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.: |
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Address of principal executive offices: | ||||||||
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Registrant’s telephone number, including area code: | ||||||||
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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 | ||
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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 ☐ | |
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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 31, 2023 was
TABLE OF CONTENTS
SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
(Unaudited) |
(In thousands, except shares and per share data) |
Three Months Ended June 30, | ||||||||
2023 |
2022 |
|||||||
Net sales |
$ | $ | ||||||
Costs and expenses: |
||||||||
Cost of goods sold |
||||||||
Selling and administrative expenses |
||||||||
Goodwill impairment charge |
||||||||
Intangible assets impairment charge |
||||||||
Other periodic pension costs |
||||||||
Interest expense |
||||||||
Income (loss) before income tax expense |
( |
) | ||||||
Income tax expense (benefit) |
( |
) | ||||||
Net income (loss) |
$ | $ | ( |
) | ||||
Net income (loss) per share: |
||||||||
Basic |
$ | $ | ( |
) | ||||
Diluted |
$ | $ | ( |
) | ||||
Weighted average shares outstanding during the period: |
||||||||
Basic |
||||||||
Diluted |
||||||||
Other comprehensive income (loss), net of tax: |
||||||||
Recognition of net losses included in net periodic pension costs |
$ | $ | ||||||
Loss on cash flow hedging activities |
( |
) | ||||||
Foreign currency translation adjustment |
( |
) | ||||||
Other comprehensive income (loss) |
( |
) | ||||||
Comprehensive income (loss) |
$ | $ | ( |
) | ||||
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 (LOSS) |
(Unaudited) |
(In thousands, except shares and per share data) |
Six Months Ended June 30, |
||||||||
2023 |
2022 |
|||||||
Net sales |
$ | $ | ||||||
Costs and expenses: |
||||||||
Cost of goods sold |
||||||||
Selling and administrative expenses |
||||||||
Goodwill impairment charge |
||||||||
Intangible assets impairment charge |
||||||||
Other periodic pension costs |
||||||||
Interest expense |
||||||||
Income (loss) before income tax expense |
( |
) | ||||||
Income tax expense (benefit) |
( |
) | ||||||
Net income (loss) |
$ | $ | ( |
) | ||||
Net income (loss) per share: |
||||||||
Basic |
$ | $ | ( |
) | ||||
Diluted |
$ | $ | ( |
) | ||||
Weighted average shares outstanding during the period: |
||||||||
Basic |
||||||||
Diluted |
||||||||
Other comprehensive income (loss), net of tax: |
||||||||
Recognition of net losses included in net periodic pension costs |
$ | $ | ||||||
Loss on cash flow hedging activities |
( |
) | ||||||
Foreign currency translation adjustment |
||||||||
Other comprehensive income |
||||||||
Comprehensive income (loss) |
$ | $ | ( |
) | ||||
Cash dividends per common share |
$ | $ |
See accompanying Notes to the Condensed Consolidated Financial Statements. |
CONDENSED CONSOLIDATED BALANCE SHEETS |
|||||||||
(In thousands, except share and par value data) |
June 30, | December 31, | |||||||
2023 | 2022 | |||||||
(Unaudited) | ||||||||
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 | ||||||||
Deferred tax asset | ||||||||
Intangible assets, net | ||||||||
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 | ||||||||
Other long-term liabilities | ||||||||
Total 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 loss, net of tax: | ||||||||
Pensions | ( | ) | ( | ) | ||||
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, 2023 AND 2022 |
(Unaudited) |
(In thousands, except shares and per share data) |
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Additional | Comprehensive | Total | ||||||||||||||||||||||
Common | Common | Paid-In | Retained | Income (Loss), | Shareholders’ | |||||||||||||||||||
Shares | Stock | Capital | Earnings | net of tax | Equity | |||||||||||||||||||
Balance, April 1, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Common shares issued upon exercise of options and SARs, net | ||||||||||||||||||||||||
Restricted shares issued, net of forfeitures | ( | ) | ||||||||||||||||||||||
Restricted shares issued in conjunction with acquisition of business | ||||||||||||||||||||||||
Share-based compensation expense | - | |||||||||||||||||||||||
Written put option | - | ( | ) | ( | ) | |||||||||||||||||||
Cash dividends declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
Cash flow hedges, net of taxes of $ | - | ( | ) | ( | ) | |||||||||||||||||||
Pensions, net of taxes of $ | - | |||||||||||||||||||||||
Change in currency translation adjustment, net of taxes of $ | - | ( | ) | ( | ) | |||||||||||||||||||
Balance, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Balance, April 1, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Common shares issued upon exercise of options and SARs, net | ||||||||||||||||||||||||
Share-based compensation expense | - | |||||||||||||||||||||||
Cash dividends declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | - | |||||||||||||||||||||||
Pensions, net of taxes of $ | - | |||||||||||||||||||||||
Change in currency translation adjustment, net of taxes of $ | - | |||||||||||||||||||||||
Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ |
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, 2023 AND 2022 |
(Unaudited) |
(In thousands, except shares and per share data) |
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Additional | Comprehensive | Total | ||||||||||||||||||||||
Common | Common | Paid-In | Retained | Income (Loss), | Shareholders’ | |||||||||||||||||||
Shares | Stock | Capital | Earnings | net of tax | Equity | |||||||||||||||||||
Balance, January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Cumulative-effect adjustment from adoption of ASU 2016-13 | ( | ) | ( | ) | ||||||||||||||||||||
Common shares issued upon exercise of options and SARs, net | ( | ) | ||||||||||||||||||||||
Performance based shares issued | ||||||||||||||||||||||||
Restricted shares issued, net of forfeitures | ||||||||||||||||||||||||
Restricted shares issued in conjunction with acquisition of business | ||||||||||||||||||||||||
Share-based compensation expense | - | |||||||||||||||||||||||
Tax withheld on vesting of restricted shares and performance based shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
Written put option | - | ( | ) | ( | ) | |||||||||||||||||||
Cash dividends declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
Cash flow hedges, net of taxes of $ | - | ( | ) | ( | ) | |||||||||||||||||||
Pensions, net of taxes of $ | - | |||||||||||||||||||||||
Change in currency translation adjustment, net of taxes of $ | - | |||||||||||||||||||||||
Balance, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Balance, January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Common shares issued upon exercise of options and SARs, net | ||||||||||||||||||||||||
Restricted shares issued, net of forfeitures | ||||||||||||||||||||||||
Share-based compensation expense | - | |||||||||||||||||||||||
Cash dividends declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | - | |||||||||||||||||||||||
Pensions, net of taxes of $ | - | |||||||||||||||||||||||
Change in currency translation adjustment, net of taxes of $ | - | |||||||||||||||||||||||
Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ |
See accompanying Notes to the Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited) |
(In thousands) |
Six Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income (loss) | $ | $ | ( | ) | ||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | ||||||||
Goodwill impairment charge | ||||||||
Intangible assets impairment charge | ||||||||
Inventory write-downs | ||||||||
Provision for bad debts - accounts receivable | ( | ) | ||||||
Share-based compensation expense | ||||||||
Deferred income tax provision (benefit) | ( | ) | ||||||
Change in fair value of acquisition-related contingent liabilities | ( | ) | ||||||
Change in fair value of written put options | ( | ) | ||||||
Changes in assets and liabilities, net of acquisition of businesses: | ||||||||
Accounts receivable | ( | ) | ||||||
Accounts receivable - other | ||||||||
Contract assets | ( | ) | ||||||
Inventories | ( | ) | ||||||
Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
Other assets | ( | ) | ||||||
Accounts payable and other current liabilities | ( | ) | ||||||
Payment of acquisition-related contingent liabilities | ( | ) | ||||||
Long-term pension liability | ||||||||
Other long-term liabilities | ( | ) | ||||||
Net cash provided by (used in) operating activities | ( | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Additions to property, plant and equipment | ( | ) | ( | ) | ||||
Acquisition of businesses | ( | ) | ||||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from borrowings of debt | ||||||||
Repayment of debt | ( | ) | ( | ) | ||||
Debt issuance costs | ( | ) | ||||||
Payment of cash dividends | ( | ) | ( | ) | ||||
Payment of acquisition-related contingent liabilities | ( | ) | ||||||
Proceeds received on exercise of stock options | ||||||||
Tax withholdings on vesting of restricted shares and performance based shares | ( | ) | ||||||
Net cash provided by (used in) financing activities | ( | ) | ||||||
Effect of currency exchange rates on cash | ||||||||
Net increase 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 – Description of Business and Basis of Presentation:
Description of business
Superior Group of Companies, Inc. (together with its subsidiaries, “the Company,” “Superior,” “we,” “our,” or “us”) was organized in 1920 and was incorporated in 1922 as a New York company under the name Superior Surgical Mfg. Co., Inc. In 1998, the Company changed its name to Superior Uniform Group, Inc. and its state of incorporation to Florida. Effective on May 3, 2018, Superior Uniform Group, Inc. changed its name to Superior Group of Companies, Inc.
Superior’s Branded Products segment, primarily through its signature marketing brands BAMKO® and HPI®, produces and sells customized merchandising solutions, promotional products and branded uniform programs. Branded products are manufactured through third parties or in Superior’s own facilities, and are sold to customers in a wide range of industries, including retail, hotel, food service, entertainment, technology, transportation and other industries. The segment currently has sales offices in the United States, Canada, Brazil, the United Kingdom and Colombia, with support services in China and India.
Superior’s Healthcare Apparel segment, primarily through its signature marketing brands Fashion Seal Healthcare® and WonderWink® (also referred to as “Wink™"), manufactures (through third parties or in its own facilities) and sells a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient gowns. This segment sells healthcare service apparel to healthcare laundries, dealers, distributors and retailers primarily in the United States.
Superior’s Contact Centers segment, through multiple The Office Gurus® entities, including subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”), provides outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers.
Basis of presentation
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, 2022, 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.
The Company refers to the condensed consolidated financial statements collectively as “financial statements,” and individually as “statements of comprehensive income (loss),” “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”). There have been no new accounting pronouncements recently issued or newly effective that had, or are expected to have, a material impact on the Company’s financial statements.
NOTE 2 – Inventories:
Inventories consisted of the following amounts (in thousands):
June 30, |
December 31, |
|||||||
2023 |
2022 |
|||||||
Finished goods |
$ | $ | ||||||
Work in process |
||||||||
Raw materials |
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Inventories |
$ | $ |
Debt consisted of the following (in thousands):
June 30, | December 31, | |||||||
2023 | 2022 | |||||||
Credit Facilities: | ||||||||
Revolving credit facility due August 2027 | $ | $ | ||||||
Term loan due August 2027 | ||||||||
Less: | ||||||||
Payments due within one year included in current liabilities | ||||||||
Debt issuance costs | ||||||||
Long-term debt less current maturities | $ | $ |
On August 23, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”) among the Company, the domestic subsidiaries of the Company, as guarantors, the lenders party thereto (the “Lenders”), and PNC Bank, National Association, as administrative agent for the Lenders (the “Administrative Agent”), pursuant to which the Lenders are providing the Company senior secured credit facilities maturing in August 2027 consisting of a revolving credit facility in the aggregate maximum principal amount of $
On May 4, 2023, the Company and its domestic subsidiaries entered into the First Amendment to its Credit Agreement with the Administrative Agent and the lenders, which (i) provides a covenant relief period through December 31, 2023, which the Company may opt to terminate during the fourth quarter of 2023 if it has a consolidated total net leverage ratio at or below
Obligations outstanding under the Credit Facilities accrue interest at a variable rate equal to the SOFR plus an adjustment between
Contractual principal payments for the term loan are as follows: remainder of 2023 - $
The Credit Facilities are secured by substantially all of the operating assets of the Company, 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. 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 (including dividends and related distributions), liquidations, mergers, consolidations or acquisitions, affiliate transactions and sales of assets or subsidiaries. The Credit Agreement also requires the Company to comply with a fixed charge coverage ratio of at least
NOTE 4 – Periodic Pension Cost:
The Company is the sponsor of an unfunded supplemental executive retirement plan ("SERP") which includes one active participant.
The following table details the net periodic pension cost under the Company’s SERP for the periods presented (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Service cost on benefits earned during the period | $ | $ | $ | $ | ||||||||||||
Interest cost on projected benefit obligation | ||||||||||||||||
Recognized actuarial loss | ||||||||||||||||
Net periodic pension cost | $ | $ | $ | $ |
The service cost component is included in selling and administrative expenses in our statements of comprehensive income (loss) and the other components of net periodic pension cost are included in other periodic pension costs in our statements of comprehensive income (loss).
NOTE 5 – Net Sales:
For our Branded Products and Healthcare Apparel segments, revenue is primarily generated from the sale of finished products to customers. Revenues for our Branded Products and Healthcare Apparel segments are 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 facemasks, 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 Contact Centers segment, revenue is generated from providing our customers with contact center services. Revenue for our Contact Centers 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 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, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Branded Products Segment: | ||||||||||||||||
Branded products | $ | $ | $ | $ | ||||||||||||
Personal protective equipment | ||||||||||||||||
Total Branded Products Segment | $ | $ | $ | $ | ||||||||||||
Healthcare Apparel Segment: | ||||||||||||||||
Healthcare apparel | $ | $ | $ | $ | ||||||||||||
Personal protective equipment | ||||||||||||||||
Total Healthcare Apparel Segment | $ | $ | $ | $ | ||||||||||||
Contact Centers Segment: | ||||||||||||||||
Contact centers services | $ | $ | $ | $ | ||||||||||||
Net intersegment eliminations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Total Contact Centers Segment | $ | $ | $ | $ | ||||||||||||
Consolidated Net Sales | $ | $ | $ | $ |
Contract Assets and Contract Liabilities
The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers (in thousands):
June 30, | December 31, | |||||||
2023 | 2022 | |||||||
Accounts receivable | $ | $ | ||||||
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 has not yet been invoiced to the customer. The majority of the amounts included in contract assets on December 31, 2022 were transferred to accounts receivable during the six months ended June 30, 2023. 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. During the six months ended June 30, 2023, $
NOTE 6 – Contingencies:
The purchase price to acquire substantially all of the assets of Sutter’s Mill Specialties, Inc. (“Sutter’s Mill”) in December 2021 included contingent consideration based on varying levels of Sutter’s Mill’s EBITDA in each measurement period from 2022 to 2024. In July 2023, management agreed to settle the remaining contingent consideration obligation associated with this acquisition for $
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 expense is recorded in selling and administrative expense in the statements of comprehensive income (loss). The following table details the share-based compensation expense by type of award for the periods presented (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Stock options and SARs | $ | $ | $ | $ | ||||||||||||
Restricted stock | ||||||||||||||||
Performance shares | ( | ) | ||||||||||||||
Total share-based compensation expense | $ | $ | $ | $ |
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 between
and 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. Stock options, as well as SARs granted in tandem with stock options, are subject to accelerated vesting under certain circumstances as outlined in the 2013 Incentive Stock and Awards Plan (the “2013 Plan”) or 2022 Equity Incentive and Awards Plan (the “2022 Plan”), as applicable.
A summary of stock option transactions during the six months ended June 30, 2023 follows:
Weighted Average | Aggregate | |||||||||||||||
No. of | Weighted Average | Remaining Life | Intrinsic Value | |||||||||||||
Shares | Exercise Price | (in years) | (in thousands) | |||||||||||||
Outstanding, January 1, 2023 | $ | $ | ||||||||||||||
Granted(1) | ||||||||||||||||
Exercised | ( | ) | ||||||||||||||
Lapsed or cancelled | ( | ) | ||||||||||||||
Outstanding, June 30, 2023 | ||||||||||||||||
Exercisable, June 30, 2023 |
(1) | The weighted average grant date fair value of stock options granted was $ |
As of June 30, 2023, the Company had $
A summary of stock-settled SARs transactions during the six months ended June 30, 2023 follows:
Weighted Average | Aggregate | |||||||||||||||
No. of | Weighted Average | Remaining Life | Intrinsic Value | |||||||||||||
Shares | Exercise Price | (in years) | (in thousands) | |||||||||||||
Outstanding, January 1, 2023 | $ | $ | ||||||||||||||
Granted(1) | ||||||||||||||||
Exercised | ||||||||||||||||
Lapsed or cancelled | ( | ) | ||||||||||||||
Outstanding, June 30, 2023 | ||||||||||||||||
Exercisable, June 30, 2023 |
(1) | The weighted average grant date fair value of SARs granted was $ |
As of June 30, 2023, the Company had $
Restricted Stock
The Company has granted shares of restricted stock to directors and certain employees, which vest at a specified future date, generally after
years, over years or when certain conditions are met. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan or 2022 Plan, as applicable. 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, 2023 follows:
Weighted Average | ||||||||
No. of | Grant Date | |||||||
Shares | Fair Value | |||||||
Outstanding, January 1, 2023 | $ | |||||||
Granted | ||||||||
Vested | ( | ) | ||||||
Forfeited | ||||||||
Outstanding, June 30, 2023 |
As of June 30, 2023, the Company had $
Performance Shares
The Company has granted performance shares, which either contain only service-based vesting conditions or service-based and performance-based vesting conditions. The service-based awards vest after the service period is met, which is generally three 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 awards 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. Expense for grants of performance shares is 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 on a pro rata basis under certain circumstances as outlined in the 2013 Plan or 2022 Plan, as applicable, except in those circumstances in which award agreements or change in control agreements specify full vesting.
A summary of performance share transactions during the six months ended June 30, 2023 follows:
Weighted Average | ||||||||
No. of | Grant Date | |||||||
Shares | Fair Value | |||||||
Outstanding, January 1, 2023 | $ | |||||||
Granted | ||||||||
Vested | ||||||||
Forfeited | ||||||||
Outstanding, June 30, 2023 |
As of June 30, 2023, 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, 2023, the Company recorded a provision for income taxes of $
The increase in income tax expense as well as the effective tax rate for the three and six months ended June 30, 2023 was impacted by the variability in the mix of earnings across the Company’s foreign and domestic operations subject to various statutory tax rates in those jurisdictions. Income tax expense for the three and six months ended June 30, 2022 was impacted by a federal tax benefit of $
NOTE 9 – Net Income (Loss) 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, nonvested shares of restricted stock and nonvested 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 periods presented:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net income (loss) used in the computation of basic and diluted net income (loss) per share (in thousands) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Weighted average shares outstanding - basic | ||||||||||||||||
Dilutive common stock equivalents | ||||||||||||||||
Weighted average shares outstanding - diluted | ||||||||||||||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Diluted | $ | $ | ( | ) | $ | $ | ( | ) |
Diluted weighted average shares outstanding excludes shares of common stock of
Awards to purchase
Awards to purchase
NOTE 10 – Operating Segment Information:
The Company manages and reports the following segments:
Branded Products segment: Primarily through our signature marketing brands BAMKO® and HPI®, we produce and sell customized merchandising solutions, promotional products and branded uniform programs. Branded products are sold to customers in a wide range of industries, including retail, hotel, food service, entertainment, technology, transportation and other industries. The segment currently has sales offices in the United States, Canada, Brazil, the United Kingdom and Colombia, with support services in China and India.
Healthcare Apparel segment: Primarily through our signature marketing brands Fashion Seal Healthcare® and Wink™, we manufacture (through third parties or in our own facilities) and sell a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient gowns. This segment sells healthcare service apparel to healthcare laundries, dealers, distributors and retailers primarily in the United States.
Contact Centers: Through multiple The Office Gurus® entities, including our subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”), we provide outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers.
Intersegment eliminations include the elimination of revenues and costs from services provided by the Contact Centers segment to the Company’s two other segments. Such costs are recognized as selling and administrative expenses in the Branded Products and Healthcare Apparel segments. Income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment are presented within Other in the tables below.
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 income tax expense.
The following tables set forth financial information related to the Company’s operating segments (in thousands):
Branded Products |
Healthcare Apparel |
Contact Centers |
Intersegment Eliminations |
Other |
Total |
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As of and For the Three Months Ended June 30, 2023: |
||||||||||||||||||||||||
Net sales |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||
Cost of goods sold |
( |
) | ||||||||||||||||||||||
Gross margin |
( |
) | ||||||||||||||||||||||
Selling and administrative expenses |
( |
) | ||||||||||||||||||||||
Other periodic pension cost |
||||||||||||||||||||||||
Interest expense |
||||||||||||||||||||||||
Income (loss) before income tax expense |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
Depreciation and amortization |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Capital expenditures |
$ | $ | $ | $ | $ | $ |
Branded Products |
Healthcare Apparel |
Contact Centers |
Intersegment Eliminations |
Other |
Total |
|||||||||||||||||||
As of and For the Three Months Ended June 30, 2022: |
||||||||||||||||||||||||
Net sales |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||
Cost of goods sold |
( |
) | ||||||||||||||||||||||
Gross margin |
( |
) | ||||||||||||||||||||||
Selling and administrative expenses |
( |
) |