EXHIBIT 13
STANHOME INC.
Percentage
Increase
FINANCIAL HIGHLIGHTS 1992 1993 (Decrease)
(In millions, except per share amounts)
Net sales $744 $751 1%
Restructuring cost - 17 -
Operating profit 83 66 (21%)
Net income before taxes 87 66 (24%)
Net income after taxes 47 33 (29%)
Working capital 161 159 ( 1%)
Total assets 416 430 3%
Shareholders' equity 257 254 ( 1%)
Return on average shareholders' equity 19% 13%
Per share data:
Net income fully diluted $2.32 $1.67 (28%)
Dividends declared $.96 $1.00 4%
Shareholders' equity at December 31 $12.99 $13.12 1%
Average number of shares fully diluted 20.16 19.79 ( 2%)
Number of shares outstanding at December 31 19.77 19.39 ( 2%)
SALES
In Million Dollars
(Graphic Material Omitted)
Year 1989 $571
1990 676
1991 710
1992 744
1993 751
OPERATING PROFIT
In Million Dollars
(Graphic Material Omitted)
Year 1989 $ 80
1990 88
1991 79
1992 83
1993 66
EARNINGS PER SHARE
FULLY DILUTED NET INCOME
In Dollars
(Graphic Material Omitted)
Year 1989 $2.23
1990 2.54
1991 2.21
1992 2.32
1993 1.67
RETURN ON EQUITY
Percent
(Graphic Material Omitted)
Year 1989 29%
1990 27%
1991 20%
1992 19%
1993 13%
Stock Market, Dividend and Shareholder Information
1992
Market Price
------------
Quarter Dividend High Low
- -------------------------------------------
First $.23 $42 $32
Second .23 36 32
Third .25 38 30
Fourth .25 36 31
1993
Market Price
------------
Quarter Dividend High Low
- -------------------------------------------
First $.25 $35 $31
Second .25 32 27
Third .25 30 26
Fourth .25 35 27
Stanhome's Common Stock is traded on the New York and Pacific stock
exchanges (Symbol: STH). The table shows for the indicated periods
dividends paid and the high and low price range rounded to the nearest
whole number (half numbers are rounded down). (Source: New York Stock
Exchange Composite Tape.) As of December 31, 1993, there were 3,723 record
holders of the Common Stock.
1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion gives more depth on Stanhome's financial
condition and results of operations. You will probably find it helpful to
have first read the financial statements, accompanying notes and the
financial highlights of recent years.
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 restructuring program takes advantage of
consolidation opportunities principally in the distribution and
administrative functions within the Company to achieve future operating
efficiencies and savings. It is expected to include a reduction of
approximately 10% of the Company's worldwide work force of 4,500. The
program is expected to be virtually completed by the end of 1994. When
completed, future annual cost savings are expected to be approximately $11
million pre-tax, $7 million after tax, or $.35 per share. 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. The charge includes $9.7 million for
severance, $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.
SEGMENT SALES AND OPERATING PROFIT
GIFTWARE
Enesco Worldwide Giftware Group sales increased 5% in 1993 due to new
product introductions and continued growth in collectible licensed lines.
The Precious Moments product line continued to be Giftware's most important
line and accounted for 46% of sales in 1993 versus 49% in 1992. A 6% sales
increase in the United States, which represents 88% of total group 1993
sales, was partially reduced by a sales decrease from international
operations, due principally to unfavorable currency translation rates
versus 1992. Excluding the Giftware restructuring charge of $4 million,
operating profit increased 9% and benefited from a lower percentage of
selling, general and administrative expenses in the United States and
Canada. Operating results from Europe and Australia decreased on the lower
sales volume and caused total cost of sales of the Group to increase
slightly as a percentage of sales in 1993 versus 1992. Giftware incurred a
restructuring charge in 1993 to turn the Australian subsidiary (1993 sales
of $2.5 million and operating loss of $1.1 million) into a distributorship
and to consolidate into the Elk Grove Village, Illinois location certain
other U.S. operations in order to improve service and efficiencies. The
fourth quarter Giftware percentage increase in sales and operating profit
was higher than the third quarter due to seasonality and due to delivery of
collectible products from the Far East. Giftware's sales mix has been
shifting to more collectible licensed lines which are generally on back
order and shipped when received versus shipped from existing inventory. As
such, quarterly results can be impacted by delays and/or improvement in
deliveries. Effective July 1, 1993, a new license agreement with Precious
Moments, Inc. commenced, which extended the term of the license and
increased the royalty rates of Precious Moments licensed product sales.
The percentage royalty rate increases between 1993 and 1996 totaling
approximately 3% of licensed sales are expected to be recovered through
price increases and cost reductions.
17
Enesco Worldwide Giftware Group sales increased 6% in 1992 due to new
product introductions and growth in collectible licensed lines. The
Precious Moments product line continued to be Giftware's most important
line and accounted for 49% of sales in 1992 versus 53% in 1991. The sales
increase combined with a lower percentage of selling, general and
administrative expense resulted in a 7% increase in operating profit.
Total results were reduced, in part, by lower sales and operating
performances in Australia and Canada due to very weak economic conditions
in those markets.
DIRECT RESPONSE
Hamilton Worldwide Direct Response Group sales improved 35% due
principally to unit volume increases in plates in the United States, which
benefited from exceptional response to new licensed lines and to the
expansion of ship-on-credit programs which have a much higher net sales
response rate. Plate sales represented 51% of sales in 1993 and 38% in
1992. The rate of sales increase in 1994 is expected to be less than 1993
as the ship-on-credit plate programs become more comparable with 1993.
Operating profit increased 42% and increased as a percentage of sales due
to a lower percentage of selling, general and administrative expenses which
benefited from the impact of higher sales on fixed costs. Cost of sales
increased as a percentage of sales due to sales mix. International results
which account for 10% of 1993 sales decreased compared to 1992 due
principally to unfavorable currency translation rates versus 1992.
Hamilton Worldwide Direct Response Group sales and operating profit in
1992 increased 20% due to volume increases in all product categories,
principally in the United States. A 2% improvement in gross margin from
higher volumes and product mix was offset by higher provisions for bad
debts resulting from increased ship-on-credit sales.
In the United States, sales taxes are only collected in those states
where Hamilton has a physical presence. Following a recent U.S. Supreme
Court decision supporting this principle, several states have increased
efforts to collect sales tax from their residents on out-of-state mail
order purchases and legislation has been introduced in the U.S. Senate to
override the Supreme Court's decision on this issue. If Hamilton had to
collect sales taxes in all states, it would result in increased
administrative cost of doing business.
DIRECT SELLING
Worldwide Direct Selling Group sales decreased 15% due to lower unit
volumes and unfavorable currency translation rates in 1993 compared to
1992. Excluding the Direct Selling restructuring charge of $13 million,
operating profit decreased 27%, reflecting the impact of lower sales on
fixed costs combined with a higher percentage of selling, general and
administrative expense.
European Direct Selling sales, which represent 71% of the total group
1993 sales, decreased 20% due to local currency declines, reflecting the
poor economic conditions, and to unfavorable currency translation rates in
1993 compared to 1992. European local currency 1993 sales and operating
profit translated at 1992 average exchange rates would have resulted in a
5% sales decrease and a 15% operating profit decrease. Italian value-added
sales tax
18
and, in some cases, income tax issues concerning the Italian independent
Dealers, as well as registration taxes imposed by the government which
affect the Dealer force, have caused Dealers to leave and potential
recruits to decline to join. During 1993, these conditions persisted as
Dealers continued to receive personal tax assessments. The Company will
continue to assist Dealers in their defense of the claims, by making
payments of legal expenses, advancing amounts for tax deposits, or making
payments of settlements 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.
The European operations incurred a restructuring charge in 1993 to close
subsidiaries in Germany and Portugal, eliminate three distribution centers
and to reduce work force levels. The 1993 combined sales and operating
losses of Germany and Portugal were $1.1 million and $.9 million,
respectively.
Excluding the 1992 results of the Brazilian subsidiary, which was sold
during the third quarter of 1992, Latin American Direct Selling sales and
operating profit increased during 1993. For 1992, Brazilian sales were
$1.9 million with an operating loss of $1.1 million.
Sales for the U.S. Direct Selling operations decreased and an
operating loss was recorded prior to restructuring. The United States
operations incurred a restructuring charge to close the Industrial
Division, the Gift Gallery Division, two distribution centers, to eliminate
self-manufacturing and to reduce work force levels. The 1993 combined
sales and operating loss of the Gift Gallery and the Industrial Divisions
were $3.9 million and $.9 million, respectively.
Worldwide Direct Selling Group sales for 1992 were level with 1991 and
operating profit increased 1%. Operating profit in 1991 was reduced by a
$2.2 million restructuring charge to reduce future costs. During the third
quarter of 1992, the Brazilian subsidiary was sold due to continued losses.
Total 1992 sales and operating loss for Brazil prior to its sale were $1.9
million and $1.1 million, respectively. In 1991, Brazil had sales of $11.1
million and an operating loss of $.7 million. Comparable 1992 Direct
Selling sales increased 3% and operating profit decreased 5% after
adjusting for the exclusion of the discontinued Brazilian results for both
years and the 1991 restructuring charge. Sales increased from new product
introductions and price increases, while volume decreased. Margin
improvement from the 1991 restructuring in the United States and Italy was
offset by reduced margins from Latin America and other European countries
due to higher selling and marketing expenses that did not produce a
corresponding sales increase.
European Direct Selling 1992 sales increased 2% and operating profit,
excluding the restructuring charge in 1991, decreased 6%. Poor economic
conditions in Europe continued to impact results. Exchange rates for 1992
versus 1991 did not have a material impact on the total year results;
however, fourth quarter 1992 exchange rates reduced fourth quarter 1992
results compared to 1991. Italian value-added sales tax and, in some
cases, income tax issues concerning the Italian independent Dealers, as
well as registration taxes imposed by the government which affect the
Dealer force, have caused Dealers to leave and potential recruits to
decline to join. These conditions were particularly acute during 1991.
Excluding Brazil, Latin American sales were level with 1991 but operating
profit decreased 36% to $1.5 million due to higher selling, general and
administrative expense combined with slowing economic conditions,
particularly in Mexico. Sales for the U.S. direct selling operations
increased 10% from new product introductions, volume growth and price
increases. The 1991 operating loss of $1.3 million, excluding
restructuring, improved to a break-even due to the higher sales and the
benefits from the restructuring in 1991.
19
GENERAL CORPORATE EXPENSE represented 1% of sales in 1993, 1992 and 1991.
INTEREST EXPENSE AND OTHER INCOME, NET
Interest income and interest expense in 1993 and 1992 both decreased
from the prior year due to lower rates, to lower levels of investments in
Europe and to lower levels of borrowings in the United States. Net
exchange gains in 1992 increased due to fluctuations in currency rates.
Other assets amortization increased in 1993 and 1992 due to higher goodwill
amortization resulting from acquisitions. Net gains on the sale of assets
in 1992 was principally from a gain of $1.7 million, net of anticipated
relocation and restructuring charges, from the sale of the Company's Direct
Selling Brazilian manufacturing, warehouse and distribution facility in the
first quarter of 1992 and the subsequent sale in August of the Brazilian
company's stock for a nominal value but at a loss. The book value of the
sold facility was $1.8 million. On the stock sale, total assets sold
approximated the liabilities. The book value of assets sold was $1.8
million, comprised of $1.3 million of working capital and $.5 million of
net plant and equipment and other assets.
INCOME TAXES
The effective tax rate for 1993 increased to 50% due to the impact of
the restructuring charge. The tax benefit of $5.5 million, or 32% of the
$17 million restructuring charge, was limited by the inability to fully
receive tax benefits for all of the charges in certain international
locations. Excluding the restructuring charge, the effective tax rate was
46%, the same as 1992. Increased statutory rates in 1993 for the United
States and international were offset by a favorable earnings mix with a
higher ratio of United States income which has a lower rate.
The effective tax rates were 46% for 1992 compared to 44% for 1991.
The 1992 effective tax rate increased due to higher taxes imposed by the
Italian government, to subsidiaries in loss positions with no tax benefits
and to earnings mix from the various international business segments.
INFLATION, CHANGING PRICES AND ECONOMIC CONDITIONS
Although the Company's operations are affected by general economic
trends, inflation and changing prices did not have a material impact on
1993 and 1992 results compared to prior years for operations in Europe and
North America. Operations in Latin America, particularly 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 dollar versus Latin American currencies has resulted in lower U.S.
dollar results for these operations. European operations were unfavorably
impacted by lower currency translation rates in 1993 compared to 1992.
European operations were not significantly impacted by translation rates in
total for 1992, however, fourth quarter currency rates were unfavorable
compared to 1991. The value of the U.S. dollar versus Asian currencies has
resulted in
20
higher costs of imported products, which resulted in selling price
increases in 1992 and 1991. 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.
FINANCIAL CONDITION
The Company has historically satisfied its capital requirements with
internally generated funds and short-term loans. Working capital
requirements fluctuate during the year and are generally greatest during
the third quarter.
The major source of funds from operating activities was net income.
Net accounts receivable increased 15% in 1993 compared to 1992 due to
increased sales volumes, extended credit in giftware to provide customers
better service and competitive terms, and to a higher percentage of direct
response products, particularly plates, sold on credit. Extended credit
terms to customers has been a very effective means to increase sales and
profits and will continue to be utilized in the future. Net accounts
receivable increased 2% in 1992 following the sales increase. The reserve
for allowance for doubtful accounts was increased 27% in 1993 and 12% in
1992 to provide for the additional exposure. Inventories decreased 21% in
1993 following the Company's effort to improve inventory turns and customer
deliveries. Lower currency translation rates in 1993 versus 1992
represented 3% of the inventory reduction. Inventories increased 4% in
1992 and 3% in 1991 following the sales increase. Prepaid advertising
expense increased 28% in 1993 and 48% in 1992 due to continuing market
efforts in support of higher sales for the Direct Response Group. Total
current liabilities increased 13% in 1993 due principally to the
restructuring accrual and an increase in the acquisition accrual following
the Hamilton Direct Response profit increase. Total current liabilities in
1992 decreased 11% due principally to the reduction of notes and loans
payable, accrued taxes (reflecting the Italian tax amnesty payment) and
lower accounts payable. As announced on June 4, 1992, the Company's
Italian subsidiary decided to settle various tax assessments under a tax
amnesty procedure for amounts totaling approximately $12.5 million. The
amounts were previously reserved and are due in various installments.
Payments totaling approximately 56% of the amount due were made in 1992.
Another 30% was paid in 1993 with the balance due after 1993.
The major use of cash in investing activities for 1993, 1992 and 1991
was for capital expenditures. In 1991 acquisition of companies was also a
major use. The 1991 acquisitions principally consisted of accounts
receivable and inventories and resulted in $6.9 million of goodwill. The
sources of funds for all expenditures were from cash and investments, and
short-term loans. Accruals have been made for additional contingent cash
payments that will be made in 1994 to the sellers of companies purchased
based on pre-tax income performance through 1993. Capital expenditures of
$17 million are planned for 1994. The Company has an acquisition program
and may utilize funds for this purpose in the future. Proceeds from the
sale of property in 1992 were primarily from the sale of the Brazilian
manufacturing, warehouse and distribution facility. Marketable securities
principally consist 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 among the years principally represents
investment alternatives versus certificates of deposit and time deposits.
21
The major use of cash in financing activities was for dividends to
shareholders and purchases of common stock. Purchases of common stock
included shares repurchased by the Company and shares received from
optionees to pay for the exercise price of options. Note 3 to the
Financial Statements provides a detailed summary of treasury stock
activity. 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 and business conditions, and may utilize funds for this
purpose in the future. As of December 31, 1993, 1.4 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
continued to be from the exercise of stock options. Total stock options
outstanding at the exercise price amounted to $49 million at December 31,
1993 and the Company could receive these funds in the future if the options
are exercised.
Annually, the Company makes provisions to record its obligation to
pay, in the future, insurance premiums for post retirement benefits to
eligible employees, and severance allowances to eligible employees of
certain foreign subsidiaries upon their voluntary or involuntary
separation. These obligations are not funded because there is not a
financial benefit to fund them.
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. Shareholders' equity in
1993 decreased $5 million due to international currency fluctuations
impacting the cumulative translation component of shareholders' equity.
The translation adjustments to the December 31, 1993 balance sheet that
produced the 1993 change in the cumulative translation component of
shareholders' equity were decreases in working capital by $4 million; net
property, plant and equipment and other assets by $3 million; and long-term
liabilities by $2 million. 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.
As of December 31, 1993, the Company and its subsidiaries had
approximately $100 million of unused formal and informal lines of credit.
With the level of funds generated from operations, the level of working
capital and the unused lines of credit, no liquidity problems are
anticipated.
22
QUARTERLY RESULTS (UNAUDITED):
(In thousands, except per share amounts)
The following table sets forth information with respect to the
consolidated quarterly results of operations for 1993, 1992 and 1991. The
amounts are unaudited, but in the opinion of management include all
adjustments necessary to present fairly the results of operations for the
periods indicated.
For the Three Months Ended
------------------------------------------
March 31, June 30, Sept. 30, Dec. 3l,
1993 1993 1993 1993
-------- -------- -------- --------
Net sales.................. $164,490 $187,236 $182,481 $216,456
Cost of sales.............. 65,200 72,871 77,698 88,891
-------- -------- -------- --------
Gross profit............... 99,290 114,365 104,783 127,565
Selling, general and
administrative expense... 87,407 95,646 83,354 97,044
Restructuring.............. - 17,000 - -
-------- -------- -------- --------
Operating profit........... $ 11,883 $ 1,719 $ 21,429 $ 30,521
======== ======== ======== ========
Net income................. $ 6,267 ($ 1,223) $ 11,900 $ 16,189
======== ======== ======== ========
Earnings per common share:
Primary and fully diluted $ .31 ($ .06) $ .60 $ .83
======== ======== ======== ========
For the Three Months Ended
------------------------------------------
March 31, June 30, Sept. 30, Dec. 3l,
1992 1992 1992 1992
-------- -------- -------- --------
Net sales.................. $168,825 $184,817 $182,150 $208,280
Cost of sales.............. 66,710 70,478 76,540 81,390
-------- -------- -------- --------
Gross profit............... 102,115 114,339 105,610 126,890
Selling, general and
administrative expense... 88,142 93,902 85,038 98,439
-------- -------- -------- --------
Operating profit........... $ 13,973 $ 20,437 $ 20,572 $ 28,451
======== ======== ======== ========
Net income................. $ 8,200 $ 11,422 $ 11,718 $ 15,376
======== ======== ======== ========
Earnings per common share:
Primary and fully diluted $ .41 $ .57 $ .58 $ .76
======== ======== ======== ========
For the Three Months Ended
------------------------------------------
March 31, June 30, Sept. 30, Dec. 3l,
1991 1991 1991 1991
-------- -------- -------- --------
Net sales.................. $156,920 $171,329 $172,539 $209,420
Cost of sales.............. 61,053 66,889 72,277 81,449
-------- -------- -------- --------
Gross profit............... 95,867 104,440 100,262 127,971
Selling, general and
administrative expense... 84,242 86,831 79,740 98,591
-------- -------- -------- --------
Operating profit........... $ 11,625 $ 17,609 $ 20,522 $ 29,380
======== ======== ======== ========
Net income................. $ 6,845 $ 9,529 $ 11,822 $ 16,857
======== ======== ======== ========
Earnings per common share:
Primary.................. $ .34 $ .47 $ .58 $ .83
Fully diluted............ $ .34 $ .47 $ .58 $ .82
======== ======== ======== ========
23
CONSOLIDATED BALANCE SHEET
December 31, 1993 and 1992
STANHOME INC.
ASSETS
1993 1992
------------- -------------
CURRENT ASSETS:
Cash (including interest bearing demand deposits) $ 20,870,000 $ 19,753,458
Certificates of deposit and time deposits........ 32,463,754 4,823,406
Marketable securities, at cost
(which approximates market value).............. 7,392,380 17,693,590
Notes and accounts receivable, net............... 123,018,073 107,365,519
Inventories...................................... 94,877,441 119,970,931
Prepaid advertising.............................. 30,946,289 24,237,418
Other prepaid expenses........................... 4,783,884 4,402,154
------------ ------------
Total current assets................... 314,351,821 298,246,476
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and improvements............................ 6,854,447 7,275,850
Buildings and improvements....................... 42,099,109 43,733,476
Machinery and equipment.......................... 26,931,332 27,000,178
Furniture and fixtures........................... 28,348,373 27,408,774
Transportation equipment......................... 3,618,538 4,048,137
------------ ------------
107,851,799 109,466,415
Less - Accumulated depreciation and amortization 63,177,270 59,387,913
------------ ------------
44,674,529 50,078,502
------------ ------------
OTHER ASSETS:
Intangibles
Goodwill, net.................................. 43,028,884 39,497,183
Product lines and other, net................... 18,720,577 19,735,282
Other............................................ 8,954,915 8,060,801
------------ ------------
70,704,376 67,293,266
------------ ------------
$429,730,726 $415,618,244
============ ============
The accompanying notes are an integral part of these financial statements.
24
LIABILITIES AND SHAREHOLDERS' EQUITY
1993 1992
---- ----
CURRENT LIABILITIES:
Notes and loans payable.................... $ 834,197 $ 1,158,549
Accounts payable........................... 51,166,414 54,697,004
Federal, state and foreign taxes on income. 21,598,997 23,070,450
Accrued expenses -
Payroll and commissions.................. 12,844,332 11,318,184
Restructuring............................ 10,840,975 -
Acquisitions............................. 9,125,000 4,200,689
Vacation, sick leave and
retirement insurance.................... 9,074,991 8,850,879
Royalties................................ 7,319,675 3,986,088
Pensions and profit sharing.............. 5,094,628 4,841,775
Other.................................... 27,153,269 25,145,887
------------ -------------
Total current liabilities......... 155,052,478 137,269,505
------------ ------------
LONG-TERM LIABILITIES:
Foreign employee severance obligations..... 12,869,999 14,678,649
Pensions................................... 7,442,344 6,713,939
------------ ------------
Total long-term liabilities....... 20,312,343 21,392,588
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 7)
SHAREHOLDERS' EQUITY:
Common stock, par value $.125--
Authorized 80,000,000 shares
Issued 25,228,240 shares................. 3,153,530 3,153,530
Capital in excess of par value............. 34,015,110 33,041,137
Retained earnings.......................... 338,753,939 325,241,068
Cumulative translation adjustments......... (27,405,455) (22,336,925)
------------ ------------
348,517,124 339,098,810
------------- ------------
Less - Shares held in treasury, at cost-
Common stock, 5,836,617 shares in
1993 and 5,454,424 in 1992............. 94,151,219 82,142,659
------------ ------------
Total shareholders' equity........ 254,365,905 256,956,151
------------ ------------
$429,730,726 $415,618,244
============ ============
25
CONSOLIDATED STATEMENT OF INCOME
For the Years Ended December 31, 1993, 1992 and 1991
STANHOME INC.
1993 1992 1991
---- ---- ----
NET SALES.................... $750,662,776 $744,072,178 $710,207,571
COST OF SALES................ 304,659,476 295,118,460 281,667,641
------------ ------------ ------------
GROSS PROFIT................. 446,003,300 448,953,718 428,539,930
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE..... 363,451,535 365,520,560 349,403,840
RESTRUCTURING CHARGE......... 17,000,000 - -
------------ ------------ ------------
OPERATING PROFIT............. 65,551,765 83,433,158 79,136,090
Interest expense........... (2,010,964) (3,351,435) (5,015,975)
Other income, net.......... 2,598,911 6,910,383 7,018,946
------------ ------------ ------------
INCOME BEFORE INCOME TAXES... 66,139,712 86,992,106 81,139,061
Income taxes............... 33,007,035 40,275,836 36,085,961
------------ ------------ ------------
NET INCOME................... $ 33,132,677 $ 46,716,270 $ 45,053,100
============ ============ ============
EARNINGS PER COMMON SHARE:
Primary.................... $ 1.68 $ 2.32 $ 2.22
Fully diluted.............. $ 1.67 $ 2.32 $ 2.21
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
For the Years Ended December 31, 1993, 1992 and 1991
BALANCE, beginning of year... $325,241,068 $297,474,456 $270,555,352
Net income................. 33,132,677 46,716,270 45,053,100
Cash dividends, $1.00 per
share in 1993, $.96 per
share in 1992 and $.92
per share in 1991.. (19,619,806) (18,949,658) (18,133,996)
------------ ------------ ------------
BALANCE, end of year......... $338,753,939 $325,241,068 $297,474,456
============ ============ ============
The accompanying notes are an integral part of these financial statements.
26
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1993, 1992 and 1991
STANHOME INC.
1993 1992 1991
---- ---- ----
OPERATING ACTIVITIES:
Net income..................... $33,132,677 $46,716,270 $45,053,100
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization
of property, plant and
equipment.................... 8,354,026 8,396,192 7,940,362
Allowance for losses on
accounts receivable......... 3,325,574 1,375,162 2,689,630
Amortization of other assets. 2,285,245 2,215,827 2,072,019
(Gain)/loss on sale of
capital assets.............. (14,042) (1,348,354) 26,010
Changes in assets and
liabilities, net of effects
from acquisition of
businesses:
Notes and accounts
receivable................ (22,606,637) (9,670,399) (19,483,593)
Inventories................ 21,845,489 (12,020,004) 234,885
Prepaid expenses........... (7,446,253) (8,800,142) (1,326,751)
Other assets............... (708,612) (465,747) (729,758)
Accounts payable, accrued
expenses and other current
liabilities............... 20,834,829 6,043,281 3,991,561
Taxes on income............ (435,117) (1,303,172) (1,397,498)
Foreign employee severance
obligations............... 3,650 975,603 1,124,219
Long-term pensions......... 728,405 827,236 905,725
----------- ----------- -----------
Net cash provided by operating
activities.................... 59,299,234 32,941,753 41,099,911
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchase of property, plant and
equipment..................... (6,511,449) (6,873,397) (7,821,094)
Acquisition of businesses, net
of cash acquired, including
additional contingent cash
payments...................... (199,858) (316,469) (7,002,547)
Proceeds from sale of property,
plant and equipment........... 572,110 3,823,213 665,311
Other, principally marketable
securities................... (811) (4,753) (9,503,607)
----------- ----------- -----------
Net cash used in investing
activities.................... (6,140,008) (3,371,406) (23,661,937)
----------- ----------- -----------
FINANCING ACTIVITIES:
Cash dividends................. (19,619,806) (18,949,658) (18,133,996)
Exchanges and purchases of
common stock.................. (12,232,407) (9,104,261) (2,334,149)
Notes and loans payable........ (260,780) (9,472,177) (11,298,506)
Exercise of stock options...... 870,676 5,812,857 5,597,692
Other common stock issuance.... 327,144 290,768 244,171
----------- ----------- -----------
Net cash used in financing
activities.................... (30,915,173) (31,422,471) (25,924,788)
----------- ----------- -----------
Effect of exchange rate changes
on cash and cash equivalents.. (2,703,535) (5,688,688) (1,254,611)
----------- ----------- -----------
Increase/(decrease) in cash and
cash equivalents.............. 19,540,518 (7,540,812) (9,741,425)
Cash and cash equivalents,
beginning of year............. 33,793,236 41,334,048 51,075,473
----------- ----------- -----------
Cash and cash equivalents,
end of year................... $53,333,754 $33,793,236 $41,334,048
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991
1. ACCOUNTING POLICIES:
-------------------
The accompanying consolidated financial statements include the
accounts of Stanhome Inc. and its subsidiaries. All significant
intercompany transactions have been eliminated in the consolidated
financial statements. Certain reclassifications have been made to the
prior years' financial statements to make them comparable to the 1993
presentation.
The carrying amount of cash and certificates of deposit and notes and
loans payable approximate fair value.
The Company considers all highly liquid securities with maturities of
three months or less, when purchased, to be cash equivalents. Marketable
securities consist primarily of treasury bills and commercial paper
maturing as follows (in thousands):
Maturity Dates 1993 1992
-------------- ---- ----
Three months or less................. $ - $ 9,217
Over three months.................... 7,392 8,477
------- -------
$ 7,392 $17,694
======= =======
Sales by certain International direct selling subsidiaries are
transacted at retail prices. However, these sales are reflected in the
consolidated financial statements at equivalent wholesale selling prices.
Notes and accounts receivable were net of allowance for doubtful
accounts of $15,731,000 and $12,405,000 at December 31, 1993 and 1992,
respectively.
Inventories are valued at the lower of cost or market. Cost
components include labor, manufacturing overhead and amounts paid to
suppliers of materials. The Company values raw materials and certain
manufactured and purchased items in the United States and Italy utilizing
the last-in, first-out method while the first-in, first-out method is used
for substantially all other inventories. The cost on a first-in, first-out
basis over the carrying amount of inventories as reflected in the
accompanying consolidated balance sheet was $1,232,000 and $681,000 at
December 31, 1993 and 1992, respectively.
The major classes of inventories were as follows (in thousands):
1993 1992
---- ----
Raw materials and supplies........... $ 6,710 $ 6,363
Work in process...................... 644 882
Finished goods in transit............ 8,762 12,140
Finished goods....................... 78,761 100,586
-------- --------
$ 94,877 $119,971
======== ========
The Company incurs prepaid advertising expense in connection with the
marketing of certain of its direct response products. Such expense is
amortized over the life of the associated product programs which is
generally less than one year.
28
Depreciation is provided over the estimated useful lives of the
assets utilizing straight-line and declining balance methods. The methods
for financial statement and income tax purposes differ in some
circumstances, resulting in deferred income taxes.
The estimated useful lives of the various classes of assets are:
Range in Years
--------------
Land improvements.................... 10-15
Buildings and improvements........... 15-40
Machinery and equipment.............. 5-12
Furniture and fixtures............... 5-10
Transportation equipment............. 3-8
Intangible assets result from the allocation of the excess cost of
acquisitions over net tangible assets acquired. Intangibles were net of
accumulated amortization of $19,113,000 and $16,883,000 at December 31,
1993 and 1992, respectively. Product lines, net resulting from the
acquisition of Enesco in 1983 were $18,275,000 in 1993 and $19,090,000 in
1992 and are being amortized over the shorter of actual life or 33 years.
Other items are being amortized over 5 years. Goodwill is being amortized
over 20 to 40 years. Product lines and other amortization amounted to
$1,010,000 for 1993 and 1992 and $960,000 for 1991, respectively. Goodwill
amortization was $1,275,000 for 1993, $1,206,000 for 1992 and $1,112,000
for 1991.
Total Company interest paid was $2,015,000 in 1993, $3,418,000 in 1992
and $4,955,000 in 1991.
The Company accrues appropriate U.S. and foreign income taxes on
earnings of subsidiary companies which are intended to be remitted to the
parent company in the near future. The cumulative amount of unremitted
earnings of subsidiaries which has been, or is intended to be, permanently
reinvested, aggregated approximately $16,576,000 at December 31, 1993. Had
such reinvested unremitted earnings been distributed during 1993,
applicable income taxes would have amounted to approximately $3,609,000
representing primarily taxes which would be withheld by foreign countries.
Primary earnings per common share are based on the average number of
common shares outstanding and common share equivalents during the year.
Common share equivalents represent dilutive stock options using the
treasury stock method. Fully diluted earnings per common share assumes, in
addition to the above, an additional dilutive effect of stock options.
The number of shares used in the earnings per common share computation
for 1993, 1992 and 1991 were as follows:
1993 1992 1991
---- ---- ----
Primary
Average common shares outstanding 19,634,230 19,753,290 19,681,026
Stock options.................... 114,621 398,976 613,681
---------- ---------- ----------
Average shares primary........... 19,748,851 20,152,266 20,294,707
Fully diluted
Additional dilutive effect of
stock options................... 41,729 8,125 60,577
---------- ---------- ----------
Average shares fully diluted..... 19,790,580 20,160,391 20,355,284
29
2. EMPLOYEE BENEFIT PLANS:
----------------------
The Company and some of its subsidiaries have several employee benefit
plans covering most of their full time U.S. employees. The benefits under
these plans are based primarily on years of service and compensation rates
near retirement. The plans are funded in conformity with Federal tax and
actuarial regulations. The prior year figures for the domestic plans have
been adjusted to include nonqualified supplemental plans.
Pension expense for the domestic plans includes the following
components (in thousands):
1993 1992 1991
---- ---- ----
Service cost during the period......... $ 1,236 $ 1,629 $ 1,528
Interest cost on the projected
benefit obligation................... 2,492 2,250 2,125
Actual return on plan assets........... ( 1,300) ( 894) ( 1,889)
Net amortization of prior service
cost, net transition liability
and net loss........................ 45 ( 407) 569
------- ------- -------
Pension expense........................ $ 2,473 $ 2,578 $ 2,333
======= ======= =======
The following table sets forth the plans' funded status and amounts
recognized in the Company's balance sheet at December 31, 1993 and 1992 (in
thousands):
1993 1992
---- ----
Actuarial present value of benefit obligations:
Vested benefits................................ $28,632 $22,041
Nonvested benefits............................. 1,551 1,140
------- -------
Accumulated benefit obligation................. 30,183 23,181
Additional obligation for future
salary increases............................... 7,102 9,376
------- -------
Projected benefit obligation..................... 37,285 32,557
Fair value of plan assets, primarily
marketable securities.......................... ( 22,247) ( 20,560)
------- -------
Unfunded excess of projected benefit obligation
over plan assets............................... 15,038 11,997
Unrecognized net transition asset/(liability),
being recognized over 15 years................. ( 1,190) ( 1,294)
Unrecognized prior service costs................. 216 162
Unrecognized net gain/(loss)..................... ( 4,843) ( 2,263)
------- -------
Pension liability recognized
in the balance sheet........................... $ 9,221 $ 8,602
======= =======
30
The weighted average discount rate used to measure the projected benefit
obligation ranges from 5% to 8%, the rate of increase in future compensation
levels ranges from 5% to 7% and the expected long-term rate of return on
assets is 8%.
Certain foreign subsidiaries are required to pay a severance allowance
to eligible employees upon voluntary or involuntary separation. Provision is
made annually for all eligible employees. Generally, such payments are based
upon years of service and level of compensation.
Severance expense for the combined foreign subsidiary severance
allowance programs includes the following components (in thousands):
1993 1992 1991
---- ---- ----
Service cost during the period......... $ 1,624 $ 1,911 $ 1,848
Interest cost on the projected benefit
obligation........................... 1,691 1,773 1,755
Actual return on plan assets........... ( 31) ( 50) ( 38)
Net amortization of prior service cost,
net transition liability and net loss 262 132 107
------- ------- -------
Severance expense...................... $ 3,546 $ 3,766 $ 3,672
======= ======= =======
The following table sets forth the programs' funded status and amounts
recognized in the subsidiaries' balance sheets at December 31, 1993 and 1992
(in thousands):
1993 1992
---- ----
Actuarial present value of benefit obligations:
Vested benefits............................... $ 9,563 $ 9,422
Nonvested benefits............................ 1,855 2,357
------- -------
Accumulated benefit obligation................ 11,418 11,779
Additional obligation for future
salary increases.............................. 7,254 7,017
------- -------
Projected benefit obligation.................... 18,672 18,796
Fair value of plan assets....................... ( 209) ( 148)
------- -------
Unfunded excess of projected benefit obligation
over plan assets.............................. 18,463 18,648
Unrecognized net transition asset/(liability),
being recognized over 17 years................ ( 1,132) ( 1,168)
Unrecognized net gain/(loss).................... ( 4,461) ( 3,600)
------- -------
Severance liability recognized in the
balance sheet................................. $12,870 $13,880
======= =======
31
The discount rates used to measure the projected benefit obligation
range from 8% to 13.5%, the rate of increase in future compensation levels
ranges from 5.5% to 11.5% and funding is not significant.
In addition to providing pension benefits, the Company and its
subsidiaries sponsor a single-employer defined benefit post retirement health
care and life insurance plan. Substantially all of the U.S. direct selling
and corporate employees may become eligible for the benefits under this plan
if they reach allowable retirement age while working for the Company or its
subsidiaries. Those benefits are provided principally through insurance
companies whose premiums are based on the anticipated benefits to be paid.
The total costs for such retired employee benefits were principally accrued
during their active employment.
Effective January 1993, the Company adopted Statement No. 106 of the
Financial Accounting Standards Board and formalized its funding policy for the
plan. Under that policy, the Company pays premiums to insurance companies who
provide the post retirement benefits. The effect of adopting the statement in
1993 was not material to the Company.
Net periodic post retirement benefit expense for 1993 includes the
following components (in thousands):
Service cost..................................... $ 310
Interest cost on accumulated post retirement
benefit obligation............................. 180
Actual return on plan assets..................... -
Amortization of net transition liability......... -
Net amortization and deferral.................... -
------
Net periodic post retirement benefit expense $ 490
======
The following table sets forth the funded status of the plan reconciled
with the amount shown in the Company's balance sheet at December 31, 1993 (in
thousands):
Accumulated post retirement benefit obligation:
Retirees....................................... $ 1,762
Fully eligible active plan participants........ 933
Other active plan participants................. 2,657
-------
5,352
Plan assets at fair value........................ -
-------
Accumulated post retirement benefit obligation
in excess of plan assets....................... 5,352
Unrecognized net gain/(loss) from differences
between past experience and that assumed....... -
Unrecognized prior service cost.................. -
Unrecognized net transition asset/(liability).... -
-------
Accrued post retirement benefit liability
recognized in the balance sheet................ $ 5,352
=======
32
A 25% annual rate of increase in the per capita cost of covered health
care benefits was assumed for 1994. The cost trend rate was assumed to
decrease gradually but still remain at double digit rates until 2020. After
2020, the rate was assumed to drop to and stabilize at 8%. Increasing the
assumed health care expense trend rates by one percentage point in each year
would increase the accumulated post retirement benefit obligation as of
December 31, 1993 by $500,000 and the aggregate of the service and interest
cost components of the net post retirement benefit expense for the year then
ended by $150,000.
The weighted-average discount rate used in determining the accumulated
post retirement benefit obligation was 6%.
In addition, provisions have been made for unfunded anticipated
retirement benefits for certain Officers. Also, certain subsidiaries have
established funded profit sharing and defined contribution retirement plans.
Total consolidated pension, severance allowance, profit sharing and
retirement plan expense amounted to $9,561,000 in 1993, $9,614,000 in 1992
and $8,579,000 in 1991.
3. SHAREHOLDERS' EQUITY:
--------------------
In 1988, the Company's Board of Directors adopted a Stockholder Rights
Plan in which common stock purchase rights were distributed to shareholders
at the rate of one right for each share of common stock creating common stock
together with the associated common stock purchase rights ("common stock").
The rights are exercisable at $85 per share and will expire on September 19,
1998.
In 1991, the shareholders approved a new Stock Option Plan previously
adopted by the Board of Directors which provides for both incentive and
nonqualified stock options. Options for up to 2,000,000 shares of common
stock may be granted under the 1991 Plan. The plan provides that
nonqualified options for 1,500 shares of common stock be granted annually
from 1991 through 1995 to each non-employee Director then serving. The
Company also has a 1984 Stock Option Plan, which provides for both incentive
and nonqualified stock options, under which options for up to 3,000,000
shares of common stock may be granted. Both plans provide for the granting
to selected key employees, and non-employee Directors in the case of the 1991
Plan, of options to acquire shares of such stock at a price not less than
their fair market value at the time of grant. Other option terms are
determined at the time of grant, but normally options are exercisable only
after a one year waiting period in four equal annual installments, and expire
ten years from the date of grant.
In 1993, the Board of Directors approved a Special Interim Chief
Executive Officer Stock Option Plan which provided for a special one-time
grant of nonqualified stock options to the Company's Interim Chief Executive
Officer in lieu of cash compensation. These options vested fully in
increments of 10,000 during each month in which he served in that capacity,
are exercisable six months after the date of grant, and expire ten years from
the date of grant.
33
Stock option activity under all plans is summarized as follows:
Number
of Option
Shares Price
------ ------
Outstanding at December 31, 1990........ 1,698,719 $ 4.47-$30.88
Granted............................... 19,500 33.62- 41.12
Exercised............................. ( 301,229) 4.97- 27.13
Cancelled............................. ( 35,230) 11.13- 27.13
---------
Outstanding at December 31, 1991........ 1,381,760 4.47- 41.12
Granted............................... 378,000 33.75- 33.88
Exercised............................. ( 245,583) 4.47- 28.50
Cancelled............................. ( 114,700) 20.13- 33.75
---------
Outstanding at December 31, 1992........ 1,399,477 4.97- 41.12
Granted............................... 499,200 26.88- 33.25
Exercised............................. ( 50,713) 4.97- 27.13
Cancelled............................. ( 97,350) 26.88- 33.88
---------
Outstanding at December 31, 1993........ 1,750,614 $ 8.94-$41.12
=========
At December 31, 1993, there were 968,474 options vested and exercisable
and 1,442,425 shares available for future grants.
An analysis of treasury stock transactions for the years ended
December 31, 1993, 1992 and 1991 is as follows:
Common
------
Shares Cost
------ ----
Balance, December 31, 1990............... 5,678,082 $72,429,903
Purchases................................ - -
Stock option exchanges................... 66,964 2,334,149
Exercise of stock options................ ( 301,229) ( 905,473)
Issue of PAYSOP shares................... ( 3,407) ( 10,255)
Investment Savings Plan - 401(k) issues.. ( 2,964) ( 8,903)
--------- -----------
Balance, December 31, 1991............... 5,437,446 73,839,421
Purchases................................ 163,200 5,318,506
Stock option exchanges................... 107,998 3,785,755
Exercise of stock options................ ( 245,583) ( 774,825)
Issue of PAYSOP shares................... ( 5,596) ( 16,732)
Investment Savings Plan - 401(k) issues.. ( 3,041) ( 9,466)
--------- -----------
Balance, December 31, 1992............... 5,454,424 82,142,659
Purchases................................ 435,800 11,984,127
Stock option exchanges................... 7,336 248,280
Exercise of stock options................ ( 50,713) ( 186,853)
Issue of PAYSOP shares................... ( 5,790) ( 20,844)
Investment Savings Plan - 401(k) issues.. ( 4,440) ( 16,150)
--------- -----------
Balance, December 31, 1993............... 5,836,617 $94,151,219
========= ===========
34
In 1985, the Company approved a Payroll-Based Stock Ownership Plan
("PAYSOP") which provides common stock to eligible employees and allows the
Company a Federal income tax deduction equal to the market value of the
issued stock. In 1987, the Company introduced an Investment Savings Plan
in accordance with Section 401(k) of the Internal Revenue Code. One of the
features of this retirement savings plan provides common stock to eligible
employees and allows the Company a Federal income tax deduction equal to
the market value of the issued stock.
The change in capital in excess of par value resulted from the
exercise of stock options, including the related income tax benefit
($683,823, $5,038,032 and $4,692,219 in 1993, 1992 and 1991, respectively),
issuance of PAYSOP shares ($173,085, $168,670 and $128,112 in 1993, 1992
and 1991, respectively) and issuance of 401(k) Plan shares ($117,065,
$95,900 and $96,901 in 1993, 1992 and 1991, respectively) noted above.
An analysis of the change in shareholders' equity from the cumulative
translation adjustment component for the years ended December 31, 1993,
1992 and 1991 is as follows (in thousands):
Cumulative Translation Adjustments
----------------------------------
Balance, December 31, 1990..................... $12,644
Adjustment for 1991............................ 809
-------
Balance, December 31, 1991..................... 13,453
Adjustment for 1992............................ 8,884
-------
Balance, December 31, 1992..................... 22,337
Adjustment for 1993............................ 5,068
-------
Balance, December 31, 1993..................... $27,405
=======
4. OTHER INCOME, NET:
-----------------
Other income, net consists of the following (in thousands):
1993 1992 1991
---- ---- ----
Investment income............ $ 4,207 $ 6,714 $ 8,206
Gains/(losses) on the sale of
capital assets, net........ 14 1,348 ( 26)
Exchange transaction/
translation gains, net..... 623 653 475
Other assets amortization.... ( 2,285) ( 2,216) ( 1,982)
Other items, net............. 40 411 346
------- ------- -------
$ 2,599 $ 6,910 $ 7,019
======= ======= =======
35
5. GEOGRAPHIC INFORMATION AND BUSINESS SEGMENTS:
--------------------------------------------
The Company operates predominately in two major geographic areas and
three business segments. The direct selling segment is engaged in the
manufacture, sale and distribution of household cleaning, personal
grooming and related products. The giftware segment imports and
distributes creatively designed giftware and collectibles to a diverse
group of retailers. The direct response segment markets collectibles and
giftware to consumers and retailers.
Transfers between geographic areas and segments are made at the
market value of the merchandise transferred. The eliminations in the
identifiable assets are for intercompany receivables and profit in
inventory. Corporate assets have consisted principally of certificates of
deposit, time deposits, marketable securities and corporate receivables.
The following tables summarize the Company's operations by geographic
area and business segment for 1993, 1992 and 1991 (in thousands):
Geographic Areas
----------------
1993 1992 1991
---- ---- ----
Net sales
United States................ $480,258 $427,687 $388,673
Europe....................... 205,326 250,885 245,167
Other International and
Eliminations............... 65,079 65,500 76,368
-------- -------- --------
Total consolidated....... $750,663 $744,072 $710,208
======== ======== ========
Operating profit*
United States................ $ 50,852 $ 54,790 $ 47,582
Europe....................... 17,840 32,670 32,829
Other International and
Eliminations............... 4,455 3,693 5,825
-------- -------- --------
Operating profit before
corporate expense........ 73,147 91,153 86,236
General corporate expense. ( 7,595) ( 7,720) ( 7,100)
-------- -------- --------
Total consolidated....... $ 65,552 $ 83,433 $ 79,136
======== ======== ========
Identifiable assets
United States................ $298,014 $275,989 $247,701
Europe....................... 81,646 108,842 131,992
Other International and
Eliminations............... 18,759 24,313 33,510
-------- -------- --------
Identifiable assets....... 398,419 409,144 413,203
Corporate assets.......... 31,312 6,474 6,116
-------- -------- --------
Total consolidated....... $429,731 $415,618 $419,319
======== ======== ========
*Operating profit for 1993 includes restructuring charges of $10,110 for the
United States, $5,140 for Europe and $1,750 for other international
locations.
36
Business Segments
- -----------------
1993 1992 1991
---- ---- ----
Net sales
Giftware........................ $367,531 $349,250 $329,527
Direct Response................. 129,366 95,535 79,394
Direct Selling.................. 255,120 300,058 301,431
Eliminations.................... ( 1,354) ( 771) ( 144)
-------- -------- --------
Total consolidated.............. $750,663 $744,072 $710,208
======== ======== ========
Operating profit*
Giftware........................ $ 52,593 $ 52,140 $ 48,718
Direct Response................. 10,391 7,340 6,103
Direct Selling.................. 10,163 31,673 31,415
-------- -------- --------
Operating profit before
corporate expense.............. 73,147 91,153 86,236
General corporate expense....... ( 7,595) ( 7,720) ( 7,100)
-------- -------- --------
Total consolidated.............. $ 65,552 $ 83,433 $ 79,136
======== ======== ========
Depreciation and amortization
Giftware........................ $ 5,261 $ 5,236 $ 4,527
Direct Response................. 1,354 1,114 912
Direct Selling.................. 3,761 4,048 4,352
-------- -------- --------
Depreciation and amortization... 10,376 10,398 9,791
Corporate depreciation and
amortization................... 263 214 221
-------- -------- --------
Total consolidated.............. $ 10,639 $ 10,612 $ 10,012
======== ======== ========
Capital expenditures
Giftware........................ $ 2,299 $ 2,493 $ 3,485
Direct Response................. 1,105 852 882
Direct Selling.................. 2,787 3,211 3,364
-------- -------- --------
Capital expenditures............ 6,191 6,556 7,731
Corporate capital expenditures.. 320 317 90
-------- -------- --------
Total consolidated.............. $ 6,511 $ 6,873 $ 7,821
======== ======== ========
Identifiable assets
Giftware........................ $346,309 $315,092 $301,272
Direct Response................. 90,890 69,239 55,911
Direct Selling.................. 91,210 119,647 150,131
Eliminations.................... ( 129,990) ( 94,834) ( 94,111)
-------- -------- --------
Identifiable assets............. 398,419 409,144 413,203
Corporate assets................ 31,312 6,474 6,116
-------- -------- --------
Total consolidated.............. $429,731 $415,618 $419,319
======== ======== ========
*Operating profit for 1993 includes restructuring charges of $4,000 for
Giftware and $13,000 for Direct Selling.
37
6. INCOME TAXES (in thousands):
------------
Effective January 1993, the Company adopted Statement No. 109 of the
Financial Accounting Standards Board. Prior year financial statements have
not been restated for the effect of this statement. The effect of adopting
the statement in 1993 on income before income taxes was not material.
The domestic and foreign components of the net deferred tax liability on
income consist of the following:
Deferred Tax Benefit(Liability)
------------------------------
1993
----
United States
Federal--
Prepaid advertising.......................... ($ 9,743)
Acquisition step-up amortization adjustment.. ( 4,213)
Accelerated depreciation..................... ( 1,463)
Inventory reserve............................ 4,170
Deferred compensation........................ 2,844
Bad debt reserve............................. 1,914
Retirement insurance......................... 1,742
Returns and allowances reserve............... 1,006
Other items, net............................. 1,993
-------
( 1,750)
-------
State--
Prepaid advertising.......................... ( 1,759)
Acquisition step-up amortization adjustment.. ( 906)
Accelerated depreciation..................... ( 307)
Inventory reserve............................ 868
Deferred compensation........................ 602
Bad debt reserve............................. 361
Retirement insurance......................... 375
Returns and allowances reserve............... 215
Other items, net............................. 456
-------
( 95)
-------
Foreign
Accelerated depreciation..................... ( 2,686)
Other items, net............................. 1,025
-------
( 1,661)
-------
Total ($ 3,506)
=======
38
The domestic and foreign components of income before income taxes are as
follows:
1993 1992 1991
---- ---- ----
Domestic........................ $46,198 $55,404 $44,389
Foreign......................... 19,942 31,588 36,750
------- ------- -------
$66,140 $86,992 $81,139
======= ======= =======
The provision for income taxes consists of the following:
1993 1992 1991
---- ---- ----
Currently payable:
United States Federal............... $15,658 $15,325 $14,710
United States State................. 4,585 4,081 3,797
Foreign............................. 13,459 20,968 18,888
------- ------- -------
33,702 40,374 37,395
------- ------- -------
Deferred:
United States Federal............... 345 959 ( 1,656)
United States State................. ( 9) 118 ( 130)
Foreign............................. ( 1,031) ( 1,175) 477
------- ------- -------
( 695) ( 98) ( 1,309)
------- ------- -------
$33,007 $40,276 $36,086
======= ======= =======
A reconciliation of the total effective tax rate to the statutory
Federal income tax rate is as follows:
1993 1992 1991
---- ---- ----
Statutory income tax rate...................... 35.0% 34.0% 34.0%
State taxes, net of Federal income tax effect.. 5.0 3.2 3.0
Impact of foreign tax rates and credits........ 4.4 5.6 5.2
Restructuring impact........................... 3.6 - -
Foreign subsidiaries in loss position receiving
little or no tax benefit..................... 1.1 1.9 .9
Impact of nondeductible expenses............... 1.0 1.7 1.5
Other items, net............................... ( .2) ( .1) ( .2)
---- ---- ----
Total effective income tax rate................ 49.9% 46.3% 44.4%
==== ==== ====
The Company made income tax payments of $33,442,000 in 1993, $41,579,000
in 1992 and $37,483,000 in 1991.
39
7. COMMITMENTS AND CONTINGENCIES:
-----------------------------
The Company and its subsidiaries incurred rental expense under operating
leases of $6,019,000 in 1993, $7,616,000 in 1992 and $7,254,000 in 1991.
The minimum rental commitments under noncancelable operating leases as of
December 31, 1993 are as follows (in thousands):
Period Aggregate Amount
------ ----------------
1994.......................... $ 6,184
1995.......................... 4,369
1996.......................... 3,640
1997.......................... 2,591
1998.......................... 2,476
Later years...................... 4,235
-------
Total minimum future rentals............... $23,495
=======
The Company and its subsidiaries have entered into various licensing
agreements requiring royalty payments ranging from .5% to 15.5% of specified
product sales. Royalty payments under these licensing agreements totaled
$28,100,000 in 1993, $23,900,000 in 1992 and $21,300,000 in 1991. Pursuant to
the various licensing agreements, the future minimum guaranteed royalty
payments due as of December 31, 1993 were $13,910,000 in 1994, $12,400,000 in
1995, and $12,000,000 in 1996.
At December 31, 1993, the Company had formal and informal unused lines of
credit of approximately $100,000,000.
The Company enters into foreign exchange contracts as a hedge against
receivables from international subsidiaries. Market value gains and losses
are recognized, and the resulting credit or debit offsets foreign exchange
gains or losses on those receivables. At December 31, 1993, the Company had
approximately $22,000,000 (notional amount) of foreign exchange hedge
contracts outstanding.
There are various legal proceedings pending against the Company and its
subsidiaries which have arisen during the normal course of business.
Management does not believe that the ultimate outcome of those legal
proceedings will have a material adverse impact upon the consolidated
financial condition of the Company.
40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and Board of Directors of Stanhome Inc.:
We have audited the accompanying consolidated balance sheet of
Stanhome Inc. (a Massachusetts corporation) and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of
income, retained earnings and cash flows for each of the three years
in the period ended December 31, 1993. These financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Stanhome Inc. and subsidiaries as of December 31, 1993 and 1992, and
the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Hartford, Connecticut
February 18, 1994
41
FINANCIAL HIGHLIGHTS LAST TEN YEARS
STANHOME INC.
(In thousands, except per share amounts)
1993a. 1992 1991
Net sales...................................... $750,663 $744,072 $710,208
Cost of sales.................................. 304,660 295,118 281,668
-------- -------- --------
Gross profit................................... 446,003 448,954 428,540
Selling, general and administrative expense.... 380,451 365,521 349,404
-------- -------- --------
Operating profit............................... 65,552 83,433 79,136
Interest expense............................... ( 2,011) ( 3,351) ( 5,016)
Other income, net.............................. 2,599 6,910 7,019
-------- -------- --------
Income before income taxes..................... 66,140 86,992 81,139
Income taxes................................... 33,007 40,276 36,086
-------- -------- --------
Net income..................................... $ 33,133 $ 46,716 $ 45,053
======== ======== ========
Earnings per common share fully diluted:
Income exclusive of the sale of capital assets $ 1.67 $ 2.28 $ 2.21
Gain on sale of capital assets................ - .04 -
-------- -------- --------
Net income.................................... $ 1.67 $ 2.32 $ 2.21
======== ======== ========
Average shares of common stock fully diluted... 19,791 20,160 20,355
Shares of common stock outstanding at year end. 19,392 19,774 19,791
Market value per common share at year end...... $ 33.88 $ 34.75 $ 37.00
Cash dividends paid or provided for............ $ 19,620 $ 18,950 $ 18,134
Dividends per common share..................... $ 1.00 $ .96 $ .92
Capital expenditures........................... $ 6,511 $ 6,873 $ 7,821
Depreciation................................... $ 8,354 $ 8,396 $ 7,940
Working capital................................ $159,299 $160,977 $138,913
Total assets................................... $429,731 $415,618 $419,319
Total long-term liabilities.................... $ 20,312 $ 21,393 $ 23,506
Shareholders' equity........................... $254,366 $256,956 $241,074
Book value per common share.................... $ 13.12 $ 12.99 $ 12.18
Return on average shareholders' equity......... 13% 19% 20%
Note:
a. Includes a restructuring operating charge of $17 million pre-tax,
$11.5 million after tax or $.58 per share.
The financial data set forth above should be read in connection with the
financial statements, accompanying notes and Management's Discussion on
the preceding pages.
42
1990 1989 1988 1987 1986 1985 1984
$675,665 $571,380 $480,374 $433,154 $380,501 $327,888 $333,270
264,609 222,612 187,095 165,645 148,029 137,272 144,016
-------- -------- -------- -------- -------- -------- --------
411,056 348,768 293,279 267,509 232,472 190,616 189,254
323,547 268,478 219,094 202,774 180,133 154,732 154,433
-------- -------- -------- -------- -------- -------- --------
87,509 80,290 74,185 64,735 52,339 35,884 34,821
( 5,394) ( 5,945) ( 8,142) ( 6,146) ( 3,378) ( 3,771) ( 4,473)
8,143 5,305 5,756 3,847 1,587 2,630 2,437
-------- -------- -------- -------- -------- -------- --------
90,258 79,650 71,799 62,436 50,548 34,743 32,785
39,191 35,026 31,159 29,725 24,900 16,684 16,526
-------- -------- -------- -------- -------- -------- --------
$ 51,067 $ 44,624 $ 40,640 $ 32,711 $ 25,648 $ 18,059 $ 16,259
======== ======== ======== ======== ======== ======== ========
$ 2.50 $ 2.23 $ 1.96 $ 1.58 $ 1.17 $ .86 $ .73
.04 - - - - - .05
-------- -------- -------- -------- -------- -------- --------
$ 2.54 $ 2.23 $ 1.96 $ 1.58 $ 1.17 $ .86 $ .78
======== ======== ======== ======== ======== ======== ========
20,112 20,037 20,710 20,677 21,841 21,097 20,842
19,550 19,365 19,953 19,585 18,975 21,225 20,843
$ 33.75 $ 25.88 $ 18.38 $ 15.00 $ 11.38 $ 6.88 $ 5.13
$ 16,172 $ 13,727 $ 11,994 $ 9,106 $ 8,367 $ 6,345 $ 5,992
$ .83 $ .71 $ .605 $ .47 $ .40 $ .30 $ .29
$ 10,925 $ 5,067 $ 5,137 $ 6,741 $ 11,051 $ 7,136 $ 11,815
$ 7,649 $ 6,725 $ 6,660 $ 5,771 $ 5,521 $ 4,768 $ 4,862
$112,716 $ 71,508 $ 76,290 $ 46,993 $ 17,990 $ 32,765 $ 21,041
$391,822 $335,154 $275,525 $244,267 $202,200 $186,967 $180,210
$ 21,691 $ 17,682 $ 11,319 $ 11,743 $ 9,163 $ 7,354 $ 11,797
$211,457 $170,399 $158,169 $130,755 $100,768 $109,742 $ 93,510
$ 10.82 $ 8.80 $ 7.93 $ 6.68 $ 5.31 $ 5.17 $ 4.49
27% 29% 29% 28% 23% 18% 18%
43