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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------

FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000;

[] 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 0-7024

THE FIRST YEARS INC.
(Exact Name of Registrant as Specified in its Charter)

MASSACHUSETTS 04-2149581
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

ONE KIDDIE DRIVE,
AVON, MASSACHUSETTS 02322
(Address of Principal Executive Offices) (Zip Code)

508-588-1220
(Registrant's Telephone Number, Including Area Code)

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

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED

NONE NONE

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

COMMON STOCK, $.10 PAR VALUE
(Title of Class)

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 twelve 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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 amendments to
this Form 10-K. [X]

The aggregate market value of the Common Stock held by non-affiliates of
the Company was $70,963,641, based on the closing price of the common stock on
the Nasdaq National Market on February 28, 2001.

The number of shares of Registrant's Common Stock outstanding on February
28, 2001 was 9,175,765.
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2

DOCUMENTS INCORPORATED BY REFERENCE

The Company intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
2000. The following sections of such definitive proxy statement are hereby
incorporated by reference into Items 10, 11, 12 and 13 of Part III of this Form
10-K: "Common Stock Ownership of Certain Beneficial Owners and Management;"
"Election of Directors;" "Compensation and Other Information Concerning
Executive Officers" (other than the Board Compensation Committee Report on
Executive Compensation and the Stock Performance Chart); and "Section 16(a)
Beneficial Ownership Reporting Compliance."
3

PART I

ITEM 1. BUSINESS

The First Years Inc. (the "Company") is a leading developer and
international marketer of a broad line of products for infants and toddlers.
Major channels through which the Company sells its products include mass
merchants, supermarkets, drug stores, department stores, wholesale clubs,
convenience stores, specialty stores, internet-based retailers, mail-order
catalogs and catalog showrooms.

The Company was incorporated in 1952 in Massachusetts under the name Kiddie
Products, Inc. The Company changed its name to The First Years Inc. in May,
1995, and is headquartered in Avon, Massachusetts. The Company also has a
wholly-owned subsidiary, The First Years Inc., which is incorporated in Delaware
and headquartered in California.

Except as expressly indicated or unless the context otherwise requires, as
used in this report, the "Company" means The First Years Inc., a Massachusetts
corporation, and its subsidiary.

Products

The Company's product line, which contains more than 250 items that range
in retail price from approximately $0.99 to $59.99, is marketed under The First
Years brand and several licensed brands, including Winnie The Pooh, Disney
Mickey and Sesame Street.

Utilizing these brands, the Company sells a broad range of products for
infants and toddlers in three categories, Feeding & Soothing, Play & Discover
and Care & Safety.

Products in Feeding & Soothing include bottles and accessories, nipples,
teethers, bowls, drinking cups, dishes, flatware, bibs, breast-feeding
accessories and feeding sets.

Products in Care & Safety include bathing and grooming accessories, home
safety and monitoring products such as door and cabinet latches, toilet-training
products and products that are appropriate for the health and hygiene needs of
infants.

Products in Play & Discover include entertaining, skill-developing toys for
infants and toddlers, such as crib toys, hand-held toys, and large play items.
------------------------

THE FIRST YEARS(R), Expert developed Parent approved(R), Ideas Inspired by
Parents(R), TumbleMates(R), Firstronics(R), and Washables(R) are registered
trademarks of The First Years Inc. Crisp & Clear Plus(TM) and ComforTemp(TM) are
trademarks of The Company. SESAME STREET(R) is a registered trademark of Sesame
Workshop. DISNEY MICKEY(R), WINNIE THE POOH(R) and POOH(R) are registered
trademarks of Disney Enterprises, Inc.

PRODUCT DESIGN, DEVELOPMENT AND MARKETING

The Company devotes substantial resources to product development. The
Company employs a staff of professionals engaged in the creation of new products
and uses a diverse group of outside designers and developers. For the past 19
years the Company's product line also has been designed in consultation with Dr.
T. Berry Brazelton, the well-known pediatrician and authority on child
development, and staff members of the Child Development Unit at Children's
Hospital in Boston, Massachusetts (the "CDU"), of which Dr. Brazelton is founder
and Director Emeritus.

The Company spent approximately $4.2, $3.8 and $3.3 million on new product
development in 2000, 1999, and 1998, respectively. Most of the Company's new
products are shown at the Juvenile Products Manufacturers Association Trade
Show, held in Dallas, Texas in the fall of each year, and of other national and
international toy and baby fairs.

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SALES

The Company's products are sold nationally and internationally to a broad
spectrum of customers including mass merchants, national variety and drug
stores, supermarkets, wholesale clubs, convenience stores, toy specialty stores,
wholesale distributors, department stores, internet-based retailers, mail order
catalogs and catalog stores. The Company sells its products in a large number of
countries throughout the world. Major customers include Wal*Mart, Toys "R" Us,
Target, Kmart, Peyton's, Sears, Eckerd Drugs, Rite Aid, and J.C. Penney.

The Company's products are sold in the United States and Canada primarily
through the Company's internal sales staff and a large network of independent
sales representatives. The Company's sales staff is responsible for supervising
and training the sales representatives. Such training is conducted at the
Company's headquarters and throughout the United States.

The Company's wholly-owned subsidiary, The First Years Inc., a Delaware
corporation ("TFY-Delaware"), handles the Company's sales and distribution
operations in the western part of the United States. TFY-Delaware has sales
offices in Missouri, Arkansas and California, and is the Company's exclusive
sales agent for certain states in the western part of the United States.

In Europe and the Middle East, the Company's products are sold by the
Company's internal staff at its sales office in Cirencester, England, which is
headed by the Vice President -- International Sales/Europe. This staff manages a
network of foreign distributors and independent sales representatives. In
Central and South America and the Pacific Rim, the Company's products are sold
by its internal sales staff which manages a network of foreign distributors and
independent sales representatives in such areas.

During 2000, Wal*Mart, Toys "R" Us, and Target accounted for approximately
24%, 20%, and 13% of the Company's net sales, respectively. A significant
reduction in purchases by any one of these customers could have a material
adverse effect on the Company's business.

Backlog is not a material aspect of the Company's business. Customers place
orders on an as needed basis. The amount of unfilled orders at any time has not
been indicative of future results.

LICENSED CHARACTER PRODUCTS

Since 1996, the Company has entered into and renewed various agreements
which provide for the payment by the company of royalties on certain of the
Company's products featuring licensed cartoon characters. The agreements that
are currently in effect have various terms and require minimum royalty payments
of $4,998,000 during the terms of these agreements. Our most significant
licensing agreement was renewed in 2000 and will expire at the end of 2002.
Sales of products licensed under this major license agreement amounted to 29% of
the Company's total net sales for the year ended December 31, 2000. (see Exhibit
99 to this Report, "Important Factors That May Affect Future Results" and "Notes
to Consolidated Financial Statements," Numbers 6 and 8).

MANUFACTURING AND SOURCES OF SUPPLY

The Company does not own or operate its own manufacturing facilities. In
2000, all of the Company's products were manufactured either using the Company's
custom tools (molds and dies) or to the Company's specifications by
approximately 25 manufacturers located in the United States, Canada, China,
Taiwan, Thailand, and Mexico. Approximately 69% of all of its products sold in
2000 were manufactured in Asia, primarily in China. A large percentage of the
Company's furnishings and other large products were manufactured in 2000 by
suppliers in the United States and Canada because of the significantly higher
shipping costs from the Far East.

Generally the Company uses one manufacturer to make each product from its
supplier base in Asia, Canada, and the United States. Due to the high cost of
developing duplicate tooling (predominantly molds and dies), most of the
Company's products are made using one set of tools; however, the Company has
developed duplicate tools for several of its key and high-volume products.

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5

In 2000, the Company's largest supplier, which is based in the United
States, manufactured products that represented approximately 10% of its sales.
The Company has not entered into long-term contractual arrangements with any of
its suppliers.

The principal raw materials used in the production and sale of the
Company's products are plastic, paperboard and cloth. Raw materials are
purchased by the manufacturers who deliver completed products to the Company.
Because the primary source used in manufactured plastic is petroleum, the cost
and availability of plastic for use in the Company's products varies to a great
extent with the price of petroleum. The inability of the Company's suppliers to
acquire sufficient plastic and paperboard at a reasonable price could have a
material adverse effect on the Company's profitability. The Company did not
experience any difficulties in obtaining materials in 2000.

The Company purchases its products from its suppliers primarily in the U.S.
dollar and the Hong Kong dollar which is currently pegged to the U.S. dollar.
The Company also purchases a small percentage of its products in Canadian
dollars. Generally, the Company's suppliers ship the products on the basis of
open credit terms or upon the acceptance of products by the Company. The Company
also enters into foreign currency exchange contracts. (See "Notes to
Consolidated Financial Statements," Numbers 1 and 5).

Foreign manufacturing is subject to a number of risks including
transportation delays and interruptions, the imposition of tariffs, quotas, and
other import or export controls, currency fluctuations, misappropriation of
intellectual property, political and economic disruptions, and changes in
governmental policies. From time to time, the United States Congress has
attempted to impose additional restrictions on trade with China. Enactment of
legislation or the imposition of restrictive regulations conditioning or
revoking China's Normal Trade Relations ("NTR") trading status could have a
material adverse effect upon the Company's business because products originating
from China could be subjected to substantially higher rates of duty. China was
granted permanent NTR status by the United States government in October 2000.
Unless steps are taken in the future to revoke this status, China will continue
to enjoy NTR treatment. The European Community (the "EC") has enacted a quota
and tariff system with respect to the importation into the EC of certain toy
products originating in China. The Company, therefore, continues to evaluate
alternative sources of supply outside of China.

The Company, because of its substantial reliance on suppliers in foreign
countries, is required to order products further in advance of customer orders
than would generally be the case if such products were produced in the United
States. As a result, the Company may be required to carry significant amounts of
inventory to meet rapid delivery requirements of customers and to assure itself
of continuous allotment of goods from suppliers.

WORKING CAPITAL ITEMS

See Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operation."

COMPETITION

The juvenile products industry is highly competitive and includes numerous
domestic and foreign competitors, some of which are substantially larger and
have greater financial and other resources than the Company. The Company
competes with a number of different competitors, depending on the product
category, and it competes against no single company across all product
categories. Its competition includes large, diversified health care product
companies, specialty infant products makers, toy makers and specialty health
care products companies. The Company competes principally on the basis of brand
name recognition and price/value relationship. In addition, the Company believes
that it competes favorably with respect to product quality, customer service and
breadth of product line.

DISTRIBUTION

The Company distributes its products in the United States from its
warehouse facility in Avon, Massachusetts and from a public warehouse in
Fontana, California. The Company distributes its products in

I-3
6

Canada from a public warehouse in Toronto, Ontario. In Europe, the Company
distributes its products from a public warehouse in Ghent, Belgium. Warehouse
services at the various public warehouses are performed by warehouse operators
unaffiliated with the Company.

TRADEMARKS, PATENTS AND COPYRIGHTS

The Company's principal trademark THE FIRST YEARS, and related design, is
registered in the United States and in a number of foreign countries. The
Company also owns and licenses other trademarks for certain of its products and
product categories, some of which are registered in the United States and in
various foreign countries.

The Company, also owns and licenses patents, design patents and design
registrations, as well as pending applications in the United States and certain
foreign countries. Although the Company believes such are important to its
business, it does not believe that any single patent, design patent, or design
registration, including any which may be issued on a pending application, is
material to its business. There can be no assurance that such patents, design
patents, or design registrations, including those that may be issued on pending
applications, will offer any significant competitive advantage for the Company's
products.

The Company also owns copyrights, some of which are registered in the
United States. The Company does not believe that any single copyright is
material to its business. There can be no assurance that such copyrights will
offer any significant competitive advantage for the Company's products.

EMPLOYEES

As of December 31, 2000, the Company employed 153 full-time and 3 part-time
employees, of whom five were senior executive officers. All of the other
employees of the Company are in sales, marketing and product development,
materials, purchasing, quality assurance, data processing, finance,
administration and clerical, and warehousing positions. None of the Company's
employees are represented by a union, and the Company has not experienced any
work stoppages. The Company believes that relations with employees are good.

GOVERNMENT REGULATIONS

The Company's products are subject to the provisions of the Federal
Consumer Product Safety Act, the Federal Hazardous Substances Act, as amended,
the Federal Flammable Fabrics Act, and the Child Safety Protection Act, and the
regulations promulgated thereunder (the "Acts"). The Company's nursery monitors
are subject to the regulations of the Federal Communications Commission. The
Company's medical devices and drug products are subject to the regulations of
the Food and Drug Administration. The Acts enable the Consumer Product Safety
Commission (the "CPSC") to protect children from hazardous toys and other
articles. The CPSC has the authority to exclude from the market certain consumer
products which are found to be hazardous. The CPSC's determination is subject to
court review. The CPSC can require the repurchase by the manufacturer of
articles which are banned. The Federal Flammable Fabrics Act enables the CPSC to
regulate and enforce flammability standards for fabrics used in consumer
products. Similar laws exist in some states and cities and in various
international markets. The Company designs and tests its products to ensure
compliance with the various federal, state and international requirements. Any
recall of a product could have a material adverse effect on the Company,
depending on the particular product.

FINANCIAL INFORMATION ABOUT SEGMENTS

The Company has one operating segment. It engages in a single line of
business of developing and marketing one class of similar products for infants
and toddlers through the same retail channels. For financial information
regarding such single operating segment, please see Item 14(a).1. "Consolidated
Financial Statements."

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FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

The Company's domestic net sales in 2000, 1999, and 1998 were approximately
$118.6, $122.2, and $116 million, respectively, and accounted for approximately
88.8%, 89.4% and 87.4% of the Company's total net sales in 2000, 1999, and 1998,
respectively. The Company's international net sales (primarily in Europe,
Canada, South America and the Pacific Rim) were approximately $15.0, $14.5, and
$16.7 million, respectively, and accounted for approximately 11.2%, 10.6% and
12.6% of the Company's total net sales in 2000, 1999, and 1998, respectively.
(See "Notes to Consolidated Financial Statements", Number 8.)

For information regarding the Company's long-lived assets in the U.S.A. and
foreign countries, please see the Company's "Consolidated Balance Sheet as of
December 31, 2000 and 1999" and "Notes to Consolidated Financial Statements",
Number 12.

For information regarding the risks attendant to the Company's
international sales and operations, please see "Manufacturing and Sources of
Supply", above.

EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY

The names of the Company's Executive Officers and Directors and certain
information about them are set forth below. Officers have served in the capacity
indicated in the table below for at least five years, unless otherwise indicated
in the notes.

OFFICER OR
DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- ----------

Ronald J. Sidman....................... 54 President, Chairman of the Board of 1975
Directors, and Chief Executive Officer
Jerome M. Karp......................... 73 Director 1969
Benjamin Peltz......................... 61 Director 1975
Evelyn Sidman.......................... 87 Clerk and Director 1979
Fred T. Page........................... 54 Director 1988
Kenneth R. Sidman...................... 55 Director 1998
Lewis M. Weston........................ 74 Director 1998
Walker J. Wallace...................... 56 Director 1999
John R. Beals.......................... 46 Treasurer, Senior Vice 1990
President-- Finance and Chief Financial
Officer
Bruce Baron............................ 40 Senior Vice President-- Operations 1997
James A. Connors, Jr................... 44 Senior Vice President -- Product 2000
Development
Richard F. Schaub, Jr.................. 41 Executive Vice President -- Marketing 2000
and Sales
Mark C. Strozik........................ 41 Vice President -- Human Resources 2001

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Mr. Ronald J. Sidman has been the President of the Company since January
1989 and Chairman of the Board of Directors and Chief Executive Officer since
March 1995.

Mr. Jerome M. Karp served as Vice Chairman of the Board of the Company from
January 1989 until his retirement from the Company in August, 1999.

Mr. Benjamin Peltz served as the Treasurer of the Company from May 1970 to
January 1998 and as the Senior Vice President of the Company from January 1980
until June 1997 when he retired from the Company.

Mrs. Evelyn Sidman has been Clerk of the Company since 1979.

Mr. Fred T. Page was with Southern New England Telecommunications
Corporation ("SNET"), a subsidiary of Southwestern Bell, for thirty years from
1969 to 1999. From January 1994 to March 1999 he served as President -- Network
Services of SNET. Mr. Page is now an independent consultant.

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Mr. Kenneth R. Sidman has been Vice President, Business & Technology
Development, at Saint-Gobain Performance Plastics Corp., Wayne, NJ (formerly
Norton Performance Plastics Corp.), since 1997. Mr. Sidman served as Vice
President, Marketing & New Business Development for Saint-Gobain Performance
Plastics Corp.

Mr. Lewis M. Weston is a Retired Partner of Goldman, Sachs & Co. and was a
Limited Partner of Goldman Sachs from 1978 to 1999. He had been with Goldman
Sachs since 1951 and was made a General Partner in 1967. He was Partner in
charge of the Syndicate Department from 1969 to 1978, a period during which he
was also active with the National Association of Securities Dealers (NASD),
serving three years as a member of the NASD's Board of Governors. Currently, Mr.
Weston is a board member of the Thai Prime Fund, Singapore, as well as a member
of the International Advisory Board of Banco Finantia, Lisbon, Portugal.

Mr. Walker J. Wallace was with Procter & Gamble for 30 years, from 1967 to
1997. He was made a Vice President of Procter & Gamble in 1991 and served as
Vice President -- Worldwide Strategic Planning for various core product
categories (laundry and cleaning products, paper products, diapers) from 1993 to
1997.

Mr. John R. Beals has been Senior Vice President -- Finance of the Company
since March 1998 and Treasurer of the Company since January 1998. He has been
Chief Financial Officer of the Company since July 1997. From July 1997 to March
1998 he was Vice President -- Finance of the Company and from January 1990 to
June 1997, he was the Assistant Treasurer and Controller of the Company.

Mr. Bruce Baron has been Senior Vice President -- Operations of the Company
since August 1997. Prior to that time, Mr. Baron was Vice President of
Operations at Crabtree & Evelyn from 1988 to July 1997.

Mr. James A. Connors, Jr. has been Senior Vice President -- Product
Development of the Company since May 2000. Prior to that time, from September
1994 to July 1998, he was Vice President Operations Engineer of Hasbro
Manufacturing Services and from July 1998 to May 2000 he was Senior Vice
President Operations Engineering of Hasbro Global Operations.

Mr. Richard F. Schaub, Jr. has been Executive Vice President -- Marketing
and Sales of the Company since October 2000. Prior to that time, from March 1999
to September 2000, he was Managing Director of Maclaren USA Inc; from September
1997 to March 1999, he was Senior Vice President, Marketing of Evenflo Company,
Inc. and from September 1994 to September 1997, he was President of Priss
Prints, Inc.

Mr. Mark C. Strozik has been Vice President -- Human Resources of the
Company since March 2001. Prior to that time, from October 1998 to March 2001,
he was Manager of Human Resources, Employment and Human Resources Information
Systems of Ocean Spray Cranberries, Inc. and from May 1994 to October 1998 he
was Human Resources Manager of Health New England.

ITEM 2. PROPERTIES

The Company owns its executive and administrative offices and principal
warehouse which are located in a 124,000 square-foot building at One Kiddie
Drive, Avon, Massachusetts. The Company also has sales offices in leased
premises in Cirencester, England. The Company's subsidiary, TFY-Delaware, has
sales offices in leased premises in Missouri, Arkansas and California.

The Company also uses public warehouses located in Toronto, Canada;
Fontana, California; and in Ghent, Belgium.

The Company believes that its properties (owned and leased) are in good
condition and adequate for its current needs.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in legal proceedings which have arisen in the
ordinary course of business. The Company believes that there are no claims or
litigation pending, the outcome of which could have a material

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adverse effect on the Company's financial condition or operating results. (See
also "Notes to Consolidated Financial Statements," Number 11).

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders of the Company.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "KIDD". Below is a summary of the actual high and low sales prices of
the Company's Common Stock for each quarter of 2000 and 1999 as reported by
Nasdaq.

2000

QUARTER LOW HIGH
------- --- ----

First....................................................... $ 6 7/8 $10
Second...................................................... 7 3/8 11 1/8
Third....................................................... 8 3/4 12 1/4
Fourth...................................................... 8 1/16 10 5/8

1999

QUARTER LOW HIGH
------- --- ----

First....................................................... $12 3/4 $18
Second...................................................... 13 5/8 17 3/4
Third....................................................... 9 1/4 15
Fourth...................................................... 6 3/4 10 1/2

DIVIDEND POLICY

In 1999 and 2000, the Company paid cash dividends on its Common Stock in
the amount of $0.06 per share, which were paid on June 15, 1999 and June 15,
2000, respectively. The Company currently expects that comparable cash dividends
will continue to be paid in the future. However, the declaration and payment of
any such cash dividends in the future will depend upon the Company's earnings,
financial condition, capital needs, and other factors deemed relevant by the
Board of Directors. There can be no assurance that the Company will continue to
pay dividends in the foreseeable future.

APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS

As of February 28, 2001, the Company had approximately 170 holders of
record of its Common Stock.

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ITEM 6. SELECTED FINANCIAL DATA

2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ -----------

SELECTED INCOME STATEMENT
DATA:
Net sales................... $133,512,200 $136,651,751 $132,716,379 $120,695,988 $93,110,361
Cost of products sold ***... 84,791,616 85,471,577 85,582,344 75,867,398 59,366,781
Selling, general, and
administrative expenses
***....................... 34,977,281 36,477,681 34,166,742 32,484,114 24,676,513
Interest expense............ -- -- -- 27,709 358,637
Interest income............. 743,260 582,640 590,822 168,922 27,349
Income before income
taxes..................... 14,486,563 15,285,133 13,558,115 12,485,689 8,735,779
Provision for income
taxes..................... 5,835,600 6,190,500 5,545,300 5,040,900 3,494,300
Net income.................. 8,650,963 9,094,633 8,012,815 7,444,789 5,241,479
Basic earnings per
share**................... $0.91 $0.89 $0.78 $0.75 $0.55
Diluted earnings per
share**................... $0.90 $0.87 $0.75 $0.71 $0.53
Dividends paid per share*... $0.06 $0.06 $0.06 $0.05 $0.05
Basic weighted average
number of shares
outstanding**............. 9,500,726 10,226,470 10,338,857 10,003,774 9,466,356
Diluted weighted average
number of shares
outstanding**............. 9,619,928 10,402,297 10,669,503 10,453,062 9,891,982

SELECTED BALANCE SHEET DATA:
Total assets................ $ 71,694,380 $ 67,913,856 $ 69,275,895 $ 60,571,561 $47,049,537
Long-term debt.............. -- -- -- -- --
Stockholders' equity........ 54,902,789 51,702,426 52,647,404 44,009,004 35,866,440
Stockholders' equity per
share**................... $5.71 $4.97 $4.93 $4.21 $3.63

- ---------------
* Adjusted to reflect the two-for-one stock split effected on June 29, 1998.

** Adjusted to reflect the two-for-one stock split effected on June 29, 1998 and
restated to reflect adoption of Statement of Financial Accounting Standard
No. 128 in the fourth quarter of 1997.

*** Prior year amounts adjusted to reflect certain reclassifications in order to
conform with current year presentation (See Note 1 of the financial
statements).

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

STATEMENT CONCERNING FORWARD LOOKING INFORMATION:

Statements in this Report on Form 10-K that are not strictly historical are
"forward looking" statements, as defined in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are typically identified by the
words: "believe", "expect", "anticipate", "intend", "are confident", "estimate"
and similar expressions which by their nature refer to future events. Actual
future results may differ materially from those anticipated depending on a
variety of factors which include, but are not limited to, the Company's ability
to develop innovative products and to introduce new products in a timely manner;
the Company's reliance on sales of licensed products, consumer preferences,
major customers and foreign manufacturers; changes in the retail industry;
competition in the juvenile products market; cost and availability of raw
materials; risks related to inventory, international sales and supplies,
products liability, the Company's intellectual property and litigation;
importance of brand recognition; foreign currency fluctuation risks; impact of
government regulations; and the dependence on, and need for, key personnel.
Information with respect to risk factors is contained in Exhibit 99 of this
Annual Report on Form 10-K, and quarterly reports on Form 10-Q as filed with the
Securities and Exchange Commission. Readers are cautioned not to place undue
reliance on these forward-

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looking statements, which speak only as of the date hereof. The Company assumes
no obligation to update the forward looking information contained in this Annual
Report on Form 10-K.

Certain prior year amounts have been adjusted to reflect reclassifications
in order to conform with current year presentations (See Note 1 of the financial
statements).

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

Net sales in 2000 were $133.5 million, a decrease of $3.2 million or
(2.3)%, as compared to net sales of $136.7 million in 1999. The decrease was due
primarily to decreased demand for licensed products in domestic and foreign
markets which was partially offset by an 8% increase in net sales from The First
Years brand products compared to 1999. As a percentage of sales, sales of
licensed products decreased to 33.8% in 2000 from 39.6% in 1999 as consumer
demand for licensed products lessened, particularly for several products that
sold well in 1999. Sales of The First Years brand products increased to 66.2% in
2000 from 60.4% in 1999 due primarily to new product introductions. The Company
anticipates that the proportion of net sales from The First Years branded
products to total net sales will continue to increase as a result of recent
trends. As a percentage of total net sales, foreign net sales increased to 11.2%
in 2000 from 10.6% in 1999 as reduced sales in Latin America and Europe were
partially offset by sales increases in Canada and the Pacific Rim. The Company
continues to believe that substantial long term opportunity exists in the
foreign markets and will continue to pursue increased sales potential in those
markets.

Cost of products sold in 2000 was $84.8 million, a decrease of $0.7 million
or (0.8)%, as compared to $85.5 million in 1999. As a percentage of net sales,
cost of products sold in 2000 increased to 63.5% from 62.5% in 1999. The
increase was primarily due to the higher costs associated with the increased
percentage of sales of non-licensed lower margin products in 2000.

Selling, general, and administrative expenses in 2000 were $35.0 million, a
decrease of $1.5 million, or (4.1)%, as compared to $36.5 million of such
expenses in 1999. The decrease was primarily due to the absence in 2000 of
settlement and legal costs related to a patent lawsuit which were incurred in
1999. The reduction in costs were partially offset by increases in other
expenses primarily payroll and payroll related costs. As a percentage of net
sales, selling, general, and administrative expenses decreased to 26.2% in 2000
from 26.7% in 1999. The decrease reflects the costs associated with the 1999
patent lawsuit as selling, general and administrative expenses as a percent of
net sales would be consistent with 1999 if these related costs were excluded.

Income tax expense as a percentage of pretax income decreased slightly to
40.3% in 2000 from 40.5% in 1999 due to normal fluctuations in the Company's
taxable income.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Net sales in 1999 were $136.7 million, an increase of $4.0 million or 3.0%,
as compared to $132.7 million in 1998. The increase was due to increased demand
for The First Years brand products which was partially offset by decreased
demand for licensed products in domestic and foreign markets. As a percentage of
net sales, net sales of licensed products decreased to 39.6% in 1999 from 48.4%
in 1998 as consumer demand for licensed products lessened, particularly for
several items that had been selling well in 1998. Sales of The First Years brand
products increased to 60.4% in 1999 from 51.6% in 1998 due primarily to new
product introductions. An additional factor affecting net sales in 1999 and 1998
was the accounting for sales returns of certain products containing diisononyl
phthalate, ("DINP"). As disclosed in Note 10 of the Company's financial
statements, 1998 net sales reflect a charge of $3.0 million for an accrual of
sales returns and 1999 net sales reflect an increase of $0.4 million for a
reversal of a portion of the 1998 accrual. As a percent of total net sales,
foreign net sales decreased to 10.6% in 1999 from 12.6% in 1998 as reduced sales
in Latin America and Europe were partially offset by sales increases in Canada
and the Pacific Rim.

Cost of products sold in 1999 was $85.5 million, a decrease of $0.1 million
or (0.1)%, as compared to $85.6 million in 1998. As a percentage of net sales,
cost of products sold in 1999 decreased to 62.5% from 64.5% in the comparable
period of 1998. The decrease was primarily due to the lower than expected
inventory writeoffs of certain products containing DINP for which a charge was
previously recorded in the fourth quarter of 1998 as well as lower costs
associated with the increased percentage of sales of non-licensed higher margin
products in 1999.

II-3
13

Selling, general, and administrative expenses in 1999 were $36.5 million,
an increase of $2.3 million, or 6.7%, as compared to $34.2 million of such
expenses in 1998. The increase was primarily due to costs related to the
settlement of the patent lawsuit, legal expenses related to the lawsuit, and
market research expenses. As a percentage of net sales, selling, general, and
administrative expenses increased to 26.7% in 1999 from 25.7% in the comparable
period of 1998. The increase reflects the costs associated with the patent
lawsuit issue as selling, general, and administrative expenses as a percent of
net sales would be consistent with 1998 if the related costs were excluded.

Income tax expense as a percentage of pretax income decreased to 40.5% in
1999 from 40.9% in 1998 as the Company's taxable income was subject to a
slightly lower aggregate effective rate on the state level.

LIQUIDITY AND CAPITAL RESOURCES

Net working capital increased by $3.4 million to $46.4 million at December
31, 2000 from $43.0 million at December 31, 1999 primarily due to funds
generated from profitable operations. Cash increased as additional cash
generated from profitable operations and from reduced inventories and accounts
receivable were partially offset by repurchases of the Companies stock and
purchases of equipment.

On October 26, 2000 the Company announced that its Board of Directors
approved an increase in the total dollar amount that the Company can use to
repurchase shares of its common stock under the Company's discretionary stock
repurchase program. The total amount the Company can use to purchase shares
under this program was increased from $15 million to $20 million. As of December
31, 2000, the Company had purchased 1,474,000 shares of the Company's common
stock at a cost of $15.5 million.

An unsecured line of credit of $10 million which is subject to annual
renewal in October 2001, is available from a bank. Amounts outstanding under the
line are payable upon demand by the bank. During 2000 and 1999, the Company had
no borrowings under the line of credit. As of December 31, 2000 and 1999 no
balances were outstanding.

The Company paid a cash dividend of $0.06 per share of Common Stock in June
of 2000 and 1999, respectively.

The Company expects cash flow from operations and availability under the
Company's lines of credit to be sufficient to meet cash needs for working
capital for operations and capital expenditures for the next year.

INFLATION AND FOREIGN CURRENCY FLUCTUATIONS

Inflation has not had a material effect on the Company's operating results
over the past three years.

The Company enters into foreign currency forward exchange contracts from
time to time to minimize the impact of fluctuations in currency exchange rates
on future cash flows emanating from sales denominated in foreign currencies. The
Company does not purchase such contracts for trading purposes. Under these
contracts, the Company enters into arrangements with a bank whereby the Company
is committed to deliver foreign currency at predetermined rates. The Company had
no outstanding foreign currency forward exchange contracts at December 31, 2000.

RECENT ACCOUNTING PRONOUNCEMENTS

On January 1, 2001, the Company adopted the provisions of SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments.
Specifically it requires that an entity recognize all derivatives as either
assets or liabilities on the balance sheet at fair value. The accounting for
changes in the fair value of a derivative (that is unrealized gains or losses)
will be recorded as a component of an entity's net income or other comprehensive
income, depending upon designation (as defined in the statement). The adoption
of SFAS No. 133 was not material to the Company's consolidated financial
statements.

accounting principles to revenue recognition. SAB No. 101 was effective for the
Company on October 1, 2000. The adoption of SAB No. 101 was not material to the
Company's consolidated financial statements.

In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 (FIN 44), "Accounting for Certain Transactions involving
Stock Compensation", an interpretation of APB No. 25. FIN 44 was effective July
1, 2000. The adoption of FIN 44 was not material to the Company's consolidated
financial statements.

During 2000, the Emerging Issues Task Force ("EITF") issued EITF No. 00-10,
"Accounting for Shipping and Handling Fees and Costs." EITF No. 00-10 addresses
the statement of earnings classification of shipping and handling costs billed
to customers and was effective for the fourth quarter of 2000. The adoption of
EITF No. 00-10 resulted in a reclassification of prior year amounts in order to
conform with the current year presentation.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

See discussion under Item 7, "Inflation and Foreign Currency Fluctuations",
for required quantitative and qualitative disclosure about primary exposure to
market risk.

The foreign currency to which the Company has the most significant exchange
rate exposure is the British pound. Based on a hypothetical ten percent adverse
movement in foreign currency exchange rates, the potential losses in future
earnings, fair value of risk-sensitive instruments, and cash flows are
immaterial, although the actual effects may differ materially from the
hypothetical analysis.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements listed under Item 14.(a)1. are included in Part IV of
this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

II-5
15

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is included in the Registrant's
definitive proxy statement for the 2001 Annual Meeting of Stockholders and is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is included in the Registrant's
definitive proxy statement for the 2001 Annual Meeting of Stockholders, except
that the sections in the definitive proxy statement entitled "Board Compensation
Committee Report on Executive Compensation" and the "Stock Performance Chart"
shall not be deemed incorporated herein by reference to this Annual Report on
Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is included in the Registrant's
definitive proxy statement for the 2001 Annual Meeting of Stockholders and is
incorporated herein by reference

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is included in the Registrant's
definitive proxy statement for the 2001 Annual Meeting of Stockholders and is
incorporated herein by reference.

III-1
16

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

14.(a) 1. CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors' Report

Consolidated Balance Sheets as of December 31, 2000 and 1999

Consolidated Statements of Income for the Years Ended December 31,
2000, 1999, and 1998

Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2000, 1999, and 1998

Consolidated Statements of Cash Flows for the Years Ended December 31,
2000, 1999, and 1998

(a) 2. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED
DECEMBER 31, 2000, 1999, AND 1998

Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given
in the financial statements or notes thereto.

14.(a) 3. EXHIBITS

The following are either (i) filed herewith as exhibits to this Annual
Report or (ii) have been filed as exhibits to filings under the Securities Act
of 1933 or the Securities Exchange Act of 1934 and are incorporated herein by
reference as exhibits to this Annual Report on Form 10-K.

PAGE
----

(3)(i) Restated Articles of Organization as currently in effect
(filed as Exhibit (3.1) to Amendment No. 1 to Form S-1
Registration Statement filed with the Commission on October
5, 1995 [Reg. No. 33-62673] and incorporated herein by
reference).
(3)(ii) By-laws of the Company as currently in effect (filed as
Exhibit (3)(ii) to Form 10-K for the fiscal year ended
December 31, 1999 and incorporated herein by reference).
(10)(a) Agreement with Disney Enterprises, Inc. regarding the
licensing of Winnie the Pooh characters dated as of November
16, 1998 (filed as Exhibit (10)(r) to Form 10-Q for the
quarter ended June 30, 1999 and incorporated herein by
reference; certain portions of such Agreement are subject to
confidential treatment).
(10)(b) Agreement with Disney Enterprises, Inc. dated as of November
16, 1998 regarding the licensing of Disney standard
characters, Disney classic cartoon characters and Disney
Babies (filed as Exhibit 10(s) to Form 10-Q for the quarter
ended June 30, 1999 and incorporated herein by reference;
certain portions of such Agreement are subject to
confidential treatment).
(10)(c) Agreement with the Children's Television Workshop dated July
1, 1996 regarding the licensing of Sesame Street characters
(filed as Exhibit (10)(g) to Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference;
certain portions of such Agreement are subject to
confidential treatment).
(10)(d) Letter Agreement with Children's Television Workshop dated
as of July 1, 1999 regarding the renewal of the licensing of
Sesame Street characters (filed as Exhibit 10(d) to Form
10-K for the fiscal year ended December 31, 1999 and
incorporated herein by reference; certain portions of such
agreement are subject to confidential treatment).
(10)(m) Agreement with Disney Enterprises, Inc. dated as of August
1, 2000 relating to the licensing of Winnie the Pooh, Disney
Classics and Disney Standard cartoon characters (filed as
Exhibit 10(w) to Form 10-Q for the quarter ended September
30, 2000 and incorporated herein by reference; certain
portions of such Agreement are subject to confidential
treatment).

IV-1
17

Management Contracts and Compensatory Plans

PAGE
----

(10)(e) The First Years Inc. 1993 Equity Incentive Plan, as amended
through May 20, 1999 (filed as Exhibit (10)(t) to Form 10-Q
for the quarter ended September 30, 1999 and incorporated
herein by reference).
(10)(f) The First Years Inc. 1993 Stock Option Plan for Directors,
as amended through October 1, 1999 (filed as Exhibit 10(f)
to Form 10-K for the fiscal year ended December 31, 1999 and
incorporated herein by reference).
(10)(g) Letter Agreement between The First Years Inc. and Jerome M.
Karp dated August 8, 1999 (filed as Exhibit 10(v) to Form
10-Q for the quarter ended September 30, 1999, and
incorporated herein by reference).
(10)(h) Employment Agreement between The First Years Inc. and Ronald
J. Sidman, dated September 30, 1999 (filed as Exhibit 10(u)
to Form 10-Q for the quarter ended September 30, 1999 and
incorporated herein by reference).
(10)(i) The First Years Inc., a Massachusetts Corporation, and
Affiliates -- 1998 Annual Incentive Plan, effective as of
January 1, 1998 (filed as Exhibit 10(n) to Form 10-K for the
year ended December 31, 1998 and incorporated herein by
reference).
(10)(j) Agreement between The First Years Inc. and Wayne Shea dated
August 12, 1997 (filed as Exhibit (10)(o) to Form 10-K for
the year ended December 31, 1997 and incorporated herein by
reference).
(10)(k) Agreement between The First Years Inc. and Bruce Baron dated
July 10, 1997 (filed as Exhibit 10(p) to Form 10-K for the
year ended December 31, 1998 and incorporated herein by
reference).
(10)(l) Agreement between The First Years Inc. and James N. Turner
dated June 15, 1998 (filed as Exhibit 10(q) to Form 10-K for
the year ended December 31, 1998 and incorporated herein by
reference).
(10)(m) Non-Compete Agreement between The First Years Inc. and
Richard F. Schaub, Jr. dated August 29, 2000 IV-20
(10)(n) Change of Control Agreement between The First Years Inc. and
Richard F. Schaub, Jr. dated August 29, 2000 IV-20
(10)(o) Promissory Note and Agreement between The First Years Inc.
and Richard F. Schaub, Jr. dated September 28, 2000 IV-20
(10)(p) Agreement between The First Years Inc. and James A. Connors,
Jr. dated May 8, 2000. IV-20
- ------------------------------------------------------------------------------

(21) List of Subsidiaries of the Registrant. IV-20
(23) Consent of Deloitte & Touche LLP dated March 30, 2001. IV-20
(99) Important Factors That May Affect Future Results. IV-20

14.(b) REPORT ON FORM 8-K

The Company did not file any reports on Form 8-K with the Securities and
Exchange Commission during the quarter ended December 31, 2000.

IV-2
18

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.

THE FIRST YEARS INC.
------------------------------------
(Registrant)

By: /s/ RONALD J. SIDMAN
----------------------------------
RONALD J. SIDMAN, CHIEF EXECUTIVE
OFFICER,
CHAIRMAN OF THE BOARD OF
DIRECTORS, AND PRESIDENT

Date: March 29, 2001

By: /s/ JOHN R. BEALS
----------------------------------
JOHN R. BEALS, TREASURER AND
SENIOR VICE PRESIDENT --
FINANCE(CHIEF FINANCIAL OFFICER
AND CHIEF
ACCOUNTING OFFICER)

Date: March 29, 2001

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 indicated on March 29, 2001.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ RONALD J. SIDMAN Chief Executive Officer Chairman of the March 29, 2001
- ------------------------------------------------ Board of Directors and President
RONALD J. SIDMAN

/s/ JEROME M. KARP Director March 29, 2001
- ------------------------------------------------
JEROME M. KARP

/s/ EVELYN SIDMAN Director March 29, 2001
- ------------------------------------------------
EVELYN SIDMAN

/s/ BENJAMIN PELTZ Director March 29, 2001
- ------------------------------------------------
BENJAMIN PELTZ

/s/ FRED T. PAGE Director March 29, 2001
- ------------------------------------------------
FRED T. PAGE

/s/ KENNETH R. SIDMAN Director March 29, 2001
- ------------------------------------------------
KENNETH R. SIDMAN

/s/ LEWIS M. WESTON Director March 29, 2001
- ------------------------------------------------
LEWIS M. WESTON

/s/ WALKER J. WALLACE Director March 29, 2001
- ------------------------------------------------
WALKER J. WALLACE

IV-3
19

THE FIRST YEARS INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE

PAGE
--------

Independent Auditors' Report................................ IV-5

Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2000 and
1999.................................................. IV-6
Consolidated Statements of Income for the Years Ended
December 31, 2000, 1999, and 1998..................... IV-7
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2000, 1999, and 1998......... IV-8
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2000, 1999, and 1998............... IV-9
Notes to Consolidated Financial Statements............. IV-10-18

Financial Statement Schedule II-- Valuation and Qualifying
Accounts for the Years Ended December 31, 2000, 1999, and
1998...................................................... IV-19

IV-4
20

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
The First Years Inc.
Avon, Massachusetts

We have audited the accompanying consolidated balance sheets of The First
Years Inc. and subsidiary as of December 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 2000. Our audits also
included the financial statement schedule listed in the accompanying index.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of The First Years Inc. and
subsidiary as of December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such 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.

/S/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 27, 2001

IV-5
21

THE FIRST YEARS INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999

2000 1999
----------- -----------

ASSETS
Current Assets:
Cash and cash equivalents (Notes 1 and 8).............. $21,180,242 $13,400,728
Accounts receivable (less allowance for doubtful
accounts of $270,000 in 2000 and 1999) (Note 8)....... 19,527,429 21,587,886
Inventories (Note 1)................................... 18,443,713 20,352,845
Prepaid expenses and other assets...................... 756,357 1,308,974
Deferred tax asset (Notes 1 and 3)..................... 2,069,900 1,675,000
----------- -----------
Total current assets.............................. 61,977,641 58,325,433
----------- -----------
Property, Plant, and Equipment (Note 1):
Land................................................... 167,266 167,266
Building............................................... 5,254,150 5,154,845
Machinery and molds.................................... 7,233,145 7,536,378
Furniture and equipment................................ 6,269,346 4,820,691
----------- -----------
Total............................................. 18,923,907 17,679,180
Less accumulated depreciation.......................... 9,207,168 8,090,757
----------- -----------
Property, plant, and equipment-- net.............. 9,716,739 9,588,423
----------- -----------
Total Assets...................................... $71,694,380 $67,913,856
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable....................................... $11,270,519 $10,329,899
Accrued royalty expense (Note 6)....................... 946,623 1,792,475
Accrued payroll expenses............................... 334,721 113,409
Accrued selling expenses............................... 3,023,528 3,048,547
----------- -----------
Total current liabilities......................... 15,575,391 15,284,330
----------- -----------
Deferred Tax Liability (Notes 1 and 3)...................... 1,216,200 927,100
----------- -----------
Commitments and Contingencies (Notes 5, 6, and 8)
Stockholders' Equity (Notes 4, 7, and 9):
Common stock -- authorized, 50,000,000 shares; issued
10,679,337 and 10,570,329; outstanding, 9,175,765 and
9,916,235 as of December 31, 2000 and 1999,
respectively.............................................. 1,067,934 1,057,033
Paid-in-capital............................................. 8,714,711 8,052,623
Retained earnings........................................... 60,985,483 52,907,819
Less treasury stock at cost, 1,503,572 and 954,094 shares as
of December 31, 2000 and 1999, respectively............... (15,865,339) (10,315,049)
----------- -----------
Total stockholders' equity........................ 54,902,789 51,702,426
----------- -----------
Total Liabilities and Stockholders' Equity........ $71,694,380 $67,913,856
=========== ===========

See notes to consolidated financial statements.
IV-6
22

THE FIRST YEARS INC.

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998

2000 1999 1998
------------ ------------ ------------

Net Sales (Notes 1, 6, 8, and 10).................. $133,512,200 $136,651,751 $132,716,379
Cost of Products Sold (Notes 1 and 10)............. 84,791,616 85,471,577 85,582,344
------------ ------------ ------------
Gross Profit....................................... 48,720,584 51,180,174 47,134,035
Selling, General, and Administrative Expenses
(Notes 1, 7, and 11)............................. 34,977,281 36,477,681 34,166,742
------------ ------------ ------------
Operating Income................................... 13,743,303 14,702,493 12,967,293
Interest income.................................... 743,260 582,640 590,822
------------ ------------ ------------
Income Before Income Taxes......................... 14,486,563 15,285,133 13,558,115
Provision for Income Taxes (Notes 1 and 3)......... 5,835,600 6,190,500 5,545,300
------------ ------------ ------------
Net Income (Note 10)............................... $ 8,650,963 $ 9,094,633 $ 8,012,815
============ ============ ============
Basic Earnings Per Share (Notes 1 and 9)........... $0.91 $0.89 $0.78
===== ===== =====
Diluted Earnings Per Share (Notes 1 and 9)......... $0.90 $0.87 $0.75
===== ===== =====

See notes to consolidated financial statements.
IV-7
23

THE FIRST YEARS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998

COMMON STOCK
----------------------- PAID-IN RETAINED TREASURY
SHARES PAR VALUE CAPITAL EARNINGS STOCK
---------- ---------- ---------- ----------- ------------

Balance, January 1, 1998.......... 5,084,591 $ 508,800 $6,534,308 $37,047,709 $ (81,813)
Stock issued under stock option
plans (Note 7)............... 183,205 18,321 916,510 -- --
Tax benefit derived from option
compensation deduction....... -- -- 540,600 -- --
Dividends paid.................. -- -- -- (621,935)
Repurchase of 10,576 shares for
treasury..................... (10,576) -- -- -- (227,911)
Stock split, two-for-one (Note
4)........................... 5,182,794 519,020 (519,020) -- --
Net income...................... -- -- -- 8,012,815 --
---------- ---------- ---------- ----------- ------------

Balance, December 31, 1998........ 10,440,014 1,046,141 7,472,398 44,438,589 (309,724)
Stock issued under stock option
plans (Note 7)............... 108,921 10,892 457,725 -- --
Tax benefit derived from option
compensation deduction....... -- -- 122,500 -- --
Dividends paid.................. -- -- -- (625,403) --
Repurchase of 932,700 shares for
treasury..................... (932,700) -- -- -- (10,005,325)
Net income...................... -- -- -- 9,094,633 --
---------- ---------- ---------- ----------- ------------

Balance, December 31, 1999........ 9,616,235 1,057,033 8,052,623 52,907,819 (10,315,049)
Stock issued under stock option
plans (Note 7)............... 109,008 10,901 569,688 -- --
Tax benefit derived from option
compensation deduction....... -- -- 42,400 -- --
Compensation charge related to
grant of common stock
option....................... -- -- 50,000 -- --
Dividends paid.................. -- -- -- (573,299) --
Repurchase of 549,478 shares for
treasury..................... (549,478) -- -- -- (5,550,290)
Net income...................... -- -- -- 8,650,963 --
---------- ---------- ---------- ----------- ------------
Balance, December 31, 2000........ 9,175,765 $1,067,934 $8,714,711 $60,985,483 $(15,865,339)
========== ========== ========== =========== ============

See notes to consolidated financial statements.
IV-8
24

THE FIRST YEARS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998

2000 1999 1998
----------- ------------ -----------

Cash Flows from Operating Activities:
Net income........................................... $ 8,650,963 $ 9,094,633 $ 8,012,815
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................... 2,019,279 1,679,252 1,415,525
Compensation charge related to grant of common
stock option.................................... 50,000 -- --
Provision for doubtful accounts................... 87,324 78,968 176,034
Loss on disposal of equipment..................... 415,389 1,232,322 548,469
Increase (decrease) arising from working capital
items:
Accounts receivable............................. 1,973,133 (2,653,727) 773,065
Inventories..................................... 1,909,132 (1,832,822) 5,852,858
Prepaid expenses and other assets............... 595,017 1,452,160 (1,683,270)
Accounts payable................................ 940,620 928,933 (762,878)
Accrued royalty expense......................... (845,852) (337,552) 78,306
Accrued payroll expenses........................ 221,312 (1,087,557) 57,903
Accrued selling expenses........................ (25,019) (49,685) 711,203
Change in deferred income taxes................... (105,800) (121,700) (164,100)
----------- ------------ -----------
Net cash provided by operating activities.... 15,885,498 8,383,225 15,015,930
----------- ------------ -----------
Cash Flows used for Investing Activities:
Purchase of property, plant, and equipment........... (2,562,984) (4,597,283) (3,021,058)
----------- ------------ -----------
Cash Flows from Financing Activities:
Dividends paid....................................... (573,299) (625,403) (621,935)
Purchase of treasury stock........................... (5,550,290) (10,005,325) (227,911)
Common stock issued under stock option plans......... 580,589 468,617 934,831
----------- ------------ -----------
Net cash (used for) provided by financing
activities................................. (5,543,000) (10,162,111) 84,985
----------- ------------ -----------
Increase (decrease) in Cash and Cash Equivalents....... 7,779,514 (6,376,169) 12,079,857

Cash and Cash Equivalents, Beginning of Year........... 13,400,728 19,776,897 7,697,040
----------- ------------ -----------
Cash and Cash Equivalents, End of Year................. $21,180,242 $ 13,400,728 $19,776,897
=========== ============ ===========

Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest..................................... $ 0 $ 0 $ 0
=========== ============ ===========
Income taxes................................. $ 4,635,972 $ 5,292,295 $ 7,584,400
=========== ============ ===========

See notes to consolidated financial statements.
IV-9
25

THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business -- The First Years Inc., a Massachusetts corporation, (the
"Company"), is a developer, marketer, and distributor of basic accessories and
related products for infants and toddlers. The Company was founded and
incorporated in 1952. Since its inception, the Company has engaged in this
single line of business, with one class of similar products. The following is a
summary of the Company's significant accounting policies.

Basis of Reporting -- The consolidated financial statements include the
accounts of the Company's wholly owned subsidiary. All significant intercompany
accounts and transactions have been eliminated.

Revenue Recognition -- Revenue is recognized when products are shipped.

Cash Equivalents -- Highly liquid investments with a maturity of three
months or less when purchased have been classified as cash. Such investments are
carried at cost, which approximates market value.

Inventories -- Inventories are stated at the lower of cost (first-in,
first-out) or market. Inventories consist principally of finished goods,
unpackaged components, and supplies.

Property, Plant, and Equipment -- Property, plant, and equipment is stated
at cost. Depreciation is provided based on the estimated useful lives of the
various classes of assets (building, 15 to 40 years; machinery and molds, 5 to
10 years; furniture and equipment, 5 to 10 years) using the straight-line
method.

Income Taxes -- Deferred tax assets and liabilities are determined based on
the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates.

Employee Stock-Based Compensation -- The Company uses the intrinsic
value-based method of Accounting Principles Board Opinion ("APB") No. 25 and
related interpretations, to account for employee stock-based compensation plans.

Earnings Per Share -- In 1997, the Company adopted SFAS No. 128, "Earnings
Per Share." All earnings per share amounts for all periods presented have been
restated to conform to the requirements of SFAS No. 128.

Use of Estimates -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The primary estimates
underlying the Company's consolidated financial statements include allowances
for doubtful accounts and obsolete inventories and estimates related to the DINP
charges (See footnote 10). Actual results could differ from those estimates.

Research and Development Costs -- Research and development costs are
expensed as incurred. During 2000, 1999, and 1998, research and development
costs approximated $4,246,000, $3,780,000, and $3,320,000, respectively.

Foreign Currency Translation -- The Company's functional currency is the
U.S. dollar. Accordingly, monetary assets and liabilities of the Company's
foreign operations are translated from the respective local currency to the U.S.
dollar using year-end exchange rates while non-monetary items are translated at
historical rates. Income and expense accounts are translated at the average
rates in effect during the year. Accordingly, translation adjustments and
transaction gains and losses are recognized as income (loss) in the year of
occurrence and are recorded as a component of cost of sales.

Foreign Exchange Contracts -- The Company enters into foreign currency
forward exchange contracts to minimize the impact of fluctuations in currency
exchange rates on future cash flows emanating from sales denominated in foreign
currencies. The Company does not purchase such contracts for trading purposes.
IV-10
26
THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Gains and losses related to foreign currency forward exchange contracts which
qualify as accounting hedges of firm commitments are deferred and recognized as
income (loss) when the hedged transaction occurs. Gains and losses related to
foreign currency exchange contracts which do not qualify for hedge accounting
are marked to market currently and recognized as a foreign currency transaction
gain or loss.

Fair Value of Financial Instruments -- The fair value of the Company's
assets and liabilities which constitute financial instruments as defined in SFAS
No. 107 approximate their recorded value.

Reclassifications -- Certain reclassifications were made to prior year
amounts in order to conform with the current year presentation.

Reporting Comprehensive Income -- Effective January 1, 1998, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which requires businesses to disclose comprehensive
income and its components in their general-purpose financial statements.
Comprehensive income was equal to net income for the years ended December 31,
2000, 1999, and 1998.

New Accounting Pronouncements

During 2000, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition," which provides the SEC
staff's views in applying generally accepted accounting principles to revenue
recognition. SAB No. 101 was effective for the Company on October 1, 2000. The
adoption of SAB No. 101 was not material to the Company's consolidated financial
statements.

In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 (FIN 44), "Accounting for Certain Transactions involving
Stock Compensation" an interpretation of APB No. 25. FIN 44 was effective July
1, 2000. The adoption of FIN 44 was not material to the Company's consolidated
financial statements.

2. DEBT

During 2000 and 1999, the Company had available an unsecured line of credit
totaling $10,000,000 with a bank. The line is subject to annual renewal and
requires no compensating balances. The line bears interest at the prime rate or
the LIBOR rate plus 1.75%. No short-term borrowings were incurred by the Company
during 2000 or 1999. As of December 31, 2000 and 1999, no balance was
outstanding. The line of credit will expire in October 2001.

IV-11
27
THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. INCOME TAXES

Components of the Company's net deferred tax asset at December 31 are as
follows:

2000 1999
---------- ----------

Deferred tax assets:
Expenses not currently deductible....................... $ 547,900 $ 417,800
Capitalized packaging costs not currently deductible.... 828,800 643,900
Capitalized inventory costs not currently deductible.... 545,000 519,800
Other................................................... 148,200 93,500
---------- ----------
2,069,900 1,675,000

Deferred tax liabilities:
Excess tax depreciation over financial reporting
depreciation......................................... 1,216,200 927,100
---------- ----------
Net deferred tax asset.................................... $ 853,700 $ 747,900
========== ==========

There was no valuation allowance for the years ended December 31, 2000,
1999, and 1998.

The provision for income taxes consists of the following:

2000 1999 1998
---------- ---------- ----------

Federal:
Current...................................... $4,559,600 $4,985,600 $4,318,600
Deferred..................................... (105,800) (121,700) (164,100)
---------- ---------- ----------
Total federal........................ 4,453,800 4,863,900 4,154,500
State.......................................... 1,381,800 1,326,600 1,390,800
---------- ---------- ----------
Provision for income taxes..................... $5,835,600 $6,190,500 $5,545,300
========== ========== ==========

A reconciliation of the statutory federal income tax rate and the effective
tax rate as a percentage of pretax income is as follows:

2000 1999 1998
---- ---- ----

Statutory rate............................................. 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit...... 6.1 5.9 6.5
Other...................................................... (0.8) (0.4) (0.6)
---- ---- ----
Effective tax rate......................................... 40.3% 40.5% 40.9%
==== ==== ====

4. COMMON STOCK

In May 1998, the Company's Board of Directors declared a two-for-one split
of the Company's common stock. The 1998 stock split, effected in the form of a
stock dividend, was distributed on June 29, 1998 (to stockholders of record on
May 29, 1998). Earnings per share amounts shown in the accompanying financial
statements have been retroactively adjusted to reflect the 1998 stock split.

5. COMMITMENTS AND CONTINGENCIES

Forward Exchange Contracts -- In 1999, the Company entered into forward
exchange contracts with a bank whereby the Company is committed to deliver
foreign currency at predetermined rates. The contracts

IV-12
28
THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expire within one year. The Company's future commitment under these contracts
approximated $3,817,000 as of December 31, 1999. The Company had no foreign
currency forward exchange contracts as of December 31, 2000.

Other Commitments -- At December 31, 2000 and 1999, letters of credit
outstanding aggregated approximately $33,000.

During 1999, the Company entered into an employment agreement with an
executive officer which provides for annual base salary of $364,000 through
September 30, 2004, subject to any increases approved from time to time at the
discretion of the Compensation Committee of the Board of Directors. In the event
of termination, the agreement provides for certain payments depending on the
nature of the termination.

The Company enters into employment agreements with certain other executive
officers. The various agreements provide for payments related to change of
control events, agreements not to compete with the Company, and severance
payments depending on the nature of the executive's termination.

Contingencies -- The Company is involved in legal proceedings which have
arisen in the ordinary course of business. Management believes the outcome of
these proceedings will not have a material adverse impact on the Company's
financial condition or operating results.

6. ROYALTIES

During the past several years, the Company entered into various agreements
which provide for the payment of royalties on sales of certain character and
patent licensed products. The agreements have terms ranging from one to fifteen
years and require minimum royalty payments of $4,998,000 and $10,127,000 for
agreements signed during 2000 and 1999, respectively. At December 31, 2000 and
1999 future outstanding minimum royalty commitments under all agreements
amounted to $3,871,000 and $6,057,000, respectively. Royalty expense aggregated
$6,387,000, $7,909,000, and $8,311,000 in 2000, 1999, and 1998, respectively.

7. BENEFIT PLANS

Defined Contribution Plans -- The Company has a defined contribution
trusteed benefit plan covering eligible employees, requiring annual
contributions based upon certain percentages of salaries of employees. The
Company's policy is to fund pension expense as accrued. Pension expense
aggregated $551,000, $599,000, and $566,000 in 2000, 1999, and 1998,
respectively. The Company sponsors a 401(k) defined contribution plan covering
substantially all Company employees pursuant to which the Company is obligated
to match, up to specified amounts, employee contributions. Company contributions
to this plan were not material for the periods presented.

Stock Option Plans -- In May 1993, the Company's stockholders approved the
adoption of The First Years Inc. 1993 Equity Incentive Plan and The First Years
Inc. 1993 Stock Option Plan for Non-employee Directors (collectively, the
"Option Plans") which cover employees and non-employee directors of the Company,
respectively. The Board has reserved 2,980,000 shares for issuance under the
Option Plans (all share amounts adjusted to reflect the two-for-one stock split
effected on June 29, 1998). The exercise price for the incentive stock options
granted under the Option Plans may not be less than the fair market value of the
common stock at the date of grant, 110% of fair market value in the case of
options granted to a 10% stockholder.

In 2000, a director of the Company received an option to purchase 12,435
shares of the Company's Common Stock at an exercise price of $7.625 per share as
compensation for consulting services. The Company recorded a charge to
operations of $50,000 in 2000 for the compensation expense related to the stock
option grant.

IV-13
29
THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under the Option Plans, employees of the Company may purchase stock on the
exercise of their options through the delivery of existing shares of the
Company's common stock. The shares delivered to the Company by the employee must
have been outstanding for at least six months. The Company did not acquire any
shares for the year ended December 31, 2000 and acquired 8,400 shares of its
common stock for the year ended December 31, 1999 through the exercise of
employee stock options.

Options granted must be exercised within the period prescribed by the
Compensation Committee; the options vest in accordance with the vesting
provisions prescribed at the time of grant.

A summary of activity (all years adjusted to reflect the two-for-one stock
split effected on June 29, 1998) of stock options granted under the Option Plans
is as follows:

WEIGHTED
AVERAGE
EXERCISE NUMBER OF
PRICE NUMBER OF OPTIONS
PER OPTIONS AVAILABLE
SHARE OUTSTANDING FOR GRANT
--------- ----------- ---------

January 1, 1998............................................. $ 5.16 735,066 261,974
Authorized................................................ -- 1,340,000
Granted................................................... 14.51 258,029 (258,029)
Canceled.................................................. 9.96 (13,131) 13,131
Exercised................................................. 3.27 (285,408) --
--------- ---------

December 31, 1998........................................... 9.30 694,556 1,357,076
Granted................................................... 14.24 244,896 (244,896)
Canceled.................................................. 12.97 (45,909) 45,909
Exercised................................................. 4.30 (108,921) --
Expired................................................... 11.44 (18,000) --
--------- ---------

December 31, 1999........................................... 11.27 766,622 1,158,089
Granted................................................... 7.83 477,971 (477,971)
Canceled.................................................. 9.73 (80,846) 80,846
Exercised................................................. 5.33 (109,008) --
--------- ---------

December 31, 2000........................................... $10.43 1,054,739 760,964
========= =========
Exercisable at December 31, 1998.......................... $ 5.88 341,902
Exercisable at December 31, 1999.......................... $ 9.46 428,615
Exercisable at December 31, 2000.......................... $11.49 532,601

The grant date fair value for options granted in 2000, 1999, and 1998 was
$4.74, $8.24, and $7.43, respectively.

IV-14
30
THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth information regarding stock options
outstanding at December 31, 2000 under the Stock Option Plans as described
above:

WEIGHTED
NUMBER AVERAGE
NUMBER WEIGHTED WEIGHTED CURRENTLY EXERCISE
OF OPTIONS RANGE OF AVERAGE AVERAGE EXERCISABLE PRICE FOR
OUTSTANDING EXERCISE EXERCISE REMAINING AT OPTIONS
AT 12/31/00 PRICES PRICE LIFE 12/31/00 EXERCISABLE
- ----------- ------------- -------- --------- -------------- -----------

12,000 $2.75 -- $ 2.78 2.92 12,000 $ 2.78
$4.13
41,824 4.13 -- 6.19 5.10 3.10 41,824 5.10
508,050 6.19 -- 9.28 7.75 8.58 124,354 7.91
354,919 9.28 -- 13.92 13.24 7.90 237,786 13.00
137,946 13.92 -- 15.39 8.13 116,637 15.44
20.88
- ----------- ------ ---- ------- ------
1,054,739 $10.43 8.01 532,601 $11.49
=========== ====== ==== ======= ======

PRO FORMA DISCLOSURES

As described in Note 1, the Company applies the intrinsic value method of
APB No. 25 and related interpretations in accounting for its Option Plans.
Accordingly, no compensation cost has been recognized for its stock option
plans. Had compensation cost been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FASB
Statement 123, the Company's net income and earnings per share for the years
ended December 31, 2000, 1999, and 1998 would have been as follows:

2000 1999 1998
---------- ---------- ----------

Net income......................................... $6,976,525 $7,597,937 $7,233,876
Basic earnings per share........................... $0.73 $0.74 $0.70
Diluted earnings per share......................... $0.73 $0.73 $0.68

For purposes of the pro forma disclosures, the fair value of the options
granted under the Company's stock option plans during 2000, 1999, and 1998 was
estimated on the date of grant using the Binomial option pricing model. Key
assumptions used to apply this pricing model are as follows:

2000 1999 1998
---------- ---------- ----------

Risk free interest rate......................... 6.35% 5.09% 5.49%
Expected life of option grants.................. 7.65 years 8.47 years 7.85 years
Expected volatility of underlying stock......... 45.50% 44.82% 38.40%
Expected dividend payment rate.................. 0.85% 0.85% 0.85%

The pro forma disclosures include the effects of options granted in 2000,
1999, 1998, and 1997.

8. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
equivalents, trade receivables and forward foreign currency exchange contracts
(see Note 5). The Company's cash equivalents consist of money market funds
placed with major banks and financial institutions. The Company's trade
receivables principally include amounts due from retailers who are
geographically dispersed. The Company's three largest customers accounted for
60% and 62% of the trade receivables outstanding at December 31, 2000 and 1999,
respectively. The Company routinely assesses the financial strength of its
customers and purchases credit insurance to limit its potential exposure to
trade receivable credit risks. The Company routinely assesses the financial
strength of

IV-15
31
THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the bank which is the counterparty to the forward exchange contracts. As of
December 31, 2000, management believes it had no significant exposure to credit
risks.

Major Customers and Export Sales -- The Company derived 10% or more of its
gross sales from its three largest customers. The Company's largest customer
accounted for sales of $34,361,000, $40,600,000, and $42,622,000 in 2000, 1999,
and 1998, respectively. The Company's second largest customer accounted for
sales of $27,942,000, $26,688,000, and $24,413,000 in 2000, 1999, and 1998,
respectively. The Company's third largest customer accounted for sales of
$18,940,000, $20,026,000, and $15,706,000 in 2000, 1999, and 1998. No other
customer accounted for 10% or more of the Company's sales. Net export sales,
primarily to Europe, Canada, South America, and the Pacific Rim, were
approximately $14,958,000, $14,459,000, and $16,735,000 in 2000, 1999, and 1998,
respectively.

Reliance on Licensed Products -- The Company derives a significant portion
of its net sales from products under license. Net sales of products licensed
under our most significant licensing agreement amount to $38,578,000,
$46,681,000 and $56,257,000 or 29%, 34%, and 42% of the Company's total net
sales for the years ended December 31, 2000, 1999, and 1998, respectively. This
licensing agreement was renewed in 2000 and will expire at the end of 2002.

Reliance on Foreign Manufacturers -- The Company does not own or operate
its own manufacturing facilities. In 2000, 1999, and 1998, the Company derived
approximately 69%, 54%, and 65%, respectively, of its sales from products
manufactured by others in the Far East, primarily in China. A change in
suppliers could cause a delay in manufacturing and a possible loss of sales,
which could affect operating results adversely, depending on the particular
product.

9. COMPUTATION OF EARNINGS PER SHARE

Computation of the earnings per share ("EPS") in accordance with SFAS No.
128 is as follows:

2000 1999 1998
---------- ----------- -----------

Average shares outstanding........................... 9,500,726 10,226,470 10,338,857
Effect of dilutive shares............................ 119,202 175,827 330,646
---------- ----------- -----------
Average diluted shares outstanding................... 9,619,928 10,402,297 10,669,503
========== =========== ===========
Net income........................................... $8,650,963 $ 9,094,633 $ 8,012,815
========== =========== ===========
Basic earnings per share............................. $0.91 $0.89 $0.78
===== ===== =====
Diluted earnings per share........................... $0.90 $0.87 $0.75
===== ===== =====

As of December 31, 2000, options to purchase 498,865 shares of common stock
were not included in the computation of diluted EPS because the options'
exercise price was greater than the average price of the common shares. The
options, which expire in 2007 to 2010, had exercise prices ranging from $9 5/8
to $17 per share. The options were still outstanding at the end of 2000.

As of December 31, 1999, options to purchase 518,840 shares of common stock
were not included in the computation of diluted EPS because the options'
exercise price was greater than the average price of the common shares. The
options, which expire in 2002 to 2009, had exercise prices ranging from $8 3/4
to $17 3/4 per share. The options were still outstanding at the end of 1999.

As of December 31, 1998, options to purchase 130,254 shares of common stock
were not included in the computation of diluted EPS because the options'
exercise price was greater than the average price of the common shares. The
options, which expire in 2003 to 2008, had exercise prices ranging from $15 to
$17 3/4 per share. The options were still outstanding at the end of 1998.

IV-16
32
THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. DIISONONYL PHTHALATE MATTER

During the fourth quarter of 1998, the Company recorded a charge relating
to sales returns and the write-off of inventory of certain products containing
diisononyl phthalate ("DINP"), a plastic softener. Although the results of a
study on DINP conducted by the U.S. Consumer Product Safety Commission resulted
in the Commission not recommending a ban on products containing DINP, some
retailers decided to return certain products containing this material. Net sales
for the year ended December 31, 1998 reflect a charge of $3,000,000 related to
the sales returns of certain DINP products. Cost of sales for the year ended
December 31, 1998 reflect a charge of $1,100,000 related to the write-off of
inventory of certain products containing DINP. Net income for the year ended
December 31, 1998 reflects a total after-tax charge of $2,400,000 related to the
DINP matter.

During the third quarter of 1999, the Company increased net sales by
$384,000 and cost of sales were decreased by $629,000 due to the lower than
expected sales returns and inventory writeoffs of certain products containing
DINP for which a charge was previously recorded in the fourth quarter of 1998.
Net income for the year ended December 31, 1999 reflects the total after-tax
increase of $603,000 related to the DINP matter.

11. LEGAL SETTLEMENT

On February 11, 1999, Mark A. Freeman and Timothy K. Stringer brought a
civil action against the Company in the United States District Court for the
District of Kansas, Civil Action No. 99 2058 KHV. The complaint in the civil
action alleged that the Company's TumbleMates(R) valved drinking cups infringed
U.S. Patent 5,186,347. In 1999, although the Company vigorously defended the
action, it negotiated a settlement of $1,450,000 to remove any uncertainties of
a trial and to avoid future legal costs. The settlement reflects no wrongdoing
on the part of the Company and allows the Company to continue to sell the valved
drinking cups without restriction. The expense has been recorded as part of the
selling, general, and administrative costs in the consolidated financial
statements.

12. SEGMENT INFORMATION

During 1998, the Company adopted SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." This statement establishes new
standards for the definition and disclosure of information pertaining to the
Company's business segments. SFAS No. 131 requires identification of segments
based upon a company's internal structure and reporting methodology.

The Company has identified one operating segment as it engages in a single
line of business of developing and marketing one class of similar products for
infants and toddlers distributed through the same channels. The Company's
product line consists of three categories, Feeding & Soothing, Play & Discover,
and Care & Safety. Net sales for the year ended December 31, 2000 from each of
these products categories amounted to $55,701,000, $30,432,000, and $47,379,000,
respectively. Net sales for the year ended December 31, 1999 for each category
amounted to $60,525,000, $30,500,000, and 45,635,000, respectively.

The Company has $1,341,882 of molds located in various foreign countries
which are considered long-lived assets under SFAS No. 131.

See footnote 8 for discussion of major customers, export sales, and
licensed product sales.

IV-17
33
THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial data for the years ended December 31, 2000 and
1999 is as follows:

BASIC DILUTED
NET GROSS NET EARNINGS EARNINGS
CALENDAR QUARTER SALES PROFIT (1) INCOME PER SHARE PER SHARE
---------------- ----------- ----------- ---------- --------- ---------

2000
First................................ $36,762,253 $13,400,792 $3,011,533 $0.31 $0.31
Second............................... 34,260,931 12,379,942 2,294,580 0.24 0.24
Third................................ 32,237,407 11,597,282 1,840,174 0.19 0.19
Fourth............................... 30,251,609 11,342,568 1,504,676 0.16 0.16

1999
First................................ 35,246,190 13,329,978 2,968,331 0.28 0.28
Second............................... 36,553,805 13,269,672 2,649,001 0.25 0.25
Third................................ 31,794,094 12,700,370 2,438,792 0.24 0.24
Fourth............................... 33,057,662 11,880,154 1,038,509 0.11 0.10

Basic and diluted earnings per share are computed independently for each of
the periods presented. Accordingly, the sum of the quarterly earnings per share
amounts may not agree to the total for the year.

- ---------------

(1) Quarterly amounts adjusted to reflect certain reclassifications.

* * * * * *

IV-18
34

SCHEDULE II

THE FIRST YEARS INC.

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998

ADDITIONS
BALANCE, CHARGED
BEGINNING TO COSTS AND BALANCE
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS END OF YEAR
----------- ---------- ------------ ------------ -----------

Valuations Accounts Deducted from Assets to
which they Apply--
Allowance for doubtful accounts:
2000.............................. $ 270,000 $ 87,324 $ 87,324(1) $ 270,000
========== ========== ============ ==========
1999.............................. $ 270,000 $ 78,967 $ 78,967(1) $ 270,000
========== ========== ============ ==========
1998.............................. $ 185,000 $ 261,034 $ 176,034(1) $ 270,000
========== ========== ============ ==========

Allowance for obsolete inventory:
2000.............................. $ 390,000 $ 0 $ 90,000 $ 300,000
========== ========== ============ ==========
1999.............................. $ 250,000 $ 140,000 $ 0 $ 390,000
========== ========== ============ ==========
1998.............................. $ 250,000 $ 0 $ 0 $ 250,000
========== ========== ============ ==========

Allowance for Diisononyl Phthalate
product returns:
1999.............................. $2,874,000 $ 0 $ 2,874,000(2) $ 0
========== ========== ============ ==========
1998.............................. $ 0 $3,000,000 $ 126,000 $2,874,000
========== ========== ============ ==========

- ---------------

(1) Net accounts written off.

(2) Represents actual returns of $2,490,000 and a $384,000 reversal of allowance
due to lower than expected sales returns related to the DINP matter.

IV-19
35

THE FIRST YEARS INC.

EXHIBIT INDEX

EXHIBIT DESCRIPTION
- ------- -----------

(10)(m) Non-Compete Agreement between The First Years Inc. and
Richard F. Schaub, Jr. dated August 29, 2000.

(10)(n) Change of Control Agreement between The First Years Inc. and
Richard F. Schaub, Jr. dated August 29, 2000.

(10)(o) Promissory Note and Agreement between The First Years Inc.
and Richard F. Schaub, Jr. dated September 28, 2000.

(10)(p) Agreement between The First Years Inc. and James A. Connors,
Jr. dated May 8, 2000.

21 List of Subsidiaries of the Registrant.

23 Consent of Deloitte & Touche LLP dated March 30, 2001.

99 Important Factors That May Affect Future Results.

IV-20