What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-14 compared with 2024-02-14 · 24 added, 33 removed, 50 unchanged (53% of the section changed)

11 unchanged sentences

The Company was originally formed as a Georgia corporation in 1957 and was reincorporated as a Delaware corporation in 2003.

The Company operates indirectly through its four wholly-owned subsidiaries, NoJo Baby & Kids, Inc., Sassy Baby, Inc., Manhattan and MTE in the infant, toddler and juvenile products segment within the consumer products industry.

The Company operates indirectly through its three wholly-owned subsidiaries, NoJo Baby & Kids, Inc., Sassy Baby, Inc.

and Manhattan Toy Europe Limited in the infant, toddler and juvenile products segment within the consumer products industry.

The infant, toddler and juvenile products segment consists of infant and toddler bedding and blankets, bibs, disposables, toys and feeding products.

10 unchanged sentences

RESULTS OF OPERATIONS

The following table contains the results of operations for the three- and nine-month periods ended December 31, 2023 and January 1, 2023 and the dollar and percentage changes for those periods (in thousands, except percentages):

The following table contains the results of operations for the three-month periods ended June 30, 2024 and July 2, 2023 and the dollar and percentage changes for those periods (in thousands, except percentages):

Three-Month Periods Ended

Nine-Month Periods Ended

December 31, 2023

January 1, 2023

December 31, 2023

January 1, 2023

June 30, 2024

Net sales by category:

8 unchanged sentences

Other (expense) income - net

Income tax expense

Income tax (benefit) expense

Net income (loss)

% of net sales

Sales increased to $23.8 million for the three months ended December 31, 2023, compared with $19.0 million for the three months ended January 1, 2023, an increase of $4.8 million, or 25.2%.

Sales of bedding, blankets and accessories decreased by $9,000, and sales of bibs, toys and disposable products increased by $4.8 million.

Although Manhattan generated net sales of $6.0 million of developmental toy, feeding and baby care products during the current year quarter, cost pressures facing consumers continue to curb sales even as overall inflation has trended lower in recent months.

Sales increased to $65.1 million for the nine-month period ended December 31, 2023, compared with $53.4 million for the nine-month period ended January 1, 2023, an increase of $11.6 million, or 21.7%.

Sales of bibs, toys and disposable products increased by $14.5 million due to the Manhattan Acquisition.

This increase was offset by lower sales of bedding, blankets and accessories, which decreased by $1.7 million, due to the continued impact of retailers that have been managing inventory levels, consumers that have lowered their spending due to inflationary pressures and continued overall softness in the infant and toddler bedding and blankets market.

Sales decreased to $16.2 million for the three months ended June 30, 2024, compared with $17.1 million for the three months ended July 2, 2023, a decrease of $911,000, or 5.3%.

Sales of bedding, blankets and accessories increased by $678,000, and sales of bibs, toys and disposable products decreased by $1.6 million.

The decline in sales is primarily due to a major retailer reducing inventory levels and the loss of a program at another major retailer.

Gross Profit:

Manhattan contributed $1.1 million to the $1.9 million increase in gross profit for the three-month period ended December 31, 2023, as compared with the three-month period ended January 1, 2023.

Gross profit as a percentage of net sales increased from 23.7% in the prior year quarter to 27.0% in the current year quarter.

Gross profit increased in amount by $2.7 million, but decreased from 28.3% of net sales for the nine-month period ended January 1, 2023 to 27.3% of net sales for the nine-month period ended December 31, 2023.

Manhattan contributed $3.4 million to the increase, which was partially offset by an increase in operating lease costs in the current-year period, including $481,000 in operating lease costs of Manhattan.

Gross profit decreased in amount by $776,000 and decreased from 27.7% of net sales for the three-month period ended July 2, 2023 to 24.5% of net sales for the three-month period ended June 30, 2024.

The reduction in gross profit relates to the timing of purchases, causing an unfavorable change in the absorption of costs into inventory.

Marketing and Administrative Expenses:

Marketing and administrative expenses increased by $1.4 million, and increased from 14.4% of net sales for the three-month period ended January 1, 2023 to 17.3% of net sales for the three-month period ended December 31, 2023.

The increases in the current-year period consisted primarily of $1.3 million for charges incurred by Manhattan and MTE.

Marketing and administrative expenses for the nine-month period ended December 31, 2023 increased by $3.3 million as compared with the nine-month period ended January 1, 2023, and increased from 16.6% of net sales for the year-to-date period of the prior year to 18.7% for the current-year period.

The increases in the current-year period were the result of $3.3 million for charges incurred by Manhattan and MTE.

Marketing and administrative expenses increased by $217,000 and increased from 23.6% of net sales for the three-month period ended July 2, 2023 to 26.3% of net sales for the three-month period ended June 30, 2024.

The current year period includes $244,000 associated with the closure of the Company’s subsidiary in the United Kingdom and $116,000 in costs associated with the Baby Boom Acquisition.

Income Tax Expense:

The Company’s provision for income taxes is based upon an estimated annual effective tax rate (“ETR”) from continuing operations of 21.4% for the nine-month period ended December 31, 2023, as compared with an estimated annual ETR from continuing operations of 23.3% for the nine-month period ended January 1, 2023.

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 $9,000 and $12,000 during the three-month periods ended December 31, 2023 and January 1, 2023, respectively, and $34,000 and $58,000 during the nine-month periods ended December 31, 2023 and January 1, 2023, respectively, in the unaudited condensed consolidated statements of income.

The Company also recorded discrete income tax charges of $43,000 and $6,000 during the nine months ended December 31, 2023 and January 1, 2023, respectively, to reflect the net effects of the excess tax benefits and tax shortfalls arising from the exercise and expiration of stock options and the vesting of non-vested stock.

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 23.3% and 24.4% for the nine-month periods ended December 31, 2023 and January 1, 2023, respectively.

The Company’s provision for income taxes is based upon an estimated annual effective tax rate (“ETR”) from continuing operations of 21.8% for the three-month period ended June 30, 2024, as compared with an estimated annual ETR from continuing operations of 21.5% for the three-month period ended July 2, 2023.

As a result of the consideration of the relevant information regarding the state portion of its income tax provision, the Company did not record a discrete reserve for unrecognized tax liabilities during the three-month period ended June 30, 2024, and recorded a discrete reserve for unrecognized tax liabilities of $5,000 during the three-month period ended July 2, 2023 in the unaudited condensed consolidated statements of operations.

The Company also recorded discrete income tax charges of $20,000 and $27,000 during the three months ended June 30, 2024 and July 2, 2023, respectively, to reflect the effects of the tax shortfalls arising from the forfeiture and expiration of stock options and the vesting of non-vested stock.

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 16.6% and 27.7% for the three-month periods ended June 30, 2024 and July 2, 2023, respectively.

Although the Company does not anticipate a material change to the ETR from continuing operations for the remainder of fiscal year 2025, 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 $4.4 million for the nine-month period ended January 1, 2023 to $4.1 million for the nine-month period ended December 31, 2023.

The decrease in the current year was partially the result of an increase in inventory in the current year that was $4.0 million lower than the increase in the prior year.

This increase was partially offset by a decrease in accounts receivable in the current year that was $3.6 million lower than the decrease in the prior year.

Net cash provided by operating activities increased from $6.3 million for the three-month period ended July 2, 2023 to $8.0 million for the three-month period ended June 30, 2024.

The increase in the current year was partially the result of an increase in inventory in the current year that was $2.6 million lower than the increase in the prior year and an increase in accounts payable in the current year that was $542,000 higher than the increase in the prior year.

This increase was partially offset by a decrease in accounts receivable in the current year that was $435,000 lower than the decrease in the prior year and a $688,000 decrease in net income from the prior year to the current year.

Net cash used in investing activities decreased from $355,000 in the prior year to $284,000 in the current year.

In the current-year period, the Company received $488,000 from the settlement of the Aggregate Adjustment from the Manhattan Acquisition, which was offset by an increase in the current year of $263,000 in capital expenditures for property, plant and equipment.

Net cash used in financing activities, which were primarily associated with net repayments under the revolving line of credit, increased by $2.6 million from the prior year to the current year.

As of December 31, 2023, the balance on the revolving line of credit was $10.0 million, there was no letter of credit outstanding and $19.8 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

The decrease in the current year is due to a decrease of $71,000 in capital expenditures for property, plant and equipment.

Net cash used in financing activities, which were primarily associated with net repayments under the revolving line of credit, increased by $484,000 from the prior year to the current year.

As of June 30, 2024, the balance on the revolving line of credit was $1.5 million, there was no letter of credit outstanding and $17.6 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.

4 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 consolidated statements of income, amounted to $106,000 and $77,000 for the three months ended December 31, 2023 and January 1, 2023, respectively, and amounted to $265,000 and $224,000 for the nine months ended December 31, 2023 and January 1, 2023, respectively.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of operations, amounted to $74,000 and $67,000 for the three-month periods ended June 30, 2024 and July 2, 2023, respectively.

The Company’s future performance is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors beyond its control.

1 unchanged sentence

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