<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q/A
(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 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
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 October 31,
1996 was 7,155,616 shares of Common Stock, $.01 par value.
___________________
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SAFETY 1ST, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS AS OF DECEMBER 31,
1995 AND SEPTEMBER 30, 1996 (UNAUDITED) 3
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
AND 1996 5
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND 1996 6
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND 1996 7
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 14
EXHIBIT INDEX 15
</TABLE>
<PAGE> 3
Page 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SAFETY 1ST, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 24,456 $ 509,756
Accounts receivable, less allowance
for doubtful accounts of $1,900,000
and $3,229,639 respectively 26,923,557 28,846,530
Inventory 26,286,881 27,901,915
Prepaid expenses 2,956,653 3,140,357
Prepaid income taxes 2,311,275 5,122,156
Deferred income taxes 882,000 781,544
------------ ------------
Total current assets 59,384,822 66,302,258
------------ ------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization of $4,544,025
and $7,769,065 respectively 18,085,001 23,748,657
------------ ------------
OTHER ASSETS:
Deposits 6,261,906 2,660,867
Goodwill, net of amortization of $222,029 -- 8,250,864
Deferred acquisition costs 1,492,678 --
Patents and trademarks, net of amortization of
$217,306 and $315,802 respectively 783,361 821,200
Other 311,023 981,169
------------ ------------
8,848,968 12,714,100
------------ ------------
$ 86,318,791 $102,765,015
============ ============
</TABLE>
The Condensed Balance Sheet at December 31, 1995 has been derived from the
audited financial statements at that date.
The accompanying notes are an integral part of these Condensed Financial
Statements
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SAFETY 1ST, INC.
CONDENSED BALANCE SHEETS - CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving credit facility $ 25,390,000 $ 40,946,514
Accounts payable and accrued expenses 12,511,676 15,899,432
Notes payable and current portion of capital lease obligation -- 3,275,871
------------ ------------
Total current liabilities 37,901,676 60,121,817
OTHER LIABILITIES
Capital lease obligation, net of current portion -- 300,627
Deferred income taxes 2,398,000 2,398,000
------------ ------------
Total liabilities 40,299,676 62,820,444
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value,
100,000 shares authorized, no
shares outstanding -- --
Common stock, $.01 par value, 15,000,000
shares authorized, 7,150,616 and
7,155,616 issued at December 31, 1995
and September 30, 1996, respectively 71,506 71,556
Additional paid in capital 33,588,361 34,235,911
Retained earnings 12,359,248 5,637,104
------------ ------------
Total stockholders' equity 46,019,115 39,944,571
------------ ------------
$ 86,318,791 $102,765,015
============ ============
</TABLE>
The Condensed Balance Sheet at December 31, 1995 has been derived from the
audited financial statements at that date.
The accompanying notes are an integral part of these Condensed Financial
Statements
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Page 5
SAFETY 1ST, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30
-------------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net sales $26,683,167 $29,225,848
Cost of sales 16,617,174 19,551,432
----------- -----------
Gross profit 10,065,993 9,674,416
Selling, general and administrative expenses 6,639,024 8,870,450
----------- -----------
Operating income 3,426,969 803,966
Interest expense 412,335 815,836
----------- -----------
Income (loss) before income taxes 3,014,634 (11,870)
Income taxes expense (benefit) 1,176,000 (221,205)
----------- -----------
Net income (loss) $ 1,838,634 $ (233,075)
=========== ===========
Net income (loss) per share $ 0.26 $ (0.03)
=========== ===========
Shares used in per share calculation 7,133,119 7,155,616
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Condensed Financial
Statements
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SAFETY 1ST, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
-------------------------------
1995 1996
----------- ------------
<S> <C> <C>
Net sales $80,887,871 $ 89,841,499
Cost of sales 51,004,544 62,162,245
----------- ------------
Gross profit 29,883,327 27,679,254
Selling, general and administrative expenses 19,839,681 35,808,326
----------- ------------
Operating income (loss) 10,043,646 (8,129,072)
Interest expense 698,929 2,325,039
----------- ------------
Income (loss) before income taxes 9,344,717 (10,454,111)
Income taxes expense (benefit) 3,644,000 (3,731,967)
----------- ------------
Net income (loss) $ 5,700,717 $ (6,722,144)
=========== ============
Net income (loss) per share $ .80 $ (0.94)
=========== ============
Shares used in per share calculation 7,126,512 7,155,616
=========== ============
</TABLE>
The accompanying notes are an integral part of these Condensed Financial
Statements
<PAGE> 7
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SAFETY 1ST, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
---------------------------------
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 5,700,717 $ (6,722,144)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation 1,665,984 3,190,578
Amortization 65,507 439,328
Write-off property and equipment -- 1,370,554
Stock compensation expense -- 587,603
Net cash provided by (used in) operating activities
before changes in assets and liabilities: 7,432,208 (1,134,081)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (11,169,785) (5,818,093)
Inventory (11,793,386) 1,471,025
Prepaid expenses (40,859) (307,280)
Prepaid income tax 525,694 (2,941,154)
Deferred income taxes 361,000 100,456
Other assets -- (139,593)
Increase in:
Accounts payable and accrued expenses 1,771,762 3,088,725
------------ ------------
Net cash used in operating activities (12,913,366) (5,679,995)
------------ ------------
Cash flows used in investing activities:
Acquisitions -- (2,195,730)
Acquisition of property and equipment (9,910,595) (3,220,714)
(Increase) decrease in deposits 312,665 (2,405,709)
Acquisition of patents and trademarks (149,386) (136,335)
------------ ------------
Net cash used in investing activities (9,747,316) (7,958,488)
------------ ------------
Cash flows provided by (used in) financing activities:
Net proceeds on revolving credit facility 21,880,000 15,556,514
Repayment of bank debt assumed and notes payable -- (894,499)
Proceeds from exercised stock options 680,556 60,000
Loan acquisition fees -- (598,232)
------------ ------------
Net cash provided by financing activities 22,560,556 14,123,783
------------ ------------
Net increase (decrease) in cash (100,126) 485,300
Cash and cash equivalents - beginning
of period
119,181 24,456
------------ ------------
Cash and cash equivalents - end of period $ 19,055 $ 509,756
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for
Interest $ 615,408 $ 2,184,760
============ ============
Taxes $ 2,757,000 $ 57,000
============ ============
Non-Cash investing activities:
Deposits transferred to property and equipment -- $ 6,160,499
============
Capital lease obligation -- $ 486,964
============
</TABLE>
See Note 2 to the financial statements for details of other non-cash
items related to acquisitions
<PAGE> 8
Page 8
The accompanying notes are an integral part of these Condensed Financial
Statements
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, 1995.
In 1995, 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%.
Assets and liabilities of foreign subsidiaries, where the functional
currency is the local currency, are translated at current exchange rates and
the related translation adjustments are reported as a component of
stockholders' equity. Income statement accounts are translated at the
average rates during the period. Foreign currency transaction gains and
losses, as well as translation adjustments for assets and liabilities of
foreign subsidiaries where the functional currency is the dollar, are
included in net income.
The results of the operations for the nine months ended September 30, 1996
are not necessarily indicative of the operating results for the full year.
NOTE 2. ACQUISITIONS
On January 4, 1996, the Company acquired all of the outstanding stock of
EEZI Group Holdings Ltd., a United Kingdom manufacturer and distributor of
child care products, now named Safety 1st (Europe) Ltd., for cash of
$265,000, issuance of notes payable of $1,650,000 (subject to post-closing
adjustments), and payment of acquisition costs of $1,291,000, of which
$1,109,000 was paid in 1995. In addition, the acquisition agreement provides
that if Safety 1st (Europe) Ltd. were to exceed certain net income
thresholds during the first five years subsequent to the acquisition date,
the purchase price would be increased by not more than $3,200,000
(subsequently adjusted to an amount not more than $2,700,000); however, due
to lower than anticipated pre-acquisition earnings by EEZI Group Holdings,
the Company believes that its obligation under this provision will be
significantly less than the maximum potential. The fair value of assets
acquired, including goodwill, was $3,573,000 and liabilities assumed was
$158,000. The acquisition has been recorded using the purchase method of
accounting. The excess of the aggregate purchase price over the fair value
of net assets acquired ($2,729,000) was recognized as goodwill and is being
amortized over 25 years. The net assets acquired primarily included
inventory and fixed assets.
On March 15, 1996, effective February 1, 1996, the Company acquired all of
the outstanding stock of Orleans Juvenile Products Inc., the Canadian
distributor of the Company's products, for cash of $1,067,000, issuance of
notes payable of $1,651,000, and payment of acquisition costs of $845,000,
of which $384,000 was paid in 1995. The fair value of assets acquired,
including goodwill, was $9,632,000 and liabilities assumed was $6,058,000.
<PAGE> 9
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NOTE 2. ACQUISITIONS (continued)
The acquisition was accounted for as a purchase, and accordingly, the
purchase price was allocated to the net assets acquired based upon their
estimated fair value. The excess of the purchase price over the fair value
of assets acquired ($5,519,000) was recognized as goodwill and is being
amortized over 25 years. The net assets acquired primarily included
accounts receivable, inventory, accounts payable and bank debt.
The above allocations of the purchase price to the net assets acquired were
based on preliminary estimates and may be revised at a later date.
The accompanying consolidated statements of income reflect the operating
results of the acquired entities since the effective date of the
acquisitions. Pro forma financial statements have not been presented as
these acquisitions are not considered material to the 1995 results of
operations.
NOTE 3. OTHER MATTERS
The Stock Option Committee of the Board of Directors voted on July 30, 1996,
to amend certain stock option agreements by changing the exercise price to
$6.50 per share. These agreements covered 629,756 shares with original
exercise prices ranging from $12.00 to $27.00 per share.
On September 18, 1996, the Board of Directors adopted, subject to
stockholder approval, the 1996 Employee and Director Stock Option Plan (the
"Employee and Director Plan"). Under the terms of the Employee and Director
Plan, the Company may grant incentive and nonqualified stock options to
employees, directors, advisors and consultants of the Company and its
subsidiaries. A total of 500,000 shares of common stock have been reserved
for issuance under the Employee and Director Plan. Options are exercisable
within ten years (5 years for greater than 10% shareholders with respect to
incentive stock options) of the date of grant at a price determined by the
Board of Directors or a committee of the Board of Directors.
On September 18, 1996, the Board of Directors adopted, subject to
stockholder approval, the 1996 Nonqualified Stock Option Plan (the
"Nonqualified Plan"). Under the terms of the Nonqualified Plan, the Company
may grant nonqualified stock options to directors, employees, advisors,
consultants, vendors, sales representatives, distributors, suppliers,
business partners and service providers of the Company and its subsidiaries,
and others who may contribute to the success of the Company or its
subsidiaries. A total of 500,000 shares of common stock have been reserved
for issuance under the Nonqualified Plan. Options are exercisable within ten
years of the date of grant at a price determined by the Board of Directors
or a committee of the Board of Directors.
On October 18, 1996, the Company and its lenders completed negotiation of a
restructured credit facility and entered into a Third Amendment to Loan
Agreement (the "Third Amendment"). The Forbearance Agreement dated August 2,
1996, between the Company and its lenders, as amended from time to time
thereafter, was terminated pursuant to the terms of the Third Amendment.
Under the terms of the Third Amendment, the credit facility is amended to
provide, among other matters, as follows: the Company's maximum credit
facility is reduced from $50 million to $49 million and now consists of (i)
a revolving credit facility in the maximum amount of $31.3 million with
interest charged at an annual rate of prime plus 1 percentage point, (ii) a
term loan in the amount of $14.7 million with interest charged at an annual
rate of prime plus 1-1/2 percentage points, and (iii) a revolver cushion
credit facility in the maximum amount of currently $1 million, increasing on
December 1, 1996 to $2 million and increasing on February 1, 1997 to $3
million, with interest charged at an annual rate of prime plus 3 percentage
points; the expiration or maturity date is amended from May 31, 1998 to May
31, 1997; the LIBOR rate option is suspended; existing financial covenants
are amended and new financial covenants are added; the Company issued the
lenders 50,000 warrants to purchase the Company's common stock at an
exercise price of $10 per share, but if the shares underlying the warrants
are not registered by December 31, 1996, the warrants terminate and the
Company must pay its lenders a $250,000 fee; and the limited personal
guaranty of the Company's indebtedness under the credit facility, provided
by Michael Lerner, the Company's President and Chief Executive Officer, is
increased in amount.
In connection with the acquisition and restructuring of the credit facility,
the Company has incurred $598,000 through September 30, 1996 in loan
acquisition fees which are being amortized through May, 1997. At September
30, 1996, the unamortized balance was $479,000.
A lawsuit was filed on August 17, 1995 in the United States District Court
for the District of Massachusetts against the Company and various of its
senior executives alleging certain violations of the securities laws. The
action, filed by Sandra Esner, seeks certification as a class. On July 17,
1996 the parties executed a Memorandum of Understanding settling the action,
and on October 28, 1996, the parties executed a Settlement Stipulation with
respect thereto. The Court has scheduled a final settlement hearing for
January 29, 1997. The amount of payment required to be made by the Company
pursuant to the settlement will not be material. Although the Company
believes that it has meritorious defenses to the action and continues to
disclaim any wrongdoing, it believes that the settlement in is the best
interest of the Company and its stockholders.
NOTE 4. RESTATEMENT
The Company restated September 30, 1996 results primarily as a result of
the repricing of certain non-employee stock options in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation." (SFAS 123) The effect of the restatement reduced net
income by approximately $790,000 ($0.11 per share). In addition, certain
amounts were reclassified from selling, general and administrative expenses
and net sales to cost of sales.
<PAGE> 10
Page 10
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 the Company's Report on Form
10-Q for the period ended March 31, 1996, and incorporated herein by reference.
Results of Operations:
Three Months Ended September 30, 1996 and 1995
Net sales for the three months ended September 30, 1996 increased 9.5% to
approximately $29,226,000 from $26,683,000 in the comparable period in 1995.
The increase in net sales is due to the increase in sales of existing juvenile
products (consisting of bulk and peggable products) and home security products
and sales of new products introduced for sale in 1996.
Gross profit for the three months ended September 30, 1996 decreased 3.9% to
approximately $9,674,000 from $10,066,000 in the comparable period in 1995.
Gross profit as a percentage of net sales, including approximately $1,200,000
of close-out sales at lower margins, was 33.1% for the three months ended
September 30, 1996 as compared to 37.7% for the three months ended September
30, 1995.
Selling, general and administrative expenses were approximately $8,870,000 in
the third quarter of 1996 compared to $6,639,000 in the third quarter of 1995,
an increase of 33.6%. As a percentage of net sales, selling, general and
administrative expenses were 30.3% for the quarter versus 24.9% of sales for the
comparable period last year. Approximately 70% of the additional expenses was
attributed to payroll and payroll related costs relating to the continued
building of the Company's infrastructure. The remaining increase is primarily
attributed to an increase in legal and professional fees and in rent and
utilities due to the growth of the Company. In addition, the Company recorded
$587,603 in charges for non-employee stock compensation expense under SFAS 123.
Operating income for the third quarter of 1996 was $804,000, or 2.8% of net
sales. Operating income for the comparable period last year was $3,427,000, or
12.8% of net sales.
Interest expenses increased from $412,000 for the three months ended September
30, 1995 to $816,000 for the same period in 1996 due primarily to additional
borrowings under the line of credit.
Nine Months Ended September 30, 1996 and 1995
Net sales for the nine months ended September 30, 1996, increased 11.1% to
$89,841,000 from $80,888,000 in the comparable period in 1995, due to increases
in sales of existing juvenile products (consisting of bulk and peggable
products) home security and hardware products, and sales of new products
introduced for sale in 1996.
Gross profit decreased 7.4% to approximately $27,679,000 from $29,883,000 in the
comparable period in 1995. Gross profit as a percentage of net sales decreased
to 30.8% compared to 36.9% for the nine months ended September 30, 1996 largely
due to a charge of $5,251,000 taken in the second quarter of 1996 for inventory
valuation adjustments primarily related to the Company's plans to discontinue
lower margin products and a charge of $1,520,000 for vendor credits and
customer credit adjustments.
Selling general and administrative expenses were approximately $19,840,000
during the nine months ended September 30, 1995. For the same period ending
September 30, 1996, selling, general, and administrative expenses were
<PAGE> 11
Page 11
approximately $35,808,000. This increase of approximately $16,000,000 was
partly attributed to (i) a charge of $3,355,000 relating to increases in the
reserves for customer credits on accounts receivable, (ii) additional charges of
$3,320,000 related to write-offs of design, packaging and product development
costs normally amortized evenly over the year and additional legal,
professional, and other accruals, and (iii) a write down of molds and other
capital assets in the amount of $2,800,000 relating primarily to the planned
discontinuance of certain product lines. Selling, general and administrative
expenses also increased due to increases in payroll and payroll related costs
associated with the continued development of the Company's infrastructure, and
increases in legal and professional fees and rent and utilities. In addition,
the Company recorded $587,603 in charges for non-employee stock compensation
expense under SFAS 123.
As a result of the above factors, the Company incurred an operating loss of
$6,722,144 for the nine months ended September 30, 1996 versus operating income
of $5,701,000 during the same period in 1995.
Net interest expenses increased from $699,000 for the nine months ended
September 30, 1995 to $2,325,000 for the same period in 1996 due to increased
borrowings.
Liquidity and Capital Resources
Net cash used in operations decreased from $12,913,000 for the nine months ended
September 30, 1995 to $5,680,000 for the nine months ended September 30, 1996.
Accounts receivable increased approximately $5,818,000 to $28,847,000 at
September 30, 1996. This increase was primarily due to increased sales offset
by certain accounts receivable reserve adjustments. Inventory decreased by
$1,471,000 to $27,902,000 at September 30, 1996 due to an inventory valuation
adjustment, offset by an increase in the inventory balance.
Cash flows used in investing activities was $7,958,000 as a result of the
acquisition of Orleans Juvenile Products, Inc. and EEZI Group Holdings Limited
for cash and issuance of notes payable as well as the continued purchase of
property and equipment, mainly molds for new products to be introduced in 1997
as well as the purchase and implementation of an integrated computer system
expected to be fully operational by early 1997. During 1996, net cash provided
by financing activities was $14,124,000, primarily related to proceeds from the
Company's revolving credit facility.
On October 18, 1996, the Company and its lenders completed negotiation of a
restructured credit facility and entered into a Third Amendment to Loan
Agreement (the "Third Amendment"). The Forbearance Agreement dated August 2,
1996, between the Company and its lenders, as amended from time to time
thereafter, was terminated pursuant to the terms of the Third Amendment. Under
the terms of the Third Amendment, the credit facility is amended to provide,
among other matters, as follows: the Company's maximum credit facility is
reduced from $50 million to $49 million and now consists of (i) a revolving
credit facility in the maximum amount of $31.3 million with interest charged at
an annual rate of prime plus 1 percentage point, (ii) a term loan in the amount
of $14.7 million with interest charged at an annual rate of prime plus 1-1/2
percentage points, and (iii) a revolver cushion credit facility in the maximum
amount of currently $1 million, increasing on December 1, 1996 to $2 million and
increasing on February 1, 1997 to $3 million, with interest charged at an
annual rate of prime plus 3 percentage points; the expiration or maturity date
is amended from May 31, 1998 to May 31, 1997; the LIBOR rate option is
suspended; existing financial covenants are amended and new financial covenants
are added; the Company issued the lenders 50,000 warrants to purchase the
Company's common stock at an exercise price of $10 per share, but if the shares
underlying the warrants are not registered by December 31, 1996, the warrants
terminate and the Company must pay its lenders a $250,000 fee; and the limited
personal guaranty of the Company's indebtedness under the credit facility,
provided by Michael Lerner, the Company's President and Chief Executive Officer,
is increased in amount. The Company believes the restructured credit facility
will be sufficient to meet the Company's working capital and capital expenditure
requirements through May, 1997. The Company anticipates being able to obtain new
financing arrangements at that time.
<PAGE> 12
Page 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
A lawsuit was filed on August 17, 1995 in the United States District Court
for the District of Massachusetts against the Company and various of its senior
executives alleging certain violations of the securities laws. The action, filed
by Sandra Esner, seeks certification as a class. On July 17, 1996 the parties
executed a Memorandum of Understanding settling the action, and on October 28,
1996, the parties executed a Settlement Stipulation with respect thereto. The
Court has scheduled a final settlement hearing for January 29, 1997. The amount
of payment required to be made by the Company pursuant to the settlement will
not be material. Although the Company believes that it has meritorious defenses
to the action and continues to disclaim any wrongdoing, it believes that the
settlement in is the best interest of the Company and its stockholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The following exhibits are filed as part of this report:
EXHIBIT* DESCRIPTION
10.1 Third Amendment to Loan Agreement dated October 18,
1996, among Registrant (and various of its
affiliates), Fleet National Bank, The First
National Bank of Boston and USTrust, amending Loan
Agreement dated March 28, 1996, as amended
10.2 Credit Note in principal amount of $15,650,000.00
dated October 18, 1996, executed by Registrant (and
various of its affiliates), in favor of Fleet
National Bank
10.3 Credit Note in principal amount of $9,390,000.00
dated October 18, 1996, executed by Registrant (and
various of its affiliates), in favor of The First
National Bank of Boston
10.4 Credit Note in principal amount of $6,260,000.00
dated October 18, 1996, executed by Registrant (and
various of its affiliates), in favor of USTrust
10.5 Term Note in principal amount of $7,350,000.00
dated October 18, 1996, executed by Registrant (and
various of its affiliates), in favor of Fleet
National Bank
10.6 Term Note in principal amount of $4,410,000.00
dated October 18, 1996, executed by Registrant (and
various of its affiliates), in favor of The First
National Bank of Boston
10.7 Term Note in principal amount of $2,940,000.00
dated October 18, 1996, executed by Registrant (and
various of its affiliates), in favor of USTrust
<PAGE> 13
Page 13
10.8 Revolver Cushion Note in principal amount of $1,500,000.00
dated October 18, 1996, executed by Registrant (and various
of its affiliates), in favor of Fleet National Bank
10.9 Revolver Cushion Note in principal amount of $900,000.00
dated October 18, 1996, executed by Registrant (and various
of its affiliates), in favor of The First National Bank of
Boston
10.10 Revolver Cushion Note in principal amount of $600,000.00
dated October 18, 1996, executed by Registrant (and various
of its affiliates), in favor of USTrust
10.11 Letter Agreement dated October 18, 1996, executed by
Registrant (and various of its affiliates), in favor of
Fleet National Bank, The First National Bank of Boston, and
USTrust
10.12 Warrant dated October 18, 1996 to purchase 25,000 shares of
Registrant issued to Fleet National Bank
10.13 Warrant dated October 18, 1996 to purchase 15,000 shares of
Registrant issued to The First National Bank of Boston
10.14 Warrant dated October 18, 1996 to purchase 10,000 shares of
Registrant issued to USTrust
10.15 1996 Employee and Director Stock Option Plan adopted as of
September 18, 1996
10.16 1996 Nonqualified Stock Option Plan adopted as of
September 18, 1996
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
99 Important Factors Regarding Forward-Looking Statements
(Included as Exhibit 99 to Registrant's 10-Q for the period
ended March 31, 1996, and incorporated herein by reference).
* Exhibits 11 and 27, which are the only Exhibits containing amended
information, are the only Exhibits filed as an attachment to this amended
report. All other Exhibits are incorporated herein by reference to the original
report on Form 10-Q for the period ended September 30, 1996.
Reports on Form 8-K
The Company filed a Report on Form 8-K on September 20, 1996, which
disclosed that the Company and its lenders entered into a Second
Amendment to Forbearance Agreement to extend the Forbearance
Termination Date (as defined in the Agreement) from September 6, 1996
until September 20, 1996.
The Company filed a Report on Form 8-K on October 11, 1996, which
disclosed that the Company and its lenders entered into a Third, a
Fourth and a Fifth Amendment to Forbearance Agreement to extend the
Forbearance Termination Date (as defined in the Agreement) from
September 20, 1996, until September 27, 1996, October 4, 1996, and
October 11, 1996, respectively.
<PAGE> 14
Page 14
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: May 12, 1997 By: /s/ Michael Lerner
________________________ ------------------------------------
Michael Lerner
Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 1997 By: /s/ Richard Caturano
________________________ ------------------------------------
Richard Caturano
Chief Financial Officer
(Principal Financial Officer)
<PAGE> 15
Page 15
EXHIBIT INDEX
EXHIBIT* DESCRIPTION PAGE
10.1 Third Amendment to Loan Agreement dated October
18, 1996, among Registrant (and various of its
affiliates), Fleet National Bank, The First
National Bank of Boston and USTrust, amending Loan
Agreement dated March 28, 1996, as amended
10.2 Credit Note in principal amount of $15,650,000.00
dated October 18, 1996, executed by Registrant
(and various of its affiliates), in favor of Fleet
National Bank
10.3 Credit Note in principal amount of $9,390,000.00
dated October 18, 1996, executed by Registrant
(and various of its affiliates), in favor of The
First National Bank of Boston
10.4 Credit Note in principal amount of $6,260,000.00
dated October 18, 1996, executed by Registrant
(and various of its affiliates), in favor of
USTrust
10.5 Term Note in principal amount of $7,350,000.00
dated October 18, 1996, executed by Registrant
(and various of its affiliates), in favor of Fleet
National Bank
10.6 Term Note in principal amount of $4,410,000.00
dated October 18, 1996, executed by Registrant
(and various of its affiliates), in favor of The
First National Bank of Boston
10.7 Term Note in principal amount of $2,940,000.00
dated October 18, 1996, executed by Registrant
(and various of its affiliates), in favor of
USTrust
10.8 Revolver Cushion Note in principal amount of
$1,500,000.00 dated October 18, 1996, executed by
Registrant (and various of its affiliates), in
favor of Fleet National Bank
10.9 Revolver Cushion Note in principal amount of
$900,000.00 dated October 18, 1996, executed by
Registrant (and various of its affiliates), in
favor of The First National Bank of Boston
10.10 Revolver Cushion Note in principal amount of
$600,000.00 dated October 18, 1996, executed by
Registrant (and various of its affiliates), in
favor of USTrust
10.11 Letter Agreement dated October 18, 1996, executed
by Registrant (and various of its affiliates), in
favor of Fleet National Bank, The First National
Bank of Boston, and USTrust
10.12 Warrant dated October 18, 1996 to purchase 25,000 shares of
Registrant issued to Fleet National Bank
<PAGE> 16
Page 16
10.13 Warrant dated October 18, 1996 to purchase 15,000 shares of
Registrant issued to The First National Bank of Boston
10.14 Warrant dated October 18, 1996 to purchase 10,000 shares of
Registrant issued to USTrust
10.15 1996 Employee and Director Stock Option Plan adopted
September 18, 1996
10.16 1996 Nonqualified Stock Option Plan adopted
September 18, 1996
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
99 Important Factors Regarding Forward-Looking Statements
(Included as Exhibit 99 to Registrant's 10-Q for the period
ended March 31, 1996, and incorporated herein by reference).
* Exhibits 11 and 27, which are the only Exhibits containing amended
information, are the only Exhibits filed as an attachment to this amended
report. All other Exhibits are incorporated herein by reference to the original
report on Form 10-Q for the period ended September 30, 1996.
<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 30
----------------------------
1995 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 $1,838,634 $ (233,075)
Primary net income (loss) per share $ .25 $ (.03)
SHARES USED IN COMPUTATION
Weighted average common shares
outstanding 7,133,119 7,155,616
Common stock equivalents - stock options 186,940 --
---------- ----------
Total 7,320,059 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 $1,838,634 $ (233,075)
Fully diluted net income (loss) per share $ .25 $ (.03)
SHARES USED IN COMPUTATION
Weighted average common shares
outstanding 7,133,119 7,155,616
Common stock equivalents - stock options 186,940 --
---------- ----------
Total 7,320,059 7,155,616
========== ==========
</TABLE>
Note: The net income per share computation presented in the condensed
statement of income in 1995 does not reflect common stock
equivalents, as the dilutive effect is less then 3%.
<PAGE> 2
EXHIBIT 11 Continued
SAFETY 1ST, INC.
PRIMARY NET INCOME
PER SHARE AND FULLY DILUTED
NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1995 1996
<S> <C> <C>
NET INCOME (LOSS) PER SHARE
Net income (loss) available for common shares
and common stock equivalent shares
deemed to have dilutive effect $5,700,717 $(6,722,144)
Primary net income (loss) per share $ .78 $ (0.94)
SHARES USED IN COMPUTATION
Weighted average common shares outstanding 7,126,512 7,155,616
Common stock equivalents - stock options 220,864 --
---------- -----------
Total 7,347,376 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 $5,700,717 $(6,722,144)
Fully diluted net income per share $ .78 $ (.94)
SHARES USED IN COMPUTATION
Weighted average common shares
outstanding 7,133,119 7,155,616
Common stock equivalents - stock options 186,940 --
---------- -----------
Total 7,320,059 7,155,616
========== ===========
</TABLE>
Note: For the nine months ended September 30, 1995, the net income per
share computation presented in the condensed statement of income
does not reflect common stock equivalents, as the dilutive effect
is less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SAFETY 1ST
FORM 100 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 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-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 509,756
<SECURITIES> 0
<RECEIVABLES> 25,516,891
<ALLOWANCES> 3,229,639
<INVENTORY> 27,901,915
<CURRENT-ASSETS> 66,302,258
<PP&E> 31,517,722
<DEPRECIATION> 7,769,065
<TOTAL-ASSETS> 102,765,015
<CURRENT-LIABILITIES> 60,121,817
<BONDS> 0
0
0
<COMMON> 71,556
<OTHER-SE> 40,075,229
<TOTAL-LIABILITY-AND-EQUITY> 102,765,015
<SALES> 29,225,848
<TOTAL-REVENUES> 29,225,848
<CGS> 19,551,432
<TOTAL-COSTS> 19,551,432
<OTHER-EXPENSES> 8,870,450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 815,836
<INCOME-PRETAX> (11,807)
<INCOME-TAX> (221,205)
<INCOME-CONTINUING> 233,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 233,075
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
