What changed in this filing

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Item 1. Financial Statements

2023-02-15 compared with 2022-11-16 · 140 added, 172 removed, 543 unchanged (36% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

OCTOBER 2, 2022 (UNAUDITED) AND APRIL 3, 2022

JANUARY 1, 2023 (UNAUDITED) AND APRIL 3, 2022

(amounts in thousands, except share and per share amounts)

October 2, 2022

January 1, 2023

April 3, 2022

3 unchanged sentences

$ 1,598  

Accounts receivable (net of allowances of $ 1,274 at October 2, 2022 and $ 945 at April 3, 2022):

Accounts receivable (net of allowances of $ 1,540 at January 1, 2023 and $ 945 at April 3, 2022):

Due from factor

37 unchanged sentences

11,786  

Non-current liabilities:

5 unchanged sentences

Common stock - $ 0.01 par value per share;

Authorized 40,000,000 shares at October 2, 2022 and April 3, 2022;

Issued 13,011,814 shares at October 2, 2022 and 12,944,918 shares at April 3, 2022

Authorized 40,000,000 shares at January 1, 2023 and April 3, 2022;

Issued 13,011,814 shares at January 1, 2023 and 12,944,918 shares at April 3, 2022

Additional paid-in capital

1 unchanged sentence

55,925  

Treasury stock - at cost - 2,894,242 shares at October 2, 2022 and 2,864,698 shares at April 3, 2022

Treasury stock - at cost - 2,894,242 shares at January 1, 2023 and 2,864,698 shares at April 3, 2022

( 15,803 )  

6 unchanged sentences

$ 60,155  

See notes to unaudited condensed consolidated financial statements.

CROWN CRAFTS, INC.

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE- AND SIX-MONTH PERIODS ENDED OCTOBER 2, 2022 AND SEPTEMBER 26, 2021

THREE- AND NINE-MONTH PERIODS ENDED JANUARY 1, 2023 AND DECEMBER 26, 2021

(amounts in thousands, except per share amounts)

Three-Month Periods Ended

Six-Month Periods Ended

October 2, 2022

September 26, 2021

October 2, 2022

September 26, 2021

$ 18,726  

$ 20,220  

$ 34,436  

$ 38,932  

Nine-Month Periods Ended

January 1, 2023

December 26, 2021

January 1, 2023

December 26, 2021

Cost of products sold

13,280  

14,152  

23,837  

28,208  

10,599  

10,724  

Marketing and administrative expenses

7 unchanged sentences

Income tax expense

$ 2,040  

$ 2,386  

$ 3,474  

$ 5,051  

Weighted average shares outstanding:

10,094  

10,053  

10,085  

10,028  

Effect of dilutive securities

10,116  

10,094  

10,107  

10,071  

Earnings per share -- basic and diluted

$ 0.20  

$ 0.24  

$ 0.34  

$ 0.50  

See notes to unaudited condensed consolidated financial statements.

CROWN CRAFTS, INC.

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

THREE- AND SIX-MONTH PERIODS ENDED OCTOBER 2, 2022 AND SEPTEMBER 26, 2021

THREE- AND NINE-MONTH PERIODS ENDED JANUARY 1, 2023 AND DECEMBER 26, 2021

Common Shares

7 unchanged sentences

Three-Month Periods

Balances - June 27, 2021

Balances - September 26, 2021

12,924,918  

12 unchanged sentences

( 4,334 )  

Balances - September 26, 2021

12,924,918  

Balances - December 26, 2021

12,944,918  

3 unchanged sentences

$ 3,732  

Balances - July 3, 2022

$ 43,902  

Balances - October 2, 2022

13,011,814  

3 unchanged sentences

$ 7,220  

Issuance of shares

$ 48,160  

Stock-based compensation

Acquisition of treasury stock

( 4,077 )  

( 27 )  

Dividend declared on common stock - $ 0.08 per share

( 809 )  

Balances - October 2, 2022

Balances - January 1, 2023

13,011,814  

4 unchanged sentences

$ 48,952  

Six-Month Periods

Nine-Month Periods

Balances - March 28, 2021

13 unchanged sentences

( 5,942 )  

Balances - September 26, 2021

Balances - December 26, 2021

12,944,918  

19 unchanged sentences

( 2,424 )  

Balances - October 2, 2022

Balances - January 1, 2023

13,011,814  

4 unchanged sentences

$ 48,952  

See notes to unaudited condensed consolidated financial statements.

CROWN CRAFTS, INC.

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX-MONTH PERIODS ENDED OCTOBER 2, 2022 AND SEPTEMBER 26, 2021

NINE-MONTH PERIODS ENDED JANUARY 1, 2023 AND DECEMBER 26, 2021

(amounts in thousands)

Six-Month Periods Ended

October 2, 2022

September 26, 2021

Nine-Month Periods Ended

January 1, 2023

December 26, 2021

Operating activities:

37 unchanged sentences

Dividends declared but unpaid

See notes to unaudited condensed consolidated financial statements.

CROWN CRAFTS, INC.

1 unchanged sentence

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE- AND SIX-MONTH PERIODS ENDED OCTOBER 2, 2022 AND SEPTEMBER 26, 2021

FOR THE THREE- AND NINE-MONTH PERIODS ENDED JANUARY 1, 2023 AND DECEMBER 26, 2021

Note 1 –

5 unchanged sentences

References herein to GAAP are to topics within the FASB Accounting Standards Codification (the “FASB ASC”), which the FASB periodically revises through the issuance of an Accounting Standards Update (“ASU”) and which has been established by the FASB as the authoritative source for GAAP recognized by the FASB to be applied by nongovernmental entities.

In the opinion of the Company’s management, the interim unaudited condensed consolidated financial statements contained herein include all adjustments necessary to present fairly the financial position of the Company as of October 2, 2022 and the results of its operations and cash flows for the periods presented.

In the opinion of the Company’s management, the interim unaudited condensed consolidated financial statements contained herein include all adjustments necessary to present fairly the financial position of the Company as of January 1, 2023 and the results of its operations and cash flows for the periods presented.

Such adjustments include normal, recurring accruals, as well as the elimination of all significant intercompany balances and transactions.

Operating results for the quarter ended October 2, 2022 are not necessarily indicative of the results that may be expected by the Company for its fiscal year ending April 2, 2023.

Operating results for the quarter ended January 1, 2023 are not necessarily indicative of the results that may be expected by the Company for its fiscal year ending April 2, 2023.

For further information, refer to the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10 -K for the fiscal year ended April 3, 2022.

24 unchanged sentences

2016 - 13 effective as of April 3, 2023.

Although the Company has not determined the full impact of the adoption of ASU No.

Because the Company assigns substantially all of its trade accounts receivable under factoring agreements with The CIT Group/Commercial Services, Inc.

(“CIT”), a subsidiary of CIT Group Inc., the Company does not believe that the adoption of the ASU will have a significant impact on the Company’s financial position, results of operations and related disclosures.

The Company has determined that all other ASUs issued which had become effective as of October 2, 2022, or which will become effective at some future date, are not expected to have a material impact on the Company’s consolidated financial statements.

The Company has determined that all other ASUs issued which had become effective as of January 1, 2023, or which will become effective at some future date, are not expected to have a material impact on the Company’s consolidated financial statements.

Note 2 –

1 unchanged sentence

The Company’s advertising costs are primarily associated with cooperative advertising arrangements with certain of the Company’s customers and are recognized using the straight-line method based upon aggregate annual estimated amounts for these customers, with periodic adjustments to the actual amounts of authorized agreements.

Advertising expense is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income and amounted to $ 123,000 and $ 129,000 for the three -month periods ended October 2, 2022 and September 26, 2021, respectively, and amounted to $ 247,000 and $ 350,000 for the six -month periods ended October 2, 2022 and September 26, 2021, respectively.

Advertising expense is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income and amounted to $ 123,000 and $ 105,000 for the three -month periods ended January 1, 2023 and December 26, 2021, respectively, and amounted to $ 370,000 and $ 455,000 for the nine -month periods ended January 1, 2023 and December 26, 2021, respectively.

Note 3 –

2 unchanged sentences

These products consist of infant and toddler bedding, blankets, accessories, bibs, toys and disposable products.

Net sales of bedding, blankets and accessories and net sales of bibs, toys and disposable products for the three - and six -month periods ended October 2, 2022 and September 26, 2021 are as follows (in thousands):

Net sales of bedding, blankets and accessories and net sales of bibs, toys and disposable products for the three - and nine -month periods ended January 1, 2023 and December 26, 2021 are as follows (in thousands):

Three-Month Periods Ended

Six-Month Periods Ended

October 2, 2022

September 26, 2021

October 2, 2022

September 26, 2021

Nine-Month Periods Ended

January 1, 2023

December 26, 2021

January 1, 2023

December 26, 2021

Bedding, blankets and accessories

$ 9,503  

$ 11,101  

$ 17,001  

$ 21,058  

Bibs, toys and disposables products

17,435  

17,874  

Total net sales

$ 18,726  

$ 20,220  

$ 34,436  

$ 38,932  

Note 4 –

2 unchanged sentences

These royalty amounts are accrued based upon historical sales rates adjusted for current sales trends by customers.

Royalty expense is included in cost of products sold in the accompanying unaudited condensed consolidated statements of income and amounted to $ 1.2 million and $ 1.4 million for the three months ended October 2, 2022 and September 26, 2021, respectively, and amounted to $ 2.3 million and $ 2.7 million for the six months ended October 2, 2022 and September 26, 2021, respectively.

Royalty expense is included in cost of products sold in the accompanying unaudited condensed consolidated statements of income and amounted to $ 1.2 million and $ 1.5 million for the three months ended January 1, 2023 and December 26, 2021, respectively, and amounted to $ 3.5 million and $ 4.2 million for the nine months ended January 1, 2023 and December 26, 2021, respectively.

Note 5 –

2 unchanged sentences

The statute of limitations varies by jurisdiction;

tax years open to examination or other adjustment as of October 2, 2022 were the fiscal years ended April 3, 2022, March 28, 2021, March 29, 2020, March 31, 2019, April 1, 2018 and April 2, 2017.

tax years open to examination or other adjustment as of January 1, 2023 were the fiscal years ended April 3, 2022, March 28, 2021, March 29, 2020, March 31, 2019, April 1, 2018 and April 2, 2017.

In August 2020, the Company was notified by the Franchise Tax Board of the State of California of its intention to examine the Company’s California income tax returns for the fiscal years ended March 31, 2019, April 1, 2018 and April 2, 2017.

3 unchanged sentences

Although management believes that the calculations and positions taken on these income tax returns and all other filed income tax returns are reasonable and justifiable, the outcome of these or any other examination could result in an adjustment to the position that the Company took on such income tax returns.

The Company recorded discrete income tax charges of $ 5,000 and $ 6,000 during the three - and six -month periods ended October 2, 2022, respectively, and the Company recorded discrete income tax benefits of $ 28,000 and $ 72,000 during the three - and six -month periods ended September 26, 2021, respectively, to reflect the net effects of the excess tax benefits and tax shortfalls arising from the exercise of stock options and the vesting of non-vested stock during the periods.

The Company recorded discrete income tax charges of $ 6,000 during the nine -month period ended January 1, 2023, and the Company recorded discrete income tax benefits of $ 11,000 and $ 83,000 during the three - and nine -month periods ended December 26, 2021, respectively, to reflect the net effects of the excess tax benefits and tax shortfalls arising from the exercise of stock options and the vesting of non-vested stock during the periods.

Note 6 –

Carousel Designs

The accompanying unaudited condensed consolidated statements of income for the three - and six -month periods ended September 26, 2021 include income, expenses and losses associated with the operating activities of Carousel Designs, LLC (“Carousel”), a wholly-owned subsidiary that manufactured and marketed infant and toddler bedding directly to consumers online from a facility in Douglasville, Georgia.

The accompanying unaudited condensed consolidated statements of income for the three - and nine -month periods ended December 26, 2021 include income, expenses and losses associated with the operating activities of Carousel Designs, LLC (“Carousel”), a wholly-owned subsidiary that manufactured and marketed infant and toddler bedding directly to consumers online from a facility in Douglasville, Georgia.

On May 5, 2021, the Company’s Board of Directors (the “Board”) approved the closure of Carousel due to its high costs, declining sales and operating losses, as well as management’s determination that, due to post-COVID- 19 competitive pressures in the infant, toddler and juvenile products segment within the consumer products industry, such losses were likely to continue.

Accordingly, the operations of Carousel ceased on May 21, 2021.

During the three - and six -month periods ended September 26, 2021, Carousel experienced a gross loss of $ 41,000 and $ 688,000 , respectively.

The gross loss was the result of the sale of inventory below cost and, for the three -month period ended June 27, 2021 and the six -month period ended September 26, 2021, the recognition of charges of $ 334,000 related to the settlement with a supplier of a commitment to purchase fabric and $ 265,000 associated with the liquidation of Carousel’s remaining inventory upon the closure of the business.

During the three - and nine -month periods ended December 26, 2021, Carousel experienced a gross loss of $ 1,000 and $ 689,000 , respectively.

The gross loss was the result of the sale of inventory below cost and, for the three -month period ended June 27, 2021 and the nine -month period ended December 26, 2021, the recognition of charges of $ 334,000 related to the settlement with a supplier of a commitment to purchase fabric and $ 265,000 associated with the liquidation of Carousel’s remaining inventory upon the closure of the business.

Note 7 –

7 unchanged sentences

If such a termination or limitation occurs, then the Company either assumes (and may seek to mitigate) the credit risk for shipments to the customer after the date of such termination or limitation or discontinues shipments to the customer.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $ 79,000 and $ 85,000 for the three -month periods ended October 2, 2022 and September 26, 2021, respectively, and amounted to $ 147,000 and $ 149,000 for the six -month periods ended October 2, 2022 and September 26, 2021, respectively.

Credit Facility: 

The Company’s credit facility as of October 2, 2022 consisted of a revolving line of credit under a financing agreement with CIT of up to $ 26.0 million, which includes a $ 1.5 million sub-limit for letters of credit.

The financing agreement will mature on July 11, 2025, bears interest at the rate of prime minus 1.0 % or the Secured Overnight Financing Rate (“SOFR”) plus 1.6 %, and is secured by a first lien on all assets of the Company.

At October 2, 2022, the Company had elected to pay interest on balances owed under the revolving line of credit, if any, under the SOFR option.

The financing agreement also provides for the payment by CIT to the Company of interest at the rate of prime as of the beginning of the calendar month minus 2.0 %, which was 4.25 % as of October 2, 2022, on daily negative balances, if any, held at CIT.

As of October 2, 2022 and April 3, 2022, there was no balance owed on the revolving line of credit, there was no letter of credit outstanding and $ 26.0 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $ 77,000 and $ 99,000 for the three -month periods ended January 1, 2023 and December 26, 2021, respectively, and amounted to $ 224,000 and $ 248,000 for the nine -month periods ended January 1, 2023 and December 26, 2021, respectively.

Credit Facility:

The Company’s credit facility as of January 1, 2023 consisted of a revolving line of credit under a financing agreement with CIT of up to $ 26.0 million, which includes a $ 1.5 million sub-limit for letters of credit.

The financing agreement matures on July 11, 2025, bears interest at prime minus 1.0 % or the Secured Overnight Financing Rate (“SOFR”) plus 1.6 %, and is secured by a first lien on all assets of the Company.

At January 1, 2023, the Company had elected to pay interest on balances owed under the revolving line of credit, if any, under the SOFR option.

The financing agreement also provides for the payment by CIT to the Company of interest at prime as of the beginning of the calendar month minus 2.0 %, which was 5.5 % as of January 1, 2023, on daily negative balances, if any, held at CIT.

As of January 1, 2023 and April 3, 2022, there was no balance owed on the revolving line of credit, there was no letter of credit outstanding and $ 26.0 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

The financing agreement contains usual and customary covenants for agreements of that type, including limitations on other indebtedness, liens, transfers of assets, investments and acquisitions, merger or consolidation transactions, transactions with affiliates, and changes in or amendments to the organizational documents for the Company and its subsidiaries.

The Company believes it was in compliance with these covenants as of October 2, 2022.

The Company believes it was in compliance with these covenants as of January 1, 2023.

Credit Concentration:

The Company’s accounts receivable as of October 2, 2022 amounted to $ 17.6 million, net of allowances of $ 1.3 million.

The Company’s accounts receivable as of January 1, 2023 amounted to $ 18.9 million, net of allowances of $ 1.5 million.

Of this amount, $ 17.2 million was due from CIT under the factoring agreements;

an additional amount of $ 1.7 million was due from CIT as a negative balance outstanding under the revolving line of credit.

The combined amount of $ 18.5 million represented the maximum loss that the Company could have incurred as of October 2, 2022 if CIT had failed completely to perform its obligations under the factoring agreements and the revolving line of credit.

The combined amount of $ 18.9 million represented the maximum loss that the Company could have incurred as of January 1, 2023 if CIT had failed completely to perform its obligations under the factoring agreements and the revolving line of credit.

The Company’s accounts receivable at April 3, 2022 amounted to $ 23.2 million, net of allowances of $ 945,000 .

14 unchanged sentences

one that produces and markets infant and toddler bedding, blankets and accessories and another that produces and markets infant and toddler bibs, toys and disposable products.

The Company’s reporting units have recognized goodwill as of October 2, 2022 and April 3, 2022 of $ 30.0 million, which is reflected in the accompanying condensed consolidated balance sheets net of accumulated impairment charges of $ 22.9 million, for a net reported balance of $ 7.1 million.

The Company’s reporting units have recognized goodwill as of January 1, 2023 and April 3, 2022 of $ 30.0 million, which is reflected in the accompanying condensed consolidated balance sheets net of accumulated impairment charges of $ 22.9 million, for a net reported balance of $ 7.1 million.

The Company measures for impairment the goodwill within its reporting units annually as of the first day of the Company’s fiscal year.

7 unchanged sentences

Other Intangible Assets

Other intangible assets as of October 2, 2022 and April 3, 2022 consisted primarily of the fair value of identifiable assets acquired in business combinations other than tangible assets and goodwill.

The gross amount and accumulated amortization of the Company’s other intangible assets as of October 2, 2022 and April 3, 2022, the amortization expense for the three - and six -month periods ended October 2, 2022 and September 26, 2021, and the classification of such amortization expense within the accompanying unaudited condensed consolidated statements of income are as follows (in thousands):

Other intangible assets as of January 1, 2023 and April 3, 2022 consisted primarily of the fair value of identifiable assets acquired in business combinations other than tangible assets and goodwill.

The gross amount and accumulated amortization of the Company’s other intangible assets as of January 1, 2023 and April 3, 2022, the amortization expense for the three - and nine -month periods ended January 1, 2023 and December 26, 2021, and the classification of such amortization expense within the accompanying unaudited condensed consolidated statements of income are as follows (in thousands):

Amortization Expense

1 unchanged sentence

Three-Month Periods Ended

Six-Month Periods Ended

September 26,

Nine-Month Periods Ended

Tradename and trademarks

8 unchanged sentences

Major classes of inventory were as follows (in thousands):

October 2, 2022

January 1, 2023

April 3, 2022

3 unchanged sentences

Note 11 –

The Company made cash payments related to its recognized operating leases of $ 488,000 and $ 487,000 during the three months ended October 2, 2022 and September 26, 2021, respectively, and $ 968,000 and $ 984,000 during the six months ended October 2, 2022 and September 26, 2021, respectively.

The Company made cash payments related to its recognized operating leases of $ 492,000 and $ 460,000 during the three months ended January 1, 2023 and December 26, 2021, respectively, and $ 1.5 million and $ 1.4 million during the nine months ended January 1, 2023 and December 26, 2021, respectively.

Such payments reduced the operating lease liabilities and were included in the cash flows provided by operating activities in the accompanying unaudited condensed consolidated statements of cash flows.

At October 2, 2022, the Company’s operating leases had a weighted-average remaining lease term of 

At January 1, 2023, the Company’s operating leases had a weighted-average remaining lease term of 

1.6 years and a weighted-average discount rate of 

During the three - and six -month periods ended October 2, 2022 and September 26, 2021, the Company classified its operating lease costs within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

During the three - and nine -month periods ended January 1, 2023 and December 26, 2021, the Company classified its operating lease costs within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

Three-Month Periods Ended

Six-Month Periods Ended

October 2, 2022

September 26, 2021

October 2, 2022

September 26, 2021

Nine-Month Periods Ended

January 1, 2023

December 26, 2021

January 1, 2023

December 26, 2021

Cost of products sold

$ 1,205  

$ 1,197  

Marketing and administrative expenses

Total operating lease costs

The maturities of the Company’s operating lease liabilities as of October 2, 2022 are as follows (in thousands):

$ 1,330  

$ 1,320  

The maturities of the Company’s operating lease liabilities as of January 1, 2023 are as follows (in thousands):

Total undiscounted operating lease payments

1 unchanged sentence

Operating lease liabilities - net

On February 3, 2023, the Company entered into a new operating lease agreement for approximately 157,400 square feet for its existing office, warehouse and distribution center located in Compton, California. 

The existing lease for the Compton facility will expire on May 31, 2023;

the term of the new lease is sixty ( 60 ) months, commencing on June 1, 2023. 

The Company will be required to remit minimum non-variable rental payments under the new lease of $ 2.8 million, $ 3.5 million, $ 3.7 million, $ 3.8 million, $ 4.0 million and $ 663,000 in fiscal years 2024, 2025, 2026, 2027, 2028 and 2029, respectively. 

As of February 3, 2023, the Company had not yet calculated the amount associated with the lease that will be capitalized as an operating lease right-of-use asset or the corresponding operating lease liability.

Note 12 –

Stock-based Compensation

The Company has three incentive stock plans, the 2006 Omnibus Incentive Plan (the “2006 Plan”), the 2014 Omnibus Equity Compensation Plan (the “2014 Plan”) and the 2021 Incentive Plan (the “2021 Plan”).

As a result of the approval of the 2014 Plan by the Company’s stockholders at the Company’s 2014 annual meeting and the 2021 Plan by the Company’s stockholders at the Company’s 2021 annual meeting, grants may no longer be issued under either the 2006 Plan or the 2014 Plan.

As of October 2, 2022, 805,439 shares of the Company’s common stock were available for future issuance under the 2021 Plan, which may be issued from authorized and unissued shares of the Company’s common stock or treasury shares.

The Company recorded stock-based compensation expense of $ 258,000 and $ 208,000 during the three -month periods ended October 2, 2022 and September 26, 2021, respectively, and recorded $ 591,000 and $ 340,000 during the six -month periods ended October 2, 2022 and September 26, 2021, respectively.

As of January 1, 2023, 805,439 shares of the Company’s common stock were available for future issuance under the 2021 Plan, which may be issued from authorized and unissued shares of the Company’s common stock or treasury shares.

The Company recorded stock-based compensation expense of $ 253,000 and $ 224,000 during the three -month periods ended January 1, 2023 and December 26, 2021, respectively, and recorded $ 844,000 and $ 564,000 during the nine -month periods ended January 1, 2023 and December 26, 2021, respectively.

The Company records the compensation expense associated with stock-based awards granted to individuals in the same expense classifications as the cash compensation paid to those same individuals.

No stock-based compensation costs were capitalized as part of the cost of an asset as of October 2, 2022.

No stock-based compensation costs were capitalized as part of the cost of an asset as of January 1, 2023.

Stock Options:

The following table represents stock option activity for the six -month periods ended October 2, 2022 and September 26, 2021:

Six-Month Periods Ended

October 2, 2022

September 26, 2021

The following table represents stock option activity for the nine -month periods ended January 1, 2023 and December 26, 2021:

Nine-Month Periods Ended

January 1, 2023

December 26, 2021

Outstanding at Beginning of Period

12 unchanged sentences

352,500  

As of October 2, 2022, the intrinsic value of the outstanding and exercisable stock options was $ 89,000 .

The intrinsic value of the stock options exercised during the three - and six -month periods ended October 2, 2022 was $ 8,000 and $ 28,000 , respectively.

As of January 1, 2023, the intrinsic value of the outstanding and exercisable stock options was $ 47,000 .

There were no options exercised during the three -month period ended January 1, 2023.

The intrinsic value of the stock options exercised during the nine -month period ended January 1, 2023 was $ 28,000 .

The Company did not receive any cash from the exercise of stock options during either of the nine -month periods ended January 1, 2023 or December 26, 2021.

Upon the exercise of stock options, participants may choose to surrender to the Company those shares from the option exercise necessary to satisfy the exercise amount and their income tax withholding obligations that arise from the option exercise.

2 unchanged sentences

The Company used cash to remit the required income tax withholding amounts from “cashless”

option exercises of $ 2,000 and $ 14,000 during the three -month periods ended October 2, 2022 and September 26, 2021, respectively, and $ 10,000 and $ 48,000 during the six -month periods ended October 2, 2022 and September 26, 2021, respectively.

option exercises of $ 19,000 during the three -month period ended December 26, 2021, and $ 10,000 and $ 67,000 during the nine -month periods ended January 1, 2023 and December 26, 2021, respectively.

Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation –

1 unchanged sentence

To determine the estimated fair value of stock options granted, the Company uses the Black-Scholes-Merton valuation formula, which is a closed-form model that uses an equation to estimate fair value.

The following table sets forth the assumptions used to determine the fair value of the non-qualified stock options that were awarded to certain employees during the six -month periods ended October 2, 2022 and September 26, 2021, which options vest over a two -year period, assuming continued service.

Six-Month Periods Ended

October 2, 2022

September 26, 2021

The following table sets forth the assumptions used to determine the fair value of the non-qualified stock options that were awarded to certain employees during the nine -month periods ended January 1, 2023 and December 26, 2021, which options vest over a two -year period, assuming continued service.

Nine-Month Periods Ended

January 1, 2023

December 26, 2021

Number of options issued

17 unchanged sentences

$ 1.61  

During the three - and six -month periods ended October 2, 2022 and September 26, 2021, the Company classified its compensation expense associated with stock options within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

Three-Month Period Ended October 2, 2022

Three-Month Period Ended September 26, 2021

During the three -month periods ended January 1, 2023 and December 26, 2021, the Company classified its compensation expense associated with stock options within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

Three-Month Period Ended January 1, 2023

Three-Month Period Ended December 26, 2021

Administrative

2 unchanged sentences

Total stock option compensation

Six-Month Period Ended October 2, 2022

Six-Month Period Ended September 26, 2021

During the nine -month periods ended January 1, 2023 and December 26, 2021, the Company classified its compensation expense associated with stock options within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

Nine-Month Period Ended January 1, 2023

Nine-Month Period Ended December 26, 2021

Administrative

2 unchanged sentences

Total stock option compensation

As of October 2, 2022, total unrecognized stock option compensation expense amounted to $ 196,000 , which will be recognized as the underlying stock options vest over a weighted-average period of 10.4 months.

As of January 1, 2023, total unrecognized stock option compensation expense amounted to $ 143,000 , which will be recognized as the underlying stock options vest over a weighted-average period of 7.4 months.

The amount of future stock option compensation expense could be affected by any future stock option grants and by the separation from the Company of any individual who has received stock options that are unvested as of such individual’s separation date.

59 unchanged sentences

third  party, determined that the grant date fair value of the awards amounted to $ 732,000 .

During the three - and six -month periods ended October 2, 2022 and September 26, 2021, the Company recorded compensation expense associated with stock grants, which is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, as follows (in thousands):

During the three - and nine -month periods ended January 1, 2023 and December 26, 2021, the Company recorded compensation expense associated with stock grants, which is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, as follows (in thousands):

Three-Month Periods Ended

Six-Month Periods Ended

Nine-Month Periods Ended

Stock Granted in Fiscal Year

October 2, 2022

September 26, 2021

October 2, 2022

September 26, 2021

January 1, 2023

December 26, 2021

January 1, 2023

December 26, 2021

Total stock grant compensation

As of October 2, 2022, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $ 743,000 , which will be recognized over the respective vesting terms associated with each block of non-vested stock indicated above, such grants having an aggregate weighted-average vesting term of 14.7 months.

As of January 1, 2023, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $ 542,000 , which will be recognized over the respective vesting terms associated with each block of non-vested stock indicated above, such grants having an aggregate weighted-average vesting term of 11.7 months.

The amount of future compensation expense related to the Company’s non-vested stock grants could be affected by any future non-vested stock grants and by the separation from the Company of any individual who has non-vested stock grants as of such individual’s separation date.

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Subsequent Events

The Company has evaluated all events which have occurred between October 2, 2022 and the date that the accompanying unaudited condensed consolidated financial statements were issued, and has determined that there are no material subsequent events that require disclosure.  

The Company has evaluated all other events which have occurred between January 1, 2023 and the date that the accompanying unaudited condensed consolidated financial statements were issued, and has determined that there are no other material subsequent events that require disclosure.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Sales of the Company’s products are made directly to retailers, such as mass merchants, large chain stores, juvenile specialty stores, value channel stores, grocery and drug stores, restaurants, wholesale clubs and internet-based retailers.

The accompanying unaudited condensed consolidated statements of income for the three- and six-month periods ended September 26, 2021 include income, expenses and losses associated with the operating activities of Carousel, a wholly-owned subsidiary that manufactured and marketed infant and toddler bedding directly to consumers online from a facility in Douglasville, Georgia.

The accompanying unaudited condensed consolidated statements of income for the three- and nine-month periods ended December 26, 2021 include income, expenses and losses associated with the operating activities of Carousel, a wholly-owned subsidiary that manufactured and marketed infant and toddler bedding directly to consumers online from a facility in Douglasville, Georgia.

On May 5, 2021, the Board approved the closure of Carousel due to a history of high costs, declining sales and operating and cash flow losses, as well as management’s determination that such losses were likely to continue.

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RESULTS OF OPERATIONS

The following table contains the results of operations for the three- and six-month periods ended October 2, 2022 and September 26, 2021 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 nine-month periods ended January 1, 2023 and December 26, 2021 and the dollar and percentage changes for those periods (in thousands, except percentages):

Three-Month Periods Ended

Six-Month Periods Ended

October 2, 2022

September 26, 2021

October 2, 2022

September 26, 2021

Nine-Month Periods Ended

Net sales by category:

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% of net sales

Sales decreased to $18.7 million for the three months ended October 2, 2022, compared with $20.2 million for the three months ended September 26, 2021, a decrease of $1.5 million, or 7.4%.

Sales of bedding, blankets and accessories decreased by $1.6 million, which was offset by an increase in sales of bibs, toys and disposable products of $104,000.

Sales decreased to $34.4 million for the six months ended October 2, 2022, compared with $38.9 million for the six months ended September 26, 2021, a decrease of $4.5 million, or 11.5%.

Sales decreased to $19.0 million for the three months ended January 1, 2023, compared with $22.7 million for the three months ended December 26, 2021, a decrease of $3.7 million, or 16.4%.

Sales of bedding, blankets and accessories decreased by $2.8 million, and sales of bibs, toys and disposable products decreased by $963,000.

Sales declined in part due to sales to a struggling retail customer of the Company that were approximately $600,000 lower in the current-year quarter.

Also, because the Company’s products can typically be purchased anytime during the mother’s pregnancy, sales declined during the current-year quarter as consumers, influenced by current macroeconomic conditions, and more so in the current quarter than in prior quarters, diverted their discretionary spending to holiday purchases.

Sales for the nine-month period ended January 1, 2023 decreased to $53.4 million, compared with $61.7 million for the nine-month period ended December 26, 2021, a decrease of $8.2 million, or 13.4%.

Sales of bedding, blankets and accessories decreased by $6.8 million, and sales of bibs, toys and disposable products decreased by $1.4 million.

The decreases in sales are primarily due to lower replenishment orders at retailers.

Also, during the current-year periods, the Company’s customers began to reduce their purchases as their inventories increased, which the Company believes resulted from customers’

Also, during the current-year period, the Company’s customers have been reducing their purchases as their inventories have increased, which the Company believes has resulted from customers’

excessive inventory purchases during the first quarter of calendar 2022 and consumers’

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Gross Profit:

Gross profit decreased by $622,000 and decreased from 30.0% of net sales for the three-month period ended September 26, 2021 to 29.1% of net sales for the three-month period ended October 2, 2022.

Gross profit decreased by $125,000 but increased from 27.5% of net sales for the six-month period ended September 26, 2021 to 30.8% of net sales for the six-month period ended October 2, 2022.

The decrease in the gross profit amount is net of the positive impact of the closure of Carousel, which in the prior-year period recognized a gross loss of $688,000, including losses from the sale of inventory below cost and the recognition of charges of $334,000 associated with the settlement with a supplier of a commitment to purchase fabric and $265,000 associated with the liquidation of Carousel’s remaining inventory upon the closure of the business.

Although the gross profit in the prior-year period was impacted by increases in costs across the entire supply chain, the Company in the current-year has realized some stabilization in its input costs.

Finally, the Company also expects to benefit in future periods from recent increases in the selling prices of its products.

Gross profit decreased by $1.7 million and decreased from 27.1% of net sales for the three-month period ended December 26, 2021 to 23.7% of net sales for the three-month period ended January 1, 2023.

Gross profit decreased by $1.8 million but increased from 27.4% of net sales for the nine-month period ended December 26, 2021 to 28.3% of net sales for the nine-month period ended January 1, 2023.

The decrease in the gross profit amount for the current-year periods is associated with the decline in sales during the periods and is net of the positive impact of the closure of Carousel, which in the prior-year nine-month period recognized a gross loss of $689,000, including losses from the sale of inventory below cost and the recognition of charges of $334,000 associated with the settlement with a supplier of a commitment to purchase fabric and $265,000 associated with the liquidation of Carousel’s remaining inventory upon the closure of the business.

Although the gross profit in the prior-year nine-month period was impacted by increases in costs across the entire supply chain, the Company in the current year has realized some stabilization in its input costs.

Finally, the Company has benefited from recent increases in the selling prices of its products.

Marketing and Administrative Expenses:

Marketing and administrative expenses decreased by $428,000, and decreased from 15.6% of net sales for the three-month period ended September 26, 2021 to 14.6% of net sales for the three-month period ended October 2, 2022.

The prior-year period included $85,000 for charges incurred by Carousel.

Marketing and administrative expenses decreased by $381,000 but increased from 16.8% of net sales for the six-month period ended September 26, 2021 to 17.9% of net sales for the six-month period ended October 2, 2022.

Marketing and administrative expenses decreased by $352,000, but increased from 13.6% of net sales for the three-month period ended December 26, 2021 to 14.4% of net sales for the three-month period ended January 1, 2023.

Marketing and administrative expenses decreased by $733,000 but increased from 15.6% of net sales for the nine-month period ended December 26, 2021 to 16.6% of net sales for the nine-month period ended January 1, 2023.

The prior-year period included $496,000 for charges incurred by Carousel.

Gain on extinguishment of debt:

On May 20, 2021, the PPP Loan was forgiven in full, which resulted in a gain on extinguishment of debt in the amount of $1,985,000 during the three months ended June 27, 2021 and the six months ended September 26, 2021.

On May 20, 2021, the PPP Loan was forgiven in full, which resulted in a gain on extinguishment of debt in the amount of $1,985,000 during the three months ended June 27, 2021 and the nine months ended December 26, 2021.

Income Tax Expense:

The Company’s provision for income taxes is based upon an estimated annual effective tax rate (“ETR”) from continuing operations of 23.5% for the six-month period ended October 2, 2022, as compared with an estimated annual ETR from continuing operations of 19.6% for the six-month period ended September 26, 2021.

The Company’s provision for income taxes is based upon an estimated annual effective tax rate (“ETR”) from continuing operations of 23.3% for the nine-month period ended January 1, 2023, as compared with an estimated annual ETR from continuing operations of 20.0% for the nine-month period ended December 26, 2021.

The gain on extinguishment of debt associated with the forgiveness of the PPP Loan was permitted to be excluded from taxable income, the effect of which lowered the ETR for the prior-year period by approximately four percentage points.

As a result of the consideration of the relevant information regarding the state portion of its income tax provision, the Company recorded discrete reserves for unrecognized tax liabilities of $27,000 and $22,000 during the three-month periods ended October 2, 2022 and September 26, 2021, respectively, and $46,000 and $45,000 during the six-month periods ended October 2, 2022 and September 26, 2021, respectively, in the accompanying unaudited condensed consolidated statements of income.

The Company also recorded discrete income tax charges of $5,000 and $6,000 during the three- and six-month periods ended October 2, 2022, respectively, and the Company recorded discrete income tax benefits of $28,000 and $72,000 during the three- and six-month periods ended September 26, 2021, respectively, to reflect the net effects of the excess tax benefits and tax shortfalls arising from the exercise of stock options and 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 24.7% and 19.2% for the six-month periods ended October 2, 2022 and September 26, 2021, respectively.

As a result of the consideration of the relevant information regarding the state portion of its income tax provision, the Company recorded discrete reserves for unrecognized tax liabilities of $12,000 and $22,000 during the three-month periods ended January 1, 2023 and December 26, 2021, respectively, and $58,000 and $67,000 for the nine-month periods ended January 1, 2023 and December 26, 2021, respectively, in the accompanying unaudited condensed consolidated statements of income.

The Company also recorded discrete income tax charges of $6,000 during the nine months ended January 1, 2023, and the Company recorded discrete income tax benefits of $11,000 and $83,000 during the three- and nine-months ended December 26, 2021, respectively, to reflect the net effects of the excess tax benefits and tax shortfalls arising from the exercise of stock options and 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 24.4% and 19.4% for the nine-month periods ended January 1, 2023 and December 26, 2021, respectively.

Although the Company does not anticipate a material change to the ETR from continuing operations for the remainder of fiscal year 2023, 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 $3.2 million for the six-month period ended September 26, 2021 to $2.7 million for the six-month period ended October 2, 2022.

The decrease in the current year was the result of an increase in inventory in the current year that was $3.2 million higher than the increase in the prior year and a $1.6 million decrease in net income from the prior year to the current year.

There was also an increase in accounts payable in the current year that was $1.6 million lower than the increase in the prior year.

There was a decrease in accrued liabilities in the current year that was $619,000 lower than the decrease in the prior year.

These decreases were offset by a decrease in accounts receivable in the current year that was $4.8 million higher than the decrease in the prior year and the gain on extinguishment of debt of $1,985,000 in the prior year that was associated with the forgiveness of the PPP Loan.

Net cash used in investing activities, which were primarily associated with capital expenditures for property, plant and equipment, decreased from $253,000 in the prior year to $191,000 in the current year.

Net cash provided by operating activities increased from $4.3 million for the nine-month period ended December 26, 2021 to $4.4 million for the nine-month period ended January 1, 2023.

The increase in the current year was the result of a decrease in accounts receivable in the current year that was $6.0 million higher than the increase in the prior year and the gain on extinguishment of debt of $1,985,000 in the prior year that was associated with the forgiveness of the PPP Loan.

These increases were offset by a $2.7 million decrease in net income from the prior year to the current year.

There was also an increase in accounts payable in the prior year that was $2.3 million higher than the decrease in the current year.

There was also a decrease in accrued liabilities in the current year that was $1.8 million higher than the increase in the prior year and an increase in inventory in the current year that was $997,000 higher than the increase in the prior year.

Net cash used in investing activities, which were primarily associated with capital expenditures for property, plant and equipment, increased from $355,000 in the prior year to $363,000 in the current year.

Net cash used in financing activities, which were primarily associated with the payment of dividends, increased by $57,000 from the prior year to the current year.

As of October 2, 2022, there was no balance owed on the Company’s revolving line of credit with CIT, there was no letter of credit outstanding and $26.0 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

As of January 1, 2023, there was no balance owed on the Company’s revolving line of credit with CIT, there was no letter of credit outstanding and $26.0 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 substantially all of its trade accounts receivable to CIT under factoring agreements.

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

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $79,000 and $85,000 for the three-month periods ended October 2, 2022 and September 26, 2021, respectively, and amounted to $147,000 and $149,000 for the six-month periods ended October 2, 2022 and September 26, 2021, respectively.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $77,000 and $99,000 for the three-month periods ended January 1, 2023 and December 26, 2021, respectively, and amounted to $224,000 and $248,000 for the nine-month periods ended January 1, 2023 and December 26, 2021, respectively.

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 1. Financial Statements