<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTER ENDED MARCH 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 1-15297
WATER PIK TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 25-1843384
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
23 CORPORATE PLAZA, SUITE 246
NEWPORT BEACH, CA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 719-3700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock outstanding on May 10, 2000 was
9,857,408 shares.
<PAGE> 2
WATER PIK TECHNOLOGIES, INC.
INDEX
Page Number
-----------
Part I - Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999 3
Consolidated Statements of Income - Three months
ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows - Three months
ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosure of Market Risk 15
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
<PAGE> 3
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
Water Pik Technologies, Inc.
Consolidated Balance Sheets
(In thousands, except for share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------------------------
2000 1999
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,821 $ 1,514
Accounts receivable, less allowances for doubtful accounts of
$1,356 at March 31, 2000 and $1,372 at December 31, 1999 66,042 57,577
Inventories 30,612 26,214
Deferred income taxes 7,957 8,666
Prepaid expenses and other current assets 2,781 2,559
--------- ---------
TOTAL CURRENT ASSETS 109,213 96,530
Property, plant and equipment, net 37,594 38,248
Cost in excess of net assets acquired, net 21,576 21,972
Deferred income taxes 1,472 1,820
Other assets 1,815 1,926
--------- ---------
TOTAL ASSETS $ 171,670 $ 160,496
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 25,369 $ 27,958
Accrued income taxes -- 248
Accrued liabilities 21,784 23,511
Current portion of long-term debt 3,598 3,541
--------- ---------
TOTAL CURRENT LIABILITIES 50,751 55,258
Long-term debt, less current portion 54,850 39,883
Other accrued liabilities 8,751 8,665
--------- ---------
TOTAL LIABILITIES 114,352 103,806
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value: 50,000,000 shares authorized;
9,857,497 and 9,811,763 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively 99 98
Additional paid-in capital 59,579 59,302
Retained earnings 1,737 1,196
Equity adjustments due to stock plans (4,062) (3,824)
Accumulated comprehensive loss (35) (82)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 57,318 56,690
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 171,670 $ 160,496
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
Water Pik Technologies, Inc.
Consolidated Statements of Income
(In thousands, except for per share amounts)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
--------- ----------
SALES $ 65,169 $ 53,599
Cost and expenses:
Cost of sales 42,847 33,072
Selling expenses 12,096 10,946
General and administrative expenses 8,363 7,369
-------- --------
63,306 51,387
-------- --------
Income before other income and expenses 1,863 2,212
Interest expense (1,001) --
Other income 60 50
-------- --------
INCOME BEFORE INCOME TAXES 922 2,262
Provision for income taxes 381 905
======== ========
NET INCOME $ 541 $ 1,357
======== ========
BASIC AND DILUTED NET INCOME PER COMMON SHARE $ 0.06 $ 0.14
======== ========
See accompanying notes.
4
<PAGE> 5
Water Pik Technologies, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 541 $ 1,357
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 2,411 2,226
Deferred income taxes 1,057 503
Gain on sale of property, plant and equipment -- (1)
Change in operating assets and liabilities:
Accounts receivable (8,412) (1,574)
Inventories (4,348) (2,141)
Accounts payable (2,622) (4,584)
Accrued liabilities (1,731) (708)
Other assets and liabilities (367) 49
-------- -------
CASH USED IN OPERATING ACTIVITIES (13,471) (4,873)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,111) (535)
Disposals of property, plant and equipment 3 38
Other -- (33)
-------- -------
CASH USED IN INVESTING ACTIVITIES (1,108) (530)
FINANCING ACTIVITIES:
Net long-term debt borrowings 14,918 --
Principal payments on capital leases (60) --
Net advances from ATI -- 5,403
-------- -------
CASH PROVIDED BY FINANCING ACTIVITIES 14,858 5,403
Effect of exchange rate changes on cash and cash equivalents 28
-------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 307 --
Cash and cash equivalents at the beginning of the period 1,514 --
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,821 $ --
======== =======
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Property, plant and equipment acquired under capital leases $ 84 --
SUPPLEMENTAL INFORMATION:
Interest Paid $ 894 $ --
Taxes Paid $ 64 $ --
</TABLE>
See accompanying notes.
5
<PAGE> 6
Water Pik Technologies, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
Water Pik Technologies, Inc. ("Water Pik Technologies" or the "Company") became
an independent public company on November 29, 1999 when Allegheny Teledyne
Incorporated, now known as Allegheny Technologies Incorporated ("ATI"),
distributed all of the common stock of Water Pik Technologies to the
stockholders of ATI in a tax-free transaction (the "spin-off"). Stockholders of
ATI received one share of Company common stock for every 20 shares of ATI stock.
Following the spin-off, ATI held no equity interest in the Company.
The financial statements included in this report contain the historical accounts
and operations of the former ATI businesses that now comprise the Company. The
accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. These
financial statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1999. Operating results for
the three months ended March 31, 2000 are not necessarily indicative of the
results to be expected for the full year ended December 31, 2000.
2. INVENTORIES
Inventories are stated at the lower of cost (last-in, first-out and first-in,
first-out cost methods) or market. Inventories consist of the following:
MARCH 31, DECEMBER 31,
----------------------------
2000 1999
--------- ------------
(IN THOUSANDS)
Raw materials and supplies $ 13,256 $ 14,144
Work-in-process 6,401 5,481
Finished goods 15,747 11,307
-------- --------
Total inventories at current cost 35,404 30,932
Less: Allowances to reduce current cost
values to LIFO basis (4,792) (4,718)
-------- --------
Total inventories $ 30,612 $ 26,214
======== ========
Inventories determined using the last-in, first out method were $21,199,000 at
March 31, 2000 and $19,841,000 at December 31, 1999. The remainder of inventory
was determined using the first-in, first-out method. These inventory values do
not differ materially from current cost.
6
<PAGE> 7
3. LONG-TERM DEBT
Long-term debt is comprised of the following:
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
(IN THOUSANDS)
Revolving credit facility $ 46,056 $ 32,884
Canadian revolving credit facility 5,175 3,402
8 percent promissory note 6,726 6,679
Capitalized leases 491 459
-------- --------
58,448 43,424
Less: Current portion (3,598) (3,541)
-------- --------
Long-term debt $ 54,850 $ 39,883
======== ========
The 8 percent promissory note is due to Les Agencies Claude Marchand, Inc.
pursuant to the terms of the Olympic asset purchase agreement . The principal
amount is $6,392,000 of which $3,172,000 is due on November 15, 2000 and
$3,172,000 is due on August 6, 2001. Interest is compounded monthly and payable
quarterly. In accordance with the terms of the asset purchase agreement, a
purchase price increase of $334,000 has been estimated by the Company. The
promissory note will be amended to reflect an agreed purchase price adjustment
by the Company and Les Agencies Claude Marchand, Inc.
4. STOCKHOLDERS' EQUITY
During the three months ended March 31, 2000, one officer exercised rights under
the Company's Stock Acquisition and Retention Program (SARP) to acquire 24,947
shares of the Company's common stock for an aggregate purchase price of
$185,000, based on the average quoted market price for the shares for the ten
days preceding the date of purchase. Payment of the shares was in the form of a
note receivable by the Company which bears interest at 6.29 percent per annum
and is payable in level monthly payments of principal and interest beginning on
the fifth anniversary of the note and continuing thereafter for the remaining
term of the note. Further pursuant to the SARP, the Company awarded one share of
restricted common stock at no cost to the officer for every two shares purchased
under the SARP, for a total of 12,473 shares. The restrictions on these shares
lapse five years from the issuance date. The market value of the restricted
shares, based on the average market price for the ten days preceding the
issuance, was $92,000 and is being amortized to expense on a straight-line basis
over the period of restriction. The unamortized prepaid compensation expense is
recorded as a reduction in stockholders' equity in the accompanying balance
sheets.
The aggregate amount of notes receivable from officers related to the purchase
of shares under the SARP was $2,655,000 and $2,470,000 as of March 31, 2000 and
December 31, 1999, respectively, and is classified as a reduction in
stockholders' equity in the accompanying balance sheets. Interest receivable on
the notes of $53,000 and $13,000 at March 31, 2000 and December 31, 1999,
respectively, is recorded as a reduction in stockholders' equity.
Unamortized prepaid compensation expense related to restricted shares issued
under the SARP, including amounts related to shares converted from the Allegheny
Teledyne Stock Acquisition and Retention Program as of the spin-off date, was
$1,354,000 and $1,341,000 at March 31, 2000 and December 31, 1999, respectively,
and is classified as a reduction of stockholders' equity.
7
<PAGE> 8
5. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, were as follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
----------- -----------
(IN THOUSANDS)
Net income $ 541 $ 1,357
Foreign currency translation gains 47 50
----- -------
Comprehensive income $ 588 $ 1,407
===== =======
6. LEGAL CONTINGENCIES
A number of lawsuits, claims and proceedings have been or may be asserted
against the Company relating to the conduct of its business, including those
pertaining to product liability, patent infringement, commercial, employment and
employee benefits. While the outcome of litigation cannot be predicted with
certainty and some of these lawsuits, claims or proceedings may be determined
adversely to the Company, management does not believe that the disposition of
any such pending matters is likely to have a material adverse effect on the
Company's financial condition or liquidity, although the resolution in any
reporting period of one or more of these matters could have a material adverse
effect on the Company's results of operations for that period.
7. RELATED PARTY TRANSACTIONS
Prior to the spin-off, the Company participated in ATI's centralized cash
management system. Cash receipts in excess of cash requirements were transferred
to ATI. Those transactions with ATI were non-interest bearing.
Pursuant to the Employee Benefits Agreement between the Company and ATI, the
Company's employees continued to participate in the pension plans of ATI
subsequent to the spin-off through March 31, 2000. In accordance with the
Interim Services Agreement between the Company and ATI, ATI has also continued
to provide the Company with transitional administrative and support services
subsequent to the spin-off. Amounts expensed by the Company for employee pension
costs and administrative services provided by ATI during the three months ended
March 31, 2000 were $392,000.
Included in the results of operations for the three months ended March 31, 1999
are amounts allocated from ATI of $801,000, $987,000, $372,000, and $487,000 for
income taxes, insurance, pensions and corporate general and administrative
expenses, respectively. Corporate general and administrative expenses represent
allocations for expenses incurred by ATI on the Company's behalf including costs
for finance, legal, tax and human resource functions. These amounts were
allocated within ATI based on the net sales of the respective operations of its
subsidiaries and divisions. The Company also participated in casualty, medical
and life insurance programs sponsored by ATI. In the opinion of management, the
allocations of these expenses were reasonable.
Amounts payable to ATI at March 31, 2000, which also include amounts for
invoices paid by ATI on behalf of the Company, were $1,197,000. Amounts payable
to ATI at December 31, 1999 were $1,005,000.
8
<PAGE> 9
EARNINGS PER SHARE
A reconciliation of weighted average shares outstanding, used to calculate basic
net income per share, to weighted average shares outstanding assuming dilution,
used to calculate diluted net income per common share, is as follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---------- ------
(IN THOUSANDS)
Average outstanding common shares - basic 9,742 9,721
Shares issuable upon exercise of dilutive
options 30 1
----- -----
Average outstanding common shares - diluted 9,772 9,722
===== =====
9. BUSINESS SEGMENTS
Water Pik Technologies operates in two business segments which are organized
around the Company's products: Personal Health Care and Pool Products and
Heating Systems. The Personal Health Care segment designs, manufactures and
markets showerheads, oral health products and water filtration products. The
Pool Products and Heating Systems segment designs, manufactures and markets
swimming pool and spa equipment, controls and accessories as well as water-
heating products for commercial, residential and industrial applications.
Information on the Company's business segments is as follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
--------- ----------
(IN THOUSANDS)
Sales:
Personal Health Care $ 28,213 $ 28,500
Pool Products and Heating Systems 36,956 25,099
-------- --------
Total sales $ 65,169 $ 53,599
======== ========
Operating profit:
Personal Health Care $ 1,000 $ 1,177
Pool Products and Heating Systems 863 1,035
-------- --------
Total operating profit 1,863 2,212
Interest expense (1,001) --
Other income 60 50
-------- --------
Income before income taxes $ 922 $ 2,262
======== ========
MARCH 31, DECEMBER 31,
--------------------------
2000 1999
--------- ------------
(IN THOUSANDS)
Identifiable assets:
Personal Health Care $ 45,569 $ 44,657
Pool Products and Heating Systems 115,271 101,372
Corporate 10,830 14,467
--------- ---------
Total identifiable assets $ 171,670 $ 160,496
========= =========
9
<PAGE> 10
Total international sales were $11,949,000 and $7,333,000 for the three months
ended March 31, 2000 and 1999, respectively. Of these amounts, sales by
operations in the United States to customers in other countries amounted to
$4,898,000 and $5,814,000, respectively.
10. EVENTS SUBSEQUENT TO MARCH 31, 2000
Effective April 1, 2000, the Company implemented the Water Pik Technologies,
Inc. Retirement Plan (Plan) intended to qualify under Section 401(k) of the
Internal Revenue Code. Under the Plan, U.S. employees may defer up to 15.0
percent of their annual compensation up to the annual maximum dollar amount
established by the Internal Revenue Service. The Plan provides for matching
contributions by the Company of $.50 for every dollar deferred up to the greater
of 3.0 percent of annual compensation or $1,000. The Plan also provides for
basic contributions of 2.0 to 4.5 percent of annual compensation as well as
discretionary contributions of up to 1.0 percent of compensation based on
Company profits.
Effective May 1, 2000, the Company implemented the Water Pik Technologies, Inc.
Employee Stock Purchase Plan (Stock Purchase Plan). The Stock Purchase Plan
allows eligible employees to purchase Common Stock of the Company through
payroll deductions of up to 25.0 percent of their base earnings within the
minimum and maximum contribution limits established in the plan. Under the Stock
Purchase Plan, the Company will contribute an amount equal to 15.0 percent of
each participant's monthly contribution towards the purchase of shares of the
Company's common stock.
10
<PAGE> 11
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis contains forward-looking statements
regarding future events or the future financial performance of the Company that
involve certain risks and uncertainties which are discussed in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999. Actual events
or the actual future results of the Company may differ materially from any
forward-looking statement due to such risks and uncertainties.
OVERVIEW OF BUSINESS
Water Pik Technologies is a leader in the design, manufacturing and marketing of
a broad range of well-recognized personal health care products and pool and
water-heating products. The Company operates in two business segments: Personal
Health Care and Pool Products and Heating Systems. The Company's products
include: showerheads; oral health products; water filtration products; pool and
spa heaters, controls, valves and water features; and residential and commercial
water-heating systems.
Total sales of our two segments for the three months ended March 31, 2000 and
1999 are summarized below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------
SEGMENT 2000 1999
- ---------------------------------- ------------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Personal Health Care $ 28,213 43.3% $ 28,500 53.2%
Pool Products and Heating Systems $ 36,956 56.7% $ 25,099 46.8%
-------- --------
Total sales $ 65,169 100.0% $ 53,599 100.0%
======== ========
</TABLE>
RESULTS OF OPERATIONS
Consolidated Results of Operations
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------
2000 1999 % CHANGE
-------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Sales $ 65,169 $ 53,599 21.6%
Gross profit $ 22,322 $ 20,527 8.7%
Operating profit $ 1,863 $ 2,212 (15.8)%
Gross profit as a percentage of sales 34.3% 38.3%
Operating profit as a percentage of sales 2.9% 4.1%
International sales as a percentage of sales 18.3% 13.7%
</TABLE>
Sales for the three months ended March 31, 2000 were $65,169,000, representing
an increase of 21.6 percent over the comparable period in 1999 due to increased
sales of pool products and heating systems. Sales related to Olympic, acquired
in August 1999, accounted for $5,508,000 of the sales increase. Gross profit
(sales less cost of sales) as a percentage of sales for the three months ended
March 31, 2000 decreased to 34.3 percent compared with 38.3 percent for the
three months ended March 31, 1999. This decrease is primarily due to a shift in
product sales mix to lower margin pool products and heating systems, including
sales of Olympic pool products with lower gross margins, to increased insurance
costs as an independent company subsequent to the spin-off, to initial lower
gross margins on recently introduced products, and to lower prices for certain
personal health care products in response to increased competitive pressures.
11
<PAGE> 12
Operating profit (gross profit less selling expenses and general and
administrative expenses) as a percentage of sales decreased to 2.9 percent for
the three months ended March 31, 2000 from 4.1 percent for the three months
ended March 31, 1999 primarily due to the decrease in the gross profit
percentage which was partially offset by improvements in selling expenses and
general and administrative expenses as percentages of sales.
Selling expenses as a percentage of sales were 18.6 percent in the three months
ended March 31, 2000 as compared to 20.4 percent in the same period of 1999. The
favorable trend in selling expenses resulted from leveraging fixed costs over a
higher sales base. Selling expenses increased $1,150,000 to $12,096,000 for the
three months ended March 31, 2000 from $10,946,000 for the three months ended
March 31, 1999. The increase relates primarily to increased advertising and
promotional costs related to new product introductions.
General and administrative expenses as a percentage of sales for the three
months ended March 31, 2000 decreased to 12.8 percent as compared to 13.7
percent in the three months ended March 31, 1999. This decrease is due to a
lower cost structure established during 1999 and to a special item of $550,000
of bad debt expense in the three months ended March 31, 1999. These improvements
in the three months ended March 31, 2000 were partially offset by additional
expenses resulting from Olympic, acquired in August 1999, and to increased
corporate expenses resulting from operating as an independent company subsequent
to the spin-off from ATI. General and administrative expenses for the three
months ended March 31, 1999 include a corporate allocation from the former
parent company whereas general and administrative expenses for the three months
ended March 31, 2000 include the actual corporate expenses incurred as an
independent company.
Interest expense relates to borrowings under the Company's credit facilities and
to the promissory note issued in connection with the acquisition of Olympic and
was $1,001,000 for the three months ended March 31, 2000. The Company had no
interest expense in the three months ended March 31, 1999 since the capital for
the Company's operations was provided by ATI's net investment in the Company
with no debt allocated to the Company.
PERSONAL HEALTH CARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
2000 1999 % CHANGE
--------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Sales $ 28,213 $ 28,500 (1.0)%
Operating profit $ 1,000 $ 1,177 (15.0)%
Operating profit as a percentage of sales 3.5% 4.1%
International sales as a percentage of sales 19.7% 20.2%
</TABLE>
Sales in our Personal Health Care segment for the three months ended March 31,
2000 were relatively constant as compared with the same period in 1999. Strong
showerhead sales, including sales of the new Misting Massage (TM) Showerhead,
and strong oral health sales, including initial shipments of the new Water Pik
(TM) Flosser, during the three months ended March 31, 2000 were offset by lower
sales of water treatment products.
Operating profit as a percentage of sales decreased to 3.5 percent for the three
months ended March 31, 2000 from 4.1 percent for the three months ended March
31, 1999. This decrease is due to a decrease in the gross profit percentage
resulting from increased insurance costs as an independent company subsequent to
the spin-off, initial lower gross margins on recently introduced products, and
lower prices for certain personal health care products in response to increased
competitive pressure. This was partially offset by a decrease in general and
administrative expenses, including research and development expenses, resulting
from the lower cost structure established during 1999 and to a special item of
$550,000 associated with bad debts in the three months ended March 31, 1999.
12
<PAGE> 13
POOL PRODUCTS AND HEATING SYSTEMS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------
2000 1999 % CHANGE
---------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Sales $ 36,956 $ 25,099 47.2%
Operating profit $ 863 $ 1,035 (16.6)%
Operating profit as a percentage of sales 2.3% 4.1%
International sales as a percentage of sales 17.3% 6.2%
</TABLE>
Sales in our Pool Products and Heating Systems segment, excluding sales of
Olympic which was acquired in August 1999, increased $6,349,000 or 25.3 percent
for the three months ended March 31, 2000 as compared with the same period in
1999. Sales increased throughout all pool products and heating systems
categories with significant increases in pool heaters, controls and the
Endurance(TM) boiler. Olympic generated revenues of $5,508,000 in the three
months ended March 31, 2000.
Operating profit as a percentage of sales decreased to 2.3 percent for the three
months ended March 31, 2000 from 4.1 percent in the same period of 1999. This
decrease is due to a decrease in the gross profit percentage, primarily as a
result of the acquisition of Olympic which has lower gross margins, which were
partially offset by savings from the consolidation of two manufacturing
facilities in October 1999. Selling expenses as a percentage of sales improved
in the three months ended March 31, 2000 as compared with the same period in
1999 as a result of leveraging fixed costs over a higher sales base. General and
administrative expenses as a percentage of sales increased over the same period
due to an increase in corporate expenses resulting from operating as an
independent company subsequent to the spin-off.
SEASONALITY
The Company's business is highly seasonal, with operating results varying from
quarter to quarter. The Personal Health Care segment has historically
experienced higher sales in the fourth quarter of each year due to the holiday
season. The Pool Products and Heating Systems segment has historically
experienced higher sales in the second and fourth quarters of each year as
customers purchase such products in preparation for the cooler weather and in
anticipation of the warm spring and summer months. In addition, as a result of
the seasonality of sales, the Pool Products and Heating Systems segment offers
extended payment terms which permit customers to purchase pool products during
the winter months, with no required payments until spring.
FINANCIAL CONDITION AND LIQUIDITY
Our principal capital requirements are to fund working capital needs and capital
expenditures and to meet required debt payments. We anticipate that our
operating cash flow, together with available borrowings under our credit
facilities described below, will be sufficient to meet our working capital
requirements, capital expenditure requirements and interest service requirements
on our debt obligations for at least the next 12 months. However, all of our
planned product line extensions, new product development plans, capital
expenditure programs and possible acquisitions cannot be achieved without
additional capital. We are required to raise additional capital through a public
offering of our common stock as required under the terms of our tax-free
spin-off from ATI. Depending upon market conditions, the Company may also choose
to issue additional stock or debt.
13
<PAGE> 14
The Company's cash and cash equivalents increased $307,000 from $1,514,000 at
December 31, 1999 to $1,821,000 at March 31, 2000. Cash used in operating
activities for the three months ended March 31, 2000 was $13,471,000, resulting
from increases in accounts receivable and inventories and, to a lesser extent,
decreases in accounts payable and accrued liabilities. The increase in accounts
receivable relates primarily to the Pool Products and Heating Systems segment
which experienced strong sales in the fourth quarter of 1999 and in the first
quarter of 2000 and offered extended payment terms which permit customers to
purchase pool products during the winter months with no required payments until
spring. This increase was partially offset by a decrease in accounts receivable
at the Personal Health Care segment due to seasonally lower first quarter sales.
The increase in inventory relates to the Pool Products and Heating Systems
segment and is in anticipation of strong second quarter sales. Cash used in
investing activities for the three months ended March 31, 2000 was $1,108,000
and was used for capital expenditures. Cash provided by financing activities of
$14,858,000 relates to increased borrowings under the Company's lines of credit
which were used to fund operating and investing activities.
For the three months ended March 31, 1999, cash used in operating activities of
$4,873,000 and cash used in investing activities of $530,000 were funded by net
advances from ATI of $5,403,000.
Our working capital increased to $58,462,000 at March 31, 2000 from $41,272,000
at December 31, 1999. The current ratio increased to 2.2 at March 31, 2000 from
1.7 at December 31, 1999. The increase in working capital at March 31, 2000 was
primarily due to higher accounts receivable and inventory balances as well as
lower accounts payable and accrued liability balances.
The Company has a $60,000,000 revolving bank credit facility that expires in
November 2004. Borrowings under the facility are limited to borrowing base
calculations based upon eligible account receivable, inventory, real property
and machinery and equipment balances. Amounts outstanding under the credit
facility bear interest at either the bank's prime rate plus 0.25 percent to 0.50
percent or, if the Company exercises a LIBOR option, at the LIBOR rate plus 125
to 225 basis points per annum (7.9 to 9.8 percent at March 31, 2000). Interest
on the revolving credit loan is payable monthly. The credit facility also
provides for the issuance of letters of credit up to the borrowing base less the
outstanding line of credit, not to exceed $5,000,000. At March 31, 2000, the
Company had $13,892,000 of borrowing availability remaining under borrowing base
limitations of the credit facility.
The Company`s Canadian subsidiary has a CDN. $11,000,000 revolving bank line of
credit facility, increasing by CDN. $1,000,000 for certain months of the year, a
forward exchange contract facility of up to CDN. $2,000,000 and a letter of
credit facility of up to CDN. $500,000. Borrowings under the credit facility
bear interest at either the bank's prevailing annual Canadian or U.S. prime rate
plus 0.50 percent (7.0 percent at March 31, 2000). At March 31, 2000, the
Company had CDN. $4,492,000 of borrowing availability remaining under the credit
facility.
These credit facilities require the Company to comply with various financial
covenants and restrictions, including covenants and restrictions relating to
indebtedness, liens, investments, dividend payments, consolidated net worth,
interest coverage and the relationship of our total consolidated indebtedness to
our earnings before interest, taxes, depreciation and amortization. A security
interest in substantially all of the Company's assets was granted the lenders
under the credit agreements as collateral.
We currently anticipate that no cash dividends will be paid on Water Pik
Technologies common stock in order to conserve cash for use in our business,
including possible future acquisitions. In addition, the terms of our credit
facilities prohibit us from paying dividends. Our Board of Directors will
periodically re-evaluate our dividend policy taking into account operating
results, capital needs, the terms of our credit facilities and other factors.
Prior to November 29, 1999, the Company participated in the general liability,
product liability and workers' compensation insurance programs sponsored by ATI.
The Company has since entered into general liability, product liability and
workers' compensation insurance programs of its own. Insurance coverage under
these programs is subject to policy deductibles for which we are at risk for
losses. In connection with the spin-off, we have agreed to indemnify ATI for
losses attributable to our operations prior to the spin-off. Reserves have been
established based upon existing and estimated claims and historical experience
in settling such matters. The actual settlements of claims under these insurance
programs may differ from estimated reserves, but the possible range of loss in
excess of those accrued is not reasonably estimable. Based upon currently
available information, management does not believe that settlement of insurance
claims will have a material adverse effect on our financial condition or
liquidity.
14
<PAGE> 15
In connection with the spin-off, ATI received a tax ruling from the IRS stating
that the spin-off would be tax-free to ATI and to ATI's stockholders. The
continuing validity of the Internal Revenue Service tax ruling is subject to
certain factual representations and assumptions, including the completion of a
required public offering of the Company's common stock within one year following
the spin-off and use of the anticipated gross proceeds of approximately
$50,000,000 (less associated costs) for further development of high quality,
lower cost manufacturing capabilities, for product line extensions, to expand
channels of distribution, to develop a self-sustaining product development
process, and for acquisitions and/or joint ventures. Pursuant to the Separation
and Distribution Agreement that Water Pik Technologies signed prior to the
spin-off, the Company agreed with ATI to undertake such a public offering.
The Tax Sharing and Indemnification Agreement between ATI and Water Pik
Technologies provides that we will indemnify ATI and its agents and
representatives for taxes imposed on, and other amounts paid by, them or ATI's
stockholders if the Company takes actions or fails to take actions (such as
completing the public offering) that result in the spin-off not qualifying as a
tax-free distribution. If any of the taxes or other amounts were to become
payable by the Company, the payment could have a material adverse effect on the
Company's business, results of operations, financial condition and cash flow.
OTHER MATTERS
IMPACT OF YEAR 2000
The Company, in the transition to the year 2000, experienced no significant
disruptions in mission critical information technology and non-information
technology systems and believes those systems successfully responded to the Year
2000 date change. The Company is not aware of any material problems resulting
from Year 2000 issues, either with its products, its internal systems, or the
products and services of third parties. The Company will continue to monitor its
mission critical computer applications and those of its suppliers and vendors
throughout the year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosures
About Market Risk, in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1999. There has been no significant change in the nature or
amount of market risk since year end.
15
<PAGE> 16
PART II--OTHER INFORMATION
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
27.1 Financial data schedule
(b) Reports on Form 8-K -
The Company has filed no reports on Form 8-K during the quarter ended
March 31, 2000 and through the date of this report.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 13(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.
WATER PIK TECHNOLOGIES, INC.
Date: May 12 , 2000
--------------- By: /s/ MICHAEL P. HOOPIS
-------------------------------------------
Michael P. Hoopis
President and Chief Executive Officer
Date: May 12 , 2000
-------------- By: /s/ VICTOR C. STREUFERT
--------------------------------------------
Victor C. Streufert
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
17
<PAGE> 18
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27.1 Financial data schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's consolidated statement of income for the three months ended March
31, 2000 and consolidated balance sheet as of March 31, 2000 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001094286
<NAME> WATER PIK TECHNOLOGIES, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 67
<ALLOWANCES> 1
<INVENTORY> 31
<CURRENT-ASSETS> 109
<PP&E> 86
<DEPRECIATION> 49
<TOTAL-ASSETS> 172
<CURRENT-LIABILITIES> 51
<BONDS> 55
0
0
<COMMON> 0
<OTHER-SE> 57
<TOTAL-LIABILITY-AND-EQUITY> 172
<SALES> 65
<TOTAL-REVENUES> 65
<CGS> 43
<TOTAL-COSTS> 43
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 1
<INCOME-TAX> 0
<INCOME-CONTINUING> 1
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
</TABLE>
