Kid Brands, Inc. (NYSE: KID) today reported financial results for
the three months ended March 31, 2013 ("Q1 2013").
Summary Results
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Three Months Ended
March 31,
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(in millions, except per share data) 2013 2012 % Change
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Net sales $51.4 $55.2 (6.9)%
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Net (loss) ($1.0) ($0.8) --
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Net (loss) per diluted share ($0.04) ($0.04) --
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Adjusted net income* $0.4 $0.3 3.2%
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Adjusted net income per diluted share* $0.02 $0.02 0.0%
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* "Adjusted net income" and "Adjusted net income per diluted
share" for each of Q1 2013 and the three month period ended March
31, 2012 ("Q1 2012") are non-GAAP financial measures, which are
described in detail under the heading "Non-GAAP Information" below
and are reconciled to GAAP measures in the table at the end of this
release.
Raphael Benaroya, President and CEO, commented, "The
transformation and improvement of our business is continuing. We
are beginning to see the results of our efforts to improve margins
through our focus on reducing product costs and on managing
inventory better. Our SG&A expense decrease also reflects our
initiatives to right-size the business, as well as our heightened
attention to almost every cost item throughout the business. Sales
came in below last year, largely as we expected, in part because
last year's first quarter included products and brands that are now
discontinued, as well as the closure of our former UK
operations."
Mr. Benaroya continued, "Going forward, we will continue to
target a number of key objectives. First, we will seek to increase
sales through product line expansion and product innovation.
Second, we will seek to extend our sales reach to underdeveloped
customers and channels of distribution. Third, we will continue to
work to improve margins through further product and shipping cost
reductions. Fourth, we are implementing operational initiatives
designed to build solid, scalable and cost effective platforms
throughout the business. Fifth, we remain focused on further
developing our skills and talent resources. In addition, looking to
the remainder of 2013, we have worked with our senior lender to
revise the financial covenants in our credit agreement to provide
greater flexibility over the months ahead."
Mr. Benaroya concluded, "We remain optimistic that our efforts
to enhance our design capabilities and penetrate under-developed
customers and channels will gain traction, and believe that the
benefits from our current sales and operational initiatives will
become more apparent in the latter part of the year."
First Quarter 2013 Results
Net sales for Q1 2013 decreased 6.9% to $51.4 million, compared
to $55.2 million for Q1 2012. This decrease was primarily the
result of sales declines of 16.5% at Kids Line and 11.6% at LaJobi,
in each case primarily due to lower sales volume at certain large
customers, as well as lower international sales ($0.7 million),
resulting mainly from the closure of the Company's UK operations at
the end of 2012. These declines were partially offset by an
increase in sales of 29.2% at Sassy, primarily due to continued
success at two large customers. CoCaLo sales were relatively flat
for Q1 2013 as compared to Q1 2012.
Gross profit for Q1 2013 was $14.4 million, or 28.0% of net
sales, as compared to $15.2 million, or 27.5% of net sales, for Q1
2012.(1) As a percentage of net sales, gross profit margins
increased primarily as a result of: (i) lower product costs ($0.4
million); (ii) lower markdowns and allowances ($0.1 million); (iii)
lower inventory reserves ($0.1 million); and (iv) lower other cost
of sales ($0.1 million). In absolute terms, gross profit decreased
as a result of lower sales ($1.2 million) and higher royalty
expense ($0.3 million), partially offset by the factors listed
above that positively impacted gross margins.
Selling, general and administrative (SG&A) expense was $13.8
million, or 26.9% of net sales, for Q1 2013, as compared to $15.9
million, or 28.7% of net sales, for Q1 2012.(1) SG&A expense
decreased both as a percentage of sales and in absolute terms
primarily as a result of: (i) decreased severance costs ($0.5
million); (ii) lower warehousing costs ($0.4 million); (iii)
decreased product development costs ($0.4 million); (iv) decreased
professional fees incurred in connection with previously-disclosed
U.S. Customs matters, as well as related litigation and other costs
("Customs Compliance Costs") ($0.2 million); (v) lower freight out,
marketing costs, temporary help and travel costs of $0.2 million
each (totaling $0.8 million); and (vi) the impact of other expense
reduction initiatives that resulted in an aggregate additional
savings of $0.3 million. These decreases were offset by increases
in (a) other legal fees of $0.2 million; (b) stock-based
compensation expense ($0.2 million) as a result of an inducement
award granted in connection with the appointment of our President
and Chief Executive Officer; and (c) recruiting/restructuring costs
($0.1 million).
Other expense was $1.5 million for Q1 2013 as compared to $0.6
million for Q1 2012, primarily as a result of an increase in
interest expense ($0.5 million) due to higher borrowing costs in
such period compared to the same period in 2012, and an unfavorable
variance in foreign currency exchange of ($0.4 million) as compared
to the prior year period.
The income tax provision for Q1 2013 was $37,000 on loss before
income tax provision of $0.9 million. The income tax benefit for Q1
2012 was $0.5 million on loss before income tax benefit of $1.3
million.
Net loss for Q1 2013 was $1.0 million, or ($0.04) per diluted
share, as compared to a net loss of $0.8 million, or ($0.04) per
diluted share, for Q1 2012.
Non-GAAP adjusted net income for Q1 2013 was $0.4 million, or
$0.02 per diluted share, as compared to non-GAAP adjusted net
income of $0.3 million, or $0.02 per diluted share, for Q1
2012.
Non-GAAP adjusted net income and adjusted net income per diluted
share for Q1 2013 reflect adjustments to net loss, as reported, to
exclude the effect of the following items and to apply an assumed
tax rate of 39% to the resulting adjusted pre-tax income: (i) the
$37,000 income tax provision; (ii) Customs Compliance Costs of $1.0
million; (iii) $0.2 million of non-cash stock-based compensation
expense pertaining to an immediately-vested inducement award of
200,000 stock options granted to our President and Chief Executive
Officer in connection with his appointment; (iv) $0.1 million of
recruiting/restructuring costs; (v) $0.1 million of severance
costs; and (vi) $0.1 million of additional accrued interest on
anticipated aggregate Customs duties ("Customs Interest")
(collectively, the "Q1 2013 Adjustments").
Non-GAAP adjusted net income and adjusted net income per diluted
share for Q1 2012 reflect adjustments to net loss, as reported, to
exclude the effect of the following items and to apply an assumed
tax rate of 39% to the resulting adjusted pre-tax income: (i) the
$0.5 million income tax benefit; (ii) Customs Compliance Costs of
$1.2 million; (iii) $0.6 million of severance costs; and (iv) $0.1
million of Customs Interest (collectively, the "Q1 2012
Adjustments").
Bank Amendment
As is described in detail in the Form 10-Q for Q1 2013, on May
16, 2013, the Company, specified subsidiaries of the Company, and
the Agent under the Company's current Credit Agreement executed an
amendment thereto (effective April 1, 2013), which, among other
things: (i) institutes quarterly (as opposed to the current
monthly) testing of the Adjusted EBITDA covenant unless and until
specified trigger events occur (pertaining to the Company's
availability levels for specified periods, and its ratio of
operating expenses to gross profit); (ii) modifies the minimum
Adjusted EBITDA required pursuant to such covenant for all periods
other than the trailing twelve-month period ending December 31,
2013; and (iii) amends the definition of Adjusted EBITDA to
increase the amount of certain permissible add-backs to net income
in the calculation thereof.
Conference Call Information
The conference call, which will be held at 2:00 p.m. ET today,
May 21, 2013, may be accessed by dialing 888-206-4913, or
913-312-0698, access code: 8951035. Additionally, a webcast of the
call can be accessed at www.kidbrands.com, www.earnings.com, or
http://www.media-server.com/m/p/khswz9xr, and will be archived
online shortly after the conference call for 90 days. A replay of
the call will be available through May 28, 2013, by dialing
877-870-5176, or 858-384-5517, access code: 8951035.
Non-GAAP Information
In this release, certain financial measures for Q1 2013 and Q1
2012 are presented both in accordance with United States generally
accepted accounting principles ("GAAP") and also on a non-GAAP
basis. In particular, "Adjusted net income" and "Adjusted net
income per diluted share" for each of the foregoing periods are
non-GAAP financial measures.
Adjusted net income is defined as the reported net (loss),
plus/minus certain items (including reversal of the relevant income
tax provision or benefit), and the application of an assumed tax
rate of 39% on the resulting adjusted pre-tax income. Adjusted net income and adjusted net income per
diluted share for: (i) Q1 2013 exclude the Q1 2013 Adjustments; and
(ii) Q1 2012 exclude the Q1 2012 Adjustments.
In addition, adjusted net income per diluted share for each of
Q1 2013 and Q1 2012 include adjustments to reflect the
weighted-average dilutive effect of certain shares underlying
in-the-money stock options and stock appreciation rights (such
shares were excluded from the weighted-average diluted share
calculation used to determine net loss per diluted share, as
reported for such periods, because the Company was in a net loss
position for such periods, and the inclusion of such shares would
have been anti-dilutive). In the computation of adjusted net income
per diluted share for each of the foregoing periods, however, such
shares were included.
These non-GAAP measures are not based on any comprehensive set
of accounting rules or principles. The Company believes that
non-GAAP measures have limitations in that they do not reflect all
of the amounts associated with our results of operations as
determined in accordance with GAAP. However, the Company believes
that the non-GAAP measures presented in this release are useful to
investors, as they enable the Company and its investors to evaluate
and compare the Company's results from operations and cash
resources generated from the Company's business in a more
meaningful and consistent manner (by excluding specific items which
are not reflective of ongoing operating results) and provide an
analysis of operating results using the same measures used by the
Company's chief operating decision makers to measure performance.
These non-GAAP financial measures result largely from management's
determination that the facts and circumstances surrounding the
excluded charges are not indicative of the ordinary course of the
ongoing operation of the Company's business. Consistent with this
approach, for Q1 2013, management has also excluded the impact of
non-cash stock-based compensation expense pertaining to the an
inducement award of 200,000 stock options granted to our President
and Chief Executive Officer in connection with his appointment,
which unlike typical inducement and other equity awards made by the
Company, vested in full upon grant. Management believes that
excluding the impact of the expense pertaining to this particular
grant will help it (and its investors) to compare current period
operating expenses against the operating expenses for prior
periods. As a result, the non-GAAP financial measures presented in
this release may not be comparable to similarly titled measures
reported by other companies, and are included only as supplementary
measures of financial performance. This data is furnished to
provide additional information and should not be considered in
isolation as a substitute for measures of performance prepared in
accordance with GAAP. Reconciliations of these non-GAAP financial
measures to the most directly comparable financial measures
calculated and presented in accordance with GAAP are included in
the tables attached to this press release.
Kid Brands, Inc.
Kid Brands, Inc. and its subsidiaries are leaders in the design,
development and distribution of infant and juvenile branded
products. Its design-led products are primarily distributed through
mass market, baby super stores, specialty, food, drug, independent
and e-commerce retailers worldwide.
The Company's current operating subsidiaries consist of: Kids
Line, LLC; LaJobi, Inc; Sassy, Inc.; and CoCaLo, Inc. Through these
wholly-owned subsidiaries, the Company designs, manufactures
(through third parties) and markets branded infant and juvenile
products in a number of complementary categories including, among
others: infant bedding and related nursery accessories and décor
and nursery appliances (Kids Line® and CoCaLo®); nursery furniture
and related products (LaJobi®); and developmental toys and feeding,
bath and baby care items with features that address the various
stages of an infant's early years, including the recently acquired
Kokopax® line of baby gear products (Sassy®). In addition to the
Company's branded products, the Company also markets certain
categories of products under various licenses, including Carter's®,
Disney®, Graco® and Serta®. Additional information about the
Company is available at www.kidbrands.com.
Note: This press release contains certain forward-looking
statements. Additional written and oral forward-looking statements
may be made by the Company from time to time in Securities and
Exchange Commission (SEC) filings and otherwise. The Private
Securities Litigation Reform Act of 1995 provides a safe-harbor for
forward-looking statements. These forward-looking statements
include statements that are predictive in nature and depend upon or
refer to future events or conditions, and include, but are not
limited to, information regarding the status and progress of our
operating activities, the plans and objectives of our management
and assumptions regarding our future performance, operating
expenses, working capital needs, liquidity and capital
requirements, business trends and competitiveness. Forward-looking
statements include, but are not limited to, words such as
"believe", "plan", "anticipate", "estimate", "project", "may",
"planned", "potential", "should", "will", "would", "could",
"might", "possible", "contemplate", "continue", "expect", "intend",
"seek" or the negative of or other variations on these and other
similar expressions. In addition, any statements concerning future
financial performance, ongoing business strategies or prospects,
and possible future actions, are also forward-looking statements.
The Company cautions readers that results predicted by
forward-looking statements, including, without limitation, those
relating to our future business prospects, revenues, working
capital, liquidity, capital needs, interest costs and income are
subject to certain risks and uncertainties that could cause actual
results to differ materially from those indicated in the
forward-looking statements. Specific risks and uncertainties
include, but are not limited to, those set forth under Part I, Item
1A, Risk Factors, of the Company's most recent Annual Report on
Form 10-K and any subsequent Quarterly Reports on Form 10-Q, each
as filed with the SEC. Forward-looking statements are also based on
economic and market factors and the industry in which we do
business, among other things. These statements are not guarantees
of future performance. Forward-looking statements speak only as of
the date the statements are made. Except as required under the
federal securities laws and rules and regulations of the SEC, the
Company undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information,
future events or otherwise.
(1) As is described in our Quarterly Report on Form 10-Q for Q1
2013, the Company identified a misclassification of specified
warehousing, outbound handling and outbound shipping costs in the
Consolidated Statements of Operations for each of the years ending
December 31, 2011 and 2010 and applicable interim periods
(including interim periods in 2012). As a result, the Company has
revised prior period financial statements for such periods to
correct this misclassification. With respect to Q1 2012, this
misclassification resulted in an understatement of selling, general
and administrative expenses in the amount of $1.4 million, and a
corresponding overstatement of cost of sales, in the Consolidated
Statement of Operations. The financial statements and information
in this press release include the impact of such revisions for Q1
2012. The misstatements had no impact on previously reported (Loss)
from Operations, (Loss) from Operations before Income Tax
(Benefit), Net (Loss), or (Loss) Per Share for such period.
KID BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)
(Unaudited)
Three Months Ended March 31,
----------------------------
2013 2012
------------- -------------
Net sales $ 51,439 $ 55,228
Cost of sales 37,047 40,019
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Gross profit 14,392 15,209
Selling, general and administrative expenses 13,818 15,864
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Operating income (loss) 574 (655)
Other (expense) income:
Interest expense, including amortization (1,259) (780)
Other, net (261) 161
------------- -------------
(1,520) (619)
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Loss from operations before income tax
provision (benefit) (946) (1,274)
Income tax provision (benefit) 37 (471)
------------- -------------
Net loss $ (983) $ (803)
============= =============
Basic (loss) per share: $ (0.04) $ (0.04)
============= =============
Diluted (loss) per share: $ (0.04) $ (0.04)
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Weighted average shares:
Basic 21,850,000 21,815,000
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Diluted 21,850,000 21,815,000
============= =============
KID BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET DATA
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
2013 2012
------------- -------------
Cash and cash equivalents $ 434 $ 318
Restricted cash 1,233 2,654
Accounts receivable, net 41,139 42,079
Inventories, net 32,834 39,953
Other current assets 3,862 3,722
Long-term assets 51,794 52,168
------------- -------------
Total assets $ 131,296 $ 140,894
============= =============
Short-term debt $ 52,131 $ 57,527
Other current liabilities 41,181 45,084
Long-term liabilities 1,489 1,421
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Total liabilities 94,801 104,032
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Shareholders' equity 36,495 36,862
------------- -------------
Total liabilities and shareholders' equity $ 131,296 $ 140,894
============= =============
KID BRANDS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Dollars in Thousands, Except for Share and Per Share Data)
(Unaudited)
Three Months Ended
March 31,
-----------------------
2013 2012
----------- -----------
To arrive at Adjusted net income and Adjusted net
income per diluted share(1):
Net loss, as reported $ (983) $ (803)
Less: tax provision (benefit) 37 (471)
---------- ----------
Loss from operations before income tax (946) (1,274)
Add: Customs Compliance Costs (included in SG&A) 995 1,176
Add: Customs Interest accrual
(portion included in interest expense) 75 78
Add: Severance Costs 114 581
Add: Recruiting/Restructuring costs 136 -
Add: Equity Compensation Expense for immediately
vested equity award to President and CEO 205
Less: Tax impact of above items (using assumed 39%
effective rate) (226) (219)
========== ==========
Adjusted net income $ 353 $ 342
========== ==========
Adjusted net income per diluted share $ 0.02 $ 0.02
---------- ----------
Weighted-average diluted shares outstanding, as
reported 21,850,000 21,815,000
Weighted-average diluted shares outstanding, as
adjusted (1) 21,857,000 21,832,000
(1)For each of Q1 2013 and Q1 2012, the Company was in a net loss position on a reported (GAAP) basis and, accordingly, the weighted-average diluted shares outstanding excluded certain shares underlying in-the-money stock options and stock appreciation rights because inclusion of such shares would have been anti-dilutive. In the computation of "Adjusted net income per diluted share" for each such period, however, such shares were included.
AT THE COMPANY Marc S. Goldfarb Senior Vice President &
General Counsel 201-405-2454 AT FTI CONSULTING Jennifer Milan /
Daniel Haykin General Information 212-850-5600
Kid Brands (CE) (USOTC:KIDBQ)
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