CROWN CRAFTS INC

Previous wording

The Company was originally formed as a Georgia corporation in 1957 and was reincorporated as a Delaware corporation in 2003. The Company operates indirectly through its four wholly-owned subsidiaries, NoJo Baby & Kids, Inc., Sassy Baby, Inc., Manhattan and MTE in the infant, toddler and juvenile products segment within the consumer products industry. The infant, toddler and juvenile products segment consists of infant and toddler bedding and blankets, bibs, disposables, toys and feeding products.

Current wording

The Company was originally formed as a Georgia corporation in 1957 and was reincorporated as a Delaware corporation in 2003. The Company operates indirectly through its three wholly-owned subsidiaries, NoJo Baby & Kids, Inc., Sassy Baby, Inc. and Manhattan Toy Europe Limited in the infant, toddler and juvenile products segment within the consumer products industry. The infant, toddler and juvenile products segment consists of infant and toddler bedding and blankets, bibs, disposables, toys and feeding products.

Previous wording

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

Current wording

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

Previous wording

Marketing and Administrative Expenses: Marketing and administrative expenses increased by $1.4 million, and increased from 14.4% of net sales for the three-month period ended January 1, 2023 to 17.3% of net sales for the three-month period ended December 31, 2023. The increases in the current-year period consisted primarily of $1.3 million for charges incurred by Manhattan and MTE.

Current wording

Marketing and Administrative Expenses: Marketing and administrative expenses increased by $217,000 and increased from 23.6% of net sales for the three-month period ended July 2, 2023 to 26.3% of net sales for the three-month period ended June 30, 2024. The current year period includes $244,000 associated with the closure of the Company’s subsidiary in the United Kingdom and $116,000 in costs associated with the Baby Boom Acquisition.

Previous wording

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

Current wording

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

Previous wording

As a result of the consideration of the relevant information regarding the state portion of its income tax provision, the Company recorded discrete reserves for unrecognized tax liabilities of $9,000 and $12,000 during the three-month periods ended December 31, 2023 and January 1, 2023, respectively, and $34,000 and $58,000 during the nine-month periods ended December 31, 2023 and January 1, 2023, respectively, in the unaudited condensed consolidated statements of income. The Company also recorded discrete income tax charges of $43,000 and $6,000 during the nine months ended December 31, 2023 and January 1, 2023, respectively, to reflect the net effects of the excess tax benefits and tax shortfalls arising from the exercise and expiration of stock options and the vesting of non-vested stock.

Current wording

As a result of the consideration of the relevant information regarding the state portion of its income tax provision, the Company did not record a discrete reserve for unrecognized tax liabilities during the three-month period ended June 30, 2024, and recorded a discrete reserve for unrecognized tax liabilities of $5,000 during the three-month period ended July 2, 2023 in the unaudited condensed consolidated statements of operations. The Company also recorded discrete income tax charges of $20,000 and $27,000 during the three months ended June 30, 2024 and July 2, 2023, respectively, to reflect the effects of the tax shortfalls arising from the forfeiture and expiration of stock options and the vesting of non-vested stock.

Previous wording

The ETR on continuing operations and the discrete income tax charges and benefits set forth above resulted in an overall provision for income taxes of 23.3% and 24.4% for the nine-month periods ended December 31, 2023 and January 1, 2023, respectively.

Current wording

The ETR on continuing operations and the discrete income tax charges and benefits set forth above resulted in an overall provision for income taxes of 16.6% and 27.7% for the three-month periods ended June 30, 2024 and July 2, 2023, respectively.

Previous wording

Net cash provided by operating activities decreased from $4.4 million for the nine-month period ended January 1, 2023 to $4.1 million for the nine-month period ended December 31, 2023. The decrease in the current year was partially the result of an increase in inventory in the current year that was $4.0 million lower than the increase in the prior year. This increase was partially offset by a decrease in accounts receivable in the current year that was $3.6 million lower than the decrease in the prior year.

Current wording

Net cash provided by operating activities increased from $6.3 million for the three-month period ended July 2, 2023 to $8.0 million for the three-month period ended June 30, 2024. The increase in the current year was partially the result of an increase in inventory in the current year that was $2.6 million lower than the increase in the prior year and an increase in accounts payable in the current year that was $542,000 higher than the increase in the prior year. This increase was partially offset by a decrease in accounts receivable in the current year that was $435,000 lower than the decrease in the prior year and a $688,000 decrease in net income from the prior year to the current year.

Previous wording

Net cash used in investing activities decreased from $363,000 in the prior year to $69,000 in the current year. In the current-year period, the Company received $488,000 from the settlement of the Aggregate Adjustment from the Manhattan Acquisition, which was offset by an increase in the current year of $263,000 in capital expenditures for property, plant and equipment.

Current wording

Net cash used in investing activities decreased from $355,000 in the prior year to $284,000 in the current year. The decrease in the current year is due to a decrease of $71,000 in capital expenditures for property, plant and equipment.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

As of June 30, 2024, the balance on the revolving line of credit was $1.5 million, there was no letter of credit outstanding and $17.6 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

Previous wording

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, then the Company either assumes (and may seek to mitigate) the credit risk for shipments to the customer after the date of such termination or limitation or discontinues shipments to the customer. Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited consolidated statements of income, amounted to $106,000 and $77,000 for the three months ended December 31, 2023 and January 1, 2023, respectively, and amounted to $265,000 and $224,000 for the nine months ended December 31, 2023 and January 1, 2023, respectively.

Current wording

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, then the Company either assumes (and may seek to mitigate) the credit risk for shipments to the customer after the date of such termination or limitation or discontinues shipments to the customer. Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of operations, amounted to $74,000 and $67,000 for the three-month periods ended June 30, 2024 and July 2, 2023, respectively.