<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For The Quarter Ended March 31, 1997
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Commission file number 0-7024
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THE FIRST YEARS INC.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2149581
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Kiddie Drive, Avon, Massachusetts 02322-1171
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(Address of principal executive offices)
(Zip Code)
(508) 588-1220
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
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 number of shares of Registrant's common stock outstanding on April 30, 1997
was 4,962,754.
<PAGE> 2
THE FIRST YEARS INC.
INDEX
PART I - FINANCIAL INFORMATION:
Condensed Balance Sheets Page 1
Condensed Statements of Income 2
Condensed Statements of Cash Flows 3
Notes to Condensed Financial Statements 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5 - 6
PART II - OTHER INFORMATION
Other information 7
SIGNATURES 7
EXHIBIT INDEX 8
<PAGE> 3
THE FIRST YEARS INC.
Condensed Balance Sheets
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,578,609 $ 4,164,587
Accounts receivable, net 20,650,817 15,929,465
Inventories 20,279,200 18,588,044
Prepaid expenses and other assets 565,952 375,317
Deferred tax assets 946,400 946,400
----------- -----------
Total current assets 44,020,978 40,003,813
----------- -----------
PROPERTY, PLANT, AND EQUIPMENT:
Land 167,266 167,266
Building 4,016,405 4,016,405
Machinery and molds 7,595,424 7,329,240
Furniture and equipment 3,220,413 3,092,356
----------- -----------
Total 14,999,508 14,605,267
Less accumulated depreciation 7,925,826 7,559,543
----------- -----------
Property, plant, and equipment-net 7,073,682 7,045,724
----------- -----------
TOTAL ASSETS $51,094,660 $47,049,537
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 66,667 $ 100,000
Short-term borrowings 1,700,000 0
Accounts payable and accrued expenses 8,656,863 9,462,426
Accrued royalties 1,403,696 848,671
Federal and state income taxes payable 872,300 0
----------- -----------
Total current liabilities 12,699,526 10,411,097
----------- -----------
DEFERRED TAX LIABILITY 772,000 772,000
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 496,275 494,898
Paid-In capital 5,360,690 5,271,875
Retained earnings 31,766,169 30,099,667
----------- -----------
Total stockholders' equity 37,623,134 35,866,440
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $51,094,660 $47,049,537
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
Page 1
<PAGE> 4
THE FIRST YEARS INC.
Condensed Statements of Income for the
Three Months Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
NET SALES $27,822,044 $23,009,281
COST OF PRODUCTS SOLD 16,644,939 13,947,171
----------- -----------
GROSS PROFIT 11,177,105 9,062,110
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 8,404,199 6,925,847
----------- -----------
OPERATING INCOME 2,772,906 2,136,263
OTHER INCOME (EXPENSES):
Interest Expense (10,306) (165,373)
Interest Income 14,902 1,183
----------- -----------
INCOME BEFORE INCOME TAXES 2,777,502 1,972,073
PROVISION FOR INCOME TAXES 1,111,000 785,500
----------- -----------
NET INCOME $ 1,666,502 $1,186,573
=========== ===========
EARNINGS PER SHARE $0.32 $0.25
===== =====
AVERAGE NUMBER OF SHARES OUTSTANDING 5,136,011 4,689,426
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
Page 2
<PAGE> 5
THE FIRST YEARS INC.
Condensed Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,666,502 $1,186,573
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation 366,283 292,127
Provision for doubtful accounts 126,261 53,746
Increase (decrease) arising from working
capital items:
Accounts receivable (4,847,613) (2,105,324)
Inventories (1,691,155) (628,116)
Prepaid expenses and other assets (190,635) 348,926
Accounts payable and accrued expenses (805,563) (1,709,092)
Accrued royalties 555,025 196,447
Federal and state income taxes - net 872,300 283,600
----------- ----------
Net cash used for operating activities (3,948,595) (2,081,113)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant,
and equipment (394,241) (692,177)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued under stock
option plans 90,191 13,362
Net proceeds from short term borrowings 1,700,000 2,300,000
Repayment of industrial revenue bonds (33,333) (33,334)
---------- ----------
Net cash provided by
financing activities 1,756,858 2,280,028
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DECREASE IN CASH AND CASH EQUIVALENTS (2,585,978) (493,262)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 4,164,587 552,568
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CASH AND CASH EQUIVALENTS, END OF PERIOD $1,578,609 $ 59,306
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $ 10,306 $ 165,373
========== ==========
Income taxes $ 212,370 $ 119,600
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
Page 3
<PAGE> 6
THE FIRST YEARS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Amounts in the accompanying balance sheet as of December 31, 1996 are
condensed from the Company's audited balance sheet as of that date. All
other condensed financial statements are unaudited but, in the opinion
of the Company, contain all normal and recurring adjustments necessary
to present fairly the financial position as of March 31, 1997, and the
results of operations and cash flows for the periods ended March 31,
1997 and 1996.
2. The Company has 15,000,000 authorized shares of $.10 par value common
stock with 4,962,754 and 4,948,980 shares issued and outstanding as of
March 31, 1997 and December 31, 1996, respectively.
On May 8, 1997 the Board of Directors authorized a $0.10 per share
annual cash dividend payable on June 2, 1997 to holders of record at
the close of business on May 21, 1997.
3. Earnings per share of common stock are computed on the basis of the
average number of shares and common share equivalents outstanding
during each quarter. Fully diluted and primary earnings per share were
the same for the three months ended March 31, 1997 and 1996.
In February 1997 the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share" which will become effective for the
Company effective December 15, 1997. SFAS No. 128 replaces the
presentation of primary earnings per share with a basic earnings per
share (which excludes dilution) and a diluted earnings per share. Had
the Company used SFAS No. 128, the Company's basic and diluted earnings
per share would have been $0.34 and $0.32, respectively for the three
months ended March 31, 1997 and $0.26 and $0.25, respectively for the
three months ended March 31, 1996.
4. The results of operations for the three month period ended March 31,
1997 and 1996 are not necessarily indicative of the results to be
expected for the full year.
5. During 1997, the Company borrowed various amounts up to $2,200,000
under unsecured lines of credit totaling $20,000,000 available from
banks. As of March 31, 1997 a balance of $1,700,000 remained
outstanding which bears interest at a weighted average rate of 7.94%.
During 1996, the Company borrowed various amounts up to $9,900,000 of
which $8,500,000 remained outstanding as of March 31, 1996 at a
weighted average interest rate of 7.55%. No other short-term borrowings
were incurred by the Company during the first three months of 1997 or
1996.
Page 4
<PAGE> 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Statements in this Report on Form 10-Q that are not strictly historical are
"forward-looking" statements, as defined in the Private Securities Litigation
Reform Act of 1995. The actual results may differ from those projected in the
forward-looking statements due to risks and uncertainties that exist in the
Company's operations and business environment in the development and
introduction of new products, described more fully in the Company's Annual
Report on From 10-K for the year ended December 31, 1996, and the Report on Form
10-Q for the quarter ended September 30, 1996, filed with the Securities and
Exchange Commission.
Net sales for the first three months of 1997 were $27.8 million, an increase of
$4.8 million or 20.9%, as compared to $23.0 million for the comparable period
last year. The increase was due to new product introductions and expanded retail
distribution in domestic and foreign markets.
Cost of products sold for the first three months of 1997 was $16.6 million, an
increase of $2.7 million or 19.3%, as compared to $13.9 million for the
comparable period last year. As a percentage of sales, cost of products sold in
the first three months of 1997 decreased to 59.8% from 60.6% in the comparable
period of 1996. The decrease was primarily due to decreased cost of products
resulting from manufacturing efficiencies.
Selling, general, and administrative expenses for the first three months of 1997
were $8.4 million, an increase of $1.5 million or 21.4%, as compared to $6.9
million over such expenses for the first three months of 1996. The increase
resulted primarily from costs related to increased sales volume, payroll and
payroll related costs. As a percentage of net sales, selling, general, and
administrative expenses for the first three months of 1997 and 1996 remained
consistent at 30.2% and 30.1%, respectively.
Income tax expense as a percentage of pretax income was 40% for the first three
months of 1997 and 1996.
Net working capital increased by $1.7 million in the first three months
primarily due to profitable operations. Accounts receivable increased by $4.7
million primarily as a result of increased sales and inventories increased by
$1.7 to meet continued demand for the Company's products. Cash decreased by $2.6
million primarily resulting from increases in accounts receivable and
inventories which were partially offset by increases in short-term borrowings
and by funds generated from operations.
Page 5
<PAGE> 8
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Con't)
Unsecured bank lines of credit aggregating $20.0 million are subject to annual
renewal. Amounts outstanding under these lines are payable upon demand by the
banks. During the first three months of 1997, the Company borrowed various
amounts up to $2.2 million of which $1.7 million remained outstanding as of
March 31, 1997. During the first three months of 1996, the Company borrowed
various amounts up to $9.9 million of which $8.5 million remained outstanding as
of March 31, 1996. The Company did not incur any other short-term borrowings
during the first three months of 1997 and 1996.
Recent Accounting Pronouncements
In February 1997 the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings per Share" which will become effective for
the Company effective December 15, 1997. SFAS No. 128 replaces the
presentation of primary earnings per share with a basic earnings per share
(which excludes dilution) and a diluted earnings per share. Had the Company used
SFAS No. 128, the Company's basic and diluted earnings per share would have been
$0.34 and $0.32, respectively for the three months ended March 31, 1997 and
$0.26 and $0.25, respectively for the three months ended March 31, 1996.
Page 6
<PAGE> 9
PART II - OTHER INFORMATION
Items 1 through 5 - Not Applicable
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibits are filed as
part of this Report:
Exhibit Description
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11 Statement re Computation of
Per Share Earnings
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the past quarter covered
by this report.
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.
THE FIRST YEARS INC.
--------------------
Registrant
Date 5/14/97 /s/ Benjamin Peltz
------------------ --------------------------------
Benjamin Peltz, Senior Vice
President and Treasurer,
Duly Authorized Officer and
Principal Financial Officer
Page 7
<PAGE> 10
EXHIBIT INDEX
Exhibit Description Page
------- ----------- ----
11 Statement re Computation of
Per Share Earnings 9
27 Financial Data Schedule 10
Page 8
<PAGE> 1
EXHIBIT 11
THE FIRST YEARS INC.
PRIMARY NET INCOME PER SHARE AND
FULLY DILUTED NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31,
---------
1997 1996
---------- ----------
<S> <C> <C>
PRIMARY NET INCOME PER SHARE
Net income available for common shares
and common stock equivalent shares $1,666,502 $1,186,573
---------- ----------
Primary net income per share $ 0.32 $ 0.25
---------- ----------
SHARES USED IN COMPUTATION
Weighted average common shares
outstanding 4,950,701 4,515,487
Common stock equivalents - options 185,310 173,939
---------- ----------
Total common stock and common
stock equivalent dilutive shares 5,136,011 4,689,426
========== ==========
FULLY DILUTED NET INCOME PER SHARE
Net income available for common shares
and common stock equivalent shares $1,666,502 $1,186,573
---------- ----------
Fully diluted net income per share $ 0.32 $ 0.25
---------- ----------
SHARES USED IN COMPUTATION
Weighted average common shares
outstanding 4,950,701 4,515,487
Common stock equivalents - options 185,310 202,600
---------- ----------
Total common stock and common
stock equivalent dilutive shares 5,136,011 4,718,087
========== ==========
</TABLE>
Page 9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,578,609
<SECURITIES> 0
<RECEIVABLES> 20,835,817
<ALLOWANCES> 185,000
<INVENTORY> 20,279,200
<CURRENT-ASSETS> 44,020,978
<PP&E> 14,999,508
<DEPRECIATION> 7,925,826
<TOTAL-ASSETS> 51,094,660
<CURRENT-LIABILITIES> 12,699,526
<BONDS> 0
0
0
<COMMON> 496,275
<OTHER-SE> 37,126,859
<TOTAL-LIABILITY-AND-EQUITY> 51,094,660
<SALES> 27,822,044
<TOTAL-REVENUES> 27,836,946
<CGS> 16,644,939
<TOTAL-COSTS> 25,049,138
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,306
<INCOME-PRETAX> 2,777,502
<INCOME-TAX> 1,111,000
<INCOME-CONTINUING> 1,666,502
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,666,502
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
