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 JUNE 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 July 30, 1996
Common Stock, $.10 Par Value 17,217,729
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Statements of Earnings for the
Three Months Ended June 30, 1996 and
1995
Consolidated Statements of Earnings for
Six Months Ended June 30, 1996 and 1995
Consolidated Balance Sheets as of
June 30, 1996, December 31, 1995
and June 30, 1995
Consolidated Statements of Cash Flows
for the Six Months Ended June 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 4. Results of Votes of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In Thousands Except Per Share Information)
<TABLE>
Three Months Ended June 30,
1996 1995
<S> <C> <C> <C> <C>
Sales $ 39,503 100.0% $ 42,102 100.0%
Cost of Goods Sold 31,154 78.9 33,028 78.4
Gross Profit 8,349 21.1 9,074 21.6
Selling, General and
Administrative Expenses 8,717 22.1 8,953 21.3
Operating Profit (Loss) (368) (1.0) 121 .3
Other (Income) Expense
Interest Expense 196 .4 186 .5
Interest and Other Income (615) (1.5) (960) (2.3)
(419) (1.1) (774) (1.8)
Earnings Before Equity in Net
Earnings (Loss) of Joint Ventures
and Income Taxes 51 .1 895 2.1
Equity in Net Earnings (Loss)
of Joint Ventures (526) (1.3) 146 .3
Earnings (Loss) Before Income
Taxes (475) (1.2) 1,041 2.4
Income Taxes
Current (95) (.2) 177 .4
Deferred 62 .1 (72) (.2)
(33) (.1) 105 .2
Net Earnings (Loss) $ (442) (1.1%) $ 936 2.2%
Earnings (Loss) Per Common
and Common Equivalent Shares $(.03) $.05
Average Number of Common
and Common Equivalent
Shares Outstanding 16,405 17,426
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>
Six Months Ended June 30,
1996 1995
<S> <C> <C> <C> <C>
Sales $ 79,943 100.0% $ 80,032 100.0%
Cost of Goods Sold 62,991 78.8 61,823 77.2
Gross Profit 16,952 21.2 18,209 22.8
Selling, General and
Administrative Expense 16,766 21.0 17,974 22.5
Operating Profit 186 .2 235 .3
Other (Income) Expense
Interest Expense 329 .4 316 .4
Interest and Other Income (1,090) (1.4) (1,554) (1.9)
(761) (1.0) (1,238) (1.5)
Earnings Before Equity in Net
Earnings of Joint
Ventures and Income Taxes 947 1.2 1,473 1.8
Equity in Net Earnings (Loss)
of Joint Ventures (751) .9 131 .2
Earnings Before Income Taxes 196 .3 1,604 2.0
Income Taxes
Current (193) (.2) 860 1.0
Deferred 535 .7 (497) ( .6)
342 .5 363 .4
Net Earnings (Loss) $ (146) (.2%) $1,241 1.6%
Earnings (Loss) Per Common
and Common Equivalent Shares $ (.01) $.07
Average Number of Common
and Common Equivalent
Shares Outstanding 17,014 17,430
Dividends Per Common Share $.10 $.10
</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 6/30/96 12/31/95 6/30/95
<S>
CURRENT ASSETS
<C> <C> <C>
Cash & Cash Equivalents $ 5,499 $ 17,768 $ 6,904
Accounts Receivable,
less allowances of $1,148,
$1,158 and $1,385, respectively 34,991 36,597 31,288
Receivables from Affiliates
(Notes 2 and 4) 10,114 9,983 10,288
Inventories
Raw Materials 16,290 16,328 24,986
Work-in-process 21,073 21,085 16,434
Finished Goods 46,128 41,600 46,059
Total Inventories 83,491 79,013 87,479
Prepaid Expenses 4,718 2,184 7,743
Future Income Tax Benefits 1,210 1,643 2,144
Total Current Assets 140,023 147,188 145,846
INVESTMENTS IN AFFILIATES
(Notes 2 and 4) 10,631
PROPERTY, PLANT & EQUIPMENT -
AT COST, less accumulated
depreciation of $43,436,
$40,427 and $37,686, respectively 31,109 30,485 29,488
OTHER ASSETS 12,716 10,339 17,364
TOTAL ASSETS $ 194,479 $ 188,012 $ 192,698
</TABLE>
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands)
Continued
<TABLE>
LIABILITIES 6/30/96 12/31/95 6/30/95
<S>
CURRENT LIABILITIES
<C> <C> <C>
Notes and Acceptances Payable $ 7,558 $ 42 $ 2,207
Current Maturities of Long-Term
Debt 815 815 815
Accounts Payable and
Accrued Expenses 15,265 18,108 14,815
Deferred Income, current portion 598 598 598
Total Current Liabilities 24,236 19,563 18,434
LONG-TERM DEBT (Note 4) 9,444 2,852 3,259
DEFERRED INCOME, less current
portion 368 667 966
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: 16,422, 16,713 and
16,756, respectively 1,642 1,671 1,676
Paid-in Capital 27,549 30,173 30,511
Retained Earnings 132,066 133,851 138,655
Unrealized Foreign Currency
Translation Adjustment (826) (765) (803)
Total Stockholders' Equity 160,431 164,930 170,039
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $194,479 $188,012 $192,698
</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>
Six Months Ended June 30,
1996 1995
<S>
Cash flows from operating activities:
<C> <C>
Net earnings (loss) $ (146) $ 1,241
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities:
Depreciation of property, plant and
equipment 3,240 2,854
Amortization of intangible assets 315 288
Amortization of deferred income (299) (299)
Net change in allowance for losses
on accounts receivable (10) 47
Equity in net (earnings) loss of joint ventures 751 (131)
Changes in assets and liabilities:
Decrease in accounts receivable 1,570 7,398
Increase in inventories (3,748) (13,201)
(Increase) decrease in prepaid expenses (1,715) 278
(Increase) decrease in other assets (820) 174
Decrease in accounts payable
and accrued expenses (2,843) (2,287)
Decrease in future income tax benefits 433 2,573
Decrease in other accounts (54) (17)
Net cash used in
operating activities (3,326) (4,761)
Cash flows from investing activities:
Proceeds from fixed asset sales 182
Additions to property, plant and
equipment - net (3,865) (4,075)
Decrease in short-term investments 2,500
Purchase of assets - Litter Maid (2,200)
Purchase of assets - Bay Books & Tapes (1,180)
Investments in joint ventures (3,698)
Decrease (increase) in accounts and notes
receivables from affiliates (815) 2,287
Net cash provided by (used in)
investing activities $ (11,758) $ 894
</TABLE>
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
Continued
<TABLE>
Six Months Ended June 30,
1996 1995
<S>
Cash flows from financing activities:
<C> <C>
Net borrowings under lines of credit $ 7,516 $
Payments of long-term debt (408) (408)
Exercise of stock options
and warrants 1,115 265
Cash dividends paid (1,640) (1,675)
Purchases of common stock (3,768) (400)
Net cash provided by (used in)
financing activities 2,815 (2,218)
Decrease in cash
and cash equivalents (12,269) (6,085)
Cash and cash equivalents at
beginning of year 17,768 12,988
Cash and cash equivalents at end
of quarter $ 5,499 $ 6,904
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 199 $ 238
Income taxes $ 250 $ 2,071
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
The Company purchased a 50-percent interest in the New M-Tech group of
companies in exchange for $3 million in cash and $7 million in long term
promissory notes.
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 June 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 the New M-Tech group
of companies, 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:
<TABLE>
Six Six
Months Ended Year Ended Months Ended
6/30/96 12/31/95 6/30/95
Earnings
<S> <C> <C> <C>
Sales $23,295 $30,172 $12,093
Gross Profit $ 1,462 $ 2,346 $ 1,082
Net Earnings (Loss) $(1,502) $ 785 $ (29)
Balance Sheet
Current Assets $13,657
Noncurrent Assets $ 5,830
Current Liabilities $12,409
Shareholders' Equity $ 7,078
</TABLE>
Certain joint venture investments had deficits of $1.6 million,
$.8 million and $.2 million, at June 30, 1996, December 31, 1995
and June 30, 1995, respectively. Such deficits have been
classified as reductions in Receivables from Affiliates.
During the six month period ended June 30, 1996, the Company
loaned $4.1 million which includes $3.2 million to Salton, and
provided standby letters of credit in the amount of $1.1 million
for certain of its affiliates. Loans are included in
Receivables from 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 June 3, 1996, which was paid
on June 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. As of June 30, 1996, the
Company loaned $350,000 to PX. Such loan bears interest at the
prime rate and is payable upon PX achieving sufficient cash
flow. The Company has also provided $1.1 million in financing
for PX in the form of stand by letters of credit.
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.
In April 1996, the Company made a $3,254,286 loan to Salton
bearing interest at 8-percent to be repaid upon closing of the
stock purchase transaction.
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
$3,254,256, evidenced by the cancellation of the April 1996
note, a $10,847,620 promissory note and 748,112 shares of
Windmere stock (market value at date of agreement of
approximately $7.5 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 $10,847,620 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.
Litter Maid
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 and affiliates ("New M-Tech")
In April 1996, the Company acquired a 50-percent interest in New
M-Tech, a group of consumer electronics companies 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.
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 June 30, 1996 consists of $86,000 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
million. Payments as of June 30, 1996 include a $500,000
capital contribution to the partnership and a $500,000 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended June 30, 1996 Compared to
Three Months Ended June 30, 1995
Net sales for the second quarter of 1996 decreased by $2.6 million or 6.2%
from the sales for the second quarter of 1995. Manufacturing sales
decreased by $1.4 million as the net result of a $3.0 million decrease in
seasonal product sales and a $1.6 million increase in sales of kitchen
electric appliances. The decrease in distribution sales of $1.2 million
is attributable to the continuing effect of the weak retail environment.
COMPARATIVE SALES RESULTS
Three Months Ended
<TABLE>
June 30, 1996 June 30, 1995
<S> <C> <C> <C> <C>
DISTRIBUTION $ 30,879,900 78.2% $32,044,400 76.2%
MANUFACTURING 8,623,000 21.8 10,007,700 23.8
Total Sales $ 39,502,900 100.0% $42,102,100 100.0%
</TABLE>
The decrease in selling, general and administrative expenses primarily
reflects the continuing reduction in advertising costs.
The Company's equity in the net earnings (losses) of joint ventures was
$(526,000) and $146,000 in the second quarter of 1996 and 1995,
respectively. Lower gross margins in 1996, due to higher raw materials
costs, contributed to the decline in a joint venture's earnings. Losses
of $129,000 were incurred by other joint ventures in their start-up phases,
also contributing to the 1996 results.
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. Foreign earnings,
other than in Canada, are generally taxed at rates lower than in the United
States.
Results of Operations
Six Months Ended June 30, 1996 Compared to
Six Months Ended June 30, 1995
Net sales of $79.9 million are consistent with sales recorded for the same
period last year. The $.5 million increase in manufacturing sales is the
result of a $1.6 million decrease in seasonal product sales and a $2.1
million increase in kitchen electric appliances.
COMPARATIVE SALES RESULTS
<TABLE>
Six Months Ended
June 30, 1996 June 30, 1995
<S> <C> <C> <C> <C>
DISTRIBUTION $ 62,971,800 78.8% $ 63,542,800 79.4%
MANUFACTURING 16,971,500 21.2 16,489,400 20.6
Total Sales $ 79,943,300 100.0% $ 80,032,200 100.0%
</TABLE>
The gross profit percentage for the six months ended June 30, 1996 was
21.2% as compared to 22.8% for the same period of 1995 due to higher
manufacturing costs, primarily raw materials, for a greater portion of the
1996 period.
Selling, general and administrative expenses decreased by $1.2 million in
the first six months ended June 30, 1996, and by 1.5% as a percentage of
sales. These changes primarily reflect a continuing reduction in
advertising costs.
The Company's equity in the net earnings (losses) of joint ventures was
$(751,000) and $131,000 in the first six months of 1996 and 1995,
respectively. Lower gross margins in 1996, due to higher raw materials
costs, contributed to the decline in a joint venture's earnings. Losses
of $219,000 incurred by other joint ventures in their start-up phases, also
contributed to the 1996 results.
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. Foreign earnings other
than in Canada, are generally taxed at rates lower than in the United
States.
Liquidity & Capital Resources
At June 30, 1996, the Company's current ratio and quick ratio were 5.8 to
1 and 2.3 to 1 as compared to 7.9 to 1 and 3.2 to 1 at June 30, 1995.
Working capital at those dates was $115.8 million and $127.4 million,
respectively. Cash balances decreased by $12.3 million during the six
months ended June 30, 1996.
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 June 30, 1996, the subsidiaries were utilizing, including
letters of credit, approximately $1.5 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 June 30,
1996, the Company has borrowed $4.8 million under this facility.
The Company has a $20.0 million line of credit from a domestic bank,
secured by domestic accounts receivable, which is currently being renewed.
At June 30, 1996, outstanding borrowings under this line totalled $2
million. In July 1996, the Company borrowed an additional $4.5 million
under the credit line.
The Company has entered into the following 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.
In April 1996, the Company made a $3,254,286 loan to Salton bearing
interest at 8-percent to be repaid upon closing of the stock purchase
transaction
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 $3,254,256, evidenced by the cancellation
of the April 1996 note, a $10,847,620 promissory note and 748,112 shares
of Windmere stock (market value at date of agreement of approximately $7.5
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 $10,847,620 promissory note bears interest at a rate of 8-percent per
annum, payable quarterly, and is due July 2001. The note is subordinated
to the Company's current and future indebtedness with its senior lender.
Litter Maid
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 and affiliates ("New M-Tech")
In April 1996, the Company acquired a 50-percent interest in New M-Tech,
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.
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 June 30, 1996 consists of $86,000
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 million. Payments as of June
30, 1996 include a $500,000 capital contribution to the partnership and a
$500,000 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.
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.
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 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. 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 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. 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 4. Results of Votes of Security Holders
At the Annual Meeting of Stockholders, held on June 13, 1996, the
following matters were submitted to a vote of the Company's security
holders:
Election of Directors:
Votes
David M. Friedson
For Against Withheld Abstain
14,739,033 661,924
Jerald I. Rosen
For Against Withheld Abstain
14,742,258 658,699
Bert Sager
For Against Withheld Abstain
14,736,425 664,532
Desmond Lai
For Against Withheld Abstain
14,741,002 659,955
Approval of corporate name change to Windmere-Durable Holdings, Inc.:
Votes
For Against Withheld Abstain
15,259,852 118,085 33,020
Shareholder proposal requesting that the Board of Directors appoint
an independent committee to engage the services of a nationally
recognized investment banking firm to explore methods by which the
Company may enhance shareholder value:
Votes
For Against Withheld Abstain
1,382,897 10,788,272 113,127 3,126,661
Ratification of Grant Thornton as the Company's auditors for the
fiscal year ended December 31, 1996:
Votes
For Against Withheld Abstain
15,365,322 26,652 18,983
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)
August 14 , 1996 By: /s/Harry D. Schulman
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)
August 14 , 1996 By: /s/Burton A. Honig
Burton A. Honig
Vice President - Finance
(Duly authorized to sign on
behalf of the Registrant)
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