<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 27, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File No. 0-21404
SAFETY 1ST, INC.
(Exact Name of Registrant as specified in its Charter)
Massachusetts 04-2836423
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
210 Boylston Street
Chestnut Hill, Massachusetts 02167
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:
(617) 964-7744
Indicate by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
The aggregate number of Registrant's shares outstanding on October 31, 1997
was 7,187,288 shares of Common Stock, $.01 par value.
1
<PAGE> 2
SAFETY 1ST, INC.
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS AS OF SEPTEMBER 27, 1997
AND DECEMBER 31, 1996 (Unaudited) 3
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 27, 1997
AND SEPTEMBER 30, 1996 (Unaudited) 5
CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1997
AND SEPTEMBER 30, 1996 (Unaudited) 6
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1997
AND SEPTEMBER 30, 1996 (Unaudited) 7
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Unaudited) 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 15
EXHIBIT INDEX 16
</TABLE>
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SAFETY 1ST, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 27, December 31,
1997 1996
----------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,163,601 $ 509,403
Accounts receivable, less allowance
for doubtful accounts of $1,700,000
and $3,300,000, respectively 26,381,253 20,237,347
Inventory 17,601,446 17,145,683
Prepaid expenses 607,288 938,288
Tax refund receivable -- 5,026,644
Deferred loan acquisition costs, net of accumulated
amortization of $55,000 1,509,000 --
----------------------------
Total current assets 47,262,588 43,857,365
----------------------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization of $6,798,821
and $4,385,545, respectively 12,560,645 12,163,032
----------------------------
OTHER ASSETS:
Deposits 1,563,916 3,240,821
Software systems in process 4,500,403 2,155,195
Goodwill, net of amortization of $487,005 and
$267,567, respectively 6,619,117 6,838,554
Deferred income taxes 3,075,353 2,218,000
Patents and trademarks, net of amortization of
$433,019 and $353,746, respectively 634,335 662,607
Other 553,142 141,078
----------------------------
Total other assets 16,946,266 15,256,255
----------------------------
$76,769,499 $71,276,652
============================
</TABLE>
The Condensed Balance Sheet at December 31, 1996 has been derived from the
audited financial statements at that date. The accompanying notes are an
integral part of these Condensed Financial Statements
3
<PAGE> 4
SAFETY 1ST, INC.
CONDENSED BALANCE SHEETS - CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
September 27, December 31,
1997 1996
----------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving credit facility $ 23,012,307 $ 36,652,657
Accounts payable and accrued expenses 19,229,391 30,210,729
Notes payable and current portion of capital lease obligation 1,095,000 2,074,403
----------------------------
Total current liabilities 43,336,698 68,937,789
OTHER LIABILITIES
Capital lease obligation, net of current portion 313,745 260,651
Long term notes payable 12,500,000 --
----------------------------
Total liabilities 56,150,443 69,198,440
SERIES A REDEEMABLE PREFERRED STOCK 9,006,250 --
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 15,000,000 shares authorized,
7,187,288 and 7,178,156 issued at June 28, 1997
and December 31, 1996, respectively 71,872 71,781
Additional paid in capital 40,241,234 34,496,395
Accumulated deficit (28,700,300) (32,489,964)
----------------------------
Total stockholders' equity 11,612,806 2,078,212
----------------------------
$ 76,769,499 $ 71,276,652
============================
</TABLE>
The Condensed Balance Sheet at December 31, 1996 has been derived from the
audited financial statements at that date. The accompanying notes are an
integral part of these Condensed Financial Statements.
4
<PAGE> 5
SAFETY 1ST, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 27, September 30,
1997 1996
-----------------------------
<S> <C> <C>
Net sales $ 26,445,651 $ 29,225,848
Cost of sales 15,410,403 19,551,432
-----------------------------
Gross profit 11,035,248 9,674,416
Selling, general and administrative expenses 8,573,243 8,870,450
-----------------------------
Operating income 2,462,005 803,966
Interest expense 1,100,874 815,836
-----------------------------
Income (loss) before income tax expense (benefit) 1,361,131 (11,870)
Income tax expense (benefit) (1,496,378) 221,205
-----------------------------
Net Income (loss) 2,857,509 (233,075)
Dividends and accretion on redeemable preferred stock 478,250 --
-----------------------------
Net income (loss) available for common shareholders $ 2,379,259 $ (233,075)
=============================
Net income (loss) per common share $ 0.29 $ (0.03)
=============================
Weighted average shares outstanding 8,088,171 7,155,616
=============================
</TABLE>
The accompanying notes are an integral part of these
Condensed Financial Statements
5
<PAGE> 6
SAFETY 1ST, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 27, September 30,
1997 1996
-----------------------------
<S> <C> <C>
Net sales $ 79,843,978 $ 89,841,499
Cost of sales 47,515,750 62,162,245
-----------------------------
Gross profit 32,328,228 27,679,254
Selling, general and administrative expenses 25,363,815 35,808,326
-----------------------------
Operating income (loss) 6,964,413 (8,129,072)
Interest expense 3,364,639 2,325,039
-----------------------------
Income (loss) before income tax benefit 3,599,774 (10,454,111)
Income taxes benefit (668,140) (3,731,967)
-----------------------------
Net income (loss) 4,267,914 (6,722,144)
Dividends and accretion on redeemable preferred stock 478,250 --
-----------------------------
Net income (loss) available for common shareholders $ 3,789,664 $ (6,722,144)
=============================
Net income (loss) per share $ 0.50 $ (0.94)
=============================
Weighted average shares outstanding 7,613,999 7,155,616
=============================
</TABLE>
The accompanying notes are an integral part of these
Condensed Financial Statements.
6
<PAGE> 7
SAFETY 1ST, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 27, September 30,
1997 1996
------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,267,914 $ (6,722,144)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 2,413,276 3,190,578
Amortization 353,711 439,328
Write-off property and equipment -- 1,370,554
Deferred income taxes (857,354) 100,456
Stock compensation expense -- 587,603
------------------------------
Net cash provided by (used in) operating activities
before changes in assets and liabilities: 6,177,547 (1,033,625)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (6,143,906) (5,818,093)
Inventory (455,763) 1,471,025
Prepaid expenses 330,998 (307,280)
Tax refund receivable 5,026,644 (2,941,154)
Other assets (412,065) (139,593)
Increase (decrease) in:
Accounts payable and accrued expenses (9,967,340) 3,088,725
------------------------------
Net cash used in operating activities (5,443,885) (5,679,995)
Cash flows used in investing activities
Acquisitions -- (2,195,730)
Acquisition of property and equipment (2,147,982) (3,220,714)
Increase in system software in process (2,345,208) (2,405,709)
Acquisition of patents and trademarks (51,000) (136,335)
------------------------------
Net cash used in investing activities (4,544,190) (7,958,488)
Cash flows provided by financing activities:
Net borrowings (repayments) on revolving credit facility (13,640,350) 15,556,514
Proceeds from issuance of redeemable preferred stock 15,000,000 --
Proceeds from issuance of long-term note payable 12,500,000 --
Repayment of bank debt assumed, notes payable, and loan from officer (1,176,309) (894,499)
Proceeds from exercised stock options 58,932 60,000
Refinancing fees (2,350,000) (598,232)
Loan from officer 250,000 --
------------------------------
Net cash provided by financing activities 10,642,273 14,123,783
Net increase in cash 654,198 485,300
Cash and cash equivalents - beginning of period 509,403 24,456
------------------------------
Cash and cash equivalents - end of period $ 1,163,601 $ 509,756
==============================
Supplemental Disclosure of Cash Flow Information:
Cash paid for during the period for
Interest $ 3,242,000 $ 2,184,760
------------------------------
Taxes -- $ 57,000
==============================
</TABLE>
The accompanying notes are an integral part of these
Condensed Financial Statements.
7
<PAGE> 8
SAFETY 1ST, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The Company is a developer, marketer and distributor of child safety and
child care, convenience, activity and home security products.
The accompanying unaudited condensed financial statements of the Company
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC") and, in the opinion of management, reflect
all adjustments (consisting of only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and cash
flows for the periods presented.
Certain information and footnote disclosures included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed financial
statements should be read in conjunction with the audited financial
statements and notes thereto included in the financial statements filed as
part of the Company's Annual Report on Form 10-K filed for the year ended
December 31, 1996.
The results of the operations for the nine months ended September 27,
1997 are not necessarily indicative of the operating results for the
full year.
Effective April 1, 1997, the Company changed its reporting period from
a calendar year to a 52/53 week period ending on the Saturday closest
to December 31. Management does not expect the change to have a
material effect on the statement of operations.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS 128
is required to be implemented for the year ended December 31, 1997 and
requires the presentation of basic earnings per share and, if
applicable, diluted earnings per share, instead of primary and fully
diluted earnings per share. Management does not expect that the
adoption of SFAS 128 will have a material impact on the Company's
earnings per share.
NOTE 2. OTHER MATTERS
On July 30, 1997, the Company entered into a $55,000,000 refinancing of
its existing $45,000,000 credit facility. The refinancing includes a
new $40,000,000 credit facility providing for $27,500,000 of revolving
working capital financing and a $12,500,000 term-loan with a new
lender. The new credit facility, which expires in July 2002, has an
interest rate, at the Company's option, of LIBOR plus 2.75% or prime
plus 1.75% on the revolving credit facility, and LIBOR plus 3% or prime
plus 2% on the term-loan. The refinancing also includes a $15,000,000
private placement of 15,000 shares of six-year redeemable preferred
stock with a liquidation preference of $1,000 per share plus accrued
but unpaid dividends and a dividend rate of either 10% in cash or
13.25% non-cash, compounded quarterly. The preferred stock includes the
issuance of ten-year warrants to purchase approximately 1,270,000
shares of the Company's common stock, subject to adjustment, at an
exercise price of $.01 per share. The proceeds of $15,000,000 from the
private placement were allocated to the redeemable preferred stock and
the warrants in the amount of $9,000,000 and $6,000,000, respectively,
based on the estimated value at the issue date.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Statement of Forward-Looking Information:
The Company may occasionally make forward-looking statements and estimates, such
as forecasts and projections of the Company's future performance or statements
of management's plans and objectives. These forward-looking statements may be
contained in SEC filings, Annual Reports to Shareholders, Press Releases and
oral statements, among others, made by the Company. Actual results could differ
materially from those in such forward-looking statements. Therefore, no
assurances can be given that the results in such forward-looking statements will
be achieved. Important factors that could cause the Company's actual results to
differ from those contained in such forward-looking statements include, among
others, those factors set forth in Exhibit 99 to this Report.
Results of Operations:
THREE MONTHS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 30, 1996
Net sales for the three months ended September 27, 1997 decreased 9.5% to
approximately $26,446,000 from $29,226,000 in the comparable period of 1996. The
decrease is due to an expected decrease in sales of existing products carried
forward from the previous years' line from $23,347,000 in 1996 to $20,295,000 in
1997, due to the SKU reduction plan initiated in 1996. This decrease was
slightly offset by an increase in new product sales from $5,879,000 in the third
quarter of 1996 to $6,151,000 in the comparable period for 1997. Juvenile sales
comprised 98% of the business while home security sales made up the balance.
Gross profit for the three months ended September 27, 1997 was $11,035,000, or
41.7% of net sales, as compared to $9,674,416, or 33.1%, for the three months
ended September 30, 1996, and $11,214,415, or 38.7% for the same period last
year, excluding the 1996 third quarter special charges. The increase in gross
profit percentage is due to a favorable product mix and improved product costs.
Selling, general and administrative expenses decreased by $297,000 to $8,573,000
for the three months ended September 27, 1997, from $8,870,000 for the
comparable period in 1996. This decrease is primarily attributable to continued
focus on cost controls in 1997 primarily in the areas of temporary help,
professional and consulting fees.
As a result of the above factors, operating income for the three months ended
September 27, 1997 was $2,462,000. The operating income for the comparable
period last year was $804,000.
Interest expense increased to $1,101,000 for the three months ended September
27, 1997 from $816,000 for the three months ended September 30, 1996 due to
additional borrowings under the revolving credit facility.
Net income available for common shareholders for the third quarter of 1997 was
$2,379,000, or $0.29 per share, including a one-time tax benefit of $2,000,000
related to the realization of a portion of tax loss carry forwards which were
not recognized at the end of 1996. Excluding the $2,000,000 tax benefit, net
income available to common shareholders, which takes into account both dividends
and accretion on redeemable preferred stock, would have been $400,000, or $.05
per share, compared to a loss of $233,000, or $.03 per share, for the same
period last year.
NINE MONTHS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 30, 1996
Net sales for the nine months ended September 27, 1997 decreased 11% to
approximately $79,844,000 from $89,841,000 in the comparable period in 1996 due
to a decrease in sales of new products from $23,325,000 in 1996 compared to
$11,775,000 in 1997. This decrease was primarily the result of the shift in
timing of new product introductions in 1997 as compared to 1996, as well as the
Company's reduction of the number of new products introduced in 1997 versus
1996. This decrease was offset by an increase in sales of existing products
carried forward from the previous years' line from $66,516,000 in 1996 to
$68,069,000 in 1997.
9
<PAGE> 10
Gross profit for the nine months ended September 27, 1997 was $32,328,000, or
40.4%, of net sales versus $27,679,000, or 30.8%, for the comparable period in
1996. Excluding special charges in 1996, gross profit would have been
$35,273,000 or 38.8%, of net sales.
Selling, general and administrative expenses were $25,364,000 for the nine
months ended September 27, 1997. For the same period ending 1996, selling,
general and administrative expenses were $35,808,000, a decrease of $10,444,000.
Excluding 1996 year to date special charges of $7,115,000, the decrease would
have been $3,329,000. This decrease is attributable to the variable cost
component of selling, general and administrative costs consistent with the
decrease in net sales, and a decrease due to the continued focus on spending
controls, primarily in the areas of temporary help, professional and consulting
fees.
As a result of the above factors, operating income was $6,964,000 for the nine
moths ended September 27, 1997 versus an operating loss of ($8,129,000) during
the same period in 1996.
Interest expense increased from $2,325,000 for the nine months ended September
30, 1996 to $3,364,000 for the comparable period in 1997 due to additional
borrowings under the existing credit facility.
Net income available for common shareholders for the nine months ended September
27, 1997 was $3,790,000, or $.50 per share, including a one-time tax benefit of
$2,000,000 related to the realization of a portion of tax loss carry forwards
which were not recognized at the end of 1996. Excluding the $2,000,000 tax
benefit, net income available to common shareholders, which takes into account
both dividends and accretion on redeemable preferred stock, would have been
$1,790,000, or $.24 per share, compared to a loss of $6,722,144, or $.94 per
share, for the comparable period last year.
LIQUIDITY AND CAPITAL RESOURCES
On July 30, 1997 the Company entered into a $55,000,000 refinancing of its
existing $45,000,000 credit facility. The refinancing includes a new $40,000,00
credit facility providing for $27,500,000 of revolving working capital financing
and a $12,500,000 term-loan with a new lender. The credit facility, which
expires in July 2002, has an interest rate, at the Company's option, of LIBOR
plus 2.75% or prime plus 1.75% on the revolving credit facility, and LIBOR plus
3% or prime plus 2% on the term-loan. The refinancing also includes a
$15,000,000 private placement of 15,000 shares of six-year redeemable preferred
stock with a liquidation preference of $1,000 per share plus accrued but unpaid
dividends and a dividend rate of either 10% in cash or 13.25% non-cash,
compounded quarterly. The preferred stock includes the issuance of ten-year
warrants to purchase approximately 1,270,000 shares of the Company's common
stock, subject to adjustment, at an exercise price of $.01 per share. The
proceeds of $15,000,000 from the private placement were allocated to redeemable
preferred stock and the warrants in the amount of $9,000,000 and $6,000,000,
respectively, based on the estimated value at the issue date.
For the period from January, 1997 through July, 1997, the Company had financed
its operations with a $45,000,000 credit facility consisting of a $25,000,000
term-loan and $20,000,000 revolving credit facility, both of which were
scheduled to expire on May 1, 1998. Under this credit facility, the Company's
cost of funds was scheduled to increase at compounding rates over the term of
indebtedness and, therefore, it was the Company's intent to seek other financing
on terms more favorable to the Company to help meet future needs.
In addition to refinancing the revolving credit facility, management commenced
and initiated a plan to improve both liquidity and operating income. The
objectives of the plan are to simplify business practices, reduce operating
costs, and reduce working capital requirements. Implementation of the plan
started in 1996 and is continuing through 1997. There are no assurances,
however, that the actions taken, or to be taken, by the Company will achieve the
above intended objectives.
Net cash used in operations decreased to $5,444,000 for the nine months ended
September 27, 1997 versus net cash used in operations of $5,680,000 for the nine
months ended September 30, 1996. Cash from operations was primarily improved by
the receipt of a tax refund offset by a decrease in accounts payable and accrued
expenses.
10
<PAGE> 11
Cash flows used in investing activities was $4,544,000 due to the purchase of
property and equipment, principally molds for new product introductions as well
as the purchase of an integrated computer system which is in the process of
being implemented. During 1997, net cash provided by financing activities was
$10,642,000, primarily related to proceeds from the Company's debt and equity
refinancing in July 1997 offset by the refinancing fees, and repayment of the
notes payable issued in connection with the acquisition of Orleans Juvenile
Products, Inc. in February 1996.
The Company believes that its cash, together with its new financing will be
sufficient to meet its operating and other cash requirements for the next twelve
months.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 8, 1997, Tele Electronic (Taiwan) Co., Ltd. ("Tele
Electronic") filed a lawsuit in Middlesex Superior Court in Massachusetts
against the Company alleging breach of contract arising out of two purchase
orders. The suit seeks monetary damages for the alleged breach of contract in
the amount of $3.45 million and also alleges unfair and deceptive business
practices and seeks, under this theory, an award equal to three times the
alleged contractual damages. Tele Electronic also sought preliminary injunctive
relief which, after a hearing, the Court denied. The Company denies the
allegations of the lawsuit, intends to defend the matter vigorously and has also
filed a counterclaim against Tele Electronic for damages caused by various acts
and omissions of Tele Electronic, relating to prior purchase orders. The
Company's counterclaim seeks monetary damages totaling approximately $1.3
million.
The Company encounters personal injury litigation related to its products
in the ordinary course of business. The Company maintains product liability
insurance in amounts deemed adequate by the Company's management. The Company
believes that there are no claims or litigation pending of such nature, the
outcome of which could have material adverse effect on the financial position of
the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On July 30, 1997, the Company issued 15,000 shares of Series A
Redeemable Preferred Stock ($1.00 par value per share) (the "Preferred Shares")
and warrants to purchase 1,268,346 shares of the Company's Common Stock (the
"Warrants") to BT Capital Partners, Inc. ("BT Capital") and Bear, Stearns & Co.,
Inc. ("Bear Stearns") (collectively, the "Investors") in equal amounts. The
consideration paid for the Preferred Shares and the Warrants was, in the
aggregate, $15 million. The Preferred Shares are not convertible into Common
Stock of the Company. The Warrants are exercisable through July 30, 2007 at an
exercise price of $.01 per share of Common Stock to be acquired, and contain
provisions which adjust the number of shares of Common Stock underlying the
Warrants to protect the Investors from dilution arising from certain events, as
defined. Of the Warrants for 634,173 shares of Common Stock issued to each
Investor, Warrants for 63,418 shares (subject to such adjustment) to each
Investor will revert to the Company if the Company's 1998 earnings before
interest and taxes exceed $16 million (and if prior to the determination of such
amount, there has not been a change in control of the Company). The Preferred
Shares and Warrants were sold pursuant to an exemption from registration under
Section 4(2) of the Securities Act of 1933.
12
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- ------------
<S> <C>
4.1.* Designation of Series A Preferred Stock of
the Company
10.1.* Stock and Warrant Purchase Agreement dated as
of July 30, 1997, among the Company and the
Investors
10.2.* Warrant dated July 30, 1997, for 63,418
shares of the Company's common stock issued
to BT Capital
10.3.* Warrant dated July 30, 1997, for 63,418
shares of the Company's common stock issued
to Bear Stearns
10.4.* Warrant dated July 30, 1997, for 570,755
shares of the Company's common stock issued
to BT Capital
10.5.* Warrant dated July 30, 1997, for 570,755
shares of the Company's common stock issued
to Bear Stearns
10.6.* Registration Rights Agreement dated as of
July 30, 1997, among the Company, the
Investors and Michael Lerner
10.7.* Voting Agreement dated as of July 30, 1997,
among the company, Michael Lerner, Michael S.
Bernstein and the Investors
10.8.* Letter dated July 30, 1997, from BT Capital
to the Company regarding compliance with
certain regulations of the United States
Small Business Administration
10.9.* Credit Agreement dated as of July 30, 1997,
among the Company and Safety 1st Home
Products Canada, Inc., as Borrowers, BTCC, as
Lender and Agent, and Bankers Trust Company,
as Issuing Bank
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.10* $27,500,000 Revolving Note dated July 30,
1997, executed by the Company and Safety 1st
Home Products Canada Inc. in favor of BTCC
10.11.* $12,500,000 Term Note dated July 30, 1997,
executed by the Company and Safety 1st Home
Products Canada Inc. in favor of BTCC
11 Statement re: Computation of Per Share
Earnings
27 Financial Data Schedule
99 Important Factors Regarding Forward-Looking
Statements
</TABLE>
* Previously filed with the Company's report on Form 8-K dated August 6, 1997
and incorporated herein by reference.
Reports on Form 8-K
The Company filed a Report on Form 8-K on August 6, 1997, which disclosed
that on July 30, 1997 the Company had entered into a $55 million
refinancing of its business, comprised of a $15 million equity investment
made by BT Capital Partners, Inc. and Bear, Stearns & Co., Inc. and a $40
million credit facility provided by BT Commercial Corporation.
The Company filed a Report on Form 8-K/A on September 16, 1997, which
presented pro forma financial information reflecting the $55 million credit
facility entered into by the Company on July 30, 1997.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Safety 1st, Inc.
a Massachusetts corporation
Date: November 11, 1997 By: /s/ Michael Lerner
--------------------------
Michael Lerner
Chief Executive Officer
(Principal Executive Officer)
Date: November 11, 1997 By: /s/ Richard E. Wenz
--------------------------
Acting Chief Financial Officer
(Principal Financial Officer)
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
4.1.* Designation of Series A Preferred Stock
of the Company
10.1.* Stock and Warrant Purchase Agreement
dated as of July 30, 1997, among the
Company and the Investors
10.2.* Warrant dated July 30, 1997, for 63,418
shares of the Company's common stock
issued to BT Capital
10.3.* Warrant dated July 30, 1997, for 63,418
shares of the Company's common stock
issued to Bear Stearns
10.4.* Warrant dated July 30, 1997, for 570,755
shares of the Company's common stock
issued to BT Capital
10.5.* Warrant dated July 30, 1997, for 570,755
shares of the Company's common stock
issued to Bear Stearns
10.6.* Registration Rights Agreement dated as
of July 30, 1997, among the Company, the
Investors and Michael Lerner
10.7.* Voting Agreement dated as of
July 30, 1997, among the Company, Michael Lerner,
Michael S. Bernstein and the Investors
10.8.* Letter dated July 30, 1997, from BT
Capital to the Company regarding
compliance with certain regulations of
the United States Small Business
Administration
10.9.* Credit Agreement dated as of July 30,
1997, among the Company and Safety
Home Products Canada, Inc., as
Borrowers, BTCC, as Lender and Agent,
and Bankers Trust Company, as Issuing
Bank
10.10* $27,500,000 Revolving Note dated
July 30, 1997, executed by the Company and
Safety 1st Home Products Canada Inc. in
favor of BTCC
16
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
10.11.* $12,500,000 Term Note dated July 30, 1997,
executed by the Company and Safety
1st Home Products Canada Inc. in favor
of BTCC
11 Statement re: Computation of Per Share
Earnings
27 Financial Data Schedule
99 Important Factors Regarding Forward- Looking
statements
</TABLE>
* Previously filed with the Company's report on Form 8-K dated August 6, 1997
and incorporated herein by reference.
17
<PAGE> 1
EXHIBIT 11
SAFETY 1ST, INC.
PRIMARY NET INCOME
PER SHARE AND FULLY DILUTED
NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
September 27, September 30,
1997 1996
-----------------------------
<S> <C> <C>
PRIMARY NET INCOME (LOSS) PER SHARE
Net income (loss) available for common
shares and common stock equivalent
shares deemed to have a dilutive effect $ 2,379,259 $ (233,075)
Primary net income (loss) per share $ 0.29 $ (0.03)
SHARES USED IN COMPUTATION
Weighted average common shares outstanding 7,187,288 7,155,616
Common stock equivalents - stock options 900,883 --
-----------------------------
Total 8,088,171 7,155,616
=============================
FULLY DILUTED NET INCOME (LOSS) PER SHARE
Net income (loss) available for common
shares and common stock equivalent shares
deemed to have a dilutive effect $ 2,379,259 $ (233,075)
Fully diluted net income (loss) per share $ 0.29 $ (0.03)
SHARES USED IN COMPUTATION
Weighted average common shares outstanding 7,187,288 7,155,616
Common stock equivalents - stock options 900,883 --
-----------------------------
Total 8,088,171 7,155,616
=============================
</TABLE>
<PAGE> 2
EXHIBIT 11
SAFETY 1ST, INC.
PRIMARY NET INCOME
PER SHARE AND FULLY DILUTED
NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Nine Months Ended
September 27, September 30,
1997 1996
-----------------------------
<S> <C> <C>
PRIMARY NET INCOME (LOSS) PER SHARE
Net income (loss) available for common
shares and common stock equivalent
shares deemed to have a dilutive effect $ 3,789,664 $(6,722,144)
Primary net income (loss) per share $ 0.50 $ (0.44)
SHARES USED IN COMPUTATION
Weighted average common shares outstanding 7,187,288 7,155,616
Common stock equivalents - stock options 426,711 --
-----------------------------
Total 7,613,999 7,155,616
=============================
FULLY DILUTED NET INCOME (LOSS) PER SHARE
Net income (loss) available for common
shares and common stock equivalent shares
deemed to have a dilutive effect $ 3,789,664 $(6,722,144)
Fully diluted net income (loss) per share $ 0.50 $ (0.94)
SHARES USED IN COMPUTATION
Weighted average common shares outstanding 7,187,288 7,155,616
Common stock equivalents - stock options 426,711 --
-----------------------------
Total 7,613,999 7,155,616
=============================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Safety 1st,
Inc. Form 10-Q for the quarterly period ended September 27, 1997 and is
qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> SEP-27-1997
<EXCHANGE-RATE> 1
<CASH> 1,163,601
<SECURITIES> 0
<RECEIVABLES> 28,081,253
<ALLOWANCES> 1,700,000
<INVENTORY> 17,601,446
<CURRENT-ASSETS> 47,262,588
<PP&E> 19,359,466
<DEPRECIATION> 6,798,821
<TOTAL-ASSETS> 76,769,499
<CURRENT-LIABILITIES> 43,336,698
<BONDS> 0
0
9,006,250
<COMMON> 71,872
<OTHER-SE> 11,540,934
<TOTAL-LIABILITY-AND-EQUITY> 76,769,499
<SALES> 26,445,651
<TOTAL-REVENUES> 26,445,651
<CGS> 15,410,403
<TOTAL-COSTS> 15,410,403
<OTHER-EXPENSES> 8,573,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,100,874
<INCOME-PRETAX> 1,361,131
<INCOME-TAX> (1,496,378)
<INCOME-CONTINUING> 2,857,509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,857,509
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
<PAGE> 1
EXHIBIT 99
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
The Company may occasionally make forward-looking statements and estimates,
such as forecasts and projections of the Company's future performance or
statements of management's plans and objectives. These forward-looking
statements, made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, may be contained in SEC filings,
Annual Reports to Shareholders, Press Releases and oral statements, among
others, made by the Company. Actual results could differ materially from those
in such forward-looking statements. Therefore, no assurances can be given that
the results in such forward-looking statements will be achieved. Important
factors that could cause the Company's actual results to differ from those
contained in such forward-looking statements include, among others, the factors
mentioned below.
NEW PRODUCT INTRODUCTIONS. From its inception through 1995, the Company
experienced rapid growth, both in sales and product offerings. The growth of the
Company has been, and will continue to be, largely dependent upon the ability of
the Company to continue to introduce new products which will be accepted by the
market. However, as a result of the Company's product repositioning, there can
be no assurance that the Company will be able to attain a vigorous rate of
growth which it had experienced previously, that it will continue to generate
new product ideas which meet the Company's profit and return on investment
objectives or that new product introductions will be well received by the
market.
ABILITY TO IMPLEMENT NEW INFORMATION SYSTEM. The Company is in the process
of implementing a new, fully integrated enterprise-wide computer information
system. The ability of the Company to improve the management of its operations
and working capital are dependent upon the timely and successful implementation
of this system. Any significant delay or inability to adequately implement this
system may have a material adverse affect on the Company's results of
operations.
ABILITY TO MANAGE OPERATIONS AND FUTURE GROWTH. The Company's continued
success is also dependent upon its ability to manage the Company's repositioned
operation, which in turn will require it to continue to implement and improve
the operational and financial systems introduced in late 1996 and in 1997, and
to attract, train and retain qualified employees to meet the Company's needs
during its strategic repositioning and future anticipated growth. These demands
are expected to require additional management resources and the development of
additional expertise by existing management. The failure to manage its
operations effectively may have a material adverse effect on the Company.
DEMAND FOR THE COMPANY'S PRODUCTS. The success of the Company's business
depends in large part on continued consumer demand for its juvenile and home
security products. Changes in consumer demand due to general economic weakness
or to less favorable child bearing demographics, among other factors, may have
a material adverse effect on the Company.
RELIANCE ON CONTRACT MANUFACTURERS: FOREIGN MANUFACTURING. The Company does
not own or operate its own manufacturing facilities. Manufacturing is performed
to the Company's specifications by approximately 86 manufacturers located in
China, Taiwan, Thailand, Mexico, the United Kingdom, Canada and the United
States. As a result of not owning its own manufacturing facilities, the Company
has less a degree of control over the product manufacturing cycle necessary to
bring products, both newly introduced and existing products, to market. Failure
of a third party manufacturer to produce a product according to the Company's
specifications or to adhere to the Company's schedules may have a material
adverse effect on the Company's business and its results of operations.
Historically, the Company has derived approximately 60 to 75% of its sales
from products manufactured in the Far East, mainly in China. Obtaining its
products from foreign manufacturers subjects the Company to a number of
additional risks, including transportation delays and interruptions, political
and economic disruptions, the imposition of tariffs, quotas and other import or
export controls, currency fluctuations and changes in governmental policies,
particularly those affecting trade with China. Although, the Company continues
to explore alternative manufacturing sources outside of China, there can be no
assurance that the Company will be able to utilize alternative sources of supply
in a timely and cost effective manner.
In addition, because the Company relies largely on foreign manufacturers,
the Company is required to order products further in advance of customer orders
than would generally be the case if such products were manufactured
domestically. The risk of ordering products in this manner is greater during the
initial introduction of new products since it is difficult to determine demand
for such products.
DEPENDENCE ON MAJOR CUSTOMERS: CREDIT RISKS. The three largest customers of
the Company have historically accounted for approximately 40% of the Company's
net sales. A significant reduction of purchases by any of the Company's largest
customers could have a material adverse effect on the Company's business. The
uncertain economic environment, especially in the retail industry, could
jeopardize the business prospects of the Company's customers and impose
significant credit risks.
PRODUCT LIABILITY RISKS. The Company's juvenile products are used for and by
small children and infants. The Company's home security products, such as the
carbon monoxide detector, are intended for protection of health and safety of
individuals. The Company carries product liability insurance in amounts which
management deems adequate to cover risks associated with such use; however
there can be no assurance that existing or future insurance coverage will be
sufficient to cover all product liability risks.
<PAGE> 2
GOVERNMENT REGULATION. The Company's products are subject to the provisions
of the Federal Consumer Product Safety Act and the Federal Hazardous Substances
Act (the "Acts") and the regulations promulgated thereunder. The Acts authorize
the Consumer Product Safety Commission (the "CPSC") to protect the public from
products which present a substantial risk of injury. The CPSC can require the
repurchase or recall by the manufacturer of articles which are found to be
defective and impose fines or penalties on the manufacturer. Similar laws exist
in some states and cities and in other countries in which the Company markets
its products. Any recall of its products could have a material adverse effect on
the Company.
COMPETITION. The juvenile products and home security industries are highly
competitive and include numerous domestic and foreign competitors, some of which
are substantially larger and have greater financial and other resources than the
Company. The Company competes on the basis of product innovations, brand name
recognition, price, quality, customer service and breadth of product line.
COST OF DEBT. Interest rate increases will have an adverse effect on the
Company's earnings.
INTERNATIONAL SALES AND EXPANSION. The Company is actively attempting to
expand its international sales. In 1996, international sales represented 21% of
the Company's revenue. To the extent that customers of the Company's products
pay for their purchases in U.S. dollars, currency fluctuations which favor the
U.S. dollar could have a material adverse effect on the Company's business and
its results of operations.
