UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period endedDecember 27, 2015July 3, 2016

For the transition period from _____to_____

Commission File No. 1-7604

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:(225) 647-9100

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ☑     No ☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  Yes ☑ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of shares of common stock, $0.01 par value, of the registrant outstanding as of January 27,July 25, 2016 was 9,996,527.9,994,933.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CROWN CRAFTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

DECEMBER 27, 2015JULY 3, 2016 AND MARCH 29, 2015APRIL 3, 2016

See notes to unaudited condensed consolidated financial statements.

CROWN CRAFTS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE AND NINE-MONTHTHREE-MONTH PERIODS ENDED DECEMBER 27,JULY 3, 2016 AND JUNE 28, 2015 AND DECEMBER 28, 2014

(amounts in thousands, except per share amounts)

See notes to unaudited condensed consolidated financial statements.

CROWN CRAFTS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE-MONTHTHREE-MONTH PERIODS ENDED DECEMBER 27,JULY 3, 2016 AND JUNE 28, 2015 AND DECEMBER 28, 2014

See notes to unaudited condensed consolidated financial statements.

CROWN CRAFTS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE-MONTHTHREE-MONTH PERIODS ENDED DECEMBER 27,JULY 3, 2016 AND JUNE 28, 2015 AND DECEMBER 28, 2014

Revenue Recognition: Sales are recorded when products are shipped to customers and are reported net of allowances for estimated returns and allowances in the accompanying unaudited condensed 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 condensed consolidated balance sheets, consist of agreed upon 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 such 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 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 no 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 the exposure to credit losses and to enhance the predictability of its cash flows, 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 uncollectibility of its non-factored accounts receivable to evaluate the adequacy of the Company’s allowance for doubtful accounts, which is accomplished by specifically analyzing accounts receivable, historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in its customers’ payment terms.

The Company’s accounts receivable as of December 27, 2015July 3, 2016 was $19.6$13.7 million, net of allowances of $1.1 million.$662,000. Of this amount, $17.5$13.0 million was due from CIT under the factoring agreements, and an additional $7.5$11.8 million was due from CIT as a negative balance outstanding under the revolving line of credit. The combined amount of $25.0$24.8 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.

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 in the accompanying unaudited condensed consolidated statements of income and amounted to $2.3$1.7 million and $2.5$1.8 million for the three-month periods ended December 27,July 3, 2016 and June 28, 2015, and December 28, 2014, respectively, and $6.3 million and $5.9 million for the nine-month periods ended December 27, 2015 and December 28, 2014, respectively.

Depreciation and Amortization: The accompanying condensed 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 onefive 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 andIdentifiable Intangible Assets: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 associated costs in connection with applications for patents. 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 for the underlying product is available to the Company. The Company also capitalizes legal and other costs incurred in the protection or defense of the Company’s patents to the extent that it is believed that the future economic benefit of the patent will be maintained or increased and a successful outcome of the litigation is probable. Capitalized patent protection or defense costs are amortized over the remaining expected life of the related patent. The Company’s assessment of the 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 amountvalue of the Company's inventory balances. Such amount isamounts are presented as a current asset in the accompanying condensed consolidated balance sheets and isare a direct determinant of cost of products sold in the accompanying consolidated statements of income and, therefore, hashave a significant impact on the amount of net income in the accounting periods reported. The basis of accounting for inventories is cost, which includes the direct supplier acquisition cost, duties, taxes and freight, and the indirect costs incurred to design, develop, source and store the products until they are 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 indirect costs allocated to inventory are done so as a percentage of projected annual supplier purchases and can impact the Company’s results of operations as purchase volume fluctuates from quarter to quarter and year to year. The difference between indirect costs incurred and the indirect costs allocated to inventory creates a burden variance, which is generally favorable when actual inventory purchases exceed planned inventory purchases, and is generally unfavorable when actual inventory purchases are lower than planned inventory purchases. While the burden variance can be significant during interim periods, it is generally not material by the end of each fiscal year. The determination of the indirect charges and their allocation to the Company's finished products 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, the amount and timing of the Company's cost of products sold and the resulting net income for any accounting period.

On a periodic basis, management reviews the Company’s 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 normal operating cycle of the Company's operations. 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 of 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 and is based upon the Company’s estimated annual effective tax rate, which is based on the Company’s forecasted annual pre-tax income, as adjusted for certain expenses within the consolidated statements of income that will never be deductible on the Company’s tax returns and certain charges expected to be deducted on the Company’s tax returns that will never be deducted on the consolidated statements of income, multiplied by the statutory tax rates for the various jurisdictions in which the Company operates and reduced by certain anticipated tax credits. The Company 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. During the three-month period ended December 27, 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 the three-month period ended December 27, 2015 a gross reserve for unrecognized tax benefits of $713,000, 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 $140,000 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 theInterest expense or penalties are not accrued with respect to estimated unrecognized tax benefits that are associated with stateclaims for income tax overpayments, no interest expense or penalties will be accruedrefunds as long as the overpayments are receivable.

The Company files income tax returns in the many jurisdictions within which it operates, including the U.S., several U.S. states and the People’s Republic of China. The statute of limitations for the Company’s filed income tax returns varies by jurisdiction; the tax years open to federal, state or Chinese auditexamination or other adjustment as of December 27, 2015July 3, 2016 were the fiscal years ended April 1, 2012, March 31, 2013, March 30, 2014, and March 29, 2015 and April 3, 2016, as well as the fiscal year ended April 3, 2011 for several states.California.

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 options, which are added to basic shares to arrive at diluted shares.

Recently-Issued Accounting Standards: Standards:In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09,Revenue from Contracts with 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, the ASU No. 2014-09 was to become effective in the fiscal year beginning after December 15, 2016, but inon August 12, 2015 the FASB issued ASU No. 2015-14, Revenue from ContractsContracts 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 now 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 ASUsASU Nos. 2014-09 and 2015-14 on April 3, 2017 will have on its financial position, results of operations and related disclosures.

In July 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.

In November 2015, the FASB issued ASU No. 2015-17,Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, the intent of which willwas to 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. ASU No. 2015-17 was to have become effective for the first interim period of the fiscal year beginning after December 15, 2016, and early adoption is permitted. Upon adoption, the ASU may be applied prospectively or retrospectively. The Company elected to early-adopt ASU No. 2015-17 effective as of April 4, 2016 using a prospective application. As such, the prior period presented in the accompanying consolidated financial statements has not been adjusted. The adoption of the ASU on April 4, 2016 resulted in the reclassification as of July 3, 2016 of $886,000 in deferred tax assets from current to non-current in the accompanying condensed consolidated balance sheets. The adoption of the ASU did not have an impact on the Company’s results of operations.

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, 2016.2018. The ASU mayis to be applied prospectively or retrospectively,using a modified retrospective approach, and early adoption is permitted. The Company has not yet decided whether to adopt the ASU early 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 March 30, 2016, the FASB issued ASU No. 2016-09,Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, the intent of which was to simplify the accounting for share-based compensation transactions while maintaining or improving the usefulness of the related disclosures. ASU No. 2016-09 was to have becomeeffective for the first interim period of the fiscal year beginning after December 15, 2016, and early adoption is permitted. Upon adoption, the ASU may be applied prospectively or retrospectively. The Company elected to early-adopt ASU No. 2016-09 effective as of April 4, 2016 using a prospective application. Accordingly, the prior period presented in the accompanying consolidated financial statements has not been adjusted.

The provisions of ASU No. 2016-09 that are applicable to the Company and the effect of the adoption of the ASU on the Company’s consolidated financial statementsinclude the following:

On June 16, 2016, the FASB issued ASU No. 2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the objective of which is to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by an entity. Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable that a loss has been incurred. Because this methodology restricted the recognition of credit losses that are expected, but did not yet meet the “probable” threshhold, ASU No. 2016-13 was issued to require the consideration of a broader range of reasonable and supportable information when determining estimates of credit losses. The ASU will become effective for the first interim period of the fiscal year beginning after December 15, 2019. The ASU is to be applied using a modified retrospective approach, and the ASU may be early-adopted as of the first interim period of the fiscal year beginning after December 15, 2018. Although the Company has not yet decided whether to adopt ASU No. 2016-13 early or determined the full impact of the adoption of the ASU, because the Company assigns the majority of its trade accounts receivable under factoring agreements with CIT, the Company does not expectbelieve that its adoption of ASU No. 2015-172016-13 will have a significant impact on the Company’s financial position, results of operations and related disclosures.

The Company has determined that all other ASUs which had become effective as of July 3, 2016, or which will become effective at some future date, are not expected to have a material impact on itsthe Company’s consolidated financial position, results of operation and related disclosures.statements.

As of December 27, 2015,July 3, 2016, the intrinsic value of the outstanding and exercisable stock options was $334,000$623,000 and $314,000,$524,000, respectively. The intrinsic value of the stock options exercised during the three and nine-monthsthree-months ended December 27, 2015July 3, 2016 was $68,000 and $101,000, respectively.$45,000. The Company received no cash from the exercise of stock options during each of the three and nine-monththree-month periods ended December 27, 2015.July 3, 2016. 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 $25,000 and $37,000$20,000 to remit the required income tax withholding amounts from “cashless” option exercises during the three and nine-month periodsthree-month period ended December 27, 2015, respectively, and used cash of $5,000 to remit the required income tax withholding amounts from “cashless” option exercises during each of the three and nine-month periods ended December 28, 2014.

July 3, 2016.

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 the nine-monththree-month periods ended December 27,July 3, 2016 and June 28, 2015, and December 28, 2014, which options vest over a two-year period, assuming continued service.

For the three-month periods ended December 27,July 3, 2016 and June 28, 2015, and December 28, 2014, the Company recognized compensation expense associated with stock options as follows (in thousands):

For the nine-month periods ended December 27, 2015 and December 28, 2014, the Company recognized compensation expense associated with stock options as follows (in thousands):

As of December 27, 2015,July 3, 2016, total unrecognized stock option compensation expense amounted to $113,000,$149,000, which will be recognized as the underlying stock options vest over a weighted-average period of nine11.9 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 individual who has received 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:

These shares vest over a two-year period, assuming continued service. The fair value of the 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 August 2015, 28,000 shares vested that had been granted to the Company’s non-employee directors, with such shares having an aggregate value of $226,000.

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 was to vest only if (i) the closing price of the Company’s common stock was 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 remained 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 amendments to provide for the immediate vesting of all or a portion of several of the grants. The vesting of these awards was accelerated in order to maximize the deductibility of the associated compensation expense by the Company for income tax purposes. During the three-month period ended September 27, 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 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 mayindividualsmay instead be awarded cash, if and to the extent that insufficient 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 providesandprovides that shares of common stock that may be awarded will vest over a two-year period. 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, the Company, in respect of fiscal year 2016, awarded 41,205 shares of common stock with a fair value of $7.865 per share during the three-month period ended July 3, 2016. In connection with these awards, the Company recognized compensation expense of $108,000 during fiscal year 2016, and will recognize, on a straight-line basis, $108,000 in compensation expense during each of fiscal years 2017 and 2018.

In connection with the performance bonus plan, the Company, in respect of fiscal year 2015, awarded 58,532 shares of common stock with a fair value of $7.18 per share during the three-month period ended June 28, 2015. In connection with these awards, the Company recognized compensation expense of $140,000 during each of fiscal yearyears 2015 and 2016, and will recognize, on a straight-line basis, $140,000 in compensation expense during each of fiscal years 2016 andyear 2017.

In connection with the performance bonus plan, the Company, in respect of fiscal year 2014, awarded 188,232 shares of common stock with a fair value of $5.65 per share during the three-month period ended June 29, 2014. In connection with these awards, the Company recognized compensation expense of $354,000 during each of fiscal years 2014, and 2015 and will recognize, on a straight-line basis, $354,000 in compensation expense during fiscal year 2016. During the three-month period ended June 28, 2015, 94,116 of these shares vested, with such shares having an aggregate value of $735,000. 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 vesting of the shares, and the Company remitted $360,000 to the appropriate taxing authorities on behalf of such individuals.

For the three-month periods ended December 27,July 3, 2016 and June 28, 2015, and December 28, 2014, the Company recognized compensation expense associated with stock grants, which is included in marketing and administrative expenses in the accompanying consolidated statements of income, as follows (in thousands):

For the nine-month periods ended December 27, 2015 and December 28, 2014, the Company recognized compensation expense associated with stock grants, which is included in marketing and administrative expenses in the accompanyingunaudited condensed consolidated statements of income, as follows (in thousands):

As of December 27, 2015,July 3, 2016, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $510,000,$428,000, which will be recognized over the respective vesting terms associated with each block of non-vested stock indicated above, such grants having an aggregate weighted-average vesting term of 4.79.7 months. The amount of future compensation expense related to the Company’s 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 non-vested stock grants as of such individual’s separation date.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company operates indirectly through its wholly-owned subsidiaries, CCIP and Hamco, in the infant, toddler and juvenile products segment within the consumer products industry. The infant and toddler products segment consists of infant and toddler bedding and blankets, 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.

The Company’s products are marketed through a national sales force consisting of salaried sales executives and employees located in Compton, California; Gonzales, Louisiana; and Bentonville, Arkansas. Products are also marketed by independent commissioned sales representatives located throughout the United States. Sales outside the United States are made primarily through distributors.

The Company maintains a foreign representative office located in Shanghai, China, which is responsible for the coordination of production, purchases and shipments, seeking out new vendors and overseeing inspections for social compliance and quality.

The infant, toddler and juvenile consumer products industry is highly competitive. The Company competes with a variety of distributors and manufacturers (both branded and private label), including large infant and juvenile product companies and specialty infant and juvenile product manufacturers, on the basis of quality, design, price, brand name recognition, service and packaging. The Company’s ability to compete depends principally on styling, price, service to the retailer and continued high regard for the Company’s products and trade names.

A summary of certain factors that management considers important in reviewing the Company’s results of operations, financial position, liquidity and capital resources is set forth below, which should be read in conjunction with the accompanying consolidated financial statements and related notes included in the preceding sections of this report.

RESULTS OF OPERATIONS

The following table contains results of operations for the three and six-monththree-month periods ended December 27,July 3, 2016 and June 28, 2015 and December 28, 2014 and the dollar and percentage changes for those periods (in thousands, except percentages):

Net Sales:Sales decreased by $3.1$2.3 million, or 12.9%12.6%, for the three-month period ended December 27, 2015 and $623,000, or 1.0%, for the nine-month period ended December 27, 2015July 3, 2016 compared with the same periodsperiod in the prior year. The sales decrease for the three-month periodin sales is primarily due to a generally sluggish retail environment, as well as lower replenishment related to soft retail sales and retail customers shifting their inventory purchases toward seasonal goods. Additionally, the prior year included initial shipments of products gained whendelay by a competitor exited the business, which were not repeatedmajor retailer in the currentrollout of a new modular set to later in the year. DuringAdditionally, sales to a major retail were lower because the nine-month period, sales increased due to replenishment orders forcustomer remained overstocked from a large order that shipped in the new collections gained during the second and thirdfourth quarter of the prior year; however, these increases were offset by the current quarter decreases previously mentioned.year.