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, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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)
Registrant's telephone number, including area code: (305) 362-2611
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock $.10 Par Value New York Stock Exchange
Special Preferred Stock Rights New York Stock Exchange
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. Yes X No_____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 20, 1995, the aggregate market value of the voting
stock (based on the closing price as reported by NYSE of $9.125)
held by non-affiliates of the Registrant was approximately
$118,312,000.
APPLICABLE ONLY TO CORPORATE REGISTRANTS: Indicate the number of
shares outstanding of each of the Registrant's classes of common
stock, as of the latest practicable date.
16,735,545 Shares of Common Stock
(as of the close of business on March 20, 1995)
DOCUMENTS INCORPORATED BY REFERENCE
1. Windmere Corporation's 1994 Annual Report to Shareholders (for
the fiscal year ended December 31, 1994). Information
contained in this document has been incorporated by reference
in PARTS I and II.
2. Windmere Corporation Proxy Statement for its 1995 Annual
Meeting of Shareholders (dated April 10, 1995). Information
contained in this document has been incorporated by reference
in PART III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Windmere Corporation (the "Company") is engaged principally in
manufacturing and distributing a wide variety of personal care products
and household appliances. The Company designs and manufactures its
products for sale to retail stores, distributors and professional beauty
supply customers located primarily in the United States, Canada and
Europe, with additional distribution in Latin America and the Far East.
The Company's products are sold largely under its Windmere trade name,
as well as under other trade names, trademarks and private labels. The
Company also manufactures products on a contract basis for others.
The Company's products are primarily manufactured by Durable Electrical
Metal Factory, Ltd. ("Durable"), its wholly-owned Hong Kong subsidiary,
in Bao An County, Guandong Province of the People's Republic of China
("People's Republic"), 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.
In May 1994, President Clinton extended the People's Republic's most-
favored-nation (MFN) trading status for an additional year, beginning
July 3, 1994. In making the decision to renew the People's Republic's
MFN status, the President announced that the United States would, in the
future, permanently de-link MFN renewal from human rights issues, other
than freedom of emigration provisions. Under U.S. law, MFN status means
that products are subject to the relatively low duty rates set forth in
Column 1 of the Harmonized Tariff Schedules of the United States
(HTSUS), that have resulted from several rounds of reciprocal tariff
negotiations conducted under the auspices of the General Agreement on
Tariffs and Trade (GATT) since 1945. Products from countries not
eligible for MFN treatment are subject to much higher rates of duty,
averaging 30 percent ad valorem, as set forth in Column 2 of the HTSUS.
If MFN status for goods produced in the People's Republic were removed,
there would be a substantial increase in tariffs imposed on goods of
Chinese origin entering the United States, including those manufactured
by the Company, which could have a material adverse impact on the
Company's revenues and earnings.
In June 1994, in accordance with the Trade Act of 1974, as amended, the
Office of the United States Trade Representative (USTR) listed the
People's Republic as a "priority foreign country" based on its alleged
failure to provide adequate and effective protection of intellectual
property rights. On February 4, 1995, the USTR announced that the
United States would take retaliatory trade action against the People's
Republic if the Chinese government did not agree to immediately address
its intellectual property rights concerns. The USTR also published a
list of products comprising $1.0 billion worth of Chinese exports to the
United States which would be subject to increased duties. Products
currently manufactured by and for the Company in the People's Republic
were excluded from the USTR's retaliation list. On February 26, 1995,
the United States and the People's Republic signed an agreement
resolving this dispute, thereby averting the implementation of the
proposed trade sanctions.
The Company was incorporated under the laws of the State of Florida in
1963. As used herein, the term "Company" refers to Windmere Corporation
and its subsidiaries, unless the context indicates otherwise. The
Company's executive offices are located at 5980 Miami Lakes Drive, Miami
Lakes, Florida 33014, (see Item 2. Properties), and its telephone number
is (305) 362-2611.
Products
The major portion of the Company's revenues are generated by the sale of
personal care products. The Company's personal care products include
hair dryers, curling irons, curling brushes, hairsetters, combs and
brushes, shears, mirrors and electric shavers.
The Company's appliances include toasters, toaster ovens, can openers,
blenders, hand mixers, waffle irons, steam irons, electronic air
cleaners, fans and air fresheners.
In 1994, 1993 and 1992, net sales of personal care products and
appliances represented approximately 70% and 30%, 74% and 26%, and 67%
and 33%, respectively, of the Company's total net sales.
Marketing and Distribution
Distribution:
The Company's products are sold principally by independent sales
representatives. The Company utilizes media advertising, cooperative
advertising and collateral materials to promote its products.
The Company's products are sold under various federal trademarks and
registrations, some of which include: Windmere, Jumbo Curl, Belson Pro,
Curlmaster, Design Pro, First Class Gourmet, Solid Gold, Hot 'n Steamy,
Windmere Salon, Steam Express, Air Moves, ESP, Electric Shock
Protection, VIP Pro, Setting Pretty, Skinni Mini, Clothes Shaver, Easy
Styler, Four Way Curls, Set Up, All Curl Trio, Mirror Go Lightly,
Jerdon, First Class, Plak Trac, Plak Pro, Hands Free, Smoke Catcher,
Curly Top, Prelude, High Fashion, Belson, Pro Touch, Pro Star, Hot
Silver, Golden Touch, Profiles, Comare, Salon Designs, Premiere, Espree,
Gold'N-Hot and Gentle Air. The Company believes that its business has
not been materially dependent on any one such trademark.
The Company's distribution businesses include the sale of consumer
products and professional salon products primarily in the United States,
Canada and Europe. Consumer products are primarily sold under the
Windmere brand and professional salon products are sold under the Belson
Products and Comare brands. In addition, private label and controlled
label sales are made by the Company.
In the United States, the Company wholesales its line of consumer
products nationwide to retailers, including department stores, drug
chains, catalog stores and discount and variety stores. The Company
also markets its consumer and professional salon appliances, hair pieces
and a wide variety of brushes and other hair care accessories to
beauticians, barbers and stylists through distributors. In addition,
certain items, including the Company's hair dryers, curling irons and
other personal care appliances, are sold through professional beauty and
barber retail store outlets.
The Company owns a 50% interest in a joint venture, Paragon Industries,
which distributes electric fans and other seasonal products manufactured
by Durable and unaffiliated third parties. At December 31, 1994, this
investment had a negative book value of $.4 million and there were no
significant contingent liabilities arising from such investment.
Manufacturing:
The Company's manufacturing business is conducted by Durable. Durable,
through its twenty-three year relationship with the Company, has
produced an extensive product line, which includes not only the
appliances sold to the Company and its customers and a substantial
amount of oscillating fans for a joint venture, but it has also become
a contract manufacturer for a range of products, such as toasters,
toaster ovens, can openers, blenders, hand mixers, waffle irons,
electric plug-in fragrance units and contact lens cleaners, which it
sells primarily to customers in the United States, Canada and Europe.
Some of its customers are Rival, Reckitt and Colman (Airwick), Salton-
Maxim and Bausch & Lomb.
Manufacturing and Supplies
The Company's foreign sales and operations are subject to the usual
risks incident to operating abroad, including currency fluctuations,
political conditions and changes in foreign laws. A weakening or
strengthening of the United States dollar may result in higher or lower
cost of goods for the Company from suppliers in countries whose exchange
rate does not parallel the United States dollar, unlike Hong Kong the
currency of which fluctuates substantially parallel to the United States
dollar.
The Company generates approximately 85% to 90% of its revenues from
products manufactured by Durable in the People's Republic. Such
products utilize raw materials available from at least two and as many
as nine or more independent suppliers. The Company has no material
dependence on any single foreign source for such materials.
Seasonality
The Company's business is generally seasonal. The Company has
historically experienced higher revenues in the third and fourth
quarters of each fiscal year primarily due to increased demand by
customers for the Company's products in the late summer for "back to
school" sales and in the fall for Christmas sales. In typical years,
the Company begins to accumulate inventory for its major selling season
in June and July and it continues to purchase products at accelerated
rates until November. The Company's major sales occur during August
through November. Sales are generally made on 60 to 90 day terms.
Heaviest collections on its open accounts receivable are received from
November through March, at which time the Company is in its most liquid
state.
Backlog
The Company's backlog of orders as of December 31, 1994, 1993 and 1992
was approximately $20.1 million, $17.7 million and $18.4 million,
respectively, which orders are generally shipped within the next
succeeding year.
Competition
The Company encounters significant competition with respect to all of
its products. Although the Company's prices for products distributed
under its labels are in general below or competitive with those of many
nationally advertised brands, the Company also competes through quality
of product, attractive packaging, breadth of product lines, speed of
delivery and maintenance of good customer relations. Many of the
Company's major competitors are substantially larger, have greater
financial and other resources and spend more for national advertising.
Some of the Company's competitors include Conair, Helen of Troy and
Remington.
Regulation
In the United States, Canada and Europe, most federal, state, provincial
and local authorities require Underwriters Laboratory, Inc. ("UL") or
other safety regulation certification prior to marketing electrical
appliances in those jurisdictions. All of the non-professional salon
appliances marketed by the Company have such certifications. The
Company endeavors to have most of its products designed to meet those
requirements and to be so certified, although there can be no assurance
that those products, or additional electrical appliances which may be
developed by the Company, will meet such specifications. Certain of the
products sold by the Company in the United States are subject to the
cosmetic purity and labelling provisions of the Fair Packaging and
Labelling Act. The Company believes that in addition to complying with
the Fair Packaging and Labelling Act, it complies with the applicable
rules and regulations of the Federal Trade Commission and other
municipal agencies with respect to, among other things, the content of
advertising and other trade practices.
Patents
Although the Company does not believe that its business is materially
dependent upon patents and patent protection, from time to time, new
products have been introduced with unique features for which the Company
has filed or obtained licenses for patents and design registrations in
the United States and in several foreign countries.
Employees
At March 1, 1995, the Company's distribution businesses in the United
States, Canada, Europe and Hong Kong employed approximately 260
persons. Durable's operations in Hong Kong and the People's Republic of
China employed approximately 11,800 persons. The Company enjoys
satisfactory working relations with these employees. The Company is not
a party to any collective bargaining agreement.
Geographic Area Financial Information
Incorporated by reference to the Company's 1994 Annual Report to
Shareholders, under the caption, "Note M to Consolidated Financial
Statements, Geographic Area Information". Included as part of Exhibit
13.
Item 2. PROPERTIES
The executive offices of the Company, from which a significant amount of
its business activities are conducted, are currently located at 5980
Miami Lakes Drive, Miami Lakes, Florida. All of the space in this two-
story office and warehouse facility is owned and occupied by the
Company. The Company also utilizes the services of public warehouses
located in Reno, Nevada and Memphis, Tennessee pursuant to short-term
contracts.
Durable owns approximately 50,000 sq. ft. of office space in Hong Kong,
of which 30,000 sq. ft. is used for its and the Company's trading
companies' headquarters. Durable also utilizes facilities of 1,800,000
sq. ft. in the People's Republic which it operates under contracts with
the local government. The contracts require such periodic adjustments
that terms of between one and five years exist at all times. Certain
facilities have contract terms extending beyond five years.
ITEM 3. LEGAL PROCEEDINGS
In 1990, Lasko Metal Products, Inc. ("Lasko") of West Chester,
Pennsylvania, filed a petition with the U.S. Department of Commerce
("Commerce") and the U.S. International Trade Commission alleging that
oscillating fans and ceiling fans from the People's Republic of China
("PRC") are being sold at less than fair value and are causing material
injury to an industry in the United States. The Company manufactures
oscillating fans in the PRC which are distributed in the United States.
The Company also has a 50% interest in a joint venture which imports
such fans into the United States.
In 1991, Commerce announced its final less-than-fair value sales
determination, finding a de minimis dumping margin on oscillating fans
manufactured and imported by the Company. Based on this result,
Commerce published an antidumping duty order, excluding all oscillating
fans manufactured by the Company from the duties imposed.
In January 1992, the final determination and antidumping duty order was
appealed to the U.S. Court of International Trade ("Court") by Lasko.
In December 1992, the Court affirmed Commerce's determination with
respect to all of the challenges raised by Lasko. Lasko's appeal of the
Court's decision to the Court of Appeals for the Federal Circuit was
denied in December 1994. Lasko has indicated that it does not plan to
appeal further, therefore the matter is closed with no adverse impact on
the Company.
In April 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, decision on which is pending, and it 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the New York Stock Exchange under the
symbol WND. High and low market prices and dividends paid per share in 1994
and 1993, by quarters, are as follows:
Market Price Cash
High Low Dividends
1994
Fourth quarter 11 1/8 7 5/8 $.05
Third quarter 12 9 3/8 .05
Second quarter 11 7/8 7 3/4 .05
First quarter 8 1/2 6 3/4 .00
$.15
1993
Fourth quarter 8 3/4 7 5/8 $.00
Third quarter 8 7/8 7 .00
Second quarter 8 3/8 6 3/8 .00
First quarter 7 3/4 5 7/8 .00
$.00
The approximate number of holders of common stock of the Company, as of
December 31, 1994, was 1,700. This number does not include any adjustment
for shareholders owning common stock in the Depository Trust name or
otherwise in "Street" name, which the Company believes represents an
additional 8,000 shareholders.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
1994 1993 1992
Net sales $181,112 $170,661 $175,450
Gross profit $ 53,269 $ 51,693 $ 52,405
Equity in earnings (loss)
of joint ventures $ 91 $ (504) $ (848)
Earnings (loss) before taxes
and minority interest $ 23,131 $ 12,305 $ 6,531
Provision for taxes
(benefits) $ 2,595 $ 1,365 $ 805
Effective tax rate 11.3% 10.7% 10.9%
Net earnings (loss) $ 20,537* $ 11,469** $ 34,335***
Working capital $129,281 $117,961 $104,139
Current ratio 7.0 to 1 5.8 to 1 4.8 to 1
Property, plant and
equipment, net $ 28,449 $ 25,022 $ 24,546
Total assets $197,124 $180,479 $172,974
Long-term debt, deferred
liabilities and minority
interest $ 4,932 $ 9,492 $ 12,291
Common stock in treasury -
at cost $ - $ - $ -
Stockholders' equity $170,625 $146,587 $132,922
Per share data:
Net earnings (loss) $ 1.17* $ .71** $ 2.09***
Cash dividends paid $ .15 $ - $ -
Book value at year end $ 10.20 $ 9.29 $ 8.65
Return on average equity 12.9% 8.2% 29.4%
*Includes a non-recurring gain on the sale of Hong Kong office space of
$7,810,500, or $.45 per share.
**Includes cumulative effect of accounting change benefit of $1,731,100, or
$.11 per share.
***Includes extraordinary credit from litigation settlement of $29,648,800,
or $1.82 per share.
1991 1990
Net sales $141,608 $154,859
Gross profit $ 37,658 $ 45,730
Equity in earnings (loss)
of joint ventures $ (1,020) $ 731
Earnings (loss) before taxes
and minority interest $(11,947) $ (2,511)
Provision for taxes
(benefits) $ (813) $ 1,874
Effective tax rate (7.4)% -
Net earnings (loss) $ (9,488) $ (3,729)
Working capital $ 96,705 $ 65,376
Current ratio 4.8 to 1 1.6 to 1
Property, plant and
equipment, net $ 25,751 $ 27,353
Total assets $175,836 $237,581
Long-term debt, deferred
liabilities and minority
interest $ 49,999 $ 12,723
Common stock in treasury -
at cost $ 7,344 $ 10,777
Stockholders' equity $100,216 $110,698
Per share data:
Net earnings (loss) $ (.59) $ (.23)
Cash dividends paid $ - $ -
Book value at year end $ 6.19 $ 7.25
Return on average equity - -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Year Ended December 31, 1994 compared with Year Ended December 31, 1993
Net Sales
Net sales were $181.1 million and $170.7 million for the years ended
December 31, 1994 and 1993, respectively. The higher sales volume was
produced by the Company's distribution businesses on increased unit
shipments of core products. The sales increase was almost evenly divided
between shipments to retailers and professional beauty supply customers.
Manufacturing sales by Durable were relatively unchanged, as 1994's growth
in sales of kitchen electric appliances offset a $6.5 million decline in
sales of electric fragrance units. Wal-Mart Stores, Inc. accounted for
17.8% of the Company's 1994 sales.
Set forth below is a table indicating the revenues that the Company derived
from its distribution and manufacturing operations for the periods
indicated:
Year Ended December 31,
1994 1993
Distribution $155,320,600 86% $144,609,600 85%
Manufacturing 25,791,600 14 26,051,800 15
Total Sales $181,112,200 100% $170,661,400 100%
Gross Profit Margin
The Company's gross profit margin declined in 1994 to 29.4% of sales from
the 30.3% level in the prior year. The lower gross margin resulted
primarily from three factors. The Company experienced the effects of
higher raw materials prices in its third and fourth quarters of 1994. In
addition, growth in kitchen electric appliance sales was achieved at lower
than normal margins in order to establish a market presence. Finally,
while manufacturing sales were level for both years, electric fragrance
unit sales, which had higher margins, were significantly lower in 1994.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales were
22.0% and 23.6% in 1994 and 1993, respectively. The Company's lower
aggregate operating expenses were primarily a result of reduced advertising
costs and legal expenses.
Unusual or Non-Recurring Items
In 1994, the Company recorded an unusual and non-recurring gain of $7.8
million on the sale of 60,000 square feet of office space in Hong Kong. No
taxes were provided as the gain is not taxable.
Equity in Net Earnings (Loss) of Joint Ventures
The Company's equity in net earnings (loss) of joint ventures, excluding
the results of a joint venture sold in August 1993, was $.1 million and
$(.3) million in 1994 and 1993, respectively. Higher sales and gross
margins this year produced the improved earnings.
Taxes
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. Non-
recurring transactions in 1994 and 1993 lowered the Company's effective tax
rate by 5.9 percentage points in each year.
Earnings Per Share
The average number of common shares and common equivalent shares used in
computing per share results was 8.5% higher in 1994 primarily as a result
of the 1,000,000 shares issued to acquire the additional 20% interest in
Durable, the exercise of stock options and warrants, as well as a higher
dilutive effect from unexercised stock options and warrants due to
increases in the quoted market price of the Company's common stock during
most of 1994. The purchase and retirement of 397,400 common shares
produced only a small reduction in the annual weighted average shares total
because these purchases occurred late in 1994.
Year Ended December 31, 1993 compared with Year Ended December 31, 1992
Net Sales
Net sales were $170.7 million and $175.5 million for the years ended De-
cember 31, 1993 and 1992, respectively. The Company's distribution
businesses had a sales increase of $11.8 million primarily resulting from
higher unit shipments of its core products. Durable's manufacturing sales
were $16.6 million lower primarily due to reduced shipments of electric
fragrance unit and fan products. Wal-Mart Stores, Inc. accounted for 19.3%
of the Company's 1993 sales.
Set forth below is a table indicating the revenues that the Company derived
from its distribution and manufacturing operations for the periods
indicated:
Year Ended December 31,
1993 1992
Distribution $144,609,600 85% $132,836,000 76%
Manufacturing 26,051,800 15 42,614,000 24
Total Sales $170,661,400 100% $175,450,000 100%
Gross Profit Margin
The Company's gross profit margin rose in 1993 to 30.3% of sales from the
29.9% level in the prior year. Durable's manufacturing margins primarily
increased as a result of improved purchasing practices, which led to lower
material costs. Partially offsetting these increased manufacturing margins
were lower gross margins earned by the Company's distribution businesses in
the generation of their higher sales volume.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales were
23.6% in 1993 and 1992. The Company's aggregate expenses decreased by $1.1
million primarily due to Durable incurring lower shipping and royalty costs
relative to the reduced electric fragrance unit shipments.
Interest Expense/Interest and Other Income
The Company's interest expense declined by approximately $1.5 million or
64% primarily due to reduced debt levels.
The Company's interest and other income was $2.2 million and $4.0 million
for 1993 and 1992, respectively. The 1992 balance includes a $2.2 million
gain from the disposition of Catalina Lighting, Inc. ("Catalina") common
stock.
Equity in Net Earnings (Loss) of Joint Ventures
The Company's equity in net earnings (loss) of joint ventures, excluding
the results of a joint venture sold in August 1993, was $(.3) million and
$(.2) million in 1993 and 1992, respectively.
Taxes
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.
Cumulative Effect of Accounting Change
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", on January 1, 1993, which changed the
Company's method of accounting for income taxes to an asset and liability
approach. The cumulative effect of this change in the method of accounting
for income taxes, after minority interest in the portion relating to
Durable, was a benefit of $1,731,100 or $.11 per share.
Earnings Per Share
The average number of common shares and common equivalent shares used in
computing per share results was slightly lower in 1993 primarily as a
result of the purchase and retirement of 858,575 shares from Catalina in
October 1992, which was partially offset by the higher dilutive effect from
unexercised stock options due to increases in the quoted market price of
the Company's common stock and the additional shares issued pursuant to the
exercise of stock options and warrants.
Liquidity & Capital Resources
At December 31, 1994, the Company's working capital was $129.3 million, an
increase of $11.3 million since the end of 1993. At the end of 1994, 1993
and 1992, the Company's current ratio was 7.0 to 1, 5.8 to 1 and 4.8 to 1,
respectively, and its quick ratio was 3.6 to 1, 3.1 to 1 and 2.3 to 1,
respectively.
Cash and cash equivalents decreased by $11.8 million during 1994. Cash of
$.5 million was provided from operating activities, which was net of $14.5
million used in a seasonal buildup of accounts receivable and inventories.
The Company received $9.5 million from the sale of office space in Hong
Kong in April 1994, and spent approximately $10.4 million during the year
for additions to its fixed assets. In 1994, the Company purchased and
retired 397,400 shares of its common stock at a cost of $3.9 million.
Quarterly cash dividend payments were resumed in June 1994, and for the
year, $2.5 million was 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 December 31, 1994, the sub-
sidiaries were utilizing, including letters of credit, approximately $1.5
million of this credit line, leaving an additional funding capacity of $2.4
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 provision 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to the Company's 1994 Annual Report to
Shareholders (Exhibit 13). See also PART IV, ITEM 14(a)2 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Company's Proxy Statement for its 1995
Annual Meeting of Shareholders under the captions "Election of Directors"
and "Executive Officers".
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's Proxy Statement for its 1995
Annual Meeting of Shareholders under the captions "Executive Compensation"
and "Certain Transactions".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Company's Proxy Statement for its 1995
Annual Meeting of Shareholders under the caption "Security Ownership".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by Reference to the Company's Proxy Statement for its 1995
Annual Meeting of Shareholders under the captions "Executive Compensation"
and "Certain Transactions".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. FINANCIAL STATEMENTS
The following consolidated financial statements of Windmere
Corporation and subsidiaries are incorporated by reference in
PART II, ITEM 8:
AUDITOR'S REPORT Exhibit 13
CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 1994 AND 1993 Exhibit 13
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1994, 1993
AND 1992 Exhibit 13
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY - THREE YEARS ENDED
DECEMBER 31, 1994 Exhibit 13
CONSOLIDATED STATEMENTS OF
CASH FLOWS - YEARS ENDED
DECEMBER 31, 1994, 1993 AND 1992 Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS Exhibit 13
2. FINANCIAL STATEMENT SCHEDULES
AUDITOR'S REPORT Filed herewith
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES -
YEARS ENDED DECEMBER 31,
1994, 1993 AND 1992 Filed herewith
Individual financial statements of the Company have been omitted since
consolidated financial statements have been presented, the parent is
primarily an operating company and all subsidiaries included in the
consolidated financial statements are wholly-owned. All other schedules
have been omitted since the required information is not present or not
present in amounts sufficient to require submission of the schedule or
because the information required is included in the consolidated financial
statements or the notes thereto.
3. EXHIBITS
(3) Articles of Incorporation and By-Laws.
3.1 Amended and Restated Articles of Incorporation of the Company filed
with the Florida Secretary of State on May 17, 1984. Incorporated
by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1984.
3.2 Articles of Amendment to the Articles of Incorporation of the
Company filed with the Florida Secretary of State on May 16, 1986.
Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1986.
3.3 Articles of Amendment to the Articles of Incorporation of the
Company filed with the Florida Secretary of State on June 23, 1986.
Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1987.
3.4 By-Laws as amended through October 11, 1991. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991.
3.5 Amendment to October 11, 1991 By-Laws. Incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
(10) Material Contracts
Executive Compensation Plans and Arrangements
10.1 Employment Agreement dated as of January 27, 1983, between Belvin
Friedson and the Company. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December
31, 1982.
10.2 Employment Agreement, First Amendment, dated as of February 27,
1987, between Belvin Friedson and the Company. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1986.
10.3 Employment Agreement, Second Amendment, dated as of December 16,
1992, between Belvin Friedson and the Company. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
10.4 Employment Agreements dated as of July 18, 1983, between David M.
Friedson, Barbara Friedson Garrett and Arnold Thaler, respectively,
and the Company. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1983.
10.5 Employment Agreement, First Amendment, dated as of January 17,
1985, between David M. Friedson and the Company. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1984.
10.6 Employment Agreement, Second Amendment and Nonqualified Stock
Option, dated as of September 30, 1985, between David M. Friedson
and the Company. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1985.
10.7 Employment Agreement (Third Amendment) and Nonqualified Stock
Option (First Amendment) dated as of October 28, 1987, between
David M. Friedson and the Company. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1987.
10.8 Employment Agreement (Fourth Amendment) and Nonqualified Stock
Option (Second Amendment) dated as of October 26, 1987, between
David M. Friedson and the Company. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1987.
10.9 Employment Agreement (Fifth Amendment) dated as of December 16,
1992, between David M. Friedson and the Company. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
10.10 Nonqualified Stock Option dated as of January 5, 1987, granted by
the Company to Barbara Friedson Garrett. Incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1986.
10.11 Employment Agreement (First Amendment) and Nonqualified Stock
Option (First Amendment) dated as of October 26, 1987, between
Barbara Friedson Garrett and the Company. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1987.
10.12 Employment Agreement (Second Amendment) and Nonqualified Stock
Option (Second Amendment) dated as of October 26, 1987 between
Barbara Friedson Garrett and the Company. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1987.
10.13 Employment Agreement (Third Amendment) dated as of December 16,
1992, between Barbara Friedson Garrett and the Company.
Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1992.
10.14 Nonqualified Stock Option dated as of January 5, 1987, granted by
the Company to Arnold Thaler. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December
31, 1986.
10.15 Employment Agreement (First Amendment) and Nonqualified Stock
Option (First Amendment) dated as of October 26, 1987 between
Arnold Thaler and the Company. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December
31, 1987.
10.16 Employment Agreement (Second Amendment) and Nonqualified Stock
Option (Second Amendment) dated as of October 26, 1987 between
Arnold Thaler and the Company. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December
31, 1987.
10.17 Employment Agreement (Third Amendment) dated as of December 16,
1992, between Arnold Thaler and the Company. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
10.18 Employment Agreement dated May 31, 1987, between Robert Gorman and
the Company. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987.
10.19 Employment Agreement (First Amendment) dated as of December 16,
1992, between Robert Gorman and the Company. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
10.20 1982 Employees Incentive Stock Option Plan. Incorporated by
reference to Exhibit 4 to Post-Effective Amendment No. 1 to the
Company's Form S-8 Registration Statement No. 2-92540.
10.21 Amendment to 1982 Employees Incentive Stock Option Plan.
Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1987.
10.22 1992 Employees Incentive Stock Option Plan. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
10.23 Employment Agreement dated as of October 26, 1987 between Burton A.
Honig and the Company. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1987.
10.24 Employment Agreement (First Amendment) dated as of December 16,
1992, between Burton A. Honig and the Company. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
10.25 Consulting Agreement dated January 1, 1989 between Mr. Lai Kin,
Chairman of Durable, and the Company. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1988.
10.26 Employment Agreement dated January 3, 1989, between Harry Schulman
and the Company. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988.
10.27 Employment Agreement (First Amendment) dated as of June 4, 1990,
between Harry Schulman and the Company. Incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
10.28 Employment Agreement (Second Amendment) dated as of December 16,
1992, between Harry Schulman and the Company. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
10.29 1988 Director Stock Option Plan. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December
31, 1988.
10.30 1989 Employees 401(k) Profit Sharing Plan and Trust. Incorporated
by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989.
10.31 Consulting Agreement, dated March 30, 1987, between Paragon
Industries, Paragon Sales, Inc., William Weber, Jacqueline K. Weber
and the Company. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1990.
10.32 Amendment to Consulting Agreement, dated May 29, 1990, between
Paragon Industries, Paragon Sales, Inc., William Weber, Jacqueline
K. Weber and the Company. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December
31, 1990.
10.33 Second Amended and Restated Employment Agreement dated January 1,
1991, between David O'Neill and the Company. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991.
10.34 Second Amended and Restated Employment Agreement (First Amendment)
dated December 16, 1992, between David O'Neill and the Company.
Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1992.
Other Material Contracts
10.35 Installment Purchase Contract dated as of May 1, 1985, between the
Dade County Industrial Development Authority and the Company.
Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1985.
10.36 Asset Purchase Agreement dated September 30, 1988 between Sally
Beauty Company, Alberto-Culver Company, the Company and certain of
the Company's affiliates. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December
31, 1988.
10.37 Joint Venture Agreement, dated March 30, 1987, between Paragon
Sales, Inc., William Weber, Jacqueline K. Weber and the Company.
Incorporated by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1990.
10.38 Amendment to Joint Venture Agreement, dated May 29, 1990, between
Paragon Sales, Inc., William Weber, Jacqueline K. Weber and the
Company. Incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1990.
10.39 Exclusive Sales Agreement dated May 29, 1992 among the Company,
American International Industries and Zvi and Betty Ryzman.
Incorporated by reference to the Company's Form S-2 Registration
Statement No. 33-51776.
10.40 Settlement Agreement dated May 6, 1992 between North American
Philips Corporation and the Company. Incorporated by reference to
the Company's Form S-2 Registration Statement No. 33-51776.
10.41 Letter of Credit Agreement dated July 31, 1992 between NationsBank
and the Company. Incorporated by reference to the Company's Form
S-2 Registration Statement No. 33-51776.
10.42 Agreement dated May 28, 1991, between Xingiao Economic Development
Corporation and Durable. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December
31, 1991.
10.43 Agreement dated May 28, 1991, between Bogang Economic Development
Company and Durable. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
10.44 Agreement dated May 28, 1991, between Wanfeng Economic Development
Corporation and Durable. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December
31, 1991.
10.45 Warrant Agreement dated October 1, 1992, between American Stock
Transfer and Trust Company and the Company. Incorporated by
reference to the Company's Form S-2 Registration Statement No. 33-
51776.
10.46 Stock Purchase Agreement dated May 29, 1992 between Glamour
Industries, Inc. and the Company. Incorporated by reference to the
Company's Form S-2 Registration Statement No. 33-51776.
10.47 Trademark Licensing Agreement dated January 11, 1994, between
Helene Curtis, Inc. and the Company. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
10.48 Letter Agreement dated December 28, 1993, between NationsBank and
the Company. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
10.49 1995 Common Stock Purchase Rights Agreement dated March 6, 1995
between American Stock Transfer and Trust Company and the Company.
Incorporated by reference to the Company's Form 8-A Registration
Statement filed March 7, 1995.
10.50 Facility Letter dated June 28, 1994, from the Bank of East Asia,
Limited to Durable and Durable Electric Limited. Exhibit 1.
10.51 Stock Acquisition Agreement dated April 1, 1994 between Durable,
PPC Industries 1980 Limited, Ourimbah Investment, Limited and the
Company. Exhibit 2.
(13) Annual Report to Security Holders for the year ended December 31,
1994. Exhibit 13.
(22) Subsidiaries of the Registrant. Filed herewith.
(24) Consents of experts and counsel. Filed herewith.
(b) REPORTS ON FORM 8-K
The Company's periodic report on Form 8-K, dated March 6, 1995.
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Windmere Corporation
We have audited the accompanying consolidated balance sheets of Windmere
Corporation and Subsidiaries (the "Company") as of December 31, 1994 and
1993, and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1994. 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. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Windmere
Corporation and Subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
We have also audited Schedule II of Windmere Corporation and Subsidiaries
for each of the three years in the period ended December 31, 1994. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
Miami, Florida
February 7, 1995
WINDMERE CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Changes in allowance for possible
losses on accounts receivable:
Years Ended December 31,
1994 1993 1992
Balance at beginning
of period $1,424,600 $1,635,600 $1,329,300
Addition - Charged to
costs and expenses 231,400 212,100 507,700
Addition - Charged to
other accounts (a) 31,300 157,300 38,400
Deductions (b) (349,200) (580,400) (239,800)
Balance at end
of period $1,338,100 $1,424,600 $1,635,600
(a) Recoveries of amounts previously written off against the reserve.
(b) Write-off of accounts receivable against the reserve.
Part IV. Item 3. (22).
SUBSIDIARIES OF THE REGISTRANT
Name Incorporated In
Consumer Products Americas, Inc. Florida
EDI Masters, Inc. Florida
Fortune Products, Inc. Florida
Jerdon Products, Inc. Florida
Windmere Fan Products, Inc. Florida
Windmere Holdings Corporation Delaware
Goal Making Company Limited British Virgin Islands
Remdale Investments Limited British Virgin Islands
Windmere Consumer Products, Inc. Canada
Windmere France, S.A.R.L. France
Durable Electric, Ltd. Hong Kong
Durable Electrical Metal Factory, Ltd. Hong Kong
Durable Europe, Ltd. Hong Kong
PPC Industries (1980) Ltd. Hong Kong
Sandgate Services, Ltd. Hong Kong
Windmere Europe, B.V. Netherlands
Each of the above subsidiaries is wholly-owned and is included in the
consolidated financial statements as of December 31, 1994.
AUDITOR'S CONSENT
We have issued our report dated February 7, 1995, accompanying the
consolidated financial statements and schedules incorporated by reference
in the Annual Report of Windmere Corporation on Form 10-K for the year
ended December 31, 1994. We hereby consent to the incorporation by
reference of the aforementioned report in the Registration Statements of
Windmere Corporation on Form S-8 (File No. 33-7681, effective September 30,
1986), Form S-8 (File No. 33-36424, effective August 17, 1990), Form S-2
(File No. 33-51776, effective January 19, 1993), and on Form S-8 (File No.
33-58574, effective February 22, 1993).
GRANT THORNTON LLP
Miami, Florida
March 27, 1995
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.
WINDMERE CORPORATION
(Registrant)
BY: /s/ DATE: 3-27-95
David M. Friedson, President
Pursuant to the requirements of the Securities 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 date indicated.
BY: /s/ DATE: 3-27-95
David M. Friedson, Director and
President (Principal Executive
Officer)
BY: /s/ DATE: 3-27-95
Harry D. Schulman, Executive Vice
President - Finance and Administration
(Principal Financial Officer)
BY: /s/ DATE: 3-27-95
Burton A. Honig, Vice President -
Finance (Principal Accounting Officer)
BY: /s/ DATE: 3-27-95
Belvin Friedson, Chairman of the
Board of Directors
BY: /s/ DATE: 3-28-95
Bertley Sager, Director
BY: /s/ DATE: 3-28-95
Jerald I. Rosen, Director
BY: /s/ DATE: 3-28-95
Harold Strauss, Director
BY: /s/ DATE: 3-28-95
Lai Kin, Director
BY: /s/ DATE: 3-28-95
Leonard Glazer, Director
BY: /s/ DATE: 3-28-95
Barbara Friedson Garrett, Director
BY: /s/ DATE: 3-28-95
Felix S. Sabates, Director
BY: /s/ DATE: 3-28-95
R. Erwin Fischer, Director
THE BANK OF EAST ASIA, LIMITED
PRIVATE AND CONFIDENTIAL
Our Ref.: Credit/H7/62501 28 June 1994
Durable Electrical Metal Factory Ltd.
4/F., Shing King Industrial Building,
206-208 Choi Hung Road,
San Po Kong
Kowloon
Attn: Mr. Raymond So
Dear Sirs,
Re: Banking Facilities granted to
Durable Electrical Metal Factory Ltd.
Durable Electric Ltd.
We are pleased to inform you that the banking facilities available to
both of your companies have been revised, subject to the following
terms/conditions and to be reviewed in June, 1995.
a) L/C + T/R + Shipping Guarantee (S/G) + Foreign Currency HK$25,000,000
Loan (F/L) Limit
(Within which T/R not to exceed HK$12,000,000 - S/G not
to exceed HK$500,000 - and F/L not to exceed HK$5,000,000)
- for opening of your sight or usance Letter of Credit.
- for refinancing of your import bills.
Tenor: 120 days
Interest Rate: At Prime
- for countersigning of your shipping guarantee not under
our Letter of Credit.
- for foreign currency loan subject to availability of
funds.
Tenor: up to 60 days
Interest Rate: SIBOR + 0.5%
b) Discrepancies Guarantee 5,000,000
- for negotiating of your export Letter of Credit with
discrepancies. __________
Total banking facilities: HK$30,000,000
to be con't.....
THE BANK OF EAST ASIA, LIMITED
Durable Electrical Metal Factory Ltd. 28 June, 1994
(Page No. 2)
Securities:
a) All monies legal charge on the following properties:
i) 1/F, Efficiency House, 35 Tai Yau Street, San Po Kong,
Kowloon.
ii) 3/F, Efficiency House, 35 Tai Yau Street, San Po Kong,
Kowloon.
iii) G/F, Wah Mow Factory Building, 202-4 Choi Hung Road, San Po
Kong, Kowloon.
b) Corporate Guarantee signed by Windmere Corporation, U.S.A. for
US$3,850,000 in covering credit facilities extended to Durable
Electrical Metal Factory Ltd. and Durable Electric Ltd.
c) Debenture by way of floating charge covering all undertakings,
properties and assets in Hong Kong and People's Republic of China both
present and future including uncalled capital for the time being on
Durable Electrical Metal Factory Ltd. and Durable Electric Ltd.
d) Corporate Guarantee signed by Durable Electric Ltd. for HK$30,000,000
in covering credit facilities extended to Durable Electrical Metal
Factory Ltd.
e) Corporate Guarantee signed by Durable Electrical Metal Factory Ltd.
for HK$30,000,000 in covering credit facilities extended to Durable
lectric Ltd.
Availability: The Facilities detailed above will not become
operative unless and until
a) all the necessary formalities specified by our
Bank are completed; and
b) all the required legal documents are executed to
the satisfaction of the Bank.
Condition:
The pledged time deposit for HK$23,844,145.70 to be released subject to all
outstanding principals are reduced to within the revised proposed limit.
This offer must be accepted within one month from the date hereof,
after which, it shall automatically lapse unless extended. Please indicate
your acceptance of the aforementioned terms by signing individually on the
duplicate copy of this letter by both of your companies and returning it
to us on or before 27th July, 1994 by using the enclosed envelope and
arranging for your board of directors to pass a board resolution accepting
the above facilities with a certified copy being forwarded to us for our
records.
STOCK ACQUISITION AGREEMENT
AGREEMENT dated as of this 1st day of April, 1994, by and
among Windmere Corporation, a Florida corporation with its offices
at 5980 Miami Lakes Drive, Miami Lakes, Florida 33014-9867
("Windmere"), Durable Electrical Metal Factory, Ltd., a Hong Kong
corporation with its offices at 206-208 Choi Hung Road, 4th Floor,
San Po Kong, Kowloon, Hong Kong ("Durable"), Ourimbah Investment,
Limited, a Hong Kong corporation with its address at 4/F Shing King
Industrial Building, 206-208 Choi Hung Road, San Po Kong, Kowloon,
Hong Kong ("Holdings"), and PPC Industries 1980 Limited, a Hong
Kong corporation with its offices at 6/F Shing King Industrial
Building, 206-208 Choi Hung Road, San Po Kong, Kowloon, Hong Kong
("PPC").
RECITALS
A. Windmere is engaged in the sale and distribution of a
variety of personal care products throughout the world. Windmere
and its affiliates purchase many such products manufactured by
Durable.
B. Windmere directly and indirectly (through PPC and Goal
Making Company, Ltd.) owns an aggregate of 24,624 "B" Ordinary
Shares of Durable, constituting 80% of the issued and outstanding
shares of capital stock of Durable, and Holdings owns 6,156 "A"
Ordinary Shares of Durable (the "Class A Shares"), constituting the
remaining 20% of the issued and outstanding shares of capital stock
of Durable.
C. Windmere desires to acquire the Class A Shares and
Holdings desires to sell the Class A Shares to Windmere upon the
terms and subject to the conditions hereof.
D. As a result of the acquisition of the Class A Shares and
the consummation of the transactions contemplated by this
Agreement, Windmere shall directly or indirectly own 100% of the
issued and outstanding shares of capital stock of Durable.
E. Windmere, PPC and Holdings have entered into a Share
Option Agreement dated as of January 2, 1989 (the "Share Option
Agreement") pursuant to which, inter alia, PPC is required to
purchase the Class A Shares from Holdings under certain
circumstances and Windmere and PPC, on the one hand, and Holdings,
on the other hand, each granted a right of first refusal to the
other party with respect to the sale or transfer of shares of the
capital stock of Durable owned by each of them.
The parties desire to terminate the Share Option Agreement and
to provide for the purchase and sale of the Class A Shares as
provided herein and free from any restrictions set forth in the
Share Option Agreement.
Accordingly, in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF HOLDINGS
Holdings represents and warrants to Windmere as follows:
1.1 ORGANIZATION AND GOOD STANDING. Holdings is a
corporation duly organized, validly existing and in good standing
under the laws of Hong Kong. Holdings also has the corporate power
and authority to carry on its business as and where now conducted,
and has the power to own, operate and lease its properties at and
in the places where such properties are now owned, operated and
leased by it, and is duly qualified to do business in Hong Kong.
1.2 THE SHARES. The Class A Shares represent 20% of the
total issued and outstanding shares of capital stock of Durable.
All of the Class A Shares are fully paid and nonassessable and are
not subject to any preemptive rights with respect thereto, other
than as set forth in the Share Option Agreement. Holdings is both
the record and beneficial owner of the Class A Shares. Holdings
has the full right, power and authority to sell, transfer and
deliver to Windmere the Class A Shares which are to be transferred
to Windmere pursuant to the terms of this Agreement, free and clear
of any liens, claims, charges, debentures, options, pledges, trust
arrangements, restrictions or other encumbrances whatsoever, other
than as set forth in the Share Option Agreement. There are no
options, warrants or other rights outstanding with respect to or
for the purchase of, nor any outstanding securities convertible
into, any of the Class A Shares, other than as set forth in the
Share Option Agreement.
1.3 AUTHORITY OF HOLDINGS. All corporate action necessary to
authorize the negotiation, execution, delivery, recordation and
performance of this Agreement by Holdings has been taken and no
further action by any director, shareholder, shareholder group,
board, committee or by any governmental agency is required to
permit Holdings to comply fully with its obligations under this
Agreement. The execution of this Agreement and the delivery of the
Class A Shares to Windmere by Holdings is not contrary to the
Memorandum and Articles of Association (howsoever denominated) of
Durable or of Holdings. Neither the execution, delivery nor
consummation of this Agreement by Holdings will, with the passage
of time, the giving of notice or otherwise, result in a violation
or a breach of, or constitute a default under, any term or
provision of any indenture, mortgage, deed of trust, lease,
instrument, order, judgment, decree, rule, regulation, law,
contract, agreement or any other restriction to which Durable or
Holdings is a party to or by which either of them may be bound, nor
will it result in an acceleration or termination of any loan or
security interest agreement to which Durable or Holdings is a party
or to which any of Durable's and/or Holdings' assets are subject.
1.4 POWERS OF ATTORNEY OR OTHER AUTHORITY TO ACT FOR
HOLDINGS.
(a) Mr. Lai Kin ("Lai") holds a valid power of attorney
duly executed by Holdings in favor of Lai which complies with all
applicable requirements, rules and laws, a copy of which power is
attached hereto as Annex A. Under such power of attorney, Lai has
the irrevocable right and authority to act on behalf of Holdings
with respect to all matters necessary and convenient to effectuate
this transaction and to deal in any manner with the Class A Shares
and the Windmere Shares (as defined in Section 2.2 hereof) as
provided herein.
(b) There is no other power of attorney, representation/
nominee agreement or similar power or agreement given by, or
entered into by, Holdings to any other person with respect to the
handling, possession, sale and other disposition of the Class A
Shares to be transferred to Windmere hereunder.
1.5 CONSENTS. No approval or consent of any person, firm,
agency or other entity or body (public and/or private) is required
to be obtained by Holdings for the authorization of this Agreement
and for the execution, delivery and performance of the transactions
contemplated herein except for those approvals or consents which
have been obtained as of the date hereof.
1.6 ADEQUATE DISCLOSURE. Holdings is familiar with the
business of Windmere. Holdings has received Windmere's 1993 Annual
Report to Shareholders, Form 10-K for the year ended December 31,
1993, Proxy Statement for the 1994 Annual Shareholders' Meeting and
Form 10-Q for the quarter ended March 31, 1994 (collectively, the
"Disclosure Documents"). Holdings also has carefully reviewed the
Disclosure Documents and has relied only on the information
contained therein or information otherwise provided to Holdings in
writing by Windmere for purposes of deciding whether to enter into
this Agreement. Holdings acknowledges that all requested
information relating to this Agreement, Windmere and the Windmere
Shares has been made available for inspection by Holdings and its
financial advisors. Holdings and its financial advisors have had
a reasonable opportunity to ask questions of and receive answers
from Windmere concerning the terms and conditions of the Windmere
Shares, and to obtain all other additional information necessary or
desirable to verify the accuracy of the information set forth in
the Disclosure Documents. All such questions have been answered to
the full satisfaction of Holdings. No oral representations have
been made or oral information furnished to Holdings or its
financial advisors in connection with the transactions contemplated
by this Agreement, including the receipt by Holdings of the
Windmere Shares, which were in any way inconsistent with the
Disclosure Documents.
1.7 HOLDINGS' FINANCIAL CONDITION. Holdings (i) has no need
for liquidity for the Windmere Shares, (ii) is able to bear the
economic risks of an investment in the Windmere Shares for an
indefinite period, (iii) can afford a complete loss of such
investment and (iv) does not have an overall commitment to
investments which are not readily marketable that is
disproportionate to its net worth, and its investment in the
Windmere Shares will not cause such commitment to become excessive.
1.8 NO REGISTRATION OF SECURITIES. Holdings understands that
the offering and sale of the Windmere Shares has not, as of the
date hereof, been registered under the U.S. Securities Act of 1933
(the "Securities Act") or any other applicable state's securities
laws in reliance upon applicable exemptions from such
registrations. Holdings understands that the Windmere Shares must
be held by Holdings for an extended period of time unless the sale
or other transfer thereof is subsequently registered under the
Securities Act and any applicable state's securities laws or an
exemption from such registration is available. Holdings further
understands that, except as provided in Section 5.3 hereof,
Windmere is under no obligation to register the Windmere Shares or
to assist Holdings in complying with any exemption from
registration.
1.9 INVESTMENT INTENT. The Windmere Shares are being
received and acquired solely for Holdings' own account for
investment purposes only and not for the account of any other
person and not for distribution, assignment or resale to others.
1.10 RESTRICTIONS ON TRANSFER. Holdings understands that it
may not be able to sell or dispose of the Windmere Shares unless
the Windmere Shares are registered under the Securities Act and any
applicable state securities laws, or unless an exemption therefrom
is available to Holdings. In addition, Holdings understands that
Holdings will be subject to the conditions set forth in Section 4.3
hereof.
1.11 ACCURACY OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties of Holdings are correct and complete
as of the date set forth in the Agreement, and if there should be
any change in such representations and warranties prior to
Holdings' acquisition of the Windmere Shares, Holdings will
immediately advise Windmere in writing of such change.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF WINDMERE
Windmere represents and warrants to the Holdings as follows:
2.1 ORGANIZATION AND GOOD STANDING. Windmere is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Florida. Windmere also has the
corporate power and authority to carry on its business as and where
now conducted, and has the power to own, operate and lease its
properties at and in the places where such properties are now owned
operated and leased by it, and is duly qualified to do business
wherever it is required to be so qualified.
2.2 THE WINDMERE SHARES. The Windmere Shares constitute
1,000,000 shares of the common stock, par value $.10 per share, of
Windmere (the "Windmere Shares"). All of the Windmere Shares have
been duly authorized, and upon consummation of the transactions
contemplated by this Agreement, will be validly issued, fully paid
and nonassessable and will not be subject to any preemptive rights
with respect thereto. Windmere has the full right, power and
authority to issue, sell, transfer and deliver to Holdings the
Windmere Shares, free and clear in each case of any liens, claims,
charges, debentures, options, pledges or other encumbrances
whatsoever.
2.3 AUTHORITY OF WINDMERE. All corporate action necessary to
authorize the negotiation, execution, delivery, recordation and
performance of this Agreement by Windmere has been taken and no
further action by any director, shareholder group, board, committee
or by any governmental agency is required to permit Windmere to
comply fully with its obligations under this Agreement. The
execution of this Agreement by Windmere and the delivery of the
Windmere Shares to Holdings is not contrary to the Articles of
Incorporation and Bylaws of Windmere. Neither the execution,
delivery nor consummation of this Agreement by Windmere will, with
the passage of time, the giving of notice or otherwise, result in
a violation or a breach of, or constitute a default under, any term
or provision of any material indenture, mortgage, deed of trust,
lease, instrument, order judgment, decree, rule, regulation, law,
contract, agreement or any other restriction to which Windmere is
a party or by which it is bound; nor will it result in an
acceleration or termination of any material loan or security
interest agreement to which Windmere is a party or to which its
material assets are subject.
2.4 CONSENTS. No approval or consent of any person, firm,
agency or other (public and/or private) entity or body is required
to be obtained by Windmere for the authorization of this Agreement
and for the execution, delivery and performance of the transactions
contemplated herein.
ARTICLE III
PURCHASE OF THE SHARES
3.1 DELIVERY OF SHARES BY HOLDINGS. Upon the terms and
subject to the conditions set forth herein, Holdings shall convey,
transfer, assign and deliver to Windmere on or before the Closing
Date (as defined in Section 8.1 below) good, marketable and
unencumbered title to the Class A Shares owned by it as set forth
in Annex B hereto, constituting all of the issued and outstanding
Class A Shares, duly endorsed and in proper form for transfer to
Windmere.
3.2 DELIVERY OF WINDMERE SHARES AND CASH BY WINDMERE.
(a) Upon the terms and subject to the conditions set
forth herein, Windmere shall convey, transfer, assign and deliver
to Holdings, on or before the Closing Date, good, marketable and
unencumbered title to the Windmere Shares, duly endorsed and in
proper form for transfer to Holdings.
(b) Contemporaneously with the transfer of the Windmere
Shares to Holdings, Windmere shall also pay to Holdings the sum of
ten thousand United States dollars (U.S. $10,000).
3.3 ADDITIONAL PAYMENT UPON A CHANGE OF CONTROL OF WINDMERE.
If at any time from the date hereof through July 1, 1999 there
shall occur a "Change of Control" of Windmere (as hereinafter
defined), then, in addition to the delivery of shares and payment
set forth in Section 3.2, above, Windmere shall pay Holdings in
cash within ten days following such Change of Control, an amount
with respect to each Class A Share of Durable being purchased
hereunder equal to the greater of (i) the same multiple of earnings
per share of Durable as the highest multiple of earnings per share
paid for the shares of common stock of Windmere received in
connection with such Change of Control or (ii) the same multiple of
net asset value per share of Durable as the highest multiple of
price per net asset value per share paid for the shares of common
stock of Windmere received in connection with such Change of
Control. For purposes of this Agreement, a "Change of Control"
shall mean:
(i) The acquisition (other than by or from Windmere), at
any time after the date hereof, by any person, entity or "group",
within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (the "Exchange Act"), of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more of either the then outstanding shares
of common stock or the combined voting power of Windmere then
outstanding voting securities entitled to vote generally in the
election of directors; or
(ii) The individuals who, as of the date hereof,
constitute the board of directors of Windmere (as of the date
hereof the "Incumbent Board") cease for any reason to constitute at
least a majority of the board of directors of Windmere, provided
that any person becoming a director subsequent to the date hereof
whose election, or nomination for election by Windmere's share-
holders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election
contest relating to the election of the directors of Windmere, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent
Board; or
(iii) Approval by the shareholders of Windmere of (A)
a reorganization, merger or consolidation with respect to which
persons who were the shareholders of Windmere immediately prior to
such reorganization, merger or consolidation do not, immediately
thereafter, own more than 50% of the combined voting power entitled
to vote generally in the election of directors of the reorganized,
merged or consolidated company's then outstanding voting securi-
ties, (B) a liquidation or dissolution of Windmere, or (C) the sale
of all or substantially all of the assets of Windmere, unless the
approved reorganization, merger, consolidation, liquidation,
dissolution or sale is subsequently abandoned.
Notwithstanding the foregoing, a Change of Control shall not
be deemed to have occurred, and no additional payment to Holdings
under this Section 3.3 shall be required, in connection with a
transaction or series of transactions approved by a majority of the
members of the Incumbent Board.
ARTICLE IV
COVENANTS OF HOLDINGS
Holdings agrees that:
4.1 RESTRICTION ON SALE OF WINDMERE SHARES.
(a) Holdings acknowledges that the Windmere Shares that
it will receive in connection with this Agreement constitute
"restricted stock" within the meaning of U.S. securities laws
including, without limitation, the Securities Act, and that the
Certificate(s) representing the Windmere Shares will bear an
appropriate legend substantially as follows:
The Shares represented by this
certificate have not been registered under the
Securities Act of 1933 or under any other
applicable securities laws; consequently,
these Shares may not be sold, transferred,
pledged, hypothecated or encumbered in any way
or disposed of except pursuant to (i) the
Securities Act of 1933 and the laws of any
applicable jurisdiction and the rules and
regulations promulgated thereunder or (ii) an
opinion of counsel satisfactory to the issuer
that such registration is not required.
(b) Holdings agrees that it will not sell, pledge,
transfer, assign, hypothecate or otherwise dispose of any portion
of the Windmere Shares (or any rights thereto) to any person unless
an exception is available under the Securities Act, any applicable
state's securities laws and the regulations thereunder.
4.2 DUTY OF CONFIDENTIALITY. Holdings shall not use,
disclose, confirm, furnish or make accessible to anyone, other than
in the regular course of business of Windmere and its affiliates,
any knowledge or information of a confidential or secret nature
with respect to the business affairs, assets, operations, plans or
know-how of Windmere, Durable or their respective affiliates.
4.3 HOLDINGS' OBLIGATIONS WITH RESPECT TO THE WINDMERE
SHARES. Holdings shall be required to furnish to Windmere and its
counsel, all relevant information concerning itself, and such other
information as Windmere and its counsel request to prepare and file
all reports required to be filed by Windmere under the U.S.
Securities laws and the rules and regulations promulgated
thereunder by the United States Securities and Exchange Commission.
If requested by Windmere, such information shall be furnished in
writing and Holdings shall enter into such further agreements or
undertakings with Windmere, including agreements respecting
indemnification with respect to the accuracy and completeness of
such information, as Windmere and its counsel deems necessary or
appropriate to assure full compliance with the applicable
provisions of the U.S. Securities laws and the rules and
regulations promulgated thereunder by the United States Securities
and Exchange Commission.
ARTICLE V
COVENANTS OF WINDMERE
Windmere agrees that:
5.1 REPRESENTATION ON WINDMERE BOARD. Windmere shall
undertake its best efforts to recommend to the shareholders and
directors of Windmere that Lai and two other individuals nominated
by Lai and deemed suitable by Windmere be appointed as members of
the Windmere Board of Directors.
5.2 COMPOSITION OF DURABLE BOARD. It is contemplated that,
immediately subsequent to the transfer of the Class A Shares
provided for in this Agreement, that the day-to-day management of
Durable will remain in the hands of the existing Board of Directors
and managers of Durable (the "Durable Board"), and that the Durable
Board shall initially remain equally divided (50/50) between each
of the present designees of Holdings and those persons selected by
Windmere from time to time for so long as each such designee shall
remain a shareholder of Holdings. Accordingly, for so long as such
designee of Holdings who is a present member of the Durable Board:
(i) remains a shareholder of Holdings, and (ii) Holdings remains a
shareholder of Windmere, Windmere shall agree to vote its shares of
Durable to appoint such designee of Holdings to the Durable Board.
At such time as any present designee of Holdings to the Durable
Board ceases to be a shareholder of Holdings, such designee shall
no longer be entitled to serve on the Durable Board, and Windmere
shall have the right to designate a replacement member to the
Durable Board in its sole discretion. Windmere shall retain the
right to approve the appointment of any other person to the Durable
Board.
5.3 REGISTRATION OF WINDMERE SHARES UPON CHANGE OF CONTROL.
Within sixty (60) days following a Change of Control of Windmere
(as defined in Section 3.3), Windmere shall at its expense cause to
be registered under the Securities Act and all applicable state
securities laws such portions of the Windmere Shares that cannot be
sold by Holdings at the end of such sixty (60) day period pursuant
to an exemption from such registrations. Windmere shall use its
best efforts to cause such registration statement to remain
effective and current until the sale by Holdings of such registered
Windmere Shares.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF WINDMERE
The obligations of Windmere under this Agreement are, at its
option, subject to the satisfaction of the following conditions at
or prior to the Closing Date:
6.1 REPRESENTATIONS OF HOLDINGS. The representations and
warranties of Holdings set forth in this Agreement shall be true,
complete and accurate in all respects on and as of the Closing Date
to the same extent and with the same force and effect as if made on
such date, except as affected by the transactions contemplated by
this Agreement.
6.2 CONSENTS. All necessary approvals or consents shall have
been obtained from any and all federal departments and agencies and
from all other commissions, boards, agencies and from any other
person or persons whose approval or consent is necessary to
consummate the transactions contemplated by this Agreement.
6.3 PERFORMANCE BY DURABLE AND HOLDINGS. Durable and
Holdings shall have duly performed all obligations, covenants and
agreements undertaken by them herein and complied with all terms
and conditions applicable to them hereunder to be performed and
complied with prior to the Closing Date.
6.4 SUITS. No suit, action or other proceeding shall be
threatened or pending before any court or governmental agency
seeking to restrain, prohibit or to obtain damages or other relief
in connection with this Agreement or the consummation of the
transactions contemplated hereby or which is likely to materially
and adversely affect the value of the Durable's properties or
business as a whole.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDINGS
The obligations of the Holdings under this Agreement are, at
its option, subject to satisfaction of the following conditions at
or prior to the Closing Date:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Windmere set forth herein shall be true, complete and
accurate in all material respects on and as of the Closing Date to
the same extent and with the same force and effect as if made on
such date, except as affected by the transactions contemplated
hereby.
7.2 OBLIGATIONS, COVENANTS AND AGREEMENTS. Windmere shall
have duly performed all obligations, covenants and agreements
undertaken by it herein and shall have complied with all the terms
and conditions applicable to it hereunder to be performed and
complied with prior to the Closing Date.
7.3 SUITS. No suit, action or other proceeding shall be
threatened or pending before any court or governmental agency
seeking to restrain or prohibit Windmere, or to obtain damages or
other relief against Windmere in connection with this Agreement or
the consummation of the transactions contemplated hereby, or which
is likely to materially and adversely affect the value of
Windmere's properties or business as a whole.
ARTICLE VIII
CLOSING
8.1 CLOSING DATE. The Closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at
the offices of the law firm of Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A., 1221 Brickell Avenue, Miami, Florida,
U.S.A., or at such other place in Miami, Florida, U.S.A. as the
parties may otherwise agree, effective as of April 1, 1994 (the
"Closing Date").
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND COVENANTS
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF
SHAREHOLDERS. All statements contained in any Annex or other
writing delivered by or on behalf of Holdings pursuant to this
Agreement shall be deemed representations and warranties hereunder.
All representations and warranties made by Holdings hereunder,
including those set forth herein or in any other document required
to be executed by the terms of this Agreement, shall survive (and
shall not be affected by) the Closing.
9.2 SURVIVAL OF COVENANTS. All covenants of the parties
shall survive the Closing.
ARTICLE X
ASSIGNMENT; THIRD PARTIES; BINDING EFFECT
The rights of the parties hereto under this Agreement shall
not be assignable nor the duties delegable by any party without
first obtaining the written consent of all parties hereto. Nothing
contained in this Agreement, expressed or implied, is intended to
confer upon any person or entity, other than the parties hereto and
their successors in interest, any rights or remedies under or by
reason of this Agreement unless so stated expressly hereunder. All
covenants, agreements, representations and warranties of the
parties contained herein shall be binding upon and inure to the
benefit of Windmere and Holdings and their respective successors
and permitted assigns.
ARTICLE XI
TERMINATION OF SHARE OPTION AGREEMENT
The Share Option Agreement shall be terminated effective
immediately prior to the Closing hereunder, and no party thereto
shall have any rights or obligations thereunder upon such
termination.
ARTICLE XII
ARBITRATION
Any claim, dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by
arbitration in Miami, Florida in accordance with the rules of the
American Arbitration Association then in effect (except to the
extent that the procedures outlined below differ from such rules).
Within 7 days after receipt of written notice from either party
that a dispute exists and that arbitration is required, both
parties must within 7 business days agree on an acceptable
arbitrator. If the parties are unable to agree on an arbitrator,
then each party shall choose its own arbitrator and the two
arbitrators shall then choose a third neutral arbitrator within
seven (7) days of their selection. The parties agree to act as
expeditiously as possible to select an arbitrator and conclude the
dispute. The arbitrator must render his decision in writing within
30 days of its or their appointment. The cost and expenses of the
arbitration and of legal counsel to the prevailing party shall be
borne by the non-prevailing party. Each party will advance one-
half of the estimated fees and expenses of the arbitrator(s).
Judgment may be entered on the arbitrator's award in any court
having jurisdiction; provided that the Company shall be entitled to
seek a restraining order or injunction in any court of competent
jurisdiction to prevent any continuation of any violation of
Section 4.2 hereof.
ARTICLE XIII
NOTICES
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly
given when personally delivered or deposited in the mail, certified
or registered, return receipt requested, postage prepaid, addressed
to the parties or their permitted assignees, at the addresses set
forth in the beginning of this Agreement, attention: President (or
such other address as shall be given in writing by any party to the
other).
ARTICLE XIV
REMEDIES NOT EXCLUSIVE
No remedy conferred by any of the specific provisions of this
Agreement is intended to be exclusive of any other remedy and each
and every remedy shall be cumulative and shall be in addition to
every remedy given hereunder or now or hereafter existing, at law
or in equity, by statute or otherwise. The election of any one or
more remedies by Windmere or Holdings shall not constitute a waiver
of the right to pursue other available remedies.
ARTICLE XV
COUNTERPARTS
This Agreement may be executed in counterparts, each of which
shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
ARTICLE XVI
CAPTIONS AND SECTION HEADINGS
Captions and section headings used herein are for convenience
only and are not a part of this Agreement and shall not be used in
construing this Agreement.
ARTICLE XVII
WAIVERS
Any failure by any of the parties hereto to comply with any of
the obligations, agreements or conditions set forth herein may be
waived by the other party or parties as provided herein; provided,
however, such waiver must be in writing signed by the party waiving
its rights and that any such waiver shall not be deemed to be a
waiver of any other obligation, agreement or condition contained
herein.
ARTICLE XVIII
FURTHER ASSURANCES
Each of the parties hereto agrees to cooperate in the
effectuation of the transactions contemplated hereby and to execute
any and all additional documents and to take such additional action
as shall be reasonably necessary or appropriate for such purpose.
ARTICLE XIX
AMENDMENTS
This Agreement may not be amended except in writing signed by
the parties hereto.
ARTICLE XX
GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, United States of
America, applicable to agreements made and to be performed entirely
within such State, without regard to any conflict of law rule or
principle that would refer to the laws of another jurisdiction.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of April 1, 1994.
WITNESSES: WINDMERE CORPORATION
By:
Authorized Representative
DURABLE ELECTRICAL METAL
FACTORY, LTD.
By:
Managing Director
OURIMBAH INVESTMENT LIMITED
By:
Attorney-in-Fact and Director
Lai Kin
PPC INDUSTRIES 1980 LIMITED
(as to Article XI)
By:
FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
WINDMERE CORPORATION
AND SUBSIDIARIES
December 31, 1994 and 1993
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Windmere Corporation
We have audited the accompanying consolidated balance sheets of Windmere
Corporation and Subsidiaries (the "Company") as of December 31, 1994 and
1993, and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the three years in the period
ended December 31, 1994. 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. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Windmere
Corporation and Subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Miami, Florida
February 7, 1995
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
1994 1993
CURRENT ASSETS
Cash and cash equivalents (Note A) $ 12,988,300 $ 24,794,700
Short-term investments (Note A) 2,500,000 -
Accounts and notes receivable, less
allowances of $1,338,100 in 1994 and
$1,424,600 in 1993 (Notes C and E) 38,733,300 31,268,600
Receivables from affiliates (Notes A and C) 12,444,300 9,166,600
Inventories (Note A) 74,278,400 67,157,500
Prepaid expenses (Note I) 8,020,500 6,990,900
Future income tax benefits (Notes A and I) 1,883,400 2,982,800
Total current assets 150,848,200 142,361,100
INVESTMENTS (Notes A and C) - -
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation
(Notes A and D) 28,449,100 25,022,200
OTHER ASSETS (Notes A and J) 17,826,700 13,096,000
$197,124,000 $180,479,300
LIABILITIES
CURRENT LIABILITIES
Notes and acceptances payable (Note E) $ 740,100 $ 2,995,800
Current maturities of long-term debt
(Note G) 814,800 814,800
Accounts payable 8,120,000 9,287,300
Accrued expenses (Note F) 8,981,700 9,660,000
Income taxes (Notes A and I) 2,312,600 1,044,600
Deferred income, current portion (Note A) 598,100 598,100
Total current liabilities 21,567,300 24,400,600
LONG-TERM DEBT, less current
maturities (Note G) 3,666,700 4,503,200
DEFERRED INCOME, less current
portion (Note A) 1,265,000 1,863,100
DEFERRED INCOME TAXES (Notes A and I) - -
COMMITMENTS AND CONTINGENCIES (Note J) - -
MINORITY INTEREST - 3,125,200
STOCKHOLDERS' EQUITY (Notes A, K and L)
Special preferred stock - authorized
40,000,000 shares of $.01 par value;
none issued - -
Common stock - authorized 40,000,000
shares of $.10 par value; issued
16,734,172 in 1994 and 15,780,447 in 1993 1,673,400 1,578,100
Paid-in capital 30,648,700 24,633,300
Retained earnings 139,088,800 121,086,500
Unrealized foreign currency translation
adjustment (785,900) (710,700)
Total stockholders' equity 170,625,000 146,587,200
$197,124,000 $180,479,300
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31,
1994 1993 1992
Net sales $181,112,200 $170,661,400 $175,450,000
Cost of goods sold 127,843,600 118,968,500 123,045,200
Gross profit 53,268,600 51,692,900 52,404,800
Selling, general and
administrative expenses 39,873,700 40,251,700 41,340,500
Unusual or non-recurring items
(Note B) (7,810,500) - 5,428,600
Operating profit 21,205,400 11,441,200 5,635,700
Other (income) expense
Interest expense 551,900 819,800 2,286,800
Interest and other income (2,385,800) (2,187,700) (4,030,300)
(1,833,900) (1,367,900) (1,743,500)
Earnings before equity in
net earnings (loss) of joint
ventures, income taxes,
minority interest, cumulative
effect of accounting change
and extraordinary item 23,039,300 12,809,100 7,379,200
Equity in net earnings (loss) of
joint ventures (Notes A and C) 91,400 (503,900) (848,300)
Earnings before income
taxes, minority interest,
cumulative effect of accounting
change and extraordinary item 23,130,700 12,305,200 6,530,900
Income taxes (benefit)
(Notes A and I)
Current 2,375,700 1,468,000 819,100
Deferred 218,800 (103,500) (13,700)
2,594,500 1,364,500 805,400
Earnings before minority
interest, cumulative effect
of accounting change and
extraordinary item 20,536,200 10,940,700 5,725,500
Minority interest in net (profit)
loss of subsidiary 1,200 (1,202,600) (1,039,200)
Earnings before cumulative
effect of accounting change
and extraordinary item 20,537,400 9,738,100 4,686,300
Cumulative effect of accounting
change (Note I) - 1,731,100 -
Extraordinary item (Note O) - - 29,648,800
Net Earnings $20,537,400 $11,469,200 $34,335,100
Per share data (Note A)
Earnings per common share and
common equivalent shares
Earnings before cumulative
effect of accounting change
and extraordinary item $1.17 $ .60 $ .27
Cumulative effect of
accounting change - .11 -
Extraordinary item - - 1.82
Net earnings $1.17 $ .71 $ 2.09
Dividends per common share $ .15 $ - $ -
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three years ended December 31, 1994
Unrealized
foreign
currency
Common Paid-in Retained translation Treasury
stock capital earnings adjustment stock
Balance at
January 1,
1992 $1,653,000 $31,357,600 $75,282,200 $(733,100) $(7,343,600)
Net earnings - - 34,335,100 - -
Exercise of
stock options 2,900 119,200 - - -
Purchase and
retirement of
858,575 shares
of common stock (85,900) (4,850,900) - - 1,044,000
Retirement of
treasury stock (34,300) (6,265,300) - - 6,299,600
Tax benefit
resulting
from exercise of
non-qualified
stock options
(Note I) - 2,185,800 - - -
Unrealized
foreign
currency
translation
adjustment - - - (43,900) -
Balance at
December 31,
1992 1,535,700 22,546,400 109,617,300 (777,000) -
Net earnings - - 11,469,200 - -
Exercise of
stock options
and warrants 42,400 1,829,800 - - -
Tax benefit
resulting from
exercise of
non-qualified
stock options
(Note I) - 257,100 - - -
Unrealized
foreign
currency
translation
adjustment - - - 66,300 -
Balance at
December 31,
1993 1,578,100 24,633,300 121,086,500 (710,700) -
Net earnings - - 20,537,400 - -
Cash dividends -
$.15 per share - - (2,535,100) - -
Acquisition of
additional 20%
interest in Durable
Electrical Metal
Factory, Ltd.
("Durable") 100,000 7,900,000 - - -
Purchase and
retirement of
397,400 shares
of common stock (39,700) (3,858,900) - - -
Exercise of
stock options
and warrants 35,000 1,645,800 - - -
Tax benefit
resulting from
exercise of
non-qualified
stock options
(Note I) - 328,500 - - -
Unrealized
foreign
currency
translation
adjustment - - - (75,200) -
Balance at
December 31,
1994 $1,673,400 $30,648,700 $139,088,800 $(785,900) $ -
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1994 1993 1992
Cash flows from operating
activities
Net earnings $20,537,400 $11,469,200 $ 34,335,100
Adjustments to reconcile
net earnings to net cash
provided by operating
activities
Depreciation of property,
plant and equipment 5,378,500 5,151,800 4,977,000
Amortization of intangible
assets 440,100 553,600 925,100
Write-off of other asset - - 4,322,000
Net change in allowance
for losses on accounts
receivable (86,500) (211,000) 306,300
Gain on sale of fixed
asset (7,810,500) - -
Amortization of deferred
income (598,100) (598,200) (508,700)
Equity in (earnings) losses
of affiliates (91,400) 503,900 848,300
Increase (decrease) in
minority interest (1,200) 1,493,600 1,039,200
Changes in assets and liabilities
Decrease (increase) in
accounts and notes
receivable (7,378,200) 4,834,800 (3,872,700)
Decrease (increase) in
inventories (7,120,900) 1,383,600 485,200
Decrease (increase)
in prepaid expenses (1,029,600) (4,328,200) 1,760,700
Increase (decrease) in
accounts payable and
accrued expenses (1,845,600) (1,340,500) 1,096,200
Increase (decrease) in
current and deferred
income taxes 2,695,900 (1,738,600) 1,675,600
Decrease in notes and
acceptances payable (2,255,700) (2,816,000) (287,600)
Increase in deferred
income - - 1,340,600
Decrease (increase)
in other assets (294,800) 569,000 627,900
Increase in current
maturities of long-term
debt - 814,800 -
Decrease (increase) in
other accounts (75,200) 66,300 (43,900)
Net cash provided by
operating activities 464,200 15,808,100 49,026,300
Cash flows from investing
activities
Proceeds from fixed asset
sales $9,442,000 $ 262,900 $ 89,800
Additions to property, plant
and equipment (10,436,900) (5,891,000) (3,861,400)
Increase in short-term
investments (2,500,000) - -
Other changes in investments
in affiliates - (437,200) -
Sale of investments - 242,600 1,615,600
Decrease (increase) in
receivables from affiliates (3,186,300) 2,449,900 (367,400)
Decrease (increase) in
restricted cash - 6,212,000 (1,191,600)
Net cash provided by
(used in) investing
activities (6,681,200) 2,839,200 (3,715,000)
Cash flows from financing
activities
Increase in long-term debt - - 30,473,600
Payments of long-term debt (836,500) (3,019,300) (69,892,800)
Exercises of stock options
and warrants 1,680,800 1,872,200 122,100
Cash dividends paid (2,535,100) - -
Purchases of common stock (3,898,600) - -
Net cash used in
financing activities (5,589,400) (1,147,100) (39,297,100)
Increase (decrease) in cash
and cash equivalents (11,806,400) 17,500,200 6,014,200
Cash and cash equivalents
at beginning of year 24,794,700 7,294,500 1,280,300
Cash and cash equivalents
at end of year $12,988,300 $24,794,700 $ 7,294,500
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 502,200 $ 593,900 $ 1,996,000
Income taxes $1,927,300 $ 2,353,500 $ 11,996,100
Non-cash investing and financing
activities:
Common stock issued for
additional investment in
Durable (Note A) $8,000,000 $ - $ -
Retirement of treasury stock $ - $ - $ 6,299,600
Purchase and retirement of
858,575 shares of common stock $ - $ - $ 5,980,800
Tax benefit resulting from
exercise of non-qualified
stock options (Note I) $ 328,500 $ 257,100 $ 2,185,800
The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Windmere Corporation and Subsidiaries (the "Company") is principally
engaged in the manufacture and sale of personal care products. A
summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying consolidated financial
statements follows.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany balances and
transactions are eliminated in consolidation. The Company reflects its
investment in its 50%-owned joint venture at cost plus its equity in
undistributed net earnings.
Foreign Currency Translation
Balance sheet accounts of the Company's foreign operations are translated
at the exchange rate in effect at each year end and income statement
accounts are translated at the average exchange rates prevailing during
the year. Adjustments resulting from this translation process are
accumulated in a separate component of stockholders' equity and are not
included in the determination of net earnings. The Company's foreign
manufacturing subsidiary utilizes the local currency as its functional
currency, and the other foreign subsidiaries primarily utilize the U.S.
dollar as their functional currency.
Cash and Cash Equivalents
Short-Term Investments
The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents.
Similar investments with maturities between three months and one year at
the time of purchase are classified as short-term investments.
Inventories
Inventories are stated at the lower of cost or market; cost is determined
by the first-in, first-out method. Inventories are comprised of the
following:
1994 1993
Raw materials $18,993,200 $14,981,700
Work in process 15,155,900 14,153,000
Finished goods 40,129,300 38,022,800
$74,278,400 $67,157,500
Receivables from Affiliates
Receivables from affiliates arise primarily in the ordinary course of
business, are both interest and non-interest bearing, and are settled as
trade obligations.
Property, Plant and Equipment
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to their estimated operating
service lives using accelerated and straight-line methods.
Intangible Assets
Intangible assets, consisting primarily of goodwill, are being amortized
on a straight-line basis over twenty years. Intangible assets were
$10,169,300 and $4,960,100 at December 31, 1994 and 1993, respectively,
and the related accumulated amortization was $1,660,900 and $1,262,100,
respectively.
In 1994, the Company acquired the 20% interest in Durable that it did not
already own. The purchase price consisted of the delivery of one
million shares of the Company's common stock, valued at $8,000,000, and
a cash payment of $10,000. This acquisition was accounted for as a
purchase. Goodwill of $5,211,000 was recognized on the transaction.
On an ongoing basis, management reviews the valuation and amortization of
goodwill. As part of this review, the Company estimates the value and
future benefits of the net income generated by the related subsidiaries
to determine that no impairment has occurred.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, short-term investments,
trade receivables and accounts payable approximate fair value due to the
short-term maturities of these instruments.
Income Taxes
No provision has been made for U.S. taxes on undistributed earnings of
foreign subsidiaries and joint ventures of approximately $102,300,000 at
December 31, 1994, as it is anticipated that such earnings will be
reinvested in their respective operations or in other foreign
operations.
Deferred taxes have been provided on temporary differences in reporting
certain transactions for financial accounting and tax purposes.
Deferred Income
In 1992, the Company granted an exclusive license for the distribution of
a product. Deferred income of $1,340,600 resulted from this transaction,
which will be reported as other income on a straight-line basis over the
five year license term.
In 1988, the Company sold its Save-Way Beauty Supply stores for a gain of
approximately $6,980,000, $3,300,000 of which was allocated to a ten-
year covenant not to compete that is being amortized to other income on
a straight-line basis.
Earnings Per Share
Earnings per share are based upon the weighted average number of common
shares and common equivalent shares outstanding during each year. The
total number of such weighted average shares was 17,589,000 in 1994,
16,212,000 in 1993, and 16,395,000 in 1992. Stock options and warrants
are considered common stock equivalents unless their inclusion would be
antidilutive.
NOTE B - UNUSUAL OR NON-RECURRING ITEMS
In 1994, Durable sold 60,000 square feet of office space in Hong Kong,
for $9,500,000. This transaction generated a non-recurring profit of
$7,810,500, or approximately $.45 per share. No taxes were provided as
the gain is not taxable. Following this sale, Durable continues to own
approximately 50,000 square feet of space in Hong Kong, of which 30,000
square feet is used for its administrative headquarters. Durable's
manufacturing facilities in the People's Republic of China were not
affected by the sale.
In 1992, the Company recorded a $4,322,000 loss on the write-off of a
specific contract, due to its non-realizability, under which it had the
right to acquire products and/or services such as advertising, which
contractual rights had been classified primarily as an other asset. The
Company sold its rights under this contract for a nominal amount.
The Company sold its nail and skincare products subsidiary in 1992 at a
loss of $1,106,600. The former subsidiary had an insignificant impact
on the Company's revenues and earnings.
NOTE C - INVESTMENTS
Investments are comprised of the following:
1994 1993
Joint venture - at cost plus
equity in undistributed earnings $ - $ -
The Company's joint venture investment at each of the above dates had a
negative value of approximately $400,000, which deficits have been
classified as a reduction in receivables from affiliates.
The following table provides financial data for the joint venture, which
is accounted for on the equity method:
1994 1993
Current assets $150,100 $(66,400)
Non-current assets 17,900 14,300
Total assets $168,000 $(52,100)
Current liabilities $955,700 $ 920,700
Non-current liabilities - -
Total liabilities $955,700 $ 920,700
Sales $30,184,500 $24,507,400
Gross profit $3,572,500 $2,131,300
Net earnings (loss) $185,000 $(542,400)
All sales made by the joint venture were to entities other than members
of the consolidated group. Included in the Company's sales are sales
made to the joint venture of approximately $8,621,000 and $7,866,000 in
1994 and 1993, respectively.
NOTE D - PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment:
1994 1993
Building $4,493,100 $4,493,100
Building improvements 389,000 200,300
Computer equipment 4,959,000 4,097,600
Furniture and equipment 49,470,700 40,354,600
Leasehold improvements 1,890,800 4,650,000
Land and land improvements 2,650,600 2,632,900
63,853,200 56,428,500
Less accumulated depreciation
and amortization 35,404,100 31,406,300
$28,449,100 $25,022,200
NOTE E - NOTES AND ACCEPTANCES PAYABLE
A foreign bank provides a $3,900,000 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 December 31, 1994
and 1993, the subsidiaries were utilizing, including letters of credit,
approximately $1,500,000 and $3,300,000, respectively, of this credit
line.
The Company has a $10,000,000 demand line of credit from a domestic bank,
which is secured by domestic accounts receivable. The Company has had
no borrowings under this facility.
NOTE F - ACCRUED EXPENSES
Accrued expenses are summarized as follows:
1994 1993
Advertising allowances $1,896,800 $2,448,100
Salaries and bonuses 1,128,100 2,170,200
Volume rebates 1,081,200 845,600
Other 4,875,600 4,196,100
$8,981,700 $9,660,000
NOTE G - LONG-TERM DEBT
Long-term debt is summarized as follows:
1994 1993
Industrial development revenue bonds $4,481,500 $5,296,300
Other - 21,700
4,481,500 5,318,000
Less current maturities 814,800 814,800
Total long-term debt $3,666,700 $4,503,200
In 1985, the Company received proceeds of $7,500,000 from the issuance of
tax-exempt industrial development revenue bonds. The bonds are being
paid off in equal quarterly principal payments of $203,700 through May
2000. At December 31, 1994, the interest rate on the bonds was 6.70%.
The bonds include certain covenants which provide, among other things,
restrictions relating to the maintenance of minimum levels of working
capital, net worth and other financial ratios.
NOTE H - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan for its employees to which the Company
makes discretionary contributions at rates dependent on the level of
each employee's contributions. Contributions made by the Company are
limited to the maximum allowable for federal income tax purposes. The
amounts charged to earnings for this plan during the three years ended
December 31, 1994 were not significant.
The Company does not provide any health or other benefits to retirees.
NOTE I - INCOME TAXES
Income tax expense (including the income tax expense related to the
extraordinary item in 1992) consists of the following:
1994 1993 1992
Income tax expense before
extraordinary item $2,594,500 $1,364,500 $ 805,400
Income tax expense relating
to extraordinary item - - 13,039,900
$2,594,500 $1,364,500 $13,845,300
Current
Federal $2,156,000 $1,286,400 $15,448,200
Foreign 72,900 125,500 (80,300)
State 146,800 56,100 49,500
2,375,700 1,468,000 15,417,400
Deferred 218,800 (103,500) (1,572,100)
$2,594,500 $1,364,500 $13,845,300
The analysis of the deferred income tax provision (benefit) representing
the tax effects of temporary differences between tax and financial
reporting is as follows:
1994 1993 1992
Deferred taxes reinstated
through utilization of net
operating losses $ - $ - $(1,380,400)
Differences in timing between
financial and tax
reporting 15,000 (302,600) -
Utilization of contribution
carryforward - - 154,100
Utilization of net operating loss
carryforward 413,500 477,700 -
Deferred income 55,300 68,300 123,750
Depreciation (248,900) (204,400) -
Other (16,100) (142,500) (469,550)
$ 218,800 $(103,500) $(1,572,100)
The United States and foreign components of earnings (loss) before income
taxes are as follows:
1994 1993 1992
United States $7,449,500 $3,979,420 $(2,345,600)
Foreign 15,681,200 8,325,780 8,876,500
$23,130,700 $12,305,200 $ 6,530,900
The differences between the statutory rates and the tax rates computed on
pre-tax profits are as follows:
1994 1993 1992
% % %
Tax expense at statutory rates 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit.4 .5 .8
Foreign taxable income offset by loss
carryforwards - - (7.0)
Foreign income not subject to tax (15.9) (5.1) (7.0)
Reduction of reserves for prior years'
Hong Kong income taxes (5.9) - -
Taxable loss on certain foreign
operations - (5.9) -
Net tax rate differential on undistributed
foreign earnings (2.0) (14.5) (5.6)
Equity in joint venture earnings not
subject to U.S. tax or already taxed .1 1.4 4.4
Other .5 .6 (7.3)
11.2% 11.0% 12.3%
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. The Internal
Revenue Service is currently examining the Company's 1992 tax return.
To date, no material adjustments have been proposed. Management
believes that adequate provision for taxes has been made for the years
under examination and those not yet examined.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", on January 1, 1993, which changed the
Company's method of accounting for income taxes to an asset and
liability approach. The cumulative effect of this change in the method
of accounting for income taxes, after minority interest in the portion
relating to Durable, was a benefit of $1,731,100 or $.11 per share. The
cumulative effect adjustment primarily consists of the tax benefit
associated with Durable's net operating loss carryforward. A valuation
allowance has not been recorded due to Durable's current and anticipated
profitable operations. A valuation allowance for the entire tax benefit
of the net operating losses accumulated by the Company's European
subsidiary has been provided as the realizability of the benefits of
such net operating losses is not assured.
The primary components of future income tax benefits at December 31, 1994
are as follows:
Net operating loss carryforwards
(net of valuation allowances of $952,500) $ 620,000
Depreciation and amortization (1,104,200)
Deferred income 737,700
Differences in timing between financial
and tax reporting 2,100,900
Other 297,400
2,651,800
Less amount included in other assets 768,400
$1,883,400
The tax benefits resulting from the exercise of non-qualified stock
options have been recorded as additions to paid-in capital in the
amounts of $328,500 and $257,100 in 1994 and 1993, respectively.
NOTE J - COMMITMENTS AND CONTINGENCIES
Litigation
In April 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, decision on which is pending, and it intends to defend this action
fully and vigorously.
The Company is subject to 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.
Investigations
In 1990, Lasko Metal Products, Inc. ("Lasko") of West Chester,
Pennsylvania, filed a petition with the U.S. Department of Commerce
("Commerce") and the U.S. International Trade Commission alleging that
oscillating fans and ceiling fans from the People's Republic of China
("PRC") are being sold at less than fair value and are causing material
injury to an industry in the United States. The Company manufactures
oscillating fans in the PRC which are distributed in the United States.
The Company also has a 50% interest in a joint venture which imports
such fans into the United States.
In 1991, Commerce announced its final less-than-fair value sales
determination, finding a de minimis dumping margin on oscillating fans
manufactured and imported by the Company. Based on this result,
Commerce published an antidumping duty order, excluding all oscillating
fans manufactured by the Company from the duties imposed.
In January 1992, the final determination and antidumping duty order was
appealed to the U.S. Court of International Trade ("Court") by Lasko.
In December 1992, the Court affirmed Commerce's determination with
respect to all of the challenges raised by Lasko. Lasko's appeal of the
Court's decision to the Court of Appeals for the Federal Circuit was
denied in December 1994. Lasko has indicated that it does not plan to
appeal further, therefore the matter is closed with no adverse impact on
the Company.
Employment Agreements
The Company has entered into employment agreements with several of its
executive officers for periods ranging from two to five years. The
agreements provide the employees with an option to terminate their
agreements and receive lump sum payments of up to five years
compensation if there is a change in control of the Company.
Other
As of December 31, 1994, the Company is committed to purchase
approximately $14,800,000 of media advertising over the next 4 years.
The commitment is to be fulfilled by cash payments of $6,700,000 and
usage of $8,100,000 of prepaid advertising credits, which credits are
primarily reflected in other assets.
The Company's need for television media advertising is primarily related
to the introduction and promotion of new consumer products and to
support the out-of-stock sales segment of its consumer products
business. If these advertising needs are reduced, it may impact the
ability of the Company to use the balance of the prepaid advertising
credits. The Company regularly reviews the extent to which it will
advertise its products and utilize the prepaid advertising credits.
In April 1994, the Company purchased from Ourimbah Investment, Limited
("Ourimbah") the remaining 20% of the issued and outstanding capital
stock of Durable (the "Purchased Shares") which had not, prior to such
purchase, been owned, directly or indirectly, by the Company. In
connection with such purchase, the Company agreed to make an additional
payment to Ourimbah for the Purchased Shares upon the occurrence of a
change of control of the Company on or before July 1, 1999. Any such
additional payment will be in an amount with respect to each Purchased
Share equal to the greater of (i) the same multiple of earnings per
share of Durable as the highest multiple of earnings per share paid for
the shares of common stock of the Company received in connection with
such change of control or (ii) the same multiple of net asset value per
share of Durable as the highest multiple of price per net asset value
per share paid for the shares of common stock of the Company received in
connection with such change of control. For purposes of determining
whether any such additional payment is required, a change of control
will be deemed to have occurred upon (i) the acquisition by any person
of 50% or more of the then outstanding shares of common stock of the
Company, (ii) a change in the majority of the members of the Company's
board of directors who are serving as of the date of the purchase
agreement or (iii) the approval by the Company's shareholders of (A) a
reorganization, merger or consolidation in which the shareholders of the
Company prior to such transaction do not, immediately thereafter, own
more than 50% of the combined voting power of the Company following such
transaction, (B) a liquidation of dissolution of the Company or (C) a
sale of all or substantially all of the Company's assets. No change of
control will be deemed to have occurred in connection with any
transaction approved by a majority of the members of the board of
directors.
NOTE K - STOCKHOLDERS' EQUITY
Stock Options
The 1982 and 1992 Employees' Incentive Stock Option Plans provide for
granting of options of not more than 1,200,000 shares and 500,000
shares, respectively, of common stock at a price based upon the fair
market value at the date the options are granted. Options granted under
the plans are exercisable in equal annual installments during a five or
six year period beginning one year after the date the option is granted.
Qualified incentive stock option activity is summarized as follows:
Option price
Shares per share
Options outstanding
January 1, 1993 726,750 $3.25 - $6.38
Granted 35,000 $6.00 - $6.38
Exercised (223,450) $3.25 - $5.46
Expired or cancelled (50,900) $3.25 - $6.38
Options outstanding
December 31, 1993 487,400 $3.25 - $6.38
Granted 147,500 $7.13 - $9.75
Exercised (161,695) $3.25 - $6.38
Expired or cancelled (8,000) $5.13
Options outstanding
December 31, 1994 465,205 $3.25 - $9.75
Options exercisable
December 31, 1994 154,905
As of December 31, 1994, the options outstanding pursuant to the 1982 and
1992 plans were 240,705 and 224,500, respectively, of which 143,905
shares were exercisable under the 1982 plan and 11,000 shares were
exercisable under the 1992 plan.
Non-qualified stock options have also been granted by the Company. Their
activity is summarized as follows:
Option price
Shares per share
Options outstanding
January 1, 1993 907,540 $2.88 - $17.38
Granted 37,500 $6.00 - $ 8.00
Exercised (139,000) $2.88 - $ 5.75
Expired or cancelled (64,073) $2.88 - $ 5.75
Options outstanding
December 31, 1993 741,967 $2.88 - $17.38
Granted 901,200 $7.00 - $10.88
Exercised (80,500) $2.88 - $ 8.00
Expired or cancelled (61,190) $3.25 - $16.63
Options outstanding
December 31, 1994 1,501,477 $2.88 - $17.38
Options exercisable
December 31, 1994 985,477
No amount has been charged to income under the above plans.
Warrants
As part of a lawsuit settlement, warrants to purchase 750,423 shares of
the Company's common stock have been issued. The warrants have an
exercise price of $7.50 per share and are exercisable through
January 19, 1998. At December 31, 1994, 192,722 warrants have been
exercised.
Common Stock Purchase Rights Plan
On March 6, 1995, the Company implemented a Common Stock Purchase Rights
Plan and distributed one Right for each share of the Company's common
stock outstanding at the close of business on March 1, 1995. The Rights
are not exercisable or transferable, apart from the Company's common
stock, until after a person or group acquires, or has the right to
acquire, beneficial ownership of 15 percent or more of the Company's
common stock (which threshold may, under certain circumstances, be
reduced to 10 percent) or announces a tender or exchange offer to
acquire such percentage of the Company's common stock. Each Right
entitles the holder to purchase one quarter of one share of common stock
at an exercise price of $25.00 per full share and contains provisions
that entitle the holder in the event of specific transactions, to
purchase common stock of the Company or any acquiring or surviving
entity at one-half of market price as determined under the terms of the
Rights Agreement. The Rights will expire on March 6, 2005, unless
previously exercised or redeemed at the option of the Company for
$.00001 per Right.
NOTE L - SPECIAL PREFERRED STOCK
During 1986, the Company was authorized to issue 40,000,000 shares of
$.01 par value special preferred stock purchase rights for each share of
common stock, par value $.10 per share. These rights entitled the
holder to purchase one share of special preferred stock at a price of
$.01 under certain conditions in connection with preserving for the
Company and its stockholders the benefits of any recovery in the
Company's lawsuit with North American Philips Corporation, et al. In
1992, these conditions ceased to apply, therefore, the special preferred
stock rights remain outstanding but have no continuing application.
NOTE M - GEOGRAPHIC AREA INFORMATION
1994 1993 1992
Revenues
United States operations $136,500,000 $126,114,200 $111,703,800
International operations
Sales to
unaffiliated customers 44,612,200 44,547,200 63,746,200
Transfers between geographical
areas 85,070,700 72,783,100 76,240,200
Eliminations (85,070,700) (72,783,100) (76,240,200)
$181,112,200 $170,661,400 $175,450,000
Operating profit
United States operations $5,799,000 $3,133,900 $(5,424,000)
International operations 15,853,400 9,141,100 9,531,900
Eliminations (447,000) (833,800) 1,527,800
Operating profit 21,205,400 11,441,200 5,635,700
Equity in net earnings (loss)
of joint ventures 91,400 (503,900) (848,300)
Interest expense (551,900) (819,800) (2,286,800)
Interest and other income 2,385,800 2,187,700 4,030,300
Consolidated earnings before
income taxes, minority
interest, cumulative effect
of accounting change and
extraordinary item $23,130,700 $12,305,200 $6,530,900
Identifiable assets
United States operations $112,339,500 $92,237,200 $88,968,500
International operations 123,670,900 110,311,200 108,695,500
Eliminations (38,886,400) (22,069,100) (24,998,900)
Investments - - 309,300
Consolidated assets $197,124,000 $180,479,300 $172,974,400
Transfers between geographic areas are billed at negotiated prices.
Operating profit is total revenues less operating expenses and excludes
interest expense and equity in net earnings of foreign joint ventures.
In 1994, the international operations' operating profit also includes a
$7,810,500 gain on the sale of Hong Kong office space. All United
States revenues are derived from sales to unaffiliated customers.
Included in domestic revenues and operating profit are certain sales
derived from direct product shipments from Hong Kong to customers
located in the United States.
International operations are conducted in Canada, Hong Kong, Europe and
the People's Republic of China.
NOTE N - CONCENTRATION OF CREDIT RISK
The Company sells on credit terms to a majority of its customers, most of
which are U.S. and Canadian retailers and distributors located
throughout those countries.
Wal-Mart Stores, Inc. accounted for 17.8% and 19.3% of the Company's
sales in 1994 and 1993, respectively. In 1992, one customer accounted
for 10.6% of the Company's sales.
NOTE O - EXTRAORDINARY ITEM
In 1992, the Company accepted a settlement offer (the "Philips
Settlement") from North American Philips Corporation ("Philips") with
respect to certain claims the Company made against Philips under, among
other statutes, the Federal antitrust laws. Pursuant to the Philips
Settlement, Philips paid the Company $57,000,000 in May 1992. The
Company's net gain from the Philips Settlement, after legal fees, taxes,
costs and other expenses, was $29,648,800.
NOTE P - RELATED PARTY TRANSACTION
The Company has used the services of Top Sales Company, Inc. ("Top
Sales"), an independent sales representative, since 1978. A member of
the Company's Board of Directors is the sole shareholder and Chief
Executive Officer of Top Sales. The Company made commission payments to
Top Sales of $719,600, $575,500 and $575,000 in 1994, 1993 and 1992,
respectively.
SUPPLEMENTAL FINANCIAL DATA
Quarterly Financial Data (Unaudited)
The quarterly results for the years 1994 and 1993 are set forth in the
following tabulation.
Gross Net Earnings
Sales Profit Earnings Per Share
1994
First quarter $31,191,600 $9,081,200 $ 447,400 $.03
Second quarter 41,962,000 12,240,000 9,940,800 * .57
Third quarter 55,885,000 17,520,200 5,837,900 .33
Fourth quarter 52,073,600 14,427,200 4,311,300 .24
Total $181,112,200 $53,268,600 $20,537,400 $1.17
1993
First quarter $35,226,800 $9,016,700 $2,094,900 ** $.13
Second quarter 40,061,600 11,407,500 1,246,400 .08
Third quarter 53,403,400 17,216,000 4,201,500 .26
Fourth quarter 41,969,600 14,052,700 3,926,400 .24
Total $170,661,400 $51,692,900 $11,469,200 $.71
* Includes a non-recurring gain on the sale of Hong Kong office space of
$7,810,500, or $.45 per share.
** Includes a cumulative effect of accounting change benefit of
$1,731,100, or $.11 per share.
Quarterly Stock Quotations and Dividends Per Share
The Company's common stock is traded on the New York Stock Exchange under
the symbol WND. High and low market prices and dividends paid per share in
1994 and 1993, by quarters, are as follows:
Market Price Cash
High Low Dividends
1994
Fourth quarter 11-1/8 7-5/8 $ .05
Third quarter 12 9-3/8 .05
Second quarter 11-7/8 7-3/4 .05
First quarter 8-1/2 6-3/4 .00
$ .15
1993
Fourth quarter 8-3/4 7-5/8 .00
Third quarter 8-7/8 7 .00
Second quarter 8-3/8 6-3/8 .00
First quarter 7-3/4 5-7/8 .00
$ .00
The approximate number of holders of common stock of the Company, as of
December 31, 1994, was 1,700. This number does not include any adjustment
for shareholders owning common stock in the Depository Trust name or
otherwise in "Street" name, which the Company believes represents an
additional 8,000 shareholders.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 12,988,300
<SECURITIES> 0
<RECEIVABLES> 40,071,400
<ALLOWANCES> 1,338,100
<INVENTORY> 74,278,400
<CURRENT-ASSETS> 150,848,200
<PP&E> 63,853,200
<DEPRECIATION> 35,404,100
<TOTAL-ASSETS> 197,124,000
<CURRENT-LIABILITIES> 21,567,300
<BONDS> 3,666,700
<COMMON> 1,673,400
0
0
<OTHER-SE> 168,951,600
<TOTAL-LIABILITY-AND-EQUITY> 197,124,000
<SALES> 181,112,200
<TOTAL-REVENUES> 181,112,200
<CGS> 127,843,600
<TOTAL-COSTS> 127,843,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 231,400
<INTEREST-EXPENSE> 551,900
<INCOME-PRETAX> 23,039,300<F1>
<INCOME-TAX> 2,594,500
<INCOME-CONTINUING> 20,537,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,537,400
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 0
<FN>
<F1>INCLUDES A $7,810,500 GAIN ON THE SALE OF PROPERTY.
</FN>
</TABLE>
