SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended SEPTEMBER 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 1-10177
WINDMERE CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 59-1028301
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
5980 MIAMI LAKES DRIVE, MIAMI LAKES, FLORIDA 33014
(Address of principal executive offices) (Zip Code)
(305) 362-2611
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such report(s), and (2) has been subject to such filing requirement
for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Number of Shares Outstanding
Class on November 1, 1995
Common Stock, $.10 Par Value 16,778,853
WINDMERE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Statements of Earnings for
Third Quarters Ended September 30, 1995 and
1994
Consolidated Statements of Earnings for
Nine Months Ended September 30, 1995 and 1994
Consolidated Balance Sheets as of
September 30, 1995, December 31, 1994
and September 30, 1994
Consolidated Statements of Cash Flows
for Nine Months Ended September 30, 1995
and 1994
Notes to Consolidated Financial State-
ments
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WINDMERE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Third Quarter Ended
September 30, 1995 September 30, 1994
Sales $52,681,300 100.0% $55,885,000 100.0%
Cost of Goods Sold 40,402,500 76.7 38,364,800 68.6
Gross Profit 12,278,800 23.3 17,520,200 31.4
Selling, General and
Administrative Expenses 10,719,800 20.3 10,127,000 18.2
Operating Profit 1,559,000 3.0 7,393,200 13.2
Other (Income) Expense
Interest Expense 163,000 .3 71,900 .1
Interest and Other Income (419,800) (.7) (530,100 ) (.9)
(256,800) (.4) (458,200 ) (.8)
Earnings Before Equity in Net
Earnings (Loss) of Joint Venture
and Income Taxes 1,815,800 3.4 7,851,400 14.0
Equity in Net Earnings (Loss)
of Joint Venture (328,300) (.6) (267,800 ) (.5)
Earnings Before Income Taxes 1,487,500 2.8 7,583,600 13.5
Income Taxes
Current 497,600 .9 2,137,100 3.8
Deferred 118,300 .3 (391,400 ) (.7)
615,900 1.2 1,745,700 3.1
Net Earnings $ 871,600 1.6% $5,837,900 10.4%
Earnings Per Common Share
and Common Equivalent Share $.05 $.33
Average Number of Common
Shares and Common Equivalent
Shares Outstanding 17,282,000 18,063,000
Dividends Per Common Share $.05 $.05
The accompanying notes are an integral part of these statements.
WINDMERE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Nine Months Ended
September 30, 1995 September 30, 1994
Sales $132,713,500 100.0% $129,038,600 100.0%
Cost of Goods Sold 99,831,400 75.2 90,197,200 69.9
Gross Profit 32,882,100 24.8 38,841,400 30.1
Selling, General and
Administrative Expense 31,087,500 23.4 29,230,500 22.6
Unusual or Non-Recurring
Items (Note 4) 0 .0 (7,810,500 ) (6.0)
Operating Profit 1,794,600 1.4 17,421,400 13.5
Other (Income) Expense
Interest Expense 479,400 .4 392,900 .3
Interest and Other Income (1,974,200) (1.5) (1,610,200 ) (1.2)
(1,494,800) (1.1) (1,217,300 ) (.9)
Earnings Before Equity in Net
Earnings (Loss) of Joint
Venture, Income Taxes and
Minority Interest 3,289,400 2.5 18,638,700 14.4
Equity in Net Earnings (Loss)
of Joint Venture (197,700) (.2) 180,800 .2
Earnings Before Income Taxes
and Minority Interest 3,091,700 2.3 18,819,500 14.6
Income Taxes
Current 1,357,100 1.0 2,861,700 2.2
Deferred (378,200) (.3) (267,100) (.2)
978,900 .7 2,594,600 2.0
Earnings Before Minority
Interest 2,112,800 1.6 16,224,900 12.6
Minority Interest 0 .0 1,200 .0
Net Earnings $ 2,112,800 1.6% $16,226,100 12.6%
Earnings Per Common Share
and Common Equivalent Share $.12 $.93
Average Number of Common
Shares and Common Equivalent
Shares Outstanding 17,378,000 17,518,000
Dividends Per Common Share $.15 $.10
The accompanying notes are an integral part of these statements.
WINDMERE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS 9/30/95 12/31/94 9/30/94
CURRENT ASSETS
Cash & Cash Equivalents $ 5,603,600 $12,988,300 $19,446,500
Short-Term Investments 0 2,500,000 2,500,000
Accounts and Notes Receivable,
less allowances of $1,299,000 at
9/30/95; $1,338,100 at 12/31/94;
and $1,301,100 at 9/30/94 41,886,500 38,733,300 46,997,200
Receivables from Affiliates 5,571,900 12,444,300 5,670,200
Inventories
Raw Materials 24,700,400 18,993,200 19,461,800
Work-in-process 16,556,000 15,155,900 15,528,000
Finished Goods 43,676,900 40,129,300 41,890,200
Total Inventories 84,933,300 74,278,400 76,880,000
Prepaid Expenses (Note 3) 7,539,300 8,020,500 8,226,900
Future Income Tax Benefits 2,013,900 1,883,400 2,457,300
Total Current Assets 147,548,500 150,848,200 162,178,100
INVESTMENTS (Note 2) 0 0 0
PROPERTY, PLANT & EQUIPMENT -
AT COST, less accumulated
depreciation of $39,099,000
at 9/30/95; $35,404,100 at
12/31/94; and $33,985,500 at
9/30/94 30,737,900 28,449,100 25,119,800
OTHER ASSETS 17,171,800 17,826,700 17,760,700
___________ ___________ ___________
TOTAL ASSETS $195,458,200 $197,124,000 $205,058,600
WINDMERE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
LIABILITIES 9/30/95 12/31/94 9/30/94
CURRENT LIABILITIES
Notes and Acceptances Payable $2,722,600 $ 740,100 $ 640,000
Current Maturities of Long-Term
Debt 814,800 814,800 814,800
Accounts Payable 7,247,500 8,120,000 14,987,600
Accrued Expenses 9,675,400 8,981,700 10,770,800
Income Taxes 345,400 2,312,600 3,866,900
Deferred Income, current portion 598,100 598,100 598,100
Total Current Liabilities 21,403,800 21,567,300 31,678,200
LONG-TERM DEBT 3,055,600 3,666,700 3,891,900
DEFERRED INCOME, less current
portion 816,400 1,265,000 1,414,500
STOCKHOLDERS' EQUITY
Special Preferred Stock -
authorized 40,000,000 shares of
$.01 par value; none issued 0 0 0
Common Stock - authorized
40,000,000 shares of $.10 par
value; shares issued and out-
standing: 16,787,340 at 9/30/95;
16,734,172 at 12/31/94; and
16,827,402 at 9/30/94 1,678,700 1,673,400 1,682,700
Paid-in Capital 30,589,000 30,648,700 31,517,500
Retained Earnings 138,687,200 139,088,800 135,623,700
Unrealized Foreign Currency
Translation Adjustment (772,500 ) (785,900) (749,900)
Total Stockholders' Equity 170,182,400 170,625,000 168,074,000
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $195,458,200 $197,124,000 $205,058,600
The accompanying notes are an integral part of these statements.
WINDMERE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
9/30/95 9/30/94
Cash flows from operating activities
Net earnings $ 2,112,800 $16,226,100
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation of property, plant and
equipment 4,554,500 3,898,800
Amortization of intangible assets 424,500 316,800
Amortization of deferred income (448,600) (448,600)
Net change in allowance for losses
on accounts receivable (39,100) (123,500)
Gain on sale of fixed asset (Note 4) 0 (7,810,500)
Equity in (earnings) loss of joint venture 197,700 (180,800)
Decrease in minority interest 0 (1,200)
Increase in accounts and notes
receivable (3,114,100) (15,605,100)
Increase in inventories (10,654,900) (9,722,500)
Decrease (increase) in prepaid expenses 481,200 (1,236,000)
Increase (decrease) in accounts payable
and accrued expenses (178,800) 6,811,100
Increase (decrease) in notes and
acceptances payable 1,982,500 (2,355,800)
Increase (decrease) in current and
deferred income taxes (2,097,700) 3,347,800
Decrease in other assets 230,400 (105,500)
Decrease (increase) in other accounts 13,400 (39,200)
Net cash used in
operating activities (6,536,200) (7,028,100)
Cash flows from investing activities
Proceeds from fixed asset sales 146,900 9,464,300
Additions to property, plant and
equipment (6,990,200) (5,650,200)
Decrease (increase) in short-term
investments 2,500,000 (2,500,000)
Decrease in receivables from
affiliates 6,674,700 3,677,200
Net cash provided by
investing activities $ 2,331,400 $4,991,300
Cash flows from financing activities
Payments of long-term debt $ (611,100) $ (611,300)
Exercise of stock options
and warrants 389,500 1,225,000
Cash dividends paid (2,514,400) (1,688,900)
Purchases of common stock (443,900) (2,236,200)
Net cash used in
financing activities (3,179,900) (3,311,400)
Decrease in cash
and cash equivalents (7,384,700) (5,348,200)
Cash and cash equivalents at
beginning of year 12,988,300 24,794,700
Cash and cash equivalents at end
of quarter $ 5,603,600 $19,446,500
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the nine months for:
Interest $ 373,600 $ 389,200
Income taxes $ 2,076,900 $ 177,300
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for additional
investment in Durable Electrical
Metal Factory, Ltd. $ 0 $ 8,000,000
The accompanying notes are an integral part of these statements.
WINDMERE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to
present fairly the financial position as of September 30, 1995
and 1994, and the results of operations and changes in financial
position for the interim periods. Results for interim periods
should not be considered indicative of results for a full year.
Reference should be made to the financial statements contained
in the registrant's Annual Report on Form 10-K for the year
ended December 31, 1994.
Note 2. Investments include:
9/30/95 12/31/94 9/30/94
Joint Venture - at
cost plus equity in
undistributed earnings $ 0 $ 0 $ 0
The Company's joint venture investment at September 30, 1995,
December 31, 1994 and September 30, 1994 had negative values of
$.6 million, $.4 million and $.3 million, respectively, which
deficits have been classified as a reduction in Receivables from
Affiliates.
The following table provides financial data for the Company's
joint venture investment accounted for on the equity method:
Nine Nine
Months Ended Year Ended Months Ended
9/30/95 12/31/94 9/30/94
Sales $ 22,877,700 $ 30,184,500 $ 24,546,700
Gross profit $ 1,946,000 $ 3,572,500 $ 3,105,600
Net Earnings (Loss) $ (395,400) $ 185,000 $ 361,600
Note: Profits earned by the Company's manufacturing subsidiary
on sales to the joint venture are included in the consolidated
earnings results and are not part of the above table.
Note 3. In the third quarter of 1995, the Company reached an agreement
with the Hong Kong Inland Revenue Department concerning the
taxes assessed against the Company's consolidated Hong Kong
subsidiaries through 1991. The assessment, including interest
charges and net of U.S. foreign tax credits, approximates $1.4
million. The Company made a provision in its 1995 second
quarter of $.4 million, or $.02 per share, to increase its
contingency reserve to the settlement amount. Security deposits
of approximately $3.0 million, which amounts are included in
prepaid expenses, are scheduled to be refunded to the Company
during the fourth quarter of 1995. Management believes that
adequate provision for taxes has been made for the years not yet
examined.
Note 4. Unusual or Non-Recurring Items: In April 1994, the Company's
manufacturing subsidiary, Durable Electrical Metal Factory, Ltd.
("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 $.45 per share, in the
Company's 1994 second quarter results. No taxes were provided
as the gain was not taxable.
Note 5. Cash Dividends: The Board of Directors of the Company declared
a regular quarterly cash dividend of $.05 per share to
shareholders of record at the close of business on September 1,
1995, which was paid on September 15, 1995.
The payment of dividends is at the discretion of the Board of
Directors of the Company and will depend upon, among other
things, future earnings, capital requirements, the Company's
financial condition and such other factors as the Board of
Directors may consider.
Note 6. 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, the final decision
on which is pending. The Company intends to defend this action
fully and vigorously.
In addition, in June 1995, Izumi filed another lawsuit against
the Company and Philips. In this second lawsuit, Izumi is
seeking equitable relief in the form of reinstatement of the
1990 judgments in the Company's favor against Philips, which
were vacated. This complaint was amended to include Sears
Roebuck and Company as a co-plaintiff and to seek reinstatement
of an unfair competition judgment only. The Company has moved
for entry of a summary judgment dismissing the complaint. The
Company believes that this second complaint by Izumi has no
merit, and it intends to defend it vigorously.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended September 30, 1995 Compared to
Three Months Ended September 30, 1994
Net sales were $52.7 million during the third quarter, a 5.7% decrease from
the $55.9 million recorded for the same period last year. Manufacturing
sales increased by $2.7 million due to increased shipments of kitchen
electric appliances. Distribution sales declined by $5.9 million due to
the weak U.S. retailing environment. Wal-Mart Stores, Inc., Sally Beauty
Company and a kitchen electric appliance distributor accounted for 12.9%,
13.1% and 10.8%, respectively, of the Company's total sales during this
year's third quarter.
COMPARATIVE SALES RESULTS
Three Months Ended
September 30, 1995 September 30, 1994
DISTRIBUTION $ 44,274,800 84.0% $ 50,182,900 89.8%
MANUFACTURING 8,406,500 16.0 5,702,100 10.2
Total Sales $ 52,681,300 100.0% $ 55,885,000 100.0%
The Company's gross margin percentage declined in the current year's third
quarter to 23.3% of sales from the 31.4% level achieved during the same
period last year primarily due to higher raw materials costs and a greater
concentration of manufacturing sales, which carry lower margins. Raw
materials prices, which remain higher than the levels a year ago, have
eased somewhat in recent months. If this downward trend continues, the
Company's manufacturing operations will begin to see improved gross margins
once it works through its higher-cost inventories.
Selling, general and administrative expenses increased by $.6 million in
this year's third quarter, and by 2.1% as a percentage of sales. Higher
bad debt expense, primarily from the Caldor Corporation Chapter 11
bankruptcy filing, and increased inventory storage costs were incurred this
year.
The Company's tax expense is based on the earnings of each of its foreign
and domestic operations and it includes such additional U.S. taxes as are
applicable to the repatriation of foreign earnings. Offshore earnings
generally are taxed at rates lower than in the United States.
The average number of common shares and common equivalent shares used in
computing per share results was lower in the 1995 third quarter primarily
as a result of a lower dilutive effect from unexercised stock options and
warrants due to a decline in the quoted market price of the Company's
common stock.
Nine Months Ended September 30, 1995 Compared to
Nine Months Ended September 30, 1994
Net sales were $132.7 million for the nine months ended September 30, 1995,
a 2.9% increase from the $129.0 million recorded for the same period last
year. Durable's manufacturing sales were $10.2 million higher primarily
due to increased shipments of kitchen electric appliances. Distribution
sales declined by $6.5 million due to the weak U.S. retailing environment.
Wal-Mart Stores, Inc., Sally Beauty Company and a kitchen electric
appliance distributor accounted for 12.5%, 10.7% and 11.2%, respectively,
of the Company's total sales in 1995.
COMPARATIVE SALES RESULTS
Nine Months Ended
September 30, 1995 September 30, 1994
DISTRIBUTION $107,817,600 81.2% $114,321,500 88.6%
MANUFACTURING 24,895,900 18.8 14,717,100 11.4
Total Sales $132,713,500 100.0% $129,038,600 100.0%
The Company's gross margin percentage decreased for the nine months ended
September 30, 1995 to 24.8% of sales from the 30.1% level in the prior year
due to higher raw materials costs and the greater concentration of lower-
margin manufacturing sales. Raw materials prices, which remain higher than
the levels a year ago, have eased somewhat in recent months. If this
downward trend continues, the Company's manufacturing operations will begin
to see improved gross margins once it works through its higher-cost
inventories.
Selling, general and administrative expenses increased by $1.9 million this
year, and by .8% as a percentage of sales. Higher bad debt expense,
inventory storage costs and shipping charges were incurred this year.
In 1994's second quarter, 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. See Note 4 on page 10.
The Company's equity in net earnings (loss) of joint venture was $(.2)
million and $.2 million in the first nine months of 1995 and 1994,
respectively. Lower gross margins in 1995, due to higher raw materials
costs, produced the decline in the joint venture's earnings.
The Company's tax expense is based on the earnings of each of its foreign
and domestic operations and it includes such additional U.S. taxes as are
applicable to the repatriation of foreign earnings. Offshore earnings
generally are taxed at rates lower than in the United States. The Company
made a provision in its 1995 second quarter of $.4 million, or $.02 per
share, as a result of its settlement of a Hong Kong tax audit. See Note
3 on page 9.
Liquidity & Capital Resources
At September 30, 1995, the Company's current ratio and quick ratio were 6.9
to 1 and 2.9 to 1 and at September 30, 1994, they were 5.1 to 1 and 2.7 to
1, respectively. Working capital at September 30, 1995 and 1994 was $126.1
million and $130.5 million, respectively.
Cash and cash equivalents at September 30, 1995 are approximately $7.4
million lower than the December 31, 1994 level. Cash of $6.7 million was
generated from lower affiliate receivable balances. The Company utilized
approximately $20.8 million of cash during the nine month period for a
seasonal buildup of accounts receivable and inventory levels, and the
acquisition of fixed assets. Cash dividends of $2.5 million were paid to
shareholders in 1995. Payments to suppliers were also accelerated this
year to ensure the supply and prompt delivery of raw materials.
The Company's foreign subsidiaries (the "subsidiaries") have $6.4 million
in trade finance lines of credit, payable on demand, which are secured by
the subsidiaries' tangible and intangible property located in Hong Kong and
in the People's Republic of China, as well as a Company guarantee. At
September 30, 1995, the subsidiaries were utilizing, including letters of
credit, approximately $2.3 million of these credit lines. These
subsidiaries also have available an additional $5.0 million line of credit
which is supported by a domestic standby letter of credit, $2.0 million of
which was used as of September 30, 1995.
The Company has a $10.0 million ($20.0 million during the period July
through December 1995) line of credit from a domestic bank, which is
secured by domestic accounts receivable. At September 30, 1995, there were
no outstanding borrowings under this credit line.
No provisions for U.S. taxes has been made on undistributed earnings of the
Company's foreign subsidiaries and joint ventures because management plans
to reinvest such earnings in their respective operations or in other
foreign operations. Repatriating those earnings or using them in some
other manner which would give rise to a U.S. tax liability would reduce
after tax earnings and available working capital.
The Company believes that its cash on hand and internally generated funds,
together with its credit lines, will provide sufficient funding to meet the
Company's capital requirements and its operating needs for the foreseeable
future.
Legal Proceedings
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,
the final decision on which is pending. The Company intends to defend this
action fully and vigorously.
In addition, in June 1995, Izumi filed another lawsuit against the Company
and Philips. In this second lawsuit, Izumi is seeking equitable relief in
the form of reinstatement of the 1990 judgments in the Company's favor
against Philips, which were vacated. This complaint was amended to include
Sears Roebuck and Company as a co-plaintiff and to seek reinstatement of
an unfair competition judgment only. The Company has moved for entry of
a summary judgment dismissing the complaint. The Company believes that
this second complaint by Izumi has no merit, and it intends to defend it
vigorously.
The Company is subject to other legal proceedings and claims which arise
in the ordinary course of its business. In the opinion of management, the
amount of ultimate liability, if any, with respect to these actions will
not materially affect the financial position of the Company.
Manufacturing Operations
The Company's products are primarily manufactured by Durable, its wholly-
owned Hong Kong subsidiary, in Bao An County, Guandong Province of the
People's Republic of China, which is approximately 60 miles northwest of
central Hong Kong. The Company has a significant amount of its assets in
the People's Republic, primarily consisting of inventory, equipment and
molds. Substantially all of the Company's products are manufactured by
Durable and unrelated factories in the People's Republic. Approximately
85% to 90% of the Company's products are manufactured by Durable. The
supply and cost of these products can be adversely affected, among other
reasons, by changes in foreign currency exchange rates, increased import
duties, imposition of tariffs, imposition of import quotas, interruptions
in sea or air transportation and political or economic changes. From time
to time, the Company explores opportunities to diversify its sourcing
and/or production of certain products to other low-cost locations or with
other third parties or joint venture partners in order to reduce its
dependence on production in the People's Republic and/or reduce Durable's
dependence on the Company's existing distribution base. However, at the
present time, the Company intends to continue its production in the
People's Republic.
In June 1989, the People's Republic experienced civil disturbances and,
although such disturbances have dissipated since that time, there continues
to be pressure for political reform. No assurance can be given that civil
disturbances will not recur. If it becomes necessary to relocate the
Company's manufacturing facilities from the People's Republic as a result
of civil disturbances in that country or otherwise, the Company believes
the production currently conducted in the People's Republic could be
relocated to other Far East locations, including Hong Kong, or other low-
cost manufacturing locations, with only temporary disruption and delay in
such production and possible short-term operating and capital losses,
provided that the Company is able to move substantially all of its
manufacturing equipment and other assets currently in the People's Republic
to another location. If the Company is unable to remove such assets, due
to confiscation, expropriation, nationalization, embargoes or governmental
restrictions, it would incur substantial operating and capital losses,
including losses resulting from business disruption and delays in
production. In addition, as a result of a relocation of its manufacturing
equipment and certain other assets, the Company would likely incur
relatively higher manufacturing costs. A relocation could also adversely
affect the Company's revenues if the demand for the Company's products
currently manufactured in the People's Republic decreases due to a
disruption in the production and delivery of such products or due to higher
prices which might result from increased manufacturing costs. Furthermore,
earnings could be adversely affected due to reduced sales and/or the
Company's inability to maintain its current margins on the products
currently manufactured in the People's Republic.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See "Legal Proceedings" in Part I, Item 2 of this report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) There were no reports on Form 8-K filed for the three months
ended September 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WINDMERE CORPORATION
(Registrant)
November 13, 1995 By: /s/
Harry D. Schulman
Executive Vice President -
Finance and Administration and
Chief Financial Officer
(Duly authorized to sign on
behalf of the Registrant)
November 13, 1995 By: /s/
Burton A. Honig
Vice President - Finance
(Duly authorized to sign on
behalf of the Registrant)
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