<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
or
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from April 1, 1997 to June 28, 1997
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 No.)
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 July 31,
1997 was 7,187,288 shares of Common Stock, $.01 par value.
<PAGE> 2
Page 2
SAFETY 1ST, INC.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS AS OF JUNE 28, 1997
AND DECEMBER 31, 1996 (Unaudited) 3
CONDENSED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED JUNE 28, 1997 AND
JUNE 30, 1996 (Unaudited) 5
CONDENSED STATEMENTS OF OPERATONS FOR THE
SIX MONTHS ENDED JUNE 28, 1997 AND
JUNE 30, 1996 (Unaudited) 6
STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS
ENDED JUNE 28, 1997 AND
JUNE 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 11
ITEM 2. CHANGES IN SECURITIES 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
<PAGE> 3
Page 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SAFETY 1ST, INC.
<TABLE>
CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
June 28, December 31,
1997 1996
----------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,039,513 $ 509,403
Accounts receivable, less allowance
for doubtful accounts of $2,000,000
and $3,300,000, respectively 28,530,086 20,237,347
Inventory 13,676,467 17,145,683
Prepaid expenses 724,447 938,288
Tax refund receivable - 5,026,644
Deferred loan acquisition costs, net of accumulated
amortization of $396,144 871,514 -
----------------------------------
Total current assets 44,842,027 43,857,365
----------------------------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization of $6,203,522
and $4,385,545, respectively 12,984,170 12,163,032
----------------------------------
OTHER ASSETS:
Deposits 997,242 3,240,821
Software systems in process 4,240,828 2,155,195
Goodwill, net of amortization of $413,858 and
$267,567, respectively 6,692,263 6,838,554
Deferred income taxes 2,218,000 2,218,000
Patents and trademarks, net of amortization of
$404,498 and $353,746, respectively 617,855 662,607
Other 466,129 141,078
----------------------------------
Total other assets 15,232,317 15,256,255
----------------------------------
$73,058,514 $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
<PAGE> 4
Page 4
SAFETY 1ST, INC.
<TABLE>
CONDENSED BALANCE SHEETS - CONTINUED
(Unaudited)
<CAPTION>
June 28, December 31,
1997 1996
-----------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving credit facility $ 42,608,759 $ 36,652,657
Accounts payable and accrued expenses 25,165,548 30,210,729
Notes payable and current portion of capital lease obligation 1,492,779 2,074,403
-----------------------------------
Total current liabilities 69,267,086 68,937,789
OTHER LIABILITIES
Capital lease obligation, net of current portion 191,893 260,651
-----------------------------------
Total liabilities 69,458,979 69,198,440
-----------------------------------
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 71,873 71,781
Additional paid in capital 34,607,232 34,496,395
Accumulated Deficit (31,079,570) (32,489,964)
-----------------------------------
Total stockholders' equity 3,599,535 2,078,212
-----------------------------------
$ 73,058,514 $ 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
<PAGE> 5
Page 5
SAFETY 1ST, INC.
<TABLE>
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended
June 28, June 30,
1997 1996
----------------------------------
<S> <C> <C>
Net sales $29,128,969 $ 28,609,210
Cost of sales 17,429,046 23,323,042
----------------------------------
Gross profit 11,699,923 5,286,168
Selling, general and administrative expenses 8,663,734 17,599,877
----------------------------------
Operating income (loss) 3,036,189 (12,313,709)
Interest expense 1,110,483 866,383
----------------------------------
Income (loss) before income taxes (benefit) 1,925,706 (13,180,092)
Income tax expense (benefit) 712,511 (4,987,007)
----------------------------------
Net income (loss) $ 1,213,195 $ (8,193,085)
==================================
Net income (loss) per share $ 0.17 $ (1.14)
==================================
Weighted average shares outstanding 7,187,288 7,155,616
==================================
</TABLE>
The accompanying notes are an integral part of these Condensed Financial
Statements
<PAGE> 6
Page 6
SAFETY 1ST, INC.
<TABLE>
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Six Months Ended
June 28, June 30,
1997 1996
-----------------------------------
<S> <C> <C>
Net sales $53,398,327 $ 60,615,648
Cost of sales 32,105,347 42,610,813
-----------------------------------
Gross profit 21,292,980 18,004,835
Selling, general and administrative expenses 16,790,583 26,937,880
-----------------------------------
Operating income (loss) 4,502,397 (8,933,045)
(8,933,045)
Interest expense 2,263,765 1,509,203
-----------------------------------
Income (loss) before income taxes (benefit) 2,238,632 (10,442,248)
Income taxes expense (benefit) 828,238 (3,953,178)
-----------------------------------
Net income (loss) $ 1,410,394 $ (6,489,070)
===================================
Net income (loss) per share $ 0.20 $ (0.91)
===================================
Weighted average shares outstanding 7,186,215 7,155,616
===================================
</TABLE>
The accompanying notes are an integral part of these Condensed Financial
Statements
<PAGE> 7
Page 7
SAFETY 1ST, INC.
<TABLE>
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
June 28, June 30,
1997 1996
-----------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,410,394 $(6,489,070)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 1,817,977 2,063,325
Amortization 593,188 262,632
Write-off property and equipment - 2,800,000
-----------------------------------------
Net cash provided by (used in) operating activities
before changes in assets and liabilities: 3,821,559 (1,363,113)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (8,292,739) (3,886,339)
Inventory 3,469,216 1,467,197
Prepaid expenses 213,839 439,373
Tax refund receivable 5,026,644 (3,113,437)
Deferred income taxes - 100,477
Other assets (325,051) 61,866
Decrease in:
Accounts payable and accrued expenses (5,312,213) (1,243,384)
-----------------------------------------
Net cash used in operating activities $(1,398,745) $(7,537,360)
-----------------------------------------
Cash flows used in investing activities:
Acquisitions - (2,304,263)
Acquisition of property and equipment (1,378,504) (3,544,435)
Increase in system software in process (2,085,633) -
Acquisition of patents and trademarks (6,000) (108,381)
-----------------------------------------
Net cash used in investing activities $(3,470,137) $(5,957,079)
-----------------------------------------
Cash flows provided by financing activities:
Net proceeds on revolving credit facility 5,956,102 14,540,000
Repayment of bank debt assumed and notes payable (900,382) (683,385)
Proceeds from exercised stock options 110,930 60,000
Loan acquisition fees (17,658) (374,336)
Loan from officer 250,000 -
-----------------------------------------
Net cash provided by financing activities $ 5,398,992 $13,542,279
-----------------------------------------
Net increase in cash 530,110 47,840
Cash and cash equivalents - beginning
of period 509,403 24,456
-----------------------------------------
Cash and cash equivalents - end of period $ 1,039,513 $ 72,296
=========================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for
Interest $ 1,023,000 $ 1,147,887
=========================================
Taxes $ - $ 57,000
=========================================
</TABLE>
The accompanying notes are an integral part of these Condensed Financial
Statements
<PAGE> 8
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.
In 1997, common stock equivalents are not reflected in the net income per
share computation presented in the condensed statements of income, as the
dilutive effect is less than 3%.
The results of the operations for the six months ended June 28, 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 results 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 Company will allocate the proceeds
from the redeemable preferred stock and the warrants based on the estimated
value of such warrants at the issue date. The balance of deferred loan
acquisition costs remaining at June 28, 1997 from the refinanced credit
facility of approximately $870,000 will be charged off to expense in the
third quarter of 1997.
<PAGE> 9
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 June 28, 1997 and June 30, 1996
--------------------------------------------------
Net sales for the three months ended June 28, 1997 increased 1.8% to
approximately $29,129,000 from $28,609,000 in the comparable period in 1996.
The increase is due to an increase in sales of existing products carried
forward from the previous years' line from $17,500,000 in 1996 to
$24,200,000 in 1997. This increase was partially offset by a decrease in
new product sales due, in part, to 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. New
product sales for the three months ended June 28, 1997 were approximately
$4,900,000 versus $11,100,000 for the same period in 1996. Juvenile sales
comprised 99% of the business while home security sales made up the
balance.
Gross profit for the three months ended June 28, 1997 was $11,700,000, or
40.2% of net sales as compared to $5,286,000 or 18.5% for the three months
ended June 30, 1996 (or as compared to $11,340,000 or 38.0% for the same
period last year, excluding the 1996 second quarter special charges).
Selling, general and administrative expenses decreased by $8,936,000 to
$8,664,000 for the three months ended June 28, 1997 from $17,600,000 for the
comparable 1996 period. Excluding the 1996 second quarter special charges of
$7,747,000, this decrease would have been $1,189,000. The decrease is
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 June 28, 1997 was $3,036,000. The operating loss for the comparable
period last year was ($12,314,000).
Interest expense increased to $1,110,000 for three months ended June 28,
1997 from $866,000 for the same period in 1996 due to the inclusion of
$235,000 of loan acquisition fee amortization and additional costs of
borrowings under the revolving credit facility.
Six Months Ended June 28, 1997 and June 30, 1996
------------------------------------------------
Net sales for the six months ended June 28, 1997 decreased 11.9% to
$53,398,000 from $60,616,000 in the comparable period in 1996 due to a
decrease in sales of new products from $19,600,000 in 1996 compared to
$5,600,000 in 1997 due, in part, to 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 $41,000,000 in 1996 to
$47,800,000 in 1997.
Gross profit for the six months ended June 28, 1997 was $21,293,000 or 39.9%
of net sales versus $18,005,000, or 29.7% for the comparable period in 1996.
Excluding special charges in 1996, gross profit would have been $24,058,000
or 38.9% of net sales.
Selling, general and administrative expenses were $16,791,000 for the six
months ended June 28, 1997.
<PAGE> 10
Page 10
For the same period ending 1996, selling, general and administrative
expenses were $26,938,000, a decrease of $10,147,000. Excluding 1996 second
quarter charges of $7,747,000, the decrease would have been $2,400,000. This
decrease is attributable to the reduction of the variable cost component of
selling, general, and administrative costs consistent with the decrease in
sales, and a decrease due to the continued focus on cost controls, primarily
in the areas of temporary help, professional and consulting fees.
As a result of the above factors, operating income was $4,502,000 for the
six months ended June 28, 1997 versus an operating loss of ($8,933,000)
during the same period in 1996.
Interest expense increased from $1,509,000 for the six months ended June 30,
1996 to $2,264,000 for the same period in 1997 due to the inclusion of
$396,000 of loan acquisition fee amortization and additional costs of
borrowing under the revolving credit facility note.
Liquidity and Capital Resources
-------------------------------
During 1995 and 1996, the Company financed its operations primarily through
borrowings under its term-loan and working capital facility and internally
generated funds. In January 1997, the Company entered into a $45,000,000
credit facility with a new lender consisting of a $25,000,000 term-loan and
a $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. The Company's borrowing at
June 28, 1997 under this arrangement is classified as short-term.
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 Company will allocate the proceeds
from the redeemable preferred stock and the warrants based on the estimated
value of such warrants at the issue date. The balance of deferred loan
acquisition costs remaining at June 28, 1997 from the refinanced credit
facility of approximately $870,000 will be charged off to expense in the
third quarter of 1997.
In addition to refinancing the revolving credit facility, management
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 by operations decreased to $1,399,000 for the six months ended
June 28, 1997 versus net cash used for operations of $7,537,000 for the six
months ended June 30, 1996. The primary cause of the improvement was the
decrease in the inventory balance and receipt of a tax refund receivable
offset by increases in accounts receivable and decreases in accounts payable
and accrued expenses.
Cash flows used in investing activities was $3,470,000 due to the purchase
of property and equipment, principally molds for new products to be
introduced in 1997 and 1998 as well as the purchase and implementation of an
integrated computer system expected to become fully operational during the
forth quarter of 1997. During 1997, net cash provided by financing
activities was $5,399,000, primarily related to proceeds from the Company's
revolving credit facility offset by repayment of the note 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.
<PAGE> 11
Page 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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, the outcome of
which could have a material adverse effect on the financial position of the
Company.
Item 2. Changes in Securities.
(b) On July 30, 1997, the Company entered into a $55 million
refinancing of its business comprised of a $40 million credit facility and a $15
million private placement of 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 (subject to adjustment) of the Company's Common Stock
(the "Warrants"). The Preferred Shares have certain dividend and liquidation
rights that are senior to or otherwise affect the rights of the holders of the
Company's Common Stock as follows: (i) no dividends may be paid on the Company's
Common Stock without the affirmative consent or approval of the holders of a
majority of the Preferred Shares outstanding; and (ii) in the event of the
liquidation, dissolution or winding up of the Company, the holders of the
Preferred Shares are entitled to receive for each Preferred Share, before any
payment is made to the holders of the Common Stock, an amount for each
Preferred Share equal to $1,000 plus all accrued but unpaid dividends. In
addition, no dividends may be paid on the Company's Common Stock so long as the
purchasers of the Preferred Shares and Warrants (or their successors, assigns
or transferees) hold Common Stock and/or rights to acquire Common Stock
pursuant to Warrants (collectively the "Common Equivalents") equal to 5% or
more of the Common Equivalents, without the consent of the purchasers (or their
successors, assigns or transferees), as more particularly set forth in the
Stock and Warrant Purchase Agreement executed in connection with the private
placement. Further, the Company is prohibited by covenants in its credit
facility from paying cash dividends so long as the term loan under the credit
facility is outstanding, and thereafter unless at least $3 million of Unused
Availability (as defined in the credit facility) would remain after dividend
payment.
Item 4. Submission of Matters to a Vote of Security-Holders.
(a) An Annual Meeting of Stockholders of the Company was held on
May 28, 1997.
(b) The directors listed in subsection (c) were elected at the
meeting. The Company has no other directors whose terms of
office continued after the meeting.
(c) The results of the proposals submitted for vote were as
follows:
(i) Election of Directors
Number of Shares
----------------
For Withhold
--- Authority
---------
Michael Lerner 5,636,418 340,757
Michael S. Bernstein 5,636,418 340,757
Curt R. Feuer 5,636,418 340,757
Robert J. Drummond 5,636,418 340,757
Laurence S. Levy 5,636,418 340,757
Mark Owens 5,636,518 340,657
<PAGE> 12
Page 12
(ii) Proposal to approve the adoption of the Company's
1996 Employee and Director Stock Option Plan
Number of Shares
----------------
For 4,615,701
Against 482,296
Abstain 12,295
Broker non-votes 866,883
(iii) Proposal to approve the adoption of the Company's 1996
Nonqualified Stock Option Plan
Number of Shares
----------------
For 4,605,181
Against 484,893
Abstain 12,333
Broker non-votes 874,768
(iv) Proposal to ratify the appointment of Grant Thorton LLP as
independent accountants for the current fiscal year.
Number of Shares
----------------
For 5,951,075
Against 17,160
Abstain 8,940
Broker non-votes --
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this report:
Exhibit Description
------- -----------
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
99 Important Factors Regarding Forward-Looking Statements
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on May 1, 1997, which disclosed
that the Company had changed its fiscal year-end.
<PAGE> 13
Page 13
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 hereunto duly authorized.
SAFETY 1ST, INC.
a Massachusetts corporation
Date: August 11, 1997 By: /S/ MICHAEL LERNER
--------------------
Michael Lerner,
Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 1997 By: /S/ RICHARD CATURANO
-----------------------
Richard Caturano,
Chief Financial Officer
(Principal Financial Officer)
<PAGE> 14
Page 14
EXHIBIT INDEX
Exhibit Description Page
------- ----------- ----
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
99 Important Factors Regarding Forward-Looking Statements
<PAGE> 1
EXHIBIT 11
SAFETY 1ST, INC.
<TABLE>
PRIMARY NET INCOME
PER SHARE AND FULLY DILUTED
NET INCOME (LOSS) PER SHARE
Three Months Ended
June 28, June 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 $1,213,195 $(8,193,085)
Primary net income (loss) per share $ 0.17 $ (1.14)
SHARES USED IN COMPUTATION
Weighted average common shares
outstanding 7,187,288 7,155,616
Common stock equivalents - stock options - -
-------------------------
Total 7,187,288 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 $1,213,195 $(8,193,085)
Fully diluted net income(loss) per share $ 0.17 $ (1.14)
SHARES USED IN COMPUTATION
Weighted average common shares
outstanding 7,187,288 7,155,616
Common stock equivalents - stock options - -
-------------------------
Total 7,187,288 7,155,616
=========================
</TABLE>
<PAGE> 2
EXHIBIT 11 Continued
SAFETY 1ST, INC.
<TABLE>
PRIMARY NET INCOME
PER SHARE AND FULLY DILUTED
NET INCOME (LOSS) PER SHARE
<CAPTION>
Six Months Ended
June 28 June 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 $1,410,394 $(6,489,070)
Primary net income (loss) per share $ 0.20 $ (0.91)
SHARES USED IN COMPUTATION
Weighted average common shares
outstanding 7,186,215 7,155,616
Common stock equivalents - stock options - -
---------------------------------
Total 7,186,215 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 $1,410,394 $(6,489,070)
Fully diluted net income(loss) per share $ 0.20 $ (0.91)
SHARES USED IN COMPUTATION
Weighted average common shares
outstanding 7,186,215 7,155,616
Common stock equivalents - stock options - -
---------------------------------
Total 7,186,215 7,155,616
=================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SAFETY 1ST
FORM 100 FOR THE QUARTELY PERIOD ENDED JUNE 28, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 100.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-28-1997
<EXCHANGE-RATE> 1
<CASH> 1,039,513
<SECURITIES> 0
<RECEIVABLES> 30,530,086
<ALLOWANCES> 2,000,000
<INVENTORY> 13,676,467
<CURRENT-ASSETS> 44,842,027
<PP&E> 19,187,692
<DEPRECIATION> 6,203,522
<TOTAL-ASSETS> 73,058,514
<CURRENT-LIABILITIES> 69,267,086
<BONDS> 0
0
0
<COMMON> 71,873
<OTHER-SE> 3,527,662
<TOTAL-LIABILITY-AND-EQUITY> 73,058,514
<SALES> 29,128,969
<TOTAL-REVENUES> 29,128,969
<CGS> 17,429,046
<TOTAL-COSTS> 17,429,046
<OTHER-EXPENSES> 8,663,734
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,110,483
<INCOME-PRETAX> 1,925,706
<INCOME-TAX> 712,511
<INCOME-CONTINUING> 1,213,195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,213,195
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</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 would have a material adverse affect on the Company's business and its
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 would 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, could 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.
