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 MARCH 31, 2001
[ ] 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 (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
23 CORPORATE PLAZA, SUITE 246
NEWPORT BEACH, CA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 719-3700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock outstanding on May 7, 2001 was
12,245,011 shares.
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WATER PIK TECHNOLOGIES, INC.
INDEX
Page Number
-----------
Part I - Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 2001 (unaudited) and
December 31, 2000 3
Consolidated Statements of Income - Three months
ended March 31, 2001 and 2000 (unaudited) 4
Consolidated Statements of Cash Flows - Three months
ended March 31, 2001 and 2000 (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 15
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
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PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
WATER PIK TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share amounts)
March 31, December 31,
2001 2000
-----------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,327 $ 1,383
Accounts receivable, less allowances for doubtful accounts of
$1,842 at March 31, 2001 and $1,910 at December 31, 2000 59,654 62,519
Inventories 41,986 33,866
Deferred income taxes 8,367 6,877
Prepaid expenses and other current assets 2,619 2,284
--------- ---------
TOTAL CURRENT ASSETS 113,953 106,929
Property, plant and equipment, net 46,031 42,364
Cost in excess of net assets acquired, net 19,730 20,109
Deferred income taxes 1,260 1,760
Other assets 1,925 2,034
--------- ---------
TOTAL ASSETS $ 182,899 $ 173,196
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,379 $ 26,255
Accrued income taxes -- 3,284
Accrued liabilities 16,074 25,162
Current portion of long-term debt 10,028 5,740
--------- ---------
TOTAL CURRENT LIABILITIES 49,481 60,441
Long-term debt, less current portion 45,617 36,995
Other accrued liabilities 8,167 9,013
--------- ---------
TOTAL LIABILITIES 103,265 106,449
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value: 5,000,000 shares
authorized; none issued -- --
Common stock, $0.01 par value: 50,000,000 shares authorized;
11,910,673 and 9,923,685 shares issued and outstanding at
March 31, 2001 and December 31, 2000, respectively 119 99
Additional paid-in capital 73,640 60,064
Retained earnings 10,647 11,399
Equity adjustments due to stock plans (4,274) (4,314)
Accumulated comprehensive loss (498) (501)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 79,634 66,747
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 182,899 $ 173,196
========= =========
See accompanying notes
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WATER PIK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for share and per share amounts)
(Unaudited)
Three Months Ended
March 31,
------------------------------
2001 2000
---------------------------------------------------------------------------------------
SALES $ 56,174 $ 67,104
Cost and expenses:
Cost of sales 38,234 44,782
Selling expenses 11,450 12,096
General and administrative expenses 6,942 8,363
------------ ------------
56,626 65,241
------------ ------------
Income (loss) before other income and expenses (452) 1,863
Interest expense 883 1,001
Other income (100) (60)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,235) 922
Provision (benefit) for income taxes (483) 381
------------ ------------
NET INCOME (LOSS) $ (752) $ 541
============ ============
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE $ (0.06) $ 0.06
============ ============
SHARES USED IN COMPUTING BASIC EARNINGS PER SHARE 11,643,000 9,742,000
============ ============
SHARES USED IN COMPUTING DILUTED EARNINGS PER SHARE 11,643,000 9,772,000
============ ============
See accompanying notes
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WATER PIK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------
2001 2000
--------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $ (752) $ 541
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 2,185 2,411
Deferred income taxes (990) 1,057
Compensation expense arising from stock awards 139 24
Change in operating assets and liabilities:
Accounts receivable 2,888 (8,412)
Inventories (8,119) (5,213)
Accounts payable (2,895) (2,622)
Accrued liabilities (9,228) (866)
Accrued income taxes (3,209) (703)
Other assets and liabilities (1,230) 312
-------- --------
CASH USED IN OPERATING ACTIVITIES (21,211) (13,471)
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (5,284) (1,111)
Disposals of property, plant and equipment 16 3
-------- --------
CASH USED IN INVESTING ACTIVITIES (5,268) (1,108)
-------- --------
FINANCING ACTIVITIES:
Net long-term debt borrowings 12,914 14,918
Net proceeds from common stock offering 13,646 --
Principal payments on capital leases (58) (60)
-------- --------
CASH PROVIDED BY FINANCING ACTIVITIES 26,502 14,858
-------- --------
Effect of exchange rate changes on cash and cash equivalents (79) 28
-------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (56) 307
Cash and cash equivalents at beginning of period 1,383 1,514
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,327 $ 1,821
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Property, plant and equipment acquired under capital leases $ -- $ 84
SUPPLEMENTAL INFORMATION
Cash paid during the period:
Interest $ 818 $ 894
Taxes $ 4,067 $ 64
See accompanying notes
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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") is a
leader in the design, manufacturing and marketing of a broad range of
well-recognized personal health care products 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. Water Pik
Technologies operates in two business segments -- Personal Health Care and Pool
Products and Heating Systems.
SPIN-OFF FROM ALLEGHENY TELEDYNE INCORPORATED
Water Pik Technologies, Inc. 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.
Water Pik Technologies consists of the former consumer products segment of ATI,
which includes the operations of the Teledyne Water Pik division with operations
in the U.S. and Canada and the Teledyne Laars division with operations in the
U.S. and Canada.
UNAUDITED INTERIM FINANCIAL INFORMATION
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 2001 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, 2000. Operating results for the
interim periods presented are not necessarily indicative of the results to be
expected for the full year ended December 31, 2001.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued 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. Adoption of SFAS No. 133
in the first quarter of 2001 did not have a significant effect on the Company's
consolidated results of operations or financial position.
In September 2000, the Emerging Issues Task Force (EITF) reached a final
consensus on EITF Issue 00-10, "Accounting for Shipping and Handling Fees and
Costs," which addresses the classification of shipping and handling costs and
the related revenue. The Company adopted EITF Issue 00-10 in the fourth quarter
of 2000 resulting in a reclassification of outgoing freight costs from a
deduction in arriving at net sales to an expense in cost of sales. In accordance
with the guidance, outgoing freight costs for all prior periods presented have
been reclassified. As a result of the reclassification, sales and cost of sales
for the three months ended March 31, 2000 increased $1,935,000 to $67,104,000
and $44,782,000, respectively. These reclassifications had no effect on reported
gross profit or results of operations.
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In May 2000, the EITF reached a consensus on EITF Issue 00-14, "Accounting for
Certain Sales Incentives." EITF 00-14, as amended, addresses the recognition,
measurement and income statement classification for sales incentives offered
voluntarily by a vendor without charge to customers that can be used in, or that
are exercisable by a customer as a result of, a single exchange transaction. The
Company is required to adopt EITF Issue 00-14 by the first quarter of 2002.
Management does not anticipate that the adoption of EITF Issue 00-14 will have a
significant impact on the Company's consolidated results of operations,
financial position or income statement classification.
In April 2001, the EITF reached a consensus on EITF Issue 00-25 "Vendor Income
Statement Characterization of Consideration from a Vendor to a Retailer." This
guidance requires that consideration paid by a vendor to a retailer be
classified in the vendor's income statement as a reduction of revenue instead of
expense unless certain criteria are met. The Company is required to adopt EITF
Issue 00-25 by the first quarter of 2002. Management is currently evaluating the
impact of adopting EITF Issue 00-25.
RECLASSIFICATIONS
Certain amounts reported in previous periods have been reclassified to conform
to the 2001 presentation. These reclassifications had no effect on reported
results of operations or stockholders' equity.
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:
March 31, December 31,
2001 2000
------------------------------------------------------------------------------------------
(In thousands)
Raw materials and supplies $ 14,530 $ 12,207
Work-in-process 6,282 5,273
Finished goods 25,866 21,026
-------- --------
Total inventories at current cost 46,678 38,506
Less: Allowances to reduce current cost values to LIFO basis (4,692) (4,640)
-------- --------
Total inventories $ 41,986 $ 33,866
======== ========
Inventories determined using the LIFO cost method were $35,278,000 at March 31,
2001 and $28,515,000 at December 31, 2000, net of the respective LIFO reserves.
The remainder of inventory was determined using the FIFO cost method. These
inventory values prior to the LIFO reserve do not differ materially from cost to
current cost.
3. LONG-TERM DEBT
Long-term debt is comprised of the following:
March 31, December 31,
2001 2000
------------------------------------------------------------------------------
(In thousands)
Revolving credit facility $ 45,519 $ 36,845
Canadian revolving credit facility 6,649 2,399
8 percent promissory note 3,174 3,133
Capitalized leases 303 358
-------- --------
55,645 42,735
Less: Current portion (10,028) (5,740)
-------- --------
Long-term debt $ 45,617 $ 36,995
======== ========
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4. STOCKHOLDERS' EQUITY
On January 3, 2001, the Company sold 1,973,685 shares of common stock at $7.60
per share to two investment funds managed by Special Value Investment
Management, LLC in a private placement. Proceeds from the offering in the amount
of $15,000,006, net of $1,354,000 in offering costs, were used for capital
expenditures related to new product development activities and to repay
borrowings under the Company's revolving credit facility pending their future
use for new product development activities and for further development of lower
cost manufacturing capabilities in accordance with the amended IRS tax ruling
received by ATI in connection with the spin-off. Subsequent to January 3, 2002,
at the request of the purchaser, the Company has the obligation to register
these shares, plus an additional 386,800 shares of common stock that the
purchasers owned prior to the offering, under the Securities Act of 1933, as
amended, and to pay certain registration expenses.
5. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) were as follows:
Three Months Ended
March 31,
----------------------
2001 2000
--------------------------------------------------------------------------------
(in thousands)
Net income (loss) $(752) $ 541
Foreign currency translation gains 3 47
---------------------
Comprehensive income (loss) $(749) $ 588
=====================
6. INCOME TAXES
The provision for income taxes for the 2001 and 2000 interim periods was
computed in accordance with FASB Interpretation No. 18, "Accounting for Income
Taxes in Interim Periods," and was based on projections of total year pretax
income in accordance with SFAS No. 109, "Accounting for Income Taxes." The
effective income tax rate was 39.1 percent and 41.3 percent for the three months
ended March 31, 2001 and 2000, respectively. The decrease in the effective tax
rate in 2001 is due to a more favorable apportionment method for state income
taxes and to the identification and utilization of state tax credits and
research and development credits not utilized in prior years.
7. LEGAL CONTINGENCIES
A number of lawsuits, claims and proceedings have been or may be asserted
against the Company relating to the conduct of its business, including those
pertaining to product liability, 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.
The Tax Sharing and Indemnification Agreement between the Company and ATI
provides that the Company will indemnify ATI and its directors, officers, agents
and representatives for any taxes imposed on, and other amounts paid by, them or
ATI's stockholders if the Company takes actions or fails to take actions that
result in the spin-off not qualifying as a tax-free distribution. Pursuant to
the Tax Sharing and Indemnification Agreement, the Company has agreed for a
two-year period following the date of the spin-off: (i) to continue to engage in
the Company's businesses; (ii) to continue to own and manage at least 50 percent
of the assets owned directly or indirectly immediately after the spin-off; and
(iii) not to engage in a number of specified transactions without the consent of
ATI. 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.
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8. EARNINGS PER SHARE
Basic income (loss) per common share is calculated by dividing net income (loss)
by the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per share is calculated by dividing net income (loss)
by the sum of the weighted average number of common shares outstanding plus the
dilutive effect of unvested restricted shares and outstanding stock options
using the "treasury stock" method.
A reconciliation of weighted average shares outstanding, used to calculate basic
net income (loss) per common share, to weighted average shares outstanding
assuming dilution, used to calculate diluted net income (loss) per common share,
follows:
Three Months Ended
March 31,
--------------------
2001 2000
---------------------------------------------------------------------------------------------
(in thousands)
Weighted average common shares outstanding - basic 11,643 9,742
Dilutive effect of employee stock options and restricted shares -- 30
--------------------
Weighted average common shares outstanding - diluted 11,643 9,772
====================
As a result of the net loss reported for the three months ended March 31, 2001,
unvested restricted stock and outstanding stock options have been excluded from
the calculation of diluted loss per share because their effect would be
anti-dilutive.
9. BUSINESS SEGMENTS
The Company operates in two business segments organized around its products:
Personal Health Care and Pool Products and Heating Systems. The Personal Health
Care segment designs, manufactures and markets showerheads, oral health
products, water filtration products and professional dental products. The Pool
Products and Heating Systems segment designs, manufactures and markets swimming
pool and spa heaters, electronic controls, valves, water features and
residential and commercial water-heating systems.
Information on the Company's business segments is as follows:
Three Months Ended
March 31,
-------------------------
2001 2000
-------------------------------------------------------------------------------
(in thousands)
Sales:
Personal Health Care $ 27,607 $ 28,265
Pool Products and Heating Systems 28,567 38,839
-------------------------
Total sales $ 56,174 $ 67,104
=========================
Operating profit (loss):
Personal Health Care $ 1,274 $ 1,000
Pool Products and Heating Systems (1,726) 863
-------------------------
Total operating profit (loss) (452) 1,863
Interest expense 883 1,001
Other income (100) (60)
-------------------------
Income (loss) before taxes $ (1,235) $ 922
=========================
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March 31, December 31,
2001 2000
----------------------------------------------------------------------------
(in thousands)
Identifiable assets:
Personal Health Care $ 55,437 $ 53,842
Pool Products and Heating Systems 116,777 108,867
Corporate 10,685 10,487
------------------------
Total identifiable assets: $182,899 $173,196
========================
Total international sales were $9,814,000 and $12,121,000 for the three months
ended March 31, 2001 and 2000, respectively. Of these amounts, sales by
operations in the United States to customers in other countries amounted to
$4,498,000 and $4,898,000 for the three months ended March 31, 2001 and 2000,
respectively.
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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, 2000. 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 Personal Health Care
segment designs, manufactures and markets personal health care products,
including showerheads, oral health products, water filtration products and
professional dental products. The Pool Products and Heating Systems segment
designs, manufactures and markets swimming pool and spa heaters, electronic
controls, valves, water features and residential and commercial water-heating
systems.
Total sales of the Company's two segments for the three months ended March 31,
2001 and 2000 are summarized below:
Three Months Ended
March 31,
-----------------------------------
Segment 2001 2000
-------------------------------------------------------------------------------------------
(Dollars in thousands)
Personal Health Care $27,607 49.1% $28,265 42.1%
Pool Products and Heating Systems 28,567 50.9% 38,839 57.9%
--------------- ---------------
Total sales $56,174 100.0% $67,104 100.0%
=============== ===============
RESULTS OF OPERATIONS
Consolidated Results of Operations
Three Months Ended
March 31,
-------------------------------
2001 2000 % Change
----------------------------------------------------------------------------------------
(Dollars in thousands)
Sales $56,174 $67,104 (16.3)%
Gross profit $17,940 $22,322 (19.6)%
Operating profit (loss) $ (452) $ 1,863 (124.3)%
Gross profit as a percentage of sales 31.9% 33.3%
Operating profit (loss) as a percentage of sales (0.8)% 2.8%
International sales as a percentage of sales 17.5% 18.1%
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2000
Sales for the three months ended March 31, 2001 were $56,174,000, representing a
decrease of $10,930,000 or 16.3 percent over the comparable period in 2000,
primarily due to lower sales in the Pool Products and Heating Systems segment.
Gross profit (sales less cost of sales) as a percentage of sales for the three
months ended March 31, 2001 decreased to 31.9 percent compared with 33.3 percent
for the three months ended March 31, 2000 primarily due to the lower sales
volume as discussed above.
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Operating profit (gross profit less selling expenses and general and
administrative expenses) decreased $2,315,000 to an operating loss of $452,000
for the three months ended March 31, 2001 from an operating profit of $1,863,000
for the three months ended March 31, 2000. The decrease in gross profit of
$4,382,000 resulting from lower sales of pool products and heating systems
products was partially offset by a $2,067,000 decrease in selling, general and
administrative expenses.
Selling expenses decreased $646,000 to $11,450,000 for the three months ended
March 31, 2001 from $12,096,000 for the three months ended March 31, 2000. The
decrease relates primarily to the lower sales levels as well as to cost
reduction initiatives implemented during the quarter to mitigate the impact of
lower sales.
General and administrative expenses decreased $1,421,000 to $6,942,000 for the
three months ended March 31, 2001 from $8,363,000 for the three months ended
March 31, 2000. This improvement is primarily due to cost cutting measures
implemented in the first quarter of 2001 and to higher initial costs experienced
in the first quarter of 2000 subsequent to the spin-off from ATI partially
offset by an increase in research and development expense related to new product
development.
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, decreased $118,000 to $883,000 for the three months ended March 31,
2001 from $1,001,000 for the three months ended March 31, 2000. This decrease is
due to lower average balances outstanding under the credit facilities during
first quarter 2001 compared to first quarter 2000 as net offering proceeds of
$13,646,000 were used to repay borrowings pending their use for new product
development activities and for further development of lower cost manufacturing
capabilities in accordance with the amended IRS tax ruling received by ATI in
connection with the spin-off. Additionally, the weighted average interest rate
on borrowings during first quarter 2001 was lower than the weighted average rate
during first quarter 2000.
PERSONAL HEALTH CARE
Three Months Ended
March 31,
---------------------------------
2001 2000 % Change
-------------------------------------------------------------------------------------------
(Dollars in thousands)
Sales $27,607 $28,265 (2.3)%
Operating profit $ 1,274 $ 1,000 27.4%
Operating profit as a percentage of sales 4.6% 3.5%
International sales as a percentage of sales 16.9% 19.8%
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2000
Sales in the Personal Health Care segment for the three months ended March 31,
2001 were $27,607,000, a decrease of $658,000 or 2.3 percent over the comparable
period in 2000, reflecting the continued difficult U.S. retail environment.
Lower sales of showerheads and professional oral health products offset
increased consumer oral health sales, including increased sales of the Water
Pik(TM) flosser and oral irrigators.
Operating profit increased $274,000 to $1,274,000 for the three months ended
March 31, 2001 from $1,000,000 for the three months ended March 31, 2000. Lower
selling, general and administrative costs from cost reduction initiatives
implemented in the fourth quarter of 2000 and first quarter of 2001 were
partially offset by increased research and development costs related to new
product development.
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POOL PRODUCTS AND HEATING SYSTEMS
Three Months Ended
March 31,
---------------------------------
2001 2000 % Change
-------------------------------------------------------------------------------------------
(Dollars in thousands)
Sales $28,567 $38,839 (26.4)%
Operating profit (loss) $(1,726) $ 863 (300.0)%
Operating profit (loss) as a percentage of sales (6.0)% 2.2%
International sales as a percentage of sales 18.0% 16.8%
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2000
Sales in the Pool Products and Heating Systems were $28,567,000 for the three
months ended March 31, 2001, a decrease of $10,272,000 or 26.4 percent from the
comparable period of 2000. This decrease is primarily due to high customer
inventory levels resulting from aggressive customer purchasing during the fourth
quarter 2000 as well as unusually wet weather patterns in the Sunbelt states and
a prolonged winter in the Northern states during the first quarter 2001 compared
to the first quarter of 2000.
Operating profit decreased $2,589,000 to an operating loss of $1,726,000 for the
three months ended March 31, 2001 from an operating profit of $863,000 in the
comparable period of 2000. This decrease is due to lower sales across all
product lines within the segment partially offset by the impact of cost
reduction initiatives implemented in the first quarter of 2001.
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 stronger retail demand during
the holiday season. However, a number of the Company's larger U.S. retail
customers have reported lower retail sales for the fourth quarter 2000 and for
the first quarter 2001 and have taken steps to more closely manage their
inventories. The Pool Products and Heating Systems segment has historically
experienced higher sales in the second and fourth quarters of each year as
customers purchase such products in preparation for the cooler weather and in
anticipation of the warm spring and summer months. In addition, as a result of
the seasonality of sales, the Pool Products and Heating Systems segment offers
incentive programs and extended payment terms to encourage pool product
customers to purchase products during the winter months, as is consistent with
industry practice. However, a number of the Company's larger pool customers have
reported a significant slowdown in their business during the first quarter of
2001 due to unusually wet weather patterns in the Sunbelt states and a prolonged
winter in the Northern states during the first quarter 2001 compared to the
first quarter last year.
FINANCIAL CONDITION AND LIQUIDITY
Our principal capital requirements are to fund working capital needs and capital
expenditures and to meet required debt payments. We anticipate that our
operating cash flow, together with available borrowings under our credit
facilities described below, will be sufficient to meet our working capital
requirements, capital expenditure requirements and interest service requirements
on our debt obligations for at least the next 12 months.
On January 3, 2001, the Company sold 1,973,685 shares of its common stock at
$7.60 per share to two investment funds managed by Special Value Investment
Management in a private placement. Proceeds from the offering in the amount of
$15,000,006, net of $1,354,000 in offering costs, were used for capital
expenditures related to new product development activities and to repay
borrowings under the revolving credit facility pending their use for new product
development activities and for further development of lower cost manufacturing
capabilities in accordance with the amended IRS tax ruling received by ATI in
connection with the spin-off. Subsequent to January 3, 2002, at the request of
the purchaser, the Company has the obligation to register these shares, plus an
additional 386,800 shares of common stock that the purchasers owned prior to the
offering, under the Securities Act of 1933, as amended, and to pay certain
registration expenses.
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The transaction satisfies the requirements of the tax ruling from the Internal
Revenue Service (the IRS) regarding the tax-free status of the spin-off from
ATI, as amended on July 12, 2000, which required the Company to complete an
equity offering of $15,000,000 by April 30, 2001.
Cash and cash equivalents decreased $56,000 from $1,383,000 at December 31, 2000
to $1,327,000 at March 31, 2001. Cash provided by financing activities,
including net proceeds of $13,646,000 from the issuance of common stock and
$12,914,000 in increased borrowings under the credit facilities, were used to
fund operating activities in the amount of $21,221,000 and capital expenditures
of $5,284,000.
Net cash used in operating activities is primarily due to increases in inventory
and decreases in accounts payable, accrued liabilities and income taxes
partially offset by a decrease in accounts receivable. The increase in inventory
is due to lower than anticipated sales. Accounts payable decreased due to
reduced purchasing in response to higher inventory levels and to cost reduction
initiatives implemented during first quarter 2001. The decrease in accrued
liabilities is due to the payment of customer rebates and commissions in first
quarter 2001 as well as to lower accruals of rebates, commissions, cooperative
advertising and warranties due to lower sales in first quarter 2001 as compared
with fourth quarter 2000. Accrued income tax decreased due to the payment of
federal and state income taxes in first quarter 2001. The decrease in accounts
receivable is primarily due to collections on seasonally higher sales in the
fourth quarter of 2000.
For the three months ended March 31, 2000, cash used in operating activities of
$13,471,000 and cash used in capital expenditures of $1,111,000 were funded by
$14,918,000 from increased borrowings under the credit facilities.
The increase in cash used in operating activities in first quarter 2001 as
compared to first quarter 2000 is due to lower net income in first quarter 2001,
to a decrease in deferred tax assets in first quarter 2001 compared to an
increase in first quarter 2000 resulting from changes in the underlying
temporary differences in expense recognition for financial reporting and income
tax purposes and to an increase in cash used for working capital requirements.
Cash used for working capital requirements increased in first quarter 2001 due
to a larger increase in inventory resulting from lower sales, to increased
income tax payments related to the first full year as an independent public
company and to increased rebate and cooperative advertising payments as well as
lower accruals in 2001 based on sales levels. These increases in cash usage were
partially offset by net cash provided by accounts receivable in first quarter
2001 as compared to net cash used in the comparable period of 2000.
The Company's working capital increased to $64,472,000 at March 31, 2001 from
$46,488,000 at December 31, 2000. The current ratio increased to 2.3 at March
31, 2001 from 1.8 at December 31, 2000. The increase in working capital at March
31, 2001 was primarily due to higher inventory and deferred income tax asset
balances as well as to lower accounts payable, accrued income tax, and accrued
liability balances. These effects were partially offset by a lower accounts
receivable balance and a higher current portion of long-term debt 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 March 31, 2001, there was $8,985,000 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 March 31, 2001, the Company had CDN.
$1,637,000 of borrowing availability remaining under the credit facility.
Due to the seasonality of the Company's pool products business, the extended
payment term receivables offered during the winter months are collected during
the spring and summer. This creates a seasonal peak in borrowing levels during
the spring months.
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
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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' 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 are 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. As a result of the spin-off, ATI
transferred to the Company reserves for estimated losses under these insurance
programs totaling $10,423,000 and related deferred taxes of $4,882,000. During
2000 and 2001, a number of these cases were settled and at March 31, 2001, the
Company had reserves for estimated losses on claims existing at the time of the
spin-off and estimated claims subsequent to the spin-off of $8,537,000. 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, results of operations 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, as amended on
July 12, 2000, is subject to certain factual representations and assumptions,
including the completion of a required offering of the Company's common stock by
April 30, 2001 and use of the proceeds from the offering, 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 and pursuant to the supplemental
ruling issued by the IRS to ATI modifying certain requirements imposed under the
prior tax ruling, the Company agreed with ATI to undertake such an offering. In
January 2001, the Company issued 1,973,685 shares of common stock at $7.60 per
share in a private placement for gross proceeds of $15,000,006 to fulfill a
material requirement of the ruling.
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 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 and the amount the Company could be required
to pay could exceed its net worth by a substantial amount.
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, 2000. There has been no significant change in the nature or
amount of market risk since year-end.
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PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 3, 2001, the Company sold 1,973,685 shares of common stock at $7.60
per share to two investment funds managed by Special Value Investment
Management, LLC in a private placement. Proceeds from the offering in the amount
of $15,000,006, net of $1,354,000 in offering costs, were used for capital
expenditures related to new product development activities and to repay
borrowings under the revolving credit facility pending their future use for new
product development activities and for further development of lower cost
manufacturing capabilities in accordance with the amended IRS tax ruling
received by ATI in connection with the spin-off. The shares of common stock were
issued to the investment funds in reliance on the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"). Subsequent to January 3, 2002, at the request of the purchaser, the
Company has the obligation to register these shares, plus an additional 386,800
shares of common stock that the purchasers owned prior to the offering, under
the Securities Act of 1933, as amended, and to pay certain registration
expenses.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
*10.1 1999 Non-Employee Director Stock Compensation Plan of
Water Pik Technologies, Inc., as amended
*10.2 Employee Stock Purchase Plan of Water Pik Technologies,
Inc., as amended
*10.3 Performance Share Program of Water Pik Technologies, Inc.
*10.4 2001 Annual Incentive Plan of Water Pik Technologies, Inc.
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* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K Filed in the first quarter of 2001 -
The Company filed a current report on Form 8-K on January 11,
2001 under Item 5 announcing the sale of 1,973,685 shares of its
common stock in a private placement for aggregate gross proceeds
to the Company of $15,000,006.
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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: May 15, 2001 By: /s/ Michael P. Hoopis
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Michael P. Hoopis
President and Chief Executive Officer
Date: May 15, 2001 By: /s/ Victor C. Streufert
--------------------------------------------
Victor C. Streufert
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
*10.1 1999 Non-Employee Director Stock Compensation Plan of
Water Pik Technologies, Inc., as amended
*10.2 Employee Stock Purchase Plan of Water Pik Technologies,
Inc., as amended
*10.3 Performance Share Program of Water Pik Technologies, Inc.
*10.4 2001 Annual Incentive Plan of Water Pik Technologies, Inc.
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* Management contract or compensatory plan or arrangement.