ITEM 1. 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, dental handpieces (drills) and related components, orthodontic toothbrushes, flavored examination gloves, children's toothbrushes, children's toothpastes, and infection control products. The Company's manufacturing and distribution facilities are located in Missouri, California, Indiana, Tennessee and Texas.
The Company was incorporated in July 1995 to serve as the parent company for Young Dental Manufacturing I, LLC ("Young Dental", formerly Young Dental Manufacturing Company), and The Lorvic Corporation ("Lorvic"). Young Dental acquired Lorvic in May 1995, adding to Young Dental a new line of infection control products as well as chemical engineering and manufacturing expertise. In July 1996, the Company acquired Denticator International, Inc. ("Denticator") and its line of popular low-cost disposable prophylaxis angles to complement Young's premium-priced disposable angles. In February 1998, the Company acquired Panoramic Corporation ("Panoramic"), a leading manufacturer and marketer of X-ray equipment sold or rented to dental professionals in the United States. In April 1999, the Company acquired Athena Technology, LLC ("Athena", formerly Athena Technology, Inc.), which added a line of dental handpieces and related components to the Company's product line. In June 2000, the Company acquired substantially all of the assets of Plak Smacker, Inc, which added a line of orthodontic toothbrushes, children's toothbrushes, flavored examination gloves, and children's toothpastes to the Company's product line.
Young Dental was founded in the early 1900's. As one of many small suppliers to the dental profession, Young Dental's strength was manufacturing consistently reliable dental products. As dentistry evolved, Young worked with practicing dentists and academics to identify clinical problems. Young Dental then used its engineering and manufacturing expertise to create solutions to those problems. The Company believes that decades of providing innovative products to meet the evolving needs of the dental profession have earned Young a strong reputation for quality, reliability and value.
The Company markets its products primarily in the United States. The Company also markets its products in several international markets, including Europe, South America, Central America and the Pacific Rim. International sales represented less than 10% of the Company's total net sales in 2000.
The Company is a Missouri corporation with its principal executive office located at 13705 Shoreline Court East, Earth City, Missouri 63045, in the St. Louis, Missouri metropolitan area; its telephone number is (314) 344-0010.
See Item 8. Financial Statements and Supplementary Data for financial information about the professional and retail segments of the Company's business.
PRODUCTS
The Company markets disposable and metal prophy angles, cups, brushes and pastes (collectively, "Prophy Products"), fluorides, infection control products, dental X-ray equipment, dental handpieces and related components, orthodontic brushes and supplies, flavored examination gloves, and children's toothbrushes and toothpastes.
Prophy Products. The Company believes it manufactures and sells the broadest line of prophy products in the domestic professional dental products market. The Company is able to achieve its substantial share of this market by providing prophy products at both premium and popular prices. The Company generally prices its Young branded prophy products at premium levels and its Denticator branded prophy products at popular price levels. The Company's broad range of prophy products enables it to be a single-source supplier to its distributors.
Prophy products consist of two components: 1) an angle which is attached to and extends from a standard, low-speed dental handpiece, and 2) a rubber cup or brush which is attached to the angle and performs the cleaning function. During the prophylaxis process, the cup or brush is filled with abrasive paste, which is applied to the teeth as the prophy cup rotates. The dental professional polishes both the visible portion of the tooth and the subgingival portion (below the gum line). The Company's prophy products include several configurations of metal autoclavable prophy angles and single-use disposable plastic prophy angles. Prophy cups and brushes, which are paired with metal prophy angles, are sold as single-use items. Disposable prophy angles are sold as assembled units with a cup or brush already attached. The Company produces and markets a number of different disposable prophy angles, including both traditional right angle and contra angle configurations. Virtually all of the Company's metal prophy angles are sealed against penetration of matter from patients' mouths (thus reducing the risk of cross-contamination and damage to the prophy angle) and are designed for easy maintenance. Because such metal prophy angles function optimally only when used with the Company's cups and brushes, most dentists who purchase the Company's metal prophy angles also purchase the Company's cups and brushes.
Other Preventive Products. The Company's other preventive products include fluorides used in dental offices and at home to reduce cavities and tooth sensitivity; applicators used by dental professionals to apply fluoride to patients' teeth; and plaque disclosants, which are liquids or tablets that identify the presence of plaque when applied to tooth surfaces.
Infection Control Products. The Company's line of infection control products includes products such as indicator tape and tabs used to verify the effectiveness of a sterilizer; Nyclave wrap used to wrap instruments during sterilization so that sterility is maintained until use; barrier products used to wrap operatory knobs, handles and other devices that cannot be sterilized; and surgical milk and instrument care products used to inhibit corrosion, remove rust and lubricate hinged instruments in connection with the autoclave process (sterilization through the use of steam).
X-Ray Equipment. The Company markets a line of dental X-ray equipment under the Panoramic brand name. Panoramic's PC 1000 X-ray machine produces a high quality image of the entire dental arch in one X-ray film. Panoramic X-ray's present an anatomical assessment of the entire oral cavity and surrounding structures. The Company believes this allows a dentist to more accurately diagnose and treat the patient, providing better overall care. Panoramic's Laser 1000 cephalometric X-ray system allows analysis of the exact relationship of various anatomical reference points of the patient's anterior skull profile. General dentists and orthodontists use these calculations to locate and predict the movement of teeth in order to fit braces and other orthodontia. The device is used by oral surgeons to detect pathology and also to determine bone and teeth alignment before and after surgery.
Handpieces and Components. The Company manufactures and markets a line of high-speed and low-speed dental handpieces. The Company also offers high-speed and low-speed handpiece repair services. High-speed handpieces, commonly referred to as dental drills, are used in a variety of operative and restorative dental procedures. Low-speed handpieces are used by dentists and dental hygienists in the teeth cleaning, or prophylaxis procedure. Prophylaxis angles, such as the disposable or autoclavable prophylaxis angles sold by the Company, attach to a low-speed handpiece, which provides drive power for the angle. Low-speed handpieces are also used in certain operative and restorative dental procedures, though to a lesser extent than high-speed handpieces. The Company's handpieces are sold under the Athena Champion brand name, as well as through private label agreements with certain dental distributors.
Orthodontic and Children's Homecare Products. The Company markets a line of orthodontic tools, brushes, flavored examination gloves, children's toothbrushes and toothpastes, and miscellaneous supplies.
Assisting and Other Products. The Company's assisting and other products include disposable aspiration products used to remove blood, saliva and other matter during dental procedures; cotton roll substitutes used to control saliva and moisture during dental procedures; matrix bands used for tooth restorations; rubber dam frames used to isolate teeth during dental procedures; and etching gels and bonding prep used to condition tooth surfaces for bonding.
Private Label and OEM Products. In addition to branded products, the Company designs, develops and produces a limited number of private label and OEM products for dental distributors and other professional dental product manufacturers.
MARKETING AND DISTRIBUTION
The Company markets its prophy, preventive and handpiece products to dental professionals worldwide primarily through a network of dental product distributors. The Company actively supports its distributor relationships with Company sales personnel in the United States, independent sales representatives in Canada and sales representatives in countries outside of North America. Until July 1997, the Company used independent non-exclusive sales representatives and a small number of Company employees for its marketing and sales efforts in the United States. In an effort to more efficiently market its products, the Company decided to switch from independent sales representatives to Company employees who focus on selling the Company's products exclusively.
The Company also uses non-exclusive distributors to service markets in a number of other countries. All major distributors of dental
products in North America sell the Company's products, including Henry Schein, Inc. and Patterson Dental Company which accounted for 17.0%, and 11.7% respectively, of the Company's sales in 2000. The Company has no formal agreements with its distributors which generally purchase products from the Company by purchase order. The Company believes these arrangements are customary in the industry. In addition to marketing through distributors in the United States, the Company sells products directly to dental and dental hygiene schools, Veterans Administration healthcare facilities and United States military bases.
The Company expends considerable effort educating its distributors about the quality, reliability and features of its products. The Company also advertises its products through industry publications and direct mail. To supplement its other marketing efforts, the Company provides product samples to dental professionals and exhibits its products at industry trade shows. In addition, the Company seeks to stimulate interest in its products by providing information and marketing materials to influential lecturers and prominent experts and consultants in the dental industry.
The Company's panoramic X-ray products are marketed in the United States and Canada directly to the end user, primarily by direct mail, trade shows and a limited amount of advertising in trade and professional journals. Panoramic also utilizes distributors to market its products in a number of other countries.
The Company's orthodontic kits and related supplies and flavored examination gloves are sold directly to orthodontists and dentists. Children's homecare products are marketed directly to dental professionals, government "head-start" programs, as well as through retail mass merchandisers.
PRODUCT DEVELOPMENT
The Company's engineers and chemists are focused on developing innovative professional dental products and are actively involved in improving the Company's manufacturing processes. Frequently, these products are designed and developed in response to needs articulated to the Company by dental professionals. For example, the Company designed a short prophy cup for its line of prophy angles to allow for easier access to the back of the patient's mouth. Many of the new products or product improvements developed by the Company are patented.
MANUFACTURING AND SUPPLY
The Company manufactures most of its products and product components other than X-ray equipment. In May 1999, the Company acquired a one-third interest in International Assembly Inc. ("IAI"), a contract manufacturer located in Mexico that assembles a majority of the disposable prophy angles for Young Dental and Denticator.
Prophy and Other Products. The Company uses a variety of state-of-the-art computer numerically controlled machining centers, injection molding machines and robotic assembly machines and continues to invest in new and more efficient equipment and production lines. The primary processes involved in manufacturing the Company's products consist of precision metal turning and milling, rubber molding, plastic injection molding, component parts assembling and finished goods packaging.
Pastes, Liquids and Gels. The Company blends and mixes all of its pastes, liquids and gels at the Earth City and Brownsville facilities. The Company owns equipment used to form and dye-cut expanded polyethylene foam and to dye-cut extruded plastic into finished products and equipment used to package its products in a variety of container sizes, including prophy paste in unit-dose containers.
X-Ray Equipment. Panoramic's X-ray equipment is manufactured and assembled by a contract manufacturer at Panoramic's premises in Fort Wayne, Indiana. The contract manufacturer supplies labor, purchases most components and performs administrative and logistical functions associated with the production of the machines. Panoramic owns all of the tooling, engineering documentation and assembly fixtures used in the process. Panoramic manufactures its own X-ray generators.
Handpieces and Components. The Company uses a variety of state-of-the-art computer numerically controlled machines to manufacture a number of the components required to produce its high-speed and low-speed handpieces. Certain other handpiece component parts are sourced from a variety of OEMs. The Company assembles and provides repair services for its handpieces, and offers repair services for a number of other handpiece brands.
Orthodontic and Children's Homecare Products. The Company sources most of its orthodontic, children's homecare products, and flavored examination gloves from manufacturers in Asia, principally China and Thailand. Certain other toothbrush and toothpaste products are sourced from domestic manufacturers.
Supply. The Company purchases a wide variety of raw materials, including bar steel, brass, rubber and plastic resins from numerous suppliers. The majority of the Company's purchases are commodities readily available at competitive prices. The Company also purchases
certain additional miscellaneous products from other manufacturers for resale.
COMPETITION
The Company competes with manufacturers of both branded and private label dental products in each of the markets it serves. According to Strategic Dental Marketing, Inc., an independent market research firm, the Company had the largest domestic market share of distributor sales in Prophy Products during 2000, 1999 and 1998.
The Company believes that dental professionals place major importance on the proven reliability of the Company's products and are generally not price-sensitive. Young Dental and Lorvic compete on the basis of the quality and reliability of their products as well as their reputations. As a result, Young Dental and Lorvic typically charge premium prices for their products. By contrast, Denticator, Panoramic, and Plak Smacker products are targeted at more price-sensitive dental service providers. Panoramic competes with seven competitors, six of which are foreign manufacturers.
The markets for the Company's products are highly competitive. The Company believes that the principal competitive factors in all of its markets are product features, reliability, name recognition, established distribution network, customer service and, to a lesser extent, price. The relative speed with which the Company can develop, complete testing, obtain regulatory approval and sell commercial quantities of new products is also an important competitive factor. Some of the Company's competitors have greater financial, research, manufacturing and marketing resources than the Company and include DENTSPLY International, Inc., Oral-B Laboratories, StarDental, a division of DentalEZ Group, KaVo America, Proctor and Gamble Co., Colgate-Palmolive Co., and Planmeca OY.
EMPLOYEES
As of December 31, 2000, the Company employed approximately 250 people, none of whom were covered by collective bargaining agreements. The Company believes that its relations with its employees are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages and their positions with the Company as of December 31, 2000 are set forth below. All officers serve at the pleasure of the board.
ITEM 2.
ITEM 2. PROPERTIES.
The Company's facilities are as follows:
The Company believes that its facilities are generally in good condition. The Company is in process of expanding its operations in Fort Wayne, Indiana with additional office and manufacturing space and exploring other expansion opportunities in Earth City, Missouri.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
The Company and its subsidiaries from time to time are parties to various legal proceedings arising out of their businesses. Management believes there are no such proceedings pending or threatened against the Company or its subsidiaries which, if determined adversely, would have a material effect on the Company's business, financial condition, results of operations or cash flows.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock trades on the Nasdaq National Market under the symbol of "YDNT." The following table sets forth the high and low closing prices of the Common Stock as reported by the Nasdaq National Market during the last eight quarters.
On February 23, 2001, there were approximately 33 holders of record of the Company's Common Stock.
The Company has not paid cash dividends on its Common Stock since its inception. The Company currently intends to retain earnings for use in its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future. Payment of cash dividends, if any, will be at the discretion of the Company's Board of Directors and will be dependent upon the earnings and financial condition of the Company and any other factors deemed relevant by the Board of Directors and will be subject to any applicable restrictions contained in the Company's then existing credit arrangements.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents selected financial data of the Company. This historical data should be read in conjunction with the Consolidated Financial Statements and the related notes thereto in Item 8 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
GENERAL
The Company develops, manufactures and markets supplies and equipment used by dentists and dental hygienists. The Company's product offering includes disposable and metal prophylaxis (prophy) angles, cups, brushes, panoramic X-ray machines, dental handpieces (drills) and related components, orthodontic toothbrushes, flavored examination gloves, children's toothbrushes, children's toothpastes and infection control products. The Company believes it is the leading manufacturer and distributor of prophylaxis angles and cups (used in teeth cleaning and polishing procedures) and panoramic X-ray equipment in the United States.
The principal components of the Company's growth strategy are to continuously improve its operating efficiencies, to drive superior internal growth and to complete strategic acquisitions. In order to help fund the Company's strategy for growth, the Company completed an initial public offering of 2.3 million shares of its common stock in November 1997, resulting in net proceeds of $25.2 million. The Company used the proceeds to repay debt incurred with previous acquisitions and to fund future strategic acquisitions.
On February 27, 1998, the Company acquired the assets of Panoramic for $13.9 million cash plus 62,500 shares of the Company's Common Stock and assumed approximately $3.9 million of Panoramic's liabilities, of which $2.6 million was repaid at closing. On April 2, 1999, the Company acquired the stock of Athena. After a final purchase price adjustment in 2000, the Company paid $4.2 million in cash plus $232,000 in notes payable to the previous shareholders. On June 13, 2000 the Company acquired the assets of Plak Smacker for approximately $7.1 million in cash. The results of operations for these acquisitions are included in the consolidated financial statements since the date of acquisition. The acquisitions were accounted for as purchase transactions.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from the Company's statements of income expressed as a percentage of net sales.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Net Sales- Net sales increased $8.7 million, or 20.3%, to $51.4 million in 2000 from $42.7 million in 1999. The increase was primarily attributable to the inclusion of sales of Plak Smacker (acquired on June 13, 2000). The balance of the increase was due to higher sales of prophy products and x-ray machines during 2000 as compared to 1999 sales levels.
Gross Profit- Gross profit increased $3.5 million, or 14.7%, to $27.4 million in 2000 from $23.9 million in 1999. Gross profit was favorably impacted by the acquisition of Plak Smacker and by the increased prophy product and x-ray machine sales. Gross margin decreased to 53.3% of net sales in 2000 from 55.9% in 1999. This decrease was primarily attributable to the inclusion of Plak Smacker sales which typically earn lower gross margins.
Selling, General, and Administrative Expenses ("SG&A")- SG&A expenses increased $1.6 million, or 12.8%, to $13.8 million in 2000 from $12.2 million in 1999 primarily due to the inclusion of expenses of Plak Smacker. As a percent of net sales, SG&A expenses decreased to 26.8% in 2000 from 28.5% in 1999 due to operating efficiencies realized from consolidating prior acquisitions and strong operating expense control.
Income from Operations- Income from operations increased $1.9 million or 16.6%, to $13.6 million in 2000 from $11.7 million in 1999 as a result of the factors explained above.
Interest Expense- Interest expense decreased to $99,000 in 2000 from $105,000 in 1999.
Other Expense (Income)- Other expense increased $146,000 to $9,000 in 2000 from ($137,000) in 1999 primarily due to a full year inclusion of the Company's portion of the loss from its investment in International Assembly, Inc. ("IAI") during 2000.
Provision for Income Taxes- Provision for income taxes increased $648,000 in 2000 to $5.2 million from $4.6 million for 1999 primarily as a result of higher pre-tax income.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net Sales- Net sales increased $6.1 million, or 16.7%, to $42.7 million in 1999 from $36.6 million in 1998. The increase was primarily attributable to the inclusion of sales of Athena (acquired April 2, 1999) and a full year of Panoramic (acquired on February 27, 1998). The balance of the increase was due to higher sales of prophy products and x-ray machines during 1999 as compared to 1998 sales levels.
Gross Profit- Gross profit increased $3.8 million, or 18.7%, to $23.9 million in 1999 from $20.1 million in 1998. Gross profit was favorably impacted by the acquisitions of Athena and Panoramic and by the increased prophy product sales. Gross margin increased to 55.9% of net sales in 1999 from 55.0% in 1998. This increase was attributable to improvements obtained from the transfer and consolidation of the majority of the manufacturing operations of the Denticator product line from California to Missouri. This benefit was partially offset by the inclusion of Athena sales and Panoramic for the full year, which typically carry lower margins.
Selling, General, and Administrative Expenses ("SG&A")- SG&A expenses increased $1.6 million, or 14.8%, to $12.2 million in 1999 from $10.6 million in 1998 primarily due to the inclusion of expenses of Athena and a full year of expenses of Panoramic. As a percent of net sales, SG&A expenses decreased to 28.5% in 1999 from 29.0% in 1998.
Income from Operations- Income from operations increased $2.2 million or 23.0%, to $11.7 million in 1999 from $9.5 million in 1998 as a result of the factors explained above.
Interest Expense- Interest expense increased from $0 in 1998 to $105,000 in 1999. The increase was a result of interest on borrowings on the Company's revolving line of credit during 1999 as well as debt and capital leases associated with the acquisition of Athena.
Other Income- Other income decreased $189,000 to $137,000 in 1999 from $326,000 in 1998 primarily due to less interest income and gains on the disposal of assets in 1998 as compared to 1999, as well as the inclusion of the Company's portion of the loss from its investment in IAI during 1999.
Provision for Income Taxes- Provision for income taxes increased $800,000 in 1999 to $4.6 million from $3.8 million for 1998 primarily as a result of higher pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
On June 13, 2000, the Company acquired substantially all of the assets of Plak Smacker for approximately $7.1 million in cash. The purchase price was principally financed with borrowings on the Company's credit facilities and with 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. The Company is in negotiations to extend this agreement.
On April 2, 1999, the Company acquired Athena. After a final purchase price adjustment during 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.
On February 27, 1998, the Company acquired the net assets of Panoramic. The Company paid approximately $13.9 million in cash plus $1.0 million (62,500 shares) of its common stock. The acquisition was principally financed with cash remaining from the net proceeds of the Company's initial public offering.
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 flow from operating activities was $7.7 million, $8.9 million, and $6.4 million for 2000, 1999 and 1998, respectively. Capital expenditures for property, plant and equipment were $2.2 million, $1.5 million, and $1.1
million in 2000, 1999 and 1998, respectively. The Company has begun construction of additional manufacturing and office space in Fort Wayne, Indiana. The Company had paid $552,000 and has additional fixed commitments of approximately $900,000 as of December 31, 2000 relating to this project. The total estimated cost of this facility is expected to cost approximately $1.7 million. The Company is also exploring additional manufacturing space in Earth City, MO, which is expected to cost approximately $2.0 million. Consistent with the Company's historical capital expenditures, additional future capital expenditures are expected to include panoramic X-ray machines for rental, injection molding equipment, computer equipment and upgrades to production machinery and to the Company's information systems. During 2000, the Company borrowed $9.2 million under a credit arrangement for the acquisition of Plak Smacker and for working capital needs. $130,000 remained outstanding on the Company's Line-of-Credit at December 31, 2000. During March 2001, the Company entered into a one year $20.0 million credit arrangement at an interest rate of LIBOR + 1%. The agreement is unsecured and contains various financial and other covenants. 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 is required to adopt this statement no later than the beginning of fiscal year 2001. The adoption of this statement is not expected to have an impact on operating results, statement of financial position or cash flows, as the Company does not currently invest in derivative instruments.
ITEM 7A.
ITEM 7A. 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.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Young Innovations, Inc.:
We have audited the accompanying consolidated balance sheets of Young Innovations, Inc. (a Missouri corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Young Innovations, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
St. Louis, Missouri, January 31, 2001
YOUNG INNOVATIONS, INC.
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
The accompanying notes are an integral part of these balance sheets.
YOUNG INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE DATA)
The accompanying notes are an integral part of these statements.
YOUNG INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
The accompanying notes are an integral part of these statements.
YOUNG INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
The accompanying notes are an integral part of these statements.
YOUNG INNOVATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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, prophy cups, prophy brushes, handpieces (dental drills) and related components, panoramic x-ray machines, fluorides and infection control products, orthodontic brushes, flavored examination gloves, as well as children's toothbrushes and toothpastes used for home care. The Company's manufacturing facilities are located in Missouri, California, Indiana and Texas. Export sales were less than 10% of total net sales for 2000, 1999 and 1998.
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), Young Acquisitions Company and Panoramic Rental Corp. (collectively, Panoramic), Athena Technology, LLC. (Athena, formerly Athena Technology, Inc.) and Young PS Acquisitions, LLC (Plak Smacker). Panoramic is included since its acquisition on February 27, 1998, Athena is included since its acquisition on April 2, 1999 and Plak Smacker is included since its acquisition on June 13, 2000. All significant intercompany accounts and transactions are eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with an initial maturity of three months or less.
INVENTORIES
Inventories are stated at the lower of cost (which includes material, labor and manufacturing overhead) or market. Cost is determined by the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Expenditures for repairs and maintenance are charged to expense as incurred, and additions and improvements that significantly extend the lives of assets are capitalized. Upon disposition, cost and accumulated depreciation are eliminated from the related accounts and any gain or loss is reflected in the statement of income. The Company provides depreciation using the straight-line method over the estimated useful lives of the assets ranging from 3 to 39 years.
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 Company purchases certain services from IAI at amounts less than would be paid to unrelated parties. These services totaled $632 in 2000 and $174 from May 17, 1999 through December 31, 1999. The investment is being accounted for under the equity method of accounting. Equity income (losses) (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 and goodwill amortization for IAI is included in other expenses and totaled $203 for the period from October 1, 1999 to September 30, 2000 and $80 for the period from May 17, 1999 to September 30, 1999. The Company's portion of IAI's income (loss), net of goodwill amortization, for the fourth quarter 2000 is expected to be less than $25.
Other assets also include notes receivable and 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 years.
INTANGIBLE ASSETS
Intangible assets, consisting of goodwill, are stated at cost less accumulated amortization. Amortization is determined using the straight-line method over periods ranging from 10 to 40 years.
LONG-LIVED ASSETS
If facts and circumstances suggest that a long-lived asset may be impaired, the carrying value is reviewed. If this review indicates that the carrying value of the asset will not be recovered, as determined based on projected undiscounted cash flows related to the asset over its remaining life, the carrying value of the asset is reduced to its estimated fair value.
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist principally of cash and accounts payable. The estimated fair value of these instruments approximates their carrying value.
ADVERTISING COSTS
Advertising costs are expensed when incurred.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed when incurred and totaled $602, $802 and $749 for 2000, 1999 and 1998, respectively.
REVENUE RECOGNITION
Revenue from the sale of products is recorded at the time of passage of title, generally when the products are shipped. Revenue from the rental of equipment to others is recognized on a month-to-month basis as the revenue is earned.
EQUIPMENT RENTED TO OTHERS
Since the acquisition of Panoramic in 1998, the Company owns x-ray equipment rented on a month-to-month basis to customers. Installation costs of the equipment are capitalized and amortized over four years. A liability for the removal costs of the equipment expected to be returned to the Company is included in accounts payable and accrued liabilities at December 31, 2000 and 1999.
OTHER EXPENSE (INCOME)
Other expense (income) includes the Company's portion of losses from its investment in IAI, interest income, sale of scrap, and other miscellaneous income and expense items, all of which are not directly related to the Company's primary business. In 2000, 1999 and 1998, interest income totaled $119, $139 and $216, respectively.
INCOME TAXES
The Company has accounted for income taxes under SFAS No. 109, an asset and liability approach to accounting and reporting for income taxes. Deferred income taxes are provided for temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash flows from operating activities include $4,020, $4,014 and $3,379 for the payment of federal and state income taxes and $99, $105, and $-0- for the payment of interest during 2000, 1999, and 1998, respectively.
3. ACQUISITIONS:
On June 13, 2000 the Company acquired substantially all of the assets and assumed a portion of the liabilities of Plak Smacker. The Company paid $7,053 in cash. The acquisition was principally financed with borrowings on the Company's credit facilities and through cash flows from operations. The acquisition was accounted for as a purchase transaction. The preliminary purchase price was allocated based upon estimates of fair value of assets and liabilities. This excess of purchase price (as preliminarily allocated) over the estimated fair value of net assets acquired (goodwill) was $6,126 and is being amortized over 30 years. The results of operations for Plak Smacker are included in the consolidated financial statements since June 13, 2000.
On April 2, 1999, the Company acquired Athena. After a final purchase price adjustment 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. This 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.
On February 27, 1998, the Company acquired substantially all of the assets and assumed certain liabilities of Panoramic. The Company paid $13,875 in cash and issued $1,000 (62,500 shares) of common stock. The cash portion of the purchase price was principally financed with the net proceeds remaining from the Company's initial public offering. The acquisition was accounted for as a purchase transaction. The purchase price was allocated based upon estimates of fair value. The excess of purchase price over the estimated fair value of net assets acquired (goodwill) was $10,445 and is being amortized over 40 years. The results of operations for Panoramic are included in the consolidated financial statements since February 27, 1998.
4. SEGMENT INFORMATION:
Segment information has been prepared in accordance with Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information." In 2000, with the acquisition of Plak Smacker, the Company has two operating segments according to SFAS No. 131: professional and retail. The professional segment sells products to dentists and dental hygienists. The retail segment sells products to consumers through mass merchandisers. The Company believes it is appropriate to aggregate business units into the segments presented below. This aggregation is due to similarities in economic characteristics, customers, the nature of the products and the nature of the production processes.
The table below is a summary of certain financial information relating to the two segments for 2000.
5. CONCENTRATIONS OF CUSTOMERS:
The Company generates trade accounts receivable in the normal course of business. The Company grants credit to distributors and customers throughout the world and generally does not require collateral to secure the accounts receivable. The Company's credit risk is concentrated among two distributors accounting for 30% and 29% of accounts receivable as of December 31, 2000 and 1999, respectively.
6. INVENTORIES:
Inventories consist of the following:
7. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
Machinery and equipment under capital lease and related accumulated depreciation was $794 and $238 at December 31, 2000 and was $794 and $121 at December 31, 1999.
8. OTHER ASSETS:
Other assets consist of the following:
9. INTANGIBLE ASSETS:
Intangible assets consist of the following:
Amortization of goodwill totaled $1,001, $848, and $698 for 2000, 1999, and 1998, respectively.
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
11. LONG-TERM DEBT AND CREDIT ARRANGEMENTS:
In April 1999 and again in June 2000, the Company entered into one-year revolving credit arrangements, which provide a line of credit up to $5,000 at an interest rate of LIBOR + 1%. During 2000, the Company had borrowed $9,191 and re-paid $9,061 under these arrangements. At December 31, 2000, the Company had an outstanding revolving line of credit balance of $130. During 1999, the Company borrowed $4,500 from the line and repaid the entire balance. There was no balance outstanding at December 31, 1999. Capitalized lease obligations of $462 were also outstanding at December 31, 2000.
Future maturities of the line of credit and capital lease obligations are as follows:
12. COMMON STOCK:
During 2000, the Company repurchased 7,500 shares of its common stock for $104 and reissued 7,800 shares in conjunction with stock option exercises for $99. During 1999, the Company 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 March 1999, the Company authorized the repurchase of up to 300,000 shares of its common stock.
13. STOCK OPTIONS:
The Company adopted the 1997 Stock Option Plan (the Plan) effective in November 1997 and amended the Plan in 1999. A total of 650,000 shares of Common Stock are reserved for issuance under this plan which is administered by the compensation committee of the Board of Directors (Compensation Committee). Participants in the Plan will be those employees whom the Compensation Committee may select from time to time and those nonemployee directors as the Company's Board of Directors may select from time to time. As of December 31, 2000, 622,800 options had been granted.
A summary of the options outstanding and exercisable are as follows:
The weighted average remaining contractual life of the options outstanding at December 31, 2000 is 8.0 years. As of January 1, 2001, 323,650 shares were exercisable with a range of exercise prices from $12.00 - $17.50 with a weighted average price of $13.36.
The Compensation Committee of the Board of Directors establishes vesting schedules for each option issued under the Plan. Outstanding options generally vest over four years. The exercise price was equal to the fair value of the common stock at the date of grant. All options expire 10 years from the grant date.
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company elected APB Opinion No. 25, "Accounting for Stock Issued to Employee," and related interpretations in accounting for the Plan. Accordingly, no compensation cost has been recognized for the Plan. Had compensation costs for the Plan been determined based upon the fair value of the options at the grant date consistent with the methodology prescribed under SFAS No. 123, the Company's net income and earnings per share would approximate the pro forma amounts below:
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: (i) dividend yield of 0%; (ii) expected volatility of 27.8% and 45.0% for 1999 and 1998, respectively; (iii) risk free interest rate of 6.4% and 5.3% for 1999 and 1998, respectively; and (iv) expected life of 8.8 years for 1999 and 8.0 years for 1998. The weighted average fair value of the options at the grant date was $7.47 and $9.09 for 1999 and 1998, respectively. No options were granted in 2000.
14. EARNINGS PER SHARE:
Basic earnings per share (Basic EPS) is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share (Diluted EPS) include the dilutive effect of stock options, if any, using the treasury stock method. For 2000, 1999 and 1998, the weighted average shares outstanding during the period of 6,501,491, 6,565,621, and 6,762,522, respectively, used for Basic EPS, was increased by the dilutive impact of stock options of 107,784, 20,773, and 42,104, respectively, for a total of 6,609,275, 6,586,394, and 6,804,626 shares, respectively, used for Diluted EPS.
15. QUARTERLY FINANCIAL DATA (UNAUDITED):
16. INCOME TAXES:
The components of the provision for income taxes are as follows:
The income tax provisions are different from the amount computed by applying the U.S. federal income tax rates to income before provision for income taxes. The reasons for these differences are as follows:
Temporary differences that gave rise to deferred income tax assets and liabilities are as follows:
Current deferred income tax assets of $1,022 and $1,100 are included in other current assets as of December 31, 2000 and 1999, respectively.
17. MAJOR CUSTOMERS:
The percentage of net sales to major distributors to total net sales consist of the following:
18. SALES OF EQUIPMENT RENTED TO OTHERS:
Panoramic periodically sells x-ray equipment that has been rented to customers in its normal course of business. The Company recognizes revenue for the proceeds of such sales and records as cost of goods sold the net book value of the equipment. Net sales of the equipment were $1,434, $1,170 and $801 for 2000, 1999 and 1998, respectively and gross profit
from the sales was $712, $642 and $416 for 2000, 1999 and 1998, respectively.
19. EMPLOYEE BENEFITS:
The Company has a defined contribution 401(k) plan covering substantially all full-time employees meeting service and age requirements. Contributions to the Plan can be made by an employee through deferred compensation and through a discretionary employer contribution. Compensation expense related to this plan was $234, $26, and $26 for 2000, 1999 and 1998, respectively. The company also has certain nonqualified bonus and profit sharing plans covering substantially all employees. A majority of these plans were redesigned or eliminated for 2000. Compensation expense related to these plans was $6, $638, and $742 in 2000, 1999, and 1998, respectively. The Company also provides certain healthcare insurance benefits for substantially all employees.
20. RELATED-PARTY TRANSACTIONS:
The Company sells products to, and pays for services from, a corporation in which a principal stockholder of the Company has an equity interest. Net sales to such corporation totaled $77, $86, and $54 in 2000, 1999, and 1998, respectively. Amounts paid for services totaled $3, $3 and $7 in 2000, 1999 and 1998, respectively.
Since the acquisition of Panoramic in 1998, the Company provides administrative services for a corporation in which an officer of the Company has an equity interest. This corporation provides financing for certain purchasers of the Company's products. Net sales of the Company's products through financing arrangements with such corporation totaled $0, $277, and $1,051 during 2000, 1999, and 1998, respectively. Net sales from such corporation totaled $16, $18 and $16 in 2000, 1999, and 1998 and the accounts receivable from the corporation totaled $12, $4 and $246 at December 31, 2000, 1999 and 1998, respectively.
In August 2000, the Company loaned an officer of the Company $500 in accordance with a three year unsecured promissory note at an interest rate of 6.27% payable annually. The note is included in other long-term assets on the balance sheet at December 31, 2000. Interest income of $13 related to this note was recorded in 2000.
21. COMMITMENTS AND CONTINGENCIES:
The Company and its subsidiaries are from time to time parties to various legal proceedings arising out of their businesses. Management believes there are no such proceedings pending or threatened against the Company or its subsidiaries which, if determined adversely, would have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.
The Company has begun construction of additional manufacturing and office space in Fort Wayne, Indiana. The Company had paid $552,000 and has additional fixed commitments of approximately $900,000 as of December 31, 2000 relating to this project.
22. ACCOUNTING STANDARD NOT YET IMPLEMENTED:
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 adoption of SFAS 133 is not expected to have a material effect on the Company's financial position or results of operations, as the Company does not hold any derivative instruments.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Information concerning the Company's directors called for by this item will be included in the Company's definitive Proxy Statement prepared in connection with the 2001 Annual Meeting of Stockholders and is incorporated herein by reference. Such proxy statement will be filed with the Commission within 120 days after the close of the Company's fiscal year. (b) Reference is made to "Executive Officers of the Registrant" in Part I.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Information concerning this item will be included under the captions "Executive Compensation" and "Option Grants" in the Company's definitive Proxy Statement prepared in connection with the 2001 Annual Meeting of Stockholders and is incorporated herein by reference. Such proxy statement will be filed with the Commission within 120 days after the close of the Company's fiscal year.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information concerning this item will be included under the caption "Securities Ownership of Management and Certain Beneficial Owners" in the Company's definitive Proxy Statement prepared in connection with the 2001 Annual Meeting of Stockholders and is incorporated herein by reference. Such proxy statement will be filed with the Commission within 120 days after the close of the Company's fiscal year.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information concerning this item will be included under the caption "Certain Relationships and Related Party Transactions" in the Company's definitive Proxy Statement prepared in connection with the 2001 Annual Meeting of Stockholders and is incorporated herein by reference. Such proxy statement will be filed with the Commission within 120 days after the close of the Company's fiscal year.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements-- Reference is made to Item 8 hereof: Consolidated Balance Sheets - December 31, 2000 and 1999 Consolidated Statements of Income - Years ended December 31, 2000, 1999, and 1998 Consolidated Statements of Stockholders' Equity - Years ended December 31, 2000, 1999, and 1998 Consolidated Statements of Cash Flows - Years ended December 31, 2000, 1999, and 1998 Notes to Consolidated Financial Statements - December 31, 2000
(a)(2) Financial Statement Schedule -- The following financial statement schedule of the Company is included for the years ended December 31, 1998, 1999 and 2000:
Schedule II Valuation and Qualifying Accounts.
All other financial statement schedules are omitted for the reason that they are not required or are not applicable, or the required information is shown in the financial statements or the notes thereto.
(a)(3) Exhibits -- See the Exhibit Index for the exhibits filed as a part of or incorporated by reference into this report.
EXHIBIT NUMBER DESCRIPTION - ------ -----------
3.1* Articles of Incorporation of Registrant and Statement of Correction
3.2* By-Laws of Registrant
10.1* Escrow Agreement dated May 4, 1995 among Young Dental Manufacturing Company, Chemical Venture Capital Associates, P. Jeffrey Leck, John F. Kirtley, Richard C. Nemanick, Lorvic Holdings, Inc. and Boatmen's Trust Company.
10.2* Contingent Payment Agreement dated as of May 4, 1995, by and between Young Dental Manufacturing Company, The Richard C. Nemanick Trust and Boatmen's Trust Company.
10.3* Young Dental Manufacturing Company Pension Bonus Plan dated as of April 12, 1983.
10.4* Young Dental Manufacturing Company Profit Sharing Plan dated as of January 1, 1987.
10.5*** 1997 Stock Option Plan of the Registrant, as amended.
10.6*** Employment Agreement dated October 1, 1999, by and between Young Innovations, Inc. and Alfred E. Brennan, Jr. (revised from agreement dated October 8, 1997)
10.7** Asset Purchase and Sale Agreement dated February 16, 1998 between Registrant and Panoramic Corporation.
10.8*** Employment Agreement dated July 6, 1999, by and between Young Innovations, Inc. and Arthur L. Herbst, Jr.
10.9*** Employment Agreement dated October 25, 1999, by and between Young Innovations, Inc. and Eric J. Stetzel.
10.10**** Promissory Note dated August 7, 2000, in the amount of $500,000 payable by Alfred E. Brennan, Jr. to Young Innovations, Inc.
10.11**** Employment Agreement dated July 25, 2000, by and between Young Innovations, Inc. and George E. Richmond.
10.12**** Consulting Agreement dated January 8, 2001, by and between Young Innovations, Inc. and Richard G. Richmond.
21**** Subsidiaries of the Registrant
23**** Consent of Arthur Andersen LLP
24 Power of Attorney (included on Signature page)
- -------------------------------- * Filed as an Exhibit to Registrant's Registration Statement No. 333-34971 on Form S-1 and incorporated herein by reference. ** Filed as an Exhibit to Registrant's Current Report on Form 8-K filed on March 11, 1998 and incorporated herein by reference. *** Filed as an Exhibit to Registrant's Report on Form 10-K filed on March 30, 2000 and incorporated herein by reference. **** Filed herewith.
(b) Reports on Form 8-K, none.
(c) See the exhibit index for the exhibits filed as part of or incorporated by reference in this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 23, 2001
YOUNG INNOVATIONS, INC.
By: /s/ GEORGE E. RICHMOND ---------------------------- George E. Richmond Chief Executive Officer
Each person whose signature appears below constitutes and appoints George E. Richmond and Alfred E. Brennan his true and lawful attorneys-in-fact and agents, each acting alone, with full powers of substitution and re-substitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- -----------
3.1* Articles of Incorporation of Registrant and Statement of Correction
3.2* By-Laws of Registrant
10.1* Escrow Agreement dated May 4, 1995 among Young Dental Manufacturing Company, Chemical Venture Capital Associates, P. Jeffrey Leck, John F. Kirtley, Richard C. Nemanick, Lorvic Holdings, Inc. and Boatmen's Trust Company.
10.2* Contingent Payment Agreement dated as of May 4, 1995, by and between Young Dental Manufacturing Company, The Richard C. Nemanick Trust and Boatmen's Trust Company.
10.3* Young Dental Manufacturing Company Pension Bonus Plan dated as of April 12, 1983.
10.4* Young Dental Manufacturing Company Profit Sharing Plan dated as of January 1, 1987.
10.5*** 1997 Stock Option Plan of the Registrant, as amended.
10.6*** Employment Agreement dated October 1, 1999, by and between Young Innovations, Inc. and Alfred E. Brennan, Jr. (revised from agreement dated October 8, 1997)
10.7** Asset Purchase and Sale Agreement dated February 16, 1998 between Registrant and Panoramic Corporation.
10.8*** Employment Agreement dated July 6, 1999, by and between Young Innovations, Inc. and Arthur L. Herbst, Jr.
10.9*** Employment Agreement dated October 25, 1999, by and between Young Innovations, Inc. and Eric R. Stetzel.
10.10**** Promissory Note dated August 7, 2000, in the amount of $500,000 payable by Alfred E. Brennan, Jr. to Young Innovations, Inc.
10.11**** Employment Agreement dated July 25, 2000, by and between Young Innovations, Inc. and George E. Richmond.
10.12**** Consulting Agreement dated January 8, 2001, by and between Young Innovations, Inc. and Richard G. Richmond.
21**** Subsidiaries of the Registrant
23**** Consent of Arthur Andersen LLP
25 Power of Attorney (included on Signature page)
- ------------------------------- * Filed as an Exhibit to Registrant's Registration Statement No. 333-34971 on Form S-1 and incorporated herein by reference. ** Filed as an Exhibit to Registrant's Current Report on Form 8-K filed on March 11, 1998 and incorporated herein by reference. *** Filed as an Exhibit to Registrant's Report on Form 10-K filed on March 30, 2000 and incorporated herein by reference. **** Filed herewith.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Young Innovations, Inc.:
We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of Young Innovations, Inc. and subsidiaries included in this Form 10-K Annual Report and have issued our report thereon dated January 31, 2001. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. Schedule II included in this Form 10-K Annual Report is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
St. Louis, Missouri January 31, 2001
YOUNG INNOVATIONS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1998, 1999, and 2000 (IN THOUSANDS)
ADDITIONS ------------------------------------------