-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ACcDI+JKrbmUO+dOgY+0mB3Ltrffh9sPiVpAiUDEQLp9pvO+zVJMo0ghaqLVqUIQ ns8zdF4oFCCyGM/tkdewmA== 0000217084-95-000008.txt : 19951119 0000217084-95-000008.hdr.sgml : 19951119 ACCESSION NUMBER: 0000217084-95-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WINDMERE CORP CENTRAL INDEX KEY: 0000217084 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC HOUSEWARES & FANS [3634] IRS NUMBER: 591028301 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10177 FILM NUMBER: 95589441 BUSINESS ADDRESS: STREET 1: 5980 MIAMI LAKES DR CITY: MIAMI LAKES STATE: FL ZIP: 33014 BUSINESS PHONE: 3053622611 MAIL ADDRESS: STREET 1: 5980 MIAMI LAKES DRIVE CITY: MIAMI LAKES STATE: FL ZIP: 33014 FORMER COMPANY: FORMER CONFORMED NAME: SAVE WAY INDUSTRIES INC DATE OF NAME CHANGE: 19830815 FORMER COMPANY: FORMER CONFORMED NAME: SAVE WAY BARBER & BEAUTY SUPPLIES INC DATE OF NAME CHANGE: 19770626 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended SEPTEMBER 30, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File Number 1-10177 WINDMERE CORPORATION (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) (305) 362-2611 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirement for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Number of Shares Outstanding Class on November 1, 1995 Common Stock, $.10 Par Value 16,778,853 WINDMERE CORPORATION AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Statements of Earnings for Third Quarters Ended September 30, 1995 and 1994 Consolidated Statements of Earnings for Nine Months Ended September 30, 1995 and 1994 Consolidated Balance Sheets as of September 30, 1995, December 31, 1994 and September 30, 1994 Consolidated Statements of Cash Flows for Nine Months Ended September 30, 1995 and 1994 Notes to Consolidated Financial State- ments Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 6. Exhibits and Reports on Form 8-K SIGNATURES PART I - FINANCIAL INFORMATION Item 1. Financial Statements WINDMERE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) Third Quarter Ended September 30, 1995 September 30, 1994 Sales $52,681,300 100.0% $55,885,000 100.0% Cost of Goods Sold 40,402,500 76.7 38,364,800 68.6 Gross Profit 12,278,800 23.3 17,520,200 31.4 Selling, General and Administrative Expenses 10,719,800 20.3 10,127,000 18.2 Operating Profit 1,559,000 3.0 7,393,200 13.2 Other (Income) Expense Interest Expense 163,000 .3 71,900 .1 Interest and Other Income (419,800) (.7) (530,100 ) (.9) (256,800) (.4) (458,200 ) (.8) Earnings Before Equity in Net Earnings (Loss) of Joint Venture and Income Taxes 1,815,800 3.4 7,851,400 14.0 Equity in Net Earnings (Loss) of Joint Venture (328,300) (.6) (267,800 ) (.5) Earnings Before Income Taxes 1,487,500 2.8 7,583,600 13.5 Income Taxes Current 497,600 .9 2,137,100 3.8 Deferred 118,300 .3 (391,400 ) (.7) 615,900 1.2 1,745,700 3.1 Net Earnings $ 871,600 1.6% $5,837,900 10.4% Earnings Per Common Share and Common Equivalent Share $.05 $.33 Average Number of Common Shares and Common Equivalent Shares Outstanding 17,282,000 18,063,000 Dividends Per Common Share $.05 $.05 The accompanying notes are an integral part of these statements. WINDMERE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) Nine Months Ended September 30, 1995 September 30, 1994 Sales $132,713,500 100.0% $129,038,600 100.0% Cost of Goods Sold 99,831,400 75.2 90,197,200 69.9 Gross Profit 32,882,100 24.8 38,841,400 30.1 Selling, General and Administrative Expense 31,087,500 23.4 29,230,500 22.6 Unusual or Non-Recurring Items (Note 4) 0 .0 (7,810,500 ) (6.0) Operating Profit 1,794,600 1.4 17,421,400 13.5 Other (Income) Expense Interest Expense 479,400 .4 392,900 .3 Interest and Other Income (1,974,200) (1.5) (1,610,200 ) (1.2) (1,494,800) (1.1) (1,217,300 ) (.9) Earnings Before Equity in Net Earnings (Loss) of Joint Venture, Income Taxes and Minority Interest 3,289,400 2.5 18,638,700 14.4 Equity in Net Earnings (Loss) of Joint Venture (197,700) (.2) 180,800 .2 Earnings Before Income Taxes and Minority Interest 3,091,700 2.3 18,819,500 14.6 Income Taxes Current 1,357,100 1.0 2,861,700 2.2 Deferred (378,200) (.3) (267,100) (.2) 978,900 .7 2,594,600 2.0 Earnings Before Minority Interest 2,112,800 1.6 16,224,900 12.6 Minority Interest 0 .0 1,200 .0 Net Earnings $ 2,112,800 1.6% $16,226,100 12.6% Earnings Per Common Share and Common Equivalent Share $.12 $.93 Average Number of Common Shares and Common Equivalent Shares Outstanding 17,378,000 17,518,000 Dividends Per Common Share $.15 $.10 The accompanying notes are an integral part of these statements. WINDMERE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS 9/30/95 12/31/94 9/30/94 CURRENT ASSETS Cash & Cash Equivalents $ 5,603,600 $12,988,300 $19,446,500 Short-Term Investments 0 2,500,000 2,500,000 Accounts and Notes Receivable, less allowances of $1,299,000 at 9/30/95; $1,338,100 at 12/31/94; and $1,301,100 at 9/30/94 41,886,500 38,733,300 46,997,200 Receivables from Affiliates 5,571,900 12,444,300 5,670,200 Inventories Raw Materials 24,700,400 18,993,200 19,461,800 Work-in-process 16,556,000 15,155,900 15,528,000 Finished Goods 43,676,900 40,129,300 41,890,200 Total Inventories 84,933,300 74,278,400 76,880,000 Prepaid Expenses (Note 3) 7,539,300 8,020,500 8,226,900 Future Income Tax Benefits 2,013,900 1,883,400 2,457,300 Total Current Assets 147,548,500 150,848,200 162,178,100 INVESTMENTS (Note 2) 0 0 0 PROPERTY, PLANT & EQUIPMENT - AT COST, less accumulated depreciation of $39,099,000 at 9/30/95; $35,404,100 at 12/31/94; and $33,985,500 at 9/30/94 30,737,900 28,449,100 25,119,800 OTHER ASSETS 17,171,800 17,826,700 17,760,700 ___________ ___________ ___________ TOTAL ASSETS $195,458,200 $197,124,000 $205,058,600 WINDMERE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) (Unaudited) LIABILITIES 9/30/95 12/31/94 9/30/94 CURRENT LIABILITIES Notes and Acceptances Payable $2,722,600 $ 740,100 $ 640,000 Current Maturities of Long-Term Debt 814,800 814,800 814,800 Accounts Payable 7,247,500 8,120,000 14,987,600 Accrued Expenses 9,675,400 8,981,700 10,770,800 Income Taxes 345,400 2,312,600 3,866,900 Deferred Income, current portion 598,100 598,100 598,100 Total Current Liabilities 21,403,800 21,567,300 31,678,200 LONG-TERM DEBT 3,055,600 3,666,700 3,891,900 DEFERRED INCOME, less current portion 816,400 1,265,000 1,414,500 STOCKHOLDERS' EQUITY Special Preferred Stock - authorized 40,000,000 shares of $.01 par value; none issued 0 0 0 Common Stock - authorized 40,000,000 shares of $.10 par value; shares issued and out- standing: 16,787,340 at 9/30/95; 16,734,172 at 12/31/94; and 16,827,402 at 9/30/94 1,678,700 1,673,400 1,682,700 Paid-in Capital 30,589,000 30,648,700 31,517,500 Retained Earnings 138,687,200 139,088,800 135,623,700 Unrealized Foreign Currency Translation Adjustment (772,500 ) (785,900) (749,900) Total Stockholders' Equity 170,182,400 170,625,000 168,074,000 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $195,458,200 $197,124,000 $205,058,600 The accompanying notes are an integral part of these statements. WINDMERE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended 9/30/95 9/30/94 Cash flows from operating activities Net earnings $ 2,112,800 $16,226,100 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property, plant and equipment 4,554,500 3,898,800 Amortization of intangible assets 424,500 316,800 Amortization of deferred income (448,600) (448,600) Net change in allowance for losses on accounts receivable (39,100) (123,500) Gain on sale of fixed asset (Note 4) 0 (7,810,500) Equity in (earnings) loss of joint venture 197,700 (180,800) Decrease in minority interest 0 (1,200) Increase in accounts and notes receivable (3,114,100) (15,605,100) Increase in inventories (10,654,900) (9,722,500) Decrease (increase) in prepaid expenses 481,200 (1,236,000) Increase (decrease) in accounts payable and accrued expenses (178,800) 6,811,100 Increase (decrease) in notes and acceptances payable 1,982,500 (2,355,800) Increase (decrease) in current and deferred income taxes (2,097,700) 3,347,800 Decrease in other assets 230,400 (105,500) Decrease (increase) in other accounts 13,400 (39,200) Net cash used in operating activities (6,536,200) (7,028,100) Cash flows from investing activities Proceeds from fixed asset sales 146,900 9,464,300 Additions to property, plant and equipment (6,990,200) (5,650,200) Decrease (increase) in short-term investments 2,500,000 (2,500,000) Decrease in receivables from affiliates 6,674,700 3,677,200 Net cash provided by investing activities $ 2,331,400 $4,991,300 Cash flows from financing activities Payments of long-term debt $ (611,100) $ (611,300) Exercise of stock options and warrants 389,500 1,225,000 Cash dividends paid (2,514,400) (1,688,900) Purchases of common stock (443,900) (2,236,200) Net cash used in financing activities (3,179,900) (3,311,400) Decrease in cash and cash equivalents (7,384,700) (5,348,200) Cash and cash equivalents at beginning of year 12,988,300 24,794,700 Cash and cash equivalents at end of quarter $ 5,603,600 $19,446,500 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the nine months for: Interest $ 373,600 $ 389,200 Income taxes $ 2,076,900 $ 177,300 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Common stock issued for additional investment in Durable Electrical Metal Factory, Ltd. $ 0 $ 8,000,000 The accompanying notes are an integral part of these statements. WINDMERE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of September 30, 1995 and 1994, and the results of operations and changes in financial position for the interim periods. Results for interim periods should not be considered indicative of results for a full year. Reference should be made to the financial statements contained in the registrant's Annual Report on Form 10-K for the year ended December 31, 1994. Note 2. Investments include: 9/30/95 12/31/94 9/30/94 Joint Venture - at cost plus equity in undistributed earnings $ 0 $ 0 $ 0 The Company's joint venture investment at September 30, 1995, December 31, 1994 and September 30, 1994 had negative values of $.6 million, $.4 million and $.3 million, respectively, which deficits have been classified as a reduction in Receivables from Affiliates. The following table provides financial data for the Company's joint venture investment accounted for on the equity method: Nine Nine Months Ended Year Ended Months Ended 9/30/95 12/31/94 9/30/94 Sales $ 22,877,700 $ 30,184,500 $ 24,546,700 Gross profit $ 1,946,000 $ 3,572,500 $ 3,105,600 Net Earnings (Loss) $ (395,400) $ 185,000 $ 361,600 Note: Profits earned by the Company's manufacturing subsidiary on sales to the joint venture are included in the consolidated earnings results and are not part of the above table. Note 3. In the third quarter of 1995, the Company reached an agreement with the Hong Kong Inland Revenue Department concerning the taxes assessed against the Company's consolidated Hong Kong subsidiaries through 1991. The assessment, including interest charges and net of U.S. foreign tax credits, approximates $1.4 million. The Company made a provision in its 1995 second quarter of $.4 million, or $.02 per share, to increase its contingency reserve to the settlement amount. Security deposits of approximately $3.0 million, which amounts are included in prepaid expenses, are scheduled to be refunded to the Company during the fourth quarter of 1995. Management believes that adequate provision for taxes has been made for the years not yet examined. Note 4. Unusual or Non-Recurring Items: In April 1994, the Company's manufacturing subsidiary, Durable Electrical Metal Factory, Ltd. ("Durable"), sold 60,000 square feet of office space in Hong Kong, for $9,500,000. This transaction generated a non- recurring profit of $7,810,500, or $.45 per share, in the Company's 1994 second quarter results. No taxes were provided as the gain was not taxable. Note 5. Cash Dividends: The Board of Directors of the Company declared a regular quarterly cash dividend of $.05 per share to shareholders of record at the close of business on September 1, 1995, which was paid on September 15, 1995. The payment of dividends is at the discretion of the Board of Directors of the Company and will depend upon, among other things, future earnings, capital requirements, the Company's financial condition and such other factors as the Board of Directors may consider. Note 6. In April 1994, Kabushiki Kaisha Izumi Seiki Seisakusho, a Japanese corporation ("Izumi"), filed an action against the Company, David M. Friedson, the President and Chief Executive Officer of the Company, U.S. Philips Corporation, North American Philips Corporation and N.V. Philips Gloellampenfabrieken (together, "Philips"). This action concerns the 1992 settlement (the "Philips Settlement") of certain claims, primarily a Federal antitrust claim, made by the Company against Philips, which resulted in an $89,644,257 judgment in favor of the Company. Pursuant to the Philips Settlement, Philips paid the Company $57,000,000 in May 1992. As part of the Philips Settlement, the Company and Philips agreed that the Company's money judgment against Philips in connection with such antitrust litigation would be vacated. Izumi is claiming, among other things, that the Philips Settlement, including the agreement with Philips to cooperate to vacate the related judgment in favor of the Company, constitutes a breach by the Company of a customary indemnification agreement between Izumi (as seller of goods) and the Company (as buyer of goods) dated February 20, 1984. This indemnification agreement covered certain claims against the Company and was entered into more than eight months prior to the commencement of the Philips litigation in connection with the routine purchase by the Company of goods from Izumi. Izumi advanced certain legal fees and costs to the Company in connection with the Philips litigation. Izumi is further claiming that it is entitled to recover from the Company an unspecified portion of the Philips Settlement, punitive damages and reimbursement of litigation and other related costs and expenses. The Company disagrees with Izumi's position and believes that it has meritorious defenses and counterclaims to these claims by Izumi. The Company has filed a pre-answer motion to dismiss Izumi's complaint in full, the final decision on which is pending. The Company intends to defend this action fully and vigorously. In addition, in June 1995, Izumi filed another lawsuit against the Company and Philips. In this second lawsuit, Izumi is seeking equitable relief in the form of reinstatement of the 1990 judgments in the Company's favor against Philips, which were vacated. This complaint was amended to include Sears Roebuck and Company as a co-plaintiff and to seek reinstatement of an unfair competition judgment only. The Company has moved for entry of a summary judgment dismissing the complaint. The Company believes that this second complaint by Izumi has no merit, and it intends to defend it vigorously. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Three Months Ended September 30, 1995 Compared to Three Months Ended September 30, 1994 Net sales were $52.7 million during the third quarter, a 5.7% decrease from the $55.9 million recorded for the same period last year. Manufacturing sales increased by $2.7 million due to increased shipments of kitchen electric appliances. Distribution sales declined by $5.9 million due to the weak U.S. retailing environment. Wal-Mart Stores, Inc., Sally Beauty Company and a kitchen electric appliance distributor accounted for 12.9%, 13.1% and 10.8%, respectively, of the Company's total sales during this year's third quarter. COMPARATIVE SALES RESULTS Three Months Ended September 30, 1995 September 30, 1994 DISTRIBUTION $ 44,274,800 84.0% $ 50,182,900 89.8% MANUFACTURING 8,406,500 16.0 5,702,100 10.2 Total Sales $ 52,681,300 100.0% $ 55,885,000 100.0% The Company's gross margin percentage declined in the current year's third quarter to 23.3% of sales from the 31.4% level achieved during the same period last year primarily due to higher raw materials costs and a greater concentration of manufacturing sales, which carry lower margins. Raw materials prices, which remain higher than the levels a year ago, have eased somewhat in recent months. If this downward trend continues, the Company's manufacturing operations will begin to see improved gross margins once it works through its higher-cost inventories. Selling, general and administrative expenses increased by $.6 million in this year's third quarter, and by 2.1% as a percentage of sales. Higher bad debt expense, primarily from the Caldor Corporation Chapter 11 bankruptcy filing, and increased inventory storage costs were incurred this year. The Company's tax expense is based on the earnings of each of its foreign and domestic operations and it includes such additional U.S. taxes as are applicable to the repatriation of foreign earnings. Offshore earnings generally are taxed at rates lower than in the United States. The average number of common shares and common equivalent shares used in computing per share results was lower in the 1995 third quarter primarily as a result of a lower dilutive effect from unexercised stock options and warrants due to a decline in the quoted market price of the Company's common stock. Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 30, 1994 Net sales were $132.7 million for the nine months ended September 30, 1995, a 2.9% increase from the $129.0 million recorded for the same period last year. Durable's manufacturing sales were $10.2 million higher primarily due to increased shipments of kitchen electric appliances. Distribution sales declined by $6.5 million due to the weak U.S. retailing environment. Wal-Mart Stores, Inc., Sally Beauty Company and a kitchen electric appliance distributor accounted for 12.5%, 10.7% and 11.2%, respectively, of the Company's total sales in 1995. COMPARATIVE SALES RESULTS Nine Months Ended September 30, 1995 September 30, 1994 DISTRIBUTION $107,817,600 81.2% $114,321,500 88.6% MANUFACTURING 24,895,900 18.8 14,717,100 11.4 Total Sales $132,713,500 100.0% $129,038,600 100.0% The Company's gross margin percentage decreased for the nine months ended September 30, 1995 to 24.8% of sales from the 30.1% level in the prior year due to higher raw materials costs and the greater concentration of lower- margin manufacturing sales. Raw materials prices, which remain higher than the levels a year ago, have eased somewhat in recent months. If this downward trend continues, the Company's manufacturing operations will begin to see improved gross margins once it works through its higher-cost inventories. Selling, general and administrative expenses increased by $1.9 million this year, and by .8% as a percentage of sales. Higher bad debt expense, inventory storage costs and shipping charges were incurred this year. In 1994's second quarter, the Company recorded an unusual and non-recurring gain of $7.8 million on the sale of 60,000 square feet of office space in Hong Kong. See Note 4 on page 10. The Company's equity in net earnings (loss) of joint venture was $(.2) million and $.2 million in the first nine months of 1995 and 1994, respectively. Lower gross margins in 1995, due to higher raw materials costs, produced the decline in the joint venture's earnings. The Company's tax expense is based on the earnings of each of its foreign and domestic operations and it includes such additional U.S. taxes as are applicable to the repatriation of foreign earnings. Offshore earnings generally are taxed at rates lower than in the United States. The Company made a provision in its 1995 second quarter of $.4 million, or $.02 per share, as a result of its settlement of a Hong Kong tax audit. See Note 3 on page 9. Liquidity & Capital Resources At September 30, 1995, the Company's current ratio and quick ratio were 6.9 to 1 and 2.9 to 1 and at September 30, 1994, they were 5.1 to 1 and 2.7 to 1, respectively. Working capital at September 30, 1995 and 1994 was $126.1 million and $130.5 million, respectively. Cash and cash equivalents at September 30, 1995 are approximately $7.4 million lower than the December 31, 1994 level. Cash of $6.7 million was generated from lower affiliate receivable balances. The Company utilized approximately $20.8 million of cash during the nine month period for a seasonal buildup of accounts receivable and inventory levels, and the acquisition of fixed assets. Cash dividends of $2.5 million were paid to shareholders in 1995. Payments to suppliers were also accelerated this year to ensure the supply and prompt delivery of raw materials. The Company's foreign subsidiaries (the "subsidiaries") have $6.4 million in trade finance lines of credit, payable on demand, which are secured by the subsidiaries' tangible and intangible property located in Hong Kong and in the People's Republic of China, as well as a Company guarantee. At September 30, 1995, the subsidiaries were utilizing, including letters of credit, approximately $2.3 million of these credit lines. These subsidiaries also have available an additional $5.0 million line of credit which is supported by a domestic standby letter of credit, $2.0 million of which was used as of September 30, 1995. The Company has a $10.0 million ($20.0 million during the period July through December 1995) line of credit from a domestic bank, which is secured by domestic accounts receivable. At September 30, 1995, there were no outstanding borrowings under this credit line. No provisions for U.S. taxes has been made on undistributed earnings of the Company's foreign subsidiaries and joint ventures because management plans to reinvest such earnings in their respective operations or in other foreign operations. Repatriating those earnings or using them in some other manner which would give rise to a U.S. tax liability would reduce after tax earnings and available working capital. The Company believes that its cash on hand and internally generated funds, together with its credit lines, will provide sufficient funding to meet the Company's capital requirements and its operating needs for the foreseeable future. Legal Proceedings In April 1994, Kabushiki Kaisha Izumi Seiki Seisakusho, a Japanese corporation ("Izumi"), filed an action against the Company, David M. Friedson, the President and Chief Executive Officer of the Company, U.S. Philips Corporation, North American Philips Corporation and N.V. Philips Gloellampenfabrieken (together, "Philips"). This action concerns the 1992 settlement (the "Philips Settlement") of certain claims, primarily a Federal antitrust claim, made by the Company against Philips, which resulted in an $89,644,257 judgment in favor of the Company. Pursuant to the Philips Settlement, Philips paid the Company $57,000,000 in May 1992. As part of the Philips Settlement, the Company and Philips agreed that the Company's money judgment against Philips in connection with such antitrust litigation would be vacated. Izumi is claiming, among other things, that the Philips Settlement, including the agreement with Philips to cooperate to vacate the related judgment in favor of the Company, constitutes a breach by the Company of a customary indemnification agreement between Izumi (as seller of goods) and the Company (as buyer of goods) dated February 20, 1984. This indemnification agreement covered certain claims against the Company and was entered into more than eight months prior to the commencement of the Philips litigation in connection with the routine purchase by the Company of goods from Izumi. Izumi advanced certain legal fees and costs to the Company in connection with the Philips litigation. Izumi is further claiming that it is entitled to recover from the Company an unspecified portion of the Philips Settlement, punitive damages and reimbursement of litigation and other related costs and expenses. The Company disagrees with Izumi's position and believes that it has meritorious defenses and counterclaims to these claims by Izumi. The Company has filed a pre-answer motion to dismiss Izumi's complaint in full, the final decision on which is pending. The Company intends to defend this action fully and vigorously. In addition, in June 1995, Izumi filed another lawsuit against the Company and Philips. In this second lawsuit, Izumi is seeking equitable relief in the form of reinstatement of the 1990 judgments in the Company's favor against Philips, which were vacated. This complaint was amended to include Sears Roebuck and Company as a co-plaintiff and to seek reinstatement of an unfair competition judgment only. The Company has moved for entry of a summary judgment dismissing the complaint. The Company believes that this second complaint by Izumi has no merit, and it intends to defend it vigorously. 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, with respect to these actions will not materially affect the financial position of the Company. Manufacturing Operations The Company's products are primarily manufactured by Durable, its wholly- owned Hong Kong subsidiary, in Bao An County, Guandong Province of the People's Republic of China, which is approximately 60 miles northwest of central Hong Kong. The Company has a significant amount of its assets in the People's Republic, primarily consisting of inventory, equipment and molds. Substantially all of the Company's products are manufactured by Durable and unrelated factories in the People's Republic. Approximately 85% to 90% of the Company's products are manufactured by Durable. The supply and cost of these products can be adversely affected, among other reasons, by changes in foreign currency exchange rates, increased import duties, imposition of tariffs, imposition of import quotas, interruptions in sea or air transportation and political or economic changes. From time to time, the Company explores opportunities to diversify its sourcing and/or production of certain products to other low-cost locations or with other third parties or joint venture partners in order to reduce its dependence on production in the People's Republic and/or reduce Durable's dependence on the Company's existing distribution base. However, at the present time, the Company intends to continue its production in the People's Republic. In June 1989, the People's Republic experienced civil disturbances and, although such disturbances have dissipated since that time, there continues to be pressure for political reform. No assurance can be given that civil disturbances will not recur. If it becomes necessary to relocate the Company's manufacturing facilities from the People's Republic as a result of civil disturbances in that country or otherwise, the Company believes the production currently conducted in the People's Republic could be relocated to other Far East locations, including Hong Kong, or other low- cost manufacturing locations, with only temporary disruption and delay in such production and possible short-term operating and capital losses, provided that the Company is able to move substantially all of its manufacturing equipment and other assets currently in the People's Republic to another location. If the Company is unable to remove such assets, due to confiscation, expropriation, nationalization, embargoes or governmental restrictions, it would incur substantial operating and capital losses, including losses resulting from business disruption and delays in production. In addition, as a result of a relocation of its manufacturing equipment and certain other assets, the Company would likely incur relatively higher manufacturing costs. A relocation could also adversely affect the Company's revenues if the demand for the Company's products currently manufactured in the People's Republic decreases due to a disruption in the production and delivery of such products or due to higher prices which might result from increased manufacturing costs. Furthermore, earnings could be adversely affected due to reduced sales and/or the Company's inability to maintain its current margins on the products currently manufactured in the People's Republic. PART II - OTHER INFORMATION Item 1. Legal Proceedings See "Legal Proceedings" in Part I, Item 2 of this report. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) There were no reports on Form 8-K filed for the three months ended September 30, 1995. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WINDMERE CORPORATION (Registrant) November 13, 1995 By: /s/ Harry D. Schulman Executive Vice President - Finance and Administration and Chief Financial Officer (Duly authorized to sign on behalf of the Registrant) November 13, 1995 By: /s/ Burton A. Honig Vice President - Finance (Duly authorized to sign on behalf of the Registrant) EX-27 2
5 9-MOS DEC-31-1995 SEP-30-1995 5,603,600 0 43,185,500 1,299,000 84,933,300 147,548,500 69,836,900 39,099,000 195,458,200 21,403,800 3,055,600 1,678,700 0 0 168,503,700 195,458,200 132,713,500 132,713,500 99,831,400 99,831,400 0 735,100 479,400 3,289,400 978,900 2,112,800 0 0 0 2,112,800 .12 0
-----END PRIVACY-ENHANCED MESSAGE-----