<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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 0-1349
Stanhome Inc.
___________________________________________________________________________
(Exact name of registrant as specified in its charter)
Massachusetts 04-1864170
____________________________________ _______________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Western Avenue, Westfield, Massachusetts 01085
___________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 413-562-3631
___________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days Yes X No _
September 30,
1994 1993
____ ____
Shares Outstanding:
Common Stock with
Associated Rights 19,240,950 19,383,686
Total number of pages
contained herein 26
Index to Exhibits is
on page 25
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
------------------------------
STANHOME INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1994 and DECEMBER 31, 1993
(Unaudited)
<CAPTION>
September 30, December 31,
1994 1993
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and certificates of deposit $ 11,137,892 $ 53,333,754
Marketable securities, at cost (which
approximates market value) 20,523,452 7,392,380
Notes and accounts receivable, net 160,537,654 123,018,073
Inventories 107,848,328 94,877,441
Prepaid advertising 47,307,797 30,946,289
Other prepaid expenses 7,047,833 4,783,884
------------ ------------
Total current assets 354,402,956 314,351,821
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost 108,717,075 107,851,799
Less - Accumulated depreciation and
amortization 64,675,048 63,177,270
------------ ------------
44,042,027 44,674,529
------------ ------------
OTHER ASSETS:
Intangibles
Goodwill, net 42,016,937 43,028,884
Product lines and other, net 17,737,376 18,720,577
Other 11,002,600 8,954,915
------------ ------------
70,756,913 70,704,376
------------ ------------
$469,201,896 $429,730,726
============ ============
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
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<TABLE>
STANHOME INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1994 and DECEMBER 31, 1993
(Unaudited)
<CAPTION>
September 30, December 31,
1994 1993
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes and loans payable $ 19,364,387 $ 834,197
Accounts payable 51,881,840 51,166,414
Federal, state and foreign taxes
on income 32,749,314 21,598,997
Accrued expenses--
Payroll and commissions 18,366,554 12,844,332
Vacation, sick leave and
retirement insurance 9,079,933 9,074,991
Royalties 7,864,544 7,319,675
Restructuring 4,909,130 10,840,975
Pensions and profit sharing 4,626,758 5,094,628
Acquisitions - 9,125,000
Other 29,929,734 27,153,269
------------ ------------
Total current liabilities 178,772,194 155,052,478
------------ ------------
LONG-TERM LIABILITIES:
Foreign employee severance obligations 13,601,441 12,869,999
Pensions 8,099,311 7,442,344
------------ ------------
Total long-term liabilities 21,700,752 20,312,343
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 3,153,530 3,153,530
Capital in excess of par value 37,071,853 34,015,110
Retained earnings 356,815,174 338,753,939
Cumulative translation adjustments ( 25,167,173) ( 27,405,455)
------------ ------------
371,873,384 348,517,124
Less - Shares held in treasury, at cost 103,144,434 94,151,219
------------ ------------
Total shareholders' equity 268,728,950 254,365,905
------------ ------------
$469,201,896 $429,730,726
============ ============
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
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<TABLE>
STANHOME INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED SEPTEMBER 30, 1994 and 1993 (Unaudited)
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
NET SALES $193,255,053 $182,481,378
COST OF SALES 85,032,087 77,697,990
------------ ------------
GROSS PROFIT 108,222,966 104,783,388
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE 86,244,463 83,353,851
------------ ------------
OPERATING PROFIT 21,978,503 21,429,537
Interest expense ( 209,719) ( 533,821)
Other income, net 936,331 601,189
------------ ------------
INCOME BEFORE INCOME TAXES 22,705,115 21,496,905
Income taxes 9,587,971 9,597,114
------------ ------------
NET INCOME $ 13,117,144 $ 11,899,791
============ ============
EARNINGS PER COMMON SHARE,
Primary and fully diluted $ .67 $ .60
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
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<TABLE>
STANHOME INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 and 1993 (Unaudited)
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
NET SALES $553,616,075 $534,207,325
COST OF SALES 229,323,679 215,768,986
------------ ------------
GROSS PROFIT 324,292,396 318,438,339
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE 266,500,132 266,407,010
RESTRUCTURING CHARGE - 17,000,000
------------ ------------
OPERATING PROFIT 57,792,264 35,031,329
Interest expense ( 513,583) ( 1,263,928)
Other income, net 2,123,646 2,012,229
------------ ------------
INCOME BEFORE INCOME TAXES 59,402,327 35,779,630
Income taxes 26,543,970 18,835,441
------------ ------------
NET INCOME 32,858,357 16,944,189
RETAINED EARNINGS, beginning of period 338,753,939 325,241,068
Cash dividends, $.765 per share in 1994
and $.75 per share in 1993 ( 14,797,122) ( 14,772,209)
------------ ------------
RETAINED EARNINGS, end of period $356,815,174 $327,413,048
============ ============
EARNINGS PER COMMON SHARE:
Primary $1.68 $ .86
Fully diluted $1.67 $ .86
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
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<TABLE>
STANHOME INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 and 1993 (Unaudited)
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash used in operating activities ($12,625,636) ($ 1,491,079)
----------- -----------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment ( 4,503,887) ( 4,840,332)
Acquisition of businesses, net of cash
acquired ( 12,978,935) ( 199,858)
Proceeds from sale of property, plant and
equipment 2,265,461 416,375
Other, principally marketable securities ( 12,610,392) ) 163)
----------- -----------
Net cash used in investing activities ( 27,827,753) ( 4,623,978)
----------- -----------
FINANCING ACTIVITIES:
Cash dividends ( 14,797,122) ( 14,772,209)
Exchanges and purchases of common stock ( 9,534,403) ( 11,766,487)
Notes and loans payable 18,411,727 12,423,403
Exercise of stock options 3,313,800 459,341
Other common stock issuance 284,131 296,098
----------- -----------
Net cash used in financing activities ( 2,321,867) ( 13,359,854)
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents 579,394 ( 1,789,247)
----------- -----------
Increase/(decrease) in cash and
cash equivalents ( 42,195,862) ( 21,264,158)
Cash and cash equivalents,
beginning of year 53,333,754 33,793,236
----------- -----------
Cash and cash equivalents, end of quarter $11,137,892 $12,529,078
=========== ===========
SUPPLEMENTAL CASH FLOW DATA
Cash paid for:
Interest $ 564,036 $ 1,272,961
Income taxes $15,655,020 $17,890,618
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
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STANHOME INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The consolidated condensed financial statements and related notes
included herein have been prepared by the Company, without audit except for
the December 31, 1993 condensed balance sheet, which was derived from the
Annual Report on Form 10-K, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. The information furnished reflects all normal
recurring adjustments which are, in the opinion of management, necessary
for a fair statement of the results for the interim periods. It is
suggested that these condensed financial statements be read in conjunction
with the financial statements and related notes to consolidated financial
statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1993.
1. ACCOUNTING POLICIES:
The Company's financial statements for the three and nine months ended
September 30, 1994 have been prepared in accordance with the accounting
policies described in Note 1 to the December 31, 1993 consolidated
financial statements included in the Company's 1993 Annual Report on Form
10-K. Marketable securities with maturities of three months or less are
considered to be cash equivalents but there were none at September 30, 1994
and December 31, 1993. The cash flows' cash and cash equivalents at
September 30, 1994 are equal to the cash and certificates of deposit on the
September 30, 1994 balance sheet. Notes and accounts receivable were net
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of allowance for doubtful accounts of $17,373,000 at September 30, 1994 and
$15,731,000 at December 31, 1993.
The impact of adopting the AICPA's SOP 93-7 (Reporting on Advertising
Costs) is immaterial to the Company as the Company is already in compliance
with all the Statement's accounting provisions.
The Company recognizes revenue as merchandise is turned over to the
shipper.
2. OTHER INCOME, NET:
Other income, net for the quarters and nine months ended September
30, 1994 and 1993 consists of the following (in thousands):
Quarters Ended September 30
1994 1993
---- ----
Interest income $ 918 $ 767
Gains on the sale of
capital assets, net 800 33
Exchange transaction/ translation
gains/(losses), net ( 165) 335
Other assets amortization ( 594) ( 581)
Other items, net ( 22) 47
------ ------
$ 937 $ 601
====== ======
Nine Months Ended September 30
1994 1993
---- ----
Interest income $2,888 $2,999
Gains on the sale of
capital assets, net 1,262 34
Exchange transaction/ translation
gains/(losses),net ( 253) 297
Other assets amortization ( 1,796) ( 1,713)
Other items, net 23 395
------ ------
$2,124 $2,012
====== ======
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3. INVENTORY CLASSES:
The major classes of inventories at September 30 and December 31
were as follows (in thousands):
September 30, December 3l,
1994 1993
---- ----
Raw materials and supplies $ 8,999 $ 6,710
Work in process 247 644
Finished goods in transit 9,866 8,762
Finished goods 88,736 78,761
-------- --------
$107,848 $ 94,877
======== ========
4. EARNINGS PER COMMON SHARE (BASIS OF CALCULATION):
Earnings per common share are based on the average number of
common shares outstanding and common share equivalents for the periods
covered. For 1993 and the third quarter of 1994, there was no
difference in earnings per share between primary and fully diluted
earnings per share computations. There was a slight difference for the
nine months ended September 30, 1994 where 19,596,767 shares were
utilized as the average number of shares for the primary computation,
including common share equivalents of 241,097. For the third quarter,
the average number of shares utilized in the fully diluted computation
was 19,513,969 and 19,718,116 shares for 1994 and 1993, respectively.
The average number of shares utilized in the fully diluted computation
for the nine months ended September 30 was 19,618,973 for 1994 and
19,815,410 for 1993. Both 1994 computations included common share
equivalents of 263,303 and both 1993 computations included common share
equivalents of 106,855. The lower average number of shares for the
third quarter and first nine months of 1994 primarily resulted from the
repurchase of shares as part of the Company's repurchase program.
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5. ACQUISITIONS:
On September 22, 1994, the Company's Worldwide Giftware Group acquired
the business assets (primarily accounts receivable and inventories) and
trademarks of Otagiri Mercantile Company, Inc., a privately held giftware
company located in South San Francisco, California. The Otagiri product
line items include home decor, musicals, gift accessories and mugs. During
the fourth quarter of 1994, the Otagiri product line will be sold and
accounts serviced from the Enesco Giftware location in Elk Grove Village,
Illinois utilizing the company's existing infrastructure.
During the month of October, the Company's cash tender offer was
completed for the stock of Lilliput Group plc, a leading publicly held U.K.
giftware company that manufactures and markets Lilliput Lane sculptured
miniature cottages on an international basis. The total cost of the
acquisition, including transaction fees, will approximate $62,000,000. The
acquisition will be accounted for as a purchase and the excess acquisition
costs over the net book value acquired will be recorded as goodwill and
amortized over 40 years. A Form 8-K Report dated October 14, 1994 was
filed. The financial statements of the business acquired and the pro forma
financial information relative to the business acquired will be filed under
cover of Form 8-K/A on or before December 17, 1994.
During the fourth quarter of 1994, the Company offered to acquire the
stock of Border Fine Arts Company Limited, the leading U.K. manufacturer of
high quality collectible animal figurines, with markets in the U.K., U.S.,
Canada, Germany, Japan and Australia. The company has operated as the
managing agent for the Enesco Ltd. subsidiary. Annual sales for Border
approximate $12,000,000. The acquisition is expected to be completed
during the fourth quarter and the cost, including transaction fees, will
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approximate $17,000,000. The acquisition will be accounted for as a
purchase. The excess acquisition cost over the net book value acquired
will be recorded as goodwill and amortized over 40 years.
The acquisitions of Lilliput and Border combined with the Company's
existing giftware subsidiaries in the U.K. and Germany and European
distributors is expected to strengthen the Worldwide Giftware Group's
position in the U.K. and Europe.
6. RESTRUCTURING PROGRAM:
In the second quarter of 1993, the Company incurred a restructuring
charge of $17 million pre-tax, $11.5 million after tax, or $.58 per share.
The tax benefit of $5.5 million, or 32%, was limited by the inability to
fully receive tax benefits for all of the charges in certain international
locations. The charge included $9.7 million for severance pay related
expenses, $4.8 million for facilities closing and moving, $1.7 million
write down of current assets, and $.8 million write down of net fixed
assets. The restructuring did not include any charges for future operating
expenses or future systems enhancements. No additional charges are
anticipated to complete this restructuring program. The restructuring
program takes advantage of consolidation opportunities principally in the
distribution and administrative functions within the Company to achieve
future operating efficiencies and savings. The restructuring included the
closing of the Gift Gallery and Industrial Divisions in the United States
and the closing of subsidiary operations in Australia, Germany and
Portugal. When completed, it is expected to include a reduction of
approximately 10% of the Company's worldwide work force of 4,500. The
restructuring charge was $13 million for Worldwide Direct Selling and $4
million for Enesco Worldwide Giftware. The program is expected to be
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virtually completed by the end of 1994. When completed, future annual cost
savings are expected to be approximately $11 million pre-tax ($8 million
for Direct Selling and $3 million for Giftware), $7 million after tax, or
$.35 per share. For the first nine months of 1994, compared to 1993, the
restructuring has resulted in improved operating profit of approximately
$1,700,000 for the Worldwide Giftware Group and $5,100,000 for the
Worldwide Direct Selling Group. Additionally, the last six months of 1993
compared to 1992 reflected improved operating profit of $600,000 for the
Worldwide Direct Selling Group. Part of the savings generated by the
program will be used to build the Company's profitability, as well as
enhance the Company's flexibility to capitalize on attractive growth
opportunities.
As of September 30, 1994, the restructuring program is basically
progressing as scheduled for anticipated costs, savings and completion.
The remaining restructuring balance sheet accrual as of September 30, 1994
of $4,909,000 principally consists of severance pay related expenses.
7. DERIVATIVE FINANCIAL INSTRUMENTS:
The Company enters into various foreign exchange forward contracts
during the year, all of which are held for purposes other than trading.
The Company's various subsidiaries import products in foreign
currencies and from time to time will enter into short-term foreign
exchange contracts or build currency deposits as a partial hedge for
current inventory purchases against currency fluctuations. Gains and
losses on these contracts are deferred and recorded as a component of cost
of sales when the related inventory is sold. At September 30, 1994, there
were no open inventory purchase contracts and any deferred amount was not
material. The Company makes short-term foreign currency intercompany loans
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to various international subsidiaries and fully hedges these transactions,
via forward contracts, against currency fluctuations. The cost of these
currency contracts is included in the interest charged to the subsidiaries
and expensed monthly as the interest expense is charged. The intercompany
interest charged to the subsidiary and resulting intercompany interest
income eliminate upon consolidation and any gains and losses on the
currency contracts are recorded as a component of other income. The
Company receives dividends, technical service fees, royalties and other
payments from its subsidiaries. From time to time, the Company will enter
into short-term foreign exchange contracts as a partial hedge against
currency fluctuations on these present and future receivables. Gains and
losses are recognized or the credit or debit offsets the foreign currency
payables. As of September 30, 1994, deferred amounts on outstanding
contracts were not material and all current contracts have expiration dates
during the fourth quarter of 1994. The outstanding currency contract
amounts are as follows:
United Kingdom $ 7,108,000
Canada 6,336,000
Italy 5,147,000
Germany 4,794,000
Australia 1,109,000
France 759,000
Spain 703,000
-----------
Total $25,956,000 Notional value
===========
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STANHOME INC.
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1994
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS SEGMENTS of the Company's operations are summarized on Page
22. A discussion and analysis of the segments follows:
Enesco Worldwide Giftware Group sales increased for the third quarter
and first nine months primarily due to increased unit volume from the
Precious Moments and Cherished Teddies collectible licensed lines. First
nine months 1994 sales of the Precious Moments line represented 46% of
total sales compared to 47% in 1993 and the Cherished Teddies line
represented 16% of total sales in 1994 compared to 10% in 1993.
International sales volume declined for the third quarter and first nine
months due, in part, to unfavorable currency translation rates and to
significantly lower sales from Australia. The Australian company was sold
to a distributor in April 1994, and the close-out costs were provided for
in the 1993 restructuring. For the first nine months of 1994, Australia
recorded $257,000 in sales and no loss compared to sales of $1,953,000 and
an operating loss of $844,000 in 1993. Excluding Australia, international
operating profit declined for the third quarter and first nine months due
to higher cost of sales. Total Group operating profit increased for the
third quarter and first nine months led by the United States and benefited
from a lower percentage of selling, general and administrative expenses
principally due to the favorable impact of the sales increase on fixed
costs combined with the benefits from the 1993 restructuring. The total
benefits from the restructuring for the first nine months of 1994 improved
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operating profit by approximately $1,700,000. The total cost of sales
percentage for the third quarter and first nine months increased
approximately 2% due to higher costs and product promotions.
Hamilton Worldwide Direct Response Group sales increased for the first
nine months due to unit volume sales growth in plates in the United States
in very competitive market conditions. Third quarter sales decreased.
Doll sales decreased and represented 29% of first nine months sales in 1994
compared to 37% in 1993. International sales decreased and operating
losses increased and were impacted by poor economic conditions. Operating
profit for the third quarter and first nine months benefited from a 2%
lower cost of sales percentage due to sales mix. Selling, general and
administrative expenses increased as a percentage of sales due to higher
spending and higher advertising expenses. For the first nine months of
1994, advertising expense amounted to 47% of sales compared to 44% in 1993,
reflecting the competitive market conditions.
The Worldwide Direct Selling Group's results decreased during the
seasonally slow third quarter. For the quarter and year-to-date, the lower
sales were due to closed operations from the restructuring program,
sluggish European economies, unfavorable foreign currency exchange rates
and lower sales in the United States. However, first nine months operating
profit improved as a result of the benefits from the restructuring program,
announced in 1993. Included in the benefits were reduced losses from
operations that have been discontinued. First nine months sales and
operating losses for 1994 and 1993 of operations that have been
discontinued as a result of the restructuring were sales of $857,000 and
$3,759,000, respectively, and operating losses of $1,000 and $1,776,000,
respectively. In addition, the restructuring has resulted in cost savings
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<PAGE>
of approximately $3,300,000 for the first nine months of 1994 compared to
1993. The cost of sales percentage for the third quarter and first nine
months of 1994 decreased by approximately 1% due principally to sales mix
and the absence of higher cost of sales from discontinued operations.
European Direct Selling sales increased 4% for the quarter but decreased 8%
for the first nine months due to unit volume declines from all the major
operations. Operating profit increased during the third quarter and was up
13% for the first nine months due to the benefits from the restructuring.
First nine months 1994 European local currency sales and operating profit
translated at 1993 exchange rates would have resulted in a 3% sales
decrease but a 20% operating profit increase. The Company has previously
reported that its Italian subsidiary, Stanhome S.p.A., has been assisting
its independent Dealers in the defense of personal tax assessments made
against them in connection with the distribution of hostess gifts as part
of the Stanhome Party Plan Sales System, by paying legal expenses,
advancing amounts for tax deposits, or making settlement payments where
this is more cost effective than potential litigation costs, so as to
protect its Dealer force and its ability to recruit and retain future
Dealers. These payments have not been material. Stanhome S.p.A. has
recently received a favorable ruling from the Italian government regarding
certain tax consequences of the distribution of the hostess gifts. This
ruling should lead to a favorable resolution of the ongoing Dealer tax
litigation concerning these assessments. To the extent necessary, the
Italian subsidiary will continue to assist Dealers in the defense of these
assessments. Separately, registration taxes imposed by the Italian
government continue to affect the Dealer force. Latin American Direct
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<PAGE>
Selling sales and operating profit increased for the first nine months due
principally to strong results from Mexico. The third quarter sales and
operating profit were down principally due to reductions in Venezuela from
the significant devaluation of the currency. U.S. Direct Selling sales
decreased and, excluding the 1993 restructuring charge, the operating loss
increased significantly for the third quarter and first nine months, and
the results were below management's expectations.
General corporate expense increased for the third quarter and first
nine months due principally to higher compensation and benefits, consistent
with the 1994 proxy statement disclosure.
International operations were unfavorably impacted by lower currency
translation rates in the third quarter and first nine months of 1994
compared to 1993 and the same periods in 1993 compared to 1992. The value
of the U.S. dollar versus Asian currencies has resulted in higher costs of
imported products. The value of the U.S. dollar versus international
currencies where the Company conducts business will continue to impact the
future results of these businesses. In addition to the currency risks, the
Company's international operations, including sources of imported products,
are subject to the risks of doing business abroad including import or
export restrictions and changes in economic and political climates.
The fluctuations in net sales and operating profit margins from
quarter to quarter are partially due to the seasonal characteristics of the
Company's business segments.
INTEREST EXPENSE AND OTHER INCOME, NET. Interest expense for the
third quarter and first nine months of 1994 decreased compared to 1993
principally due to lower borrowings. Interest income compared to 1993
increased for the third quarter principally due to higher investments but
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decreased for the first nine months principally due to lower rates. The
1994 gains in the third quarter and first nine months on the sale of assets
were from the sales of the Company's Direct Selling Zanesville, Ohio
Customer Care Center in the first quarter and Puerto Rico Distribution
Center in the third quarter. The exchange gain in 1993 and loss in 1994
principally represent the difference between actual and forward exchange
contracts on intercompany transactions.
THE EFFECTIVE TAX RATES for 1994 were lower than 1993, excluding the
impact of the restructuring charge, due to a favorable earnings mix with a
lower ratio of foreign income to United States income, which has a lower
rate. The tax benefit of $5.5 million, or 32% of the $17 million 1993
restructuring charge, was limited by the inability to fully receive tax
benefits for all of the charges in certain international locations.
FINANCIAL CONDITION. The Company has historically satisfied its
capital requirements with internally generated funds and short-term loans.
Working capital requirements have seasonal variations during the year and
are generally greatest during the third quarter.
Net cash used in operating activities increased for 1994 compared to
1993 due primarily to increases in prepaid expenses due to marketing
efforts in support of higher sales for the Worldwide Direct Response
Group, in accounts receivable for the Worldwide Giftware and Direct
Response Groups to support higher sales, and in inventory for all Groups
to support increased business.
The major uses of cash in investing activities in the first nine
months of 1994 were for capital expenditures and acquisition payments.
Capital expenditure commitments for $20 million are forecast for 1994. At
September 30, 1994, as part of the restructuring program, the Company had
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for sale one distribution center with a total appraised value of
approximately $1.7 million. The Company has an acquisition program, and
may utilize funds for this purpose in the future. In April 1994, the year-
end 1993 acquisition accrual amount was paid in connection with the
Company's 1989 stock purchase of The Hamilton Group Limited, Inc. In
September 1994, $3.5 million was paid to acquire the business assets
(principally inventories and accounts receivable) and trademarks of
Otagiri Mercantile Company, Inc. During the third quarter the Company
purchased shares of Lilliput Group plc, a British giftware company, for
$16,800,000 in conjunction with the Company's cash offer for all the
shares of Lilliput. During the fourth quarter of 1994, the Company will
complete the acquisition of all the shares. The total cost, including
transaction fees, will be approximately $62,000,000. In October 1994, the
Company offered to buy 100% of the stock of Border Fine Arts Company
Limited, a Scottish giftware company. The offer is expected to be
accepted and the acquisition completed during the fourth quarter. The
total cost, including transaction fees, will approximate $17,000,000.
Financing for the acquisitions will be from existing cash and investments
and borrowings. Marketable securities principally consists of Italian
treasury bills and commercial paper. The Italian subsidiary invests
excess cash in short-term investments which change from time to time based
on availability and rates. The level of changes of marketable securities
from period to period principally represents investment alternatives
versus certificates of deposit and time deposits.
The major uses of cash in financing activities were for dividends to
shareholders and purchases of common stock. Purchases of common stock
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<PAGE>
principally included shares repurchased by the Company. During the first
nine months of this year, the Company repurchased 277,000 shares for
$9,381,000, including 25,000 shares ($857,000) in the third quarter. The
Company has an authorized program to purchase shares of stock for the
Company treasury from time to time in the open market, depending on market
conditions, and may utilize funds for this purpose in the future. As of
September 30, 1994, 1,124,000 shares remained available for purchase under
the program. The Company's earnings, cash flow, and available debt
capacity have made and make stock repurchases, in the Company's view, one
of its best investment alternatives. The major source of funds from
financing activities was from higher seasonal borrowings and from the
exercise of stock options. Total stock options outstanding at the
exercise price amounted to $72 million at September 30, 1994 and the
Company could receive these funds in the future if the options are
exercised.
Fluctuations in the value of the U.S. dollar versus international
currencies affect the U.S. dollar translation value of international
currency denominated balance sheet items. The changes in the balance sheet
dollar values due to international currency translation fluctuations are
recorded as a component of shareholders' equity. International currency
fluctuations of $2,238,000 reduced the cumulative translation component
which contributed to the shareholders' equity increase in the first nine
months of 1994. The translation adjustments to the September 30, 1994
balance sheet that produced the 1994 change in the cumulative translation
component of shareholders' equity were increases in working capital by
$1,598,000; net property, plant and equipment and other assets by
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<PAGE>
$1,726,000; and long-term liabilities by $1,086,000. The Company depends
upon its international operations to pay dividends and to make other
payments to the Company. The Company's international operations are subject
to the risks of doing business abroad including currency, economic and
political.
With the level of funds generated from operations, the level of
working capital and the unused lines of credit, no liquidity problems are
anticipated.
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<PAGE>
<TABLE>
STANHOME INC.
SALES AND OPERATING PROFIT BY BUSINESS SEGMENT
FOR THE THIRD QUARTER AND FIRST NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(Unaudited)
(In Thousands)
<CAPTION>
Third Quarter First Nine Months
------------------------------ -------------------------------
1994 1993 Percent 1994 1993 Percent
Actual Actual Change Actual Actual Change
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net Sales:
Worldwide Giftware $116,913 $104,298 12% $294,685 $263,104 12%
Worldwide Direct Response 33,494 33,755 ( 1) 92,362 88,768 4
Worldwide Direct Selling 43,535 44,661 ( 3) 168,632 183,346 ( 8)
Eliminations ( 687) ( 233) ( 2,063) ( 1,011)
-------- -------- -------- --------
Total Net Sales $193,255 $182,481 6% $553,616 $534,207 4%
======== ======== ======== ========
Operating Profit:
Worldwide Giftware $ 21,851 $ 19,508 12% $ 45,027 $ 38,192 18%
Worldwide Direct Response 2,100 3,182 (34) 5,901 6,758 (13)
Worldwide Direct Selling 245 435 (44) 13,533 12,567 8
Corporate ( 2,218) ( 1,696) (31) ( 6,669) ( 5,486) (22)
-------- -------- -------- --------
21,978 21,429 3 57,792 52,031 11
Restructuring - - - ( 17,000)
-------- -------- -------- --------
Total Operating Profit $ 21,978 $ 21,429 3% $ 57,792 $ 35,031 65%
======== ======== ======== ========
</TABLE>
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<PAGE>
PART II. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
- Financial Data Schedule.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated October 14, 1994 was filed
by Stanhome Inc. with the Securities and Exchange Commission on October 14,
1994 reporting under Item 2. Acquisition or Disposition of Assets which
described its acquisition of the allotted, called up and fully paid shares
of capital stock of Lilliput Group plc, and which included under Item 7.
Financial Statements and Exhibits the following exhibits, all of which are
incorporated herein by reference:
1. Recommended Cash Offer announced September 1, 1994 and made on
September 9, 1994 by Goldman Sachs International on behalf of
Stanhome for Lilliput.
2. Form of Acceptance in respect of the Recommended Cash Offer
made on September 9, 1994 by Goldman Sachs International on
behalf of Stanhome for Lilliput.
3. Notice of Unconditional Acceptance of Recommended Cash Offer
made on September 9, 1994 dated as of October 3, 1994.
4. Notice to Non-Assenting Shareholders and related Letter dated
as of October 11, 1994.
5. Notice and Recommended Cash Offer to the holders of options
under the Lilliput Savings-Related Share Option Scheme made on
October 11, 1994.
6. Form of Acceptance and Surrender relating to the Proposal by
Stanhome made to the holders of options under the Lilliput
Savings-Related Share Option Scheme.
7. Notice and Recommended Cash Offer to the holders of options
under the Lilliput Executive Share Option Scheme made on
October 11, 1994.
8. Form of Acceptance and Surrender relating to the Proposal by
` Stanhome made to the holders of options under the Lilliput
Executive Share Option Scheme.
The Financial Statements of Businesses Acquired and Pro Forma
Financial Information related to the above described acquisition are to be
filed under cover of Form 8-K/A on or before December 17, 1994.
All other items hereunder are omitted because either such item is
inapplicable or the response to it is negative.
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<PAGE>
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.
STANHOME INC.
(Registrant)
Date: November 11, 1994 /s/ G. William Seawright
G. William Seawright
President and Chief Executive Officer
Date: November 11, 1994 /s/ Allan G. Keirstead
Allan G. Keirstead
Chief Administrative and Financial
Officer
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<PAGE>
EXHIBIT INDEX
Reg. S-K
Item 601 Exhibit 10-Q Page No.
_________ _______ _____________
27 Financial Data Schedule 26
-25-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 11,137,892
<SECURITIES> 20,523,452
<RECEIVABLES> 177,910,731
<ALLOWANCES> 17,373,077
<INVENTORY> 107,848,328
<CURRENT-ASSETS> 354,402,956
<PP&E> 108,717,075
<DEPRECIATION> 64,675,048
<TOTAL-ASSETS> 469,201,896
<CURRENT-LIABILITIES> 178,772,194
<BONDS> 0
0
0
<COMMON> 3,153,530
<OTHER-SE> 265,575,420
<TOTAL-LIABILITY-AND-EQUITY> 469,201,896
<SALES> 553,616,075
<TOTAL-REVENUES> 553,616,075
<CGS> 229,323,679
<TOTAL-COSTS> 229,323,679
<OTHER-EXPENSES> 264,857,580
<LOSS-PROVISION> 1,642,552
<INTEREST-EXPENSE> 513,583
<INCOME-PRETAX> 59,402,327
<INCOME-TAX> 26,543,970
<INCOME-CONTINUING> 32,858,357
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,858,357
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.67
</TABLE>
