<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, 1998
- --------------------------------------------------------------------------------
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, 1998
was 10,365,588.
<PAGE> 2
THE FIRST YEARS INC.
INDEX
Page
PART I - FINANCIAL INFORMATION:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4-6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II - OTHER INFORMATION
Other information 9-10
SIGNATURES 11
EXHIBIT INDEX 12
<PAGE> 3
THE FIRST YEARS INC.
Condensed Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $17,012,216 $ 7,697,040
Accounts receivable, net 18,874,368 19,962,226
Inventories 21,882,700 24,372,881
Prepaid expenses and other assets 554,623 414,764
Deferred tax assets 1,279,000 1,279,000
----------- -----------
Total current assets 59,602,907 53,725,911
----------- -----------
PROPERTY, PLANT, AND EQUIPMENT:
Land 167,266 167,266
Building 4,031,889 4,022,095
Machinery and molds 7,228,674 7,151,019
Furniture and equipment 4,225,471 3,947,144
----------- -----------
Total 15,653,300 15,287,524
Less accumulated depreciation 9,213,168 8,441,874
----------- -----------
Property, plant, and equipment - net 6,440,132 6,845,650
----------- -----------
TOTAL ASSETS $66,043,039 $60,571,561
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,384,724 $10,004,244
Accrued royalty expense 2,336,128 2,051,721
Accrued payroll expenses 1,466,925 1,143,063
Accrued selling expenses 2,610,841 2,387,029
Federal and state income taxes payable -- 159,600
----------- -----------
Total current liabilities 15,798,618 15,745,657
----------- -----------
DEFERRED TAX LIABILITY 816,900 816,900
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 1,038,041 508,800
Paid-In capital 7,193,576 6,534,308
Retained earnings 41,417,674 37,047,709
Less: 14,818 shares of
treasury stock (at cost) (221,770) (81,813)
----------- -----------
Total stockholders' equity 49,427,521 44,009,004
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $66,043,039 $60,571,561
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 1
<PAGE> 4
THE FIRST YEARS INC.
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $34,797,802 $32,697,252 $70,484,407 $60,519,296
COST OF PRODUCTS SOLD 20,649,650 19,353,753 42,087,280 35,998,692
----------- ----------- ----------- -----------
GROSS PROFIT 14,148,152 13,343,499 28,397,127 24,520,604
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 9,821,800 9,882,207 20,209,906 18,286,407
----------- ----------- ----------- -----------
OPERATING INCOME 4,326,352 3,461,292 8,187,221 6,234,197
OTHER INCOME (EXPENSES):
Interest expense -- (15,393) (850) (25,699)
Interest income 125,020 7,164 203,329 22,066
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 4,451,372 3,453,063 8,389,700 6,230,564
PROVISION FOR INCOME TAXES 1,802,800 1,443,500 3,397,800 2,554,500
----------- ----------- ----------- -----------
NET INCOME $ 2,648,572 $ 2,009,563 $ 4,991,900 $ 3,676,064
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE $ 0.26 $ 0.20 $ 0.49 $ 0.37
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE $ 0.25 $ 0.19 $ 0.47 $ 0.36
=========== =========== =========== ===========
CASH DIVIDENDS PAID PER SHARE $ 0.06 $ 0.05 $ 0.06 $ 0.05
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 2
<PAGE> 5
THE FIRST YEARS INC.
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,991,900 $ 3,676,064
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation 888,746 753,649
Provision for doubtful accounts 243,308 169,564
Loss on disposal of equipment 181,458 --
Increase (decrease) arising from working
capital items:
Accounts receivable 844,550 (6,531,519)
Inventories 2,490,181 (217,056)
Prepaid expenses and other assets (139,859) (80,892)
Accounts payable and accrued expenses (619,520) 115,666
Accrued royalties 284,407 866,579
Accrued payroll expense 323,862 1,102,112
Accrued selling expenses 223,812 (343,087)
Federal and state income taxes - net (159,600) 9,200
----------- -----------
Net cash provided by (used for)
operating activities 9,553,245 (479,720)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant,
and equipment (664,686) (1,120,542)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Dividend (621,935) (496,746)
Common stock issued under stock
option plans 558,252 164,235
Tax benefit of stock option compensation 490,300 100,000
Net proceeds from short-term borrowings -- 200,000
Repayment of industrial revenue bonds -- (66,666)
----------- -----------
Net cash provided by (used for)
financing activities 426,617 (99,177)
----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 9,315,176 (1,699,439)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 7,697,040 4,164,587
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $17,012,216 $ 2,465,148
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 850 $ 25,699
=========== ===========
Income taxes $ 3,164,400 $ 2,518,970
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Issuance of treasury stock $ 139,957 --
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3
<PAGE> 6
THE FIRST YEARS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Amounts in the accompanying balance sheet as of December 31, 1997 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, 1998, and the results
of operations and cash flows for the periods ended June 30, 1998 and 1997.
2. The Company has 30,000,000 authorized shares of $.10 par value common stock
with 10,365,588 and 10,169,182 shares issued and outstanding as of June 30,
1998 and December 31, 1997, respectively.
On May 8, 1998 the Board of Directors authorized a two-for-one stock split
effected in the form of 100% stock dividend paid to stockholders of record
on May 29, 1998. Accordingly, all per share and stock option data presented
in these financial statements have been restated to reflect the split. The
par value for the new shares issued amounted to $519,020 and was
transferred from paid-in capital. Distribution of the new shares were paid
on June 29, 1998.
Additionally, on May 8, 1998 the Board of Directors authorized a $0.06 per
share annual cash dividend paid on June 29, 1998 to holders of record at
the close of business on May 29, 1998.
3. Computation of the Earnings Per Share ("EPS") in accordance with SFAS No.
128 are as follows:
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
For the Three Months Ended June 30, 1998:
Net income................................... $2,648,572
----------
Basic EPS:
Income available to common
stockholders............................... 2,648,572 10,329,748 $0.26
=====
Effect of Dilutive Securities -
Incentive stock options..................... 381,895
---------- ----------
Diluted EPS:
Income available to common stockholders
and assumed conversions.................... $2,648,572 10,711,643 $0.25
========== ========== =====
</TABLE>
Page 4
<PAGE> 7
THE FIRST YEARS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Con't)
3. Computation of Earnings Per Share (con't)
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
For the Six Months Ended June 30, 1998:
Net income................................... $4,991,900
----------
Basic EPS:
Income available to common stockholders..... 4,991,900 10,263,916 $0.49
=====
Effect of Dilutive Securities -
Incentive stock options.................... 388,915
---------- ----------
Diluted EPS:
Income available to common stockholders
and assumed conversions.................... $4,991,900 10,652,831 $0.47
========== ========== =====
For the Three Months Ended June 30, 1997:
Net income................................... $2,009,563
----------
Basic EPS:
Income available to common
stockholders............................... 2,009,563 9,936,434 $0.20
=====
Effect of Dilutive Securities -
Incentive stock options..................... 496,914
---------- ----------
Diluted EPS:
Income available to common stockholders
and assumed conversions.................... $2,009,563 10,433,348 $0.19
========== ========== =====
For the Six Months Ended June 30, 1997:
Net income................................... $3,676,064
----------
Basic EPS:
Income available to common stockholders..... 3,676,064 9,918,956 $0.37
=====
Effect of Dilutive Securities -
Incentive stock options..................... 433,766
---------- ----------
Diluted EPS:
Income available to common stockholders
and assumed conversions.................... $3,676,064 10,352,722 $0.36
========== ========== =====
</TABLE>
Page 5
<PAGE> 8
THE FIRST YEARS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Con't)
3. Computation of Earnings Per Share (con't)
As of June 30, 1998, no options were anti-dilutive.
As of June 30, 1997, options to purchase 6,000 shares of common stock at
$9 5/8 per share, were not included in the computation of diluted EPS
because the option's exercise price was greater than the average price of
the common shares. The options, which expire in 2007, were still
outstanding at June 30, 1998.
4. The results of operations for the six month period ended June 30, 1998 and
1997 are not necessarily indicative of the results to be expected for the
full year.
5. During the first six months of 1998, the Company did not borrow against its
unsecured line of credit totaling $10,000,000 available from a bank. During
1997, the Company borrowed various amounts up to $2,500,000 of which
$200,000 remained outstanding as of June 30, 1997 at a weighted average
interest rate of 7.38%.
6. Statements of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" became effective for the Company during the quarter
ended March 31, 1998. Adoption of SFAS No. 130 did not have a material
impact on the consolidated financial statements.
The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" and
SFAS No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits." These new standards will be effective in the
Company's fiscal year ended December 31, 1998. SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" will be effective for the
Company's fiscal year ended December 31, 2000. The Company has not
determined the effects, if any, that these standards will have on its
consolidated financial statements.
Page 6
<PAGE> 9
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 Form 10-K for the year ended December 31, 1997, and Exhibit 99 of the
Annual Report on Form 10K for the year ended December 31,1997, filed with the
Securities and Exchange Commission.
Net sales for the first six months of 1998 were $70.5 million, an increase of
$10.0 million or 16.5%, as compared to $60.5 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 six months of 1998 was $42.1 million, an
increase of $6.1 million or 16.9%, as compared to $36.0 million for the
comparable period last year. As a percentage of sales, cost of products sold in
the first six months of 1998 and 1997 were comparable at 59.7% and 59.5%,
respectively.
Selling, general, and administrative expenses for the first six months of 1998
were $20.2 million, an increase of $1.9 million or 10.5%, as compared to $18.3
million over such expenses for the first six months of 1997. The increase
resulted primarily from costs related to increased sales volume; payroll and
payroll related costs and product development. As a percentage of net sales,
selling, general, and administrative expenses for the first six months of 1998
decreased to 28.7% from 30.2% in the comparable period of 1997. The decrease was
caused by the economies of scale provided by the higher volume of business.
The Company continues to review the Year 2000 issue (Y2K). Review of the
Company's internal computer systems for Y2K issues is progressing. The Company
presently believes Y2K will not pose significant operational issues and is not
anticipated to be material to its financial position or results of operations in
any given year. Communications with significant suppliers, customers and service
vendors has been initiated to determine the extent of the Company's exposure to
others if they fail to remedy their own Y2K issues. No guarantee can be made
that systems of other companies on which the Company relies upon will be
converted in time or that a failure to convert would not have a material effect
on the company.
Page 7
<PAGE> 10
THE FIRST YEARS INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Con't)
Income tax expense as a percentage of pretax income decreased to 40.5% for the
first six months of 1998 from 41.0% for the first six months of 1997.
Net working capital increased by $5.8 million in the first six months primarily
due to profitable operations. Accounts receivable decreased by $1.1 million and
inventories decreased by $2.5 due to normal business fluctuations. Cash
increased by $9.3 million primarily resulting from funds generated from
operations.
An unsecured bank line of credit of $10.0 million is subject to annual renewal.
Amounts outstanding under this line are payable upon demand by the bank. During
the first six months of 1998, the Company incurred no borrowings under the line
and had no balances outstanding as of June 30, 1998. 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.
The Company did not incur any other short-term borrowings during the first six
months of 1998 and 1997.
Recent Accounting Pronouncements
Statements of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" became effective for the Company during the quarter ended
March 31, 1998. Adoption of SFAS No. 130 did not have a material impact on the
consolidated financial statements.
The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" and SFAS
No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits." These new standards will be effective in the Company's fiscal year
ended December 31, 1998. SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" will be effective for the Company's fiscal year ended
December 31, 2000. The Company has not determined the effects, if any, that
these standards will have on its consolidated financial statements.
Page 8
<PAGE> 11
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 21, 1998.
(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 III Directors:
<TABLE>
<CAPTION>
Number of Shares
----------------------
Withheld
For Authority
--------- ---------
<S> <C> <C>
Ronald J. Sidman 3,975,519 104,425
Benjamin Peltz 3,976,216 103,728
ii. Proposal to approve an amendment to the Company's 1993 Equity
Incentive Plan:
<CAPTION>
Number of Shares
----------------
<S> <C>
For 2,340,747
Against 552,543
Abstain 19,820
Broker Non-Vote 1,166,834
iii. Proposal to approve an amendment to the Company's 1993 Stock
Option Plan for Directors:
<CAPTION>
Number of Shares
----------------
<S> <C>
For 2,710,137
Against 183,825
Abstain 19,148
Broker Non-Vote 1,166,834
iv. Proposal to ratify the selection of Deloitte & Touche LLP as
auditors for the Company for the fiscal year 1998.
<CAPTION>
Number of Shares
----------------
<S> <C>
For 4,070,558
Against 2,782
Abstentions 6,604
</TABLE>
Page 9
<PAGE> 12
THE FIRST YEARS INC.
PART II - OTHER INFORMATION (con't)
Item 5: Deadlines for Submission of Stockholder Proposals
i. Proposals of Stockholders intended to be presented at the 1999
Annual Meeting of Stockholders and included in the Company's
proxy statement and proxy for such annual Meeting, pursuant to
Rule 240.14a-8 of the Securities and Exchange Act of 1934 ("Rule
14a-8"), must be received by the Company at its principal
executive offices not later than December 15, 1998.
ii. As established by the Company's advance notice by-law provision,
proposals of Stockholders intended to be presented at the 1999
Annual Meeting of Stockholders, but which are submitted outside
the processes of Rule 14a-8, and not intended to be included in
the Company's proxy statement or proxy for such Annual Meeting,
must be received by the Company at its principal executive
offices not later than December 15, 1998.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibits are filed as part of this Report:
Exhibit Description
------- -----------
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the past quarter covered
by this report.
Page 10
<PAGE> 13
THE FIRST YEARS INC.
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 8/12/98 /s/ John R. Beals
--------------------------------------
John R. Beals, Senior Vice
President and Treasurer,
Duly Authorized Officer and
Principal Financial Officer
Page 11
<PAGE> 14
THE FIRST YEARS INC.
EXHIBIT INDEX
Exhibit Description Page
------- ----------- ----
27 Financial Data Schedule 13
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 17,012,216
<SECURITIES> 0
<RECEIVABLES> 19,059,368
<ALLOWANCES> 185,000
<INVENTORY> 21,882,700
<CURRENT-ASSETS> 59,602,907
<PP&E> 15,653,300
<DEPRECIATION> 9,213,168
<TOTAL-ASSETS> 66,043,039
<CURRENT-LIABILITIES> 15,798,618
<BONDS> 0
0
0
<COMMON> 1,038,041
<OTHER-SE> 48,389,480
<TOTAL-LIABILITY-AND-EQUITY> 66,043,039
<SALES> 70,484,407
<TOTAL-REVENUES> 70,687,736
<CGS> 42,087,280
<TOTAL-COSTS> 62,297,186
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 850
<INCOME-PRETAX> 8,389,700
<INCOME-TAX> 3,397,800
<INCOME-CONTINUING> 4,991,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,991,900
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.47
</TABLE>
