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FORM 10-K
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Securities and Exchange Commission Washington, D.C.
20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-15297
WATER PIK TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1843384
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
Securities registered pursuant to Section 12(b) of the
Act:
Common Stock, $.01 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the
Act: None
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. X _ Yes _ No
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best
of registrant's knowledge, in the definitive proxy
statement incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 12, 2001
was approximately $97,668,000, based on the closing sale
price of the Common Stock of $8.20 as reported by the
New York Stock Exchange. Shares of voting stock known by
the registrant to be beneficially owned by executive
officers or directors of the registrant are not included
in the computation; however, shares of voting stock
reported to be beneficially owned by holders of 5
percent or more of the voting stock are included in the
computation. The registrant has made no determination
whether any such persons are "affiliates" within the
meaning of Rule 405 under the Securities Act of 1933 and
Rule 12b-2 under the Securities Exchange Act of 1934.
The number of shares of Common Stock outstanding as of
March 12, 2001 was 11,910,673 shares.
Documents incorporated by reference:
Part III of this Report incorporates by reference
selected portions of the Definitive Proxy Statement for
the 2001 Annual Meeting of Stockholders scheduled to be
held on April 26, 2001, which will be filed by the
Company within 120 days after December 31, 2000.
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PART I
ITEM 1 BUSINESS
OVERVIEW
Water Pik Technologies, Inc. (the "Company" or "Water Pik Technologies") was
incorporated in Delaware on August 23, 1999. The Company has its principal
executive offices at 23 Corporate Plaza, Suite 246, Newport Beach, California
92660 (telephone number 949-719-3700). Water Pik Technologies was formed as a
result of the spin-off of the consumer products segment of Allegheny Teledyne
Incorporated, now known as Allegheny Technologies Incorporated ("ATI"), which
included the operations of the Teledyne Water Pik division and the Teledyne
Laars division, both with operations in the U.S. and Canada. On November 29,
1999, Water Pik Technologies became an independent public company when ATI
distributed all of the common stock of Water Pik Technologies to the
stockholders of ATI in a tax-free transaction (the "spin-off").
As used herein, references to the "Company" together with its consolidated
subsidiaries include the historical results and activities of the business and
operations transferred to the Company in the spin-off unless the context
otherwise indicates.
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 products
and heating systems. Water Pik Technologies operates in two business segments --
Personal Health Care and Pool Products and Heating Systems.
The Company competes in several distinct product categories, including:
- - Water Pik(R) showerheads
- - Water Pik(R) oral health products
- - Water Pik(R) and Instapure(R) water filtration products
- - Laars(R) and Jandy(R) pool and spa heaters, controls, valves, pumps, filters
and water features
- - Water Pik(TM) and Jandy(TM) pool and spa accessories, including cleaning and
maintenance supplies, white goods, ladders, solar reels, floating lounges,
pool toys and games
- - Laars(R) residential and commercial water-heating systems
The Company has manufactured personal health care products for over 35 years
under the Water Pik(R) brand name. The Company's swimming pool and spa heaters,
controls, valves and water features, many of which have been manufactured for
over 40 years, are sold primarily under the Laars(R) and Jandy(R) brand names.
The Company's residential and commercial water-heating systems, which have been
manufactured for over 50 years, are sold primarily under the Laars(R) brand
name.
An extensive distribution network allows the Company to distribute its products
across various distribution channels to reach a greater number of consumers and
distributors. The Company manufactures and distributes products principally
through seven facilities located in the United States and Canada. Sales in
fiscal years 2000, 1999 and 1998 were $296.1 million, $260.1 million, and $240.6
million, respectively.
INDUSTRY OVERVIEW
The Company believes that it can take advantage of current market and industry
trends for the Personal Health Care segment and the Pool Products and Heating
Systems segment, such as:
- - demographic trends reflecting the aging of the U.S. population;
- - an increased emphasis on a personal health care lifestyle;
- - an increased emphasis on spending time at home or "cocooning"; and
- - an increased use of the backyard for outdoor living, recreation and
relaxation.
The U.S. population consists of approximately 77 million "baby boomers" ranging
from 37 to 55 years of age. These consumers wish to remain active and seek
personal health care products to maintain a high quality of life. Moreover,
"baby boomers" typically have more discretionary income, which they are more
likely to spend on home remodeling projects, including projects to improve their
backyards, pools and spas. In addition, many consumers now view the backyard as
an extension of their indoor living environment and are improving backyards as
they would the interiors of their homes.
The Company's products complement these existing trends and provide it with the
opportunity to expand its product offerings to satisfy consumers' current and
emerging preferences. The Company believes that these trends will continue, and
that Water Pik Technologies, with its strong brand name recognition and
extensive product offerings, is well positioned to be a market leader in this
evolving marketplace.
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COMPETITIVE STRENGTHS
The Company is a strong competitor for the following reasons:
- - Strong Brand Names. Over many years, the Company has developed an extensive
portfolio of company-owned brand names. These strong brand names include the
Water Pik(R) personal health care products, the Laars(R) pool and spa heaters
and the Jandy(R) electronic controls, valves and water features. As consumers
turn more and more to brand name merchandise to validate their product purchase
decisions, the Company believes that its strong brand names will provide the
platform for future growth and will enable the Company to expand its product
offerings into new and existing product categories and channels of distribution.
- - Reputation for Innovative Products. The Company has a strong history of
innovative product development with both its Water Pik(R) personal health care
products and its Laars(R) and Jandy(R) pool and water-heating products. The
Company has developed and introduced many products which are considered the
first of their kind and that resulted in the formation of new markets, such as:
the Water Pik(R) Oral Irrigator; The Original Shower Massage(R) showerhead; the
Instapure(R) end-of-faucet water filter; the Laars(R) swimming pool heater; the
Jandy(R) automatic swimming pool cleaner; and the Jandy(R) AquaLink(R)
electronic swimming pool control system. In response to changing consumer
preferences, the Company continues to develop and introduce new and innovative
products such as: The Flexible Shower Massage(TM); the Misting Massage(TM)
showerheads; the Water Pik(TM) flosser; the Laars(R) (Hi-E) high efficiency
swimming pool heater; and the Endurance(TM) modulating residential boiler. The
Company has received numerous awards for its product design, innovation and
quality.
- - Extensive Distribution Network. The Company distributes its products through
more than 45,000 retail and wholesale outlets in North America which allows it
to reach a greater number of consumers and distributors than many of its
competitors. The personal health care products are distributed directly to
consumers through mass merchandisers, home centers, drug stores and co-operative
hardware chains. The pool and water-heating products are distributed through
various channels of distribution, including pool wholesalers, pool builders and
a network of plumbing and heating, ventilation and air conditioning (or HVAC)
wholesalers, as well as retailers and service companies. The Company believes
that this distribution network will allow it to quickly realize desired sales
volumes for new products as they are brought to market.
- - Proven Manufacturing Capabilities. The Company has proven skills in
transitioning the product development process into high quality, lower cost
manufacturing. The Company is skilled in production manufacturing processes,
including design for assembly; plastic injection molding; metal processing;
KANBAN production; final assembly and testing and logistics. The Company also
has begun to use lean production techniques in its manufacturing processes. The
Moorpark, California and Rochester, New Hampshire facilities are ISO 9002
certified and the Fort Collins and Loveland, Colorado facilities are ISO 9001
certified. Management believes that ISO certifications are recognized indicators
of quality manufacturing capabilities. Many customers require evidence of ISO
certifications prior to placing an order.
- - Experienced Management Team. The Company has an experienced management team
with expertise in a variety of disciplines. The President and Chief Executive
Officer has over 25 years experience in the manufacturing, distribution and
marketing of a wide variety of consumer products. Collectively, the senior
management team has a broad range of experience in marketing and merchandising,
financial management and acquisitions, and multi-national production and
distribution.
BUSINESS STRATEGY
The Company's vision is to create a growth-oriented consumer products company
that capitalizes on its well-recognized brand names and develops innovative
products that provide outstanding value to its customers as follows:
- - Accelerate Introduction of Innovative New Products. The Company intends to
accelerate the development and introduction of new and innovative products to
achieve its growth objectives. Its success in product development will continue
to be driven by consumer needs, market trends and the vulnerability of its
competitors. The Company intends to sharpen its focus on the regular development
of new products and extensions to the existing product lines. These developments
may range from significant new product functions or features to innovative
design changes to satisfy changing consumer preferences. The Company intends to
increase the flexibility of its design and manufacturing processes to enhance
its ability to be responsive to consumer preferences and to enable it to
introduce new products and product extensions with shorter development cycles
than its competitors.
- - Broaden Product Offerings. The Company also intends to increase served
markets by offering related new products and product extensions. The Company
markets a variety of personal health care, pool and heating system products
which enables it to offer its customers and its distributors a single source for
a wide range of products. The Company has continually increased the number of
its product offerings and intends to continue to regularly introduce new
products. The wide array of products allows it to provide category management
for its retail customers and one-stop shopping capability for its wholesale and
contractor customers.
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- - Leverage Our Strong Brand Name Recognition. The Company believes that its
strong Water Pik(R), Laars(R) and Jandy(R) brand names will allow it to more
rapidly market and sell new products. The strength of these brand names provides
new products with consumer credibility and acceptance. The Company's research
indicates that 85 percent of consumers recognize the Water Pik(R) brand name. By
building on its brand names, the Company expects to increase market share,
expand its product offerings, enhance consumer brand loyalty and expand its
distribution channels.
- - Capitalize Upon Our Existing Distribution Channels. As the Company
accelerates the introduction of innovative new products and broadens its product
offerings, it will be able to rapidly offer these products to existing retail
and wholesale distribution channels through its well-established distribution
network. The Company believes that it can utilize all of its distribution
channels to effectively distribute more of its product lines to allow the
Company to reach a greater number of consumers and distributors. The Company
believes that it also will have an opportunity to capitalize on its distribution
strengths in specific product segments by cross-selling other products into
those channels of distribution. For example, some Water Pik(R) products have the
potential to be sold through wholesale and construction distribution channels
that currently sell Laars(R) products.
- - Utilize Our Proven Manufacturing Capabilities to Become a Lower Cost
Producer. The Company believes that it can more fully utilize proven
manufacturing capabilities to add more value to its customers through continuous
improvements in product quality, cost reductions and product delivery. The
Company is in the process of fully integrating state-of-the-art production
techniques throughout its business in order to reduce its total product cycle
time and reduce its total product cost, using a "quality first" discipline in
everything it does.
The Company also is in the process of integrating and streamlining its
manufacturing capabilities and facilities when and where appropriate to lower
its costs and improve delivery performance. The Company intends to continue to
look for innovative ways to become a lower cost manufacturer, including
outsourcing manufacturing to overseas suppliers. We believe that achieving
world-class capabilities will provide us with a dynamic structure of high
product quality, lower product cost and an efficient product delivery system as
we strive to continuously exceed our customers' requirements.
- - Leverage Our Customer Service Capabilities. The Company intends to satisfy
its customers' expectations and enhance its sales and profitability by
leveraging its customer service capabilities in product delivery and after-sales
service. The Company intends to continue to improve its on-time product delivery
shipments with its state-of-the-art production initiatives; establish a
one-stop, closed loop communication and response system for technical
after-sales service; and regularly update its customers' sales and technical
service representatives with training programs and new tools, hardware and
software.
- - Pursue Selected Acquisitions and Strategic Alliances. The Company intends to
pursue selected acquisitions and strategic alliances that complement and expand
its existing product lines and business. Specifically, the Company expects to
target acquisitions that will provide it with:
- - broader product offerings;
- - access to product innovation and unique product design capabilities;
- - access to advanced manufacturing processes;
- - new and efficient distribution channels; and
- - increased access to product categories, markets and industries that are
experiencing rapid consolidation.
The Company has no current or pending arrangements, understandings or agreements
with respect to any significant potential acquisitions.
BUSINESS SEGMENTS
See Note 14 to the consolidated financial statements for financial information
by reportable segment and by geographical area. Information related to business
acquisitions is set forth in Note 13 to the consolidated and combined financial
statements. See also Management's Discussion and Analysis of Financial Condition
and Results of Operations.
PERSONAL HEALTH CARE
The Personal Health Care segment designs, manufactures and markets showerheads,
oral health products and water filtration products, which are sold primarily
under the Water Pik(R) brand name.
SHOWERHEADS. Through the development and production of pulsating showerheads,
the Company became recognized as an industry leader for personal health care
products. The Company developed The Original Shower Massage(R) product line, the
first massaging showerhead. The Original Shower Massage(R) showerhead has been
redesigned and refined as consumer preferences have changed. In 1997, the
Company introduced the award winning Flexible Shower Massage(TM) showerhead that
adjusts to a wide variety of positions and height settings. The Flexible Shower
Massage(TM) showerhead received Good
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Housekeeping magazine's "Good Buy" award for 1998; was named one of the "Best
New Products" for 1998 by Today's Homeowner Magazine; and received the
"Excellence in Design Award" from Appliance Manufacturer magazine in the
"Personal Care/Portable Appliances" category.
The Company's showerhead products are marketed under the following product
names:
SuperSaver(R) Showerheads
The Original Shower Massage(R) showerhead
The Adjustable Shower Massage Showerhead
The Flexible Shower Massage(TM) showerhead
Misting Massage(TM) showerhead
Water Massage Showerhead
Water Pik(R) shower filter
The Company continues to refine and develop innovations to The Original Shower
Massage(R) product line, including the Misting Massage(TM) showerhead, which was
introduced in June 1999, as well as the Water Massage pulsating shower and
extensions such as the adjustable handle shower massage, which is ergonomically
designed and easier to hold than other models.
ORAL HEALTH PRODUCTS. The Personal Health Care segment manufactures a complete
line of consumer oral health care devices. In 1962, the Company developed and
introduced the original Water Pik(R) oral irrigator. The oral health products
are designed to reduce plaque, stains and gingivitis and many of the products
are accepted by the American Dental Association. Products include personal and
family Water Pik(R) dental systems, and the SenSonic(R) plaque removal
instrument, an electronic toothbrush that generates 30,000 sonic brush strokes
per minute. In February 2000, the Company introduced the Water Pik(TM) flosser,
an automated dental product designed to make flossing easier and more
convenient.
The oral health care products are marketed under the following product names:
Water Pik(TM) flosser
Professional Oral Irrigator
Personal Oral Irrigator
Family Oral Irrigator
PlaqueControl 3000(R)
Travel Oral Irrigator
Water Pik Plus(R) plaque control system
SenSonic(R) plaque removal instrument
SenSonic(R) ADVANCED Plaque Removal Instrument
SenSonic Plus(R) plaque control system
The Personal Health Care segment also manufactures and markets a broad range of
professional dental products. The segment currently markets over 600 products
that are distributed in over 60 countries for use by dental professionals.
Professional dental products include articulators and accessories, prophy cups
and angles, radiographic positioning devices, condylar recording systems and
laboratory products.
WATER FILTRATION PRODUCTS. The Company manufactures and markets a full line of
point-of-use water filtration products for consumers. The Company developed the
first end-of-faucet water filter in the mid-1970's. The water filtration
products range from a convenient faucet-mount product to a high performance
in-line product. In 1998, the Electronic Faucet Filter was introduced, Model
F-7, one of the most advanced faucet-mount filters available to consumers. The
F-7 filter contains an electronic monitor to let the consumer know that the
filter is working and to alert the consumer when the filter needs to be
replaced. The high performance water filtration products are designed to reduce
lead, chlorine, pesticides, cryptosporidium and giardia cysts, asbestos,
sediment, bad taste and odors to provide consumers with healthier, better
tasting water.
The water filtration products are marketed under the following product names:
Water Pik(R) electronic faucet filter
Water Pik(R) faucet filter
Water Pik(R) undersink water filter
Water Pik(R) Wholehouse Water Filter
Water Pik(R) Compact Water Filter
Water Pik(R) Dual Process Undersink Water Filter
Water Pik(R) Water Filter Canister Kit
Water Pik(R) Instapure(R) Filtration Systems
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POOL PRODUCTS AND HEATING SYSTEMS
POOL AND SPA PRODUCTS. The Company is a leader in the design, manufacture and
marketing of swimming pool and spa equipment, which is sold primarily under the
Laars(R) and Jandy(R) brand names. The products include:
- - an extensive line of swimming pool and spa heaters;
- - technologically advanced digital controls to automate all functions of a
consumer's pool, spa, backyard, lighting and water effects;
- - automatic pool cleaners;
- - state-of-the-art swimming pool and spa plumbing products, such as valves and
actuators;
- - water features such as waterfalls, rockfalls and fountains;
- - an extensive line of pumps and filters; and
- - pool and spa accessories, including cleaning and maintenance supplies, white
goods, ladders, solar reels, floating lounges, pool toys and games.
These products are marketed under the following brand names:
PRODUCT CATEGORY BRAND NAME
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Pool Heaters Laars(R) Lite
Laars(R) LX
High-Efficiency Pool Heater Laars(R) Hi-E2
Oil Pool Heater Laars(R) DP
Commercial Pool Heater Laars(R) AP
Electronic Controls Jandy(R) RS
Control Valves Jandy(R) Valve
Valve Actuator Jandy(R) JVA
Automatic Pool Cleaner Jandy(R) RayVac
Water Features Jandy(R) Sheer
Descent(R), Aqua
Accents(R)
Pumps and Filters Jandy(R) Pump
Jandy(R) Filter
Maintenance Equipment and Accessories Olympic (in Canada)
Water Pik(R)
Jandy(TM)
The Company is a leading manufacturer and marketer of swimming pool and spa
heaters, including natural gas, propane and oil fired residential and commercial
pool heaters. This segment manufactures both standard efficiency (82 percent)
and high efficiency (95 percent) heaters. In late 1998, the Laars(R) LX heater
was introduced with advanced technology polymer headers, graphic user interface
controls with an alphanumeric display, fan-assisted combustion and modern
European appliance styling. The Laars(R) LX heater is designed to enable the
consumer to perform complete diagnostics, set precise pool and spa temperatures
and easily switch from pool to spa mode.
In 1996, the Company acquired Jandy, one of the leading producers of electronic
control systems, automatic valves, automatic cleaners and other water features
for the swimming pool and spa industries. Jandy(R) electronic pool and spa
controls are recognized as being some of the highest quality, most
technologically advanced and innovative products in the pool and spa industry.
Jandy(R) produces a wide array of electronic control systems ranging from basic
systems which adjust only one or two functions to sophisticated systems that
completely automate a pool, spa, lighting, water features and landscape
features.
Jandy developed one of the first automatic pool cleaners, which is
hydrodynamically propelled to quietly vacuum pools. In addition, Jandy
manufactures valves and valve actuators which automate pool and spa plumbing to
switch water circulation from pool to spa, control spa overflow, drain water and
control fountains, waterfalls and other water features. Jandy(R) valves and
valve actuators also are used by original equipment manufacturers for many
automation applications.
The segment also offers a complete line of water features to enhance pool
construction, which produces a range of water effects, including the Sheer
Descent(R), Sheer Arc(TM), Sheer Curtain(TM) and Sheer Rain(TM) waterfalls; and
the recently introduced Aqua Accents(TM).
In August 1999, the Company acquired substantially all the assets of Olympic,
which does business in Canada as Olympic Pool Accessories. Olympic manufactures
and distributes cleaning and maintenance supplies, white goods, ladders, solar
reels, floating lounges and pool toys and games. The acquisition of Olympic
complements the Company's existing pool and spa products. These pool accessories
are being distributed in the U.S. and Europe under our Water Pik(TM) and
Jandy(TM) brand names.
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The Company also provides sales and marketing services for Fiberstars, Inc.
fiber optic lighting pool products under a marketing alliance entered into with
Fiberstars, Inc. in August 2000.
WATER-HEATING SYSTEMS. The Company produces a comprehensive line of
water-heating systems for commercial, residential and industrial applications.
In August 1998, the Company acquired substantially all the assets of Trianco
Heatmaker, Inc. ("Trianco"), a manufacturer of high efficiency, sealed
combustion gas and oil fuel boilers and water-heating products, to enhance its
capabilities in commercial and residential heating systems. These products are
marketed under the following brand names:
PRODUCT CATEGORY BRAND NAME
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Commercial Boilers and Water Heaters Laars(R) Mighty
Therm(R)
Laars(R) Mighty Max
Laars(R) Mighty
Stack(R)
Residential Boiler Laars(R) Mini-Therm
Residential Combination Boiler Laars(R) Mini-
Combo(TM)
High-Efficiency Boilers Laars(R) CB(R)
Laars(R) Summit(R)
Laars(R)
Endurance(TM)
Oil Boilers Laars(R) Max(TM)
Laars(R) Newport(TM)
The Company has manufactured gas heating products for over 50 years, and has
expanded its product line to include residential oil boilers and high efficiency
boilers and water heaters for residential, commercial and industrial heating
applications. These products include:
- - the Mighty Therm(R) series of commercial boilers and water heaters which are
natural draft appliances for propane or natural gas fuels;
- - the Mighty Max(R) series of commercial boilers and water heaters which are
forced draft separated combustion appliances with efficiencies of 85 percent
for propane or natural gas fuels;
- - the Mini Therm(R) induced draft series of residential boilers;
- - the Mini Combo(TM) induced draft combination hydronic boiler and domestic
water heater;
- - the Mighty Stack(R) automatic circulating water heater;
- - the Newport(TM) oil boiler; and
- - the MAX(TM) oil boiler.
In January 1999, the Company introduced an innovative residential gas boiler,
the Laars(R) Endurance(TM) boiler, which is fully modulating to match a home's
changing heat load and is designed to provide homeowners with precise
temperature control throughout the home while reducing energy consumption. The
Endurance(TM) boiler is the first modulating residential boiler manufactured and
distributed in North America.
SALES, MARKETING AND DISTRIBUTION
The Company sells its products using a combination of inside sales
representatives, manufacturers' representatives and distributors. This provides
a broad distribution network that allows the Company to efficiently distribute
its products across a number of distribution channels to reach a greater number
of consumers and distributors than many of its competitors.
International sales are primarily to Canada, Japan and Europe and accounted for
16 percent of the Company's total sales in 2000. Approximately one half of the
Company's international sales were in Canada.
PERSONAL HEALTH CARE
The Original Shower Massage(R) product line is marketed to consumers through
mass merchandisers and home centers such as Wal-Mart(R), K-Mart(R) and The Home
Depot(R) stores.
Our Water Pik(R) and other consumer oral health products are marketed to
consumers through mass merchandisers such as Wal-Mart(R), K-Mart(R) and
Target(R) stores.
Professional dental products are marketed under the DENAR(R), Getz(R) and
HANAU(TM) brands through professional dental supply dealers.
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Professional dental products and select consumer oral health products, as well
as replacement parts, also may be purchased on-line at www.waterpik.com. The
website also offers product information literature, including instructions for
product use and service advice and the locations of retail outlets carrying
Water Pik(R) products.
Water filtration products are marketed under the Water Pik(R) and Instapure(R)
brand names and are sold to consumers through mass merchandisers, home centers,
drug stores and co-operative hardware chains.
POOL PRODUCTS AND HEATING SYSTEMS
The Laars(R) and Jandy(R) swimming pool and spa equipment products are sold
through an international network of wholesale distributors, contractors,
retailers and service companies. Laars(R) water-heating systems are sold through
a network of sales representatives and plumbing and HVAC wholesalers in the
United States, Canada and internationally.
COMPETITION
The Company competes with domestic and international companies. Competition is
based on price, quality, service, product features, product innovation,
marketing and distribution.
The Company's success depends on the ability to introduce innovative products
before its competitors, and to design, manufacture and market a broad range of
reliable products which incorporate technological innovations and satisfy
current consumer trends. Among the most significant competitors are larger
companies which have greater financial and technical resources than the Company
does, including in personal health care products, companies such as The Gillette
Company, which manufactures Braun(R) products; The Clorox Company, which
manufactures Brita(R) products; and Procter & Gamble Co., after its 1999
acquisition of the manufacturer of PUR(R) products; and, in pool and
water-heating products, companies such as Pentair Pool Products, which includes
PacFab, Inc./East and United Dominion Industries, Ltd., whose subsidiary
Weil-McLain manufactures boiler products.
RESEARCH AND PRODUCT DEVELOPMENT
The Company supports research and product development through both its marketing
and engineering departments. The marketing team, together with outside
consultants, researches both demographics and lifestyle trends to identify
product concepts related to unmet consumer needs. Product concepts are then
expressed in engineering prototypes in the first stage of new product
development. Research continues as product concepts evolve through interaction
with consumer focus groups. At any point in time, the Company generally has
products in various stages of development. The Company's research and product
development expenditures were approximately $8.1 million, $7.7 million and $7.7
million in 2000, 1999 and 1998, respectively.
The Company develops and introduces new products and categories targeted toward
capitalizing on emerging consumer trends, such as the Misting Massage(TM)
showerhead, Water Pik(TM) flosser and Laars(R) LX heater. Research and product
development efforts also focus on continuing to develop improved and innovative
products that meet increasing energy efficiency performance requirements and
stricter environmental regulations. The Company also regularly conducts clinical
research to validate the safety and effectiveness of its consumer and
professional oral health products. The research and development efforts have
resulted in numerous awards for design and innovation.
MANUFACTURING AND MATERIALS
The Company's manufacturing operations consist of manufacturing finished
products from components and subassemblies that the Company either produces or
acquires from a wide range of vendors. Certain of the Company's products are
manufactured by third-party original equipment manufacturers.
The Company utilizes two primary methods of fulfilling demand for products:
building products to a demand forecast and building products to a customer
order. In building products to a demand forecast, capabilities are employed to
maximize manufacturing efficiencies by producing high volumes of basic product
configurations. Building products to a customer order permits configuration of
units to the particular specific customization requirements of the customer.
Both methods are designed to generate cost efficiencies and high customer fill
rates and on-time-delivery relating to just-in-time manufacturing, inventory
management and distribution practices.
The Company believes that there are a sufficient number of suppliers for most of
its raw materials, components and subassemblies. A small number of raw materials
and components, however, are purchased from single sources due to technology,
availability, price, quality or other considerations. Order lead times and
cancellation requirements vary by supplier and component. Key components and
processes currently obtained from single sources include certain of the
Company's electrical components. In addition, new products to be introduced by
the Company may initially utilize custom components obtained from only one
source until the Company has evaluated whether there is a need for additional
suppliers.
8
9
Like other participants in the manufacturing industry, the Company ordinarily
acquires materials and components through a combination of blanket and scheduled
purchase orders released to position the supplier to support the Company's
requirements for periods averaging 90 to 180 days. From time to time the Company
has experienced price increases and limited availability of certain components
that are not available from multiple sources. At times, the Company has been
constrained by raw materials and components availability in meeting product
orders and future constraints could have an adverse effect on the Company's
operating results. On occasion, the Company acquires raw materials and
components inventory in anticipation of supply constraints. A restoration of raw
materials and components availability and resulting decline in raw materials and
components pricing more quickly than anticipated could have an adverse effect on
the Company's operating results.
PATENTS AND TRADEMARKS
Water Pik Technologies holds a number of patents registered in the U.S., Canada
and other countries. The Company also holds the exclusive rights with respect to
certain technology included in its products. The Company relies primarily upon a
combination of trademark, copyright, know-how, trade secrets, proprietary
information, patents, licenses and contractual restrictions to protect its
intellectual property rights. Management believes that such measures afford only
limited protection and, accordingly, there can be no assurance that the steps
taken to protect its intellectual property rights will be adequate to prevent
misappropriation of its technology or the independent development of similar
technology by others. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of its products or
obtain and use information that the Company regards as proprietary.
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. The Pool Products and Heating Systems
segment has historically experienced higher sales in the second and fourth
quarters of each year as customers purchase such products in preparation for the
cooler weather and in anticipation of the warm spring and summer months. In
addition, as a result of the seasonality of sales, the Pool Products and Heating
Systems segment permits customers to purchase pool products during the winter
months with extended payment terms as is consistent with industry practice. See
also "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
BACKLOG
Backlog consists of firm orders for the Company's products that are generally
shipped within the next year. Backlog was $11,302,000 and $16,797,000 as of
December 31, 2000 and 1999, respectively.
EMPLOYEES
The Company's work force consists of approximately 1,700 employees. The Company
is not a party to a collective bargaining agreement with respect to any of its
employees. The Company considers its relations with its employees to be good.
EXECUTIVE OFFICERS
Executive Officers of the Company as of March 2001 are as follows:
NAME, OFFICE AND POSITION AGE
- ----------------------------------------------------------------------
Michael P. Hoopis, President and Chief Executive Officer 50
Robert A. Shortt, Executive Vice President, Sales, Marketing
and Business Development 39
Victor C. Streufert, Vice President, Finance, Chief
Financial Officer and Treasurer 43
Richard P. Bisson, Vice President, Operations 41
Robert J. Rasp, General Manager, Pool Products and Heating
Systems 42
Theresa Hope-Reese, Vice President, Human Resources 43
Richard D. Tipton, Vice President, General Counsel and
Secretary 44
Set forth below are the business backgrounds for the past five years of the
executive officers of the Company:
Mike Hoopis has been President and Chief Executive Officer since August 1999,
when the Company was incorporated in anticipation of the spin-off from Allegheny
Teledyne Incorporated, now known as Allegheny Technologies Incorporated ("ATI").
From October 1998 to August 1999, Mr. Hoopis was President and Chief Executive
Officer of the Consumer Products Division of ATI. Prior to that time, Mr. Hoopis
was affiliated with The Black & Decker Corporation in various executive
positions, including
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as President, Worldwide Household Products, and as Executive Vice President from
1996 to 1998; President, Price Pfister, Inc. from 1992 to 1996; President,
Kwikset Corporation from 1991 to 1992; and Vice President of Manufacturing, U.S.
Household Products from 1989 to 1991. Mr. Hoopis was President of the Stiffel
Company from 1986 to 1989, and he held various marketing, manufacturing and
engineering positions with other corporations. Mr. Hoopis is a Director of
Doskocil Manufacturing Company, Inc., a manufacturer of a broad range of plastic
and pet products, and Meade Instruments Corp., a designer and distributor of
telescopes and related accessories.
Robert A. Shortt has been Executive Vice President, Sales, Marketing and
Business Development of the Company since August 1999. From July 1999 to August
1999, Mr. Shortt was Vice President, Sales, Marketing and Business Development
of the Consumer Products Division of ATI. From 1996 to 1999, Mr. Shortt was Vice
President, Marketing and Merchandising of CSK Auto Corp., an automotive parts
and accessories retailer. From 1995 to 1996, Mr. Shortt was Vice President,
Marketing of Price Pfister, Inc., a division of The Black & Decker Corporation,
and from 1990 to 1995, Mr. Shortt was Vice President of Kwikset Corporation, a
division of The Black & Decker Corporation.
Victor C. Streufert has been Vice President, Finance, Chief Financial Officer
and Treasurer of the Company since August 1999. From July 1999 to August 1999,
Mr. Streufert was Vice President, Finance and Chief Financial Officer of the
Consumer Products Division of ATI. Prior to that time, from 1996 to 1998, Mr.
Streufert was Senior Vice President, Finance and Administration and Chief
Financial Officer of National Telephone Communications, Inc. From 1995 to 1996,
Mr. Streufert was Vice President, Finance and Chief Financial Officer of Pyxis
Corporation, a health care technology and service company, and from 1989 to
1995, Mr. Streufert was Executive Vice President, Chief Financial Officer of
American Health Properties Inc.
Richard P. Bisson has been Vice President, Operations of the Company since
August 1999. From July 1999 to August 1999, Mr. Bisson was Vice President,
Operations of the Consumer Products Division of ATI. From January 1999 to July
1999, Mr. Bisson was a Consultant to the Chairman and Chief Executive Officer of
Eldor Corporation, a producer of transformers for consumer and automotive
markets. From 1996 to January 1999, Mr. Bisson was Managing Director of
Gilardoni S.p.A., a supplier of products, components and services in medical,
security and non-destructive testing industries. From 1990 to 1996, Mr. Bisson
held a variety of positions with Price Pfister, Inc., a division of The Black &
Decker Corporation, including Director, Manufacturing and Director, Engineering
Services.
Robert J. Rasp has been General Manager, Pool Products and Heating Systems of
the Company since October 1999. Previously, he was President of Laars since 1996
and Vice President, Heating Systems of Laars from 1994 to 1996. Prior to 1994
Mr. Rasp held senior-level management positions with Carrier Corporation and
York International Corporation.
Theresa Hope-Reese has been Vice President -- Human Resources since January
2000. From 1988 to 1999, Ms. Hope-Reese was Vice President -- Human Resources
for Varco International, Inc. a manufacturer of oil field equipment. From 1984
to 1988, Ms. Hope-Reese was Regional Human Resources Manager for Getty Synthetic
Fuels, a Division of Air Products and Chemicals, Inc. Prior to that she was
Human Resources Manager at Data Point Corporation, a manufacturer of local area
networks.
Richard D. Tipton has been Vice President, General Counsel and Secretary of the
Company since March 2000. Prior to that time, from 1999 to 2000, Mr. Tipton was
Vice President, General Counsel and Secretary of Data Processing Resources
Corporation, an information technology services company. From 1987 to 1998, Mr.
Tipton served in various legal executive positions at Chart House Enterprises,
Inc., a national restaurant company, including Vice President -- Legal Affairs
and General Counsel from 1997 to 1998 and Vice President and Associate General
Counsel from 1995 to 1997. Prior to that time, Mr. Tipton engaged in the private
practice of law in San Diego, California. He is a member of the California State
Bar.
Executive officers of the Company are elected annually following the annual
meeting of the shareholders.
FORWARD -- LOOKING STATEMENTS
This report contains disclosures that are forward-looking statements. All
statements regarding Water Pik Technologies' expected future financial
condition, results of operations, cash flows, dividends, financing plans,
business strategy, budgets, projected costs or cost savings, capital
expenditures, competitive positions, growth opportunities for existing products
or products under development, benefits from new technology, plans and
objectives of management for future operations and markets for stock are
forward-looking statements. In addition, forward-looking statements include
statements in which we use words such as "expect," "believe," "anticipate,"
"intend," or similar expressions. Although we believe the expectations reflected
in such forward-looking statements are based on reasonable assumptions, we
cannot assure you that such expectations will prove to have been correct and
actual results may differ materially from those reflected in the forward-
looking statements. Water Pik Technologies does not have an intention or
obligation to update forward-looking statements, even if new information, future
events or other circumstances make them incorrect or misleading.
Factors that could cause our actual results to differ from the expectations
reflected in the forward-looking statements in this document include the
following:
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WE MAY BE UNABLE TO SUCCESSFULLY ENHANCE OUR EXISTING PRODUCTS AND DEVELOP AND
MARKET ENHANCED OR NEW PRODUCTS IN A TIMELY AND COST-EFFECTIVE MANNER.
Our growth and future success will depend upon our ability to enhance our
existing products and to develop and market enhanced or new products in a timely
and cost effective manner. We may not be successful in developing or marketing
enhanced or new products, and the market may not accept our products. The
resulting level of sales of any of our enhanced or new products may not justify
the costs associated with their development and marketing. In addition, certain
new products, such as the Company's products under development that incorporate
ozone-generation technology, require greater testing and governmental agency
regulatory approvals than the Company's existing product lines. Such testing and
approval processes are designed to determine whether a new product is safe and
effective. The process of developing data to support product effectiveness
claims and/or applications for regulatory approval is costly and may not
ultimately prove to be successful.
WE MAY NOT HAVE SUFFICIENT CAPITAL RESOURCES TO FUND PLANNED PRODUCT LINE
EXTENSIONS, NEW PRODUCT DEVELOPMENT, CAPITAL EXPENDITURES AND POSSIBLE
ACQUISITIONS.
We cannot satisfy all of our planned product line extensions, new product
development plans, capital expenditure programs and possible acquisitions
without additional capital. We believe that our working capital and general
financing requirements for our existing business can be satisfied from the
anticipated cash flow from operations and available borrowings under our credit
facilities. In January 2001, we completed a $15 million private placement of
Company equity securities. The private placement satisfies the conditions of the
July 2000 Internal Revenue Service ruling which required the Company to raise
$15 million by April 30, 2001.
Our ability to raise additional capital will depend on a variety of factors,
some of which will not be within our control, including investor perceptions of
us, our business and the industries in which we operate, and general economic
and market conditions. We may be unable to successfully raise needed capital and
the amount of net proceeds that will be available to us may not be sufficient to
meet our needs. Even if we are successful in raising capital, it may not be on
favorable terms. Failure to successfully raise needed capital on a timely basis
or to obtain any needed additional financing on favorable terms could have a
material adverse effect on our business, results of operations and financial
condition.
THE FAILURE OF OUR GROWTH STRATEGY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS.
As part of our growth strategy, we plan to:
- - develop high quality, lower cost manufacturing capabilities;
- - pursue product line extensions for existing categories and enhance existing
products;
- - expand into new channels of distribution with existing products;
- - develop a self-sustaining product development process; and
- - seek complementary acquisitions and alliances to enhance our market presence.
We cannot assure you that our strategic objectives will be realized or, if
realized, will result in increased revenue, profitability or market presence.
Executing our strategy may also place a strain on our production, information
systems and other resources. To manage growth effectively, we must maintain a
high level of manufacturing quality and efficiency, continue to enhance our
operational, financial and management systems, including our database
management, inventory control and distribution systems, and expand, train and
manage our employee base. We cannot assure you that we will be able to
effectively manage our expansion in any one or more of these areas, and any
failure to do so could have a material adverse effect on our business, results
of operations and financial condition.
WELL-FINANCED COMPETITORS COULD ATTEMPT TO CAPTURE OUR MARKET SHARE.
The markets in which we operate are highly competitive. We compete with domestic
and international companies. Among our most significant competitors are larger
companies which have greater financial and technical resources than we do,
including in personal health care products companies such as The Gillette
Company, which manufactures Braun(R) products, The Clorox Company, which
manufactures Brita(R) products, and Procter & Gamble Co., after its 1999
acquisition of the manufacturer of PUR(R) products; and, in pool and
water-heating products, companies such as Pentair Pool Products, which includes
PacFab, Inc./ East and United Dominion Industries, Ltd., whose subsidiary
Weil-McLain manufactures boiler products. Because these companies have greater
financial and technical resources than we do, they may be willing to commit
significant resources to protect their own market shares or to capture market
share from us. As a result, we may need to incur greater costs than previously
incurred for trade and consumer promotions and advertising to preserve or
improve market share, to introduce and establish new products and line
extensions and to enhance existing products. At the same time, we may need to
undertake additional production-related cost-cutting measures to enable us to
respond to competitors' price reductions and marketing efforts without reducing
our margins. We cannot assure you that we will be able to make such additional
expenditures or implement such cost-cutting measures or that, if made or
implemented, they will be effective.
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WE ARE DEPENDENT ON CERTAIN KEY CUSTOMERS AND THE GENERAL RETAIL ENVIRONMENT.
Our top ten customers, including the effects of acquisitions as described below,
accounted for 37 and 33 percent of our net sales in 2000 and 1999, respectively.
SCP Pool Corporation, including Superior Pool Products acquired by SCP in July
2000 and Hughes Supply, Inc. acquired by SCP in January 2001, and Wal-Mart
Stores Inc. were our largest customers, accounting for 14.1 percent and 5.9
percent, respectively, of our net sales in 2000 and 13.1 percent and 7.4
percent, respectively, of our net sales in 1999.
We face pricing pressures from our trade customers. Because of the highly
competitive retail environment, retailers have increasingly sought to reduce
inventory levels and obtain pricing concessions from vendors. From time to time,
we may need to reduce the prices for some of our products to respond to
competitive and consumer pressures. We are also subject to the risk that
high-volume customers could seek alternative pricing concessions or better trade
terms. The loss of, or a substantial decrease in, the volume of purchases by SCP
Pool Corporation or Wal-Mart Stores Inc. or any of our other top customers could
have a material adverse effect on our business, results of operations and
financial condition.
Our performance also is dependent upon the general health of the retail
environment. Changes in that environment and the financial difficulties of
retailers could have a material adverse effect on our business, results of
operations and financial condition.
ACQUISITIONS INVOLVE INHERENT RISKS THAT MAY ADVERSELY AFFECT OUR OPERATING
RESULTS AND FINANCIAL CONDITION.
Our growth strategy includes acquisitions of existing businesses and product
lines. Acquisitions involve various inherent risks, such as:
- - our ability to assess accurately the value, strengths, weaknesses, contingent
and other liabilities and potential profitability of acquisition candidates;
- - the potential loss of key personnel of an acquired business;
- - our ability to integrate acquired businesses and to achieve identified
financial and operating synergies anticipated to result from an acquisition;
and
- - unanticipated changes in business and economic conditions affecting an
acquired business.
OUR BUSINESS IS HIGHLY SEASONAL WHICH MAY ADVERSELY AFFECT OUR OPERATING RESULTS
AND FINANCIAL CONDITION.
Our business is highly seasonal, with operating results varying from quarter to
quarter. Our 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. 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 payments terms to encourage pool
product customers to purchase products during the winter months, as is
consistent with industry practice. This increases the risk that our customers
will build-up excess inventory in response to purchase incentives. In addition,
seasonality increases the risk of having insufficient cash to invest in product
development at critical times. Poor weather can also have a material adverse
impact on sales of pool products.
WE ARE SUBJECT TO THE RISKS ASSOCIATED WITH INTERNATIONAL SALES.
During 2000, international sales accounted for approximately 16 percent of our
total sales, of which approximately 50 percent were sales made in Canada. We
anticipate that future international sales will increase and may account for a
more significant percentage of our sales. Risks associated with such increased
international sales include:
- - political and economic instability;
- - export controls;
- - changes in legal and regulatory requirements;
- - U.S. and foreign government policy changes affecting the markets for our
products;
- - changes in tax laws and tariffs;
- - the impact of the transition to a common European currency;
- - convertibility and transferability of international currencies; and
- - exchange rate fluctuations (which may affect sales to international customers
and the value of and profits earned on international sales when converted into
dollars).
Any of these factors could have a material adverse effect on our business,
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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PRODUCT LIABILITY CLAIMS OR PRODUCT RECALLS COULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
As a manufacturer and distributor of consumer products, our results of
operations are susceptible to adverse publicity regarding the quality or safety
of our products. In particular, product liability claims challenging the safety
of our products may result in a decline in sales for a particular product, which
could adversely affect our results of operations. This could be true even if the
claims themselves are ultimately settled for immaterial amounts. We cannot
assure you that this type of adverse publicity will not occur or that product
liability claims will not be made in the future.
In addition, we are subject to the Consumer Products Safety Act, which empowers
the Consumer Products Safety Commission to exclude from the market products that
are found to be unsafe or hazardous. Under certain circumstances, the Consumer
Products Safety Commission could require us to repurchase or recall one or more
of our products. Laws regulating certain consumer products exist in some cities
and states, as well as in other countries in which we sell our products, and
more restrictive laws and regulations may be adopted in the future.
If the Consumer Products Safety Commission would require us to recall or
repurchase our products, or if we would institute a voluntary recall of our
products, the repurchase or recall could be costly to us financially and could
damage our reputation. If we were required to remove, or we voluntarily removed,
our products from the market, our reputation could be tarnished and we might
have large quantities of finished products that could not be sold. This could
have a material adverse effect on our business, results of operations and
financial condition.
FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY COULD REDUCE OUR COMPETITIVENESS.
Our intellectual property rights are important to our business because they
protect our investment in valuable research and development incorporated in our
patents and goodwill we build up in our trademarks. We rely primarily upon a
combination of trademark, copyright, know-how, trade secrets, proprietary
information, patent and contractual restrictions to protect our intellectual
property rights. We believe that such measures afford only limited protection
and, accordingly, we cannot assure you that the steps taken by us to protect
these intellectual property rights will be adequate to prevent misappropriation
of our technology or the independent development of similar technology by
others. The costs associated with protecting our intellectual property rights,
including litigation costs, may be material. We also cannot be sure that we will
be able to successfully assert our intellectual property rights or that these
rights will not be invalidated, circumvented or challenged. In addition, the
laws of some foreign countries in which our products are sold do not protect our
intellectual property rights to the same extent as the laws of the United
States. A failure by us or our inability to protect our intellectual property
rights, and a successful intellectual property challenge or infringement
proceeding against us, could make us less competitive and have a material
adverse effect on our business, operating results and financial condition.
FAILURE OF REPRESENTATIONS AND ASSUMPTIONS UNDERLYING THE IRS TAX RULING COULD
CAUSE THE SPIN-OFF NOT TO BE TAX-FREE TO ATI OR TO ATI'S STOCKHOLDERS AND MAY
REQUIRE US TO INDEMNIFY ATI.
While the tax ruling relating to the qualification of the spin-off as a tax-free
distribution within the meaning of Section 355 of the Internal Revenue Code of
1986, as amended (the "Code"), generally is binding on the IRS, the continuing
validity of the tax ruling is subject to certain factual representations and
assumptions. The Company is not aware of any facts or circumstances that would
cause such representations and assumptions to become untrue.
If the spin-off were not to qualify as a tax-free distribution within the
meaning of Section 355 of the Code, ATI would recognize taxable gain generally
equal to the amount by which the fair market value of the Water Pik Technologies
common stock distributed to ATI's stockholders exceeded the tax basis in our
assets. In addition, the distribution of our common stock to each ATI
stockholder would generally be treated as taxable in an amount equal to the fair
market value of the Water Pik Technologies common stock they receive.
If the spin-off qualified as a distribution under Section 355 of the Code but
was disqualified as tax-free to ATI because of certain post-spin-off
circumstances (such as an acquisition of Water Pik Technologies), ATI would
recognize taxable gain as described above, but the distribution of our common
stock in the spin-off would generally be tax-free to each ATI stockholder.
The Tax Sharing and Indemnification Agreement between ATI and us also provides
that we will be responsible for any taxes imposed on and other amounts paid by
ATI, its agents and representatives and its stockholders as a result of the
failure of the spin-off to qualify as a tax-free distribution within the meaning
of Section 355 of the Code if the failure or disqualification is caused by
certain post-spin-off actions by or with respect to us (including our
subsidiaries) or our stockholders. For example, the acquisition of Water Pik
Technologies by a third party during the two-year period following the spin-off
could cause such a failure or disqualification. If any of the taxes or other
amounts described above were to become payable by us, the payment could have a
material adverse effect on our business, results of operations, financial
position, and cash flow and could exceed our net worth by a substantial amount.
See also Note 11 to our Financial Statements entitled "Commitments and
Contingencies."
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ITEM 2 PROPERTIES
MANUFACTURING AND FACILITIES
The Company's principal manufacturing and distribution facilities as of March
12, 2001 are listed below. Five of the eight facilities are owned and, of those
owned, the facilities located in the U.S. are pledged as collateral for a credit
facility. Although the facilities vary in terms of age and condition, management
believes that these facilities have been well maintained. Each of the
manufacturing facilities conducts manufacturing operations in a relatively
autonomous manner, supported by its own manufacturing and assembly area, quality
assurance department, and other support functions. The Company has instituted
quality assurance programs to provide that its products comply with the Consumer
Products Safety Act and other similar laws. The Company's Moorpark, California
and Rochester, New Hampshire facilities are ISO 9002 certified and the Fort
Collins and Loveland, Colorado facilities are ISO 9001 certified.
SQUARE FOOTAGE
FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED)
- -------------------------------------------------------------------------------------------------------------------
Fort Collins, Colorado Manufacturing of oral health products. 250,000 (owned)
Loveland, Colorado Manufacturing of showerheads, water filtration products, 136,000 (owned)
and oral health products.
Montreal, Canada (2 Manufacturing and distribution of pool and spa 55,000 (leased)
buildings) accessories, including cleaning and maintenance supplies, 47,000 (leased)
white goods, ladders, solar reels, floating lounges, pool
toys and games.
Moorpark, California Manufacturing and distribution of pool and spa heaters, 200,000 (owned)
pool pumps and filters, valves, actuators, electronic
controls, automated cleaners, fiber optic lighting,
boilers and water heaters.
Oakville, Canada Distribution of Laars(R) products. 40,000 (owned)
Petaluma, California Sales, marketing and customer service for pool products. 21,000 (leased)
Rochester, New Hampshire Manufacturing of commercial boilers, waterheaters, pool 80,000 (owned)
heaters and Trianco products.
Scarborough, Canada Sales, marketing, customer service, warehousing and 30,000 (leased)
distribution of Water Pik(R) Products.
The Company's executive offices are located in Newport Beach, California and are
leased from a third party. The facility in Petaluma, California was leased from
a third party in November 1999 to accommodate the sales, marketing and customer
service staff for our pool products business when the facility in Novato,
California was vacated in April 2000. The Novato, California facility was also
utilized for manufacturing until January 2000. The Company's facilities are
modern and sufficient to carry on current activities.
ITEM 3 LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
From time to time, 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.
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ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of fiscal year 2000.
PART II
ITEM 5 MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
PRICE RANGE OF COMMON STOCK
The Company's common stock is listed on the New York Stock Exchange and trades
under the symbol "PIK". The following table sets forth, for the periods
indicated, the high and low sales prices for the common stock as reported by the
New York Stock Exchange.
HIGH LOW
----- -----
2000
First Quarter $9.63 $6.56
Second Quarter 8.25 6.00
Third Quarter 9.69 5.88
Fourth Quarter 9.69 5.75
1999
Fourth Quarter (from November 29, 1999) 9.75 6.75
On March 12, 2001, the closing sale price of our common stock as reported by the
New York Stock Exchange was $8.20 per share. As of March 12, 2001, there were
approximately 4,814 holders of record of the common stock.
DIVIDEND POLICY
To date, the Company has paid no cash dividends to its stockholders. The Company
has no plans to pay dividends on its common stock in order to conserve cash for
use in its business. In addition, the terms of the Company's credit facilities
prohibit it from paying dividends.
RECENT SALES OF UNREGISTERED SECURITIES
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 $1,334,000 in offering costs, are to be used to fund new
product development activities and to further develop lower cost manufacturing
capabilities. 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"). 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 and pay
certain registration expenses at the request of the purchasers subsequent to
January 3, 2002.
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ITEM 6 SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data for
Water Pik Technologies. The income statement data for each of the five years
ended December 31, 2000, 1999, 1998, 1997 and 1996 and the balance sheet data at
December 31, 2000, 1999, 1998 and 1997 set forth below are derived from audited
consolidated financial statements of Water Pik Technologies. The balance sheet
data at December 31, 1996 set forth below is derived from unaudited consolidated
financial statements of Water Pik Technologies. 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.
YEAR ENDED DECEMBER 31,
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2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
(in thousands, except for share and per share amounts)
CONSOLIDATED STATEMENT OF INCOME DATA:
Sales $ 296,053 $ 260,133 $ 240,562 $ 246,443 $ 218,571
Costs and expenses:
Cost of sales 193,768 161,155 144,318 144,068 137,030
Selling expenses 48,441 48,721 49,830 44,740 43,112
General and administrative expenses 33,888 31,053 27,382 29,251 26,119
---------- ---------- ---------- ---------- ----------
276,097 240,929 221,530 218,059 206,261
---------- ---------- ---------- ---------- ----------
Income before other income and
expenses 19,956 19,204 19,032 28,384 12,310
Interest expense 3,899 582 -- -- --
Other income (302) (198) (126) (532) (7)
---------- ---------- ---------- ---------- ----------
Income before income taxes 16,359 18,820 19,158 28,916 12,317
Provision for income taxes 6,156 7,766 7,663 11,364 4,964
---------- ---------- ---------- ---------- ----------
Net income $ 10,203 $ 11,054 $ 11,495 $ 17,552 $ 7,353
========== ========== ========== ========== ==========
Net income per common share -- basic
and diluted $ 1.05 $ 1.15 $ 1.17 $ 1.79 $ 0.77
========== ========== ========== ========== ==========
Average weighted common shares
outstanding -- basic 9,685,719 9,587,291 9,837,534 9,830,038 9,561,061
Average weighted common shares
outstanding -- diluted 9,722,996 9,594,330 9,838,465 9,831,222 9,561,754
CONSOLIDATED BALANCE SHEET DATA:
Working capital $ 46,488 $ 41,272 $ 35,778 $ 39,057 $ 41,914
Total assets $ 173,196 $ 159,631 $ 126,700 $ 118,901 $ 117,589
Long-term debt, less current portion $ 36,995 $ 39,883 $ -- $ -- $ --
Stockholders' equity $ 66,747 $ 56,690 $ 88,822 $ 80,653 $ 85,335
Because Water Pik Technologies was not a publicly held company prior to November
30, 1999, the weighted average number of shares of common stock used in the
computation of earnings per share for such period is based on the distribution
ratio of the weighted average number of ATI shares of common stock of one share
of Water Pik Technologies for every 20 shares of ATI for periods prior to the
spin-off.
The historical selected consolidated financial data for the period prior to the
spin-off is not necessarily indicative of the results of operations or financial
position that would have occurred if the Company had been a separate,
independent public company during the periods presented, nor are they indicative
of its future performance. Such historical data should be read in conjunction
with the Company's "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and its consolidated financial statements and the
related notes.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is based upon and should be read in conjunction with
the audited consolidated financial statements, including the related notes,
included herein. For periods prior to the spin-off from ATI, the financial
statements include the businesses described below on a combined basis. Some of
the statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations are forward-looking statements. Actual
results could differ materially from the expectations reflected in these
forward-looking statements as a result of various factors, some of which are
described below. See also "Business -- Forward-Looking Information."
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17
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 and 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 our two segments for years ended December 31, 2000, 1999 and 1998
are summarized below:
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
SEGMENT 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Personal Health Care $124,509 42.1% $124,126 47.7% $125,926 52.3%
Pool Products and Heating Systems 171,544 57.9% 136,007 52.3% 114,636 47.7%
-------- -------- --------
Total Sales $296,053 100.0% $260,133 100.0% $240,562 100.0%
======== ======== ========
The financial information in the Company's financial statements for periods
prior to the spin-off from ATI is not necessarily indicative of results of
operations, financial condition and cash flows that would have occurred if the
Company had been a separate, independent public company during the periods
presented nor is it indicative of our future results. On an historical basis
prior to November 29, 1999, the capital for the Company's operations was
provided by ATI's net investment in the Company, with no debt allocated to the
Company. Accordingly, the historical financial statements prior to November 29,
1999 reflect no interest income or interest expense. Prior to the spin-off, ATI
established a five-year $60,000,000 revolving credit facility, and $34,000,000
of borrowings under the facility were used by ATI prior to the spin-off to repay
certain of its debt obligations. In connection with the spin-off, the Company
assumed this credit facility, including the repayment obligations for ATI's
$34,000,000 of borrowings. Following the spin-off, up to $26,000,000 of
borrowing availability remained under the credit facility, subject to the
borrowing base limitations under the facility. The amount of ATI indebtedness
assumed by the Company under the new credit agreement was determined by
reference to (i) historical levels of ATI consolidated indebtedness relative to
the expected market capitalization of ATI and the Company and (ii) the level of
debt and debt service capacity of the Company, as well as its ability to finance
working capital requirements through a combination of operating cash flow and
revolving credit borrowings. The historical consolidated financial statements
prior to November 29, 1999 included herein do not reflect any changes that
occurred in the capitalization or results of operations of the Company as a
result of, or after, the spin-off.
In September 2000, The Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board (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 should be classified as revenue and that such amounts cannot be
netted against the related shipping costs. The Company has historically reported
certain outbound shipping costs net of shipping revenues in sales. In accordance
with EITF 00-10, the Company implemented the consensus in the fourth quarter of
2000 with retroactive application to all periods presented. As such, sales and
cost of sales for all prior periods have been increased to reflect the
reclassification of shipping costs from sales to cost of sales. These
reclassifications had no effect on reported gross profit or results of
operations.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
2000 % CHANGE 1999 % CHANGE 1998
- ------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Sales $296,053 13.8% $260,133 8.1% $ 240,562
Gross profit $102,285 3.3% $ 98,978 2.8% $ 96,244
Operating profit $ 19,956 3.9% $ 19,204 0.9% $ 19,032
Gross profit as a percentage of sales 34.5% 38.0% 40.0%
Operating profit as a percentage of sales 6.7% 7.4% 7.9%
International sales as a percentage of
sales 16.4% 14.0% 15.6%
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Sales for 2000 were $296,053,000, representing an increase of 13.8 percent over
1999 due to increased sales of pool products and water-heating systems. Sales by
Olympic, acquired in August 1999, amounted to $14,351,000 in 2000 versus
$1,758,000
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in 1999. Gross profit (sales less cost of sales) as a percentage of sales for
2000 decreased to 34.5 percent compared with 38.0 percent for 1999 primarily due
to the shift in product sales mix to lower margin pool products and heating
systems, including sales of Olympic pool products with lower gross margins.
Gross profit was also impacted by increased insurance costs as an independent
company subsequent to the spin-off from ATI, initial lower gross margins on
recently introduced products and lower prices for certain personal health care
products in response to increased competitive pressure.
Operating profit (gross profit less selling expenses and general and
administrative expenses) as a percentage of sales decreased to 6.7 percent in
2000 from 7.4 percent in 1999. This decrease in operating profit was primarily
due to the decrease in gross profit percentage described above partially offset
by improvements in selling expense and general and administrative expense as a
percentage of sales. Operating profit in 2000 was also reduced by $857,000 in
severance costs related to a workforce reduction of which $164,000 was
classified as cost of sales, $223,000 as selling expense and $470,000 as general
and administrative expense. Other items in 1999 reducing operating profit were
$996,000 of expenses related to the closing of three manufacturing facilities,
of which $258,000 was recorded as cost of sales and $738,000 was recorded as
general and administrative expenses, $930,000 of unusual general and
administrative expenses associated with bad debts of several major retail
customers, $532,000 of expenses relating to workforce reductions in various
administrative and engineering departments and $285,000 of spin-off expenses.
The costs related to the closure of manufacturing facilities and workforce
reductions are the result of the Company's continuous cost-reduction and
cost-containment initiatives.
Selling expenses as a percentage of sales decreased to 16.4 percent in 2000 as
compared with 18.7 percent in 1999. Selling expenses were relatively constant at
$48,441,000 in 2000 compared to $48,721,000 in 1999. The favorable trend in
selling expenses resulted from leveraging fixed costs over a higher sales base
and a decrease in marketing and advertising expenses in 2000 as compared with
1999.
General and administrative expenses as a percentage of sales decreased to 11.4
percent in 2000 from 11.9 percent in 1999 primarily due to the special expense
items as discussed above. General and administrative expenses increased to
$33,888,000 in 2000 from $31,053,000 in 1999. The increase is due to a full year
of expenses from Olympic compared with five months in 1999 and to an increase in
corporate expenses resulting from operating as an independent company subsequent
to the spin-off from ATI. These increases were partially offset by savings
resulting from reorganizations and workforce reductions in both 1999 and 2000.
General and administrative expenses for the first 11 months of 1999 include a
corporate allocation from ATI whereas general and administrative expenses
subsequent to November 29, 1999 include actual corporate expenses incurred as an
independent company.
Interest expense was $3,899,000 in 2000 compared with $582,000 in 1999. Prior to
the spin-off on November 29, 1999, the Company had no interest expense 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. Effective with the date of the
spin-off through December 31, 2000, the Company has had outstanding borrowings
under its credit facilities. In addition, the Company issued an 8 percent
promissory note in connection with its acquisition of Olympic in July 1999. The
first installment representing half of the principal was paid on November 15,
2000.
The effective income tax rate was 37.6 percent for 2000 as compared with 41.3
percent for 1999. The effective income tax rate in 2000 was reduced from the
1999 rate due to the use of a more favorable apportionment method for state
income taxes and by the identification and utilization of state tax credits and
research and development credits not utilized in prior years.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Sales for 1999 were $260,133,000, representing an increase of 8.1 percent over
1998 due to increased sales of pool products and water-heating systems. The
acquisition of Olympic in 1999 contributed sales of $1,758,000 or 0.7 percent of
1999 sales. Gross profit as a percentage of sales for 1999 decreased to 38.0
percent compared with 40.0 percent for 1998 primarily due to a shift in product
sales mix to lower margin pool products and heating systems and to lower prices
for personal health care products in response to competitive pressure.
Operating profit as a percentage of sales decreased to 7.4 percent in 1999 from
7.9 percent in 1998. Selling expenses as a percentage of sales were 18.7 percent
in 1999 compared with 20.7 percent in 1998. The favorable trend in selling
expenses resulted from leveraging fixed costs over a higher sales base. General
and administrative expenses as a percentage of sales for 1999 were higher at
11.9 percent compared with 11.4 percent in 1998 and include a corporate
allocation from the former parent company of Water Pik Technologies for the
first 11 months of 1999 and all of 1998. Operations subsequent to November 29,
1999 include actual corporate expenses incurred.
Other items in 1999 affecting operating profit were $1,293,000 of seasonal
losses from Olympic, $996,000 of expenses related to the closing of three
manufacturing facilities of which $258,000 was recorded as cost of sales and
$738,000 was recorded as general and administrative expenses, $930,000 of
unusual general and administrative expenses associated with bad debts of several
major retail customers, $532,000 of expenses relating to workforce reductions in
various administrative and
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19
engineering departments and $285,000 of spin-off expenses. The costs related to
the closure of manufacturing facilities and workforce reductions are resulting
from the Company's continuous cost-reduction and cost-containment initiatives.
Interest expense for 1999 was $582,000. Effective with the date of the spin-off
through December 31, 1999, the Company had outstanding borrowing under its
credit facilities. In addition, the Company issued an 8 percent promissory note
in connection with its acquisition of Olympic in July 1999. The Company had no
interest expense in 1998 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.
The effective income tax rate was 41.3 percent for 1999 as compared with 40.0
percent for 1998. The increase primarily related to higher estimated state
income taxes.
PERSONAL HEALTH CARE
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
---------------------------------------------------------------------
2000 % CHANGE 1999 % CHANGE 1998
- ------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Sales $124,509 0.3% $124,126 (1.4)% $ 125,926
Operating profit $ 7,141 (10.5)% $ 7,982 (15.3)% $ 9,426
Operating profit as a percentage of sales 5.7% 6.4% 7.5%
International sales as a percentage of
sales 18.6% 18.7% 20.5%
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Sales in the Personal Health Care segment for 2000 were $124,509,000,
representing an increase of 0.3 percent over 1999. The nominal growth in sales
is due to increased oral health sales, including shipments of the new Water
Pik(TM) flosser, partially offset by lower sales of water treatment products and
showerheads. Additionally, sales in the fourth quarter, typically the strongest
season of the year, decreased 6.7 percent from 1999 to 2000 reflecting the
difficult U.S. retail environment.
Operating profit as a percentage of sales decreased to 5.7 percent in 2000 from
6.4 percent in 1999. This decrease is primarily due to a change in product mix
to lower margin products and lower prices on certain products due to increased
competitive market pressures. These effects were largely offset by decreased
selling and general and administrative expenses as a percentage of sales in 2000
compared to 1999 resulting from the reorganizations and staff reductions in 2000
and 1999, as well as to special expense items in 1999 of $258,000 related to the
closure of manufacturing facilities, $930,000 in bad debt expense, $532,000
related to workforce reductions and $285,000 of spin-off costs.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Sales for 1999 of our Personal Health Care segment were 1.4 percent less than in
1998 due to lower prices for oral health and water treatment products in
response to competitive pressures which were partially offset by increased sales
in new shower products. Additionally, sales were negatively impacted across all
categories by inventory reduction efforts by a major retail customer, financial
difficulties of certain retail customers and weak international economic
conditions.
Operating profit decreased $1,444,000 to $7,982,000 in 1999 compared to
$9,426,000 in 1998. Operating profit was negatively impacted by higher tooling
amortization expense associated with increased new product development
initiatives. Operating profit in 1999 was also negatively impacted by unusual
expenses of $930,000 associated with bad debts of several major retail
customers, and $1,075,000 of expenses related to the closure of a manufacturing
facility, workforce reductions and non-recurring spin-off costs. These unusual
expenses were offset by a decrease in selling and marketing expenses of
$3,101,000 from 1998 to 1999. Selling and marketing expenses for 1999 declined
compared to the prior year primarily due to the reorganization and streamlining
of operations during this period.
The Personal Health Care segment incurred costs of $258,000 related to the
closure of a small manufacturing facility in San Antonio, Texas in July 1999.
Expenses of $532,000 were incurred relating to workforce reductions in various
administrative and engineering departments throughout the organization. In
addition, costs of $285,000 were incurred for activities related to the
spin-off, primarily for consulting fees and increased travel expenses.
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POOL PRODUCTS AND HEATING SYSTEMS
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2000 % CHANGE 1999 % CHANGE 1998
- ------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Sales $171,544 26.1% $136,007 18.6% $114,636
Operating profit $ 12,815 14.2% $ 11,222 16.8% $ 9,606
Operating profit as a percentage of sales 7.5% 8.3% 8.4%
International sales as a percentage of sales 14.8% 9.8% 10.3%
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Sales in the Pool Products and Heating Systems segment were $171,544,000 in
2000, an increase of $35,537,000 or 26.1 percent over 1999. The strong growth in
sales was across the pool products and heating systems product categories with
especially strong growth in pool and spa heaters and Jandy(TM) electronics.
Sales related to Olympic, acquired in August 1999, accounted for $12,593,000 of
the increase.
Operating profit as a percentage of sales decreased to 7.5 percent in 2000 from
8.3 percent in 1999. This decrease is due to a decrease in the gross profit
percentage resulting primarily from the lower gross margin products at Olympic,
partially offset by savings from consolidating manufacturing facilities in
October 1999. Selling expenses as a percentage of sales improved in 2000
compared to 1999 as a result of leveraging fixed costs over a higher sales base.
General and administrative expenses as a percentage of sales were consistent in
2000 and 1999. The increase in sales absorbed the impact of increased insurance
costs and corporate expenses experienced subsequent to the spin-off.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Sales of our Pool Products and Heating Systems segment increased 18.6 percent in
1999 compared to 1998. Pool products sales increased 22.3 percent due to strong
pool equipment and heater sales. Sales of Olympic were $1,758,000 in 1999.
Water-heating product sales increased 9.6 percent due mainly to the acquisition
of Trianco in August 1998. Sales of water-heating products, excluding Trianco
products, decreased 3.0 percent due largely to the plant closure process which
caused a product shortage for several months, an increase in the sales backlog
and the loss of certain seasonal re-orders in the fourth quarter.
Operating profit increased 16.8 percent in 1999 as compared to 1998. The
increase in operating profit was primarily due to increased sales volume, offset
by expenses of $738,000 related to the closing of two manufacturing facilities
and seasonal losses of $1,293,000 of newly acquired Olympic.
The Pool Products and Heating Systems segment incurred plant closure costs of
$738,000 in 1999, all of which were recorded in general and administrative
expenses, related to the closures of the Randolph, Massachusetts facility and
the Novato, California facility. The Randolph facility was closed in October
1999 and the closure of the Novato facility was completed in April 2000. The
production capabilities of these two facilities have been relocated to other
facilities in order to achieve cost savings and improve manufacturing
efficiencies. The plant closure costs consisted of severance costs of $263,000,
equipment move and production line setup costs of $150,000, and plant clean-up
and other costs of $325,000. At December 31, 1999, there was a reserve of
$236,000 primarily for the unpaid portion of severance expenses, remaining from
the plant closures. These amounts were paid in 2000.
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
$1,334,000 in offering costs, is to be used to fund new product development
activities and to further develop lower cost manufacturing capabilities. The
Company has the obligation to register these shares and pay certain registration
expenses at the request of the purchaser subsequent to January 3, 2002. 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.
Water Pik's cash and cash equivalents decreased to $1,383,000 at December 31,
2000 from $1,514,000 at December 31, 1999. The decrease resulted from
$12,616,000 of cash used in investing activities, primarily for capital
expenditures, and $362,000 of cash used in financing activities, primarily on
net borrowings on long-term debt, offset by $12,650,000 in cash provided by
operating activities.
20
21
Net cash of $12,650,000 provided by operating activities consisted primarily of
net income of $10,203,000 adjusted for non-cash items of $11,452,000 offset by
$9,005,000 used in working capital and other activities. Net cash used in
working capital and other activities resulted primarily from an increase in
accounts receivable and inventories as well as to a decrease in accounts
payable, partially offset by an increase in accrued income taxes and accrued
liabilities. Increased accounts receivable result from the increase in fourth
quarter 2000 sales in the Pool Products and Heating Systems segment as compared
to the fourth quarter of 1999. The increase in inventory resulted from lower
than anticipated sales in the fourth quarter at both segments due to the
difficult retail environment. The increase in accrued income taxes is the result
of the Company operating as an independent public company for the entire year
2000 as compared with one month in 1999. The increase in accrued liabilities
primarily relates to increased accrued rebates and warranty due to the growth in
sales in the fourth quarter of 2000 as compared with the same period in 1999.
In 1999, cash generated from operations of $14,250,000 was used primarily to
fund the cash portion of the purchase price of Olympic of $2,500,000, to make
$8,584,000 in capital expenditures and to advance $3,997,000 to ATI. In 1998,
cash generated from operations of $22,325,000 was used to purchase Trianco for
$10,647,000, to make $8,650,000 in capital expenditures and to advance
$3,223,000 to ATI.
Working capital increased to $46,488,000 at December 31, 2000 from $41,272,000
at December 31, 1999. The current ratio was unchanged at 1.8 for both periods.
The increase in working capital at December 31, 2000 was primarily due to higher
accounts receivable and inventory balances and lower accounts payable balances
partially offset by decrease in deferred tax assets and increases in accrued
income taxes and the current portion of long-term debt.
On a historical basis prior to November 29, 1999, most of the capital for the
Company's operations was provided by ATI's net investment in the Company, for
which no interest was charged. None of ATI's debt on a historical basis was
allocated to the Company. Prior to the spin-off, ATI established a five-year
$60,000,000 revolving credit facility, and $34,000,000 of borrowings under the
facility were used by ATI to repay certain of its obligations. The Company
assumed this revolving credit facility, including the repayment obligations for
ATI's $34,000,000 of borrowings made by ATI prior to the spin-off. At December
31, 2000, the Company had $23,155,000 of borrowing availability remaining under
borrowing base limitations of the credit facility. Borrowings under the credit
facility bear interest at variable rates at, or at margins above, prevailing
prime, LIBOR (London Interbank Offered Rate), federal funds or certificate of
deposit rates and depend on the ratio of consolidated total indebtedness to
earnings before interest, taxes, depreciation and amortization from time to
time. The interest rate in effect on borrowings under the revolving credit loans
at December 31, 2000 was 10.0 percent. The interest rate in effect on LIBOR
loans at December 31, 2000 was 8.66 percent.
On November 3, 1999, the Company's Canadian subsidiary entered into a financing
agreement with a bank for a revolving line of credit facility up to CDN.
$11,000,000. At December 31, 2000, the Company had CDN. $4,866,000 of borrowing
availability remaining under borrowing base limitations of the credit facility.
Borrowings under the credit facility bear interest at variable rates at, or at
margins above, the prevailing Canadian prime rate. The interest rate in effect
at December 31, 2000 was 8.0 percent.
The credit facilities require the Company to comply with various financial
covenants and restrictions, including covenants and restrictions relating to
indebtedness, liens, investments, dividend payments, consolidated net worth,
interest coverage and the relationship of our total consolidated indebtedness to
our earnings before interest, taxes, depreciation and amortization. A security
interest in substantially all of the Company's assets was granted to the lenders
under the credit agreements as collateral under the credit agreements.
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, including cash of $504,000, 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.
In August 1999, the Company acquired substantially all of the assets of Olympic,
a pool accessories manufacturer and distributor, for $2,500,000 in cash and a
CDN. $9,274,000 (US$6,344,000) promissory note. In June 2000, the promissory
note was amended to reflect a final purchase price adjustment of CDN. $485,000.
The first installment was paid on November 15, 2000 in accordance with the terms
of the amended agreement and the remaining balance of CDN. $4,879,000
(US$3,133,000) is due on August 6, 2001. Interest on the note is compounded
monthly and payable quarterly. Olympic is located in Montreal, Quebec, and
produces a full line of pool accessories ranging from cleaning and maintenance
supplies to white goods, ladders, solar reels, floating lounges, and pool toys
and games. Olympic distributes its products in Canada, Europe and the United
States. These pool accessories are being distributed in the U.S. and Europe
under our Water Pik(TM) and Jandy(TM) brand names.
Total capital expenditures for 2000 and 1999, excluding the purchases of Olympic
and Allegheny Technologies Japan Ltd., were $12,078,000 and $8,584,000,
respectively. At December 31, 2000, Water Pik Technologies had capital
expenditure commitments of $1,528,000, primarily for tooling and equipment for
use in production.
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22
We currently anticipate that no cash dividends will be paid on Water Pik
Technologies common stock in order to conserve cash for use in our business,
including possible future acquisitions. In addition, the terms of our credit
facilities prohibit us from paying dividends. Our board of directors will
periodically re-evaluate our dividend policy taking into account operating
results, capital needs, the terms of our credit facilities and other factors.
Prior to November 29, 1999 the Company participated in the general liability,
product liability, and workers' compensation insurance programs sponsored by
ATI. The Company has since entered into general liability, product liability and
workers compensation insurance programs of its own. Insurance coverage under
these programs are subject to policy deductibles for which we are at risk for
losses. In connection with the spin-off, we have agreed to indemnify ATI for
losses attributable to our operations prior to the spin-off. Reserves have been
established based upon existing and estimated claims and historical experience
in settling such matters. 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, a number of
these cases were settled and at December 31, 2000, 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 $9,503,000. 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 our financial condition, results of operation 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 within one year following
the spin-off and use of the anticipated gross proceeds of approximately
$50,000,000 (less associated costs) for further development of high quality,
lower cost manufacturing capabilities, for product line extensions, to expand
channels of distribution, to develop a self-sustaining product development
process, and for acquisitions and/or joint ventures. Pursuant to the Separation
and Distribution Agreement that Water Pik Technologies signed prior to the
spin-off, the Company agreed with ATI to undertake such a public offering. On
July 12, 2000, the IRS issued a supplemental ruling to ATI modifying certain
requirements imposed under the prior tax ruling. The supplemental ruling reduced
the amount of equity capital required to be raised by the Company from
$50,000,000 to $15,000,000, provided an extension until April 30, 2001 for the
completion of the offering and allowed the Company to raise the required capital
through a rights offering or private placement. 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 we will indemnify ATI and its agents and
representatives for taxes imposed on, and other amounts paid by, them or ATI's
stockholders if the Company takes actions or fails to take actions (such as
completing the equity offering) that result in the spin-off not qualifying as a
tax-free distribution. If any of the taxes or other amounts were to become
payable by the Company, the payment could have a material adverse effect on the
Company's business, results of operations, financial condition and cash flow and
the amount the Company could be required to pay could exceed its net worth by a
substantial amount.
OTHER MATTERS
ACCOUNTING PRONOUNCEMENTS
See Note 2: Summary of Significant Accounting Policies in the Notes to
Consolidated Financial Statements for information related to recent accounting
pronouncements.
INFLATION
Inflation has not been a significant factor in the markets in which the Company
operates and has not had a material impact upon the Company's results of
operations for the periods discussed above.
IMPACT OF YEAR 2000
The Company spent approximately $1,300,000 during 1998 and 1999 in connection
with updating and preparing its computer and information systems for the year
2000 date change. The Company did not experience business disruption or incur
significant expenses in 2000 related to the date change.
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ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks arising from transactions in the
normal course of business, principally risk associated with foreign currency and
interest rate fluctuations. The Company has not entered into any market risk
sensitive instruments for trading purposes.
FOREIGN CURRENCY RISK
Operating in international markets sometimes involves exposure to volatile
movements in currency exchange rates. The economic impact of currency exchange
rate movements on the Company is complex because such changes are often linked
to variability in real growth, inflation, interest rates, governmental actions
and other factors. In addition to the direct effects of changes in exchange
rates, which are a changed dollar value of the resulting sales and related
expenses, changes in exchange rates also affect the volume of sales or the
foreign currency sales price as competitors' products become more or less
attractive. These changes, if material, may cause the Company to adjust its
financing and operating strategies. Consequently, isolating the effect of
changes in currency does not incorporate these other important economic factors.
International operations constituted approximately 16 percent of the Company's
2000 consolidated sales. As currency exchange rates change, translation of the
income statements of international operations, primarily in Canadian dollars and
Japanese Yen, into U.S. dollars affects year-over-year comparability of
operating results. The Company does not generally hedge translation risks
because cash flows from international operations are generally reinvested
locally. The Company does not enter into hedges to minimize volatility of
reported earnings because it does not believe it is justified by the exposure or
the cost.
The change in currency exchange rates for the Canadian dollar would have the
largest impact on translating future international operating profit. The Company
estimates that a 10 percent change in foreign exchange rates would not have a
material impact on reported operating profit. The Company believes that this
quantitative measure has inherent limitations because, as discussed in the first
paragraph of this section, it does not take into account any governmental
actions or changes in either customer purchasing patterns or financing and
operating strategies.
INTEREST RATE RISK
The Company's exposure to interest rate risk is limited to its domestic and
Canadian lines of credit. The Company's domestic line of credit bears interest
at prime plus 0.25 percent to 0.50 percent, or at LIBOR (London Interbank
Offered Rate) plus 125 to 225 basis points per annum. The Company's Canadian
line of credit bears interest at Canadian or U.S. prime rate plus 0.50 percent.
The Company estimates that a 10 percent change in interest rates would not have
a material impact on reported operating profit.
23
24
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WATER PIK TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Report of Ernst & Young LLP, Independent Auditors 25
Consolidated Balance Sheets at December 31, 2000 and 1999 26
Consolidated Statements of Income for the years ended
December 31, 2000, 1999 and 1998 27
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 28
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2000, 1999 and 1998 29
Notes to Consolidated Financial Statements 30
24
25
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Water Pik Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Water Pik
Technologies, Inc. as of December 31, 2000 and 1999 and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Water
Pik Technologies, Inc. at December 31, 2000 and 1999 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2000 in conformity with generally accepted accounting
principles in the United States.
/s/ ERNST & YOUNG LLP
Woodland Hills, California
January 22, 2001
25
26
WATER PIK TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 1999
- --------------------------------------------------------------------------------------
(IN THOUSANDS,
EXCEPT FOR SHARE AND
PER SHARE AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents $ 1,383 $ 1,514
Accounts receivable, less allowances for doubtful accounts
of $1,910 and $1,372 at
December 31, 2000 and 1999, respectively 62,519 57,577
Inventories 33,866 25,349
Deferred income taxes 6,877 8,666
Prepaid expenses and other current assets 2,284 2,559
------------------------
TOTAL CURRENT ASSETS 106,929 95,665
Property, plant and equipment, net 42,364 38,248
Cost in excess of net assets acquired, net 20,109 21,972
Deferred income taxes 1,760 1,820
Other assets 2,034 1,926
------------------------
TOTAL ASSETS $173,196 $159,631
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 26,255 $ 27,958
Accrued income taxes 3,284 248
Accrued liabilities 25,162 22,646
Current portion of long-term debt 5,740 3,541
------------------------
TOTAL CURRENT LIABILITIES 60,441 54,393
Long-term debt, less current portion 36,995 39,883
Other accrued liabilities 9,013 8,665
------------------------
TOTAL LIABILITIES 106,449 102,941
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; 9,923,685 and 9,811,763 shares issued and
outstanding at December 31, 2000 and December 31, 1999,
respectively 99 98
Additional paid-in capital 60,064 59,302
Retained earnings 11,399 1,196
Equity adjustments due to stock plans (4,314) (3,824)
Accumulated comprehensive loss (501) (82)
------------------------
TOTAL STOCKHOLDERS' EQUITY 66,747 56,690
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $173,196 $159,631
========================
See accompanying notes.
26
27
WATER PIK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT FOR SHARE AND PER
SHARE AMOUNTS)
SALES $ 296,053 $ 260,133 $ 240,562
Cost and expenses:
Cost of sales 193,768 161,155 144,318
Selling expenses 48,441 48,721 49,830
General and administrative expenses 33,888 31,053 27,382
-----------------------------------------------
276,097 240,929 221,530
-----------------------------------------------
Income before other income and expenses 19,956 19,204 19,032
Interest expense 3,899 582 --
Other income (302) (198) (126)
-----------------------------------------------
INCOME BEFORE INCOME TAXES 16,359 18,820 19,158
Provision for income taxes 6,156 7,766 7,663
-----------------------------------------------
NET INCOME $ 10,203 $ 11,054 $ 11,495
===============================================
BASIC AND DILUTED NET INCOME PER COMMON SHARE $ 1.05 $ 1.15 $ 1.17
===============================================
SHARES USED IN COMPUTING BASIC EARNINGS PER SHARE 9,685,719 9,587,291 9,837,534
===============================================
SHARES USED IN COMPUTING DILUTED EARNINGS PER SHARE 9,722,996 9,594,330 9,838,465
===============================================
See accompanying notes.
27
28
WATER PIK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000 1999 1998
- ----------------------------------------------------------------------------------------------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income $ 10,203 $ 11,054 $ 11,495
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 9,381 8,491 6,324
Deferred income taxes 1,849 5 641
Compensation expense arising from stock awards 230 -- --
Gain on sale of property, plant and equipment (8) (11) (13)
Change in operating assets and liabilities:
Accounts receivable (4,455) (9,463) 3,284
Inventories (8,429) (4,882) 4,955
Accounts payable (2,165) 7,658 (2,120)
Accrued liabilities 2,532 1,445 (1,520)
Accrued income taxes 3,036 248 --
Other assets and liabilities 476 (295) (721)
--------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 12,650 14,250 22,325
INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired (761) (2,500) (10,647)
Purchases of property, plant and equipment (11,935) (8,584) (8,650)
Disposals of property, plant and equipment 80 31 155
Other -- 80 40
--------------------------------
CASH USED IN INVESTING ACTIVITIES (12,616) (10,973) (19,102)
FINANCING ACTIVITIES:
Net borrowings under credit facilities 3,001 2,234 --
Repayment of promissory note (3,178) -- --
Principal payments on capital leases (229) -- --
Other 44 -- --
Net advances to ATI -- (3,997) (3,223)
--------------------------------
CASH USED IN FINANCING ACTIVITIES (362) (1,763) (3,223)
Effect of exchange rate changes on cash and cash equivalents 197 -- --
--------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (131) 1,514 --
Cash and cash equivalents at beginning of year 1,514 -- --
--------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,383 $ 1,514 $ --
================================
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Reduction of net advances from ATI resulting from spin-off $ -- $(94,985) $ --
Assumption of debt from ATI $ -- $ 34,000 $ --
Net liabilities transferred from ATI $ -- $ 5,290 $ --
Equity adjustment (due to stock plans) transferred from
ATI $ -- $ 121 $ --
Net assets acquired under promissory note $ -- $ 6,676 $ --
Property, plant and equipment acquired under capital
leases $ 143 $ -- $ --
SUPPLEMENTAL INFORMATION
Cash paid during the period:
Interest expense $ 4,028 $ 202 $ --
Income taxes $ 1,113 $ 550 $ --
See accompanying notes.
28
29
WATER PIK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
EQUITY ACCUMULATED
ADDITIONAL ADJUSTMENTS ADVANCES OTHER TOTAL
COMMON PAID-IN DUE TO RETAINED (TO) FROM COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL STOCK PLANS EARNINGS ATI INCOME (LOSS) EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
Balance, December 31, 1997 $-- $ -- $ -- $ -- $ 80,852 $(199) $ 80,653
Net income -- -- -- -- 11,495 -- 11,495
Other comprehensive income:
Foreign currency
translation losses -- -- -- -- -- (103) (103)
--------
Comprehensive income 11,392
Net transactions with ATI -- -- -- -- (3,223) -- (3,223)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 -- -- -- -- 89,124 (302) 88,822
Net income -- -- -- 1,196 9,858 -- 11,054
Other comprehensive income:
Foreign currency
translation gains -- -- -- -- -- 200 200
--------
Comprehensive income 11,254
Spin-off by ATI 93 94,892 -- (94,985) -- --
Net transactions with ATI -- (39,290) (121) -- (3,997) 20 (43,388)
Employee Stock Acquisition
and Retention Plan,
amortization and loan 5 3,700 (3,703) -- -- -- 2
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 98 59,302 (3,824) 1,196 -- (82) 56,690
Net income -- -- -- 10,203 -- -- 10,203
Other comprehensive income:
Foreign currency
translation losses -- -- -- -- -- (419) (419)
--------
Comprehensive income 9,784
Issuance of common stock to
employees and directors -- 116 -- -- -- -- 116
Issuance of restricted stock
to directors and
amortization- 99 (83) -- -- -- 16
Employee Stock Acquisition
and Retention Plan,
amortization and loan 1 547 (407) -- -- -- 141
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $99 $ 60,064 $(4,314) $11,399 $ -- $(501) $ 66,747
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
29
30
WATER PIK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. BUSINESS AND SPIN-OFF FROM ALLEGHENY TELEDYNE INCORPORATED
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 Company's common stock
to 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Water Pik
Technologies, Inc. and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated. For periods prior to the spin-off from
ATI, the financial statements include the businesses described in Note 1 on a
combined basis. ATI's historical cost basis of assets and liabilities, as of the
date of the spin-off, has been reflected in the Company's financial statements.
ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. Actual results could differ from those estimates. Management
believes that the estimates used in the preparation of the Company's
consolidated financial statements are reasonable.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's non-U.S. subsidiaries are measured
using local currency as the functional currency. Assets and liabilities are
translated at the exchange rates in effect at year-end. Revenues and expenses
are translated at the rates of exchange prevailing during the year. Translation
adjustments arising from differences in exchange rates from period to period are
recorded directly into a separate component in stockholders' equity.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
CONCENTRATION OF RISK
The Company grants credit terms in the normal course of business to its
customers. The Company markets its products to a diverse customer base,
principally throughout the United States and Canada. Trade credit is extended
based upon evaluations of each customer's ability to perform its obligations,
which are updated periodically. The Company does not normally require collateral
or other security to support credit sales. One customer, including amounts
related to two other customers acquired by the customer in 2000 and 2001,
accounted for 14 percent of net sales in 2000, 13 percent in 1999 and 12 percent
in 1998.
30
31
INVENTORIES
Inventories are stated at the lower of cost (last-in, first-out (LIFO) and
first-in, first-out (FIFO) cost methods) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are determined using a
combination of accelerated and straight-line methods over the estimated useful
lives of the various asset classes. Buildings are depreciated over periods not
exceeding 45 years, equipment over 5 to 18 years, plastic injection molds over 3
to 7 years and leasehold improvements over the shorter of their estimated
remaining lives or lease terms. Significant improvements are capitalized while
maintenance and repairs are charged to operations as incurred. Depreciation and
amortization expense related to property, plant and equipment was $6,795,000,
$6,039,000 and $4,644,000 in 2000, 1999 and 1998, respectively. Effective
October 1, 2000, the Company increased the estimated useful life of certain
tooling at the Personal Health Care segment from 3 years to 5 years. The change
resulted in a $280,000 decrease in depreciation expense and a $170,000 increase
in net income ($0.02 per diluted share) for the year ended December 31, 2000.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired relates to businesses purchased (goodwill)
and is being amortized on a straight-line basis over periods not exceeding 15
years. Accumulated amortization was $5,861,000 and $4,155,000 at December 31,
2000 and 1999, respectively. Goodwill amortization expense was $1,706,000,
$1,545,000 and $1,096,000 in 2000, 1999 and 1998, respectively. Cost in excess
of net assets acquired related to businesses purchased prior to October 31, 1970
is not being amortized. Goodwill not being amortized amounted to $239,000 at
December 31, 2000 and 1999.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. An impairment loss is
recognized when the sum of the undiscounted future cash flows is less than the
carrying amount of the asset, in which case a write-down is recorded to reduce
the related asset to its estimated fair value. No such impairment losses have
been recognized as of December 31, 2000, 1999 and 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded values of cash and cash equivalents, accounts receivable, accounts
payable, accrued liabilities and the promissory note approximate their fair
value based on their short-term nature. The carrying value of the borrowings
under the Company's revolving credit facilities are considered to approximate
their fair value because the interest rate of these instruments is based on
variable reference rates.
REVENUE RECOGNITION
The Company recognizes revenue when persuasive evidence of a sales arrangement
exists, delivery has occurred or services have been rendered, the buyers price
is fixed or determinable and collectibility is reasonably assured. The Company
allows credit for products returned within its policy terms. Such returns are
estimated and an allowance is provided at time of sale.
PRODUCT DEVELOPMENT AND RESEARCH AND DEVELOPMENT COSTS
Product development and research and development costs are classified in general
and administrative expenses and are expensed as incurred. Product development
and research and development costs were $8,076,000, $7,672,000 and $7,734,000
for 2000, 1999 and 1998, respectively.
ADVERTISING COSTS
Advertising costs are expensed in the year incurred and were $20,527,000,
$23,852,000 and $24,664,000 for 2000, 1999 and 1998, respectively.
WARRANTY COSTS
The Company's return policy is to replace, repair or issue credit for products
under warranty. Estimated warranty costs are provided when sales are recognized
and amounted to $5,965,000, $4,565,000 and $4,924,000 for 2000, 1999 and 1998,
respectively.
31
32
INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." The asset and liability
approach is used to recognize deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities.
STOCK BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but does not
require companies to record compensation expense for stock options granted at
fair value. The Company has chosen to continue to account for stock options
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock issued to Employees," and related
interpretations. Accordingly, the Company has provided pro forma disclosures of
the earnings per share as determined under the provision of SFAS No. 123.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," requires foreign currency
translation adjustments to be included in other comprehensive income.
Comprehensive income is presented in the consolidated statements of
stockholders' equity. The currency translation adjustments are not adjusted for
income taxes as they relate to indefinite investments in non-U.S. subsidiaries.
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. The Company must implement
SFAS No. 133 by the first quarter of 2001. The Company has evaluated the
requirements of SFAS No. 133 and does not expect adoption to have a significant
impact on the Company's consolidated results of operations or financial
position.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." SAB No.
101 summarizes the staff's views regarding the application of generally accepted
accounting principles to the recognition, presentation and disclosure of revenue
in the financial statements. Adoption of SAB No. 101 in the fourth quarter of
2000 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 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, sales and cost of sales for all prior periods presented have been
restated. As a result of the restatement, 1999 sales and cost of sales increased
$5,446,000 to $260,133,000 and $161,155,000, respectively and 1998 sales and
cost of sales increased $4,774,000 to $240,562,000 and $144,318,000,
respectively. These reclassifications had no effect on reported gross profit or
results of operations.
EITF 00-14, "Accounting for Certain Sales Incentives" was issued in May 2000 and
subsequently amended in November 2000. This guidance 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 00-14 in the second quarter of 2001.
Management does not anticipate that the adoption of EITF 00-14 will have a
significant impact on the Company's consolidated results of operations,
financial position or income statement classification.
In January 2001, the EITF reached a consensus on Item 3 of Issue 00-22,
"Accounting for "Points" and Certain Other Time-Based or Volume-Based Sales
Incentive Offers, and Offers for Free Products or Services to Be Delivered in
the Future." This guidance requires that obligations for cash rebates offered to
customers who achieve specified cumulative levels of revenue transactions be
recognized as a reduction of revenue based on a systematic and rational
allocation to each of the underlying revenue transactions that result in
progress towards the rebate. The Company is required to adopt EITF No. 00-22 in
the first quarter of 2001. The Company has reviewed the requirements of EITF
00-22 and has determined that it is currently in compliance with the consensus.
32
33
RECLASSIFICATIONS
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.
3. INVENTORIES
Inventories consist of the following:
DECEMBER 31, 2000 1999
- ------------------------------------------------------------------------------------
(IN THOUSANDS)
Raw materials and supplies $ 12,207 $ 14,144
Work-in-process 5,273 4,616
Finished goods 21,026 11,307
--------------------
Total inventories at current cost 38,506 30,067
Less: LIFO reserves to reduce current cost values to LIFO
basis (4,640) (4,718)
--------------------
Total inventories $ 33,866 $ 25,349
====================
Inventories determined using the LIFO cost method were $28,515,000 at December
31, 2000 and $19,841,000 at December 31, 1999, net of the respective LIFO
reserves. The remainder of inventory was determined using the FIFO cost method.
The inventory values prior to the LIFO reserve do not differ materially from
cost to current cost.
4. SUPPLEMENTAL BALANCE SHEET INFORMATION
Property, plant and equipment were as follows:
DECEMBER 31, 2000 1999
- ------------------------------------------------------------------------------------
(IN THOUSANDS)
Land $ 4,693 $ 4,697
Buildings 20,848 19,839
Equipment 68,008 60,053
Leasehold improvements 1,066 656
--------------------
94,615 85,245
Less: Accumulated depreciation and amortization (52,251) (46,997)
--------------------
Property, plant and equipment, net $ 42,364 $ 38,248
====================
Accrued liabilities are comprised of the following:
DECEMBER 31, 2000 1999
- ----------------------------------------------------------------------------------
(IN THOUSANDS)
Salaries and wages $ 7,002 $ 8,660
Warranty reserves 3,561 3,338
Advertising 5,483 3,929
Sales allowances and rebates 4,900 2,596
Property taxes 970 855
Other 3,246 3,268
------------------
Total accrued liabilities $25,162 $22,646
==================
33
34
5. LONG-TERM DEBT
Long-term debt is comprised of the following:
DECEMBER 31, 2000 1999
- ------------------------------------------------------------------------------------
(IN THOUSANDS)
Revolving credit facility $ 36,845 $ 32,884
Canadian revolving credit facility 2,399 3,402
8 percent promissory note 3,133 6,679
Capitalized leases 358 459
--------------------
42,735 43,424
Less: Current portion (5,740) (3,541)
--------------------
Long-term debt $ 36,995 $ 39,883
====================
Long-term debt is payable as follows: year ended December 31,
2001 -- $5,740,000; 2002 -- $125,000; 2003 -- $18,000; 2004 -- $36,850,000;
2005 -- $2,000.
REVOLVING CREDIT FACILITY
On November 29, 1999, the Company entered into a financing agreement with a
group of banks for a revolving line of credit up to $60,000,000 through November
2004. Borrowings under the revolving credit facility are limited to borrowing
base calculations based upon eligible account receivable, eligible inventory and
eligible real estate and equipment balances, as defined. At December 31, 2000,
the Company had $23,155,000 of borrowing availability remaining under borrowing
base limitations of the credit facility. The credit facility is secured by the
Company's assets.
Borrowings under the revolving credit loans bear interest at either the bank's
prime rate plus 0.25 percent to 0.50 percent (10.0 percent at December 31, 2000)
or, if the Company exercises a LIBOR option, at the LIBOR rate plus 125 to 225
basis points per annum (8.66 percent at December 31, 2000). The Company is
subject to a $50,000 annual agency fee and an unused line fee equal to 0.175
percent to 0.50 percent (determined by leverage ratio) per annum of the monthly
average unused borrowings. Interest on the revolving credit loan is payable
monthly. The weighted average interest rate on borrowings during 2000 was
8.64 percent.
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. A letter of credit fee is charged to the Company equal to 0.50
percent on the aggregate undrawn amount of all outstanding letters of credit. At
December 31, 2000, the aggregate amount of outstanding letters of credit under
the credit facility was $1,861,000.
The credit facility requires the Company to be in compliance with specific
financial covenants. The Company was in compliance with these financial
covenants at December 31, 2000.
CANADIAN REVOLVING CREDIT FACILITY
On November 3, 1999, the Company's Canadian subsidiary entered into a financing
agreement with a bank for a revolving line of credit up to CDN. $11,000,000,
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 the issuance of letters of
credits not to exceed CDN. $500,000. At December 31, 2000, the Company had CDN.
$4,866,000 of borrowing availability remaining under borrowing base limitations
of the credit facility.
Borrowings under the revolving Canadian credit facility bear interest at either
the bank's prevailing annual Canadian or U.S. prime rate plus 0.50 percent (8.0
percent at December 31, 2000). The interest is payable monthly. The weighted
average interest rate on borrowings during 2000 was 7.63 percent. At December
31, 2000, the aggregate amount of outstanding letters of credit under the credit
facility was CDN. $170,000 (US $109,000).
The Canadian credit facility requires the Company to be in compliance with
specific financial covenants. The Company was in compliance with these financial
covenants at December 31, 2000.
These revolving credit facility agreements also contain customary non-financial
covenants including restrictions on the incurrence of debt and encumbrances,
limitations on sales of assets, mergers and acquisitions and the payment of
dividends.
PROMISSORY NOTE
On August 5, 1999, the Company's Canadian subsidiary entered into a CDN.
$9,274,000 (US$6,344,000), 8 percent promissory note with Les Agencies Claude
Marchand, Inc. pursuant to the terms of the asset purchase agreement with Les
Agencies
34
35
Claude Marchand, Inc. At December 31, 1999, the Company recorded an estimated
purchase price increase of CDN. $485,000 (US$332,000) pursuant to the terms of
the asset purchase agreement. The adjusted principal amount of CDN. $9,759,000
(US$6,356,000) was due in two equal installments on November 15, 2000 and August
6, 2001. Interest is compounded monthly and payable quarterly. In June 2000, the
promissory note was amended to reflect a final purchase price adjustment of CDN.
$485,000. The first installment was paid on November 15, 2000 in accordance with
the terms of the amended agreement.
6. STOCK COMPENSATION PLANS
EMPLOYEE STOCK PURCHASE PLANS
On November 12, 1999, the Company's Board of Directors adopted the Water Pik
Technologies, Inc. Employee Stock Purchase Plan which consists of the Stock
Acquisition and Retention Program (the SARP) and the Employee Stock Purchase
Program (the ESPP).
Pursuant to the SARP, certain officers fully exercised their rights in 2000 and
1999 to acquire an aggregate 50,275 and 333,785 shares, respectively, of the
Company's common stock at the quoted market price on the date of purchase.
Payment for the purchased shares was in the form of full-recourse notes
receivable by the Company from the officers which bear interest at a weighted
average rate of 6.3 percent per annum and are payable in level monthly payments
of principal and interest beginning on the fifth anniversary of the notes. The
aggregate amount of the notes receivable from officers related to the purchase
of these shares at December 31, 2000 and 1999 was $2,835,000 and $2,470,000,
respectively, and was classified as a reduction of stockholders' equity in the
accompanying consolidated balance sheets. Further pursuant to the SARP, for
every two shares purchased by an officer of the Company under the SARP, the
officer was awarded one share of restricted common stock of the Company at no
cost to the officer. The restrictions on the restricted shares lapse five years
from the date of grant. During 2000 and 1999, an aggregate of 25,137 and 166,892
restricted common shares with an aggregate market value on the date of issuance
of $182,000 and $1,235,000, respectively, were issued. The amounts are being
amortized as compensation expense on a straight-line basis over the period of
restrictions and the unamortized balance is classified as a reduction of
stockholders' equity in the accompanying consolidated balance sheets.
Compensation expense for 2000 and 1999 was $282,000 and $15,000, respectively.
Effective May 1, 2000, the Company implemented the ESPP. The ESPP allows
eligible employees to purchase the Company's common stock through payroll
deductions of up to 25.0 percent of their base earnings within the minimum and
maximum contribution limits per payroll period as established in the ESPP. The
Company contributes 15.0 percent of each participant's monthly contribution
towards the purchase of shares of the Company's common stock. Shares of common
stock are purchased monthly in the open market at the fair market value on the
purchase date and vest immediately. In 2000, 11,000 shares were purchased in the
open market under the ESPP.
ALLEGHENY TELEDYNE STOCK ACQUISITION AND RETENTION PROGRAM
During 1999 and 1998, certain employees purchased ATI common stock and were
awarded restricted shares under the Allegheny Teledyne Stock Acquisition and
Retention Program ("Allegheny Teledyne SARP"). Effective November 29, 1999,
participants who purchased or designated ATI shares under the Allegheny Teledyne
SARP received distributions of the common stock of Teledyne Technologies and
Water Pik Technologies in the spin-offs on the purchased or designated ATI
shares. The shares they received in the spin-off, as well as the original ATI
shares, will continue to be held as collateral for the loans for the purchased
shares, all of which will be retained by ATI until the loans are fully paid.
Restricted shares awarded under the Allegheny Teledyne SARP to a Company
employee were converted into 12,276 restricted shares of Company common stock
under the Water Pik Technologies Inc. 1999 Incentive Plan as of the spin-off
date. The number of converted shares awarded was determined based on the
relationship of the ATI stock price and stock price of the Company, so that the
market value of the stock and the Company stock were equivalent before the
spin-off and immediately after the spin-off. The Allegheny Teledyne SARP shares
had a value of $150,000 when issued. The balance of the related prepaid
compensation expense of $91,000 and $121,000 at December 31, 2000 and 1999,
respectively, is recorded as a reduction of stockholders' equity in the
accompanying consolidated balance sheets. The amount is being amortized to
expense on the straight-line basis over the period of restrictions. In
accordance with the terms in the original Allegheny Teledyne SARP, the
restrictions on these shares lapse after five years from the original award date
with restrictions lapsing from May 2003 through August 2004.
NON-EMPLOYEE DIRECTOR COMPENSATION PLAN
On November 12, 1999, the Company's Board of Directors adopted the Water Pik
Technologies Inc. 1999 Non-Employee Director Stock Compensation Plan (Directors'
Plan), which was subsequently amended on June 27, 2000. A maximum of
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36
100,000 common shares of the Company or options to acquire common shares of the
Company may be issued under the Directors' Plan to non-employee directors,
including shares issued in payment of retainer fees. Pursuant to the Directors'
Plan, as amended, each Non-Employee Director was granted on a one-time basis
3,000 shares of restricted common stock with an aggregate market value on the
date of grant of $99,000. The amount is being amortized to expense on the
straight-line basis over the period of restrictions and the unamortized balance
of $83,000 at December 31, 2000 is classified as a reduction of stockholders'
equity in the accompanying consolidated balance sheet. Also in accordance with
the Directors' Plan, the Company grants options to non-employee directors to
purchase shares of its common stock at future dates at the fair market value on
the date of grant. Options vest from one to three years following the grant
date. As of December 31, 2000, 35,000 options with a weighted average exercise
price of $6.82 had been granted under the Directors' Plan and 5,000 options with
a weighted average exercise price of $7.69 were exercisable. As of December 31,
2000, 42,268 shares were available for grant under the Directors' Plan.
STOCK OPTION PLANS
On October 25, 2000, the Personnel and Compensation Committee of the Board of
Directors approved the Water Pik Technologies Performance Share Plan ("PSP") and
the grant of stock options for the performance period from January 1, 2001 to
December 31, 2003 ("Current Performance Period"). The PSP provides grants of
stock options with performance-based vesting and other performance awards that
can be earned if specified performance objectives are met over a multi-year
cycle. During the Current Performance Period, the financial target is based on
the achievement of specified levels of earnings per share. If the financial
target is met during the Current Performance Period, the PSP awards become fully
vested on February 15 of the year following the three-year measurement period.
If the financial target is not met during the Current Performance Period, the
PSP awards vest at the rate of one-third each year beginning December 31, 2003.
On November 12, 1999, the Company's Board of Directors adopted the Water Pik
Technologies Inc. 1999 Incentive Plan and on December 30, 1999, adopted the 1999
Broad Based Stock Option Plan. The 1999 Incentive Plan and the 1999 Broad Based
Stock Option Plan provide for awards of up to 12 percent and 5 percent,
respectively, of the outstanding shares of the common stock of the Company to
employees of the Company.
As of December 31, 2000, there were 26,139 shares available for option grants or
awards under the Company's employee stock option plans.
CONVERSION OF ALLEGHENY TELEDYNE STOCK OPTIONS
During 1999 and prior years, certain employees of the Company received stock
options to acquire ATI common stock issued under ATI benefit plans. Effective
November 29, 1999, stock options outstanding under the ATI benefit plans that
were held by Company employees were converted into options to purchase shares of
Water Pik Technologies common stock under the Water Pik Technologies Inc. 1999
Incentive Plan and the 1999 Broad Based Stock Option Plan. The converted stock
options have the same vesting provisions, expiration dates, and terms and
conditions as the ATI stock options they replaced. The number of options and the
exercise price of the options were adjusted in the conversion based on the
relationship of the ATI stock price and stock price of the Company, so that the
"intrinsic value" (the difference between the market value of the stock into
which the options are exercisable and the exercise price of the options
outstanding) of the options outstanding before the spin-off was equal to the
intrinsic value of the options outstanding immediately after the spin-off.
The following table summarizes activity of the Company employees' stock options,
including those converted from ATI options.
YEAR ENDED DECEMBER 31, 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
- ----------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 868,899 $ 9.46 459,252 $ 11.54 80,866 $ 7.23
Granted 844,400 7.94 454,333 7.69 378,386 12.45
Forfeitures (160,363) 10.58 (44,686) 12.87 -- --
Exercised -- -- -- -- -- --
----------------------------------------------------------------------
Outstanding at end of year 1,552,936 $ 8.52 868,899 $ 9.46 459,252 $11.54
======================================================================
Exercisable at end of year 334,606 $ 9.85 181,517 $ 10.32 54,622 $ 6.91
======================================================================
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Information regarding employee stock options outstanding as of December 31, 2000
is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE
NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
PRICE RANGE OF SHARES CONTRACTUAL LIFE EXERCISE PRICE OF SHARES EXERCISE PRICE
- --------------------------------------------------------------------------------------------------------------------------
$4.76 to $7.41 74,996 7.0 years $ 6.70 30,996 $ 6.11
$7.53 to $7.97 947,483 9.4 years $ 7.75 118,800 $ 7.69
$8.17 to $9.73 314,852 8.7 years $ 8.44 41,074 $ 9.08
$11.39 to $14.47 215,605 7.6 years $12.66 143,736 $12.66
The weighted-average remaining contractual life of options outstanding as of
December 31, 2000 is 8.9 years.
STOCK OPTION FAIR VALUE DISCLOSURE
The Company has adopted the disclosure-only provisions of SFAS No. 123 but
applies APB No. 25 and related interpretations in accounting for its plans. If
the Company had elected to recognize compensation cost for its stock option
plans based on the fair value at the grant dates for stock option plans
(including the converted stock options), consistent with the method prescribed
by SFAS No. 123, net income and earnings per share would have been as follows:
YEAR ENDED DECEMBER 31, 2000 1999 1998
- -------------------------------------------------------------------------------------------
Net income: as reported (in thousands) $10,203 $11,054 $11,495
Net income: pro forma (in thousands) $ 9,384 $10,719 $11,331
Basic and diluted net income per common share: as reported $ 1.05 $ 1.15 $ 1.17
Basic and diluted net income per common share: pro forma $ 0.97 $ 1.12 $ 1.15
For purposes of pro forma disclosure, the estimated fair value of the options is
amortized over the options' vesting period. Under SFAS No. 123, the fair value
of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
YEAR ENDED DECEMBER 31, 2000 1999 1998
- -------------------------------------------------------------------------------------
Expected dividend yield 0.0% 0.0% 2.9%
Expected volatility 61.4% 27.0% 31.0%
Risk-free interest rate 6.2% 6.2% 4.9%
Expected lives (in years) 7.0 8.0 8.0
Weighted-average fair value of options granted during year $5.30 $3.66 $3.88
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options. The Company's employee stock options have
characteristics significantly different from those of traded options such as
vesting restrictions and extremely limited transferability. In addition, the
assumptions used in option valuation models are highly subjective, particularly
the expected stock price volatility of the underlying stock. Because changes in
these subjective input assumptions can materially effect the fair value
estimate, in management's opinion, the existing models do not provide a reliable
single measure of the fair value of its employee stock options.
7. STOCKHOLDERS' EQUITY
PREFERRED STOCK
Authorized preferred stock may be issued in one or more series, with
designations, powers and preferences as designated by the Company's Board of
Directors. At December 31, 2000 and 1999, there were no shares of preferred
stock issued and outstanding.
COMMON STOCK
On November 29, 1999 ("spin-off date"), ATI distributed all of the common stock
of the Company to the stockholders of ATI in a tax-free transaction. An
aggregate of 9,311,086 shares of common stock, par value $0.01 of the Company's
common stock were distributed in the transaction. The number of shares
distributed was based on the distribution ratio of one share of Company common
stock for every 20 shares of ATI's common stock. Following the spin-off, ATI
held no equity interest in the Company.
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38
On December 29, 2000, the Company entered into an agreement with Special Value
Bond Fund, LLC and Special Value Bond Fund II, LLC to issue 1,973,685 shares of
common stock at an aggregate purchase price of $15,000,006 in a private
placement. The closing date per the agreement was the later of January 3, 2001
or the second trading day following the satisfaction or waiver of certain
conditions specified in the agreement. The shares were issued on January 3, 2001
upon satisfaction of the conditions.
STOCKHOLDERS' RIGHTS PLAN
On November 12, 1999, the Company's Board of Directors adopted a stockholders'
rights plan under which preferred share purchase rights were authorized and
declared as a dividend on the common shares of the Company to be distributed by
ATI to its stockholders. The rights become exercisable only if a person or group
acquires 15 percent or more of the Company's common stock or announces a tender
offer, the consummation of which would result in ownership by a person or group
of 15 percent or more of the common stock. Each right will entitle stockholders
to then buy one one-hundredth of a share of Series A Junior Participating
Preferred stock at an exercise price of $60. The rights will expire on the close
of business November 12, 2009, subject to extension, earlier redemption or
exchange by the Company as described in the plan. The rights plan was amended
effective as of December 29, 2000 to exempt the purchase of 1,973,685 shares of
common stock as described above from triggering the rights plan.
8. RELATED PARTY TRANSACTIONS
In connection with the spin-off, ATI and the Company entered into several
agreements. The Separation and Distribution Agreement provided for the principal
corporate transactions required to effect the separation of the Company's
businesses from ATI, the spin-off and certain other matters governing the
relationship between the Company and ATI following the spin-off. The Employee
Benefit Agreement contains various agreements between ATI and the Company
concerning employees, pension and employee benefit plans and other compensation
arrangements for current and former employees of our business. The Tax Sharing
and Indemnification Agreement allocates certain tax liabilities and obligations
between ATI and the Company.
Under the Interim Services Agreement, ATI provided the Company with transitional
administration and support services through September 2000 and provided that the
Company pay ATI a fee approximating ATI's cost for such services plus 10
percent. The Company paid ATI approximately $34,000 during 2000 for transitional
services.
The financial statements include transactions with ATI prior to the spin-off as
follows:
YEAR ENDED DECEMBER 31, 1999 1998
- ----------------------------------------------------------------------------------
(IN THOUSANDS)
Net advances from ATI, beginning of the year $ 89,124 $ 80,852
Net cash transactions with ATI:
Current provision for income taxes 7,542 7,022
Insurance expense 3,594 3,948
Corporate general and administrative expenses 2,292 2,358
Pension expense 1,886 1,483
Other net cash to ATI (19,311) (18,034)
--------------------
Net cash transactions with ATI (3,997) (3,223)
Transfer of ATI investment in Company (94,985) --
Net income allocable to ATI 9,858 11,495
--------------------
Net advances from ATI, end of the year $ -- $ 89,124
====================
Prior to December 1999, 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.
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 resources 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.
There was a payable to ATI of $1,331,000 at December 31, 2000 for interim
services and invoices paid on behalf of the Company. There was a payable to
other ATI subsidiaries of $1,004,968 at December 31, 1999 and $136,000 at
December 31, 1998.
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9. INCOME TAXES
The Company was included in the consolidated federal and certain state income
tax returns of ATI through the date of the spin-off. ATI and the Company entered
into a Tax Sharing and Indemnification Agreement that set forth each party's
rights and obligations regarding payment and refunds, if any, with respect to
taxes for periods before and after the spin-off and related matters such as the
filing of tax returns and the conduct of audits or other proceedings involving
claims made by taxing authorities. In general, ATI will be responsible for
filing consolidated U.S. federal and consolidated, combined or unified state
income tax returns for periods through the date of the spin-off, and for paying
the taxes relating to such returns including any subsequent adjustments
resulting from the redetermination of such tax liability by the applicable
taxing authorities. The Company will be responsible for other taxes attributable
to its operations.
Provision for income taxes for 1999 and 1998 were calculated as if the Company
had filed separate income tax returns. Provision for income taxes is comprised
of the following:
YEAR ENDED DECEMBER 31, 2000 1999 1998
- ----------------------------------------------------------------------------------------
(IN THOUSANDS)
Current:
Federal $3,464 $6,355 $6,070
State 866 1,406 952
--------------------------
Total current 4,330 7,761 7,022
Deferred:
Federal 1,691 5 599
State 474 -- 42
Foreign (339) -- --
--------------------------
Total deferred 1,826 5 641
--------------------------
Provision for income taxes $6,156 $7,766 $7,663
==========================
The following is a reconciliation of the statutory federal income tax rate to
the actual effective income tax rate:
YEAR ENDED DECEMBER 31, 2000 1999 1998
- ----------------------------------------------------------------------------------
Federal tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of federal tax benefit 3.3 5.0 3.5
Other (0.7) 1.3 1.5
--------------------
Effective income tax rate 37.6% 41.3% 40.0%
====================
The effective income tax rate in 2000 decreased from the 1999 rate due to the
use of 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.
Deferred income taxes result from net operating loss carryforwards, temporary
differences in the recognition of income and expense for financial and income
tax reporting purposes, and differences between the fair values of assets
acquired in business combinations accounted for as purchases for financial
reporting purposes and their corresponding tax basis. Deferred income taxes
represent future tax benefits or costs to be recognized when net operating loss
carryforwards are utilized and when temporary differences reverse. The
categories of assets and liabilities that have resulted in differences in the
timing of the recognition of income and expense were as follows:
DECEMBER 31, 2000 1999
- -------------------------------------------------------------------------------
(IN THOUSANDS)
Deferred income tax assets:
Accrued liabilities $8,040 $ 9,884
Inventories 1,162 1,381
Net operating loss 339 --
Intangible assets 145 178
Other 16 16
-----------------
Total deferred income tax assets 9,702 11,459
Deferred income tax liabilities
Depreciation and amortization (1,065) (973)
-----------------
Total deferred income tax liabilities (1,065) (973)
-----------------
Net deferred income tax asset $8,637 $10,486
=================
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Tax loss carryforwards relate to foreign subsidiaries and expire from 2006 to
2007. These limitations should not materially impact the utilization of the tax
loss carryforwards.
As of the spin-off date, November 29, 1999, a deferred income tax asset of
$4,482,000 was transferred from ATI which related to certain accrued liabilities
transferred from ATI on that date.
Although realization of the net deferred tax asset is not assured, management
believes that it is more likely than not that all of the net deferred tax assets
will be realized. However, the amount of the deferred tax asset considered
realizable could be adjusted in the future based on changing conditions.
10. PENSION PLAN AND RETIREMENT BENEFITS
RETIREMENT PLAN
Effective April 1, 2000, the Company implemented the Water Pik Technologies,
Inc. Retirement Plan (Retirement Plan) intended to qualify under Section 401(K)
of the Internal Revenue Code. Under the Retirement Plan, U.S. employees may
defer up to 15.0 percent of their annual compensation up to the annual maximum
dollar amount established by the Internal Revenue Service. The Retirement Plan
provides for matching contributions by the Company of $0.50 for every $1.00
deferred up to the greater of 3.0 percent of annual compensation or $1,000. The
Retirement Plan also provides for basic contributions of 2.0 to 4.5 percent of
annual compensation as well as discretionary contributions of up to 1.0 percent
of compensation based on Company profits. The implementation of the Retirement
Plan satisfies the requirements of the Employee Benefits Agreement between the
Company and ATI. Expense associated with the Retirement Plan in 2000 was
$1,791,000.
ATI PENSION AND RETIREMENT PLANS
The Company participated in a defined contribution plan sponsored by ATI
maintained for substantially all of its employees through April 1, 2000. The
costs associated with this plan were $187,000, $593,000, and $616,000 for 2000,
1999 and 1998, respectively. Water Pik Technologies employees' account balances
under the plan were transferred to the Retirement Plan effective April 1, 2000.
Certain of the Company's employees participated in the noncontributory defined
benefit plan sponsored by ATI. Benefits under this defined benefit plan are
generally based on years of service and/or final average pay. ATI funds the
pension plan in accordance with the requirements of the Employee Retirement
Income Security Act of 1974, as amended, and the Internal Revenue Code. Under
the Employee Benefits Agreement between the Company and ATI, Company employees
who, as of the spin-off date, were participants in the ATI Pension Plan
continued to accrue benefits under the ATI Pension Plan for service to the
Company until April 1, 2000. Also, in accordance with the Employee Benefits
Agreement, ATI has retained the obligation associated with the Company's
employees that participated in this plan and will pay benefits at the same times
and under the same terms and conditions as applicable to benefits accrued under
the ATI Pension Plan. Net expenses associated with the ATI defined benefit plan
allocated to the Company were $381,000, $1,886,000, and $1,483,000 in 2000, 1999
and 1998, respectively.
DEFERRED COMPENSATION PLAN
Effective November 29, 1999, the Company implemented the Water Pik Technologies,
Inc. Deferred Compensation Plan (Deferred Compensation Plan). The Deferred
Compensation Plan, which is unfunded, permits a select group of management or
highly compensated employees who, due to Internal Revenue Service guidelines
cannot take full advantage of the Retirement Plan, to annually elect to defer up
to 100 percent of their base salary and annual bonus on a pre-tax basis. The
Deferred Compensation Plan provides for matching contributions by the Company as
well as basic and discretionary contributions as provided under the Company's
Retirement Plan. Participants elect the types of investments to be used in
determining the amount of earnings to be credited to their accounts.
Distributions from the plan are made at retirement, death or termination of
employment, in a lump sum, or quarterly installments over the elected period.
Expenses of the Deferred Compensation Plan in 2000 were $102,000. At December
31, 2000, the liability under the Deferred Compensation Plan was $815,000.
11. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company leases buildings and equipment under agreements that expire in
various years through 2005. Certain leases contain renewal options with similar
terms. Rental expense under operating leases was $1,205,000, $1,994,000 and
$1,699,000 for 2000, 1999 and 1998, respectively. Future minimum rental
commitments under operating leases with noncancelable terms of more than one
year as of December 31, 2000, were as follows: $1,395,000 in 2000, $1,297,000 in
2001, $1,174,000 in 2002, $838,000 in 2003 and $76,000 in 2004.
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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.
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
Company's completion of a 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, the Company
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 reduced the amount of equity
capital required to be raised by the Company from $50,000,000 to $15,000,000,
provided an extension until April 30, 2001 for the completion of the offering
and allowed the Company to raise the required capital through a rights offering
or private placement. In January 2001, the Company issued and sold 1,973,685
shares of common stock at $7.60 per share in a private placement for total
proceeds of $15,000,006 to fulfill a material requirement of the ruling.
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 that 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, financials condition and cash flow.
12. 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, follows:
YEAR ENDED DECEMBER 31, 2000 1999 1998
- -------------------------------------------------------------------------------------------
(IN THOUSANDS)
Weighted average common shares outstanding -- basic 9,686 9,587 9,837
Dilutive effect of employee stock options and restricted
shares 37 7 1
-----------------------------
Weighted average common shares outstanding -- diluted 9,723 9,594 9,838
=============================
Net income used to compute basic and diluted earnings per
share $10,203 $11,054 $11,495
=============================
Shares issuable upon exercise of dilutive options and the dilutive effect of
restricted shares are determined using the treasury stock method. Options to
purchase 604,000, 356,000 and 138,000 shares with exercise prices greater than
the average market prices of common stock were outstanding during 2000, 1999 and
1998, respectively. These options were excluded from the respective computations
of diluted earnings per share because their effect would be anti-dilutive.
13. ACQUISITIONS
In July 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, including cash of $504,000, 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.
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In August 1999, the Company acquired substantially all of the assets of Olympic,
a pool accessories manufacturer and distributor, doing business in Canada as
Olympic Pool Accessories, for $2,500,000 in cash and a $6,344,000 promissory
note. At December 31, 1999, the Company recorded an estimated purchase price
adjustment, in accordance with the terms of the asset purchase agreement, of
$332,000. In connection with the purchase, the Company acquired $2,053,000 of
working capital and $3,175,000 of property, plant and equipment, and assumed
$794,000 of liabilities. The goodwill recorded as part of this transaction was
$4,410,000. In June 2000, the note was amended upon calculation of the final
purchase price adjustment to $6,265,000. Additionally, the Company adjusted the
preliminary allocation of the purchase price for obsolete inventory resulting in
an increase of $114,000 in goodwill. Olympic is located in Montreal, Quebec, and
produces a full line of pool accessories ranging from cleaning and maintenance
supplies to white goods, ladders, solar reels, floating lounges, and pool toys
and games. Olympic distributes it products in Canada, Europe and the United
States.
Had Olympic been purchased as of January 1, 1999, pro-forma sales, net income,
basic and diluted net income per common share would have been approximately
$269,000,000, $12,000,000, $1.25 and $1.25, respectively, for 1999. Had Olympic
been purchased as of January 1, 1998, pro forma sales, net income, basic and
diluted net income per common share would have been approximately $248,000,000,
$11,000,000, $1.12 and $1.12, respectively, for 1998.
In August 1998, the Company acquired the assets of Trianco Heatmaker, Inc.
("Trianco"), a manufacturer of high efficiency gas and oil boiler and
water-heating products based in Randolph, Massachusetts for $10,647,000 in cash.
In connection with the purchase, the Company acquired working capital of
$1,030,000, property, plant and equipment of $255,000 and intangibles of
$786,000. The goodwill recorded as part of this transaction was $8,576,000. Had
Trianco been purchased at the beginning of 1998, pro forma sales, net income,
basic and diluted net income per common share would have been approximately
$240,000,000, $11,000,000, $1.12 and $1.12, respectively.
These acquisitions were accounted for as purchases and their operations are
included in the Company's consolidated financial statements from the respective
dates of acquisition.
14. 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 and
water filtration product lines. 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.
42
43
Information on the Company's business segments is as follows:
YEAR ENDED DECEMBER 31, 2000 1999 1998
- ----------------------------------------------------------------------------------------------
(IN THOUSANDS)
Sales:
Personal Health Care $124,509 $124,126 $125,926
Pool Products and Heating Systems 171,544 136,007 114,636
--------------------------------
Total sales $296,053 $260,133 $240,562
================================
Operating profit:
Personal Health Care $ 7,141 $ 7,982 $ 9,426
Pool Products and Heating Systems 12,815 11,222 9,606
--------------------------------
Total operating profit 19,956 19,204 19,032
Interest expense 3,899 582 --
Other income (302) (198) (126)
--------------------------------
Income before income taxes $ 16,359 $ 18,820 $ 19,158
================================
Depreciation and amortization:
Personal Health Care 4,712 4,196 3,234
Pool Products and Heating Systems 4,638 4,295 3,090
Corporate 31 -- --
--------------------------------
Total depreciation and amortization $ 9,381 $ 8,491 $ 6,324
================================
Capital expenditures:
Personal Health Care $ 7,316 $ 6,153 $ 5,194
Pool Products and Heating Systems 4,474 2,409 3,456
Corporate 288 22 --
--------------------------------
Total capital expenditures $ 12,078 $ 8,584 $ 8,650
================================
Identifiable assets:
Personal Health Care $ 53,842 $ 44,657 $ 44,641
Pool Products and Heating Systems 108,867 100,507 75,592
Corporate 10,487 14,467 7,218
--------------------------------
Total identifiable assets $173,196 $159,631 $127,451
================================
The following information sets forth geographic information on our sales and
long-lived assets for 2000, 1999 and 1998:
UNITED
STATES CANADA OTHER CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
Year ended December 31, 2000:
Sales to unaffiliated customers $247,436 $24,746 $23,871 $296,053
==============================================
Long-lived assets at December 31, 2000 $ 57,476 $ 7,022 $ 9 $ 64,507
==============================================
Year ended December 31, 1999:
Sales to unaffiliated customers $222,863 $17,650 $19,620 $260,133
==============================================
Long-lived assets at December 31, 1999 $ 54,347 $ 7,799 $ -- $ 62,146
==============================================
Year ended December 31, 1998:
Sales to unaffiliated customers $202,214 $17,342 $21,006 $240,562
==============================================
Long-lived assets at December 31, 1998 $ 53,902 $ 351 $ -- $ 54,253
==============================================
15. EVENT SUBSEQUENT TO DECEMBER 31, 2000
On January 5, 2001, pursuant to a stock purchase agreement, the Company sold
1,973,685 shares of its common stock at $7.60 per share in a private placement
transaction to two investment funds managed by Special Value Investment
Management, LLC. The proceeds from the offering, net of offering expenses of
$1,334,000, are to be used to fund new product development activities and to
further develop lower cost manufacturing capabilities. The transaction satisfies
the requirements of the tax ruling from 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.
43
44
16. QUARTERLY DATA (UNAUDITED)
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
2000:
Sales, as originally reported $65,169 $75,660 $65,154 $ 84,278
Reclassification of outbound shipping costs to cost of
sales 1,935 2,062 1,795 --
------------------------------------------------------
Sales, as reclassified 67,104 77,722 66,949 84,278
Gross profit 22,322 27,104 23,278 29,581
Net income 541 3,080 1,665 4,917
Net income per share:
Basic $ 0.06 $ 0.31 $ 0.17 $ 0.51
Diluted $ 0.06 $ 0.31 $ 0.17 $ 0.50
1999:
Sales, as originally reported $53,599 $64,863 $58,026 $ 78,199
Reclassification of outbound shipping costs to cost of
sales 929 1,533 1,308 1,676
------------------------------------------------------
Sales, as reclassified 54,528 66,396 59,334 79,875
Gross profit 20,527 25,162 22,183 31,106
Net income 1,357 2,779 1,953 4,965
Net income per share:
Basic $ 0.14 $ 0.29 $ 0.21 $ 0.52
Diluted $ 0.14 $ 0.29 $ 0.21 $ 0.52
ITEM 9 CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information regarding the Company's directors will be set forth under the
caption "Proposal One -- Election of Directors" in the Company's definitive
Proxy Statement for use in connection with its Annual Meeting of Stockholders
scheduled to be held on April 26, 2001 (the "2001 Proxy Statement") and is
incorporated herein by reference. The 2001 Proxy Statement will be filed with
the Securities and Exchange Commission within 120 days after the end of the
Company's fiscal year.
The information regarding the Company's executive officers required by this Item
(other than the information regarding executive officers set forth at the end of
Item 1 of Part I of this Form 10-K) will be contained in the Company's
definitive 2001 Proxy Statement for its 2001 Annual Meeting of Stockholders and
is incorporated herein by reference.
ITEM 11 EXECUTIVE COMPENSATION
The information required by this Item will be contained in the sections entitled
"Executive Compensation" and "Director Compensation" in the Company's definitive
definitive 2001 Proxy Statement for its 2001 Annual Meeting of Stockholders and
is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be contained in the section entitled
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's definitive 2001 Proxy Statement for its 2001 Annual Meeting of
Stockholders and is incorporated herein by reference.
44
45
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be contained in the section entitled
"Certain Relationships and Related Transactions" in the Company's definitive
2001 Proxy statement for its 2001 Annual Meeting of Stockholders and is
incorporated herein by reference.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits and Financial Statements Schedules:
1) FINANCIAL STATEMENTS
The following consolidated financial statements are included in Item 8 of this
Report:
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets at December 31, 2000 and 1999
Consolidated Statements of Income for the years ended December 31, 2000, 1999
and 1998
Consolidated Statements of Cash Flows for the years ended December 31, 2000,
1999 and 1998
Consolidated Statements of Stockholders' Equity for the years ended December 31,
2000, 1999 and 1998
Notes to Consolidated Financial Statements
2) SUPPLEMENTAL SCHEDULES
SCHEDULE II -- QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
--------------------------
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST & OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
Deducted from Asset Accounts:
Allowance for Doubtful Accounts $ 1,372 $ 679 $ -- $ 141(a) $ 1,910
Liability Reserves:
Warranty Reserves 3,338 5,965 -- 5,742(d) 3,561
Product Liability and Workers'
Compensation Reserves 10,423 825 -- 1,745(d) 9,503
Year ended December 31, 1999
Deducted from Asset Accounts:
Allowance for Doubtful Accounts 1,756 858 -- 1,242(a) 1,372
Liability Reserves:
Warranty Reserves 3,165 2,397 -- 2,224(d) 3,338
Product Liability and Workers'
Compensation Reserves -- -- 10,423(b) -- 10,423
Year ended December 31, 1998
Deducted from Asset Accounts:
Allowance for Doubtful Accounts 1,952 236 -- 432(a) 1,756
Liability Reserves:
Warranty Reserves 3,047 2,682 150(c) 2,714(d) 3,165
Product Liability and Workers'
Compensation Reserves -- -- -- -- --
(a) Uncollectable accounts written off, net of recoveries
(b) Reserves transferred from ATI at spin-off
(c) Purchase of Trianco Heatmaker assets and liabilities
(d) Cash payments on claims
All other schedules for which provision is made in the applicable accounting
regulations of the SEC are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
45
46
3) EXHIBITS
A list of exhibits included in this Report or incorporated by reference is found
in the Exhibit Index set forth below.
(a)(3) Exhibit Index:
EXHIBIT
NUMBER DESCRIPTION
- ----------------------------------------------------------------------------
2.1 Separation and Distribution Agreement dated November 29,
1999, between Allegheny Teledyne Incorporated, TDY Holdings,
LLC, Teledyne Industries, Inc. and Water Pik Technologies,
Inc. (Incorporated by reference from Exhibit 2.1 to Form 8-K
filed on December 1, 1999.)
2.2 Amendment dated November 14, 2000, to Tax Sharing and
Indemnification Agreement dated November 29, 1999 between
Water Pik Technologies, Inc. and Allegheny Teledyne
Incorporated and to Separation and Distribution Agreement
dated November 29, 1999, between Allegheny Teledyne
Incorporated, TDY Holdings, LLC, Teledyne Industries, Inc.
and Water Pik Technologies, Inc. (This document also relates
to Exhibit 10.2 below.) (Filed herewith.)
3.1 Restated Certificate of Incorporation of Water Pik
Technologies, Inc., as amended. (Incorporated by reference
from Exhibit 3.1 to Form 10-K for fiscal year ended December
31, 1999 filed on March 29, 2000 ("1999 Form 10-K").)
3.2 Amended and Restated Bylaws of Water Pik Technologies, Inc.
(Incorporated by reference from Exhibit 3.2 to Registration
Statement on Form 10 (File No. 1-15297) ("Form 10").)
4.1 Rights Agreement dated November 12, 1999, between Water Pik
Technologies, Inc. and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent. (Incorporated by reference from
Exhibit 4.1 to Form 8-K filed on December 1, 1999.)
4.2 Amendment No. 1 to Rights Agreement dated December 28, 2000,
between Water Pik Technologies, Inc. and Mellon Investor
Services, LLC, formerly known as ChaseMellon Shareholder
Services, L.L.C. (Filed herewith.)
4.3 Registration Rights Agreement dated as of January 3, 2001,
between Water Pik Technologies, Inc., Special Value Bond
Fund, LLC and Special Value Bond Fund II, LLC. (Incorporated
by reference from Exhibit 4.1 to Form 8-K filed with the
Commission on January 11, 2001.)
4.4 Restated Credit Agreement dated as of November 29, 1999,
between Water Pik Technologies, Inc. and Laars, Inc., the
Guarantors and Lenders named therein, and The Chase
Manhattan Bank, as agent for the Lenders (the "Restated
Credit Agreement"). (Incorporated by reference from Exhibit
4.2 to 1999 Form 10-K.)
4.5 Form of Revolving Credit Note of Water Pik Technologies,
Inc. pursuant to the Restated Credit Agreement, together
with schedule. (Incorporated by reference from Exhibit 4.3
to 1999 Form 10-K.)
4.6 Pledge Agreement and Irrevocable Proxy of Water Pik
Technologies, Inc. pursuant to the Restated Credit
Agreement. (Incorporated by reference from Exhibit 4.4 to
1999 Form 10-K.)
4.7 Security Agreement of Water Pik Technologies, Inc. pursuant
to the Restated Credit Agreement. (Incorporated by reference
from Exhibit 4.5 to 1999 Form 10-K.)
4.8 Water Pik Technologies, Inc.'s Security Agreement and
Mortgage-Trademarks and Patents pursuant to the Restated
Credit Agreement. (Incorporated by reference from Exhibit
4.6 to 1999 Form 10-K.)
4.9 Guarantee of Water Pik Technologies, Inc. pursuant to the
Restated Credit Agreement. (Incorporated by reference from
Exhibit 4.7 to 1999 Form 10-K.)
4.10 Revolving Line of Credit Facility between Water Pik Canada
Ltd. and Banque Nationale de Paris (Canada), as amended.
(Incorporated by reference from Exhibit 4.8 to 1999 Form
10-K.)
10.1 Tax Sharing and Indemnification Agreement dated November 29,
1999, between Water Pik Technologies, Inc. and Allegheny
Teledyne Incorporated. (Incorporated by reference from
Exhibit 10.1 to Form 8-K filed on December 1, 1999.)
10.2 Amendment dated November 14, 2000, to Tax Sharing and
Indemnification Agreement dated November 29, 1999 between
Water Pik Technologies, Inc. and Allegheny Teledyne
Incorporated and to Separation and Distribution Agreement
dated November 29, 1999, between Allegheny Teledyne
Incorporated, TDY Holdings, LLC, Teledyne Industries, Inc.
and Water Pik Technologies, Inc. (Filed herewith. See 2.2
above.)
10.3 Interim Services Agreement dated November 29, 1999, between
Water Pik Technologies, Inc. and Allegheny Teledyne
Incorporated. (Incorporated by reference from Exhibit 10.2
to Form 8-K filed on December 1, 1999.)
10.4 Employee Benefits Agreement dated November 29, 1999, between
Water Pik Technologies, Inc. and Allegheny Teledyne
Incorporated. (Incorporated by reference from Exhibit 10.3
to Form 8-K filed on December 1, 1999.)
* 10.5 Amended and Restated Employment Agreement dated September
15, 1998, between Water Pik Technologies, Inc. and Michael
P. Hoopis. (Incorporated by reference from Exhibit 10.4 to
Registration Statement on Form 10.)
46
47
EXHIBIT
NUMBER DESCRIPTION
- ----------------------------------------------------------------------------
* 10.6 Employment Agreement dated December 1, 1999, between Water
Pik Technologies, Inc. and Robert J. Rasp. (Incorporated by
reference from Exhibit 10.5 to 1999 Form 10-K.)
* 10.7 Form of Employment Agreement entered into with certain
executives of Water Pik Technologies, Inc., together with
schedule. (Incorporated by reference from Exhibit 10.6 to
1999 Form 10-K.)
* 10.8 Form of Employment Agreement entered into with certain
executives of Water Pik Technologies, Inc., together with
schedule. (Incorporated by reference from Exhibit 10.5 to
Registration Statement on Form 10).
* 10.9 Form of Amendment to Employment Agreement with certain
executives of Water Pik Technologies, Inc., together with
schedule. (Incorporated by reference from Exhibit 10.8 to
1999 Form 10-K.)
* 10.10 Second Amendment to Employment Agreement dated October 25,
2000, between Water Pik Technologies, Inc. and Michael P.
Hoopis. (Filed herewith.)
* 10.11 Executive Deferred Compensation Plan of Water Pik
Technologies, Inc. (Incorporated by reference from Exhibit
No. 4.1 of Registration Statement on Form S-8. (File No.
333-30016.).)
* 10.12 1999 Non-Employee Director Stock Compensation Plan of Water
Pik Technologies, Inc., as amended. (Incorporated by
reference from Exhibit 10.1 to Form 10-Q for the quarter
ended June 30, 2000.)
* 10.13 1999 Incentive Plan of Water Pik Technologies, Inc.
(Incorporated by reference from Exhibit 10.11 to 1999 Form
10-K.)
* 10.14 Employee Stock Purchase Plan of Water Pik Technologies, Inc.
(Incorporated by reference from Exhibit 10.13 to 1999 Form
10-K.)
10.15 Stock Purchase Agreement dated as of December 29, 2000, by
and among Water Pik Technologies, Inc., Special Value Bond
Fund, LLC and Special Value Bond Fund II, LLC. (Incorporated
by reference from Exhibit 10.1 to Form 8-K filed on January
11, 2001.)
21.1 Subsidiaries of Water Pik Technologies, Inc. (Filed
herewith.)
23.1 Consent of Ernst & Young LLP, independent public
accountants. (Filed herewith.)
* Management contract or compensatory plan or arrangement.
The registrant hereby agrees to furnish supplementally to the Commission, upon
request, a copy of any omitted schedule to any of the agreements contained or
incorporated by reference herein.
(b) Reports on Form 8-K Filed in the Fourth Quarter of 2000:
There were no reports on Form 8-K filed in the Fourth Quarter of 2000.
(c) Exhibits
See subsection (a)(3) above.
(d) Financial Statement Schedules
See subsections (a)(1) and (2) above.
47
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WATER PIK TECHNOLOGIES, INC.
Date: March 16, 2001
By: /s/ MICHAEL P. HOOPIS
------------------------------------
MICHAEL P. HOOPIS
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
NAME TITLE DATE
- ---- ----- ----
/s/ MICHAEL P. HOOPIS
- ----------------------------------
MICHAEL P. HOOPIS President, Chief Executive Officer
and a Director (Principal Executive
Officer) March 16, 2001
/s/ VICTOR C. STREUFERT
- ----------------------------------
VICTOR C. STREUFERT Vice President and
Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer) March 16, 2001
/s/ ROBERT P. BOZZONE
- ----------------------------------
ROBERT P. BOZZONE Director March 16, 2001
/s/ W. CRAIG MCCLELLAND
- ----------------------------------
W. CRAIG MCCLELLAND Director March 16, 2001
/s/ WILLIAM G. OUCHI
- ----------------------------------
WILLIAM G. OUCHI Director March 16, 2001
/s/ CHARLES J. QUEENAN, JR.
- ----------------------------------
CHARLES J. QUEENAN, JR. Director March 16, 2001
/s/ JAMES E. ROHR
- ----------------------------------
JAMES E. ROHR Director March 16, 2001
48
49
EXHIBIT INDEX:
EXHIBIT
NUMBER DESCRIPTION
- ----------------------------------------------------------------------------
2.1 Separation and Distribution Agreement dated November 29,
1999, between Allegheny Teledyne Incorporated, TDY Holdings,
LLC, Teledyne Industries, Inc. and Water Pik Technologies,
Inc. (Incorporated by reference from Exhibit 2.1 to Form 8-K
filed on December 1, 1999.)
2.2 Amendment dated November 14, 2000, to Tax Sharing and
Indemnification Agreement dated November 29, 1999 between
Water Pik Technologies, Inc. and Allegheny Teledyne
Incorporated and to Separation and Distribution Agreement
dated November 29, 1999, between Allegheny Teledyne
Incorporated, TDY Holdings, LLC, Teledyne Industries, Inc.
and Water Pik Technologies, Inc. (This document also relates
to Exhibit 10.2 below.) (Filed herewith.)
3.1 Restated Certificate of Incorporation of Water Pik
Technologies, Inc., as amended. (Incorporated by reference
from Exhibit 3.1 to Form 10-K for fiscal year ended December
31, 1999 filed on March 29, 2000 ("1999 Form 10-K").)
3.2 Amended and Restated Bylaws of Water Pik Technologies, Inc.
(Incorporated by reference from Exhibit 3.2 to Registration
Statement on Form 10 (File No. 1-15297) ("Form 10").)
4.1 Rights Agreement dated November 12, 1999, between Water Pik
Technologies, Inc. and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent. (Incorporated by reference from
Exhibit 4.1 to Form 8-K filed on December 1, 1999.)
4.2 Amendment No. 1 to Rights Agreement dated December 28, 2000,
between Water Pik Technologies, Inc. and Mellon Investor
Services, LLC, formerly known as ChaseMellon Shareholder
Services, L.L.C. (Filed herewith.)
4.3 Registration Rights Agreement dated as of January 3, 2001,
between Water Pik Technologies, Inc., Special Value Bond
Fund, LLC and Special Value Bond Fund II, LLC. (Incorporated
by reference from Exhibit 4.1 to Form 8-K filed with the
Commission on January 11, 2001.)
4.4 Restated Credit Agreement dated as of November 29, 1999,
between Water Pik Technologies, Inc. and Laars, Inc., the
Guarantors and Lenders named therein, and The Chase
Manhattan Bank, as agent for the Lenders (the "Restated
Credit Agreement"). (Incorporated by reference from Exhibit
4.2 to 1999 Form 10-K.)
4.5 Form of Revolving Credit Note of Water Pik Technologies,
Inc. pursuant to the Restated Credit Agreement, together
with schedule. (Incorporated by reference from Exhibit 4.3
to 1999 Form 10-K.)
4.6 Pledge Agreement and Irrevocable Proxy of Water Pik
Technologies, Inc. pursuant to the Restated Credit
Agreement. (Incorporated by reference from Exhibit 4.4 to
1999 Form 10-K.)
4.7 Security Agreement of Water Pik Technologies, Inc. pursuant
to the Restated Credit Agreement. (Incorporated by reference
from Exhibit 4.5 to 1999 Form 10-K.)
4.8 Water Pik Technologies, Inc.'s Security Agreement and
Mortgage-Trademarks and Patents pursuant to the Restated
Credit Agreement. (Incorporated by reference from Exhibit
4.6 to 1999 Form 10-K.)
4.9 Guarantee of Water Pik Technologies, Inc. pursuant to the
Restated Credit Agreement. (Incorporated by reference from
Exhibit 4.7 to 1999 Form 10-K.)
4.10 Revolving Line of Credit Facility between Water Pik Canada
Ltd. and Banque Nationale de Paris (Canada), as amended.
(Incorporated by reference from Exhibit 4.8 to 1999 Form
10-K.)
10.1 Tax Sharing and Indemnification Agreement dated November 29,
1999, between Water Pik Technologies, Inc. and Allegheny
Teledyne Incorporated. (Incorporated by reference from
Exhibit 10.1 to Form 8-K filed on December 1, 1999.)
10.2 Amendment dated November 14, 2000, to Tax Sharing and
Indemnification Agreement dated November 29, 1999 between
Water Pik Technologies, Inc. and Allegheny Teledyne
Incorporated and to Separation and Distribution Agreement
dated November 29, 1999, between Allegheny Teledyne
Incorporated, TDY Holdings, LLC, Teledyne Industries, Inc.
and Water Pik Technologies, Inc. (Filed herewith. See 2.2
above.)
10.3 Interim Services Agreement dated November 29, 1999, between
Water Pik Technologies, Inc. and Allegheny Teledyne
Incorporated. (Incorporated by reference from Exhibit 10.2
to Form 8-K filed on December 1, 1999.)
10.4 Employee Benefits Agreement dated November 29, 1999, between
Water Pik Technologies, Inc. and Allegheny Teledyne
Incorporated. (Incorporated by reference from Exhibit 10.3
to Form 8-K filed on December 1, 1999.)
* 10.5 Amended and Restated Employment Agreement dated September
15, 1998, between Water Pik Technologies, Inc. and Michael
P. Hoopis. (Incorporated by reference from Exhibit 10.4 to
Registration Statement on Form 10.)
* 10.6 Employment Agreement dated December 1, 1999, between Water
Pik Technologies, Inc. and Robert J. Rasp. (Incorporated by
reference from Exhibit 10.5 to 1999 Form 10-K.)
50
EXHIBIT
NUMBER DESCRIPTION
- ----------------------------------------------------------------------------
* 10.7 Form of Employment Agreement entered into with certain
executives of Water Pik Technologies, Inc., together with
schedule. (Incorporated by reference from Exhibit 10.6 to
1999 Form 10-K.)
* 10.8 Form of Employment Agreement entered into with certain
executives of Water Pik Technologies, Inc., together with
schedule. (Incorporated by reference from Exhibit 10.5 to
Registration Statement on Form 10).
* 10.9 Form of Amendment to Employment Agreement with certain
executives of Water Pik Technologies, Inc., together with
schedule. (Incorporated by reference from Exhibit 10.8 to
1999 Form 10-K.)
* 10.10 Second Amendment to Employment Agreement dated October 25,
2000, between Water Pik Technologies, Inc. and Michael P.
Hoopis. (Filed herewith.)
* 10.11 Executive Deferred Compensation Plan of Water Pik
Technologies, Inc. (Incorporated by reference from Exhibit
No. 4.1 of Registration Statement on Form S-8. (File No.
333-30016.).)
* 10.12 1999 Non-Employee Director Stock Compensation Plan of Water
Pik Technologies, Inc., as amended. (Incorporated by
reference from Exhibit 10.1 to Form 10-Q for the quarter
ended June 30, 2000.)
* 10.13 1999 Incentive Plan of Water Pik Technologies, Inc.
(Incorporated by reference from Exhibit 10.11 to 1999 Form
10-K.)
* 10.14 Employee Stock Purchase Plan of Water Pik Technologies, Inc.
(Incorporated by reference from Exhibit 10.13 to 1999 Form
10-K.)
10.15 Stock Purchase Agreement dated as of December 29, 2000, by
and among Water Pik Technologies, Inc., Special Value Bond
Fund, LLC and Special Value Bond Fund II, LLC. (Incorporated
by reference from Exhibit 10.1 to Form 8-K filed on January
11, 2001.)
21.1 Subsidiaries of Water Pik Technologies, Inc. (Filed
herewith.)
23.1 Consent of Ernst & Young LLP, independent public
accountants. (Filed herewith.)
* Management contract or compensatory plan or arrangement.
The registrant hereby agrees to furnish supplementally to the Commission, upon
request, a copy of any omitted schedule to any of the agreements contained or
incorporated by reference herein.