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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
incorporation or organization) Number)
5980 Miami Lakes Drive, Miami Lakes, Florida 33014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 362-2611
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock $.10 Par Value New York Stock Exchange
Special Preferred Stock Rights New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements
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for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 24, 1997, the aggregate market value of the voting stock
(based on the closing price as reported by NYSE of $14.375) held by
non-affiliates of the Registrant was approximately $213,387,800.
APPLICABLE ONLY TO CORPORATE REGISTRANTS: Indicate the number of shares
outstanding of each of the Registrant's classes of common stock, as of the
latest practicable date.
17,475,038 Shares of Common Stock
(as of the close of business on March 24, 1997)
DOCUMENTS INCORPORATED BY REFERENCE
1. Windmere-Durable Holdings, Inc. 1996 Annual Report to
Shareholders (for the fiscal year ended December 31, 1996).
Information contained in this document has been incorporated
by reference in PARTS I and II.
2. Windmere-Durable Holdings, Inc. Proxy Statement for its 1997
Annual Meeting of Shareholders (dated April 18, 1997).
Information contained in this document has been incorporated
by reference in PART III.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Windmere-Durable Holdings, Inc. (the "Company") is engaged principally in
manufacturing and distributing a wide variety of personal care, kitchen electric
and seasonal products. The Company designs and manufactures its products for
sale to retail stores, distributors and professional beauty supply customers
located primarily in the United States, Canada and Europe, with additional
distribution in Latin America and the Far East. The Company's products are sold
largely under its Windmere trade name, as well as under other trade names,
trademarks and private labels. The Company also manufactures products on a
contract basis for others.
The Company's products are primarily manufactured by Durable Electrical Metal
Factory, Ltd. ("Durable"), its wholly-owned Hong Kong subsidiary, in Bao An
County, Guandong Province of the People's Republic of China ("People's
Republic"), which is approximately 60 miles northwest of central Hong Kong, and
other unrelated factories in the People's Republic. Approximately 85% to 90% of
the Company's products are manufactured by Durable.
NEW DEVELOPMENTS
During the year ended December 31, 1996, the Company made several acquisitions:
In March 1996, the Company acquired certain assets and marketing rights,
including patents and the trademark, to the LitterMaid computerized, infrared,
automatic self-cleaning cat litter box.
In April 1996, the Company purchased a 50-percent interest in New M-Tech
Corporation,( "New M-Tech") a manufacturer and distributor of consumer
electronic products. New M-Tech distributes consumer electronic products under
the Admiral, NewTech and White Westinghouse brand names.
In July 1996, the Company acquired a 50-percent interest in Salton/Maxim
Housewares, Inc. ("Salton"). Salton designs and markets a broad range of small
kitchen appliances and personal care appliances under the Salton, Maxim,
Breadman, Juiceman, Salton Creations, Block China,
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Farberware, Salton Time and White Westinghouse brand names. Salton sells its
products primarily to department store chains, gourmet and lifestyle merchants,
specialty stores and direct mail catalogs.
In December 1996, the Company acquired the remaining 50-percent of its seasonal
products joint venture.
The Company was incorporated under the laws of the State of Florida in 1963. As
used herein, the term "Company" refers to Windmere-Durable Holdings, Inc. (Prior
to June 21, 1996, Windmere Corporation) and its subsidiaries, unless the context
indicates otherwise. The Company's executive offices are located at 5980 Miami
Lakes Drive, Miami Lakes, Florida 33014, (see Item 2. Properties), and its
telephone number is (305) 362-2611.
PRODUCTS
The major portion of the Company's revenues are generated by the sale of
personal care products and appliances. The Company's personal care products
include hair dryers, curling irons, curling brushes, hairsetters, combs and
brushes, shears, mirrors and electric shavers. Appliances include toasters,
toaster ovens, can openers, blenders, hand mixers, waffle irons, steam irons,
electronic air cleaners, fans and air fresheners.
In 1996, 1995 and 1994, net sales of personal care products and appliances
represented approximately 59% and 41%, 63% and 37%, and 70% and 30%,
respectively, of the Company's total net sales. The increase in the percentage
of appliance sales reflects the Company's growth in both the manufacture and
distribution of kitchen electrics. Kitchen electric products comprised 31%, 25%
and 7% of total sales in 1996, 1995 and 1994, respectively.
MARKETING AND DISTRIBUTION
The Company's products are sold principally by independent sales
representatives. The Company utilizes media advertising, cooperative advertising
and collateral materials to promote its products.
The Company's distribution business includes the sale of consumer products and
professional salon products primarily in the United States, Canada and Europe.
Consumer products are primarily sold under the Windmere brand and professional
salon products are sold under the Belson
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Products and Comare brands. In addition, private label and controlled label
sales are made by the Company.
A kitchen electric appliance distributor and a national retail beauty supply
chain accounted for 10.9% and 10.3%, respectively, of 1996 sales.
The Company's products are sold under various federal trademarks and
registrations, some of which include: Windmere, Jumbo Curl, Belson Pro,
Curlmaster, Design Pro, First Class Gourmet, Solid Gold, Windmere Salon, Air
Moves, ESP, Electric Shock Protection, VIP Pro, Setting Pretty, Skinni Mini,
Clothes Shaver, Easy Styler, Four Way Curls, Set Up, All Curl Trio, Mirror Go
Lightly, Jerdon, First Class, Plak Trac, Litter Maid, Smoke Catcher, Prelude,
High Fashion, Belson, Pro Touch, Pro Star, Hot Silver, Golden Touch, Profiles,
Comare, Salon Designs, Premiere, Espree, Gold'n Hot, Color Magic, Colossal Curl,
Jumbo Air, Express Air, Euro Sport, Magnum, Superaire, Healthy Vibes, Health
Zone and Gentle Air. The Company believes that its business has not been
materially dependent on any one such trademark.
In the United States, the Company wholesales its line of consumer products
nationwide to retailers, including department stores, drug chains, catalog
stores and discount and variety stores. The Company also markets its consumer
and professional salon appliances, hair pieces and a wide variety of brushes and
other hair care accessories to beauticians, barbers and stylists through
distributors. In addition, certain items, including the Company's hair dryers,
curling irons and other personal care appliances, are sold through professional
beauty and barber retail store outlets.
In 1996, the Company acquired the exclusive world-wide rights to use the
Farberware brand name on a broad range of small electric products. The Company
has entered into an agreement with Salton, whereby, Salton is to be the
exclusive distributor of such products.
In January 1997, the Company through its 50-percent interests in Salton and New
M-Tech entered into supply contracts with the Kmart Corporation for Kmart to
purchase, distribute, market and sell certain products under the
White-Westinghouse brand name licensed to Salton and New M-Tech. Under the
terms of the contract, Salton and New M-Tech will supply Kmart, either through
the Company or through other manufacturers, with a broad range of small
electrical appliances, consumer electronics and telephone products under the
White-Westinghouse brand name. Kmart will be the exclusive discount department
store to market these White-Westinghouse products.
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MANUFACTURING:
The Company's manufacturing business is conducted by Durable. Durable, through
its twenty-five year relationship with the Company, has produced an extensive
product line, which includes not only the appliances sold to the Company and its
customers and oscillating fans for a joint venture which was acquired by the
Company in December 1996, but it has also become a contract manufacturer for a
range of products, such as toasters, steam irons, toaster ovens, can openers,
blenders, hand mixers and waffle irons, which it sells primarily to customers in
the United States, Canada and Europe. Some of its customers are Rival, Salton
and Sunbeam.
Durable has begun to manufacture a number of the White-Westinghouse products to
be supplied by Salton to Kmart under the recently signed supplier contract. It
is also involved in the construction of a factory to begin to supply some of the
consumer electronic products to be sold by New M-Tech.
The LitterMaid product is currently being manufactured by both Durable and a
third party contract manufacturer. Production of the product by Durable is
expected to increase in 1997.
SUPPLIES
The Company's foreign sales and operations are subject to the usual risks
incident to operating abroad, including currency fluctuations, political
conditions and changes in foreign laws. A weakening or strengthening of the
United States dollar may result in higher or lower cost of goods for the Company
from suppliers in countries whose exchange rate does not parallel the United
States dollar, unlike Hong Kong the currency of which to date has fluctuated
substantially parallel to the United States dollar.
The Company generates approximately 85% to 90% of its revenues from products
manufactured by Durable in the People's Republic. Such products utilize raw
materials available from at least two and as many as nine or more independent
suppliers. The Company has no material dependence on any single foreign source
for such materials.
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FOREIGN CONDITIONS
The supply and cost of the products manufactured by Durable 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.
The Company has a significant amount of its assets in the People's Republic,
primarily consisting of inventory, equipment and molds. 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. Although
such disturbances have dissipated since that time, there continues to be
pressure for political reform. No assurance can be given, however, that civil
disturbances will not recur. If it becomes necessary to relocate the Company's
manufacturing facilities from the People's Republic as a result of civil
disturbances in that country or otherwise, the Company believes the production
currently conducted in the People's Republic could be relocated to other Far
East locations, including Hong Kong, or other low-cost manufacturing locations,
with only temporary disruption and delay in such production and possible
short-term operating and capital losses, provided that the Company is able to
move substantially all of its manufacturing equipment and other assets currently
in the People's Republic to another location. If the Company is unable to remove
such assets, due to confiscation, expropriation, nationalization, embargoes or
governmental restrictions, it would incur substantial operating and capital
losses, including losses resulting from business disruption and delays in
production. In addition, as a result of a relocation of its manufacturing
equipment and certain other assets, the Company would likely incur relatively
higher manufacturing costs. A relocation could also adversely affect the
Company's revenues if the demand for the Company's products currently
manufactured in the People's Republic decreases due to a disruption in the
production and delivery of such products or due to higher prices which might
result from increased manufacturing costs. Furthermore, earnings could be
adversely affected due to reduced sales and/or the Company's inability to
maintain its current margins on the products currently manufactured in the
People's Republic.
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Hong Kong is undergoing a transfer to the control of the People's Republic and
in July 1997, the initial transfer of governmental rights is scheduled to occur.
Durable is incorporated in Hong Kong and its executive, sales offices and its
senior executives are located or reside there. The Company also conducts
significant trading activities through subsidiaries incorporated in Hong Kong.
Although the Company believes that its operations will not be materially
affected by the governmental changes occurring in Hong Kong, no assurance can be
given that such changes will be benign.
In 1996, President Clinton extended the People's Republic's most-favored-nation
(MFN) trading status for an additional year. The President announced in 1994
that the United States would, in the future, permanently de-link MFN renewal
from human rights issues, other than freedom of emigration provisions. Under
U.S. law, MFN status means that products are subject to the relatively low duty
rates set forth in Column 1 of the Harmonized Tariff Schedules of the United
States (HTSUS), that have resulted from several rounds of reciprocal tariff
negotiations conducted under the auspices of the General Agreement on Tariffs
and Trade (GATT) since 1945. Products from countries not eligible for MFN
treatment are subject to much higher rates of duty, averaging 30 percent ad
valorem, as set forth in Column 2 of the HTSUS. If MFN status for goods produced
in the People's Republic were removed, there would be a substantial increase in
tariffs imposed on goods of Chinese origin entering the United States, including
those manufactured by the Company, which could have a material adverse impact on
the Company's revenues and earnings.
SEASONALITY
The Company's business is generally seasonal. The Company has historically
experienced higher revenues in the third and fourth quarters of each fiscal year
primarily due to increased demand by customers for the Company's products in the
late summer for "back to school" sales and in the fall for Christmas sales. In
typical years, the Company begins to accumulate inventory for its major selling
season in June and July and it continues to purchase products at accelerated
rates until November. The Company's major sales occur during August through
November. Sales are generally made on 60 to 90 day terms. Heaviest collections
on its open accounts receivable are received from November through March, at
which time the Company is in its most liquid state. The seasonal patterns of
Salton and New M-Tech are similar to those of the Company.
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BACKLOG
The Company's backlog of orders as of December 31, 1996, 1995 and 1994 was
approximately $32.1 million, $22.2 million and $20.1 million, respectively,
which orders are generally shipped within the next succeeding year.
COMPETITION
The Company encounters significant competition with respect to substantially all
of its products. Although the Company's prices for products distributed under
its labels are in general below or competitive with those of many nationally
advertised brands, the Company also competes through quality of product,
attractive packaging, breadth of product lines, speed of delivery and
maintenance of good customer relations. Many of the Company's major competitors
are substantially larger, have greater financial and other resources and spend
more for national advertising. Some of the Company's competitors include Conair,
Helen of Troy and Remington.
REGULATION
In the United States, Canada and Europe, most federal, state, provincial and
local authorities require Underwriters Laboratory, Inc. ("UL") or other safety
regulation certification prior to marketing electrical appliances in those
jurisdictions. All of the non-professional salon appliances marketed by the
Company have such certifications. The Company endeavors to have most of its
products designed to meet those requirements and to be so certified, although
there can be no assurance that those products, or additional electrical
appliances which may be developed by the Company, will meet such specifications.
Certain of the products sold by the Company in the United States are subject to
the cosmetic purity and labelling provisions of the Fair Packaging and Labelling
Act. The Company believes that in addition to complying with the Fair Packaging
and Labelling Act, it complies with the applicable rules and regulations of the
Federal Trade Commission and other federal and state agencies with respect to,
among other things, the content of advertising and other trade practices.
PATENTS
Although the Company does not believe that its business is materially dependent
upon patents and patent protection, from time to time, new
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products have been introduced with unique features for which the Company has
filed or obtained licenses for patents and design registrations in the United
States and in several foreign countries.
EMPLOYEES
At March 14, 1997, the Company's distribution business in the United States,
Canada, Europe and Hong Kong employed approximately 250 persons. Durable's
operations in Hong Kong and the People's Republic of China employed
approximately 12,300 persons. The Company enjoys satisfactory working relations
with these employees. The Company is not a party to any collective bargaining
agreement.
GEOGRAPHIC AREA FINANCIAL INFORMATION
Incorporated by reference to the Company's 1996 Annual Report to Shareholders,
under the caption, "Note N to Consolidated Financial Statements, Geographic Area
Information". Included as part of Exhibit 13.
ITEM 2. PROPERTIES
The executive offices of the Company, from which a significant amount of its
business activities are conducted, are currently located at 5980 Miami Lakes
Drive, Miami Lakes, Florida. All of the space in this approximately 140,000 sq.
ft., two-story office and warehouse facility is owned and occupied by the
Company. The Company also utilizes the services of public warehouses located in
Reno, Nevada and Memphis, Tennessee pursuant to short-term contracts.
Durable owns approximately 40,000 sq. ft. of office space in Hong Kong,
of which 24,000 sq. ft. is used for its and the Company's trading
companies' headquarters. Durable also utilizes facilities of 2,000,000
sq. ft. in the People's Republic which it operates under contracts with
the local government. The contracts require such periodic adjustments
that terms of between one and five years exist at all times. Certain
facilities have contract terms extending beyond five years.
ITEM 3. LEGAL PROCEEDINGS
In 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.
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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. A pre-answer
motion by the Company resulted in the dismissal of some of Izumi's claims,
and the Company answered the remaining claims. A mediation was held on
February 27, 1997 to consider settlement of the case. In March 1997, after
evaluating the potential costs of continuing litigation, the Company paid
$4,500,000 to settle the dispute.
The Company, its 50-percent owned joint venture partners Salton/Maxim
Housewares, Inc. and New M-Tech Corporation, White Consolidated Industries, Inc.
("White Consolidated"), and certain other parties have been named as defendants
in litigation filed by Westinghouse Electric Corporation ("Westinghouse") in the
United States District Court for the Western District in Pennsylvania on
December 18, 1996. The action arises from a dispute between Westinghouse and
White Consolidated over rights to use the "Westinghouse" trademark for consumer
products based on transactions between Westinghouse and White Consolidated in
the 1970's and the parties' subsequent conduct. Prior to the filing of
Westinghouse's Complaint against the Company, White Consolidated, on November
14, 1996, filed a Complaint in the United States District Court for the Northern
District of Ohio against Westinghouse and another corporation for trademark
infringement, dilution, false designation or origin and false advertisement,
seeking both injunctive relief and damages. Procedural motions concerning the
jurisdiction in which the dispute should be heard have
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been filed by the parties. The action by Westinghouse seeks, among other things,
a preliminary injunction enjoining the defendants from using the trademark,
un-specified damages and attorneys' fees. Pursuant to the Indemnification
Agreement dated January 23, 1997 by and among White Consolidated, Kmart
Corporation, and the Company, White Consolidated is defending and indemnifying
the Company for all costs and expenses for claims, damages, and losses,
including the costs of litigation. Pursuant to the license agreements with
White Consolidated, White Consolidated is defending and indemnifying
Salton/Maxim and New M-Tech for all costs and expenses for claims, damages,
and losses, including the costs of litigation. On January 29, 1997, on joint
motion of the parties, the court issued an order staying future proceedings
for sixty (60) days in order to give the parties an opportunity to pursue
settlement discussions.
The Company is also subject to other legal proceedings, product liability and
other 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. However, as the outcome of litigation or other legal
claims is difficult to predict, significant changes in the estimated exposures
could occur.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Incorporated by reference to the Company's 1996 Annual Report to Shareholders
under the caption "Quarterly Stock Quotations and Dividends per Share." (Exhibit
13)
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ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $ 197,004 $ 187,777 $ 181,112
Equity in net earnings (loss)
of joint ventures $ 2,299 $ (393) $ 91
Earnings (loss) before taxes,
minority interest
and extraordinary item $ (3,672) $ (3,165) $ 23,131
Provision for taxes
(benefits) $ (280) $ (1,281) $ 2,595
Effective tax rate (7.6)% (40.5)% 11.2%
Net earnings (loss) $ 451* $ (1,884)** $ 20,537***
Working capital $ 105,565 $ 127,626 $ 129,281
Current ratio 3.1 to 1 7.5 to 1 7.0 to 1
Property, plant and
equipment, net $ 32,760 $ 30,485 $ 28,449
Total assets $ 237,279 $ 188,012 $ 197,124
Long-term debt, deferred
liabilities and minority
interest $ 20,132 $ 3,519 $ 4,932
Stockholders' equity $ 167,695 $ 164,931 $ 170,625
Per share data:
Net earnings (loss) $ .02* $ (.11)** $ 1.17***
Cash dividends paid $ .20 $ .20 $ .15
Book value at year end $ 9.61 $ 9.87 $ 10.20
Return on average equity 2.4% -- 12.9%
</TABLE>
*Includes extraordinary charge for the settlement of Izumi litigation
of $3,500,000 or $.20 per share.
**Includes a non-recurring loss on the sale of an other asset of
$5,280,000, or $.31 per share.
***Includes a non-recurring gain on the sale of Hong Kong office space of
$7,810,500, or $.45 per share.
****Includes cumulative effect of accounting change benefit of
$1,731,100, or $.11 per share.
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*****Includes extraordinary credit from litigation settlement of
$29,648,800, or $1.82 per share.
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Net sales $ 170,661 $ 175,450
Equity in net earnings (loss)
of joint ventures $ (504) $ (848)
Earnings (loss) before taxes
and minority interest $ 12,305 $ 6,531
Provision for taxes
(benefits) $ 1,365 $ 805
Effective tax rate 11.0% 10.9%
Net earnings (loss) $ 11,469**** $ 34,335*****
Working capital $ 117,961 $ 104,139
Current ratio 5.8 to 1 4.8 to 1
Property, plant and
equipment, net $ 25,022 $ 24,546
Total assets $ 180,479 $ 172,974
Long-term debt, deferred
liabilities and minority
interest $ 9,492 $ 12,291
Stockholders' equity $ 146,587 $ 132,922
Per share data:
Net earnings (loss) $ .71**** $ 2.09*****
Cash dividends paid $ -- $ --
Book value at year end $ 9.29 $ 8.65
Return on average equity 8.2% 29.4%
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Year Ended December 31, 1996 compared with Year Ended December 31, 1995
Net Sales
Net sales were $197.0 million and $187.8 million for the years ended December
31, 1996 and 1995, respectively. Manufacturing sales increased by $10.4 million
due primarily to increased shipments of kitchen electric appliances. A kitchen
electric appliance distributor and a national retail beauty supply chain
accounted for 10.9% and 10.3%, respectively, of the Company's 1996 sales.
Set forth below is a table indicating the revenues that the Company derived from
its distribution and manufacturing operations for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
---- ----
<S> <C> <C> <C> <C>
Distribution $146,431,800 74% $147,576,000 79%
Manufacturing 50,571,800 26 40,200,900 21
------------ ------ ------------ ------
Total Sales $197,003,600 100% $187,776,900 100%
============ ====== ============ ======
</TABLE>
Gross Profit Margin
The Company's gross margin percentage decreased in 1996 to 20.2% of sales from
the 21.8% level in the prior year. The decrease is primarily attributed to the
continued effect of remaining higher cost raw material inventories and a greater
concentration of manufacturing sales. Lower margin kitchen electric products
which comprised 82% of manufacturing sales in both 1996 and 1995, accounted for
31% and 25% of the Company's total sales in those years, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales
were 20.0% in both 1996 and 1995. Commencement of operations at the
Company's newly acquired LitterMaid, Inc. and Bay Books & Tapes, Inc.
businesses resulted in a $1.6 million increase in expenses. Travel,
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legal and selling expenses increased by $1.2 million and advertising costs
decreased by $1.0 million.
Unusual or Non-Recurring Items
In 1995, the Company incurred a non-recurring pre-tax loss of $8.0 million on
the sale of an other asset. This transaction reduced 1995 net earnings by $5.3
million, or $.31 per share, on an after-tax basis.
Equity in Net Earnings (Loss) of Joint Ventures
The Company's equity in net earnings (loss) of joint ventures was $2.3 million
and $(.4) million in 1996 and 1995, respectively. The increase in 1996 primarily
reflects the results of operations of the Company's newly acquired interests in
Salton/Maxim Housewares, Inc. ("Salton") and New M-Tech Corporation ("New
M-Tech"). The Company's equity in the net earnings of Salton and New M-Tech
totaled $3.2 million for 1996 which was partially offset by losses of $.9
million at certain of the Company's other joint ventures.
Interest Expense
Interest expense increased by $.8 million to $1.4 million in 1996. The increase
is the result of the amounts paid on notes payable issued in conjunction with
the Salton and New M-Tech acquisitions as well as the increased level of
borrowing under the Company's line of credit facility.
Taxes
The Company's tax expense is based on the earnings of each of its foreign and
domestic operations and it includes such additional U.S. taxes as are applicable
to the repatriation of foreign earnings. Foreign earnings, other than in Canada,
are generally 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.
Extraordinary Item
On March 27, 1997, the Company paid $4,500,000 to settle the lawsuit filed in
April 1994 by Izumi. An accrual of $5,300,000, including $800,000 in estimated
legal expenses has been recorded as of December
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31, 1996. The transaction resulted in an after tax charge of $3,500,000 or $.20
per share and has been recorded as an extraordinary item.
Earnings Per Share
The average number of common shares and common equivalent shares used in
computing per share results was 17,620,000, in 1996 as compared to 17,227,000 in
1995. The decrease was primarily due to the non-inclusion of the dilutive effect
of stock options and warrants in those 1996 quarters in which the Company
sustained losses, offset by the additional shares issued upon the acquisition of
Salton/Maxim and upon the exercise of stock options and warrants.
Supplier Contract
In January 1997, the Company through its 50-percent interests in Salton and New
M-Tech entered into supply contracts with the Kmart Corporation for Kmart to
purchase, distribute, market and sell certain products under the
White-Westinghouse brand name licensed to Salton and New M-Tech. Under the
terms of the contract, Salton and New M-Tech will supply Kmart, either through
the Company or other manufacturers, with a broad range of small electrical
appliances, consumer electronics and telephone products under the
White-Westinghouse brand name. Kmart will be the exclusive discount department
store to market these White-Westinghouse products.
Year Ended December 31, 1995 compared with Year Ended December 31, 1994
Net Sales
Net sales were $187.8 million and $181.1 million for the years ended December
31, 1995 and 1994, respectively. Manufacturing sales increased by $14.4 million
due to increased shipments of kitchen electric appliances. Distribution sales
declined by $7.7 million primarily due to the weak U.S. retailing environment in
1995. Wal-Mart Stores, Inc. and a kitchen electric appliance distributor
accounted for 13.1% and 11.4%, respectively, of the Company's 1995 sales.
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Set forth below is a table indicating the revenues that the Company derived from
its distribution and manufacturing operations for the periods indicated:
Year Ended December 31,
1995 1994
Distribution $147,576,000 79% $155,320,600 86%
Manufacturing 40,200,900 21 25,791,600 14
----------- --- ----------- ---
Total Sales $187,776,900 100% $181,112,200 100%
=========== === =========== ===
Gross Profit Margin
The Company's gross margin percentage decreased in 1995 to 21.8% of sales from
the 27.0% level in the prior year due to higher raw materials costs which could
not be passed on to customers and the greater concentration of lower-margin
manufacturing sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales were 20.0%
and 19.6% in 1995 and 1994, respectively. The Company's higher aggregate
operating expenses were primarily a result of increased bad debt expense and
inventory storage costs.
Unusual or Non-Recurring Items
In 1995, the Company incurred a non-recurring pre-tax loss of $8.0 million on
the sale of an other asset. This transaction reduced 1995 net earnings by $5.3
million, or $.31 per share, on an after-tax basis.
Equity in Net Earnings (Loss) of Joint Venture
The Company's equity in net earnings (loss) of joint ventures was $(.4) million
and $.1 million in 1995 and 1994, respectively. Lower gross margins in 1995, due
to higher raw materials costs, produced the decline in the joint venture's
earnings.
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Taxes
The Company's tax expense is based on the earnings of each of its foreign and
domestic operations and it includes such additional U.S. taxes as are applicable
to the repatriation of foreign earnings. Offshore earnings generally are taxed
at rates lower than in the United States. 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.
Earnings Per Share
The average number of common shares and common equivalent shares used in
computing per share results was 2.1% lower in 1995 primarily as a result of a
lower dilutive effect from unexercised stock options and warrants, due both to a
decline in the quoted market price of the Company's common stock during the year
and the Company's fourth quarter loss.
Liquidity and Capital Resources
At December 31, 1996, the Company's working capital was $105.6 million, a
decrease of $22.0 million since the end of 1995. At the end of 1996 and 1995,
the Company's current ratio was 3.1 to 1 and 7.5 to 1, respectively, and its
quick ratio was 1.3 to 1 and 3.5 to 1, respectively.
Cash and cash equivalents decreased by $9.0 million during 1996. Cash of $9.6
million was provided by operating activities. The Company utilized $35.1 million
in investing activities, of which $18.7 million was for the acquisition of
equity interests in joint ventures and new businesses and for loans to its joint
venture partners. The Company invested $8.6 million in capital expenditures
primarily at its factory in the People's Republic of China and anticipates
incurring an additional $9.0 million in 1997.
The Company entered into the following significant investing transactions in
1996:
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
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capital requirements. Loans made by the Company bear interest at the prime rate,
are payable upon PX achieving sufficient cash flow, and are secured by the
assets of PX.
SALTON/MAXIM HOUSEWARES, INC.
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 matures in July 2001. The note is subordinated to
the Company's current and future indebtedness to its senior lender and is
collateralized by certain of the Company's domestic assets.
LITTERMAID(TM)
In 1996, the Company purchased certain assets and marketing rights, including
patents, for the LitterMaid(TM) computerized, infrared, automatic self-cleaning
cat litter box. The purchase price of the assets includes $2,200,000 in cash and
options to purchase 150,000 shares of the Company's common stock. The total fair
value of the options as determined under SFAS 123, is $549,000 and has been
included in the cost of the assets acquired.
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New M-Tech Corporation
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 $3.0 million in cash and $7.0 million in unsecured promissory notes. The
promissory notes bear interest at 8% per annum and consist of a $3,000,000
promissory note maturing in 1998, and two $2,000,000 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 notes are subordinated to the Company's current and future
indebtedness to its senior lender. 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 December 31, 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 $1,180,000 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 $1.2 million. Payments as of December
31, 1996 include a $1.2 million capital contribution to the partnership and
loans totaling $1.2 million to the partnership's other equity partner. Such
loans bear interest at a rate of 8-percent per annum, are unsecured and are
payable upon demand.
The partnership's investments include privately traded securities whose values
have been estimated by the General Partner in the absence of readily
ascertainable market values. Fair value for these securities is considered to be
cost which may differ significantly from the values
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that would have been used had a ready market for the securities
existed.
Cash flows from financing activities generated $16.5 million in cash. The
borrowings under the Company's line of credit facilities of $21.8 million and
the $2.6 million generated from the exercise of stock options and warrants
offset the $3.3 million used to pay cash dividends on the Company's common stock
and the $3.8 million used to purchase and retire 463,000 shares of the Company's
common stock. The purchase of the 463,000 shares completed the Company's
purchase of 1,000,000 shares of its common stock under the 1994 stock purchase
program for a total cost of $8.7 million. In 1996, the Company's Board of
Directors authorized a new stock purchase program, whereby, the Company may
purchase up to 10-percent of its outstanding shares (approximately 1.6 million
shares). No shares have been purchased under the new program.
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 December 31,
1996, the subsidiaries were utilizing, including letters of credit,
approximately $2.5 million of these credit lines, leaving a remaining funding
capacity of $3.9 million. These subsidiaries also have available an additional
$5.0 million line of credit which is supported by a domestic standby letter of
credit of which $3.2 million was outstanding at December 31, 1996.
The Company has a $30.0 million demand line of credit from a domestic bank,
which is secured by domestic accounts receivable and inventory. At December 31,
1996, outstanding borrowings under this credit line totaled $18.0 million.
No provision for U.S. taxes has been made on undistributed earnings of the
Company's foreign subsidiaries and joint ventures because management plans to
reinvest such earnings in their respective operations or in other foreign
operations. Repatriating those earnings or using them in some other manner which
would give rise to a U.S. tax liability would reduce after tax earnings and
available working capital.
The Company believes that its cash on hand and internally generated funds,
together with its credit lines, will provide sufficient funding
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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. A pre-answer motion by the Company resulted in the dismissal of some
of Izumi's claims, and the Company answered the remaining claims. A mediation
was held on February 27, 1997 to consider settlement of the case. In March 1997,
after evaluating the potential costs of continuing litigation, the Company paid
$4,500,000 to settle the dispute.
The Company, its 50-percent owned joint venture partners Salton/Maxim
Housewares, Inc. and New M-Tech Corporation, White Consolidated
Industries, Inc. ("White Consolidated"), and certain other parties have
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been named as defendants in litigation filed by Westinghouse Electric
Corporation ("Westinghouse") in the United States District Court for the Western
District in Pennsylvania on December 18, 1996. The action arises from a dispute
between Westinghouse and White Consolidated over rights to use the
"Westinghouse" trademark for consumer products based on transactions between
Westinghouse and White Consolidated in the 1970's and the parties' subsequent
conduct. Prior to the filing of Westinghouse's Complaint against the Company,
White Consolidated, on November 14, 1996, filed a Complaint in the United States
District Court for the Northern District of Ohio against Westinghouse and
another corporation for trademark infringement, dilution, false designation or
origin and false advertisement, seeking both injunctive relief and damages.
Procedural motions concerning the jurisdiction in which the dispute should be
heard have been filed by the parties. The action by Westinghouse seeks, among
other things, a preliminary injunction enjoining the defendants from using the
trademark, un-specified damages and attorneys' fees. Pursuant to the
Indemnification Agreement dated January 23, 1997 by and among White
Consolidated, Kmart Corporation, and the Company, White Consolidated is
defending and indemnifying the Company for all costs and expenses for claims,
damages, and losses, including the costs of litigation. Pursuant to the license
agreements with White Consolidated, White Consolidated is defending and
indemnifying Salton/Maxim and New M-Tech for all costs and expenses for claims,
damages, and losses, including the costs of litigation. On January 29, 1997, on
joint motion of the parties, the court issued an order staying future
proceedings for sixty (60) days in order to give the parties an opportunity to
pursue settlement discussions.
The Company is also subject to other legal proceedings, product liability and
other 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. However, as the outcome of litigation or other legal
claims is difficult to predict, significant changes in the estimated exposures
could occur.
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-percent to 90-percent of
the Company's revenues are currently derived from products manufactured by
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Durable. The supply and cost of these products, as well as finished 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. Although
such disturbances have dissipated since that time, there continues to be
pressure for political reform. No assurance can be given, however, that civil
disturbances will not recur. If it becomes necessary to relocate the Company's
manufacturing facilities from the People's Republic as a result of civil
disturbances in that country or otherwise, the Company believes the production
currently conducted in the People's Republic could be relocated to other Far
East locations, including Hong Kong, or other low-cost manufacturing locations,
with only temporary disruption and delay in such production and possible
short-term operating and capital losses, provided that the Company is able to
move substantially all of its manufacturing equipment and other assets currently
in the People's Republic to another location. If the Company is unable to remove
such assets, due to confiscation, expropriation, nationalization, embargoes or
governmental restrictions, it would incur substantial operating and capital
losses, including losses resulting from business disruption and delays in
production. In addition, as a result of a relocation of its manufacturing
equipment and certain other assets, the Company would likely incur relatively
higher manufacturing costs. A relocation could also adversely affect the
Company's revenues if the demand for the Company's products currently
manufactured in the People's Republic decreases due to a dis ruption 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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to the Company's 1996 Annual Report to Shareholders
(Exhibit 13). See also PART IV, ITEM 14(a)1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders under the captions "Election of Directors" and
"Executive Officers".
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders under the captions "Executive Compensation" and "Certain
Transactions".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders under the caption "Security Ownership".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by Reference to the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders under the captions "Executive Compensation" and "Certain
Transactions".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a)1. FINANCIAL STATEMENTS
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The following consolidated financial statements of Windmere-
Durable Holdings, Inc. and subsidiaries are incorporated by
reference in PART II, ITEM 8:
AUDITOR'S REPORT Exhibit 13
CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 1996 AND 1995 Exhibit 13
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995
AND 1994 Exhibit 13
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY - THREE YEARS ENDED
DECEMBER 31, 1996 Exhibit 13
CONSOLIDATED STATEMENTS OF
CASH FLOWS - YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994 Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS Exhibit 13
2. FINANCIAL STATEMENT SCHEDULES
AUDITOR'S REPORT Filed herewith
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES -
YEARS ENDED DECEMBER 31,
1996, 1995 AND 1994 Filed herewith
Individual financial statements of the Company have been omitted since
consolidated financial statements have been presented, and all subsidiaries
included in the consolidated financial statements are wholly-owned. All other
schedules have been omitted since the required information is not present or not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the consolidated financial statements or
the notes thereto.
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3. EXHIBITS
(3) Articles of Incorporation and By-Laws.
3.1 Amended and Restated Articles of Incorporation of the Company filed
with the Florida Secretary of State on May 17, 1984. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1984.
3.2 Articles of Amendment to the Articles of Incorporation of the Company
filed with the Florida Secretary of State on May 16, 1986. Incorporated
by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1986.
3.3 Articles of Amendment to the Articles of Incorporation of the Company
filed with the Florida Secretary of State on June 23, 1986.
Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1987.
3.4 By-Laws as amended through October 11, 1991. Incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended December
31, 1991.
3.5 Amendment to October 11, 1991 By-Laws. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992.
3.6 Articles of Amendment to the Amended and Restated Articles of
Incorporation of the Company filed with the Florida Secretary of State
on June 21, 1996. Filed herewith.
(10) Material Contracts
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.1 Employment Agreement dated as of January 27, 1983, between Belvin
Friedson and the Company. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1982.
10.2 Employment Agreement, First Amendment, dated as of February 27, 1987,
between Belvin Friedson and the Company. Incorporated by
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reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1986.
10.3 Employment Agreement, Second Amendment, dated as of December 16, 1992,
between Belvin Friedson and the Company. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended December
31, 1992.
10.4 Employment Agreements dated as of July 18, 1983, between David M.
Friedson, Barbara Friedson Garrett and Arnold Thaler, respectively, and
the Company. Incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1983.
10.5 Employment Agreement, First Amendment, dated as of January 17, 1985,
between David M. Friedson and the Company. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended December
31, 1984.
10.6 Employment Agreement, Second Amendment and Nonqualified Stock Option,
dated as of September 30, 1985, between David M. Friedson and the
Company. Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1985.
10.7 Employment Agreement (Third Amendment) and Nonqualified Stock Option
(First Amendment) dated as of October 28, 1987, between David M.
Friedson and the Company. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1987.
10.8 Employment Agreement (Fourth Amendment) and Nonqualified Stock Option
(Second Amendment) dated as of October 26, 1987, between David M.
Friedson and the Company. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1987.
10.9 Employment Agreement (Fifth Amendment) dated as of December 16, 1992,
between David M. Friedson and the Company. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended December
31, 1992.
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10.10 Nonqualified Stock Option dated as of January 5, 1987, granted by the
Company to Barbara Friedson Garrett. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1986.
10.11 Employment Agreement (First Amendment) and Nonqualified Stock Option
(First Amendment) dated as of October 26, 1987, between Barbara
Friedson Garrett and the Company. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1987.
10.12 Employment Agreement (Second Amendment) and Nonqualified Stock Option
(Second Amendment) dated as of October 26, 1987 between Barbara
Friedson Garrett and the Company. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1987.
10.13 Employment Agreement (Third Amendment) dated as of December 16, 1992,
between Barbara Friedson Garrett and the Company. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992.
10.14 Nonqualified Stock Option dated as of January 5, 1987, granted by the
Company to Arnold Thaler. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1986.
10.15 Employment Agreement (First Amendment) and Nonqualified Stock Option
(First Amendment) dated as of October 26, 1987 between Arnold Thaler
and the Company. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987.
10.16 Employment Agreement (Second Amendment) and Nonqualified Stock Option
(Second Amendment) dated as of October 26, 1987 between Arnold Thaler
and the Company. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987.
10.17 Employment Agreement (Third Amendment) dated as of December 16, 1992,
between Arnold Thaler and the Company. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992.
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10.18 Employment Agreement dated May 31, 1987, between Robert Gorman and the
Company. Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1987.
10.19 Employment Agreement (First Amendment) dated as of December 16, 1992,
between Robert Gorman and the Company. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992.
10.20 1982 Employees Incentive Stock Option Plan. Incorporated by reference
to Exhibit 4 to Post-Effective Amendment No. 1 to the Company's Form
S-8 Registration Statement No. 2-92540.
10.21 Amendment to 1982 Employees Incentive Stock Option Plan. Incorporated
by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1987.
10.22 1992 Employees Incentive Stock Option Plan. Incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended December
31, 1992.
10.23 Employment Agreement dated as of October 26, 1987 between Burton A.
Honig and the Company. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1987.
10.24 Employment Agreement (First Amendment) dated as of December 16, 1992,
between Burton A. Honig and the Company. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended December
31, 1992.
10.25 Consulting Agreement dated January 1, 1989 between Mr. Lai Kin,
Chairman of Durable, and the Company. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1988.
10.26 Employment Agreement dated January 3, 1989, between Harry Schulman and
the Company. Incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1988.
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10.27 Employment Agreement (First Amendment) dated as of June 4, 1990,
between Harry Schulman and the Company. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended December
31, 1992.
10.28 Employment Agreement (Second Amendment) dated as of December 16, 1992,
between Harry Schulman and the Company. Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended December
31, 1992.
10.29 1988 Director Stock Option Plan. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1988.
10.30 1989 Employees 401(k) Profit Sharing Plan and Trust. Incorporated by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1989.
10.31 Consulting Agreement, dated March 30, 1987, between Paragon Industries,
Paragon Sales, Inc., William Weber, Jacqueline K. Weber and the
Company. Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990.
10.32 Amendment to Consulting Agreement, dated May 29, 1990, between Paragon
Industries, Paragon Sales, Inc., William Weber, Jacqueline K. Weber and
the Company. Incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1990.
10.33 Second Amended and Restated Employment Agreement dated January 1, 1991,
between David O'Neill and the Company. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1991.
10.34 Second Amended and Restated Employment Agreement (First Amendment)
dated December 16, 1992, between David O'Neill and the Company.
Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1992.
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OTHER MATERIAL CONTRACTS
10.35 Installment Purchase Contract dated as of May 1, 1985, between the Dade
County Industrial Development Authority and the Company. Incorporated
by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1985.
10.36 Asset Purchase Agreement dated September 30, 1988 between Sally Beauty
Company, Alberto-Culver Company, the Company and certain of the
Company's affiliates. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988.
10.37 Joint Venture Agreement, dated March 30, 1987, between Paragon Sales,
Inc., William Weber, Jacqueline K. Weber and the Company. Incorporated
by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990.
10.38 Amendment to Joint Venture Agreement, dated May 29, 1990, between
Paragon Sales, Inc., William Weber, Jacqueline K. Weber and the
Company. Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990.
10.39 Exclusive Sales Agreement dated May 29, 1992 among the Company,
American International Industries and Zvi and Betty Ryzman.
Incorporated by reference to the Company's Form S-2 Registration
Statement No. 33-51776.
10.40 Settlement Agreement dated May 6, 1992 between North American Philips
Corporation and the Company. Incorporated by reference to the Company's
Form S-2 Registration Statement No. 33-51776.
10.41 Letter of Credit Agreement dated July 31, 1992 between NationsBank and
the Company. Incorporated by reference to the Company's Form S-2
Registration Statement No. 33-51776.
10.42 Agreement dated May 28, 1991, between Xingiao Economic Development
Corporation and Durable. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
33
<PAGE> 34
10.43 Agreement dated May 28, 1991, between Bogang Economic Development
Company and Durable. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991.
10.44 Agreement dated May 28, 1991, between Wanfeng Economic Development
Corporation and Durable. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
10.45 Warrant Agreement dated October 1, 1992, between American Stock
Transfer and Trust Company and the Company. Incorporated by reference
to the Company's Form S-2 Registration Statement No. 33-51776.
10.46 Stock Purchase Agreement dated May 29, 1992 between Glamour Industries,
Inc. and the Company. Incorporated by reference to the Company's Form
S-2 Registration Statement No. 33-51776.
10.47 Trademark Licensing Agreement dated January 11, 1994, between Helene
Curtis, Inc. and the Company. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993.
10.48 Stock Acquisition Agreement dated April 1, 1994, between Durable, PPC
Industries 1980 Limited, Ourimbah Investment, Limited and the Company.
Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
10.49 1995 Common Stock Purchase Rights Agreement dated March 6, 1995 between
American Stock Transfer and Trust Company and the Company. Incorporated
by reference to the Company's Form 8-A Registration Statement filed
March 7, 1995.
10.50 Facility Letter dated June 3, 1995, from the Bank of East Asia, Limited
to Durable, Durable Electric Limited and PPC Industries 1980 Limited.
Incorporated by reference to the Company's Form 10-Q dated June 30,
1995.
10.51 Amended and Restated Letter Agreement dated July 28, 1995, between
NationsBank and the Company. Incorporated by reference to the Company's
Form 10-Q dated June 30, 1995.
34
<PAGE> 35
10.52 Credit Agreement dated October 11, 1996, between Windmere Corporation,
NationsBank National Association (South) and National Bank of Canada.
Filed herewith.
10.53 Amendment No. 1 to Amended and Restated Letter Agreement, dated March
1, 1996, between NationsBank and the Company. Incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended December
31, 1995.
10.54 Amendment Agreement No. 1 to the Credit Agreement (October 11, 1996)
dated January 31, 1997. Filed herewith.
(13) Annual Report to Security Holders for the year ended December 31, 1996.
Exhibit 13.
(21) Subsidiaries of the Registrant. Filed herewith.
(23) Consents of experts and counsel. Filed herewith.
(b) REPORTS ON FORM 8-K
None.
35
<PAGE> 36
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Windmere-Durable Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Windmere-Durable
Holdings, Inc. and Subsidiaries (the "Company") as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Windmere-Durable
Holdings, Inc. and Subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
We have also audited Schedule II of Windmere-Durable Holdings, Inc. and
Subsidiaries for each of the three years in the period ended December 31, 1996.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
Miami, Florida
February 7, 1997 (except for Notes K and R
as to which the date is March 27, 1997)
36
<PAGE> 37
WINDMERE CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CHANGES IN ALLOWANCE FOR POSSIBLE
LOSSES ON ACCOUNTS RECEIVABLE:
Years Ended December 31,
1996 1995 1994
---- ---- ----
Balance at beginning
of period $ 1,158,000 $ 1,338,100 $ 1,424,600
Addition - Charged to
costs and expenses 930,000 894,700 231,400
Addition - Charged to
other accounts (a) 4,000 31,600 31,300
Deductions (b) (963,000) (1,106,400) (349,200)
----------- ----------- -----------
Balance at end
of period $ 1,129,000 $ 1,158,000 $ 1,338,100
=========== =========== ===========
(a) Recoveries of amounts previously written off against the reserve.
(b) Write-off of accounts receivable against the reserve.
37
<PAGE> 38
PART IV. ITEM 3. (21).
SUBSIDIARIES OF THE REGISTRANT
NAME INCORPORATED IN
- ---- ---------------
Consumer Products Americas, Inc. Florida
EDI Masters, Inc. Florida
Fortune Products, Inc. Florida
Jerdon Products, Inc. Florida
Windmere Fan Products, Inc. Florida
Bay Books & Tapes, Inc. Florida
LitterMaid, Inc. Florida
Windmere Corporation Florida
Windmere Holdings Corporation Delaware
Windmere Holdings Corporation II Delaware
Goal Making Company Limited British Virgin Islands
Remdale Investments Limited British Virgin Islands
PPC Industries, Ltd. British Virgin Islands
Windmere Consumer Products, Inc. Canada
Durable Electric, Ltd. Hong Kong
Durable Electrical Metal Factory, Ltd. Hong Kong
PPC Industries (1980) Ltd. Hong Kong
Sandgate Services, Ltd. Hong Kong
Parawind, Ltd. Hong Kong
PPC Product Services, Ltd. Hong Kong
Each of the above subsidiaries is wholly-owned and is included in the
consolidated financial statements as of December 31, 1996.
38
<PAGE> 39
AUDITOR'S CONSENT
We have issued our report dated February 7, 1997, accompanying the consolidated
financial statements and schedules incorporated by reference in the Annual
Report of Windmere-Durable Holdings, Inc. on Form 10-K for the year ended
December 31, 1996. We hereby consent to the incorporation by reference of the
aforementioned report in the Registration Statements of Windmere-Durable
Holdings, Inc. on Form S-8 (File No. 33-7681, effective September 30, 1986),
Form S-8 (File No. 33-36424, effective August 17, 1990), Form S-2 (File No.
33-51776, effective January 19, 1993), and on Form S-8 (File No. 33-58574,
effective February 22, 1993).
GRANT THORNTON LLP
Miami, Florida
March 27, 1997
39
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WINDMERE-DURABLE HOLDINGS, INC.
(Registrant)
BY: /s/ David M. Friedson DATE: 3-27-97
---------------------------- ------------------------
David M. Friedson, Chairman,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the date indicated.
BY: /s/ David M. Friedson DATE: 3-27-97
--------------------------- ------------------------
David M. Friedson, Chairman,
President and Chief Executive Officer
BY: /s/ Harry D. Schulman DATE: 3-27-97
---------------------------- ------------------------
Harry D. Schulman, Senior Vice
President - Finance and Administration
and Chief Financial Officer
BY: /s/ Burton A. Honig DATE: 3-27-97
---------------------------- ------------------------
Burton A. Honig, Vice President -
Finance (Principal Accounting Officer)
BY: /s/ Bertley Sager DATE: 3-28-97
---------------------------- ------------------------
Bertley Sager, Director
BY: /s/ Jerald I. Rosen DATE: 3-27-97
---------------------------- ------------------------
Jerald I. Rosen, Director
BY: /s/ Harold Strauss DATE: 3-28-97
---------------------------- ------------------------
Harold Strauss, Director
BY: /s/ Lai Kin DATE: 3-28-97
---------------------------- ------------------------
Lai Kin, Director
BY: /s/ Raymond So DATE: 3-28-97
---------------------------- ------------------------
Raymond So, Director
BY: /s/ Leonard Glazer DATE: 3-28-97
---------------------------- ------------------------
Leonard Glazer, Director
BY: /s/ Barbara Friedson Garrett DATE: 3-27-97
---------------------------- ------------------------
Barbara Friedson Garrett, Director
BY: /s/ Felix S. Sabates DATE: 3-27-97
---------------------------- ------------------------
Felix S. Sabates, Director
BY: /s/ Arnold Thaler DATE: 3-27-97
---------------------------- ------------------------
Arnold Thaler, Director
40
<PAGE> 41
BY: /s/ Thomas J. Kane DATE: 3-28-97
---------------------------- -------------------------
Thomas J. Kane, Director
BY: /s/ Susan J. Ganz DATE: 3-27-97
---------------------------- -------------------------
Susan J. Ganz, Director
BY: /s/ Desmond Lai DATE: 3-28-97
---------------------------- -------------------------
Desmond Lai, Director
41
<PAGE> 42
FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
WINDMERE - DURABLE HOLDINGS, INC.
AND SUBSIDIARIES
DECEMBER 31, 1996 AND 1995
<PAGE> 43
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Windmere - Durable Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Windmere -
Durable Holdings, Inc. and Subsidiaries (the "Company") as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Windmere - Durable
Holdings, Inc. and Subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Miami, Florida
February 7, 1997 (except for Notes K and R,
as to which the date is March 27, 1997)
<PAGE> 44
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note A) $ 8,779,500 $ 17,768,100
Accounts and other receivables, less allowances of $1,128,700
in 1996 and $1,158,000 in 1995 (Note E) 37,601,200 36,597,300
Receivables from affiliates (Notes A and C) 12,138,800 9,982,800
Inventories (Notes A and E) 89,514,000 79,013,600
Prepaid expenses 3,751,100 2,183,600
Future income tax benefits (Notes A, I and R) 3,231,800 1,642,900
------------- -------------
Total current assets 155,016,400 147,188,300
INVESTMENTS IN JOINT VENTURES (Notes A, C and J) 35,290,800 --
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation (Notes A and D) 32,759,800 30,484,700
OTHER ASSETS (Notes A, I, J and P) 14,211,900 10,338,900
------------- -------------
$ 237,278,900 $ 188,011,900
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and acceptances payable (Note E) $ 21,882,500 $ 42,300
Current maturities of long-term debt (Note G) 814,800 814,800
Accounts payable 12,106,500 9,979,700
Accrued expenses (Notes F and R) 14,228,700 8,127,800
Deferred income, current portion (Note A) 419,400 598,100
------------- -------------
Total current liabilities 49,451,900 19,562,700
LONG-TERM DEBT, less current maturities (Note G) 19,884,700 2,851,800
DEFERRED INCOME, less current portion (Note A) 247,500 666,900
COMMITMENTS AND CONTINGENCIES (Note K) -- --
STOCKHOLDERS' EQUITY (Notes A, L and M)
Special preferred stock - authorized 40,000,000 shares
of $.01 par value; none issued -- --
Common stock - authorized 40,000,000 shares of $.10 par value;
issued 17,445,146 in 1996 and 16,713,053 in 1995 1,744,500 1,671,300
Paid-in capital 35,765,900 30,173,000
Retained earnings 130,965,100 133,851,400
Unrealized foreign currency translation adjustment (780,700) (765,200)
------------- -------------
Total stockholders' equity 167,694,800 164,930,500
------------- -------------
$ 237,278,900 $ 188,011,900
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 45
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $ 197,003,600 $ 187,776,900 $ 181,112,200
Cost of goods sold 157,278,400 146,907,300 132,185,700
------------- ------------- -------------
Gross profit 39,725,200 40,869,600 48,926,500
Selling, general and administrative expenses 39,425,100 37,625,100 35,531,600
Unusual or non-recurring items (Note B) -- 8,000,000 (7,810,500)
------------- ------------- -------------
Operating profit (loss) 300,100 (4,755,500) 21,205,400
Other (income) expense
Interest expense 1,345,900 578,300 551,900
Interest and other income (2,418,800) (2,561,800) (2,385,800)
------------- ------------- -------------
(1,072,900) (1,983,500) (1,833,900)
------------- ------------- -------------
Earnings (loss) before equity in net earnings
(loss) of joint ventures, income taxes,
minority interest and extraordinary item 1,373,000 (2,772,000) 23,039,300
Equity in net earnings (loss) of joint ventures
(Notes A, C and J) 2,298,700 (392,600) 91,400
------------- ------------- -------------
Earnings (loss) before income taxes,
minority interest and extraordinary item 3,671,700 (3,164,600) 23,130,700
Income taxes (benefit) (Notes A and I)
Current (716,300) (1,242,700) 2,375,700
Deferred 436,600 (38,100) 218,800
------------- ------------- -------------
(279,700) (1,280,800) 2,594,500
------------- ------------- -------------
Earnings (loss) before minority interest
and extraordinary item 3,951,400 (1,883,800) 20,536,200
Minority interest in net loss of subsidiary -- -- 1,200
------------- ------------- -------------
Earnings (loss) before extraordinary item 3,951,400 (1,883,800) (20,537,400)
Extraordinary item (Note R) (3,500,000) -- --
------------- ------------- -------------
Net earnings (loss) $ 451,400 $ (1,883,800) $ 20,537,400
============= ============= =============
Per share data (Notes A, L and R)
Earnings (loss) per common share and common
equivalent shares before effect of extraordinary item $ .22 $ (.11) $ 1.17
Extraordinary item (.20) -- --
------------- ------------- -------------
Net earnings $ .02 $ (.11) $ 1.17
============= ============= =============
Dividends per common share $ .20 $ .20 $ .15
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 46
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Unrealized
foreign
currency
Common Paid-in Retained translation
stock capital earnings adjustment
----- ------- -------- ----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 $ 1,578,100 $ 24,633,300 $ 121,086,500 $ (710,700)
Net earnings -- -- 20,537,400 --
Cash dividends - $.15 per share -- -- (2,535,100) --
Acquisition of additional
20% interest in Durable
Electrical Metal Factory,
Ltd. ("Durable") 100,000 7,900,000 -- --
Purchase and retirement of
397,400 shares of common stock (39,700) (3,858,900) -- --
Exercise of stock options
and warrants 35,000 1,645,800 -- --
Tax benefit resulting from
exercise of stock options -- 328,500 -- --
Unrealized foreign currency
translation adjustment -- -- -- (75,200)
------------- ------------- ------------- -------------
Balance at December 31, 1994 1,673,400 30,648,700 139,088,800 (785,900)
Net loss -- -- (1,883,800) --
Cash dividends - $.20 per share -- -- (3,353,600) --
Purchase and retirement of
139,600 shares of common stock (14,000) (997,400) -- --
Exercise of stock options
and warrants 11,900 414,400 -- --
Tax benefit resulting from
exercise of stock options -- 242,800 -- --
Cost of intercompany recapitalization -- (135,500) -- --
Unrealized foreign currency
translation adjustment -- -- -- 20,700
------------- ------------- ------------- -------------
Balance at December 31, 1995 1,671,300 30,173,000 133,851,400 (765,200)
Net earnings -- -- 451,400 --
Cash dividends - $.20 per share -- -- (3,337,700) --
Purchase and retirement of
463,000 shares of common stock (46,300) (3,721,800) -- --
Exercise of stock options and warrants 44,700 2,531,500 -- --
Tax benefit resulting from exercise
of stock options -- 183,600 -- --
Fair value of options to non-employees -- 617,000 -- --
Issuance of 748,112 shares -
acquisition of 50% of Salton/Maxim
Housewares, Inc. 74,800 5,982,600 -- --
Unrealized foreign currency
translation adjustment -- -- -- (15,500)
------------- ------------- ------------- -------------
Balance at December 31, 1996 $ 1,744,500 $ 35,765,900 $ 130,965,100 $ (780,700)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 47
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 451,400 $ (1,883,800) $ 20,537,400
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities
Depreciation of property, plant and equipment 6,377,900 6,218,300 5,378,500
Amortization of intangible assets 613,400 561,100 440,100
Loss on sale of other asset (Note B) -- 8,000,000 --
Net change in allowance for losses on
accounts receivable (29,300) (180,100) (86,500)
Consulting expense on non-employee stock options 68,000 -- --
Gain on sale of fixed asset (Note B) -- -- (7,810,500)
Amortization of deferred income (598,100) (598,100) (598,100)
Undistributed equity in (earnings) loss of joint ventures (2,762,700) 392,600 (91,400)
Increase (decrease) in minority interest -- -- (1,200)
Changes in assets and liabilities
Decrease (increase) in accounts and other receivables 149,600 2,316,100 (7,378,200)
Decrease (increase) in inventories 534,700 (4,735,200) (7,120,900)
Decrease (increase) in prepaid expenses (709,600) 5,836,900 (1,029,600)
Increase (decrease) in accounts payable
and accrued expenses 7,714,400 1,005,800 (1,845,600)
Increase (decrease) in current and deferred income taxes (1,405,300) (1,829,300) 2,695,900
Increase in other assets (783,600) (1,073,300) (294,800)
Decrease (increase) in other accounts (14,000) 20,700 (75,200)
------------ ------------ ------------
Net cash provided by operating activities 9,606,800 14,051,700 2,719,900
Cash flows from investing activities
Proceeds from fixed asset sales -- 129,600 9,442,000
Additions to property, plant and equipment (8,618,200) (8,383,500) (10,436,900)
(Decrease) increase in short-term investments -- 2,500,000 (2,500,000)
Purchase of assets - LitterMaid(TM), Inc. (2,246,000) -- --
Purchase of assets - Bay Books and Tapes, Inc. (1,180,000) -- --
Investments in joint ventures (7,745,400) -- --
Decrease (increase) in receivable accounts and
notes from affiliates (15,301,600) 2,068,900 (3,186,300)
------------ ------------ ------------
Net cash (used in) investing activities (35,091,200) (3,685,000) (6,681,200)
Cash flows from financing activities
Net borrowings under lines of credit 21,840,200 (697,800) (2,255,700)
Payments of long-term debt (814,800) (814,900) (836,500)
Exercises of stock options and warrants 2,576,200 426,300 1,680,800
Cash dividends paid (3,337,700) (3,353,600) (2,535,100)
Purchases of common stock (3,768,100) (1,011,400) (3,898,600)
Cost of intercompany recapitalization -- (135,500) --
------------ ------------ ------------
Net cash provided by (used in) financing activities 16,495,800 (5,586,900) (7,845,100)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (8,988,600) 4,779,800 (11,806,400)
Cash and cash equivalents at beginning of year 17,768,100 12,988,300 24,794,700
------------ ------------ ------------
Cash and cash equivalents at end of year $ 8,779,500 $ 17,768,100 $ 12,988,300
============ ============ ============
</TABLE>
(continued)
5
<PAGE> 48
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 1,488,200 $ 488,500 $ 502,200
Income taxes $ 548,400 $2,181,800 $1,927,300
Non-cash investing and financing activities:
Common stock issued for additional investment in
Durable (Note A) $ -- $ -- $8,000,000
Tax benefit resulting from exercise of stock options $ 183,600 $ 242,800 $ 328,500
Valuation of non-employee stock options under SFAS 123
(LitterMaid(TM) acquisition) $ 549,000 $ -- $ --
In 1996, the Company purchased a 50-percent interest in New M-Tech
Corporation in exchange for $3,000,000 in cash and $7,000,000 in long-term
promissory notes
In 1996, the Company purchased a 50-percent interest in Salton/Maxim
Housewares, Inc. in exchange for $3,254,300 in cash, 748,112 shares of
Windmere common stock (valued at $6,057,000) and a $10,847,700 promissory
note
In 1996, the Company acquired the remaining 50-percent of its seasonal
products joint venture for a nominal amount. In conjunction with the
acquisition, the Company obtained the following assets and liabilities:
Cash $ 1,102,300
Accounts receivable 1,124,200
Inventory 10,305,100
Prepaid and other assets 74,600
Less liabilities assumed (13,883,600)
------------
Goodwill $ 1,277,400
============
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 49
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Windmere - Durable Holdings, Inc. and Subsidiaries (the "Company") is
principally engaged in the manufacture and sale of personal care, kitchen
electric and seasonal products. In preparing financial statements in
conformity with generally accepted accounting principles, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from
those estimates. A summary of the Company's significant accounting policies
consistently applied in the preparation of the accompanying consolidated
financial statements follows.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany balances and transactions
are eliminated in consolidation. The Company reflects its investments in
its 50%-owned joint ventures at cost plus its equity in undistributed net
earnings.
FOREIGN CURRENCY TRANSLATION
Balance sheet accounts of the Company's foreign operations are translated
at the exchange rate in effect at each year end and income statement
accounts are translated at the average exchange rates prevailing during the
year. Adjustments resulting from this translation process are accumulated
in a separate component of stockholders' equity and are not included in the
determination of net earnings. The Company's foreign manufacturing
subsidiary utilizes the local currency as its functional currency, and the
other foreign subsidiaries primarily utilize the U.S. dollar as their
functional currency.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents. Cash
balances at December 31, 1996 include $5,251,000 held in foreign banks by
the Company's Hong Kong and Canadian subsidiaries.
(continued)
7
<PAGE> 50
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
INVENTORIES
Inventories are stated at the lower of cost or market; cost is determined
by the first-in, first-out method. Inventories are comprised of the
following:
1996 1995
-------------- --------------
Raw materials $ 13,824,300 $ 16,327,900
Work in process 20,551,900 21,085,300
Finished goods 55,137,800 41,600,400
-------------- --------------
$ 89,514,000 $ 79,013,600
============== ==============
RECEIVABLES FROM AFFILIATES
Receivables from affiliates include accounts receivable which arise in the
ordinary course of business and are settled as trade obligations, as well
as notes receivable due from certain of the Company's joint venture
partners ("affiliates"). Notes receivable to these affiliates totaled
$8,045,800 at December 31, 1996, are short-term and bear interest at
prevailing market interest rates.
PROPERTY, PLANT AND EQUIPMENT
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to their estimated operating service
lives using accelerated and straight-line methods.
INTANGIBLE ASSETS
Intangible assets, consisting primarily of goodwill, are being amortized on
a straight-line basis over periods ranging from 7-20 years. Intangible
assets were $13,704,600 and $10,113,700 at December 31, 1996 and 1995,
respectively, and the related accumulated amortization was $2,700,700 and
$2,126,800, respectively.
In December 1996, the Company acquired the remaining 50-percent of its
seasonal products joint venture for a nominal amount. The total cost in
excess of net assets acquired has resulted in goodwill of $1,277,400 and is
being amortized over 7 years.
(continued)
8
<PAGE> 51
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
INTANGIBLE ASSETS - CONTINUED
On an ongoing basis, management reviews the valuation and amortization of
goodwill. As part of this review, the Company estimates the value and
future benefits of the net income generated by the related subsidiaries to
determine that no impairment has occurred.
In March 1995, the Financial Accounting Standards Board issued Statement
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This Statement had no impact on the Company's
results of operations or financial position upon adoption in January 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist primarily of cash and cash equivalents,
accounts receivable, notes receivable, accounts payable, notes payable and
bank debt. At December 31, 1996, the fair value of these instruments
approximates the carrying amount of these items.
INCOME TAXES
No provision has been made for U.S. taxes on undistributed earnings of
foreign subsidiaries and joint ventures of approximately $108,000,000 at
December 31, 1996, as it is anticipated that such earnings will be
reinvested in their respective operations or in other foreign operations.
Deferred taxes have been provided on temporary differences in reporting
certain transactions for financial accounting and tax purposes.
DEFERRED INCOME
In 1992, the Company granted an exclusive license for the distribution of a
product. Deferred income of $1,340,600 resulted from this transaction,
which is being reported as other income on a straight-line basis over the
five year license term.
In 1988, the Company sold its Save-Way Beauty Supply stores for a gain of
approximately $6,980,000, of which $3,300,000 was allocated to a ten-year
covenant not to compete that is being amortized to other income on a
straight-line basis.
(continued)
9
<PAGE> 52
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of common
shares and common equivalent shares outstanding during each year, using the
modified treasury stock method. The total number of such weighted average
shares was 17,620,000 in 1996, 17,227,000 in 1995, and 17,589,000 in 1994.
Stock options and warrants are considered common stock equivalents unless
their inclusion would be antidilutive.
RECLASSIFICATIONS
Certain prior year amounts within the accompanying financial statements
have been reclassified for comparability.
NOTE B - UNUSUAL OR NON-RECURRING ITEMS
In 1995, the Company incurred a non-recurring pre-tax loss of $8,000,000 on
the sale of an other asset. This transaction reduced 1995 net earnings by
$5,280,000, or $.31 per share, on an after-tax basis.
In 1994, Durable sold 60,000 square feet of office space in Hong Kong, for
$9,500,000. This transaction generated a non-recurring profit of
$7,810,500, or approximately $.45 per share. No taxes were provided as the
gain was not taxable.
NOTE C - INVESTMENTS IN JOINT VENTURES
Investments in joint ventures 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. ("Salton"), New
M-Tech Corporation ("New M-Tech"), PX Distributors, Inc. ("PX"), Breakroom
of Tennessee, Inc. and Anasazi Partners, L.P. ("Anasazi").
In December 1996, the Company acquired the remaining 50-percent of its
seasonal products joint venture for a nominal amount. The assets and
liabilities of the joint venture are included in the consolidated financial
statements of the Company and have been excluded from the summarized
financial information below for 1996.
(continued)
10
<PAGE> 53
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE C - INVESTMENTS IN JOINT VENTURES - Continued
Summarized financial information of the unconsolidated companies is as
follows:
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Current assets $ 85,536,000 $ 9,657,400
Non-current assets 32,524,000 35,100
------------- --------------
Total assets $ 118,060,000 $ 9,692,500
============= ==============
Current liabilities $ 65,991,000 $ 11,317,100
Non-current liabilities 889,000 --
------------- --------------
Total liabilities $ 66,880,000 $ 11,317,100
============= ==============
Sales $ 162,368,000 $ 30,171,600
============= ==============
Gross profit $ 34,312,000 $ 2,346,000
============= ==============
Net earnings (loss) $ 5,552,000 $ (785,200)
============= ==============
</TABLE>
All sales made by joint ventures, other than sales of $935,000 by Salton to
the Company in 1996, were to entities other than members of the
consolidated group. Included in the Company's sales are sales made to joint
ventures of approximately $17,855,400 in 1996, including $8,537,000 to
Salton, and $7,485,300 in 1995.
Certain of the Company's joint venture investments at December 31, 1996 and
1995, had negative values of approximately $375,000 and $800,000,
respectively, which deficits have been classified as a reduction in
receivables from affiliates.
11
<PAGE> 54
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE D - PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment:
<TABLE>
<CAPTION>
Useful Lives 1996 1995
------------- --------------- ----------------
<S> <C> <C> <C>
Building 15 - 50 years $ 6,315,400 $ 4,493,100
Building improvements 8 - 31 years 2,220,200 589,700
Computer equipment 3 - 5 years 5,173,300 4,697,600
Furniture and equipment 3 - 8 years 54,853,600 55,197,000
Leasehold improvements 8 years 8,443,700 3,283,300
Land and land improvements 15 - 31 years 2,660,100 2,650,600
(Improvements only) --------------- ----------------
79,666,300 70,911,300
Less accumulated depreciation
and amortization 46,906,500 40,426,600
--------------- ----------------
$ 32,759,800 $ 30,484,700
=============== ================
</TABLE>
NOTE E - NOTES AND ACCEPTANCES PAYABLE
The Company's foreign subsidiaries (the "subsidiaries") have $6,400,000 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 December
31, 1996, the subsidiaries were utilizing, including letters of credit,
approximately $2,496,300 of these credit lines. These subsidiaries also
have available an additional $5,000,000 line of credit which is supported
by a domestic standby letter of credit. As of December 31, 1996, $3,232,000
was being utilized under this facility.
The Company has a $30,000,000 line of credit from a domestic bank, which is
secured by domestic accounts receivable and inventory. At December 31,
1996, there was $18,000,000 outstanding under this credit line.
NOTE F - ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ----------------
<S> <C> <C>
Advertising allowances $ 1,075,600 $ 971,400
Salaries and bonuses 1,879,300 1,611,100
Volume rebates 1,325,600 1,022,700
Extraordinary litigation settlement 5,300,000 --
Other 4,648,200 4,522,600
--------------- ----------------
$ 14,228,700 $ 8,127,800
=============== ================
</TABLE>
12
<PAGE> 55
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE G - LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ----------------
<S> <C> <C>
Note payable to Salton (Note J) $ 10,847,700 $ --
Notes payable to New M-Tech
Corporation (Note J) 7,000,000 --
Industrial development revenue bonds 2,851,800 3,666,600
--------------- ----------------
20,699,500 3,666,600
Less current maturities 814,800 814,800
--------------- ----------------
Total long-term debt $ 19,884,700 $ 2,851,800
=============== ================
</TABLE>
In 1985, the Company received proceeds of $7,500,000 from the issuance of
tax-exempt industrial development revenue bonds. The bonds are being paid
off in equal quarterly principal payments of $203,700 through May 2000. At
December 31, 1996, the interest rate on the bonds was 6.5-percent. The
bonds include certain covenants which provide, among other things,
restrictions relating to the maintenance of minimum levels of working
capital, net worth and other financial ratios.
NOTE H - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan for its employees to which the Company makes
discretionary contributions at rates dependent on the level of each
employee's contributions. Contributions made by the Company are limited to
the maximum allowable for federal income tax purposes. The amounts charged
to earnings for this plan during the three years ended December 31, 1996
were not significant.
The Company does not provide any health or other benefits to retirees.
13
<PAGE> 56
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE I - INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current
Federal $ (748,200) $(1,392,300) $ 2,156,000
Foreign (2,100) 183,800 72,900
State 34,000 (34,200) 146,800
----------- ----------- -----------
(716,300) (1,242,700) 2,375,700
Deferred 436,600 (38,100) 218,800
----------- ----------- -----------
$ (279,700) $(1,280,800) $ 2,594,500
=========== =========== ===========
</TABLE>
The analysis of the deferred income tax provision (benefit) representing
the tax effects of temporary differences between tax and financial
reporting is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Intercompany profit in inventory $ (2,700) $ (72,500) $ --
Differences in timing between
financial and tax reporting 145,700 49,300 15,000
Utilization of net operating loss
carryforward 356,200 220,100 413,500
Deferred income 224,300 224,300 55,300
Depreciation and amortization (246,900) (303,800) (248,900)
Other (40,000) (155,500) (16,100)
--------- --------- ---------
$ 436,600 $ (38,100) $ 218,800
========= ========= =========
</TABLE>
The United States and foreign components of earnings (loss) before income
taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
United States $ (2,253,800) $ (8,056,300) $ 7,449,500
Foreign 5,925,500 4,891,700 15,681,200
------------ ------------ ------------
$ 3,671,700 $ (3,164,600) $ 23,130,700
============ ============ ============
</TABLE>
(continued)
14
<PAGE> 57
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE I - INCOME TAXES - Continued
The differences between the statutory rates and the tax rates computed on
pre-tax profits are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
% % %
---- ---- ----
<S> <C> <C> <C>
Tax expense (benefit) at statutory rates 34.0% (34.0)% 34.0%
State taxes, net of federal tax benefit .6 (.7) .4
Foreign (income) loss not subject to tax (6.4) 2.6 (15.9)
Provision for prior years' Hong Kong
income taxes (.6) 12.3 (5.9)
Net tax rate differential on undistributed
foreign earnings (17.3) (25.6) (2.0)
Equity in joint venture earnings not
subject to U.S. tax or already taxed (25.7) (4.2) .1
Effect of gross up of foreign taxes,
net of foreign tax credit (4.0) (4.1) --
Federal withholding taxes 6.7 7.8 --
Other 5.1 5.4 .5
---- ---- ----
(7.6)% (40.5)% 11.2%
==== ==== ====
</TABLE>
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,
approximated $1,400,000. The Company made a provision in its 1995 second
quarter of $400,000 or $.02 per share, to increase its contingency reserve
to the settlement amount. Security deposits of approximately $3,000,000
were refunded to the Company during the fourth quarter of 1995. Hong Kong
tax returns for the fiscal years 1992 through 1995 have been audited and
accepted as filed.
The Internal Revenue Service has completed its field work in its
examination of the Company's 1992 tax return. To date, no adjustments have
been proposed. Management believes that adequate provision for taxes has
been made for the years under examination and those not yet examined.
The Company's future income tax benefits at December 31, 1996, arise from
Durable's and the Company's Canadian subsidiary's net operating loss
carryforwards. Valuation allowances have not been recorded limiting such
benefits based on management's current estimate that future profits will be
sufficient to realize these benefits.
(continued)
15
<PAGE> 58
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE I - INCOME TAXES - Continued
The primary components of future income tax benefits at December 31, 1996
are as follows:
<TABLE>
<S> <C>
Net operating loss carryforwards $ 1,782,100
Depreciation and amortization (1,577,600)
Deferred income 289,100
Differences in timing between financial
and tax reporting 1,969,500
Extraordinary litigation settlement 1,800,000
Other 174,500
------------
4,437,600
Less amount included in other assets 1,205,800
------------
$ 3,231,800
============
</TABLE>
The tax benefits resulting from the exercise of stock options have been
recorded as additions to paid-in capital in the amounts of $183,600 and
$242,800 in 1996 and 1995, respectively.
NOTE J - ACQUISITIONS
PX DISTRIBUTORS, INC.
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. Loans made by the Company bear interest at the prime rate,
are payable upon PX achieving sufficient cash flow and are secured by the
assets of PX.
SALTON/MAXIM HOUSEWARES, INC.
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 $3,254,300, a $10,847,700 promissory note
and 748,112 shares of Windmere stock (market value at date of agreement of
approximately $6,057,000). The total cost in excess of net assets acquired
is not deemed to be material.
(continued)
16
<PAGE> 59
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE J - ACQUISITIONS - Continued
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 $10,847,700 promissory note bears interest at a rate of 8-percent per
annum, payable quarterly, and matures in July 2001. The note is
subordinated to the Company's current and future indebtedness to its senior
lender and is collateralized by certain of the Company's domestic assets.
LITTERMAID(TM)
In 1996, the Company purchased certain assets and marketing rights,
including patents, for the LitterMaid(TM), computerized, infrared,
automatic self-cleaning cat litter box. The purchase price of the assets
included $2,200,000 in cash and options to purchase 150,000 shares of the
Company's common stock. The total fair value of the options as determined
under SFAS 123, is $549,000 and has been included in the cost of the assets
acquired (Note L).
NEW M-TECH CORPORATION
In April 1996, the Company acquired a 50-percent interest in New M-Tech
Corporation, a consumer electronics company for $10,000,000. Payment
consisted of $3,000,000 in cash and $7,000,000 in unsecured promissory
notes. The promissory notes bear interest at 8% per annum and consist of a
$3,000,000 promissory note maturing in 1998, and two $2,000,000 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 notes are subordinated to the
Company's current and future indebtedness to its senior lender. The total
cost in excess of net assets acquired of $5,300,000 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 December 31, 1996 consists of
$240,390 in inventory purchased on behalf of the joint venture.
(continued)
17
<PAGE> 60
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE J - ACQUISITIONS - Continued
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
$1,180,000 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 $1,250,000. Payments as of
December 31, 1996, include a $1,250,000 capital contribution to the
partnership and loans totaling $1,250,000 to the partnership's other equity
partner. Such loans bear interest at a rate of 8-percent per annum, are
unsecured and are payable upon demand.
The partnership's investments include privately traded securities whose
values have been estimated by the General Partner in the absence of readily
ascertainable market values. Fair value for these securities is considered
to be cost which may differ significantly from the values that would have
been used had a ready market for the securities existed.
PRO-FORMA
The results of operations on a pro-forma basis as though Salton and New
M-Tech had been acquired as of the beginning of the years ended December
31, 1996 and 1995 are as follows: (In Thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Equity in net earnings (loss) of joint ventures $ 2,152 $ (905)
Net income (loss) $ (306) $(2,482)
Earnings (loss) per common and common
equivalent share $ (.02) $ (.14)
</TABLE>
18
<PAGE> 61
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE K - COMMITMENTS AND CONTINGENCIES
LITIGATION
In April 1994, Kabushiki Kaisha Izumi Seiki Seisakusho, a Japanese
corporation ("Izumi"), filed an action against the Company, David M. Friedson,
the President and Chief Executive Officer of the Company, U.S. Philips
Corporation, North American Philips Corporation and N.V. Philips
Gloellampenfabrieken (together, "Philips"). This action concerns the 1992
settlement (the "Philips Settlement") of certain claims, primarily a Federal
antitrust claim, made by the Company against Philips, which resulted in an
$89,644,257 judgment in favor of the Company. Pursuant to the Philips
Settlement, Philips paid the Company $57,000,000 in May 1992. As part of the
Philips Settlement, the Company and Philips agreed that the Company's money
judgment against Philips in connection with such antitrust litigation would be
vacated. Izumi is claiming, among other things, that the Philips Settlement,
including the agreement with Philips to cooperate to vacate the related judgment
in favor of the Company, constitutes a breach by the Company of a customary
indemnification agreement between Izumi (as seller of goods) and the Company (as
buyer of goods) dated February 20, 1984. This indemnification agreement covered
certain claims against the Company and was entered into more than eight months
prior to the commencement of the Philips litigation in connection with the
routine purchase by the Company of goods from Izumi. Izumi advanced certain
legal fees and costs to the Company in connection with the Philips litigation.
Izumi is further claiming that it is entitled to recover from the Company an
unspecified portion of the Philips Settlement, punitive damages and
reimbursement of litigation and other related costs and expenses. A pre-answer
motion by the Company resulted in the dismissal of some of Izumi's claims, and
the Company answered the remaining claims. A mediation was held on February 27,
1997 to consider settlement of the case. On March 27, 1997, after evaluating the
potential costs of continuing litigation, the Company paid $4,500,000 to settle
the dispute.
(continued)
19
<PAGE> 62
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE K - COMMITMENTS AND CONTINGENCIES - Continued
LITIGATION - Continued
The Company, its 50-percent owned joint venture partners Salton/Maxim
Housewares, Inc. and New M-Tech Corporation, White Consolidated Industries,
Inc. ("White Consolidated"), and certain other parties have been named as
defendants in litigation filed by Westinghouse Electric Corporation
("Westinghouse") in the United States District Court for the Western
District in Pennsylvania on December 18, 1996. The action arises from a
dispute between Westinghouse and White Consolidated over rights to use the
"Westinghouse" trademark for consumer products, based on transactions
between Westinghouse and White Consolidated in the 1970's and the parties'
subsequent conduct. Prior to the filing of Westinghouse's Complaint against
the Company, White Consolidated, on November 14, 1996, filed a Complaint in
the United States District Court for the Northern District of Ohio against
Westinghouse and another corporation for trademark infringement, dilution,
false designation or origin and false advertisement, seeking both
injunctive relief and damages. Procedural motions concerning the
jurisdiction in which the dispute should be heard have been filed by the
parties. The action by Westinghouse seeks, among other things, a
preliminary injunction enjoining the defendants from using the trademark,
unspecified damages and attorneys' fees. Pursuant to the Indemnification
Agreement dated January 23, 1997 by and among White Consolidated, Kmart
Corporation, and the Company, White Consolidated is defending and
indemnifying the Company for all costs and expenses for claims, damages,
and losses, including the costs of litigation. Pursuant to the license
agreements with White Consolidated, While Consolidated is defending and
indemnifying Salton/Maxim and NewTech for all costs and expenses for
claims, damages, and losses, including the costs of litigation. On January
29, 1997, on joint motion of the parties, the court issued an order staying
future proceedings for sixty (60) days in order to give the parties an
opportunity to pursue settlement discussions.
The Company is also subject to other legal proceedings, product liability
and other 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. However, as the outcome of
litigation or other legal claims is difficult to predict, significant
changes in the estimated exposures could occur.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with several of its
executive officers for periods ranging from two to five years. The
agreements provide the employees with an option to terminate their
agreements and receive lump sum payments of up to five years compensation
if there is a change in control of the Company.
(continued)
20
<PAGE> 63
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE K - COMMITMENTS AND CONTINGENCIES - Continued
OTHER
In April 1994, the Company purchased from Ourimbah Investment, Limited
("Ourimbah") the remaining 20% of the issued and outstanding capital stock
of Durable (the "Purchased Shares") which had not, prior to such purchase,
been owned, directly or indirectly, by the Company. In connection with such
purchase, the Company agreed to make an additional payment to Ourimbah for
the Purchased Shares upon the occurrence of a change of control of the
Company on or before July 1, 1999. Any such additional payment will be in
an amount with respect to each Purchased Share equal to the greater of (i)
the same multiple of earnings per share of Durable as the highest multiple
of earnings per share paid for the shares of common stock of the Company
received in connection with such change of control or (ii) the same
multiple of net asset value per share of Durable as the highest multiple of
price per net asset value per share paid for the shares of common stock of
the Company received in connection with such change of control. For
purposes of determining whether any such additional payment is required, a
change of control will be deemed to have occurred upon (i) the acquisition
by any person of 50% or more of the then outstanding shares of common stock
of the Company, (ii) a change in the majority of the members of the
Company's board of directors who are serving as of the date of the purchase
agreement or (iii) the approval by the Company's shareholders of (A) a
reorganization, merger or consolidation in which the shareholders of the
Company prior to such transaction do not, immediately thereafter, own more
than 50% of the combined voting power of the Company following such
transaction, (B) a liquidation of dissolution of the Company or (C) a sale
of all or substantially all of the Company's assets. No change of control
will be deemed to have occurred in connection with any transaction approved
by a majority of the members of the board of directors.
NOTE L - STOCKHOLDERS' EQUITY
STOCK OPTIONS
The Company's 1982 and 1992 Employees' Incentive Stock Option Plans provide
for granting of options of not more than 1,200,000 shares and 500,000
shares, respectively, of common stock. Options granted under the plans are
exercisable in equal annual installments during a five or six year period
beginning one year after the date the option is granted.
(continued)
21
<PAGE> 64
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE L - STOCKHOLDERS' EQUITY - Continued
The Company has also granted stock options which are classified as
non-qualified, and which are not included in the 1982 or 1992 Employees'
Incentive Stock Option Plans. Prior to December 31, 1995, the Company
accounted for such options under APB Opinion 25 and related
Interpretations. Commencing January 1, 1996, the Company accounts for
non-qualified options issued to non-employees, under SFAS 123, Accounting
for Stock Based Compensation.
The exercise price of all options granted by the Company equals the market
price at the date of grant. No compensation expense has been recognized.
During 1996, the Company issued options to purchase 97,500 shares of common
stock to non-employee sales representatives. These sales representatives
included Top Sales and TJK (Note P) which received options to purchase
25,000 shares. The options were issued with an exercise price that was
equal to the market price on the date of the grant. The total fair value of
the options, as determined under SFAS 123, was $357,000 which is to be
amortized over the vesting period of the options. For 1996, the Company
expensed $68,000 associated with these options.
In connection with the purchase of certain assets of LitterMaid(TM), the
Company issued options for the purchase of 150,000 shares of common stock.
The total fair value of the options, as determined under SFAS 123, was
$549,000 and has been included in the cost of purchasing the assets.
Had compensation cost for the Employees' Incentive Stock Option Plans and
non-qualified options issued to employees been determined based on the fair
value of the options at the grant dates consistent with the method of SFAS
123, the Company's net income (loss) and earnings (loss) per share would
have been changed to the pro forma amounts indicated below. Disclosure of
such amounts is not required for the fiscal year ended December 31, 1994
and accordingly is not presented below.
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Net income (loss)
As reported $ 451,400 $ (1,883,800)
Pro forma $ (2,846,351) $ (1,935,700)
Primary earnings (loss) per share
As reported $ .02 $ (.11)
Pro forma $ (.17) $ (.11)
</TABLE>
(continued)
22
<PAGE> 65
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE L - STOCKHOLDERS' EQUITY - Continued
The above pro forma disclosures may not be representative of the effects on
reported net income for future years as options vest over several years and
the Company may continue to grant options to employees.
The fair value of each option grant is estimated on the date of grant using
the binomial option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: dividend yield
of 0.0 percent for all years; expected volatility of 43.97 percent and
42.20 percent; risk-free interest rates of 5.56 percent and 5.34 percent;
and expected holding periods of 6.34 and 4.06 years.
A summary of the status of the Company's fixed stock options as of December
31, 1996 and 1995, and changes during the years ending on those dates is as
follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------- -------------------------
Weighted - Weighted -
Shares Average Shares Average
(000) Exercise Price (000) Exercise Price
----- --------------- ----- --------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 1,866 $ 5.95 1,967 $ 5.85
Granted 1,758 7.89 106 7.77
Exercised (221) 4.20 (112) 3.52
Expired -- -- (20) 17.38
Forfeited (34) 6.16 (75) 6.47
------ ------
Outstanding at
end of year 3,369 7.03 1,866 5.95
====== ======
Options exercisable at
end of year 1,563 1,270
Weighted-average fair value
of options granted during
the year $ 4.04 $ 3.14
</TABLE>
(continued)
23
<PAGE> 66
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE L - STOCKHOLDERS' EQUITY - Continued
The following information applies to options outstanding at December 31,
1996.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ -----------------------------
Weighted -
Average Weighted - Weighted -
Range of Shares Remaining Average Shares Average
Exercise Prices (000) Contractual Life Exercise Price (000) Exercise Price
----------------- ----- ---------------- -------------- ----- --------------
<S> <C> <C> <C> <C> <C>
$ 2.875 - $ 3.693 361 3.56 $ 3.25 361 $ 3.12
$ 4.500 - $ 6.375 145 11.13 5.81 124 4.90
$ 7.000 - $10.375 2,784 14.96 7.50 1,064 7.18
$10.875 - $14.500 79 7.36 13.00 14 10.88
----- -----
$ 2.875 - $14.500 3,369 13.39 7.03 1,563 6.10
===== =====
</TABLE>
WARRANTS
As part of a lawsuit settlement, warrants to purchase 750,423 shares of the
Company's common stock have been issued. The warrants have an exercise
price of $7.50 per share and are exercisable through January 19, 1998. At
December 31, 1996, 432,997 warrants have been exercised.
COMMON STOCK PURCHASE RIGHTS PLAN
In March 1995, the Company implemented a Common Stock Purchase Rights Plan
and distributed one Right for each share of the Company's common stock
outstanding. The Rights are not exercisable or transferable, apart from the
Company's common stock, until after a person or group acquires, or has the
right to acquire, beneficial ownership of 15 percent or more of the
Company's common stock (which threshold may, under certain circumstances,
be reduced to 10 percent) or announces a tender or exchange offer to
acquire such percentage of the Company's common stock. Each Right entitles
the holder to purchase one quarter of one share of common stock at an
exercise price of $25.00 per full share and contains provisions that
entitle the holder in the event of specific transactions, to purchase
common stock of the Company or any acquiring or surviving entity at
one-half of market price as determined under the terms of the Rights
Agreement. The Rights will expire in March 2005, unless previously
exercised or redeemed at the option of the Company for $.00001 per Right.
(continued)
24
<PAGE> 67
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE L - STOCKHOLDERS' EQUITY - Continued
STOCK PURCHASE PROGRAM
The $3.8 million purchase in 1996 of 463,000 shares of the Company's common
stock completed the Company's purchase of 1,000,000 shares of its common
stock under the 1994 stock purchase program. In 1996, the Company's Board
of Directors authorized a new stock purchase program, whereby, the Company
can purchase up to 10-percent of its outstanding shares (approximately 1.6
million shares). No shares have been purchased under the new program.
NOTE M - SPECIAL PREFERRED STOCK
During 1986, the Company was authorized to issue 40,000,000 shares of $.01
par value special preferred stock purchase rights for each share of common
stock, par value $.10 per share. These rights entitled the holder to
purchase one share of special preferred stock at a price of $.01 under
certain conditions in connection with preserving for the Company and its
stockholders the benefits of any recovery in the Company's lawsuit with
North American Philips Corporation, et al. In 1992, these conditions ceased
to apply, therefore, the special preferred stock rights remain outstanding
but have no continuing application.
NOTE N - GEOGRAPHIC AREA INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
United States operations $ 127,093,600 $ 126,959,000 $ 136,500,000
International operations
Sales to unaffiliated customers 69,910,000 60,817,900 44,612,200
Transfers between geographical
areas 82,809,500 83,517,400 85,070,700
Eliminations (82,809,500) (83,517,400) (85,070,700)
------------- ------------- -------------
$ 197,003,600 $ 187,776,900 $ 181,112,200
============= ============= =============
</TABLE>
(continued)
25
<PAGE> 68
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE N - GEOGRAPHIC AREA INFORMATION - Continued
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING PROFIT
United States operations $ (3,831,000) $ (7,774,000) $ 5,799,000
International operations 5,020,100 1,854,500 15,853,400
Eliminations (889,000) 1,164,000 (447,000)
------------- ------------- -------------
Operating profit (loss) 300,100 (4,755,500) 21,205,400
Equity in net earnings (loss)
of joint ventures 2,298,700 (392,600) 91,400
Interest expense (1,345,900) (578,300) (551,900)
Interest and other income 2,418,800 2,561,800 2,385,800
------------- ------------- -------------
Consolidated earnings (loss)
before income taxes,
minority interest and
extraordinary item $ 3,671,700 $ (3,164,600) $ 23,130,700
============= ============= =============
IDENTIFIABLE ASSETS
United States operations $ 178,703,900 $ 101,555,700 $ 112,339,500
International operations 159,785,100 145,714,800 123,670,900
Eliminations (103,010,100) (59,258,600) (38,886,400)
------------- ------------- -------------
Consolidated assets $ 235,478,900 $ 188,011,900 $ 197,124,000
============= ============= =============
</TABLE>
Transfers between geographic areas are billed at negotiated prices. In
1995, the United States operations' operating profit includes an $8,000,000
loss on the sale of an other asset. In 1994, the international operations'
operating profit includes a $7,810,500 gain on the sale of Hong Kong office
space. All United States revenues are derived from sales to unaffiliated
customers. Included in domestic revenues and operating profit are certain
sales derived from direct product shipments from Hong Kong to customers
located in the United States.
International operations are conducted in Canada, Hong Kong, Europe and the
People's Republic of China.
26
<PAGE> 69
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE O - CONCENTRATION OF CREDIT AND OTHER RISKS
The Company sells on credit terms to a majority of its customers, most of
which are U.S. and Canadian retailers and distributors located throughout
those countries.
A kitchen electric appliance distributor and a national retail beauty
supply chain accounted for 10.9% and 10.3%, respectively, of 1996 sales. In
1995, Wal-Mart Stores, Inc. and a kitchen electric appliance distributor
accounted for 13.1% and 11.4%, respectively, of the Company's sales.
The Company's allowance for doubtful accounts is based on management's
estimates of the creditworthiness of its customers, and, in the opinion of
management is believed to be set in an amount sufficient to respond to
normal business conditions. Should such conditions deteriorate or any major
credit customer default on its obligations to the Company, this allowance
may need to be increased which may have an adverse impact upon the
Company's earnings.
The Company produces the vast majority of its products in its facilities in
the People's Republic of China ("PRC"). The Company is subject to the risk
that political or economic upheaval in the PRC could cause production
disruptions and/or increases to its costs, although no such events have
occurred in over five years. 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 renewed on an
annual basis by the President and Congress. If political or economic
instability in the PRC develops or if higher duties were applied to imports
into the U.S., the Company could experience a material adverse impact on
its revenues and earnings.
NOTE P - RELATED PARTY TRANSACTIONS
The Company has used the services of Top Sales Company, Inc. ("Top Sales"),
an independent sales representative, since 1978. A member of the Company's
Board of Directors is the sole shareholder and Chief Executive Officer of
Top Sales. The Company made commission payments to Top Sales of $693,300,
$556,400 and $719,600 in 1996, 1995 and 1994, respectively. In 1996, the
President of TJK Sales Inc. ("TJK"), an independent sales representative,
became a member of the Company's Board of Directors. Commission payments to
TJK totaled $469,000 in 1996.
Included in other assets, are a series of personal loans made by the
Company to the President and Chief Executive Officer. The loans, which
total $959,000 at December 31, 1996, bear interest at prevailing market
rates and mature in 2001.
(continued)
27
<PAGE> 70
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
NOTE P - RELATED PARTY TRANSACTIONS - Continued
In 1986, the Company made a non-interest bearing loan of $78,000 to a
director of the Company. The entire amount of such loan was outstanding at
December 31, 1996.
The Company loaned $300,000 to Lion Redcliff Import and Export, Ltd., which
is 50-percent owned by an entity whose President is also a Director of the
Company. Pursuant to the note, periodic principal payments are made by the
debtor. The remaining obligation of $253,100 at December 31, 1996, bears
interest at the prime rate.
NOTE Q - FABERWARE LICENSE
In the fourth quarter of 1996, the Company entered into a license
agreement, pursuant to which, it holds the exclusive world-wide rights to
use the Faberware name on a broad range of small electric products. Under
the Company's marketing cooperation agreement with Salton, Salton is to be
the exclusive distributor of the Faberware products. The license agreement
expires December 31, 2095 and calls for quarterly royalty payments of
10-percent of net sales as defined in the agreement.
NOTE R - EXTRAORDINARY ITEM
On March 27, 1997, the Company paid $4,500,000 to settle the lawsuit filed
in April 1994 by Izumi relating to the Phillips settlement in 1992 (Note
K). An accrual of $5,300,000, including $800,000 in estimated legal
expenses has been recorded as of December 31, 1996. The transaction
resulted in an after tax charge of $3,500,000 and has been recorded as an
extraordinary item, to correspond with the extraordinary gain recorded from
the settlement in 1992.
NOTE S - SUBSEQUENT EVENT
In January 1997, the Company through its 50-percent interests in Salton and
New M-Tech entered into supply contracts with the Kmart Corporation for
Kmart to purchase, distribute, market and sell certain products under the
White-Westinghouse brand name licensed to Salton and New M-Tech. Under the
terms of the contract, Salton and New M-Tech will supply Kmart, either
through the Company or other manufacturers, with a broad range of small
electrical appliances, consumer electronics and telephone products under
the White-Westinghouse brand name. Kmart will be the exclusive discount
department store to market these White-Westinghouse products.
28
<PAGE> 71
WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly results for the years 1996 and 1995 are set forth in the following
tabulation. (In Thousands)
<TABLE>
<CAPTION>
Net Earnings
Gross Earnings (Loss)
Sales Profit (Loss) Per Share
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
1996
- ----
First quarter $ 40,440 $ 8,603 $ 296 $ .02
Second quarter 39,503 8,349 (442) (.03)
Third quarter 56,181 10,415 1,701 .10
Fourth quarter 60,880 12,358 (1,104) (.06)
-------- -------- -------- ---------
Total $197,004 $ 39,725 $ 451 $ .03 *
======== ======== ======== =========
1995
- ----
First quarter $ 37,930 $ 9,136 $ 305 $ .02
Second quarter 42,102 9,074 936 .05
Third quarter 52,681 11,221 872 .05
Fourth quarter 55,064 11,439 (3,997)** (.23)
-------- -------- -------- ---------
Total $187,777 $ 40,870 $ (1,884) $ (.11)
======== ======== ======== =========
</TABLE>
* Differs by $.01 from earnings per share for the year-ended 1996, due to the
effect of the change in common shares and common equivalent shares
outstanding from quarter to quarter. Includes an after tax extraordinary
charge for the settlement of the Izumi case of $3,500,000 or $.20 per
share.
** Includes an after-tax non-recurring loss on the sale of an ozther asset of
$5,280,000, or $.31 per share.
QUARTERLY STOCK QUOTATIONS AND DIVIDENDS PER SHARE
The Company's common stock is traded on the New York Stock Exchange under the
symbol WND. High and low market prices and dividends paid per share in 1996 and
1995, by quarters, are as follows:
<TABLE>
<CAPTION>
Market Price
-------------------- Cash
High Low Dividends
---- --- ---------
<S> <C> <C> <C>
1996
----
Fourth quarter 16-3/4 12-5/8 $ .05
Third quarter 15-3/8 11-1/4 .05
Second quarter 14-3/4 9-5/8 .05
First quarter 11 6-7/8 .05
-------
$ .20
=======
1995
----
Fourth quarter 7-3/8 6 $ .05
Third quarter 8-1/4 7-1/4 .05
Second quarter 9 7-5/8 .05
First quarter 9-3/4 7-5/8 .05
-------
$ .20
=======
</TABLE>
The approximate number of holders of common stock of the Company, as of December
31, 1996, was 1,400. This number does not include any adjustment for
stockholders owning common stock in the Depository Trust name or otherwise in
"Street" name, which the Company believes represents an additional 4,300
stockholders.
29
<PAGE> 1
ARTICLES OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
WINDMERE CORPORATION
Pursuant to the provisions of Section 607.1006 of the Florida Business
Corporation Act (the "Act"), the undersigned corporation adopts the following
Articles of Amendment to its Amended and Restated Articles of Incorporation:
1. The name of the corporation is WINDMERE CORPORATION (the
"Corporation"), CHARTER #274332, filed on October 3, 1963 and Amended and
Restated on May 17, 1984.
2. The following Amendment to the Amended and Restated Articles of
Incorporation was adopted by all of the Directors of the Corporation on May 14,
1996 and by the Shareholders of the Corporation, the number of votes cast being
sufficient for approval, on June 13, 1996 in the manner prescribed by Section
607.1003 of the Act:
RESOLVED, that Article I of the Corporation's Amended and Restated
Articles of Incorporation shall be amended in its entirety to read as
follows:
ARTICLE I
The name of the Corporation is WINDMERE-DURABLE HOLDINGS, INC.
(hereinafter called the "Corporation").
3. Except as hereby amended, the Amended and Restated Articles of
Incorporation of the Corporation shall remain the same.
IN WITNESS WHEREOF, the undersigned being the Vice President-Finance of
the Corporation, has executed these Articles of Amendment to Amended and
Restated Articles of Incorporation of Windmere Corporation this 18th day of
June, 1996.
WINDMERE CORPORATION,
a Florida corporation
By: ---------------------------
Burton A. Honig,
Vice President-Finance
<PAGE> 1
AMENDMENT AGREEMENT NO. 1
TO THE CREDIT AGREEMENT
THIS AMENDMENT AGREEMENT NO. 1 (the "Amendment Agreement"), dated as of
January 31, 1997 TO THE CREDIT AGREEMENT dated as of October 11, 1996 (the
"Credit Agreement"), made by and among WINDMERE CORPORATION, a Florida
corporation having its principal place of business in Miami Lakes, Florida (the
"Borrower"), NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), a national banking
association organized and existing under the laws of the United States, in its
capacity as a Lender ("NationsBank"), NATIONAL BANK OF CANADA (hereinafter such
financial institutions may be referred to individually as a "Lender" or
collectively as the "Lenders"), and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), a
national banking association organized and existing under the laws of the United
States, in its capacity as agent for the Lenders (in such capacity, the
"Agent");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Agent and the Lenders have entered into the
Credit Agreement;
WHEREAS, the Borrower has requested that the Agent and the Lenders
amend the Credit Agreement; and
WHEREAS, upon the terms and conditions contained herein, the Agent and
the Lenders are willing to amend the Credit Agreement;
NOW, THEREFORE, in consideration of the premises and conditions herein
set forth, it is hereby agreed as follows:
1. CREDIT AGREEMENT AMENDMENT. Subject to the conditions hereof, the
Credit Agreement is hereby amended, effective as of the date hereof, as follows:
(a) SECTION 1.1 thereof is hereby amended by amending and
restating the following definition in its entirety as follows:
"'Total Revolving Credit Commitment' means a
principal amount equal to $30,000,000, such amount as reduced
from time to time in accordance with Section 2.7."
(b) EXHIBIT A To the Credit Agreement is hereby amended by
amending and restating such Exhibit in its entirety as set forth in
EXHIBIT A hereto.
<PAGE> 2
2. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent and the
Lenders to enter into this Amendment Agreement, the Borrower hereby represents
and warrants that the Credit Agreement has been re-examined by the Borrower and
that except as disclosed by the Borrower in writing to the Lenders as of the
date hereof:
(a) The representations and warranties made by the Borrower in
Article VII thereof are true on and as of the date hereof;
(b) There has been no material adverse change in the
condition, financial or otherwise, of the Borrower and its Subsidiaries
since the date of the most recent financial reports of the Borrower
delivered to the Agent under Section 8.1 thereof, other than changes in
the ordinary course of business;
(c) The business and properties of the Borrower and its
Subsidiaries are not, and since the date of the most recent financial
reports of the Borrower delivered to the Agent under Section 8.1
thereof, have not been, adversely affected in any substantial way as
the result of any fire, explosion, earthquake, accident, strike,
lockout, combination of workers, flood, embargo, riot, activities of
armed forces, war or acts of God or the public enemy, or cancellation
or loss of any major contracts; and
(d) After giving effect to this Amendment Agreement, no
condition exists which, upon the effectiveness of the amendment
contemplated hereby, would constitute a Default or an Event of Default
on the part of the Borrower under the Credit Agreement or the Notes,
either immediately or with the lapse of time or the giving of notice,
or both.
3. CONDITIONS PRECEDENT. The effectiveness of this Amendment Agreement
is subject to the receipt by the Agent of the following:
(i) six counterparts of this Amendment Agreement duly
executed by all signatories hereto;
(iii) resolutions of the Board of Directors or other
governing body of the Borrower approving this Amendment
Agreement certified by the Secretary of the Borrower; and
(iii) copies of all additional agreements,
instruments and documents which the Agent may reasonably
request, such documents, when appropriate, to be certified by
appropriate governmental authorities.
All proceedings of the Borrower relating to the matters provided
3
<PAGE> 3
for herein shall be satisfactory to the Lenders, the Agent and their counsel.
4. ENTIRE AGREEMENT. This Amendment Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter. No promise, condition, representation
or warranty, express or implied, not herein set forth shall bind any party
hereto, and no one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledges that, except
as in this Amendment Agreement otherwise expressly stated, no representations,
warranties or commitments, express or implied, have been made by any party to
the other. None of the terms or conditions of this Amendment Agreement may be
changed, modified, waived or canceled orally or otherwise, except by writing,
signed by all the parties hereto, specifying such change, modification, waiver
or cancellation of such terms or conditions, or of any proceeding or succeeding
breach thereof.
5. CONSENT OF GUARANTORS. The Guarantors have joined in the execution
of this Amendment Agreement for the purposes of consenting hereto and for the
further purpose of confirming their guaranty of Obligations of Borrower as
provided in the Guaranty.
6. FULL FORCE AND EFFECT OF AGREEMENT. Except as hereby specifically
amended, modified or supplemented, the Credit Agreement and all other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.
7. COUNTERPARTS. This Amendment Agreement may be executed in any number
of counterparts, each of which shall be deemed an original as against any party
whose signature appears thereon, and all of which shall together constitute one
and the same instrument.
8. GOVERNING LAW. THIS AMENDMENT AGREEMENT SHALL IN ALL RESPECTS BE
GOVERNED BY THE LAW OF THE STATE OF FLORIDA, WITHOUT REGARD TO ANY OTHERWISE
APPLICABLE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY (I) SUBMITS TO
THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS OF FLORIDA FOR THE
PURPOSES OF RESOLVING DISPUTES HEREUNDER OR UNDER ANY OF THE OTHER LOAN
DOCUMENTS TO WHICH IT IS A PARTY OR FOR PURPOSES OF COLLECTION AND (II) WAIVES
TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION.
9. ENFORCEABILITY. Should any one or more of the provisions of this
Amendment Agreement be determined to be
4
<PAGE> 4
illegal or unenforceable as to one or more of the parties hereto, all other
provisions nevertheless shall remain effective and binding on the parties
hereto.
10. CREDIT AGREEMENT. All references in any of the Loan Documents to
the Credit Agreement shall mean and include the Credit Agreement as amended
hereby.
11. SUCCESSORS AND ASSIGNS. This Amendment Agreement shall be binding
upon and inure to the benefit of each of the Borrower, the Lenders, the Agent
and their respective successors, assigns and legal representatives; provided,
however, that the Borrower, without the prior consent of the Lenders, may not
assign any rights, powers, duties or obligations hereunder.
[Remainder of page intentionally left blank.]
5
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
WINDMERE CORPORATION
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
GUARANTORS:
WINDMERE-DURABLE HOLDINGS, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
WINDMERE HOLDINGS CORPORATION
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
WINDMERE HOLDINGS CORPORATION II
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
WINDMERE FAN PRODUCTS, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
LITTER MAID, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 6
BAY BOOKS & TAPES, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
JERDON PRODUCTS, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
CONSUMER PRODUCTS AMERICAS, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
FORTUNE PRODUCTS, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
EDI MASTERS, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
NATIONSBANK, NATIONAL ASSOCIATION
(SOUTH), as Agent and Lender
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
NATIONAL BANK OF CANADA, as Lender
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 7
EXHIBIT A
APPLICABLE COMMITMENT PERCENTAGES
Revolving Applicable
Credit Commitment
Lender Commitment Percentage
- ------ ------------ ------------
NationsBank, National
Association (South) $17,000,000 56.666666667%
National Bank of
Canada 13,000,000 43.333333333%
----------- ------------
$30,000,000 100%
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,779,500
<SECURITIES> 0
<RECEIVABLES> 38,729,900
<ALLOWANCES> 1,128,700
<INVENTORY> 89,514,000
<CURRENT-ASSETS> 155,016,400
<PP&E> 79,666,300
<DEPRECIATION> 46,906,500
<TOTAL-ASSETS> 237,278,900
<CURRENT-LIABILITIES> 49,451,900
<BONDS> 2,037,000
0
0
<COMMON> 1,744,500
<OTHER-SE> 165,950,300
<TOTAL-LIABILITY-AND-EQUITY> 237,278,900
<SALES> 197,003,600
<TOTAL-REVENUES> 197,003,600
<CGS> 157,278,400
<TOTAL-COSTS> 157,278,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 930,000
<INTEREST-EXPENSE> 1,345,900
<INCOME-PRETAX> 1,373,000
<INCOME-TAX> (279,700)
<INCOME-CONTINUING> 3,951,400
<DISCONTINUED> 0
<EXTRAORDINARY> (3,500,000)
<CHANGES> 0
<NET-INCOME> 451,400
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
