SUPERIOR GROUP OF COMPANIES, INC. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 248 ) 33 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023 and 2022 37 Consolidated Balance Sheets as of December 31, 2023 and 2022 38 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2023 and 2022 39 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 40 Notes to the Consolidated Financial Statements 41 32 Table of Contents Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders Superior Group of Companies, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Superior Group of Companies, Inc. (a Florida corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of comprehensive income (loss), shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 13, 2024 expressed an adverse opinion. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Indefinite-lived Intangible Assets – CID Resources Trade name As described further in note 6 to the financial statements, the Company has an indefinite-lived intangible asset related to the CID Resources trade name of approximately $14.2 million. This indefinite-lived intangible asset is reviewed at least quarterly by the Company for impairment assessment. The Company considers historical and projected financial performance as well as industry information. We identified the quantitative fair value assessment of the CID Resources trade name in the fourth quarter as a critical audit matter. The principal considerations for our determination that the impairment assessment of this indefinite-lived intangible asset is a critical audit matter are that the impairment assessment requires the Company to utilize subjective assumptions to estimate the discounted cash flows attributable to the CID Resources trade name, such as royalty rate and discount rate. This estimation process required a high degree of auditor judgement and an increased extent of effort. 33 Table of Contents Our audit procedures related to the CID Resources trade name included the following, among others. • We obtained an understanding, evaluated the design and tested the operating effectiveness of key controls relating to management’s quantitative impairment assessment process including review of assumptions used in the model and the completeness and accuracy of forecasted information. • We reviewed revenue forecasts prepared by management that were utilized in the model and performed sensitivity analyses on those forecasts. • We utilized a valuation specialist to assess the appropriateness of the model utilized and underlying assumptions including the royalty rate and discount rate. /s/ GRANT THORNTON LLP We have served as the Company's auditor since 2022. Tampa, Florida March 13, 2024 34 Table of Contents Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders Superior Group of Companies, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of Superior Group of Companies, Inc. (a Florida corporation) and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, because of the effect of the material weakness described in the following paragraphs on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control — Integrated Framework issued by COSO. A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. As of December 31, 2023, management identified a material weakness relating to segregation of duties, change management and user access within certain proprietary information technology systems of the Contact Centers segment. The Company determined that management’s review controls over these areas are not designed effectively to detect a material misstatement related to the completeness, accuracy, and presentation of the financial statements. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2023. The material weakness identified above was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report dated March 13, 2024 which expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 35 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Other information We do not express an opinion or any other form of assurance on management’s remediation plans related to the currently reported material weakness in internal control over financial reporting as of December 31, 2023. /s/ GRANT THORNTON LLP Tampa, Florida March 13, 2024 36 Table of Contents SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands, except shares and per share data) Years Ended December 31, 2023 2022 Net sales $ 543,302 $ 578,831 Costs and expenses: Cost of goods sold 339,755 385,472 Selling and administrative expenses 183,205 176,320 Goodwill impairment charge - 45,918 Intangible assets impairment charge - 5,581 Other periodic pension costs 855 2,116 Interest expense 9,718 4,894 533,533 620,301 Gain on sale of property, plant and equipment - 3,435 Income (loss) before income tax expense 9,769 ( 38,035 ) Income tax expense (benefit) 997 ( 6,065 ) Net income (loss) $ 8,772 $ ( 31,970 ) Net income (loss) per share: Basic $ 0.55 $ ( 2.03 ) Diluted $ 0.54 $ ( 2.03 ) Weighted average shares outstanding during the period: Basic 15,968,199 15,764,859 Diluted 16,159,308 15,764,859 Other comprehensive income (loss), net of tax: Defined benefit pension plans: Recognition of net losses included in net periodic pension costs $ 163 $ 1,276 Current period gain (loss) ( 172 ) 2,188 Loss on cash flow hedging activities - ( 47 ) Foreign currency translation adjustment 735 ( 215 ) Other comprehensive income 726 3,202 Comprehensive income (loss) $ 9,498 $ ( 28,768 ) Cash dividends per common share $ 0.56 $ 0.54 See accompanying Notes to the Consolidated Financial Statements. 37 Table of Contents SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and par value data) December 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 19,896 $ 17,722 Accounts receivable, less allowance for doubtful accounts of $ 4,237 and $ 7,622 , respectively 103,494 104,813 Accounts receivable - other 307 3,326 Inventories 98,067 124,976 Contract assets 48,715 52,980 Prepaid expenses and other current assets 8,881 14,166 Total current assets 279,360 317,983 Property, plant and equipment, net 46,890 51,392 Operating lease right-of-use assets 17,909 9,113 Deferred tax asset 12,356 10,718 Intangible assets, net 51,160 55,753 Other assets 14,775 11,982 Total assets $ 422,450 $ 456,941 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 50,520 $ 42,060 Other current liabilities 43,978 38,646 Current portion of long-term debt 4,688 3,750 Current portion of acquisition-related contingent liabilities 1,403 736 Total current liabilities 100,589 85,192 Long-term debt 88,789 151,567 Long-term pension liability 13,284 12,864 Long-term acquisition-related contingent liabilities 557 2,245 Long-term operating lease liabilities 12,809 3,936 Other long-term liabilities 8,784 8,538 Total liabilities 224,812 264,342 Commitments and contingencies (Note 12) Shareholders’ equity: Preferred stock, $ .001 par value - authorized 300,000 shares ( none issued) - - Common stock, $ .001 par value - authorized 50,000,000 shares, issued and outstanding - 16,564,712 and 16,376,683 shares, respectively 16 16 Additional paid-in capital 77,443 72,615 Retained earnings 122,464 122,979 Accumulated other comprehensive income (loss), net of tax: Pensions ( 1,122 ) ( 1,113 ) Foreign currency translation adjustment ( 1,163 ) ( 1,898 ) Total shareholders’ equity 197,638 192,599 Total liabilities and shareholders’ equity $ 422,450 $ 456,941 See accompanying Notes to the Consolidated Financial Statements. 38 Table of Contents SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands, except shares and per share data) Accumulated Other Additional Comprehensive Total Common Common Paid-In Retained (Loss) Income, Shareholders’ Shares Stock Capital Earnings net of tax Equity Balance, January 1, 2022 16,127,505 $ 16 $ 69,351 $ 163,836 $ ( 6,213 ) $ 226,990 Cumulative-effect adjustment from adoption of ASU 2016-13 - - - $ ( 76 ) - $ ( 76 ) Common shares issued upon exercise of options and SARs, net 80,434 - 886 ( 158 ) - 728 Performance based shares issued 11,707 - - - - - Restricted shares issued, net of forfeitures 48,044 - - - - - Restricted shares issued in conjunction with acquisition of business 116,550 - 2,000 - - 2,000 Share-based compensation expense - - 4,289 - - 4,289 Tax withheld on vesting of restricted shares and performance based shares ( 7,557 ) - ( 314 ) - - ( 314 ) Written put options - - ( 3,597 ) - - ( 3,597 ) Cash dividends declared ($ 0.54 per share) - - - ( 8,653 ) - ( 8,653 ) Comprehensive income (loss): Net loss - - - ( 31,970 ) - ( 31,970 ) Cash flow hedges, net of taxes of $ 6 - - - - ( 47 ) ( 47 ) Pensions, net of taxes of $ 1,281 - - - - 3,464 3,464 Change in currency translation adjustment, net of taxes of $ 0 - - - - ( 215 ) ( 215 ) Balance, December 31, 2022 16,376,683 $ 16 $ 72,615 $ 122,979 $ ( 3,011 ) $ 192,599 Common shares issued upon exercise of options and SARs, net 29,835 - 274 ( 99 ) - 175 Performance based shares issued 2,981 - - - - - Restricted shares issued, net of forfeitures 155,213 - - - - - Share-based compensation expense - - 3,787 - - 3,787 Written put options - - 767 - - 767 Cash dividends declared ($ 0.56 per share) - - - ( 9,188 ) - ( 9,188 ) Comprehensive income (loss): Net income - - - 8,772 - 8,772 Pensions, net of taxes of $ 3 - - - - ( 9 ) ( 9 ) Change in currency translation adjustment, net of taxes of $ 0 - - - - 735 735 Balance, December 31, 2023 16,564,712 $ 16 $ 77,443 $ 122,464 $ ( 2,285 ) $ 197,638 See accompanying Notes to the Consolidated Financial Statements. 39 Table of Contents SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended December 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 8,772 $ ( 31,970 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 13,995 13,004 Goodwill impairment charge - 45,918 Intangible assets impairment charge - 5,581 Inventory write-downs 2,346 13,569 Provision for bad debts - accounts receivable 539 2,891 Share-based compensation expense 3,787 4,289 Deferred income tax benefit ( 1,635 ) ( 12,352 ) Gain on sale of property, plant and equipment - ( 3,435 ) Change in fair value of acquisition-related contingent liabilities ( 189 ) ( 450 ) Change in fair value of written put options 489 ( 1,565 ) Changes in assets and liabilities, net of acquisition of businesses: Accounts receivable 1,051 680 Accounts receivable - other 3,019 1,347 Contract assets 4,310 ( 15,092 ) Inventories 24,672 ( 15,898 ) Prepaid expenses and other current assets 5,496 5,225 Other assets ( 2,012 ) 1,858 Accounts payable and other current liabilities 13,310 ( 14,614 ) Payment of acquisition-related contingent liabilities ( 279 ) ( 3,346 ) Long-term pension liability 407 2,190 Other long-term liabilities 851 ( 434 ) Net cash provided by (used in) operating activities 78,929 ( 2,604 ) CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment ( 4,963 ) ( 11,018 ) Proceeds from disposals of property, plant and equipment - 4,795 Acquisition of businesses - ( 11,202 ) Other investments ( 545 ) - Net cash used in investing activities ( 5,508 ) ( 17,425 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings of debt 6,000 332,143 Repayment of debt ( 67,750 ) ( 292,773 ) Debt issuance costs ( 300 ) ( 869 ) Payment of cash dividends ( 9,188 ) ( 8,653 ) Payment of acquisition-related contingent liabilities ( 553 ) ( 1,416 ) Proceeds received on exercise of stock options 175 728 Tax withholdings on vesting of restricted shares and performance based shares and on exercise of stock rights - ( 314 ) Net cash provided by (used in) financing activities ( 71,616 ) 28,846 Effect of currency exchange rates on cash 369 ( 30 ) Net increase in cash and cash equivalents 2,174 8,787 Cash and cash equivalents balance, beginning of year 17,722 8,935 Cash and cash equivalents balance, end of year $ 19,896 $ 17,722 Supplemental disclosure of cash flow information: Income taxes paid (refunded), net $ ( 978 ) $ 1,348 Interest paid $ 9,588 $ 4,767 See accompanying Notes to the Consolidated Financial Statements. 40 Table of Contents Superior Group of Companies , Inc. and Subsidiaries Notes to the Consolidated Financial Statements NOTE 1 – Description of Business, Basis of Presentation and Summary of Accounting Policies: Description of business Superior Group of Companies, Inc. (together with its subsidiaries, “the Company,” “Superior,” “we,” “our,” or “us”) was organized in 1920 and was incorporated in 1922 as a New York company under the name Superior Surgical Mfg. Co., Inc. In 1998, the Company changed its name to Superior Uniform Group, Inc. and redomiciled to Florida. Effective on May 3, 2018, Superior Uniform Group, Inc. changed its name to Superior Group of Companies, Inc. Superior’s Branded Products segment, primarily through its signature marketing brands BAMKO® and HPI®, produces and sells customized merchandising solutions, promotional products and branded uniform programs. Branded products are manufactured through third parties or in Superior’s own facilities, and are sold to customers in a wide range of industries, including retail, hotel, food service, entertainment, technology, transportation and other industries. The segment currently has sales offices in the United States, Canada, Brazil, the United Kingdom and Colombia, with support services in China and India. Superior’s Healthcare Apparel segment, primarily through its signature marketing brands Fashion Seal Healthcare®, Wink™ and CID Resources, manufactures (through third parties or in its own facilities) and sells a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient gowns. This segment sells healthcare service apparel to healthcare laundries, dealers, distributors, retailers and consumers primarily in the United States. Superior’s Contact Centers segment, through multiple The Office Gurus® entities, including subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”), provides outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers. Basis of presentation The accompanying consolidated financial statements of Superior included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) (“U.S.” or “United States”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company refers to the consolidated financial statements collectively as “financial statements,” and individually as “statements of comprehensive income (loss),” “balance sheets,” “statements of shareholders’ equity,” and “statements of cash flows” herein. Reportable Segments Beginning in the second quarter of 2022, the Company realigned its reportable segments to correspond with changes to its organizational responsibilities, management structure and operating model. Prior to implementing the current segment reporting, the Company’s Uniforms and Related Products segment included healthcare apparel, uniforms and corporate overhead. As part of the change in reportable segments, the branded portion of the uniforms business was combined with the previous Promotional Products segment to form the Branded Products segment, the healthcare apparel business became its own segment named Healthcare Apparel and income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment are no longer presented in segment results. The previous Remote Staffing Solutions segment was renamed the Contact Centers segment. As a result of this re-segmentation, the Company performed a quantitative goodwill impairment test. Refer to Note 6 for additional information. Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue and expenses, as well as the disclosures of contingent assets and liabilities. Because of the inherent uncertainties in this process, actual future results could differ from those expected at the reporting date. Cash and cash equivalents The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. 41 Table of Contents Revenue recognition Revenue is recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. See Note 15 for further discussion on revenue recognition. Accounts receivable and allowance for doubtful accounts Judgments and estimates are used in determining the collectability of accounts receivable and in establishing allowances for doubtful accounts. The Company analyzes specific accounts receivable and historical bad debt experience, customer credit worthiness, current economic trends and the age of outstanding balances when evaluating the adequacy of the allowance for doubtful accounts. Changes in estimates are reflected in the period they become known. Charge-offs of accounts receivable are made once all collection efforts have been exhausted. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Cost of goods sold and shipping and handling fees and costs Cost of goods sold for our Branded Products segment and our Healthcare Apparel segment consist primarily of direct costs of acquiring inventory, including cost of merchandise, inbound freight charges, purchasing, receiving and inspection costs. Cost of goods sold for our Contact Centers segment includes salaries and payroll related benefits for agents. The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with out-bound freight are recorded in cost of goods sold. The cost of occupancy and operating the Company’s distribution centers are included in selling and administrative expenses. 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. Property, plant and equipment Property, plant and equipment are stated at cost, less accumulated depreciation. Major renewals and improvements are capitalized, while replacements, maintenance and repairs which do not improve or extend the life of the respective assets are expensed in the period incurred. Costs of assets sold or retired and the related accumulated depreciation are eliminated from accounts and the net gain or loss is reflected in the statements of comprehensive income (loss) within selling and administrative expenses. During the year ended December 31, 2022, the Company sold its corporate headquarters building and related assets for net proceeds of $ 4.8 million and realized a gain on the sale of $ 3.4 million. This sale was part of management’s plan to relocate the Company’s corporate headquarters to St. Petersburg, Florida. This sale is presented within our statements of comprehensive income (loss) as a separate line item titled “gain on sale of property, plant and equipment.” Property, plant and equipment is recorded at cost and depreciated using the straight-line method over its estimated useful life as follows: Buildings (in years) 20 to 40 Improvements (in years) 5 to 40 Machinery, equipment and fixtures (in years) 3 to 10 Leasehold improvements are depreciated over the terms of the leases to the extent that such improvements have useful lives of at least the terms of the respective leases. Impairment of long-lived assets Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to future net cash flows the asset is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. There were no impairments of long-lived assets for the years ended December 31, 2023 and 2022 . 42 Table of Contents Goodwill and indefinite-lived intangible assets The Company has made acquisitions in the past that included goodwill and indefinite-lived intangible assets. Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill and indefinite-lived intangible assets such as trade names are not amortized but are subject to an annual (or under certain circumstances more frequent) impairment test in the fourth quarter based on their estimated fair value. We test more frequently if there are indicators of impairment, or whenever such circumstances suggest that the carrying value of goodwill or trade names may not be recoverable. Examples of such events and circumstances that the Company would consider include the following: • macroeconomic conditions such as deterioration in general economic conditions, limitations on accessing capital, or other developments in equity and credit markets; • industry and market considerations such as a deterioration in the environment in which the Company operates, an increased competitive environment, a decline in market-dependent multiples or metrics (considered in both absolute terms and relative to peers), a change in the market for the Company’s products or services, or a regulatory or political development; • cost factors such as increases in raw materials, labor, or other costs that have a negative effect on earnings and cash flows; • overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods; and • other relevant entity-specific events such as changes in management, key personnel, strategy, or customers. An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (that is, a likelihood of more than 50% ) that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the impairment test is unnecessary. Goodwill and indefinite-lived intangible assets are tested at a level of reporting referred to as “the reporting unit.” The Company’s reporting units are defined as each of its three reporting segments. In conjunction with the re-segmentation during the second quarter of 2022, the Company performed a goodwill impairment analysis and determined that the estimated fair value of the previous Uniforms and Related Products segment was lower than its carrying value primarily as the result of current market conditions, decline in expected cash flows and decrease in the Company’s stock price. During the third quarter of 2022, the Company determined that a triggering event occurred in relation to the depressed market price of the Company’s common stock and corresponding significant decline in the Company’s market capitalization. As a result, the Company performed a goodwill impairment analysis and determined that the estimated fair value of the Branded Products segment was lower than its carrying value. Consequently, the Company recorded a non-cash goodwill impairment charge of $ 45.9 million during the year ended December 31, 2022. As of December 31, 2022, the Company had no remaining goodwill balance. In conjunction with the Company’s realignment of its reportable segments during the second quarter of 2022, the Company began an effort to centralize certain branding and go-to-market strategies under the BAMKO brand and determined that it would no longer use certain trade names associated with branded products. The Company’s rebranding efforts resulted in a $ 5.6 million impairment of indefinite-lived trade names related to its Branded Products segment during the year ended December 31, 2022. For the year ended December 31, 2023, the Company completed its testing of indefinite-lived intangible assets and determined that the fair value of each indefinite-lived intangible asset was more than its carrying value. As of December 31, 2023 and 2022 , indefinite-lived intangible assets of $ 13.6 million and $ 14.2 million were included in the Branded Products segment and the Healthcare Apparel segment, respectively. Contingent Consideration Contingent consideration relating to consideration transferred in exchange for an acquired business is recognized at its estimated fair value at the acquisition date. The contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. Recognition of any changes in fair value are included in selling and administrative expenses in our statements of comprehensive income (loss). 43 Table of Contents SERP The Company is the sponsor of an unfunded supplemental executive retirement plan (“SERP”) which includes one active participant. In calculating our obligations and related expense, we make various assumptions and estimates, after consulting with outside actuaries and advisors. The annual determination of expense involves calculating the estimated total benefits ultimately payable to plan participants. Significant assumptions related to the calculation of our obligations include the discount rates used to calculate the present value of benefit obligations to be paid in the future. We review these assumptions annually based upon currently available information, including information provided by our actuaries. Insurance The Company self-insures for certain obligations related to employee health programs. The Company also purchases stop-loss insurance policies to protect it from catastrophic losses. Judgments and estimates are used in determining the potential value associated with reported claims and for losses that have occurred, but have not been reported. The Company’s estimates consider historical claim experience and other factors. The Company’s liabilities are based on estimates, and, while the Company believes that the accrual for loss is adequate, the ultimate liability may be in excess of or less than the amounts recorded. Changes in claim experience, the Company’s ability to settle claims or other estimates and judgments used by management could have a material impact on the amount and timing of expense for any period. Taxes on income Income taxes are provided for under the asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The calculation of the Company’s tax liabilities also involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain income tax positions based on estimates of whether, and the extent to which, additional taxes will be required. The Company also accrues interest and penalties related to uncertain income tax positions as income taxes. Refer to Note 9 for additional details. 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. The Company recognizes share-based compensation expense for all awards granted to employees, 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. Other comprehensive income (loss) Comprehensive income (loss) includes net income (loss) and all other changes in equity during a period except those resulting from investments by or distributions to shareholders. Other comprehensive income (loss) consists of defined benefit pension plans activities, cash flow hedging activities and foreign currency translation adjustment. The related tax effects of these items are recorded in income tax expense (benefit) within the statements of comprehensive income (loss), upon reclassification from accumulated other comprehensive income (loss), net of tax. 44 Table of Contents Foreign Currency Translations and Transactions Assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the current rate of exchange on the last day of the reporting period. Changes in the carrying values of these assets and liabilities attributable to fluctuations in spot rates are recognized in net foreign currency translation adjustment, a component of accumulated other comprehensive income (loss), net of tax. Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency are remeasured from the applicable currency to the reporting entity’s functional currency. Gains or losses resulting from transactions denominated in other currencies are recognized in net income (loss) each period. The majority of the Company’s transactions are settled in U.S. dollars. Risks and concentrations Financial instruments that potentially subject the Company to concentrations of credit risk include cash in banks in excess of federally insured amounts. The Company manages this risk by maintaining all deposits in high quality financial institutions and periodically performing evaluations of the relative credit standing of the financial institutions. When assessing credit risk the Company considers whether the credit risk exists at both the individual and group level. Consideration is given to the activity, region and economic characteristics when assessing if there exists a group concentration risk. At December 31, 2023 and 2022 , the Company had no customer with an accounts receivable balance greater than 10 % of the total accounts receivable. At December 31, 2023 and 2022 , the five largest customer accounts receivable balances totaled $ 17.9 million and $ 21.4 million, respectively, or approximately 17 % and 20 % of the respective total accounts receivable balances. The Branded Products segment has a substantial number of customers, none of which accounted for more than 10% of the segment’s 2023 net sales and no customer accounted for more than 10% of the Healthcare Apparel or Contact Center segment's 2023 net sales. Principal raw materials used to manufacture the Company’s finished goods include cotton, polyester, spandex, cotton-synthetic, poly-synthetic blends, textiles, plastic, glass, fabric and metal. The majority of such fabrics are sourced in China, either directly by us or our suppliers. If we are unable to continue to obtain our raw materials and finished products from China or if our suppliers are unable to source raw materials from China, it could significantly disrupt our business. Further, the Company and the Company’s suppliers generally source or manufacture finished goods in parts of the world that may be affected by economic uncertainty, political unrest, logistical challenges (such as port strikes and embargos), foreign currency fluctuations, labor disputes, health emergencies, or the imposition of duties, tariffs or other import regulations by the United States, any of which could result in additional cost or limit our supply of necessary goods and raw materials. Written Put Options During the second quarter of 2022, the Company entered into written put options with a former employee that, if exercised by the former employee, requires the Company to repurchase up to 207,970 shares of its common stock at fair market value (as defined in the agreement), subject to certain limitations. The original fair value of the written put options upon entering into the agreement was $ 3.6 million. The written put options expire after twenty-four months and contain certain quarterly maximums. During the year ended December 31, 2023 , a total of 75,046 written put options expired unexercised resulting in a $ 0.8 million reduction in other current liabilities with an offset to additional paid-in capital. The written put options are liabilities under ASC 480, Distinguishing Liabilities from Equity, because the options embody obligations to repurchase the Company’s shares by paying cash. As of December 31, 2023 and 2022 , the fair value of the written put options was $ 1.8 million and $ 2.0 million, respectively. The fair value of the written put options is based directly on the Company’s stock price and included in other current liabilities in our balance sheets. We recognized unrealized losses of $ 0.5 million and unrealized gains of $ 1.6 million on written put options during the years ended December 31, 2023 and 2022 , respectively. Unrealized gains and losses from changes in the fair value of the written put options are included within selling and administrative expenses in our statements of comprehensive income (loss). At December 31, 2023 , the Company’s remaining repurchase obligation under the written put options was 132,924 shares of its common stock. Fair value of financial instruments The carrying amounts of cash and cash equivalents, receivables and accounts payable approximated fair value as of December 31, 2023 and 2022 , because of the relatively short maturities of these instruments. The carrying amount of the Company’s long-term debt approximated fair value as the rates are adjustable based upon current market conditions. 45 Table of Contents Recent Accounting Pronouncements We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not listed below were assessed and determined to be not applicable. Recently Issued Accounting Pronouncements Not Yet Adopted In November 2023, the FASB issued ASU 2023 - 07, "Segment Reporting (Topic 280 )—Improvements to Reportable Segment Disclosures" . The ASU requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker ("CODM"). The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The adoption of this guidance will not affect the Company’s consolidated results of operations, financial position or cash flows and the Company is currently evaluating the effect the guidance will have on its disclosures. In December 2023, the FASB issued ASU 2023 - 09, "Income Taxes (Topic 740 )—Improvements to Income Tax Disclosures" . The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. The adoption of this guidance will not affect the Company’s consolidated results of operations, financial position or cash flows and the Company is currently evaluating the effect the guidance will have on its disclosures. NOTE 2 - Allowance for Doubtful Accounts Receivable: The activity in the allowance for doubtful accounts receivable was as follows (in thousands): Years Ended December 31, 2023 2022 Balance at the beginning of year $ 7,622 $ 6,393 Provision for bad debts 539 2,891 Charge-offs ( 3,924 ) ( 1,686 ) Recoveries - 24 Balance at the end of year $ 4,237 $ 7,622 NOTE 3 - Reserve for Sales Returns and Allowances: The activity in the reserve for sales returns and allowances was as follows (in thousands): Years Ended December 31, 2023 2022 Balance at the beginning of year $ 2,090 $ 2,636 Provision for returns and allowances 4,678 4,512 Actual returns and allowances paid to customers ( 5,360 ) ( 5,058 ) Balance at the end of year $ 1,408 $ 2,090 46 Table of Contents NOTE 4 - Inventories: Inventories consisted of the following amounts (in thousands): December 31, 2023 2022 Finished goods $ 72,370 $ 94,228 Work in process 671 401 Raw materials 25,026 30,347 Inventories $ 98,067 $ 124,976 NOTE 5 - Property, Plant and Equipment, Net: Property, plant and equipment, net, consisted of the following (in thousands): December 31, 2023 2022 Land $ 2,494 $ 2,494 Buildings, improvements and leaseholds 16,929 18,652 Machinery, equipment and fixtures 98,590 101,419 118,013 122,565 Accumulated depreciation ( 71,123 ) ( 71,173 ) Property, plant and equipment, net $ 46,890 $ 51,392 Depreciation expense was $ 9.4 million and $ 7.9 million in 2023 and 2022 , respectively. NOTE 6 - Goodwill and Intangible Assets: Goodwill Beginning in the second quarter of 2022, the Company realigned its reportable segments to Branded Products, Healthcare Apparel and Contact Centers. Refer to Note 17 for further information on the Company’s reportable segments. As a result of this re-segmentation, and in accordance with ASC 350, the Company performed a quantitative goodwill impairment test. During the third quarter of 2022, the Company determined that a triggering event occurred in relation to the depressed market price of the Company’s common stock and corresponding significant decline in the Company’s market capitalization. As a result, the Company performed a quantitative goodwill impairment test. The fair value of goodwill in each impairment test was determined using a combination of an income approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to their respective present values, and a market approach. The valuation methodology and underlying financial information included in the Company’s determination of fair value required significant judgments by management. The principal assumptions used in the Company’s discounted cash flow analysis consisted of (a) long-term projections of financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the Company and the industry in which it operates. Under the market approach, the principal assumption included an estimate of a control premium. Based on the goodwill impairment analysis performed, the Company determined that the estimated fair values of the previous Uniforms and Related Products segment and current Branded Products segment were lower than their carrying value primarily as the result of current market conditions, decline in expected cash flows and/or decrease in the Company’s stock price. Consequently, the Company recorded a non-cash goodwill impairment charge of $ 45.9 million during the year ended December 31, 2022. 47 Table of Contents The following table presents the carrying amounts of goodwill attributable to each of the Company’s reportable segments (dollars in thousands): Branded Products Healthcare Apparel Total As of January 1, 2022: Gross goodwill $ 19,111 $ 20,323 $ 39,434 Accumulated impairment losses - - - Net goodwill $ 19,111 $ - $ 39,434 Additions $ 6,463 $ - $ 6,463 Impairment charge ( 25,595 ) ( 20,323 ) ( 45,918 ) Foreign currency translation 21 - 21 Net goodwill, December 31, 2022 $ - $ - $ - As of December 31, 2022: Gross goodwill $ 25,595 $ 20,323 $ 45,918 Accumulated impairment losses ( 25,595 ) ( 20,323 ) ( 45,918 ) Net goodwill $ - $ - $ - Intangible Assets In conjunction with the Company’s realignment of its reportable segments during the second quarter of 2022, the Company began an effort to centralize certain branding and go-to-market strategies under the BAMKO brand and determined that it would no longer use certain trade names associated with branded products. The Company’s rebranding efforts resulted in a $ 5.6 million impairment of indefinite-lived trade names related to its Branded Products segment during the year ended December 31, 2022. The carrying amounts of indefinite-lived trade names are summarized as follows (dollars in thousands): Indefinite-lived Intangible Assets Segment Carrying Amount, December 31, 2021 Impairment Charges Carrying Amount, December 31, 2022 Carrying Amount, December 31, 2023 Trade names: HPI Branded Products $ 4,700 $ - $ 4,700 $ 4,700 BAMKO Branded Products 8,900 - 8,900 8,900 Public Identity Branded Products 470 ( 470 ) - - Tangerine Branded Products 3,200 ( 3,200 ) - - Gifts By Design Branded Products 1,170 ( 1,170 ) - - Sutter’s Mill Branded Products 741 ( 741 ) - - CID Resources(1) Healthcare Apparel 14,160 - 14,160 14,160 Total $ 33,341 $ ( 5,581 ) $ 27,760 $ 27,760 ( 1 ) Includes trade names and trademarks associated with CID Resources, Wink™ and Zoey and Chloe. 48 Table of Contents Intangible assets as of December 31, 2023 and December 31, 2022 are summarized as follows (dollars in thousands): December 31, 2023 December 31, 2022 Item Weighted Average Life (In years) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Definite-lived intangible assets: Customer relationships (7-15 year life) 11.7 $ 50,198 $ ( 27,417 ) $ 50,198 $ ( 23,330 ) Non-compete agreements (3-7 year life) 5.4 1,712 ( 1,507 ) 1,712 ( 1,367 ) Trademarks 10.0 414 ( 118 ) 379 ( 72 ) Trade names 2.0 710 ( 592 ) 710 ( 237 ) Total $ 53,034 $ ( 29,634 ) $ 52,999 $ ( 25,006 ) Indefinite-lived intangible assets: Trade names $ 27,760 $ 27,760 Total intangible assets $ 80,794 $ ( 29,634 ) $ 80,759 $ ( 25,006 ) Amortization expense for intangible assets for the years ended December 31, 2023 and 2022 was $ 4.6 million and $ 5.1 million, respectively. Estimated future intangible amortization expense is as follows (in thousands): 2024 $ 3,719 2025 3,069 2026 3,061 2027 3,020 2028 2,671 Thereafter 7,860 Total $ 23,400 NOTE 7 – Other Current Liabilities: Other current liabilities consisted of the following (in thousands) December 31, 2023 2022 Salaries, wages, commissions and other compensation $ 14,599 $ 14,316 Contract liabilities 5,346 2,213 Accrued rebates 1,409 2,090 Current operating lease liabilities 4,231 3,135 Written put options 1,754 2,032 Other accrued expenses 16,639 14,860 Other current liabilities $ 43,978 $ 38,646 49 Table of Contents NOTE 8 – Long-Term Debt: Debt consisted of the following (in thousands): December 31, 2023 2022 Credit Facilities: Revolving credit facility due August 2027 $ 25,000 $ 83,000 Term loan due August 2027 69,375 73,125 $ 94,375 $ 156,125 Less: Payments due within one year included in current liabilities 4,688 3,750 Debt issuance costs 898 808 Long-term debt less current maturities $ 88,789 $ 151,567 On August 23, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”) among the Company, the domestic subsidiaries of the Company, as guarantors, the lenders party thereto (the “Lenders”), and PNC Bank, National Association, as administrative agent for the Lenders (the “Administrative Agent”), pursuant to which the Lenders are providing the Company senior secured credit facilities maturing in August 2027 consisting of a revolving credit facility in the aggregate maximum principal amount of $ 125.0 million and a term loan in the original aggregate principal amount of $ 75.0 million (collectively, the “Credit Facilities”), and the ability to request incremental revolving credit or term loan facilities in an aggregate amount of up to an additional $ 75.0 million, subject to obtaining additional lender commitments and satisfying certain other conditions. Obligations outstanding under the Credit Facilities accrue interest at a variable rate equal to the secured overnight financing rate (“SOFR”) plus an adjustment between 0.10 % and 0.25 % (depending on the applicable interest period) plus a margin between 1.0 % and 2.0 % (depending on the Company’s net leverage ratio). The weighted average interest rate on our outstanding borrowings under the Credit Facilities was 6.7 % at December 31, 2023 . During the term of the revolving credit facility, the Company will pay a commitment fee on the unused portion of the revolving credit facility equal to between 0.125 % and 0.250 % (depending on the Company’s net leverage ratio). The available balance under the revolving credit facility is reduced by outstanding letters of credit. As of December 31, 2023 , there were no outstanding letters of credit under the revolving credit facility. Contractual principal payments for the term loan are as follows: 2024 - $ 4.6 million; 2025 - $ 5.6 million; 2026 - $ 6.6 million; and 2027 - $ 52.5 million. The term loan does not contain pre-payment penalties. The Credit Facilities are secured by substantially all of the operating assets of the Company, and the Company’s obligations under the Credit Facilities are guaranteed by all of its domestic subsidiaries. The Company’s obligations under the Credit Facilities are subject to acceleration upon the occurrence of an event of default as defined in the Credit Agreement. The Credit Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments, restricted payments (including dividends and related distributions), liquidations, mergers, consolidations or acquisitions, affiliate transactions and sales of assets or subsidiaries. The Credit Agreement also requires the Company to comply with a fixed charge coverage ratio of at least 1.25 to 1.0 and a net leverage ratio not to exceed 4.0 to 1.0. The Company’s net leverage ratio (as defined in the Credit Agreement) is generally calculated as the ratio of (a) indebtedness minus unrestricted cash to (b) consolidated EBITDA for the four most recently ended fiscal quarters. As of December 31, 2023 , the Company was in compliance with these ratios. 50 Table of Contents Debt Maturity Schedule Contractual maturities of debt (excluding interest to be accrued thereon) at December 31, 2023 are as follows (in thousands): 2024 $ 4,688 2025 5,625 2026 6,562 2027 77,500 2028 - Thereafter - Total debt $ 94,375 NOTE 9 – Income Tax Expense (Benefit): The components of income (loss) before income tax expense are as follows (in thousands): Years Ended December 31, 2023 2022 Domestic $ ( 6,585 ) $ ( 59,407 ) Foreign 16,354 21,372 Income (loss) before income tax expense $ 9,769 $ ( 38,035 ) In 2022, the Company generated a loss before income tax expense of $ 38.0 million primarily due to goodwill and indefinite-lived intangible assets impairment charges totaling $ 51.5 million, these impairment charges were nonrecurring in 2023. Aggregate income tax provisions consists of the following (in thousands): Years Ended December 31, 2023 2022 Current: Federal $ 455 $ 3,580 State and local 401 1,314 Foreign 1,776 1,399 2,632 6,293 Deferred Taxes: Deferred tax benefit ( 1,635 ) ( 12,358 ) Income tax expense (benefit) $ 997 $ ( 6,065 ) 51 Table of Contents The significant components of the deferred income tax asset (liability) are as follows (in thousands): December 31, 2023 2022 Deferred income tax assets: Pension accruals $ 3,578 $ 3,513 Operating reserves and other accruals 6,613 7,962 Book carrying value in excess of tax basis of intangibles 1,831 2,321 Capitalized research expenses 2,547 1,704 Disallowed interest 2,167 - Deferred income tax liabilities: Book carrying value in excess of tax basis of property ( 3,950 ) ( 4,183 ) Deferred expenses ( 430 ) ( 599 ) Net deferred income tax asset (liability) $ 12,356 $ 10,718 The difference between the total statutory Federal income tax rate and the actual effective income tax rate is accounted for as follows: Years Ended December 31, 2023 2022 Statutory federal income tax rate 21.0 % 21.0 % State and local income taxes, net of federal income tax benefit 2.5 % 3.4 % Rate impacts due to foreign operations ( 12.8 %) 4.3 % Compensation related 2.1 % ( 0.8 %) Pension termination - ( 0.3 %) R&D tax credits ( 2.7 %) 0.7 % Impairment charge - ( 11.7 %) Other 0.1 % ( 0.7 %) Effective income tax rate 10.2 % 15.9 % The effective tax rate is the result of a variety of factors, and is primarily dependent on our jurisdictional mix of earnings across the Company’s domestic and foreign operations as well as applicable statutory tax rates, the impact of goodwill and indefinite lived intangible impairments, and unrealized gains and losses associated with share-based compensation. The Tax Cuts and Jobs Act of 2017 (“TCJA”) included certain provisions that continue to affect our income taxes, which, among other things, include interest deduction limitations and global intangible low taxed income regulations (“GILTI”). The 2023 increase in the interest rates on our outstanding borrowings, along with the Company’s level of income resulted in a current year limitation of interest expense deductibility. The deferred tax assets associated with the disallowed interest expense have an indefinite life and do not expire. Management believes these deferred tax assets are more likely than not to be realized and therefore no valuation allowance has been recorded. The TCJA imposed a U.S. tax on GILTI that is earned by certain foreign affiliates owned by a U.S. shareholder. The computation of GILTI is generally intended to impose tax on the earnings of a foreign corporation that are deemed to exceed a certain threshold return relative to the underlying business investment. In accordance with guidance issued by FASB, the Company made a policy election to treat future taxes related to GILTI as a current period expense in the reporting period in which the tax is incurred. Deferred income taxes are provided on undistributed earnings of foreign subsidiaries in the period in which the Company determines it no longer intends to permanently reinvest such earnings outside the United States. The Company expects to permanently reinvest the earnings from its wholly-owned Brazilian and UK subsidiaries, and accordingly, has not provided deferred taxes on the subsidiaries’ undistributed net earnings or basis differences. The Company believes that the tax liability that would be incurred upon repatriation of the earnings from its Brazilian and UK subsidiaries is immaterial at December 31, 2023 . Only tax positions that meet the more-likely-than- not recognition threshold are recognized in the financial statements. As of December 31, 2023 and 2022 , we had $ 0.8 million of unrecognized tax benefits, all of which, if recognized, would favorably affect the annual effective income tax rate. We do not expect any significant amount of this liability to be paid in the next twelve months. Accordingly, the balance of $0.8 million as of December 31, 2023 is included in other long-term liabilities. 52 Table of Contents Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, are as follows (in thousands): December 31, 2023 2022 Balance at the beginning of year $ 807 $ 801 Additions for tax positions of prior years 105 129 Reductions due to lapse of statute of limitations ( 116 ) ( 123 ) Balance at the end of year $ 796 $ 807 We accrue interest and penalties related to unrecognized tax benefits in income tax expense, and the related liability is included in other long-term liabilities in our balance sheet. During the years ended December 31, 2023 and 2022 there was no significant reduction to the liability for interest and penalties due to any lapses in statute of limitations. At December 31, 2023 and 2022 , we had $ 0.3 million and $ 0.2 million, respectively, accrued for interest and penalties, net of tax benefit. We anticipate that it is reasonably possible that the total amount of unrecognized tax benefits could decrease by approximately $0.1 million within the next twelve months due to the closure of tax years by expiration of the statute of limitations and audit settlements related to various state tax filing positions. As a global organization, we file a U.S. federal income tax return as well as income tax returns in various states, and in non U.S. jurisdictions. As of December 31, 2023 , the statute of limitations for the U.S. federal tax years 2020 through 2022 remain open to examination. For U.S. state and local jurisdictions tax years 2017 through 2022 are open to examination. We are also subject to examination in various foreign jurisdictions for tax years 2017 through 2022. NOTE 10 – Benefit Plans: Defined Benefit Plans The Company is the sponsor of an unfunded supplemental executive retirement plan (“SERP”) which includes one active participant. As of December 31, 2023 , the Company’s projected benefit obligation under the unfunded SERP was $ 13.6 million. Contributions to the plan are made in accordance with statutory funding requirements and any additional funding that may be deemed appropriate. 53 Table of Contents The following tables present the changes in the benefit obligations and the various plan assets, the funded status of the plans, and the amounts recognized in the Company’s balance sheets at December 31, 2023 and 2022 (in thousands): December 31, 2023 2022 Changes in benefit obligation: Benefit obligation at beginning of year $ 12,993 $ 15,523 Service cost 21 203 Interest cost 637 401 Actuarial (gain) loss 229 ( 3,031 ) Benefits paid ( 280 ) ( 103 ) Benefit obligation at end of year 13,600 12,993 Changes in plan assets: Employer contributions 280 103 Benefits paid ( 280 ) ( 103 ) Fair value of plan assets at end of year - - Funded status at end of year $ ( 13,600 ) $ ( 12,993 ) Amounts recognized in balance sheets: Other current liabilities $ ( 316 ) $ ( 129 ) Long-term pension liability ( 13,284 ) ( 12,864 ) Net amount recognized $ ( 13,600 ) $ ( 12,993 ) Amounts recognized in accumulated other comprehensive loss consist of: Net actuarial loss $ 1,964 $ 1,953 54 Table of Contents Information for benefit plans with projected benefit obligation in excess of plan assets depicted as follows (in thousands): December 31, 2023 2022 Projected benefit obligation $ 13,600 $ 12,993 Fair value of plan assets - - Underfunded $ 13,600 $ 12,993 Components of net periodic benefit cost related to the SERP were as follows (in thousands): Years Ended December 31, 2023 2022 Service cost on benefits earned during the period $ 21 $ 203 Interest cost on projected benefit obligation 637 401 Recognized actuarial loss 218 1,715 Net periodic pension cost after settlements $ 876 $ 2,319 The service cost component is included in selling and administrative expenses in our statements of comprehensive income (loss) and the other components of net periodic pension cost are included in other periodic pension costs in our statements of comprehensive income (loss). The estimated net actuarial loss for the SERP that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $ 0.1 million. The following table presents the weighted-average assumptions used to determine benefit obligations as of December 31, 2023 and 2022 : Discount Rate Long Term Rate of Return Salary Scale 2022 4.93 % N/A 3.00 % 2023 4.73 % N/A 3.00 % The following table presents the weighted-average assumptions used to determine net periodic benefit cost for years ended December 31, 2023 and 2022 : Discount Rate Long Term Rate of Return Salary Scale 2022 2.59 % N/A 3.00 % 2023 4.93 % N/A 3.00 % The following table includes projected benefit payments for the years indicated (in thousands): Year Projected Benefit Payments 2024 $ 324 2025 1,537 2026 977 2027 985 2028 975 2029-2033 4,733 55 Table of Contents Rabbi Trust In connection with the Company’s unfunded SERP, we have life insurance contracts on the lives of designated individuals. The insurance contracts associated with the SERP are held in a Rabbi trust. The trust is the owner and beneficiary of such insurance contracts. The policies are being utilized to help offset the costs and liabilities of the SERP. The cash surrender value of the life insurance contracts was $ 4.5 million and $ 3.9 million at December 31, 2023 and 2022 , respectively. The cash surrender value of these policies is included in other assets in the balance sheets. During the years ended December 31, 2023 and 2022 we recognized an investment gain of $ 0.6 million and an investment loss of $ 0.8 million, respectively, on the cash surrender value of these life insurance contracts. In 2013, we initiated a Non-Qualified Deferred Compensation Plan, and we have purchased life insurance contracts on the lives of designated individuals. The insurance contracts associated with the Non-Qualified Deferred Compensation Plan are also held in a Rabbi trust. The trust is the owner and beneficiary of such insurance contracts. The policies are being utilized to help offset the costs and liabilities of the Non-Qualified Deferred Compensation Plan. The cash surrender value of the life insurance contracts was $ 9.2 million and $ 7.7 million at December 31, 2023 and 2022 , respectively. The cash surrender value of these policies is included in other assets in the balance sheets. The liability for participant deferrals was $ 7.9 million and $ 7.7 million as of December 31, 2023 and 2022 , respectively, and is included in other long-term liabilities in the balance sheets. Defined Contribution Plan The Company provides a defined contribution plan covering qualified employees. The plan includes a provision that allows employees to make pre-tax contributions under Section 401 (k) of the Internal Revenue Code. The plan provides for the Company to make a guaranteed match equal to 25 % of each employee’s eligible contributions. The plan also provides the Company with the option of making an additional discretionary contribution to the plan each year. The Company expensed employer matching contributions of $ 0.5 million and $ 0.6 million during the years ended December 31, 2023 and 2022 , respectively. NOTE 11 – Leases: The Company primarily leases factories, warehouses, call centers, office space and equipment for various terms under long-term, non-cancelable operating lease agreements. A right-of-use asset represents the Company’s right to use an underlying asset for the lease term and a lease liability represents the Company’s obligation to make lease payments arising from the lease. The Company’s leases generally have expected lease terms of one to eight years. In the normal course of business, it is expected that the Company’s leases will be renewed or replaced by leases on other properties. Options to renew lease terms are included in determining the right-of-use asset and lease liability when it is reasonably certain that the Company will exercise that option. Certain of the lease agreements include rental payments adjusted periodically for inflation and generally require the Company to pay real estate taxes, insurance, and repairs. The Company’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. As of December 31, 2023 , the Company had $ 17.0 million of operating lease liabilities ($ 4.2 million in other current liabilities and $ 12.8 million in long-term operating lease liabilities), which represents the present value of the remaining lease payments, and $ 17.9 million of operating lease right-of-use assets, which includes prepaid rent of $ 1.6 million. As of December 31, 2022 , the Company $ 7.0 million of operating lease liabilities ($ 3.1 million in other current liabilities and $ 3.9 million in long-term operating lease liabilities), which represents the present value of the remaining lease payments, and $ 9.1 million of operating lease right-of-use assets, which includes prepaid rent of $ 2.0 million. The depreciable-life of right-of-use assets is generally limited by the expected lease term. The Company does not have any material leases, individually or in the aggregate, classified as a finance leasing arrangement. The components of lease cost were as follows (in thousands): Years Ended December 31, 2023 2022 Operating lease costs $ 4,495 $ 4,027 Short-term lease costs 609 889 Total lease costs $ 5,104 $ 4,916 56 Table of Contents Cash flow and noncash information related to our operating leases were as follows (in thousands): Years Ended December 31, 2023 2022 Operating cash flows – cash paid for operating lease liabilities $ 3,368 $ 2,996 Non-cash – Operating lease right-of-use assets obtained in exchange for new lease liabilities $ 13,908 $ 4,089 Other supplemental information related to our operating leases was as follows: Years Ended December 31, 2023 2022 Weighted-average remaining lease term (in years) 4.6 2.5 Weighted average discount rate 6.57 % 5.66 % Maturities of operating lease liabilities as of December 31, 2023 were as follows (in thousands): Operating Leases 2024 $ 4,315 2025 4,243 2026 3,994 2027 3,187 2028 2,811 Thereafter 1,680 Total lease payments 20,230 Less imputed interest 3,190 Present value of lease liabilities $ 17,040 NOTE 12 – Contingencies: The purchase price to acquire substantially all of the assets of Sutter’s Mill Specialties, Inc. (“Sutter’s Mill”) in December 2021 included contingent consideration based on varying levels of Sutter’s Mill’s EBITDA in each measurement period from 2022 to 2024. In July 2023, management agreed to settle the remaining contingent consideration obligation associated with this acquisition for $ 0.5 million payable in the first quarter of 2024. The purchase price to acquire substantially all of the assets of Guardian Products, Inc. (“Guardian”) in May 2022 included contingent consideration based on varying levels of Guardian’s EBITDA in each measurement period through April 2025. The estimated fair value of Guardian acquisition-related contingent consideration payable as of December 31, 2023 was $ 1.4 million, of which $ 0.9 million is expected to be paid in the third quarter of 2024. During the year ended December 31, 2023 $ 0.8 million was paid for the 2022 measurement period. The total estimated undiscounted remaining payment related to this contingent consideration payable is between $ 1.9 million and $ 2.2 million. The Company will continue to evaluate the Guardian liability for remeasurement at the end of each reporting period and any changes will be recorded in the Company’s statements of comprehensive income (loss). The carrying amount of the liability may fluctuate significantly and actual amounts paid may be different from the estimated value of the liability. The Company is involved in various legal actions and claims arising from the normal course of business. In the opinion of management, the ultimate outcome of these matters is not expected to have a material impact on the Company’s results of operations, cash flows, or financial position. 57 Table of Contents NOTE 13 – Share-Based Compensation: In May 2013, the shareholders of the Company approved the 2013 Incentive Stock and Awards Plan (the “2013 Plan”), authorizing the granting of incentive stock options, non-qualified stock options, stock appreciation rights (“SARs”), restricted stock, performance shares and other stock based compensation. In May 2022, the shareholders of the Company approved the 2022 Equity Incentive and Awards Plan (the “2022 Plan”), authorizing the granting of incentive stock options, non-qualified stock options, stock appreciation rights (“SARs”), restricted stock, performance shares and other stock based compensation. A total of 2,000,000 shares of common stock have been reserved for issuance under the 2022 Plan. All options and SARs have been or will be granted with exercise prices at least equal to the fair market value of the shares on the date of grant. At December 31, 2023 , the Company had 1,262,209 shares of common stock available for grant of share-based compensation under the 2022 Plan. The 2022 Plan replaced the 2013 Plan. No new awards will be granted under the 2013 Plan, but outstanding awards granted under the 2013 Plan will continue unaffected. Share-based compensation is recorded in selling and administrative expense in the statements of comprehensive income (loss). The following table details the share-based compensation expense by type of award and the total related tax benefit for the periods presented (in thousands): Years Ended December 31, 2023 2022 Stock options and SARs $ 1,279 $ 1,472 Restricted stock 2,560 2,598 Performance shares ( 52 ) 219 Total share-based compensation expense $ 3,787 $ 4,289 Related income tax benefit $ 767 $ 804 Stock Options and Stock Appreciation Rights (“SARs”) The Company grants stock options and stock-settled SARs to employees that allow them to purchase shares of the Company’s common stock. Stock options are also granted to outside members of the Board of Directors of the Company. The Company determines the fair value of stock options and SARs at the date of grant using the Black-Scholes valuation model. Assumptions regarding volatility, risk-free interest rate, expected term and dividend yield are required for the Black-Scholes model. The risk-free interest rate is based on the yield of a U.S. treasury bond with a similar maturity to the award’s expected life. The expected life for awards granted is based on the historical exercise patterns experienced by the Company when the award is made. The determination of expected stock price volatility for awards is based on historical Superior common stock prices over a period commensurate with the expected life. The dividend yield assumption is based on the history and expectation of the Company’s dividend payouts. The following table summarizes significant assumptions utilized to determine the fair value of stock options and SARs: Years Ended December 31, 2023 2022 Stock Options: Risk free interest rate 3.5% - 4.9% 1.6% - 3.8% Expected award life (years) 3 - 10 3 - 10 Expected volatility 46.9% - 67.8% 46.8% - 65.0% Expected dividend yield 4.7% - 7.1% 2.4% - 5.6% Weighted average fair value per share at grant date $ 4.14 $ 5.39 SARs: Risk free interest rate 4.0 % 1.6 % - 3.8 % Expected award life (years) 3 3 - 4 Expected volatility 67.8 % 61.6 % - 64.8 % Expected dividend yield 4.7 % 2.4 % - 5.6 % Weighted average fair value per share at grant date $ 4.58 $ 6.34 58 Table of Contents All stock options and SARs granted prior to August 3, 2018 vested immediately when granted. Awards issued thereafter vest between one and three years after the grant date. Employee awards expire five years after the grant date, and those issued to directors expire ten years after the grant date. The Company issues new shares upon the exercise of stock options and SARs. Stock options and SARs granted in tandem with stock options are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan and the 2022 Plan, as applicable. A summary of stock option transactions during the year ended December 31, 2023 follows: Weighted Average Aggregate No. of Weighted Average Remaining Life Intrinsic Value Shares Exercise Price (in years) (in thousands) Outstanding, January 1, 2023 962,775 $ 15.89 3.26 $ 301 Granted 200,091 11.37 Exercised ( 28,728 ) 9.55 Lapsed or cancelled (180,962) 17.99 Outstanding, December 31, 2023 953,176 14.73 2.80 1,718 Exercisable, December 31, 2023 501,610 16.18 1.63 813 Intrinsic value is the difference between the market value of our common stock and the exercise price of each stock option multiplied by the number of stock options outstanding for those stock options where the market value exceeds their exercise price. Options exercised during the years ended December 31, 2023 and 2022 had intrinsic values of $ 0.1 million and $ 0.5 million, respectively. During the years ended December 31, 2023 and 2022 the Company received $ 0.2 million and $ 0.7 million, respectively, in cash from stock option exercises. No current tax benefits on stock option exercises were recognized during the years ended December 31, 2023 and 2022 . Additionally, during the years ended December 31, 2023 and 2022 the Company received 7,627 and 9,738 shares, respectively, of its common stock as payment of the exercise price in the exercise of stock options for 9,115 and 11,784 shares, respectively, of its common stock. As of December 31, 2023 , the Company had $ 0.9 million in unrecognized compensation related to nonvested stock options to be recognized over the remaining weighted average vesting period of 1.2 years. A summary of stock-settled SARs transactions during the year ended December 31, 2023 follows: Weighted Average Aggregate No. of Weighted Average Remaining Life Intrinsic Value Shares Exercise Price (in years) (in thousands) Outstanding, January 1, 2023 320,385 $ 15.23 2.23 $ 69 Granted 51,209 12.04 Exercised ( 41,226 ) 9.83 Lapsed or cancelled ( 37,860 ) 23.62 Outstanding, December 31, 2023 292,508 14.35 2.07 506 Exercisable, December 31, 2023 184,245 14.29 1.10 361 SARs exercised during the years ended December 31, 2023 and 2022 had intrinsic values of $ 0.2 million and $ 0.1 million, respectively. No current tax benefits on SAR exercises were recognized during the years ended December 31, 2023 and 2022 . As of December 31, 2023 , the Company had $ 0.2 million in unrecognized compensation related to nonvested SARs to be recognized over the remaining weighted average vesting period of one year. Restricted Stock The Company has granted shares of restricted stock to directors and certain employees, which vest at a specified future date, generally after three years, over five years or when certain conditions are met. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan and the 2022 Plan, as applicable. Expense for each of these grants is based on the fair value at the date of the grant and is being recognized on a straight-line basis over the respective service period. 59 Table of Contents A summary of restricted stock transactions during the year ended December 31, 2023 follows: Weighted Average No. of Grant Date Shares Fair Value Outstanding, January 1, 2023 372,470 $ 20.45 Granted 155,213 11.53 Vested ( 99,317 ) 16.46 Forfeited - - Outstanding, December 31, 2023 428,366 18.14 As of December 31, 2023 , the Company had $ 3.8 million of unrecognized compensation cost related to nonvested restricted stock grants expected to be recognized over the remaining weighted average vesting period of 1.8 years. Performance Shares The Company has granted performance shares, which either contain only service-based vesting conditions or service-based and performance-based vesting conditions. The service-based awards vest after the service period is met, which is generally three to five years. Expense for these grants is based on the fair value on the date of the grant and is being recognized on a straight-line basis over the respective service period. The performance-based awards generally vest after five years if the performance and service targets are met. The Company evaluates the performance conditions associated with these grants each reporting period to determine the expected number of shares to be issued. Expenses for grants of performance shares are recognized on a straight-line basis over the respective service period based on the grant date fair value and expected number of shares to be issued. The awards are subject to accelerated vesting on a pro rata basis under certain circumstances as outlined in the 2013 Plan and the 2022 Plan, except in those circumstances in which award agreements or change in control agreements specify full vesting. A summary of performance share transactions during the year ended December 31, 2023 follows: Weighted Average No. of Grant Date Shares Fair Value Outstanding, January 1, 2023 199,451 $ 20.57 Granted 94,028 12.56 Vested ( 4,558 ) 20.54 Forfeited ( 5,400 ) 9.48 Outstanding, December 31, 2023 283,521 18.13 As of December 31, 2023 , the Company had $ 1.1 million of unrecognized compensation cost related to nonvested performance share grants expected to be recognized over the remaining weighted average service period of 2.3 years. 60 Table of Contents NOTE 14 – Net Income (Loss) Per Share: The Company’s basic net income (loss) per share is computed based on the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per share includes the effect of the Company’s outstanding stock options, stock appreciation rights, unvested shares of restricted stock and unvested performance shares, if the inclusion of these items is dilutive. The following table presents a reconciliation of basic and diluted net income (loss) per share for the years ended December 31, 2023 and 2022 : Years Ended December 31, 2023 2022 Net income (loss) used in the computation of basic and diluted net income per share (in thousands) $ 8,772 $ ( 31,970 ) Weighted average shares outstanding - basic 15,968,199 15,764,859 Dilutive common stock equivalents 191,109 - Weighted average shares outstanding - diluted 16,159,308 15,764,859 Net income (loss) per share: Basic $ 0.55 $ ( 2.03 ) Diluted $ 0.54 $ ( 2.03 ) Diluted weighted average shares outstanding excludes shares of common stock of 400,381 for the year ended December 31, 2022 as their inclusion would have been antidilutive given the Company’s net loss. Awards to purchase 1,113,935 and 687,117 shares of common stock with weighted average exercise prices of $ 15.95 and $ 21.06 , were outstanding during the years ended December 31, 2023 and 2022 , respectively, but were not included in the computation of diluted net income (loss) per share because the awards’ exercise prices were greater than the average market price of the common shares. NOTE 15 – Net Sales: For our Branded Products and Healthcare Apparel segments, revenue is primarily generated from the sale of finished products to customers. Revenues for our Branded Products and Healthcare Apparel segments are recognized when the performance obligations under the contract terms are satisfied. For certain contracts with customers in which the Company has an enforceable right to payment for goods with no alternative use, revenue is recognized over time upon receipt of finished goods into inventory. Revenue for goods that do have an alternative use or that the customer is not obligated to purchase under the terms of a contract is generally recognized when the goods are transferred to the customer. Revenue from the sale of personal protective equipment, including facemasks, isolation gowns, sanitizers and gloves, is generally recognized at a point in time when the goods are transferred to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contract. The Company includes shipping and handling fees billable to customers in net sales. Shipping and handling activities that occur after the transfer of promised goods are accrued as control is transferred to the customer rather than being treated as a separate performance obligation. For our Contact Centers segment, revenue is generated from providing our customers with contact center services. Revenue for our Contact Centers segment is recognized as services are delivered. 61 Table of Contents Revenue is measured at the amount of consideration we expect to receive in exchange for the goods or services. Variable consideration for estimated returns, allowances and other price variances is recorded based upon historical experience and current allowance programs. Contract terms may involve variable consideration clauses such as sales discounts and customer rebates, and revenue is adjusted accordingly for these provisions. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The promised amount of consideration in a contract is not adjusted for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised good or service to a customer and when the customer pays for that product or service will be one year or less. Sales taxes are excluded from the measurement of a performance obligation’s transaction price. Sales commissions are expensed as incurred when we expect that the amortization period of such costs will be one year or less. The following table presents disaggregated revenue by operating segment for the periods presented (in thousands): Years Ended December 31, 2023 2022 Branded Products Segment: Branded products $ 342,456 $ 381,363 Personal protective equipment 224 6,568 Total Branded Products Segment $ 342,680 $ 387,931 Healthcare Apparel Segment: Healthcare apparel $ 110,871 $ 110,505 Personal protective equipment 3,007 2,816 Total Healthcare Apparel Segment $ 113,878 $ 113,321 Contact Centers Segment: Contact centers services $ 91,500 $ 84,218 Net intersegment eliminations ( 4,756 ) ( 6,639 ) Total Contact Centers Segment $ 86,744 $ 77,579 Consolidated Net Sales $ 543,302 $ 578,831 Contract Assets and Contract Liabilities The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers (in thousands): December 31, 2023 2022 Accounts receivable $ 103,494 $ 104,813 Current contract assets 48,715 52,980 Current contract liabilities 5,346 2,213 Contract assets relate to goods produced without an alternative use for which the Company has an enforceable right to payment but which has not yet been invoiced to the customer. The majority of the amounts included in contract assets on December 31, 2022 were transferred to accounts receivable during the year ended December 31, 2023 . Contract liabilities relate to payments received in advance of the Company completing its performance under a contract. Contract liabilities are included in other current liabilities in our balance sheets. During the year ended December 31, 2023 , $ 2.2 million of revenue was recognized from the contract liabilities balance as of December 31, 2022 . 62 Table of Contents NOTE 16 – Stock Repurchase Plan: On May 2, 2019, the Company’s Board of Directors approved a stock repurchase program of up to 750,000 shares of the Company’s outstanding common stock. There is no expiration date or other restriction governing the period over which the Company can make share repurchases under the program. All purchases under this program will be open market transactions. The Company did not reacquire and retire shares of its common stock under this program during the years ended December 31, 2023 and 2022 . At December 31, 2023 , the Company had 657,451 shares remaining under its common stock repurchase program. Shares purchased under the common stock repurchase program are constructively retired and returned to unissued status. The Company considers several factors in determining when to make share repurchases, including among other things, the cost of equity, the after-tax cost of borrowing, the debt to total capitalization targets and its expected future cash needs. NOTE 17 – Operating Segment Information: The Company manages and reports the following segments: Branded Products segment: Primarily through our signature marketing brands BAMKO® and HPI®, we produce and sell customized merchandising solutions, promotional products and branded uniform programs. Branded products are sold to customers in a wide range of industries, including retail, hotel, food service, entertainment, technology, transportation and other industries. The segment currently has sales offices in the United States, Canada, Brazil, the United Kingdom and Colombia, with support services in China and India. Healthcare Apparel segment: Primarily through our signature marketing brands Fashion Seal Healthcare®, Wink™ and CID Resources, we manufacture (through third parties or in our own facilities) and sell a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient gowns. This segment sells healthcare service apparel to healthcare laundries, dealers, distributors and retailers primarily in the United States. Contact Centers: Through multiple The Office Gurus® entities, including our subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”), we provide outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers. Intersegment eliminations include the elimination of revenues and costs from services provided by the Contact Centers segment to the Company’s two other segments. Such costs are recognized as selling and administrative expenses in the Branded Products and Healthcare Apparel segments. Income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment are presented within Other in the tables below. No customer accounted for more than 10% of the Company’s total net sales in 2023 or 2022 . During the fourth quarter of 2023, our chief operating decision maker began to evaluate the performance of our segments using Segment Adjusted EBITDA instead of income before income taxes. The Company has modified its presentation of segment performance to be consistent with this change, including prior periods presented for consistent and comparable presentation. Amounts included in income (loss) before income tax expense and excluded from Segment Adjusted EBITDA include: interest expense, depreciation and amortization expense, impairment charges and the other items not tied to the operational performance of the segment. 63 Table of Contents The following tables set forth financial information related to the Company’s operating segments (in thousands): Branded Products Healthcare Apparel Contact Centers Intersegment Eliminations Other Total As of and For the Year Ended December 31, 2023: Net sales $ 342,680 $ 113,878 $ 91,500 $ ( 4,756 ) $ - $ 543,302 Segment Adjusted EBITDA 33,146 7,997 12,408 - ( 20,069 ) $ 33,482 Supplemental information: Depreciation and amortization $ 6,744 $ 3,925 $ 2,942 $ - $ 384 $ 13,995 Capital expenditures $ 2,550 $ 960 $ 1,392 $ - $ 61 $ 4,963 Total assets $ 218,018 $ 131,168 $ 40,941 $ - $ 32,323 $ 422,450 Branded Products Healthcare Apparel Contact Centers Intersegment Eliminations Other Total As of and For the Year Ended December 31, 2022: Net sales $ 387,931 $ 113,321 $ 84,218 $ ( 6,639 ) $ - $ 578,831 Segment Adjusted EBITDA 31,144 ( 2,747 ) 18,521 - ( 18,991 ) 27,927 Supplemental information: Depreciation and amortization $ 6,465 $ 3,946 $ 2,373 $ - $ 220 $ 13,004 Capital expenditures $ 4,643 $ 1,169 $ 4,876 $ - $ 330 $ 11,018 Total assets $ 224,116 $ 150,335 $ 43,368 $ - $ 39,122 $ 456,941 The following table reconciles total Segment Adjusted EBITDA to income (loss) before income tax expense: Years Ended December 31, 2023 2022 Income (loss) before income tax expense $ 9,769 $ ( 38,035 ) Interest expense 9,718 4,894 Depreciation and amortization 13,995 13,004 Goodwill impairment charge - 45,918 Intangible assets impairment charge - 5,581 Gain on sale of property, plant and equipment - ( 3,435 ) Segment Adjusted EBITDA $ 33,482 $ 27,927 64 Table of Contents NOTE 18 – Acquisition of Businesses : Guardian Products, Inc. On May 1, 2022, the Company, through BAMKO, acquired substantially all of the assets of Guardian Products, Inc. (“Guardian”) based in Norcross, Georgia. Guardian is a branded merchandise company that is one of the leading providers of promotional products to automotive dealers nationwide. The purchase price for the acquisition consisted of the following: (a) $ 11.1 million in cash, (b) the issuance of 116,550 restricted shares of Superior’s common stock (the “Guardian Stock”) that vest ratably over a three -year period, and (c) estimated potential future payments of approximately $ 2.3 million in additional contingent consideration based on the results of the acquired business through April 2025. The Guardian Stock is subject to transfer restrictions over the three -year period following the closing of the acquisition. Fair Value of Consideration Transferred A summary of the purchase price is as follows (in thousands): Cash consideration $ 11,077 Restricted shares of Superior common stock issued 2,000 Contingent consideration 1,119 Total Consideration $ 14,196 Assets Acquired and Liabilities Assumed The following table presents the allocation of the total fair value of consideration transferred, as shown above, to the acquired tangible and intangible assets and liabilities of Guardian based on their estimated fair values as of the effective date of the transaction (in thousands): Accounts receivable $ 1,656 Inventories 621 Prepaid expenses and other current assets 272 Property, plant and equipment 15 Intangible assets 5,886 Goodwill 6,463 Total assets $ 14,913 Accounts payable 533 Other current liabilities 184 Total liabilities $ 717 The Company recorded $ 5.9 million in identifiable intangibles at fair value, consisting of $ 5.0 million in acquired customer relationships, $ 0.2 million for a non-compete agreement and $ 0.7 million for the Guardian Products trade name. The intangible assets associated with the customer relationships are being amortized for seven years, the non-compete agreement is being amortized for five years and the trade name is being amortized for two years. The difference between the fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities. The acquisition of Guardian was treated as an asset purchase for income tax purpose, and therefore, the resulting goodwill from this acquisition is deductible for U.S. income tax purposes. The goodwill associated with the Guardian acquisition was fully impaired during the year ended December 31, 2022 as a result of the Company’s goodwill impairment test performed during the third quarter of 2022, which was triggered by the depressed market price of the Company’s common stock and corresponding significant decline in the Company’s market capitalization. See Note 6 for further details. 65 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.