<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 SEPTEMBER 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)
<TABLE>
<CAPTION>
DELAWARE 25-1843384
<S> <C>
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
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 November 10, 2000
was 9,923,685 shares.
<PAGE> 2
WATER PIK TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C>
Part I - Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - September 30, 2000 (unaudited) and
December 31, 1999 3
Consolidated Statements of Income - Three Months and
Nine Months Ended September 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 2000 and 1999 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Part II - Other Information
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>
September 30, December 31,
2000 1999
-------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,563 $ 1,514
Accounts receivable, less allowances for doubtful accounts of
$1,902 at September 30, 2000 and $1,372 at December 31, 1999 40,406 57,577
Inventories 38,715 25,349
Deferred income taxes 7,428 8,666
Prepaid expenses and other current assets 2,545 2,559
--------- ---------
TOTAL CURRENT ASSETS 90,657 95,665
Property, plant and equipment, net 38,514 38,248
Cost in excess of net assets acquired, net 20,762 21,972
Deferred income taxes 2,343 1,820
Other assets 1,587 1,926
--------- ---------
TOTAL ASSETS $ 153,863 $ 159,631
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,263 $ 27,958
Accrued income taxes 1,944 248
Accrued liabilities 22,302 22,646
Current portion of long-term debt 4,368 3,541
--------- ---------
TOTAL CURRENT LIABILITIES 51,877 54,393
Long-term debt, less current portion 30,884 39,883
Other accrued liabilities 9,000 8,665
--------- ---------
TOTAL LIABILITIES 91,761 102,941
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
September 30, 2000 and December 31, 1999, respectively 99 98
Additional paid-in capital 60,044 59,302
Retained earnings 6,482 1,196
Equity adjustments due to stock plans (4,357) (3,824)
Accumulated comprehensive loss (166) (82)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 62,102 56,690
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 153,863 $ 159,631
========= =========
</TABLE>
See accompanying notes
3
<PAGE> 4
WATER PIK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ---------------------------------
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ 65,154 $ 58,026 $ 205,983 $ 176,488
Cost and expenses:
Cost of sales 41,876 35,843 133,279 108,616
Selling expenses 11,092 12,003 35,372 35,444
General and administrative expenses 8,688 6,853 25,684 22,326
----------- ----------- ----------- -----------
61,656 54,699 194,335 166,386
----------- ----------- ----------- -----------
Income before other income and expenses 3,498 3,327 11,648 10,102
Interest expense 741 117 2,885 117
Other income (76) (45) (239) (164)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,833 3,255 9,002 10,149
Provision for income taxes 1,168 1,302 3,716 4,060
----------- ----------- ----------- -----------
NET INCOME $ 1,665 $ 1,953 $ 5,286 $ 6,089
=========== =========== =========== ===========
BASIC AND DILUTED NET INCOME PER COMMON SHARE $ 0.17 $ 0.20 $ 0.55 $ 0.63
=========== =========== =========== ===========
SHARES USED IN COMPUTING BASIC EARNINGS PER SHARE 9,698,827 9,522,940 9,677,315 9,618,480
=========== =========== =========== ===========
SHARES USED IN COMPUTING DILUTED EARNINGS PER SHARE 9,721,657 9,523,904 9,695,842 9,619,589
=========== =========== =========== ===========
</TABLE>
See accompanying notes
4
<PAGE> 5
WATER PIK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,286 $ 6,089
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 7,178 6,364
Deferred income taxes 715 5
Compensation expense arising from stock awards 185 --
Gain on sale of property, plant and equipment (9) (11)
Change in operating assets and liabilities:
Accounts receivable 18,013 14,379
Inventories (12,312) (5,034)
Accounts payable (5,170) 181
Accrued liabilities (1,051) 886
Accrued income taxes 2,041 --
Other assets and liabilities (89) 261
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES 14,787 23,120
-------- --------
INVESTING ACTIVITIES:
Purchases of businesses net of cash acquired (761) (2,500)
Purchases of property, plant and equipment (5,735) (4,340)
Disposals of property, plant and equipment 89 31
Other -- (84)
-------- --------
CASH USED IN INVESTING ACTIVITIES (6,407) (6,893)
-------- --------
FINANCING ACTIVITIES:
Net long-term debt borrowings (8,129) --
Principal payments on capital leases (170) --
Other -- (31)
Net advances to ATI -- (16,196)
-------- --------
CASH USED IN FINANCING ACTIVITIES (8,299) (16,227)
-------- --------
Effect of exchange rate changes on cash and cash equivalents (32) --
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 49 --
Cash and cash equivalents at beginning of period 1,514 --
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,563 $ --
======== ========
</TABLE>
See accompanying notes
5
<PAGE> 6
<TABLE>
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Net assets acquired under promissory note $ -- $ 6,597
Property, plant and equipment acquired under capital leases $ 107 $ --
SUPPLEMENTAL INFORMATION
Cash paid during the period:
Interest $ 2,995 $ --
Taxes $ 980 $ --
</TABLE>
See accompanying notes
6
<PAGE> 7
WATER PIK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS
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.
UNAUDITED INTERIM FINANCIAL INFORMATION
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and in June 2000, issued SFAS No. 138, which
amends and clarifies certain guidance in SFAS No. 133. These statements
establish accounting and reporting standards for derivative instruments. The
statements require that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. Water Pik Technologies must implement SFAS No. 133 by the first
quarter of 2001 and does not expect adoption to have a significant effect on its
consolidated results of operations or financial position.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements," (SAB 101),
which summarizes the staff's views regarding the application of generally
accepted accounting principles to the recognition, presentation and disclosure
of revenue in financial statements. The Company will implement SAB 101 in the
fourth quarter of 2000 and does not expect adoption to have a significant effect
on its consolidated results of operations or financial position.
In September 2000, The Emerging Issues Task Force (EITF) of the FASB reached a
final consensus on EITF Issue 00-10, "Accounting for Shipping and Handling Fees
and Costs." This consensus states that all amounts billed to a customer in a
sale transaction related to shipping and handling, if any, represent revenues
earned for the goods provided and should be classified as revenue. With respect
to the classification of costs related to shipping and handling incurred by the
seller, the EITF determined that the classification of such costs is an
accounting policy decision that should be disclosed. It also determined that if
shipping costs or handling costs are significant and are not classified as cost
of sales, a company should disclose both the amount of such costs and the line
item on the income statement that includes them. The EITF indicated that a
company cannot net the shipping and handling costs against shipping and handling
revenues in the financial statements. The Company has historically reported
outbound shipping costs net of shipping revenues in sales. The Company is
required to implement EITF 00-10 in the fourth quarter of 2000 with retroactive
application to all periods presented. The impact on the three months and nine
months ended September 30, 2000 would be an increase in sales and cost of sales
of $1,795,000 and
7
<PAGE> 8
$5,792,000, respectively. The impact on the three months and nine months ended
September 30, 1999 would be an increase in sales and cost of sales of $1,308,000
and $3,770,000, respectively.
2. INVENTORIES
Inventories are stated at the lower of cost (last-in, first-out (LIFO) and
first-in, first-out (FIFO) cost methods) or market. Inventories consist of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Raw materials and supplies $ 15,519 $ 14,144
Work-in-process 4,797 4,616
Finished goods 23,508 11,307
-------- --------
Total inventories at current cost 43,824 30,067
Less: Allowances to reduce current cost values to LIFO basis (5,109) (4,718)
-------- --------
Total inventories $ 38,715 $ 25,349
======== ========
</TABLE>
Inventories determined using the LIFO method were $29,725,000 at September 30,
2000 and $19,841,000 at December 31, 1999. The remainder of inventory was
determined using the FIFO method. These inventory values do not differ
materially from current cost.
3. LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Revolving credit facility $ 27,393 $ 32,884
Canadian revolving credit facility 843 3,402
8 percent promissory note 6,620 6,679
Capitalized leases 396 459
-------- --------
35,252 43,424
Less: Current portion (4,368) (3,541)
-------- --------
Long-term debt $ 30,884 $ 39,883
======== ========
</TABLE>
8
<PAGE> 9
4.COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $ 1,665 $ 1,953 $ 5,286 $ 6,089
Foreign currency translation gains (losses) 102 77 (84) 130
---------------------- -----------------------
Comprehensive income $ 1,767 $ 2,030 $ 5,202 $ 6,219
====================== =======================
</TABLE>
5. 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, personal injury, 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.
6. 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 nine
months ended September 30, 2000 were $15,000 and $415,000, respectively.
9
<PAGE> 10
The results of operations for the three months and nine months ended September
30, 1999 include expenses allocated from ATI of $5,355,000 and $9,932,000,
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 September 30, 2000, which also include amounts for
invoices paid by ATI on behalf of the Company, were $1,124,000. Amounts payable
to ATI at December 31, 1999 were $1,005,000.
7. 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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average outstanding common shares - basic 9,698,827 9,522,940 9,677,315 9,618,480
Shares issuable upon exercise of dilutive options 22,830 964 18,527 1,109
-------------------------- --------------------------
Average outstanding common shares - diluted 9,721,657 9,523,904 9,695,842 9,619,589
========================== ==========================
</TABLE>
8. ACQUISITIONS
On July 30, 2000, the Company acquired the assets of Allegheny Technologies
Japan Ltd., a distributor of the Company's Personal Health Care products, for
$1,265,000 in cash. In connection with the purchase, the Company acquired
working capital of $1,255,000 and property, plant and equipment of $10,000. The
transaction was accounted for as a purchase acquisition and, accordingly, the
results of operations of Allegheny Technologies Japan Ltd. are included in the
Company's consolidated financial statements from the date of acquisition. Pro
forma comparative results of operations are not presented because they are not
materially different from the Company's reported results of operations.
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.
10
<PAGE> 11
Information on the Company's business segments is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales:
Personal Health Care $ 32,127 $ 30,761 $ 89,492 $ 86,610
Pool Products and Heating Systems 33,027 27,265 116,491 89,878
--------------------------- ---------------------------
Total Sales $ 65,154 $ 58,026 $ 205,983 $ 176,488
=========================== ===========================
Operating profit:
Personal Health Care $ 2,598 $ 3,047 $ 4,175 $ 3,377
Pool Products and Heating Systems 900 280 7,473 6,725
--------------------------- ---------------------------
Total operating profit 3,498 3,327 11,648 10,102
Interest expense 741 117 2,885 117
Other income (76) (45) (239) (164)
--------------------------- ---------------------------
Income before taxes $ 2,833 $ 3,255 $ 9,002 $ 10,149
=========================== ===========================
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------------------------------------------------------------
<S> <C> <C>
Identifiable assets:
Personal Health Care $ 56,025 $ 44,657
Pool Products and Heating Systems 86,296 100,507
Corporate 11,542 14,467
------------------------
Total identifiable assets: $153,863 $159,631
========================
</TABLE>
Total international sales were $9,385,000 and $35,487,000 for the three months
and nine months ended September 30, 2000, respectively, and $11,524,000 and
$27,517,000 for the three and nine months ended September 30, 1999,
respectively. Of these amounts, sales by operations in the United States to
customers in other countries amounted to $3,973,000 and $14,132,000 for the
three and nine months ended September 30, 2000, respectively and $6,813,000 and
$19,637,000 for the three and nine months ended September 30, 1999 respectively.
11
<PAGE> 12
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, electronic controls, valves and water features; and residential and
commercial water-heating systems.
Total sales of the Company's two segments for the three months and nine months
ended September 30, 2000 and 1999 are summarized below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------- -------------------------------------------
Segment 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Personal Health Care $ 32,127 49.3% $ 30,761 53.0% $ 89,492 43.4% $ 86,610 49.1%
Pool Products and Heating Systems 33,027 50.7% 27,265 47.0% 116,491 56.6% 89,878 50.9%
------------------ ------------------ ------------------ ------------------
Total Sales $ 65,154 100.0% $ 58,026 100.0% $ 205,983 100.0% $ 176,488 100.0%
================== ================== ================== ==================
</TABLE>
RESULTS OF OPERATIONS
Consolidated Results of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------- ---------------------------------------
2000 1999 % 2000 1999 %
--------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Sales $ 65,154 $ 58,026 12.3% $ 205,983 $ 176,488 16.7%
Gross profit $ 23,278 $ 22,183 4.9% $ 72,704 $ 67,872 7.1%
Operating profit $ 3,498 $ 3,327 5.1% $ 11,648 $ 10,102 15.3%
Gross profit as a percentage of sales 35.7% 38.2% 35.3% 38.5%
Operating profit as a percentage of sales 5.4% 5.7% 5.7% 5.7%
International sales as a percentage of sales 14.4% 19.9% 17.2% 15.6%
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Sales for the three months ended September 30, 2000 were $65,154,000,
representing an increase of 12.3 percent over the comparable period in 1999,
primarily due to increased sales of pool products and heating systems. Sales
related to Olympic Pool Accessories ("Olympic") in Canada, acquired in August
1999, accounted for $844,000 of the sales increase. Gross profit (sales less
cost of sales) as a percentage of sales for the three months ended September 30,
2000 decreased to 35.7 percent compared with 38.2 percent for the three months
ended September 30, 1999. This decrease is primarily due to a shift in product
sales mix to lower margin pool products and heating
12
<PAGE> 13
systems, to increased insurance costs as an independent company subsequent to
the spin-off and to lower prices for certain personal health care products in
response to increased competitive pressures.
Operating profit (gross profit less selling expenses and general and
administrative expenses) as a percentage of sales decreased to 5.4 percent for
the three months ended September 30, 2000 from 5.7 percent for the three months
ended September 30, 1999 primarily due to the decrease in the gross profit
percentage and an increase in general and administrative expenses as a
percentage of sales partially offset by a decrease in selling expenses as a
percentage of sales. Other special expense items affecting operating profit in
the quarter ended September 30, 1999 were $228,000 in expenses related to the
closure of manufacturing facilities of which $116,000 was recorded as cost of
sales and $112,000 as general and administrative expenses, $267,000 of expenses
relating to workforce reductions in various administrative and engineering
departments of which $115,000 was recorded as cost of sales and $152,000 as
general and administrative expenses, and $128,000 of spin-off expenses.
Selling expenses as a percentage of sales were 17.0 percent in the three months
ended September 30, 2000 as compared to 20.7 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 to 1999.
General and administrative expenses as a percentage of sales for the three
months ended September 30, 2000 increased to 13.3 percent as compared to 11.8
percent in the three months ended September 30, 1999. This increase is primarily
due 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 September 30, 1999 include a corporate allocation
from ATI whereas general and administrative expenses for the three months ended
September 30, 2000 include the actual corporate expenses incurred as an
independent company. This increase was partially offset by the $392,000 in
special expense items during the three months ended September 30, 1999 as
described above.
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 $741,000 for the three months ended September 30, 2000. The
Company had no interest expense in the three months ended September 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.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1999
Sales for the nine months ended September 30, 2000 were $205,983,000,
representing an increase of 16.7 percent over the comparable period in 1999,
primarily due to increased sales of pool products and heating systems. Sales
related to Olympic accounted for $11,520,000 of the sales increase. Gross profit
as a percentage of sales for the nine months ended September 30, 2000 decreased
to 35.3 percent compared to 38.5 percent for the nine months ended September 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, 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.
Operating profit (gross profit less selling expenses and general and
administrative expenses) as a percentage of sales was consistent at 5.7 percent
for the nine months ended September 30, 2000 and September 30, 1999. Operating
profit for the nine months ended September 30, 2000 was also impacted by
$705,000 in severance 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 special expense items in the nine months
ended September 30, 1999 affecting operating profits were $759,000 in expenses
related to the closure of manufacturing facilities of which $258,000 was
recorded as cost of sales and $501,000 as general and administrative expenses,
$930,000 in bad debt expense, $532,000 of expenses relating to workforce
reductions in various administrative and engineering departments and $285,000 of
spin-off expenses.
Selling expenses as a percentage of sales were 17.2 percent in the nine months
ended September 30, 2000 as compared to 20.1 percent in the same period of 1999.
Selling expenses were relatively constant at $35,372,000 for the nine months
ended September 30, 2000 as compared with $35,444,000 for the nine months ended
September 30, 1999. The favorable trend in selling expenses resulted from
leveraging fixed costs over a higher sales base and
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<PAGE> 14
from the timing of expenses incurred in 2000 as compared to 1999, partially
offset by the $266,000 in severance costs as discussed above.
General and administrative expenses as a percentage of sales for the nine months
ended September 30, 2000 decreased to 12.5 percent as compared to 12.7 percent
in the nine months ended September 30, 1999 primarily due to the special expense
items in the nine months ended September 30, 1999 as discussed above. General
and administrative expenses increased $3,358,000 to $25,684,000 for the nine
months ended September 30, 2000 from $22,326,000 for the same period in 1999.
The 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. General and administrative expenses for the nine
months ended September 30, 1999 include a corporate allocation from ATI whereas
general and administrative expenses for the nine months ended September 30, 2000
include the actual corporate expenses incurred as an independent company.
Interest expense was $2,885,000 for the nine months ended September 30, 2000.
The Company had no interest expense in the nine months ended September 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 Nine Months Ended
September 30, September 30,
------------------------------------- -------------------------------------
2000 1999 % 2000 1999 %
------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Sales $ 32,127 $ 30,761 4.4% $ 89,492 $ 86,610 3.3%
Operating profit $ 2,598 $ 3,047 (14.7)% $ 4,175 $ 3,377 23.6%
Operating profit as a percentage of sales 8.1% 9.9% 4.7% 3.9%
International sales as a percentage of sales 16.6% 26.7% 18.6% 22.1%
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Sales in the Personal Health Care segment for the three months ended September
30, 2000 were $32,127,000, representing an increase of 4.4 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 decreased to 8.1 percent for the three
months ended September 30, 2000 from 9.9 percent for the three months ended
September 30, 1999. The decrease in the operating profit percentage is primarily
due to increased insurance costs as an independent company subsequent to the
spin-off, to lower prices for certain products in response to increased
competitive pressures and to a change in product mix to lower-margin products
partially offset by special expense items in the three months ended September
30, 1999 of $142,000 related to the closure of manufacturing facilities,
$267,000 related to workforce reductions and $128,000 in spin-off costs.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1999
Sales in the Personal Health Care segment for the nine months ended September
30, 2000 were $89,492,000, representing an increase of 3.3 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 4.7 percent for the nine
months ended September 30, 2000 from 3.9 percent for the nine months ended
September 30, 1999. This increase is primarily due to increased sales volume
during the nine months ended September 30, 2000 as well as to special expense
items in the nine months ended September 30, 1999 of $258,000 related to the
closure of manufacturing facilities, $930,000 in bad debt
14
<PAGE> 15
expense, $532,000 related to workforce reductions and $285,000 of spin-off
costs. These improvements were partially offset by increased insurance costs,
initial lower gross margins on recently introduced products, lower prices for
certain products in response to increased competitive pressures and $705,000 in
special expenses for severance costs related to a workforce reduction.
POOL PRODUCTS AND HEATING SYSTEMS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------- --------------------------------------
2000 1999 % 2000 1999 %
--------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Sales $ 33,027 $ 27,265 21.1% $ 116,491 $ 89,878 29.6%
Operating profit $ 900 $ 280 221.4% $ 7,473 $ 6,725 11.1%
Operating profit as a percentage of sales 2.7% 1.0% 6.4% 7.5%
International sales as a percentage of sales 12.2% 12.1% 16.2% 9.3%
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Sales in the Pool Products and Heating Systems segment were $33,027,000 during
the three months ended September 30, 2000, an increase of $5,762,000 or 21.1
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 $844,000 of the sales increase.
Operating profit as a percentage of sales increased to 2.7 percent for the three
months ended September 30, 2000 from 1.0 percent in the comparable period of
1999. This increase is due to a increase in the gross profit percentage,
primarily due to savings from the consolidation of two manufacturing facilities
in October 1999. Selling expenses as a percentage of sales improved in the three
months ended September 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.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1999
Sales in the Pool Products and Heating Systems segment were $116,491,000 during
the nine months ended September 30, 2000, an increase of $26,613,000 or 29.6
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 $11,520,000 of the sales increase.
Operating profit as a percentage of sales decreased to 6.4 percent for the nine
months ended September 30, 2000 from 7.5 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 nine
months ended September 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 increased over the same period
due to increased insurance costs and corporate expenses experienced 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 stronger
retail demand during the holiday season. However, in recent months a number of
the Company's larger retail customers have reported that they anticipate a
continued slowing in retail sales for the fourth quarter 2000 and have taken
steps to more closely manage their inventories. The Pool Products and Heating
Systems segment has
15
<PAGE> 16
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 as is consistent with industry practice.
FINANCIAL CONDITION AND LIQUIDITY
The Company's principal capital requirements are to fund working capital needs
and capital expenditures and to meet required debt payments. The Company
anticipates that its operating cash flow, together with available borrowings
under its credit facilities described below, will be sufficient to meet working
capital requirements, capital expenditure requirements and principal and
interest service requirements on its debt obligations for at least the next 12
months. However, all of the Company's planned product line extensions, new
product development plans, capital expenditure programs and possible
acquisitions cannot be achieved without additional capital. The Company is
required to raise additional equity capital under the terms of the tax-free
spin-off from ATI. Depending upon market conditions, the Company may also choose
to issue additional stock or debt.
Cash and cash equivalents increased $49,000 from $1,514,000 at December 31, 1999
to $1,563,000 at September 30, 2000. Cash generated from operating activities of
$14,787,000 during the nine months ended September 30, 2000 was used primarily
to make $5,735,000 in capital expenditures and $761,000 in acquisitions and for
$8,129,000 in repayments of borrowings under credit facilities.
Cash provided by operating activities for the nine months ended September 30,
1999 was $23,120,000 and was used to make $4,340,000 in capital expenditures and
$2,500,000 in acquisitions and to make net advances to ATI of $16,196,000.
Working capital decreased to $38,780,000 at September 30, 2000 from $41,272,000
at December 31, 1999. The current ratio was relatively constant at 1.7 at
September 30, 2000 as compared to 1.8 at December 31, 1999. The decrease in
working capital at September 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. These fluctuations result
primarily from the normal seasonality of the Company's operations.
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 September 30, 2000, there was
$23,042,000 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 September 30, 2000, the Company had
CDN. $8,114,000 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 total consolidated indebtedness to
earnings before interest, taxes, depreciation and amortization. A security
interest in substantially all of the Company's assets was granted to the lenders
under the credit agreements as collateral.
The Company currently anticipates that no cash dividends will be paid on Water
Pik Technologies common stock in order to conserve cash for use in the Company's
business, including new product development and possible future acquisitions. In
addition, the terms of the Company's credit facilities prohibit the Company from
paying dividends. The Company's Board of Directors will periodically re-evaluate
the dividend policy taking into account operating results, capital needs, the
terms of the credit facilities and other factors.
Prior to November 29, 1999, the Company participated in the general liability,
product liability and workers'
16
<PAGE> 17
GORDON L. ROGERS
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 the Company is at risk for losses. In connection
with the spin-off, the Company has agreed to indemnify ATI for losses
attributable to its 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 the Company's 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 Water Pik Technologies 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.
17
<PAGE> 18
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 September 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: November 14, 2000 By: /s/ Michael P. Hoopis
--------------------------------------
Michael P. Hoopis
President and Chief Executive Officer
Date: November 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 INDEXT
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
20
