<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 QUARTERLY PERIOD ENDED JUNE 30, 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 August 7, 2000 was
9,918,132 shares.
<PAGE> 2
WATER PIK TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C> <C>
Part I - Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 2000 (unaudited) and
December 31, 1999 3
Consolidated Statements of Income - Three months and
Six months Ended June 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows - Six months
Ended June 30, 2000 and 1999 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
<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)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,316 $ 1,514
Accounts receivable, less allowances for doubtful accounts of
$1,592 at June 30, 2000 and $1,372 at December 31, 1999 45,087 57,577
Inventories 31,518 25,349
Deferred income taxes 7,959 8,666
Prepaid expenses and other current assets 2,541 2,559
--------- ---------
TOTAL CURRENT ASSETS 88,421 95,665
Property, plant and equipment, net 38,211 38,248
Cost in excess of net assets acquired, net 21,128 21,972
Deferred income taxes 1,604 1,820
Other assets 1,663 1,926
--------- ---------
TOTAL ASSETS $ 151,027 $ 159,631
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 26,568 $ 27,958
Accrued income taxes 1,323 248
Accrued liabilities 20,410 22,646
Current portion of long-term debt 4,860 3,541
--------- ---------
TOTAL CURRENT LIABILITIES 53,161 54,393
Long-term debt, less current portion 28,706 39,883
Other accrued liabilities 8,867 8,665
--------- ---------
TOTAL LIABILITIES 90,734 102,941
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value: 50,000,000 shares authorized;
9,918,132 and 9,811,763 shares issued and outstanding at
June 30, 2000 and December 31, 1999, respectively 99 98
Additional paid-in capital 60,044 59,302
Retained earnings 4,817 1,196
Equity adjustments due to stock plans (4,399) (3,824)
Accumulated comprehensive loss (268) (82)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 60,293 56,690
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 151,027 $ 159,631
========= =========
</TABLE>
See accompanying notes
3
<PAGE> 4
WATER PIK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ 75,660 $ 64,863 $ 140,829 $ 118,462
Cost and expenses:
Cost of sales 48,556 39,701 91,403 72,773
Selling expenses 12,184 12,495 24,280 23,441
General and administrative expenses 8,633 8,104 16,996 15,473
-------- --------- --------- ---------
69,373 60,300 132,679 111,687
-------- --------- --------- ---------
Income before other income and expenses 6,287 4,563 8,150 6,775
Interest expense 1,143 -- 2,144 --
Other income (103) (69) (163) (119)
-------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 5,247 4,632 6,169 6,894
Provision for income taxes 2,167 1,853 2,548 2,758
-------- --------- --------- ---------
NET INCOME $ 3,080 $ 2,779 $ 3,621 $ 4,136
======== ========= ========= =========
BASIC AND DILUTED NET INCOME PER COMMON SHARE $ 0.31 $ 0.29 $ 0.37 $ 0.43
======== ========= ========= =========
</TABLE>
See accompanying notes
4
<PAGE> 5
WATER PIK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
2000 1999
-------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,621 $ 4,136
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,935 4,153
Deferred income taxes 923 2,007
Compensation expense arising from stock awards 145 --
Gain on sale of property, plant and equipment -- (21)
Change in operating assets and liabilities:
Accounts receivable 12,350 8,123
Inventories (5,684) (1,118)
Accounts payable (1,365) (881)
Accrued liabilities (2,993) 591
Accrued income taxes 1,075 --
Other assets and liabilities 170 34
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES 13,177 17,024
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (3,779) (1,669)
Disposals of property, plant and equipment 72 41
Other -- 42
-------- --------
CASH USED IN INVESTING ACTIVITIES (3,707) (1,586)
-------- --------
FINANCING ACTIVITIES:
Net long-term debt borrowings (9,531) --
Principal payments on capital leases (113) --
Net advances to ATI -- (15,438)
-------- --------
CASH USED IN FINANCING ACTIVITIES (9,644) (15,438)
-------- --------
Effect of exchange rate changes on cash and cash equivalents (24) --
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (198) --
Cash and cash equivalents at beginning of period 1,514 --
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,316 $ --
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Property, plant and equipment acquired under capital leases $ 84 $ --
SUPPLEMENTAL INFORMATION
Cash paid during the period:
Interest $ 2,025 $ --
Taxes $ 555 $ --
</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.
Certain amounts reported in previous years have been reclassified to conform to
the 2000 presentation. These reclassifications had no effect on reported results
of operations or stockholders' equity. 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 interim periods presented are not
necessarily indicative of the results to be expected for the full year ended
December 31, 2000.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", (SAB
101), providing the staff's views in applying generally accepted accounting
principles to selected revenue recognition issues. For companies such as Water
Pik Technologies, Inc. with fiscal years that begin between December 16, 1999
and March 15, 2000, the effective date of SAB 101 was subsequently deferred
until the fourth quarter of 2000. The Company does not expect adoption to have a
significant effect on its consolidated results of operations or financial
position.
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:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Raw materials and supplies $ 13,815 $ 14,144
Work-in-process 5,438 4,616
Finished goods 17,192 11,307
-------- --------
Total inventories at current cost 36,445 30,067
Less: Allowances to reduce current cost values to LIFO basis (4,927) (4,718)
-------- --------
Total inventories $ 31,518 $ 25,349
======== ========
</TABLE>
Inventories determined using the last-in, first out method were $23,970,000 at
June 30, 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:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Revolving credit facility $ 25,219 $ 32,884
Canadian revolving credit facility 1,396 3,402
8 percent promissory note 6,526 6,679
Capitalized leases 425 459
-------- --------
33,566 43,424
Less: Current portion (4,860) (3,541)
-------- --------
Long-term debt $ 28,706 $ 39,883
======== ========
</TABLE>
The 8 percent promissory note is due to Les Agencies Claude Marchand, Inc.
pursuant to the terms of the asset purchase agreement with Les Agencies Claude
Marchand, Inc. for the purchase of substantially all of the assets of Olympic, a
pool accessories manufacturer and distributor doing business in Canada as
Olympic Pool Accessories. The balance at December 31, 1999 included an estimated
purchase price increase of $332,000 in accordance with the terms of the asset
purchase agreement. The promissory note was amended in June 2000 to reflect a
final purchase price increase of $333,000. The principal amount at June 30, 2000
is $6,526,000 of which $3,263,000 is due on November 15, 2000 and $3,263,000 is
due on August 6, 2001. Interest is compounded monthly and payable quarterly.
4. STOCKHOLDERS' EQUITY
During the three months and six months ended June 30, 2000, certain key officers
of the Company exercised their rights under the Company's Stock Acquisition and
Retention Program (SARP) to acquire an aggregate of 25,328 and 50,275 shares,
respectively, of the Company's common stock for $180,000 and $365,000,
respectively, based on the average quoted market price of the shares. Payment
for the purchased shares was in the form of notes receivable from the officers
which bear interest at 6.29 percent per annum. The aggregate amount of notes
receivable from officers related to the purchase of shares under the SARP was
$2,835,000 and $2,470,000 as of June 30, 2000 and December 31, 1999,
respectively, and is classified, along with the related interest receivable by
the Company, as a reduction in stockholders' equity.
Further pursuant to the SARP, the Company awarded one share of restricted common
stock at no cost to the officers for every two shares purchased under the SARP,
for a total of 12,664 and 25,137 for the three months and six months ended June
30, 2000, respectively. The restrictions lapse five years from the issuance
date. The market value of the restricted shares issued in the three months and
six months ended June 30, 2000 was $90,000 and $182,000, respectively, and is
being amortized to expense on a straight-line basis over the period of
restriction. 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 $1,368,000 and $1,341,000 at June 30, 2000 and December 31,
1999, respectively, and is classified as a reduction in stockholders' equity.
On June 27, 2000, the Company's Board of Directors approved an amendment to the
1999 Non-Employee Director Compensation Plan (Plan) which modified the
compensation structure, including the elimination of the Non-Employee Director
Fee Continuation Plan. The amended plan provides for a one-time grant of 5,000
stock options and a one-time grant of 3,000 shares of restricted stock, in
addition to continuing annual stock option grants and payment of retainer, chair
and meeting fees.
7
<PAGE> 8
5. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $ 3,080 $ 2,779 $ 3,621 $ 4,136
Foreign currency translation gains (losses) (233) 3 (186) 53
-------------------- --------------------
Comprehensive income $ 2,847 $ 2,782 $ 3,435 $ 4,189
==================== ====================
</TABLE>
6. LEGAL CONTINGENCIES
In connection with the spin-off, ATI received a tax ruling from the Internal
Revenue Service (the "IRS") stating that the spin-off would be tax-free to ATI
and to ATI's stockholders. The continuing validity of the IRS tax ruling is
subject to certain factual representations and assumptions, including the
completion of a required public offering of the Company's common stock and use
of the anticipated gross proceeds (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, Water Pik
Technologies agreed with ATI to undertake such a public offering. On July 12,
2000, the IRS issued a supplemental ruling to ATI modifying certain requirements
imposed under the prior tax ruling. The supplemental ruling reduces the amount
of equity capital required to be raised by the Company from $50,000,000 to
$15,000,000 and provides an extension until April 30, 2001 for the completion of
the equity offering. In addition, under the supplemental ruling the Company may
raise the required capital either through a rights offering or through a private
placement.
The Tax Sharing and Indemnification Agreement between ATI and Water Pik
Technologies provides that the Company 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 equity 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.
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 participated 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 will also provide the Company with
transitional administrative and support services subsequent to the spin-off
through November 29, 2000. Amounts expensed by the Company for employee benefit
costs and administrative services provided by ATI for the three months and six
months ended June 30, 2000 were $8,000 and $400,000, respectively.
8
<PAGE> 9
The results of operations for the three months and six months ended June 30,
1999 include expenses allocated from ATI of $1,930,000 and $4,577,000,
respectively, for income taxes, insurance, pensions and corporate general and
administrative expenses. 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 June 30, 2000, which also include amounts for invoices
paid by ATI on behalf of the Company, were $1,326,000. Amounts payable to ATI at
December 31, 1999 were $1,005,000.
8. EARNINGS PER SHARE
A reconciliation of weighted average shares outstanding, used to calculate basic
net income per common share, to weighted average shares outstanding assuming
dilution, used to calculate diluted net income per common share, is as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average outstanding common shares - basic 9,882 9,612 9,812 9,666
Shares issuable upon exercise of dilutive options 3 1 16 1
---------------- ----------------
Average outstanding common shares - diluted 9,885 9,613 9,828 9,667
================ ================
</TABLE>
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 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales:
Personal Health Care $ 29,152 $ 27,349 $ 57,365 $ 55,849
Pool Products and Heating Systems 46,508 37,514 83,464 62,613
----------------------- -------------------------
Total Sales $ 75,660 $ 64,863 $ 140,829 $ 118,462
======================= =========================
Operating profit:
Personal Health Care $ 577 $ (847) $ 1,577 $ 330
Pool Products and Heating Systems 5,710 5,410 6,573 6,445
----------------------- -------------------------
Total operating profit 6,287 4,563 8,150 6,775
Interest expense 1,143 -- 2,144 --
Other income (103) (69) (163) (119)
----------------------- -------------------------
Income before taxes $ 5,247 $ 4,632 $ 6,169 $ 6,894
======================= =========================
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
June 30, December 31,
2000 2000
--------------------------------------------------------------------
<S> <C> <C>
Identifiable assets:
Personal Health Care $ 48,511 $ 44,657
Pool Products and Heating Systems 91,962 100,507
Corporate 10,554 14,467
--------- ---------
Total identifiable assets: $ 151,027 $ 159,631
========= =========
</TABLE>
Total international sales were $14,153,000 and $26,102,000 for the three months
and six months ended June 30, 2000, respectively, and $8,660,000 and $15,993,000
for the three and six months ended June 30, 1999, respectively. Of these
amounts, sales by operations in the United States to customers in other
countries amounted to $5,261,000 and $10,159,000 for the three and six months
ended June 30, 2000, respectively and $7,010,000 and $12,824,000 for the three
and six months ended June 30, 1999 respectively.
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 and six months ended June
30, 2000 and 1999 are summarized below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------ --------------------------------------
Segment 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Personal Health Care $29,152 38.5% $27,349 42.2% $ 57,365 40.7% $ 55,849 47.1%
Pool Products and Heating Systems 46,508 61.5% 37,514 57.8% 83,464 59.3% 62,613 52.9%
--------------- --------------- ---------------- ----------------
Total Sales $75,660 100.0% $64,863 100.0% $140,829 100.0% $118,462 100.0%
=============== =============== ================ ================
</TABLE>
RESULTS OF OPERATIONS
Consolidated Results of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
2000 1999 % Change 2000 1999 % Change
--------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Sales $ 75,660 $ 64,863 16.6% $ 140,829 $ 118,462 18.9%
Gross Profit $ 27,104 $ 25,162 7.7% $ 49,426 $ 45,689 8.2%
Operating Profit $ 6,287 $ 4,563 37.8% $ 8,150 $ 6,775 20.3%
Gross profit as a percentage of sales 35.8% 38.8% 35.1% 38.6%
Operating profit as a percentage of sales 8.3% 7.0% 5.8% 5.7%
International sales as a percentage of sales 18.7% 13.4% 18.5% 13.5%
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
Sales for the three months ended June 30, 2000 were $75,660,000, representing an
increase of 16.6 percent over the comparable period in 1999, primarily due to
increased sales of pool products and heating systems. Sales related to Olympic,
acquired in August 1999, accounted for $5,168,000 of the sales increase. Gross
profit (sales less cost of sales) as a percentage of sales for the three months
ended June 30, 2000 decreased to 35.8 percent compared with 38.8 percent for the
three months ended June 30, 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, and to increased
insurance costs as an independent company subsequent to the spin-off.
11
<PAGE> 12
Operating profit (gross profit less selling expenses and general and
administrative expenses) as a percentage of sales increased to 8.3 percent for
the three months ended June 30, 2000 from 7.0 percent for the three months ended
June 30, 1999 primarily due to improvements in selling expenses and general and
administrative expenses as percentages of sales partially offset by the decrease
in the gross profit percentage. Operating profit for the three months ended June
30, 2000 was also impacted by $705,000 in severance costs related to a workforce
reduction of which $171,000 was recorded as cost of sales, $266,000 as selling
expenses and $268,000 as general and administrative expenses. Other items
affecting operating profit in the quarter ended June 30, 1999 were $531,000 in
expenses related to the closure of manufacturing facilities of which $142,000
was recorded as cost of sales and $389,000 as general and administrative
expenses, $330,000 in bad debt expense, $265,000 of expenses relating to
workforce reductions in various administrative and engineering departments and
$157,000 of spin-off expenses.
Selling expenses as a percentage of sales were 16.1 percent in the three months
ended June 30, 2000 as compared to 19.3 percent in the same period of 1999. The
favorable trend in selling expenses resulted from leveraging fixed costs over a
higher sales base and from the timing of expenses incurred in 2000 as compared
1999. These favorable effects were partially offset by the $266,000 in severance
costs as discussed above.
General and administrative expenses as a percentage of sales for the three
months ended June 30, 2000 decreased to 11.4 percent as compared to 12.5 percent
in the three months ended June 30, 1999. This decrease is primarily due to the
lower cost structure established in the second half of 1999 and to the
$1,081,000 in special expense items during the three months ended June 30, 1999
as described above. These improvements were partially offset by additional
expenses from Olympic and by an increase in 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 June 30, 1999 include a
corporate allocation from ATI whereas general and administrative expenses for
the three months ended June 30, 2000 include the actual corporate expenses
incurred as an independent company.
Interest expense, which relates to borrowings under the Company's credit
facilities and to the promissory note issued in connection with the acquisition
of Olympic, was $1,143,000 for the three months ended June 30, 2000. The Company
had no interest expense in the three months ended June 30, 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.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
Sales for the six months ended June 30, 2000 were $140,829,000, representing an
increase of 18.9 percent over the comparable period in 1999, primarily due to
increased sales of pool products and heating systems. Sales related to Olympic
accounted for $10,676,000 of the sales increase. Gross profit as a percentage of
sales for the six months ended June 30, 2000 decreased to 35.1 percent compared
with 38.6 percent for the six months ended June 30, 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 and to initial lower gross margins on recently introduced products.
Operating profit (gross profit less selling expenses and general and
administrative expenses) as a percentage of sales was relatively constant at 5.8
percent for the six months ended June 30, 2000 as compared with 5.7 percent for
the six months ended June 30, 1999. Operating profit for the six months ended
June 30, 2000 was also impacted by the $705,000 in severance costs as discussed
above. Other items in the six months ended June 30, 1999 affecting operating
profits were $531,000 in expenses related to the closure of manufacturing
facilities of which $142,000 was recorded as cost of sales and $389,000 as
general and administrative expenses, $930,000 in bad debt expense, $265,000 of
expenses relating to workforce reductions in various administrative and
engineering departments and $157,000 of spin-off expenses.
Selling expenses as a percentage of sales were 17.2 percent in the six months
ended June 30, 2000 as compared to 19.8 percent in the same period of 1999. The
favorable trend in selling expenses resulted from leveraging fixed costs over a
higher sales base partially offset by the $266,000 in severance costs as
discussed above. Selling expenses increased $839,000 to $24,280,000 for the six
months ended June 30, 2000 from $23,441,000 for the six months ended June 30,
1999. This increase relates primarily to the acquisition of Olympic and to
increased advertising and promotional costs related to new product
introductions.
12
<PAGE> 13
General and administrative expenses as a percentage of sales for the six months
ended June 30, 2000 decreased to 12.1 percent as compared to 13.1 percent in the
six months ended June 30, 1999 primarily due to the lower cost structure
established in the second half of 1999. General and administrative expenses
increased $1,523,000 to $16,996,000 for the six months ended June 30, 2000 from
$15,473,000 for the same period in 1999. This increase is due to additional
expenses from Olympic and to an increase in corporate expenses resulting from
operating as an independent company subsequent to the spin-off from ATI. These
increases were partially offset by $1,681,000 in special expense items incurred
in 1999 as discussed above. General and administrative expenses for the six
months ended June 30, 1999 include a corporate allocation from ATI whereas
general and administrative expenses for the six months ended June 30, 2000
include the actual corporate expenses incurred as an independent company.
Interest expense was $2,144,000 for the six months ended June 30, 2000. The
Company had no interest expense in the six months ended June 30, 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 Six Months Ended
June 30, June 30,
---------------------------------- ---------------------------------
2000 1999 % Change 2000 1999 % Change
--------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Sales $ 29,152 $ 27,349 6.6% $ 57,365 $ 55,849 2.7%
Operating profit $ 577 $ (847) -- $ 1,577 $ 330 377.9%
Operating profit as a percentage of sales 2.0% (3.1%) 2.7% 0.6%
International sales as a percentage of
sales 19.8% 18.8% 19.7% 19.5%
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
Sales in our Personal Health Care segment for the three months ended June 30,
2000 were $29,152,000, representing an increase of 6.6 percent over the
comparable period in 1999. Increased showerhead sales, including sales of the
new Misting Massage(TM) Showerhead, and increased oral health sales, including
shipments of the new Water Pik(TM) Flosser, were partially offset by lower sales
of water treatment products.
Operating profit as a percentage of sales increased to 2.0 percent for the three
months ended June 30, 2000 from an operating loss of 3.1 percent of sales for
the three months ended June 30, 1999. This increase is due to improved cost
management and increased sales volume during the three months ended June 30,
2000 as well as to special expense items during the comparable period of 1999 of
$142,000 related to the closure of manufacturing facilities, $330,000 in bad
debt expense, $265,000 related to workforce reductions and $157,000 of spin-off
costs. These improvements were partially offset by 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 a special expense item of $705,000 in 2000 for severance
costs related to a workforce reduction.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
Sales in our Personal Health Care segment for the six months ended June 30, 2000
were $57,365,000, representing an increase of 2.7 percent over the comparable
period in 1999. The growth in sales is due to increased showerhead and oral
health sales partially offset by lower sales of water treatment products.
Operating profit as a percentage of sales increased to 2.7 percent for the six
months ended June 30, 2000 from 0.6 percent for the six months ended June 30,
1999. This increase is due to expense reductions resulting from improved cost
management and to increased sales volume during the six months ended June 30,
2000 as well as to special expense items during the comparable period of 1999 of
$142,000 related to the closure of manufacturing facilities, $930,000 in bad
debt expense, $265,000 related to workforce reductions and $157,000 of spin-off
costs. These
13
<PAGE> 14
improvements were partially offset by increased insurance costs, initial lower
gross margins on recently introduced products and $705,000 in special expenses
for severance costs related to a workforce reduction.
POOL PRODUCTS AND HEATING SYSTEMS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- --------------------------------
2000 1999 % Change 2000 1999 % Change
------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Sales $ 46,508 $ 37,514 24.0% $ 83,464 $ 62,613 33.3%
Operating profit $ 5,710 $ 5,410 5.5% $ 6,573 $ 6,445 2.0%
Operating profit as a percentage of sales 12.3% 14.4% 7.9% 10.3%
International sales as a percentage of
sales 18.0% 9.4% 17.7% 8.1%
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
Sales in our Pool Products and Heating Systems segment were $46,508,000 during
the three months ended June 30, 2000, an increase of $8,994,000 or 24.0 percent
over the comparable period of 1999. The growth in sales was across the pool
products and the heating systems product categories. Sales related to Olympic
accounted for $5,168,000 of the sales increase.
Operating profit as a percentage of sales decreased to 12.3 percent for the
three months ended June 30, 2000 from 14.4 percent in the comparable 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 margin
products, which was partially offset by savings from the consolidation of two
manufacturing facilities in October 1999. Selling expenses as a percentage of
sales and general and administrative expenses as a percentage of sales improved
in the three months ended June 30, 2000 as compared with the same period in 1999
as a result of leveraging fixed costs over a higher sales base. These
improvements were partially offset by an increase in insurance costs and
corporate expenses resulting from operating as an independent company subsequent
to the spin-off.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
Sales in our Pool Products and Heating Systems segment were $83,464,000 during
the six months ended June 30, 2000, an increase of $20,851,000 or 33.3 percent
over the comparable period of 1999. The strong growth in sales was across the
pool products and the heating systems product categories. Sales related to
Olympic accounted for $10,676,000 of the sales increase.
Operating profit as a percentage of sales decreased to 7.9 percent for the six
months ended June 30, 2000 from 10.3 percent in the comparable period of 1999.
This decrease is due to a decrease in the gross profit percentage, primarily as
a result of the lower gross margin products at Olympic, which were partially
offset by savings from consolidating manufacturing facilities in October 1999.
Selling expenses as a percentage of sales improved in the six months ended June
30, 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 were relatively constant for the six months ended June 30,
2000 and 1999 as improvements resulting from leveraging fixed costs over a
higher sales base were offset by increased insurance costs and corporate
expenses experienced subsequent to the spin-off.
14
<PAGE> 15
SEASONALITY
Our 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 permits customers to purchase pool
products during the winter months with extended payment terms.
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 principal 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 equity capital
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.
Our cash and cash equivalents decreased $198,000 from $1,514,000 at December 31,
1999 to $1,316,000 at June 30, 2000. Cash generated from operating activities of
$13,177,000 during the six months ended June 30, 2000 was used primarily to make
$3,779,000 in capital expenditures and for $9,531,000 in repayments of
borrowings under our credit facilities.
Cash provided by operating activities for the six months ended June 30, 1999 was
$17,024,000 and was used to make $1,669,000 in capital expenditures and to make
net advances to ATI of $15,438,000.
Our working capital decreased to $35,260,000 at June 30, 2000 from $41,272,000
at December 31, 1999. The current ratio was relatively constant at 1.7 at June
30, 2000 as compared to 1.8 at December 31, 1999. The decrease in working
capital at June 30, 2000 was primarily due to lower accounts receivable and
deferred income tax asset balances as well as to higher accrued income tax and
current portion of long-term debt balances. These effects were partially offset
by a higher inventory balance.
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. 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 June 30, 2000, there was $30,542,000 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. At June 30, 2000, the Company had CDN.
$8,909,000 of borrowing availability remaining under the credit facility.
These credit facilities require us 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 our assets was granted to 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.
15
<PAGE> 16
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.
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 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. On July 12, 2000, the IRS issued a
supplemental ruling which reduces the amount of equity capital required to be
raised by the Company from $50,000,000 to $15,000,000, provides an extension
until April 30, 2001 for the completion of the equity offering and permits the
Company to raise the required capital through a rights offering or through a
private placement.
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 equity 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.
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.
16
<PAGE> 17
PART II--OTHER INFORMATION
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Water Pik Technologies, Inc. was held on
May 4, 2000. Proxies for the meeting were solicited pursuant to Section 14(a) of
the Securities Exchange Act of 1934 and Regulation 14A thereunder for the
purpose of:
(i) Election of a class of two directors for a three-year term expiring in
2003;
(ii) Approval of the Company's 1999 Incentive Plan; and
(iii) Ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for 2000.
There was no solicitation in opposition to management's nominees for directors
and all of management's nominees were elected.
At the meeting, Charles J. Queenan, Jr. and James E. Rohr were elected as
directors for three-year terms expiring in 2003, the 1999 Incentive Plan was
approved and the appointment of Ernst & Young LLP as independent public auditors
was ratified.
The tables below summarize the results of the stockholder vote:
<TABLE>
<S> <C> <C> <C> <C>
Number Percentage
--------- -------------
Shares outstanding and entitled to vote 9,858,699 100.0%
Shares represented in person or by proxy at meeting 8,905,939 90.3%
Shares not voted at meeting 952,760 9.7%
Proposal One (Election of Directors)
Breakdown of votes cast for each nominee Votes For Votes Withheld
--------- --------------
Charles J. Queenan, Jr. 8,792,827 113,112
James E. Rohr 8,842,442 63,497
Proposal Two (Approval of 1999 Incentive Plan) Broker
Breakdown of votes cast Votes For Votes Against Abstain Non-Votes
--------- ------------- ------- ---------
5,188,535 749,657 223,984 2,743,763
Proposal Three (Ratification of Auditor Appointment)
Breakdown of votes cast Broker
Votes For Votes Against Abstain Non-Votes
--------- ------------- ------- ---------
8,873,579 25,216 7,144 0
</TABLE>
17
<PAGE> 18
ITEM 5. OTHER INFORMATION
On July 12, 2000, the Internal Revenue Service (the "IRS") issued a supplemental
ruling to Allegheny Technologies Incorporated ("ATI") modifying certain
requirements imposed under a prior tax ruling made in connection with the
spin-off of the Company from ATI. The prior tax ruling required, among other
things, that the Company complete a $50 million public offering of common stock
within one year following the spin-off. The supplemental ruling reduces the
amount of equity capital required to be raised by the Company from $50 million
to $15 million and provides an extension until April 30, 2001 for the Company to
complete the equity offering. In addition, under the supplemental ruling the
Company may raise the required capital either through a rights offering or
through a private placement. The Company intends to use the additional capital
for strategic acquisitions, to accelerate the introduction of new products and
for further development of lower cost manufacturing capabilities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
*10.1 Water Pik Technologies, Inc. 1999 Non-Employee Director Stock
Compensation Plan, as Amended.
27.1 Financial Data Schedule
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K -
The Company has filed no reports on Form 8-K during the quarter ended
June 30, 2000 and through the date of this report.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements 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: August 14, 2000 By: /s/ Michael P. Hoopis
-------------------------------------
Michael P. Hoopis
President and Chief Executive Officer
Date: August 14, 2000 By: /s/ Victor C. Streufert
-------------------------------------
Victor C. Streufert
Vice President Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
*10.1 Water Pik Technologies, Inc. 1999 Non-Employee Director Stock
Compensation Plan, as Amended.
27.1 Financial Data Schedule
* Management contract or compensatory plan or arrangement.
</TABLE>
