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, 1996
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-DURABLE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-1028301
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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, 1996
Common Stock, $.10 Par Value 17,407,225
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Statements of Earnings for the Three Months
Ended September 30, 1996 and 1995
Consolidated Statements of Earnings for the
Nine Months Ended September 30, 1996 and 1995
Consolidated Balance Sheets as of
September 30, 1996, December 31, 1995
and September 30, 1995
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1996
and 1995
Notes to Consolidated Financial Statements
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
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In Thousands Except Per Share Information)
<TABLE>
Three Months Ended September 30,
1996 1995
<S> <C> <C> <C> <C>
Sales $ 56,181 100.0% $ 52,681 100.0%
Cost of Goods Sold 45,765 81.5 41,460 78.7
Gross Profit 10,416 18.5 11,221 21.3
Selling, General and
Administrative Expenses 10,295 18.3 9,662 18.3
Operating Profit 121 .2 1,559 3.0
Other (Income) Expense
Interest Expense 612 1.1 163 .3
Interest and Other Income (943) (1.7) (420) (.7)
(331) (.6) (257) (.4)
Earnings Before Equity in Net
Earnings of Joint Ventures
and Income Taxes 452 .8 1,816 3.4
Equity in Net Earnings (Loss)
of Joint Ventures 848 1.5 (328) (.6)
Earnings Before Income
Taxes 1,300 2.3 1,488 2.8
Income Taxes
Current 25 .1 498 .9
Deferred (426) (.8) 118 .3
(401) (.7) 616 1.2
Net Earnings (Loss) $ 1,701 3.0% $ 872 1.6%
Earnings (Loss) Per Common
and Common Equivalent Shares $ .10 $.05
Average Number of Common
and Common Equivalent
Shares Outstanding 18,984 17,282
Dividends Per Common Share $.05 $.05
</TABLE>
The accompanying notes are an integral part of these statements.
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In Thousands Except Per Share Information)
<TABLE>
Nine Months Ended September 30,
1996 1995
<S> <C> <C> <C> <C>
Sales $ 136,124 100.0% $ 132,714 100.0%
Cost of Goods Sold 108,757 80.0 103,284 77.8
Gross Profit 27,367 20.0 29,430 22.2
Selling, General and
Administrative Expense 27,061 19.9 27,635 20.8
Operating Profit 306 .1 1,795 1.4
Other (Income) Expense
Interest Expense 942 .7 479 .4
Interest and Other Income (2,033) (1.5) (1,974) (1.5)
(1,091) (.8) (1,495) (1.1)
Earnings Before Equity in Net
Earnings of Joint
Ventures and Income Taxes 1,397 .9 3,289 2.5
Equity in Net Earnings (Loss)
of Joint Ventures 97 .1 (198) (.2)
Earnings Before Income Taxes 1,494 1.0 3,092 2.3
Income Taxes
Current (168) (.1) 1,357 1.0
Deferred 108 .1 (378) (.3)
(60) 979 .7
Net Earnings $ 1,554 1.0% $ 2,113 1.6%
Earnings Per Common
and Common Equivalent Shares $ .09 $ .12
Average Number of Common
and Common Equivalent
Shares Outstanding 17,671 17,378
Dividends Per Common Share $ .15 $ .15
</TABLE>
The accompanying notes are an integral part of these statements.
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands)
<TABLE>
ASSETS 9/30/96 12/31/95 9/30/95
CURRENT ASSETS
<S> <C> <C> <C>
Cash & Cash Equivalents $ 7,592 $ 17,768 $ 5,604
Accounts Receivable,
less allowances of $1,193,
$1,158 and $1,299, respectively 44,242 36,597 41,887
Receivables from Affiliates
(Notes 2 and 4) 7,748 9,983 5,572
Inventories
Raw Materials 14,107 16,328 24,700
Work-in-process 18,063 21,085 16,556
Finished Goods 51,254 41,600 43,677
Total Inventories 83,424 79,013 84,933
Prepaid Expenses 4,149 2,184 7,250
Future Income Tax Benefits 1,643 1,643 2,014
Total Current Assets 148,798 147,188 147,260
INVESTMENTS IN AFFILIATES
(Notes 2 and 4) 32,863
PROPERTY, PLANT & EQUIPMENT -
AT COST, less accumulated
depreciation of $45,118,
$40,427 and $39,099, respectively 33,396 30,485 30,738
OTHER ASSETS 12,504 10,339 17,172
TOTAL ASSETS $ 227,561 $ 188,012 $ 195,170
</TABLE>
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
(In Thousands)
Continued
LIABILITIES 9/30/96 12/31/95 9/30/95
CURRENT LIABILITIES
<S> <C> <C> <C>
Notes and Acceptances Payable $15,564 $ 42 $ 2,723
Current Maturities of Long-Term
Debt 815 815 815
Accounts Payable and
Accrued Expenses 22,037 18,108 16,980
Deferred Income, current portion 598 598 598
Total Current Liabilities 39,014 19,563 21,116
LONG-TERM DEBT (Note 4) 20,088 2,852 3,056
DEFERRED INCOME, less current
portion 218 667 816
STOCKHOLDERS' EQUITY (Note 3)
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; shares issued and out-
standing: 17,328, 16,713 and
16,787, respectively 1,733 1,671 1,679
Paid-in Capital 34,348 30,173 30,589
Retained Earnings 132,921 133,851 138,687
Unrealized Foreign Currency
Translation Adjustment (761) (765) (773)
Total Stockholders' Equity 168,241 164,930 170,182
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $227,561 $188,012 $195,170
</TABLE>
The accompanying notes are an integral part of these statements.
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
<TABLE>
Nine Months Ended September 30,
1996 1995
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 1,554 $ 2,113
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation of property, plant and
equipment 4,886 4,555
Amortization of intangible assets 483 425
Amortization of deferred income (449) (449)
Net change in allowance for losses
on accounts receivable 35 (39)
Equity in net (earnings) loss of joint ventures (97) 198
Changes in assets and liabilities:
Increase in accounts receivable (7,680) (3,114)
Increase in inventories (3,681) (10,655)
(Increase) decrease in prepaid expenses (1,146) 481
(Increase) decrease in other assets (776) 230
Increase (decrease) in accounts payable
and accrued expenses 3,929 (179)
Increase (decrease) in current and
deferred income taxes (2,098)
Increase in other accounts 10 13
Net cash used in
operating activities (2,932) (8,519)
Cash flows from investing activities:
Proceeds from fixed asset sales 147
Additions to property, plant and
equipment - net (7,798) (6,990)
Decrease in short-term investments 2,500
Purchase of assets - Litter Maid (2,246)
Purchase of assets - Bay Books & Tapes (1,180)
Investments in joint ventures (7,934)
Decrease in accounts and notes
receivable from affiliates 1,307 6,675
Net cash provided by (used in)
investing activities $ (17,851) $ 2,332
</TABLE>
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
Continued
<TABLE>
Nine Months Ended September 30,
1996 1995
Cash flows from financing activities:
<S> <C> <C>
Net borrowings under lines of credit $ 15,522 $ 1,982
Payments of long-term debt (611) (611)
Exercise of stock options
and warrants 1,949 390
Cash dividends paid (2,485) (2,514)
Purchases of common stock (3,768) (444)
Net cash provided by (used in)
financing activities 10,607 (1,197)
Decrease in cash
and cash equivalents (10,176) (7,384)
Cash and cash equivalents at
beginning of year 17,768 12,988
Cash and cash equivalents at end
of quarter $ 7,592 $ 5,604
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
Cash paid for:
<S> <C> <C>
Interest $ 337 $ 374
Income taxes $ 336 $ 2,077
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
The Company purchased a 50-percent interest in New M-Tech Corporation in
exchange for $3 million in cash and $7 million in long term promissory notes.
The Company purchased a 50-percent interest in Salton/Maxim Housewares, Inc. in
exchange for $3.3 million in cash, 748,112 shares of Windmere common stock
(valued at $6.1 million) and a $10.8 million promissory note.
The accompanying notes are an integral part of these statements.
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Interim Reporting
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all normal recurring adjustments necessary
to present fairly the Company's financial position as of September 30,
1996 and 1995, and the results of its 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,
1995.
Reclassifications
Certain prior period amounts have been reclassified for comparability.
2. INVESTMENTS IN AFFILIATES
Investments in affiliates consist of the Company's interests in joint
ventures, accounted for under the equity method. Included are the
Company's 50-percent interests in Salton/Maxim Housewares, Inc.,
New M-Tech Corporation, Paragon Industries, PX Distributors, Inc.,
Breakroom of Tennessee, Inc. and Anasazi Partners, L.P. (See Note 4).
Summarized financial information of the unconsolidated companies
is as follows: (In Thousands)
<TABLE>
Nine Nine
Months Ended Year Ended Months Ended
9/30/96 12/31/95 9/30/95
Earnings
<S> <C> <C> <C>
Sales $77,085 $30,172 $22,878
Gross Profit $13,433 $ 2,346 $ 1,946
Net Earnings (Loss) $ 453 $ ( 785) (446)
Balance Sheet
Current Assets $90,862
Noncurrent Assets $31,950
Current Liabilities $78,473
Shareholders' Equity $43,451
</TABLE>
Certain joint venture investments had deficits of $1.8 million, $.8
million and $.6 million, at September 30, 1996, December 31, 1995
and September 30, 1995, respectively. Such deficits have been
classified as reductions in Receivables from Affiliates.
At September 30, 1996, the Company's loans to certain of its
affiliates totaled $2.2 million. The Company has also provided
short term standby letters of credit in the amount of
$3.6 million on behalf of its affiliates.
Note: Profits earned by the Company's manufacturing subsidiary
on sales to joint ventures are included in the consolidated
earnings results and are not part of the above table.
3. STOCKHOLDERS' EQUITY
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 3, 1996, which
was paid on September 17, 1996. 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.
Stock Purchase
In June 1996, the Company completed its purchase of one million
shares of its common stock under the 1994 stock purchase program
at a total cost of $8.7 million.
The Company's Board of Directors subsequently authorized a new stock
purchase program, whereby, the Company can purchase up to
10-percent of its own outstanding common shares
(approximately 1.6 million shares).
No shares have been purchased under the new program.
4. ACQUISITIONS
PX Distributors, Inc.("PX")
In December 1995, the Company purchased, for a nominal amount,
a 50-percent interest in PX Distributors, Inc., a distributor of
home automation/security devices. The Company and the other
owners have agreed to lend PX certain amounts from time to time
to meet working capital requirements. Such loans bear interest
at the prime rate and are payable upon PX achieving sufficient
cash flow.
Salton/Maxim Housewares, Inc. ("Salton")
In February 1996, the Company entered into a stock purchase
agreement with Salton providing for the issuance and sale by
Salton to the Company of 6,508,572 shares of its common stock,
representing 50-percent of Salton's outstanding common stock
after issuance.
On July 11, 1996, Windmere completed its acquisition of
50-percent of Salton. The Company received 6,508,572 shares of
Salton common stock (market value at date of acquisition of
approximately $36.2 million) in exchange for a cash payment of
$3.3 million, a $10.8 million promissory note and 748,112 shares
of Windmere stock (market value at date of agreement of
approximately $6.1 million). The total cost in excess of
net assets acquired is not deemed to be material.
In addition, the Company received an option to purchase 453,000
shares of Salton common stock at an exercise price of $4.53 per
share. The option becomes exercisable only if and to the extent
that options to purchase shares of Salton common stock
outstanding at the date of the stock purchase agreement are
exercised.
The $10.8 million promissory note bears interest at a rate
of 8-percent per annum, payable quarterly, and is due in July
2001. The note is subordinated to the Company's
current and future indebtedness with its senior lender.
LitterMaid
In March 1996, the Company purchased, for $2.2 million in cash,
certain assets and marketing rights for the LitterMaid,
computerized, infrared, automatic self-cleaning cat litter box.
New M-Tech Corporation ("New M-Tech")
In April 1996, the Company acquired a 50-percent interest in
New M-Tech Corporation, a consumer electronics company for
$10 million. Payment consisted of $3 million in cash and
$7 million in promissory notes. The promissory notes bear
interest at 8% per annum and consist of a $3 million promissory
note maturing in 1998, and two $2 million promissory notes
maturing in 2001, one of which is convertible into shares of the
Company's common stock at a price of $15 per share. Conversion may
occur at any time during the term of the convertible promissory
note, and may be required under certain circumstances. The total
cost in excess of net assets acquired of $5.3 million has
resulted in goodwill and is being amortized over 20 years on
a straight-line basis.
Breakroom of Tennessee, Inc.
In May 1996, the Company agreed to contribute and/or purchase
inventory valued at $250,000 in exchange for a 50-percent
interest in Breakroom of Tennessee, Inc., a joint venture formed
to market and distribute office products. The Company's
investment as of September 30, 1996 consists of $240,390 in
inventory purchased on behalf of the joint venture.
Bay Books & Tapes, Inc.
In June 1996, the Company acquired the assets of the books and video
publishing division of KQED, Inc., consisting mostly of
inventory, for $1.2 million in cash. Bay Books & Tapes, Inc.
publishes public television companion books and videos.
Anasazi Partners, L.P.
In June 1996, the Company entered into an agreement to acquire a
50-percent interest in an investment partnership for $1.25 million.
Payments as of September 30, 1996 include a $1.25 million capital
contribution to the partnership and a $1.25 million loan to the
partnership's other equity partner. Such loan bears interest at
a rate of 8-percent per annum and is payable upon demand.
The results of operations on a proforma basis as though Salton
and New M-Tech Corporation had been acquired as of the beginning
of the nine month periods ended September 30, 1996 and 1995 are
as follows: (In Thousands except per share amounts)
<TABLE>
Nine Months Ended
September 30,
1996 1995
Equity in net earnings (loss)
<S> <C> <C>
of joint ventures $ (50) $ (646)
Net Income $ 798 $ 638
Earnings per common and
common equivalent share $ .05 $ .04
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended September 30, 1996 Compared to
Three Months Ended September 30, 1995
Net sales for the third quarter of 1996 increased by $3.5 million or 6.6%
from the sales for the third quarter of 1995. The increase is primarily the
result of a $5.7 million increase in manufacturing sales offset by a
$1.9 million decrease in distribution sales. Sally Beauty Company and a
kitchen electric appliance distributor accounted for 12.6% and 11.1% of the
Company's total sales for the 1996 period.
COMPARATIVE SALES RESULTS
(In Thousands) Three Months Ended
<TABLE>
September 30, 1996 September 30, 1995
<S> <C> <C> <C> <C>
DISTRIBUTION $ 42,097 74.9% $ 44,275 84.0%
MANUFACTURING 14,084 25.1 8,406 16.0
Total Sales $ 56,181 100.0% $ 52,681 100.0%
</TABLE>
The gross profit percentage for the third quarter of 1996 was 18.5% as compared
to 21.3% for the third quarter of 1995. The decrease is largely the result of
substantial growth in manufacturing sales which typically provide lower gross
profit margins than the Company's distribution business as well as the
continuing effect of higher raw material costs. Expenditures were made at
the Company's manufacturing facilities in the PRC in anticipation of future
incremental sales growth, particularly in kitchen electric appliances.
Increases in future capacity utilization should provide for absorption of the
newly incurred overhead.
The $633,000 increase in selling, general and administrative expenses in the
third quarter of 1996 primarily reflects the commencement of operations at
LitterMaid,Inc. and Bay Books & Tapes, Inc.
The Company's equity in the net earnings of joint ventures was $848,000 and
$(328,000) in the third quarter of 1996 and 1995, respectively. The increase in
1996 reflects the results of operations of the Company's newly acquired
interests in Salton/Maxim Housewares, Inc. ("Salton") and New M-Tech
Corporation as well as a more profitable product mix at its seasonal products
joint venture. The Company's equity in the net earnings of Salton and
New M-Tech totaled $1.1 million for the third quarter of 1996.
The Company's income 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. Foreign earnings,
other than in Canada, are generally taxed at rates lower than in the United
States.
Results of Operations
Nine Months Ended September 30, 1996 Compared to
Nine Months Ended September 30, 1995
Net sales for the nine months ended September 30, 1996 were $136.1 million as
compared to $132.7 for the same period in 1995. The 2.6% increase is primarily
the result of a $6.2 million increase in manufacturing sales partially offset by
a $3.9 million decrease in distribution sales.
COMPARATIVE SALES RESULTS
(In Thousands) Nine Months Ended
<TABLE>
September 30, 1996 September 30, 1995
<S> <C> <C> <C> <C>
DISTRIBUTION $ 105,069 77.2% $ 107,818 81.2%
MANUFACTURING 31,055 22.8 24,896 18.8
Total Sales $ 136,124 100.0% $ 132,714 100.0%
</TABLE>
The gross profit percentage for the nine months ended September 30, 1996 was
20.0% as compared to 22.2% for the nine months ended September 30, 1995.
The decrease is primarily attributable to the continuing effect of higher
raw material prices as well as the increased percentage of lower margin
manufacturing sales to total sales in 1996.
The decrease in selling, general and administrative expenses primarily reflects
the continuing reduction in advertising costs.
The Company's equity in the net loss of joint ventures was sustained
primarily in the first half of 1996 due to higher raw material prices, which
impacted the profitability of the Company's seasonal products joint venture,
and to costs incurred by other joint ventures in their start-up phase.
The Company's income 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. Foreign earnings other than
in Canada, are generally taxed at rates lower than in the United States.
Liquidity & Capital Resources
At September 30, 1996, the Company's current ratio and quick ratio were 3.8 to 1
and 1.6 to 1 as compared to 7.0 to 1 and 2.9 to 1 at September 30, 1995.
Working capital at those dates was $109.8 million and $126.1 million,
respectively. Cash balances decreased by $10.2 million during the nine
months ended September 30, 1996 primarily as a result of the Company's
investing activities.
Certain of 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, 1996, the subsidiaries were utilizing,
including letters of credit, approximately $2.0 million of these credit
lines. These subsidiaries also have available a $5.0 million revolving line
of credit which is supported by a domestic standby letter of credit.
As of September 30, 1996, the Company has borrowed $4.9 million under this
facility.
In October 1996, the Company increased its domestic bank line of credit to $30
million, which line is secured by domestic accounts receivable and finished
goods inventory. At September 30, 1996, outstanding borrowings under this
line totaled $13.6 million which includes $3.6 in stand-by letters of credit
provided on behalf of affiliates.
The Company has entered into the following significant investing transactions in
1996:
Salton/Maxim Housewares, Inc. ("Salton")
In February 1996, the Company entered into a stock purchase agreement with
Salton providing for the issuance and sale by Salton to the Company of
6,508,572 shares of its common stock, representing 50-percent of Salton's
outstanding common stock after issuance.
On July 11, 1996, Windmere completed its acquisition of 50-percent of Salton.
The Company received 6,508,572 shares of Salton common stock (market value at
date of acquisition of approximately $36.2 million) in exchange for a cash
payment of $3.3 million, a $10.8 million promissory note and 748,112 shares
of Windmere stock (market value at date of agreement of approximately
$6.1 million).
In addition, the Company received an option to purchase 453,000 shares of Salton
common stock at an exercise price of $4.53 per share. The option becomes
exercisable only if and to the extent that options to purchase shares of Salton
common stock outstanding at the date of the stock purchase agreement are
exercised.
The $10.8 million promissory note bears interest at a rate of 8-percent per
annum, payable quarterly, and is due in July 2001. The note is subordinated
to the Company's current and future indebtedness with its senior lender.
LitterMaid
In March 1996, the Company purchased, for $2.2 million in cash, certain
assets and marketing rights for the Litter Maid , computerized, infrared,
automatic self-cleaning cat litter box.
New M-Tech Corporation ("New M-Tech")
In April 1996, the Company acquired a 50-percent interest in New M-Tech
Corporation, a consumer electronics company for $10 million.
Payment consisted of $3 million in cash and $7 million in promissory notes.
The promissory notes bear interest at 8% per annum and consist of a $3
million promissory note maturing in 1998, and two $2 million promissory
notes maturing in 2001, one of which is convertible into shares of the
Company's common stock at a price of $15 per share.
Conversion may occur at any time during the term of the convertible promissory
note, and may be required under certain circumstances.
Bay Books & Tapes, Inc.
In June 1996, the Company acquired the assets of the books and video publishing
division of KQED, Inc., consisting mostly of inventory, for $1.2 million in
cash. Bay Books & Tapes, Inc. publishes public television companion books
and videos.
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
whichwould 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.
Manufacturing Operations
Substantially all of the Company's products (85% - 90%) are manufactured by
Durable, its wholly-owned Hong Kong subsidiary, in Bao An County, Guandong
Province of the People's Republic of China (PRC), 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. The supply and cost of products manufactured in the PRC
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.
Presently products imported into the U.S. from the PRC are subject to favorable
duty rates based on the "Most Favored Nation" status of the PRC ("MFN Status").
MFN Status is reviewed on an annual basis by the President and Congress and was
renewed in July 1996.
If MFN status for goods produced in the People's Republic was 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. 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.
PART II - OTHER INFORMATION
Item 1. 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 the
greater of one-third of the Philips' Settlement or between $14 - 25
million dollars in lost profits (which would be trebled under the
antitrust laws) alleged to represent damages incurred by Izumi when it
allegedly abandoned an antitrust counterclaim in reliance on Windmere's
alleged agreement to share a portion of the Philips' Settlement,
punitive damages and reimbursement of litigation and other related costs
and miscellaneous expenses including interest. The Company disagrees
with Izumi's position and believes that it has meritorious defenses.
A pre-answer motion by the Company has resulted in the dismissal of some
of Izumi's claims, and the Company has answered the remaining claims.
The Company intends to defend this action fully and vigorously.
The Company is subject to other legal proceedings and claims which arise
in the ordinary course of its business. In the opinion of management,
the amount of ultimate liability, if any, in excess of applicable
insurance coverage, is not likely to have a material effect on the
financial position of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Filed report on Form 8-K on July 25, 1996.
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-DURABLE HOLDINGS, INC.
(Registrant)
November 13, 1996 By: /s/
Harry D. Schulman
Senior Vice President and Executive
Vice President - Finance and
Administration and Chief Financial
Officer
(Duly authorized to sign on
behalf of the Registrant)
November 13, 1996 By: /s/
Burton A. Honig
Vice President - Finance
(Duly authorized to sign on
behalf of the Registrant)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,592,000
<SECURITIES> 0
<RECEIVABLES> 53,183,000
<ALLOWANCES> 1,193,000
<INVENTORY> 83,424,000
<CURRENT-ASSETS> 148,798,000
<PP&E> 78,514,000
<DEPRECIATION> 45,118,000
<TOTAL-ASSETS> 227,561,000
<CURRENT-LIABILITIES> 39,014,000
<BONDS> 0
0
0
<COMMON> 1,733,000
<OTHER-SE> 34,348,000
<TOTAL-LIABILITY-AND-EQUITY> 227,561,000
<SALES> 136,124,000
<TOTAL-REVENUES> 136,124,000
<CGS> 108,757,000
<TOTAL-COSTS> 108,757,000
<OTHER-EXPENSES> 27,061,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 942,000
<INCOME-PRETAX> 1,494,000
<INCOME-TAX> (60,000)
<INCOME-CONTINUING> 1,554,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,554,000
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
