<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, 2000
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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)
n/a
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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 July 31, 2000
was 9,550,097.
<PAGE> 2
THE FIRST YEARS INC.
INDEX
PART I - FINANCIAL INFORMATION:
Condensed Consolidated Balance Sheets Page 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated 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 10
EXHIBIT INDEX 11
<PAGE> 3
THE FIRST YEARS INC.
Condensed Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,698,676 $ 13,400,728
Accounts receivable, net 25,955,183 21,587,886
Inventories 18,065,900 20,352,845
Prepaid expenses and other assets 1,225,116 1,308,974
Deferred tax assets 1,830,400 1,675,000
------------ ------------
Total current assets 60,775,275 58,325,433
------------ ------------
PROPERTY, PLANT, AND EQUIPMENT:
Land 167,266 167,266
Building 5,207,277 5,154,845
Machinery and molds 6,804,465 7,536,378
Furniture and equipment 5,562,056 4,820,691
------------ ------------
Total 17,741,064 17,679,180
Less accumulated depreciation 8,096,374 8,090,757
------------ ------------
Property, plant, and equipment - net 9,644,690 9,588,423
------------ ------------
TOTAL ASSETS $ 70,419,965 $ 67,913,856
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 10,091,081 $ 10,443,308
Accrued royalty expense 1,254,314 1,792,475
Accrued selling expense 2,648,360 3,048,547
------------ ------------
Total current liabilities 13,993,755 15,284,330
------------ ------------
DEFERRED TAX LIABILITY 1,011,500 927,100
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 1,066,639 1,057,033
Paid-In capital 8,569,126 8,052,623
Retained earnings 57,633,589 52,907,819
Less treasury stock at cost, 1,116,294
and 954,094 shares as of June 30, 2000
and December 31, 1999 respectively (11,854,644) (10,315,049)
------------ ------------
Total stockholders' equity 55,414,710 51,702,426
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 70,419,965 $ 67,913,856
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 1
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THE FIRST YEARS INC.
Condensed Consolidated Statements of Income for the
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $34,260,931 $36,553,805 $71,023,184 $71,799,995
COST OF PRODUCTS SOLD 20,033,835 21,741,732 41,839,389 42,262,329
----------- ----------- ----------- -----------
GROSS PROFIT 14,227,096 14,812,073 29,183,795 29,537,666
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 10,548,856 10,485,837 20,636,592 20,389,395
----------- ----------- ----------- -----------
OPERATING INCOME 3,678,240 4,326,236 8,547,203 9,148,271
OTHER INCOME (EXPENSES):
Interest Income 146,040 125,965 296,310 292,661
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 3,824,280 4,452,201 8,843,513 9,440,932
PROVISION FOR INCOME TAXES 1,529,700 1,803,200 3,537,400 3,823,600
----------- ----------- ----------- -----------
NET INCOME $2,294,580 $2,649,001 $5,306,113 $5,617,332
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $0.24 $0.25 $0.55 $0.54
===== ===== ===== =====
DILUTED EARNINGS PER SHARE $0.24 $0.25 $0.55 $0.53
===== ===== ===== =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 2
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THE FIRST YEARS INC.
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,306,113 $ 5,617,332
Adjustments to reconcile net income to net cash
provided by (used for) operations:
Depreciation 1,047,664 920,717
Provision for doubtful accounts 43,865 63,708
Loss on disposal of equipment 181,308 86,932
Increase (decrease) arising from working capital items:
Accounts receivable (4,411,162) (5,434,412)
Inventories 2,286,945 (5,059,177)
Prepaid expenses and other expenses 83,858 2,010,482
Accounts payable and accrued expenses (352,227) (213,422)
Accrued royalties (538,161) 62,530
Accrued selling expense (400,187) (1,068,687)
Deferred income taxes (71,000) 0
------------ ------------
Net cash provided by (used for) operating
activities 3,177,016 (3,013,997)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant, and equipment (1,285,239) (3,129,101)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividend (580,343) (630,392)
Common stock issued under stock option plans 526,109 317,315
Purchase of treasury stock (1,539,595) (3,006,555)
------------ ------------
Net cash used for financing activities (1,593,829) (3,319,632)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 297,948 (9,462,730)
------------ ------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,400,728 19,776,897
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,698,676 $ 10,314,167
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes $ 2,037,000 $ 2,536,000
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Tax benefit of stock option exercises $ 34,300 $ 122,500
============ ============
Issuance of treasury shares $ 0 $ 30,250
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3
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THE FIRST YEARS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Amounts in the accompanying balance sheet as of December 31, 1999 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, 2000, and the results
of operations and cash flows for the periods ended June 30, 2000 and 1999.
Certain reclassifications were made to prior year amounts in order to
conform to the current year presentation.
2. The Company has 50,000,000 authorized shares of $.10 par value common stock
with 9,550,097 and 9,616,235 shares issued and outstanding as of June 30,
2000 and December 31, 1999, respectively.
On May 4, 2000 the Board of Directors authorized a $0.06 per share annual
cash dividend which was paid on June 15, 2000 to holders of record at the
close of business on May 30, 2000.
During the period ended June 30, 2000, the Company purchased 162,200 shares
of the Company's common stock on the open market. The cost of the shares
amounted to $1,539,595 and are currently being held as treasury shares.
3. Computation of the Earnings Per Share ("EPS") in accordance with SFAS No.
128 are as follows:
Three Months Ended
June 30,
2000 1999
---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING 9,603,162 10,414,785
EFFECT OF DILUTIVE SHARES 118,197 226,701
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WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 9,721,359 10,641,486
========== ==========
NET INCOME $2,294,580 $2,649,001
========== ==========
BASIC EARNINGS PER SHARE $0.24 $0.25
===== =====
DILUTED EARNINGS PER SHARE $0.24 $0.25
===== =====
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THE FIRST YEARS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Con't)
3. Computation of Earnings Per Share (con't)
Six Months Ended
June 30,
2000 1999
---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING 9,612,185 10,427,312
EFFECT OF DILUTIVE SHARES 101,283 238,586
---------- ----------
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 9,713,468 10,665,898
========== ==========
NET INCOME $5,306,113 $5,617,332
========== ==========
BASIC EARNINGS PER SHARE $0.55 $0.54
===== =====
DILUTED EARNINGS PER SHARE $0.55 $0.53
===== =====
As of June 30, 2000, options to purchase 510,924 shares of common stock
were not included in the computations of diluted EPS because the options'
exercise price was greater than the average price of common shares. The
options, which expire in 2002 to 2010, had exercise prices ranging from 9
5/8 to 17 3/4 per share. The options were still outstanding on June 30,
2000.
As of June 30, 1999, options to purchase 92,964 shares of common stock were
not included in the computation of diluted EPS because the options'
exercise price was greater than the average price of the common shares. The
options, which expire in 2008 and 2009 had exercise prices ranging from 15
6/16 to 17 3/4 per share. The options were still outstanding June 30, 2000.
4. The results of operations for the six month period ended June 30, 2000 and
1999 are not necessarily indicative of the results to be expected for the
full year.
5. During the first six months of 2000 and 1999, the Company did not borrow
against its unsecured line of credit totaling $10,000,000 available from a
bank.
6. The Securities and Exchange Commission has issued Staff Accounting Bulletin
No. 101 (Revenue Recognition and Financial Statements) which will be
required to be implemented by the Company no later that the fourth quarter
of 2000. The Company is currently evaluating the impact, if any, that the
adoption of these new standards will have on the it's consolidated
financial statements.
Page 5
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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. Forward-looking statements are typically identified by the
words: believe, expect, anticipate, intend, are confident, estimate and similar
expressions which by their nature refer to future events. Actual future results
may differ materially from those anticipated depending on a variety of factors
which include but are not limited to continued growth in sales of The First
Years Brand and a slowing in the decline or increase in the sale of licensed
products, continued success of market research identifying new product
opportunities, successful introduction of new products, continued product
innovation, growth in international sales, ability to attract and retain key
personnel and growth in sales and earnings. Information with respect to risk
factors are contained in Exhibit 99 to the Company's Annual Report on Form 10-K,
and quarterly reports on Form 10-Q as filed with the Securities and Exchange
Commission. Readers are cautioned not to place undo reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
assumes no obligation to update the information contained in this press release.
Net sales for the first six months of 2000 were $71.0 million, a decrease of
$0.8 million or 1.1%, as compared to $71.8 million for the comparable period
last year. The decrease was primarily due to the continued decline in the sale
of licensed products which was partially offset by increased demand for First
Years brand products over the corresponding six month period of 1999. As a
percentage of sales, sales of First Years brand products increased to 65.6% in
the first six months of 2000 from 59.4% in the first six months of 1999. Net
sales to foreign markets increased slightly to 12.3% in the first six months of
2000 from 11.8% in the comparable period last year. The increase reflects sales
growth achieved primarily in the Canadian markets which were countered by
weakened distribution in Europe.
Cost of products sold for the first six months of 2000 was $41.8 million, a
decrease of $0.5 million or 1.2%, as compared to $42.3 million for the
comparable period last year. As a percentage of sales, cost of products sold
remained constant at 58.9% in the first six months of 2000 as compared to the
corresponding period of 1999 due to normal business fluctuations.
Selling, general, and administrative expenses for the first six months of 2000
were $20.6 million, an increase of $0.2 million or 1.0%, as compared to $20.4
million of related expenses for the first six months of 1999. The increase
resulted primarily from costs related to increased freight and payroll and
payroll related costs. As a percentage of net sales, selling, general, and
administrative expenses for the first six months of 2000 increased to 29.1% from
28.4% in the comparable period of 1999.
Page 6
<PAGE> 9
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% in the
first six months of 2000 as compared to 40.5% for the first six months of 1999.
Net working capital increased by $3.8 million in the first six months of 2000 to
$46.8 million at June 30, 2000 from $43.0 million at December 31, 1999 mainly
due to profitable operations. Accounts receivable increased by $4.4 million and
inventories decreased by $2.3 due to normal business fluctuations during the
first six months of 2000. Cash increased slightly to $13.7 million at June 30,
2000 primarily due to profitable operations which were partially offset by
fluctuations in accounts receivable and inventories.
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 2000 and 1999, the Company incurred no borrowings under
the line and had no balances outstanding as of June 30, 2000 and 1999,
respectively. The Company did not incur any other short-term borrowings during
the first six months of 2000 and 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
The Securities and Exchange Commission has issued Staff Accounting Bulletin No.
101 (Revenue Recognition and Financial Statements) which will be required to be
implemented by the Company no later that the fourth quarter of 2000. The Company
is currently evaluating the impact, if any, that the adoption of these new
standards will have on the it's consolidated financial statements.
YEAR 2000 Issue
The "Year 2000 Issue" (Y2K) related to potential problems resulting from the
incorrect processing of information using dates or date sensitive data by
computers and other machines utilizing embedded microprocessors. The problem is
attributable to the computer or software recognizing the year as a two digit
number "00" as opposed to the Year "2000". The Company was adequately prepared
for Y2K and did not experience any meaningful disruptions related to the
Company's information technology (IT) and non-IT systems. Additionally, the
Company did not encounter any disruptions in service or communications with its
mission critical service vendors, suppliers of products, logistics vendors or
it's customers.
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 18, 2000.
(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:
Number of Shares
-----------------------
Withheld
For Authority
--------- ---------
Evelyn Sidman 6,713,544 1,477,960
Walker J. Wallace 6,742,794 1,448,710
Lewis M. Weston 6,747,519 1,443,985
ii. Proposal to approve an amendment to the Company's 1993 Stock
Option Plan for Directors increasing the number of shares of
the Company's common stock authorized for issuance under the
Plan by 300,000 shares
Number of Shares
----------------
For 5,817,464
Against 2,354,863
Abstain 19,177
iii. Proposal to ratify the selection of Deloitte &
Touche LLP as auditors for the Company for the
fiscal year 2000.
Number of Shares
----------------
For 8,169,921
Against 13,731
Abstain 7,852
Page 8
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THE FIRST YEARS INC.
PART II - OTHER INFORMATION - (Continued)
Item 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
------- -----------
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the past quarter
covered by this report.
Item 7A: Quantitative and Qualitative Disclosure about Market Risk
At June 30, 2000, the Company held foreign currency forward contracts with
a bank whereby the Company is committed to deliver foreign currency at
predetermined rates. The contracts expire within one year. The Company's
future commitment under these contracts totaled approximately $1,905,850
and the fair market value of the contracts approximated their predetermined
rates included therein.
Also see the discussion of the Company's disclosure regarding Market Risk
in Item 7A of Form 10K filed with the Securities and Exchange Commission.
Page 9
<PAGE> 12
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 8/11/00 /s/ John R. Beals
----------- ------------------------------
John R. Beals, Senior Vice
President and Treasurer,
Duly Authorized Officer and
Principal Financial Officer
Page 10
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THE FIRST YEARS INC.
EXHIBIT INDEX
Exhibit Description Page
------- ----------- ----
27 Financial Data Schedule 12
Page 11
