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 March 31, 1994
______________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.
Commission File Number 0-1349
Stanhome Inc.
___________________________________________________________________________
(Exact name of registrant as specified in its charter)
Massachusetts 04-1864170
_______________________________ ________________________
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
333 Western Avenue, Westfield, Massachusetts 01085
___________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 413-562-3631
___________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
March 31,
1994 1993
____ ____
Shares Outstanding:
Common Stock with
Associated Rights 19,470,555 19,798,907
Total number of pages
contained herein 31
Index to Exhibits is
on page 17
PART I. FINANCIAL INFORMATION
------------------------------
STANHOME INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1994 and DECEMBER 31, 1993
(Unaudited) (Audited)
March 31, December 31,
1994 1993
---- ----
ASSETS
CURRENT ASSETS:
Cash and certificates of deposit $ 59,125,627 $ 53,333,754
Marketable securities, at cost (which
approximates market value) 15,747,548 7,392,380
Notes and accounts receivable, net 117,117,858 123,018,073
Inventories 93,201,040 94,877,441
Prepaid advertising 37,883,535 30,946,289
Other prepaid expenses 10,207,673 4,783,884
------------ ------------
Total current assets 333,283,281 314,351,821
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost 108,923,371 107,851,799
Less - Accumulated depreciation and
amortization 64,509,904 63,177,270
------------ ------------
44,413,467 44,674,529
------------ ------------
OTHER ASSETS:
Intangibles
Goodwill, net 42,580,342 43,028,884
Product lines and other, net 17,709,477 18,720,577
Other 8,907,729 8,954,915
------------ ------------
69,197,548 70,704,376
------------ ------------
$446,894,296 $429,730,726
============ ============
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
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STANHOME INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1994 and DECEMBER 31, 1993
(Unaudited) (Audited)
March 31, December 31,
1994 1993
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes and loans payable $ 805,975 $ 834,197
Accounts payable 56,561,612 51,166,414
Federal, state and foreign taxes
on income 27,391,924 21,598,997
Accrued expenses--
Payroll and commissions 12,351,428 12,844,332
Vacation, sick leave and
retirement insurance 9,683,459 9,074,991
Acquisitions 9,451,469 9,125,000
Restructuring 7,466,653 10,840,975
Royalties 7,337,851 7,319,675
Pensions and profit sharing 5,595,957 5,094,628
Other 29,027,335 27,153,269
------------ ------------
Total current liabilities 165,673,663 155,052,478
------------ ------------
LONG-TERM LIABILITIES:
Foreign employee severance obligations 13,519,895 12,869,999
Pensions 7,661,333 7,442,344
------------ ------------
Total long-term liabilities 21,181,228 20,312,343
------------ ------------
SHAREHOLDERS' EQUITY
Common stock 3,153,530 3,153,530
Capital in excess of par value 35,861,059 34,015,110
Retained earnings 342,023,434 338,753,939
Cumulative translation adjustments ( 27,077,722) ( 27,405,455)
------------ ------------
353,960,301 348,517,124
Less - Shares held in treasury, at cost 93,920,896 94,151,219
------------ ------------
Total shareholders' equity 260,039,405 254,365,905
------------ ------------
$446,894,296 $429,730,726
============ ============
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
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STANHOME INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 and 1993 (Unaudited)
<CAPTION
1994 1993
---- ----
NET SALES $171,769,005 $164,489,605
COST OF SALES 69,806,121 65,200,300
------------ ------------
GROSS PROFIT 101,962,884 99,289,305
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE 86,982,547 87,406,634
------------ ------------
OPERATING PROFIT 14,980,337 11,882,671
Interest expense ( 156,920) ( 376,341)
Other income, net 664,328 637,928
------------ ------------
INCOME BEFORE INCOME TAXES 15,487,745 12,144,258
Income taxes 7,354,813 5,877,230
------------ ------------
NET INCOME 8,132,932 6,267,028
RETAINED EARNINGS, beginning of
period 338,753,939 325,241,068
Cash dividends, $.25 per share in
1994 and 1993 ( 4,863,437) ( 4,949,154)
------------ ------------
RETAINED EARNINGS, end of period $342,023,434 $326,558,942
============ ============
EARNINGS PER COMMON SHARE:
Primary and fully diluted $ .41 $ .31
===== =====
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
-4-
STANHOME INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 and 1993 (Unaudited)
1994 1993
---- ----
OPERATING ACTIVITIES:
Net cash provided by operating activities $17,164,172 $ 6,076,811
----------- -----------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment ( 1,321,591) ( 1,113,377)
Proceeds from sale of property, plant and
equipment 605,699 121,938
Other, principally marketable securities ( 630) -
----------- -----------
Net cash used in investing activities ( 716,522) ( 991,439)
----------- -----------
FINANCING ACTIVITIES:
Cash dividends ( 4,863,437) ( 4,949,154)
Exchanges and purchases of common stock ( 108,891) ( 6,384)
Notes and loans payable ( 56,515) 2,076,746
Exercise of stock options 1,954,489 286,061
Other common stock issuance 230,674 231,903
----------- -----------
Net cash used in financing activities ( 2,843,680) ( 2,360,828)
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents 187,903 ( 1,181,860)
----------- -----------
Increase/(decrease) in cash and
cash equivalents 13,791,873 1,542,684
Cash and cash equivalents,
beginning of year 53,333,754 33,793,236
----------- -----------
Cash and cash equivalents, end of quarter $67,125,627 $35,335,920
=========== ===========
SUPPLEMENTAL CASH FLOW DATA
Cash paid for:
Interest $ 190,717 $ 340,564
Income taxes $ 1,709,357 $ 3,086,577
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
-5-
STANHOME INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The consolidated condensed financial statements and related notes
included herein have been prepared by the Company, without audit except for
the December 31, 1993 condensed balance sheet, which was derived from the
Annual Report on Form 10-K, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. The information furnished reflects all normal
recurring adjustments which are, in the opinion of management, necessary 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, 1993.
1. ACCOUNTING POLICIES:
The Company's financial statements for the three months ended March
31, 1994 have been prepared in accordance with the accounting policies
described in Note 1 to the December 31, 1993 consolidated financial
statements included in the Company's 1993 Annual Report on Form 10-K.
Marketable securities with maturities of three months or less are
considered to be cash equivalents and amounted to $8,000,000 at March 31,
-6-
1994 versus none at December 31, 1993. Notes and accounts receivable were
net of allowance for doubtful accounts of $16,813,000 at March 31, 1994 and
$15,731,000 at December 31, 1993.
2. INVENTORY CLASSES:
The major classes of inventories at March and December 3l were as
follows (in thousands):
March 31, December 31,
1994 1993
---- ----
Raw materials and supplies $ 6,687 $ 6,710
Work in process 388 644
Finished goods in transit 8,262 8,762
Finished goods 77,864 78,761
-------- --------
$ 93,201 $ 94,877
======== ========
3. OTHER INCOME, NET:
Other income, net for the three months ended March 31, 1994 and 1993
consists of the following (in thousands):
1994 1993
---- ----
Interest income $ 846 $1,055
Gains on the sale of
capital assets, net 437 1
Other assets amortization ( 598) ( 574)
Other items, net ( 20) 156
------ ------
$ 665 $ 638
====== ======
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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 period covered.
For both years, there was no difference in earnings per share between
primary and fully diluted earnings per share computations. For the first
quarter fully diluted computation, the average number of shares utilized
was 19,754,901 and 20,024,213 shares for 1994 and 1993, respectively,
including common share equivalents of 332,288 in 1994 and 241,298 in 1993.
The lower average number of shares for 1994 resulted from the repurchase
of shares in the last nine months of 1993 as part of the Company's
repurchase program.
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STANHOME INC.
THREE MONTHS ENDED MARCH 31, 1994
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS SEGMENTS of the Company's operations are summarized on Page
14. A discussion and analysis of the segments follows:
Enesco Worldwide Giftware Group sales increased 13% primarily due to
continued unit volume growth in the United States of collectible licensed
lines. Delivery of products from the Far East continued to improve.
International sales and operating profit decreased due to poor economic
conditions and to unfavorable exchange translation rates in 1994 compared
to 1993. The Australian company recorded much lower sales and losses, and
as provided for in the 1993 restructuring, was sold to a distributor in
April 1994. Total Group operating profit increased 32% and benefited from
a lower percentage of selling, general and administrative expenses
principally due to the favorable impact of the sales increase on fixed
costs. The total cost of sales percentage increased due to higher costs
and product promotions.
Hamilton Worldwide Direct Response Group sales and operating profit
increased due to unit volume sales growth in the United States.
International sales decreased and operating losses increased and were
impacted by poor economic conditions.
Worldwide Direct Selling Group sales decreased as results were
impacted by poor economic conditions in Europe and unfavorable foreign
exchange rates compared to the first quarter 1993. However, operating
profit improved 18% as a result of the benefits from the restructuring
-9-
program, announced in 1993. Included in the benefits were reduced losses
from operations that have been discontinued. First quarter sales and
operating losses for 1994 and 1993 of operations that have been
discontinued as a result of the restructuring were sales of $857,000 and
$1,233,000, respectively, and operating losses of $1,000 and $1,102,000,
respectively. European Direct Selling sales decreased 12% due to declines
from all the major operations but operating profit increased 14% due to
the benefits from the restructuring. First quarter 1994 European local
currency sales and operating profit translated at 1993 exchange rates
would have resulted in a 4% sales decrease but a 26% operating profit
increase. 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 still persist. 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. Latin American Direct
Selling sales and operating profit increased due principally to strong
results from Mexico. U.S. Direct Selling sales decreased and operating
loss increased.
General corporate expense increased due principally to higher
compensation and benefits.
-10-
International operations were unfavorably impacted by lower currency
translation rates in the first three months of 1994 compared to 1993 and
1993 compared to 1992. The value of the U.S. dollar versus Asian
currencies has resulted in higher costs of imported products. The value
of the U.S. dollar versus international currencies where the Company
conducts business will continue to impact the future results of these
businesses. In addition to the currency risks, the Company's
international operations, including sources of imported products, are
subject to the risks of doing business abroad including import or export
restrictions and changes in economic and political climates.
Net sales and operating profit for the first quarter of 1994 are less
than the fourth quarter of 1993 due to the seasonal characteristics of the
Company's sales.
INTEREST EXPENSE AND OTHER INCOME, NET. Interest expense for the
first quarter of 1994 decreased compared to 1993 principally due to lower
borrowings. Interest income decreased compared to 1993 principally due to
lower rates. The 1994 gain on the sale of assets was from the sale of the
Company's Direct Selling Zanesville, Ohio Customer Care Center.
THE EFFECTIVE TAX RATE was 47% for the first quarter of 1994 compared
to 48% for the first quarter of 1993. The decrease was principally due to
a favorable earnings mix with a lower ratio of foreign source income to
United States income, which has a lower rate despite the increase in
United States taxes in 1994.
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.
-11-
The major sources of cash from operating activities in the first
quarter of 1994 were from net income as well as lower accounts receivable
and inventory levels and higher levels of accounts payable and accrued
taxes due generally to timing differences and seasonality. The amounts
were partially reduced by increases in prepaid expenses due to seasonality
and marketing efforts in support of higher sales for the Direct Response
Group.
The major use of cash in investing activities in the first three
months of 1994 was for capital expenditures. Capital expenditure
commitments for $17 million are planned for 1994. As part of the
restructuring program, the Company currently has for sale two distribution
centers with a total appraised value of approximately $2.7 million. The
Company has an acquisition program, and may utilize funds for this purpose
in the future. On April 15, 1994, the acquisition accrual amount was paid
in connection with the Company's 1989 stock purchase of The Hamilton Group
Limited, Inc.
The major use of cash in financing activities was for dividends to
shareholders. 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 March 31, 1994, 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 $72 million at March 31, 1994 and the Company could receive
these funds in the future if the options are exercised.
-12-
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 $328,000 reduced the cumulative translation component which
contributed to the shareholders' equity increase in the first quarter of
1994. The translation adjustments to the March 31, 1994 balance sheet that
produced the 1994 change in the cumulative translation component of
shareholders' equity were increases in working capital by $339,000; net
property, plant and equipment and other assets by $592,000; and long-term
liabilities by $603,000. The Company depends upon its international
operations to pay dividends and to make other payments to the Company. The
Company's international operations are subject to the risks of doing
business abroad including currency, economic and political.
With the level of funds generated from operations, the level of
working capital and the unused lines of credit, no liquidity problems are
anticipated.
-13-
STANHOME INC.
SALES AND OPERATING PROFIT BY BUSINESS SEGMENT
FOR THE FIRST THREE MONTHS ENDED MARCH 31, 1994 AND 1993 (Unaudited)
(In Thousands)
1994 1993 Percent
Actual Actual Change
------ ------ -------
Net Sales:
Worldwide Giftware $ 86,745 $ 76,467 13%
Worldwide Direct Response 26,074 23,593 11
Worldwide Direct Selling 59,439 64,508 ( 8)
Eliminations ( 489) ( 78)
-------- --------
Total Net Sales $171,769 $164,490 4%
======== ========
Operating Profit:
Worldwide Giftware $ 10,288 $ 7,813 32%
Worldwide Direct Response 1,549 1,349 15
Worldwide Direct Selling 5,315 4,518 18
Corporate ( 2,172) ( 1,797) (21)
-------- --------
Total Operating Profit $ 14,980 $ 11,883 26%
======== ========
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders was held on April 28, 1994.
(c) The first matter voted upon at the meeting was the election of
Directors. The members of Class II were standing for election
to a three-year term expiring at the Annual Meeting in 1997.
Upon motion duly made and seconded, it was voted to elect Janet
M. Clarke, Alejandro Diaz, Allan G. Keirstead, and Alla O'Brien
as Class II Directors for a three-year term expiring at the
Annual Meeting in 1997 and until their successors are elected
and qualified. The votes for each of the candidates were
reported as follows:
Janet M. Clarke For: 16,298,959
Withheld: 397,058
Alejandro Diaz For: 16,288,229
Withheld: 407,788
Allan G. Keirstead For: 16,312,668
Withheld: 383,349
Alla O'Brien For: 16,318,615
Withheld: 377,402
The second matter voted upon at the meeting was the ratification
of the Board's appointment of Arthur Andersen & Co. as
independent accountants for 1994. Upon motion duly made and
seconded, it was voted that the appointment by the Board of
Directors at its March 2, 1994 meeting of Arthur Andersen & Co.,
independent certified public accountants, as independent
accountants for the Company for its fiscal year ending December
31, 1994 be ratified and approved. The votes for the
independent accountants were reported as follows:
Arthur Andersen & Co. For: 16,539,831
Against: 41,502
Abstain: 114,684
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The third matter voted upon at the meeting was the approval of the
indemnification provision as amended and restated in Article V of the
Company's By-Laws. Upon motion duly made and seconded, it was voted
that the amendment and restatement by the Board of Directors at its
January 26, 1994 meeting of Article V of the Company's By-Laws be
ratified and approved. The votes for the indemnification provision
amendment were reported as follows:
By-Laws Amendment For: 16,285,237
Against: 74,035
Abstain: 336,745
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
- By-Laws as amended.
(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: May 11, 1994 /s/G. William Seawright
________________________
G. William Seawright
President and Chief Executive Officer
Date: May 11, 1994 /s/Allan G. Keirstead
________________________
Allan G. Keirstead
Chief Administrative and Financial
Officer
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EXHIBIT INDEX
Reg. S-K
Item 601 Exhibit 10-Q Page No.
3(ii) By-Laws 18
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