##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 1-8681
 KID BRANDS, INC.
  New Jersey
    
    22-1815337(State of or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification Number)1800 Valley Road, Wayne, New Jersey
    
    07470(Address of principal executive offices)
    
    (Zip Code)
 (201) 405-2400
 RUSS BERRIE AND COMPANY, INC.
(Former name, former address and former fiscal year, if changed since last report)
 Yes þ No o
 Yes o No o
 o þ o o
 Yes o No þ
  CLASS
    
    SHARES OUTSTANDINGCommon Stock, $0.10 stated value
    
    21,497,015




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##### 



KID BRANDS, INC.
 INDEX
 PART I  FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)a) Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008
    
    
    3b) Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2008
    
    
    4c) Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008
    
    
    5d) Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4. Controls and Procedures
    
    
    37PART II  OTHER INFORMATIONItem 1A. Risk Factors
    
    
    38Item 4. Submission of Matters to a Vote of Security Holders
    
    
    38Item 6. Exhibits
    
    
    38Signatures
    
    
    39Exhibit Index
    
    
    40Exhibit 3.1(a)Exhibit 3.1(b)Exhibit 3.1(c)Exhibit 4.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART 1  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 KID BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Data)
(UNAUDITED)
 September 30, 2009
    
    
    December 31, 2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,014
    
    
    $
    3,728Accounts receivable- trade, less allowances of $6,093 in 2009 and $4,285 in 2008
    
    
    38,406
    
    
    
    39,509Inventories, net
    
    
    39,936
    
    
    
    47,169Prepaid expenses and other current assets
    
    
    2,075
    
    
    
    3,252Income tax receivable
    
    
    186
    
    
    
    16Deferred income taxes, net
    
    
    940
    
    
    
    940Total current assets
    
    
    83,557
    
    
    
    94,614Property, plant and equipment, net
    
    
    4,264
    
    
    
    4,466Intangible assets
    
    
    81,043
    
    
    
    84,019Note receivable, net of allowance of $15,815 in 2009 and $0 in 2008
    
    
    
    
    
    
    15,300Investment
    
    
    
    
    
    
    4,500Deferred income taxes, net
    
    
    27,609
    
    
    
    28,960Other assets
    
    
    4,223
    
    
    
    3,575Total assets
    
    $
    200,696
    
    
    $
    235,434Liabilities and Shareholders EquityCurrent liabilities:Current portion of long-term debt
    
    $
    13,533
    
    
    $
    14,933Short-term debt
    
    
    18,325
    
    
    
    12,114Accounts payable
    
    
    14,738
    
    
    
    23,546Accrued expenses
    
    
    9,382
    
    
    
    13,249Income taxes payable
    
    
    6,827
    
    
    
    5,726Total current liabilities
    
    
    62,805
    
    
    
    69,568Income taxes payable, long-term
    
    
    
    
    
    
    4,252Long-term debt, excluding current portion
    
    
    57,728
    
    
    
    75,765Deferred royalty income  long-term
    
    
    
    
    
    
    5,065Other long-term liabilities
    
    
    1,985
    
    
    
    2,908Total liabilities
    
    
    122,518
    
    
    
    157,558Commitments and contingenciesShareholders equity:Common stock: $0.10 stated value; authorized 50,000,000 shares; issued
26,727,780 shares at September 30, 2009 and December 31, 2008
    
    
    2,674
    
    
    
    2,674Additional paid-in capital
    
    
    90,113
    
    
    
    89,173Retained earnings
    
    
    87,187
    
    
    
    88,672Accumulated other comprehensive income
    
    
    430
    
    
    
    134Treasury stock, at cost, 5,230,765 and 5,258,962 shares at September 30, 2009
and December 31, 2008, respectively
    
    
    (102,226
    )
    
    
    (102,777
    )Total shareholders equity
    
    
    78,178
    
    
    
    77,876Total liabilities and shareholders equity
    
    $
    200,696
    
    
    $
    235,434
 The accompanying notes are an integral part of these unaudited consolidated financial statements.
  3




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##### Table of Contents



KID BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
(UNAUDITED)
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    60,085
    
    
    $
    69,803
    
    
    $
    176,329
    
    
    $
    173,646Cost of sales
    
    
    41,613
    
    
    
    47,192
    
    
    
    122,289
    
    
    
    115,883Gross profit
    
    
    18,472
    
    
    
    22,611
    
    
    
    54,040
    
    
    
    57,763Selling, general and administrative expenses
    
    
    12,069
    
    
    
    13,404
    
    
    
    35,686
    
    
    
    35,814Impairment and valuation reserve
    
    
    
    
    
    
    
    
    
    
    15,620
    
    
    
    Income from continuing operations
    
    
    6,403
    
    
    
    9,207
    
    
    
    2,734
    
    
    
    21,949Other (expense) income:Interest expense, including amortization and
write-off of deferred financing costs
    
    
    (1,559
    )
    
    
    (2,063
    )
    
    
    (5,452
    )
    
    
    (5,669
    )Interest and investment income
    
    
    
    
    
    
    29
    
    
    
    10
    
    
    
    111Other, net
    
    
    (67
    )
    
    
    (53
    )
    
    
    136
    
    
    
    217(1,626
    )
    
    
    (2,087
    )
    
    
    (5,306
    )
    
    
    (5,341
    )Income (loss) from continuing operations
before income tax (benefit) provision
    
    
    4,777
    
    
    
    7,120
    
    
    
    (2,572
    )
    
    
    16,608Income tax provision (benefit)
    
    
    1,909
    
    
    
    1,129
    
    
    
    (1,087
    )
    
    
    4,830Net income (loss) from continuing operations
    
    
    2,868
    
    
    
    5,991
    
    
    
    (1,485
    )
    
    
    11,778Discontinued operations:Income (loss) from discontinued operations
before income tax provision (benefit)
    
    
    
    
    
    
    1,063
    
    
    
    
    
    
    
    (15,622
    )Income tax provision (benefit) from
discontinued operations
    
    
    
    
    
    
    (1,151
    )
    
    
    
    
    
    
    (1,910
    )Income (loss) from discontinued
operations, net of tax
    
    
    
    
    
    
    2,214
    
    
    
    
    
    
    
    (13,712
    )Net income (loss)
    
    $
    2,868
    
    
    $
    8,205
    
    
    $
    (1,485
    )
    
    $
    (1,934
    )Basic earnings (loss) per share:Continuing operations
    
    $
    0.13
    
    
    $
    0.29
    
    
    $
    (0.07
    )
    
    $
    0.55Discontinued operations
    
    
    
    
    
    
    0.10
    
    
    
    
    
    
    
    (0.64
    )$
    0.13
    
    
    $
    0.39
    
    
    $
    (0 .07
    )
    
    $
    (0.09
    )Diluted earnings (loss) per share:Continuing operations
    
    $
    0.13
    
    
    $
    0.29
    
    
    $
    (0.07
    )
    
    $
    0.55Discontinued operations
    
    
    
    
    
    
    0.10
    
    
    
    
    
    
    
    (0.64
    )$
    0.13
    
    
    $
    0.39
    
    
    $
    (0.07
    )
    
    $
    (0.09
    )Weighted average shares:Basic
    
    
    21,371,000
    
    
    
    21,300,000
    
    
    
    21,370,000
    
    
    
    21,300,000Diluted
    
    
    21,770,000
    
    
    
    21,310,000
    
    
    
    21,370,000
    
    
    
    21,300,000
 The accompanying notes are an integral part of these unaudited consolidated financial statements.
  4




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##### Table of Contents



KID BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(UNAUDITED)
 Nine Months Ended September 30,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (1,485
    )
    
    $
    (1,934
    )Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    2,838
    
    
    
    4,630Provision for impairment of fixed assets
    
    
    
    
    
    
    7,041Amortization of deferred financing costs
    
    
    1,190
    
    
    
    605Provision for impairment and valuation reserve
    
    
    15,620
    
    
    
    Accounts receivable allowance
    
    
    22,743
    
    
    
    16,825Provision for inventory reserve
    
    
    751
    
    
    
    3,541Share-based compensation expense
    
    
    1,413
    
    
    
    1,357Deferred income taxes
    
    
    1,351
    
    
    
    4,082Other
    
    
    
    
    
    
    (444
    )Change in assets and liabilities:Restricted cash
    
    
    
    
    
    
    16Accounts receivable
    
    
    (21,430
    )
    
    
    (19,305
    )Income tax receivable
    
    
    11
    
    
    
    (447
    )Inventories
    
    
    6,843
    
    
    
    (1,563
    )Prepaid expenses and other current assets
    
    
    1,193
    
    
    
    420Other assets
    
    
    (31
    )
    
    
    313Accounts payable
    
    
    (8,711
    )
    
    
    (1,216
    )Accrued expenses
    
    
    (5,393
    )
    
    
    620Income taxes payable
    
    
    (3,152
    )
    
    
    (1,552
    )Net cash provided by operating activities
    
    
    13,751
    
    
    
    12,989Cash flows from investing activities:Capital expenditures
    
    
    (472
    )
    
    
    (1,718
    )Payment for purchase of LaJobi Industries, Inc., net of cash acquired
    
    
    
    
    
    
    (52,044
    )Other
    
    
    (4
    )
    
    
    (23
    )Payment for purchase of CoCaLo, Inc., net of cash acquired
    
    
    
    
    
    
    (16,643
    )Payment of Kids Line, LLC earnout consideration
    
    
    
    
    
    
    (3,622
    )Net cash used in investing activities
    
    
    (476
    )
    
    
    (74,050
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    80
    
    
    
    Issuance of long-term debt
    
    
    
    
    
    
    100,000Repayment of long-term debt
    
    
    (19,437
    )
    
    
    (53,721
    )Payment of deferred financing fees
    
    
    (1,646
    )
    
    
    (1,655
    )Net borrowing on revolving credit facility
    
    
    6,211
    
    
    
    9,094Payment of capital lease obligations
    
    
    
    
    
    
    (165
    )Net cash (used in) provided by financing activities
    
    
    (14,792
    )
    
    
    53,553Effect of exchange rate changes on cash and cash equivalents
    
    
    (197
    )
    
    
    (797
    )Net decrease in cash and cash equivalents
    
    
    (1,714
    )
    
    
    (8,305
    )Cash and cash equivalents at beginning of period
    
    
    3,728
    
    
    
    21,925Cash and cash equivalents at end of period
    
    $
    2,014
    
    
    $
    13,620Cash paid during the period for:Interest
    
    $
    5,310
    
    
    $
    4,762Income taxes
    
    $
    1,059
    
    
    $
    704Noncash items:Note payable CoCaLo purchase
    
    $
    
    
    
    $
    1,439
 The accompanying notes are an integral part of these unaudited consolidated financial statements.
  5




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##### Table of Contents



KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  INTERIM CONSOLIDATED FINANCIAL STATEMENTS
      The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162.
   6




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##### Table of Contents



KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2  ACQUISITIONS
 LaJobi
   CoCaLo
    Pro Forma Information
   7




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##### Table of Contents



KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  September 30, 2008Net sales
    
    $
    196,148Net loss
    
    $
    (1,284
    )Basic income (loss) per share:Continuing operations
    
    $
    0.58Discontinued operations
    
    
    (0.64
    )$
    (0.06
    )Diluted income (loss) per share:Continuing operations
    
    $
    0.58Discontinued operations
    
    
    (0.64
    )$
    (0.06
    )
  NOTE 3SALE OF GIFT BUSINESS AND DISCONTINUED OPERATIONS
  ® ®
 ®  8
    Table of Contents   KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2008
    
    
    September 30, 2008Sales
    
    $
    38,272
    
    
    $
    98,046Income (loss) before income taxes
    
    $
    1,063
    
    
    $
    (15,622
    )Benefit for income taxes
    
    $
    (1,151
    )
    
    $
    (1,910
    )Income (loss) from discontinued operations
    
    $
    2,214
    
    
    $
    (13,712
    )
 NOTE 4  SHAREHOLDERS EQUITY
 Share-Based Compensation
 Compensation-Stock
Compensation"
  Equity Plans
   9
    Table of Contents  KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Impact on Net Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Stock option expense
    
    $
    193
    
    
    $
    222
    
    
    $
    577
    
    
    $
    675Restricted stock expense
    
    
    170
    
    
    
    184
    
    
    
    510
    
    
    
    548Restricted stock unit expense
    
    
    5
    
    
    
    
    
    
    
    13
    
    
    
    Stock appreciation right expense
expense
    
    
    66
    
    
    
    
    
    
    
    197
    
    
    
    Employee stock purchase plan expense
    
    
    34
    
    
    
    45
    
    
    
    116
    
    
    
    134Total share-based payment expense
    
    $
    468
    
    
    $
    451
    
    
    $
    1,413
    
    
    $
    1,357
  Stock Options
    Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2009
    
    
    September 30, 2008Dividend yield
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    2.45
    %
    
    
    3.06
    %Volatility
    
    
    80.0
    %
    
    
    40.51
    %Expected term (years)
    
    
    5
    
    
    
    5Weighted-average fair value of options granted
    
    $
    4.32
    
    
    $
    4.53
  All Stock Options OutstandingWeighted AverageShares
    
    
    Exercise PriceOptions Outstanding as of December 31, 2008
    
    
    1,941,379
    
    
    $
    17.31Options Granted
    
    
    105,000
    
    
    $
    6.63Options Exercised
    
    
    
    
    
    
    Options Forfeited / Cancelled *
    
    
    (247,404
    )
    
    $
    19.75Options Outstanding at September 30, 2009
    
    
    1,798,975
    
    
    $
    16.35Option price range at September 30, 2009
    
    $
    6.63-$34.05
  10
    Table of Contents  KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
   Weighted Average GrantStock options
    
    Options
    
    
    Date Fair ValueUnvested at December 31, 2008
    
    
    672,837
    
    
    $
    12.69Granted
    
    
    105,000
    
    
    $
    6.63Vested
    
    
    (53,200
    )
    
    $
    11.63Forfeited/cancelled*
    
    
    (21,360
    )
    
    $
    16.77Unvested options at September 30, 2009
    
    
    703,277
    
    
    $
    11.74
  Restricted Stock
    Restricted Stock Units
  11
    Table of Contents   KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  WeightedRestricted
    
    
    AverageStock
    
    
    Grant-DateUnits
    
    
    Fair ValueUnvested at December 31, 2008
    
    
    13,900
    
    
    $
    6.43Granted
    
    
    5,000
    
    
    $
    5.34Vested
    
    
    
    
    
    
    Forfeited/cancelled
    
    
    
    
    
    
    Unvested at September 30, 2009
    
    
    18,900
    
    
    $
    6.14
  Stock Appreciation Rights
 provided
    Nine Months EndedSeptember 30, 2009Dividend yield
    
    
    0
    %Risk-free interest rate
    
    
    1.64
    %Volatility
    
    
    0.836
    %Expected term (years)
    
    
    4.20Weighted-average fair value of SARs granted
    
    $
    0.90
  12
    Table of Contents  KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  All SARs OutstandingWeighted AverageSARs
    
    
    Exercise PriceSARs outstanding as of December 31, 2008
    
    
    118,000
    
    
    $
    6.43SARs Granted
    
    
    574,943
    
    
    $
    1.56SARs Exercised
    
    
    
    
    
    
    SARs Forfeited / Cancelled
    
    
    
    
    
    
    SARs Outstanding as of September 30, 2009
    
    
    692,943
    
    
    $
    2.39SAR price range at September 30, 2009
    
    $
    1.36-$6.43
  Employee Stock Purchase Plan
   Nine Months Ended September 30,2009
    
    
    2008Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rate
    
    
    0.40
    %
    
    
    3.17
    %Volatility
    
    
    129.0
    %
    
    
    34.40
    %Expected term (years)
    
    
    1.0
    
    
    
    1.0
  NOTE 5  WEIGHTED AVERAGE COMMON SHARES
 Earnings Per Share
  13
    Table of Contents  KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Weighted average common shares outstanding-Basic
    
    
    21,371
    
    
    
    21,300
    
    
    
    21,370
    
    
    
    21,300Dilutive effect of common shares issuable upon
exercise of stock options and SARS
    
    
    399
    
    
    
    10
    
    
    
    
    
    
    
    Weighted average common shares outstanding
assuming dilution
    
    
    21,770
    
    
    
    21,310
    
    
    
    21,370
    
    
    
    21,300
  NOTE 6  DEBT
  September 30,
    
    
    December 31,2009
    
    
    2008Term Loan (Credit Agreement)
    
    $
    70,250
    
    
    $
    89,200Note Payable (CoCaLo purchase)
    
    
    1,011
    
    
    
    1,498Total
    
    
    71,261
    
    
    
    90,698Less current portion
    
    
    13,533
    
    
    
    14,933Long-term debt
    
    $
    57,728
    
    
    $
    75,765
   At September 30, 2009LIBOR Loans
    
    
    Base Rate LoansRevolving Loan
    
    
    4.28
    %
    
    
    6.25
    %Term Loan
    
    
    4.45
    %
    
    
    6.25
    %
  14
    Table of Contents  KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Credit Agreement Summary
       15
    Table of Contents   KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
         16
    Table of Contents  KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
      Derivatives
and Hedging
 Debt
 NOTE 7 INTANGIBLE ASSETS
  Weighted Average
    
    September 30,
    
    
    December 31,Amortization Period
    
    2009
    
    
    2008Sassy trade name
    
    Indefinite life
    
    $
    5,400
    
    
    $
    5,400Applause trade name
    
    5 years
    
    
    
    
    
    
    911Kids Line customer relationships
    
    20 years
    
    
    29,545
    
    
    
    30,711Kids Line trade name
    
    Indefinite life
    
    
    5,300
    
    
    
    5,300LaJobi trade name
    
    Indefinite life
    
    
    18,600
    
    
    
    18,600LaJobi customer relationships
    
    20 years
    
    
    11,748
    
    
    
    12,224LaJobi royalty agreements
    
    5 years
    
    
    1,820
    
    
    
    2,146CoCaLo trade name
    
    Indefinite life
    
    
    6,100
    
    
    
    6,100CoCaLo customer relationships
    
    20 years
    
    
    2,498
    
    
    
    2,599CoCaLo foreign trade name
    
    Indefinite life
    
    
    32
    
    
    
    28Total intangible assets
    
    
    
    $
    81,043
    
    
    $
    84,019
   17
    Table of Contents  KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Intangibles  Goodwill and Other ®
 ® ® ® ® ® ® ® ® ® ®
 ® ® ® ® ® ® ®
 ® ®
   18
    Table of Contents  KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 8  CONCENTRATION OF RISK
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net domestic sales
    
    $
    58,075
    
    
    $
    67,034
    
    
    $
    170,067
    
    
    $
    166,533Net foreign sales
(Australia and United
Kingdom)
    
    
    2,010
    
    
    
    2,769
    
    
    
    6,262
    
    
    
    7,113Total net sales
    
    $
    60,085
    
    
    $
    69,803
    
    
    $
    176,329
    
    
    $
    173,646
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Functional Soft Goods
    
    
    43.1
    %
    
    
    42.6
    %
    
    
    44.5
    %
    
    
    43.1
    %Functional Hard Goods
    
    
    34.3
    %
    
    
    32.8
    %
    
    
    33.8
    %
    
    
    30.2
    %Accessories and Décor
    
    
    12.0
    %
    
    
    12.9
    %
    
    
    11.4
    %
    
    
    13.3
    %Toys and Entertainment
    
    
    9.8
    %
    
    
    11.1
    %
    
    
    9.5
    %
    
    
    12.9
    %Other
    
    
    0.8
    %
    
    
    0.6
    %
    
    
    0.8
    %
    
    
    0.5
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
      NOTE 9  FINANCIAL INSTRUMENTS
 Fair Value Measurements and Disclosures
  19
    Table of Contents  KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
       Fair Value Measurements as of September 30, 2009September 30, 2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Interest Rate Swap Agreement
    
    $
    (1,169
    )
    
    $
    
    
    
    $
    (1,169
    )
    
    $
    
    NOTE 10  COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    2,868
    
    
    $
    8,205
    
    
    $
    (1,485
    )
    
    $
    (1,934
    )Other comprehensive income:Foreign currency translation adjustments
    
    
    149
    
    
    
    (2,587
    )
    
    
    296
    
    
    
    (2,035
    )Comprehensive income (loss)
    
    $
    3,017
    
    
    $
    5,618
    
    
    $
    (1,189
    )
    
    $
    (3,969
    )
  20
    Table of Contents  KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 11  INCOME TAXES
 , Income Taxes
   (in thousands)Balance at January 1, 2009
    
    $
    9,582Increase related to interest expense
    
    
    15Balance at March 31, 2009
    
    
    9,597Increase related to interest expense
    
    
    15Balance at June 30, 2009
    
    
    9,612Close statute of
limitations
    
    
    (4,660
    )Increase related to interest expense
    
    
    10Balance at September 30, 2009
    
    $
    4,962
   NOTE 12  LITIGATION; COMMITMENTS AND CONTINGENCIES
    21
    Table of Contents  KID BRANDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
      NOTE 13  RECENTLY ISSUED ACCOUNTING STANDARDS
 Consolidation
  NOTE 14  RELATED PARTY TRANSACTIONS
    22
    Table of Contents  ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
  Shift to Infant and Juvenile Business
    ® ® ® ® Recent
Disposition ®
 23
    Table of Contents    Continuing Operations
         24
    Table of Contents  Intangibles-Goodwill and Other" ®
     25
    Table of Contents   Company Outlook
  
    
    focusing on design-led and branded product development at each of our
subsidiaries to enable us to continue to introduce compelling new products;
    
    pursuing organic growth opportunities to capture additional market share,
including:
 (i)
    
    expanding our product offerings into related categories;(ii)
    
    increasing our existing product penetration (selling more products
to existing customer locations);(iii)
    
    increasing our existing store penetration (selling to more store
locations within each large, national retail customer); and(iv)
    
    expanding and diversifying of our distribution channels, with
particular emphasis on sales into international markets;
 
    
    growing through licensing, distribution or other strategic alliances, including
pursuing acquisition opportunities in businesses complementary to ours;
    
    implementing strategies to further capture synergies within and between our
confederation of businesses, through cross-marketing opportunities, consolidation of
certain operational activities and other collaborative activities; and
    
    continuing efforts to manage costs within each of our businesses.
 ® ®
  26
    Table of Contents   General Economic Conditions as they Impact Our Business
   SEGMENTS
  BASIS OF PRESENTATION
  RESULTS OF OPERATIONSTHREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
  ® ®
 27
    Table of Contents  RESULTS OF OPERATIONSNINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
    ®
  28
    Table of Contents  Liquidity and Capital Resources
        29
    Table of Contents   Recent Acquisitions
 LaJobi
   CoCaLo
     30
    Table of Contents   Recent Disposition
  ® ®
 ®
  Debt Financing
  September 30,
    
    
    December 31,2009
    
    
    2008Term Loan (Credit Agreement)
    
    $
    70,250
    
    
    $
    89,200Note Payable (CoCaLo purchase)
    
    
    1,011
    
    
    
    1,498Total
    
    
    71,261
    
    
    
    90,698Less current portion
    
    
    13,533
    
    
    
    14,933Long-term debt
    
    $
    57,728
    
    
    $
    75,765
 31
    Table of Contents    At September 30, 2009LIBOR Loans
    
    
    Base Rate LoansRevolving Loan
    
    
    4.28
    %
    
    
    6.25
    %Term Loan
    
    
    4.45
    %
    
    
    6.25
    %
 Credit Agreement Summary
      32
    Table of Contents           33
    Table of Contents  Derivatives
and Hedging
 Debt
 Other Events and Circumstances Pertaining to Liquidity
      34
    Table of Contents  .
   Contractual Obligations
  Total
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    ThereafterOperating Lease Obligations
    
    $
    11,762
    
    
    $
    505
    
    
    $
    1,918
    
    
    $
    1,942
    
    
    $
    1,944
    
    
    $
    2,012
    
    
    $
    3,441Capitalized Leases
    
    
    10
    
    
    
    2
    
    
    
    7
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Purchase Obligations(1)
    
    
    41,581
    
    
    
    41,581
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Debt Repayment
Obligations(2)
    
    
    70,250
    
    
    
    3,250
    
    
    
    13,000
    
    
    
    13,000
    
    
    
    13,000
    
    
    
    28,000
    
    
    
    Note Payable(3)
    
    
    1,067
    
    
    
    
    
    
    
    533
    
    
    
    534
    
    
    
    
    
    
    
    
    
    
    
    Interest on Debt Repayment
Obligations(4)
    
    
    8,333
    
    
    
    858
    
    
    
    3,025
    
    
    
    2,375
    
    
    
    1,725
    
    
    
    350
    
    
    
    Royalty Obligations
    
    
    10,206
    
    
    
    221
    
    
    
    3,360
    
    
    
    2,630
    
    
    
    2,895
    
    
    
    1,100
    
    
    
    Total Contractual
Obligations(5)
    
    $
    143,209
    
    
    $
    46,417
    
    
    $
    21,843
    
    
    $
    20,482
    
    
    $
    19,564
    
    
    $
    31,462
    
    
    $
    3,441
 
 (1)
    
    The Companys purchase obligations consist primarily of purchase orders for inventory.(2)
    
    Reflects repayment obligations under the Second Amendment effective as of March 20, 2009. See
Note 6 of Notes to Unaudited Consolidated Financial Statements for a description of the Second
Amendment, including amounts and dates of repayment obligations and provisions that create,
increase and/or accelerate obligations thereunder. Excludes, as of September 30, 2009,
approximately $18.3 million borrowed under the Revolving Loan. The estimated 2009 interest payment
for this Revolving Loan using a 5.0% interest rate is $0.9 million. Such amounts are estimates
only and actual interest payments could differ materially. The Revolving Loan facility matures in
April 2013, at which time any amounts outstanding are due and payable.(3)
    
    Reflects a note payable with respect to the CoCaLo acquisition. The present value of the note
is $1,011,000 and the aggregate remaining imputed interest at 5.5% is $56,000. Upon the occurrence
of an event of default under the note, the holder could elect to declare all amounts outstanding to
be immediately due and payable.  35
    Table of Contents  (4)
    
    This amount reflects estimated interest payments on the long-term debt repayment obligation as
of September 30, 2009 calculated using an interest rate of 5.0% and then-current levels of
outstanding long-term debt. Such amounts are estimates only and actual interest payments could
differ materially. This amount also excludes interest on amounts borrowed under the Revolving Loan.(5)
    
    Does not include contingent obligations under the Lease (or contingent obligations
under other off-balance sheet arrangements described below), as the
amount if any and/or timing of
their potential settlement is not reasonably estimable. See Other Events and
Circumstances Pertaining to Liquidity above. In connection with the acquisitions of
LaJobi and CoCaLo, the Company has agreed to make certain potential Earnout Consideration
payments based on the performance of the acquired businesses. See Managements Discussion
and Analysis of Results of Operations and Financial ConditionRecent Acquisitions. These
amounts are not included in the above table as the timing of their potential settlement is
not reasonably estimable.  Off Balance Sheet Arrangements
 Other
Events and Circumstances Pertaining to Liquidity
 CRITICAL ACCOUNTING POLICIES
    Recently Issued Accounting Standards
  Forward-Looking Statements
   36
    Table of Contents   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Control over Financial Reporting
   37




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Nominee
    
    For
    
    
    %
    
    
    Withheld
    
    
    %Raphael Benaroya
    
    
    17,350,377
    
    
    
    87.0
    
    
    
    2,597,068
    
    
    
    13.0Mario Ciampi
    
    
    18,978,388
    
    
    
    95.1
    
    
    
    969,057
    
    
    
    4.9Bruce G. Crain
    
    
    19,729,628
    
    
    
    98.9
    
    
    
    217,817
    
    
    
    1.1Frederick J. Horowitz
    
    
    18,941,991
    
    
    
    95.0
    
    
    
    1,005,454
    
    
    
    5.0Lauren Krueger
    
    
    17,531,007
    
    
    
    87.9
    
    
    
    2,416,438
    
    
    
    12.1Salvatore M. Salibello
    
    
    17,475,714
    
    
    
    87.6
    
    
    
    2,471,731
    
    
    
    12.4John Schaefer
    
    
    18,398,196
    
    
    
    92.2
    
    
    
    1,549,249
    
    
    
    7.8Michael Zimmerman
    
    
    19,655,652
    
    
    
    98.5
    
    
    
    219,793
    
    
    
    1.5
   For
    
    %
    
    Against
    
    %
    
    Abstain
    
    %
    
    Broker non-vote
    
    %19,927,668
    
    99.9
    
    17,255
    
    .01
    
    2,522
    
    
    
    
    
    
 
 ITEM 6. EXHIBITS
  3.1(a)
    
    Restated Certificate of Incorporation of the Company and amendment thereto.(b)
    
    Certificate of Amendment to Restated Certificate of Incorporation of the Company filed April 30, 1987.(c)
    
    Certificate of Amendment to Restated Certificate of Incorporation of the Company filed September 22,
2009.4.1
    
    Form of Common Stock Certificate.31.1
    
    Certification of CEO required by Section 302 of the Sarbanes Oxley Act of 2002.31.2
    
    Certification of CFO required by Section 302 of the Sarbanes Oxley Act of 2002.32.1
    
    Certification of CEO required by Section 906 of the Sarbanes Oxley Act of 2002.32.2
    
    Certification of CFO required by Section 906 of the Sarbanes Oxley Act of 2002.
 Items 1, 2, 3, and 5 are not applicable and have been omitted.
  38




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##### Table of Contents



SIGNATURES
  KID BRANDS, INC.
(Registrant)By
    /s/ Guy A. PaglincoDate:  November 4, 2009
    
    Guy A. PaglincoVice President and Chief Financial Officer  39




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##### Table of Contents



EXHIBIT INDEX
 3.1 (a)
    
    Restated Certificate of Incorporation of the Company and amendment thereto.(b)
    
    Certificate of Amendment to Restated Certificate of Incorporation of the Company filed April 30, 1987.(c)
    
    Certificate of Amendment to Restated Certificate of Incorporation of the Company filed September 22, 2009.4.1
    
    Form of Common Stock Certificate.31.1
    
    Certification of CEO required by Section 302 of the Sarbanes Oxley Act of 2002.31.2
    
    Certification of CFO required by Section 302 of the Sarbanes Oxley Act of 2002.32.1
    
    Certification of CEO required by Section 906 of the Sarbanes Oxley Act of 2002.32.2
    
    Certification of CFO required by Section 906 of the Sarbanes Oxley Act of 2002.
  40