SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended MARCH 31, 1995
OR
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 1-10177
WINDMERE CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 59-1028301
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
5980 MIAMI LAKES DRIVE, MIAMI LAKES, FLORIDA 33014
(Address of principal executive offices) (Zip Code)
(305) 362-2611
(Registrant's telephone number, including area code)
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 report(s), and (2) has been subject to such filing requirement
for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Number of Shares Outstanding
Class on May 1, 1995
Common Stock, $.10 Par Value 16,763,470
WINDMERE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Statements of Earnings for
First Quarters Ended March 31, 1995 and
1994
Consolidated Balance Sheets as of
March 31, 1995, December 31, 1994
and March 31, 1994
Consolidated Statements of Cash Flows
for Three Months Ended March 31, 1995
and 1994
Notes to Consolidated Financial State-
ments
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Results of Votes of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WINDMERE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
First Quarter Ended
March 31, 1995 March 31, 1994
Sales $37,930,100 100.0% $31,191,600 100.0%
Cost of Goods Sold 27,713,400 73.1 22,110,400 70.9
Gross Profit 10,216,700 26.9 9,081,200 29.1
Selling, General and
Administrative Expenses 10,102,000 26.6 9,072,400 29.1
Operating Profit 114,700 .3 8,800 .0
Other (Income) Expense
Interest Expense 130,300 .4 136,000 .4
Interest and Other Income (594,400) (1.6) (516,200 ) (1.6)
(464,100) (1.2) (380,200 ) (1.2)
Earnings Before Equity in Net
Earnings (Loss) of Joint Venture,
Income Taxes and Minority
Interest 578,800 1.5 389,000 1.2
Equity in Net Earnings (Loss)
of Joint Venture (15,000) (.0) (93,300 ) (.3)
Earnings Before Income Taxes
and Minority Interest 563,800 1.5 482,300 1.5
Income Taxes
Current 682,800 1.8 29,000 .1
Deferred (424,200) (1.1) 7,100 .0
258,600 .7 36,100 .1
Earnings Before Minority
Interest 305,200 .8 446,200 1.4
Minority Interest 0 .0 1,200 .0
Net Earnings $305,200 .8% $ 447,400 1.4%
Earnings Per Common Share
and Common Equivalent Share $.02 $.03
Average Number of Common
Shares and Common Equivalent
Shares Outstanding 17,463,300 16,554,100
Dividends Per Common Share $.05 $ -
The accompanying notes are an integral part of these statements.
WINDMERE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS 3/31/95 12/31/94 3/31/94
CURRENT ASSETS
Cash & Cash Equivalents $13,318,000 $12,988,300 $25,978,000
Short-Term Investments 2,500,000 2,500,000 0
Accounts and Notes Receivable,
less allowances of $1,338,400 at
3/31/95; $1,338,100 at 12/31/94;
and $1,307,100 at 3/31/94 29,707,400 38,733,300 27,338,600
Receivables from Affiliates 9,868,600 12,444,300 9,119,100
Inventories
Raw Materials 22,279,300 18,993,200 16,088,900
Work-in-process 15,793,400 15,155,900 14,398,100
Finished Goods 40,996,500 40,129,300 35,046,900
Total Inventories 79,069,200 74,278,400 65,533,900
Prepaid Expenses (Note 3) 8,987,700 8,020,500 7,801,200
Future Income Tax Benefits 2,275,500 1,883,400 3,060,500
Total Current Assets 145,726,400 150,848,200 138,831,300
INVESTMENTS (Note 2) 0 0 0
PROPERTY, PLANT & EQUIPMENT -
AT COST, less accumulated
depreciation of $36,851,500
at 3/31/95; $35,404,100 at
12/31/94; and $32,690,000 at
3/31/94 28,644,300 28,449,100 25,211,800
OTHER ASSETS 17,302,600 17,826,700 12,512,800
___________ ___________ ___________
TOTAL ASSETS $191,673,300 $197,124,000 $176,555,900
WINDMERE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
LIABILITIES 3/31/95 12/31/94 3/31/94
CURRENT LIABILITIES
Notes and Acceptances Payable $ 810,600 $ 740,100 $3,049,700
Current Maturities of Long-Term
Debt 814,800 814,800 814,800
Accounts Payable 6,280,600 8,120,000 5,544,400
Accrued Expenses 7,090,100 8,981,700 9,151,400
Income Taxes 1,439,500 2,312,600 1,149,000
Deferred Income, current portion 598,100 598,100 598,100
Total Current Liabilities 17,033,700 21,567,300 20,307,400
LONG-TERM DEBT 3,463,000 3,666,700 4,299,300
DEFERRED INCOME TAXES 0 0 0
DEFERRED INCOME, less current
portion 1,115,500 1,265,000 1,713,600
MINORITY INTEREST 0 0 3,123,900
STOCKHOLDERS' EQUITY
Special Preferred Stock -
authorized 40,000,000 shares of
$.01 par value; none issued 0 0 0
Common Stock - authorized
40,000,000 shares of $.10 par
value; shares issued and out-
standing: 16,742,572 at 3/31/95;
16,734,172 at 12/31/94; and
15,805,332 at 3/31/94 1,674,300 1,673,400 1,580,500
Paid-in Capital 30,565,800 30,648,700 24,736,100
Retained Earnings 138,557,800 139,088,800 121,533,900
Unrealized Foreign Currency
Translation Adjustment (736,800 ) (785,900) (738,800)
Total Stockholders' Equity 170,061,100 170,625,000 147,111,700
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $191,673,300 $197,124,000 $176,555,900
The accompanying notes are an integral part of these statements.
WINDMERE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
3/31/95 3/31/94
Cash flows from operating activities
Net earnings $ 305,200 $ 447,400
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation of property, plant and
equipment 1,417,200 1,283,700
Amortization of intangible assets 151,300 70,400
Amortization of deferred income (149,500) (149,500)
Net change in allowance for losses
on accounts receivable 300 (117,500)
Equity in (earnings) losses of affiliates 15,000 (93,300)
Decrease in minority interest 0 (1,300)
Decrease in accounts and notes receivable 9,025,600 4,047,500
Decrease (increase) in inventories (4,790,800) 1,623,600
Increase in prepaid expenses (967,200) (810,300)
Decrease in accounts payable
and accrued expenses (3,731,000) (4,251,500)
Increase in notes and acceptances
payable 70,500 53,900
Increase (decrease) in current and
deferred income taxes (1,265,200) 26,700
Decrease in other assets 372,800 512,800
Decrease (increase) in other accounts 49,100 (28,100)
Net cash provided by
operating activities 503,300 2,614,500
Cash flows from investing activities
Proceeds from fixed asset sales 9,900 1,400
Additions to property, plant and
equipment (1,622,300) (1,474,700)
Decrease in receivables from
affiliates 2,560,700 140,800
Net cash provided by (used in)
investing activities $ 948,300 $(1,332,500)
WINDMERE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Three Months Ended
3/31/95 3/31/94
Cash flows from financing activities
Payments of long-term debt $ (203,700) $ (203,900)
Exercise of stock options
and warrants 121,400 105,200
Cash dividends paid (836,200) 0
Purchases of common stock (203,400) 0
Net cash used in financing
activities (1,121,900) (98,700)
Increase in cash and
cash equivalents 329,700 1,183,300
Cash and cash equivalents at
beginning of year 12,988,300 24,794,700
Cash and cash equivalents at end
of quarter $13,318,000 $25,978,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the quarter for:
Interest $ 120,000 $ 92,600
Income taxes $ 1,595,500 $ 171,100
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
None.
The accompanying notes are an integral part of these statements.
WINDMERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to
present fairly the financial position as of March 31, 1995 and
1994, and the results of operations and changes in financial
position for the interim period. Results for interim periods
should not be considered indicative of results for a full year.
Reference should be made to the financial statements contained
in the registrant's Annual Report on Form 10-K for the year
ended December 31, 1994.
Note 2. Investments include:
3/31/95 12/31/94 3/31/94
Joint Ventures - at
cost plus equity in
undistributed earnings $ 0 $ 0 $ 0
The Company's joint venture investment at March 31, 1995,
December 31, 1994 and March 31, 1994 had negative values of
approximately $.4 million, which deficits have been classified
as reductions in Receivables from Affiliates.
The following table provides financial data for the Company's
joint venture investment accounted for on the equity method:
Three Three
Months Ended Year Ended Months Ended
3/31/95 12/31/94 3/31/94
Sales $ 12,093,300 $ 30,184,500 $ 10,640,600
Gross Profit $ 1,082,400 $ 3,572,500 $ 971,200
Net Earnings (Loss) $ (29,000) $ 185,000 $ 188,300
Note: Profits earned by the Company's manufacturing subsidiary
on sales to the joint venture are included in the consolidated
earnings results and are not part of the above table.
Note 3. Prepaid Expenses: The Hong Kong Inland Revenue Department is
auditing the tax returns of most of the Company's consolidated
Hong Kong subsidiaries through 1991, and has proposed increases
in income taxes aggregating approximately $5,600,000, which
proposed amount, or any of it which is ultimately determined to
be due, may be reduced by U.S. foreign tax credits. Inland
Revenue has required that cash deposits of approximately
$4,800,000 be made pending the resolution of the issues, which
amounts are included in prepaid expenses. The Company has been
advised it has defensible positions in connection with the
issues under discussion and intends to vigorously contest the
proposed tax increases. Management believes that adequate
provision for taxes has been made for the years under
examination and those not yet examined.
Note 4. Cash Dividends: The Board of Directors of the Company declared
a regular quarterly cash dividend of $.05 per share to
shareholders of record at the close of business on March 1,
1995, which was paid on March 15, 1995.
The payment of dividends will be at the discretion of the Board
of Directors of the Company and will depend upon, among other
things, future earnings, capital requirements, the Company's
financial condition and such other factors as the Board of
Directors may consider.
Note 5. On April 26, 1994, Kabushiki Kaisha Izumi Seiki Seisakusho, a
Japanese corporation ("Izumi"), filed an action against the
Company, David M. Friedson, the President and Chief Executive
Officer of the Company, U.S. Philips Corporation, North American
Philips Corporation and N.V. Philips Gloellampenfabrieken
(together, "Philips"). This action concerns the 1992 settlement
(the "Philips Settlement") of certain claims, primarily a
Federal antitrust claim, made by the Company against Philips,
which resulted in an $89,644,257 judgment in favor of the
Company. Pursuant to the Philips Settlement, Philips paid the
Company $57,000,000 in May 1992. As part of the Philips
Settlement, the Company and Philips agreed that the Company's
money judgment against Philips in connection with such antitrust
litigation would be vacated. Izumi is claiming, among other
things, that the Philips Settlement, including the agreement
with Philips to cooperate to vacate the related judgment in
favor of the Company, constitutes a breach by the Company of a
customary indemnification agreement between Izumi (as seller of
goods) and the Company (as buyer of goods) dated February 20,
1984. This indemnification agreement covered certain claims
against the Company and was entered into more than eight months
prior to the commencement of the Philips litigation in
connection with the routine purchase by the Company of goods
from Izumi. Izumi advanced certain legal fees and costs to the
Company in connection with the Philips litigation. Izumi is
further claiming that it is entitled to recover from the Company
an unspecified portion of the Philips Settlement, punitive
damages and reimbursement of litigation and other related costs
and expenses. The Company disagrees with Izumi's position and
believes that it has meritorious defenses and counterclaims to
these claims by Izumi. The Company has filed a pre-answer
motion to dismiss Izumi's complaint in full, the final decision
on which is pending. The Company intends to defend this action
fully and vigorously.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended March 31, 1995 Compared to
Three Months Ended March 31, 1994
Net sales were $37.9 million during the first quarter, a 21.6% increase
from the $31.2 million recorded for the same period last year.
Manufacturing sales were $2.9 million higher due to increased shipments of
kitchen electric appliances. The Company's distribution businesses had a
sales increase of $3.8 million on higher unit shipments of its core
personal care product lines, including hair care appliances sold under the
Helene Curtis Salon Selectives brand name. Wal-Mart Stores, Inc. accounted
for 15.6% of the Company's total sales during this year's first quarter.
COMPARATIVE SALES RESULTS
Three Months Ended
March 31, 1995 March 31, 1994
DISTRIBUTION $ 31,448,400 82.9% $ 27,657,300 88.7%
MANUFACTURING 6,481,700 17.1 3,534,300 11.3
Total Sales $ 37,930,100 100.0% $ 31,191,600 100.0%
The Company's gross margin percentage declined in the current year's first
quarter to 26.9% of sales from the 29.1% level achieved last year primarily
due to the higher cost of raw materials, a condition that has negatively
affected gross margins since the third quarter of 1994. The higher costs
of raw materials have continued into the second quarter of 1995. A higher
percentage of manufacturing sales in the first quarter of 1995 compared to
the same quarter a year ago also contributed to the lower gross profit
margins.
Although selling, general and administrative expenses increased from $9.1
million in the first quarter of 1994 to $10.1 million in the current year's
first quarter, these expenses decreased by 2.5% as a percentage of sales
primarily as a result of a higher level of sales in the current quarter.
The Company's tax expense is based on the earnings of each of its foreign
and domestic operations and it includes such additional U.S. taxes as are
applicable to the repatriation of foreign earnings. Offshore earnings
generally are taxed at rates lower than in the United States.
The average number of common shares and common equivalent shares used in
computing per share results was higher in 1995 primarily as a result of the
1,000,000 shares issued on April 1, 1994 to acquire the 20% minority
interest in Durable.
Liquidity & Capital Resources
At March 31, 1995, the Company's current ratio and quick ratio were 8.6 to
1 and 3.9 to 1 and at March 31, 1994, they were 6.8 to 1 and 3.6 to 1,
respectively. Working capital at March 31, 1995 and 1994 was $128.7
million and $118.5 million, respectively.
Cash and cash equivalents at March 31, 1995 are approximately $.3 million
higher than the December 31, 1994 level. Cash of $11.6 million was
generated from lower affiliate and accounts receivable balances. The
Company utilized approximately $10.1 million of cash during the quarter to
build inventory, acquire fixed assets and to decrease accounts payable.
The Company purchased 24,200 shares of its common stock for retirement
during this year's first quarter, at a cost of $.2 million. In addition,
cash dividends of $.8 million were paid to shareholders.
A foreign bank provides a $3.9 million line of credit, payable on demand,
to certain of the Company's foreign subsidiaries (the "subsidiaries"),
secured primarily by the subsidiaries' tangible and intangible property
located in Hong Kong and in the People's Republic of China. In addition,
should the subsidiaries default in their obligations, the Company has
guaranteed the payment of this debt. At March 31, 1995, the subsidiaries
were utilizing, including letters of credit, approximately $2.2 million of
this credit line, leaving an additional funding capacity of $1.7 million.
The Company has a $10.0 million demand line of credit from a domestic bank,
which is secured by domestic accounts receivable. The Company has had no
borrowings under this facility.
No provisions for U.S. taxes has been made on undistributed earnings of the
Company's foreign subsidiaries and joint ventures because management plans
to reinvest such earnings in their respective operations or in other
foreign operations. Repatriating those earnings or using them in some
other manner which would give rise to a U.S. tax liability would reduce
after tax earnings and available working capital.
The Company believes that its cash on hand and internally generated funds,
together with its credit lines, will provide sufficient funding to meet the
Company's capital requirements and its operating needs for the foreseeable
future.
Legal Proceedings
On April 26, 1994, Kabushiki Kaisha Izumi Seiki Seisakusho, a Japanese
corporation ("Izumi"), filed an action against the Company, David M.
Friedson, the President and Chief Executive Officer of the Company, U.S.
Philips Corporation, North American Philips Corporation and N.V. Philips
Gloellampenfabrieken (together, "Philips"). This action concerns the 1992
settlement (the "Philips Settlement") of certain claims, primarily a
Federal antitrust claim, made by the Company against Philips, which
resulted in an $89,644,257 judgment in favor of the Company. Pursuant to
the Philips Settlement, Philips paid the Company $57,000,000 in May 1992.
As part of the Philips Settlement, the Company and Philips agreed that the
Company's money judgment against Philips in connection with such antitrust
litigation would be vacated. Izumi is claiming, among other things, that
the Philips Settlement, including the agreement with Philips to cooperate
to vacate the related judgment in favor of the Company, constitutes a
breach by the Company of a customary indemnification agreement between
Izumi (as seller of goods) and the Company (as buyer of goods) dated
February 20, 1984. This indemnification agreement covered certain claims
against the Company and was entered into more than eight months prior to
the commencement of the Philips litigation in connection with the routine
purchase by the Company of goods from Izumi. Izumi advanced certain legal
fees and costs to the Company in connection with the Philips litigation.
Izumi is further claiming that it is entitled to recover from the Company
an unspecified portion of the Philips Settlement, punitive damages and
reimbursement of litigation and other related costs and expenses. The
Company disagrees with Izumi's position and believes that it has
meritorious defenses and counterclaims to these claims by Izumi. The
Company has filed a pre-answer motion to dismiss Izumi's complaint in full,
the final decision on which is pending. The Company intends to defend this
action fully and vigorously.
The Company is subject to other legal proceedings and claims which arise
in the ordinary course of its business. In the opinion of management, the
amount of ultimate liability, if any, with respect to these actions will
not materially affect the financial position of the Company.
Manufacturing Operations
The Company's products are primarily manufactured by Durable, its wholly-
owned Hong Kong subsidiary, in Bao An County, Guandong Province of the
People's Republic of China, which is approximately 60 miles northwest of
central Hong Kong. The Company has a significant amount of its assets in
the People's Republic, primarily consisting of inventory, equipment and
molds. Substantially all of the Company's products are manufactured by
Durable and unrelated factories in the People's Republic. Approximately
85% to 90% of the Company's products are manufactured by Durable. The
supply and cost of these products can be adversely affected, among other
reasons, by changes in foreign currency exchange rates, increased import
duties, imposition of tariffs, imposition of import quotas, interruptions
in sea or air transportation and political or economic changes. From time
to time, the Company explores opportunities to diversify its sourcing
and/or production of certain products to other low-cost locations or with
other third parties or joint venture partners in order to reduce its
dependence on production in the People's Republic and/or reduce Durable's
dependence on the Company's existing distribution base. However, at the
present time, the Company intends to continue its production in the
People's Republic.
In June 1989, the People's Republic experienced civil disturbances and,
although such disturbances have dissipated since that time, there continues
to be pressure for political reform. No assurance can be given, however,
that civil disturbances will not recur. If it becomes necessary to
relocate the Company's manufacturing facilities from the People's Republic
as a result of civil disturbances in that country or otherwise, the Company
believes the production currently conducted in the People's Republic could
be relocated to other Far East locations, including Hong Kong, or other
low-cost manufacturing locations, with only temporary disruption and delay
in such production and possible short-term operating and capital losses,
provided that the Company is able to move substantially all of its
manufacturing equipment and other assets currently in the People's Republic
to another location. If the Company is unable to remove such assets, due
to confiscation, expropriation, nationalization, embargoes or governmental
restrictions, it would incur substantial operating and capital losses,
including losses resulting from business disruption and delays in
production. In addition, as a result of a relocation of its manufacturing
equipment and certain other assets, the Company would likely incur
relatively higher manufacturing costs. A relocation could also adversely
affect the Company's revenues if the demand for the Company's products
currently manufactured in the People's Republic decreases due to a
disruption in the production and delivery of such products or due to higher
prices which might result from increased manufacturing costs. Furthermore,
earnings could be adversely affected due to reduced sales and/or the
Company's inability to maintain its current margins on the products
currently manufactured in the People's Republic.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See "Legal Proceedings" in Part I, Item 2 of this report.
Item 4. Results of Votes of Security Holders
At the Annual Meeting of Stockholders, held on May 9, 1995, the
following matters were submitted to a vote of the Company's
security holders:
Election of Directors.
Votes
Leonard Glazer
For Against Abstain
14,515,193 237,475 0
Harold Strauss
For Against Abstain
14,513,779 238,889 0
Lai Kin
For Against Abstain
14,504,751 247,917 0
Raymond So
For Against Abstain
14,504,861 247,807 0
Ratification of Grant Thornton as the Company's auditors for the
fiscal year ended December 31, 1995.
Votes
For Against Abstain
14,690,698 31,039 30,931
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) The Company's periodic report on Form 8-K, dated March 6, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WINDMERE CORPORATION
(Registrant)
May 15, 1995 By: /s/
Harry D. Schulman
Executive Vice President - Finance
and Administration and Chief
Financial Officer
(Duly authorized to sign on
behalf of the Registrant)
May 15, 1995 By: /s/
Burton A. Honig
Vice President - Finance
(Duly authorized to sign on
behalf of the Registrant)
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