<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.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended April 1, 2000
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)
45 Dan Road
Canton, Massachusetts 02021
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:
(781) 364-3100
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 May 1, 2000 was
8,680,682 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 1, 2000
AND JANUARY 1, 2000 (Unaudited) 3
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 1, 2000
AND APRIL 3, 1999 (Unaudited) 5
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 1, 2000
AND APRIL 3, 1999 (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
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 2. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
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SAFETY 1ST, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
ASSETS: APRIL 1, JANUARY 1,
2000 2000
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 687 $ 987
Accounts receivable, less allowance for doubtful accounts
of $7,072 ($6,332 in 1999) 37,674 26,437
Inventory 22,108 20,165
Prepaid expenses and other assets 2,723 2,499
Deferred Income Taxes 5,000 5,000
--------------------------------------------
TOTAL CURRENT ASSETS 68,192 55,088
--------------------------------------------
Property and equipment, at cost 39,034 35,586
Less - accumulated depreciation and amortization (19,498) (17,671)
--------------------------------------------
NET PROPERTY AND EQUIPMENT 19,536 17,915
--------------------------------------------
OTHER ASSETS
Molds in process 2,480 3,440
Goodwill, net of amortization of $1,218 ($1,145 in 1999) 5,889 5,961
Patents and trademarks, net of amortization of $788 ($724 in
1999) 1,664 1,099
Deferred income taxes 2,228 3,928
Deferred financing costs and other assets 1,915 1,850
--------------------------------------------
TOTAL OTHER ASSETS 14,176 16,278
--------------------------------------------
$ 101,904 $ 89,281
--------------------------------------------
</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)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY: April 1, January 1,
2000 2000
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Revolving credit facility $ 23,900 $ 18,898
Accounts payable and accrued liabilities 25,307 20,169
Notes payable and current portion of capital lease obligation 3,908 3,254
--------------------------------------------
TOTAL CURRENT LIABILITIES 53,115 42,321
OTHER LIABILITIES
Long-term debt 30,917 32,083
Capital lease obligation, net of current portion 763 352
--------------------------------------------
TOTAL LIABILITIES 84,795 74,756
--------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 15,000,000 shares authorized,
8,572,215 issued and outstanding 86 85
Additional paid-in capital 40,938 40,568
Accumulated deficit (23,935) (26,144)
Accumulated other comprehensive income 20 16
--------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 17,109 14,525
--------------------------------------------
$ 101,904 $ 89,281
--------------------------------------------
</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 SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
- -----------------------------------------------------------------------------------------------------------------
APRIL 1, APRIL 3,
2000 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 49,904 $ 39,835
Cost of Sales 30,677 24,310
--------------------------------------------------
GROSS PROFIT 19,227 15,525
Selling, general and administrative expenses 14,050 11,603
--------------------------------------------------
OPERATING INCOME 5,177 3,922
Interest expense 1,615 970
--------------------------------------------------
INCOME BEFORE INCOME TAXES 3,562 2,952
Income tax expense 1,353 1,092
--------------------------------------------------
NET INCOME 2,209 1,860
Dividends on redeemable preferred stock 0 598
--------------------------------------------------
Net income available to common shareholders $ 2,209 $ 1,262
==================================================
Basic earnings per common share $ 0.26 $ 0.17
==================================================
Diluted earnings per common share $ 0.23 $ 0.15
==================================================
Shares used to compute basic earnings per common share 8,531,000 7,231,000
==================================================
Shares used to compute diluted earnings per common share 9,529,000 8,507,000
==================================================
</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 1, APRIL 3,
2000 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 2,209 $ 1,860
Adjustments to reconcile net income to net cash
Used in operating activities:
Depreciation 1,827 1,724
Amortization 233 210
Deferred income taxes 1,700 1,273
------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES
BEFORE CHANGES IN ASSETS AND LIABILITIES: 5,969 5,067
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (11,237) (14,795)
Inventory (1,943) 388
Prepaid expenses and other assets (386) 25
Increase in:
Accounts payable and accrued expenses 4,538 5,840
------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (3,059) (3,475)
------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of property and equipment (1,781) (927)
Acquisition of patents and trademarks (29) (116)
------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (1,810) (1,043)
------------------------------------------
CASH FLOW PROVIDED BY FINANCING ACTIVITIES:
Net borrowings from revolving credit facility 5,002 4,635
Proceeds from exercise of stock options 371 -
Repayment of notes payable and capital lease obligation (808) (675)
Other 4 (3)
------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,569 3,957
------------------------------------------
Net decrease in cash (300) (561)
Cash and cash equivalents - beginning of period 987 898
------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD 687 337
------------------------------------------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 921 $ 871
------------------------------------------
Taxes $ 661 -
------------------------------------------
</TABLE>
The accompanying notes are an integral part of these Condensed
Financial Statements
6
<PAGE> 7
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
Safety 1st, Inc. ("the Company") is a developer, marketer and distributor of
child safety and child care, convenience, and activity 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 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 1, 2000.
The results of the operations for the three months ended April 1, 2000 are not
necessarily indicative of the operating results for the full year.
NOTE 2. SUBSEQUENT EVENT
On April 24, 2000, Dorel Industries, Inc. ("Dorel") announced it had signed an
agreement to purchase the Company. On May 8, 2000, Dorel commenced a tender
offer to purchase all of the outstanding shares of Safety 1st at $13.875 per
share. Upon completion of the tender offer, Dorel will consummate a second-step
merger in which all remaining Safety 1st stockholders also will receive $13.875
per share.
The Board of Directors of Safety 1st approved the transaction and recommended
that Safety 1st stockholders tender their shares to Dorel. In connection with
the Board's approval of the transaction, Goldman, Sachs & Co. delivered its
opinion that the transaction was fair from a financial point of view to Safety
1st stockholders. In addition, certain stockholders of Safety 1st which control
shares representing approximately 58% of the issued and outstanding shares of
Safety 1st, have agreed to tender their shares to Dorel. Completion of the
tender offer and the merger are subject to customary conditions. The tender
offer commenced pursuant to definitive documents filed with the Securities and
Exchange Commission.
NOTE 3. OTHER COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 requires reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive reporting methodology that includes disclosure of
certain financial information that historically has not been recognized in the
calculation of net income. To date the Company's other comprehensive income
items have consisted exclusively of foreign translation adjustments. For the
quarters ended April 1, 2000 and April 3, 1999, comprehensive income
substantially equaled net income.
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 the Company's Annual Report on Form 10-K for
the year ended January 1, 2000, and incorporated herein by reference.
Results of Operations:
THREE MONTHS ENDED APRIL 1, 2000 AND APRIL 3, 1999 ($ in thousands)
Net sales for the three months ended April 1, 2000 increased 25.3% to $49,904
from $39,835 in the comparable period of 1999. The majority of the increase in
net sales is due to sales of new products introduced in 2000, 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 1, 2000 was $19,227, or 38.5% of
net sales, as compared to $15,525, or 39.0% of net sales for the three months
ended April 3, 1999. The decrease in gross profit percentage was primarily due
to an increased mix of bulk product sold in the first quarter of 2000 as
compared to the comparable period in 1999. Since bulk products generally have
lower margins than peg product, the increase in bulk product mix had a negative
impact on gross margin percentage.
Selling, general and administrative expenses increased to $14,050, or 28.2% of
net sales, for the three months ended April 1, 2000 from $11,603, or 29.1% of
net sales for the comparable period in 1999. This 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.
Interest expense increased to $1,615 for the three months ended April 1, 2000
from $970 for the three months ended April 3, 1999 This increase was due to
increased debt levels which resulted from the Company's bank refinancing in
October, 1999. The increase in interest expense is offset on an after-tax basis
by the elimination of preferred stock dividends, as a portion of the proceeds
from the bank refinancing were used to redeem the Company's outstanding
preferred stock.
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 $3,059 for the three months ended April 1, 2000.
The major use of cash was an increase in accounts receivable of $11,237 related
to the increase in sales offset by an increase in accounts payable and accrued
expenses of $4,538.
Cash flows used in investing activities was $1,810 related to the purchase of
property and equipment,
8
<PAGE> 9
principally molds for new product introductions. Net cash provided by financing
activities was $4,569, primarily related to borrowings from the Company's
revolving credit facility.
The Company believes that its cash, together with its current bank facility will
be sufficient to meet its operating and other cash requirements for at least the
next twelve months.
9
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
On September 8, 1997, Tele Electronics (Taiwan) Co., Ltd. ("Tele Electronics")
filed a lawsuit in Middlesex Superior Court in Massachusetts against the Company
alleging breach of contract arising out of two purchase orders. The suit seeks
monetary damages for the alleged breach of contract in the amount of $3.45
million and also alleges unfair and deceptive business practices and seeks,
under this theory, an award equal to three times the alleged contractual
damages. Tele Electronics also sought preliminary injunctive relief which, after
a hearing, the Court denied. The Company denies the allegations of the lawsuit,
believes it has meritorious defenses, is defending the matter vigorously and has
also filed a counterclaim against Tele Electronics for damages caused by various
acts and omissions of Tele Electronics, relating to prior purchase orders.
The Company encounters personal injury litigation related to its products and
other litigation in the ordinary course of business.
With respect to these matters, the Company maintains product liability and other
insurance in amounts deemed adequate by management. The Company believes that
there are no claims or litigation pending, the outcome of which could have a
material adverse effect on the Company's operations or financial condition.
ITEM 2. 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
(b) There were no reports on Form 8-K filed during the three months ended April
1, 2000.
10
<PAGE> 11
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: By: /s/ Michael Lerner
----------------------------------
Michael Lerner
Chief Executive Officer
(Principal Executive Officer)
Date: By: /s/ Richard E. Wenz
----------------------------------
Richard E. Wenz
President and Chief Operating
Officer
Date: By: /s/ Joseph S. Driscoll
----------------------------------
Joseph S. Driscoll
Chief Financial Officer
11
<PAGE> 1
EXHIBIT 11
SAFETY 1ST, INC.
BASIC AND DILUTED
EARNINGS PER COMMON SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
- ----------------------------------------------------------------------------------------------------------------------
APRIL 1, APRIL 3,
2000 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BASIC EARNINGS PER COMMON SHARE
Earnings available for common shares $ 2,209 $ 1,262
Basic earnings per common share $ 0.26 $ 0.17
SHARES USED IN COMPUTATION
Weighted average common shares outstanding 8,531,000 7,231,000
DILUTED EARNINGS PER COMMON SHARE
Earnings available for common shares and common stock $ 2,209 $ 1,262
equivalent shares deemed to have a dilutive effect
Diluted earnings per common share $ 0.23 $ 0.15
SHARES USED IN COMPUTATION
Weighted average common shares outstanding 8,531,000 7,231,000
Common stock equivalents - stock options and warrants 998,000 1,276,000
------------------------------------------
TOTAL 9,529,000 8,507,000
==========================================
</TABLE>
The accompanying notes are an integral part of these Condensed
Financial Statements
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SAFETY 1ST,
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-START> JAN-02-2000
<PERIOD-END> APR-01-2000
<EXCHANGE-RATE> 1
<CASH> 687
<SECURITIES> 0
<RECEIVABLES> 37,674
<ALLOWANCES> 7,072
<INVENTORY> 22,108
<CURRENT-ASSETS> 68,192
<PP&E> 39,034
<DEPRECIATION> 19,498
<TOTAL-ASSETS> 101,904
<CURRENT-LIABILITIES> 53,115
<BONDS> 0
0
0
<COMMON> 86
<OTHER-SE> 17,023
<TOTAL-LIABILITY-AND-EQUITY> 101,904
<SALES> 49,904
<TOTAL-REVENUES> 49,904
<CGS> 30,677
<TOTAL-COSTS> 30,677
<OTHER-EXPENSES> 14,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,615
<INCOME-PRETAX> 3,562
<INCOME-TAX> 1,353
<INCOME-CONTINUING> 2,209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,209
<EPS-BASIC> .26
<EPS-DILUTED> .23
</TABLE>
