Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jul. 02, 2016 | Aug. 01, 2016 | |
Document and Entity Information | ||
Entity Registrant Name | Summer Infant, Inc. | |
Entity Central Index Key | 1,314,772 | |
Document Type | 10-Q | |
Document Period End Date | Jul. 2, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 18,447,294 | |
Document Fiscal Year Focus | 2,016 | |
Document Fiscal Period Focus | Q2 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Thousands | Jul. 02, 2016 | Jan. 02, 2016 |
CURRENT ASSETS | ||
Cash and cash equivalents | $ 1,147 | $ 923 |
Trade receivables, net of allowance for doubtful accounts | 38,329 | 40,514 |
Inventory, net | 36,633 | 36,846 |
Prepaid and other current assets | 1,994 | 1,758 |
TOTAL CURRENT ASSETS | 78,103 | 80,041 |
Property and equipment, net | 11,311 | 12,007 |
Other intangible assets, net | 18,159 | 18,512 |
Deferred tax assets, net | 2,515 | 2,483 |
Other assets | 103 | 95 |
TOTAL ASSETS | 110,191 | 113,138 |
CURRENT LIABILITIES | ||
Accounts payable | 28,898 | 29,541 |
Accrued expenses | 8,975 | 9,584 |
Current portion of long term debt (including capital leases) | 4,519 | 3,318 |
TOTAL CURRENT LIABILITIES | 42,392 | 42,443 |
Long-term debt, less current portion and unamortized debt issuance costs | 45,788 | 48,767 |
Other liabilities | 2,768 | 2,962 |
TOTAL LIABILITIES | 90,948 | 94,172 |
STOCKHOLDERS' EQUITY | ||
Preferred Stock, $0.0001 par value, 1,000,000 authorized, none issued or outstanding at July 2, 2016 and January 2, 2016, respectively | ||
Common Stock $0.0001 par value, authorized, issued and outstanding of 49,000,000, 18,718,943, and 18,447,294 at July 2, 2016 and 49,000,000, 18,639,407, and 18,367,758 at January 2, 2016, respectively | 2 | 2 |
Treasury Stock at cost (271,649 shares) | (1,283) | (1,283) |
Additional paid-in capital | 76,084 | 75,812 |
Accumulated deficit | (53,140) | (53,063) |
Accumulated other comprehensive loss | (2,420) | (2,502) |
TOTAL STOCKHOLDERS' EQUITY | 19,243 | 18,966 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 110,191 | $ 113,138 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares | Jul. 02, 2016 | Jan. 02, 2016 |
Condensed Consolidated Balance Sheets | ||
Preferred Stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Preferred Stock, authorized | 1,000,000 | 1,000,000 |
Preferred Stock, issued | 0 | 0 |
Preferred Stock, outstanding | 0 | 0 |
Common Stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common Stock, authorized | 49,000,000 | 49,000,000 |
Common Stock, issued | 18,718,943 | 18,639,407 |
Common Stock, outstanding | 18,447,294 | 18,367,758 |
Treasury Stock at cost, shares | 271,649 | 271,649 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jul. 02, 2016 | Jul. 04, 2015 | Jul. 02, 2016 | Jul. 04, 2015 | |
Condensed Consolidated Statements of Operations | ||||
Net sales | $ 50,575 | $ 51,807 | $ 100,245 | $ 104,820 |
Cost of goods sold | 34,374 | 38,036 | 68,318 | 74,074 |
Gross profit | 16,201 | 13,771 | 31,927 | 30,746 |
General & administrative expenses | 9,981 | 11,972 | 20,734 | 22,282 |
Selling expenses | 3,901 | 4,308 | 7,817 | 9,176 |
Depreciation and amortization | 1,160 | 1,318 | 2,316 | 2,652 |
Operating income (loss) | 1,159 | (3,827) | 1,060 | (3,364) |
Interest expense, net | 628 | 1,318 | 1,268 | 2,164 |
Income (loss) before provision (benefit) for income taxes | 531 | (5,145) | (208) | (5,528) |
Provision (benefit) for income taxes | 275 | (1,672) | (131) | (1,813) |
Net income (loss) | $ 256 | $ (3,473) | $ (77) | $ (3,715) |
Net income (loss) per share: | ||||
BASIC (in dollars per share) | $ 0.01 | $ (0.19) | $ 0 | $ (0.20) |
DILUTED (in dollars per share) | $ 0.01 | $ (0.19) | $ 0 | $ (0.20) |
Weighted average shares outstanding: | ||||
BASIC (in shares) | 18,421,132 | 18,230,893 | 18,403,852 | 18,204,545 |
DILUTED (in shares) | 18,421,955 | 18,230,893 | 18,403,852 | 18,204,545 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jul. 02, 2016 | Jul. 04, 2015 | Jul. 02, 2016 | Jul. 04, 2015 | |
Condensed Consolidated Statements of Comprehensive Income (Loss) | ||||
Net income (loss) | $ 256 | $ (3,473) | $ (77) | $ (3,715) |
Other comprehensive (loss) income: | ||||
Changes in foreign currency translation adjustments | (130) | 203 | 82 | (392) |
Comprehensive income (loss) | $ 126 | $ (3,270) | $ 5 | $ (4,107) |
Condensed Consolidated Stateme6
Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 6 Months Ended | |
Jul. 02, 2016 | Jul. 04, 2015 | |
Cash flows from operating activities: | ||
Net (loss) income | $ (77) | $ (3,715) |
Adjustments to reconcile net (loss) income to net cash provided by operating activities | ||
Depreciation and amortization | 2,294 | 2,619 |
Stock-based compensation | 218 | 419 |
Changes in assets and liabilities: | ||
Decrease (increase) in trade receivables | 2,080 | (1,192) |
Decrease in inventory | 105 | 1,517 |
(Increase) in prepaids and other assets | (272) | (647) |
(Decrease) increase in accounts payable and accrued expenses | (1,301) | 7,029 |
Net cash provided by operating activities | 3,047 | 6,030 |
Cash flows from investing activities: | ||
Acquisitions of intangible assets | (472) | |
Acquisitions of property and equipment | (1,242) | (961) |
Net cash used in investing activities | (1,242) | (1,433) |
Cash flows from financing activities: | ||
Proceeds from exercise of stock options | 46 | |
Proceeds from new Term Loan Facility | 10,000 | |
Proceeds from new FILO Facility | 5,000 | |
Repayment of prior Term Loan | (1,000) | (12,500) |
Net repayment on revolving facilities | (779) | (5,944) |
Net cash used in financing activities | (1,779) | (3,398) |
Effect of exchange rate changes on cash and cash equivalents | 198 | (986) |
Net increase in cash and cash equivalents | 224 | 213 |
Cash and cash equivalents at beginning of period | 923 | 1,272 |
Cash and cash equivalents at end of period | 1,147 | 1,485 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | 1,085 | 1,313 |
Cash paid for income taxes | $ 241 | $ 236 |
BASIS OF PRESENTATION AND SUMMA
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Jul. 02, 2016 | |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The Company designs, markets and distributes branded juvenile health, safety and wellness products that are sold globally to large national retailers as well as independent retailers, primarily in North America. The Company currently markets its products in several product categories including monitoring, safety, nursery, baby gear, and feeding products. Most products are sold under our core brand names of Summer ® , SwaddleMe ® , Born Free ® , and Kiddopotamus®. Basis of Presentation and Principles of Consolidation The accompanying interim, condensed consolidated financial statements of the Company are unaudited, but in the opinion of management, reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim periods. Accordingly, they do not include all information and notes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. The results of operations for interim periods are not necessarily indicative of results to be expected for the entire fiscal year or any other period. The balance sheet at January 2, 2016 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes for the year ended January 2, 2016 included in its Annual Report on Form 10-K filed with the SEC on February 24, 2016. It is the Company’s policy to prepare its financial statements on the accrual basis of accounting in conformity with GAAP. The interim condensed consolidated financial statements include the accounts of its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidation. Certain prior year balances have been retrospectively reclassified for current year reporting purposes. All dollar amounts included in the Notes to Condensed Consolidated Financial Statements are in thousands of U.S. dollars, except share and per share amounts. Revenue Recognition The Company records revenue when all of the following occur: persuasive evidence of an arrangement exists, product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Sales are recorded net of provisions for returns and allowances, customer discounts, and other sales-related discounts. The Company bases its estimates for discounts, returns and allowances on negotiated customer terms and historical experience. Customers do not have the right to return products unless the products are defective. The Company records a reduction of sales for estimated future defective product deductions based on contractual terms and historical experience. Sales incentives or other consideration given by the Company to customers that are considered adjustments to the selling price of the Company’s products, such as markdowns, are reflected as reductions of revenue. Sales incentives and other consideration that represent costs incurred by the Company for assets or services received, such as the appearance of the Company’s products in a customer’s national circular ad, are reflected as selling expenses in the accompanying interim Condensed Consolidated Statements of Operations. Use of Estimates The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and related disclosures. These estimates are based on management’s best knowledge as of the date the financial statements are published of current events and actions the Company may undertake in the future. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of our financial statements. Accordingly, actual results could differ from those estimates, which could have a material effect on the reported amounts of assets and liabilities in our financial statements and results of operations. Inventory Valuation Inventory is comprised mostly of finished goods and some component parts and is stated at the lower of cost using the first-in, first-out (“FIFO”) method, or market (net realizable value). The Company regularly reviews slow-moving and excess inventories, and writes down inventories to net realizable value if the ultimate expected net proceeds from the disposals of excess inventory are less than the carrying cost of the merchandise. Income Taxes Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred income tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carry-forwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence, that it is more likely than not that such benefits will be realized. The Company follows the appropriate guidance relative to uncertain tax positions. This standard provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Uncertain tax positions must meet a recognition threshold of more-likely-than-not in order for those tax positions to be recognized in the financial statements. Deferred taxes are presented as long term on the balance sheet. Net Income (Loss) Per Share Basic earnings (loss) per share for the Company are computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share includes the dilutive impact of outstanding stock options and unvested restricted shares. Translation of Foreign Currencies All assets and liabilities of the Company’s foreign subsidiaries, each of whose functional currency is in its local currency, are translated into U.S. dollars at the exchange rate in effect at the end of the quarter and the income and expense accounts of these affiliates have been translated at average rates prevailing during each respective quarter. Resulting translation adjustments are made to a separate component of stockholders’ equity within accumulated other comprehensive income (loss). Foreign exchange transaction gains and losses are included in the accompanying interim, condensed consolidated statement of operations. Recently Issued Accounting Pronouncements In May 2014, the FASB issued new accounting guidance related to revenue recognition. This guidance was originally proposed to be effective for reporting periods beginning after December 15, 2016, however in July 2015, the FASB approved the delay in this guidance until reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements. In April 2015, the FASB issued ASU 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” This guidance requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability. This guidance is effective for fiscal years beginning after December 15, 2015. The Company adopted this guidance in the first quarter of 2016 and it resulted in the retrospective reclassification of $1,489 as of January 2, 2016 in unamortized debt issuance costs from other assets to a direct reduction of long-term debt. In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” This guidance requires inventory within the scope of ASU 2015-11 to be measured at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is effective for fiscal years beginning after December 15, 2016. The Company has evaluated the impact this guidance will have on its consolidated financial statements and expects the impact to be immaterial. In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” This guidance eliminates the current requirement for an entity to separate deferred income tax liabilities and deferred tax assets into current and non-current amounts in a classified balance sheet. Instead, this guidance requires deferred tax liabilities, deferred tax assets, and valuation allowances be classified as noncurrent in a classified balance sheet. This ASU is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. The Company adopted this guidance in the first quarter of 2016 and it resulted in the retrospective reclassification of $799 as of January 2, 2016 in current deferred tax assets to noncurrent deferred tax assets. In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize assets and liabilities on the balance sheet for leases with lease terms greater than twelve months and disclose key information about leasing arrangements. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted. The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial statements. Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements. |
DEBT
DEBT | 6 Months Ended |
Jul. 02, 2016 | |
DEBT | |
DEBT | 2. DEBT Credit Facilities In April 2015, the Company and its wholly owned subsidiary, Summer Infant (USA), Inc., entered into an amended and restated loan and security agreement with Bank of America, N.A., as agent, providing for an asset-based credit facility. The amended and restated Credit Facility replaced the Company’s prior credit facility with Bank of America. The amended and restated credit facility was subsequently amended in December 2015 and May 2016 to (i) modify the interest rate under each of the Revolving Facility, FILO Facility and Term Loan Facility (each as defined below), (ii) modify the maximum leverage ratio financial covenant; (iii) amend the definition of EBITDA with respect to certain fees and expenses included within the definition; (iv) modify certain reporting requirements and (v) remove the occurrence of an event having a material adverse effect on the Company as an event of default (as amended, the “Credit Facility”). The Credit Facility consists of a $60,000 asset-based revolving credit facility, with a $10,000 letter of credit sub-line facility (the “Revolving Facility”), a $5,000 “first in last out” (FILO) revolving credit facility (the “FILO Facility”) and a $10,000 term loan facility (the “Term Loan Facility”). Pursuant to an accordion feature, the Credit Facility includes the ability to increase the Revolving Facility by an additional $15,000 upon the Company’s request and the agreement of the lenders participating in the increase. The total borrowing capacity under the Revolving Facility is based on a borrowing base, generally defined as 85% of the value of eligible accounts plus the lesser of (i) 70% of the value of eligible inventory or (ii) 85% of the net orderly liquidation value of eligible inventory, less reserves. The total borrowing capacity under the FILO Facility is based on a borrowing base, generally defined as a specified percentage of the value of eligible accounts that steps down over time, plus a specified percentage of the value of eligible inventory that steps down over time. The scheduled maturity date of the loans under the Revolving Facility and the Term Loan Facility is April 21, 2020, and loans under the FILO Facility terminate April 21, 2018, subject in each case to customary early termination provisions. Any termination of the Revolving Facility would require termination of the Term Loan Facility and the FILO Facility. All obligations under the Credit Facility are secured by substantially all of the Company’s assets. In addition, Summer Infant Canada Limited and Summer Infant Europe Limited, subsidiaries of the Company, are guarantors under the Credit Facility. Proceeds from the loans were used to (i) repay the Company’s outstanding term loan, (ii) pay fees and transaction expenses associated with the closing of the Credit Facility, (iii) pay obligations under the Credit Facility, and (iv) pay for lawful corporate purposes, including working capital. Borrowings under the Revolving Facility will bear interest, at the Company’s option, at a base rate or at LIBOR, plus applicable margins based on average quarterly availability and ranging between 2.0% and 2.5% on LIBOR borrowings and 0.5% and 1.0% on base rate borrowings. Loans under the FILO Facility and Term Loan Facility will bear interest, at the Company’s option, at a base rate or at LIBOR, plus a margin of 4.25% on LIBOR borrowings and 2.75% on base rate borrowings. Beginning on July 1, 2015, the Company was required to begin repaying the Term Loan Facility in quarterly installments of $500. Beginning with the fiscal year ending January 2, 2016, the Company was required to prepay the Term Loan Facility in an amount equal to 50% of the Company’s “excess cash flow,” as such term is defined in the Credit Facility, at the end of each fiscal year. Under the Credit Facility, the Company must comply with certain financial covenants, including that the Company (i) maintain a fixed charge coverage ratio of at least 1.0 to 1.0 for the twelve consecutive fiscal months most recently ended and (ii) maintain a certain leverage ratio at the end of each fiscal quarter. For purposes of the financial covenants, consolidated EBITDA is defined as net income before interest, taxes, depreciation and amortization, plus certain customary expenses, fees, non-cash charges and up to $2,000 of specified inventory dispositions, and minus certain customary non-cash items increasing net income and other specified items. The Credit Facility contains customary affirmative and negative covenants. Among other restrictions, the Company is restricted in its ability to incur additional debt, make acquisitions or investments, dispose of assets, or make distributions unless in each case certain conditions are satisfied. The Credit Facility also contains customary events of default, including the occurrence of a change of control. In the event of a default, all of the Company’s obligations under the Credit Facility may be declared immediately due and payable. For certain events of default relating to insolvency and receivership, all outstanding obligations immediately become due and payable. As of July 2, 2016, the base rate on loans was 4.5% and the LIBOR rate was 3.125%. The amount outstanding on the Revolving Facility at July 2, 2016 was $39,201. Total borrowing capacity under the Revolving Facility at July 2, 2016 was $48,769 and borrowing availability was $9,568. The amounts outstanding on the Term Loan Facility and FILO Facility at July 2, 2016 were $7,500 and $5,000, respectively. Aggregate maturities of bank debt related to the BofA credit facility: Fiscal Year ending: 2016 $ 2017 $ 2018 $ 2019 $ 2020 $ Total $ Unamortized debt issuance costs were $1,415 at July 2, 2016 and $1,489 at January 2, 2016, and are presented as a direct deduction of long-term debt on the consolidated balance sheets. |
INTANGIBLE ASSETS
INTANGIBLE ASSETS | 6 Months Ended |
Jul. 02, 2016 | |
INTANGIBLE ASSETS | |
INTANGIBLE ASSETS | 3. INTANGIBLE ASSETS Intangible assets consisted of the following: July 2, January 2, 2016 2016 Brand names $ $ Patents and licenses Customer relationships Other intangibles Less: Accumulated amortization ) ) Intangible assets, net $ $ The amortization period for the majority of the intangible assets ranges from 5 to 20 years for those assets that have an estimated life; certain of the assets have indefinite lives (brand names). Total of intangibles not subject to amortization amounted to $12,308 at July 2, 2016 and January 2, 2016. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Jul. 02, 2016 | |
COMMITMENTS AND CONTINGENCIES. | |
COMMITMENTS AND CONTINGENCIES | 4. COMMITMENTS AND CONTINGENCIES Litigation The Company is a party to routine litigation and administrative complaints incidental to its business. The Company does not believe that any or all of such routine litigation and administrative complaints is likely to have a material adverse effect on the Company’s financial condition or results of operations, except as noted below. On May 27, 2015, the Company filed a Complaint against Carol E. Bramson, Annamaria Dooley, Kenneth N. Price, Carson J. Darling, Dulcie M. Madden, and Bruce Work in the United States District Court for the District of Rhode Island (Civil Action No. 1:15-CV-00218-5-LDA) (the “Complaint”). The Complaint alleges theft and misappropriation of the Company’s confidential and proprietary trade secrets, intellectual property, and business, branding and marketing strategies. The following updates information previously reported in Note 10, Commitments and Contingencies, under Part IV, Item 15 of the Company’s Annual Report on Form 10-K for the year ended January 2, 2016 and Note 4, Commitments and Contingencies, under Part 1, Item 1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2016. On May 19, 2016, a hearing was held on the Company’s motion to dismiss certain counterclaims made by Mr. Price and on Ms. Dooley’s motion to amend her counterclaims and bring a third party complaint. The court granted Ms. Dooley’s motion and denied the Company’s motion to dismiss, with leave to renew the motion if Mr. Price amended his answer and counterclaims. Ms. Dooley filed an amendment to her counterclaims on May 25, 2016, which the Company and Mr. Almagor answered on July 5, 2016. Mr. Price filed a motion for leave to amend his answer and counterclaims on June 17, 2016, to which the Company has filed an opposition based on the grounds that one of the counterclaims has failed to state a claim upon which relief can be granted. On June 6, 2016, the remaining defendants filed a motion against the Company for sanctions based on the Company’s alleged failure to disclose applicable insurance policies, to which the Company has filed an opposition. On July 26, 2016, Ms. Bramson filed a motion for leave to amend her answer and counterclaim to add a claim against the Company and Mr. Almagor for gender discrimination. The Company and the remaining defendants are concluding discovery, and no trial date has been set. The Company has incurred significant expenses related to this lawsuit to date and may continue to incur expenses related to this lawsuit. In connection with the litigation, the Company has informed its insurers of the litigation, and has received indication that portions of our defense costs may be covered as well as defense costs of the defendants. However, the Company cannot estimate at this time the amounts that may be reimbursed under its policies, and any insurance reimbursements would be subject to applicable deductibles. The Company cannot predict the outcome of this lawsuit or for how long it will remain active. |
SHARE BASED COMPENSATION
SHARE BASED COMPENSATION | 6 Months Ended |
Jul. 02, 2016 | |
SHARE BASED COMPENSATION | |
SHARE BASED COMPENSATION | 5. SHARE BASED COMPENSATION The Company is authorized to issue up to 3,000,000 shares for equity awards under the Company’s 2006 Performance Equity Plan (“2006 Plan”) and 1,700,000 shares for equity awards under the Company’s 2012 Incentive Compensation Plan (“2012 Plan”). Periodically, the Company may also grant equity awards outside of its 2006 Plan and 2012 Plan as inducement grants for new hires. Under the 2006 Plan and 2012 Plan, awards may be granted to participants in the form of non-qualified stock options, incentive stock options, restricted stock, deferred stock, restricted stock units and other stock-based awards. Subject to the provisions of the plans, awards may be granted to employees, officers, directors, advisors and consultants who are deemed to have rendered or are able to render significant services to the Company or its subsidiaries and who are deemed to have contributed or to have the potential to contribute to the Company’s success. The Company accounts for options under the fair value recognition standard. The application of this standard resulted in share-based compensation expense for the three months ended July 2, 2016 and July 4, 2015 of $91 and $245, respectively, and share-based compensation expense for the six months ended July 2, 2016 and July 4, 2015 of $218 and $419, respectively. Stock based compensation expense is included in selling, general and administrative expenses. The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the table below. The Company uses the simplified method to estimate the expected term of the options, but used an estimate for grants of “plain vanilla” stock options based on a formula prescribed by the Securities and Exchange Commission. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Share-based compensation expense recognized in the consolidated financial statements in 2016 and 2015 is based on awards that are ultimately expected to vest. As of July 2, 2016, there were 1,437,240 stock options outstanding and 225,073 unvested restricted shares outstanding. During the six months ended July 2, 2016, the Company granted 193,300 stock options and granted 109,400 shares of restricted stock, respectively. The following table summarizes the weighted average assumptions used for stock options granted during the six months ended July 2, 2016 and July 4, 2015. 2016 2015 Expected life (in years) Risk-free interest rate % % Volatility % % Dividend yield % % Forfeiture rate % % As of July 2, 2016, there are 385,689 shares available to grant under the 2006 Plan and 1,034,722 shares available to grant under the 2012 Plan. Restricted Stock Units In December 2015, the Company’s Board of Directors granted restricted stock units to the executive Chairman of the Board (the “RSUs”). The RSUs represent the right to receive shares of the Company’s common stock upon achievement of specified stock price performance metrics, and only vest if such market-based performance metrics are achieved. The RSUs expire on the date of the Company’s 2017 annual stockholder meeting or when the Chairman leaves the Board of Directors, if sooner. The amount of shares that ultimately vest may range from 0 shares to 194,209. The fair value of the restricted stock units was determined by utilizing a Monte Carlo simulation model, which projects the value of the Company’s stock versus the peer group under numerous scenarios and determines the value of the award based upon the present value of these projected outcomes. During the six months ended July 2, 2016, 38,278 RSUs vested. There was $26 of compensation cost recognized in the six months ending July 2, 2016 and no unrecognized compensation cost related to the RSUs. Expected cost is recognized over a weighted-average period ending August 3, 2016. |
WEIGHTED AVERAGE COMMON SHARES
WEIGHTED AVERAGE COMMON SHARES | 6 Months Ended |
Jul. 02, 2016 | |
WEIGHTED AVERAGE COMMON SHARES | |
WEIGHTED AVERAGE COMMON SHARES | 6. WEIGHTED AVERAGE COMMON SHARES Basic and diluted earnings or loss per share (“EPS”) is based upon the weighted average number of common shares outstanding during the period. C ommon stock equivalents, including stock options, are included in the calculation of dilutive common shares outstanding. However, since there was a net loss in both periods presented, the inclusion of common stock equivalents was anti-dilutive. The computation of diluted common shares for the three months ended July 2, 2016 excluded 1,437,240 stock options and 210,073 shares of restricted stock outstanding. The computation of diluted common shares for the six months ended July 2, 2016 excluded 1,437,240 stock options and 225,073 shares of restricted stock outstanding. The computation of diluted common shares for the three months and six months ended July 4, 2015 excluded 1,996,533 stock options and 239,790 shares of restricted stock outstanding. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 6 Months Ended |
Jul. 02, 2016 | |
SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | 7. SUBSEQUENT EVENTS The Company has evaluated subsequent events through the filing date of this Quarterly Report and determined that no subsequent events occurred that would require recognition in the consolidated financial statements or disclosure in the notes thereto. |
BASIS OF PRESENTATION AND SUM14
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Jul. 02, 2016 | |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Revenue Recognition | Revenue Recognition The Company records revenue when all of the following occur: persuasive evidence of an arrangement exists, product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Sales are recorded net of provisions for returns and allowances, customer discounts, and other sales-related discounts. The Company bases its estimates for discounts, returns and allowances on negotiated customer terms and historical experience. Customers do not have the right to return products unless the products are defective. The Company records a reduction of sales for estimated future defective product deductions based on contractual terms and historical experience. Sales incentives or other consideration given by the Company to customers that are considered adjustments to the selling price of the Company’s products, such as markdowns, are reflected as reductions of revenue. Sales incentives and other consideration that represent costs incurred by the Company for assets or services received, such as the appearance of the Company’s products in a customer’s national circular ad, are reflected as selling expenses in the accompanying interim Condensed Consolidated Statements of Operations. |
Use of Estimates | Use of Estimates The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and related disclosures. These estimates are based on management’s best knowledge as of the date the financial statements are published of current events and actions the Company may undertake in the future. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of our financial statements. Accordingly, actual results could differ from those estimates, which could have a material effect on the reported amounts of assets and liabilities in our financial statements and results of operations. |
Inventory Valuation | Inventory Valuation Inventory is comprised mostly of finished goods and some component parts and is stated at the lower of cost using the first-in, first-out (“FIFO”) method, or market (net realizable value). The Company regularly reviews slow-moving and excess inventories, and writes down inventories to net realizable value if the ultimate expected net proceeds from the disposals of excess inventory are less than the carrying cost of the merchandise. |
Income Taxes | Income Taxes Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred income tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carry-forwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence, that it is more likely than not that such benefits will be realized. The Company follows the appropriate guidance relative to uncertain tax positions. This standard provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Uncertain tax positions must meet a recognition threshold of more-likely-than-not in order for those tax positions to be recognized in the financial statements. Deferred taxes are presented as long term on the balance sheet. |
Net Income (Loss) Per Share | Net Income (Loss) Per Share Basic earnings (loss) per share for the Company are computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share includes the dilutive impact of outstanding stock options and unvested restricted shares. |
Translation of Foreign Currencies | Translation of Foreign Currencies All assets and liabilities of the Company’s foreign subsidiaries, each of whose functional currency is in its local currency, are translated into U.S. dollars at the exchange rate in effect at the end of the quarter and the income and expense accounts of these affiliates have been translated at average rates prevailing during each respective quarter. Resulting translation adjustments are made to a separate component of stockholders’ equity within accumulated other comprehensive income (loss). Foreign exchange transaction gains and losses are included in the accompanying interim, condensed consolidated statement of operations. |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements In May 2014, the FASB issued new accounting guidance related to revenue recognition. This guidance was originally proposed to be effective for reporting periods beginning after December 15, 2016, however in July 2015, the FASB approved the delay in this guidance until reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements. In April 2015, the FASB issued ASU 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” This guidance requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability. This guidance is effective for fiscal years beginning after December 15, 2015. The Company adopted this guidance in the first quarter of 2016 and it resulted in the retrospective reclassification of $1,489 as of January 2, 2016 in unamortized debt issuance costs from other assets to a direct reduction of long-term debt. In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” This guidance requires inventory within the scope of ASU 2015-11 to be measured at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This guidance is effective for fiscal years beginning after December 15, 2016. The Company has evaluated the impact this guidance will have on its consolidated financial statements and expects the impact to be immaterial. In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” This guidance eliminates the current requirement for an entity to separate deferred income tax liabilities and deferred tax assets into current and non-current amounts in a classified balance sheet. Instead, this guidance requires deferred tax liabilities, deferred tax assets, and valuation allowances be classified as noncurrent in a classified balance sheet. This ASU is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. The Company adopted this guidance in the first quarter of 2016 and it resulted in the retrospective reclassification of $799 as of January 2, 2016 in current deferred tax assets to noncurrent deferred tax assets. In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize assets and liabilities on the balance sheet for leases with lease terms greater than twelve months and disclose key information about leasing arrangements. The effective date will be the first quarter of fiscal year 2019, with early adoption permitted. The Company is evaluating the impact that adoption of this new standard will have on its consolidated financial statements. Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements. |
DEBT (Tables)
DEBT (Tables) | 6 Months Ended |
Jul. 02, 2016 | |
DEBT | |
Schedule of aggregate maturities of bank debt | Fiscal Year ending: 2016 $ 2017 $ 2018 $ 2019 $ 2020 $ Total $ |
INTANGIBLE ASSETS (Tables)
INTANGIBLE ASSETS (Tables) | 6 Months Ended |
Jul. 02, 2016 | |
INTANGIBLE ASSETS | |
Schedule of intangible assets | July 2, January 2, 2016 2016 Brand names $ $ Patents and licenses Customer relationships Other intangibles Less: Accumulated amortization ) ) Intangible assets, net $ $ |
SHARE BASED COMPENSATION (Table
SHARE BASED COMPENSATION (Tables) | 6 Months Ended |
Jul. 02, 2016 | |
SHARE BASED COMPENSATION | |
Schedule of weighted average assumptions used for stock options granted | 2016 2015 Expected life (in years) Risk-free interest rate % % Volatility % % Dividend yield % % Forfeiture rate % % |
BASIS OF PRESENTATION AND SUM18
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Thousands | Jul. 02, 2016 | Jan. 02, 2016 |
Recently Issued Accounting Pronouncements | ||
Other assets | $ 103 | $ 95 |
Long-term Debt and Capital Lease Obligations | 45,788 | 48,767 |
Noncurrent deferred tax assets | $ 2,515 | 2,483 |
Accounting Standards Update ("ASU") 2015-03 - Simplifying the Presentation of Debt Issuance Costs | Retrospective adjustments | ||
Recently Issued Accounting Pronouncements | ||
Other assets | (1,489) | |
Long-term Debt and Capital Lease Obligations | (1,489) | |
Accounting Standards Update ("ASU") 2015-17 - Income Taxes: Balance Sheet Classification of Deferred Taxes | Retrospective adjustments | ||
Recently Issued Accounting Pronouncements | ||
Current deferred tax assets | (799) | |
Noncurrent deferred tax assets | $ 799 |
DEBT (Details)
DEBT (Details) $ in Thousands | 3 Months Ended | 6 Months Ended | 12 Months Ended |
Jul. 02, 2016USD ($) | Jul. 02, 2016USD ($) | Jan. 02, 2016USD ($) | |
Credit Facilities | |||
Unamortized Debt Issuance Cost | $ 1,415 | $ 1,415 | $ 1,489 |
Aggregate maturities of bank debt | |||
2,016 | 2,250 | 2,250 | |
2,017 | 4,500 | 4,500 | |
2,018 | 3,250 | 3,250 | |
2,019 | 2,000 | 2,000 | |
2,020 | 39,701 | 39,701 | |
Total | $ 51,701 | $ 51,701 | |
Credit Facility | |||
Credit Facilities | |||
Number of most recent consecutive months used to measure fixed charge coverage ratio | 12 months | ||
Credit Facility | LIBOR | |||
Credit Facilities | |||
Applicable margin (as a percent) | 3.125% | ||
Credit Facility | Base rate | |||
Credit Facilities | |||
Applicable margin (as a percent) | 4.50% | ||
Credit Facility | Minimum | |||
Credit Facilities | |||
Fixed charge coverage ratio | 1 | 1 | |
Credit Facility | Maximum | |||
Credit Facilities | |||
Specified Inventory Dispositions | $ 2,000 | $ 2,000 | |
Revolving Facility | |||
Credit Facilities | |||
Maximum amount of credit available | 60,000 | 60,000 | |
Additional borrowing capacity available upon Company request | 15,000 | $ 15,000 | |
Borrowing base as a percentage of eligible receivables | 85.00% | ||
Borrowing base as a percentage of eligible inventory | 70.00% | ||
Borrowing base as a percentage of net orderly liquidation value of eligible inventory and less reserves | 85.00% | ||
Borrowing capacity | 48,769 | $ 48,769 | |
Borrowing availability | 9,568 | 9,568 | |
Amount outstanding on credit facility | 39,201 | $ 39,201 | |
Revolving Facility | LIBOR | |||
Credit Facilities | |||
Variable interest rate base | LIBOR | ||
Revolving Facility | Base rate | |||
Credit Facilities | |||
Variable interest rate base | base rate | ||
Revolving Facility | Minimum | LIBOR | |||
Credit Facilities | |||
Applicable margin (as a percent) | 2.00% | ||
Revolving Facility | Minimum | Base rate | |||
Credit Facilities | |||
Applicable margin (as a percent) | 0.50% | ||
Revolving Facility | Maximum | LIBOR | |||
Credit Facilities | |||
Applicable margin (as a percent) | 2.50% | ||
Revolving Facility | Maximum | Base rate | |||
Credit Facilities | |||
Applicable margin (as a percent) | 1.00% | ||
Letter of Credit | |||
Credit Facilities | |||
Maximum amount of credit available | 10,000 | $ 10,000 | |
FILO Facility | |||
Credit Facilities | |||
Maximum amount of credit available | 5,000 | 5,000 | |
Amount outstanding on credit facility | 5,000 | 5,000 | |
Term Loan Facility | |||
Credit Facilities | |||
Maximum amount of credit available | 10,000 | 10,000 | |
Quarterly payment due beginning July 1, 2015 | 500 | ||
Required prepayment amount of excess cash flow beginning with fiscal year ending January 2, 2016 (as a percent) | 50.00% | ||
Amount outstanding, term loan | $ 7,500 | $ 7,500 | |
FIFO Facility and Term Loan Facility | LIBOR | |||
Credit Facilities | |||
Variable interest rate | 4.25% | ||
FIFO Facility and Term Loan Facility | Base rate | |||
Credit Facilities | |||
Variable interest rate | 2.75% |
INTANGIBLE ASSETS (Details)
INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands | 6 Months Ended | |
Jul. 02, 2016 | Jan. 02, 2016 | |
Intangible assets | ||
Intangible assets, gross | $ 27,406 | $ 27,406 |
Less: accumulated amortization | (9,247) | (8,894) |
Intangible assets, net | 18,159 | 18,512 |
Intangibles not subject to amortization | $ 12,308 | 12,308 |
Minimum | ||
Intangible assets | ||
Amortization period of intangible assets | 5 years | |
Maximum | ||
Intangible assets | ||
Amortization period of intangible assets | 20 years | |
Patents and licenses | ||
Intangible assets | ||
Intangible assets, gross | $ 3,766 | 3,766 |
Customer relationship | ||
Intangible assets | ||
Intangible assets, gross | 6,946 | 6,946 |
Other intangibles | ||
Intangible assets | ||
Intangible assets, gross | 1,882 | 1,882 |
Brand names | ||
Intangible assets | ||
Intangible assets, gross | $ 14,812 | $ 14,812 |
SHARE BASED COMPENSATION - Summ
SHARE BASED COMPENSATION - Summary of Plans (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jul. 02, 2016 | Jul. 04, 2015 | Jul. 02, 2016 | Jul. 04, 2015 | |
Stock options | ||||
Share Based Compensation | ||||
Stock options granted (in shares) | 193,300 | |||
Restricted Stock Awards | ||||
Share Based Compensation | ||||
Granted (in shares) | 109,400 | |||
2006 Plan and 2012 Plan | Selling, General and Administrative Expenses | ||||
Share Based Compensation | ||||
Share-based compensation expense | $ 91 | $ 245 | $ 218 | $ 419 |
2006 Plan and 2012 Plan | Stock options | ||||
Share Based Compensation | ||||
Stock options outstanding (in shares) | 1,437,240 | 1,437,240 | ||
Weighted average assumptions | ||||
Expected life | 5 years 2 months 12 days | 5 years 3 months 18 days | ||
Risk-free interest rate (as a percent) | 1.61% | 1.66% | ||
Volatility (as a percent) | 63.60% | 62.70% | ||
Dividend yield (as a percent) | 0.00% | 0.00% | ||
Forfeiture rate (as a percent) | 11.30% | 10.90% | ||
2006 Plan and 2012 Plan | Restricted Stock Awards | ||||
Share Based Compensation | ||||
Unvested restricted shares outstanding | 225,073 | 225,073 | ||
2006 Plan | ||||
Share Based Compensation | ||||
Number of shares authorized under the plan | 3,000,000 | 3,000,000 | ||
Shares available to grant | 385,689 | 385,689 | ||
2012 Incentive Compensation Plan | ||||
Share Based Compensation | ||||
Number of shares authorized under the plan | 1,700,000 | 1,700,000 | ||
Shares available to grant | 1,034,722 | 1,034,722 |
SHARE BASED COMPENSATION - Rest
SHARE BASED COMPENSATION - Restricted Stock Units (Details) - Restricted Stock Units $ in Thousands | 6 Months Ended |
Jul. 02, 2016USD ($)shares | |
Share Based Compensation | |
Vested during the period | 38,278 |
Share-based compensation expense | $ | $ 26 |
Unrecognized compensation cost | $ | $ 0 |
Minimum | |
Share Based Compensation | |
Number of shares that may vest (in shares) | 0 |
Maximum | |
Share Based Compensation | |
Number of shares that may vest (in shares) | 194,209 |
WEIGHTED AVERAGE COMMON SHARES
WEIGHTED AVERAGE COMMON SHARES (Details) - shares | 3 Months Ended | 6 Months Ended | ||
Jul. 02, 2016 | Jul. 04, 2015 | Jul. 02, 2016 | Jul. 04, 2015 | |
Stock options | ||||
Weighted average common shares | ||||
Anti-dilutive securities excluded from the computation of diluted earnings per share (in shares) | 1,437,240 | 1,996,533 | 1,437,240 | 1,996,533 |
Restricted Stock Awards | ||||
Weighted average common shares | ||||
Anti-dilutive securities excluded from the computation of diluted earnings per share (in shares) | 210,073 | 239,790 | 225,073 | 239,790 |