INDEXTOFINANCIALSTATEMENTSd18rn0p25nwr6d.cloudfront.net/CIK-0001314772/c2b04bde-31ba-4f04... ·...
82
Use these links to rapidly review the document TABLE OF CONTENTS INDEX TO FINANCIAL STATEMENTS Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Commission File No. 001-33346 SUMMER INFANT, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation) 20-1994619 (I.R.S. Employer Identification No.) 1275 Park East Drive, Woonsocket, Rhode Island (Address of principal executive offices) 02895 (Zip Code) (401) 671-6550 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registered Common Stock, Par Value $0.0001 Nasdaq Capital Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o (Mark One) ý ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2017 Or o TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to
Transcript of INDEXTOFINANCIALSTATEMENTSd18rn0p25nwr6d.cloudfront.net/CIK-0001314772/c2b04bde-31ba-4f04... ·...
UsetheselinkstorapidlyreviewthedocumentTABLEOFCONTENTSINDEXTOFINANCIALSTATEMENTS
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
ForthefiscalyearendedDecember30,2017
Or
o TRANSITIONREPORTPURSUANTTOSECTION13or15(d)OFTHESECURITIESEXCHANGEACTOF1934
Forthetransitionperiodfromto
IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-K(§229.405ofthischapter)isnotcontainedherein,andwillnotbecontained,tothebestofregistrant'sknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.o
Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfilerasmallerreportingcompany,oremerginggrowthcompany.Seethedefinitionsof"largeacceleratedfiler,""acceleratedfiler,""smallerreportingcompany,"and"emerginggrowthcompany"inRule12b-2oftheExchangeAct.
Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodforcomplyingwithanyneworrevisedfinancialaccountingstandardsprovidedpursuanttoSection13(a)oftheExchangeAct.o
Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheAct).YesoNoý
Theaggregatemarketvalueoftheregistrant'svotingandnon-votingcommonequityheldbynon-affiliatesasofJune30,2017,was$15.4million.Forpurposesofthiscomputation,allofficers,directors,and10%beneficialownersoftheregistrantaredeemedtobeaffiliates.Suchdeterminationshouldnotbedeemedtobeanadmissionthatsuchofficers,directors,or10%beneficialownersare,infact,affiliatesoftheregistrant.
Thenumberofsharesissuedandoutstandingoftheregistrant'scommonstockasofFebruary19,2018was18,629,737(excludingunvestedrestrictedsharesthathavebeenissuedtoemployees).
DOCUMENTSINCORPORATEDBYREFERENCE
Portionsoftheregistrant'sProxyStatementforits2018AnnualMeetingofStockholdersareincorporatedbyreferenceintoPartIIIofthisAnnualReportonForm10-K.
Largeacceleratedfilero Acceleratedfilero Non-acceleratedfilero(Donotcheckifa
smallerreportingcompany)
SmallerreportingcompanyýEmerginggrowthcompanyo
TableofContents
INDEXTOFORM10-KFORTHEFISCALYEARENDEDDECEMBER30,2017
2
PAGE PARTI
ITEM1. Business 3ITEM1A. RiskFactors 9ITEM1B. UnresolvedStaffComments 15ITEM2. 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 30ITEM16. Form10-KSummary 30SIGNATURES 34
TableofContents
PARTI
Whenusedinthisreport,theterms"Summer,"the"Company,""we,""us,"and"our"meanSummerInfant,Inc.anditssubsidiaries.NotethatalldollaramountsinPartIareinthousandsofU.S.dollarsunlessotherwisenoted.
Item1.Business
Overview
Weareaninfantandjuvenileproductscompanyoriginallyfoundedin1985andhavepubliclytradedontheNasdaqStockMarketsince2007underthesymbol"SUMR."Wearealeaderinproductinnovationinthejuvenileindustry,providingparentsandcaregiversafullrangeofhigh-quality,high-valueproductstocareforbabiesandtoddlers.Weseektoimprovethequalityoflifeofparents,caregivers,andbabiesthroughourproductofferings,whileatthesametimemaximizingshareholdervalueoverthelongterm.
Weoperateinoneprincipalindustrysegmentacrossgeographicallydiversemarketplaces,sellingourproductsgloballytolarge,nationalretailersaswellasindependentretailers,andonourpartner'swebsitesandourownsummerinfant.comwebsite.InNorthAmerica,ourcustomersincludeAmazon.com,Wal-Mart,BabiesRUs,Target,BuyBuyBaby,HomeDepot,andLowe's.OurlargestEuropean-basedcustomersareArgos,Amazon,ToysRUs,andMothercare.Wealsosellthroughinternationaldistributors,representatives,andtoselectinternationalretailcustomersingeographiclocationswherewedonothaveadirectsalespresence.
Weestimatethesizeofthejuvenileproductsmarkettobe$25.5billionworldwide,withconsumersfocusingonquality,safety,innovation,andstyle.Webelievewearepositionedtocapitalizeonpositivemarkettrendsinthejuvenileproductsindustry.
StrategicPriorities
Weaimtobealeadingglobaljuvenileproductscompanythatprovidesafullrangeofinnovative,high-quality,high-valueproductsthatmeetthedemandsofparentsandcaregivers.Asweenter2018,ourfocusisondevelopingandlaunchingnewproductswhilesustainingourcorerangeofproducts,buildingourbrands,strengtheningourkeycustomerrelationshipsandsupportingaroadmapforsustainablegrowthin2018andbeyond.Ourmanagementteamwillcontinuetoexecuteonthekeystrategicprioritiesthatwebelievewillfuelourfuturegrowth:
• Continuouslystrivefordifferentiatedinnovation.Wecontinuouslyseektocreatedifferentiated,innovativeproductsthatappealtoconsumerswhoincreasinglydemandhigh-quality,long-lasting,productsthatmakefamilylifeeasier,safer,andmorefun.Weprideourselvesasleadersofinnovationwithinthejuvenileproductsindustry.Westrivetodeliverinnovationinvariouswaysbaseduponproductcategory.Weendeavortoprovidesimpledesigninnovationinpotties,innovativeconveniencefeaturesinbathandstrollers,newtechnologyinourbabyvideomonitors,andinnovative,safe-sleepsolutionswithinourSwaddleMe®brandedproductline.OurnewBabyPixel™5.0InchTouchscreenColorVideoMonitorfeaturesapioneering,patent-pendingnewtechnology,SleepZone™VirtualBoundary,thatsensesbaby'smovementandalertsparentswhenthesafetyboundaryisbreached.In2017,wealsointroducedanewbathproductthatwebelieveistheonlyoneofitskindinthemarket,theMyBathSeat™,whichprovidesahelpinghandtoparentsatbathtime.
• Increasebrandawarenessanddigitalmarketing.In2018,weexpecttotakeadigital-firstapproachtomarketingcommunicationsandbranddevelopment.Wehavebegunimplementingonlinemarketing,marketingautomation,socialpublishing/listening,anddigitalanalyticstoolstoallowustocommunicatemoreeffectivelywithconsumersofourproductsandunderstandwhat
3
TableofContents
isimportanttothem.Wewillfocusourbrandmarketingeffortswithaconsistent,integratedcommunicationsplantoamplifyourmessage,maximizemarketinginvestments,whichweexpecttohelpdrivesales.Inaddition,wealsowillrenewourfocusononlinemerchandisingtodriveconversionratesbothin-storeandonline,asamajorityofconsumersresearchproductsonlinebeforebuying—eitheratretailorthroughecommerce.
• Operationalefficiencies.Wecontinuetorefineouroperatingmodelaswebringmorefocustoourstrategicpriorities.TheseinitiativesincludeSKUrationalization,warehouseefficiency,doingmoredirectimportbusinessasweemphasizecoregrowthcategories,andevaluatingthelevelofdropshippartnershipsgoingforward.Wealsoexpecttocontinuetoimproveouranalyticandforecastingcapabilities,productdevelopmentprocess,andmanagementofworkingcapitalin2018.
• Maintainandgrowourpartnerships.WehavestrongpartnershipswithoursuppliersintheU.S.andAsia.Webelievethatourflexibilitytodevelopproductsthatareconsumerpreferredandcost-efficientgivesusacompetitiveadvantageinmeetingourcustomerdemands.Wehavelong-standingrelationshipswithourbrickandmortarandoure-commerceretailcustomersintheU.S.Wevaluetheserelationshipsandwillcontinuetofocusonstrengtheningthemtoincreaseourpresenceinstoresandonline.WecontinuetodevelopourrelationshipsoutsidetheU.S.toexpandourbusinessinternationally.WehavefocusedoureffortsongrowingourEuropean,CanadianandAsianmarketpresencebyexpandingourcustomerbaseandestablishingnewdistributorrelationships.Weseeourinternationalbusinessashavingsignificantpotentialforgrowthandexpansion.
Byfocusingonthesekeystrategicpriorities,weexpecttodrivefuturesalesgrowth,improveprofitabilityandreturnoncapital,andfurtherdevelopandstrengthenourrelationshipswithoursuppliers,ourcustomersandtheconsumerswhouseourproducts.
Products
Wecurrentlymarketover1,100productsinseveralproductcategoriesincludingmonitoring,safety,nursery,babygear,andfeedingproducts.Wemarketourcoreproducts,underourSummerInfant®,SwaddleMe®,andBornFree®brandnames.Nosingleproductgeneratedmorethan10%ofsalesforthefiscalyearendedDecember30,2017("fiscal2017").
Anchorproductsinourproductcategoriesincludethefollowing:
Monitoring
Ourmonitorswerefirstintroducedin2001andaredistinguishedbyeaseofuse,andinnovativefeatures.Currently,weofferaudioandvideomonitors,andanewwearableaudiomonitormarketedundertheSummerInfant®brand.Ourmonitorshaveledthewayininnovationwithinthecategoryandfeaturehigh-qualitycomponents,intendedtofulfillthedesireforconsumerstoconnectwithbabyatanytimeorplace.Infiscal2017,welaunchedanewlineofbabyvideomonitorsthatintroducedinnovativefeatureswhileincludingqualityimprovementsinpicturequality,batterylife,andrange.Weexpecttogainincrementalshelfspacewithadditional,newinnovativemonitors,includingthejust-launchedBabyPixel™withpatent-pendingnewtechnology,SleepZone™VirtualBoundary.
4
Monitoring Safety Nursery BabyGear FeedingProductsVideo Gates Swaddle Strollers BottlesAudio Bath TravelAccessories Bassinets DrinkingCupsPrenatal Potties SafeSleep HighChairs Bibs&Placemats
Boosters Soothers Playards FeedingAccessories Positioners SleepAides Pacifiers
TableofContents
Safety
Oursafetylineencompassesgates,bedrails,babyproofing,potties,bath,positioners,boosters,andinfanthealth.WebelievethatweareaNorthAmericanmarketleaderinthegatecategory,withaproductrangeofover30gates.Ourlineofgatesofferversatilitythatcoversuseinhome,easeofinstallation,andaestheticallypleasingdesigns.Infiscal2017,weintroducedanewlineofgatesthatareontrendwithhomedécorsuchasthenewRusticHome,ModernHome,andClassicHomedesigns.In2018,weexpecttocontinuewithastrategyofmarryinghigh-qualitysafetygateswithhomedécor,andhavereceivedpositivefeedbackfromretailersasweexpandourportfolio.
OurMySize™Pottycontinuestobeabestsellerformajorretailersnationwide.Tocapitalizeonitssuccess,weexpecttodevelopanewrangeofMySize™Pottyproductstoofferconsumersmoreoptionsandobtainincrementalplacementswithourretailcustomers.
Wefirstenteredtheinfantbathingcategoryin2002,andwehavecontinuedtocreateinnovativeandsafesolutionsforbathing.Infiscal2017,welaunchedourredesignedLil'Luxuries®WhirlpoolandSpaplatforms,whichcontinuetobeafavoritewithcaregivers.
Nursery
OurnurserylineincludesourcorebrandofSwaddleMe®wearableblanketsaswellasourexpandedlineofsafesleepproductssuchassleepaidesandsoothers.Acquiredin2008,SwaddleMe®continuestobeatrustedbrandsynonymouswithinfantsafesleep.Infiscal2017,weintroducedtheByYourBedSleeper,araisedbassinetwithaninclineoptionthatfitssnugalongsideparent'sbed.Wealsointroducedaninnovative,in-bedsleepsolution,theByYourBedWithinReachSleeper.
Baby Gear
Our3Dlite®ConvenienceStrollercontinuestobeafavoriteamongparents.Wehavecontinuedtoexpandour3Dlineoflightweight,affordable,featurerichstrollers.Infiscal2017,weintroducedthe3Dtote®,afull-featuredstrollerwithanextra-largestoragebasket,pluspocketsandloopsforstoringbabysupplies,whichreceivedpositivereviews.In2018,weexpecttointroducenewcompactandlightweightofferings,includingthe3Dpac™,whichtakesthefeaturesofafull-sizestroller,andpacksitintoacompactpackage,andthelightweight3Dmini™,offeringconvenienceforparentson-the-go.
OurPop'nPlay™PortablePlayard,firstintroducedinfiscal2014,hasprovedtobepopularwithparentsandgrandparentsalike,andweexpandedtheplatformtoincludeaportablebooster,highchairandentertainerunderthesub-brandPOP(portableon-the-goproducts)™.In2018,weplantoexpandandrefreshtheseproductsandofferthematavarietyofpricepointsandretailers.
Feeding products
Ourfeedingproductsincludebibs,placemats,bottles,drinkingcups,pacifiersandotherfeedingaccessoriesthathelpfamiliesduringmealtime.
ProductDevelopmentandDesign
Innovationdrivesourproductdevelopment,acriticalelementofourstrategy.Westrivetoproduceproprietaryproductsthatofferdistinctivebenefits,arevisuallyappealing,andprovidesafe,thoughtfulsolutionstotheconsumer.Ourretailcustomersarestrategicallymotivatedtobuyinnovativeproductstoprovidedifferentiationfromtheircompetitors.
WedesignthemajorityofourproductsatourRhodeIslandheadquarters,leveragingourinternalproductdevelopmentteams.WealsohavedevelopmenteffortsinourChinaandUnitedKingdomoffices,andwhenappropriate,maypartnerwithmanufacturersinAsiaonproductdevelopment.In
5
TableofContents
additiontonewproductdevelopment,wecontinuouslylookforwaystoimproveuponexistingproductsbasedonconsumerinsights,withastrongfocusontheend-userexperienceandproductsafety.
Weengageinmarketresearchandtestmarketingtoevaluateconsumerreactionstoourproducts,bothpre-andpost-production.Ourproductdevelopmentteamandsalesforceareessentialinresearchingconsumerbuyingtrendsandanalyzinginformationfromretailstores,customersurveys,focusgroups,on-linesurveys,industryexpertsandvendorrecommendations.Wecontinuallyevaluateourproductstodeterminewhethertheyshouldbeupgraded,modified,orreplaced.
SuppliersandManufacturing
ThemajorityofourproductsaremanufacturedinAsia(primarilyChina).WealsouseseveralmanufacturersintheUnitedStatesforcertaininjection-moldedproducts,includingbathtubs,pottyseatsandboosterseats.
Wearenotdependentonanyonesupplierasweusemanydifferentmanufacturersandownthetoolingandmoldsusedforourproducts.OurHongKongsubsidiaryprovidesuswithanAsiansourcingpresenceandtheabilitytooverseequality,electronicengineeringandotherissuesthatmayariseduringproduction.Generally,webuyfinishedgoodsfrommanufacturers,andthusdonotdirectlyprocurerawmaterialsforproductmanufacturing.Historically,wehavenotexperiencedanysignificantdisruptionofsupplyasaresultofrawmaterialshortagesorothermanufacturingfactors,butthereisthepossibilitythatshortagescouldoccurinthefuturebasedonavarietyoffactorsbeyondourcontrol.
Asian-madegoodsareshippedonthewatertoourwarehouses,whichtypicallytakesfourweeks.Wealsoutilizeadirectimportprogram,toreducecostsandshippingtimetocertaincustomers.WemaintaininventoryinwarehouseslocatedintheUnitedStates,Canada,andtheUnitedKingdom.Mostofourcustomerspickuptheirgoodsatourwarehouses.Wealsodelivershipmentsdirecttocustomersforsalesfromourownwebsiteandourconsumerreplacementsprogramaswellasforothersmallerretailpartnersthatrequestsucharrangements.
SalesandMarketing
Ourproductsarelargelymarketedandsoldthroughourowndirectglobalsalesforce.Wehavealsoestablishedastrongnetworkofindependentmanufacturers'representativesanddistributorstoprovidesalesandcustomerservicesupportforretailcustomersinNorthAmericanandinternationalsales.Beginningin2018weimplementedathree-yearplantosupportgrowthofdirect-to-consumersales,whichwebelievewillalsoincreaseoverallbrandawareness.
Salesarerecognizedupontransferoftitletoourcustomersandaremadeutilizingstandardcredittermsof30to60days.Wegenerallyacceptreturnsonlyfordefectivemerchandise.
Marketing,promotionandconsumerengagementarekeyelementsinthejuvenileproductsindustry.Historically,asignificantpercentageofourpromotionalspendinghasbeenstructuredincoordinationwithourlargeretailpartners.Infiscal2018,weexpecttofocusourmarketingeffortsongrowingbrandawarenessamongourconsumerdemographic,maximizingmarketinginvestment,andexecutinganintegratedmarketingstrategy.Webelieveanimportantcomponentofourfuturegrowthisbasedonspeakingtotherightcustomer,withtherightcontent,ontherightchannel,attherighttime.Wehavebegunimplementingonlinemarketing,socialmedia,anddigitalanalyticstools,whichshouldallowustobettermeasuretheperformanceofourmarketingactivities,learnfromourconsumers,andreceivevaluableinsightsintoindustryandcompetitoractivities.
Customerserviceisacriticalcomponentofourmarketingstrategy.Wemaintainaninternalcustomerservicedepartmentthatrespondstocustomerinquiries,investigatesandresolvesissues,andisavailabletoassistcustomersandconsumersduringbusinesshours.Infiscal2017,wemadeimprovementsinourconsumercareonlinethroughtheimplementationofdigitaltoolsthatallowusto
6
TableofContents
delivertimelyresponsestoeveryconversation,reactionorquestion.In2018,wewillfocusonimplementingastrategicplantofurtherimprovecustomerservicethroughavarietyoftoolsandtraining.
Competition
Thejuvenileproductindustryhasmanyparticipants,noneofwhichhasdominantmarketshare,thoughcertaincompaniesmayhavedisproportionatestrengthinspecificproductcategories.Wecompetewithanumberofdifferentcompaniesinavarietyofcategories,althoughthereisnosinglecompanythatcompeteswithusacrossallofourproductcategories.OurlargestdirectcompetitorsareMotorola®(alicensedbrandofBinatoneCommunicationsGroup),Munchkin®,GB®(GoodbabyInternationalHoldings,Ltd.),Graco®(asubsidiaryofNewellRubbermaid),Chicco®,Fisher-Price®(asubsidiaryofMattel,Inc.),Vtech®,andAden&Anais®.
Theprimarymethodofcompetitionintheindustryconsistsofbrandpositioning,productinnovation,quality,price,andtimelydistribution.Ourcompetitivestrengthsincludeourabilitytodevelopinnovativenewproducts,speedtomarket,ourrelationshipswithmajorretailers,andthequalityandpricingofourproducts.
IntellectualProperty
Werelyonacombinationofpatents,licensesandtradesecretstoprotectourintellectualproperty.OurcurrentU.S.patentsincludevariousdesignfeaturesrelatedtosafetygates,bouncers,bathers,andmonitorswithseveralotherpatentsunderreviewbytheUnitedStatesPatentandTrademarkOffice(USPTO).Theissuedpatentsexpireatvarioustimesduringthenext17years.Incertaincircumstances,wewillpartnerwiththirdpartiestodevelopproprietaryproducts,and,whereappropriate,wehavelicenseagreementsrelatedtotheuseofthird-partytechnologyinourproducts.
Customers
SalestotheCompany'stopsevencustomerstogethercomprisedapproximately77%ofoursalesinfiscal2017and75%ofoursalesinfiscal2016.Ofthesecustomers,fourgeneratedmorethan10%ofsalesforfiscal2017:Amazon.com(25%),BabiesRUs/ToysRUs(17%),Walmart(16%),andTarget(11%).Infiscal2016,fourcustomersgeneratedmorethan10%ofsales:Amazon.com(20%),BabiesRUs/ToysRUs(20%),Walmart(15%),andTarget(11%).
Wehavenolong-termcontractswiththesecustomers,andasaresult,oursuccessdependsheavilyonourcustomers'willingnesstopurchaseandprovideshelfspaceforourproducts.
Seasonality
Wedonotexperiencesignificantvariationsinseasonaldemandforourproducts.However,weexpecttogeneratehigherthanaveragevolumesfortheinitialshipmentofnewproductswhichtypicallyincludesenoughinventorytofilleachstoreplusadditionalamountstobekeptatthecustomer'sdistributioncenter.Thetimingoftheseinitialshipmentsvariesbycustomerdependingonwhentheyfinalizestorelayoutsfortheupcomingyearandwhetherthereareanymid-yearproductintroductions.
GeographicRegions
NorthAmericaaccountedforapproximately90%and92%ofourtotalnetsalesinfiscal2017andfiscal2016,respectively.Wemaintainsales,marketing,anddistributionofficesinCanadaandEngland,whichservicestheUnitedKingdomandotherpartsofEurope.Wealsomaintainaproductdevelopment,engineeringandqualityassuranceofficeinHongKong.
7
TableofContents
RegulatoryMatters
Eachofourproductsisdesignedtocomplywithallapplicablemandatoryandvoluntarysafetystandards.IntheUnitedStates,thesesafetystandardsarepromulgatedbyfederal,stateandindependentagenciessuchastheUSConsumerProductSafetyCommission,ASTM,theFederalCommunicationsCommission,theFoodandDrugAdministration,theFederalTradeCommission,andvariousstatesAttorneyGeneralsandstateregulatoryagencies.AllofourproductsareindependentlytestedbythirdpartylaboratoriesacceptedbytheConsumerProductSafetyCommission,toverifycompliancetoapplicablesafetystandards.Asimilarapproachisusedtodesignandtestproductssoldinternationally.
Insurance
Wecarryproductliabilityinsurancethatprovidesuswith$15millioncoveragewithaminimaldeductible.Weconsultwithourinsurerstoascertainappropriateliabilitycoverageforourproductmix.Webelieveourcurrentcoverageisadequateforourexistingbusinessandwillcontinuetoevaluateourcoverageinthefutureinlinewithourexpandingsalesandproductbreadth.
Employees
AsofDecember30,2017,wehad201employees,193ofwhomwerefulltimeemployees,and100ofwhomworkinourheadquarters.
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.
8
TableofContents
Item1A.RiskFactors
Ifanyoftheeventsorcircumstancesdescribedinthefollowingrisksactuallyoccur,ourbusiness,financialconditionorresultsofoperationscouldbemateriallyadverselyaffectedandthetradingpriceofourcommonstockcoulddecline.
The concentration of our business with certain retail customers means that changes in the purchasing policies of these customers could have a significantimpact on our business and operating results.
Infiscal2017,salestoourtopsevencustomers,includingAmazon.com,Wal-Mart,BabiesRUs/ToysRUs,andTarget,accountedforapproximately77%ofourtotalsales.Wedonothavelong-termcommitmentsorcontractswithanyofourretailcustomers,andretailersmakepurchasesbydeliveringone-timepurchaseorders.Assuch,anycustomercouldperiodicallyrenegotiatethetermsofourbusinessrelationshipatanytime,whichmightincludereducingoverallpurchasesofourproducts,alteringpricing,reducingthenumberandvarietyofourproductscarriedandtheshelfspaceallottedforourproducts,andreducingcooperativeadvertisingorpromotionsupport.Becauseofthecurrentconcentrationofourbusinesswiththeseretailcustomers,achangeinourrelationshipwithanyofthesecustomerscouldadverselyaffectourresultsofoperationsandfinancialcondition.
Liquidity problems or bankruptcy of our key retail customers could have a significant adverse effect on our business, financial condition, and results ofoperations.
Asignificantportionofourrevenueiswithkeyretailcustomers.Duetothecurrentpressureontraditionalbrick-and-mortarretailers,thereisincreasedriskthatretailerswillsuffermateriallossesorfileforapetitionforbankruptcy.ToysRUs,theownerofBabiesRUs,akeycustomeroftheCompany,filedforbankruptcyprotectioninSeptember2017.Thesaleswemaketotheseretailcustomersaretypicallymadeoncreditwithoutcollateral.Whenacustomerfilesforbankruptcy,ourpre-petitionaccountsreceivablemaynotberealizedandpost-petitionordersreducedorcancelled.Thebankruptcylawsmayseverelylimitourabilitytocollectpre-petitionaccountsreceivable.InearlyJanuary2018,weenteredintoatradeagreementwithToysRUsandexpecttoreceiveatotalof$1.45millioninsettlementofouroutstandingU.S.pre-petitionaccountsreceivableinthefirstquarterof2018.Wehaverecordedabaddebtallowanceof$1.5millionin2017relatedtotheremaininguncollectibleU.S.pre-petitionaswellasCanadianpre-petitionaccountsreceivable.Ifkeycustomers,includingToysRUs,weretoceasedoingbusinessasaresultofbankruptcy,orsignificantlyreducethenumberofstoresoperatedandthereforetheamountofproductsorderedfromus,itwouldhaveanadverseeffectonourbusiness,financialcondition,andresultsofoperations,includingourabilitytoaccessavailabilityunderourcreditfacility.
The intense competition in our market could reduce our net sales and profitability.
Weoperateinahighlycompetitivemarketandcompetewithseverallargedomesticandforeigncompaniesandwithother,smallerproducersofinfantandjuvenileproducts.Manyofourcompetitorshavelongeroperatinghistories,greaterbrandrecognition,andgreaterfinancial,technical,marketingandotherresourcesthanus,orhavegreatere-commerceandsocialmediapresencethanus.Inaddition,wefacecompetitionfromnewparticipantsinourmarketbecausetheinfantandjuvenileproductindustryhaslowbarrierstoentry.Weexperiencepricecompetitionforourproductsandcompetitionforshelfspaceatretailers,allofwhichmayincreaseinthefuture.Ifwecannotadjusttochangesinourmarketandcompetesuccessfullyinthefuture,ournetsalesandprofitabilitywilllikelydecline.
9
TableofContents
Covenants in our credit facility may affect our liquidity or limit our ability to complete acquisitions, incur debt, make investments, sell assets, merge orcomplete other significant transactions. Deviations from expected results of operations and expected cash requirements could result in a failure to meetfinancial covenants, which would adversely affect our financial condition and results of operations.
Werelyonourcreditfacilityandcashgeneratedfromouroperationstomeetourworkingcapitalneeds.Ourcreditfacilityagreementincludescertaincovenantsthatplacelimitationsonorrestrictanumberofouractivities,includingourabilityto:
• incuradditionaldebt;
• createliensonourassetsormakeguarantees;
• makecertaininvestmentsorloans;
• paydividendsormakedistributions;
• disposeoforsellassets;or
• enterintoamergerorsimilartransaction.
Theserestrictivecovenantsmaylimitourabilitytoengageinactsthatmaybeinourbestlong-terminterests.Inaddition,wearesubjecttofinancialcovenantsunderourcreditfacility,includingafixedchargecoverageratioandquarterlyleverageratio.Anysignificantdeviationinactualresultsfromourexpectedresultsofoperations,orinthetimingofmaterialexpendituresfromcurrentestimates,anysignificantbusinessorproductacquisitions,orothersignificantunanticipatedexpensescouldresultinusnotmeetingthesefinancialcovenants.
Non-compliancewiththecovenantsinourcreditfacilitycouldresultinusbeingunabletoutilizeborrowingsunderourcreditfacility,acircumstancewhichpotentiallycouldoccurwhenoperatingshortfallswouldmostrequiresupplementaryborrowingstoenableustocontinuetofundouroperations.Ifaccesstoourcreditfacilityislimitedorterminated,ourliquiditywouldbeconstrained,affectingouroperationsandgrowthprospects,andwewouldneedtoseekamendmentstoourcreditfacilityorobtainadditionalequityordebtfinancingorfacedefault.Thereisnoassurancethatsuchfinancingwouldbeavailableonacceptabletermsoratall.Furthermore,anyequityfinancingmayresultindilutiontoexistingstockholdersandanydebtfinancingmayincluderestrictivecovenantsthatcouldimpedeourabilitytoeffectivelyoperateandgrowourbusinessinthefuture.
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,achieve
10
TableofContents
consumeracceptanceoftheseproducts.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,sourceandshipnewproductsinatimelymannerandonacosteffectivebasis,itcouldhaveanadverseeffectonourbusinessandoperatingresults.
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.Asaresult,wecouldberequiredtorecordinventorywrite-downsforexcessandobsoleteinventory,and/orincuradditionalexpenseforstorageofexcessinventory,whichwouldadverselyaffectouroperatingresults.Inaddition,ifourprocessesresultinourinventorylevelsbeingtoolowtomeetcustomerdemand,wemaylosesales,whichwouldadverselyaffectouroperatingresults.
Because we rely on foreign suppliers and we sell our products in foreign markets, we are subject to numerous risks associated with international business thatcould increase our costs or disrupt the supply of our products, resulting in a negative impact on our business and financial condition.
WhilethemajorityofoursalescontinuetobeinNorthAmerica,weoperatefacilitiesandsellproductsincountriesoutsidetheUnitedStates.Additionally,aswediscussbelow,weutilizethird-partysuppliersandmanufacturerslocatedinAsiatoproduceamajorityofourproducts.Thesesalesandmanufacturingoperations,includingoperationsinemergingmarketsthatwehaveentered,mayenter,ormayincreaseourpresencein,aresubjecttotherisksassociatedwithinternationaloperations,including:
• economicandpoliticalinstability;
11
TableofContents
• restrictiveactionsbyforeigngovernments;
• greaterdifficultyenforcingintellectualpropertyrightsandweakerlawsprotectingintellectualpropertyrights;
• traderestrictions;
• workstoppagesorotherchangesinlaborconditions;
• reductioninbusinessactivityinsomepartsoftheworld;
• currencyfluctuationsanddevaluations;
• changesinimportdutiesorimportorexportrestrictions;
• compliancewithanti-briberyandanti-corruptionregulations;
• untimelyshippingofproductandunloadingofproductthroughWestCoastports,aswellasuntimelytruckdeliverytoourwarehouses;
• complicationsincomplyingwiththelawsandpoliciesoftheUnitedStatesaffectingtheimportationofgoods,includingduties,quotas,andtaxes;
• limitationsonrepatriationofforeignearnings;and
• complicationsincomplyingwithforeigntaxlaws.
RecentuncertaintywithrespecttopotentialchangestotheU.S.tariff,andimport/exportregulationsmayhaveanegativeeffectonourresultsofoperations.DuetooursignificantmanufacturingpresenceinChina,fromwhichweimportamajorityofourproducts,theoccurrenceofsuchtradereformsorrestrictionscouldsignificantlyimpactourbusinessinanadversemanner.
Asaresultofourinternationaloperations,wearesubjecttotheU.S.ForeignCorruptPracticesActandsimilarforeignanti-corruptionandanti-briberylaws.Recentyearshaveseenasubstantialincreaseintheglobalenforcementofanti-corruptionlaws,withmorefrequentvoluntaryself-disclosuresbycompanies,aggressiveinvestigationsandenforcementproceedingsbyboththeU.S.DepartmentofJusticeandtheSECresultinginrecordfinesandpenalties,increasedenforcementactivitybynon-U.S.regulators,andincreasesincriminalandcivilproceedingsbroughtagainstcompaniesandindividuals.Ourfailuretosuccessfullycomplywithanysuchlegalrequirementscouldsubjectustomonetaryliabilitiesandothersanctionsthatcouldfurtherharmourbusinessandfinancialcondition.
Also,becausewegeneratesomeofourrevenueoutsidetheUnitedStatesbutreportourfinancialresultsinU.S.dollars,ourfinancialresultsareimpactedbyfluctuationsinforeigncurrencyexchangerates.IftheU.S.dollarisstrongagainstforeigncurrencies,ourtranslationofforeigncurrencydenominatedrevenueorexpensecouldresultinlowerU.S.dollardenominatednetrevenueandexpense.
Any adverse change in our relationship with our suppliers could harm our business.
Werelyonnumerousthird-partysupplierslocatedinAsiaforthemanufactureofmostofourproducts.Whilewebelievethatalternativesupplierscouldbelocatedifrequired,ourproductsourcingcouldbeaffectedifanyofthesesuppliersdonotcontinuetomanufactureourproductsinrequiredquantitiesoratall,orwiththerequiredlevelsofquality.Wedonothaveanylong-termsupplycontractswithourforeignsuppliers;rather,weenterintopurchaseorderswiththesesuppliers.Inaddition,difficultiesencounteredbythesesuppliers,suchasfire,accident,naturaldisasters,outbreaksofcontagiousdiseases,orpoliticalunrest,couldhaltordisruptproductionattheaffectedlocations,resultingindelayorcancellationoforders.Anyoftheseeventscouldresultindelayeddeliveriesbyusofourproducts,causingreducedsalesandharmtoourreputationandbrandname.
12
TableofContents
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.
Wereceive,fromtimetotime,claimsofallegedinfringementofpatentsrelatingtocertainofourproducts,andwemayfacesimilarclaimsinthefuture.Thedefenseofintellectualpropertyclaimscanbecostlyandtimeconsuming,evenincircumstanceswheretheclaimiswithoutmerit.Wemayberequiredtopaysubstantialdamagesorsettlementcostsinordertoresolvethesetypesofclaims.Inaddition,theseclaimscouldmateriallyharmourbrandname,reputationandoperations.
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,concernsaboutpotential
13
TableofContents
liabilitymayleadustorecallvoluntarilyselectedproducts.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,safetyandwellnessmarkets,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,whicharereviewedonanannualbasisand/orwhenevereventsandchangesincircumstancesindicatethatthecarryingamountofanassetmaynotberecoverable.Ifthecarryingvalueoftheseassetsexceedsthecurrentfairvalue,theassetisconsidered
14
TableofContents
impairedandisreducedtofairvalue,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.
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.
15
TableofContents
Item2.Properties
Weareheadquarteredina62,500squarefootfacilityinWoonsocket,RhodeIsland.Wehavealeaseonthisfacility,whichwillexpirein2021.WealsoleasesmallofficesinArkansas,Washington,Canada,theUnitedKingdomandHongKong.
WemaintaininventoryatleasedwarehousesinCalifornia(approximately460,000squarefeet),Canada(approximately61,000squarefeet),andtheUnitedKingdom(approximately25,000squarefeet).Theseleasesexpireatvarioustimesthrough2023.
Item3.LegalProceedings
TheCompanyisapartytoroutinelitigationandadministrativecomplaintsincidentaltoitsbusiness.TheCompanydoesnotbelievethattheresolutionofanyorallofsuchcurrentroutinelitigationandadministrativecomplaintsislikelytohaveamaterialadverseeffectontheCompany'sfinancialconditionorresultsofoperations.
Item4.MineSafetyDisclosures
Notapplicable.
16
TableofContents
PARTII
Item5.MarketforRegistrant'sCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities
Price Range of Common Stock
OurcommonstockistradedontheNasdaqCapitalMarketunderthesymbol"SUMR".
ThehighandlowsalespricesforourcommonstockasreportedontheNasdaqCapitalMarketfortheperiodsindicatedbelowwereasfollows:
Holders of Common Stock
AsofFebruary19,2018,therewere34holdersofrecordofourcommonstock.Becausesharesofourcommonstockareheldbydepositaries,brokersandothernominees,thenumberofbeneficialholdersofoursharesissubstantiallylargerthanthenumberofrecordholders.
Dividend Policy
TherehavebeennocashdividendsdeclaredonourcommonstocksinceourCompanywasformed.DividendsaredeclaredatthesolediscretionofourBoardofDirectors.Ourintentionisnottodeclarecashdividendsandretainallcashforouroperations.Inaddition,underthetermsofourcurrentcreditfacilities,wearerestrictedinourabilitytopaycashdividendstoourstockholders.
Issuer Repurchases of Equity Securities
None.
Recent Sales of Unregistered Securities
Notapplicable.
Item6.SelectedConsolidatedFinancialData
Notrequired.
Item7.Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations
Thefollowingdiscussionisintendedtoassistintheassessmentofsignificantchangesandtrendsrelatedtoourresultsofoperationsandfinancialcondition.Theinformationcontainedinthissectionhasbeenderivedfromourconsolidatedfinancialstatementsandshouldbereadtogetherwithourconsolidatedfinancialstatementsandrelatednotesincludedelsewhereinthisreport.Readersshouldalsoreviewandconsiderourdisclosuresundertheheading"SpecialNoteRegardingForward-Looking
17
High Low FiscalYearEndedDecember31,2016 FirstQuarter $ 2.25 $ 1.43SecondQuarter $ 1.95 $ 1.22ThirdQuarter $ 2.44 $ 1.61FourthQuarter $ 2.32 $ 1.65FiscalYearEndedDecember30,2017 FirstQuarter $ 2.24 $ 1.73SecondQuarter $ 2.06 $ 1.65ThirdQuarter $ 2.25 $ 1.66FourthQuarter $ 1.96 $ 1.32
TableofContents
Statements"describingvariousfactorsthatcouldaffectourbusinessandthedisclosuresundertheheading"RiskFactors"inthisreport.
NotethatalldollaramountsinthisItem7areinthousandsofU.S.dollars,exceptshareandpersharedata.
Overview
Weareaninfantandjuvenileproductscompanyoriginallyfoundedin1985andhavepubliclytradedontheNasdaqStockMarketsince2007underthesymbol"SUMR."Wearealeaderinproductinnovationinthejuvenileindustry,providingparentsandcaregiversafullrangeofhigh-quality,high-valueproductstocareforbabiesandtoddlers.Weseektoimprovethequalityoflifeofbothcaregiversandbabiesthroughourproductofferings,whileatthesametimemaximizingshareholdervalueoverthelongterm.
Weoperateinoneprincipalindustrysegmentacrossgeographicallydiversemarketplaces,sellingourproductsgloballytolarge,nationalretailersaswellasindependentretailers,andonourpartner'swebsitesandourownsummerinfant.comwebsite.InNorthAmerica,ourcustomersincludeAmazon.com,Wal-Mart,BabiesRUs,Target,BuyBuyBaby,HomeDepot,andLowe's.OurlargestEuropean-basedcustomersareArgos,Amazon,ToysRUs,andMothercare.Wealsosellthroughinternationaldistributors,representatives,andtoselectinternationalretailcustomersingeographiclocationswherewedonothaveadirectsalespresence.
Whilesalesdeclined2.3%in2017,wenarrowedournetlossascomparedtofiscal2016andmaintainedgrossmarginsaswestreamlinedoperationsandcontrolledspending.Ourresultsin2017werenegativelyimpactedinpartbytheSeptember2017bankruptcyfilingofoneofourlargestcustomers,andwerecordedachargeofapproximately$1.5millionasanallowanceforbaddebtrelatedtothiscustomer'spre-bankruptcypetitionaccountsreceivable.
InearlyJanuary2018,weenteredintoatradeagreementwiththiscustomerpursuanttowhichwewillreceivepaymentonaportionofourpre-petitionaccountsreceivableinthefirstquarterof2018andwhichdesignatesusasacriticalvendor.Asacriticalvendor,wewillcontinuetodobusinesswiththiscustomerduringthependencyofitsbankruptcyonsubstantiallythesametradetermsasineffectpriortothebankruptcyfiling.Whilewearestillassessingthelong-termimpactofthebankruptcyonourbusiness,wecurrentlyexpectthatwewillcontinuetodobusinesswiththiscustomerin2018,albeitatareducedratecomparedto2017.
InDecember2017,theU.S.governmentenactedcomprehensivetaxlegislationcommonlyreferredtoastheTaxCutsandJobsAct(the"TaxAct")thatsignificantlyrevisedtheU.S.taxcodeeffectiveJanuary1,2018by,amongotherthings,loweringthecorporateincometaxratefromatopmarginalrateof35%toaflat21%,limitingdeductibilityofinterestexpenseandperformancebasedincentivecompensationandimplementingaterritorialtaxsystem.TheTaxActnegativelyimpactedourconsolidatedresultsofoperationsinthefourthquarterof2017.Inparticular,werecordeda$734taxprovisionforthedeemedrepatriationofpastforeignincome,$882forawritedowninforeigntaxcreditsand$115forawritedownofthevalueofourdeferredtaxassetsduetofuturelowerincometaxrates.Thesetaxchargeswerenoncashinnatureasweexpecttobeabletoutilizeexistingfederalnetoperatinglosscarryforwardsforanypaymentdueonpreviouslyunremittedearningsofforeignsubsidiaries.Theseamountsrepresentourprovisionalestimatesandmaybesubjecttofurtheradjustmentoncefinalized.
Primarilyasaresultofthe$1.5millionchargefortheallowanceforbaddebtsand$1.7millioninprovisionaltaxchargesattributabletotheTaxActandlowersales,weendedfiscal2017withanetlossof$0.12pershareascomparedtoanetlossof$0.23pershareinfiscal2016.
18
TableofContents
In2018,weexpecttocontinueoureffortstocontrolcostswhileinvestinginresearchanddevelopmentandimprovingouroverallproductpositioning.Wealsoexpecttoinvestapproximately$1millioninourWestCoastdistributioncentertomoreefficientlyhandleourmerchandise.
SummaryofCriticalAccountingPoliciesandEstimates
Thefollowingsummaryofourcriticalaccountingpoliciesispresentedtoassistinunderstandingourconsolidatedfinancialstatements.Theconsolidatedfinancialstatementsandnotesarerepresentationsofourmanagement,whoareresponsiblefortheirintegrityandobjectivity.TheseaccountingpoliciesconformtoaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmericaandhavebeenconsistentlyappliedinthepreparationoftheconsolidatedfinancialstatements.AdditionalinformationaboutouraccountingpoliciesandestimatesmaybefoundinNote1toourconsolidatedfinancialstatementsincludedinthisreport.
Wemakecertainestimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesandthereportedamountsofrevenuesandexpenses.Theaccountingpoliciesdescribedbelowarethoseweconsidercriticalinpreparingourfinancialstatements.Someofthesepoliciesincludesignificantestimatesmadebymanagementusinginformationavailableatthetimetheestimatesweremade.However,theseestimatescouldchangemateriallyifdifferentinformationorassumptionswereused.
Revenue Recognition
Werecordrevenuewhenallofthefollowingoccur:persuasiveevidenceofanarrangementexists,productdeliveryhasoccurred,thesalespricetothecustomerisfixedordeterminable,andcollectabilityisreasonablyassured.Salesarerecordednetofprovisionsforreturnsandallowances,cashdiscounts,andmarkdowns.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,receivable
19
TableofContents
agingandcustomerdisputes.Wewillcontinuetoproactivelyreviewourcreditrisksandadjustcustomertermstoreflectthecurrentenvironment.
Inventory Valuation
Inventoryiscomprisedoffinishedgoodsandisstatedatthelowerofcost,inclusiveoffreightandduty,ormarket(netrealizablevalue)usingthefirst-in,first-out(FIFO)methodornetrealizablevalue.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.InterestandpenaltiesrelatedtouncertaintaxpositionswereaccruedatDecember30,2017.Onaglobalbasis,theopentaxyearssubjecttoexaminationbymajortaxingjurisdictionsinwhichweoperateisbetweentwotosixyears.
20
TableofContents
ResultsofOperations
ThefollowingtablepresentsselectedcondensedconsolidatedfinancialinformationforourCompanyforthefiscalyearsendedDecember30,2017("fiscal2017")andDecember31,2016("fiscal2016").
Fiscal 2017 Compared with Fiscal 2016
Netsalesdecreased2.3%to$189,869forfiscal2017from$194,328forfiscal2016.Thedecreaseisprimarilyduetoa$5,943reductioninsalestoalargecustomerinpartasaresultofitsbankruptcyfiling,butthecustomeralsocontributedtoa$12,075decreaseinmonitorsalesduetoincreasedcompetition.Thedecreasewaspartiallyoffsetbya$10,517increaseinsafetyproductsalesincludingnewlyintroducedboostersandpotties.
Costofgoodssoldincludesthecostofthefinishedproductfromsuppliers,dutiesoncertainimporteditems,freight-infromsuppliers,andmiscellaneouscharges.Thecomponentsofcostofgoodssoldremainedsubstantiallythesameforfiscal2017ascomparedtofiscal2016.
Grossprofitdeclined2.5%to$60,195forfiscal2017from$61,751forfiscal2016,however,grossmarginstayedrelativelyconstantat31.7%forfiscal2017versus31.8%forfiscal2016.Grossprofitdecreasedprimarilyduetolowersalesand$244ofincreasedtemporarydemurrageandtransportcosts.Grossmargindeclinedprimarilydueto$244ofincreasedtemporarydemurrageandtransportcosts.
Generalandadministrativeexpensesdecreased5.8%to$38,878forfiscal2017from$41,292forfiscal2016andasapercentofsalesto20.5%forfiscal2017from21.2%forfiscal2016.ThedecreaseindollarsandasapercentofsaleswasprimarilyattributabletothesettlementoflitigationinDecember2016.Litigationexpensewas$2,397forfiscal2016comparedtoalitigationinsurancereimbursementof$400infiscal2017.Thedecreasewaspartiallyoffsetbya$1,560chargeinfiscal2017toincreaseourallowanceforbaddebtsduetothebankruptcyfilingofalargecustomer.
Sellingexpensesdecreasedby6.8%to$14,229forfiscal2017from$15,269forfiscal2016andasapercentofsalesto7.5%forfiscal2017from7.9%forfiscal2016.Thedecreaseinsellingexpensewasprimarilyattributabletolowersalesandtoanincreaseinourdirectimportbusinesswhichdoesnotincurcooperativeadvertisingcosts.Thedecreaseinsellingexpenseasapercentofsaleswasprimarilyattributabletoanincreaseinourdirectimportbusinesswhichdoesnotincurcooperativeadvertisingcosts.
21
Yearended
December30,2017 YearEnded
December31,2016 Netsales $ 189,869 100.0% $ 194,328 100.0%Costofgoodssold 129,674 68.3% 132,577 68.2%Grossprofit 60,195 31.7% 61,751 31.8%Generalandadministrativeexpenses 38,878 20.5% 41,292 21.2%Sellingexpenses 14,229 7.5% 15,269 7.9%Depreciationandamortization 4,197 2.2% 5,011 2.6%Impairmentofintangibleassets — —% 2,993 1.5%Income(loss)fromoperations 2,891 1.5% (2,814) (1.4)%Interestexpense,net 2,968 1.6% 2,682 1.4%Lossbeforeprovision(benefit)forincometaxes (77) (0.1)% (5,496) (2.8)%Provision(benefit)forincometaxes 2,172 (1.1)% (1,174) 0.6%Netloss $ (2,249) (1.2)% $ (4,322) (2.2)%
TableofContents
Depreciationandamortizationdecreased16.2%to$4,197forfiscal2017from$5,011infiscal2016.Fiscal2016included$341ofaccelerateddepreciationduetotheshortenedestimatedusefullifeonsomenextgenerationtechnologythatwasdiscontinued.Thedecreaseindepreciationisalsoattributabletoareductionincapitalinvestmentoverseveralyears.
Inthefourthquarterof2016,weundertookourannualintangibleassetimpairmentanalysisandengagedathirdpartytoassistmanagementinvaluingourinfinitelivedintangibleassetsrecordedonourbalancesheet.Managementdeterminedthattheestimatedfairvalueofthatindefinitelivedassetwaslowerthanitscarryingvalue,andwerecordedanon-cashimpairmentchargeof$2,993inthefourthquarteroffiscal2016.Inaddition,managementdeemedtheremainingvalueoftheindefinitelivedassettohaveafinitelifesubjecttoamortizationoveritsremainingusefullifeestimatedtobe15years.Whilethechargeaffectedourfinancialconditionandresultsofoperationsforfiscal2016,ithadnoimpactonourday-to-dayoperationsorliquidityandwillnotresultinanyfuturecashexpenditures.Therewasnoimpairmentchargerecordedin2017.
Interestexpenseincreased10.7%to$2,968forfiscal2017from$2,682infiscal2016.Interestexpenseincreasedprimarilyasaresultofhigheraverageinterestrates.
Forfiscal2017,werecordeda$2,172taxprovisionon$77ofpretaxlossfortheperiod.Thetaxprovisionforfiscal2017includedtheeffectof$366ofnon-deductibleexpensesprimarilyattributabletoforeigntoolingdepreciation.Thefiscal2017taxprovisionwasalsoeffectedbytheTaxAct.Asaresult,werecordeda$734taxprovisionforthedeemedrepatriationofpastforeignincome,$882forawritedowninforeigntaxcreditsand$115forawritedownofthevalueofourdeferredtaxassetsduetofuturelowerincometaxrates.Forfiscal2016,werecordeda$1,174taxbenefiton$5,496ofpretaxlossfortheperiod.Thesetaxchargeswerenoncashinnatureasweexpecttobeabletoutilizeexistingfederalnetoperatinglosscarryforwardsforanypaymentdueonpreviouslyunremittedearningsofforeignsubsidiaries.Theseamountsrepresentourprovisionalestimatesandmaybesubjecttofurtheradjustmentoncefinalized.Thetaxbenefitincludedtheeffectsof$471ofnon-deductibletoolingdepreciation,$270ofexpiringcharitabledonationcarryforwards,and$299relatedtotheimpairmentcharge.
LiquidityandCapitalResources
Wefundouroperationsandworkingcapitalneedsthroughcashgeneratedfromoperationsandborrowingsunderourcreditfacility.
Cash Flows
Inourtypicaloperationalcashflowcycle,inventoryispurchasedtomeetexpecteddemandplusasafetystock.ThemajorityofourinventoryissourcedfromAsiawhichtakesapproximatelythreetofourweekstoarriveatthevariousdistributionpointswemaintainintheUnitedStates,CanadaandtheUnitedKingdom.Paymenttermsforthesevendorsareapproximately60-90daysfromthedatetheproductshipsfromAsia,thereforewearegenerallypayingfortheproductashorttimeafteritisphysicallyreceivedintheUnitedStates.Inturn,salestocustomersgenerallyhavepaymenttermsof30to60days,resultinginanaccountsreceivableandincreasingtheamountofcashrequiredtofundworkingcapital.Tobridgethegapbetweenpayingoursuppliersandreceivingpaymentfromourcustomersforgoodssold,werelyonourcreditfacilities.
Themajorityofourcapitalexpendituresarefortoolsandmoldsrelatedtonewproductintroductions.Wereceiveindicationsfromretailersgenerallyaroundthemiddleofeachyearastowhatproductstheretailerwillbetakingintoitsproductlinefortheupcomingyear.Basedontheseindications,wewillacquiretoolsandmoldsrequiredtobuildandproducetheproducts.Inmostcases,thepaymentsforthetoolsandmoldsarespreadoverathreetofourmonthperiod.
22
TableofContents
Forfiscal2017,netcashprovidedbyoperatingactivitieswasapproximately$1,211generatedprimarilyfromoperatingperformancepartiallyoffsetbyhigheraccountsreceivableattributabletodelaysincollectionfromthebankruptcyofalargecustomercombinedwithahighermixofsaleswithcertaincustomerswithlongerpaymenttermsaswellasduetoareductioninloweraccountspayable.Forfiscal2016,netcashprovidedbyoperatingactivitieswasapproximately$8,788andwasgeneratedprimarilyfromoperatingperformanceaswellasloweraccountsreceivableduetoacombinationoflowersalesandimprovedcollections.
Forfiscal2017,netcashusedininvestingactivitieswasapproximately$3,103.Forfiscal2016,netcashusedininvestingactivitieswasapproximately$2,266.Theuseofcashininvestingactivitieswasprimarilyattributabletotoolingandmoldexpendituresrelatedtonewproductintroductionswhichincreaseinfiscal2017.
Forfiscal2017,netcashprovidedbyfinancingactivitieswasapproximately$1,321,reflectingborrowingsonourcreditfacilitytofundinvestingactivities.Forfiscal2016,netcashusedinfinancingactivitieswasapproximately$6,548,reflectingrepaymentsonourcreditfacility.
Basedprimarilyontheabovefactors,netcashdecreasedforfiscal2017by$318,resultinginacashbalanceofapproximately$681atfiscalyearend.
Thefollowingtablesummarizesoursignificantcontractualcommitmentsatfiscal2017yearend:
EstimatedfutureinterestpaymentsonourRevolvingFacility,FILOFacility,andTermLoanFacilityarebasedupontheinterestratesineffectatDecember30,2017.
Capital Resources
Inadditiontooperatingcashflow,wealsorelyonourexistingasset-basedrevolvingcreditfacilitywithBankofAmerica,N.A.tomeetourfinancingrequirements,whichissubjecttochangesinourinventoryandaccountreceivablelevels.Weregularlyevaluatemarketconditions,ourliquidityprofile,andvariousfinancingalternativesforopportunitiestoenhanceourcapitalstructure.
23
PaymentDuebyFiscalPeriod
ContractualObligations Total 2018 2019 2020 2021 2022andbeyond
RevolvingFacility $ 41,899 — — 41,899 — —FILOFacility 1,250 $ 1,250 — — — —TermLoanFacility 5,000 2,000 2,000 1,000 — —EstimatedfutureinterestpaymentsonRevolvingFacility 4,103 1,641 1,558 904 — —EstimatedfutureinterestpaymentsonFILOFacility 35 35 — — — —EstimatedfutureinterestpaymentsonTermLoanFacility 374 230 115 29 — —Operatingleases 10,261 2,561 2,625 2,554 2,045 476Capitalleasesandotherliabilities 1,511 458 468 468 117 —Totalcontractualcashobligations $ 64,433 $ 8,175 $ 6,766 $ 46,854 $ 2,162 $ 476
TableofContents
Ifweareunabletomeetourcurrentfinancialforecast,donotadequatelycontrolexpenses,oradjustouroperationsaccordingly,wemaynotremainincompliancewiththefinancialcovenantsrequiredunderourexistingrevolvingcreditfacility.Unforeseencircumstances,couldcreateasituationwherewecannotaccessallofouravailablelinesofcreditduetoinsufficientassetavailabilityoraninabilitytomeetthefinancialcovenantsasrequiredunderourcreditfacility.Thereisnoassurancethatwewillmeetallofourfinancialorothercovenantsinthefuture,orthatourlenderswillgrantwaiversiftherearecovenantviolations.Inaddition,shouldweseektoraiseadditionalfundsthroughdebtorequityfinancings,anysaleofdebtorequitysecuritiesmaycausedilutiontoexistingstockholders.Ifsufficientfundsarenotavailableorarenotavailableonacceptableterms,ourabilitytoaddressanyunexpectedchangesinouroperationscouldbelimited.
Basedonpastperformanceandcurrentexpectations,webelievethatouranticipatedcashflowfromoperationsandavailabilityunderourexistingcreditfacilityaresufficienttofundourworkingcapital,capitalexpendituresanddebtservicerequirementsforatleastthenext12months.
Credit Facilities
Weandourwhollyownedsubsidiary,SummerInfant(USA),Inc.,arepartiestoanamendedandrestatedloanandsecurityagreementwithBankofAmerica,N.A.,asagent,providingforanasset-basedcreditfacility(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.ForadditionalinformationontheCreditFacility,pleaseseeNote4toourconsolidatedfinancialstatementsincludedinthisAnnualReportonForm10-K.
AsofDecember30,2017,therateforbase-rateloanswas5.50%andtherateforLIBOR-rateloanswas4.125%.TheamountoutstandingontheRevolvingFacilityatDecember30,2017was$41,899.TotalborrowingcapacityundertheRevolvingFacilityatDecember30,2017was$45,098andborrowingavailabilitywas$3,199.TheamountsoutstandingontheTermLoanFacilityandFILOFacilityatDecember30,2017were$5,000and$1,250,respectively.
WewereincompliancewiththefinancialcovenantsundertheCreditFacilityasofDecember30,2017.
Off-BalanceSheetArrangements
Wedidnothaveanyoff-balancesheetarrangementsduringtheyearendedDecember30,2017ortheyearendedDecember31,2016.
RecentlyIssuedAccountingPronouncements
InMay2014,theFASBissuedASU2014-09,"RevenuefromContractswithCustomers(Topic606)"providingnewaccountingguidancerelatedtorevenuerecognition.ThisguidancewasoriginallyproposedtobeeffectiveforreportingperiodsbeginningafterDecember15,2016,howeverin
24
TableofContents
July2015,theFASBapprovedthedelayinthisguidanceuntilreportingperiodsbeginningafterDecember15,2017.Underthestandard,revenueisrecognizedwhenacustomerobtainscontrolofpromisedgoodsorservicesinanamountthatreflectstheconsiderationtheentityexpectstoreceiveinexchangeforthosegoodsorservices.TheCompanyhasevaluatedthenewstandardagainstitsexistingaccountingpoliciesandpractices,includingreviewingpurchaseorders,invoices,shippingterms,conductingquestionnaireswithitssalesteamandreviewingotheragreementsandcontractswithcustomers.BasedontheevaluationoftheCompany'scurrentcontractsandrevenuestreams,theCompanydoesnotexpecttheadoptionofthestandardtohaveamaterialimpactonthecompany'sconsolidatedfinancialposition,resultsofoperations,orcashflowonanongoingbasis.TheCompanyexpectstohaveenhanceddisclosuresrelatedtodisaggregationofrevenuesourcesandaccountingpolicies.TheCompanyhaselectedtousethemodifiedretrospectivetransitionmethodtoapplythenewguidanceandwilladoptthenewrevenueguidanceeffectivethefirstdayoffiscal2018andtheimpactwasimmaterial.
InJuly2015,theFASBissuedASU2015-11,"SimplifyingtheMeasurementofInventory."ThisguidancerequiredinventorywithinthescopeofASU2015-11tobemeasuredatthelowerofcostandnetrealizablevalue.Netrealizablevalueisdefinedastheestimatedsellingpriceintheordinarycourseofbusiness,lessreasonablypredictablecostsofcompletion,disposal,andtransportation.ThisguidancewaseffectiveforfiscalyearsbeginningafterDecember15,2016.TheCompanyadoptedthisguidanceinthefirstquarterof2017andtheimpactonitsconsolidatedfinancialstatementswasimmaterial.
InFebruary2016,theFASBissuedASU2016-02,"Leases(Topic842),"("ASU2016-02").ASU2016-02requireslesseestorecognizeassetsandliabilitiesonthebalancesheetforleaseswithleasetermsgreaterthantwelvemonthsanddisclosekeyinformationaboutleasingarrangements.Theeffectivedatewillbethefirstquarteroffiscalyear2019,withearlyadoptionpermitted.TheCompanyisevaluatingtheimpactthatadoptionofthisnewstandardwillhaveonitsconsolidatedfinancialstatements.
InMarch2016,theFASBissuedASU2016-09,"Compensation—StockCompensation:ImprovementstoEmployeeShare-BasedPaymentAccounting."Theguidancesimplifiedtheaccountingandfinancialreportingoftheincometaximpactofstock-basedcompensationarrangements.Thisguidancerequiredexcesstaxbenefitstoberecordedasadiscreteitemwithinincometaxexpenseratherthanadditionalpaid-in-capital.Inaddition,excesstaxbenefitsarerequiredtobeclassifiedascashfromoperatingactivitiesratherthancashfromfinancingactivities.TheCompanyadoptedthisguidanceasofthebeginningoffiscal2017.TheCompanyalsoelectedtocontinuetoestimateforfeitures,aspermittedbyASU2016-09,ratherthanelectingtoaccountforforfeituresastheyoccur.Theimpactofadoptingthisguidanceinthefirstquarterof2017wasimmaterialtotheCompany'sconsolidatedfinancialstatements.
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,as
25
TableofContents
amended.Thesestatementsconcernmanagement'scurrentassumptions,estimates,beliefs,plans,strategiesandexpectationsandanticipatedeventsortrendsandsimilarexpressionsconcerningmattersthatarenothistoricalfacts.Suchforward-lookinginformationmaybeidentifiedbytermssuchas"expect,""anticipate,""believe,""outlook,""may,""estimate,""should,""predict"andsimilartermsorvariationsthereof,andincludesstatementsregardingourexpectationswithrespecttotheeffectivenessofourstrategytopromotefuturegrowthandprofitability,thestrengthofourcustomerandsupplierrelationships,theimpactofincreasedbrandawarenessanddigitalmarketing,theimpactofcostcontrolefforts,researchanddevelopmentinvestmentandproductpositioningin2018,ourliquidityforthenext12months,ourprovisionalchangesrelatedtotherecentlyenactedTaxAct,theimpactoftheTRUbankruptcyin2018andbeyond,improvementsinourWestCoastdistributioncenter,andexpectedtrendsandproductofferingsin2018.Thesestatementsarebasedonaseriesofexpectations,assumptions,estimatesandprojectionsaboutourCompany,arenotguaranteesoffutureresultsorperformance,andinvolvesignificantrisks,uncertaintiesandotherfactors,includingassumptionsandprojections,forallforwardperiods.Ouractualresultsmaydiffermateriallyfromanyfutureresultsexpressedorimpliedbysuchforward-lookingstatements.Suchfactorsinclude,amongothers,thefollowing:
• theconcentrationofourbusinesswithasmallnumberofretailcustomerswhomaysufferliquidityproblemsorbankruptcy;
• ourabilitytocompetebyintroducingnewproductsorenhancingexistingproductsthatsatisfyconsumerpreferences;
• ourabilitytocompeteeffectivelywithlargerandsmallercompaniesthathavemorefinancialresourcesandgreatere-commercepresencethanus;
• ourabilitytomanageinventorylevelsandmeetcustomerdemand;
• ourabilitytocomplywithfinancialandothercovenantsinourcreditfacility;
• ourabilitytomanageourdebttoprovideadditionalliquiditytosupportgrowth;
• anyadjustmentsthatmayberequiredtoourprovisionaltaxchargesrecordedinthefourthquarterof2017;
• ourrelianceonforeignsuppliersandpotentialdisruptioninforeignmarketsinwhichweoperate;
• increasesinthecostofrawmaterialsusedtomanufactureourproducts;
• ourabilitytoprotectourintellectualproperty;
• compliancewithsafetyandtestingregulationsforourproducts;
• productliabilityclaimsarisingfromuseofourproducts;
• ourdependenceonkeypersonnel;
• animpairmentofotherintangibleassets;and
• anyfailure,inadequacyorinterruptionofourinformationtechnologysystemsthatmaydisruptouroperations.
Theforegoinglistofimportantfactorsdoesnotincludeallsuchfactors,nornecessarilypresenttheminorderofimportance.Inaddition,pleaserefertothe"RiskFactors"sectionofthisreportforadditionalinformationregardingfactorsthatcouldaffectourresultsofoperations,financialconditionandliquidity.
26
TableofContents
Weintendourforward-lookingstatementstospeakonlyasofthetimeofsuchstatementsanddonotundertakeorplantoupdateorrevisethemasmoreinformationbecomesavailableortoreflectchangesinexpectations,assumptionsorresults.Wecannotgiveanyassurancethatsuchexpectationsorforward-lookingstatementswillprovetobecorrect.Anoccurrenceof,oranymaterialadversechangein,oneormoreoftheriskfactorsorrisksanduncertaintiesreferredtointhisreportorincludedinourotherperiodicreportsfiledwiththeSECcouldmateriallyandadverselyimpactouroperationsandourfuturefinancialresults.
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,oftheeffectivenessofourdisclosurecontrolsandproceduresasofDecember30,2017.Ourprincipalexecutiveofficerandprincipalfinancialofficerhaveconcluded,basedontheirevaluation,thatourdisclosurecontrolsandprocedureswereeffectiveasofDecember30,2017.
(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
27
TableofContents
3)Providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,useordispositionofacompany'sassetsthatcouldhaveamaterialeffectonitsfinancialstatements.
Becauseoftheinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
TheCompany'smanagementhasusedthecriteriaestablishedinthe2013"InternalControl—IntegratedFramework"issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission("COSOFramework")toevaluatetheeffectivenessoftheCompany'sinternalcontroloverfinancialreporting.
ManagementoftheCompanyconductedanevaluationoftheeffectiveness,asofDecember30,2017,oftheCompany'sinternalcontroloverfinancialreportingandbasedonitsevaluationundertheCOSOFramework,managementhasconcludedthattheCompany'sinternalcontroloverfinancialreportingwaseffectiveasofDecember30,2017.
(c) Changes in Internal Control Over Financial Reporting
TherewasnochangeinourinternalcontroloverfinancialreportingthatoccurredduringthequarterendedDecember30,2017thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.
Item9B.OtherInformation
OnNovember29,2017,theCompanyanditssubsidiaries,SummerInfant(USA),Inc.,SummerInfantCanada,LimitedandSummerInfantEuropeLimited,enteredintoanamendmentandwaiver(the"LoanAmendment")toitsCreditFacilitywithBankofAmerica,N.A.,asagent,andthelendersundertheCreditFacility.PursuanttotheLoanAmendment,thelenderswaivedanyviolationsoftheCreditFacilitythatmayhaveoccurredasaresultofoveradvancesthroughNovember29,2017,andmodifytheamountsoftemporaryadvancesthroughDecember31,2017.TheforegoingsummaryoftheLoanAmendmentdoesnotpurporttobecompleteandisqualifiedinitsentiretybyreferencetothefulltextoftheLoanAmendment,acopyofwhichisfiledherewithasExhibit10.8andisincorporatedhereinbyreference.
28
TableofContents
PARTIII
Item10.Directors,ExecutiveOfficersandCorporateGovernance
Theinformationrelatingtodirectors,directornomineesandexecutiveofficersoftheCompanyissetforthinourdefinitiveProxyStatementtobefiledwiththeSECinconnectionwithour2018AnnualMeetingofStockholders(the"2018ProxyStatement")andisincorporatedhereinbyreference.
TheinformationrelatingtoSection16(a)beneficialownershipreportingcomplianceissetforthinthe2018ProxyStatementandisincorporatedhereinbyreference.
WehaveadoptedaCodeofEthicsthatappliestoallofourdirectors,officersandemployees.TheCodeofEthicsispubliclyavailableintheInvestorRelationssectionofourwebsiteatwww.summerinfant.com.AmendmentstotheCodeofEthicsandanygrantofawaiverfromaprovisionoftheCodeofEthicsrequiringdisclosureunderapplicableSECandNasdaqruleswillbedisclosedonourwebsite.
TheinformationrelatingtotheCompany'sAuditCommitteeanditsdesignatedauditcommitteefinancialexpertissetforthinthe2018ProxyStatementandisincorporatedhereinbyreference.
Theinformationconcerningproceduresbywhichstockholdersmayrecommenddirectornomineesissetforthinthe2018ProxyStatementandisincorporatedhereinbyreference.
Item11.ExecutiveCompensation
TheinformationrelatingtoexecutivecompensationandtheCompany'sCompensationCommitteeissetforthinthe2018ProxyStatementandisincorporatedhereinbyreference,providedthattheinformationunderthecaption"CompensationCommitteeReport"shallbedeemed"furnished"andshallnotbedeemed"filed"withthisreport,notdeemedincorporatedbyreferenceintoanyfilingundertheSecuritiesActof1933,asamended,exceptonlyasmaybeexpresslysetforthinanysuchfilingbyspecificreference.
Item12.SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters
Theinformationrelatingtosecurityownershipofmanagement,certainbeneficialowners,andtheCompany'sequityplansissetforthinthe2018ProxyStatementandisincorporatedhereinbyreference.
Item13.CertainRelationshipsandRelatedTransactions,andDirectorIndependence
Theinformationrelatingtocertainrelationshipsandrelatedpartytransactionsanddirectorindependenceissetforthinthe2018ProxyStatementandisincorporatedhereinbyreference.
Item14.PrincipalAccountingFeesandServices
TheinformationrelatingtotheindependentregisteredpublicaccountingfirmfeesandservicesandtheCompany'spre-approvalpoliciesandproceduresforauditandnon-auditservicesprovidedbysuchaccountingfirmissetforthinthe2018ProxyStatementandisincorporatedhereinbyreference.
29
TableofContents
PARTIV
Item15.ExhibitsandFinancialStatementSchedules
(a) (1)FinancialStatements
ThelistofconsolidatedfinancialstatementsandnotesrequiredbythisItem15(a)(1)issetforthinthe"IndextoFinancialStatements"onpageF-1ofthisAnnualReportonFrom10-K.
(2) FinancialStatementSchedules
Allscheduleshavebeenomittedbecausetherequiredinformationisincludedinthefinancialstatementsornotesthereto.
(b) Exhibits
Theexhibitslistedinthe"IndextoExhibits"belowarefiledaspartofthisAnnualReportonForm10-K.
Item16.Form10-KSummary
Notapplicable.
30
IndextoExhibits
31
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.andFaithRealty
II,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,SECFileNo.001-33346)
3.1 AmendedandRestatedCertificateofIncorporation,asamended(IncorporatedbyreferencetoExhibit3.1tothe
Registrant'sAnnualReportonForm10-KfiledonFebruary22,2017) 3.2 AmendedandRestatedBylaws,asamendedthroughMay5,2016(IncorporatedbyreferencetoExhibit3.1tothe
Registrant'sCurrentReportonForm8-KfiledonMay9,2016) 4.1 SpecimenCommonStockCertificate(IncorporatedbyreferencetoExhibit4.2totheRegistrant'sForm8-Afiled
onMarch6,2007,SECFileNo.001-33346) 10.1 RegistrationRightsAgreementbyandamongtheRegistrant,JasonMacariandStevenGibree(Incorporatedby
referencetoExhibit10.9totheRegistrant'sCurrentReportonForm8-KfiledonSeptember5,2006,SECFileNo.000-51228)
10.2* 2006PerformanceEquityPlan(IncorporatedbyreferencetoAppendixAtotheRegistrant'sDefinitiveProxy
StatementonSchedule14AfiledonApril29,2008,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,among
SummerInfant,Inc.andSummerInfant(USA),Inc.,asBorrowers,SummerInfantCanada,LimitedandSummerInfantEuropeLimited,asGuarantors,CertainFinancialInstitutionsasLendersandBankofAmerica,N.A.asAgent(IncorporatedbyreferencetoExhibit10.1totheRegistrant'sCurrentReportonForm8-KfiledonDecember14,2015)
32
ExhibitNo. Description
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 ThirdAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreement,datedasofFebruary17,
2017,amongSummerInfant,Inc.andSummerInfant(USA),Inc.,asBorrowers,SummerInfantCanada,LimitedandSummerInfantEuropeLimited,asGuarantors,CertainFinancialInstitutionsasLendersandBankofAmerica,N.A.asAgent(IncorporatedbyreferencetoExhibit10.14totheRegistrant'sAnnualReportonForm10-KfiledonFebruary22,2017)
10.7 FourthAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreement,datedasofOctober16,
2017,amongSummerInfant,Inc.andSummerInfant(USA),Inc.,asBorrowers,SummerInfantCanada,LimitedandSummerInfantEuropeLimited,asGuarantors,CertainFinancialInstitutionsasLendersandBankofAmerica,N.A.asAgent(IncorporatedbyreferencetoExhibit10.1totheRegistrant'sCurrentReportonForm8-KfiledonOctober20,2017)
10.8+ FifthAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreement,datedasof
November29,2017,amongSummerInfant,Inc.andSummerInfant(USA),Inc.,asBorrowers,SummerInfantCanada,LimitedandSummerInfantEuropeLimited,asGuarantors,CertainFinancialInstitutionsasLendersandBankofAmerica,N.A.asAgent
10.9* 2012IncentiveCompensationPlan,asamended(IncorporatedbyreferencetoExhibit10.1totheRegistrant's
CurrentReportonForm8-KfiledonAugust5,2015) 10.10* FormofChangeofControlAgreementwithChiefFinancialOfficer,ChiefOperatingOfficerandotherkey
employees(IncorporatedbyreferencetoExhibit10.2totheRegistrant'sCurrentReportonForm8-KfiledonDecember14,2015)
10.11* SummerInfant,Inc.FormofIndemnificationAgreement(forofficersanddirectors)(Incorporatedbyreference
toExhibit10.3totheRegistrant'sCurrentReportonForm8-KfiledonJanuary17,2014) 10.12* OfferLetterandChangeofControlAgreementbyandbetweentheRegistrantandWilliamE.Mote
(IncorporatedbyreferencetoExhibit10.19totheRegistrant'sAnnualReportonForm10-KfiledonMarch4,2015)
10.13 AmendmenttoLease,datedMay13,2015,byandbetweenFaithRealtyII,LLCandSummerInfant(USA),Inc.
(IncorporatedbyreferencetoExhibit10.1totheRegistrant'sCurrentReportonForm8-KfiledonMay19,2015) 10.14 SecondAmendmenttoLease,datedJanuary22,2018,byandbetweenFaithRealtyII,LLCandSummerInfant
(USA),Inc.(IncorporatedbyreferencetoExhibit10.1totheRegistrant'sCurrentReportonForm8-KfiledonJanuary26,2018)
10.15* EmploymentAgreement,datedasofJune27,2016,byandbetweentheRegistrantandMarkMessner
(IncorporatedbyreferencetoExhibit10.1totheRegistrant'sCurrentReportonForm8-KfiledonJune29,2016) 21.1 ListofSubsidiaries(IncorporatedbyreferencetoExhibit21.1totheRegistrant'sAnnualReportonForm10-K
filedonMarch13,2013,SECFileNo.001-33346) 23.1+ ConsentofIndependentRegisteredPublicAccountingFirm
33
ExhibitNo. Description
31.1+ CertificationofChiefExecutiveOfficerpursuanttoSection302oftheSarbanes-OxleyActof2002 31.2+ CertificationofChiefFinancialOfficerpursuanttoSection302oftheSarbanes-OxleyActof2002 32.1+ CertificationofChiefExecutiveOfficerpursuantto18U.S.C.Section1350(Section906oftheSarbanes-Oxley
Actof2002) 32.2+ CertificationofChiefFinancialOfficerpursuantto18U.S.C.Section1350(Section906oftheSarbanes-Oxley
Actof2002) 101.INS XBRLInstanceDocument 101.SCH XBRLTaxonomyExtensionSchemaDocument 101.CAL XBRLTaxonomyExtensionCalculationLinkbaseDocument 101.DEF XBRLTaxonomyExtensionDefinitionLinkbaseDocument 101.LAB XBRLTaxonomyExtensionLabelsLinkbaseDocument 101.PRE XBRLTaxonomyExtensionPresentationLinkbaseDocument
* Managementcontractorcompensatoryplanorarrangement.
+ Filedherewith.
TableofContents
SIGNATURES
PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,theregistranthasdulycausedthisreporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorizedonthe20thdayofFebruary2018.
PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisreporthasbeensignedbelowbythefollowingpersonsonbehalfoftheregistrantandinthecapacitiesandonthedatesindicated.
34
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 ChiefExecutiveOfficerandDirector(Principal
ExecutiveOfficer) February20,2018
/s/WILLIAME.MOTE,JR.
WilliamE.Mote,Jr. ChiefFinancialOfficer(PrincipalFinancialand
AccountingOfficer) February20,2018
/s/ROBINMARINO
RobinMarino ChairwomanoftheBoard February20,2018
/s/EVELYND'AN
EvelynD'An Director February20,2018
/s/MARTINFOGELMAN
MartinFogelman Director February20,2018
/s/ALANMUSTACCHI
AlanMustacchi Director February20,2018
TableofContents
35
Name Title Date
/s/ANDREWW.TRAIN
AndrewW.Train Director February20,2018
/s/STEPHENZELKOWICZ
StephenZelkowicz Director February20,2018
TableofContents
SummerInfant,Inc.andSubsidiariesIndextoFinancialStatements
F-1
ReportofIndependentRegisteredPublicAccountingFirm F-2ConsolidatedBalanceSheets F-3ConsolidatedStatementsofOperations F-4ConsolidatedStatementsofComprehensiveLoss F-5ConsolidatedStatementsofCashFlows F-6ConsolidatedStatementsofStockholders'Equity F-7NotestoConsolidatedFinancialStatements F-8-F-26
TableofContents
REPORTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM
TotheBoardofDirectorsandStockholdersSummerInfant,Inc.
OpinionontheFinancialStatements
WehaveauditedtheaccompanyingconsolidatedbalancesheetsofSummerInfant,Inc.andSubsidiaries(theCompany)asofDecember30,2017andDecember31,2016,therelatedconsolidatedstatementsofoperations,comprehensiveloss,cashflows,andstockholders'equityfortheyearsthenended,andtherelatednotestotheconsolidatedfinancialstatements(collectively,thefinancialstatements).Inouropinion,thefinancialstatementspresentfairly,inallmaterialrespects,theconsolidatedfinancialpositionoftheCompanyasofDecember30,2017andDecember31,2016,andtheresultsofitsoperationsanditscashflowsfortheyearsthenended,inconformitywithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.
BasisforOpinion
ThesefinancialstatementsaretheresponsibilityoftheCompany'smanagement.OurresponsibilityistoexpressanopinionontheCompany'sfinancialstatementsbasedonouraudits.WeareapublicaccountingfirmregisteredwiththePublicCompanyAccountingOversightBoard(UnitedStates)(PCAOB)andarerequiredtobeindependentwithrespecttotheCompanyinaccordancewithU.S.federalsecuritieslawsandtheapplicablerulesandregulationsoftheSecuritiesandExchangeCommissionandthePCAOB.
WeconductedourauditsinaccordancewiththestandardsofthePCAOB.Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatement,whetherduetoerrororfraud.TheCompanyisnotrequiredtohave,norwereweengagedtoperform,anauditofitsinternalcontroloverfinancialreporting.AspartofourauditswearerequiredtoobtainanunderstandingofinternalcontroloverfinancialreportingbutnotforthepurposeofexpressinganopinionontheeffectivenessoftheCompany'sinternalcontroloverfinancialreporting.Accordingly,weexpressnosuchopinion.
Ourauditsincludedperformingprocedurestoassesstherisksofmaterialmisstatementofthefinancialstatements,whetherduetoerrororfraud,andperformingproceduresthatrespondtothoserisks.Suchproceduresincludedexamining,onatestbasis,evidenceregardingtheamountsanddisclosuresinthefinancialstatements.Ourauditsalsoincludedevaluatingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationofthefinancialstatements.Webelievethatourauditsprovideareasonablebasisforouropinion.
/s/RSMUSLLP
WeorourpredecessorfirmshaveservedastheCompany'sauditorsince2005.
Boston,MassachusettsFebruary20,2018
F-2
TableofContents
SummerInfant,Inc.andSubsidiaries
ConsolidatedBalanceSheets
NotethatallamountspresentedinthetablebelowareinthousandsofU.S.dollars,exceptshareamountsandparvaluepershare.
Seenotestoconsolidatedfinancialstatements.
F-3
December30,
2017 December31,
2016 ASSETS CURRENTASSETS Cashandcashequivalents $ 681 $ 999Tradereceivables,netofallowancefordoubtfulaccountsof$1,622and$64atDecember30,2017andDecember31,2016,respectively 36,640 34,137
Inventory,net 34,035 36,140Prepaidsandothercurrentassets 950 1,737TOTALCURRENTASSETS 72,306 73,013
Propertyandequipment,net 9,640 9,965Intangibleassets,net 14,046 14,813Deferredtaxassets,noncurrent 1,935 3,848Otherassets 103 98
TOTALASSETS $ 98,030 $ 101,737LIABILITIESANDSTOCKHOLDERS'EQUITY CURRENTLIABILITIES Accountspayable $ 24,642 $ 30,684Accruedexpenses 9,818 7,757Currentportionoflong-termdebt 3,250 4,500TOTALCURRENTLIABILITIES 37,710 42,941
Long-termdebt,lesscurrentportionandunamortizeddebtissuancecosts 43,772 41,206Otherliabilities 2,906 2,770
TOTALLIABILITIES 84,388 86,917STOCKHOLDERS'EQUITY PreferredStock,$0.0001parvalue,1,000,000authorized,noneissuedoroutstandingatDecember30,2017andDecember31,2016 — —
CommonStock$0.0001parvalue,authorized,issuedandoutstandingof49,000,000,18,901,386,and18,629,737atDecember30,2017and49,000,000,18,778,266,and18,506,617atDecember31,2016,respectively 2 2
TreasuryStockatcost(271,649sharesatDecember30,2017andDecember31,2016) (1,283) (1,283)Additionalpaid-incapital 76,848 76,348Accumulateddeficit (59,634) (57,385)Accumulatedothercomprehensiveloss (2,291) (2,862)TOTALSTOCKHOLDERS'EQUITY 13,642 14,820
TOTALLIABILITIESANDSTOCKHOLDERS'EQUITY $ 98,030 $ 101,737
TableofContents
SummerInfant,Inc.andSubsidiaries
ConsolidatedStatementsofOperations
NotethatallamountspresentedinthetablebelowareinthousandsofU.S.dollars,exceptshareandpershareamounts.
Seenotestoconsolidatedfinancialstatements.
F-4
Forthefiscalyearended
December30,
2017 December31,
2016 Netsales $ 189,869 $ 194,328Costofgoodssold 129,674 132,577Grossprofit 60,195 61,751Generalandadministrativeexpenses 38,878 41,292Sellingexpenses 14,229 15,269Depreciationandamortization 4,197 5,011Impairmentofintangibleassets — 2,993Operatingincome(loss) 2,891 (2,814)
Interestexpense,net 2,968 2,682Lossbeforeprovisionforincometaxes (77) (5,496)
Provision(benefit)forincometaxes 2,172 (1,174)NETLOSS $ (2,249) $ (4,322)
NetlosspershareBASICandDILUTED $ (0.12) $ (0.23)WeightedaveragesharesoutstandingBASICandDILUTED 18,573,398 18,440,436
TableofContents
SummerInfant,Inc.andSubsidiaries
ConsolidatedStatementsofComprehensiveLoss
NotethatallamountspresentedinthetablebelowareinthousandsofU.S.dollars.
Seenotestoconsolidatedfinancialstatements.
F-5
Forthefiscalyear
ended
December30,
2017 December31,
2016 Netloss $ (2,249) $ (4,322)Othercomprehensiveloss: Foreigncurrencytranslationadjustments 571 (360)
Comprehensiveloss $ (1,678) $ (4,682)
TableofContents
SummerInfant,Inc.andSubsidiaries
ConsolidatedStatementsofCashFlows
NotethatallamountspresentedinthetablebelowareinthousandsofU.S.dollars.
Seenotestoconsolidatedfinancialstatements.
F-6
Forthefiscalyear
ended
December30,
2017 December31,
2016 Cashflowsfromoperatingactivities: Netloss $ (2,249) $ (4,322)Adjustmentstoreconcilenetlosstonetcashprovidedbyoperatingactivities: Impairmentofintangibleassets — 2,993Baddebtexpense(recovery) 1,558 (16)Depreciationandamortization 4,197 5,011Stock-basedcompensation 494 482Lossonassetdisposal — 37Deferredincometaxes 1,911 (1,384)Changesinassetsandliabilities,netofeffectsofacquisitions (Increase)decreaseinaccountsreceivable (3,859) 6,167Decreaseininventory 2,353 344Decrease(increase)inprepaidsandothercurrentassets 790 (44)(Increase)decreaseinotherassets 19 164Decreaseinaccountspayableandaccruedexpenses (4,003) (644)
Netcashprovidedbyoperatingactivities 1,211 8,788Cashflowsfrominvestingactivities: Acquisitionsofpropertyandequipment (3,103) (2,266)Netcashusedininvestingactivities (3,103) (2,266)Cashflowsfromfinancingactivities: RepaymentofTermLoanFacility (2,000) (1,500)RepaymentofFILOFacility (2,500) (1,250)Netborrowings(repayments)onrevolvingfacilities 5,815 (3,798)Issuanceofcommonstockuponexerciseofstockoptions 6 —Netcashprovidedby(usedin)financingactivities 1,321 (6,548)Effectofexchangeratechangesoncashandcashequivalents 253 102Net(decrease)increaseincashandcashequivalents (318) 76Cashandcashequivalentsatbeginningofyear 999 923Cashandcashequivalentsatendofyear $ 681 $ 999Supplementaldisclosureofcashflowinformation: Cashpaidduringtheyearforinterest $ 2,274 $ 1,963Cashpaidduringtheyearforincometaxes $ 358 $ 100
TableofContents
ConsolidatedStatementsofStockholders'Equity
FortheFiscalYearsEndedDecember30,2017andDecember31,2016
NotethatallamountspresentedinthetablebelowareinthousandsofU.S.dollars,exceptshareandpersharedata.
Seenotestoconsolidatedfinancialstatements.
F-7
CommonStock
AdditionalPaidinCapital
TreasuryStock
RetainedEarnings
AccumulatedComprehensive
Loss TotalEquity
Shares Amount 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) $ 14,820Issuanceofcommonstockuponvestingofrestrictedshares 118,620
Issuanceofcommonstockuponexerciseofstockoptions 4,500 6 6
Stock-basedcompensation 494 494Netlossfortheyear (2,249) (2,249)Foreigncurrencytranslationadjustment 571 571
BalanceatDecember30,2017 18,629,737 $ 2 $ 76,848 $ (1,283) $ (59,634) $ (2,291) $ 13,642
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
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.TherewerefiftytwoweeksinthefiscalyearsendedDecember30,2017andDecember31,2016.
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
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
Cash and Cash Equivalents
Cashflows,cashandcashequivalentsincludemoneymarketaccountsandinvestmentswithanoriginalmaturityofthreemonthsorless.Attimes,theCompanypossessescashbalancesinexcessoffederally-insuredlimits.
Trade Receivables
Tradereceivablesarecarriedattheiroutstandingunpaidprincipalbalancesreducedbyanallowancefordoubtfulaccounts.TheCompanyestimatesdoubtfulaccountsbasedonhistoricalbaddebts,factorsrelatedtospecificcustomers'abilitytopayandcurrenteconomictrends.TheCompanywritesoffaccountsreceivableagainsttheallowancewhenabalanceisdeterminedtobeuncollectible.Amountsareconsideredtobeuncollectablebaseduponhistoricalexperienceandmanagement'sevaluationofoutstandingaccountsreceivable.
Changesintheallowancefordoubtfulaccountsareasfollows:
Inventory Valuation
Inventoryiscomprisedmostlyoffinishedgoodsandsomecomponentpartsandisstatedatthelowerofcostusingthefirst-in,first-out(FIFO)method,ornetrealizablevalue.TheCompanyregularlyreviewsslow-movingandexcessinventories,andwritesdowninventoriestonetrealizablevalueiftheultimateexpectednetproceedsfromthedisposalsofexcessinventoryarelessthanthecarryingcostofthemerchandise.
Property and Equipment
Propertyandequipmentarerecordedatcost.TheCompanyownsthetoolsandmoldsusedintheproductionofitsproductsbythirdpartymanufacturers.Capitalizedmoldcostsincludecostsincurredforthepre-productiondesignanddevelopmentofthemolds.
Depreciationisprovidedovertheestimatedusefullivesoftherespectiveassetsusingeitherstraight-lineoracceleratedmethods.
Long-Lived Assets with Finite Lives
TheCompanyreviewslong-livedassetswithfinitelivesforimpairmentonanassetgrouplevelwhenevereventsorchangesincircumstancesindicatethatthecarryingamountofalong-livedassetmaynotberecoverable.Anassetisconsideredtobeimpairedwhenitscarryingamountexceedsboth
F-9
Forthe
fiscalyearended
December30,
2017 December31,
2016 Allowancefordoubtfulaccounts,beginningofperiod $ 64 $ 149Chargestocostsandexpenses 1,646 46Accountwrite-offsandother (88) (131)Allowancefordoubtfulaccounts,endofperiod $ 1,622 $ 64
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
thesumoftheundiscountedfuturenetcashflowsexpectedtoresultfromtheuseoftheassetanditseventualdispositionandtheassets'fairvalue.Long-livedassetsincludepropertyandequipmentandfinite-livedintangibleassets.Theamountofimpairmentloss,ifany,ischargedbytheCompanytocurrentoperations.
Indefinite-Lived Intangible Assets
TheCompanyaccountsforintangibleassetsinaccordancewithaccountingguidancethatrequiresthatintangibleassetswithindefiniteusefullivesbetestedannuallyforimpairmentandmorefrequentlyifeventsorchangesincircumstancesindicatethattheassetmightbeimpaired.TheCompany'sannualimpairmenttestingisconductedinthefourthquarterofeveryyear.
TheCompanytestsindefinite-livedintangibleassetsforimpairmentbycomparingtheasset'sfairvaluetoitscarryingamount.Ifthefairvalueislessthanthecarryingamount,theexcessofthecarryingamountoverfairvalueisrecognizedasanimpairmentchargeandtheadjustedcarryingamountbecomestheassets'newcostbasis.
Managementalsoevaluatestheremainingusefullifeofanintangibleassetthatisnotbeingamortizedeachreportingperiodtodeterminewhethereventsandcircumstancescontinuetosupportanindefiniteusefullife.Ifanintangibleassetthatisnotbeingamortizedissubsequentlydeterminedtohaveafiniteusefullife,itisamortizedprospectivelyoveritsestimatedremainingusefullife.
FortheyearendedDecember31,2016,theCompanydeterminedthatcertainindefinite-livedintangibleassetswereimpaired.SeeNote3foradiscussiononthefiscalyear2016impairmentcharge.Noimpairmentchargewasrecordedforfiscal2017.
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.
F-10
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
TheCompany'sfinancialinstrumentsincludecashandcashequivalents,accountsandnotesreceivable,accountspayable,accruedexpenses,andshortandlong-termborrowings.Becauseoftheirshortmaturity,thecarryingamountsofcashandcashequivalents,accountsandnotesreceivable,accountspayable,accruedexpensesandshort-termborrowingsapproximatefairvalue.Thecarryingvalueoflong-termborrowingsapproximatesfairvaluesincethestatedrateissimilartoratescurrentlyavailabletotheCompanyfordebtwithsimilartermsandremainingmaturities.
TheCompany'sassetsmeasuredatfairvalueonanonrecurringbasisincludelong-livedassetsandfinite-livedintangibles.TheCompanytestsitsindefinite-livedassetsforimpairmentatleastannuallyandwhenevereventsorchangesincircumstancesindicatethatthecarryingvaluemaynotberecoverableorthatthecarryingvaluemayexceeditsfairvalue.TheresultingfairvaluemeasurementsareconsideredtobeLevel3inputs.Duringthefourthquarteroffiscal2016,theCompanydeterminedthattheestimatedfairvalueofanindefinitelivedassetwaslowerthanitscarryingvalueandtheCompanyrecordedanon-cashimpairmentchargeof$2,993whichreducedthevalueoftheintangibleassettoapproximately$915,asmorefullydescribedin"Note3totheConsolidatedFinancialStatements—IntangibleAssets."
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$1,591and$1,477forthefiscalyearsendedDecember30,2017andDecember31,2016,respectively.
F-11
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
Advertising Costs
TheCompanychargesadvertisingcoststosellingexpenseasincurred.Advertisingexpense,whichconsistsprimarilyofpromotionalandcooperativeadvertisingallowancesprovidedtocustomers,wasapproximately$11,970and$12,863forthefiscalyearsendedDecember30,2017andDecember31,2016,respectively.
Segment Information
Operatingsegmentsareidentifiedascomponentsofanenterpriseaboutwhichseparate,discretefinancialinformationisavailableforevaluationbythechiefoperatingdecision-maker,ordecision-makinggroup,inmakingdecisionsonhowtoallocateresourcesandassessperformance.TheCompanyviewsitsoperationsandmanagesitsbusinessasoneoperatingsegmentutilizinganomni-channeldistributionstrategy.
Net Loss Per Share
Basicearningspershareiscalculatedbydividingnetlossfortheperiodbytheweightedaveragenumberofcommonstockoutstandingduringtheperiod.
DilutedlosspersharefortheCompanyiscomputedbydividingnetlossbythedilutiveweightedaveragesharesoutstandingwhichincludes:thedilutiveimpact(usingthe"treasurystock"method)of"inthemoney"stockoptionsandunvestedrestrictedsharesissuedtoemployees.Optionstopurchase1,052,026and1,023,825sharesoftheCompany'scommonstockand331,516and268,432ofrestrictedshareswerenotincludedinthecalculation,duetothefactthattheseinstrumentswereanti-dilutiveforthefiscalyearsendedDecember30,2017andDecember31,2016,respectively.
New Accounting Pronouncements
InMay2014,theFASBissuedASU2014-09,"RevenuefromContractswithCustomers(Topic606)"providingnewaccountingguidancerelatedtorevenuerecognition.ThisguidancewasoriginallyproposedtobeeffectiveforreportingperiodsbeginningafterDecember15,2016,howeverinJuly2015,theFASBapprovedthedelayinthisguidanceuntilreportingperiodsbeginningafterDecember15,2017.Underthestandard,revenueisrecognizedwhenacustomerobtainscontrolofpromisedgoodsorservicesinanamountthatreflectstheconsiderationtheentityexpectstoreceiveinexchangeforthosegoodsorservices.TheCompanyhasevaluatedthenewstandardagainstitsexistingaccountingpoliciesandpractices,includingreviewingpurchaseorders,invoices,shippingterms,conductingquestionnaireswithitssalesteamandreviewingotheragreementsandcontractswithcustomers.BasedontheevaluationoftheCompany'scurrentcontractsandrevenuestreams,theCompanydoesnotexpecttheadoptionofthestandardtohaveamaterialimpactonthecompany'sconsolidatedfinancialposition,resultsofoperations,orcashflowonanongoingbasis.TheCompanyexpectstohaveenhanceddisclosuresrelatedtodisaggregationofrevenuesourcesandaccountingpolicies.TheCompanyhaselectedtousethemodifiedretrospectivetransitionmethodtoapplythenewguidanceandwilladoptthenewrevenueguidanceeffectivethefirstdayoffiscal2018andtheimpactwasimmaterial.
InJuly2015,theFASBissuedASU2015-11,"SimplifyingtheMeasurementofInventory."ThisguidancerequiredinventorywithinthescopeofASU2015-11tobemeasuredatthelowerofcostand
F-12
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
netrealizablevalue.Netrealizablevalueisdefinedastheestimatedsellingpriceintheordinarycourseofbusiness,lessreasonablypredictablecostsofcompletion,disposal,andtransportation.ThisguidancewaseffectiveforfiscalyearsbeginningafterDecember15,2016.TheCompanyadoptedthisguidanceinthefirstquarterof2017andtheimpactonitsconsolidatedfinancialstatementswasimmaterial.
InFebruary2016,theFASBissuedASU2016-02,"Leases(Topic842),"("ASU2016-02").ASU2016-02requireslesseestorecognizeassetsandliabilitiesonthebalancesheetforleaseswithleasetermsgreaterthantwelvemonthsanddisclosekeyinformationaboutleasingarrangements.Theeffectivedatewillbethefirstquarteroffiscalyear2019,withearlyadoptionpermitted.TheCompanyisevaluatingtheimpactthatadoptionofthisnewstandardwillhaveonitsconsolidatedfinancialstatements.
InMarch2016,theFASBissuedASU2016-09,"Compensation—StockCompensation:ImprovementstoEmployeeShare-BasedPaymentAccounting."Theguidancesimplifiedtheaccountingandfinancialreportingoftheincometaximpactofstock-basedcompensationarrangements.Thisguidancerequiredexcesstaxbenefitstoberecordedasadiscreteitemwithinincometaxexpenseratherthanadditionalpaid-in-capital.Inaddition,excesstaxbenefitsarerequiredtobeclassifiedascashfromoperatingactivitiesratherthancashfromfinancingactivities.TheCompanyadoptedthisguidanceasofthebeginningoffiscal2017.TheCompanyalsoelectedtocontinuetoestimateforfeitures,aspermittedbyASU2016-09,ratherthanelectingtoaccountforforfeituresastheyoccur.Theimpactofadoptingthisguidanceinthefirstquarterof2017wasimmaterialtotheCompany'sconsolidatedfinancialstatements.
InAugust2016,theFASBissuedASU2016-15,"StatementofCashFlows(Topic230):ClassificationofCertainCashReceiptsandCashPayments(AConsensusoftheFASBEmergingIssuesTaskForce).Inanefforttoreducediversityinpractice,ASU2016-15providessolutionsforeightspecificstatementofcashflowclassificationissues.TheASUiseffectiveforpubliccompaniesbeginningafterDecember15,2017,andinterimperiodswithinthosefiscalyears.Earlyadoptionispermitted,includingadoptioninaninterimperiod.TheCompanyhasevaluatedtheimpactthisguidancewillhaveonitsconsolidatedfinancialstatementsandexpectstheimpacttobeimmaterial.
Managementdoesnotbelievethatanyotherrecentlyissued,butnotyeteffective,accountingstandardsifcurrentlyadoptedwouldhaveamaterialeffectontheaccompanyingfinancialstatements.
F-13
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
2.PROPERTYANDEQUIPMENT
Propertyandequipment,atcost,consistedofthefollowing:
Totaldepreciationexpensewas$3,430and$4,304forthefiscalyearsendedDecember30,2017andDecember31,2016,respectively.Propertyandequipmentdoesnotincludeamountsacquiredundercapitalleases.
3.INTANGIBLEASSETS
Intangibleassetsconsistedofthefollowing:
Theamortizationperiodforthemajorityoftheintangibleassetsrangesfrom5to20yearsforthoseassetsthathaveanestimatedlife;certainassetshaveindefinitelives(abrandname).Totalofintangiblesnotsubjecttoamortizationamountedto$8,400and$8,400forthefiscalyearsendedDecember30,2017andDecember31,2016,respectively.
Amortizationexpenseamountedto$768and$707forthefiscalyearsendedDecember30,2017andDecember31,2016,respectively.
TheCompanyundertookitsannualindefinite-livedintangibleassetimpairmentanalysisandengagedathirdpartytoassistmanagementinvaluingtheinfinitelivedintangibleassetsrecordedonthebalancesheetinthefourthquarteroffiscal2017and2016.NoassetimpairmentwasrecordedforthefiscalyearendedDecember30,2017.Forfiscal2016,theCompanydeterminedthattheestimated
F-14
Forthefiscalyear
ended
December30,
2017 December31,
2016 Depreciation/
AmortizationPeriodComputer-related $ 3,994 $ 3,861 5yearsTools,dies,prototypes,andmolds 28,445 28,342 1-5yearsBuilding 4,156 4,156 30yearsOther 6,246 6,145 1-15years
42,841 42,504 Less:accumulateddepreciation 33,201 32,539
Propertyandequipment,net $ 9,640 $ 9,965
Forthe
fiscalyearended
December30,
2017 December31,
2016 Brandnames $ 11,819 $ 11,819Patentsandlicenses 3,766 3,766Customerrelationships 6,946 6,946Otherintangibles 1,882 1,882
24,413 24,413Less:accumulatedamortization (10,367) (9,600)Intangibleassets,net $ 14,046 $ 14,813
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
3.INTANGIBLEASSETS(Continued)
fairvalueofthatindefinitelivedassetwaslowerthanitscarryingvalue,andtheCompanyrecordedanon-cashimpairmentchargeof$2,993.Inaddition,theCompanydeemedtheremainingvalueoftheindefinitelivedassettohaveafinitelifesubjecttoamortizationoveritsremainingusefullifeestimatedtobe15years.ThiswasachangeinestimateandthefinancialimpactwaszeroasofDecember31,2016.
Estimatedamortizationexpensefortheremainingdefinite-livedassetsforthenextfiveyearsisasfollows:
4.DEBT
Credit Facilities
TheCompanyanditswhollyownedsubsidiary,SummerInfant(USA),Inc.,arepartiestoanamendedandrestatedloanandsecurityagreementwithBankofAmerica,N.A.,asagent,whichprovidesforanasset-basedcreditfacilityTheamendedandrestatedloanandsecurityagreementwasenteredintoinApril2015andhasbeensubsequentlyamended,withthemostrecentamendmentdatedNovember29,2017(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.BorrowingsundertheRevolvingFacilitybearinterest,attheCompany'soption,atabaserateoratLIBOR,plusapplicablemarginsbasedonaveragequarterlyavailabilityandrangingbetween2.0%and2.5%onLIBORborrowingsand0.5%and
F-15
FiscalYearending 2018 $ 7462019 7382020 4882021 4882022 488
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
4.DEBT(Continued)
1.0%onbaserateborrowings.LoansundertheFILOFacilityandTermLoanFacilitywillbearinterest,attheCompany'soption,atabaserateoratLIBOR,plusamarginof4.25%onLIBORborrowingsand2.75%onbaserateborrowings.
BeginningonJuly1,2015,theCompanywasrequiredtobeginrepayingtheTermLoanFacilityinquarterlyinstallmentsof$500.BeginningwiththefiscalyearendingJanuary2,2016,theCompanywasrequiredtoprepaytheTermLoanFacilityinanamountequalto50%oftheCompany's"excesscashflow,"assuchtermisdefinedintheCreditFacility,attheendofeachfiscalyear.
UndertheCreditFacility,theCompanymustcomplywithcertainfinancialcovenants,includingthattheCompany(i)maintainafixedchargecoverageratioofatleast1.0to1.0forthetwelveconsecutivefiscalmonthsmostrecentlyendedand(ii)maintainacertainleverageratioattheendofeachfiscalquarter.Forpurposesofthefinancialcovenants,consolidatedEBITDAisdefinedasnetincomebeforeinterest,taxes,depreciationandamortization,pluscertaincustomaryexpenses,fees,non-cashcharges,andminuscertaincustomarynon-cashitemsincreasingnetincomeandotherspecifieditems.
TheCreditFacilitycontainscustomaryaffirmativeandnegativecovenants.Amongotherrestrictions,theCompanyisrestrictedinitsabilitytoincuradditionaldebt,makeacquisitionsorinvestments,disposeofassets,ormakedistributionsunlessineachcasecertainconditionsaresatisfied.TheCreditFacilityalsocontainscustomaryeventsofdefault,includingtheoccurrenceofachangeofcontrol.Intheeventofadefault,alloftheCompany'sobligationsundertheCreditFacilitymaybedeclaredimmediatelydueandpayable.Inaddition,theCreditFacilitycontainscashdominionprovisionsthatapplyifaneventofdefaultoccursoriftheCompany'savailabilityislessthananamountequalto10%ofthelesserof(i)theaggregaterevolvercommitmentsand(B)therevolverborrowingbaseundertheCreditFacility.Forcertaineventsofdefaultrelatingtoinsolvencyandreceivership,alloutstandingobligationsimmediatelybecomedueandpayable.
AsofDecember30,2017,therateonbase-rateloanswas5.50%andtherateonLIBOR-rateloanswas4.125%.TheamountoutstandingontheRevolvingFacilityatDecember30,2017was$41,899.TotalborrowingcapacityundertheRevolvingFacilityatDecember30,2017was$45,098andborrowingavailabilitywas$3,199.TheamountsoutstandingontheTermLoanFacilityandFILOFacilityatDecember30,2017were$5,000and$1,250,respectively.
Aggregatematuritiesofbankdebtrelatedtothecreditfacility:
Unamortizeddebtissuancecostswere$1,127atDecember30,2017and$1,226atDecember31,2016,andarepresentedasadirectdeductionoflong-termdebtontheconsolidatedbalancesheets.
F-16
FiscalYearending: 2018 $ 3,2502019 2,0002020 42,899Total $ 48,149
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
4.DEBT(Continued)
Sale-Leaseback
OnMarch24,2009,SummerInfant(USA),Inc.,theCompany'swhollyownedsubsidiary("SummerUSA"),enteredintoadefinitiveagreementwithFaithRealtyII,LLC,aRhodeIslandlimitedliabilitycompany("FaithRealty")(theownerofwhichisJasonMacari,theformerChiefExecutiveOfficeroftheCompanyandcurrentinvestor),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.
AtDecember30,2017,approximately$106oftheleaseobligationwasincludedinaccruedexpenses,withthebalanceofapproximately$2,581includedinotherliabilities,intheaccompanyingconsolidatedbalancesheet.Thisobligationisreducedeachmonth(alongwithachargetointerestexpense)astherentpaymentismadetoFaithRealty.
OnJanuary22,2018,SummerUSAenteredintoasecondamendment(the"SecondAmendment")totheLease.PursuanttotheSecondAmendment,(i)thetermoftheLeasewasextendedtoMarch31,2021,withnofurtherrightsofextension,(ii)theannualrentforthelastthree
F-17
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
4.DEBT(Continued)
yearsofthenewlyamendedtermwassetat$468,(iii)SummerInfantnolongerhastheoptiontopurchasethepropertysubjecttotheLeaseand(iv)theLandlordandSummerUSAagreedtocertainexpenses,repairsandmodificationstothepropertythatissubjecttotheLease.TheSecondAmendmentwasreviewedandapprovedbytheauditcommitteebecauseitwasarelatedpartytransaction.
Approximatefutureminimumsale-leasebackpaymentsdueundertheleaseisasfollows:
5.INCOMETAXES
InDecember2017,theU.S.governmentenactedcomprehensivetaxlegislationcommonlyreferredtoastheTaxCutsandJobsAct(the"TaxAct")thatsignificantlyrevisedtheU.S.taxcodeeffectiveJanuary1,2018by,amongotherthings,loweringthecorporateincometaxratefromatopmarginalrateof35%toaflat21%,limitingdeductibilityofinterestexpenseandperformancebasedincentivecompensationandimplementingaterritorialtaxsystem.AsaresultoftheTaxActinthefiscalquarterendingDecember30,2017werecordedataxor"tollcharge"of$734onpreviouslyunremittedearningsofforeignsubsidiaries,awritedownof$882relatedtoforeigntaxcreditsandawritedownofthevalueofourdeferredtaxassetsof$115.
UndertheguidancesetforthintheSEC'sStaffAccountingBulletinNo.118,theCompanymayrecordprovisionalamountsfortheimpactoftheTaxAct.AtDecember30,2017,theCompanymadeareasonableestimateoftheeffectsoftheTaxActonitsexistingdeferredtaxbalances.ThefinalimpactoftheTaxActmaydifferfromthisestimate,possiblymaterially,dueto,amongotherthings,changesininterpretationsandassumptionstheCompanyhasmadeandguidancethatmaybeissued.
F-18
FiscalYearEnding: 2018 $ 4582019 4682020 4682021 117Total $ 1,511
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
5.INCOMETAXES(Continued)
Theprovision(benefit)forincometaxesissummarizedasfollows:
Thetaxeffectsoftemporarydifferencesthatcomprisethedeferredtaxliabilitiesandassetsareasfollows:
F-19
Fiscal2017 Fiscal2016 Current: Federal $ — $ —Foreign 256 185Stateandlocal 5 6
Totalcurrent 261 191Deferred: Federal $ 1,631 $ (406)Foreign 175 (910)Stateandlocal 105 (49)
Totaldeferred 1,911 (1,365)Totalprovision(benefit) $ 2,172 $ (1,174)
December30,
2017 December31,
2016 Deferredtaxassets: Accountsreceivable $ 7 $ 17InventoryandUnicapreserve 477 676Researchanddevelopmentcredit,foreigntaxcreditandnetoperatinglosscarry-forward 6,338 7,658
Other 0 102Totaldeferredtaxassets 6,822 8,453Deferredtaxliabilities: Intangibleassetsandother (1,905) (2,595)Property,plantandequipment (193) (653)
Totaldeferredtaxliabilities (2,098) (3.248)Valuationallowance (2,789) (1,357)Deferredtaxliabilitiesandvaluationallowance (4,887) (4,605)Netdeferredincometaxasset $ 1,935 $ 3,848
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
5.INCOMETAXES(Continued)
ThefollowingreconcilesthebenefitforincometaxesattheU.S.federalincometaxstatutoryratetothebenefitintheconsolidatedfinancialstatements:
AsofDecember30,2017,theCompanyhadapproximately$5,996offederalandstatenetoperatinglosscarryforwards(or"NOLs")tooffsetfuturefederaltaxableincome.ThefederalNOLwillbegintoexpirein2031andthestateNOLbegantoexpirein2018.TheCompanyalsohasapproximately$1,470,$328,$2,655,and$564ofNOLsinCanada,Australia,Israel,andtheUnitedKingdom,whichcanbecarriedforwardindefinitely.
Authoritativeguidancerequiresavaluationallowancetoreducethedeferredtaxassetsreported,ifbasedontheweightoftheevidence,itismorelikelythannotthatsomeportionorallofthedeferredtaxassetswillnotberealized.Afterconsiderationofallevidence,includingtheCompany'spastearningshistoryandfutureearningsforecast,managementhasdeterminedthatavaluationallowanceintheamountof$1,907relatingtocertainstatetaxcreditsandforeignNOL'sisnecessaryatDecember30,2017and$1,357atDecember31,2016.DuetotheTaxAct,theCompanydeterminedanadditionalprovisionalvaluationallowanceintheamountof$882relatingtoforeigntaxcreditswasnecessaryatDecember30,2017.
AsummaryoftheCompany'sadjustmenttoitsuncertaintaxpositionsinfiscalyearsendedDecember30,2017andDecember31,2016areasfollows:
F-20
Fiscal2017 Fiscal2016 Taxbenefitatstatutoryrate $ (26) $ (1,869)Stateincometaxes,netofU.S.federalincometaxbenefit 87 (28)Adjustmenttouncertaintaxposition (16) 14Stockoptions 52 70Foreigntaxratedifferential (14) 133Taxcredits (172) (123)Non-deductibleexpenses 315 498Foreignrepatriation/tolltax 734 —Foreigntaxcreditvaluationallowance 882 —Foreigndividends/section956 86 —Taxratechanges 115 —Other 129 131Totalbenefit $ 2,172 $ (1,174)
December30,
2017 December31,
2016 Balance,atbeginningoftheyear $ 341 $ 327Increasefortaxpositionsrelatedtothecurrentyear — —Increasefortaxpositionsrelatedtoprioryears — —Increaseforinterestandpenalties 13 14Decreaseforlapsesofstatuteoflimitations (29) —
Balance,atendofyear $ 325 $ 341
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
5.INCOMETAXES(Continued)
Theunrecognizedtaxbenefitsmentionedaboveincludeanaggregateof$52ofaccruedinterestandpenaltybalancesrelatedtouncertaintaxpositions.TheCompanyrecognizesinterestandpenaltiesrelatedtouncertaintaxpositionsinincometaxexpense.Anincreaseinaccruedinterestandpenaltychargesofapproximately$13,netoffederaltaxexpense,wasrecordedasataxexpenseduringthecurrentfiscalyear.TheCompanyanticipatestheremainingliabilityof$325mayreverseasofMarch31,2018duetolapseofstatuteoflimitationsatthattime.
TheCompanyissubjecttoU.S.federalincometax,aswellastoincometaxofmultiplestateandforeigntaxjurisdictions.Onaglobalbasis,theopentaxyearssubjecttoexaminationbymajortaxingjurisdictionsinwhichtheCompanyoperatesisbetweentwotosixyears.
6.SHAREBASEDCOMPENSATION
TheCompanyiscurrentlyauthorizedtoissueupto1,700,000sharesforequityawardsundertheCompany's2012IncentiveCompensationPlan(asamended,"2012Plan").Periodically,theCompanymayalsograntequityawardsoutsideofits2012Planasinducementgrantsfornewhires.TheCompanywasauthorizedtoissueupto3,000,000sharesforequityawardsunderits2006PerformanceEquityPlan("2006Plan").InMarch2017,the2006Planexpiredandnoadditionalequityawardscanbegrantedunderthe2006Plan.
Underthe2012Plan,awardsmaybegrantedtoparticipantsintheformofnon-qualifiedstockoptions,incentivestockoptions,restrictedstock,deferredstock,restrictedstockunitsandotherstock-basedawards.Subjecttotheprovisionsoftheplans,awardsmaybegrantedtoemployees,officers,directors,advisorsandconsultantswhoaredeemedtohaverenderedorareabletorendersignificantservicestotheCompanyoritssubsidiariesandwhoaredeemedtohavecontributedortohavethepotentialtocontributetotheCompany'ssuccess.TheCompanyaccountsforoptionsunderthefairvaluerecognitionstandard.Theapplicationofthisstandardresultedinshare-basedcompensationexpenseforthetwelvemonthsendedDecember30,2017andDecember31,2016of$494and$482,respectively.Sharebasedcompensationexpenseisincludedinselling,generalandadministrativeexpenses.
AsofDecember30,2017,thereare1,338,583sharesavailabletograntunderthe2012Plan.
Stock Options
ThefairvalueofeachoptionawardisestimatedonthedateofgrantusingtheBlack-Scholesoptionvaluationmodelthatusestheassumptionsnotedinthetablebelow.TheCompanyusesthesimplifiedmethodtoestimatetheexpectedtermoftheoptionsforgrantsof"plainvanilla"stockoptionsasprescribedbytheSecuritiesandExchangeCommission.Forfeituresareestimatedatthetimeofgrantandrevised,ifnecessary,insubsequentperiodsifactualforfeituresdifferfromthoseestimates.Share-basedcompensationexpenserecognizedintheconsolidatedfinancialstatementsinfiscal2017and2016isbasedonawardsthatareultimatelyexpectedtovest.
F-21
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
6.SHAREBASEDCOMPENSATION(Continued)
ThefollowingtablesummarizestheweightedaverageassumptionsusedforoptionsgrantedduringthefiscalyearsendedDecember30,2017andDecember31,2016.
Theweighted-averagegrantdatefairvalueofoptionsgrantedduringtheyearendedDecember30,2017was$1.16persharewhichtotaled$453forthe390,500optionsgrantedduringsuchperiod.Theweighted-averagegrantdatefairvalueofoptionsgrantedduringtheyearendedDecember31,2016was$0.92persharewhichtotaled$316forthe343,300optionsgrantedduringsuchperiod
AsummaryofthestatusoftheCompany'soptionsasofDecember30,2017andchangesduringtheyearthenendedispresentedbelow:
OutstandingstockoptionsvestedandexpectedtovestasofDecember30,2017is871,062.Theintrinsicvalueofoptionsexercisedtotaledwas$3andzeroforthefiscalyearsendedDecember30,2017andDecember31,2016,respectively.
ThefollowingtablesummarizesinformationaboutstockoptionsatDecember30,2017:
F-22
Fiscal2017
Fiscal2016
Expectedlife(inyears) 4.9 5.1Risk-freeinterestrate 1.9% 1.3%Volatility 71.4% 70.8%Dividendyield 0.0% 0.0%Forfeiturerate 22.6% 21.0%
NumberOf
Shares Weighted-AverageExercisePrice
Outstandingatbeginningofyear 1,023,825 $ 2.93Granted 390,500 $ 1.97Exercised 4,500 $ 1.29Canceledorexpired 357,799 $ 3.69Outstandingatendofyear 1,052,026 $ 2.32OptionsexercisableatDecember30,2017 416,030 $ 2.95
OptionsOutstanding OptionsExercisable
Rangeof
ExercisePrices Number
Outstanding
RemainingContractualLife(years)
WeightedAverageExercisePrice
NumberExercisable
RemainingContractual
Life
WeightedAverageExercisePrice
$1.29-$2.00 650,000 8.6 $ 1.79 109,004 7.4 $ 1.67 $2.01-$3.00 275,000 5.0 $ 2.35 185,000 3.6 $ 2.29 $3.01-$4.00 63,250 5.9 $ 3.30 58,250 5.8 $ 3.32 $4.01-$6.00 14,076 4.3 $ 5.52 14,076 4.3 $ 5.52 $6.01-$8.00 49,700 3.0 $ 7.04 49,700 3.0 $ 7.04 1,052,026 7.2 $ 2.32 416,030 4.8 $ 2.95
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
6.SHAREBASEDCOMPENSATION(Continued)
TheaggregateintrinsicvalueofoptionsoutstandingandexercisableatDecember30,2017andDecember31,2016are$5and$9,respectively.AsofDecember30,2017,therewasapproximately$364ofunrecognizedcompensationcostrelatedtonon-vestedstockoptionawards,whichisexpectedtoberecognizedoveraremainingweighted-averagevestingperiodof2.7years.
Restricted Stock Awards
Restrictedstockawardsrequirenopaymentfromthegrantee.Therelatedcompensationcostofeachawardiscalculatedusingthemarketpriceonthegrantdateandisexpensedequallyoverthevestingperiod.AsummaryofrestrictedstockawardsmadeintheyearendedDecember30,2017,isasfollows:
AsofDecember30,2017,therewasapproximately$314ofunrecognizedcompensationcostrelatedtonon-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.TheCompanydidnotrecognizeanycompensationexpenseinfiscal2017andfiscal2016relatedtothisawardasitisunlikelythatperformancemetricswillbeachieved.
7.PROFITSHARINGPLAN
SummerInfant(USA),Inc.maintainsadefinedcontributionsalarydeferralplanunderSection401(k)oftheInternalRevenueCode.Allemployeeswhomeettheplan'seligibilityrequirementscanparticipate.Employeesmayelecttomakecontributionsuptofederallimitations.In2007,theCompanyadoptedamatchingplanwhichwasfurtheramendedin2013,andwhichwas
F-23
NumberofShares
GrantDateFairValue
Non-vestedrestrictedstockawardsasofDecember31,2016 268,432 $ 1.96Granted 234,000 $ 1.86Vestedandreleased 126,591 $ 1.94Forfeited 44,325 $ 2.05Non-vestedrestrictedstockawardsasofDecember30,2017 331,516 $ 1.88
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
7.PROFITSHARINGPLAN(Continued)
fundedthroughouttheyear.FortheyearsendedDecember30,2017andDecember31,2016,theCompanyrecorded401(k)matchingexpenseof$386and$356,respectively.
8.MAJORCUSTOMERS
SalestotheCompany'stopsevencustomerstogethercomprisedapproximately77%ofoursalesinfiscal2017and75%ofoursalesinfiscal2016.Ofthesecustomers,fourgeneratedmorethan10%ofsalesforfiscal2017:Amazon.com(25%),BabiesRUs/ToysRUs(17%),Walmart(16%),andTarget(11%).Infiscal2016,fourcustomersgeneratedmorethan10%ofsales:Amazon.com(20%),BabiesRUs/ToysRUs(20%),Walmart(15%),andTarget(11%).
9.COMMITMENTSANDCONTINGENCIES
Royalty Commitments
SummerInfant(USA),Inc.hasenteredintovariouslicenseagreementswiththirdpartiesfortheuseofproductdesigns,softwarelicenses,andtradenamesfortheproductsmanufacturedbytheCompany.TheseagreementshaveterminationdatesthroughDecember2020.RoyaltyexpenseundertheselicensingagreementsfortheyearsendedDecember30,2017andDecember31,2016wereapproximately$69and$315,respectively.
Customer Agreements
TheCompanyentersintoannualagreementswithitscustomersinthenormalcourseofbusiness.Theseagreementsdefinethetermsofproductsalesincluding,insomeinstances,cooperativeadvertisingcostsandproductreturnprivileges(fordefectiveproductsonly)ordefectiveallowances(whicharebaseduponhistoricalexperience).ThesecontractsaregenerallyannualinnatureandobligatetheCompanyonlyastoproductsactuallysoldtothecustomerpursuanttoapurchaseorder.
Lease Commitments
Forleaseagreementswithescalationclauses,theCompanyrecordsthetotalrenttobepaidundertheleaseonastraight-linebasisoverthetermofthelease,withthedifferencebetweentheexpenserecognizedandthecashpaidrecordedasadeferredrentliabilityincludedinaccruedexpensesonthebalancesheetforamountstoberecognizedwithintwelvemonthsandinotherliabilitiesforamountstoberecognizedaftertwelvemonthsfromthebalancesheetdate,intheconsolidatedbalancesheets.Leaseincentivesarerecordedasdeferredrentatthebeginningoftheleasetermandrecognizedasareductionofrentexpenseoverthetermofthelease.
SummerInfantEuropeLimitedleasesofficespaceunderanon-cancelableoperatingleaseagreement.Thisleaseisforafive-yeartermthroughMarch2022,andrequiresmonthlypaymentsofapproximately$6.Inaddition,SummerInfantEuropeLimitedisrequiredtopayitsproportionateshareofpropertytaxes.
SummerInfantCanada,Ltd.enteredintoafive-yearleaseforofficeandwarehousespaceunderanon-cancelableoperatingleaseagreementexpiringJune2023.TheCompanyisobligatedaspartoftheleasetopaymaintenanceexpensesaswellaspropertytaxesandinsurancecostsasdefinedintheagreement.Monthlypaymentsareapproximately$25overthecourseoftheleaseterm.SummerInfant
F-24
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
9.COMMITMENTSANDCONTINGENCIES(Continued)
Canada,Ltd.hastheoptiontorenewthisleaseforoneadditionalperiodoffiveyearsundersimilartermsandconditions.
SummerInfant(USA)Inc.enteredintoa72monthleaseinSeptember2010forwarehousespaceunderanon-cancelableoperatingleaseagreement.TheCompanyisobligatedtopaycertaincommonareamaintenancechargesincludinginsuranceandutilities.Theleasewasextendedin2015andnowexpiresinSeptember2021.Monthlypaymentswere$170infiscal2017andescalateto$186overtheremaininglifeofthelease.
DuringNovember2017,SummerInfantAsiaenteredintoatwoyearofficeleasewhichrequiresmonthlypaymentsof$10through2019.
Approximatefutureminimumrentalpaymentsdueundertheseleasesareasfollows(a):
Rentexpense(excludingtaxes,feesandothercharges)fortheyearsendedDecember30,2017andDecember31,2016totaledapproximately$2,654and$2,692,respectively.
Employment Contracts
InaccordancewithUnitedKingdomandEUlaw,SummerInfantEuropeLimitedisrequiredtohaveemploymentcontractswithallofitsemployees.Inconnectionwiththesecontracts,SummerInfantEuropeLimitedmakesindividualpensioncontributionstocertainemployeesatvaryingratesfrom1-7%oftheemployee'sannualsalary,aspartoftheirtotalcompensationpackage.Thesepensioncontributionsareexpensedasincurred.Therearenoterminationbenefitprovisionsinthesecontracts.
Litigation
TheCompanyisapartytoroutinelitigationandadministrativecomplaintsincidentaltoitsbusiness.TheCompanydoesnotbelievethattheresolutionofanyorallofsuchcurrentroutinelitigationandadministrativecomplaintsislikelytohaveamaterialadverseeffectontheCompany'sfinancialconditionorresultsofoperations.
10.GEOGRAPHICALINFORMATION
TheCompanysellsproductsthroughouttheUnitedStates,Canada,andtheUnitedKingdom,andvariousotherpartsoftheworld.TheCompanydoesnotdiscloseproductlinerevenuesasitisnotpracticablefortheCompanytodoso.
F-25
FiscalYearEnding: 2018 $ 2,5612019 2,6252020 2,5542021 2,0452022andbeyond 478Total $ 10,263
(a) Amountsexcludepaymentsforsales-leasebacktransactionasdescribedinNote4.
TableofContents
SUMMERINFANT,INC.ANDSUBSIDIARIES
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)
10.GEOGRAPHICALINFORMATION(Continued)
Thefollowingisatablethatpresentsnetrevenuebygeographicarea:
Thefollowingisatablethatpresentstotalassetsbygeographicarea:
Thefollowingisatablethatpresentstotallonglivedassetsbygeographicarea:
11.SUBSEQUENTEVENTS
TheCompanyhasevaluatedalleventsortransactionsthatoccurredafterDecember30,2017throughthedateofthisAnnualReport.Nosubsequenteventdisclosuresarerequired.
F-26
Forthefiscalyear
ended
December30,
2017 December31,
2016 UnitedStates $ 157,159 $ 163,381AllOther 32,710 30,947
$ 189,869 $ 194,328
December30,
2017 December31,
2016 UnitedStates $ 82,851 $ 84,519AllOther 15,179 17,218
$ 98,030 $ 101,737
December30,
2017 December31,
2016 UnitedStates $ 22,763 $ 24,512AllOther 2,961 4,212
$ 25,724 $ 28,724
Exhibit10.8
FIFTHAMENDMENTANDWAIVERTOAMENDEDANDRESTATEDLOANANDSECURITYAGREEMENT
ThisFIFTHAMENDMENTANDWAIVERTOAMENDEDANDRESTATEDLOANANDSECURITYAGREEMENT(this“Amendment”)is
datedasofNovember29,2017byandamongSUMMERINFANT,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(the“FirstAmendment”),thatcertainSecondAmendmenttoAmendedandRestatedLoanandSecurityAgreementdatedasofMay24,2016(the“SecondAmendment”),thatcertainThirdAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreementdatedasofFebruary17,2017(the“ThirdAmendment”),andthatcertainFourthAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreementdatedasofOctober16,2017(the“FourthAmendment”)(theAmendedandRestatedLoanandSecurityAgreement,asamendedbytheFirstAmendment,theSecondAmendment,theThirdAmendmentandtheFourthAmendment,andasthesamemaybefurtheramended,restated,supplementedorotherwisemodifiedfromtimetotime,the“LoanAgreement”);
WHEREAS,pursuanttotheFourthAmendment,theLoanAgreementwas,amongotherthings,amendedtoprovidefortheRevolverBorrowingBase(asdefinedintheLoanAgreement)tobetemporarilyincreasedbytheTemporaryOveradvanceAmount(asdefinedintheFourthAmendment)toaddress,amongotherthings,theRevolverOveradvances(asdefinedintheLoanAgreement)thatwereprimarilyattributabletotheToys“R”UsInsolvencyProceedings(asdefinedintheFourthAmendment);and
WHEREAS,notwithstandingtheinclusionoftheTemporaryOveradvanceAmountintheRevolverBorrowingBase,duringtheperiodfromtheFourthAmendmentEffectiveDate(asdefinedintheFourthAmendment)throughthedateofthisAmendment,theaggregateoutstandingRevolverLoanshavefromtimetotimeexceededtheRevolverBorrowingBase,resultingincontinuingRevolverOveradvances(“ContinuingRevolverOveradvances”);
WHEREAS,BorrowershaverequestedthatAgentandLenderswaiveanyviolationsoftheLoanAgreementthataredirectlyattributabletotheContinuingRevolverOveradvancesandthatAgentandLendersamendcertainprovisionsoftheLoanAgreementto,amongotherthings,extendthedurationoftheperiodduringwhichtheTemporaryOveradvanceAmountisineffectandincreasetheapplicableamountsoftheTemporaryOveradvanceAmountduringtheperiodfromthedateofthisAmendmentthroughDecember30,2017;and
WHEREAS,LendersandAgentarewillingtowaiveanyviolationsoftheLoanAgreementthataredirectlyattributabletotheContinuingRevolverOveradvancesduringtheperiodfromtheFourthAmendmentEffectiveDatethroughthedateofthisAmendmentandtoamendcertainprovisionsoftheLoanAgreement,allasmorefullydescribedherein.
NOW,THEREFORE,inconsiderationoftheforegoingandtheagreementscontainedherein,thepartiesagreethattheLoanAgreementishereby
amendedasfollows:
1.CapitalizedTerms.CapitalizedtermsusedhereinwhicharedefinedintheLoanAgreementhavethesamemeaningshereinastherein,excepttotheextentsuchtermsareamendedhereby.
2.WaiverofViolationsDirectlyAttributabletoContinuingRevolverOveradvances.SubjecttothesatisfactionofthetermsandconditionssetforthinthisAmendment,AgentandLendersherebywaiveanyviolationsoftheLoanAgreementthatoccurredduringtheperiod(the“SupplementalOveradvanceWaiverPeriod”)commencingontheFourthAmendmentEffectiveDateandcontinuingthroughtheFifthAmendmentEffectiveDate(asdefinedinSection3(b)ofthisAmendment)thataredirectlyattributabletotheContinuingRevolverOveradvances.Thepartiesagreethat(a)theforegoingwaiverislimitedsolelytoviolationsoftheLoanAgreementoccurringduringtheSupplementalOveradvanceWaiverPeriodthataredirectlyattributabletotheContinuingRevolverOveradvancesand(b)thatnothinghereinshallbeconstruedasawaiverofanyotherprovisionoftheLoanAgreement.
3.AmendmentstoSection1.1oftheLoanAgreement.Section1.1oftheLoanAgreementisherebyamendedasfollows:
(a)Thedefinitionof“TemporaryOveradvanceAmount”isherebyamendedandrestatedinitsentirety,asfollows:
“TemporaryOveradvanceAmount:meansthefollowingamountsduringthefollowingperiods:
ApplicablePeriod
TemporaryOveradvanceAmount
FourthAmendmentEffectiveDate-October21,2017
$ 3,000,000
October22-28,2017
$ 3,000,000
October29—November4,2017
$ 3,000,000
November5-11,2017
$ 2,750,000
November12-18,2017
$ 2,750,000
November19-25,2017
$ 4,000,000
November26—December2,2017
$ 4,000,000
December3-9,2017
$ 3,000,000
December10-16,2017
$ 2,500,000
December17—23,2017
$ 1,500,000
December24-30,2017
$ 500,000
FromandafterDecember31,2017
$ 0
(b)ThefollowingnewdefinedtermisherebyinsertedinSection1.1oftheLoanAgreementintheappropriatealphabeticalorder:
“FifthAmendmentEffectiveDate:thedateonwhichthatcertainFifthAmendmentandWaivertoAmendedandRestatedLoanandSecurity
Agreementbecameeffective,whichdateisNovember29,2017.”
4.NoDefault;RepresentationsandWarranties,Etc.Obligorsherebyrepresent,warrantandconfirmthat:(a)aftergivingeffecttothisAmendment,allrepresentationsandwarrantiesofObligorsintheLoanAgreementandtheotherLoanDocumentsaretrueandcorrectinallmaterialrespects
2
(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.
5.RatificationandConfirmation.ObligorsherebyratifyandconfirmallofthetermsandprovisionsoftheLoanAgreementandtheotherLoanDocumentsandagreethatallofsuchtermsandprovisions,asamendedhereby,remaininfullforceandeffect.Withoutlimitingthegeneralityoftheforegoing,Obligorsherebyacknowledgeandconfirmthatallofthe“Obligations”underandasdefinedintheLoanAgreementarevalidandenforceableandaresecuredbyandentitledtothebenefitsoftheLoanAgreementandtheotherLoanDocuments,andObligorsherebyratifyandconfirmthegrantoftheliensandsecurityinterestsintheCollateralinfavorofAgent,forthebenefitofitselfandLenders,pursuanttotheLoanAgreementandtheotherLoanDocuments,assecurityfortheObligations.
6.ConditionstoEffectivenessofAmendment.ThisAmendmentshallbecomeeffectiveasofthedatewhen,andonlywhen,eachofthefollowingconditionsprecedentshallhavebeensatisfiedorwaivedinwritingbyAgent:
(a)AgentshallhavereceivedcounterpartstothisAmendment,dulyexecutedbyAgent,LendersandObligors.
(b)BorrowersshallhavepaidtoAgent,fortheaccountofeachLender(includingBankofAmerica,N.A.,initscapacityasaLender),anamendmentfeeinanamountequalto15basispointsmultipliedbysuchLender’sCommitment.
(c)BorrowersshallhavepaidallotherfeesandamountsdueandpayabletoAgentanditslegalcounselinconnectionwiththeLoan
Agreement,thisAmendmentandtheotherLoanDocuments,including,(i)thefeespayablepursuanttothatcertainFifthAmendmentFeeLetterdatedasofthedatehereofbetweenBorrowersandAgent,and(ii)totheextentinvoiced,allout-of-pocketexpensesrequiredtobereimbursedorpaidbyBorrowersundertheLoanAgreement.
8.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,
3
executionanddeliveryofthisAmendmentandtheotherLoanDocuments,within30daysofBorrowers’receiptofinvoices(inreasonablysufficientdetail)settingforthsuchcostsandexpenses.
(d)ThisAmendmentshallbegovernedbythelawsoftheStateofNewYorkandshallbebindinguponandinuretothebenefitofthe
partiesheretoandtheirrespectivesuccessorsandassigns.
{Remainderofpageintentionallyleftblank;signaturesbeginonthefollowingpage]
4
INWITNESSWHEREOF,thepartiesheretohaveexecutedthisAmendmentwhichshallbedeemedtobeasealedinstrumentasofthedatefirstabove
written.
BORROWERS
SUMMERINFANT,INC.
By: /s/WilliamMote
Name: WilliamMote
Title: CFO
SUMMERINFANT(USA),INC.
By: /s/WilliamMote
Name: WilliamMote
Title: CFO
GUARANTORS
SUMMERINFANTCANADA,LIMITED
By: /s/WilliamMote
Name: WilliamMote
Title: CFO
SUMMERINFANTEUROPELIMITED
By: /s/WilliamMote
Name: WilliamMote
Title: CFO
[SignaturePagetoFifthAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreement]
AGENT
BANKOFAMERICA,N.A.,asAgent
By /s/CynthiaG.Stannard
Name: CynthiaG.Stannard
Title: SeniorVicePresident
[SignaturePagetoFifthAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreement]
LENDER
BANKOFAMERICA,N.A.,asLender
By /s/CynthiaG.Stannard
Name: CynthiaG.Stannard
Title: SeniorVicePresident
[SignaturePagetoFifthAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreement]
LENDER
CITIZENSBUSINESSCAPITAL,
ADIVISIONOFCITIZENSASSETFINANCE,INC.,asLender
By /s/AlexD’Alessandro
Name: AlexD’Alessandro
Title: SVP
[SignaturePagetoFifthAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreement]
LENDER
KEYBANKNATIONALASSOCIATION,asLender
By /s/PeterDrooff
Name: PeterDrooff
Title: VicePresident
[SignaturePagetoFifthAmendmentandWaivertoAmendedandRestatedLoanandSecurityAgreement]
QuickLinks--Clickheretorapidlynavigatethroughthisdocument
Exhibit23.1
ConsentofIndependentRegisteredPublicAccountingFirm
WeconsenttotheincorporationbyreferenceintheRegistrationStatements(Nos.333-156725;333-191405;333-206682;333-206683;and333-212947)onFormS-8and(No.333-218891)onFormS-3ofSummerInfant,Inc.andSubsidiariesofourreportdatedFebruary20,2018,relatingtotheconsolidatedfinancialstatementsofSummerInfant,Inc.andSubsidiariesappearinginthisAnnualReportonForm10-KofSummerInfant,Inc.andSubsidiariesfortheyearendedDecember30,2017.
/s/RSMUSLLPRSMUSLLPBoston,MAFebruary20,2018
QuickLinks
Exhibit23.1
ConsentofIndependentRegisteredPublicAccountingFirm
QuickLinks--Clickheretorapidlynavigatethroughthisdocument
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:February20,2018 /s/MARKMESSNER
MarkMessnerChief Executive Officer
QuickLinks
Exhibit31.1
CERTIFICATIONOFCHIEFEXECUTIVEOFFICER
QuickLinks--Clickheretorapidlynavigatethroughthisdocument
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:February20,2018 /s/WILLIAME.MOTE,JR.
WilliamE.Mote,Jr.Chief Financial Officer
QuickLinks
Exhibit31.2
CERTIFICATIONOFCHIEFFINANCIALOFFICER
QuickLinks--Clickheretorapidlynavigatethroughthisdocument
Exhibit32.1
SECTION1350CERTIFICATION
InconnectionwiththeAnnualReportonForm10-KofSummerInfant,Inc.(the"Company")fortheyearendedDecember30,2017(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:February20,2018 /s/MARKMESSNER
MarkMessnerChief Executive Officer
QuickLinks
Exhibit32.1
SECTION1350CERTIFICATION
QuickLinks--Clickheretorapidlynavigatethroughthisdocument
Exhibit32.2
SECTION1350CERTIFICATION
InconnectionwiththeAnnualReportonForm10-KofSummerInfant,Inc.(the"Company")fortheyearendedDecember30,2017(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:February20,2018 /s/WILLIAME.MOTE,JR.
WilliamE.Mote,Jr.Chief Financial Officer
QuickLinks
Exhibit32.2
SECTION1350CERTIFICATION
