Summer Infant, Inc. Reports Third Quarter 2012 Results

Summer Infant, Inc. Reports Third Quarter 2012 Results 
Announces Completion of Loan Amendment 
Begins Credit Facility Discussions With a Number of Commercial Banks 
Expects Improved Fourth-Quarter Bottom-Line Performance Due to
Cost-Savings Initiatives 
WOONSOCKET, RI -- (Marketwire) -- 11/13/12 --  Summer Infant, Inc.
("Summer Infant" or the "Company") (NASDAQ: SUMR), a leading
developer and distributor of juvenile health, safety, and wellness
products, today announced financial results for the third quarter
ended September 30, 2012.  
Management Comments 
Jason Macari, Chairman and Chief Executive Officer of Summer Infant,
commented, "Our net revenue grew slightly year over year, despite the
sluggish economy, weak retail environment and low birth rate trend.
Furniture, nursery and play product sales were strong during the
quarter, while we experienced softer sales of our gear products.
Although our third-quarter bottom-line performance was disappointing,
we are beginning to realize the benefits of the cost-reduction
initiatives we implemented at the end of the second quarter. General
and administrative expenses in the third quarter were lower compared
with the prior-year quarter, and we are taking additional actions to
decrease SG&A costs and improve margins." 
"We recently completed an amendment to our loan agreement with our
banks as a result of loan covenants that were not met at the end of
the third quarter," added Macari. "The amendment reset financial
covenants and added additional interest pricing terms. We are now in
discussions with a number of interested commercial banks to refinance
our revolving credit facility, which matures in December 2013."  
"Looking ahead, we expect improved bottom-line results in the fourth
quarter and into 2013 as we realize savings from our cost-reduction
initiatives, including our efforts to control promotional and
advertising dollars. We continue to believe in the key strategic
drivers of our business, which include innovation, global expansion,
brand building and operational excellence. We made good progress in
each of these areas in the third quarter and expect to build on that
foundation as we grow a more profitable business," concluded Macari. 
Loan Agreement
 The Company announced that it has entered into
 an
amendment to its loan agreement with its banks. The amendment, among
other items, reset financial covenants, established additional margin
spread pricing tiers, and added a paid in kind (PIK) interest rate of
200 basis points, a portion of which is payable under certain
conditions. The amendment also waived any covenant defaults that may
have existed at September 30, 2012.  
Third Quarter 2012 Results 
Net revenues for the three months ended September 30, 2012 increased
1.0% to approximately $64.0 million from approximately $63.3 million
for the three months ended September 30, 2011. The growth was
primarily attributable to increased sales in the furniture, nursery
and play product categories partially offset by lower sales in the
gear product category.  
Gross profit for the third quarter of 2012 decreased by $2.4 million
to $19.6 million from $22.0 million in the third quarter of 2011.
Gross profit as a percentage of net sales decreased to 30.7% for the
three months ended September 30, 2012 from 34.7% in the three months
ended September 30, 2011. The gross profit decline resulted from an
unfavorable product mix, an increase in allowances and markdowns
given to customers, and a one-time charge of $0.5 million related to
the write off of obsolete inventory acquired in the 2011 acquisition
of Born Free Holdings, Ltd. (Born Free). The inventory write off was
primarily the result of product packaging changes initiated under a
new marketing strategy for Born Free products.  
Selling, general and administrative expenses (excluding depreciation
and amortization and stock-based compensation) were $18.0 million in
the third quarter of 2012, compared with $16.6 million in the third
quarter of 2011. The increase in SG&A in the third quarter of 2012
compared with the prior-year period is mainly attributed to higher
selling costs associated with customer cooperative advertising,
higher freight expense, and increased licensing costs. After
excluding a one-time non-cash charge of $0.5 million and selling
expenses, general and administrative expense decreased in the third
quarter of 2012 compared with the prior-year period by approximately
$1.3 million. The reduction in general and administrative expense
resulted from overhead cost-reduction efforts initiated at the end of
the second quarter of 2012, and the $0.5 million non-cash charge
resulted from the final net asset adjustment in connection with the
Born Free acquisition. Interest expense for the three months ended
September 30, 2012 was $0.9 million compared with $0.8 million for
the three months ended September 30, 2011. The increase in the third
quarter 2012 interest expense was primarily due to higher interest
costs and increased borrowing levels to support working capital
needs. 
Non-GAAP adjusted EBITDA was $1.6 million in the third quarter of
2012 compared with $6.3 million in the third quarter of 2011. There
were no permitted add backs in the third quarter of 2012 and $1.0
million in add backs in the year-ago quarter as permitted under the
terms of the Company's credit agreement. If similar add-back charges
of $1.4 million had been permitted in the three months ended
September 30, 2012, adjusted EBITDA would have been $3.0 million for
the three months ended September 30, 2012 compared with $6.3 million
for the three months ended September 30, 2011. The $1.4 million in
adjustments resulted from a ($1.0) million receivable and inventory
write-off related to the Born Free acquisition, a ($0.3) million
royalty and custom duty settlement and ($0.1) million in severance
costs. As used in this release, "adjusted EBITDA," means earnings
before interest, taxes, depreciation and amortization, non-cash
stock-based compensation, and other items that are detailed in the
financial table and accompanying footnotes reconciling GAAP to
non-GAAP results contained in this release. An explanation of these
measures is also included below under the heading "Use of Non-GAAP
Financial Information."  
The Company reported a net loss of $65.4 million, or $3.65 per share,
in the third quarter of 2012, which includes a goodwill and
intangible impairment charge of $70.2 million, compared with net
income of $2.1 million, or $0.11 per diluted share, in the third
quarter of 2011. During the quarter, the Company continued to
experience a decline in its market capitalization and results against
forecast, triggering an interim impairment analysis of goodwill,
intangible and long-lived assets. Based on this triggering event, the
Company conducted a valuation study and concluded that some assets
were impaired and recognized an estimated goodwill write off of $61.9
million in the quarter. A portion of the Company's intangible assets
were also impaired resulting in a write down of $8.3 million. These
charges have no impact on the Company's day-to-day operations or
liquidity and will not result in any future cash expenditures. The
valuation studies are being finalized, but the Company does not
expect a material change to the charges. In addition, the Company
recorded a tax benefit of $6.3 million in the third quarter of 2012
compared with a tax expense of $0.6 million in the third quarter of
2011. The effective tax rate in the quarter ended September 30, 2012
is not co
mparable with the prior year period due to the goodwill and
intangible asset impairment charge. The effective tax rate in the
prior year quarter ended September 30, 2011 was approximately 22%.
The Company expects its effective tax rate for the year ended
December 31, 2012 to be approximately 8% compared with the prior-year
effective tax rate of approximately 24%.  
Year-to-Date Results 
For the nine months ended September 30, 2012, the Company generated
approximately $188.7 million in net revenues compared with
approximately $182.8 million in net revenues for the nine months
ended September 30, 2011.  
Gross profit decreased 0.6% to approximately $61.5 million for the
nine months ended September 30, 2012 from approximately $61.9 million
for the nine months ended September 30, 2011. Gross profit as a
percentage of net sales decreased to 32.6% for the nine months ended
September 30, 2012 from 33.9% in the nine months ended September 30,
2011, as an increase in customer markdown allowances, a less
favorable product mix, and negative margin performance associated
with a SKU rationalization effort offset margin improvement
associated with the increase in sales volume.  
Selling, general and administrative expenses (excluding depreciation
and amortization and stock-based compensation) increased
approximately 7.6% to $52.7 million for the nine months ended
September 30, 2012 from $49.0 million for the nine months ended
September 30, 2011. This increase was primarily attributable to
higher variable selling expenses due to increases in sales,
promotional costs related to customer cooperative advertising,
placement of consumer ads, freight expense and licensing costs.
Excluding selling expenses and the one-time charge related to the
Born Free net asset adjustment, general and administrative expense
was slightly lower in the nine months ended September 30, 2012
compared with the same period in the prior year as the Company began
to benefit from overhead cost reductions initiated at the end of the
second quarter of 2012. Interest expense for the nine months ended
September 30, 2012 was $2.6 million compared with $2.1 million for
the nine months ended September 30, 2011. The increase in interest
expense for the nine months ended September 30, 2012 was due to
higher interest costs and increased borrowing levels to support
working capital needs. 
Non-GAAP adjusted EBITDA was $8.8 million for the nine-month period
ended September 30, 2012, compared with $16.2 million for the
nine-month period ended September 30, 2011. Adjusted EBITDA for the
nine months ended September 30, 2012 does not include permitted
add-back charges compared with $3.2 million in permitted add-backs
for the same period in the prior year. If similar add-back charges of
$1.4 million had been permitted in the nine months ended September
30, 2012, adjusted EBITDA would have been $10.2 million for the nine
months ended September 30, 2012 compared with $16.2 million for the
nine months ended September 30, 2011. The $1.4 million in adjustments
resulted from a ($1.0) million receivable and inventory write-off
related to the Born Free acquisition, a ($0.3) million royalty and
custom duty settlement and ($0.1) million in severance costs.  
Net loss for the nine months ended September 30, 2012 was $64.5
million, or $3.61 per share, compared with net income of $4.2
million, or $0.23 per diluted share, for the nine months ended
September 30, 2011. The nine months ended September 30, 2012 included
a goodwill and intangible impairment charge of $70.2 million as
described above. The Company recorded a tax benefit of $5.9 million
for the nine months ended September 30, 2012 compared with a tax
expense of $1.2 million in the comparable nine-month period in 2011. 
Balance Sheet 
As of September 30, 2012, the Company had approximately $11.9 million
of cash and $76.5 million of bank debt for a net bank debt balance of
$64.6 million, compared with a net bank debt balance of $60.8 million
as of December 31, 2011. The increase in bank debt reflects
borrowings for working capital purposes.  
Conference Call Information 
Summer Infant, Inc. will host a conference call today, Tuesday,
November 13, 2012 at 4:30 p.m. Eastern Time, to discuss financial
results for its third quarter ended September 30, 2012. This call is
being webcast and can be accessed by visiting the "Investor
Relations" section of the Company's website at www.summerinfant.com.
Investors may also listen to the call via telephone by dialing (877)
407-5790 or (201) 689-8328. For those unable to listen to the live
call, an archive of the webcast will be available on the Company's
website for approximately one year. 
About Summer Infant, Inc. 
Based in Woonsocket, Rhode Island, the Company is a designer,
marketer and distributor of branded durable juvenile health, safety
and wellness products (for ages 0-3 years), which are sold
principally to large U.S. retailers. The Company currently sells
proprietary products in a number of different categories, including
nursery audio/video monitors, safety gates, durable bath products,
bed rails, nursery products, booster and potty seats, swaddling
blankets, bouncers, travel accessories, highchairs, swings, nursery
furniture, infant feeding products, and car seats. For more
information about the Company, please visit www.summerinfant.com.  
Use of Non-GAAP Financial Information  
This release includes presentations of Adjusted EBITDA, which for
purposes of this release means income before interest and taxes plus
depreciation, amortization, non-cash stock-based compensation
expenses and other items added back as detailed in the reconciliation
table included in this release. The Company believes that the
presentation of Adjusted EBITDA provides useful information to
investors as it indicates more clearly the ability of the Company's
assets to generate cash sufficient to pay interest on its
indebtedness, meet capital expenditure and working capital
requirements, comply with the financial covenants of its loan
agreement and otherwise meet its obligations as they become due.
Adjusted EBITDA is commonly used as a measure of leverage capacity,
debt service ability and liquidity. Adjusted EBITDA is not considered
a measure of financial performance under U.S. generally accepted
accounting principles (GAAP), and the items excluded from Adjusted
EBITDA are significant components in understanding and assessing the
Company's financial performance. Adjusted EBITDA should not be
considered in isolation or as an alternative to such GAAP measures as
net income, cash flows provided by or used in operating, investing or
financing activities or other financial statement data presented in
the Company's consolidated financial statements as an indicator of
financial performance or liquidity. The Company provides
reconciliations of Adjusted EBITDA and any other non-GAAP financial
measures in its press releases of historical performance. Because
Adjusted EBITDA is not a measure determined in accordance with GAAP
and is susceptible to varying calculations, Adjusted EBITDA, as
presented, may not be comparable to other similarly titled measures
of other companies.  
Forward-Looking Statements 
Certain statements in this release that are not historical fact may
be deemed "forward-looking statements" within the meaning of Section
27A of the Secu
rities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, and the Company intends that such
forward-looking statements be subject to the safe harbor created
thereby. These statements are accompanied by words such as
"anticipate," "expect," "project," "will," "believes," "estimate" and
similar expressions. These include statements regarding the Company's
outlook for the remainder of 2012 and future profitability, expected
market demand for its products, its ability to successfully refinance
its existing credit facility, expected cost pressures, and expected
results from cost savings initiatives. The Company cautions that
these statements are qualified by important factors that could cause
actual results to differ materially from those reflected by such
forward-looking statements. Such factors include the concentration of
the Company's business with retail customers; the ability of the
Company to compete in its industry; the Company's ability to continue
to control costs and expenses; the Company's dependence on key
personnel; the Company's reliance on foreign suppliers; the Company's
ability to develop and market new products; the Company's ability to
meet required financial covenants under its loan agreement; the
Company's ability to integrate strategic acquisitions; and other
risks as detailed in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2011, and subsequent filings with the
Securities and Exchange Commission. The Company assumes no obligation
to update the information contained in this presentation. 


 
                                                                            
                            Summer Infant, Inc.                             
             Consolidated Statements of Operations (unaudited)              
   (amounts in thousands of US dollars, except share and per share data)    
                                                                            
                                                                            
                            Three Months Ended         Nine Months Ended    
                               September 30,             September 30,      
                             2012         2011         2012         2011    
                         -----------  -----------  -----------  ----------- 
                                                                            
Net revenues                                                                
                         $    63,984  $    63,342  $   188,714  $   182,803 
Cost of goods sold            44,359       41,347      127,198      120,895 
                         -----------  -----------  -----------  ----------- 
  Gross profit                19,625       21,995       61,516       61,908 
Selling, general, and                                                       
 administrative expenses      18,178       16,976       53,447       49,794 
Impairment of goodwill                                                      
 and intangibles              70,198            -       70,198            - 
Depreciation and                                                            
 amortization                  2,050        1,562        5,728        4,646 
                         -----------  -----------  -----------  ----------- 
Income (loss) before                                                        
 interest                    (70,801)       3,457      (67,857)       7,468 
Interest expense                (938)        (774)      (2,557)      (2,096)
                         -----------  -----------  -----------  ----------- 
                                                                            
  Income (loss) before                                                      
   taxes                 $   (71,739) $     2,683  $   (70,414) $     5,372 
Provision (benefit) for                                                     
 income taxes                 (6,310)         604       (5,883)       1,209 
                         -----------  -----------  -----------  ----------- 
  Net income (loss)      $   (65,429) $     2,079  $   (64,531) $     4,163 
                                                                            
Net income (loss) per                                                       
 diluted share           $     (3.65) $      0.11  $     (3.61) $      0.23 
                                                                            
Shares used in fully                                                        
 diluted EPS              17,926,885   18,366,097   17,870,502   17,832,691 
                                                                            
Reconciliation of Non-                                                      
 GAAP EBITDA                                                                
                                                                            
Net income (loss)        $   (65,429) $     2,079  $   (64,531) $     4,163 
Plus: interest expense           938          774        2,557        2,096 
Plus: provision                                                             
 (benefit) for income                                                       
 taxes                        (6,310)         604       (5,883)       1,209 
Plus: depreciation and                                                      
 amortization                  2,050        1,562        5,728        4,646 
Plus: non-cash stock                                                        
 based compensation                                                         
 expense                         147          335          766          837 
Plus: goodwill and                                                          
 intangible impairment        70,198            -       70,198            - 
Plus: 2011 permitted                                                        
 add-backs (1)                     -          978            -        3,212 
                         -----------  -----------  -----------  ----------- 
  Adjusted EBITDA        $     1,594  $     6,332  $     8,835  $    16,163 
                         ===========  ===========  ===========  =========== 
                                                                            
    (1)Permitted add-backs consist of items that the Company was permitted  
    to add-back to the calculation of consolidated EBITDA under its credit  
    agreement as in effect at September 30, 2011. Permitted add-backs for   
    the three months ended September 30, 2011 consisted of warehouse        
    relocation costs ($482), hurricane related damage ($285), and product   
    relabeling related to a lawsuit ($211); permitted add-backs for the nine
    months ended September 30, 2011 were acquisition costs ($1,385), customs
    duties ($500), legal fees and inventory write-downs ($349), warehouse   
    relocation ($482), hurricane related damage ($285), and product         
    relabeling related to a lawsuit ($211). No similar add-backs were       
    permitted under the credit agreement during the three and nine months   
    ended September 30, 2012.                                               
                                                                            
                                                                            
                                                                            
                             Summer Infant, Inc.                            
                         Consolidated Balance Sheet                         
                    (amounts in thousands of US dollars)                    
                                                                            
                                                                            
                                                 September 30,  December 31,
                                                      2012          2011    
                          
                        (unaudited)               
Cash and cash equivalents                        $      11,899 $       1,215
Trade receivables, net                                  53,033        47,670
Inventory, net                                          48,629        50,014
Property and equipment, net                             16,599        17,682
Goodwill and other intangibles, net                     20,929        91,953
Other assets                                             3,689         4,381
                                                 ------------- -------------
      Total assets                               $     154,778 $     212,915
                                                 ============= =============
                                                                            
Current portion of long-term debt                $         584 $         736
Accounts payable, accrued expenses and other                                
 liabilities                                            46,314        55,798
Long term debt, less current portion                    76,838        62,479
                                                 ------------- -------------
      Total liabilities                                123,736       119,013
                                                                            
                                                                            
Total stockholders' equity                              31,042        93,902
                                                 ------------- -------------
  Total liabilities and stockholders' equity     $     154,778 $     212,915
                                                 ============= =============

  
Contact: 
Paul Francese 
Chief Financial Officer
Summer Infant, Inc.
(401) 671-6572 
David Calusdian 
Sharon Merrill Associates, Inc.
(617) 542-5300
SUMR@investorrelations.com 
 
 
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