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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, 1999
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. [X]
As of March 24, 2000, the aggregate market value of the voting stock (based
on the closing price as reported by NYSE of $14.56) held by non-affiliates of
the Registrant was approximately $284,421,309.
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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.
22,916,006 Shares of Common Stock
(as of the close of business on March 24, 2000)
DOCUMENTS INCORPORATED BY REFERENCE
Windmere-Durable Holdings, Inc. Proxy Statement for its 2000 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 Black & Decker(R) brand name, which is licensed to the Company.
Additionally, the Company manufactures and markets products under the
Windmere(R) and other Company-owned brand names, under private-label brand
names and under other licensed brand names, such as Corning Ware(R) and
White-Westinghouse(R). 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") and Mexico. 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
approximately 14,000 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 350,000 square feet of manufacturing facilities in
Queretaro, Mexico, which currently manufactures Black & Decker-labeled products
for distribution to both North America and Latin America.
In January 1997, the Company through its 50-percent interest in Salton, Inc.
("Salton") and Newtech Electronics Industries, Inc. ("Newtech") entered into
supply contracts with the Kmart Corporation ("Kmart") 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.
In June 1999, the Company entered into a definitive asset purchase agreement to
purchase substantially all of the assets of Newtech and wrote down its remaining
investment in Newtech. Under the terms of the agreement, the Company acquired
the exclusive right and license to use the White-Westinghouse Trademark in North
America for the design, manufacture, and sale of certain consumer electronic
products and has been assigned Newtech's rights under the long-term supply
contracts with the Kmart Corporation in the United States and Zellers in Canada.
According to the terms of the contracts, the Company will supply Kmart and
Zellers consumer electronics under the White-Westinghouse brand. The remaining
term under the Kmart contract expires in 2002 and can be extended up to 2011
upon mutual consent. The Zellers contract expires in 2004.
Effective January 1, 2000, the Company reorganized itself into three new
business units: Consumer Products North America, Consumer Products International
and Manufacturing. The reorganization will be reflected beginning in fiscal year
2000.
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 51% and 39%, respectively, in 1999. Management believes that the
products marketed by HPG have strong brand name recognition and a reputation for
quality among consumers.
The Company, as part of the acquisition, 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 from June 1998. 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) and Spacemaker(R).
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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, although
the Company intends to transition to a direct sales force.
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 Corning Ware(R) brand name 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 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 Phillips.
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
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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.
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 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
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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.
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. Because the Company's Mexican
commercial operations 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 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) and Spacemaker(R). The Company believes that its
rights in these 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) and
Spacemaker(R) 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 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
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materially adversely affected.
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 21.3% of the Company's 1999 net sales, and the top five customers
of the Company accounted for approximately 40% of the Company's 1999 net sales.
Although the Company has long-established relationships with many of its
customers, the Company and its affiliates do not have any supply contracts with
them, other than the Kmart Agreements between each of the Company and Salton. 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, 1999, 1998 and 1997
was approximately $50.9 million, $47.3 million and $35.7 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 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. 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
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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, 2000, the Company had approximately 18,000 full-time employees,
which includes approximately 14,000 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 2,000 employees employed
at the Company's manufacturing plant in Queretaro, Mexico (the "Queretaro
Collective Bargaining Agreement").
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 140,000 Owned
administration, sales office,
warehouse and distribution
Shelton, Connecticut HPG headquarters, general 97,700 Leased
administration, laboratories and
sales office
Shenzhen, China Manufacturing, distribution, 2,000,000 Leased
warehouse, and office
Queretaro, Mexico Manufacturing, distribution, 350,000 Owned
warehouse, and office
Little Rock, Arkansas Warehouse and distribution 560,000 Leased
Toronto, Canada Canada headquarters, sales office, 110,000 Leased
and distribution
Hong Kong, China Durable headquarters and 40,000 Leased
general administration
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.
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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 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 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. On June
30, 1999, a consolidated amended class action complaint was filed. The
consolidated amended class action complaint was 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, rescission
rights, unspecified damages and attorneys' fees and costs. The defendants have
moved to dismiss the consolidated class action complaint. The motion is pending
consideration by the Court.
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. By Order dated June 3, 1999, the Court, among other
things, appointed lead counsel and directed the filing of a joint scheduling
order. On June 23, 1999, the parties submitted a Joint Scheduling Report and a
proposed scheduling order, which is still under consideration by the Court.
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 lawsuit
and/or 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. As of
December 31, 1999, the Company had satisfied and charged to expense the monetary
deductible conditions of its directors and officers liability insurance policy,
which provides certain coverage against monetary exposure.
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 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
<PAGE> 10
The Company's common stock is traded on the New York Stock Exchange under the
symbol WND. High and low market prices in 1999 and 1998, by quarters, are as
follows:
<TABLE>
<CAPTION>
MARKET PRICE
----------------------
HIGH LOW
------ ------
<S> <C> <C>
1999
Fourth quarter 17-1/4 11-3/4
Third quarter 16-3/8 12-1/16
Second 16-7/8 6-3/8
First 7-3/4 4-3/4
1998
Fourth 7-3/4 4-5/16
Third 36-5/8 5-5/8
Second 35-13/16 24-1/2
First quarter 28-7/8 20-3/8
</TABLE>
The approximate number of holders of common stock of the Company, as of December
31, 1999 was 1,100. 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)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales ................ $718,309 $474,356 $261,885 $197,004 $187,777
Equity in net earnings
(loss) of joint ventures $(12,894)(1) $ 1,621 $ 7,353 $ 2,299 $ (393)
Earnings (loss) before
taxes, and extraordinary
item ................... $ 21,020 $ 40,368 $ 20,758 $ 3,672 $ (3,165)
Provision for taxes
(benefit)) .............. $ 4,177 $ 11,616 $ 923 $ (280) $ (1,281)
Effective tax rate ....... 19.9% 28.7% 4.5% (7.6)% (40.5)%
Net earnings (loss) ...... $ 16,843 $ 28,752(2) $ 19,835 $ 451(3) $ (1,884)(4)
Working capital .......... $263,315 $267,434 $106,078 $105,565 $127,626
Current ratio ............ 3.1 to 1 3.0 to 1 2.4 to 1 3.1 to 1 7.5 to 1
Property, plant and
Equipment, net .......... $ 75,983 $ 76,077 $ 37,199 $ 32,760 $ 30,485
Total assets ............. $712,673 $742,737 $281,847 $237,279 $188,012
Long-term debt, deferred
Liabilities and minority
Interest ................ $243,807 $287,306 $ 17,144 $ 20,132 $ 3,519
Shareholders' equity ..... $343,397 $324,018 $190,821 $167,695 $164,931
Per share data:
Net earnings (loss)-basic . .75(1) $ 1.43(2) $ 1.12 $ .03(3) $ (.11)(4)
Net earnings (loss)-diluted .72(1) $ 1.33(2) $ 1.00 $ .03(3) $ (.11)(4)
Cash dividends paid ....... -- $ -- $ .10 $ .20 $ .20
Book value at year end .... 15.17 $ 14.67 $ 10.53 $ 9.61 $ 9.87
Return on average equity .. 5.1% 11.2% 11.1% .3% --
</TABLE>
(1) Includes a one time non-cash charge of $12.6 million ($8.3 million after
tax) or $.55 per share for the writedown of the Company's investment in a
joint venture.
(2) 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.
(3) Includes extraordinary charge fore the settlement of Izumi litigation of
$3,500,000 or $.20 per share.
<PAGE> 11
(4) Includes a non-recurring loss on the sale of an other asset of $5,280,000
or $.31 per share.
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 and under licensed brand names, such as Black & Decker(R), Corning(R) and
White-Westinghouse(R). 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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Sales and other revenues ................. 100.0% 100.0% 100.0%
Cost of sales ............................ 67.4 70.1 74.5
----- ----- -----
Gross profit ............................. 32.6 29.9 25.5
Selling, general and
Administrative expenses ................. 24.6 25.8 20.1
Unusual items or non-recurring items (.2)* 2.0 0.0
Net interest and Other (income) loss...... 3.5 (6.1)*** 0.2
Equity in net Earnings (loss) of
Joint ventures ......................... (1.8)** .3 2.8
----- ----- -----
Earnings before Taxes and Extraordinary
Item ................................... 2.9 8.5 7.9
Provision for Taxes (benefit) ............ .6 2.4 0.4
----- ----- -----
Net earnings ............................. 2.3% 6.1% 7.6%
===== ===== =====
</TABLE>
* Adjustment of $1.5 million to 1998 repositioning charge.
** Includes a non-recurring charge of $12.6 million ($8.3 million after tax)
for the write-down of the Company's remaining investment in a joint
venture.
<PAGE> 12
*** Includes gain on sale of equity interest in Salton, Inc. of $27.5 million.
Year Ended December 31, 1999 compared with Year Ended December 31, 1998
Sales and other revenues
Sales and other revenues ("Revenues") for the Company increased by $244.0
million to $718.3 million, an increase of 51.4% over Revenues for the year ended
December 31, 1998. The increase reflects Household Products Group ("HPG") sales
of Black & Decker branded products for a full year compared to six months in
1998. Household Products Group sales increased by $195.1 million to $428.0
million compared to 1998. The remaining increase in revenues is attributable to
a $24.4 million increase in Windmere Group sales and $19.2 in non-recurring
sales of Newtech electronics acquired as part of the June 1999 asset purchase.
Sales to Walmart accounted for 21.3% and 19.0% of total sales for 1999 and 1998,
respectively.
Gross Profit Margin
The Company's gross profit margin was 32.6% in 1999, as compared to 31.5% in
1998, excluding the $7.7 million portion of the repositioning charge recorded as
cost of goods sold in the 1998 period. Volume and productivity gains at the
Company's manufacturing facilities offset by product mix and by aggressive
pricing strategies used to gain additional market share in the Black & Decker
business were the primary contributors to the increase in gross profit. The cost
of certain raw materials utilized by the Company may continue to increase.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the Company increased by $54.4
million to $177.0 million for the year ended December 31, 1999. Approximately
$47.7 million of the increase is a result of the June 26, 1998 acquisition of
HPG. Also contributing to the change is $3.0 million in amortization of
intangibles in connection with the June 1999 Newtech asset purchase and $5.0
million in additional compensation paid to employees for meeting annual
financial targets. As a percentage of sales, costs decreased to 24.6% from 25.8%
in the 1998 period.
Equity in Net Earnings (Loss) of Joint Ventures
The Company's equity in net earnings (loss) of joint ventures decreased to a
loss of $12.9 million in the 1999 period compared to income of $1.6 million in
the 1998 period. The decrease is primarily the result of a one-time non cash
charge of $12.6 million ($8.3 million after tax) to write down the Company's
remaining investment in Newtech in connection with the June 1999 purchase of
Newtech's assets.
Repositioning Charge
The Company did not exit one line of business in 1999 that had been included in
the accrued repositioning costs at December 31, 1998. This resulted in a
reversal of the prior year charge of $1.5 million in 1999.
Interest Expense
Interest expense increased to $27.1 million in 1999 from $16.6 million in 1998.
The change is the result of amounts borrowed in connection with the acquisition
of HPG, beginning in July 1998.
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 1999 decreased to 19.9% compared to 28.7%
in the prior year due to a decrease in the proportion of the Company's income
taxable in the U.S. The increase in 1998 was due to the gain on the sale of the
Company's equity interest in Salton.
<PAGE> 13
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 Basic Basic Diluted Diluted
Earmings Shares Eps Shares Eps
----------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
1999 ...... $16,843,000 22,366,592 $ .75 23,325,322 $ .72
1998 ...... $28,752,000 20,100,764 $ 1.43 21,612,190 $ 1.33
</TABLE>
Included in diluted shares are common stock equivalents relating to options,
warrants and convertible debt of 958,730 and 1,511,426 for 1999 and 1998,
respectively. Options to purchase 1,621,000 shares of common stock at prices
ranging from $11.88 to $31.69, which were outstanding during 1999, 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 10 years.
Windmere Group
Windmere Group sales increased by $24.4 million to $214.8 million in 1999. The
increase in Windmere Group sales is attributable to increases in kitchen and
LitterMaid product sales partially offset by weakness in personal care sales and
a $12.6 million increase in electronic sales under the White-Westinghouse
agreement.
Gross profit margin for the Windmere Group decreased to 21.1% in the 1999 period
as compared to 26.9% in 1998. The decrease is the result of increased sales of
lower margin items comprising the period's product mix.
Selling, general and administrative expenses for the Windmere Group increased by
approximately $1.8 million to $48.4 million or 22.6% of segment sales from $46.6
million or 24.5% of segment sales in 1998. Contributing significantly to the
increase were costs directly associated with the increase in sales volume such
as royalties and freight and $500,000 related to the write-off of product design
costs in conjunction with the adoption of a new accounting pronouncement.
Household Products Group
Sales for the Household Products Group increased by $195.1 million to $428.0
million in 1999. The Company acquired the Household Products Group on June 26,
1998, therefore group results were excluded from the first six months of 1998.
The remaining increase is due to a $52.5 million increase in 1999 third and
fourth quarter sales as compared to the 1998 period. Growth resulted from
existing and new product introductions primarily in North America as well as
Latin America and Canada.
Selling, general and administrative expenses for the Household Products Group
totaled $113.8 million or 26.6% of segment sales compared to $58.4 million or
25.1% in 1998. Included in selling, general and administrative expenses in 1999
was approximately $5.6 million in costs under contracts where Black & Decker was
providing services to the Company during a transition period while the Company
was putting in place its own personnel and systems. All significant service
contracts with Black & Decker have been exited as of May 31, 1999 and all back
office operations have been relocated to the Company's Miami headquarters, as of
June 30, 1999. Also included is approximately $12.9 million for a full year's
amortization of intangibles recorded in conjunction with the acquisition.
Durable Manufacturing
Sales at the Company's China based manufacturing subsidiary increased by $25.5
million or 17.9% to $167.4 million in 1999. Included in total sales are OEM
sales to third parties totaling $51.4 million, which closely approximates 1998
OEM sales.
Operating earnings for Durable Manufacturing increased by $9.0 million to $27.0
million in 1999. Increased productivity and capacity utilization contributed to
the improved results.
<PAGE> 14
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 associated with the
integration of the acquisition.
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 31.5% of sales from
25.5% 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 $69.9
million in 1998. As a percentage of sales, costs increased to 25.8% from 20.1%
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
$5.9 million to 24.5% of segment sales from 21.1% in 1997. Group expenses for
1998 represented 9.8% of total Company sales as compared to 15.5% 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 as well as
amounts borrowed in conjunction
<PAGE> 15
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
through 1997 tax returns and no material assessments were made. The Internal
Revenue Service is currently examining the Company's 1998 tax return. 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.
Liquidity and Capital Resources
At December 31, 1999, the Company's working capital was $263.3 million, as
compared to $267.4 million at the end of 1998. At December 31, 1999 and 1998,
the Company's current ratio was 3.1 to 1 and 3.0, respectively, and its quick
ratio was 1.7 to 1 and 1.6 to 1, respectively.
Cash balances decreased by approximately $6.6 million for the year ended
December 31, 1999. The net cash provided by operating activities of $48.0
million is primarily the result of the increased growth in sales as a result of
the June 26, 1998 acquisition of HPG, while maintaining comparable levels of
inventory.
Cash used in investing activities totaled approximately $33.9 million and is
primarily the result of the $21.5 million in capital expenditures at the
Company's manufacturing facilities and approximately $15.0 million for the
purchase of the assets of a joint venture partner.
Cash utilized for financing activities totaled approximately $20.8 million in
1999 reflecting the Company's ability to pay down debt under its various lines
of credit as well as scheduled term debt payments under the Senior Secured
Credit Facility.
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
<PAGE> 16
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 $38.0 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. At December 31, 1999, the subsidiaries were utilizing $24.7 million
under these credit lines of which all but $898,000 was for trade and foreign
exchange financing, which includes letters of credit. 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. At December 31, 1999, the
Company was borrowing $127.0 million under the term loan portion of its Senior
Secured Credit Facilities. The revolving portion of the Senior Secured Credit
Facility 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 of which no amounts were outstanding as of December 31, 1999.
As of March 17, 2000, the Company was borrowing $16.3 million under the
revolving credit facility and has $140.5 million available for future
borrowings. Advances under the revolving credit facility are based upon
percentages of outstanding eligible accounts receivable and inventories.
On December 30, 1999, the Company sold $52.7 million of trade accounts
receivable, under a securitization program through a wholly-owned subsidiary.
The proceeds from the sale, totaling $47.6 million, were used to reduce
borrowings under the revolving credit facility. The Company's effective
borrowing rate under this program at December 31, 1999 was 6.76%. The Company,
as agent for the purchaser of the receivables, retains collection and
administrative responsibilities for the purchased receivables.
Interest accrues on the loans made under the 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 at 2.75% through February
28, 2000 (7.94% at December 31, 1999), 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% through February 28, 2000 (8.56% at December 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.
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.
<PAGE> 17
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.
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 needed refinancing on commercially reasonable terms or at
all.
The Company's aggregate capital expenditures for the year ended December 31,
1999 were $21.5 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 December 31, 1999, debt as a percent of total capitalization was 43 percent.
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 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 five 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, 1999, the Company had purchased interest rate swaps on $140
million notional principal amount with a market value of approximately
($824,000). The market value represents the amount the Company would have to pay
to exit the contracts at December 31, 1999. In February 2000, the Company exited
contracts with a notional value of $60 million. The Company received a payment
of $248,300 which was recorded as a reduction of interest expense. The Company
does not intend to exit the remaining contracts at this time.
<PAGE> 18
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 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 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 was performed to identify whether any of the Company's
software applications contain source code that is unable to interpret the year
2000 and beyond. The appropriate modifications were made and, to date, the
Company has not experienced any immediate adverse impact on its operations from
the transition to the Year 2000. The Company also 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 was not
material to the Company's consolidated financial statements. 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 which are not yet apparent or in a manner that
may arise in the future. Difficulties that arise may result in unfavorable
business consequences including disruption in product shipments, delays in
receipt of materials, delay in customer receipts and payments to suppliers.
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 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. On June
30, 1999, a consolidated amended class action complaint was filed. The
consolidated amended class action complaint was 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, rescission
rights, unspecified damages and attorneys' fees and costs. The defendants have
moved to dismiss the consolidated class action complaint. The motion is pending
consideration by the Court.
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. By Order dated June 3, 1999, the Court, among other
things, appointed lead counsel and directed the filing of a joint scheduling
order. On June 23, 1999, the parties submitted a Joint Scheduling Report and a
proposed scheduling order, which is still under consideration by the Court.
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
<PAGE> 19
applicable law. Based on the information currently available to the Company,
management does not believe that the lawsuit and/or 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. As of December 31, 1999, the Company had
satisfied and charged to expense the monetary deductible conditions of its
directors and officers liability insurance policy, which provides certain
coverage against monetary exposure.
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.
MANUFACTURING OPERATIONS
The Company's products are manufactured primarily at the Company's facilities in
the PRC and Mexico. In June 1999, the Company closed its 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 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 bear interest at LIBOR plus an applicable margin
and thus are affected by changes in interest rates. In the event that interest
rates increased by 10%, the Company's interest obligation would increase by
$2,600,000, $2,400,000 and $2,200,000, respectively, in each of its fiscal years
2000, 2001 and 2002.
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 certain foreign currency commitments of
future payments and receipts by purchasing foreign currency-forward contracts
and/or options. As of December 31, 1999, the notional value of such derivatives
was $15 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.
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
NAME AGE OFFICE
---- --- ------
David M. Friedson.... 44 Chairman of the Board, President
and Chief Executive Officer
Harry D. Schulman.... 48 Chief Operating Officer, Chief Financial
Officer and Secretary
Barbara F. Garrett... 47 Senior Vice President
Terry L. Polistina... 36 Senior Vice President - Finance
and Administration
Arnold Thaler........ 61 Senior Vice President
Robert L. Merrick.... 45 Senior Vice President - Supply Chain
and Chief Information Officer
Michael Michienzi.... 45 President, Consumer Products, of
Corporation
Lai Kin.............. 69 Chairman of Durable
Raymond So........... 50 Managing Director of Durable
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 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.
ROBERT L. MERRICK has served as Senior Vice President - Supply Chain and
Chief Information Officer since November 1, 1998. Prior to that time, Mr.
Merrick held various other senior management positions with the Company.
MICHAEL MICHIENZI has been President, Consumer Products, of Windmere
Corporation since May 1999. From January 1999 until December 31, 1999, Mr.
Michienzi also served as President of Household Products, Inc. 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
<PAGE> 21
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 2000 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 2000 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 2000 Annual
Meeting of Shareholders under the caption "Security Ownership".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by Reference to the Company's Proxy Statement for its 2000 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, 1999 AND 1998
CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999, 1998
AND 1997
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - THREE YEARS ENDED
DECEMBER 31, 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31, 1999, 1998
AND 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. FINANCIAL STATEMENT SCHEDULES
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES -
YEARS ENDED DECEMBER 31,
1999, 1998 AND 1997
Individual financial statements of the Company have been omitted since
consolidated financial statements have been presented, and all subsidiaries
included in the consolidated financial statements are wholly-owned. All other
schedules have been omitted since the required information is not present or not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the consolidated financial statements or
the notes thereto.
<PAGE> 22
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. Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
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.
(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.
<PAGE> 23
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 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.
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.
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.
<PAGE> 24
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.
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.
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. Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
<PAGE> 25
10.41* Employment agreement dated June 18, 1999 between Windmere-Durable
Holdings, Inc. and David M. Friedson. Incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1999.
10.42* Employment agreement dated August 2, 1999 between Windmere-Durable
Holdings, Inc. and Harry D. Schulman. Incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1999.
(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
None.
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WINDMERE-DURABLE HOLDINGS, INC.
(REGISTRANT)
By: /s/ David M. Friedson DATE: 3-30-00
-------------------------------------------- --------------------
David M. Friedson, Chairman,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the date indicated.
By: /s/ David M. Friedson DATE: 3-30-00
--------------------------------------------- --------------------
David M. Friedson, Chairman,
President and Chief Executive Officer
By: /s/ Harry D. Schulman DATE: 3-30-00
--------------------------------------------- --------------------
Harry D. Schulman, Chief Operating Officer
and Chief Financial Officer
By: /s/ Terry Polistina DATE: 3-30-00
-------------------------------------------- --------------------
Terry Polistina, Senior Vice President
By: /s/ Fred Fair DATE: 3-30-00
-------------------------------------------- --------------------
Fred Fair, Director
By: /s/ Jerald I. Rosen DATE: 3-30-00
-------------------------------------------- --------------------
Jerald I. Rosen, Director
By: /s/ Paul K. Sugrue DATE: 3-30-00
-------------------------------------------- --------------------
Paul K. Sugrue, Director
By: DATE:
-------------------------------------------- --------------------
Lai Kin, Director
By: DATE:
------------------------------------------- -------------------
Raymond So, Director
By: /s/ Leonard Glazer DATE: 3-30-00
-------------------------------------------- ---------------------
Leonard Glazer, Director
By: /s/ Barbara Friedson Garrett DATE: 3-30-00
-------------------------------------------- --------------------
Barbara Friedson Garrett, Director
By: DATE:
-------------------------------------------- --------------------
Felix S. Sabates, Director
By: /s/ Arnold Thaler DATE: 3-30-00
-------------------------------------------- --------------------
Arnold Thaler, Director
<PAGE> 27
By: DATE:
-------------------------------------------- --------------------
Thomas J. Kane, Director
By: /s/ Susan J. Ganz DATE: 3-30-00
-------------------------------------------- --------------------
Susan J. Ganz, Director
By: DATE:
-------------------------------------------- -------------------
Desmond Lai, Director
By: /s/ J. Maurice Hopkins DATE: 3-30-00
-------------------------------------------- --------------------
J. Maurice Hopkins, Director
<PAGE> 28
Schedule I
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, 1999 and
1998, and the related consolidated statements of earnings, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1999. 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, 1999 and 1998, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1999, 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, 1999.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/GRANT THORNTON LLP
Miami, Florida
February 8, 2000
1
<PAGE> 29
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note A) $ 13,768,000 $ 20,415,000
Accounts and other receivables, less allowances of $8,761,000
in 1999 and $7,367,000 in 1998 (Note A) 172,500,000 165,837,000
Receivables from affiliates (Notes A, B and O) 3,533,000 5,589,000
Other receivables (Note A) 12,962,000 -
Inventories (Notes A and G) 163,706,000 165,465,000
Prepaid expenses 12,703,000 16,709,000
Refundable income taxes (Notes A and I) 1,122,000 6,555,000
Future income tax benefits (Notes A and I) 8,490,000 18,277,000
--------------- ---------------
Total current assets 388,784,000 398,847,000
INVESTMENTS IN JOINT VENTURES (Notes A and B) 2,608,000 15,708,000
PROPERTY, PLANT AND EQUIPMENT - AT COST,
less accumulated depreciation (Notes A and D) 75,983,000 76,077,000
NOTES RECEIVABLE FROM AFFILIATE (Note B) -- 7,891,000
LONG-TERM FUTURE INCOME TAX BENEFITS 2,049,000 --
OTHER ASSETS (Notes A, C and I) 243,249,000 244,214,000
--------------- ---------------
$ 712,673,000 $ 742,737,000
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and acceptances payable (Note E) $ 898,000 $ --
Current maturities of long-term debt (Note G) 13,587,000 8,630,000
Accounts payable 35,184,000 35,135,000
Accrued expenses (Note F) 59,919,000 80,636,000
Income taxes payable (Note I) 4,723,000 2,693,000
Deferred income, current portion 585,000 479,000
Other current liabilities (Note A) 10,573,000 3,840,000
--------------- ---------------
Total current liabilities 125,469,000 131,413,000
LONG-TERM DEBT, less current maturities (Note G) 243,571,000 272,370,000
DEFERRED INCOME TAXES (Note I) -- 12,132,000
DEFERRED INCOME, less current portion 236,000 2,804,000
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 22,640,591 in 1999 and 22,090,966 in 1998 2,264,000 2,209,000
Paid-in capital 149,548,000 145,161,000
Retained earnings 194,682,000 177,839,000
Note receivable - officer (Note O) (1,496,000) -
Accumulated other comprehensive income (loss) (1,601,000) (1,191,000)
--------------- ---------------
Total shareholders' equity 343,397,000 324,018,000
--------------- ---------------
$ 712,673,000 $ 742,737,000
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 30
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Sales and other revenues (Note P) $ 718,309,000 $ 474,356,000 $ 261,885,000
Cost of goods sold 484,040,000 332,537,000 195,135,000
-------------- -------------- --------------
Gross profit 234,269,000 141,819,000 66,750,000
Selling, general and administrative expenses 177,016,000 122,590,000 52,721,000
Repositioning charge (Note A) (1,506,000) 9,519,000 --
-------------- -------------- --------------
Operating profit 58,759,000 9,710,000 14,029,000
Other (income) expense
Interest expense 27,109,000 16,633,000 3,351,000
Interest and other income (2,264,000) (3,203,000) (2,727,000)
Gain on sale of equity interest in joint venture (Note B) -- (42,467,000) --
-------------- -------------- --------------
24,845,000 (29,037,000) 624,000
-------------- -------------- --------------
Earnings before equity in net earnings (loss)
of joint ventures and income taxes (benefit) 33,914,000 38,747,000 13,405,000
Equity in net earnings (loss) of joint ventures
(Notes A and B) (12,894,000) 1,621,000 7,353,000
-------------- -------------- --------------
Earnings before income taxes (benefit) 21,020,000 40,368,000 20,758,000
Income taxes (benefit) (Notes A and I)
Current 10,139,000 14,296,000 (3,272,000)
Deferred (5,962,000) (2,680,000) 4,195,000
-------------- -------------- --------------
4,177,000 11,616,000 923,000
-------------- -------------- --------------
Net earnings $ 16,843,000 $ 28,752,000 $ 19,835,000
============== ============== ==============
Per share data (Notes A and K)
Earnings per common share - basic $ .75 $ 1.43 $ 1.12
========= ======== =========
Earnings per common share - diluted $ .72 $ 1.33 $ 1.00
========= ======== =========
Dividends per common share $ -- $ -- $ .10
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 31
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Note Other
Receivable- Comprehensive Common Paid-in Retained
Officer Income (Loss) Stock Capital Earnings Total
----------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ -- $ (781,000) $ 1,745,000 $ 35,766,000 $ 130,965,000 $ 167,695,000
Comprehensive income:
Net earnings -- -- -- -- 19,835,000 19,835,000
Other comprehensive income
(loss) - foreign currency
translation adjustment -- (321,000) -- -- -- (321,000)
-------------
Total comprehensive income 19,514,000
Cash dividends - $.10 per share -- -- -- -- (1,713,000) (1,713,000)
Exercise of stock options and
warrants -- -- 67,000 1,675,000 -- 1,742,000
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 -- (1,102,000) 1,812,000 41,024,000 149,087,000 190,821,000
Comprehensive income:
Net earnings -- -- -- -- 28,752,000 28,752,000
Other comprehensive income
(loss) - foreign currency
translation adjustment -- (89,000) -- -- -- (89,000)
-------------
Total comprehensive income 28,663,000
Payment of withholding tax on
stock option exercises -- -- -- (3,719,000) -- (3,719,000)
Exercise of stock options and
warrants -- -- 80,000 2,903,000 -- 2,983,000
Tax benefit resulting from exercise
of stock options -- -- -- 5,917,000 -- 5,917,000
Conversion of Newtech Electronics
Industries, Inc. note -- -- 13,000 1,987,000 -- 2,000,000
Fair value of options to
non-employees -- -- -- 96,000 -- 96,000
Issuance of common stock - net -- -- 304,000 96,953,000 -- 97,257,000
------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31, 1998 -- (1,191,000) 2,209,000 145,161,000 177,839,000 324,018,000
Comprehensive income:
Net earnings -- -- -- -- 16,843,000 16,843,000
Other comprehensive income
(loss) - foreign currency
translation adjustment -- (410,000) -- -- -- (410,000)
-------------
Total comprehensive income 16,433,000
Exercise of stock options and
warrants -- -- 34,000 2,217,000 -- 2,251,000
Tax benefit resulting from exercise
of stock options -- -- -- 599,000 -- 599,000
Issuance of common stock - affiliate -- -- 21,000 1,475,000 --
1,496,000
Note receivable - officer (1,496,000) -- -- -- -- (1,496,000)
Fair value of options to
non-employees -- -- -- 96,000 -- 96,000
------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31, 1999 $ (1,496,000) $ (1,601,000) $ 2,264,000 $ 149,548,000 $ 194,682,000 $ 343,397,000
============= ============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 32
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 16,843,000 $ 28,752,000 $ 19,835,000
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation of property, plant and equipment 17,987,000 11,609,000 6,857,000
Amortization of intangible assets 16,969,000 8,769,000 841,000
Repositioning charge (1,506,000) 17,205,000 --
Gain on sale of subsidiary (775,000) -- --
Gain on sale of equity interest in joint venture -- (42,466,000) --
Net change in allowance for losses on
accounts receivable 1,394,000 2,314,000 (17,000)
Consulting expense on non-employee stock options 96,000 95,000 90,000
Write down of investment in joint venture 12,641,000 -- --
Amortization of deferred income (2,462,000) (261,000) (335,000)
Undistributed equity in (loss) earnings of
joint ventures 287,000 (1,758,000) (7,537,000)
Loss on disposal of assets -- -- 989,000
Changes in assets and liabilities:
(Increase) in accounts and other receivables (12,512,000) (84,284,000) (5,719,000)
Decrease (increase) in inventories 12,748,000 7,813,000 (12,659,000)
Decrease (increase) in prepaid expenses 4,006,000 (7,900,000) (867,000)
(Decrease) increase in accounts payable
and accrued expenses (37,013,000) 18,496,000 503,000
Increase (decrease) in current and deferred
income taxes 3,069,000 2,068,000 (2,250,000)
Increase in other liabilities 10,573,000 -- --
(Increase) decrease in other assets 6,111,000 (5,925,000) 2,231,000
Increase in other accounts (410,000) (89,000) (322,000)
------------- ------------- -------------
Net cash provided by (used in)
operating activities 48,046,000 (45,562,000) 1,640,000
Cash flows from investing activities:
Proceeds from fixed asset sales -- 1,461,000 --
Proceeds from sale of subsidiary 350,000 -- --
Additions to property, plant and equipment (21,519,000) (13,478,000) (11,296,000)
Purchase of net assets - Household Products Group -- (319,791,000) --
Proceeds from sale of equity interest in Salton - net -- 72,279,000 --
Purchase of net assets - Newtech (15,059,000) -- --
Investments in joint ventures -- -- (263,000)
Distributions from joint ventures 172,000 -- --
Decrease (increase) in receivable accounts and
notes from affiliates 2,143,000 8,972,000 (10,951,000)
------------- ------------- -------------
Net cash used in investing activities (33,913,000) (250,557,000) (22,510,000)
</TABLE>
(continued)
5
<PAGE> 33
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from financing activities:
Notes and acceptances $ 898,000 $ (40,759,000) $ --
Proceeds from issuance of long-term debt -- 519,000,000 --
Payment of debt costs -- (10,568,000) --
Net (payments) borrowings under lines of credit (11,102,000) -- 21,099,000
Payments of long-term debt (12,740,000) (255,885,000) (815,000)
Exercises of stock options and warrants 2,251,000 2,983,000 1,743,000
Cash dividends paid -- -- (1,713,000)
Proceeds from sale of common stock - net -- 97,258,000 --
Interest receivable from officer (87,000) -- --
Payment of withholding tax on stock option exercises -- (3,719,000) --
------------- ------------- -------------
Net cash (used in) provided by financing
activities (20,780,000) 308,310,000 20,314,000
------------- ------------- -------------
(Decrease) increase in cash and cash equivalents (6,647,000) 12,191,000 (556,000)
Cash and cash equivalents at beginning of year 20,415,000 8,224,000 8,780,000
------------- ------------- -------------
Cash and cash equivalents at end of year $ 13,768,000 $ 20,415,000 $ 8,224,000
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 17,697,000 $ 6,616,000 $ 3,187,000
Income taxes $ 8,339,000 $ 11,329,000 $ 34,000
Non-cash investing and financing activities:
Tax benefit resulting from exercise of stock options $ 599,000 $ 5,917,000 $ 3,493,000
In April 1999, the Company issued 210,000 shares of its common stock to its
Chief Executive Officer in exchange for a promissory note totaling
$1,496,350
In June 1999, the Company acquired certain assets from Newtech for
approximately $33 million, of which $15 million was paid in cash. In
conjunction with this acquisition, the Company obtained the following
assets:
Intangible assets $ 15,007,000
Accounts receivable 8,081,323
Inventory 9,605,802
----------------
$ 32,694,125
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.
6
<PAGE> 34
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Windmere-Durable Holdings, Inc. and its Subsidiaries (the "Company") are
principally engaged in the manufacture and sale of electric housewares,
personal care 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
countries where business is transacted predominantly in U.S. dollars or is
deemed to be hyper-inflationary, 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, 1999 include $9,825,000 held in foreign banks by
the Company's Hong Kong, Canadian and Latin American subsidiaries.
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:
1999 1998
------------ ------------
Raw materials $ 9,045,000 $ 12,648,000
Work in process 18,547,000 28,727,000
Finished goods 136,114,000 124,090,000
------------ ------------
$163,706,000 $165,465,000
============ ============
(continued)
7
<PAGE> 35
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
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") and a Company officer.
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 2.5-40 years. Intangible
assets were $270,999,000 and $230,504,000 at December 31, 1999 and 1998,
respectively, and the related accumulated amortization was $28,387,000 and
$9,875,000, 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.
OTHER RECEIVABLES AND LIABILITIES
In conjunction with the 1998 acquisition of the Black & Decker Household
Products Group, the Company is due approximately $12,500,000 consisting
primarily of reimbursement for expenses related to the closing of the
Asheboro facility. In addition, the Company owes Black & Decker
$10,600,000, which is primarily related to costs associated with a
servicing arrangement.
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, 1999, 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 $126,750,000, or 97.5% of
face value, which is determined based on quoted market prices.
(continued)
8
<PAGE> 36
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
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
$171,000 and $700,000 in foreign exchange transaction gains for the years
ended December 31, 1999 and 1998, respectively. Transaction gains and
losses were insignificant in 1997. The Company does not use derivative
financial instruments for trading or speculative purposes. Outstanding at
December 31, 1999 and 1998, are $15,000,000 and $6,000,000, respectively,
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 four months or less.
The Company uses interest rate swaps of one to five 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, 1999, the Company had
purchased swaps on $140,000,000 notional principal amount with a market
value of approximately ($824,000). The market value represents the amount
the Company would have to pay to exit the contracts at December 31, 1999,
and was determined based on quotes obtained from the Company's financial
institution. 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. The Company does not intend to exit
the remaining contracts at this time. The Company entered into these
interest rate swaps for hedging purposes.
INCOME TAXES
No provision has been made for U.S. taxes on undistributed earnings of
foreign subsidiaries and joint ventures of approximately $144,100,000 at
December 31, 1999, 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.
(continued)
9
<PAGE> 37
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
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, 1999, 1998 and 1997 totaled approximately $27,368,000,
$24,731,000 and $8,175,000, 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 Basic Basic Diluted Diluted
Earnings Shares EPS Shares EPS
-------------- ---------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
1999 $ 16,843,000 22,366,592 $ .75 23,325,322 $ .72
1998 $ 28,752,000 20,100,764 $ 1.43 21,612,190 $ 1.33
1997 $ 19,835,000 17,654,772 $ 1.12 19,776,183 $ 1.00
</TABLE>
Included in diluted shares are common stock equivalents relating to
options, warrants and convertible debt of 958,730, 1,511,426, and 2,121,411
for 1999, 1998 and 1997, respectively. Options to purchase 1,621,000 shares
of common stock at prices ranging from $11.88 to $31.69, which were
outstanding during 1999, 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.
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 FAS No. 133.
(continued)
10
<PAGE> 38
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
REPOSITIONING CHARGE
The Company, in connection with its 1998 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
Company did not exit one line of business in 1999 that had been included in
the accrued repositioning costs at December 31, 1998. This resulted in a
reversal of the prior year charge of $1,506,000 in 1999.
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"), and Anasazi Partners, L.P. ("Anasazi"),
certain of which have been sold as set forth below:
SALTON, INC.
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 accordingly, the Company has deferred the
respective gain related to this note.
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)
11
<PAGE> 39
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
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. All notes
were repaid as of January 1999.
On October 1, 1997, one of the Company's wholly-owned subsidiaries sold
certain assets to Newtech for $1,977,600. A gain of $988,800 was recorded
as other income in 1997.
In June 1999, the Company purchased substantially all of Newtech's assets,
including inventory, accounts receivable, certain trademarks and other
intangibles, as well as the assumption of certain liabilities relating to
the business. Net assets acquired totaled approximately $15,000,000. In
connection with the acquisition, the Company wrote down its remaining
investment in Newtech resulting in a one-time non-cash charge of
$12,641,000 ($8,300,000 after tax). The charge has been recorded as equity
in net loss of joint ventures in the Company's statement of earnings. Under
the terms of the acquisition agreement, the Company acquired the exclusive
right and license to use the White-Westinghouse trademark in North America
for the design, manufacture, and sale of certain consumer electronic
products and has been assigned Newtech's rights under the long-term supply
contracts with the Kmart Corporation in the United States and Zellers in
Canada. According to the terms of the contracts, the Company will supply
Kmart and Zellers consumer electronics under the White-Westinghouse brand.
The remaining term under the Kmart contract can be extended up to 2011 upon
mutual consent. The Zellers contract expires in 2004.
ANASAZI PARTNERS, L.P.
As of December 31, 1999, the Company had made $2,000,000 in capital
contributions and loans totaling $2,000,000 to an investment 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.
SALES TO JOINT VENTURES
Included in the Company's sales are sales made to joint ventures of
approximately $29,706,000 and $37,226,000 in 1998 and 1997, respectively.
There were no sales to joint ventures in 1999.
(continued)
12
<PAGE> 40
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
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 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, ending in December 2004. 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.
In connection with the acquisition, the Company incurred 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." During 1999, the Company continued its evaluation of assets
and liabilities acquired to properly record the purchase price.
At December 31, 1999, the remaining accrued liabilities relating to the
exiting of certain activities, the termination of employees, and the
integration of operations in conjunction with the acquisition, are as
follows:
<TABLE>
<CAPTION>
(In Thousands)
Amount Remaining Excess
Activity Accrued Paid to be Paid (Shortage)
-------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Closing of Asheboro
manufacturing facility $ 2,000 $ 1,800 $ 200 $ --
Employee termination -
Asheboro and Shelton 10,800 9,800 1,000 --
Integration, transition and other 2,391 2,391 -- --
Unfavorable lease - idle property 6,408 6,408 -- --
------- ------- ------- -------------
$21,599 $20,399 $ 1,200 $ --
======= ======= ======= =============
</TABLE>
(continued)
13
<PAGE> 41
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE C - ACQUISITION - Continued
Amounts paid during the period from the date of acquisition through
December 31, 1999 have been recorded as adjustments to the purchase price
accruals 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.
NOTE D - PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment:
<TABLE>
<CAPTION>
Useful Lives 1999 1998
------------ --------------- ----------------
<S> <C> <C> <C>
Building 15 - 50 years $ 14,369,000 $ 15,780,000
Building improvements 8 - 31 years 1,505,000 1,194,000
Computer equipment 3 - 5 years 9,774,000 9,088,000
Furniture and equipment 3 - 8 years 103,709,000 92,968,000
Leasehold improvements 8 years 12,099,000 13,911,000
Land and land improvements 15 - 31 years 4,124,000 2,660,000
--------------- ----------------
(Improvements only) 145,580,000 135,601,000
Less accumulated depreciation
and amortization 69,597,000 59,524,000
--------------- ----------------
$ 75,983,000 $ 76,077,000
=============== ================
</TABLE>
NOTE E - NOTES AND ACCEPTANCES PAYABLE
Certain of the Company's foreign subsidiaries (the "foreign subsidiaries")
have approximately $38,000,000 in trade finance lines of credit, payable on
demand, which are collateralized by the subsidiaries' assets and in some
cases, a Company guarantee. At December 31, 1999, the foreign subsidiaries
were utilizing approximately $24,700,000 under these credit lines of which
all but $898,000 was for trade and foreign exchange financing.
NOTE F - ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
Advertising allowances $ 15,285,000 $ 13,048,000
Salaries and bonuses 15,229,000 8,011,000
Volume rebates 2,210,000 6,946,000
Warranty 3,162,000 7,010,000
Severance 1,012,000 7,989,000
Asheboro plant closing 200,000 9,383,000
Other 22,821,000 28,249,000
--------------- ----------------
$ 59,919,000 $ 80,636,000
=============== ================
</TABLE>
(continued)
14
<PAGE> 42
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
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 $107,883,000 is available at December 31, 1999), 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, 2000
to $6,378,000 for the quarter ended June 30, 2003. The Tranche B Term Loan
is payable in annual installments of $327,842, with all remaining amounts
owing thereunder due June 30, 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 Bank of America, N.A.'s (successor through merger with
NationsBank, N.A.) prime rate and the federal funds rate plus 0.50% (the
"Base Rate"), at the Company's option, plus a specified margin which is
determined by the leverage ratio of the Company and its subsidiaries on a
quarterly basis, that has been set at 2.75% through February 28, 2000
(7.94% at December 31, 1999), 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
is determined by the leverage ratio of the Company and its subsidiaries
that has been set at 3.375% through February 28, 2000 (8.56% at December
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.
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.
(continued)
15
<PAGE> 43
NOTE G - LONG-TERM DEBT - Continued
SENIOR SECURED CREDIT FACILITIES - Continued
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.
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.
(contined)
16
<PAGE> 44
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE G - LONG-TERM DEBT - Continued
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
Senior Secured Revolving Facility $ -- $ 10,000,000
Senior Secured Tranche A 66,299,000 76,000,000
Senior Secured Tranche B 60,859,000 63,000,000
10% Senior Subordinated Notes 130,000,000 130,000,000
Notes payable to Newtech (Note B) -- 2,000,000
------------------ ------------------
257,158,000 281,000,000
Less current maturities 13,587,000 8,630,000
------------------ ------------------
Total long-term debt $ 243,571,000 $ 272,370,000
================== ==================
</TABLE>
SECURITIZATION
On December 30, 1999, the Company sold $52.7 million of trade accounts
receivable, under a securitization program through a wholly-owned
subsidiary. The proceeds from the sale totaling, $47.6 million, were used
to reduce borrowings under the Company's Senior Secured Revolving Credit
Facility. The Company's effective borrowing rate under this program at
December 31, 1999 was 6.76%. The Company, as agent for the purchaser of the
receivables, retains collection and administrative responsibilities for the
purchased receivables.
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 years ended December 31, 1999 and
1998, totaled approximately $675,000 and $600,000, respectively. Amounts
charged to earnings in 1997 were not significant.
The Company does not provide any health or other benefits to retirees.
(continued)
17
<PAGE> 45
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE I - INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ----------------
<S> <C> <C> <C>
Current
Federal $ (567,000) $ 11,988,000 $ (3,274,000)
Foreign 10,658,000 2,302,000 --
State 48,000 6,000 2,000
--------------- --------------- ----------------
10,139,000 14,296,000 (3,272,000)
Deferred (5,962,000) (2,680,000) 4,195,000
--------------- --------------- ----------------
$ 4,177,000 $ 11,616,000 $ 923,000
=============== =============== ================
</TABLE>
The United States and foreign components of earnings before income taxes
are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ----------------
<S> <C> <C> <C>
United States $ (13,554,000) $ 26,353,000 $ 5,293,000
Foreign 34,574,000 14,015,000 15,465,000
--------------- --------------- ----------------
$ 21,020,000 $ 40,368,000 $ 20,758,000
=============== =============== ================
</TABLE>
The differences between the statutory rates and the tax rates computed on
pre-tax profits are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
% % %
----- ----- -----
<S> <C> <C> <C>
Tax expense at statutory rates 34.0% 34.0% 34.0%
Foreign inflationary (gain) loss 1.8 - -
Foreign (income) loss not subject to tax (1.5) (1.3) -
Net tax rate differential on undistributed
foreign earnings (22.6) (7.5) (23.5)
Equity in joint venture (earnings) loss not
subject to U.S. tax or already taxed 5.6 (1.3) (11.1)
Effect of gross up of foreign taxes,
net of foreign tax credit - (.1) (.2)
Federal withholding taxes - - 1.2
Other 2.6 4.9 4.1
---- ---- ----
19.9% 28.7% 4.5%
===== ===== ====
</TABLE>
(continued)
18
<PAGE> 46
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE I - INCOME TAXES - Continued
TAX EXAMINATION
The Internal Revenue Service has completed its examination of the Company's
1992 through 1997 tax returns and no material assessments were made. The
Internal Revenue Service is currently examining the Company's 1998 tax
return.
The Company's future income tax benefits at December 31, 1999, arise
primarily from the Company's and its subsidiaries' temporary differences.
Valuation allowances limiting such benefits have not been recorded 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, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
Inventory differences $ (526,000) $ 4,071,000
Reserves and accrued expenses 9,016,000 14,206,000
--------------- ----------------
Total current assets 8,490,000 18,277,000
Net operating loss and other carryforwards 18,554,000 1,064,000
Fixed assets, depreciation and amortization (18,559,000) (18,317,000)
Deferred income 2,054,000 5,056,000
Other - 65,000
--------------- ----------------
Net non-current assets (liabilities) 2,049,000 (12,132,000)
--------------- ----------------
Net deferred tax assets $ 10,539,000 $ 6,145,000
=============== ================
</TABLE>
The tax benefits resulting from the exercise of stock options have been
recorded as additions to paid-in capital in the amounts of $599,000 and
$5,917,000 in 1999 and 1998, respectively.
The Company also has federal and foreign net operating loss carryforwards
of approximately $40,300,000 and U.S. tax credit carryforwards of
$1,074,000, many of which do not expire and state net operating loss
carryforwards totaling $48,800,000 which expire in 2013.
(continued)
19
<PAGE> 47
NOTE J - COMMITMENTS AND CONTINGENCIES
LITIGATION
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. On June 30, 1999, a consolidated amended class action
complaint was filed. The consolidated amended class action complaint was
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,
rescission rights, unspecified damages and attorneys' fees and costs. The
defendants have moved to dismiss the consolidated class action complaint.
The motion is pending consideration by the Court.
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. By Order
dated June 3, 1999, the Court, among other things, appointed lead counsel
and directed the filing of a joint scheduling order. On June 23, 1999, the
parties submitted a Joint Scheduling Report and a proposed scheduling
order, which is still under consideration by the Court.
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 be entitled pursuant to applicable law. Based on the
information currently available to the Company, management does not believe
that the lawsuit and/or 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. As of December 31, 1999,
the Company had satisfied and charged to expense the monetary deductible
conditions of its directors' and officers' liability insurance policy,
which provides certain coverage against monetary exposure.
(continued)
20
<PAGE> 48
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE J - COMMITMENTS AND CONTINGENCIES - Continued
LITIGATION - Continued
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.
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:
2000 $ 4,139,000
2001 4,139,000
2002 4,130,000
2003 4,130,000
2004 4,130,000
Thereafter 9,230,000
---------------
$ 29,898,000
===============
Rent expense for the years ended December 31, 1999 and 1998 totaled
$4,150,000 and $4,588,000, respectively. Rent expense for the year ended
December 31, 1997 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, 2009. Any such additional payment will be in
an amount with respect to each Purchased Share equal to the greater of (i)
the same
(continued)
21
<PAGE> 49
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE J - COMMITMENTS AND CONTINGENCIES - Continued
OTHER - Continued
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.
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 $847,500, $962,500 and
$225,000 in the years ended December 31, 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)
22
<PAGE> 50
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
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, which was ratified 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.
During 1997, the Company issued options to purchase 25,000 shares to
non-employee sales representatives.
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.
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 and earnings per share would have been
changed to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- ---------------
<S> <C> <C> <C>
Net earnings
As reported $ 16,843,000 $ 28,752,000 $ 19,835,000
Pro forma $ 10,305,000 $ 23,646,000 $ 18,912,000
Basic earnings per share
As reported $ .75 $ 1.43 $ 1.12
Pro forma $ .46 $ 1.17 $ 1.07
Diluted earnings per share
As reported $ .72 $ 1.33 $ 1.00
Pro forma $ .44 $ 1.10 $ .96
</TABLE>
(continued)
23
<PAGE> 51
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE K - SHAREHOLDERS' EQUITY - Continued
STOCK OPTIONS - Continued
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 1999, 1998 and 1997, respectively: dividend
yield of 0.0 percent for all years; expected volatility ranging from 74.99
to 78.86 percent for 1999, 44.89 to 69.54 percent for 1998 and 37.85
percent for 1997; risk-free interest rates of 6.5 percent in 1999, 5.145
percent in 1998 and 5.53 percent in 1997; and expected holding periods of 4
years in 1999, 1998 and 1997.
A summary of the status of the Company's fixed stock options as of December
31, 1999, 1998 and 1997 and changes during the years ending on those dates
is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------------------------------------------
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 4,165 11.78 2,813 $ 7.77 3,369 $ 7.03
Granted 442 8.92 2,627 17.06 235 14.94
Exercised (339) 6.65 (1,139) 13.73 (764) 6.45
Forfeited (210) 15.55 (136) 14.59 (27) 8.68
--------- ----------- --------- ----------- --------- ----------
Outstanding at
end of year 4,058 11.70 4,165 11.78 2,813 7.77
========= ========= =========
Options exercisable at
end of year 1,723 1,103 1,750
Weighted-average
fair value of options
granted during
the year $ 5.51 $ 7.07 $ 5.54
</TABLE>
(continued)
24
<PAGE> 52
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE K - SHAREHOLDERS' EQUITY - Continued
STOCK OPTIONS - Continued
The following information applies to options outstanding at December 31,
1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ------------------------------
Weighted -
Average Weighted - Weighted -
Range of Shares Remaining Average Shares Average
Exercise Prices (000) Contractual Life Exercise Price (000) Exercise Price
--------------- ----------- ----------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$2.875 - $3.693 103 1.25 $ 3.17 103 $ 3.17
$4.500 - $6.375 101 10.24 5.37 54 4.64
$7.000 - $10.375 2,220 4.75 7.30 1,016 7.26
$10.875 - $14.875 254 5.31 12.55 67 13.16
$18.375 - $24.50 1,360 3.34 24.45 463 24.36
$31.69 20 8.42 31.69 20 31.69
-------- ---------
$2.875 - $31.69 4,058 1,723
======== =========
</TABLE>
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
In 1996, the Company's Board of Directors authorized a stock repurchase
program, whereby, the Company can repurchase up to 10-percent of its
outstanding shares (approximately 1,600,000 shares) from time to time at
prevailing market rates. No shares have been purchased under the program.
(continued)
25
<PAGE> 53
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
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.
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 has been restated in order to
conform to the new 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 exited the Asheboro facility as of
June 30, 1999.
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.
Effective January 1, 2000, the Company reorganized itself into three new
business units: Consumer Products North America, Consumer Products
International and Manufacturing. Presentation of segment information will
reflect the reorganization beginning in fiscal year 2000.
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, interest and non-recurring and extraordinary
items.
(continued)
26
<PAGE> 54
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE M - BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION - Continued
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 1999, 1998 and 1997 was as follows:
(In Thousands)
<TABLE>
<CAPTION>
Household
Windmere Products Durable
Group Group Manufacturing Total
--------- --------- ------------- ---------
<S> <C> <C> <C> <C>
1999
Net sales $ 214,772 $ 427,992 $ 167,400 $ 810,164
Intersegment net sales -- -- 118,398 118,398
Operating earnings (3,044) 38,697 27,021 62,674
Depreciation and amortization 966 21,685 7,301 29,952
Total assets 245,000 321,764 121,686 688,450
Capital expenditures 3,910 7,384 10,225 21,519
1998
Net sales $ 190,369 $ 232,943 $ 141,942 $ 565,254
Intersegment net sales -- -- 93,079 93,079
Operating earnings (285) 17,864 17,997 35,576
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 114 -- 19,095 19,209
Depreciation and amortization 568 -- 5,917 6,485
Total assets 100,272 -- 86,356 186,628
Capital expenditures 1,372 -- 9,925 11,297
</TABLE>
(continued)
27
<PAGE> 55
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE M - BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION - Continued
Reconciliation to consolidated amounts:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues
Total revenues for reportable segments $ 810,164 $ 565,254 $ 357,720
Other revenues 26,543 2,181 1,008
Eliminations of intersegment revenues (118,398) (93,079) (96,843)
--------- --------- ---------
Total consolidated revenues $ 718,309 $ 474,356 $ 261,885
========= ========= =========
Operating earnings
Total earnings for reportable segments $ 62,674 $ 35,576 $ 19,209
Other income 4,932 1,817 2,391
Elimination of intersegment profits (696) (537) (169)
Unallocated amounts
Corporate headquarters expense (7,393) (6,741) (4,675)
Interest expense (27,109) (16,633) (3,351)
Repositioning charge 1,506 (17,201) --
Gain on sale of equity interest in
joint venture -- 42,466 --
Equity in net earnings (loss) of joint ventures (12,894) 1,621 7,353
--------- --------- ---------
Consolidated operating earnings $ 21,020 $ 40,368 $ 20,758
========= ========= =========
Assets
Total assets for reportable segments $ 688,450 $ 684,762 $ 186,628
Other assets 7,528 30,874 32,587
Corporate headquarters - fixed assets 10,554 8,284 7,125
Other unallocated amounts
Investment in joint ventures 2,608 15,708 43,091
Receivables from affiliates 3,533 3,109 12,416
--------- --------- ---------
Total consolidated assets $ 712,673 $ 742,737 $ 281,847
========= ========= =========
</TABLE>
(continued)
28
<PAGE> 56
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE M - BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION - Continued
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES (1)
United States operations $ 560,037 $ 364,293 $ 189,468
International operations
Sales to unaffiliated customers 158,272 110,063 72,417
Transfers between geographical areas 118,398 93,079 96,843
Eliminations (118,398) (93,079) (96,843)
----------- ----------- -----------
$ 718,309 $ 474,356 $ 261,885
=========== =========== ===========
LONG-LIVED ASSETS
United States operations $ 1,020,257 $ 1,067,561 $ 148,661
International operations 142,878 151,697 96,330
Eliminations (839,246) (875,368) (143,113)
----------- ----------- -----------
Consolidated assets $ 323,889 $ 343,890 $ 101,878
=========== =========== ===========
</TABLE>
(1) Revenues are attributed to the country where the sale originates.
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.
(continued)
29
<PAGE> 57
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
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., Canadian and Latin American retailers and distributors
located throughout those countries.
Wal-Mart accounted for 21.3% and 19.0% of 1999 and 1998 sales,
respectively. Salton accounted for 12.0% of 1997 sales.
The Company's allowance for doubtful accounts is based on management's
estimates of the creditworthiness of its customers, and, in the opinion of
management is believed to be set in an amount sufficient to respond to
normal business conditions. Should such conditions deteriorate or any major
credit customer default on its obligations to the Company, this allowance
may need to be increased which may have an adverse impact upon the
Company's earnings.
The Company'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, increased duties, possible employee turnover, labor
unrest, lack of developed infrastructure, longer payment cycles, greater
difficulty in collecting accounts receivable, and the burdens and costs of
compliance with a variety of foreign laws. 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.
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.
(continued)
30
<PAGE> 58
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE N - CONCENTRATION OF CREDIT AND OTHER RISKS - Continued
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 that the PRC's NTR
trading status will be renewed in 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.
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.
(continued)
31
<PAGE> 59
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
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 $350,000,
$497,900 and $531,100 in 1999, 1998 and 1997, 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 $342,000, $468,600 and $427,000 in 1999, 1998 and 1997,
respectively.
In 1998, an affiliate of Lion Redcliffe, which was 50-percent owned by the
Company and 50-percent owned by an entity whose president is also a
director of the Company, 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, 1999 and 1998 are
$1,382,000 and $978,400, respectively, due from the Company's President and
Chief Executive Officer. Such amount is due upon demand and bears interest
at the prevailing market rate.
On April 14, 1999, the Company sold 210,000 shares of authorized Common
Stock at the fair market value of $7.125 per share to its Chief Executive
Officer in exchange for a collateralized promissory note. The note is on a
full recourse basis, with a maturity of three years from the date of
purchase and bears interest at LIBOR plus 2.75% (7.94% at December 31,
1999). The balance due to the Company at December 31, 1999 is $1,583,000.
NOTE P - SUPPLIER CONTRACT
In January 1997, the Company through its 50-percent interests in Newtech
and 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 then Newtech. The
contract's original term is 5 years subject to certain renewal provisions.
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 (Note
B). In June 1999, the Company acquired from Newtech the exclusive right and
license to use the White-Westinghouse trademark in North America for the
design, manufacture, and sale of certain consumer electronic products and
has been assigned Newtech's rights under the long-term supply contracts
with the Kmart Corporation in the United States and Zellers in Canada.
According to the terms of the contracts, the Company will supply Kmart and
Zellers consumer electronics under the White-Westinghouse brand. The
remaining term under the Kmart contract can be extended up to 2011 upon
mutual consent. The Zellers contract expires in 2004.
(continued)
32
<PAGE> 60
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE Q - 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 that 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.
Effective December 31, 1999, the Company reorganized its corporate
structure whereby certain guarantor subsidiaries were either merged with
Windmere Corporation or other guarantor subsidiaries or were dissolved and
whose assets were transferred to Windmere Corporation.
(continued)
33
<PAGE> 61
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE Q - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Windmere-
Durable
Holdings Non
Inc. Guarantors Guarantors Eliminations Consolidated
------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
Net sales $ -- $ 560,037,000 $ 392,350,000 $(234,078,000) $ 718,309,000
Cost of goods sold -- 388,634,000 329,190,000 (233,784,000) 484,040,000
------------- ------------- ------------- ------------- -------------
Gross profit -- 171,403,000 63,160,000 (294,000) 234,269,000
Operating (income)
expenses (379,000) 150,092,000 26,861,000 442,000 177,016,000
Repositioning charge -- (1,506,000) -- -- (1,506,000)
------------- ------------- ------------- ------------- -------------
Operating profit (loss) 379,000 22,817,000 36,299,000 (736,000) 58,759,000
Other (income) expense,
net 25,327,000 (3,993,000) 3,203,000 308,000 24,845,000
------------- ------------- ------------- ------------- -------------
Earnings (loss) before
income taxes and
equity in (earnings)
loss of joint ventures (24,948,000) 26,810,000 33,096,000 (1,044,000) 33,914,000
Income taxes (benefit) -- (2,535,000) 7,989,000 (1,277,000) 4,177,000
Equity in (earnings) loss
of joint ventures 12,894,000 13,486,000 -- (13,486,000) 12,894,000
------------- ------------- ------------- ------------- -------------
Net earnings (loss) $ (37,842,000) $ 15,859,000 $ 25,107,000 $ 13,719,000 $ 16,843,000
============= ============= ============= ============= =============
</TABLE>
(continued)
34
<PAGE> 62
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE Q - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Windmere-
Durable
Holdings Non
Inc. Guarantors Guarantors Eliminations Consolidated
------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Cash $ 4,000 $ 3,939,000 $ 9,825,000 $ -- $ 13,768,000
Accounts and other
receivables -- 130,350,000 55,112,000 -- 185,462,000
Receivables from affiliates (21,858,000) (6,317,000) 31,858,000 (150,000) 3,533,000
Inventories -- 107,199,000 58,184,000 (1,677,000) 163,706,000
Other current assets -- 19,679,000 8,047,000 (5,411,000) 22,315,000
------------- ------------- ------------- ------------- -------------
Total current assets (21,854,000) 254,850,000 163,026,000 (7,238,000) 388,784,000
Investments 426,334,000 113,051,000 70,557,000 (607,334,000) 2,608,000
Property, plant and
equipment, net -- 14,443,000 61,540,000 -- 75,983,000
Other assets -- 466,429,000 10,781,000 (231,912,000) 245,298,000
------------- ------------- ------------- ------------- -------------
Total assets $ 404,480,000 $ 848,773,000 $ 305,904,000 $(846,484,000) $ 712,673,000
============= ============= ============= ============= =============
Notes and acceptances
payable $ -- $ -- $ 898,000 $ -- $ 898,000
Accounts payable and
accrued expenses 1,000 55,464,000 39,007,000 631,000 95,103,000
Current maturities of
long-term debt 12,842,000 -- 745,000 -- 13,587,000
Deferred income, current
portion -- 585,000 -- -- 585,000
Income taxes payable -- 1,070,000 6,871,000 (3,218,000) 4,723,000
Other current liabilities -- 10,573,000 -- -- 10,573,000
------------- ------------- ------------- ------------- -------------
Total current liabilities 12,843,000 67,692,000 47,521,000 (2,587,000) 125,469,000
Long-term debt 244,316,000 226,288,000 8,605,000 (235,638,000) 243,571,000
Deferred income, less
current portion -- 236,000 -- -- 236,000
Deferred income taxes -- 16,253,000 2,966,000 (19,219,000) --
------------- ------------- ------------- ------------- -------------
Total liabilities 257,159,000 310,469,000 59,092,000 (257,444,000) 369,276,000
Shareholders' equity 147,321,000 538,304,000 246,812,000 (589,040,000) 343,397,000
------------- ------------- ------------- ------------- -------------
Total liabilities and
Shareholders' equity $ 404,480,000 $ 848,773,000 $ 305,904,000 $(846,484,000) $ 712,673,000
============= ============= ============= ============= =============
</TABLE>
(continued)
35
<PAGE> 63
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE Q - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
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 $ (24,355,000) $ 174,724,000 $ 5,906,000 $(107,819,000) $ 48,456,000
Net cash provided by
(used in) investing
activities 33,940,000 (103,246,000) (39,954,000) 75,347,000 (33,913,000)
Net cash provided by
(used in ) financing
activities (9,581,000) (70,622,000) 27,028,000 32,395,000 (20,780,000)
Effect of exchange rate -- -- (487,000) 77,000 (410,000)
Cash at beginning -- 3,083,000 17,332,000 -- 20,415,000
Cash at end 4,000 3,939,000 9,825,000 -- 13,768,000
</TABLE>
(continued)
36
<PAGE> 64
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE Q - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Windmere-
Durable
Holdings Non
Inc. Guarantors Guarantors Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
Net sales $ -- $ 364,293,000 $ 203,143,000 $ (93,080,000) $ 474,356,000
Cost of goods sold -- 261,057,000 164,022,000 (92,542,000) 332,537,000
------------- ------------- ------------- ------------- -------------
Gross profit -- 103,236,000 39,121,000 (538,000) 141,819,000
Operating expenses (689,000) 106,797,000 16,122,000 360,000 122,590,000
Repositioning charge -- 9,519,000 -- -- 9,519,000
------------- ------------- ------------- ------------- -------------
Operating profit (loss) 689,000 (13,080,000) 22,999,000 (898,000) 9,710,000
Other (income) expense,
net 4,545,000 (41,672,000) 6,233,000 1,857,000 (29,037,000)
------------- ------------- ------------- ------------- -------------
Earnings (loss) before
income taxes and
equity in earnings of
joint ventures (3,856,000) 28,592,000 16,766,000 (2,755,000) 38,747,000
Income taxes (benefit) -- 14,998,000 8,445,000 (11,827,000) 11,616,000
Equity in earnings of
joint ventures 351,000 1,270,000 -- -- 1,621,000
------------- ------------- ------------- ------------- -------------
Net earnings (loss) $ (3,505,000) $ 14,864,000 $ 8,321,000 $ 9,072,000 $ 28,752,000
============= ============= ============= ============= =============
</TABLE>
(continued)
37
<PAGE> 65
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE Q - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Windmere-
Durable
Holdings Non
Inc. Guarantors Guarantors Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Cash $ -- $ 3,083,000 $ 17,332,000 $ -- $ 20,415,000
Accounts and other
receivables -- 124,025,000 42,632,000 (820,000) 165,837,000
Receivables from affiliates 12,416,000 (16,341,000) 9,578,000 (65,000) 5,588,000
Inventories -- 111,184,000 55,712,000 (1,431,000) 165,465,000
Other current assets -- 29,369,000 6,594,000 5,579,000 41,542,000
------------- ------------- ------------- ------------- -------------
Total current assets 12,416,000 251,320,000 131,848,000 3,263,000 398,847,000
Investments 425,913,000 22,778,000 70,500,000 (503,483,000) 15,708,000
Property, plant and
equipment, net -- 15,159,000 60,918,000 -- 76,077,000
Other assets -- 603,710,000 20,279,000 (371,884,000) 252,105,000
------------- ------------- ------------- ------------- -------------
Total assets $ 438,329,000 $ 892,967,000 $ 283,545,000 $(872,104,000) $ 742,737,000
============= ============= ============= ============= =============
Notes and acceptances
payable $ -- $ 11,350,000 $ -- $ (11,350,000) $ --
Accounts payable and
accrued expenses -- 41,851,000 74,739,000 (819,000) 115,771,000
Current maturities of
long-term debt 8,630,000 -- -- -- 8,630,000
Deferred income, current
portion -- 479,000 -- -- 479,000
Income taxes payable -- 5,618,000 895,000 (3,820,000) 2,693,000
Other current liabilities -- 3,840,000 -- -- 3,840,000
------------- ------------- ------------- ------------- -------------
Total current liabilities 8,630,000 63,138,000 75,634,000 (15,989,000) 131,413,000
Long-term debt 260,370,000 382,918,000 -- (370,918,000) 272,370,000
Deferred income, less
current portion -- 2,021,000 -- 783,000 2,804,000
Deferred income taxes -- 8,549,000 2,986,000 597,000 12,132,000
------------- ------------- ------------- ------------- -------------
Total liabilities 269,000,000 456,626,000 78,620,000 (385,527,000) 418,719,000
Shareholders' equity 169,329,000 436,341,000 204,925,000 (486,577,000) 324,018,000
------------- ------------- ------------- ------------- -------------
Total liabilities and
Shareholders' equity $ 438,329,000 $ 892,967,000 $ 283,545,000 $(872,104,000) $ 742,737,000
============= ============= ============= ============= =============
</TABLE>
(continued)
38
<PAGE> 66
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE Q - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
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 $ (5,688,000) $(374,871,000) $ 17,626,000 $ 317,460,000 $ (45,473,000)
Net cash provided by
(used in) investing
activities (354,574,000) (312,095,000) (45,443,000) 461,555,000 (250,557,000)
Net cash provided by
financing activities 360,262,000 690,049,000 37,014,000 (779,015,000) 308,310,000
Effect of exchange rate -- -- (89,000) -- (89,000)
Cash at beginning -- -- 8,224,000 -- 8,224,000
Cash at end -- 3,083,000 17,332,000 -- 20,415,000
</TABLE>
(continued)
39
<PAGE> 67
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE Q - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Windmere-
Durable
Holdings Non
Inc. Guarantors Guarantors Eliminations Consolidated
-------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
Net sales $ -- $ 189,468,000 $ 169,260,000 $ (96,843,000) $ 261,885,000
Cost of goods sold -- 146,030,000 145,779,000 (96,674,000) 195,135,000
------------- ------------- ------------- ------------- -------------
Gross profit -- 43,438,000 23,481,000 (169,000) 66,750,000
Operating expenses (675,000) 48,072,000 4,963,000 361,000 52,721,000
Repositioning charge -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Operating profit (loss) 675,000 (4,634,000) 18,518,000 (530,000) 14,029,000
Other (income) expense,
net (3,066,000) 1,167,000 (3,425,000) 5,948,000 624,000
------------- ------------- ------------- ------------- -------------
Earnings (loss) before
income taxes and
equity in earnings of
joint ventures 3,741,000 (5,801,000) 21,943,000 (6,478,000) 13,405,000
Income taxes (benefit) -- (1,967,000) 2,507,000 383,000 923,000
Equity in earnings of
joint ventures 7,353,000 6,775,000 -- (6,775,000) 7,353,000
------------- ------------- ------------- ------------- -------------
Net earnings (loss) $ 11,094,000 $ 2,941,000 $ 19,436,000 $ (13,636,000) $ 19,835,000
============= ============= ============= ============= =============
</TABLE>
(continued)
40
<PAGE> 68
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE Q - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Windmere-
Durable
Holdings Non
Inc. Guarantors Guarantors Eliminations Consolidated
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Cash $ -- $ -- $ 8,224,000 $ -- $ 8,224,000
Accounts and other
receivables -- 45,235,000 4,788,000 (6,685,000) 43,338,000
Receivables from affiliates 3,064,000 (24,940,000) 27,573,000 9,594,000 15,291,000
Inventories -- 63,054,000 39,981,000 (863,000) 102,172,000
Other current assets -- 10,179,000 1,582,000 (826,000) 10,935,000
------------- ------------- ------------- ------------- -------------
Total current assets 3,064,000 93,528,000 82,148,000 1,220,000 179,960,000
Investment 80,692,000 50,423,000 46,199,000 (134,223,000) 43,091,000
Property, plant and
equipment, net -- 7,310,000 29,889,000 -- 37,199,000
Other assets -- 10,238,000 20,250,000 (8,891,000) 21,597,000
------------- ------------- ------------- ------------- -------------
Total assets $ 83,756,000 $ 161,499,000 $ 178,486,000 $(141,894,000) $ 281,847,000
============= ============= ============= ============= =============
Notes and acceptances
payable $ -- $ 49,350,000 $ 4,982,000 $ (11,350,000) $ 42,982,000
Accounts payable -- 7,120,000 8,054,000 (574,000) 14,600,000
Accrued expenses 2,179,000 6,141,000 3,885,000 33,000 12,238,000
Current maturities of
long-term debt -- 815,000 -- 3,000,000 3,815,000
Deferred income,
current portion -- 998,000 (179,000) (572,000) 247,000
------------- ------------- ------------- ------------- -------------
Total current liabilities 2,179,000 64,424,000 16,742,000 (9,463,000) 73,882,000
Long-term debt 10,848,000 8,222,000 -- (3,000,000) 16,070,000
Deferred income, less
current portion -- 126,000 -- 948,000 1,074,000
Deferred income taxes -- (185,000) 2,153,000 (1,968,000) --
------------- ------------- ------------- ------------- -------------
Total liabilities 13,027,000 72,587,000 18,895,000 (13,483,000) 91,026,000
Shareholders' equity 70,729,000 88,912,000 159,591,000 (128,411,000) 190,821,000
------------- ------------- ------------- ------------- -------------
Total liabilities and
Shareholders' equity $ 83,756,000 $ 161,499,000 $ 178,486,000 $(141,894,000) $ 281,847,000
============= ============= ============= ============= =============
</TABLE>
(continued)
41
<PAGE> 69
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1999, 1998 AND 1997
NOTE Q - CONDENSED CONSOLIDATING FINANCIAL INFORMATION - Continued
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
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 $ 4,252,000 $(16,546,000) $ 20,694,000 $ (6,438,000) $ 1,962,000
Net cash used in
investing activities (4,371,000) (40,768,000) (18,411,000) 41,040,000 (22,510,000)
Net cash provided by
(used in) financing
activities 119,000 55,197,000 (400,000) (34,602,000) 20,314,000
Effect of exchange rate -- -- (322,000) -- (322,000)
Cash at beginning -- 2,117,000 6,663,000 -- 8,780,000
Cash at end -- -- 8,224,000 -- 8,224,000
</TABLE>
(continued)
42
<PAGE> 70
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly results for the years 1999 and 1998 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>
1999
First quarter $118,853 $ 33,700 $ (6,529) $ (.30)
Second quarter 149,168 42,965 (10,565)* (.47)
Third quarter 204,229 65,092 13,973 .59
Fourth quarter 246,059 92,512 19,964 .84
-------- -------- -------- --------
Total $718,309 $234,269 $ 16,843 $ .66 **
======== ======== ======== ========
1998
First quarter $ 55,394 $ 14,167 $ 1,136 $ .06
Second quarter 62,568 9,529 (7,864) (.42)
Third quarter 160,453 58,218 34,960 *** 1.58
Fourth quarter 195,941 59,905 520 .02
-------- -------- -------- --------
Total $474,356 $141,819 $ 28,752 $ 1.24 **
======== ======== ======== ========
</TABLE>
* Includes a one time non-cash charge of $12.6 million ($8.3 million
after tax) or .55 per share for the writedown of the Company's
investment in a joint venture.
** Difference of $.06 from statement of earnings for 1999 full year due to
exclusion of effect of stock options in earnings per share calculation
in first and second quarters. Difference of $.09 from statement of
earnings for 1998 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 per share in 1999 and 1998, by quarters,
are as follows:
Market Price
High Low
------ ------
1999
Fourth quarter 17-1/4 11-3/4
Third quarter 16-3/8 12-1/16
Second quarter 16-7/8 6-3/8
First quarter 7-3/4 4-3/4
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
The approximate number of holders of common stock of the Company, as of December
31, 1999, was 1,100. 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.
43
<PAGE> 71
Windmere-Durable Holdings, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 1999, 1998 and 1997
<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, 1999
Reserves deducted from assets to which
they apply:
Allowance for possible losses on
accounts receivable $ 7,367,000 $(1,324,000) $ 4,228,000 25,000 (a) $(1,535,000) (b) $ 8,761,000
=========== =========== =========== =========== ============ ==========
Year ended December 31, 1998
Reserves deducted from assets to which
they apply:
Allowance for possible losses on
accounts receivable $ 1,111,000 $ 3,881,000 $ 2,450,000 245,000 (a) $(320,000) (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 63,000 (a) $(514,000) (b) $ 1,111,000
=========== =========== =========== =========== ========== ===========
</TABLE>
(a) Recoveries of amounts previously written off against the reserve.
(b) Write-off of accounts receivable against the reserve.
44
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME INCORPORATED IN
- ---- ---------------
<S> <C>
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 B.V. 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
H.P.G. de Venezuela, C.A. Venezuela
H.P.G. de Colombia Limitada Colombia
Household Products Limited de Mexico, S. de R.L. de C.V. Mexico
Household Products Chile Comercial Limitada Chile
Household Products Canada Limited Canada
Household Products (Asia) Limited Hong Kong
Redcliffe Import & Export Limited Hong Kong
Windmere Electrical (Shen Zhen) Co. Ltd. Hong Kong
Windmere Durable (Asia) Ltd. Hong Kong
Windmere SPC LLC Cayman Islands
HP (BVI) Ltd British Virgin Islands
Household Products Commercial Limited de Mexico
S.de R.L. de C.V. Mexico
Anasazi Partners, L.P. (50% owned) Massachusetts
Newtech Electronics Industries, Inc. (50% owned) Florida
</TABLE>
<PAGE> 2
Effective December 31, 1999, the following corporations were dissolved:
Windmere Fan Products, Inc.
Jerdon Products, Inc.
Consumer Products Americas, Inc.
EDI Masters, Inc.
Effective December 31, 1999, the following corporations were merged into
Windmere Corporation:
Household Products, Inc.
Windmere Innovative Pet Products, Inc.
Effective December 31, 1999, the following corporation was merged into WD
Delaware, Inc.:
WD Delaware II, Inc.
Effective January 1, 2000, the following corporations were amalgamated into a
newly formed Nova Scotia company, Windmere Household Products Canada Corp.:
Household Products Canada Limited
Windmere Consumer Products, Inc.
<PAGE> 1
Exhibit 23
AUDITOR'S CONSENT
We have issued our report dated February 8, 2000, 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,
1999. 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), Form S-8 (File No.
333-52383, effective May 12, 1998) and Form S-8 (File No. 333-86507, effective
August 3, 1999).
/s/ Grant Thornton LLP
Miami, Florida
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 13,768
<SECURITIES> 0
<RECEIVABLES> 181,261
<ALLOWANCES> 8,761
<INVENTORY> 163,706
<CURRENT-ASSETS> 388,784
<PP&E> 145,580
<DEPRECIATION> 69,597
<TOTAL-ASSETS> 712,673
<CURRENT-LIABILITIES> 125,469
<BONDS> 130,000
0
0
<COMMON> 2,264
<OTHER-SE> 341,133
<TOTAL-LIABILITY-AND-EQUITY> 712,673
<SALES> 718,309
<TOTAL-REVENUES> 718,309
<CGS> 484,040
<TOTAL-COSTS> 484,040
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,137
<INTEREST-EXPENSE> 27,109
<INCOME-PRETAX> 21,020
<INCOME-TAX> 4,177
<INCOME-CONTINUING> 16,843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,843
<EPS-BASIC> .75
<EPS-DILUTED> .72
</TABLE>
