<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 April 4, 1998
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 April 30, 1998 was
7,226,372 shares of Common Stock, $.01 par value.
<PAGE> 2
SAFETY 1ST, INC.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS AS OF APRIL 4, 1998
AND JANUARY 3, 1998 (Unaudited) 3
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 4, 1998
AND MARCH 31, 1997 (Unaudited) 5
STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED APRIL 4, 1998
AND MARCH 31, 1997 (Unaudited) 6
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Unaudited) 8
PART II - OTHER INFORMATION 9
SIGNATURES 10
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SAFETY 1ST, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
(in thousands except share data)
ASSETS
<TABLE>
<CAPTION>
April 4, January 3,
1998 1998
-------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,871 $ 839
Accounts receivable, less allowance for
doubtful accounts of $1,700 in 1998 and 1997 29,554 23,411
Inventory 16,502 16,372
Prepaid expenses and other current assets 2,511 1,190
Deferred income taxes 3,300 3,300
------- -------
Total current assets 53,738 45,112
------- -------
PROPERTY AND EQUIPMENT, AT COST
Molds and tools 11,744 11,724
Computer equipment and software 2,374 2,324
Furniture and fixtures 2,204 2,115
Warehouse equipment 2,272 2,131
Leasehold improvements 1,747 1,676
------- -------
20,341 19,970
Less - accumulated depreciation and amortization (8,243) (7,305)
------- -------
Net property and equipment 12,098 12,665
------- -------
OTHER ASSETS
Molds in process 2,427 1,568
Software systems in process 5,006 5,006
Goodwill, net of accumulated amortization of
$634 ($561 in 1997) 6,472 6,546
Patents and trademarks, net of accumulated
amortization of $489 ($464 in 1997) 637 634
Deferred income taxes 5,834 6,300
Deferred financing costs and other assets 1,608 1,702
------- -------
Total other assets 21,984 21,756
------- -------
$87,820 $79,533
======= =======
</TABLE>
The accompanying notes are an integral part of these Condensed Financial
Statements
3
<PAGE> 4
SAFETY 1ST, INC.
CONDENSED BALANCE SHEETS - CONTINUED
(UNAUDITED)
(in thousands except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
April 4, January 3,
1998 1998
-------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Revolving credit facility $ 29,073 $ 25,427
Accounts payable 11,846 7,536
Accrued expenses 7,584 7,149
Notes payable and current portion of long-term debt 3,183 3,763
-------- --------
Total current liabilities 51,686 43,875
Long-term debt 8,345 8,855
-------- --------
Total liabilities 60,031 52,730
-------- --------
COMMITMENTS AND CONTINGENCIES - -
REDEEMABLE PREFERRED STOCK
$1.00 par value, 100,000 shares of Preferred Stock
authorized; 15,000 shares issued and outstanding;
$16,364 liquidation preference 16,364 15,839
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, 15,000,000 shares
authorized, 7,194,788 shares issued and
outstanding (7,187,288 in 1997) 72 72
Additional paid-in capital 40,290 40,242
Accumulated deficit (28,937) (29,350)
-------- --------
Total stockholders' equity 11,425 10,964
-------- --------
$ 87,820 $ 79,533
======== ========
</TABLE>
The accompanying notes are an integral part of these Condensed Financial
Statements
4
<PAGE> 5
SAFETY 1ST, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
April 4, March 31,
1998 1997
-------- ---------
<S> <C> <C>
Net sales $30,936 $24,269
Cost of sales 18,594 14,676
------- -------
Gross profit 12,342 9,593
Selling, general and administrative expenses 9,930 8,127
------- -------
Operating income 2,412 1,466
Interest expense 925 1,153
------- -------
Income before income taxes 1,487 313
Income tax expense 550 116
------- -------
Net Income 937 197
Dividends on redeemable preferred stock 524 -
------- -------
Net income available to common shareholders $ 413 $ 197
======= =======
Basic earnings per common share $ 0.06 $ 0.03
======= =======
Diluted earnings per common share $ 0.05 $ 0.03
======= =======
Shares used to compute basic earnings per common share 7,188 7,185
======= =======
Shares used to compute diluted earnings per common share 8,617 7,388
======= =======
</TABLE>
The accompanying notes are an integral part of these Condensed Financial
Statements
5
<PAGE> 6
SAFETY 1ST, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
April 4, March 31,
1998 1997
-------- ---------
<S> <C> <C>
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Net income $ 937 $ 197
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation 939 1,169
Amortization 182 256
Deferred income taxes 466 -
------- -------
Net cash provided by operating activities
before changes in assets and liabilities: 2,524 1,622
Changes in assets and liabilities (Increase)
decrease in:
Accounts receivable (6,143) (2,880)
Inventory (130) 4,117
Prepaid expenses and other assets (1,216) 238
Tax refund receivable - 5,027
Increase (decrease) in:
Accounts payable and accrued expenses 4,745 (7,106)
------- -------
Net cash (used in) provided by operating activities (220) 1,018
------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of property and equipment (1,231) (709)
Acquisition of patents and trademarks (28) -
Increase in software system in process - (957)
------- -------
Net cash used in investing activities (1,259) (1,666)
------- -------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net proceeds on revolving credit facility 3,647 2,320
Payment on term loan (625) -
Proceeds from exercised stock options 48 111
Loan acquisition fees (92) (18)
Repayment of notes payable and capital lease obligation (467) (862)
Loan from officer - 250
------- -------
Net cash provided by financing activities 2,511 1,801
------- -------
Net increase in cash 1,032 1,153
Cash Balance - beginning of period 839 509
------- -------
Cash Balance - end of period $ 1,871 $ 1,662
======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid for during the period for:
Interest $ 884 $ 938
------- -------
Taxes $ - $ -
======= =======
</TABLE>
The accompanying notes are an integral part of these Condensed Financial
Statements
6
<PAGE> 7
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 the 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 the 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
January 3,1998.
The results of the operations for the three months ended April 4, 1998 are
not necessarily indicative of the operating results for the full year.
7
<PAGE> 8
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 Annual Report on Form 10-K for the year ended
January 3,1998, and incorporated herein by reference.
Results of Operations:
THREE MONTHS ENDED APRIL 4, 1998 AND MARCH 31, 1997
Net sales for the three months ended April 4, 1998 increased 27.5% to
$30,936,000 from $24,269,000 in the comparable period of 1997. Juvenile sales
comprised 98% of the business while home security sales made up the balance.
The majority of the increase in net sales is due to sales of new products
introduced in 1998, amounting to $3,734,000, in addition to increased sales
from existing products as the Company obtained greater distribution of its
core product line.
Gross profit for the three months ended April 4, 1998 was $12,342,000, or
39.9% of net sales, as compared to $9,593,000, or 39.5% of net sales, for the
three months ended March 31, 1997.
Selling, general and administrative expenses increased by $1,803,000 to
$9,930,000, or 32.1% of net sales, for the three months ended April 4, 1998,
from $8,127,000, or 33.5% of net sales for the comparable period in 1997. The
increase is primarily attributable to an increase in selling related expenses
caused by the sales increase as well as an increase in payroll and payroll
related costs. The reduction as a percentage of sales is due to the
leveraging of fixed costs over a higher sales base.
As a result of the above factors, operating income for the three months ended
April 4, 1998 was $2,412,000. The operating income for the comparable period
last year was $1,466,000.
Interest expense decreased to $925,000 for the three months ended April 4,
1998 from $1,153,000 for the three months ended March 31, 1997 due to the
refinancing of the Company's credit facility in July 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for working capital and
capital expenditures. The Company's capital needs are provided by
availability under the Company's term loan and revolving credit facility,
as well as through internally generated funds.
Net cash used in operations was $220,000 for the three months ended April 4,
1998. The major use of cash was an increase in accounts receivable of
$6,143,000 related to the increase in sales offset by an increase in accounts
payable and accrued expenses of $4,745,000.
Cash flows used in investing activities was $1,259,000 related to the
purchase of property and equipment, principally molds for new product
introductions. Net cash provided by financing activities was $2,511,000,
primarily related to borrowings from the Company's revolving credit facility
of $3,647,000 offset by payment on the term loan of $625,000 and repayment of
notes payable of $413,000 issued in connection with the 1996 acquisition of
Orleans Juvenile Products, Inc.
The Company believes that its cash, together with borrowing availability
under its credit facility will be sufficient to meet its operating and other
cash requirements for at least the next twelve months.
8
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On April 2, 1998, the Company issued 15,000 shares of Series B Redeemable
Preferred Stock ($1.00 par value per share) (the "Series B Preferred
Shares"), 50% to BT Capital Partners, Inc. and 50% to Bear, Stearns & Co.,
Inc. (collectively, the "Investors"), in exchange for an equal number of
shares of Series A Redeemable Preferred Stock ($1.00 par value per share)
(the "Series A Preferred Shares") surrendered by the Investors. The Series B
Preferred Shares contain substantially identical features to the Series A
Preferred Shares other than that the Series B Preferred Shares provide for
immediate redemption at either the Company's option or, if certain conditions
are met, at the Investors' option. The exchange of shares was made pursuant
to an agreement between the Company and the Investors in December 1997 to
change the redemption features of the preferred shares. The Series B
Preferred Shares were issued pursuant to an exemption from registration under
Section 3 (a) (9) of the Securities Act of 1933.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
EXHIBIT 11 - Statement re: Computation of earnings per share
EXHIBIT 27 - Financial Data Schedule
EXHIBIT 99 - Important Factors Regarding Forward-Looking Statements (Included
as Exhibit 99 to Registrant's Annual Report on Form 10-K for the year ended
January 3, 1998, and incorporated herein by reference).
The Company did not file any reports on Form 8-K during the period ended
April 4, 1998.
9
<PAGE> 10
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 15, 1998 By: /s/ Michael Lerner
----------------------------
Michael Lerner
Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1998 By: /s/ Richard E. Wenz
------------------------------
Acting Chief Financial Officer
(Principal Financial Officer)
10
<PAGE> 11
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
11 Statement re: Computation of earnings per share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
SAFETY 1ST, INC.
BASIC AND DILUTED
EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
April 4, March 31,
1998 1997
---------- ----------
<S> <C> <C>
BASIC EARNINGS PER COMMON SHARE
Earnings available for common shares $ 413,000 $ 197,000
Basic earnings per common share $ 0.06 $ 0.03
SHARES USED IN COMPUTATION
Weighted average common shares outstanding 7,187,955 7,185,154
========== ==========
DILUTED EARNINGS PER COMMON SHARE
Earnings available for common
shares and common stock equivalent shares
deemed to have a dilutive effect $ 413,000 $ 197,000
Diluted earnings per common share $ 0.05 $ 0.03
SHARES USED IN COMPUTATION
Weighted average common shares outstanding 7,187,955 7,185,154
Common stock equivalents - stock options and warrants 1,428,779 202,406
---------- ----------
Total 8,616,734 7,387,560
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Safety 1st,
Inc. Form 10Q for the quarterly period ended April 4, 1998 and is qualified in
its entirety by reference to such form 10Q.
</LEGEND>
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> APR-04-1998
<EXCHANGE-RATE> 1
<CASH> 1,871,000
<SECURITIES> 0
<RECEIVABLES> 31,254,000
<ALLOWANCES> 1,700,000
<INVENTORY> 16,502,000
<CURRENT-ASSETS> 53,738,000
<PP&E> 20,341,000
<DEPRECIATION> 8,243,000
<TOTAL-ASSETS> 87,820,000
<CURRENT-LIABILITIES> 51,686,000
<BONDS> 0
0
16,364,000
<COMMON> 72,000
<OTHER-SE> 11,353,000
<TOTAL-LIABILITY-AND-EQUITY> 87,820,000
<SALES> 30,936,000
<TOTAL-REVENUES> 30,936,000
<CGS> 18,594,000
<TOTAL-COSTS> 18,594,000
<OTHER-EXPENSES> 9,930,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 925,000
<INCOME-PRETAX> 1,487,000
<INCOME-TAX> 550,000
<INCOME-CONTINUING> 937,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 937,000
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.05
</TABLE>
