subsidiary of BAMKO, LLC and SUG Holding; Guangzhou Ben Gao Trading Limited, Worldwide Sourcing Solutions Limited, BAMKO UK, Limited, and BAMKO Merch Inc., each a direct or indirect subsidiary of BAMKO, LLC; and BAMKO India Private Limited, a
The accompanying unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Intercompany items have been eliminated in consolidation. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and filed with the Securities and Exchange Commission. Management believes that the information furnished includes all adjustments of a normal recurring nature that are necessary to fairly present our consolidated financial position, results of operations and cash flows for the periods indicated. The results of operations for any interim period are not necessarily indicative of results to be expected for the full year.
We refer to the condensed consolidated financial statements collectively as “financial statements,” and individually as “statements of comprehensive income,” “balance sheets,” “statements of shareholders’ equity,” and “statements of cash flows” herein.
Recent Accounting Pronouncements
We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not listed below were assessed and determined to be not applicable.
Recently Adopted Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by the difference between a reporting unit's carrying value and its fair value (impairment loss is limited to the carrying value). This standard is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. The Company’s adoption of this standard on January 1, 2020 did not have a material impact on its financial statements.
In August 2018, the FASB issued ASU 2018-15, “Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update also requires an entity to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement. This update is effective for fiscal years beginning after December 15, 2019 and may be applied prospectively or retrospectively. On January 1, 2020, the Company adopted this standard on a prospective basis. The Company’s adoption of this standard did not have a material impact on its financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326).” The update changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. In February 2020, the FASB issued ASU 2020-2, “Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842).” The update delayed the effective date of ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)” for Smaller Reporting Companies until fiscal years beginning after December 15, 2022. Adoption will require a modified retrospective approach beginning with the earliest period presented. The Company is currently evaluating the potential impact this standard will have on its financial statements.
In December 2019, the FASB Issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting of Income Taxes”, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating this guidance to determine what impact it may have on its financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR. This guidance includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. This guidance may be applied through December 31, 2022. The Company will apply this guidance to transactions and modifications to contracts and hedging relationships that reference LIBOR.
NOTE 2 – Inventories:
Inventories consisted of the following amounts (in thousands):
| June 30, |
December 31, |
|||||||
| 2020 |
2019 |
|||||||
| Finished goods |
$ | $ | ||||||
| Work in process |
||||||||
| Raw materials |
||||||||
| Inventories |
$ | $ | ||||||
Debt consisted of the following (in thousands):
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Credit Facilities: | ||||||||
| Revolving credit facility due May 2023 | $ | $ | ||||||
| Term loan due February 2024 (“2017 Term Loan”) | ||||||||
| Term loan due January 2026 (“2018 Term Loan”) | ||||||||
| Less: | ||||||||
| Payments due within one year included in current liabilities | ||||||||
| Debt issuance costs | ||||||||
| Long-term debt less current maturities | $ | $ | ||||||
The Company is party to an amended and restated credit agreement (the “Credit Agreement”) with Truist Bank (formerly known as Branch Banking and Trust Company), consisting of a $
Obligations outstanding under the 2018 Term Loan have a variable interest rate of LIBOR plus a margin of between
On March 30, 2020, the Company entered into debt deferment agreements with Truist Bank to: (i) defer contractual principal and interest payments due between April 1, 2020 and June 1, 2020 under the 2017 Term Loan and 2018 Term Loan until their respective maturity dates; and (ii) defer contractual interest payments due between April 1, 2020 and June 1, 2020 under the revolving credit facility until its maturity date. Contractual principal payments for the 2017 Term Loan are as follows: remainder of 2020 - $
The Company is a party to an interest rate swap with a total notional value of $
NOTE 4 – Periodic Pension Expense:
The following table details the net periodic pension expense under the Company’s plans for the periods presented (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Service cost - benefits earned during the period | $ | $ | $ | $ | ||||||||||||
| Interest cost on projected benefit obligation | ||||||||||||||||
| Expected return on plan assets | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Recognized actuarial loss | ||||||||||||||||
| Settlement loss | ||||||||||||||||
| Net periodic pension cost after settlements | $ | $ | $ | $ | ||||||||||||
The pension settlement losses included in the table above resulted from lump sum pension payments made to various employees upon their retirement or termination during the periods specified. The pension settlement losses did not require a cash outlay by the Company and did not increase the Company’s total pension expense over time, as the charge was an acceleration of costs that otherwise would be recognized as pension expense in future periods. The service cost component is included in selling and administrative expenses in our statements of comprehensive income and the other components of net periodic pension cost are included in other periodic pension costs in our statements of comprehensive income.
Effective on June 30, 2013, the Company no longer accrues additional benefits for future service or for future increases in compensation levels for the Company’s primary defined benefit pension plan.
Effective on December 31, 2014, the Company no longer accrues additional benefits for future service for the Company’s hourly defined benefit plan.
NOTE 5 – Net Sales:
For our Uniforms and Related Products and Promotional Products segments, revenue is primarily generated from the sale of finished products to customers. Revenue for our Uniforms and Related Products and Promotional Products segments is recognized when the performance obligations under the contract terms are satisfied. For certain contracts with customers in which the Company has an enforceable right to payment for goods with no alternative use, revenue is recognized over time upon receipt of finished goods into inventory. Revenue for goods that do have an alternative use or that the customer is not obligated to purchase under the terms of a contract is generally recognized when the goods are transferred to the customer. Revenue from the sale of personal protective equipment, including face masks, isolation gowns, sanitizers and gloves, is generally recognized at a point in time when the goods are transferred to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contract. The Company includes shipping and handling fees billable to customers in net sales. Shipping and handling activities that occur after the transfer of promised goods are accrued as control is transferred to the customer rather than being treated as a separate performance obligation.
For our Remote Staffing segment, revenue is generated from providing our customers with staffing solution services. Revenue for our Remote Staffing segment is recognized as services are delivered.
Revenue is measured at the amount of consideration we expect to receive in exchange for the goods or services. Variable consideration for estimated returns, allowances and other price variances is recorded based upon historical experience and current allowance programs. Contract termination terms may involve variable consideration clauses such as sales discounts and customer rebates, and revenue is adjusted accordingly for these provisions. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The promised amount of consideration in a contract is not adjusted for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised good or service to a customer and when the customer pays for that product or service will be one year or less. Sales taxes are excluded from the measurement of a performance obligation’s transaction price. Sales commissions are expensed as incurred when we expect that the amortization period of such costs will be one year or less.
The following table presents disaggregated revenue by operating segment for the periods presented (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Uniforms and Related Products Segment: | ||||||||||||||||
| Uniforms and related products | $ | $ | $ | $ | ||||||||||||
| Personal protective equipment | ||||||||||||||||
| Total Uniforms and Related Products Segment | $ | $ | $ | $ | ||||||||||||
| Remote Staffing Solutions Segment: | ||||||||||||||||
| Remote staffing solutions services | $ | $ | $ | $ | ||||||||||||
| Net intersegment eliminations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Remote Staffing Solutions Segment | $ | $ | $ | $ | ||||||||||||
| Promotional Products Segment: | ||||||||||||||||
| Promotional products | $ | $ | $ | $ | ||||||||||||
| Personal protective equipment | ||||||||||||||||
| Total Promotional Products Segment | $ | $ | $ | $ | ||||||||||||
| Consolidated Net Sales | $ | $ | $ | $ | ||||||||||||
Contract Assets and Contract Liabilities
The following table provides information about accounts receivables - trade, contract assets and contract liabilities from contracts with customers (in thousands):
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Accounts receivable - trade | $ | $ | ||||||
| Current contract assets | ||||||||
| Current contract liabilities | ||||||||
Contract assets relate to goods produced without an alternative use for which the Company has an enforceable right to payment but which have not yet been invoiced to the customer. The majority of the amounts included in contract assets on December 31, 2019 were transferred to accounts receivable during the six months ended June 30, 2020. Contract liabilities relate to payments received in advance of the Company completing its performance under a contract. Contract liabilities are included in other current liabilities in our balance sheets. The increase in contract liabilities during the six months ended June 30, 2020 was primarily attributable to new customer contracts for the sourcing of personal protective equipment within the Promotional Products and Uniforms and Related Products segments. During the six months ended June 30, 2020, $
NOTE 6 – Contingencies:
The purchase price to acquire substantially all of the assets of BAMKO, Inc. (“BAMKO”) in 2016 included contingent consideration through 2021. The estimated fair value for BAMKO acquisition-related contingent consideration payable was $
The Company is involved in various legal actions and claims arising from the normal course of business. In the opinion of management, the ultimate outcome of these matters is not expected to have a material impact on the Company’s results of operations, cash flows, or financial position.
NOTE 7 – Share-Based Compensation:
Share-based compensation is recorded in selling and administrative expense in the statements of comprehensive income. The following table details the share-based compensation expense by type of award and the total related tax benefit for the periods presented (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Stock options and SARs | $ | $ | $ | $ | ||||||||||||
| Restricted stock | ||||||||||||||||
| Performance shares | ||||||||||||||||
| Total share-based compensation expense | $ | $ | $ | $ | ||||||||||||
| Related income tax benefit | $ | $ | $ | $ | ||||||||||||
Stock options and SARs
The Company grants stock options and stock-settled SARs to employees that allow them to purchase shares of the Company’s common stock. Stock options are also granted to outside members of the Board of Directors of the Company. The Company determines the fair value of stock options and SARs at the date of grant using the Black-Scholes valuation model.
All stock options and SARs granted prior to August 3, 2018 vested immediately when granted. Awards issued thereafter vest either one or two years after the grant date. Employee awards expire years after the grant date, and those issued to directors expire years after the grant date. The Company issues new shares upon the exercise of stock options and SARs.
A summary of stock option transactions during the six months ended June 30, 2020 follows:
| Weighted Average | ||||||||||||||||
| No. of | Weighted Average | Remaining Life | Aggregate | |||||||||||||
| Shares | Exercise Price | (in years) | Intrinsic Value | |||||||||||||
| Outstanding, January 1, 2020 | $ | $ | ||||||||||||||
| Granted(1) | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Lapsed or cancelled | ( | ) | ||||||||||||||
| Outstanding, June 30, 2020 | ||||||||||||||||
| Exercisable, June 30, 2020 | ||||||||||||||||
| (1) | The weighted average grant date fair value of stock options granted was $ |
As of June 30, 2020, the Company had $
A summary of stock-settled SARs transactions during the six months ended June 30, 2020 follows:
| Weighted Average | ||||||||||||||||
| No. of | Weighted Average | Remaining Life | Aggregate | |||||||||||||
| Shares | Exercise Price | (in years) | Intrinsic Value | |||||||||||||
| Outstanding, January 1, 2020 | $ | $ | ||||||||||||||
| Granted(1) | ||||||||||||||||
| Exercised | ||||||||||||||||
| Lapsed or cancelled | ( | ) | ||||||||||||||
| Outstanding, June 30, 2020 | ||||||||||||||||
| Exercisable, June 30, 2020 | ||||||||||||||||
| (1) | The weighted average grant date fair value of SARs granted was $ |
As of June 30, 2020, the Company had $
Restricted Stock
The Company has granted restricted stock to directors and certain employees which vest at a specified future date, generally after years, or when certain conditions are met. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 Incentive Stock and Awards Plan (the “2013 Plan”). Expense for each of these grants is based on the fair value at the date of the grant and is being recognized on a straight-line basis over the respective service period.
A summary of restricted stock transactions during the six months ended June 30, 2020 follows:
| Weighted Average | ||||||||
| No. of | Grant Date | |||||||
| Shares | Fair Value | |||||||
| Outstanding, January 1, 2020 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Outstanding, June 30, 2020 | ||||||||
As of June 30, 2020, the Company had $
Performance Shares
Certain employees received service-based or service-based and performance-based shares, to which we collectively refer to as performance shares. The service-based awards vest after the service period is met, which is generally to years. Expense for these grants is based on the fair value on the date of the grant and is being recognized on a straight-line basis over the respective service period. The performance-based shares generally vest after years if the performance and service targets are met. The Company evaluates the performance conditions associated with these grants each reporting period to determine the expected number of shares to be issued. Expenses for grants of performance shares are recognized on a straight-line basis over the respective service period based on the grant date fair value and expected number of shares to be issued. The awards are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan.
A summary of performance share transactions during the six months ended June 30, 2020 follows:
| Weighted Average | ||||||||
| No. of | Grant Date | |||||||
| Shares | Fair Value | |||||||
| Outstanding, January 1, 2020 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Outstanding, June 30, 2020 | ||||||||
As of June 30, 2020, the Company had $
NOTE 8 – Income Taxes:
The Company calculates its interim income tax provision in accordance with the accounting guidance for income taxes in interim periods. At the end of each interim period, the Company makes its best estimate of the annual expected effective tax rate and applies that rate to its ordinary year-to-date income or loss. The tax expense or benefit related to significant, unusual, or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur.
The computation of the annual expected effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income for the year and permanent and temporary differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or the tax environment changes.
For the three months ended June 30, 2020, the Company recorded a provision for income taxes of $
NOTE 9 – Net Income Per Share:
The Company’s basic net income per share is computed based on the weighted average number of shares of common stock outstanding for the period. Diluted net income per share includes the effect of the Company’s outstanding stock options, stock appreciation rights, unvested shares of restricted stock and unvested performance shares, if the inclusion of these items is dilutive.
The following table presents a reconciliation of basic and diluted net income per share for the three and six months ended June 30, 2020 and 2019:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net income used in the computation of basic and diluted net income per share (in thousands) | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding - basic | ||||||||||||||||
| Dilutive common stock equivalents | ||||||||||||||||
| Weighted average shares outstanding - diluted | ||||||||||||||||
| Net income per share: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
Awards to purchase
Awards to purchase
NOTE 10 – Operating Segment Information:
The Company classifies its businesses into operating segments based on the types of products and services provided. The Uniforms and Related Products segment consists of sales to customers of uniforms and related items. The Remote Staffing Solutions segment consists of sales of staffing solutions. The Promotional Products segment consists of sales to customers of promotional products and other branded merchandise.
The Company evaluates the performance of each operating segment based on several factors of which the primary financial measures are net sales and income before taxes on income. Amounts for corporate expenses are included in the totals for the Uniforms and Related Products segment. To better reflect the way in which management now reviews the Company’s operating results, in the third quarter of 2019, the Company changed the composition of total assets for each reportable segment to exclude intercompany balances. This change has been made to all periods presented within this Quarterly Report on Form 10-Q.
The following tables set forth financial information related to the Company’s operating segments (in thousands):
| Uniforms and Related Products | Remote Staffing Solutions | Promotional Products | Intersegment Eliminations | Total | ||||||||||||||||
| As of and For the Three Months Ended June 30, 2020: | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Cost of goods sold | ( | ) | ||||||||||||||||||
| Gross margin | ( | ) | ||||||||||||||||||
| Selling and administrative expenses | ( | ) | ||||||||||||||||||
| Other periodic pension cost | ||||||||||||||||||||
| Interest expense | ||||||||||||||||||||
| Income before taxes on income | $ | $ | $ | $ | $ | |||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | |||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | |||||||||||||||
| Total assets | $ | $ | $ | $ | $ | |||||||||||||||
| Uniforms and Related Products | Remote Staffing Solutions | Promotional Products | Intersegment Eliminations | Total | ||||||||||||||||
| As of and For the Three Months Ended June 30, 2019: | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Cost of goods sold | ( | ) | ||||||||||||||||||
| Gross margin | ( | ) | ||||||||||||||||||
| Selling and administrative expenses | ( | ) | ||||||||||||||||||
| Other periodic pension cost | ||||||||||||||||||||
| Interest expense | ||||||||||||||||||||
| Income before taxes on income | $ | $ | $ | $ | $ | |||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | |||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | |||||||||||||||
| Total assets(1) | $ | $ | $ | $ | $ | |||||||||||||||
| (1) | Intercompany balances that were previously included in total assets for each reportable segment have been excluded. |
| Uniforms and Related Products | Remote Staffing Solutions | Promotional Products | Intersegment Eliminations | Total | ||||||||||||||||
| As of and For the Six Months Ended June 30, 2020 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Cost of goods sold | ( | ) | ||||||||||||||||||
| Gross margin | ( | ) | ||||||||||||||||||
| Selling and administrative expenses | ( | ) | ||||||||||||||||||
| Other periodic pension cost | ||||||||||||||||||||
| Interest expense | ||||||||||||||||||||
| Income before taxes on income | $ | $ | $ | $ | $ | |||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | |||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | |||||||||||||||
| Total assets | $ | $ | $ | $ | $ | |||||||||||||||
| Uniforms and Related Products | Remote Staffing Solutions | Promotional Products | Intersegment Eliminations | Total | ||||||||||||||||
| As of and For the Six Months Ended June 30, 2019 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Cost of goods sold | ( | ) | ||||||||||||||||||
| Gross margin | ( | ) | ||||||||||||||||||
| Selling and administrative expenses | ( | ) | ||||||||||||||||||
| Other periodic pension cost | ||||||||||||||||||||
| Interest expense | ||||||||||||||||||||
| Income before taxes on income | $ | $ | $ | $ | $ | |||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | |||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | |||||||||||||||
| Total assets(1) | $ | $ | $ | $ | $ | |||||||||||||||
| (1) | Intercompany balances that were previously included in total assets for each reportable segment have been excluded. |
NOTE 11 – COVID-19:
The COVID-19 pandemic continues to affect our operations and financial performance, and likely will continue to do so for an undetermined period of time. International, federal, state and local efforts to contain the spread of COVID-19 has continued to intensify as governments enacted shelter in place orders, declared states of emergency, enacted safety requirements such as recommended or mandatory use of face masks and other personal protective equipment and related products, took steps to restrict travel, enacted temporary closures of non-essential businesses and took other restrictive measures that prohibit many employees from going to work. With regard to personal protective equipment, the COVID-19 pandemic has created significant market demands from new and existing customers. In responding to the needs of our customers, our sourcing teams began sourcing much needed personal protective equipment, including face masks, isolation gowns, sanitizers and gloves, which resulted in an increase in net sales during the three months ended June 30, 2020 of $
The pandemic could have a number of adverse impacts on our business, including, but not limited to, additional disruption to the economy and our customers’ willingness and/or ability to spend, temporary or permanent closures of businesses that consume our products and services, additional work restrictions, and supply chains being interrupted, slowed, or rendered inoperable. Our employees and the employees and contractors of our suppliers and customers also could become ill, quarantined, or otherwise unable to work or travel due to health reasons or governmental restrictions.
The majority of the principal fabrics used in the manufacture of products within the Uniforms and Related Products segment are sourced in China and the vast majority of raw materials used in our Promotional Products segment are sourced from China, either directly by BAMKO or by its suppliers. If we are unable to continue to obtain affordable raw materials and finished products from China or if our suppliers are unable to source affordable raw materials from China, it could significantly disrupt our business. A prolonged pandemic, or the threat thereof, could significantly disrupt our product sourcing, which in turn, could significantly disrupt our business.
We have and will continue to monitor and control our expense levels to protect our profitability. For example, on March 30, 2020, we entered into debt deferment agreements with Truist Bank (formerly known as Branch Banking and Trust Company) to: (i) defer contractual principal and interest payments due between April 1, 2020 and June 1, 2020 under the 2017 Term Loan and 2018 Term Loan until their respective maturity dates; and (ii) defer contractual interest payments due between April 1, 2020 and June 1, 2020 under the revolving credit facility until its maturity date. Additionally, we have proactively taken steps to increase available cash on hand by targeted reductions in discretionary operating expenses. Finally, we have and will continue to delay certain capital expenditures relating to non-essential projects until economic conditions begin to stabilize.
Prolonged instability in the United States and global economies, and how the world reacts to them, could have long-term impacts on our business. These business impacts could negatively affect us in a number of ways, including, but not limited to, reduced demand for our core products and services, reductions to our revenue and profitability, costs associated with complying with new or amended laws and regulations affecting our business, declines in our stock price, reduced availability and less favorable terms of future borrowings, valuation of our pension assets and obligations, reduced credit-worthiness of our customers, and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets. The extent to which the COVID-19 pandemic impacts our business, financial condition, results of operations or cash flows will depend on numerous evolving factors that we are unable to accurately predict at this time. The length and scope of the restrictions imposed by various governments and success of efforts to find a suitable vaccine, among other factors, will determine the ultimate severity of the COVID-19 impact on our business. However, prolonged periods of difficult market conditions could have material adverse impacts on our business, financial condition, results of operations and cash flows.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the Condensed Consolidated Financial Statements in Part I, Item 1 (“Financial Statements”) of this report and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019.
Disclosure Regarding Forward Looking Statements
Certain matters discussed in this Form 10-Q are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified by use of the words “may,” “will,” “should,” “could,” “expect,” anticipate,” “estimate,” “believe,” “intend,” “project,” “potential,” or “plan” or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements in this Quarterly Report on Form 10-Q may include, without limitation: (1) the projected impact of the current coronavirus (COVID-19) on our, our customers’, and our suppliers’ businesses, (2) projections of revenue, income, and other items relating to our financial position and results of operations, (3) statements of our plans, objectives, strategies, goals and intentions, (4) statements regarding the capabilities, capacities, market position and expected development of our business operations, and (5) statements of expected industry and general economic trends.
Such forward-looking statements are subject to certain risks and uncertainties that may materially adversely affect the anticipated results. Such risks and uncertainties include, but are not limited to, the following: the impact of competition; the effect of uncertainties related to the current coronavirus (COVID-19) pandemic on the U.S. and global markets, our business, operations, customers, suppliers and employees, including without limitation the length and scope of the restrictions imposed by various governments and success of efforts to find a suitable vaccine, among other factors; general economic conditions, including employment levels, in the areas of the United States of America (“United States”) in which the Company’s customers are located; changes in the healthcare, retail, hotels, food service, transportation and other industries where uniforms and service apparel are worn; our ability to identify suitable acquisition targets, successfully integrate any acquired businesses, successfully manage our expanding operations, or discover liabilities associated with such business during the diligence process; the price and availability of cotton and other manufacturing materials; attracting and retaining senior management and key personnel and other factors described in the Company’s filings with the Securities and Exchange Commission, including those described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this Form 10-Q and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances, except as may be required by law.
Business Outlook
Superior Group of Companies, Inc. (together with its subsidiaries, the “Company,” “Superior,” “we,” “our,” or “us”) is comprised of three reportable business segments: (1) Uniforms and Related Products, (2) Remote Staffing Solutions, and (3) Promotional Products.
COVID-19 Impact
The COVID-19 pandemic continues to affect our operations and financial performance, and likely will continue to do so for an undetermined period of time. International, federal, state and local efforts to contain the spread of COVID-19 has continued to intensify as governments enacted shelter in place orders, declared states of emergency, enacted safety requirements such as recommended or mandatory use of face masks and other personal protective equipment and related products, took steps to restrict travel, enacted temporary closures of non-essential businesses and took other restrictive measures that prohibit many employees from going to work. With regard to personal protective equipment, the COVID-19 pandemic has created significant market demands from new and existing customers. In responding to the needs of our customers, our sourcing teams began sourcing much needed personal protective equipment, including face masks, isolation gowns, sanitizers and gloves, which resulted in an increase in net sales during the three months ended June 30, 2020 of $49.7 million and $10.3 million for our Promotional Products segment and Uniforms and Related Products segment, respectively.
The pandemic could have a number of adverse impacts on our business, including, but not limited to, additional disruption to the economy and our customers’ willingness and/or ability to spend, temporary or permanent closures of businesses that consume our products and services, additional work restrictions, and supply chains being interrupted, slowed, or rendered inoperable. Our employees and the employees and contractors of our suppliers and customers also could become ill, quarantined, or otherwise unable to work or travel due to health reasons or governmental restrictions.
The majority of the principal fabrics used in the manufacture of products within the Uniforms and Related Products segment are sourced in China and the vast majority of raw materials used in our Promotional Products segment are sourced from China, either directly by BAMKO or by its suppliers. If we are unable to continue to obtain affordable raw materials and finished products from China or if our suppliers are unable to source affordable raw materials from China, it could significantly disrupt our business. A prolonged pandemic, or the threat thereof, could significantly disrupt our product sourcing, which in turn, could significantly disrupt our business.
We have and will continue to monitor and control our expense levels to protect our profitability. For example, on March 30, 2020, we entered into debt deferment agreements with Truist Bank (formerly known as Branch Banking and Trust Company) to: (i) defer contractual principal and interest payments due between April 1, 2020 and June 1, 2020 under the 2017 Term Loan and 2018 Term Loan until their respective maturity dates; and (ii) defer contractual interest payments due between April 1, 2020 and June 1, 2020 under the revolving credit facility until its maturity date. Additionally, we have proactively taken steps to increase available cash on hand by targeted reductions in discretionary operating expenses. Finally, we have and will continue to delay certain capital expenditures relating to non-essential projects until economic conditions begin to stabilize.
Prolonged instability in the United States and global economies, and how the world reacts to them, could have long-term impacts on our business. These business impacts could negatively affect us in a number of ways, including, but not limited to, reduced demand for our core products and services, reductions to our revenue and profitability, costs associated with complying with new or amended laws and regulations affecting our business, declines in our stock price, reduced availability and less favorable terms of future borrowings, valuation of our pension assets and obligations, reduced credit-worthiness of our customers, and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets. The extent to which the COVID-19 pandemic impacts our business, financial condition, results of operations or cash flows will depend on numerous evolving factors that we are unable to accurately predict at this time. The length and scope of the restrictions imposed by various governments and success of efforts to find a suitable vaccine, among other factors, will determine the ultimate severity of the COVID-19 impact on our business. However, prolonged periods of difficult market conditions could have material adverse impacts on our business, financial condition, results of operations and cash flows.
Uniforms and Related Products
In our Uniforms and Related Products segment, we manufacture and sell a wide range of uniforms, career apparel and accessories. Our primary products are service apparel, such as scrubs, lab coats, protective apparel and patient gowns, provided to workers in the healthcare industry, and service apparel, such as uniforms, provided to workers employed by our customers in various industries, including retail, hotels, food service, transportation and other industries. We sell our brands of healthcare service apparel primarily to healthcare laundries, dealers, distributors and retailers. As a result of the COVID-19 pandemic, we have seen increased demand for healthcare service apparel from laundries, dealers and distributors that service hospitals and other medical facilities. During the second quarter of 2020, we were able to service many of our customer needs with available healthcare service apparel inventory that we had on hand prior to the start of the pandemic. Additionally, we have implemented certain alternative strategies with our retailers to ensure that our customers are able to take advantage of the increase in demand from medical professionals. From a long-term perspective, we expect that demand for our signature marketing brands, including Fashion Seal Healthcare® and WonderWink®, will continue to provide opportunities for growth and increased market share. Sales of uniforms are impacted by our customers’ opening and closing of locations and reductions, increases, and turnover of employees. The current economic environment in the United States has been significantly impacted by the COVID-19 pandemic, and as a result, we have seen reduced short-term demand for uniform apparel in many of our customers’ industries, some of which has been partially offset by demand from customers in certain retail industries, such as grocery and pharmacy customers, and healthcare. Additionally, we recently began sourcing much needed personal protective equipment for our customers which has mitigated some of the declines in sales of uniform apparel to certain customers. Based on the longer-term fundamentals of our uniforms business, we anticipate that we will have growth opportunities when market conditions in the United States stabilize and begin to improve.
Remote Staffing Solutions
This business segment (also known as “The Office Gurus”), which operates in El Salvador, Belize, Jamaica, and the United States, initially started to support the Company’s back office needs while improving overall efficiencies and lowering operating costs. After years of consistently improving key performance indicators, lowering costs and providing exceptional service to our Uniforms and Related Products segment in areas such as order entry, cash collections, vendor payables processing, customer service, sales, and others, The Office Gurus started selling their services to outside companies in 2009. Over the past 10 years, The Office Gurus has become an award-winning global business process outsourcer offering inbound and outbound voice, email, text, chat and social media support. The COVID-19 pandemic has generated uncertainties for our customers and their industries, and has resulted in a short-term slowdown of our revenue growth rates for this business. With an environment and career path designed to attract and maintain top talent across all sites, The Office Gurus is positioned well to continue growth when market conditions begin to stabilize.
Promotional Products
For more than a decade, we sold promotional products on a limited basis to our existing Uniforms and Related Products customer base. While there were substantial opportunities to sell promotional products to those customers, it was not an area of focus, specialization, or expertise for us. On March 1, 2016, that changed with our acquisition of substantially all of the assets of BAMKO, Inc. (“BAMKO”). One of the top firms in the promotional products industry, BAMKO has a number of strengths, well-developed systems, and time-tested processes that offer significant competitive advantages. With a robust back-office support platform operated out of India, direct-to-factory sourcing operations based in China, and proprietary technological platforms and programming capabilities that we believe are very competitive, BAMKO is positioned to be a platform for potential future acquisitions in this industry. We completed two additional acquisitions in this segment in late 2017 and remain open to additional acquisitions going forward. In recent years we have seen an increase in customer orders in our promotional products business and expect growth opportunities for our core promotional products business to continue once the current market environment stabilizes. As a result of the COVID-19 pandemic, we have seen significant short-term opportunities within the personal protective equipment market. In responding to the needs of our customers, the sourcing team within the Promotional Products segment began sourcing much needed personal protective equipment for our customers. These opportunities led to record revenue levels during the second quarter of 2020, despite the downturn in the branded merchandise industry that has experienced customer budget cuts and widespread event cancellations. Additionally, in our core promotional products business we have not experienced the same downturn that many of our competitors have experienced as the increase in activities from customers in certain industries, such as the delivery service industry, has more than offset reduced activities from customers in other industries, such as the restaurant and entertainment industries. From a long-term perspective, we believe that this segment’s synergistic fit with our uniforms business will create opportunities to cross-sell the products of various business segments to new and existing customers.
| Results of Operations |
| Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019 |
| Net Sales (in thousands): |
| Three Months Ended June 30, |
||||||||||||
| 2020 |
2019 |
% Change |
||||||||||
| Uniforms and Related Products | $ | 75,842 | $ | 60,745 | 24.9 | % | ||||||
| Remote Staffing Solutions | 9,351 | 8,993 | 4.0 | % | ||||||||
| Promotional Products | 75,456 | 23,744 | 217.8 | % | ||||||||
| Net intersegment eliminations | (1,290 | ) | (1,212 | ) | 6.4 | % | ||||||
| Consolidated Net Sales |
$ | 159,359 | $ | 92,270 | 72.7 | % | ||||||
Net sales for the Company increased 72.7% from $92.3 million for the three months ended June 30, 2019 to $159.4 million for the three months ended June 30, 2020. The principal components of this aggregate increase in net sales were as follows: (1) an increase in the net sales of our Uniforms and Related Products segment (contributing 16.4%, of which $1.4 million (contributing 1.6%) represented the effect of differences in timing of revenue recognized under ASC 606 between periods), (2) an increase in the net sales for our Promotional Products segment (contributing 56.0%), and (3) an increase in net sales for our Remote Staffing Solutions segment after intersegment eliminations (contributing 0.3%).
Uniforms and Related Products net sales increased 24.9%, or $15.1 million, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The increase was primarily due to market demand for healthcare service apparel, which resulted in an increase in net sales of $17.1 million. Additionally, COVID-19 increased demand from our customers for personal protective equipment, including face masks, isolation gowns, sanitizers and gloves, which resulted in an increase in net sales of $8.1 million during the three months ended June 30, 2020. These increases were partially offset by decrease in demand for uniform apparel experienced during the current year period primarily as a result of COVID-19. Shipments by our Uniforms and Related Products segment increased from $64.3 million to $77.9 million comparing the three months ended June 30, 2020 with the prior year period. For a reconciliation of shipments by our Uniforms and Related Products segment, see “Shipments (Non-GAAP Financial Measure)” below.
Remote Staffing Solutions net sales increased 4.0% before intersegment eliminations and 3.6% after intersegment eliminations for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. These increases were primarily attributed to providing continued services in the current year period to our customer base that was expanded during 2019. Despite the increase in net sales, overall growth during the three months ended June 30, 2020 was negatively impacted by disruptions in April 2020 resulting from COVID-19.
Promotional Products net sales increased 217.8%, or $51.7 million, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The increase was primarily due to the sale of personal protective equipment, including face masks, sanitizers and gloves, which resulted in net sales of $49.7 million during the three months ended June 30, 2020. As a result of the COVID-19 pandemic, we have seen significant short-term opportunities within the personal protective equipment market. Additionally, in our core promotional products business we have not experienced the same downturn that many of our competitors have experienced as the increase in activities from customers in certain industries, such as the delivery service industry, has more than offset reduced activities from customers in other industries, such as the restaurant and entertainment industries.
Cost of Goods Sold
Cost of goods sold consists primarily of direct costs of acquiring inventory, including cost of merchandise, inbound freight charges, purchasing costs, and inspection costs for our Uniforms and Related Products and Promotional Products segments. Cost of goods sold for our Remote Staffing Solutions segment includes salaries and payroll related benefits for agents. The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with out-bound freight are recorded in cost of goods sold. Other shipping and handling costs are included in selling and administrative expenses.
As a percentage of net sales, cost of goods sold for our Uniforms and Related Products segment was 63.2% for the three months ended June 30, 2020 and 64.1% for the three months ended June 30, 2019. As a percentage of net sales, cost of goods sold remained relatively flat. The increase in cost of goods sold during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily due to the net sales increase explained above.
As a percentage of net sales, cost of goods sold for our Remote Staffing Solutions segment was 45.3% for the three months ended June 30, 2020 and 42.5% for the three months ended June 30, 2019. The percentage increase was primarily driven by disruptions resulting from COVID-19.
As a percentage of net sales, cost of goods sold for our Promotional Products segment was 68.5% for the three months ended June 30, 2020 and 74.1% for the three months ended June 30, 2019. The percentage decrease was primarily the result of personal protective equipment sales during the three months ended June 30, 2020 and differences in the mix of products and customers.
Selling and Administrative Expenses
Selling and administrative expenses increased 35.0%, or $9.4 million, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The increase was primarily due to an increase in bad debt expense of $3.4 million on outstanding trade accounts receivable and an increase in sales commissions as a result of record sales levels during the three months ended June 30, 2020, as discussed above.
As a percentage of net sales, selling and administrative expenses for our Uniforms and Related Products segment was 26.4% for the three months ended June 30, 2020 and 30.9% for the three months ended June 30, 2019. The percentage decrease was primarily due to the increase in net sales explained above.
As a percentage of net sales, selling and administrative expenses for our Remote Staffing Solutions segment was 37.6% for the three months ended June 30, 2020 and 38.3% for the three months ended June 30, 2019. As a percentage of net sales, selling and administrative expenses remained relatively flat.
As a percentage of net sales, selling and administrative expenses for our Promotional Products segment was 18.0% for the three months ended June 30, 2020 and 22.9% for the three months ended June 30, 2019. The percentage decrease was primarily related to the net sales increase explained above.
Interest Expense
Interest expense decreased to $0.4 million for the three months ended June 30, 2020 from $1.3 million for the three months ended June 30, 2019. This decrease was primarily due to a decrease in LIBOR rates on our outstanding borrowings and a significant reduction in outstanding borrowings.
Income Taxes
The effective income tax rate was 19.6% and 23.8% for the three months ended June 30, 2020 and 2019, respectively. The decrease in the effective tax rate was primarily driven by foreign taxes and foreign tax credit decreases of 7.7%, partially offset by increases of 1.9% for compensation related items, 0.6% for changes in uncertain tax positions and 0.3% for state income taxes. The effective tax rate may vary from quarter to quarter due to unusual or infrequently occurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, taxes incurred in connection to the territorial style tax system, or other items.
| Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019 |
| Net Sales (in thousands): |
| Six Months Ended June 30, |
||||||||||||
| 2020 |
2019 |
% Change |
||||||||||
| Uniforms and Related Products |
$ | 135,944 | $ | 119,424 | 13.8 | % | ||||||
| Remote Staffing Solutions |
18,551 | 17,592 | 5.5 | % | ||||||||
| Promotional Products |
101,634 | 44,103 | 130.4 | % | ||||||||
| Net intersegment eliminations |
(2,525 | ) | (2,297 | ) | 9.9 | % | ||||||
| Consolidated Net Sales |
$ | 253,604 | $ | 178,822 | 41.8 | % | ||||||
Net sales for the Company increased 41.8% from $178.8 million for the six months ended June 30, 2019 to $253.6 million for the six months ended June 30, 2020. The principal components of this aggregate increase in net sales were as follows: (1) an increase in the net sales of our Uniforms and Related Products segment (contributing 9.2%, of which $3.4 million (contributing 1.9%) represented the effect of differences in timing of revenue recognized under ASC 606 between periods), (2) an increase in the net sales for our Promotional Products segment (contributing 32.2%), and (3) an increase in net sales for our Remote Staffing Solutions segment after intersegment eliminations (contributing 0.4%).
Uniforms and Related Products net sales increased 13.8%, or $16.5 million, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The increase was primarily due to market demand for healthcare service apparel, which resulted in an increase in net sales of $17.7 million. Additionally, COVID-19 increased demand from our customers for personal protective equipment, including face masks, isolation gowns, sanitizers and gloves, which resulted in an increase in net sales of $8.1 million during the six months ended June 30, 2020. These increases were partially offset by decrease in demand for uniform apparel experienced during the current year period primarily as a result of COVID-19. Shipments by our Uniforms and Related Products segment increased from $124.7 million to $137.7 million comparing the six months ended June 30, 2020 with the prior year period. For a reconciliation of shipments by our Uniforms and Related Products segment, see “Shipments (Non-GAAP Financial Measure)” below.
Remote Staffing Solutions net sales increased 5.5% before intersegment eliminations and 4.8% after intersegment eliminations for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. These increases were primarily attributed to providing continued services in the current year period to our customer base that was expanded during 2019. Despite the increase in net sales, overall growth during the six months ended June 30, 2020 was negatively impacted by disruptions in March 2020 and April 2020 resulting from COVID-19.
Promotional Products net sales increased 130.4%, or $57.5 million, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The increase was primarily due to the sale of personal protective equipment, including face masks, sanitizers and gloves, which resulted in net sales of $49.7 million during the six months ended June 30, 2020. As a result of the COVID-19 pandemic, we have seen significant short-term opportunities within the personal protective equipment market. Additionally, continued product sales to our expanded customer base during the current year period also contributed to the net sales increase. In our core promotional products business we have not experienced the same downturn that many of our competitors have experienced as the increase in activities from customers in certain industries, such as the delivery service industry, has more than offset reduced activities from customers in other industries, such as the restaurant and entertainment industries.
Cost of Goods Sold
As a percentage of net sales, cost of goods sold for our Uniforms and Related Products segment was 63.7% for the six months ended June 30, 2020 and 64.7% for the six months ended June 30, 2019. As a percentage of net sales, cost of goods sold remained relatively flat. The increase in cost of goods sold during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily due to the net sales increase explained above.
As a percentage of net sales, cost of goods sold for our Remote Staffing Solutions segment was 44.3% for the six months ended June 30, 2020 and 42.0% for the six months ended June 30, 2019. The percentage increase was primarily driven by disruptions resulting from COVID-19.
As a percentage of net sales, cost of goods sold for our Promotional Products segment was 69.2% for the six months ended June 30, 2020 and 73.3% for the six months ended June 30, 2019. The percentage decrease was primarily the result of personal protective equipment sales during the six months ended June 30, 2020 and differences in the mix of products and customers.
Selling and Administrative Expenses
Selling and administrative expenses increased 20.9%, or $11.1 million, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The increase was primarily due to an increase in bad debt expense of $4.2 million on outstanding trade accounts receivable and an increase in sales commissions as a result of record sales levels during the six months ended June 30, 2020, as discussed above.
As a percentage of net sales, selling and administrative expenses for our Uniforms and Related Products segment was 28.1% for the six months ended June 30, 2020 and 30.9% for the six months ended June 30, 2019. The percentage decrease was primarily due to the increase in net sales explained above.
As a percentage of net sales, selling and administrative expenses for our Remote Staffing Solutions segment was 37.3% for the six months ended June 30, 2020 and 37.3% for the six months ended June 30, 2019.
As a percentage of net sales, selling and administrative expenses for our Promotional Products segment was 19.9% for the six months ended June 30, 2020 and 24.3% for the six months ended June 30, 2019. The percentage decrease was primarily related to the net sales increase explained above.
Interest Expense
Interest expense decreased to $1.5 million for the six months ended June 30, 2020 from $2.4 million for the six months ended June 30, 2019. This decrease was primarily due to a decrease in LIBOR rates on our outstanding borrowings and a significant reduction in outstanding borrowings.
Income Taxes
The effective income tax rate was 21.1% and 22.2% for the six months ended June 30, 2020 and 2019, respectively. The decrease in the effective tax rate was primarily driven by foreign taxes and foreign tax credit decreases of 5.0%, partially offset by increases of 1.8% for compensation related items, 0.9% for state income taxes and 0.3% for changes in uncertain tax positions. The effective tax rate may vary from quarter to quarter due to unusual or infrequently occurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, taxes incurred in connection to the territorial style tax system, or other items.
Liquidity and Capital Resources
Overview
Management uses a number of standards in measuring the Company’s liquidity, such as: working capital, profitability ratios, cash flows from operating activities, and activity ratios. The strength of the Company’s balance sheet generally provides the ability to pursue acquisitions, invest in new product lines and technologies and invest in additional working capital as necessary.
The Company’s primary source of liquidity has been its net income and the use of credit facilities and term loans as described further below. In the future, the Company may continue to use credit facilities and other secured and unsecured borrowings as a source of liquidity. Management currently believes that cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the Company’s anticipated working capital requirements for the next twelve months. The Company has proactively taken steps to increase available cash on hand by targeted reductions in discretionary cash outflows. The Company may also begin relying on the issuance of equity or debt securities. There can be no assurance that any such financings would be available to us on reasonable terms. Any future issuances of equity securities or debt securities with equity features may be dilutive to our shareholders. Additionally, the cost of the Company’s future sources of liquidity may differ from the costs of the Company’s sources of liquidity to date.
Working Capital
Cash and cash equivalents decreased by $3.9 million to $5.1 million as of June 30, 2020 from $9.0 million on December 31, 2019. Excess cash generated from operating activities during the six months ended June 30, 2020 was used to repay outstanding borrowings under the revolving credit facility. Working capital decreased to $120.9 million at June 30, 2020 from $142.4 million at December 31, 2019. The decrease in working capital was primarily due to an increase in other current liabilities and a decrease in contract assets, partially offset by an increase in trade accounts receivable. The increase in other current liabilities was primarily driven by new activities in the current year period relating to the increased sale of personal protective equipment within our Promotional Products and Uniforms and Related Products segments as a result of COVID-19, including an increase in contract liabilities and increases in other liabilities correlated with such customer contracts. The decrease in contract assets was primarily related to the timing of shipments to customers and receipts from suppliers for finished goods with no alternative use within our Promotional Products and Uniforms and Related Products segments. The increase in trade accounts receivable was primarily due to increased net sales of personal protective equipment within our Promotional Products segment and healthcare service apparel within our Uniforms and Related Products segment.
Cash Flows
Our cash flows from operating, investing and financing activities, as reflected in the statements of cash flows, are summarized in the following table (in thousands):
| Six Months Ended June 30, |
||||||||
| 2020 |
2019 |
|||||||
| Net cash provided by (used in): |
||||||||
| Operating activities |
$ | 39,762 | $ | 6,751 | ||||
| Investing activities |
(4,893 | ) | (4,976 | ) | ||||
| Financing activities |
(38,280 | ) | 1,089 | |||||
| Effect of exchange rates on cash |
(525 | ) | 41 | |||||
| Net increase (decrease) in cash and cash equivalents |
$ | (3,936 | ) | $ | 2,905 | |||
Operating Activities. The increase in net cash provided by operating activities during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily attributable to the receipt of payments from new customer contracts for the sourcing of personal protective equipment needed in response to COVID-19 within the Promotional Products and Uniforms and Related Products segments. Working capital cash changes during the six months ended June 30, 2020 included an increase of $21.0 million in accounts payable and other current liabilities and an increase of $12.3 million in trade accounts receivable. Working capital cash changes during the six months ended June 30, 2019 included an increase of $7.2 million in trade accounts receivable.
Investing Activities. Net cash used in investing activities during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 remained relatively flat. From a long-term perspective, the Company expects to continue its ongoing capital expenditure program designed to improve the effectiveness and capabilities of its facilities and technology. The Company at all times evaluates its capital expenditure program in light of prevailing economic conditions. In the near term, the Company expects to delay certain capital expenditures relating to non-essential projects until economic conditions begin to stabilize.
Financing Activities. The increase in net cash used in financing activities during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily attributable to an increase in net repayments of $34.3 million in debt during the current year period compared to net borrowings of $5.8 million in the prior year period. Excess cash generated from operating activities during the six months ended June 30, 2020 was used to repay outstanding borrowings under the revolving credit facility.
Credit Facilities (See Note 3 to the Financial Statements)
As of June 30, 2020, the Company had approximately $85.5 million in outstanding borrowings under its amended and restated credit agreement (the “Credit Agreement”) with Truist Bank, consisting of $7.3 million outstanding under the revolving credit facility expiring in May 2023, $24.0 million outstanding under a term loan maturing in February 2024 (“2017 Term Loan”), and $54.2 million outstanding under a term loan maturing in January 2026 (“2018 Term Loan”). The revolving credit facility, 2017 Term Loan and 2018 Term Loan are collectively referred to as the “Credit Facilities”.
Obligations outstanding under the 2018 Term Loan have a variable interest rate of LIBOR plus a margin of between 0.85% and 1.65% (based on the Company’s funded debt to EBITDA ratio) (1.03% at June 30, 2020). Obligations outstanding under the revolving credit facility and the 2017 Term Loan generally have a variable interest rate of one-month LIBOR plus a margin of between 0.68% and 1.50% (based on the Company’s funded debt to EBITDA ratio) (0.86% at June 30, 2020). The available balance under the revolving credit facility is reduced by outstanding letters of credit. At June 30, 2020, the Company had undrawn capacity of $67.7 million under the revolving credit facility.
On March 30, 2020, the Company entered into debt deferment agreements with Truist Bank to: (i) defer contractual principal and interest payments due between April 1, 2020 and June 1, 2020 under the 2017 Term Loan and 2018 Term Loan until their respective maturity dates; and (ii) defer contractual interest payments due between April 1, 2020 and June 1, 2020 under the revolving credit facility until its maturity date. Contractual principal payments for the 2017 Term Loan are as follows: remainder of 2020 - $3.0 million; 2021 through 2023 - $6.0 million per year; and 2024 - $3.0 million. Contractual principal payments for the 2018 Term Loan are as follows: remainder of 2020 - $4.6 million; 2021 through 2025 - $9.3 million per year; and 2026 - $3.1 million. The term loans do not contain pre-payment penalties.
The Credit Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments, restricted payments, and sales of assets. The Credit Agreement also requires the Company to maintain a fixed charge coverage ratio (as defined in the Credit Agreement) of at least 1.25:1 and a funded debt to EBITDA ratio (as defined in the Credit Agreement) not to exceed 5.0:1. As of June 30, 2020, the Company was in compliance with these ratios. The Credit Facilities are secured by substantially all of the operating assets of the Company as collateral, and the Company’s obligations under the Credit Facilities are guaranteed by all of its domestic subsidiaries. The Company’s obligations under the Credit Facilities are subject to acceleration upon the occurrence of an event of default as defined in the Credit Agreement.
Dividends and Share Repurchase Program
During the six months ended June 30, 2020 and 2019, the Company paid cash dividends of $1.5 million and $3.0 million, respectively. Due to the anticipated continuing impact of the COVID-19 pandemic on the Company’s business, financial condition, results of operations and cash flows, the Company has elected to suspend its regular quarterly dividend until we have clearer visibility on improved macro conditions.
On May 2, 2019, the Company’s Board of Directors approved a stock repurchase program of up to 750,000 shares of Company’s outstanding common stock. There is no expiration date or other restriction governing the period over which the Company can make share repurchases under the program. All purchases under this program will be open market transactions. Under this program the Company reacquired and retired 43,458 shares of its common stock during the six months ended June 30, 2020. At June 30, 2020, the Company’s remaining repurchase capacity under its common stock repurchase program was 657,451 shares. Shares purchased under the common stock repurchase program are constructively retired and returned to unissued status. The Company considers several factors in determining when to make share repurchases, including among other things, the cost of equity, the after-tax cost of borrowing, the debt to total capitalization targets and the expected future cash needs.
Shipments (Non-GAAP Financial Measure)
In this management’s discussion and analysis, we use a supplemental measure of our performance, which is derived from our financial information, but which is not presented in our financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). This non-GAAP financial measure is “shipments,” and represents a primary metric by which our management evaluates customer demand.
We define shipments as net sales excluding, if applicable, sales recorded with respect to contracts with customers in which there is an enforceable right to the payment for goods with no alternative use in advance of the transfer of these goods to our customers. As recognized in accordance with ASC 606, net sales generated from such contracts are recorded as of the time at which we receive the goods from our suppliers rather than at the time we transfer them to our customers. For customers to which we sell goods that have an alternative use, or customers with whom we do not have an enforceable right to payment with no alternative use, shipments and net sales are identical performance measures.
We believe that sales recorded under ASC 606 are affected by changes in the Company’s purchasing patterns that may not be directly aligned with customer demand. We believe that shipments, as a supplemental performance measure, tracks customer demand more closely.
Shipments is not a measure determined in accordance with GAAP, and should not be considered in isolation or as a substitute for sales determined in accordance with GAAP. Shipments is used as a measurement of customer demand and we believe it to be a helpful measure for those evaluating performance of a company operating in the uniforms and related products business. However, there are limitations to the use of this non-GAAP financial measure. Our non-GAAP financial measure may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.
The following tables reconcile net sales to shipments of our Uniforms and Related Products segment (in thousands):
| RECONCILIATION OF UNIFORMS AND RELATED PRODUCTS SEGMENT GAAP SALES TO SHIPMENTS |
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2020 |
2019 |
2020 |
2019 |
|||||||||||||
| Uniforms and Related Products net sales, as reported |
$ | 75,842 | $ | 60,745 | $ | 135,944 | $ | 119,424 | ||||||||
| Adjustment: Recognition of revenue based on the timing of shipments for finished goods with no alternative use for Uniforms and Related Products net sales |
2,074 | 3,516 | 1,778 | 5,227 | ||||||||||||
| Uniforms and Related Products shipments |
$ | 77,916 | $ | 64,261 | $ | 137,722 | $ | 124,651 | ||||||||
Off-Balance Sheet Arrangements
The Company does not engage in any off-balance sheet financing arrangements. In particular, the Company does not have any interest in variable interest entities, which include special purpose entities and structured finance entities.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
We are subject to market risk exposure related to changes in interest rates on our debt. Interest on our Credit Facilities are based upon the one-month LIBOR rate. In order to reduce the interest rate risk on our debt, the Company entered into an interest rate swap agreement on a portion of its borrowings. Excluding the effect of the interest rate swap agreement, a hypothetical increase in the LIBOR rate of 100 basis points as of January 1, 2020 would have resulted in approximately $0.5 million in additional pre-tax interest expense for the six months ended June 30, 2020. See Note 3 to the Financial Statements.
Foreign Currency Exchange Risk
Sales to customers outside of the United States are subject to fluctuations in foreign currency exchange rates, which may negatively impact gross margin realized on our sales. Less than 5% of our sales are outside of the United States. We cannot predict the effect of exchange rate fluctuations on our operating results. In certain cases, we may enter into foreign currency cash flow hedges to reduce the variability of cash flows associated with our sales and expenses denominated in foreign currency. As of June 30, 2020, we had no foreign currency exchange hedging contracts. There can be no assurance that our strategies will adequately protect our operating results from the effect of exchange rate fluctuations.
Financial results of our foreign subsidiaries in the Promotional Products segment are denominated in their local currencies, which include the Hong Kong dollar, the Chinese renminbi, the British pound, the Indian rupee, and the Brazilian real. These operations may also have net assets and liabilities not denominated in their functional currency, which exposes us to changes in foreign currency exchange rates that impact income. Excluding intercompany payables and receivables considered to be long-term investments, changes in exchange rates for assets and liabilities not denominated in their functional currency are reported as foreign currency gains (losses) within selling and administrative expenses in our statements of comprehensive income. During the six months ended June 30, 2020 and 2019, foreign currency losses were not significant. We also have exposure to foreign currency exchange risk from the translation of foreign subsidiaries from the local currency into the U.S. dollar. Comprehensive income during the six months ended June 30, 2020 included a foreign currency translation adjustment loss of $1.4 million primarily related to exchange rate movements of the Brazilian real.
ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
The Company conducted an evaluation, under supervision and with the participation of the Company’s principal executive officer, Michael Benstock, and the Company’s principal financial officer, Andrew D. Demott, Jr., of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to ensure that information the Company is required to disclose in its filings with the SEC under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
We are a party to certain lawsuits in the ordinary course of business. We do not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations or cash flows.
We are exposed to certain risks and uncertainties that could have a material adverse impact on our business, financial condition and operating results. Except as set forth below, there have been no material changes to the Risk Factors described in Part I, Item 1A-Risk Factors in our annual report on Form 10-K for the year ended December 31, 2019.
Our business could be materially adversely impacted by the coronavirus (COVID-19) pandemic.
COVID-19 was declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention in March of 2020. The global spread of COVID-19 has created significant volatility and uncertainty and economic disruption. The extent to which the COVID-19 pandemic impacts our business, financial condition, results of operations or cash flows will depend on numerous evolving factors that we may not be able to accurately predict, including, without limitation: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and will be taken in response to the pandemic (including restrictions on travel and transport and workforce pressures); the effect on our suppliers and customers and customer demand for our core products and services; the effect on our sources of supply; the impact of the pandemic on economic activity and actions taken in response; closures of our and our suppliers’ and customers’ offices and facilities; the ability of our customers to pay for our products and services; financial market volatility; commodity prices; and the pace of recovery when the COVID-19 pandemic subsides.
The spreading of COVID-19 that is impacting global economic activity and market conditions could lead to changes in customer purchasing patterns. We have seen disruptions in our customers’ businesses, including, but not limited to, our customers’ willingness and ability to spend, layoffs and furloughs of our customers’ employees, and temporary or permanent closures of businesses that consume our products and services. Prolonged periods of difficult conditions could have material adverse impacts on our business, financial condition, results of operations and cash flows.
The majority of the principal fabrics used in the manufacture of products within the Uniforms and Related Products segment are sourced in China and the vast majority of raw materials used in our Promotional Products segment are sourced from China, either directly by BAMKO or by its suppliers. If we are unable to continue to obtain affordable raw materials and finished products from China or if our suppliers are unable to source affordable raw materials from China, it could significantly disrupt our business. A prolonged pandemic, or the threat thereof, could significantly disrupt our product sourcing, which in turn, could significantly disrupt our business.
The potential effects of COVID-19 also could impact us in a number of other ways, including, but not limited to, reductions to our revenue and profitability, costs associated with complying with new or amended laws and regulations affecting our business, declines in our stock price, reduced availability and less favorable terms of future borrowings, valuation of our pension assets and obligations, reduced credit-worthiness of our customers, and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets.
Any of these events could materially adversely affect our business, financial condition, results of operations and cash flows.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the quarter ended June 30, 2020, that were not previously reported in a current report on Form 8-K.
The table below sets forth the information with respect to purchases made by or on behalf of Superior Group of Companies, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our shares of common stock during the three months ended June 30, 2020.
| Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
||||||||||||
| April 1, 2020 to April 30, 2020 |
- | $ | - | - | ||||||||||||
| May 1, 2020 to May 31, 2020 |
- | - | - | |||||||||||||
| June 1, 2020 to June 30, 2020 |
- | - | - | |||||||||||||
| Total |
- | - | - | 657,451 | ||||||||||||
| (1) |
On May 2, 2019, the Company’s Board of Directors approved a stock repurchase program of up to 750,000 shares of Company’s outstanding common stock. There is no expiration date or other restriction governing the period over which the Company can make share repurchases under the program. All purchases under this program will be open market transactions. |
Under our Credit Agreement, as amended, with Truist Bank, if an event of default exists, we may not make distributions to our shareholders. The Company is in full compliance with all terms, conditions and covenants of such agreement.
ITEM 3. Defaults upon Senior Securities
Not applicable.
ITEM 4. Mine Safety Disclosures
Not applicable.
None.
†Management contracts and compensatory plans and arrangements.
*Filed herewith.
**Furnished, not filed.
§Portions omitted in accordance with Item 601(b) of Regulation S-K.
+ Submitted electronically with this Quarterly Report.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: July 29, 2020 | SUPERIOR GROUP OF COMPANIES, INC. | |
| By | /s/ Michael Benstock | |
| Michael Benstock | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: July 29, 2020 | ||
| By | /s/ Andrew D. Demott, Jr. | |
| Andrew D. Demott, Jr. | ||
| Chief Operating Officer, Chief Financial Officer and Treasurer (Principal Financial Officer) |
||
Exhibit 10.1
Exhibit Includes Redactions
Certain information identified with brackets ([]) has been excluded from this exhibit in accordance with Item 601(b) of Regulation S-K because it is both not material and would likely cause competitive harm to the Company if publicly disclosed.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the “Agreement”) is effective as of March 8, 2016 (the “Effective Date”) by and between PRIME ACQUISITION I, LLC, a Delaware limited liability company (the “Company”), and PHILIP KOOSED (“Employee”). Employee and the Company are each referred to herein as a “Party” and collectively as the “Parties.”
BACKGROUND
A. The Company acquired substantially all of the assets owned or used by BAMKO, Inc., a California corporation (“BAMKO”), on the Effective Date pursuant to an Asset Purchase Agreement between the Company, BAMKO, Employee and all the other shareholders of BAMKO (the “Purchase Agreement”).
B. Employee is a shareholder and executive officer of BAMKO who has accepted employment with the Company following the closing of the transactions contemplated by the Purchase Agreement (the “Transaction”), and Employee has and will substantially benefit from the Transaction.
C. Employee acknowledges that he is to be employed in a key senior management role with the Company, and that the Company bestows upon and expects from Employee a great deal of responsibility, trust, and reliance.
D. During the course of Employee’s employment with the Company, the Company will impart to Employee certain proprietary, confidential, and/or trade secret information, data, and/or materials of a Company Party (defined below).
E. It is essential to the conduct of the Company’s business, the sale of its products, and the provision of its services that all proprietary, confidential, and/or trade secret information, data, and/or materials of the Company Parties be kept confidential and that the professional and business relationships of the Company Parties be protected.
F. Employee has agreed to enter into this Agreement as a condition precedent and material inducement to the Company’s agreement to enter into the Purchase Agreement, and but for Employee’s agreement to be bound by the terms and conditions of this Agreement, the Company would not have entered into the Purchase Agreement and consummated the Transaction.
AGREEMENT
The Parties agree as follows:
1. Incorporation. The provisions set forth under the heading “Background” are true and correct and are hereby incorporated into and made a part of this Agreement for all purposes.
2. Term of Employment. The Company agrees to employ Employee, and Employee accepts employment with the Company, on the terms set forth in this Agreement, for a period commencing on the Effective Date and ending on December 31, 2021, unless sooner terminated in accordance with the provisions of Section 5.
3. Position and Duties. The Company will employ Employee, and Employee agrees to work for the Company, as the President of the Company, to perform the duties and responsibilities inherent in such position and such other duties and responsibilities as the Company shall from time to time assign to Employee. Employee will initially report to the Superior Uniform Group’s Chief Executive Officer. The Company may at any time alter the internal organizational structure of the Company, including the reporting responsibilities of Employee. Employee shall devote his full business time and reasonable best efforts in the performance of the foregoing services in a diligent, trustworthy, professional and efficient manner and, in performing such services, Employee shall comply with the Company’s policies and procedures in effect from time to time and fully support and implement the business and strategic plans of the Company. Employee will act in the best interest of the Company and any other Company Parties (as appropriate) and, except as may be specifically permitted by the Company in writing, will not engage in any other business activity which conflicts with his role at the Company or otherwise causes a conflict of interest. However, Employee may hold passive investment interests or serve in a passive advisory role in other business enterprises that would not constitute a violation of the restrictions described in Sections 6 - 9 of this Agreement and which would not interfere with Employee’s ability to perform his duties under this Agreement.
4. Compensation and Benefits. During the term of Employee’s employment with the Company under this Agreement:
4.1 Salary Compensation. The Company shall pay Employee an annualized base salary of ONE HUNDRED AND FIFTY THOUSAND DOLLARS ($150,000.00), payable in accordance with the Company’s customary payroll practices.
4.2 Bonus. Employee shall be eligible for a bonus pursuant to the terms set forth in Exhibit 1 to this Agreement. Employee will also be eligible to participate in such bonus plans as the Company may in its sole and absolute discretion offer to Employee, which may be similar to or entirely different from those available to other similarly situated employees of the Company or any other Company Party.
4.3 Fringe Benefits. During his employment, Employee shall be entitled to receive all of the Company’s other fringe benefits of employment available to its other employees when and as he becomes eligible for them. The Company reserves the right to modify, suspend or discontinue any and all of its benefit plans as long as such action is taken generally with respect to similarly situated persons and does not single out employee.
(a) Health Insurance. Employee has the option to purchase medical insurance for himself and/or his spouse and children under the Company’s medical insurance plan for the 2016 plan year which ends November 30, 2016, for which the Company shall contribute one hundred percent (100%) to the cost of Employee’s coverage under the Company-sponsored health plan.
4.4 Reimbursement of Certain Expenses. Employee shall be reimbursed for such reasonable and necessary business expenses incurred by him while he is employed by the Company, which are directly related to the furtherance of the Company’s business. Employee must submit any request for reimbursement in accordance with the Company’s reimbursement policy regarding same and business expenses must be substantiated by appropriate receipts and documentation as required by applicable Company policy.
5. Termination of Employment. Employee’s employment shall terminate upon the occurrence of any of the following:
5.1 Termination for Cause. At the election of the Company, the Company may terminate Employee’s employment immediately for Cause upon written notice by the Company to Employee. For the purposes of this Agreement, “Cause” for termination shall be deemed to exist upon the occurrence of any of the following:
(a) gross negligence or willful misconduct by Employee with respect to any Company Party or in the performance of Employee’s duties hereunder;
(b) Employee’s continued failure to substantially perform his employment duties, which failure is not cured to the good faith reasonable satisfaction of the Company within thirty (30) days after Employee’s receipt of written notice from the Company specifically describing the nature of such failure;
(c) Employee’s material breach of the provisions of Sections 7, 9, 10 or 11;
(d) Employee commits any felony or criminal offense that involves moral turpitude;
(e) Employee commits or engages in any act or omission constituting fraud, theft, dishonesty (including relating to financial matters), deceit, embezzlement, misappropriation or misconduct against or at the expense of any Company Party, or which results in, material harm to the business or reputation of any Company Party; or
(f) Employee commits or engages in any act or omission constituting a material violation of applicable law or a material violation of the Company’s published policies and procedures applicable to senior management employees, including those related to the workplace environment (such as laws or policies relating to sexual harassment or age, race, sex or other prohibited discrimination) and insider trading.
5.2 Death or Disability. Employee’s employment shall terminate automatically and immediately upon his death. At the election of the Company, the Company may terminate Employee’s employment immediately upon Employee’s disability by sending written notice of such election to Employee. The term “disability” shall mean (1) the declaration in accordance with any applicable long-term disability insurance policy that Employee is disabled, or (2) Employee’s inability, due to illness, accident, injury, physical or mental incapacity or other disability or similar cause, to perform the essential functions of his job, with reasonable accommodation, for a period of at least 90 consecutive days or for shorter periods aggregating at least 90 days (whether or not consecutive) during any 12-month period. A determination of disability shall be made by a physician satisfactory to both Employee and the Company; provided, that if Employee and the Company are unable to agree on the physician, Employee and the Company shall each select a physician and the two physicians selected by the Parties shall together select a third physician, whose determination as to the existence of a disability shall be binding on all Parties.
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5.3 |
Effect of Termination. |
(a) If Employee’s employment is terminated pursuant to Sections 5.1 or 5.2, (i) the Company shall pay Employee his base salary and any bonus amount that is accrued but unpaid through the date of employment termination, (ii) the Company shall reimburse Employee in accordance with Section 4.4 for reasonable expenses incurred but not reimbursed prior to such termination of employment and (iii) Employee shall be entitled to receive any nonforfeitable benefits already earned and payable to Employee in accordance with the terms and provisions of any agreements, plans or programs of the Company.
(b) Except as otherwise expressly provided herein, Employee shall not be entitled to any other salary, salary continuation, severance, bonuses, employee benefits or compensation or payments of any kind from any Company Party after the termination of his employment under Sections 5.1 - 5.2, and all of Employee’s rights to salary, bonuses, employee benefits and other compensation and payments of any kind which would have accrued or become payable after his termination shall cease upon such termination, other than as expressly required under applicable law (such as the federal law known as COBRA).
(c) If, during the Term of Employment set forth in Section 2, Employee’s employment is (i) terminated pursuant to a Change of Control Termination; or (ii) Employee resigns his employment for Good Reason; or (iii) is terminated by the Company for any reason other than those provided for in Section 5.1 or Section 5.2 (such as a termination by the Company without Cause), in addition to the items detailed in Section 5.3(a), the Company will pay Employee an amount equal to the base salary Employee would have been paid from resignation through the conclusion of the Term of Employment (“Separation Payment”). The Separation Payment shall be paid incrementally in equal installments occurring on the dates in which regular employee payroll is paid by the Company from the date of such termination to December 31, 2021, but no less frequently than monthly in equal installments, and in each case subject to withholding obligations. Notwithstanding anything to the contrary, and without limitation of any remedies to which the Company may be entitled under this Agreement or applicable law: (i) the Company shall not be required to make any payment of the Separation Payment unless and until Employee signs and delivers a Release (defined below) and the period (if any) during which such Release can be revoked expires without any revocation, and (ii) Employee shall not be entitled to any payment of the Separation Payment during the period in which Employee is violating any of his obligations under Sections 6-9 or under the Restrictive Covenants Agreement, dated as of the date hereof, among the Company, BAMKO, and its shareholders. For purposes of this Agreement, a “Release” means a written release, in form and substance reasonably satisfactory to the Company, whereby Employee waives and releases the Company, its officers, directors, employees and Affiliates from any and all claims that Employee may have against any of them (including, without limitation, any claims in connection with Employee’s employment or the termination thereof) and affirms his post-termination obligations hereunder, provided, that the Release will not apply to any vested benefit under the Company’s qualified retirement plan, any rights under the Purchase Agreement, or other employee benefit required to be provided by applicable law.
(d) For purposes of this Agreement, “Good Reason” shall mean (i) a material, adverse reduction in Employee’s authority, duties, or responsibilities (other than temporarily while Employee is physically or mentally incapacitated or as required by applicable law); (ii) Employee’s involuntary permanent relocation to any place that is more than 50 miles from the Company’s Los Angeles, California location at the time of Closing; or (iii) the Company’s uncured breach of a material provision of this Agreement. Prior to resignation for Good Reason, Employee is required to give written notice to the Company of the intent to resign for Good Reason, describing the reason for the resignation in sufficient detail in order to allow the Company the opportunity to address the situation. Such notice must be provided within thirty (30) days of the event(s) constituting Good Reason and must be given at least thirty (30) days in advance of the effective date of resignation. The Company shall be entitled to ninety (90) days after the date of Employee’s written notice during which it can cure the situation. If the situation has not been cured within ninety (90) days after the date of Employee’s written notice, Employee may then resign for Good Reason, by written notice, effective immediately, which date shall be the Effective Date of resignation.
(e) A “Change of Control Termination” means the termination of Employee by the Company or its successor without Cause within twelve (12) months after the consummation of a Change of Control. In this Agreement, “Change in Control” means either of the following occurs: (A) the Superior Uniform Group, Inc., a Florida corporation (“Parent”) or the Company sells all or substantially all of its assets to an entity that is not an Affiliate of the Parent (in a transaction requiring Parent shareholder approval), (B) any person or group of persons within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, other than the Parent and its Affiliates becomes the beneficial owner, directly or indirectly, of more than 50% of the Company’s equity securities or the Parent’s outstanding voting stock (whether by way of purchase of stock or other equity securities, merger or otherwise) or (C) any transaction that qualified as a liquidation, dissolution, or winding up of the Parent or the Company. Notwithstanding the foregoing, the following transactions shall in no event constitute a Change in Control: (x) any equity or debt financing transaction pursuant to which the Company or Parent sells securities with the principal purpose of raising capital, or (y) any ownership or acquisition of stock by any of the Benstock family or their Affiliates, including pursuant to transfers for estate planning purposes. In this Agreement, “Affiliate” means, with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified person. A person shall be deemed to control another person if such first person possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of such other person, whether through the ownership of voting securities, by contract or otherwise, and such control will be presumed if any person owns 10% or more of the voting capital stock or other ownership interests, directly or indirectly, of any other person.
(f) The Parties mutually agree and acknowledge that the termination of Employee’s employment (whether by termination or resignation) and/or the termination of this Agreement, by either party, for any reason, shall have no impact on the rights and obligations of either Party under the terms of the Purchase Agreement, except as may be expressly stated and provided therein.
6. Restrictive Covenants - Definitions. In this Agreement, the following terms shall have the meanings defined below. Terms may be used in the singular or plural.
a. “Business” means the business of (i) designing, manufacturing, and marketing employee uniforms, image apparel, scrubs and patient apparel, and (ii) designing, manufacturing, marketing, selling and distributing promotional products, and accessories, and the related goods and services, including product sourcing, ideation, quality control, and global logistics. For clarity, the Business includes all sourcing of products for customers, whether through distribution or direct supply arrangements.
b. “Company Parties” means Prime Acquisition I, LLC, and any of its direct or indirect parents, subsidiaries, affiliates, divisions, and/or sister companies, and any of their successors or assigns.
c. “Confidential Information” means all data or information that is related to the Company or the Business (including any data or information that relates to or results from any historical or projected financial results or financial information, products, services, vendors, customers or research or development of any Company Party), regardless of whether it constitutes a “trade secret” under applicable common law or statute, is labeled or identified as “confidential” or is now existing or to be developed in the future, in any form of medium, that was disclosed to Employee or became known by Employee as a consequence of, or through, Employee’s employment with BAMKO or the Company and/or Employee’s affiliation with BAMKO or the Company (including information conceived, originated, discovered, or developed in whole or in part by Employee, including while he was employed by BAMKO), having value to the Company, not generally known to competitors of the Company, and about the Company’s business, finances, operating results, products, processes, and services, including, but not limited to, (i) information relating to research, development, inventions, computer program designs, flow charts, source and object codes, products and services under development, pricing and pricing strategies, marketing and selling strategies, servicing, purchasing, accounting, engineering, cost and costing strategies, sources of supply, customer lists, customer requirements, business methods or practices, training and training programs, financial records, the documentation thereof, and similar information, (ii) confidential information of BAMKO and its subsidiaries that was acquired by the Company from BAMKO under the Purchase Agreement, (iii) identities of, individual requirements of, specific contractual arrangements with, and information about, the Company’s current, former or prospective employees, suppliers, distributors, customers, customer prospects, independent contractors and other business relations and their confidential information, (iv) trade secrets, technology, know-how, compilations of data and analyses, techniques, systems, formulae, records, reports, manuals, documentation, models, data and data bases relating thereto, (v) proprietary software, (vi) inventions, innovations, ideas, devices, improvements, developments, methods, processes, designs, analyses, drawings and all similar or related information (whether or not patentable and whether or not reduced to practice), (vii) copyrightable works, and (viii) intellectual property of every kind and description; provided, however, that Confidential Information shall not mean data or information (x) which has been voluntarily disclosed to the public by the Company, except where such public disclosure has been made by Employee or any other party to the Purchase Agreement (other than the Company) without authorization from the Company; (y) which has been independently developed and disclosed by others not in breach of a confidentiality obligation, or (z) which has otherwise entered the public domain through lawful means and through no fault of Employee. Confidential Information will be interpreted as broadly as possible to include all information of any sort (whether merely remembered or embodied in a tangible or intangible form) that is (1) related to any Company Party’s current or potential business or operations, and (2) is not generally or publicly known.
d. “Prohibited Term” means the period commencing on the Effective Date and ending on the later of (i) [], or (ii) [] years after Employee’s termination or resignation of employment for any reason.
7. Confidentiality. Employee warrants and agrees that he will not at any time reproduce, use, distribute, disclose, publish, misappropriate, or otherwise disseminate any Confidential Information and will not take any action causing, or fail to take any action to prevent, any Confidential Information to lose its character as Confidential Information until and unless such Confidential Information loses its status as Confidential Information through no fault, either directly or indirectly, of Employee, either during the term of Employee’s employment or engagement by the Company (the “Service Period”) or thereafter, except when such disclosure or use is directly related to and required by Employee’s performance of duties assigned by the Company.
Employee will safeguard all Confidential Information and will not take any action causing, or fail to take any action to prevent, any Confidential Information to lose its character as Confidential Information until and unless such Confidential Information loses its status as Confidential Information through no fault, either directly or indirectly, of Employee. Employee will safeguard all documents and things that contain or embody Confidential Information, including but not limited to Confidential Information stored in an electronic format on any Company computer or personal computer owned or used by Employee.
Employee will not, in any communication, including but not limited to with the media, social media, prospective or actual employers, current and former employees of Company Parties, and current and prospective suppliers, vendors, business partners or customers, make any derogatory, disparaging, or critical statement, orally, written, or otherwise, against any Company Party.
8. Return of Documents. Upon termination of Employee’s employment with the Company for any reason, Employee will return to or leave with the Company all documents, records, notebooks, and other repositories of or containing Confidential Information, including all copies thereof, as well as all originals and copies of work made for hire, or other tangible property of any Company Party, whether prepared by Employee or others, then in Employee’s possession or under Employee’s control.
9. Non-Solicitation of Employees. During the Prohibited Term, unless Employee receives express written consent from the Company, Employee shall not, directly or indirectly, solicit, recruit, induce or attempt to solicit, recruit, or induce any then current or former employee, of a Company Party to leave the employ of, any Company Party; provided however, that the restrictions set forth in this Section 9 shall apply only to employees with whom Employee had business contact during the last twenty-four (24) months as of the date of Employee’s employment termination.
10. Intellectual Property, Inventions and Patents.
(a) In the event that Employee, during the Service Period, individually or in conjunction with another person, generates, authors, conceives, develops, acquires, makes, reduces to practice or contributes to any discovery, formula, trade secret, invention, innovation, improvement, development, method of doing business, process, program, design, analysis, drawing, report, data, software, firmware, logo, device, method, product or any similar or related information, any copyrightable work or any Confidential Information (collectively, “Intellectual Property”), Employee expressly acknowledges and agrees that such Intellectual Property is and shall be the exclusive property of the Company; provided, however, that such Intellectual Property relates to the Business or results from any work performed by Employee for the Company. Any copyrightable work prepared in whole or in part by Employee and relating to the actual or contemplated business of any Company Party shall be deemed “a work made for hire” to the maximum extent permitted under Section 201(b) of the 1976 Copyright Act as amended, and the Company shall own all of the rights comprised in the copyright therein. Employee hereby assigns his entire right, title and interest in and to all Intellectual Property to the Company. During and after the Service Period, Employee shall promptly disclose all Intellectual Property to the Company and shall cooperate with the Company to establish, confirm and protect all rights, title and interest of the Company to such Intellectual Property (including, without limitation, providing reasonable assistance in securing patent protection and copyright registrations and executing all documents as reasonably requested by the Company). Employee agrees that he will not use or disclose any work made for hire of any Company Party to benefit a person or business that competes with the Company Parties, any current, former or prospective vendors, suppliers, distributors, customers, customer prospects, independent contractors and other business relations of any Company Party, or any other individual or entity (except in performing his obligations to the Company during his employment with the Company), without the express, written permission of the Company.
(b) Nonassignable Inventions. Notwithstanding any provision of this Agreement to the contrary, this Agreement does not apply to work which qualifies fully as a nonassignable invention under the provisions of Section 2870 of the California Labor Code. Employee acknowledges that he has read and understands Section 2870 of the California Labor Code (a copy of which is set forth in Exhibit 2 attached hereto) and has reviewed the notification in Exhibit 2 attached hereto (“Limited Exclusion Notification”) and agrees that his signature acknowledges his understanding of such statute and his receipt of the notification. Employee agrees to disclose promptly in writing to the Company all inventions created, conceived, developed or reduced to practice by Employee during the term of his employment, whether or not Employee believes such inventions are subject to this Agreement, to permit a determination by the Company as to whether or not the inventions should be the property of the Company. Any such information will be received in confidence by the Company.
(c) Prior Inventions. Employee represents and warrants that he has not, alone or jointly with others, conceived, developed or reduced to practice or caused to be conceived, developed or reduced to practice any work prior to the commencement of Employee's employment with or services to the Company which Employee considers to be Employee's property or the property of third parties (collectively referred to as “Prior Inventions”). If, in the course of Employee's employment with or services to the Company, Employee incorporates a Prior Invention into a Company product, service or item of content, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, modify, use and sell such Prior Invention. Notwithstanding the foregoing, Employee agrees that Employee will not incorporate, or permit to be incorporated, Prior Inventions in any work without the Company's prior written consent.
11. Duty Of Loyalty. While employed by the Company, Employee agrees that he will not engage in or deal with any activities, products, or services that are competitive with the Company’s activities, products, business, or services, and that Employee will not usurp any Company business opportunity, without the express prior written consent of the Company. Employee further agrees to faithfully render Employee’s services to the Company and to devote Employee’s best efforts, ability, skill, and attention, in good faith, to the Company’s business while employed by the Company.
12. Notice to Future Employers. Employee agrees to provide to any subsequent, anticipated, and/or contemplated employer an executed copy of this Agreement and to provide written notice to the Company of such event occurring and a copy of the correspondence between Employee and such employer (or a written summary, if the contact was oral) within two (2) business days after such event. These requirements shall cease only after the expiration of the Prohibited Term and/or required by law expire. During the Prohibited Term, Employee authorizes the Company to provide an executed copy of this Agreement to third parties, including but not limited to, Employee’s subsequent, anticipated, and/or contemplated future employers.
13. Assignability. All of Employee’s obligations under this Agreement shall be binding upon Employee’s heirs, assigns, and legal representatives. The terms and provisions of this Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company shall have the right to assign this Agreement to any Company Party or to any successor or assignee of all or substantially all of the business or assets of the Company. This Agreement is personal to Employee, and he shall not have the right to assign this Agreement without the express written consent of the Company, and any attempted assignment in violation thereof shall be invalid and ineffective against the Company.
14. Obligations Survive Termination Of Employment. Any termination of Employee’s employment with the Company shall not impair or relieve Employee of his obligations hereunder that otherwise survive the termination of this Agreement pursuant to their respective terms or by their nature.
15. Governing Law and Forum Selection. This Agreement shall be deemed to have been made and entered into in the State of Delaware and shall be construed and enforced in accordance with the laws of the State of Delaware, without regard to the conflicts of laws provisions therein. To the extent that any dispute, controversy, or claim under this Agreement arises that is not subject to Arbitration pursuant to Section 22 of this Agreement (“Claim”), the parties agree that the exclusive venue and jurisdiction with respect to any such Claim shall be in either the Superior Court of Delaware or the federal courts for the District of Delaware.
16. Severability. The Parties believe that the restrictions and covenants in this Agreement are, under the circumstances, reasonable and enforceable. However, if any one or more of the restrictions, covenants, or provisions contained in this Agreement shall, for any reason under the law as it shall then be construed, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other restriction, covenant, or provision of this Agreement. In such an instance, this Agreement shall be construed as if such invalid, illegal, or unenforceable restriction, covenant, or provision had never been contained herein. Additionally, if any one or more of the restrictions, covenants, or provisions contained in this Agreement shall for any reason be held to be excessively broad as to time, duration, geographical scope, activity, or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it shall then appear.
17. Remedy. Employee acknowledges that the covenants specified in Sections 6-11 contain reasonable limitations as to time, geographic area, and scope of activities to be restricted, and that such promises do not impose a greater restraint on Employee than is necessary to protect the goodwill, Confidential Information, customer and employee relations, and other legitimate business interests of the Company. Employee also acknowledges and agrees that any violation of the restrictive covenants set forth in Sections 6-11 would bestow an unfair competitive advantage upon any person or entity which might benefit from such violation, and would necessarily result in substantial and irreparable damage and loss to the Company. Accordingly, in the event of a breach or a threatened breach by Employee of Sections 6-11 of this Agreement, the Company shall have grounds to terminate the employment of Employee and will therefore be entitled to cease salary, benefits, and any and all remaining contingent future payments to Employee that have not already vested. The Company also shall be entitled to an injunction restraining Employee from such breach or threatened breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from Employee. In the event that either Party brings an action to enforce the terms of this Agreement, the prevailing party in such action shall be entitled to recover his/its costs and reasonable attorneys’ fees necessarily incurred in enforcing his/its rights and obligations under this Agreement. In the event that the Company should seek an injunction, Employee waives any requirements that the Company post a bond or any other security.
18. Independent Covenants. The covenants specified in Sections 6-13 are intended by each Party hereto to be, and shall be construed as, agreements independent of each other and of any other agreement between the Parties, and the existence of any claim or cause of action of Employee or any of his affiliates (including BAMKO) against the Company, whether predicated on this Agreement, the Purchase Agreement or any other agreement between Employee and a Company Party, shall not constitute a defense to the enforcement by the Company of such covenants. Further, Employee acknowledges that he is also bound by restrictive covenants in the Purchase Agreement, which were agreed to by Employee as a material inducement to the Company to enter into Purchase Agreement and consummate the Transaction. The Parties agree that the restrictive covenants in the Purchase Agreement are separate, independent of, and in addition to the restrictive covenants in this Agreement, and nothing in this Agreement shall be interpreted as modifying, replacing, terminating, or otherwise affecting the enforceability of the restrictive covenants in the Purchase Agreement, which remain in full force and effect in accordance with their terms.
19. Blue-Pencil; Modification; Enforcement. If a court holds that the duration, scope or area restrictions in Sections 7-9 are unenforceable, the maximum duration, scope or area enforceable shall be substituted. Because Employee’s services are unique and Employee has access to Confidential Information, in the event of a breach or a threatened breach by Employee of any of Sections 7-9, the Parties acknowledge and agree that the Company and other Company Parties would suffer irreparable and continuing harm for which money damages would be an inadequate remedy. Accordingly, in addition and supplementary to all other rights and remedies that may be available, the Company Parties shall be entitled to specific performance and/or injunctive or other equitable relief in order to enforce or prevent any violations of this Agreement (without posting a bond or security and without proof of monetary damages or an inadequate remedy at law). In addition, (i) the Prohibited Term shall be tolled until the activity causing a breach of any of Sections 7-9 has been stopped, (ii) the Company Parties shall be entitled to recover from Employee all profit Employee gains from such breach or violation in addition to any damages that the Company Parties suffer, and (iii) if a Company Party brings an action asserting that Employee violated the Agreement, the Company Party, if it is the prevailing party in any such action, shall be entitled to reimbursement of all costs and expenses incurred in pursuing and/or defending such action. Employee acknowledges and agrees that the Company Parties may exercise any of the foregoing remedies concurrently, independently or successively. Employee acknowledges that the restrictions contained in Sections 7-9 are reasonable.
20. Amendments Or Modifications; Waiver. No amendments or modifications to this Agreement shall be binding on any of the Parties, unless such amendment or modification is in writing and executed by all of the Parties to this Agreement. No term, provision, or clause of this Agreement shall be deemed waived and no breach excused, unless such waiver or consent shall be in writing and executed by Employee and on behalf of the Company. No delay or course of dealing by a Party to this Agreement in exercising any right, power, or remedy under this Agreement will operate as a waiver of any right, power, or remedy of that Party, except to the extent expressly manifested in such a writing. The failure at any time of either Party to require performance by the other Party of any provision of this Agreement will in no way affect the Party’s right thereafter to enforce the provision or this Agreement. In addition, the waiver by a Party of a breach of any provision of this Agreement will not constitute a waiver of any succeeding breach of the provision or a waiver of the provision itself.
21. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT.
Any dispute or controversy arising under or in connection with this Agreement, Employee’s employment by the Company or Employee’s compensation and benefits shall be settled exclusively by arbitration in Los Angeles, California by an arbitrator in accordance with the employment rules of Judicial Arbitration & Mediation Service, Inc. (“JAMS”) in effect at the time of submission to arbitration. The rules can be found at http://www.jamsadr.com/rules-employment-arbitration/. The following claims are excluded from this arbitration provision: claims arising under the National Labor Relations Act which are brought before the National Labor Relations Board, workers' compensation claims under the California Worker's Compensation Act, Employment Development Department claims, ERISA claims covered by an ERISA plan with a dispute resolution provision, or as otherwise required by state or federal law. Nothing herein shall prevent Employee from filing and pursuing proceedings before the California Department of Fair Employment and Housing, the California Division of Labor Standards Enforcement, or the United States Equal Employment Opportunity Commission (although if Employee chooses to pursue a claim following the exhaustion of such remedies, that claim would be subject to the provisions of this Agreement). The statutes of limitations otherwise applicable under law shall apply to all Claims made in arbitration. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. The arbitration shall be conducted in a procedurally fair manner by a mutually agreed upon neutral arbitrator selected in accordance with the applicable JAMS rules (“Rules”) or if none can be mutually agreed upon, then by one arbitrator appointed pursuant to the Rules; the arbitration shall be conducted confidentially in accordance with the Rules unless provided otherwise by applicable law; the arbitration fees shall be paid by the Company; each party shall have the right to conduct reasonable discovery including depositions, requests for production of documents and such other discovery as permitted under the Rules or ordered by the arbitrator; the arbitrator shall have the authority to award any damages authorized by law for the claims presented, including punitive damages, and shall have the authority to award reasonable attorneys’ fees to the prevailing party to the extent allowed by law; the decision of the arbitrator shall be final and binding on all parties and shall be the exclusive remedy of the parties; and the award shall be in writing in accordance with the Rules, and shall be subject to judicial enforcement and review in accordance with California law
EMPLOYEE AGREES TO WAIVE ANY RIGHT EMPLOYEE MAY HAVE TO BE A MEMBER OF A CLASS OR COLLECTIVE ACTION LAWSUIT OR A REPRESENTATIVE OF A CLASS OR COLLECTIVE ACTION LAWSUIT AGAINST THE COMPANY (OR ITS OWNERS, DIRECTORS, OFFICERS, MANAGERS, EMPLOYEES, OR AGENTS) RELATED TO OR ARISING OUT OF EMPLOYEE’S EMPLOYMENT WITH THE COMPANY OR THE TERMINATION OF THAT EMPLOYMENT.
22. Entire Agreement. This Agreement represents the entire agreement between the Parties and supersedes any and all other prior oral or written agreements, proposals, representations, communications, and/or understandings between Employee and the Company related to the subject matter of this Agreement, and Employee has not relied upon any representation that is not expressly set forth in this Agreement.
23. Counterparts; Effectiveness. This Agreement may be executed in one or more counterpart signature pages, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement, which shall be binding upon all of the Parties hereto notwithstanding the fact that all Parties are not signatory to the same counterpart. The exchange and delivery of executed copies of this Agreement and of signature pages by facsimile transmission, by electronic mail in “portable document format” (“.pdf”) form, or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature and shall be binding for all purposes hereof. A Party’s receipt of a facsimile signature page or electronic copy of a signature page to this Agreement shall be treated as the Party’s receipt of an original signature page.
24. Tax Provisions.
25.1 The Company will have no obligation to Employee or any other person entitled to payment or benefits under this Agreement with respect to any tax obligation Employee or such other person incurs as a result of or attributable to this Agreement or arising from any payments made or to be made under this Agreement.
24.2 The Company shall have the right to deduct from any payment made to Employee any amount required to be withheld for any federal, state or local income, employment or other taxes. In the event the Company does not make such deductions or withholdings, Employee shall indemnify the Company for any amounts paid with respect to any such taxes, together (if such failure to withhold was at the written direction of Employee or if Employee was informed that such deductions or withholdings were not made) with any interest, penalties and related expenses thereto.
24.3 For purposes of determining Employee’s entitlement to any compensation payable upon his termination of employment with the Company that is subject to Section 409A of the Internal Revenue Code, if any, Employee’s employment will be deemed to have terminated on the date of Employee’s “separation from service” from the Company within the meaning of Section 409A of the Internal Revenue Code. If Employee is a “specified employee” of the Company as of such date, any such benefit or payment that Employee is entitled to receive before the date that is six (6) months after the separation from service date that is not otherwise exempt from the requirements of Section 409A of the Internal Revenue Code shall not be provided or paid on the date such benefit or payment is otherwise required to be provided or paid. Instead, the payment of all such amounts shall be accumulated and paid in a single lump sum payment on the first business day after the date that is six months after the separation from service date (or, if earlier, within fifteen (15) days following Employee’s date of death). All benefits or payments otherwise required to be provided or paid on or after the date that is six (6) months after the separation from service date shall not be affected by the preceding sentence, and shall be provided and paid in accordance with the payment schedule otherwise applicable to such payment or benefit.
25. Employment Following Term of Agreement. If Employee remains employed by the Company following December 31, 2021, such employment shall be on an “at will” basis, meaning that the Company may terminate the employment relationship at any time, with or without Cause and with or without notice. Employee shall continue to be bound by all of his covenants and obligations under this Agreement for so long as he is employed by the Company, and he expressly agrees that all such covenants and obligations will remain in full force and effect in accordance with their terms following December 31, 2021.
26. Acknowledgements. Employee acknowledges that he has read and understands the provisions of this Agreement, that Employee has been given an opportunity for his legal counsel to review this Agreement, that the provisions of this Agreement are reasonable, that Employee enters into this Agreement voluntarily without duress or pressure from the Company and with full knowledge and understanding of the contents, nature, and effect of this Agreement, and that Employee has received a copy of this Agreement.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties hereto have duly executed and delivered this Agreement as of the Effective Date.
EMPLOYEE:
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By: |
/s/ Philip Koosed |
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Philip Koosed |
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President, BAMKO, LLC |
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COMPANY:
PRIME ACQUISITION I, LLC
a Delaware limited liability company
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By: |
/s/ Andrew D. Demott, Jr. |
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Andrew D. Demott, Jr. |
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Chief Financial Officer |
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Exhibit 1
Bonus Plan
Net Profit Bonus - Employee shall be paid a Net Profit Bonus which shall be calculated as 2.75% of Company’s pre-tax income plus the amortization of intangible assets associated with the acquisition of BAMKO's assets on March 1, 2016. For purposes of this Bonus calculation, Company’s pre-tax income shall be calculated in accordance with accounting principles generally accepted in the United States of America, based upon Company’s financial statements without taking into consideration the bonus amounts payable to Philip Koosed. This Bonus is non-discretionary and shall be paid to Employee regardless of personal or company performance. This bonus shall be paid no later than March 15th in the year after it is earned.
Gross Profit Bonus – Employee shall be paid an annual Gross Profit Bonus based on that calendar year’s Gross Profit. The bonus percentage paid shall vary depending on that year’s Gross Profit. The Gross Profit Bonus shall be paid in tiers pursuant to the chart below. The percentage of Gross Profit Bonus will correspond with the Gross Profit amounts invoiced within that percentage range. This bonus is non-discretionary and shall be paid to Employee regardless of personal or company performance. This bonus shall be paid no later than March 15th in the year after it is earned.
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GP Low |
GP High |
% of GP |
Bonus for Tier |
Cumulative Bonus |
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$- |
$[] |
0.85% |
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[] |
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[]% |
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[]% |
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[] |
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30,000,000 |
0.55% |
[] |
[] |
For illustrative purposes, if the Company invoices $[] in Gross Profit, then Employee shall earn a Gross Profit Bonus of $[]. That Gross Profit Bonus Calculation is reached as the sum product of (a) $[] and 0.85% (equaling $[]); plus (b) $[] and []% (equaling $[]); and (c) $[] and []% (equaling $[]).
“Gross Profit” shall be calculated as follows: gross sales price (as invoiced) of all orders
delivered during the year less: cost of goods sold, sales tax, shipping and warehousing expenses,
customs taxes and charges, additional charges from manufacturers, discounts, refunds, and any other expenses directly related to orders inclusive of all orders delivered during the year.
Exhibit 2
Limited Exclusion Notification
California Labor Code Section 2870 states the following:
2870. (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either:
1. Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or
2. Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.
THIS IS TO NOTIFY you in accordance with Section 2872 of the California Labor Code that the foregoing Agreement between you and the Company does not require you to assign or offer to assign to the Company any invention that you developed entirely on your own time without using the Company's equipment, supplies, facilities or trade secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of the invention to the Company's business, or actual or demonstrably anticipated research or development of the Company; or
(2) Result from any work performed by you for the Company.
To the extent a provision in the foregoing Agreement purports to require you to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT of a copy of this notification.
By: _______________________
__________________________
(Printed Name of Employee)
Date: _______________
Exhibit 10.2
BAMKO, LLC
(f/k/a Prime Acquisition I, LLC)
11620 Wilshire Boulevard, Suite 360
Los Angeles, CA 90025
April 1, 2020
Philip Koosed
c/o: BAMKO, LLC
11620 Wilshire Boulevard, Suite 360
Los Angeles, CA 90025
Re: Amendment to Employment Agreement
Dear Philip:
Reference is made to the Employment Agreement (the “Employment Agreement”), dated as of March 8, 2016, between you and Prime Acquisition I, LLC, a Delaware limited liability company now known as BAMKO, LLC (the “Company”). Capitalized terms used in this letter (this “Letter”) and not defined have the meanings given to them in the Employment Agreement.
This Letter confirms the agreement between you and the Company that the Employment Agreement is amended to reduce your base salary payable thereunder. In furtherance of the foregoing and for good and valuable consideration the receipt of which is hereby acknowledged, effective as of the date of this Letter, Section 4.1 of the Employment Agreement is hereby amended to reduce your current base salary payable under the Employment Agreement to $120,000.00 per annum, payable in accordance with the Company’s customary payroll practices (the “Base Salary Reduction”) and all references to base salary in the Employment Agreement shall mean such amount. Any subsequent revisions, revocations or modifications to the Base Salary Reduction shall be only as you and the Company may agree in writing after the date of this Letter, provided that the Company agrees to in good faith re-evaluate the Base Salary Reduction promptly following the one-year anniversary of the effective date of this Letter.
For avoidance of doubt, you and the Company hereby irrevocably acknowledge and agree that this reduction of your base salary compensation shall not constitute Good Reason as defined in the Employment Agreement, notwithstanding anything to the contrary in the Employment Agreement.
The Employment Agreement shall be deemed to be modified and amended in accordance with the express provisions of this Letter and the respective rights, duties and obligations of the parties under the Employment Agreement shall continue to be determined, exercised and enforced under the terms thereof subject to this Letter. In the event of inconsistency between the express terms of this Letter and the terms of the Employment Agreement, the terms of this Letter shall govern. This Letter may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that, a signature transmitted by facsimile, .pdf
or other electronic means shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original.
[Remainder of page left blank intentionally]
Please sign this Letter in the space indicated below to acknowledge your agreement to the foregoing.
Sincerely,
BAMKO, LLC,
a Delaware limited liability company (f/k/a Prime Acquisition I, LLC)
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By: |
/s/ Jake Himelstein |
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Jake Himelstein |
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Chief Operating Officer / Chief Financial Officer |
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Acknowledged and agreed as of the date set forth above:
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By: |
/s/ Philip Koosed |
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Philip Koosed |
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President, BAMKO, LLC |
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Exhibit 10.3
AMENDMENT NUMBER FIVE TO THE
SEPARATION, GENERAL RELEASE AND NON-COMPETE AGREEMENT
This Amendment Number Five (the “Fifth Amendment”), by and between Superior Group of Companies, Inc., with its principal offices at 10055 Seminole Boulevard, Seminole, Florida 33772 (“Superior” or the “Company”), and Gerald M. Benstock (“Benstock”), is made as of November 2, 2019 (the “Fourth Amendment Effective Date”). Superior and Benstock may hereinafter each be referred to as a “Party,” or collectively as the “Parties.”
WHEREAS, Superior and Benstock entered into a Separation, General Release and Non-Compete Agreement, effective December 17, 2012; and
WHEREAS, Superior and Benstock entered into Amendment Number One to the Separation, General Release and Non-Compete Agreement, effective November 17, 2015; and
WHEREAS, Superior and Benstock entered into Amendment Number Two to the Separation, General Release and Non-Compete Agreement, effective November 8, 2016; and
WHEREAS, Superior and Benstock entered into Amendment Number Three to the Separation, General Release and Non-Compete Agreement, effective November 2, 2017; and
WHEREAS, Superior and Benstock entered into Amendment Number Four to the Separation, General Release and Non-Compete Agreement, effective November 2, 2018 (together with the Separation, General Release and Non-Compete Agreement, Amendment Number One, Amendment Number Two, and Amendment Number Three, the “Agreement”); and
WHEREAS, Superior has determined that it would gain value from Benstock continuing to provide advisory services to the Company and Benstock has determined that he would like to continue to provide advisory services to the Company; and
WHEREAS, the Parties wish to further amend the Agreement.
NOW THEREFORE, the Parties, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, agree as follows:
1. The initial recitals stated above are true and correct and are incorporated by reference. Capitalized terms have the meaning ascribed to them in the Agreement, unless otherwise defined in this Fifth Amendment.
2. As of the Fifth Amendment Effective Date, Section 1 of the Agreement is deleted in its entirety and replaced with the following:
This Agreement is effective from December 16, 2012 through December 15, 2020, inclusive (the “Term”). The Term shall be comprised of seven (7) one-year periods (each, a “Period”), each of which commences on December 16 of its respective year (each, a “Period Start Date”).
3. As of the Fifth Amendment Effective Date, Section 14 of the Agreement is amended as follows:
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The words “one million fifty thousand dollars ($1,050,000.00)” are deleted and replaced with “one million two hundred thousand dollars ($1,200,000.00)”; and |
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The following sentence shall replace current final sentence of the section: |
The one hundred and fifty thousand dollars ($150,000.00) that pertains to the seventh Period of the Agreement shall be paid in four (4) equal installments, with each installment payment to be paid according to the following schedule: first payment to be made during the month of December, 2019, but in no event before the applicable Period Start Date; the second payment to be made during March, 2020; the third payment to be made during June, 2020; and the fourth payment to be made during September, 2020.
4. The remaining terms and conditions of the Agreement remain unchanged and are hereby ratified and confirmed.
IN WITNESS WHEREOF, a duly authorized representative of each Party has executed this Fifth Amendment as of the Fourth Amendment Effective Date.
GERALD M. BENSTOCK
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By: |
/s/ Gerald M. Benstock |
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Gerald M. Benstock |
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SUPERIOR GROUP OF COMPANIES, INC.
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By: |
/s/ Sidney Kirschner |
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Sidney Kirschner |
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Chairperson of the Board of Directors |
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By: |
/s/ Michael Benstock |
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Michael Benstock |
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Chief Executive Officer |
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Exhibit 31.1
CERTIFICATIONS
I, Michael Benstock, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Superior Group of Companies, Inc.;
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 29, 2020
/s/ Michael Benstock
Michael Benstock
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATIONS
I, Andrew D. Demott, Jr., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Superior Group of Companies, Inc.;
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: July 29, 2020 |
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/s/ Andrew D. Demott, Jr. |
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Andrew D. Demott, Jr. Chief Operating Officer, Chief Financial Officer and Treasurer (Principal Financial Officer) |
Exhibit 32
Written Statement of the Chief Executive Officer and the Chief Financial Officer
Pursuant to 18 U.S.C. §1350
Solely for the purposes of complying with 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and Chief Financial Officer of Superior Group of Companies, Inc. (the “Company”), hereby certify, based on our knowledge, that the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2020 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Michael Benstock
Michael Benstock
Chief Executive Officer
(Principal Executive Officer)
Date: July 29, 2020
/s/ Andrew D. Demott, Jr.
Andrew D. Demott, Jr.
Chief Operating Officer, Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: July 29, 2020
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands |
Jun. 30, 2020 |
Dec. 31, 2019 |
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| Accounts receivable, allowance for doubtful accounts | $ 6,693 | $ 2,964 |
| Preferred stock, par value (in dollars per share) | $ 1 | $ 1 |
| Preferred stock, shares authorized (in shares) | 300,000 | 300,000 |
| Preferred stock, shares issued (in shares) | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized (in shares) | 50,000,000 | 50,000,000 |
| Common stock, shares issued (in shares) | 15,231,781 | 15,227,604 |
| Common stock, shares outstanding (in shares) | 15,231,781 | 15,227,604 |
Condensed Consolidated Statements of Shareholders' Equity (Unaudited) (Parentheticals) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
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| Cash dividends declared, per share (in dollars per share) | $ 0.10 | $ 0.10 | $ 0.20 | |
| Cash flow hedges, tax | $ 1 | $ 1 | $ 2 | $ 2 |
| Pensions, tax | 121 | 158 | 230 | 235 |
| Change in currency translation adjustment, tax | $ 52 | $ 12 | $ 449 | $ 7 |
Note 1 - Basis of Presentation |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| Notes to Financial Statements | |
| Significant Accounting Policies [Text Block] |
NOTE 1 – Basis of Presentation:
Basis of presentation
The condensed consolidated financial statements include the accounts of Superior Group of Companies, Inc. and its wholly-owned subsidiaries, The Office Gurus, LLC, SUG Holding, Superior Group Holdings, Inc., Fashion Seal Corporation, BAMKO, LLC and CID Resources, Inc.; The Office Gurus, Ltda, de C.V., The Office Masters, Ltda., de C.V. and The Office Gurus, Ltd., each a subsidiary of Fashion Seal Corporation and SUG Holding; and Power Three Web, Ltda. and Superior Sourcing, each a wholly-owned subsidiary of SUG Holding; BAMKO Importação, Exportação e Comércio de Brindes Ltda., a subsidiary of BAMKO, LLC and SUG Holding; Guangzhou Ben Gao Trading Limited, Worldwide Sourcing Solutions Limited, BAMKO UK, Limited, and BAMKO Merch Inc., each a direct or indirect subsidiary of BAMKO, LLC; and BAMKO India Private Limited, a 99%-owned subsidiary of BAMKO, LLC. All of these entities are referred to collectively as the “Company,” “Superior,” “we,” “our,” or “us.” Effective on May 3, 2018, Superior Uniform Group, Inc. changed its name to Superior Group of Companies, Inc.
The accompanying unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Intercompany items have been eliminated in consolidation. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and filed with the Securities and Exchange Commission. Management believes that the information furnished includes all adjustments of a normal recurring nature that are necessary to fairly present our consolidated financial position, results of operations and cash flows for the periods indicated. The results of operations for any interim period are not necessarily indicative of results to be expected for the full year.
We refer to the condensed consolidated financial statements collectively as “financial statements,” and individually as “statements of comprehensive income,” “balance sheets,” “statements of shareholders’ equity,” and “statements of cash flows” herein.
Recent Accounting Pronouncements
We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not listed below were assessed and determined to be not applicable.
Recently Adopted Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by the difference between a reporting unit's carrying value and its fair value (impairment loss is limited to the carrying value). This standard is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. The Company’s adoption of this standard on January 1, 2020 did not have a material impact on its financial statements.
In August 2018, the FASB issued ASU 2018-15, “Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update also requires an entity to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement. This update is effective for fiscal years beginning after December 15, 2019 and may be applied prospectively or retrospectively. On January 1, 2020, the Company adopted this standard on a prospective basis. The Company’s adoption of this standard did not have a material impact on its financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326).” The update changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. In February 2020, the FASB issued ASU 2020-2, “Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842).” The update delayed the effective date of ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)” for Smaller Reporting Companies until fiscal years beginning after December 15, 2022. Adoption will require a modified retrospective approach beginning with the earliest period presented. The Company is currently evaluating the potential impact this standard will have on its financial statements.
In December 2019, the FASB Issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting of Income Taxes”, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating this guidance to determine what impact it may have on its financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR. This guidance includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. This guidance may be applied through December 31, 2022. The Company will apply this guidance to transactions and modifications to contracts and hedging relationships that reference LIBOR. |
Note 2 - Inventories |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Text Block] |
NOTE 2 – Inventories:
Inventories consisted of the following amounts (in thousands):
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Note 3 - Long-term Debt |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term Debt [Text Block] |
Debt consisted of the following (in thousands):
The Company is party to an amended and restated credit agreement (the “Credit Agreement”) with Truist Bank (formerly known as Branch Banking and Trust Company), consisting of a $75 million revolving credit facility expiring in May 2023, a term loan maturing in February 2024 (“2017 Term Loan”) and a term loan maturing in January 2026 (“2018 Term Loan”).
Obligations outstanding under the 2018 Term Loan have a variable interest rate of LIBOR plus a margin of between 0.85% and 1.65% (based on the Company’s funded debt to EBITDA ratio) (1.03% at June 30, 2020). Obligations outstanding under the revolving credit facility and the 2017 Term Loan generally have a variable interest rate of one-month LIBOR plus a margin of between 0.68% and 1.50% (based on the Company’s funded debt to EBITDA ratio) (0.86% at June 30, 2020). The available balance under the revolving credit facility is reduced by outstanding letters of credit. As of June 30, 2020, there were no outstanding letters of credit.
On March 30, 2020, the Company entered into debt deferment agreements with Truist Bank to: (i) defer contractual principal and interest payments due between April 1, 2020 and June 1, 2020 under the 2017 Term Loan and 2018 Term Loan until their respective maturity dates; and (ii) defer contractual interest payments due between April 1, 2020 and June 1, 2020 under the revolving credit facility until its maturity date. Contractual principal payments for the 2017 Term Loan are as follows: remainder of 2020 - $3.0 million; 2021 through 2023 - $6.0 million per year; and 2024 - $3.0 million. Contractual principal payments for the 2018 Term Loan are as follows: remainder of 2020 - $4.6 million; 2021 through 2025 - $9.3 million per year; and 2026 - $3.1 million. The term loans do not contain pre-payment penalties.
The Company is a party to an interest rate swap with a total notional value of $11.3 million as of June 30, 2020 pursuant to which it makes fixed payments and receives floating payments. The Company entered into the interest rate swap to offset changes in expected cash flows due to fluctuations in the associated variable interest rates. The Company’s interest rate swap expires in February 2024. The interest rate swap is not designated as a hedge transaction. Changes in fair value and gains and losses on settlement on the interest rate swap are recognized in interest expense in our statements of comprehensive income. During the six months ended June 30, 2020 and 2019, a loss of $0.3 million and $0.2 million, respectively, was recognized on the interest rate swap.
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Note 4 - Periodic Pension Expense |
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| Retirement Benefits [Text Block] |
NOTE 4 – Periodic Pension Expense:
The following table details the net periodic pension expense under the Company’s plans for the periods presented (in thousands):
The pension settlement losses included in the table above resulted from lump sum pension payments made to various employees upon their retirement or termination during the periods specified. The pension settlement losses did not require a cash outlay by the Company and did not increase the Company’s total pension expense over time, as the charge was an acceleration of costs that otherwise would be recognized as pension expense in future periods. The service cost component is included in selling and administrative expenses in our statements of comprehensive income and the other components of net periodic pension cost are included in other periodic pension costs in our statements of comprehensive income.
Effective on June 30, 2013, the Company no longer accrues additional benefits for future service or for future increases in compensation levels for the Company’s primary defined benefit pension plan.
Effective on December 31, 2014, the Company no longer accrues additional benefits for future service for the Company’s hourly defined benefit plan.
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Note 5 - Net Sales |
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| Revenue from Contract with Customer [Text Block] |
NOTE 5 – Net Sales:
For our Uniforms and Related Products and Promotional Products segments, revenue is primarily generated from the sale of finished products to customers. Revenue for our Uniforms and Related Products and Promotional Products segments is recognized when the performance obligations under the contract terms are satisfied. For certain contracts with customers in which the Company has an enforceable right to payment for goods with no alternative use, revenue is recognized over time upon receipt of finished goods into inventory. Revenue for goods that do have an alternative use or that the customer is not obligated to purchase under the terms of a contract is generally recognized when the goods are transferred to the customer. Revenue from the sale of personal protective equipment, including face masks, isolation gowns, sanitizers and gloves, is generally recognized at a point in time when the goods are transferred to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contract. The Company includes shipping and handling fees billable to customers in net sales. Shipping and handling activities that occur after the transfer of promised goods are accrued as control is transferred to the customer rather than being treated as a separate performance obligation.
For our Remote Staffing segment, revenue is generated from providing our customers with staffing solution services. Revenue for our Remote Staffing segment is recognized as services are delivered.
Revenue is measured at the amount of consideration we expect to receive in exchange for the goods or services. Variable consideration for estimated returns, allowances and other price variances is recorded based upon historical experience and current allowance programs. Contract termination terms may involve variable consideration clauses such as sales discounts and customer rebates, and revenue is adjusted accordingly for these provisions. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The promised amount of consideration in a contract is not adjusted for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised good or service to a customer and when the customer pays for that product or service will be one year or less. Sales taxes are excluded from the measurement of a performance obligation’s transaction price. Sales commissions are expensed as incurred when we expect that the amortization period of such costs will be one year or less.
The following table presents disaggregated revenue by operating segment for the periods presented (in thousands):
Contract Assets and Contract Liabilities
The following table provides information about accounts receivables - trade, contract assets and contract liabilities from contracts with customers (in thousands):
Contract assets relate to goods produced without an alternative use for which the Company has an enforceable right to payment but which have not yet been invoiced to the customer. The majority of the amounts included in contract assets on December 31, 2019 were transferred to accounts receivable during the six months ended June 30, 2020. Contract liabilities relate to payments received in advance of the Company completing its performance under a contract. Contract liabilities are included in other current liabilities in our balance sheets. The increase in contract liabilities during the six months ended June 30, 2020 was primarily attributable to new customer contracts for the sourcing of personal protective equipment within the Promotional Products and Uniforms and Related Products segments. During the six months ended June 30, 2020, $1.1 million of revenue was recognized from the contract liabilities balance as of December 31, 2019.
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Note 6 - Contingencies |
6 Months Ended |
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Jun. 30, 2020 | |
| Notes to Financial Statements | |
| Commitments and Contingencies Disclosure [Text Block] |
NOTE 6 – Contingencies:
The purchase price to acquire substantially all of the assets of BAMKO, Inc. (“BAMKO”) in 2016 included contingent consideration through 2021. The estimated fair value for BAMKO acquisition-related contingent consideration payable was $2.6 million as of June 30, 2020, of which $1.8 million is expected to be paid in the second quarter of 2021. The purchase price to acquire substantially all of the assets of Tangerine Promotions, Ltd. and Tangerine Promotions West, Inc. (collectively “Tangerine”) in 2017 included contingent consideration through 2021. The estimated fair value for Tangerine acquisition-related contingent consideration payable was $1.9 million as of June 30, 2020, of which $1.0 million is expected to be paid in the second quarter of 2021. The Company will continue to evaluate these liabilities for remeasurement at the end of each reporting period and any changes will be recorded in the Company’s statements of comprehensive income. The carrying amount of the liabilities may fluctuate significantly and actual amounts paid may be materially different from the estimated value of the liabilities.
The Company is involved in various legal actions and claims arising from the normal course of business. In the opinion of management, the ultimate outcome of these matters is not expected to have a material impact on the Company’s results of operations, cash flows, or financial position.
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Note 7 - Share-based Compensation |
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| Share-based Payment Arrangement [Text Block] |
NOTE 7 – Share-Based Compensation:
Share-based compensation is recorded in selling and administrative expense in the statements of comprehensive income. The following table details the share-based compensation expense by type of award and the total related tax benefit for the periods presented (in thousands):
Stock options and SARs
The Company grants stock options and stock-settled SARs to employees that allow them to purchase shares of the Company’s common stock. Stock options are also granted to outside members of the Board of Directors of the Company. The Company determines the fair value of stock options and SARs at the date of grant using the Black-Scholes valuation model.
All stock options and SARs granted prior to August 3, 2018 vested immediately when granted. Awards issued thereafter vest either one or two years after the grant date. Employee awards expire years after the grant date, and those issued to directors expire years after the grant date. The Company issues new shares upon the exercise of stock options and SARs.
A summary of stock option transactions during the six months ended June 30, 2020 follows:
As of June 30, 2020, the Company had $1.2 million in unrecognized compensation related to nonvested stock options to be recognized over the remaining weighted average vesting period of 1.0 years.
A summary of stock-settled SARs transactions during the six months ended June 30, 2020 follows:
As of June 30, 2020, the Company had $0.4 million in unrecognized compensation related to nonvested SARs to be recognized over the remaining weighted average vesting period of 1.2 years.
Restricted Stock
The Company has granted restricted stock to directors and certain employees which vest at a specified future date, generally after years, or when certain conditions are met. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 Incentive Stock and Awards Plan (the “2013 Plan”). Expense for each of these grants is based on the fair value at the date of the grant and is being recognized on a straight-line basis over the respective service period.
A summary of restricted stock transactions during the six months ended June 30, 2020 follows:
As of June 30, 2020, the Company had $1.3 million of unrecognized compensation cost related to nonvested restricted stock grants expected to be recognized over the remaining weighted average vesting period of 1.9 years.
Performance Shares
Certain employees received service-based or service-based and performance-based shares, to which we collectively refer to as performance shares. The service-based awards vest after the service period is met, which is generally to years. Expense for these grants is based on the fair value on the date of the grant and is being recognized on a straight-line basis over the respective service period. The performance-based shares generally vest after years if the performance and service targets are met. The Company evaluates the performance conditions associated with these grants each reporting period to determine the expected number of shares to be issued. Expenses for grants of performance shares are recognized on a straight-line basis over the respective service period based on the grant date fair value and expected number of shares to be issued. The awards are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan.
A summary of performance share transactions during the six months ended June 30, 2020 follows:
As of June 30, 2020, the Company had $1.1 million of unrecognized compensation cost related to nonvested performance share grants expected to be recognized over the remaining weighted average service period of 1.2 years.
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Note 8 - Income Taxes |
6 Months Ended |
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Jun. 30, 2020 | |
| Notes to Financial Statements | |
| Income Tax Disclosure [Text Block] |
NOTE 8 – Income Taxes:
The Company calculates its interim income tax provision in accordance with the accounting guidance for income taxes in interim periods. At the end of each interim period, the Company makes its best estimate of the annual expected effective tax rate and applies that rate to its ordinary year-to-date income or loss. The tax expense or benefit related to significant, unusual, or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur.
The computation of the annual expected effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income for the year and permanent and temporary differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or the tax environment changes.
For the three months ended June 30, 2020, the Company recorded a provision for income taxes of $3.7 million, which represents an effective tax rate of 19.6%. For the three months ended June 30, 2019, the Company recorded a provision for income taxes of $0.9 million, which represents an effective tax rate of 23.8%. For the six months ended June 30, 2020, the Company recorded a provision for income taxes of $5.0 million, which represents an effective tax rate of 21.1%. For the six months ended June 30, 2019, the Company recorded a provision for income taxes of $1.5 million, which represents an effective tax rate of 22.2%. The decrease in the effective tax rate was primarily driven by foreign taxes and foreign tax credit decreases of 5.0%, partially offset by increases of 1.8% for compensation related items, 0.9% for state income taxes and 0.3% for changes in uncertain tax positions.
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Note 9 - Net Income Per Share |
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| Earnings Per Share [Text Block] |
NOTE 9 – Net Income Per Share:
The Company’s basic net income per share is computed based on the weighted average number of shares of common stock outstanding for the period. Diluted net income per share includes the effect of the Company’s outstanding stock options, stock appreciation rights, unvested shares of restricted stock and unvested performance shares, if the inclusion of these items is dilutive.
The following table presents a reconciliation of basic and diluted net income per share for the three and six months ended June 30, 2020 and 2019:
Awards to purchase 442,931 and 316,095 shares of common stock with weighted average exercise prices of $19.06 and $20.95 per share were outstanding during the three months ended June 30, 2020 and 2019, respectively, but were not included in the computation of diluted net income per share because the awards’ exercise prices were greater than the average market price of the common shares.
Awards to purchase 446,061 and 329,095 shares of common stock with weighted average exercise prices of $19.07 and $20.97 per share were outstanding during the six months ended June 30, 2020 and 2019, respectively, but were not included in the computation of diluted net income per share because the awards’ exercise prices were greater than the average market price of the common shares.
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Note 10 - Operating Segment Information |
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| Segment Reporting Disclosure [Text Block] |
NOTE 10 – Operating Segment Information:
The Company classifies its businesses into operating segments based on the types of products and services provided. The Uniforms and Related Products segment consists of sales to customers of uniforms and related items. The Remote Staffing Solutions segment consists of sales of staffing solutions. The Promotional Products segment consists of sales to customers of promotional products and other branded merchandise.
The Company evaluates the performance of each operating segment based on several factors of which the primary financial measures are net sales and income before taxes on income. Amounts for corporate expenses are included in the totals for the Uniforms and Related Products segment. To better reflect the way in which management now reviews the Company’s operating results, in the third quarter of 2019, the Company changed the composition of total assets for each reportable segment to exclude intercompany balances. This change has been made to all periods presented within this Quarterly Report on Form 10-Q.
The following tables set forth financial information related to the Company’s operating segments (in thousands):
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Note 11 - COVID-19 |
6 Months Ended |
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Jun. 30, 2020 | |
| Notes to Financial Statements | |
| Unusual or Infrequent Items, or Both, Disclosure [Text Block] |
NOTE 11 – COVID-19:
The COVID-19 pandemic continues to affect our operations and financial performance, and likely will continue to do so for an undetermined period of time. International, federal, state and local efforts to contain the spread of COVID-19 has continued to intensify as governments enacted shelter in place orders, declared states of emergency, enacted safety requirements such as recommended or mandatory use of face masks and other personal protective equipment and related products, took steps to restrict travel, enacted temporary closures of non-essential businesses and took other restrictive measures that prohibit many employees from going to work. With regard to personal protective equipment, the COVID-19 pandemic has created significant market demands from new and existing customers. In responding to the needs of our customers, our sourcing teams began sourcing much needed personal protective equipment, including face masks, isolation gowns, sanitizers and gloves, which resulted in an increase in net sales during the three months ended June 30, 2020 of $49.7 million and $8.1 million for our Promotional Products segment and Uniforms and Related Products segment, respectively.
The pandemic could have a number of adverse impacts on our business, including, but not limited to, additional disruption to the economy and our customers’ willingness and/or ability to spend, temporary or permanent closures of businesses that consume our products and services, additional work restrictions, and supply chains being interrupted, slowed, or rendered inoperable. Our employees and the employees and contractors of our suppliers and customers also could become ill, quarantined, or otherwise unable to work or travel due to health reasons or governmental restrictions.
The majority of the principal fabrics used in the manufacture of products within the Uniforms and Related Products segment are sourced in China and the vast majority of raw materials used in our Promotional Products segment are sourced from China, either directly by BAMKO or by its suppliers. If we are unable to continue to obtain affordable raw materials and finished products from China or if our suppliers are unable to source affordable raw materials from China, it could significantly disrupt our business. A prolonged pandemic, or the threat thereof, could significantly disrupt our product sourcing, which in turn, could significantly disrupt our business.
We have and will continue to monitor and control our expense levels to protect our profitability. For example, on March 30, 2020, we entered into debt deferment agreements with Truist Bank (formerly known as Branch Banking and Trust Company) to: (i) defer contractual principal and interest payments due between April 1, 2020 and June 1, 2020 under the 2017 Term Loan and 2018 Term Loan until their respective maturity dates; and (ii) defer contractual interest payments due between April 1, 2020 and June 1, 2020 under the revolving credit facility until its maturity date. Additionally, we have proactively taken steps to increase available cash on hand by targeted reductions in discretionary operating expenses. Finally, we have and will continue to delay certain capital expenditures relating to non-essential projects until economic conditions begin to stabilize.
Prolonged instability in the United States and global economies, and how the world reacts to them, could have long-term impacts on our business. These business impacts could negatively affect us in a number of ways, including, but not limited to, reduced demand for our core products and services, reductions to our revenue and profitability, costs associated with complying with new or amended laws and regulations affecting our business, declines in our stock price, reduced availability and less favorable terms of future borrowings, valuation of our pension assets and obligations, reduced credit-worthiness of our customers, and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets. The extent to which the COVID-19 pandemic impacts our business, financial condition, results of operations or cash flows will depend on numerous evolving factors that we are unable to accurately predict at this time. The length and scope of the restrictions imposed by various governments and success of efforts to find a suitable vaccine, among other factors, will determine the ultimate severity of the COVID-19 impact on our business. However, prolonged periods of difficult market conditions could have material adverse impacts on our business, financial condition, results of operations and cash flows.
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Significant Accounting Policies (Policies) |
6 Months Ended |
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Jun. 30, 2020 | |
| Accounting Policies [Abstract] | |
| Basis of Accounting, Policy [Policy Text Block] |
Basis of presentation
The condensed consolidated financial statements include the accounts of Superior Group of Companies, Inc. and its wholly-owned subsidiaries, The Office Gurus, LLC, SUG Holding, Superior Group Holdings, Inc., Fashion Seal Corporation, BAMKO, LLC and CID Resources, Inc.; The Office Gurus, Ltda, de C.V., The Office Masters, Ltda., de C.V. and The Office Gurus, Ltd., each a subsidiary of Fashion Seal Corporation and SUG Holding; and Power Three Web, Ltda. and Superior Sourcing, each a wholly-owned subsidiary of SUG Holding; BAMKO Importação, Exportação e Comércio de Brindes Ltda., a subsidiary of BAMKO, LLC and SUG Holding; Guangzhou Ben Gao Trading Limited, Worldwide Sourcing Solutions Limited, BAMKO UK, Limited, and BAMKO Merch Inc., each a direct or indirect subsidiary of BAMKO, LLC; and BAMKO India Private Limited, a 99%-owned subsidiary of BAMKO, LLC. All of these entities are referred to collectively as the “Company,” “Superior,” “we,” “our,” or “us.” Effective on May 3, 2018, Superior Uniform Group, Inc. changed its name to Superior Group of Companies, Inc.
The accompanying unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Intercompany items have been eliminated in consolidation. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and filed with the Securities and Exchange Commission. Management believes that the information furnished includes all adjustments of a normal recurring nature that are necessary to fairly present our consolidated financial position, results of operations and cash flows for the periods indicated. The results of operations for any interim period are not necessarily indicative of results to be expected for the full year.
We refer to the condensed consolidated financial statements collectively as “financial statements,” and individually as “statements of comprehensive income,” “balance sheets,” “statements of shareholders’ equity,” and “statements of cash flows” herein. |
| New Accounting Pronouncements, Policy [Policy Text Block] | Recent Accounting Pronouncements
We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not listed below were assessed and determined to be not applicable.
Recently Adopted Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by the difference between a reporting unit's carrying value and its fair value (impairment loss is limited to the carrying value). This standard is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. The Company’s adoption of this standard on January 1, 2020 did not have a material impact on its financial statements.
In August 2018, the FASB issued ASU 2018-15, “Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update also requires an entity to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement. This update is effective for fiscal years beginning after December 15, 2019 and may be applied prospectively or retrospectively. On January 1, 2020, the Company adopted this standard on a prospective basis. The Company’s adoption of this standard did not have a material impact on its financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326).” The update changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. In February 2020, the FASB issued ASU 2020-2, “Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842).” The update delayed the effective date of ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)” for Smaller Reporting Companies until fiscal years beginning after December 15, 2022. Adoption will require a modified retrospective approach beginning with the earliest period presented. The Company is currently evaluating the potential impact this standard will have on its financial statements.
In December 2019, the FASB Issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting of Income Taxes”, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating this guidance to determine what impact it may have on its financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR. This guidance includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. This guidance may be applied through December 31, 2022. The Company will apply this guidance to transactions and modifications to contracts and hedging relationships that reference LIBOR. |
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Note 3 - Long-term Debt (Tables) |
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Note 4 - Periodic Pension Expense (Tables) |
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Note 5 - Net Sales (Tables) |
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Note 7 - Share-based Compensation (Tables) |
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Note 9 - Net Income Per Share (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Note 10 - Operating Segment Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Schedule of Segment Reporting Information, by Segment [Table Text Block] |
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Note 1 - Basis of Presentation (Details Textual) |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| BAMKO [Member] | |
| Subsidiary of Limited Liability Company or Limited Partnership, Ownership Interest | 99.00% |
Note 2 - Inventories - Inventories (Details) - USD ($) $ in Thousands |
Jun. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Finished goods | $ 59,335 | $ 65,413 |
| Work in process | 1,032 | 652 |
| Raw materials | 12,095 | 7,314 |
| Inventories | $ 72,462 | $ 73,379 |
Note 3 - Long-term Debt - Long-term Debt (Details) - USD ($) $ in Thousands |
Jun. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Long-term debt, gross | $ 85,513 | $ 119,826 |
| Payments due within one year included in current liabilities | 15,286 | 15,286 |
| Debt issuance costs | 497 | 537 |
| Long-term debt less current maturities | 69,730 | 104,003 |
| BB&T [Member] | Term Loan Maturing January 22, 2026 [Member] | ||
| Long-term debt, gross | 7,346 | 37,838 |
| BB&T [Member] | Term Loan Maturing February 26, 2024 [Member] | ||
| Long-term debt, gross | 24,000 | 25,500 |
| BB&T [Member] | Term Loan Maturing May 2020 [Member] | ||
| Long-term debt, gross | $ 54,167 | $ 56,488 |
Note 4 - Periodic Pension Expense - Net Periodic Benefit Cost (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Service cost - benefits earned during the period | $ 38 | $ 29 | $ 76 | $ 58 |
| Interest cost on projected benefit obligation | 216 | 271 | 432 | 542 |
| Expected return on plan assets | (389) | (384) | (778) | (721) |
| Recognized actuarial loss | 313 | 324 | 633 | 649 |
| Settlement loss | 193 | 336 | 331 | 336 |
| Net periodic pension cost after settlements | $ 371 | $ 576 | $ 694 | $ 864 |
Note 5 - Net Sales (Details Textual) $ in Millions |
6 Months Ended |
|---|---|
|
Jun. 30, 2020
USD ($)
| |
| Contract with Customer, Liability, Revenue Recognized | $ 1.1 |
Note 5 - Net Sales - Accounts Receivables and Contract Assets (Details) - USD ($) $ in Thousands |
Jun. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Accounts receivable - trade | $ 87,064 | $ 79,746 |
| Current contract assets | 35,129 | 38,533 |
| Current contract liabilities | $ 8,472 | $ 1,821 |
Note 6 - Contingencies (Details Textual) - USD ($) $ in Thousands |
Jun. 30, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Business Combination, Contingent Consideration, Liability, Current | $ 2,786 | $ 1,905 |
| BAMKO [Member] | ||
| Business Combination, Contingent Consideration, Liability, Total | 2,600 | |
| Business Combination, Contingent Consideration, Liability, Current | 1,800 | |
| Tangerine [Member] | ||
| Business Combination, Contingent Consideration, Liability, Total | 1,900 | |
| Business Combination, Contingent Consideration, Liability, Current | $ 1,000 |
Note 7 - Share-based Compensation - Shared-based Compensation Expense and the Related Tax Benefit (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Share-based compensation expense | $ 662 | $ 551 | $ 1,061 | $ 1,032 |
| Related income tax benefit | 75 | 67 | 129 | 125 |
| Stock Options and SARs [Member] | ||||
| Share-based compensation expense | 345 | 105 | 510 | 178 |
| Restricted Stock [Member] | ||||
| Share-based compensation expense | 203 | 209 | 363 | 397 |
| Performance Shares [Member] | ||||
| Share-based compensation expense | $ 114 | $ 237 | $ 188 | $ 457 |
Note 7 - Share-based Compensation - Stock-settled Stock Appreciation Rights Transactions (Details) - Stock Appreciation Rights (SARs) [Member] - USD ($) $ / shares in Units, $ in Thousands |
6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Dec. 31, 2019 |
|||
| Outstanding SARS (in shares) | 206,700 | |||
| Outstanding SARS, weighted average exercise price (in dollars per share) | $ 18.67 | |||
| Outstanding SARS, weighted average remaining life (Year) | 3 years 5 months 15 days | 2 years 14 days | ||
| Outstanding SARS, aggregate intrinsic value | $ 316 | $ 0 | ||
| Granted SARs (in shares) | [1] | 225,625 | ||
| Granted SARS, weighted average exercise price (in dollars per share) | [1] | $ 10.08 | ||
| Exercised SARs (in shares) | 0 | |||
| Exercised SARS, weighted average exercise price (in dollars per share) | $ 0 | |||
| Lapsed or cancelled (in shares) | (68,501) | |||
| Lapsed or cancelled, weighted average exercise price (in dollars per share) | $ 15.97 | |||
| Outstanding SARS (in shares) | 363,824 | 206,700 | ||
| Outstanding SARS, weighted average exercise price (in dollars per share) | $ 13.85 | $ 18.67 | ||
| Exercisable (in shares) | 126,068 | |||
| Exercisable, weighted average exercise price (in dollars per share) | $ 18.95 | |||
| Exercisable, weighted average remaining life (Year) | 1 year 6 months 29 days | |||
| Exercisable, aggregate intrinsic value | $ 0 | |||
| ||||
Note 7 - Share-based Compensation - Restricted Stock Transactions (Details) - Restricted Stock [Member] |
6 Months Ended |
|---|---|
|
Jun. 30, 2020
$ / shares
shares
| |
| Outstanding (in shares) | shares | 151,166 |
| Outstanding, weighted average grant date fair value (in dollars per share) | $ / shares | $ 18.44 |
| Granted (in shares) | shares | 49,543 |
| Granted, weighted average grant date fair value (in dollars per share) | $ / shares | $ 10.97 |
| Vested (in shares) | shares | (34,619) |
| Vested, weighted average grant date fair value (in dollars per share) | $ / shares | $ 16.97 |
| Forfeited (in shares) | shares | (17,420) |
| Forfeited, weighted average grant date fair value (in dollars per share) | $ / shares | $ 14.24 |
| Outstanding (in shares) | shares | 148,670 |
| Outstanding, weighted average grant date fair value (in dollars per share) | $ / shares | $ 16.79 |
Note 7 - Share-based Compensation - Performance Share Transactions (Details) - Performance Shares [Member] |
6 Months Ended |
|---|---|
|
Jun. 30, 2020
$ / shares
shares
| |
| Outstanding (in shares) | shares | 194,012 |
| Outstanding, weighted average grant date fair value (in dollars per share) | $ / shares | $ 19.77 |
| Granted (in shares) | shares | 0 |
| Granted, weighted average grant date fair value (in dollars per share) | $ / shares | $ 0 |
| Vested (in shares) | shares | (5,892) |
| Vested, weighted average grant date fair value (in dollars per share) | $ / shares | $ 16.97 |
| Forfeited (in shares) | shares | (8,952) |
| Forfeited, weighted average grant date fair value (in dollars per share) | $ / shares | $ 20.42 |
| Outstanding (in shares) | shares | 179,168 |
| Outstanding, weighted average grant date fair value (in dollars per share) | $ / shares | $ 19.83 |
Note 8 - Income Taxes (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Income Tax Expense (Benefit), Total | $ 3,700 | $ 871 | $ 4,950 | $ 1,471 |
| Effective Income Tax Rate Reconciliation, Percent, Total | 19.60% | 23.80% | 21.10% | 22.20% |
| Effective Income Tax Rate Reconciliation, Foreign Income Tax Rate Differential, Percent | (5.00%) | |||
| Effective Income Tax Rate Reconciliation, Nondeductible Expense, Share-based Payment Arrangement, Percent | 1.80% | |||
| Effective Income Tax Rate Reconciliation, State and Local Income Taxes, Percent | 0.90% | |||
| Changes in Uncertain Tax Positions | 0.30% | |||
Note 9 - Net Income Per Share (Details Textual) - $ / shares |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 442,931 | 316,095 | 446,061 | 329,095 |
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Weight Average Exercise Price (in dollars per share) | $ 19.06 | $ 20.95 | $ 19.07 | $ 20.97 |
Note 9 - Earnings Per Share - Reconciliation of Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Net income used in the computation of basic and diluted net income per share (in thousands) | $ 15,174 | $ 2,781 | $ 18,541 | $ 5,157 |
| Weighted average shares outstanding - basic (in shares) | 15,016,062 | 14,952,802 | 15,020,457 | 14,940,072 |
| Dilutive common stock equivalents (in shares) | 155,024 | 334,555 | 165,535 | 334,934 |
| Weighted average number of shares outstanding during the period, diluted (in shares) | 15,171,086 | 15,287,357 | 15,185,992 | 15,275,006 |
| Basic (in dollars per share) | $ 1.01 | $ 0.19 | $ 1.23 | $ 0.35 |
| Diluted (in dollars per share) | $ 1.00 | $ 0.18 | $ 1.22 | $ 0.34 |
Note 10 - Operating Segment Information (Details Textual) |
6 Months Ended |
|---|---|
Jun. 30, 2020 | |
| Number of Operating Segments | 3 |
Note 10 - Operating Segment Information - Information Related to the Operations of the Company's Operating Segments (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
Dec. 31, 2019 |
|||||
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | $ 159,359 | $ 92,270 | $ 253,604 | $ 178,822 | |||||
| Cost of goods sold | 103,421 | 59,927 | 164,215 | 116,211 | |||||
| Gross margin | 55,938 | 32,343 | 89,389 | 62,611 | |||||
| Selling and administrative expenses | 36,298 | 26,885 | 63,787 | 52,748 | |||||
| Other periodic pension cost | 333 | 547 | 618 | 806 | |||||
| Interest expense | 433 | 1,259 | 1,493 | 2,429 | |||||
| Income before taxes on income | 18,874 | 3,652 | 23,491 | 6,628 | |||||
| Depreciation and amortization | 2,090 | 2,151 | 3,959 | 4,211 | |||||
| Capital expenditures | 2,820 | 3,256 | 4,893 | 4,979 | |||||
| Total assets | 358,170 | 347,012 | [1] | 358,170 | 347,012 | [1] | $ 358,933 | ||
| Intersegment Eliminations [Member] | |||||||||
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | (1,290) | (1,212) | (2,525) | (2,297) | |||||
| Cost of goods sold | (480) | (434) | (945) | (804) | |||||
| Gross margin | (810) | (778) | (1,580) | (1,493) | |||||
| Selling and administrative expenses | (810) | (778) | (1,580) | (1,493) | |||||
| Other periodic pension cost | 0 | 0 | 0 | 0 | |||||
| Interest expense | 0 | 0 | 0 | 0 | |||||
| Income before taxes on income | 0 | 0 | 0 | 0 | |||||
| Depreciation and amortization | 0 | 0 | 0 | 0 | |||||
| Capital expenditures | 0 | 0 | 0 | 0 | |||||
| Total assets | 0 | 0 | [1] | 0 | 0 | [1] | |||
| Uniforms and Related Products [Member] | |||||||||
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | 75,842 | 60,745 | 135,944 | 119,424 | |||||
| Uniforms and Related Products [Member] | Operating Segments [Member] | |||||||||
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | 75,842 | 60,745 | 135,944 | 119,424 | |||||
| Cost of goods sold | 47,937 | 38,937 | 86,609 | 77,298 | |||||
| Gross margin | 27,905 | 21,808 | 49,335 | 42,126 | |||||
| Selling and administrative expenses | 20,014 | 18,779 | 38,239 | 36,956 | |||||
| Other periodic pension cost | 333 | 547 | 618 | 806 | |||||
| Interest expense | 338 | 963 | 1,210 | 1,841 | |||||
| Income before taxes on income | 7,220 | 1,519 | 9,268 | 2,523 | |||||
| Depreciation and amortization | 1,551 | 1,582 | 2,861 | 3,070 | |||||
| Capital expenditures | 2,600 | 2,997 | 4,452 | 4,155 | |||||
| Total assets | 252,503 | 255,746 | [1] | 252,503 | 255,746 | [1] | |||
| Remote Staffing Solutions [Member] | |||||||||
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | 8,061 | 7,781 | 16,026 | 15,295 | |||||
| Remote Staffing Solutions [Member] | Operating Segments [Member] | |||||||||
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | 9,351 | 8,993 | 18,551 | 17,592 | |||||
| Cost of goods sold | 4,239 | 3,824 | 8,227 | 7,384 | |||||
| Gross margin | 5,112 | 5,169 | 10,324 | 10,208 | |||||
| Selling and administrative expenses | 3,517 | 3,448 | 6,913 | 6,567 | |||||
| Other periodic pension cost | 0 | 0 | 0 | 0 | |||||
| Interest expense | 0 | 0 | 0 | 0 | |||||
| Income before taxes on income | 1,595 | 1,721 | 3,411 | 3,641 | |||||
| Depreciation and amortization | 197 | 249 | 414 | 505 | |||||
| Capital expenditures | 180 | 196 | 346 | 605 | |||||
| Total assets | 21,030 | 23,614 | [1] | 21,030 | 23,614 | [1] | |||
| Remote Staffing Solutions [Member] | Intersegment Eliminations [Member] | |||||||||
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | (1,290) | (1,212) | (2,525) | (2,297) | |||||
| Promotional Products [Member] | |||||||||
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | 75,456 | 23,744 | 101,634 | 44,103 | |||||
| Promotional Products [Member] | Operating Segments [Member] | |||||||||
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | 75,456 | 23,744 | 101,634 | 44,103 | |||||
| Cost of goods sold | 51,725 | 17,600 | 70,324 | 32,333 | |||||
| Gross margin | 23,731 | 6,144 | 31,310 | 11,770 | |||||
| Selling and administrative expenses | 13,577 | 5,436 | 20,215 | 10,718 | |||||
| Other periodic pension cost | 0 | 0 | 0 | 0 | |||||
| Interest expense | 95 | 296 | 283 | 588 | |||||
| Income before taxes on income | 10,059 | 412 | 10,812 | 464 | |||||
| Depreciation and amortization | 342 | 320 | 684 | 636 | |||||
| Capital expenditures | 40 | 63 | 95 | 219 | |||||
| Total assets | $ 84,637 | $ 67,652 | [1] | $ 84,637 | $ 67,652 | [1] | |||
| |||||||||
Note 11 - COVID-19 (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | $ 159,359 | $ 92,270 | $ 253,604 | $ 178,822 |
| Promotional Products [Member] | ||||
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | 75,456 | 23,744 | 101,634 | 44,103 |
| Promotional Products [Member] | Personal Protective Equipment [Member] | ||||
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | 49,684 | 0 | 49,684 | 0 |
| Promotional Products [Member] | Personal Protective Equipment [Member] | Covid-19 [Member] | ||||
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | 49,700 | |||
| Uniforms and Related Products [Member] | ||||
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | 75,842 | 60,745 | 135,944 | 119,424 |
| Uniforms and Related Products [Member] | Personal Protective Equipment [Member] | ||||
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | 8,865 | $ 800 | $ 10,332 | $ 2,232 |
| Uniforms and Related Products [Member] | Personal Protective Equipment [Member] | Covid-19 [Member] | ||||
| Revenue from Contract with Customer, Excluding Assessed Tax, Total | $ 8,100 | |||