What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-10 compared with 2020-08-12 · 29 added, 22 removed, 67 unchanged (43% of the section changed)

29 unchanged sentences

RESULTS OF OPERATIONS

The following table contains the results of operations for the three-month periods ended June 28, 2020 and June 30, 2019 and the dollar and percentage changes for those periods (in thousands, except percentages):

The following table contains the results of operations for the three and six-month periods ended September 27, 2020 and September 29, 2019 and the dollar and percentage changes for those periods (in thousands, except percentages):

Three-Month Periods Ended

June 28, 2020

June 30, 2019

Six-Month Periods Ended

September 27, 2020

September 29, 2019

September 27, 2020

September 29, 2019

Net sales by category:

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% of net sales

Sales increased to $16.2 million for the three-month period ended June 28, 2020, compared with $15.9 million for the three-month period ended June 30, 2019, an increase of $263,000, or 1.6%.

Sales of bedding, blankets and accessories increased by $2.3 million due to increased sell-through at major retailers, while sales of bibs, bath, developmental toys, feeding, baby care and disposable products decreased by $2.0 million, primarily as a result of certain retailers being impacted by the COVID-19 pandemic.

Sales increased to $21.7 million for the three months ended September 27, 2020, compared with $18.6 million for the three months ended September 29, 2019, an increase of $3.1 million, or 16.7%.

Sales of bedding, blankets and accessories increased by $2.7 million and sales of bibs, bath, developmental toys, feeding, baby care and disposable products increased by $421,000.

Sales increased to $37.9 million for the six-month period ended September 27, 2020, compared with $34.5 million for the six-month period ended September 29, 2019, an increase of $3.4 million, or 9.7%.

Sales of bedding, blankets and accessories increased by $5.0 million, while sales of bibs, bath, developmental toys, feeding, baby care and disposable products decreased by $1.6 million.

The increase in sales is due to higher sell-through at major retailers, which has been partially offset by declines at certain retailers that have been impacted by the COVID-19 pandemic, particularly one customer that has remained closed throughout the entire six-month period of the current year.

Gross Profit :

Gross profit increased by $472,000 and increased from 28.5% of net sales for the three-month period ended June 30, 2019 to 31.0% of net sales for the three-month period ended June 28, 2020.

Gross profit increased by $1.2 million and increased from 31.6% of net sales for the three-month period ended September 29, 2019 to 32.8% of net sales for the three-month period ended September 27, 2020.

Gross profit increased by $1.7 million and increased from 30.2% of net sales for the six-month period ended September 29, 2019 to 32.0% of net sales for the six-month period ended September 27, 2020.

The increase in gross profit is due to the increase in net sales as well as a more favorable customer and product mix.

Market ing and Administrative Expenses:

Marketing and administrative expenses decreased slightly in amount and were 20.9% of net sales for the three-month period ended June 28, 2020, compared with 21.7% of net sales for the three-month period ended June 30, 2019.

The decrease in amount for the current year period is primarily the result of lower overall compensation costs of $175,000, partially offset by higher outside services of $98,000.

Marketing and administrative expenses increased by $326,000, but decreased from 18.7% of net sales for the three-month period ended September 29, 2019 to 17.6% of net sales for the three-month period ended September 27, 2020.

Marketing and administrative expenses increased by $254,000, but decreased from 20.1% of net sales for the six-month period ended September 29, 2019 to 19.0% of net sales for the six-month period ended September 27, 2020.

The increase in amount for the current year-to-date period is primarily the result of higher outside services of $201,000 and higher advertising of $115,000, partially offset by lower travel expenses of $67,000.

Income Tax Expense :

The Company’s provision for income taxes is based upon an estimated annual ETR from continuing operations of 25.1% for the three-month period ended June 28, 2020.

The Company’s provision for income taxes is based upon an estimated annual ETR from continuing operations of 24.2% for the six-month period ended September 27, 2020.

The Company applies the provisions of FASB ASC Sub-topic 740-10-25, which requires a minimum recognition threshold that a tax benefit must meet before being recognized in the financial statements.

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However, the Company also realizes that the ultimate resolution of such tax position could result in a tax charge that is more than the amount realized based upon the application of the tax position taken.

Therefore, the Company’s measurement regarding the tax impact of the revised state apportionment percentages resulted in the Company recording discrete reserves for unrecognized tax liabilities during the three-month periods ended June 28, 2020 and June 30, 2019 of $13,000 and $11,000, respectively, in the accompanying unaudited condensed consolidated statements of income.

In December 2016, the Company was notified by the FTB of its intention to examine the Company’s claims for refund made in connection with amended consolidated income tax returns that the Company had filed for years ended March 30, 2014, March 31, 2013, April 1, 2012 and April 3, 2011.

On July 31, 2019, the FTB notified the Company that it would take no further action with regard to the returns filed for years ended March 31, 2013, April 1, 2012 and April 3, 2011.

Accordingly, the Company reversed the reserves for unrecognized tax liabilities that it had previously recorded for those fiscal years, which resulted in the recognition of a discrete income tax benefit of $232,000 during the three-month period ended June 30, 2019 in the accompanying unaudited condensed consolidated statements of income.

The Company also reversed the interest expense and penalties that it had accrued in respect of the unrecognized tax liabilities for these fiscal years, which resulted in the recognition of a credit to interest expense of $78,000 during the three-month period ended June 30, 2019.

During the three-month period ended June 30, 2019, the Company recorded a discrete income tax charge of $2,000 to reflect the effects of the tax shortfalls arising from the vesting of non-vested stock during the period.

There was no such charge recorded during the three-month period ended June 28, 2020.

The ETR on continuing operations and the discrete income tax charges and benefits set forth above resulted in an overall provision for income taxes of 25.9% and 5.0% for the three-month periods ended June 28, 2020 and June 30, 2019, respectively.

Therefore, the Company’s measurement regarding the tax impact of the revised state apportionment percentages resulted in the Company recording discrete reserves for unrecognized tax liabilities of $20,000 and $31,000 during the three-month periods ended September 27, 2020 and September 29, 2019, respectively, and $33,000 and $42,000 during the six-month periods ended September 27, 2020 and September 29, 2019, respectively, in the accompanying unaudited condensed consolidated statements of income.

In December 2016, the Company was notified by the FTB of its intention to examine the Company’s claims for refund made in connection with amended California consolidated income tax returns that the Company had filed for the fiscal years ended March 30, 2014, March 31, 2013, April 1, 2012 and April 3, 2011.

On July 31, 2019, the FTB notified the Company that it would take no further action with regard to the fiscal years ended March 31, 2013, April 1, 2012 and April 3, 2011.

Accordingly, the Company reversed the reserves for unrecognized tax liabilities that it had previously recorded for these fiscal years, which resulted in the recognition of a discrete income tax benefit of $232,000 during the six-month period ended September 29, 2019 in the unaudited condensed consolidated statements of income.

The Company recorded discrete income tax charges of $4,000 during each of the three months ended September 27, 2020 and September 29, 2019, and $4,000 and $6,000 during the six months ended September 27, 2020 and September 29, 2019, respectively, to reflect the net effects of tax shortfalls arising from the vesting of non-vested stock during the periods.

The ETR on continuing operations and the discrete income tax charges and benefits set forth above resulted in an overall provision for income taxes of 24.9% and 18.8% for the six-month periods ended September 27, 2020 and September 29, 2019, respectively.

Although the Company does not anticipate a material change to the ETR from continuing operations for the balance of fiscal year 2021, several factors could impact the ETR, including variations from the Company’s estimates of the amount and source of its pre-tax income, and the actual ETR for the year could differ materially from the Company’s estimates.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities decreased from $8.7 million for the three-month period ended June 30, 2019 to $7.9 million for the three-month period ended June 28, 2020.

The decrease in the current year was the primarily the result of a decrease in accounts receivable that was $2.6 million lower than the decrease in accounts receivable in the prior year, partially offset by a decrease in inventory of $402,000 in the current year compared with an increase in inventory of $915,000 in the prior year.

Net cash used in investing activities was nearly flat at $50,000 in capital expenditures for property, plant and equipment in the current year compared with $55,000 in the prior year.

Net cash provided by operating activities increased from $6.4 million for the six-month period ended September 29, 2019 to $8.3 million for the six-month period ended September 27, 2020.

The increase in the current year was primarily the result of an increase in net income of $844,000, an increase in inventory in the current year that was $948,000 lower than the increase in the prior year, an increase in accounts payable that was $2.9 million higher in the current year than in the prior year, and an increase in accrued liabilities of $366,000 in the current year compared with a decrease $833,000 in the prior year, partially offset by an increase in accounts receivable of $994,000 compared with a decrease in the prior year of $3.6 million.

Net cash used in investing activities increased slightly from $215,000 in the prior year to $312,000 in the current year, primarily due to higher capital expenditures.

Net cash used in financing activities decreased from $6.1 million in the prior year to $1.4 million in the current year, primarily due to net repayments under the revolving line of credit that were $1.9 million lower in the current year compared with the prior year and the receipt of almost $2.0 million in proceeds from the Loan made pursuant to the PPP under the CARES Act as discussed in Note 2 – Financing Arrangements.

At June 28, 2020, there was no balance owed on the Company’s revolving line of credit with CIT, there was no letter of credit outstanding and $20.6 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

At September 27, 2020, there was no balance owed on the Company’s revolving line of credit with CIT, there was no letter of credit outstanding and $24.2 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

To reduce its exposure to credit losses and to enhance the predictability of its cash flow, the Company assigns the majority of its trade accounts receivable to CIT under factoring agreements.

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If such a termination were to occur, then the Company must either choose to assume the credit risk for shipments after the date of such termination or limitation or cease shipments to such customer.

There were no advances from the factor at either June 28, 2020 or June 30, 2019.

There were no advances from the factor at either September 27, 2020 or September 29, 2019.

The Company continues to monitor the impact of the COVID-19 pandemic on its supply chain, manufacturing and distribution operations, customers and employees, as well as the U.S.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis