-----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, EF26kve4LoWNUAuJJMMGvumuheW3g/0cG1ap08XILyOemoHJTrjH2CeB5Y2amyBi KrfvPXRi3tHRKhruzntLog== 0000217084-96-000004.txt : 19960816 0000217084-96-000004.hdr.sgml : 19960816 ACCESSION NUMBER: 0000217084-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 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: 96612099 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 JUNE 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File Number 1-10177 WINDMERE-DURABLE HOLDINGS, INC. (Exact name of registrant as specified in its charter) FLORIDA 59-1028301 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 5980 MIAMI LAKES DRIVE, MIAMI LAKES, FLORIDA 33014 (Address of principal executive offices) (Zip Code) (305) 362-2611 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirement for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Number of Shares Outstanding Class on July 30, 1996 Common Stock, $.10 Par Value 17,217,729 WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Statements of Earnings for the Three Months Ended June 30, 1996 and 1995 Consolidated Statements of Earnings for Six Months Ended June 30, 1996 and 1995 Consolidated Balance Sheets as of June 30, 1996, December 31, 1995 and June 30, 1995 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 4. Results of Votes of Security Holders Item 6. Exhibits and Reports on Form 8-K SIGNATURES PART I - FINANCIAL INFORMATION Item 1. Financial Statements WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In Thousands Except Per Share Information) Three Months Ended June 30, 1996 1995 Sales $ 39,503 100.0% $ 42,102 100.0% Cost of Goods Sold 31,154 78.9 33,028 78.4 Gross Profit 8,349 21.1 9,074 21.6 Selling, General and Administrative Expenses 8,717 22.1 8,953 21.3 Operating Profit (Loss) (368) (1.0) 121 .3 Other (Income) Expense Interest Expense 196 .4 186 .5 Interest and Other Income (615) (1.5) (960) (2.3) (419) (1.1) (774) (1.8) Earnings Before Equity in Net Earnings (Loss) of Joint Ventures and Income Taxes 51 .1 895 2.1 Equity in Net Earnings (Loss) of Joint Ventures (526) (1.3) 146 .3 Earnings (Loss) Before Income Taxes (475) (1.2) 1,041 2.4 Income Taxes Current (95) (.2) 177 .4 Deferred 62 .1 (72) (.2) (33) (.1) 105 .2 Net Earnings (Loss) $ (442) (1.1%) $ 936 2.2% Earnings (Loss) Per Common and Common Equivalent Shares $(.03) $.05 Average Number of Common and Common Equivalent Shares Outstanding 16,405 17,426 Dividends per Common Share $.05 $.05
The accompanying notes are an integral part of these statements. WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In Thousands Except Per Share Information) Six Months Ended June 30, 1996 1995 Sales $ 79,943 100.0% $ 80,032 100.0% Cost of Goods Sold 62,991 78.8 61,823 77.2 Gross Profit 16,952 21.2 18,209 22.8 Selling, General and Administrative Expense 16,766 21.0 17,974 22.5 Operating Profit 186 .2 235 .3 Other (Income) Expense Interest Expense 329 .4 316 .4 Interest and Other Income (1,090) (1.4) (1,554) (1.9) (761) (1.0) (1,238) (1.5) Earnings Before Equity in Net Earnings of Joint Ventures and Income Taxes 947 1.2 1,473 1.8 Equity in Net Earnings (Loss) of Joint Ventures (751) .9 131 .2 Earnings Before Income Taxes 196 .3 1,604 2.0 Income Taxes Current (193) (.2) 860 1.0 Deferred 535 .7 (497) ( .6) 342 .5 363 .4 Net Earnings (Loss) $ (146) (.2%) $1,241 1.6% Earnings (Loss) Per Common and Common Equivalent Shares $ (.01) $.07 Average Number of Common and Common Equivalent Shares Outstanding 17,014 17,430 Dividends Per Common Share $.10 $.10
The accompanying notes are an integral part of these statements. WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (In Thousands) ASSETS 6/30/96 12/31/95 6/30/95 CURRENT ASSETS Cash & Cash Equivalents $ 5,499 $ 17,768 $ 6,904 Accounts Receivable, less allowances of $1,148, $1,158 and $1,385, respectively 34,991 36,597 31,288 Receivables from Affiliates (Notes 2 and 4) 10,114 9,983 10,288 Inventories Raw Materials 16,290 16,328 24,986 Work-in-process 21,073 21,085 16,434 Finished Goods 46,128 41,600 46,059 Total Inventories 83,491 79,013 87,479 Prepaid Expenses 4,718 2,184 7,743 Future Income Tax Benefits 1,210 1,643 2,144 Total Current Assets 140,023 147,188 145,846 INVESTMENTS IN AFFILIATES (Notes 2 and 4) 10,631 PROPERTY, PLANT & EQUIPMENT - AT COST, less accumulated depreciation of $43,436, $40,427 and $37,686, respectively 31,109 30,485 29,488 OTHER ASSETS 12,716 10,339 17,364 TOTAL ASSETS $ 194,479 $ 188,012 $ 192,698
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (In Thousands) Continued LIABILITIES 6/30/96 12/31/95 6/30/95 CURRENT LIABILITIES Notes and Acceptances Payable $ 7,558 $ 42 $ 2,207 Current Maturities of Long-Term Debt 815 815 815 Accounts Payable and Accrued Expenses 15,265 18,108 14,815 Deferred Income, current portion 598 598 598 Total Current Liabilities 24,236 19,563 18,434 LONG-TERM DEBT (Note 4) 9,444 2,852 3,259 DEFERRED INCOME, less current portion 368 667 966 STOCKHOLDERS' EQUITY (Note 3) Special Preferred Stock - authorized 40,000,000 shares of $.01 par value; none issued Common Stock - authorized 40,000,000 shares of $.10 par value; shares issued and out- standing: 16,422, 16,713 and 16,756, respectively 1,642 1,671 1,676 Paid-in Capital 27,549 30,173 30,511 Retained Earnings 132,066 133,851 138,655 Unrealized Foreign Currency Translation Adjustment (826) (765) (803) Total Stockholders' Equity 160,431 164,930 170,039 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $194,479 $188,012 $192,698
The accompanying notes are an integral part of these statements. WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands) Six Months Ended June 30, 1996 1995 Cash flows from operating activities: Net earnings (loss) $ (146) $ 1,241 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation of property, plant and equipment 3,240 2,854 Amortization of intangible assets 315 288 Amortization of deferred income (299) (299) Net change in allowance for losses on accounts receivable (10) 47 Equity in net (earnings) loss of joint ventures 751 (131) Changes in assets and liabilities: Decrease in accounts receivable 1,570 7,398 Increase in inventories (3,748) (13,201) (Increase) decrease in prepaid expenses (1,715) 278 (Increase) decrease in other assets (820) 174 Decrease in accounts payable and accrued expenses (2,843) (2,287) Decrease in future income tax benefits 433 2,573 Decrease in other accounts (54) (17) Net cash used in operating activities (3,326) (4,761) Cash flows from investing activities: Proceeds from fixed asset sales 182 Additions to property, plant and equipment - net (3,865) (4,075) Decrease in short-term investments 2,500 Purchase of assets - Litter Maid (2,200) Purchase of assets - Bay Books & Tapes (1,180) Investments in joint ventures (3,698) Decrease (increase) in accounts and notes receivables from affiliates (815) 2,287 Net cash provided by (used in) investing activities $ (11,758) $ 894
WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands) Continued Six Months Ended June 30, 1996 1995 Cash flows from financing activities: Net borrowings under lines of credit $ 7,516 $ Payments of long-term debt (408) (408) Exercise of stock options and warrants 1,115 265 Cash dividends paid (1,640) (1,675) Purchases of common stock (3,768) (400) Net cash provided by (used in) financing activities 2,815 (2,218) Decrease in cash and cash equivalents (12,269) (6,085) Cash and cash equivalents at beginning of year 17,768 12,988 Cash and cash equivalents at end of quarter $ 5,499 $ 6,904 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for: Interest $ 199 $ 238 Income taxes $ 250 $ 2,071
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: The Company purchased a 50-percent interest in the New M-Tech group of companies in exchange for $3 million in cash and $7 million in long term promissory notes. The accompanying notes are an integral part of these statements. WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF ACCOUNTING POLICIES Interim Reporting In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all normal recurring adjustments necessary to present fairly the Company's financial position as of June 30, 1996 and 1995, and the results of its operations and changes in financial position for the interim periods. Results for interim periods should not be considered indicative of results for a full year. Reference should be made to the financial statements contained in the registrant's Annual Report on Form 10-K for the year ended December 31, 1995. Reclassifications Certain prior period amounts have been reclassified for comparability. 2. INVESTMENTS IN AFFILIATES Investments in affiliates consist of the Company's interests in joint ventures, accounted for under the equity method. Included are the Company's 50-percent interests in the New M-Tech group of companies, Paragon Industries, PX Distributors, Inc., Breakroom of Tennessee, Inc. and Anasazi Partners, L.P. (See Note 4). Summarized financial information of the unconsolidated companies is as follows: Six Six Months Ended Year Ended Months Ended 6/30/96 12/31/95 6/30/95 Earnings Sales $23,295 $30,172 $12,093 Gross Profit $ 1,462 $ 2,346 $ 1,082 Net Earnings (Loss) $(1,502) $ 785 $ (29) Balance Sheet Current Assets $13,657 Noncurrent Assets $ 5,830 Current Liabilities $12,409 Shareholders' Equity $ 7,078
Certain joint venture investments had deficits of $1.6 million, $.8 million and $.2 million, at June 30, 1996, December 31, 1995 and June 30, 1995, respectively. Such deficits have been classified as reductions in Receivables from Affiliates. During the six month period ended June 30, 1996, the Company loaned $4.1 million which includes $3.2 million to Salton, and provided standby letters of credit in the amount of $1.1 million for certain of its affiliates. Loans are included in Receivables from Affiliates. Note: Profits earned by the Company's manufacturing subsidiary on sales to joint ventures are included in the consolidated earnings results and are not part of the above table. 3. STOCKHOLDERS' EQUITY Dividends The Board of Directors of the Company declared a regular quarterly cash dividend of $.05 per share to shareholders of record at the close of business on June 3, 1996, which was paid on June 17, 1996. 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. Stock Purchase In June 1996, the Company completed its purchase of one million shares of its common stock under the 1994 stock purchase program at a total cost of $8.7 million. The Company's Board of Directors subsequently authorized a new stock purchase program, whereby, the Company can purchase up to 10-percent of its own outstanding common shares (approximately 1.6 million shares). No shares have been purchased under the new program. 4. ACQUISITIONS PX Distributors, Inc.("PX") In December 1995, the Company purchased, for a nominal amount, a 50-percent interest in PX Distributors, Inc., a distributor of home automation/security devices. The Company and the other owners have agreed to lend PX certain amounts from time to time to meet working capital requirements. As of June 30, 1996, the Company loaned $350,000 to PX. Such loan bears interest at the prime rate and is payable upon PX achieving sufficient cash flow. The Company has also provided $1.1 million in financing for PX in the form of stand by letters of credit. Salton/Maxim Housewares, Inc. ("Salton") In February 1996, the Company entered into a stock purchase agreement with Salton providing for the issuance and sale by Salton to the Company of 6,508,572 shares of its common stock, representing 50-percent of Salton's outstanding common stock after issuance. In April 1996, the Company made a $3,254,286 loan to Salton bearing interest at 8-percent to be repaid upon closing of the stock purchase transaction. On July 11, 1996, Windmere completed its acquisition of 50-percent of Salton. The Company received 6,508,572 shares of Salton common stock (market value at date of acquisition of approximately $36.2 million) in exchange for a cash payment of $3,254,256, evidenced by the cancellation of the April 1996 note, a $10,847,620 promissory note and 748,112 shares of Windmere stock (market value at date of agreement of approximately $7.5 million). In addition, the Company received an option to purchase 453,000 shares of Salton common stock at an exercise price of $4.53 per share. The option becomes exercisable only if and to the extent that options to purchase shares of Salton common stock outstanding at the date of the stock purchase agreement are exercised. The $10,847,620 promissory note bears interest at a rate of 8-percent per annum, payable quarterly, and is due in July 2001. The note is subordinated to the Company's current and future indebtedness with its senior lender. Litter Maid In March 1996, the Company purchased, for $2.2 million in cash, certain assets and marketing rights for the Litter Maid, computerized, infrared, automatic self-cleaning cat litter box. New M-Tech Corporation and affiliates ("New M-Tech") In April 1996, the Company acquired a 50-percent interest in New M-Tech, a group of consumer electronics companies for $10 million. Payment consisted of $3 million in cash and $7 million in promissory notes. The promissory notes bear interest at 8% per annum and consist of a $3 million promissory note maturing in 1998, and two $2 million promissory notes maturing in 2001, one of which is convertible into shares of the Company's common stock at a price of $15 per share. Conversion may occur at any time during the term of the convertible promissory note, and may be required under certain circumstances. Breakroom of Tennessee, Inc. In May 1996, the Company agreed to contribute and/or purchase inventory valued at $250,000 in exchange for a 50-percent interest in Breakroom of Tennessee, Inc., a joint venture formed to market and distribute office products. The Company's investment as of June 30, 1996 consists of $86,000 in inventory purchased on behalf of the joint venture. Bay Books & Tapes, Inc. In June 1996, the Company acquired the assets of the books and video publishing division of KQED, Inc., consisting mostly of inventory, for $1.2 million in cash. Bay Books & Tapes, Inc. publishes public television companion books and videos. Anasazi Partners, L.P. In June 1996, the Company entered into an agreement to acquire a 50-percent interest in an investment partnership for $1 million. Payments as of June 30, 1996 include a $500,000 capital contribution to the partnership and a $500,000 loan to the partnership's other equity partner. Such loan bears interest at a rate of 8-percent per annum and is payable upon demand. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995 Net sales for the second quarter of 1996 decreased by $2.6 million or 6.2% from the sales for the second quarter of 1995. Manufacturing sales decreased by $1.4 million as the net result of a $3.0 million decrease in seasonal product sales and a $1.6 million increase in sales of kitchen electric appliances. The decrease in distribution sales of $1.2 million is attributable to the continuing effect of the weak retail environment. COMPARATIVE SALES RESULTS Three Months Ended June 30, 1996 June 30, 1995 DISTRIBUTION $ 30,879,900 78.2% $32,044,400 76.2% MANUFACTURING 8,623,000 21.8 10,007,700 23.8 Total Sales $ 39,502,900 100.0% $42,102,100 100.0%
The decrease in selling, general and administrative expenses primarily reflects the continuing reduction in advertising costs. The Company's equity in the net earnings (losses) of joint ventures was $(526,000) and $146,000 in the second quarter of 1996 and 1995, respectively. Lower gross margins in 1996, due to higher raw materials costs, contributed to the decline in a joint venture's earnings. Losses of $129,000 were incurred by other joint ventures in their start-up phases, also contributing to the 1996 results. The Company's tax expense is based on the earnings of each of its foreign and domestic operations and it includes such additional U.S. taxes as are applicable to the repatriation of foreign earnings. Foreign earnings, other than in Canada, are generally taxed at rates lower than in the United States. Results of Operations Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995 Net sales of $79.9 million are consistent with sales recorded for the same period last year. The $.5 million increase in manufacturing sales is the result of a $1.6 million decrease in seasonal product sales and a $2.1 million increase in kitchen electric appliances. COMPARATIVE SALES RESULTS Six Months Ended June 30, 1996 June 30, 1995 DISTRIBUTION $ 62,971,800 78.8% $ 63,542,800 79.4% MANUFACTURING 16,971,500 21.2 16,489,400 20.6 Total Sales $ 79,943,300 100.0% $ 80,032,200 100.0%
The gross profit percentage for the six months ended June 30, 1996 was 21.2% as compared to 22.8% for the same period of 1995 due to higher manufacturing costs, primarily raw materials, for a greater portion of the 1996 period. Selling, general and administrative expenses decreased by $1.2 million in the first six months ended June 30, 1996, and by 1.5% as a percentage of sales. These changes primarily reflect a continuing reduction in advertising costs. The Company's equity in the net earnings (losses) of joint ventures was $(751,000) and $131,000 in the first six months of 1996 and 1995, respectively. Lower gross margins in 1996, due to higher raw materials costs, contributed to the decline in a joint venture's earnings. Losses of $219,000 incurred by other joint ventures in their start-up phases, also contributed to the 1996 results. The Company's tax expense is based on the earnings of each of its foreign and domestic operations and it includes such additional U.S. taxes as are applicable to the repatriation of foreign earnings. Foreign earnings other than in Canada, are generally taxed at rates lower than in the United States. Liquidity & Capital Resources At June 30, 1996, the Company's current ratio and quick ratio were 5.8 to 1 and 2.3 to 1 as compared to 7.9 to 1 and 3.2 to 1 at June 30, 1995. Working capital at those dates was $115.8 million and $127.4 million, respectively. Cash balances decreased by $12.3 million during the six months ended June 30, 1996. Certain of the Company's foreign subsidiaries (the "subsidiaries") have $6.4 million in trade finance lines of credit, payable on demand, which are secured by the subsidiaries' tangible and intangible property located in Hong Kong and in the People's Republic of China, as well as a Company guarantee. At June 30, 1996, the subsidiaries were utilizing, including letters of credit, approximately $1.5 million of these credit lines. These subsidiaries also have available a $5.0 million revolving line of credit which is supported by a domestic standby letter of credit. As of June 30, 1996, the Company has borrowed $4.8 million under this facility. The Company has a $20.0 million line of credit from a domestic bank, secured by domestic accounts receivable, which is currently being renewed. At June 30, 1996, outstanding borrowings under this line totalled $2 million. In July 1996, the Company borrowed an additional $4.5 million under the credit line. The Company has entered into the following investing transactions in 1996: Salton/Maxim Housewares, Inc. ("Salton") In February 1996, the Company entered into a stock purchase agreement with Salton providing for the issuance and sale by Salton to the Company of 6,508,572 shares of its common stock, representing 50-percent of Salton's outstanding common stock after issuance. In April 1996, the Company made a $3,254,286 loan to Salton bearing interest at 8-percent to be repaid upon closing of the stock purchase transaction On July 11, 1996, Windmere completed its acquisition of 50-percent of Salton. The Company received 6,508,572 shares of Salton common stock (market value at date of acquisition of approximately $36.2 million) in exchange for a cash payment of $3,254,256, evidenced by the cancellation of the April 1996 note, a $10,847,620 promissory note and 748,112 shares of Windmere stock (market value at date of agreement of approximately $7.5 million). In addition, the Company received an option to purchase 453,000 shares of Salton common stock at an exercise price of $4.53 per share. The option becomes exercisable only if and to the extent that options to purchase shares of Salton common stock outstanding at the date of the stock purchase agreement are exercised. The $10,847,620 promissory note bears interest at a rate of 8-percent per annum, payable quarterly, and is due July 2001. The note is subordinated to the Company's current and future indebtedness with its senior lender. Litter Maid In March 1996, the Company purchased, for $2.2 million in cash, certain assets and marketing rights for the Litter Maid, computerized, infrared, automatic self-cleaning cat litter box. New M-Tech Corporation and affiliates ("New M-Tech") In April 1996, the Company acquired a 50-percent interest in New M-Tech, a consumer electronics company for $10 million. Payment consisted of $3 million in cash and $7 million in promissory notes. The promissory notes bear interest at 8% per annum and consist of a $3 million promissory note maturing in 1998, and two $2 million promissory notes maturing in 2001, one of which is convertible into shares of the Company's common stock at a price of $15 per share. Conversion may occur at any time during the term of the convertible promissory note, and may be required under certain circumstances. Breakroom of Tennessee, Inc. In May 1996, the Company agreed to contribute and/or purchase inventory valued at $250,000 in exchange for a 50-percent interest in Breakroom of Tennessee, Inc., a joint venture formed to market and distribute office products. The Company's investment as of June 30, 1996 consists of $86,000 in inventory purchased on behalf of the joint venture. Bay Books & Tapes, Inc. In June 1996, the Company acquired the assets of the books and video publishing division of KQED, Inc., consisting mostly of inventory, for $1.2 million in cash. Bay Books & Tapes, Inc. publishes public television companion books and videos. Anasazi Partners, L.P. In June 1996, the Company entered into an agreement to acquire a 50-percent interest in an investment partnership for $1 million. Payments as of June 30, 1996 include a $500,000 capital contribution to the partnership and a $500,000 loan to the partnership's other equity partner. Such loan bears interest at a rate of 8-percent per annum and is payable upon demand. 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. Manufacturing Operations Substantially all of the Company's products (85% - 90%) are manufactured by Durable, its wholly-owned Hong Kong subsidiary, in Bao An County, Guandong Province of the People's Republic of China (PRC), which is approximately 60 miles northwest of central Hong Kong. The Company has a significant amount of its assets in the People's Republic, primarily consisting of inventory, equipment and molds. The supply and cost of products manufactured in the PRC can be adversely affected, among other reasons, by changes in foreign currency exchange rates, increased import duties, imposition of tariffs, imposition of import quotas, interruptions in sea or air transportation and political or economic changes. Presently products imported into the U.S. from the PRC are subject to favorable duty rates based on the "Most Favored Nation" status of the PRC ("MFN Status"). MFN Status is reviewed on an annual basis by the President and Congress and was renewed in July 1996. If MFN status for goods produced in the People's Republic were removed, there would be a substantial increase in tariffs imposed on goods of Chinese origin entering the United States, including those manufactured by the Company, which could have a material adverse impact on the Company's revenues and earnings. From time to time, the Company explores opportunities to diversify its sourcing and/or production of certain products to other low-cost locations or with other third parties or joint venture partners in order to reduce its dependence on production in the People's Republic and/or reduce Durable's dependence on the Company's existing distribution base. However, at the present time, the Company intends to continue its production in the People's Republic. PART II - OTHER INFORMATION Item 1. 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. A pre-answer motion by the Company has resulted in the dismissal of some of Izumi's claims, and the Company has answered the remaining claims. The Company intends to defend this action fully and 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, in excess of applicable insurance coverage, is not likely to have a material effect on the financial position of the Company. Item 4. Results of Votes of Security Holders At the Annual Meeting of Stockholders, held on June 13, 1996, the following matters were submitted to a vote of the Company's security holders: Election of Directors: Votes David M. Friedson For Against Withheld Abstain 14,739,033 661,924 Jerald I. Rosen For Against Withheld Abstain 14,742,258 658,699 Bert Sager For Against Withheld Abstain 14,736,425 664,532 Desmond Lai For Against Withheld Abstain 14,741,002 659,955 Approval of corporate name change to Windmere-Durable Holdings, Inc.: Votes For Against Withheld Abstain 15,259,852 118,085 33,020 Shareholder proposal requesting that the Board of Directors appoint an independent committee to engage the services of a nationally recognized investment banking firm to explore methods by which the Company may enhance shareholder value: Votes For Against Withheld Abstain 1,382,897 10,788,272 113,127 3,126,661 Ratification of Grant Thornton as the Company's auditors for the fiscal year ended December 31, 1996: Votes For Against Withheld Abstain 15,365,322 26,652 18,983 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Filed report on Form 8-K on July 25, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WINDMERE-DURABLE HOLDINGS, INC. (Registrant) August 14 , 1996 By: /s/Harry D. Schulman Harry D. Schulman Senior Vice President and Executive Vice President - Finance and Administration and Chief Financial Officer (Duly authorized to sign on behalf of the Registrant) August 14 , 1996 By: /s/Burton A. Honig Burton A. Honig Vice President - Finance (Duly authorized to sign on behalf of the Registrant) EX-27 2
5 1000 6-MOS DEC-31-1996 JUN-30-1996 5,499 0 36,139 1,148 83,491 140,023 74,545 43,436 194,479 24,236 3,259 0 0 1,642 158,789 194,479 79,943 79,943 62,991 62,991 16,766 0 329 196 342 (146) 0 0 0 (146) (.01) 0
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