<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JULY 2, 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 333-57099
WKI HOLDING COMPANY, INC.
(Registrant)
DELAWARE 16-1403318
----------------------------------------- -----------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
ONE PYREX PLACE, ELMIRA NEW YORK 14902
----------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 607-377-8000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to the filing requirements for
at least the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
66,857,143 shares of WKI Holding Company, Inc.'s, $0.01 Par Value, were
outstanding as of August 16, 2000.
<PAGE>
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
WKI HOLDING COMPANY, INC.
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
FOR THE 91 FOR THE 91 FOR THE 184 FOR THE 181
DAYS ENDED DAYS ENDED DAYS ENDED DAYS ENDED
JULY 2, 2000 JUNE 30, 1999 JULY 2, 2000 JUNE 30, 1999
<S> <C> <C> <C> <C>
Net sales $ 169,533 $ 108,548 $ 352,732 $ 221,777
Cost of sales 117,633 69,461 240,280 145,100
Selling, general and administrative expenses 53,678 36,843 106,115 72,828
Provision for restructuring costs -- -- -- 76,200
Integration related expenses 9,464 -- 14,088 --
Other expense (income) 3,560 (1,167) 6,399 (1,919)
--------------- -------------- --------------- ----------------
Operating income (loss) (14,802) 3,411 (14,150) (70,432)
Interest expense 19,291 10,078 36,169 19,956
--------------- -------------- --------------- ----------------
Loss before taxes on income (34,093) (6,667) (50,319) (90,388)
Income tax benefit -- (103) (6,049) (377)
--------------- -------------- ---------------- ----------------
Loss before minority interest (34,093) (6,564) (44,270) (90,011)
Minority interest in (earnings) of subsidiary (66) (110) (109) (108)
--------------- -------------- ---------------- ----------------
Net loss (34,159) (6,674) (44,379) (90,119)
--------------- -------------- ---------------- ----------------
Preferred stock dividends (3,284) (1,013) (6,452) (1,996)
--------------- -------------- ---------------- ----------------
NET LOSS APPLICABLE TO COMMON STOCK $ (37,443) $ (7,687) (50,831) (92,115)
=============== ============== ================ ================
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.56) $ (0.32) (0.76) (3.84)
=============== ============== ================ ================
Weighted average number of common shares
outstanding during the period 66,857,143 24,000,000 66,857,143 24,000,000
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
WKI HOLDING COMPANY, INC.
(In thousands)
<TABLE>
<CAPTION>
ASSETS JULY 2, 2000 DECEMBER 31, 1999
------ ---------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,086 $ 8,368
Accounts receivable, (net of allowances - $4,199 in 2000
and $8,755 in 1999) 38,640 141,308
Inventories:
Finished and in-process goods 222,753 195,200
Raw materials and supplies 25,564 27,411
Deferred taxes on income 33,855 25,303
Other current assets 24,499 20,816
---------------- -----------------
Total current assets 350,397 418,406
---------------- -----------------
OTHER ASSETS
Deferred taxes on income 23,583 23,583
Other assets 52,000 43,495
---------------- -----------------
75,583 67,078
---------------- -----------------
PROPERTY AND EQUIPMENT
Land 4,038 4,996
Buildings 82,471 86,873
Machinery and equipment 287,847 303,949
---------------- -----------------
374,356 395,818
Less accumulated depreciation (227,059) (241,788)
---------------- -----------------
147,297 154,030
---------------- -----------------
INTANGIBLES
Trademarks (net of accumulated amortization of $6,551 in 2000
and $3,384 in 1999) 162,321 165,487
Goodwill (net of accumulated amortization of $12,934 in 2000
and $8,740 in 1999) 186,586 174,678
---------------- -----------------
348,907 340,165
---------------- -----------------
TOTAL ASSETS $ 922,184 $ 979,679
================ =================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
CONSOLIDATED BALANCE SHEETS
WKI HOLDING COMPANY, INC.
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY JULY 2, 2000 DECEMBER 31, 1999
--------------------------------------------------------------- ---------------- ------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 50,212 $ 56,346
Debt payable within one year 3,417 3,650
Other current liabilities 79,905 111,800
---------------- ------------------
133,534 171,796
---------------- ------------------
OTHER LIABILITIES
Long-term debt 694,051 669,253
Non-pension post-employment benefit obligations 40,295 37,113
Other long-term liabilities 13,635 15,090
---------------- ------------------
747,981 721,456
---------------- ------------------
Commitments and Contingencies (Note 7)
STOCKHOLDERS' EQUITY
Preferred Stock - 5,000,000 shares authorized;
3,200,000 and 1,200,000 shares issued in 2000 and 1999, 94,882 88,430
respectively
Common Stock - $0.01 par value, 75,000,000 shares authorized;
66,857,143 issued and outstanding in 2000 and 1999 669 669
Treasury Stock (180,000 shares held in treasury in 2000) (630) --
Contributed capital 603,226 603,226
Accumulated deficit (654,943) (604,112)
Accumulated other comprehensive income (2,535) (1,786)
---------------- ------------------
Total stockholders' equity 40,669 86,427
---------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 922,184 $ 979,679
================ ==================
------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
WKI HOLDING COMPANY, INC.
(In thousands)
<TABLE>
<CAPTION>
FOR THE 184 FOR THE 181
DAYS ENDED DAYS ENDED
CASH FLOWS PROVIDED BY/USED IN OPERATING ACTIVITIES: JULY 2, 2000 JUNE 30, 1999
--------------- --------------
<S> <C> <C>
Net loss $ (44,379) $ (90,119)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 23,098 15,543
Amortization of deferred financing fees 1,082 842
Minority interest in losses of subsidiary 110 108
Deferred tax provision (8,552) (13)
Provision for restructuring costs, net of cash paid -- 74,041
Sale of accounts receivable 50,000 --
Changes in operating assets and liabilities:
Accounts receivable 53,223 15,289
Inventories (42,674) (15,029)
Prepaid expenses and other current assets (3,683) 1,113
Accounts payable and accrued expenses (37,338) (33,794)
Other assets/liabilities 10,639 1,083
--------------- --------------
NET CASH PROVIDED BY/USED IN OPERATING ACTIVITIES
1,526 (30,936)
--------------- --------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (28,743) (10,646)
--------------- --------------
NET CASH PROVIDED BY INVESTING ACTIVITIES (28,743) (10,646)
--------------- --------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Borrowing on revolving credit facility 27,900 38,900
Repayment of long-term debt, other than revolving credit facility (3,335) (3,401)
Treasury stock purchases (630) --
--------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES
23,935 35,499
--------------- --------------
Net change in cash and cash equivalents (3,282) (6,083)
Cash and cash equivalents at beginning of year 8,368 9,057
--------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,086 $ 2,974
=============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
WKI HOLDING COMPANY, INC.
(In thousands)
<TABLE>
<CAPTION>
FOR THE 184 FOR THE 181
DAYS ENDED DAYS ENDED
JULY 2, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
SUPPLEMENTAL DATA:
Cash paid during the year for:
Income taxes, net $ 1,521 $ 573
Interest 34,906 17,228
Non-cash activity:
Preferred stock dividends $ 6,452 $ 1,996
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
WKI HOLDING COMPANY, INC.
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Other Total
Preferred Common Treasury Contributed Accumulated Comprehensive Stockholder's
STOCK STOCK STOCK CAPITAL DEFICIT INCOME EQUITY
------------ ---------- ------------ -------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $ 88,430 $ 669 $ -- $ 603,226 $ (604,112) $ (1,786) $ 86,427
Net loss (44,379) (44,379)
Foreign currency translation
adjustment, net of tax (749) (749)
--------------
Total comprehensive income (45,128)
--------------
Repurchase of common stock (630) (630)
Preferred stock dividends 6,452 (6,452) ---
------------ ---------- ----------- ------------- --------------- ---------------- --------------
Balance July 2, 2000 $ 94,882 $ 669 $ (630) $ 603,226 $ (654,943) $ (2,535) $ 40,669
============ ========== ============ ============= ================ ================= =============
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WKI HOLDING COMPANY, INC.
(1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION
WKI Holding Company, Inc. (formerly known as CCPC Holding Company, Inc.) (the
Company or WKI) is a leading manufacturer and marketer of housewares, including
bakeware, dinnerware, rangetop cookware, kitchen and household products,
cleaning products, cutlery and precision cutting tools. The Company believes
that its brands, including Corningware-Registered Trademark-, Pyrex-Registered
Trademark-, Corelle-Registered Trademark-, Revere Ware-Registered Trademark-,
Visions-Registered Trademark-, EKCO-Registered Trademark-, Via-Registered
Trademark-, Baker's Secret-Registered Trademark-, Chicago Cutlery-Registered
Trademark-, Clean Results-Registered Trademark-, OLO-Registered Trademark-,
OXO-Registered Trademark- and Grilla Gear-Registered Trademark- constitute one
of the broadest and best recognized collection of brands in the housewares
industry.
Effective September 13, 1999 and October 21, 1999 the Company acquired the
outstanding stock of The Ekco Group Inc. (EKCO) and General Housewares Corp.
(GHC), respectively. The acquisitions were accounted for under the purchase
method of accounting and the 1999 financial statements include the results of
EKCO's and GHC's operations from the date of the acquisitions (see Note 3).
Pursuant to Regulation 15(d) of the Securities Act of 1934, WKI is filing herein
its quarterly report on Form
10-Q which includes the first and second fiscal quarters of the year ended
December 31, 2000. The consolidated financial statements reflect all adjustments
which, in the opinion of management, are necessary for a fair statement of the
results of operations and financial position for the interim periods presented.
All such adjustments are of a normal recurring nature. The consolidated
financial statements have been compiled without audit and should be read in
conjunction with the Company's Form 10-K for the year ended December 31, 1999,
which has been filed with the Securities and Exchange Commission.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In December 1999 the SEC issued Staff Account Bulletin No. 101 "Revenue
Recognition in Financial Statements" defining revenue recognition guidelines.
The Company is currently assessing the impact of the guidelines on its financial
statements.
(3) ACQUISITIONS
The EKCO transaction was closed by the Company on October 24, 1999 following
EKCO's initial purchase by CCPC Acquisition Corp. (the Company's Parent) on
September 13, 1999. The Company acquired EKCO for approximately $229 million,
including the assumption of debt and transaction fees. The Company financed the
EKCO acquisition through the issuance of $150 million in common stock to the
Company's parent and borrowings under the Company's existing credit facility.
The Company acquired GHC for approximately $159 million, including the repayment
of debt and transaction fees. The Company financed the acquisition through the
issuance of $50 million in Junior Preferred Stock to an affiliate of the
Company's parent, an additional $100 million tranche of term loans and
borrowings under the Company's existing credit facilities.
Both acquisitions were accounted for under the purchase method of accounting.
Accordingly, the purchase prices as determined to date have been allocated to
the assets acquired and liabilities assumed based on the fair values at the date
of acquisition. As of July 2, 2000 the Company was still in the process of
allocating the EKCO purchase price to the net assets acquired, particularly in
fixed assets.
8
<PAGE>
The following unaudited pro forma results of operations give effect to the EKCO
and GHC acquisitions as if they had occurred on January 1, 1999.
<TABLE>
<CAPTION>
FOR THE 91 FOR THE 181
DAYS ENDED DAYS ENDED
JUNE 30, 1999 JUNE 30, 1999
--------------- -------------
<S> <C> <C>
Net sales $ 169,444 $ 351,915
Income applicable to common stock (18,098) (111,458)
Earnings per share (0.27) (1.67)
</TABLE>
The pro forma information provided does not purport to be indicative of actual
results of operations if the EKCO and GHC acquisitions had occurred on January
1, 1999, and is not intended to be indicative of future results or trends.
(4) SALE OF ACCOUNTS RECEIVABLE
In June 2000, the Company sold $50.0 million of net receivables to Borden, Inc.
(Borden), an affiliate of the Company's parent. The Company received $50.0
million in cash for the transaction and will pay Borden transaction related
fees.
(5) SUPPLEMENTAL BALANCE SHEET DATA
<TABLE>
<CAPTION>
JULY 2, 2000 DECEMBER 31, 1999
--------------- ------------------
<S> <C> <C>
OTHER CURRENT LIABILITIES
Wages and employee benefits $ 19,375 $ 30,935
Accrued advertising and promotion 2,969 21,884
Accrued interest 10,201 10,063
Other accrued expenses 47,360 48,918
--------------- ------------------
$ 79,905 $ 111,800
=============== ==================
</TABLE>
(6) RELATED PARTY TRANSACTIONS
The following transactions with Corning Inc., ("Corning") and Borden are
included in the consolidated statements of operations for the 2000 and 1999
periods ended.
<TABLE>
<CAPTION>
FOR THE 91 FOR THE 91 FOR THE 184 FOR THE 181
DAYS ENDED DAYS ENDED DAYS ENDED DAYS ENDED
July 2, 2000 JULY 30, 2000 JULY 2, 2000 JUNE 30, 1999
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Centralized services $ 1,051 $ 1,063 $ 2,400 $ 3,486
Management fees to Borden 625 375 1,250 750
</TABLE>
Prior to the April 2000 termination of the transition services agreement,
Corning provided certain operating support (reflected above as centralized
services), including financial services, information systems support, risk
management, purchasing, transportation, benefit plans administration, and
engineering services. Currently Corning continues to provide certain engineering
and manufacturing services. Management believes that the methodology used to
allocate the costs is reasonable, but may not necessarily be indicative of the
costs that would have been incurred had these functions been performed by the
Company.
The Company paid Borden a management fee at an annual rate of $1.5 million for
the period April 1, 1998 through December 31, 1999. Effective January 1, 2000
the Borden management fee increased to $2.5 million annually.
In June 2000, the Company sold accounts receivable to Borden. See note 4.
9
<PAGE>
(7) COMMITMENTS AND CONTINGENCIES
The Company is a defendant or plaintiff in various claims and lawsuits arising
in the normal course of business. The Company believes, based upon information
it currently possesses, and taking into account established reserves for
estimated liabilities and its insurance coverage, that the ultimate outcome of
the proceedings and actions is unlikely to have a material adverse effect on the
Company's financial position or result of operations.
The Company's parent is in the process of seeking a buyer for a portion of the
EKCO business that was not originally purchased by the Company. In the event
that the Company's parent realizes less than originally anticipated on the sale
of this business, the Company will be required to remit additional consideration
to its parent.
10
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND
WKI Holding Company Inc. (WKI or the Company) is a leading manufacturer and
marketer of oven/bakeware, range top cookware, kitchen and household tools,
tabletop dinnerware, cutlery, precision cutting tools and cleaning products. The
Company has strong positions in major channels of distribution for its products
in North America and has also achieved a significant presence in certain
international markets, primarily Asia, Australia, Latin America and the United
Kingdom. In North America, the Company sells both on a wholesale basis to
retailers, distributors, and other accounts that resell the Company's products
and on a retail basis through Company-operated outlet stores. In the
international market, the Company has established its presence on a wholesale
basis through an international sales force along with localized distribution and
marketing capabilities.
Prior to April 1, 1998, the Company operated as a wholly-owned subsidiary of
Corning Inc. (Corning). During this period, Corning provided the Company with
certain process-oriented administrative services, such as benefits
administration, accounts payable, accounts receivable, treasury and tax
services. Corning agreed pursuant to a transition services agreement to continue
to provide such services for up to two years at negotiated rates (expiring in
April 2000) calculated on the same basis as before April 1, 1998. By December
31, 1999, the Company had developed its administrative infrastructure and had
assumed or outsourced to third parties a significant portion of these functions
previously performed by Corning.
In the first quarter of 1999, the Company initiated a plan to restructure its
manufacturing and supply organization as part of a program designed to reduce
costs through the elimination of under-utilized capacity, unprofitable product
lines and increased utilization of the Company's remaining facilities. The
Company recorded a $76.2 million charge in the first quarter of 1999 for this
restructuring.
Effective September 13, 1999 and October 21, 1999 the Company acquired the
outstanding stock of The EKCO Group Inc. (EKCO) and General Housewares
Corporation (GHC), respectively. The acquisitions are being accounted for under
the purchase method of accounting. Accordingly, the purchase price as determined
to date has been allocated to the assets acquired and liabilities assumed based
on the fair value at the date of acquisition. As of July 2, 2000 the Company was
still in the process of allocating the EKCO purchase price to the net assets
acquired, particularly in fixed assets. The financial statements include the
results of EKCO's and GHC's operations from the respective dates of these
acquisitions.
The Company acquired EKCO for approximately $229 million, including the
assumption of debt and transaction fees. The Company financed this acquisition
through the issuance of $150 million in common stock to the Company's parent, an
additional $100 million tranche of term loans and borrowings under the Company's
existing credit facilities.
The Company acquired GHC for approximately $159 million, including the repayment
of debt and transaction fees. The Company financed this acquisition through the
issuance of $50 million in Junior Preferred Stock to an affiliate of the
Company's parent, an additional $100 million tranche of term loans and
borrowings under the Company's existing credit facilities.
The Company anticipates cash outlays of approximately $56.2 million in 2000
relating to the integration of the acquired businesses into World Kitchen. Of
the $56.2 million in cash outlays approximately $20.0 million is expected to be
included in year 2000 earnings. These cash outlays primarily relate to the
implementation of World Kitchen's enterprise-wide computer systems at the
acquired facilities, the construction of a distribution center, severance and
other employee compensation arrangements and other integration costs.
Additionally, the Company is in the process of consolidating the acquired
distribution centers into a new facility in Monee, Illinois. The Monee
distribution center started up in July 2000 and consolidation activities are
expected to continue throughout the remainder of the year.
11
<PAGE>
SECOND QUARTER 2000 VERSUS SECOND QUARTER 1999
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
IN (000)'S IN (000)'S
FOR THE 91 FOR THE 91
DAYS ENDED DAYS ENDED
JULY 2, 2000 % OF NET SALES JUNE 30, 1999 % OF NET SALES
------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 169,533 100.0% $ 108,548 100.0%
Cost of sales 117,633 69.4% 69,461 64.0%
------------- -------------- ---------------- ---------------
Gross profit 51,900 30.6% 39,087 36.0%
Selling, general and administrative 53,678 31.7% 36,843 33.9%
Integration related expenses 9,464 5.6% -- 0.0%
Other expense (income) 3,560 2.1% (1,167) (1.1%)
------------- -------------- ---------------- ---------------
Operating (loss) income (14,802) (8.7%) 3,411 3.1%
Interest expense 19,291 11.4% 10,078 9.3%
------------- -------------- ---------------- ---------------
Loss before taxes on income (34,093) (20.1%) (6,667) (6.1%)
Income tax benefit -- -- (103) (0.1%)
------------- -------------- ---------------- ---------------
Loss before minority interest (34,093) (20.1%) (6,564) (6.0%)
Minority interest in earnings of
unconsolidated subsidiary (66) -- (110) (0.1%)
------------- -------------- ---------------- ---------------
Net loss $ (34,159) (20.1%) $ (6,674) (6.1%)
============= ============== ================ ===============
EBITDA (1) $ (3,512) (2.1%) $ 11,006 10.1%
============= ============== ================ ===============
Integration related expenses 9,464 -- -- --
Provision for close-out inventories 2,900 -- -- --
------------- -------------- ---------------- ---------------
Adjusted EBITDA (2) $ 8,852 5.2% $ 11,006 10.1%
============= ============== ================ ===============
</TABLE>
The following pro forma net sales tables gives effect to the EKCO and GHC
acquisitions as if they had occurred on January 1, 1999.
<TABLE>
<CAPTION>
SECOND QUARTER SECOND QUARTER $ %
2000 1999 CHANGE CHANGE
------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
North America $ 146,676 $ 144,871 $ 1,805 1.2%
Asia 13,326 13,363 (37) (0.3%)
Other International 9,531 11,210 (1,679) (15.0%)
------------- -------------- ---------------- ---------------
Net Sales $ 169,533 169,444(3) $ 89 0.1%
============= ============== ================ ===============
</TABLE>
(1) Earnings before interest expense, income taxes, minority interest and
depreciation and amortization.
(2) Earnings before interest expense, income taxes, minority interest,
integration related expenses, provision for close-out inventories and
depreciation and amortization.
(3) Includes $60.9 million of EKCO and GHC pro forma net sales.
12
<PAGE>
NET SALES
Net sales for the second quarter ended July 2, 2000 were $169.5 million, an
increase of 56.1% over second quarter 1999 net sales of $108.5 million. On a pro
forma basis, assuming that the EKCO and GHC acquisitions had occurred on January
1, 1999, net sales for the second quarter of 2000 were flat when compared to the
pro forma net sales for the second quarter of 1999. On a pro forma basis, net
improvements in North America sales offset reductions in other International
sales.
NORTH AMERICA
2000 net sales in North America were $146.7 million, a $59.2 million increase
over 1999. On a pro forma basis, assuming that the EKCO and GHC acquisitions had
occurred on January 1, 1999, net sales for the second quarter of 2000 were
$146.7 million, 1.2% better than second quarter 1999's total of $144.9 million.
On a pro forma basis net sales to United States and Canadian trade customers
increased 6.9%, or $7.5 million, to $115.9 million for the second quarter 2000
compared to the second quarter 1999. The increase is principally due to the
introduction of the Pyrex Storage Deluxe-Registered Trademark- line, which
generated approximately $2.2 million in sales for the second quarter of 2000,
and new lines of OXO-Registered Trademark- brand stainless steel kitchen tools,
a hardware line and automotive accessories utilizing OXO's Good Grips-Registered
Trademark- technology, which together contributed $4.5 million in sales in 2000.
The increase in wholesale sales was partially offset by a $5.6 million reduction
in sales at the Company-operated factory stores. Sales at Company-operated
factory stores for the second quarter of 2000 were $30.8 million, 15.5% below
second quarter 1999 sales of $36.4 million. The decline in net sales was due
largely to supply issues. North American and International demand combined with
two planned tank repairs at the Company's Corelle-Registered Trademark-
manufacturing facility limited the supply of Corelle to the Company-operated
factory stores during the first half of 2000. Additionally, as part of the
manufacturing restructuring undertaken in 1999, the Company outsourced the
production of its Revere-Registered Trademark- rangetop cookware to a third
party manufacturer in Indonesia. Start up issues at the supplier have resulted
in product shortages. The Company gave priority to supplying third parties,
which resulted in substantial out of stock positions and lost sales at the
Company-operated factory stores. Additionally the Company experienced a weakness
in sales of the Company's cleaning products and EKCO-Registered Trademark-
cookware and kitchenware products.
ASIA
Second quarter 2000 net sales of $13.3 million were flat when compared to the
second quarter of 1999. There were no pro forma adjustments relating to Asia.
OTHER INTERNATIONAL
Second quarter 2000 net sales for Other International were $9.5 million, a $1.8
million increase over 1999. On a pro forma basis, second quarter 2000 net sales
for Other International were $9.5 million representing a $1.7 million or 15.0%
decrease from the second quarter 1999 pro forma net sales of $11.2 million. The
decrease is primarily attributable to a general weakness in Latin American
markets quarter over quarter.
GROSS PROFIT
Gross profit for the second quarter 2000 was $51.9 million, or 30.6% of net
sales, compared to the second quarter 1999 gross profit of $39.1 million, or
36.0% of net sales. Increased distribution costs as a percentage of net sales,
inventory provisions and a reduction in higher margin Company-operated factory
stores sales were only partially offset by manufacturing efficiencies and cost
reductions realized as a result of the 1999 restructuring.
Distribution costs increased as a percentage of sales as a result of higher
inventory levels, operational inefficiencies and higher operating costs at the
Company's primary distribution center. In July 1999 the Company implemented an
enterprise-wide computer system. The Company experienced difficulties
implementing the computer system at its Greencastle, Pennsylvania assembly and
distribution center. Continued inefficiencies in shipping resulting from the
July 1999 systems conversion along with higher operating costs, including fuel
costs, have led to the increase as a percentage of sales. The Company's finished
goods inventories increased as a result of higher production coupled with lower
than planned sales. In addition, in the second quarter of 2000 the Company
provided $2.9 million for the planned close-out of
13
<PAGE>
certain cleaning business finished goods in inventories.
Start up supply issues related to the outsourcing of production of a significant
portion of the Company's rangetop cookware has limited the availability of these
products to Company-operated factory stores which generally realize higher
margins. As noted above, the Company has prioritized the delivery of product to
third party customers rather than Company-operated factory stores.
The increase in costs described above was partially offset by cost reductions
and manufacturing efficiencies resulting from the 1999 restructuring. In the
first quarter of 1999, the Company initiated a plan to restructure its
manufacturing and supply organization as part of a program designed to reduce
costs through the elimination of under-utilized capacity, unprofitable product
lines and increased utilization of the Company's remaining facilities. The
Company is currently realizing efficiencies and cost reductions through this
effort.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $53.7 million in the second
quarter of 2000, an increase of $16.9 million over the second quarter 1999
selling, general and administrative expenses of $36.8 million. As a percentage
of net sales, second quarter 2000 selling, general and administrative expense
were 31.7% compared to 33.9% in the second quarter of 1999. The improvement as a
percentage of net sales is a result of synergies realized from the combination
of the EKCO and GHC businesses into World Kitchen. These savings were partially
offset by increased advertising costs to support the introduction of the
Company's new products in 2000.
Through the Company's efforts to integrate EKCO and GHC into WKI's operations
the Company has been able to gain administrative efficiencies primarily from
combining sales and marketing operations and consolidating certain other
operations including finance, executive administration and information
technology. The Company is continuing its efforts to fully integrate these
businesses into World Kitchen and anticipates realizing additional synergies
throughout the remainder of the year.
INTEGRATION RELATED EXPENSES
Integration related expenses consist of cash and non cash charges related to the
integration of EKCO's and GHC's operations into those of the Company's.
Integration related expenses were $9.5 million in the second quarter of 2000.
These expenses primarily consist of systems conversion costs, employee retention
and other benefits, consulting services and other integration costs.
OTHER
Other operating expense was $3.6 million in the second quarter of 2000 compared
to income of $1.2 million in the second quarter of 1999. The $4.8 million
increase is primarily a result of the amortization of trademarks and goodwill
resulting from the business combinations. In addition, royalty expenses
increased as a result of royalty agreements in the newly acquired EKCO business.
OPERATING LOSS
As a result of the factors discussed above, the second quarter 2000 operating
loss was $14.8 million compared to operating income of $3.4 million in the
second quarter of 1999. Excluding the impact of integration related expenses and
the provision for close-out inventories, operating loss in the second quarter of
2000 was $2.4 million.
NET INTEREST EXPENSE
Interest expense in the second quarter of 2000 increased $9.2 million to $19.3
million from $10.1 million in the second quarter of 1999. The increase is
attributable to higher debt levels related to the acquisitions of EKCO and GHC
late in 1999 and an increase in variable rate interest costs.
INCOME TAX EXPENSE
As a result of the factors noted above, losses experienced through the second
quarter may indicate that the Company will
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<PAGE>
have cumulative losses over the three most recent years ended December 31, 2000.
Therefore, the Company has suspended recognizing additional deferred tax
benefits until more conclusive evidence exists to support its recognition.
ADJUSTED EBITDA (EARNINGS BEFORE NET INTEREST EXPENSE, INCOME TAXES,
DEPRECIATION AND AMORTIZATION, INTEGRATION RELATED EXPENSES, PROVISION FOR
CLOSE-OUT INVENTORIES AND MINORITY INTEREST)
As a result of the factors discussed above, adjusted EBITDA decreased by $2.1
million to $8.9 million for the second quarter of 2000 from $11.0 million in the
second quarter of 1999.
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<PAGE>
YEAR TO DATE JULY 2, 2000 VERSUS YEAR TO DATE JUNE 30, 1999
<TABLE>
<CAPTION>
IN (000)'S IN (000)'S
FOR THE 184 FOR THE 181
DAYS ENDED % OF NET DAYS ENDED
JULY 2, 2000 SALES JUNE 30, 1999 % OF NET SALES
------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Net sales $ 352,732 100.0% $ 221,777 100.0%
Cost of sales 240,280 68.1% 145,100 65.4%
------------- ----------- --------------- -----------
Gross profit 112,452 31.9% 76,677 34.6%
Selling, general and administrative 106,115 30.1% 72,828 32.8%
Provisions for restructuring costs -- 0.0% 76,200 34.4%
Integration related expenses 14,088 4.0% -- 0.0%
Other expense (income) 6,399 1.8 % (1,919) (0.9%)
------------- ----------- --------------- -----------
Operating loss (14,150) (4.0%) (70,432) (31.8%)
Interest expense 36,169 10.3% 19,956 9.0%
------------- ----------- --------------- -----------
Loss before taxes on income (50,319) (14.3%) (90,388) (40.8%)
Income tax benefit (6,049) (1.7%) (377) (0.2%)
------------- ----------- --------------- -----------
Loss before minority interest (44,270) (12.6%) (90,011) (40.6%)
Minority interest in losses
of unconsolidated subsidiary (109) -- (108) 0.0%
------------- ----------- --------------- -----------
Net loss $ (44,379) (12.6%) $ (90,119) (40.6%)
============= =========== =============== ===========
EBITDA (1) $ 8,948 2.5% $ (54,889) (24.7%)
============= =========== =============== ===========
Integration related expenses 14,088
Provision for close-out inventories
Restructuring costs 2,900 76,200
============= --------------- -----------
Adjusted EBITDA (2) $ 25,936 7.4% $ 21,311 9.6%
============= =========== =============== ===========
</TABLE>
The following pro forma net sales tables gives effect to the EKCO and GHC
acquisitions as if they had occurred on January 1, 1999.
<TABLE>
<CAPTION>
YEAR TO DATE YEAR TO DATE $ %
JULY 2, 2000 JUNE 30, 1999 CHANGE CHANGE
-------------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
North America $ 302,538 $ 307,558 $ (5,020) (1.6%)
Asia 29,570 22,488 7,082 31.5%
Other International 20,624 21,869 (1,245) (5.7%)
-------------------- ---------------- -------------- ------------
Net Sales $ 352,732 $ 351,915(3) $ 817 $ 0.2%
==================== ================ ============== ============
</TABLE>
(1) Earnings before interest expense, income taxes, minority interest and
depreciation and amortization.
(2) Earnings before interest expense, income taxes, minority interest,
restructuring costs, integration related expenses, provision for close-out
inventories and depreciation and amortization.
(3) Includes $130.1 million of EKCO and GHC pro forma net sales.
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<PAGE>
NET SALES
Year to date July 2, 2000 net sales were $352.7 million, an increase of 59.0%
over year to date June 30, 1999 net sales of $221.8 million. On a pro forma
basis, assuming that the EKCO and GHC acquisitions had occurred on January 1,
1999, net sales through the second quarter of 2000 improved by $0.8 million, or
0.2%, when compared to the pro forma net sales through the second quarter of
1999. On a pro forma basis, net improvements in Asia sales offset reductions in
North America and Other International net sales.
NORTH AMERICA
Year to date July 2, 2000 net sales in North America were $302.5 million, a
$118.4 million increase over year to date June 30, 1999. On a pro forma basis,
assuming that the EKCO and GHC acquisitions had occurred on January 1, 1999,
North American net sales for the first six months of 2000 were $5.1 million, or
1.6%, less than the first six months of 1999 total of $307.6 million. The supply
issues and sales weakness at Company-operated factory stores that the Company
experienced through July 2, 2000 were partially offset by successful new product
introductions.
On a pro forma basis, net sales to United States and Canadian trade customers
increased 0.8%, or $1.8 million, to $243.4 million through the second quarter
2000 when compared to year to date June 30, 1999 pro forma net sales. The
increase was principally due to the introduction of the Pyrex Storage
Deluxe-Registered Trademark- line which generated sales of approximately $5.1
million and OXO-Registered Trademark- lines including stainless steel kitchen
tools hardware and automotive lines utilizing OXO's Good Grips-Registered
Trademark- technology in 2000. OXO-Registered Trademark- new products generated
$7.7 million in sales in the first half of 2000.
The sales generated by these new product introductions were partially offset by
supply issues relating to Revere brand cookware. In 1999 the Company outsourced
the production of its Revere brand range top cookware to a third party
manufacturer in Indonesia. Start up issues at the outsourced manufacturer have
caused temporary product shortages leading to a decline in sales year over year.
Additionally, the Company experienced a weakness in sales of the Company's
cleaning products and EKCO brand cookware and kitchenware products.
Sales at Company-operated factory stores through the second quarter of 2000 were
$59.1 million, or 10.4%, below 1999 pro forma sales of $65.9 million for the
comparable period. The decline is primarily attributable to Corelle and Revere
supply issues as available product was prioritized in favor of third party
customers rather than the Company-operated factory stores.
ASIA
Year to date 2000 net sales to Asia were $29.6 million, an increase of $7.1
million or 31.5% over 1999 net sales of $22.5 million. The significant
improvement resulted primarily from stronger economic conditions in Asia in 2000
relative to the first half of 1999. Supply issues in 1999 limited the Company's
distribution of Corelle products. There were no pro forma adjustments relating
to Asia.
OTHER INTERNATIONAL
Other International 2000 net sales were $20.6 million, a $5.5 million increase
over 1999. On a pro forma basis, 2000 net sales for Other International were
$20.6 million representing a $1.2 million, or 5.7%, decrease versus pro forma
1999 net sales of $21.9 million. The decrease is primarily attributable to a
general weakness in Latin American markets quarter over quarter.
GROSS PROFIT
Gross profit through the second quarter 2000 was $112.5 million, or 31.9%, of
net sales, compared to 1999 gross profit of $76.7 million, or 34.6%, of net
sales. Increased distribution costs as a percentage of net sales, inventory
provisions and a reduction in higher margin Company-operated factory stores
sales more than offset manufacturing efficiencies and cost reductions realized
as a result of the 1999 restructuring.
Distribution costs increased as a percentage of net sales as a result of higher
inventory levels, operating inefficiencies and higher operating costs at the
Company's primary distribution center. The Company's finished goods inventories
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<PAGE>
increased as a result of increased production coupled with lower than planned
sales. In July 1999 the Company implemented an enterprise-wide computer system.
The Company experienced difficulties implementing the computer systems at its
Greencastle, Pennsylvania assembly and distribution center. Continued
inefficiencies in shipping resulting from the July 1999 systems conversion along
with higher operating costs, including fuel costs, have led to the increase as a
percentage of sales. In addition in the second quarter of 2000 the Company
provided $2.9 million for the planned close-out of certain cleaning business
finished goods inventories.
The above was partially offset by cost reductions and manufacturing efficiencies
resulting from the 1999 restructuring. In the first quarter of 1999, the Company
initiated a plan to restructure its manufacturing and supply organization as
part of a program designed to reduce costs through the elimination of
under-utilized capacity, unprofitable product lines and increased utilization of
the Companies remaining facilities. The Company is currently realizing
efficiencies and cost reductions through this effort, however the full effect of
the rationalization project will not be realized until the second half of 2000
due to start up issues at the Company's third party manufacturer, to which we
outsourced production of a significant portion of the Company's rangetop
cookware products. The rangetop cookware supply issue had the effect of limiting
the availability of these products. These supply issues had a particularly
severe impact on the Company-operated factory stores which generate higher gross
margins than sales to trade customers. As noted above, product distribution was
prioritized in favor of third party customers rather than Company-operated
factory stores.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $106.1 million through the
second quarter of 2000, an increase of $33.3 million over 1999 selling, general
and administrative expenses of $72.8 million. As a percentage of net sales
second quarter 2000 selling, general and administrative expense were 30.1%
compared to 32.8% in 1999. The improvement as a percentage of net sales is a
result of synergies realized from the combination of the EKCO and GHC businesses
into World Kitchen and a reduction in the Company's dependence on Corning Inc.,
our prior owner, for administrative services. By the end of 1999 the Company had
developed its administrative infrastructure and had assumed or outsourced to
third parties a significant portion of the functions previously performed by
Corning Inc. As an independent company, the Company was able to perform many of
the administrative tasks previously performed by Corning at a significantly
lower cost.
In addition since the acquisitions of EKCO and GHC the Company has been able to
gain administrative efficiencies primarily from combining sales and marketing
operations and consolidating certain other operations including finance,
executive administration and information technology. The Company is continuing
its efforts to fully integrate these businesses into World Kitchen and
anticipates additional synergies throughout the remainder of the year.
The savings noted above were partially offset by increased advertising costs to
support the introduction of the Company's new products in the first half of
2000.
RESTRUCTURING
In the first quarter of 1999 the Company recorded a $76.2 million charge
relating to the restructuring of the Company's manufacturing and supply
organization designed to reduce costs through the elimination of under-utilized
capacity, unprofitable product lines and increased utilization of the remaining
facilities. Management believes that the initiatives implemented under this plan
will improve the Company's competitive position by reducing manufacturing and
distribution costs and by opening up diverse sources of supply both in the
United States and internationally.
INTEGRATION RELATED EXPENSES
Integration related expenses consist of cash and non cash expenses related to
the integration of EKCO's and GHC's operations into those of the Company.
Integration related expenses were $14.1 million through the second quarter of
2000. These expenses primarily consist of systems conversion costs, employee
retention and other benefits, consulting services and other integration costs.
18
<PAGE>
OTHER
Other operating expense was $6.4 million through the second quarter of 2000
compared to income of $1.9 million in 1999. The $8.3 million increase is
primarily a result of the amortization of trademarks and goodwill resulting from
the business combinations. In addition royalty expenses increased as a result of
royalty agreements in the newly acquired EKCO business.
OPERATING LOSS
As a result of the factors discussed above, the year to date 2000 operating loss
was $14.2 million compared to a year to date 1999 operating loss of $70.4
million. Excluding the impact of the restructuring, integration related expenses
and the provision for close-out inventories, operating income decreased by $3.0
million to $2.8 million through the second quarter of 2000 from $5.8 million
through the second quarter of 1999.
NET INTEREST EXPENSE
Interest expense through the second quarter of 2000 increased $16.2 million to
$36.2 million from $20.0 million through the second quarter of 1999. The
increase is attributable to higher debt levels related to the acquisitions late
in 1999 and an increase in variable rate interest costs.
INCOME TAX EXPENSE
As a result of the factors noted above, losses experienced through the second
quarter may indicate that the Company will have cumulative losses over the three
most recent years ended December 31, 2000. Therefore, the Company has suspended
recognizing additional deferred tax benefits until more conclusive evidence
exists to support its recognition.
ADJUSTED EBITDA (EARNINGS BEFORE NET INTEREST EXPENSE, INCOME TAXES,
DEPRECIATION AND AMORTIZATION, RESTRUCTURING EXPENSES, INTEGRATION RELATED
EXPENSES, PROVISION FOR CLOSE-OUT INVENTORIES AND MINORITY INTEREST)
As a result of the factors discussed above, adjusted EBITDA increased by $4.6
million to $25.9 million through the second quarter of 2000 and from $21.3
million through the second quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
ACQUISITIONS
Effective September 13, 1999 and October 21, 1999 the Company acquired the
outstanding stock of The EKCO Group Inc. (EKCO) and General Housewares
Corporation (GHC), respectively. The financial statements include the results of
EKCO's and GHC's operations since those dates.
The General Housewares Corp. (GHC) transaction is valued at $159 million,
including the repayment of debt and transaction fees. The Company financed the
acquisition through the issuance of $50 million in Junior Preferred Stock to an
affiliate of the Company's parent and borrowings under the Company's existing
credit facilities.
The EKCO Group Inc. transaction is valued at approximately $229 million,
including the assumption of $3.4 million in 9 1/4% series B senior notes due in
2006, $2.1 million of industrial revenue bonds and other debt and transaction
fees. The Company financed this acquisition through the issuance of $150 million
in common stock from the Company's parent, a $71.5 million short-term borrowing
from an affiliate of the Company's parent and borrowings under the Company's
existing credit facility. The borrowing from an affiliate to finance the
acquisition of EKCO was repaid in 1999 through the addition of a $100 million
term loan to the Company's senior credit facilities. The new term loan matures
in 2007.
The acquisitions were accounted for under the purchase method of accounting.
Accordingly, the purchase prices have been allocated to the assets acquired and
liabilities assumed based on the fair values at the date of acquisition. As of
July 2, 2000 the Company was still in the process of allocating the EKCO
purchase price to the net assets acquired, particularly in fixed assets.
The Company's parent is in the process of seeking a buyer for a portion of
the EKCO business that was not originally purchased by the Company. In the
event that the Company's parent
19
<PAGE>
realizes less than originally anticipated on the sale of these businesses the
Company will be required to remit additional consideration to its parent.
CASH FLOWS
For year to date in 2000, the Company's operating activities used cash of
$48.5 million compared to $30.9 million used by operating activities for year to
date 1999, excluding the sale of receivables. In June 2000 the Company
generated $50 million in cash proceeds through the sale of receivables to an
affiliate. The remaining fluctuation is attributable to expenses associated
with the integration of the EKCO and GHC businesses into the Company's
operations and increased inventory levels. These outflows were partially
offset by an increase in cash collected from receivables and cash management
activities relating to accounts payable.
Investing activities used cash of $28.7 million through the second quarter of
2000 compared to cash used in investing activities of $10.6 million for the 1999
year to date period. The fluctuation is attributable to capital expenditures
associated with the integration of the EKCO and GHC businesses into the
Company's operations as well as a scheduled tank repairs at the Company's
Corelle manufacturing facility.
Net cash provided by financing activities totaled $23.9 million in 2000 compared
to $35.5 million in 1999. The decrease is attributable to the items noted above
and acquisition-related increases in interest expenses.
At July 2, 2000 the Company had $76.1 million of borrowing capacity available
under its line of credit. In addition, the Company is negotiating with Borden to
arrange temporary financing to meet working capital needs as a supplement to its
existing revolving credit facility. The Company currently believes that cash
flow from operating activities, together with borrowings available under its
existing credit facilities, the accounts receivable facility and the temporary
facility currently being negotiated with Borden will be sufficient to fund the
Company's currently anticipated working capital requirements, capital
expenditures, interest payments and scheduled principal payments. Any future
acquisitions, joint ventures or other similar transactions will likely require
additional capital and there can be no assurance that any such capital will be
available to the Company on acceptable terms or at all.
The Company's ability to fund its working capital needs, planned capital
expenditures, scheduled debt payments, lease payments, other cash payments
and to comply with all of the financial covenants under its debt agreements
depends on its future operating performance and cash flow, which in turn are
subject to prevailing economic conditions and financial, business and other
factors, some of which are beyond the Company's control.
INTEGRATION
Since the acquisitions of EKCO and GHC the Company has been able to achieve
significant efficiencies. The Company is continuing its efforts to fully
integrate these businesses into WKI, which will result in additional synergies
throughout the remainder of the year. The Company anticipates cash outlays of
approximately $56.2 million in year 2000 relating to the integration of the EKCO
and GHC businesses into WKI, approximately $33.8 million of which has been spent
through July 2, 2000. The year 2000 cash outlays include approximately $21.8
million of capital expenditures relating to costs incurred in developing,
obtaining and implementing computer software and the construction of a new
distribution center ($13.2 million of which was spent through July 2, 2000). The
remaining cash outlays for integration in the year 2000 consist of approximately
$16.0 million of severance and other employee compensation arrangements ($7.6
million of which was spent through July 2, 2000), approximately $7.3 million in
cash charges relating to the systems implementation and the start up of the new
distribution center will be expensed in year 2000 earnings ($5.0 million of
which was spent through July 2, 2000) and $11.1 million relating to other
integration costs ($8.0 million of which was spent through July 2, 2000).
RESTRUCTURING
In 1999 the Company initiated a plan to restructure its manufacturing and supply
organization to reduce costs through the elimination of under-utilized capacity,
unprofitable product lines and increased utilization of the remaining
facilities. Management believes that the changes will improve the Company's
ability to compete by opening up diverse sources of supply both in the United
States and internationally.
20
<PAGE>
The restructuring includes the discontinuation of the commercial tableware
product line and closure of the related portion of the Company's manufacturing
facility in Charleroi, Pennsylvania. In order to improve the utilization of the
Charleroi facility, the Company moved Corelle-Registered Trademark- cup
production to its Martinsburg, West Virginia facility and to third party
suppliers. The Company terminated its supply contract with Corning's Greenville,
Ohio facility and Pyrex-Registered Trademark- production was consolidated at the
Charleroi facility. Additionally, the Company discontinued manufacturing and
distributing rangetop cookware and closed its manufacturing center in Clinton,
Illinois. Currently, our supply of Revere-Registered Trademark- rangetop
cookware is being sourced from third party manufacturers.
In the fourth quarter of 1999 the company reversed $7.2 million of its original
$76.2 million restructuring charge taken in the first quarter of 1999. The
reversal resulted in an increase in the anticipated proceeds from the idle
equipments, land and buildings. The cash and non-cash elements of the
restructuring charge approximate $15.2 million and $53.8 million, respectively.
The Company has spent $15.2 million in cash on the program to date.
RISK MANAGEMENT
The Company primarily has market risk in the areas of foreign currency and fixed
rate debt. The Company invoices approximately 85% of its international sales in
US dollars, minimizing the effect of foreign exchange gains and losses on its
earnings. As a result, the Company's foreign sales are affected by currency
fluctuations versus US dollar invoicing.
Currency exchange fluctuations significantly affect the Company's foreign sales
and earnings. The strength of the US dollar has increased in 2000, and may in
future periods; increase the effective price of the Company's products sold in
US dollars with the result of materially affecting sales. The Company's costs
are predominantly denominated in US dollars. With respect to sales conducted in
foreign currencies, increased strength of the US dollar decreases the Company's
reported revenues and margins in respect of such sales to the extent the Company
is unable or determines not to increase local currency prices.
At July 2, 2000, the Company had $210.6 million in fixed rate debt outstanding.
The Company realizes gains and losses on these financial instruments as the
market interest rates fluctuate. The fair value of the Company's fixed rate debt
at July 2, 2000 was $217.0 million resulting from changes in market conditions,
primarily interest rates.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. The factors discussed below, among
others, could cause actual results to differ materially from those contained in
forward-looking statements made in this report, including without limitation, in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," in the Company's related press releases and in oral statements made
by authorized officers of the Company. When used in this report, any press
release or oral statement, the words "looking forward," "estimate," "project,"
"anticipate," "expect," "intend," "believe" and similar expressions are intended
to identify a forward-looking statement. Forward-looking statements are not
guarantees of future performance and are subject to risks, uncertainties and
other factors (many of which are beyond the Company's control) that could cause
actual results to differ materially from future results expressed or implied by
such forward-looking statements. The forward-looking statements regarding such
matters are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions and expected future developments, as well as other factors it
believes are appropriate in the circumstances. Whether actual results and
developments will conform with the Company's expectations and predictions,
however, are subject to a number of risks and uncertainties, in addition to the
risk factors discussed above, including: integration of the Company's
acquisitions of General Housewares Corp. and EKCO Group, Inc.; difficulty in
consolidating warehouse operations; ability to obtain a temporary credit
arrangement with Borden to fund anticipated working capital needs; a global
economic slowdown in any one, or all, of the Company's sales categories; loss of
sales as the Company streamlines and focuses on strategic accounts;
unpredictable difficulties or delays in the development of new product programs;
increasing reliance on third party manufacturers, increased difficulties in
obtaining a consistent supply of basic raw materials such as sand, soda ash,
steel or copper and energy inputs such as electrical power or natural gas at
stable pricing levels; development by the Company of an adequate administrative
infrastructure; technological shifts away from the Company's technologies and
core competencies; unforeseen interruptions to the Company's business with its
largest
21
<PAGE>
customers resulting from, but not limited to, financial instabilities or
inventory excesses; the effects of extreme changes in monetary and fiscal
policies in the United States and abroad, including extreme currency
fluctuations and unforeseen inflationary pressures such as those recently
experienced by certain Asian economies; drastic and unforeseen price pressures
on the Company's products or significant cost increases that cannot be recovered
through price increases or productivity improvements; significant changes in
interest rates or in the availability of financing for the Company or certain of
its customers; loss of any material intellectual property rights; any
difficulties in obtaining or retaining the management or other human resource
competencies that the Company needs to achieve its business objectives; and
other factors, many of which are beyond the control of the Company.
Consequently, all of the forward-looking statements made in this Form 10-Q are
qualified by these cautionary statements, and there can be no assurance that the
actual results or developments anticipated by the Company will be realized or,
even if substantially realized, that they will have the expected consequences to
or effects on the Company and its subsidiaries or their business or operations.
22
<PAGE>
PART II - OTHER INFORMATION
LEGAL PROCEEDINGS
There are no pending legal proceedings which are material in relation to the
consolidated financial statements of WKI.
WKI has been engaged in, and will continue to be engaged in, the defense of
product liability claims related to its products, particularly its bakeware and
cookware product lines. The Company maintains product liability coverage,
subject to certain deductibles and maximum coverage levels that the Company
believes is adequate and in accordance with industry standards.
In addition to product liability claims, from time to time the Company is
involved in various legal actions in the ordinary course of business. The
Company is not currently involved in any legal actions, which, in the belief of
management could have a material adverse impact on the Company.
23
<PAGE>
PART IV
EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT
------------
27.1 Financial Data Schedule
24
<PAGE>
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.
WKI HOLDING COMPANY, INC.
By /s/ Nathaniel C. Stoddard President and August 16, 2000
--------------------------- Chief Executive Officer
(Nathaniel C. Stoddard)
By /s/ William H. Carter Interim August 16, 2000
-------------------------- Chief Financial Officer
(William H. Carter)
25
