Annual report pursuant to Section 13 and 15(d)

Acquisitions

Acquisitions

12 Months Ended

Sep. 29, 2018

ACQUISITIONS

On March 9, 2018, our Art Gun, LLC subsidiary purchased substantially all of the assets of Teeshirt Ink, Inc. d/b/a DTG2Go, a premium provider of direct-to-garment digital printed products. In connection with the transaction, we changed the name of Art Gun, LLC to DTG2Go, LLC and now market the consolidated digital print business under the DTG2Go name. We believe the DTG2Go acquisition makes us a clear leader in the direct-to-garment digital print and fulfillment marketplace and the acquisition accelerated our geographic expansion plans for this business. Following the acquisition, the integrated business operated from two locations in Florida and a location in Nevada serving the western United States. In addition, in May we opened a digital print facility at our Soffe campus in North Carolina to service the northeastern region. With this acquisition, DTG2Go nearly doubled its revenue and capacity, broadened its product line into posters and stickers, and further enhanced service levels with quicker delivery capabilities in the United States and to over 100 countries worldwide.

We have included the financial results of the acquired entity since the date of the acquisition in our Delta Group segment. It is not practicable to disclose the revenue and income of the recent acquisition since the acquisition date, as we have integrated the DTG2Go and Art Gun businesses together during the current period.

The DTG2Go acquisition purchase price consisted of $16.6 million in cash and additional payments valued at $8.7 million contingent on the combined business’s achievement of certain performance targets related to sales and earnings before interest, taxes, depreciation and amortization ("EBITDA") for the period from April 1, 2018, through September 29, 2018, as well as for our fiscal years 2019, 2020, 2021 and 2022. The cash portion of the purchase price included: (i) a payment at closing of $11.4 million, less the amount of any indebtedness of the sellers with respect to any assets included in the transaction, and (ii) two additional payments of $2.5 million, with the first payment subject to post-closing net working capital adjustments, paid on July 1, 2018, and the second paid on September 9, 2018. As of September 29, 2018, all payments have been made in accordance with the acquisition agreement. The below table represents the consideration paid:



Cash	$	11,350
Deferred consideration	5,000
Contingent consideration	8,700
Working capital adjustment	252
Total consideration	$	25,302

During the fourth quarter, we completed the accounting for the acquisition. During the fiscal fourth quarter, we recorded measurement-period adjustments of $2.8 million to contingent consideration and goodwill. The final allocation of consideration to the assets and liabilities are noted in the table below, which includes measurement-period adjustments recorded in our third and fourth quarters of fiscal year 2018. The total amount of goodwill is expected to be deductible for tax purposes.



	Allocation as of March 31, 2018			Measurement Period Adjustments			Allocation as of September 29, 2018
Accounts receivable	$	822		$	(34	)	$	788
Other assets	—			102			102
Inventory	1,159			(13		)	1,146
Fixed assets	—			150			150
Assets held for sale	5,000						5,000
Goodwill	9,800			3,500			13,300
Intangible assets	5,200			400			5,600
Accounts payable	(5,981		)	5,210			(771		)
Other liabilities	—			(13		)	(13		)
Contingent consideration	(4,650		)	(4,050		)	(8,700		)
Consideration paid	$	11,350		$	5,252		$	16,602

We accounted for the DTG2Go acquisition pursuant to ASC 805, Business Combinations, with the purchase price allocated based upon fair value. The methods used to determine the fair value assigned to the fixed and intangible assets in the table above fall into Level 3 inputs as defined by FASB Codification No. 820, Fair Value Measurements and Disclosures. The fair value of the fixed assets acquired were determined using the market approach, based on analysis of sales and offerings for assets that are considered similar to the acquired assets. The fair value of the acquired customer relationships intangible assets was valued using discounted cash flows in the multi-period excess earnings method. Assets held for sale include property, plant, and equipment of $5.0 million that were acquired as part of the DTG2Go acquisition. Subsequently, a capital lease arrangement was entered into to finance the purchase of the equipment. The capital lease is for $5.0 million and the lease term is thirty-six months. No gain or loss was recorded in conjunction with this lease transaction.