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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, 1998
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 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 15, 1999, the aggregate market value of the voting stock
(based on the closing price as reported by NYSE of $6.375) held by
non-affiliates of the Registrant was approximately $122,794,485.
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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.
22,090,966 Shares of Common Stock
(as of the close of business on March 15, 1999)
DOCUMENTS INCORPORATED BY REFERENCE
Windmere-Durable Holdings, Inc. Proxy Statement for its 1999 Annual
Meeting of Shareholders. 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
The Company, through its subsidiaries, is a leading diversified manufacturer and
distributor of a broad range of branded and private label small household
appliances, including electric housewares (kitchen and garment care), personal
care, and other products. The Company manufactures and markets products under
the Windmere(R) and other Company-owned brand names, under private-label brand
names, under licensed brand names, such as Black & Decker(R) and, pursuant to
licenses held by affiliates such as, the White-Westinghouse(R) brand name. The
Company's customers for such products include mass merchandisers, specialty
retailers and appliance distributors primarily in North America, Latin America
and the Caribbean. In addition, the Company manufactures products on an OEM
basis for other major consumer products companies. The Company also manufactures
and markets the LitterMaid(R) self-cleaning cat litter box.
The Company operates manufacturing facilities in the People's Republic of China
(the "PRC"), Mexico and the United States. Durable Electrical Metal Factory,
Ltd. ("Durable"), is the Company's wholly-owned Hong Kong subsidiary, located in
Bao An County, Guangdong Province of the People's Republic of China, which is
approximately 60 miles northwest of central Hong Kong. Durable's facilities
include six manufacturing plants located within a six square mile radius,
constituting approximately two million square feet of production capability and
employing over 13,000 workers. Durable is a vertically integrated manufacturing
operation, with the capacity and expertise to handle most phases of product
manufacturing, from design to component manufacturing through final assembly.
The Company also operates a 270,000 square foot manufacturing facility in
Queretaro, Mexico, which currently manufactures Black & Decker-labeled products
for distribution to both North America and Latin America. The Company is
currently in the process of closing its manufacturing facilities in Asheboro,
North Carolina.
The Company owns a 50-percent equity interest in Newtech Electronic Industries,
Inc. ("Newtech"), which designs and markets consumer electronics. In January
1997, the Company through its 50-percent interest in Salton, Inc. ("Salton")
and Newtech entered into supply contracts with the Kmart Corporation for Kmart
to purchase, distribute, market and sell certain products under the
White-Westinghouse brand name. On July 28, 1998, the Company consummated the
sale of its equity interest in Salton. The Company continues to manufacture and
sell kitchen appliances to Salton for sale under the Kmart agreement and earns
fees for sales by Salton to Kmart.
HOUSEHOLD PRODUCTS GROUP
With the June 26, 1998 acquisition of the Black & Decker Household Products
Group (HPG), the Company became a leading supplier of brand name small electric
housewares in the United States. The Company provides customers with a broad
line of products at introductory, mid-tier and premium price points, primarily
cooking (toaster ovens), garment care (hand-held irons), food preparation, and
beverage products. The HPG brands had the number one United States market share
in the toaster oven and hand-held iron categories, with market shares of
approximately 58% and 38%, respectively, in 1998. Management believes that the
products marketed by HPG have strong brand name recognition and a reputation for
quality among consumers.
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The Company licensed the Black & Decker(R) brand for use in marketing HPG
products in North America, Central America, South America (excluding Brazil) and
the Caribbean under a licensing arrangement with a minimum term of six and
one-half years. For the first five years, the license will be on a royalty-free
basis. Renewals, if mutually agreed upon, will be at specified minimum royalty
payments. The Company purchased subbrands, including Toast `R Oven(TM),
ProFinish(R), Quick `N Easy(R), Spacemaker(R), and KT Kitchentools(TM).
Total HPG sales totaled $232.9 million for 1998.
WINDMERE GROUP
The Windmere Group is a distributor of a broad range of branded and private
label personal care products, kitchen electric appliances and seasonal products
for major retailers and appliance distributors primarily in North America. The
segment also markets the LitterMaid self-cleaning cat litter box. The Group's
products are sold primarily through independent sales representatives.
The major portion of Windmere'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.
The Group's products are sold under various trademarks and registrations, some
of which include: Windmere, Jumbo Curl, Belson Pro, Curlmaster, Design Pro,
First Class Gourmet, Solid Gold, Windmere Salon, 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, Litter
Maid, Smoke Catcher, Prelude, Belson, Pro Touch, Pro Star, Hot Silver, Golden
Touch, Profiles, Comare, Salon Designs, Premiere, Espree, Gold'n Hot, Colossal
Curl, Jumbo Air, Express Air, Euro Sport, Magnum, Superaire, Healthy Vibes,
Health Zone, Gentle Air, Spa Venitia and Kitchen Selectives. The Company
believes that its business has not been materially dependent on any one
trademark.
In 1998, the Company entered into long-term agreements whereby it acquired the
rights to use the Campbells(TM), the Fiesta(TM) and Corning Ware(R) brand names
on its products.
In the United States, the Group 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,
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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.
DURABLE MANUFACTURING
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, 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
Salton, Sunbeam and Hamilton Beach.
Durable has begun to manufacture component parts as well as certain small
household appliances that were historically outsourced by the Black & Decker
Household Products Group.
RISK FACTORS
RISKS OF INTERNATIONAL OPERATIONS AND EXPANSION. A substantial amount of the
Company's manufacturing operations are conducted and located abroad, and the
Company's growth strategy involves expanding its operations in foreign
jurisdictions. The Company also sells its products to customers located in
foreign jurisdictions, including Latin America, Europe and the Far East. Prior
to the HPG Acquisition, the majority of Windmere-Durable's products were
manufactured by Durable, its wholly-owned Hong Kong subsidiary, in Bao An
County, Guangdong Province of the PRC, which is approximately 60 miles northwest
of central Hong Kong. In connection with the HPG Acquisition, the Company has
acquired additional manufacturing facilities in Queretaro, Mexico, a country in
which Windmere-Durable had not previously manufactured products. The
geographical distances between the Far East, the United States and Mexico create
a number of logistical and communications challenges. Because the Company
manufactures its products and conducts business in several foreign countries,
the Company is affected by economic and political conditions in those countries,
including fluctuations in the value of currency, duties, possible employee
turnover, labor unrest, lack of developed infrastructure, longer payment cycles,
greater difficulty in collecting accounts receivable, the burdens and costs of
compliance with a variety of foreign laws and, in certain parts of the world,
political instability. Changes in policies by the United States or foreign
governments resulting in, among other things, increased duties, higher taxation,
currency conversion limitations, restrictions on the transfer of funds,
limitations on imports or exports, or the expropriation of private enterprises
could have a material adverse effect on the Company, its business, financial
condition or results of operations. The Company could also be adversely affected
if the current policies encouraging foreign investment or foreign trade by its
host countries were to be reversed. In addition, the attractiveness of the
Company's services to its United States customers is affected by United States
trade policies, such as normal trading relations status and trade preferences
for certain nations. For example, trade preferences extended by the United
States to Malaysia in recent years were not renewed in 1997.
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Moreover, the Company is subject to the Foreign Corrupt Practices Act (the
"FCPA"), which may place the Company at a competitive disadvantage to foreign
companies that are not subject to the FCPA. There can be no assurance that any
of these factors will not have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's operations and assets are subject to significant political,
economic, legal and other uncertainties in the PRC, where the Company maintains
a substantial amount of its manufacturing operations. Under its current
leadership, the Chinese government has been pursuing economic reform policies,
including the encouragement of foreign trade and investment and greater economic
decentralization. No assurance can be given, however, that the Chinese
government will continue to pursue such policies, that such policies will be
successful if pursued, or that such policies will not be significantly altered
from time to time. Despite progress in developing its legal system, the PRC does
not have a comprehensive and highly developed system of laws, particularly with
respect to foreign investment activities and foreign trade. Enforcement of
existing and future laws and contracts is uncertain, and implementation and
interpretation thereof may be inconsistent. As the Chinese legal system
develops, the promulgation of new laws, changes to existing laws and the
preemption of local regulations by national laws may adversely affect foreign
investors.
The Company could also be adversely affected by the imposition of austerity
measures intended to reduce inflation, the inadequate development or maintenance
of infrastructure or the unavailability of adequate power and water supplies,
transportation, raw materials and parts, or a deterioration of the general
political, economic or social environment in the PRC. If the Company determines
that it is necessary to relocate the Company's manufacturing facilities from the
PRC and is unable to do so, due to confiscation, expropriation, nationalization,
embargoes, governmental restrictions or otherwise, the Company 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 PRC 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 PRC.
In addition, the PRC currently enjoys normal trading relations ("NTR") trading
status granted by the United States, pursuant to which the United States imposes
the lowest applicable tariffs on Chinese exports to the United States. The
United States annually reconsiders the renewal of NTR trading status for the
PRC. No assurance can be given
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that the PRC's NTR trading status will be renewed in the future years. If NTR
status for goods produced in the PRC 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 would have a material
adverse impact on the Company's revenues and earnings.
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,
which may be influenced by the changing political situation in Hong Kong and by
the general state of the Hong Kong economy. On July 1, 1997, sovereignty over
Hong Kong was transferred from the United Kingdom to the PRC, and Hong Kong
became a Special Administrative Region. There can be no assurance that the
transfer of sovereignty over Hong Kong will not have a material adverse effect
on the Company's business, financial condition and results of operations.
The Mexican government exercises significant influence over many aspects of the
Mexican economy. Accordingly, the actions of the Mexican government concerning
the economy could have a significant effect on private sector entities in
general and the Company in particular. In addition, during the 1980s and 1990s,
Mexico experienced periods of slow or negative growth, high inflation,
significant devaluations of the peso and limited availability of foreign
exchange. As a result of the Company's reliance upon manufacturing facilities in
Mexico, economic conditions in Mexico could adversely affect the Company's
business, financial condition and results of operations.
CURRENCY FLUCTUATIONS. While the Company transacts business predominantly in
U.S. dollars and most of its revenues are collected in U.S. dollars, a portion
of the Company's costs, such as payroll, rent and indirect operations costs, are
denominated in other currencies, such as Chinese renminbi, Hong Kong dollars and
Mexican pesos. Changes in the relation of these and other currencies to the U.S.
dollar will affect the Company's cost of goods sold and operating margins and
could result in exchange losses. The impact of future exchange rate fluctuations
on the Company's results of operations cannot be accurately predicted.
The Company's manufacturing subsidiary, Durable, uses the Hong Kong dollar as
its functional currency. The Hong Kong dollar has historically been "pegged" to
a fixed exchange rate vis-a-vis the U.S. dollar. If the Hong Kong dollar were to
be significantly devalued against the U.S. dollar and the exchange rate allowed
to fluctuate, the Company could experience significant changes in its currency
translation account which would impact the Company's future comprehensive
income. The Company has acquired the Queretaro property and related assets from
The Black & Decker Corporation. Because the operations of such facilities are
primarily peso-denominated and the revenues derived from
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products manufactured at such facilities are primarily dollar-denominated, the
Company is now subject to fluctuations in the value of the peso as a result of
its acquisition of the Queretaro property. The December 1994 devaluation of the
peso had a number of effects on the Mexican economy that adversely affected the
financial condition of businesses in Mexico. The devaluation caused the peso
value of dollar denominated indebtedness associated with businesses in Mexico to
increase significantly, and also greatly increased the rate of inflation,
resulting in a sharp rise in nominal interest rates on peso-denominated
financing. There can be no assurance that the peso to dollar foreign exchange
rate will not be volatile in the future and that financial markets will not have
a material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON TRADEMARKS. As part of the HPG Acquisition, the Company licensed
the Black & Decker(R) brand for use in marketing HPG products in North America,
Central America, South America (excluding Brazil) and the Caribbean under a
licensing arrangement with a minimum term of six and one-half years. For the
first five years, the license will be on a royalty-free basis. Renewals, if
mutually agreed upon, will be at specified minimum royalty payments. In
addition, the Company purchased subbrands, including Toast `R Oven(TM),
ProFinish(R), Quick `N Easy(R), Spacemaker(R), and KT Kitchentools(TM). The
Company believes that its rights in owned and licensed names is a significant
part of the Company's business and that its ability to create demand for its
products is dependent to a large extent on its ability to exploit these
trademarks. There can be no assurance as to the breadth or degree of protection
that these trademarks may afford the Company, or that the Company will be able
to successfully exploit its trademarks in the future. Any inability to do so,
particularly with respect to names in which the Company has made significant
capital investments, including the Black & Decker(R), Toast `R Oven(TM),
ProFinish(R), Quick `N Easy(R), Spacemaker(R), and KT Kitchentools(TM) brand
names, could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, because the Company's business
strategy is heavily dependent upon the use of brand names, adverse publicity
with respect to products that are not sold by the Company, but bear the brand
names used by the Company could have a material adverse effect on the Company's
business, financial condition and results of operations, notwithstanding the
fact that the products at issue are different from those sold by the Company.
PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY. As a result of the HPG
Acquisition, the Company now manufactures significantly more products with
features for which the Company has filed or obtained licenses for patents and
design registrations in the United States and in several foreign countries. With
respect to the Company's applications for patents, there can be no assurance
that any patents will be obtained. If obtained, there can be no assurance that
any patents will afford the Company commercially significant protection of
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its technologies or that the Company will have adequate resources to enforce its
patents. Patent applications in the United States are maintained in secrecy
until patents are issued, and since publication of discoveries in the scientific
or patent literature tends to lag behind actual discoveries by several months,
the Company cannot be certain that it will be the first creator of inventions
covered by any patent application it makes or the first to file patent
applications on such inventions.
Competitors in both the United States and foreign countries, many of which have
substantially greater resources and have made substantial investments in
competing technologies, may have applied for or obtained, or may in the future
apply for and obtain, patents that will prevent, limit or otherwise interfere
with the Company's ability to make and sell its products. The Company has not
conducted an independent review of patents issued to third parties. Although the
Company believes that its products do not infringe on the patents or other
proprietary rights of third parties, there can be no assurance that other
parties will not assert infringement claims against the Company or that such
claims will not be successful. There can also be no assurance that competitors
will not infringe on any patents obtained by the Company. Defense and
prosecution of patent suits, even if successful, are both costly and time
consuming. An adverse outcome in the defense of a patent suit could subject the
Company to significant liabilities to third parties, require disputed rights to
be licensed from third parties or require the Company to cease selling its
products.
The Company also relies on unpatented proprietary technology and there can be no
assurance that others may not independently develop the same or similar
technology or otherwise obtain access to the Company's unpatented technology. If
the Company is unable to maintain the proprietary nature of its technologies,
the Company's business, financial condition and results of operations could be
materially adversely affected.
RISKS ASSOCIATED WITH INTEGRATION OF THE BLACK & DECKER HOUSEHOLD PRODUCTS
GROUP. There can be no assurance that the Company will successfully complete its
integration of HPG with the Company's pre-existing business operations. The full
benefits of a business combination of the Company and the HPG will require the
integration of administrative, finance, purchasing, engineering, product
research and development, sales and marketing organizations; the coordination of
production efforts; and the implementation of appropriate operational,
financial, and management systems and controls. If the Company fails to
successfully integrate the operations of Windmere-Durable and HPG, or if
anticipated cost savings are not as substantial as the Company expects, the
Company's business, results of operations and financial condition would be
materially adversely affected.
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COST AND AVAILABILITY OF RAW MATERIALS. Since Durable is a vertically
integrated manufacturer, its raw materials primarily consist of metals and
plastics such as aluminum, copper, polypropylene and polycarbonate. Because the
majority of these materials are commodity based, they are available from at
least two and as many as nine or more independent suppliers. The Company is not
dependent on any single foreign source for such materials. In addition, the
Company typically enters into up to one-year forward supply agreements for
certain materials. However, there can be no assurance that the Company will not,
from time to time, experience interruptions of supply in the future. In
addition, there can be no assurance that such sources will continue to provide
raw materials to the Company at attractive prices, or at all, or that the
Company will be able to obtain such raw materials in the future from these or
other providers on the scale and within the time frames required by the Company.
Any failure to obtain such raw materials on a timely basis at an affordable cost
or any significant delays or interruptions of supply, would have a material
adverse effect on the Company's business, financial condition and results of
operations.
RELIANCE UPON CERTAIN CUSTOMERS. The Company is dependent on certain of its
principal customers. Wal-Mart Stores, Inc. ("Wal-Mart") accounted for
approximately 19% of the Company's 1998 net sales, and the top five customers of
the Company accounted for approximately 41% of the Company's 1998 net sales.
Although the Company has long-established relationships with many of its
customers, the Company and its affiliates do not have any long-term supply
contracts with them, other than the Kmart Agreements between each of Salton or
Newtech, on the one hand, and Kmart, on the other hand. A decrease in business
from any of its major customers could have a material adverse effect on the
Company's business, financial condition and results of operations.
BACKLOG. The Company's backlog of orders as of December 31, 1998, 1997 and 1996
was approximately $47.3 million, $35.7 million and $32.1 million, respectively,
which orders are generally shipped within the next succeeding year.
COMPETITION. The small household appliance industry is characterized by intense
competition. Competition is based upon price and quality, as well as innovation
in the design of new products and replacement models and in marketing and
distribution approaches. The Company competes with domestic and international
companies, some of which have substantially greater financial and other
resources than those of the Company. The Company believes that its future
success will depend upon its ability to develop and produce reliable products
which incorporate developments in technology and satisfy consumer tastes with
respect to style and design and
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its ability to market a broad offering of such products in each applicable
category at competitive prices. No assurance can be given that the Company will
be able to successfully compete on the basis of these factors in the future.
SEASONALITY OF BUSINESS. The Company's business is highly seasonal, with
operating results varying from quarter to quarter. The Company experiences
higher revenues in the third and fourth quarters of each fiscal year primarily
due to increased demand by customers for such companies' products in the late
summer for "back-to-school" sales and in the fall for holiday sales. This
seasonality has also resulted in additional interest expense to Windmere-Durable
during the third and fourth quarters of each fiscal year due to an increased
need to borrow funds to maintain sufficient working capital to finance such
increased demand during such periods. Lower revenues than expected by the
Company in the third and fourth quarters or the inability to service additional
interest expense due to increased borrowings could have a material adverse
effect on the Company's business, financial condition and results of operations.
RETAIL INDUSTRY. The Company sells its products to retailers, including mass
merchandisers, department stores, catalog showrooms and wholesale clubs. Retail
sales depend, in part, on general economic conditions, and a significant decline
in such conditions could have a negative impact on sales by retailers of the
type of products offered by the Company. A significant deterioration in the
financial condition of the Company's major customers, or in the retail
environment in general, could have a material adverse effect on the Company's
sales and profitability. In addition, as a result of the desire of retailers to
more closely manage inventory levels, there is a growing trend among retailers
to make purchases on a "just-in-time" basis which requires the Company to
shorten its lead time for production in certain cases and more closely
anticipate demand, which could in the future require the carrying of additional
inventories by the Company.
PRODUCT LIABILITY. Any defects in the Company's products that result in personal
injury could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company maintains insurance to cover
such risks; however, there can be no assurance that the Company will be able to
obtain such insurance on acceptable terms in the future, if at all, or that the
coverage in certain events will be adequate or will be available to insure
against all product liability claims.
GOVERNMENT REGULATION. In the United States, Latin America, Canada and Europe,
most federal, state, provincial and local authorities require Underwriters
Laboratory, Inc.
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or other safety regulation certification prior to marketing electrical
appliances in those jurisdictions for the jurisdictions in which such products
are marketed. All of the non-professional salon appliances currently marketed by
the Company have such certifications. There can be no assurance that the
Company's 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 also subject to the cosmetic purity and
labeling provisions of the Fair Packaging and Labeling Act. A determination that
the Company is not in compliance with such rules and regulations could result in
the imposition of fines or an award of damages to private litigants. These and
other initiatives could have a material adverse effect on the Company's
business, financial condition and results of operations.
EMPLOYEES
As of March 15, 1999, the Company had approximately 16,000 full-time employees,
which includes approximately 13,000 employed at Durable's operations in Hong
Kong and the PRC. From time to time, the Company also utilizes the services of
seasonal employees. In connection with the HPG Acquisition, the company assumed
the obligations of Black & Decker, S.A. de C.V. under a collective bargaining
agreement with the Sindicato Unico de Trabajadores Black & Decker del Estado de
Queretaro, C.T.M. (Single Workers Union of Black & Decker of the State of
Queretaro, C.T.M.) (the "Union") covering approximately 1,800 employees employed
at the Company's manufacturing plant in Queretaro, Mexico (the "Queretaro
Collective Bargaining Agreement"). The Queretaro Collective Bargaining Agreement
is subject to renegotiation with respect to wages and benefits in February 2000.
To date, the Union has not engaged in strikes or work stoppages against the
Company. The Company believes that its relationships with both Union and
non-union employees are good.
GEOGRAPHIC AREA FINANCIAL INFORMATION
Incorporated by reference to Schedule 1 hereto attached, under the caption,
"Note M to Consolidated Financial Statements, Business Segment and Geographic
Area Information".
ITEM 2. PROPERTIES
The following table sets forth the principal operating facilities of the
Company.
LOCATION
Miami Lakes, Florida Headquarters,general 40,000 Owned
administration and sales office
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Shelton, Connecticut HPG headquarters, general 170,000 Leased
administration, laboratories and
sales office
Asheboro, North Carolina Manufacturing and 325,000 Leased
distribution
Shenzhen, China Manufacturing, distribution, 2,000,000 Leased
warehouse, and office
Queretaro, Mexico Manufacturing, distribution, 270,000 Owned
warehouse, and office
Overland Park, Kansas General administration and 3,000 Leased
sales office
Little Rock, Arkansas Warehouse and distribution 560,000 Leased
Miami Lakes, Florida Warehouse and distribution 100,000 Owned
Hong Kong, China Durable headquarters and 40,000 Leased
general administration
Pursuant to an interim service agreement with The Black & Decker Corporation,
the Company presently warehouses inventory at a facility in Fort Mill, South
Carolina. The Company also utilizes the services of various public warehouses
pursuant to short-term contracts and plans to continue consolidating the
warehousing of its products into Little Rock, Arkansas in the near future.
Durable's facilities in Shenzhen, China are operated under contracts with the
local government. The contracts require such periodic adjustments such that
terms between one and five years exist at all times.
The Company believes its current facilities are adequate to meet its needs in
the foreseeable future. If necessary, the Company may, from time to time,
acquire or lease additional facilities in the future for warehousing and/or
other activities.
ITEM 3. LEGAL PROCEEDINGS
The Company, Salton, Newtech, 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,
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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. It was subsequently determined that
the entire dispute will be heard in the United States District Court for the
Western District of Pennsylvania. 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 and Newtech 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 parties have filed cross-motions for summary judgement,
which are scheduled to be heard in April 1999. Trial is currently scheduled for
June 1999.
14
<PAGE> 15
The Company is also a party to the following legal proceeding:
SHERLEIGH ASSOCIATES LLC AND SHERLEIGH ASSOCIATES INC. PROFIT SHARING
PLAN, ON THEIR OWN BEHALF AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED V. WINDMERE-DURABLE HOLDINGS, INC., DAVID M. FRIEDSON AND
NATIONSBANC MONTGOMERY SECURITIES LLC, 98-2273-CIV-LENARD
Date Suit Instituted: October 8, 1998
Name of Court: United States District Court, Southern District
of Florida
This matter is a class action complaint which is a consolidation of eight
separate class action complaints with substantially similar allegations. The
complaints were purportedly filed on behalf of those security holders of the
Company who purchased such securities during a certain period in the second and
third quarter of 1998, alleging violations of the federal securities laws
(including Rule 10b-5 promulgated pursuant to the Securities Exchange Act of
1934, as amended) in connection with the acquisition by the Company of certain
product categories of the Household Products Group of The Black & Decker
Corporation. Among other things, the plaintiffs allege that the Company and
certain of its directors and officers, along with NationsBanc Montgomery
Securities LLC, provided false information in connection with a public offering
of debt and equity securities. The plaintiffs seek, among other relief, to be
declared a class, to be awarded compensatory damages, rescission rights,
unspecified damages and attorneys' fees and costs. The Court is presently
considering the appointment of lead counsel. The Company has filed a motion to
dismiss the matter, which has been stayed pending further order of the court.
Because these matters are in their preliminary stages, management is unable at
this time to determine what effect these lawsuits will have on the financial
condition, results of operations or liquidity of the Company.
The Company is currently advancing the legal expenses of the directors and
officers who were named as defendants. Such defendants have agreed to repay the
Company for all or any portion of such advances to which they are ultimately
found not to be entitled pursuant to applicable law. Based on the information
currently available to the Company, management does not
15
<PAGE> 16
believe that the indemnification of the officers and directors named as
defendants in the above-listed matters will have a material adverse effect on
the financial condition, results of operations or liquidity of the Company.
However, the actual effects of such indemnification on the Company cannot be
finally determined until the amount of such indemnification, if any, is fixed.
The Company is subject to other legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability, if any, in excess of applicable insurance coverage, is not
likely to have a material effect on the financial position of the Company.
ITEM 4. 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
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 1998 and
1997, by quarters, are as follows:
<TABLE>
<CAPTION>
MARKET PRICE Cash
---------------------
HIGH LOW DIVIDENDS
------ ------ ---------
<S> <C> <C> <C>
1998
----
Fourth quarter 7-3/4 4-5/16 $ --
Third quarter 36-5/8 5-5/8 --
Second quarter 35-13/16 24-1/2 --
First quarter 28-7/8 20-3/8 --
---------
$ 0
=========
1997
----
Fourth quarter 26-11/16 19-5/8 $ --
Third quarter 24-1/8 16-1/4 --
Second quarter 16-9/16 12-7/8 .05
First quarter 14-5/8 12 .05
---------
$ .10
=========
</TABLE>
The approximate number of holders of common stock of the Company, as of December
31, 1998, was 1,300. This number does not include any adjustment for
shareholders owning common stock in the Depository Trust name or otherwise in
"Street" name, which the Company believes represents an additional 9,100
shareholders.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
1998 1997 1996
---- ---- ----
Net sales $ 474,356 $ 261,885 $ 197,004
Equity in net earnings (loss)
of joint ventures $ 1,621 $ 7,353 $ 2,299
Earnings (loss) before taxes,
and extraordinary item $ 40,368 $ 20,758 $ 3,672
Provision for taxes
(benefit)) $ 11,616 $ 923 $ (280)
Effective tax rate 28.7% 4.5% (7.6)%
Net earnings (loss) $ 28,752* $ 19,835 $ 451 **
Working capital $ 267,434 $ 106,078 $ 105,565
Current ratio 3.0 to 1 2.4 to 1 3.1 to 1
Property, plant and
equipment, net $ 76,077 $ 37,199 $ 32,760
Total assets $ 742,737 $ 281,847 $ 237,279
Long-term debt, deferred
liabilities and minority
interest $ 287,306 $ 17,144 $ 20,132
Shareholders' equity $ 324,018 $ 190,821 $ 167,695
17
<PAGE> 17
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Per share data:
Net earnings (loss)-basic $ 1.43* $ 1.12 $ .03**
Net earnings (loss)-diluted $ 1.33* $ 1.00 $ .03**
Cash dividends paid $ -- $ .10 $ .20
Book value at year end $ 14.67 $ 10.53 $ 9.61
Return on average equity 11.2% 11.1% .3%
</TABLE>
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net sales $187,777 $181,112
Equity in net earnings (loss)
of joint ventures $ (393) $ 91
Earnings (loss) before taxes
and extraordinary item $ (3,165) $ 23,131
Provision for taxes
(benefit) $ (1,281) $ 2,595
Effective tax rate (40.5)% 11.2%
Net earnings (loss) $ (1,884)*** $ 20,537****
Working capital $127,626 $129,281
Current ratio 7.5 to 1 7.0 to 1
Property, plant and
equipment, net $ 30,485 $ 28,449
Total assets $188,012 $197,124
Long-term debt, deferred
liabilities and minority
interest $ 3,519 $ 4,932
Shareholders' equity $164,931 $170,625
Per share data:
Net earnings (loss)-basic $ (.11)*** $ 1.24****
Net earnings (loss)-diluted $ (.11)*** $ 1.17****
Cash dividends paid $ .20 $ .15
Book value at year end $ 9.87 $ 10.20
Return on average equity -- 12.9%
</TABLE>
*Includes a one-time, primarily non-cash repositioning charge of $11.0
million, after tax and an after tax gain on the sale of the Company's equity
interest in Salton of $27.5 million.
**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.
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This document contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Such statements
are indicated by words or phrases such as "anticipate," "projects," "management
believes," "the Company believes," "intends," "expects," and similar words or
phrases. Such forward-looking statements are subject to certain risks,
uncertainties or assumptions and may be affected by certain other factors,
including the specific factors set forth in "Risk Factors." Should one or more
of these risks, uncertainties or other factors materialize, or should underlying
assumptions prove incorrect, actual results, performance, or achievements of the
Company may vary materially from any future results, performance or achievements
expressed or implied by such forward-looking statements. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the cautionary
statements in this paragraph. The Company disclaims any obligation to publicly
announce the results of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
The Company, through its subsidiaries, is a leading diversified manufacturer and
distributor of a broad range of branded and private label small household
appliances, including electric housewares (kitchen and garment care), personal
care, and other products. The Company manufactures and markets products under
the Windmere(R) and other Company-owned brand names, under private-label brand
names, under licensed brand names, such as Black & Decker(R) and, pursuant to
licenses held by affiliates such as, the White-Westinghouse(R) brand name. The
Company's customers for such products include mass merchandisers, specialty
retailers and appliance distributors primarily in North America, Latin America
and the Caribbean. In addition, the Company manufactures products on an OEM
basis for other major consumer products companies. The Company also manufactures
and markets the LitterMaid(R) self-cleaning cat litter box.
Results of Operations
The operating results of the Company expressed as a percentage of sales and
other revenues are set forth below:
YEAR ENDED DECEMBER 31,
1998 1997 1996
Net sales 100.0% 100.0% 100.0%
Cost of sales 72.0* 75.4 79.8
----- ----- -----
Gross profit 28.0 24.6 20.2
Selling, general and
administrative expenses 23.9 19.2 20.0
Unusual items or non-
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<PAGE> 19
recurring items 2.0 0.0 0.0
Net interest and other
Income (6.1)** 0.2 (0.5)
Equity in net earnings
of joint ventures .3 2.8 1.2
--- --- ---
Earnings before
taxes and extraordinary
item 8.5 7.9 1.9
Extraordinary items 0.0 0.0 1.8
Provision for taxes
(benefit) 2.4 0.4 0.1
--- --- ---
Net earnings 6.1% 7.6% 0.2%
=== === ===
* Includes $7.7 million as part of the one time repositioning charge.
** Includes gain on sale of equity interest in Salton, Inc. of $27.5 million.
Year Ended December 31, 1998 compared with Year Ended December 31, 1997
Sales and other revenues
Sales and other revenues ("Revenues") for the Company increased by $212.5
million to $474.4 million, an increase of 81.1% over Revenues for the year ended
1997. The increase is the result of its June 26, 1998 acquisition of the Black &
Decker Household Products Group (HPG) which contributed $232.9 million in
distribution sales.
Sales contributed by the acquisition were offset by decreases in Windmere Group
sales of $2.6 million and decreases in manufacturing sales to external customers
at Durable, the Company's manufacturing subsidiary, of $19.1 million.
The $2.0 million decrease in Windmere Group sales is partially attributable to
growth in LitterMaid sales offset by weakness in personal care sales. LitterMaid
distribution sales increased by $7.1 million or 52.6% over 1997 sales.
Fees earned by the Company under marketing arrangements with its joint ventures
totaled $2.6 million for 1998 as compared to $3.3 million for 1997 and are
classified as Sales and other revenues. Walmart accounted for 19% of the
Company' sales in 1998 and Salton accounted for 12% of sales in 1997.
Repositioning Charge
The Company, in connection with its acquisition of HPG, incurred a one-time
repositioning charge totaling $17.2 million, $11.0 million after tax, of which
$7.7 million is included in cost of goods sold. The charge is primarily non-cash
and consists of write-offs of inventory, goodwill and tooling associated with
the Company's decision to exit certain personal care and other non-core,
low-margin products. Also included were certain costs
19
<PAGE> 20
associated with the integration of the acquisition. The repositioning program
was substantially complete at December 31, 1998.
Gross Profit Margin
Excluding the portion of the repositioning charge recorded as cost of goods sold
in 1998, the Company's gross profit margin increased to 29.6% of sales from
24.6% in 1997. While the increase is attributable primarily to the June 26, 1998
acquisition, increased productivity, a more profitable product mix and lower raw
material costs, partially offset by the allocation of fixed overhead at the
Company's manufacturing operations, also contributed significantly to the margin
improvement.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the Company increased by $63.2
million in 1998. As a percentage of sales, costs increased to 23.9% from 19.2%
in 1997. The increase is primarily due to the June 26, 1998 acquisition of HPG.
Selling, general and administrative expenses for the Windmere Group increased by
$4.1 million to 17.4% of segment sales from 15.2% in 1997. Group expenses for
1998 represented 7.0% of total Company sales as compared to 11.0% in 1997.
Contributing significantly to the increase was the hiring of additional
employees. Volume related costs and advertising expenditures associated with
sales of LitterMaid also contributed.
Selling, general and administrative expenses for the Household Products Group
totaled $58.4 million or 25.0% of segment sales and 12.3% of total Company
sales.
Equity in Net Earnings of Joint Ventures
The Company's equity in net earnings of joint ventures was $1.6 million for the
year ended December 31, 1998 as compared to $7.4 million for the same period in
1997. The decrease is primarily the result of the July 1998 sale of the
Company's equity interest in Salton as well as weaker earnings from Newtech.
Interest Expense
Interest expense increased by $13.2 million to $16.6 million in 1998 compared to
$3.4 million in 1997. The change is the result of the increased level of
borrowing throughout the year under the Company's credit facilities
20
<PAGE> 21
as well as amounts borrowed in conjunction with the acquisition of the Black &
Decker Household Products Group.
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 any repatriation of foreign earnings. Foreign earnings, other than in Canada,
Mexico and certain other countries in Latin America, are generally taxed at
rates lower than in the United States.
The Company's effective tax rate for 1998 has increased to 28.7% compared to
4.5% in the prior year because of the gain on the sale of the Company's equity
interest in Salton. The gain increases the proportion of the Company's income
taxable in the U.S.
The Internal Revenue Service has completed its examination of the Company's 1992
tax return. No material assessments were made. The Company is undergoing an
examination of its U.S. tax returns for the years 1994 through 1997. The
examination is still in process and at this time one adjustment has been
proposed, which, if sustained, could result in a charge to earnings of
approximately $400,000. The Company is protesting the disallowance. As part of
the examination, the Internal Revenue Service is reviewing the Company's
intercompany transfer pricing practices. The Company believes it has fairly set
its transfer prices. Management believes that adequate provision for taxes has
been made for the years under examination and those not yet examined.
Earnings Per Share
Basic net earnings per share equals net earnings divided by the weighted average
shares outstanding during the year. The computation of diluted net earnings per
share includes dilutive common stock equivalents in the weighted average shares
outstanding. The reconciliation between the computations is as follows:
<TABLE>
<CAPTION>
Net Income
(Before
Extraordinary Basic Basic Diluted Diluted
Item) Shares Eps Shares Eps
----- ------ --- ------ ---
<S> <C> <C> <C> <C> <C>
1998 $28,751,600 20,100,764 $1.43 21,612,190 $1.33
1997 19,835,300 17,654,772 $1.12 19,776,183 $1.00
</TABLE>
The increase in the number of basic shares is primarily due to the July 1998
public offering of 3,041,000 shares of the Company's common stock.
Options to purchase 1,469,500 shares of common stock which were outstanding
during 1998, were not included in the computation of diluted earnings per share
because the options' exercise prices were greater than the average annual market
price of the common shares.
21
<PAGE> 22
Results of Operations
Year Ended December 31, 1997 compared with Year Ended December 31, 1996
Sales and Other Revenues
Sales and Other Revenues ("Revenues") increased by $64.9 million to $261.9
million, an increase of 32.9% over Revenues for the year ended 1996. The
increase is primarily the result of a $47.7 million increase in distribution
sales, and a $17.1 million increase in manufacturing sales. The increase in
distribution sales includes $16.5 million in seasonal product sales resulting
from the Company's December 1996 acquisition of the remainder of its seasonal
products joint venture and $9.4 million in kitchen product sales. Also
contributing to the 1997 revenue growth is the increase in LitterMaid
distribution sales of $11.9 million.
Fees earned by the Company under various marketing arrangements with its joint
ventures totaled $3.3 million for 1997 and are classified as Sales and Other
Revenues. Salton accounted for 12% of the Company's sales in 1997. No such fees
were earned in 1996. 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,
1997 1996
Distribution $194,147,300 74% $146,431,800 74%
Manufacturing 67,737,800 26 50,571,800 26
----------- --- ----------- ---
Total Sales $261,885,100 100% $197,003,600 100%
=========== === =========== ===
Gross Profit Margin
The Company' gross margin percentage increased in 1997 to 24.6% of sales from
20.2% in 1996. The better absorption of fixed manufacturing overhead costs and
decreases in certain raw material costs contributed significantly to the
increase as did the higher margins related to sales of LitterMaid.
Selling, General and Administrative Expenses
Selling, general and administrative costs increased by $10.9 million for the
year ended December 31, 1997 compared to the year ended December 31, 1996, yet
decreased as a percentage of sales to 19.2% from 20.0% for the same periods as
fixed expenses were spread over the Company's increased sales. The increase in
costs is primarily the result of expenses related to LitterMaid, Inc., Bay Books
& Tapes, Inc. and the Company' now wholly-owned seasonal products company,
whose operations, due to their respective acquisition dates, were not fully
reflected in the 1996 financial statements.
22
<PAGE> 23
Equity in Net Earnings of Joint Ventures
The Company's equity in net earnings of joint ventures was $7.4 million for the
year ended December 31, 1997 as compared to $2.3 million for the same period in
1996. Included in 1997 are the results of operations of the Company's interests
in Salton, Newtech and various other ventures, which were not acquired until
the second or third quarters of 1996. In December 1996, the Company acquired the
remainder of its seasonal products joint venture. The Company's equity in Salton
and Newtech totaled $6.8 million for 1997.
Interest Expense
Interest expense increased by $2.0 million to $3.4 million in 1997. The increase
is the result of the amounts paid on notes payable issued in conjunction with
the Salton and Newtech acquisitions as well as the increased level of
borrowing under the Company' 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 Internal Revenue Service is auditing the Dade County Industrial Development
Authority Variable Rate Demand Industrial Development Revenue Bonds (Windmere
Corporation Project Series 1985 (the "Bonds"). Windmere Corporation is obligated
to pay debt service on the Bonds. The Internal Revenue Service has determined
that interest on the Bonds is taxable to the Company, but has not yet made a
final determination as to the amount of the liability. Management believes that
any amount owed will not materially impact the Company' operations or financial
position.
Earnings Per Share
The Company adopted Financial Accounting Standards No. 128 (FAS 128), "Earnings
Per Share" in 1997. FAS 128 requires dual presentation of basic and diluted
earnings per share on the face of the income statement as well as the
restatement of prior periods presented.
23
<PAGE> 24
Basic net earnings per share equals net earnings divided by the weighted average
shares outstanding during the year. The computation of diluted net earnings per
share includes dilutive common stock equivalents in the weighted average shares
outstanding. The reconciliation between the computations is as follows:
Net Income
(Before
Extraordinary Basic Basic Diluted Diluted
Item) Shares Eps Shares Eps
----- ------ --- ------ ---
1997 $19,835,300 17,654,772 $1.12 19,776,183 $1.00
1996 3,951,400 16,846,418 $ .23 17,558,275 $ .23
The increase in the number of shares used in the computations of both basic and
diluted net earnings per share was due primarily to the additional dilutive
effect of stock option and warrant exercises, the Company' higher average stock
price in 1997 and inclusion of the additional shares issued upon the acquisition
of Salton for a full year.
Supplier Contract
In January 1997, the Company through its 50-percent interests in Salton and
Newtech 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 Newtech. Under the terms of
the contract, Salton and Newtech 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.
Liquidity and Capital Resources
At December 31, 1998, the Company's working capital was $267.4 million, as
compared to $106.1 million at the end of 1997. At December 31, 1998 and 1997,
the Company's current ratio was 3.0 to 1 and 2.4 to 1, respectively, and its
quick ratio was 1.6 to 1 and 1.0 to 1, respectively. The improvement in ratios
is primarily the result of the acquisition.
Cash balances increased by approximately $12.2 million for the year ended
December 31, 1998. The net use of cash in operating activities is primarily the
result of the increased growth in sales as a result of the June 26, 1998
acquisition of HPG, resulting in higher accounts receivable balances.
Cash used in investing activities is primarily the result of the payment of
$319.8 to purchase the net assets of the Household Products Group offset by the
net proceeds from the sale of the Company's equity interest in Salton.
Financing activities provided cash flows of $308.3 million primarily as a result
of the senior secured bank borrowings and proceeds from the public offerings of
common stock and 10% Senior Subordinated Notes made in conjunction with the
acquisition of HPG.
No provision for U.S. taxes has been made on undistributed earnings of the
Company' foreign subsidiaries and joint ventures because management plans to
reinvest such earnings in their respective operations or in other
24
<PAGE> 25
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.
Certain of the Company's Hong Kong subsidiaries have $21.4 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,
1998, the Hong Kong subsidiaries were utilizing, including letters of credit,
approximately $2.7 million of these credit lines. Outstanding borrowings by the
Company's Hong Kong subsidiaries are primarily in U.S. dollars.
The Company's primary sources of liquidity are its cash flow from operations and
borrowings under the Senior Secured Credit Facilities. The Company is currently
borrowing $135.0 million under the term loan portion of its Senior Secured
Credit Facilities. The Senior Secured Revolving Credit Facility as amended,
provides for borrowings by the Company of up to $110.0 million through December
31, 1999 and $160.0 million thereafter and through the remainder of the term of
the loan. The Company is currently not borrowing under the Senior Secured
Revolving Credit Facility and other credit facilities and has $121.0 million
available for future borrowings. Advances under the Senior Secured Revolving
Credit Facility are based upon percentages of outstanding eligible accounts
receivable and inventories.
Interest accrues on the loans made under the Senior Secured Revolving Credit
Facility and the Tranche A Term Loan (other than Swing Line Loans) at either
LIBOR (adjusted for any reserves) or the Base Rate, which is the higher of
NationsBank, N.A.'s prime rate and the federal funds rate plus 0.50% (the "Base
Rate"), at the Company's option, plus a specified margin which will be
determined by the leverage ratio of the Company and its subsidiaries that has
been set as amended through March 31, 2000 at 2.75% (7.85% at December 31,
1998), or the Base Rate, plus a specified margin of 1.50%, at the Company's
option. Interest accrues on the Tranche B Term Loan at either LIBOR (adjusted
for any reserves) plus a specified margin which will be determined by the
leverage ratio of the Company and its subsidiaries that has been set at 3.375%
(8.475% at December 31, 1998) as amended through March 31, 1999, or the Base
Rate plus a specified margin of 2.00%, at the Company's option. Swing Line Loans
will bear interest at the Base Rate.
The Senior Credit Facilities are collateralized by substantially all of the real
and personal property, tangible and intangible, of the Company and its domestic
subsidiaries, as well as a pledge of all of the stock of such domestic
subsidiaries, a pledge of not less than 65% of the voting stock of each direct
foreign subsidiary of the Company and each direct foreign subsidiary of each
domestic subsidiary of the Company, and a pledge of all of the capital stock of
any subsidiary of a subsidiary of the Company that is a borrower under the
Senior Credit Facilities. The Senior Credit Facilities are guaranteed by all of
the current and will be guaranteed by all of the future domestic subsidiaries of
the Company.
25
<PAGE> 26
The Senior Credit Facilities contain a number of significant covenants that,
among other things, restrict the ability of the Company to dispose of assets,
incur additional indebtedness, prepay other indebtedness, pay dividends,
repurchase or redeem capital stock, enter into certain investments or create new
subsidiaries, enter into sale and lease-back transactions, make certain
acquisitions, engage in mergers or consolidations, create liens, or engage in
certain transactions with affiliates, and that otherwise restrict corporate and
business activities. In addition, under the Senior Credit Facilities, the
Company is required to comply with specified financial ratios and tests,
including a minimum net worth test, a fixed charge coverage ratio, an interest
coverage ratio, a leverage ratio and a minimum EBITDA requirement.
The $130.0 million in Senior Subordinated Notes (the "Notes") issued in July
1998 (see Public Offerings), bear interest at a rate of 10%, payable
semiannually and mature on July 31, 2008.
The Notes are general unsecured obligations of the Company and rank subordinate
in right of payment to all senior debt of the Company and rank pari passu in
right of payment to all future subordinated indebtedness of the Company.
The Notes may be redeemed at the option of the Company, in whole or in part, on
or after July 31, 2003 at various redemption prices and up to 35% of the
original aggregate principal amount of the notes may be redeemed with the net
proceeds of an offering of common stock of the Company on or before July 31,
2001.
The Company's ability to make scheduled payments of principal of, or to pay the
interest on, or to refinance, its indebtedness, or to fund planned capital
expenditures, product research and development expenses and marketing expenses
will depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory, and
international and United States domestic political factors and other factors
that are beyond the Company's control. Based upon the current level of
operations and anticipated cost savings and revenue growth, management believes
that cash flow from operations and available cash, together with available
borrowings under the Senior Credit and other facilities, will be adequate to
meet the Company's future liquidity needs for at least the next several years.
The Company may, however, need to refinance all or a portion of the principal of
the indebtedness on or prior to maturity. There can be no assurance that the
Company's business will generate sufficient cash flow from operations, that
anticipated revenue growth and operating improvements will be realized or that
future borrowings will be available under the Senior Secured Credit Facilities
in an amount sufficient to enable the Company to service its indebtedness,
including the Notes, or to fund its other liquidity needs. In addition, there
can be no assurance that the Company will be able to effect any such refinancing
on commercially reasonable terms or at all.
The Company's aggregate capital expenditures for the year ended December 31,
1998 were $13.5 million. The Company anticipates that the total capital
expenditures for 1999 will be approximately $25.0 million, which includes the
cost of new tooling. The Company plans to fund those capital
26
<PAGE> 27
expenditures from cash flow from operations and, if necessary, borrowings under
the Senior Secured Revolving Credit Facility.
At December 31, 1998, debt as a percent of total capitalization was 46 percent.
PUBLIC OFFERINGS
On July 27, 1998, the Company completed a public offering of 3,041,000 shares of
its common stock. Net proceeds from the sale of the stock aggregated
approximately $97.0 million.
The Company simultaneously completed a public offering of $130.0 million in
aggregate principal of its 10% Senior Subordinated Notes due 2008. Net proceeds
from the offering totaled approximately $125.0 million, net of related costs of
approximately $5.0 million, which are being amortized over the 10 year term of
the Notes.
Proceeds from both offerings were used to pay, in total, outstanding principal
and accrued interest under the $185.0 million Senior Subordinated Loans borrowed
in connection with the June 26, 1998 acquisition of the Black & Decker Household
Products Group as well as the $20.0 million Tranche C Term Loan and $12.0
million in revolving loans under the Senior Secured Credit Facilities.
SALE OF SALTON SHARES
On July 28, 1998, the Company consummated the sale of its 6,535,072 shares of
Salton stock. The shares were sold for $12 per share in cash plus a six and
one-half year, $15 million subordinated promissory note bearing interest at 4%
per annum. The note is to be offset by 5% of the total purchase price paid by
Salton for product purchases from the Company and its affiliates during the term
of the note.
In addition, Salton repurchased for approximately $3.3 million an option owned
by the Company to purchase 458,000 shares of Salton stock. The Company's
after-tax proceeds from the transaction were approximately $50 million following
the repayment of a $10.8 million note due Salton resulting in an after-tax gain
of approximately $27.5 million.
In accordance with the provisions of the Company's Senior Secured Credit
Facilities $26.0 million of the net proceeds from the Salton transaction were
used to repay $14.0 million and $12.0 million of the Tranche A Term Loan and the
Tranche B Term Loan, respectively.
CURRENCY MATTERS
While the Company transacts business predominantly in U.S. dollars and most of
its revenues are collected in U.S. dollars, a portion of the Company's costs,
such as payroll, rent and indirect operations costs, are denominated in other
currencies, such as Chinese renminbi, Hong Kong dollars and Mexican pesos.
Changes in the relation of these and other currencies to the U.S. dollar will
affect the Company's cost of goods sold and operating margins and could result
in exchange losses. The impact of future exchange rate
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fluctuations on the Company's results of operations cannot be accurately
predicted.
The Company uses forward exchange contracts to reduce fluctuations in foreign
currency cash flows related to third party raw material and other operating
purchases as well as trade receivables. The purpose of the Company's foreign
currency management activity is to reduce the risk that eventual cash flows from
foreign currency denominated transactions may be adversely affected by changes
in exchange rates.
Durable uses the Hong Kong dollar as its functional currency. The Hong Kong
dollar has historically been "pegged" to a fixed exchange rate vis-a-vis the
U.S. dollar. If the Hong Kong dollar were to be significantly devalued against
the U.S. dollar and the exchange rate allowed to fluctuate, the Company could
experience significant changes in its currency translation account which would
impact the Company's future comprehensive income.
The Company has acquired the Queretaro property and related assets from The
Black & Decker Corporation. Because the operations of such facilities are
primarily peso-denominated and the revenues derived from products manufactured
at such facilities are primarily dollar-denominated, the Company is now subject
to fluctuations in the value of the peso. The December 1994 devaluation of the
peso had a number of effects on the Mexican economy that adversely affected the
financial condition of businesses in Mexico. The devaluation caused the peso
value of dollar denominated indebtedness associated with businesses in Mexico to
increase significantly, and also greatly increased the rate of inflation,
resulting in a sharp rise in nominal interest rates on peso-denominated
financing. There can be no assurance that the peso to dollar foreign exchange
rate will not be volatile in the future and that financial markets will not have
a material adverse effect on the Company's business, financial condition and
results of operations.
The Company uses interest rate swaps of one to four years in duration to reduce
the impact of changes in interest rates on its floating rate debt. The
notional amounts of the agreements are used to measure interest to be paid or
received and do not represent the amount of exposure to credit loss. The
differential paid or received on the agreements is recognized as an adjustment
of interest expense.
As of December 31, 1998, the Company had purchased interest rate swaps on $70
million notional principal amount with a market value of approximately ($1.2
million). The market value represents the amount the Company would have to pay
to exit the contracts at December 31, 1998. The Company does not intend to exit
such contracts at this time.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards (FAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities." FAS No.
133 establishes standards for accounting and reporting for derivative
instruments, and conforms the requirements for treatment of
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<PAGE> 29
different types of hedging activities. This statement is effective for all fixed
quarters of years beginning after June 1999. The Company has not completed its
evaluations of FAS No. 133.
In 1998, the AICPA issued Statement of Position (SOP) 98-1, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1
establishes standards for accounting for internal use software projects. This
Statement is effective for financial statements for fiscal years beginning after
December 15, 1998 for costs incurred in those fiscal years for all projects,
including projects in progress when the SOP was adopted. Management does not
expect this Statement to have a material impact on the Company's financial
statements.
In 1998, the AICPA issued Statement of Position (SOP) 98-5, REPORTING ON THE
COSTS OF START-UP ACTIVITIES. SOP 98-5 provides guidance on accounting for
start-up costs and organization costs, which must be expensed as incurred. This
Statement is effective for financial statements for fiscal years beginning after
December 15, 1998. Management does not expect this Statement to have a material
impact on the Company's financial statements.
SEASONALITY
The Company's business is highly seasonal, with operating results varying from
quarter to quarter. 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 products in the late summer for "back-to-school" sales
and in the fall for holiday sales. The Company's major sales occur during August
through November. Sales are generally made on 45 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.
YEAR 2000 ISSUES
The Company uses a significant number of computer software programs and
operating systems across its entire organization, including applications used in
financial business systems, manufacturing and administrative functions. A
complete evaluation has been performed to identify whether any of the Company's
software applications contain source code that is unable to interpret the
upcoming year 2000 and beyond. The appropriate modifications have been made and
the Company now believes that its critical systems are Year 2000 compliant. The
Company has received communications from its major suppliers and trading
partners, some of who have filed reports with the Securities and Exchange
Commission, and believes that they are also Year 2000 Compliant. The cost of
implementing required system changes is not material to the Company's
consolidated financial systems. No assurance can be given, however, that all of
the Company's systems, the systems of acquired businesses and those of
significant customers and suppliers will not experience Year 2000 compliance
difficulties. Difficulties that arise may result in unfavorable business
consequences including disruption in product shipments, delays in receipt of
materials,
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delay in customer receipts and payments to suppliers.
LEGAL PROCEEDINGS
The Company, Salton, Newtech, 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' 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. It was subsequently determined that
the entire dispute will be heard in the United States District Court for the
Western District of Pennsylvania. 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 and Newtech 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' 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 parties have filed cross-motions for summary judgement,
which are scheduled to be heard in April 1999. Trial is currently scheduled for
June 1999.
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The Company is also a party to the following legal proceeding:
SHERLEIGH ASSOCIATES LLC AND SHERLEIGH ASSOCIATES INC. PROFIT SHARING
PLAN, ON THEIR OWN BEHALF AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED V. WINDMERE-DURABLE HOLDINGS, INC., DAVID M. FRIEDSON AND
NATIONSBANC MONTGOMERY SECURITIES LLC, 98-2273-CIV-LENARD
Date Suit Instituted: October 8, 1998
Name of Court: United States District Court, Southern District
of Florida
This matter is a class action complaint, which is a consolidation of eight
separate class action complaints with substantially similar allegations. The
complaints were purportedly filed on behalf of those security holders of the
Company who purchased such securities during a certain period in the second and
third quarter of 1998, alleging violations of the federal securities laws
(including Rule 10b-5 promulgated pursuant to the Securities Exchange Act of
1934, as amended) in connection with the acquisition by the Company of certain
product categories of the Household Products Group of The Black & Decker
Corporation. Among other things, the plaintiffs allege that the Company and
certain of its directors and officers, along with NationsBanc Montgomery
Securities LLC, provided false information in connection with a public offering
of debt and equity securities. The plaintiffs seek, among other relief, to be
declared a
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<PAGE> 32
class, to be awarded compensatory damages, rescission rights, unspecified
damages and attorneys' fees and costs. The court is presently considering the
appointment of lead counsel. The Company has filed a motion to dismiss the
matter, which has been stayed pending further order of the court. Because these
matters are in their preliminary stages, management is unable at this time to
determine what effect these lawsuits will have on the financial condition,
results of operations or liquidity of the Company.
The Company is currently advancing the legal expenses of the directors and
officers who were named as defendants. Such defendants have agreed to repay the
Company for all or any portion of such advances to which they are ultimately
found not to be entitled pursuant to applicable law. Based on the information
currently available to the Company, management does not believe that the
indemnification of the officers and directors named as defendants in the
above-listed matters will have a material adverse effect on the financial
condition, results of operations or liquidity of the Company. However, the
actual effects of such indemnification on the Company cannot be finally
determined until the amount of such indemnification, if any, is fixed.
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.
However, as the outcome of litigation or other claims is difficult to predict,
significant changes in the estimated exposures could occur.
COMMITMENTS AND CONTINGENCIES
The Company and the other 50 percent owner in Newtech have entered into an
agreement whereby the Company will transfer 5.0% of its interest in Newtech to a
third party if and when a liquidity event for the Company occurs. Pursuant to
the agreement, a liquidity event would occur if Newtech sells equity interests
in a public offering, Newtech is sold to a third party, or if there is an other
disposition of the Company's interest or other similar event.
MANUFACTURING OPERATIONS
The Company's products are manufactured primarily at the Company's facilities in
the PRC, Mexico and the United States. In October 1998, the Company announced
its intention to close the Asheboro, North Carolina plant. Prior to the HPG
acquisition, the majority of the Company's products were manufactured by
Durable, its wholly-owned Hong Kong subsidiary operating in Bao An County,
Guangdong 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' Republic, primarily consisting of inventory,
equipment and molds. The supply and cost of 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
OTHER
Newtech has advised the Company that it is in discussions with its lenders
regarding noncompliance of certain of its loan covenants. At December 31, 1998,
the Company has an investment and receivables from Newtech aggregating $23
million.
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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 and Mexico.
The Mexican government exercises significant influence over many aspects of the
Mexican economy. Accordingly, the actions of the Mexican government concerning
the economy could have a significant effect on private sector entities in
general and the Company in particular. In addition, during the 1980s and 1990s,
Mexico experienced periods of slow or negative growth, high inflation,
significant devaluations of the peso and limited availability of foreign
exchange. As a result of the Company's reliance upon manufacturing facilities in
Mexico, economic conditions in Mexico could adversely affect the Company's
business, financial condition and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's major market risk exposure is to changing interest rates, debt
obligations issued at a fixed rate and fluctuations in the currency exchange
rates. The Company's policy is to manage interest rate risk through the use of a
combination of fixed and floating rate instruments, with respect to both its
liquid assets and its debt instruments.
The Senior Credit Facilities accrue interest at variable rates; however, the
Company has purchased interest rate protection for such loans in the form of
interest rate swaps. Based on the current amount of variable rate, as well as
underlying swaps, the exposure to interest rate risk is not material. Fixed-rate
debt obligations issued by the Company are not callable until July 31, 2003.
The Company is subject to foreign currency exchange rate risk relating to
receipts from customers and payments to suppliers in foreign currencies. As a
general policy, the Company hedges foreign currency commitments of future
payments and receipts by purchasing foreign currency-forward contracts. As of
December 31, 1998, the notional value of such derivatives was $6.0 million, with
no significant unrealized gain or loss. The majority of the Company's receipts
and expenditures are contracted in U.S. dollars, and the Company does not
consider the market risk exposure relating to currency exchange to be material
at this time.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information included in Schedules I and II is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ---------------------------------- ----- ----------------------------------
<S> <C> <C>
David M. Friedson 43 Chairman of the Board, President
and Chief Executive Officer
Harry D. Schulman 47 Chief Operating Officer, Chief Financial
Officer and Secretary
Barbara F. Garrett 46 Senior Vice President
Terry L. Polistina............... 35 Senior Vice President - Finance and Administration
Arnold Thaler.................... 60 Senior Vice President
William Endres................... 50 President of Windmere Corp.
Michael Michienzi................ 44 President of Household Products, Inc.
Lai Kin.......................... 68 Chairman of Durable
Raymond So....................... 49 Managing Director of Durable
</TABLE>
DAVID M. FRIEDSON has served as Chairman of the Board of the Company
since April 1996, Chief Executive Officer of the Company since January 1987 and
as President of the Company since January 1985. From June 1976 to January 1985,
Mr. Friedson held various other management positions with the Company. Mr.
Friedson is the brother of Barbara Friedson Garrett.
HARRY D. SCHULMAN has served as Chief Operating Officer of the Company
since November 1, 1998, Chief Financial Officer of the Company since March 1990
and Secretary of the Company since January 1, 1999. From February 1998 until
June 15, 1998 he served as Senior Vice President of the Company. From February
1993 until June 1998, he served as Executive Vice President - Finance and
Administration of the Company. Prior thereto, he held other senior finance
positions in the Company.
BARBARA F. GARRETT has served as Senior Vice President of the Company
since November 1, 1998. From June 16, 1998, until October 31, 1998, Ms. Garrett
served as a director of the Company, and from February 1996 until June 15, 1998,
she served as Senior Vice President of the Company. Ms. Garrett has also served
as an Executive Vice President-Sales and Marketing of the Windmere Corporation
since December 1988. Prior to that time, Ms. Garrett held various other
management positions with the Company. Ms. Garrett is the sister of David
Friedson.
TERRY L. POLISTINA has served as a Senior Vice President of the Company
since November 1, 1998. Mr. Polistina has served as Senior Vice President -
Finance and Administration of Windmere Corp. and as a director of Durable since
June 1998. Mr. Polistina served as Controller of the Company from December 1995
to June 1998, as Assistant Controller from April
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<PAGE> 35
1992 to December 1995, and prior thereto, he held other senior finance positions
in the Company.
ARNOLD THALER has served as a Senior Vice President of the Company
since November 1, 1998. From June 16, 1998 until October 31, 1998, Mr. Thaler
served as a director of the Company, and from February 1996 until June 15, 1998,
he served as a Senior Vice President of the Company. Mr. Thaler also served as
an Executive Vice President - Product Development, Engineering and Manufacturing
of the Company from December 1988 to February 1998. Prior to that time, Mr.
Thaler held various other management positions with the Company.
WILLIAM ENDRES has been President of Windmere Corp. since February 15,
1999, and a Senior Vice President of Windmere Corp. from June 10, 1998 to
February 14, 1999. From 1992 to 1997, Mr. Endres was Senior Vice President of
Sales and Marketing and a director of The Rival Company.
MICHAEL MICHIENZI has been President of Household Products, Inc. since
January 1, 1999. From June 1998 until January 1999 he was Senior Vice President
of Household Products, Inc. From July 1994 to June 1998, Mr. Michienzi served as
Vice President - Sales, Vice President - Sales and Supply Chain; and Vice
President - Sales, Marketing and Supply Chain of the U.S. Household Products
Group of Black & Decker (U.S.) Inc.
LAI KIN has been Chairman of Durable Electrical Metal Factory, Ltd.
("Durable"), a subsidiary of the Company, since 1995. From 1973 to 1995, Mr. Lai
was Managing Director of Durable. In addition, Mr. Lai Kin has been Managing
Director of Ourimbah Investment, Limited ("Ourimbah"), a holding and investment
company, since 1989. Mr. Lai Kin is the father of Desmond Lai.
RAYMOND SO has served as Managing Director of Durable since February
1996. From February 1996 to June 15, 1998, he served as a Senior Vice President
of the Company. Prior thereto and beginning in 1986, Mr. So held various senior
executive management positions with Durable.
Information about the Directors of the Company is incorporated by reference to
the Company's Proxy Statement for its 1999 Annual Meeting of Shareholders under
the captions "Election of Directors".
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's Proxy Statement for its 1999 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 1999 Annual
Meeting of Shareholders under the caption "Security Ownership".
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<PAGE> 36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by Reference to the Company's Proxy Statement for its 1999 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
The following consolidated financial statements of Windmere-Durable
Holdings, Inc. and subsidiaries are included in Schedules I and II
attached hereto:
AUDITOR'S REPORT
CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 1998 AND 1997
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997
AND 1996
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY - THREE YEARS ENDED
DECEMBER 31, 1998
CONSOLIDATED STATEMENTS OF
CASH FLOWS - YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
2. FINANCIAL STATEMENT SCHEDULES
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES -
YEARS ENDED DECEMBER 31,
1998, 1997 AND 1996
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
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<PAGE> 37
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.
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 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. Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
3.5 Amended and Restated By-Laws. Filed herewith.
4.1 Supplemental Indenture dated as of July 27, 1998, among the
Company, the Guarantors named therein and State Street Bank &
Trust Company, as Trustee, relating to the issuance by the Company
of $130 million in 10% Senior Subordinated Notes due 2008.
Incorporated by reference to the Company's Form 8-K dated July 27,
1998.
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(10) Material Contracts
10.1* 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.
10.2* 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.
10.3* 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.
10.4* 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.
10.5* 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.
10.6* 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.
10.7* 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.
10.8* 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
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<PAGE> 39
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1987.
10.9* 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.
10.10* 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.
10.11* 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.
10.12* 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.
10.13* 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.
10.14* 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.
10.15* 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.
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<PAGE> 40
10.16* 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.
10.17* 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.
10.18* 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.
10.19* 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.
10.20* 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.
10.21* 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.
10.22* 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.
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10.23 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.
10.24 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.
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10.25 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.
10.26 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.
10.27 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.
10.28 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.
10.29 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.
10.30 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.
10.31 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.
10.32 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.
42
<PAGE> 43
10.33 Letter Agreement dated April 30, 1997 between Windmere Corporation
and Salton/Maxim Housewares, Inc. Incorporated by reference to the
Company's Form 10-Q dated March 31, 1997.
10.34* 1996 Stock Option Plan. Incorporated by reference to the Company's
Proxy Statement dated April 17, 1997.
10.35* 1997 Cash Bonus Performance Plan for Executive Officers.
Incorporated by reference to the Company's Proxy Statement dated
April 18, 1997.
10.36 Transaction Agreement dated as of May 10, 1998 by and between the
Company and the Black & Decker Corporation, together with
Amendment No. 1 thereto, dated as of June 26, 1998. Incorporated
by reference to the Company's Form 8-K dated June 26, 1998.
10.37 Credit Agreement by and among the Company and NationsBanc,
National Association and the other lenders parties thereto from
time to time dated June 26, 1998. Incorporated by reference to the
Company's Form 8-K dated July 16, 1998.
10.38 Amended and Restated Credit Agreement by and among the Company and
NationsBanc, National Association and the other lenders parties
thereto from time to time dated August 7, 1998. Incorporated by
reference to the Company's Form 8-K dated August 7, 1998.
10.39 Amendment No. 1 to Amended and Restated Credit Agreement by and
among Windmere-Durable Holdings, Inc., each of its subsidiaries
party thereto, each of the lenders party thereto and NationsBank,
National Association as agent for the lenders, dated December 29,
1998. Incorporated by reference into the Company's Current Report
on Form 8-K dated December 29, 1998.
10.40* Employment agreement dated June 26, 1998 between Household
Products, Inc. and Michael Michienzi. Filed herewith.
10.41* Employment agreement dated October 30, 1998 between William S.
Endres and Windmere Corporation. Filed herewith.
43
<PAGE> 44
(21) Subsidiaries of the Registrant. Filed herewith.
(23) Consents of experts and counsel. Filed herewith.
- ---------------
* These exhibits are management contracts or compensatory plans or
arrangements.
(b) REPORTS ON FORM 8-K
Amendment No. 1 to Amended and Restated Credit Agreement by and among
Windmere-Durable Holdings, Inc., each of its subsidiaries party
thereto, each of the lenders party thereto and NationsBank, National
Association as agent for the lenders, dated December 29, 1998.
44
<PAGE> 45
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/ DATE: 3-30-99
----------------------------------- ----------------------------------
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/ DATE: 3-30-99
----------------------------------- ----------------------------------
David M. Friedson, Chairman,
President and Chief Executive Officer
By: /s/ DATE: 3-30-99
----------------------------------- ----------------------------------
Harry D. Schulman, Chief Operating
Officer and Chief Financial Officer
By: /s/ DATE: 3-30-99
----------------------------------- ----------------------------------
Terry Polistina, Senior Vice President
By: /s/ DATE: 3-30-99
----------------------------------- ----------------------------------
Fred Fair, Director
By: /s/ DATE: 3-30-99
----------------------------------- ----------------------------------
Jerald I. Rosen, Director
By: /s/ DATE: 3-30-99
----------------------------------- ----------------------------------
Harold Strauss, Director
By: DATE: 3-30-99
----------------------------------- ----------------------------------
Lai Kin, Director
By: DATE: 3-30-99
----------------------------------- ----------------------------------
Raymond So, Director
By: /s/ DATE: 3-30-99
----------------------------------- ----------------------------------
Leonard Glazer, Director
By: /s/ DATE: 3-30-99
----------------------------------- ----------------------------------
Barbara Friedson Garrett, Director
By: /s/ DATE: 3-30-99
----------------------------------- ----------------------------------
Felix S. Sabates, Director
By: /s/ DATE: 3-30-99
----------------------------------- ----------------------------------
Arnold Thaler, Director
By: /s/ DATE: 3-30-99
----------------------------------- ----------------------------------
Thomas J. Kane, Director
45
<PAGE> 46
By: /s/ DATE: 3-30-99
----------------------------------- ----------------------------------
Susan J. Ganz, Director
By: DATE: 3-30-99
----------------------------------- ----------------------------------
Desmond Lai, Director
By: DATE: 3-30-99
----------------------------------- ----------------------------------
J. Maurice Hopkins, Director
By: /s/ DATE: 3-30-99
----------------------------------- ----------------------------------
Wendy Pomerantz, Director
46
<PAGE> 47
Schedule 1
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
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, 1998 and
1997, and the related consolidated statements of earnings, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1998. 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, 1998 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1998, 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, 1998.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
Miami, Florida
February 12, 1999
F1
<PAGE> 48
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
ASSETS
1998 1997
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note A) $ 20,414,800 $ 8,223,900
Accounts and other receivables, less allowances of $7,367,000
in 1998 and $1,111,300 in 1997 (Note A) 165,836,900 43,338,000
Receivables from affiliates (Notes A, B and O) 5,588,600 15,291,200
Inventories (Notes A and G) 165,464,800 102,172,400
Prepaid expenses 16,709,500 4,617,600
Refundable income taxes (Notes A and I) 6,555,000 5,043,100
Future income tax benefits (Notes A and I) 18,277,000 1,274,100
------------- -------------
Total current assets 398,846,600 179,960,300
INVESTMENTS IN JOINT VENTURES (Notes A, B and J) 15,707,900 43,090,800
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation (Notes A and D) 76,076,900 37,199,400
NOTES RECEIVABLE FROM AFFILIATE (Note B) 7,890,700 7,798,800
OTHER ASSETS (Notes A, C and I) 244,214,400 13,797,800
------------- -------------
$ 742,736,500 $ 281,847,100
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and acceptances payable (Note E) $ -- $ 42,981,600
Current maturities of long-term debt (Note G) 8,630,000 3,814,800
Accounts payable 38,974,800 14,600,500
Accrued expenses (Note F) 80,636,400 12,237,800
Income taxes payable (Note I) 2,692,900 --
Deferred income, current portion 479,000 247,500
------------- -------------
Total current liabilities 131,413,100 73,882,200
LONG-TERM DEBT, less current maturities (Note G) 272,370,000 16,069,800
DEFERRED INCOME TAXES (Note I) 12,132,100 --
DEFERRED INCOME, less current portion 2,803,500 1,073,800
COMMITMENTS AND CONTINGENCIES (Note J) -- --
SHAREHOLDERS' EQUITY (Notes A, K and L)
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 22,090,966 in 1998 and 18,119,147 in 1997 2,209,100 1,811,900
Paid-in capital 145,160,400 41,024,100
Retained earnings 177,839,200 149,087,500
Accumulated other comprehensive income (loss) (1,190,900) (1,102,200)
------------- -------------
Total shareholders' equity 324,017,800 190,821,300
------------- -------------
$ 742,736,500 $ 281,847,100
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F2
<PAGE> 49
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Sales and other revenues (Note P) $ 474,356,000 $ 261,885,100 $ 197,003,600
Cost of goods sold 341,621,500 197,507,200 157,278,400
------------- ------------- -------------
Gross profit 132,734,500 64,377,900 39,725,200
Selling, general and administrative expenses 113,505,400 50,349,200 39,425,100
Repositioning charge (Note A) 9,519,000 -- --
------------- ------------- -------------
Operating profit 9,710,100 14,028,700 300,100
Other (income) expense
Interest expense 16,632,500 3,351,100 1,345,900
Interest and other income (3,203,000) (2,727,500) (2,418,800)
Gain on sale of equity interest in joint venture (42,466,100) -- --
------------- ------------- -------------
(29,036,600) 623,600 (1,072,900)
------------- ------------- -------------
Earnings before equity in net earnings
of joint ventures, income taxes
and extraordinary item 38,746,700 13,405,100 1,373,000
Equity in net earnings of joint ventures
(Notes A and B) 1,621,000 7,353,200 2,298,700
------------- ------------- -------------
Earnings before income taxes
and extraordinary item 40,367,700 20,758,300 3,671,700
Income taxes (benefit) (Notes A and I)
Current 14,296,200 (3,272,000) (716,300)
Deferred (2,680,200) 4,195,000 436,600
------------- ------------- -------------
11,616,000 923,000 (279,700)
------------- ------------- -------------
Earnings before extraordinary item 28,751,700 19,835,300 3,951,400
Extraordinary item (Note Q) -- -- (3,500,000)
------------- ------------- -------------
Net earnings $ 28,751,700 $ 19,835,300 $ 451,400
============= ============= =============
Per share data (Notes A, K and Q)
Earnings per common share - basic
before effect of extraordinary item $ 1.43 $ 1.12 $ .23
Extraordinary item -- -- (.20)
------------- ------------- -------------
Net earnings $ 1.43 $ 1.12 $ .03
============= ============= =============
Earnings per common share - diluted
before effect of extraordinary item $ 1.33 $ 1.00 $ .23
Extraordinary item -- -- (.20)
------------- ------------- -------------
Net earnings $ 1.33 $ 1.00 $ .03
============= ============= =============
Dividends per common share $ -- $ .10 $ .20
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F3
<PAGE> 50
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Common Paid-in Retained
Income (Loss) Stock Capital Earnings TOTAL
------------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ (765,200) $ 1,671,300 $ 30,173,000 $ 133,851,400 $ 164,930,500
Comprehensive income:
Net earnings -- -- -- 451,400 451,400
Other comprehensive income (loss) -
foreign currency translation adjustment (15,500) -- -- -- (15,500)
-------------
Total comprehensive income 435,900
Cash dividends - $.20 per share -- -- -- (3,337,700) (3,337,700)
Purchase and retirement of
463,000 shares of common stock -- (46,300) (3,721,800) -- (3,768,100)
Exercise of stock options and warrants -- 44,700 2,531,500 -- 2,576,200
Tax benefit resulting from exercise
of stock options -- -- 183,600 -- 183,600
Fair value of options to
non-employees -- -- 617,000 -- 617,000
Issuance of 748,112 shares -
acquisition of 50% of Salton, Inc. -- 74,800 5,982,600 -- 6,057,400
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1996 (780,700) 1,744,500 35,765,900 130,965,100 167,694,800
Comprehensive income:
Net earnings -- -- -- 19,835,300 19,835,300
Other comprehensive income (loss) -
foreign currency translation adjustment (321,500) -- -- -- (321,500)
-------------
Total comprehensive income 19,513,800
Cash dividends - $.10 per share -- -- -- (1,712,900) (1,712,900)
Exercise of stock options and warrants -- 67,400 1,675,200 -- 1,742,600
Tax benefit resulting from exercise
of stock options -- -- 3,493,000 -- 3,493,000
Fair value of options to
non-employees -- -- 90,000 -- 90,000
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1997 (1,102,200) 1,811,900 41,024,100 149,087,500 190,821,300
Comprehensive income:
Net earnings -- -- -- 28,751,700 28,751,700
Other comprehensive income (loss) -
foreign currency translation adjustment (88,700) -- -- -- (88,700)
-------------
Total comprehensive income 28,663,000
Payment of withholding tax on stock
option exercises -- -- (3,719,200) -- (3,719,200)
Exercise of stock options and warrants -- 79,800 2,902,800 -- 2,982,600
Tax benefit resulting from exercise
of stock options -- -- 5,917,000 -- 5,917,000
Conversion of Newtech Electronics
Industries, Inc. note -- 13,300 1,986,700 -- 2,000,000
Fair value of options to
non-employees -- -- 95,500 -- 95,500
Issuance of common stock - net -- 304,100 96,953,500 -- 97,257,600
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1998 $ (1,190,900) $ 2,209,100 $ 145,160,400 $ 177,839,200 $ 324,017,800
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
F4
<PAGE> 51
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings $ 28,751,700 $ 19,835,300 $ 451,400
Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities
Depreciation of property, plant and equipment 11,609,000 6,856,600 6,377,900
Amortization of intangible assets 8,768,700 840,700 613,400
Repositioning charge 17,204,800 -- --
Gain on sale of equity interest in joint venture (42,466,100) -- --
Net change in allowance for losses on
accounts receivable 2,313,700 (17,400) (29,300)
Consulting expense on non-employee stock options 95,500 90,000 68,000
Amortization of deferred income (261,000) (334,400) (598,100)
Undistributed equity in earnings of joint ventures (1,758,100) (7,537,300) (2,762,700)
Gain on sale of assets -- 988,800 --
Changes in assets and liabilities
(Increase) decrease in accounts and other receivables (84,283,600) (5,719,400) 149,600
Decrease (increase) in inventories 7,812,600 (12,658,400) 534,700
Increase in prepaid expenses (7,899,900) (866,500) (709,600)
Increase in accounts payable and accrued expenses 18,496,000 503,100 7,714,400
Increase (decrease) in current and deferred income taxes 2,068,200 (2,250,000) (1,405,300)
(Increase) decrease in other assets (5,924,900) 2,231,000 (783,600)
Increase in other accounts (88,700) (321,500) (14,000)
------------- ------------- -------------
Net cash provided by (used in) operating activities (45,562,100) 1,640,600 9,606,800
Cash flows from investing activities
Proceeds from fixed asset sales 1,461,000 -- --
Additions to property, plant and equipment (13,477,500) (11,296,200) (8,618,200)
Purchase of net assets - Household Products Group (319,791,000) -- --
Proceeds from sale of equity interest in Salton - net 72,279,000 -- --
Purchase of assets - LitterMaid(TM) -- -- (2,246,000)
Purchase of assets - Bay Books and Tapes -- -- (1,180,000)
Investments in joint ventures -- (262,700) (7,745,400)
Decrease (increase) in receivable accounts and
notes from affiliates 8,972,000 (10,951,200) (15,301,600)
------------- ------------- -------------
Net cash used in investing activities (250,556,500) (22,510,100) (35,091,200)
Cash flows from financing activities
Notes and acceptances (40,759,400) -- --
Proceeds from issuance of long-term debt 519,000,000 -- --
Payment of debt costs (10,567,500) -- --
Net borrowings under lines of credit -- 21,099,100 21,840,200
Payments of long-term debt (255,884,600) (814,900) (814,800)
Exercises of stock options and warrants 2,982,600 1,742,600 2,576,200
Cash dividends paid -- (1,712,900) (3,337,700)
Purchases of common stock -- -- (3,768,100)
Proceeds from sale of common stock - net 97,257,600 -- --
Payment of withholding tax on stock option exercises (3,719,200) -- --
------------- ------------- -------------
Net cash provided by financing activities 308,309,500 20,313,900 16,495,800
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents 12,190,900 (555,600) (8,988,600)
Cash and cash equivalents at beginning of year 8,223,900 8,779,500 17,768,100
------------- ------------- -------------
Cash and cash equivalents at end of year $ 20,414,800 $ 8,223,900 $ 8,779,500
============= ============= =============
</TABLE>
(continued)
F5
<PAGE> 52
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 6,616,000 $ 3,187,200 $ 1,488,200
Income taxes $ 11,329,000 $ 33,700 $ 548,400
Non-cash investing and financing activities:
Tax benefit resulting from exercise of stock options $ 5,917,000 $ 3,493,000 $ 183,600
Valuation of non-employee stock options under SFAS 123
(LitterMaid(TM)acquisition) $ -- $ -- $ 549,000
In 1996, the Company purchased a 50-percent interest in
Newtech Electronics Industries, Inc. ("Newtech") 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, Inc.
("Salton") 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
============
In August 1998, holders of $2,000,000 of convertible notes issued in
connection with the Newtech acquisition converted the notes into 133,333
shares of the Company's common stock
</TABLE>
The accompanying notes are an integral part of these statements.
F6
<PAGE> 53
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Windmere-Durable Holdings, Inc. and its Subsidiaries (the "Company") is
principally engaged in the manufacture and sale of personal care, electric
housewares 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
For subsidiaries where the local currency is the functional currency,
assets and liabilities are translated into United States dollars at the
exchange rate in effect at the end of the year. Revenues and expenses of
these subsidiaries are translated at the average exchange rate during the
year. The aggregate effect of translating the financial statements of these
foreign subsidiaries is included in a separate component of shareholders'
equity entitled "Accumulated Other Comprehensive Income (Loss)." For
entities in highly inflationary countries or where business is transacted
predominantly in U.S. dollars, the U.S. dollar is considered the functional
currency and a combination of current and historical rates are used in
translating assets, liabilities, revenues and expenses. The related
exchange adjustments are included in earnings.
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, 1998 include $17,331,600 held in foreign banks by
the Company's Hong Kong, Canadian and Latin American subsidiaries.
(continued)
F7
<PAGE> 54
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
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:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
Raw materials $ 12,648,300 $ 13,327,400
Work in process 28,726,700 21,062,400
Finished goods 124,089,800 67,782,600
----------------- -----------------
$ 165,464,800 $ 102,172,400
================= =================
</TABLE>
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 the short term portion of notes receivable due from certain of the
Company's joint venture partners ("affiliates"). Notes receivable from
these affiliates are due upon demand and bear interest at prevailing market
interest rates (Note B).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. 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 6.5-40 years. Intangible
assets were $230,504,100 and $13,955,300 at December 31, 1998 and 1997,
respectively, and the related accumulated amortization was $9,874,600 and
$3,502,000, respectively.
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 cash flows generated by the related subsidiaries
to determine that no impairment has occurred.
(continued)
F8
<PAGE> 55
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
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, 1998, the fair value of these instruments
approximates the carrying amount of these items, except for the Company's
Senior Subordinated Notes whose fair value was $119,600,000, or 92% of face
value.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses forward exchange contracts to reduce fluctuations in
foreign currency cash flows related to third party raw material and other
operating purchases. The terms of the currency instruments used are
generally consistent with the timing of the committed or anticipated
transactions being hedged. The purpose of the Company's foreign currency
management activity is to protect the Company from the risk that eventual
cash flows from foreign currency denominated transactions may be adversely
affected by changes in exchange rates. Gains and losses on forward exchange
contracts are deferred and recognized in income when the related
transactions being hedged are recognized. Such gains and losses are
generally reported on the same financial statement line as the hedged
transaction. The Company's manufacturing subsidiary, Durable, realized
$700,000 in foreign exchange transaction gains for the year ended December
31, 1998. Transaction gains and losses were insignificant in 1997 and 1996.
The Company does not use derivative financial instruments for trading or
speculative purposes. Outstanding at December 31, 1998 and 1997, are
$6,000,000 and $7,000,000, respectively, in contracts to purchase Hong Kong
dollars, forward. There is no significant unrealized gain or loss on these
contracts. All contracts have terms of six months or less.
The Company uses interest rate swaps of one to four years in duration to
reduce the impact of changes in interest rates on its floating rate debt.
The notional amounts of the swap agreements are used to measure interest
to be paid or received and do not represent the amount of exposure to
credit loss. The differential paid or received on the agreements is
recognized as an adjustment of interest expense. As of December 31, 1998,
the Company had purchased swaps on $70 million notional principal amount
with a market value of approximately ($1,200,000). The market value
represents the amount the Company would have to pay to exit the contracts
at December 31, 1998. The Company does not intend to exit such contracts at
this time. The Company had no interest rate swaps in effect as of December
31, 1997.
(continued)
F9
<PAGE> 56
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
INCOME TAXES
No provision has been made for U.S. taxes on undistributed earnings of
foreign subsidiaries and joint ventures of approximately $137,837,700 at
December 31, 1998, 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.
ADVERTISING COSTS
Advertising costs are expensed as incurred and are included in selling,
general and administrative expenses. Total advertising costs for the years
ended December 31, 1998, 1997 and 1996 totaled approximately $24,731,300,
$8,175,100 and $3,379,000, respectively.
EARNINGS PER SHARE
Basic net earnings per share equals net earnings divided by the weighted
average shares outstanding during the year. The computation of diluted net
earnings per share includes dilutive common stock equivalents in the
weighted average shares outstanding. The reconciliation between the
computations is as follows:
<TABLE>
<CAPTION>
Net Earnings
(Before
Extraordinary Basic Basic Diluted Diluted
Item) Shares Eps Shares Eps
-------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
1998 $ 28,751,700 20,100,764 $ 1.43 21,612,190 $ 1.33
1997 $ 19,835,300 17,654,772 $ 1.12 19,776,183 $ 1.00
1996 $ 3,951,400 16,846,418 $ .23 17,558,275 $ .23
</TABLE>
Included in diluted shares are common stock equivalents relating to
options, warrants and convertible debt of 1,511,426, 2,121,411, and 711,857
for 1998, 1997 and 1996, respectively. Options to purchase 1,469,500 shares
of common stock at prices ranging from $24.19 to $31.69, which were
outstanding during 1998, were not included in the computation of diluted
EPS because the options' exercise prices were greater than the annual
average market price of the common shares. These options were granted in
1997 and 1998 and become exercisable over the next 10 years.
(continued)
F10
<PAGE> 57
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
EARNINGS PER SHARE - Continued
Basic and diluted earnings per share for 1996 are $.03 after the effect of
the extraordinary charge of $3,500,000 or $.20 per share for settlement of
the Izumi case (Note Q).
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
(FAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." FAS No. 133 establishes standards for accounting and reporting
for derivative instruments, and conforms the requirements for treatment of
different types of hedging activities. This statement is effective for all
fixed quarters of years beginning after June 1999. The Company has not
completed its evaluations of FAS No. 133.
In 1998, the AICPA issued Statement of Position (SOP) 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." SOP
98-1 establishes standards for accounting for internal use software
projects. This Statement is effective for financial statements for fiscal
years beginning after December 15, 1998 for costs incurred in those fiscal
years for all projects, including projects in progress when the SOP was
adopted. Management does not expect this Statement to have a material
impact on the Company's financial statements.
In 1998, the AICPA issued Statement of Position (SOP) 98-5, "Reporting on
the Costs of Start-Up Activities." SOP 98-5 provides guidance on accounting
for start-up costs and organization costs, which must be expensed as
incurred. This Statement is effective for financial statements for fiscal
years beginning after December 15, 1998. Management does not expect this
Statement to have a material impact on the Company's financial statements.
REPOSITIONING CHARGE
The Company in connection with its acquisition of the Black & Decker
Household Products Group incurred a one-time repositioning charge totaling
$17,200,000, $11,000,000 after tax, of which $7,700,000 is included in cost
of goods sold. The charge is primarily non-cash and consists of write-offs
of inventory, goodwill and tooling associated with the Company's decision
to exit certain personal care and other non-core, low-margin products. Also
included were costs associated with the integration of the acquisition. The
repositioning program was substantially complete at December 31, 1998.
(continued)
F11
<PAGE> 58
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
RECLASSIFICATIONS
Certain prior year amounts within the accompanying financial statements
have been reclassified for comparability.
NOTE B - 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, Inc. ("Salton"), Newtech Electronics
Industries, Inc. ("Newtech"), PX Distributors, Inc. ("PX"), Breakroom of
Tennessee, Inc. and Anasazi Partners, L.P. ("Anasazi").
SALTON, INC.
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 $36,200,000) 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.
In addition, the Company received an option to purchase 485,000 shares of
Salton common stock at an exercise price of $4.83 per share. During 1997,
the Company exercised 26,500 options under the terms of the agreement.
On July 28, 1998, the Company consummated the sale of its 6,535,072 shares
of Salton stock. The shares were sold for $12 per share in cash plus a six
and one-half year, $15,000,000 subordinated promissory note bearing
interest at 4% per annum. The note is to be offset by 5% of the total
purchase price paid by Salton for product purchases made during the term of
the note from the Company and its affiliates. The note has been recorded
net of the related deferred income for future purchases.
In addition, Salton repurchased for approximately $3,300,000 the option
owned by the Company to purchase the remaining 458,500 shares of Salton
stock. The Company's after-tax proceeds from the transaction were
approximately $50,000,000 following the repayment of a $10,800,000 note due
Salton, resulting in an after-tax gain of approximately $27,500,000 after
payment of certain transaction costs.
Furthermore, the arrangements between the Company and Salton pertaining to
Salton's agreement with Kmart will continue with certain modifications
(Note P).
(continued)
F12
<PAGE> 59
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE B - INVESTMENTS IN JOINT VENTURES - Continued
NEWTECH ELECTRONICS INDUSTRIES, INC.
In April 1996, the Company acquired a 50-percent interest in Newtech, 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 which matured 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. 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.
In 1998, the $2,000,000 convertible note payable of the Company was
converted into 133,333 shares of the Company's common stock. In January
1999, the Company paid the remaining $2,000,000 note.
On October 1, 1997, one of the Company's wholly-owned subsidiaries sold
certain assets to Newtech for $1,977,600 of which a gain of $988,800 was
recorded as other income in 1997. The Company accepted a note receivable
from Newtech as payment for the assets. The note is payable in 24 quarterly
installments, which commenced December 31, 1997 and bears interest at a
rate of prime plus one percent (8.75% at December 31, 1998). On November 1,
1997, Newtech purchased all the common stock of the subsidiary for $1,300.
The liabilities of the subsidiary included $6,220,000 due to Durable. The
note evidencing the indebtedness matures on October 31, 2003, bears
interest at a rate of prime plus one percent (8.75% at December 31, 1998)
and is collateralized by inventory and fixed assets.
Newtech has advised the Company that it is in discussions with its lenders
regarding noncompliance of certain of its loan covenants. At December 31,
1998, the Company has an investment in and receivables from Newtech
aggregating approximately $23,000,000.
ANASAZI PARTNERS, L.P.
In June 1996, the Company acquired a 50-percent interest in an investment
partnership for $1,250,000. As of December 31, 1998, the Company had made
$2,000,000 in capital contributions and loans totaling $2,000,000 to the
partnership and its other equity partner. The loans bear interest at a rate
of 8% per annum, are collateralized by the other equity partner's interest
in the partnership and are payable upon demand.
The partnership's investments include certain privately traded securities
whose values have been estimated by the General Partner in the absence of
readily ascertainable market values. Fair value of these securities may
differ significantly from the values that would have been used had a ready
market for the securities existed.
(continued)
F13
<PAGE> 60
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE B - INVESTMENTS IN JOINT VENTURES - Continued
Summarized financial information of the unconsolidated companies is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Current assets $ 58,248,000 $ 189,169,000 $ 85,536,000
Non-current assets 12,079,000 41,623,000 32,524,000
------------------ ------------------ ------------------
Total assets $ 70,327,000 $ 230,792,000 $ 118,060,000
================== ================== ==================
Current liabilities $ 49,220,000 $ 158,405,000 $ 65,991,000
Non-current liabilities - 2,544,000 889,000
------------------ ------------------ ------------------
Total liabilities $ 49,220,000 $ 160,589,000 $ 66,880,000
================== ================== ==================
Sales $ 346,280,000 $ 467,549,000 $ 162,368,000
================== ================== ==================
Gross profit $ 50,986,000 $ 105,941,000 $ 34,312,000
================== ================== ==================
Net earnings $ 5,919,000 $ 15,885,000 $ 5,552,000
================== ================== ==================
</TABLE>
The above sales, gross profit, and net earnings amounts include the
operations of Salton through July 28, 1998.
All sales made by joint ventures were to entities other than members of the
consolidated group except for $1,250,000 by Salton to the Company in 1997.
Included in the Company's sales are sales made to joint ventures of
approximately $29,705,700, $37,226,200 and $17,855,400 in 1998, 1997 and
1996, respectively.
NOTE C - ACQUISITION
On June 26, 1998, the Company consummated its acquisition of the Black &
Decker Household Products Group ("HPG") for $319.8 million in cash, and
assumed certain related liabilities ("HPG Acquisition"). The acquisition
includes the cooking, garment care, food preparation and beverage
categories. The acquisition has been accounted for as a purchase and
accordingly, the acquired assets and liabilities have been recorded at
their estimated fair values at the date of acquisition. The excess of the
consideration paid over the estimated fair value of net assets acquired in
the
(continued)
F14
<PAGE> 61
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE C - ACQUISITION - Continued
amount of $228,807,000 has been allocated between goodwill and other
intangible assets and is being amortized on a straight-line basis over the
assets' estimated useful lives of 6.5 to 40 years. The goodwill portion of
approximately $181,600,000 recorded as a result of this acquisition is
being amortized on a straight-line basis over 40 years. As part of the HPG
Acquisition, the Company licensed the BLACK & DECKER(R) brand for use in
marketing HPG products in North America, Central America, South America
(excluding Brazil), and the Caribbean under a licensing arrangement with a
minimum term of six and one-half years. For the first five years, the
license will be on a royalty-free basis. Renewals, if mutually agreed upon,
will be at specified minimum royalty payments. In addition, the Company
purchased subbrands from The Black & Decker Corporation, including TOAST 'R
OVEN(TM), PROFINISH(R), QUICK 'N EASY(R), SPACEMAKER(R), and KT
KITCHENTOOLS(TM). The results of operations of HPG are included in the
accompanying consolidated statement of earnings as of the date of the
acquisition.
To facilitate the acquisition, the Company entered into credit agreements
providing it with an aggregate amount of $345,000,000 in Senior Secured
Credit Facilities and $185,000,000 in Senior Subordinated Loans (Note G).
The Company subsequently repaid the Senior Subordinated Loans in
conjunction with the completion of its public offerings described in (Note
G and Note K).
The following unaudited proforma summary presents the consolidated results
of operations of the Company as if the HPG acquisition had occurred at the
beginning of the 1998 and 1997 periods.
(In thousands - except per share data)
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Net sales $ 597,956 $ 664,813
Net earnings $ 20,700 (1) $ 24,089
Earnings per share $ .96 (1) $ 1.22
</TABLE>
(1) Includes a one-time, primarily non-cash repositioning charge of $11.0
million, after tax and an after-tax gain on the sale of the Company's
equity interest in Salton of $27.5 million.
In connection with the acquisition, the Company has and will continue to
incur costs to exit certain activities and costs to terminate or relocate
certain employees. Accrued acquisition liabilities for exit costs and
employee termination and relocation costs have been recognized in
accordance with EITF 95-3, "Recognition of Liabilities in Connection With a
Purchase Business Combination."
(continued)
F15
<PAGE> 62
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE C - ACQUISITION - Continued
The Company has accrued certain liabilities relating to the exiting of
certain activities, the termination of employees and integration of
operations in conjunction with the acquisition, which have been included in
the allocation of the acquisition cost as follows:
(In Thousands)
<TABLE>
<CAPTION>
Amount Anticipated
Activity Accrued Paid Completion
-------- ------- ---- ----------
<S> <C> <C> <C>
Closing of Asheboro
manufacturing facility $ 2,000 $ 679 June 30, 1999
Employee termination -
Asheboro and Shelton 10,800 June 30, 1999
Integration, transition and
other 2,391 91 December 31, 1999
Unfavorable lease - idle
property 6,408 719 December 31, 2001
-------------
$ 21,599
=============
</TABLE>
Amounts paid during the period from the date of acquisition through
December 31, 1998, have been recorded as adjustments to the purchase price
and are excluded from net earnings.
Closing of the Asheboro manufacturing facility includes the dismantling of
unsold manufacturing equipment, and the clean up and evacuation of the
premises.
F16
<PAGE> 63
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE D - PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment:
<TABLE>
<CAPTION>
USEFUL LIVES 1998 1997
------------ --------------- ----------------
<S> <C> <C> <C> <C>
Building 15 - 50 years $ 15,780,500 $ 7,784,400
Building improvements 8 - 31 years 1,193,600 1,925,600
Computer equipment 3 - 5 years 9,087,600 6,045,500
Furniture and equipment 3 - 8 years 92,967,600 59,128,200
Leasehold improvements 8 years 13,911,400 9,984,600
Land and land improvements 15 - 31 years 2,660,100 2,660,100
--------------- ----------------
(Improvements only) 135,600,800 87,528,400
Less accumulated depreciation
and amortization 59,523,900 50,329,000
--------------- ----------------
$ 76,076,900 $ 37,199,400
=============== ================
</TABLE>
NOTE E - NOTES AND ACCEPTANCES PAYABLE
The Company's foreign subsidiaries (the "foreign subsidiaries") have
$21,400,000 in trade finance lines of credit, payable on demand, which are
collateralized 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, 1998, the subsidiaries were utilizing,
including letters of credit, approximately $2,700,000 of these credit
lines.
NOTE F - ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
<S> <C> <C>
Advertising allowances $ 13,047,800 $ 1,307,200
Salaries and bonuses 8,011,400 2,823,600
Volume rebates 6,945,700 1,586,000
Warranty 7,010,000 -
HPG integration 7,989,000 -
Asheboro plant closing 9,383,000 -
Other 28,249,500 6,521,000
--------------- ----------------
$ 80,636,400 $ 12,237,800
=============== ================
</TABLE>
F17
<PAGE> 64
NOTE G - LONG-TERM DEBT
SENIOR SECURED CREDIT FACILITIES
The Senior Credit Facilities, as amended, consist of a $160,000,000 Senior
Secured Revolving Credit Facility ($110,000,000 through December 31, 1999
of which $100,000,000 is available at December 31, 1998), a $90,000,000
Tranche A Term Loan, a $75,000,000 Tranche B Term Loan and a $20,000,000
Tranche C Term Loan. The Company paid the purchase price of the HPG
Acquisition, in part, with borrowings of $185,000,000 under the Term Loans
and $7,000,000 under the Senior Secured Revolving Credit Facility.
The Tranche C Term Loan was paid on July 27, 1998 with the proceeds from
the Company's offerings (Note K). In accordance with the provisions of the
Company's Senior Secured Credit Facilities, $26,000,000 of the net proceeds
from the Salton transaction (Note B) were used to repay $14,000,000 and
$12,000,000 of the Tranche A Term Loan and the Tranche B Term Loan,
respectively.
The Senior Secured Revolving Credit Facility includes (a) a $20,000,000
sublimit for the issuance of letters of credit and (b) a $10,000,000
sublimit for swing line loans (the "Swing Line Loans"). All amounts
outstanding under the Senior Secured Revolving Credit Facility are payable
on June 26, 2003. The Tranche A Term Loan is payable in quarterly
installments, ranging from $1,878,000 for the quarter ended March 31, 1999
to $6,378,000 for the quarter ended March 31, 2003, and all remaining
amounts owing due the following quarter. The Tranche B Term Loan is payable
in annual installments of $327,842, with all remaining amounts owing
thereunder due June 26, 2004.
Interest accrues on the loans made under the Senior Secured Revolving
Credit Facility and the Tranche A Term Loan (other than Swing Line Loans)
at either LIBOR (adjusted for any reserves) or the Base Rate, which is the
higher of NationsBank, N.A.'s prime rate and the federal funds rate plus
0.50% (the "Base Rate"), at the Company's option, plus a specified margin
which will be determined by the leverage ratio of the Company and its
subsidiaries that has been set as amended through March 31, 2000 at 2.75%
(7.85% at December 31, 1998), or the Base Rate, plus a specified margin of
1.50%, at the Company's option. Interest accrues on the Tranche B Term Loan
at either LIBOR (adjusted for any reserves) plus a specified margin which
will be determined by the leverage ratio of the Company and its
subsidiaries that has been set as amended at 3.375% (8.475% at December 31,
1998) through March 31, 1999, or the Base Rate plus a specified margin of
2.00%, at the Company's option. Swing Line Loans will bear interest at the
Base Rate.
(continued)
F18
<PAGE> 65
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE G - LONG-TERM DEBT - Continued
SENIOR SECURED CREDIT FACILITIES - Continued
Amounts outstanding under the Senior Credit Facilities must be prepaid by
amounts equal to the net proceeds, or a specified portion thereof, from
certain debt and equity issuances and specified asset sales by the Company
and its subsidiaries, and by a specified percentage of cash flow in excess
of certain expenditures, costs and payments. The Company may at its option
reduce the amount available under the Senior Credit Facilities to the
extent such amounts are unused or prepaid in certain minimum amounts.
The Senior Credit Facilities are collateralized by substantially all of the
real and personal property, tangible and intangible, of the Company and its
domestic subsidiaries, as well as a pledge of all of the stock of such
domestic subsidiaries, a pledge of not less than 65% of the voting stock of
each direct foreign subsidiary of the Company and each direct foreign
subsidiary of each domestic subsidiary of the Company, and a pledge of all
of the capital stock of any subsidiary of a subsidiary of the Company that
is a borrower under the Senior Credit Facilities. The Senior Credit
Facilities are guaranteed by all of the current; and will be guaranteed by
all of the future domestic subsidiaries of the Company.
The Senior Credit Facilities contain a number of significant covenants
that, among other things, restrict the ability of the Company to dispose of
assets, incur additional indebtedness, prepay other indebtedness, pay
dividends, repurchase or redeem capital stock, enter into certain
investments or create new subsidiaries, enter into sale and lease-back
transactions, make certain acquisitions, engage in mergers or
consolidations, create liens, or engage in certain transactions with
affiliates, and that otherwise restrict corporate and business activities.
In addition, under the Senior Credit Facilities, the Company is required to
comply with specified financial ratios and tests, including a minimum net
worth test, a fixed charge coverage ratio, an interest coverage ratio, a
leverage ratio and a minimum EBITDA requirement.
10% SENIOR SUBORDINATED NOTES DUE 2008
The Company issued $130,000,000 in Senior Subordinated Notes (the "Notes")
in July 1998, which bear interest at a rate of 10%, payable semiannually
and mature on July 31, 2008.
The Notes are general unsecured obligations of the Company and rank
subordinate in right of payment to all senior debt of the Company and pari
passu in right of payment to all future subordinated indebtedness of the
Company.
(continued)
F19
<PAGE> 66
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE G - LONG-TERM DEBT - Continued
10% SENIOR SUBORDINATED NOTES DUE 2008 - Continued
The Notes may be redeemed at the option of the Company, in whole or in
part, on or after July 31, 2003 at various redemption prices and up to 35%
of the original aggregate principal amount of the Notes may be redeemed
with the net proceeds of an offering of common stock of the Company on or
before July 31, 2001.
The indenture pursuant to which the 10% Notes were issued contains certain
covenants that, among other things, limit the ability of the Company to
incur additional indebtedness and issue preferred stock, pay dividends or
make other certain restricted payments, apply net proceeds from certain
asset sales, and sell stock of subsidiaries.
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------------ ----------------
<S> <C> <C>
Senior Secured Revolving Facility $ 10,000,000 $ -
Senior Secured Tranche A 76,000,000 -
Senior Secured Tranche B 63,000,000 -
10% Senior Subordinated Notes 130,000,000 -
Note payable to Salton (Note B) -- 10,847,700
Notes payable to Newtech (Note B) 2,000,000 7,000,000
Industrial development revenue bonds -- 2,036,900
------------------ ----------------
281,000,000 19,884,600
Less current maturities 8,630,000 3,814,800
------------------ ----------------
Total long-term debt $ 272,370,000 $ 16,069,800
================== ================
</TABLE>
NOTE H - EMPLOYEE BENEFIT PLANS
The Company has 401(k) plans 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 year ended December 31, 1998 totaled
approximately $600,000. Amounts charged to earnings in 1997 and 1996 were
not significant.
The Company does not provide any health or other benefits to retirees.
F20
<PAGE> 67
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE I - INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ----------------
<S> <C> <C> <C>
Current
Federal $ 11,988,100 $ (3,274,000) $ (748,200)
Foreign 2,302,300 - (2,100)
State 5,800 2,000 34,000
--------------- --------------- ----------------
14,296,200 (3,272,000) (716,300)
Deferred (2,680,200) 4,195,000 436,600
--------------- --------------- ----------------
$ 11,616,000 $ 923,000 $ (279,700)
=============== =============== ================
</TABLE>
The United States and foreign components of earnings before income taxes
and extraordinary item are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ----------------
<S> <C> <C> <C>
United States $ 26,352,400 $ 5,293,100 $ 1,206,200
Foreign 14,015,300 15,465,200 2,465,500
--------------- --------------- ----------------
$ 40,367,700 $ 20,758,300 $ 3,671,700
=============== =============== ================
</TABLE>
The differences between the statutory rates and the tax rates computed on
pre-tax profits are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ---------
% % %
----------- ---------- ---------
<S> <C> <C> <C>
Tax expense at statutory rates 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit - - .6
Foreign (income) loss not subject to tax (1.3) - (6.4)
Provision for prior years' Hong Kong
income taxes - - (.6)
Net tax rate differential on undistributed
foreign earnings (7.5) (23.5) (17.3)
Equity in joint venture earnings not
subject to U.S. tax or already taxed (1.3) (11.1) (25.7)
Effect of gross up of foreign taxes,
net of foreign tax credit (.1) (.2) (4.0)
Federal withholding taxes - 1.2 6.7
Other 4.9 4.1 5.1
---- ---- ----
28.7% 4.5% (7.6)%
===== ==== =====
</TABLE>
(continued)
F21
<PAGE> 68
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE I - INCOME TAXES - Continued
TAX EXAMINATION
The Internal Revenue Service has completed its examination of the Company's
1992 tax return. No material assessments were made. The Company is
undergoing an examination of its U.S. tax returns for the years 1994
through 1997. The examination is still in process and at this time one
adjustment has been proposed, which, if sustained, could result in a charge
to earnings of approximately $400,000. The Company is protesting the
disallowance. As part of the examination, the Internal Revenue Service is
reviewing the Company's intercompany transfer pricing practices. The
Company believes it has fairly set its transfer prices. 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, 1998, arise
primarily from the Company's and its subsidiaries' temporary differences.
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.
The primary components of future income tax benefits at December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
<S> <C> <C>
Inventory differences $ 4,071,000 $ 728,500
Reserves and accrued expenses 14,206,000 545,600
--------------- ----------------
Total current assets 18,277,000 1,274,100
Net operating loss and other carryforwards 1,064,400 4,489,800
Depreciation and amortization (18,317,200) (1,743,500)
Deferred income 5,055,600 131,800
Other 65,100 (220,500)
--------------- ----------------
Net non-current assets (liabilities) (12,132,100) 2,657,600
--------------- ----------------
Net deferred tax assets $ 6,144,900 $ 3,931,700
=============== ================
</TABLE>
The tax benefits resulting from the exercise of stock options have been
recorded as additions to paid-in capital in the amounts of $5,917,000 and
$3,493,000 in 1998 and 1997, respectively.
The Company also has U.S. tax credit carryforwards of $640,500, many of
which do not expire and state net operating loss carryforwards totaling
$16,480,000 which expire in 2013.
F22
<PAGE> 69
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE J - COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company, Salton, Newtech, 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 and Newtech 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 parties have filed cross-motions for summary judgement, which
are scheduled to be heard in April 1999. Trial is currently scheduled for
June 1999.
The Company is also a party to the following legal proceeding:
Sherleigh Associates LLC and Sherleigh Associates Inc. Profit Sharing
Plan, on their own behalf and on behalf of all others similarly
situated v. Windmere-Durable Holdings, Inc., David M. Friedson and
NationsBanc Montgomery Securities LLC, 98-2273-CIV-LENARD
Date Suit Instituted: October 8, 1998
Name of Court: United States District Court, Southern District of
Florida
This matter is a class action complaint which is a consolidation of eight
separate class action complaints with substantially similar allegations.
The complaints were purportedly filed on behalf of those security holders
of the Company who purchased such securities during a certain period in the
second and third quarters of 1998, alleging violations of the federal
securities laws (including Rule 10b-5 promulgated pursuant to the
Securities Exchange Act of 1934, as amended) in connection with the
acquisition by the Company of certain product categories of the Household
Products Group of The Black & Decker Corporation. Among other things, the
plaintiffs allege that the Company and certain of its directors and
officers, along with NationsBanc Montgomery Securities LLC, provided false
information in connection with a public offering of debt and equity
securities. The plaintiffs seek, among other relief, to be declared a
class, to be awarded compensatory damages, recission rights, unspecified
damages and attorneys' fees and costs. The court is presently considering
the appointment of lead counsel. The Company has filed a motion to dismiss
the matter, which has been stayed pending further order of the court.
Because these matters are in their preliminary stages, management is unable
at this time to determine what effect these lawsuits will have on the
financial condition, results of operations or liquidity of the Company.
(continued)
F23
<PAGE> 70
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE J - COMMITMENTS AND CONTINGENCIES - Continued
LITIGATION - Continued
The Company is currently advancing the legal expenses of the directors and
officers who were named as defendants. Such defendants have agreed to repay
the Company for all or any portion of such advances to which they are
ultimately found not to be entitled pursuant to applicable law. Based on
the information currently available to the Company, management does not
believe that the indemnification of the officers and directors named as
defendants in the above-listed matters will have a material adverse effect
on the financial condition, results of operations or liquidity of the
Company. However, the actual effects of such indemnification on the Company
cannot be finally determined until the amount of such indemnification, if
any, is fixed.
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)
F24
<PAGE> 71
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE J - COMMITMENTS AND CONTINGENCIES - Continued
LEASES
In January 1998, the Company entered into a long-term operating lease for a
warehouse facility. Future minimum payments under this lease and other
non-cancellable long-term operating leases, are as follows:
1999 $ 3,161,558
2000 3,388,800
2001 1,338,800
2002 1,338,800
2003 1,338,800
Thereafter 5,689,600
----------------
$ 16,256,358
================
Rent expense for the years ended December 31, 1998 totaled $4,587,500.
Rent expense for the years ended December 31, 1997 and 1996 was
insignificant.
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.
F25
<PAGE> 72
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE J - COMMITMENTS AND CONTINGENCIES - Continued
INVESTMENT IN NEWTECH
The Company and the other 50 percent owner in Newtech have entered into an
agreement whereby the Company will transfer 5.0% of its interest in Newtech
to a third party if and when a liquidity event for the Company occurs.
Pursuant to the agreement, a liquidity event will occur if Newtech sells
equity interests in a public offering, Newtech is sold to a third party, or
if there is an other disposition of the Company's interest or other similar
event.
LICENSING AGREEMENTS
During 1998, the Company entered into certain license agreements whereby it
acquired the rights to use certain brand names on its products. The
agreements call for minimum royalty payments of $542,500, $847,500,
$962,500 and $225,000 in the years ended December 31, 1999, 2000, 2001 and
2002, respectively.
NOTE K - SHAREHOLDERS' EQUITY
PUBLIC OFFERING
On July 27, 1998, the Company completed a public offering of 3,041,000
shares of its common stock. Net proceeds from the sale of the stock
aggregated approximately $97,000,000 (after offering costs of approximately
$6,400,000). The proceeds from this offering were used to help finance the
HPG Acquisition (see Note C).
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. 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.
(continued)
F26
<PAGE> 73
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE K - SHAREHOLDERS' EQUITY - Continued
STOCK OPTIONS - Continued
In May 1997, the Company's shareholders approved and ratified the 1996
Stock Option Plan. The 1996 plan provides for the granting of incentive
stock options for employees and non-qualified stock options for employees,
consultants and directors. A total of 850,000 shares of common stock have
been reserved under the 1996 plan.
On April 30, 1998, the Compensation Committee of the Board of Directors
approved the 1998 Stock Option Plan, subject to ratification by the
shareholders of the Company. The 1998 plan provides for the granting of
nonqualified stock options to employees, consultants and directors. A total
of 2,100,000 shares have been reserved under the plan as amended in
March 1999.
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.
Prior to December 31, 1995, the Company accounted for non-qualified 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.
During 1997, the Company issued options to purchase 25,000 shares to
non-employee sales representatives.
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 O), each of 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. The 1998 and 1997
expense associated with non-employee stock options totaled $96,000 and
$90,000, respectively.
On November 2, 1998, the Board of Directors approved and ratified the
repricing of certain unexercised employee stock options granted under the
Company's Stock Option Plans and in conjunction with certain employment
contracts. As a result, options granted to purchase 893,500 shares of the
Company's common stock were repriced from $12.50 - $30.50 per share to
$7.375 per share. Options granted to the Chief Executive Officer, members
of the Company's Board of Directors and certain other executive officers
were not repriced.
(continued)
F27
<PAGE> 74
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE K - SHAREHOLDERS' EQUITY - Continued
STOCK OPTIONS - Continued
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 earnings (loss) and earnings (loss) per share would
have been changed to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- ---------------
<S> <C> <C> <C>
Net earnings (loss)
As reported $ 28,751,700 $ 19,835,300 $ 451,400
Pro forma $ 23,645,900 $ 18,911,900 $ (2,846,400)
Basic earnings (loss) per share
As reported $ 1.43 $ 1.12 $ .03
Pro forma $ 1.17 $ 1.07 $ (.17)
Diluted earnings (loss) per share
As reported $ 1.33 $ 1.00 $ .03
Pro forma $ 1.10 $ .96 $ (.17)
</TABLE>
The above pro forma disclosures may not be representative of the effects on
reported net earnings 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 1998, 1997 and 1996, respectively: dividend
yield of 0.0 percent for all years; expected volatility ranging from 44.89
to 69.54 percent for 1998, 37.85 percent for 1997 and 43.97 percent for
1996; risk-free interest rates of 5.145 percent in 1998, 5.53 percent in
1997 and 5.56 percent in 1996; and expected holding periods of 4 years in
1998 and 1997 and 6.34 years in 1996.
(continued)
F28
<PAGE> 75
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE K - SHAREHOLDERS' EQUITY - Continued
STOCK OPTIONS - Continued
A summary of the status of the Company's fixed stock options as of December
31, 1998 and 1997, and changes during the years ending on those dates is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- ---------------------------
Weighted - Weighted - Weighted-
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 2,813 $ 7.77 3,369 $ 7.03 1,866 $ 5.95
Granted 2,627 17.06 235 14.94 1,758 7.89
Exercised (1,139) 13.73 (764) 6.45 (221) 4.20
Forfeited (136) 14.59 (27) 8.68 (34) 6.16
--------- ----------- --------- ----------- ---------- ----------
Outstanding at
end of year 4,165 11.78 2,813 7.77 3,369 7.03
========= ========= =========
Options exercisable at
end of year 1,103 1,750 1,563
Weighted-average
fair value of options
granted during
the year $ 7.07 $ 5.54 $ 4.04
</TABLE>
The following information applies to options outstanding at December 31,
1998.
<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> <C>
$2.875 - $3.693 157 1.71 $ 3.15 157 $ 3.15
$4.500 - $6.375 48 16.89 4.62 48 4.62
$7.000 - $10.375 2,348 5.74 7.31 802 7.22
$10.875 - $14.875 132 5.86 13.09 93 13.25
$18.375 - $24.50 1,460 4.34 24.46 3 20.31
$31.69 20 9.42 31.69 - -
-------- ---------
$2.875 - $31.69 4,165 1,103
======== =========
</TABLE>
(continued)
F29
<PAGE> 76
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE K - SHAREHOLDERS' EQUITY - Continued
WARRANTS
As part of a lawsuit settlement, warrants to purchase 750,423 shares of the
Company's common stock were issued. The warrants which had an exercise
price of $7.50 per share expired on January 19, 1998. Upon expiration,
565,796 warrants had 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. As amended in March
1999, each Right entitles the holder to purchase one share of common stock
at an exercise price of $50.00 per 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.
STOCK PURCHASE PROGRAM
The $3,800,000 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
1,600,000 shares). No shares have been purchased under the new program.
DIVIDENDS
In August 1997, the Board of Directors re-evaluated the dividend policy in
light of the Company's strategic repositioning for growth and the resultant
cash requirements and eliminated the Company's quarterly cash dividend.
F30
<PAGE> 77
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE L - SPECIAL PREFERRED STOCK
During 1986, the Company was authorized to issue 40,000,000 shares of $.01
par value special preferred stock. 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
shareholders 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 M - BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," in 1998 which changes the way the
Company reports information about its operating segments. With the June 26,
1998 acquisition of HPG, the Company reorganized itself into three main
business units: Windmere Group, Household Products Group and Durable
Manufacturing. The information for 1997 and 1996 has been restated in order
to conform to the 1998 presentation:
The Windmere Group is a distributor of a broad range of branded and private
label personal care products, kitchen electric appliances and seasonal
products for major retailers and appliance distributors in North America
and Latin America. The segment also markets the LitterMaid self-cleaning
cat litter box. The Group's products are sold primarily through independent
sales representatives.
Household Products Group is a leading manufacturer and distributor of small
electric housewares, primarily cooking (toaster ovens), garment care
(hand-held irons), food preparation and beverage products marketed under
the licensed brand name, Black & Decker. The Group's sales are handled
primarily through in house sales representatives to mass merchandisers,
specialty retailers and appliance distributors in North America, Latin
America and the Caribbean. The Household Products Group segment also
includes the acquired manufacturing operations in Queretaro, Mexico and
Asheboro, North Carolina. The Company is currently in the process of
closing down its North Carolina operations.
Durable Manufacturing includes the Company's manufacturing operations
located in Bao An County, Guangdong Province of the People's Republic of
China (PRC). A majority of the Windmere Group's products are manufactured
by Durable.
(continued)
F31
<PAGE> 78
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE M - BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION - Continued
The accounting policies of the reportable segments are the same as those
described in Note A to the Company's Consolidated Financial Statements. The
Company evaluates the performance of its operating segments based upon
income before income taxes and non-recurring and extraordinary items.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. Corporate related items, results
of insignificant operations and, as it relates to segment profit (loss),
income and expense not allocated to reportable segments are included in the
reconciliations to consolidated results.
Segment information for the years 1998, 1997 and 1996 was as follows:
(In Thousands)
<TABLE>
<CAPTION>
Household
Windmere Products Durable
Group Group Manufacturing Total
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
1998
----
Net sales $ 190,369 $ 232,943 $ 141,942 $ 565,254
Intersegment net sales - - 93,079 93,079
Operating earnings 10,191 236 14,221 24,648
Depreciation and amortization 470 11,438 6,752 18,660
Total assets 102,685 480,812 101,265 684,762
Capital expenditures 2,387 2,762 8,328 13,477
1997
----
Net sales 192,957 - 164,763 357,720
Intersegment net sales - - 96,843 96,843
Operating earnings 10,040 - 19,095 29,135
Depreciation and amortization 568 - 5,917 6,485
Total assets 100,272 - 86,356 186,628
Capital expenditures 1,372 - 9,925 11,297
1996
----
Net sales 140,809 - 130,497 271,306
Intersegment net sales - - 82,809 82,809
Operating earnings 12,428 - 5,762 18,190
Depreciation and amortization - - 5,748 5,748
Total assets 78,158 - 86,783 164,941
Capital expenditures 471 - 8,147 8,618
</TABLE>
(continued)
F32
<PAGE> 79
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE M - BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION - Continued
Reconciliation to consolidated amounts:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- --------------
<S> <C> <C> <C>
Revenues
Total revenues for reportable segments $ 565,254 $ 357,720 $ 271,306
Other revenues 2,181 1,008 8,507
Eliminations of intersegment revenues (93,079) (96,843) (82,809)
-------------- ------------- --------------
Total consolidated revenues $ 474,356 $ 261,885 $ 197,004
============== ============= ==============
Operating earnings
Total earnings for reportable segments $ 24,648 $ 29,135 $ 18,190
Other loss (903) (1,286) (782)
Elimination of intersegment profits (537) (169) (529)
Unallocated amounts
Corporate headquarters expense (17,408) (14,275) (15,506)
Repositioning charge (9,519) - --
Gain on sale of equity interest in
joint venture 42,466 - -
Equity in net earnings of joint ventures 1,621 7,353 2,299
-------------- ------------- --------------
Consolidated operating earnings $ 40,368 $ 20,758 $ 3,672
============== ============= ==============
Assets
Total assets for reportable segments $ 684,762 $ 186,628 $ 164,941
Other assets 30,874 32,587 25,559
Corporate headquarters - fixed assets 8,284 7,125 7,180
Other unallocated amounts
Investment in joint ventures 15,708 43,091 35,291
Receivables from affiliates 3,109 12,416 4,308
-------------- ------------- --------------
Total consolidated assets $ 742,737 $ 281,847 $ 237,279
============== ============= ==============
</TABLE>
(continued)
F33
<PAGE> 80
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE M - BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION - Continued
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- --------------
<S> <C> <C> <C>
REVENUES(1)
United States operations $ 364,293 $ 189,468 $ 137,594
International operations
Sales to unaffiliated customers 110,063 72,417 59,410
Transfers between geographical areas 93,079 96,843 82,809
Eliminations (93,079) (96,843) (82,809)
-------------- ------------- --------------
$ 474,356 $ 261,885 $ 197,004
============== ============= ==============
LONG-LIVED ASSETS
United States operations $ 1,067,561 $ 148,661 $ 100,313
International operations 151,697 96,330 84,023
Eliminations (875,368) (143,113) (102,073)
-------------- ------------- --------------
Consolidated assets $ 343,890 $ 101,878 $ 82,263
============== ============= ==============
</TABLE>
Transfers between geographic areas are billed at negotiated prices. All
United States revenues are derived from sales to unaffiliated customers.
Included in domestic revenues are certain sales derived from direct product
shipments from Hong Kong to customers located in the United States.
International operations are conducted primarily in Canada, Mexico, South
and Central America and the Caribbean, Hong Kong and the People's Republic
of China.
(1) Revenues are attributed to the country where the sale originates.
F34
<PAGE> 81
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE N - 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.
Wal-Mart accounted for 19.0% of 1998 sales. Salton accounted for 12.0% of
1997 sales. 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 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.
A substantial amount of the Company's manufacturing operations are
conducted and located abroad. The Company also sells its products to
customers located in foreign jurisdictions, including Latin America,
Canada, Europe and the Far East. Prior to the HPG Acquisition, the majority
of the Company's products were manufactured by Durable. In connection with
the HPG Acquisition, the Company has acquired additional manufacturing
facilities in Queretaro, Mexico, a country in which the Company had not
previously manufactured products. The geographical distances between the
Far East, the United States and Mexico create a number of logistical and
communications challenges. Because the Company manufactures its products
and conducts business in several foreign countries, the Company is affected
by economic and political conditions in those countries, including
fluctuations in the value of currency, duties, possible employee turnover,
labor unrest, lack of developed infrastructure, longer payment cycles,
greater difficulty in collecting accounts receivable, the burdens and costs
of compliance with a variety of foreign laws and, in certain parts of the
world, political instability. Changes in policies by the United States or
foreign governments resulting in, among other things, increased duties,
higher taxation, currency conversion limitations, restrictions on the
transfer of funds, limitations on imports or exports, or the expropriation
of private enterprises could have a material adverse effect on the Company,
its results of operations, prospects or debt service ability. The Company
could also be adversely affected if the current policies encouraging
foreign investment or foreign trade by its host countries were to be
reversed.
(continued)
F35
<PAGE> 82
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE N - CONCENTRATION OF CREDIT AND OTHER RISKS - Continued
If the Company determines that it is necessary to relocate the Company's
manufacturing facilities from the PRC or Mexico and is unable to do so, due
to confiscation, expropriation, nationalization, embargoes, governmental
restrictions or otherwise, the Company 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 PRC and Mexico 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 PRC and Mexico.
In addition, the PRC currently enjoys normal trading relations ("NTR")
trading status granted by the United States, pursuant to which the United
States imposes the lowest applicable tariffs on Chinese exports to the
Untied States. The United States annually reconsiders the renewal of NTR
trading status for the PRC. No assurance can be given that the PRC's NTR
trading status will be renewed in the future years. If NTR status for goods
produced in the PRC 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 would have a material
adverse impact on the Company's revenues and earnings.
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, which may be influenced by the changing political situation
in Hong Kong and by the general state of the Hong Kong economy. On July 1,
1997, sovereignty over Hong Kong was transferred from the United Kingdom to
the PRC, and Hong Kong became a Special Administrative Region. There can be
no assurance that the transfer of sovereignty over Hong Kong will not have
a material adverse affect on the Company's business, financial condition
and results of operations.
The Mexican government exercises significant influence over many aspects of
the Mexican economy. Accordingly, the actions of the Mexican government
concerning the economy could have a significant effect on private sector
entities in general and the Company in particular. In addition, during the
1980s and 1990s, Mexico experienced periods of slow or negative growth,
high inflation, significant devaluations of the peso and limited
availability of foreign exchange. As a result of the Company's reliance
upon manufacturing facilities in Mexico, economic conditions in Mexico
could adversely affect the Company's business, financial condition and
results of operations.
(continued)
F36
<PAGE> 83
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE N - CONCENTRATION OF CREDIT AND OTHER RISKS - Continued
CURRENCY FLUCTUATIONS
While the Company transacts business predominantly in U.S. dollars and most
of its revenues are collected in U.S. dollars, a portion of the Company's
costs, such as payroll, rent and indirect operations costs, are denominated
in other currencies, such as Chinese renminbi, Hong Kong dollars and
Mexican pesos. Changes in the relation of these and other currencies to the
U.S. dollar will affect the Company's cost of goods sold and operating
margins and could result in exchange losses. The impact of future exchange
rate fluctuations on the Company's results of operations cannot be
accurately predicted.
The Company uses forward exchange contracts to reduce fluctuations in
foreign currency cash flows related to third party raw material and other
operating purchases as well as trade receivables. The purpose of the
Company's foreign currency management activity is to reduce the risk that
eventual cash flows from foreign currency denominated transactions may be
adversely affected by changes in exchange rates.
Durable uses the Hong Kong dollar as its functional currency. The Hong Kong
dollar has historically been "pegged" to a fixed exchange rate vis-a-vis
the U.S. dollar. If the Hong Kong dollar were to be significantly devalued
against the U.S. dollar and the exchange rate allowed to fluctuate, the
Company could experience significant changes in its currency translation
account which would impact the Company's future comprehensive income.
The Company has acquired the Queretaro property and related assets from The
Black & Decker Corporation. Because the operations of such facilities are
primarily peso-denominated and the revenues derived from products
manufactured at such facilities are primarily dollar-denominated, the
Company is now subject to fluctuations in the value of the peso. The
December 1994 devaluation of the peso had a number of effects on the
Mexican economy that adversely affected the financial condition of
businesses in Mexico. The devaluation caused the peso value of dollar
denominated indebtedness associated with businesses in Mexico to increase
significantly, and also greatly increased the rate of inflation, resulting
in a sharp rise in nominal interest rates on peso-denominated financing.
There can be no assurance that the peso to dollar foreign exchange rate
will not be volatile in the future and that financial markets will not have
a material adverse effect on the Company's business, financial condition
and results of operations.
F37
<PAGE> 84
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE O - 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 $497,900,
$531,100 and $693,300 in 1998, 1997 and 1996, 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 $468,600 and $427,000 in 1998 and 1997, respectively.
In 1995 and 1998, the Company and/or its subsidiaries made loans to Lion
Redcliffe and Co. Ltd ("Lion Redcliffe"), which is 50 percent owned by an
entity whose president is also a Director of the Company. The loans
totaling $300,000 and $250,000 respectively, bore interest at prevailing
interest rates and were repaid in 1998.
In 1998, an affiliate of Lion Redcliffe purchased 60% of the Company's
ownership interest for $375,000, resulting in a gain of $305,000.
Included in receivables from affiliates at December 31, 1998 is $978,400
due from the Company's President and Chief Executive Officer. Such amount
is due upon demand and bears interest at the prevailing market rate.
NOTE P - SUPPLIER CONTRACT
In January 1997, the Company through its 50-percent interests in Newtech
and their interest in Salton 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
Newtech. Under the terms of the contract, Salton and Newtech 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 is the exclusive discount
department store to market these White-Westinghouse products. The Company
has entered into an agreement guaranteeing the performance of Salton and
Newtech under the Kmart contract. On April 30, 1997, Salton and the Company
entered into an agreement under which fees are paid to the Company in
consideration of its efforts in connection with the supply contract
(Notes J and B).
NOTE Q - 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 1992 Phillips settlement. An accrual
of $5,300,000, including $800,000 in estimated legal expenses, was 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.
F38
<PAGE> 85
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE R - CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company's domestic subsidiaries are guarantors of the Company's Senior
Subordinated Notes (Note G). The following condensed consolidating
financial information presents the results of operations, financial
position and cash flows of the Company (on a stand alone basis), the
guarantor subsidiaries (on a combined basis), the non-guarantor
subsidiaries (on a combined basis) and the eliminations necessary to arrive
at the consolidated results of the Company. The results of operations and
cash flows presented below assume as if the guarantor subsidiaries were in
place for all periods presented. The Company and subsidiary guarantors have
accounted for investments in their respective subsidiaries on an
unconsolidated basis using the equity method of accounting. The Subsidiary
Guarantors are wholly-owned subsidiaries of the Company and have fully and
unconditionally guaranteed the Notes on a joint and several basis. The
Subsidiary Guarantors include the following: Windmere Corporation, Windmere
Holdings Corporation, Windmere Holdings Corporation II, Jerdon Products,
Inc., Fortune Products, Inc., Bay Books & Tapes, Inc., Windmere Innovative
Pet Products, Inc., EDI Masters, Inc., Windmere Fan Products, Inc.,
Household Products, Inc., HP Delaware, Inc., HP Americas, Inc., HPG LLC, HP
Intellectual Corp., WD Delaware, Inc. and WD Delaware II, Inc. The Notes
contain certain covenants which, among other things, restrict the ability
of the Subsidiary Guarantors to make distributions to Windmere-Durable
Holdings, Inc. The Company has not presented separate financial statements
and other disclosures concerning the Subsidiary Guarantors and
non-guarantor subsidiaries because it has determined they would not be
material to investors.
(continued)
F39
<PAGE> 86
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE R - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
Windmere
Durable
Holdings Non
Inc. Guarantors Guarantors Eliminations Consolidated
--------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
Net sales $ -- $ 364,292,600 $ 203,142,700 $ (93,079,300) $ 474,356,000
Cost of goods sold -- 270,141,900 164,022,000 (92,542,400) 341,621,500
--------------- -------------- -------------- -------------- --------------
Gross profit -- 94,150,700 39,120,700 (536,900) 132,734,500
Operating expenses (689,000) 97,712,100 16,122,000 360,300 113,505,400
Repositioning charge -- 9,519,000 -- -- 9,519,000
--------------- -------------- -------------- -------------- --------------
Operating profit (loss) 689,000 (13,080,400) 22,998,700 (897,200) 9,710,100
Other (income) expense,
net 4,549,800 (41,672,600) 6,232,700 1,853,500 (29,036,600)
--------------- -------------- -------------- -------------- --------------
Earnings (loss) before
income taxes and
equity in earnings of
joint ventures (3,860,800) 28,592,200 16,766,000 (2,750,700) 38,746,700
Income taxes (benefit) -- 14,997,600 8,444,600 (11,826,200) 11,616,000
Equity in earnings of
joint ventures 351,000 1,270,000 -- -- 1,621,000
--------------- -------------- -------------- -------------- --------------
Net earnings (loss) $ (3,509,800) $ 14,864,600 $ 8,321,400 $ 9,075,500 $ 28,751,700
=============== ============== ============== ============== ==============
</TABLE>
(continued)
F40
<PAGE> 87
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE R - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
Windmere
Durable
Holdings Non
Inc. Guarantors Guarantors Eliminations Consolidated
--------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Cash $ -- $ 3,083,100 $ 17,331,700 $ -- $ 20,414,800
Accounts and other
receivables -- 124,024,800 42,631,600 (819,500) 165,836,900
Receivables from affiliates 12,415,700 (16,341,000) 9,578,500 (64,600) 5,588,600
Inventories -- 111,183,900 55,711,900 (1,431,000) 165,464,800
Other current assets -- 29,368,600 6,594,400 5,578,500 41,541,500
--------------- -------------- -------------- -------------- --------------
Total current assets 12,415,700 251,319,400 131,848,100 3,263,400 398,846,600
Investments in joint
ventures 425,913,300 22,778,100 70,500,000 (503,483,500) 15,707,900
Property, plant and
equipment, net -- 15,159,300 60,917,600 -- 76,076,900
Other assets -- 603,710,500 20,279,200 (371,884,600) 252,105,100
--------------- -------------- -------------- -------------- --------------
Total assets $ 438,329,000 $ 892,967,300 $ 283,544,900 $ (872,104,700) $ 742,736,500
=============== ============== ============== ============== ==============
LIABILITIES:
Notes and acceptances
payable $ -- $ 11,350,200 $ -- $ (11,350,200) $ --
Accounts payable and
accrued expenses 300 45,691,100 74,739,300 (819,500) 119,611,200
Current maturities of
long-term debt 8,630,000 -- -- -- 8,630,000
Deferred income, current
portion -- 479,000 -- -- 479,000
Income taxes -- 5,618,200 894,900 (3,820,200) 2,692,900
--------------- -------------- -------------- -------------- --------------
Total current liabilities 8,630,300 63,138,500 75,634,200 (15,989,900) 131,413,100
Long-term debt 260,370,000 382,918,000 -- (370,918,000) 272,370,000
Deferred income, less
current portion -- 2,020,700 -- 782,800 2,803,500
Deferred income taxes -- 8,549,500 2,985,300 597,300 12,132,100
--------------- -------------- -------------- -------------- --------------
Total liabilities 269,000,300 456,626,700 78,619,500 (385,527,800) 418,718,700
Shareholders' equity 169,328,700 436,340,600 204,925,400 (486,576,900) 324,017,800
--------------- -------------- -------------- -------------- --------------
Total liabilities and
Shareholders' equity $ 438,329,000 $ 892,967,300 $ 283,544,900 $ (872,104,700) $ 742,736,500
=============== ============== ============== ============== ==============
</TABLE>
(continued)
F41
<PAGE> 88
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE R - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
Windmere
Durable
Holdings Non
Inc. Guarantors Guarantors Eliminations Consolidated
--------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CASH FLOW INFORMATION
Net cash provided by
(used in) operating
activities $ (5,688,400) $ (374,871,000) $ 17,626,300 $ 317,459,700 $ (45,473,400)
Net cash provided by
(used in) investing
activities (354,573,400) (312,094,500) (45,443,500) 461,554,900 (250,556,500)
Net cash provided by
(used in) financing
activities 360,261,800 690,048,600 37,013,700 (779,014,600) 308,309,500
Effect of exchange rate -- (88,700) -- (88,700)
Cash at beginning -- -- 8,223,900 -- 8,223,900
Cash at end -- 3,083,100 17,331,700 -- 20,414,800
</TABLE>
(continued)
F42
<PAGE> 89
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE R - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
Windmere
Durable
Holdings Non
Inc. Guarantors Guarantors Eliminations Consolidated
--------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
Net sales $ -- $ 189,468,000 $ 169,259,900 $ (96,842,800) $ 261,885,100
Cost of goods sold -- 148,402,000 145,778,700 (96,673,500) 197,507,200
--------------- -------------- -------------- -------------- --------------
Gross profit -- 41,066,000 23,481,200 (169,300) 64,377,900
Operating expenses (674,600) 45,700,100 4,963,400 360,300 50,349,200
--------------- -------------- -------------- -------------- --------------
Operating profit (loss) 674,600 (4,634,100) 18,517,800 (529,600) 14,028,700
Other (income) expense, net (3,066,100) 1,166,700 (3,424,600) 5,947,600 623,600
--------------- -------------- -------------- -------------- --------------
Earnings (loss) before
income taxes and
equity in earnings of
joint ventures 3,740,700 (5,800,800) 21,942,400 (6,477,200) 13,405,100
Income taxes (benefit) -- (1,967,100) 2,507,000 383,100 923,000
Equity in earnings of
joint ventures 578,200 6,775,000 -- -- 7,353,200
Minority interest -- -- -- -- --
--------------- -------------- -------------- -------------- --------------
Net earnings (loss) $ 4,318,900 $ 2,941,300 $ 19,435,400 $ (6,860,300) $ 19,835,300
=============== ============== ============== ============== ==============
</TABLE>
(continued)
F43
<PAGE> 90
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE R - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
Windmere
Durable
Holdings Non
Inc. Guarantors Guarantors Eliminations Consolidated
--------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Cash $ -- $ -- $ 8,223,900 $ -- $ 8,223,900
Accounts and other
receivables -- 45,235,500 4,788,000 (6,685,500) 43,338,000
Receivables from affiliates 3,063,500 (24,939,400) 27,573,200 9,593,900 15,291,200
Inventories -- 63,054,300 39,980,700 (862,600) 102,172,400
Other current assets -- 10,179,100 1,582,100 (826,400) 10,934,800
--------------- -------------- -------------- -------------- --------------
Total current assets 3,063,500 93,529,500 82,147,900 1,219,400 179,960,300
Investment in joint
ventures 80,692,100 50,422,400 46,199,200 (134,222,900) 43,090,800
Property, plant and
equipment, net -- 7,310,100 29,889,300 -- 37,199,400
Other assets -- 10,236,800 20,250,300 (8,890,500) 21,596,600
--------------- -------------- -------------- -------------- --------------
Total assets $ 83,755,600 $ 161,498,800 $ 178,486,700 $ (141,894,000) $ 281,847,100
=============== ============== ============== ============== ==============
Notes and acceptances
payable $ -- $ 49,350,200 $ 4,981,600 $ (11,350,200) $ 42,981,600
Accounts payable -- 7,120,000 8,054,200 (573,700) 14,600,500
Accrued expenses 2,178,900 6,141,000 3,885,100 32,800 12,237,800
Current maturities of
long-term debt -- 814,900 -- 2,999,900 3,814,800
Deferred income,
current portion -- 997,500 (178,200) (571,800) 247,500
--------------- -------------- -------------- -------------- --------------
Total current liabilities 2,178,900 64,423,600 16,742,700 (9,463,000) 73,882,200
Long-term debt 10,847,700 8,222,200 -- (3,000,100) 16,069,800
Deferred income, less
current portion -- 126,200 -- 947,600 1,073,800
Deferred income taxes -- (185,700) 2,153,700 (1,968,000) --
--------------- -------------- -------------- -------------- --------------
Total liabilities 13,026,600 72,586,300 18,896,400 (13,483,500) 91,025,800
Shareholders' equity 70,729,000 88,912,500 159,590,300 (128,410,500) 190,821,300
--------------- -------------- -------------- -------------- --------------
Total liabilities and
Shareholders' equity $ 83,755,600 $ 161,498,800 $ 178,486,700 $ (141,894,000) $ 281,847,100
=============== ============== ============== ============== ==============
</TABLE>
(continued)
F44
<PAGE> 91
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE R - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
Windmere
Durable
Holdings Non
Inc. Guarantors Guarantors Eliminations Consolidated
--------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
CASH FLOW INFORMATION
Net cash provided by
(used in) operating
activities $ 4,251,600 $ (16,546,100) $ 20,694,300 $ (6,437,700) $ 1,962,100
Net cash provided by
(used in) investing
activities (4,371,200) (40,768,400) (18,410,700) 41,040,200 (22,510,100)
Net cash provided by
(used in) financing
activities 119,600 55,197,700 (400,900) (34,602,500) 20,313,900
Effect of exchange rate -- -- (321,500) -- (321,500)
Cash at beginning -- 2,116,800 6,662,700 -- 8,779,500
Cash at end -- -- 8,223,900 -- 8,223,900
</TABLE>
(continued)
F45
<PAGE> 92
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE R - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
Windmere
Durable
Holdings Non
Inc. Guarantors Guarantors Eliminations Consolidated
--------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
Net sales $ -- $ 137,593,800 $ 142,219,200 $ (82,809,400) $ 197,003,600
Cost of goods sold -- 107,992,000 131,566,600 (82,280,200) 157,278,400
--------------- -------------- -------------- -------------- --------------
Gross profit -- 29,601,800 10,652,600 (529,200) 39,725,200
Operating expenses 258,000 32,538,100 6,268,700 360,300 39,425,100
Non recurring items -- -- -- -- --
--------------- -------------- -------------- -------------- --------------
Operating income (258,000) (2,936,300) 4,383,900 (889,500) 300,100
Other (income) expense (1,494,300) (607,500) (671,100) 1,700,000 (1,072,900)
--------------- -------------- -------------- -------------- --------------
Earnings before income
taxes and equity in
net earnings (loss) of
joint ventures 1,236,300 (2,328,800) 5,055,000 (2,589,500) 1,373,000
Income taxes (benefit) (157,700) (701,400) 225,900 353,500 (279,700)
Equity in net earnings
(loss) of joint ventures 3,130,100 (831,400) -- -- 2,298,700
Extraordinary item -- (3,500,000) -- -- (3,500,000)
--------------- -------------- -------------- -------------- --------------
Net earnings $ 4,524,100 $ (5,958,800) $ 4,829,100 $ (2,943,000) $ 451,400
=============== ============== ============== ============== ==============
</TABLE>
(continued)
F46
<PAGE> 93
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1998, 1997 AND 1996
NOTE R - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
Windmere
Durable
Holdings Non
Inc. Guarantors Guarantors Eliminations Consolidated
-------------- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
CASH FLOW INFORMATION
Net cash provided by
operating activities $ -- $ 4,978,600 $ 4,643,700 $ -- $ 9,622,300
Net cash used in investing
activities -- (26,929,000) (8,162,200) -- (35,091,200)
Net cash provided by
financing activities -- 12,655,600 3,840,200 -- 16,495,800
Effect of exchange rate -- -- (15,500) -- (15,500)
Cash at beginning -- 11,411,600 6,356,500 -- 17,768,100
Cash at end -- 2,116,800 6,662,700 -- 8,779,500
</TABLE>
F47
<PAGE> 94
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly results for the years 1998 and 1997 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>
1998
----
First quarter $ 55,394 $ 12,883 $ 1,136 $ .06
Second quarter 62,568 8,350 (7,864) (.42)
Third quarter 160,453 55,014 34,960 ** 1.51
Fourth quarter 195,941 56,488 520 .02
--------------- --------------- --------------- ----
Total $ 474,356 $ 132,735 $ 28,752 $ 1.17 *
=============== =============== =============== ======
1997
----
First quarter $ 51,412 $ 10,819 $ 321 $ .02
Second quarter 60,063 13,006 1,941 .10
Third quarter 79,976 17,959 8,517 .43
Fourth quarter 70,434 22,594 9,056 .45
--------------- --------------- --------------- ----
Total $ 261,885 $ 64,378 $ 19,835 $ 1.00
=============== =============== =============== ======
</TABLE>
* Difference of $.16 from statement of earnings for full year due to
exclusion of effect of stock options in earnings per share calculation
in the second quarter.
** Includes a one time repositioning charge of $11.0 million, after tax
and an after-tax gain on the sale of the Company's equity interest in
Salton of $27.5 million.
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 1998 and
1997, by quarters, are as follows:
<TABLE>
<CAPTION>
MARKET PRICE Cash
---------------------
HIGH LOW DIVIDENDS
------ ------ ---------
<S> <C> <C> <C>
1998
----
Fourth quarter 7-3/4 4-5/16 $ --
Third quarter 36-5/8 5-5/8 --
Second quarter 35-13/16 24-1/2 --
First quarter 28-7/8 20-3/8 --
---------
$ 0
=========
1997
----
Fourth quarter 26-11/16 19-5/8 $ --
Third quarter 24-1/8 16-1/4 --
Second quarter 16-9/16 12-7/8 .05
First quarter 14-5/8 12 .05
---------
$ .10
=========
</TABLE>
The approximate number of holders of common stock of the Company, as of December
31, 1998, was 1,300. This number does not include any adjustment for
shareholders owning common stock in the Depository Trust name or otherwise in
"Street" name, which the Company believes represents an additional 9,100
shareholders.
F48
<PAGE> 95
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- --------- -------- ------------------------ -------- --------
ADDITIONS
-------------------------
Balance at Purchase Charged to Charged Balance at
Beginning Price Costs and to Other End of
Description of Period Reserves Expenses Accounts Deductions Period
--------- -------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Reserves deducted from assets to
which they apply:
Allowance for possible losses
on accounts receivable $1,111,300 $3,880,900 $2,449,700 $ 244,800(a) $ (319,700)(b) $7,367,000
========== ========== ========== ========== ========== ==========
YEAR ENDED DECEMBER 31, 1997
Reserves deducted from assets to
which they apply:
Allowance for possible losses on
accounts receivable $1,129,000 $ -- $ 433,000 $ 62,700(a) $ (513,400)(b) $1,111,300
========== ========== ========== ========== ========== ==========
YEAR ENDED DECEMBER 31, 1996
Reserves deducted from assets to
which they apply:
Allowance for possible losses on
accounts receivable $1,158,000 $ -- $ 930,000 $ 4,000(a) $ (963,000)(b) $1,129,000
========== ========== ========== ========== ========== ==========
</TABLE>
(a) Recoveries of amounts previously written off against the reserve.
(b) Write-off of accounts receivable against the reserve.
<PAGE> 1
EXHIBIT 10.40
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is executed this 26th day
of June, 1998, by and between Household Products, Inc., a Delaware corporation
(with all of its direct and indirect subsidiaries, the "Company"), and Michael
Michienzi, an individual residing in the State of Connecticut (the "Employee").
RECITALS:
A. Windmere-Durable Holdings, Inc. ("Windmere") has entered into a
Transaction Agreement (the "Transaction Agreement") dated as of May 10, 1998 by
and between Windmere and The Black and Decker Corporation ("Black & Decker")
providing for the purchase by the Company of certain assets and the assumption
by Windmere of certain liabilities of the Household Products Division of Black &
Decker (the "HPG Business"). Capitalized terms used herein and not otherwise
defined shall have the meaning set forth in the Transaction Agreement.
B. The Employee possesses certain knowledge of the HPG Business, its
policies, methods and personnel.
C. The Board of Directors of the Company (the "Board") recognizes that
the Employee has contributed to the growth and success of the HPG Business, and
desires to assure the Company of the Employee's continued employment and to
compensate him therefor.
D. The Employee is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.
AGREEMENT
Therefore, in consideration of the premises, mutual covenants and
agreements of the parties contained herein, and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
Company and the Employee hereby agree as follows:
1. EMPLOYMENT. Commencing on the Closing Date, the Company shall employ
the Employee and the Employee shall accept employment by the Company, upon the
terms and conditions set forth in this Agreement.
2. TERM. The term of employment (the "Term") of this Agreement shall
begin on the Closing Date and, except as otherwise provided in Sections 7, 8, 9
and 10 below, shall end on June 30, 2000. The Term shall automatically renew for
successive one year terms, unless sooner terminated as provided herein or unless
either party gives notice at least 60 days prior to the end of the Term that
such party does not intend to renew the Term.
<PAGE> 2
3. DUTIES. The Employee will have such duties as are assigned or
delegated to the Employee by the Board and will initially serve as the Vice
President-Marketing and Sales of the Company, which shall continue the HPG
Business. The Employee will devote his entire business time, attention, skill,
and energy exclusively to the business of the Company, will use his best efforts
to promote the success of the Company, and will cooperate fully with the Board
in the advancement of the best interests of the Company.
4. COMPENSATION. During the Term, the Company shall compensate Employee
as follows:
(a) SALARY. The Company shall pay Employee an annual salary of
$220,000 (the "Annual Base Salary"), to be distributed in equal periodic
installments according to the Company's customary payroll practices. Nothing
contained herein shall be construed to prevent the Company from increasing
Employee's Annual Base Salary more often than annually or by a higher amount
than required by the Index (as defined below). The Annual Base Salary will
increase progressively for each of the ensuing twelve month periods ("Fiscal
Year") during the Term by an amount at least equal to the percentage increase in
the United States Consumer Price Index for all urban consumers (CPI-U), U.S.
City Average - All Items, published by the Bureau of Labor Statistics, United
States Department of Labor (the "Index") for the previous calendar year. If at
any time required for the determination of the Annual Base Salary adjustment as
above described, the Index is no longer published or issued, the parties shall
use such other index as is then generally recognized or accepted for similar
determinations of purchasing power.
(b) ANNUAL BONUS. The Employee shall be entitled to receive
incentive compensation (the "Incentive Compensation") for each year during the
Term as set forth below:
(i) PERFORMANCE BONUS. At the beginning of each
calendar year during the Term, the Board (or the Compensation Committee
thereof) shall establish target goals for (A) earnings before interest,
taxes, depreciation and amortization ("EBITDA") of the Company and (B)
the Employee's personal performance (collectively, the "Performance
Goals"). The Employee shall be entitled to an annual bonus (the
"Performance Bonus") based 50% on the achievement of the Performance
Goal set forth in (A) above and 50% on the achievement of the
Performance Goal set forth in (B) above. Such Performance Bonus shall
be equal to a percentage of his Annual Base Salary to be determined as
follows:
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF BONUS AS PERCENTAGE
PERFORMANCE GOALS ACHIEVED OF ANNUAL BASE SALARY
--------------------------------- ---------------------
<S> <C>
75% - 79% (Threshold Performance) 20%
80% - 84% 23%
85% - 89% 26%
90% - 94% 29%
95% - 99% 32%
100% - 104% (Target Performance) 35%
105% - 109% 38%
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
110% - 114% 41%
115% - 119% 44%
120% - 124% 47%
125% and above (Maximum Performance) 50%
</TABLE>
For the year ended December 31, 1998, the Employee shall be entitled to
a Performance Bonus equal to 35% of his Annual Base Salary, which shall be paid
during the first pay period of 1999.
(ii) SYNERGY BONUS. At the beginning of each of the
calendar years beginning in 1999, the Board (or the Compensation
Committee thereof) shall establish target goals for the synergies to be
attained as a result of the integration of the HPG Business into
Windmere (the "Synergy Goals"). Not later than 90 days after the end of
each such year in which the portion of the Synergy Goals achieved are
at least equal to 75%, the Employee shall be paid a cash bonus (the
"Synergy Bonus") equal to a percentage of his Annual Base Salary to be
determined as follows:
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF BONUS AS PERCENTAGE
SYNERGY GOALS ACHIEVED OF ANNUAL BASE SALARY
---------------------------- ---------------------
<S> <C>
75% - 79% (Threshold Performance) 5%
80% - 84% 7%
85% - 89% 9%
90% - 94% 11%
95% - 99% 13%
100% - 104% (Target Performance) 15%
105% - 109% 17%
110% - 114% 19%
115% - 119% 21%
120% - 124% 23%
125% and above (Maximum Performance) 25%
</TABLE>
(iii) CUMULATIVE SYNERGY BONUS. Upon the achievement
of the target goals set forth therein, the Employee shall be entitled
to receive a one-time cash bonus determined pursuant to the Synergy
Bonus Plan attached hereto as Exhibit A and made a part hereof.
5. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
(a) REIMBURSEMENT OF EXPENSES. During the term of Employee's
employment hereunder, the Company, upon the submission of proper substantiation,
including copies of all relevant invoices, receipts or other evidence reasonably
requested by the Company, by the Employee, shall reimburse the Employee for all
reasonable expenses actually paid or incurred by the Employee in the course of
and pursuant to the business of the Company.
(b) EMPLOYEE BENEFITS. Employee shall participate in the
Company's Group Health and Hospitalization Plan, Group Life Insurance Plan,
Group Disability Insurance Plan and
3
<PAGE> 4
all other insurances, or insurance plans (collectively, the "Welfare Benefits"),
and employee benefits and bonuses covering Company senior executive officers as
are now or may in the future be in effect, subject to applicable eligibility
requirements. Additionally, the Company shall provide the Employee with life
insurance in an amount equal to five times his Annual Base Salary. During the
Term, the Company shall pay for tax preparation for the Employee on an annual
basis up to a maximum of 1% of Annual Base Salary and for the Employee's annual
dues in a country club.
(c) STOCK OPTIONS. During the Term of this Agreement, the
Employee shall be eligible to be granted options to acquire shares of Windmere
Common Stock under (and therefore subject to all terms and conditions of ) the
Windmere stock option plan as then in effect, and all rules and regulations of
the Securities and Exchange Commission applicable to stock option plans. Such
options will contain such restrictions as required by the Board of Directors of
Windmere or the applicable committee of the Board charged with administration of
the stock option plan. The number of shares of Common Stock subject to the stock
options shall be adjusted for any subsequent stock splits, stock dividends or
similar recapitalizations of Windmere's Common Stock which result in an increase
or decrease of the number of shares of outstanding Common Stock of Windmere.
Except as set forth in Section 5(c)(i) and (ii) below, the number of options and
terms and conditions of options shall be determined in the sole discretion of
the Board, or applicable committee thereof, and shall be based on several
factors, including the performance of the Company.
(i) CLOSING DATE GRANT. Prior to August 31, 1998,
Windmere shall grant to the Employee non-qualified options to purchase
25,000 shares of Windmere's Common Stock. The options shall become
exercisable in equal portions on the first, second and third
anniversary of the Closing Date if the Employee is then employed by
Company.
(ii) PERFORMANCE GRANT. Additionally, prior to August
31, 1998, Windmere shall grant to the Employee non-qualified options to
purchase 12,500 shares of Windmere's Common Stock (the "Performance
Options"). The Performance Options shall become exercisable in equal
portions on March 31, 2000, March 31, 2001 and March 31, 2002 only if
the target goal for Windmere's Earnings Per Share set by the Board of
Directors of Windmere (or the Compensation Committee thereof) (the
"Stock Option Goal") has been achieved for the 1999, 2000, and 2001
fiscal years. However, if at least 75% of the Stock Option Goal has
been met, 75% of the portion of the Performance Options for such year
shall become exercisable, and for each 5% increase in achievement of
the Stock Option Goal for such year, an additional 5% of the portion of
the Performance Options for such year shall become exercisable (i.e.,
if 85% of the Stock Option Goal is met in any one year, 85% of 4,166
Performance Options shall become exercisable). The remaining portion of
the Performance Options for such year shall not become exercisable and
shall terminate.
(d) AUTOMOBILE. During the Term, the Company shall provide
Employee with an automobile allowance of $975 monthly.
4
<PAGE> 5
(e) VACATION. During the Term, the Employee will be entitled
to three weeks' paid vacation for each year. The Employee will also be entitled
to the paid holidays and other paid leave set forth in Company's policies.
Vacation days and holidays during any fiscal year that are not used by the
Employee during such fiscal year may not be carried over and used in any
subsequent fiscal year.
6. RESTRICTIONS.
(a) NON-COMPETITION. During the Term and for a one year period
after the termination of the Term for any reason, the Employee shall not,
directly or indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation or business or any other person or
entity (whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that directly or indirectly (or
through any affiliated entity) engages in competition with the Company (for this
purpose, any business that engages in the manufacture or distribution of
products similar to those products manufactured or distributed by the Company at
the time of termination of the Agreement shall be deemed to be in competition
with the Company); provided that such provision shall not apply to the
Employee's ownership of Common Stock of Windmere or the acquisition by the
Employee, solely as an investment, of securities of any issuer that is
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
as amended, and that are listed or admitted for trading on any United States
national securities exchange or that are quoted on the National Association of
Securities Dealers Automated Quotations System, or any similar system or
automated dissemination of quotations of securities prices in common use, so
long as the Employee does not control, acquire a controlling interest in or
become a member of a group which exercises direct or indirect control or, more
than five percent of any class of capital stock of such corporation.
(b) NONDISCLOSURE. During the Term and for a one year period
after the termination of the Term for any reason, the Employee shall not at any
time divulge, communicate, use to the detriment of the Company or for the
benefit of any other person or persons, or misuse in any way, any Confidential
Information (as hereinafter defined) pertaining to the business of the Company.
Any Confidential Information or data now or hereafter acquired by the Employee
with respect to the business of the Company (which shall include, but not be
limited to, information concerning the Company's financial condition, prospects,
technology, customers, suppliers, sources of leads and methods of doing
business) shall be deemed a valuable, special and unique asset of the Company
that is received by the Employee in confidence and as a fiduciary, and Employee
shall remain a fiduciary to the Company with respect to all of such information.
For purposes of this Agreement, "Confidential Information" means information
disclosed to the Employee or known by the Employee as a consequence of or
through his employment by the Company (including information conceived,
originated, discovered or developed by the Employee) prior to or after the date
hereof, and not generally known, about the Company or its business.
Notwithstanding the foregoing, nothing herein shall be deemed to restrict the
Employee from disclosing Confidential Information to the extent required by law.
None of the foregoing obligations and restrictions apply to any Confidential
Information that the Employee demonstrates was or became generally available to
the public other than as a result of disclosure by the Employee.
5
<PAGE> 6
(c) NONSOLICITATION OF EMPLOYEES AND CLIENTS. During the Term
and for a one year period after the termination of the Term for any reason, the
Employee shall not, directly or indirectly, for himself or for any other person,
firm, corporation, partnership, association or other entity, other than in
connection with the performance of Employee's duties under this Agreement, (a)
employ or attempt to employ or enter into any contractual arrangement with any
employee or former employee of the Company, unless such employee or former
employee has not been employed by the Company for a period in excess of six
months, (b) call on or solicit any of the actual or targeted prospective clients
of the Company on behalf of any person or entity in connection with any business
competitive with the business of the Company, and/or (c) make known the names
and addresses of such clients or any information relating in any manner to the
Company's trade or business relationships with such customers (unless the
Employee can demonstrate that such information was or became generally available
to the public other than as a result of a disclosure by the Employee).
(d) OWNERSHIP OF DEVELOPMENTS. All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by Employee during the course of performing work for the Company or its
customers (collectively, the "Work Product") shall belong exclusively to the
Company and shall, to the extent possible, be considered a work made by the
Employee for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Employee for hire for the Company, the Employee agrees to assign, and
automatically assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the Employee
may have in such Work Product. Upon the request of the Company, the Employee
shall take such further actions, including execution and delivery of instruments
of conveyance, as may be appropriate to give full and proper effect to such
assignment.
(e) BOOKS AND RECORDS. All books, records, and accounts
relating in any manner to the customers of the Company, whether prepared by the
Employee or otherwise coming into the Employee's possession, shall be the
exclusive property of the Company and shall be returned immediately to the
Company on termination of the Employee's employment hereunder or on the
Company's request at any time.
(f) DEFINITION OF COMPANY. Solely for purposes of this Section
6, the term "Company" also shall include, along with all current direct and
indirect subsidiaries, any existing or future subsidiaries of the Company that
are operating during the time periods described herein and any other entities
that directly or indirectly, through one or more intermediaries, control, are
controlled by or are under common control with the Company during the periods
described herein.
(g) ACKNOWLEDGMENT BY EMPLOYEE. The Employee acknowledges and
confirms that (a) the restrictive covenants contained in this Section 6 are
reasonably necessary to protect the legitimate business interests of the
Company, and (b) the restrictions contained in this Section 6 (including without
limitation the length of the term of the provisions of this Section 6) are not
overbroad, overlong, or unfair and are not the result of overreaching, duress or
coercion
6
<PAGE> 7
of any kind. The Employee further acknowledges and confirms that his full,
uninhibited and faithful observance of each of the covenants contained in this
Section 6 will not cause him any undue hardship, financial or otherwise, and
that enforcement of each of the covenants contained herein will not impair his
ability to obtain employment commensurate with his abilities and on terms fully
acceptable to him or otherwise to obtain income required for the comfortable
support of him and his family and the satisfaction of the needs of his
creditors. The Employee acknowledges and confirms that his special knowledge of
the business of the Company is such as would cause the Company serious injury or
loss if he were to use such ability and knowledge to the benefit of a competitor
or were to compete with the Company in violation of the terms of this Section 6.
The Employee further acknowledges that the restrictions contained in this
Section 6 are intended to be, and shall be, for the benefit of and shall be
enforceable by, the Company's successors and assigns.
(h) REFORMATION BY COURT. In the event that a court of
competent jurisdiction shall determine that any provision of this Section 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Section 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
(i) EXTENSION OF TIME. If the Employee shall be in violation
of any provision of this Section 6, then each time limitation set forth in this
Section 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive
relief from such violation in any court, then the covenants set forth in this
Section 6 shall be extended for a period of time equal to the pendency of such
proceeding including all appeals by the Employee.
(j) SURVIVAL. The provisions of this Section 6 shall survive
the termination of this Agreement, as applicable.
7. TERMINATION FOR CAUSE.
(a) The Company shall have the right to terminate the Term and
the Employee's employment hereunder for Cause (as defined below). Upon any
termination pursuant to this Section 7, the Company shall pay to the Employee
any unpaid Annual Base Salary through the effective date of termination
specified in such notice. The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 5(a)).
(b) For purposes hereof, the term "Cause" shall mean: (i) the
Employee's failure to perform his duties hereunder; (ii) the Employee's failure
to adhere to any written policy of the Company if such failure to adhere has or
is likely to have an adverse effect on the business, operations or prospects the
Company; (iii) the appropriation (or attempted appropriation) of a business
opportunity of the Company, including attempting to secure or securing any
personal profit in connection with any transaction entered into on behalf the
Company; (iv) the misappropriation (or attempted misappropriation) of any of the
Company's
7
<PAGE> 8
funds or property; (v) the conviction of, the indictment for (or its procedural
equivalent), or the entering of a guilty plea or plea of no contest with respect
to, a felony, the equivalent thereof, or any other crime with respect to which
imprisonment is a possible punishment; (vi) the commission by the Employee of
any act which shocks, insults and offends the community and ridicules public
morals and decency, or (vii) any gross or willful improper conduct of the
Employee resulting in loss to the Company, damage to the Company's reputation or
theft from the Company.
8. TERMINATION WITHOUT CAUSE. At any time the Company shall have the
right to terminate the Term and the Employee's employment hereunder by written
notice to the Employee. Upon any termination pursuant to this Section 8 (that is
not a termination under any of Sections 7, 9, or 10), the Company shall pay to
the Employee a lump sum equal to the sum of (A) the Annual Base Salary at the
date of termination multiplied by 1.5, and (B) the product of the sum of the
Performance Bonus for the prior year multiplied by 1.5. The Company shall also
continue to pay the premiums for the same or substantially similar Welfare
Benefits for 18 months. Further, any Windmere stock option granted to Employee
shall be exercisable immediately and the Windmere stock acquired pursuant to
such exercise may be sold by Employee subject to no restrictions by the Company
whatsoever (other than those imposed by federal and state securities laws). The
Company shall have no further liability hereunder (other than for reimbursement
for reasonable business expenses incurred prior to the date of termination,
subject, however, to the provisions of Section 5(a)).
9. TERMINATION BY EMPLOYEE.
(a) The Employee shall at all times have the right, upon 60
days written notice to the Company, to terminate the Term and his employment
hereunder.
(b) Upon any termination pursuant to this Section 9 by the
Employee without Good Reason (as defined below), the Company shall pay to the
Employee any unpaid Annual Base Salary through the effective date of termination
specified in such notice. The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 5(a)).
(c) Upon any termination pursuant to this Section 9 by the
Employee for Good Reason, the Company shall pay to the Employee the same amounts
that would have been payable by the Company to the Employee under Section 8 of
this Agreement if the Employee's employment had been terminated by the Company
without Cause. The Company shall have no further liability hereunder (other than
for reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 5(a)).
(d) For purposes of this Agreement, "Good Reason" shall mean
any failure by the Company to comply with any of the material provisions of
Section 4 of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Employee.
8
<PAGE> 9
10. CHANGE IN CONTROL.
(a) In the event that (i) a Change in Control (as defined in
paragraph (b) of this Section 10) in Windmere shall occur during the Term, and
(ii) prior to the earlier of the expiration of the Term and one year after the
date of the Change in Control, the Term and Employee's employment with the
Company is terminated by the Company without Cause, as defined in Section 7(b)
or the Employee terminates the Term and his employment for Good Reason, as
defined in Section 9(d), the Company shall (1) pay to the Employee any unpaid
Annual Base Salary through the effective date of termination, (2) pay to the
Employee the Incentive Compensation, if any, not yet paid to the Employee for
any year prior to such termination, at such time as the Incentive Compensation
otherwise would have been payable to the Employee, (3) at the time of such
termination, pay to the Employee a lump sum equal to the sum of (A) the Annual
Base Salary at the date of termination multiplied by 1.5, and (B) the product of
the sum of the Performance Bonus for the prior year multiplied by 1.5. The
Company shall also continue to pay the premiums for the same or substantially
similar Welfare Benefits for 18 months. Further, any Windmere stock option
granted to Employee shall be exercisable immediately and the Windmere stock
acquired pursuant to such exercise may be sold by Employee subject to no
restrictions by Windmere whatsoever (other than those imposed by federal and
state securities laws). The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 5(a)).
(b) For purposes of this Agreement, the term "Change in
Control" shall mean:
(i) Approval by the shareholders of Windmere of (x) a
reorganization, merger, consolidation or other form of corporate
transaction or series of transactions, in each case, with respect to
which persons who were the shareholders of Windmere immediately prior
to such reorganization, merger or consolidation or other transaction do
not, immediately thereafter, own more than 50% of the combined voting
power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding voting
securities, or (y) a liquidation or dissolution of Windmere or (z) the
sale of all or substantially all of the assets of Windmere (unless such
reorganization, merger, consolidation or other corporate transaction,
liquidation, dissolution or sale is subsequently abandoned); or
(ii) Individuals who, as of the date hereof,
constitute the Board of Directors of Windmere (as of the date hereof
the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for
election by Windmere's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board (other
than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of Windmere,
as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Securities Exchange Act) shall be, for purposes of this
Agreement, considered as though such person were a member of the
Incumbent Board; or
9
<PAGE> 10
(iii) The acquisition (other than from Windmere) by
any person, entity or "group", within the meaning of Section 13(d)(3)
or 14(d)(2) of the Securities Exchange Act (excluding, for this
purpose, Windmere or its Subsidiaries, or any employee benefit plan of
Windmere or its Subsidiaries) which acquires beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act), of 20% or more of either the then outstanding shares of
Windmere's Common Stock or the combined voting power of Windmere's then
outstanding voting securities entitled to vote generally in the
election of directors.
(c) The payments made pursuant to paragraph (a) above shall be
in lieu of any and all compensation due to Employee for the years that would
otherwise be remaining in the Term. Upon receipt of said lump sum payment, this
Agreement and all rights and duties of the parties shall be terminated, except
as follows. In consideration for such lump sum payment and for the right to
terminate under the conditions set forth above, Employee agrees to consult with
the Company (or its successors), and its officers if requested to do so for a
period of at least two years from the date of such termination. However,
Employee shall be required to devote only such part of his time to such services
as Employee believes reasonable in Employee's sole discretion, and the time and
date such services are offered shall be determined by Employee so long as that
time and date is within a reasonable period of time after the request. It is
expressly agreed that the Company's rights to avail itself of the advice and
consultation services of Employee shall at all times be exercised in a
reasonable manner, that adequate notice shall be given to Employee in such
events, and that non-compliance with any such request by Employee for good
reason, including, but not limited to, ill health or prior commitments, shall
not constitute a breach or violation of this Agreement. Employee agrees that,
except for reimbursement of all reasonable expenses incurred by him with respect
to such consultation and advisory services, payable as such consultation and
advisory services are rendered, he shall not be entitled to any further
compensation. It is understood that in furnishing any advisory and consulting
services provided herein, Employee shall not be an employee of the Company but
shall act in the capacity of independent contractor.
11. WAIVERS. It is understood that either party may waive the strict
performance of any covenant or agreement made herein; however, any waiver made
by a party hereto must be duly made in writing in order to be considered a
waiver, and the waiver of one covenant or agreement shall not be considered a
waiver of any other covenant or agreement unless specifically in writing as
aforementioned.
12. SAVINGS PROVISIONS. The invalidity, in whole or in part, of any
covenant or restriction, or any section, subsection, sentence, clause, phrase or
word, or other provisions of this Agreement, as the same may be amended from
time to time shall not affect the validity of the remaining portions thereof.
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<PAGE> 11
13. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Florida without giving effect to its
choice of law provision.
14. NOTICES. If either party desires to give notice to the other in
connection with any of the terms and provisions of this Agreement, said notice
must be in writing and shall be deemed given when (a) delivered by hand (with
written confirmation of receipt), (b) sent by facsimile (with written
confirmation of receipt), provided that a copy is mailed by registered mail,
return receipt requested, or (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service (receipt requested), in each
case addressed to the party for whom it is intended as follows (or such other
addresses as either party may designated by notice to the other party):
If to the Company: Household Products, Inc.
6 Armstrong Road
Shelton, Connecticut 06484
Attn: Michael P. Hoopis, President
If to Employee: At the most recent home address
of Employee on the official
records of the Company
15. DEFAULT. In the event either party defaults in the performance of
its obligations under this Agreement, the non-defaulting party may, after giving
30 days notice to the defaulting party to provide a reasonable opportunity to
cure such default, proceed to protect its rights by suit in equity, action at
law, or, where specifically provided for herein, by arbitration, to enforce
performance under this Agreement or to recover damages for breach thereof,
including all costs and attorneys' fees, whether settled out of court,
arbitrated, or tried (at both trial and appellate levels).
16. SECTION 162(m) LIMITS.
Notwithstanding any other provision of this Agreement, if and to the
extent that any remuneration payable by the Company or Windmere to the Employee
for any year would exceed the maximum amount of such remuneration that Windmere
or the Company may deduct for that year by reason of Section 162(m) of the Code,
payment of the portion of the remuneration for that year that would not be so
deductible under Section 162(m) shall, in the sole discretion of the Board, be
deferred so that it shall become payable at such time or times as the Board
reasonably determines that it would be deductible by Windmere or the Company
under Section 162(m), with interest at the "short-term applicable federal rate"
as such term is defined in Section 1274(d) of the Code.
17. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment,
distribution or other action by the Company to or for the benefit of the
Employee (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments
11
<PAGE> 12
required under this Section 19) (a "Payment") would be subject to an excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by the Employee with respect
to any such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), the
Company shall make a payment to the Employee (a "Gross-Up Payment") in an amount
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of paragraph (c) of this Section
19, all determinations required to be made under this Section 19, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by Grant Thornton LLP, or such other independent public accounting
firm regularly engaged by Windmere from time to time (the "Accounting Firm"),
which shall provide detailed supporting calculations both to the Company and the
Employee within 20 business days of the receipt of notice from the Employee that
there has been a Payment, or such earlier time as is requested by the Company.
In the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change of Control, Windmere shall
appoint another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 19, shall be paid by the Company to the Employee within five days
of the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Employee, it shall furnish the
Employee with a written opinion that failure to report the Excise Tax on the
Employee's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination by the
Accounting Firm shall be binding upon the Company and the Employee. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that Windmere exhausts its remedies pursuant to Section
19 and the Employee thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Employee.
(c) The Employee shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than five business days after the Employee
is informed in writing of such claim and shall apprise Windmere of the nature of
such claim and the date on which such claim is requested to be paid. The
Employee shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Employee in writing prior to the expiration
of such period that it desires to contest such claim, the Employee shall:
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<PAGE> 13
(i) give the Company any information reasonably
requested by Windmere relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company ,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 19(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as Windmere shall
determine; provided, however, that if the Company directs the Employee to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Employee, on an interest-free basis and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Employee with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Employee shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 19(c), the Employee becomes entitled
to receive any refund with respect to such claim, the Employee shall (subject to
the Company's complying with the requirements of Section 19(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Employee of an amount advanced by the Company pursuant to Section 19(c), a
determination is made that the Employee shall not be entitled to any refund with
respect to such
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<PAGE> 14
claim and the Company does not notify the Employee in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
18. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person,
other than Windmere, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
19. WAIVER OF JURY TRIAL. ALL PARTIES KNOWINGLY WAIVE THEIR RIGHTS TO
REQUEST A TRIAL BY JURY IN ANY LITIGATION IN ANY COURT OF LAW, TRIBUNAL OR LEGAL
PROCEEDING INVOLVING THE PARTIES HERETO OR ANY DISPUTES ARISING OUT OF OR
RELATED TO THIS AGREEMENT.
IN WITNESS WHEREOF, the Company, by its appropriate officer, signed
this Agreement and Employee has signed this Agreement, as of the day and year
first above written.
HOUSEHOLD PRODUCTS, INC.
By:
----------------------------------
EMPLOYEE
-------------------------------------
Michael Michienzi
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<PAGE> 15
EXHIBIT A
Cumulative Synergy Bonus Plan (the "Plan")
Prior to December 31, 1998, the Board of Directors of Windmere (or the
Compensation Committee thereof) shall establish a strategic plan for the
attainment of certain cumulative synergies as a result of the integration of the
HPG Business into Windmere (the "Cumulative Synergy Goals"). If the Cumulative
Synergy Goals are achieved prior to the time frame set forth in the strategic
plan, the Board (or the Compensation Committee) shall establish a bonus pool in
an amount equal to 30% of the aggregate Annual Base Salary of all participants
in the Plan (each a "Participant").
Upon the achievement of the Cumulative Synergy Goals, each Participant
shall be entitled to receive a one-time cash bonus (the "Cumulative Synergy
Bonus") to be paid in the first quarter of 2002, if such Participant is employed
with the Company. The amount of the Cumulative Synergy Bonus shall be determined
in the sole discretion of the Board (or the Compensation Committee).
15
<PAGE> 1
EXHIBIT 10.41
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is executed this 30th day
of October, 1998, by and between Windmere Corporation, a Florida corporation
(with all of its direct and indirect subsidiaries, the "Company"), and William
S. Endres, an individual residing in the State of Kansas (the "Employee").
RECITALS:
A. The Board of Directors of the Company (the "Board") desires to
assure the Company of the Employee's continued employment and to compensate him
therefor.
B. The Board has determined that this Agreement will reinforce and
encourage the Employee's continued attention and dedication to the Company.
C. The Employee is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.
AGREEMENT
Therefore, in consideration of the premises, mutual covenants and
agreements of the parties contained herein, and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
Company and the Employee hereby agree as follows:
1. EMPLOYMENT. Commencing on the date set forth above, the Company
shall employ the Employee and the Employee shall accept employment by the
Company, upon the terms and conditions set forth in this Agreement.
2. TERM. The term of employment (the "Term") of this Agreement shall
begin on the date set forth above and, except as otherwise provided in Sections
7, 8, 9 and 10 below, shall end on December 31, 2000. The Term shall
automatically renew for successive one year terms, unless sooner terminated as
provided herein or unless either party gives notice at least 60 days prior to
the end of the Term that such party does not intend to renew the Term.
3. DUTIES. The Employee will have such duties as are assigned or
delegated to the Employee by the Board and will initially serve as the Senior
Vice President-Sales and Marketing of the Company. The Employee will devote his
entire business time, attention, skill, and energy exclusively to the business
of the Company, will use his best efforts to promote the success of the Company,
and will cooperate fully with the Board in the advancement of the best interests
of the Company.
<PAGE> 2
4. COMPENSATION. During the Term, the Company shall compensate Employee
as follows:
(a) SALARY. The Company shall pay Employee an annual salary of
$235,000 (the "Annual Base Salary"), to be distributed in equal periodic
installments according to the Company's customary payroll practices. The Annual
Base Salary will be reviewed on an annual basis by the Board of Directors and/or
President of the Company.
(b) ANNUAL BONUS. The Employee shall be entitled to receive
incentive compensation (the "Incentive Compensation") for each year during the
Term as set forth below:
(i) PERFORMANCE BONUS. At the beginning of each
calendar year during the Term, the Board (or the Compensation Committee
thereof) shall establish target goals for (A) earnings before interest,
taxes, depreciation and amortization ("EBITDA") of the Company and (B)
the Employee's personal performance (collectively, the "Performance
Goals"). The Employee shall be entitled to an annual bonus (the
"Performance Bonus") based 50% on the achievement of the Performance
Goal set forth in (A) above and 50% on the achievement of the
Performance Goal set forth in (B) above. Such Performance Bonus shall
be equal to a percentage of his Annual Base Salary to be determined as
follows:
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF BONUS AS PERCENTAGE
PERFORMANCE GOALS ACHIEVED OF ANNUAL BASE SALARY
-------------------------------- ---------------------
<S> <C>
75% - 79% (Threshold Performance) 20%
80% - 84% 23%
85% - 89% 26%
90% - 94% 29%
95% - 99% 32%
100% - 104% (Target Performance) 35%
105% - 109% 38%
110% - 114% 41%
115% - 119% 44%
120% - 124% 47%
125% and above (Maximum Performance) 50%
</TABLE>
(ii) SYNERGY BONUS. At the beginning of each of the
calendar years beginning in 1999, the Board (or the Compensation
Committee thereof) shall establish target goals (the "Synergy
Goals")for the synergies to be attained as a result of the integration
of the business of Household Products, Inc. (the "HPG Business") into
Windmere-Durable Holdings, Inc., the parent corporation of the Company
("Windmere"). Not later than 90 days after the end of each such year in
which the portion of the Synergy Goals achieved are at least equal to
75%, the Employee shall be paid a cash bonus
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<PAGE> 3
(the "Synergy Bonus") equal to a percentage of his Annual Base Salary
to be determined as follows:
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF BONUS AS PERCENTAGE
SYNERGY GOALS ACHIEVED OF ANNUAL BASE SALARY
---------------------------- ---------------------
<S> <C>
75% - 79% (Threshold Performance) 5%
80% - 84% 7%
85% - 89% 9%
90% - 94% 11%
95% - 99% 13%
100% - 104% (Target Performance) 15%
105% - 109% 17%
110% - 114% 19%
115% - 119% 21%
120% - 124% 23%
125% and above (Maximum Performance) 25%
</TABLE>
(iii) CUMULATIVE SYNERGY BONUS. Upon the achievement
of the target goals set forth therein, the Employee shall be entitled
to receive a one-time cash bonus determined pursuant to the Synergy
Bonus Plan attached hereto as Exhibit A and made a part hereof.
5. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
(a) REIMBURSEMENT OF EXPENSES. During the term of Employee's
employment hereunder, the Company, upon the submission of proper substantiation,
including copies of all relevant invoices, receipts or other evidence reasonably
requested by the Company, by the Employee, shall reimburse the Employee for all
reasonable expenses actually paid or incurred by the Employee in the course of
and pursuant to the business of the Company.
(b) EMPLOYEE BENEFITS. Employee shall participate in the
Company's Group Health and Hospitalization Plan, Group Life Insurance Plan,
Group Disability Insurance Plan and all other insurances, or insurance plans
(collectively, the "Welfare Benefits"), and employee benefits and bonuses
covering Company senior executive officers as are now or may in the future be in
effect, subject to applicable eligibility requirements.
(c) STOCK OPTIONS. During the Term of this Agreement, the
Employee shall be eligible to be granted options to acquire shares of Windmere
Common Stock under (and therefore subject to all terms and conditions of ) the
Windmere stock option plan as then in effect, and all rules and regulations of
the Securities and Exchange Commission applicable to stock option plans. Such
options will contain such restrictions as required by the Board of Directors of
Windmere or the applicable committee of the Board charged with administration of
the stock option plan. The number of shares of Common Stock subject to the stock
options shall be adjusted for any subsequent stock splits, stock dividends or
similar recapitalizations of Windmere's Common Stock which result in an increase
or decrease of the number of shares of
3
<PAGE> 4
outstanding Common Stock of Windmere. Except as set forth in paragraph (i)
below, the number of options and terms and conditions of options shall be
determined in the sole discretion of the Board, or applicable committee thereof,
and shall be based on several factors, including the performance of the Company.
(i) INITIAL GRANT. Upon the execution of this
Agreement, Windmere shall grant to the Employee non-qualified options
to purchase 55,000 shares of Windmere's Common Stock. The options shall
become exercisable in equal portions on the first, second and third
anniversary of the date of the Agreement if the Employee is then
employed by Company.
(d) AUTOMOBILE. During the Term, the Company shall provide
Employee with an automobile allowance of $900 monthly.
(e) VACATION. During the Term, the Employee will be entitled
to four weeks' paid vacation for each year. The Employee will also be entitled
to the paid holidays and other paid leave set forth in Company's policies.
Vacation days and holidays during any fiscal year that are not used by the
Employee during such fiscal year may not be carried over and used in any
subsequent fiscal year.
6. RESTRICTIONS.
(a) NON-COMPETITION. During the Term and for a one year period
after the termination of the Term for any reason, the Employee shall not,
directly or indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation or business or any other person or
entity (whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that directly or indirectly (or
through any affiliated entity) engages in competition with the Company (for this
purpose, any business that engages in the manufacture or distribution of
products similar to those products manufactured or distributed by the Company at
the time of termination of the Agreement shall be deemed to be in competition
with the Company); provided that such provision shall not apply to the
Employee's ownership of Common Stock of Windmere or the acquisition by the
Employee, solely as an investment, of securities of any issuer that is
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
as amended, and that are listed or admitted for trading on any United States
national securities exchange or that are quoted on the National Association of
Securities Dealers Automated Quotations System, or any similar system or
automated dissemination of quotations of securities prices in common use, so
long as the Employee does not control, acquire a controlling interest in or
become a member of a group which exercises direct or indirect control or, more
than five percent of any class of capital stock of such corporation.
Notwithstanding anything herein to the contrary, in the event that (i) a Change
in Control (as such term is defined in Section 10(b) hereof) in Windmere shall
have occurred and (ii) such Change in Control was not approved by the Board of
Directors of Windmere, the restrictions set forth in this paragraph (a) of this
Section 6 shall not be applicable to the one-year period following the
termination of the Term.
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<PAGE> 5
(b) NONDISCLOSURE. During the Term and for a one year period
after the termination of the Term for any reason, the Employee shall not at any
time divulge, communicate, use to the detriment of the Company or for the
benefit of any other person or persons, or misuse in any way, any Confidential
Information (as hereinafter defined) pertaining to the business of the Company.
Any Confidential Information or data now or hereafter acquired by the Employee
with respect to the business of the Company (which shall include, but not be
limited to, information concerning the Company's financial condition, prospects,
technology, customers, suppliers, sources of leads and methods of doing
business) shall be deemed a valuable, special and unique asset of the Company
that is received by the Employee in confidence and as a fiduciary, and Employee
shall remain a fiduciary to the Company with respect to all of such information.
For purposes of this Agreement, "Confidential Information" means information
disclosed to the Employee or known by the Employee as a consequence of or
through his employment by the Company (including information conceived,
originated, discovered or developed by the Employee) prior to or after the date
hereof, and not generally known, about the Company or its business.
Notwithstanding the foregoing, nothing herein shall be deemed to restrict the
Employee from disclosing Confidential Information to the extent required by law.
None of the foregoing obligations and restrictions apply to any Confidential
Information that the Employee demonstrates was or became generally available to
the public other than as a result of disclosure by the Employee.
(c) NONSOLICITATION OF EMPLOYEES AND CLIENTS. During the Term
and for a one year period after the termination of the Term for any reason, the
Employee shall not, directly or indirectly, for himself or for any other person,
firm, corporation, partnership, association or other entity, other than in
connection with the performance of Employee's duties under this Agreement, (a)
employ or attempt to employ or enter into any contractual arrangement with any
employee or former employee of the Company, unless such employee or former
employee has not been employed by the Company for a period in excess of six
months, (b) call on or solicit any of the actual or targeted prospective clients
of the Company on behalf of any person or entity in connection with any business
competitive with the business of the Company, and/or (c) make known the names
and addresses of such clients or any information relating in any manner to the
Company's trade or business relationships with such customers (unless the
Employee can demonstrate that such information was or became generally available
to the public other than as a result of a disclosure by the Employee).
(d) OWNERSHIP OF DEVELOPMENTS. All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by Employee during the course of performing work for the Company or its
customers (collectively, the "Work Product") shall belong exclusively to the
Company and shall, to the extent possible, be considered a work made by the
Employee for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Employee for hire for the Company, the Employee agrees to assign, and
automatically assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the Employee
may have in such Work Product. Upon the request of the Company, the
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<PAGE> 6
Employee shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.
(e) BOOKS AND RECORDS. All books, records, and accounts
relating in any manner to the customers of the Company, whether prepared by the
Employee or otherwise coming into the Employee's possession, shall be the
exclusive property of the Company and shall be returned immediately to the
Company on termination of the Employee's employment hereunder or on the
Company's request at any time.
(f) DEFINITION OF COMPANY. Solely for purposes of this Section
6, the term "Company" also shall mean Windmere and shall include, along with all
current direct and indirect subsidiaries, any existing or future subsidiaries of
Windmere that are operating during the time periods described herein and any
other entities that directly or indirectly, through one or more intermediaries,
control, are controlled by or are under common control with the Company during
the periods described herein.
(g) ACKNOWLEDGMENT BY EMPLOYEE. The Employee acknowledges and
confirms that (a) the restrictive covenants contained in this Section 6 are
reasonably necessary to protect the legitimate business interests of the
Company, and (b) the restrictions contained in this Section 6 (including without
limitation the length of the term of the provisions of this Section 6) are not
overbroad, overlong, or unfair and are not the result of overreaching, duress or
coercion of any kind. The Employee further acknowledges and confirms that his
full, uninhibited and faithful observance of each of the covenants contained in
this Section 6 will not cause him any undue hardship, financial or otherwise,
and that enforcement of each of the covenants contained herein will not impair
his ability to obtain employment commensurate with his abilities and on terms
fully acceptable to him or otherwise to obtain income required for the
comfortable support of him and his family and the satisfaction of the needs of
his creditors. The Employee acknowledges and confirms that his special knowledge
of the business of the Company is such as would cause the Company serious injury
or loss if he were to use such ability and knowledge to the benefit of a
competitor or were to compete with the Company in violation of the terms of this
Section 6. The Employee further acknowledges that the restrictions contained in
this Section 6 are intended to be, and shall be, for the benefit of and shall be
enforceable by, the Company's successors and assigns.
(h) REFORMATION BY COURT. In the event that a court of
competent jurisdiction shall determine that any provision of this Section 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Section 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
(i) EXTENSION OF TIME. If the Employee shall be in violation
of any provision of this Section 6, then each time limitation set forth in this
Section 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive
relief from such violation in any court, then the covenants set forth in this
Section 6 shall be extended for a period of time equal to the pendency of such
proceeding including all appeals by the Employee.
6
<PAGE> 7
(j) SURVIVAL. The provisions of this Section 6 shall survive
the termination of this Agreement, as applicable.
7. TERMINATION FOR CAUSE.
(a) The Company shall have the right to terminate the Term and
the Employee's employment hereunder for Cause (as defined below). Upon any
termination pursuant to this Section 7, the Company shall pay to the Employee
any unpaid Annual Base Salary through the effective date of termination
specified in such notice. The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 5(a)).
(b) For purposes hereof, the term "Cause" shall mean: (i) the
Employee's failure to perform his duties hereunder; (ii) the Employee's failure
to adhere to any written policy of the Company if such failure to adhere has or
is likely to have an adverse effect on the business, operations or prospects the
Company; (iii) the appropriation (or attempted appropriation) of a business
opportunity of the Company, including attempting to secure or securing any
personal profit in connection with any transaction entered into on behalf the
Company; (iv) the misappropriation (or attempted misappropriation) of any of the
Company's funds or property; (v) the conviction of, the indictment for (or its
procedural equivalent), or the entering of a guilty plea or plea of no contest
with respect to, a felony, the equivalent thereof, or any other crime with
respect to which imprisonment is a possible punishment; (vi) the commission by
the Employee of any act which shocks, insults and offends the community and
ridicules public morals and decency, or (vii) any gross or willful improper
conduct of the Employee resulting in loss to the Company, damage to the
Company's reputation or theft from the Company.
8. TERMINATION WITHOUT CAUSE. At any time the Company shall have the
right to terminate the Term and the Employee's employment hereunder by written
notice to the Employee. Upon any termination pursuant to this Section 8 (that is
not a termination under any of Sections 7, 9, or 10), the Company shall pay to
the Employee a lump sum equal to the sum of (A) the Annual Base Salary at the
date of termination multiplied by 1.5, and (B) the product of the sum of the
Performance Bonus for the prior year multiplied by 1.5. The Company shall also
continue to pay the premiums for the same or substantially similar Welfare
Benefits for 18 months. Further, any Windmere stock option granted to Employee
shall be exercisable immediately and the Windmere stock acquired pursuant to
such exercise may be sold by Employee subject to no restrictions by the Company
whatsoever (other than those imposed by federal and state securities laws). The
Company shall have no further liability hereunder (other than for reimbursement
for reasonable business expenses incurred prior to the date of termination,
subject, however, to the provisions of Section 5(a)).
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<PAGE> 8
9. TERMINATION BY EMPLOYEE.
(a) The Employee shall at all times have the right, upon 60
days written notice to the Company, to terminate the Term and his employment
hereunder.
(b) Upon any termination pursuant to this Section 9 by the
Employee without Good Reason (as defined below), the Company shall pay to the
Employee any unpaid Annual Base Salary through the effective date of termination
specified in such notice. The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 5(a)).
(c) Upon any termination pursuant to this Section 9 by the
Employee for Good Reason, the Company shall pay to the Employee the same amounts
that would have been payable by the Company to the Employee under Section 8 of
this Agreement if the Employee's employment had been terminated by the Company
without Cause. The Company shall have no further liability hereunder (other than
for reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 5(a)).
(d) For purposes of this Agreement, "Good Reason" shall mean
any failure by the Company to comply with any of the material provisions of
Section 4 of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Employee.
10. CHANGE IN CONTROL.
(a) In the event that (i) a Change in Control (as defined in
paragraph (b) of this Section 10) in Windmere shall occur during the Term, and
(ii) prior to the earlier of the expiration of the Term and one year after the
date of the Change in Control, the Term and Employee's employment with the
Company is terminated by the Company without Cause, as defined in Section 7(b)
or the Employee terminates the Term and his employment for Good Reason, as
defined in Section 9(d), the Company shall (1) pay to the Employee any unpaid
Annual Base Salary through the effective date of termination, (2) pay to the
Employee the Incentive Compensation, if any, not yet paid to the Employee for
any year prior to such termination, at such time as the Incentive Compensation
otherwise would have been payable to the Employee, (3) at the time of such
termination, pay to the Employee a lump sum equal to the sum of (A) the Annual
Base Salary at the date of termination multiplied by 1.5, and (B) the product of
the sum of the Performance Bonus for the prior year multiplied by 1.5. The
Company shall also continue to pay the premiums for the same or substantially
similar Welfare Benefits for 18 months. Further, any Windmere stock option
granted to Employee shall be exercisable immediately and the Windmere stock
acquired pursuant to such exercise may be sold by Employee subject to no
restrictions by Windmere whatsoever (other than those imposed by federal and
state securities laws). The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 5(a)).
8
<PAGE> 9
(b) For purposes of this Agreement, the term "Change in
Control" shall mean:
(i) Approval by the shareholders of Windmere of (x) a
reorganization, merger, consolidation or other form of corporate
transaction or series of transactions, in each case, with respect to
which persons who were the shareholders of Windmere immediately prior
to such reorganization, merger or consolidation or other transaction do
not, immediately thereafter, own more than 50% of the combined voting
power entitled to vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding voting
securities, or (y) a liquidation or dissolution of Windmere or (z) the
sale of all or substantially all of the assets of Windmere (unless such
reorganization, merger, consolidation or other corporate transaction,
liquidation, dissolution or sale is subsequently abandoned); or
(ii) Individuals who, as of the date hereof,
constitute the Board of Directors of Windmere (as of the date hereof
the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for
election by Windmere's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board (other
than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of Windmere,
as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Securities Exchange Act) shall be, for purposes of this
Agreement, considered as though such person were a member of the
Incumbent Board; or
(iii) The acquisition (other than from Windmere) by
any person, entity or "group", within the meaning of Section 13(d)(3)
or 14(d)(2) of the Securities Exchange Act (excluding, for this
purpose, Windmere or its Subsidiaries, or any employee benefit plan of
Windmere or its Subsidiaries) which acquires beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act), of 20% or more of either the then outstanding shares of
Windmere's Common Stock or the combined voting power of Windmere's then
outstanding voting securities entitled to vote generally in the
election of directors.
(c) The payments made pursuant to paragraph (a) above shall be
in lieu of any and all compensation due to Employee for the years that would
otherwise be remaining in the Term. Upon receipt of said lump sum payment, this
Agreement and all rights and duties of the parties shall be terminated, except
as follows. In consideration for such lump sum payment and for the right to
terminate under the conditions set forth above, Employee agrees to consult with
the Company (or its successors), and its officers if requested to do so for a
period of at least two years from the date of such termination. However,
Employee shall be required to devote only such part of his time to such services
as Employee believes reasonable in Employee's sole discretion, and the time and
date such services are offered shall be determined by Employee so long as that
time and date is within a reasonable period of time after the request. It is
expressly agreed that the Company's rights to avail itself of the advice and
consultation services of
9
<PAGE> 10
Employee shall at all times be exercised in a reasonable manner, that adequate
notice shall be given to Employee in such events, and that non-compliance with
any such request by Employee for good reason, including, but not limited to, ill
health or prior commitments, shall not constitute a breach or violation of this
Agreement. Employee agrees that, except for reimbursement of all reasonable
expenses incurred by him with respect to such consultation and advisory
services, payable as such consultation and advisory services are rendered, he
shall not be entitled to any further compensation. It is understood that in
furnishing any advisory and consulting services provided herein, Employee shall
not be an employee of the Company but shall act in the capacity of independent
contractor.
11. WAIVERS. It is understood that either party may waive the strict
performance of any covenant or agreement made herein; however, any waiver made
by a party hereto must be duly made in writing in order to be considered a
waiver, and the waiver of one covenant or agreement shall not be considered a
waiver of any other covenant or agreement unless specifically in writing as
aforementioned.
12. SAVINGS PROVISIONS. The invalidity, in whole or in part, of any
covenant or restriction, or any section, subsection, sentence, clause, phrase or
word, or other provisions of this Agreement, as the same may be amended from
time to time shall not affect the validity of the remaining portions thereof.
13. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Florida without giving effect to its
choice of law provision.
14. NOTICES. If either party desires to give notice to the other in
connection with any of the terms and provisions of this Agreement, said notice
must be in writing and shall be deemed given when (a) delivered by hand (with
written confirmation of receipt), (b) sent by facsimile (with written
confirmation of receipt), provided that a copy is mailed by registered mail,
return receipt requested, or (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service (receipt requested), in each
case addressed to the party for whom it is intended as follows (or such other
addresses as either party may designated by notice to the other party):
If to the Company: Windmere Corporation
5980 Miami Lakes Drive
Miami Lakes, Florida 33014
Attn: Harry D. Schulman, President
If to Employee: At the most recent home address
of Employee on the official
records of the Company
15. DEFAULT. In the event either party defaults in the performance of
its obligations under this Agreement, the non-defaulting party may, after giving
30 days notice to the defaulting party to provide a reasonable opportunity to
cure such default, proceed to protect its rights by suit in equity, action at
law, or, where specifically provided for herein, by arbitration, to enforce
performance under this Agreement or to recover damages for breach thereof,
including all costs and attorneys' fees, whether settled out of court,
arbitrated, or tried (at both trial and appellate levels).
10
<PAGE> 11
16. SECTION 162(m) LIMITS.
Notwithstanding any other provision of this Agreement, if and to the
extent that any remuneration payable by the Company or Windmere to the Employee
for any year would exceed the maximum amount of such remuneration that Windmere
or the Company may deduct for that year by reason of Section 162(m) of the Code,
payment of the portion of the remuneration for that year that would not be so
deductible under Section 162(m) shall, in the sole discretion of the Board, be
deferred so that it shall become payable at such time or times as the Board
reasonably determines that it would be deductible by Windmere or the Company
under Section 162(m), with interest at the "short-term applicable federal rate"
as such term is defined in Section 1274(d) of the Code.
17. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment,
distribution or other action by the Company to or for the benefit of the
Employee (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 19) (a "Payment") would be
subject to an excise tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), or any interest or penalties are incurred by the
Employee with respect to any such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), the Company shall make a payment to the Employee (a "Gross-Up
Payment") in an amount equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of paragraph (c) of this Section
19, all determinations required to be made under this Section 19, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by Grant Thornton LLP, or such other independent public accounting
firm regularly engaged by Windmere from time to time (the "Accounting Firm"),
which shall provide detailed supporting calculations both to the Company and the
Employee within 20 business days of the receipt of notice from the Employee that
there has been a Payment, or such earlier time as is requested by the Company.
In the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change of Control, Windmere shall
appoint another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 19, shall be paid by the Company to the Employee within five days
of the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Employee, it shall furnish the
Employee with a written opinion that failure to report the Excise Tax on the
Employee's applicable federal income tax return would not result in the
imposition of
11
<PAGE> 12
a negligence or similar penalty. Any determination by the Accounting Firm shall
be binding upon the Company and the Employee. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that Windmere exhausts its remedies pursuant to Section
19 and the Employee thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Employee.
(c) The Employee shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than five business days after the Employee
is informed in writing of such claim and shall apprise Windmere of the nature of
such claim and the date on which such claim is requested to be paid. The
Employee shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Employee in writing prior to the expiration
of such period that it desires to contest such claim, the Employee shall:
(i) give the Company any information reasonably
requested by Windmere relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company ,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 19(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one
12
<PAGE> 13
or more appellate courts, as Windmere shall determine; provided, however, that
if the Company directs the Employee to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Employee, on an
interest-free basis and shall indemnify and hold the Employee harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Employee with respect to which such contested amount
is claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Employee shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 19(c), the Employee becomes entitled
to receive any refund with respect to such claim, the Employee shall (subject to
the Company's complying with the requirements of Section 19(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Employee of an amount advanced by the Company pursuant to Section 19(c), a
determination is made that the Employee shall not be entitled to any refund with
respect to such claim and the Company does not notify the Employee in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
18. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person,
other than Windmere, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
19. WAIVER OF JURY TRIAL. ALL PARTIES KNOWINGLY WAIVE THEIR RIGHTS TO
REQUEST A TRIAL BY JURY IN ANY LITIGATION IN ANY COURT OF LAW, TRIBUNAL OR LEGAL
PROCEEDING INVOLVING THE PARTIES HERETO OR ANY DISPUTES ARISING OUT OF OR
RELATED TO THIS AGREEMENT.
13
<PAGE> 14
IN WITNESS WHEREOF, the Company, by its appropriate officer, signed
this Agreement and Employee has signed this Agreement, as of the day and year
first above written.
WINDMERE CORPORATION
By:
------------------------------------
EMPLOYEE
---------------------------------------
William S. Endres
14
<PAGE> 15
EXHIBIT A
Cumulative Synergy Bonus Plan (the "Plan")
Prior to December 31, 1998, the Board of Directors of Windmere (or the
Compensation Committee thereof) shall establish a strategic plan for the
attainment of certain cumulative synergies as a result of the integration of the
HPG Business into Windmere (the "Cumulative Synergy Goals"). If the Cumulative
Synergy Goals are achieved prior to the time frame set forth in the strategic
plan, the Board (or the Compensation Committee) shall establish a bonus pool in
an amount equal to 30% of the aggregate Annual Base Salary of all participants
in the Plan (each a "Participant").
Upon the achievement of the Cumulative Synergy Goals, each Participant
shall be entitled to receive a one-time cash bonus (the "Cumulative Synergy
Bonus") to be paid in the first quarter of 2002, if such Participant is employed
with the Company. The amount of the Cumulative Synergy Bonus shall be determined
in the sole discretion of the Board (or the Compensation Committee).
15
<PAGE> 1
Exhibit 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
Windmere Innovative Pet Products, Inc. Florida
Windmere Corporation Florida
Windmere Holdings Corporation Delaware
Windmere Holdings Corporation II Delaware
Household Products, Inc. Delaware
HP Intellectual, Inc. Delaware
HP Delaware, Inc. Delaware
HPG LLC Delaware
HP Americas, Inc. Delaware
WD Delaware, Inc. Delaware
WD Delaware II, Inc. Delaware
Goal Making Company Limited British Virgin Islands
Remdale Investments Limited British Virgin Islands
Tofino Investments Limited British Virgin Islands
Maanring Holding Netherlands
PPC Industries, Ltd. British Virgin Islands
Windmere Consumer Products, Inc. Canada
Durable Electric, Ltd. Hong Kong
Durable Electrical Metal Factory, Ltd. Hong Kong
Sandgate Services, Ltd. Hong Kong
Parawind, Ltd. Hong Kong
PPC Product Services, Ltd. Hong Kong
Delanee, Ltd. Hong Kong
Durable Belson Manufactory, Ltd. Hong Kong
Kamwon Hong Kong
Dubel Hong Kong
<PAGE> 2
H.P.G. de Venezuela, C.A. Venezuela
H.P.G. de Colombia Limitada Colombia
Household Products Limited de Mexico,
S. de R.S. de C.V. Mexico
Household Products Chile
Comercial Limitada Chile
Household Products Canada Limited Canada
Household Products (Asia) Limited Hong Kong
Each of the above subsidiaries is wholly-owned and is included in the
consolidated financial statements as of December 31, 1998.
<PAGE> 1
Exhibit 23
AUDITOR'S CONSENT
We have issued our report dated February 12, 1999, accompanying the consolidated
financial statements and schedule included in the Annual Report of
Windmere-Durable Holdings, Inc. on Form 10-K for the year ended December 31,
1998. 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), Form S-8 (File No. 33-58574, effective February 22, 1993),
Form S-8 (File No. 333-52389, effective May 12, 1998) and on Form S-8 (File No.
333-52383, effective May 12, 1998).
GRANT THORNTON LLP
Miami, Florida
March 29, 1999
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