<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended JUNE 30, 1997
----------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________to__________
Commission File Number 1-10177
---------------
WINDMERE-DURABLE HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-1028301
- --------------------------------- -----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5980 MIAMI LAKES DRIVE, MIAMI LAKES, FLORIDA 33014
-------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(305) 362-2611
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirement for the past 90 days. Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
Class on August 1, 1997
----- -----------------
Common Stock, $.10 Par Value 17,603,334
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WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Statements of Earnings for the
------- Three Months Ended June 30, 1997 and 1996 3
Consolidated Statements of Earnings for the
Six Months Ended June 30, 1997 and
1996 4
Consolidated Balance Sheets as of
June 30, 1997, December 31, 1996
and June 30, 1996 5-6
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1997
and 1996 7-8
Notes to Consolidated Financial Statements 9-11
ITEM 2. Management's Discussion and Analysis of
------- Financial Condition and Results of
Operations 12-16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 17
-------
ITEM 6. Exhibits and Reports on Form 8-K 18
-------
SIGNATURES 19
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(In Thousands Except Per Share Information)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
------------------------ ------------------------
<S> <C> <C> <C> <C>
Sales and Other Revenues $ 60,063 100.0% $ 39,503 100.0%
Cost of Goods Sold 47,057 78.3 31,154 78.9
-------- ---------- -------- ----------
Gross Profit 13,006 21.7 8,349 21.1
Selling, General and
Administrative Expenses 11,650 19.4 8,717 22.1
-------- ---------- -------- ----------
Operating Profit 1,356 2.3 (368) (1.0)
Other (Income) Expense
Interest Expense 709 1.2 196 .5
Interest and Other Income (487) (.8) (615) (1.6)
-------- ---------- -------- ----------
222 .4 (419) (1.1)
-------- ---------- -------- ----------
Earnings Before Equity in Net
Earnings (Loss) of Joint Ventures
and Income Taxes 1,134 1.9 51 .1
Equity in Net Earnings (Loss)
of Joint Ventures 611 1.0 (526) (1.3)
-------- ---------- -------- ----------
Earnings Before Income Taxes 1,745 2.9 (475) (1.2)
Income Taxes
Current (441) (.7) (95) (.2)
Deferred 245 .4 62 .1
-------- ---------- -------- ----------
(196) (.3) (33) (.1)
-------- ---------- -------- ----------
Net Earnings (Loss) $ 1,941 3.2% $ (442) (1.1%)
======== ========== ======== ==========
Earnings (Loss) Per Common Share
and Common Equivalent Share $ .10 $ (.03)
======== ========
Average Number of Common
Shares and Common Equivalent
Shares Outstanding 19,546 16,405
======== ========
Dividends Per Common Share $ .05 $ .05
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
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WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(In Thousands Except Per Share Information)
Six Months Ended June 30,
1997 1996
--------------- -------------
Sales and Other Revenues $111,475 100.0% $79,943 100.0%
Cost of Goods Sold 87,650 78.6 62,991 78.8
-------- ---- ------ ----
Gross Profit 23,825 21.4 16,952 21.2
Selling, General and
Administrative Expense 21,347 19.1 16,766 21.0
-------- ---- ------ ----
Operating Profit 2,478 2.3 186 .2
Other (Income) Expense
Interest Expense 1,333 1.2 329 .4
Interest and Other Income (964) (.8) (1,090) (1.4)
-------- ---- ------ ----
369 .4 (761) (1.0)
-------- ---- ------ ----
Earnings Before Equity in Net
Earnings (Loss) of Joint
Ventures and Income Taxes 2,109 1.9 947 1.2
Equity in Net Earnings (Loss)
of Joint Ventures 120 .1 (751) .9
-------- ---- ------ ----
Earnings Before Income Taxes 2,229 2.0 196 .3
Income Taxes
Current (2,436) (2.2) (193) (.2)
Deferred 2,405 2.2 535 .7
-------- ---- ------ ----
(31) .0 342 .5
-------- ---- ------ ----
Net Earnings (Loss) $2,260 2.0% $ (146) (.2%)
======== ==== ====== ====
Earnings (Loss) Per Common
and Common Equivalent Shares $ .12 $ (.01)
======== ======
Average Number of Common
and Common Equivalent
Shares Outstanding 19,416 17,014
======== ======
Dividends Per Common Share $.10 $ .10
======== ======
The accompanying notes are an integral part of these statements.
4
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WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Thousands)
ASSETS 6/30/97 12/31/96 6/30/96
------- -------- -------
CURRENT ASSETS
Cash & Cash Equivalents $ 4,354 $ 8,779 $ 5,499
Accounts and Other Receivables,
less allowances of $1,146,
$1,129 and $1,148, respectively 35,646 37,601 34,991
Receivables from Affiliates (Note 2) 14,255 12,139 10,114
Inventories
Raw Materials 16,826 13,824 16,290
Work-in-process 21,704 20,552 21,073
Finished Goods 52,290 55,138 46,128
-------- -------- --------
Total Inventories 90,820 89,514 83,491
Prepaid Expenses 5,579 3,751 4,718
Future Income Tax Benefits 3,404 3,232 1,210
-------- -------- --------
Total Current Assets 154,058 155,016 140,023
INVESTMENTS IN JOINT VENTURES
(NOTE 2) 35,860 35,291 10,631
PROPERTY, PLANT & EQUIPMENT -
AT COST, less accumulated
depreciation of $48,218,
$45,366 and $43,436, respectively 34,504 32,760 31,109
OTHER ASSETS 13,199 14,212 12,716
-------- -------- --------
TOTAL ASSETS $237,621 $237,279 $194,479
======== ======== ========
5
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WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Thousands)
Continued
LIABILITIES 6/30/97 12/31/96 6/30/96
------- -------- -------
CURRENT LIABILITIES
Notes and Acceptances Payable $ 29,269 $ 21,883 $ 7,558
Current Maturities of Long-Term
Debt 815 815 815
Accounts Payable and
Accrued Expenses 18,840 26,335 15,265
Deferred Income, current portion 330 419 598
--------- --------- ---------
Total Current Liabilities 49,254 49,452 24,236
LONG-TERM DEBT 19,477 19,885 9,444
DEFERRED INCOME, less current
portion 83 247 368
STOCKHOLDERS' EQUITY (Note 3)
Special Preferred Stock -
authorized 40,000,000 shares of
$.01 par value; none issued
Common Stock - authorized
40,000,000 shares of $.10 par
value; shares issued and out-
standing: 17,563, 17,445 and
16,422, respectively 1,756 1,745 1,642
Paid-in Capital 36,431 35,766 27,549
Retained Earnings 131,513 130,965 132,066
Unrealized Foreign Currency
Translation Adjustment (893) (781) (826)
--------- --------- ---------
Total Stockholders' Equity 168,807 167,695 160,431
--------- --------- ---------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 237,621 $ 237,279 $ 194,479
========= ========= =========
The accompanying notes are an integral part of these statements.
6
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WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
Six Months Ended June 30,
1997 1996
---- ----
Cash flows from operating activities:
Net earnings (loss) $ 2,260 $ (146)
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation of property, plant and
equipment 3,202 3,240
Amortization of intangible assets 561 315
Amortization of deferred income (253) (299)
Net change in allowance for losses
on accounts receivable 17 (10)
Equity in net (earnings) loss of joint ventures (422) 751
Changes in assets and liabilities
Decrease in accounts and other
receivables 1,938 1,570
Increase in inventories (1,306) (3,748)
Increase in prepaid expenses (1,828) (1,715)
Decrease (increase) in other assets 585 (820)
Decrease in accounts payable
and accrued expenses (7,495) (2,843)
(Increase) decrease in current and
deferred income taxes (172) 433
Decrease in other accounts (111) (54)
-------- --------
Net cash used in
operating activities (3,024) (3,326)
Cash flows from investing activities:
Additions to property, plant and
equipment - net (4,946) (3,865)
Purchase of assets - LitterMaid(TM) -- (2,200)
Purchase of assets - Bay Books & Tapes -- (1,180)
Investments in joint ventures (250) (3,698)
Increase in receivable accounts
and notes from affiliates (2,146) (815)
-------- --------
Net cash used in
investing activities $ (7,342) $(11,758)
7
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WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
Continued
Six Months Ended June 30,
1997 1996
---- ----
Cash flows from financing activities:
Net borrowings under lines of credit $ 7,386 $ 7,516
Payments of long-term debt (408) $ (408)
Exercise of stock options
and warrants 677 1,115
Cash dividends paid (1,714) (1,640)
Purchases of common stock -- (3,768)
-------- --------
Net cash provided by
financing activities 5,941 2,815
-------- --------
Decrease in cash
and cash equivalents (4,425) (12,269)
Cash and cash equivalents at
beginning of year 8,779 17,768
-------- --------
Cash and cash equivalents at end
of quarter $ 4,354 $ 5,499
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 830 $ 199
Income taxes $ 6 $ 250
The accompanying notes are an integral part of these statements.
8
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WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
INTERIM REPORTING
In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all normal recurring
adjustments necessary to present fairly the Company's
financial position as of June 30, 1997 and 1996, and the
results of its operations and changes in financial position
for the interim periods. Results for interim periods should
not be considered indicative of results for a full year.
Reference should be made to the financial statements contained
in the registrant's Annual Report on Form 10-K for the year
ended December 31, 1996.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified for
comparability.
2. 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 purchased the remainder of its
seasonal products joint venture. Financial data for this
entity is consolidated for the 1997 period and has, therefore,
been excluded in the table below for 1997.
Summarized financial information of the unconsolidated
companies is as follows: (In Thousands)
Six Six
Months Ended Year Ended Months Ended
6/30/97 12/31/96 6/30/96
------- -------- -------
EARNINGS
--------
Sales $125,342 $162,368 $ 23,295
Gross Profit $ 29,804 $ 34,312 $ 1,462
Net Earnings (Loss) $ 846 $ 5,552 $ (1,502)
BALANCE SHEET
-------------
Current Assets $106,995
Noncurrent Assets $ 35,727
Current Liabilities $ 87,806
Shareholders' Equity $ 54,529
9
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At June 30, 1997, the Company's loans to certain of its joint
venture partners ("affiliates") totaled $9.8 million, of which
$3.0 million was subsequently repaid. The Company has also
provided a $3 million corporate guarantee in conjunction with
a credit facility obtained by one of its joint ventures.
Sales made by joint ventures were to entities other than
members of the consolidated group. Sales totaling $9.7 million
and $1.2 million were made by the Company to the joint
ventures in the three month periods ended June 30, 1997 and
1996, respectively. Included in Receivables from Affiliates at
June 30, 1997 is $3.6 million due the Company from the joint
ventures for trade receivables.
Note: Profits earned by the Company's manufacturing subsidiary
on sales to joint ventures are included in the consolidated
earnings results and are not part of the above table.
3. STOCKHOLDERS' EQUITY
DIVIDENDS
The Board of Directors of the Company declared a regular
quarterly cash dividend of $.05 per share to shareholders of
record at the close of business on June 3, 1997, which was
paid on June 17, 1997. The payment of dividends is at the
discretion of the Board of Directors of the Company and will
depend upon, among other things, future earnings, capital
requirements, the Company's financial condition and such other
factors as the Board of Directors may consider.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share", which changes the method for reporting Earnings
Per Share. The statement is effective for financial statement
periods ending after December 15, 1997. The Company has not
yet determined the impact, if any, of adopting the new
standard.
4. 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.
5. MARKETING COOPERATION AGREEMENT
On April 30, 1997, the Company entered into a Letter Agreement
with Salton pursuant to the Marketing Cooperation Agreement
included as part of the original Stock Purchase Agreement.
Fees earned by the
10
<PAGE> 11
Company under marketing arrangements with its joint ventures
totaled $.8 million for the six month period ended June 30,
1997 and are classified as Sales and Other Revenues.
6. COMMITMENTS AND CONTINGENCIES
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, 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 April 9, 1997, on joint
motion of the parties, the court issued an order staying
future proceedings until the earlier of July 1, 1997 or five
days after hearing before the court in order to give the
parties an opportunity to pursue settlement discussions.
Subsequently, after a status hearing before the Court on July
15, 1997, and in accordance with the Court's memorandum order
of July 17, 1997, counsel for the parties in the litigation
pending in the United States District Court for the Western
District of Pennsylvania reported to the Court in a letter
that the parties had agreed to pursue an expedited
mini-trial/mediation proceeding in an effort to resolve their
disputes. The letter further states that if the process does
not result in a resolution of the dispute, the parties have
committed to report to the Court by no later than September
30, 1997, regarding a proposed schedule for expedited pretrial
preparation and trial.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1996
Sales and Other Revenues ("Sales") for the second quarter of 1997 increased by
$20.6 million or 52.0% over Sales for the same period in 1996. The increase is
primarily the result of the inclusion of $4.6 million in seasonal product sales
as a result of the Company's December 1996 acquisition of the remainder of its
seasonal products joint venture and an increase of $11.9 million in
manufacturing sales. Sales to Salton accounted for 15.3% of total sales for the
1997 period.
On April 30, 1997, the Company entered into a Letter Agreement with Salton
pursuant to the Marketing Cooperation Agreement included as part of the original
Stock Purchase Agreement. Fees earned by the Company under marketing
arrangements with its joint ventures totaled $.4 million and are classified as
Sales and Other Revenues.
COMPARATIVE SALES RESULTS
--------------------------------------
(In Thousands) Three Months Ended
June 30, 1997 June 30, 1996
------------- -------------
DISTRIBUTION $ 39,574 65.9% $ 30,880 78.2%
MANUFACTURING 20,489 34.1 8,623 21.8
------- ----- ------- -----
Total Sales $ 60,063 100.0% $ 39,503 100.0%
======= ===== ======= =====
Selling, general and administrative costs increased to $11.7 million in the
second quarter of 1997 from $8.7 million in the second quarter of 1996, yet
decreased as a percentage of sales to 19.4% from 22.1% for the same periods. The
increase of $3.0 million is primarily the result of costs related to LitterMaid,
Inc., Bay Books & Tapes, Inc. and the now wholly-owned seasonal products
company, whose operations, due to their respective acquisition dates, were not
fully reflected in the 1996 second quarter financial statements
Interest expense increased by $.5 million in the second quarter of 1997 as a
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 facilities.
The Company's equity in net earnings (loss) of joint ventures was $.6 million
for the second quarter of 1997 as compared to a loss of $.5 million for the same
period in 1996. Included in 1997 are the results of operations of the Company's
interests in Salton, New M-Tech and various other ventures acquired later in or
subsequent to the second quarter of 1996. In December 1996, the Company acquired
the remainder of its seasonal products joint venture.
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 average number of common shares and common equivalent shares used in
computing per share results was 19,545,508 in 1997, as compared to 16,404,947
12
<PAGE> 13
in 1996. The change was primarily due to the additional dilutive effect of stock
options and warrants arising from the Company's higher average stock price in
1997 and the additional shares issued upon the acquisition of Salton.
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share", which changes the method for
reporting Earnings Per Share. The statement is effective for financial
statements for periods ending after December 15, 1997. The Company has not yet
determined the impact, if any, of adopting the new standard.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1996
Sales and Other Revenues for the 1997 six month period increased by $31.5
million or 39.4% over Sales for the same period in 1996. The increase is
primarily the result of the inclusion of $15.0 million in seasonal product sales
as a result of the Company's December 1996 acquisition of the remainder of its
seasonal products joint venture and an increase of $15.4 million in
manufacturing sales.
On April 30, 1997, the Company entered into a Letter Agreement with Salton
pursuant to the Marketing Cooperation Agreement included as part of the original
Stock Purchase Agreement. Fees earned by the Company under marketing
arrangements with its joint ventures totaled $.8 million and are classified as
Sales and Other Revenues.
COMPARATIVE SALES RESULTS
--------------------------------------
Six Months Ended
June 30, 1997 June 30, 1996
------------- -------------
DISTRIBUTION $ 79,298 71.1% $ 62,972 78.8%
MANUFACTURING 32,286 28.9 16,972 21.2
------- ----- ------ -----
Total Sales $111,584 100.0% $ 79,943 100.0%
======= ===== ====== =====
Selling, general and administrative costs increased to $21.3 million in the
second quarter of 1997 from $16.8 million in the second quarter of 1996, yet
decreased as a percentage of sales to 19.1% from 21.0% for the same periods. The
increase of $4.5 million is primarily the result of costs related to LitterMaid,
Inc., Bay Books & Tapes, Inc. and the Company's now wholly-owned seasonal
products company, whose operations, due to their respective acquisition dates,
were not fully reflected in the 1996 second quarter financial statements.
Interest expense increased by $1.0 million in the 1997 period as a 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 facilities.
The Company's equity in net earnings (loss) of joint ventures was $.1 million
for the second quarter of 1997 as compared to a loss of $.8 million for the same
period in 1996. Included in 1997 are the results of operations of the Company's
interests in Salton, New M-Tech and various other ventures acquired later in or
subsequent to the second quarter of 1996. In December 1996, the Company acquired
the remainder of its seasonal products joint venture.
13
<PAGE> 14
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 average number of common shares and common equivalent shares used in
computing per share results was 19,415,861 in 1997, as compared to 17,013,725 in
1996. The change was primarily due to the additional dilutive effect of stock
options and warrants arising from the Company's higher average stock price in
1997 and the additional shares issued upon the acquisition of Salton.
LIQUIDITY & CAPITAL RESOURCES
At June 30, 1997, the Company's current ratio and quick ratio were 3.1 to 1 and
1.1 to 1 as compared to 5.8 to 1 and 2.1 to 1 for the second quarter of 1997.
Working capital at those dates was $104.8 million and $115.8 million,
respectively.
Cash balances decreased by $4.4 million during the six months ended June 30,
1997. This decrease is the net result of the $3.0 million used in operations and
net expenditures for investing and financing activities. Investing expenditures
of $7.3 million consisted of additions to property, plant and equipment and
increases in receivables from affiliates. The $5.9 million provided by financing
activities is primarily the result of additional borrowings used to settle the
Izumi lawsuit and to meet seasonal working capital requirements.
Certain of the Company's foreign subsidiaries (the "subsidiaries") have $6.4
million in trade finance lines of credit, payable on demand, which are secured
by the subsidiaries' tangible and intangible property located in Hong Kong and
in the People's Republic of China, as well as a Company guarantee. At June 30,
1997, the subsidiaries were utilizing, including letters of credit,
approximately $4.4 million of these credit lines. These subsidiaries also have
available a $5.0 million revolving line of credit which is supported by a
domestic standby letter of credit, of which $3.8 was outstanding as of June 30,
1997.
The Company has a $30.0 million line of credit from a domestic bank, secured by
domestic accounts receivable and inventory. A commitment to increase the line to
$45.0 million has been received from the bank and the loan is expected to close
in August 1997. At June 30, 1997, outstanding borrowings under this credit line
totaled $25.5 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 to meet the
Company's capital requirements and its operating needs for the foreseeable
future.
LEGAL PROCEEDINGS
The Company, its 50-percent owned joint venture partners Salton/Maxim
14
<PAGE> 15
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 Stated 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, 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 April 9, 1997, on joint motion of the parties, the court issued
an order staying future proceedings until the earlier of July 1, 1997 or five
days after hearing before the court in order to give the parties an opportunity
to pursue settlement discussions. Subsequently, after a status hearing before
the Court on July 15, 1997, and in accordance with the Court's memorandum order
of July 17, 1997, counsel for the parties in the litigation pending in the
United States District Court for the Western District of Pennsylvania reported
to the Court in a letter that the parties had agreed to pursue an expedited
mini-trial/mediation proceeding in an effort to resolve their disputes. The
letter further states that if the process does not result in a resolution of the
dispute, the parties have committed to report to the Court by no later than
September 30, 1997, regarding a proposed schedule for expedited pretrial
preparation and trial.
The Company is subject to other legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability, if any, in excess of applicable insurance coverage, is not
likely to have a material effect on the financial position of the Company.
MANUFACTURING OPERATIONS
Substantially all of the Company's products (85% - 90%) are manufactured by
Durable, its wholly-owned Hong Kong subsidiary, in Bao An County, Guangdong
Province of the People's Republic of China (PRC), which is approximately 60
miles northwest of central Hong Kong. The Company has a significant amount of
its assets in the People's Republic, primarily consisting of inventory,
equipment and molds. The supply and cost of products manufactured in the PRC can
be adversely affected, among other reasons, by changes in foreign currency
exchange rates, increased import duties, imposition of tariffs, imposition of
import quotas, interruptions in sea or air transportation and political or
economic changes. Presently products imported into the U.S. from the PRC are
subject to favorable duty rates based on the "Most Favored Nation" status of the
PRC ("MFN Status"). MFN Status is reviewed on an annual basis by the President
and Congress and was renewed in June 1997.
15
<PAGE> 16
If MFN status for goods produced in the People's Republic were removed, there
would be a substantial increase in tariffs imposed on goods of Chinese origin
entering the United States, including those manufactured by the Company, which
could have a material adverse impact on the Company's revenues and earnings.
From time to time, the Company explores opportunities to diversify its sourcing
and/or production of certain products to other low-cost locations or with other
third parties or joint venture partners in order to reduce its dependence on
production in the People's Republic and/or reduce Durable's dependence on the
Company's existing distribution base. However, at the present time, the Company
intends to continue its production in the People's Republic.
16
<PAGE> 17
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings
- -------
See "Legal Proceedings" in Part I, Item 2 of this report.
ITEM 4. Results of Votes of Security Holders
- -------
At the Annual Meeting of Stockholders, held on May 20, 1997,
the following matters were submitted to a vote of the
Company's security holders:
Election of Directors:
VOTES
-----
Barbara Friedson Garrett
FOR AGAINST WITHHELD ABSTAIN
--- ------- -------- -------
15,274,015 1,006,049
Susan J. Ganz
FOR AGAINST WITHHELD ABSTAIN
--- ------- -------- -------
15,279,040 1,001,024
Thomas J. Kane
FOR AGAINST WITHHELD ABSTAIN
--- ------- -------- -------
15,848,084 431,980
Felix S. Sabates
FOR AGAINST WITHHELD ABSTAIN
--- ------- -------- -------
15,849,763 430,301
Approval and ratification of Company's 1996 Stock Option Plan:
VOTES
-----
FOR AGAINST WITHHELD ABSTAIN
--- ------- -------- -------
13,439,546 2,723,201 117,316
Approval of the Company's 1997 Cash Bonus Performance Plan for
Executive Officers
VOTES
-----
FOR AGAINST WITHHELD ABSTAIN
--- ------- -------- -------
14,866,751 1,302,154 111,157
Ratification of Grant Thornton as the Company's auditors for
the fiscal year ended December 31, 1997:
VOTES
-----
FOR AGAINST WITHHELD ABSTAIN
--- ------- -------- -------
15,491,395 766,186 22,483
17
<PAGE> 18
ITEM 6. Exhibits and Reports on Form 8-K
- -------
(a) Exhibits
27.........Financial Data Schedule (for S.E.C. use only)
(b) There were no reports on Form 8-K filed for the three months
ended June 30, 1997.
18
<PAGE> 19
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WINDMERE-DURABLE HOLDINGS, INC.
-------------------------------
(Registrant)
August 14, 1997 By: /s/ Henry D. Schulman
------------------------------
Harry D. Schulman
Senior Vice President -
Finance and Administration and
Chief Financial Officer
(Duly authorized to sign on
behalf of the Registrant)
August 14, 1997 By: /s/ Burton A. Honig
-------------------------------
Burton A. Honig
Vice President - Finance
(Duly authorized to sign on
behalf of the Registrant)
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WINDMERE-DURABLE HOLDINGS, INC. FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,354
<SECURITIES> 0
<RECEIVABLES> 35,646
<ALLOWANCES> 1,146
<INVENTORY> 90,820
<CURRENT-ASSETS> 154,058
<PP&E> 82,722
<DEPRECIATION> 48,218
<TOTAL-ASSETS> 237,621
<CURRENT-LIABILITIES> 49,254
<BONDS> 1,425
0
0
<COMMON> 1,756
<OTHER-SE> 168,807
<TOTAL-LIABILITY-AND-EQUITY> 237,621
<SALES> 111,475
<TOTAL-REVENUES> 111,475
<CGS> 87,650
<TOTAL-COSTS> 87,650
<OTHER-EXPENSES> 21,347
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,333
<INCOME-PRETAX> 2,229
<INCOME-TAX> (31)
<INCOME-CONTINUING> 2,260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,260
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
