<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 June 30, 1997
-----------------------------------
Commission file number 0-7024
-----------------------------
THE FIRST YEARS INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2149581
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Kiddie Drive, Avon, Massachusetts 02322-1171
------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(508) 588-1220
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(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 July 31, 1997
was 4,974,550.
<PAGE> 2
THE FIRST YEARS INC.
INDEX
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Cash Flows 3
Notes to Condensed Financial Statements 4 - 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 7
PART II - OTHER INFORMATION
Other information 8 - 9
SIGNATURES 9
EXHIBIT INDEX 10
</TABLE>
<PAGE> 3
THE FIRST YEARS INC.
Condensed Balance Sheets
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,465,148 $ 4,164,587
Accounts receivable, net 22,291,420 15,929,465
Inventories 18,805,100 18,588,044
Prepaid expenses and other assets 456,209 375,317
Deferred tax assets 946,400 946,400
----------- -----------
Total current assets 44,964,277 40,003,813
----------- -----------
PROPERTY, PLANT, AND EQUIPMENT:
Land 167,266 167,266
Building 4,016,405 4,016,405
Machinery and molds 7,888,224 7,329,240
Furniture and equipment 3,653,914 3,092,356
----------- -----------
Total 15,725,809 14,605,267
Less accumulated depreciation 8,313,192 7,559,543
----------- -----------
Property, plant, and equipment-net 7,412,617 7,045,724
----------- -----------
TOTAL ASSETS $52,376,894 $47,049,537
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 33,334 $ 100,000
Short-term borrowings 200,000 0
Accounts payable and accrued expenses 10,337,117 9,462,426
Accrued royalties 1,715,250 848,671
Federal and state income taxes payable 9,200 0
----------- -----------
Total current liabilities 12,294,901 10,411,097
----------- -----------
DEFERRED TAX LIABILITY 772,000 772,000
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 497,455 494,898
Paid-In capital 5,533,553 5,271,875
Retained earnings 33,278,985 30,099,667
----------- -----------
Total stockholders' equity 39,309,993 35,866,440
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $52,376,894 $47,049,537
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
Page 1
<PAGE> 4
THE FIRST YEARS INC.
Condensed Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $32,697,252 $23,349,264 $60,519,296 $46,358,545
COST OF PRODUCTS SOLD 19,353,753 14,012,342 35,998,692 27,959,513
----------- ----------- ----------- -----------
GROSS PROFIT 13,343,499 9,336,922 24,520,604 18,399,032
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 9,882,207 6,922,684 18,286,407 13,848,531
----------- ----------- ----------- -----------
OPERATING INCOME 3,461,292 2,414,238 6,234,197 4,550,501
OTHER INCOME (EXPENSES):
Interest expense (15,393) (131,836) (25,699) (297,209)
Interest income 7,164 1,692 22,066 2,875
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 3,453,063 2,284,094 6,230,564 4,256,167
PROVISION FOR INCOME TAXES 1,443,500 917,000 2,554,500 1,702,500
----------- ----------- ----------- -----------
NET INCOME $ 2,009,563 $ 1,367,094 $ 3,676,064 $ 2,553,667
=========== =========== =========== ===========
EARNINGS PER SHARE $ 0.39 $ 0.29 $ 0.71 $ 0.54
=========== =========== =========== ===========
AVERAGE NUMBER OF SHARES
OUTSTANDING 5,216,674 4,762,330 5,176,361 4,725,891
=========== =========== =========== ===========
CASH DIVIDENDS PAID PER SHARE $ 0.10 $ 0.10 $ 0.10 $ 0.10
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
Page 2
<PAGE> 5
THE FIRST YEARS INC.
Condensed Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,676,064 $2,553,667
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation 753,649 602,136
Provision for doubtful accounts 169,564 70,674
Gain on disposal of equipment 6,359
Increase (decrease) arising from working
capital items:
Accounts receivable (6,531,519) (3,243,188)
Inventories (217,056) (1,444,016)
Prepaid expenses and other assets (80,892) 449,712
Accounts payable and accrued expenses 874,691 242,909
Accrued royalties 866,579 216,109
Federal and state income taxes - net 9,200 227,800
---------- ----------
Net cash used for operating activities (479,720) (317,838)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant,
and equipment (1,120,542) (994,377)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Dividend (496,746) (453,557)
Common stock issued under stock
option plans 164,235 121,053
Tax benefit of stock option compensation 100,000 0
Net proceeds from short-term borrowings 200,000 1,800,000
Repayment of industrial revenue bonds (66,666) (66,667)
---------- ----------
Net cash provided by
financing activities (99,177) 1,400,829
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (1,699,439) 88,614
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,164,587 552,568
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,465,148 $ 641,182
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 25,699 $ 297,209
========== ==========
Income taxes $2,518,970 $1,092,400
========== ==========
</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 June 30, 1997, and the results
of operations and cash flows for the periods ended June 30, 1997 and 1996.
2. The Company has 15,000,000 authorized shares of $.10 par value common stock
with 4,974,550 and 4,948,980 shares issued and outstanding as of June 30,
1997 and December 31, 1996, respectively.
On May 8, 1997 the Board of Directors authorized a $0.10 per share annual
cash dividend which was paid 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
six months ended June 30, 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
$0.74 and $0.71, respectively for the six months ended June 30, 1997
and $0.56 and $0.54, respectively for the six months ended June 30, 1966.
4. The results of operations for the six month period ended June 30, 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 $2,500,000 under
unsecured lines of credit totaling $20,000,000 available from banks. As of
June 30, 1997 a balance of $200,000 remained outstanding which bears
interest at a weighted average rate of 7.38%. During 1996, the Company
borrowed various amounts up to $9,900,000 of which $8,000,000 remained
outstanding as of June 30, 1996 at a weighted average interest rate of
7.42%. No other short-term borrowings were incurred by the Company during
the first six months of 1997 or 1996.
Page 4
<PAGE> 7
THE FIRST YEARS INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Con't)
6. In June 1997 the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" which will become effective for the Company
effective December 15, 1997. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general purpose financial
statements. SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the same
prominence as other financial statements. SFAS No. 130 requires that a
Company (a) classify items of other comprehensive income by their nature in
a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of the balance sheet. Reclassification
of financial statements for earlier periods provided for comparative
purposes is required. The Company has not determined the effects, if any,
that SFAS No. 130 will have on its financial statements.
In June 1997 the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" which
will become effective for the Company effective December 15, 1997. SFAS No.
131 establishes standards for the way that public companies report selected
information about operating segments in annual financial statements and
requires that those companies report selected information about segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosure about products and services, geographic
areas, and major customers. SFAS No. 131, which supersedes SFAS No. 14,
"Financial Reporting Segments of a Business Enterprise" but retains the
requirement to report information about major customers, requires that a
public company report financial and descriptive information about its
reportable operating segments. The Company has not determined the effects,
if any, that SFAS No. 131 will have on its financial statements.
Page 5
<PAGE> 8
THE FIRST YEARS INC.
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 six months of 1997 were $60.5 million, an increase of
$14.2 million or 30.5%, as compared to $46.4 million for the comparable period
last year. The increase was due to new product introductions, including the
Sesame Street brand licensed from the Children's Television Workshop, and
expanded retail distribution in domestic and foreign markets.
Cost of products sold for the first six months of 1997 was $36.0 million, an
increase of $8.0 million or 28.8%, as compared to $28.0 million for the
comparable period last year. As a percentage of sales, cost of products sold in
the first six months of 1997 decreased to 59.5% from 60.3% in the comparable
period of 1996. The decrease was primarily due to decreased cost of products
resulting from manufacturing efficiencies and increased sales of higher margin
products.
Selling, general, and administrative expenses for the first six months of 1997
were $18.3 million, an increase of $4.4 million or 32.0%, as compared to $13.8
million over such expenses for the first six months of 1996. The increase
resulted primarily from costs related to increased sales volume, payroll and
payroll related costs, and Integrated Marketing Communication program expenses.
As a percentage of net sales, selling, general, and administrative expenses for
the first six months of 1997 and 1996 remained consistent at 30.2% and 29.9%,
respectively.
Income tax expense as a percentage of pretax income was 41% and 40% for the
first six months of 1997 and 1996, respectively.
Net working capital increased by $3.1 million in the first six months primarily
due to profitable operations. Accounts receivable increased by $6.4 million
primarily as a result of increased sales. Cash decreased by $1.7 million
primarily resulting from increases in accounts receivable and was partially
offset by funds generated from operations.
Page 6
<PAGE> 9
THE FIRST YEARS INC.
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 six months of 1997, the Company borrowed various amounts
up to $2.5 million of which $200,000 remained outstanding as of June 30, 1997.
During the first six months of 1996, the Company borrowed various amounts up to
$9.9 million of which $8.0 million remained outstanding as of June 30, 1996. The
Company did not incur any other short-term borrowings during the first six
months of 1997 and 1996.
Recent Accounting Pronouncements
In June 1997 the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" which will become effective for the Company
effective December 15, 1997. SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general purpose financial statements. SFAS
No. 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 requires that a Company (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in-capital in the equity section of the
balance sheet. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company has not determined
the effects, if any, that SFAS No. 130 will have on its financial statements.
In June 1997 the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" which will
become effective for the Company effective December 15, 1997. SFAS No. 131
establishes standards for the way that public companies report selected
information about operating segments in annual financial statements and requires
that those companies report selected information about segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosure about products and services, geographic areas, and major
customers. SFAS No. 131, which supersedes SFAS No. 14, "Financial Reporting
Segments of a Business Enterprise", but retains the requirement to report
information about major customers, requires that a public company report
financial and descriptive information about its reportable operating segments.
The Company has not determined the effects, if any, that SFAS No. 131 will have
on its financial statements.
Page 7
<PAGE> 10
THE FIRST YEARS INC.
PART II - OTHER INFORMATION
Items 1 through 3 - Not Applicable
Item 4: Submission of Matters to a Vote of Security holders.
(a) An Annual Meeting of the Stockholders of The First Years Inc. was
held on May 15, 1997.
(c) The following matters were voted upon at such Annual Meeting and the
following votes were cast as to each such matter:
i. Election of Class II Directors:
<TABLE>
<CAPTION>
Number of Shares
----------------
Withheld
For Authority
--- ---------
<S> <C> <C>
Evelyn Sidman 3,911,503 38,461
Merton N. Alperin 3,912,503 37,461
</TABLE>
ii. Proposal to ratify the selection of Deloitte & Touche LLP as
auditors for the Company for the fiscal year 1997.
<TABLE>
<CAPTION>
Number of Shares
----------------
<CAPTION>
<S> <C>
For 3,946,862
Against 1,800
Abstentions 1,302
</TABLE>
Item 5: Not Applicable
Page 8
<PAGE> 11
THE FIRST YEARS INC.
PART II - OTHER INFORMATION (con't)
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits - 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) 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 8/8/97 John R. Beals
------ -----------------------------
John R. Beals, Vice President
and Assistant Treasurer,
Duly Authorized Officer and
Principal Financial Officer
Page 9
<PAGE> 12
THE FIRST YEARS INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
Exhibit Description Page
------- ----------- ----
11 Statement re Computation of
Per Share Earnings 11
27 Financial Data Schedule 12
</TABLE>
Page 10
<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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY NET INCOME PER SHARE
Net income available for common shares
and common stock equivalent shares $2,009,563 $1,367,094 $3,676,064 $2,553,667
---------- ---------- ---------- ----------
Primary net income per share $ 0.39 $ 0.29 $ 0.71 $ 0.54
---------- ---------- ---------- ----------
SHARES USED IN COMPUTATION
Weighted average common shares
outstanding 4,968,217 4,528,534 4,959,478 4,522,024
Common stock equivalents - options 248,457 233,796 216,883 203,867
---------- ---------- ---------- ----------
Total common stock and common
stock equivalent dilutive shares 5,216,674 4,762,330 5,176,361 4,725,891
========== ========== ========== ==========
FULLY DILUTED NET INCOME PER SHARE
Net income available for common shares
and common stock equivalent shares $2,009,563 $1,367,094 $3,676,064 $2,553,667
---------- ---------- ---------- ----------
Fully diluted net income per share $ 0.39 $ 0.29 $ 0.71 $ 0.54
---------- ---------- ---------- ----------
SHARES USED IN COMPUTATION
Weighted average common shares
outstanding 4,968,217 4,528,534 4,959,478 4,522,024
Common stock equivalents - options 281,566 233,796 233,438 218,198
---------- ---------- ---------- ----------
Total common stock and common
stock equivalent dilutive shares 5,249,783 4,762,330 5,192,916 4,740,222
========== ========== ========== ==========
</TABLE>
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,465,148
<SECURITIES> 0
<RECEIVABLES> 22,476,420
<ALLOWANCES> 185,000
<INVENTORY> 18,805,100
<CURRENT-ASSETS> 44,964,277
<PP&E> 15,725,809
<DEPRECIATION> 8,313,192
<TOTAL-ASSETS> 52,376,894
<CURRENT-LIABILITIES> 12,294,901
<BONDS> 0
0
0
<COMMON> 497,455
<OTHER-SE> 38,812,538
<TOTAL-LIABILITY-AND-EQUITY> 52,376,894
<SALES> 60,519,296
<TOTAL-REVENUES> 60,541,362
<CGS> 35,998,692
<TOTAL-COSTS> 54,285,099
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,699
<INCOME-PRETAX> 6,230,564
<INCOME-TAX> 2,554,500
<INCOME-CONTINUING> 3,676,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,676,064
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
</TABLE>
