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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
Commission file number 000-23213
YOUNG INNOVATIONS, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-1718931
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
13705 Shoreline Court East, Earth City, Missouri 63045
(Address of principal executive offices) (Zip Code)
(314) 344-0010
(Registrant's telephone number, including area code)
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 [ ]
Number of shares outstanding of the Registrant's Common Stock at July 31, 2000:
6,498,796 shares of Common Stock, par value $.01 per share
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
YOUNG INNOVATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- --------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................... $ -- $ 2,511
Trade accounts receivable, net of allowance for doubtful accounts of $188
and $228 in 2000 and 1999, respectively .............................. 8,093 5,735
Inventories ............................................................. 5,275 3,772
Other current assets .................................................... 2,232 2,420
-------- --------
Total current assets ................................................. 15,600 14,438
-------- --------
Property, plant and equipment ............................................. 12,909 12,523
-------- --------
Other assets .............................................................. 1,184 1,359
-------- --------
Intangible assets ......................................................... 37,668 32,016
-------- --------
Total assets ......................................................... $ 67,361 $ 60,336
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt ..................... $ 3,320 $ 373
Accounts payable and accrued liabilities ................................ 5,015 4,627
-------- --------
Total current liabilities ............................................ 8,335 5,000
-------- --------
Deferred income taxes ..................................................... 2,679 2,679
-------- --------
Long-term debt ............................................................ 575 520
-------- --------
Stockholders' equity:
Common stock, voting, $.01 par value, 25,000,000 shares
authorized, 6,498,196 and 6,504,296 shares issued and
outstanding in 2000 and
1999, respectively ................................................... 65 65
Additional paid-in capital .............................................. 26,083 26,083
Retained earnings ....................................................... 33,235 29,511
Common stock in treasury, at cost, 314,514 and 308,414 shares in 2000 and
1999, respectively ................................................... (3,611) (3,522)
-------- --------
Total stockholders' equity ........................................... 55,772 52,137
-------- --------
Total liabilities and stockholders' equity ........................... $ 67,361 $ 60,336
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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YOUNG INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 11,860 $ 10,674 $ 22,051 $ 19,625
Cost of goods sold 5,397 4,711 9,834 8,660
------------- ------------- ------------ ------------
Gross profit 6,463 5,963 12,217 10,965
Selling, general and administrative expenses 3,185 3,195 6,046 5,724
------------- ------------- ------------ ------------
Income from operations 3,278 2,768 6,171 5,241
------------- ------------- ------------ ------------
Interest expense 16 73 20 73
Other expense (income), net 38 (54) 45 (138)
------------- ------------- ------------ ------------
Income before provision for income taxes 3,224 2,749 6,106 5,306
Provision for income taxes 1,257 1,072 2,382 2,069
------------- ------------- ------------ ------------
Net income $ 1,967 $ 1,677 $ 3,724 $ 3,237
============= ============= ============ ============
Basic earnings per share $ 0.30 $ 0.26 $ 0.57 $ 0.49
============= ============= ============ ============
Diluted earnings per share $ 0.30 $ 0.26 $ 0.57 $ 0.49
============= ============= ============ ============
Basic weighted average shares outstanding 6,498 6,503 6,500 6,628
============= ============= ============ ============
Diluted weighted average shares outstanding 6,593 6,522 6,574 6,640
============= ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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YOUNG INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 3,724 $ 3,237
------------- -------------
Adjustments to reconcile net income to cash flows from
operating activities --
Depreciation and amortization 1,250 1,081
Gain on sale of property, plant and equipment (24) --
Changes in assets and liabilities --
Trade accounts receivable (1,050) 1,126
Inventories (229) (477)
Other current assets 231 (121)
Other assets 175 64
Accounts payable and accrued liabilities (1,471) (682)
------------- -------------
Total adjustments (1,118) 991
------------- -------------
Net cash flows from operating activities 2,606 4,228
------------- -------------
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired (6,941) (5,690)
Purchases of property, plant and equipment (949) (871)
Proceeds from sale of property, plant and equipment 36 -----
------------- -------------
Net cash flows from investing activities (7,854) (6,561)
------------- -------------
Cash flows from financing activities:
Payments on long term-debt (174) (347)
Borrowings from Revolving Line of Credit 4,500 4,500
Payments on Revolving Line of Credit (1,500) (2,860)
Purchases of treasury stock (104) (3,228)
Reissuance of common stock in treasury 15 -----
------------- -------------
Net cash flows from financing activities 2,737 (1,935)
------------- -------------
Net (decrease) in cash and cash equivalents (2,511) (4,268)
Cash and cash equivalents, beginning of period 2,511 4,337
------------- -------------
Cash and cash equivalents, end of period $ -- $ 69
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
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YOUNG INNOVATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
GENERAL:
The interim financial statements are unaudited and reflect all adjustments
(consisting solely of normal recurring adjustments) that, in the opinion of
management, are necessary for a fair statement in the interim periods presented.
This report includes information in a condensed format and should be read in
conjunction with the audited consolidated financial statements and the footnotes
included in the Company's 1999 Annual Report on Form 10-K. The results of
operations for the six months ended June 30, 2000 are not necessarily indicative
of the results expected for the full year or any other interim period.
The accompanying condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed, or omitted, pursuant to the
rules of the Securities and Exchange Commission. In our opinion, the statements
include all adjustments necessary (which are of a normal recurring nature) for
the fair presentation on the results of the interim periods presented.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
1. DESCRIPTION OF BUSINESS:
Young Innovations, Inc. (the Company) develops, manufactures and markets
supplies and equipment used by dentists, dental hygienists and consumers. The
Company's product offering includes disposable and metal prophy angles, cups,
brushes, panoramic x-ray machines, handpieces and related components,
orthodontic toothbrushes, flavored gloves, children's toothbrushes, children's
toothpastes, and infection control products. The Company's manufacturing and
distribution facilities are located in Missouri, California, Indiana and Texas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Young
Innovations, Inc. formed in July 1995 and its direct and indirect wholly owned
subsidiaries, Young Dental Manufacturing I, LLC. (Young Dental, formerly Young
Dental Manufacturing Company), The Lorvic Corporation (Lorvic), Denticator
International, Inc. (Denticator), Young Acquisitions Company and Panoramic
Rental Corp. (collectively, Panoramic), Athena Technology, L.L.C. (Athena,
formerly Athena Technology, Inc.), and Young PS Acquisitions, LLC. (Plak
Smacker). Athena is included since its acquisition on April 2, 1999. Plak
Smacker is included since its acquisition on June 13, 2000. All significant
inter-company accounts and transactions are eliminated in consolidation.
The preparation of these financial statements required the use of certain
estimates by management in determining the Company's assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
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3. ACQUISITIONS:
On June 13, 2000, the Company acquired substantially all of the assets and
assumed a portion of the liabilities of Plak Smacker for $6,906 in cash. The
acquisition was principally financed with borrowings on the Company's credit
facilities and cash flows from operations. The acquisition was accounted for as
a purchase transaction. The purchase price was allocated to the net assets
acquired based upon their estimated fair values and are subject to adjustment
when valuations are finalized. The excess of the purchase price over estimated
fair value of net assets (goodwill) was $5,830 and is being amortized over 30
years. The financial statements reflect the preliminary allocation of the
purchase price. The results of operations for Plak Smacker are included in the
consolidated financial statements since June 13, 2000.
On January 18, 2000, Panoramic purchased the assets and assumed a
portion of the liabilities of Sav-A-Life System, Inc. (Sav-A-Life), which sells
emergency medical kits and related supplies and refills. Panoramic paid $434 in
cash to the previous owner of Sav-A-Life. The purchase was principally financed
through cash flows from operations.
On April 2, 1999, the Company acquired Athena. After a final favorable
purchase price adjustment of $399 in the second quarter of 2000, the Company
paid $4,241 in cash and issued $232 in notes payable to the previous
shareholders. The cash portion of the purchase price was principally financed
with cash flows from operations and borrowings on the Company's revolving line
of credit. The acquisition was accounted for as a purchase transaction. The
purchase price was allocated based upon estimates of fair values. Adjustments
were made to the purchase price allocation during the first and second quarter
of 2000.The excess of purchase price over estimated fair value of net assets
(goodwill) was $4,747 and is being amortized over 40 years. The results of
operations for Athena are included in the consolidated financial statements
since April 2, 1999.
4. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- ---------
<S> <C> <C>
Finished products...................................... $1,002 $ 1,373
Work in process........................................ 1,608 1,467
Raw materials and supplies............................. 2,665 932
--------- ---------
Total inventories................................. $5,275 $ 3,772
========= =========
</TABLE>
5. OTHER ASSETS:
On May 17, 1999, the Company acquired a one-third interest in International
Assembly, Inc., a Texas corporation (IAI). The Company paid approximately $1,050
in cash for this investment. The Company has an option to purchase the remaining
two-thirds interest in IAI or to sell its one-third interest back to IAI in
early 2001. The investment was principally financed through cash flows from
operations. The investment is being accounted for under the equity method of
accounting. Equity income (using a 3 month lag) is recorded net, after reduction
of goodwill amortized straight-line over 10 years. Goodwill of approximately
$931 is based upon the excess of the amount paid for its interest in IAI over
the fair value of its portion of IAI's net assets at the date of the investment.
The Company's share of losses for IAI is included in other expenses.
Other assets also include costs related to patents issued to the Company and
pending patent applications. Capitalized patent costs are amortized on a
straight-line basis over the estimated useful lives of the patents, generally 17
to 20 years.
6. REVOLVING LINE OF CREDIT:
In June 2000, the Company borrowed $4,500 on a revolving line of credit,
of which $1,500 was paid during June 2000.
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7. COMMON STOCK:
In March 1999, the Company authorized the repurchase of up to 300,000 shares
of its common stock. As of December 31, 1999, the Company had completed the
repurchase of 277,500 shares for $3,323 and reissued 9,000 shares in conjunction
with a stock option exercise for $107. In the first quarter 2000, the Company
purchased an additional 7,500 shares for $104 and reissued 1,400 shares in
conjunction with stock option exercises for $15.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
NET SALES
Net sales increased $1.2 million, or 11.1%, to $11.9 million in the
second quarter of 2000 from $10.7 million in the second quarter of 1999. The
increase was a result of growth in sales of products from the base business,
including prophy products and panoramic x-ray machines, and from the addition of
Plak Smacker sales in the second quarter of 2000. Plak Smacker was acquired on
June 13, 2000.
GROSS PROFIT
Gross profit increased $500,000 or 8.4%, to $6.5 million in the second
quarter of 2000 from $6.0 million in the second quarter of 1999. Gross profit
benefited from strong sales in the base businesses and from the acquisition of
Plak Smacker. Gross margin decreased to 54.5% of net sales in 2000 from 55.9% in
1999. The decrease was primarily a result of production inefficiencies in the
Company's Earth City facility and of the inclusion of sales of Plak Smacker,
which typically carry lower gross margins. These lower gross margins were
partially offset by operating efficiencies gained in connection with the
investment in IAI.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
SG&A expenses remained consistent at $3.2 million in the second quarter
of 2000 and 1999. SG&A expenses benefited from the consolidation of the Athena
operations in Fort Wayne. This benefit was offset by the inclusion of Plak
Smacker. As a percent of net sales, SG&A expenses decreased to 26.9% in 2000
from 29.9% in 1999.
INCOME FROM OPERATIONS
Income from operations increased $510,000 or 18.4%, to $3.3 million in
the second quarter of 2000 from $2.8 million in the second quarter of 1999. The
increase is a result of the items explained above.
OTHER EXPENSE (INCOME)
Other expense (income) increased $35,000 to $54,000 in the second
quarter of 2000 from $19,000 in the second quarter of 1999. The increase is
primarily attributable to the inclusion in 2000 of the Company's portion of the
loss from its investment in IAI.
PROVISION FOR INCOME TAXES
Provision for income taxes increased $185,000 for the second quarter of
2000 to $1.3 million from $1.1 million in the first quarter of 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
NET SALES
Net sales increased $2.4 million, or 12.4%, to $22.0 million for the
first six months of 2000 from $19.6 million for the first six months of 1999.
The increase was a result of growth in sales of products from the base business,
including prophy products and panoramic x-ray machines, and from the addition of
Plak Smacker sales and a full period of sales of Athena. Plak Smacker was
acquired on June 13, 2000 and Athena was acquired April 2, 1999.
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GROSS PROFIT
Gross profit increased $1.2 million or 11.4%, to $12.2 million for the
first six months of 2000 from $11.0 million for the first six months of 1999.
Gross profit benefited from the acquisitions of Athena and Plak Smacker and
through strong sales in the other base businesses. Gross margin decreased
slightly to 55.4% of net sales for the first six months of 2000 from 55.9% of
net sales for the comparable period in 1999. The decrease was a result of the
inclusion of sales of Athena and Plak Smacker products, which typically carry
lower gross margins and production inefficiencies in the Company's Earth City
facility during the second quarter 2000. These lower gross margins were
partially offset by operating efficiencies gained in connection with the
investment in IAI.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
SG&A expenses increased $322,000, or 5.6%, to $6.0 million for the
first six months of 2000 from $5.7 million for the first six months of 1999. The
increase in SG&A expenses is primarily attributable to the inclusion of Athena
and Plak Smacker. The increase in SG&A expenses was partially offset by the
consolidation of the Athena operations in Fort Wayne along with a
rationalization of administrative expenses among all lines of business. As a
percent of net sales, SG&A expenses decreased to 27.4% for the first six months
of 2000 from 29.2% for the comparable period in 1999.
INCOME FROM OPERATIONS
Income from operations increased $930,000 or 17.7%, to $6.2 million for
the first six months of 2000 from $5.2 million for the first six months of 1999.
The increase is a result of the items explained above.
OTHER EXPENSE (INCOME)
Other expense (income) increased $130,000 to $65,000 for the
first six months of 2000 from ($65,000) for the comparable period in 1999. The
increase is primarily attributable to the inclusion in 2000 of the Company's
portion of the loss from its investment in IAI.
PROVISION FOR INCOME TAXES
Provision for income taxes increased $313,000 in 2000 to $2.4 million
from $2.1 million in 1999.
LIQUIDITY AND CAPITAL RESOURCES
On June 13, 2000, the Company acquired substantially all of the assets of
Plak Smacker for approximately $6.9 million in cash. The purchase price was
principally financed with borrowings on the Company's credit facilities and with
cash flows from operations.
On January 18, 2000 Panoramic purchased substantially all of the assets
of Sav-A-Life System, Inc. (Sav-A-Life), which sells emergency medical kits and
related supplies and refills. The purchase price was $434,000 in cash and was
principally financed through cash flows from operations.
On May 17, 1999, the Company invested approximately $1.0 million in
exchange for a one-third interest in IAI. The investment was principally
financed through cash flows from operations. The Company has an option to
purchase the remaining two-thirds interest in IAI or to sell its one-third
interest back to IAI in early 2001.
On April 2, 1999, the Company acquired Athena. After a favorable final
purchase price adjustment of $399 in the second quarter of 2000, the Company
paid approximately $4.2 million in cash and issued approximately $232,000 in
notes payable to the previous shareholders. The cash portion of the purchase
price was principally financed with cash flows from operations and borrowings
on the Company's revolving line of credit. The notes were paid in full by the
second quarter of 2000.
Historically, the Company has financed its operations primarily through
cash flow from operating activities and, to a lesser extent, through borrowings
under its credit facilities. Net cash flows from operating activities were $2.6
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million and $4.2 million for the second quarter of 2000 and 1999, respectively.
Capital expenditures for property, plant and equipment were $949,000 and
$871,000 for the second quarter of 2000 and 1999, respectively. During the
second quarter 2000, the Company began construction on additional office and
manufacturing space in Ft. Wayne, IN which is estimated to cost approximately
$1.2 million. Consistent with the Company's historical capital expenditures,
future capital expenditures are expected to include buildings, building
improvements, the purchase of panoramic X-ray machines for rental, injection
molding equipment and upgrades to production machinery and to the Company's
information systems. Management believes the Company has adequate liquidity and
capital resources to meet its needs on a short and long-term basis.
RECENT FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that all derivatives be
recognized as either assets or liabilities in the statement of financial
position at fair value. The Company adopted this statement in fiscal year 2000.
The adoption of this statement had no impact on operating results, statement of
financial position or cash flows, as the Company does not currently have
derivative instruments.
FORWARD-LOOKING STATEMENTS
Investors are cautioned that this report as well as other reports and oral
statements by Company officials may contain certain forward-looking statements
as defined in the Private Securities Litigation and Reform Act of 1995.
Forward-looking statements include statements which are predictive in nature,
which depend upon or refer to future events or conditions and which include
words such as "expects", "anticipates", "intends", "plans", "believes",
"estimates" or similar expressions. These statements are not guaranties of
future performance and the Company makes no commitment to update or disclose any
revisions to forward-looking statements, or any facts, events or circumstances
after the date hereof that may bear upon forward-looking statements. Because
such statements involve risks and uncertainties, actual actions and strategies
and the timing and expected results thereof may differ materially from those
expressed or implied by such forward-looking statements. These risk and
uncertainties include, but are not limited to, those disclosed in the Company's
Annual Report on Form10-K and other reports filed with the Securities and
Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk related to changes in interest rates.
The value of financial instruments is subject to change as a result of movements
in market rates and prices. Sensitivity analysis is one technique used to
evaluate these impacts. Based upon a hypothetical 10% change in interest rates,
the potential losses in future earnings, fair value and cash flows are not
material.
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PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) A regular Annual Meeting of Shareholders was held on May 16, 2000.
(b) The following directors were elected at the Annual Meeting.
George E. Richmond, Alfred E. Brennan, Arthur L. Herbst, Jr., Richard
G. Richmond, Richard P. Conerly, Craig E. LaBarge, Connie H. Drisco,
DDS, James R. O'Brien and Brian F. Bremer
(c) The voting at the Annual Meeting of Shareholders for the election
of directors was as follows:
Number of Shares
----------------
Nominees For Against Abstain
-------- --- ------- -------
George E. Richmond 6,067,449 0 61,400
Alfred E. Brennan 6,067,449 0 61,400
Arthur L. Herbst, Jr. 6,067,449 0 61,400
Richard G. Richmond 6,067,449 0 61,400
Richard P. Conerly 6,067,449 0 61,400
Craig E. LaBarge 6,067,449 0 61,400
Connie H. Drisko 6,067,449 0 61,400
James R. O'Brien 6,067,449 0 61,400
Brian Bremer 6,067,449 0 61,400
Item 6. Exhibits and Reports on Form 8-K
(d) Exhibits.
Number Description
27 Financial Data Schedule
(e) Reports on Form 8-K.
On June 23, 2000 the Company filed a Form 8-K. Under item 5, the
Company reported that it had acquired substantially all of the assets
of Plak Smacker, Inc. on June 13, 2000.
Signature
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.
YOUNG INNOVATIONS, INC.
August 11, 2000 /s/ Arthur L. Herbst, Jr.
--------------- -----------------------------------------------------
Date Arthur L. Herbst, Jr.
Executive Vice President Strategic Planning &
Chief Financial Officer
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