Notes to Consolidated Financial Statements
Fiscal Years Ended
April 3, 2016 and March 29, 2015
Note 1 – Description of Business
Crown Crafts, Inc. (the “Company”) operates indirectly through its wholly-owned subsidiaries, Hamco, Inc. (“Hamco”) and Crown Crafts Infant Products, Inc. (“CCIP”), in the infant and toddler products segment within the consumer products industry. The infant and toddler products segment consists of infant and toddler bedding, bibs, soft bath products, disposable products and accessories. Sales of the Company’s products are generally made directly to retailers, which are primarily mass merchants, mid-tier retailers, juvenile specialty stores, value channel stores, grocery and drug stores, restaurants, internet accounts and wholesale clubs. The Company’s products are manufactured primarily in Asia and marketed under a variety of Company-owned trademarks, under trademarks licensed from others and as private label goods.
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 United States (“GAAP”) as promulgated by the Financial Accounting Standards Board (“FASB”). All significant intercompany balances and transactions have been eliminated in consolidation. References herein to GAAP are to topics within the FASB Accounting Standards Codification (the “FASB ASC”), which has been established by the FASB as the authoritative source for GAAP recognized by the FASB to be applied by nongovernmental entities.
Reclassifications:
The Company has reclassified certain prior year information to conform to the amounts presented in the current year. None of the changes impact the Company’s previously reported financial position or results of operations.
Fiscal Year:
The Company's fiscal year ends on the Sunday nearest to or on March 31. References herein to “fiscal year 2016” or “2016” represent the 53-week period ended April 3, 2016 and references to “fiscal year 2015” or “2015” represent the 52-week period ended March 29, 2015.
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 the allowances related to accounts receivable for customer deductions for returns, allowances and disputes. The Company also has a certain amount of discontinued finished goods which necessitates the establishment of inventory reserves that are highly subjective. Actual results could differ materially from those estimates.
Cash and Cash Equivalents:
The Company considers all highly-liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company’s credit facility consists of a revolving line of credit under a financing agreement with The CIT Group/Commercial Services, Inc. (“CIT”), a subsidiary of CIT Group Inc. The Company classifies a negative balance outstanding under this revolving line of credit as cash, as these amounts are legally owed to the Company and are immediately available to be drawn upon by the Company.
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.
Segments and Related Information:
The Company operates primarily in one principal segment, infant and toddler products. These products consist of infant and toddler bedding, bibs, soft bath products, disposable products and accessories. Net sales of bedding, blankets and accessories and net sales of bibs, bath and disposable products for 2016 and 2015 are as follows (in thousands):
|
|
2016
|
|
|
2015
|
|
Bedding, blankets and accessories
|
|
$
|
59,020
|
|
|
$
|
64,038
|
|
Bibs, bath and disposable products
|
|
|
25,322
|
|
|
|
21,940
|
|
Total net sales
|
|
$
|
84,342
|
|
|
$
|
85,978
|
|
Revenue Recognition:
Sales are recorded when goods are shipped to customers and are reported net of allowances for estimated returns and allowances in the accompanying consolidated statements of income. Allowances for returns are estimated based on historical rates. Allowances for returns, cooperative advertising allowances, warehouse allowances, placement fees and volume rebates are recorded commensurate with sales activity or using the straight-line method, as appropriate, and the cost of such allowances is netted against sales in reporting the results of operations. Shipping and handling costs, net of amounts reimbursed by customers, are not material and are included in net sales.
Allowances
Against Accounts Receivable:
The Company’s allowances against accounts receivable are primarily contractually agreed-upon deductions for items such as cooperative advertising and warehouse allowances, placement fees and volume rebates. These deductions are recorded throughout the year commensurate with sales activity or using the straight-line method, as appropriate. Funding of the majority of the Company’s allowances occurs on a per-invoice basis. The allowances for customer deductions, which are netted against accounts receivable in the accompanying consolidated balance sheets, consist of agreed-upon cooperative advertising support, placement fees, markdowns and warehouse and other allowances. All such allowances are recorded as direct offsets to sales, and such costs are accrued commensurate with sales activities or as a straight-line amortization charge of an agreed-upon fixed amount, as appropriate to the circumstances for each arrangement. When a customer requests deductions, the allowances are reduced to reflect such payments or credits issued against the customer’s account balance. The Company analyzes the components of the allowances for customer deductions monthly and adjusts the allowances to the appropriate levels. The timing of the funding requests for advertising support can cause the net balance in the allowance account to fluctuate from period to period. The timing of such funding requests should have a minimal impact on the consolidated statements of income since such costs are accrued commensurate with sales activity or using the straight-line method, as appropriate.
To reduce its exposure to credit losses, the Company assigns the majority of its trade accounts receivable under factoring agreements with CIT. In the event a factored receivable becomes uncollectible due to creditworthiness, CIT bears the risk of loss. The Company’s management must make estimates of the uncollectiblity of its non-factored accounts receivable, which it accomplishes by specifically analyzing accounts receivable, historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in its customers’ payment terms. The Company did not record a provision for doubtful accounts for fiscal year 2016, and the Company’s provision for doubtful accounts for fiscal year 2015 is included in other marketing and administrative expenses in the accompanying consolidated statements of income and amounted to $9,000.
The Company’s accounts receivable at April 3, 2016 amounted to $20.8 million, net of allowances of $745,000. Of this amount, $20.1 million was due from CIT under the factoring agreements, $7.4 million was due from CIT as a negative balance outstanding under the revolving line of credit, and $147,000 was due from CIT as the United States Dollar equivalent of amounts that had been collected, but not yet remitted, under Canadian factoring agreements with CIT. The combined amount of $27.7 million represents the maximum loss that the Company could incur if CIT failed completely to perform its obligations under the factoring agreements and the revolving line of credit.
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 three to eight years for property, plant and equipment, and one to twenty 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.
Valuation of Long-Lived Assets
and
Identifiable Intangible
A
s
sets
:
In addition to the depreciation and amortization procedures set forth above, the Company reviews for impairment long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. In the event of impairment, the asset is written down to its fair market value.
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 assessment 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.
Inventory Valuation:
The preparation of the Company's financial statements requires careful determination of the appropriate dollar amount of the Company's inventory balances. Such amount is presented as a current asset in the accompanying consolidated balance sheets and is a direct determinant of cost of products sold in the accompanying consolidated statements of income and, therefore, has a significant impact on the amount of net income in the reported 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 market, 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.
Provision for Income Taxes:
The Company’s provision for income taxes includes all currently payable federal, state, local and foreign taxes that are based on the Company's taxable income and the change during the fiscal year in net deferred income tax assets and liabilities. The Company provides for deferred income taxes based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates that will be in effect when the differences are expected to reverse. The Company’s policy is to recognize the effect that a change in enacted tax rates would have on net deferred income tax assets and liabilities in the period that the tax rates are changed.
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 FASB ASC Sub-topic 740-10-25, which requires a minimum recognition threshold that a tax benefit must meet before being recognized in the financial statements. 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. The Company’s policy is to accrue interest expense and penalties as appropriate on any estimated unrecognized tax benefits as a charge to interest expense in the Company’s consolidated statements of income. No interest expense or penalties is accrued with respect to estimated unrecognized tax benefits that are associated with state income tax overpayments that remain receivable.
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; tax years open to federal or state audit or other adjustment as of April 3, 2016 were the tax years ended March 31, 2013, March 30, 2014, March 29, 2015 and April 3, 2016, as well as the tax years ended April 1, 2012 and April 3, 2011 for several states.
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 royalties are accrued based upon historical sales rates adjusted for current sales trends by customers. Royalty expense is included in cost of products sold and amounted to $9.0 million and $8.7 million for fiscal years 2016 and 2015, respectively.
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 other marketing and administrative expenses in the consolidated statements of income and amounted to $931,000 and $1.1 million for fiscal years 2016 and 2015, respectively.
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 May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts wit
h
Customers (Topic 606)
, which will replace most existing GAAP guidance on revenue recognition, and which will require the use of more estimates and judgments, as well as additional disclosures. When issued, ASU No. 2014-09 was to become effective in the fiscal year beginning after December 15, 2016, but on August 12, 2015 the FASB issued ASU No. 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
, which provides for a one-year deferral of the effective date to apply the guidance of ASU No. 2014-09. Early adoption was originally not permitted in ASU No. 2014-09, but ASU No. 2015-14 permits early adoption in the first interim period of the fiscal year beginning after December 15, 2016. The Company is currently evaluating the effect that its adoption of ASUs 2014-09 and 2015-14 on April 3, 2017 will have on its financial position, results of operations and related disclosures.
On July 22, 2015, the FASB issued ASU No. 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
, which will clarify that after an entity determines the cost of its inventory, the subsequent measurement and presentation of such inventory should be at the lower of cost or net realizable value. The ASU will become effective for the first interim period of the fiscal year beginning after December 15, 2016. The ASU should be applied prospectively, and early adoption is permitted. The Company intends to adopt ASU No. 2015-11 on April 3, 2017, and is currently evaluating the effect that the adoption of the ASU will have on its financial position, results of operations and related disclosures.
On November 20, 2015, the FASB issued ASU No. 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
, which will simplify the presentation of deferred taxes by requiring all deferred tax assets and liabilities to be classified as noncurrent on an entity’s balance sheet. The ASU will become effective for the first interim period of the fiscal year beginning after December 15, 2016. The ASU may be applied prospectively or retrospectively, and early adoption is permitted. The Company intends to early-adopt ASU No. 2015-17 effective as of April 4, 2016. The adoption of ASU No. 2015-17 will not have a material impact on the Company’s financial position, results of operations and related disclosures. If the ASU had been in effect on April 3, 2016, the current portion of the Company’s deferred income taxes in the amount of $888,000 as reported on the Company’s consolidated balance sheet would have been classified as non-current, and the Company would have reported $1.9 million as non-current deferred income taxes.
On February 25, 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, which will increase transparency and comparability by requiring an entity to recognize lease assets and lease liabilities on its balance sheet and by requiring the disclosure of key information about leasing arrangements. Under the provisions of ASU No. 2016-02, the Company will be required to capitalize most of its current operating lease obligations as right-of-use assets with corresponding liabilities based upon the present value of the future cash outflows associated with such operating lease obligations. The ASU will become effective for the first interim period of the fiscal year beginning after December 15, 2018. The ASU is to be applied using a modified retrospective approach, and early adoption is permitted. Although the Company has not yet decided if it will early-adopt ASU No. 2016-02 or determined the full impact of the adoption of ASU No. 2016-02, the Company believes that because of the nature and extent of its leasing arrangements, the adoption by the Company of ASU No. 2016-02 will have a significant impact on the Company’s financial position and related disclosures. The Company does not, however, believe that its adoption of ASU No. 2016-02 will have a material impact on its results of operations.
On March 30, 2016, the FASB issued ASU No. 2016-09,
Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
, which will seek to simplify the accounting for share-based compensation transactions while maintaining or improving the usefulness of the related disclosures. The provisions of ASU No. 2016-09 that are applicable to the Company include the following:
|
●
|
Under current GAAP, upon the exercise of an option or the vesting of non-vested stock, the Company must recognize the tax effect of the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes in additional paid-in capital. The provisions of ASU No. 2016-09 will require recognition of the excess tax deficiency or benefit as income tax expense or benefit, respectively, in the Company’s income statement. If ASU No. 2016-09 had been in effect beginning on March 30, 2015, the Company’s income tax expense for fiscal year 2016 would have been $273,000 lower and its net income would have been $273,000 higher.
|
|
●
|
Under current GAAP, excess tax benefits are classified as a financing activity in the Company’s statement of cash flows. The provisions of ASU No. 2016-09 will require that excess tax benefits be classified as an operating activity in the Company’s statement of cash flows. If ASU No. 2016-09 had been in effect beginning on March 30, 2015, the amount of the Company’s cash provided by operating activities during fiscal year 2016 would have been $278,000 higher and its cash used in financing activities would have been $278,000 higher.
|
|
●
|
The provisions of ASU No. 2016-09 clarify that cash paid by the Company to taxing authorities on behalf of an employee to reflect the value of shares withheld from the exercise of options or the vesting of non-vested stock to satisfy the income tax withholding obligations arising from such exercise or vesting should be classified as a financing activity in the Company’s statement of cash flows. As this treatment is consistent with the Company’s long-standing practice, if ASU No. 2016-09 had been in effect beginning on March 30, 2015, there would have been no difference in the amount of the Company’s cash used in financing activities during 2016 as a result of this provision in the ASU.
|
The ASU will become effective for the first interim period of the fiscal year beginning after December 15, 2016, and early adoption is permitted. The Company intends to early-adopt ASU No. 2016-09 effective as of April 4, 2016. The adoption of the ASU will not have a material impact on the Company’s financial position and related disclosures. The effect of the adoption of the ASU on the Company’s results of operations will depend on such factors as the timing and extent of the future exercise of stock options and the future vesting of non-vested stock, as well as the closing price per share of the Company’s common stock on the dates of such events. The inherent uncertainty surrounding the details of these factors dictates that the effect of the adoption of ASU No. 2016-09 on the Company’s results of operations cannot be reasonably estimated.
The Company has determined that all other ASU’s issued which had become effective as of April 3, 2016, 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
- Financing Arrangements
Factoring Agreement
s
:
The Company assigns the majority 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 were to occur, the Company would either assume the credit risk for shipments to the customer after the date of such termination or limitation or cease shipments to the customer. Factoring fees, which are included in marketing and administrative expenses in the accompanying consolidated statements of income, were $556,000 and $673,000 during fiscal years 2016 and 2015, respectively. There were no advances on the factoring agreements at either April 3, 2016 or March 29, 2015.
Credit Facility:
The Company’s credit facility at April 3, 2016 consisted of a revolving line of credit under a financing agreement with CIT of up to $26.0 million, which includes a $1.5 million sub-limit for letters of credit, bearing interest at the rate of prime minus 0.5% or LIBOR plus 2.0%. The financing agreement matures on July 11, 2019 and is secured by a first lien on all assets of the Company. At April 3, 2016, the Company had elected to pay interest on balances owed under the revolving line of credit, if any, under the LIBOR option. The financing agreement also provides for the payment by CIT to the Company of interest at the rate of prime minus 2.0%, which was 1.5% at April 3, 2016, on daily negative balances held at CIT.
The financing agreement as in effect prior to December 28, 2015 provided for a monthly fee, which was assessed based on 0.125% of the average unused portion of the $26.0 million revolving line of credit, less any outstanding letters of credit (the “Commitment Fee”). The Commitment Fee amounted to $25,000 and $33,000 during 2016 and 2015, respectively. The financing agreement was amended on December 28, 2015 to eliminate the Commitment Fee. At April 3, 2016 and March 29, 2015, there was no balance owed on the revolving line of credit and there was no letter of credit outstanding. As of April 3, 2016 and March 29, 2015, $25.6 million and $26.0 million, respectively, 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 April 3, 2016.
Note
4 – 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 (“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 Company’s Board of Directors (the “Board”) determines the portion, if any, of employee contributions that will be matched by the Company. For calendar years 2015 and 2014, the employer matching contributions represented an amount equal to 100% of the first 2% of employee contributions and 50% of the next 1% of employee contributions to the 401(k) Plan. For calendar year 2016, the Board has established that the employer matching contributions will be equal to 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 $203,000 and $171,000 for fiscal years 2016 and 2015, respectively.
Note 5
–
Stoc
k-based Compensation
The Company has two incentive stock plans, the 2006 Omnibus Incentive Plan (the “2006 Plan”) and the 2014 Omnibus Equity Compensation Plan (the “2014 Plan”). As a result of the approval of the 2014 Plan by the Company’s stockholders at the Company’s 2014 annual meeting, grants may no longer be issued under the 2006 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 2014 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 2014 Plan is administered by the Compensation Committee of the Board, which selects eligible employees, non-employee directors and other individuals to participate in the 2014 Plan and determines the type, amount, duration (such duration not to exceed a term of ten (10) years for grants of options) and other terms of individual awards. At April 3, 2016, 1.0 million shares of the Company’s common stock were available for future issuance under the 2014 Plan.
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. The Company recorded $906,000 and $862,000 of stock-based compensation during fiscal years 2016 and 2015, 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 April 3, 2016.
St
ock Options:
The following table represents stock option activity for fiscal years 2016 and 2015:
|
|
Fiscal Year Ended
April 3, 2016
|
|
|
Fiscal Year Ended
March 29, 2015
|
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number of
Options
Outstanding
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number of
Options
Outstanding
|
|
Outstanding at Beginning of Period
|
|
$
|
6.83
|
|
|
|
330,000
|
|
|
$
|
5.76
|
|
|
|
185,000
|
|
Granted
|
|
|
8.38
|
|
|
|
110,000
|
|
|
|
7.90
|
|
|
|
165,000
|
|
Exercised
|
|
|
6.27
|
|
|
|
(135,000
|
)
|
|
|
5.78
|
|
|
|
(20,000
|
)
|
Outstanding at End of Period
|
|
|
7.64
|
|
|
|
305,000
|
|
|
|
6.83
|
|
|
|
330,000
|
|
Exercisable at End of Period
|
|
|
6.72
|
|
|
|
112,500
|
|
|
|
5.59
|
|
|
|
115,000
|
|
The total intrinsic value of the stock options exercised during fiscal years 2016 and 2015 was $300,000 and $42,000, respectively. As of April 3, 2016, the intrinsic value of the outstanding and exercisable stock options was $532,000 and $300,000, respectively.
The Company received no cash from the exercise of stock options during either fiscal year 2016 or 2015. 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 of $118,000 and $17,000 to remit the required income tax withholding amounts from “cashless” option exercises during fiscal years 2016 and 2015, respectively.
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 which were awarded to certain employees during fiscal years 2016 and 2015, which options vest over a two-year period, assuming continued service.
|
|
2016
|
|
|
2015
|
|
Options issued
|
|
|
110,000
|
|
|
|
165,000
|
|
Grant date
|
|
|
June 12, 2015
|
|
|
|
June 18, 2014
|
|
Dividend yield
|
|
|
3.82
|
%
|
|
|
4.05
|
%
|
Expected volatility
|
|
|
20.00
|
%
|
|
|
30.00
|
%
|
Risk free interest rate
|
|
|
1.12
|
%
|
|
|
0.95
|
%
|
Contractual term (years)
|
|
|
10.00
|
|
|
|
10.00
|
|
Expected term (years)
|
|
|
3.00
|
|
|
|
3.00
|
|
Forfeiture rate
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Exercise price (grant-date closing price) per option
|
|
$
|
8.38
|
|
|
$
|
7.90
|
|
Fair value per option
|
|
$
|
0.77
|
|
|
$
|
1.19
|
|
For the fiscal years ended April 3, 2016 and March 29, 2015, the Company recognized compensation expense associated with stock options as follows (in thousands):
|
|
Fiscal Year Ended April 3, 2016
|
|
Options Granted in Fiscal Year
|
|
Cost of
Products
Sold
|
|
|
Other Marketing
& Administrative
Expenses
|
|
|
Total
Expense
|
|
2014
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
14
|
|
2015
|
|
|
54
|
|
|
|
45
|
|
|
|
99
|
|
2016
|
|
|
17
|
|
|
|
14
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock option compensation
|
|
$
|
78
|
|
|
$
|
66
|
|
|
$
|
144
|
|
|
|
Fiscal Year Ended March 29, 2015
|
|
Options Granted in Fiscal Year
|
|
Cost of
Products
Sold
|
|
|
Other Marketing
& Administrative
Expenses
|
|
|
Total
Expense
|
|
2013
|
|
$
|
12
|
|
|
$
|
12
|
|
|
$
|
24
|
|
2014
|
|
|
24
|
|
|
|
24
|
|
|
|
48
|
|
2015
|
|
|
39
|
|
|
|
32
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock option compensation
|
|
$
|
75
|
|
|
$
|
68
|
|
|
$
|
143
|
|
A summary of stock options outstanding and exercisable at April 3, 2016 is as follows:
Exercise
Price
|
|
|
Number
of Options
Outstanding
|
|
|
Weighted-
Avg. Remaining
Contractual
Life in Years
|
|
|
Weighted-
Avg. Exercise
Price of
Options
Outstanding
|
|
|
Number
of Options
Exercisable
|
|
|
Weighted-
Avg. Exercise
Price of
Options
Exercisable
|
|
$
|
4.81
|
|
|
|
10,000
|
|
|
|
5.19
|
|
|
$
|
4.81
|
|
|
|
10,000
|
|
|
$
|
4.81
|
|
$
|
5.42
|
|
|
|
20,000
|
|
|
|
6.19
|
|
|
$
|
5.42
|
|
|
|
20,000
|
|
|
$
|
5.42
|
|
$
|
6.14
|
|
|
|
30,000
|
|
|
|
7.20
|
|
|
$
|
6.14
|
|
|
|
30,000
|
|
|
$
|
6.14
|
|
$
|
7.90
|
|
|
|
135,000
|
|
|
|
8.21
|
|
|
$
|
7.90
|
|
|
|
52,500
|
|
|
$
|
7.90
|
|
$
|
8.38
|
|
|
|
110,000
|
|
|
|
9.19
|
|
|
$
|
8.38
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
305,000
|
|
|
|
8.23
|
|
|
$
|
7.64
|
|
|
|
112,500
|
|
|
$
|
6.72
|
|
As of April 3, 2016, total unrecognized stock-option compensation costs amounted to $79,000, which will be recognized as the underlying stock options vest over a weighted-average period of 5.8 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 Non-Employee Directors
:
The Board granted the following shares of non-vested stock to the Company’s non-employee directors:
Number
of Shares
|
|
|
Fair Value
per Share
|
|
Grant Date
|
28,000
|
|
|
$
|
8.20
|
|
August 12, 2015
|
28,000
|
|
|
|
7.97
|
|
August 11, 2014
|
28,000
|
|
|
|
6.67
|
|
August 14, 2013
|
42,000
|
|
|
|
5.62
|
|
August 15, 2012
|
These shares vest over a two-year period, assuming continued service. The fair value of non-vested stock granted to the Company’s non-employee directors was based on the closing price of the Company’s common stock on the date of each grant.
In each of August 2015 and 2014, 28,000 shares that had been granted to the Company’s non-employee directors vested, having an aggregate value of $226,000 and $223,000, respectively.
Non-vested Stock Granted to Employees:
During the three-month period ended June 27, 2010, the Board awarded 345,000 shares of non-vested stock to certain employees in a series of grants, each of which will vest only if (i) the closing price of the Company’s common stock is at or above certain target levels for any ten trading days out of any period of 30 consecutive trading days and (ii) the respective employees remain employed through July 29, 2015. The Company, with the assistance of an independent third party, determined that the aggregate grant date fair value of the awards amounted to $1.2 million.
With the closing price conditions having been met for these awards, the Board at various times approved the acceleration of the vesting of 105,000 shares from these grants. The vesting of these awards was accelerated in order to maximize the deductibility of the compensation expense associated with the grants by the Company for income tax purposes. On July 29, 2015, the remaining 240,000 of these shares vested, with such shares having an aggregate value of $1.9 million. Each of the individuals holding shares that vested surrendered to the Company the number of shares necessary to satisfy the income tax withholding obligations that arose from the vesting of the shares, and the Company remitted $948,000 to the appropriate taxing authorities on behalf of such individuals.
Performance Bonus Plan:
The Company maintains a performance bonus plan for certain executive officers that provides for awards of cash or shares of common stock in the event that the aggregate average market value of the common stock during the relevant fiscal year, plus the amount of cash dividends paid in respect of the common stock during such period, increases. These individuals may instead be awarded cash, if and to the extent that an insufficient number of shares of common stock are available for issuance from all shareholder-approved, equity-based plans or programs of the Company in effect. The performance bonus plan also imposes individual limits on awards and provides that shares of common stock that may be awarded will vest over a two-year period. Thus, compensation expense associated with performance bonus plan awards are recognized over a three-year period – the fiscal year in which the award is earned, plus the two-year vesting period.
In connection with the performance bonus plan, during fiscal year 2016, the Company, in respect of fiscal year 2015, granted to certain executive officers 58,532 shares of common stock at a fair value of $7.18 per share. In connection with these awards, the Company recognized compensation expense of $140,000 during each of fiscal years 2015 and 2016, and will recognize $140,000 in compensation expense during fiscal year 2017. On March 29, 2016, 29,267 of these shares vested, with such shares having an aggregate value of $275,000. Each of the individuals holding shares that vested surrendered to the Company the number of shares necessary to satisfy the income tax withholding obligations that arose from the share vesting, and the Company remitted $138,000 to the appropriate taxing authorities on behalf of such individuals.
In connection with the performance bonus plan, during fiscal year 2015, the Company, in respect of fiscal year 2014, granted to certain executive officers 188,232 shares of common stock at a fair value of $5.65 per share. In connection with these awards, the Company recognized compensation expense of $354,000 during each of fiscal years 2014, 2015 and 2016. On each of March 30, 2015 and March 30, 2016, 94,116 of these shares vested, with such shares having an aggregate value of $735,000 and $883,000, respectively. Each of the individuals holding shares that vested surrendered to the Company the number of shares necessary to satisfy the income tax withholding obligations that arose from the share vesting, and the Company, in respect of the shares that vested on March 30, 2015 and March 30, 2016, remitted $429,000 and $360,000, respectively, to the appropriate taxing authorities on behalf of such individuals.
For the fiscal years ended April 3, 2016 and March 29, 2015, the Company recognized compensation expense associated with non-vested stock grants, which is included in other marketing and administrative expenses in the accompanying consolidated statements of income, as follows (in thousands):
|
|
Fiscal Year Ended April 3, 2016
|
|
Stock Granted in Fiscal Year
|
|
Employees
|
|
|
Non-employee
Directors
|
|
|
Total
Expense
|
|
2011
|
|
$
|
49
|
|
|
$
|
-
|
|
|
$
|
49
|
|
2014
|
|
|
-
|
|
|
|
31
|
|
|
|
31
|
|
2015
|
|
|
354
|
|
|
|
112
|
|
|
|
466
|
|
2016
|
|
|
140
|
|
|
|
76
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock grant compensation
|
|
$
|
543
|
|
|
$
|
219
|
|
|
$
|
762
|
|
|
|
Fiscal Year Ended March 29, 2015
|
|
Stock Granted in Fiscal Year
|
|
Employees
|
|
|
Non-employee
Directors
|
|
|
Total
Expense
|
|
2011
|
|
$
|
170
|
|
|
$
|
-
|
|
|
$
|
170
|
|
2013
|
|
|
-
|
|
|
|
26
|
|
|
|
26
|
|
2014
|
|
|
-
|
|
|
|
94
|
|
|
|
94
|
|
2015
|
|
|
354
|
|
|
|
75
|
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock grant compensation
|
|
$
|
524
|
|
|
$
|
195
|
|
|
$
|
719
|
|
As of April 3, 2016, total unrecognized compensation expense related to the Company’s non-vested stock grants was $330,000, 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 7.2 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 unvested grants as of such individual’s separation date.
Note 6 – Goodwill, Customer Relationships and Other Intangible Assets
Goodwill:
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired by the Company in business combinations. The Company considers CCIP and Hamco to each be a reporting unit of the Company for the purpose of presenting and testing for the impairment of goodwill. The goodwill of the reporting units of the Company at April 3, 2016 and March 29, 2015 amounted to $24.0 million and is reported in the accompanying consolidated balance sheets net of accumulated impairment charges of $22.9 million, for a net reported balance of $1.1 million.
The Company tests the fair value of the goodwill, if any, within its reporting units annually as of the first day of the Company’s fiscal year. An additional interim impairment test must be performed during the year whenever an event or change in circumstances occurs that suggest that the fair value of the goodwill 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 impairment test 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 impairment test is continued in a two-step approach. The first step is the estimation of the fair value of each reporting unit. If step one indicates that the fair value of the reporting unit exceeds its carrying value, then a potential impairment exists, and the second step is then performed to measure the amount of an impairment charge, if any. In the second step, these estimated fair values are used as the hypothetical purchase price for the reporting units, and an allocation of such hypothetical purchase price is made to the identifiable tangible and intangible assets and assigned liabilities of the reporting units. The impairment charge is calculated as the amount, if any, by which the carrying value of the goodwill exceeds the implied amount of goodwill that results from this hypothetical purchase price allocation. The annual impairment test of the fair value of the goodwill of the reporting units of the Company was performed as of March 30, 2015 and the Company concluded that the fair value of the goodwill of the Company’s reporting units substantially exceeded their carrying values as of that date.
Other Intangible Assets:
Other intangible assets as of April 3, 2016 consisted primarily of the capitalized costs of acquired businesses, other than tangible assets, goodwill and assumed liabilities. The carrying amount and accumulated amortization of the Company’s other intangible assets as of April 3, 2016 and March 29, 2015, the amortization expense for the fiscal years then ended and the classification of such amortization expense within the accompanying consolidated statements of income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization Expense
|
|
|
|
Gross Amount
|
|
|
Accumulated Amortization
|
|
|
Fiscal Year Ended
|
|
|
|
April 3,
2016
|
|
|
March 29,
2015
|
|
|
April 3,
2016
|
|
|
March 29,
2015
|
|
|
April 3,
2016
|
|
|
March 29,
2015
|
|
Tradename and trademarks
|
|
$
|
1,987
|
|
|
$
|
1,987
|
|
|
$
|
933
|
|
|
$
|
801
|
|
|
$
|
132
|
|
|
$
|
132
|
|
Licenses and designs
|
|
|
-
|
|
|
|
3,571
|
|
|
|
-
|
|
|
|
3,571
|
|
|
|
-
|
|
|
|
-
|
|
Non-compete covenants
|
|
|
98
|
|
|
|
454
|
|
|
|
60
|
|
|
|
410
|
|
|
|
7
|
|
|
|
19
|
|
Patents
|
|
|
1,601
|
|
|
|
1,601
|
|
|
|
458
|
|
|
|
350
|
|
|
|
108
|
|
|
|
108
|
|
Customer relationships
|
|
|
5,534
|
|
|
|
5,411
|
|
|
|
3,887
|
|
|
|
3,385
|
|
|
|
501
|
|
|
|
482
|
|
Total other intangible assets
|
|
$
|
9,220
|
|
|
$
|
13,024
|
|
|
$
|
5,338
|
|
|
$
|
8,517
|
|
|
$
|
748
|
|
|
$
|
741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification within the accompanying consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7
|
|
|
$
|
19
|
|
Other marketing and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
741
|
|
|
|
722
|
|
Total amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
748
|
|
|
$
|
741
|
|
The Company estimates that its amortization expense will be $754,000, $597,000, $376,000, $376,000 and $311,000 in fiscal years 2017, 2018, 2019, 2020 and 2021, respectively.
Note 7 –
Inventories
Major classes of inventory were as follows (in thousands):
|
|
April 3, 2016
|
|
|
March 29, 2015
|
|
Raw Materials
|
|
$
|
35
|
|
|
$
|
36
|
|
Finished Goods
|
|
|
14,750
|
|
|
|
15,432
|
|
Total inventory
|
|
$
|
14,785
|
|
|
$
|
15,468
|
|
Note 8 –
Income Taxes
The Company’s income tax provision for fiscal year 2016 is summarized below (in thousands):
|
|
Fiscal year ended April 3, 2016
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
Federal
|
|
$
|
3,540
|
|
|
$
|
133
|
|
|
$
|
3,673
|
|
State
|
|
|
271
|
|
|
|
32
|
|
|
|
303
|
|
Other - net, including foreign
|
|
|
(61
|
)
|
|
|
-
|
|
|
|
(61
|
)
|
Income tax expense
|
|
|
3,750
|
|
|
|
165
|
|
|
|
3,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax reported in stockholders' equity related to stock-based compensation
|
|
|
(273
|
)
|
|
|
-
|
|
|
|
(273
|
)
|
Total
|
|
$
|
3,477
|
|
|
$
|
165
|
|
|
$
|
3,642
|
|
The Company’s income tax provision for fiscal year 2015 is summarized below (in thousands):
|
|
Fiscal year ended March 29, 2015
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
Federal
|
|
$
|
3,255
|
|
|
$
|
(280
|
)
|
|
$
|
2,975
|
|
State
|
|
|
574
|
|
|
|
(48
|
)
|
|
|
526
|
|
Other - net, including foreign
|
|
|
(194
|
)
|
|
|
135
|
|
|
|
(59
|
)
|
Income tax expense (benefit)
|
|
|
3,635
|
|
|
|
(193
|
)
|
|
|
3,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax reported in stockholders' equity related to stock-based compensation
|
|
|
(69
|
)
|
|
|
-
|
|
|
|
(69
|
)
|
Total
|
|
$
|
3,566
|
|
|
$
|
(193
|
)
|
|
$
|
3,373
|
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of April 3, 2016 and March 29, 2015 are as follows (in thousands):
|
|
April 3, 2016
|
|
|
March 29, 2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Employee wage and benefit accruals
|
|
$
|
740
|
|
|
$
|
787
|
|
Accounts receivable and inventory reserves
|
|
|
319
|
|
|
|
485
|
|
Deferred rent
|
|
|
67
|
|
|
|
48
|
|
Intangible assets
|
|
|
647
|
|
|
|
704
|
|
State net operating loss carryforwards
|
|
|
775
|
|
|
|
824
|
|
Stock-based compensation
|
|
|
478
|
|
|
|
556
|
|
Total gross deferred tax assets
|
|
|
3,026
|
|
|
|
3,404
|
|
Less valuation allowance
|
|
|
(775
|
)
|
|
|
(824
|
)
|
Deferred tax assets after valuation allowance
|
|
|
2,251
|
|
|
|
2,580
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(234
|
)
|
|
|
(352
|
)
|
Property, plant and equipment
|
|
|
(80
|
)
|
|
|
(127
|
)
|
Total deferred tax liabilities
|
|
|
(314
|
)
|
|
|
(479
|
)
|
Net deferred income tax assets
|
|
$
|
1,937
|
|
|
$
|
2,101
|
|
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 April 3, 2016 and March 29, 2015 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 benefits for fiscal years 2016 and 2015 (in thousands):
|
|
2016
|
|
|
2015
|
|
Balance at beginning of period
|
|
$
|
-
|
|
|
$
|
-
|
|
Additions related to current year positions
|
|
|
195
|
|
|
|
-
|
|
Additions related to prior year positions
|
|
|
16
|
|
|
|
-
|
|
Reductions for tax positions of prior years
|
|
|
-
|
|
|
|
-
|
|
Reductions due to the lapse of the statute of limitations
|
|
|
-
|
|
|
|
-
|
|
Payments pursuant to judgements and settlements
|
|
|
-
|
|
|
|
-
|
|
Balance at end of period
|
|
$
|
211
|
|
|
$
|
-
|
|
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 FASB ASC Sub-topic 740-10-25, which requires a minimum recognition threshold that a tax benefit must meet before being recognized in the financial statements. 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. During fiscal year 2015, an evaluation was made of the Company’s process regarding the calculation of the state portion of its income tax provision. This evaluation resulted in a tax position which reflects opportunities for the application of more favorable state apportionment percentages for the past few years. After considering all relevant information, the Company believes that the technical merits of this tax position would more likely than not be sustained. However, the Company also believes that the ultimate resolution of the tax position will result in a tax benefit that is less than the full amount being sought. Therefore, the Company’s measurement regarding the tax impact of the revised state apportionment percentages resulted in the Company recording during fiscal year 2016 a gross reserve for unrecognized tax benefits of $773,000, less an offset of $573,000 to reflect state income tax overpayments net of the federal income tax impact, for a net reserve for unrecognized tax benefits of $200,000 in the accompanying consolidated financial statements. The Company’s policy is to accrue interest expense and penalties as appropriate on any estimated unrecognized tax benefits as a charge to interest expense in the Company’s consolidated statements of income. As of April 3, 2016, the Company had accrued $11,000 for accrued interest expense and penalties on the portion of the unrecognized tax benefit that has been refunded to the Company but for which the relevant statute of limitations remained unexpired. No interest expense or penalties is accrued with respect to estimated unrecognized tax benefits that are associated with state income tax overpayments that remain receivable.
The Company's provision for income taxes is based upon effective tax rates of 36.4% and 37.6% in fiscal years 2016 and 2015, 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.
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 2016 and 2015 (in thousands):
|
|
2016
|
|
|
2015
|
|
Tax expense at statutory rate (34%)
|
|
$
|
3,653
|
|
|
$
|
3,114
|
|
State income taxes, net of Federal income tax benefit
|
|
|
200
|
|
|
|
347
|
|
Tax credits
|
|
|
(13
|
)
|
|
|
(24
|
)
|
Net tax effect of expenses deductible only for tax purposes
|
|
|
132
|
|
|
|
(6
|
)
|
Other - net, including foreign
|
|
|
(57
|
)
|
|
|
11
|
|
Income tax expense
|
|
$
|
3,915
|
|
|
$
|
3,442
|
|
Note 9
– Stockholders’ Equity
Dividends:
The holders of the Company’s common stock are entitled to receive dividends when and as declared by the Board. Aggregate cash dividends of $0.57 and $0.32 per share, amounting to $5.7 million and $ 3.2 million, were declared during fiscal years 2016 and 2015, respectively. The dividends declared during fiscal year 2016 included a special cash dividend of $0.25 per share. 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 337,000 treasury shares during the fiscal year ended April 3, 2016 at a weighted-average market value of $8.41 per share and acquired 32,000 treasury shares during the fiscal year ended March 29, 2015 at a weighted-average market value of $7.57 per share.
Note 10 -
Major Customers
The table below sets forth those customers that represented more than 10% of the Company’s gross sales during fiscal years ended April 3, 2016 and March 29, 2015.
|
|
2016
|
|
|
2015
|
|
Wal-Mart Stores, Inc.
|
|
|
42%
|
|
|
|
36%
|
|
Toys R Us
|
|
|
23%
|
|
|
|
25%
|
|
N
ote
11 – Legal Settlement
BreathableBaby, LLC (“BreathableBaby”) filed a complaint against the Company and CCIP on January 11, 2012 in the United States District Court for the District of Minnesota, which alleged that CCIP’s mesh crib liner infringed upon BreathableBaby’s patent rights relating to its air permeable infant bedding technology. On December 5, 2014, the Company reached a final settlement with BreathableBaby to resolve this matter under the terms of which the Company will be permitted to manufacture and sell a redesigned mesh crib liner product. In connection with the settlement, the Company made a one-time payment of $850,000 to BreathableBaby on December 11, 2014, which has been classified as legal expense in the consolidated statements of income for fiscal year 2015.
N
ote
12
– Commitments and Contingencies
Total rent expense was $1.5 million and $1.4 million during fiscal years ended April 3, 2016 and March 29, 2015, respectively. The Company’s commitment for minimum guaranteed rental payments under its lease agreements as of April 3, 2016 is $5.4 million, consisting of $1.2 million due in fiscal year 2017, $1.3 million in each of fiscal years 2018 and 2019, $1.2 million in fiscal year 2020, and $342,000 in fiscal year 2021.
Total royalty expense was $9.0 million and $8.7 million for fiscal years 2016 and 2015, respectively. The Company’s commitment for minimum guaranteed royalty payments under its license agreements as of April 3, 2016 is $10.2 million, consisting of $5.2 million, $4.6 million and $427,000 due in fiscal years 2017, 2018 and 2019, 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 13
– Subsequent Events
The Company has evaluated events that have occurred between April 3, 2016 and the date that the accompanying financial statements were issued, and has determined that there are no material subsequent events that require disclosure.
F-18