UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
| | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No.
Crown Crafts, Inc.
(Exact name of registrant as specified in its charter)
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| (State of Incorporation) | (I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
Registrant's Telephone Number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
| Title of class | Trading Symbol(s) | Name of exchange on which registered |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act. Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☑ | Smaller Reporting Company | ||
| Emerging Growth Company | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The approximate aggregate market value of the voting stock held by non-affiliates of the registrant as of September 29, 2023 (the last business day of the registrant’s most recently completed second fiscal quarter) was $
As of May 31, 2024,
Documents Incorporated by Reference:
Portions of the registrant’s Proxy Statement for its 2024 Annual Meeting of Stockholders are incorporated into Part III hereof by reference.
| TABLE OF CONTENTS | ||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
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Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
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Certain Relationships and Related Transactions, and Director Independence. |
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Cautionary Notice Regarding Forward-Looking Statements
Certain of the statements made in this Annual Report on Form 10-K (this “Annual Report”) under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere, including information incorporated herein by reference to other documents, are “forward-looking statements” within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control and which may cause the actual results, performance or achievements of Crown Crafts, Inc. (the “Company”) to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
All statements other than statements of historical fact are statements that could be forward-looking. Such statements are based upon management’s current expectations, projections, estimates and assumptions, and may be identified as forward-looking through the Company’s use of words such as “expects,” “believes,” “anticipates,” “estimates,” “predicts,” “forecasts,” “plans,” “projects,” “targets,” “should,” “potential,” “continue,” “aims,” “intends,” “will,” “could,” “would” and variations of such words and similar expressions. Forward-looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward-looking statements. These risks include those described in Part I, Item 1A. “Risk Factors,” and elsewhere in this Annual Report and those described from time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”) of additional factors that may impact the Company’s results of operations and financial condition.
All written or oral forward-looking statements that are made by or are attributable to the Company are expressly qualified in their entirety by this cautionary notice. The Company’s forward-looking statements apply only as of the date of this Annual Report or the respective date of the document from which they are incorporated herein by reference. The Company has no obligation and does not undertake to update, revise or correct any of the forward-looking statements after the date of this Annual Report, or after the respective dates on which such statements are otherwise made, whether as a result of new information, future events or otherwise.
Description of Business
The Company was incorporated as a Georgia corporation in 1957 and was reincorporated as a Delaware corporation in 2003. The Company’s executive offices are located at 916 South Burnside Avenue, Suite 300, Gonzales, Louisiana 70737, its telephone number is (225) 647-9100 and its internet address is www.crowncrafts.com.
The Company operates indirectly through three of its wholly-owned subsidiaries, NoJo Baby & Kids, Inc. (“NoJo”), Sassy Baby, Inc. (“Sassy”) and Manhattan Toy Europe Limited (“MTE”) 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, soft bath products, disposable products, developmental toys and accessories. Most sales of the Company’s products are generally made directly to retailers, such as mass merchants, large chain stores, mid-tier retailers, juvenile specialty stores, value channel stores, grocery and drug stores, restaurants, wholesale clubs and internet-based retailers. The Company’s products are marketed under a variety of Company-owned trademarks, under trademarks licensed from others and as private label goods.
The Company's fiscal year ends on the Sunday nearest to or on March 31. References herein to “fiscal year 2024” or “2024” represent the 52-week period ended March 31, 2024, and references herein to “fiscal year 2023” or “2023” represent the 52-week period ended April 2, 2023.
On March 17, 2023 (the “Closing Date”), the Company acquired Manhattan Group, LLC (“Manhattan”) and MTE, Manhattan’s then wholly-owned subsidiary (the “Manhattan Acquisition”), for a purchase price of $17.0 million, subject to adjustments for cash as of the Closing Date and to the extent that actual net working capital as of the Closing Date differed from target net working capital of $13.75 million. The Manhattan Acquisition was funded with available cash and borrowings under the Company’s revolving line of credit with The CIT Group/Commercial Services (“CIT”). From the Closing Date through the fiscal year ended March 31, 2024, the Company operated Manhattan as a wholly-owned subsidiary that manufactured and marketed developmental toys. On April 1, 2024, the Company merged Manhattan into Sassy.
The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available free of charge on its website at www.crowncrafts.com as soon as reasonably practicable after such material has been electronically filed with the SEC. These reports are also available without charge on the SEC’s website at www.sec.gov.
International Sales
Sales to customers in countries other than the U.S. represented 8% and 5% of the Company’s total gross sales during fiscal years 2024 and 2023, respectively. International sales are based upon the location that predominately represents what the Company believes to be the final destination of the products delivered to the Company’s customers.
Competition
The infant, toddler and juvenile consumer products industry is highly competitive. The Company competes with a variety of distributors and manufacturers (both branded and private label), including large infant, toddler and juvenile product companies and specialty infant, toddler and juvenile product manufacturers, on the basis of quality, design, price, brand name recognition, service and packaging. The Company’s ability to compete depends principally on styling, price, service to the retailer and continued high regard for the Company’s products and trade names.
Human Capital Resources
As of May 31, 2024, the Company had 162 employees, all of whom are full-time and none of whom is represented by a labor union or is otherwise a party to a collective bargaining agreement. The Company attracts and maintains qualified personnel by paying competitive salaries and benefits and offering opportunities for advancement. The Company considers its relationship with its employees to be good.
Trademarks, Copyrights and Patents
The Company considers its intellectual property to be of material importance to its business. Sales of products marketed under the Company’s trademarks, including Sassy®, Manhattan Toy®, NoJo® and Neat Solutions® accounted for 38% and 35% of the Company’s total gross sales during fiscal years 2024 and 2023, respectively. Protection for these trademarks is obtained through domestic and foreign registrations. The Company also markets designs that are subject to copyrights and design patents owned by the Company.
Product Sourcing
Foreign and domestic contract manufacturers produce most of the Company’s products, with the largest concentration being in China. The Company makes sourcing decisions on the basis of quality, timeliness of delivery and price, including the impact of ocean freight and duties. Although the Company maintains relationships with a limited number of suppliers, the Company believes that its products may be readily manufactured by several alternative sources in quantities sufficient to meet the Company’s requirements. The Company’s management and quality assurance personnel visit the third-party facilities regularly to monitor and audit product quality and to ensure compliance with labor requirements and social and environmental standards. In addition, the Company closely monitors the currency exchange rate. The impact of future fluctuations in the exchange rate or changes in safeguards cannot be predicted with certainty.
The Company maintains a foreign representative office located in Shanghai, China, which is responsible for the coordination of production, purchases and shipments, seeking out new vendors and overseeing inspections for social compliance and quality.
The Company’s products are warehoused and distributed domestically from leased facilities located in Compton, California and Eden Valley, Minnesota and internationally from third-party logistics warehouses in Belgium and the United Kingdom.
Licensed Products
Certain products are manufactured and sold pursuant to licensing agreements for trademarks. Also, many of the designs used by the Company are copyrighted by other parties, including trademark licensors, and are available to the Company through copyright license agreements. The licensing agreements are generally for an initial term of one to three years and may or may not be subject to renewal or extension. Sales of licensed products represented 40% of the Company’s gross sales in fiscal year 2024, which included 24% of sales under the Company’s license agreements with affiliated companies of The Walt Disney Company (“Disney”), which expire as set forth below:
| License Agreement |
Expiration |
| Infant Bedding |
December 31, 2025 |
| Infant Feeding and Bath |
December 31, 2024 |
| Toddler Bedding |
December 31, 2024 |
| Marvel |
December 31, 2024 |
| STAR WARS Toddler Bedding |
December 31, 2024 |
| STAR WARS - Lego Plush |
December 31, 2025 |
Customers
The Company’s customers consist principally of mass merchants, large chain stores, mid-tier retailers, juvenile specialty stores, value channel stores, grocery and drug stores, restaurants, internet accounts and wholesale clubs. The Company does not enter into long-term or other purchase agreements with its customers. The table below sets forth those customers that represented at least 10% of the Company’s gross sales in fiscal years 2024 and 2023.
| Fiscal Year |
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| 2024 |
2023 |
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| Walmart Inc. |
42% | 51% | ||||||
| Amazon.com, Inc. |
19% | 20% | ||||||
Products
The Company’s primary focus is on infant, toddler and juvenile products, including the following:
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developmental toys |
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dolls and plush toys |
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reusable and disposable bibs |
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infant and toddler bedding |
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blankets and swaddle blankets |
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nursery and toddler accessories |
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room décor |
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burp cloths |
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reusable and disposable placemats and floor mats |
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disposable toilet seat covers and changing mats |
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feeding and care goods |
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other infant, toddler and juvenile soft goods |
Seasonality and Inventory Management
Approximately 20% of the Company’s annual gross sales typically occur during the first fiscal quarter (April through June). There are otherwise no significant variations in the seasonal demand for the Company’s products from year to year. Sales are generally higher in periods when customers take initial shipments of new products, as these orders typically include enough products for initial sets for each store and additional quantities for the customer’s distribution centers. The timing of these initial shipments varies by customer and depends on when the customer finalizes store layouts for the upcoming year and whether the customer has any mid-year introductions of products. Sales may also be higher or lower, as the case may be, in periods when customers are restricting internal inventory levels. Customer returns of merchandise shipped are historically less than 1% of gross sales.
Consistent with the expected introduction of specific product offerings, the Company carries necessary levels of inventory to meet the anticipated delivery requirements of its customers. The Company will also typically increase the purchases and inventory levels of its products in the months prior to the Lunar New Year, a celebration beginning in late January to mid-February during which the Company’s contract manufacturers in China cease operations for 2-4 weeks.
Government Regulation and Environmental Control
The Company is subject to various federal, state and local environmental laws and regulations, which regulate, among other things, product safety and the discharge, storage, handling and disposal of a variety of substances and wastes, and to laws and regulations relating to employee safety and health, principally the Occupational Safety and Health Administration Act and regulations thereunder. The Company believes that it currently complies in all material respects with applicable environmental, health and safety laws and regulations and that future compliance with such existing laws or regulations will not have a material adverse effect on its capital expenditures, earnings or competitive position. However, there is no assurance that such requirements will not become more stringent in the future or that the Company will not have to incur significant costs to comply with such requirements.
Product Design and Styling
The Company believes that its creative team is one of its key strengths. The Company’s product designs are primarily created internally and are supplemented by numerous additional sources, including independent artists, decorative fabric manufacturers and apparel designers. Ideas for product design creations are drawn from various sources and are reviewed and modified by the design staff to ensure consistency within the Company’s existing product offerings and the themes and images associated with such existing products. In order to respond effectively to changing consumer preferences, the Company’s designers and stylists attempt to stay abreast of emerging lifestyle trends in color, fashion and design. When designing products under the Company’s various licensed brands, the Company’s designers coordinate their efforts with the licensors’ design teams to provide for a more fluid design approval process and to effectively incorporate the image of the licensed brand into the product. The Company’s designs include traditional, contemporary, textured and whimsical patterns across a broad spectrum of retail price points.
Utilizing state of the art computer technology, the Company continually develops new designs throughout the year for all of its product groups. This continual development cycle affords the Company design flexibility, multiple opportunities to present new products to customers and the ability to provide timely responses to customer demands and changing market trends. The Company also creates designs for exclusive sale by certain of its customers under the Company’s brands, as well as the customers’ private label brands.
Sales and Marketing
The Company’s products are marketed through a national sales force consisting of salaried sales executives and employees located in Gonzales, Louisiana; Compton, California; Minneapolis, Minnesota; Grand Rapids, Michigan; Bentonville, Arkansas; and London, United Kingdom; and by independent commissioned sales representatives located throughout the United States.
The following risk factors as well as the other information contained in this Annual Report and other filings made by the Company with the SEC should be considered in evaluating the Company’s business. Additional risks and uncertainties that are not presently known or that are not currently considered material may also impair the Company’s business operations. If any of the following risks actually occur, then operating results may be affected in future periods.
Risks Associated with the Company, Business and Industry
The loss of one or more of the Company’s key customers could result in a material loss of revenues.
The Company’s top two customers represented approximately 61% of gross sales in fiscal year 2024. Although the Company does not enter into contracts with its key customers, it expects its key customers to continue to be a significant portion of its gross sales in the future. The loss of, or a decline in orders from, one or more of these customers could result in a material decrease in the Company’s revenue and operating income.
The loss of one or more of the Company’s licenses could result in a material loss of revenues.
Sales of licensed products represented 40% of the Company’s gross sales in fiscal year 2024, which included 24% of sales associated with the Company’s license agreements with Disney. The Company could experience a material loss of revenues if it is unable to renew its major license agreements or obtain new licenses. The volume of sales of licensed products is inherently tied to the success of the characters, films and other licensed programs of the Company’s licensors. A decline in the popularity of these licensed programs or the inability of the licensors to develop new properties for licensing could also result in a material loss of revenues to the Company. Additionally, the Company’s license agreements with Disney and others require a material amount of minimum guaranteed royalty payments. The failure by the Company to achieve the sales envisioned by the license agreements could result in the payment by the Company of shortfalls in the minimum guaranteed royalty payments, which would adversely impact the Company’s operating results.
Growing geopolitical tensions could adversely affect the Company’s operations and profitability.
Mounting terrorist activity, ongoing wars and violence in the Middle East and Ukraine, the potential for the escalation of China’s aggression towards Taiwan and the increasingly erratic behavior of North Korea have resulted in growing geopolitical tensions. Nearly all nations have felt the effects of global economic uncertainty, including higher energy and food prices. These uncertainties could result in a slowdown to the global economy that may affect the Company’s business by reducing the prices that the Company’s customers may be willing or able to pay for its products or by reducing the demand for the Company’s products, which could negatively impact the Company’s revenues and result in a material adverse effect on the Company’s business, cash flow, results of operations and financial condition.
Climate change may negatively affect the Company’s business, results of operations, cash flow and financial condition.
The Company is exposed to risks associated with climate change. The adverse impacts of climate change include the increased frequency and severity of natural disasters and extreme weather events, including hurricanes, tornados, wildfires, extreme heat, rising sea levels and inland flooding. The occurrence of one or more of these events pose a physical risk to the Company’s facilities, as well as those of its customers, suppliers and employees, the likelihood of a loss of the Company’s inventory and an overall disruption to the Company’s operations. Climate change has the potential to result in a material adverse effect on the Company’s business, cash flow, results of operations and financial condition.
The Company’s inability to anticipate and respond to consumers’ tastes and preferences could adversely affect the Company’s revenues.
Sales are driven by consumer demand for the Company’s products. There can be no assurance that the demand for the Company’s products will not decline or that the Company will be able to anticipate and respond to changes in demand related to consumers’ tastes and preferences. The infant and toddler consumer products industry is characterized by the continual development of cutting-edge new products to meet the high standards of parents. Also, the development of social media has resulted in a monumental shift in the modern shopping experience. The Company’s failure to adapt to these changes, develop new products or reach consumers where they are could lead to lower sales and excess inventory, which could have a material adverse effect on the Company’s financial condition and operating results.
The Company’s sourcing and marketing operations in foreign countries are subject to anti-corruption laws.
The Company’s foreign operations are subject to laws prohibiting improper payments and bribery, including the U.S. Foreign Corrupt Practices Act and similar laws and regulations in foreign jurisdictions, which apply to the Company’s directors, officers, employees and agents acting on behalf of the Company. Failure to comply with these laws could result in damage to the Company’s reputation, a diversion of management’s attention from its business, increased legal and investigative costs, and civil and criminal penalties, any or all of which could adversely affect the Company’s operating results.
The Company’s business is impacted by general economic conditions and related uncertainties, including a declining birthrate, affecting markets in which the Company operates.
The Company’s growth is largely influenced by the birthrate, and in particular, the rate of first births. Geopolitical risks and economic conditions, including the real and perceived threat of wars, terrorism, tension among nations, rising prices or unemployment, could lead individuals to decide to forgo or delay having children. Even under optimal conditions, shifts in demographic trends and preferences could have the consequence of individuals starting to have children later in life and/or having fewer children.
In recent years, the birthrate in the United States has steadily declined. These conditions could result in reduced demand for some of the Company’s products, increased order cancellations and returns, an increased risk of excess and obsolete inventories and increased pressure on the prices of the Company’s products. Also, although the Company’s use of a commercial factor significantly reduces the risk associated with collecting accounts receivable, such factor may at any time terminate or limit its approval of shipments to a particular customer. The bankruptcy of a customer, the perceived pending threat of a bankruptcy of a customer, or an adverse change in overall economic conditions are among the events that would increase the likelihood that the factor would terminate or limit its approval of shipments to customers. Such an action by the factor could result in the loss of future sales to such affected customers.
Economic conditions could result in an increase in the amounts paid for the Company’s products.
Significant increases in freight costs and the price of raw materials that are components of the Company’s products, including cotton, oil and labor, could adversely affect the amounts that the Company must pay its suppliers for its finished goods. If the Company is unable to pass these cost increases along to its customers, its profitability could be adversely affected.
The Company could experience losses associated with its intellectual property.
The Company relies upon the fair interpretation and enforcement of patent, copyright, trademark and trade secret laws in the U.S., similar laws in other countries, and agreements with employees, customers, suppliers, licensors and other parties. Such reliance serves to establish and maintain the intellectual property rights associated with the products that the Company develops and sells. However, the laws and courts of certain countries at times do not protect intellectual property rights or respect contractual agreements to the same extent as the laws of the U.S. Therefore, in certain jurisdictions the Company may not be able to protect its intellectual property rights against counterfeiting or enforce its contractual agreements with other parties. Finally, a party could claim that the Company is infringing upon such party’s intellectual property rights, and claims of this type could lead to a civil complaint. An unfavorable outcome in litigation involving intellectual property could result in any or all of the following: (i) civil judgments against the Company, which could require the payment of royalties on both past and future sales of certain products, as well as plaintiff’s attorneys’ fees and other litigation costs; (ii) impairment charges of up to the carrying value of the Company’s intellectual property rights; (iii) restrictions on the ability of the Company to sell certain of its products; (iv) legal and other costs associated with investigations and litigation; and (v) adverse effects on the Company’s competitive position.
Widespread outbreaks of contagious disease may adversely affect the Company’s business operations, employee availability, financial condition, liquidity and cash flow.
Significant outbreaks of contagious diseases could have adverse effects on the overall economy and impact the Company’s supply chain, manufacturing and distribution operations, transportation services, customers and employees, as well as consumer sentiment in general and traffic within the retail stores that carry the Company’s products. A pandemic could adversely affect the Company’s revenues, earnings, liquidity and cash flows and require significant actions in response, including employee furloughs, closings of Company facilities, expense reductions or discounts of the pricing of the Company’s products, all in an effort to mitigate such effects.
During fiscal years 2022 and 2021, the COVID-19 pandemic led global government authorities to implement numerous public health measures, including quarantines, business closures, travel bans and lockdowns to confront the pandemic. China’s efforts to control the spread of the COVID-19 virus by locking down its largest cities placed a strain on already-stressed global supply chains. Several of the Company’s customers experienced financial difficulties as a result of the COVID-19 pandemic.
A resurgence of the COVID-19 pandemic, or any other outbreak of a contagious disease, could adversely affect the Company’s revenues, earnings, liquidity and cash flows and may require significant actions in response, including employee furloughs, closings of Company facilities, expense reductions or discounts of the pricing of the Company’s products, all in an effort to mitigate such effects.
The strength of the Company’s competitors may impact the Company’s ability to maintain and grow its sales, which could decrease the Company’s revenues.
The infant and toddler consumer products industry is highly competitive. The Company competes with a variety of distributors and manufacturers, both branded and private label. The Company’s ability to compete successfully depends principally on styling, price, service to the retailer and continued high regard for the Company’s products and trade names. Several of these competitors are larger than the Company and have greater financial resources than the Company, and some have experienced financial challenges from time to time, including servicing significant levels of debt. Those facing financial pressures could choose to make particularly aggressive pricing decisions in an attempt to increase revenue. Competitors based in China have begun to sell and ship directly to customers without having to rely on distributors in the destination country, making their products more affordable. The effects of increased competition could result in a material decrease in the Company’s revenues.
The Company’s success is dependent upon retaining key management personnel.
Certain of the Company’s executive management and other key personnel have been integral to the Company’s operations and the execution of its growth strategy. The departure from the Company of one or more of these individuals, along with the inability of the Company to attract qualified and suitable individuals to fill the Company’s open positions, could adversely impact the Company’s growth and operating results.
The Company may need to write down or write off inventory.
If product programs end before the inventory is completely sold, then the remaining inventory may have to be sold at less than carrying value. The market value of certain inventory items could drop to below carrying value after a decline in sales, at the end of programs, or when management makes the decision to exit a product group. Such inventory would then need to be written down to the lower of carrying or market value, or possibly completely written off, which would adversely affect the Company’s operating results.
Recalls or product liability claims could increase costs or reduce sales.
The Company must comply with the Consumer Product Safety Improvement Act, which imposes strict standards to protect children from potentially harmful products and which requires that the Company’s products be tested to ensure that they are within acceptable levels for lead and phthalates. The Company must also comply with related regulations developed by the Consumer Product Safety Commission and similar state regulatory authorities. The Company’s products could be subject to involuntary recalls and other actions by these authorities, and concerns about product safety may lead the Company to voluntarily recall, accept returns or discontinue the sale of select products. Product liability claims could exceed or fall outside the scope of the Company’s insurance coverage. Recalls or product liability claims could result in decreased consumer demand for the Company’s products, damage to the Company’s reputation, a diversion of management’s attention from its business and increased customer service and support costs, any or all of which could adversely affect the Company’s operating results.
The Company could experience adjustments to its effective tax rate or its prior tax obligations, either of which could adversely affect its results of operations.
The Company is subject to income taxes in the many jurisdictions in which it operates, including the U.S., several U.S. states and China. At any particular point in time, several tax years are subject to general examination or other adjustment by these various jurisdictions. Although the Company believes that the calculations and positions taken on its filed income tax returns are reasonable and justifiable, administrative or legal proceedings leading to the outcome of any examination could result in an adjustment to the position that the Company has taken. Such adjustment could result in further adjustment to one or more income tax returns for other jurisdictions, or to income tax returns for prior or subsequent tax years, or both. To the extent that the Company’s reserve for unrecognized tax liabilities is not adequate to support the cumulative effect of such adjustments, the Company could experience a material adverse impact on operating results.
The Company’s provision for income taxes is based on its effective tax rate, which in any given financial statement period could fluctuate based on changes in tax laws or regulations, changes in the mix and level of earnings by taxing jurisdiction, changes in the amount of certain expenses within the consolidated statements of income that will never be deductible on the Company’s income tax returns and certain charges deducted on the Company’s income tax returns that are not included within the consolidated statements of income. These changes could cause fluctuations in the Company’s effective tax rate either on an absolute basis, or in relation to varying levels of the Company’s pre-tax income. Such fluctuations in the Company’s effective tax rate could adversely affect its results of operations.
Changes in international trade regulations and other risks associated with foreign trade could adversely affect the Company’s sourcing.
The Company sources its products primarily from foreign contract manufacturers, with the largest concentration being in China. Difficulties encountered by these suppliers, such as fires, accidents, natural disasters, outbreaks of infectious diseases (including the COVID-19 pandemic) and the instability inherent in operating within an authoritarian political structure, could halt or disrupt production and shipment of the Company’s products. The Chinese government could make allegations against the Company of corruption or antitrust violations, or could adopt regulations related to the manufacture of products within China, including quotas, duties, taxes and other charges or restrictions on the exportation of goods produced in China.
In response to Russia’s invasion of Ukraine, the U.S. government and other allied countries across the world have levied coordinated and wide-ranging economic sanctions against Russia. If China were to escalate its aggression towards Taiwan, similar sanctions could be levied against China, up to and including increased tariffs or a complete ban on the importation of goods manufactured in China, then the Company could be forced to source its products from suppliers in other countries.
The Company’s products are primarily shipped by merchant vessels across the world’s oceans. The intrinsic nature of such shipping includes the risk of intentional or unintentional impediments at the world’s global marine chokepoints, including various straits and the Panama and Suez canals. The recent firing on merchant vessels in the Red Sea by militants of Yemen’s Houthi movement has resulted in the shipment of the Company’s products from China to Europe to be routed around Africa, just as the Company has been benefitting from increased sales in Europe. These and any other events causing a disruption of the flow of the Company’s products, whether within the Chinese interior, at the port of embarkation, on global waters, or at the destination port, could result in delays in shipping.
Most of the Company’s products are imported from China into the Port of Long Beach in Southern California and the Port of Prince Rupert in British Columbia. There are many links in the distribution chain, including the availability of ocean freight, cranes, dockworkers, containers, tractors, chassis and drivers. The timely receipt of the Company’s products is dependent upon efficient operations at these ports. Any shortages in the availability of any of these links or disruptions in port operations, including strikes, lockouts or other work stoppages or slowdowns, could cause bottlenecks and other congestion in the distribution network, which could adversely impact the Company’s ability to obtain adequate inventory on a timely basis and result in lost sales, increased transportation costs and an overall decrease of the Company’s profits.
Any of these actions could result in lost sales, increased transportation costs and ultimately the inability of the Company to maintain the current sourcing of its products. Also, an arbitrary strengthening of the Chinese currency versus the U.S. Dollar could increase the prices at which the Company purchases finished goods. In addition, changes in U.S. customs procedures or delays in the clearance of goods through customs could result in the Company being unable to deliver goods to customers in a timely manner or the potential loss of sales altogether. The occurrence of any of these events could adversely affect the Company’s profitability.
Disruptions to the Company’s information technology systems could negatively affect the Company’s results of operations.
The Company’s operations are highly dependent upon computer hardware and software systems, including customized information technology systems and cloud-based applications. The Company also employs third-party systems and software that are integral to its operations. These systems are vulnerable to cybersecurity incidents, including disruptions and security breaches, which can result from unintentional events or deliberate attacks by insiders or third parties, such as cybercriminals, competitors, nation-states, computer hackers and other cyber terrorists. The Company faces an evolving landscape of cybersecurity threats in which evildoers use a complex array of means to perpetrate attacks, including the use of stolen access credentials, malware, ransomware, phishing, structured query language injection attacks and distributed denial-of-service attacks.
The Company has implemented both passive and active cybersecurity measures to securely maintain confidential and proprietary information stored on the Company’s information systems and continually invests in maintaining and upgrading the systems and applications to mitigate these risks. In addition to firewalls, antivirus software and intrusion detection, the Company’s passive cybersecurity measures include multifactor authentication for external access to the Company’s cyber networks. The Company’s active cybersecurity measures are designed to detect and prevent live ransomware attacks, insider threats and data breaches. There is no assurance that these measures and technology will adequately prevent an intrusion or that a third party that is relied upon by the Company will not suffer an intrusion, that unauthorized individuals will not gain access to confidential or proprietary information or that any such incident will be timely detected and effectively countered. A significant data security breach could result in negative consequences, including a disruption to the Company’s operations and substantial remediation costs, such as liability for stolen assets or information, repairs of system damage, and incentives to customers or other business partners in an effort to maintain relationships after an attack. An assault against the Company’s information technology infrastructure could also lead to other adverse impacts to its results of operations such as increased future cybersecurity protection costs, which may include making organizational changes, deploying additional personnel and protection technologies, and engaging third-party experts and consultants.
Customer pricing pressures could result in lower selling prices, which could negatively affect the Company’s operating results.
The Company’s customers could place pressure on the Company to reduce the prices of its products. The Company continuously strives to stay ahead of its competition in sourcing, which allows the Company to obtain lower cost products while maintaining high standards for quality. There can be no assurance that the Company could respond to a decrease in sales prices by proportionately reducing its costs, which could adversely affect the Company’s operating results.
General Risk Factors
The Company’s ability to successfully identify, consummate and integrate acquisitions, divestitures and other significant transactions could have an adverse impact on the Company’s business and financial results.
As part of its business strategy, the Company has made acquisitions of businesses, divestitures of businesses and assets, and has entered into other transactions to further the interests of the Company’s business and its stockholders. Risks associated with such activities include the following, any of which could adversely affect the Company’s financial results:
| ● |
The active management of acquisitions, divestitures and other significant transactions requires varying levels of Company resources, including the efforts of the Company’s key management personnel, which could divert attention from the Company’s ongoing business operations. |
| ● |
The Company may not fully realize the anticipated benefits and expected synergies of any particular acquisition or investment, or may experience a prolonged timeframe for realizing such benefits and synergies. |
| ● |
Increased or unexpected costs, unanticipated delays or failure to meet contractual obligations could make acquisitions and investments less profitable or unprofitable. |
| ● |
The failure to retain executive management members and other key personnel of the acquired business that may have been integral to the operations and the execution of the growth strategy of the acquired business. |
The Company’s debt covenants may affect its liquidity or limit its ability to pursue acquisitions, incur debt, make investments, sell assets or complete other significant transactions.
The Company’s credit facility contains usual and customary covenants regarding significant transactions, including restrictions on other indebtedness, liens, 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. Unless waived by the Company’s lender, these covenants could limit the Company’s ability to pursue opportunities to expand its business operations, respond to changes in business and economic conditions and obtain additional financing, or otherwise engage in transactions that the Company considers beneficial.
The Company’s ability to comply with its credit facility is subject to future performance and other factors.
The Company’s ability to make required payments of principal and interest on its debts, to refinance its maturing indebtedness, to fund capital expenditures or to comply with its debt covenants will depend upon future performance. The Company’s future performance is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors beyond its control. The breach of any of the debt covenants could result in a default under the Company’s credit facility. Upon the occurrence of an event of default, the Company’s lender could make an immediate demand of the amount outstanding under the credit facility. If a default was to occur and such a demand was to be made, there can be no assurance that the Company’s assets would be sufficient to repay the indebtedness in full.
A stockholder could lose all or a portion of his or her investment in the Company.
The Company’s common stock has historically experienced a degree of price variability, and the price could be subject to rapid and substantial fluctuations. The Company’s common stock has also historically been thinly traded, a circumstance that exists when there is a relatively small volume of buy and sell orders for the Company’s common stock at any given point in time. In such situations, a stockholder may be unable to liquidate his or her position in the Company’s common stock at the desired price. Also, as an equity investment, a stockholder’s investment in the Company is subordinate to the interests of the Company’s creditors, and a stockholder could lose all or a substantial portion of his or her investment in the Company in the event of a bankruptcy filing or liquidation.
ITEM 1B. Unresolved Staff Comments
None.
Cybersecurity Risk Management and Strategy
The Company’s cybersecurity measures are primarily focused on ensuring the security and protection of its information technology systems and data. The Company recognizes the increasing volume and sophistication of cybersecurity threats and takes seriously its responsibility to protect these information technology systems and data. The Company considers risks associated with cybersecurity alongside the Company’s other risks as part of its overall risk assessment process. The Company’s Vice President of Information Technology and his staff monitor the Company’s information systems to provide a comprehensive approach to assess, identify, manage, mitigate, and respond to cybersecurity threats.
The Company uses cost-effective controls that are commensurate with the risk and sensitivity of its specific information systems, control systems and enterprise data. The Company’s cybersecurity program incorporates best practices and industry standards from multiple sources and includes, but is not limited to, risk assessment, policies and procedures, training and awareness, auditing, log collection and analysis, threat hunting and intelligence surveillance, compliance monitoring and testing, and incident response.
When necessary, the Company’s Vice President of Information Technology and his staff collaborate with external third-party subject matter specialists. The Company has processes in place to oversee and identify material risks from cybersecurity threats associated with its use of these providers. All third parties engaged for such matters are subjected to scrutiny to ensure they satisfy the Company’s security standards. The Company periodically reviews its third-party engagements to ensure that the providers maintain the necessary levels of protection and competency, as well as to oversee and identify potential cybersecurity risks and threats from such engagements.
As of May 31, 2024, the Company has not identified any risks from known cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operation or financial condition. The Company has further disclosed how risks from cybersecurity threats could potentially have a material impact on the Company, including its business strategy, results of operations, or financial condition, in Part I, Item 1A, “Risk Factors” of this Annual Report.
Cybersecurity Governance
Cybersecurity, as an important part of the Company’s risk management processes, is a critical area of focus for the Company’s Board of Directors (the “Board”), which is responsible for oversight of the Company’s cybersecurity risk, including the effectiveness of cybersecurity risk management policies and protocols. As part of the Board’s oversight, the Board receives a report at least annually from the Company’s Vice President of Information Technology and other members of the Company’s executive management team. These reports include updates on the Company’s cybersecurity risks and threats, the status of projects intended to strengthen its information security systems, assessments of the cybersecurity program, and the emerging threat landscape.
In the event of a cybersecurity incident, the Company has processes by which the incident would be escalated internally and, when appropriate, reported to the Board or an appropriate committee of the Board, as well as for updating the Board regarding the incident until it has been resolved.
The Company’s Vice President of Information Technology is responsible for the Company’s cybersecurity strategy and execution. He has more than 30 years of experience in technology and information systems leadership and reports directly to the Company’s Chief Executive Officer.
Each of the Company’s facilities are rented under leases that expire on various dates through fiscal year 2029, including 157,400 square feet at a warehouse and distribution facility located in Compton, California under a lease that expires May 31, 2028, 128,074 square feet at a warehouse and distribution facility located in Eden Valley, Minnesota under a lease that expires June 30, 2026, 16,837 square feet at Manhattan’s headquarters facility located in Minneapolis, Minnesota under a lease that expires March 31, 2027 and 15,598 square feet at the Company’s headquarters facility located in Gonzales, Louisiana under a lease that expires January 31, 2026. In addition, several employees of the Company perform their respective job functions from remote locations for which no rent is paid. Management believes that its properties are suitable for the purposes for which they are used, are in generally good condition and provide adequate capacity for current and anticipated future operations. The table below sets forth certain information regarding the Company's principal real property as of the close of business on May 31, 2024.
| Location |
Use |
Approximate Square Feet |
Owned/ Leased |
| Gonzales, Louisiana |
Administrative and sales office |
15,598 |
Leased |
| Compton, California |
Offices, warehouse and distribution center |
157,400 |
Leased |
| Minneapolis, Minnesota |
Product design and sales office |
16,837 |
Leased |
| Eden Valley, Minnesota |
Warehouse and distribution center |
128,074 |
Leased |
| Grand Rapids, Michigan |
Product design office |
5,711 |
Leased |
| London, United Kingdom |
Sales office |
1,800 |
Leased |
| Shanghai, People’s Republic of China |
Office |
1,912 |
Leased |
The Company is, from time to time, involved in various legal proceedings relating to claims arising in the ordinary course of its business. Neither the Company nor any of its subsidiaries is a party to any such legal proceeding the outcome of which, individually or in the aggregate, is expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company's common stock is traded on the Nasdaq Capital Market under the symbol “CRWS”. As of May 31, 2024, there were 155 record holders of the Company’s common stock.
The Company has historically paid cash dividends. The Company’s payment of dividends is and will continue to be restricted by or subject to, among other limitations, applicable provisions of federal and state laws, the Company’s earnings and various business considerations, including the Company’s financial condition, results of operations, cash flow, level of capital expenditures, future business prospects and such other matters as the Board and its Capital Committee deem relevant. The Company’s credit facility permits the Company to pay cash dividends on its common stock without limitation, provided there is no default under the credit facility before or as a result of the payment of such dividends.
For information regarding securities of the Company that have been authorized for issuance under equity compensation plans, refer to “Securities Authorized for Issuance under Equity Compensation Plans” in Item 12, Part III. of this Annual Report.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Objective
The following discussion and analysis is intended to provide material information relevant to an assessment of the Company’s financial condition and results of operations, as well as an evaluation of the amounts and certainty of cash flows from operations and from outside sources. This discussion and analysis is further intended to provide details concerning material events and uncertainties known to management that are reasonably likely to cause reported financial information to not be necessarily indicative of future operating results or future financial condition. This data includes descriptions and amounts of matters that have had a material impact on reported operations, as well as matters that management has assessed to be reasonably likely to have a material impact on future operations. Management expects that this discussion and analysis will enhance a reader’s understanding of the Company’s financial condition, results of operations, cash flows, liquidity and capital resources. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report.
Results of Operations
The following table contains results of operations for the fiscal years ended March 31, 2024 and April 2, 2023 and the dollar and percentage changes for those periods (in thousands, except percentages).
| Change |
||||||||||||||||
| 2024 |
2023 |
$ |
% |
|||||||||||||
| Net sales by category: |
||||||||||||||||
| Bedding, blankets and accessories |
$ | 32,036 | $ | 36,747 | $ | (4,711 | ) | -12.8 | % | |||||||
| Bibs, toys and disposable products |
55,596 | 38,306 | 17,290 | 45.1 | % | |||||||||||
| Total net sales |
87,632 | 75,053 | 12,579 | 16.8 | % | |||||||||||
| Cost of products sold |
64,632 | 55,225 | 9,407 | 17.0 | % | |||||||||||
| Gross profit |
23,000 | 19,828 | 3,172 | 16.0 | % | |||||||||||
| % of net sales |
26.2 | % | 26.4 | % | ||||||||||||
| Marketing and administrative expenses |
16,105 | 12,655 | 3,450 | 27.3 | % | |||||||||||
| % of net sales |
18.4 | % | 16.9 | % | ||||||||||||
| Interest (expense) income - net |
(734 | ) | 81 | (815 | ) | -1006.2 | % | |||||||||
| Other (expense) income - net |
67 | 172 | (105 | ) | -61.0 | % | ||||||||||
| Income tax expense |
1,334 | 1,776 | (442 | ) | -24.9 | % | ||||||||||
| Net income |
4,894 | 5,650 | (756 | ) | -13.4 | % | ||||||||||
| % of net sales |
5.6 | % | 7.5 | % | ||||||||||||
Net Sales:
Sales increased to $87.6 million for the fiscal year ended March 31, 2024, compared with $75.1 million in the fiscal year ended April 2, 2023, an increase of $12.6 million, or 16.8%. Sales of bedding, blankets and accessories decreased by $4.7 million, and sales of bibs, toys and disposable products increased by $17.3 million. Although Manhattan generated net sales of $18.5 million of developmental toy, feeding and baby care products during the fiscal year ended March 31, 2024, sales of bedding, blankets and accessories were lower due to the continued overall softness of that market, the impact of retailers that have been managing inventory levels and consumers that have lowered their spending due to inflationary pressures.
Gross Profit:
Gross profit increased by $3.2 million and decreased from 26.4% of net sales for the fiscal year ended April 2, 2023 to 26.2% of net sales for the fiscal year ended March 31, 2024. The gross profit from Manhattan was $4.3 million in the current year, which was $4.1 million higher than the prior year. This increase in the gross profit amount for the current year was partially offset by an increase in operating lease costs in the current year, which were $2.5 million higher than the prior year, and which included $615,000 in higher operating lease costs of Manhattan.
Marketing and Administrative Expenses:
Marketing and administrative expenses increased by $3.5 million and increased from 16.9% of net sales for fiscal year 2023 to 18.4% of net sales for fiscal year 2024. The increase in the current year was primarily due to costs incurred by Manhattan and MTE, which were $3.9 million higher than the prior year, and which included credit losses and advertising costs that were $360,000 and $213,000 higher than the prior year, respectively.
Income Tax Expense:
The Company’s provision for income taxes is based upon an annual effective tax rate (“ETR”) on continuing operations, which was 21.4% and 23.2% for the fiscal years ended March 31, 2024 and April 2, 2023, respectively. The ETR on continuing operations combined with certain discrete income tax charges and benefits resulted in an overall provision for income taxes of 21.4% and 23.9% for the fiscal years ended March 31, 2024 and April 2, 2023, respectively.
Known Trends and Uncertainties
The Company’s financial results are closely tied to sales to the Company’s top two customers, which represented approximately 61% of the Company’s gross sales in fiscal year 2024. A significant downturn experienced by either or both of these customers could lead to decreased sales.
During fiscal year 2024, consumers responded to macroeconomic conditions by trading down to lower priced items, buying fewer items, or foregoing some items altogether due to inflationary concerns. The Company monitors the impact of inflation on its operations on an ongoing basis and may need to adjust its prices to mitigate the impact of changes to the rate of inflation in future periods. Future volatility of prices could affect consumer purchases of our products. Additionally, the impact of inflation on input and other operational costs could adversely affect the Company's financial results.
Significant outbreaks of contagious diseases have had adverse effects on the overall economy and impact the Company’s supply chain, manufacturing and distribution operations, transportation services, customers and employees, as well as consumer sentiment in general and traffic within the retail stores that carry the Company’s products. Specifically, the COVID-19 pandemic led global government authorities to implement numerous public health measures, including quarantines, business closures and lockdowns to confront the pandemic. China’s efforts to control the spread of the COVID-19 virus by locking down its largest cities placed a strain on already-stressed global supply chains. Several of the Company’s customers experienced financial difficulties as a result of the COVID-19 pandemic.
A resurgence of the COVID-19 pandemic, or any other outbreak of a contagious disease, could adversely affect the Company’s revenues, earnings, liquidity and cash flows and may require significant actions in response, including employee furloughs, closings of Company facilities, expense reductions or discounts of the pricing of the Company’s products, all in an effort to mitigate such effects.
For an additional discussion of trends, uncertainties and other factors that could impact the Company’s operating results, refer to “Risk Factors” in Item 1A, Part I. of this Annual Report.
Financial Position, Liquidity and Capital Resources
Net cash provided by operating activities decreased from $7.7 million for the fiscal year ended April 2, 2023 to $7.1 million for the fiscal year ended March 31, 2024. The Company in the current year experienced a decrease in its accounts receivable balances that was $3.1 million lower than the decrease in the prior year, and the Company in the current year experienced a decrease in its accounts payable balances that was $2.3 million higher than the decrease in the prior year. Offsetting these decreases in cash provided by operating activities was a decrease in inventory in the current year that was $4.6 million higher than the increase in the prior year.
Net cash used in investing activities was $193,000 in the fiscal year ended March 31, 2024 compared with $16.9 million in the fiscal year ended April 2, 2023. The decrease in the current year was primarily due to the $16.1 million payment that was made in the prior year to complete the Manhattan Acquisition, net of cash acquired of $1.3 million.
Net cash used in financing activities was $7.8 million in the fiscal year ended March 31, 2024 compared with $9.3 million in cash provided by financing activities in the fiscal year ended April 2, 2023. The Company incurred net borrowings under its revolving line of credit of $12.7 million in the prior year, such borrowings primarily being required to fund the Manhattan Acquisition, compared with $4.6 million in net repayments under its revolving line of credit in the current year.
The Company’s future performance is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors beyond its control. Based upon the current level of operations, the Company believes that its cash flow from operations and the availability on its revolving line of credit will be adequate to meet its liquidity needs.
The Company’s credit facility at March 31, 2024 consisted of a revolving line of credit under a financing agreement with CIT of up to $35.0 million, which includes a $1.5 million sub-limit for letters of credit. The financing agreement matures on July 11, 2028, bears interest at the rate of prime minus 0.5% or the Secured Overnight Financing Rate (“SOFR”) plus 1.6%, and which is secured by a first lien on all assets of the Company. At March 31, 2024, the Company had elected to pay interest on balances owed under the revolving line of credit, if any, under the SOFR option, which was 6.9%. The financing agreement also provides for the payment by CIT to the Company of interest on daily negative balances, if any, held by CIT at the rate of prime as of the beginning of the calendar month minus 2.0%.
As of March 31, 2024, there was a balance of $8.1 million owed on the revolving line of credit, there was no letter of credit outstanding and $19.2 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances. As of April 2, 2023, there was a balance of $12.7 million owed on the revolving line of credit, there was no letter of credit outstanding and $20.0 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 March 31, 2024.
To reduce its exposure to credit losses, the Company assigns substantially all of its trade accounts receivable to CIT pursuant to factoring agreements, which have expiration dates that are coterminous with that of the financing agreement described below. Under the terms of the factoring agreements, CIT remits customer payments to the Company as such payments are received by CIT.
CIT bears credit losses with respect to assigned accounts receivable from approved shipments, while the Company bears the responsibility for adjustments from customers related to returns, allowances, claims and discounts. CIT may at any time terminate or limit its approval of shipments to a particular customer. If such a termination or limitation occurs, 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 consolidated statements of income, were $353,000 and $287,000 during fiscal years 2024 and 2023, respectively.
Critical Accounting Policies and Estimates
The Company prepares its financial statements to conform with accounting principles generally accepted in the U.S. (“GAAP”) as promulgated by the Financial Accounting Standards Board (“FASB”). 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.
Use of Estimates: The preparation of financial statements in conformity with GAAP 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 consolidated balance sheets and the reported amounts of revenues and expenses during the reporting period. The listing below, while not inclusive of all of the Company's accounting policies, sets forth those accounting policies which the Company's management believes embody the most significant judgments due to the uncertainties affecting their application and the likelihood that materially different amounts would be reported under different conditions or using different assumptions.
Revenue Recognition: Revenue is recognized upon the satisfaction of all contractual performance obligations and the transfer of control of the products sold to the customer. The majority of the Company’s sales consists of single performance obligation arrangements for which the transaction price for a given product sold is equivalent to the price quoted for the product, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit contract with the customer to deliver a product as directed by the customer. Shipping and handling costs that are charged to customers are included in net sales, and the Company’s costs associated with shipping and handling activities are included in cost of products sold.
Revenue from sales made directly to consumers is recorded when the shipped products have been received by customers, and excludes sales taxes collected on behalf of governmental entities. Revenue from sales made to retailers is recorded when legal title has been passed to the customer based upon the terms of the customer’s purchase order, the Company’s sales invoice, or other associated relevant documents. Such terms usually stipulate that legal title will pass when the shipped products are no longer under the control of the Company, such as when the products are picked up at the Company’s facility by the customer or by a common carrier. Payment terms can vary from prepayment for sales made directly to consumers to payment due in arrears (generally, 60 days of being invoiced) for sales made to retailers.
Allowances Against Accounts Receivable: The Company estimates certain allowances from revenues recognized through sales made to its customers. These allowances include anticipated returns and claims, expected credit losses, chargebacks related to negotiated customer terms and discounts, cooperative advertising allowances, warehouse allowances, placement fees, volume rebates, coupons, discounts and other allowances.
The allowance for anticipated returns and claims is estimated based upon the Company’s historical experience with actual returns and claims, combined with the consideration of events that could result in a change from historical rates on a per-customer basis. The allowance for anticipated returns and claims is recorded as a reduction of net sales in the reporting period within which the related sales are recorded.
To reduce the Company’s exposure to expected credit losses, and to enhance the predictability of its cash flows, the Company assigns substantially all of its receivables under factoring agreements with CIT. In the event that a factored receivable becomes uncollectible due to creditworthiness, CIT bears the risk of loss. With respect to the receivables that are not assigned under factoring agreements with CIT, the Company addresses this credit risk by establishing an allowance that is intended to represent the Company’s best estimate of the expected credit losses for such receivables. In the development of this estimate, the Company makes a number of judgements utilizing the Current Expected Credit Losses (“CECL”) methodology, which requires the Company to estimate lifetime expected credit losses by specifically analyzing the receivables. This analysis incorporates an aging of the receivables, relevant payment history and historical loss experience, as well as the consideration of customer concentrations, customer creditworthiness, negotiated changes to the payment terms of customers, recent economic trends, and expectations regarding economic conditions over a reasonable and supportable future period. The allowance for expected credit losses is included in marketing and administrative expenses in the accompanying consolidated statements of income.
The allowance for chargebacks related to negotiated customer terms and discounts, cooperative advertising, warehouse allowances, placement fees, volume rebates, coupons, discounts and other allowances is recorded commensurate with sales activity or using the straight-line method, as appropriate. The majority of the Company’s allowances for such chargebacks occurs on a per-invoice basis. When a customer requests to have an agreed-upon deduction applied against the customer’s outstanding balance due to the Company, the allowances are correspondingly reduced to reflect such payments or credits issued against the customer’s account balance. The Company analyzes the components of the allowances for customer chargebacks monthly and adjusts the allowances to appropriate levels. Since allowances associated with cooperative advertising are accrued commensurate with sales activity or using the straight-line method, as appropriate, the timing of funding requests for cooperative advertising may result in fluctuations in the allowance from period to period, although such timing should not have a material impact on the consolidated statements of income. The allowance for cooperative advertising is included in marketing and administrative expenses in the consolidated statements of income. All other allowances for chargebacks related to negotiated customer terms and discounts, warehouse allowances, placement fees, volume rebates, coupons and discounts are recorded as a reduction of net sales in the reporting period within which the related sales are recorded.
The Company’s actual experience associated with its allowances against accounts receivable in a future period may differ from the judgements, estimates, analysis and considerations employed in the development of these allowances. Thus, the Company’s allowances against accounts receivable at any point in time may be over-funded or under-funded.
Inventory Valuation: On a periodic basis, management reviews its inventory quantities on hand for obsolescence, physical deterioration, changes in price levels and the existence of quantities on hand which may not reasonably be expected to be sold within the Company’s normal operating cycle. To the extent that any of these conditions is believed to exist or the market value of the inventory expected to be realized in the ordinary course of business is otherwise no longer as great as its carrying value, an allowance against the inventory value is established. To the extent that this allowance is established or increased during an accounting period, an expense is recorded in cost of products sold in the Company's consolidated statements of income. Only when inventory for which an allowance has been established is later sold or is otherwise disposed is the allowance reduced accordingly. Significant management judgment is required in determining the amount and adequacy of this allowance. In the event that actual results differ from management's estimates or these estimates and judgments are revised in future periods, the Company may not fully realize the carrying value of its inventory or may need to establish additional allowances, either of which could materially impact the Company's financial position and results of operations.
Valuation of Long-Lived Assets and Identifiable Intangible Assets: In addition to the systematic annual depreciation and amortization of the Company’s fixed assets and identifiable intangible assets, the Company reviews for impairment long-lived assets and identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. An impairment loss must be recognized if the carrying amount of a long-lived asset group is not recoverable and exceeds its fair value. Assets to be disposed of, if any, are recorded at the lower of net book value or fair market value, less estimated costs to sell at the date management commits to a plan of disposal, and are classified as assets held for sale on the consolidated balance sheets. Actual results could differ materially from those estimates.
Business Combinations: The Company accounts for acquisitions using the acquisition method of accounting in accordance with FASB ASC Topic 805, Business Combinations. An acquisition is accounted for as a purchase and the appropriate account balances and operating activities are recorded in the Company’s consolidated financial statements as of the acquisition date and thereafter. Assets acquired, liabilities assumed and noncontrolling interests, if any, are measured at fair value as of the acquisition date using the appropriate valuation method. The Company may engage an independent third party to assist with these measurements. Goodwill resulting from an acquisition is recognized for the excess of the purchase price over the fair value of the tangible and identifiable intangible assets, less the liabilities assumed. In determining the fair value of the identifiable intangible assets and any noncontrolling interests, the Company uses various valuation techniques, including the income approach, the cost approach and the market approach. These valuation methods require significant management judgement to make estimates and assumptions surrounding projected revenues and costs, growth rates and discount rates. In the event that actual results differ from management’s estimates, the Company may need to recognize an impairment to all or a portion of the carrying value of these assets in a future period, which could materially impact the Company’s financial position and results of operations.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
For a detailed discussion of market risk and other factors that could impact the Company’s operating results, refer to “Risk Factors” in Item 1A. of Part I. of this Annual Report on Form 10-K.
Interest Rate Risk
As of March 31, 2024, the Company had $8.1 million of indebtedness that bears interest at a variable rate, comprised of borrowings under the revolving line of credit. Based upon this level of outstanding debt, the Company’s annual net income would decrease by approximately $64,000 for each increase of one percentage point in the interest rate applicable to the debt.
Commodity Rate Risk
The Company sources its products primarily from foreign contract manufacturers, with the largest concentration being in China. The Company’s exposure to commodity price risk primarily relates to changes in the prices in China of cotton, oil and labor, which are the principal inputs used in a substantial number of the Company’s products. In addition, although the Company pays its Chinese suppliers in U.S. dollars, a strengthening of the rate of the Chinese currency versus the U.S. dollar could result in an increase in the cost of the Company’s finished goods. There is no assurance that the Company could timely respond to such increases by proportionately increasing the prices at which its products are sold to the Company’s customers.
Market Concentration Risk
The Company’s financial results are closely tied to sales to its top two customers, which represented approximately 61% of the Company’s gross sales in fiscal year 2024. In addition, 40% of the Company’s gross sales in fiscal year 2024 consisted of licensed products, which included 24% of sales associated with the Company’s license agreements with affiliated companies of Disney. The Company’s results could be materially impacted by the loss of one or more of these licenses.
ITEM 8. Financial Statements and Supplementary Data
See pages 23 and F-1 through F-22 of this Annual Report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
ITEM 9A. Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this Annual Report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining for the Company adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act (“ICFR”). With the participation of the Chief Executive Officer and the Chief Financial Officer, management conducted an evaluation of the effectiveness of ICFR based on the framework and the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that ICFR was effective as of March 31, 2024.
The Company’s internal control system has been designed to provide reasonable assurance to the Company’s management and the Board regarding the reliability of financial reporting and the preparation and fair presentation of financial statements in accordance with GAAP. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only a reasonable, rather than absolute, assurance that the Company’s financial statements are free of any material misstatement, whether caused by error or fraud.
Changes in Internal Control over Financial Reporting
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the Company’s ICFR as required by Rule 13a-15(d) under the Exchange Act and, in connection with such evaluation, determined that no changes occurred during the Company’s fiscal quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s ICFR.
During the quarter ended March 31, 2024, of the Company’s directors or officers informed the Company of the adoption, modification or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408(a) of Regulation S-K.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
ITEM 10. Directors, Executive Officers and Corporate Governance
The information required by this item will be set forth in the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held in 2024 (the “Proxy Statement”) under the following captions, and the information under such captions is incorporated herein by reference:
| ● |
Board of Directors and Corporate Governance – Board of Directors |
| ● |
Board of Directors and Corporate Governance – Director Nominees |
| ● |
Board of Directors and Corporate Governance – Continuing Directors |
| ● |
Board of Directors and Corporate Governance – Director Qualifications |
| ● |
Board of Directors and Corporate Governance – Director Independence |
| ● |
Board of Directors and Corporate Governance – Board Committees |
| ● |
Board of Directors and Corporate Governance – Attendance at Board Committee Meetings and the Annual Meeting of Stockholders |
| ● |
Board of Directors and Corporate Governance – Director Nomination Process |
| ● |
Board of Directors and Corporate Governance – Board Diversity |
| ● |
Board of Directors and Corporate Governance – Code of Business Conduct and Ethics; Code of Conduct for Directors |
| ● |
Proposal 1 – Election of Directors |
| ● |
Director Compensation |
| ● |
Executive Compensation – Executive Officers |
| ● |
Executive Compensation – Compensation Discussion and Analysis – Employment, Severance and Compensation Arrangements |
| ● |
Report of the Audit Committee |
| ● |
Stock Ownership Information – Delinquent Section 16(a) Reports |
| ● |
Certain Relationships and Related Transactions |
ITEM 11. Executive Compensation
The information required by this item will be set forth in the Proxy Statement under the following captions, and the information under such captions is incorporated herein by reference:
| ● |
Board of Directors and Corporate Governance – Board Committees – Compensation Committee |
| ● |
Director Compensation |
| ● |
Executive Compensation (excluding Pay Versus Performance) |
| ● |
Board of Directors and Corporate Governance – Compensation Committee Interlocks and Insider Participation |
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be set forth in the Proxy Statement under the following caption, and the information under such caption is incorporated herein by reference:
| ● |
Stock Ownership Information – Security Ownership of Directors, Executive Officers and Certain Beneficial Owners |
Securities Authorized for Issuance under Equity Compensation Plans
The table below sets forth information regarding shares of the Company’s common stock that may be issued upon the exercise of options, warrants and other rights granted to employees, consultants or directors under all of the Company’s existing equity compensation plans as of March 31, 2024.
| Plan Category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted- average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans |
|||||||||
| Equity compensation plans approved by security holders: |
||||||||||||
| 2006 Omnibus Incentive Plan | 52,500 | $ | 7.90 | 0 | ||||||||
| 2014 Omnibus Equity Compensation Plan | 553,000 | $ | 7.46 | 0 | ||||||||
| 2021 Incentive Plan | 290,000 | $ | 5.75 | 439,027 | ||||||||
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be set forth in the Proxy Statement under the following captions, and the information under such captions is incorporated herein by reference:
| ● |
Introductory Paragraph to Board of Directors and Corporate Governance |
| ● |
Board of Directors and Corporate Governance – Director Independence |
| ● |
Board of Directors and Corporate Governance – Board Committees |
| ● |
Certain Relationships and Related Transactions |
ITEM 14. Principal Accountant Fees and Services
The information required by this item will be set forth in the Proxy Statement under the following captions, and the information under such captions is incorporated herein by reference:
| ● |
Board of Directors and Corporate Governance – Board Committees – Audit Committee |
| ● |
Proposal 2 – Ratification of Appointment of Independent Registered Public Accounting Firm |
ITEM 15. Exhibits and Financial Statement Schedules
(a)(1). Financial Statements
The following consolidated financial statements of the Company are included in Part II, Item 8. of this Annual Report:
| - Report of Independent Registered Public Accounting Firm |
| - Consolidated Balance Sheets as of March 31, 2024 and April 2, 2023 |
| - Consolidated Statements of Income for the Fiscal Years Ended March 31, 2024 and April 2, 2023 |
| - Consolidated Statements of Changes in Shareholders' Equity for the Fiscal Years Ended March 31, 2024 and April 2, 2023 |
| - Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2024 and April 2, 2023 |
| - Notes to Consolidated Financial Statements |
(a)(2). Financial Statement Schedule
The following financial statement schedule of the Company is included with this Annual Report:
| Schedule II — Valuation and Qualifying Accounts |
Page 23 |
All other schedules not listed above have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto.
SCHEDULE II
CROWN CRAFTS, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
| Valuation and Qualifying Accounts | ||||||||||||||||
| Column A | Column B | Column C | Column D | Column E | ||||||||||||
| Balance at | Balance at | |||||||||||||||
| Beginning | Charged to | End of | ||||||||||||||
| of Period | Expenses | Deductions | Period | |||||||||||||
| (in thousands) | ||||||||||||||||
| Accounts Receivable Valuation Accounts: | ||||||||||||||||
| Year Ended April 2, 2023 | ||||||||||||||||
| Allowance for customer deductions | $ | $ | $ | $ | ||||||||||||
| Year Ended March 31, 2024 | ||||||||||||||||
| Allowance for customer deductions | $ | $ | $ | $ | ||||||||||||
| Allowance for expected credit losses | $ | $ | $ | $ | ||||||||||||
(a)(3). Exhibits
Exhibits required to be filed by Item 601 of SEC Regulation S-K are included as Exhibits to this Annual Report and listed below.
In reviewing the agreements included as exhibits to this Annual Report, investors are reminded that the agreements are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. Some of the agreements contain representations and warranties made by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
| ● |
Should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; |
| ● |
Have been qualified by the disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; |
| ● |
May apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and |
| ● |
Were made only as of the date of the applicable agreement or such other date or dates may be specified in the agreement and are subject to more recent developments. |
Accordingly, the representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Annual Report and the Company’s other public filings with the SEC.
| Exhibit |
||
| Number |
Description of Exhibits |
|
| 2.1 |
— |
|
| 2.2 |
— |
Letter Agreement dated as of July 28, 2023 between the Company and HEI. (33) |
| 2.3 |
— |
Letter Agreement dated as of September 15, 2023 between the Company and HEI. (34) |
| 2.4 |
— |
Letter Agreement dated as of September 29, 2023 between the Company and HEI. (35) |
| 3.1 |
— |
Amended and Restated Certificate of Incorporation of the Company. (1) |
| 3.2 |
— |
|
| 3.3 |
— |
Amended and Restated Bylaws of the Company, effective as of November 14, 2023. (36) |
| 4.1* |
— |
Crown Crafts, Inc. 2006 Omnibus Incentive Plan (As Amended August 14, 2012). (12) |
| 4.2* |
— |
Form of Non-Qualified Stock Option Agreement (Employees). (4) |
| 4.3* |
— |
Crown Crafts, Inc. 2014 Omnibus Equity Compensation Plan. (14) |
| 4.4* |
— |
|
| 4.5* |
— |
|
| 4.6* |
— |
|
| 4.7* |
— |
|
| 4.8* |
— |
|
| 4.9* |
— |
|
| 4.10* |
— |
Form of Performance Share Grant Agreement (effective February 23, 2022). (28) |
| 4.11 |
— |
|
| 10.1 |
— |
|
| 10.2 |
— |
| 10.3 |
— |
|
| 10.4* |
— |
Employment Agreement dated November 6, 2008 by and between the Company and Olivia W. Elliott (6) |
| 10.5 |
— |
|
| 10.6 |
— |
|
| 10.7 |
— |
|
| 10.8 |
— |
|
| 10.9 |
— |
|
| 10.10 |
— |
|
| 10.11 |
— |
|
| 10.12* |
— |
Amendment No. 1 to the Crown Crafts, Inc. 2014 Omnibus Equity Compensation Plan. (18) |
| 10.13* |
— |
Form of Incentive Stock Option Grant Agreement (effective November 2016). (18) |
| 10.14* |
— |
Form of Nonqualified Stock Option Grant Agreement (effective November 2016). (18) |
| 10.15* |
— |
Form of Restricted Stock Grant Agreement (effective November 2016). (18) |
| 10.16 |
— |
|
| 10.17 |
— |
|
| 10.18 |
— |
|
| 10.19* |
— |
|
| 10.20* |
— |
|
| 10.21* |
— |
Employment Agreement dated February 22, 2021 by and between the Company and Craig Demarest. (23) |
| 10.22* |
— |
|
| 10.23 |
— |
|
| 10.24* |
— |
|
| 10.25* |
— |
|
| 10.26* |
— |
| 10.27 |
— |
|
| 10.28 |
— |
|
| 10.29* |
— |
|
| 14.1 |
— |
|
| 21.1 |
— |
|
| 23.1 |
— |
|
| 31.1 |
— |
Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer. (37) |
| 31.2 |
— |
Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer. (37) |
| 32.1 |
— |
Section 1350 Certification by the Company’s Chief Executive Officer. (38) |
| 32.2 |
— |
Section 1350 Certification by the Company’s Chief Financial Officer. (38) |
| 97.1 |
— |
|
| 101 |
— |
The following information from the Registrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 2024, formatted as interactive data files in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Statements of Income; (ii) Consolidated Balance Sheets; (iii) Consolidated Statements of Changes in Shareholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements. |
| 104 | Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
| * |
Management contract or a compensatory plan or arrangement. |
| (1) |
Incorporated herein by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended December 28, 2003. |
| (2) |
Incorporated herein by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended March 28, 2004. |
| (3) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated July 17, 2006. |
| (4) |
Incorporated herein by reference to Registrant’s Registration Statement on Form S-8 dated August 24, 2006. |
| (5) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated November 9, 2007. |
| (6) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K/A dated November 7, 2008. |
| (7) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated July 6, 2009. |
| (8) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated March 8, 2010. |
| (9) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated May 27, 2010. |
| (10) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated August 9, 2011. |
| (11) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated March 27, 2012. |
| (12) |
Incorporated herein by reference to Registrant’s Registration Statement on Form S-8 dated August 14, 2012. |
| (13) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated May 21, 2013. |
| (14) |
Incorporated herein by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on June 27, 2014. |
| (15) |
Incorporated herein by reference to Registrant’s Registration Statement on Form S-8 dated November 10, 2014. |
| (16) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated December 28, 2015. |
| (17) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated April 4, 2016. |
| (18) |
Incorporated herein by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 2, 2016. |
| (19) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated August 7, 2017. |
| (20) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated December 18, 2017. |
| (21) |
Incorporated herein by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2018. |
| (22) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated January 22, 2019. |
| (23) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated February 22, 2021. |
| (24) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated June 3, 2021. |
| (25) |
Incorporated herein by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended March 28, 2021. |
| (26) |
Incorporated herein by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on June 28, 2021. |
| (27) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated August 11, 2021. |
| (28) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K/A dated March 1, 2022. |
| (29) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated April 15, 2022. |
| (30) |
Incorporated herein by reference to Registrant’s Annual Report on Form 10-K for the fiscal year ended April 3, 2022. |
| (31) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated March 20, 2023. |
| (32) |
Incorporated herein by reference to Registrant’s Current Report on Form 8-K dated June 15, 2023. |
| (33) |
Incorporated herein by reference to Exhibit 2.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 1, 2023. |
| (34) |
Incorporated herein by reference to Exhibit 2.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 1, 2023. |
| (35) |
Incorporated herein by reference to Exhibit 2.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 1, 2023. |
| (36) |
Incorporated herein by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 1, 2023. |
| (37) |
Filed herewith. |
| (38) |
Furnished herewith. |
Not applicable.
ITEM 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
| Page |
| Audited Financial Statements: | |
| Report of Independent Registered Public Accounting Firm (KPMG LLP, Baton Rouge, LA, Auditor Firm ID: | |
| Consolidated Balance Sheets as of March 31, 2024 and April 2, 2023 | |
| Consolidated Statements of Income for the Fiscal Years Ended March 31, 2024 and April 2, 2023 | |
| Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2024 and April 2, 2023 | |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Crown Crafts, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Crown Crafts, Inc. and subsidiaries (the Company) as of March 31, 2024 and April 2, 2023, the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended March 31, 2024, and the related notes and financial statement schedule II (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2024 and April 2, 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2024, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of certain anticipated returns and claims, expected credit losses, and chargebacks
As discussed in Note 2 to the consolidated financial statements, the Company estimates a provision for certain allowances from revenues recognized through sales made to its customers. These allowances include anticipated returns and claims, expected credit losses, and chargebacks related to negotiated customer terms and discounts. These allowances are estimated using the Company’s historical experience with actual returns, claims, payments, credit losses, and chargebacks considering events that could result in a change from historical experience on a per-customer basis.
We identified the evaluation of certain anticipated returns and claims, expected credit losses, and chargebacks as a critical audit matter. Subjective auditor judgment was required to assess the relevance of historical experience used in estimating these allowances by determining if historical experience is indicative of future experience.
The following are the primary procedures we performed to address this critical audit matter. We assessed the relevance of historical experience used in estimating these allowances by 1) evaluating the Company’s assessment of current business and economic conditions, including comparing to relevant industry data and 2) analyzing certain allowances by customer to identify unusual trends. We evaluated the Company’s assessment of the relevance of historical experience for certain anticipated returns and claims, and chargebacks by comparing a sample of actual returns and claims, and chargebacks to the allowance previously recorded. We also performed sensitivity analyses over the historical credit loss experience to assess the impact of possible changes in the historical experience on the allowance for expected credit losses.
/s/
We have served as the Company’s auditor since 2009.
June 28, 2024
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2024 AND APRIL 2, 2023
(amounts in thousands, except share and per share amounts)
| March 31, 2024 | April 2, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable (net of allowances of $ at March 31, 2024 and $ at April 2, 2023): | ||||||||
| Due from factor | ||||||||
| Other | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Operating lease right of use assets | ||||||||
| Property, plant and equipment - at cost: | ||||||||
| Vehicles | ||||||||
| Leasehold improvements | ||||||||
| Machinery and equipment | ||||||||
| Furniture and fixtures | ||||||||
| Property, plant and equipment - gross | ||||||||
| Less accumulated depreciation | ||||||||
| Property, plant and equipment - net | ||||||||
| Finite-lived intangible assets - at cost: | ||||||||
| Customer relationships | ||||||||
| Other finite-lived intangible assets | ||||||||
| Finite-lived intangible assets - gross | ||||||||
| Less accumulated amortization | ||||||||
| Finite-lived intangible assets - net | ||||||||
| Goodwill | ||||||||
| Deferred income taxes | ||||||||
| Other | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued wages and benefits | ||||||||
| Accrued royalties | ||||||||
| Dividends payable | ||||||||
| Operating lease liabilities, current | ||||||||
| Other accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Long-term debt | ||||||||
| Deferred income taxes | ||||||||
| Operating lease liabilities, noncurrent | ||||||||
| Reserve for unrecognized tax liabilities | ||||||||
| Total non-current liabilities | ||||||||
| Shareholders' equity: | ||||||||
| Common stock - $ par value per share; Authorized shares at March 31, 2024 and April 2, 2023; Issued shares at March 31, 2024 and shares at April 2, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock - at cost - shares at March 31, 2024 and April 2, 2023 | ( | ) | ( | ) | ||||
| Retained Earnings | ||||||||
| Total shareholders' equity | ||||||||
| Total Liabilities and Shareholders' Equity | $ | $ | ||||||
See notes to consolidated financial statements.
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEARS ENDED MARCH 31, 2024 AND APRIL 2, 2023
(amounts in thousands, except per share amounts)
| 2024 | 2023 | |||||||
| Net sales | $ | $ | ||||||
| Cost of products sold | ||||||||
| Gross profit | ||||||||
| Marketing and administrative expenses | ||||||||
| Income from operations | ||||||||
| Other (expense) income: | ||||||||
| Interest (expense) income - net of interest income | ( | ) | ||||||
| Gain on insurance proceeds received for damage to equipment | ||||||||
| Gain on sale of property, plant and equipment | ||||||||
| Other income - net | ||||||||
| Income before income tax expense | ||||||||
| Income tax expense | ||||||||
| Net income | $ | $ | ||||||
| Weighted average shares outstanding: | ||||||||
| Basic | ||||||||
| Effect of dilutive securities | ||||||||
| Diluted | ||||||||
| Earnings per share - basic and diluted | $ | $ | ||||||
See notes to consolidated financial statements.
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED MARCH 31, 2024 AND APRIL 2, 2023
| Common Shares | Treasury Shares | Additional | Total | |||||||||||||||||||||||||
| Number of | Number of | Paid-in | Retained | Shareholders' | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||||||||
| (Dollar amounts in thousands) | ||||||||||||||||||||||||||||
| Balances - April 3, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||
| Issuance of shares | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Acquisition of treasury stock | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Dividend declared on common stock - $ per share | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances - April 2, 2023 | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||
| Issuance of shares | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Dividends declared on common stock - $ per share | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances - March 31, 2024 | $ | ( | ) | $ | ( | ) | $ | $ | $ | |||||||||||||||||||
See notes to consolidated financial statements.
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED MARCH 31, 2024 AND APRIL 2, 2023
(amounts in thousands)
| 2024 | 2023 | |||||||
| Operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation of property, plant and equipment | ||||||||
| Amortization of intangibles | ||||||||
| Amortization of right of use assets | ||||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Gain on insurance proceeds received for damage to equipment | ( | ) | ||||||
| Gain on sale of property, plant and equipment | ( | ) | ( | ) | ||||
| Reserve for unrecognized tax liabilities | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ( | ) | ||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash used in investing activities: | ||||||||
| Capital expenditures for property, plant and equipment | ( | ) | ( | ) | ||||
| Insurance proceeds received for damage to equipment | ||||||||
| Proceeds from sale of property, plant and equipment | ||||||||
| Payment to acquire Manhattan and MTE, net of cash acquired | ( | ) | ||||||
| Aggregate adjustment from the Manhattan and MTE acquisition | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities: | ||||||||
| Repayments under revolving line of credit | ( | ) | ( | ) | ||||
| Borrowings under revolving line of credit | ||||||||
| Purchase of treasury stock from related parties | ( | ) | ||||||
| Issuance of common stock | ||||||||
| Dividends paid | ( | ) | ( | ) | ||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Income taxes paid | $ | $ | ||||||
| Interest paid | ||||||||
| Noncash activities: | ||||||||
| Property, plant and equipment purchased but unpaid | ( | ) | ( | ) | ||||
| Dividends declared but unpaid | ( | ) | ( | ) | ||||
See notes to consolidated financial statements.
Crown Crafts, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 – Description of Business
Crown Crafts, Inc. (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 four of its wholly-owned subsidiaries, NoJo Baby & Kids, Inc. (“NoJo”), Sassy Baby, Inc. (“Sassy”), Manhattan Group, LLC (“Manhattan”) and Manhattan Toy Europe Limited (“MTE”) 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, soft bath products, disposable products, developmental toys and accessories. Most sales of the Company’s products are generally made directly to retailers, such as mass merchants, large chain stores, mid-tier retailers, juvenile specialty stores, value channel stores, grocery and drug stores, restaurants, wholesale clubs and internet-based retailers. Manhattan also sells direct to consumer through its website, www.manhattantoy.com. The Company’s products are marketed under a variety of Company-owned trademarks, under trademarks licensed from others and as private label goods.
The Company's fiscal year ends on the Sunday nearest to or on March 31. References herein to “fiscal year 2024” or “2024” represent the 52-week period ended March 31, 2024, and references herein to “fiscal year 2023” or “2023” represent the 52-week period ended April 2, 2023.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation: The accompanying consolidated financial statements include the accounts of the Company and have been prepared pursuant to accounting principles generally accepted in the U.S. (“GAAP”) as promulgated by the Financial Accounting Standards Board (“FASB”). 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.
Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated balance sheets and the reported amounts of revenues and expenses during the periods presented on the consolidated statements of income and cash flows. Significant estimates are made with respect to:
| ● | Allowances related to accounts receivable for expected credit losses and for customer deductions for returns, allowances and disputes, |
| ● | Inventory reserves for discontinued finished goods, and |
| ● | A reserve for unrecognized tax liabilities in respect of the tax impact of state apportionment percentages. |
Actual results could differ materially from these estimates.
Cash and Cash Equivalents: The Company’s credit facility consists of a revolving line of credit under a financing agreement with The CIT Group/Commercial Services (“CIT”). The Company classifies a negative balance outstanding under this revolving line of credit as cash and cash equivalents, as these amounts are legally owed to the Company and are immediately available to be drawn upon by the Company. There are no compensating balance requirements or other restrictions on the transfer of amounts associated with the Company’s depository accounts.
Financial Instruments: For short-term instruments such as cash and cash equivalents, accounts receivable and accounts payable, the Company uses carrying value as a reasonable estimate of fair value. Additionally, the Company’s long-term debt is a revolving credit facility whereby the Company uses carrying value as a reasonable estimate of fair value.
Segments and Related Information: The Company operates primarily in one principal segment, infant, toddler and juvenile products. These products consist of infant and toddler bedding and blankets, bibs, soft bath products, disposable products, developmental and bath toys and accessories. Net sales of bedding, blankets and accessories and net sales of bibs, bath and disposable products for the fiscal years ended March 31, 2024 and April 2, 2023 are as follows (in thousands):
| 2024 | 2023 | |||||||
| Bedding, blankets and accessories | $ | $ | ||||||
| Bibs, toys and disposable products | ||||||||
| Total net sales | $ | $ | ||||||
Revenue Recognition: Revenue is recognized upon the satisfaction of all contractual performance obligations and the transfer of control of the products sold to the customer. The majority of the Company’s sales consists of single performance obligation arrangements for which the transaction price for a given product sold is equivalent to the price quoted for the product, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit contract with the customer to deliver a product as directed by the customer. Shipping and handling costs that are charged to customers are included in net sales, and the Company’s costs associated with shipping and handling activities are included in cost of products sold.
Revenue from sales made directly to consumers is recorded when the shipped products have been received by customers, and excludes sales taxes collected on behalf of governmental entities. Revenue from sales made to retailers is recorded when legal title has been passed to the customer based upon the terms of the customer’s purchase order, the Company’s sales invoice, or other associated relevant documents. Such terms usually stipulate that legal title will pass when the shipped products are no longer under the control of the Company, such as when the products are picked up at the Company’s facility by the customer or by a common carrier. Payment terms can vary from prepayment for sales made directly to consumers to payment due in arrears (generally, 60 days of being invoiced) for sales made to retailers.
Allowances Against Accounts Receivable: The Company estimates certain allowances from revenues recognized through sales made to its customers. These allowances include anticipated returns and claims, expected credit losses, chargebacks related to negotiated customer terms and discounts, cooperative advertising allowances, warehouse allowances, placement fees, volume rebates, coupons, discounts and other allowances.
The allowance for anticipated returns and claims is estimated based upon the Company’s historical experience with actual returns and claims, combined with the consideration of events that could result in a change from historical rates on a per-customer basis. The allowance for anticipated returns and claims is recorded as a reduction of net sales in the reporting period within which the related sales are recorded.
To reduce the Company’s exposure to expected credit losses, and to enhance the predictability of its cash flows, the Company assigns substantially all of its receivables under factoring agreements with CIT. In the event that a factored receivable becomes uncollectible due to creditworthiness, CIT bears the risk of loss. With respect to the receivables that are not assigned under factoring agreements with CIT, the Company addresses this credit risk by establishing an allowance that is intended to represent the Company’s best estimate of the expected credit losses for such receivables. In the development of this estimate, the Company makes a number of judgements utilizing the Current Expected Credit Losses (“CECL”) methodology, which requires the Company to estimate lifetime expected credit losses by specifically analyzing the receivables. This analysis incorporates an aging of the receivables, relevant payment history and historical loss experience, as well as the consideration of customer concentrations, customer creditworthiness, negotiated changes to the payment terms of customers, recent economic trends, and expectations regarding economic conditions over a reasonable and supportable future period. The allowance for expected credit losses is included in marketing and administrative expenses in the accompanying consolidated statements of income.
The allowance for chargebacks related to negotiated customer terms and discounts, cooperative advertising, warehouse allowances, placement fees, volume rebates, coupons, discounts and other allowances is recorded commensurate with sales activity or using the straight-line method, as appropriate. The majority of the Company’s allowances for such chargebacks occurs on a per-invoice basis. When a customer requests to have an agreed-upon deduction applied against the customer’s outstanding balance due to the Company, the allowances are correspondingly reduced to reflect such payments or credits issued against the customer’s account balance. The Company analyzes the components of the allowances for customer chargebacks monthly and adjusts the allowances to appropriate levels. Since allowances associated with cooperative advertising are accrued commensurate with sales activity or using the straight-line method, as appropriate, the timing of funding requests for cooperative advertising may result in fluctuations in the allowance from period to period, although such timing should not have a material impact on the consolidated statements of income. The allowance for cooperative advertising is included in marketing and administrative expenses in the consolidated statements of income. All other allowances for chargebacks related to negotiated customer terms and discounts, warehouse allowances, placement fees, volume rebates, coupons and discounts are recorded as a reduction of net sales in the reporting period within which the related sales are recorded.
The Company’s actual experience associated with its allowances against accounts receivable in a future period may differ from the judgements, estimates, analysis and considerations employed in the development of these allowances. Thus, the Company’s allowances against accounts receivable at any point in time may be over-funded or under-funded.
Credit Concentration: The Company’s accounts receivable at March 31, 2024 amounted to $
Inventory Valuation: The preparation of the Company's financial statements requires careful determination of the appropriate value of the Company's inventory balances. Such amounts are presented as a current asset in the accompanying consolidated balance sheets and are a direct determinant of cost of products sold in the accompanying consolidated statements of income and, therefore, have a significant impact on the amount of net income reported in the accounting periods. The basis of accounting for inventories is cost, which includes the direct supplier acquisition cost, duties, taxes and freight, and the indirect costs to design, develop, source and store the product until it is sold. Once cost has been determined, the Company’s inventory is then stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out (“FIFO”) method, which assumes that inventory quantities are sold in the order in which they are acquired.
The determination of the indirect charges and their allocation to the Company’s finished goods inventories is complex and requires significant management judgment and estimates. If management made different judgments or utilized different estimates, then differences would result in the valuation of the Company’s inventories and in the amount and timing of the Company’s cost of products sold and the resulting net income for the reporting period.
On a periodic basis, management reviews its inventory quantities on hand for obsolescence, physical deterioration, changes in price levels and the existence of quantities on hand which may not reasonably be expected to be sold within the Company’s normal operating cycle. To the extent that any of these conditions is believed to exist or the market value of the inventory expected to be realized in the ordinary course of business is otherwise no longer as great as its carrying value, an allowance against the inventory value is established. To the extent that this allowance is established or increased during an accounting period, an expense is recorded in cost of products sold in the Company’s consolidated statements of income. Only when inventory for which an allowance has been established is later sold or is otherwise disposed is the allowance reduced accordingly. Significant management judgment is required in determining the amount and adequacy of this allowance. In the event that actual results differ from management’s estimates or these estimates and judgments are revised in future periods, the Company may not fully realize the carrying value of its inventory or may need to establish additional allowances, either of which could materially impact the Company’s financial position and results of operations.
Leases: The Company capitalizes most of its operating lease obligations as right of use assets and recognizes corresponding lease liabilities. The Company elects to use the practical expedient that permits the Company to exclude short-term agreements of less than 12 months from capitalization. The Company is a party to various operating leases for offices, warehousing facilities and certain office equipment. The leases expire at various dates, have varying options to renew and cancel, and may contain escalation provisions. The Company recognizes as expense non-variable lease payments ratably over the lease term. The key estimates for the Company’s leases include the discount rate used to discount the unpaid lease payment to present value and the lease term. The Company’s leases generally do not include a readily determinable implicit rate; therefore, management determined the incremental borrowing rate to discount the lease payment based on the information available at lease commencement. For purposes of such estimates, a lease term includes the noncancellable period under the applicable lease.
Depreciation and Amortization: The accompanying consolidated balance sheets reflect property, plant and equipment, and certain intangible assets at cost less accumulated depreciation or amortization. The Company capitalizes additions and improvements and expenses maintenance and repairs as incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which are to years for property, plant and equipment, and to years for intangible assets other than goodwill. The Company amortizes improvements to its leased facilities over the term of the lease or the estimated useful life of the asset, whichever is shorter.
Patent Costs: The Company incurs certain legal and related costs in connection with patent applications. The Company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or an alternative future use is available to the Company. The Company also capitalizes legal and other costs incurred in the protection or defense of the Company’s patents when it is believed that the future economic benefit of the patent will be maintained or increased and a successful defense is probable. Capitalized patent defense costs are amortized over the remaining expected life of the related patent. The Company’s evaluation of future economic benefit of its patents involves considerable management judgment, and a different conclusion could result in a material impairment charge up to the carrying value of these assets.
Valuation of Long-Lived Assets and Identifiable Intangible Assets: In addition to the depreciation and amortization procedures set forth above, the Company reviews for impairment long-lived asset groups and certain identifiable intangible asset groups whenever events or changes in circumstances indicate that the carrying amount of any asset group may not be recoverable. In the event of an impairment, the asset is written down to its fair value.
Royalty Payments: The Company has entered into agreements that provide for royalty payments based on a percentage of sales with certain minimum guaranteed amounts. 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 consolidated statements of income and amounted to $
Provision for Income Taxes: The Company’s provision for income taxes includes all currently payable federal, state, local and foreign taxes and is based upon the Company’s effective tax rate, which is based on the Company’s pre-tax income, as adjusted for certain expenses within the consolidated statements of income that will never be deductible on the Company’s tax returns and certain charges expected to be deducted on the Company’s tax returns that will never be deducted on the consolidated statements of income, multiplied by the statutory tax rates for the various jurisdictions in which the Company operates and reduced by certain anticipated tax credits. The Company files income tax returns in the many jurisdictions in which it operates, including the U.S., several U.S. states and the People’s Republic of China. The statute of limitations varies by jurisdiction; taxable years open to examination as of March 31, 2024 were the fiscal years ended March 31, 2024, April 2, 2023, April 3, 2022, March 28, 2021, March 29, 2020 and March 31, 2019.
Management evaluates items of income, deductions and credits reported on the Company’s various federal and state income tax returns filed and recognizes the effect of positions taken on those income tax returns only if those positions are more likely than not to be sustained. The Company applies the provisions of accounting guidelines that require a minimum recognition threshold that a tax benefit must meet before being recognized in the financial statements. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
After considering all relevant information regarding the calculation of the state portion of its income tax provision, the Company believes that the technical merits of the tax position that the Company has taken with respect to state apportionment percentages would more likely than not be sustained. 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 fiscal years ended March 31, 2024 and April 2, 2023 of $
The Company’s policy is to accrue interest expense and penalties as appropriate on any estimated unrecognized tax liabilities as a charge to interest expense in the Company’s consolidated statements of income. During the fiscal years ended March 31, 2024 and April 2, 2023, the Company accrued $
In August 2020, the Company received notification from the Franchise Tax Board of the State of California (the “FTB”) of its intention to examine the Company’s California consolidated income tax returns that the Company had filed for the fiscal years ended April 2, 2017, April 1, 2018 and March 31, 2019. On May 30, 2023, the Company and the FTB entered into an agreement to settle (“Settlement Agreement”) the FTB’s proposed assessment of additional income tax in respect of these consolidated income tax returns under examination for the amount of $
In February 2021, the Company was notified by the U.S. Internal Revenue Service (the “IRS”) that it had selected for examination the Company’s original and amended federal consolidated income tax returns that the Company had filed for its fiscal year ended April 2, 2017. On March 15, 2023, the Company agreed to accept the proposal by the IRS to disallow the Company’s claim for refund in the amount of $
Although management believes that the calculations and positions taken on its filed income tax returns are reasonable and justifiable, the outcome of an examination could result in an adjustment to the position that the Company took on such income tax returns. Such adjustment could also lead to adjustments to one or more other state income tax returns, or to income tax returns for subsequent fiscal years, or both. To the extent that the Company’s reserve for unrecognized tax liabilities is not adequate to support the cumulative effect of such adjustments, the Company could experience a material adverse impact on its future results of operations. Conversely, to the extent that the calculations and positions taken by the Company on the filed income tax returns under examination are sustained, the reversal of all or a portion of the Company’s reserve for unrecognized tax liabilities could result in a favorable impact on its future results of operations.
Advertising Costs: 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 consolidated statements of income and amounted to $
Business Combinations: The Company accounts for acquisitions using the acquisition method of accounting in accordance with FASB ASC Topic 805, Business Combinations. An acquisition is accounted for as a purchase and the appropriate account balances and operating activities are recorded in the Company’s consolidated financial statements as of the acquisition date and thereafter. Assets acquired, liabilities assumed and noncontrolling interests, if any, are measured at fair value as of the acquisition date using the appropriate valuation method. The Company may engage an independent third party to assist with these measurements. Goodwill resulting from an acquisition is recognized for the excess of the purchase price over the fair value of the tangible and identifiable intangible assets, less the liabilities assumed.
Earnings Per Share: The Company calculates basic earnings per share by using a weighted average of the number of shares outstanding during the reporting periods. Diluted shares outstanding are calculated in accordance with the treasury stock method, which assumes that the proceeds from the exercise of all exercisable options would be used to repurchase shares at market value. The net number of shares issued after the exercise proceeds are exhausted represents the potentially dilutive effect of the exercisable options, which are added to basic shares to arrive at diluted shares.
Recently-Issued Accounting Standards: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the objective of which is to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by an entity. Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable that a loss has been incurred. Because this methodology restricted the recognition of credit losses that are expected, but did not yet meet the “probable” threshold, ASU No. 2016-13 was issued to require the consideration of a broader range of reasonable and supportable information when determining estimates of credit losses. The ASU is to be applied using a modified retrospective approach, and the ASU could have been early-adopted in the fiscal year that began after December 15, 2018. When issued, ASU No. 2016-13 was required to be adopted no later than the fiscal year beginning after December 15, 2019, but on November 15, 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which provided for the deferral of the effective date of ASU No. 2016-13 for a registrant that is a smaller reporting company to the first interim period of the fiscal year beginning after December 15, 2022. Accordingly, the Company adopted ASU No. 2016-13 effective as of April 3, 2023. Because the Company assigns substantially all of its trade accounts receivable under factoring agreements with CIT, the adoption of the ASU has not had a significant impact on the Company’s financial position, results of operations and related disclosures.
In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements – Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, the objective of which is to clarify or improve disclosure and presentation requirements and to align the requirements in the FASB ASC with the SEC’s regulations. In August 2018, the SEC issued guidance in which the SEC referred certain of its disclosure requirements that overlap with GAAP to the FASB for potential incorporation into the FASB ASC. The amendments in ASU No. 2023-06 are the result of the FASB’s decision to incorporate into the FASB ASC 14 of the 27 disclosures referred by the SEC. The FASB noted that the disclosure requirements in the SEC’s guidance and the FASB ASC should not be duplicated in both places. Accordingly, although the ASU was required to be adopted upon issuance, each amendment to the FASB ASC included in the ASU will not become effective until the effective date upon which the related SEC disclosure is no longer required. The amendments in this ASU are to be applied prospectively, and early application of the amendments is prohibited. The Company does not anticipate that the adoption of ASU No. 2023-06 will have a significant impact on the Company’s financial position, results of operations and related disclosures.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures, the objective of which is to improve the disclosures about a public entity’s reportable segments by providing more detailed information about a reportable segment’s expenses. For disclosures associated with annual and interim periods, the amendments in ASU No. 2023-07 are required to be adopted for fiscal years beginning after December 15, 2023 and December 15, 2024, respectively, and early adoption is permitted. Upon adoption, a public entity must apply the amendments in ASU No. 2023-07 retrospectively to disclosures of all prior periods presented. The Company intends to adopt ASU No. 2023-07 effective as of April 1, 2024 and is evaluating the guidance of the ASU against its existing disclosures related to segment reporting.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures, the objective of which is to enhance the transparency and decision usefulness of income tax disclosures. The amendments in the ASU are required to be adopted for fiscal years beginning after December 15, 2024 and early adoption is permitted. The Company is evaluating the guidance of ASU No. 2023-09 against its existing disclosures related to income tax disclosures.
The Company has determined that all other ASU’s issued which had become effective as of March 31, 2024, 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 3 – Inventories
As of March 31, 2024 and April 2, 2023, the Company’s balances of inventory were $
Note 4 – Acquisition
On the March 17, 2023 (the “Closing Date”), the Company acquired Manhattan and MTE, Manhattan’s wholly-owned subsidiary, from H Enterprises International, LLC (“HEI”) (“the Manhattan Acquisition”), for a purchase price of $
The Manhattan Acquisition was accounted for in accordance with FASB ASC Topic 805, Business Combinations. The Company determined the allocation of the acquisition cost with the assistance of an independent third party. The identifiable assets acquired were recorded at their estimated fair value, which was determined based on available information and the use of multiple valuation approaches. The estimated useful lives of the identifiable intangible assets acquired were determined based upon the remaining time that these assets are expected to directly or indirectly contribute to the future cash flow of the Company.
The acquisition cost paid on the Closing Date amounted to $
| Tangible assets: | ||||
| Cash and cash equivalents | $ | |||
| Accounts receivable | ||||
| Inventories | ||||
| Prepaid expenses | ||||
| Other assets | ||||
| Operating lease right of use assets | ||||
| Property, plant and equipment | ||||
| Total tangible assets | ||||
| Amortizable intangible assets: | ||||
| Tradename | ||||
| Licensing relationships | ||||
| Customer relationships | ||||
| Total amortizable intangible assets | ||||
| Goodwill | ||||
| Total acquired assets | ||||
| Liabilities assumed: | ||||
| Accounts payable | ||||
| Accrued wages and benefits | ||||
| Operating lease liabilities, current | ||||
| Other accrued liabilities | ||||
| Operating lease liabilities, noncurrent | ||||
| Total liabilities assumed | ||||
| Net acquisition cost | $ |
Based upon the allocation of the acquisition cost, the Company recognized $
| Amount of goodwill recognized based upon the preliminary allocation of the acquisition cost | $ | |||
| Adjustments made during the fiscal year ended March 31, 2024: | ||||
| Settlement of the Aggregate Adjustment | ( | ) | ||
| Increases to pre-acquisition accounts receivable | ( | ) | ||
| Reductions to inventory as of the Closing Date | ||||
| Increases to pre-acquisition accounts payable | ||||
| Net adjustments made during the fiscal year ended March 31, 2024 | ||||
| Amount of goodwill recognized as of March 31, 2024 | $ |
The Manhattan Acquisition resulted in net sales of $
The Company determined, on a pro forma basis, that the combined net sales of the Company and Manhattan, giving effect to the Manhattan Acquisition as if it had been completed on March 29, 2021, is $
Note 5 – Financing Arrangements
Factoring Agreements: To reduce its exposure to credit losses, the Company assigns substantially all of its trade accounts receivable to CIT pursuant to factoring agreements, which have expiration dates that are coterminous with that of the financing agreement described below. Under the terms of the factoring agreements, CIT remits customer payments to the Company as such payments are received by CIT.
CIT bears credit losses with respect to assigned accounts receivable from approved shipments, while the Company bears the responsibility for adjustments from customers related to returns, allowances, claims and discounts. CIT may at any time terminate or limit its approval of shipments to a particular customer. If such a termination or limitation occurs, 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 consolidated statements of income, were $
Credit Facility: The Company’s credit facility at March 31, 2024 consisted of a revolving line of credit under a financing agreement with CIT of up to $
As of March 31, 2024, there was a balance of $
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 material compliance with these covenants as of March 31, 2024.
Note 6 – Retirement Plan
The Company sponsors a defined contribution retirement savings plan with a cash or deferred arrangement (the “401(k) Plan”), as provided by Section 401(k) of the Internal Revenue Code (the “Code”). The 401(k) Plan covers substantially all employees, who may elect to contribute a portion of their compensation to the 401(k) Plan, subject to maximum amounts and percentages as prescribed in the Code. Each calendar year, the Board determines the portion, if any, of employee contributions that will be matched by the Company.
For calendar years 2024, 2023 and 2022, the Board established the employer matching contributions at
Note 7 – Goodwill, Customer Relationships and Other Intangible Assets
Goodwill: Goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired in business combinations. For the purpose of presenting and measuring for the impairment of goodwill, the Company has reporting units: one that produces and markets infant and toddler bedding, blankets and accessories and another that produces and markets infant and toddler bibs, developmental toys, bath care and disposable products. The goodwill of the reporting units of the Company as of March 31, 2024 and April 2, 2023 amounted to $
The Company measures for impairment the goodwill within its reporting units annually as of the first day of the Company’s fiscal year. An additional interim measurement for impairment is performed during the year whenever an event or change in circumstances occurs that suggests that the fair value of either of the reporting units of the Company has more likely than not (defined as having a likelihood of greater than 50%) fallen below its carrying value. The annual or interim measurement for impairment is performed by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If such qualitative factors so indicate, then the measurement for impairment is continued by calculating an estimate of the fair value of each reporting unit and comparing the estimated fair value to the carrying value of the reporting unit. If the carrying value exceeds the estimated fair value of the reporting unit, then an impairment charge is calculated as the difference between the carrying value of the reporting unit and its estimated fair value, not to exceed the goodwill of the reporting unit.
On April 3, 2023, the Company performed a qualitative assessment to determine if it is more likely than not that the fair values of the Company’s reporting units are less than their carrying values by evaluating relevant events and circumstances, including financial performance, market conditions and share price. Based on this assessment, the Company concluded that the goodwill for each of the Company’s reporting units was not considered at risk of impairment.
Other Intangible Assets: Other intangible assets as of March 31, 2024 and April 2, 2023 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 March 31, 2024 and April 2, 2023, the amortization expense for the fiscal years ended March 31, 2024 and April 2, 2023, the entirety of which has been included in marketing and administrative expenses in the accompanying consolidated statements of income, are as follows (in thousands):
| Amortization Expense | ||||||||||||||||||||||||
| Gross Amount | Accumulated Amortization | Fiscal Year Ended | ||||||||||||||||||||||
| March 31, | April 2, | March 31, | April 2, | March 31, | April 2, | |||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Tradename and trademarks | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Non-compete covenants | ||||||||||||||||||||||||
| Patents | ||||||||||||||||||||||||
| Customer relationships | ||||||||||||||||||||||||
| Licensing relationships | ||||||||||||||||||||||||
| Total other intangible assets | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The Company estimates that its amortization expense will be $
Note 8 – Leases
During the fiscal years ended March 31, 2024 and April 2, 2023, the Company capitalized operating lease obligations as right of use assets and recognized corresponding lease liabilities in the amount of $
During the fiscal years ended March 31, 2024 and April 2, 2023, the Company classified its operating lease costs within the accompanying consolidated statements of income as follows (in thousands):
| 2024 | 2023 | |||||||
| Cost of products sold | $ | $ | ||||||
| Marketing and administrative expenses | ||||||||
| Total operating lease costs | $ | $ | ||||||
The maturities of the Company’s operating lease liabilities as of March 31, 2024 are as follows (in thousands):
| Fiscal Year | ||||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Total undiscounted operating lease payments | ||||
| Less imputed interest | ||||
| Operating lease liabilities - net | $ |
Note 9 – 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.
The Company believes that awards of long-term, equity-based incentive compensation will attract and retain directors, officers and employees of the Company and will encourage these individuals to contribute to the successful performance of the Company, which will lead to the achievement of the Company’s overall goal of increasing stockholder value. Awards granted under the 2021 Plan may be in the form of incentive stock options, non-qualified stock options, shares of restricted or unrestricted stock, stock units, stock appreciation rights, or other stock-based awards. Awards may be granted subject to the achievement of performance goals or other conditions, and certain awards may be payable in stock or cash, or a combination of the two. The 2021 Plan is administered by the Compensation Committee of the Board, which selects eligible employees, non-employee directors and other individuals to participate in the 2021 Plan and determines the type, amount, duration (such duration not to exceed a term of ten (
Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation – Stock Compensation, which requires stock-based compensation to be accounted for using a fair-value-based measurement. During fiscal years 2024 and 2023, the Company recorded $
Stock Options: The following table represents stock option activity for fiscal years 2024 and 2023:
| 2024 | 2023 | |||||||||||||||
| Weighted- | Weighted- | |||||||||||||||
| Average | Number of | Average | Number of | |||||||||||||
| Exercise | Options | Exercise | Options | |||||||||||||
| Price | Outstanding | Price | Outstanding | |||||||||||||
| Outstanding at Beginning of Period | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Expired | ( | ) | ||||||||||||||
| Outstanding at End of Period | ||||||||||||||||
| Exercisable at End of Period | ||||||||||||||||
At March 31, 2024, the intrinsic value of the outstanding and exercisable stock options was $
Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation – Stock Compensation, which requires stock-based compensation to be accounted for using a fair-value-based measurement. 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 awarded to certain employees during fiscal years 2024 and 2023, which options vest over a -year period, assuming continued service.
| Fiscal Year Ended | ||||||||||||||||
| March 31, 2024 | April 2, 2023 | |||||||||||||||
| Number of options issued | ||||||||||||||||
| Grant date | | | | | ||||||||||||
| Dividend yield | % | % | % | % | ||||||||||||
| Expected volatility | % | % | % | % | ||||||||||||
| Risk free interest rate | % | % | % | % | ||||||||||||
| Contractual term (years) | ||||||||||||||||
| Expected term (years) | ||||||||||||||||
| Forfeiture rate | % | % | % | % | ||||||||||||
| Exercise price (grant-date closing price) per option | $ | $ | $ | $ | ||||||||||||
| Fair value per option | $ | $ | $ | $ | ||||||||||||
For the fiscal years ended March 31, 2024 and April 2, 2023, the Company recognized compensation expense associated with stock options as follows (in thousands):
| Fiscal Year Ended March 31, 2024 | ||||||||||||
| Cost of | Marketing & | |||||||||||
| Products | Administrative | Total | ||||||||||
| Options Granted in Fiscal Year | Sold | Expenses | Expense | |||||||||
| 2022 | $ | $ | $ | |||||||||
| 2023 | ||||||||||||
| 2024 | ||||||||||||
| Total stock option compensation | $ | $ | $ | |||||||||
| Fiscal Year Ended April 2, 2023 | ||||||||||||
| Cost of | Marketing & | |||||||||||
| Products | Administrative | Total | ||||||||||
| Options Granted in Fiscal Year | Sold | Expenses | Expense | |||||||||
| 2021 | $ | $ | $ | |||||||||
| 2022 | ||||||||||||
| 2023 | ||||||||||||
| Total stock option compensation | $ | $ | $ | |||||||||
A summary of stock options outstanding and exercisable as of March 31, 2024 is as follows:
| Weighted- | Weighted- | ||||||||||||||||||||||
| Weighted- | Avg. Exercise | Avg. Exercise | |||||||||||||||||||||
| Number | Avg. Remaining | Price of | Number | Price of | |||||||||||||||||||
| Exercise | of Options | Contractual | Options | of Options | Options | ||||||||||||||||||
| Price | Outstanding | Life in Years | Outstanding | Exercisable | Exercisable | ||||||||||||||||||
| $4.00 | $ | $ | |||||||||||||||||||||
| $5.00 | $ | $ | |||||||||||||||||||||
| $6.00 | $ | $ | |||||||||||||||||||||
| $7.00 | $ | $ | |||||||||||||||||||||
| $8.00 | $ | $ | |||||||||||||||||||||
| $9.00 | $ | $ | |||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||
As of March 31, 2024, total unrecognized stock-option compensation costs amounted to $
Non-vested Stock Granted to Directors: The following shares of non-vested stock were granted to the Company’s directors:
| Number of Shares | Fair Value per Share | Grant Date | Vesting Period (Years) | |||||
| 60,412 |
|
| ||||||
| 46,896 |
|
| ||||||
| 40,165 |
|
| ||||||
| 41,452 |
|
| ||||||
The fair value of the non-vested stock granted to the Company’s directors was based on the closing price of the Company’s common stock on the date of each grant.
The non-vested stock granted on August 11, 2021 included
The non-vested stock granted on August 16, 2022 included
In August 2023 and August 2022,
Non-vested Stock Granted to Employees: The following shares of non-vested stock were granted to certain of the Company’s employees:
| Number of Shares | Fair Value per Share | Grant Date | Vesting Date | |||||
| 70,000 |
| March 26, 2027 | ||||||
| 26,000 |
| August 14, 2024 | ||||||
| 40,000 |
| March 21, 2025 | ||||||
| 25,000 |
| June 9, 2022 | ||||||
| 10,000 |
| February 22, 2023 | ||||||
| 20,000 |
| June 10, 2022 | ||||||
These shares vest on the dates indicated, assuming continued service. In June 2022 and February 2023,
Performance Award Shares: On March 1, 2022, performance awards were granted to certain of the Company’s executive officers, consisting of
For the fiscal years ended March 31, 2024 and April 2, 2023, the Company recognized compensation expense associated with non-vested stock grants, which is included in marketing and administrative expenses in the accompanying consolidated statements of income, as follows (in thousands):
| Stock Granted in Fiscal Year | 2024 | 2023 | ||||||
| 2021 | $ | $ | ||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| Total stock grant compensation | $ | $ | ||||||
As of March 31, 2024, total unrecognized compensation expense related to the Company’s non-vested stock grants was $
Note 10 – Income Taxes
The Company’s income tax provision for fiscal years 2024 and 2023 is summarized below (in thousands):
| Fiscal year ended March 31, 2024 | ||||||||||||
| Current | Deferred | Total | ||||||||||
| Income tax expense (benefit) on current year income: | ||||||||||||
| Federal | $ | $ | ( | ) | $ | |||||||
| State | ( | ) | ||||||||||
| Foreign | ||||||||||||
| Total income tax expense (benefit) on current year income | ( | ) | ||||||||||
| Income tax expense (benefit) - discrete items: | ||||||||||||
| Reserve for unrecognized tax benefits | ||||||||||||
| Adjustment to prior year provision | ( | ) | ( | ) | ||||||||
| Tax shortfall related to stock-based compensation | ||||||||||||
| Income tax expense - discrete items | ||||||||||||
| Total income tax expense (benefit) | $ | $ | ( | ) | $ | |||||||
| Fiscal year ended April 2, 2023 | ||||||||||||
| Current | Deferred | Total | ||||||||||
| Income tax expense (benefit) on current year income: | ||||||||||||
| Federal | $ | $ | ( | ) | $ | |||||||
| State | ( | ) | ||||||||||
| Foreign | ||||||||||||
| Total income tax expense (benefit) on current year income | ( | ) | ||||||||||
| Income tax expense (benefit) - discrete items: | ||||||||||||
| Reserve for unrecognized tax benefits | ( | ) | ( | ) | ||||||||
| Adjustment to prior year provision | ||||||||||||
| Tax shortfall related to stock-based compensation | ||||||||||||
| Income tax expense - discrete items | ||||||||||||
| Total income tax expense (benefit) | $ | $ | ( | ) | $ | |||||||
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of March 31, 2024 and April 2, 2023 are as follows (in thousands):
| March 31, 2024 | April 2, 2023 | |||||||
| Deferred income tax assets: | ||||||||
| Employee wage and benefit accruals | $ | $ | ||||||
| Accounts receivable and inventory reserves | ||||||||
| Operating lease liabilities | ||||||||
| Intangible assets | ||||||||
| State net operating loss carryforwards | ||||||||
| Accrued interest and penalty on unrecognized tax liabilities | ||||||||
| Stock-based compensation | ||||||||
| Total gross deferred income tax assets | ||||||||
| Less valuation allowance | ( | ) | ( | ) | ||||
| Deferred income tax assets after valuation allowance | ||||||||
| Deferred income tax liabilities: | ||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Operating lease right of use assets | ( | ) | ( | ) | ||||
| Intangible assets | ( | ) | ( | ) | ||||
| Property, plant and equipment | ( | ) | ( | ) | ||||
| Total deferred income tax liabilities | ( | ) | ( | ) | ||||
| Net deferred income tax assets (liabilities) | $ | $ | ( | ) | ||||
In assessing the probability that the Company’s deferred tax assets will be realized, management of the Company has considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income during the future periods in which the temporary differences giving rise to the deferred tax assets will become deductible. The Company has also considered the scheduled inclusion into taxable income in future periods of the temporary differences giving rise to the Company’s deferred tax liabilities. The valuation allowance as of March 31, 2024 and April 2, 2023 was related to state net operating loss carryforwards that the Company does not expect to be realized. Based upon the Company’s expectations of the generation of sufficient taxable income during future periods, the Company believes that it is more likely than not that the Company will realize its deferred tax assets, net of the valuation allowance and the deferred tax liabilities.
The following table sets forth the reconciliation of the beginning and ending amounts of unrecognized tax liabilities for fiscal years ended March 31, 2024 and April 2, 2023 (in thousands):
| 2024 | 2023 | |||||||
| Balance at beginning of period | $ | $ | ||||||
| Additions related to current year positions | ||||||||
| Additions related to prior year positions | ||||||||
| Revaluations due to change in enacted tax rates | ||||||||
| Reductions for tax positions of prior years | ||||||||
| Reductions due to lapses of the statute of limitations | ||||||||
| Reductions pursuant to judgements and settlements | ( | ) | ||||||
| Balance at end of period | $ | $ | ||||||
In August 2020, the Company received notification from the FTB of its intention to examine the Company’s California consolidated income tax returns that the Company had filed for the fiscal years ended April 2, 2017, April 1, 2018 and March 31, 2019. On May 30, 2023, the Company and the FTB entered into an agreement to settle (“Settlement Agreement”) the FTB’s proposed assessment of additional income tax in respect of these consolidated income tax returns under examination for the amount of $
In February 2021, the Company was notified by the IRS that it had selected for examination the Company’s original and amended federal consolidated income tax returns that the Company had filed for its fiscal year ended April 2, 2017. On March 15, 2023, the Company agreed to accept the proposal by the IRS to disallow the Company’s claim for refund in the amount of $
During fiscal years 2024 and 2023, the Company recorded discrete income tax charges of $
The Company’s provision for income taxes is based upon effective tax rates of
The following table reconciles income tax expense on income from continuing operations at the U.S. federal income tax statutory rate to the net income tax provision reported for fiscal years 2024 and 2023 (amounts in thousands):
| Fiscal year ended March 31, 2024 | Fiscal year ended April 2, 2023 | |||||||||||||||
| Amount | Percentage | Amount | Percentage | |||||||||||||
| Income before income tax expense | $ | % | $ | % | ||||||||||||
| Tax expense at federal statutory rate | $ | % | $ | % | ||||||||||||
| State income taxes, net of Federal income tax benefit | % | % | ||||||||||||||
| Tax credits | ( | ) | - | % | ( | ) | - | % | ||||||||
| Discrete items | % | % | ||||||||||||||
| Other - net, including foreign | % | % | ||||||||||||||
| Income tax expense | $ | % | $ | % | ||||||||||||
State and foreign income taxes consist primarily of amounts paid to the State of California and the People’s Republic of China, respectively.
Note 11 – Shareholders’ Equity
Dividends: The holders of shares of the Company’s common stock are entitled to receive dividends when and as declared by the Board. Cash dividends of $
Stock Repurchases: The Company acquired treasury shares by way of the surrender to the Company from several employees shares of common stock to satisfy the exercise price and income tax withholding obligations relating to the exercise of stock options and the vesting of stock. In this manner, the Company acquired
Note 12 – Major Customers
The table below sets forth those customers that represented more than 10% of the Company’s gross sales during the fiscal years ended March 31, 2024 and April 2, 2023.
| 2024 | 2023 | |||||||
| Walmart Inc. | ||||||||
| Amazon.com, Inc. | ||||||||
Note 13 – Commitments and Contingencies
Royalty expense amounted to $
The Company is, from time to time, involved in various legal proceedings relating to claims arising in the ordinary course of its business. Neither the Company nor any of its subsidiaries is a party to any such legal proceeding the outcome of which, individually or in the aggregate, is expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Note 14 – Subsequent Events
The Company has evaluated events that have occurred between March 31, 2024 and the date that the accompanying financial statements were issued, and has determined that there are no material subsequent events that require disclosure.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
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CROWN CRAFTS, INC. |
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| Date: June 28, 2024 |
By: |
/s/ Olivia W. Elliott |
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Olivia W. Elliott |
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President, Chief Executive Officer and Director |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
| Signatures |
Title |
Date |
|
| /s/ Olivia W. Elliott |
President, Chief Executive Officer and Director |
June 28, 2024 |
|
| Olivia W. Elliott |
(Principal Executive Officer) |
||
| /s/ Craig J. Demarest |
Vice President and Chief Financial Officer (Principal Financial Officer and |
June 28, 2024 |
|
| Craig J. Demarest |
Principal Accounting Officer) |
||
| /s/ Zenon S. Nie |
Chairman of the Board of Directors |
June 28, 2024 |
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| Zenon S. Nie |
|||
| /s/ Michael Benstock |
Director |
June 28, 2024 |
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| Michael Benstock |
|||
| /s/ Donald Ratajczak |
Director |
June 28, 2024 |
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| Donald Ratajczak |
|||
| /s/ Patricia Stensrud |
Director |
June 28, 2024 |
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| Patricia Stensrud |
Exhibit 4.11
DESCRIPTION OF REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
The following description sets forth certain material terms and provisions of the securities of Crown Crafts, Inc. (the “Company”) that are registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This description also summarizes relevant provisions of Delaware General Corporation Law (the “DGCL”). The following summary does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the applicable provisions of the DGCL and the Company’s amended and restated certificate of incorporation (the “Certificate of Incorporation”) and amended and restated bylaws (the “Bylaws”), copies of which are incorporated by reference as exhibits to the Annual Report on Form 10-K of which this Exhibit 4.11 is a part. The Company encourages the reading of the Company’s Certificate of Incorporation, the Company’s Bylaws and the applicable provisions of the DGCL for additional information.
Authorized Shares of Capital Stock
The Company’s authorized capital stock consists of 40,000,000 shares of capital stock, all of which shall be Series A common stock, par value $0.01 per share (the “Common Stock”).
Voting Rights
With respect to all such matters upon which stockholders are entitled to vote or give consent, holders of the Common Stock are entitled to one vote (in person or by proxy) for each share of Common Stock held by such holder on the record date for the determination of stockholders entitled to vote.
Dividend Rights
Holders of the Common Stock are entitled to receive, when and as may be declared by the Company’s board of directors (the “Board”), out of the assets of the Company legally available for such purpose, dividends or other distributions, whether payable in cash, property or securities of the Company.
Rights Upon Liquidation
Upon the liquidation, dissolution or winding up of the Company or other similar event, whether voluntary or involuntary, and after payment or provision for payment of the Company’s debts and other liabilities, the Company’s assets will be distributed ratably to the holders of the Common Stock in proportion to the number of shares held by them.
Other Rights and Procedures
Holders of the Common Stock have no preemptive, subscription or redemption rights.
Listing
The Common Stock is listed on the Nasdaq Capital Market under the symbol “CRWS”.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is Broadridge Corporate Issuer Solutions, Inc.
Anti-Takeover Effect of Provisions of the Company’s Certificate of Incorporation and Bylaws and of Delaware Law
The rights of the Company’s stockholders and related matters are governed by the DGCL, the Company’s Certificate of Incorporation and Bylaws, certain provisions of which may discourage or make more difficult a takeover attempt that a stockholder might consider in his or her best interest by means of a tender offer or proxy contest or removal of the Company’s incumbent officers or directors. These provisions may also adversely affect prevailing market prices for the Common Stock. However, the Company believes that these provisions will discourage coercive takeover practices and inadequate takeover bids and will encourage persons seeking to acquire control of the Company to first negotiate with the Board. The Company further believes that the benefits provided by the Company’s ability to negotiate with the proponent of an unsolicited proposal outweigh the disadvantage of discouraging those proposals and that negotiation of an unsolicited proposal could result in an improvement of its terms.
Certificate of Incorporation and Bylaw Provisions
Classified Board. The Company’s Bylaws provide that the Board is divided into three classes, which are as nearly equal in number of directors as is possible. At each annual meeting of stockholders, the number of directors equal to the number of the class whose term expires at the time of such meeting is elected to serve until the third ensuing annual meeting of stockholders. As a result, only a portion of the Board will be elected each year. A third party may be discouraged from making a tender offer or otherwise attempting to obtain control of the Company as it is more difficult and time consuming for stockholders to replace a majority of the directors on a classified board of directors.
Removal of Directors. At any stockholders’ meeting with respect to which notice of such purpose was given, any director may be removed from office but only for cause. The resulting vacancy may be filled at the same or any subsequent meeting of stockholders; provided, that to the extent any vacancy created by such removal is not filled by such an election within 60 days after such removal, the remaining directors shall, by majority vote, fill such vacancy.
The provisions of the Company’s Bylaws with respect to the removal of directors may not be repealed or amended, nor may any provision of the Company’s Certificate of Incorporation or Bylaws be adopted that is inconsistent with such provisions, unless approved by the affirmative vote of the holders of not less than 75% of the outstanding shares of capital stock of the Company entitled to vote in the election of directors.
Vacancies. The Company’s Bylaws authorize only the Board to fill vacant directorships, including newly created seats. In addition, the Company’s Bylaws provide that the Board shall consist of not less than three or more than fifteen members, the exact number of which shall be fixed from time to time by resolution of the Board; provided, however, that the number of directors may be increased or decreased from time to time by the Board by amendment of the Company’s Bylaws. These provisions would prevent a stockholder from increasing the size of the Board and then gaining control of the Board by filing the resulting vacancies with its own nominees. This makes it more difficult to change the composition of the Board.
Stockholder Action by Written Consent. The Company’s Certificate of Incorporation and Bylaws permit stockholders to take action, without prior notice to stockholders and without a vote, by the written consent of holders of all of the Company’s shares in lieu of an annual or special meeting. Otherwise, stockholders will only be able to take action at an annual or special meeting called in accordance with the Company’s Bylaws.
Special Meetings. The Company’s Bylaws provide that special meetings of stockholders may only be called by:
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• |
the chairman of the Board; |
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• |
the president of the Company; and |
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• |
the secretary of the Company at the request in writing of (i) a majority of the Board or (ii) stockholders owning at least 75% of the issued and outstanding capital stock of the Company entitled to vote thereat. |
The provisions of the Company’s Bylaws with respect to calling special meetings may not be repealed or amended, nor may any provision of the Company’s Certificate of Incorporation or Bylaws be adopted that is inconsistent with such provisions, unless approved by the affirmative vote of the holders of not less than 75% of the outstanding shares of capital stock of the Company entitled to vote in the election of directors.
No Cumulative Voting. The Company’s Certificate of Incorporation does not provide for cumulative voting in the election of directors, which, under Delaware law, precludes stockholders from cumulating their votes in the election of directors, frustrating the ability of minority stockholders to obtain representation on the Board.
Advance Notice Requirements for Stockholder Nominations and Other Proposals. The Company’s Bylaws provide for an advance notice procedure for stockholders to nominate persons to stand for election as a director or to bring other business before meetings of the Company’s stockholders. Any stockholder wishing to nominate persons to stand for election as a director or to bring other business before meetings must deliver advance written notice and certain other information to the Company’s Secretary in accordance with the Company’s Bylaws.
Amendment of the Bylaws. The Company’s Certificate of Incorporation and Bylaws provide that, except as otherwise specifically stated within the article to be altered, the Company’s Bylaws may be amended, altered, repealed or adopted at any meeting of the Board or of the stockholders, provided notice of the proposed change was given in the notice of the meeting.
Amendment of the Certificate of Incorporation. The Company’s Certificate of Incorporation provides that the Company reserves the right to repeal, alter, amend or rescind any provisions contained in the Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware, except as otherwise limited by the other provisions of the Certificate of Incorporation. All rights conferred on stockholders in the Certificate of Incorporation are granted subject to such reservation.
Delaware Law
As a Delaware corporation, the Company is subject to the restrictions under Section 203 of the DGCL (“Section 203”) regarding corporate takeovers. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging, under certain circumstances, in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder, unless:
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• |
prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
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upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time such transaction commenced, excluding, for purposes of determining the number of shares outstanding, (1) shares owned by persons who are directors and also officers of the corporation and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
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• |
on or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not wholly owned by the interested stockholder. |
In this context, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status owned, 15% or more of a corporation’s outstanding voting stock.
A Delaware corporation may “opt out” of Section 203 with an express provision in its original Certificate of Incorporation or an express provision in its Certificate of Incorporation or Bylaws resulting from amendments approved by holders of at least a majority of the corporation’s outstanding voting shares. The Company has not elected to “opt out” of Section 203. However, the Company may elect to “opt out” of Section 203 by an amendment to the Company’s Certificate of Incorporation or Bylaws.
Limitation of Liability of Directors
The Company’s Certificate of Incorporation and Bylaws provide that none of the Company’s directors shall be liable to the Company or its stockholders for monetary damages for any breach of fiduciary duty as a director, except to the extent otherwise required by the DGCL: (i) for any breach of the director’s duty of loyalty to the company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL or (iv) for any transaction from which such director derived an improper personal benefit.
In addition, no amendment or repeal of the foregoing provisions in the Company’s Certificate of Incorporation or Bylaws shall apply to, or have any effect on, the liability or alleged liability of any director for any acts or omissions of such director occurring prior to such amendment or repeal. Further, the Company’s Certificate of Incorporation and Bylaws provide that if the DGCL is amended to authorize the further elimination or limitation of the personal liability of a director, then the liability of the directors shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
Indemnification
The Company’s Certificate of Incorporation and Bylaws include provisions for the indemnification of the Company’s directors and officers to the fullest extent permitted by the DGCL.
To the extent authorized from time to time by the Board, the Company also may grant rights to indemnification, including the right to be paid by the Company the expenses incurred in defending any proceeding in advance of its final disposition, to any employee or agent of the Company to the fullest extent provided by the Company’s Certificate of Incorporation, Bylaws or otherwise with respect to the indemnification and advancement of expenses of directors and officers of the Company.
The indemnification rights set forth in the Company’s Certificate of Incorporation and Bylaws are contract rights and survive any change to the Company’s Certificate of Incorporation or Bylaws. Any repeal or modification of the Company’s Certificate of Incorporation or Bylaws shall not change the rights of an officer or director to indemnification with respect to any action or omission occurring prior to such repeal or modification.
Further, the Company has and may in the future enter into indemnification agreements with the Company’s directors and executive officers which require the Company, among other things, to indemnify them against certain liabilities which may arise by reason of their status or service as a director or officer and to advance to them expenses, subject to reimbursement to the Company if it is determined that they are not entitled to indemnification.
Insurance
The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of law.
The Company also may create a trust fund, grant a security interest or use other means (including, without limitation, letters of credit, surety bonds and/or other similar arrangements), as well as including as part of any such indemnification agreement provisions with respect to any or all of the foregoing, to ensure the payment of such amount as may become necessary to effect such indemnification.
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
| SUBSIDIARY |
STATE OR OTHER JURISDICTION OF INCORPORATION OR FORMATION |
|
| NoJo Baby & Kids, Inc. | Delaware | |
| Sassy Baby, Inc. | Louisiana | |
| Manhattan Group, LLC d/b/a The Manhattan Toy Company | Wyoming | |
| Manhattan Toy Europe Limited | England |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements (No. 333-136868, No. 333-183298, No. 333-200037 and No. 333-258678) on Form S-8 of our report dated June 28, 2024, with respect to the consolidated financial statements of Crown Crafts, Inc.
/s/ KPMG LLP
Baton Rouge, Louisiana
June 28, 2024
Exhibit 31.1
CERTIFICATION
I, Olivia W. Elliott, certify that:
|
1. |
I have reviewed this annual report on Form 10-K of Crown Crafts, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: June 28, 2024 | /s/ Olivia W. Elliott |
| Olivia W. Elliott, | |
| President and Chief Executive Officer, | |
| Crown Crafts, Inc. |
Exhibit 31.2
CERTIFICATION
I, Craig J. Demarest, certify that:
|
1. |
I have reviewed this annual report on Form 10-K of Crown Crafts, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: June 28, 2024 | /s/ Craig J. Demarest |
| Craig J. Demarest, | |
| Vice President and Chief Financial Officer, | |
| Crown Crafts, Inc. |
Exhibit 32.1
SECTION 1350 CERTIFICATION
I, Olivia W. Elliott, the President and Chief Executive Officer of Crown Crafts, Inc. (the “Company”), do hereby certify, in accordance with 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
|
1. |
The Annual Report on Form 10-K of the Company for the period ended March 31, 2024 (the “Periodic Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
2. |
The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: June 28, 2024 | /s/ Olivia W. Elliott |
| Olivia W. Elliott, | |
| President and Chief Executive Officer, | |
| Crown Crafts, Inc. |
Exhibit 32.2
SECTION 1350 CERTIFICATION
I, Craig J. Demarest, a Vice President and the Chief Financial Officer of Crown Crafts, Inc. (the “Company”), do hereby certify, in accordance with 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
|
1. |
The Annual Report on Form 10-K of the Company for the period ended March 31, 2024 (the “Periodic Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
2. |
The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: June 28, 2024 | /s/ Craig J. Demarest |
| Craig J. Demarest, | |
| Vice President and Chief Financial Officer, | |
| Crown Crafts, Inc. |
Exhibit 97.1
CROWN CRAFTS, INC.
POLICY FOR THE
RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
1. PURPOSE. In accordance with the applicable rules of The Nasdaq Stock Market LLC (the “Nasdaq”), including Listing Rule 5608 (the “Nasdaq Rules”), and Section 10D (“Section 10D”) and Rule 10D-1 (“Rule 10D-1”) of the Securities Exchange Act of 1934, as amended, the Board of Directors (the “Board”) of Crown Crafts, Inc. (the “Company”) has adopted this Policy (the “Policy”) to provide for the recovery of erroneously awarded Incentive-based Compensation from Executive Officers. All capitalized terms used and not otherwise defined in this Policy shall have the meanings set forth in Section 6.
|
2. |
RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION. |
(a) In the event of an Accounting Restatement, the Company will recover reasonably promptly the Erroneously Awarded Compensation Received in accordance with the Nasdaq Rules and Rule 10D-1 as follows:
(i) After an Accounting Restatement, the Compensation Committee (if composed entirely of independent directors, or in the absence of such a committee, a majority of independent directors serving on the Board) (the “Committee”) shall determine the amount of any Erroneously Awarded Compensation Received by each Executive Officer and shall promptly notify each Executive Officer with a written notice containing the amount of any Erroneously Awarded Compensation and a demand for repayment or return of such compensation, as applicable.
(ii) For Incentive-based Compensation based on (or derived from) the Company’s stock price or total shareholder return, where the amount of Erroneously Awarded Compensation is not subject to mathematical recalculation directly from the information in the applicable Accounting Restatement: (A) the amount to be repaid or returned shall be determined by the Committee based on a reasonable estimate of the effect of the Accounting Restatement on the Company’s stock price or total shareholder return upon which the Incentive-based Compensation was Received; and (B) the Company shall maintain documentation of the determination of such reasonable estimate and provide the relevant documentation as required to the Nasdaq.
(iii) The Committee shall have discretion to determine the appropriate means of recovering Erroneously Awarded Compensation based on the particular facts and circumstances, which may include: (A) seeking reimbursement of all or part of any cash or equity-based award; (B) cancelling prior cash or equity-based awards, whether vested or unvested or paid or unpaid; (C) cancelling or offsetting against any planned future cash or equity-based awards; (D) forfeiture of deferred compensation, subject to compliance with Section 409A of the Code and the regulations promulgated thereunder; and (E) any other method permitted by applicable law or contract. Subject to compliance with any applicable law, the Committee may affect recovery under this Policy from any amount otherwise payable to the Executive Officer, including amounts payable to such Executive Officer under any Company plan, program, agreement, award or arrangement. Notwithstanding the foregoing, except as set forth in Section 2(b), in no event may the Company accept an amount that is less than the amount of Erroneously Awarded Compensation in satisfaction of an Executive Officer’s obligations hereunder.
(iv) To the extent that the Executive Officer has already reimbursed the Company for any Erroneously Awarded Compensation Received under any duplicative recovery obligations established by the Company or applicable law, it shall be appropriate for any such reimbursed amount to be credited to the amount of Erroneously Awarded Compensation that is subject to recovery under this Policy.
(v) To the extent that an Executive Officer fails to repay all Erroneously Awarded Compensation to the Company when due, the Company shall take all actions reasonable and appropriate to recover such Erroneously Awarded Compensation from the applicable Executive Officer. The applicable Executive Officer shall be required to reimburse the Company for any and all expenses reasonably incurred (including legal fees) by the Company in recovering such Erroneously Awarded Compensation in accordance with the immediately preceding sentence.
(b) Notwithstanding anything in this Policy to the contrary, the Company shall not be required to take the actions contemplated by Section 2(a) if the Committee (which, as specified above, is composed entirely of independent directors or in the absence of such a committee, a majority of the independent directors serving on the Board) determines that recovery would be impracticable and either of the following two conditions are met:
(i) The Committee has determined that the direct expenses paid to a third party to assist in enforcing this Policy would exceed the amount to be recovered. Before making this determination, the Company must make a reasonable attempt to recover the Erroneously Awarded Compensation, document such reasonable attempt(s) to recover and provide such documentation to the Nasdaq; or
(ii) Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of Section 401(a)(13) or Section 411(a) of the Code and the regulations promulgated thereunder.
3. PROHIBITION OF INDEMNIFICATION. Notwithstanding the terms of any indemnification or insurance policy or any contractual arrangement that may be interpreted to the contrary, the Company shall not insure or indemnify any Executive Officer against: (a) the loss of any Erroneously Awarded Compensation that is repaid, returned or recovered pursuant to the terms of this Policy, including any payment or reimbursement for the cost of third-party insurance purchased by any Executive Officer to fund potential recovery obligations under this Policy; or (b) any claims relating to the Company’s enforcement of its rights under this Policy. Further, the Company shall not enter into any agreement that exempts any Incentive-based Compensation that is granted, paid or awarded to an Executive Officer from the application of this Policy or that waives the Company’s right to recovery of any Erroneously Awarded Compensation, and this Policy shall supersede any such agreement (whether entered into before, on or after the effective date of this Policy).
4. OTHER RECOVERY RIGHTS. This Policy shall be binding and enforceable against all Executive Officers and, to the extent required by applicable law or guidance from the SEC or the Nasdaq, their beneficiaries, heirs, executors, administrators or other legal representatives. The Committee intends that this Policy will be applied to the fullest extent required by applicable law. Any employment agreement, equity award agreement, compensatory plan or any other agreement or arrangement with an Executive Officer shall be deemed to include, as a condition to the grant of any benefit thereunder, an agreement by the Executive Officer to abide by the terms of this Policy. Any right of recovery under this Policy is in addition to, and not in lieu of, any other remedies or rights of recovery that may be available to the Company under applicable law, regulation or rule or pursuant to the terms of any policy of the Company or any provision in any employment agreement, equity award agreement, compensatory plan, agreement or other arrangement.
5. ADMINISTRATION AND INTERPRETATION. This Policy shall be administered by the Committee. The Committee is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate or advisable for the administration of this Policy and for the Company’s compliance with the Nasdaq Rules, Section 10D, Rule 10D-1 and any other applicable law, regulation, rule or interpretation of the SEC or the Nasdaq promulgated or issued in connection therewith. Any determinations made by the Committee shall be final and binding on all affected individuals and need not be uniform with respect to each individual covered by this Policy. In the administration of this Policy, the Committee is authorized and directed to consult with the full Board or such other committees of the Board, such as the Audit Committee, as may be necessary or appropriate as to matters within the scope of the Committee’s responsibility and authority. Subject to any limitation of applicable law, the Committee may authorize and empower any officer or employee of the Company to take any and all actions necessary or appropriate to carry out the purpose and intent of this Policy (other than with respect to any recovery under this Policy involving such officer or employee).
|
6. |
DEFINITIONS. For purposes of this Policy, the following capitalized terms shall have the meanings set forth below. |
(a) “Accounting Restatement” means an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements (a “Big R” restatement), or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (a “little r” restatement).
(b) “Clawback Eligible Incentive Compensation” means all Incentive-based Compensation Received by an Executive Officer: (i) on or after October 2, 2023; (ii) after beginning service as an Executive Officer; (iii) who served as an Executive Officer at any time during the applicable performance period relating to any Incentive-based Compensation (whether or not such Executive Officer is serving at the time the Erroneously Awarded Compensation is required to be repaid to the Company); (iv) while the Company has a class of securities listed on a national securities exchange or a national securities association; and (v) during the applicable Clawback Period.
(c) “Clawback Period” means, with respect to any Accounting Restatement, the three completed fiscal years of the Company immediately preceding the Restatement Date, and if the Company changes its fiscal year, any transition period of less than nine months within or immediately following those three completed fiscal years.
(d) “Code” means the Internal Revenue Code of 1986, as amended.
(e) “Erroneously Awarded Compensation” means, with respect to each Executive Officer in connection with an Accounting Restatement, the amount of Clawback Eligible Incentive Compensation that exceeds the amount of Incentive-based Compensation that otherwise would have been Received had it been determined based on the restated amounts, computed without regard to any taxes paid.
(f) “Executive Officer” means the Company’s current and former executive officers, as determined by the Committee in accordance with the definition of “executive officer” set forth in Rule 10D-1 and the Nasdaq Rules. The identification of an “Executive Officer” for purposes of this Policy shall include each executive officer who is or was identified pursuant to Item 401(b) of Regulation S-K, as well as the principal financial officer and principal accounting officer (or, if there is no principal accounting officer, the controller).
(g) “Financial Reporting Measures” means measures that are determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures. Stock price and total shareholder return (and any measures that are derived wholly or in part from stock price or total shareholder return) shall, for purposes of this Policy, be considered Financial Reporting Measures. A Financial Reporting Measure need not be presented in the Company’s financial statements or included in a filing with the SEC.
(h) “Incentive-based Compensation” means any compensation that is granted, earned or vested based wholly or in part upon the attainment of a Financial Reporting Measure.
(i) “Received” means, with respect to any Incentive-based Compensation, actual or deemed receipt, and Incentive-based Compensation shall be deemed received in the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive-based Compensation award is attained, even if the payment or grant of the Incentive-based Compensation to the Executive Officer occurs after the end of that period.
(j) “Restatement Date” means the earlier to occur of: (i) the date the Board, a committee of the Board or the officers of the Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an Accounting Restatement; or (ii) the date a court, regulator or other legally authorized body directs the Company to prepare an Accounting Restatement.
(k) “SEC” means the U.S. Securities and Exchange Commission.
|
7. |
DISCLOSURE REQUIREMENTS. The Company shall file all disclosures with respect to this Policy required by applicable SEC filings and rules. |
8. AMENDMENT; TERMINATION. The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary. Notwithstanding anything in this Section 8 to the contrary, no amendment or termination of this Policy shall be effective if such amendment or termination would (after taking into account any actions taken by the Company contemporaneously with such amendment or termination) cause the Company to violate any federal securities laws, SEC rule or Nasdaq rule.
9. GOVERINING LAW; VENUE. This Policy and all rights and obligations hereunder are governed by and construed in accordance with the internal laws of the State of Delaware, excluding any choice of law rules or principles that may direct the application of the laws of another jurisdiction. All actions arising out of or relating to this Policy shall be heard and determined exclusively in the Court of Chancery of the State of Delaware or, if such court declines to exercise jurisdiction or if subject matter jurisdiction over the matter that is the subject of any such legal action or proceeding is vested exclusively in the U.S. federal courts, the U.S. District Court for the District of Delaware.
10. ACKNOWLEDGEMENT. Each Executive Officer shall sign and return to the Company, within 30 calendar days following the later of: (i) October 2, 2023; or (ii) the date the individual becomes an Executive Officer, the Acknowledgement Form attached hereto as Exhibit A.
Effective as of October 2, 2023.
EXHBIT A
ACKNOWLEDGEMENT
CROWN CRAFTS, INC.
POLICY FOR THE
RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
By my signature below, I acknowledge and agree that:
I have received and read the attached Crown Crafts, Inc. (the “Company”) Policy for the Recovery of Erroneously Awarded Compensation (as may be amended, restated, supplemented or otherwise modified from time to time, the “Policy”). I agree that I am bound by, and subject to, all of the terms and conditions of the Policy, and I agree to abide by all such terms and conditions, both during and after my employment with the Company or any of its subsidiaries.
In the event of any inconsistency between the Policy and the terms of any employment agreement to which I am a party, the terms of any compensation plan, program, agreement or arrangement under which any compensation has been granted, awarded, earned or paid, or any other contractual arrangement, I agree that the terms of the Policy shall govern.
If it is determined by the Committee that any amounts granted, awarded, earned or paid to me must be forfeited or reimbursed to the Company under the Policy, then I will promptly take any action necessary to effectuate such forfeiture and/or reimbursement, including by promptly repaying or returning any Erroneously Awarded Compensation to the Company as determined in accordance with this Policy.
Any capitalized terms used in this Acknowledgment without definition shall have the meanings set forth in the Policy.
| Signature: | |||
| Printed Name: | |||
| Date: |
Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Apr. 02, 2023 |
|---|---|---|
| Allowance for doubtful accounts receivable | $ 1,486 | $ 1,474 |
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized (in shares) | 40,000,000 | 40,000,000 |
| Common stock, shares issued (in shares) | 13,208,226 | 13,051,814 |
| Treasury stock, shares (in shares) | 2,897,507 | 2,897,507 |
Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands |
12 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Net sales | $ 87,632 | $ 75,053 |
| Cost of products sold | 64,632 | 55,225 |
| Gross profit | 23,000 | 19,828 |
| Marketing and administrative expenses | 16,105 | 12,655 |
| Income from operations | 6,895 | 7,173 |
| Other (expense) income: | ||
| Interest (expense) income - net of interest income | (734) | 81 |
| Gain on insurance proceeds received for damage to equipment | 0 | 34 |
| Gain on sale of property, plant and equipment | 58 | 2 |
| Other income - net | 9 | 136 |
| Income before income tax expense | 6,228 | 7,426 |
| Income tax expense | 1,334 | 1,776 |
| Net income | $ 4,894 | $ 5,650 |
| Weighted average shares outstanding: | ||
| Basic (in shares) | 10,210 | 10,102 |
| Effect of dilutive securities (in shares) | 4 | 18 |
| Diluted (in shares) | 10,214 | 10,120 |
| Earnings per share - basic and diluted (in dollars per share) | $ 0.48 | $ 0.56 |
Consolidated Statements of Changes In Shareholders' Equity - USD ($) $ in Thousands |
Common Stock [Member] |
Treasury Stock, Common [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Total |
|---|---|---|---|---|---|
| Balances (in shares) at Apr. 03, 2022 | 12,944,918 | (2,864,698) | |||
| Balances at Apr. 03, 2022 | $ 129 | $ (15,614) | $ 55,925 | $ 5,361 | $ 45,801 |
| Issuance of shares (in shares) | 106,896 | 0 | |||
| Issuance of shares | $ 2 | $ 0 | 96 | 0 | 98 |
| Stock-based compensation | 0 | 0 | 1,105 | 0 | 1,105 |
| Acquisition of treasury stock | 0 | $ (207) | 0 | 0 | $ (207) |
| Acquisition of treasury stock (in shares) | (32,809) | (33,000) | |||
| Net income | 0 | $ 0 | 0 | 5,650 | $ 5,650 |
| Dividend declared on common stock - $0.32 per share | $ 0 | $ 0 | 0 | (3,233) | (3,233) |
| Balances (in shares) at Apr. 02, 2023 | 13,051,814 | (2,897,507) | |||
| Balances at Apr. 02, 2023 | $ 131 | $ (15,821) | 57,126 | 7,778 | 49,214 |
| Issuance of shares (in shares) | 156,412 | 0 | |||
| Issuance of shares | $ 1 | $ 0 | (1) | 0 | 0 |
| Stock-based compensation | 0 | 0 | 763 | 0 | $ 763 |
| Acquisition of treasury stock (in shares) | 0 | ||||
| Net income | 0 | 0 | 0 | 4,894 | $ 4,894 |
| Dividend declared on common stock - $0.32 per share | $ 0 | $ 0 | 0 | (3,270) | (3,270) |
| Balances (in shares) at Mar. 31, 2024 | 13,208,226 | (2,897,507) | |||
| Balances at Mar. 31, 2024 | $ 132 | $ (15,821) | $ 57,888 | $ 9,402 | $ 51,601 |
Consolidated Statements of Changes In Shareholders' Equity (Parentheticals) - $ / shares |
12 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Dividends declared, per share (in dollars per share) | $ 0.32 | $ 0.32 |
Insider Trading Arrangements |
12 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Insider Trading Arr Line Items | |
| Material Terms of Trading Arrangement [Text Block] |
During the quarter ended March 31, 2024, of the Company’s directors or officers informed the Company of the adoption, modification or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408(a) of Regulation S-K.
|
| Rule 10b5-1 Arrangement Adopted [Flag] | false |
| Non-Rule 10b5-1 Arrangement Adopted [Flag] | false |
| Rule 10b5-1 Arrangement Terminated [Flag] | false |
| Non-Rule 10b5-1 Arrangement Terminated [Flag] | false |
Schedule II - Valuation and Qualifying Accounts |
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| SEC Schedule, 12-09, Schedule of Valuation and Qualifying Accounts Disclosure [Text Block] |
SCHEDULE II
CROWN CRAFTS, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
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Note 1- Description of Business |
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| Notes to Financial Statements | |
| Nature of Operations [Text Block] |
Crown Crafts, Inc. and Subsidiaries Notes to Consolidated Financial Statements
Note 1 – Description of Business
Crown Crafts, Inc. (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 four of its wholly-owned subsidiaries, NoJo Baby & Kids, Inc. (“NoJo”), Sassy Baby, Inc. (“Sassy”), Manhattan Group, LLC (“Manhattan”) and Manhattan Toy Europe Limited (“MTE”) 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, soft bath products, disposable products, developmental toys and accessories. Most sales of the Company’s products are generally made directly to retailers, such as mass merchants, large chain stores, mid-tier retailers, juvenile specialty stores, value channel stores, grocery and drug stores, restaurants, wholesale clubs and internet-based retailers. Manhattan also sells direct to consumer through its website, www.manhattantoy.com. The Company’s products are marketed under a variety of Company-owned trademarks, under trademarks licensed from others and as private label goods.
The Company's fiscal year ends on the Sunday nearest to or on March 31. References herein to “fiscal year 2024” or “2024” represent the 52-week period ended March 31, 2024, and references herein to “fiscal year 2023” or “2023” represent the 52-week period ended April 2, 2023. |
Note 2 - Summary of Significant Accounting Policies |
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Note 2 - Summary of Significant Accounting Policies
Basis of Presentation: The accompanying consolidated financial statements include the accounts of the Company and have been prepared pursuant to accounting principles generally accepted in the U.S. (“GAAP”) as promulgated by the Financial Accounting Standards Board (“FASB”). 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.
Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated balance sheets and the reported amounts of revenues and expenses during the periods presented on the consolidated statements of income and cash flows. Significant estimates are made with respect to:
Actual results could differ materially from these estimates.
Cash and Cash Equivalents: The Company’s credit facility consists of a revolving line of credit under a financing agreement with The CIT Group/Commercial Services (“CIT”). The Company classifies a negative balance outstanding under this revolving line of credit as cash and cash equivalents, as these amounts are legally owed to the Company and are immediately available to be drawn upon by the Company. There are no compensating balance requirements or other restrictions on the transfer of amounts associated with the Company’s depository accounts.
Financial Instruments: For short-term instruments such as cash and cash equivalents, accounts receivable and accounts payable, the Company uses carrying value as a reasonable estimate of fair value. Additionally, the Company’s long-term debt is a revolving credit facility whereby the Company uses carrying value as a reasonable estimate of fair value.
Segments and Related Information: The Company operates primarily in one principal segment, infant, toddler and juvenile products. These products consist of infant and toddler bedding and blankets, bibs, soft bath products, disposable products, developmental and bath toys and accessories. Net sales of bedding, blankets and accessories and net sales of bibs, bath and disposable products for the fiscal years ended March 31, 2024 and April 2, 2023 are as follows (in thousands):
Revenue Recognition: Revenue is recognized upon the satisfaction of all contractual performance obligations and the transfer of control of the products sold to the customer. The majority of the Company’s sales consists of single performance obligation arrangements for which the transaction price for a given product sold is equivalent to the price quoted for the product, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit contract with the customer to deliver a product as directed by the customer. Shipping and handling costs that are charged to customers are included in net sales, and the Company’s costs associated with shipping and handling activities are included in cost of products sold.
Revenue from sales made directly to consumers is recorded when the shipped products have been received by customers, and excludes sales taxes collected on behalf of governmental entities. Revenue from sales made to retailers is recorded when legal title has been passed to the customer based upon the terms of the customer’s purchase order, the Company’s sales invoice, or other associated relevant documents. Such terms usually stipulate that legal title will pass when the shipped products are no longer under the control of the Company, such as when the products are picked up at the Company’s facility by the customer or by a common carrier. Payment terms can vary from prepayment for sales made directly to consumers to payment due in arrears (generally, 60 days of being invoiced) for sales made to retailers.
Allowances Against Accounts Receivable: The Company estimates certain allowances from revenues recognized through sales made to its customers. These allowances include anticipated returns and claims, expected credit losses, chargebacks related to negotiated customer terms and discounts, cooperative advertising allowances, warehouse allowances, placement fees, volume rebates, coupons, discounts and other allowances.
The allowance for anticipated returns and claims is estimated based upon the Company’s historical experience with actual returns and claims, combined with the consideration of events that could result in a change from historical rates on a per-customer basis. The allowance for anticipated returns and claims is recorded as a reduction of net sales in the reporting period within which the related sales are recorded.
To reduce the Company’s exposure to expected credit losses, and to enhance the predictability of its cash flows, the Company assigns substantially all of its receivables under factoring agreements with CIT. In the event that a factored receivable becomes uncollectible due to creditworthiness, CIT bears the risk of loss. With respect to the receivables that are not assigned under factoring agreements with CIT, the Company addresses this credit risk by establishing an allowance that is intended to represent the Company’s best estimate of the expected credit losses for such receivables. In the development of this estimate, the Company makes a number of judgements utilizing the Current Expected Credit Losses (“CECL”) methodology, which requires the Company to estimate lifetime expected credit losses by specifically analyzing the receivables. This analysis incorporates an aging of the receivables, relevant payment history and historical loss experience, as well as the consideration of customer concentrations, customer creditworthiness, negotiated changes to the payment terms of customers, recent economic trends, and expectations regarding economic conditions over a reasonable and supportable future period. The allowance for expected credit losses is included in marketing and administrative expenses in the accompanying consolidated statements of income.
The allowance for chargebacks related to negotiated customer terms and discounts, cooperative advertising, warehouse allowances, placement fees, volume rebates, coupons, discounts and other allowances is recorded commensurate with sales activity or using the straight-line method, as appropriate. The majority of the Company’s allowances for such chargebacks occurs on a per-invoice basis. When a customer requests to have an agreed-upon deduction applied against the customer’s outstanding balance due to the Company, the allowances are correspondingly reduced to reflect such payments or credits issued against the customer’s account balance. The Company analyzes the components of the allowances for customer chargebacks monthly and adjusts the allowances to appropriate levels. Since allowances associated with cooperative advertising are accrued commensurate with sales activity or using the straight-line method, as appropriate, the timing of funding requests for cooperative advertising may result in fluctuations in the allowance from period to period, although such timing should not have a material impact on the consolidated statements of income. The allowance for cooperative advertising is included in marketing and administrative expenses in the consolidated statements of income. All other allowances for chargebacks related to negotiated customer terms and discounts, warehouse allowances, placement fees, volume rebates, coupons and discounts are recorded as a reduction of net sales in the reporting period within which the related sales are recorded.
The Company’s actual experience associated with its allowances against accounts receivable in a future period may differ from the judgements, estimates, analysis and considerations employed in the development of these allowances. Thus, the Company’s allowances against accounts receivable at any point in time may be over-funded or under-funded.
Credit Concentration: The Company’s accounts receivable at March 31, 2024 amounted to $22.4 million, net of allowances of $1.5 million. Of this amount, $18.6 million was due from CIT under the factoring agreements, which represents the maximum loss that the Company could incur if CIT failed completely to perform its obligations under the factoring agreements. The Company’s accounts receivable at April 2, 2023 amounted to $22.8 million, net of allowances of $1.5 million. Of this amount, $20.7 million was due from CIT under the factoring agreements, which represents the maximum loss that the Company could have incurred if CIT had failed completely to perform its obligations under the factoring agreements.
Inventory Valuation: The preparation of the Company's financial statements requires careful determination of the appropriate value of the Company's inventory balances. Such amounts are presented as a current asset in the accompanying consolidated balance sheets and are a direct determinant of cost of products sold in the accompanying consolidated statements of income and, therefore, have a significant impact on the amount of net income reported in the accounting periods. The basis of accounting for inventories is cost, which includes the direct supplier acquisition cost, duties, taxes and freight, and the indirect costs to design, develop, source and store the product until it is sold. Once cost has been determined, the Company’s inventory is then stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out (“FIFO”) method, which assumes that inventory quantities are sold in the order in which they are acquired.
The determination of the indirect charges and their allocation to the Company’s finished goods inventories is complex and requires significant management judgment and estimates. If management made different judgments or utilized different estimates, then differences would result in the valuation of the Company’s inventories and in the amount and timing of the Company’s cost of products sold and the resulting net income for the reporting period.
On a periodic basis, management reviews its inventory quantities on hand for obsolescence, physical deterioration, changes in price levels and the existence of quantities on hand which may not reasonably be expected to be sold within the Company’s normal operating cycle. To the extent that any of these conditions is believed to exist or the market value of the inventory expected to be realized in the ordinary course of business is otherwise no longer as great as its carrying value, an allowance against the inventory value is established. To the extent that this allowance is established or increased during an accounting period, an expense is recorded in cost of products sold in the Company’s consolidated statements of income. Only when inventory for which an allowance has been established is later sold or is otherwise disposed is the allowance reduced accordingly. Significant management judgment is required in determining the amount and adequacy of this allowance. In the event that actual results differ from management’s estimates or these estimates and judgments are revised in future periods, the Company may not fully realize the carrying value of its inventory or may need to establish additional allowances, either of which could materially impact the Company’s financial position and results of operations.
Leases: The Company capitalizes most of its operating lease obligations as right of use assets and recognizes corresponding lease liabilities. The Company elects to use the practical expedient that permits the Company to exclude short-term agreements of less than 12 months from capitalization. The Company is a party to various operating leases for offices, warehousing facilities and certain office equipment. The leases expire at various dates, have varying options to renew and cancel, and may contain escalation provisions. The Company recognizes as expense non-variable lease payments ratably over the lease term. The key estimates for the Company’s leases include the discount rate used to discount the unpaid lease payment to present value and the lease term. The Company’s leases generally do not include a readily determinable implicit rate; therefore, management determined the incremental borrowing rate to discount the lease payment based on the information available at lease commencement. For purposes of such estimates, a lease term includes the noncancellable period under the applicable lease.
Depreciation and Amortization: The accompanying consolidated balance sheets reflect property, plant and equipment, and certain intangible assets at cost less accumulated depreciation or amortization. The Company capitalizes additions and improvements and expenses maintenance and repairs as incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which are to years for property, plant and equipment, and to years for intangible assets other than goodwill. The Company amortizes improvements to its leased facilities over the term of the lease or the estimated useful life of the asset, whichever is shorter.
Patent Costs: The Company incurs certain legal and related costs in connection with patent applications. The Company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or an alternative future use is available to the Company. The Company also capitalizes legal and other costs incurred in the protection or defense of the Company’s patents when it is believed that the future economic benefit of the patent will be maintained or increased and a successful defense is probable. Capitalized patent defense costs are amortized over the remaining expected life of the related patent. The Company’s evaluation of future economic benefit of its patents involves considerable management judgment, and a different conclusion could result in a material impairment charge up to the carrying value of these assets.
Valuation of Long-Lived Assets and Identifiable Intangible Assets: In addition to the depreciation and amortization procedures set forth above, the Company reviews for impairment long-lived asset groups and certain identifiable intangible asset groups whenever events or changes in circumstances indicate that the carrying amount of any asset group may not be recoverable. In the event of an impairment, the asset is written down to its fair value.
Royalty Payments: The Company has entered into agreements that provide for royalty payments based on a percentage of sales with certain minimum guaranteed amounts. 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 consolidated statements of income and amounted to $5.3 million and $5.2 million for the fiscal years ended March 31, 2024 and April 2, 2023, respectively.
Provision for Income Taxes: The Company’s provision for income taxes includes all currently payable federal, state, local and foreign taxes and is based upon the Company’s effective tax rate, which is based on the Company’s pre-tax income, as adjusted for certain expenses within the consolidated statements of income that will never be deductible on the Company’s tax returns and certain charges expected to be deducted on the Company’s tax returns that will never be deducted on the consolidated statements of income, multiplied by the statutory tax rates for the various jurisdictions in which the Company operates and reduced by certain anticipated tax credits. The Company files income tax returns in the many jurisdictions in which it operates, including the U.S., several U.S. states and the People’s Republic of China. The statute of limitations varies by jurisdiction; taxable years open to examination as of March 31, 2024 were the fiscal years ended March 31, 2024, April 2, 2023, April 3, 2022, March 28, 2021, March 29, 2020 and March 31, 2019.
Management evaluates items of income, deductions and credits reported on the Company’s various federal and state income tax returns filed and recognizes the effect of positions taken on those income tax returns only if those positions are more likely than not to be sustained. The Company applies the provisions of accounting guidelines that require a minimum recognition threshold that a tax benefit must meet before being recognized in the financial statements. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
After considering all relevant information regarding the calculation of the state portion of its income tax provision, the Company believes that the technical merits of the tax position that the Company has taken with respect to state apportionment percentages would more likely than not be sustained. 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 fiscal years ended March 31, 2024 and April 2, 2023 of $43,000 and $73,000, respectively, in the accompanying consolidated statements of income.
The Company’s policy is to accrue interest expense and penalties as appropriate on any estimated unrecognized tax liabilities as a charge to interest expense in the Company’s consolidated statements of income. During the fiscal years ended March 31, 2024 and April 2, 2023, the Company accrued $28,000 and $45,000, respectively, for interest expense and penalties on the portion of the unrecognized tax liabilities for which the relevant statute of limitations remained unexpired.
In August 2020, the Company received notification from the Franchise Tax Board of the State of California (the “FTB”) of its intention to examine the Company’s California consolidated income tax returns that the Company had filed for the fiscal years ended April 2, 2017, April 1, 2018 and March 31, 2019. On May 30, 2023, the Company and the FTB entered into an agreement to settle (“Settlement Agreement”) the FTB’s proposed assessment of additional income tax in respect of these consolidated income tax returns under examination for the amount of $442,000, payment of which was made by the Company to the FTB on May 31, 2023. Because the examination was ongoing as of April 2, 2023, and because the Settlement Agreement was entered into prior to the issuance of the accompanying consolidated financial statements for the fiscal year ended April 2, 2023, the Company recorded the effect of the Settlement Agreement in the accompanying consolidated balance sheet as of April 2, 2023 and the consolidated statement of income for the fiscal year ended April 2, 2023. The Company’s adjustment to its reserve for unrecognized tax liabilities associated with the tax returns under examination resulted in a discrete income tax benefit during the fiscal year ended April 2, 2023, net of the impact of federal income tax, of $81,000, and a net decrease to interest expense of $86,000.
In February 2021, the Company was notified by the U.S. Internal Revenue Service (the “IRS”) that it had selected for examination the Company’s original and amended federal consolidated income tax returns that the Company had filed for its fiscal year ended April 2, 2017. On March 15, 2023, the Company agreed to accept the proposal by the IRS to disallow the Company’s claim for refund in the amount of $81,000 that was associated with the Company’s amended federal consolidated income tax return for the fiscal year ended April 2, 2017, which amount was recorded as a discrete income tax charge during the fiscal year ended April 2, 2023.
Although management believes that the calculations and positions taken on its filed income tax returns are reasonable and justifiable, the outcome of an examination could result in an adjustment to the position that the Company took on such income tax returns. Such adjustment could also lead to adjustments to one or more other state income tax returns, or to income tax returns for subsequent fiscal years, or both. To the extent that the Company’s reserve for unrecognized tax liabilities is not adequate to support the cumulative effect of such adjustments, the Company could experience a material adverse impact on its future results of operations. Conversely, to the extent that the calculations and positions taken by the Company on the filed income tax returns under examination are sustained, the reversal of all or a portion of the Company’s reserve for unrecognized tax liabilities could result in a favorable impact on its future results of operations.
Advertising Costs: 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 consolidated statements of income and amounted to $572,000 and $422,000 for the fiscal years ended March 31, 2024 and April 2, 2023, respectively.
Business Combinations: The Company accounts for acquisitions using the acquisition method of accounting in accordance with FASB ASC Topic 805, Business Combinations. An acquisition is accounted for as a purchase and the appropriate account balances and operating activities are recorded in the Company’s consolidated financial statements as of the acquisition date and thereafter. Assets acquired, liabilities assumed and noncontrolling interests, if any, are measured at fair value as of the acquisition date using the appropriate valuation method. The Company may engage an independent third party to assist with these measurements. Goodwill resulting from an acquisition is recognized for the excess of the purchase price over the fair value of the tangible and identifiable intangible assets, less the liabilities assumed.
Earnings Per Share: The Company calculates basic earnings per share by using a weighted average of the number of shares outstanding during the reporting periods. Diluted shares outstanding are calculated in accordance with the treasury stock method, which assumes that the proceeds from the exercise of all exercisable options would be used to repurchase shares at market value. The net number of shares issued after the exercise proceeds are exhausted represents the potentially dilutive effect of the exercisable options, which are added to basic shares to arrive at diluted shares.
Recently-Issued Accounting Standards: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the objective of which is to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by an entity. Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable that a loss has been incurred. Because this methodology restricted the recognition of credit losses that are expected, but did not yet meet the “probable” threshold, ASU No. 2016-13 was issued to require the consideration of a broader range of reasonable and supportable information when determining estimates of credit losses. The ASU is to be applied using a modified retrospective approach, and the ASU could have been early-adopted in the fiscal year that began after December 15, 2018. When issued, ASU No. 2016-13 was required to be adopted no later than the fiscal year beginning after December 15, 2019, but on November 15, 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which provided for the deferral of the effective date of ASU No. 2016-13 for a registrant that is a smaller reporting company to the first interim period of the fiscal year beginning after December 15, 2022. Accordingly, the Company adopted ASU No. 2016-13 effective as of April 3, 2023. Because the Company assigns substantially all of its trade accounts receivable under factoring agreements with CIT, the adoption of the ASU has not had a significant impact on the Company’s financial position, results of operations and related disclosures.
In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements – Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, the objective of which is to clarify or improve disclosure and presentation requirements and to align the requirements in the FASB ASC with the SEC’s regulations. In August 2018, the SEC issued guidance in which the SEC referred certain of its disclosure requirements that overlap with GAAP to the FASB for potential incorporation into the FASB ASC. The amendments in ASU No. 2023-06 are the result of the FASB’s decision to incorporate into the FASB ASC 14 of the 27 disclosures referred by the SEC. The FASB noted that the disclosure requirements in the SEC’s guidance and the FASB ASC should not be duplicated in both places. Accordingly, although the ASU was required to be adopted upon issuance, each amendment to the FASB ASC included in the ASU will not become effective until the effective date upon which the related SEC disclosure is no longer required. The amendments in this ASU are to be applied prospectively, and early application of the amendments is prohibited. The Company does not anticipate that the adoption of ASU No. 2023-06 will have a significant impact on the Company’s financial position, results of operations and related disclosures.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures, the objective of which is to improve the disclosures about a public entity’s reportable segments by providing more detailed information about a reportable segment’s expenses. For disclosures associated with annual and interim periods, the amendments in ASU No. 2023-07 are required to be adopted for fiscal years beginning after December 15, 2023 and December 15, 2024, respectively, and early adoption is permitted. Upon adoption, a public entity must apply the amendments in ASU No. 2023-07 retrospectively to disclosures of all prior periods presented. The Company intends to adopt ASU No. 2023-07 effective as of April 1, 2024 and is evaluating the guidance of the ASU against its existing disclosures related to segment reporting.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures, the objective of which is to enhance the transparency and decision usefulness of income tax disclosures. The amendments in the ASU are required to be adopted for fiscal years beginning after December 15, 2024 and early adoption is permitted. The Company is evaluating the guidance of ASU No. 2023-09 against its existing disclosures related to income tax disclosures.
The Company has determined that all other ASU’s issued which had become effective as of March 31, 2024, or which will become effective at some future date, are not expected to have a material impact on the Company’s consolidated financial statements. |
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Note 3 - Inventories |
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| Inventory Disclosure [Text Block] |
Note 3 – Inventories
As of March 31, 2024 and April 2, 2023, the Company’s balances of inventory were $29.7 million and $34.2 million, respectively, nearly all of which were finished goods. |
Note 4 - Acquisition |
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| Business Combination Disclosure [Text Block] |
Note 4 – Acquisition
On the March 17, 2023 (the “Closing Date”), the Company acquired Manhattan and MTE, Manhattan’s wholly-owned subsidiary, from H Enterprises International, LLC (“HEI”) (“the Manhattan Acquisition”), for a purchase price of $17.0 million, subject to adjustments for cash as of the Closing Date and to the extent that actual net working capital as of the Closing Date differed from target net working capital of $13.75 million (the “Aggregate Adjustment”). The Manhattan Acquisition was funded with cash available on the Closing Date and borrowings under the Company’s revolving line of credit with CIT. On September 29, 2023, the Company and HEI agreed to a settlement of the Aggregate Adjustment, pursuant to which HEI paid $509,000 to the Company, which included interest income of $21,000.
The Manhattan Acquisition was accounted for in accordance with FASB ASC Topic 805, Business Combinations. The Company determined the allocation of the acquisition cost with the assistance of an independent third party. The identifiable assets acquired were recorded at their estimated fair value, which was determined based on available information and the use of multiple valuation approaches. The estimated useful lives of the identifiable intangible assets acquired were determined based upon the remaining time that these assets are expected to directly or indirectly contribute to the future cash flow of the Company.
The acquisition cost paid on the Closing Date amounted to $17.4 million, which included an estimate for cash as of the Closing Date and an estimate for the net working capital acquired. The settlement of the Aggregate Adjustment resulted in a decrease of the acquisition cost to $16.9 million. The following table represents the Company’s allocation of this acquisition cost (in thousands) to the identifiable assets acquired and the liabilities assumed based on their respective estimated fair values as of the acquisition date. The excess of the acquisition cost over the estimated fair value of the identifiable net assets acquired is reflected as goodwill.
Based upon the allocation of the acquisition cost, the Company recognized $787,000 of goodwill as of the Closing Date, the entirety of which was assigned to the reporting unit of the Company that produces and markets infant and toddler bibs, developmental toys, feeding, bath care and disposable products, and the entirety of which is expected to be deductible for income tax purposes. In accordance with FASB ASC Topic 805, The financial statements as of and for the fiscal year ended April 2, 2023 were not retrospectively adjusted for any measurement-period adjustments that occurred during the fiscal year ended March 31, 2024. Rather, the adjustments to provisional amounts that were identified during the measurement period were recorded during the fiscal year ended March 31, 2024, which is the reporting period in which the adjustments were determined. The Company considers the measurement period to have ended as of March 31, 2024 and further considers all measurement period adjustments to be final. The following table represents the adjustments made to the amount of goodwill during the fiscal year ended March 31, 2024.
The Manhattan Acquisition resulted in net sales of $18.5 million and $773,000 of developmental toy, feeding and baby care products during the fiscal years ended March 31, 2024 and April 2, 2023, respectively. Manhattan recorded amortization expense associated with the acquired amortizable intangible assets of $120,000 during the fiscal year ended March 31, 2024, which is included in marketing and administrative expenses in the consolidated statements of income. Amortization is computed using the straight-line method over the estimated useful lives of the assets, which are 15 years for the tradename, 10 years for the customer and licensing relationships and 11 years on a weighted-average basis for the grouping taken together.
The Company determined, on a pro forma basis, that the combined net sales of the Company and Manhattan, giving effect to the Manhattan Acquisition as if it had been completed on March 29, 2021, is $100.8 million for the fiscal year ended April 2, 2023, and the combined net income for the fiscal year ended April 2, 2023 is $2.8 million. These amounts combine the net sales and net income (or loss, as applicable) from the Company’s consolidated statements of income for the fiscal year ended April 2, 2023 with the respective amounts from Manhattan’s consolidated statements of operations for its fiscal year ended December 31, 2022. The combined amounts of net income or loss include adjustments related to the amortization of the amortizable intangible assets acquired and estimates of the interest expense and income tax expense or benefit that would have been incurred, but otherwise do not reflect the costs of any integration activities or benefits that may result from the realization of future cost savings from operating efficiencies, or any revenue, tax or other synergies that may result from the Manhattan Acquisition. |
Note 5 - Financing Arrangements |
12 Months Ended |
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Mar. 31, 2024 | |
| Notes to Financial Statements | |
| Debt Disclosure [Text Block] |
Note 5 – Financing Arrangements
Factoring Agreements: To reduce its exposure to credit losses, the Company assigns substantially all of its trade accounts receivable to CIT pursuant to factoring agreements, which have expiration dates that are coterminous with that of the financing agreement described below. Under the terms of the factoring agreements, CIT remits customer payments to the Company as such payments are received by CIT.
CIT bears credit losses with respect to assigned accounts receivable from approved shipments, while the Company bears the responsibility for adjustments from customers related to returns, allowances, claims and discounts. CIT may at any time terminate or limit its approval of shipments to a particular customer. If such a termination or limitation occurs, 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 consolidated statements of income, were $353,000 and $287,000 during the fiscal years ended March 31, 2024 and April 2, 2023, respectively. There were no advances on the factoring agreements at March 31, 2024 or April 2, 2023.
Credit Facility: The Company’s credit facility at March 31, 2024 consisted of a revolving line of credit under a financing agreement with CIT of up to $35.0 million, which includes a $1.5 million sub-limit for letters of credit. The financing agreement matures on July 11, 2028, bears interest at the rate of prime minus 0.5% or the Secured Overnight Financing Rate (“SOFR”) plus 1.6%, and which is secured by a first lien on all assets of the Company. At March 31, 2024, the Company had elected to pay interest on balances owed under the revolving line of credit, if any, under the SOFR option, which was 6.9%. The financing agreement also provides for the payment by CIT to the Company of interest on daily negative balances, if any, held by CIT at the rate of prime as of the beginning of the calendar month minus 2.0%.
As of March 31, 2024, there was a balance of $8.1 million owed on the revolving line of credit, there was no letter of credit outstanding and $19.2 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances. As of April 2, 2023, there was a balance of $12.7 million owed on the revolving line of credit, there was no letter of credit outstanding and $20.0 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 material compliance with these covenants as of March 31, 2024. |
Note 6 - Retirement Plan |
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Mar. 31, 2024 | |
| Notes to Financial Statements | |
| Retirement Benefits [Text Block] |
Note 6 – Retirement Plan
The Company sponsors a defined contribution retirement savings plan with a cash or deferred arrangement (the “401(k) Plan”), as provided by Section 401(k) of the Internal Revenue Code (the “Code”). The 401(k) Plan covers substantially all employees, who may elect to contribute a portion of their compensation to the 401(k) Plan, subject to maximum amounts and percentages as prescribed in the Code. Each calendar year, the Board determines the portion, if any, of employee contributions that will be matched by the Company.
For calendar years 2024, 2023 and 2022, the Board established the employer matching contributions at 100% of the first 2% of employee contributions and 50% of the next 3% of employee contributions to the 401(k) Plan. If an employee separates from the Company prior to the full vesting of the funds in their account, then the unvested portion of the matching employer amount in their account is forfeited when the employee receives a distribution from their account. The Company utilizes such forfeitures as an offset to the aggregate matching contributions. The Company’s matching contributions to the 401(k) Plan, net of the utilization of forfeitures, were $320,000 and $293,000 for the fiscal years ended March 31, 2024 and April 2, 2023, respectively.
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Note 7 - Goodwill, Customer Relationships and Other Intangible Assets |
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| Goodwill and Intangible Assets Disclosure [Text Block] |
Note 7 – Goodwill, Customer Relationships and Other Intangible Assets
Goodwill: Goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired in business combinations. For the purpose of presenting and measuring for the impairment of goodwill, the Company has reporting units: one that produces and markets infant and toddler bedding, blankets and accessories and another that produces and markets infant and toddler bibs, developmental toys, bath care and disposable products. The goodwill of the reporting units of the Company as of March 31, 2024 and April 2, 2023 amounted to $30.8 million, which is reflected in the accompanying consolidated balance sheets net of accumulated impairment charges of $22.9 million, for a net reported balance of $7.9 million.
The Company measures for impairment the goodwill within its reporting units annually as of the first day of the Company’s fiscal year. An additional interim measurement for impairment is performed during the year whenever an event or change in circumstances occurs that suggests that the fair value of either of the reporting units of the Company has more likely than not (defined as having a likelihood of greater than 50%) fallen below its carrying value. The annual or interim measurement for impairment is performed by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If such qualitative factors so indicate, then the measurement for impairment is continued by calculating an estimate of the fair value of each reporting unit and comparing the estimated fair value to the carrying value of the reporting unit. If the carrying value exceeds the estimated fair value of the reporting unit, then an impairment charge is calculated as the difference between the carrying value of the reporting unit and its estimated fair value, not to exceed the goodwill of the reporting unit.
On April 3, 2023, the Company performed a qualitative assessment to determine if it is more likely than not that the fair values of the Company’s reporting units are less than their carrying values by evaluating relevant events and circumstances, including financial performance, market conditions and share price. Based on this assessment, the Company concluded that the goodwill for each of the Company’s reporting units was not considered at risk of impairment.
Other Intangible Assets: Other intangible assets as of March 31, 2024 and April 2, 2023 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 March 31, 2024 and April 2, 2023, the amortization expense for the fiscal years ended March 31, 2024 and April 2, 2023, the entirety of which has been included in marketing and administrative expenses in the accompanying consolidated statements of income, are as follows (in thousands):
The Company estimates that its amortization expense will be $537,000, $422,000, $395,000, $349,000 and $211,000 in fiscal years 2025, 2026, 2027, 2028 and 2029, respectively. |
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Note 8 - Leases |
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| Lessee, Operating Leases [Text Block] |
Note 8 – Leases
During the fiscal years ended March 31, 2024 and April 2, 2023, the Company capitalized operating lease obligations as right of use assets and recognized corresponding lease liabilities in the amount of $993,000 and $17.3 million. The Company made cash payments related to its recognized operating leases of $3.6 million and $2.3 million during the fiscal years ended March 31, 2024 and April 2, 2023, respectively. Such payments reduced the operating lease liabilities and were included in the cash flows provided by operating activities in the accompanying consolidated statements of cash flows. The Company recognized noncash reductions to its operating right of use assets resulting from reductions to its lease liabilities in the amount of $1.0 million and $224,000 during the fiscal years ended March 31, 2024 and April 2, 2023, respectively. As of March 31, 2024 and April 2, 2023, the Company’s operating leases had weighted-average discount rates of 6.0% and 5.9%, respectively, and weighted-average remaining lease terms of 3.9 years and 5.0 years, respectively.
During the fiscal years ended March 31, 2024 and April 2, 2023, the Company classified its operating lease costs within the accompanying consolidated statements of income as follows (in thousands):
The maturities of the Company’s operating lease liabilities as of March 31, 2024 are as follows (in thousands):
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Note 9 - Stock-based Compensation |
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| Share-Based Payment Arrangement [Text Block] |
Note 9 – 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.
The Company believes that awards of long-term, equity-based incentive compensation will attract and retain directors, officers and employees of the Company and will encourage these individuals to contribute to the successful performance of the Company, which will lead to the achievement of the Company’s overall goal of increasing stockholder value. Awards granted under the 2021 Plan may be in the form of incentive stock options, non-qualified stock options, shares of restricted or unrestricted stock, stock units, stock appreciation rights, or other stock-based awards. Awards may be granted subject to the achievement of performance goals or other conditions, and certain awards may be payable in stock or cash, or a combination of the two. The 2021 Plan is administered by the Compensation Committee of the Board, which selects eligible employees, non-employee directors and other individuals to participate in the 2021 Plan and determines the type, amount, duration (such duration not to exceed a term of ten (10) years for grants of stock options) and other terms of individual awards. At March 31, 2024, 439,000 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.
Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation – Stock Compensation, which requires stock-based compensation to be accounted for using a fair-value-based measurement. During fiscal years 2024 and 2023, the Company recorded $763,000 and $1.1 million of stock-based compensation, 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 March 31, 2024.
Stock Options: The following table represents stock option activity for fiscal years 2024 and 2023:
At March 31, 2024, the intrinsic value of the outstanding and exercisable stock options was $33,000 and $24,000, respectively. There were no stock options exercised during the fiscal year ended March 31, 2024. The intrinsic value of the stock options exercised during the fiscal year ended April 2, 2023 was $127,000. The Company did receive any cash from the exercise of stock options during the fiscal year ended April 2, 2023. 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. The effect on the cash flow of the Company from these “cashless” option exercises is that the Company remits cash on behalf of the participant to satisfy his or her income tax withholding obligations. The Company used cash to remit the required income tax withholding amounts from “cashless” option exercises of $10,000 during fiscal year 2023. As of April 2, 2023, the intrinsic value of both the outstanding and exercisable stock options was $87,000.
Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation – Stock Compensation, which requires stock-based compensation to be accounted for using a fair-value-based measurement. 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 awarded to certain employees during fiscal years 2024 and 2023, which options vest over a -year period, assuming continued service.
For the fiscal years ended March 31, 2024 and April 2, 2023, the Company recognized compensation expense associated with stock options as follows (in thousands):
A summary of stock options outstanding and exercisable as of March 31, 2024 is as follows:
As of March 31, 2024, total unrecognized stock-option compensation costs amounted to $63,000, which will be recognized as the underlying stock options vest over a weighted-average period of 8.8 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 employee or director who has stock options that are unvested as of such individual’s separation date.
Non-vested Stock Granted to Directors: The following shares of non-vested stock were granted to the Company’s directors:
The fair value of the non-vested stock granted to the Company’s directors was based on the closing price of the Company’s common stock on the date of each grant.
The non-vested stock granted on August 11, 2021 included 8,033 shares granted to E. Randall Chestnut, formerly the Company’s Chairman, President and Chief Executive Officer. On May 1, 2022, upon the resignation of Mr. Chestnut from the Board and his retirement from all positions that he held within the Company, the vesting of these 8,033 shares was accelerated, with such shares having an aggregate value on such date of $50,000.
The non-vested stock granted on August 16, 2022 included 11,724 shares granted to Sidney Kirschner, a director of the Company since 2001. Upon Mr. Kirschner’s death on February 21, 2023, the vesting of these 11,724 shares was accelerated, with such shares having an aggregate value on such date of $67,000.
In August 2023 and August 2022, 35,172 shares and 52,856 shares, respectively, that had been granted to the Company’s directors vested, having an aggregate value of $168,000 and $331,000, respectively. The remaining shares set forth above will vest over the periods indicated, assuming continued service.
Non-vested Stock Granted to Employees: The following shares of non-vested stock were granted to certain of the Company’s employees:
These shares vest on the dates indicated, assuming continued service. In June 2022 and February 2023, 45,000 shares and 10,000 shares, respectively, that had been granted to certain of the Company’s employees vested, having an aggregate value of $293,000 and $57,000 respectively.
Performance Award Shares: On March 1, 2022, performance awards were granted to certain of the Company’s executive officers, consisting of 187,500 shares, of which: (a) 75,000 shares shall be earned if the closing price per share of the Company’s common stock equals or exceeds $8.00 on trading days within any period of twenty consecutive trading days prior to March 1, 2027; and (b) 112,500 shares shall be earned if the closing price per share of the Company’s common stock equals or exceeds $9.00 on trading days within any period of twenty consecutive trading days prior to March 1, 2027. Upon the achievement of each applicable stock hurdle described above: (i) one-third of the shares that are earned shall vest on the later of the date on which the shares are earned and March 1, 2023; (ii) one-third of the shares that are earned shall vest on the first anniversary of the date on which the shares are earned; and (iii) one-third shall vest on the second anniversary of the date on which the shares are earned. All shares that are non-earned or non-vested will be forfeited upon the termination of service. The Company, with the assistance of an independent third party, determined that the grant date fair value of the awards amounted to $732,000.
For the fiscal years ended March 31, 2024 and April 2, 2023, the Company recognized compensation expense associated with non-vested stock grants, which is included in marketing and administrative expenses in the accompanying consolidated statements of income, as follows (in thousands):
As of March 31, 2024, total unrecognized compensation expense related to the Company’s non-vested stock grants was $689,000, which will be recognized over the remaining portion of the respective vesting periods associated with each block of grants, such grants having a weighted average vesting term of 10.3 months. The amount of future compensation expense related to 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 unearned or unvested grants as of such individual’s separation date. |
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Note 10 - Income Taxes |
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| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Text Block] |
Note 10 – Income Taxes
The Company’s income tax provision for fiscal years 2024 and 2023 is summarized below (in thousands):
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of March 31, 2024 and April 2, 2023 are as follows (in thousands):
In assessing the probability that the Company’s deferred tax assets will be realized, management of the Company has considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income during the future periods in which the temporary differences giving rise to the deferred tax assets will become deductible. The Company has also considered the scheduled inclusion into taxable income in future periods of the temporary differences giving rise to the Company’s deferred tax liabilities. The valuation allowance as of March 31, 2024 and April 2, 2023 was related to state net operating loss carryforwards that the Company does not expect to be realized. Based upon the Company’s expectations of the generation of sufficient taxable income during future periods, the Company believes that it is more likely than not that the Company will realize its deferred tax assets, net of the valuation allowance and the deferred tax liabilities.
The following table sets forth the reconciliation of the beginning and ending amounts of unrecognized tax liabilities for fiscal years ended March 31, 2024 and April 2, 2023 (in thousands):
In August 2020, the Company received notification from the FTB of its intention to examine the Company’s California consolidated income tax returns that the Company had filed for the fiscal years ended April 2, 2017, April 1, 2018 and March 31, 2019. On May 30, 2023, the Company and the FTB entered into an agreement to settle (“Settlement Agreement”) the FTB’s proposed assessment of additional income tax in respect of these consolidated income tax returns under examination for the amount of $442,000, payment of which was made by the Company to the FTB on May 31, 2023. Because the examination was ongoing as of April 2, 2023, and because the Settlement Agreement was entered into prior to the issuance of the accompanying consolidated financial statements for the fiscal year ended April 2, 2023, the Company recorded the effect of the Settlement Agreement in the accompanying consolidated balance sheet as of April 2, 2023 and the consolidated statement of income for the fiscal year ended April 2, 2023. The Company’s adjustment to its reserve for unrecognized tax liabilities associated with the tax returns under examination resulted in a discrete income tax benefit during fiscal year 2023, net of the impact of federal income tax, of $81,000, and a net decrease to interest expense of $86,000.
In February 2021, the Company was notified by the IRS that it had selected for examination the Company’s original and amended federal consolidated income tax returns that the Company had filed for its fiscal year ended April 2, 2017. On March 15, 2023, the Company agreed to accept the proposal by the IRS to disallow the Company’s claim for refund in the amount of $81,000 that was associated with the Company’s amended federal consolidated income tax return for the fiscal year ended April 2, 2017, which amount was recorded as a discrete income tax charge during the fiscal year ended April 2, 2023.
During fiscal years 2024 and 2023, the Company recorded discrete income tax charges of $26,000 and $6,000, respectively, to reflect the effect of the tax shortfall arising from the exercise of stock options and the vesting of non-vested stock during the periods.
The Company’s provision for income taxes is based upon effective tax rates of 21.4% and 23.9% in the fiscal years ended March 31, 2024 and April 2, 2023, respectively. These effective tax rates are the sum of the top U.S. statutory federal income tax rate and a composite rate for state income taxes, net of federal tax benefit, in the various states in which the Company operates, plus the net effect of various discrete items.
The following table reconciles income tax expense on income from continuing operations at the U.S. federal income tax statutory rate to the net income tax provision reported for fiscal years 2024 and 2023 (amounts in thousands):
State and foreign income taxes consist primarily of amounts paid to the State of California and the People’s Republic of China, respectively. |
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Note 11 - Shareholders' Equity |
12 Months Ended |
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Mar. 31, 2024 | |
| Notes to Financial Statements | |
| Equity [Text Block] |
Note 11 – Shareholders’ Equity
Dividends: The holders of shares of the Company’s common stock are entitled to receive dividends when and as declared by the Board. Cash dividends of $0.32 per share were declared during each of fiscal years 2024 and 2023, amounting to $3.3 million and $3.2 million, respectively. The Company’s financing agreement with CIT permits the payment by the Company of cash dividends on its common stock without limitation, provided there is no default before or as a result of the payment of such dividends.
Stock Repurchases: The Company acquired treasury shares by way of the surrender to the Company from several employees shares of common stock to satisfy the exercise price and income tax withholding obligations relating to the exercise of stock options and the vesting of stock. In this manner, the Company acquired 33,000 treasury shares during the fiscal year ended April 2, 2023 at a weighted-average market value of $6.31 per share. There were no such transactions during the fiscal year ended March 31, 2024. |
Note 12 - Major Customers |
12 Months Ended | |||||||||||||||||||||||||||
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Mar. 31, 2024 | ||||||||||||||||||||||||||||
| Notes to Financial Statements | ||||||||||||||||||||||||||||
| Concentration Risk Disclosure [Text Block] |
Note 12 – Major Customers
The table below sets forth those customers that represented more than 10% of the Company’s gross sales during the fiscal years ended March 31, 2024 and April 2, 2023.
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Note 13 - Commitments and Contingencies |
12 Months Ended |
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Mar. 31, 2024 | |
| Notes to Financial Statements | |
| Commitments and Contingencies Disclosure [Text Block] |
Note 13 – Commitments and Contingencies
Royalty expense amounted to $5.3 million and $5.2 million during fiscal years 2024 and 2023, respectively. The Company’s commitment for the next five fiscal years for minimum guaranteed royalty payments under its license agreements as of March 31, 2024 is $3.0 million, consisting of $2.5 million, $351,000, $90,000, $48,000 and $48,000 due in fiscal years 2025, 2026, 2027, 2028 and 2029, respectively.
The Company is, from time to time, involved in various legal proceedings relating to claims arising in the ordinary course of its business. Neither the Company nor any of its subsidiaries is a party to any such legal proceeding the outcome of which, individually or in the aggregate, is expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows. |
Note 14 - Subsequent Events |
12 Months Ended |
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Mar. 31, 2024 | |
| Notes to Financial Statements | |
| Subsequent Events [Text Block] |
Note 14 – Subsequent Events
The Company has evaluated events that have occurred between March 31, 2024 and the date that the accompanying financial statements were issued, and has determined that there are no material subsequent events that require disclosure.
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Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||
| Basis of Accounting, Policy [Policy Text Block] | Basis of Presentation: The accompanying consolidated financial statements include the accounts of the Company and have been prepared pursuant to accounting principles generally accepted in the U.S. (“GAAP”) as promulgated by the Financial Accounting Standards Board (“FASB”). 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.
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| Use of Estimates, Policy [Policy Text Block] | Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated balance sheets and the reported amounts of revenues and expenses during the periods presented on the consolidated statements of income and cash flows. Significant estimates are made with respect to:
Actual results could differ materially from these estimates.
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| Cash and Cash Equivalents, Policy [Policy Text Block] | Cash and Cash Equivalents: The Company’s credit facility consists of a revolving line of credit under a financing agreement with The CIT Group/Commercial Services (“CIT”). The Company classifies a negative balance outstanding under this revolving line of credit as cash and cash equivalents, as these amounts are legally owed to the Company and are immediately available to be drawn upon by the Company. There are no compensating balance requirements or other restrictions on the transfer of amounts associated with the Company’s depository accounts.
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| Fair Value of Financial Instruments, Policy [Policy Text Block] | Financial Instruments: For short-term instruments such as cash and cash equivalents, accounts receivable and accounts payable, the Company uses carrying value as a reasonable estimate of fair value. Additionally, the Company’s long-term debt is a revolving credit facility whereby the Company uses carrying value as a reasonable estimate of fair value.
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| Segment Reporting, Policy [Policy Text Block] | Segments and Related Information: The Company operates primarily in one principal segment, infant, toddler and juvenile products. These products consist of infant and toddler bedding and blankets, bibs, soft bath products, disposable products, developmental and bath toys and accessories. Net sales of bedding, blankets and accessories and net sales of bibs, bath and disposable products for the fiscal years ended March 31, 2024 and April 2, 2023 are as follows (in thousands):
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| Revenue from Contract with Customer [Policy Text Block] | Revenue Recognition: Revenue is recognized upon the satisfaction of all contractual performance obligations and the transfer of control of the products sold to the customer. The majority of the Company’s sales consists of single performance obligation arrangements for which the transaction price for a given product sold is equivalent to the price quoted for the product, net of any stated discounts applicable at a point in time. Each sales transaction results in an implicit contract with the customer to deliver a product as directed by the customer. Shipping and handling costs that are charged to customers are included in net sales, and the Company’s costs associated with shipping and handling activities are included in cost of products sold.
Revenue from sales made directly to consumers is recorded when the shipped products have been received by customers, and excludes sales taxes collected on behalf of governmental entities. Revenue from sales made to retailers is recorded when legal title has been passed to the customer based upon the terms of the customer’s purchase order, the Company’s sales invoice, or other associated relevant documents. Such terms usually stipulate that legal title will pass when the shipped products are no longer under the control of the Company, such as when the products are picked up at the Company’s facility by the customer or by a common carrier. Payment terms can vary from prepayment for sales made directly to consumers to payment due in arrears (generally, 60 days of being invoiced) for sales made to retailers.
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| Receivable [Policy Text Block] | Allowances Against Accounts Receivable: The Company estimates certain allowances from revenues recognized through sales made to its customers. These allowances include anticipated returns and claims, expected credit losses, chargebacks related to negotiated customer terms and discounts, cooperative advertising allowances, warehouse allowances, placement fees, volume rebates, coupons, discounts and other allowances.
The allowance for anticipated returns and claims is estimated based upon the Company’s historical experience with actual returns and claims, combined with the consideration of events that could result in a change from historical rates on a per-customer basis. The allowance for anticipated returns and claims is recorded as a reduction of net sales in the reporting period within which the related sales are recorded.
To reduce the Company’s exposure to expected credit losses, and to enhance the predictability of its cash flows, the Company assigns substantially all of its receivables under factoring agreements with CIT. In the event that a factored receivable becomes uncollectible due to creditworthiness, CIT bears the risk of loss. With respect to the receivables that are not assigned under factoring agreements with CIT, the Company addresses this credit risk by establishing an allowance that is intended to represent the Company’s best estimate of the expected credit losses for such receivables. In the development of this estimate, the Company makes a number of judgements utilizing the Current Expected Credit Losses (“CECL”) methodology, which requires the Company to estimate lifetime expected credit losses by specifically analyzing the receivables. This analysis incorporates an aging of the receivables, relevant payment history and historical loss experience, as well as the consideration of customer concentrations, customer creditworthiness, negotiated changes to the payment terms of customers, recent economic trends, and expectations regarding economic conditions over a reasonable and supportable future period. The allowance for expected credit losses is included in marketing and administrative expenses in the accompanying consolidated statements of income.
The allowance for chargebacks related to negotiated customer terms and discounts, cooperative advertising, warehouse allowances, placement fees, volume rebates, coupons, discounts and other allowances is recorded commensurate with sales activity or using the straight-line method, as appropriate. The majority of the Company’s allowances for such chargebacks occurs on a per-invoice basis. When a customer requests to have an agreed-upon deduction applied against the customer’s outstanding balance due to the Company, the allowances are correspondingly reduced to reflect such payments or credits issued against the customer’s account balance. The Company analyzes the components of the allowances for customer chargebacks monthly and adjusts the allowances to appropriate levels. Since allowances associated with cooperative advertising are accrued commensurate with sales activity or using the straight-line method, as appropriate, the timing of funding requests for cooperative advertising may result in fluctuations in the allowance from period to period, although such timing should not have a material impact on the consolidated statements of income. The allowance for cooperative advertising is included in marketing and administrative expenses in the consolidated statements of income. All other allowances for chargebacks related to negotiated customer terms and discounts, warehouse allowances, placement fees, volume rebates, coupons and discounts are recorded as a reduction of net sales in the reporting period within which the related sales are recorded.
The Company’s actual experience associated with its allowances against accounts receivable in a future period may differ from the judgements, estimates, analysis and considerations employed in the development of these allowances. Thus, the Company’s allowances against accounts receivable at any point in time may be over-funded or under-funded.
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| Concentration Risk, Credit Risk, Policy [Policy Text Block] | Credit Concentration: The Company’s accounts receivable at March 31, 2024 amounted to $22.4 million, net of allowances of $1.5 million. Of this amount, $18.6 million was due from CIT under the factoring agreements, which represents the maximum loss that the Company could incur if CIT failed completely to perform its obligations under the factoring agreements. The Company’s accounts receivable at April 2, 2023 amounted to $22.8 million, net of allowances of $1.5 million. Of this amount, $20.7 million was due from CIT under the factoring agreements, which represents the maximum loss that the Company could have incurred if CIT had failed completely to perform its obligations under the factoring agreements.
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| Inventory, Policy [Policy Text Block] | Inventory Valuation: The preparation of the Company's financial statements requires careful determination of the appropriate value of the Company's inventory balances. Such amounts are presented as a current asset in the accompanying consolidated balance sheets and are a direct determinant of cost of products sold in the accompanying consolidated statements of income and, therefore, have a significant impact on the amount of net income reported in the accounting periods. The basis of accounting for inventories is cost, which includes the direct supplier acquisition cost, duties, taxes and freight, and the indirect costs to design, develop, source and store the product until it is sold. Once cost has been determined, the Company’s inventory is then stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out (“FIFO”) method, which assumes that inventory quantities are sold in the order in which they are acquired.
The determination of the indirect charges and their allocation to the Company’s finished goods inventories is complex and requires significant management judgment and estimates. If management made different judgments or utilized different estimates, then differences would result in the valuation of the Company’s inventories and in the amount and timing of the Company’s cost of products sold and the resulting net income for the reporting period.
On a periodic basis, management reviews its inventory quantities on hand for obsolescence, physical deterioration, changes in price levels and the existence of quantities on hand which may not reasonably be expected to be sold within the Company’s normal operating cycle. To the extent that any of these conditions is believed to exist or the market value of the inventory expected to be realized in the ordinary course of business is otherwise no longer as great as its carrying value, an allowance against the inventory value is established. To the extent that this allowance is established or increased during an accounting period, an expense is recorded in cost of products sold in the Company’s consolidated statements of income. Only when inventory for which an allowance has been established is later sold or is otherwise disposed is the allowance reduced accordingly. Significant management judgment is required in determining the amount and adequacy of this allowance. In the event that actual results differ from management’s estimates or these estimates and judgments are revised in future periods, the Company may not fully realize the carrying value of its inventory or may need to establish additional allowances, either of which could materially impact the Company’s financial position and results of operations.
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| Lessee, Leases [Policy Text Block] | Leases: The Company capitalizes most of its operating lease obligations as right of use assets and recognizes corresponding lease liabilities. The Company elects to use the practical expedient that permits the Company to exclude short-term agreements of less than 12 months from capitalization. The Company is a party to various operating leases for offices, warehousing facilities and certain office equipment. The leases expire at various dates, have varying options to renew and cancel, and may contain escalation provisions. The Company recognizes as expense non-variable lease payments ratably over the lease term. The key estimates for the Company’s leases include the discount rate used to discount the unpaid lease payment to present value and the lease term. The Company’s leases generally do not include a readily determinable implicit rate; therefore, management determined the incremental borrowing rate to discount the lease payment based on the information available at lease commencement. For purposes of such estimates, a lease term includes the noncancellable period under the applicable lease.
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| Depreciation, Depletion, and Amortization [Policy Text Block] | Depreciation and Amortization: The accompanying consolidated balance sheets reflect property, plant and equipment, and certain intangible assets at cost less accumulated depreciation or amortization. The Company capitalizes additions and improvements and expenses maintenance and repairs as incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which are to years for property, plant and equipment, and to years for intangible assets other than goodwill. The Company amortizes improvements to its leased facilities over the term of the lease or the estimated useful life of the asset, whichever is shorter.
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| Intangible Assets, Finite-Lived, Policy [Policy Text Block] | Patent Costs: The Company incurs certain legal and related costs in connection with patent applications. The Company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or an alternative future use is available to the Company. The Company also capitalizes legal and other costs incurred in the protection or defense of the Company’s patents when it is believed that the future economic benefit of the patent will be maintained or increased and a successful defense is probable. Capitalized patent defense costs are amortized over the remaining expected life of the related patent. The Company’s evaluation of future economic benefit of its patents involves considerable management judgment, and a different conclusion could result in a material impairment charge up to the carrying value of these assets.
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| Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block] | Valuation of Long-Lived Assets and Identifiable Intangible Assets: In addition to the depreciation and amortization procedures set forth above, the Company reviews for impairment long-lived asset groups and certain identifiable intangible asset groups whenever events or changes in circumstances indicate that the carrying amount of any asset group may not be recoverable. In the event of an impairment, the asset is written down to its fair value.
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| Royalty Payments [Policy Text Block] | Royalty Payments: The Company has entered into agreements that provide for royalty payments based on a percentage of sales with certain minimum guaranteed amounts. 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 consolidated statements of income and amounted to $5.3 million and $5.2 million for the fiscal years ended March 31, 2024 and April 2, 2023, respectively.
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| Income Tax, Policy [Policy Text Block] | Provision for Income Taxes: The Company’s provision for income taxes includes all currently payable federal, state, local and foreign taxes and is based upon the Company’s effective tax rate, which is based on the Company’s pre-tax income, as adjusted for certain expenses within the consolidated statements of income that will never be deductible on the Company’s tax returns and certain charges expected to be deducted on the Company’s tax returns that will never be deducted on the consolidated statements of income, multiplied by the statutory tax rates for the various jurisdictions in which the Company operates and reduced by certain anticipated tax credits. The Company files income tax returns in the many jurisdictions in which it operates, including the U.S., several U.S. states and the People’s Republic of China. The statute of limitations varies by jurisdiction; taxable years open to examination as of March 31, 2024 were the fiscal years ended March 31, 2024, April 2, 2023, April 3, 2022, March 28, 2021, March 29, 2020 and March 31, 2019.
Management evaluates items of income, deductions and credits reported on the Company’s various federal and state income tax returns filed and recognizes the effect of positions taken on those income tax returns only if those positions are more likely than not to be sustained. The Company applies the provisions of accounting guidelines that require a minimum recognition threshold that a tax benefit must meet before being recognized in the financial statements. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
After considering all relevant information regarding the calculation of the state portion of its income tax provision, the Company believes that the technical merits of the tax position that the Company has taken with respect to state apportionment percentages would more likely than not be sustained. 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 fiscal years ended March 31, 2024 and April 2, 2023 of $43,000 and $73,000, respectively, in the accompanying consolidated statements of income.
The Company’s policy is to accrue interest expense and penalties as appropriate on any estimated unrecognized tax liabilities as a charge to interest expense in the Company’s consolidated statements of income. During the fiscal years ended March 31, 2024 and April 2, 2023, the Company accrued $28,000 and $45,000, respectively, for interest expense and penalties on the portion of the unrecognized tax liabilities for which the relevant statute of limitations remained unexpired.
In August 2020, the Company received notification from the Franchise Tax Board of the State of California (the “FTB”) of its intention to examine the Company’s California consolidated income tax returns that the Company had filed for the fiscal years ended April 2, 2017, April 1, 2018 and March 31, 2019. On May 30, 2023, the Company and the FTB entered into an agreement to settle (“Settlement Agreement”) the FTB’s proposed assessment of additional income tax in respect of these consolidated income tax returns under examination for the amount of $442,000, payment of which was made by the Company to the FTB on May 31, 2023. Because the examination was ongoing as of April 2, 2023, and because the Settlement Agreement was entered into prior to the issuance of the accompanying consolidated financial statements for the fiscal year ended April 2, 2023, the Company recorded the effect of the Settlement Agreement in the accompanying consolidated balance sheet as of April 2, 2023 and the consolidated statement of income for the fiscal year ended April 2, 2023. The Company’s adjustment to its reserve for unrecognized tax liabilities associated with the tax returns under examination resulted in a discrete income tax benefit during the fiscal year ended April 2, 2023, net of the impact of federal income tax, of $81,000, and a net decrease to interest expense of $86,000.
In February 2021, the Company was notified by the U.S. Internal Revenue Service (the “IRS”) that it had selected for examination the Company’s original and amended federal consolidated income tax returns that the Company had filed for its fiscal year ended April 2, 2017. On March 15, 2023, the Company agreed to accept the proposal by the IRS to disallow the Company’s claim for refund in the amount of $81,000 that was associated with the Company’s amended federal consolidated income tax return for the fiscal year ended April 2, 2017, which amount was recorded as a discrete income tax charge during the fiscal year ended April 2, 2023.
Although management believes that the calculations and positions taken on its filed income tax returns are reasonable and justifiable, the outcome of an examination could result in an adjustment to the position that the Company took on such income tax returns. Such adjustment could also lead to adjustments to one or more other state income tax returns, or to income tax returns for subsequent fiscal years, or both. To the extent that the Company’s reserve for unrecognized tax liabilities is not adequate to support the cumulative effect of such adjustments, the Company could experience a material adverse impact on its future results of operations. Conversely, to the extent that the calculations and positions taken by the Company on the filed income tax returns under examination are sustained, the reversal of all or a portion of the Company’s reserve for unrecognized tax liabilities could result in a favorable impact on its future results of operations.
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| Advertising Cost [Policy Text Block] | Advertising Costs: 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 consolidated statements of income and amounted to $572,000 and $422,000 for the fiscal years ended March 31, 2024 and April 2, 2023, respectively.
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| Business Combinations Policy [Policy Text Block] | Business Combinations: The Company accounts for acquisitions using the acquisition method of accounting in accordance with FASB ASC Topic 805, Business Combinations. An acquisition is accounted for as a purchase and the appropriate account balances and operating activities are recorded in the Company’s consolidated financial statements as of the acquisition date and thereafter. Assets acquired, liabilities assumed and noncontrolling interests, if any, are measured at fair value as of the acquisition date using the appropriate valuation method. The Company may engage an independent third party to assist with these measurements. Goodwill resulting from an acquisition is recognized for the excess of the purchase price over the fair value of the tangible and identifiable intangible assets, less the liabilities assumed.
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| Earnings Per Share, Policy [Policy Text Block] | Earnings Per Share: The Company calculates basic earnings per share by using a weighted average of the number of shares outstanding during the reporting periods. Diluted shares outstanding are calculated in accordance with the treasury stock method, which assumes that the proceeds from the exercise of all exercisable options would be used to repurchase shares at market value. The net number of shares issued after the exercise proceeds are exhausted represents the potentially dilutive effect of the exercisable options, which are added to basic shares to arrive at diluted shares.
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| New Accounting Pronouncements, Policy [Policy Text Block] | Recently-Issued Accounting Standards: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the objective of which is to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by an entity. Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable that a loss has been incurred. Because this methodology restricted the recognition of credit losses that are expected, but did not yet meet the “probable” threshold, ASU No. 2016-13 was issued to require the consideration of a broader range of reasonable and supportable information when determining estimates of credit losses. The ASU is to be applied using a modified retrospective approach, and the ASU could have been early-adopted in the fiscal year that began after December 15, 2018. When issued, ASU No. 2016-13 was required to be adopted no later than the fiscal year beginning after December 15, 2019, but on November 15, 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which provided for the deferral of the effective date of ASU No. 2016-13 for a registrant that is a smaller reporting company to the first interim period of the fiscal year beginning after December 15, 2022. Accordingly, the Company adopted ASU No. 2016-13 effective as of April 3, 2023. Because the Company assigns substantially all of its trade accounts receivable under factoring agreements with CIT, the adoption of the ASU has not had a significant impact on the Company’s financial position, results of operations and related disclosures.
In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements – Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, the objective of which is to clarify or improve disclosure and presentation requirements and to align the requirements in the FASB ASC with the SEC’s regulations. In August 2018, the SEC issued guidance in which the SEC referred certain of its disclosure requirements that overlap with GAAP to the FASB for potential incorporation into the FASB ASC. The amendments in ASU No. 2023-06 are the result of the FASB’s decision to incorporate into the FASB ASC 14 of the 27 disclosures referred by the SEC. The FASB noted that the disclosure requirements in the SEC’s guidance and the FASB ASC should not be duplicated in both places. Accordingly, although the ASU was required to be adopted upon issuance, each amendment to the FASB ASC included in the ASU will not become effective until the effective date upon which the related SEC disclosure is no longer required. The amendments in this ASU are to be applied prospectively, and early application of the amendments is prohibited. The Company does not anticipate that the adoption of ASU No. 2023-06 will have a significant impact on the Company’s financial position, results of operations and related disclosures.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures, the objective of which is to improve the disclosures about a public entity’s reportable segments by providing more detailed information about a reportable segment’s expenses. For disclosures associated with annual and interim periods, the amendments in ASU No. 2023-07 are required to be adopted for fiscal years beginning after December 15, 2023 and December 15, 2024, respectively, and early adoption is permitted. Upon adoption, a public entity must apply the amendments in ASU No. 2023-07 retrospectively to disclosures of all prior periods presented. The Company intends to adopt ASU No. 2023-07 effective as of April 1, 2024 and is evaluating the guidance of the ASU against its existing disclosures related to segment reporting.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) – Improvements to Income Tax Disclosures, the objective of which is to enhance the transparency and decision usefulness of income tax disclosures. The amendments in the ASU are required to be adopted for fiscal years beginning after December 15, 2024 and early adoption is permitted. The Company is evaluating the guidance of ASU No. 2023-09 against its existing disclosures related to income tax disclosures.
The Company has determined that all other ASU’s issued which had become effective as of March 31, 2024, or which will become effective at some future date, are not expected to have a material impact on the Company’s consolidated financial statements. |
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Schedule II - Valuation and Qualifying Accounts (Tables) |
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| Summary of Valuation Allowance [Table Text Block] |
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Note 2 - Summary of Significant Accounting Policies (Tables) |
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| Schedule of Segment Reporting Information, by Segment [Table Text Block] |
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Note 4 - Acquisition (Tables) |
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| Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block] |
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| Business Combination, Segment Allocation [Table Text Block] |
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Note 7 - Goodwill, Customer Relationships and Other Intangible Assets (Tables) |
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| Schedule of Finite-Lived Intangible Assets [Table Text Block] |
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Note 8 - Leases (Tables) |
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| Lessee, Operating Lease, Liability, to be Paid, Maturity [Table Text Block] |
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Note 9 - Stock-based Compensation (Tables) |
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| Share-Based Payment Arrangement, Option, Activity [Table Text Block] |
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| Schedule of Share-Based Payment Award, Stock Options, Valuation Assumptions [Table Text Block] |
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| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Table Text Block] |
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| Share-Based Payment Arrangement, Option, Exercise Price Range [Table Text Block] |
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| Schedule of Nonvested Share Activity [Table Text Block] |
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Note 10 - Income Taxes (Tables) |
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| Schedule of Components of Income Tax Expense (Benefit) [Table Text Block] |
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| Schedule of Deferred Tax Assets and Liabilities [Table Text Block] |
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| Schedule of Unrecognized Tax Benefits Roll Forward [Table Text Block] |
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| Schedule of Effective Income Tax Rate Reconciliation [Table Text Block] |
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Note 12 - Major Customers (Tables) |
12 Months Ended | |||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||
| Notes Tables | ||||||||||||||||||||||||||||
| Schedule of Revenue by Major Customers by Reporting Segments [Table Text Block] |
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Schedule II - Valuation and Qualifying Accounts - Valuation and Qualifying Accounts (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Allowance for Customer Deductions [Member] | ||
| Balance | $ 1,474 | $ 945 |
| Charged to Expenses | 6,139 | 5,746 |
| Deductions | 6,443 | 5,217 |
| Balance | 1,170 | 1,474 |
| SEC Schedule, 12-09, Allowance, Loss on Finance Receivable [Member] | ||
| Balance | 0 | |
| Charged to Expenses | 316 | |
| Deductions | 0 | |
| Balance | $ 316 | $ 0 |
Note 2 - Summary of Significant Accounting Policies - Segment and Related Information (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Net sales | $ 87,632 | $ 75,053 |
| Bedding, Blankets, And Accessories [Member] | ||
| Net sales | 32,036 | 36,747 |
| Bibs, Toys and Disposable Products [Member] | ||
| Net sales | $ 55,596 | $ 38,306 |
Note 3 - Inventories (Details Textual) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Apr. 02, 2023 |
|---|---|---|
| Inventory, Net | $ 29,709 | $ 34,211 |
Note 4 - Acquisition - Goodwill Adjustments (Details) |
12 Months Ended |
|---|---|
|
Mar. 31, 2024
USD ($)
| |
| Amount of goodwill recognized based upon the preliminary allocation of the acquisition cost | $ 7,912,000 |
| Amount of goodwill recognized as of March 31, 2024 | 7,926,000 |
| Manhattan Acquisition [Member] | |
| Amount of goodwill recognized based upon the preliminary allocation of the acquisition cost | 787,000 |
| Settlement of the Aggregate Adjustment | (488,000) |
| Increases to pre-acquisition accounts receivable | (48,000) |
| Reductions to inventory as of the Closing Date | 486,000 |
| Increases to pre-acquisition accounts payable | 64,000 |
| Net adjustments made during the fiscal year ended March 31, 2024 | 14,000 |
| Amount of goodwill recognized as of March 31, 2024 | $ 801,000 |
Note 6 - Retirement Plan (Details Textual) - USD ($) |
12 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Defined Contribution Plan, Employer Discretionary Contribution Amount | $ 320,000 | $ 293,000 |
| First 2% Employee Contributions [Member] | ||
| Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay | 100.00% | |
| Defined Contribution Plan Employee Contribution Percent | 2.00% | |
| Next 3% Employee Contributions [Member] | ||
| Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay | 50.00% | |
| Defined Contribution Plan Employee Contribution Percent | 3.00% | |
Note 7 - Goodwill, Customer Relationships and Other Intangible Assets (Details Textual) |
12 Months Ended | |
|---|---|---|
|
Mar. 31, 2024
USD ($)
|
Apr. 02, 2023
USD ($)
|
|
| Number of Reporting Units | 2 | |
| Goodwill, Gross | $ 30,800,000 | $ 30,800,000 |
| Goodwill, Impaired, Accumulated Impairment Loss | 22,900,000 | 22,900,000 |
| Goodwill | 7,926,000 | $ 7,912,000 |
| Finite-Lived Intangible Asset, Expected Amortization, Year One | 537,000 | |
| Finite-Lived Intangible Asset, Expected Amortization, Year Two | 422,000 | |
| Finite-Lived Intangible Asset, Expected Amortization, Year Three | 395,000 | |
| Finite-Lived Intangible Asset, Expected Amortization, Year Four | 349,000 | |
| Finite-Lived Intangible Asset, Expected Amortization, Year Five | $ 211,000 |
Note 8 - Leases (Details Textual) - USD ($) |
12 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Capitalized Operating Lease Obligations as Right of Use Assets | $ 993,000 | $ 17,300,000 |
| Operating Lease, Right-of-Use Asset, Periodic Reduction | 4,344,000 | 2,121,000 |
| Operating Lease, Offices, Warehouses, Office Equipment [Member] | ||
| Operating Lease, Payments | 3,600,000 | 2,300,000 |
| Operating Lease, Right-of-Use Asset, Periodic Reduction | $ 1,000,000 | $ 224,000 |
| Operating Lease, Weighted Average Discount Rate, Percent | 6.00% | 5.90% |
| Operating Lease, Weighted Average Remaining Lease Term (Year) | 3 years 10 months 24 days | 5 years |
Note 8 - Leases - Classification of Operating Lease Costs in Consolidated Statements of Income (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Operating Lease Costs | $ 4,344 | $ 2,121 |
| Cost of Sales [Member] | ||
| Operating Lease Costs | 3,956 | 1,938 |
| Selling, General and Administrative Expenses [Member] | ||
| Operating Lease Costs | $ 388 | $ 183 |
Note 8 - Leases - Maturities of Operating Lease Liabilities (Details) $ in Thousands |
Mar. 31, 2024
USD ($)
|
|---|---|
| 2025 | $ 4,428 |
| 2026 | 4,510 |
| 2027 | 4,189 |
| 2028 | 3,952 |
| 2029 | 663 |
| Total undiscounted operating lease payments | 17,742 |
| Less imputed interest | 2,017 |
| Operating lease liabilities - net | $ 15,725 |
Note 9 - Stock-based Compensation - Stock Option Activity (Details) - $ / shares |
12 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Outstanding, Weighted-average exercise price, beginning balance (in dollars per share) | $ 7.32 | $ 7.39 |
| Outstanding, Shares, beginning balance (in shares) | 735,500 | 635,500 |
| Granted, Weighted-average exercise price (in dollars per share) | $ 5.2 | $ 6.54 |
| Number of options issued (in shares) | 170,000 | 120,000 |
| Exercised, Weighted-average exercise price (in dollars per share) | $ 0 | $ 4.92 |
| Exercised, Shares (in shares) | 0 | (20,000) |
| Expired, Weighted-average exercise price (in dollars per share) | $ 6.14 | $ 0 |
| Expired, Shares (in shares) | (10,000) | 0 |
| Outstanding, Weighted-average exercise price, ending balance (in dollars per share) | $ 6.93 | $ 7.32 |
| Outstanding, Shares, ending balance (in shares) | 895,500 | 735,500 |
| Exercisable, Weighted-average exercise price (in dollars per share) | $ 7.41 | $ 7.42 |
| Exercisable, Shares (in shares) | 665,500 | 499,000 |
Note 10 - Income Taxes (Details Textual) - USD ($) |
12 Months Ended | ||||
|---|---|---|---|---|---|
Mar. 15, 2023 |
Mar. 31, 2024 |
Apr. 02, 2023 |
May 30, 2023 |
Aug. 31, 2020 |
|
| Income Tax Examination, Liability (Refund) Adjustment from Settlement with Taxing Authority | $ (442,000) | $ (442,000) | |||
| Income Tax Examination, Discrete Income Tax Benefit, Net of Federal Income Tax | $ 81,000 | ||||
| Income Tax Examination, Increase (Decrease) in Interest Expense | (86,000) | ||||
| Income Tax Examination, Refund Claim, Disallowed | $ 81,000 | 81,000 | |||
| Discrete Income Tax Charge, Shortfall from Vesting of Non-vested Stock | $ 26,000 | $ 6,000 | |||
| Effective Income Tax Rate Reconciliation, Percent | 21.40% | 23.90% | |||
Note 10 - Income Taxes - Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands |
Mar. 31, 2024 |
Apr. 02, 2023 |
|---|---|---|
| Employee wage and benefit accruals | $ 148 | $ 186 |
| Accounts receivable and inventory reserves | 585 | 557 |
| Operating lease liabilities | 3,892 | 4,286 |
| Intangible assets | 243 | 224 |
| State net operating loss carryforwards | 704 | 706 |
| Accrued interest and penalty on unrecognized tax liabilities | 18 | 54 |
| Stock-based compensation | 469 | 378 |
| Total gross deferred income tax assets | 6,059 | 6,391 |
| Less valuation allowance | (704) | (706) |
| Deferred income tax assets after valuation allowance | 5,355 | 5,685 |
| Prepaid expenses | (552) | (610) |
| Operating lease right of use assets | (3,700) | (4,283) |
| Intangible assets | (666) | (1,390) |
| Property, plant and equipment | (160) | (217) |
| Total deferred income tax liabilities | (5,078) | (6,500) |
| Net deferred income tax assets | 277 | 0 |
| Net deferred income tax assets (liabilities) | $ 0 | $ (815) |
Note 10 - Income Taxes - Reconciliation of Unrecognized Tax Benefits (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Balance at beginning of period | $ 323,000 | $ 739,000 |
| Additions related to current year positions | 43,000 | 73,000 |
| Additions related to prior year positions | 28,000 | 45,000 |
| Revaluations due to change in enacted tax rates | 0 | 0 |
| Reductions for tax positions of prior years | 0 | 0 |
| Reductions due to lapses of the statute of limitations | 0 | 0 |
| Reductions pursuant to judgements and settlements | 0 | (534,000) |
| Balance at end of period | $ 394,000 | $ 323,000 |
Note 10 - Income Taxes - Reconciliation of Federal Statutory Provision to the Provision for Financial Reporting Purposes (Details) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Income before income tax expense | $ 6,228 | $ 7,426 |
| Income before income tax expense, percent | 100.00% | 100.00% |
| Tax expense at federal statutory rate | $ 1,308 | $ 1,560 |
| Tax expense at federal statutory rate, percent | 21.00% | 21.00% |
| State income taxes, net of Federal income tax benefit | $ 108 | $ 272 |
| State income taxes, net of Federal income tax benefit, percent | 1.70% | 3.60% |
| Tax credits | $ (115) | $ (135) |
| Tax credits, percent | (1.80%) | (1.80%) |
| Discrete items | $ 1 | $ 50 |
| Discrete items, percent | 0.00% | 0.70% |
| Other - net, including foreign | $ 32 | $ 29 |
| Other - net, including foreign, percent | 0.50% | 0.40% |
| Income tax expense | $ 1,334 | $ 1,776 |
| Income tax expense, percent | 21.40% | 23.90% |
Note 11 - Shareholders' Equity (Details Textual) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Common Stock, Dividends, Per Share, Declared (in dollars per share) | $ 0.32 | $ 0.32 |
| Dividends, Common Stock | $ 3,270 | $ 3,233 |
| Treasury Stock, Shares, Acquired (in shares) | 0 | 33,000 |
| Shares Acquired, Average Cost Per Share (in dollars per share) | $ 6.31 | |
Note 12 - Major Customers - Summary of Major Customers (Details) - Customer Concentration Risk [Member] - Revenue Benchmark [Member] |
12 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Wal-Mart Stores, Inc. [Member] | ||
| Sales, percent | 42.00% | 51.00% |
| Amazon.com, Inc. [Member] | ||
| Sales, percent | 19.00% | 20.00% |
Note 13 - Commitments and Contingencies (Details Textual) - USD ($) |
12 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 02, 2023 |
|
| Royalty Expense | $ 5,300,000 | $ 5,200,000 |
| Licensing Agreements [Member] | Guaranteed Royalty Payments [Member] | ||
| Other Commitment | 3,000,000 | |
| Other Commitment, to be Paid, Year One | 2,500,000 | |
| Other Commitment, to be Paid, Year Two | 351,000 | |
| Other Commitment, to be Paid, Year Three | 90,000 | |
| Other Commitment, to be Paid, Year Four | 48,000 | |
| Other Commitment, to be Paid, Year Five | $ 48,000 | |