Company Quick10K Filing
Superior Group of Companies
Price16.21 EPS1
Shares15 P/E18
MCap248 P/FCF21
Net Debt114 EBIT19
TEV362 TEV/EBIT19
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-10-29
10-Q 2020-06-30 Filed 2020-07-29
10-Q 2020-03-31 Filed 2020-04-30
10-K 2019-12-31 Filed 2020-02-20
10-Q 2019-09-30 Filed 2019-10-23
10-Q 2019-06-30 Filed 2019-07-30
10-Q 2019-03-31 Filed 2019-04-25
10-K 2018-12-31 Filed 2019-02-21
10-Q 2018-09-30 Filed 2018-10-25
10-Q 2018-06-30 Filed 2018-07-26
10-Q 2018-03-31 Filed 2018-05-02
10-K 2017-12-31 Filed 2018-02-22
10-Q 2017-09-30 Filed 2017-10-26
10-Q 2017-06-30 Filed 2017-07-27
10-Q 2017-03-31 Filed 2017-04-27
10-K 2016-12-31 Filed 2017-02-23
10-Q 2016-09-30 Filed 2016-10-27
10-Q 2016-06-30 Filed 2016-07-21
10-Q 2016-03-31 Filed 2016-04-28
10-K 2015-12-31 Filed 2016-02-25
10-Q 2015-09-30 Filed 2015-10-22
10-Q 2015-06-30 Filed 2015-07-23
10-Q 2015-03-31 Filed 2015-04-22
10-K 2014-12-31 Filed 2015-02-26
10-Q 2014-09-30 Filed 2014-10-23
10-Q 2014-06-30 Filed 2014-07-23
10-Q 2014-03-31 Filed 2014-04-25
10-K 2013-12-31 Filed 2014-02-28
10-Q 2013-09-30 Filed 2013-10-28
10-Q 2013-06-30 Filed 2013-07-26
10-Q 2013-03-31 Filed 2013-04-19
10-K 2012-12-31 Filed 2013-03-14
10-Q 2012-09-30 Filed 2012-10-19
10-Q 2012-06-30 Filed 2012-07-20
10-Q 2012-03-31 Filed 2012-04-20
10-K 2011-12-31 Filed 2012-02-24
10-Q 2011-09-30 Filed 2011-10-24
10-Q 2011-06-30 Filed 2011-07-26
10-Q 2011-03-31 Filed 2011-04-21
10-K 2010-12-31 Filed 2011-02-25
10-Q 2010-09-30 Filed 2010-10-21
10-Q 2010-06-30 Filed 2010-07-22
10-Q 2010-03-31 Filed 2010-04-23
10-K 2009-12-31 Filed 2010-02-26
8-K 2020-10-29
8-K 2020-07-29
8-K 2020-07-02
8-K 2020-06-18
8-K 2020-05-12
8-K 2020-04-30
8-K 2020-04-03
8-K 2020-04-02
8-K 2020-03-02
8-K 2020-02-20
8-K 2019-11-04
8-K 2019-10-23
8-K 2019-09-27
8-K 2019-08-20
8-K 2019-07-30
8-K 2019-05-07
8-K 2019-05-03
8-K 2019-04-25
8-K 2019-02-21
8-K 2019-01-31
8-K 2019-01-22
8-K 2018-11-05
8-K 2018-10-25
8-K 2018-08-08
8-K 2018-08-03
8-K 2018-07-26
8-K 2018-05-03
8-K 2018-05-02
8-K 2018-05-02
8-K 2018-02-22

SGC 10Q Quarterly Report

Note 1 – Basis of Presentation:
Note 2 – Inventories:
Note 5 – Net Sales:
Note 6 – Contingencies:
Note 7 – Share - Based Compensation:
Note 8 – Income Taxes:
Note 11 – Covid - 19:
Part II - Other Information
EX-31.1 ex_197526.htm
EX-31.2 ex_197527.htm
EX-32 ex_197528.htm

Superior Group of Companies Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
3502802101407002012201420172020
Assets, Equity
1008060402002012201420172020
Rev, G Profit, Net Income
855015-20-55-902012201420172020
Ops, Inv, Fin

0000095574 SUPERIOR GROUP OF COMPANIES, INC. false --12-31 Q3 2020 7,922 2,964 0.001 0.001 300,000 300,000 0 0 0.001 0.001 50,000,000 50,000,000 15,340,949 15,340,949 15,227,604 15,227,604 0.10 1 141 100 0.20 1 92 0 0.30 3 376 93 0.30 2 322 449 6.0 6.0 9.3 9.3 9.3 9.3 0.5 5 10 3 3 5 5 The weighted average grant date fair value of stock options granted was $2.36 per share. During the three and nine months ended September 30, 2019, the Company reversed $0.5 million of previously recognized expense for certain performance awards after determining that the performance conditions are not expected to be met. 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

 

 

 

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: 001-05869

 

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.:

Florida 

11-1385670

 

Address of principal executive offices:

10055 Seminole Boulevard

Seminole, Florida 33772-2539

 

Registrant’s telephone number, including area code:

727-397-9611

 

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

Common Stock $0.001 par value per share

 

SGC

 

NASDAQ

 

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. Yes ☒  No ☐

 

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). Yes ☒  No ☐

 

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  ☐    

Accelerated filer  ☒

 

Non-accelerated filer    ☐

 

Smaller Reporting Company  

 

 

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   No ☒

 

The number of shares of common stock of the registrant outstanding as of October 22, 2020 was 15,435,047 shares.

 


 

 

TABLE OF CONTENTS

 

 
   

 

Page

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

2

Condensed Consolidated Statements of Comprehensive Income (Unaudited) 

2

Condensed Consolidated Balance Sheets (Unaudited)

4

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

5

Condensed Consolidated Statements of Cash Flows (Unaudited)

7

Notes to the Condensed Consolidated Financial Statements (Unaudited)

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3. Quantitative and Qualitative Disclosures About Market Risk

28

Item 4. Controls and Procedures

29

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

29

Item 1A. Risk Factors

29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 3. Defaults Upon Senior Securities

30

Item 4. Mine Safety Disclosures

30

Item 5. Other Information

30

Item 6. Exhibits

31

SIGNATURES

32

 

1

 

 

 PART I - FINANCIAL INFORMATION

 

ITEM 1.   Financial Statements

 

 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 September 30, 
  

2020

  

2019

 
Net sales $127,737  $89,466 
         

Costs and expenses:

        
Cost of goods sold  80,285   58,015 
Selling and administrative expenses  34,917   25,260 
Other periodic pension costs  212   476 
Interest expense  239   1,085 
   115,653   84,836 
Income before taxes on income  12,084   4,630 
Income tax expense  2,140   709 
Net income $9,944  $3,921 
         

Net income per share:

        
Basic $0.66  $0.26 
Diluted $0.63  $0.26 
         

Weighted average shares outstanding during the period:

        
Basic  15,084,300   14,947,552 
Diluted  15,711,122   15,266,850 
         

Other comprehensive income (loss), net of tax:

        

Defined benefit pension plans:

        
Recognition of net losses included in net periodic pension costs $232  $236 
Recognition of settlement loss included in net periodic pension costs  62   213 
Loss on cash flow hedging activities  (5)  (5)
Foreign currency translation adjustment  (145)  (316)

Other comprehensive income

  144   128 
Comprehensive income $10,088  $4,049 
         
Cash dividends per common share $0.20  $0.10 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

 

2

 

 SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except shares and per share data)

 

  

Nine Months Ended September 30,

 
  

2020

  

2019

 

Net sales

 $381,341  $268,288 
         

Costs and expenses:

        

Cost of goods sold

  244,500   174,226 

Selling and administrative expenses

  98,704   78,008 

Other periodic pension costs

  830   1,282 

Interest expense

  1,732   3,514 
   345,766   257,030 

Income before taxes on income

  35,575   11,258 

Income tax expense

  7,090   2,180 

Net income

 $28,485  $9,078 
         

Net income per share:

        

Basic

 $1.89  $0.61 

Diluted

 $1.85  $0.59 
         

Weighted average shares outstanding during the period

        

Basic

  15,041,738   14,942,565 

Diluted

  15,361,035   15,272,287 
         

Other comprehensive income (loss), net of tax:

        

Defined benefit pension plans:

        

Recognition of net losses included in net periodic pension costs

 $712  $739 

Recognition of settlement loss included in net periodic pension costs

  314   459 

Loss on cash flow hedging activities

  (16)  (16)

Foreign currency translation adjustment

  (1,546)  (295)

Other comprehensive income (loss)

  (536)  887 

Comprehensive income

 $27,949  $9,965 
         

Cash dividends per common share

 $0.30  $0.30 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

 

3

 

 

 

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

 CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and par value data)

 

  

September 30,

  

December 31,

 
  

2020

  

2019

 

ASSETS

    

Current assets:

        

Cash and cash equivalents

 $5,651  $9,038 

Accounts receivable, less allowance for doubtful accounts of $7,922 and $2,964, respectively

  85,297   79,746 

Accounts receivable - other

  2,204   1,083 

Inventories

  80,221   73,379 

Contract assets

  35,484   38,533 

Prepaid expenses and other current assets

  13,094   9,934 

Total current assets

  221,951   211,713 

Property, plant and equipment, net

  35,421   32,825 

Operating lease right-of-use assets

  4,143   5,445 

Intangible assets, net

  59,696   62,536 

Goodwill

  36,055   36,292 

Other assets

  9,972   10,122 

Total assets

 $367,238  $358,933 
         

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

Current liabilities:

        

Accounts payable

 $30,512  $33,271 

Other current liabilities

  49,890   18,894 

Current portion of long-term debt

  15,286   15,286 

Current portion of acquisition-related contingent liabilities

  4,307   1,905 

Total current liabilities

  99,995   69,356 

Long-term debt

  61,511   104,003 

Long-term pension liability

  9,771   10,253 

Long-term acquisition-related contingent liabilities

  1,815   3,423 

Long-term operating lease liabilities

  1,724   2,380 

Deferred tax liability

  3,260   7,042 

Other long-term liabilities

  5,581   4,922 

Commitments and contingencies (Note 6)

          

Shareholders’ equity:

        

Preferred stock, $.001 par value - authorized 300,000 shares (none issued)

  -   - 

Common stock, $.001 par value - authorized 50,000,000 shares, issued and outstanding 15,340,949 and 15,227,604 shares, respectively.

  15   15 

Additional paid-in capital

  60,618   57,442 

Retained earnings

  130,968   107,581 
Accumulated other comprehensive income (loss), net of tax:        

Pensions

  (6,198)  (7,224)

Cash flow hedges

  75   91 

Foreign currency translation adjustment

  (1,897)  (351)

Total shareholders’ equity

  183,581   157,554 

Total liabilities and shareholders’ equity

 $367,238  $358,933 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

 

4

 

 

 

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE MONTHS ENDED September 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, July 1, 2019

  15,255,694  $15  $57,166  $104,165  $(7,226) $154,120 

Common shares issued upon exercise of options, net

  300       3           3 

Share-based compensation expense

          (35)          (35)

Cash dividends declared ($0.10 per share)

              (1,510)      (1,510)

Common stock reacquired and retired

  (15,677)      (57)  (150)      (207)

Comprehensive income (loss):

                        

Net earnings

              3,921       3,921 

Cash flow hedges, net of taxes of $1

                  (5)  (5)

Pensions, net of taxes of $141

                  449   449 

Change in currency translation adjustment, net of taxes of $100

                  (316)  (316)

Balance, September 30, 2019

  15,240,317  $15  $57,077  $106,426  $(7,098) $156,420 
                         

Balance, July 1, 2020

  15,231,781  $15  $58,381   124,243  $(8,164) $174,475 

Common shares issued upon exercise of options, net

  109,168       1,540   (166)      1,374 

Share-based compensation expense

          729           729 
Tax withheld on exercise of Stock Appreciation Rights (SARS)          (32)          (32)
Cash dividends declared ($0.20 per share)              (3,053)      (3,053)

Comprehensive income (loss):

                        

Net earnings

              9,944       9,944 

Cash flow hedges, net of taxes of $1

                  (5)  (5)

Pensions, net of taxes of $92

                  294   294 

Change in currency translation adjustment, net of taxes of $0

                  (145)  (145)

Balance, September 30, 2020

  15,340,949  $15  $60,618  $130,968  $(8,020) $183,581 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

 

5

 

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Nine Months Ended September 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

  15,202,387  $15  $55,859  $103,032  $(7,985) $150,921 

Common shares issued upon exercise of options, net

  62,994       460   (177)      283 

Restricted shares issued

  48,829                   - 

Share-based compensation expense

          997           997 

Tax benefit from vesting of acquisition-related restricted stock

          30           30 

Cash dividends declared ($0.30 per share)

              (4,533)      (4,533)

Common stock reacquired and retired

  (73,893)      (269)  (974)      (1,243)

Comprehensive income (loss):

                        

Net earnings

              9,078       9,078 

Cash flow hedges, net of taxes of $3

                  (16)  (16)

Pensions, net of taxes of $376

                  1,198   1,198 

Change in currency translation adjustment, net of taxes of $93

                  (295)  (295)

Balance, September 30, 2019

  15,240,317  $15  $57,077  $106,426  $(7,098) $156,420 
                         

Balance, January 1, 2020

  15,227,604  $15  $57,442  $107,581  $(7,484) $157,554 

Common shares issued upon exercise of options

  118,788       1,590   (183)      1,407 

Restricted shares issued

  38,015                   - 

Share-based compensation expense

          1,790           1,790 

Tax benefit from vesting of acquisition-related restricted stock

          (13)          (13)
Tax withheld on exercise of Stock Appreciation Rights (SARS)          (32)          (32)

Cash dividends declared ($0.30 per share)

              (4,574)      (4,574)

Common stock reacquired and retired

  (43,458)      (159)  (341)      (500)

Comprehensive income (loss):

                        

Net earnings

              28,485       28,485 

Cash flow hedges, net of taxes of $2

                  (16)  (16)

Pensions, net of taxes of $322

                  1,026   1,026 

Change in currency translation adjustment, net of taxes of $449

                  (1,546)  (1,546)

Balance, September 30, 2020

  15,340,949  $15  $60,618  $130,968  $(8,020) $183,581 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

 

6

 

 

 

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

  Nine Months Ended September 30, 
  

2020

  

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

        
Net income $28,485  $9,078 

Adjustments to reconcile net income to net cash provided by operating activities:

        
Depreciation and amortization  5,972   6,339 
Provision for bad debts - accounts receivable  6,099   719 
Share-based compensation expense  1,790   997 
Deferred income tax benefit  (3,654)  (2,136)
Gain on sale of property, plant and equipment  -   (5)
Change in fair value of acquisition-related contingent liabilities  2,759   (272)

Changes in assets and liabilities:

        
Accounts receivable - trade  (12,225)  (12,251)
Accounts receivable - other  (1,121)  481 
Contract assets  3,049   11,206 
Inventories  (7,306)  (595)
Prepaid expenses and other current assets  (3,592)  (7,051)
Other assets  1   (2,233)
Accounts payable and other current liabilities  29,167   5,523 
Long-term pension liability  864   1,292 
Other long-term liabilities  779   750 

Net cash provided by operating activities

  51,067   11,842 
         

CASH FLOWS FROM INVESTING ACTIVITIES

        
Additions to property, plant and equipment  (5,711)  (6,424)
Proceeds from disposals of property, plant and equipment  -   5 

Net cash used in investing activities

  (5,711)  (6,419)
         

CASH FLOWS FROM FINANCING ACTIVITIES

        
Proceeds from borrowings of debt  137,559   125,121 
Repayment of debt  (180,112)  (123,600)
Payment of cash dividends  (4,574)  (4,533)
Payment of acquisition-related contingent liability  (1,966)  (961)
Proceeds received on exercise of stock options  1,407   283 
Tax withholding on exercise of stock rights  (32)  - 
Tax (provision) benefit from vesting of acquisition-related restricted stock  (13)  30 
Common stock reacquired and retired  (500)  (1,243)

Net cash used in financing activities

  (48,231)  (4,903)
         
Effect of currency exchange rates on cash  (512)  (430)

Net increase (decrease) in cash and cash equivalents

  (3,387)  90 

Cash and cash equivalents balance, beginning of period

  9,038   5,362 

Cash and cash equivalents balance, end of period

 $5,651  $5,452 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

 

7

 

 

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, The Office Gurus Limited, Superior Uniform Arkansas LLC, Superior Uniform Group, LLC, Superior Group Holdings (IL), 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.

 

8

 
 

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):

 

  

September 30,

  

December 31,

 
  

2020

  

2019

 

Finished goods

 $67,304  $65,413 

Work in process

  989   652 

Raw materials

  11,928   7,314 

Inventories

 $80,221  $73,379 

 

 

NOTE 3 – Long-Term Debt:

 

Debt consisted of the following (in thousands):

 

  

September 30,

  

December 31,

 
  2020  2019 
Credit Facilities:        
Revolving credit facility due May 2023 $2,928  $37,838 
Term loan due February 2024 (“2017 Term Loan”)  22,500   25,500 
Term loan due January 2026 (“2018 Term Loan”)  51,845   56,488 
   77,273   119,826 

Less:

        
Payments due within one year included in current liabilities  15,286   15,286 
Debt issuance costs  476   537 

Long-term debt less current maturities

 $61,511  $104,003 

 

9

 

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) (1.00% at September 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) (0.83% at September 30, 2020). The available balance under the revolving credit facility is reduced by outstanding letters of credit. As of September 30, 2020, the Company had $8.9 million in outstanding letters of credit 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 - $1.5 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 - $2.3 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 $10.5 million as of  September 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 nine months ended September 30, 2020 and 2019, a loss of $0.3 million and $0.3 million, respectively, was recognized on the interest rate swap.

 

 

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 September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Service cost - benefits earned during the period

 $38  $29  $114  $87 

Interest cost on projected benefit obligation

  216   271   648   813 

Expected return on plan assets

  (389)  (385)  (1,167)  (1,106)

Recognized actuarial loss

  305   310   938   959 

Settlement loss

  82   280   413   616 

Net periodic pension cost after settlements

 $252  $505  $946  $1,369 

 

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.

 

10

 
 

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 September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Uniforms and Related Products Segment:

                

Uniforms and related products

 $59,296  $54,155  $184,909  $171,347 

Personal protective equipment

  13,938   824   24,269   3,056 

Total Uniforms and Related Products Segment

 $73,234  $54,979  $209,178  $174,403 
                 

Remote Staffing Solutions Segment:

                

Remote staffing solutions services

 $11,636  $9,305  $30,187  $26,897 

Net intersegment eliminations

  (1,309)  (1,278)  (3,834)  (3,575)

Total Remote Staffing Solutions Segment

 $10,327  $8,027  $26,353  $23,322 
                 

Promotional Products Segment:

                

Promotional products

 $24,769  $26,460  $76,719  $70,563 

Personal protective equipment

  19,407   -   69,091   - 

Total Promotional Products Segment

 $44,176  $26,460  $145,810  $70,563 
                 

Consolidated Net Sales

 $127,737  $89,466  $381,341  $268,288 

 

11

 

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):

 

  

September 30,

  

December 31,

 
  

2020

  

2019

 

Accounts receivable - trade

 $85,297  $79,746 

Current contract assets

  35,484   38,533 
Current contract liabilities  11,815   1,821 

 

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 nine months ended September 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 nine months ended September 30, 2020 was primarily attributable to new customer contracts for the sourcing of personal protective equipment within the Promotional Products segment. During the nine months ended September 30, 2020, $1.3 million of revenue was recognized from the contract liabilities balance as of December 31, 2019.

 

 

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 $4.1 million as of September 30, 2020, of which $3.3 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 $2.0 million as of September 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.

 

 

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 September 30,

  

Nine Months Ended September 30,

 
  

2020

  

2019

  

2020

  

2019

 

Stock options and SARs

 $412  $108  $921  $286 

Restricted stock

  203   215   566   612 

Performance shares(1)

  114   (358)  303   99 

Total share-based compensation expense

 $729  $(35) $1,790  $997 
                 

Related income tax benefit

 $78  $67  $207  $192 

 

(1)

During the three and nine months ended September 30, 2019, the Company reversed $0.5 million of previously recognized expense for certain performance awards after determining that the performance conditions are not expected to be met.

 

12

 

Stock options and Stock Appreciation Rights (“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 five years after the grant date, and those issued to directors expire ten 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 nine months ended September 30, 2020 follows:

 

        Weighted Average  Aggregate 
  

No. of

  

Weighted Average

  

Remaining Life

  

Intrinsic Value

 
  

Shares

  

Exercise Price

  

(in years)

  

(in thousands)

 

Outstanding, January 1, 2020

  701,131  $16.82   2.95  $714 

Granted(1)

  560,125   9.41         
Exercised  (124,722)  13.13         
Lapsed or cancelled  (128,549)  17.64         
Outstanding, September 30, 2020  1,007,985   13.05   3.91   11,382 
Exercisable, September 30, 2020  310,281   17.48   2.52   1,821 

 

(1)

The weighted average grant date fair value of stock options granted was $2.36 per share.

 

As of September 30, 2020, the Company had $1.0 million in unrecognized compensation related to nonvested stock options to be recognized over the remaining weighted average vesting period of 1.1 years.

 

A summary of stock-settled SARs transactions during the nine months ended September 30, 2020 follows:

 

        Weighted Average  Aggregate 
  

No. of

  

Weighted Average

  

Remaining Life

  

Intrinsic Value

 
  

Shares

  

Exercise Price

  

(in years)

  

(in thousands)

 

Outstanding, January 1, 2020

  206,700  $18.67   2.04  $- 
Granted(1)  225,625   10.08         

Exercised

  (31,828)  16.39         
Lapsed or cancelled  (68,501)  15.97         
Outstanding, September 30, 2020  331,996   13.61   3.91   2,128 
Exercisable, September 30, 2020  94,240   19.82   1.64   337 

 

(1)

The weighted average grant date fair value of SARs granted was $2.18 per share.

 

As of September 30, 2020, the Company had $0.3 million in unrecognized compensation related to nonvested SARs to be recognized over the remaining weighted average vesting period of 1.0 years.

 

13

 

Restricted Stock

 

The Company has granted restricted stock to directors and certain employees which vest at a specified future date, generally after three 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 nine months ended September 30, 2020 follows:

 

      

Weighted Average

 
  

No. of

  

Grant Date

 
  

Shares

  

Fair Value

 

Outstanding, January 1, 2020

  151,166  $18.44 
Granted  49,543   10.97 

Vested

  (34,619)  16.97 

Forfeited

  (17,420)  14.24 
Outstanding, September 30, 2020  148,670   16.79