UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

X		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~September 30, 2019~~March 31, 2020

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to __________

Commission file number: 001-05869

Exact name of registrant as specified in its charter:

SUPERIOR GROUP OF COMPANIES, INC.

State or other jurisdiction of incorporation or organization:	I.R.S. Employer Identification No.:
Florida	11-1385670

Address of principal executive offices:
10055 Seminole Boulevard
Seminole, Florida 33772-2539

Registrant’s telephone number, including area code:
727-397-9611

Former name, former address and former fiscal year, if changed since last report: ___________________

Securities registered pursuant to Section 12(b) of the Act:

	~~Trading~~
Title of each class		Trading Symbol(s)	Name of each exchange on which registered
Common Stock $0.001 par value per share		SGC	NASDAQ

~~Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d)~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

~~Yes~~ ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

No ☐

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

~~Yes~~ ☒

No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☒
Non-accelerated filer ☐		Smaller Reporting Company ☒
		Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

~~Indicate by check mark whether the Company~~

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

~~Yes~~ ☐

The number of shares of common stock of the registrant outstanding as of April 23, 2020 was 15,314,710 shares.

No ☒

~~As of October 17, 2019, the registrant had 15,255,994 shares of common stock outstanding, which is the registrant’s only class of common stock.~~

TABLE OF CONTENTS



	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	2
Condensed Consolidated Statements of Comprehensive Income (Unaudited)	2
Condensed Consolidated Balance Sheets (Unaudited)	3
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)	4
Condensed Consolidated Statements of Cash Flows (Unaudited)	5
Notes to the Condensed Consolidated Financial Statements (Unaudited)	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3. Quantitative and Qualitative Disclosures About Market Risk	23
Item 4. Controls and Procedures	24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	24
Item 1A. Risk Factors	24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3. Defaults Upon Senior Securities	25
Item 4. Mine Safety Disclosures	25
Item 5. Other Information	25
Item 6. Exhibits	26
SIGNATURES	27

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

~~THREE MONTHS ENDED~~ ~~September 30,~~

(Unaudited)

(In thousands, except shares and per share data)

2019

2018

Net sales $ 89,466 $ 95,870

Costs and expenses:

Cost of goods sold 58,015 62,070
Selling and administrative expenses 25,260 25,482
Other periodic pension costs 476 96
Interest expense 1,085 940
84,836 88,588
Income before taxes on income 4,630 7,282
Income tax expense 709 1,160
Net income $ 3,921 $ 6,122

Net income per share:

Basic $ 0.26 $ 0.41
Diluted $ 0.26 $ 0.39

Weighted average number of shares outstanding during the period

Basic 14,947,552 15,010,660
Diluted 15,266,850 15,499,894

Other comprehensive income, net of tax:

Defined benefit pension plans:

Recognition of net losses included in net periodic pension costs $ 236 $ 216
Recognition of settlement loss included in net periodic pension costs 213 -
Gain on cash flow hedging activities (5 ) (3 )
Foreign currency translation adjustment (316 ) (180 )
Other comprehensive income
128 33
Comprehensive income $ 4,049 $ 6,155

Cash dividends per common share $ 0.10 $ 0.10

~~See accompanying notes to these condensed consolidated financial statements.~~

~~SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~Nine~~ ~~MONTHS ENDED~~ ~~September 30,~~

~~(Unaudited)~~

~~(In thousands, except shares and per share data)~~

2019

2018

Net sales $ 268,288 $ 251,349

Costs and expenses:

Cost of goods sold 174,226 163,396
Selling and administrative expenses 78,008 69,991
Other periodic pension costs 1,282 289
Interest expense 3,514 1,974
257,030 235,650
Income before taxes on income 11,258 15,699
Income tax expense 2,180 3,310
Net income $ 9,078 $ 12,389

Net income per share:

Basic $ 0.61 $ 0.83
Diluted $ 0.59 $ 0.80

Weighted average number of shares outstanding during the period

Basic 14,942,565 14,929,513
Diluted 15,272,287 15,505,642

Other comprehensive income, net of tax:

Defined benefit pension plans:

Recognition of net losses included in net periodic pension costs $ 739 $ 647
Recognition of settlement loss included in net periodic pension costs 459 -
Loss (gain) on cash flow hedging activities (16 ) 209
Foreign currency translation adjustment (295 ) (637 )
Other comprehensive income
887 219
Comprehensive income $ 9,965 $ 12,608

Cash dividends per common share $ 0.30 $ 0.29

~~See accompanying notes to these condensed consolidated financial statements.~~

~~SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES~~
~~CONDENSED CONSOLIDATED BALANCE SHEETS~~
~~(Unaudited)~~
~~(In thousands, except share and par value data)~~

September 30,

December 31,

2019

2018

ASSETS

Current assets:

Cash and cash equivalents
$ 5,452 $ 5,362
Accounts receivable, less allowance for doubtful accounts of $2,259 and $2,042, respectively
75,597 64,017
Accounts receivable - other
1,262 1,744
Inventories*
66,076 67,301
Contract assets
38,030 49,236
Prepaid expenses and other current assets
16,481 9,552
Total current assets
202,898 197,212

Property, plant and equipment, net
31,725 28,769
Operating lease right-of-use assets
4,576 -
Intangible assets, net
63,491 66,312
Goodwill
36,252 33,961
Other assets
10,443 8,832
Total assets
$ 349,385 $ 335,086

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable
$ 30,768 $ 24,685
Other current liabilities
16,110 14,767
Current portion of long-term debt
15,286 6,000
Current portion of acquisition-related contingent liabilities
1,374 941
Total current liabilities
63,538 46,393

Long-term debt
103,812 111,522
Long-term pension liability
8,422 8,705
Long-term acquisition-related contingent liabilities
3,753 5,422
Long-term operating lease liabilities
2,590 -
Deferred tax liability
6,620 8,475
Other long-term liabilities
4,230 3,648
Commitments and contingencies (Note 5)

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 15,240,317 and 15,202,387 shares, respectively.
15 15
Additional paid-in capital
57,077 55,859
Retained earnings
106,426 103,032
Accumulated other comprehensive income (loss), net of tax:

Pensions
(6,475 ) (7,673 )
Cash flow hedges
97 113
Foreign currency translation adjustment
(720 ) (425 )
Total shareholders’ equity
156,420 150,921
Total liabilities and shareholders’ equity
$ 349,385 $ 335,086

* Inventories consist of the following:

September 30,

December 31,

2019

2018

Finished goods
$ 57,413 $ 58,196
Work in process
730 650
Raw materials
7,933 8,455
Inventories
$ 66,076 $ 67,301

	Three Months Ended March 31,
	2020			2019
Net sales	$	94,245		$	86,552

Costs and expenses:
Cost of goods sold		60,794			56,284
Selling and administrative expenses		27,489			25,863
Other periodic pension costs		285			259
Interest expense		1,060			1,170
		89,628			83,576
Income before taxes on income		4,617			2,976
Income tax expense		1,250			600
Net income	$	3,367		$	2,376

Net income per share:
Basic	$	0.22		$	0.16
Diluted	$	0.22		$	0.16

Weighted average shares outstanding during the period:
Basic		15,024,851			14,927,341
Diluted		15,200,898			15,262,654

Other comprehensive income (loss), net of tax:
Defined benefit pension plans:
Recognition of net losses included in net periodic pension costs	$	243		$	247
Recognition of settlement loss included in net periodic pension costs		105			-
Loss on cash flow hedging activities		(5	)		(5	)
Foreign currency translation adjustment		(1,239	)		(28	)
Other comprehensive income (loss)		(896	)		214
Comprehensive income	$	2,471		$	2,590

Cash dividends per common share	$	0.10		$	0.10

See accompanying ~~notes~~Notes to ~~these condensed consolidated financial statements.~~the Condensed Consolidated Financial Statements.

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and par value data)

	March 31,			December 31,
	2020			2019
ASSETS
Current assets:
Cash and cash equivalents	$	5,773		$	9,038
Accounts receivable, less allowance for doubtful accounts of $3,270 and $2,964, respectively		73,551			79,746
Accounts receivable - other		658			1,083
Inventories		73,844			73,379
Contract assets		38,234			38,533
Prepaid expenses and other current assets		7,395			9,934
Total current assets		199,455			211,713
Property, plant and equipment, net		33,971			32,825
Operating lease right-of-use assets		5,033			5,445
Intangible assets, net		61,582			62,536
Goodwill		36,096			36,292
Other assets		8,469			10,122
Total assets	$	344,606		$	358,933

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	24,660		$	33,271
Other current liabilities		31,709			18,894
Current portion of long-term debt		11,464			15,286
Current portion of acquisition-related contingent liabilities		1,953			1,905
Total current liabilities		69,786			69,356
Long-term debt		89,662			104,003
Long-term pension liability		10,092			10,253
Long-term acquisition-related contingent liabilities		3,552			3,423
Long-term operating lease liabilities		2,133			2,380
Deferred tax liability		5,970			7,042
Other long-term liabilities		5,021			4,922
Commitments and contingencies (Note 6)
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 15,222,161 and 15,227,604 shares, respectively.		15			15
Additional paid-in capital		57,669			57,442
Retained earnings		109,086			107,581
Accumulated other comprehensive income (loss), net of tax:
Pensions		(6,876	)		(7,224	)
Cash flow hedges		86			91
Foreign currency translation adjustment		(1,590	)		(351	)
Total shareholders’ equity		158,390			157,554
Total liabilities and shareholders’ equity	$	344,606		$	358,933

See accompanying Notes to the Condensed Consolidated Financial Statements.

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~SHAREHOLDERS'~~SHAREHOLDERS’ EQUITY

~~THREE MONTHS ENDED~~ ~~September 30,~~

(Unaudited)

(In thousands, except shares and per share data)

												Accumulated																	Accumulated
												Other																	Other
						Additional						Comprehensive			Total								Additional						Comprehensive			Total
	Common			Common		Paid-In			Retained			(Loss) Income,			Shareholders’			Common			Common		Paid-In			Retained			(Loss) Income,			Shareholders’
	Shares			Stock		Capital			Earnings			net of tax			Equity			Shares			Stock		Capital			Earnings			net of tax			Equity
Balance, July 1, 2018		15,311,541		$	15	$	54,998		$	97,664		$	(7,093	)	$	145,584
Balance, January 1, 2019																			15,202,387		$	15	$	55,859		$	103,032		$	(7,985	)	$	150,921
Common shares issued upon exercise of options, net		2,000					27									27			44,161					369			(159	)					210
Restricted shares issued																			38,829														-
Share-based compensation expense							378									378								481									481
Cash dividends declared ($0.10 per share)										(1,508	)					(1,508	)										(1,515	)					(1,515	)
Tax benefit from vesting of acquisition related restricted stock							340									340
Tax benefit from vesting of acquisition-related restricted stock																								30									30
Shares reacquired and retired		(14,334	)				(51	)		(216	)					(267	)		(55,602	)				(203	)		(789	)					(992	)
Comprehensive income (loss):
Net earnings										6,122						6,122											2,376						2,376
Cash flow hedges, net of taxes of $1													(3	)		(3	)													(5	)		(5	)
Pensions, net of taxes of $68													216			216
Change in currency translation adjustment, net of taxes of $55													(180	)		(180	)
Balance, September 30, 2018		15,299,207		$	15	$	55,692		$	102,062		$	(7,060	)	$	150,709
Pensions, net of taxes of $78																														247			247
Change in currency translation adjustment, net of taxes of $5																														(28	)		(28	)
Balance, March 31, 2019																			15,229,775		$	15	$	56,536		$	102,945		$	(7,771	)	$	151,725

Balance, July 1, 2019		15,255,694		$	15	$	57,166			104,165		$	(7,226	)	$	154,120
Common shares issued upon exercise of options		300					3									3
Balance, January 1, 2020																			15,227,604		$	15	$	57,442			107,581		$	(7,484	)	$	157,554
Restricted shares issued, net																			38,015														-
Share-based compensation expense							(35	)								(35	)							399									399
Cash dividends declared ($0.10 per share)										(1,510	)					(1,510	)										(1,521	)					(1,521	)
Tax provision from vesting of acquisition-related restricted stock																								(13	)								(13	)
Common stock reacquired and retired		(15,677	)				(57	)		(150	)					(207	)		(43,458	)				(159	)		(341	)					(500	)
Comprehensive income (loss):
Net earnings										3,921						3,921											3,367						3,367
Cash flow hedges, net of taxes of $1													(5	)		(5	)													(5	)		(5	)
Pensions, net of taxes of $141													449			449
Change in currency translation adjustment, net of taxes of $100													(316	)		(316	)
Balance, September 30, 2019		15,240,317		$	15	$	57,077		$	106,426		$	(7,098	)	$	156,420
Pensions, net of taxes of $109																														348			348
Change in currency translation adjustment, net of taxes of $397																														(1,239	)		(1,239	)
Balance, March 31, 2020																			15,222,161		$	15	$	57,669		$	109,086		$	(8,380	)	$	158,390

See accompanying ~~notes~~Notes to ~~these condensed consolidated financial statements.~~the Condensed Consolidated Financial Statements.

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~SHAREHOLDERS' EQUITY~~

~~Nine~~ ~~MONTHS ENDED~~ ~~September 30,~~

~~(Unaudited)~~

~~(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, 2018
15,081,947 $ 15 $ 49,103 $ 83,129 $ (7,279 ) $ 124,968
ASC 606 adjustment to opening retained earnings 11,245 11,245
Common shares issued upon exercise of options, net 53,164 581 (150 ) 431
Restricted shares issued 24,908 -
Restricted shares issued in acquisition 150,094 3,763 3,763
Common shares issued upon exercise of Stock Appreciation Rights (SARs)
3,428 -
Share-based compensation expense 1,868 1,868
Tax withheld on exercise of Stock Appreciation Rights (SARs) (17 ) (17 )
Tax benefit from vesting of acquisition related restricted stock 445 445
Cash dividends declared ($0.29 per share) (4,335 ) (4,335 )
Shares reacquired and retired (14,334 ) (51 ) (216 ) (267 )
Comprehensive income (loss):

Net earnings
12,389 12,389
Cash flow hedges, net of taxes of $69
209 209
Pensions, net of taxes of $203
647 647
Change in currency translation adjustment, net of taxes of $224
(637 ) (637 )
Balance, September 30, 2018
15,299,207 $ 15 $ 55,692 $ 102,062 $ (7,060 ) $ 150,709

Balance, January 1, 2019
15,202,387 $ 15 $ 55,859 $ 103,032 $ (7,985 ) $ 150,921
Common shares issued upon exercise of options 62,994 460 (177 ) 283
Restricted shares issued 48,829 -
Share-based compensation expense 997 997
Tax benefit from vesting of acquisition related restricted stock 30 30
Cash dividends declared ($0.30 per share) (4,533 ) (4,533 )
Common stock reacquired and retired (73,893 ) (269 ) (974 ) (1,243 )
Comprehensive income (loss):

Net earnings 9,078 9,078
Cash flow hedges, net of taxes of $3 (16 ) (16 )
Pensions, net of taxes of $376 1,198 1,198
Change in currency translation adjustment, net of taxes of $93 (295 ) (295 )
Balance, September 30, 2019
15,240,317 $ 15 $ 57,077 $ 106,426 $ (7,098 ) $ 156,420

~~See accompanying notes to these condensed consolidated financial statements.~~

~~SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF~~ CASH FLOWS

~~Nine~~ ~~MONTHS ENDED~~ ~~September 30,~~

(Unaudited)

(In thousands)

	2019			2018			Three Months Ended March 31,
							2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	9,078		$	12,389		$	3,367		$	2,376
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,339			5,745			1,869			2,060
Provision for bad debts - accounts receivable		719			409			865			138
Share-based compensation expense		997			1,867			399			481
Deferred income tax benefit		(2,136	)		(278	)		(784	)		(1,182	)
Gain on sale of property, plant and equipment		(5	)		-			-			(3	)
Change in fair value of acquisition-related contingent liabilities		(272	)		(1,212	)		175			201
Changes in assets and liabilities, net of acquisition of business:
Changes in assets and liabilities:
Accounts receivable - trade		(12,251	)		(5,542	)		4,940			309
Accounts receivable - other		481			(401	)		425			312
Contract assets		11,206			(3,779	)		299			1,876
Inventories		(595	)		5,742			(831	)		1,522
Prepaid expenses and other current assets		(7,051	)		(226	)		2,327			(2,197	)
Other assets		(2,233	)		(2,343	)		1,410			(1,503	)
Accounts payable and other current liabilities		5,523			(1,077	)		4,656			(12	)
Long-term pension liability		1,292			292			294			262
Other long-term liabilities		750			(283	)		134			1,099
Net cash provided by operating activities		11,842			11,303			19,545			5,739

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment		(6,424	)		(3,881	)		(2,073	)		(1,723	)
Proceeds from disposals of property, plant and equipment		5			-			-			3
Acquisition of businesses, net of acquired cash		-			(85,597	)
Net cash used in investing activities		(6,419	)		(89,478	)		(2,073	)		(1,720	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings of debt		125,121			170,713			34,488			54,856
Repayment of debt		(123,600	)		(91,423	)		(52,672	)		(55,161	)
Payment of cash dividends		(4,533	)		(4,335	)		(1,521	)		(1,515	)
Payment of acquisition-related contingent liability		(961	)		(3,032	)
Proceeds received on exercise of stock options		283			432			-			210
Tax benefit from vesting of acquisition-related restricted stock		30			445
Tax withholding on exercise of stock rights		-			(17	)
Tax (provision) benefit from vesting of acquisition-related restricted stock								(13	)		30
Common stock reacquired and retired		(1,243	)		(268	)		(500	)		(992	)
Net cash provided by (used in) financing activities		(4,903	)		72,515
Net cash used in financing activities								(20,218	)		(2,572	)

Effect of currency exchange rates on cash		(430	)		(174	)		(519	)		15
Net increase (decrease) in cash and cash equivalents		90			(5,834	)		(3,265	)		1,462
Cash and cash equivalents balance, beginning of year		5,362			8,130
Cash and cash equivalents balance, beginning of period								9,038			5,362
Cash and cash equivalents balance, end of period	$	5,452		$	2,296		$	5,773		$	6,824

See accompanying ~~notes~~Notes to ~~these condensed consolidated financial statements.~~the Condensed Consolidated Financial Statements.

Superior Group of Companies, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)~~(Unaudited)~~

NOTE 1 – Basis of Presentation:

a) Basis of presentation

The condensed consolidated financial statements include the accounts of Superior Group of Companies, Inc. and its wholly-owned subsidiaries, The Office Gurus, LLC, SUG Holding, Superior Group Holdings, Inc., Fashion Seal Corporation, BAMKO, LLC and CID Resources, Inc.; The Office Gurus, Ltda, de C.V., The Office Masters, Ltda., de C.V. and The Office Gurus, Ltd., each a subsidiary of Fashion Seal Corporation and SUG Holding; and Power Three Web, Ltda. and Superior Sourcing, each a wholly-owned subsidiary of SUG Holding; BAMKO Importação, Exportação e Comércio de Brindes Ltda., a subsidiary of BAMKO, LLC and SUG Holding; Guangzhou Ben Gao Trading Limited, Worldwide Sourcing Solutions Limited, and BAMKO UK, Limited, each a direct or indirect subsidiary of BAMKO, LLC; and BAMKO India Private Limited, a 99%-owned subsidiary of BAMKO, LLC. All of these entities are referred to collectively as ~~“the Company”, “Superior”, “we”, “our”,~~the “Company,” “Superior,” “we,” “our,” or ~~“us”.~~“us.” Effective on May 3, 2018, Superior Uniform Group, Inc. changed its name to Superior Group of Companies, Inc.

The accompanying unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Intercompany items have been eliminated in consolidation. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019, and filed with the Securities and Exchange Commission. ~~The interim financial~~Management believes that the information ~~contained herein is not certified or audited; it reflects~~furnished includes all adjustments ~~(consisting~~ of ~~only~~a normal recurring ~~accruals) which~~nature that are ~~in the opinion~~necessary to fairly present our consolidated financial position, results of ~~management, necessary for a fair statement of the operating results~~operations and cash flows for the periods ~~presented, stated on a basis consistent with that of the audited financial statements.~~indicated. The results of operations for any interim period are not necessarily indicative of results to be expected for the full year.

We refer to the condensed consolidated financial statements collectively as “financial statements,” and individually as “statements of comprehensive ~~income”,~~income,” “balance ~~sheets”,~~sheets,” “statements of ~~stockholders’ equity”,~~shareholders’ equity,” and “statements of cash flows” herein.

b) 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 Adopted Accounting Pronouncements

In ~~February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02,~~ ~~Lea~~s~~es (Topic 842)~~ ~~and July 2018,~~January 2017, the FASB issued ASU ~~2018-10,~~2017-04, ~~Codification Improvements to Topic 842, Leases~~ “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates the two-step process that required identification of potential impairment and ~~ASU 2018-11,~~ ~~Targeted Improvements~~ ~~(collectively “Topic 842”). Topic 842 establishes~~ a ~~new lease model, referred to as~~separate measure of the ~~right-of-use (ROU) model that brings substantially all leases onto~~actual impairment. Goodwill impairment charges, if any, would be determined by the balance sheet. This standard requires lessees to recognize leased assets (ROU Assets) and lease liabilities on the balance sheet and disclose key information about the leasing arrangements in their financial statements. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company adopted Topic 842 effective on January 1, 2019 using the modified retrospective transition approach that allowsdifference between a reporting ~~entity to use the effective date as~~unit's carrying value and its ~~date of initial application and not restate the comparative periods in the period of adoption when transitioning~~fair value (impairment loss is limited to the new standard. Consequently, the requisite financial information and disclosures under the new standard are excluded for dates and periods prior to January 1, 2019. In addition, the Company elected to use a number of optional simplification and practical expedients (reliefs) permitted under the transition guidance within the new standard, including allowing the Company to combine fixed lease and non-lease components, apply the short-term lease exception to all leases of one year or less, and utilize the ‘package of practical expedients’, which permits the Company to not reassess prior accounting conclusions with respect to lease identification, lease classification and initial direct costs under Topic 842. The Company did not elect the use-of hindsight or the practical expedient pertaining to land easement; the latter not being applicable to the Company. Adoption of this new standard resulted in the recognition of $4.1 million of operating lease liabilities ($1.0 million in other current liabilities and $3.1 million in long-term operating lease liabilities) which represented the present value of the remaining lease payments of $4.6 million, discounted using the Company’s lease discount rate of 5.74% and $4.9 million of operating lease right-of-use assets, which represents the lease liability of $4.1 million adjusted for prepaid rent to $0.8 million that was previously presented within current prepaid expenses and other current assets and other assets on the accompanying balance sheet prior to adoption. Refer to ~~Note 10~~ ~~for the impact to the financial statements as of~~ ~~September 30, 2019~~carrying value).

~~In February 2018, the FASB issued ASU 2018-02,~~ “~~Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.~~” ASU 2018-02 allows entities to elect to reclassify the income tax effects resulting from the Tax Cuts and Jobs Act (Tax Act) on items within accumulated other comprehensive income to retained earnings and requires additional related disclosures. This standard is effective for ~~fiscal years~~annual or any interim goodwill impairment tests beginning after December 15, ~~2018 and interim periods within those fiscal years. The Company elected not to reclassify the income tax effects of the Tax Act from accumulated other comprehensive income to retained earnings.~~2019. The Company’s adoption of this standard on January 1, ~~2019~~2020 did not have a material impact on its financial statements.

In August 2018, the FASB issued ASU 2018-15, “Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update also requires an entity to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement. This update is effective for fiscal years beginning after December 15, 2019 and may be applied prospectively or retrospectively. On January 1, 2020, the Company adopted this standard on a prospective basis. The Company’s adoption of this standard did not have a material impact on its financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326).” The update changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. This update is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. In August 2019, the FASB proposed an amendment to ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)” that would delay the effective date for Smaller Reporting Companies until fiscal years beginning after December 15, 2022. Adoption will require a modified retrospective approach beginning with the earliest period presented. The Company is currently evaluating the potential impact this standard will have on its financial statements.

In ~~January 2017,~~December 2019, the FASB ~~issued~~Issued ASU ~~2017-04,~~ 2019-12, ““Income Taxes (Topic 740): Simplifying the ~~Test~~Accounting of Income Taxes”, which is intended to simplify various aspects related to accounting for ~~Goodwill Impairment.”~~income taxes. ASU 2017-04 eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by the difference between a reporting unit's carrying value and its fair value (impairment loss is limited2019-12 removes certain exceptions to the ~~carrying value). This standard is effective for annual or any interim goodwill impairment tests beginning after December 15, 2019. The Company’s adoption of this standard is not expected~~general principles in Topic 740 and also clarifies and amends existing guidance to ~~have a material impact on its financial statements.~~

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~“Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.”~~ The update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update also requires an entity to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement.improve consistent application. This update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, ~~2019 and~~2020, with early adoption permitted. The Company is currently evaluating this guidance to determine what impact it may ~~be applied prospectively or retrospectively. The Company’s adoption of this standard is not expected to~~ have ~~a material impact~~ on its financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and LIBOR. This guidance includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. This guidance may be applied through December 31, 2022. The Company will apply this guidance to transactions and modifications to contracts and hedging relationships that reference LIBOR.

NOTE 2 – Inventories:

Inventories consisted of the following amounts (in thousands):

	March 31,		December 31,
	2020		2019
Finished goods	$	65,530	$	65,413
Work in process		558		652
Raw materials		7,756		7,314
Inventories	$	73,844	$	73,379

NOTE ~~2 -~~3 – Long-Term ~~Debt~~:Debt:

Debt consisted of the following (in thousands):

	September 30,		December 31,		March 31,		December 31,
(In thousands)	2019		2018
BB&T Credit Facilities:
					2020		2019
Credit Facilities:
Revolving credit facility due May 2023	$	33,857	$	1,193	$	23,476	$	37,838
Term loan due February 2024 (“2017 Term Loan”)		27,000		31,500		24,000		25,500
Term loan due January 2026 (“2018 Term Loan”)		58,810		85,000		54,167		56,488
	$	119,667	$	117,693		101,643		119,826
Less:
Payments due within one year included in current liabilities		15,286		6,000		11,464		15,286
Debt issuance costs		569		171		517		537
Long-term debt less current maturities	$	103,812	$	111,522	$	89,662	$	104,003

~~Effective on February 28, 2017, the~~The Company ~~entered into a~~is party to an amended and restated credit agreement (the “Credit Agreement”) with Truist Bank (formerly known as Branch Banking and Trust ~~Company (“BB&T”) (the “Credit Agreement”) that provided~~Company), consisting of a $75 million revolving credit facility ~~of $35 million maturing on February 25, 2022 and~~expiring in May 2023, a term loan ~~of $42 million~~ maturing onin February ~~26,~~ 2024 (“2017 Term Loan”).

~~Effective on May 2, 2018,~~ and concurrently with the closing of the CID Resources acquisition, the Company entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) with BB&T pursuant to which the Company’s existing revolving credit facility was increased from $35 million to $75 million and which provided an additionala term loan maturing in ~~the principal amount of $85 million due May 2020~~January 2026 (“2018 Term Loan”). ~~The term of the revolving credit facility was extended until May 2023.~~

On January 22, 2019, the Company entered into a First Amendment to the Amended and Restated Credit Agreement pursuant to which the existing 2018 Term Loan was restructured. The Company used $20 million borrowed under its existing revolving credit facility to reduce the principal amount to $65 million. The maturity date of the 2018 Term Loan was extended to January 22, 2026.

On September 27, 2019, the Company entered into a Second Amendment to the Amended and Restated Credit Agreement, which (i) increased the Company’s maximum permitted funded debt to EBITDA ratio under the Amended and Restated Credit Agreement from 4.0:1 to 5.0:1 and (ii) applied a tiered interest rate structure to the Company’s existing loans in the event that its funded debt to EBITDA ratio exceeds 4.0:1. The interest rate on such loans will equal LIBOR plus a margin that adjusts quarterly and is based on the Company’s funded debt to EBITDA ratio.

Contractual principal payments for the 2017 Term Loan are as follows: 2019 through 2023 - $6.0 million per year; and 2024 - $1.5 million. Contractual principal payments for the 2018 Term Loan are as follows: 2019 - $8.5 million, 2020 through 2025 - $9.3 million per year; and 2026 - $0.8 million. The term loans do not contain pre-payment penalties.

Obligations outstanding under the 2018 Term Loan have a variable interest rate of LIBOR plus a margin of between 0.85% and 1.65% (based on the Company’s funded debt to EBITDA ratio) ~~(2.89%~~(1.77% at ~~September 30, 2019~~March 31, 2020). Obligations outstanding under the revolving credit facility and the 2017 Term Loan generally have a variable interest rate of one-month LIBOR plus a margin of between 0.68% and 1.50% (based on the Company’s funded debt to EBITDA ratio) ~~(2.72%~~(1.60% at ~~September 30, 2019~~March 31, 2020). The available balance under the revolving credit facility is reduced by outstanding letters of credit. AtAs of ~~September~~March 31, 2020, there were no outstanding letters of credit.

On March 30, ~~2019~~,2020, the Company ~~had undrawn capacity of $41.1 million~~entered into debt deferment agreements with Truist Bank to: (i) defer contractual principal and interest payments due between April 1, 2020 and June 1, 2020 under the ~~revolving credit facility.~~

~~The revolving credit facility,~~ 2017 Term Loan and 2018 Term Loan until their respective maturity dates; and (ii) defer contractual interest payments due between April 1, 2020 and June 1, 2020 under the revolving credit facility until its maturity date. Contractual principal payments for the 2017 Term Loan are ~~collectively referred to~~ as follows: remainder of 2020 - $3.0 million; 2021 through 2023 - $6.0 million per year; and 2024 - $3.0 million. Contractual principal payments for the ~~“Credit Facilities”.~~2018 Term Loan are as follows: remainder of 2020 - $4.6 million; 2021 through 2025 - $9.3 million per year; and 2026 - $3.1 million. The term loans do not contain pre-payment penalties.

The ~~Amended and Restated Credit Agreement contains customary events of default and negative covenants, including but not limited~~Company is a party to those governing indebtedness, liens, fundamental changes, investments, restricted payments, and sales of assets. The Amended and Restated Credit Agreement also requires the Company to maintain a fixed charge coverage ratio (as defined in the Amended and Restated Credit Agreement) of at least 1.25:1 and a funded debt to EBITDA ratio (as defined in the Amended and Restated Credit Agreement) not to exceed 5.0:1. As of ~~September 30, 2019~~, the Company was in compliance with these ratios. The Credit Facilities are secured by substantially all of the operating assets of the Company as collateral, 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 Amended and Restated Credit Agreement.

~~Effective on March 3, 2017, in order to reduce the interest rate risk on its future debt, the Company entered into~~ an interest rate swap agreement (“original swap”) with BB&T that was designed, at that time, to effectively convert or hedge the variable interest rate on a portion of its future borrowings to achieve a net fixed rate of 3.12% per annum, beginning March 1, 2018 with a total notional ~~amount~~value of ~~$18.0 million.~~$12.0 million as of March 31, 2020 pursuant to which it makes fixed payments and receives floating payments. The ~~notional amount of~~Company entered into the interest rate swap to offset changes in expected cash flows due to fluctuations in the associated variable interest rates. The Company’s interest rate swap expires in February 2024. The interest rate swap is ~~reduced by $0.3 million per month beginning April 1, 2018 through February 26, 2024. Under the terms of~~not designated as a hedge transaction. Changes in fair value and gains and losses on settlement on the interest rate swap are recognized in interest expense in our statements of comprehensive income. During the ~~Company will receive variable interest rate payments~~three months ended March 31, 2020 and ~~make fixed interest rate payments~~2019, a loss of $0.3 million and $0.1 million, respectively, was recognized on ~~an amount equal to the notional amount at that time. Changes in the fair value of~~ the interest rate swap designated as the hedging instrument that effectively offset the variability of cash flows associated with the variable rate, long-term debt obligation were recorded in other comprehensive income, net of related income tax effects. On May 2, 2018, in conjunction with the Amended and Restated Credit Agreement, the original swap was modified (“amended swap”) to achieve a net fixed rate of 3.05% per annum effective on May 1, 2018 and the remaining notional amount was $17.5 million. There were no other changes to the original swap. As a result of the change, the Company has discontinued hedge accounting for the original swap and has elected not to designate the amended swap. As of May 2, 2018, the fair value of the original swap was $0.1 million and is being amortized as interest expense over the remaining life of the amended swap. Changes to the fair value of the amended swap are recorded as interest expense. As of ~~September 30, 2019, the negative fair value of the amended swap was $0.3 million and was included in other current liabilities.~~

NOTE 34 – Periodic Pension Expense:

The following table details the net periodic pension expense under the Company’s plans for the periods presented (in thousands):

	Three Months						Nine Months
	Ended September 30,						Ended September 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
Service cost - benefits earned during the period	$	29		$	27		$	87		$	81		$	38		$	29
Interest cost on projected benefit obligation		271			242			813			727			216			271
Expected return on plan assets		(385	)		(429	)		(1,106	)		(1,288	)		(389	)		(337	)
Recognized actuarial loss		310			284			959			850			320			325
Settlement loss		280			-			616			-			138			-
Net periodic pension cost	$	505		$	124		$	1,369		$	370
Net periodic pension cost after settlements													$	323		$	288

The pension settlement losses included in the table above resulted from lump sum pension payments made to various employees upon their retirement or termination during the periods specified. The pension settlement losses did not require a cash outlay by the Company and did not increase the Company’s total pension expense over time, as the charge was an acceleration of costs that otherwise would be recognized as pension expense in future periods. The service cost component is included in selling and administrative expenses in our statements of comprehensive income and the other components of net periodic pension cost are included in other periodic pension costs in our statements of comprehensive income.

Effective on June 30, 2013, the Company no longer accrues additional benefits for future service or for future increases in compensation levels for the Company’s primary defined benefit pension plan.

Effective on December 31, 2014, the Company no longer accrues additional benefits for future service for the Company’s hourly defined benefit plan.

~~There were $0.1 million and $0.1 million in contributions made to the Company’s defined benefit plans during the~~ ~~nine months ended September 30, 2019 and 2018, respectively.~~

NOTE 45 – Net Sales:

~~On January 1, 2018,~~For our Uniforms and Related Products and Promotional Products segments, revenue is primarily generated from the ~~Company adopted ASU 2014-09~~ ~~Revenue from Contracts with Customers~~ ~~and all subsequent amendments~~sale of finished products to the ASU (collectively “ASC 606”) using the modified retrospective method to all contracts not completed as of January 1, 2018. The Company recorded a net increase to retained earnings of $11.2 million as of January 1, 2018 due to the cumulative impact of adopting ASC 606.

customers. Revenue for our Uniforms and Related Products and Promotional Products segments is recognized when the ~~earnings process is complete.~~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. ~~Contract termination terms may involve variable consideration clauses such as discounts and rebates, and revenue has been adjusted accordingly for these provisions.~~ 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. 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 Remote Staffing segment, revenue is generated from providing our customers with staffing solution services. Revenue for our Remote Staffing segment is recognized as services are delivered.

Revenue is measured asat the amount of consideration we expect to receive in exchange for the goods or services. ~~Sales taxes,~~Variable consideration for estimated returns and allowances is recorded based upon historical experience and current allowance programs. Contract termination terms may involve variable consideration clauses such as sales discounts and customer rebates, and revenue is adjusted accordingly for these provisions. 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 ~~also~~ excluded from ~~revenue.~~ 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.

Refer to Note 910 for the disaggregation of revenues by operating segment.

Contract Assets

The following table provides information about accounts receivables - trade, ~~and~~ contract assets and contract liabilities from contracts with customers (in thousands):

	September 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Accounts receivable - trade	$	75,597	$	64,017	$	73,551	$	79,746
Current contract assets		38,030		49,236		38,234		38,533
Current contract liabilities		1,372		437		17,646		1,821

Contract assets relate to goods produced without an alternative use for which the Company has an enforceable right to payment but which have not yet been invoiced to the customer. The decrease in contract assets during the nine months ended September 30, 2019 was primarily related to the timing of shipments to customers and receipts from suppliers for finished goods with no alternative use within the Uniforms and Related Products segment. The majorityA portion of the amounts included in contract assets on December 31, ~~2018~~2019 were transferred to accounts receivable during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. 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 balances sheets. The increase in contract liabilities during the three months ended March 31, 2020 was primarily attributable to new customer contracts for the sourcing of personal protective equipment within the Promotional Products and Uniform and Related Products segments. During the three months ended March 31, 2020, $0.9 million of revenue was recognized from the contract liabilities balance as of December 31, 2019.

NOTE 56 – Contingencies:

The purchase price to acquire substantially all of the assets of BAMKO, Inc. (“BAMKO”) in 2016 included contingent consideration through 2021. The estimated fair value for BAMKO acquisition-related contingent consideration payable was $2.8 million as of March 31, 2020, of which $1.1 million is expected to be paid in the second quarter of 2020. The purchase price to acquire substantially all of the assets of Tangerine Promotions, Ltd. and Tangerine Promotions West, Inc. (collectively “Tangerine”) in 2017 included contingent consideration through 2021. The estimated fair value for Tangerine acquisition-related contingent consideration payable was $2.7 million as of March 31, 2020, of which $0.9 million is expected to be paid in the second quarter of 2020. The Company will continue to evaluate these liabilities for remeasurement at the end of each reporting period and any changes will be recorded in the Company’s statements of comprehensive income. The carrying amount of the liabilities may fluctuate significantly and actual amounts paid may be materially different from the estimated value of the liabilities.

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.

NOTE 67 – Share-Based Compensation:

In May 2013, the stockholders 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. A total of 5,000,000 shares of common stock (subject to adjustment for expirations and cancellations of options outstanding from the previous plan) have been reserved for issuance under the 2013 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 ~~September 30, 2019, the Company had 3,320,743 shares of common stock available for grant of share-based compensation under the 2013 Plan.~~

Share-based compensation is recorded in selling and administrative expense in the statements of comprehensive income. 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):

	Three Months Ended September 30,					Nine Months Ended September 30,				Three Months Ended March 31,
	2019			2018		2019		2018		2020		2019
Stock options and SARs	$	108		$	16	$	286	$	960	$	164	$	73
Restricted stock		215			140		612		404		161		188
Performance shares~~(1)~~		(358	)		221		99		503		74		220
Total share-based compensation expense	$	(35	)	$	377	$	997	$	1,867	$	399	$	481

Related income tax benefit	$	67		$	44	$	192	$	229	$	54	$	58

~~(1)~~

During the three and nine months ended September 30, 2019, the Company reversed $0.5 million of previously recognized expense for certain performance awards after determining that the performance conditions are not expected to be met.

Stock options and 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.

All stock options and SARs granted prior to August 3, 2018 vested immediately when granted. Awards issued thereafter vest two 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.

A summary of stock option transactions during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 follows:

Weighted Average

No. of

Weighted Average

Remaining Life

Aggregate

Shares

Exercise Price

(in years)

Intrinsic Value

Outstanding, January 1, 2019
676,846 $ 15.70 2.99 $ 2,230
Granted(1)
184,994 17.22
Exercised (75,444 ) 6.71
Cancelled (80,005 ) 17.71
Outstanding, September 30, 2019 706,391 $ 16.83 3.20 $ 984
Options exercisable, September 30, 2019 497,993 $ 16.56 2.58 $ 967

						Weighted Average
	No. of			Weighted Average		Remaining Life		Aggregate
	Shares			Exercise Price		(in years)		Intrinsic Value
Outstanding, January 1, 2020		701,131		$	16.82		2.95	$	714
Granted(1)		163,545			10.97
Exercised		-			-
Lapsed or cancelled		(97,172	)		18.00
Outstanding, March 31, 2020		767,504			15.42		3.37		217
Exercisable, March 31, 2020		421,123			16.12		2.45		217

(1)	The weighted average grant date fair value of stock options granted was ~~$3.96~~$2.14 per share.

As of ~~September 30, 2019~~March 31, 2020, the Company had ~~$0.4~~$0.6 million in unrecognized compensation related to nonvested stock options to be recognized over the remaining weighted average vesting period of ~~1.3~~1.4 years.

A summary of stock-settled SARs transactions during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 follows:

Weighted Average

No. of

Weighted Average

Remaining Life

Aggregate

Shares

Exercise Price

(in years)

Intrinsic Value

Outstanding, January 1, 2019
182,894 $ 18.99 2.61 $ 89
Granted(1) 42,841 17.77
Exercised
- -
Cancelled (19,035 ) 19.67
Outstanding, September 30, 2019 206,700 $ 18.67 2.29 $ -
Options exercisable, September 30, 2019 168,478 $ 18.88 1.82 $ -

						Weighted Average
	No. of			Weighted Average		Remaining Life		Aggregate
	Shares			Exercise Price		(in years)		Intrinsic Value
Outstanding, January 1, 2020		206,700		$	18.67		2.04	$	-
Granted(1)		153,822			10.97
Exercised		-			-
Lapsed or cancelled		(68,501	)		15.97
Outstanding, March 31, 2020		292,021			15.25		3.41		-
Exercisable, March 31, 2020		126,068			18.95		1.83		-

(1)	The weighted average grant date fair value of SARs granted was ~~$3.97~~$2.14 per share.

As of ~~September 30, 2019~~March 31, 2020, the Company had ~~$0.1~~$0.3 million in unrecognized compensation related to nonvested SARs to be recognized over the remaining weighted average vesting period of ~~1.3~~1.7 years.

Restricted Stock

The Company has granted restricted stock to directors and certain employees ~~under the terms of the 2013 Plan~~ which vest at a specified future date, generally after three years, or when certain conditions are met. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 ~~Plan.~~Incentive Stock and Awards Plan (the “2013 Plan”). 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.

A summary of restricted stock transactions during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 follows:

Weighted Average

No. of

Grant Date

Shares

Fair Value

Outstanding, January 1, 2019
92,032 $ 19.46
Granted 48,829 17.41
Vested
- -
Cancelled
- -
Outstanding, September 30, 2019 140,861 $ 18.75

				Weighted Average
	No. of			Grant Date
	Shares			Fair Value
Outstanding, January 1, 2020		151,166		$	18.44
Granted		49,543			10.97
Vested		(34,619	)		16.97
Forfeited		(17,420	)		14.24
Outstanding, March 31, 2020		148,670			16.79

As of ~~September 30, 2019~~March 31, 2020, the Company had ~~$1.3~~$1.5 million of unrecognized compensation cost related to nonvested restricted stock grants expected to be recognized over the remaining weighted average vesting period of ~~1.6~~2.1 years.

Performance Shares

~~Under the terms of the grants, certain~~Certain employees received service-based or service-based and performance-based shares, to which we collectively refer to as performance shares. 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 shares 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. During the three and nine months ended September 30, 2019, the Company reversed $0.5 million of previously recognized expense for certain awards after determining that the performance conditions are not expected to be met. 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 under certain circumstances as outlined in the 2013 Plan.

A summary of performance share transactions during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 follows:

Weighted Average

No. of

Grant Date

Shares

Fair Value

Outstanding, January 1, 2019
194,378 $ 20.08
Granted 14,068 17.77
Vested
- -
Cancelled (14,434 ) 22.03
Outstanding, September 30, 2019 194,012 $ 19.77

				Weighted Average
	No. of			Grant Date
	Shares			Fair Value
Outstanding, January 1, 2020		194,012		$	19.77
Granted		-			-
Vested		(5,892	)		16.97
Forfeited		(8,952	)		20.42
Outstanding, March 31, 2020		179,168			19.83

As of ~~September 30, 2019~~March 31, 2020, the Company had ~~$1.5~~$1.2 million of unrecognized compensation cost related to nonvested performance share grants expected to be recognized over the remaining weighted average service period of ~~2.1~~1.4 years.

NOTE 78 – Income Taxes:

The Company calculates its interim income tax provision in accordance with the accounting guidance for income taxes in interim periods. At the end of each interim period, the Company makes its best estimate of the annual expected effective tax rate and applies that rate to its ordinary year-to-date income or loss. The tax expense or benefit related to significant, unusual, or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur.

In addition, the effect of changes in enacted tax laws or rates, tax status, or judgment on the attainment of beginning-of-the-year deferred taxes in future years is recognized in the interim period in which the change occurs.

The computation of the annual expected effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income for the year and permanent and temporary differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, ~~more experience is acquired,~~ additional information is obtained or the tax environment changes. ~~To the extent that the estimated annual effective tax rate changes during a quarter, the effect of the change on prior quarters is included in tax expense for the current quarter.~~

For the three months ended ~~September 30,~~March 31, 2020, the Company recorded a provision for income taxes of $1.3 million, which represents an effective tax rate of 27.1%. For the three months ended March 31, 2019, the Company recorded a provision for income taxes of ~~$0.7~~$0.6 million, which represents an effective tax rate of ~~15.3%. For the~~ ~~three months ended September 30, 2018, the Company recorded a provision for income taxes of $1.2 million, which represents an effective tax rate of~~ ~~15.9%. For the~~ ~~nine months ended September 30, 2019, the Company recorded a provision for income taxes of $2.2 million, which represents an effective tax rate of~~ ~~19.4%. For the~~ ~~nine months ended September 30, 2018, the Company recorded a provision for income taxes of $3.3 million, which represents an effective tax rate of~~ ~~21.1%~~20.2%. The ~~decreases~~increase in the effective tax ~~rates were~~rate was primarily ~~due to a reduction in~~driven by rate increases of 3.7% for foreign taxes, 0.9% for state income taxes and 1.6% for non-deductible ~~acquisition expense and a decrease in~~losses recognized on assets associated with the ~~Global Intangible Low Tax Income (“GILTI”) tax, partially offset by the impact of lower contingent liability adjustments.~~Company’s Non-Qualified Deferred Compensation Plan.

~~The difference between the statutory Federal income tax rate and the actual effective income tax rate is accounted for as follows:~~

Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Statutory Federal income tax rate
21.0 % 21.0 % 21.0 % 21.0 %
State and local income taxes, net of Federal income tax benefit 4.0 % 3.8 % 4.0 % 4.1 %
Taxes attributable to foreign income (8.6 %) (6.8 %) (6.0 %) (5.8 %)
GILTI tax 2.9 % 3.7 % 2.2 % 3.7 %
Contingent liability adjustments (1.9 %) (2.7 %) (0.8 %) (1.9 %)
Compensation related 0.3 % 1.6 % 0.2 % 1.4 %
Non-deductible acquisition expense - 1.9 % - 1.8 %
Federal tax credits (0.7 %) - (0.7 %) (0.5 %)
Other (1.7 %) (6.6 %) (0.5 %) (2.7 %)
Effective income tax rate
15.3 % 15.9 % 19.4 % 21.1 %

NOTE 89 – Net Income Per Share:

The Company’s basic net income per share is computed based on the weighted average number of shares of common stock outstanding for the period. Diluted net income 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 per share for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~:

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
Net income used in the computation of basic and diluted net income per share (in thousands)	$	3,921	$	6,122	$	9,078	$	12,389	$	3,367	$	2,376

Weighted average shares outstanding - basic		14,947,552		15,010,660		14,942,565		14,929,513		15,024,851		14,927,341
Dilutive common stock equivalents		319,298		489,234		329,722		576,129		176,047		335,313
Weighted average shares outstanding - diluted		15,266,850		15,499,894		15,272,287		15,505,642		15,200,898		15,262,654
Net income per share:
Basic	$	0.26	$	0.41	$	0.61	$	0.83	$	0.22	$	0.16
Diluted	$	0.26	$	0.39	$	0.59	$	0.80	$	0.22	$	0.16

Awards to purchase approximately ~~568,471~~449,191 and ~~192,000~~341,995 shares of common stock with weighted average exercise prices of ~~$19.02~~$19.07 and ~~$23.17~~$20.99 per share were outstanding during the three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~, respectively, but were not included in the computation of diluted ~~EPS~~net income per share because the awards’ exercise prices were greater than the average market price of the common shares.

~~Awards to purchase approximately 408,854 and 192,000 shares of common stock with weighted average exercise prices of $20.07 and $23.17 per share were outstanding during the~~ ~~nine months ended September 30, 2019 and 2018, respectively, but were not included in the computation of diluted EPS because the awards’ exercise prices were greater than the average market price of the common shares.~~

NOTE 910 – Operating Segment Information:

The Company classifies its businesses into three operating segments based on the types of products and services provided. The Uniforms and Related Products segment consists of sales to customers of uniforms and related items. The Remote Staffing Solutions segment consists of sales of staffing solutions. The Promotional Products segment consists of sales to customers of promotional products and other branded merchandise.

The Company evaluates the performance of each operating segment based on several factors of which the primary financial measures are net sales and income before taxes on income. Amounts for corporate expenses are included in the totals for the Uniforms and Related Products segment. To better reflect the way in which management now reviews the Company’s operating results, in the third quarter of 2019, the Company changed the composition of total assets for each reportable segment to exclude intercompany balances. This change has been made to all periods presented within this Quarterly Report on Form 10-Q.

The following tables set forth financial information related to the ~~Company's~~Company’s operating segments (in thousands):

As of and For the Three Months Ended September 30, 2019	Uniforms and Related Products		Remote Staffing Solutions		Promotional Products		Intersegment Eliminations			Total
												Uniforms and Related Products		Remote Staffing Solutions		Promotional Products		Intersegment Eliminations			Total
As of and For the Three Months Ended March 31, 2020:
Net sales	$	54,979	$	9,305	$	26,460	$	(1,278	)	$	89,466	$	60,102	$	9,200	$	26,178	$	(1,235	)	$	94,245
Cost of goods sold		35,263		3,542		19,627		(417	)		58,015		38,672		3,988		18,599		(465	)		60,794
Gross margin		19,716		5,763		6,833		(861	)		31,451		21,430		5,212		7,579		(770	)		33,451
Selling and administrative expenses		17,688		3,488		4,945		(861	)		25,260		18,225		3,396		6,638		(770	)		27,489
Other periodic pension cost		476		-		-		-			476		285		-		-		-			285
Interest expense		768		-		317		-			1,085		872		-		188		-			1,060
Income before taxes on income	$	784	$	2,275	$	1,571	$	-		$	4,630	$	2,048	$	1,816	$	753	$	-		$	4,617

Depreciation and amortization	$	1,537	$	240	$	351	$	-		$	2,128	$	1,310	$	217	$	342	$	-		$	1,869
Capital expenditures	$	1,038	$	276	$	131	$	-		$	1,445	$	1,852	$	166	$	55	$	-		$	2,073
Total assets	$	254,053	$	22,289	$	73,043	$	-		$	349,385	$	249,629	$	22,436	$	72,541	$	-		$	344,606

As of and For the Three Months Ended September 30, 2018	Uniforms and Related Products		Remote Staffing Solutions		Promotional Products		Intersegment Eliminations			Total
												Uniforms and Related Products		Remote Staffing Solutions		Promotional Products		Intersegment Eliminations			Total
As of and For the Three Months Ended March 31, 2019:
Net sales	$	69,776	$	7,934	$	19,186	$	(1,026	)	$	95,870	$	58,679	$	8,599	$	20,359	$	(1,085	)	$	86,552
Cost of goods sold		45,225		3,346		13,859		(360	)		62,070		38,361		3,560		14,733		(370	)		56,284
Gross margin		24,551		4,588		5,327		(666	)		33,800		20,318		5,039		5,626		(715	)		30,268
Selling and administrative expenses		18,731		2,856		4,561		(666	)		25,482		18,177		3,119		5,282		(715	)		25,863
Other periodic pension cost		96		-		-		-			96		259		-		-		-			259
Interest expense		593		-		347		-			940		878		-		292		-			1,170
Income before taxes on income	$	5,131	$	1,732	$	419	$	-		$	7,282	$	1,004	$	1,920	$	52	$	-		$	2,976

Depreciation and amortization	$	1,510	$	241	$	348	$	-		$	2,099	$	1,488	$	256	$	316	$	-		$	2,060
Capital expenditures	$	885	$	445	$	137	$	-		$	1,467	$	1,158	$	409	$	156	$	-		$	1,723
Total assets(1)	$	259,700	$	18,414	$	56,916	$	-		$	335,030	$	255,949	$	21,770	$	61,855	$	-		$	339,574

(1)	Intercompany balances that were previously included in total assets for each reportable segment have been excluded.

As of and For the Nine
Months Ended
September 30, 2019

Uniforms and
Related
Products

Remote
Staffing
Solutions

Promotional
Products

Intersegment
Eliminations

Total

Net sales $ 174,403 $ 26,897 $ 70,563 $ (3,575 ) $ 268,288
Cost of goods sold 112,561 10,926 51,960 (1,221 ) 174,226
Gross margin 61,842 15,971 18,603 (2,354 ) 94,062
Selling and administrative expenses 54,644 10,055 15,663 (2,354 ) 78,008
Other periodic pension cost 1,282 - - - 1,282
Interest expense 2,609 - 905 - 3,514
Income before taxes on income $ 3,307 $ 5,916 $ 2,035 $ - $ 11,258

Depreciation and amortization $ 4,607 $ 745 $ 987 $ - $ 6,339
Capital expenditures $ 5,193 $ 881 $ 350 $ - $ 6,424
Total assets $ 254,053 $ 22,289 $ 73,043 $ - $ 349,385

As of and For the Nine
Months Ended
September 30, 2018

Uniforms and
Related
Products

Remote
Staffing
Solutions

Promotional
Products

Intersegment
Eliminations

Total

Net sales
$ 174,304 $ 23,234 $ 56,876 $ (3,065 ) $ 251,349
Cost of goods sold
113,036 9,839 41,579 (1,058 ) 163,396
Gross margin
61,268 13,395 15,297 (2,007 ) 87,953
Selling and administrative expenses
50,269 8,146 13,583 (2,007 ) 69,991
Other periodic pension cost
289 - - - 289
Interest expense
1,147 - 827 - 1,974
Income before taxes on income
$ 9,563 $ 5,249 $ 887 $ - $ 15,699

Depreciation and amortization
$ 4,024 $ 731 $ 990 $ - $ 5,745
Capital expenditures
$ 2,278 $ 1,264 $ 339 $ - $ 3,881
Total assets(1) $ 259,700 $ 18,414 $ 56,916 $ - $ 335,030

~~(1)~~

~~Intercompany balances that were previously included in total assets for each reportable segment have been excluded.~~

NOTE 1011 – ~~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. These leases generally have expected lease terms of one to eight years. In the normal course of business, it is expected that these 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 ~~September 30, 2019~~, the Company had recognized $4.0 million of operating lease obligation ($1.4 million in other current liabilities and $2.6 million in long-term operating lease liabilities), which represents the present value of the remaining lease payments, and $4.6 million of operating lease right-of-use assets, which represents the lease liability of $4.0 million adjusted for prepaid rent of $0.6 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):~~

Three Months Ended
September 30, 2019

Nine Months Ended September 30, 2019

Operating lease costs $ 380 $ 1,103
Short-term lease costs
51 255
Total lease costs, included in selling and administrative expenses
$ 431 $ 1,358

~~Cash flow and noncash information related to our operating leases were as follows (in thousands):~~

Nine Months Ended September 30, 2019

Operating cash flows – cash paid for operating lease liabilities $ 958
Non-cash – Operating lease ROU assets obtained in exchange for new lease liabilities
$ 729

~~Other supplemental information related to our operating leases was as follows:~~

	~~September 30,~~
	~~2019~~
~~Weighted-average remaining lease term (in years)~~		~~3.6~~
~~Weighted average discount rate~~		~~5.67~~	%

~~Maturities of operating lease liabilities as of~~ ~~September 30, 2019~~ ~~were as follows (in thousands):~~

Operating

Leases

Remainder of 2019 $ 356
2020
1,377
2021 1,054
2022 859
2023 632
Thereafter 120
Total lease payments
4,398
Less imputed interest 425
Present value of lease liabilities
$ 3,973

~~NOTE 1~~1 ~~– Acquisition of Business~~esCOVID-19:

~~CID Resources~~

~~On May 2, 2018, the Company acquired CID Resources, Inc., a Delaware corporation (“CID”), which manufactures medical uniforms, lab coats,~~The COVID-19 pandemic continues to affect our operations and ~~layers,~~financial performance, and ~~sells its products~~likely will continue to ~~specialty uniform retailers, ecommerce medical uniform retailers, and other retailers.~~

~~The purchase price in the acquisition consisted~~do so for an undetermined period of the following: (a) approximately $84.4 million in cash at closing, (b) the issuance of 150,094 shares of the Company’s common stock to an equity holder of CID, and (c) $2.5 million in cash as a result of the cash and working capital adjustment.

~~Fair Value of Consideration Transferred~~

~~A Summary of the purchase price is as follows (in thousands):~~

Cash consideration at closing
$ 84,430
Superior common stock issued
3,763
Cash and working capital adjustment
2,521
Total Consideration
$ 90,714

~~Assets Acquired and Liabilities Assumed~~

The total purchase price was allocated to the tangible and intangible assets and liabilities of CID based on their estimated fair values as of May 2, 2018. The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was allocated to goodwill.

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 CID based on their estimated fair values as of the effective date of the transaction (in thousands):

Cash
$ 1,360
Accounts receivable
9,657
Prepaid expenses and other current assets
1,248
Inventories
28,895
Property, plant and equipment
1,134
Contract assets
2,535
Identifiable intangible assets
41,020
Goodwill
20,323
Total assets
$ 106,172
Accounts payables
5,030
Deferred tax liability
9,461
Other current liabilities
967
Total liabilities
$ 15,458

~~The amounts in the table above are reflective of measurement period adjustments made~~time. While during the second quarter of 2019, which included an increase of $2.4 million to goodwill, a decrease of $1.8 million to inventory, and an increase of $0.6 million to accounts payable. The measurement period adjustmentsthree months ended March 31, 2020, the pandemic did not have a ~~significant~~material impact on the Company’s ~~statements~~business, international, federal, state and local efforts to contain the spread of COVID-19 intensified in March 2020 as governments enacted shelter in place orders, declared states of emergency, took steps to restrict travel, enacted temporary closures of non-essential businesses and took other restrictive measures that prohibit many employees from going to work. These government measures have begun to lead to changes in customer purchasing patterns and supply chains.

COVID-19 could continue to have a number of increasingly adverse impacts on our business, including, but not limited to, additional disruption to the economy and our customers’ willingness and/or ability to spend, temporary or permanent closures of businesses that consume our products and services, additional work restrictions, and supply chains being interrupted, slowed, or rendered inoperable. Our employees and the employees and contractors of our suppliers and customers also could become ill, quarantined, or otherwise unable to work or travel due to health reasons or governmental restrictions.

The majority of the principal fabrics used in the manufacture of products within the Uniform and Related Products segment are sourced in China and the vast majority of raw materials used in our Promotional Products segment are predominantly sourced from China, either directly by BAMKO or its suppliers. If we are unable to continue to obtain affordable raw materials and finished products from China or if our suppliers are unable to source affordable raw materials from China, it could significantly disrupt our business. A prolonged pandemic, or the threat thereof, could significantly disrupt our product sourcing, which in turn, could significantly disrupt our business.

We have and will continue to monitor and control our expense levels to protect our profitability. For example, on March 30, 2020, we entered into debt deferment agreements with Truist Bank (formerly known as Branch Banking and Trust Company) to: (i) defer contractual principal and interest payments due between April 1, 2020 and June 1, 2020 under the 2017 Term Loan and 2018 Term Loan until their respective maturity dates; and (ii) defer contractual interest payments due between April 1, 2020 and June 1, 2020 under the revolving credit facility until its maturity date. Additionally, we are proactively taking steps to increase available cash on hand by targeted reductions in discretionary operating expenses. Finally, we are delaying certain capital expenditures relating to non-essential projects until economic conditions begin to stabilize.

Prolonged instability in the United States and global economies, and how the world reacts to them, could have long-term impacts on our business. These business impacts could negatively affect us in a number of ways, including, but not limited to, reduced demand for our products and services, reductions to our revenue and profitability, costs associated with complying with new or amended laws and regulations affecting our business, further declines in our stock price, reduced availability and less favorable terms of future borrowings, valuation of our pension assets and obligations, reduced credit-worthiness of our customers, and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets. The extent to which the COVID-19 pandemic impacts our business, financial condition, results of operations or cash ~~flows.~~flows will depend on numerous evolving factors that we are unable to accurately predict at this time. The ~~Company finalized the purchase price allocation of CID during the second quarter of~~ ~~2019~~.

~~The Company recorded $41.0 million in identifiable intangibles at fair value, consisting of $26.0 million in acquired customer relationships, $0.8 million for a non-compete agreement~~length and $14.2 million for the brand name. The intangible assets associated with the customer relationships are being amortized for fifteen years beginning on May 2, 2018 and the non-compete agreement is being amortized for five years. The trade name is considered an indefinite-life asset and as such is not being amortized. The Company recognized amortization expense on these acquired intangible assets of $0.5 million for eachscope of the ~~three months ended September 30, 2019~~restrictions imposed by various governments and ~~2018. The Company recognized amortization expense on these acquired intangible assets~~success of ~~$1.4 million and $0.8 million for~~efforts to find a suitable vaccine, among other factors, will determine the ~~nine months ended September 30, 2019 and 2018, respectively.~~

~~Goodwill was calculated as the difference between the fair value~~ultimate severity of the ~~consideration transferred~~COVID-19 impact on our business. However, it is likely that prolonged periods of difficult market conditions would have material adverse impacts on our business, financial condition, results of operations and ~~the values assigned to the assets acquired and liabilities assumed. This goodwill will not be deductible for tax purposes.~~cash flows.

~~On a pro forma basis as if the results of this acquisition had been included in our consolidated results for the~~ ~~nine months ended September 30, 2018, net sales would have increased by approximately $22.3 million and net income would have increased by approximately $2.6 million, or $0.17 per share.~~

~~Other Acquisitions of Businesses~~

~~BAMKO~~. On March 8, 2016, the Company closed on the acquisition of substantially all of the assets of BAMKO, Inc. The transaction had an effective date of March 1, 2016. The transaction also included the acquisition of BAMKO, Inc.’s subsidiaries in Hong Kong, China, Brazil and England as well as an affiliate in India. BAMKO is a promotional products, merchandise, and packaging company that serves the world’s most prominent brands. The purchase price included a potential future payment of approximately $5.5 million in additional contingent consideration through 2021. The estimated fair value for acquisition-related contingent consideration payable was $3.1 million as of ~~September 30, 2019~~. The current portion of $1.1 million is expected to be paid in the second quarter of 2020. The Company will continue to evaluate this liability for remeasurement at the end of each reporting period and any change will be recorded in the Company’s statements of comprehensive income.

~~Public Identity~~. On August 21, 2017, BAMKO acquired substantially all of the assets and assumed certain liabilities of PublicIdentity, Inc. (“Public Identity”) of Los Angeles, CA. Public Identity is a promotional products and branded merchandise agency that provides innovative, high quality merchandise and promotional products to corporate clients and universities across the country. The purchase price included future payments of approximately $0.4 million in additional consideration through 2020. The estimated fair value for acquisition-related consideration payable was $0.1 million as of ~~September 30, 2019~~.

~~Tangerine Promotions~~. On November 30, 2017, BAMKO acquired substantially all of the assets of Tangerine Promotions, Ltd and Tangerine Promotions West, Inc (collectively “Tangerine”). The transaction had an effective date of December 1, 2017. Tangerine is a promotional products and branded merchandise agency that serves many well-known brands, and is one of the leading providers of Point-of-Purchase (POP) and Point-of-Sale (POS) merchandise in the country. The purchase price included potential future payments of approximately $3.2 million in additional contingent consideration through 2021. The estimated fair value for acquisition-related contingent consideration payable was $2.0 million as of ~~September 30, 2019~~. The current portion of $0.3 million is expected to be paid in the second quarter of 2020. The Company will continue to evaluate this liability for remeasurement at the end of each reporting period and any change will be recorded in the Company’s statements of comprehensive income.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the Condensed Consolidated Financial Statements in Part I, Item 1 (“Financial Statements”) of this report and in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019.

Disclosure Regarding Forward Looking Statements

Certain matters discussed in this Form 10-Q are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified by use of the words ~~“may”, “will”, “should”, “could”, “expect”, “anticipate”, “estimate”, “believe”, “intend”, “project”, “potential”,~~“may,” “will,” “should,” “could,” “expect,” anticipate,” “estimate,” “believe,” “intend,” “project,” “potential,” or “plan” or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements in this Quarterly Report on Form 10-Q may include, without limitation: (1) the projected impact of the current coronavirus (COVID-19) on our, our customers’, and our suppliers’ businesses, (2) projections of revenue, income, and other items relating to our financial position and results of operations, ~~(2)~~(3) statements of our plans, objectives, strategies, goals and intentions, ~~(3)~~(4) statements regarding the capabilities, capacities, market position and expected development of our business operations, and ~~(4)~~(5) statements of expected industry and general economic trends.

Such forward-looking statements are subject to certain risks and uncertainties that may materially adversely affect the anticipated results. Such risks and uncertainties include, but are not limited to, the following: the impact of competition; the effect of uncertainties related to the current coronavirus (COVID-19) pandemic on the U.S. and global markets, our business, operations, customers, suppliers and employees, including without limitation the length and scope of the restrictions imposed by various governments and success of efforts to find a suitable vaccine, among other factors; general economic conditions, including employment levels, in the areas of the United States of America (“United States”) in which the Company’s customers are located; changes in the healthcare, ~~industrial, commercial, leisure~~retail, hotels, food service, transportation and ~~public safety~~other industries where uniforms and service apparel are worn; our ability to identify suitable acquisition targets, successfully integrate any acquired businesses, successfully manage our expanding operations, or discover liabilities associated with such business during the diligence process; the price and availability of cotton and other manufacturing materials; attracting and retaining senior management and key personnel and other factors described in the Company’s filings with the Securities and Exchange Commission, including those described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this Form 10-Q and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances, except as may be required by law.

~~Recent Acquisitions~~

On May 2, 2018, the Company acquired CID Resources, Inc., a Delaware corporation (“CID”) that manufactures uniforms, lab coats, and layers, and sells its products to specialty uniform retailers, ecommerce medical uniform retailers, and other retailers. The purchase price in the acquisition consisted of the following: (a) approximately $84.4 million in cash at closing, (b) the issuance of 150,094 shares of the Company’s common stock to an equity holder of CID, and (c) $2.5 million in cash as a result of the cash and working capital adjustment.

Business Outlook

Superior Group of Companies, Inc. (together with its subsidiaries, ~~“the Company”, “Superior”, “we”, “our”,~~the “Company,” “Superior,” “we,” “our,” or “us”) is comprised of three reportable business segments: (1) Uniforms and Related Products, (2) Remote Staffing Solutions, and (3) Promotional Products.

COVID-19 Impact

The COVID-19 pandemic continues to affect our operations and financial performance, and likely will continue to do so for an undetermined period of time. While during the three months ended March 31, 2020, the pandemic did not have a material impact on the Company’s business, international, federal, state and local efforts to contain the spread of COVID-19 intensified in March 2020 as governments enacted shelter in place orders, declared states of emergency, took steps to restrict travel, enacted temporary closures of non-essential businesses and took other restrictive measures that prohibit many employees from going to work. These government measures have begun to lead to changes in customer purchasing patterns and supply chains.

Prolonged instability in the United States and global economies, and how the world reacts to them, could have long-term impacts on our business. These business impacts could negatively affect us in a number of ways, including, but not limited to, reduced demand for our products and services, reductions to our revenue and profitability, costs associated with complying with new or amended laws and regulations affecting our business, further declines in our stock price, reduced availability and less favorable terms of future borrowings, valuation of our pension assets and obligations, reduced credit-worthiness of our customers, and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets. The extent to which the COVID-19 pandemic impacts our business, financial condition, results of operations or cash flows will depend on numerous evolving factors that we are unable to accurately predict at this time. The length and scope of the restrictions imposed by various governments and success of efforts to find a suitable vaccine, among other factors, will determine the ultimate severity of the COVID-19 impact on our business. However, it is likely that prolonged periods of difficult market conditions would have material adverse impacts on our business, financial condition, results of operations and cash flows.

Uniforms and Related Products

~~Historically,~~In our Uniforms and Related Products segment, we ~~have manufactured~~manufacture and ~~sold~~sell a wide range of uniforms, career apparel and ~~accessories, which comprises our Uniforms and Related Products segment.~~accessories. Our primary products are service apparel, such as scrubs, lab coats, protective apparel and patient gowns, provided to workers in the healthcare industry, and service apparel, such as uniforms, provided to workers employed by our customers in various industries, including retail, hotels, food service, transportation and asother industries. We sell our brands of healthcare service apparel primarily to healthcare laundries, dealers, distributors and retailers. As a result of the COVID-19 pandemic, we anticipate increased sales of our ~~business prospects~~healthcare service apparel to laundries, dealers and distributors that service hospitals and other medical facilities; however, sales of healthcare apparel to retail markets may be negatively impacted. We are ~~dependent upon levels~~currently working with our retailers to develop alternative strategies to ensure that our customers are able to take advantage of ~~employment~~the increase in demand from medical professionals. From a long-term perspective, we expect that demand for our signature marketing brands, including Fashion Seal Healthcare® and ~~overall economic conditions, among other factors. Our revenues~~WonderWink®, will provide opportunities for growth and increased market share. Sales of uniforms are impacted by our customers’ opening and closing of locations and reductions, increases, and turnover of employees. The current economic environment in the United States ~~is continuing~~has been significantly impacted by the COVID-19 pandemic, and as a result, we expect to see ~~improvement~~reduced short-term demand for uniform apparel in many of our customers’ industries, some of which is expected to be offset by demand from customers in certain retail industries, such as grocery and pharmacy customers, and healthcare. Based on the longer-term fundamentals of our uniform business, we anticipate that we will have growth opportunities when market conditions in the ~~employment environment. We also continue~~United States stabilize and begin to see an increase in the demand for employees in the healthcare sector and our acquisition of CID provides us with opportunities to expand the markets that we serve within this sector. These factors are expected to have positive impacts on future net sales growth.improve.

Remote Staffing Solutions

This business segment (also known as “The Office Gurus”), which operates in El Salvador, Belize, Jamaica, and the United States, ~~was~~ initially started to ~~provide remote staffing services for~~support the ~~Company at a lower cost structure in order~~Company’s back office needs while improving overall efficiencies and lowering operating costs. After years of consistently improving key performance indicators, lowering costs and providing exceptional service to ~~improve our own operating results. It has in fact enabled us to reduce our operating expenses in~~ our Uniforms and Related Products segment in areas such as order entry, cash collections, vendor payables processing, customer service, sales, and ~~to more effectively service our customers’ needs in that segment. We began~~others, The Office Gurus started selling ~~remote staffing~~their services to ~~other~~outside companies atin 2009. Over the ~~end of 2009. We have grown this~~past 10 years, The Office Gurus has become an award-winning global business ~~from approximately $1.0 million~~process outsourcer offering inbound and outbound voice, email, text, chat and social media support. The COVID-19 pandemic has created certain disruptions in ~~net sales~~our ability provide services to ~~outside~~our customers, and has resulted in ~~2010~~a reduction in billable hours charged to ~~$27.3 million in net sales~~our customers. The pandemic has also generated uncertainties for our customers and their industries. With an environment and career path designed to ~~outside customers in~~ ~~2018. We have spent significant effort over the last several years improving the depth of our management infrastructure~~attract and ~~expanding our facilities in this segment~~maintain top talent across all sites, The Office Gurus is positioned well to ~~support significant growth. Net sales~~continue growth when market conditions begin to ~~outside customers increased by approximately~~ ~~15.6%~~ ~~for the~~ ~~nine months ended September 30, 2019~~ ~~compared to the same period last year.~~stabilize.

Promotional Products

~~We have been involved in the sale of~~For more than a decade, we sold promotional products on a limited basis to our existing Uniforms and Related Products customer base. While there were substantial opportunities to sell promotional products to those customers, it was not an area of focus, specialization, or expertise for ~~over a decade. However, we lacked the scale and expertise needed to be a recognized name in this market prior to~~us. On March 1, 2016, that changed with our acquisition of substantially all of the assets of BAMKO, ~~effective on March 1, 2016. BAMKO has been operating~~Inc. (“BAMKO”). One of the top firms in the promotional products industry, ~~for more than 16 years~~BAMKO has a number of strengths, well-developed systems, and time-tested processes that offer significant competitive advantages. With a robust back-office support platform operated out of India, direct-to-factory sourcing operations based in China, and proprietary technological platforms and programming capabilities that we believe ~~that BAMKO’s strong back office and support systems located in India, China and Hong Kong, as well as their “direct~~are very competitive, BAMKO is positioned to ~~factory” sourcing operations provide us with a competitive advantage. We believe that BAMKO has well developed systems and processes that can serve as~~be a platform for ~~additional~~potential future acquisitions ~~that may complete~~ in this ~~highly fragmented market.~~industry. We completed two additional acquisitions in this segment in late ~~2017. We~~2017 and remain open to additional acquisitions going forward. In recent years we have seen an increase in customer orders and expect those growth opportunities to continue once the current market environment stabilizes. As a result of the COVID-19 pandemic, however, the branded merchandise industry has experienced customer budget cuts and widespread event cancellations that has led to customer orders being delayed or cancelled entirely. Our Promotional Products segment is experiencing reduced activities from customers in certain areas, such as the restaurant and entertainment industries. In responding to the needs of our customers, the sourcing team within the Promotional Products segment has recently focused on the sourcing of much needed personal protective equipment for our customers to help offset the shortfall in sales from our existing product lines. From a long-term perspective, we believe ~~promotional products are a~~that this segment’s synergistic fit with our uniform business ~~that allow us~~will create opportunities to cross-sell ~~our~~the products of various business segments to new and existing customers.

Results of Operations

Three Months Ended ~~September 30, 2019~~March 31, 2020 Compared to Three Months Ended ~~September 30, 2018~~March 31, 2019

Net Sales (in thousands):

	Three Months Ended September 30,									Three Months Ended March 31,
	2019			2018			% Change			2020			2019			% Change
Uniforms and Related Products	$	54,979		$	69,776			(21.2	%)	$	60,102		$	58,679			2.4	%
Remote Staffing Solutions		9,305			7,934			17.3	%		9,200			8,599			7.0	%
Promotional Products		26,460			19,186			37.9	%		26,178			20,359			28.6	%
Net intersegment eliminations		(1,278	)		(1,026	)		24.6	%		(1,235	)		(1,085	)		13.8	%
Consolidated Net Sales	$	89,466		$	95,870			(6.7	%)	$	94,245		$	86,552			8.9	%

Net sales for the Company ~~decreased~~increased ~~6.7%~~8.9% from $~~95.9~~86.6 million for the three months ended ~~September 30, 2018~~March 31, 2019 to $~~89.5~~94.2 million for the three months ended ~~September 30, 2019~~March 31, 2020. The principal components of this aggregate ~~decrease~~increase in net sales were as follows: (1) ~~a decrease~~an increase in the net sales of our Uniform and Related Products segment (contributing ~~(15.4%)~~1.6%, of which ~~$9.1~~$2.0 million (contributing ~~(9.5)%)~~2.3%) represented the effect of differences in timing of revenues recognized under ASC 606 between periods), (2) an increase in the net sales for our Promotional Products segment (contributing ~~7.6%~~6.7%), and (3) an increase in net sales for our Remote Staffing Solutions segment after intersegment eliminations (contributing ~~1.1%~~0.6%).

Uniforms and Related Products net sales ~~decreased~~increased ~~21.2%~~2.4%, or $~~14.8~~1.4 million, for the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018~~March 31, 2019. The ~~decrease~~increase was primarily due to the timing of finished goods receipts for inventory items with no alternative use. The timing of such receipts was partially affected by an increased focus by management on cash flows from working capital during the current year period. The revenue decrease was also partially attributable to the timing of new uniform rollout programs for certain customers and temporary shipping delays during the current year period. Shipments by our Uniform and Related Products segment decreased from $~~66.6~~60.4 million to $~~60.9~~59.8 million comparing the three months ended ~~September 30, 2019~~March 31, 2020 with the prior year period. For a reconciliation of shipments by our Uniform and Related Products segment, see “Shipments (Non-GAAP Financial Measure)” below.

Remote Staffing Solutions net sales increased ~~17.3%~~7.0% before intersegment eliminations and ~~16.2%~~6.0% after intersegment eliminations for the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018~~March 31, 2019. These increases were primarily attributed to providing continued ~~market penetration~~services in ~~2019, with respect~~the current year period to ~~both new and existing customers.~~our customer base that was expanded during 2019. Despite the increase in net sales, overall growth during three months ended March 31, 2020 was negatively impacted by disruptions in March 2020 resulting from COVID-19.

Promotional Products net sales increased ~~37.9%~~28.6% or $5.8 million, for the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018~~March 31, 2019. The increase was primarily due to the expansion of our sales force in 2019 and ~~the execution on increased~~continued product sales ~~order activities~~to our expanded customer base during the current year period.

Cost of Goods Sold

Cost of goods sold consists primarily of direct costs of acquiring inventory, including cost of merchandise, inbound freight charges, purchasing costs, and inspection costs for our Uniforms and Related Products and Promotional Products segments. Cost of goods sold for our Remote Staffing Solutions 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. Other shipping and handling costs are included in selling and administrative expenses.

As a percentage of net sales, cost of goods sold for our Uniforms and Related Products segment was ~~64.1%~~64.3% for the three months ended ~~September 30, 2019~~March 31, 2020 and ~~64.8%~~65.4% for the three months ended ~~September 30, 2018~~March 31, 2019. As a percentage of net sales, cost of goods sold remained relatively flat. The ~~decrease~~increase in cost of goods sold during the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018~~March 31, 2019 was primarily due to the revenue ~~decrease~~increase explained above.

As a percentage of net sales, cost of goods sold for our Remote Staffing Solutions segment was ~~38.1%~~43.3% for the three months ended ~~September 30, 2019~~March 31, 2020 and ~~42.2%~~41.4% for the three months ended ~~September 30, 2018~~March 31, 2019. The percentage ~~decrease~~increase was primarily driven by ~~an increase~~disruptions in ~~the proportion of revenue coming~~March 2020 resulting from ~~the offshore portion of revenue which has higher gross margins.~~COVID-19.

As a percentage of net sales, cost of goods sold for our Promotional Products segment was ~~74.2%~~71.0% for the three months ended ~~September 30, 2019~~March 31, 2020 and ~~72.2%~~72.4% for the three months ended ~~September 30, 2018~~March 31, 2019. The percentage ~~increase~~decrease was primarily the result of differences in the mix of products and customers, with sales to ~~lower~~higher margin contract ~~clients~~customers representing a larger percentage of our overall sales during the three months ended ~~September 30, 2019~~March 31, 2020.

Selling and Administrative Expenses

Selling and administrative expenses were impacted by COVID-19 and the Company’s response to the pandemic. Selling and administrative expenses for three months ended March 31, 2020 included investment losses of $0.9 million recognized on assets associated with the Company’s Non-Qualified Deferred Compensation Plan, bad debt expense of $0.9 million on outstanding trade accounts receivable and severance expense of $0.4 million. These charges were partially offset by a reduction in expenses of $1.2 million resulting from forgoing the Company’s discretionary matching contribution under its defined contribution plan.

As a percentage of net sales, selling and administrative expenses for our Uniforms and Related Products segment was ~~32.2%~~30.3% for the three months ended ~~September 30, 2019~~March 31, 2020 and ~~26.8%~~31.0% for the three months ended ~~September 30, 2018~~March 31, 2019. The percentage ~~increase~~decrease was primarily due to the ~~decrease~~increase in revenue, including a decrease of $9.1 million in revenue represented by the effect of differences in timing of revenues recognized under ASC 606 between periods. Selling and administrative expenses during the three months ended September 30, 2019 included a reversal of $0.5 million of previously recognized expense for certain performance awards after determining that the performance conditions are not expected to be met.net sales explained above.

As a percentage of net sales, selling and administrative expenses for our Remote Staffing Solutions segment was ~~37.5%~~36.9% for the three months ended ~~September 30, 2019~~March 31, 2020 and ~~36.0%~~36.3% for the three months ended ~~September 30, 2018~~March 31, 2019. ~~The~~As a percentage ~~increase was primarily attributed to increased investment in organizational infrastructure, including facilities~~of net sales, selling and ~~personnel, to support future growth of this business.~~administrative expenses remained relatively flat.

As a percentage of net sales, selling and administrative expenses for our Promotional Products segment was ~~18.7%~~25.4% for the three months ended ~~September 30, 2019~~March 31, 2020 and ~~23.8%~~25.9% for the three months ended ~~September 30, 2018~~March 31, 2019. The percentage decrease was primarily related to the net sales increase explained above. Selling and administrative expenses included fair market value adjustments on acquisition related contingent liabilities that reduced selling and administrative expenses by $0.9 million and $0.8 million for the three months ended September 30, 2019 and 2018, respectively.

~~Other Periodic Pension Costs~~

~~During the~~ ~~three months ended September 30, 2019~~, the Company recorded $0.3 million in pension settlement losses that resulted from lump sum pension payments made to various employees upon their retirement or termination during the periods specified. The pension settlement losses did not require a cash outlay by the Company and did not increase the Company’s total pension expense over time, as the charge was an acceleration of costs that otherwise would be recognized as pension expense in future periods.

Interest Expense

Interest expense of decreased to $$1.1 million for the three months ended March 31, 2020 from $1.2 million for the three months ended March 31, 2019. This decrease was primarily due to a decrease in LIBOR rates, partially offset by a loss of $0.3 million recognized on our interest rate swap during the three months ended ~~September 30, 2019~~ ~~remained relatively flat compared to the~~ ~~three months ended September 30, 2018~~March 31, 2020.

Income Taxes

The effective income tax rate was ~~15.3%~~27.1% and ~~15.9%~~20.2% in the three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~, respectively. The ~~0.6%~~ ~~decrease~~increase in the effective tax rate was primarily ~~due to a reduction in~~driven by rate increases of 3.7% for foreign taxes, 0.9% for state income taxes and 1.6% for non-deductible ~~acquisition expense (contributing (1.9%)).~~losses recognized on assets associated with the Company’s Non-Qualified Deferred Compensation Plan. The effective tax rate may vary from quarter to quarter due to unusual or infrequently occurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, taxes incurred in connection to the territorial style tax system, or other items.

~~Nine Months Ended September 30, 2019~~ ~~Compared to~~ ~~Nine Months Ended September 30, 2018~~

~~Net Sales (in thousands):~~

Nine Months Ended September 30,

2019

2018

% Change

Uniforms and Related Products $ 174,403 $ 174,304 0.1 %
Remote Staffing Solutions 26,897 23,234 15.8 %
Promotional Products 70,563 56,876 24.1 %
Net intersegment eliminations (3,575 ) (3,065 ) 16.6 %
Consolidated Net Sales
$ 268,288 $ 251,349 6.7 %

~~Net sales for the Company increased~~ ~~6.7%~~ ~~from~~ ~~$251.3~~ ~~million for the~~ ~~nine months ended September 30, 2018~~ to ~~$268.3~~ ~~million for the~~ ~~nine months ended September 30, 2019~~. The principal components of this aggregate increase in net sales were as follows: (1) the effect of the acquisition of CID on May 2, 2018 (contributing 7.9%), (2) a decrease in the net sales of our Uniform and Related Products segment exclusive of CID (contributing (7.8)%, of which $13.4 million (contributing (5.3)%)) represented the effect of differences in timing of revenues recognized under ASC 606 between periods), (3) an increase in the net sales for our Promotional Products segment (contributing ~~5.4%), and (4) an increase in net sales for our Remote Staffing Solutions segment after intersegment eliminations (contributing 1.2%).~~

~~Uniforms and Related Products net sales remained relatively flat during the~~ ~~nine months ended September 30, 2019~~ ~~compared to the~~ ~~nine months ended September 30, 2018~~. The increase in revenue resulting from the CID acquisition was offset by the timing of finished goods receipts for inventory items with no alternative use and the timing of new uniform rollout programs for certain customers during the current year period. The timing of finished goods receipts was partially affected by an increased focus by management on cash flows from working capital during the current year period. Shipments by our Uniform and Related Products segment without the effect of CID decreased from ~~$143.4~~ ~~million to~~ ~~$137.1~~ ~~million comparing the~~ ~~nine months ended September 30, 2019~~ ~~with the prior year period. For a reconciliation of shipments by our Uniform and Related Products segment without the effect of CID, see “Shipments (Non-GAAP Financial Measure)” below.~~

~~Remote Staffing Solutions net sales increased~~ ~~15.8%~~ ~~before intersegment eliminations and~~ ~~15.6%~~ ~~after intersegment eliminations for the~~ ~~nine months ended September 30, 2019~~ ~~compared to the~~ ~~nine months ended September 30, 2018. These increases were attributed to continued market penetration in~~ ~~2019, with respect to both new and existing customers.~~

~~Promotional Products net sales increased~~ ~~24.1%~~ ~~for the~~ ~~nine months ended September 30, 2019~~ ~~compared to the~~ ~~nine months ended September 30, 2018. The increase was primarily due to the expansion of our sales force and the execution on increased sales order activities during the current year period.~~

~~Cost of Goods Sold~~

~~As a percentage of net sales, cost of goods sold for our Uniforms and Related Products segment was~~ ~~64.5%~~ ~~for the~~ ~~nine months ended September 30, 2019~~ ~~and~~ ~~64.8%~~ ~~for the~~ ~~nine months ended September 30, 2018. As a percentage of net sales, cost of goods sold remained relatively flat. The decrease in cost of goods sold during the~~ ~~nine months ended September 30, 2019~~ ~~compared to the~~ ~~nine months ended September 30, 2018~~ ~~was primarily due to the acquisition of CID which tends to have higher gross margins.~~

~~As a percentage of net sales, cost of goods sold for our Remote Staffing Solutions segment was~~ ~~40.6%~~ ~~for the~~ ~~nine months ended September 30, 2019~~ ~~and~~ ~~42.3%~~ ~~for the~~ ~~nine months ended September 30, 2018. The percentage decrease was driven by an increase in the proportion of revenue coming from the offshore portion of revenue which has higher gross margins.~~

~~As a percentage of net sales, cost of goods sold for our Promotional Products segment was~~ ~~73.6%~~ ~~for the~~ ~~nine months ended September 30, 2019~~ ~~and~~ ~~73.1%~~ ~~for the~~ ~~nine months ended September 30, 2018~~. The percentage increase was primarily the result of differences in the mix of products and customers, with sales to lower margin contract clients representing a larger percentage of our overall sales during the ~~nine months ended September 30, 2019~~.

~~Selling and Administrative Expenses~~

~~As a percentage of net sales, selling and administrative expenses for our Uniforms and Related Products segment was~~ ~~31.3%~~ ~~for the~~ ~~nine months ended September 30, 2019~~ ~~and~~ ~~28.8%~~ ~~for the~~ ~~nine months ended September 30, 2018. The percentage increase was primarily due to the effect of differences in timing of revenues recognized under ASC 606 between periods and the CID acquisition in May 2018.~~

~~As a percentage of net sales, selling and administrative expenses for our Remote Staffing Solutions segment was~~ ~~37.4%~~ ~~for the~~ ~~nine months ended September 30, 2019~~ ~~and~~ ~~35.1%~~ ~~for the~~ ~~nine months ended September 30, 2018. The percentage increase was primarily attributed to increased investment in organizational infrastructure, including facilities and personnel, to support future growth of this business.~~

~~As a percentage of net sales, selling and administrative expenses for our Promotional Products segment was~~ ~~22.2%~~ ~~for the~~ ~~nine months ended September 30, 2019~~ ~~and~~ ~~23.9%~~ ~~for the~~ ~~nine months ended September 30, 2018~~. The percentage decrease was primarily related to the net sales increase explained above. Selling and administrative expenses included fair market value adjustments on acquisition related contingent liabilities that reduced selling and administrative expenses by $0.9 million and $1.9 million during the nine months ended September 30, 2019 and 2018, respectively.

~~Other Periodic Pension Costs~~

~~During the~~ ~~nine months ended September 30, 2019~~, the Company recorded $0.6 million in pension settlement losses that resulted from lump sum pension payments made to various employees upon their retirement or termination during the periods specified. The pension settlement losses did not require a cash outlay by the Company and did not increase the Company’s total pension expense over time, as the charge was an acceleration of costs that otherwise would be recognized as pension expense in future periods.

~~Interest Expense~~

~~Interest expense increased to~~ ~~$3.5~~ ~~million for the~~ ~~nine months ended September 30, 2019~~ ~~from~~ ~~$2.0~~ ~~million for the~~ ~~nine months ended September 30, 2018. This increase was the result of the Company entering into the Amended and Restated Credit Agreement on May 2, 2018 as a part of the acquisition of CID. See~~ ~~Note 2~~ ~~to the Financial Statements.~~

~~Income Taxes~~

~~The effective income tax rate was~~ ~~19.4%~~ ~~and~~ ~~21.1%~~ ~~in the~~ ~~nine months ended September 30, 2019 and 2018, respectively. The~~ ~~1.7%~~ decrease in the effective tax rate was primarily due a reduction in non-deductible acquisition expense (contributing (1.8%)) and a decrease in the Global Intangible Low Tax Income (“GILTI”) tax (contributing (1.5%)), partially offset by the impact of lower contingent liability adjustments (contributing 1.1%). The effective tax rate may vary from quarter to quarter due to unusual or infrequently occurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, taxes incurred in connection to the territorial style tax system, or other items.

Liquidity and Capital Resources

~~Balance Sheet~~Overview

~~Accounts receivable - trade increased~~

Management uses a number of standards in measuring the Company’s liquidity, such as: working capital, profitability ratios, cash flows from operating activities, and activity ratios. The strength of the Company’s balance sheet generally provides the ability to pursue acquisitions, invest in new product lines and technologies and invest in additional working capital as necessary.

The Company’s primary source of liquidity has been its net income and the use of credit facilities and term loans as described further below. In the future, the Company may continue to use credit facilities and other secured and unsecured borrowings as a source of liquidity. Management currently believes that cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the Company’s anticipated working capital requirements for the next twelve months. The Company is proactively taking steps to increase available cash on hand by targeted reductions in discretionary cash outflows. The Company may also begin relying on the issuance of equity or debt securities. There can be no assurance that any such financings would be available to us on reasonable terms. Any future issuances of equity securities or debt securities with equity features may be dilutive to our shareholders. Additionally, the cost of the Company’s future sources of liquidity may differ from the costs of the Company’s sources of liquidity to date.

Working Capital

Cash and cash equivalents decreased by ~~18.1%~~$3.2 million to $5.8 million as of March 31, 2020 from $~~64.0~~9.0 million on December 31, ~~2018~~2019. Working capital decreased to $~~75.6~~129.7 million onat ~~September 30,~~March 31, 2020 from $142.4 million at December 31, 2019. The ~~increase~~decrease in working capital was primarily due to an increase in other current liabilities and decreases in trade accounts receivable and prepaid expenses and other current assets, partially offset by decreases in accounts payable and current portion of long-term debt. The increase in other current liabilities was driven by an increase of $15.8 million in ~~revenue~~contract liabilities primarily resulting from new customer contracts for the sourcing of personal protective equipment needed in response to COVID-19 within the Promotional Products and Uniform and Related Products segments. The decrease in trade accounts receivable was primarily driven by the timing of billings within the Promotional Products segment.

~~Inventories decreased~~ ~~1.8%~~ ~~from~~ ~~$67.3~~ ~~million on~~ ~~December 31, 2018~~ to ~~$66.1~~ ~~million as of~~ ~~September 30, 2019~~. The decrease ~~was primarily related to a decrease~~ in ~~inventory resulting from the timing of receipts from vendors within the Uniforms~~prepaid expenses and Related Products segment, partially offset by an increase in activity within the Promotional Products segment and measurement period adjustments relating to the CID acquisition that reduced inventory by $1.8 million. The timing of receipts within the Uniforms and Related Products segment was partially affected by an increased focus by management on cash flows from working capital during theother current ~~year period.~~

~~Contract~~ assets ~~decreased~~ ~~22.8%~~ ~~from~~ ~~$49.2~~ ~~million on~~ ~~December 31, 2018~~ to ~~$38.0~~ ~~million on~~ ~~September 30, 2019. The decrease~~ was primarily related to the timing of ~~shipments to customers and receipts from suppliers for finished goods with no alternative use within the Uniforms and Related Products segment.~~prepaid expenses. The ~~majority of the amounts included~~decrease in ~~contract assets on~~ ~~December 31, 2018~~ ~~were transferred to~~ accounts ~~receivable during the~~ ~~nine months ended September 30, 2019. The contract assets balance as of~~ ~~September 30, 2019~~ ~~relates to goods produced without an alternative use for which the Company has an enforceable right to payment but which have not yet been invoiced to the customer.~~

~~Prepaid expenses and other current assets increased by~~ ~~72.5%~~ ~~from~~ ~~$9.6~~ ~~million on December 31, 2018 to~~ ~~$16.5~~ ~~million as of~~ ~~September 30, 2019. The increase was primarily related to an increase in supplier advances within the Promotional Products segment driven by an increase in orders during the current year period.~~

~~Operating lease right-of-use assets of~~ ~~$4.6~~ ~~million as of~~ ~~September 30, 2019~~ resulted from the new lease standard that the Company adopted on January 1, 2019. Additionally as a result of the new lease standard, the Company recorded $4.0 million of operating lease obligation ($1.4 million in other current liabilities and $2.6 million in long-term operating lease liabilities) as of ~~September 30, 2019. See~~ ~~Note 10~~ ~~to the Financial Statements for more detail.~~

~~Goodwill increased~~ ~~6.7%~~ ~~from~~ ~~$34.0~~ ~~million on~~ ~~December 31, 2018~~ to ~~$36.3~~ ~~million as of~~ ~~September 30, 2019. The increase was primarily due to measurement period adjustments made during the~~ ~~nine months ended September 30, 2019. The Company finalized the purchase price allocation of CID during the second quarter of~~ ~~2019~~.

~~Accounts~~ payable ~~increased by~~ ~~24.6%~~ ~~from~~ ~~$24.7~~ ~~million on December 31, 2018 to~~ ~~$30.8~~ ~~million as of September 30, 2019. The increase~~ was primarily related to the timing of orders and payments to suppliers ~~and increased activities~~ within the Uniform and Related Products and Promotional Products ~~segment.~~

~~Long-term debt decreased~~ ~~6.9%~~ ~~from~~ ~~$111.5~~ ~~million on~~ ~~December 31, 2018~~ to ~~$103.8~~ ~~million on~~ ~~September 30, 2019~~.segments. The decrease in current portion of long-term debt was primarily due to the ~~reclassification~~debt deferment agreements entered into in March 2020 that deferred contractual principal and interest payments on outstanding debt obligations due in the second quarter of ~~scheduled repayments on~~2020 until maturity.

Cash Flows

Our cash flows from operating, investing and financing activities, as reflected in the ~~Amended and Restated Credit Agreement, as amended, from long term to current liabilities as a result~~statements of ~~its restructuring on January 22, 2019. This was partially offset~~cash flows, are summarized in the following table (in thousands):

	Three Months Ended March 31,
	2020			2019
Net cash provided by (used in):
Operating activities	$	19,545		$	5,739
Investing activities		(2,073	)		(1,720	)
Financing activities		(20,218	)		(2,572	)
Effect of exchange rates on cash		(519	)		15
Net increase (decrease) in cash and cash equivalents	$	(3,265	)	$	1,462

Operating Activities. The increase in net cash provided by ~~net borrowings of debt~~operating activities during the ~~nine~~three months ended ~~September 30, 2019. Total borrowings under banking arrangements were $119.7 million and $117.7 million as of September 30, 2019 and December~~March 31, ~~2018, respectively.~~

~~Cash Flows~~

~~Cash and cash equivalents increased by $0.1 million from $5.4 million on~~ ~~December 31, 2018~~2020 compared to~~$5.5~~ ~~million as of~~ ~~September 30, 2019. During~~ the ~~nine~~three months ended ~~September 30,~~March 31, 2019, was primarily attributable to the ~~Company provided~~receipt of advance payments from new customer contracts for the sourcing of personal protective equipment needed in response to COVID-19 within the Promotional Products and Uniform and Related Products segments and the timing of advance payments made to vendors. Working capital cash ofchanges during the ~~$11.8~~three months ended March 31, 2020 ~~million from operating activities, used cash of~~ ~~$6.4~~ ~~million for investing activities to fund capital expenditures; and used cash~~included a decrease of $4.9 million in ~~financing activities, principally~~trade accounts receivable, an increase in accounts payable and other current liabilities of $4.7 million and a decrease in prepaid expenses and other current assets of $2.3 million. Working capital cash changes during the three months ended March 31, 2019 included a decrease of $2.2 million in prepaid expenses and other current assets.

Investing Activities. The increase in net cash used in investing activities during the three months ended March 31, 2020 compared to ~~pay of dividends and reacquire~~ the ~~Company’s common stock, partially offset by net borrowings of debt~~three months ended March 31, 2019 was attributable to an increase in capital expenditures of $~~1.5~~0.4 million. ~~During the~~ ~~nine months ended September 30, 2018, the Company used cash of~~ ~~$85.6~~ ~~million obtained from borrowings of debt for the acquisition of CID.~~

~~In the foreseeable future,~~From a long-term perspective, the Company expects to continue its ongoing capital expenditure program designed to improve the effectiveness and ~~expand the~~ capabilities of its facilities and ~~update its technology and infrastructure to support its growth.~~technology. The Company at all times evaluates its capital expenditure program in light of prevailing economic conditions.

~~During~~ In the near term, the Company expects to delay certain capital expenditures relating to non-essential projects until economic conditions begin to stabilize.

Financing Activities. The increase in net cash used in financing activities during the ~~nine~~three months ended ~~September 30,~~March 31, 2020 compared to the three months ended March 31, 2019 ~~and 2018, the Company paid cash dividends~~ was primarily attributable to an increase in net repayments of $~~4.5~~17.9 million ~~and~~in debt. Excess cash generated from operating activities during the ~~$4.3~~three months ended March 31, 2020 ~~million, respectively.~~

was used to repay outstanding borrowings under the revolving credit facility.

Credit Facilities (See Note 23 to the Financial Statements)

As of ~~September 30, 2019~~March 31, 2020, the Company had approximately ~~$119.7~~$101.6 million in outstanding borrowings under its ~~an Amended~~amended and ~~Restated Credit Agreement~~restated credit agreement (the ~~“Amended and Restated Credit~~“Credit Agreement”), with Truist Bank, consisting of ~~$33.9~~$23.5 million outstanding under the revolving credit facility expiring in May 2023, ~~$27.0~~$24.0 million outstanding under a term loan maturing in February 2024 (“2017 Term Loan”), and ~~$58.8~~$54.2 million outstanding under a term loan maturing in January 2026 (“2018 Term Loan”). The revolving credit facility, 2017 Term Loan and 2018 Term Loan are collectively referred to as the “Credit Facilities”.

Obligations outstanding under the 2018 Term Loan have a variable interest rate of LIBOR plus a margin of between 0.85% and 1.65% (based on the Company’s funded debt to EBITDA ratio) ~~(2.89%~~(1.77% at ~~September 30, 2019~~March 31, 2020). Obligations outstanding under the revolving credit facility and the 2017 Term Loan generally have a variable interest rate of one-month LIBOR plus a margin of between 0.68% and 1.50% (based on the Company’s funded debt to EBITDA ratio) ~~(2.72%~~(1.60% at ~~September 30, 2019~~March 31, 2020). The available balance under the revolving credit facility is reduced by outstanding letters of credit. At ~~September 30, 2019,~~March 31, 2020, the Company had undrawn capacity of ~~$41.1~~$51.5 million under the revolving credit facility.

On March 30, 2020, the Company entered into debt deferment agreements with Truist Bank to: (i) defer contractual principal and interest payments due between April 1, 2020 and June 1, 2020 under the 2017 Term Loan and 2018 Term Loan until their respective maturity dates; and (ii) defer contractual interest payments due between April 1, 2020 and June 1, 2020 under the revolving credit facility until its maturity date. Contractual principal payments for the 2017 Term Loan are as follows: remainder of 2020 - $3.0 million; 2021 through 2023 - $6.0 million per year; and 2024 - $3.0 million. Contractual principal payments for the 2018 Term Loan are as follows: remainder of 2020 - $4.6 million; 2021 through 2025 - $9.3 million per year; and 2026 - $3.1 million. The term loans do not contain pre-payment penalties.

The ~~Amended and Restated~~ Credit Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments, restricted payments, and sales of assets. The ~~Amended and Restated~~ Credit Agreement also requires the Company to maintain a fixed charge coverage ratio (as defined in the ~~Amended and Restated~~ Credit Agreement) of at least 1.25:1 and a funded debt to EBITDA ratio (as defined in the ~~Amended and Restated~~ Credit Agreement) not to exceed 5.0:1. As of ~~September 30, 2019~~March 31, 2020, the Company was in compliance with these ratios. The Credit Facilities are secured by substantially all of the operating assets of the Company as collateral, and the ~~Company��s~~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 ~~Amended and Restated~~ Credit Agreement.

~~For further details on~~Dividends and Share Repurchase Program

During each of the ~~Amended~~three months ended March 31, 2020 and ~~Restated Credit Agreement,~~2019, the Company paid cash dividends of $1.5 million.

On May 2, 2019, the Company’s Board of Directors approved a stock repurchase program of up to 750,000 shares of 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. Under this program the Company reacquired and ~~disclosure~~retired 43,458 shares of its common stock during the three months ended March 31, 2020. At March 31, 2020, the Company’s remaining repurchase capacity under its common stock repurchase program was 657,451 shares. 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 the expected future cash needs.

Due to the anticipated continuing impact of the COVID-19 pandemic on the Company’s ~~interest rate swap agreement, please refer~~business, financial condition, results of operations and cash flows, the Company has elected to ~~Note 2~~ ~~to the Financial Statements, which details and disclosure are incorporated herein by reference.~~ suspend its regular quarterly dividend until we have clearer visibility on improved macro conditions.

Shipments (Non-GAAP Financial Measure)

In this management’s discussion and analysis, we use a supplemental measure of our performance, which is derived from our financial information, but which is not presented in our financial statements prepared in accordance with generally accepted accounting principles in the United States ~~of America~~ (“GAAP”). This non-GAAP financial measure is ~~“shipments”,~~“shipments,” and represents a primary metric by which our management evaluates customer demand.

We define shipments as net sales excluding, if applicable, sales recorded with respect to contracts with customers in which there is an enforceable right to the payment for goods with no alternative use in advance of the transfer of these goods to our customers. As recognized in accordance with ASC 606, net sales generated from such contracts are recorded as of the time at which we receive the goods from our suppliers rather than at the time we transfer them to our customers. For customers to which we sell goods that have an alternative use, or customers with whom we do not have an enforceable right to payment with no alternative use, shipments and net sales are identical performance measures.

We believe that sales recorded under ASC 606 are affected by changes in the Company’s purchasing patterns that may not be directly aligned with customer demand. We believe that shipments, as a supplemental performance measure, tracks customer demand more closely.

Shipments is not a measure determined in accordance with GAAP, and should not be considered in isolation or as a substitute for sales determined in accordance with GAAP. Shipments is used as a measurement of customer demand and we believe it to be a helpful measure for those evaluating performance of a company operating in the uniform and related products business. However, there are limitations to the use of this non-GAAP financial measure. Our non-GAAP financial measure may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.

The following tables reconcile net sales to shipments of our Uniform and Related Products segment (in thousands):

RECONCILIATION OF UNIFORM AND RELATED PRODUCTS SEGMENT GAAP SALES TO SHIPMENTS

Three Months Ended September 30,

2019

2018

Uniform and Related Product net sales, as reported
$ 54,979 $ 69,776
Adjustment: Recognition of revenue based on the timing of shipments for finished goods with no alternative use for Uniform and Related Product net sales
5,912 (3,166 )
Uniform and Related Product shipments
$ 60,891 $ 66,610

~~RECONCILIATION OF UNIFORM AND RELATED PRODUCTS SEGMENT (without CID) GAAP SALES TO SHIPMENTS~~

Nine Months Ended September 30,

2019

2018

Uniform and Related Product net sales, as reported
$ 174,403 $ 174,304
Less: CID sales
(47,949 ) (28,204 )
Uniform and Related Product net sales without CID
126,454 146,100
Adjustment: Recognition of revenue based on the timing of shipments for finished goods with no alternative use for Uniform and Related Product net sales without CID
10,692 (2,748 )
Uniform and Related Product shipments without CID
$ 137,146 $ 143,352

	Three Months Ended March 31,
	2020			2019
Uniform and Related Products net sales, as reported	$	60,102		$	58,679
Adjustment: Recognition of revenue based on the timing of shipments for finished goods with no alternative use for Uniform and Related Products net sales		(293	)		1,711
Uniform and Related Products shipments	$	59,809		$	60,390

Off-Balance Sheet Arrangements

The Company does not engage in any off-balance sheet financing arrangements. In particular, the Company does not have any interest in variable interest entities, which include special purpose entities and structured finance entities.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We are subject to market risk exposure related to changes in interest rates on our debt. Interest on our Credit Facilities are based upon the one-month LIBOR rate. In order to reduce the interest rate risk on our debt, the Company entered into an interest rate swap agreement on a portion of its borrowings. Excluding the effect of the interest rate swap agreement, a hypothetical increase in the LIBOR rate of 100 basis points as of January 1, ~~2019~~2020 would have resulted in approximately ~~$0.9~~$0.3 million in additional pre-tax interest expense for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020. See Note 23 to the Financial Statements.

Foreign Currency Exchange Risk

Sales to customers outside of the United States are subject to fluctuations in foreign currency exchange rates, which may negatively impact gross margin realized on our sales. Less than 5% of our sales are outside of the United States. We cannot predict the effect of exchange rate fluctuations on our operating results. In certain cases, we may enter into foreign currency cash flow hedges to reduce the variability of cash flows associated with our sales and expenses denominated in foreign currency. As of ~~September 30, 2019~~March 31, 2020, we had no foreign currency exchange hedging contracts. There can be no assurance that our strategies will adequately protect our operating results from the effect of exchange rate fluctuations.

Financial results of our foreign subsidiaries in the Promotional Products segment are denominated in their local currencies, which include the Hong Kong dollar, the Chinese renminbi, the British pound, the Indian rupee, and the Brazilian real. ~~Changes~~These operations may also have net assets and liabilities not denominated in their functional currency, which exposes us to changes in foreign currency exchange rates that impact income. Excluding intercompany payables and receivables considered to be long-term investments, changes in exchange rates for ~~intercompany payables~~assets and ~~receivables~~liabilities not ~~considered to be long-term~~denominated in their functional currency, are reported as foreign currency gains (losses) within selling and administrative expenses in our statements of comprehensive income. During the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, foreign currency losses were not significant. We also have exposure to foreign currency exchange risk from the translation of foreign subsidiaries from the local currency into the U.S. dollar. Comprehensive income during the three months ended March 31, 2020 included a foreign currency translation adjustment loss of $1.2 million primarily related to exchange rate movements of the Brazilian real.

ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

The Company conducted an evaluation, under supervision and with the participation of the Company’s principal executive officer, Michael Benstock, and the Company’s principal financial officer, ~~Michael Attinella,~~Andrew D. Demott, Jr., of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to ensure that information the Company is required to disclose in its filings with the SEC under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended ~~September 30, 2019~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.1. Legal Proceedings

We are a party to certain lawsuits in the ordinary course of business. We do not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations or cash flows.

ITEM ~~1A.~~1A. Risk Factors

We are exposed to certain risks and uncertainties that could have a material adverse impact on our business, financial condition and operating results. ~~There~~Except as set forth below, there have been no material changes to the Risk Factors described in Part I, Item 1A-Risk Factors in our annual report on Form 10-K for the year ended December 31, ~~2018~~2019.

Our business has been adversely affected and could in the future be materially adversely impacted by the coronavirus (COVID-19) pandemic.

COVID-19 has been declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention. The global spread of COVID-19 has created significant volatility and uncertainty and economic disruption. The extent to which the COVID-19 pandemic impacts our business, financial condition, results of operations or cash flows will depend on numerous evolving factors that we may not be able to accurately predict, including, without limitation: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and will be taken in response to the pandemic (including restrictions on travel and transport and workforce pressures); the effect on our suppliers and customers and customer demand for our products and services; the effect on our sources of supply; the impact of the pandemic on economic activity and actions taken in response; closures of our and our suppliers’ and customers’ offices and facilities; the ability of our customers to pay for our products and services; financial market volatility; commodity prices; and the pace of recovery when the COVID-19 pandemic subsides.

The spreading of COVID-19 that is impacting global economic activity and market conditions could lead to changes in customer purchasing patterns. We have begun to see disruptions in our customers’ businesses, including, but not limited to, our customers’ willingness and ability to spend, layoffs and furloughs of our customers’ employees, and temporary or permanent closures of businesses that consume our products and services. Prolonged periods of difficult conditions could have material adverse impacts on our business, financial condition, results of operations and cash flows.

The potential effects of COVID-19 also could impact us in a number of other ways, including, but not limited to, reductions to our revenue and profitability, costs associated with complying with new or amended laws and regulations affecting our business, further declines in our stock price, reduced availability and less favorable terms of future borrowings, valuation of our pension assets and obligations, reduced credit-worthiness of our customers, and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets.

Any of these events could materially adversely affect our business, financial condition, results of operations and cash flows.

ITEM 2.2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities during the quarter ended ~~September 30, 2019~~March 31, 2020, that were not previously reported in a current report on Form 8-K.

The table below sets forth the information with respect to purchases made by or on behalf of Superior Group of Companies, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our shares of common stock during the three months ended ~~September 30, 2019~~March 31, 2020.

Period

Total Number of
Shares
Purchased

Average Price Paid
per Share

Total Number of Shares Purchased
as Part of
Publicly Announced
Plans or Programs

Maximum Number of
Shares that May Yet Be Purchased
Under the
Plans or Programs (1)

July 1, 2019 to July 31, 2019 - - -
August 1, 2019 to August 31, 2019 15,677 $13.23 15,677
September 1, 2019 to September 30, 2019 - - -
Total 15,677 $13.23 15,677 734,323

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
January 1, 2020 to January 31, 2020		1,958	$	13.21		1,958
February 1, 2020 to February 29, 2020		24,500		11.75		24,500
March 1, 2020 to March 31, 2020		17,000		10.96		17,000
Total		43,458		11.51		43,458		657,451

(1)

On May 2, 2019, the Company’s Board of Directors approved a stock repurchase program of up to 750,000 shares of 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.

Under our ~~Amended and Restated~~ Credit Agreement, as amended, with ~~Branch Banking and Trust Company,~~Truist Bank, if an event of default exists, we may not make distributions to our shareholders. The Company is in full compliance with all terms, conditions and covenants of such agreement.

ITEM 3.3. Defaults upon Senior Securities

Not applicable.

ITEM 4.4. Mine Safety Disclosures

Not applicable.

ITEM 5.5. Other Information

None.

ITEM 6.6. Exhibits

Exhibit No.		Description
~~10.1~~4.1*		~~Second Amendment~~Description of the Securities of Superior Group of Companies, Inc. registered pursuant to ~~Amended~~Section 12 of the Securities Exchange Act of 1934, as amended.
10.1*		Note Modification Agreements (Line of Credit) Obligor and ~~Restated Credit Agreement,~~Obligation No. 9661527819-00008, dated March 30, 2020, among Superior Group of Companies, Inc. , as borrower, and Truist Bank (formerly known as Branch Banking and Trust Company), as lender.
10.2*		Note Modification Agreements Term Loans Obligor and Obligation No. 9661527819-00009, dated March 30, 2020, among Superior Group of ~~September 27, 2019, filed~~Companies, Inc. , as ~~Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on October 3, 2019~~borrower, and ~~incorporated herein by reference.~~Truist Bank (formerly known as Branch Banking and Trust Company), as lender.
10.3*		Note Modification Agreements Term Loans Obligor and Obligation No. 9661527819-90002, dated March 30, 2020, among Superior Group of Companies, Inc. , as borrower, and Truist Bank (formerly known as Branch Banking and Trust Company), as lender.
31.1*		Certification by the Chief Executive Officer (Principal Executive Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification by the Chief Financial Officer (Principal Financial Officer and Accounting Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32**		Certification by the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~101.INS~~101.INS+		XBRL Instance ~~Document~~Document.
~~101.SCH~~101.SCH+		XBRL Taxonomy Extension ~~Schema~~Schema.
~~101.CAL~~101.CAL+		XBRL Taxonomy Extension Calculation ~~Linkbase~~Linkbase.
~~101.DEF~~101.DEF+		XBRL Taxonomy Extension Definition ~~Linkbase~~Linkbase.
~~101.LAB~~101.LAB+		XBRL Taxonomy Extension Label ~~Linkbase~~Linkbase.
~~101.PRE~~101.PRE+		XBRL Taxonomy Extension Presentation ~~Linkbase~~Linkbase.

*Filed herewith.

**Furnished, not filed.

+ Submitted electronically with this Quarterly Report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: ~~October 23, 2019~~April 30, 2020	SUPERIOR GROUP OF COMPANIES, INC.

	By	/s/ Michael Benstock
		Michael Benstock
		Chief Executive Officer
		(Principal Executive Officer)


Date: ~~October 23, 2019~~April 30, 2020
	By	/s/ ~~Michael Attinella~~Andrew D. Demott, Jr.
		~~Michael Attinella~~	Andrew D. Demott, Jr.
		Chief Operating Officer, Chief Financial Officer and Treasurer ~~(Principal~~ (Principal Financial ~~Officer and Principal Accounting~~ Officer)

	September 30,			December 31,
	2019			2018

ASSETS
Current assets:
Cash and cash equivalents	$	5,452		$	5,362
Accounts receivable, less allowance for doubtful accounts of $2,259 and $2,042, respectively		75,597			64,017
Accounts receivable - other		1,262			1,744
Inventories*		66,076			67,301
Contract assets		38,030			49,236
Prepaid expenses and other current assets		16,481			9,552
Total current assets		202,898			197,212

Property, plant and equipment, net		31,725			28,769
Operating lease right-of-use assets		4,576			-
Intangible assets, net		63,491			66,312
Goodwill		36,252			33,961
Other assets		10,443			8,832
Total assets	$	349,385		$	335,086

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	30,768		$	24,685
Other current liabilities		16,110			14,767
Current portion of long-term debt		15,286			6,000
Current portion of acquisition-related contingent liabilities		1,374			941
Total current liabilities		63,538			46,393

Long-term debt		103,812			111,522
Long-term pension liability		8,422			8,705
Long-term acquisition-related contingent liabilities		3,753			5,422
Long-term operating lease liabilities		2,590			-
Deferred tax liability		6,620			8,475
Other long-term liabilities		4,230			3,648
Commitments and contingencies (Note 5)
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 15,240,317 and 15,202,387 shares, respectively.		15			15
Additional paid-in capital		57,077			55,859
Retained earnings		106,426			103,032
Accumulated other comprehensive income (loss), net of tax:
Pensions		(6,475	)		(7,673	)
Cash flow hedges		97			113
Foreign currency translation adjustment		(720	)		(425	)
Total shareholders’ equity		156,420			150,921
Total liabilities and shareholders’ equity	$	349,385		$	335,086

As of and For the Nine Months Ended September 30, 2019	Uniforms and Related Products		Remote Staffing Solutions		Promotional Products		Intersegment Eliminations			Total
Net sales	$	174,403	$	26,897	$	70,563	$	(3,575	)	$	268,288
Cost of goods sold		112,561		10,926		51,960		(1,221	)		174,226
Gross margin		61,842		15,971		18,603		(2,354	)		94,062
Selling and administrative expenses		54,644		10,055		15,663		(2,354	)		78,008
Other periodic pension cost		1,282		-		-		-			1,282
Interest expense		2,609		-		905		-			3,514
Income before taxes on income	$	3,307	$	5,916	$	2,035	$	-		$	11,258

Depreciation and amortization	$	4,607	$	745	$	987	$	-		$	6,339
Capital expenditures	$	5,193	$	881	$	350	$	-		$	6,424
Total assets	$	254,053	$	22,289	$	73,043	$	-		$	349,385

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease costs	$	380	$	1,103
Short-term lease costs		51		255
Total lease costs, included in selling and administrative expenses	$	431	$	1,358

	Nine Months Ended September 30, 2019
Operating cash flows – cash paid for operating lease liabilities	$	958
Non-cash – Operating lease ROU assets obtained in exchange for new lease liabilities	$	729

	Operating
	Leases
Remainder of 2019	$	356
2020		1,377
2021		1,054
2022		859
2023		632
Thereafter		120
Total lease payments		4,398
Less imputed interest		425
Present value of lease liabilities	$	3,973

Cash consideration at closing	$	84,430
Superior common stock issued		3,763
Cash and working capital adjustment		2,521
Total Consideration	$	90,714

Cash	$	1,360
Accounts receivable		9,657
Prepaid expenses and other current assets		1,248
Inventories		28,895
Property, plant and equipment		1,134
Contract assets		2,535
Identifiable intangible assets		41,020
Goodwill		20,323
Total assets	$	106,172
Accounts payables		5,030
Deferred tax liability		9,461
Other current liabilities		967
Total liabilities	$	15,458

Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 1, 2019 to July 31, 2019	-	-	-
August 1, 2019 to August 31, 2019	15,677	$13.23	15,677
September 1, 2019 to September 30, 2019	-	-	-
Total	15,677	$13.23	15,677	734,323