Kid Brands, Inc. (NYSE: KID) today reported financial results for
the three months ended June 30, 2013 ("Q2 2013").
Summary Results
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
(in millions, except % %
per share data) 2013 2012 Change 2013 2012 Change
------- -------- ------ ------- ------- ------
Net sales $ 44.1 $ 55.5 (20.5)% $ 95.5 $ 110.7 (13.7)%
Net (loss) income $ (3.4) $ 0.2 -- $ (4.4) $ (0.6) --
Net (loss) income per
diluted share $ (0.16) $ 0.01 -- $ (0.20) $ (0.03) --
Adjusted net (loss)
income* $ (0.9) $ 0.2 -- $ (0.5) $ 0.5 --
Adjusted net (loss)
income per diluted
share* $ (0.04) $ 0.01 -- $ (0.02) $ 0.02 --
* "Adjusted net (loss) income" and "Adjusted net (loss) income
per diluted share" for each of Q2 2013, the six month period ended
June 30, 2013 (the "2013 YTD Period"), the three month period ended
June 30, 2012 ("Q2 2012") and the six month period ended June 30,
2012 (the "2012 YTD Period") are each non-GAAP financial measures,
which are described under the heading "Non-GAAP Information" below
and are reconciled to GAAP measures in the reconciliation table at
the end of this press release.
Raphael Benaroya, President and CEO, commented, "We expected
sales for this period would be below last year due, in part, to
last year's sales of inventory closeouts, discontinued product
lines and brands and the closure of our U.K. operation, which
accounted for approximately $3.5 million of the total decline in
our net sales versus last year for the second quarter and $5.0
million of the total decline in our net sales for the first half.
In addition, there were further sales declines in our Kids Line and
CoCaLo businesses (which we refer to collectively as the "Soft Home
business") and at LaJobi, each of which still rely on a small
number of large customers. These customers have cited a muted
overall sales environment in the quarter, which may have negatively
impacted our orders. Sassy, on the other hand, proliferated in both
product expansion and customer reach in the second quarter, and
experienced double digit growth in sales compared to the same
period last year, demonstrating that our planned strategy is taking
hold."
Mr. Benaroya continued, "The second quarter results are not
indicative of our near or long-term view of the business, or of the
energy and commitment of our teams as we work toward our key
objectives. First, we continue to focus on initiatives designed to
increase sales, including product line expansion and product
innovation, in an effort to replicate the successes we have seen in
certain areas of our business across other brands. Second, we are
working to extend our sales reach to underdeveloped customers and
channels of distribution to diversify the customer base and,
towards this end, reorganized our sales teams for the Soft Home
business and LaJobi in May of this year. This included new sales
executives and a new representative organization. We anticipate
that this will benefit the business over the balance of the year.
Third, we have maintained our efforts to identify and implement
further product and shipping cost reductions to improve margins.
Although product costs at LaJobi increased, certain product costs
at Sassy and our Soft Home business have been driven down. We also
continue to control inventory, ending the second quarter with $8.2
million less inventory than at the end of the same period last
year. Fourth, we are implementing operational initiatives designed
to build solid, scalable and cost-effective platforms throughout
the business. To that end, we have and will continue to expand our
collective capabilities of skills and talent. Last month, new top
executive hires in product design and management joined the Soft
Home business and LaJobi."
Mr. Benaroya concluded, "There are bright spots in every
business unit that support my positive view of the future. New
products, growth channels, better product costs, opportunities to
lower expenses and operational efficiencies are all areas that we
view as promising. We believe the value of these initiatives will
become apparent in future periods."
Note: As is described in our Annual Report on Form 10-K for the
year ended December 31, 2012, as amended, and in our Quarterly
Report on Form 10-Q for Q2 2013 (the "Q2 2013 10-Q"), the Company
identified a misclassification of specified warehousing, outbound
handling and outbound shipping costs in the Consolidated Statements
of Operations for certain prior annual and interim periods. As a
result, the Company has revised prior period financial statements
for such periods to correct this misclassification. With respect to
Q2 2012 and the 2012 YTD Period, this misclassification resulted in
an understatement of selling, general and administrative expenses
in the amount of $1.2 million and $2.6 million, respectively, and a
corresponding overstatement of cost of sales, in the Unaudited
Consolidated Statement of Operations for such periods. The
financial statements and information in this press release include
the impact of such revisions for Q2 2012 and the 2012 YTD Period.
The misstatements had no impact on previously reported Income from
Operations, (Loss) from Operations before Income Tax (Benefit), Net
Income/(Loss), or Income/(Loss) Per Share for each respective
period.
Quantification of the various impacts to the line items
discussed in this press release are described in detail in the Q2
2013 10-Q.
Second Quarter 2013 Results
Net sales for Q2 2013 decreased 20.5% to $44.1 million, compared
to $55.5 million for Q2 2012. This decrease was the result of sales
declines of 33.9% at CoCaLo, 27.2% at Kids Line and 23.8% at
LaJobi. These declines were partially offset by an increase in
sales of 10.6% at Sassy. The sales decreases at CoCaLo, LaJobi and
Kids Line are primarily due to lower sales volume at certain large
customers. The sales decreases at CoCaLo and Kids Line also reflect
higher closeout sales in Q2 2012, discontinuance of underperforming
products and licenses and lower international sales at the
Company's foreign subsidiaries resulting, in part, from the closure
of the Company's UK operations at the end of 2012.
Gross profit for Q2 2013 was $11.1 million, or 25.1% of net
sales, as compared to $14.4 million, or 25.9% of net sales, for Q2
2012. As a percentage of net sales, gross profit margins decreased
primarily as a result of higher product costs, higher royalty
expense and higher markdowns and allowances, partially offset by
lower inventory reserves. In absolute terms, gross profit decreased
as a result of lower sales and the aforementioned factors that
negatively impacted gross margins.
Selling, general and administrative (SG&A) expense was $14.7
million, or 33.3% of net sales, for Q2 2013, as compared to $13.5
million, or 24.3% of net sales, for Q2 2012. SG&A expense
increased both as a percentage of sales and in absolute terms
primarily as a result of increased legal fees, a settlement
payment, settlement proposal accruals, increased sales samples,
increased banking and other professional fees, and other expense
increases detailed in the Q2 2013 10-Q. These increases were
offset, in part, by decreased personnel costs related to reductions
in headcount, decreased third-party logistics costs, a decrease in
marketing costs, and other reduced costs detailed in the Q2 2013
10-Q.
Other income was $0.2 million for Q2 2013 as compared to other
expense of $1.6 million for Q2 2012. This improvement of
approximately $1.8 million was primarily due to the previously
reported gain on the sale of specified intellectual property
consisting of the "Russ" and "Applause" trademarks and trade names,
a favorable variance in foreign currency exchange of $0.5 million,
primarily reflecting the reclassification of cumulative translation
adjustments upon the liquidation of foreign entities as compared to
the prior year period, and a decrease in interest expense of $0.1
million due to lower borrowing costs in such period compared to Q2
2012.
The income tax provision for Q2 2013 was $40,000 on loss before
income tax provision of $3.4 million. The income tax benefit for Q2
2012 was $1.0 million on loss before income tax benefit of $0.8
million.
Net loss for Q2 2013 was $3.4 million, or ($0.16) per diluted
share, as compared to net income of $0.2 million, or $0.01 per
diluted share, for Q2 2012.
Non-GAAP adjusted net loss for Q2 2013 was $0.9 million, or
($0.04) per diluted share, as compared to non-GAAP adjusted net
income of $0.2 million, or $0.01 per diluted share, for Q2 2012.
These non-GAAP measures are described in "Non-GAAP Information"
below, and are reconciled to the most directly-comparable GAAP
measures in the reconciliation table at the end of this press
release.
2013 YTD Period
Net sales for the 2013 YTD Period decreased 13.7% to $95.5
million compared to $110.7 million for the 2012 YTD Period. This
decrease was primarily the result of sales declines of 21.4% at
Kids Line, 18.0% at LaJobi and 15.3% at CoCaLo. These declines were
partially offset by an increase in sales of 19.3% at Sassy. The
sales decreases at CoCaLo, LaJobi and Kids Line are primarily due
to lower sales volume at certain large customers. The sales
decreases at CoCaLo and Kids Line also reflect higher closeout
sales in the 2012 YTD Period, discontinuance of underperforming
products and licenses, as well as lower international sales at the
Company's foreign subsidiaries resulting, in part, from the closure
of the Company's UK operations at the end of 2012.
Net loss for the 2013 YTD Period was $4.4 million, or ($0.20)
per diluted share, as compared to a net loss of $0.6 million, or
($0.03) per diluted share, for the 2012 YTD Period.
Non-GAAP adjusted net loss for the 2013 YTD Period was $0.5
million, or ($0.02) per diluted share, as compared to non-GAAP
adjusted net income of $0.5 million, or $0.02 per diluted share,
for the 2012 YTD Period. These non-GAAP measures are described in
"Non-GAAP Information" below, and are reconciled to the most
directly-comparable GAAP measures in the reconciliation table at
the end of this press release.
Amended Credit Agreement
On August 13, 2013, the Company and the Agent under its current
credit agreement signed a letter agreement eliminating the
requirement to comply with the specified minimum monthly Adjusted
EBITDA level for the periods ending July 31, 2013 and August 31,
2013 (monthly testing of such covenant resumed after the occurrence
of a specified trigger event related to availability as of July 1,
2013). The letter agreement also addresses certain of the
parameters of an anticipated amendment to such credit agreement,
including, among other things, a 50-basis point increase in the
applicable margin with respect to loans under our Tranche A
Revolver, and a reset of the minimum Adjusted EBITDA levels
required for future monthly testing periods in 2013, based on a
revised business plan as specified therein. The circumstances
requiring the letter agreement, a detailed description of the terms
thereof, and a description of the potential consequences to the
Company should it fail to secure the anticipated amendment on terms
acceptable to it or to maintain compliance with its financial
covenants, are provided in the Q2 2013 10-Q under the caption
"Liquidity and Capital Resources."
Conference Call Information
The conference call, which will be held at 10:00 a.m. ET today,
August 15, 2013, may be accessed by dialing 800-281-7970, or
913-312-0722, access code: 3218969. Additionally, a webcast of the
call can be accessed at www.kidbrandsinc.com, www.earnings.com, or
http://www.media-server.com/m/p/snae9dje, and will be archived
online shortly after the conference call for 90 days. A replay of
the call will be available through August 15, 2013, by dialing
877-870-5176, or 858-384-5517, access code: 3218969.
Non-GAAP Information
In this press release, certain financial measures for Q2 2013,
the 2013 YTD Period, Q2 2012 and the 2012 YTD Period are presented
both in accordance with United States generally accepted accounting
principles ("GAAP") and also on a non-GAAP basis. In particular,
"Adjusted net (loss)/income" and "Adjusted net (loss)/income per
diluted share" for each of the foregoing periods are non-GAAP
financial measures.
Adjusted net (loss)/income is defined as the reported net
(loss)/income, 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
(loss)/income. The specific adjustments to reported net
(loss)/income to derive non-GAAP adjusted net (loss)/income and
non-GAAP adjusted net (loss)/income per diluted share for each of
Q2 2013, the 2013 YTD Period, Q2 2012 and the 2012 YTD Period are
detailed in the reconciliation table at the end of this press
release.
In addition, adjusted net income per diluted share for the 2012
YTD Period includes an adjustment 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 period,
because the Company was in a net loss position for such period, and
the inclusion of such shares would have been anti-dilutive). In the
computation of adjusted net income per diluted share for the 2012
YTD Period, 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 press 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 (and as described in the reconciliation table at the end
of this press release), for the 2013 YTD Period, as one of the
adjustments to reported net loss to determine adjusted non-GAAP net
loss and adjusted non-GAAP net loss per diluted share, management
has excluded the impact of non-cash stock-based compensation
expense pertaining to 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 press 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
reconciliation table 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 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.kidbrandsinc.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.
KID BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Share and Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2013 2012 2013 2012
----------- ----------- ----------- -----------
Net sales $ 44,093 $ 55,470 $ 95,532 $ 110,698
Cost of sales 33,018 41,111 70,065 81,130
----------- ----------- ----------- -----------
Gross profit 11,075 14,359 25,467 29,568
Selling, general and
administrative expenses 14,700 13,486 28,518 29,350
----------- ----------- ----------- -----------
Operating (loss)
income (3,625) 873 (3,051) 218
Other income (expense):
Interest expense,
including
amortization and
write-off of deferred
financing costs (1,378) (1,521) (2,638) (2,301)
Interest and
investment income - 3 - 7
Gain on sale of
intangibles 1,196 - 1,196 -
Other, net 420 (116) 160 41
----------- ----------- ----------- -----------
238 (1,634) (1,282) (2,253)
----------- ----------- ----------- -----------
Loss from operations
before income tax
provision (benefit) (3,387) (761) (4,333) (2,035)
Income tax provision
(benefit) 40 (970) 77 (1,441)
----------- ----------- ----------- -----------
Net (loss) income $ (3,427) $ 209 $ (4,410) $ (594)
=========== =========== =========== ===========
Basic (loss) earnings
per share: $ (0.16) $ 0.01 $ (0.20) $ (0.03)
=========== =========== =========== ===========
Diluted (loss) earnings
per share: $ (0.16) $ 0.01 $ (0.20) $ (0.03)
=========== =========== =========== ===========
Weighted average shares:
Basic 21,871,000 21,827,000 21,861,000 21,821,000
=========== =========== =========== ===========
Diluted 21,871,000 21,838,000 21,861,000 21,821,000
=========== =========== =========== ===========
KID BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET DATA
(Dollars in Thousands)
(Unaudited)
June 30, December 31,
2013 2012
------------ ------------
Cash and cash equivalents $ 287 $ 318
Restricted cash 1,430 2,654
Accounts receivable, net 36,278 42,079
Inventories, net 37,484 39,953
Other current assets 5,209 3,722
Long-term assets 51,480 52,168
------------ ------------
Total assets $ 132,168 $ 140,894
============ ============
Short-term debt $ 50,360 $ 57,527
Other current liabilities 47,750 45,084
Long-term liabilities 1,197 1,421
------------ ------------
Total liabilities 99,307 104,032
------------ ------------
Shareholders' equity 32,861 36,862
------------ ------------
Total liabilities and shareholders' equity $ 132,168 $ 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 Six Months Ended
June 30, June 30,
------------------------ ------------------------
2013 2012 2013 2012
----------- ----------- ----------- -----------
To arrive at Adjusted
net income and Adjusted
net income per diluted
share:
Net (loss) income, as
reported $ (3,427) $ 209 $ (4,410) $ (594)
----------- ----------- ----------- -----------
Less: tax provision
(benefit) 40 (970) 77 (1,441)
----------- ----------- ----------- -----------
(Loss) from operations
before income tax (3,387) (761) (4,333) (2,035)
Add: Customs
Compliance Costs
(included in SG&A)(1) 308 179 1,303 1,355
Add: Customs interest
accrual (included in
interest expense)(2) 76 52 151 130
Add: Q2 2013 Bank
Amendment fees
(included in interest
expense) 145 - 145 -
Add: Write-off of
deferred financing
costs(3) - 781 - 781
Add: Severance Costs
and Restructuring
charges 162 - 412 581
Add: Inducement Equity
Compensation(4) - - 205 -
Add: Australia
Distributor Dispute
(Inventory Reserve
included in cost of
sales)(5) 167 - 167 -
Add: Settlement
Payment and Proposed
Settlement Proposal
Accruals (6) 1,087 - 1,087 -
Less: Tax impact of
above items (using
assumed 39% effective
rate) 562 (98) 337 (317)
=========== =========== =========== ===========
=========== =========== =========== ===========
Adjusted net (loss)
income $ (880) $ 153 $ (526) $ 495
=========== =========== =========== ===========
Adjusted net (loss)
income per diluted
share $ (0.04) $ 0.01 $ (0.02) 0.02
----------- ----------- ----------- -----------
Weighted-average diluted
shares outstanding, as
reported (7) 21,871,000 21,838,000 21,861,000 21,821,000
Weighted-average diluted
shares outstanding, as
adjusted (7) 21,871,000 21,838,000 21,861,000 21,834,000
(1) Represents professional fees incurred in connection with previously-
disclosed U.S. Customs matters, as well as related litigation and other
costs.
(2) Represents accrued interest relating to aggregate anticipated anti-
dumping duty and Customs duty charges.
(3) Represents the amount of the write-off of remaining unamortized deferred
financing costs incurred under a previous credit facility as a result of
the voluntary reduction in the aggregate revolving commitments
thereunder.
(4) Represents non-cash stock-based compensation expense pertaining to an
immediately-vested inducement award of 200,000 stock options granted to
the Company's President and Chief Executive Officer in connection with
his appointment.
(5) Represents inventory reserves taken with respect to obsolete inventory
returned in connection with the settlement of a previously-disclosed
legal dispute with Sassy's Australian distributor (the "Australia
Settlement"), described in the Q2 2013 10-Q.
(6) Represents amounts paid in connection with the Australia Settlement, as
well as amounts accrued in connection with proposed settlements of a
Wages and Hours litigation and a CPSC investigation, all as described in
the Q2 2013 10-Q.
(7) For 2012 YTD period, 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
appreciation rights because the inclusion of such shares would have been
anti-dilutive. In the computation of "Adjusted net income per diluted
share" for the 2012 YTD Period, however, such shares were included.
AT FTI CONSULTING Jennifer Milan Daniel Haykin
212-850-5600
Kid Brands (CE) (USOTC:KIDBQ)
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