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UsetheselinkstorapidlyreviewthedocumentTABLEOFCONTENTSSummerInfant,Inc.andSubsidiariesIndextoFinancialStatements
TableofContents
UNITEDSTATESSECURITIESANDEXCHANGECOMMISSION
Washington,D.C.20549
FORM10-K
CommissionFileNo.001-33346
SUMMERINFANT,INC.(Exactnameofregistrantasspecifiedinitscharter)
Delaware(Stateorotherjurisdictionof
incorporation)
20-1994619(I.R.S.EmployerIdentificationNo.)
1275ParkEastDrive,Woonsocket,RhodeIsland(Addressofprincipalexecutiveoffices)
02895(ZipCode)
(401)671-6550(Registrant'stelephonenumber,includingareacode)
SecuritiesregisteredpursuanttoSection12(b)oftheAct:
Titleofeachclass NameofexchangeonwhichregisteredCommonStock,ParValue
$0.0001 NasdaqCapitalMarket
SecuritiesregisteredpursuanttoSection12(g)oftheAct:None
Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.YesoNoý
IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.YesoNoý
Indicatebycheckmarkwhethertheregistrant:(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.YesýNoo
IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-T(§232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles).YesýNoo
(MarkOne)
ý ANNUALREPORTPURSUANTTOSECTION13or15(d)OFTHESECURITIESEXCHANGEACTOF1934
ForthefiscalyearendedDecember31,2016
Or
o TRANSITIONREPORTPURSUANTTOSECTION13or15(d)OFTHESECURITIESEXCHANGEACTOF1934
Forthetransitionperiodfromto
IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-K(§229.405ofthischapter)isnotcontainedherein,andwillnotbecontained,tothebestofregistrant'sknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.o
Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfilerorasmallerreportingcompany.Seethedefinitionsof"largeacceleratedfiler,""acceleratedfiler"and"smallerreportingcompany"inRule12b-2oftheExchangeAct.
Indicatebycheckmarkwhetherregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).YesoNoý
Theaggregatemarketvalueoftheregistrant'svotingandnon-votingcommonequityheldbynon-affiliatesasofJuly1,2016,was$17.7million.Forpurposesofthiscomputation,allofficers,directors,and10%beneficialownersoftheregistrantaredeemedtobeaffiliates.Suchdeterminationshouldnotbedeemedtobeanadmissionthatsuchofficers,directors,or10%beneficialownersare,infact,affiliatesoftheregistrant.
Thenumberofsharesissuedandoutstandingoftheregistrant'scommonstockasofFebruary20,2017was18,506,617(excludingunvestedrestrictedsharesthathavebeenissuedtoemployees).
DOCUMENTSINCORPORATEDBYREFERENCE
Portionsoftheregistrant'sProxyStatementforits2017AnnualMeetingofStockholdersareincorporatedbyreferenceintoPartIIIofthisAnnualReportonForm10-K.
Largeacceleratedfilero Acceleratedfilero Non-acceleratedfilero(Donotcheckifa
smallerreportingcompany)
Smallerreportingcompanyý
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INDEXTOFORM10-KFORTHEFISCALYEARENDEDDECEMBER31,2016
2
PAGE PARTI
ITEM1. Business 3ITEM1A. RiskFactors 9ITEM1B. UnresolvedStaffComments 16ITEM2. Properties 16ITEM3. LegalProceedings 16ITEM4. MineSafetyDisclosures 16
PARTII ITEM5. MarketforRegistrant'sCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquity
Securities 17
ITEM6. SelectedFinancialData 17ITEM7. Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations 17ITEM7A. QuantitativeandQualitativeDisclosuresAboutMarketRisk 27ITEM8. FinancialStatementsandSupplementaryData 27ITEM9. ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure 27ITEM9A. ControlsandProcedures 27ITEM9B. OtherInformation 28
PARTIII ITEM10. Directors,ExecutiveOfficersandCorporateGovernance 29ITEM11. ExecutiveCompensation 29ITEM12. SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters 29ITEM13. CertainRelationshipsandRelatedTransactions,andDirectorIndependence 29ITEM14. PrincipalAccountingFeesandServices 29
PARTIV ITEM15. ExhibitsandFinancialStatementSchedules 30SIGNATURES 31
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PARTI
Whenusedinthisreport,theterms"Summer,"the"Company,""we,""us,"and"our"meanSummerInfant,Inc.anditssubsidiaries.NotethatalldollaramountsinPartIareinthousandsofU.S.dollarsunlessotherwisenoted.
Item1.Business
Overview
Weareapremierinfantandjuvenileproductscompanyoriginallyfoundedin1985andhavepubliclytradedontheNasdaqStockMarketsince2007underthesymbol"SUMR."Wearealeaderinproductinnovationinthejuvenileindustry,providingmothersandcaregiversafullrangeofhighquality,highvalueproductstocareforbabiesandtoddlers.Weseektoimprovethequalityoflifeofbothcaregiversandbabiesthroughourproductofferings,whileatthesametimemaximizingshareholdervalueoverthelongterm.
Weoperateinoneprincipalindustrysegmentacrossgeographicallydiversemarketplaces,sellingourproductsgloballytolarge,nationalretailersaswellasindependentretailers,andonourpartner'swebsitesandourownsummerinfant.comwebsite.InNorthAmerica,ourcustomersincludeBabiesRUs,Amazon.com,Wal-Mart,Target,BuyBuyBaby,HomeDepot,andLowe's.OurlargestEuropean-basedcustomersareArgos,Amazon,ToysRUs,andMothercare.Wealsosellthroughinternationaldistributors,representatives,andtoselectinternationalretailcustomersingeographiclocationswherewedonothaveadirectsalespresence.
Weestimatethesizeofthejuvenileproductsmarkettobe$25billionworldwide,withconsumersfocusingonquality,safety,innovation,andstyle.Webelievewearepositionedtocapitalizeonpositivemarkettrendsinthejuvenileproductsindustry,includingapredictedincreaseinU.S.birthratesoverthenextseveralyears.
StrategicPriorities
Wearealeadingglobaljuvenileproductscompanythatprovidesafullrangeofinnovative,highquality,highvalueproductsthatmeetthedemandsofparents.In2016ourmanagementteamwasstrengthenedbytheappointmentofMarkMessnerasourChiefExecutiveOfficerandArtGehrasourChiefProductOfficer,eachofwhomhasover20yearsofexperienceinthejuvenileproductindustry.Asweenter2017,wewillcontinuetofocusonourcoreproductsandbrandbuilding,ourkeycustomerrelationshipsandcreatingaroadmapforsustainablegrowthin2017andbeyond.Ourmanagementteamwillcontinuetoexecuteonthekeystrategicprioritiesthatwebelievewillsupportourfuturegrowth:
• Continuouslystrivefordifferentiatedinnovation.Wecontinuouslyseektocreatedifferentiated,innovativesolutionsforconsumerswhodemandhighquality,longlasting,andsafeproducts.Weprideourselvesasleadersofinnovationwithinthejuvenileproductsindustrythatprovidedifferentiatedsolutionsfromourcompetitors.Wedeliverinnovationinvariouswaysbasedupontheproductcategory.Weoffersleekandsimpledesigninnovationinpotties,deliverinnovativeconveniencefeaturesinstrollers,implementnewtechnologyintoourbabyvideomonitors,anddeliverinnovative,safe-sleepsolutionswithinourSwaddleMe®brandedproductline.
• Increaseawarenessofourbrands.In2016,werelaunchedallofourcorebrandsandpackaginginordertoextendtherelevanceofourproductswithourcustomersandconsumers.Wearecommittedtoinvestinginourcorebrandstoincreasebrandawareness.In2017,wearelaunchingmarketingcampaignsthatwillreachacrossprint,digital,andsocialmediachannels.Weareworkingcloselywithourretailpartnerstoincreasebrandpresencewithintheirstoresandonline.Wearealsoparticipatingandsponsoringover50consumereventsacrossthecountry
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inanefforttocontinuetostrengthenourbrandandproductrecognition.Webelievethataligningourcorebrandswithourtargetmarket'svaluesincreasesbrandawarenessandalsodrivesbrandaffinity.Ourgoalistobecomethe#1babybrandrecommendedbyparents.
• Continuouslyconnectwithconsumers.Weseektoconnectwithourconsumersacrossmultiplemediachannels.Weofferthreebrandedsocialchannels(SummerInfant,SwaddleMe,andBornFree)acrossmultiplesocialmediaplatforms(Facebook,Twitter,Instagram,Pinterest,etc.).Weuseinnovativewaystoincreaseourreachwithintheseplatformssuchasadvertisements,campaigns,andsweepstakes.OursocialchannelshavecontinuedtogrowsignificantlyyearoveryearandSummerInfantisamongthelargestfollowedwithintheindustry.Additionally,inthesecondquarterof2017weexpecttorelaunchourwebsite.Wedesignedournewwebsitetobeatrustedresourceofinformationforparentsandaplacewhereconsumerscanpurchasetheirfavoriteproductsforeverystageandagefortheirlittleone.Wealsouseconsumerresearchasanavenuetoconnectwithconsumers.Ourconsumerresearchisconductedinnumerouswaysincludingfocusgroups,in-homeethnographystudies,on-linesurveys,home-usertesting,andproductreviews.Insightsfromourresearcharestudiedandintegratedwithournewproductdevelopmentinitiativesandourcontinuouseffortforproductimprovements.Ourconsumerdatabaseisalsogrowingwhichallowsustoengageindirectmarketingopportunitiessuchasemailnewslettersandpromotions.
• Operationalefficiencies.Wecontinuetorefineouroperatingmodelaswebringmorefocustoourstrategicpriorities.TheseinitiativesincludeSKUrationalization,doingmoredirectimportbusinessasweemphasizecoregrowthcategories,andevaluatingthelevelofdropshippartnershipsgoingforward.Wearealsoimprovingouranalyticandforecastingcapabilities,productdevelopmentprocess,andmanagementofworkingcapital.Webelievetheseinitiativeswillcontinuetostreamlineoperations.
• Maintainandgrowourpartnerships.WehavestrongpartnershipswithoursuppliersintheUSandAsia.Webelievethatourflexibilitytodevelopproductsthatareconsumerpreferredandcost-efficientisacompetitiveadvantageinmeetingourcustomerdemands.Wehavelong-standingrelationshipswithourbrickandmortarandoure-commerceretailcustomersintheU.S.Wevaluetheserelationshipsandwillcontinuetofocusonstrengtheningthemtoincreaseourpresenceinstoresandonline.WewillcontinuetofurtherdevelopourrelationshipsoutsidetheU.S.toexpandourbusinessinternationally.WehavefocusedoureffortsongrowingourEuropean,CanadianandAsianmarketpresencebygrowingourcustomerbaseandestablishingnewdistributorrelationships.Weseeourinternationalbusinessashavingsignificantpotentialforgrowthandexpansion.
Byfocusingonthesekeystrategicpriorities,weexpecttodrivefuturesalesgrowth,improveprofitabilityandreturnoncapital,andfurtherdevelopandstrengthenourrelationshipswithoursuppliers,ourcustomersandtheconsumerswhouseourproducts.
Products
Wecurrentlymarketover1,100productsinseveralproductcategoriesincludingmonitoring,safety,nursery,babygear,andfeedingproducts.Wemarketourcoreproducts,underourSummerInfant®,SwaddleMe®,andBornFree®brandnames.Nosingleproductgeneratedmorethan10%ofsalesforthefiscalyearendedDecember31,2016("fiscal2016").
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Anchorproductsinourproductcategoriesincludethefollowing:
Monitoring
Ourmonitorswerefirstintroducedin2001andaredistinguishedbypremiumquality,easeofuse,andinnovativefeatures.Currently,weofferaudio,videoandinternetviewablemonitors,andanewwearableaudiomonitormarketedundertheSummerInfant®brand.Ourmonitorshaveledthewayininnovationwithinthecategoryandfeaturehighqualitycomponents,intendedtofulfillthedesireforconsumerstoconnectwithbabyatanytimeorplace.Infiscal2016,welaunchedourawardwinningBabbleBand™,thefirsteverwearableaudiomonitorandtheLivCam™,aportablebatteryoperatedbabymonitorthatstreamslivevideodirectlytosmartdeviceswithoutwifiorcellularservice.Infiscal2017,wearelaunchinganewlineofbabyvideomonitorsthatwillintroduceinnovationinstyleanddesignwhileincludingqualityimprovementsinpicturequality,batterylife,andrange.Weconsidermonitoringtobeoneofourcorecategoriesandexpecttobepositionedinthesecondhalfof2017togainincrementalshelfspacewithadditional,newinnovativemonitors.
Safety
Oursafetylineencompassesgates,bedrails,babyproofing,potties,bath,positioners,andinfanthealth.WeareaNorthAmericanmarketleaderinthegatecategory,withaproductrangeofover30gates.Ourlineofgatesofferversatilitythatcoversuseinhome,easeofinstallation,andaestheticallypleasingdesigns.Infiscal2017,wewillintroduceanewlineofgatesthatareontrendwithhomedécorsuchasthenewRusticHome,ModernHome,andClassicHomedesigns.Wearepartneringwithstrategicdesigninfluencerstohelpbringabroaderawarenesstothedesignersegmentofthecategory.
Infiscal2015,weintroducedtheMySizePotty™.Thissimplydesignedpottyhasbecomehighlyrecognizedandisabestsellerformajorretailersnationwide.Infiscal2016,theMySizePottywasthemosttaggedproductbyconsumersonsocialmediawithinourportfolioofproducts.
Wefirstenteredtheinfantbathingcategoryin2002,andwehavecontinuedtocreateinnovativeandsafesolutionsforbathing.Infiscal2017,weexpecttolaunchourredesignedLil'LuxuriesWhirlpoolandSpaplatformsandRightHeightTubplatform.TheRightHeightTub,introducedinfiscal2010,wasthefirstinfantbathtubthatelevatedbabyforparentcomfortandconvenience.OurredesignedRightHeightTubwillofferthatsamekeybenefitwithamodernsleekdesign,largernewbornbathslingandintegratednon-slipsmarthumpforamorerelaxedbathingexperienceforbothparentandbaby.
Nursery
OurnurserylineincludesourcorebrandofSwaddleMe®wearableblanketsaswellasourexpandedlineofsafesleepproductssuchassleepaidesandsoothers.Acquiredin2008,SwaddleMe®continuestobeabrandsynonymouswithinfantsafesleep.Infiscal2015,werefreshedthispopularlinewhichallowedustoexpandourchannelsoftradeaswellasourselectionofproductinthisgrowingcategory.Infiscal2016,weintroducedtheByYourSideSleeperwhichprovidedasafeco-sleepingsolutionforparents.Infiscal2017,weexpecttointroducetheByYourBedSleeper,which
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Monitoring Safety Nursery BabyGear FeedingProductsWi-Fi/Internet Gates Swaddle Strollers Bottles
Video Bath TravelAccessories Bassinets DrinkingCupsAudio Potties SafeSleep HighChairs Bibs&PlacematsPrenatal Boosters Soothers Playards Electronics
Positioners SleepAides Pacifiers
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isaraisedbassinetwithaninclineoptionthatfitssnugalongsideparentsbed.BothsleeperspromoteroomsharingwhichisnowrecommendedbytheAmericanAcademyofPediatrics(AAP).
Baby Gear
Sincethesuccessfullaunchofour3Dlite™ConvenienceStrollerinfiscal2014,wehavecontinuedtoexpandour3Dlineoflightweight,affordable,featurerichstrollers.Infiscal2015weincludedthe3D-one™and3Dflip™andinfiscal2016,welaunchedourfirstdualstroller,the3Dtwo™.In2017,weexpecttocontinuetodeliverrevolutionaryconveniencefeatureswiththeintroductionofthe3Dtote™and3Dtrek.Thesefullyfeaturedstrollersweredevelopedbaseduponconsumerdemandformorestorage,abilitytoholddiaperbagsandadaptabilityforinfantcarseats.Withauniquegeometricdesign,theseplatformsincludediaperbagclipsforhangingadiaperbagonthehandleswithouttipping.Thesestrollerswillalsoofferanextralargestoragebasket,pocketsandloopsforstoringallyourbabysupplies.Wewillbelaunchingamarketingcampaigninearly2017toshowcaseallplatformswithinthe3Dline:3Dlite™,3D-one™,3Dflip™,3Dtwo™,3Dtote™,and3Dtrek.
OurPop'nPlayPortablePlayardwasintroducedinfiscal2014,drivenfromconsumerinsightsontheir"on-the-go"lifestyles.Compact,foldable,lightweightandportable,thePop'nPlayPortablePlayardhasbeenwellreceived.Infiscal2015,weexpandedthelinetoincludeaportablebooster,highchair,andentertainerandlaunchedanewsub-brandforthecollection,POP(portableon-the-goproducts).In2017,weexpectthePOPlineofproductstobecarriedbyallourmajorretailpartners.
Feeding Products
WeacquiredtheBornFree®brandin2011toprovidecalm,safefeedingsolutions.ThepremiumBornFree®Bottlecontinuestobethecoreproductinthefeedingcategorythathasevolvedtoincludepacifiers,drinkingcups,bibs,andelectronics.Inthefirstquarteroffiscal2016,welaunchedarevolutionarynewbottle,Breeze™,whichwebelievefeaturestheonly2piecedesignbottleinthemarketplacetoday.
ProductDevelopmentandDesign
Innovationdrivesourproductdevelopment,acriticalelementofourstrategy.Westrivetoproduceproprietaryproductsthatofferdistinctivebenefits,arevisuallyappealing,andprovidesafe,thoughtfulsolutionstotheconsumer.Ourretailcustomersarestrategicallymotivatedtobuyinnovativeproductstoprovidedifferentiationfromtheircompetitors.
WedesignthemajorityofourproductsatourRhodeIslandheadquarters,leveragingourinternalproductdevelopmentteams.WealsohavedevelopmenteffortsinourChinaandUnitedKingdomoffices.Inadditiontonewproductdevelopment,wecontinuouslylookforwaystoimproveuponexistingproductsbasedonconsumerinsights,withastrongfocusontheend-userexperienceandproductsafety.
Weengageinmarketresearchandtestmarketingtoevaluateconsumerreactionstoourproducts,bothpre-andpost-production.Ourproductdevelopmentteamandsalesforceareessentialinresearchingconsumerbuyingtrendsandanalyzinginformationfromretailstores,customersurveys,focusgroups,on-linesurveys,industryexpertsandvendorrecommendations.Wecontinuallyevaluateourproductstodeterminewhethertheyshouldbeupgraded,modified,orreplaced.
SuppliersandManufacturing
ThemajorityofourproductsaremanufacturedinAsia(primarilyChina).WealsouseseveralmanufacturersintheUnitedStatesforcertaininjection-moldedproducts,includingbathtubs,potty
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seatsandboosterseats,whichtogetheraccountedforapproximately17%ofourannualsalesinfiscal2016.
Wearenotdependentonanyonesupplierasweusemanydifferentmanufacturersandownthetoolingandmoldsusedforourproducts.OurHongKongsubsidiaryprovidesuswithanAsiansourcingpresenceandtheabilitytooverseequality,electronicengineeringandotherissuesthatmayariseduringproduction.Generally,webuyfinishedgoodsfrommanufacturers,andthusdonotdirectlyprocurerawmaterialsforproductmanufacturing.Historically,wehavenotexperiencedanysignificantdisruptionofsupplyasaresultofrawmaterialshortagesorothermanufacturingfactors,butthereisthepossibilitythatshortagescouldoccurinthefuturebasedonavarietyoffactorsbeyondourcontrol.
Asian-madegoodsareshippedonthewatertoourwarehouses,whichtypicallytakesfourweeks.Wealsoutilizeadirectimportprogram,toreducecostsandshippingtimetocertaincustomers.WemaintaininventoryinwarehouseslocatedintheUnitedStates,Canada,UnitedKingdomandAustralia.Mostofourcustomerspickuptheirgoodsatourwarehouses.Wealsodelivershipmentsdirecttocustomersforsalesfromourownwebsiteandourconsumerreplacementsprogramaswellasforothersmallerretailpartnersthatrequestsucharrangements.
SalesandMarketing
Ourproductsarelargelymarketedandsoldthroughourowndirectglobalsalesforce.Oure-commercesaleshavecontinuedtogrowyearoveryear,whichisconsistentwithincreasedonlineshoppingbyconsumers.Wehavealsoestablishedastrongnetworkofindependentmanufacturers'representativesanddistributorstoprovidesalesandcustomerservicesupportfortheremainingportionofNorthAmericanandinternationalsales.
Salesarerecognizedupontransferoftitletoourcustomersandaremadeutilizingstandardcredittermsof30to60days.Wegenerallyacceptreturnsonlyfordefectivemerchandise.
Marketing,promotionandconsumerengagementarekeyelementsinthejuvenileproductsindustry.Historically,asignificantpercentageofourpromotionalspendinghasbeenstructuredincoordinationwithourlargeretailpartners.Infiscal2017,weexpecttofocusourmarketingeffortsonbuildingbrandawareness,promotingourbestsellingproductsandkeyproductlaunches,engagingwithconsumersacrossmultiplemediachannels,andsupportingourretailpartnerstoestablishbrandpresencebothinstoreandonline.Wewillinvestinourbrandswithadvertisingcampaigns,consumerengagementsprograms,andwewilllaunchournewconsumerecommercewebsite.Overall,wearestrategicallypositioningourselvesforenhancedfuturegrowthviabrandawarenessandbrandaffinity.
Customerserviceisacriticalcomponentofourmarketingstrategy.Wemaintainaninternalcustomerservicedepartmentthatrespondstocustomerinquiries,investigatesandresolvesissues,andisavailabletoassistcustomersandconsumersduringbusinesshours.
Competition
Thejuvenileproductindustryhasmanyparticipants,noneofwhichhasdominantmarketshare,thoughcertaincompaniesmayhavedisproportionatestrengthinspecificproductcategories.Wecompetewithanumberofdifferentcompaniesinavarietyofcategories,althoughthereisnosinglecompanythatcompeteswithusacrossallofourproductcategories.OurlargestdirectcompetitorsareMotorola®(alicensedbrandofBinatoneCommunicationsGroup),Munchkin®,GB®(GoodbabyInternationalHoldings,Ltd.),Graco®(asubsidiaryofNewellRubbermaid),Chicco®,Fisher-Price®(asubsidiaryofMattel,Inc.),andAden&Anais®
Theprimarymethodofcompetitionintheindustryconsistsofbrandpositioning,productinnovation,quality,price,andtimelydistribution.Ourcompetitivestrengthsincludeourabilityto
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developinnovativenewproducts,speedtomarket,ourrelationshipswithmajorretailers,andthequalityandpricingofourproducts.
IntellectualProperty
Werelyonacombinationofpatents,licensesandtradesecretstoprotectourintellectualproperty.Ourcurrentpatentsincludevariousdesignfeaturesrelatedtosafetygates,bouncers,andbathers,withseveralotherpatentsunderreviewbytheUnitedStatesPatentandTrademarkOffice(USPTO).Thesepatentsexpireatvarioustimesduringthenext20years.Wealsohavelicenseagreementsinplacerelatedtotheuseofpatentedtechnologyownedbythirdpartiesincertainofourproducts.Incertaincircumstances,wewillpartnerwiththirdpartiestodevelopproprietaryproducts.
Customers
SalestotheCompany'stopsevencustomerstogethercomprisedmorethan75%ofoursalesinfiscal2016and73%ofoursalesinfiscal2015.Ofthesecustomers,fourgeneratedmorethan10%ofsalesforfiscal2016:BabiesRUs/ToysRUs(20%),Amazon.com(20%),Walmart(15%),andTarget(11%).Infiscal2015,fourcustomersgeneratedmorethan10%ofsales:BabiesRUs/ToysRUs(23%),Walmart(14%),Amazon.com(14%)andTarget(12%).
Wehavenolong-termcontractswiththesecustomers,andasaresult,oursuccessdependsheavilyonourcustomers'willingnesstopurchaseandprovideshelfspaceforourproducts.
Seasonality
Wedonotexperiencesignificantvariationsinseasonaldemandforourproducts.However,weexpecttogeneratehigherthanaveragevolumesfortheinitialshipmentofnewproductswhichtypicallyincludesenoughinventorytofilleachstoreplusadditionalamountstobekeptatthecustomer'sdistributioncenter.Thetimingoftheseinitialshipmentsvariesbycustomerdependingonwhentheyfinalizestorelayoutsfortheupcomingyearandwhetherthereareanymid-yearproductintroductions.
GeographicRegions
NorthAmericaaccountedforapproximately92%and91%ofourtotalnetsalesinfiscal2016andfiscal2015,respectively.Wemaintainsales,marketing,anddistributionofficesinCanadaandEngland,whichservicestheUnitedKingdomandotherpartsofEurope.Wealsomaintainaproductdevelopment,engineeringandqualityassuranceofficeinHongKong.
RegulatoryMatters
Eachofourproductsisdesignedtocomplywithallapplicablemandatory,voluntaryandindustrysafety,labeling,andmarketingstandards.IntheUnitedStates,thesesafetystandardsarepromulgatedbyfederal,stateandindependentagenciessuchastheUSConsumerProductSafetyCommission,ASTM,theJuvenileProductsManufacturersAssociation,theFederalCommunicationsCommission,theFoodandDrugAdministration,theFederalTradeCommission,andvariousstatesAttorneyGeneralandstateregulatoryagencies.AllofourproductsareindependentlytestedbythirdpartylaboratoriesaccreditedbytheConsumerProductSafetyCommission,toverifycompliancetoapplicablesafetystandards.Asimilarapproachisusedtodesignandtestproductssoldinternationally.
Insurance
Wecarryproductliabilityinsurancethatprovidesuswith$15millioncoveragewithaminimaldeductible.Weconsultwithourinsurerstoascertainappropriateliabilitycoverageforourproductmix.Webelieveourcurrentcoverageisadequateforourexistingbusinessandwillcontinuetoevaluateourcoverageinthefutureinlinewithourexpandingsalesandproductbreadth.
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Employees
AsofDecember31,2016,wehad209employees,202whowerefulltimeemployees,and108ofwhomworkinourheadquarters.
AvailableInformation
TheCompanyisincorporatedunderthelawsoftheStateofDelaware.Ourprincipalexecutiveofficesarelocatedat1275ParkEastDrive,Woonsocket,RhodeIsland02895,andourtelephonenumberis(401)6716550.
Wemaintainourcorporatewebsiteatwww.summerinfant.comandwemakeavailable,freeofcharge,throughthiswebsiteourannualreportonForm10-K,quarterlyreportsonForm10-Q,currentreportsonForm8-K,andamendmentstothosereportsthatwefilewith,orfurnishto,theSecuritiesandExchangeCommission("SEC"),assoonasreasonablypracticableafterweelectronicallyfilethatmaterialwith,orfurnishitto,theSEC.YoumayalsoreadandcopyanymaterialfiledbyuswiththeSECattheSEC'sPublicReferenceRoomat100FStreet,N.E.,Washington,D.C.20549,andyoumayobtaininformationontheoperationofthePublicReferenceRoombycallingtheSECintheU.S.at1-800-SEC-0330.Inaddition,theSECmaintainsanInternetwebsite,www.sec.gov,thatcontainsreports,proxyandinformationstatementsandotherinformationthatwefileelectronicallywiththeSEC.Ourwebsitealsoincludescorporategovernanceinformation,includingourCodeofEthicsandourBoardcommitteecharters.Theinformationcontainedonourwebsitedoesnotconstituteapartofthisreport.
Item1A.RiskFactors
Ifanyoftheeventsorcircumstancesdescribedinthefollowingrisksactuallyoccur,ourbusiness,financialconditionorresultsofoperationscouldbemateriallyadverselyaffectedandthetradingpriceofourcommonstockcoulddecline.
The concentration of our business with certain retail customers means that economic difficulties or changes in the purchasing policies of these customerscould have a significant impact on our business and operating results.
Infiscal2016,salestoBabiesRUs/ToysRUs,Amazon.com,Wal-MartandTargetaccountedfor66%ofourtotalsales.Wedonothavelong-termcommitmentsorcontractswithanyofourretailcustomers,andretailersmakepurchasesbydeliveringone-timepurchaseorders.Assuch,anycustomercouldperiodicallyrenegotiatethetermsofourbusinessrelationshipatanytime,whichmightincludereducingoverallpurchasesofourproducts,alteringpricing,reducingthenumberandvarietyofourproductscarriedandtheshelfspaceallottedforourproducts,andreducingcooperativeadvertisingorpromotionsupport.Becauseofthecurrentconcentrationofourbusinesswiththeseretailcustomers,achangeinourrelationshipwithanyofthesecustomerscouldadverselyaffectourresultsofoperationsandfinancialcondition.Furthermore,thebankruptcyorotherlackofsuccessofoneormoreofoursignificantretailcustomerscouldnegativelyimpactourrevenuesandprofitability.
Liquidity problems or bankruptcy of our key retail customers could have a significant adverse effect on our business, financial condition, and results ofoperations.
Thesaleswemaketocustomersaretypicallymadeoncreditwithoutcollateral.Thereisariskthatkeycustomerswillnotpayorthatpaymentmaybedelayed,becauseofbankruptcy,contractionofcreditavailabilitytosuchcustomers,weakretailsales,orotherfactorsbeyondourcontrol,whichcouldincreaseourexposuretolossesfrombaddebts.Inaddition,ifkeycustomersweretoceasedoingbusinessasaresultofbankruptcy,orsignificantlyreducethenumberofstoresoperated,itcouldhaveasignificantadverseeffectonourbusiness,financialcondition,andresultsofoperations.
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Our ability to grow and compete will be harmed if we do not successfully satisfy consumer preferences, enhance existing products, develop and introduce newproducts, successfully market and achieve acceptance of those products.
Ourbusinessandoperatingresultsdependlargelyuponprovidingourcustomersproductsthatappealtotheenduser.Consumerpreferences,particularlyamongparentswhomareoftentheendpurchasersofourproducts,areconstantlychanging.Oursuccesslargelydependsonourabilitytoidentifyemergingtrendsintheinfantandjuvenilehealth,safetyandwellnessmarketplace,andtodesignqualityproductsthataddressconsumerpreferencesandprovesafeandcosteffective.Ourproductofferingscompetewiththoseofmanyotherlargercompanies.Manyofthesecompaniesenjoybroaderbrandrecognitionandhavesignificantdistributionchannelrelationshipsinplace,andasaresult,ourmarketpositionisalwaysatrisk.
Ourabilitytomaintainandincreaseourcurrentmarketsharewilldependuponourabilitytoanticipatechangesinconsumerpreferencesandsatisfythesepreferences,enhanceexistingproducts,developandintroducenewproducts,growexistingdistributionchannelsandseekadditionaldistributionchannelsfortheseproducts,successfullymarkettheproductsand,ultimately,achieveconsumeracceptanceoftheseproducts.Afailuretoachievemarketacceptanceofourproductswouldharmourabilitytogrowourbusiness.
An inability to develop and introduce planned new products or product lines in a timely and cost-effective manner may damage our business.
Indevelopingnewproductsandproductlines,wehaveanticipateddatesfortheassociatedproductintroductions.Whenwestatethatwewillintroduce,oranticipateintroducing,aparticularproductorproductlineatacertaintimeinthefuture,thoseexpectationsarebasedoncompletingtheassociateddevelopment,implementation,marketingwork,andmanufacturinginaccordancewithourcurrentlyanticipateddevelopmentschedule.Theriskisalsoheightenedbythesophisticationofcertainproductswearedesigning,intermsofcombiningdigitalandanalogtechnologies,utilizingdigitalmediatoagreaterdegree,andprovidinggreaterinnovationandproductdifferentiation.Unforeseendelaysordifficultiesinthedevelopmentprocess,significantincreasesintheplannedcostofdevelopment,changesinanticipatedconsumerdemandforourproducts,anddelaysinthemanufacturingprocessmaycausetheintroductiondateforproductstobelaterthananticipatedor,insomesituations,maycauseaproductintroductiontobediscontinued.Ifweareunabletomanufacture,sourceandshipnewproductsinatimelymannerandonacosteffectivebasistomeetconstantlychangingcustomerdemand,itcouldhaveaadverseeffectonourbusinessandoperatingresults.
If we do not maintain sufficient inventory levels or if we are unable to deliver our products to our customers in sufficient quantities, or on a timely basis, or ifour inventory levels are too high, our operating results will be adversely affected.
Ourbusinessplacesstringentdemandsonourinventoryforecastingandproductionplanningprocesses.Thisinventorymanagementapproachmaybeparticularlychallengingwhencombinedwith"just-in-time"inventorymanagementsystemscommonlyusedbyretailerstominimizetheirinventorylevels.Ifwefailtomeettightshippingschedules,wecoulddamageourrelationshipswithretailers,increaseourshippingcostsorcausesalesopportunitiestobedelayedorlost.Todeliverourmerchandiseonatimelybasis,weneedtomaintainadequateinventorylevelsofthedesiredproducts.Thisapproachrequiresustobegintoplaceordersforcomponentsforcertainproductsuptoayearinadvance,andweprocureasignificantamountofproductmonthsinadvanceofcertaintimeperiods.Atthetimeweplacefactoryorders,wemaynothavefirmordersfromretailersoracompleteunderstandingofwhatconsumerdemandforthoseproductswillbe.Ifourinventoryforecastingprocessesarenotaccurate,itmayresultininventorylevelsinexcessofthelevelsforecastedandwemaynothavesufficientspaceatourmaindistributioncentertoaccommodateexcessinventory.Asa
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result,wecouldberequiredtorecordinventorywrite-downsforexcessandobsoleteinventory,and/orincuradditionalexpenseforstorageofexcessinventory,whichwouldadverselyaffectouroperatingresults.Inaddition,ifourprocessesresultinourinventorylevelsbeingtoolowtomeetcustomerdemand,wemaylosesales,whichwouldadverselyaffectouroperatingresults.
We rely on external financing to help fund our operations. Covenants in our credit facility may affect our liquidity or limit our ability to complete acquisitions,incur debt, make investments, sell assets, merge or complete other significant transactions.
Tomeetourworkingcapitalneeds,werelyoncashgeneratedfromoperationsandourcreditfacilityforworkingcapital.Ourcreditfacilityagreementincludescertaincovenantsthatplacelimitationsonorrestrictanumberofouractivities,includingourabilityto:
• incuradditionaldebt;
• createliensonourassetsormakeguarantees;
• makecertaininvestmentsorloans;
• paydividendsormakedistributions;
• disposeoforsellassets;or
• enterintoamergerorsimilartransaction.
Theserestrictivecovenantsmaylimitourabilitytoengageinactsthatmaybeinourbestlong-terminterests.Ourperformanceandfinancialconditionmaynotmeetouroriginalexpectationsatthetimeweenteredintothecreditfacility,causingustofailtomeetsuchfinancialcovenants.Non-compliancewiththecovenantsinourcreditfacilitycouldresultinusbeingunabletoutilizeborrowingsunderourcreditfacility,acircumstancewhichpotentiallycouldoccurwhenoperatingshortfallswouldmostrequiresupplementaryborrowingstoenableustocontinuetofundouroperations.Thereisnoguaranteethatwewouldbeabletorefinancedebtonfavorableterms,oratall.
Deviations from expected results of operations and expected cash requirements could result in a failure to meet financial covenants under our credit facility,which would adversely affect our financial condition and results of operations.
Wearesubjecttofinancialcovenantsunderourcreditfacilityagreement,includingfixedchargecoverageratioandcertainquarterlyleverage.Anysignificantdeviationinactualresultsfromourexpectedresultsofoperations,orinthetimingofmaterialexpendituresfromcurrentestimates,anysignificantbusinessorproductacquisitions,orothersignificantunanticipatedexpensescouldresultinusnotmeetingthesefinancialcovenants.Ifweareunabletogeneratesufficientavailablecashflowtoserviceouroutstandingdebt,thenwewouldneedtoseekanamendmenttoourcreditfacilityagreementorrefinancesuchdebtorfacedefault.Insuchcircumstances,ourlenderscoulddeclareadefault,whichwouldhaveamaterialadverseeffectonourfinancialconditionandresultsofoperations.Ifaccesstoourcreditfacilityislimitedorterminated,ourliquiditywouldbeconstrained,affectingouroperationsandgrowthprospects,andwewouldneedtoseekadditionalequityordebtfinancing.Thereisnoassurancethatsuchfinancingwouldbeavailableonacceptabletermsoratall.Furthermore,anyequityfinancingmayresultindilutiontoexistingstockholdersandanydebtfinancingmayincluderestrictivecovenantsthatcouldimpedeourabilitytoeffectivelyoperateandgrowourbusinessinthefuture.
The intense competition in our markets could reduce our net sales and profitability.
Weoperateinahighlycompetitivemarketandcompetewithseverallargedomesticandforeigncompaniesandwithotherproducersofinfantandjuvenileproducts.Manyofourcompetitorshave
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longeroperatinghistories,greaterbrandrecognition,andgreaterfinancial,technical,marketingandotherresourcesthanus.Inaddition,wemayfacecompetitionfromnewparticipantsinourmarketsbecausetheinfantandjuvenileproductindustryhaslowbarrierstoentry.Weexperiencepricecompetitionforourproductsandcompetitionforshelfspaceatretailers,allofwhichmayincreaseinthefuture.Ifwecannotcompetesuccessfullyinthefuture,ournetsalesandprofitabilitywilllikelydecline.
Because we rely on foreign suppliers and we sell and expect to expand in foreign markets, we are subject to numerous risks associated with internationalbusiness that could increase our costs or disrupt the supply of our products, resulting in a negative impact on our business and financial condition.
WhilethemajorityofoursalescontinuetobeinNorthAmerica,weoperatefacilitiesandsellproductsincountriesoutsidetheUnitedStatesandexpecttogrowourinternationalpresence.Additionally,aswediscussbelow,weutilizethird-partysuppliersandmanufacturerslocatedinAsiatoproduceamajorityofourproducts.Thesesalesandmanufacturingoperations,includingoperationsinemergingmarketsthatwehaveentered,mayenter,ormayincreaseourpresencein,aresubjecttotherisksassociatedwithinternationaloperations,including:
• economicandpoliticalinstability;
• restrictiveactionsbyforeigngovernments;
• greaterdifficultyenforcingintellectualpropertyrightsandweakerlawsprotectingintellectualpropertyrights;
• traderestrictions;
• workstoppagesorotherchangesinlaborconditions;
• reductioninbusinessactivityinsomepartsoftheworld;
• currencyfluctuationsanddevaluations;
• changesinimportdutiesorimportorexportrestrictions;
• compliancewithanti-briberyandanti-corruptionregulations;
• untimelyshippingofproductandunloadingofproductthroughWestCoastports,aswellasuntimelytruckdeliverytoourwarehouses;
• complicationsincomplyingwiththelawsandpoliciesoftheUnitedStatesaffectingtheimportationofgoods,includingduties,quotas,andtaxes;
• limitationsonrepatriationofforeignearnings;and
• complicationsincomplyingwithforeigntaxlaws.
RecentuncertaintywithrespecttopotentialchangestotheU.S.tax,tariff,andimport/exportregulationsmayhaveanegativeeffectonourresultsofoperations.Inparticular,proposalshavebeenmadetoreformthetaxcodeinwaysthatcouldincreasetheamountoftaxpaidonimportedgoods.Inaddition,therecentpresidentialandcongressionalelectionshavecreatedsignificantuncertaintyaboutthefuturerelationshipbetweentheUnitedStatesandChina,includingwithrespecttotradepolicies,treaties,governmentregulations,andtariffs,allofwhichcouldgreatlyincreasethecostofChineseimports.DuetooursignificantmanufacturingpresenceinChina,fromwhichweimportamajorityofourproducts,theoccurrenceofsuchtaxreformsortraderestrictionscouldsignificantlyimpactourbusinessinanadversemanner.
Asaresultofourinternationaloperations,wearesubjecttotheU.S.ForeignCorruptPracticesActandsimilarforeignanti-corruptionandanti-briberylaws.Recentyearshaveseenasubstantial
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increaseintheglobalenforcementofanti-corruptionlaws,withmorefrequentvoluntaryself-disclosuresbycompanies,aggressiveinvestigationsandenforcementproceedingsbyboththeU.S.DepartmentofJusticeandtheSECresultinginrecordfinesandpenalties,increasedenforcementactivitybynon-U.S.regulators,andincreasesincriminalandcivilproceedingsbroughtagainstcompaniesandindividuals.Complyingwiththeseregulationsimposescostsonuswhichcanreduceourprofitabilityandourfailuretosuccessfullycomplywithanysuchlegalrequirementscouldsubjectustomonetaryliabilitiesandothersanctionsthatcouldfurtherharmourbusinessandfinancialcondition.
Also,becausewegeneratesomeofourrevenueoutsidetheUnitedStatesbutreportourfinancialresultsinU.S.dollars,ourfinancialresultsareimpactedbyfluctuationsinforeigncurrencyexchangerates.IftheU.S.dollarisstrongagainstforeigncurrencies,ourtranslationofforeigncurrencydenominatedrevenueorexpensecouldresultinlowerU.S.dollardenominatednetrevenueandexpense.
We rely on suppliers in Asia to manufacture the majority of our products, and any adverse change in our relationship with our suppliers could harm ourbusiness.
Werelyonnumerousthird-partysupplierslocatedinAsiaforthemanufactureofmostofourproducts.Whilewebelievethatalternativesupplierscouldbelocatedifrequired,ourproductsourcingcouldbeaffectedifanyofthesesuppliersdonotcontinuetomanufactureourproductsinrequiredquantitiesoratall,orwiththerequiredlevelsofquality.Wedonothaveanylong-termsupplycontractswithourforeignsuppliers;rather,weenterintopurchaseorderswiththesesuppliers.Inaddition,difficultiesencounteredbythesesuppliers,suchasfire,accident,naturaldisasters,outbreaksofcontagiousdiseases,orpoliticalunrest,couldhaltordisruptproductionattheaffectedlocations,resultingindelayorcancellationoforders.Anyoftheseeventscouldresultindelayeddeliveriesbyusofourproducts,causingreducedsalesandharmtoourreputationandbrandname.
Increases in the cost of materials or labor used to manufacture our products could decrease our profitability and therefore negatively impact our business andfinancial condition.
Becauseourproductsaremanufacturedbythird-partysuppliers,wedonotdirectlypurchasethematerialsusedinthemanufactureofourproducts.However,thepricespaidbyustothesesupplierscouldincreaseifrawmaterials,labor,orothercostsincrease.Ifwecannotpasstheseincreasesalongtoourcustomers,ourprofitabilitywillbeadverselyaffected.
Earthquakes or other catastrophic events out of our control may damage our primary distribution facility and harm our results of operations.
OurprimarydistributionfacilityislocatedinRiverside,California,nearmajorearthquakefaults.Acatastrophicevent,suchasanearthquake,flood,fire,orothernaturalormanmadedisaster,couldimpactoperationsatthisfacilityandimpairdistributionofourproducts,damageinventory,interruptcriticalfunctions,orotherwiseaffectourbusinessnegatively,harmingourresultsofoperations.
Intellectual property claims relating to our products could increase our costs and adversely affect our business.
Wehave,fromtimetotime,receivedclaimsofallegedinfringementofpatentsrelatingtocertainofourproducts,andwemayfacesimilarclaimsinthefuture.Theseclaimsrelatedtoallegedpatentinfringementandwereprimarilytheresultofnewly-issuedpatentsthatwerenotinforcewhenweinitiallybroughtthesubjectproductstomarket.Thedefenseofintellectualpropertyclaimscanbecostlyandtimeconsuming,evenincircumstanceswheretheclaimiswithoutmerit.Wemayberequiredtopaysubstantialdamagesorsettlementcostsinordertoresolvethesetypesofclaims.Inaddition,theseclaimscouldmateriallyharmourbrandname,reputationandoperations.
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As a manufacturer of consumer products, we are subject to various government regulations and may be subject to additional regulations in the future, violationof which could subject us to sanctions or otherwise harm our business. In addition, we could be the subject of future product liability suits, product recalls, andother claims relating to the use of our products, which could harm our business.
Becauseweproduceinfantandjuvenilehealth,safetyandwellnessconsumerproducts,wearesubjecttosignificantgovernmentregulationandfaceproductliabilityrisksrelatingtoconsumeruseofourproducts.Wemustcomplywithavarietyofstateandfederalproductsafetyandproducttestingregulations.Inparticular,ourproductsaresubjecttotheConsumerProductSafetyAct,theFederalHazardousSubstancesAct("FHSA")andtheConsumerProductSafetyImprovementAct("CPSIA"),whichempowertheConsumerProductSafetyCommission(the"CPSC"),totakeactionagainsthazardspresentedbyconsumerproducts.WithexpandedauthorityundertheCPSIA,theCPSChasandcontinuestoadoptnewregulationsforsafetyandproductstestingthatapplytoourproducts.Thesenewregulationshaveorlikelywillsignificantlyincreasetheregulatoryrequirementsgoverningthemanufactureandsaleofchildren'sproductsandincreasethepotentialpenaltiesfornoncompliancewithapplicableregulations.TheCPSChastheauthoritytoexcludefromthemarketandrecallcertainconsumerproductsthatarefoundtobepotentiallyhazardous.ConsumerproductsafetylawsalsoexistinsomestatesandcitieswithintheUnitedStatesandinCanadaandEurope,aswellascertainothercountries.Ifwefailtocomplywiththeselawsandregulations,orifwefaceproductliabilityclaims,wemaybesubjecttodamageawardsorsettlementcoststhatexceedanyavailableinsurancecoverageandwemayincursignificantcostsincomplyingwithrecallrequirements.
Wemaintainaqualitycontrolprogramtohelpensurecompliancewithapplicableproductsafetyrequirements.Nonetheless,wehaveexperienced,andmayinthefutureexperience,issuesinproductsthatmayleadtoproductliability,personalinjuryorpropertydamageclaims,recalls,withdrawals,replacementsofproducts,orregulatoryactionsbygovernmentalauthorities.Aproductrecallcouldhaveamaterialadverseeffectonourresultsofoperationsandfinancialcondition,dependingontheproductaffectedbytherecallandtheextentoftherecalleffortsrequired.Aproductrecallcouldalsonegativelyaffectourreputationandthesalesofotherproducts.Furthermore,concernsaboutpotentialliabilitymayleadustorecallvoluntarilyselectedproducts.Complyingwithexistingoranysuchadditionalregulationsorrequirementscouldimposeincreasedcostsonourbusinessoperations,decreasesales,increaselegalfeesandothercosts,andputusatacompetitivedisadvantagecomparedtoothermanufacturersnotaffectedbysimilarissueswithproducts,anyofwhichcouldhaveasignificantadverseeffectonourfinancialcondition.Similarly,increasedpenaltiesfornon-compliancecouldsubjectustogreaterexpenseintheeventanyofourproductswerefoundtonotcomplywithsuchregulations.
Inadditiontoproductliabilityrisksrelatingtotheusebyconsumersofourproducts,wealsomustcomplywithavarietyofstateandfederallawsandregulationswhichprohibitsunfairordeceptivetradepractices,includingdisseminationoffalseormisleadingadvertising.Whilewetakestepswebelievearenecessarytocomplywiththeselawsandregulations,therecanbenoassurancethatwewillalwaysbeincompliance.Compliancewiththesevariouslawsandregulationscouldimposesignificantcostsonourbusinessifwefailtocomply,andcouldresultinmonetaryliabilitiesandotherpenaltiesandleadtosignificantnegativemediaattentionandconsumerdissatisfaction,whichcouldhaveasignificantadverseeffectonourbusiness,financialconditionandresultsofoperations.
We are dependent on key personnel, and our ability to grow and compete in our industry will be harmed if we do not retain the continued services of our keypersonnel, or we fail to identify, hire, and retain additional qualified personnel.
Oursuccessdependsontheeffortsofourseniormanagementteamandotherkeypersonnel.Althoughwebelievethatwehaveastrongmanagementteam,thelossofservicesofmembersofourseniormanagementteam,whohavesubstantialexperienceintheinfantandjuvenilehealth,safetyand
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wellnessmarkets,couldhaveanadverseeffectonourbusiness.Inaddition,ifweexpecttogrowouroperations,itwillbenecessaryforustoattractandretainadditionalqualifiedpersonnel.Themarketforqualifiedandtalentedproductdevelopmentpersonnelintheconsumergoodsmarket,andspecificallyintheinfantandjuvenilehealth,safetyandwellnessproductsmarket,isintenselycompetitive.Ifweareunabletoattractorretainqualifiedpersonnelasneeded,thegrowthofouroperationscouldbeslowedorhampered.
We may have exposure to greater than anticipated tax liabilities, that, if not identified, could negatively affect our consolidated operating results and net worth.
Ourprovisionforincometaxesissubjecttovolatilityandcouldbeadverselyaffectedbynondeductibleequity-basedcompensation,earningsbeinglowerthananticipatedinjurisdictionswherewehavelowerstatutoryratesandbeinghigherthananticipatedinjurisdictionswherewehavehigherstatutoryrates,transferpricingadjustments,notmeetingthetermsandconditionsoftaxholidaysorincentives,changesinthevaluationofourdeferredtaxassetsandliabilities,changesinactualresultsversusourestimates,orchangesintaxlaws,regulations,accountingprinciplesorinterpretationsthereof,andtaxesrelatingtodeemeddividendsresultingfromforeignguaranteesmadebycertainofourforeignsubsidiaries.Inaddition,likeothercompanies,wemaybesubjecttoexaminationofourincometaxreturnsbytheU.S.InternalRevenueServiceandothertaxauthorities.Whileweregularlyassessthelikelihoodofadverseoutcomesfromsuchexaminationsandtheadequacyofourprovisionforincometaxes,therecanbenoassurancethatsuchprovisionissufficientandthatadeterminationbyataxauthoritywillnothaveanadverseeffectonourresultsofoperations.
A material impairment in the carrying value of other intangible assets could negatively affect our consolidated results of operations and net worth.
Aportionofourassetsareintangible,whicharereviewedonanannualbasisandwhenevereventsandchangesincircumstancesindicatethatthecarryingamountofanassetmaynotberecoverable.Ifthecarryingvalueoftheseassetsexceedsthecurrentfairvalue,theassetisconsideredimpairedandisreducedtofairvalue,resultinginanon-cashchargetoearningsduringtheperiodinwhichanyimpairmentisdetermined.Ifwemakechangesinourbusinessstrategy,ourfutureoperatingperformancewastofallsignificantlybelowforecastlevelsorifexternalconditionsadverselyaffectourbusinessoperations,wemayberequiredtorecordanimpairmentchargeforintangibles,whichwouldleadtodecreasedassetsandreducednetoperatingresultsandnetworth.AsdiscussedinManagement'sDiscussionandAnalysisofFinancialConditionandResultofOperationsbelow,werecordedanimpairmentchargeforcertainindefinite-livedintangibleassetsinthefourthquarterof2016.Wecannotaccuratelypredicttheamountandtimingofanyfutureimpairmentofassets.
We rely on information technology in our operations, and any material failure, inadequacy, interruption, or security failure of that technology could harm ourability to effectively operate our business.
Werelyoninformationtechnologysystemsacrossouroperations,includingformanagementofoursupplychain,saleanddeliveryofourproducts,andvariousotherprocessesandtransactions,includingcreditcardprocessingforonlinesales.Ourabilitytoeffectivelymanageourbusinessandcoordinatetheproduction,distribution,andsaleofourproductsdependsonthereliabilityandcapacityofthesesystemsandinsomeinstances,third-partyserviceproviders.Thefailureofthesesystemstooperateeffectivelyduetoserviceinterruptions,problemswithtransitioningtoupgradedorreplacementsystems,orabreachinsecurityofthesesystemscouldcausedelaysinproductsalesandreducedefficiencyofouroperations,lossofproprietarydataorcustomerinformation,andcapitalinvestmentscouldberequiredtoremediatetheproblem.
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Our stock price has been and may continue to be volatile.
Themarketpriceofourcommonstockhasbeen,andislikelytocontinuetobe,volatile.Whenweorourcompetitorsannouncenewproducts,experiencequarterlyfluctuationsinoperatingresults,announcestrategicrelationships,acquisitionsordispositions,changeearningsestimates,publishfinancialresultsorothermaterialnews,ourstockpriceisoftenaffected.Thevolatilityofourstockpricemaybeaccentuatedduringperiodsoflowvolumetrading,whichmayrequireastockholderwishingtosellalargenumberofsharestodosoinincrementsovertimetomitigateanyadverseimpactofthesalesonthemarketpriceofourstock.
Anti-takeover provisions in our organizational documents and Delaware law may limit the ability of our stockholders to control our policies and effect achange of control of our Company and may prevent attempts by our stockholders to replace or remove our current management, which may not be in your bestinterests.
Thereareprovisionsinourcertificateofincorporationandbylawsthatmaydiscourageathirdpartyfrommakingaproposaltoacquireus,evenifsomeofourstockholdersmightconsidertheproposaltobeintheirbestinterests,andmaypreventattemptsbyourstockholderstoreplaceorremoveourcurrentmanagement.TheseprovisionsinourcertificateofincorporationincludeauthorizationforourBoardofDirectorstoissuesharesofpreferredstockwithoutstockholderapprovalandtoestablishthepreferencesandrightsofanypreferredstockissued,andtoissueoneormoreclassesorseriesofpreferredstockthatcoulddiscourageordelayatenderofferorchangeincontrol.Ourbylawsrequireadvancewrittennoticeofstockholderproposalsanddirectornominations.
Additionally,wearesubjecttoSection203oftheDelawareGeneralCorporationLaw,which,ingeneral,imposesrestrictionsuponacquirersof15%ormoreofourstock.Finally,theBoardofDirectorsmayinthefutureadoptotherprotectivemeasures,suchasastockholderrightsplan,whichcoulddelay,deterorpreventachangeofcontrol.
Item1B.UnresolvedStaffComments
None.
Item2.Properties
Weareheadquarteredina62,500squarefootfacilityinWoonsocket,RhodeIsland.Wehavealeaseonthisfacility,whichwillexpirein2018,andincludesanoptiontoextendtheleaseforanadditionalthree-yearterm.WealsoleasesmallofficesinArkansas,Canada,Israel,theUnitedKingdomandHongKong.
WemaintaininventoryatleasedwarehousesinCalifornia(approximately460,000squarefeet),Canada(approximately61,000squarefeet),Australia(thirdpartywarehouse)andtheUnitedKingdom(approximately25,000squarefeet).Theseleasesexpireatvarioustimesthrough2021.
Item3.LegalProceedings
TheinformationsetforthinNote10,CommitmentsandContingencies,underPartIV,Item15ofthisAnnualReportonForm10-Kisincorporatedhereinbyreference.
Item4.MineSafetyDisclosures
Notapplicable.
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PARTII
Item5.MarketforRegistrant'sCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities
Price Range of Common Stock
OurcommonstockistradedontheNasdaqCapitalMarketunderthesymbol"SUMR".
ThehighandlowsalespricesforourcommonstockasreportedontheNasdaqCapitalMarketfortheperiodsindicatedbelowwereasfollows:
Holders of Common Stock
AsofFebruary20,2017,therewere34holdersofrecordofourcommonstock.Becausesharesofourcommonstockareheldbydepositaries,brokersandothernominees,thenumberofbeneficialholdersofoursharesissubstantiallylargerthanthenumberofrecordholders.
Dividend Policy
TherehavebeennocashdividendsdeclaredonourcommonstocksinceourCompanywasformed.DividendsaredeclaredatthesolediscretionofourBoardofDirectors.Ourintentionisnottodeclarecashdividendsandretainallcashforouroperationsandfutureacquisitions.Inaddition,underthetermsofourcurrentcreditfacilities,wearerestrictedinourabilitytopaycashdividendstoourstockholders.
Issuer Repurchases of Equity Securities
None.
Recent Sales of Unregistered Securities
Notapplicable.
Item6.SelectedConsolidatedFinancialData
Notrequired.
Item7.Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations
Thefollowingdiscussionisintendedtoassistintheassessmentofsignificantchangesandtrendsrelatedtoourresultsofoperationsandfinancialcondition.Theinformationcontainedinthissectionhasbeenderivedfromourconsolidatedfinancialstatementsandshouldbereadtogetherwithourconsolidatedfinancialstatementsandrelatednotesincludedelsewhereinthisreport.Readersshould
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High Low FiscalYearEndedJanuary2,2016 FirstQuarter $ 3.51 $ 2.51SecondQuarter $ 3.24 $ 2.00ThirdQuarter $ 2.36 $ 1.20FourthQuarter $ 2.25 $ 1.56FiscalYearEndedDecember31,2016 FirstQuarter $ 2.25 $ 1.43SecondQuarter $ 1.95 $ 1.22ThirdQuarter $ 2.44 $ 1.61FourthQuarter $ 2.32 $ 1.65
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alsoreviewandconsiderourdisclosuresundertheheading"SpecialNoteRegardingForward-LookingStatements"describingvariousfactorsthatcouldaffectourbusinessandthedisclosuresundertheheading"RiskFactors"inthisreport.
NotethatalldollaramountsinthisItem7areinthousandsofU.S.dollars,exceptshareandpersharedata.
Overview
Weareapremierinfantandjuvenileproductscompanyoriginallyfoundedin1985andhavepubliclytradedontheNasdaqStockMarketsince2007underthesymbol"SUMR."Wearealeaderinproductinnovationinthejuvenileindustry,providingmothersandcaregiversafullrangeofhighquality,highvalueproductstocareforbabiesandtoddlers.Weseektoimprovethequalityoflifeofbothcaregiversandbabiesthroughourproductofferings,whileatthesametimemaximizingshareholdervalueoverthelongterm.
Weoperateinoneprincipalindustrysegmentacrossgeographicallydiversemarketplaces,sellingourproductsgloballytolarge,nationalretailersaswellasindependentretailers,andonourpartner'swebsitesandourownsummerinfant.comwebsite.InNorthAmerica,ourcustomersincludeBabiesRUs,Amazon.com,Wal-Mart,Target,BuyBuyBaby,HomeDepot,andLowe's.OurlargestEuropean-basedcustomersareArgos,Amazon,ToysRUs,andMothercare.Wealsosellthroughinternationaldistributors,representatives,andtoselectinternationalretailcustomersingeographiclocationswherewedonothaveadirectsalespresence.
Weestimatethesizeofthejuvenileproductsmarkettobe$25billionworldwide,withconsumersfocusingonquality,safety,innovation,andstyle.Webelievewearepositionedtocapitalizeonpositivemarkettrendsinthejuvenileproductsindustry,includingapredictedincreaseinU.S.birthratesoverthenextseveralyears.
Infiscal2016,wecontinuedtofocusonourcoreproductofferings,phasingoutlessprofitablecategories,andimprovingourbalancesheetandworkingcapitalpositions.SalesfortheyearendedDecember31,2016("fiscal2016")decreased5.6%comparedtotheyearendedJanuary2,2016("fiscal2015")duepredominantlytothephasingoutoflessprofitablecategories,unfavorableforeignexchangeratesandlowerthanexpectedsalesofcertainproducts.Whilegrossprofitdeclined0.3%infiscal2016ascomparedtofiscal2015,ourgrossmarginimprovedby170basispoints.
Generalandadministrativeexpensesdecreased10.5%infiscal2016duetothefullyearimpactofcostreductionactionsimplementedinthelatterhalfoffiscal2015andareductioninlitigationcosts.InDecember2016wesettledthelitigation(seeNote10totheConsolidatedFinancialStatements)andthereforeexpectnomateriallegalcostsin2017relatedtothelitigation.
Asdiscussedfurtherbelow,followingourannualintangibleassetimpairmentanalysis,wedeterminedthattheestimatedfairvalueofanindefinitelivedassetwaslowerthanitscarryingvalue,andwerecordedanon-cashimpairmentchargeof$2,993inthefourthquarteroffiscal2016.Inaddition,wedeemedtheremainingvalueoftheindefinitelivedassettohaveafinitelifesubjecttoamortizationoveritsremainingusefullifeoffifteenyears.Asaresult,ourearningspershareforfiscal2016werenegativelyimpactedby$0.12.However,theimpairmentchargehadnoimpactonourday-to-dayoperationsorliquidityandwillnotresultinanyfuturecashexpenditures.
Primarilyasaresultoftheimpairmentcharge,thelitigationcosts,andlowerthanexpectedsalesinfiscal2016,weendedfiscal2016withanetlossof$0.23pershareascomparedtoanetlossof$0.47pershareinfiscal2015.
In2017,weexpecttocontinuetofocusonourcorecategorieswithinnovativeproductofferings,strengtheningmarginsand,ifnecessary,phasingoutlessprofitableproducts.WiththesettlementofourlitigationinDecember2016,litigationcostsareexpectedtobeimmaterialin2017withimproved
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bottomlineperformance.Asaresult,weexpecttocontinuetostrengthenourbalancesheetandourworkingcapitalresults.
SummaryofCriticalAccountingPoliciesandEstimates
Thefollowingsummaryofourcriticalaccountingpoliciesispresentedtoassistinunderstandingourconsolidatedfinancialstatements.Theconsolidatedfinancialstatementsandnotesarerepresentationsofourmanagement,whoareresponsiblefortheirintegrityandobjectivity.TheseaccountingpoliciesconformtoaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmericaandhavebeenconsistentlyappliedinthepreparationoftheconsolidatedfinancialstatements.AdditionalinformationaboutouraccountingpoliciesandestimatesmaybefoundinNote1toourconsolidatedfinancialstatementsincludedinthisreport.
Wemakecertainestimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesandthereportedamountsofrevenuesandexpenses.Theaccountingpoliciesdescribedbelowarethoseweconsidercriticalinpreparingourfinancialstatements.Someofthesepoliciesincludesignificantestimatesmadebymanagementusinginformationavailableatthetimetheestimatesweremade.However,theseestimatescouldchangemateriallyifdifferentinformationorassumptionswereused.
Revenue Recognition
Werecordrevenuewhenallofthefollowingoccur:persuasiveevidenceofanarrangementexists,productdeliveryhasoccurred,thesalespricetothecustomerisfixedordeterminableandcollectabilityisreasonablyassured.Salesarerecordednetofprovisionsforreturnsandallowances,cashdiscountsandmarkdowns.Webaseourestimatesfordiscounts,returnsandallowancesonnegotiatedcustomerterms,andhistoricalexperience.Theseestimatesaresubjecttovariability,asactualdeductionstakenbycustomersmaybedifferentfromtheestimatesrecorded.Customersdonothavetherighttoreturnproductsunlesstheproductsaredefective.Werecordareductionofsalesforestimatedfuturedefectiveproductdeductionsbasedoncontractualtermsandhistoricalexperience.
Salesincentivesorotherconsiderationgivenbyustocustomersthatareconsideredadjustmentsofthesellingpriceofproducts,suchasmarkdowns,arereflectedasreductionsofrevenue.Salesincentivesandotherconsiderationthatrepresentcostsincurredbyusforassetsorservicesreceived,suchastheappearanceofourproductsinacustomer'snationalcircularad(co-opadvertising),arereflectedassellingandmarketingexpensesinouraccompanyingstatementofoperations.
Trade Receivables
Tradereceivablesarecarriedattheiroutstandingunpaidprincipalbalancesreducedbyanallowancefordoubtfulaccounts.TheCompanyestimatesdoubtfulaccountsbasedonhistoricalbaddebts,factorsrelatedtospecificcustomers'abilitytopayandcurrenteconomictrends.TheCompanywritesoffaccountsreceivableagainsttheallowancewhenabalanceisdeterminedtobeuncollectible.Amountsareconsideredtobeuncollectablebaseduponhistoricalexperienceandmanagement'sevaluationofoutstandingaccountsreceivable.
Allowance for Doubtful Accounts
Theallowancefordoubtfulaccountsrepresentsadjustmentstocustomertradeaccountsreceivableforamountsdeemeduncollectible.Theallowancefordoubtfulaccountsreducesgrosstradereceivablestotheirestimatednetrealizablevalue.Theallowanceisbasedonourassessmentofthebusinessenvironment,customers'financialcondition,historicaltrends,customerpaymentpractices,receivableagingandcustomerdisputes.Wewillcontinuetoproactivelyreviewourcreditrisksandadjustcustomertermstoreflectthecurrentenvironment.
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Inventory Valuation
Inventoryiscomprisedoffinishedgoodsandisstatedatthelowerofcost,inclusiveoffreightandduty,ormarket(netrealizablevalue)usingthefirst-in,first-out(FIFO)method.Ourwarehousingcostsarechargedtoexpenseasincurred.Weregularlyreviewslow-movingandexcessinventory,andwrite-downinventoriesasappropriate.Managementusesestimatestorecordwrite-downsbasedonitsreviewofinventorybyproductcategory,includinglengthoftimeonhandandestimatesoffutureordersforeachproduct.Changesinconsumerpreferences,aswellasdemandforproducts,customerbuyingpatternsandinventorymanagementcouldimpacttheinventoryvaluation.
Long-Lived Assets with Finite Lives
Wereviewlong-livedassetswithfinitelivesforimpairmentwhenevereventsorchangesincircumstancesindicatethatthecarryingamountofalong-livedassetmaynotberecoverable.Anassetisconsideredtobeimpairedwhenitscarryingamountexceedsboththesumoftheundiscountedfuturenetcashflowsexpectedtoresultfromtheuseoftheassetanditseventualdispositionandtheassets'fairvalue.Long-livedassetsincludepropertyandequipmentandfinite-livedintangibleassets.Theamountofimpairmentloss,ifany,ischargedbyustocurrentoperations.
Indefinite-Lived Intangible Assets
Weaccountforindefinite-livedintangibleassetsinaccordancewithaccountingguidancethatrequiresindefinite-livedintangibleassetsbetestedannuallyforimpairmentandmorefrequentlyifeventsorchangesincircumstancesindicatethattheassetmightbeimpaired.Ourannualimpairmenttestingisconductedinthefourthquarterofeveryyear.
Wetestindefinite-livedintangibleassetsforimpairmentbycomparingtheasset'sfairvaluetoitscarryingamount.Ifthefairvalueislessthanthecarryingamount,theexcessofthecarryingamountoverfairvalueisrecognizedasanimpairmentchargeandtheadjustedcarryingamountbecomestheassets'newaccountingbasis.
Managementalsoevaluatestheremainingusefullifeofanintangibleassetthatisnotbeingamortizedeachreportingperiodtodeterminewhethereventsandcircumstancescontinuetosupportanindefiniteusefullife.Ifanintangibleassetthatisnotbeingamortizedissubsequentlydeterminedtohaveafiniteusefullife,itisamortizedprospectivelyoveritsestimatedremainingusefullife.
Income Taxes
Incometaxesarecomputedusingtheassetandliabilitymethodofaccounting.Undertheassetandliabilitymethod,adeferredtaxassetorliabilityisrecognizedforestimatedfuturetaxeffectsattributabletotemporarydifferencesandcarryforwards.Themeasurementofdeferredincometaxassetsisadjustedbyavaluationallowance,ifnecessary,torecognizefuturetaxbenefitsonlytotheextent,basedonavailableevidence;itismorelikelythannotthatsuchbenefitwillberealized.
Werecognizeinterestandpenalties,ifany,relatedtouncertaintaxpositionsininterestexpense.InterestandpenaltiesrelatedtouncertaintaxpositionswereaccruedatDecember31,2016.Allauditadjustmentshavebeenrecordedwithoutsignificantimpactonourresultsofoperations.Onaglobalbasis,theopentaxyearssubjecttoexaminationbymajortaxingjurisdictionsinwhichweoperateisbetweentwotosixyears.
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ResultsofOperations
ThefollowingtablepresentsselectedcondensedconsolidatedfinancialinformationforourCompanyforthefiscalyearsendedDecember31,2016("fiscal2016")andJanuary2,2016("fiscal2015").
Fiscal 2016 Compared with Fiscal 2015
Netsalesdecreased5.6%from$205,804forfiscal2015to$194,328forfiscal2016.Fiscal2015included$8,265ofsalesrelatedtoourbank-approvedinventoryreductionplanandourfurnitureproductlineexit.Fiscal2016included$2,054ofunfavorableforeignexchangeonaconstantcurrencybasisprimarilyduetothedeclineinthevalueoftheBritishpound.Theyear-over-yearnetsalesdecreasewasalsoattributabletolowersalesofBornFree®Breeze™bottlesandcertainSummer®monitorspartiallyoffsetbyincreasedsafetyandgearproductsales.
Costofgoodssoldincludesthecostofthefinishedproductfromsuppliers,dutiesoncertainimporteditems,freight-infromsuppliers,andmiscellaneouscharges.Thecomponentsofcostofgoodssoldremainedsubstantiallythesameforfiscal2016ascomparedtofiscal2015.
Grossprofitdeclined0.3%from$61,950forfiscal2015to$61,751forfiscal2016,however,grossmarginincreasedfrom30.1%forfiscal2015to31.8%forfiscal2016.Fiscal2015included$1,937inlossesonthesaleofinventorybelowcostrelatingtoourbank-approvedinventoryreductionplan,$949ofinventorychargestakenaswecompletedourexitofthefurniturecategory,and$690intemporaryadditionalcostsduetoinventorymixchangesinourwestcoastdistributioncenter.Fiscal2016included$933ofunfavorableforeignexchangeonaconstantcurrencybasisprimarilyduetothedeclineinthevalueoftheBritishpound,$891incostoveragesrelatingtotheintroductionofourBornFree®Breeze™bottle,and$275intemporaryadditionalcostsduetoinventorymixchangesinourwestcoastdistributioncenter.
Generalandadministrativeexpensesdecreased10.5%from$46,132forfiscal2015to$41,292forfiscal2016andasapercentofsalesfrom22.4%forfiscal2015to21.2%forfiscal2016.Thedeclineingeneralandadministrativeexpenseswasattributabletocostreductionactionsimplementedinthelatterhalfoffiscal2015combinedwithareductioninlitigationcoststhatdeclinedto$2,397forfiscal2016ascomparedto$6,645forfiscal2015.InDecember2016,wesettledthelitigationandthereforedonotexpecttoincuranymateriallegalcostsin2017relatedtothelitigation.
Sellingexpensesdecreasedby14.1%from$17,780forfiscal2015to$15,269forfiscal2016andasapercentofsalesfrom8.6%forfiscal2015to7.9%forfiscal2016.Thisdecreaseinsellingexpense
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Yearended
December31,2016 YearEnded
January2,2016 Netsales $ 194,328 100.0% $ 205,804 100.0%Costofgoodssold 132,577 68.2% 143,854 69.9%Grossprofit 61,751 31.8% 61,950 30.1%Generalandadministrativeexpenses 41,292 21.2% 46,132 22.4%Sellingexpenses 15,269 7.9% 17,780 8.6%Depreciationandamortization 5,011 2.6% 6,780 3.3%Impairmentofintangibleassets 2,993 1.5% — 0.0%(Loss)fromoperations (2,814) (1.4)% (8,742) (4.2)%Interestexpense,net 2,682 1.4% 3,333 1.6%(Benefit)forincometaxes (1,174) 0.6% (3,424) 1.7%Netloss $ (4,322) (2.2)% $ (8,651) (4.2)%
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wasprimarilyattributabletolowersalesvolumeaswellaslowercooperativeadvertisementcostsandlowerfreightoutcostsduetocustomermix.
Depreciationandamortizationdecreased26.1%from$6,780infiscal2015to$5,011forfiscal2016.Fiscal2015included$1,532ofacceleratedamortizationduetotheshortenedestimatedusefullifeonoldertechnologyaswemovetoournextgenerationoftechnologythatisbeingdevelopedincertainproductlines.Fiscal2016included$341ofaccelerateddepreciationduetotheshortenedestimatedusefullifeonsomenextgenerationtechnologythatwasdiscontinued.
Inthefourthquarterof2016,weundertookourannualintangibleassetimpairmentanalysisandengagedathirdpartytoassistmanagementinvaluingourinfinitelivedintangibleassetsrecordedonourbalancesheet.Managementdeterminedthattheestimatedfairvalueofthatindefinitelivedassetwaslowerthanitscarryingvalue,andwerecordedanon-cashimpairmentchargeof$2,993inthefourthquarteroffiscal2016.Inaddition,managementdeemedtheremainingvalueoftheindefinitelivedassettohaveafinitelifesubjecttoamortizationoveritsremainingusefullifeestimatedtobe15years.Whilethechargeaffectedourfinancialconditionandresultsofoperationsforfiscal2016,ithadnoimpactonourday-to-dayoperationsorliquidityandwillnotresultinanyfuturecashexpenditures.NoimpairmentexistedforthefiscalyearendedJanuary2,2016.
Interestexpensedecreased19.5%from$3,333infiscal2015to$2,682forfiscal2016.Interestexpenseforfiscal2015includedawriteoffof$685forpastunamortizedfinancingfeesandterminationfeesinconnectionwiththerefinancingofourcreditfacilityinApril2015.
Forfiscal2016,werecordeda$1,174taxbenefiton$5,496ofpretaxlossfortheperiod.The21.4%taxrateforfiscal2016includedtheeffectsof$471ofnon-deductibletoolingdepreciation,$270ofexpiringcharitabledonationcarryforwards,and$299relatedtotheimpairmentcharge.Forfiscal2015,werecordeda$3,424taxbenefiton$12,075ofpretaxlossfortheperiod.The28.4%taxrateforfiscal2015includedtheeffectof$150ofreinstatedresearchanddevelopmenttaxcredits,a$327chargeforuncertaintaxpositions,anda$342valuationreserveestablishedonforeigntaxdepreciationandrelatedassets.
LiquidityandCapitalResources
Wefundouroperationsandworkingcapitalneedsthroughcashgeneratedfromoperationsandborrowingsunderourcreditfacilities.
Cash Flows
Inourtypicaloperationalcashflowcycle,inventoryispurchasedtomeetexpecteddemandplusasafetystock.ThemajorityofourinventoryissourcedfromAsiawhichtakesapproximatelythreetofourweekstoarriveatthevariousdistributionpointswemaintainintheUnitedStates,CanadaandtheUnitedKingdom.Paymenttermsforthesevendorsareapproximately60-90daysfromthedatetheproductshipsfromAsia,thereforewearegenerallypayingfortheproductashorttimeafteritisphysicallyreceivedintheUnitedStates.Inturn,salestocustomersgenerallyhavepaymenttermsof30to60days,resultinginanaccountsreceivableandincreasingtheamountofcashrequiredtofundworkingcapital.Tobridgethegapbetweenpayingoursuppliersandreceivingpaymentfromourcustomersforgoodssold,werelyonourcreditfacilities.
Themajorityofourcapitalexpendituresarefortoolsandmoldsrelatedtonewproductintroductions.Wereceiveindicationsfromretailersgenerallyaroundthemiddleofeachyearastowhatproductstheretailerwillbetakingintoitsproductlinefortheupcomingyear.Basedontheseindications,wewillacquiretoolsandmoldsrequiredtobuildandproducetheproducts.Inmostcases,thepaymentsforthetoolsandmoldsarespreadoverathreetofourmonthperiod.
Forfiscal2016,netcashprovidedbyoperatingactivitieswasapproximately$8,788andwasgeneratedprimarilyfromimprovedoperatingperformanceaswellasloweraccountsreceivabledueto
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acombinationoflowersalesandimprovedcollections.Forfiscal2015netcashprovidedbyoperatingactivitiestotaled$9,339andwasprimarilyattributabletoimprovedinventoryturnsandmorefavorablepaymenttermsfromoursuppliers.
Forfiscal2016,netcashusedininvestingactivitieswasapproximately$2,266.Forfiscal2015,netcashusedininvestingactivitieswas$3,505.Theuseofcashininvestingactivitieswasprimarilyattributabletotoolingandmoldexpendituresrelatedtonewproductintroductions.
Forfiscal2016,netcashusedinfinancingactivitieswasapproximately$6,548,reflectingrepaymentsonourcreditfacility.Forfiscal2015,netcashusedinfinancingactivitieswasapproximately$5,116,reflectingrepaymentsonourcreditfacility.
Basedprimarilyontheabovefactors,netcashincreasedforfiscal2016by$76,resultinginacashbalanceofapproximately$999atfiscalyearend.
Thefollowingtablesummarizesoursignificantcontractualcommitmentsatfiscal2016yearend:
EstimatedfutureinterestpaymentsonourRevolvingFacility,FILOFacility,andTermLoanFacilityarebasedupontheinterestratesineffectatDecember31,2016.
Capital Resources
Inadditiontooperatingcashflow,wealsorelyonourexistingasset-basedrevolvingcreditfacilitywithBankofAmerica,N.A.tomeetourfinancingrequirements,whichissubjecttochangesinourinventoryandaccountreceivablelevels.Weregularlyevaluatemarketconditions,ourliquidityprofile,andvariousfinancingalternativesforopportunitiestoenhanceourcapitalstructure.Ifmarketconditionsarefavorable,wemayrefinanceourexistingdebtorissuedebtorequitysecurities.Basedonpastperformanceandcurrentexpectations,webelievethatouranticipatedcashflowfromoperationsandavailabilityunderourexistingcreditfacilityaresufficienttofundourworkingcapital,capitalexpendituresanddebtservicerequirementsforatleastthenext12months.
However,ifweareunabletomeetourcurrentfinancialforecast,donotadequatelycontrolexpenses,andcannotraiseadditionalfundsoradjustouroperationsaccordingly,wemaynotremainincompliancewiththefinancialcovenantsrequiredunderourrevolvingcreditfacility.Unforeseencircumstances,suchassoftnessintheretailindustryordeteriorationinthebusinessofasignificantcustomer,couldcreateasituationwherewecannotaccessallofouravailablelinesofcreditduetoinsufficientassetavailabilityoraninabilitytomeetthefinancialcovenantsasrequiredunderourcreditfacility.Thereisnoassurancethatwewillmeetallofourfinancialorothercovenantsinthefuture,or
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PaymentDuebyFiscalPeriod
ContractualObligations Total 2017 2018 2019 2020 2021andbeyond
RevolvingFacility $ 36,182 — — — $ 36,182 —FILOFacility 3,750 $ 2,500 $ 1,250 — — —TermLoanFacility 7,000 2,000 2,000 $ 2,000 1,000 —EstimatedfutureinterestpaymentsonRevolvingFacility 3,629 1,170 1,102 1,035 322 —EstimatedfutureinterestpaymentsonFILOFacility 149 119 30 — — —EstimatedfutureinterestpaymentsonTermLoanFacility 594 285 190 95 24 —Operatingleases 10,631 2,415 2,215 2,140 2,185 $ 1,676Sale-leasebacklease 536 429 107 — — —Totalcontractualcashobligations $ 62,471 $ 8,918 $ 6,894 $ 5,270 $ 39,713 $ 1,676
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thatourlenderswillgrantwaiversiftherearecovenantviolations.Inaddition,shouldweneedtoraiseadditionalfundsthroughdebtorequityfinancings,anysaleofdebtorequitysecuritiesmaycausedilutiontoexistingstockholders.Ifsufficientfundsarenotavailableorarenotavailableonacceptableterms,ourabilitytoaddressanyunexpectedchangesinouroperationscouldbelimited.Furthermore,therecanbenoassurancethatwewillbeabletoraisesuchfundsifandwhentheyarerequired.Failuretoobtainfuturefundingwhenneededoronacceptabletermscouldmateriallyadverselyaffectourresultsofoperations.
Credit Facilities
Weandourwhollyownedsubsidiary,SummerInfant(USA),Inc.,arepartiestoanamendedandrestatedloanandsecurityagreementwithBankofAmerica,N.A.,asagent,providingforanasset-basedcreditfacility(asamendedinDecember2015andMay2016,the"CreditFacility").
TheCreditFacilityconsistsofa$60,000asset-basedrevolvingcreditfacility,witha$10,000letterofcreditsub-linefacility(the"RevolvingFacility"),a$5,000"firstinlastout"(FILO)revolvingcreditfacility(the"FILOFacility")anda$10,000termloanfacility(the"TermLoanFacility").Pursuanttoanaccordionfeature,theCreditFacilityincludestheabilitytoincreasetheRevolvingFacilitybyanadditional$15,000upontheCompany'srequestandtheagreementofthelendersparticipatingintheincrease.ThetotalborrowingcapacityundertheRevolvingFacilityisbasedonaborrowingbase,generallydefinedas85%ofthevalueofeligibleaccountsplusthelesserof(i)70%ofthevalueofeligibleinventoryor(ii)85%ofthenetorderlyliquidationvalueofeligibleinventory,lessreserves.ThetotalborrowingcapacityundertheFILOFacilityisbasedonaborrowingbase,generallydefinedasaspecifiedpercentageofthevalueofeligibleaccountsthatstepsdownovertime,plusaspecifiedpercentageofthevalueofeligibleinventorythatstepsdownovertime.ForadditionalinformationontheCreditFacility,pleaseseeNote4toourconsolidatedfinancialstatementsincludedinthisAnnualReportonForm10-K.
AsofDecember31,2016,therateforbase-rateloanswas4.75%andrateforLIBOR-rateloanswas3.375%.TheamountoutstandingontheRevolvingFacilityatDecember31,2016was$36,182.TotalborrowingcapacityundertheRevolvingFacilityatDecember31,2016was$47,196andborrowingavailabilitywas$11,014.TheamountsoutstandingontheTermLoanFacilityandFILOFacilityatDecember31,2016were$7,000and$3,750,respectively.
WewereincompliancewiththefinancialcovenantsundertheCreditFacilityasofDecember31,2016.
Subsequenttofiscalyearend,onFebruary17,2017,theCompanyamendedtheCreditFacilitytoprovideadditionalflexibilityunderitscovenantrequirementstotheCompanyduringfiscal2017.SeeItem9B.OtherInformationbelowforadditionalinformationregardingtheamendment.
Off-BalanceSheetArrangements
Wedidnothaveanyoff-balancesheetarrangementsduringtheyearendedDecember31,2016ortheyearendedJanuary2,2016.
RecentlyIssuedAccountingPronouncements
InMay2014,theFASBissuednewaccountingguidancerelatedtorevenuerecognition.ThisguidancewasoriginallyproposedtobeeffectiveforreportingperiodsbeginningafterDecember15,2016,howeverinJuly2015,theFASBapprovedthedelayinthisguidanceuntilreportingperiodsbeginningafterDecember15,2017.Wearestillfinalizingtheanalysistoquantifytheadoptionimpactoftheprovisionsofthenewstandard,butwedonotcurrentlyexpectittohaveamaterialimpactonourconsolidatedfinancialpositionorresultsofoperations.Basedontheevaluationofourcurrentcontractsandrevenuestreams,mostwillberecordedconsistentlyunderboththecurrentandnewstandard.TheFASBhasissued,andmayissueinthefuture,interpretiveguidancewhichmaycauseourevaluationtochange.Webelievewearefollowinganappropriatetimelinetoallowforproperrecognition,presentationanddisclosureuponadoptioneffectivethebeginningoffiscalyear2018.
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InApril2015,theFASBissuedASU2015-03,"Interest-ImputationofInterest(Subtopic835-30):SimplifyingthePresentationofDebtIssuanceCosts."Thisguidancerequiresdebtissuancecostsrelatedtoarecognizeddebtliabilitybepresentedinthebalancesheetasadirectdeductionfromthecarryingamountofthedebtliability.ThisguidanceiseffectiveforfiscalyearsbeginningafterDecember15,2015.TheCompanyadoptedthisguidanceinthefirstquarterof2016anditresultedintheretrospectivereclassificationof$1,489asofJanuary2,2016inunamortizeddebtissuancecostsfromotherassetstoadirectreductionoflong-termdebt.
InJuly2015,theFASBissuedASU2015-11,"SimplifyingtheMeasurementofInventory."ThisguidancerequiresinventorywithinthescopeofASU2015-11tobemeasuredatthelowerofcostandnetrealizablevalue.Netrealizablevalueisdefinedastheestimatedsellingpriceintheordinarycourseofbusiness,lessreasonablypredictablecostsofcompletion,disposal,andtransportation.ThisguidanceiseffectiveforfiscalyearsbeginningafterDecember15,2016.TheCompanyhasevaluatedtheimpactthisguidancewillhaveonitsconsolidatedfinancialstatementsandexpectstheimpacttobeimmaterial.
InNovember2015,theFASBissuedASU2015-17,"IncomeTaxes(Topic740):BalanceSheetClassificationofDeferredTaxes."Thisguidanceeliminatesthecurrentrequirementforanentitytoseparatedeferredincometaxliabilitiesanddeferredtaxassetsintocurrentandnon-currentamountsinaclassifiedbalancesheet.Instead,thisguidancerequiresdeferredtaxliabilities,deferredtaxassets,andvaluationallowancesbeclassifiedasnoncurrentinaclassifiedbalancesheet.ThisASUiseffectiveforannualreportingperiodsbeginningafterDecember15,2016andinterimperiodswithinthoseannualperiods.Earlyadoptionispermitted.TheCompanyadoptedthisguidanceinthefirstquarterof2016anditresultedintheretrospectivereclassificationof$799asofJanuary2,2016incurrentdeferredtaxassetstononcurrentdeferredtaxassets.
InFebruary2016,theFASBissuedASU2016-02,"Leases(Topic842),"("ASU2016-02").ASU2016-02requireslesseestorecognizeassetsandliabilitiesonthebalancesheetforleaseswithleasetermsgreaterthantwelvemonthsanddisclosekeyinformationaboutleasingarrangements.Theeffectivedatewillbethefirstquarteroffiscalyear2019,withearlyadoptionpermitted.TheCompanyisevaluatingtheimpactthatadoptionofthisnewstandardwillhaveonitsconsolidatedfinancialstatements.
InAugust2016,theFASBissuedASU2016-15,"StatementofCashFlows(Topic230):ClassificationofCertainCashReceiptsandCashPayments(AConsensusoftheFASBEmergingIssuesTaskForce).Inanefforttoreducediversityinpractice,ASU2016-15providessolutionsforeightspecificstatementofcashflowclassificationissues.TheASUiseffectiveforpubliccompaniesbeginningafterDecember15,2017,andinterimperiodswithinthosefiscalyears.Earlyadoptionispermitted,includingadoptioninaninterimperiod.TheCompanyhasevaluatedtheimpactthisguidancewillhaveonitsconsolidatedfinancialstatementsandexpectstheimpacttobeimmaterial.
Managementdoesnotbelievethatanyotherrecentlyissued,butnotyeteffective,accountingstandardsifcurrentlyadoptedwouldhaveamaterialeffectontheaccompanyingfinancialstatements.
SpecialNoteRegardingForwardLookingStatements
Thisreportcontains"forward-lookingstatements"withinthemeaningofSection27AoftheSecuritiesActof1933,asamended,andSection21EoftheSecuritiesExchangeActof1934,asamended.Thesestatementsconcernmanagement'scurrentassumptions,estimates,beliefs,plans,strategiesandexpectationsandanticipatedeventsortrendsandsimilarexpressionsconcerningmattersthatarenothistoricalfacts.Suchforward-lookinginformationmaybeidentifiedbytermssuchas"expect,""anticipate,""believe,""outlook,""may,""estimate,""should,""predict"andsimilartermsorvariationsthereof,andincludesstatementsregardingtheeffectivenessofourstrategytopromotefuturegrowthandprofitability,thestrengthofourcustomerandsupplierrelationships,expected
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litigationcostsin2017,improvedbottomlineperformancein2017,ourliquidityforthenext12months,andexpectedtrendsandproductofferingsin2017.Thesestatementsarebasedonaseriesofexpectations,assumptions,estimatesandprojectionsaboutourCompany,arenotguaranteesoffutureresultsorperformance,andinvolvesignificantrisks,uncertaintiesandotherfactors,includingassumptionsandprojections,forallforwardperiods.Ouractualresultsmaydiffermateriallyfromanyfutureresultsexpressedorimpliedbysuchforward-lookingstatements.Suchfactorsinclude,amongothers,thefollowing:
• theconcentrationofourbusinesswithasmallnumberofretailcustomers;
• liquidityproblemsorbankruptcyofanykeyretailcustomers;
• ourabilitytocompetebyintroducingnewproductsorenhancingexistingproductsthatsatisfyconsumerpreferences;
• ourabilitytodevelopnewproductsinatimelyandcost-efficientmanner;
• ourabilitytomanageinventorylevelsandmeetcustomerdemand;
• ourabilitytocomplywithfinancialandothercovenantsinourcreditfacility;
• ourabilitytoeffectivelycompeteinthejuvenileproductmarket;
• ourrelianceonforeignsuppliersandpotentialdisruptioninforeignmarketsinwhichweoperate;
• exchangerateandforeigncurrencydevaluations;
• increasesinthecostofrawmaterialsusedtomanufactureourproducts;
• earthquakesorothercatastrophiceventsthatmaydamageourpropertiesordisruptouroperations;
• ourabilitytoprotectourintellectualproperty;
• compliancewithsafetyandtestingregulationsforourproducts;
• productliabilityclaimsarisingfromuseofourproducts;
• ourdependenceonkeypersonnel;
• unanticipatedtaxliabilities;
• animpairmentofotherintangibleassets;and
• anyfailure,inadequacyorinterruptionofourinformationtechnologysystemsthatmaydisruptouroperations.
Theforegoinglistofimportantfactorsdoesnotincludeallsuchfactors,nornecessarilypresenttheminorderofimportance.Inaddition,pleaserefertothe"RiskFactors"sectionofthisreportforadditionalinformationregardingfactorsthatcouldaffectourresultsofoperations,financialconditionandliquidity.
Weintendourforward-lookingstatementstospeakonlyasofthetimeofsuchstatementsanddonotundertakeorplantoupdateorrevisethemasmoreinformationbecomesavailableortoreflectchangesinexpectations,assumptionsorresults.Wecannotgiveanyassurancethatsuchexpectationsorforward-lookingstatementswillprovetobecorrect.Anoccurrenceof,oranymaterialadversechangein,oneormoreoftheriskfactorsorrisksanduncertaintiesreferredtointhisreportorincludedinourotherperiodicreportsfiledwiththeSECcouldmateriallyandadverselyimpactouroperationsandourfuturefinancialresults.
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Anypublicstatementsordisclosuresbyusfollowingthisreportthatmodifyorimpactanyoftheforward-lookingstatementscontainedinoraccompanyingthisreportwillbedeemedtomodifyorsupersedesuchoutlookorotherforward-lookingstatementsinoraccompanyingthisreport.
Item7A.QuantitativeandQualitativeDisclosuresAboutMarketRisk
Notrequired.
Item8.FinancialStatementsandSupplementaryData
ThefinancialstatementsrequiredbythisitemareattachedtothisAnnualReportonForm10-KbeginningonPageF-1.
Item9.ChangesinandDisagreementsWithAccountantsonAccountingandFinancialDisclosure
None.
Item9A.ControlsandProcedures
(a) Evaluation of Disclosure Controls and Procedures
AsrequiredbyRule13a-15undertheSecuritiesExchangeActof1934,asoftheendoftheperiodcoveredbythisreport,wecarriedoutanevaluation,underthesupervisionandwiththeparticipationofourChiefExecutiveOfficerandourChiefFinancialOfficer,oftheeffectivenessofourdisclosurecontrolsandproceduresasofDecember31,2016.Ourprincipalexecutiveofficerandprincipalfinancialofficerhaveconcluded,basedontheirevaluation,thatourdisclosurecontrolsandprocedureswereeffectiveasofDecember31,2016.
(b) Management's Report on Internal Control over Financial Reporting
ManagementofourCompanyisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting.AsdefinedinRule13a-15(f)undertheExchangeAct,internalcontroloverfinancialreportingisaprocessdesignedby,orunderthesupervisionof,acompany'sprincipalexecutiveandprincipalfinancialofficersandeffectedbyacompany'sboardofdirectors,managementandotherpersonnel,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Itincludesthosepoliciesandproceduresthat:
1)Pertaintothemaintenanceofrecordsthatinreasonabledetailaccuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofacompany;
2)Providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofacompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementandtheboardofdirectorsofthecompany;and
3)Providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,useordepositionofacompany'sassetsthatcouldhaveamaterialeffectonitsfinancialstatements.
Becauseoftheinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
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TheCompany'smanagementhasusedthecriteriaestablishedinthe2013"InternalControl—IntegratedFramework"issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission("COSOFramework")toevaluatetheeffectivenessoftheCompany'sinternalcontroloverfinancialreporting.
ManagementoftheCompanyconductedanevaluationoftheeffectiveness,asofDecember31,2016,oftheCompany'sinternalcontroloverfinancialreportingandbasedonitsevaluationundertheCOSOFramework,managementhasconcludedthattheCompany'sinternalcontroloverfinancialreportingwaseffectiveasofDecember31,2016.
(c) Changes in Internal Control Over Financial Reporting
TherewasnochangeinourinternalcontroloverfinancialreportingthatoccurredduringthequarterendedDecember31,2016thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.
Item9B.OtherInformation
OnFebruary17,2017,theCompanyanditssubsidiaries,SummerInfant(USA),Inc.,SummerInfantCanada,LimitedandSummerInfantEuropeLimited,enteredintoanamendmentandwaiver(the"LoanAmendment")toitsCreditFacilitywithBankofAmerica,N.A.,asagent,andthelendersundertheCreditFacility.PursuanttotheLoanAmendment,thelendersagreedtowaivetheexistingdeliverydatebywhichtheCompanymustdeliverprojectionsforthe2017fiscalyear,andextendedthedatetoMarch1,2017.Inaddition,theLoanAmendmentamendedcertainprovisionsoftheCreditFacilitytoprovideadditionalflexibilitytotheCompanyduringfiscal2017,including:
• amendingthedefinitionsof"Availability,""AvailabilityReserve"and"EligibleAccount";
• amendingthedefinitionofEBITDAwithrespecttobonuspaymentsandcertainfeesandexpensesthatcanbeaddedbacktothecalculationofEBITDA;and
• amendingthedefinitionof"FixedCharges"andrevisedthemaximumleverageratiofinancialcovenanttobemaintainedasoftheendofeachfiscalquarter.
TheforegoingsummaryoftheLoanAmendmentdoesnotpurporttobecompleteandisqualifiedinitsentiretybyreferencetothefulltextoftheLoanAmendment,acopyofwhichisfiledherewithasExhibit10.14andisincorporatedhereinbyreference.
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PARTIII
Item10.Directors,ExecutiveOfficersandCorporateGovernance
TheinformationrelatingtodirectorsanddirectornomineesoftheCompanyissetforthinourdefinitiveProxyStatementtobefiledwiththeSECinconnectionwithour2017AnnualMeetingofStockholders(the"2017ProxyStatement")andisincorporatedhereinbyreference.
TheinformationrelatingtotheCompany'sexecutiveofficersandSection16(a)beneficialownershipreportingcomplianceissetforthinthe2017ProxyStatementandisincorporatedhereinbyreference.
WehaveadoptedaCodeofEthicsthatappliestoallofourdirectors,officersandemployees.TheCodeofEthicsispubliclyavailableintheInvestorRelationssectionofourwebsiteatwww.summerinfant.com.AmendmentstotheCodeofEthicsandanygrantofawaiverfromaprovisionoftheCodeofEthicsrequiringdisclosureunderapplicableSECandNasdaqruleswillbedisclosedonourwebsite.
TheinformationrelatingtotheCompany'sAuditCommitteeanditsdesignatedauditcommitteefinancialexpertissetforthinthe2017ProxyStatementandisincorporatedhereinbyreference.
Theinformationconcerningproceduresbywhichstockholdersmayrecommenddirectornomineesissetforthinthe2017ProxyStatementandisincorporatedhereinbyreference.
Item11.ExecutiveCompensation
Theinformationrelatingtoexecutivecompensationissetforthinthe2017ProxyStatementandisincorporatedhereinbyreference,providedthattheinformationunderthecaption"CompensationCommitteeReport"shallbedeemed"furnished"andshallnotbedeemed"filed"withthisreport,notdeemedincorporatedbyreferenceintoanyfilingundertheSecuritiesActof1933,asamended,exceptonlyasmaybeexpresslysetforthinanysuchfilingbyspecificreference.
Item12.SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters
Theinformationrelatingtosecurityownershipofmanagement,certainbeneficialowners,andtheCompany'sequityplansissetforthinthe2017ProxyStatementandisincorporatedhereinbyreference.
Item13.CertainRelationshipsandRelatedTransactions,andDirectorIndependence
Theinformationrelatingtocertainrelationshipsandrelatedpartytransactionsanddirectorindependenceissetforthinthe2017ProxyStatementandisincorporatedhereinbyreference.
Item14.PrincipalAccountingFeesandServices
TheinformationrelatingtotheindependentregisteredpublicaccountingfirmfeesandservicesandtheCompany'spre-approvalpoliciesandproceduresforauditandnon-auditservicesprovidedbysuchaccountingfirmissetforthinthe2017ProxyStatementandisincorporatedhereinbyreference.
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PARTIV
Item15.ExhibitsandFinancialStatementSchedules
(a) (1)FinancialStatements
ThelistofconsolidatedfinancialstatementsandnotesrequiredbythisItem15(a)(1)issetforthinthe"IndextoFinancialStatements"onpageF-1ofthisAnnualReport.
(2) FinancialStatementSchedules
Allscheduleshavebeenomittedbecausetherequiredinformationisincludedinthefinancialstatementsornotesthereto.
(b) Exhibits
Theexhibitslistedinthe"IndextoExhibits"immediatelyprecedingtheexhibitsarefiledaspartofthisAnnualReport.
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SIGNATURES
PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,theregistranthasdulycausedthisreporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorizedonthe22nddayofFebruary2017.
PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisreporthasbeensignedbelowbythefollowingpersonsonbehalfoftheregistrantandinthecapacitiesandonthedatesindicated.
31
SUMMERINFANT,INC.
By: /s/MARKMESSNER
MarkMessnerChief Executive Officer
(Principal Executive Officer)
By: /s/WILLIAME.MOTE,JR.
WilliamE.Mote,Jr.Chief Financial Officer
(Principal Financial and Accounting Officer)
Name Title Date
/s/MARKMESSNER
MarkMessner ChiefExecutiveOfficer(PrincipalExecutive
Officer) February22,2017
/s/WILLIAME.MOTE,JR.
WilliamE.Mote,Jr. ChiefFinancialOfficer(PrincipalFinancialand
AccountingOfficer) February22,2017
/s/ROBINMARINO
RobinMarino ChairwomanoftheBoard February22,2017
/s/MARTINFOGELMAN
MartinFogelman Director February22,2017
/s/ALANMUSTACCHI
AlanMustacchi Director February22,2017
/s/ROBERTSTEBENNE
RobertStebenne Director February22,2017
/s/EVELYND'AN
EvelynD'An Director February22,2017
/s/STEPHENZELKOWICZ
StephenZelkowicz Director February22,2017
TableofContents
SummerInfant,Inc.andSubsidiariesIndextoFinancialStatements
F-1
ReportofIndependentRegisteredPublicAccountingFirm F-2ConsolidatedBalanceSheets F-3ConsolidatedStatementsofOperations F-4ConsolidatedStatementsofComprehensiveLoss F-5ConsolidatedStatementsofCashFlows F-6ConsolidatedStatementsofStockholders'Equity F-7NotestoConsolidatedFinancialStatements F-8-F-27
TableofContents
REPORTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM
TotheBoardofDirectorsandStockholdersSummerInfant,Inc.
WehaveauditedtheaccompanyingconsolidatedbalancesheetsofSummerInfant,Inc.andSubsidiariesasofDecember31,2016andJanuary2,2016,andtherelatedconsolidatedstatementsofoperations,comprehensiveloss,cashflows,andstockholders'equityfortheyearsthenended.ThesefinancialstatementsaretheresponsibilityoftheCompany'smanagement.Ourresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudits.
WeconductedourauditsinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheauditstoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatement.TheCompanyisnotrequiredtohave,norwereweengagedtoperform,anauditofitsinternalcontroloverfinancialreporting.Ourauditsincludedconsiderationofinternalcontroloverfinancialreportingasabasisfordesigningauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheCompany'scontrolsoverfinancialreporting.Accordingly,weexpressnosuchopinion.Anauditincludesexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements.Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallfinancialstatementpresentation.Webelievethatourauditsprovideareasonablebasisforouropinion.
Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,thefinancialpositionofSummerInfant,Inc.andSubsidiariesasofDecember31,2016andJanuary2,2016,andtheresultsoftheiroperationsandtheircashflowsfortheyearsthenended,inconformitywithU.S.generallyacceptedaccountingprinciples.
/s/RSMUSLLP
RSMUSLLPBoston,MassachusettsFebruary22,2017
F-2
TableofContents
SummerInfant,Inc.andSubsidiaries
ConsolidatedBalanceSheets
NotethatallamountspresentedinthetablebelowareinthousandsofU.S.dollars,exceptshareamountsandparvaluepershare.
Seenotestoconsolidatedfinancialstatements.
F-3
December31,
2016 January2,
2016 ASSETS CURRENTASSETS Cashandcashequivalents $ 999 $ 923Tradereceivables,netofallowancefordoubtfulaccountsof$59and$142atDecember31,2016andJanuary2,2016,respectively 34,137 40,514
Inventory,net 36,140 36,846Prepaidsandothercurrentassets 1,737 1,758TOTALCURRENTASSETS 73,013 80,041
Propertyandequipment,net 9,965 12,007Intangibleassets,net 14,813 18,512Deferredtaxassets,noncurrent 3,848 2,483Otherassets 98 95
TOTALASSETS $ 101,737 $ 113,138LIABILITIESANDSTOCKHOLDERS'EQUITY CURRENTLIABILITIES Accountspayable $ 30,684 $ 29,541Accruedexpenses 7,757 9,584Currentportionoflong-termdebtandcapitalleases 4,500 3,318TOTALCURRENTLIABILITIES 42,941 42,443
Long-termdebt,lesscurrentportionandunamortizeddebtissuancecosts 41,206 48,767Otherliabilities 2,770 2,962
TOTALLIABILITIES 86,917 94,172STOCKHOLDERS'EQUITY PreferredStock,$0.0001parvalue,1,000,000authorized,noneissuedoroutstandingatDecember31,2016andJanuary2,2016 — —
CommonStock$0.0001parvalue,authorized,issuedandoutstandingof49,000,000,18,778,266,and18,506,617atDecember31,2016and49,000,000,18,639,407and18,367,758atJanuary2,2016,respectively 2 2
TreasuryStockatcost(271,649sharesatDecember31,2016andJanuary2,2016) (1,283) (1,283)Additionalpaid-incapital 76,348 75,812Accumulateddeficit (57,385) (53,063)Accumulatedothercomprehensiveloss (2,862) (2,502)TOTALSTOCKHOLDERS'EQUITY 14,820 18,966
TOTALLIABILITIESANDSTOCKHOLDERS'EQUITY $ 101,737 $ 113,138
TableofContents
SummerInfant,Inc.andSubsidiaries
ConsolidatedStatementsofOperations
NotethatallamountspresentedinthetablebelowareinthousandsofU.S.dollars,exceptshareandpershareamounts.
Seenotestoconsolidatedfinancialstatements.
F-4
Forthefiscalyearended
December31,
2016 January2,
2016 Netsales $ 194,328 $ 205,804Costofgoodssold 132,577 143,854Grossprofit 61,751 61,950Generalandadministrativeexpenses 41,292 46,132Sellingexpenses 15,269 17,780Depreciationandamortization 5,011 6,780Impairmentofintangibleassets 2,993 —Operatingloss (2,814) (8,742)
Interestexpense,net 2,682 3,333Lossbeforeprovisionforincometaxes (5,496) (12,075)
Benefitforincometaxes (1,174) (3,424)NETLOSS $ (4,322) $ (8,651)
NetlosspershareBASICandDILUTED $ (0.23) $ (0.47)WeightedaveragesharesoutstandingBASICandDILUTED 18,440,436 18,267,596
TableofContents
SummerInfant,Inc.andSubsidiaries
ConsolidatedStatementsofComprehensiveLoss
NotethatallamountspresentedinthetablebelowareinthousandsofU.S.dollars.
Seenotestoconsolidatedfinancialstatements.
F-5
Forthefiscalyearended
December31,
2016 January2,
2016 Netloss $ (4,322) $ (8,651)Othercomprehensiveloss: Foreigncurrencytranslationadjustments (360) (1,092)
Comprehensiveloss $ (4,682) $ (9,743)
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SummerInfant,Inc.andSubsidiaries
ConsolidatedStatementsofCashFlows
NotethatallamountspresentedinthetablebelowareinthousandsofU.S.dollars.
Seenotestoconsolidatedfinancialstatements.
F-6
Forthefiscalyearended
December31,
2016 January2,
2016 Cashflowsfromoperatingactivities: Netloss $ (4,322) $ (8,651)Adjustmentstoreconcilenetlosstonetcashprovidedbyoperatingactivities: Impairmentofintangibleassets 2,993 —Depreciationandamortization 5,011 6,780Stock-basedcompensation 482 865Lossonassetdisposal 37 42Deferredincometaxes (1,384) (3,685)Changesinassetsandliabilities,netofeffectsofacquisitions Decrease(increase)inaccountsreceivable 6,151 (1,715)Decreaseininventory 344 7,170(Increase)decreaseinprepaidsandothercurrentassets (44) 250Decrease(increase)inotherassets 164 (342)(Decrease)increaseinaccountspayableandaccruedexpenses (644) 8,625
Netcashprovidedbyoperatingactivities 8,788 9,339Cashflowsfrominvestingactivities: Acquisitionsofpropertyandequipment (2,266) (3,033)Acquisitionsofotherintangibleassets — (472)Netcashusedininvestingactivities (2,266) (3,505)Cashflowsfromfinancingactivities: ProceedsfromNewTermLoanFacility — 10,000ProceedsfromNewFILOFacility — 5,000(Repayment)ofPriorTermLoan — (12,500)(Repayment)ofNewTermLoanFacility (1,500) (1,500)(Repayment)ofNewFILOFacility (1,250) —Net(repayments)borrowingsonrevolvingfacilities (3,798) (6,163)Issuanceofcommonstockuponexerciseofstockoptions — 47Netcashusedinfinancingactivities (6,548) (5,116)Effectofexchangeratechangesoncashandcashequivalents 102 (1,067)Netincrease(decrease)incashandcashequivalents 76 (349)Cashandcashequivalentsatbeginningofyear 923 1,272Cashandcashequivalentsatendofyear $ 999 $ 923Supplementaldisclosureofcashflowinformation: Cashpaidduringtheyearforinterest $ 1,963 $ 2,318Cashpaidduringtheyearforincometaxes $ 100 $ 158
TableofContents
ConsolidatedStatementsofStockholders'Equity
FortheFiscalYearsEndedDecember31,2016andJanuary2,2016
NotethatallamountspresentedinthetablebelowareinthousandsofU.S.dollars,exceptshareandpersharedata.
Seenotestoconsolidatedfinancialstatements.
F-7
CommonStock
AdditionalPaidinCapital
TreasuryStock
RetainedEarnings
AccumulatedComprehensive
Loss TotalEquity
Shares Amount BalanceatJanuary3,2015 18,144,285 $ 2 $ 74,954 $ (1,283) $ (44,412) $ (1,410) $ 27,851Issuanceofcommonstockuponvestingofrestrictedshares 198,473
Issuanceofcommonstockuponexerciseofstockoptions 25,000 — 47 47
Stock-basedcompensation 811 811Netlossfortheyear (8,651) (8,651)Foreigncurrencytranslationadjustment (1,092) (1,092)
BalanceatJanuary2,2016 18,367,758 $ 2 $ 75,812 $ (1,283) $ (53,063) $ (2,502) $ 18,966Issuanceofcommonstockuponvestingofrestrictedshares 138,859 80 80
Stock-basedcompensation 456 456Netlossfortheyear (4,322) (4,322)Foreigncurrencytranslationadjustment (360) (360)
BalanceatDecember31,2016 18,506,617 $ 2 $ 76,348 $ (1,283) $ (57,385) $ (2,862) $ 14,820
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES
Nature of Operations
TheCompanydesigns,marketsanddistributesbrandedjuvenilehealth,safetyandwellnessproductsthataresoldgloballytolargenationalretailersaswellasindependentretailers,primarilyinNorthAmerica.TheCompanycurrentlymarketsitsproductsinseveralproductcategoriesincludingmonitoring,safety,nursery,babygear,andfeedingproducts.MostproductsaresoldunderourcorebrandnamesofSummer®,SwaddleMe®,andBornFree®.
Basis of Presentation and Principles of Consolidation
ItistheCompany'spolicytoprepareitsfinancialstatementsontheaccrualbasisofaccountinginconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.Theconsolidatedfinancialstatementsincludetheaccountsofitswholly-ownedsubsidiaries.Allsignificantintercompanyaccountsandtransactionshavebeeneliminatedintheconsolidation.
AlldollaramountsincludedintheNotestoConsolidatedFinancialStatementsareinthousandsofU.S.dollarsexceptshareandpershareamounts.
Fiscal Year
TheCompany'sfiscalyearendsontheSaturdayclosesttoDecember31ofeachcalendaryear.TherewerefiftytwoweeksinthefiscalyearsendedDecember31,2016andJanuary2,2016.
SummaryofSignificantAccountingPolicies
Revenue Recognition
TheCompanyrecordsrevenuewhenallofthefollowingoccur:persuasiveevidenceofanarrangementexists,productdeliveryhasoccurred,thesalespricetothecustomerisfixedordeterminable,andcollectabilityisreasonablyassured.Salesarerecordednetofprovisionsforreturnsandallowances,customerdiscounts,andothersalesrelateddiscounts.TheCompanybasesitsestimatesfordiscounts,returnsandallowancesonnegotiatedcustomertermsandhistoricalexperience.Customersdonothavetherighttoreturnproductsunlesstheproductsaredefective.TheCompanyrecordsareductionofsalesforestimatedfuturedefectiveproductdeductionsbasedoncontractualtermsandhistoricalexperience.
SalesincentivesorotherconsiderationgivenbytheCompanytocustomersthatareconsideredadjustmentsofthesellingpriceofproducts,suchasmarkdowns,arereflectedasreductionsofrevenue.SalesincentivesandotherconsiderationthatrepresentcostsincurredbytheCompanyforassetsorservicesreceived,suchastheappearanceoftheCompany'sproductsinacustomer'snationalcircularad,arereflectedassellingandmarketingexpensesintheaccompanyingstatementsofoperations.
Use of Estimates
ThepreparationoffinancialstatementsinconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmericarequiresmanagementtomakeestimatesandassumptionsthataffectcertainreportedamountsanddisclosures.Theseestimatesarebasedonmanagement'sbestknowledgeofcurrenteventsandactionstheCompanymayundertakeinthefuture.Accordingly,actualresultscoulddifferfromthoseestimates.
F-8
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SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
Cash and Cash Equivalents
Cashflows,cashandcashequivalentsincludemoneymarketaccountsandinvestmentswithanoriginalmaturityofthreemonthsorless.Attimes,theCompanypossessescashbalancesinexcessoffederally-insuredlimits.
Trade Receivables
Tradereceivablesarecarriedattheiroutstandingunpaidprincipalbalancesreducedbyanallowancefordoubtfulaccounts.TheCompanyestimatesdoubtfulaccountsbasedonhistoricalbaddebts,factorsrelatedtospecificcustomers'abilitytopayandcurrenteconomictrends.TheCompanywritesoffaccountsreceivableagainsttheallowancewhenabalanceisdeterminedtobeuncollectible.Amountsareconsideredtobeuncollectablebaseduponhistoricalexperienceandmanagement'sevaluationofoutstandingaccountsreceivable.
Inventory Valuation
Inventoryiscomprisedmostlyoffinishedgoodsandsomecomponentpartsandisstatedatthelowerofcostusingthefirst-in,first-out(FIFO)method,ormarket(netrealizablevalue).TheCompanyregularlyreviewsslow-movingandexcessinventories,andwritesdowninventoriestonetrealizablevalueiftheultimateexpectednetproceedsfromthedisposalsofexcessinventoryarelessthanthecarryingcostofthemerchandise.
Property and Equipment
Propertyandequipmentarerecordedatcost.TheCompanyownsthetoolsandmoldsusedintheproductionofitsproductsbythirdpartymanufacturers.Capitalizedmoldcostsincludecostsincurredforthepre-productiondesignanddevelopmentofthemolds.
Depreciationisprovidedovertheestimatedusefullivesoftherespectiveassetsusingeitherstraight-lineoracceleratedmethods.
Long-Lived Assets with Finite Lives
TheCompanyreviewslong-livedassetswithfinitelivesforimpairment(usingthegroupconcept)whenevereventsorchangesincircumstancesindicatethatthecarryingamountofalong-livedassetmaynotberecoverable.Anassetisconsideredtobeimpairedwhenitscarryingamountexceedsboththesumoftheundiscountedfuturenetcashflowsexpectedtoresultfromtheuseoftheassetanditseventualdispositionandtheassets'fairvalue.Long-livedassetsincludepropertyandequipmentandfinite-livedintangibleassets.Theamountofimpairmentloss,ifany,ischargedbytheCompanytocurrentoperations.
Indefinite-Lived Intangible Assets
TheCompanyaccountsforintangibleassetsinaccordancewithaccountingguidancethatrequiresthatintangibleassetswithindefiniteusefullivesbetestedannuallyforimpairmentandmorefrequentlyifeventsorchangesincircumstancesindicatethattheassetmightbeimpaired.TheCompany'sannualimpairmenttestingisconductedinthefourthquarterofeveryyear.
F-9
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SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
TheCompanytestsindefinite-livedintangibleassetsforimpairmentbycomparingtheasset'sfairvaluetoitscarryingamount.Ifthefairvalueislessthanthecarryingamount,theexcessofthecarryingamountoverfairvalueisrecognizedasanimpairmentchargeandtheadjustedcarryingamountbecomestheassets'newcostbasis.
Managementalsoevaluatestheremainingusefullifeofanintangibleassetthatisnotbeingamortizedeachreportingperiodtodeterminewhethereventsandcircumstancescontinuetosupportanindefiniteusefullife.Ifanintangibleassetthatisnotbeingamortizedissubsequentlydeterminedtohaveafiniteusefullife,itisamortizedprospectivelyoveritsestimatedremainingusefullife.
FortheyearendedDecember31,2016,theCompanydeterminedthatcertainindefinite-livedintangibleassetswereimpaired.FortheyearendedJanuary2,2016,theCompanydeterminedthatnoimpairmentexistedonitsindefinite-livedintangibleassets.SeeNote3foradiscussiononthefiscalyear2016impairmentcharge.
Fair Value Measurements
TheCompanyfollowsASC820,"FairValueMeasurementsandDisclosures"whichincludesaframeworkformeasuringfairvalueandexpandedrelateddisclosures.Broadly,theframeworkrequiresfairvaluetobedeterminedbasedontheexchangepricethatwouldbereceivedforanassetorpaidtotransferaliability(anexitprice)intheprincipalormostadvantageousmarketfortheassetorliabilityinanorderlytransactionbetweenmarketparticipants.Thestandardestablishedathree-levelvaluationhierarchybaseduponobservableandnon-observableinputs.
Observableinputsreflectmarketdataobtainedfromindependentsources,whileunobservableinputsreflectourmarketassumptions.Preferenceisgiventoobservableinputs.Thesetwotypesofinputscreatethefollowingfairvaluehierarchy:
Level1—Quotedpricesforidenticalinstrumentsinactivemarkets.
Level2—Quotedpricesforsimilarinstrumentsinactivemarkets;quotedpricesforidenticalorsimilarinstrumentsinmarketsthatarenotactive;andmodel-derivedvaluationswhoseinputsareobservableorwhosesignificantvaluedriversareobservable.
Level3—Significantinputstothevaluationmodelareunobservable.
TheCompanymaintainspoliciesandprocedurestovalueinstrumentsusingthebestandmostrelevantdataavailable.Inaddition,theCompanyutilizesthirdpartyspecialiststhatreviewvaluation,includingindependentpricevalidation.
TheCompany'sfinancialinstrumentsincludecashandcashequivalents,accountsandnotesreceivable,accountspayable,accruedexpenses,andshortandlong-termborrowings.Becauseoftheirshortmaturity,thecarryingamountsofcashandcashequivalents,accountsandnotesreceivable,accountspayable,accruedexpensesandshort-termborrowingsapproximatefairvalue.Thecarryingvalueoflong-termborrowingsapproximatesfairvalue.
Non-recurring Fair Value Measurements
TheCompany'sassetsmeasuredatfairvalueonanonrecurringbasisincludelong-livedassetsandintangibleassets.TheCompanytestsitslong-livedassetsforimpairmentatleastannuallyandwhenever
F-10
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
eventsorchangesincircumstancesindicatethatthecarryingvaluemaynotberecoverableorthatthecarryingvaluemayexceeditsfairvalue.TheresultingfairvaluemeasurementsareconsideredtobeLevel3inputs.Duringthefourthquarteroffiscal2016,theCompanydeterminedthattheestimatedfairvalueofanindefinitelivedassetwaslowerthanitscarryingvalueandtheCompanyrecordedanon-cashimpairmentchargeof$2,993whichreducedthevalueoftheintangibleassettoapproximately$915,asmorefullydescribedin"Note3totheConsolidatedFinancialStatements—IntangibleAssets."TheCompanydidnotincuranimpairmentchargeinfiscal2015.
Income taxes
Incometaxesarecomputedusingtheassetandliabilitymethodofaccounting.Undertheassetandliabilitymethod,adeferredtaxassetorliabilityisrecognizedforestimatedfuturetaxeffectsattributabletotemporarydifferencesandcarryforwards.Themeasurementofdeferredincometaxassetsisadjustedbyavaluationallowance,ifnecessary,torecognizefuturetaxbenefitsonlytotheextent,basedonavailableevidence,itismorelikelythannotthatsuchbenefitswillberealized.
TheCompanyfollowstheapplicableguidancerelativetouncertaintaxpositions.Thisstandardprovidesdetailedguidanceforthefinancialstatementrecognition,measurementanddisclosureofuncertaintaxpositionsrecognizedinthefinancialstatements.Uncertaintaxpositionsmustmeetarecognitionthresholdofmore-likely-than-notinorderforthosetaxpositionstoberecognizedinthefinancialstatements.
Translation of Foreign Currencies
TheassetsandliabilitiesoftheCompany'sEuropean,Canadian,Israeli,andAsianoperationshavebeentranslatedintoU.S.dollarsatyear-endexchangeratesandtheincomeandexpenseaccountsofthesesubsidiarieshavebeentranslatedataverageratesprevailingduringeachrespectiveyear.Resultingtranslationadjustmentsaremadetoaseparatecomponentofstockholders'equitywithinaccumulatedothercomprehensiveloss.Foreignexchangetransactiongainsandlossesareincludedintheaccompanyingconsolidatedstatementsofoperations.
Shipping Costs
Shippingcoststocustomersareincludedinsellingexpensesandamountedtoapproximately$1,477and$1,882forthefiscalyearsendedDecember31,2016andJanuary2,2016,respectively.
Advertising Costs
TheCompanychargesadvertisingcoststosellingexpenseasincurred.Advertisingexpense,whichconsistsprimarilyofpromotionalandcooperativeadvertisingallowancesprovidedtocustomers,wasapproximately$12,863and$14,743forthefiscalyearsendedDecember31,2016andJanuary2,2016,respectively.
Segment Information
Operatingsegmentsareidentifiedascomponentsofanenterpriseaboutwhichseparate,discretefinancialinformationisavailableforevaluationbythechiefoperatingdecision-maker,ordecision-makinggroup,inmakingdecisionsonhowtoallocateresourcesandassessperformance.TheCompany
F-11
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SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
viewsitsoperationsandmanagesitsbusinessasoneoperatingsegmentutilizinganomni-channeldistributionstrategy.
Net Loss Per Share
Basicearningspershareiscalculatedbydividingnetlossfortheperiodbytheweightedaveragenumberofcommonstockoutstandingduringtheperiod.
DilutedlosspersharefortheCompanyiscomputedbydividingnetlossbythedilutiveweightedaveragesharesoutstandingwhichincludes:thedilutiveimpact(usingthe"treasurystock"method)of"inthemoney"stockoptionsandunvestedrestrictedsharesissuedtoemployees.Optionstopurchase1,023,825and1,380,147sharesoftheCompany'scommonstockand268,432and197,572ofrestrictedshareswerenotincludedinthecalculation,duetothefactthattheseinstrumentswereanti-dilutiveforthefiscalyearsendedDecember31,2016andJanuary2,2016,respectively.
New Accounting Pronouncements
InMay2014,theFASBissuednewaccountingguidancerelatedtorevenuerecognition.ThisguidancewasoriginallyproposedtobeeffectiveforreportingperiodsbeginningafterDecember15,2016,howeverinJuly2015,theFASBapprovedthedelayinthisguidanceuntilreportingperiodsbeginningafterDecember15,2017.Wearestillfinalizingtheanalysistoquantifytheadoptionimpactoftheprovisionsofthenewstandard,butwedonotcurrentlyexpectittohaveamaterialimpactonourconsolidatedfinancialpositionorresultsofoperations.Basedontheevaluationofourcurrentcontractsandrevenuestreams,mostwillberecordedconsistentlyunderboththecurrentandnewstandard.TheFASBhasissued,andmayissueinthefuture,interpretiveguidancewhichmaycauseourevaluationtochange.Webelievewearefollowinganappropriatetimelinetoallowforproperrecognition,presentationanddisclosureuponadoptioneffectivethebeginningoffiscalyear2018.
InApril2015,theFASBissuedASU2015-03,"Interest-ImputationofInterest(Subtopic835-30):SimplifyingthePresentationofDebtIssuanceCosts."Thisguidancerequiresdebtissuancecostsrelatedtoarecognizeddebtliabilitybepresentedinthebalancesheetasadirectdeductionfromthecarryingamountofthedebtliability.ThisguidanceiseffectiveforfiscalyearsbeginningafterDecember15,2015.TheCompanyadoptedthisguidanceinthefirstquarterof2016anditresultedintheretrospectivereclassificationof$1,489asofJanuary2,2016inunamortizeddebtissuancecostsfromotherassetstoadirectreductionoflong-termdebt.
InJuly2015,theFASBissuedASU2015-11,"SimplifyingtheMeasurementofInventory."ThisguidancerequiresinventorywithinthescopeofASU2015-11tobemeasuredatthelowerofcostandnetrealizablevalue.Netrealizablevalueisdefinedastheestimatedsellingpriceintheordinarycourseofbusiness,lessreasonablypredictablecostsofcompletion,disposal,andtransportation.ThisguidanceiseffectiveforfiscalyearsbeginningafterDecember15,2016.TheCompanyhasevaluatedtheimpactthisguidancewillhaveonitsconsolidatedfinancialstatementsandexpectstheimpacttobeimmaterial.
InNovember2015,theFASBissuedASU2015-17,"IncomeTaxes(Topic740):BalanceSheetClassificationofDeferredTaxes."Thisguidanceeliminatesthecurrentrequirementforanentitytoseparatedeferredincometaxliabilitiesanddeferredtaxassetsintocurrentandnon-currentamountsinaclassifiedbalancesheet.Instead,thisguidancerequiresdeferredtaxliabilities,deferredtaxassets,and
F-12
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SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
valuationallowancesbeclassifiedasnoncurrentinaclassifiedbalancesheet.ThisASUiseffectiveforannualreportingperiodsbeginningafterDecember15,2016andinterimperiodswithinthoseannualperiods.Earlyadoptionispermitted.TheCompanyadoptedthisguidanceinthefirstquarterof2016anditresultedintheretrospectivereclassificationof$799asofJanuary2,2016incurrentdeferredtaxassetstononcurrentdeferredtaxassets.
InFebruary2016,theFASBissuedASU2016-02,"Leases(Topic842),"("ASU2016-02").ASU2016-02requireslesseestorecognizeassetsandliabilitiesonthebalancesheetforleaseswithleasetermsgreaterthantwelvemonthsanddisclosekeyinformationaboutleasingarrangements.Theeffectivedatewillbethefirstquarteroffiscalyear2019,withearlyadoptionpermitted.TheCompanyisevaluatingtheimpactthatadoptionofthisnewstandardwillhaveonitsconsolidatedfinancialstatements.
InAugust2016,theFASBissuedASU2016-15,"StatementofCashFlows(Topic230):ClassificationofCertainCashReceiptsandCashPayments(AConsensusoftheFASBEmergingIssuesTaskForce).Inanefforttoreducediversityinpractice,ASU2016-15providessolutionsforeightspecificstatementofcashflowclassificationissues.TheASUiseffectiveforpubliccompaniesbeginningafterDecember15,2017,andinterimperiodswithinthosefiscalyears.Earlyadoptionispermitted,includingadoptioninaninterimperiod.TheCompanyhasevaluatedtheimpactthisguidancewillhaveonitsconsolidatedfinancialstatementsandexpectstheimpacttobeimmaterial.
Managementdoesnotbelievethatanyotherrecentlyissued,butnotyeteffective,accountingstandardsifcurrentlyadoptedwouldhaveamaterialeffectontheaccompanyingfinancialstatements.
2.PROPERTYANDEQUIPMENT
Propertyandequipment,atcost,consistedofthefollowing:
Propertyandequipmentincludedamountsacquiredundercapitalleasesofapproximately$0and$470atDecember31,2016andJanuary2,2016,respectively,withrelatedaccumulateddepreciationofapproximately$0and$257,respectively.Totaldepreciationexpensewas$4,304and$4,142forthefiscalyearsendedDecember31,2016andJanuary2,2016,respectively.
F-13
Forthefiscalyear
ended
December31,
2016 January2,
2016 Depreciation/
AmortizationPeriodComputer-related $ 3,861 $ 6,327 5yearsTools,dies,prototypes,andmolds 28,342 31,052 1-5yearsBuilding 4,156 4,156 30yearsOther 6,145 5,793 various
42,504 47,328 Less:accumulateddepreciation 32,539 35,321
Propertyandequipment,net $ 9,965 $ 12,007
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SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
3.INTANGIBLEASSETS
Intangibleassetsconsistedofthefollowing:
Theamortizationperiodforthemajorityoftheintangibleassetsrangesfrom5to20yearsforthoseassetsthathaveanestimatedlife;certainassetshaveindefinitelives(certainbrandnames).Totalofintangiblesnotsubjecttoamortizationamountedto$8,400and$12,308forthefiscalyearsendedDecember31,2016andJanuary2,2016,respectively.
Amortizationexpenseamountedto$707and$2,638forthefiscalyearsendedDecember31,2016andJanuary2,2016,respectively.InthefourthquarteroftheyearendedJanuary2,2016,theCompanyrecorded$1,532ofacceleratedamortizationduetotheshortenedestimatedusefullifeonoldertechnologyaswemovedtoournextgenerationoftechnologythatwasbeingdevelopedinourproductlines.
TheCompanyundertookitsannualindefinite-livedintangibleassetimpairmentanalysisandengagedathirdpartytoassistmanagementinvaluingtheinfinitelivedintangibleassetsrecordedonthebalancesheetinthefourthquarteroffiscal2016.TheCompanydeterminedthattheestimatedfairvalueofthatindefinitelivedassetwaslowerthanitscarryingvalue,andtheCompanyrecordedanon-cashimpairmentchargeof$2,993infiscal2016.Inaddition,theCompanydeemedtheremainingvalueoftheindefinitelivedassettohaveafinitelifesubjecttoamortizationoveritsremainingusefullifeestimatedtobe15years.ThiswasachangeinestimateandthefinancialimpactwaszeroasofDecember31,2016.TheCompanyalsoconsideredwhetherotherlong-livedassetsintheassetgroupwereimpairedandconcludedthattheywerenot.NoimpairmentwasrecordedforthefiscalyearendedJanuary2,2016.
Estimatedamortizationexpensefortheremainingindefinite-livedassetsforthenextfiveyearsisasfollows:
F-14
Forthe
fiscalyearended
December31,
2016 January2,
2016 Brandnames $ 11,819 $ 14,812Patentsandlicenses 3,766 3,766Customerrelationships 6,946 6,946Otherintangibles 1,882 1,882
24,413 27,406Less:accumulatedamortization (9,600) (8,894)Intangibleassets,net $ 14,813 $ 18,512
FiscalYearending 2017 $ 7672018 7462019 7382020 4882021 488
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
4.DEBT
Credit Facilities
InApril2015,theCompanyanditswhollyownedsubsidiary,SummerInfant(USA),Inc.,enteredintoanamendedandrestatedloanandsecurityagreementwithBankofAmerica,N.A.,asagent,providingforanasset-basedcreditfacility.TheamendedandrestatedCreditFacilityreplacedtheCompany'spriorcreditfacilitywithBankofAmerica.TheamendedandrestatedcreditfacilitywassubsequentlyamendedinDecember2015andMay2016to(i)modifytheinterestrateundereachoftheRevolvingFacility,FILOFacilityandTermLoanFacility(eachasdefinedbelow),(ii)modifythemaximumleverageratiofinancialcovenant;(iii)amendthedefinitionofEBITDAwithrespecttocertainfeesandexpensesincludedwithinthedefinition;(iv)modifycertainreportingrequirementsand(v)removetheoccurrenceofaneventhavingamaterialadverseeffectontheCompanyasaneventofdefault(asamended,the"CreditFacility").
TheCreditFacilityconsistsofa$60,000asset-basedrevolvingcreditfacility,witha$10,000letterofcreditsub-linefacility(the"RevolvingFacility"),a$5,000"firstinlastout"(FILO)revolvingcreditfacility(the"FILOFacility")anda$10,000termloanfacility(the"TermLoanFacility").Pursuanttoanaccordionfeature,theCreditFacilityincludestheabilitytoincreasetheRevolvingFacilitybyanadditional$15,000upontheCompany'srequestandtheagreementofthelendersparticipatingintheincrease.ThetotalborrowingcapacityundertheRevolvingFacilityisbasedonaborrowingbase,generallydefinedas85%ofthevalueofeligibleaccountsplusthelesserof(i)70%ofthevalueofeligibleinventoryor(ii)85%ofthenetorderlyliquidationvalueofeligibleinventory,lessreserves.ThetotalborrowingcapacityundertheFILOFacilityisbasedonaborrowingbase,generallydefinedasaspecifiedpercentageofthevalueofeligibleaccountsthatstepsdownovertime,plusaspecifiedpercentageofthevalueofeligibleinventorythatstepsdownovertime.
ThescheduledmaturitydateoftheloansundertheRevolvingFacilityandtheTermLoanFacilityisApril21,2020,andloansundertheFILOFacilityterminateApril21,2018,subjectineachcasetocustomaryearlyterminationprovisions.AnyterminationoftheRevolvingFacilitywouldrequireterminationoftheTermLoanFacilityandtheFILOFacility.
AllobligationsundertheCreditFacilityaresecuredbysubstantiallyalloftheCompany'sassets.Inaddition,SummerInfantCanadaLimitedandSummerInfantEuropeLimited,subsidiariesoftheCompany,areguarantorsundertheCreditFacility.Proceedsfromtheloanswereusedto(i)repaytheCompany'sthenoutstandingtermloan,(ii)payfeesandtransactionexpensesassociatedwiththeclosingoftheCreditFacility,(iii)payobligationsundertheCreditFacility,and(iv)payforlawfulcorporatepurposes,includingworkingcapital.
BorrowingsundertheRevolvingFacilitybearinterest,attheCompany'soption,atabaserateoratLIBOR,plusapplicablemarginsbasedonaveragequarterlyavailabilityandrangingbetween2.0%and2.5%onLIBORborrowingsand0.5%and1.0%onbaserateborrowings.LoansundertheFILOFacilityandTermLoanFacilitywillbearinterest,attheCompany'soption,atabaserateoratLIBOR,plusamarginof4.25%onLIBORborrowingsand2.75%onbaserateborrowings.
BeginningonJuly1,2015,theCompanywasrequiredtobeginrepayingtheTermLoanFacilityinquarterlyinstallmentsof$500.BeginningwiththefiscalyearendingJanuary2,2016,theCompanywasrequiredtoprepaytheTermLoanFacilityinanamountequalto50%oftheCompany's"excesscashflow,"assuchtermisdefinedintheCreditFacility,attheendofeachfiscalyear.
F-15
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SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
4.DEBT(Continued)
UndertheCreditFacility,theCompanymustcomplywithcertainfinancialcovenants,includingthattheCompany(i)maintainafixedchargecoverageratioofatleast1.0to1.0forthetwelveconsecutivefiscalmonthsmostrecentlyendedand(ii)maintainacertainleverageratioattheendofeachfiscalquarter.Forpurposesofthefinancialcovenants,consolidatedEBITDAisdefinedasnetincomebeforeinterest,taxes,depreciationandamortization,pluscertaincustomaryexpenses,fees,non-cashchargesandupto$2,000ofspecifiedinventorydispositionsin2015,andminuscertaincustomarynon-cashitemsincreasingnetincomeandotherspecifieditems.
TheCreditFacilitycontainscustomaryaffirmativeandnegativecovenants.Amongotherrestrictions,theCompanyisrestrictedinitsabilitytoincuradditionaldebt,makeacquisitionsorinvestments,disposeofassets,ormakedistributionsunlessineachcasecertainconditionsaresatisfied.TheCreditFacilityalsocontainscustomaryeventsofdefault,includingtheoccurrenceofachangeofcontrol.Intheeventofadefault,alloftheCompany'sobligationsundertheCreditFacilitymaybedeclaredimmediatelydueandpayable.Forcertaineventsofdefaultrelatingtoinsolvencyandreceivership,alloutstandingobligationsimmediatelybecomedueandpayable.
AsofDecember31,2016,therateonbase-rateloanswas4.75%andtherateonLIBOR-rateloanswas3.375%.TheamountoutstandingontheRevolvingFacilityatDecember31,2016was$36,182.TotalborrowingcapacityundertheRevolvingFacilityatDecember31,2016was$47,196andborrowingavailabilitywas$11,014.TheamountsoutstandingontheTermLoanFacilityandFILOFacilityatDecember31,2016were$7,000and$3,750,respectively.
AggregatematuritiesofbankdebtrelatedtotheBofAcreditfacility:
Unamortizeddebtissuancecostswere$1,226atDecember31,2016and$1,489atJanuary2,2016,andarepresentedasadirectdeductionoflong-termdebtontheconsolidatedbalancesheets.
Subsequenttofiscalyearend,onFebruary17,2017,theCompanyamendedtheCreditFacilitytoprovideadditionalflexibilityunderitscovenantrequirementstotheCompanyduringfiscal2017.SeeNote12foradditionalinformationregardingtheamendment.
Prior Credit Facility and Term Loan
TheCreditFacilityreplacedtheCompany'spriorcreditfacilitywithBankofAmericaandtheCompany'spriortermloanagreementwithSalusCapitalPartners,LLC.PriortoApril2015,theCompanyhadaloanandsecurityagreementwithBankofAmericaN.A.thatprovidedforan$80,000,asset-basedrevolvingcreditfacility,witha$10,000letterofcreditsub-linefacility.
TheCompanyevaluatedtheCreditFacility,bylender,todeterminetheproperaccountingtreatmentforthetransaction.Accordingly,debtextinguishmentaccountingwasusedtoaccountforthepayoffofthepriortermloanagreementwithSalusCapitalPartners,LLCandforthepayoffofa
F-16
FiscalYearending: 2017 $ 4,5002018 3,2502019 2,0002020 37,182Total $ 46,932
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SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
4.DEBT(Continued)
memberofthepriorcreditfacilitywithBankofAmericawhodidnotcontinueintheCreditFacilityresultinginthewriteoffof$549inremainingunamortizeddeferredfinancingcostsand$135interminationfees.Debtmodificationaccountingwasusedfortheremainingmembersofthepriorcreditfacilityresultingintheirremainingunamortizeddeferredfinancingcostsof$601andthenewfinancingcostsof$1,134tobecapitalizedandamortizedoverthelifeofthenewdebtbeginninginthesecondquarteroffiscal2015.
Sale-Leaseback
OnMarch24,2009,SummerInfant(USA),Inc.,theCompany'swhollyownedsubsidiary("SummerUSA"),enteredintoadefinitiveagreementwithFaithRealtyII,LLC,aRhodeIslandlimitedliabilitycompany("FaithRealty")(themembersofwhichareJasonMacari,theformerChiefExecutiveOfficeroftheCompanyandcurrentinvestor,andhisspouse),pursuanttowhichFaithRealtypurchasedthecorporateheadquartersoftheCompanylocatedat1275ParkEastDrive,Woonsocket,RhodeIsland(the"Headquarters"),for$4,052andsubsequentlyleasedtheHeadquartersbacktoSummerUSAforanannualrentof$390duringtheinitialsevenyeartermofthelease,payablemonthlyandinadvance.Theoriginalleasewastoexpireontheseventhanniversaryofitscommencement.Mr.MacarihadgivenapersonalguaranteetosecuretheFaithRealtydebtonitsmortgage;therefore,duetohiscontinuinginvolvementinthebuildingtransaction,thetransactionhadbeenrecordedasafinancinglease,withnogainrecognition.
OnFebruary25,2009,theCompany'sBoardofDirectors(withMr.Macariabstainingfromsuchaction)approvedthesaleleasebacktransaction.Inconnectiontherewith,theBoardofDirectorsgrantedapotentialwaiver,totheextentnecessary,ifatall,oftheconflictofinterestprovisionsoftheCompany'sCodeofEthics,effectiveuponexecutionofdefinitiveagreementswithintheparametersapprovedbytheBoard.Inconnectionwithgrantingsuchpotentialwaiver,theBoardofDirectorsengagedindependentcounseltoreviewthesaleleasebacktransactionandanindependentappraisertoascertain(i)thevalueoftheHeadquartersand(ii)themarketrentfortheHeadquarters.InreachingitsconclusionthatthesaleleasebacktransactionisfairtotheCompany,theBoardofDirectorsconsideredanumberoffactors,includingSummerUSA'sabilitytorepurchasetheheadquartersat110%oftheinitialsalepriceattheendoftheinitialterm.TheCompany'sAuditCommitteeapprovedthesaleleasebacktransaction(asarelatedpartytransaction)andthepotentialwaiverandrecommendedthemattertoavoteoftheentireBoardofDirectors(whichapprovedthetransaction).
OnMay13,2015,SummerUSAenteredintoanamendment(the"Amendment")toitsleasedatedMarch24,2009(the"Lease")withFaithRealty(the"Landlord").PursuanttotheAmendment,(i)theinitialtermoftheLeasewasextendedfortwoadditionalyears,suchthattheinitialtermnowendsonMarch31,2018,andthetermoftheLeasemaybeextendedatSummerUSA'selectionforoneadditionaltermofthreeyears(ratherthanfiveyears)upontwelvemonths'priornotice,(ii)theannualrentforthelasttwoyearsofthenewlyamendedinitialtermwassetat$429andtheannualrentfortheextensionperiod,ifelected,wassetat$468and(iii)theLandlordagreedtoprovideanaggregateimprovementallowanceofnotmorethan$78forthenewlyamendedinitialterm,tobeappliedagainstSummerUSA'smonthlyrent,andanadditionalimprovementallowanceof$234fortheextensionterm,ifelected,tobeappliedagainstSummerUSA'smonthlyrentduringsuchextensionterm.TheAmendmentwasreviewedandapprovedbytheauditcommitteebecauseitwasarelatedpartytransaction.
F-17
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SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
4.DEBT(Continued)
AtDecember31,2016,approximately$404oftheleaseobligationwasincludedinaccruedexpenses,withthebalanceofapproximately$2,429includedinotherliabilities,intheaccompanyingconsolidatedbalancesheet.Thisobligationisreducedeachmonth(alongwithachargetointerestexpense)astherentpaymentismadetoFaithRealty.
Approximatefutureminimumsale-leasebackpaymentsdueundertheleaseisasfollows:
5.INCOMETAXES
Theprovision(benefit)forincometaxesissummarizedasfollows:
F-18
FiscalYearEnding: 2017 $ 4292018 1072019andbeyond —Total $ 536
Fiscal2016 Fiscal2015 Current: Federal $ — $ (150)Foreign 185 389Stateandlocal 6 5
Totalcurrent 191 244Deferred: Federal $ (406) $ (3,386)Foreign (910) 175Stateandlocal (49) (457)
Totaldeferred (1,365) (3,668)Totalbenefit $ (1,174) $ (3,424)
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SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
5.INCOMETAXES(Continued)
Thetaxeffectsoftemporarydifferencesthatcomprisethedeferredtaxliabilitiesandassetsareasfollows:
ThefollowingreconcilesthebenefitforincometaxesattheU.S.federalincometaxstatutoryratetothebenefitintheconsolidatedfinancialstatements:
TheCompanyhadundistributedearningsfromcertainforeignsubsidiaries(SummerInfantAsia,SummerInfantAustralia,andBornFreeHoldings,Ltd)ofapproximately$12,588atDecember31,2016,andalloftheseearningsareconsideredtobepermanentlyreinvestedduetotheCompany'splanstoreinvestsuchearningsforfutureexpansionincertainforeignjurisdictions.EarningsandprofitsfromSummerInfantEuropeandSummerInfantCanadaarenotconsideredtobepermanentlyreinvestedduetothebankrefinancingasdiscussedinNote4—Debt.Theamountoftaxesattributabletothepermanentlyreinvestedundistributedearningsisnotpracticablydeterminable.
AsofDecember31,2016,theCompanyhasapproximately$7,016,000offederalandstatenetoperatinglosscarryforwards(or"NOLs")tooffsetfuturefederaltaxableincome.ThefederalNOL
F-19
December31,
2016 January2,
2016 Deferredtaxassets: Accountsreceivable $ 17 $ 7InventoryandUnicapreserve 676 689Researchanddevelopmentcredit,foreigntaxcreditandnetoperatinglosscarry-forward 7,658 7,183
Other 102 103Totaldeferredtaxassets 8,453 7,982Deferredtaxliabilities: Intangibleassetsandother (2,595) (3,233)Property,plantandequipment (653) (748)
Totaldeferredtaxliabilities (3,248) (3.981)Valuationallowance (1,357) (1,518)Deferredtaxliabilitiesandvaluationallowance (4,605) (5,499)Netdeferredincometaxasset $ 3,848 $ 2,483
Fiscal2016 Fiscal2015 Taxbenefitatstatutoryrate $ (1,869) $ (4,093)Stateincometaxes,netofU.S.federalincometaxbenefit (28) (298)Adjustmenttouncertaintaxposition 14 327Stockoptions 70 92Foreigntaxratedifferential 133 289Taxcredits (123) (150)Non-deductibleexpenses 498 438Other 131 (29)Totalbenefit $ (1,174) $ (3,424)
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SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
5.INCOMETAXES(Continued)
willbegintoexpirein2028andthestateNOLbegantoexpirein2016.TheCompanyalsohasapproximately$1,839,$530,and$708ofNOLsinCanada,Australia,andtheUnitedKingdom,whichcanbecarriedforwardindefinitely.
Authoritativeguidancerequiresavaluationallowancetoreducethedeferredtaxassetsreported,ifbasedontheweightoftheevidence,itismorelikelythannotthatsomeportionorallofthedeferredtaxassetswillnotberealized.Afterconsiderationofallevidence,includingtheCompany'spastearningshistoryandfutureearningsforecast,managementhasdeterminedthatavaluationallowanceintheamountof$1,357relatingtocertainstatetaxcreditsisnecessaryatDecember31,2016and$1,518atJanuary2,2016.
AsummaryoftheCompany'sadjustmenttoitsuncertaintaxpositionsinfiscalyearsendedDecember31,2016andJanuary2,2016areasfollows:
Theunrecognizedtaxbenefitsmentionedaboveincludeanaggregateof$58ofaccruedinterestandpenaltybalancesrelatedtouncertaintaxpositions.TheCompanyrecognizesinterestandpenaltiesrelatedtouncertaintaxpositionsinincometaxexpense.Anincreaseinaccruedinterestandpenaltychargesofapproximately$14,netoffederaltaxexpense,wasrecordedasataxexpenseduringthecurrentfiscalyear.TheCompanydoesnotanticipatethatitsaccrualforuncertaintaxpositionswillbereducedbyamaterialamountoverthenexttwelvemonthperiod,asitdoesnotexpecttosettleanypotentialdisputeditemswiththeappropriatetaxingauthoritiesnordoesitexpectthestatuteoflimitationstoexpireforanyitems.
TheCompanyissubjecttoU.S.federalincometax,aswellastoincometaxofmultiplestateandforeigntaxjurisdictions.Onaglobalbasis,theopentaxyearssubjecttoexaminationbymajortaxingjurisdictionsinwhichtheCompanyoperatesisbetweentwotosixyears.
6.SHAREBASEDCOMPENSATION
TheCompanyisauthorizedtoissueupto3,000,000sharesforequityawardsundertheCompany's2006PerformanceEquityPlan("2006Plan")and1,700,000sharesforequityawardsundertheCompany's2012IncentiveCompensationPlan(asamended,"2012Plan").Periodically,theCompanyalsoprovidesequityawardsoutsideoftheplans.
F-20
December31,
2016 January2,
2016 Balance,atbeginningoftheyear $ 327 $ —Increasefortaxpositionsrelatedtothecurrentyear — —Increasefortaxpositionsrelatedtoprioryears — 283Increaseforinterestandpenalties 14 44Decreaseforlapsesofstatuteoflimitations — —
Balance,atendofyear $ 341 $ 327
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SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
6.SHAREBASEDCOMPENSATION(Continued)
Underthe2006Planand2012Plan,awardsmaybegrantedtoparticipantsintheformofnon-qualifiedstockoptions,incentivestockoptions,restrictedstock,deferredstock,restrictedstockunitsandotherstock-basedawards.SubjecttotheprovisionsofthePlans,awardsmaybegrantedtoemployees,officers,directors,advisorsandconsultantswhoaredeemedtohaverenderedorareabletorendersignificantservicestotheCompanyoritssubsidiariesandwhoaredeemedtohavecontributedortohavethepotentialtocontributetotheCompany'ssuccess.TheCompanyaccountsforoptionsunderthefairvaluerecognitionstandard.Theapplicationofthisstandardresultedinshare-basedcompensationexpenseforthetwelvemonthsendedDecember31,2016andJanuary2,2016of$482and$865,respectively.Sharebasedcompensationexpenseisincludedinselling,generalandadministrativeexpenses.
AsofDecember31,2016,thereare561,729sharesavailabletograntunderthe2006Planand1,393,797sharesavailabletograntunderthe2012Plan.
Stock Options
ThefairvalueofeachoptionawardisestimatedonthedateofgrantusingtheBlack-Scholesoptionvaluationmodelthatusestheassumptionsnotedinthetablebelow.TheCompanyusesthesimplifiedmethodtoestimatetheexpectedtermoftheoptionsforgrantsof"plainvanilla"stockoptionsasprescribedbytheSecuritiesandExchangeCommission.Forfeituresareestimatedatthetimeofgrantandrevised,ifnecessary,insubsequentperiodsifactualforfeituresdifferfromthoseestimates.Share-basedcompensationexpenserecognizedintheconsolidatedfinancialstatementsinfiscal2016and2015isbasedonawardsthatareultimatelyexpectedtovest.
ThefollowingtablesummarizestheweightedaverageassumptionsusedforoptionsgrantedduringthefiscalyearsendedDecember31,2016andJanuary2,2016.
Theweighted-averagegrantdatefairvalueofoptionsgrantedduringtheyearendedDecember31,2016was$0.92persharewhichtotaled$316forthe343,300optionsgrantedduringsuchperiod.DuringtheyearendedJanuary2,2016,theweighted-averagegrantdatefairvalueofoptionsgrantedwas$1.58persharewhichtotaled$767forthe485,750optionsgrantedduringtheyear.
F-21
Fiscal2016
Fiscal2015
Expectedlife(inyears) 5.1 5.3Risk-freeinterestrate 1.3% 1.6%Volatility 70.8% 67.4%Dividendyield 0.0% 0.0%Forfeiturerate 21.0% 16.5%
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SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
6.SHAREBASEDCOMPENSATION(Continued)
AsummaryofthestatusoftheCompany'soptionsasofDecember31,2016andchangesduringtheyearthenendedispresentedbelow:
OutstandingstockoptionsexpectedtovestasofDecember31,2016is882,342.Theintrinsicvalueofoptionsexercisedtotaledwaszeroand$27forthefiscalyearsendedDecember31,2016andJanuary2,2016,respectively.
ThefollowingtablesummarizesinformationaboutstockoptionsatDecember31,2016:
TheaggregateintrinsicvalueofoptionsoutstandingandexercisableatDecember31,2016andJanuary2,2016are$9and$36,respectively.AsofDecember31,2016,therewasapproximately$322ofunrecognizedcompensationcostrelatedtonon-vestedstockoptionawards,whichisexpectedtoberecognizedoveraremainingweighted-averagevestingperiodof2.7years.
Restricted Stock Awards
Restrictedstockawardsrequirenopaymentfromthegrantee.Therelatedcompensationcostofeachawardiscalculatedusingthemarketpriceonthegrantdateandisexpensedequallyoverthe
F-22
NumberOf
Shares Weighted-AverageExercisePrice
Outstandingatbeginningofyear 1,302,213 $ 3.45Granted 343,300 $ 1.56Canceled 621,688 $ 3.23Outstandingatendofyear 1,023,825 $ 2.93OptionsexercisableatDecember31,2016 515,407 $ 3.88
OptionsOutstanding OptionsExercisable
RangeofExercisePrices
NumberOutstanding
RemainingContractualLife(years)
WeightedAverageExercisePrice
NumberExercisable
RemainingContractual
Life
WeightedAverageExercisePrice
$1.29-$2.00 355,300 8.9 $ 1.56 50,750 7.4 $ 1.82$2.01-$3.00 310,500 6.3 $ 2.36 152,630 3.7 $ 2.25$3.01-$4.00 134,000 7.0 $ 3.32 88,002 6.8 $ 3.34$4.01-$6.00 174,325 1.1 $ 5.28 174,325 1.1 $ 5.28$6.01-$8.00 49,700 4.0 $ 7.04 49,700 4.0 $ 7.04
1,023,825 6.3 $ 2.93 515,407 3.8 $ 3.88
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SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
6.SHAREBASEDCOMPENSATION(Continued)
vestingperiod.AsummaryofrestrictedstockawardsmadeintheyearendedDecember31,2016,isasfollows:
AsofDecember31,therewasapproximately$282ofunrecognizedcompensationcostrelatedtonon-vestedstockcompensationarrangementsgrantedundertheCompany'sstockincentiveplanforrestrictedstockawards.Thatcostisexpectedtoberecognizedoverthenext2.6years.
Restricted Stock Units
InDecember2015,theCompany'sBoardofDirectorsgrantedrestrictedstockunits("RSUs")totheexecutiveChairmanoftheBoard.TheRSUsrepresenttherighttoreceivesharesoftheCompany'scommonstockuponachievementofspecifiedstockpriceperformancemetrics,andonlyvestifsuchmarket-basedperformancemetricsareachieved.Therewas$26ofrecognizedcompensationcostfortheyearendedDecember31,2016.TheRSUsexpiredonAugust3,2016.
OnJuly13,2016,theCompanygranted100,000performance-basedRSUstoitsnewChiefExecutiveOfficer.TheRSUsrepresenttherighttoreceivesharesoftheCompany'scommonstockuponachievementofspecifiedperformancemetrics,andonlyvestifsuchperformancemetricsareachievedforfiscalyear2017andfiscalyear2018.TheRSU'sexpireiftheperformancemetricsarenotachievedorifemploymentisterminated.ThefairvalueoftheRSUswillberecognizedasitisearnedandwhenitisprobablethattheperformanceconditionswillbemet.TheCompanyhasnotrecognizedanycompensationexpensein2016relatedtothisaward.
7.CAPITALLEASEOBLIGATIONS
TheCompanyleasedcertainequipmentundercapitalleaseswhichexpiredinDecember2016.Thecapitalleaseliabilitybalanceofapproximately$0and$71isincludedindebtontheconsolidatedbalancesheetsasofDecember31,2016andJanuary2,2016,ofwhichapproximately$0and$2isincludedinlong-termliabilitiesasofDecember31,2016andJanuary2,2016,respectively.
8.PROFITSHARINGPLAN
SummerInfant(USA),Inc.maintainsadefinedcontributionsalarydeferralplanunderSection401(k)oftheInternalRevenueCode.Allemployeeswhomeettheplan'seligibilityrequirementscanparticipate.Employeesmayelecttomakecontributionsuptofederallimitations.In2007,theCompanyadoptedamatchingplanwhichwasfurtheramendedin2013,andwhichwasfundedthroughouttheyear.FortheyearsendedDecember31,2016andJanuary2,2016,theCompanyrecorded401(k)matchingexpenseof$356and$366,respectively.
F-23
NumberofShares
GrantDateFairValue
Non-vestedrestrictedstockawardsasofJanuary2,2016 175,844 $ 2.70Granted 236,900 $ 1.63Vested 102,524 $ 2.39Forfeited 41,788 $ 2.09Non-vestedrestrictedstockawardsasofDecember31,2016 268,432 $ 1.96
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SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
9.MAJORCUSTOMERS
SalestotheCompany'stopsevencustomerstogethercomprisedmorethan75%ofoursalesinfiscal2016and73%ofoursalesinfiscal2015.Ofthesecustomers,fourgeneratedmorethan10%ofsalesforfiscal2016:BabiesRUs/ToysRUs(20%),Amazon.com(20%),Walmart(15%),andTarget(11%).Infiscal2015,fourcustomersgeneratedmorethan10%ofsales:BabiesRUs/ToysRUs(23%),Walmart(14%),Amazon.com(14%)andTarget(12%).
10.COMMITMENTSANDCONTINGENCIES
Royalty Commitments
SummerInfant(USA),Inc.hasenteredintovariouslicenseagreementswiththirdpartiesfortheuseofproductdesigns,softwarelicenses,andtradenamesfortheproductsmanufacturedbytheCompany.TheseagreementshaveterminationdatesthroughDecember2017.RoyaltyexpenseundertheselicensingagreementsfortheyearsendedDecember31,2016andJanuary2,2016wereapproximately$315and$735,respectively.
Customer Agreements
TheCompanyentersintoannualagreementswithitscustomersinthenormalcourseofbusiness.Theseagreementsdefinethetermsofproductsalesincluding,insomeinstances,cooperativeadvertisingcostsandproductreturnprivileges(fordefectiveproductsonly)ordefectiveallowances(whicharebaseduponhistoricalexperience).ThesecontractsaregenerallyannualinnatureandobligatetheCompanyonlyastoproductsactuallysoldtothecustomerpursuanttoapurchaseorder.
Lease Commitments
Forleaseagreementswithescalationclauses,theCompanyrecordsthetotalrenttobepaidundertheleaseonastraight-linebasisoverthetermofthelease,withthedifferencebetweentheexpenserecognizedandthecashpaidrecordedasadeferredrentliabilityincludedinaccruedexpensesonthebalancesheetforamountstoberecognizedwithintwelvemonthsandinotherliabilitiesforamountstoberecognizedaftertwelvemonthsfromthebalancesheetdate,intheconsolidatedbalancesheets.Leaseincentivesarerecordedasdeferredrentatthebeginningoftheleasetermandrecognizedasareductionofrentexpenseoverthetermofthelease.
SummerInfantEuropeLimitedleasesofficespaceunderanon-cancelableoperatingleaseagreement.Thisleaseisforafive-yeartermthroughApril2017,andrequiresmonthlypaymentsofapproximately$6.Inaddition,SummerInfantEuropeLimitedisrequiredtopayitsproportionateshareofpropertytaxes.
SummerInfantCanada,Ltd.enteredintoafive-yearleaseforofficeandwarehousespaceunderanon-cancelableoperatingleaseagreementexpiringJune2018.TheCompanyisobligatedaspartoftheleasetopaymaintenanceexpensesaswellaspropertytaxesandinsurancecostsasdefinedintheagreement.Monthlypaymentsareapproximately$27overthecourseoftheleaseterm.SummerInfantCanada,Ltd.hastheoptiontorenewthisleaseforoneadditionalperiodoffiveyearsundersimilartermsandconditions.
SummerInfant(USA)Inc.enteredintoa72monthleaseinSeptember2010forwarehousespaceunderanon-cancelableoperatingleaseagreement.TheCompanyisobligatedtopaycertaincommonareamaintenancechargesincludinginsuranceandutilities.Theleasewasextendedin2015andnow
F-24
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
10.COMMITMENTSANDCONTINGENCIES(Continued)
expiresinSeptember2021.Monthlypaymentswere$166infiscal2016andescalateto$186overtheremaininglifeofthelease.
DuringNovember2015,SummerInfantAsiaenteredintoatwoyearofficeleasewhichrequiresmonthlypaymentsof$10through2017.
Approximatefutureminimumrentalpaymentsdueundertheseleasesareasfollows(a):
Rentexpense(excludingtaxes,feesandothercharges)fortheyearsendedDecember31,2016andJanuary2,2016totaledapproximately$2,692and$1,906,respectively.
Employment Contracts
InaccordancewithUnitedKingdomandEUlaw,SummerInfantEuropeLimitedisrequiredtohaveemploymentcontractswithallofitsemployees.Inconnectionwiththesecontracts,SummerInfantEuropeLimitedmakesindividualpensioncontributionstocertainemployeesatvaryingratesfrom3-7%oftheemployee'sannualsalary,aspartoftheirtotalcompensationpackage.Thesepensioncontributionsareexpensedasincurred.Therearenoterminationbenefitprovisionsinthesecontracts.
Litigation
TheCompanyisapartytoroutinelitigationandadministrativecomplaintsincidentaltoitsbusiness.TheCompanydoesnotbelievethattheresolutionofanyorallofsuchroutinelitigationandadministrativecomplaintsislikelytohaveamaterialadverseeffectontheCompany'sfinancialconditionorresultsofoperations.
OnMay27,2015,theCompanyfiledaComplaintagainstCarolE.Bramson,AnnamariaDooley,KennethN.Price,CarsonJ.Darling,DulcieM.Madden,andBruceWorkintheUnitedStatesDistrictCourtfortheDistrictofRhodeIsland(CivilActionNo.1:15-CV-00218-5-LDA)(the"Complaint").TheComplaintallegedtheftandmisappropriationoftheCompany'sconfidentialandproprietarytradesecrets,intellectualproperty,andbusiness,brandingandmarketingstrategies.Ms.BramsonisaformermemberoftheCompany'sBoardofDirectorsandtheCompany'sformerChiefExecutiveOfficer,Ms.DooleyistheCompany'sformerSeniorVicePresidentofProductDevelopment,andMr.PriceistheformerPresidentofGlobalSales&MarketingoftheCompany.Mr.DarlingandMs.MaddenareprincipalsofRestDevices,Inc.,aformerconsultanttotheCompany(the"RestDefendants").
OnAugust25,2015,theCompanyandtheRestDefendantsreachedanagreement-in-principlewithregardtoaproposedsettlement,andtheCompanysubsequentlywithdrewitsmotionfora
F-25
FiscalYearEnding: 2017 $ 2,4152018 2,2152019 2,1402020 2,1852021andbeyond 1,676Total $ 10,631
(a) Amountsexcludepaymentsforsales-leasebacktransactionasdescribedinNote4.
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
10.COMMITMENTSANDCONTINGENCIES(Continued)
preliminaryinjunction.OnNovember1,2015,theCompanyandtheRestDefendantsenteredintoaconfidentialsettlementagreement(the"RestSettlementAgreement")pursuanttowhichtheCompanyandtheRestDefendantsmutuallyreleasedclaimsagainsteachother,andtheCompanyvoluntarilydismissedallclaimsintheComplaintagainsttheRestDefendants.TheRestSettlementAgreementdidnotreleaseanyclaimsagainstMmes.BramsonorDooleyorMr.Price.
InDecember2016,theremainingpartiesintheactionresolvedtheirclaimsagainsteachother,andtheCourtenteredaStipulationandOrderofVoluntaryDismissalonJanuary19,2017.Theretherewasnomaterialimpactonthefinancialstatementsasaresultofthesettlement.
11.GEOGRAPHICALINFORMATION
TheCompanysellsproductsthroughouttheUnitedStates,Canada,andtheUnitedKingdom,andvariousotherpartsoftheworld.TheCompanydoesnotdiscloseproductlinerevenuesasitisnotpracticablefortheCompanytodoso.
Thefollowingisatablethatpresentsnetrevenuebygeographicarea:
Thefollowingisatablethatpresentstotalassetsbygeographicarea:
Thefollowingisatablethatpresentstotallonglivedassetsbygeographicarea:
12.SUBSEQUENTEVENTS
TheCompanyhasevaluatedalleventsortransactionsthatoccurredafterDecember31,2016throughthedateofthisAnnualReport.
F-26
Forthefiscalyear
ended
December31,
2016 January2,
2016 UnitedStates $ 163,381 $ 171,310AllOther 30,947 34,494
$ 194,328 $ 205,804
December31,
2016 January2,
2016 UnitedStates $ 84,519 $ 90,890AllOther 17,218 22,248
$ 101,737 $ 113,138
December31,
2016 January2,
2016 UnitedStates $ 24,512 $ 25,375AllOther 4,212 7,722
$ 28,724 $ 33,097
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIAIRES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
12.SUBSEQUENTEVENTS(Continued)
OnFebruary17,2017,theCompanyanditssubsidiaries,SummerInfant(USA),Inc.,SummerInfantCanada,LimitedandSummerInfantEuropeLimited,enteredintoanamendmentandwaiver(the"LoanAmendment")totheCreditFacility.PursuanttotheLoanAmendment,theLendersagreedtowaivetheexistingdeliverydatebywhichtheCompanymustdeliverprojectionsforthe2017fiscalyear,andextendedthedatetoMarch1,2017.Inaddition,theLoanAmendmentamendedcertainprovisionsoftheCreditFacilitytoprovideadditionalflexibilitytotheCompanyduringfiscal2017,including(i)amendingthedefinitionsof"Availability,""AvailabilityReserve"and"EligibleAccount";(ii)amendingthedefinitionofEBITDAwithrespecttobonuspaymentsandcertainfeesandexpensesthatcanbeaddedbacktothecalculationofEBITDA;and(iii)amendingthedefinitionof"FixedCharges"andrevisedthemaximumleverageratiofinancialcovenanttobemaintainedasoftheendofeachfiscalquarter.
F-27
TableofContents
IndextoExhibits
ExhibitNo. Description
2.1 AgreementandPlansofReorganization,datedasofSeptember1,2006,byandamongKBLHealthcareAcquisitionCorp.II,anditswhollyownedsubsidiary,SIIAcquisitionInc.,andSummerInfant,Inc.,SummerInfantEuropeLimited,SummerInfantAsia,Ltd.andtheirrespectivestockholders(IncorporatedbyreferencetoExhibit10.1totheRegistrant'sCurrentReportonForm8-KfiledonSeptember5,2006,SECFileNo.000-51228)
2.2 PurchaseandSaleAgreement,datedMarch24,2009,betweenSummerInfant(USA),Inc.andFaithRealtyII,LLC(IncorporatedbyreferencetoExhibit2.1totheRegistrant'sQuarterlyReportonForm10-Q/AfiledonAugust18,2009,SECFileNo.001-33346)
2.3 LeaseAgreement,datedMarch24,2009,betweenSummerInfant(USA),Inc.andFaithRealtyII,LLC(IncorporatedbyreferencetoExhibit2.2totheRegistrant'sQuarterlyReportonForm10-Q/AfiledonAugust18,2009,SECFileNo.001-33346)
2.4 StockPurchaseAgreement,datedasofMarch24,2011,byandamongtheRegistrant,SummerInfant(USA),Inc.,BornFreeHoldingsLtd.,andeachstockholderofBornFreeHoldingsLtd.(IncorporatedbyreferencetoExhibit2.1totheRegistrant'sCurrentReportonForm8-KfiledonMarch28,2011,FileNo.001-33346)
3.1+ AmendedandRestatedCertificateofIncorporation,asamended
3.2 AmendedandRestatedBylaws,asamendedthroughMay5,2016(IncorporatedbyreferencetoExhibit3.1totheRegistrant'sCurrentReportonForm8-KfiledonMay9,2016)
4.1 SpecimenCommonStockCertificate(IncorporatedbyreferencetoExhibit4.2totheRegistrant'sForm8-AfiledonMarch6,2007,SECFileNo.001-33346)
10.1 RegistrationRightsAgreementbyandamongtheRegistrant,JasonMacariandStevenGibree(IncorporatedbyreferencetoExhibit10.9totheRegistrant'sCurrentReportonForm8-KfiledonSeptember5,2006,SECFileNo.000-51228)
10.2* 2006PerformanceEquityPlan(IncorporatedbyreferencetoAppendixAtotheRegistrant'sDefinitiveProxyStatementonSchedule14AfiledonApril29,2008,SECFileNo.001-33346)
10.3 AmendedandRestatedLoanandSecurityAgreement,datedasofApril21,2015,amongSummerInfant,Inc.andSummerInfant(USA),Inc.asBorrowers,theGuarantorsfromtimetotimepartythereto,CertainFinancialInstitutionsasLenders,BankofAmerica,N.A.asAgent,andMerrillLynch,Pierce,Fenner&SmithIncorporated,asSoleLeadArrangerandSoleBookRunner(IncorporatedbyreferencetoExhibit10.1totheRegistrant'sCurrentReportonForm8-KfiledonApril22,2015)
10.4 AmendmenttoAmendedandRestatedLoanandSecurityAgreement,datedasofDecember10,2015,amongSummerInfant,Inc.andSummerInfant(USA),Inc.,asBorrowers,SummerInfantCanada,LimitedandSummerInfantEuropeLimited,asGuarantors,CertainFinancialInstitutionsasLendersandBankofAmerica,N.A.asAgent(IncorporatedbyreferencetoExhibit10.1totheRegistrant'sCurrentReportonForm8-KfiledonDecember14,2015)
10.5 SecondAmendmenttoAmendedandRestatedLoanandSecurityAgreement,datedasofMay24,2016,amongSummerInfant,Inc.andSummerInfant(USA),Inc.,asBorrowers,SummerInfantCanada,LimitedandSummerInfantEuropeLimited,asGuarantors,CertainFinancialInstitutionsasLendersandBankofAmerica,N.A.asAgent(IncorporatedbyreferencetoExhibit10.1totheRegistrant'sQuarterlyReportonForm10-QfiledonAugust2,2016)
10.6* 2012IncentiveCompensationPlan,asamended(IncorporatedbyreferencetoExhibit10.1totheRegistrant'sCurrentReportonForm8-KfiledonAugust5,2015)
TableofContents
ExhibitNo. Description
10.7* FormofChangeofControlAgreementwithChiefFinancialOfficer,ChiefOperatingOfficerandotherkeyemployees(IncorporatedbyreferencetoExhibit10.2totheRegistrant'sCurrentReportonForm8-KfiledonDecember14,2015)
10.8 SeparationAgreementandRelease,datedasofJanuary15,2014,byandbetweentheRegistrantandJasonMacari(IncorporatedbyreferencetoExhibit10.1totheRegistrant'sCurrentReportonForm8-KfiledonJanuary17,2014)
10.9* SummerInfant,Inc.FormofIndemnificationAgreement(forofficersanddirectors)(IncorporatedbyreferencetoExhibit10.3totheRegistrant'sCurrentReportonForm8-KfiledonJanuary17,2014)
10.10* OfferLetterandChangeofControlAgreementbyandbetweentheRegistrantandWilliamE.Mote(IncorporatedbyreferencetoExhibit10.19totheRegistrant'sAnnualReportonForm10-KfiledonMarch4,2015)
10.11* OfferLetterandChangeofControlAgreementbyandbetweentheRegistrantandRobertStebenne(IncorporatedbyreferencetoExhibit10.1totheRegistrant'sQuarterlyReportonForm10-QfiledonMay7,2015)
10.12 AmendmenttoLease,datedMay13,2015,byandbetweenFaithRealtyII,LLCandSummerInfant(USA),Inc.(IncorporatedbyreferencetoExhibit10.1totheRegistrant'sCurrentReportonForm8-KfiledonMay19,2015)
10.13* EmploymentAgreement,datedasofJune27,2016,byandbetweentheRegistrantandMarkMessner(IncorporatedbyreferencetoExhibit10.1totheRegistrant'sCurrentReportonForm8-KfiledonJune29,2016)
10.14+ ThirdAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreement,datedasofFebruary17,2017,amongSummerInfant,Inc.andSummerInfant(USA),Inc.,asBorrowers,SummerInfantCanada,LimitedandSummerInfantEuropeLimited,asGuarantors,CertainFinancialInstitutionsasLendersandBankofAmerica,N.A.asAgent
21.1 ListofSubsidiaries(IncorporatedbyreferencetoExhibit21.1totheRegistrant'sAnnualReportonForm10-KfiledonMarch13,2013)
23.1+ ConsentofIndependentRegisteredPublicAccountingFirm
31.1+ CertificationofChiefExecutiveOfficerpursuanttoSection302oftheSarbanes-OxleyActof2002
31.2+ CertificationofChiefFinancialOfficerpursuanttoSection302oftheSarbanes-OxleyActof2002
32.1+ CertificationofChiefExecutiveOfficerpursuantto18U.S.C.Section1350(Section906oftheSarbanes-OxleyActof2002)
32.2+ CertificationofChiefFinancialOfficerpursuantto18U.S.C.Section1350(Section906oftheSarbanes-OxleyActof2002)
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* Managementcontractorcompensatoryplanorarrangement.
+ Filedherewith.
Exhibit3.1
AMENDEDANDRESTATED
CERTIFICATEOFINCORPORATIONOF
SUMMERINFANT,INC.
(ConformedcopyincorporatingallamendmentsthroughJune24,2014)
PursuanttoSection245ofthe
DelawareGeneralCorporationLaw
FIRST:Thenameofthecorporationis“SummerInfant,Inc.”(hereinaftersometimesreferredtoasthe“Corporation”).
SECOND:TheregisteredofficeoftheCorporationistobelocatedat615SouthDuPontHighway,KentCounty,Dover,Delaware.Thenameofits
registeredagentatthataddressisNationalCorporateResearch,Ltd.
THIRD:ThepurposeoftheCorporationshallbetoengageinanylawfulactoractivityforwhichcorporationsmaybeorganizedundertheGCL.
FOURTH:ThetotalnumberofsharesofallclassesofcapitalstockwhichtheCorporationshallhaveauthoritytoissueis50,000,000ofwhich49,000,000sharesshallbeCommonStock,havingaparvalueof$0.0001pershare,and1,000,000sharesshallbePreferredStock,havingaparvalueof$0.0001pershare.
A.PreferredStock.TheBoardofDirectorsisexpresslygrantedauthoritytoissuesharesofthePreferredStock,inoneormoreseries,andtofixforeachsuchseriessuchvotingpowers,fullorlimited,andsuchdesignations,preferencesandrelative,participating,optionalorotherspecialrightsandsuchqualifications,limitationsorrestrictionsthereofasshallbestatedandexpressedintheresolutionorresolutionsadoptedbytheBoardofDirectorsprovidingfortheissueofsuchseries(a“PreferredStockDesignation”)andasmaybepermittedbytheGCL.ThenumberofauthorizedsharesofPreferredStockmaybeincreasedordecreased(butnotbelowthenumberofsharesthereofthenoutstanding)bytheaffirmativevoteoftheholdersofamajorityofthevotingpowerofallofthethenoutstandingsharesofthecapitalstockoftheCorporationentitledtovotegenerallyintheelectionofdirectors,votingtogetherasasingleclass,withoutaseparatevoteoftheholdersofthePreferredStock,oranyseriesthereof,unlessavoteofanysuchholdersisrequiredpursuanttoanyPreferredStockDesignation.
B.CommonStock.ExceptasotherwiserequiredbylaworasotherwiseprovidedinanyPreferredStockDesignation,theholdersoftheCommonStockshallexclusivelypossessallvotingpowerandeachshareofCommonStockshallhaveonevote.
FIFTH:ThenameandmailingaddressofthesoleincorporatoroftheCorporationareasfollows:
Name
Address JeffreyM.Gallant
GraubardMiller
TheChryslerBuilding
405LexingtonAvenue
NewYork,NewYork10174
SIXTH:TheBoardofDirectorsshallbedividedintothreeclasses:ClassA,ClassBandClassC.Thenumberofdirectorsineachclassshallbeasnearly
equalaspossible.ThedirectorsinClassAshallbeelectedforatermexpiringatthefirstAnnualMeetingofStockholders,thedirectorsinClassBshallbeelectedforatermexpiringatthesecondAnnualMeetingofStockholdersandthedirectorsinClassCshallbeelectedforatermexpiringatthethirdAnnualMeetingofStockholders.CommencingatthefirstAnnualMeetingofStockholders,andateachannualmeetingthereafter,directorselectedtosucceedthosedirectorswhosetermsexpireshallbeelectedforatermofofficetoexpireatthethirdsucceedingannualmeetingofstockholdersaftertheirelection.NotwithstandingandirrespectiveoftheprovisionssetforthinthefirstfoursentencesofthisArticleSixth,ateachannualelectionoftheCorporation’sdirectorscommencingwithandatthe2014AnnualMeetingofStockholders,thesuccessorstotheclassoftheCorporation’sdirectorswhosetermofofficeexpiresatsuchtimeshallbeelectedtoholdofficeforatermofoneyear(andnotthreeyears),andcommencingwithandatthe2016AnnualMeetingofStockholders,thedivisionoftheBoardofDirectorsintothreeclassesasnearlyequalinsizeaspossibleshallterminate,andthereuponandcontinuingindefinitelythereafter,ateachannualelectionofdirectors,alldirectorsoftheCorporationshallbeconstitutedofoneclassandallsuchdirectorsshallbeelectedonanannualbasis.ExceptastheGCLmayotherwiserequire,intheinterimbetweenannualmeetingsofstockholdersorspecialmeetingsofstockholderscalledfortheelectionofdirectorsand/ortheremovalofoneormoredirectorsandthefillingofanyvacancyinthatconnection,newlycreateddirectorshipsandanyvacanciesintheBoardofDirectors,includingunfilledvacanciesresultingfromtheremovalofdirectorsforcause,maybefilledbythevoteofamajorityoftheremainingdirectorstheninoffice,althoughlessthanaquorum(asdefinedintheCorporation’sBylaws),orbythesoleremainingdirector.Alldirectorsshallholdofficeuntiltheexpirationoftheirrespectivetermsofofficeanduntiltheirsuccessorsshallhavebeenelectedandqualified.Adirectorelectedtofillavacancyresultingfromthedeath,resignationorremovalofadirectorshallservefortheremainderofthefulltermofthedirectorwhosedeath,resignationorremovalshallhavecreatedsuchvacancyanduntilhissuccessorshallhavebeenelectedandqualified.
SEVENTH:ThefollowingprovisionsareinsertedforthemanagementofthebusinessandfortheconductoftheaffairsoftheCorporation,andforfurtherdefinition,limitationandregulationofthepowersoftheCorporationandofitsdirectorsandstockholders:
A.Electionofdirectorsneednotbebyballotunlesstheby-lawsoftheCorporationsoprovide.
B.TheBoardofDirectorsshallhavethepower,withouttheassentorvoteofthestockholders,tomake,alter,amend,change,addtoorrepealtheby-lawsoftheCorporationasprovidedintheby-lawsoftheCorporation.
C.Thedirectorsintheirdiscretionmaysubmitanycontractoractforapprovalorratificationatanyannualmeetingofthestockholdersoratanymeetingofthestockholderscalledforthepurposeofconsideringanysuchactorcontract,andanycontractoractthatshallbeapprovedorberatifiedbythevoteoftheholdersofamajorityofthestockoftheCorporationwhichisrepresentedinpersonorbyproxyatsuchmeetingandentitledtovotethereat(providedthatalawfulquorumofstockholdersbethererepresentedinpersonorbyproxy)shallbeasvalidandbindingupontheCorporationanduponallthestockholdersasthoughithadbeenapprovedorratifiedbyeverystockholderoftheCorporation,whetherornotthecontractoractwouldotherwisebeopentolegalattackbecauseofdirectors’interests,orforanyotherreason.
D.Inadditiontothepowersandauthoritieshereinbeforeorbystatuteexpresslyconferreduponthem,thedirectorsareherebyempoweredtoexerciseallsuchpowersanddoallsuchactsandthingsasmaybeexercisedordonebytheCorporation;subject,nevertheless,totheprovisionsofthestatutesofDelaware,ofthisCertificateofIncorporation,andtoanyby-lawsfromtimetotimemadebythestockholders;provided,however,thatnoby-lawsomadeshallinvalidateanyprioractofthedirectorswhichwouldhavebeenvalidifsuchby-lawhadnotbeenmade.
2
EIGHTH:A.AdirectoroftheCorporationshallnotbepersonallyliabletotheCorporationoritsstockholdersformonetarydamagesfor
breachoffiduciarydutyasadirector,exceptforliability(i)foranybreachofthedirector’sdutyofloyaltytotheCorporationoritsstockholders,(ii)foractsoromissionsnotingoodfaithorwhichinvolveintentionalmisconductoraknowingviolationoflaw,(iii)underSection174oftheGCL,or(iv)foranytransactionfromwhichthedirectorderivedanimproperpersonalbenefit.IftheGCLisamendedtoauthorizecorporateactionfurthereliminatingorlimitingthepersonalliabilityofdirectors,thentheliabilityofadirectoroftheCorporationshallbeeliminatedorlimitedtothefullestextentpermittedbytheGCL,assoamended.AnyrepealormodificationofthisparagraphAbythestockholdersoftheCorporationshallnotadverselyaffectanyrightorprotectionofadirectoroftheCorporationwithrespecttoeventsoccurringpriortothetimeofsuchrepealormodification.
B.TheCorporation,tothefullextentpermittedbySection145oftheGCL,asamendedfromtimetotime,shallindemnifyallpersonswhomitmayindemnifypursuantthereto.Expenses(includingattorneys’fees)incurredbyanofficerordirectorindefendinganycivil,criminal,administrative,orinvestigativeaction,suitorproceedingforwhichsuchofficerordirectormaybeentitledtoindemnificationhereundershallbepaidbytheCorporationinadvanceofthefinaldispositionofsuchaction,suitorproceedinguponreceiptofanundertakingbyoronbehalfofsuchdirectororofficertorepaysuchamountifitshallultimatelybedeterminedthatheisnotentitledtobeindemnifiedbytheCorporationasauthorizedhereby.
NINTH:WheneveracompromiseorarrangementisproposedbetweenthisCorporationanditscreditorsoranyclassofthemand/orbetweenthisCorporationanditsstockholdersoranyclassofthem,anycourtofequitablejurisdictionwithintheStateofDelawaremay,ontheapplicationinasummarywayofthisCorporationorofanycreditororstockholderthereoforontheapplicationofanyreceiverorreceiversappointedforthisCorporationunderSection291ofTitle8oftheDelawareCodeorontheapplicationoftrusteesindissolutionorofanyreceiverorreceiversappointedforthisCorporationunderSection279ofTitle8oftheDelawareCodeorderameetingofthecreditorsorclassofcreditors,and/orofthestockholdersorclassofstockholdersofthisCorporation,asthecasemaybe,tobesummonedinsuchmannerasthesaidcourtdirects.Ifamajorityinnumberrepresentingthreefourthsinvalueofthecreditorsorclassofcreditors,and/orofthestockholdersorclassofstockholdersofthisCorporation,asthecasemaybe,agreetoanycompromiseorarrangementandtoanyreorganizationofthisCorporationasaconsequenceofsuchcompromiseorarrangement,thesaidcompromiseorarrangementandthesaidreorganizationshall,ifsanctionedbythecourttowhichthesaidapplicationhasbeenmade,bebindingonallthecreditorsorclassofcreditors,and/oronallthestockholdersorclassofstockholders,ofthisCorporation,asthecasemaybe,andalsoonthisCorporation.
3
Exhibit10.14
THIRDAMENDMENTANDWAIVERTOAMENDEDANDRESTATEDLOANANDSECURITYAGREEMENT
ThisTHIRDAMENDMENTANDWAIVERTOAMENDEDANDRESTATEDLOANANDSECURITYAGREEMENT(this“Amendment”)is
datedasofFebruary17,2017byandamongSUMMERINFANT,INC.andSUMMERINFANT(USA),INC.,as“Borrowers”undertheLoanAgreementreferencedbelow(“Borrowers”),SUMMERINFANTCANADA,LIMITEDandSUMMERINFANTEUROPELIMITED,as“Guarantors”undertheLoanAgreementreferencedbelow(“Guarantors”andtogetherwiththeBorrowers,the“Obligors”),the“Lenders”partytotheLoanAgreementreferencedbelow(“Lenders”),andBANKOFAMERICA,N.A.,initscapacityas“Agent”fortheLendersundertheLoanAgreementreferencedbelow(“Agent”).
WHEREAS,Borrowers,Guarantors,LendersandAgentarepartiestothatcertainAmendedandRestatedLoanandSecurityAgreementdatedasofApril21,2015,asamendedbythatcertainAmendmenttoAmendedandRestatedLoanandSecurityAgreementdatedasofDecember10,2015,andasfurtheramendedbythatcertainSecondAmendmenttoAmendedandRestatedLoanandSecurityAgreementdatedasofMay24,2016(asthesamemaybeamended,restated,supplementedorotherwisemodifiedfromtimetotime,the“LoanAgreement”);
WHEREAS,ObligorshavepreviouslyadvisedAgentthatObligorsrequireadditionaltimetodelivertheprojectionsofBorrowers’consolidatedbalancesheets,resultsofoperations,cashflowandAvailabilityforFiscalYear2017(the“2017Projections”);and
WHEREAS,Borrowers,Guarantors,LendersandAgentdesiretoamendcertainprovisionsoftheLoanAgreement,allasmorefullydescribedherein.
NOW,THEREFORE,inconsiderationoftheforegoingandtheagreementscontainedherein,thepartiesagreethattheLoanAgreementisherebyamendedasfollows:
1.CapitalizedTerms.CapitalizedtermsusedhereinwhicharedefinedintheLoanAgreementhavethesamemeaningshereinastherein,excepttotheextentsuchtermsareamendedhereby.
2.AgreementtoExtendDeliveryDatefor2017Projections.SubjecttothesatisfactionofthetermsandconditionssetforthinthisAmendment,theAgentandLendershereby(a)waivetherequirementspursuanttoclause(f)ofSection10.1.2oftheLoanAgreementthatObligorsdeliverthe2017Projectionsnolaterthan30dayspriortotheendofFiscalYear2016,and(b)agreethatthedatefordeliverybyObligorsofthe2017ProjectionsshallbeextendedtoMarch1,2017.Obligorsherebyexpresslyacknowledgeandagreethat(i)notlaterthanMarch1,2017,theObligorsshallcausetobedeliveredtotheAgentthe2017Projectionsand(ii)intheeventtheAgentfailstoreceivethe2017ProjectionsonorbeforeMarch1,2017,suchfailureshallconstituteanEventofDefaultundertheLoanAgreement.Thepartiesagreethat(a)theforegoingwaiverislimitedsolelytotheObligors’obligationpursuanttoclause(f)ofSection10.1.2oftheLoanAgreementtodeliverthe2017Projectionsnolaterthan30dayspriortotheendofFiscalYear2016and(b)thatnothinghereinshallbeconstruedasawaiverofanyotherprovisionoftheLoanAgreement.
3.AmendmentstoSection1.1oftheLoanAgreement.Section1.1oftheLoanAgreementisherebyamendedasfollows:
(a)Thedefinitionof“Availability”isherebyamendedandrestatedinitsentirety,asfollows:
“Availability:atanytime,(a)thelesserof(i)theaggregateRevolverCommitmentsatsuchtimeand(ii)theRevolverBorrowingBase,atsuchtimeminus(b)theRevolverExposureatsuchtime.Notwithstandingtheforegoing,solelyforpurposesofdeterminingwhetheraCashDominionPeriodisineffect,AvailabilityshallbeincreasedbytheamountoftheFILOReserveineffectatsuchtime.”
(b)Thedefinitionof“AvailabilityReserve”isherebyamendedbydeletingtheword“and”followingtheendofclause(i),relabeling
clause“(j)”asclause“(k)”,andinsertinganewclause(j)asfollows:
“(j)theFILOReserve;and”
(c)Thedefinitionof“EligibleAccount”isherebyamendedbydeletingclause(e)ofsuchdefinitioninitsentiretyandreplacingsuchclausewiththefollowing:
“(e)withrespecttoanyAccountowingbytheAmazonCompanies,whenaggregatedwithotherAccountsowingbyAmazon.com,Inc.,itexceeds35%oftheaggregateEligibleAccounts,provided,however,thatif,atanytime,thecorporatecreditratingofAmazon.com,Inc.fallsbelow“BBB-”(byS&PorFitch)or“Baa3”(byMoody’s),theAgentshallhavetheright,initssolediscretiontodecreasesuchmaximumpercentage(providedfurther,thatonlytheamountofAccountsinexcessofthepercentagesetforthinthisclause(e)(orsuchlowerpercentageasshallbespecifiedbyAgentinaccordancewiththeforegoingproviso)shallbedeemedineligibleunderthisclause(e));”
(d)Thedefinitionof“EligibleAccount”isherebyamendedbydeletingclause(i)ofsuchdefinitioninitsentiretyandreplacingsuch
clausewiththefollowing:
“(i)itisowingbyacreditororsupplier,orisotherwisesubjecttoapotentialoffset,counterclaim,dispute,deduction,discount,recoupment,reserve,defense,chargeback,creditorallowance(butineligibilityshallbelimitedtotheamountthereof),provided,that,theforegoingineligibilityshallnotapplytothePermittedContraAccountsinanamountuptothePermittedContraAmount;”
(e)Thedefinitionof“EBITDA”isherebyamendedbydeletingclause(b)(xii)ofsuchdefinitioninitsentiretyandreplacingsuchclause
withthefollowing:
“(xii)(1)solelywithrespecttothecalculationoftheFixedChargeCoverageRatioandtheLeverageRatiopursuanttoSection10.3.1and10.3.2,respectively,hereof,feesandexpensesofadvisorsandindependentconsultantsretainedbyObligorsinconnectionwiththeFormerManagementLitigation;provided,thattheaggregateamountofsuchfeesandexpensesaddedbacktoEBITDApursuanttothisclause(b)(xii)shallnotexceed(A)$3,500,000intheaggregatefortheperiodoffourconsecutiveFiscalQuartersendingOctober1,2016,(B)$2,500,000intheaggregatefortheperiodoffourconsecutiveFiscalQuartersendingDecember31,2016,and(C)$1,250,000intheaggregatefortheperiodoffourconsecutiveFiscalQuartersendingApril1,2017;and(2)withoutduplicationtotheforegoingclause(1),feesandexpensesofadvisorsandindependentconsultantsretainedbyObligorsandapprovedbyAgentinitsPermittedDiscretion,provided,thattheaggregateamountofsuchfeesandexpensesaddedbacktoEBITDApursuanttothisclause(2)shallnotexceed$250,000duringanyFiscalQuarter;”
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(f)Thedefinitionof“EBITDA”isherebyamendedbydeletingtheword“and”followingtheendofclause(b)(xvii),relabelingclause“(b)
(xviii)”asclause“(b)(xx)”,andinsertingnewclauses(b)(xviii)and(b)(xix)asfollows:
“(xviii)solelywithrespecttothecalculationoftheFixedChargeCoverageRatioandtheLeverageRatiopursuanttoSection10.3.1and10.3.2,respectively,hereof,chargesincurredinconnectionwithBorrowerexitingcertain“BornFree”productlinesduringthe2016FiscalYear;provided,thattheaggregateamountofsuchchargesaddedbacktoEBITDApursuanttothisclause(b)(xviii)shallnotexceed(A)$795,000intheaggregatefortheperiodoffourconsecutiveFiscalQuartersendingApril1,2017,(B)$445,000intheaggregatefortheperiodoffourconsecutiveFiscalQuartersendingJuly1,2017,(C)$236,000intheaggregatefortheperiodoffourconsecutiveFiscalQuartersendingSeptember30,2017,and(D)zerointheaggregatefortheperiodoffourconsecutiveFiscalQuartersendingDecember30,2017;
(xix)solelywithrespecttothecalculationoftheFixedChargeCoverageRatioandtheLeverageRatiopursuanttoSection10.3.1and10.3.2,respectively,hereof,cashpaymentsofbonuscompensationmadetoofficersand/oremployeesoftheObligors;provided,thattheaggregateamountofsuchbonuspaymentsaddedbacktoEBITDApursuanttothisclause(b)(xix)shallnotexceed$550,000intheaggregatefortheperiodoffourconsecutiveFiscalQuartersendingDecember30,2017;and”
(g)Thedefinitionof“FixedCharges”isherebyamendedandrestatedinitsentirety,asfollows:
“FixedCharges:thesumofinterestexpense(otherthanpayment-in-kind),principalpaymentsmadeonBorrowedMoney(including,withoutlimitation,theTermLoans,butexcludingtheRevolverLoansunlesssuchprincipalpaymentoftheRevolverLoansisaccompaniedbyapermanentreductionintheRevolverCommitmentsandexcludingtheFILOLoansunlesssuchprincipalpaymentoftheFILOLoansisaccompaniedbyapermanentreductionintheFILOCommitments),andDistributionsmade.Notwithstandingtheforegoing,anyprincipalpaymentsmadeinconnectionwiththefirstthree(3)scheduledreductionstotheAggregateFILOCommitmentAmountasprovidedforinthedefinitionof“AggregateFILOCommitmentAmount”inSection1.1shallnotconstitute“FixedCharges”forpurposeshereof.”
(h)ThefollowingnewdefinedtermsareherebyinsertedinSection1.1oftheLoanAgreementintheappropriatealphabeticalorder:
“FILOReserve:$1,250,000,provided,thatsuchamountshallbereducedtozeroatsuchtimeastheprincipalpaymentinconnectionwiththe
scheduledpermanentreductiontotheAggregateFILOCommitmentAmounttooccuronOctober21,2017ismade.
PermittedContraAccounts:anyAccountsowingfromANAGlobalorNorcoPlastics.
PermittedContraAmount:withrespecttoanyPermittedContraAccounts,anaggregateamountequalto$500,000withrespecttoallsuchAccounts,provided,that,thePermittedContraAmountshallbereducedtozeroonJune30,2017.”
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4.AmendmentstoSection10.1.2(j)oftheLoanAgreement.Section10.1.2(j)oftheLoanAgreementisherebyamendedandrestatedinits
entirety,asfollows:
“(j)Reserved.”
5.AmendmenttoSection10.3.2oftheLoanAgreement.Section10.3.2oftheLoanAgreementisherebyamendedandrestatedinitsentirety,asfollows:
“10.3.2MaximumLeverageRatio.AsoftheendofeachFiscalQuarter,maintainaLeverageRatioofnotgreaterthantheratiosetforthbelowoppositesuchFiscalQuarter:
FourFiscalQuartersEnding
MaximumLeverageRatioDecember31,2016
5.25to1.00April1,2017
5.50to1.00July1,2017
5.50to1.00September30,2017
5.50to1.00December30,2017
5.00to1.00April1,2018andthereafter
3.75to1.00
6.NoDefault;RepresentationsandWarranties,Etc.Obligorsherebyrepresent,warrantandconfirmthat:(a)allrepresentationsandwarrantiesofObligorsintheLoanAgreementandtheotherLoanDocumentsaretrueandcorrectinallmaterialrespects(withoutduplicationofanymaterialityqualifiercontainedtherein)onandasofthedatehereofasifmadeonsuchdate(excepttotheextentthatsuchrepresentationsandwarrantiesexpresslyrelatetoorarestatedtohavebeenmadeasofanearlierdate,inwhichcase,suchrepresentationsandwarrantiesshallbetrueandcorrectinallmaterialrespects(withoutduplicationofanymaterialityqualifiercontainedtherein)asofsuchearlierdate);(b)aftergivingeffecttothisAmendment,noDefaultorEventofDefaulthasoccurredandiscontinuing;and(c)theexecution,deliveryandperformancebyObligorsofthisAmendmentandallotherdocuments,instrumentsandagreementsexecutedanddeliveredinconnectionherewithortherewith(i)havebeendulyauthorizedbyallnecessaryactiononthepartofObligors(includinganynecessaryshareholderconsentsorapprovals),(ii)donotviolate,conflictwithorresultinadefaultunderandwillnotviolateorconflictwithorresultinadefaultunderanyapplicablelaworregulation,anytermorprovisionoftheorganizationaldocumentsofanyObligororanytermorprovisionofanymaterialindenture,agreementorotherinstrumentbindingonanyObligororanyofitsassets,and(iii)donotrequiretheconsentofanyPersonwhichhasnotbeenobtained.
7.RatificationandConfirmation.ObligorsherebyratifyandconfirmallofthetermsandprovisionsoftheLoanAgreementandtheotherLoanDocumentsandagreethatallofsuchtermsandprovisions,asamendedhereby,remaininfullforceandeffect.Withoutlimitingthegeneralityoftheforegoing,Obligorsherebyacknowledgeandconfirmthatallofthe“Obligations”underandasdefinedintheLoanAgreementarevalidandenforceableandaresecuredbyandentitledtothebenefitsoftheLoanAgreementandtheotherLoanDocuments,andObligorsherebyratifyandconfirmthegrantoftheliensandsecurityinterestsintheCollateralinfavorofAgent,forthebenefitofitselfandLenders,pursuanttotheLoanAgreementandtheotherLoanDocuments,assecurityfortheObligations.
8.ConditionstoEffectivenessofAmendment.ThisAmendmentshallbecomeeffectiveasofthedatewhen,andonlywhen,eachofthefollowingconditionsprecedentshallhavebeensatisfiedorwaivedinwritingbyAgent:
(a)AgentshallhavereceivedcounterpartstothisAmendment,dulyexecutedbyAgent,LendersandObligors.
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(b)BorrowersshallhavepaidtoAgent,fortheaccountofeachLender(includingBankofAmerica,N.A.,initscapacityasaLender)that
executesanddeliverstoAgentby3:00p.m.NewYorkCitytimeonFebruary,2017acounterparttothisAmendment(eachsuchLender,an“ApprovingLender”),anamendmentfeeinanamountequalto12.5basispointsmultipliedbysuchApprovingLender’sCommitment.
(c)BorrowersshallhavepaidallotherfeesandamountsdueandpayabletoAgentanditslegalcounselinconnectionwiththeLoan
Agreement,thisAmendmentandtheotherLoanDocuments,including,(i)thefeespayablepursuanttothatcertainAmendmentFeeLetterdatedasofthedatehereofbetweenBorrowersandAgent,and(ii)totheextentinvoiced,allout-of-pocketexpensesrequiredtobereimbursedorpaidbyBorrowersundertheLoanAgreement.
9.Miscellaneous.
(a)Excepttotheextentspecificallyamendedhereby,theLoanAgreement,theotherLoanDocumentsandallrelateddocumentsshall
remaininfullforceandeffect.
(b)ThisAmendmentmaybeexecutedinanynumberofcounterparts,eachofwhich,whenexecutedanddelivered,shallbeanoriginal,butallcounterpartsshalltogetherconstituteoneinstrument.
(c)BorrowersshallreimburseAgentfor,orpaydirectly,allreasonableout-of-pocketcostsandexpensesofAgent(including,without
limitation,thereasonablefeesandexpensesofAgent’slegalcounsel)inconnectionwiththepreparation,negotiation,executionanddeliveryofthisAmendmentandtheotherLoanDocuments,within30daysofBorrowers’receiptofinvoices(inreasonablysufficientdetail)settingforthsuchcostsandexpenses.
(d)ThisAmendmentshallbegovernedbythelawsoftheStateofNewYorkandshallbebindinguponandinuretothebenefitofthe
partiesheretoandtheirrespectivesuccessorsandassigns.
{Remainderofpageintentionallyleftblank;signaturesbeginonthefollowingpage]
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INWITNESSWHEREOF,thepartiesheretohaveexecutedthisAmendmentwhichshallbedeemedtobeasealedinstrumentasofthedatefirstabove
written.BORROWERS
SUMMERINFANT,INC.
By: /s/MarkMessnerName: MarkMessnerTitle: CEO
SUMMERINFANT(USA),INC.
By: /s/MarkMessnerName: MarkMessnerTitle: CEO
GUARANTORS
SUMMERINFANTCANADA,LIMITED
By: /s/MarkMessnerName: MarkMessnerTitle: CEO
SUMMERINFANTEUROPELIMITED
By: /s/MarkMessnerName: MarkMessnerTitle: CEO
[SignaturePagetoThirdAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreement]
AGENT
BANKOFAMERICA,N.A.,asAgent
By /s/CynthiaG.StannardName:CynthiaG.StannardTitle:SeniorVicePresident
[SignaturePagetoThirdAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreement]
LENDER
BANKOFAMERICA,N.A.,asLender
By /s/CynthiaG.StannardName:CynthiaG.StannardTitle:SeniorVicePresident
[SignaturePagetoThirdAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreement]
LENDER
CITIZENSBUSINESSCAPITAL,ADIVISIONOFCITIZENSASSETFINANCE,INC.,asLender
By /s/PeterVelleName:PeterVelleTitle:VP
[SignaturePagetoThirdAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreement]
LENDER
KEYBANKNATIONALASSOCIATION,asLender
By /s/PeterDrooff,VPName:PeterDrooffTitle:VicePresident
[SignaturePagetoThirdAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreement]
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Exhibit23.1
ConsentofIndependentRegisteredPublicAccountingFirm
WeconsenttotheincorporationbyreferenceintheRegistrationStatements(Nos.333-156725;333-191405;333-206682;333-206683;and333-212947)onFormS-8and(Nos.333-164241and333-198315)onFormS-3ofSummerInfant,Inc.andSubsidiariesofourreportdatedFebruary22,2017,relatingtotheconsolidatedfinancialstatementsofSummerInfant,Inc.andSubsidiariesappearinginthisAnnualReportonForm10-KofSummerInfant,Inc.andSubsidiariesfortheyearendedDecember31,2016.
/s/RSMUSLLPRSMUSLLPBoston,MAFebruary22,2017
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Exhibit23.1
ConsentofIndependentRegisteredPublicAccountingFirm
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Exhibit31.1
CERTIFICATIONOFCHIEFEXECUTIVEOFFICER
I,MarkMessner,certifythat:
1.IhavereviewedthisAnnualReportonForm10-KofSummerInfant,Inc.;
2.Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;
3.Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;
4.Theregistrant'sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
(a)Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
(b)Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;
(c)Evaluatedtheeffectivenessoftheregistrant'sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
(d)Disclosedinthisreportanychangeintheregistrant'sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant'smostrecentfiscalquarter(theregistrant'sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant'sinternalcontroloverfinancialreporting;and
5.Theregistrant'sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant'sauditorsandtheauditcommitteeoftheregistrant'sboardofdirectors(orpersonsperformingtheequivalentfunctions):
(a)Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant'sabilitytorecord,process,summarizeandreportfinancialinformation;and
(b)Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant'sinternalcontroloverfinancialreporting.
Date:February22,2017 /s/MARKMESSNER
MarkMessnerChief Executive Officer
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Exhibit31.1
CERTIFICATIONOFCHIEFEXECUTIVEOFFICER
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Exhibit31.2
CERTIFICATIONOFCHIEFFINANCIALOFFICER
I,WilliamE.Mote,Jr.certifythat:
1.IhavereviewedthisAnnualReportonForm10-KofSummerInfant,Inc.;
2.Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatementsmade,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport.;
3.Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport.;
4.Theregistrant'sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeActRules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
(a)Designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensurethatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
(b)Designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,toprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples;
(c)Evaluatedtheeffectivenessoftheregistrant'sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessofthedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
(d)Disclosedinthisreportanychangeintheregistrant'sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant'smostrecentfiscalquarter(theregistrant'sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant'sinternalcontroloverfinancialreporting;and
5.Theregistrant'sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,totheregistrant'sauditorsandtheauditcommitteeoftheregistrant'sboardofdirectors(orpersonsperformingtheequivalentfunctions):
(a)Allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant'sabilitytorecord,process,summarizeandreportfinancialinformation;and
(b)Anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant'sinternalcontroloverfinancialreporting.
Date:February22,2017 /s/WILLIAME.MOTE,JR.
WilliamE.Mote,Jr.Chief Financial Officer
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Exhibit31.2
CERTIFICATIONOFCHIEFFINANCIALOFFICER
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Exhibit32.1
SECTION1350CERTIFICATION
InconnectionwiththeAnnualReportonForm10-KofSummerInfant,Inc.(the"Company")fortheyearendedDecember31,2016(the"Report"),asfiledwiththeSecuritiesandExchangeCommissiononthedatehereof,I,MarkMessner,ChiefExecutiveOfficeroftheCompany,certifypursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002,that:
1.TheReportfullycomplieswiththerequirementsofsection13(a)or15(d)oftheSecuritiesExchangeActof1934(15U.S.C.78m(a)or78o(d));and
2.TheinformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsoftheCompany.
Date:February22,2017 /s/MARKMESSNER
MarkMessnerChief Executive Officer
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Exhibit32.1
SECTION1350CERTIFICATION
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Exhibit32.2
SECTION1350CERTIFICATION
InconnectionwiththeAnnualReportonForm10-KofSummerInfant,Inc.(the"Company")fortheyearendedDecember31,2016(the"Report"),asfiledwiththeSecuritiesandExchangeCommissiononthedatehereof,I,WilliamE.Mote,Jr.,ChiefFinancialOfficeroftheCompany,certifypursuantto18U.S.C.Section1350,asadoptedpursuanttoSection906oftheSarbanes-OxleyActof2002,that:
1.TheReportfullycomplieswiththerequirementsofsection13(a)or15(d)oftheSecuritiesExchangeActof1934(15U.S.C.78m(a)or78o(d));and
2.TheinformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsoftheCompany.
Date:February22,2017 /s/WILLIAME.MOTE,JR.
WilliamE.Mote,Jr.Chief Financial Officer
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Exhibit32.2
SECTION1350CERTIFICATION