Annual report pursuant to Section 13 and 15(d)

Note 15 - Commitments and Contingencies

Note 15 - Commitments and Contingencies

12 Months Ended

Oct. 03, 2020

Commitments and Contingencies Disclosure [Text Block]

Note 15—Commitments and Contingencies

(a) Litigation

At times, we are party to various legal claims, actions and complaints. We believe that, as a result of legal defense, insurance arrangements, and indemnification provisions with parties believed to be financially capable, such actions should not have a material adverse effect on our operations, financial condition, or liquidity.

(b) Purchase Contracts

We have entered into agreements, and have fixed prices, to purchase yarn, finished fabric, and finished apparel and headwear products. At October 3, 2020, minimum payments under these contracts were as follows (in thousands):

Yarn	$	21,809
Finished fabric		3,163
Finished products		12,266
	$	37,238

(c) Letters of Credit

As of October 3, 2020, we had outstanding standby letters of credit totaling $0.4 million.

(d) Fair Value Measurements

From time to time we may use interest rate swaps or other instruments to manage our interest rate exposure and reduce the impact of future interest rate changes. These financial instruments are not used for trading or speculative purposes. The following financial instruments were outstanding as of October 3, 2020:

	*Effective Date*	*Notional 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

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 and unrealized gains and losses associated with them are recorded within cost of goods sold on the Consolidated Statement of Operations. No such cotton contracts were outstanding as of October 3, 2020, and September 28, 2019.

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Assets and liabilities measured at fair value are grouped in three levels. The levels prioritize the inputs used to measure the fair value of the assets or liabilities. These levels are:

○

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

○

Level 2 – Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in market that are less active.

○

Level 3 – Unobservable inputs that are supported by little or no market activity for assets or liabilities and includes certain pricing models, discounted cash flow methodologies and similar techniques.

The following financial liabilities are measured at fair value on a recurring basis (in thousands):

	*Fair Value Measurements Using*
Period Ended	*Total*			*Quoted Prices in Active Markets for Identical Assets (Level 1)*		*Significant Other Observable Inputs (Level 2)*			*Significant Unobservable Inputs (Level 3)*
Interest Rate Swap
October 3, 2020	$	(1,764	)	$	—	$	(1,764	)	$	—
September 28, 2019	$	(1,293	)	$	—	$	(1,293	)	$	—

Contingent Consideration
October 3, 2020	$	(6,420	)	$	—	$	—		$	(6,420	)
September 28, 2019	$	(9,094	)	$	—	$	—		$	(9,094	)

The fair value of the interest rate swap agreements was derived from a discounted cash flow analysis based on the terms of the contract and the forward interest rate curves adjusted for our credit risk, which fall in Level 2 of the fair value hierarchy. At October 3, 2020 and September 28, 2019, book value for fixed rate debt approximates fair value based on quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities (a Level 2 fair value measurement).

The following table summarizes the fair value and presentation in the Consolidated Balance Sheets for derivatives as of October 3, 2020, and September 28, 2019.

	*October 3, 2020*			*September 28, 2019*
Deferred tax asset	$	442		$	—
Deferred tax liability		—			324
Accrued expenses		(108	)		—
Other liabilities		(1,656	)		(1,293	)
Accumulated other comprehensive loss	$	(1,322	)	$	(969	)

The DTG2Go acquisition purchase price consisted of additional payments contingent on the combined businesses' 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 valuation of the fair value of the contingent consideration is based upon inputs into the Monte Carlo model, including projected results, which then are discounted to a present value to derive the fair value. The fair value of the contingent consideration is sensitive to changes in our projected results. During fiscal year 2020, $2.5 million was paid related to the 2019 period. As of October 3, 2020, we estimated the fair value of contingent consideration to be $6.4 million which, excluding the $2.5 million payment, is consistent with the accrual as of September 28, 2019.

In August 2013, we acquired Salt Life, which included contingent consideration as part of the purchase price and which is payable in cash after the end of calendar year 2019 if financial performance targets involving the sale of Salt Life-branded products were met during the 2019 calendar year. During fiscal year 2020, it was determined that calendar year 2019 performance targets were not achieved and, as a result, the $0.2 million accrual as of September 28, 2019, was reversed. At October 3, 2020, no amount was accrued for contingent consideration in related to the acquisition of Salt Life.