Crown Crafts(CRWS) - 2021 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents unaudited condensed consolidated financial statements and management's discussion of financial condition ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of income, changes in shareholders' equity, and cash flows, along with detailed notes on significant accounting policies, financing arrangements, goodwill, intangible assets, inventories, leases, and stock-based compensation Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's financial position, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheets Data | Metric | Sep 27, 2020 (in thousands) | Mar 29, 2020 (in thousands) | Change (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Cash and cash equivalents | $6,832 | $282 | +$6,550 | | Total current assets | $45,545 | $37,041 | +$8,504 | | Total Assets | $64,417 | $57,173 | +$7,244 | | Accounts payable | $8,054 | $2,972 | +$5,082 | | Total current liabilities | $12,826 | $6,479 | +$6,347 | | Total Shareholders' Equity | $45,507 | $42,436 | +$3,071 | Unaudited Condensed Consolidated Statements of Income This statement details revenues, expenses, and net income over specific periods, reflecting profitability Unaudited Condensed Consolidated Statements of Income Data | Metric (3-month) | Sep 27, 2020 (in thousands) | Sep 29, 2019 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Net sales | $21,659 | $18,560 | +$3,099 | +16.7% | | Gross profit | $7,094 | $5,869 | +$1,225 | +20.9% | | Gross profit % of net sales | 32.8% | 31.6% | +1.2 pp | | | Net income | $2,487 | $1,779 | +$708 | +39.8% | | EPS - basic and diluted | $0.24 | $0.18 | +$0.06 | +33.3% | Unaudited Condensed Consolidated Statements of Income Data | Metric (6-month) | Sep 27, 2020 (in thousands) | Sep 29, 2019 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Net sales | $37,864 | $34,502 | +$3,362 | +9.7% | | Gross profit | $12,117 | $10,420 | +$1,697 | +16.3% | | Gross profit % of net sales | 32.0% | 30.2% | +1.8 pp | | | Net income | $3,702 | $2,858 | +$844 | +29.5% | | EPS - basic and diluted | $0.36 | $0.28 | +$0.08 | +28.6% | Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity This statement outlines changes in shareholders' equity, including net income, dividends, and other income Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity Data | Metric | Sep 27, 2020 (in thousands) | Mar 29, 2020 (in thousands) | Change (in thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------- | | Total Shareholders' Equity | $45,507 | $42,436 | +$3,071 | | Retained Earnings (Sep 27, 2020) | $3,992 | $1,108 | +$2,884 | | Net income (6-month period) | $3,702 | $2,858 | +$844 | | Dividend declared (6-month period) | $(818) | $(1,623) | +$805 | Unaudited Condensed Consolidated Statements of Cash Flows This statement summarizes cash flows from operating, investing, and financing activities, indicating liquidity Unaudited Condensed Consolidated Statements of Cash Flows Data | Metric (6-month) | Sep 27, 2020 (in thousands) | Sep 29, 2019 (in thousands) | Change (in thousands) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Net cash provided by operating activities | $8,288 | $6,393 | +$1,895 | | Net cash used in investing activities | $(312) | $(215) | $(97) |\n| Net cash used in financing activities | $(1,426) | $(6,121) | +$4,695 | | Net increase in cash and cash equivalents | $6,550 | $57 | +$6,493 | | Cash and cash equivalents at end of period | $6,832 | $200 | +$6,632 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for financial statements, clarifying policies Note 1 – Summary of Significant Accounting Policies This section outlines the significant accounting policies used in preparing the unaudited condensed consolidated financial statements, covering areas such as basis of presentation, fiscal year, use of estimates, cash and financial instruments, advertising costs, revenue recognition, allowances, credit concentration, segment information, inventory valuation, royalty payments, depreciation, amortization, long-lived assets, patent costs, income taxes, earnings per share, and recently-issued accounting standards Basis of Presentation This section describes the basis for preparing financial statements, including consolidation principles and GAAP - The financial statements include Crown Crafts, Inc. and its subsidiaries, prepared under GAAP for interim financial information[20] - All necessary adjustments for fair presentation, including normal, recurring accruals and elimination of intercompany balances, are included[21] Fiscal Year This section defines the company's fiscal year and its impact on financial reporting periods - The Company's fiscal year ends on the Sunday nearest to or on March 31[22] - Fiscal year 2021 represents the 52-week period ending March 28, 2021[22] Use of Estimates This section highlights significant estimates in financial reporting, particularly for allowances and inventory - Significant estimates are made for allowances related to accounts receivable (customer deductions for returns, allowances, and disputes)[23] - Inventory reserves are established for discontinued finished goods, which are highly subjective[23] Cash and Cash Equivalents This section defines cash and cash equivalents, including negative balances under the revolving credit line - The Company's credit facility includes a revolving line of credit with The CIT Group/Commercial Services, Inc. (CIT)[24] - Negative balances outstanding under this revolving line of credit are classified as cash, as they are immediately available[24] Financial Instruments This section explains financial instrument valuation, using carrying value for short-term items - For short-term instruments like cash and cash equivalents, accounts receivable, and accounts payable, carrying value is used as a reasonable estimate of fair value[25] Advertising Costs This section details advertising cost recognition policies and provides a breakdown of expenses - Advertising costs are primarily associated with cooperative advertising arrangements and recognized using the straight-line method[26] - Costs for online advertising (e.g., Facebook, Google) are recorded as incurred[26] Advertising Costs Data | Period | 2020 (in thousands) | 2019 (in thousands) | | :----------------------------------- | :------------------ | :------------------ | | Three months ended September 27/29 | $314 | $260 | | Six months ended September 27/29 | $659 | $544 | Revenue Recognition This section outlines principles for recognizing revenue, including performance obligations and returns - Revenue is recognized upon satisfaction of contractual performance obligations and transfer of control of products to the customer[28] - A provision for anticipated returns is provided through a reduction of net sales and cost of products sold[29] - Revenue from unredeemed store credits and gift certificates is recognized at redemption, expiration, or when the likelihood of redemption becomes remote (generally two years)[30] Allowances Against Accounts Receivable This section describes allowances against accounts receivable, such as for returns and advertising - Revenue from sales to retailers is reported net of allowances for anticipated returns, cooperative advertising, warehouse allowances, placement fees, volume rebates, coupons, and discounts[31] - Such allowances are recorded commensurate with sales activity or using the straight-line method[31] Uncollectible Accounts This section explains the company's approach to managing uncollectible accounts through factoring agreements - The Company assigns the majority of its receivables under factoring agreements with CIT to reduce exposure to credit losses[32] - CIT bears the risk of loss if a factored receivable becomes uncollectible due to customer creditworthiness[32] Credit Concentration This section identifies significant credit concentration risks, particularly with CIT factoring agreements - Accounts receivable (net of allowances) amounted to $18.8 million at September 27, 2020[33] - Of this, $17.9 million was due from CIT under factoring agreements, and an additional $6.8 million was due from CIT as a negative balance on the revolving line of credit[33] - The combined amount of $24.7 million represents the maximum loss if CIT failed completely[33] Other Accrued Liabilities This section details the composition and changes in other accrued liabilities, including unearned revenue - Other accrued liabilities were $465,000 at September 27, 2020, including $359,000 in unearned revenue[34] - At March 29, 2020, other accrued liabilities were $352,000, with $155,000 in unearned revenue[34] Segment and Related Information This section provides information on the company's operating segment and product categories, detailing net sales - The Company operates primarily in one principal segment: infant and toddler products[36] - Products include infant and toddler bedding, bibs, soft bath products, disposable products, developmental and bath toys, and accessories[36] Segment and Related Information Data | Product Category | 3-Month Ended Sep 27, 2020 (in thousands) | 3-Month Ended Sep 29, 2019 (in thousands) | | :-------------------------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Bedding, blankets and accessories | $13,042 | $10,364 | | Bibs, bath, developmental toy, feeding, baby care and disposable products | $8,617 | $8,196 | | Total net sales | $21,659 | $18,560 | Inventory Valuation This section describes inventory valuation methods and obsolescence review - Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out (FIFO) method and average cost method for a portion[36] - Management reviews inventory for obsolescence, physical deterioration, changes in price levels, and quantities not expected to be sold[38] Royalty Payments This section explains the basis for royalty payments and provides a breakdown of related expenses - Royalty payments are based on a percentage of sales with certain minimum guaranteed amounts, accrued based on historical and current sales trends[39] Royalty Payments Data | Period | 2020 (in thousands) | 2019 (in thousands) | | :----------------------------------- | :------------------ | :------------------ | | Three months ended September 27/29 | $1,600 | $1,300 | | Six months ended September 27/29 | $2,800 | $2,200 | Depreciation and Amortization This section outlines methods and estimated useful lives for depreciation and amortization of assets - Depreciation and amortization are computed using the straight-line method over estimated useful lives[40] - Useful lives are three to eight years for property, plant and equipment, and five to twenty years for intangible assets other than goodwill[40] Valuation of Long-Lived Assets and Identifiable Intangible Assets This section describes the impairment review process for long-lived and intangible assets - Long-lived assets and identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable[41] - In the event of impairment, the asset is written down to its fair market value[41] Patent Costs This section details capitalization and amortization policies for patent application and defense costs - Legal and related costs for patent applications are capitalized and amortized if an economic benefit is anticipated[43] - Costs incurred in the protection or defense of patents are capitalized when future economic benefit is believed to be maintained or increased and a successful defense is probable[43] Provision for Income Taxes This section explains income tax provision calculation, including effective tax rates and tax liabilities - The provision for income taxes includes currently payable federal, state, local, and foreign taxes, based on the estimated annual effective tax rate (ETR)[44] - The Company recorded discrete reserves for unrecognized tax liabilities of $20,000 (three months ended Sep 27, 2020) and $33,000 (six months ended Sep 27, 2020) related to state apportionment percentages[47] - The Franchise Tax Board of California (FTB) is examining the Company's consolidated income tax returns for fiscal years ended March 31, 2019, April 1, 2018, and April 2, 2017[51] Earnings Per Share This section describes calculation methodologies for basic and diluted earnings per share - Basic earnings per share is calculated using a weighted average of the number of shares outstanding[54] - Diluted shares outstanding are calculated using the treasury stock method, accounting for potentially dilutive exercisable options[54] Recently-Issued Accounting Standards This section discusses the impact of recently-issued accounting standards on financial statements - The Company intends to adopt ASU No. 2016-13, Financial Instruments – Credit Losses, effective April 3, 2023[56] - The adoption of ASU No. 2016-13 is not expected to have a significant impact due to the Company assigning the majority of its trade accounts receivable under factoring agreements[56] Note 2 – Financing Arrangements This note details the Company's financing arrangements, including factoring agreements with CIT to manage credit risk, a revolving line of credit for liquidity, and a Paycheck Protection Program (PPP) loan for which forgiveness has been applied Factoring Agreements This section details factoring agreements with CIT to manage accounts receivable and credit risk - The Company assigns the majority of its trade accounts receivable to CIT under factoring agreements to reduce credit loss exposure[58] - CIT bears credit losses for assigned accounts receivable from approved shipments[60] Factoring Fees Data | Factoring Fees (in thousands) | 3-Month Ended Sep 27, 2020 | 3-Month Ended Sep 29, 2019 | | :---------------------------- | :------------------------- | :------------------------- | | Amount | $85 | $62 | Factoring Fees Data | Factoring Fees (in thousands) | 6-Month Ended Sep 27, 2020 | 6-Month Ended Sep 29, 2019 | | :---------------------------- | :------------------------- | :------------------------- | | Amount | $130 | $113 | Credit Facility This section describes the company's revolving line of credit with CIT, including terms and availability - The Company has a revolving line of credit with CIT of up to $26.0 million, maturing on July 11, 2022, secured by a first lien on all assets[61] - As of September 27, 2020, there was no balance owed on the revolving line of credit, and $24.2 million was available[62] - As of March 29, 2020, $2.6 million was owed, and $20.1 million was available[62] Paycheck Protection Program Loan This section outlines the PPP loan details, including terms and forgiveness application status - The Company executed a $1,963,800 loan under the Paycheck Protection Program (PPP) on April 19, 2020, accruing interest at 1.0% per year and maturing on April 20, 2022[64] - An application for forgiveness of the full loan amount was submitted on October 15, 2020[67] - As of September 27, 2020, $906,000 of the loan was classified as a current liability, and the remaining $1.1 million as long-term debt[67] Note 3 – Goodwill Goodwill, representing the excess of purchase price over net identifiable assets, is allocated to two reporting units. The Company performs annual impairment measurements and concluded no impairment as of March 30, 2020 - Goodwill (net of accumulated impairment charges) amounted to $7.1 million as of September 27, 2020, and March 29, 2020[70] - The Company has two reporting units for goodwill impairment measurement: infant and toddler bedding, blankets and accessories; and infant and toddler bibs, developmental toys, bath care and disposable products[70] - The annual impairment measurement performed on March 30, 2020, concluded that goodwill was not impaired[72] Note 4 – Other Intangible Assets Other intangible assets, primarily from business combinations, include tradenames, developed technology, non-compete covenants, patents, and customer relationships. Amortization expense is recorded in cost of products sold and marketing and administrative expenses - Total other intangible assets (gross) were $14.2 million as of September 27, 2020, and March 29, 2020[73] - Accumulated amortization was $9.026 million at September 27, 2020, compared to $8.623 million at March 29, 2020[73] Other Intangible Assets Data | Amortization Expense (in thousands) | 3-Month Ended Sep 27, 2020 | 3-Month Ended Sep 29, 2019 | | :---------------------------------- | :------------------------- | :------------------------- | | Total | $194 | $213 | Other Intangible Assets Data | Amortization Expense (in thousands) | 6-Month Ended Sep 27, 2020 | 6-Month Ended Sep 29, 2019 | | :---------------------------------- | :------------------------- | :------------------------- | | Total | $403 | $427 | Note 5 – Inventories Inventory consists primarily of finished goods, with smaller amounts of raw materials and work in process. Total inventory increased from March 29, 2020, to September 27, 2020 Inventories Data | Inventory Class | Sep 27, 2020 (in thousands) | Mar 29, 2020 (in thousands) | | :------------------ | :-------------------------- | :-------------------------- | | Raw Materials | $518 | $597 | | Work in Process | $28 | $23 | | Finished Goods | $18,645 | $17,112 | | Total inventory | $19,191 | $17,732 | Note 6 – Leases The Company is party to various operating leases for offices, warehousing facilities, and certain office equipment. Lease costs are classified within cost of products sold and marketing and administrative expenses, and operating lease liabilities decreased from March 29, 2020, to September 27, 2020 - Cash payments related to recognized operating leases for the six months ended September 27, 2020, were $811,000, compared to $714,000 in the prior year[76] - As of September 27, 2020, the weighted-average remaining lease term was 2.6 years, and the weighted-average discount rate was 3.79%[76] Leases Data | Operating Lease Liabilities (in thousands) | Sep 27, 2020 | Mar 29, 2020 | | :--------------------------------------- | :----------- | :----------- | | Total operating lease liabilities | $4,420 | $5,150 | Note 7 – Stock-based Compensation The Company utilizes the 2014 Omnibus Equity Compensation Plan to grant stock options and non-vested stock to directors and employees, aiming to attract and retain talent. Stock-based compensation expense increased for both the three and six-month periods ended September 27, 2020 Stock Options This section details stock option grants, outstanding options, and related compensation expense Stock Options Data | Stock-based Compensation Expense (in thousands) | 3-Month Ended Sep 27, 2020 | 3-Month Ended Sep 29, 2019 | | :---------------------------------------------- | :------------------------- | :------------------------- | | Amount | $100 | $75 | Stock Options Data | Stock-based Compensation Expense (in thousands) | 6-Month Ended Sep 27, 2020 | 6-Month Ended Sep 29, 2019 | | :---------------------------------------------- | :------------------------- | :------------------------- | | Amount | $186 | $140 | - Options outstanding at September 27, 2020: 627,500 shares with a weighted-average exercise price of $6.52[82] - No options were exercised during either the three or six-month periods ended September 27, 2020, or September 29, 2019[82] Non-vested Stock Granted to Non-employee Directors This section describes non-vested stock grants to non-employee directors, including vesting and fair value - 41,452 shares of non-vested stock were granted to non-employee directors on August 12, 2020, with a fair value of $5.79 per share, vesting over a two-year period[86] - In August 2020, 37,256 shares granted to non-employee directors vested, with an aggregate value of $179,000[87] Non-vested Stock Granted to Employees This section details non-vested stock grants to employees, including vesting schedules and fair value - 25,000 shares of non-vested stock were granted to Donna Sheridan (President and CEO of NoJo Baby & Kids, Inc.) on January 18, 2019, vesting on January 18, 2021, with a fair value of $5.86 per share[89] - 20,000 shares of non-vested stock were granted to certain executive officers on June 10, 2020, vesting on June 10, 2022, with a fair value of $4.92 per share[90] Performance Bonus Plan This section discusses the termination of the performance bonus plan and unrecognized compensation - The Company's 2012 Performance Bonus Plan was terminated on June 9, 2020[91] - No shares were granted and no compensation expense was recorded under the 2012 Plan during the three or six-month periods ended September 27, 2020, or September 29, 2019[91] - Total unrecognized compensation expense related to non-vested stock grants amounted to $426,000 as of September 27, 2020, to be recognized over a weighted-average vesting term of 11.9 months[93] Note 8 – Subsequent Events This section confirms the evaluation of subsequent events and the absence of material disclosures - The Company has evaluated events between September 27, 2020, and the financial statements' issuance date and determined no material subsequent events require disclosure[94] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial performance, liquidity, and capital resources for the three and six-month periods ended September 27, 2020, highlighting significant increases in net sales and net income, improved gross profit margins, and a strong liquidity position despite the ongoing COVID-19 pandemic FORWARD-LOOKING INFORMATION This section highlights forward-looking statements and associated risks, including COVID-19 impact - This report contains forward-looking statements based on management's current expectations, projections, estimates, and assumptions[97] - Known and unknown risks and uncertainties include the impact of the COVID-19 pandemic, general economic conditions, changing competition, and dependence on third-party suppliers and licenses[97] DESCRIPTION OF BUSINESS This section describes the company's operations in infant, toddler, and juvenile products, and competition - The Company operates in the infant, toddler, and juvenile products segment through its wholly-owned subsidiaries NoJo, Sassy Baby, Inc., and Carousel Designs, LLC[98] - Products are marketed under Company-owned trademarks, licensed trademarks, and as private label goods, sold directly to retailers and consumers[98] - The industry is highly competitive, and most products are produced by foreign contract manufacturers, primarily in China[101] RESULTS OF OPERATIONS This section analyzes the company's financial performance, including net sales, gross profit, and expenses Net Sales This section analyzes changes in net sales by product category for the three and six-month periods Net Sales Data | Metric (3-month) | Sep 27, 2020 (in thousands) | Sep 29, 2019 (in thousands) | Change (in thousands) | % Change | | :--------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Total net sales | $21,659 | $18,560 | +$3,099 | +16.7% | | Bedding, blankets and accessories | $13,042 | $10,364 | +$2,678 | +25.8% | | Bibs, bath, etc. | $8,617 | $8,196 | +$421 | +5.1% | Net Sales Data | Metric (6-month) | Sep 27, 2020 (in thousands) | Sep 29, 2019 (in thousands) | Change (in thousands) | % Change | | :--------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | Total net sales | $37,864 | $34,502 | +$3,362 | +9.7% |\n| Bedding, blankets and accessories | $23,059 | $18,077 | +$4,982 | +27.6% | | Bibs, bath, etc. | $14,805 | $16,425 | $(1,620) | -9.9% | - The increase in sales is due to higher sell-through at major retailers, partially offset by declines at certain retailers impacted by the COVID-19 pandemic[104] Gross Profit This section analyzes changes in gross profit and gross profit margins for the three and six-month periods Gross Profit Data | Metric (3-month) | Sep 27, 2020 | Sep 29, 2019 | Change | % Change | | :-------------------------- | :----------- | :----------- | :----- | :------- | | Gross profit (in thousands) | $7,094 | $5,869 | +$1,225 | +20.9% | | % of net sales | 32.8% | 31.6% | +1.2 pp | | Gross Profit Data | Metric (6-month) | Sep 27, 2020 | Sep 29, 2019 | Change | % Change | | :-------------------------- | :----------- | :----------- | :----- | :------- | | Gross profit (in thousands) | $12,117 | $10,420 | +$1,697 | +16.3% | | % of net sales | 32.0% | 30.2% | +1.8 pp | | - The increase in gross profit is due to the increase in net sales as well as a more favorable customer and product mix[105] Marketing and Administrative Expenses This section analyzes changes in marketing and administrative expenses and their percentage of net sales Marketing and Administrative Expenses Data | Metric (3-month) | Sep 27, 2020 | Sep 29, 2019 | Change | % Change | | :------------------------------------ | :----------- | :----------- | :----- | :------- | | Marketing and administrative expenses (in thousands) | $3,802 | $3,476 | +$326 | +9.4% | | % of net sales | 17.6% | 18.7% | -1.1 pp | | Marketing and Administrative Expenses Data | Metric (6-month) | Sep 27, 2020 | Sep 29, 2019 | Change | % Change | | :------------------------------------ | :----------- | :----------- | :----- | :------- | | Marketing and administrative expenses (in thousands) | $7,182 | $6,928 | +$254 | +3.7% | | % of net sales | 19.0% | 20.1% | -1.1 pp | | - The increase in amount for the current year-to-date period is primarily the result of higher outside services (+$201,000) and higher advertising (+$115,000), partially offset by lower travel expenses (-$67,000)[106] Income Tax Expense This section details the company's income tax expense, effective tax rate, and discrete tax adjustments - The estimated annual effective tax rate (ETR) from continuing operations was 24.2% for the six-month period ended September 27, 2020[107] - Discrete reserves for unrecognized tax liabilities of $20,000 (three months ended Sep 27, 2020) and $33,000 (six months ended Sep 27, 2020) were recorded[109] - A reversal of prior reserves resulted in a discrete income tax benefit of $232,000 and a credit to interest expense of $78,000 during the six-month period ended September 29, 2019[111] FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES This section discusses financial position, liquidity, and capital resources, including cash flow and credit - Net cash provided by operating activities increased from $6.4 million (six months ended Sep 29, 2019) to $8.3 million (six months ended Sep 27, 2020)[115] - Net cash used in financing activities decreased from $6.1 million (prior year) to $1.4 million (current year), primarily due to lower net repayments under the revolving line of credit and receipt of a PPP loan[117] - As of September 27, 2020, there was no balance owed on the revolving line of credit, and $24.2 million was available[118] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses the company's exposure to market risks, including interest rate risk, commodity rate risk (primarily cotton, oil, and labor in China), and market concentration risk with its top customers and licensed products INTEREST RATE RISK This section discusses the company's exposure to interest rate risk, particularly concerning floating rate debt - Although the Company could have an exposure to interest rate risk related to its floating rate debt, there was no balance outstanding on its floating rate debt as of September 27, 2020[128] COMMODITY RATE RISK This section discusses the company's exposure to commodity price risk, primarily cotton, oil, and labor costs - The Company's exposure to commodity price risk primarily relates to changes in the prices in China of cotton, oil, and labor, which are principal inputs for its products[125] - A strengthening of the Chinese currency versus the U.S. dollar could result in an increase in the cost of the Company's finished goods[125] MARKET CONCENTRATION RISK This section identifies market concentration risks with top customers and licensed products - The Company's top two customers represented approximately 62% of its gross sales in fiscal year 2020[126] - 40% of the Company's gross sales in fiscal year 2020 consisted of licensed products, with 30% associated with license agreements with affiliated companies of the Walt Disney Company[126] ITEM 4. CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the reporting period, and no material changes to internal control over financial reporting were identified - The Company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report[127] - No changes in the Company's internal control over financial reporting (ICFR) were identified that materially affected, or are reasonably likely to materially affect, the Company's ICFR during the three-month period ended September 27, 2020[129] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, and other disclosures ITEM 1. LEGAL PROCEEDINGS The Company is involved in various legal and regulatory proceedings in the ordinary course of its business, none of which are expected to have a material adverse effect on its financial condition, results of operations, or cash flow - The Company is involved in various legal and regulatory proceedings arising in the ordinary course of its business[131] - None of these proceedings are expected to have a material adverse effect on the Company's financial condition, results of operations, or cash flow[131] ITEM 1A. RISK FACTORS There have been no material changes to the risk factors previously disclosed in the Company's annual report on Form 10-K for the fiscal year ended March 29, 2020 - There have been no material changes to the risk factors disclosed in Item 1A. of Part 1 of the Company's annual report on Form 10-K for the year ended March 29, 2020[132] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS There were no unregistered sales of equity securities or use of proceeds to report for this period - None[133] ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities to report for this period - None[134] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the Company - Not applicable[135] ITEM 5. OTHER INFORMATION There is no other information to report under this item - None[136] ITEM 6. EXHIBITS This section lists the exhibits filed with the report, including corporate organizational documents, certifications by the CEO and CFO, and interactive data files in XBRL format for the financial statements and notes - Exhibits include Amended and Restated Certificate of Incorporation, Bylaws, and Rule 13a-14(a)/15d-14(a) and Section 1350 Certifications by the Company's Chief Executive Officer and Chief Financial Officer[138] - Interactive data files in XBRL format are provided for the Unaudited Condensed Consolidated Balance Sheets, Statements of Income, Statements of Changes in Shareholders' Equity, Statements of Cash Flows, and Notes to Unaudited Condensed Consolidated Financial Statements[138]