<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 1-10177
APPLICA INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-1028301
------------------------------- ----------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
5980 MIAMI LAKES DRIVE, MIAMI LAKES, FLORIDA 33014
-------------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(305) 362-2611
----------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
WINDMERE-DURABLE HOLDINGS, INC.
----------------------------------------------------
FORMER NAME, IF CHANGED SINCE LAST REPORT
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirement for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
NUMBER OF SHARES OUTSTANDING
CLASS ON AUGUST 7, 2000
----- -----------------------------
Common Stock, $.10 par value 23,035,355
<PAGE> 2
APPLICA INCORPORATED
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Statements of Operations for the
Three Months Ended June 30, 2000 and 1999................................. 3
Consolidated Statements of Operations for the
Six Months Ended June 30, 2000 and 1999................................... 4
Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999....................................... 5-6
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2000 and 1999........................... 7
Notes to Consolidated Financial Statements................................ 8-14
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................. 15-22
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk......................... 22
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ................................................................. 23
ITEM 4. Submission of Matters to a Vote of Security Holders ............................... 23
ITEM 6. Exhibits and Reports on Form 8-K................................................... 23
SIGNATURES........................................................................................... 24
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APPLICA INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------
2000 1999
----------------------- -----------------------
<S> <C> <C> <C> <C>
Sales and Other Revenues ..... $ 171,411 100.0% $ 149,168 100.0%
Cost of Goods Sold ........... 119,231 69.6 103,742 69.5
--------- ------- --------- -------
Gross Profit ............ 52,180 30.4 45,426 30.5
Selling, General and
Administrative Expenses . 45,268 26.4 42,745 28.7
--------- ------- --------- -------
Operating Profit ........ 6,912 4.0 2,681 1.8
Other (Income) Expense
Interest Expense ........ 7,785 4.5 6,531 4.4
Interest and Other Income (535) (.3) (735) (.5)
--------- ------- --------- -------
7,250 4.2 5,796 3.9
--------- ------- --------- -------
Loss before Equity
in Net Loss of Joint
Ventures and Income Taxes (338) (.2) (3,115) (2.1)
Equity in Net Loss
of Joint Ventures ....... -- -- (12,374) (8.3)
--------- ------- --------- -------
Loss Before
Income Taxes ............ (338) (.2) (15,489) (10.4)
Provision (Benefit) for
Income Taxes ............ (93) (.1) (4,924) (3.3)
--------- ------- --------- -------
Net Loss ..................... $ (245) (.1)% $ (10,565) (7.1)%
========= ======= ========= =======
Loss Per Share - basic ....... $ (.01) $ (.47)
========= =========
Loss Per Share - diluted ..... $ (.01) (.47)
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
APPLICA INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------
2000 1999
----------------------- -----------------------
<S> <C> <C> <C> <C>
Sales and Other Revenues ..... $ 318,102 100.0% $ 268,021 100.0%
Cost of Goods Sold ........... 221,508 69.6 185,636 69.3
--------- ------- --------- -------
Gross Profit ............ 96,594 30.4 82,385 30.7
Selling, General and
Administrative Expenses . 87,865 27.6 81,874 30.5
--------- ------- --------- -------
Operating Profit ........ 8,729 2.8 511 .2
Other (Income) Expense
Interest Expense ........ 14,064 4.4 12,736 4.8
Interest and Other Income (965) (.3) (1,024) (.4)
--------- ------- --------- -------
13,099 4.1 11,712 4.4
Loss before Equity
in Net Loss of Joint
Ventures and Income Taxes (4,370) (1.3) (11,201) (4.2)
Equity in Net Loss
of Joint Ventures ....... -- -- (12,894) (4.8)
--------- ------- --------- -------
Loss Before
Income Taxes ............ (4,370) (1.3) (24,095) (9.0)
Provision (Benefit) for
Income Taxes ............ (1,097) (.3) (7,000) (2.6)
--------- ------- --------- -------
Net Loss ..................... $ (3,273) (1.0)% $ (17,095) (6.4)%
========= ======= ========= =======
Loss Per Share - basic ....... $ (.14) $ (.77)
========= =========
Loss Per Share - diluted ..... $ (.14) $ (.77)
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
APPLICA INCORPORATED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash & Cash Equivalents ............................................... $ 8,513 $ 13,768
Accounts and Other Receivables,
less allowances of $8,816 and
$8,761, respectively ............................................. 170,094 172,500
Receivables from Affiliates (Note 1) .................................. 3,206 3,533
Other Receivables ..................................................... -- 12,962
Inventories
Raw Materials .................................................... 8,514 9,045
Work-in-process .................................................. 21,214 18,547
Finished Goods ................................................... 170,423 136,114
-------- --------
Total Inventories ............................................ 200,151 163,706
Prepaid Expenses ...................................................... 12,000 12,703
Refundable Income Taxes ............................................... 5,495 1,122
Future Income Tax Benefits ............................................ 8,490 8,490
-------- --------
Total Current Assets ............................................. 407,949 388,784
INVESTMENT IN JOINT VENTURE
(NOTE 2) ......................................................... 2,302 2,608
PROPERTY, PLANT & EQUIPMENT -
AT COST, less accumulated
depreciation of $76,256 and
$69,597, respectively ............................................ 84,374 75,983
LONG-TERM FUTURE INCOME TAX BENEFITS .................................. 2,049 2,049
OTHER ASSETS .......................................................... 234,246 243,249
-------- --------
TOTAL ASSETS ......................................................... $730,920 $712,673
======== ========
</TABLE>
(Continued)
5
<PAGE> 6
APPLICA INCORPORATED
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Notes and acceptances payable ................... $ 452 $ 898
Current Maturities of Long-Term Debt ............ 17,842 13,587
Accounts Payable and Accrued Expenses ........... 82,795 95,103
Income taxes payable ............................ 1,262 4,723
Deferred Income, current portion ................ 585 585
Other current liabilities ....................... -- 10,573
--------- ---------
Total Current Liabilities ......... 102,936 125,469
LONG-TERM DEBT .................................. 286,329 243,571
DEFERRED INCOME, less current Portion ........... 199 236
SHAREHOLDERS' EQUITY (Note 2)
Special Preferred Stock -
Authorized 40,000 shares of
$.01 par value; none issued ............ -- --
Common Stock - authorized:
75,000 shares of $.10 par
value; shares outstanding:
23,038 and 22,641,
respectively ............................... 2,304 2,264
Paid-in Capital ................................. 151,672 149,548
Retained Earnings ............................... 191,409 194,682
Accumulated Other Comprehensive Loss ............ (2,278) (1,601)
Note receivable - officer ....................... (1,651) (1,496)
--------- ---------
Total Shareholders' Equity ...................... 341,456 343,397
--------- ---------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 730,920 $ 712,673
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
APPLICA INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................... $ (3,273) $(17,095)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation of property, plant and equipment .............. 9,219 8,510
Amortization of intangible assets .......................... 9,644 8,400
Amortization of deferred income ............................ (37) --
Net loss on disposal of fixed assets ....................... 2,147
Write down of investment in joint venture .................. 12,574
Net change in allowance for losses on accounts receivable .. 55 1,647
Changes in assets and liabilities
Decrease in accounts and other receivables ............. 2,351 16,380
(Increase) Decrease in inventories ..................... (36,445) 10,306
Decrease in prepaid expenses ........................... 703 5,263
(Increase) Decrease in other assets .................... (641) 6,010
Decrease in other receivables .......................... 12,962 --
Decrease in accounts payable and accrued expenses ...... (12,308) (32,712)
Decrease in current and deferred income taxes .......... (7,834) (11,408)
Decrease in other liabilities .......................... (10,573) --
Decrease in deferred income ............................ -- (1,513)
Decrease in other accounts ............................. (677) (124)
-------- --------
Net cash (used in) provided by
operating activities ............................ (36,854) 8,385
Cash flows from investing activities:
Additions to property, plant and equipment - net ........... (17,610) (12,782)
Distributed equity in (loss) earnings of joint ventures .... 306 446
Purchase of net assets from joint venture .................. (15,059)
Decrease in receivable accounts
and notes from affiliates .............................. 172 1,782
-------- --------
Net cash used in investing activities ............. (17,132) (25,613)
Cash flows from financing activities:
Net borrowings under notes and acceptances payable ......... $ (446) $ 2,778
Long-term debt - net ....................................... 47,013 518
Exercise of stock options and warrants ..................... 2,164 345
-------- --------
Net cash provided by financing activities .............. 48,731 3,641
Decrease in cash
and cash equivalents ............................ (5,255) (13,587)
Cash and cash equivalents at beginning of year .................. 13,768 20,415
-------- --------
Cash and cash equivalents at end of quarter ..................... $ 8,513 $ 6,828
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest ................................................... $ 12,608 $ 14,035
Income taxes ............................................... $ 5,189 $ 4,231
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
APPLICA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
INTERIM REPORTING
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all normal recurring adjustments necessary
to present fairly the Company's financial position as of June 30, 2000
and the results of its operations and changes in financial position for
the interim periods. Results for interim periods should not be
considered indicative of results for a full year. Reference should be
made to the financial statements contained in the registrant's Annual
Report on Form 10-K for the year ended December 31, 1999.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified for comparability.
RECEIVABLES FROM AFFILIATES
Receivables from Affiliates include the current portion of receivables
due from the Company's joint venture partner and a Company officer.
These receivables are due upon demand and bear interest at prevailing
market interest rates.
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. Outstanding at June 30, 2000 is
$6,000,000, in contracts and/or options to purchase foreign currency,
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 derivatives of one to eight 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.
In February 2000, the Company exited contracts with a notional value of
$60,000,000 and received a payment of $248,300 which was recorded as an
adjustment to interest expense.
Outstanding at June 30, 2000, was an interest rate swap on $80,000,000
notional principal amount with a market value of approximately
($1,711,701). The market value represents the amount the Company would
have to pay to exit the contract at June 30, 2000. The Company does not
intend to exit the contract at this time.
As of August 3, 2000, the Company had entered into additional interest
rate derivatives with a notional value of $80,000,000 for a total
notional value outstanding of $160,000,000.
2. SHAREHOLDERS' EQUITY
EARNINGS PER SHARE
Basic shares for the three and six month periods ended June 30, 2000
were 22,991,460 and 22,857,889, respectively. Basic shares for the
three and six month periods ended June 30, 1999 were 22,302,018 and
8
<PAGE> 9
22,196,492, respectively. All common stock equivalents have been
excluded from the per share calculations as the Company incurred net
losses in all periods and their inclusion would have been
anti-dilutive.
OTHER
On May 9, 2000, the shareholders of the Company voted to change the
name of the Company to Applica Incorporated. The name change was
effective on May 10, 2000. In addition, the shareholders voted to
approve the Second Amended and Restated Articles of Incorporation of
the Company, which increases the authorized number of shares of Common
Stock from 40,000,000 to 75,000,000 and eliminates the Company's
Special Preferred Stock.
3. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in 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, HARRY D. SCHULMAN AND NATIONSBANC MONTGOMERY
SECURITIES LLC, 98-2273-CIV-LENARD which was filed in the United States
District Court, Southern District of Florida on October 8, 1998.
This matter is a class action complaint, which is the consolidation of
eight separate class action complaints with substantially similar
allegations. By Order dated March 9, 1999, in addition to consolidating
the above-referenced cases, the Court provisionally certified the class
of plaintiffs who purchased Windmere stock between May 12, 1998 and
September 22, 1998, and provisionally certified Sherleigh Associates
LLC and Sherleigh Associates, Inc. Profit Sharing Plan as lead
plaintiff. On June 30, 1999, a consolidated amended class action
complaint was filed. The consolidated amended class action complaint
alleges 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 awarded compensatory
damages, rescission rights, unspecified damages and attorneys' fees and
costs. The defendants moved to dismiss the consolidated class action
complaint, but such motion was denied. Discovery procedures have been
initiated.
The Company is currently paying 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 amounts 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.
9
<PAGE> 10
In connection with the Household Products Group acquisition, the
Company also received two derivative demands alleging the breach of
fiduciary duties by certain of the officers and directors of the
Company. An independent committee of the Board of Directors is
currently conducting an investigation as to whether such derivative
actions are in the best interest of the Company.
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.
4. BUSINESS SEGMENT INFORMATION
Effective January 1, 2000, the Company reorganized into three new
business units: Consumer Products North America, Consumer Products
International and Manufacturing. The information for 1999 has been
restated in order to conform to the new presentation.
The Consumer Products North America segment distributes kitchen
electric, personal care and home environment products under licensed
brand names such as Black & Decker, as well as the Windmere and private
label brand names. The sales are handled primarily through in house
sales representatives to mass merchandisers, specialty retailers and
appliance distributors in the United States and Canada.
The Consumer Products International segment distributes kitchen
electric, personal care and home environment products under the Black &
Decker and Windmere brand names. Products are marketed throughout all
countries in Latin America except for Brazil.
The Manufacturing segment includes the Company's operations located in
Bao An County, Guangdong Province of the Peoples' Republic of China and
in Queretaro, Mexico. The majority of the Company's products are
manufactured in these two facilities.
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 three month periods ended June 30, are as
follows: (In Thousands)
<TABLE>
<CAPTION>
Consumer Products Consumer
North Products
America International Manufacturing Total
------- ------------- ------------- -----
<S> <C> <C> <C> <C>
2000:
Net Sales...................... $ 119,921 $ 25,287 $ 102,851 $ 248,059
Intersegment net sales......... 2,610 -- 84,915 87,525
Operating earnings (loss) ..... (2,668) (1,201) 11,609 7,740
1999:
Net Sales...................... 115,423 18,430 60,927 194,780
Intersegment net sales......... -- -- 48,693 48,693
Operating earnings (loss) ..... (4,172) (3,192) 12,030 4,666
Reconciliation to consolidated amounts:
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
REVENUES:
Total revenues for reportable segments ............. $ 248,059 $ 194,780
Other revenues ..................................... 10,877 3,081
Eliminations of intersegment revenues .............. (87,525) (48,693)
--------- ---------
Total consolidated revenues ................... $ 171,411 $ 149,168
========= =========
Operating earnings (loss):
Total earnings for reportable segments ........ $ 7,740 $ 4,666
Other loss .................................... (293) (1,250)
Interest expense .............................. (7,785) (6,531)
Equity in net loss of joint ventures .......... -- (12,374)
--------- ---------
Consolidated loss before income taxes ......... $ (338) $ (15,489)
========= =========
</TABLE>
Segment information for the six month periods ended June 30, are as
follows: (In Thousands)
<TABLE>
<CAPTION>
Consumer Products Consumer
North Products
America International Manufacturing Total
------- ------------- ------------- -----
<S> <C> <C> <C> <C>
2000
Net Sales .......................... $ 228,455 $ 45,701 $ 196,464 $ 470,620
Intersegment net sales ............. 4,235 -- 165,289 169,524
Operating earnings (loss) .......... (12,793) (691) 21,577 8,093
1999
Net Sales .......................... 205,027 33,331 109,301 347,659
Intersegment net sales ............. -- -- 85,584 85,584
Operating earnings (loss) .......... (15,366) (2,590) 17,800 (156)
</TABLE>
Reconciliation to consolidated amounts:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
REVENUES:
Total revenues for reportable segments....................... $ 470,620 $ 347,659
Other revenues............................................... 17,006 5,946
Eliminations of intersegment revenues........................ (169,524) (85,584)
------------- --------------
Total consolidated revenues.............................. $ 318,102 $ 268,021
============= ==============
Operating earnings (loss)
Total earnings (loss) for reportable segments................ $ 8,093 $ (156)
Other earnings............................................... 1,601 1,691
Interest expense............................................. (14,064) (12,736)
Equity in net earnings (loss) of joint ventures.............. -- (12,894)
------------- --------------
Consolidated loss before income taxes........................ $ (4,370) (24,095)
============= ==============
</TABLE>
11
<PAGE> 12
5. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
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 of the
Company's Senior Subordinated Notes ("Notes") (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
guarantors include the following: Applica Consumer Products, Inc.,
Windmere Holdings Corporation, Windmere Holdings Corporation II,
Fortune Products, Inc., Bay Books & Tapes, Inc., HP Delaware, Inc., HP
Americas, Inc., HPG LLC, HP Intellectual Corp. and WD Delaware, Inc.
The Notes contain certain covenants which, among other things, will
restrict the ability of the Subsidiary Guarantors to make distributions
to the Company. The Company has not presented separate financial
statements and other disclosures concerning the guarantors and
non-guarantor subsidiaries because it has determined they would not be
material to investors.
12
<PAGE> 13
SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
APPLICA NON
INCORPORATED GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net Sales .............................. -- 238,906 248,720 (169,524) 318,102
Cost of goods sold ..................... -- 176,250 214,782 (169,524) 221,508
---------- ---------- ---------- ---------- ----------
Gross Profit ........................... -- 62,656 33,938 -- 96,594
Operating Expenses ..................... 421 71,346 15,918 180 87,865
---------- ---------- ---------- ---------- ----------
Operating Profit (Loss) ................ (421) (8,690) 18,020 (180) 8,729
Other (income) expense, net ............ 12,760 335 4 -- 13,099
---------- ---------- ---------- ---------- ----------
Earnings (loss) before income taxes and
equity in earnings (loss) of joint
ventures .......................... (13,181) (9,025) 18,016 (180) (4,370)
Provision (Benefit) for income taxes ... -- 159 2,800 (4,056) (1,097)
Equity in net loss
of joint ventures ................. -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings (loss) .................... (13,181) (9,184) 15,216 3,876 (3,273)
========== ========== ========== ========== ==========
BALANCE SHEET
Cash ................................... 6 (4,415) 12,922 -- 8,513
Accounts and other receivables ......... -- 113,823 56,271 -- 170,094
Receivables from affiliates ............ 11,790 (56,741) 48,157 -- 3,206
Inventories ............................ -- 138,821 61,330 -- 200,151
Other current assets ................... -- 2,384 12,059 11,542 25,985
---------- ---------- ---------- ---------- ----------
Total current assets .............. 11,796 193,872 190,739 11,542 407,949
Investments in joint venture ........... 426,028 113,121 70,536 (607,383) 2,302
Property, plant and equipment, net ..... -- 17,589 66,785 -- 84,374
Other assets ........................... -- 591,253 11,164 (366,122) 236,295
---------- ---------- ---------- ---------- ----------
Total assets ...................... 437,824 915,835 339,224 (961,963) 730,920
========== ========== ========== ========== ==========
LIABILITIES:
Notes payable .......................... -- -- 452 -- 452
Accounts payable and accrued expenses .. 2 28,528 54,265 -- 82,795
Current maturities of long term debt ... 17,842 -- -- -- 17,842
Deferred income, current portion ....... -- 585 -- -- 585
Income taxes payable ................... -- (1,816) 4,627 (1,549) 1,262
---------- ---------- ---------- ---------- ----------
Total current liabilities ......... 17,844 27,297 59,344 (1,549) 102,936
Long term debt ......................... 283,832 353,636 11,847 (362,986) 286,329
Deferred income, less current portion .. -- 199 -- -- 199
Deferred income taxes .................. -- 5,514 2,843 (8,357) --
---------- ---------- ---------- ---------- ----------
Total liabilities ................. 301,676 386,646 74,034 (372,892) 389,464
Shareholders' equity ................... 136,148 529,189 265,190 (589,071) 341,456
---------- ---------- ---------- ---------- ----------
Total liabilities and shareholders'
equity .......................... 437,824 915,835 339,224 (961,963) 730,920
========== ========== ========== ========== ==========
Cash Flow Information
Net cash provided by (used in) operating
activities ........................ (13,180) (1,133,369) 23,904 1,086,468 (36,177)
Net cash provided by (used in) investing
activities ........................ (33,342) 997,598 (25,789) (955,599) (17,132)
Net cash provided by (used in) financing
activities ........................ 46,524 127,417 5,659 (130,869) 48,731
Effect of exchange rate ................ -- -- (677) -- (677)
Cash at beginning ...................... 4 3,939 9,825 -- 13,768
Cash at end ............................ 6 (4,415) 12,922 -- 8,513
</TABLE>
13
<PAGE> 14
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
APPLICA NON
INCORPORATED GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net Sales .............................. -- 204,471 104,330 (40,780) 268,021
Cost of goods sold ..................... -- 141,404 85,012 (40,780) 185,636
-------- -------- -------- -------- --------
Gross Profit ........................... -- 63,067 19,318 0 82,385
Operating Expenses ..................... (347) 70,813 11,228 180 81,874
-------- -------- -------- -------- --------
Operating Profit (Loss) ................ 347 (7,746) 8,090 (180) 511
Other (income) expense, net ............ 12,024 (847) (558) 1,093 11,712
-------- -------- -------- -------- --------
Earnings (loss) before income taxes and
equity in earnings (loss) of joint
ventures .......................... (11,677) (6,899) 8,648 (1,273) (11,201)
Provision (Benefit) for income taxes ... -- (2,803) 1,131 (5,328) (7,000)
Equity in net earnings (loss)
of joint ventures ................. 593 (13,487) -- -- (12,894)
-------- -------- -------- -------- --------
Net earnings (loss) .................... (11,084) (17,583) 7,517 4,055 (17,095)
======== ======== ======== ======== ========
BALANCE SHEET
Cash ................................... 9 (469) 7,288 -- 6,828
Accounts and other receivables ......... -- 105,411 48,481 0 153,892
Receivables from affiliates ............ 9,437 (18,626) 12,993 2 3,806
Inventories ............................ -- 101,195 65,068 (1,498) 164,765
Other current assets ................... -- 26,026 4,348 11,536 41,910
-------- -------- -------- -------- --------
Total current assets .............. 9,446 213,537 138,178 10,040 371,201
Investments in joint ventures .......... 426,376 9,254 70,542 (503,484) 2,688
Property, plant and equipment, net ..... -- 12,770 65,432 -- 78,202
Other assets ........................... 1,521 583,213 11,928 (341,360) 255,302
-------- -------- -------- -------- --------
Total assets ...................... 437,343 818,744 286,080 (834,804) 707,393
======== ======== ======== ======== ========
LIABILITIES:
Notes payable .......................... 0 11,350 2,778 (11,350) 2,778
Accounts payable and accrued expenses .. 3 65,186 39,947 (1) 105,135
Current maturities of long term debt ... 7,842 -- 113 -- 7,955
Deferred income, current portion ....... -- 689 -- -- 689
Income taxes payable ................... -- (1,223) 948 275 --
-------- -------- -------- -------- --------
Total current liabilities ......... 7,845 76,002 43,786 (11,076) 116,557
Long term debt ......................... 269,373 332,906 4,190 (332,906) 273,563
Deferred income, less current portion .. -- 297 -- 783 1,080
Deferred income taxes .................. -- 16,253 2,973 (10,177) 9,049
-------- -------- -------- -------- --------
Total liabilities ................. 277,218 425,458 50,949 (353,376) 400,249
Shareholders' equity ................... 160,125 393,316 235,131 (481,428) 307,144
-------- -------- -------- -------- --------
Total liabilities and shareholders'
equity ......................... 437,343 818,744 286,080 (834,804) 707,393
======== ======== ======== ======== ========
Cash Flow Information
Net cash provided by (used in) operating
activities ........................ 11,081 55,755 (21,101) (15,064) 8,509
Net cash provided by (used in) investing
activities ........................ 995 15,825 (15,572) (27,307) (25,613)
Net cash provided by (used in) financing
activities ........................ 10,095 (75,578) 26,753 42,371 3,641
Effect of exchange rate ................ -- -- (124) -- (124)
Cash at beginning ...................... -- 3,083 17,332 -- 20,415
Cash at end ............................ 9 (469) 7,288 -- 6,828
</TABLE>
14
<PAGE> 15
ITEM 2. 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.
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
licensed brand names, such as Black & Decker(R), under the Windmere(R) and other
Company-owned brand names and under private-label brand names. 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.
On June 26, 2000, the Kmart Corporation exercised its option to terminate its
long-term supply contract with the Company for the sale of consumer electronic
products under the White-Westinghouse trademark in the United States. The
termination will be effective on June 30, 2002. Under the terms of the
agreement, Kmart's minimum purchase requirements for the period July 1, 2001
through June 30, 2002 will be reduced to 25%. Management does not believe that
the termination of the agreement will have a material effect on the financial
condition, results of operations or liquidity of the Company.
RESULTS OF OPERATIONS
The operating results of the Company expressed as a percentage of sales and
other revenues are set forth below:
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
------ ------
Net Sales ....................................... 100.0% 100.0%
Cost of goods sold .............................. 69.6 69.3
------ ------
Gross Profit .................................... 30.4 30.7
Selling, general and administrative expenses .... 27.6 30.5
Other (income) expense - net .................... 4.1 4.4
Equity in net loss of joint ventures ............ -- (4.8)
------ ------
Loss before income taxes ........................ (1.3) (9.0)
Provision (benefit) for income taxes ............ (.3) (2.6)
------ ------
Net earnings (loss) ............................. (1.0)% (6.4)%
====== ======
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
SALES AND OTHER REVENUES
Sales and other revenues ("Revenues") for the Company increased by $22.2 million
to $171.4 million, an increase of 14.9% over Revenues for the second quarter of
1999. The change is primarily the result of a $16.0 million increase in sales of
Black & Decker branded kitchen products. Also contributing to the net increase
were increases in OEM sales, revenues related to the White-Westinghouse brand
name and personal care product sales. These were partially offset by a $9.8
million decrease in home environment sales. Sales to Walmart accounted for 18.5%
and 15.2% of total sales for the 2000 and 1999 periods, respectively.
15
<PAGE> 16
GROSS PROFIT MARGIN
Gross profit increased by $6.8 million. Gross profit margin was 30.4% as a
percentage of revenues in 2000 as compared to 30.5% in the 1999 period. The
minimal change in the gross profit margin is primarily the result of realized
manufacturing synergies and productivity gains at the Company's manufacturing
facilities offset by increased raw material costs. There can be no assurance
that manufacturing synergies and productivity gains will be able to offset
increases in raw material costs in future periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the Company increased by $2.5
million in the second quarter of 2000 yet decreased as a percentage of sales, to
26.4% from 28.7% in the 1999 period. The dollar increase consists primarily of
increases in warehousing, distribution and freight costs of $6.4 million and
amortization related to the 1999 Newtech acquisition of $600,000, partially
offset by a $5.2 million decrease in sales related expenses including
commissions, advertising, promotion and sales materials.
Additional warehousing and distribution expenses were incurred due to increased
inventory levels and sales volume. Freight expenses increased reflecting both
the additional sales volume and rate increases from the carriers.
EQUITY IN NET LOSS OF JOINT VENTURES
In June 1999, the Company wrote down its remaining investment in a joint venture
and, therefore, discontinued recording its interest in the joint venture's
operations.
INTEREST EXPENSE
Interest expense increased by $1.3 million to $7.8 million in 2000. The increase
is a result of additional borrowings under the Company's Senior Revolving Credit
Facility to meet working capital requirements as well as due to rising interest
rates.
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.
LOSS PER SHARE
Basic shares for the three month periods ended June 30, 2000 and 1999 were
22,991,460 and 22,302,018, respectively. All common stock equivalents have been
excluded from the per share calculations as the Company incurred net losses in
both periods and their inclusion would have been anti-dilutive.
CONSUMER PRODUCTS NORTH AMERICA ("NORTH AMERICA")
North America sales increased by $1.9 million to $117.3 million in the second
quarter of 2000, excluding $2.6 million in sales to other company segments. The
change is primarily attributable to a $9.6 million increase in Black & Decker
branded kitchen electrics and a $3.0 million increase in personal care product
sales, offset by a $9.8 million decrease in home environment product sales.
16
<PAGE> 17
CONSUMER PRODUCTS INTERNATIONAL ("INTERNATIONAL")
Sales for the International segment increased by $6.9 million to $25.3 million
or 37.2% from the 1999 period. The increase is attributed to growth in sales of
existing products, as well as the introduction of new products, under the Black
& Decker brand name.
MANUFACTURING
Sales at the Company's manufacturing subsidiaries increased by $41.9 million in
the 2000 period to $102.9 million primarily as a result of increased
Company-wide sales. Included in 2000 second quarter sales are OEM sales totaling
$17.9 million, a $5.7 million increase over the 1999 period.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
SALES AND OTHER REVENUES
Sales and other revenues ("Revenues") for the Company increased by $50.1 million
to $318.1 million, an increase of 18.7% over Revenues for the first six months
of 1999. The change is primarily the result of a $33.7 million increase in Black
& Decker and Windmere branded kitchen products. Also contributing to the net
increase were increases in OEM sales, revenues related to the
White-Westinghouse brand name and personal care product sales. These were
partially offset by a $6.9 million decrease in home environment sales. Sales to
Walmart accounted for 19.5% and 17.4% of total sales for the 2000 and 1999
periods, respectively.
GROSS PROFIT MARGIN
Gross profit increased by $14.2 million. Gross profit margin was 30.4% as a
percentage of revenues compared to 30.7% in the 1999 period. The minimal change
in the gross profit margin is primarily the result of realized manufacturing
synergies and productivity gains at the Company's manufacturing facilities
offset by increased raw material costs. There can be no assurance that
manufacturing synergies and productivity gains will be able to offset increases
in raw material costs in future periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the Company increased by $6.0
million in the six month period ended June 30, 2000 yet decreased as a
percentage of sales, to 27.6% from 30.5% in the 1999 period. The dollar increase
consists primarily of increases in warehousing, distribution and freight costs
of $7.9 million and amortization related to the 1999 Newtech acquisition of $1.2
million, partially offset by a $4.3 million decrease in sales related expenses
including commissions, advertising, promotion and sales materals.
Additional warehousing and distribution expenses were incurred due to increased
inventory levels and sales volume. Freight expenses increased reflecting both
the additional sales volume and rate increases from the carriers.
EQUITY IN NET LOSS OF JOINT VENTURES
In June 1999, the Company wrote down its remaining investment in a joint venture
and, therefore, discontinued recording its interest in the joint venture's
operations.
INTEREST EXPENSE
Interest expense increased by $1.3 million to $7.8 million in 2000. The
increase is a result of additional borrowings under the Company's Senior
Revolving Credit Facility to meet working capital requirements as well as due to
rising interest rates.
17
<PAGE> 18
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.
LOSS PER SHARE
Basic shares for the six month periods ended June 30, 2000 and 1999 were
22,857.889 and 22,196,492, respectively. All common stock equivalents have been
excluded from the per share calculations as the Company incurred net losses in
both periods and their inclusion would have been anti-dilutive.
CONSUMER PRODUCTS NORTH AMERICA ("NORTH AMERICA")
North America sales increased by $19.2 million or 9.4% to $224.2 million in the
first six months of 2000, excluding $4.2 million in sales to other Company
segments. The change is primarily attributable to a $21.4 million increase in
Black & Decker and Windmere branded kitchen electrics and $4.9 million in
personal care product sales, offset by a $6.9 million decrease in home
environment product sales.
CONSUMER PRODUCTS INTERNATIONAL ("INTERNATIONAL")
Sales for Latin America increased by $12.4 million to $45.7 million or 37.1%
from the 1999 period. The increase may be attributed to growth in sales of
existing products as well as the introduction of new products, under both the
Black & Decker and Windmere brand names.
MANUFACTURING
Sales at the Company's Manufacturing subsidiaries increased by $87.2 million to
$196.5 million in the 2000 period as compared to 1999, primarily as a result of
increased Company-wide sales. Included in total sales are OEM sales totaling
$31.2 million, a $7.5 million, or 31.4%, increase over the 1999 period.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company's working capital was $305.0 million, as compared
to $254.6 million at June 30, 1999. At June 30, 2000 and 1999, the Company's
current ratio was 4.0 to 1 and 3.2 to 1, respectively, and its quick ratio was
1.9 to 1 and 1.6 to 1, respectively. The change in ratios is primarily the
result of the use of the Company's long-term credit facilities to meet
short-term working capital requirements.
Cash balances decreased by $5.3 million for the six month period ended June 30,
2000.
The net cash used in operating activities, which totaled $36.9 million, reflects
increased working capital requirements, primarily to finance the increase in
finished goods inventories. Higher inventory levels primarily reflect early
production by the Company of certain products due to capacity constraints
experienced in the back half of the year. In addition, several key retailers
delayed their modular sets in the second quarter. Much of the product to these
retailers was shipped subsequent to June 30, 2000.
Cash used in investing activities totaled approximately $17.1 million for the
period and consists of capital expenditures at the Company's manufacturing
facilities.
Cash provided by financing activities totaled approximately $48.7 million in
the period reflecting increased borrowings used to meet working capital
requirements.
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<PAGE> 19
No provision for U.S. taxes has been made on undistributed earnings of the
Company's foreign subsidiaries and joint ventures because management plans to
reinvest such earnings in their respective operations or in other foreign
operations. Repatriating those earnings or using them in some other manner which
would give rise to a U.S. tax liability would reduce after tax earnings and
available working capital.
Certain of the Company's foreign subsidiaries have approximately $44.0 million
in trade finance lines of credit, payable on demand, which are secured by the
subsidiaries' tangible and intangible property, and in some cases, a Company
guarantee. 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 its Senior Secured Credit Facilities. The Senior Secured Credit
Facilities, as amended, consist of a Senior Secured Revolving Credit Facility, a
Tranche A Term Loan and a Tranche B Term Loan. The Company is currently
borrowing $123.1 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 $160.0 million. As of August 9,
2000, the Company is borrowing $55.6 million under the Senior Secured Revolving
Credit Facility and has approximately $88.0 million available for future cash
borrowings, under all its credit facilities. Advances under the Senior Secured
Revolving Credit Facility are based upon percentages of outstanding eligible
accounts receivable and inventories.
The Company's aggregate capital expenditures for the six months ended June 30,
2000 were $17.6 million. The Company anticipates that the total capital
expenditures for 2000 will be approximately $25.0 million, which includes the
cost of new tooling. The Company plans to fund those capital expenditures from
cash flow from operations and, if necessary, borrowings under the Senior Secured
Revolving Credit Facility.
At June 30, 2000, debt as a percent of total capitalization was 47 percent.
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 Secured 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 Senior Subordinated 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.
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.
19
<PAGE> 20
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 acquired its
Mexican manufacturing facilities 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 eight 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.
In February 2000, the Company exited contracts with a notional value of $60.0
million and received a payment of $248,300 which was recorded as an adjustment
to interest expense.
Outstanding at June 30, 2000, was an interest rate swap on $80.0 million
notional principal amount with a market value of approximately ($1,711,701). The
market value represents the amount the Company would have to pay to exit the
contract at June 30, 2000. The Company does not intend to exit the contract at
this time.
As of August 3, 2000, the Company had entered into additional interest rate
derivatives with a notional value of $80.0 million for a total notional value
outstanding of $160.0 million.
MANUFACTURING OPERATIONS
The Company's products are manufactured primarily at the Company's facilities in
China and Mexico. The Company has ceased manufacturing at the Asheboro facility
as of March 31, 1999 and completely exited the facility as of June 30, 1999.
Prior to the HPG acquisition, the majority of the Company's products were
manufactured by Durable Electrical Metal Factory Limited, its wholly-owned Hong
Kong subsidiary operating in China, which is approximately 60 miles northwest of
Central, Hong Kong. The Company has a significant amount of its assets in China
and Mexico, 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.
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.
From time to time, the Company explores opportunities to diversify its sourcing
and/or production of certain products to other low-cost locations or with other
third parties or joint venture partners in order to reduce its dependence on
production in China and Mexico and/or reduce its dependence on the Company's
existing distribution base. However, at the present time, the Company intends to
continue its production in China and Mexico
20
<PAGE> 21
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 fiscal years beginning
after June 15, 2000. The Company has not completed its evaluations of the
financial impact of FAS No. 133.
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 fourth quarter has now become the
Company's largest sales volume quarter. 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.
LEGAL PROCEEDINGS
The Company is a defendant in 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, HARRY
D. SCHULMAN AND NATIONSBANC MONTGOMERY SECURITIES LLC, 98-2273-CIV-LENARD which
was filed in the United States District Court, Southern District of Florida on
October 8, 1998.
This matter is a class action complaint, which is the consolidation of eight
separate class action complaints with substantially similar allegations. By
Order dated March 9, 1999, in addition to consolidating the above-referenced
cases, the Court provisionally certified the class of plaintiffs who purchased
Windmere stock between May 12, 1998 and September 22, 1998, and provisionally
certified Sherleigh Associates LLC and Sherleigh Associates, Inc. Profit Sharing
Plan as lead plaintiff. On June 30, 1999, a consolidated amended class action
complaint was filed. The consolidated amended class action complaint alleges
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 awarded compensatory damages, rescission rights,
unspecified
21
<PAGE> 22
damages and attorneys' fees and costs. The defendants moved to dismiss the
consolidated class action complaint, but such motion was denied. Discovery
procedures have been initiated.
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.
In connection with the Household Products Group acquisition, the Company also
received two derivative demands alleging the breach of the fiduciary duties by
certain of the officers and directors of the Company. An independent committee
of the Board of Directors is currently conducting an investigation as to whether
such derivative actions are in the best interest of the Company.
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.
ITEM 3. 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. Although the Company feels it has
mitigated some of its exposure to a rise in interest rates, large increases may
have a negative impact on future earnings.
The Senior Secured 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 and caps. The Company typically maintains a fixed to total
debt ratio of approximately 40% - 50%. 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 and option
contracts. As of June 30, 2000, the notional value of such derivatives was
approximately $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.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See "Legal Proceedings" in Part I, Item 2 of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on May 9, 2000,
the shareholders of the Company voted to elect Susan J. Ganz, Barbara
Friedson Garrett, J. Maurice Hopkins, Thomas J. Kane, Felix S. Sabates
and Paul J. Sugrue as Directors of the Company. Continuing members of
the Board of Directors of the Company, include: David M. Friedson,
Harry D. Schulman, Jerald I. Rosen, Leonard Glazer, Lai Kin, Raymond
So, Desmond Lai, Arnold Thaler and Frederick E. Fair.
The number of votes cast for or withheld with respect to each of the
nominees were as follows:
NOMINEE FOR AGAINST
------- --- -------
Susan J. Ganz 19,343,895 1,670,483
Barbara Friedson Garrett 19,343,781 1,670,597
J. Maurice Hopkins 19,341,056 1,673,322
Thomas J. Kane 19,344,495 1,669,883
Felix S. Sabates 18,516,948 2,497,430
Paul J. Sugrue 19,341,695 1,672,683
The shareholders of the Company voted to approve the amendment of the
Company's Amended and Restated Articles of Incorporation pursuant to
which the name of the Company would be changed to Applica Incorporated.
The shareholders cast 20,547,979 votes in favor of the amendment,
403,954 against and 62,445 withheld authority.
The shareholders of the Company voted to approve the Company's
amendment and restatement of its Amended and Restated Articles of
Incorporation, which among other things, increases the number of
authorized shares of Common Stock from 40,000,000 to 75,000,000. The
shareholders cast 18,585,532 votes in favor of the amendment, 2,398,098
against and 30,748 withheld authority.
The shareholders of the Company voted to approve the Company's 2000
Stock Option Plan. The shareholders cast 13,373,946 votes in favor of
the Plan, 2,329,711 against and 62,450 withheld authority.
The shareholders of the Company voted to approve the Company's 2000
Employee Stock Purchase Plan. The shareholders cast 14,822,954 votes in
favor of the Plan, 895,843 against and 48,249 withheld authority.
In addition, the shareholders of the Company ratified the reappointment
of Grant Thornton LLP, independent certified public accountants, as the
Company's auditors for the fiscal year ending December 31, 2000. The
shareholders cast 20,776,072 votes in favor of the reappointment of
Grant Thornton LLP, 41,551 votes against and 196,755 shareholders
withheld authority.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1 Financial Data Schedule (in electronic format only)
(b) Reports on Form 8-K:
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLICA INCORPORATED
(Registrant)
August 11, 2000 By: /s/ HARRY D. SCHULMAN
--------------------------
Harry D. Schulman
CHIEF OPERATING OFFICER, CHIEF
FINANCIAL OFFICER AND SECRETARY
(Duly authorized to sign on
behalf of the Registrant)
August 11, 2000 By: /s/ TERRY L. POLISTINA
---------------------------
Terry L. Polistina
SENIOR VICE PRESIDENT - FINANCE
AND ADMINISTRATION
(Duly authorized to sign on
behalf of the Registrant)
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