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, 2010


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,
63045Earth 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 [ ] 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.  [ ]





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, 2010 (the last business day of the registrant's most recently completed second fiscal quarter), was approximately $157 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 28, 2011:





8,024,435 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 2011 Annual Meeting of Stockholders (the “2011 Proxy Statement”) are incorporated by reference into Part III of this Report.























TABLE OF CONTENTS


PART IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. ReservedPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8.  Financial Statements and Supplementary DataItem 9. Changes in and Disagreements With Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPART IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPART IVItem 15. Exhibits and Financial Statement Schedules




















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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 18% of the Company’s total net sales in 2010.





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.





·
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:





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Select Acquisitions


Company Name
Acquisition Year
Key Product AdditionsThe Lorvic Corporation
1995
Infection control productsDenticator International, Inc.
1996
Popular-priced disposable prophy anglesPanoramic Corporation
1998
Panoramic X-ray equipment and suppliesAthena Technology, Inc.
1999
Dental handpieces and related componentsPlak Smacker, Inc.
2000
Home care products and flavored glovesBiotrol and Challenge

(subsidiaries of Pro-Dex, Inc.)
2001
Infection control products, prophy pastes and other preventive productsObtura Corporation &

Earth City Technologies, Inc.
2003
Endodontic productsD&N Microproducts, Inc.
2006
Panoramic X-ray equipmentMicrobrush, Inc. and Microbrush International Ltd.
2006
Dental micro-applicators





Products





The Company’s $102,842 in sales for 2010 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 $91,600, $88,400 and $87,400 for 2010, 2009 and 2008, respectively.  Revenue from diagnostics was approximately $11,200, $9,400 and $11,700 for 2010, 2009 and 2008, 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.





·
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.















































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·
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 Birexse and Opti-Cide3.  Birex se is a one step chemistry that is available in a concentrate or wipe form.  Opti-Cide3 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, including latex, non-latex and powder-free gloves for dental professionals.  Flavored gloves, including cherry and grape, are often used by pediatric dentists to help provide a more positive, enjoyable experience for their younger patients.  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 cleaners 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, 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.





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:


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·
Obturation.  The Obtura family of endodontic units is gun-type, heat-softened gutta percha delivery systems.  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 systems 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.BUCtm  tips are used for, among other things, gaining and refining access to the tooth root, whileCPRtm  tips are more often used in retreatment cases.  KiStm  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 two high quality digital imaging products. 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.





·
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, cephalometric attachments for the PC-1000 and factory-retrofitted PC-1000/1000-DR digital systems. All factory-refurbished and factory-retrofitted systems are covered by a warranty program.





·
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.



The Company also offers service and repair on all its Panoramic X-ray systems through a nationwide network of more than 200 independent technicians.





·
Supplies and Accessories.  The Company offers its customers dental X-ray supplies, including 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 15.8 % and 14.1 %, respectively, of the Company's sales in 2010.  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.





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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 $840, $797 and $796, for 2010, 2009 and 2008, respectively.





The Company seeks to acquire product lines to strengthen its market presence.  During the first quarter of 2009, 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 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 gloves and masks, are sourced from domestic and international manufacturers.





Diagnostic Equipment. Diagnostic equipment is manufactured and assembled at the Company’s facility in Fort Wayne, Indiana.  The Company also manufactures its own diagnostic generators, a critical system component in our diagnostic equipment.  Additionally, the Company sources sensors for its digital diagnostic equipment from an international manufacturer.





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.





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Supply. The Company purchases a wide variety of raw materials, including bar steel, brass, rubber and plastic resins from numerous suppliers. The majority of the Company's purchases are commodities readily available at competitive prices. The Company also purchases certain additional miscellaneous products from other manufacturers for resale.  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.





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 is 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 prevention 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 non compliance 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 second quarter of 2009, the Company renewed its credit facility. The new credit facility reduced the aggregate commitment from $75,000 to $60,000 and expires July 2012.  As of December 31, 2010, the Company had $6,100 in outstanding borrowings under this agreement and $53,900 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, 2010, the Company employed approximately 400 people, none of whom were covered by collective bargaining agreements.  The Company believes its relations with its employees are good.





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.














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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 YearsAlfred E. Brennan
58
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 2004, 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
77
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.
47
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
51
Vice President
Vice President of Business Development since July 2004, Director of Business Development from September 2003 to July 2004.Julia A. Carter
36
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
35
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.























10











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 the“safe harbor” which 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.





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.








11














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 2010, approximately 30 % 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.


Economic conditions and the unemployment rate will continue to impact the dental industry. While our outlook on the economy and the unemployment rate remains cautious, we are encouraged by our performance in 2010.  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 which results in increased market share.  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.





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.  When possible, we attempt to have multiple sources for key materials and supplies.  Given the breath of our product line, there are some items that 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, which could adversely affect our business for a period of time.


12








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 have a material adverse affect on our operations.  The costs of complying with these 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.





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 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 medical 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.





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.





Item 1B. Unresolved Staff Comments.


None.


13














Item 2. Properties.





The Company's principal facilities are as follows:








Description
Square Feet
Location
Owned/LeasedCorporate Headquarters and Manufacturing
113,000
Earth City, Missouri
OwnedManufacturing
12,000
Brownsville, Texas
OwnedOffice and Manufacturing
48,200
Fort Wayne, Indiana
OwnedOffice and Manufacturing
1,000
Fort Wayne, Indiana
Leased, on month to month termsOffice, Distribution and Manufacturing
95,000
Algonquin, Illinois
OwnedOffice and Distribution
33,000
Corona, California
OwnedOffice
6,500
Chicago, Illinois
Leased, expires July 2012Office and Manufacturing
40,400
Grafton, Wisconsin
Leased, expires July 2012Office and Manufacturing
29,700
Dungarvan, Ireland
Owned








At December 31, 2010, the facility in Brownsville, Texas was under contract for sale.





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.Reserved.











14

















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 DeclaredQuarter

High


Low2009First

$
16.97


$
12.42


$
0.04Second

$
22.38


$
14.79


$
0.04Third

$
26.41


$
21.90


$
0.04Fourth

$
27.71


$
22.78


$
0.042010First

$
29.17


$
22.12


$
0.04Second

$
28.94


$
23.17


$
0.04Third

$
28.98


$
24.47


$
0.04Fourth

$
32.82


$
27.01


$
1.04








On December 31, 2010, there were approximately 70 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, one-time, cash dividend of $1.00 per share in the fourth quarter of 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.








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 312010


2009


2008


2007

2006 (1)Income Statement Data:Net sales


$ 102,842


$
97,737


$
99,143


$
97,402

$
90,805Cost of goods sold


45,681



43,166



46,847



45,623


41,694Gross profit


57,161



54,571



52,296



51,779


49,111Selling, general and administrative expenses


34,141



33,033



32,543



31,019


25,628Income from operations


23,020



21,538



19,753



20,760


23,483Interest expense (income) and other, net


215



798



867



1,150


(28)Income before provision for  income taxes


22,805



20,740



18,886



19,610


23,511Provision for income taxes


7,868



7,259



6,705



6,677


8,732Net income

$
14,937


$
13,481


$
12,181


$
12,933

$
14,779Basic earnings per share

$
1.87


$
1.71


$
1.52


$
1.46

$
1.65Basic weighted average common shares

outstanding


7,969



7,881



7,999



8,828


8,954Diluted earnings per share

$
1.86


$
1.69


$
1.51


$
1.44

$
1.61Diluted weighted average common shares

outstanding


8,037



7,966



8,069



8,982


9,182Cash dividends declared per common share

$
1.16


$
0.16


$
0.16


$
0.16

$
0.16As of December 312010



2009



2008



2007


2006Balance Sheet Data:Working capital

$
23,883


$
22,752


$
23,493


$
25,491

$
25,982Total assets


161,625



160,000



159,576



158,768


156,588Long-term debt (including current maturities)


6,100



13,979



29,349



36,646


21,810Stockholders' equity


127,104



120,865



106,277



103,338


117,498


__________


(1)
On July 31, 2006 and August 18, 2006, the Company acquired substantially all of the assets of Microbrush, Inc. and Microbrush International Ltd., respectively (collectively “Microbrush”).  The income statement data for the year ended December 31, 2006 includes results of operations for Microbrush, Inc. from July 31, 2006 through December 31, 2006 and Microbrush International Ltd. from August 18, 2006 through December 31, 2006.  The balance sheet data as of December 31, 2006 includes the Microbrush acquisition.








15













Item 7. Management's Discussion and Analysis (MD&A) 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.





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 18%, 17%, and 18% of the Company’s total net sales in 2010, 2009, and 2008, 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.





16











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 machines.  The Company owns X-ray equipment rented on a month-to-month basis to customers.





Allowance for doubtful accounts – The Company has 34% of its December 31, 2010 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 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.


17











Assets Acquired and Liabilities Assumed in Business Combinations – The Company periodically acquires businesses.  All business acquisitions completed subsequent to January 1, 2009 are accounted for 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.  The changes related to income taxes also impact the accounting for acquisitions completed prior to the effective date of ASC 805.  In addition, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life.  Acquisitions completed prior to this adoption were made using the purchase method.  Future acquisitions will be impacted using the provisions of the new accounting standard.


18

















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 312010


2009


2008Net sales


100.0
%


100.0
%


100.0
%Cost of goods sold


44.4



44.2



47.3Gross profit


55.6



55.8



52.7Selling, general and administrative expenses


33.2



33.8



32.8Income from operations


22.4



22.0



19.9Interest expense and other, net


.2



.8



0.9Income before provision

for income taxes


22.2



21.2



19.0Provision for income taxes


7.7



7.4



6.7Net income


14.5%



13.8%



12.3%

















19














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.





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 $23.0 million in 2010 from $21.5 million 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.





Year Ended December 31, 2009, Compared to Year Ended December 31, 2008





Net Sales - Net sales for the year ended December 31, 2009 were $97,737, down 1.4% or $1,406 from $99,143 in the prior year.  The sales decrease is attributable to the general economic downturn that primarily impacted diagnostic product line sales which declined approximately 20.1% from 2008.  We experienced solid demand for our consumable products, which include preventive, infection control, endodontic, micro-applicator and home care product lines, increasing modestly by 1.1% from 2008, which helped to offset the weak demand for diagnostic sales.





Gross Profit - Gross profit increased $2,275 or 4.4%, to $54,571 in 2009 from $52,296 in 2008 or 55.8% of sales in 2009 as compared to 52.7% 2008.  The increase in gross margin was attributable to improved manufacturing processes, price increases, and product mix.





Selling, General and Administrative Expenses (SG&A) - SG&A expenses increased by 490, or 1.5% to $33,033 in 2009 from $32,543 in 2008.  Our SG&A as a percentage of sales was 33.8% in 2009 as compared to 32.8% in 2008.  The increase is attributable in part to incentive compensation which was in-line with the Company’s overall performance and stock-based compensation which reflects the third year phase-in of expensing stock awards.





Income from Operations - Income from operations increased $1,785 or 9.0% in 2009 to $21,538 from to $19,753 in 2008.  The change was a result of the factors described above.





Interest Expense, net – Interest expense, net decreased to $665 in 2009 compared to $1,332 in 2008.  The decrease was attributable to lower levels of debt outstanding.





Other (Income) Expense, net – The Company generated other (income)/expense of $133 versus ($465) in 2008. The 2009 impact was primarily attributable to foreign exchange impact on inventory purchases.  The largest impact in 2008 was attributable to a beneficial impact on debt repaid from the Company’s Irish subsidiary in 2008.





Provision for Income Taxes - During the year ended 2009, the Company’s provision for income taxes increased to $7,259 versus $6,705 in 2008.  The effective tax rate in 2009 was 35.0% compared to 35.5% in 2008.   The effective tax rate was lower due to state law changes and rates.

















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 $22,025, $22,480, and $22,465, in 2010, 2009 and 2008, respectively.  Operating cash flow declined slightly in 2010 due to planned increases in inventory levels, 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 accounts payable.





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.  Of the purchase price, $621 is subject to a recourse holdback pool that has been established with respect to the limited recourse the third party has on the loans.  On May 5, 2008, the Company transferred additional X-ray equipment loans to a third party for a cash payment of $235.  There is an additional $42 subject to a recourse holdback pool.  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.  As of December 31, 2010, the residual amount of notes receivable transferred to a third party was $655, of which $467 is classified as a short-term notes receivable and $188 as a long-term notes receivable.  A corresponding long-term and short-term liability has been recorded, net of the recourse holdback pool of $136, on the Company’s balance sheet.





The Company maintains a credit agreement with a borrowing capacity of $60,000, which expires in July 2012.  Borrowings under the agreement bear interest at rates ranging from LIBOR + 2.0% to LIBOR + 2.5%, or Prime, depending on the Company’s level of indebtedness.  Commitment fees for this agreement range from .25% to .5% of the unused balance. The agreement is unsecured and contains various financial and other covenants.  As of December 31, 2010, the Company was in compliance with all of these covenants.  During 2010, the Company borrowed under the credit facility to finance investments in facilities and for working capital needs.  At December 31, 2010, the Company had $6,100 in outstanding borrowings under this agreement and $53,900 available for borrowing. The $6,100 borrowing was used, in part, to fund the $1.00 special dividend paid in December 2010.  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.





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:





21














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 February 10, May 19, August 11, November 10, 2010 and on December 3, 2010 a special dividend of $1.00 per share were paid, for a total 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 payment of $1,256.








2008


Net capital expenditures for property, plant and equipment were $3,214 in 2008.  Significant capital expenditures included facility expansion and improvements, production machinery and new equipment purchases.  In May 2008, the Company paid $2,735 as an earn out payment for certain performance targets achieved in the purchase of Microbrush Inc. and Microbrush International, Ltd.





The Company also repurchased 505 shares of its Common Stock for $9,406.  Quarterly dividends of $0.04 per share were paid March 14, June 16, September 15, and December 15, 2008, for a total payment of $1,281.











Payments due by periodContractual Obligations

Total


Less than

1 Year


1-3 years


4-5 years


Beyond 5 yearsOperating Leases (including buildings)

$
787


$
501


$
286


$
---


$
--Long-Term Debt

$
6,100


$
--


$
6,100


$
---


$
--Liability for uncertain tax positions

$
34


$
34


$
--


$
---


$
--Total

$
6,921


$
535


$
6,386


$
---


$
--





As of December 31, 2010 and 2009, 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.








22














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 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 $100, $211, and $317 of additional interest expense in the years ended December 31, 2010, 2009 and 2008, 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 18% of its products outside the United States.  Of these foreign sales, 6% are denominated in Euros and 1% in Canadian dollars with the remainder 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.

















23

















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, 2010 and 2009, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2010.  In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule. We also have audited Young Innovations’ internal control over financial reporting as of December 31, 2010, 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, the financial statement schedule, 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 Annual Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule 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.





24











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, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, 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, 2010, 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 11, 2011








25

















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, 2010.  In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal 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, 2010, 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, 2010 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.











27

















YOUNG INNOVATIONS, INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


(in thousands, except per share data)











December 312010


2009AssetsCurrent assets:Cash and cash equivalents

$
741


$
67Trade accounts receivable, net of allowance for doubtful accounts of and $246 in 2010 and $232 in 2009, respectively


11,721



11,397Inventories


17,260



14,816Other current assets


4,861



4,849Total current assets


34,583



31,129Property, plant and equipment, net


33,162



33,668Goodwill


80,289



80,374Other intangible assets


11,579



12,097Other assets


2,012



2,732Total assets

$
161,625


$
160,000Liabilities and Stockholders’ EquityCurrent liabilities:Accounts payable and accrued liabilities

$
10,700


$
8,377Total current liabilities


10,700



8,377Long-term debt


6,100



13,979Long-term secured borrowing


56



550Deferred income taxes


17,417



15,947Other noncurrent liabilities


248



282Total liabilities


34,521



39,135Stockholders’ equity:

Common Stock, voting, $.01 par value, 25,000 shares authorized; 10,219 shares issued in 2010 and 2009


102



102Additional paid-in capital


24,190



23,985Retained earnings


151,458



145,756Common Stock in treasury, at cost; and 2,248 shares in 2010 and 2,294 shares in 2009, respectively


(48,484)



(49,090
)Accumulated other comprehensive (loss) income


(162)



112Total stockholders’ equity


127,104



120,865Total liabilities and stockholders’ equity

$
161,625


$
160,000


The accompanying notes are an integral part of these statements.








28

















YOUNG INNOVATIONS, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF INCOME


(in thousands, except per share data)

















Years Ended December 312010


2009


2008Net sales

$
102,842


$
97,737


$
99,143Cost of goods sold


45,681



43,166



46,847Gross profit


57,161



54,571



52,296Selling, general and administrative expenses


34,141



33,033



32,543Income from operations


23,020



21,538



19,753Interest expense, net


322



665



1,332Other (income) expense, net


(107)



133



(465)Income before provision for income taxes


22,805



20,740



18,886Provision for income taxes


7,868



7,259



6,705Net income

$
14,937


$
13,481


$
12,181Basic earnings per share

$
1.87


$
1.71


$
1.52Diluted earnings per share

$
1.86


$
1.69


$
1.51Basic weighted average shares outstanding


7,969



7,881



7,999Diluted weighted average shares outstanding


8,037



7,966



8,069











The accompanying notes are an integral part of these statements.








29

















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

IncomeBALANCE, January 1, 2008
$102
$25,024
$122,631
$(44,595)
$176
$103,338Net income
-
-
12,181
-
-
12,181

$  12,181Common Stock purchased
-
-
-
(9,438)
-
(9,438)Stock options exercised
-
(335)
-
589
-
254Issuance of restricted stock.
-
(771)
-
771
-
-Share-based compensation
-
1,442
-
-
-
1,442Excess income tax benefit from stock options
-
(24)
-
-
-
(24)Cash dividends ($0.16 per share).
-
-
(1,281)
-
-
(1,281)Foreign currency translation adjustments
-
-
-
-
(195)
(195)

(195)Comprehensive income
_______
_______
_________
_________
___________
__________

$11,986BALANCE, December 31, 2008
$102
$25,336
$133,531
$(52,673)
$(19)
$106,277Net income
-
-
13,481
-
-
13,481

$13,481Common Stock purchased
-
-
-
(270)
-
270Stock options exercised
-
(941)
-
1,859
-
918Issuance of restricted stock
-
(2,183)
-
1,994
-
(189)Share-based compensation
-
1,687
-
-
-
1,687Excess income tax (shortfall) benefit from stock options
-
86
-
-
-
86Cash dividends ($0.16 per share)
-
-
(1,256)
-
-
(1,256)Foreign currency translation adjustments
-
-
-
-
131
131

131Comprehensive income
_______
_______
_________
_________
___________
__________

$13,612BALANCE, December 31, 2009
$102
$23,985
$145,756
$(49,090)
$112
$120,865Net income
-
-
14,937
-
-
14,937

14,937Common Stock purchased
-
-
-
(2,642)
-
(2,642)Stock options exercised
-
(681)
-
2,270
-
1,589Issuance of restricted stock,net
-
(1,455)
-
978
-
(477)Share-based compensation
-
1,696
-
-
-
1,696Excess income tax (shortfall)   benefit from stock options
-
645
-
-
-
645Cash dividends ($1.16 per share)
-

(9,235)

-
(9,235)Foreign currency translation adjustments
-
-
-
-
(274)
(274)

(274)Comprehensive income
_______
_______
_________
_________
___________
__________

$14,664BALANCE, December 31, 2010
$102
$24,190
$151,458
$(48,484)
$(162)
$127,104





The accompanying notes are an integral part of these statements.














30














YOUNG INNOVATIONS, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands)





Years Ended December 312010


2009


2008Cash flows from operating activities:Net income

$
14,937


$
13,481


$
12,181Adjustments to reconcile net income to net cash flows from operating activities:Depreciation and amortization


4,170



4,015



4,013Share based compensation expense


1,696



1,687



1,442Deferred income taxes


1,463



1,734



1,898Excess tax benefit from share exercises


(645)



(86)
)


-Loss on private equity investment fund



Changes in assets and liabilities, net of effects of acquisitions

and divestitures:


-



75



89Trade accounts receivable


(491)



(851)



2,542Inventories


(2,491)



1,707



(2,142
)Other current assets


56



(42)



646Other assets


703



970



1,530Accounts payable and accrued liabilities


2,627



(210)



266Total adjustments


7,088



8,999



10,284Net cash flows from operating activities


22,025



22,480



22,465Cash flows from investing activities:Payments for acquisitions of businesses and intangible assets, net of cash acquired


-



(1,657)
)


(2,735)Purchases of property, plant and equipment


(3,230)



(4,010)
)


(3,214
)Purchases of private equity investment


-



(300)
)


(750
)Net cash flows from investing activities


(3,230)



(5,967)



(6,699
)Cash flows from financing activities:Payment of deferred finance costs


-



(158)



-Payments on long-term debt


(48,493
)


(60,334)
)


(58,363
)Borrowings on long-term debt


40,614



44,964



51,066Payments of long-term secured borrowings


(494)



(1,217)
)


(1,602)Borrowings of long-term secured borrowings


-



346



3,754Excess tax benefit/(deficit) from share exercises


645



86



(24)Proceeds from stock options exercised


1,589



918



443Purchases of treasury stock


(2,642
)


(459)
)


(9,627
)Payment of cash dividends


(9,235)



(1,256)
)


(1,281
)Net cash flows from financing activities


(18,016)



(17,110)
)


(15,634
)Effect of exchange rate changes on cash and cash equivalents


(105)



(3)



7Net increase (decrease) in cash and cash equivalents


674



(600)



139Cash and cash equivalents, beginning of period


67



667



528Cash and cash equivalents, end of period

$
741


$
67


$
667Non-cash Disclosure – Acquired property, plant and equipment in accounts   payable


-



155



-





The accompanying notes are an integral part of these statements.


31

















YOUNG INNOVATIONS, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER 31, 2010


(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 18%, 17%, and 18% of total net sales for 2010, 2009, and 2008 respectively.  Sales outside the U.S. are approximately 7% of total sales in each of 2010, 2009, and 2008.





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, 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 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 yearsMachinery and equipment           3 to 10 yearsEquipment rented to others         4 to 15 years





32











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.  The Company annually reviews the remaining useful lives of its finite-lived intangible assets to assess the appropriateness of their life.





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 material impairment of long-lived assets during 2010, 2009 and 2008.





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.





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.





33











Advertising Costs





Advertising costs are expensed when incurred.  Advertising costs were approximately, $3,645, $3,381, and $2,857, for 2010, 2009 and 2008, respectively.





Research and Development Costs





Research and development costs are expensed when incurred and totaled $840, $797, and $796 for 2010, 2009 and 2008, 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 2010, 2009 and 2008, interest income totaled $119, $208, and, $367, respectively, and interest expense totaled $441, $873, and $1,699, respectively.





Other (Income) Expense, net





Other (income) expense, net includes foreign currency transaction gain/loss and other miscellaneous income, 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.





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 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.  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 our 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 $(68), $106, and $(434) for 2010, 2009 and 2008, respectively.





34














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 $6,134, $5,417, and $4,375 for the payment of federal, foreign, and state income taxes and $310, $691, and $1,846 for the payment of interest related to borrowings on the Company’s credit facility during 2010, 2009 and 2008, respectively.








3.     INVESTMENTS:





On February 21, 2006, the Company invested in a private equity investment fund.  At December 31, 2010, the Company has an unfunded capital commitment of up to $300.  As of December 31, 2010, the total capital commitment paid by the Company was $1,950.  Through December 31, 2009, the Company accounted for this investment under the equity method as the Company had an ability to exercise significant influence over the fund through board membership.  Effective January 2010, the Company’s investment no longer qualifies for equity method accounting as the Company’s delegate to the board resigned.  As of January 1, 2010, the Company is accounting for its investment using the cost method.  The Company no longer records equity earnings or losses as a result of this change. The Company’s loss attributed to this private equity investment was included in other (income) expense, net and totaled $75 and $89 in 2009 and 2008 respectively.








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 34% and 41% of accounts receivable at December 31, 2010 and 2009, respectively.





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





Years Ended

December 31Distributor

2010


2009


2008Henry Schein, Inc.


15.8
%


15.5
%


15.9
%Patterson Companies, Inc.


14.1
%


15.2
%


12.7
%





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.  Of the purchase price, $621 is subject to a recourse holdback pool that has been established with respect to the limited recourse the third party has on the loans.  On May 5, 2008, the Company transferred additional X-ray equipment loans to a third party for a cash payment of $235.  There is an additional $42 subject to a recourse holdback pool.  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.  As of December 31, 2010, the residual amount of notes receivable transferred to a third party was $655, of which $467 is classified as a short-term notes receivable and $188 as a long-term notes receivable.  A corresponding long-term and short-term liability has been recorded, net of the recourse holdback pool of $136, on the Company’s balance sheet.





35














Notes receivable consist of the following:


December 312010


2009Notes receivable, short-term

$
593


$
892Notes receivable, long-term


262



890Total notes receivable

$
855


$
1,782


Notes receivable are included in other current assets and other assets in the accompanying Consolidated Balance Sheets.





Notes bear interest at rates ranging from 0% to 10.0%, 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.”





6.     INVENTORIES:





Inventories consist of the following:


December 312010


2009Finished products

$
9,374


$
6,905Work in process


2,663



2,584Raw materials and supplies


5,223



5,327Total inventories

$
17,260


$
14,816





7.     PROPERTY, PLANT AND EQUIPMENT:





Property, plant and equipment consist of the following:


December 312010


2009Land

$
3,449


$
3,449Buildings and improvements


22,720



21,550Machinery and equipment


28,055



27,560Equipment rented to others


4,510



5,464Construction in progress


1,476



1,527$
60,210


$
59,550Less – Accumulated depreciation


27,048



25,882Total property, plant and equipment, net

$
33,162


$
33,668





The Company has no machinery and equipment under capital lease.  At December 31, 2010, $1,228 of net property, plant and equipment was located outside of the U.S.  Depreciation expense was $3,620, $3,451 and, $3,481 for 2010, 2009, and 2008, respectively.





36














8.  OTHER ASSETS:





Other assets consist of the following:


December 312010


2009Notes receivable, long-term

$
262


$
890Investments


1,670



1,670Other


80



172Total other assets

$
2,012


$
2,732





9.       GOODWILL AND OTHER INTANGIBLE ASSETS:





Goodwill activity is as follows:


December 312010


2009Balance, beginning of the year

$
80,374


$
80,334Foreign currency translation


(85)



40Balance, end of the year

$
80,289


$
80,374





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, 2010, 2009 and 2008.





Other intangibles consist of the following:


As of December 31, 2010Gross Carrying Amount


Accumulated Amortization


Net Carrying AmountAmortized intangible assetsLicense agreements

$
2,944


$
448


$
2,496Core technology


739



229



510Patents


2,265



1,301



964Product formulas


430



103



327Customer relationships


813



549



264Non-compete agreements


519



371



148Supplier relationships


399



386



13Total

$
8,109


$
3,387


$
4,722Intangible assets not subject to amortizationTrademarks


6,857



-



6,857Total intangible assets

$
14,966


$
3,387


$
11,579








As of December 31, 2009Gross Carrying Amount


Accumulated Amortization


Net Carrying AmountAmortized intangible assetsLicense agreements

$
1,251


$
382


$
869Core technology


739



184



555Patents


2,265



1,094



1,171Product formulas


430



92



338Customer relationships


813



479



334Non-compete agreements


519



306



213Supplier relationships


399



332



67Total

$
6,416


$
2,869


$
3,547Intangible assets not subject to amortizationLicense Agreements

$
1,693



-


$
1,693Trademarks


6,857



-



6,857Total intangible assets

$
14,966


$
2,869


$
12,097





37











During the year ended December 31, 2009, the Company acquired dental distribution rights for a new surface disinfectant recorded as a non-amortized license agreement.  The Company recorded the asset as an indefinite lived license agreement through September 30, 2010.  Effective October 1, 2010, the Company no longer believes that the asset should have an indefinite life.  The Company began depreciating the asset over a 25 year period and recognized $17 of depreciation expense during fourth quarter of 2010.  Additionally, during the year ended December 31, 2009, the Company acquired core technology and a non-compete agreement which provides a manufacturing enhancement for our micro-applicator products.





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, 2010, 2009 and 2008 was $550, $554, and $532, respectively.  Estimated amortization expense for each of the next five years is as follows:








For the year ending 12/31/11                                                                $541


For the year ending 12/31/12                                                                $476


For the year ending 12/31/13                                                                $476


For the year ending 12/31/14                                                                $402


For the year ending 12/31/15                                                                $286











10.      ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:





Accounts payable and accrued liabilities consist of the following:


December 312010


2009Accounts payable

$
4,741


$
2,454Accrued compensation and benefits


2,912



1,725Accrued taxes


121



345Accrued warranty


293



292Accrued expenses and other


2,633



3,561Total accounts payable and accrued liabilities

$
10,700


$
8,377





11.      CREDIT ARRANGEMENTS:





On May 21, 2009, the Company renewed its credit facility.  The new credit facility reduced the aggregate commitment from $75,000 to $60,000 and expires in July 2012.  The Company has $53,900 available under the line of credit at December 31, 2010.  Borrowings under the arrangement bear interest at rates ranging from LIBOR + 2.00% to LIBOR +2.50% or Prime + .50% to Prime + 1.00%, depending on the Company’s level of indebtedness.  Commitment fees for this arrangement range from .25% to .50% of the unused balance.  Borrowings under the previous arrangement had interest rates ranging from LIBOR +.75% to LIBOR +1.50% or Prime and commitment fees from .125% to .15% of the unused balance.  The agreement is unsecured and contains various financial and other covenants.  As of December 31, 2010 and December 31, 2009, the Company was in compliance with these covenants.





Long-term debt was as follows:





December 312010


2009Revolving credit facility due 2012 with a weighted-average interest rate of 2.65%

$
6,100


$
13,979Less – current portion


--



--$
6,100


$
13,979





Aggregate debt maturities are: 2011-$0; 2012-$6,100; 2013-$0; 2014-$0; and 2015-$0.





38











12.      COMMON STOCK:





During 2010, the Company repurchased 108 shares of its Common Stock from various stockholders 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 also 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 stockholders 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 also issued 104 shares of its Common Stock from treasury pursuant to restricted stock awards.





During 2008, the Company repurchased 505 shares of its Common Stock from various stockholders for $9,406.  The Company also reissued 36 shares of its Common Stock from treasury in conjunction with stock option exercises for $805. The Company also issued 34 shares of its Common Stock from treasury pursuant to restricted stock awards.  In addition, the restrictions on 38 previously issued shares of Common Stock lapsed and 10 were repurchased by the Company for $221.











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 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.





39











Stock Options


During the year ended December 31, 2010, 2009, and 2008, the Company recorded pre-tax compensation expense of $77, $222, and $241 related to the Company’s stock option shares.  As of December 31, 2010, there was approximately $6 of unrecognized compensation expense related to stock options, which will be recognized over the weighted-average remaining requisite service period of 0.12 years.  The total aggregate intrinsic value of options exercised was $1,589, $769, and $378 for the years ended December 31, 2010, 2009, and 2008, respectively.  Payments received upon the exercise of stock options were $1,589, $918, and $443 for the years ended December 31, 2010, 2009, and 2008, respectively.  The related tax (shortfall) benefit realized related to these exercises and restricted stock vesting was $645, $86, and $(24) for the years ended December 31, 2010, 2009, and 2008, respectively.  The Company issues shares from treasury upon share option exercises.





The Company granted 863 shares in 2008 with a weighted-average exercise price of $23.67. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.  The weighted-average estimated value of stock options granted during the year ended December 31, 2008 was $5.27 per share, respectively, using the following weighted-average assumptions:





2008Dividend yield (1)
0.68%Expected volatility (2)
28%Risk-free interest rate (3)
2.35%Expected life (4)
3.5





(1)  Represents cash dividends paid as a percentage of the share price on the date of grant.


(2)  Based on historical volatility of the Company’s Common Stock over the expected life of the options.


(3)  Represents the U.S. Treasury STRIP rates over maturity periods matching the expected term of the options at the  time of grant.


(4)  The period of time that options granted are expected to be outstanding based upon historical evidence.





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








Options

Shares

(000)


Weighted-Average Exercise Price

Weighted-Average Remaining Contractual Term

Aggregate

Intrinsic Value

($000)Outstanding at January 1, 2010


712


$
26.27Granted


--



--Exercised


(105)


$
15.06Forfeited or expired


(30)


$
31.06Outstanding at December 31, 2010


577


$
28.08

2.71 years

$3,243Exercisable at December 31, 2010


567


$
28.15

2.72 years

$3,166





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, 2010 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, 2010, 2009 and 2008, the Company recorded pre-tax compensation expense of $1,619, $1,465, and $1,201, respectively, related to the Company’s non-vested equity shares.  As of December 31, 2010, there was approximately $2,797 of unrecognized compensation cost related to non-vested equity shares which will be amortized over the weighted-average remaining requisite service period of 1.16 years.  The Company issues share grants from treasury.





40











The following table details the status and changes in non-vested equity shares for the year ended December 31, 2010:





Shares

(000)


Weighted-Average

Grant Date

Fair ValueNon-vested equity shares, January 1, 2010


188


$
20.98Granted


69


$
24.81Vested


(63)


$
23.24Forfeited


(1)


$
18.28Non-vested equity shares, December 31, 2010


193


$
21.62





14. INCOME TAXES:





Income taxes are based on pretax earnings as follows:





Years ended December 312010


2009


2008Domestic

$
20,201


$
18,306


$
16,427Foreign


2,604



2,434



2,459Total

$
22,805


$
20,740


$
18,886





The components of the provision for income taxes were:

















Years ended December 312010


2009


2008Current :Federal

$
5,378


$
4,923


$
3,923Foreign


334



(31)



275State


693



633



609Total current


6,405



5,525



4,807Deferred:Federal


1,398



1,763



1,856Foreign


--



20State


65



(49)



42Total deferred


1,463



1,734



1,898Provision for income taxes

$
7,868


$
7,259


$
6,705





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 312010


2009


2008Income before provision for income taxes

$
22,805


$
20,740


$
18,886U.S. federal income tax rate


35
%


35
%


35
%Computed income taxes

$
7,982


$
7,259


$
6,610State income taxes, net of federal tax benefit


486



380



423Foreign income taxes provision (benefit)


--



--



(29
)Deduction for Domestic Production Activities


(513
)


(335
)


(275
)Other


(87)



(45
)


(24
)Total provision for income taxes

$
7,868


$
7,259


$
6,705





41











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 2006. 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:





2010


2009


2008Balance at January 1

$
95


$
101


$
111Additions based on tax positions related to the current year


--



18



15Additions for tax positions of prior years


3



6



7Reduction for tax positions of prior years


(44)



(16)



--Settlements


(20
)


(14
)


(32
)Balance at December 31

$
34


$
95


$
101





If recognized in future periods, the total unrecognized tax benefits as of December 31, 2010 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.





The Company includes interest and penalties related to unrecognized tax benefits in income tax expense.  Tax expense for the current year ended December 31, 2010 includes $3 of penalties and interest. The total amount of interest and penalties recognized related to uncertain tax provisions at December 31, 2009 was approximately $18.








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





December 312010


2009Deferred income tax assets:Trade accounts receivable

$
154


$
158Inventories


1,217



920Stock-based compensation


801



730Accrued liabilities


638



545State tax loss benefit


33



21Currency translation adjustment


85



--Other


4



46Total deferred income tax assets

$
2,932


$
2,420Deferred income tax liabilities:Property, plant and equipment

$
(2,879
)

$
(2,758
)Intangibles


(14,189
)


(12,413
)Tax on undistributed foreign earnings


(339)



(675
)Currency translation adjustment


-



(72)Other


(10)



(29)Total deferred income tax liabilities


(17,417)



(15,947
)Net deferred income tax liability

$
(14,485)


$
(13,527)





Current deferred income tax assets of $2,932 and $2,420 are included in other current assets as of December 31, 2010 and 2009, respectively.





42











Applicable U.S. income and foreign withholding taxes have not been provided on approximately $100 of undistributed earnings of the Company's foreign subsidiary for the year ended December 31, 2008. 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 $29 of additional deferred income taxes would need to be provided for the year ended December 31, 2008.  Earnings of the Company’s foreign subsidiary subsequent to December 31, 2008 are not classified as permanently invested and have been taxed accordingly.





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 $492, $787, and $1,600 for 2010, 2009 and 2008, respectively, and gross profit from these sales was $288, $461, and $868 for 2010, 2009 and 2008, 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 discretionary employer contribution.  Compensation expense related to this plan was $471, $461, and $553 for 2010, 2009 and 2008, respectively. The Company also offers certain healthcare insurance benefits for substantially all employees.





17.      RELATED-PARTY TRANSACTIONS:





The Company paid consulting fees of $50 each year in 2009 and 2008 to a corporation, which is wholly owned by George E. Richmond, the Company’s Vice Chairman and principal stockholder.  On February 25, 2010, the Company terminated its consulting agreement with this corporation effective December 31, 2009.





The Company has an employment agreement with George E. Richmond, the Company’s Vice Chairman and principal stockholder, which paid him $50 each year in 2009 and 2008, to perform such duties as may be assigned to him by the Company’s Board of Directors or Chief Executive Officer.  On February 25, 2010, the Company increased his base salary from $50 to $100.








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 312010


2009


2008Net income

$
14,937


$
13,481


$
12,181Weighted average shares outstanding for basic earnings per share


7,969



7,881



7,999Dilutive effect of stock options


68



85



70Weighted average shares outstanding for diluted earnings per share


8,037



7,966



8,069Basic earnings per share

$
1.87


$
1.71


$
1.52Diluted earnings per share

$
1.86


$
1.69


$
1.51





43











19. QUARTERLY FINANCIAL DATA (UNAUDITED):











1st Qtr.


2nd Qtr.


3rd Qtr.


4th Qtr.


Year2010Net sales

$
24,782


$
25,778


$
26,423


$
25,859


$
102,842Gross profit


13,802



14,596



14,582



14,181



57,161Income from operations


5,407



5,693



6,081



5,839



23,020Net income


3,558



3,701



3,919



3,759



14,937Basic earnings per share

$
.45


$
.46


$
.49


$
.47


$
1.87Diluted earnings per share

$
.44


$
.46


$
.49


$
.47


$
1.86











1st Qtr.


2ndQtr.


3rd Qtr.


4th Qtr.


Year2009Net sales

$
23,764


$
24,637


$
24,805


$
24,531


$
97,737Gross profit


13,310



13,684



13,948



13,628



54,571Income from operations


4,995



5,398



5,650



5,493



21,538Net income


3,155



3,331



3,474



3,520



13,481Basic earnings per share

$
.40


$
.42


$
.44


$
.44


$
1.71Diluted earnings per share

$
.40


$
.42


$
.43


$
.44


$
1.69





Full-year 2009 basic earnings per share do not equal the sum of the quarters due to rounding.





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 $521, $527, and $780 for 2010, 2009 and 2008, respectively.  Rental commitments amount to $501 for 2011, $281 for 2012, $5 for 2013, $0 for 2014, and $0 for 2015.





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, 2010, 2009 and 2008, respectively, approximately $0, $579, and $788 of the X-ray equipment financed with various lenders were 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 $293 and $292 at December 31, 2010 and 2009, respectively.  The following is a rollforward of the Company’s warranty accrual:


44











December 312010


2009Balance, beginning of the year

$
292


$
309Accruals for warranties issued during the year


207



243Warranty settlements made during the year


(206)



(260
)Balance, end of the year

$
293


$
292





21.  SUBSEQUENT EVENTS:





Due to changes in enacted state tax laws during January 2011, the Company will recognize an additional tax charge in the first quarter of 2011.  The impact on the financial statements is being evaluated by the Company.





In January 2011, the Company recognized other income of approximately $400 related to the sale of a portion of its private equity investment fund.  The Company could receive additional amounts in the future related to excess funds being released from escrow or a potential additional earn-out based on financial performance.





On January 31, 2011, the Board of Directors declared a quarterly dividend of $0.04 per share, payable to all shareholders of record on February 15, 2010.





On February 10, 2011, the Compensation Committee of the Board of Directors issued 54 shares of restricted stock to certain employees.











45











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





None.





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, 2010.  In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal 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, 2010, 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, 2010 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.








47
















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 2011 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 2011 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 2010 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 2011 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 2010 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,” “Grants of Plan-Based Awards in Fiscal Year 2010,”“ Outstanding Equity Awards at 2010 Fiscal Year-end,” “Option Exercises and Stock Vested in Fiscal Year 2010,” and “Employment Agreements and Potential Payments upon Termination or Change-in-Control Arrangements” and “Potential Payments Upon Termination and Following a Change-In-Control for Fiscal Year 2010,” “Non-employee Director Compensation,” and “Director Compensation in Fiscal Year 2010” in our 2011 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 2011 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 2010 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 2011 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.





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 2011 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 2010 fiscal year.





48











Item 14.  Principal Accountant Fees and Services.





Information concerning this item will be included under the caption “Independent Registered Public Accounting Firm” in the 2011 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 2010 fiscal year.








49



















PART IV





Item 15. Exhibits and Financial Statement Schedules.





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


Consolidated Balance Sheets – December 31, 2010 and 2009


Consolidated Statements of Income – Years ended December 31, 2010, 2009, and 2008


Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2010, 2009, and 2008


Consolidated Statements of Cash Flows – Years ended December 31, 2010, 2009, and 2008


Notes to Consolidated Financial Statements – December 31, 2010





(a)(2) Financial Statement Schedule — The following financial statement schedule of the Company is included for the years ended December 31, 2010, 2009, and 2008:





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.








3.2(r)
Amended and Restated By-Laws of the Company, effective as of October 20, 2008.








4.1(o)
Amended and Restated Credit Facilities Agreement, by and among Bank of America, N.A., as Administrative Agent, and Bank of America, N.A. as Lender and the Letter of Credit Issuer, and the Other Lenders and the Company, dated November 28, 2006.











4.2(q)
Waiver and Amendment No. 1 to Amended and Restated Credit Facilities Agreement, by and among Bank of America, N.A., as Administrative Agent and a Lender,  and Other Lenders and the Company, dated October 1, 2007.





4.3(s)           Consent and Amendment to Amended and Restated Credit Facilities Agreement dated May 7, 2008.





4.4(d)
Amendment No. 2 to Amended and Restated Credit Facilities Agreement, by and among Bank of America, N.A., As Administrative Agent and Lender, and Other Lenders and the Company, dated May 21, 2009.








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.





50




















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)





10.14(l)





10.15(t)





10.16(t)





10.17(t)





10.18(t)





10.19(t)





10.20(t)
Form of Stock Option Grant Notice and Stock Option Agreement under the 2006 Long-Term Incentive Plan.





Employment Agreement dated July 5, 2010 by and between the Company and Joshua A. McKey.





Amended Form of Restricted Stock Agreement under the 2006 Long-Term Incentive Plan.





Amendment to the Employment Agreement dated May 6, 2009 by and between the Company and Alfred E. Brennan.





Amendment to the Employment Agreement dated May 6, 2009 by and between the Company and Arthur L. Herbst, Jr.





Amendment to the Employment Agreement dated May 6, 2009 by and between the Company and Daniel J. Tarullo.





Amendment to the Employment Agreement dated July 20, 2009 by and between the Company and Julia A. Carter.





Amendment to the Employment Agreement dated July 5, 2010 by and between the Company and Joshua A. McKey.





21.1(t)
Subsidiaries of the Company.








23.1(t)
Consent of Independent Registered Public Accounting Firm.





24.1           Power of Attorney (included on Signature page).





31.1(t)
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002.








31.2(t)
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002.








32.1(t)
Certification pursuant to 18.U.S.C. Section 1350 as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.





(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.





(d)
Filed as an Exhibit to the Company’s Report on Form 8-K filed May 28, 2009 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.





51




















(n)
Filed as an Exhibit to the Company’s Report on Form 10-K filed on March 7, 2005 and incorporated herein by reference.





(o)
Filed as an Exhibit to the Company’s Report on Form 8-K filed on December 1, 2006 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.





(q)
Filed as an Exhibit to the Company’s Report on Form 10-Q filed on November 8, 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.





(s)
Filed as an Exhibit to the Company’s Report on Form 10-Q filed on August 8, 2008 and incorporated herein by reference.





(t)
Filed herewith.











(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.




















52




















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 11, 2011





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 11, 2011/s/ GEORGE E. RICHMOND

George E. Richmond
Vice Chairman, Director
March 11, 2011/s/ ARTHUR L. HERBST, JR.

Arthur L. Herbst, Jr.
President and Chief Financial Officer

(Principal Financial and Accounting Officer)
March 11, 2011/s/ BRIAN F. BREMER

Brian F. Bremer
Director
March 11, 2011/s/ DR. PATRICK J. FERRILLO

Dr. Patrick J. Ferrillo
Director
March 11, 2011/s/ RICHARD J. BLISS

Richard J. Bliss
Director
March 11, 2011























53














YOUNG INNOVATIONS, INC. AND SUBSIDIARIES





SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS


YEARS ENDED DECEMBER 31, 2010, 2009 and 2008


(IN THOUSANDS)














ADDITIONSBALANCE BEGINNING OF YEAR
CHARGED TO COSTS AND EXPENSES
DEDUCTIONS
BALANCE AT END OF YEARAllowance for doubtful Receivables2008. . . . .
$530
$40
$145
$4252009. . . . .
425
206
399
2322010. . . . .
232
34
20
246