Quarterly report pursuant to Section 13 or 15(d)

Note L - Derivatives and Fair Value Measurements

Note L - Derivatives and Fair Value Measurements
9 Months Ended
Jul. 02, 2022
Notes to Financial Statements  
Derivatives and Fair Value [Text Block]

Note L—Derivatives and 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. We have designated our interest rate swap contracts as cash flow hedges of our future interest payments. As a result, the gains and losses on the swap contracts are reported as a component of other comprehensive income and are reclassified into interest expense as the related interest payments are made. As of  June 2022, all of our other comprehensive income was attributable to shareholders; none related to the non-controlling interest.  Outstanding instruments as of  June 2022 are as follows:





Effective Date




Fixed LIBOR Rate


Maturity Date

Interest Rate Swap

July 25, 2018


$20.0 million


July 25, 2023


The following table summarizes the fair value and presentation in the Condensed Consolidated Balance Sheets for derivatives related to our interest swap agreements as of June 2022 and September 2021 (in thousands):



June 2022


September 2021


Deferred tax assets








Other non-current liabilities







Accumulated other comprehensive loss










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 Condensed Consolidated Statement of Operations. No such cotton contracts were outstanding at  June 2022 and September 2021.


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 markets 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  

Quoted Prices in


Significant Other




Active Markets for






Identical Assets






Period Ended




(Level 1)


(Level 2)


(Level 3)


Interest Rate Swaps


June 2022

  $ (8 )         $ (8 )      

September 2021

  $ (1,052 )         $ (1,052 )      

Contingent Consideration


June 2022

  $ (563 )               $ (563 )

September 2021

  $ (1,897 )               $ (1,897 )


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 June 2022 and September 2021, 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 DTG2Go acquisition purchase price consisted of additional payments 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 valuation of the fair value of the contingent consideration is based upon projected results. The fair value of the contingent consideration is sensitive to changes in our projected results and discount rates.  As of June 2022, we estimate the fair value of contingent consideration to be $0.6 million, a $1.3 million decrease from September 2021 due to a change in projected results resulting in decreased estimated future earnout payments.