NOTE 1 – SummaryBasis of Significant Interim Accounting Policies:Presentation:

a) Basis of presentation

The condensed consolidated interim 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.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”, or “us”. Effective on May 3, 2018, Superior Uniform Group, Inc. changed its name to Superior Group of Companies, Inc.  Intercompany items have been eliminated in consolidation. 

The accompanying unaudited interim 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, 2017,2018, and filed with the Securities and Exchange Commission. The interim financial information contained herein is not certified or audited; it reflects all adjustments (consisting of only normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of the operating results for the periods presented, stated on a basis consistent with that of the audited financial statements. The results of operations for any interim period are not necessarily indicative of results to be expected for the full year.

b)  Revenue recognitionWe refer to the condensed consolidated financial statements collectively as “financial statements,” and allowance for doubtful accountsindividually as “statements of comprehensive income”, “balance sheets”, “statements of stockholders’ equity”, and “statements of cash flows” herein.

The Company recognizes revenue in accordance with ASC 606 effective January 1, 2018. Revenue for our Uniformsb) Recent Accounting Pronouncements

We consider the applicability and Related Productsimpact of all Accounting Standard Updates (“ASUs”). ASUs not listed below were assessed and Promotional Products segments is recognized whendetermined to be not applicable.

Recently Adopted Accounting Pronouncements

In February 2016, the obligations underFinancial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) and July 2018, the terms ofFASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Targeted Improvements (collectively “Topic 842”). Topic 842 establishes a contract with a customer are satisfied. This generally occurs when the goods are transferrednew lease model, referred to the customer. Revenue is measured as the amount of consideration we expectright-of-use (ROU) model that brings substantially all leases onto the balance sheet. This standard requires lessees to receive in exchange for the goods. Sales taxes, sales discountsrecognize leased assets (ROU Assets) and customer rebates are also excluded from revenue. In accordance with ASC 606, revenue is recorded for goods that the customer is obligated to purchase under the termination terms of the contract which have no alternative use. Contract termination terms may involve variable consideration clauses such as discounts and rebates and revenue has been adjusted accordingly in our ASC 606 adjustment. Revenue from our Remote Staffing segment is recognized as services are delivered.  Variable consideration for estimated returns and allowances is recorded based upon historical experience and current allowance programs.  Judgments and estimates are used in determining the collectability of accounts receivable and in establishing allowances for doubtful accounts.  The Company analyzes specific accounts receivable and historical bad debt experience, customer credit worthiness, current economic trends and the age of outstanding balances when evaluating the adequacy of the allowance for doubtful accounts. Changes in estimates are reflected in the period they become known.  Charge-offs of accounts receivable are made once all collection efforts have been exhausted.  If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

c) Recognition of costs and expenses

Costs and expenses other than product costs are charged to income in interim periods as incurred, or allocated among interim periods based on an estimate of time expired, benefit received or activity associated with the periods. Procedures adopted for assigning specific cost and expense items to an interim period are consistent with the basis followed by the registrant in reporting results of operations at annual reporting dates. However, when a specific cost or expense item charged to expense for annual reporting purposes benefits more than one interim period, the cost or expense item is allocated to the interim periods.

d)  Amortization of other finite-lived intangible assets

The Company amortizes identifiable finite-lived intangible assets on a straight-line basis over their expected useful lives.  Amortization expense was $1.0 million and $0.6 million for the three-month periods ended September 30, 2018 and 2017 respectively.  Amortization expense was $2.9 million and $1.7 million for the nine-month periods ended September 30, 2018 and 2017, respectively.

e)  Advertising expenses

The Company expenses advertising costs as incurred.  Advertising costs for the three-month periods ended September 30, 2018 and 2017 were $0.2 million and $0.1 million, respectively.  Advertising costs for the nine-month periods ended September 30, 2018 and 2017 were $0.4 million and $0.1 million, respectively.

f)  Shipping and handling fees and costs

The Company includes shipping and handling fees billed to customers in net sales.  Shipping and handling costs associated with in-bound and out-bound freight incurred for goods shipped to customers are generally recorded in cost of goods sold.  Other shipping and handling costs such as labor and overhead are included in selling and administrative expenses and totaled $4.0 million and $2.7 million for the three-month periods ended September 30, 2018 and 2017, respectively.  Other shipping and handling costs such as labor and overhead are included in selling andadministrative expensesand totaled $10.0 million and $8.1 million for the nine-month periods ended September 30, 2018 and 2017, respectively.

g)  Inventories

Inventories at interim dates are determined by using perpetual records on a first-in, first-out basis or average cost.

h) Accounting for income taxes

The provision for income taxes is calculated by using the effective tax rate anticipated for the full year.

i) Employee benefit plan settlements

The Company recognizes settlement gains and losses in its financial statements when the cost of all settlements in a year is greater than the sum of the service cost and interest cost components of net periodic pension cost for the plan for the year.

j) Earnings per share

Historical basic per share data is based on the weighted average number of shares outstanding. Historical diluted per share data is reconciled by adding to weighted average shares outstanding the dilutive impact of the exercise of outstanding stock options, stock appreciation rights, unvested shares, and performance shares.

k) Derivative financial instruments

The Company uses certain financial derivatives to mitigate its exposure to volatility in interest rates and foreign currency. The Company records derivativeslease liabilities on the balance sheet at fair value and establishes criteria for designationdisclose key information about the leasing arrangements in their financial statements. Leases are classified as finance or operating, with classification affecting the pattern and effectivenessclassification of hedging relationships. On the date a derivative contract is entered into, the Company may elect to designate the derivative as a fair value hedge, a cash flow hedge, or the hedge of a net investment in a foreign operation. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative that is used in the hedging transaction is highly effective. For those instruments that are designated as a cash flow hedge and meet certain documentary and analytical requirements to qualify for hedge accounting treatment, changes in the fair value for the effective portion are reported in other comprehensive income (“OCI”), net of related income tax effects, and are reclassified to the income statement when the effects of the item being hedged are recognizedexpense recognition in the income statement. The Company discontinues hedge accounting prospectively when it is determinedadopted Topic 842 effective on January 1, 2019 using the modified retrospective transition approach that allows a reporting entity to use the derivative is no longer effective in offsetting changesdate as its date of initial application and not restate the comparative periods in the cash flowsperiod of adoption when transitioning 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 hedged item,remaining lease payments of $4.6 million, discounted using the derivative expires or is sold, terminated, or exercised, or management determinesCompany’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 designation of the derivative as a hedging instrument is no longer appropriate. In situations in which the Company does not elect hedge accounting or hedge accounting is discontinuedwas previously presented within current prepaid expenses and the derivative is retained, the Company carries or continues to carry the derivative at its fair valueother current assets and other assets on the accompanying balance sheet and recognizes any subsequent changes in its fair value through earnings.

The nature ofprior to adoption. Refer to Note 10 for the Company’s business activities involves the management of various financial and market risks, including those relatedimpact to changes in interest rates and foreign currency. The Company does not enter into derivative instruments for speculative purposes. The Company manages market and credit risks associated with its derivative instruments by establishing and monitoring limits as to the types and degree of risk that may be undertaken, and by entering into transactions with high-quality counterparties.           

Effective March 3, 2017, in order to reduce the interest rate risk on its future debt, the Company entered into an interest rate swap agreement that was designed to effectively convert or hedge the variable interest rate on a portion of its future borrowings to achieve a net fixed rate beginning March 1, 2018 with a notional amount of $18.0 million. This agreement was amended on May 2, 2018. (See Note 2.)

On January 3, 2017, the Company entered into a foreign exchange forward contract to lock in the exchange rate on the Brazilian real to limit the risk of changes in foreign currency on the expected payment of a customer receivable. The amount of the contract was $1.8 million and settled on June 29, 2017. A loss of $0.1 million on this contract was recognized in the second quarter of 2017, which was included in selling and administrative expenses.

l) Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amountsas of revenues and expenses during the reporting period. Actual results could differ from those estimates.

m) Comprehensive income

Total comprehensive income represents the change in equity during a period from sources other than transactions with shareholders and, as such, includes net earnings. For the Company, the only other components of total comprehensive income are the change in pension costs, change in fair value of qualifying hedges, and foreign currency translation adjustments.

n) Operating segments

Accounting standards require disclosures of certain information about operating segments and about products and services, geographic areas in which the Company operates, and their major customers. The Company has evaluated its operations and has determined that it has three reportable segments - Uniforms and Related Products, Remote Staffing Solutions and Promotional Products. (See Note 8.)

o) Share-based compensation

The Company awards share-based compensation as an incentive for employees to contribute to the Company’s long-term success. Historically, the Company has granted options, stock-settled stock appreciation rights, and restricted stock. In 2016, the Company began issuing performance shares as well.

The Company recognizes share-based compensation expense for all awards granted to employees, which is based on the fair value of the award on the date of grant. Determining the appropriate fair value model and calculating the fair value of stock compensation awards requires the input of certain highly complex and subjective assumptions, including the expected life of the stock compensation awards and the Company’s common stock price volatility, risk free interest rate and dividend rate. The assumptions used in calculating the fair value of stock compensation awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and the Company deems it necessary to use different assumptions, stock compensation expense could be materially different from what has been recorded in the current period.

p) Recent Accounting PronouncementsSeptember 30, 2019.

In February 2016,2018, the FASB issued ASU 2016-02 that amends2018-02, “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 accounting guidanceincome tax effects resulting from the Tax Cuts and Jobs Act (Tax Act) on leases.  The primary change in this ASUitems within accumulated other comprehensive income to retained earnings and requires lessees to recognize, in the balance sheet, a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset over the lease term.  The amendments in this ASU are to be applied using a modified retrospective approach and areadditional related disclosures. This standard is effective for fiscal years beginning after December 15, 2018.2018 and interim periods within those fiscal years. The amendments are requiredCompany elected not to be adopted byreclassify the Companyincome tax effects of the Tax Act from accumulated other comprehensive income to retained earnings. The Company’s adoption of this standard on January 1, 2019.2019 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 incurrently evaluating the preliminary phases of assessing the effect ofpotential impact this ASU.  Westandard will have not yet determined the effect of this ASU on our results of operations,its financial condition, or cash flows.statements.

In MarchJanuary 2017, the FASB issued ASU 2017-07 “Improving2017-04, “Simplifying the PresentationTest for Goodwill Impairment.” ASU 2017-04 eliminates the two-step process that required identification of Net Periodic Pension Costpotential impairment and Net Periodic Postretirement Benefit Cost”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 limited to the carrying value). The amendment requires the service cost component be presented in the same line item as compensation costs for the pertinent employees during the period. The other components of net pension cost must be presented outside a subtotal of income from operations, if oneThis standard is presented. The amendments are effective for annual periodsor any interim goodwill impairment tests beginning after December 15, 2017 and must be applied retrospectively.2019. The Company adopted ASU 2017-07 in the first quarterCompany’s adoption of 2018. Asthis standard is not expected to have a result, we have added an additional line item to our consolidated statements of comprehensive income and restated our 2017 results to reflect the change in accounting principle. Service costs are included in selling and administrative expenses and other components of net pension cost are included in other periodic pension costs.material impact on its financial statements.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) that superseded most current revenue recognition guidance, including industry-specific guidance. The core principle of the new guidance is that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. Additionally, the guidance requires disaggregated disclosures related to the nature, amount, timing, and uncertainty of revenue that is recognized. ASC 606 was adopted by the Company on January 1, 2018 using the modified retrospective method. The cumulative effect of applying the new standard was recorded as an adjustment to the opening balance of retained earnings, as further described below. The comparative information for prior periods has not been restated and continues to be reported under the accounting standards in effect for those periods. For our Uniforms and Related Products and Promotional Products segments, our revenue is primarily generated from the sale of finished products to customers as products are shipped and title passes to the customers. For certain contracts with customers, the Company creates an asset with no alternative use to the Company, and the Company has an enforceable right to payment for performance completed to date. For these contracts, we have moved from a point in time model to an over time model in which our measure of progress is finished goods with no alternative use. The new standard has no cash impact and does not affect the economics of our underlying customer contracts.

We recordedIn August 2018, the FASB issued ASU 2018-15, “Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a net increaseCloud Computing Arrangement That Is a Service Contract.” The update aligns the requirements for capitalizing implementation costs incurred in opening retained earningsa 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 $11.2 million asa hosting arrangement over the term of January 1, 2018 duethe hosting arrangement. This update is effective for fiscal years beginning after December 15, 2019 and may be applied prospectively or retrospectively. The Company’s adoption of this standard is not expected to the cumulative impact of ASC 606. Thehave a material impact on revenues for the three months ended September 30, 2018 was an increase of $2.9 million as a result of ASC 606. The impact on revenues for the nine months ended September 30, 2018 was an increase of $3.7 million as a result of ASC 606.its financial statements.

The opening retained earnings adjustment is as follows (in thousands):

Payment of the cumulative tax adjustment will be made over four years as a change in accounting method.

The following tables disaggregate our net sales by major source (in thousands):

Revenue for our Uniforms and Related Products and Promotional Products segments is recognized when the obligations under the terms of a contract with a customer are satisfied. This generally occurs when the goods are transferred to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for the goods. Sales taxes, sales discounts and customer rebates are also excluded from revenue. In accordance with ASC 606 revenue is recorded for goods that the customer is obligated to purchase under the termination terms of the contract which have no alternative use. Contract termination terms may involve variable consideration clauses such as discounts and rebates and revenue has been adjusted accordingly in our ASC 606 adjustment. Revenues from contracts containing termination provisions are recorded at terminal value if applicable and therefore do not represent the selling margins if the sale transaction occurred in the normal course of business.  Therefore, revenues recognized under this provision may not reflect the gross margins to be realized for transactions not affected by a contract termination. Revenue from our Remote Staffing segment is recognized as services are delivered and did not generate an ASC 606 adjustment in the three or nine-month periods ended September 30, 2018.

The Company does not have any remaining performance obligations related to revenue recorded for ASC 606 for the quarter ended September 30, 2018.

Effective March 8, 2016,on February 28, 2017, the Company entered into an amended and restated 5-yeara credit agreement with Fifth Third Bank that increased its revolving credit facility from $15 million to $20 million and refinanced its then-existing term loan with a new $45 million term loan to help finance the acquisition of substantially all of the assets of BAMKO, Inc. Both loans were based upon the one-month LIBOR rate for U.S. dollar based borrowings. Interest was payable on the term loan at LIBOR plus 0.85% and on the revolving credit facility at LIBOR (rounded up to the next 1/8^th of 1%) plus 0.85%. The Company paid a commitment fee of 0.10% per annum on the average unused portion of the commitment under the revolving credit facility. This credit agreement was paid in full on February 28, 2017 with the proceeds from a new loan agreement with Branch Banking and Trust Company (“BB&T”).

Effective February 28, 2017, the Company entered into a new 7-year credit agreement with BB&T (the “Credit Agreement”) that provided a new revolving credit facility of $35 million which was to terminatematuring on February 25, 2022 and provided a new term loan of $42 million (the “Term Loan”) which maturesmaturing on February 26, 2024. Both loans were based upon the one-month LIBOR rate for U.S. dollar based borrowings. Interest was payable for each loan at LIBOR (rounded up to the next 1/100^th of 1%2024 (“2017 Term Loan”) plus 0.75%. The Company paid a commitment fee of 0.10% per annum on the average unused portion of the commitment under the revolving credit facility. 

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 dated as of May 2, 2018 (the “Amended and Restated Credit Agreement”), with its existing lender, BB&T pursuant to which the Company’s existing revolving credit facility was increased from $35 million to $75 million and which provided an additional term loan in the principal amount of $85 million. No principal payments aremillion due on the $85 million term loan prior to its maturity.May 2020 (“2018 Term Loan”). The term of the revolving credit facility was extended until May 20232023.

On January 22, 2019, the Company entered into a First Amendment to the Amended and Restated Credit Agreement pursuant to which the $85existing 2018 Term Loan was restructured. The Company used $20 million term loan matures in May 2020. The Company’sborrowed under its existing term loan withrevolving credit facility to reduce the original principal amount of $42 million remains outstanding with ato $65 million. The maturity date of February 2024the 2018 Term Loan was extended to January 22, 2026.

On September 27, 2019, the Company entered into a Second Amendment to the Amended and withRestated Credit Agreement, which (i) increased the same amortization schedule.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 scheduled amortizationinterest 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 $42 million2017 Term Loan isare as follows: 20182019 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 revolving credit facility, $42 million term loan and $85 million term loan are collectively referred to as the “Credit Facilities.”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% at September 30, 2019). Obligations outstanding under the revolving credit facility and the $42 million term loan2017 Term Loan generally have a variable interest rate of one-month LIBOR plus a margin of between 0.68% (2.86%and 1.50% (based on the Company’s funded debt to EBITDA ratio) (2.72% at September 30, 2018)2019). Obligations outstanding under the new $85 million term loan generally have a variable interest rate of one-month LIBOR plus 0.93% for the first twelve months after the effective date (3.11% at September 30, 2018), 1.5% for the period from thirteen months through eighteen months after the effective date, and 1.75% thereafter. The Company is obligated to pay a commitment fee of 0.10% per annum on the average unused portion of the commitment under the revolving credit facility and a commitment fee of 0.25% on the outstanding balance of the $85 million term loan on June 1, 2019 and December 1, 2019. The available balance under the revolving credit facility is reduced by outstanding letters of credit. As of At September 30, 2018, there were no outstanding letters2019, the Company had undrawn capacity of credit.  The term loans do not contain pre-payment penalties.$41.1 million under the revolving credit facility.

The revolving credit facility, 2017 Term Loan and 2018 Term Loan are collectively referred to as the “Credit Facilities”.

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 4.0:5.0:1. As of September 30, 2018,2019, 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.

In connection with the Credit Agreement and the Amended and Restated Credit Agreement, the Company incurred approximately $0.1 million and $0.2 million of debt financing costs respectively, which primarily consisted of a loan commitment fee and legal fees. These costs are being amortized over the life of both Credit Agreements as additional interest expense.

Effective July 1, 2013, in order to reduce interest rate risk on its debt, the Company entered into an interest rate swap agreement with Fifth Third Bank, N.A. that was designed to effectively convert or hedge the variable interest rate on a portion of its borrowings to achieve a net fixed rate of 2.53% per annum, beginning July 1, 2014 with a notional amount of $14.3 million. The notional amount of the interest rate swap was reduced by the scheduled amortization of the principal balance of the original term loan of $0.2 million per month through July 1, 2015 and $0.3 million per month through June 1, 2018 with the remaining notional balance of $3.3 million to be eliminated on July 1, 2018. Effective March 8, 2016, the fixed rate on the notional amount was reduced to 2.43%. Effective February 24, 2017, this interest rate swap agreement was terminated. On this date the swap agreement had $0.1 million in cumulative gains in OCI which was reversed to earnings.

Effective 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 notional amount of $18.0 million. The notional amount of the interest rate swap is reduced by $0.3 million per month beginning April 1, 2018 through February 26, 2024. Under the terms of the interest rate swap, the Company will receive variable interest rate payments and make fixed interest rate payments 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 arewere recorded in OCI,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 will beis being amortized as interest expense over the remaining life of the amended swap. As of September 30, 2018, there was $0.1 million related to the original swap recorded within OCI. Changes to the fair value of the amended swap will beare recorded as interest expense. As of September 30, 2018,2019, the negative fair value of the amended swap was $0.2$0.3 million and was included in prepaid expenses and other current assets.liabilities.

NOTENOTE 3 – Periodic Pension Expense:

NOTE 4 – Net Sales:

On January 1, 2018, the Company adopted ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the Company’s defined benefit plans duringASU (collectively “ASC 606”) using the three-month period ended September 30, 2017. There were $0.1modified 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 and $1.5 million in contributions madeas of January 1, 2018 due to the Company’s defined benefit plans during the nine-month period ended September 30, 2018 and 2017, respectively.

NOTE 4 - Supplemental Cash Flow Information:cumulative impact of adopting ASC 606.

Cash paidRevenue for income taxes was $0.7 millionour Uniforms and $5.2 million, respectively,Related Products and Promotional Products segments is recognized when the earnings process is complete. 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. Revenue for our Remote Staffing segment is recognized as services are delivered. Revenue is measured as the amount of consideration we expect to receive in exchange for the nine-month periods ended September 30, 2018goods or services. Sales taxes, sales discounts and 2017. Cash paid for interest was $1.7 million and $0.5 million, respectivelycustomer rebates are also excluded from revenue. Refer to Note 9 for the nine-month periods ended September 30, 2018 and 2017.disaggregation of revenues by operating segment.

DuringContract Assets

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

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, 20182019 was primarily related to the timing of shipments to customers and 2017, respectively,receipts from suppliers for finished goods with no alternative use within the Company received 6,894Uniforms and 43,841 shares of its common stock as paymentRelated Products segment. The majority of the exercise price in the exercise of stock options for 26,234 and 113,143 shares.

As a result of the adoption of ASC 606 the following amounts were recorded on January 1, 2018: $43.3 millionincluded in contract assets on December 31, 2018 were transferred to accounts receivable during the nine months ended September 30, 2019. Contract liabilities relate to payments received in advance of the Company completing its performance under a reduction in inventory of $24.9 million, an increase in accounts payable of $2.6 million, an increasecontract. Contract liabilities are included in other current liabilities of $1.1 million, and a decrease in deferred tax assets of $3.5 million.our balances sheets.

In conjunction with the acquisition of CID, the Company issued 150,094 shares of its common stock with a fair value of $3.8 million as part of the purchase price.

NOTE 5 – Contingencies:

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 willis not expected to have a material impact on the Company’s results of operations, cash flows, or financial position.

NOTE 6 – Share-Based Compensation:

In 2003, the stockholders of the Company approved the 2003 Incentive Stock and Awards Plan (the “2003 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. This plan expired in May of 2013, at which time, 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, SARS,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 2003 Plan subsequent to its termination)previous plan) have been reserved for issuance under the 2013 Plan. All options and SARS under both plansSARs 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, 2018,2019, the Company had 3,456,9443,320,743 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 consolidated 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:presented (in thousands):