-----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, UcPRavf1JOvx/7NmziilMnAVBFVXJ4FUEiiQFVFjlvgHL7iqchqjZq3NxGzVHS52 wKYi9dSt9h6PIseihvaVAw== 0000950144-97-009237.txt : 19970815 0000950144-97-009237.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950144-97-009237 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10177 FILM NUMBER: 97662593 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-Q 1 WINDMERE-DURABLE HOLDINGS 10-Q 6-30-97 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ----- SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended JUNE 30, 1997 ---------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ----- SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from __________to__________ Commission File Number 1-10177 --------------- WINDMERE-DURABLE HOLDINGS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) FLORIDA 59-1028301 - --------------------------------- ----------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 5980 MIAMI LAKES DRIVE, MIAMI LAKES, FLORIDA 33014 -------------------------------------------- ----- (Address of principal executive offices) (Zip Code) (305) 362-2611 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirement for the past 90 days. Yes X No ------ ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Number of Shares Outstanding Class on August 1, 1997 ----- ----------------- Common Stock, $.10 Par Value 17,603,334 2 WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION ITEM 1. Consolidated Statements of Earnings for the ------- Three Months Ended June 30, 1997 and 1996 3 Consolidated Statements of Earnings for the Six Months Ended June 30, 1997 and 1996 4 Consolidated Balance Sheets as of June 30, 1997, December 31, 1996 and June 30, 1996 5-6 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 7-8 Notes to Consolidated Financial Statements 9-11 ITEM 2. Management's Discussion and Analysis of ------- Financial Condition and Results of Operations 12-16 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 17 ------- ITEM 6. Exhibits and Reports on Form 8-K 18 ------- SIGNATURES 19 2 3 PART I - FINANCIAL INFORMATION - ------------------------------ ITEM 1. FINANCIAL STATEMENTS - ------- -------------------- WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (In Thousands Except Per Share Information)
Three Months Ended June 30, 1997 1996 ------------------------ ------------------------ Sales and Other Revenues $ 60,063 100.0% $ 39,503 100.0% Cost of Goods Sold 47,057 78.3 31,154 78.9 -------- ---------- -------- ---------- Gross Profit 13,006 21.7 8,349 21.1 Selling, General and Administrative Expenses 11,650 19.4 8,717 22.1 -------- ---------- -------- ---------- Operating Profit 1,356 2.3 (368) (1.0) Other (Income) Expense Interest Expense 709 1.2 196 .5 Interest and Other Income (487) (.8) (615) (1.6) -------- ---------- -------- ---------- 222 .4 (419) (1.1) -------- ---------- -------- ---------- Earnings Before Equity in Net Earnings (Loss) of Joint Ventures and Income Taxes 1,134 1.9 51 .1 Equity in Net Earnings (Loss) of Joint Ventures 611 1.0 (526) (1.3) -------- ---------- -------- ---------- Earnings Before Income Taxes 1,745 2.9 (475) (1.2) Income Taxes Current (441) (.7) (95) (.2) Deferred 245 .4 62 .1 -------- ---------- -------- ---------- (196) (.3) (33) (.1) -------- ---------- -------- ---------- Net Earnings (Loss) $ 1,941 3.2% $ (442) (1.1%) ======== ========== ======== ========== Earnings (Loss) Per Common Share and Common Equivalent Share $ .10 $ (.03) ======== ======== Average Number of Common Shares and Common Equivalent Shares Outstanding 19,546 16,405 ======== ======== Dividends Per Common Share $ .05 $ .05 ======== ========
The accompanying notes are an integral part of these statements. 3 4 WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (In Thousands Except Per Share Information) Six Months Ended June 30, 1997 1996 --------------- ------------- Sales and Other Revenues $111,475 100.0% $79,943 100.0% Cost of Goods Sold 87,650 78.6 62,991 78.8 -------- ---- ------ ---- Gross Profit 23,825 21.4 16,952 21.2 Selling, General and Administrative Expense 21,347 19.1 16,766 21.0 -------- ---- ------ ---- Operating Profit 2,478 2.3 186 .2 Other (Income) Expense Interest Expense 1,333 1.2 329 .4 Interest and Other Income (964) (.8) (1,090) (1.4) -------- ---- ------ ---- 369 .4 (761) (1.0) -------- ---- ------ ---- Earnings Before Equity in Net Earnings (Loss) of Joint Ventures and Income Taxes 2,109 1.9 947 1.2 Equity in Net Earnings (Loss) of Joint Ventures 120 .1 (751) .9 -------- ---- ------ ---- Earnings Before Income Taxes 2,229 2.0 196 .3 Income Taxes Current (2,436) (2.2) (193) (.2) Deferred 2,405 2.2 535 .7 -------- ---- ------ ---- (31) .0 342 .5 -------- ---- ------ ---- Net Earnings (Loss) $2,260 2.0% $ (146) (.2%) ======== ==== ====== ==== Earnings (Loss) Per Common and Common Equivalent Shares $ .12 $ (.01) ======== ====== Average Number of Common and Common Equivalent Shares Outstanding 19,416 17,014 ======== ====== Dividends Per Common Share $.10 $ .10 ======== ====== The accompanying notes are an integral part of these statements. 4 5 WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In Thousands) ASSETS 6/30/97 12/31/96 6/30/96 ------- -------- ------- CURRENT ASSETS Cash & Cash Equivalents $ 4,354 $ 8,779 $ 5,499 Accounts and Other Receivables, less allowances of $1,146, $1,129 and $1,148, respectively 35,646 37,601 34,991 Receivables from Affiliates (Note 2) 14,255 12,139 10,114 Inventories Raw Materials 16,826 13,824 16,290 Work-in-process 21,704 20,552 21,073 Finished Goods 52,290 55,138 46,128 -------- -------- -------- Total Inventories 90,820 89,514 83,491 Prepaid Expenses 5,579 3,751 4,718 Future Income Tax Benefits 3,404 3,232 1,210 -------- -------- -------- Total Current Assets 154,058 155,016 140,023 INVESTMENTS IN JOINT VENTURES (NOTE 2) 35,860 35,291 10,631 PROPERTY, PLANT & EQUIPMENT - AT COST, less accumulated depreciation of $48,218, $45,366 and $43,436, respectively 34,504 32,760 31,109 OTHER ASSETS 13,199 14,212 12,716 -------- -------- -------- TOTAL ASSETS $237,621 $237,279 $194,479 ======== ======== ======== 5 6 WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In Thousands) Continued LIABILITIES 6/30/97 12/31/96 6/30/96 ------- -------- ------- CURRENT LIABILITIES Notes and Acceptances Payable $ 29,269 $ 21,883 $ 7,558 Current Maturities of Long-Term Debt 815 815 815 Accounts Payable and Accrued Expenses 18,840 26,335 15,265 Deferred Income, current portion 330 419 598 --------- --------- --------- Total Current Liabilities 49,254 49,452 24,236 LONG-TERM DEBT 19,477 19,885 9,444 DEFERRED INCOME, less current portion 83 247 368 STOCKHOLDERS' EQUITY (Note 3) Special Preferred Stock - authorized 40,000,000 shares of $.01 par value; none issued Common Stock - authorized 40,000,000 shares of $.10 par value; shares issued and out- standing: 17,563, 17,445 and 16,422, respectively 1,756 1,745 1,642 Paid-in Capital 36,431 35,766 27,549 Retained Earnings 131,513 130,965 132,066 Unrealized Foreign Currency Translation Adjustment (893) (781) (826) --------- --------- --------- Total Stockholders' Equity 168,807 167,695 160,431 --------- --------- --------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 237,621 $ 237,279 $ 194,479 ========= ========= ========= The accompanying notes are an integral part of these statements. 6 7 WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In Thousands) Six Months Ended June 30, 1997 1996 ---- ---- Cash flows from operating activities: Net earnings (loss) $ 2,260 $ (146) Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property, plant and equipment 3,202 3,240 Amortization of intangible assets 561 315 Amortization of deferred income (253) (299) Net change in allowance for losses on accounts receivable 17 (10) Equity in net (earnings) loss of joint ventures (422) 751 Changes in assets and liabilities Decrease in accounts and other receivables 1,938 1,570 Increase in inventories (1,306) (3,748) Increase in prepaid expenses (1,828) (1,715) Decrease (increase) in other assets 585 (820) Decrease in accounts payable and accrued expenses (7,495) (2,843) (Increase) decrease in current and deferred income taxes (172) 433 Decrease in other accounts (111) (54) -------- -------- Net cash used in operating activities (3,024) (3,326) Cash flows from investing activities: Additions to property, plant and equipment - net (4,946) (3,865) Purchase of assets - LitterMaid(TM) -- (2,200) Purchase of assets - Bay Books & Tapes -- (1,180) Investments in joint ventures (250) (3,698) Increase in receivable accounts and notes from affiliates (2,146) (815) -------- -------- Net cash used in investing activities $ (7,342) $(11,758) 7 8 WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In Thousands) Continued Six Months Ended June 30, 1997 1996 ---- ---- Cash flows from financing activities: Net borrowings under lines of credit $ 7,386 $ 7,516 Payments of long-term debt (408) $ (408) Exercise of stock options and warrants 677 1,115 Cash dividends paid (1,714) (1,640) Purchases of common stock -- (3,768) -------- -------- Net cash provided by financing activities 5,941 2,815 -------- -------- Decrease in cash and cash equivalents (4,425) (12,269) Cash and cash equivalents at beginning of year 8,779 17,768 -------- -------- Cash and cash equivalents at end of quarter $ 4,354 $ 5,499 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for: Interest $ 830 $ 199 Income taxes $ 6 $ 250 The accompanying notes are an integral part of these statements. 8 9 WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF ACCOUNTING POLICIES INTERIM REPORTING In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all normal recurring adjustments necessary to present fairly the Company's financial position as of June 30, 1997 and 1996, and the results of its operations and changes in financial position for the interim periods. Results for interim periods should not be considered indicative of results for a full year. Reference should be made to the financial statements contained in the registrant's Annual Report on Form 10-K for the year ended December 31, 1996. RECLASSIFICATIONS Certain prior period amounts have been reclassified for comparability. 2. 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 purchased the remainder of its seasonal products joint venture. Financial data for this entity is consolidated for the 1997 period and has, therefore, been excluded in the table below for 1997. Summarized financial information of the unconsolidated companies is as follows: (In Thousands) Six Six Months Ended Year Ended Months Ended 6/30/97 12/31/96 6/30/96 ------- -------- ------- EARNINGS -------- Sales $125,342 $162,368 $ 23,295 Gross Profit $ 29,804 $ 34,312 $ 1,462 Net Earnings (Loss) $ 846 $ 5,552 $ (1,502) BALANCE SHEET ------------- Current Assets $106,995 Noncurrent Assets $ 35,727 Current Liabilities $ 87,806 Shareholders' Equity $ 54,529 9 10 At June 30, 1997, the Company's loans to certain of its joint venture partners ("affiliates") totaled $9.8 million, of which $3.0 million was subsequently repaid. The Company has also provided a $3 million corporate guarantee in conjunction with a credit facility obtained by one of its joint ventures. Sales made by joint ventures were to entities other than members of the consolidated group. Sales totaling $9.7 million and $1.2 million were made by the Company to the joint ventures in the three month periods ended June 30, 1997 and 1996, respectively. Included in Receivables from Affiliates at June 30, 1997 is $3.6 million due the Company from the joint ventures for trade receivables. Note: Profits earned by the Company's manufacturing subsidiary on sales to joint ventures are included in the consolidated earnings results and are not part of the above table. 3. STOCKHOLDERS' EQUITY DIVIDENDS The Board of Directors of the Company declared a regular quarterly cash dividend of $.05 per share to shareholders of record at the close of business on June 3, 1997, which was paid on June 17, 1997. The payment of dividends is at the discretion of the Board of Directors of the Company and will depend upon, among other things, future earnings, capital requirements, the Company's financial condition and such other factors as the Board of Directors may consider. EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share", which changes the method for reporting Earnings Per Share. The statement is effective for financial statement periods ending after December 15, 1997. The Company has not yet determined the impact, if any, of adopting the new standard. 4. 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. 5. MARKETING COOPERATION AGREEMENT On April 30, 1997, the Company entered into a Letter Agreement with Salton pursuant to the Marketing Cooperation Agreement included as part of the original Stock Purchase Agreement. Fees earned by the 10 11 Company under marketing arrangements with its joint ventures totaled $.8 million for the six month period ended June 30, 1997 and are classified as Sales and Other Revenues. 6. COMMITMENTS AND CONTINGENCIES 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, 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 April 9, 1997, on joint motion of the parties, the court issued an order staying future proceedings until the earlier of July 1, 1997 or five days after hearing before the court in order to give the parties an opportunity to pursue settlement discussions. Subsequently, after a status hearing before the Court on July 15, 1997, and in accordance with the Court's memorandum order of July 17, 1997, counsel for the parties in the litigation pending in the United States District Court for the Western District of Pennsylvania reported to the Court in a letter that the parties had agreed to pursue an expedited mini-trial/mediation proceeding in an effort to resolve their disputes. The letter further states that if the process does not result in a resolution of the dispute, the parties have committed to report to the Court by no later than September 30, 1997, regarding a proposed schedule for expedited pretrial preparation and trial. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996 Sales and Other Revenues ("Sales") for the second quarter of 1997 increased by $20.6 million or 52.0% over Sales for the same period in 1996. The increase is primarily the result of the inclusion of $4.6 million in seasonal product sales as a result of the Company's December 1996 acquisition of the remainder of its seasonal products joint venture and an increase of $11.9 million in manufacturing sales. Sales to Salton accounted for 15.3% of total sales for the 1997 period. On April 30, 1997, the Company entered into a Letter Agreement with Salton pursuant to the Marketing Cooperation Agreement included as part of the original Stock Purchase Agreement. Fees earned by the Company under marketing arrangements with its joint ventures totaled $.4 million and are classified as Sales and Other Revenues. COMPARATIVE SALES RESULTS -------------------------------------- (In Thousands) Three Months Ended June 30, 1997 June 30, 1996 ------------- ------------- DISTRIBUTION $ 39,574 65.9% $ 30,880 78.2% MANUFACTURING 20,489 34.1 8,623 21.8 ------- ----- ------- ----- Total Sales $ 60,063 100.0% $ 39,503 100.0% ======= ===== ======= ===== Selling, general and administrative costs increased to $11.7 million in the second quarter of 1997 from $8.7 million in the second quarter of 1996, yet decreased as a percentage of sales to 19.4% from 22.1% for the same periods. The increase of $3.0 million is primarily the result of costs related to LitterMaid, Inc., Bay Books & Tapes, Inc. and the now wholly-owned seasonal products company, whose operations, due to their respective acquisition dates, were not fully reflected in the 1996 second quarter financial statements Interest expense increased by $.5 million in the second quarter of 1997 as a 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 facilities. The Company's equity in net earnings (loss) of joint ventures was $.6 million for the second quarter of 1997 as compared to a loss of $.5 million for the same period in 1996. Included in 1997 are the results of operations of the Company's interests in Salton, New M-Tech and various other ventures acquired later in or subsequent to the second quarter of 1996. In December 1996, the Company acquired the remainder of its seasonal products joint venture. 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 average number of common shares and common equivalent shares used in computing per share results was 19,545,508 in 1997, as compared to 16,404,947 12 13 in 1996. The change was primarily due to the additional dilutive effect of stock options and warrants arising from the Company's higher average stock price in 1997 and the additional shares issued upon the acquisition of Salton. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share", which changes the method for reporting Earnings Per Share. The statement is effective for financial statements for periods ending after December 15, 1997. The Company has not yet determined the impact, if any, of adopting the new standard. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996 Sales and Other Revenues for the 1997 six month period increased by $31.5 million or 39.4% over Sales for the same period in 1996. The increase is primarily the result of the inclusion of $15.0 million in seasonal product sales as a result of the Company's December 1996 acquisition of the remainder of its seasonal products joint venture and an increase of $15.4 million in manufacturing sales. On April 30, 1997, the Company entered into a Letter Agreement with Salton pursuant to the Marketing Cooperation Agreement included as part of the original Stock Purchase Agreement. Fees earned by the Company under marketing arrangements with its joint ventures totaled $.8 million and are classified as Sales and Other Revenues. COMPARATIVE SALES RESULTS -------------------------------------- Six Months Ended June 30, 1997 June 30, 1996 ------------- ------------- DISTRIBUTION $ 79,298 71.1% $ 62,972 78.8% MANUFACTURING 32,286 28.9 16,972 21.2 ------- ----- ------ ----- Total Sales $111,584 100.0% $ 79,943 100.0% ======= ===== ====== ===== Selling, general and administrative costs increased to $21.3 million in the second quarter of 1997 from $16.8 million in the second quarter of 1996, yet decreased as a percentage of sales to 19.1% from 21.0% for the same periods. The increase of $4.5 million is primarily the result of costs related to LitterMaid, Inc., Bay Books & Tapes, Inc. and the Company's now wholly-owned seasonal products company, whose operations, due to their respective acquisition dates, were not fully reflected in the 1996 second quarter financial statements. Interest expense increased by $1.0 million in the 1997 period as a 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 facilities. The Company's equity in net earnings (loss) of joint ventures was $.1 million for the second quarter of 1997 as compared to a loss of $.8 million for the same period in 1996. Included in 1997 are the results of operations of the Company's interests in Salton, New M-Tech and various other ventures acquired later in or subsequent to the second quarter of 1996. In December 1996, the Company acquired the remainder of its seasonal products joint venture. 13 14 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 average number of common shares and common equivalent shares used in computing per share results was 19,415,861 in 1997, as compared to 17,013,725 in 1996. The change was primarily due to the additional dilutive effect of stock options and warrants arising from the Company's higher average stock price in 1997 and the additional shares issued upon the acquisition of Salton. LIQUIDITY & CAPITAL RESOURCES At June 30, 1997, the Company's current ratio and quick ratio were 3.1 to 1 and 1.1 to 1 as compared to 5.8 to 1 and 2.1 to 1 for the second quarter of 1997. Working capital at those dates was $104.8 million and $115.8 million, respectively. Cash balances decreased by $4.4 million during the six months ended June 30, 1997. This decrease is the net result of the $3.0 million used in operations and net expenditures for investing and financing activities. Investing expenditures of $7.3 million consisted of additions to property, plant and equipment and increases in receivables from affiliates. The $5.9 million provided by financing activities is primarily the result of additional borrowings used to settle the Izumi lawsuit and to meet seasonal working capital requirements. Certain of the Company's foreign subsidiaries (the "subsidiaries") have $6.4 million in trade finance lines of credit, payable on demand, which are secured by the subsidiaries' tangible and intangible property located in Hong Kong and in the People's Republic of China, as well as a Company guarantee. At June 30, 1997, the subsidiaries were utilizing, including letters of credit, approximately $4.4 million of these credit lines. These subsidiaries also have available a $5.0 million revolving line of credit which is supported by a domestic standby letter of credit, of which $3.8 was outstanding as of June 30, 1997. The Company has a $30.0 million line of credit from a domestic bank, secured by domestic accounts receivable and inventory. A commitment to increase the line to $45.0 million has been received from the bank and the loan is expected to close in August 1997. At June 30, 1997, outstanding borrowings under this credit line totaled $25.5 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 to meet the Company's capital requirements and its operating needs for the foreseeable future. LEGAL PROCEEDINGS The Company, its 50-percent owned joint venture partners Salton/Maxim 14 15 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 Stated 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, 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 April 9, 1997, on joint motion of the parties, the court issued an order staying future proceedings until the earlier of July 1, 1997 or five days after hearing before the court in order to give the parties an opportunity to pursue settlement discussions. Subsequently, after a status hearing before the Court on July 15, 1997, and in accordance with the Court's memorandum order of July 17, 1997, counsel for the parties in the litigation pending in the United States District Court for the Western District of Pennsylvania reported to the Court in a letter that the parties had agreed to pursue an expedited mini-trial/mediation proceeding in an effort to resolve their disputes. The letter further states that if the process does not result in a resolution of the dispute, the parties have committed to report to the Court by no later than September 30, 1997, regarding a proposed schedule for expedited pretrial preparation and trial. The Company is subject to other legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability, if any, in excess of applicable insurance coverage, is not likely to have a material effect on the financial position of the Company. MANUFACTURING OPERATIONS Substantially all of the Company's products (85% - 90%) are manufactured by Durable, its wholly-owned Hong Kong subsidiary, in Bao An County, Guangdong Province of the People's Republic of China (PRC), which is approximately 60 miles northwest of central Hong Kong. The Company has a significant amount of its assets in the People's Republic, primarily consisting of inventory, equipment and molds. The supply and cost of products manufactured in the PRC can be adversely affected, among other reasons, by changes in foreign currency exchange rates, increased import duties, imposition of tariffs, imposition of import quotas, interruptions in sea or air transportation and political or economic changes. Presently products imported into the U.S. from the PRC are subject to favorable duty rates based on the "Most Favored Nation" status of the PRC ("MFN Status"). MFN Status is reviewed on an annual basis by the President and Congress and was renewed in June 1997. 15 16 If MFN status for goods produced in the People's Republic were removed, there would be a substantial increase in tariffs imposed on goods of Chinese origin entering the United States, including those manufactured by the Company, which could have a material adverse impact on the Company's revenues and earnings. From time to time, the Company explores opportunities to diversify its sourcing and/or production of certain products to other low-cost locations or with other third parties or joint venture partners in order to reduce its dependence on production in the People's Republic and/or reduce Durable's dependence on the Company's existing distribution base. However, at the present time, the Company intends to continue its production in the People's Republic. 16 17 PART II - OTHER INFORMATION - --------------------------- ITEM 1. Legal Proceedings - ------- See "Legal Proceedings" in Part I, Item 2 of this report. ITEM 4. Results of Votes of Security Holders - ------- At the Annual Meeting of Stockholders, held on May 20, 1997, the following matters were submitted to a vote of the Company's security holders: Election of Directors: VOTES ----- Barbara Friedson Garrett FOR AGAINST WITHHELD ABSTAIN --- ------- -------- ------- 15,274,015 1,006,049 Susan J. Ganz FOR AGAINST WITHHELD ABSTAIN --- ------- -------- ------- 15,279,040 1,001,024 Thomas J. Kane FOR AGAINST WITHHELD ABSTAIN --- ------- -------- ------- 15,848,084 431,980 Felix S. Sabates FOR AGAINST WITHHELD ABSTAIN --- ------- -------- ------- 15,849,763 430,301 Approval and ratification of Company's 1996 Stock Option Plan: VOTES ----- FOR AGAINST WITHHELD ABSTAIN --- ------- -------- ------- 13,439,546 2,723,201 117,316 Approval of the Company's 1997 Cash Bonus Performance Plan for Executive Officers VOTES ----- FOR AGAINST WITHHELD ABSTAIN --- ------- -------- ------- 14,866,751 1,302,154 111,157 Ratification of Grant Thornton as the Company's auditors for the fiscal year ended December 31, 1997: VOTES ----- FOR AGAINST WITHHELD ABSTAIN --- ------- -------- ------- 15,491,395 766,186 22,483 17 18 ITEM 6. Exhibits and Reports on Form 8-K - ------- (a) Exhibits 27.........Financial Data Schedule (for S.E.C. use only) (b) There were no reports on Form 8-K filed for the three months ended June 30, 1997. 18 19 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WINDMERE-DURABLE HOLDINGS, INC. ------------------------------- (Registrant) August 14, 1997 By: /s/ Henry D. Schulman ------------------------------ Harry D. Schulman Senior Vice President - Finance and Administration and Chief Financial Officer (Duly authorized to sign on behalf of the Registrant) August 14, 1997 By: /s/ Burton A. Honig ------------------------------- Burton A. Honig Vice President - Finance (Duly authorized to sign on behalf of the Registrant) 19 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF WINDMERE-DURABLE HOLDINGS, INC. FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JUN-30-1997 4,354 0 35,646 1,146 90,820 154,058 82,722 48,218 237,621 49,254 1,425 0 0 1,756 168,807 237,621 111,475 111,475 87,650 87,650 21,347 0 1,333 2,229 (31) 2,260 0 0 0 2,260 .10 .10
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