-----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, WDj+GJFw0nmxao+W8YzpSjKLSCxzFxnhNLBD0IEBxDpuxcFZVRuBuRj6x/JpqbTF J++emcWeNEA98N2k6QfzwQ== 0000950144-98-006492.txt : 19980518 0000950144-98-006492.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950144-98-006492 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: SEC FILE NUMBER: 001-10177 FILM NUMBER: 98625270 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 3/31/98 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, 1998 ------------------------ 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 MAY 7, 1998 ----- ---------------------------- Common Stock, $.10 Par Value 18,758,336 2 WINDMERE-DURABLE HOLDINGS, INC. INDEX PART I. FINANCIAL INFORMATION ITEM Consolidated Statements of Earnings for the 3 Three Months Ended March 31, 1998 and 1997 Consolidated Balance Sheets as of 4-5 March 31, 1998, December 31, 1997 and March 31, 1997 Consolidated Statements of Cash Flows 6-7 for the Three Months Ended March 31, 1998 and 1997 Notes to Consolidated Financial Statements 8-11 ITEM 2. Management's Discussion and Analysis of 12-15 Financial Condition and Results of Operations PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 16 ITEM 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WINDMERE-DURABLE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE INFORMATION)
Three Months Ended March 31, ---------------------------------------------- 1998 1997 ------------------ ------------------ Sales and Other Revenues $ 55,394 100.0% $ 51,412 100.0% Cost of Goods Sold 42,511 76.7 40,593 79.0 -------- ----- -------- ----- Gross Profit 12,883 23.3 10,819 21.0 Selling, General and Administrative Expenses 11,706 21.1 9,697 18.9 -------- ----- -------- ----- Operating Profit 1,177 2.2 1,122 2.1 Other (Income) Expense Interest Expense 1,045 1.9 624 1.2 Interest and Other Income (681) (1.2) (477) (.9) -------- ---- -------- ----- 364 .7 147 .3 -------- ---- -------- ----- Earnings Before Equity in Net Earnings of Joint Ventures and Income Taxes 813 1.5 975 1.8 Equity in Net Earnings of Joint Ventures 445 .8 (490) (.9) -------- ---- -------- ----- Earnings Before Income Taxes 1,257 2.3 485 .9 Provision for Income Taxes 121 .2 164 .3 -------- ---- -------- ----- Net Earnings $ 1,136 2.1% $ 321 .6% ======== ==== ======== ===== Earnings Per Share - basic $ .06 $ .02 ======== ======== Earnings Per Share - diluted $ .06 $ .02 ======== ======== Dividends Per Common Share $ .00 $ .05 ======== ========
The accompanying notes are an integral part of these statements. 3 4 WINDMERE-DURABLE HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS)
3/31/98 12/31/97 3/31/97 ------- -------- ------- ASSETS CURRENT ASSETS Cash & Cash Equivalents $ 2,491 $ 8,224 $ 9,188 Accounts and Other Receivables, less allowances of $1,068, $1,111 and $1,193, respectively 38,506 43,338 32,492 Receivables from Affiliates (Note 2) 17,303 15,291 17,108 Inventories Raw Materials 16,330 13,327 13,856 Work-in-process 21,711 21,062 21,077 Finished Goods 61,728 67,783 50,112 -------- -------- -------- Total Inventories 99,769 102,172 85,045 Prepaid Expenses 7,032 4,618 4,903 Refundable Income Taxes 3,950 5,043 -- Future Income Tax Benefits 1,274 1,274 3,274 -------- -------- -------- Total Current Assets 179,325 179,960 152,010 INVESTMENTS IN JOINT VENTURES (NOTE 2) 43,699 43,091 34,880 PROPERTY, PLANT & EQUIPMENT - AT COST, less accumulated depreciation of $52,014, $50,329 and $46,959, respectively 38,009 37,199 33,139 Notes Receivable from Affiliate 7,872 7,799 -- OTHER ASSETS 13,766 13,798 13,867 -------- -------- -------- TOTAL ASSETS $273,671 $281,847 $233,896 ======== ======== ========
4 5 WINDMERE-DURABLE HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS) CONTINUED
3/31/98 12/31/97 3/31/97 ------- -------- ------- LIABILITIES CURRENT LIABILITIES Notes and Acceptances Payable $ 45,452 $ 42,982 $ 26,846 Current Maturities of Long-Term Debt 3,365 3,815 815 Accounts Payable and Accrued Expenses 16,109 26,838 18,757 Deferred Income, current portion 165 247 352 ------- -------- -------- Total Current Liabilities 65,091 73,882 46,770 LONG-TERM DEBT 15,866 16,070 19,681 DEFERRED INCOME, less current portion 1,031 1,074 165 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 outstanding: 18,722, 18,119 and 17,478, respectively 1,872 1,812 1,748 Paid-in Capital 40,668 41,024 35,986 Retained Earnings 150,223 149,088 130,431 Unrealized Foreign Currency Translation Adjustment (1,080) (1,102) (885) -------- -------- -------- Total Shareholders' Equity 191,683 190,821 167,280 -------- -------- -------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $273,671 $281,847 $233,896 ======== ======== ========
The accompanying notes are an integral part of these statements. 5 6 WINDMERE-DURABLE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Three Months Ended March 31, --------------------------- 1998 1997 ---- ---- Cash flows from operating activities: Net earnings $ 1,136 $ 321 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation of property, plant and equipment 1,861 1,622 Amortization of intangible assets 213 264 Amortization of deferred income (125) (149) Net change in allowance for losses on accounts receivable (44) (57) Equity in net earnings (loss) of joint ventures (608) 310 Changes in assets and liabilities Decrease in accounts and other receivables 4,875 5,166 Decrease in inventories 2,403 4,469 Increase in prepaid expenses (2,414) (1,152) (Increase) decrease in other assets (180) 148 Decrease in accounts payable and accrued expenses (10,729) (7,578) Decrease in current and deferred income taxes 1,093 - (Increase) decrease in other accounts 22 (146) -------- ------- Net cash provided by (used in) operating activities (2,497) 3,218 Cash flows from investing activities: Additions to property, plant and equipment - net (2,671) (2,001) Increase in receivable accounts and notes from affiliates (2,085) (4,935) -------- ------- Net cash used in investing activities $ (4,756) $(6,936)
6 7 WINDMERE-DURABLE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) CONTINUED
Three Months Ended March 31, --------------------------- 1998 1997 ---- ---- Cash flows from financing activities: Net borrowings under lines of credit $ 2,470 $ 4,963 Payments of long-term debt (654) (204) Exercise of stock options and warrants 2,050 223 Cash dividends paid -- (855) Payment of withholding tax on stock option exercises (2,346) -- -------- ------- Net cash provided by financing activities 1,520 4,127 -------- ------- (Decrease) increase in cash and cash equivalents (5,733) 409 Cash and cash equivalents at beginning of year 8,224 8,779 -------- ------- Cash and cash equivalents at end of quarter $ 2,491 $ 9,188 ======== ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for: Interest $ 1,643 $ 117 Income taxes $ 29 $ 68
The accompanying notes are an integral part of these statements. 7 8 WINDMERE-DURABLE HOLDINGS, INC. 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, 1998 and 1997, 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, 1997. RECLASSIFICATIONS Certain prior period amounts have been reclassified for comparability. 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 the current portion of notes receivable due from certain of the Company's joint venture partners ("affiliates"). Notes receivable from these affiliates are due upon demand and bear interest at prevailing market interest rates. 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"), Newtech Electronics Industries, Inc. ("Newtech"), PX Distributors, Inc. ("PX"), Breakroom of Tennessee, Inc. and Anasazi Partners, L.P. ("Anasazi"). Summarized financial information of the unconsolidated companies is as follows: (In Thousands) Three Three Months Ended Year Ended Months Ended 3/31/98 12/31/97 3/31/97 --------- --------- ---------- EARNINGS Sales $107,064 $467,549 $ 50,177 Gross Profit $ 29,746 $108,100 $ 14,055 Net Earnings (Loss) $ 1,541 $ 15,885 $ (619) BALANCE SHEET Current Assets $172,539 $169,300 $ 78,215 Noncurrent Assets $ 41,679 $ 38,781 $ 34,011 Current Liabilities $140,171 $132,550 $ 60,241 Shareholders' Equity $ 74,047 $ 61,581 $ 51,098 8 9 Notes receivable from affiliates totaled $16.7 million at March 31, 1998 which includes $8.1 million, of which $.3 million is short term, from the 1997 sale of one of the Company's manufacturing subsidiaries. The Company has also provided a $9.0 million corporate guarantee as support for a credit facility obtained by one of its joint ventures. All sales made by joint ventures in the three month periods ended March 31, 1998 and 1997 were to entities other than members of the consolidated group. Sales totaling $6.3 million and $7.7 million were made by the Company to the joint ventures in the three month periods ended March 31, 1998 and 1997, respectively. Included in Receivables from Affiliates at March 31, 1998 is $6.7 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. SHAREHOLDERS' EQUITY EARNINGS PER SHARE In 1997, the Company adopted Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." Basic shares for the three month periods ended March 31, 1998 and 1997 were 18,413,731 and 17,465,494, respectively. Included in diluted shares are common stock equivalents relating to options, warrants and convertible debt of 1,779,910 and 1,855,345 for the three month periods ended March 31, 1998 and 1997, respectively. 4. RECENT ACCOUNTING PRONOUNCEMENTS The Company adopted Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income", effective January 1, 1998. SFAS 130 establishes standards for reporting and display of comprehensive income and its components in financial statements. Differences between net earnings and comprehensive earnings for the three month periods ended March 31, 1998 and 1997 were insignificant and, therefore, have not been separately disclosed. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures About Segments of an Enterprise and Related Information." The Company has not assessed the effect this new standard will have on its consolidated financial statements and/or disclosures. 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 Company under marketing arrangements with its joint ventures totaled $.7 million for the three month period ended March 31, 1998 and are classified as Sales and Other Revenues. Fees earned in the 1997 period were insignificant. 6. COMMITMENTS AND CONTINGENCIES The Company, its 50-percent owned joint venture partners Salton and Newtech, White Consolidated Industries, Inc. ("White 9 10 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 and Newtech 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. A mediation proceeding occurred and the parties were unable to reach a mediated settlement. Discovery is proceeding and the matter is likely to be tried in late 1998. In December 1997, the employment agreements of the senior members of Salton's management expired. Disagreements arose between the management and the members of the Salton board of directors who have been designated by the Company under the Stockholders' Agreement between the two companies, dated July 11, 1996 (the "Windmere Directors"), as to provisions to be contained in new agreements or the terms under which management would continue to be employed by Salton if no agreements were executed. During the course of these discussions, Salton alleged that certain actions of the Company would breach the terms of the July 11, 1996 Marketing Cooperation Agreement between the Company and Salton and violate fiduciary duties to Salton. The Company and the Windmere Directors, after being advised by legal counsel, vehemently disagree with the allegations. 10 11 On May 7, 1998, the Company announced that it had entered into an agreement which grants Salton the right to purchase the Company's 6,535,072 shares of Salton for $12 per share in cash and a six and one-half year, $15 million subordinated promissory note bearing interest at 4% per annum. The note is offset by 5% of the total purchase price paid by Salton for product purchases from the Company and its affiliates during the term of the note. The aggregate value of the transaction would be equivalent to $14.27 per share of Salton common stock. If Salton fails to exercise their right on or prior to June 30, 1998 or to close the purchase on or prior to October 30, 1998, then the Company will have the right to acquire all of the shares of Salton which it does not own in a tender offer and/or merger for $14.27 per share in cash or in registered shares of its common stock. The agreement further provides that in the event Salton acquires the Company's 50% interest in Salton: (i) the Company will simultaneously pay in full its $10.8 million promissory note to Salton; (ii) Salton will repurchase for approximately $3.3 million an option owned by the Company to purchase up to 458,500 shares of Salton stock; and (iii) various contractual and other arrangements, including those relating to Kmart, will continue subject to certain modifications. The Company and the other 50 percent owner in Newtech have entered into an agreement whereby each party will transfer 5.0% of their interest in Newtech to a third party if and when a liquidity event for the Company occurs. Pursuant to the agreement, a liquidity event would occur if Newtech sells equity interests in a public offering, Newtech is sold to a third party, or if there is an other disposition of the Company's interest or other similar event. On May 14, 1998, Newtech filed a Form S-1 Registration Statement to publicly offer shares of its common stock with the Securities and Exchange Commission. 7. SUBSEQUENT EVENTS On May 11, 1998 the Company announced that it had signed a definitive agreement to acquire The Black & Decker Corporation's Household Products Group, which includes the Cooking, Garment Care, Food Preparation and Beverage categories. Pursuant to the terms of the acquisition agreement, the Company will purchase the assets and assume certain liabilities of The Black & Decker Household Products Group for $315 million in cash. In connection with the transaction, the Company and Black & Decker have established a long-term licensing arrangement which will allow Windmere to continue to market products under the Black & Decker brand name in the Cooking, Garment Care, Food Preparation and Beverage categories in North and Latin America, excluding Brazil, Uruguay and Paraguay, for a minimum of six and one-half years on a royalty-free basis with potential renewal periods upon mutual agreement. The Company has received a commitment from its senior lender in the amount of the transaction plus transaction fees as well as an additional working capital facility. The transaction is expected to close within 60 days, subject to the receipt of regulatory and other necessary approvals. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997 Sales and Other Revenues ("Sales") for the first quarter of 1998 increased by $4.0 million or 7.7% over Sales for the same period in 1997. The increase is primarily the result of increases in distribution sales of the Company's LitterMaid product as well as private label kitchen and seasonal products. Sales to a national retail beauty supply chain accounted for 10.2% of total sales for the 1998 period. Fees earned by the Company under marketing arrangements with its joint ventures in the 1998 period totaled $.7 million and are classified as Sales and Other Revenues. Fees earned in the 1997 period were not significant. COMPARATIVE REVENUE RESULTS --------------------------- (In Thousands) Three Months Ended ------------------------------------------------ MARCH 31, 1998 MARCH 31, 1997 ------------------- --------------------- DISTRIBUTION $ 45,249 81.7% $ 39,615 79.4% MANUFACTURING 10,145 18.3 11,797 20.6 --------- ----- --------- ----- Total Sales $ 55,394 100.0% $ 51,412 100.0% ========= ===== ========= ====== The Company's gross profit margin increased to 23.3% of sales in the 1998 period as compared to 21.0% of sales in 1997. Decreases in certain raw material prices contributed significantly as did the higher margins related to sales of LitterMaid. Selling, general and administrative costs increased by $2.0 million in the first quarter of 1998 compared to the same period of 1997. The increase is primarily the result of the Company's increased investment in development of the LitterMaid business including $1.2 million in advertising expenditures. The Company's equity in net earnings of joint ventures was $.5 million for the first quarter of 1998 as compared to a loss of $.5 million for the same period in 1997. Interest expense increase by $.4 million to $1.0 million in the 1998 period. The increase is the result of the increased level of borrowing under the Company's credit facilities. 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. In 1997, the Company adopted Financial Accounting Standards No. 128 (FAS 128), "Earnings Per Share". Basic shares for the three month periods ended March 31, 1998 and 1997 were 18,413,731 and 17,465,494, respectively. Included in diluted shares are common stock equivalents relating to options, warrants and convertible debt of 1,779,910 and 1,855,345 for the three month periods ended March 31, 1998 and 1997, respectively. The increase in number of shares was primarily due to the additional dilutive effect of stock option exercises and the Company's higher average stock price in 1998. LIQUIDITY & CAPITAL RESOURCES At March 31, 1998, the Company's current ratio and quick ratio were 2.6 to 1 and 1.1 to 1 as compared to 3.3 to 1 and 1.1 to 1 at March 31, 1997. Working capital at both dates was $105.2 million. 12 13 Cash balances decreased by $5.7 million during the three months ended March 31, 1998. Cash of $2.5 million used in operating activities is the net result of collections for year end 1997 sales and decreases in inventory balances offset by payments made to vendors prior to the annual closing of the Company's manufacturing facilities for Chinese New Year. The $4.8 million in cash used in investing activities reflects capital expenditures of $2.7 million and an increase of $2.1 million due from affiliates. Certain of the Company's foreign subsidiaries (the "subsidiaries") have $21.4 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, 1998, the subsidiaries were utilizing, including letters of credit, approximately $7.0 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 $4.3 million was outstanding as of March 31, 1998. Outstanding borrowings by the Company's Hong Kong subsidiaries are primarily in U.S. dollars. The Company has a $55.0 million line of credit from a domestic bank, secured by domestic accounts receivable and inventory. At March 31, 1998, outstanding borrowings under this credit line totaled $39.0 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. On May 11, 1998 the Company announced that it had signed a definitive agreement to acquire The Black & Decker Corporation's Household Products Group, which will include the Cooking, Garment Care, Food Preparation and Beverage categories. Pursuant to the terms of the acquisition agreement, the Company will purchase the assets and assume certain liabilities of The Black & Decker Household Products Group for $315 million in cash. In connection with the transaction, the Company and Black & Decker have established a long-term licensing arrangement which will allow Windmere to continue to market products under the Black & Decker brand name in the Cooking, Garment Care, Food Preparation and Beverage categories in North and Latin America, excluding Brazil, Uruguay and Paraguay, for a minimum of six and one-half years on a royalty-free basis with potential renewal periods upon mutual agreement. The Company has received a commitment from its senior lender in the amount of the transaction plus transaction fees as well as an additional working capital facility. The transaction is expected to close within 60 days, subject to the receipt of regulatory and other necessary approvals. The Company believes that its cash on hand and internally generated funds, together with its credit lines, including funds committed in conjunction with the acquisition of the Black & Decker Household Products Group, 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 and Newtech, 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 13 14 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 and Newtech 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. A mediation proceeding occurred and the parties were unable to reach a mediated settlement. Discovery is proceeding and the matter is likely to be tried in late 1998. 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. COMMITMENTS AND CONTINGENCIES In December 1997, the employment agreements of the senior members of Salton's management expired. Disagreements arose between the management and the members of the Salton board of directors who have been designated by the Company under the Stockholders' Agreement between the two companies, dated July 11, 1996 (the "Windmere Directors"), as to provisions to be contained in new agreements or the terms under which management would continue to be employed by Salton if no agreements were executed. During the course of these discussions, Salton alleged that certain actions of the Company would breach the terms of the July 11, 1996 Marketing Cooperation Agreement between the Company and Salton and violate fiduciary duties to Salton. The Company and the Windmere Directors, after being advised by legal counsel, vehemently disagree with the allegations. On May 7, 1998, the Company announced that it had entered into an agreement which grants Salton the right to purchase the Company's 6,535,072 shares of Salton for $12 per share in cash and a six and one-half year, $15 million subordinated promissory note bearing interest at 4% per annum. The note is offset by 5% of the total purchase price paid by Salton for product purchases from the Company and its affiliates during the term of the note. The aggregate value of the transaction would be equivalent to $14.27 per share of Salton common stock. If Salton fails to exercise their right 14 15 on or prior to June 30, 1998 or to close the purchase on or prior to October 30, 1998, then the Company will have the right to acquire all of the shares of Salton which it does not own in a tender offer and/or merger for $14.27 per share in cash or in registered shares of its common stock. The agreement further provides that in the event Salton acquires the Company's 50% interest in Salton: (i) the Company will simultaneously pay in full its $10.8 million promissory note to Salton; (ii) Salton will repurchase for approximately $3.3 million an option owned by the Company to purchase up to 458,500 shares of Salton stock; and (iii) various contractual and other arrangements, including those relating to Kmart, will continue subject to certain modifications. The Company and the other 50 percent owner in Newtech have entered into an agreement whereby each party will transfer 5.0% of their interest in Newtech to a third party if and when a liquidity event for the Company occurs. Pursuant to the agreement, a liquidity event would occur if Newtech sells equity interests in a public offering, Newtech is sold to a third party, or if there is an other disposition of the Company's interest or other similar event. On May 14, 1998, Newtech filed a Form S-1 Registration Statement to publicly offer shares of its common stock with the Securities and Exchange Commission. MANUFACTURING OPERATIONS The Company's products are primarily manufactured by Durable, its wholly-owned Hong Kong subsidiary, in Bao An County, Guangdong 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 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. Recent months have seen an unusually rapid devaluation of certain Asian- Pacific currencies. While there has not been a material impact on the currencies in Hong Kong or the People's Republic, where the Company has operations, there can be no assurances that there will not be a material impact in the future. 15 16 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 (b) There were no reports on Form 8-K filed for the three months ended March 31, 1998. 16 17 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 15, 1998 By: /s/ Harry D. Schulman --------------------------------------- Harry D. Schulman Senior Vice President - Finance and Administration and Chief Financial Officer (Duly authorized to sign on behalf of the Registrant) May 15, 1998 By: /s/ Burton A. Honig -------------------------------------- Burton A. Honig Vice President - Finance (Duly authorized to sign on behalf of the Registrant) 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 2,491 0 39,574 1,068 99,769 179,325 90,023 52,014 273,671 65,091 0 0 0 1,872 40,668 273,671 55,394 55,394 42,511 42,511 11,706 0 1,045 1,257 121 1,136 0 0 0 1,136 .06 .06
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