-----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, Bij49Ys8hcTy2LjhTOEbwLshVIT4c12nj+NZPjjuVH8MLAde+j1xPFVT2WhIPBB0 aOQ89xsrog4t1Jm5H663Ww== 0000950144-97-003549.txt : 19970401 0000950144-97-003549.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950144-97-003549 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WINDMERE DURABLE HOLDINGS INC 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10177 FILM NUMBER: 97570847 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: WINDMERE CORP DATE OF NAME CHANGE: 19920703 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-K 1 WINDMERE-DURABLE HOLDINGS, INC. 10-K 12/31/96 1 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, 1996 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 1 2 for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 24, 1997, the aggregate market value of the voting stock (based on the closing price as reported by NYSE of $14.375) held by non-affiliates of the Registrant was approximately $213,387,800. 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. 17,475,038 Shares of Common Stock (as of the close of business on March 24, 1997) DOCUMENTS INCORPORATED BY REFERENCE 1. Windmere-Durable Holdings, Inc. 1996 Annual Report to Shareholders (for the fiscal year ended December 31, 1996). Information contained in this document has been incorporated by reference in PARTS I and II. 2. Windmere-Durable Holdings, Inc. Proxy Statement for its 1997 Annual Meeting of Shareholders (dated April 18, 1997). Information contained in this document has been incorporated by reference in PART III. 2 3 PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL Windmere-Durable Holdings, Inc. (the "Company") is engaged principally in manufacturing and distributing a wide variety of personal care, kitchen electric and seasonal products. The Company designs and manufactures its products for sale to retail stores, distributors and professional beauty supply customers located primarily in the United States, Canada and Europe, with additional distribution in Latin America and the Far East. The Company's products are sold largely under its Windmere trade name, as well as under other trade names, trademarks and private labels. The Company also manufactures products on a contract basis for others. The Company's products are primarily manufactured by Durable Electrical Metal Factory, Ltd. ("Durable"), its wholly-owned Hong Kong subsidiary, in Bao An County, Guandong Province of the People's Republic of China ("People's Republic"), which is approximately 60 miles northwest of central Hong Kong, and other unrelated factories in the People's Republic. Approximately 85% to 90% of the Company's products are manufactured by Durable. NEW DEVELOPMENTS During the year ended December 31, 1996, the Company made several acquisitions: In March 1996, the Company acquired certain assets and marketing rights, including patents and the trademark, to the LitterMaid computerized, infrared, automatic self-cleaning cat litter box. In April 1996, the Company purchased a 50-percent interest in New M-Tech Corporation,( "New M-Tech") a manufacturer and distributor of consumer electronic products. New M-Tech distributes consumer electronic products under the Admiral, NewTech and White Westinghouse brand names. In July 1996, the Company acquired a 50-percent interest in Salton/Maxim Housewares, Inc. ("Salton"). Salton designs and markets a broad range of small kitchen appliances and personal care appliances under the Salton, Maxim, Breadman, Juiceman, Salton Creations, Block China, 3 4 Farberware, Salton Time and White Westinghouse brand names. Salton sells its products primarily to department store chains, gourmet and lifestyle merchants, specialty stores and direct mail catalogs. In December 1996, the Company acquired the remaining 50-percent of its seasonal products joint venture. The Company was incorporated under the laws of the State of Florida in 1963. As used herein, the term "Company" refers to Windmere-Durable Holdings, Inc. (Prior to June 21, 1996, Windmere Corporation) and its subsidiaries, unless the context indicates otherwise. The Company's executive offices are located at 5980 Miami Lakes Drive, Miami Lakes, Florida 33014, (see Item 2. Properties), and its telephone number is (305) 362-2611. PRODUCTS The major portion of the Company'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. In 1996, 1995 and 1994, net sales of personal care products and appliances represented approximately 59% and 41%, 63% and 37%, and 70% and 30%, respectively, of the Company's total net sales. The increase in the percentage of appliance sales reflects the Company's growth in both the manufacture and distribution of kitchen electrics. Kitchen electric products comprised 31%, 25% and 7% of total sales in 1996, 1995 and 1994, respectively. MARKETING AND DISTRIBUTION The Company's products are sold principally by independent sales representatives. The Company utilizes media advertising, cooperative advertising and collateral materials to promote its products. The Company's distribution business includes the sale of consumer products and professional salon products primarily in the United States, Canada and Europe. Consumer products are primarily sold under the Windmere brand and professional salon products are sold under the Belson 4 5 Products and Comare brands. In addition, private label and controlled label sales are made by the Company. A kitchen electric appliance distributor and a national retail beauty supply chain accounted for 10.9% and 10.3%, respectively, of 1996 sales. The Company's products are sold under various federal trademarks and registrations, some of which include: Windmere, Jumbo Curl, Belson Pro, Curlmaster, Design Pro, First Class Gourmet, Solid Gold, Windmere Salon, Air Moves, 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, Plak Trac, Litter Maid, Smoke Catcher, Prelude, High Fashion, Belson, Pro Touch, Pro Star, Hot Silver, Golden Touch, Profiles, Comare, Salon Designs, Premiere, Espree, Gold'n Hot, Color Magic, Colossal Curl, Jumbo Air, Express Air, Euro Sport, Magnum, Superaire, Healthy Vibes, Health Zone and Gentle Air. The Company believes that its business has not been materially dependent on any one such trademark. In the United States, the Company 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, hair pieces and a wide variety of brushes and other hair care accessories to beauticians, barbers and stylists through distributors. In addition, certain items, including the Company's hair dryers, curling irons and other personal care appliances, are sold through professional beauty and barber retail store outlets. In 1996, the Company acquired the exclusive world-wide rights to use the Farberware brand name on a broad range of small electric products. The Company has entered into an agreement with Salton, whereby, Salton is to be the exclusive distributor of such products. In January 1997, the Company through its 50-percent interests in Salton and New M-Tech 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 New M-Tech. Under the terms of the contract, Salton and New M-Tech will supply Kmart, either through the Company or through other manufacturers, with a broad range of small electrical appliances, consumer electronics and telephone products under the White-Westinghouse brand name. Kmart will be the exclusive discount department store to market these White-Westinghouse products. 5 6 MANUFACTURING: The Company's manufacturing business is conducted by Durable. 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 and oscillating fans for a joint venture which was acquired by the Company in December 1996, 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 Rival, Salton and Sunbeam. Durable has begun to manufacture a number of the White-Westinghouse products to be supplied by Salton to Kmart under the recently signed supplier contract. It is also involved in the construction of a factory to begin to supply some of the consumer electronic products to be sold by New M-Tech. The LitterMaid product is currently being manufactured by both Durable and a third party contract manufacturer. Production of the product by Durable is expected to increase in 1997. SUPPLIES The Company's foreign sales and operations are subject to the usual risks incident to operating abroad, including currency fluctuations, political conditions and changes in foreign laws. A weakening or strengthening of the United States dollar may result in higher or lower cost of goods for the Company from suppliers in countries whose exchange rate does not parallel the United States dollar, unlike Hong Kong the currency of which to date has fluctuated substantially parallel to the United States dollar. The Company generates approximately 85% to 90% of its revenues from products manufactured by Durable in the People's Republic. Such products utilize raw materials available from at least two and as many as nine or more independent suppliers. The Company has no material dependence on any single foreign source for such materials. 6 7 FOREIGN CONDITIONS The supply and cost of the products manufactured by Durable can be adversely affected, among other reasons, by changes in foreign currency exchange rates, increased import duties, imposition of tariffs, imposition of import quotas, interruptions in sea or air transportation and political or economic changes. The Company has a significant amount of its assets in the People's Republic, primarily consisting of inventory, equipment and molds. 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. Although such disturbances have dissipated since that time, there continues to be pressure for political reform. No assurance can be given, however, 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. 7 8 Hong Kong is undergoing a transfer to the control of the People's Republic and in July 1997, the initial transfer of governmental rights is scheduled to occur. 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. Although the Company believes that its operations will not be materially affected by the governmental changes occurring in Hong Kong, no assurance can be given that such changes will be benign. In 1996, President Clinton extended the People's Republic's most-favored-nation (MFN) trading status for an additional year. The President announced in 1994 that the United States would, in the future, permanently de-link MFN renewal from human rights issues, other than freedom of emigration provisions. Under U.S. law, MFN status means that products are subject to the relatively low duty rates set forth in Column 1 of the Harmonized Tariff Schedules of the United States (HTSUS), that have resulted from several rounds of reciprocal tariff negotiations conducted under the auspices of the General Agreement on Tariffs and Trade (GATT) since 1945. Products from countries not eligible for MFN treatment are subject to much higher rates of duty, averaging 30 percent ad valorem, as set forth in Column 2 of the HTSUS. 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. SEASONALITY The Company's business is generally seasonal. 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 the Company's products in the late summer for "back to school" sales and in the fall for Christmas sales. In typical years, the Company begins to accumulate inventory for its major selling season in June and July and it continues to purchase products at accelerated rates until November. The Company's major sales occur during August through November. Sales are generally made on 60 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. The seasonal patterns of Salton and New M-Tech are similar to those of the Company. 8 9 BACKLOG The Company's backlog of orders as of December 31, 1996, 1995 and 1994 was approximately $32.1 million, $22.2 million and $20.1 million, respectively, which orders are generally shipped within the next succeeding year. COMPETITION The Company encounters significant competition with respect to substantially all of its products. Although the Company's prices for products distributed under its labels are in general below or competitive with those of many nationally advertised brands, the Company also competes through quality of product, attractive packaging, breadth of product lines, speed of delivery and maintenance of good customer relations. Many of the Company's major competitors are substantially larger, have greater financial and other resources and spend more for national advertising. Some of the Company's competitors include Conair, Helen of Troy and Remington. REGULATION In the United States, Canada and Europe, most federal, state, provincial and local authorities require Underwriters Laboratory, Inc. ("UL") or other safety regulation certification prior to marketing electrical appliances in those jurisdictions. All of the non-professional salon appliances marketed by the Company have such certifications. The Company endeavors to have most of its products designed to meet those requirements and to be so certified, although there can be no assurance that those 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 subject to the cosmetic purity and labelling provisions of the Fair Packaging and Labelling Act. The Company believes that in addition to complying with the Fair Packaging and Labelling Act, it complies with the applicable rules and regulations of the Federal Trade Commission and other federal and state agencies with respect to, among other things, the content of advertising and other trade practices. PATENTS Although the Company does not believe that its business is materially dependent upon patents and patent protection, from time to time, new 9 10 products have been introduced with unique features for which the Company has filed or obtained licenses for patents and design registrations in the United States and in several foreign countries. EMPLOYEES At March 14, 1997, the Company's distribution business in the United States, Canada, Europe and Hong Kong employed approximately 250 persons. Durable's operations in Hong Kong and the People's Republic of China employed approximately 12,300 persons. The Company enjoys satisfactory working relations with these employees. The Company is not a party to any collective bargaining agreement. GEOGRAPHIC AREA FINANCIAL INFORMATION Incorporated by reference to the Company's 1996 Annual Report to Shareholders, under the caption, "Note N to Consolidated Financial Statements, Geographic Area Information". Included as part of Exhibit 13. ITEM 2. PROPERTIES The executive offices of the Company, from which a significant amount of its business activities are conducted, are currently located at 5980 Miami Lakes Drive, Miami Lakes, Florida. All of the space in this approximately 140,000 sq. ft., two-story office and warehouse facility is owned and occupied by the Company. The Company also utilizes the services of public warehouses located in Reno, Nevada and Memphis, Tennessee pursuant to short-term contracts. Durable owns approximately 40,000 sq. ft. of office space in Hong Kong, of which 24,000 sq. ft. is used for its and the Company's trading companies' headquarters. Durable also utilizes facilities of 2,000,000 sq. ft. in the People's Republic which it operates under contracts with the local government. The contracts require such periodic adjustments that terms of between one and five years exist at all times. Certain facilities have contract terms extending beyond five years. ITEM 3. 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. 10 11 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. A pre-answer motion by the Company resulted in the dismissal of some of Izumi's claims, and the Company answered the remaining claims. A mediation was held on February 27, 1997 to consider settlement of the case. In March 1997, after evaluating the potential costs of continuing litigation, the Company paid $4,500,000 to settle the dispute. The Company, its 50-percent owned joint venture partners Salton/Maxim Housewares, Inc. and New M-Tech Corporation, White Consolidated Industries, Inc. ("White Consolidated"), and certain other parties have been named as defendants in litigation filed by Westinghouse Electric Corporation ("Westinghouse") in the United States District Court for the Western District in Pennsylvania on December 18, 1996. The action arises from a dispute between Westinghouse and White Consolidated over rights to use the "Westinghouse" trademark for consumer products based on transactions between Westinghouse and White Consolidated in the 1970's and the parties' subsequent conduct. Prior to the filing of Westinghouse's Complaint against the Company, White Consolidated, on November 14, 1996, filed a Complaint in the United States District Court for the Northern District of Ohio against Westinghouse and another corporation for trademark infringement, dilution, false designation or origin and false advertisement, seeking both injunctive relief and damages. Procedural motions concerning the jurisdiction in which the dispute should be heard have 11 12 been filed by the parties. The action by Westinghouse seeks, among other things, a preliminary injunction enjoining the defendants from using the trademark, un-specified damages and attorneys' fees. Pursuant to the Indemnification Agreement dated January 23, 1997 by and among White Consolidated, Kmart Corporation, and the Company, White Consolidated is defending and indemnifying the Company for all costs and expenses for claims, damages, and losses, including the costs of litigation. Pursuant to the license agreements with White Consolidated, White Consolidated is defending and indemnifying Salton/Maxim and New M-Tech for all costs and expenses for claims, damages, and losses, including the costs of litigation. On January 29, 1997, on joint motion of the parties, the court issued an order staying future proceedings for sixty (60) days in order to give the parties an opportunity to pursue settlement discussions. 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. 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 Incorporated by reference to the Company's 1996 Annual Report to Shareholders under the caption "Quarterly Stock Quotations and Dividends per Share." (Exhibit 13) 12 13 ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)
1996 1995 1994 ---- ---- ---- Net sales $ 197,004 $ 187,777 $ 181,112 Equity in net earnings (loss) of joint ventures $ 2,299 $ (393) $ 91 Earnings (loss) before taxes, minority interest and extraordinary item $ (3,672) $ (3,165) $ 23,131 Provision for taxes (benefits) $ (280) $ (1,281) $ 2,595 Effective tax rate (7.6)% (40.5)% 11.2% Net earnings (loss) $ 451* $ (1,884)** $ 20,537*** Working capital $ 105,565 $ 127,626 $ 129,281 Current ratio 3.1 to 1 7.5 to 1 7.0 to 1 Property, plant and equipment, net $ 32,760 $ 30,485 $ 28,449 Total assets $ 237,279 $ 188,012 $ 197,124 Long-term debt, deferred liabilities and minority interest $ 20,132 $ 3,519 $ 4,932 Stockholders' equity $ 167,695 $ 164,931 $ 170,625 Per share data: Net earnings (loss) $ .02* $ (.11)** $ 1.17*** Cash dividends paid $ .20 $ .20 $ .15 Book value at year end $ 9.61 $ 9.87 $ 10.20 Return on average equity 2.4% -- 12.9%
*Includes extraordinary charge for the settlement of Izumi litigation of $3,500,000 or $.20 per share. **Includes a non-recurring loss on the sale of an other asset of $5,280,000, or $.31 per share. ***Includes a non-recurring gain on the sale of Hong Kong office space of $7,810,500, or $.45 per share. ****Includes cumulative effect of accounting change benefit of $1,731,100, or $.11 per share. 13 14 *****Includes extraordinary credit from litigation settlement of $29,648,800, or $1.82 per share.
1993 1992 ---- ---- Net sales $ 170,661 $ 175,450 Equity in net earnings (loss) of joint ventures $ (504) $ (848) Earnings (loss) before taxes and minority interest $ 12,305 $ 6,531 Provision for taxes (benefits) $ 1,365 $ 805 Effective tax rate 11.0% 10.9% Net earnings (loss) $ 11,469**** $ 34,335***** Working capital $ 117,961 $ 104,139 Current ratio 5.8 to 1 4.8 to 1 Property, plant and equipment, net $ 25,022 $ 24,546 Total assets $ 180,479 $ 172,974 Long-term debt, deferred liabilities and minority interest $ 9,492 $ 12,291 Stockholders' equity $ 146,587 $ 132,922 Per share data: Net earnings (loss) $ .71**** $ 2.09***** Cash dividends paid $ -- $ -- Book value at year end $ 9.29 $ 8.65 Return on average equity 8.2% 29.4%
14 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Year Ended December 31, 1996 compared with Year Ended December 31, 1995 Net Sales Net sales were $197.0 million and $187.8 million for the years ended December 31, 1996 and 1995, respectively. Manufacturing sales increased by $10.4 million due primarily to increased shipments of kitchen electric appliances. A kitchen electric appliance distributor and a national retail beauty supply chain accounted for 10.9% and 10.3%, respectively, of the Company's 1996 sales. Set forth below is a table indicating the revenues that the Company derived from its distribution and manufacturing operations for the periods indicated:
Year Ended December 31, 1996 1995 ---- ---- Distribution $146,431,800 74% $147,576,000 79% Manufacturing 50,571,800 26 40,200,900 21 ------------ ------ ------------ ------ Total Sales $197,003,600 100% $187,776,900 100% ============ ====== ============ ======
Gross Profit Margin The Company's gross margin percentage decreased in 1996 to 20.2% of sales from the 21.8% level in the prior year. The decrease is primarily attributed to the continued effect of remaining higher cost raw material inventories and a greater concentration of manufacturing sales. Lower margin kitchen electric products which comprised 82% of manufacturing sales in both 1996 and 1995, accounted for 31% and 25% of the Company's total sales in those years, respectively. Selling, General and Administrative Expenses Selling, general and administrative expenses as a percentage of sales were 20.0% in both 1996 and 1995. Commencement of operations at the Company's newly acquired LitterMaid, Inc. and Bay Books & Tapes, Inc. businesses resulted in a $1.6 million increase in expenses. Travel, 15 16 legal and selling expenses increased by $1.2 million and advertising costs decreased by $1.0 million. Unusual or Non-Recurring Items In 1995, the Company incurred a non-recurring pre-tax loss of $8.0 million on the sale of an other asset. This transaction reduced 1995 net earnings by $5.3 million, or $.31 per share, on an after-tax basis. Equity in Net Earnings (Loss) of Joint Ventures The Company's equity in net earnings (loss) of joint ventures was $2.3 million and $(.4) million in 1996 and 1995, respectively. The increase in 1996 primarily reflects the results of operations of the Company's newly acquired interests in Salton/Maxim Housewares, Inc. ("Salton") and New M-Tech Corporation ("New M-Tech"). The Company's equity in the net earnings of Salton and New M-Tech totaled $3.2 million for 1996 which was partially offset by losses of $.9 million at certain of the Company's other joint ventures. Interest Expense Interest expense increased by $.8 million to $1.4 million in 1996. The increase is the result of the amounts paid on notes payable issued in conjunction with the Salton and New M-Tech acquisitions as well as the increased level of borrowing under the Company's line of credit facility. Taxes The Company's tax expense is based on the earnings of each of its foreign and domestic operations and it includes such additional U.S. taxes as are applicable to the repatriation of foreign earnings. Foreign earnings, other than in Canada, are generally taxed at rates lower than in the United States. The 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. Extraordinary Item On March 27, 1997, the Company paid $4,500,000 to settle the lawsuit filed in April 1994 by Izumi. An accrual of $5,300,000, including $800,000 in estimated legal expenses has been recorded as of December 16 17 31, 1996. The transaction resulted in an after tax charge of $3,500,000 or $.20 per share and has been recorded as an extraordinary item. Earnings Per Share The average number of common shares and common equivalent shares used in computing per share results was 17,620,000, in 1996 as compared to 17,227,000 in 1995. The decrease was primarily due to the non-inclusion of the dilutive effect of stock options and warrants in those 1996 quarters in which the Company sustained losses, offset by the additional shares issued upon the acquisition of Salton/Maxim and upon the exercise of stock options and warrants. Supplier Contract In January 1997, the Company through its 50-percent interests in Salton and New M-Tech 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 New M-Tech. Under the terms of the contract, Salton and New M-Tech will supply Kmart, either through the Company or other manufacturers, with a broad range of small electrical appliances, consumer electronics and telephone products under the White-Westinghouse brand name. Kmart will be the exclusive discount department store to market these White-Westinghouse products. Year Ended December 31, 1995 compared with Year Ended December 31, 1994 Net Sales Net sales were $187.8 million and $181.1 million for the years ended December 31, 1995 and 1994, respectively. Manufacturing sales increased by $14.4 million due to increased shipments of kitchen electric appliances. Distribution sales declined by $7.7 million primarily due to the weak U.S. retailing environment in 1995. Wal-Mart Stores, Inc. and a kitchen electric appliance distributor accounted for 13.1% and 11.4%, respectively, of the Company's 1995 sales. 17 18 Set forth below is a table indicating the revenues that the Company derived from its distribution and manufacturing operations for the periods indicated: Year Ended December 31, 1995 1994 Distribution $147,576,000 79% $155,320,600 86% Manufacturing 40,200,900 21 25,791,600 14 ----------- --- ----------- --- Total Sales $187,776,900 100% $181,112,200 100% =========== === =========== === Gross Profit Margin The Company's gross margin percentage decreased in 1995 to 21.8% of sales from the 27.0% level in the prior year due to higher raw materials costs which could not be passed on to customers and the greater concentration of lower-margin manufacturing sales. Selling, General and Administrative Expenses Selling, general and administrative expenses as a percentage of sales were 20.0% and 19.6% in 1995 and 1994, respectively. The Company's higher aggregate operating expenses were primarily a result of increased bad debt expense and inventory storage costs. Unusual or Non-Recurring Items In 1995, the Company incurred a non-recurring pre-tax loss of $8.0 million on the sale of an other asset. This transaction reduced 1995 net earnings by $5.3 million, or $.31 per share, on an after-tax basis. Equity in Net Earnings (Loss) of Joint Venture The Company's equity in net earnings (loss) of joint ventures was $(.4) million and $.1 million in 1995 and 1994, respectively. Lower gross margins in 1995, due to higher raw materials costs, produced the decline in the joint venture's earnings. 18 19 Taxes The Company's tax expense is based on the earnings of each of its foreign and domestic operations and it includes such additional U.S. taxes as are applicable to the repatriation of foreign earnings. 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. Earnings Per Share The average number of common shares and common equivalent shares used in computing per share results was 2.1% lower in 1995 primarily as a result of a lower dilutive effect from unexercised stock options and warrants, due both to a decline in the quoted market price of the Company's common stock during the year and the Company's fourth quarter loss. Liquidity and Capital Resources At December 31, 1996, the Company's working capital was $105.6 million, a decrease of $22.0 million since the end of 1995. At the end of 1996 and 1995, the Company's current ratio was 3.1 to 1 and 7.5 to 1, respectively, and its quick ratio was 1.3 to 1 and 3.5 to 1, respectively. Cash and cash equivalents decreased by $9.0 million during 1996. Cash of $9.6 million was provided by operating activities. The Company utilized $35.1 million in investing activities, of which $18.7 million was for the acquisition of equity interests in joint ventures and new businesses and for loans to its joint venture partners. The Company invested $8.6 million in capital expenditures primarily at its factory in the People's Republic of China and anticipates incurring an additional $9.0 million in 1997. The Company entered into the following significant investing transactions in 1996: 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 19 20 capital requirements. Loans made by the Company bear interest at the prime rate, are payable upon PX achieving sufficient cash flow, and are secured by the assets of PX. SALTON/MAXIM HOUSEWARES, INC. 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. 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 $3.3 million, a $10.8 million promissory note and 748,112 shares of Windmere stock (market value at date of agreement of approximately $6.1 million). The total cost in excess of net assets acquired is not deemed to be material. 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 $10.8 million promissory note bears interest at a rate of 8-percent per annum payable quarterly and matures in July 2001. The note is subordinated to the Company's current and future indebtedness to its senior lender and is collateralized by certain of the Company's domestic assets. LITTERMAID(TM) In 1996, the Company purchased certain assets and marketing rights, including patents, for the LitterMaid(TM) computerized, infrared, automatic self-cleaning cat litter box. The purchase price of the assets includes $2,200,000 in cash and options to purchase 150,000 shares of the Company's common stock. The total fair value of the options as determined under SFAS 123, is $549,000 and has been included in the cost of the assets acquired. 20 21 New M-Tech Corporation In April 1996, the Company acquired a 50-percent interest in New M-Tech Corporation, a consumer electronics company for $10 million. Payment consisted of $3.0 million in cash and $7.0 million in unsecured promissory notes. The promissory notes bear interest at 8% per annum and consist of a $3,000,000 promissory note maturing in 1998, and two $2,000,000 promissory notes maturing in 2001, one of which is convertible into shares of the Company's common stock at a price of $15 per share. Conversion may occur at any time during the term of the convertible promissory note, and may be required under certain circumstances. The notes are subordinated to the Company's current and future indebtedness to its senior lender. The total cost in excess of net assets acquired of $5.3 million has resulted in goodwill and is being amortized over 20 years on a straight-line basis. 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 December 31, 1996 consists of $240,390 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 $1,180,000 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 $1.2 million. Payments as of December 31, 1996 include a $1.2 million capital contribution to the partnership and loans totaling $1.2 million to the partnership's other equity partner. Such loans bear interest at a rate of 8-percent per annum, are unsecured and are payable upon demand. The partnership's investments include privately traded securities whose values have been estimated by the General Partner in the absence of readily ascertainable market values. Fair value for these securities is considered to be cost which may differ significantly from the values 21 22 that would have been used had a ready market for the securities existed. Cash flows from financing activities generated $16.5 million in cash. The borrowings under the Company's line of credit facilities of $21.8 million and the $2.6 million generated from the exercise of stock options and warrants offset the $3.3 million used to pay cash dividends on the Company's common stock and the $3.8 million used to purchase and retire 463,000 shares of the Company's common stock. The purchase of the 463,000 shares completed the Company's purchase of 1,000,000 shares of its common stock under the 1994 stock purchase program for a total cost of $8.7 million. In 1996, the Company's Board of Directors authorized a new stock purchase program, whereby, the Company may purchase up to 10-percent of its outstanding shares (approximately 1.6 million shares). No shares have been purchased under the new program. 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 December 31, 1996, the subsidiaries were utilizing, including letters of credit, approximately $2.5 million of these credit lines, leaving a remaining funding capacity of $3.9 million. These subsidiaries also have available an additional $5.0 million line of credit which is supported by a domestic standby letter of credit of which $3.2 million was outstanding at December 31, 1996. The Company has a $30.0 million demand line of credit from a domestic bank, which is secured by domestic accounts receivable and inventory. At December 31, 1996, outstanding borrowings under this credit line totaled $18.0 million. No provision for U.S. taxes has been made on undistributed earnings of the Company's foreign subsidiaries and joint ventures because management plans to reinvest such earnings in their respective operations or in other foreign operations. Repatriating those earnings or using them in some other manner which would give rise to a U.S. tax liability would reduce after tax earnings and available working capital. The Company believes that its cash on hand and internally generated funds, together with its credit lines, will provide sufficient funding 22 23 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. A pre-answer motion by the Company resulted in the dismissal of some of Izumi's claims, and the Company answered the remaining claims. A mediation was held on February 27, 1997 to consider settlement of the case. In March 1997, after evaluating the potential costs of continuing litigation, the Company paid $4,500,000 to settle the dispute. The Company, its 50-percent owned joint venture partners Salton/Maxim Housewares, Inc. and New M-Tech Corporation, White Consolidated Industries, Inc. ("White Consolidated"), and certain other parties have 23 24 been named as defendants in litigation filed by Westinghouse Electric Corporation ("Westinghouse") in the United States District Court for the Western District in Pennsylvania on December 18, 1996. The action arises from a dispute between Westinghouse and White Consolidated over rights to use the "Westinghouse" trademark for consumer products based on transactions between Westinghouse and White Consolidated in the 1970's and the parties' subsequent conduct. Prior to the filing of Westinghouse's Complaint against the Company, White Consolidated, on November 14, 1996, filed a Complaint in the United States District Court for the Northern District of Ohio against Westinghouse and another corporation for trademark infringement, dilution, false designation or origin and false advertisement, seeking both injunctive relief and damages. Procedural motions concerning the jurisdiction in which the dispute should be heard have been filed by the parties. The action by Westinghouse seeks, among other things, a preliminary injunction enjoining the defendants from using the trademark, un-specified damages and attorneys' fees. Pursuant to the Indemnification Agreement dated January 23, 1997 by and among White Consolidated, Kmart Corporation, and the Company, White Consolidated is defending and indemnifying the Company for all costs and expenses for claims, damages, and losses, including the costs of litigation. Pursuant to the license agreements with White Consolidated, White Consolidated is defending and indemnifying Salton/Maxim and New M-Tech for all costs and expenses for claims, damages, and losses, including the costs of litigation. On January 29, 1997, on joint motion of the parties, the court issued an order staying future proceedings for sixty (60) days in order to give the parties an opportunity to pursue settlement discussions. 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. 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-percent to 90-percent of the Company's revenues are currently derived from products manufactured by 24 25 Durable. The supply and cost of these 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. In June 1989, the People's Republic experienced civil disturbances. Although such disturbances have dissipated since that time, there continues to be pressure for political reform. No assurance can be given, however, 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 dis ruption 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. 25 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference to the Company's 1996 Annual Report to Shareholders (Exhibit 13). See also PART IV, ITEM 14(a)1 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference to the Company's Proxy Statement for its 1997 Annual Meeting of Shareholders under the captions "Election of Directors" and "Executive Officers". ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to the Company's Proxy Statement for its 1997 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 1997 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 1997 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 26 27 The following consolidated financial statements of Windmere- Durable Holdings, Inc. and subsidiaries are incorporated by reference in PART II, ITEM 8: AUDITOR'S REPORT Exhibit 13 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995 Exhibit 13 CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 Exhibit 13 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - THREE YEARS ENDED DECEMBER 31, 1996 Exhibit 13 CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 Exhibit 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Exhibit 13 2. FINANCIAL STATEMENT SCHEDULES AUDITOR'S REPORT Filed herewith SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES - YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 Filed herewith 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. 27 28 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 By-Laws as amended through October 11, 1991. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 3.5 Amendment to October 11, 1991 By-Laws. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 3.6 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. Filed herewith. (10) Material Contracts EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS 10.1 Employment Agreement dated as of January 27, 1983, between Belvin Friedson and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1982. 10.2 Employment Agreement, First Amendment, dated as of February 27, 1987, between Belvin Friedson and the Company. Incorporated by 28 29 reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1986. 10.3 Employment Agreement, Second Amendment, dated as of December 16, 1992, between Belvin Friedson and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.4 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. 10.5 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. 10.6 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. 10.7 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. 10.8 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. 10.9 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. 29 30 10.10 Nonqualified Stock Option dated as of January 5, 1987, granted by the Company to Barbara Friedson Garrett. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1986. 10.11 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. 10.12 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. 10.13 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. 10.14 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. 10.15 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. 10.16 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. 10.17 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. 30 31 10.18 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. 10.19 Employment Agreement (First Amendment) dated as of December 16, 1992, 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, 1992. 10.20 1982 Employees Incentive Stock Option Plan. Incorporated by reference to Exhibit 4 to Post-Effective Amendment No. 1 to the Company's Form S-8 Registration Statement No. 2-92540. 10.21 Amendment to 1982 Employees Incentive Stock Option Plan. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1987. 10.22 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. 10.23 Employment Agreement dated as of October 26, 1987 between Burton A. Honig and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1987. 10.24 Employment Agreement (First Amendment) dated as of December 16, 1992, between Burton A. Honig and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.25 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. 10.26 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. 31 32 10.27 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. 10.28 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. 10.29 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. 10.30 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. 10.31 Consulting Agreement, dated March 30, 1987, between Paragon Industries, Paragon Sales, Inc., William Weber, Jacqueline K. Weber and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. 10.32 Amendment to Consulting Agreement, dated May 29, 1990, between Paragon Industries, Paragon Sales, Inc., William Weber, Jacqueline K. Weber and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. 10.33 Second Amended and Restated Employment Agreement dated January 1, 1991, between David O'Neill and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.34 Second Amended and Restated Employment Agreement (First Amendment) dated December 16, 1992, between David O'Neill and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 31 33 OTHER MATERIAL CONTRACTS 10.35 Installment Purchase Contract dated as of May 1, 1985, between the Dade County Industrial Development Authority and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1985. 10.36 Asset Purchase Agreement dated September 30, 1988 between Sally Beauty Company, Alberto-Culver Company, the Company and certain of the Company's affiliates. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1988. 10.37 Joint Venture Agreement, dated March 30, 1987, between Paragon Sales, Inc., William Weber, Jacqueline K. Weber and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. 10.38 Amendment to Joint Venture Agreement, dated May 29, 1990, between Paragon Sales, Inc., William Weber, Jacqueline K. Weber and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1990. 10.39 Exclusive Sales Agreement dated May 29, 1992 among the Company, American International Industries and Zvi and Betty Ryzman. Incorporated by reference to the Company's Form S-2 Registration Statement No. 33-51776. 10.40 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. 10.41 Letter of Credit Agreement dated July 31, 1992 between NationsBank and the Company. Incorporated by reference to the Company's Form S-2 Registration Statement No. 33-51776. 10.42 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. 33 34 10.43 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. 10.44 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. 10.45 Warrant Agreement dated October 1, 1992, between American Stock Transfer and Trust Company and the Company. Incorporated by reference to the Company's Form S-2 Registration Statement No. 33-51776. 10.46 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. 10.47 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. 10.48 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. 10.49 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. 10.50 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. 10.51 Amended and Restated Letter Agreement dated July 28, 1995, between NationsBank and the Company. Incorporated by reference to the Company's Form 10-Q dated June 30, 1995. 34 35 10.52 Credit Agreement dated October 11, 1996, between Windmere Corporation, NationsBank National Association (South) and National Bank of Canada. Filed herewith. 10.53 Amendment No. 1 to Amended and Restated Letter Agreement, dated March 1, 1996, between NationsBank and the Company. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 10.54 Amendment Agreement No. 1 to the Credit Agreement (October 11, 1996) dated January 31, 1997. Filed herewith. (13) Annual Report to Security Holders for the year ended December 31, 1996. Exhibit 13. (21) Subsidiaries of the Registrant. Filed herewith. (23) Consents of experts and counsel. Filed herewith. (b) REPORTS ON FORM 8-K None. 35 36 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders 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, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1996, 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, 1996. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. GRANT THORNTON LLP Miami, Florida February 7, 1997 (except for Notes K and R as to which the date is March 27, 1997) 36 37 WINDMERE CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS CHANGES IN ALLOWANCE FOR POSSIBLE LOSSES ON ACCOUNTS RECEIVABLE: Years Ended December 31, 1996 1995 1994 ---- ---- ---- Balance at beginning of period $ 1,158,000 $ 1,338,100 $ 1,424,600 Addition - Charged to costs and expenses 930,000 894,700 231,400 Addition - Charged to other accounts (a) 4,000 31,600 31,300 Deductions (b) (963,000) (1,106,400) (349,200) ----------- ----------- ----------- Balance at end of period $ 1,129,000 $ 1,158,000 $ 1,338,100 =========== =========== =========== (a) Recoveries of amounts previously written off against the reserve. (b) Write-off of accounts receivable against the reserve. 37 38 PART IV. ITEM 3. (21). SUBSIDIARIES OF THE REGISTRANT NAME INCORPORATED IN - ---- --------------- Consumer Products Americas, Inc. Florida EDI Masters, Inc. Florida Fortune Products, Inc. Florida Jerdon Products, Inc. Florida Windmere Fan Products, Inc. Florida Bay Books & Tapes, Inc. Florida LitterMaid, Inc. Florida Windmere Corporation Florida Windmere Holdings Corporation Delaware Windmere Holdings Corporation II Delaware Goal Making Company Limited British Virgin Islands Remdale Investments Limited British Virgin Islands PPC Industries, Ltd. British Virgin Islands Windmere Consumer Products, Inc. Canada Durable Electric, Ltd. Hong Kong Durable Electrical Metal Factory, Ltd. Hong Kong PPC Industries (1980) Ltd. Hong Kong Sandgate Services, Ltd. Hong Kong Parawind, Ltd. Hong Kong PPC Product Services, Ltd. Hong Kong Each of the above subsidiaries is wholly-owned and is included in the consolidated financial statements as of December 31, 1996. 38 39 AUDITOR'S CONSENT We have issued our report dated February 7, 1997, accompanying the consolidated financial statements and schedules incorporated by reference in the Annual Report of Windmere-Durable Holdings, Inc. on Form 10-K for the year ended December 31, 1996. 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), and on Form S-8 (File No. 33-58574, effective February 22, 1993). GRANT THORNTON LLP Miami, Florida March 27, 1997 39 40 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: 3-27-97 ---------------------------- ------------------------ 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: 3-27-97 --------------------------- ------------------------ David M. Friedson, Chairman, President and Chief Executive Officer BY: /s/ Harry D. Schulman DATE: 3-27-97 ---------------------------- ------------------------ Harry D. Schulman, Senior Vice President - Finance and Administration and Chief Financial Officer BY: /s/ Burton A. Honig DATE: 3-27-97 ---------------------------- ------------------------ Burton A. Honig, Vice President - Finance (Principal Accounting Officer) BY: /s/ Bertley Sager DATE: 3-28-97 ---------------------------- ------------------------ Bertley Sager, Director BY: /s/ Jerald I. Rosen DATE: 3-27-97 ---------------------------- ------------------------ Jerald I. Rosen, Director BY: /s/ Harold Strauss DATE: 3-28-97 ---------------------------- ------------------------ Harold Strauss, Director BY: /s/ Lai Kin DATE: 3-28-97 ---------------------------- ------------------------ Lai Kin, Director BY: /s/ Raymond So DATE: 3-28-97 ---------------------------- ------------------------ Raymond So, Director BY: /s/ Leonard Glazer DATE: 3-28-97 ---------------------------- ------------------------ Leonard Glazer, Director BY: /s/ Barbara Friedson Garrett DATE: 3-27-97 ---------------------------- ------------------------ Barbara Friedson Garrett, Director BY: /s/ Felix S. Sabates DATE: 3-27-97 ---------------------------- ------------------------ Felix S. Sabates, Director BY: /s/ Arnold Thaler DATE: 3-27-97 ---------------------------- ------------------------ Arnold Thaler, Director 40 41 BY: /s/ Thomas J. Kane DATE: 3-28-97 ---------------------------- ------------------------- Thomas J. Kane, Director BY: /s/ Susan J. Ganz DATE: 3-27-97 ---------------------------- ------------------------- Susan J. Ganz, Director BY: /s/ Desmond Lai DATE: 3-28-97 ---------------------------- ------------------------- Desmond Lai, Director 41 42 FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES DECEMBER 31, 1996 AND 1995 43 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders 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, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Miami, Florida February 7, 1997 (except for Notes K and R, as to which the date is March 27, 1997) 44 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, ASSETS
1996 1995 ---- ---- CURRENT ASSETS Cash and cash equivalents (Note A) $ 8,779,500 $ 17,768,100 Accounts and other receivables, less allowances of $1,128,700 in 1996 and $1,158,000 in 1995 (Note E) 37,601,200 36,597,300 Receivables from affiliates (Notes A and C) 12,138,800 9,982,800 Inventories (Notes A and E) 89,514,000 79,013,600 Prepaid expenses 3,751,100 2,183,600 Future income tax benefits (Notes A, I and R) 3,231,800 1,642,900 ------------- ------------- Total current assets 155,016,400 147,188,300 INVESTMENTS IN JOINT VENTURES (Notes A, C and J) 35,290,800 -- PROPERTY, PLANT AND EQUIPMENT - AT COST, less accumulated depreciation (Notes A and D) 32,759,800 30,484,700 OTHER ASSETS (Notes A, I, J and P) 14,211,900 10,338,900 ------------- ------------- $ 237,278,900 $ 188,011,900 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes and acceptances payable (Note E) $ 21,882,500 $ 42,300 Current maturities of long-term debt (Note G) 814,800 814,800 Accounts payable 12,106,500 9,979,700 Accrued expenses (Notes F and R) 14,228,700 8,127,800 Deferred income, current portion (Note A) 419,400 598,100 ------------- ------------- Total current liabilities 49,451,900 19,562,700 LONG-TERM DEBT, less current maturities (Note G) 19,884,700 2,851,800 DEFERRED INCOME, less current portion (Note A) 247,500 666,900 COMMITMENTS AND CONTINGENCIES (Note K) -- -- STOCKHOLDERS' EQUITY (Notes A, L and M) 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 17,445,146 in 1996 and 16,713,053 in 1995 1,744,500 1,671,300 Paid-in capital 35,765,900 30,173,000 Retained earnings 130,965,100 133,851,400 Unrealized foreign currency translation adjustment (780,700) (765,200) ------------- ------------- Total stockholders' equity 167,694,800 164,930,500 ------------- ------------- $ 237,278,900 $ 188,011,900 ============= =============
The accompanying notes are an integral part of these statements. 2 45 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31,
1996 1995 1994 ---- ---- ---- Net sales $ 197,003,600 $ 187,776,900 $ 181,112,200 Cost of goods sold 157,278,400 146,907,300 132,185,700 ------------- ------------- ------------- Gross profit 39,725,200 40,869,600 48,926,500 Selling, general and administrative expenses 39,425,100 37,625,100 35,531,600 Unusual or non-recurring items (Note B) -- 8,000,000 (7,810,500) ------------- ------------- ------------- Operating profit (loss) 300,100 (4,755,500) 21,205,400 Other (income) expense Interest expense 1,345,900 578,300 551,900 Interest and other income (2,418,800) (2,561,800) (2,385,800) ------------- ------------- ------------- (1,072,900) (1,983,500) (1,833,900) ------------- ------------- ------------- Earnings (loss) before equity in net earnings (loss) of joint ventures, income taxes, minority interest and extraordinary item 1,373,000 (2,772,000) 23,039,300 Equity in net earnings (loss) of joint ventures (Notes A, C and J) 2,298,700 (392,600) 91,400 ------------- ------------- ------------- Earnings (loss) before income taxes, minority interest and extraordinary item 3,671,700 (3,164,600) 23,130,700 Income taxes (benefit) (Notes A and I) Current (716,300) (1,242,700) 2,375,700 Deferred 436,600 (38,100) 218,800 ------------- ------------- ------------- (279,700) (1,280,800) 2,594,500 ------------- ------------- ------------- Earnings (loss) before minority interest and extraordinary item 3,951,400 (1,883,800) 20,536,200 Minority interest in net loss of subsidiary -- -- 1,200 ------------- ------------- ------------- Earnings (loss) before extraordinary item 3,951,400 (1,883,800) (20,537,400) Extraordinary item (Note R) (3,500,000) -- -- ------------- ------------- ------------- Net earnings (loss) $ 451,400 $ (1,883,800) $ 20,537,400 ============= ============= ============= Per share data (Notes A, L and R) Earnings (loss) per common share and common equivalent shares before effect of extraordinary item $ .22 $ (.11) $ 1.17 Extraordinary item (.20) -- -- ------------- ------------- ------------- Net earnings $ .02 $ (.11) $ 1.17 ============= ============= ============= Dividends per common share $ .20 $ .20 $ .15 ============= ============= =============
The accompanying notes are an integral part of these statements. 3 46 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY THREE YEARS ENDED DECEMBER 31, 1996
Unrealized foreign currency Common Paid-in Retained translation stock capital earnings adjustment ----- ------- -------- ---------- Balance at January 1, 1994 $ 1,578,100 $ 24,633,300 $ 121,086,500 $ (710,700) Net earnings -- -- 20,537,400 -- Cash dividends - $.15 per share -- -- (2,535,100) -- Acquisition of additional 20% interest in Durable Electrical Metal Factory, Ltd. ("Durable") 100,000 7,900,000 -- -- Purchase and retirement of 397,400 shares of common stock (39,700) (3,858,900) -- -- Exercise of stock options and warrants 35,000 1,645,800 -- -- Tax benefit resulting from exercise of stock options -- 328,500 -- -- Unrealized foreign currency translation adjustment -- -- -- (75,200) ------------- ------------- ------------- ------------- Balance at December 31, 1994 1,673,400 30,648,700 139,088,800 (785,900) Net loss -- -- (1,883,800) -- Cash dividends - $.20 per share -- -- (3,353,600) -- Purchase and retirement of 139,600 shares of common stock (14,000) (997,400) -- -- Exercise of stock options and warrants 11,900 414,400 -- -- Tax benefit resulting from exercise of stock options -- 242,800 -- -- Cost of intercompany recapitalization -- (135,500) -- -- Unrealized foreign currency translation adjustment -- -- -- 20,700 ------------- ------------- ------------- ------------- Balance at December 31, 1995 1,671,300 30,173,000 133,851,400 (765,200) Net earnings -- -- 451,400 -- Cash dividends - $.20 per share -- -- (3,337,700) -- Purchase and retirement of 463,000 shares of common stock (46,300) (3,721,800) -- -- Exercise of stock options and warrants 44,700 2,531,500 -- -- Tax benefit resulting from exercise of stock options -- 183,600 -- -- Fair value of options to non-employees -- 617,000 -- -- Issuance of 748,112 shares - acquisition of 50% of Salton/Maxim Housewares, Inc. 74,800 5,982,600 -- -- Unrealized foreign currency translation adjustment -- -- -- (15,500) ------------- ------------- ------------- ------------- Balance at December 31, 1996 $ 1,744,500 $ 35,765,900 $ 130,965,100 $ (780,700) ============= ============= ============= =============
The accompanying notes are an integral part of this statement. 4 47 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994 ---- ---- ---- Cash flows from operating activities Net earnings (loss) $ 451,400 $ (1,883,800) $ 20,537,400 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities Depreciation of property, plant and equipment 6,377,900 6,218,300 5,378,500 Amortization of intangible assets 613,400 561,100 440,100 Loss on sale of other asset (Note B) -- 8,000,000 -- Net change in allowance for losses on accounts receivable (29,300) (180,100) (86,500) Consulting expense on non-employee stock options 68,000 -- -- Gain on sale of fixed asset (Note B) -- -- (7,810,500) Amortization of deferred income (598,100) (598,100) (598,100) Undistributed equity in (earnings) loss of joint ventures (2,762,700) 392,600 (91,400) Increase (decrease) in minority interest -- -- (1,200) Changes in assets and liabilities Decrease (increase) in accounts and other receivables 149,600 2,316,100 (7,378,200) Decrease (increase) in inventories 534,700 (4,735,200) (7,120,900) Decrease (increase) in prepaid expenses (709,600) 5,836,900 (1,029,600) Increase (decrease) in accounts payable and accrued expenses 7,714,400 1,005,800 (1,845,600) Increase (decrease) in current and deferred income taxes (1,405,300) (1,829,300) 2,695,900 Increase in other assets (783,600) (1,073,300) (294,800) Decrease (increase) in other accounts (14,000) 20,700 (75,200) ------------ ------------ ------------ Net cash provided by operating activities 9,606,800 14,051,700 2,719,900 Cash flows from investing activities Proceeds from fixed asset sales -- 129,600 9,442,000 Additions to property, plant and equipment (8,618,200) (8,383,500) (10,436,900) (Decrease) increase in short-term investments -- 2,500,000 (2,500,000) Purchase of assets - LitterMaid(TM), Inc. (2,246,000) -- -- Purchase of assets - Bay Books and Tapes, Inc. (1,180,000) -- -- Investments in joint ventures (7,745,400) -- -- Decrease (increase) in receivable accounts and notes from affiliates (15,301,600) 2,068,900 (3,186,300) ------------ ------------ ------------ Net cash (used in) investing activities (35,091,200) (3,685,000) (6,681,200) Cash flows from financing activities Net borrowings under lines of credit 21,840,200 (697,800) (2,255,700) Payments of long-term debt (814,800) (814,900) (836,500) Exercises of stock options and warrants 2,576,200 426,300 1,680,800 Cash dividends paid (3,337,700) (3,353,600) (2,535,100) Purchases of common stock (3,768,100) (1,011,400) (3,898,600) Cost of intercompany recapitalization -- (135,500) -- ------------ ------------ ------------ Net cash provided by (used in) financing activities 16,495,800 (5,586,900) (7,845,100) ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents (8,988,600) 4,779,800 (11,806,400) Cash and cash equivalents at beginning of year 17,768,100 12,988,300 24,794,700 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 8,779,500 $ 17,768,100 $ 12,988,300 ============ ============ ============
(continued) 5 48 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994 ---- ---- ---- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 1,488,200 $ 488,500 $ 502,200 Income taxes $ 548,400 $2,181,800 $1,927,300 Non-cash investing and financing activities: Common stock issued for additional investment in Durable (Note A) $ -- $ -- $8,000,000 Tax benefit resulting from exercise of stock options $ 183,600 $ 242,800 $ 328,500 Valuation of non-employee stock options under SFAS 123 (LitterMaid(TM) acquisition) $ 549,000 $ -- $ -- In 1996, the Company purchased a 50-percent interest in New M-Tech Corporation in exchange for $3,000,000 in cash and $7,000,000 in long-term promissory notes In 1996, the Company purchased a 50-percent interest in Salton/Maxim Housewares, Inc. in exchange for $3,254,300 in cash, 748,112 shares of Windmere common stock (valued at $6,057,000) and a $10,847,700 promissory note In 1996, the Company acquired the remaining 50-percent of its seasonal products joint venture for a nominal amount. In conjunction with the acquisition, the Company obtained the following assets and liabilities: Cash $ 1,102,300 Accounts receivable 1,124,200 Inventory 10,305,100 Prepaid and other assets 74,600 Less liabilities assumed (13,883,600) ------------ Goodwill $ 1,277,400 ============
The accompanying notes are an integral part of these statements. 6 49 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 NOTE A - SUMMARY OF ACCOUNTING POLICIES Windmere - Durable Holdings, Inc. and Subsidiaries (the "Company") is principally engaged in the manufacture and sale of personal care, kitchen electric 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 Balance sheet accounts of the Company's foreign operations are translated at the exchange rate in effect at each year end and income statement accounts are translated at the average exchange rates prevailing during the year. Adjustments resulting from this translation process are accumulated in a separate component of stockholders' equity and are not included in the determination of net earnings. The Company's foreign manufacturing subsidiary utilizes the local currency as its functional currency, and the other foreign subsidiaries primarily utilize the U.S. dollar as their functional currency. 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, 1996 include $5,251,000 held in foreign banks by the Company's Hong Kong and Canadian subsidiaries. (continued) 7 50 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued INVENTORIES Inventories are stated at the lower of cost or market; cost is determined by the first-in, first-out method. Inventories are comprised of the following: 1996 1995 -------------- -------------- Raw materials $ 13,824,300 $ 16,327,900 Work in process 20,551,900 21,085,300 Finished goods 55,137,800 41,600,400 -------------- -------------- $ 89,514,000 $ 79,013,600 ============== ============== 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 notes receivable due from certain of the Company's joint venture partners ("affiliates"). Notes receivable to these affiliates totaled $8,045,800 at December 31, 1996, are short-term and bear interest at prevailing market interest rates. PROPERTY, PLANT AND EQUIPMENT 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 7-20 years. Intangible assets were $13,704,600 and $10,113,700 at December 31, 1996 and 1995, respectively, and the related accumulated amortization was $2,700,700 and $2,126,800, respectively. In December 1996, the Company acquired the remaining 50-percent of its seasonal products joint venture for a nominal amount. The total cost in excess of net assets acquired has resulted in goodwill of $1,277,400 and is being amortized over 7 years. (continued) 8 51 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued INTANGIBLE ASSETS - CONTINUED 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 income generated by the related subsidiaries to determine that no impairment has occurred. In March 1995, the Financial Accounting Standards Board issued Statement 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This Statement had no impact on the Company's results of operations or financial position upon adoption in January 1996. 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, 1996, the fair value of these instruments approximates the carrying amount of these items. INCOME TAXES No provision has been made for U.S. taxes on undistributed earnings of foreign subsidiaries and joint ventures of approximately $108,000,000 at December 31, 1996, 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. DEFERRED INCOME In 1992, the Company granted an exclusive license for the distribution of a product. Deferred income of $1,340,600 resulted from this transaction, which is being reported as other income on a straight-line basis over the five year license term. In 1988, the Company sold its Save-Way Beauty Supply stores for a gain of approximately $6,980,000, of which $3,300,000 was allocated to a ten-year covenant not to compete that is being amortized to other income on a straight-line basis. (continued) 9 52 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued EARNINGS PER SHARE Earnings per share are based upon the weighted average number of common shares and common equivalent shares outstanding during each year, using the modified treasury stock method. The total number of such weighted average shares was 17,620,000 in 1996, 17,227,000 in 1995, and 17,589,000 in 1994. Stock options and warrants are considered common stock equivalents unless their inclusion would be antidilutive. RECLASSIFICATIONS Certain prior year amounts within the accompanying financial statements have been reclassified for comparability. NOTE B - UNUSUAL OR NON-RECURRING ITEMS In 1995, the Company incurred a non-recurring pre-tax loss of $8,000,000 on the sale of an other asset. This transaction reduced 1995 net earnings by $5,280,000, or $.31 per share, on an after-tax basis. In 1994, 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 approximately $.45 per share. No taxes were provided as the gain was not taxable. NOTE C - 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/Maxim Housewares, Inc. ("Salton"), New M-Tech Corporation ("New M-Tech"), PX Distributors, Inc. ("PX"), Breakroom of Tennessee, Inc. and Anasazi Partners, L.P. ("Anasazi"). In December 1996, the Company acquired the remaining 50-percent of its seasonal products joint venture for a nominal amount. The assets and liabilities of the joint venture are included in the consolidated financial statements of the Company and have been excluded from the summarized financial information below for 1996. (continued) 10 53 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE C - INVESTMENTS IN JOINT VENTURES - Continued Summarized financial information of the unconsolidated companies is as follows:
1996 1995 ------------- -------------- Current assets $ 85,536,000 $ 9,657,400 Non-current assets 32,524,000 35,100 ------------- -------------- Total assets $ 118,060,000 $ 9,692,500 ============= ============== Current liabilities $ 65,991,000 $ 11,317,100 Non-current liabilities 889,000 -- ------------- -------------- Total liabilities $ 66,880,000 $ 11,317,100 ============= ============== Sales $ 162,368,000 $ 30,171,600 ============= ============== Gross profit $ 34,312,000 $ 2,346,000 ============= ============== Net earnings (loss) $ 5,552,000 $ (785,200) ============= ==============
All sales made by joint ventures, other than sales of $935,000 by Salton to the Company in 1996, were to entities other than members of the consolidated group. Included in the Company's sales are sales made to joint ventures of approximately $17,855,400 in 1996, including $8,537,000 to Salton, and $7,485,300 in 1995. Certain of the Company's joint venture investments at December 31, 1996 and 1995, had negative values of approximately $375,000 and $800,000, respectively, which deficits have been classified as a reduction in receivables from affiliates. 11 54 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE D - PROPERTY, PLANT AND EQUIPMENT The following is a summary of property, plant and equipment:
Useful Lives 1996 1995 ------------- --------------- ---------------- Building 15 - 50 years $ 6,315,400 $ 4,493,100 Building improvements 8 - 31 years 2,220,200 589,700 Computer equipment 3 - 5 years 5,173,300 4,697,600 Furniture and equipment 3 - 8 years 54,853,600 55,197,000 Leasehold improvements 8 years 8,443,700 3,283,300 Land and land improvements 15 - 31 years 2,660,100 2,650,600 (Improvements only) --------------- ---------------- 79,666,300 70,911,300 Less accumulated depreciation and amortization 46,906,500 40,426,600 --------------- ---------------- $ 32,759,800 $ 30,484,700 =============== ================
NOTE E - NOTES AND ACCEPTANCES PAYABLE The Company's foreign subsidiaries (the "subsidiaries") have $6,400,000 in trade finance lines of credit, payable on demand, which are secured by the subsidiaries' tangible and intangible property located in Hong Kong and in the People's Republic of China, as well as a Company guarantee. At December 31, 1996, the subsidiaries were utilizing, including letters of credit, approximately $2,496,300 of these credit lines. These subsidiaries also have available an additional $5,000,000 line of credit which is supported by a domestic standby letter of credit. As of December 31, 1996, $3,232,000 was being utilized under this facility. The Company has a $30,000,000 line of credit from a domestic bank, which is secured by domestic accounts receivable and inventory. At December 31, 1996, there was $18,000,000 outstanding under this credit line. NOTE F - ACCRUED EXPENSES Accrued expenses are summarized as follows:
1996 1995 --------------- ---------------- Advertising allowances $ 1,075,600 $ 971,400 Salaries and bonuses 1,879,300 1,611,100 Volume rebates 1,325,600 1,022,700 Extraordinary litigation settlement 5,300,000 -- Other 4,648,200 4,522,600 --------------- ---------------- $ 14,228,700 $ 8,127,800 =============== ================
12 55 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE G - LONG-TERM DEBT Long-term debt is summarized as follows:
1996 1995 --------------- ---------------- Note payable to Salton (Note J) $ 10,847,700 $ -- Notes payable to New M-Tech Corporation (Note J) 7,000,000 -- Industrial development revenue bonds 2,851,800 3,666,600 --------------- ---------------- 20,699,500 3,666,600 Less current maturities 814,800 814,800 --------------- ---------------- Total long-term debt $ 19,884,700 $ 2,851,800 =============== ================
In 1985, the Company received proceeds of $7,500,000 from the issuance of tax-exempt industrial development revenue bonds. The bonds are being paid off in equal quarterly principal payments of $203,700 through May 2000. At December 31, 1996, the interest rate on the bonds was 6.5-percent. The bonds include certain covenants which provide, among other things, restrictions relating to the maintenance of minimum levels of working capital, net worth and other financial ratios. NOTE H - EMPLOYEE BENEFIT PLANS The Company has a 401(k) plan 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 three years ended December 31, 1996 were not significant. The Company does not provide any health or other benefits to retirees. 13 56 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE I - INCOME TAXES Income tax expense (benefit) consists of the following:
1996 1995 1994 ----------- ----------- ----------- Current Federal $ (748,200) $(1,392,300) $ 2,156,000 Foreign (2,100) 183,800 72,900 State 34,000 (34,200) 146,800 ----------- ----------- ----------- (716,300) (1,242,700) 2,375,700 Deferred 436,600 (38,100) 218,800 ----------- ----------- ----------- $ (279,700) $(1,280,800) $ 2,594,500 =========== =========== ===========
The analysis of the deferred income tax provision (benefit) representing the tax effects of temporary differences between tax and financial reporting is as follows:
1996 1995 1994 --------- --------- --------- Intercompany profit in inventory $ (2,700) $ (72,500) $ -- Differences in timing between financial and tax reporting 145,700 49,300 15,000 Utilization of net operating loss carryforward 356,200 220,100 413,500 Deferred income 224,300 224,300 55,300 Depreciation and amortization (246,900) (303,800) (248,900) Other (40,000) (155,500) (16,100) --------- --------- --------- $ 436,600 $ (38,100) $ 218,800 ========= ========= =========
The United States and foreign components of earnings (loss) before income taxes are as follows:
1996 1995 1994 ------------ ------------ ------------ United States $ (2,253,800) $ (8,056,300) $ 7,449,500 Foreign 5,925,500 4,891,700 15,681,200 ------------ ------------ ------------ $ 3,671,700 $ (3,164,600) $ 23,130,700 ============ ============ ============
(continued) 14 57 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE I - INCOME TAXES - Continued The differences between the statutory rates and the tax rates computed on pre-tax profits are as follows:
1996 1995 1994 ---- ---- ---- % % % ---- ---- ---- Tax expense (benefit) at statutory rates 34.0% (34.0)% 34.0% State taxes, net of federal tax benefit .6 (.7) .4 Foreign (income) loss not subject to tax (6.4) 2.6 (15.9) Provision for prior years' Hong Kong income taxes (.6) 12.3 (5.9) Net tax rate differential on undistributed foreign earnings (17.3) (25.6) (2.0) Equity in joint venture earnings not subject to U.S. tax or already taxed (25.7) (4.2) .1 Effect of gross up of foreign taxes, net of foreign tax credit (4.0) (4.1) -- Federal withholding taxes 6.7 7.8 -- Other 5.1 5.4 .5 ---- ---- ---- (7.6)% (40.5)% 11.2% ==== ==== ====
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, approximated $1,400,000. The Company made a provision in its 1995 second quarter of $400,000 or $.02 per share, to increase its contingency reserve to the settlement amount. Security deposits of approximately $3,000,000 were refunded to the Company during the fourth quarter of 1995. Hong Kong tax returns for the fiscal years 1992 through 1995 have been audited and accepted as filed. The Internal Revenue Service has completed its field work in its examination of the Company's 1992 tax return. To date, no adjustments have been proposed. Management believes that adequate provision for taxes has been made for the years under examination and those not yet examined. The Company's future income tax benefits at December 31, 1996, arise from Durable's and the Company's Canadian subsidiary's net operating loss carryforwards. Valuation allowances have not been recorded limiting such benefits based on management's current estimate that future profits will be sufficient to realize these benefits. (continued) 15 58 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE I - INCOME TAXES - Continued The primary components of future income tax benefits at December 31, 1996 are as follows: Net operating loss carryforwards $ 1,782,100 Depreciation and amortization (1,577,600) Deferred income 289,100 Differences in timing between financial and tax reporting 1,969,500 Extraordinary litigation settlement 1,800,000 Other 174,500 ------------ 4,437,600 Less amount included in other assets 1,205,800 ------------ $ 3,231,800 ============
The tax benefits resulting from the exercise of stock options have been recorded as additions to paid-in capital in the amounts of $183,600 and $242,800 in 1996 and 1995, respectively. NOTE J - ACQUISITIONS PX DISTRIBUTORS, INC. 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. Loans made by the Company bear interest at the prime rate, are payable upon PX achieving sufficient cash flow and are secured by the assets of PX. SALTON/MAXIM HOUSEWARES, INC. 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. 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 $3,254,300, a $10,847,700 promissory note and 748,112 shares of Windmere stock (market value at date of agreement of approximately $6,057,000). The total cost in excess of net assets acquired is not deemed to be material. (continued) 16 59 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE J - ACQUISITIONS - Continued 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 $10,847,700 promissory note bears interest at a rate of 8-percent per annum, payable quarterly, and matures in July 2001. The note is subordinated to the Company's current and future indebtedness to its senior lender and is collateralized by certain of the Company's domestic assets. LITTERMAID(TM) In 1996, the Company purchased certain assets and marketing rights, including patents, for the LitterMaid(TM), computerized, infrared, automatic self-cleaning cat litter box. The purchase price of the assets included $2,200,000 in cash and options to purchase 150,000 shares of the Company's common stock. The total fair value of the options as determined under SFAS 123, is $549,000 and has been included in the cost of the assets acquired (Note L). NEW M-TECH CORPORATION In April 1996, the Company acquired a 50-percent interest in New M-Tech Corporation, a consumer electronics company for $10,000,000. Payment consisted of $3,000,000 in cash and $7,000,000 in unsecured promissory notes. The promissory notes bear interest at 8% per annum and consist of a $3,000,000 promissory note maturing in 1998, and two $2,000,000 promissory notes maturing in 2001, one of which is convertible into shares of the Company's common stock at a price of $15 per share. Conversion may occur at any time during the term of the convertible promissory note, and may be required under certain circumstances. The notes are subordinated to the Company's current and future indebtedness to its senior lender. The total cost in excess of net assets acquired of $5,300,000 has resulted in goodwill and is being amortized over 20 years on a straight-line basis. 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 December 31, 1996 consists of $240,390 in inventory purchased on behalf of the joint venture. (continued) 17 60 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE J - ACQUISITIONS - Continued 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 $1,180,000 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 $1,250,000. Payments as of December 31, 1996, include a $1,250,000 capital contribution to the partnership and loans totaling $1,250,000 to the partnership's other equity partner. Such loans bear interest at a rate of 8-percent per annum, are unsecured and are payable upon demand. The partnership's investments include privately traded securities whose values have been estimated by the General Partner in the absence of readily ascertainable market values. Fair value for these securities is considered to be cost which may differ significantly from the values that would have been used had a ready market for the securities existed. PRO-FORMA The results of operations on a pro-forma basis as though Salton and New M-Tech had been acquired as of the beginning of the years ended December 31, 1996 and 1995 are as follows: (In Thousands except per share amounts)
Year Ended December 31, ----------------------- 1996 1995 ---- ---- Equity in net earnings (loss) of joint ventures $ 2,152 $ (905) Net income (loss) $ (306) $(2,482) Earnings (loss) per common and common equivalent share $ (.02) $ (.14)
18 61 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE K - COMMITMENTS AND CONTINGENCIES LITIGATION 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. A pre-answer motion by the Company resulted in the dismissal of some of Izumi's claims, and the Company answered the remaining claims. A mediation was held on February 27, 1997 to consider settlement of the case. On March 27, 1997, after evaluating the potential costs of continuing litigation, the Company paid $4,500,000 to settle the dispute. (continued) 19 62 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE K - COMMITMENTS AND CONTINGENCIES - Continued LITIGATION - Continued The Company, its 50-percent owned joint venture partners Salton/Maxim Housewares, Inc. and New M-Tech Corporation, White Consolidated Industries, Inc. ("White Consolidated"), and certain other parties have been named as defendants in litigation filed by Westinghouse Electric Corporation ("Westinghouse") in the United States District Court for the Western District in Pennsylvania on December 18, 1996. The action arises from a dispute between Westinghouse and White Consolidated over rights to use the "Westinghouse" trademark for consumer products, based on transactions between Westinghouse and White Consolidated in the 1970's and the parties' subsequent conduct. Prior to the filing of Westinghouse's Complaint against the Company, White Consolidated, on November 14, 1996, filed a Complaint in the United States District Court for the Northern District of Ohio against Westinghouse and another corporation for trademark infringement, dilution, false designation or origin and false advertisement, seeking both injunctive relief and damages. Procedural motions concerning the jurisdiction in which the dispute should be heard have been filed by the parties. The action by Westinghouse seeks, among other things, a preliminary injunction enjoining the defendants from using the trademark, unspecified damages and attorneys' fees. Pursuant to the Indemnification Agreement dated January 23, 1997 by and among White Consolidated, Kmart Corporation, and the Company, White Consolidated is defending and indemnifying the Company for all costs and expenses for claims, damages, and losses, including the costs of litigation. Pursuant to the license agreements with White Consolidated, While Consolidated is defending and indemnifying Salton/Maxim and NewTech for all costs and expenses for claims, damages, and losses, including the costs of litigation. On January 29, 1997, on joint motion of the parties, the court issued an order staying future proceedings for sixty (60) days in order to give the parties an opportunity to pursue settlement discussions. The Company is also subject to other legal proceedings, product liability and other claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability, if any, in excess of applicable insurance coverage, is not likely to have a material effect on the financial position of the Company. However, as the outcome of litigation or other legal claims is difficult to predict, significant changes in the estimated exposures could occur. EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with several of its executive officers for periods ranging from two to five years. The agreements provide the employees with an option to terminate their agreements and receive lump sum payments of up to five years compensation if there is a change in control of the Company. (continued) 20 63 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE K - COMMITMENTS AND CONTINGENCIES - Continued OTHER In April 1994, the Company purchased from Ourimbah Investment, Limited ("Ourimbah") the remaining 20% of the issued and outstanding capital stock of Durable (the "Purchased Shares") which had not, prior to such purchase, been owned, directly or indirectly, by the Company. In connection with such purchase, the Company agreed to make an additional payment to Ourimbah for the Purchased Shares upon the occurrence of a change of control of the Company on or before July 1, 1999. Any such additional payment will be in an amount with respect to each Purchased Share equal to the greater of (i) the same multiple of earnings per share of Durable as the highest multiple of earnings per share paid for the shares of common stock of the Company received in connection with such change of control or (ii) the same multiple of net asset value per share of Durable as the highest multiple of price per net asset value per share paid for the shares of common stock of the Company received in connection with such change of control. For purposes of determining whether any such additional payment is required, a change of control will be deemed to have occurred upon (i) the acquisition by any person of 50% or more of the then outstanding shares of common stock of the Company, (ii) a change in the majority of the members of the Company's board of directors who are serving as of the date of the purchase agreement or (iii) the approval by the Company's shareholders of (A) a reorganization, merger or consolidation in which the shareholders of the Company prior to such transaction do not, immediately thereafter, own more than 50% of the combined voting power of the Company following such transaction, (B) a liquidation of dissolution of the Company or (C) a sale of all or substantially all of the Company's assets. No change of control will be deemed to have occurred in connection with any transaction approved by a majority of the members of the board of directors. NOTE L - STOCKHOLDERS' EQUITY 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. (continued) 21 64 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE L - STOCKHOLDERS' EQUITY - Continued 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. Prior to December 31, 1995, the Company accounted for such options under APB Opinion 25 and related Interpretations. Commencing January 1, 1996, the Company accounts for non-qualified options issued to non-employees, under SFAS 123, Accounting for Stock Based Compensation. 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 1996, the Company issued options to purchase 97,500 shares of common stock to non-employee sales representatives. These sales representatives included Top Sales and TJK (Note P) which received options to purchase 25,000 shares. The options were issued with an exercise price that was equal to the market price on the date of the grant. The total fair value of the options, as determined under SFAS 123, was $357,000 which is to be amortized over the vesting period of the options. For 1996, the Company expensed $68,000 associated with these options. In connection with the purchase of certain assets of LitterMaid(TM), the Company issued options for the purchase of 150,000 shares of common stock. The total fair value of the options, as determined under SFAS 123, was $549,000 and has been included in the cost of purchasing the assets. 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 income (loss) and earnings (loss) per share would have been changed to the pro forma amounts indicated below. Disclosure of such amounts is not required for the fiscal year ended December 31, 1994 and accordingly is not presented below.
1996 1995 ------------- ------------- Net income (loss) As reported $ 451,400 $ (1,883,800) Pro forma $ (2,846,351) $ (1,935,700) Primary earnings (loss) per share As reported $ .02 $ (.11) Pro forma $ (.17) $ (.11)
(continued) 22 65 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE L - STOCKHOLDERS' EQUITY - Continued The above pro forma disclosures may not be representative of the effects on reported net income 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 1996 and 1995, respectively: dividend yield of 0.0 percent for all years; expected volatility of 43.97 percent and 42.20 percent; risk-free interest rates of 5.56 percent and 5.34 percent; and expected holding periods of 6.34 and 4.06 years. A summary of the status of the Company's fixed stock options as of December 31, 1996 and 1995, and changes during the years ending on those dates is as follows:
1996 1995 --------------------------- ------------------------- Weighted - Weighted - Shares Average Shares Average (000) Exercise Price (000) Exercise Price ----- --------------- ----- -------------- Outstanding at beginning of year 1,866 $ 5.95 1,967 $ 5.85 Granted 1,758 7.89 106 7.77 Exercised (221) 4.20 (112) 3.52 Expired -- -- (20) 17.38 Forfeited (34) 6.16 (75) 6.47 ------ ------ Outstanding at end of year 3,369 7.03 1,866 5.95 ====== ====== Options exercisable at end of year 1,563 1,270 Weighted-average fair value of options granted during the year $ 4.04 $ 3.14
(continued) 23 66 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE L - STOCKHOLDERS' EQUITY - Continued The following information applies to options outstanding at December 31, 1996.
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 ----------------- ----- ---------------- -------------- ----- -------------- $ 2.875 - $ 3.693 361 3.56 $ 3.25 361 $ 3.12 $ 4.500 - $ 6.375 145 11.13 5.81 124 4.90 $ 7.000 - $10.375 2,784 14.96 7.50 1,064 7.18 $10.875 - $14.500 79 7.36 13.00 14 10.88 ----- ----- $ 2.875 - $14.500 3,369 13.39 7.03 1,563 6.10 ===== =====
WARRANTS As part of a lawsuit settlement, warrants to purchase 750,423 shares of the Company's common stock have been issued. The warrants have an exercise price of $7.50 per share and are exercisable through January 19, 1998. At December 31, 1996, 432,997 warrants have 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. Each Right entitles the holder to purchase one quarter of one share of common stock at an exercise price of $25.00 per full 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. (continued) 24 67 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE L - STOCKHOLDERS' EQUITY - Continued STOCK PURCHASE PROGRAM The $3.8 million purchase in 1996 of 463,000 shares of the Company's common stock completed the Company's purchase of 1,000,000 shares of its common stock under the 1994 stock purchase program. In 1996, the Company's Board of Directors authorized a new stock purchase program, whereby, the Company can purchase up to 10-percent of its outstanding shares (approximately 1.6 million shares). No shares have been purchased under the new program. NOTE M - SPECIAL PREFERRED STOCK During 1986, the Company was authorized to issue 40,000,000 shares of $.01 par value special preferred stock purchase rights for each share of common stock, par value $.10 per share. These rights entitled the holder to purchase one share of special preferred stock at a price of $.01 under certain conditions in connection with preserving for the Company and its stockholders the benefits of any recovery in the Company's lawsuit with North American Philips Corporation, et al. In 1992, these conditions ceased to apply, therefore, the special preferred stock rights remain outstanding but have no continuing application. NOTE N - GEOGRAPHIC AREA INFORMATION
1996 1995 1994 ------------- ------------- ------------- Revenues United States operations $ 127,093,600 $ 126,959,000 $ 136,500,000 International operations Sales to unaffiliated customers 69,910,000 60,817,900 44,612,200 Transfers between geographical areas 82,809,500 83,517,400 85,070,700 Eliminations (82,809,500) (83,517,400) (85,070,700) ------------- ------------- ------------- $ 197,003,600 $ 187,776,900 $ 181,112,200 ============= ============= =============
(continued) 25 68 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE N - GEOGRAPHIC AREA INFORMATION - Continued
1996 1995 1994 ---- ---- ---- OPERATING PROFIT United States operations $ (3,831,000) $ (7,774,000) $ 5,799,000 International operations 5,020,100 1,854,500 15,853,400 Eliminations (889,000) 1,164,000 (447,000) ------------- ------------- ------------- Operating profit (loss) 300,100 (4,755,500) 21,205,400 Equity in net earnings (loss) of joint ventures 2,298,700 (392,600) 91,400 Interest expense (1,345,900) (578,300) (551,900) Interest and other income 2,418,800 2,561,800 2,385,800 ------------- ------------- ------------- Consolidated earnings (loss) before income taxes, minority interest and extraordinary item $ 3,671,700 $ (3,164,600) $ 23,130,700 ============= ============= ============= IDENTIFIABLE ASSETS United States operations $ 178,703,900 $ 101,555,700 $ 112,339,500 International operations 159,785,100 145,714,800 123,670,900 Eliminations (103,010,100) (59,258,600) (38,886,400) ------------- ------------- ------------- Consolidated assets $ 235,478,900 $ 188,011,900 $ 197,124,000 ============= ============= =============
Transfers between geographic areas are billed at negotiated prices. In 1995, the United States operations' operating profit includes an $8,000,000 loss on the sale of an other asset. In 1994, the international operations' operating profit includes a $7,810,500 gain on the sale of Hong Kong office space. All United States revenues are derived from sales to unaffiliated customers. Included in domestic revenues and operating profit are certain sales derived from direct product shipments from Hong Kong to customers located in the United States. International operations are conducted in Canada, Hong Kong, Europe and the People's Republic of China. 26 69 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE O - CONCENTRATION OF CREDIT AND OTHER RISKS The Company sells on credit terms to a majority of its customers, most of which are U.S. and Canadian retailers and distributors located throughout those countries. A kitchen electric appliance distributor and a national retail beauty supply chain accounted for 10.9% and 10.3%, respectively, of 1996 sales. In 1995, Wal-Mart Stores, Inc. and a kitchen electric appliance distributor accounted for 13.1% and 11.4%, respectively, of the Company's 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 produces the vast majority of its products in its facilities in the People's Republic of China ("PRC"). The Company is subject to the risk that political or economic upheaval in the PRC could cause production disruptions and/or increases to its costs, although no such events have occurred in over five years. 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 renewed on an annual basis by the President and Congress. If political or economic instability in the PRC develops or if higher duties were applied to imports into the U.S., the Company could experience a material adverse impact on its revenues and earnings. NOTE P - 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 $693,300, $556,400 and $719,600 in 1996, 1995 and 1994, 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 $469,000 in 1996. Included in other assets, are a series of personal loans made by the Company to the President and Chief Executive Officer. The loans, which total $959,000 at December 31, 1996, bear interest at prevailing market rates and mature in 2001. (continued) 27 70 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 1996, 1995 AND 1994 NOTE P - RELATED PARTY TRANSACTIONS - Continued In 1986, the Company made a non-interest bearing loan of $78,000 to a director of the Company. The entire amount of such loan was outstanding at December 31, 1996. The Company loaned $300,000 to Lion Redcliff Import and Export, Ltd., which is 50-percent owned by an entity whose President is also a Director of the Company. Pursuant to the note, periodic principal payments are made by the debtor. The remaining obligation of $253,100 at December 31, 1996, bears interest at the prime rate. NOTE Q - FABERWARE LICENSE In the fourth quarter of 1996, the Company entered into a license agreement, pursuant to which, it holds the exclusive world-wide rights to use the Faberware name on a broad range of small electric products. Under the Company's marketing cooperation agreement with Salton, Salton is to be the exclusive distributor of the Faberware products. The license agreement expires December 31, 2095 and calls for quarterly royalty payments of 10-percent of net sales as defined in the agreement. NOTE R - EXTRAORDINARY ITEM On March 27, 1997, the Company paid $4,500,000 to settle the lawsuit filed in April 1994 by Izumi relating to the Phillips settlement in 1992 (Note K). An accrual of $5,300,000, including $800,000 in estimated legal expenses has been recorded as of December 31, 1996. The transaction resulted in an after tax charge of $3,500,000 and has been recorded as an extraordinary item, to correspond with the extraordinary gain recorded from the settlement in 1992. NOTE S - SUBSEQUENT EVENT In January 1997, the Company through its 50-percent interests in Salton and New M-Tech 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 New M-Tech. Under the terms of the contract, Salton and New M-Tech will supply Kmart, either through the Company or other manufacturers, with a broad range of small electrical appliances, consumer electronics and telephone products under the White-Westinghouse brand name. Kmart will be the exclusive discount department store to market these White-Westinghouse products. 28 71 WINDMERE - DURABLE HOLDINGS, INC. AND SUBSIDIARIES SUPPLEMENTAL FINANCIAL DATA QUARTERLY FINANCIAL DATA (UNAUDITED) The quarterly results for the years 1996 and 1995 are set forth in the following tabulation. (In Thousands)
Net Earnings Gross Earnings (Loss) Sales Profit (Loss) Per Share -------- -------- --------- ---------- 1996 - ---- First quarter $ 40,440 $ 8,603 $ 296 $ .02 Second quarter 39,503 8,349 (442) (.03) Third quarter 56,181 10,415 1,701 .10 Fourth quarter 60,880 12,358 (1,104) (.06) -------- -------- -------- --------- Total $197,004 $ 39,725 $ 451 $ .03 * ======== ======== ======== ========= 1995 - ---- First quarter $ 37,930 $ 9,136 $ 305 $ .02 Second quarter 42,102 9,074 936 .05 Third quarter 52,681 11,221 872 .05 Fourth quarter 55,064 11,439 (3,997)** (.23) -------- -------- -------- --------- Total $187,777 $ 40,870 $ (1,884) $ (.11) ======== ======== ======== =========
* Differs by $.01 from earnings per share for the year-ended 1996, due to the effect of the change in common shares and common equivalent shares outstanding from quarter to quarter. Includes an after tax extraordinary charge for the settlement of the Izumi case of $3,500,000 or $.20 per share. ** Includes an after-tax non-recurring loss on the sale of an ozther asset of $5,280,000, or $.31 per share. QUARTERLY STOCK QUOTATIONS AND DIVIDENDS PER SHARE The Company's common stock is traded on the New York Stock Exchange under the symbol WND. High and low market prices and dividends paid per share in 1996 and 1995, by quarters, are as follows:
Market Price -------------------- Cash High Low Dividends ---- --- --------- 1996 ---- Fourth quarter 16-3/4 12-5/8 $ .05 Third quarter 15-3/8 11-1/4 .05 Second quarter 14-3/4 9-5/8 .05 First quarter 11 6-7/8 .05 ------- $ .20 ======= 1995 ---- Fourth quarter 7-3/8 6 $ .05 Third quarter 8-1/4 7-1/4 .05 Second quarter 9 7-5/8 .05 First quarter 9-3/4 7-5/8 .05 ------- $ .20 =======
The approximate number of holders of common stock of the Company, as of December 31, 1996, was 1,400. This number does not include any adjustment for stockholders owning common stock in the Depository Trust name or otherwise in "Street" name, which the Company believes represents an additional 4,300 stockholders. 29 EX-3.6 2 ARTICLES OF AMENDMENT 1 ARTICLES OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION OF WINDMERE CORPORATION Pursuant to the provisions of Section 607.1006 of the Florida Business Corporation Act (the "Act"), the undersigned corporation adopts the following Articles of Amendment to its Amended and Restated Articles of Incorporation: 1. The name of the corporation is WINDMERE CORPORATION (the "Corporation"), CHARTER #274332, filed on October 3, 1963 and Amended and Restated on May 17, 1984. 2. The following Amendment to the Amended and Restated Articles of Incorporation was adopted by all of the Directors of the Corporation on May 14, 1996 and by the Shareholders of the Corporation, the number of votes cast being sufficient for approval, on June 13, 1996 in the manner prescribed by Section 607.1003 of the Act: RESOLVED, that Article I of the Corporation's Amended and Restated Articles of Incorporation shall be amended in its entirety to read as follows: ARTICLE I The name of the Corporation is WINDMERE-DURABLE HOLDINGS, INC. (hereinafter called the "Corporation"). 3. Except as hereby amended, the Amended and Restated Articles of Incorporation of the Corporation shall remain the same. IN WITNESS WHEREOF, the undersigned being the Vice President-Finance of the Corporation, has executed these Articles of Amendment to Amended and Restated Articles of Incorporation of Windmere Corporation this 18th day of June, 1996. WINDMERE CORPORATION, a Florida corporation By: --------------------------- Burton A. Honig, Vice President-Finance EX-10.54 3 AMENDMENT AGREEMENT NO.1 TO CREDIT AGREEMENT 1 AMENDMENT AGREEMENT NO. 1 TO THE CREDIT AGREEMENT THIS AMENDMENT AGREEMENT NO. 1 (the "Amendment Agreement"), dated as of January 31, 1997 TO THE CREDIT AGREEMENT dated as of October 11, 1996 (the "Credit Agreement"), made by and among WINDMERE CORPORATION, a Florida corporation having its principal place of business in Miami Lakes, Florida (the "Borrower"), NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), a national banking association organized and existing under the laws of the United States, in its capacity as a Lender ("NationsBank"), NATIONAL BANK OF CANADA (hereinafter such financial institutions may be referred to individually as a "Lender" or collectively as the "Lenders"), and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), a national banking association organized and existing under the laws of the United States, in its capacity as agent for the Lenders (in such capacity, the "Agent"); W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Borrower, the Agent and the Lenders have entered into the Credit Agreement; WHEREAS, the Borrower has requested that the Agent and the Lenders amend the Credit Agreement; and WHEREAS, upon the terms and conditions contained herein, the Agent and the Lenders are willing to amend the Credit Agreement; NOW, THEREFORE, in consideration of the premises and conditions herein set forth, it is hereby agreed as follows: 1. CREDIT AGREEMENT AMENDMENT. Subject to the conditions hereof, the Credit Agreement is hereby amended, effective as of the date hereof, as follows: (a) SECTION 1.1 thereof is hereby amended by amending and restating the following definition in its entirety as follows: "'Total Revolving Credit Commitment' means a principal amount equal to $30,000,000, such amount as reduced from time to time in accordance with Section 2.7." (b) EXHIBIT A To the Credit Agreement is hereby amended by amending and restating such Exhibit in its entirety as set forth in EXHIBIT A hereto. 2 2. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent and the Lenders to enter into this Amendment Agreement, the Borrower hereby represents and warrants that the Credit Agreement has been re-examined by the Borrower and that except as disclosed by the Borrower in writing to the Lenders as of the date hereof: (a) The representations and warranties made by the Borrower in Article VII thereof are true on and as of the date hereof; (b) There has been no material adverse change in the condition, financial or otherwise, of the Borrower and its Subsidiaries since the date of the most recent financial reports of the Borrower delivered to the Agent under Section 8.1 thereof, other than changes in the ordinary course of business; (c) The business and properties of the Borrower and its Subsidiaries are not, and since the date of the most recent financial reports of the Borrower delivered to the Agent under Section 8.1 thereof, have not been, adversely affected in any substantial way as the result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo, riot, activities of armed forces, war or acts of God or the public enemy, or cancellation or loss of any major contracts; and (d) After giving effect to this Amendment Agreement, no condition exists which, upon the effectiveness of the amendment contemplated hereby, would constitute a Default or an Event of Default on the part of the Borrower under the Credit Agreement or the Notes, either immediately or with the lapse of time or the giving of notice, or both. 3. CONDITIONS PRECEDENT. The effectiveness of this Amendment Agreement is subject to the receipt by the Agent of the following: (i) six counterparts of this Amendment Agreement duly executed by all signatories hereto; (iii) resolutions of the Board of Directors or other governing body of the Borrower approving this Amendment Agreement certified by the Secretary of the Borrower; and (iii) copies of all additional agreements, instruments and documents which the Agent may reasonably request, such documents, when appropriate, to be certified by appropriate governmental authorities. All proceedings of the Borrower relating to the matters provided 3 3 for herein shall be satisfactory to the Lenders, the Agent and their counsel. 4. ENTIRE AGREEMENT. This Amendment Agreement sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, condition, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and no one of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as in this Amendment Agreement otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any party to the other. None of the terms or conditions of this Amendment Agreement may be changed, modified, waived or canceled orally or otherwise, except by writing, signed by all the parties hereto, specifying such change, modification, waiver or cancellation of such terms or conditions, or of any proceeding or succeeding breach thereof. 5. CONSENT OF GUARANTORS. The Guarantors have joined in the execution of this Amendment Agreement for the purposes of consenting hereto and for the further purpose of confirming their guaranty of Obligations of Borrower as provided in the Guaranty. 6. FULL FORCE AND EFFECT OF AGREEMENT. Except as hereby specifically amended, modified or supplemented, the Credit Agreement and all other Loan Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms. 7. COUNTERPARTS. This Amendment Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. 8. GOVERNING LAW. THIS AMENDMENT AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF FLORIDA, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY (I) SUBMITS TO THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS OF FLORIDA FOR THE PURPOSES OF RESOLVING DISPUTES HEREUNDER OR UNDER ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY OR FOR PURPOSES OF COLLECTION AND (II) WAIVES TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION. 9. ENFORCEABILITY. Should any one or more of the provisions of this Amendment Agreement be determined to be 4 4 illegal or unenforceable as to one or more of the parties hereto, all other provisions nevertheless shall remain effective and binding on the parties hereto. 10. CREDIT AGREEMENT. All references in any of the Loan Documents to the Credit Agreement shall mean and include the Credit Agreement as amended hereby. 11. SUCCESSORS AND ASSIGNS. This Amendment Agreement shall be binding upon and inure to the benefit of each of the Borrower, the Lenders, the Agent and their respective successors, assigns and legal representatives; provided, however, that the Borrower, without the prior consent of the Lenders, may not assign any rights, powers, duties or obligations hereunder. [Remainder of page intentionally left blank.] 5 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. WINDMERE CORPORATION By: ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- GUARANTORS: WINDMERE-DURABLE HOLDINGS, INC. By: ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- WINDMERE HOLDINGS CORPORATION By: ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- WINDMERE HOLDINGS CORPORATION II By: ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- WINDMERE FAN PRODUCTS, INC. By: ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- LITTER MAID, INC. By: ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- 6 BAY BOOKS & TAPES, INC. By: ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- JERDON PRODUCTS, INC. By: ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- CONSUMER PRODUCTS AMERICAS, INC. By: ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- FORTUNE PRODUCTS, INC. By: ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- EDI MASTERS, INC. By: ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as Agent and Lender By: ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- NATIONAL BANK OF CANADA, as Lender By: ------------------------------------- Name: ------------------------------------- Title: ------------------------------------- 7 EXHIBIT A APPLICABLE COMMITMENT PERCENTAGES Revolving Applicable Credit Commitment Lender Commitment Percentage - ------ ------------ ------------ NationsBank, National Association (South) $17,000,000 56.666666667% National Bank of Canada 13,000,000 43.333333333% ----------- ------------ $30,000,000 100% EX-27 4 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1996 DEC-31-1996 8,779,500 0 38,729,900 1,128,700 89,514,000 155,016,400 79,666,300 46,906,500 237,278,900 49,451,900 2,037,000 0 0 1,744,500 165,950,300 237,278,900 197,003,600 197,003,600 157,278,400 157,278,400 0 930,000 1,345,900 1,373,000 (279,700) 3,951,400 0 (3,500,000) 0 451,400 .02 0
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