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, 1996
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,
1996 1995
____ ____
Shares Outstanding:
Common Stock with
Associated Rights 17,899,443 18,590,589
Total number of pages
contained herein 31
Index to Exhibits is
on page 21
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
------------------------------
STANHOME INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1996 and DECEMBER 31, 1995
(Unaudited)
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and certificates of deposit $ 22,731,932 $ 23,053,926
Notes and accounts receivable, net 210,194,141 158,572,959
Inventories 122,244,630 114,294,928
Prepaid advertising 32,935,649 39,665,306
Other prepaid expenses 10,052,827 6,784,465
------------ ------------
Total current assets 398,159,179 342,371,584
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost 134,570,735 131,795,141
Less - Accumulated depreciation and
amortization 75,895,746 70,947,871
------------ ------------
58,674,989 60,847,270
------------ ------------
OTHER ASSETS:
Goodwill and other intangibles, net 119,366,869 119,826,382
Other 13,813,776 11,420,987
------------ ------------
133,180,645 131,247,369
------------ ------------
$590,014,813 $534,466,223
============ ============
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
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<PAGE>
<TABLE>
STANHOME INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1996 and DECEMBER 31, 1995
(Unaudited)
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes and loans payable $135,924,087 $ 74,864,065
Accounts payable 54,106,279 64,880,028
Federal, state and foreign taxes
on income 39,531,516 28,758,277
Accrued expenses--
Payroll and commissions 12,002,823 13,658,026
Royalties 8,366,111 8,587,986
Pensions and profit sharing 6,621,198 8,610,616
Vacation, sick and
postretirement benefits 6,382,517 6,979,623
Other 35,594,077 36,106,020
------------ ------------
Total current liabilities 298,528,608 242,444,641
------------ ------------
LONG-TERM LIABILITIES:
Postretirement benefits 13,346,728 12,749,258
Foreign employee severance obligations 12,940,387 12,482,097
------------ ------------
Total long-term liabilities 26,287,115 25,231,355
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock 3,153,530 3,153,530
Capital in excess of par value 44,729,118 43,098,856
Retained earnings 396,854,413 385,008,394
Cumulative translation adjustments ( 27,653,910) ( 27,409,482)
------------ ------------
417,083,151 403,851,298
Less - Shares held in
treasury, at cost 151,884,061 137,061,071
------------ ------------
Total shareholders' equity 265,199,090 266,790,227
------------ ------------
$590,014,813 $534,466,223
============ ============
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
-3-
<PAGE>
<TABLE>
STANHOME INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED SEPTEMBER 30, 1996 and 1995 (Unaudited)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
NET SALES $209,931,607 $205,706,026
COST OF SALES 96,588,837 92,267,826
------------ ------------
GROSS PROFIT 113,342,770 113,438,200
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE 89,747,168 90,037,720
------------ ------------
OPERATING PROFIT 23,595,602 23,400,480
Interest expense ( 2,468,267) ( 1,928,605)
Other expense, net ( 1,031,389) ( 744,444)
------------ ------------
INCOME BEFORE INCOME TAXES 20,095,946 20,727,431
Income taxes 8,642,931 8,859,754
------------ ------------
NET INCOME $ 11,453,015 $ 11,867,677
============ ============
EARNINGS PER COMMON SHARE,
Primary and fully diluted $ .64 $ .63
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
-4-
<PAGE>
<TABLE>
STANHOME INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1995 (Unaudited)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
NET SALES $610,695,506 $600,064,554
COST OF SALES 269,777,193 258,261,290
------------ ------------
GROSS PROFIT 340,918,313 341,803,264
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE 284,307,875 281,631,069
------------ ------------
OPERATING PROFIT 56,610,438 60,172,195
Interest expense ( 6,419,379) ( 5,207,637)
Other expense, net ( 2,614,326) ( 1,340,622)
------------ ------------
INCOME BEFORE INCOME TAXES 47,576,733 53,623,936
Income taxes 21,102,434 24,136,822
------------ ------------
NET INCOME 26,474,299 29,487,114
RETAINED EARNINGS, beginning
of period 385,008,394 362,946,840
Cash dividends, $.81 per share
in 1996 and $.795 per share
in 1995 ( 14,628,280) ( 14,938,849)
------------ ------------
RETAINED EARNINGS, end of period $396,854,413 $377,495,105
============ ============
EARNINGS PER COMMON SHARE:
Primary $1.46 $1.56
Fully diluted $1.46 $1.55
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
-5-
<PAGE>
<TABLE>
STANHOME INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1995 (Unaudited)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash used by operating activities ($26,622,773) ($42,613,521)
----------- -----------
INVESTING ACTIVITIES:
Purchase of property, plant
and equipment ( 6,406,773) ( 8,380,613)
Payments for acquisition of businesses,
net of cash acquired ( 1,566,165) ( 1,402,840)
Proceeds from sale of property,
plant and equipment 2,603,924 1,274,098
Other, principally marketable
securities - ( 12,165)
----------- -----------
Net cash used by investing activities ( 5,369,014) ( 8,521,520)
----------- -----------
FINANCING ACTIVITIES:
Cash dividends ( 14,628,280) ( 14,938,849)
Exchanges and purchases of common stock ( 15,178,033) ( 19,438,450)
Notes and loans payable 59,650,937 86,421,953
Exercise of stock options 1,692,019 2,026,183
Other common stock issuance 293,286 376,447
----------- -----------
Net cash provided by
financing activities 31,829,929 54,447,284
----------- -----------
Effect of exchange rate changes on
cash and cash equivalents ( 160,136) 211,870
----------- -----------
Increase/(decrease) in cash and
cash equivalents ( 321,994) 3,524,113
Cash and cash equivalents,
beginning of year 23,051,926 19,349,839
----------- -----------
Cash and cash equivalents,
end of quarter $22,729,932 $22,873,952
=========== ===========
SUPPLEMENTAL CASH FLOW DATA
Cash paid for:
Interest $ 5,879,821 $ 4,926,419
Income taxes $10,414,538 $34,296,980
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
-6-
<PAGE>
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, 1995 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 to
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, 1995.
1. ACCOUNTING POLICIES:
The Company's financial statements for the three and nine months ended
September 30, 1996 have been prepared in accordance with the accounting
policies described in Note 1 to the December 31, 1995 consolidated
financial statements included in the Company's 1995 Annual Report on Form
10-K. The Company considers all highly liquid securities, including
certificates of deposit with maturities of three months or less, when
purchased, to be cash equivalents. Notes and accounts receivable were net
of reserves for uncollectible amounts, returns and allowances of
$22,097,000 at September 30, 1996 and $20,741,000 at December 31, 1995.
-7-
<PAGE>
The Company recognizes revenue as merchandise is turned over to the
shipper and a provision for anticipated merchandise returns and allowances
is recorded based upon historical experience. Amounts billed to customers
for shipping and handling orders are netted against the associated costs.
2. INVENTORY CLASSES:
The major classes of inventories at September 30 and December 31
were as follows (in thousands):
September 30, December 3l,
1996 1995
---- ----
Raw materials and supplies $ 8,447 $ 7,312
Work in process 911 1,237
Finished goods in transit 15,595 16,215
Finished goods 97,292 89,531
-------- --------
$122,245 $114,295
======== ========
3. OTHER EXPENSE, NET:
Other expense, net for the quarters and nine months ended September
30, 1996 and 1995 consists of the following (in thousands):
Quarters Ended September 30
---------------------------
1996 1995
---- ----
Interest income $ 445 $ 613
Other assets amortization ( 1,072) ( 1,045)
Other items, net ( 404) ( 313)
------ ------
($1,031) ($ 745)
====== ======
Nine Months Ended September 30
------------------------------
1996 1995
---- ----
Interest income $1,671 $2,119
Other assets amortization ( 3,425) ( 3,062)
Other items, net ( 860) ( 398)
------ ------
($2,614) ($1,341)
====== ======
-8-
<PAGE>
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 the third quarters of 1996 and 1995 and the nine months
ended September 30, 1996, there were no differences 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, 1995 where 18,888,161 shares were utilized as the average
number of shares for the primary computation, including common share
equivalents of 40,345. For the third quarter, the average number of
shares utilized in the fully diluted computation was 17,950,076 and
18,840,554 shares for 1996 and 1995, respectively. The average number
of shares utilized in the fully diluted computation for the nine months
ended September 30 was 18,184,175 for 1996 and 18,984,314 for 1995.
Both 1996 fully diluted computations included common share equivalents
of 51,102 and both 1995 fully diluted computations included common
share equivalents of 136,498. The lower average number of shares for
the third quarter and first nine months of 1996 primarily resulted from
the repurchase of shares as part of the Company's repurchase program.
5. FINANCIAL INSTRUMENTS:
The Company enters into various short-term foreign exchange
agreements during the year, all of which are held for purposes other than
trading. The purpose of the Company's foreign currency hedging activities
is to protect the Company from risk that the eventual settlement of
foreign currency transactions will be adversely affected by changes in
exchange rates. The Company's various subsidiaries import products in
-9-
<PAGE>
foreign currencies and from time to time will enter into agreements or
build foreign currency deposits as a partial hedge against currency
fluctuations on inventory purchases. Gains and losses on these agreements
are deferred and recorded as a component of cost of sales when the related
inventory is sold. At September 30, 1996, there were no open inventory
purchase agreements and deferred amounts were not material. The Company
makes short-term foreign currency intercompany loans to various
international subsidiaries and utilizes agreements to fully hedge these
transactions against currency fluctuations. The cost of these agreements
is included in the interest charged to the subsidiaries and expensed
monthly as the interest is accrued. The intercompany interest eliminates
upon consolidation and any gains and losses on the agreements are recorded
as a component of other expense. All of the outstanding agreements as of
September 30, 1996 are to hedge intercompany loans. The Company receives
dividends, technical service fees, royalties and other payments from its
subsidiaries and licensees. From time to time, the Company will enter
into foreign currency forward agreements as a partial hedge against
currency fluctuations on these current receivables. Gains and losses are
recognized or the credit or debit offsets the foreign currency payables.
As of September 30, 1996, net deferred amounts on outstanding agreements
were not material. The outstanding agreement amounts (notional value) at
September 30, 1996, are as follows (in thousands):
Canada $ 6,607
Germany 3,934
U.S. 3,500
-------
Total $14,041
=======
-10-
<PAGE>
STANHOME INC.
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS SEGMENTS of the Company's operations are summarized on Page
19. A discussion and analysis of the segments follows:
GIFTWARE
Giftware Group sales increased 5% for the third quarter and 2% for the
first nine months primarily due to unit volume growth in the United States
from existing lines and from incoming goods for open orders. Additionally,
sales from a new business acquired in France during the first quarter of
1996 accounted for approximately 1% of the sales increase for the third
quarter and first nine months. International sales increased primarily due
to the new business acquired in France and represented approximately 15% of
year-to-date sales in both 1996 and 1995. Year-to-date 1996 sales of the
Precious Moments line represented 40% of total sales compared to 46% in
1995 and the Cherished Teddies line represented 18% of year-to-date sales
in 1996 compared to 13% in 1995. Operating profit for the first nine
months as a percentage of sales was 15.2% in 1996 compared to 15.5% in
1995. The decrease was due to higher cost of sales (approximately .9%)
primarily from an unfavorable product mix. All of the operating profit
decrease was from international markets. Operating profit in the United
States was up approximately 1%.
-11-
<PAGE>
DIRECT RESPONSE
Direct Response Group sales increased 2% in the third quarter and 3%
for the nine months due to unit volume growth from increased product
offerings primarily in the figural categories. Year-to-date doll sales
decreased to 19% of 1996 sales compared to 32% in 1995 and plate sales
decreased to 31% of sales in 1996 compared to 41% in 1995. The Precious
Moments line represented 11% of year-to-date 1996 sales compared to 12% in
1995 and the Cherished Teddies line represented 10% of year-to-date sales
in both 1996 and 1995. International sales increased for the quarter
primarily due to timing of shipments but sales decreased 8% for the year-to-
date and operating losses increased substantially for the quarter and year-
to-date due to higher selling, marketing and advertising expenses.
International sales represented approximately 10% of the first nine months
sales in 1996 and 1995. Market conditions for the direct response
businesses for the Company's products continue to be soft and very
competitive with many product offerings and ads going against weakness in
consumer spending and credit. Operating losses decreased for the third
quarter and first nine months due to the return to profitability in 1996 in
the United States. For the first nine months, cost of sales as a
percentage of sales increased 1.6% due to product mix and higher product
returns. For the first nine months, total selling, general and
administrative expenses decreased as a percentage of sales due to a lower
percentage of advertising (46% of sales in 1996 versus 52% in 1995) due to
product sales mix and a higher percentage of sales from existing customer
lists, that have a much higher rate of advertising productivity. Partially
offsetting the improved advertising ratio was a higher level of selling,
general and administrative expenses, including higher bad debts.
-12-
<PAGE>
DIRECT RESPONSE - NEW BUSINESSES
Direct Response New Businesses represent the cost in the United States
to develop and test existing products and new product offerings in the
potentially profitable catalog and telephone response markets. The catalog
tests are targeted for the fourth quarter and, in total, are expected to be
unprofitable due to the development costs. The results of the test in the
fourth quarter will determine the future course of action for these
programs.
DIRECT SELLING
Total Direct Selling sales for the quarter and first nine months were
below 1995 by 8% and 2%, respectively. For the 1996 quarter and first
nine months, sales, principally in Europe, include $1.6 million and $2.8
million, respectively, from extending the normal sales period close from
the last Thursday of the month to the last day of the month. Operating
results decreased for the quarter and first nine months of 1996.
Operating profit for the first nine months as a percentage of sales was
7.2% in 1996 compared to 9.8% in 1995. The decrease was due to lower
sales and higher cost of sales (approximately .4%) from product mix and a
higher percentage of selling, general and administrative expenses.
European sales decreased 5% and 2% for the quarter and first nine
months, respectively, and represented 85% of total 1996 sales for the
quarter and 88% for the year-to-date. An operating loss was incurred for
the seasonally slow third quarter. For the first nine months, operating
profit decreased 31% and represented 86% of total 1996 Direct Selling
operating profit. Operating profit for the first nine months as a
percentage of sales for Europe was down 3.0% compared to 1995. The
decrease was due to higher levels of selling, general and administrative
-13-
<PAGE>
expense principally in Italy and the impact of full nine month expenses of
the European headquarters. The Italian government introduced new social
benefit taxes that became effective during the second quarter of 1996.
This additional tax burden has unfavorably impacted the Italian
subsidiary's independent Dealer force and its ability to recruit and
retain Dealers. First nine months 1996 European local currency sales and
operating profit translated at 1995 average exchange rates would have
resulted in a 3% sales decrease and a 32% operating profit decrease.
Sales for the America's Group (Mexico, Venezuela and Colombia - starting
in the third quarter of 1996) decreased 20% for the third quarter and
increased 1% for the first nine months. Following the sales decline,
operating profit for the third quarter decreased to break even and
included a $105 thousand loss from the new start up in Colombia. For the
first nine months, operating profit was down 36% due to the Colombian $105
thousand loss and to higher cost of sales due to the impact of currency.
UNALLOCATED EXPENSES increased in the first nine months due to higher
general expenses, primarily outside consultant fees, consistent with the
Company programs. Unallocated expenses are corporate expenses and other
items not directly related to the operations of the Groups.
INTERNATIONAL ECONOMIES AND CURRENCY
The operations in Mexico and Venezuela have experienced highly
inflationary economies with rapidly changing prices in local currencies.
These conditions, with the resulting adverse impact on local economies,
have made it difficult for operations in these locations to achieve
adequate operating margins. In addition, the strengthening of the
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<PAGE>
dollar versus the Mexican and Venezuelan currencies has resulted in lower
U.S. dollar results for these operations. European operations were not
materially impacted by currency translation rates in 1996 compared to 1995.
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 other 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 EXPENSE, NET
Interest expense increased due to higher interest rates and higher
borrowing levels for general working capital and for stock buy backs.
Notes and loans payable going into 1996 were approximately $35.9 million
higher than at the start of 1995. Other assets amortization of goodwill
increased due to the continuing impact from recent acquisitions. The
amortization for Giftware in 1996 was $2.9 million compared to $2.6
million in 1995 and the amortization for Direct Response was $.5 million
in 1996 and 1995.
THE EFFECTIVE TAX RATE year-to-date of 44% was lower than the 45% in
1995 despite higher non deductible goodwill in 1996. This was due
principally to earnings mix with a lower ratio of foreign income to United
States income, which has a lower rate.
-15-
<PAGE>
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.
The major sources of funds from operating activities in the first
nine months of 1996 were from net income, depreciation, amortization,
lower prepaid expense (from less spending in the media) and higher accrued
tax levels (due to timing of payments). Prepaid expenses are down from
September of last year due principally to less media spending in 1996 by
the Direct Response Group since the focus for sales generation has been
toward existing customers. The major uses of funds were increased
accounts receivable which increased due to the higher sales volume and
extended credit marketing programs, particularly in Giftware; increased
inventories to support the higher sales volume and from lower sales of in-
stock goods; increased other assets reflecting higher levels of funded
retirement benefits; and lower accounts payable and accrued expenses due
principally to timing and the payment of year end payrolls and benefits.
The September 30, 1996 increase in net accounts receivable compared to
1995 was due to more customers with extended credit terms and higher sales
volume. The increase in inventories in 1996 compared to 1995 was due to
increases to support higher levels of sales, lower sales of in-stock goods
for the Giftware Group and higher inventories in the Direct Response Group
to provide customers with quicker fulfillment of orders.
The major uses of cash in investing activities in the first nine
months of 1996 were for capital expenditures and the acquisition of a
small French giftware company. The acquisition was accounted for using
the purchase method with basically all of the purchase pricing allocated
-16-
<PAGE>
to goodwill. The Company has an acquisition program, and may utilize
funds for this purpose in the future. Capital expenditure commitments for
$17 million are forecasted for 1996. Proceeds from the sale of property,
plant and equipment was primarily from the sale of a distribution center
in Charlotte, North Carolina. As of September 30, 1996, two other
distribution centers in the United States with a book value of $622
thousand remain to be sold. 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, time deposits, and intercompany loans.
The major uses of cash in financing activities in the first nine
months of 1996 were for dividends to shareholders and purchases of common
stock. Purchases of common stock principally included shares repurchased
by the Company. During the first nine months this year, the Company
repurchased 515 thousand shares for $15.2 million. 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,
1996, .8 million 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. Total stock options
outstanding at the exercise price amounted to $86 million at September 30,
1996 and the Company could receive these funds in the future if the
options are exercised.
-17-
<PAGE>
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 $244,000 increased the cumulative translation component
which contributed to the shareholders' equity decrease in the first nine
months of 1996. The translation adjustments to the September 30, 1996
balance sheet that produced the 1996 change in the cumulative translation
component of shareholders' equity were decreases in working capital by
$126,000; increases in net property, plant and equipment and other assets
by $395,000; and increases in long-term liabilities by $513,000. 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.
The Company currently believes that cash from operations and available
financing alternatives are adequate to meet anticipated requirements for
working capital, dividends, capital expenditures, the stock repurchase
program and other needs. No liquidity problems are anticipated.
-18-
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<TABLE>
STANHOME INC.
SALES AND OPERATING PROFIT BY BUSINESS SEGMENT
FOR THE THIRD QUARTER AND FIRST NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
(In Thousands)
<CAPTION>
Third Quarter
First Nine Months
------------------------------ ---------
- ---------------------
1996 1995 Percent 1996 1995 Percent
Actual Actual Change Actual Actual Change
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net Sales:
Giftware $144,756 $138,150 5% $375,191 $366,231 2%
Direct Response 34,614 33,986 2 106,390 102,811 3
Dir. Response - New Businesses 29 - 34 -
Direct Selling 30,983 33,715 ( 8) 130,913 133,588 ( 2)
Eliminations ( 451) ( 145) ( 1,833) ( 2,565)
-------- -------- -------- --------
Total Net Sales $209,931 $205,706 2% $610,695 $600,065 2%
======== ======== ======== ========
Operating Profit:
Giftware $ 27,502 $ 25,462 8% $ 56,858 $ 56,874 -
Direct Response ( 271) ( 1,290) 79 ( 721) ( 2,158) 67
Dir. Response - New Businesses ( 232) - ( 831) -
Direct Selling ( 530) 1,739 9,485 13,074 (27)
Unallocated Expense ( 2,874) ( 2,511) (14) ( 8,181) ( 7,618) ( 7)
-------- -------- -------- --------
Total Operating Profit $ 23,595 $ 23,400 1% $ 56,610 $ 60,172 ( 6%)
======== ======== ======== ========
</TABLE>
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<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
- Enesco Corporation Supplemental Profit Sharing Plan
- Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during
the Quarter for which this report is filed.
All other items hereunder are omitted because either such item is
inapplicable or the response to it is negative.
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, 1996 /s/G. William Seawright
_____________________________________
G. William Seawright
President and Chief Executive Officer
Date: November 13, 1996 /s/Allan G. Keirstead
_____________________________________
Allan G. Keirstead
Chief Administrative and Financial
Officer
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Reg. S-K
Item 601 Exhibit 10-Q Page No.
_________ _______ _____________
<S> <C> <C>
10 Enesco Corporation Supplemental 22
Profit Sharing Plan, effective
January 1, 1994
27 Financial Data Schedule 31
</TABLE>
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<PAGE>
ENESCO CORPORATION SUPPLEMENTAL PROFIT SHARING PLAN
(Effective January 1, 1994)
WHEREAS, Enesco Corporation, an Ohio corporation (the
"Company"), has for many years maintained the Enesco Corporation Profit
Sharing Plan (the "Qualified Plan") for the benefit of certain of its
employees;
WHEREAS, section 401(a)(17) of the Internal Revenue Code of
1986, as amended (the "Code") limits the amount of annual compensation
which may be taken into account under the Qualified Plan to $150,000 (as
adjusted for increases in the cost of living) (the "Compensation Limit");
WHEREAS, section 415 of the Code requires that allocations to
participant's accounts under the Qualified Plan generally be limited to the
lesser of $30,000 (adjusted for increases in the cost of living) and 25% of
a participant's compensation in certain other respects (the "Section 415
Limit"); and
WHEREAS, the Company desires to adopt an unfunded plan to
provide benefits to "a select group of management or highly compensated
employees," within the meaning of ERISA, equal to the contributions which,
but for section 401(a)(17) of the Code, would be provided to such
participants under the Qualified Plan.
NOW, THEREFORE, the Company hereby agrees as follows:
1. Definitions. All capitalized terms used herein shall
have the respective meanings assigned to such terms by the Qualified Plan,
except as otherwise set forth in the preamble to or text of this Plan or
below:
<PAGE>
(a) Plan. This Enesco Corporation Supplemental Profit
Sharing Plan, as from time to time amended.
(b) Key Associate. For any Plan Year, an employee of
the Company who is a Participant in the Qualified Plan for
a Plan Year and who either is (i) a senior officer of the
Company, or (ii) is classified by the Committee as a "key
associate." A person shall cease to be Key Associate upon
the complete distribution of his or her Account under the
Plan.
(c) Account. An account established on behalf of a Key
Associate pursuant to the Plan.
(d) Valuation Date. The date as of which earnings (or
losses) are credited to an Account pursuant to Section 3 of
the Plan.
(e) Trust. A trust entered into between the Company and
the trustee for the purpose of administering assets of the
Company to be used for the purpose of satisfying the
obligations of the Company under the Plan. Any such trust
shall be established in such manner so as to be a "grantor
trust" of which the Company is the grantor, within the
meaning of section 671 et. seq. of the Code.
2. Accounts. There shall be established on the books of the
Company an Employee Account in the name and on behalf of each employee
thereof who is a Key Associate and who, during any Plan Year beginning
after December 31, 1993, would have been entitled to an allocation to his
or her Account in excess of the amount actually so allocated because of the
application of the last two sentences of subdivision (15) of Article 2 of
the Qualified Plan, relating to the Compensation Limit. As of the close of
each Plan Year, the amount, if any, to be allocated to the account of each
Key Associate shall be equal to the amount which would have been allocated
to the Key Associate's Account under the Qualified Plan, but for the
application of the last two sentences of subdivision (15) of Article 2 of
the Qualified Plan (relating to the Compensation Limit); provided, however,
that the amount of such allocation shall not exceed the difference of (i)
the Key Associate's Section 415 Limit, less (ii) the total amount of
Company contributions made pursuant to Section 4.1 of the Qualified Plan
<PAGE>
that are allocated to the Key Associate's account under the Qualified Plan
for such Plan Year, pursuant to Section 6.4 of the Qualified Plan.
3. Earnings on Accounts. As of the close of each Plan Year,
the Company shall credit to or charge against, as the case may be, each
Account established on its books pursuant to Section 2 of this Plan, an
amount representing investment gains or losses in respect of the balance of
such Account. The amount of such gains or losses in respect of the Account
of any Participant shall be determined by the Committee to be equal to the
net gain or loss that would have been earned on an amount equal to the
balance of such Participant's Account as of the close of the preceding
business day, as adjusted for any credits, withdrawals or distributions,
based on the hypothetical investment elections made by the Key Associate.
Each Key Associate shall be entitled to elect to have the earnings in
respect of his or her Plan Account determined as if an amount equal to the
balance thereof were invested among the investment funds available from
time to time under the Qualified Plan. Such elections shall be subject to
the same provisions regarding the time, manner and portion of the account
subject to such election as are applicable from time to time under the
Qualified Plan.
4. Vesting. (a) Termination of Employment. If a Key
Associate's employment shall terminate under any of the following
circumstances, he or she shall be fully vested in his or her Account under
the Plan:
(1) After attaining age 65;
(2) Because of the Key Associate's death;
<PAGE>
(3) Because of total and permanent disability of a character
which prevents the Key Associate, in the judgment of the
Committee corroborated in writing by a licensed
physician, from performing his or her usual duties for the
Company; or
(4) After the Key Associate has at least 7 Years of Service.
If a Key Associate's employment shall terminate under
circumstances other than as set forth in the foregoing paragraph, the Key
Associate shall be entitled to receive a percentage of the balance of his
or her Account as of the Valuation Date coincident with or next following
his or her termination employment which percentage shall be determined as
follows by reference to the Key Associate's Years of Service at the date of
his or her termination of employment:
YEARS OF SERVICE PERCENTAGE
0 0%
1 10%
2 20%
3 30%
4 40%
5 60%
6 80%
7 100%
The difference between the balance of the Key Associate's
Account and the amount distributable with respect to such Account pursuant
to the above schedule shall be charged to such Account and forfeited. Such
forfeiture shall occur as of the close of the Plan Year in which the Key
Associate's termination of employment occurs; provided, however, if the Key
Associate's employment shall have been terminated on the last business day
of a Plan Year, such forfeiture shall occur as of the beginning of the
following Plan Year.
(b) Forfeiture for Cause. Notwithstanding any other
provision of the Plan to the contrary, the right of any Key Associate or
<PAGE>
former Key Associate to receive or to have paid to any other person and the
right of any such other person to receive any benefits hereunder shall
terminate and shall be forfeited if such Key Associate's employment with
the Company is terminated because of his or her fraud, embezzlement or
dishonesty, or if the Key Associate enters into competition with the
Company, or is employed by a competitor of the Company within one (1) year
after termination of his or her employment and after receiving notice by
the Company to cease such competition. This subsection shall be
inapplicable to any such termination of employment occurring after such Key
Associate has attained age 65 or has completed 5 Years of Service, or after
the Plan has been terminated.
5. Hardship Withdrawals. If a Key Associate experiences an
"unforeseeable financial emergency," as defined below, he or she may file a
request with the Committee to receive a complete or partial distribution of
the Key Associate's Account under the Plan. The amount of any distribution
pursuant to this Section 5 shall not exceed the lesser of (i) the balance
of the Key Associate's Account under the Plan, determined as of the
Valuation Date next following the date of such request, and (ii) the amount
reasonably necessary to satisfy such unforeseeable financial emergency.
Such Key Associate also shall be required to certify, in the form and
manner prescribed by the Committee, that the amount reasonably necessary to
satisfy such unforeseeable emergency cannot be satisfied from sources other
than a withdrawal from the Key Associate's Account. For purposes of this
Section 5, "unforeseeable financial emergency" shall mean an unanticipated
emergency that is caused by an event beyond the control of the Participant
that would result in severe financial hardship to the Key Associate
resulting from (i) a sudden and unexpected illness or accident of the Key
<PAGE>
Associate or a dependent of the Key Associate, (ii) a loss of the Key
Associate's property due to casualty or (iii) such other extraordinary and
unforeseeable circumstances arising as a result of events beyond the
control of the Key Associate, all as determined in the sole discretion of
the Committee.
6. Distributions. The distribution of a Key Associate's
Accounts under this Plan shall be made at the same time and in the same
manner as distributions are made to the Key Associate under the Qualified
Plan. Such distribution shall be based on the balance of the Key
Associate's Accounts as of the Valuation Date coinciding with or next
following the valuation date used to determine the amount to be distributed
to or on behalf of the Key Associate under the Qualified Plan.
7. Beneficiaries. If a Key Associate shall die while any
amount remains credited to the Accounts established on his behalf pursuant
to Section 2 of this Plan, such amount shall be distributed as provided in
Section 6 of this Plan to the beneficiary or beneficiaries as the Key
Associate may, from time to time, designate in writing delivered to the
Committee. A Key Associate may revoke or change his or her beneficiary
designation at any time in writing delivered to the Committee. If a Key
Associate does not designate a beneficiary under this Plan, or if no
designated beneficiary survives the Key Associate, the balance of his or
her Account shall be distributed to the person or persons entitled to his
or her account under Section 7.5 of the Qualified Plan (or who would be so
entitled if there were then an amount remaining unpaid under the Qualified
Plan).
<PAGE>
8. Amendment and Termination. This Plan shall be subject to
the same reserved powers of amendment and termination as the Qualified Plan
(without regard to any limitations imposed on such powers by the Code or
ERISA), except that no such amendment or termination shall reduce or
otherwise adversely affect the rights of Key Associates or Beneficiaries in
respect of amounts credited to their Accounts as of the date of such
amendment or termination.
9. Application of ERISA. This Plan is intended to be an
unfunded plan maintained primarily for the purpose of providing deferred
compensation to a select group of management or highly compensated
employees within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of
ERISA and Department of Labor Regulation Section 2520.104-23. This Plan
shall not be a funded plan, and the Company shall be under no obligation to
set aside any funds for the purpose of making payments under this Plan.
Any payments hereunder shall be made out of the general assets of the
Company.
10. Administration. The Committee shall be charged with the
administration of this Plan and shall have the same powers and duties, and
shall be subject to the same limitations, as are described in the Qualified
Plan. The provisions of Article 9 of the Qualified Plan (other than
Section 9.3 relating to qualified domestic relations orders) are hereby
incorporated herein by reference, and shall be applicable as if such
provisions were set forth herein.
11. Nonassignment of Benefits. Notwithstanding anything
contained in the Qualified Plan to the contrary, it shall be a condition of
<PAGE>
the payment of benefits under this Plan that neither such benefits nor any
portion thereof shall be assigned, alienated or transferred to any person
voluntarily or by operation of any law, including any assignment, division
or awarding of property under state domestic relations law (including
community property law). If any person shall endeavor or purport to make
any such assignment, alienation or transfer, the amount otherwise provided
hereunder which is the subject of such assignment, alienation or transfer
shall cease to be payable to any person.
12. No Guaranty of Employment. Nothing contained in this
Plan shall be construed as a contract of employment between the Company and
any employee or as conferring a right on any employee to be continued in
the employment of the Company.
13. Trust. The Company shall establish the Trust and shall
at least annually contribute to the Trust such assets as the Committee
determines, in its sole discretion, are necessary to provide for the
Company's future liabilities created with respect to the amounts credited
to the Accounts established hereunder. The existence of the Trust shall
not relieve the Company of its liabilities under the Plan, but the
Company's obligations under the Plan shall be deemed satisfied to the
extent paid from the Trust.
14. Miscellaneous. (a) Certain Qualified Plan Provisions.
Except as otherwise provided herein, the miscellaneous provisions contained
in Sections 11.6 (relating to gender and plurals), 11.7 (relating to
applicable law) and 11.8 (relating to severability) of the Qualified Plan
<PAGE>
are hereby incorporated herein by reference, and shall be applicable as if
such provisions were set forth herein.
(b) Expenses. All costs and expenses incurred in
administering the Plan, including the expenses of the Committee, the fees
of counsel and any agents of the Committee and other administrative
expenses shall be charged against the Accounts in such amounts and at such
time and in such manner as the Committee, in its sole discretion, shall
determine.
(c) FICA Taxes. For each calendar year in which an amount is
deferred on a Key Associate's behalf pursuant to this Plan, his or her
employer shall withhold an amount from the Key Associate's regular
compensation to provide for the payment of taxes imposed upon the Key
Associate pursuant to section 3121 of the Code in respect of such deferral.
(d) Successors and Assigns. The provisions of this Plan shall
bind and inure to the benefit of the Company and its successors and
assigns, as well as each Key Associate and his or her beneficiaries and
successors.
IN WITNESS WHEREOF, the Company has caused this instrument to
be executed and its corporate seal to be hereunder affixed this 26 day of
August, 1996.
ENESCO CORPORATION
By: /s/Eugene Freedman
Title: President
ATTEST:
/s/Patrick Gebhardt
Title: Group Vice President
<TABLE> <S> <C>
<ARTICLE> 5 EXHIBIT 27
<S> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 22,731,932
<SECURITIES> 0
<RECEIVABLES> 232,290,697
<ALLOWANCES> 22,096,556
<INVENTORY> 122,244,630
<CURRENT-ASSETS> 398,159,179
<PP&E> 134,570,735
<DEPRECIATION> 75,895,746
<TOTAL-ASSETS> 590,014,813
<CURRENT-LIABILITIES> 298,528,608
<BONDS> 0
0
0
<COMMON> 3,153,530
<OTHER-SE> 262,045,560
<TOTAL-LIABILITY-AND-EQUITY> 590,014,813
<SALES> 610,695,506
<TOTAL-REVENUES> 610,695,506
<CGS> 269,777,193
<TOTAL-COSTS> 269,777,193
<OTHER-EXPENSES> 282,951,916
<LOSS-PROVISION> 1,355,959
<INTEREST-EXPENSE> 6,419,379
<INCOME-PRETAX> 47,576,733
<INCOME-TAX> 21,102,434
<INCOME-CONTINUING> 26,474,299
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,474,299
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.46
</TABLE>
