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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2011

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     .

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 or organization)

 

(I.R.S. Employer

Identification No.)

13705 Shoreline Court East,   63045
Earth City, Missouri   (Zip Code)

(Address of principal executive offices)

 

Registrant’s telephone number, including area code: 314-344-0010

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, $0.01 par value per share

  The Nasdaq Stock Market LLC

(Title of class)

  (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.    Yes    ¨    No  x

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  ¨

Indicate by check mark whether the registrant had submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

(Check one):

Large accelerated filer  ¨       Accelerated filer                   x
Non-accelerated filer    ¨       Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)     Yes  ¨    No  x

The aggregate market value of the registrant’s Common Stock held by non-affiliates based on The Nasdaq Global Select Market closing price as of June 30, 2011 (the last business day of the registrant’s most recently completed second fiscal quarter), was approximately $161 million. (For purposes of this calculation only, directors and executive officers have been deemed affiliates.)

Number of shares outstanding of the registrant’s Common Stock at February 29, 2012:

7,908,601 shares of Common Stock, $0.01 par value per share

 

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement to be filed for its 2012 Annual Meeting of Shareholders (the “2012 Proxy Statement”) are incorporated by reference into Part III of this Report.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I

   
  Item 1. Business   3
  Item 1A. Risk Factors   12
  Item 1B. Unresolved Staff Comments   16
  Item 2. Properties   16
  Item 3. Legal Proceedings   16
  Item 4. Mine Safety Disclosures   16

PART II

   
 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

  17
  Item 6. Selected Financial Data   18
 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

  18
  Item 7A. Quantitative and Qualitative Disclosures About Market Risk   23
  Item 8. Financial Statements and Supplementary Data   25
 

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 

  45
  Item 9A. Controls and Procedures   46
  Item 9B. Other Information   46

PART III

   
  Item 10. Directors, Executive Officers and Corporate Governance   47
  Item 11. Executive Compensation   47
 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  47
  Item 13. Certain Relationships and Related Transactions, and Director Independence   48
  Item 14. Principal Accountant Fees and Services   48

PART IV

   
  Item 15. Exhibits and Financial Statement Schedules   48

 

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PART I

Item 1. Business (All $ amounts are noted in thousands).

General Overview

Young Innovations, Inc. and its subsidiaries (“the Company”) develops, manufactures and markets supplies and equipment used by dentists, dental hygienists, dental assistants and consumers. The Company’s product offering includes disposable and metal prophylaxis (“prophy”) angles, prophy cups and brushes, dental micro-applicators, panoramic X-ray machines, moisture control products, infection control products, dental handpieces (drills) and related components, endodontic systems, orthodontic toothbrushes, flavored examination gloves, children’s toothbrushes, and children’s toothpastes.

The Company’s manufacturing and distribution facilities are located in Missouri, Illinois, California, Indiana, Wisconsin and Ireland.

The Company markets its products primarily in the U.S. The Company also markets its products in several international markets, including Canada, Europe, South America, Central America and the Pacific Rim. Sales outside the United States represented approximately 17% of the Company’s total net sales in 2011.

The Company is a Missouri corporation with its corporate headquarters located at 13705 Shoreline Court East, Earth City, Missouri 63045, in the St. Louis, Missouri metropolitan area; its telephone number is (314) 344-0010. The telephone number for investor relations is (312) 644-4174.

Background

The Company was founded as Young Dental in the early 1900s. As one of many small suppliers to the dental profession, Young Dental’s strength was manufacturing consistently reliable dental products. As dentistry evolved, Young Dental employees worked with practicing dentists and academics to identify clinical problems. Young Dental staff used their engineering and manufacturing expertise to create solutions to those problems. Young Dental established a strong reputation and leading market position in disposable and metal prophy angles, the core products utilized by the dentist in the typical biannual teeth cleaning treatment.

In 1995, following the acquisition of The Lorvic Corporation, the Company incorporated as Young Innovations, Inc. in the state of Missouri. Since then, the Company has acquired a number of complementary businesses, and introduced a variety of new products. Through these acquisitions and new product introductions, the Company has expanded its preventive and infection control product offerings, and entered a number of new product areas, including dental diagnostic imaging, handpieces, home care products, and endodontics. The Company believes its continued commitment to providing innovative products to meet the evolving needs of dental professionals has earned it a reputation for quality, reliability and value.

Business Strategy

The key elements of the Company’s strategy are:

 

   

Enhance and Expand Customer Relationships. Enhancing and expanding customer relationships are fundamental components of the Company’s strategy. By understanding and responding to the needs of distributors, clinicians and patients, the Company seeks to serve a broader customer base by extending the reach of its existing products to new customers and new markets.

 

   

Improve Operating Efficiency. The Company strives to reduce costs and rationalize expenses across its operations in an effort to maximize profitability and better serve its customers. In order to realize operating efficiencies, the Company seeks cost savings through manufacturing and process improvements, administrative and marketing synergies, and strategic facility consolidations.

 

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New Product Development and Acquisitions. The Company brings products to market through two methods: internal product development and acquisitions. Internal product development focuses on evolutionary changes to its existing product lines to enhance patient care, increase patient comfort and improve practice productivity. The Company has typically entered new product categories through acquisitions. The Company intends to pursue acquisition opportunities that increase the breadth of its product and service offerings, provide entrance into attractive new markets, and enhance the growth and profitability of the business. The Company continually evaluates acquisition opportunities and has a proven track record of successfully acquiring and integrating acquired businesses. The following table provides a summary of the Company’s acquisition history:

Select Acquisitions

 

Company Name

   Acquisition Year   

Key Product Additions

The Lorvic Corporation

   1995    Infection control products

Denticator International, Inc.

   1996    Popular-priced disposable prophy angles

Panoramic Corporation

   1998    Panoramic X-ray equipment and supplies

Athena Technology, Inc.

   1999    Dental handpieces and related components

Plak Smacker, Inc.

   2000    Home care products and flavored gloves

Biotrol and Challenge

(subsidiaries of Pro-Dex, Inc.)

  

2001

   Infection control products, prophy pastes and other preventive products

Obtura Corporation &

Earth City Technologies, Inc.

   2003    Endodontic products

D&N Microproducts, Inc.

   2006    Panoramic X-ray equipment

Microbrush, Inc. and Microbrush

International Ltd.

   2006    Dental micro-applicators

Products

The Company’s $106,230 in sales for 2011 was derived from the manufacture and distribution of the products described below. The Company offers many different products which fall within one of two general categories: consumables and diagnostics. Consumables consist of preventive, infection control, micro-applicators, home care and endodontic products. Diagnostics consist of X-ray machines and supplies. Revenue from consumables was approximately $92,700, $91,600 and $88,400 for 2011, 2010 and 2009, respectively. Revenue from diagnostics was approximately $13,500, $11,200 and $9,400 for 2011, 2010 and 2009, respectively.

Consumables:

Preventive. The Company believes it is a leading supplier of preventive products to the U.S. professional dental market. Preventive products include:

 

   

Prophy angles. The Company offers a broad line of prophy products. The prophy angle, in combination with prophy paste, is used in the typical biannual teeth cleaning treatment that helps remove plaque and polishes teeth. The Company offers a variety of pre-assembled Classic and Contra disposable prophy angles with cups or brushes attached under both the Young Dental (premium-priced) and Denticator (popular-priced) brand names, as well as through private-label relationships. The Company believes it is a leading U.S. manufacturer and distributor of disposable prophy angles, with its extensive and innovative line of prophy products that satisfy a wide variety of customer needs and desires.

The Company also offers metal prophy angles, which are sealed to help prevent damage to the internal components of the angle and help it withstand repeated sterilizations. The metal prophy angles are marketed together with an assortment of cups and brushes specifically designed to work together, which encourages recurring purchases of these products.

 

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Prophy pastes. D-Lish, Festival and ProCare are some of the brand names of the Company’s prophy pastes. Most pastes are available in a variety of textures (grits) and flavors, and some are sold in powder form. Important functional features of prophy paste include stain removal, flavor and splatter control.

 

   

Fluorides. The Company has a variety of flavors of fluorides in gel formulation. Fluorides are used to help prevent tooth decay.

 

   

Handpieces and components. Under the Athena Champion and Denticator brand names, the Company manufactures and markets low and high-speed dental handpieces. Handpieces are used for teeth-cleaning and during restorative procedures, including removing decay during cavity preparation procedures. The Company also provides repair and maintenance services for handpieces.

 

   

Moisture control. The Company offers a variety of moisture control products, including Dri-Aid and Surg-O-Vac, used to remove and absorb saliva or liquids during a variety of common dental procedures.

Infection Control. The Company markets a broad line of infection control products to the dental practice. The Company’s products include:

 

   

Surface disinfectants. Surface disinfectants are used to clean and disinfect surfaces in the dental operatory, such as a dental chair or countertop that may be contaminated with bioburden (microorganisms). The Company offers products that are used to clean and disinfect these surfaces under the brand names Birex se and Opti-Cide 3. Birex se is a one step chemistry that is available in a concentrate or wipe form. Opti-Cide 3 is a ready-to-use broad spectrum disinfectant and is a fast acting formula available in liquid or wipe form.

 

   

Evacuation system cleaners. The evacuation system is designed to remove debris from the patient’s mouth during a dental procedure. Vacusol and NeutraVac, the Company’s evacuation system cleaners, remove debris that collects in the evacuation line. When used with the Company’s atomizer, the solution is mixed with room air and flows through the evacuation lines. Due to the unique air/liquid solution, the stress on the vacuum pump used in the evacuation system is minimized, which helps to extend pump life.

 

   

Gloves and masks. The Company offers many types of gloves for dental professionals, including latex, nitrile, and vinyl. Some gloves come in powder and powder-free options. In addition, the Company offers a variety of flavored gloves, which are often used by pediatric dentists to help provide a more positive, enjoyable experience for their younger patients. Also, masks are used as a barrier by dental professionals.

 

   

Ultrasonic cleaning systems. The Company, under the Healthsonics and Purit brand names, manufactures and markets a line of ultrasonic cleaning systems primarily used to clean and disinfect dental hand instruments. The Company also sells a line of solutions and accessories that are used in connection with these systems.

 

   

Instrument disinfectants. The Company offers a full line of solutions designed for disinfecting dental instruments, including Multicide Ultra and Biozyme LT. Certain of these solutions may also be used with ultrasonic cleaners.

Micro-applicators. The Company manufactures a variety of disposable micro-applicators and bristle brush applicators, under the Microbrush brand name, as well as OEM (Original Equipment Manufacturer), designed specifically for fast application of minute amounts of material in areas of limited access. The products are used in dental procedures such as the application of tooth whitening products, sealants, disclosing products, orthodontic brackets, topical analgesics, bonding agents and other restorative materials.

 

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Home Care. The Company markets a line of products to dentists, pediatric dentists and orthodontists that are sold or given to patients for use at home. The Company’s home care products include:

 

   

Home care kits. These kits are given to patients to encourage good oral healthcare habits and contain products such as brushes, wax to protect the inside of the cheek from irritation due to brackets, a timer to monitor brushing time and floss.

 

   

Toothbrushes. The Company offers a broad line of toothbrushes for many age groups, including infants, children, teens and adults. The Company also markets an “all-in-one” brush for patients with braces. One end of the brush is a standard toothbrush, while the other end features a conical brush designed for access between brackets.

Endodontic. The Company sells endodontic products under the Obtura and Spartan brand names. Endodontics is the part of dentistry associated with the treatment of tooth root, dental pulp and surrounding tissue. The most common therapy in endodontics is the root canal procedure, which involves removing the organic root canal tissue and then filling the empty canal with gutta percha, a rubber-like filling material. Endodontic procedures are performed by both general dentists and specialists (endodontists). The Company’s endodontic products include:

 

   

Obturation. The Obtura family of endodontic units is gun-type, heat-softened gutta percha delivery system. This unique dispensing unit allows the dentist to deliver a consistent flow of warm gutta percha directly into the canal, similar to extruding hot glue from a glue gun, facilitating the canal-filling procedure. Additionally, the Obtura system help practitioners effectively seal the canal, which is an important component of the root canal procedure.

 

   

Ultrasonic systems. Under the Spartan brand name, ultrasonic scaling units and handpieces are marketed together with a variety of tips for different clinical applications. BUC tm tips are used for, among other things, gaining and refining access to the tooth root, while CPR tm tips are more often used in retreatment cases. KiS tm tips, used for microsurgery, offer a rough diamond coating for improved cutting. The Company also offers additional ultrasonic tips for use in periodontal applications.

Diagnostics:

The Company markets panoramic dental X-ray systems, supplies and services under the Panoramic brand name. This equipment provides the dental professional with a high-quality anatomical image of the entire oral-maxillofacial area. The Company’s diagnostic products include:

 

   

Digital Imaging. The Company offers a line of quality digital imaging products. The Encompass TM is a digital panoramic and cephalometric imaging system. The PC-4000 is an integrated digital panoramic imaging system. The 1000-DR is a cost-effective digital conversion kit in which a sensor is installed in-office on an existing Panoramic PC-1000 film-type X-ray machine. The Company also offers factory-retrofitted PC-1000/1000-DR digital systems. All factory-refurbished and factory-retrofitted systems are covered by a warranty program.

 

   

Film X-ray. The Company has adapted its legacy product line to meet the needs of a changing marketplace. With the PC-1000 film-type panoramic X-ray system as the core, customers can purchase a variety of configurations to meet their individual needs including factory-refurbished film machines and cephalometric attachments for the PC-1000.

 

   

Rental Program and Services. The Company continues to offer a program in which a dental practice can install and pay for a PC-1000 film type machine on a per image basis. As a result, the dentist can provide panoramic diagnostic services without incurring a significant capital outlay. In addition, once familiar with the benefits of panoramic X-ray, the dentist has the option to purchase the equipment at a depreciated price. This program generates an inventory of used equipment that is factory-refurbished then returned to the rental pool or sold to dentists looking for a reliable, low-priced panoramic X-ray system; this program incorporates both film and digital options.

 

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The Company also offers service and repair on all its Panoramic X-ray systems through a nationwide network of independent technicians.

 

   

Supplies and Accessories. The Company offers its customers dental X-ray supplies, including bite guides, film, film cassettes and intensifying screens, processing chemicals, and darkroom supplies.

Sales and Marketing of Professional Products

The Company markets its preventive, micro-applicator and infection control products to dental professionals worldwide primarily through a network of non-exclusive relationships with dental product distributors. All major distributors of dental products in North America sell the Company’s products, including Henry Schein, Inc. and Patterson Companies, Inc., which accounted for 17.9% and 13.7%, respectively, of the Company’s sales in 2011. The Company sells product to Henry Schein Inc., Patterson Companies Inc. and its other distributors upon the receipt of purchase orders. In addition to selling through distributors in the U.S., the Company sells products directly to dental providers and dental hygiene schools, Veterans Administration healthcare facilities, and U.S. military bases.

The Company actively supports its distributor relationships with Company sales personnel and independent sales representatives in the U.S. and Canada as well as in countries outside of North America. These sales representatives educate the Company’s distributors about the quality, reliability and features of its products. The Company also advertises its products through industry publications. 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 generate interest in its products by providing information and marketing materials to influential lecturers and consultants in the dental industry.

The Company’s diagnostic, home care, endodontic and certain infection control products are marketed in the U.S. and Canada directly to the end user, primarily by direct mail, telemarketing, trade shows, and a limited amount of advertising in trade and professional journals. The Company also sponsors seminars hosted by industry thought leaders.

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, 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. The Company holds various patents and trademarks but does not consider its business to be materially dependent upon any individual patent or trademark.

Our commitment to internally-developed products requires an investment of resources. The Company incurred research and development costs which are expensed as incurred totaling $1,906, $840 and $797, for 2011, 2010 and 2009, respectively.

The Company seeks to acquire product lines to strengthen its market presence. During the first quarter of 2010, the Company acquired the rights to distribute a product line which expands our infection control offerings.

Manufacturing and Supply

The Company manufactures most of its products and product components other than certain infection control products, fluorides, children’s home care products, orthodontic kits and related supplies, and examination gloves.

Prophy Angles and Related Products. The Company manufactures prophy angles and related products in its Earth City, Missouri facility. The primary processes involved in manufacturing the Company’s prophy angles and

 

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related products include precision metal turning and milling, rubber molding, plastic injection molding, component parts assembly and finished goods packaging. In these processes, the Company uses a variety of computer numerically controlled (CNC) machining centers, injection molding machines and robotic assembly machines, and continues to invest in new and more efficient equipment and production lines.

Prophy Pastes. The Company blends and mixes all of its pastes at the Earth City, Missouri facility. The Company also owns equipment used to form and die-cut expanded polyethylene foam and extruded plastic into packaging materials, and equipment used to package its products in a variety of container sizes, including prophy paste in unit-dose containers.

Micro-applicators. The Company manufactures micro-applicators and related products in its Grafton, Wisconsin and Dungarvan, Ireland facilities. The primary processes involved in the manufacture of these products include plastic injection molding, application of adhesive and flocking, and packaging of finished goods. The Company uses injection molding machines and robotic assembly machines in these manufacturing processes.

Handpieces and Components. The Company uses a variety of CNC machines to manufacture a number of the components required to produce its high-speed and low-speed handpieces in its Earth City, Missouri facility. Certain other handpiece component parts are sourced from a variety of Original Equipment Manufacturers (OEMs). The Company assembles and provides repair services for its handpieces in its Earth City, Missouri facility.

Infection Control Products. The Company manufactures and packages a variety of infection control products, sterilants and cleaners, at the Earth City, Missouri facility. Additionally, certain of the Company’s infection control products, including liquid surface disinfectants and wipes, gloves, and masks, are sourced from domestic and international manufacturers.

Diagnostic Equipment. Diagnostic equipment is primarily manufactured and assembled at the Company’s facility in Ft. Wayne, Indiana. Additionally, the Company also sources some diagnostic equipment and sensors for its digital diagnostic equipment from international suppliers. The Company manufactures its own diagnostic generators, a critical system component for most of its diagnostic equipment.

Home Care Products. The Company sources most of its home care kit components and toothbrushes from manufacturers in Asia, principally China, Taiwan, Malaysia, India and Vietnam. Certain other toothbrush and toothpaste products are sourced from domestic manufacturers.

Endodontic Products. Obturation and ultrasonic systems are manufactured at the Algonquin, Illinois facility. A variety of components and subassemblies are sourced domestically.

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. As described above, the Company also purchases certain additional products from other manufacturers for resale. The Company purchases its raw materials and other supplies and products through purchase orders and has entered into supply agreements with certain suppliers.

Competition

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. The Company’s competitors include: DENTSPLY International Inc.; Danaher Corporation; John O. Butler Company; Planmeca OY; StarDental, a division of DentalEZ Group; Procter and Gamble Co. and Colgate-Palmolive Co.

 

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The Company competes with manufacturers of both branded and private-label dental products. The Company believes it is a leading U.S. manufacturer or distributor of prophy angles and cups, liquid surface disinfectants, dental micro-applicators and obturation units designed for warm, vertical condensation.

FDA Regulation

The Company’s products are subject to regulation by, among other governmental entities, the U.S. Food and Drug Administration (“FDA”). To the extent the products are marketed abroad, they are also subject to government regulation in the various foreign countries in which the products are produced or sold. Some of these regulatory requirements and penalties for non-compliance are more stringent than those applicable in the United States. They also vary from country to country.

Medical Device Regulation. Pursuant to the Federal Food, Drug, and Cosmetic Act (“Act”), and the FDA’s implementing regulations, FDA regulates the development, manufacture, sale, and distribution of medical devices, including their introduction into interstate commerce, as well as their testing, labeling, packaging, marketing, distribution, recordkeeping and reporting. In general, if a dental device is subject to FDA regulation, compliance with the FDA requirements constitutes compliance with corresponding state regulations though some states may have additional licensure and other requirements and may conduct inspections of facilities on behalf of or in addition to inspections by the FDA. Medical devices are classified for FDA regulatory purposes as Class I, Class II or Class III, depending on the degree of control necessary to provide a reasonable assurance of safety and effectiveness for the labeled use. Currently, the Company’s dental device products are classified as either Class I or Class II devices. Class I devices are subject to “general controls,” such as labeling, good manufacturing practices (GMP), and a prohibition against adulteration and misbranding. Class II devices are subject to general and “special controls,” including premarket notification (510(k)), and other general and device-specific requirements. All of the Company’s dental device products are subject to ongoing regulatory oversight by the FDA to ensure compliance with, among other things, product labeling, GMP/quality system regulation (QSR), recordkeeping, and medical device (adverse reaction) reporting requirements. The Company’s medical imaging products as well as other products that emit radiation are also subject to additional FDA requirements for radiation safety. The Company’s facilities are further subject to periodic inspection by the FDA, as well as state and local agencies. Failure to satisfy FDA requirements can result in FDA enforcement actions, including product seizure, injunction, fines and civil penalties and/or criminal or civil proceedings. In the medical device arena, the FDA may also request repair, replacement, or refund of the cost of any medical device manufactured or distributed by the Company. The Company is also subject to state and local enforcement action and/or penalties, which may be greater than those imposed by the Act.

Drug Regulation. The Company also markets drug products, such as fluorides, which are subject to regulation by the FDA and the counterpart agencies of the foreign countries where the products are sold. The FDA regulates the development, manufacture, sale, and distribution of drugs, including their introduction into interstate commerce as well as their testing, labeling, packaging, marketing, distribution, recordkeeping and reporting. In general, unless a drug product falls within an over-the-counter (OTC) monograph, is generally recognized as safe and effective for the labeled use, or is entitled to grandfather status, the drug must be approved by FDA pursuant to an approved new drug application before it may be legally marketed. Drugs are also subject to post approval requirements such as adverse event reporting, record keeping and reporting requirements, cGMP manufacturing, advertising and promotion requirements. Manufacturing facilities are subject to periodic and for cause inspections by FDA for compliance with FDA requirements. The Company also operates as a wholesale prescription drug distributor in some states and is required to be licensed by individual states, subject to minimum FDA requirements and additional state requirements. Failure to comply with the FDA’s drug regulatory requirements can result in issuance of an FDA Form 483 Inspectional Observations, Warning Letter, and/or other civil or criminal enforcement action or penalty. The Company is also subject to state and local enforcement action and/or penalties, which may be greater than those imposed by the Act.

 

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Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA)

Certain of our infection control products are classified as pesticides and are subject to regulation by the United States Environmental Protection Agency (EPA) under FIFRA, and by various state agencies under the laws of those states. Generally, under FIFRA and state law, no one may sell or distribute a pesticide unless it is registered with the EPA and each state in which the product is sold. Registrations must be renewed annually. Registration includes approval by the EPA of the product’s label, including its claims and directions for use, which must be supported by data. EPA or states may at any time require additional testing to determine whether a pesticide could cause adverse effects on the environment, including people, and whether it is efficacious. The pesticide laws also require registrants to report adverse effects associated with their products to the EPA and the corresponding state agency and impose certain recordkeeping and reporting requirements. Failure to pay annual registration fees or to provide necessary testing data, or new information regarding adverse effects of product, as well as other conduct, could result in fines and/or the suspension or cancellation of a pesticide registration. The Company’s facilities are subject to periodic inspection by the EPA, as well as state and local agencies. Failure to satisfy EPA requirements can result in EPA enforcement actions, including stop sale, use or removal orders, fines and civil penalties and/or criminal or civil proceedings. The Company is also subject to state and local enforcement action and/or penalties, which may be greater than those imposed by FIFRA. To the extent the products are manufactured or marketed abroad, they may also be subject to government regulation in the various foreign countries in which the products are produced or sold. Some of these regulatory requirements and penalties for noncompliance may be more stringent than those applicable in the United States. They also vary from country to country.

Environmental, Health and Safety Matters

Our operations involve production processes and the use and handling of materials that are subject to federal, state, and local environmental laws and regulations relating to, among other things, solid and hazardous waste disposal, air emissions, and waste water discharge. We are also required to comply with federal and state laws and regulations relating to occupational health and safety. If violations of any of these laws and regulations occur, or if toxic or hazardous materials are released into the environment as a result of our operations, the Company could be exposed to significant liability.

The Company believes it is in compliance in all material respects with respect to the laws and regulations applicable to it and its operations.

Other

During the third quarter of 2011, the Company entered into a new credit facility agreement. The new credit facility increased the aggregate commitment from $60,000 to $70,000 and expires July 2016. As of December 31, 2011, the Company had $650 in outstanding borrowings under this agreement and $69,350 available for borrowing. The Company expects to fund working capital requirements from a combination of available cash balances and internally generated funds, and from the borrowing arrangement mentioned above.

Some seasonality exists in the business driven by timing of price increases, rebate incentives, tax incentives, and holiday buying patterns and promotions.

Employees

As of December 31, 2011, the Company employed 371 people, none of whom were covered by collective bargaining agreements. The Company believes its relations with its employees are good.

 

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Website Access to Company Reports and Corporate Governance Materials

The Company makes available free of charge through our website, www.ydnt.com, (1) its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission; and (2) the Audit Committee, Compensation Committee and Nominating Committee charters and its Code of Ethics. The Company’s website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K.

Executive Officers of the Registrant

The executive officers of the Company, their ages and their positions with the Company are set forth below. All officers serve at the pleasure of the board.

 

Name

   Age     

Position

  

Principal Occupation During Past 5 Years

Alfred E. Brennan

     59       Chairman of the Board, Chief Executive Officer and Director    Chairman of the Board since October 2008 and Vice Chairman from July 2004 to October 2008, Chief Executive Officer since January 2002, President from July 1998 to July 2004, Chief Operating Officer from October 1997 until May 2002 and Director of the Company since August 1997.

George E. Richmond

     78       Vice Chairman of the Board and Director    Vice Chairman of the Board since October 2008, Chairman of the Board from 1997 to October 2008, Chief Executive Officer from 1995 to 2002, Director of the Company since its organization in 1995, President of Young Dental Manufacturing Company (“Young Dental”) (predecessor to the Company) from 1961 until 1997.

Arthur L. Herbst, Jr.

     48       President and Chief Financial Officer    President since July 2004, Chief Operating Officer from May 2002 until July 2004, Chief Financial Officer from February 1999 until July 2004 and since February 2008, and Director from November 1997 to July 2004.

Daniel J. Tarullo

     52       Vice President    Vice President of Business Development since July 2004, Director of Business Development from September 2003 to July 2004.

Julia A. Carter

     37       Vice President of Finance and Controller    Vice President of Finance since May 2008, Corporate Controller since 2005, Assistant Corporate Controller from May 2002 until 2005.

Joshua McKey

     36       Vice President    Vice President since May 2010, General Manager of Young Dental from April 2007 until May 2010, Director of Operations of Young Dental from January 2006 until March 2007, Controller from November 2003 to December 2005.

 

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Item 1A. Risk Factors

Forward Looking Statements

This Annual Report (including, without limitation, Item 1 – "Business" and Item 7 – "Management's Discussion and Analysis of Financial Condition and Results of Operations") includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts included herein are "forward-looking statements." Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. 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 risks and uncertainties include, but are not limited to, those disclosed in this Annual Report and other reports filed with the Securities and Exchange Commission.

The Company makes no commitment to update these factors or to revise any forward-looking statements for events or circumstances occurring after the statement is issued.

At any time when the Company makes forward-looking statements, it desires to take advantage of thesafe harborwhich is afforded such statements under the Private Securities Litigation Reform Act of 1995.

Risk Factors

We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition or results of operations. Investors should carefully consider the risks described below, together with the cautionary statement under the caption “Forward Looking Statements” described above and other information contained in this Annual Report and our other filings with the Securities and Exchange Commission before purchasing our securities. Our business faces significant risks and the risks described below may not be the only risks we face. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations. If any of these risks occur, our business, results of operations or financial condition could suffer, the market price of our Common Stock could decline and you could lose all or part of your investment in our Common Stock.

Acquisitions have been and continue to be an important part of our growth strategy; failure to consummate acquisitions could limit our growth and failure to successfully integrate acquisitions could adversely impact our results.

Our business strategy includes continued growth through strategic acquisitions, which depends upon our ability to identify potential acquisitions, the availability of suitable acquisition candidates at reasonable prices and the availability of financing on acceptable terms. In addition, our growth strategy is dependent upon our ability to negotiate and consummate acquisitions and effectively integrate the acquisitions into our business. Acquisitions involve integrating product lines, employees and manufacturing facilities and include risks relating to employee turnover and sales channel tension. We cannot be certain that we will successfully manage all of these challenges and risks in the future and there can be no assurance that our future acquisitions will be successful. Failure to consummate appropriate acquisitions would adversely impact our growth and failure to successfully integrate them would adversely affect our results.

 

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We operate in a highly competitive industry and cannot be certain that we will be able to compete effectively.

The markets for our products are highly competitive. We compete with manufacturers of both branded and private-label dental products. Some of our competitors have greater financial, research, manufacturing, marketing and other resources which could allow them to compete more successfully. As a result we may not be able to achieve, maintain or increase market share or margins, or compete effectively against these companies. In addition, new competitors are constantly entering the markets in which we participate.

We rely heavily on key distributors, and if any of them stop doing business with us it would significantly impact our operating results.

In fiscal 2011, approximately 31.6% of our sales were made through two distributors. If either of these two distributors were to materially change the timing of their order patterns, our financial results in any given short-term period could be adversely affected. Additionally, the loss of either distributor as a customer, or a material change in our relationship with either distributor would have a material adverse effect on our results of operations and financial condition until we find an alternative means to distribute our products.

The strength of the dental market is impacted by general worldwide economic conditions.

Uncertain or negative economic conditions, along with higher unemployment, adversely affect the dental market in general. We cannot predict the timing or duration of any economic slowdown or the timing or strength of a subsequent economic recovery.

If we are unable to successfully manage growth, our results could be materially adversely affected.

The Company is committed to growth in part through acquisition as well as organically through the development of new products. Our commitment to growth will continue to place a significant strain on our management, administrative, operational, and financial resources. In order to address these concerns, the Company is focused on attracting and retaining key employees who possess outstanding talent for achieving short and long-term objectives. We will also have to continue to consolidate our operations and improve and upgrade operational, financial and accounting systems, controls and infrastructure as well as expand, train and manage our employees. Our failure to manage the future expansion of our business could have a material adverse effect on our revenues and profitability.

Changes in standard of care relating to dental health may impact future results.

The demand for dental products is impacted by the dental health care standards. If the industry standards were to shift to a standard of care that changed the frequency or type of procedures performed or if third-party insurance coverage were to substantially change, the market for our Company’s products could be adversely affected.

Changes in the healthcare industry may impact future results.

The healthcare industry is in the process of undergoing significant changes. The Patient Protection and Affordable Care Act (PPACA), which was signed into law in March 2010, contains legislation that increases the number of people covered by insurance. As this legislation continues to evolve, it is difficult to predict how this will ultimately impact the dental industry and our business.

Our business is subject to quarterly variations in operating results due to factors outside of our control.

Our business is subject to quarterly variations in operating results caused by a number of factors, including business and industry conditions, the timing of acquisitions, the buying patterns of our largest customers, technology changes, currency exchange rate fluctuations, and other factors beyond our control. All these factors make it difficult to predict operating results for any particular period.

 

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Our future performance is materially dependent upon our senior management.

Our future success is substantially dependent upon the efforts and abilities of members of our existing senior management, particularly Alfred E. Brennan, Chairman and Chief Executive Officer, and Arthur L. Herbst, Jr., President and Chief Financial Officer, among others. The loss of the services of either Mr. Brennan or Mr. Herbst could have a material adverse effect on our business. We have employment agreements with each of Messrs. Brennan and Herbst. We do not currently have “key man” life insurance policies on any of our employees. Competition for senior management is intense, and we may not be successful in attracting and retaining key personnel.

Difficulty in obtaining goods and services from our vendors and suppliers could adversely affect our business.

We are dependent on certain vendors and suppliers. We believe we have good relationships with and are generally able to obtain attractive pricing and other terms from our vendors and suppliers. However, if our raw material products, such as resin, were to increase in price significantly, the cost of manufacturing products would increase and our profitability may be impacted. Our product offering includes a multitude of products supplied by a number of suppliers. When possible, we attempt to have multiple sources for key materials and supplies. However, some items are single sourced. Although we believe there are alternative suppliers for the products we single source, if our vendors and suppliers were no longer able to or decided not to supply certain products, there could be delay in identifying and transitioning to alternative suppliers, as well as increased costs, any of which could adversely affect our business for a period of time. If we are unable to identify and secure reasonably priced alternative suppliers in a timely manner, or if we encounter delays or difficulty in obtaining raw materials or products from third-party suppliers, our business and results of operations could be adversely affected.

Certain of our products and manufacturing facilities are subject to regulation, and our failure or the failure of our suppliers to comply with applicable laws and regulations and obtain or maintain the required regulatory approvals for these products could hinder or prevent their sale and increase our costs of regulatory compliance. In addition, there can be no assurance we will be able to successfully reintroduce any products that may have been recalled.

Our ability to continue manufacturing and selling those of our products that are subject to regulation by the United States Food and Drug Administration, the Environmental Protection Agency, state, local or foreign laws or other federal, state or foreign governmental bodies or agencies is subject to a number of risks, including our ability to comply with existing laws and regulations and ongoing requirements, the promulgation of stricter laws or regulations, or the withdrawal of the approval needed to sell one or more of our products. We are also subject to regulation by the Occupational Safety and Health Administration and the Securities and Exchange Commission, among others.

With respect to certain products we purchase, our ability to sell such products to our customers is dependent upon the supplier complying with all applicable laws and regulations. The failure of the Company and/or our suppliers to comply with existing or future laws and regulations could prevent the sale of certain products and have a material adverse effect on our operations. The costs of complying with these types of regulations and the delays in receiving required regulatory approvals or new laws, regulations, or regulatory requirements adverse to our business may force the Company to discontinue selling products, make expensive changes to be able to continue to market existing products, make it more expensive and possibly prohibitive to introduce new products, require the Company to recall products, increase our costs of regulatory compliance or hinder our growth. To the extent that we recall products, there can be no assurance that we will be able to timely and successfully reintroduce any products that may have been recalled into the market.

As part of the federal legislation to reform the U.S healthcare system, a 2.3 percent excise tax on medical devices is scheduled to be implemented in 2013 that will apply to U.S. sales of a majority of our medical device products. Accordingly, the Company is continuing to assess the financial impact of the new law on our business.

 

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Technological change could result in loss of market share, product obsolescence and dependence on new products.

Our future success depends on the ability to anticipate and adapt to changes in technology, industry standards and customers’ changing demands. If we do not timely acquire, develop, complete testing, obtain regulatory approval and sell commercial quantities of new products in response to a technological change or the changing demands of customers, we could lose market share and our products could become obsolete.

Loss of intellectual property protection and related disputes could negatively affect our results.

Our Company utilizes copyright, trademark and trade secret laws, licenses and confidentiality and non-disclosure agreements to protect our intellectual property and proprietary technology. There can be no assurance that the steps taken to protect our intellectual property or proprietary technology will be adequate or enforceable to prevent misappropriation. In addition, the cost of prosecuting and defending such actions can be significant and could have a material adverse effect on our results.

We rely upon others to assist in the education and promotion of our products, and the loss of the participation of these individuals could adversely affect our net sales. Changes in the rules governing promotion of our products might likewise adversely affect our sales.

We work with various dental clinicians to educate the dental community on the features and benefits of our products. Some clinicians are a key component to our strategy for growing our sales. The inability or unwillingness of one or more of these clinicians to continue to assist us could negatively impact the sales of certain significant products. If new laws are enacted or new regulations promulgated that restrict promotional communications about our products, this may likewise adversely affect our sales.

We are subject to potential product liability claims as a result of the design, manufacture and marketing of our products.

Claims alleging product liability may involve large potential damages and significant defense costs. We currently maintain insurance coverage for such claims but there can be no assurance that our insurance coverage will be adequate or that all such claims will be covered by our insurance. A product liability claim could adversely affect our reputation. A successful claim against us in excess of the available insurance coverage could have a material adverse effect on our results.

Changes in tax legislation could impact the Company’s effective tax rate and earnings.

The Company is subject to federal, state, local and foreign taxes. Changes in legislation, as well as operational and structural changes in the Company’s business, could affect the Company’s effective tax rate, which could ultimately impact our net earnings. Additionally, the Company is subject to federal, state, and local tax audits, as well as audits by non-US tax authorities. The audits could result in unfavorable tax adjustments, which could negatively impact the Company’s results.

Operating results could be impacted by an impairment to the Company’s goodwill or other intangible assets.

At least annually, the Company is required to perform an impairment review on goodwill and intangible assets under US GAAP. Various assumptions are used in the company’s analysis, including royalty rates, sales growth rates and dental industry growth rates. The company may be required to record a charge to earnings based upon the outcome of the review.

 

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Quality or safety concerns could put the Company at risk for product recalls.

The Company may need to recall products for quality or safety reasons. While the Company’s products generally have a good reputation with customers and end-users, product safety or quality concerns could result in potential governmental action or litigation. The Company’s reputation or financial results could be impacted by publicity or costs related to company, governmental or legal action.

Our international operations could expose the Company to intrinsic risks that have the potential to affect our business.

Uncertainties in our international operations could adversely affect our business, results of operations and financial condition. These risks include, among other items, fluctuations in currency exchange rates, longer customer payment cycles, regulatory requirements, import or export requirements, repatriation of cash from our foreign operations, and economic and political instability.

Our reliance on information systems could adversely affect the continued operations of the Company.

We rely on information systems in our business to process and manage data to help us: facilitate the purchase and distribution of our inventory items; receive, process, and ship orders; manage the accurate billing of customers; and process payments to suppliers. There can be no assurances that we can prevent breakdowns or breaches within our system that could ultimately have a significant adverse effect on the business operations and financial condition of the Company. As we upgrade and evolve our computer systems and software, we may also encounter issues that could have an adverse effect on the overall business.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

The Company’s principal facilities are as follows:

 

Description

  Square Feet    

Location

 

Owned/Leased

Corporate Headquarters and Manufacturing

    113,000      Earth City, Missouri   Owned

Office and Manufacturing

    48,200      Fort Wayne, Indiana   Owned

Office, Distribution and Manufacturing

    95,000      Algonquin, Illinois   Owned

Office and Distribution

    33,000      Corona, California   Owned

Office

    6,500      Chicago, Illinois   Leased, expires July 2014

Office and Manufacturing

    40,400      Grafton, Wisconsin   Leased, expires July 2013

Office and Manufacturing

    29,700      Dungarvan, Ireland   Owned

The Company believes that its facilities are generally in good condition.

Item 3. Legal Proceedings.

The Company and its subsidiaries from time to time are parties to various legal proceedings arising in the normal course of business. Management believes that none of these proceedings, if determined adversely, would have a material adverse effect on the Company’s financial position, results of operations or liquidity.

Item 4. Mine Safety Disclosures.

Not applicable.

 

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Prices and Dividends

The Company’s Common Stock is listed on The Nasdaq Global Select Market under the symbol “YDNT.”

The following table sets forth the high and low closing prices of the Company’s Common Stock as reported by The Nasdaq Global Select Market and cash dividends declared during the last eight quarters.

 

     Market Price      Cash Dividends
Declared
 

Quarter

   High      Low     

2010

        

First

   $ 29.17       $ 22.12       $ 0.04   
  

 

 

    

 

 

    

 

 

 

Second

   $ 28.94       $ 23.17       $ 0.04   
  

 

 

    

 

 

    

 

 

 

Third

   $ 28.98       $ 24.47       $ 0.04   
  

 

 

    

 

 

    

 

 

 

Fourth

   $ 32.82       $ 27.01       $ 1.04   
  

 

 

    

 

 

    

 

 

 

2011

        

First

   $ 32.79       $ 29.22       $ 0.04   
  

 

 

    

 

 

    

 

 

 

Second

   $ 31.82       $ 26.00       $ 0.04   
  

 

 

    

 

 

    

 

 

 

Third

   $ 29.87       $ 25.16       $ 0.04   
  

 

 

    

 

 

    

 

 

 

Fourth

   $ 30.57       $ 27.65       $ 1.04   
  

 

 

    

 

 

    

 

 

 

On December 31, 2011, there were approximately 65 holders of record of the Company's Common Stock.

The Company has paid quarterly dividends on its Common Stock since the third quarter of 2003. In addition to the quarterly cash dividend of $.04 per share, the Company issued a special cash dividend of $1.00 per share in the fourth quarter of 2011 and 2010.

Payment of future cash dividends 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 also be subject to any applicable restrictions contained in the Company's then existing credit arrangements.

Issuer Purchases of Equity Securities (in thousands, except per share data) (1) (2)

 

Period

   Total Number of
Shares
Purchased
     Average Price
Paid per Share
     Total Number of
Shares
Purchased as
Part of Publicly
Announced
Program
     Maximum
Number of
Shares  that
May

Yet Be
Purchased
Under the
Program
 

October 2011

     26       $ 28.51         26         368   

November 2011

     72       $ 28.83         72         296   

December 2011

     44       $ 27.85         44         252   

Total Fourth Quarter 2011

     142       $ 27.76         142         252   

 

(1) On July 19, 2011, The Board of Directors announced a share repurchase program authorizing the purchase of up to 500 shares. This program replaced an existing authorization that was set to expire July 31, 2011. The new authorization was set to expire July 31, 2012.
(2) On February 6, 2012, the Board of Directors approved a share repurchase program to purchase up to 500 shares of common stock. The authorization will expire February 28, 2013 and replaces the current authorization, which was scheduled to expire on July 31, 2012.

 

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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. All amounts except per share data are expressed in thousands.

 

     Year Ended December 31  
     2011     2010      2009      2008      2007  

Income Statement Data:

             

Net sales

   $ 106,230      $ 102,842       $ 97,737       $ 99,143       $ 97,402   

Cost of goods sold

     47,521        45,681         43,166         46,847         45,623   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     58,709        57,161         54,571         52,296         51,779   

Selling, general and administrative expenses

     34,349        34,141         33,033         32,543         31,019   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Income from operations

     24,360        23,020         21,538         19,753         20,760   

Interest expense (income) and other, net

     (810     215         798         867         1,150   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Income before provision for income taxes

     25,170        22,805         20,740         18,886         19,610   

Provision for income taxes

     8,717        7,868         7,259         6,705         6,677   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 16,453      $ 14,937       $ 13,481       $ 12,181       $ 12,933   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share

   $ 2.06      $ 1.87       $ 1.71       $ 1.52       $ 1.46   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Basic weighted average common shares outstanding

     7,993        7,969         7,881         7,999         8,828   

Diluted earnings per share

   $ 2.05      $ 1.86       $ 1.69       $ 1.51       $ 1.44   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted average common shares outstanding

     8,033        8,037         7,966         8,069         8,982   

Cash dividends declared per common share

   $ 1.16      $ 1.16       $ 0.16       $ 0.16       $ 0.16   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 
     As of December 31  
     2011     2010      2009      2008      2007  

Balance Sheet Data:

             

Working capital

   $ 25,853      $ 23,883       $ 22,752       $ 23,493       $ 25,491   

Total assets

     159,786        161,625         160,000         159,576         158,768   

Long-term debt (including current maturities)

     659        6,156         14,529         30,630         36,646   

Stockholders' equity

     130,253        127,104         120,865         106,277         103,338   

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation (in thousands).

General

Young Innovations, Inc. and its subsidiaries (the “Company”) develops, manufactures and markets supplies and equipment used by dentists, dental hygienists, dental assistants and patients. The Company's product offering includes disposable and metal prophylaxis (“prophy”) angles, prophy cups and brushes, dental micro-applicators, panoramic X-ray machines, moisture control products, infection control products, dental handpieces (drills) and related components, endodontic systems, orthodontic toothbrushes, flavored examination gloves, children's toothbrushes, and children's toothpastes.

The Company’s manufacturing and distribution facilities are located in Missouri, Illinois, California, Indiana, Wisconsin and Ireland.

 

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The Company operates in one reporting segment, which is the development and manufacture of a broad line of products marketed to dental professionals. The Company markets its products primarily in the U.S. The Company also markets its products in several international markets, including: Canada, Europe, South America, Central America, and the Pacific Rim. Sales outside the United States represented approximately 17%, 18%, and 17% of the Company’s total net sales in 2011, 2010, and 2009, respectively.

Some of the risk factors that affect the Company’s business and financial results are discussed in “Item 1A: Risk Factors.” We wish to caution the reader that the risk factors discussed in “Item 1A: Risk Factors”, and those described elsewhere in this report or our other Securities and Exchange Commission filings, could cause our actual results to differ materially from those stated in the forward-looking statements.

Critical Accounting Policies

The SEC has requested that all registrants include in their MD&A a description of their most critical accounting policies, the judgments and uncertainties affecting the application of those policies, and the likelihood that materially different amounts would be reported under different conditions using different assumptions. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of the company’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company believes that the following accounting policies fit this definition:

Revenue Recognition – Revenue from the sale of products is recorded at the time title passes, generally when the products are shipped, as the Company’s shipping terms are customarily FOB shipping point.

The Company generally requires payment within 30 days from the date of invoice and offers cash discounts for early payment. For certain acquired businesses that offer different terms, the Company migrates these customers to the terms referred above over time.

The Company offers discounts to its distributors if certain conditions are met. Customer allowances, volume discounts and rebates, and other short-term incentive programs are recorded as a reduction in reported revenues at the time of sale. The Company reduces product revenue for the estimated redemption of annual rebates on certain current product sales. Customer allowances and rebates are estimated based on historical experience and known trends.

The policy with respect to sales returns generally provides that a customer may not return inventory except at the Company’s option. The Company generally warrants its products against defects, and its most generous policy provides a two-year parts and labor warranty on X-ray equipment. The Company owns X-ray equipment rented on a month-to-month basis to customers.

Allowance for doubtful accounts – The Company has 39% of its December 31, 2011 accounts receivable balance with two large customers (see footnote 4 of the notes to consolidated financial statements set forth in Item 8) with the remaining balance comprised of amounts due from numerous customers, some of which are international. Accounts receivable balances are subject to credit risk. Management has reserved for expected credit losses, sales returns and allowances, and discounts based upon past experience, as well as knowledge of current customer information. The Company believes that its reserves are adequate. It is possible, however, that the accuracy of our estimation process could be impacted by unforeseen circumstances. The Company continuously reviews its reserve balance and refines the estimates to reflect any changes in circumstances.

Inventory – The Company values inventory at the lower of cost or market on a first-in, first-out (FIFO) basis. Inventory values are based upon standard costs, which approximate actual costs. Management regularly reviews inventory quantities on hand and records a write-down for excess or obsolete inventory based primarily on estimated product demand and other information related to the inventory including planned introduction of

 

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new products and changes in technology. If demand for the Company’s products is significantly different than management’s expectations, the value of inventory could be materially impacted. Inventory write-downs are included in cost of goods sold.

Goodwill and other intangible assets – In accordance with Accounting Standards Codification (“ASC”) Topic 350, “Intangibles- Goodwill and Other,” goodwill and other intangible assets with indefinite useful lives are reviewed by management for impairment at least annually, or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. If indicators of impairment are present, the determination of the amount of impairment would be based on management’s judgment as to the future operating cash flows to be generated from the assets. ASC Topic 350 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with ASC Topic 360, “Property, Plant, and Equipment.”

Stock compensation – In accordance with ASC Topic 718, “Stock Compensation,” compensation cost is recognized within the financial statements at the grant date based on the award’s fair-value. Stock option fair value is calculated by an option pricing model, and is recognized as expense ratably over the requisite service period. The option pricing models require judgmental assumptions including: volatility, forfeiture rates, and expected option life. If any of the assumptions used in the model change significantly, share-based compensation expense may differ in the future from that recorded in the current period. The Company uses the Black-Scholes option pricing model. Compensation expense is also recognized for restricted stock using the fair market value of our Common Stock at the date of grant.

Assets Acquired and Liabilities Assumed in Business Combinations – The Company periodically acquires businesses. The Company accounts for business acquisitions under the provisions of ASC Topic 805, “Business Combinations,” which requires an entity to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred, restructuring costs generally expensed in the periods subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. In addition, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life.

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.

 

     Years Ended December 31  
         2011             2010             2009      

Net sales

     100     100.0     100.0

Cost of goods sold

     44.7        44.4        44.2   
  

 

 

   

 

 

   

 

 

 

Gross profit

     55.3        55.6        55.8   

Selling, general and administrative expenses

     32.3        33.2        33.8   
  

 

 

   

 

 

   

 

 

 

Income from operations

     23.0        22.4        22.0   

Interest expense (income) and other, net

     (.7     .2        .8   
  

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

     23.7        22.2        21.2   

Provision for income taxes

     8.2        7.7        7.4   
  

 

 

   

 

 

   

 

 

 

Net income

     15.5     14.5     13.8
  

 

 

   

 

 

   

 

 

 

 

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Year Ended December 31, 2011, Compared to Year Ended December 31, 2010

Net Sales – Sales for the year ended December 31, 2011 were $106,230, up 3.3% from $102,842 in the prior year. Sales growth reflected solid demand for our consumable product offering throughout the year. Consumable products, which comprise approximately 87% of total annual sales and include preventative, infection control, endodontic, micro-applicator, and home care product lines, showed an increase of approximately 1.3%. Diagnostic product line sales increased approximately 19.9%, as we continued to experience strengthening demand during 2011. A weak U.S. Dollar positively impacted sales by $336 in 2011.

Gross Profit – Gross profit increased $1,548, or 2.7%, to $58,709 in 2011 compared to $57,161 in 2010. The gross margin percentage of 55.3% in 2011 changed slightly from 55.6% in 2010. The increase in gross margin dollars was a result of higher sales volume, while the slight decline in gross margin percentage is primarily attributable to the mix of products sold.

Selling, General and Administrative Expenses (SG&A) – SG&A expenses increased $208, or .6%, to $34,349 in 2011 from $34,141 in 2010, primarily attributable to higher marketing expenses, which include trade show expenses and advertising & promotional costs, which was in part offset by the gain from the sale of the Brownsville, Texas facility during the year. As a percentage of net sales, SG&A expenses decreased modestly to 32.3% in 2011 compared to 33.2% in 2010, primarily due to sales increasing faster than expenses.

Income from Operations – Income from operations increased 5.8% to $24,360 in 2011 from $23,020 in the prior year. The change was a result of factors explained above.

Interest Expense, net – Interest expense, net decreased to $236 in 2011 from $322 in 2010. The decrease was attributable to lower borrowings under the Company’s credit facility.

Other (Income) Expense, net – Other (Income) Expense, net is ($1,046) in 2011 versus ($107) in 2010. The change is primarily attributable to gains of $1,014 realized in 2011 resulting from the Company’s investment in a private equity fund.

Provision for Income Taxes – Provision for income taxes increased $849 in 2011 to $8,717 from $7,868, as a result of higher pre-tax income and an increase in the effective tax rate. The effective tax rate was 34.6% in 2011 compared to 34.5% in 2010. The 2011 rate was negatively impacted by an increase in certain state corporate tax rates. The impact of higher state taxes was reduced in part by the Company’s decision in 2011 to permanently invest a portion of its foreign subsidiary’s undistributed earnings. Additionally, the effective tax rate during 2010 reflected a benefit related to a change in measurement of a prior period uncertain tax position.

Year Ended December 31, 2010, Compared to Year Ended December 31, 2009

Net Sales – Sales for the year ended December 31, 2010 were $102,842, up 5.2% from $97,737 in the prior year. The sales increase was driven by strengthening demand for our diagnostic products as well as strong demand for our consumable products. Diagnostic product line sales increased approximately 20.1%, demonstrating a recovery from the 2009 decline which was largely due to the general economic downturn. Consumable products, which comprise approximately 90% of total annual sales and include preventative, infection control, endodontic, mico-applicator, and home care product lines, showed an increase of approximately 3.6%. A stronger U.S. Dollar negatively impacted sales by $257 in 2010.

Gross Profit – Gross profit increased $2,590, or 4.7%, to $57,161 in 2010 compared to $54,571 in 2009. The gross margin percentage of 55.6% in 2010 changed slightly from 55.8% in 2009. The increase in gross margin dollars was a result of higher sales volume, while the slight decline in gross margin percentage is primarily attributable to the mix of products sold.

 

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Selling, General and Administrative Expenses (SG&A) – SG&A expenses increased $1,108, or 3.4%, to $34,141 in 2010 from $33,033 in 2009, primarily due to higher personnel and marketing costs. The increase is mainly attributable to incentive compensation and advertising & promotional costs, which are in line with the Company’s overall performance. As a percentage of net sales, SG&A expenses decreased modestly to 33.2% in 2010 compared to 33.8% in 2009, primarily due to sales increasing faster than expenses.

Income from Operations – Income from operations increased 6.9% to $23,020 in 2010 from $21,538 in the prior year. The change was a result of factors explained above.

Interest Expense, net – Interest expense, net decreased to $322 in 2010 from $665 in 2009. The decrease was attributable to lower borrowings under the Company’s credit facility.

Other (Income) Expense, net – Other (Income) Expense, net is ($107) in 2010 versus $133 in 2009. The change is primarily attributable to foreign exchange transaction gains on inventory purchases.

Provision for Income Taxes – Provision for income taxes increased $609 in 2010 to $7,868 from $7,259, as a result of higher pre-tax income offset partially by a decrease in the effective tax rate. The effective tax rate was 34.5% in 2010 compared to 35.0% in 2009. The decrease in rates was primarily due to an increase in the allowance rates for the Section 199 manufacturing deduction. The rate was further positively impacted by a change in measurement of a prior period uncertain tax position.

Liquidity and Capital Resources

Sources of Cash

Historically, the Company has financed its operations primarily through cash flow from operating activities and, to a lesser extent, through borrowings under its credit facility. Net cash flow from operating activities was $21,706, $22,025, and $22,480, in 2011, 2010 and 2009, respectively. Operating cash flow declined slightly in 2011 due to a decrease in accounts payable, as well as increases in accounts receivable as a result of increased sales. The timing of collections did not adversely impact the aging of receivables. These items were partially offset by an increase in net income and a decrease in inventory. The Company also received approximately $1,643 of cash from distributions from the Company’s private equity investment.

On July 22, 2011, the Company entered into a new credit facility. The new credit facility increased the aggregate commitment from $60,000 to $70,000; this agreement expires in July 2016. Borrowings under the arrangement bear interest at rates ranging from LIBOR +1.25% to LIBOR +1.75% or Prime +0% to Prime +.50%, depending on the Company’s level of indebtedness. Commitment fees for this arrangement range from 0.175% to 0.275% of the unused balance. Borrowings under the previous arrangement had interest rates ranging from LIBOR +2.00% to LIBOR +2.50% or Prime +0.50% to Prime +1.00% and commitment fees from 0.25% to 0.50% of the unused balance. The agreement is unsecured and contains various financial and other covenants. As of December 31, 2011, the Company was in compliance with these covenants. During 2011, the Company borrowed under the credit facility to finance investments in facilities and for working capital needs. At December 31, 2011, the Company had $650 in outstanding borrowings under this agreement and $69,350 available for borrowing. The $650 borrowing was used, in part, to fund the $1.00 special dividend paid in December 2011. Management believes that through its operating cash flows as well as borrowing capabilities, the Company has adequate liquidity and capital resources to meet its needs on a short and long-term basis.

 

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Uses of Cash

Consistent with historical spending, the Company’s uses of cash primarily relate to acquisition activity, capital expenditures, dividend distributions to shareholders, and stock repurchases. Specific significant uses of cash over the three years are as follows:

2011

During the year the Company invested $2,845 in property, plant and equipment. Significant capital expenditures were made to support facility improvements, as well as investments in new machinery and equipment.

The Company also repurchased 322 shares of its Common Stock for $9,348. Quarterly dividends of $0.04 per share were paid March 15, June 15, September 15, and December 15, 2011, and a special dividend of $1.00 per share was paid on December 15, 2011 as well, for a total dividend payment of $9,264.

2010

During the year the Company invested $3,230 in property, plant and equipment. Significant capital expenditures were made to support facility expansion and improvements, as well as investments in new machinery and equipment.

The Company also repurchased 108 shares of its Common Stock for $2,642. Quarterly dividends of $0.04 per share were paid March 15, June 15, September 15, and December 15, 2010 and a special dividend of $1.00 per share was paid on December 15, 2010 as well, for a total dividend payment of $9,235.

2009

During the year the Company invested $4,010 in property, plant and equipment. Significant expenditures were made to support facility expansion and improvements in addition to investments in production machinery. We invested $1,657 to purchase dental distribution rights for a new surface disinfectant, a non-compete agreement and core technology which provides a manufacturing enhancement for our micro-applicator products. Lastly, we funded a capital call for a private equity fund investment for $300.

The Company also repurchased 19 shares of its Common Stock for $270. Quarterly dividends of $0.04 per share were paid March 12, June 11, September 14, and December 14, 2009, for a total dividend payment of $1,256.

 

      Payments due by period  

Contractual Obligations

   Total      Less than
1 Year
     1-3 years      4-5 years      Beyond
5 years
 

Operating leases (including buildings)

   $ 871       $ 453       $ 418       $ —         $ —     

Long-term debt

   $ 650       $ —         $ —         $ 650       $ —     

Long term secured borrowings

   $ 9       $         $ 9       $         $     

Liability for uncertain tax positions

   $ 37       $ 37       $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,567       $ 490       $ 427       $ 650       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2011 and 2010, there were no relationships with any other unconsolidated entities, financial partnerships, structured finance entities, or special purpose entities that were established for the purpose of facilitating off-balance-sheet arrangements or for other contractually narrow or limited purposes.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk (amounts in thousands).

Market risks relating to the Company’s operations result primarily from changes in interest rates and changes in foreign exchange rates. From time to time, the Company finances acquisitions, capital expenditures and its

 

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working capital needs with borrowings under a revolving credit facility. Due to the variable interest rate feature on the debt, the Company is exposed to interest rate risk. Based on the Company’s average debt balance, a theoretical 100-basis-point increase in interest rates would have resulted in approximately $34, $100, and $211 of additional interest expense in the years ended December 31, 2011, 2010 and 2009, respectively.

Sales of the Company’s products in a given foreign country can be affected by fluctuations in the exchange rate. The Company sells approximately 17% of its products outside the United States. Of these foreign sales, 7% are denominated in Euros and the remainder are denominated in U.S. dollars. The Company does not feel that foreign currency movements have a material impact on its financial statements.

The Company does not use derivatives to manage its interest rate or foreign exchange rate risks.

 

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Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Young Innovations, Inc.

We have audited the accompanying consolidated balance sheets of Young Innovations, Inc. and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2011. In connection with our audits of the consolidated financial statements, we have also audited Schedule II – Valuation and Qualifying Accounts. We also have audited Young Innovations’ internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Young Innovations’ management is responsible for these financial statements, Schedule II – Valuation and Qualifying Accounts, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on these consolidated financial statements and the Schedule II – Valuation and Qualifying Accounts and an opinion on the company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in

 

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conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, Schedule II – Valuation and Qualifying Accounts, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also in our opinion, Young Innovations, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ Crowe Horwath LLP

Oak Brook, Illinois

March 15, 2012

 

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Young Innovations, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes policies and procedures that:

 

   

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

   

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America;

 

   

provide reasonable assurance that receipts and expenditures of the Company are being made in accordance with authorization of management and directors of the Company; and

 

   

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.

Internal control over financial reporting includes the controls themselves, monitoring and testing, and actions taken to correct deficiencies as identified.

All internal control systems, no matter how well designed, have inherent limitations, including the possibility that controls can be circumvented or overridden, and misstatements due to error or fraud may occur and not be detected. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, conditions in the Company’s business change over time, and, therefore, internal control effectiveness may vary over time.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Based on this assessment and the foregoing criteria, management believes that, as of December 31, 2011, the Company’s internal control over financial reporting is effective. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2011 has been audited by Crowe Horwath LLP, an independent registered public accounting firm, as stated in their report, which is included in Item 8 of this Report.

 

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YOUNG INNOVATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

     December 31  
     2011     2010  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 1,031      $ 741   

Trade accounts receivable, net of allowance for doubtful accounts of $250 in 2011 and $246 in 2010

     12,066        11,721   

Inventories

     17,161        17,260   

Other current assets

     4,729        4,861   
  

 

 

   

 

 

 

Total current assets

     34,987        34,583   
  

 

 

   

 

 

 

Property, plant and equipment, net

     32,272        33,162   

Goodwill

     80,254        80,289   

Other intangible assets

     11,130        11,579   

Other assets

     1,143        2,012   
  

 

 

   

 

 

 

Total assets

   $ 159,786      $ 161,625   
  

 

 

   

 

 

 

Liabilities and Stockholder’s Equity

    

Current liabilities:

    

Accounts payable and accrued liabilities

   $ 9,134      $ 10,700   
  

 

 

   

 

 

 

Total current liabilities

     9,134        10,700   
  

 

 

   

 

 

 

Long-term debt

     650        6,100   

Long-term secured borrowing

     9        56   

Deferred income taxes

     19,534        17,417   

Other noncurrent liabilities

     206        248   
  

 

 

   

 

 

 

Total liabilities

     29,533        34,521   
  

 

 

   

 

 

 

Stockholders’ equity:

    

Common Stock, voting, $.01 par value, 25,000 shares authorized; 10,219 shares issued in 2011 and 2010; 7,868 shares outstanding in 2011 and 7,971 shares outstanding in 2010

     102        102   

Additional paid-in capital

     24,708        24,190   

Retained earnings

     158,647        151,458   

Common Stock in treasury, at cost; and 2,351 shares in 2011 and 2,248 shares in 2010

     (52,924     (48,484

Accumulated other comprehensive loss

     (280     (162
  

 

 

   

 

 

 

Total stockholders’ equity

     130,253        127,104   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 159,786      $ 161,625   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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YOUNG INNOVATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

 

     Years Ended December 31  
     2011     2010     2009  

Net sales

   $ 106,230      $ 102,842      $ 97,737   

Cost of goods sold

     47,521        45,681        43,166   
  

 

 

   

 

 

   

 

 

 

Gross profit

     58,709        57,161        54,571   

Selling, general and administrative expenses

     34,349        34,141        33,033   
  

 

 

   

 

 

   

 

 

 

Income from operations

     24,360        23,020        21,538   

Interest expense, net

     236        322        665   

Other (income) expense, net

     (1,046     (107     133   
  

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

     25,170        22,805        20,740   

Provision for income taxes

     8,717        7,868        7,259   
  

 

 

   

 

 

   

 

 

 

Net income

   $ 16,453      $ 14,937      $ 13,481   
  

 

 

   

 

 

   

 

 

 

Basic earnings per share

   $ 2.06      $ 1.87      $ 1.71   
  

 

 

   

 

 

   

 

 

 

Diluted earnings per share

   $ 2.05      $ 1.86      $ 1.69   
  

 

 

   

 

 

   

 

 

 

Basic weighted average shares outstanding

     7,993        7,969        7,881   
  

 

 

   

 

 

   

 

 

 

Diluted weighted average shares outstanding

     8,033        8,037        7,966   
  

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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YOUNG INNOVATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

 

    Common
Stock
    Additional
Paid-In
Capital
    Retained
Earnings
    Common
Stock in
Treasury
    Accumulated
Other
Comprehensive
(Loss) Income
    Total     Comprehensive
Income
 

BALANCE, January 1, 2009

  $ 102      $ 25,336      $ 133,531      $ (52,673   $ (19   $ 106,277     

Net income

    —          —          13,481        —          —          13,481      $ 13,481   

Common Stock purchased

    —          —          —          (270     —          (270  

Stock options exercised

    —          (941     —          1,859        —          918     

Issuance of restricted stock.

    —          (2,183     —          1,994        —          (189  

Share-based compensation

    —          1,687        —          —          —          1,687     

Excess income tax benefit from stock options

    —          86        —          —          —          86     

Cash dividends ($0.16 per share).

    —          —          (1,256     —          —          (1,256  

Foreign currency translation adjustments

    —          —          —          —          131        131        131   
             

 

 

 

Comprehensive income

              $ 13,612   
             

 

 

 

BALANCE, December 31, 2009

  $ 102      $ 23,985      $ 145,756      $ (49,090   $ 112      $ 120,865     

Net income

    —          —          14,937        —          —          14,937        14,937   

Common Stock purchased

    —          —          —          (2,642     —          (2,642  

Stock options exercised

    —          (681     —          2,270        —          1,589     

Issuance of restricted stock

    —          (1,455     —          978        —          (477  

Share-based compensation

    —          1,696        —          —          —          1,696     

Excess income tax (shortfall) benefit from stock options

    —          645        —          —          —          645     

Cash dividends ($1.16 per share)

    —            (9,235       —          (9,235  

Foreign currency translation adjustments

    —          —          —          —          (274     (274     (274
             

 

 

 

Comprehensive income

              $ 14,664   
             

 

 

 

BALANCE, December 31, 2010

  $ 102      $ 24,190      $ 151,458      $ (48,484   $ (162   $ 127,104     

Net income

    —          —          16,453        —          —          16,453        16,453   

Common Stock purchased

    —          —            (9,348       (9,348  

Stock options exercised

    —          (1,197     —          3,709        —          2,512     

Issuance of restricted stock, net

    —          (1,199       1,199          —       

Share-based compensation

    —          1,856        —          —          —          1,856     

Excess income tax (shortfall) benefit from stock options

    —          1,058        —          —          —          1,058     

Cash dividends ($1.16 per share)

    —          —          (9,264     —          —          (9,264  

Foreign currency translation adjustments

    —          —          —          —          (118     (118     (118
             

 

 

 

Comprehensive income

    —          —          —          —          —          —        $ 16,335   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, December 31, 2011

  $ 102      $ 24,708      $ 158,647      $ (52,924   $ (280   $ 130,253     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

The accompanying notes are an integral part of these statements.

 

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YOUNG INNOVATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

     Years Ended December 31  
     2011     2010     2009  

Cash flows from operating activities:

      

Net income

   $ 16,453      $ 14,937      $ 13,481   
  

 

 

   

 

 

   

 

 

 

Adjustments to reconcile net income to net cash flows from operating activities:

      

Depreciation and amortization

     4,125        4,170        4,015   

Share based compensation expense

     1,856        1,696        1,687   

Deferred income taxes

     2,194        1,463        1,734   

Excess tax benefit from share exercises

     (1,058     (645     (86

Realized (gain) loss on private equity investment fund

     (1,014     —          75   

Gain on sale of building

     (360     —          —     

Changes in assets and liabilities:

      

Trade accounts receivable

     (300     (491     (851

Inventories

     96        (2,491     1,707   

Other current assets

     42        56        (42

Other assets

     237        703        970   

Accounts payable and accrued liabilities

     (565     2,627        (210
  

 

 

   

 

 

   

 

 

 

Total adjustments

     5,253        7,088        8,999   
  

 

 

   

 

 

   

 

 

 

Net cash flows from operating activities

     21,706        22,025        22,480   
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

      

Payments for acquisitions of businesses and intangible assets, net of cash acquired

     (55     —          (1,657

Purchases of property, plant and equipment

     (2,845     (3,230     (4,010

Proceeds from sale of building

     431        —          —     

Purchases of private equity investment

     —          —          (300

Proceeds from private equity investment

     1,643        —          —     
  

 

 

   

 

 

   

 

 

 

Net cash flows from investing activities

     (826     (3,230     (5,967
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

      

Payment of deferred financing costs

     —          —          (158

Payments on long-term debt

     (22,432     (48,493     (60,334

Borrowings on long-term debt

     16,982        40,614        44,964   

Payments of long-term secured borrowings

     (34     (494     (1,217

Borrowings of long-term secured borrowings

     —          —          346   

Excess tax benefit/(deficit) from share exercises

     1,058        645        86   

Proceeds from stock options exercised

     2,512        1,589        918   

Purchases of treasury stock

     (9,348     (2,642     (459

Payment of cash dividends

     (9,264     (9,235     (1,256
  

 

 

   

 

 

   

 

 

 

Net cash flows from financing activities

     (20,526     (18,016     (17,110
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (64     (105     (3
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     290        674        (600

Cash and cash equivalents, beginning of period

     741        67        667   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 1,031      $ 741      $ 67   
  

 

 

   

 

 

   

 

 

 

Non-cash Disclosure – Acquired property, plant and equipment in accounts payable

     —          —          155   
  

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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YOUNG INNOVATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011

(in thousands, except per share data)

1. ORGANIZATION:

Young Innovations, Inc. and its subsidiaries (the “Company”) develops, manufactures and markets supplies and equipment used by dentists, dental hygienists, dental assistants and consumers. The Company's product offering includes disposable and metal prophylaxis (“prophy”) angles, prophy cups and brushes, dental micro-applicators, panoramic X-ray machines, moisture control products, infection control products, dental handpieces (drills) and related components, endodontic systems, orthodontic toothbrushes, flavored examination gloves, children's toothbrushes, and children's toothpastes.

The Company’s manufacturing and distribution facilities are located in Missouri, Illinois, California, Indiana, Wisconsin and Ireland. Export sales were approximately 17%, 18%, and 17% of total net sales for 2011, 2010, and 2009 respectively. Sales denominated in foreign dollars outside the U.S. are approximately 7% of total sales in each of 2011, 2010, and 2009.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated financial statements include the accounts of Young Innovations, Inc. and its direct and indirect wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

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 affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Some of the more significant estimates include allowances for doubtful accounts, inventory valuation reserves, evaluation of goodwill for impairment, rebate accruals, warranty reserves, liabilities for potential incentive compensation and uncertain income tax positions.

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 net realizable value. Inventory values are based upon standard costs which approximate actual costs, 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

 

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any gain or loss is reflected in the statements of income. The Company provides depreciation using the straight-line method over the estimated useful lives of respective classes of assets as follows:

 

Buildings and improvements

     3 to 40 years      

Machinery and equipment

     3 to 10 years      

Equipment rented to others

     4 to 15 years      

Goodwill and Other Intangible Assets

Goodwill represents the excess of cost over fair value of net assets of businesses acquired. Goodwill and indefinite life intangible assets acquired in a purchase business combination are not amortized, but are instead tested for impairment at least annually in accordance with the provisions of ASC Topic 350. Additionally, ASC Topic 350 requires that intangible assets with estimable useful lives be amortized to their estimated residual values, and reviewed for impairment in accordance with ASC Topic 360, “Property, Plant, and Equipment” Intangible assets primarily consist of trademarks, license agreements, core technology, patents and patent applications, product formulas, and supplier and customer relationships. Certain trademarks have been determined to have indefinite useful lives, and therefore the carrying value is reviewed at least annually for recoverability in accordance with the requirements of ASC Topic 350. Other intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets, generally between 5 and 40 years, and tested for impairment whenever conditions indicate that an asset may be impaired. As of September 2011, the Company performed its annual impairment review on indefinite-lived assets, in addition to a review of the remaining useful lives of its finite-lived intangible assets.

Impairment of Long-Lived Assets

The Company assesses and measures any impairment of long-lived assets other than goodwill and indefinite life intangibles in accordance with the provisions of ASC Topic 360. 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. The Company has not incurred any impairment of long-lived assets during 2011, 2010 and 2009.

Fair Value of Financial Instruments

Financial instruments consist principally of cash, accounts receivable, notes receivable, accounts payable and debt. The estimated fair value of these instruments approximates their carrying value. Due to the short term nature of the notes receivable, book value approximates fair value.

Shipping and Handling

Shipping and handling costs are included as a component of cost of sales. Shipping and handling costs billed to customers are included in sales.

Revenue Recognition

Revenue from the sale of products is recorded at the time title passes, generally when the products are shipped, as the Company’s shipping terms are customarily FOB shipping point.

The Company generally requires payment within 30 days from the date of invoice and offers cash discounts for early payment. For certain acquired businesses that offer different terms, the Company migrates these customers to the terms referred above over time.

 

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The Company offers discounts to its distributors if certain conditions are met. Customer allowances, volume discounts and rebates, and other short-term incentive programs are recorded as a reduction in reported revenues at the time of sale. The Company reduces product revenue for the estimated redemption of annual rebates on certain current product sales. Customer allowances and rebates are estimated based on historical experience and known trends.

The policy with respect to sales returns generally provides that a customer may not return inventory except at the Company’s option. The Company generally warrants its products against defects, and its most generous policy provides a two-year parts and labor warranty on X-ray machines. The Company owns X-ray equipment rented on a month-to-month basis to customers.

The Company adopted the disclosure requirements of ASC Topic 605, “Revenue Recognition” (that is, gross versus net presentation) for tax receipts on the face of their income statements. The scope of this guidance includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added, and some excise taxes (gross receipts taxes are excluded). The Company presents such taxes on a net basis.

Allowance for Doubtful Accounts

Accounts receivable balances are subject to credit risk. Management has reserved for expected credit losses, sales returns and allowances, and discounts based upon past experience, as well as knowledge of current customer information. The Company believes that its reserves are adequate. It is possible, however, that the accuracy of the Company’s estimation process could be impacted by unforeseen circumstances. The Company continuously reviews its reserve balance and refines the estimates to reflect any changes in circumstances.

Advertising Costs

Advertising costs are expensed when incurred. Advertising costs were approximately, $3,760, $3,645, and $3,381, for 2011, 2010 and 2009, respectively.

Research and Development Costs

Research and development costs are expensed when incurred and totaled $1,906, $840, and $797 for 2011, 2010 and 2009, respectively.

Interest Expense, net

Interest expense, net includes interest paid related to borrowings on the Company’s credit facility, as well as interest income earned on various investments and notes receivable. In 2011, 2010 and 2009, interest income totaled $38, $119, and, $208, respectively, and interest expense totaled $274, $441, and $873, respectively.

Other (Income) Expense, net

Other (income) expense, net includes foreign currency transaction gain/loss and other miscellaneous income, including realized gains on investments, all of which are not directly related to the Company’s primary business.

Income Taxes

The Company accounts for income taxes under ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to accounting for and reporting income taxes. Deferred income taxes are provided for temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities using rates which are expected to apply in the period the differences are estimated to reverse.

 

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The Company follows the provisions of ASC 740, “Income Taxes” related to the accounting for uncertain tax provisions.” Topic 740 requires the Company to maintain a liability for underpayment of income taxes and related interest and penalties, if any, for uncertain income tax positions. In considering the need for and magnitude of a liability for uncertain income tax positions, the Company must make certain estimates and assumptions regarding the amount of income tax benefit that will ultimately be realized. The ultimate resolution of an uncertain tax position may not be known for a number of years, during which time the Company may be required to adjust these provisions, in light of changing facts and circumstances.

Share-Based Compensation

In accordance with ASC Topic 718, “Compensation- Stock Compensation,” compensation cost for share-based awards is recognized within the financial statements as earned based on the award’s fair value at the grant date. Stock option fair value is calculated by an option pricing model, and is recognized as expense ratably over the requisite service period. The option pricing models require judgmental assumptions, including: volatility, forfeiture rates, and expected option life. The Company uses the Black-Scholes option pricing model. Compensation expense is also recognized for restricted stock over the vesting period using the fair value of the Company’s Common Stock at the date of grant.

Foreign Currency Translation

The translation of financial statements into U.S dollars has been performed in accordance with ASC Topic 830, “Foreign Currency Matters.” The local currency for all entities included in the consolidated financial statements has been designated as the functional currency. Non-U.S. dollar denominated assets and liabilities have been translated into U.S. dollars at the rate of exchange prevailing at the balance sheet date. Revenues and expenses have been translated at the weighted average of exchange rates in effect during the year. Translation adjustments are recorded in accumulated comprehensive (loss) income. Net currency transaction gains (losses) included in other (income) expense, net were ($21), $68, and ($106) for 2011, 2010 and 2009, respectively.

Segment Information

The Company operates as a single reportable operating segment. While management monitors the revenue streams of various products, the identifiable segments' operations are managed and financial performance is evaluated on a company-wide basis. Accordingly, all of the Company’s products are considered by management to be aggregated in one reportable operating segment.

Supplemental Cash Flow Information

Cash flows from operating activities include $5,393, $6,134, and $5,417 for the payment of federal, foreign, and state income taxes and $178, $310, and $691for the payment of interest related to borrowings on the Company’s credit facility during 2011, 2010 and 2009, respectively.

3. INVESTMENTS:

On February 21, 2006, the Company invested in a private equity investment fund. At December 31, 2011, the Company has an unfunded capital commitment of up to $300. As of December 31, 2011, the total capital commitment paid by the Company was $1,950. The Company accounts for its investment using the cost method.

During the year, the Company recognized other income of $1,014 from the Company’s private equity investment. The total cash received from its private equity investment was approximately $1,643 in 2011, with a total reduction in carrying value of such investment of approximately $629. The carrying value of the private equity investment was $1,041 and $1,670 for twelve months ending December 31, 2011 and December 31, 2010, respectively.

 

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The Company may receive additional amounts in the future related to the above transactions related to excess funds being released from escrow or a potential additional earn-out based on financial performance.

4. MAJOR CUSTOMERS AND CREDIT CONCENTRATION:

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 that together accounted for 39% and 34% of accounts receivable at December 31, 2011 and 2010, respectively.

The percentage of net sales made to major distributors of the Company’s continuing operations were as follows:

 

      Years Ended December 31  

Distributor

     2011         2010         2009    

Henry Schein, Inc.

     17.9     15.8     15.5

Patterson Companies, Inc.

     13.7     14.1     15.2

5. NOTES RECEIVABLE:

The Company offers various financing options to its X-ray equipment customers, which includes notes payable to the Company. The X-ray equipment is used to secure the notes. These transactions are recorded as a sale upon the transfer of title to the purchaser, which generally occurs at the time of shipment, at an amount equal to the sales price of non-financed sales. Interest on these notes is accrued as earned and recorded as interest income.

On January 16, 2008, the Company transferred a majority of its X-ray equipment loans to a third party for a cash payment of $3,519. The Company transferred $4,154 of the notes receivable portfolio for a purchase price of $4,140. On May 5, 2008, the Company transferred additional X-ray equipment loans to a third party for a cash payment of $235. As the transactions do not qualify as sales of assets under ASC Topic 860, “Transfers and Servicing,” the transactions have been treated as financing and the loans remain on the Company’s balance sheet. As the third party receives payments on the transferred notes, the Company reduces the corresponding notes receivable and secured borrowing balances.

Notes receivable consist of the following:

 

     December 31  
         2011              2010      

Notes receivable, short-term

   $ 306       $ 593   

Notes receivable, long-term

     23         262   
  

 

 

    

 

 

 

Total notes receivable

   $ 329       $ 855   
  

 

 

    

 

 

 

Notes receivable are included in other current assets and other assets in the accompanying Consolidated Balance Sheets. Management has also established an allowance for notes receivable based upon past experience of collectability. For the years ended December 31, 2011 and 2010, the allowance for notes receivable balance was $112 and $115, respectively.

Notes bear interest at rates ranging from 0% to 10%, and have a weighted average maturity of 28 months. Interest income and expense related to the notes are included in the Consolidated Statement of Income caption “interest expense, net.”

 

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6. INVENTORIES:

Inventories consist of the following:

 

     December 31  
         2011              2010      

Finished products

   $ 9,428       $ 9,374   

Work in process

     2,870         2,663   

Raw materials and supplies

     4,863         5,223   
  

 

 

    

 

 

 

Total inventories

   $ 17,161       $ 17,260   
  

 

 

    

 

 

 

7. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of the following:

 

     December 31  
         2011              2010      

Land

   $ 3,411       $ 3,449   

Buildings and improvements

     22,635         22,720   

Machinery and equipment

     30,115         28,055   

Equipment rented to others

     3,018         4,510   

Construction in progress

     431         1,476   
  

 

 

    

 

 

 
   $ 59,610       $ 60,210   

Less – Accumulated depreciation

     27,338         27,048   
  

 

 

    

 

 

 

Total property, plant and equipment, net

   $ 32,272       $ 33,162   
  

 

 

    

 

 

 

The Company has no machinery and equipment under capital lease. At December 31, 2011, $1,296 of net property, plant and equipment was located outside of the U.S. Depreciation expense was $3,621, $3,620 and, $3,451 for 2011, 2010, and 2009, respectively.

8. OTHER ASSETS:

Other assets consist of the following:

 

     December 31  
         2011              2010      

Notes receivable, long-term

   $ 23       $ 262   

Investments

     1,041         1,670   

Other

     79         80   
  

 

 

    

 

 

 

Total other assets

   $ 1,143       $ 2,012   
  

 

 

    

 

 

 

 

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9. GOODWILL AND OTHER INTANGIBLE ASSETS:

Goodwill activity is as follows:

 

     December 31  
         2011             2010      

Balance, beginning of the year

   $ 80,289      $ 80,374   

Foreign currency translation

     (35     (85
  

 

 

   

 

 

 

Balance, end of the year

   $ 80,254      $ 80,289   
  

 

 

   

 

 

 

There have been no changes in goodwill related to impairment losses or write-offs due to sales of businesses during the years ended December 31, 2011 and 2010.

Other intangibles consist of the following:

 

     As of December 31, 2011  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net Carrying
Amount
 

Amortized intangible assets

        

License agreements

   $ 2,944       $ 587       $ 2,357   

Core technology

     739         274         465   

Trademarks

     50         3         47   

Patents

     2,270         1,509         761   

Product formulas

     430         114         316   

Customer relationships

     813         619         194   

Non-compete agreements

     519         386         133   

Supplier relationships

     399         399         0   
  

 

 

    

 

 

    

 

 

 

Total

     8,164         3,891         4,273   

Intangible assets not subject to amortization

        

Trademarks

     6,857         —           6,857   
  

 

 

    

 

 

    

 

 

 

Total

     6,857         —           6,857   
  

 

 

    

 

 

    

 

 

 

Total intangible assets

     15,021         3,891         11,130   
  

 

 

    

 

 

    

 

 

 

 

     As of December 31, 2010  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
 

Amortized intangible assets

        

License agreements

   $ 2,944       $ 448       $ 2,496   

Core technology

     739         229         510   

Patents

     2,265         1,301         964   

Product Formulas

     430         103         327   

Customer relationships

     813         549         264   

Non-compete agreements

     519         371         148   

Supplier relationships

     399         386         13   
  

 

 

    

 

 

    

 

 

 

Total

   $ 8,109       $ 3,387       $ 4,722   

Intangible assets not subject to amortization

        

Trademarks

        

Total intangible assets

     6,857         —           6,857   
  

 

 

    

 

 

    

 

 

 
   $ 14,966       $ 3,387       $ 11,579   
  

 

 

    

 

 

    

 

 

 

 

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The costs of other intangible assets with finite lives are amortized over their expected useful lives using the straight-line method. The amortization lives are as follows: 10 to 25 years for patents, license agreements and core technology; 40 years for product formulations; and 5 to 8 years for supplier and customer relationships. Non-compete agreements are amortized over the length of the signed agreement. The weighted average life for amortizable intangible assets is 16 years. Aggregate amortization expense for the years ended December 31, 2011, 2010 and 2009 was $504, $550, and $554, respectively. Estimated amortization expense for each of the next five years is as follows:

 

For the year ending 12/31/12

   $ 505      

For the year ending 12/31/13

   $ 505      

For the year ending 12/31/14

   $ 416      

For the year ending 12/31/15

   $ 290      

For the year ending 12/31/16

   $ 289      

10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:

Accounts payable and accrued liabilities consist of the following:

 

     December 31  
     2011      2010  

Accounts payable

   $ 3,452       $ 4,741   

Accrued compensation and benefits

     2,675         2,912   

Accrued taxes

     209         121   

Accrued warranty

     360         293   

Accrued expenses and other

     2,438         2,633   
  

 

 

    

 

 

 

Total accounts payable and accrued liabilities

   $ 9,134       $ 10,700   
  

 

 

    

 

 

 

11. CREDIT ARRANGEMENTS:

On July 22, 2011, the Company entered into a new credit facility. The new credit facility increased the aggregate commitment from $60,000 to $70,000; this agreement expires in July 2016. Borrowings under the arrangement bear interest at rates ranging from LIBOR +1.25% to LIBOR +1.75% or Prime +0% to Prime +.50%, depending on the Company’s level of indebtedness. Commitment fees for this arrangement range from 0.175% to 0.275% of the unused balance. Borrowings under the previous arrangement had interest rates ranging from LIBOR +2.00% to LIBOR +2.50% or Prime +0.50% to Prime +1.00% and commitment fees from 0.25% to 0.50% of the unused balance. The agreement is unsecured and contains various financial and other covenants. As of December 31, 2011 and December 31, 2010, the Company was in compliance with these covenants. Also, at December 31, 2011, the Company had $650 in outstanding borrowings under this agreement and $69,350 available for borrowing.

Long-term debt was as follows:

 

     December 31  
     2011      2010  

Revolving credit facility due 2016 with a weighted-average interest rate of 3.25%

   $ 650       $ 6,100   

Less – current portion

     —           —     
  

 

 

    

 

 

 
   $ 650       $ 6,100   
  

 

 

    

 

 

 

Aggregate debt maturities are: 2012-$0; 2013-$0; 2014-$0; 2015-$0; and 2016-$650.

 

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12. COMMON STOCK:

During 2011, the Company repurchased 322 shares of its Common Stock from various shareholders for $9,348. The Company also reissued 169 shares of its Common Stock from treasury in conjunction with stock option exercises for $2,512. The Company issued 34 shares (net of 22 shares returned for tax withholding) of its Common Stock from treasury pursuant to restricted stock awards.

During 2010, the Company repurchased 108 shares of its Common Stock from various shareholders for $2,642. The Company also reissued 105 shares of its Common Stock from treasury in conjunction with stock option exercises for $1,589. The Company issued 49 shares (net of 20 shares returned for tax withholding) of its Common Stock from treasury pursuant to restricted stock awards.

During 2009, the Company repurchased 19 shares of its Common Stock from various shareholders for $270. The Company also reissued 87 shares of its Common Stock from treasury in conjunction with stock option exercises for $1,859. The Company issued 104 shares of its Common Stock from treasury pursuant to restricted stock awards.

13. SHARE BASED COMPENSATION:

The Company adopted the 1997 Stock Option Plan (the 1997 Plan) effective in November 1997 and amended the Plan in 1999 and 2001. A total of 1,725 shares of Common Stock were reserved for issuance under this plan which is administered by the compensation committee of the Board of Directors (Compensation Committee). The Company adopted the 2006 Long-Term Incentive Plan (the 2006 Plan) effective in May 2006. The 2006 Plan is intended to be a successor to the 1997 Plan. A total of 700 shares were authorized for grant under the 2006 Plan. Awards under the 2006 Plan may be stock options, stock appreciation rights, restricted stock, restricted stock units, and other equity awards.

Any employee of the Company or its affiliates, any consultant whom the Compensation Committee determines is significantly responsible for the Company’s success and future growth and profitability, and any member of the Board of Directors, may be eligible to receive awards under the 2006 Plan. The purpose of the 2006 Plan is to: (a) attract and retain highly competent persons as employees, directors, and consultants of the Company; (b) provide additional incentives to such employees, directors, and consultants by aligning their interests with those of the Company’s shareholders; and (c) promote the success of the business of the Company. The Compensation Committee establishes vesting schedules for each option issued under the Plan. Under the 1997 Plan, outstanding options generally vested over a period of up to four years while non-vested equity shares vested over five years. Under the 2006 Plan, outstanding options generally vest over a period of up to three years while non-vested equity shares vest over one, two, three, four and five year periods. All outstanding options expire ten years from the date of grant under the 1997 Plan and five years from the date of grant under the 2006 Plan.

Under the provisions of ASC Topic 718, share-based compensation cost is estimated at the grant date based on the award’s fair-value as calculated by an option pricing model, and is recognized as expense ratably over the requisite service period. The option pricing models require judgmental assumptions including volatility, forfeiture rates, and expected option life. If any of the assumptions used in the model change significantly, share-based compensation expense may differ in the future from that recorded in the current period.

Stock Options

During the year ended December 31, 2011, 2010, and 2009, the Company recorded pre-tax compensation expense of $6, $77, and $222 related to the Company’s stock option shares. As of December 31, 2011, there is no remaining unrecognized compensation expenses related to stock options. The total aggregate intrinsic value of options exercised was $2,353, $1,401, and $769 for the years ended December 31, 2011, 2010, and 2009, respectively. Payments received upon the exercise of stock options were $2,512, $1,589, and $918 for the years ended December 31, 2011, 2010, and 2009, respectively. The related tax (shortfall) benefit realized related to these exercises and restricted stock vesting was $1,058, $645, and $86 for the years ended December 31, 2011, 2010, and 2009, respectively. The Company issues shares from treasury upon share option exercises.

 

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The Company did not grant stock options during the year ended December 31, 2011, 2010, or 2009. The following table summarizes stock option activity for the year ended December 31, 2011:

 

Options

   Shares
(000)
    Weighted-Average
Exercise Price
     Weighted-Average
Remaining Contractual
Term
     Aggregate
Intrinsic Value
($000)
 

Outstanding at January 1, 2011

     577      $ 28.08         —           —     

Granted

     —          —           —           —     

Exercised

     (170     14.97         —           —     

Forfeited or expired

     —          —           —           —     
  

 

 

         

Outstanding at December 31, 2011

     407        33.54         2.50 years         120   
  

 

 

         

Exercisable at December 31, 2011

     407      $ 33.54         2.50 years         120   
  

 

 

         

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the year ended December 31, 2011 and the exercise price, multiplied by the number of in-the-money options).

Non-Vested Equity Shares

Under the 2006 Plan, non-vested equity share units and restricted stock may be awarded or sold to participants under terms and conditions established by the Compensation Committee. The Company calculates compensation cost for restricted stock grants to employees and non-employee directors by using the fair value of its Common Stock at the date of grant and the number of shares issued. This compensation cost is amortized over the applicable vesting period. During the year ended December 31, 2011, 2010 and 2009, the Company recorded pre-tax compensation expense of $1,850, $1,619, and $1,465, respectively, related to the Company’s non-vested equity shares. As of December 31, 2011, there was approximately $2,589 of unrecognized compensation cost related to non-vested equity shares which will be amortized over the weighted-average remaining requisite service period of 2.8 years. The Company issues share grants from treasury.

The following table details the status and changes in non-vested equity shares for the year ended December 31, 2011:

 

     Shares
(000)
    Weighted-Average
Grant Date

Fair Value
 

Non-vested equity shares, January 1, 2011

     193      $ 21.62   

Granted

     56        30.31   

Vested

     (71     23.07   

Forfeited

     (2     20.08   
  

 

 

   

 

 

 

Non-vested equity shares, December 31, 2011

     176      $ 23.79   
  

 

 

   

 

 

 

14. INCOME TAXES:

Income taxes are based on pretax earnings as follows:

 

     Years ended December 31  
     2011      2010      2009  

Domestic

   $ 21,837       $ 20,201       $ 18,306   

Foreign

     3,333         2,604         2,434   
  

 

 

    

 

 

    

 

 

 

Total

   $ 25,170       $ 22,805       $ 20,740   
  

 

 

    

 

 

    

 

 

 

 

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The components of the provision for income taxes were:

 

     Years ended December 31  
     2011      2010      2009  

Current :

        

Federal

   $ 5,438       $ 5,378       $ 4,923   

Foreign

     382         334         (31

State

     703         693         633   
  

 

 

    

 

 

    

 

 

 

Total current

     6,523         6,405         5,525   
  

 

 

    

 

 

    

 

 

 

Deferred:

        

Federal

     1,954         1,398         1,763   

Foreign

     —           —           20   

State

     240         65         (49
  

 

 

    

 

 

    

 

 

 

Total deferred

     2,194         1,463         1,734   
  

 

 

    

 

 

    

 

 

 

Provision for income taxes

   $ 8,717       $ 7,868       $ 7,259   
  

 

 

    

 

 

    

 

 

 

Reconciliation of the provision for income taxes computed at the U.S. federal statutory rate to the reported provision for income taxes:

 

     Years ended December 31  
     2011     2010     2009  

Income before provision for income taxes

   $ 25,170      $ 22,805      $ 20,740   

U.S. federal income tax rate

     35     35     35
  

 

 

   

 

 

   

 

 

 

Computed income taxes

   $ 8,809      $ 7,982      $ 7,259   

State income taxes, net of federal tax benefit

     655        486        380   

Foreign income taxes provision (benefit)

     (154     —          —     

Deduction for Domestic Production Activities

     (510     (513     (335

Other

     (83     (87     (45
  

 

 

   

 

 

   

 

 

 

Total provision for income taxes

   $ 8,717      $ 7,868      $ 7,259   
  

 

 

   

 

 

   

 

 

 

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. With certain exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years prior to 2008. The Company follows the provisions of ASC 740, “Income Taxes”, related to the accounting for uncertain tax provisions. A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:

 

         2011              2010             2009      

Balance at January 1

   $ 34       $ 95      $ 101   

Additions based on tax positions related to the current year

     —           —          18   

Additions for tax positions of prior years

     3         3        6   

Reduction for tax positions of prior years

     —           (44     (16

Settlements

     —           (20     (14
  

 

 

    

 

 

   

 

 

 

Balance at December 31

   $ 37       $ 34      $ 95   
  

 

 

    

 

 

   

 

 

 

If recognized in future periods, the total unrecognized tax benefits as of December 31, 2011 would favorably affect the effective income tax rate. The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

 

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The Company includes interest and penalties related to unrecognized tax benefits in income tax expense. Tax expense for the current year ended December 31, 2011, 2010, and 2009 includes $3, $3, and $6, respectively, of penalties and interest. The total amount of interest and penalties recognized related to uncertain tax provisions at December 31, 2011 was approximately $21.

Temporary differences that gave rise to deferred income tax assets and (liabilities):

 

     December 31  
     2011     2010  

Deferred income tax assets:

    

Trade accounts receivable

   $ 154      $ 154   

Inventories

     1,105        1,217   

Stock-based compensation

     852        801   

Accrued liabilities

     673        638   

State tax loss benefit

     —          33   

Currency translation adjustment

     149        85   

Other

     —          4   
  

 

 

   

 

 

 

Total deferred income tax assets

   $ 2,933      $ 2,932   
  

 

 

   

 

 

 

Deferred income tax liabilities:

    

Property, plant and equipment

   $ (3,431   $ (2,879

Intangibles

     (15,921     (14,189

Tax on undistributed foreign earnings

     (172     (339

Other

     (10     (10

Total deferred income tax liabilities

     (19,534     (17,417

Net deferred income tax liability

   $ (16,601   $ (14,485

Current deferred income tax assets of $2,933 and $2,932 are included in other current assets as of December 31, 2011 and 2010, respectively.

Applicable U.S. income and foreign withholding taxes have not been provided on approximately $685 of undistributed earnings of the Company's foreign subsidiary for the year ended December 31, 2011. These earnings are considered to be permanently invested and, under certain tax laws, are not subject to taxes unless distributed as dividends, loaned to the Company or a U.S. affiliate, or if the Company sold its investment in the foreign subsidiary. Tax on such potential distributions would be partially offset by foreign tax credits. If the earnings were not considered permanently invested, approximately $154 of additional deferred income taxes would need to be provided for the year ended December 31, 2011.

The Company recognizes a deferred tax liability with respect to those earnings of the Company’s foreign subsidiary that are not permanently invested.

15. SALES OF EQUIPMENT RENTED TO OTHERS:

Periodically, customers who rent X-ray equipment from the Company elect to purchase the equipment. The Company recognizes revenue from the proceeds of such sales and records as cost of goods sold the net book value of the equipment. Net sales of equipment consistent with this practice were $495, $492, and $787 for 2011, 2010 and 2009, respectively, and gross profit from these sales was $297, $288, and $461 for 2011, 2010 and 2009, respectively.

16. EMPLOYEE BENEFITS:

The Company has defined contribution 401(k) plans 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

 

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discretionary employer contribution. Compensation expense related to this plan was $491, $471, and $461 for 2011, 2010 and 2009, respectively. The Company also offers certain healthcare insurance benefits for substantially all employees.

17. RELATED-PARTY TRANSACTIONS:

The Company has an employment agreement with George E. Richmond, the Company’s Vice Chairman and principal stockholder. On February 25, 2010, the Company increased his annual salary from $50 to $100 which was effective January 1, 2010. This increase was offset by the termination of the consulting agreement between Mr. Richmond and the Company effective December 31, 2009, which had paid him $50 each year. The Company paid him $100 for the twelve months ended December 31, 2011 and 2010.

18. 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 and total number of shares of restricted stock during the period. Diluted earnings per share (Diluted EPS) include the dilutive effect of stock options if any, using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share:

 

     Years Ended December 31  
     2011      2010      2009  

Net income

   $ 16,453       $ 14,937       $ 13,481   

Weighted average shares outstanding for basic earnings per share

     7,993         7,969         7,881   

Dilutive effect of stock options

     40         68         85   

Weighted average shares outstanding for diluted earnings per share

     8,033         8,037         7,966   

Basic earnings per share

   $ 2.06       $ 1.87       $ 1.71   

Diluted earnings per share

   $ 2.05       $ 1.86       $ 1.69   

19. QUARTERLY FINANCIAL DATA (UNAUDITED):

 

     1st Qtr.      2nd Qtr.      3rd Qtr.      4th Qtr.      Year  

2011

              

Net sales

   $ 26,024           27,326           26,197           26,681           106,230   

Gross profit

     14,463         15,148         14,612         14,485         58,709   

Income from operations

     5,766         6,203         6,253         6,136         24,360   

Net income

     4,000         4,037         4,100         4,315         16,453   

Basic earnings per share

   $ .50         .50         .51         .54         2.06   

Diluted earnings per share

   $ .50         .50         .51         .54         2.05   

 

     1st Qtr.      2nd Qtr.      3rd Qtr.      4th Qtr.      Year  

2010

              

Net sales

   $ 24,782       $ 25,778       $ 26,423       $ 25,859       $ 102,842   

Gross profit

     13,802         14,596         14,582         14,181         57,161   

Income from operations

     5,407         5,693         6,081         5,839         23,020   

Net income

     3,558         3,701         3,919         3,759         14,937   

Basic earnings per share

   $ .45       $ .46       $ .49       $ .47       $ 1.87   

Diluted earnings per share

   $ .44       $ .46       $ .49       $ .47       $ 1.86   

Full-year 2011 basic earnings per share do not equal the sum of the quarters due to rounding.

 

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20. COMMITMENTS AND CONTINGENCIES:

The Company leases certain office and warehouse space, manufacturing facilities and equipment under non-cancelable operating leases. The total rental expense for all operating leases was $495, $521, and $527 for 2011, 2010 and 2009, respectively. Rental commitments amount to $453 for 2012, $314 for 2013, $104 for 2014, $0 for 2015, and $0 for 2016.

In certain circumstances, the Company provides recourse for loans for X-ray equipment purchases by customers. Certain banks require the Company to provide recourse to finance X-ray equipment for new dentists and other customers with credit histories which are not consistent with the banks' lending criteria. In the event that a bank requires recourse on a given loan, the Company would assume the bank’s security interest in the equipment securing the loan. As of December 31, 2011 and 2010, there was no X-ray equipment financed with various lenders that was subject to such recourse. Recourse on a given loan is generally for the life of the loan. Based on the Company’s past experience with respect to these arrangements, it is the opinion of management that the fair value of the recourse provided is minimal and not material to the results of operations or financial position of the Company.

The Company and its subsidiaries from time to time are parties to various legal proceedings arising in the normal course of business. Management believes that none of these proceedings, if determined adversely, would have a material adverse effect on the Company’s financial position, results of operations or liquidity.

The policy with respect to sales returns generally provides that a customer may not return inventory except at the Company’s option, with the exception of X-ray equipment. Historically, the level of product returns has not been significant. The Company generally warrants its products against defects, and its most generous policy provides a two-year parts and labor warranty on X-ray machines. The accrual for warranty costs was $360 and $293 at December 31, 2011 and 2010, respectively. The following is a roll forward of the Company’s warranty accrual:

 

     December 31  
         2011             2010      

Balance, beginning of the year

   $ 293      $ 292   

Accruals for warranties issued during the year

     321        207   

Warranty settlements made during the year

     (254     (206
  

 

 

   

 

 

 

Balance, end of the year

   $ 360      $ 293   
  

 

 

   

 

 

 

21. SUBSEQUENT EVENTS:

In January 2012, the Company recognized other income of approximately $133 as a result of a cash distribution from its private equity investment.

On February 2, 2012, the Board of Directors declared a quarterly dividend of $0.04 per share, payable to all shareholders of record on February 15, 2012.

On February 13, 2012, the Compensation Committee of the Board of Directors issued 64 shares of restricted stock to certain employees.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

 

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Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

The Company’s Chief Executive Officer and President and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure and that the information is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Management’s Annual Report on Internal Control Over Financial Reporting.

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework . Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Based on this assessment and the foregoing criteria, management believes that, as of December 31, 2011, the Company’s internal control over financial reporting is effective.

Changes in Internal Control Over Financial Reporting.

There have been no changes in our internal controls over financial reporting that occurred during the quarterly period ended December 31, 2011 that have materially affected, or that are reasonably likely to materially affect our internal control over financial reporting.

Attestation Report of the Registered Public Accounting Firm

The attestation report of Crowe Horwath LLP, the Company’s independent registered public accounting firm, on the effectiveness of the Company’s internal control over financial reporting is set forth under Item 8 in this Annual Report on Form 10-K and is incorporated herein by reference.

 

Item 9B. Other Information.

None.

 

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Directors and Executive Officers

Certain information required by Item 401 of Regulation S-K will be included under the caption “Proposal 1: Election of Directors” in our 2012 Proxy Statement, and that information is incorporated herein by reference. The information required by Item 405 of Regulation S-K will be included under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our 2012 Proxy Statement, and that information is incorporated herein by reference. Such proxy statement will be filed with the Commission within 120 days after the close of the 2011 fiscal year.

A listing of and certain information about our executive officers is included in this Annual Report on Form 10-K under Item 1 of Part I, and that information is incorporated herein by reference. No family relationships exist among any of the executive officers, directors or director nominees.

Audit Committee

The information required by Item 407(d)(4) and (d)(5) of Regulation S-K will be included under the caption “Audit Committee” in the 2012 Proxy Statement, and that information is incorporated by reference herein. Such proxy statement will be filed with the Commission within 120 days after the end of the 2011 fiscal year.

Code of Ethics

We have adopted a Code of Ethics applicable to all employees. This code is applicable to all of our directors and employees, including our principal executive officer, principal financial officer and principal accounting officer. Our Code of Ethics is available on the Company’s website at www.ydnt.com under the subheading “Corporate Governance” under “Investor Relations.” We intend to post on our website any amendments to, or waivers from, our Code of Ethics. Shareholders may request a copy of the Code of Ethics by writing to the Company’s Secretary at the Company’s address.

Item 11. Executive Compensation.

The information required by Item 402 of Regulation S-K will be included under the captions “Compensation Discussion and Analysis,” “Named Executive Officer Compensation,” including the tables entitled “Summary Compensation Table for fiscal years 2009 – 2011,” “Grants of Plan-Based Awards in Fiscal Year 2011,”Outstanding Equity Awards at 2011 Fiscal Year-end,” “Option Exercises and Stock Vested in Fiscal Year 2011,” and “Employment Agreements and Potential Payments upon Termination or Change-in-Control Arrangements” and “Potential Payments Upon Termination and Following a Change-In-Control as of December 31, 2011,” “Non-employee Director Compensation,” and “Director Compensation in Fiscal Year 2011” in our 2012 Proxy Statement, which is incorporated herein by reference. Information required by paragraphs (e)(4) and (e)(5) of Item 407 of Regulation S-K will be included under the captions “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in our 2012 Proxy Statement, which is incorporated herein by reference. Such proxy statement will be filed with the Commission within 120 days after the end of the 2011 fiscal year.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information required by Items 201(d) and 403 of Regulation S-K will be included under the captions “Equity Compensation Plan Information,” and “Securities Beneficially Owned by Management and Principal Shareholders,” respectively, in the 2012 Proxy Statement, and is incorporated herein by reference. Such proxy statement will be filed with the Commission within 120 days after the end of the Company’s fiscal year.

 

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Item 13. Certain Relationships and Related Transactions, and Director Independence.

Information required by Items 404 and 407(a) of Regulation S-K will be included under the captions “Relationships and Related Person Transactions” and “Director Independence,” respectively, in the 2012 Proxy Statement, and is incorporated herein by reference. Such proxy statement will be filed with the Commission within 120 days after the end of the 2011 fiscal year.

Item 14. Principal Accountant Fees and Services.

Information concerning this item will be included under the caption “Independent Registered Public Accounting Firm” in the 2012 Proxy Statement, and is incorporated herein by reference. Such proxy statement will be filed with the Commission within 120 days after the end of the 2011 fiscal year.

Item 15. Exhibits and Financial Statement Schedules.

(a)(1) Financial Statements – Reference is made to Item 8 hereof:

Consolidated Balance Sheets – December 31, 2011 and 2010

Consolidated Statements of Income – Years ended December 31, 2011, 2010, and 2009

Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2011, 2010, and 2009

Consolidated Statements of Cash Flows – Years ended December 31, 2011, 2010, and 2009

Notes to Consolidated Financial Statements – December 31, 2011

(a)(2) Financial Statement Schedule – The following financial statement schedule of the Company is included for the years ended December 31, 2011, 2010, and 2009:

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 INDEX

 

EXHIBIT
NUMBER

  

DESCRIPTION

3.1(a)    Articles of Incorporation of the Company and Statement of Correction.

 

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PART IV

 

3.2(r)   Amended and Restated By-Laws of the Company, effective as of October 20, 2008.
4.1(v)   Credit Facilities Agreement among JP Morgan Chase Bank, N.A., the other lenders listed therein and the Registrant dated July 22, 2011. (the “Credit Agreement”)
10.1(b)   Amended and Restated 1997 Stock Option Plan.
10.2(b)   Form of the Company’s Restricted Stock Award Agreement with schedule of grantees.
10.3(f)   Form of Indemnity Agreement entered into with each member of the Company’s Board of Directors.
10.4(e)   Amended and Restated Employment Agreement dated May 6, 2009 by and between the Company and Alfred E. Brennan.
10.5(e)   Amended and Restated Employment Agreement dated May 6, 2009 by and between the Company and Arthur L. Herbst, Jr.
10.6(e)   Amended and Restated Employment Agreement dated May 6, 2009 by and between the Company and George E. Richmond.
10.7(e)   Amended and Restated Employment Agreement dated May 6, 2009 by and between the Company and Daniel J. Tarullo.
10.8(g)   Employment Agreement dated July 20, 2009 by and between the Company and Julia A. (Heap) Carter.
10.9(k)   2006 Long-Term Incentive Plan.
10.10(n)   Form of Non-employee Director Stock Option under the Amended and Restated 1997 Stock Option Plan.
10.11(n)   Form of Employee Stock Option under the Amended and Restated 1997 Stock Option Plan.
10.12(p)   Form of Restricted Stock Agreement under the 2006 Long-Term Incentive Plan.
10.13(p)   Form of Stock Option Grant Notice and Stock Option Agreement under the 2006 Long-Term Incentive Plan.
10.14(l)   Employment Agreement dated July 5, 2010 by and between the Company and Joshua A. McKey.
10.15(t)   Amended Form of Restricted Stock Agreement under the 2006 Long-Term Incentive Plan.
10.16(t)   Amendment to the Employment Agreement dated May 6, 2009 by and between the Company and Alfred E. Brennan.
10.17(t)   Amendment to the Employment Agreement dated May 6, 2009 by and between the Company and Arthur L. Herbst, Jr.
10.18(t)   Amendment to the Employment Agreement dated May 6, 2009 by and between the Company and Daniel J. Tarullo.
10.19(t)   Amendment to the Employment Agreement dated July 20, 2009 by and between the Company and Julia A. Carter.
10.20(t)   Amendment to the Employment Agreement dated July 5, 2010 by and between the Company and Joshua A. McKey.
10.21(u)   Amended Form of Restricted Stock Agreement under the 2006 Long-Term Incentive Plan.
10.22(w)   Amendment to the Employment Agreement dated May 6, 2009 by and between the Company and Alfred E. Brennan.

 

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10.23(w)   Amendment to the Employment Agreement dated May 6, 2009 by and between the Company and Arthur L. Herbst, Jr.
10.24(w)   Amendment to the Employment Agreement dated July 20, 2009 by and between the Company and Julia A. Carter.
10.25(w)   Amendment to the Employment Agreement dated July 5, 2010 by and between the Company and Joshua A. McKey.
10.26(w)   Amendment to the Employment Agreement dated May 6, 2009 by and between the Company and Daniel J. Tarullo.
10.27(x)   Amendment to the Employment Agreement dated July 20, 2009 by and between the Company and Julia A. Carter.
10.28(x)   Amendment to the Employment Agreement dated July 5, 2010 by and between the Company and Joshua A. McKey.
10.29(x)   Amendment to the Employment Agreement dated May 6, 2009 by and between the Company and Daniel J. Tarullo.
21.1(u)   Subsidiaries of the Company.
23.1(u)   Consent of Independent Registered Public Accounting Firm.
24.1   Power of Attorney (included on Signature page).
31.1(u)   Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2(u)   Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1(u)   Certification pursuant to 18.U.S.C. Section 1350 as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
101.INS   XBRL Instance Document.
101.SCH   XBRL Taxonomy Extension Schema Document.
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.

 

(a) Filed as an Exhibit to the Company’s Registration Statement No. 333-34971 on Form S-1 and incorporated herein by reference.
(b) Filed as an Exhibit to the Company’s Report on Form 10-K filed on March 25, 2002 and incorporated herein by reference.
(e) Filed as an exhibit to the Company’s Report on Form 8-K filed on May 12, 2009 and incorporated herein by reference.
(f) Filed as an Exhibit to the Company’s Report on Form 10-Q filed on August 14, 2002 and incorporated herein by reference.
(g) Filed as an Exhibit to the Company’s Report on 8-K filed on July 22, 2009 and incorporated herein by reference.
(k) Filed as part of the Company’s Definitive Proxy Statement, Schedule 14A, on April 7, 2006 and incorporated herein by reference.
(l) Filed as an Exhibit to the Company’s Report on 8-K filed on July 9, 2010 and incorporated herein by reference.

 

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(n) Filed as an Exhibit to the Company’s Report on Form 10-K filed on March 7, 2005 and incorporated herein by reference.
(p) Filed as an Exhibit to the Company’s Report on Form 8-K filed on February 23, 2007 and incorporated herein by reference.
(r) Filed as an Exhibit to the Company’s Report on Form 8-K filed on October 22, 2008 and incorporated herein by reference.
(t) Filed as an Exhibit to the Company’s Report on Form 10-K filed on March 11, 2011 and incorporated herein by reference.
(u) Filed herewith.
(v) Filed as an Exhibit to the Company’s Report on Form 8-K filed on July 27, 2011 and incorporated herein by reference.
(w) Filed as an Exhibit to the Company’s Report on Form 8-K filed on January 5, 2011 and incorporated herein by reference.
(x) Filed as an Exhibit to the Company’s Report on Form 8-K filed on May 13, 2011 and incorporated herein by reference.
(b) Exhibits

The exhibits filed as part of this Annual Report on Form 10-K are as specified in Item 15(a)(3) herein.

(c) Financial Statement Schedules

The financial statement schedule filed as part of this Annual Report on Form 10-K is as specified in Item 15(a)(2) herein.

 

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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 15, 2012

 

YOUNG INNOVATIONS, INC.

By:

 

/s/ Alfred E. Brennan, Jr.

  Alfred E. Brennan, Jr.

Each person whose signature appears below constitutes and appoints George E. Richmond and Alfred E. Brennan, Jr. 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.

 

Signature

 

Title

 

Date

/s/ ALFRED E. BRENNAN, JR.

Alfred E. Brennan, Jr.

 

Chairman, Chief Executive Officer, Director

(Principal Executive Officer)

  March 15, 2012

/s/ GEORGE E. RICHMOND

George E. Richmond

 

Vice Chairman, Director

  March 15, 2012

/s/ ARTHUR L. HERBST, JR.

Arthur L. Herbst, Jr.

 

President and Chief Financial Officer

(Principal Financial and Accounting Officer)

  March 15, 2012

/s/ BRIAN F. BREMER

Brian F. Bremer

 

Director

  March 15, 2012

/s/ DR. PATRICK J. FERRILLO

Dr. Patrick J. Ferrillo

 

Director

  March 15, 2012

/s/ RICHARD J. BLISS

Richard J. Bliss

 

Director

  March 15, 2012

 

52


Table of Contents

YOUNG INNOVATIONS, INC. AND SUBSIDIARIES

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 2011, 2010 and 2009

(IN THOUSANDS)

 

            ADDITIONS                
     BALANCE BEGINNING
OF YEAR
     CHARGED TO COSTS
AND EXPENSES
     DEDUCTIONS      BALANCE AT END OF
YEAR
 

Allowance for doubtful Receivables

           

2009

     425         206         399         232   

2010

     232         34         20         246   

2011

     246         69         65         250   

 

53