-----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, IyD49Zg0Hk+yN8EmDiQzJuwLfdEQ8D4qNQdb0eZ9Mc7Zpwlc+shcsY1v7dE4nYqd qM29ddh2qogJ6riDVupMhg== 0000950144-97-005556.txt : 19970514 0000950144-97-005556.hdr.sgml : 19970514 ACCESSION NUMBER: 0000950144-97-005556 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 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: 97601952 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 FORM 10-Q DATED 03/31/97 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 MARCH 31, 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 to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 he preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to 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 April 30, 1997 ------- ---------------------------- Common Stock, $.10 Par Value 17,491,962 2 WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES INDEX
PART I. FINANCIAL INFORMATION Item 1. Consolidated Statements of Earnings for the 3 ------ Three Months Ended March 31, 1997 and 1996 Consolidated Balance Sheets as of 4-5 March 31, 1997, December 31, 1996 and March 31, 1996 Consolidated Statements of Cash Flows 6-7 for the Three Months Ended March 31, 1997 and 1996 Notes to Consolidated Financial Statements 8-10 Item 2. Management's Discussion and Analysis of 11-13 ------ Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 ------ Item 6. Exhibits and Reports on Form 8-K 14 ------ 15 SIGNATURES
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 March 31, 1997 1996 ---- ---- Sales and Other Revenues $ 51,412 100.0% $ 40,440 100.0% Cost of Goods Sold 40,593 79.0 31,837 78.7 -------- ----- -------- ----- Gross Profit 10,819 21.0 8,603 21.3 Selling, General and Administrative Expenses 9,697 18.9 8,050 20.0 -------- ----- -------- ----- Operating Profit 1,122 2.1 553 1.3 Other (Income) Expense Interest Expense 624 1.2 133 .3 Interest and Other Income (477) (.9) (475) (1.2) -------- ----- -------- ----- 147 .3 (342) (.9) -------- ----- -------- ----- Earnings Before Equity in Net Loss of Joint Ventures and Income Taxes 975 1.8 895 2.2 Equity in Net Loss of Joint Ventures (490) (.9) (225) (.5) -------- ----- -------- ------ Earnings Before Income Taxes 485 .9 670 1.7 Income Taxes Current (1,996) (3.9) (98) (.2) Deferred 2,160 4.2 472 1.2 -------- ----- -------- ----- 164 .3 374 1 -------- ----- -------- ----- Net Earnings $ 321 .6% $ 296 .7% ======== ===== ======== ===== Earnings Per Common Share $ .02 $ .02 and Common Equivalent Share ======== ======== Average Number of Common Shares and Common Equivalent 19,286 17,622 Shares Outstanding ======== ======== 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 BALANCE SHEETS (UNAUDITED) (IN THOUSANDS)
ASSETS 3/31/97 12/31/96 3/31/96 ------- -------- ------- CURRENT ASSETS Cash & Cash Equivalents $ 9,188 $ 8,779 $ 11,693 Accounts and Other Receivables, less allowances of $1,072, $1,129 and $1,084, respectively 32,492 37,601 33,626 Receivables from Affiliates (Note 2) 17,108 12,139 10,968 Inventories Raw Materials 13,856 13,824 16,295 Work-in-process 21,077 20,552 21,081 Finished Goods 50,112 55,138 41,182 --------- --------- --------- Total Inventories 85,045 89,514 78,558 Prepaid Expenses 4,903 3,751 2,990 Future Income Tax Benefits 3,274 3,232 1,250 --------- --------- --------- Total Current Assets 152,010 155,016 139,085 INVESTMENTS IN JOINT VENTURES (NOTE 2) 34,880 35,291 - PROPERTY, PLANT & EQUIPMENT - AT COST, less accumulated depreciation of $46,959, $46,907 and $41,846, respectively 33,139 32,760 30,489 OTHER ASSETS 13,867 14,212 11,992 --------- --------- --------- TOTAL ASSETS $ 233,896 $ 237,279 $ 181,566 ========= ========= =========
4 5 WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS) CONTINUED
LIABILITIES 3/31/97 2/31/96 3/31/96 ------- -------- ------- CURRENT LIABILITIES Notes and Acceptances Payable $ 26,846 $21,883 $ - Current Maturities of Long-Term Debt 815 815 815 Accounts Payable 12,191 12,106 8,849 Accrued Expenses 6,502 14,229 5,806 Income Taxes 64 93 Deferred Income, current portion 352 419 598 -------- -------- -------- Total Current Liabilities 46,770 49,452 16,161 LONG-TERM DEBT 19,681 19,885 2,648 DEFERRED INCOME, less current portion 165 247 517 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: 17,478, 17,445 and 16,429, respectively 1,748 1,745 1,643 Paid-in Capital 35,986 35,766 28,028 Retained Earnings 130,431 130,965 133,326 Unrealized Foreign Currency Translation Adjustment (885) (781) (757) -------- -------- -------- Total Stockholders' Equity 167,280 167,695 162,240 -------- -------- -------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $233,896 $237,279 $181,566 ======== ======== ========
The accompanying notes are an integral part of these statements. 5 6 WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Three Months Ended March 31, 1997 1996 ---- ---- Cash flows from operating activities: Net earnings $ 321 $ 296 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property, plant and equipment 1,622 1,614 Amortization of intangible assets 264 136 Amortization of deferred income (149) (150) Net change in allowance for losses on accounts receivable (57) (127) Equity in loss of joint ventures 310 225 Changes in assets and liabilities Decrease in accounts and other receivables 5,166 3,052 Decrease in inventories 4,469 516 Increase in prepaid expenses (1,152) (493) Decrease in other assets 148 83 Decrease in accounts payable and accrued expenses (7,578) (3,453) Increase (decrease) in current and deferred income taxes (42) 486 (Increase) decrease in other accounts (104) 11 --------- -------- Net cash provided by operating activities 3,218 2,196 Cash flows from investing activities: Additions to property, plant and equipment - net (2,001) (1,621) Purchase of assets - Litter Maid(TM) - (2,200) Decrease (increase) in receivable accounts and notes from affiliates (4,935) (1,210) --------- -------- Net cash used in investing activities $ (6,936) $ (5,031)
6 7 WINDMERE-DURABLE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
CONTINUED Three Months Ended March 31, 1997 1996 ---- ---- Cash flows from financing activities: Net borrowings under lines of credit $ 4,963 $ (42) Payments of long-term debt (204) $ (204) Exercise of stock options and warrants 223 440 Cash dividends paid (855) (821) Purchases of common stock - (2,613) -------- -------- Net cash provided by (used in) financing activities 4,127 (3,240) -------- -------- Increase (decrease) in cash and cash equivalents 409 (6,075) Cash and cash equivalents at beginning of year 8,779 17,768 -------- -------- Cash and cash equivalents at end of quarter $ 9,188 $ 11,693 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for: Interest $ 117 $ 97 Income taxes $ 68 $ 266
The accompanying notes are an integral part of these statements. 7 8 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 March 31, 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"). Investments in these ventures, except for PX, were made subsequent to March 31, 1996. First quarter 1996 financial data for these ventures has, therefore, been excluded from the table below. 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)
Three Three Months Ended Year Ended Months Ended 3/31/97 12/31/96 3/31/96 ------- -------- ------- Earnings -------- Sales $50,177 $162,368 $ 11,728 Gross Profit $14,055 $ 34,312 $ 741 Net Earnings (Loss) $ (619) $ 5,552 (450) Balance Sheet ------------- Current Assets $78,215 Noncurrent Assets $34,011 Current Liabilities $60,241 Shareholders' Equity $51,098
8 9 Certain of the Company's joint venture investments had deficits of $.3 million, $.4 million and $1.0 million, at March 31, 1997, December 31, 1996 and March 31, 1996, respectively. Such deficits have been classified as reductions in Receivables from Affiliates. At March 31, 1997, the Company's loans to certain of its joint venture partners ("affiliates") totaled $7.8 million. Sales made by joint ventures were to entities other than members of the consolidated group. Sales totaling $7.7 million and $.1 million were made by the Company to Salton in the three month periods ended March 31, 1997 and 1996, respectively. Included in Receivables from Affiliates is $8.7 million in trade receivables due the Company from Salton. 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 March 4, 1997, which was paid on March 18, 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. Under the terms of the Letter Agreement, Salton will pay the Company a fee equal to 50-percent of the excess of net sales over direct expenses of all White-Westinghouse products sold by 9 10 Salton to Kmart. Such fees are recorded 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. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - ------ CONDITION AND RESULTS OF OPERATIONS Results of Operations Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996 Net sales for the first quarter of 1997 increased by $11.0 million or 27.2% over sales for the same period in 1996. The increase is primarily the result of the inclusion of $7.6 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 $3.5 million in manufacturing sales. Salton and a discount retailer accounted for 15.1% and 10.7%, respectively, 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. Under the terms of the Letter Agreement, Salton will pay the Company a fee equal to 50-percent of the excess of net sales over direct expenses of all White-Westinghouse products sold by Salton to Kmart. Such fees are recorded as Sales and Other Revenues.
COMPARATIVE SALES RESULTS ------------------------- (In Thousands) Three Months Ended March 31, 1997 March 31, 1996 -------------- -------------- DISTRIBUTION $ 39,615 79.4% $ 32,092 79.4% MANUFACTURING 11,797 20.6 8,348 20.6 ------- ----- ------- ---- Total Sales $ 51,412 100.0% $ 40,440 100.0% ======= ===== ======= =====
Selling, general and administrative costs increased to $9.7 million in the first quarter of 1997 from $8.1 million in the first quarter of 1996, yet decreased as a percentage of sales to 18.9% from 20.0% for the same periods. The increase of $1.6 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 were not reflected in the 1996 first quarter financial statements. Interest expense increased by $.5 million in the first 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 loss of joint ventures was $.5 million and $.2 million in the first quarter of 1997 and 1996, respectively. Included in 1997 are the results of operations of the Company's interests in Salton, New M-Tech and various other ventures acquired subsequent to the first 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 19,286,000 in 1997, as compared to 11 12 17,622,000 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. Liquidity & Capital Resources At March 31, 1997, the Company's current ratio and quick ratio were 3.3 to 1 and 1.1 to 1 as compared to 8.6 to 1 and 2.8 to 1 for the first quarter of 1996. Working capital at those dates was $105.2 million and $122.9 million, respectively. Cash balances increased by $.4 million during the three months ended March 31, 1997. This increase is the net result of the excess of the $3.2 million generated from operations over net expenditures for investing and financing activities. Investing expenditures of $6.9 million consisted of additions to property, plant and equipment and increases in receivables from affiliates. The $4.1 million increase in financing activities is primarily the result of additional borrowings used to settle the Izumi lawsuit. 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 March 31, 1997, the subsidiaries were utilizing, including letters of credit, approximately $3.2 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 $3.9 was outstanding as of March 31, 1997. The Company has a $30.0 million line of credit from a domestic bank, secured by domestic accounts receivable and inventory, which is scheduled for renewal in July, 1997. At March 31, 1997, outstanding borrowings under this credit line totaled $21.5 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 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 12 13 ("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. 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 is up for renewal in July 1997. 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. 13 14 PART II - OTHER INFORMATION - --------------------------- ITEM 1. Legal Proceedings - ------ See "Legal Proceedings" in Part I, Item 2 of this report. ITEM 6. Exhibits and Reports on Form 8-K - ------ (a) Exhibits 10 - Letter Agreement dated April 30, 1997 between the Company and Salton/Maxim Housewares, Inc. 27 - Financial Data Schedule. (b) There were no reports on Form 8-K filed for the three months ended March 31, 1997. 14 15 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) May 13, 1997 By: /s/ ------------------------------ Harry D. Schulman Senior Vice President - Finance and Administration and Chief Financial Officer (Duly authorized to sign on behalf of the Registrant) May 13, 1997 By: /s/ ----------------------------- Burton A. Honig Vice President - Finance (Duly authorized to sign on behalf of the Registrant) 15 EX-10 2 LETTER AGREEMENT 1 EXHIBIT 10 LETTER AGREEMENT DATED APRIL 30, 1997 ("AGREEMENT") BETWEEN WINDMERE CORPORATION ("WINDMERE") AND SALTON/MAXIM HOUSEWARES, INC. ("SALTON") WHEREAS, Windmere, with its main office in Miami Lakes, Florida, and Salton, with its main office in Mt. Prospect, Illinois, have worked together to obtain the benefits of significant sales of products under the White-Westinghouse brand to Kmart Corporation ("Kmart"), and have signed a multi-year contract between Salton and Kmart documenting said relationship. WHEREAS, the distribution profits on the sales to Kmart of the White-Westinghouse brand of appliances will all be received and recorded on the books of Salton (the "White-Westinghouse Profits"). NOW, THEREFORE, following Kmart's execution of the aforesaid contract and in consideration of Windmere's marketing cooperation efforts in connection with the Company's supply contract with Kmart and Windmere's guarantee of the Company's obligations under such contract, this Letter Agreement documents the obligation of Salton to pay a fee as described herein to Windmere as compensation for its efforts on Salton's behalf in obtaining said White-Westinghouse Profits. FEE: Salton shall pay Windmere a fee equal to 50% of the White-Westinghouse profits (the "50% Fee"). The 50% Fee shall be paid within 60 days of the close of each calendar quarter based on the transactions in said quarter, accompanied by a sales report transmitted by facsimile, which will provide such sales information and other data as Windmere may reasonably require to describe the calculation of the 50% Fee. For purposes of this Agreement, the "White-Westinghouse Profits" shall be computed based on all White-Westinghouse sales (net of actual returns) to Kmart less direct costs of sales and direct expenses, such as the Detroit office selling expenses, inspection fees, warehousing costs, freight out, royalties and cooperative advertising. Direct Expenses shall not include taxes whether based on income or property, data processing and/or other selling, general and administrative costs except those identified in the preceding sentence or mutually agreed upon. PAYMENT: Payment shall be by wire transfer to Windmere's bank account. TERM: This Agreement shall not be cancelable during the term of that definitive contract between Salton and Kmart, including any extensions or modifications thereof. The term of this agreement shall coincide with the contract term as specified in that said contract between Salton and Kmart. JURISDICTION: This Agreement shall be interpreted under the laws of the State of Florida. Windmere Corporation Salton/Maxim Housewares, Inc. /s/ /s/ ------------------------- ----------------------------- By: Harry D. Schulman By: Leonhard Dreimann Senior Vice President President 16 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATI0N EXTRACTED FROM THE FINANCIAL STATEMENTS OF WINDMERE-DURABLE HOLDINGS, INC. FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 MAR-31-1997 9,188 0 33,564 1,072 85,045 152,010 80,098 46,959 233,896 46,770 1,833 0 0 1,748 165,532 233,896 51,412 51,412 40,593 40,593 9,697 0 624 485 164 321 0 0 0 321 .02 .02
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