Annual report pursuant to Section 13 and 15(d)

Significant Accounting Policies (Policies)

Significant Accounting Policies (Policies)

12 Months Ended

Sep. 28, 2019

Basis of Accounting, Policy [Policy Text Block]

(a) Basis of Presentation:

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of Delta Apparel and its wholly-owned domestic and foreign subsidiaries, as well as its majority-owned subsidiary, Salt Life Beverage, LLC ("Salt Life Beverage"). In

January 2018,

Delta Apparel, Inc. established Salt Life Beverage, of which Delta Apparel, through its subsidiary, holds a

60%

ownership interest. Salt Life Beverage was formed to manufacture, market and sell Salt Life-branded alcoholic beverage products. We have concluded we have a controlling financial interest in Salt Life Beverage and have consolidated its results in accordance with Accounting Standards Codification ("ASC") ASC-

810,

Consolidations,

and Accounting Standards Update ("ASU")

No.

2015

, Consolidation (Topic

810

); Amendments to Consolidations

. The non–controlling interest represents the

40%

proportionate share of the results of Salt Life Beverage. All significant intercompany accounts and transactions have been eliminated in consolidation.

Fiscal Period, Policy [Policy Text Block]

(b) Fiscal Year:

We operate on a

week fiscal year ending on the Saturday closest to

September 30.

All references to

"2019"

and

"2018"

relate to the

week fiscal years ended on

September 28, 2019,

and

September 29, 2018,

respectively.

Use of Estimates, Policy [Policy Text Block]

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts and disclosures of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are adjusted to reflect actual experience when necessary. Significant estimates and assumptions affect many items in our financial statements, such as allowance for doubtful accounts receivable, refund liabilities, inventory obsolescence, the carrying value of goodwill, and income tax assets and related valuation allowance. Our actual results

may

differ from our estimates.

Cash and Cash Equivalents, Policy [Policy Text Block]

(d) Cash and Cash Equivalents:

Cash and cash equivalents consists of cash and temporary investments with original maturities of

three

months or less.

Accounts Receivable [Policy Text Block]

(e) Accounts Receivable:

Accounts receivable consists primarily of receivables from our customers arising from the sale of our products, and we generally do

not

require collateral from our customers. We actively monitor our exposure to credit risk through the use of credit approvals and credit limits. Accounts receivable is presented net of reserves for doubtful accounts.

We estimate the net collectibility of our accounts receivable and establish an allowance for doubtful accounts based upon this assessment. In situations where we are aware of a specific customer’s inability to meet its financial obligation, such as in the case of a bankruptcy filing, we assess the need for a specific reserve for bad debts. Reserves are determined through analysis of the aging of accounts receivable balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in customer payment terms. Bad debt expense was less than

of net sales in each of fiscal years

2019

and

2018.

Inventory, Policy [Policy Text Block]

(f) Inventories:

We state inventories at the lower of cost or net realizable value using the

first

-in,

first

-out method. Inventory cost includes materials, labor and manufacturing overhead on manufactured inventory, and all direct and associated costs, including inbound freight, to acquire sourced products. See Note

(y) for further information regarding yarn procurements. We regularly review inventory quantities on hand and record reserves for obsolescence, excess quantities, irregulars and slow-moving inventory based on historical selling prices, current market conditions, and forecasted product demand to reduce inventory to its net realizable value.

Property, Plant and Equipment, Policy [Policy Text Block]

(g) Property, Plant and Equipment:

Property, plant and equipment are stated at cost. We depreciate and amortize our assets on a straight-line method over the estimated useful lives of the assets, which range from

three

twenty-five

years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. Assets that we acquire under non-cancelable leases that meet the criteria of capital leases are capitalized in property, plant and equipment and amortized over the useful lives of the related assets. When we retire or dispose of assets, the costs and accumulated depreciation or amortization are removed from the respective accounts, and we recognize any related gain or loss. Repairs and maintenance costs are charged to expense when incurred. Major replacements that substantially extend the useful life of an asset are capitalized and depreciated.

Internal Use Software, Policy [Policy Text Block]

(h) Internally Developed Software Costs:

We account for internally developed software in accordance with ASC

350

40,

Intangibles-Goodwill and Other, Internal-Use Software

. After technical feasibility has been established, we capitalize the cost of our software development process, including payroll and payroll benefits, by tracking the software development hours invested in the software projects. We amortize our software development costs in accordance with the estimated economic life of the software, which is generally

three

ten

years.

Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block]

(i) Impairment of Long-Lived Assets (Including Amortizable Intangible Assets):

In accordance with ASC

360,

Property, Plant, and Equipment

, our long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets

may

not

be recoverable. When evaluating assets for potential impairment, we compare the carrying amount of the asset to the undiscounted future net cash flows expected to be generated by the asset. If impairment is indicated, the asset is permanently written down to its estimated fair value and an impairment loss is recognized.

Goodwill and Intangible Assets, Policy [Policy Text Block]

(j) Goodwill and Intangible Assets:

We recorded goodwill and intangible assets with definite lives, including trade names and trademarks, customer relationships, technology, and non-compete agreements, as a result of several acquisitions. Intangible assets are amortized based on their estimated economic lives, ranging from

four

twenty

years. Goodwill represents the excess of the purchase price over the fair value of net identified tangible and intangible assets acquired and liabilities assumed, and is

not

amortized. The total amount of goodwill is expected to be deductible for tax purposes. See Note

— Goodwill and Intangible Assets for further details.

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

(k) Impairment of Goodwill:

We evaluate the carrying value of goodwill annually or more frequently if events or circumstances indicate that an impairment loss

may

have occurred. Such circumstances could include, but are

not

limited to, a significant adverse change in business climate, increased competition or other economic conditions.

We complete our annual impairment test of goodwill on the

first

day of our

third

fiscal quarter. We estimate fair value of the applicable reporting unit or units using a discounted cash flow methodology. This methodology represents a level

fair value measurement as defined under ASC

820,

Fair Value Measurements and Disclosures

, since the inputs are

not

readily observable in the marketplace. The goodwill impairment testing process involves the use of significant assumptions, estimates and judgments, including projected sales, gross margins, selling, general and administrative expenses, and capital expenditures, and the selection of an appropriate discount rate, all of which are subject to inherent uncertainties and subjectivity. When we perform goodwill impairment testing, our assumptions are based on annual business plans and other forecasted results, which we believe represent those of a market participant. We select a discount rate, which is used to reflect market-based estimates of the risks associated with the projected cash flows based on the best information available as of the date of the impairment assessment. Based on the annual impairment analysis, there is

not

an impairment on the goodwill recorded in our financial statements.

Given the current macro-economic environment and the uncertainties regarding its potential impact on our business, there can be

assurance that our estimates and assumptions used in our impairment tests will prove to be accurate predictions of the future. If our assumptions regarding forecasted cash flows are

not

achieved, it is possible that an impairment review

may

be triggered and goodwill

may

be impaired.

Contingent Consideration [Policy Text Block]

(l) Contingent Consideration:

At the end of each reporting period, we are required to remeasure the fair value of the contingent consideration related to the Salt Life and

DTG2Go

acquisitions in

August

2013

and

March

2018,

respectively. We remeasure contingent consideration in accordance with ASC

805,

Business Combinations

based on historical operating results and projections for the future. The estimated fair value of the contingent consideration for Salt Life was

$0.2

million and

$1.3

million at

September 28, 2019,

and

September 29, 2018,

respectively. The

DTG2Go

contingent consideration was valued at

$8.9

million and

$9.2

million at

September 28, 2019

and

September 29, 2018,

respectively.

Revenue [Policy Text Block]

(m) Revenue Recognition:

Revenue is recognized when performance obligations under the terms of the contracts are satisfied. Our performance obligation primarily consists of delivering products to our customers. Control is transferred upon providing the products to customers in our retail stores, upon shipment of our products to the consumers from our ecommerce sites, and upon shipment from our distribution centers to our customers in our wholesale operations. Once control is transferred to the customer, we have completed our performance obligation.

Our receivables resulting from wholesale customers are generally collected within

two

months, in accordance with our established credit terms. Our direct-to-consumer ecommerce and retail store receivables are collected within a few days. Our revenue, including freight income, is recognized net of applicable taxes in our Consolidated Statements of Operations.

In certain areas of our wholesale business, we offer discounts and allowances to support our customers. Some of these arrangements are written agreements, while others

may

be implied by customary practices in the industry. Wholesale sales are recorded net of discounts, allowances, and operational chargebacks. As certain allowances and other deductions are

not

finalized until the end of a season, program or other event which

may

not

have occurred, we estimate such discounts, allowances, and returns that we expect to provide.

We only recognize revenue to the extent that it is probable that we will

not

recognize a significant reversal of revenue when the uncertainties related to the variability are ultimately resolved. In determining our estimates for discounts, allowances, chargebacks, and returns, we consider historical and current trends, agreements with our customers and retailer performance. We record these discounts, returns and allowances as a reduction to net sales in our Consolidated Statements of Operations and as a refund liability in our accrued expenses in our Consolidated Balance Sheets, with the estimated value of inventory expected to be returned in prepaid and other current assets in our Consolidated Balance Sheets. As of

September 28, 2019,

there was

$1.0

million in refund liabilities for customer returns, allowances, markdowns and discounts within accrued expenses.

We record shipping and handling charges incurred by us before and after the customer obtains control as a fulfillment cost rather than an additional promised service. Our customers' terms are less than

one

year from the transfer of goods, and we do

not

adjust receivable amounts for the impact of the time value of money. We do

not

capitalize costs of obtaining a contract which we expect to recover, such as commissions, as the amortization period of the asset recognized would be

one

year or less.

Royalty revenue is primarily derived from royalties paid to us by licensees of our intellectual property rights, which include, among other things, trademarks and copyrights. We execute license agreements with our licensees detailing the terms of the licensing arrangement. Royalties are generally recognized upon receipt of the licensee's royalty report in accordance with the terms of the executed license agreement and when all other revenue recognition criteria have been met.

Our revenue streams consist of wholesale, direct-to-consumer ecommerce and retail stores which are included in our Consolidated Statements of Operations. The table below identifies the amount and percentage of net sales by distribution channel (in thousands):

	Fiscal Year Ended
	September 28, 2019					September 29, 2018
	$		%			$		%
Retail	$	4,396		1	%	$	3,560		1	%
Direct-to-consumer ecommerce		5,526		1	%		5,339		1	%
Wholesale		421,808		98	%		386,551		98	%
Net Sales	$	431,730		100	%	$	395,450		100	%

The table below provides net sales by reportable segment (in thousands) and the percentage of net sales by distribution channel for each reportable segment:

	Fiscal Year Ended September 28, 2019
	Net Sales		Retail			Direct-to-Consumer ecommerce			Wholesale
Delta Group	$	389,075		0.3	%		0.3	%		99.4	%
Salt Life Group		42,655		7.6	%		9.9	%		82.5	%
Total	$	431,730

	Fiscal Year Ended September 29, 2018
	Net Sales		Retail			Direct-to-Consumer ecommerce			Wholesale
Delta Group	$	356,009		0.3	%		0.4	%		99.3	%
Salt Life Group		39,441		6.2	%		10.3	%		83.5	%
Total	$	395,450

Sales Tax [Policy Text Block]

(n) Sales Tax:

Sales tax collected from customers and remitted to various government agencies are presented on a net basis (excluded from revenues) in the Consolidated Statements of Operations.

Cost of Goods and Service [Policy Text Block]

(o) Cost of Goods Sold:

We include all manufacturing and sourcing costs incurred prior to the receipt of finished goods at our distribution facilities in cost of goods sold. The cost of goods sold principally includes product costs, purchasing costs, inbound freight charges, insurance, inventory write-downs, and depreciation and amortization expense associated with our manufacturing and sourcing operations. Our gross margins

may

not

be comparable to other companies, since some entities

may

include costs related to their distribution network in cost of goods sold, and we include them in selling, general and administrative expenses.

Selling, General and Administrative Expenses, Policy [Policy Text Block]

(p) Selling, General and Administrative Expense:

We include in selling, general and administrative expenses costs incurred subsequent to the receipt of finished goods at our distribution facilities, such as the cost of stocking, warehousing, picking and packing, and shipping goods for delivery to our customers. Distribution costs included in selling, general and administrative expenses totaled

$17.6

million and

$16.9

million in fiscal years

2019

and

2018,

respectively. In addition, selling, general and administrative expenses include costs related to sales associates, administrative personnel, advertising and marketing expenses, royalty payments on licensed products, and other general and administrative expenses.

Advertising Cost [Policy Text Block]

(q) Advertising Costs:

All costs associated with advertising and promoting our products are expensed during the period in which they are incurred and are included in selling, general and administrative expenses in the Consolidated Statements of Operations. We participate in cooperative advertising programs with some of our customers. Depending on the customer, our defined cooperative programs allow the customer to use from

of its net purchases from us towards advertisements of our products. Because our products are being specifically advertised, we are receiving an identifiable benefit resulting from the consideration for cooperative advertising. We record cooperative advertising costs as a selling expense and the related cooperative advertising reserve as an accrued liability. Advertising costs totaled

$4.7

million and

$4.0

million in fiscal years

2019

and

2018,

respectively. Included in these costs were

$0.8

million and

$0.7

million in fiscal years

2019

and

2018,

respectively, related to our cooperative advertising programs.

Share-based Payment Arrangement [Policy Text Block]

(r) Stock-Based Compensation:

Stock-based compensation is accounted for under the provisions of ASC

718,

Compensation – Stock Compensation,

which requires all stock-based payments to employees, including grants of employee stock options, to be recognized as expense over the vesting period using a fair value method. The fair value of our restricted stock awards is the quoted market value of our stock on the grant date. For performance-based stock awards, in the event we determine it is

longer probable that we will achieve the minimum performance criteria specified in the award, we reverse all of the previously recognized compensation expense in the period such a determination is made. We recognize the fair value, net of estimated forfeitures, as a component of selling, general and administrative expense in the Consolidated Statements of Operations over the vesting period.

Income Tax, Policy [Policy Text Block]

(s) Income Taxes:

We account for income taxes pursuant to ASC

740,

Income Taxes

, under the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Earnings Per Share, Policy [Policy Text Block]

(t) Earnings per Share:

We compute basic earnings per share ("EPS") by dividing net income by the weighted average number of common shares outstanding during the year pursuant to ASC

260,

Earnings Per Share

(“ASC

260”

). Basic EPS includes

dilution. Diluted EPS is calculated, as set forth in ASC

260,

by dividing net income by the weighted average number of common shares outstanding adjusted for the issuance of potentially dilutive shares. Potential dilutive shares consist of common stock issuable under the assumed exercise of outstanding stock options and awards using the treasury stock method. This method assumes that the potential common shares are issued and the proceeds from the exercise, along with the amount of compensation expense attributable to future services, are used to purchase common stock at the exercise date. The difference between the number of potential shares issued and the number of shares purchased is added as incremental shares to the actual number of shares outstanding to compute diluted EPS. Outstanding stock options and awards that result in lower potential shares issued than shares purchased under the treasury stock method are

not

included in the computation of diluted EPS since their inclusion would have an anti-dilutive effect on EPS.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

(u) Foreign Currency Translation:

Our functional currency for our foreign operated manufacturing facilities is the United States dollar. We remeasure those assets and liabilities denominated in foreign currencies using exchange rates in effect at each balance sheet date. Property, plant and equipment and the related accumulated depreciation or amortization are recorded at the exchange rates in effect on the date we acquired the assets. Revenues and expenses denominated in foreign currencies are remeasured using average exchange rates during the period transacted. We recognize the resulting foreign exchange gains and losses as a component of other income, net in the Consolidated Statements of Operations. These gains and losses are immaterial for all periods presented.

Fair Value of Financial Instruments, Policy [Policy Text Block]

(v) Fair Value of Financial Instruments:

We use financial instruments in the normal course of our business. The carrying values approximate fair values for financial instruments that are short-term in nature, such as cash, accounts receivable and accounts payable. We estimate that the carrying value of our long-term fixed rate debt approximates fair value based on the current rates offered to us for debt of the same remaining maturities.

Comprehensive Income, Policy [Policy Text Block]

(w) Other Comprehensive Income:

Other Comprehensive Income consists of net earnings and unrealized gains from cash flow hedges, net of tax. Accumulated other comprehensive (loss) income ("AOCI") contained in the shareholders’ equity section of the Consolidated Balance Sheets related to interest rate swap agreements and was a loss of

$1.0

million as of

September 28, 2019,

and income of

$0.1

million as of

September 29, 2018.

Inventory Supplies, Policy [Policy Text Block]

(

) Yarn and Cotton Procurements:

We have a supply agreement with Parkdale Mills, Inc. and Parkdale America, LLC, (collectively "Parkdale"), to supply our yarn requirements that has been in place since

2005,

with our existing agreement running through

December 31, 2021.

Under the supply agreement, we purchase from Parkdale all of our yarn requirements for use in our manufacturing operations, excluding yarns that Parkdale does

not

manufacture or cannot manufacture due to temporary capacity constraints. The purchase price of yarn is based upon the cost of cotton plus a fixed conversion cost. Thus, we are subject to the commodity risk of cotton prices and cotton price movements, which could result in unfavorable yarn pricing for us. We fix the cotton prices as a component of the purchase price of yarn, pursuant to the supply agreement, in advance of the shipment of finished yarn from Parkdale. Prices are set according to prevailing prices, as reported by the New York Cotton Exchange, at the time we elect to fix specific cotton prices.

Derivatives, Policy [Policy Text Block]

(y) Derivatives:

From time to time we enter into forward contracts, option agreements or other instruments to limit our exposure to fluctuations in interest rates and raw material prices with respect to long-term debt and cotton purchases, respectively. We determine at inception whether the derivative instruments will be accounted for as hedges.

We account for derivatives and hedging activities in accordance with ASC

815,

Derivatives and Hedging,

as amended. ASC

815

establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities. It requires the recognition of all derivative instruments as either assets or liabilities in the Consolidated Balance Sheets and measurement of those instruments at fair value. The accounting treatment of changes in fair value depends upon whether or

not

a derivative instrument is designated as a hedge and, if so, the type of hedge. We include all derivative instruments at fair value in our Consolidated Balance Sheets. For derivative financial instruments related to the production of our products that are

not

designated as a hedge, we recognize the changes in fair value in cost of sales. For derivatives designated as cash flow hedges, to the extent effective, we recognize the changes in fair value in accumulated other comprehensive income (loss) until the hedged item is recognized in income. Any ineffectiveness in the hedge is recognized immediately in income in the line item that is consistent with the nature of the hedged risk. We formally document all relationships between hedging instruments and hedged items, as well as risk management objectives and strategies for undertaking various hedge transactions, at the inception of the transactions.

We are exposed to counterparty credit risks on all derivatives. Because these amounts are recorded at fair value, the full amount of our exposure is the carrying value of these instruments. We only enter into derivative transactions with well-established institutions and therefore we believe the counterparty credit risk is minimal.

From time to time, we

may

purchase cotton option contracts to economically hedge the risk related to market fluctuations in the cost of cotton used in our operations. We do

not

receive hedge accounting treatment for these derivatives. As such, the realized gains and losses associated with them were recorded within cost of goods sold on the Consolidated Statement of Operations. There were

raw material option agreements outstanding at

September 28, 2019

September 29, 2018.

The table below indicates information on our outstanding interest rate swap agreements during fiscal years

2019

and

2018:

	Effective Date	Notational Amount	LIBOR Rate	Maturity Date
Interest Rate Swap	July 19, 2017	$10 million	1.99%	May 10, 2021
Interest Rate Swap	July 25, 2018	$20 million	3.18%	July 25, 2023

During fiscal years

2019

and

2018,

these interest rate swap agreements had minimal ineffectiveness and were considered highly effective hedges.

The changes in fair value of the interest rate swap agreements resulted in AOCI (loss) gain, net of taxes, of (

$1.1

million) and

$0.2

million for the years ended

September 28, 2019,

and

September 29, 2018,

respectively. See Note

(d) - Fair Value Measurements for further details.

Equity Method Investments [Policy Text Block]

(z) Equity Method Accounting:

As of

September 28, 2019,

we owned

31%

of the outstanding capital stock in our Honduran equity method investment. We apply the equity method of accounting for our investment, as we have less than a

50%

ownership interest and can exert significant influence. We do

not

exercise control over this company and do

not

have substantive participating rights. As such, this entity is

not

considered a variable interest entity.

Net Income Attributable to Non-controlling Interest [Policy Text Block]

(aa) Net Income Attributable to Non-Controlling Interest:

The net income attributable to non-controlling interest represents the share of net income allocated to members of our consolidated affiliates.

Business Combinations Policy [Policy Text Block]

(ab) Business Combinations:

Business combinations completed by Delta Apparel have been accounted for under the acquisition method of accounting. The acquisition method requires the assets acquired and liabilities assumed, including contingencies, to be recorded at the fair value determined at the acquisition date and changes thereafter recorded in income. We generally obtain independent

third

-party valuation studies for certain assets acquired and liabilities assumed to assist us in determining the fair value. Goodwill represents the purchase price over the fair value of tangible and intangible assets acquired and liabilities assumed. The results of acquired businesses are included in our results of operations from the date of acquisition.

Lessee, Leases [Policy Text Block]

(ac) Capital Leases:

We classify leases as capital or operating leases in accordance with ASC

840,

Leases

. We account for a lease that transfers substantially all of the benefits and risks incidental to ownership of property as a capital lease. At the inception of a capital lease, we record an asset and payment obligation at an amount equal to the lesser of the present value of the minimum lease payments and the property's fair market value. All other leases are accounted for as operating leases and the related lease payments are charged to expenses as incurred.

New Accounting Pronouncements, Policy [Policy Text Block]

(ad) Recently Adopted Accounting Pronouncements:

May 2014,

the FASB issued ASU

2014

19,

Revenue from Contracts with Customers

("ASU

2014

09"

), which replaced the existing revenue recognition guidance in U.S. GAAP. Since the issuance of ASU

2014

09,

the FASB released several amendments to improve and clarify the implementation guidance, as well as to change the effective date. These standards have been collectively codified within ASC

606,

Revenue from Contracts with Customers

("ASC

606"

). ASC

606

outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The standard also requires additional disclosures about the nature, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in those judgments.

We adopted ASC

606

effective

October 1, 2018

using the modified retrospective method. We applied the standard to all contracts as of the transition date. Information for prior years has

not

been retrospectively adjusted and continues to reflect the authoritative accounting standards in effect for those periods.

With the adoption of ASC

606,

the timing of revenue recognition for our primary revenue streams remained substantially unchanged, with

material effect on net sales. See the table below (in thousands) for the effect of the adoption of the standard on our Consolidated Balance Sheet as of

September 28, 2019

due to the change in recording provisions for customer refunds as a liability instead of netted against trade accounts receivable.

	As Reported					Balances
	September 28, 2019		Effect of Standard			without Adoption
Accounts receivable, net		59,337		(682	)		58,655
Prepaid expenses and other current assets		2,999		(155	)		2,844
Total Current Assets		243,598		(837	)		242,761
Total assets		377,988		(837	)		377,151
Accrued expenses		20,791		(1,047	)		19,744
Total current liabilities		88,875		(1,047	)		87,828
Total liabilities		224,100		(1,047	)		223,053
Total liabilities and equity		377,988		(1,047	)		376,941

(ae) Recently Issued Accounting Pronouncements

Not

Yet Adopted:

February 2016,

the FASB issued ASU

No.

2016

02,

Leases,

("ASU

2016

02"

) which is codified in ASC

842,

Leases

. ASC

842

requires lessees to recognize assets and liabilities for most leases. All leases will be required to be recorded on the balance sheet with the exception of short-term leases. The standard allows entities to present the effects of the accounting change as either a cumulative adjustment as of the beginning of the earliest period presented or as of the date of adoption. ASC

842

is effective for financial statements issued for annual periods beginning after

December 15, 2018,

and interim periods within those annual periods, with early application permitted. ASC

842

will, therefore, be adopted in our

first

quarter of the fiscal year beginning

September 29, 2019 (

fiscal year

2020

We have an implementation team tasked with reviewing our lease obligations and determining the impact of the new standard to our financial statements. The team is also tasked with identifying appropriate changes to our business processes, systems, and controls to support recognition and disclosure under the new standard. The implementation team reports its findings and progress of the project to management on a frequent basis and to the Audit Committee of the Board of Directors on a quarterly basis. We have identified contracts with potential leasing arrangements, entered leases into a tracking and accounting software, and are analyzing the results of the impact of adoption. Based on our current lease portfolio, we preliminarily expect ASC

842

to have a material impact on our consolidated balance sheets primarily related to the recognition of operating lease assets and liabilities. However, we do

not

expect the standard to have a material impact on our consolidated statements of operations, comprehensive income, or cash flows. Further details regarding our undiscounted future lease payments as well as the timing of those payments are included within Note

- Leases.

August 2017,

the FASB issued ASU

No.

2017

12,

Derivatives and Hedging (Topic

815

): Targeted Improvements to Accounting for Hedging Activities

, ("ASU

2017

12"

). The amendments in ASU

2017

apply to any entity that elects to apply hedge accounting in accordance with U.S. GAAP. ASU

2017

permits more flexibility in hedging interest rate risk for both variable rate and fixed rate financial instruments, and the ability to hedge risk components for nonfinancial hedges. In addition, this ASU requires an entity to present the earnings effect of hedging the instrument in the same income statement line in which the earnings effect of the hedge item is reported. In addition, companies

longer need to separately measure and report hedge ineffectiveness and can use an amortization approach or continue with mark-to-market accounting. ASU

2017

is effective for financial statements issued for fiscal years beginning after

December 15, 2018,

and interim periods within those annual periods. ASU

2017

will be adopted in the

first

quarter of our fiscal year beginning

September 29, 2019 (

fiscal year

2020

). The provisions of ASU

2017

are

not

anticipated to have a material effect on our financial condition, results of operations, cash flows or disclosures.

January 2017,

the FASB issued ASU

2017

04,

Intangibles - Goodwill and other (Topic

350

), Simplifying the Test for Goodwill Impairment

, ("ASU

2017

04"

). To simplify the subsequent measurement of goodwill, ASU

2017

eliminates Step

from the goodwill impairment test. In computing the implied fair value of goodwill under Step

an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in ASU

2017

04,

an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should

not

exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU

2017

also eliminates the requirements for any reporting unit with a

zero

or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step

of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a

zero

or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU

2017

is effective for financial statements issued for annual and interim periods beginning after

December 15, 2019.

ASU

2017

will therefore be effective in our fiscal year beginning

October 4, 2020 (

fiscal year

2021

). The provisions of ASU

2017

are

not

anticipated to have a material effect on our financial condition, results of operations, cash flows or disclosures.