Summer Infant, Inc. Reports Fourth Quarter and Year End 2012 Results

Summer Infant, Inc. Reports Fourth Quarter and Year End 2012 Results 
Company Grows Revenues by 6% for Fourth Quarter and 4% for Full Year
2012 
Q4 International Sales Increase 19% Driven by Growth in Canada and
the UK 
Company Outlines Strategic Initiatives to Improve Profitability and
Enhance Shareholder Value 
WOONSOCKET, RI -- (Marketwire) -- 03/12/13 --  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 fourth quarter
and year ended December 31, 2012.  
Management Comments 
"We achieved a 6% increase in revenues in the fourth quarter,
demonstrating our ability to drive sales growth amid challenging
economic conditions," said Jason Macari, President and Chief
Executive Officer. "Higher sales in our furniture, safety, play, and
monitor product categories contributed to the year-over-year growth.
In addition, we were successful in our efforts to broaden Summer
Infant's customer base during the quarter as we increased
international sales by 19%, driven by growth in Canada and the UK."  
"While our fourth-quarter sales growth was encouraging, we
experienced lower gross margins due to higher than normal close out
sales, increases in freight costs due to port issues in California
and a higher mix of lower-margin products," said Macari. "While we
continue to invest in effective marketing and advertising to promote
our products, fourth quarter selling expenses were higher as a result
of an increased level of cooperative advertising and royalty expense.
During the third and fourth quarter, we took action to reduce program
costs and other selling expenses. We have an ongoing effort to
analyze the effectiveness of these programs and their contribution to
our bottom line. With a more strategic approach to customer
partnering, we expect to realize meaningful reductions in selling
expenses beginning in the first quarter of 2013."  
"We believe 2013 will represent an inflection point in our efforts to
improve margins and return to improved levels of profitability," said
Macari. "Although sales may be reduced in 2013 over 2012 due to a
product line analysis and rationalization program currently underway,
we expe
ct our plan to result in improved operational focus and
profitability. In addition, the successful refinancing of our debt on
February 28, 2013 will result in lower borrowing costs that will have
a positive effect on our bottom line."  
Comments on Strategic Initiatives to Drive Profit Improvement  
"Accelerating our path to profitable growth and increasing
shareholder value is our focus," said Macari. "We are implementing a
number of near-term actions to quickly improve our operating model."  
Focus on Core Brands/Reduce Licensing Expenses
 "The first element of
our strategy is to focus our resources on building Summer Infant's
core brands, including Summer(R) and Born Free(R), which will be
headed up by our newly appointed Chief Marketing Officer, Elizabeth
Jackson," said Macari. "We will be moving out of licensing agreements
and brands that do not contribute to our profitability. Our license
agreements with Disney and Carter's both will be concluded by the end
of 2013, reducing royalty expenses. We estimated licensed brands
would have accounted for approximately 15% of 2013 revenues. We
expect that 60% of formerly licensed programs could be converted to
Summer or Born Free branded programs by the end of 2013. By
simplifying our business model and eliminating royalty expenses, we
expect these additional Summer and Born Free branded products will
provide improved profitability." 
Improve Profitability of Low Margin Products 
 "As a result of our
product line analysis and rationalization program, we are working to
either improve the profitability of our low margin products or
eliminate these items from our offerings," said Macari. "For example,
our strategy to improve the profitability of our furniture product
line is to reduce the amount of capital needed for these items by
converting to direct import programs, reducing overhead and
eliminating licensing fees."  
Reduce Corporate and Product Costs
 "We are making progress in
lowering selling, general and administrative expenses and we are
taking further aggressive actions to reduce overhead," said Macari.
"These actions include warehouse consolidations, workforce
reductions, a decrease in CEO and board compensation, and a temporary
moratorium on merit pay increases. Taken in total, we expect that
these actions will result in a G&A reduction of 10% year over year
for 2013. We also are focused on reducing product input costs through
reengineering and SKU rationalization, which we expect will result in
annualized savings of $2 million, with $1 million in savings expected
this year."  
Diversify Customer Base
 "Looking at the top line, we are
diversifying our customer base through geographic expansion as well
as growing the number of our small- and mid-sized customers," said
Macari. "International sales grew 19% year over year in the fourth
quarter and represented 15% of revenues in 2012, up from 13% in 2011.
We are on track to grow international sales to 20% of revenues by
2015 through leveraging current retail relationships and distributors
in Canada, the UK, Australia, and other attractive markets. We also
have been successful in growing the number of small- to mid-sized
customers in the U.S. In 2012, we reported 19% year-over-year revenue
growth to approximately $10 million in sales to our small- and
mid-sized customers, a sales channel offering additional growth and
profitability. We expect to increase revenues from these customers by
approximately 20% in 2013." 
Launch Innovative Products
 "Developing innovative products that
delight consumers will always be at the core of what we do at Summer
Infant," said Macari. "Success in juvenile products is defined by
innovation, quality, and service. Since the Company's inception, we
have fueled our growth through our ability to innovate. In the past
year we have solidified our development team and we expect exciting
new products from their efforts in the second half of 2013 and into
2014."  
"Taken together, we believe these strategic initiatives will enable
us to effectively grow the business and improve profitability in a
challenging market. These actions are expected to begin to contribute
to improvements in our bottom-line during the first quarter of 2013.
We are carefully tracking our financial metrics against plan and will
continue to drive improvement throughout the year and beyond,"
concluded Macari.  
Fourth Quarter 2012 Results 
Net revenues for the three months ended December 31, 2012 increased
6% to $58.5 million from $55.4 million for the three months ended
December 31, 2011. The increase in revenue was primarily driven by
higher sales of furniture, safety, play and monitors products.  
Gross profit for the fourth quarter of 2012 decreased to $18.3
million from $19.5 million in the fourth quarter of 2011. Gross
profit as a percentage of net sales decreased to 31.2% for the three
months ended December 31, 2012 from 35.2% in the three months ended
December 31, 2011. The decline in gross margin was the result of
increased retail program costs, increased freight costs, a higher mix
of lower margin products, and the rationalization of certain product
offerings and SKUs that have been removed as active items.  
Selling expenses were $7.3 million in the fourth quarter 
of 2012,
compared with $5.8 million in the fourth quarter of 2011. The
increase is primarily attributable to higher selling costs associated
with customer cooperative advertising, other customer promotional
expenses, and increased licensing costs. General & administrative
("G&A") expenses decreased from $11.6 million in the fourth quarter
of 2011 to $10.0 million in the fourth quarter of 2012. The fourth
quarter 2011 G&A expense included $1.5 million for a product lawsuit
settlement and fourth quarter 2012 G&A included $0.6 million
associated with the compliance to the loan amendment in November 2012
and costs associated with loan refinancing. 
Interest expense for the three months ended December 31, 2012 was
$1.6 million compared with $0.7 million for the three months ended
December 31, 2011. The increase in the fourth quarter 2012 interest
expense was due to higher borrowing levels to support working capital
as well as increased interest expense resulting from the November 14,
2012 loan amendment, which was retroactive to October 1, 2012. 
Non-GAAP adjusted EBITDA for the fourth quarter of 2012 was $1.7
million compared with $4.3 million in non-GAAP adjusted EBITDA in the
fourth quarter of 2011. Adjusted EBITDA for the fourth quarter of
2012 includes $0.6 million in permitted add back charges compared
with $1.9 million in permitted add back charges in the fourth quarter
of 2011. Adjusted EBITDA is a non-GAAP number that excludes various
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 also is included under the
heading "Use of Non-GAAP Financial Information."  
The Company reported a net loss of $1.5 million, or $0.09 per share,
in the fourth quarter of 2012, compared with a net loss of $0.4
million, or $0.02 per share, in the fourth quarter of 2011. The
Company recorded a tax benefit of $0.9 million in the fourth quarter
of 2012 compared with a tax expense of $11,000 in the fourth quarter
of 2011.  
Full Year Results 
For the twelve months ended December 31, 2012, the Company generated
$247.2 million in net revenues, a 4% increase from $238.2 million for
the year ended December 31, 2011. The increase in revenues is
primarily attributable to organic growth resulting from increased
distribution of existing products in the furniture, nursery, safety,
play and feeding categories throughout the Company's growing customer
base, the introduction of new products and international expansion.  
Gross profit decreased to $79.8 million in 2012 from $81.4 million
for 2011. Gross profit as a percentage of net sales decreased to
32.3% in 2012 from 34.2% in 2011, due to increased markdown and
return allowances, unfavorable product mix, as well as a one-time
$0.5 million adjustment to cost of goods sold pertaining to the
write-off of Born Free packaging and marketing materials.  
Selling expenses increased to $29.0 million for 2012 from $22.3
million for 2011, primarily attributable to higher selling costs
associated with customer cooperative advertising, an increase in
royalty expense and higher freight costs. G&A expenses were $41.7
million in 2012, down from $44.9 million in 2011. The 2012 G&A
expenses included $0.6 million associated with compliance to the loan
amendment in November 2012 and costs associated with loan
refinancing. The 2011 G&A expenses included a product lawsuit
settlement of $1.5 million and $1.4 million costs associated with the
Born Free acquisition. The G&A expenses declined year over year as
the Company began to benefit from overhead cost reductions
implemented at the end of the second quarter of 2012. 
Non-GAAP adjusted EBITDA was $10.6 million for the twelve-month
period ended December 31, 2012, compared with $20.2 million for the
twelve-month period ended December 31, 2011. Adjusted EBITDA for 2012
includes $0.6 million in permitted add back charges compared with
$4.9 million in permitted add backs for the same period in the prior
year.  
Net loss for the twelve months ended December 31, 2012 was $65.7
million, or $3.68 per share, including a $69.8 million goodwill and
intangible impairment charge, compared with net income of $3.8
million, or $0.21 per diluted share, for the twelve months ended
December 31, 2011. The Company recorded a tax benefit of $6.8 million
for 2012 compared with a tax expense of $1.2 million in 2011. 
Balance Sheet 
As of December 31, 2012, the Company had approximately $3.1 million
of cash and $64.1 million of bank debt for a net bank debt balance of
$61.0 million, compared with a net bank debt balance of $60.8 million
as of December 31, 2011.  
On February 28, 2013, Summer Infant announced that it entered into a
new, fully underwritten loan and security agreement with Bank of
America, N.A. that expires in 2018 and provides for an $80 million
asset-based revolving credit facility. The loan bears interest, at
the Company's option, at a base rate plus 0.25% to 0.75% or at LIBOR
plus 1.75% to 2.25%. The agreement includes covenants relating to
minimum consolidated EBITDA and fixed charge ratio, as well as
customary affirmative and negative covenants. The Company also
entered into a new $15 million term loan agreement with Salus Capital
Partners, LLC, as administrative agent and collateral agent. The
principal of the term loan will be repaid, on a quarterly basis, in
installments of $375,000, commencing with the quarter ending
September 30, 2013, and matures in 2018. The term loan bears interest
at an annual rate equal to LIBOR, plus 10%, with a LIBOR floor of
1.25%. The term loan contains customary affirmative and negative
covenants substantially the same as the Bank of America agreement.  
Conference Call Information 
Summer Infant, Inc. will host a conference call today, Tuesday, March
12, 2013 at 5:00 p.m. Eastern Time, to discuss financial results for
its fourth quarter and year ended December 31, 2012 and its outlook
for 2013. 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 global 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 earnings before interest and taxes
plus depreciation, amortization, non-cash stock-based compensation
expenses and other items added back as detailed in the reconciliation
table inc
luded 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 Securities 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 expected
impact of cost reduction initiatives on the Company's results in the
first quarter of 2013, the Company's outlook for fiscal year 2013 and
return to profitability, the impact of the Company's strategic
initiatives on future results, the expected increase in Summer and
Born Free branded sales in 2013, expected annualized savings from
product cost reduction acti
vities, expected G&A reductions in 2013,
expected growth in international sales by 2015, and expected revenue
growth among small- and mid-sized customers in 2013. 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 agreements; 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                        
               
(amounts in thousands, except per share data)                               
                                                                            
                             Three Months Ended       Twelve Months Ended   
                                December 31,              December 31,      
                              2012         2011         2012        2011    
                          -----------  -----------  -----------  ---------- 
                          (unaudited)  (unaudited)  (unaudited)             
Net revenues              $    58,513  $    55,369  $   247,227  $  238,172 
Cost of goods sold             40,257       35,892      167,455     156,787 
                          -----------  -----------  -----------  ---------- 
Gross profit                   18,256       19,477       79,772      81,385 
General & administrative                                                    
 expenses (including                                                        
 stock option expense)          9,967       11,592       41,674      44,928 
Selling expense                 7,270        5,801       29,009      22,259 
Impairment of goodwill                                                      
 and intangibles                    -            -       69,796           - 
Depreciation and                                                            
 amortization                   1,838        1,731        7,566       6,377 
                          -----------  -----------  -----------  ---------- 
Income (loss) before                                                        
 interest                 $      (819) $       353  $   (68,273) $    7,821 
Interest expense               (1,591)        (694)      (4,148)     (2,790)
                          -----------  -----------  -----------  ---------- 
Income (loss) before                                                        
 taxes                    $    (2,410) $      (341) $   (72,421) $    5,031 
Provision (benefit) for                                                     
 income taxes                    (885)          11       (6,768)      1,220 
                          -----------  -----------  -----------  ---------- 
  Net income (loss)       $    (1,525) $      (352) $   (65,653) $    3,811 
                          ===========  ===========  ===========  ========== 
                                                                            
Earnings per diluted                                                        
 share                    $     (0.09) $     (0.02) $     (3.68) $     0.21 
                                                                            
Shares used in fully                                                        
 diluted EPS                   17,858       18,108       17,861      17,821 
                                                                            
Reconciliation of Non-                                                      
 GAAP EBITDA                                                                
Net Income (loss)         $    (1,525) $      (352) $   (65,653) $    3,811 
Plus: interest expense          1,591          694        4,148       2,790 
Plus: provision (benefit)                                                   
 for income taxes                (885)          11       (6,768)      1,220 
Plus: depreciation and                                                      
 amortization                   1,838        1,731        7,566       6,377 
Plus: non-cash stock                                                        
 based compensation                                                         
 expense                          122          350          888       1,187 
Plus: goodwill and                                                          
 intangible impairment              -            -       69,796           - 
Plus: permitted add-                                                        
 backs(1),(2)                     559        1,851          623       4,852 
                          -----------  -----------  -----------  ---------- 
    Adjusted EBITDA       $     1,700  $     4,285  $    10,600  $   20,237 
                          ===========  ===========  ===========  ========== 
                                                                            
(1) 2012 Permitted add-backs consisted of items that the Company was        
    permitted to add-back to the calculation of consolidated EBITDA under   
    its credit agreement as in effect at December 31, 2012. Permitted add-  
    backs for the three months ended December 31, 2012 consisted of         
    consulting fees ($420), refinancing fees ($102) and bank fees ($37).    
    Permitted add-backs for the twelve months ended December 31, 2012 were  
    consulting fees ($484), refinancing fees ($102) and bank fees ($37).    
                                                                            
(2) 2011 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 December 31, 2011. Permitted add backs for the
    three months ended December 31, 2011 consisted of executive severance   
    costs ($350) and a lawsuit settlement ($1,501).                         
                                                                            
    Permitted add-backs for the twelve months ended December 31, 2011 were a
    lawsuit settlement ($1,501), acquisition costs ($1,385), customs duties 
    ($500), relocation costs ($482), severance costs ($350), legal fees and 
    inventory write downs ($349), and hurricane related damage ($285).      
                                                                            
                                                                            
                                                                            
Summer Infant, Inc.                                                         
Consolidated Balance Sheet                                                  
(amounts in thousands)                                                      
                                                                            
                                                  December 31,  December 31,
                                                      2012          2011    
                                                  (unaudited)               
Cash and cash equivalents                        $       3,132 $       1,215
Trade receivables, net                                  45,299        47,670
Inventory, net                                          49,823        50,014
Property and equipment, net                             16,834        17,682
Goodwill and other intangibles, net (1)                 21,046        91,953
Other assets                                             4,186         4,381
                                                 ------------- -------------
    Total assets                                 $     140,320 $     212,915
                                                 ============= ==========
===
                                                                            
Current portion of long-term debt                $         770 $         736
Accounts payable and accrued expenses                   37,138        40,633
Other long term liabilities                              3,498         3,726
Deferred tax liability                                   4,194        11,439
  Long term debt, less current portion                  64,767        62,479
                                                 ------------- -------------
    Total liabilities                                  110,367       119,013
                                                                            
  Total stockholders' equity                            29,953        93,902
                                                 ------------- -------------
Total liabilities and stockholders' equity       $     140,320 $     212,915
                                                 ============= =============
                                                                            
(1) The Company recorded an aggregate non-cash impairment charge of $69,796 
    in 2012. The non-cash impairment charge consisted of a write-down of    
    goodwill of $61,908 and a write down of a portion of intangible assets  
    of $7,888. The Company finalized its review of the valuation studies in 
    the fourth quarter of 2012.                                             

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