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Note 1 - Summary of Significant Interim Accounting Policies | 3 Months Ended
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Mar. 31, 2019
Notes to Financial Statements |
Significant Accounting Policies [Text Block] | NOTE 1 – Summary of Significant Interim Accounting Policies: a) Basis of presentation The consolidated interim financial statements include the accounts of Superior Group of Companies, Inc. and its wholly-owned subsidiaries, The Office Gurus, LLC, SUG Holding, Superior Group Holdings, Inc., Fashion Seal Corporation, BAMKO, LLC and CID Resources, Inc.; The Office Gurus, Ltda, de C.V., The Office Masters, Ltda., de C.V. and The Office Gurus, Ltd., each a subsidiary of Fashion Seal Corporation and SUG Holding; and Power Three Web, Ltda. and Superior Sourcing, each a wholly-owned subsidiary of SUG Holding; BAMKO Importação, Exportação e Comércio de Brindes Ltda., a subsidiary of BAMKO, LLC and SUG Holding; Guangzhou Ben Gao Trading Limited, Worldwide Sourcing Solutions Limited, and BAMKO UK, Limited, each a direct or indirect subsidiary of BAMKO, LLC; and BAMKO India Private Limited, a 99% -owned subsidiary of BAMKO, LLC. All of these entities are referred to collectively as “the Company”, “Superior”, “we”, “our”, or “us”. Effective May 3, 2018, Superior Uniform Group, Inc. changed its name to Superior Group of Companies, Inc. Intercompany items have been eliminated in consolidation. The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10 -K for the year ended December 31, 2018, and filed with the Securities and Exchange Commission. The interim financial information contained herein is not certified or audited; it reflects all adjustments (consisting of only normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of the operating results for the periods presented, stated on a basis consistent with that of the audited financial statements. The results of operations for any interim period are not necessarily indicative of results to be expected for the full year. b) Cash and cash equivalents The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. c) Revenue recognition Effective January, 2018, the Company adopted ASU 2014 - 09 Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively ASC 606 ) using the modified retrospective method to all contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1 2018 are presented under ASC 606 while comparative information for prior periods has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company recorded a net change in beginning retained earnings of $11.2 million as of January 1, 2018 due to the cumulative effect of adopting ASC 606. Revenue for our Uniforms and Related Products and Promotional Products segments is recognized when the earnings process is complete. For certain contracts with customers in which the Company has an enforceable right to payment for goods with no alternative use we have moved from a point in time model to an over time model in which we recognize revenue upon receipt of finished goods into inventory. Contract termination terms may involve variable consideration clauses such as discounts and rebates, and revenue has been adjusted accordingly for these provisions. Revenue for goods that do have an alternative use and/or that the customer is not obligated to purchase under the terms of a contract is generally recognized when the goods are transferred to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for the goods. Sales taxes, sales discounts and customer rebates are also excluded from revenue. The new standard has no cash impact and does not affect the economics of our underlying customer contracts. Compared to the respective prior year quarter, the impact of adoption of ASC 606 was a $1.8 million reduction in revenues for the three months ended March 31, 2019, and a $3.8 million increase in revenues for the three months ended March 31, 2018. The impact of adoption of ASC 606 on our consolidated balance sheet and statement of comprehensive income as of March 31, 2019 is as follows (in thousands):
Balance Sheet |  |  |  |  |  |  |  |  |  |  |  |
|  | As Reported |  |  | Balances Without Adoption of |  |  | Effect of Change |
|  | 3/31/2019 |  |  | ASC 606 |  |  | 3/31/2019 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Contract assets |  | $ | 47,359 |  |  | $ | - |  |  | $ | 47,359 |
Inventory |  |  | 65,753 |  |  |  | 93,512 |  |  |  | (27,759 | )
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable |  | $ | 24,802 |  |  | $ | 22,008 |  |  | $ | 2,794 |
Other current liabilites |  |  | 15,703 |  |  |  | 12,811 |  |  |  | 2,892 |
Deferred tax liability |  |  | 7,365 |  |  |  | 5,441 |  |  |  | 1,924 |
In accordance with ASC 606, the Company has recognized contract assets of $47.3 million as of March 31, 2019 for goods produced without an alternative use for which the Company has an enforceable right to payment but which have not yet been invoiced to the customer.
Statement of Comprehensive Income |  |  |  |  |  |  |  |  |  |  |  |
|  | As Reported |  |  | Balances Without Adoption of |  |  | Effect of Change |
|  | 3/31/2019 |  |  | ASC 606 |  |  | 3/31/2019 |
Net sales |  | $ | 86,552 |  |  | $ | 88,346 |  |  | $ | (1,794 | )
Cost of goods sold |  |  | 56,284 |  |  |  | 57,117 |  |  |  | (833 | )
Selling and administrative expenses |  |  | 25,863 |  |  |  | 25,822 |  |  |  | 41 |
The cost of goods sold associated with our ASC 606 adjustment include the cost of the garments, alterations (if applicable) and shipping costs. Selling and administrative expenses consist of sales commissions. Revenue from our Remote Staffing segment is recognized as services are delivered. d) Amortization of other intangible assets The Company amortizes identifiable intangible assets on a straight line basis over their expected useful lives. Amortization expense for other intangible assets was $1.0 million and $0.8 million for the three -month periods ended March 31, 2019 and 2018, respectively. e) Cost of goods sold and shipping and handling fees and costs The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with out-bound freight are generally recorded in cost of goods sold. Other shipping and handling costs such as labor and overhead are included in selling and administrative expenses and totaled $3.4 million and $2.7 million for the three -month periods ended March 31, 2019 and 2018, respectively. f) Inventories Inventories are stated at the lower of cost ( first -in, first -out method or average cost) or net realizable value. Judgments and estimates are used in determining the likelihood that goods on hand can be sold to customers. Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required. g) Accounting for income taxes The provision for income taxes is calculated by using the effective tax rate anticipated for the full year. h) Employee benefit plan settlements The Company recognizes settlement gains and losses in its financial statements when the cost of all settlements in a year is greater than the sum of the service cost and interest cost components of net periodic pension cost for the plan for the year. i) Earnings per share Historical basic per share data is based on the weighted average number of shares outstanding. Historical diluted per share data is reconciled by adding to weighted average shares outstanding the dilutive impact of the exercise of outstanding stock options, stock-settled appreciation rights, restricted stock, and performance shares. j) Derivative financial instruments The Company uses certain financial derivatives to mitigate its exposure to volatility in interest rates and foreign currency. The Company records derivatives on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. On the date a derivative contract is entered into, the Company may elect to designate the derivative as a fair value hedge, a cash flow hedge, or the hedge of a net investment in a foreign operation. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative that is used in the hedging transaction is highly effective. For those instruments that are designated as a cash flow hedge and meet certain documentary and analytical requirements to qualify for hedge accounting treatment, changes in the fair value for the effective portion are reported in other comprehensive income (“OCI”), net of related income tax effects, and are reclassified to the income statement when the effects of the item being hedged are recognized in the income statement. The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, or management determines that designation of the derivative as a hedging instrument is no longer appropriate. In situations in which the Company does not elect hedge accounting or hedge accounting is discontinued and the derivative is retained, the Company carries or continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value through earnings. The nature of the Company’s business activities involves the management of various financial and market risks, including those related to changes in interest rates and foreign currency. The Company does not enter into derivative instruments for speculative purposes. The Company manages market and credit risks associated with its derivative instruments by establishing and monitoring limits as to the types and degree of risk that may be undertaken, and by entering into transactions with high-quality counterparties. Effective March 3, 2017, in order to reduce the interest rate risk on its future debt, the Company entered into an interest rate swap agreement that was designed to effectively convert or hedge the variable interest rate on a portion of its future borrowings to achieve a net fixed rate beginning March 1, 2018 with a notional amount of $18.0 million. On May 2, 2018, in conjunction with the Amended and Restated Credit Agreement, the original swap was modified (“amended swap”) to achieve a net fixed rate of 3.05% per annum effective May 1, 2018 and the remaining notional amount was $17.5 million. As a result of the change, the Company has discontinued hedge accounting for the original swap and has elected not to designate the amended swap. Changes to the fair value of the amended swap are recorded as interest expense. k) Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. l) Comprehensive income Other comprehensive income (loss) is defined as the change in equity during a period, from transactions and other events, excluding changes resulting from investments by owners (e.g., supplemental stock offering) and distributions to owners (e.g., dividends). Components of comprehensive income include changes in foreign currency translation adjustments (net of tax), pension plan adjustments (net of tax), and changes in the fair value of cash flow hedges (net of tax). m) Operating segments The Financial Accounting Standards Board (“FASB”) establishes standards for the way that public companies report information about operating segments in annual financial statements and establishes standards for related disclosures about product and services, geographic areas and major customers. The Company has reviewed the standard and determined that it has three reportable segments, Uniforms and Related Products, Remote Staffing Solutions and Promotional Products. n) Share-based compensation The Company awards share-based compensation as an incentive for employees to contribute to the Company’s long-term success. The Company grants options, stock-settled stock appreciation rights, restricted stock, and performance shares. At March 31, 2019, the Company had 3,308,588 shares of common stock available for grant of awards of share-based compensation under its 2013 Incentive Stock and Awards Plan. The Company recognizes share-based compensation expense, either at the date of grant or over a subsequent vesting period, which is based on the fair value of the award on the date of grant. Determining the appropriate fair value model and calculating the fair value of stock compensation awards requires the input of certain highly complex and subjective assumptions, including the expected life of the stock compensation awards and the Company’s common stock price volatility, risk free interest rate and dividend rate. The assumptions used in calculating the fair value of stock compensation awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and the Company deems it necessary to use different assumptions, stock compensation expense could be materially different from what has been recorded in the current period. o) Recently Adopted Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016 - 02, Lea s es (Topic 842 ) and July 2018, the FASB issued ASU No. 2018 - 10, Codification Improvements to Topic 842, Leases and ASU No. 2018 - 11, Targeted Improvements (collectively “Topic 842” ). Topic 842 establishes a new lease model, referred to as the right-of-use (ROU) model that brings substantially all leases on the balance sheet. This standard requires lessees to recognize leased assets (ROU Assets) and lease liabilities on the balance sheet and disclose key information about the leasing arrangements in their financial statements. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company adopted Topic 842 effective January 1, 2019 using the modified retrospective transition approach that allows a reporting entity to use the effective date as its date of initial application and not restate the comparative periods in the period of adoption when transitioning to the new standard. Consequently, the requisite financial information and disclosures under the new standard are excluded for dates and periods prior to January 1, 2019. In addition, the Company elected to use a number of optional simplification and practical expedients (reliefs) permitted under the transition guidance within the new standard, including allowing the Company to combine fixed lease and non-lease components, apply the short-term lease exception to all leases of one year or less, and utilize the ‘package of practical expedients’, which permits the Company to not reassess prior accounting conclusions with respect to lease identification, lease classification and initial direct costs under Topic 842. The Company did not elect the use-of hindsight or the practical expedient pertaining to land easement; the latter not being applicable to the Company. Adoption of this new standard resulted in the recognition of $4.1 million of operating lease obligation liabilities ( $1 million in other current liabilities and $3.1 million in operating lease liability) which represents the present value of the remaining lease payments of $4.6 million, discounted using the Company’s lease discount rate of 5.74% and $4.9 million of operating lease right-of-use assets, which represents the lease liability of $4.1 million adjusted for prepaid rent to $0.8 million that was previously presented within current prepaid expense and other current assets and other assets on the accompanying condensed consolidated balance sheet prior to adoption. Refer to Note 10 for the impact to the financial statements as of March 31, 2019. In January 2017, the FASB issued ASU 2017 - 04, “Simplifying the Test for Goodwill Impairment.” ASU 2017 - 04 eliminates the two -step process that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by the difference between a reporting unit's carrying value and its fair value (impairment loss is limited to the carrying value). This standard is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. The adoption of this standard is not expected to have a material impact on the consolidated condensed financial statements. In February 2018, the FASB issued ASU 2018 - 02, "Income Statement - Reporting Comprehensive Income (Topic 220 ): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." ASU 2018 - 02 allows entities to elect to reclassify the income tax effects resulting from the Tax Cuts and Jobs Act (Tax Act) on items within accumulated other comprehensive income to retained earnings and requires additional related disclosures. This standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, however, early adoption is permitted. The Company’s adoption of this standard on January 1, 2019 did not have a material impact on its consolidated financial statements. No other new accounting pronouncement recently issued or newly effective had or is expected to have a material impact on the consolidated financial statements of Superior Group of Companies, Inc. and Subsidiaries.

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