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 June 30, 1997
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)
413-562-3631
___________________________________________________________________________
(Registrant's telephone number, including area code)
N/A
___________________________________________________________________________
(Former name or former address, if changed since last report)
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 [_]
June 30,
1997 1996
____ ____
Shares Outstanding:
Common Stock with
Associated Rights 17,458,993 17,898,467
Total number of pages
contained herein 71
Index to Exhibits is
on page 24
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
STANHOME INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1997 and DECEMBER 31, 1996
(Unaudited)
(In Thousands)
June 30, December 31,
1997 1996
---- ----
ASSETS
CURRENT ASSETS:
Cash and certificates of deposit $ 7,016 $ 10,308
Notes and accounts receivable, net 150,285 127,987
Inventories 91,259 84,018
Prepaid expenses 3,615 3,500
-------- --------
Total current assets 252,175 225,813
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost 80,292 80,813
Less - Accumulated depreciation and
amortization 44,727 43,626
-------- --------
35,565 37,187
-------- --------
OTHER ASSETS:
Goodwill and other intangibles, net 91,059 101,327
Other 17,094 13,053
-------- --------
108,153 114,380
-------- --------
NET RECEIVABLES FROM DISCONTINUED OPERATIONS - 26,463
-------- --------
NET ASSETS OF DISCONTINUED OPERATIONS 32,194 74,866
-------- --------
$428,087 $478,709
======== ========
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
-2-
STANHOME INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1997 and DECEMBER 31, 1996
(Unaudited)
(In Thousands)
June 30, December 31,
1997 1996
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes and loans payable $ 70,609 $ 78,577
Accounts payable 37,460 33,916
Federal, state and foreign taxes
on income 20,664 16,676
Accrued expenses--
Royalties 10,062 9,725
Payroll and commissions 6,174 8,843
Pensions and profit sharing 4,156 7,716
Vacation, sick and postretirement benefits 3,951 4,241
Other 24,803 25,803
-------- --------
Total current liabilities 177,879 185,497
-------- --------
LONG-TERM LIABILITIES:
Postretirement benefits 14,949 14,384
-------- --------
Total long-term liabilities 14,949 14,384
-------- --------
NET PAYABLES TO DISCONTINUED OPERATIONS 10,036 -
-------- --------
SHAREHOLDERS' EQUITY:
Common stock 3,154 3,154
Capital in excess of par value 45,575 44,862
Retained earnings 373,706 403,805
Cumulative translation adjustments ( 30,888) ( 21,121)
-------- --------
391,547 430,700
Less - Shares held in treasury, at cost 166,324 151,872
-------- --------
Total shareholders' equity 225,223 278,828
-------- --------
$428,087 $478,709
======== ========
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
-3-
STANHOME INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED JUNE 30, 1997 and 1996 (Unaudited)
(In thousands, except per share amounts)
1997 1996
---- ----
NET SALES $137,002 $130,823
COST OF SALES 73,203 69,103
-------- --------
GROSS PROFIT 63,799 61,720
SELLING, DISTRIBUTION, GENERAL
AND ADMINISTRATIVE EXPENSES 43,901 42,456
-------- --------
OPERATING PROFIT 19,898 19,264
Interest expense ( 1,804) ( 1,862)
Other expense, net ( 667) ( 758)
-------- --------
INCOME BEFORE INCOME TAXES
FROM CONTINUING OPERATIONS 17,427 16,644
Income taxes 7,668 7,324
-------- --------
INCOME OF CONTINUING OPERATIONS, NET OF TAXES 9,759 9,320
INCOME OF DISCONTINUED OPERATIONS, NET OF TAXES 1,810 1,631
NET LOSS ON SALE OF DIRECT RESPONSE - -
-------- --------
NET INCOME (LOSS) $ 11,569 $ 10,951
======== ========
EARNINGS (LOSS) PER COMMON SHARE
(Primary and fully diluted):
CONTINUING OPERATIONS $ .55 $ .51
DISCONTINUED OPERATIONS .10 .09
SALE OF DIRECT RESPONSE - -
----- -----
TOTAL EARNINGS (LOSS) PER COMMON SHARE $ .65 $ .60
===== =====
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
-4-
STANHOME INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 and 1996 (Unaudited)
(In thousands, except per share amounts)
1997 1996
---- ----
NET SALES $239,062 $230,435
COST OF SALES 125,836 123,299
-------- --------
GROSS PROFIT 113,226 107,136
SELLING, DISTRIBUTION, GENERAL
AND ADMINISTRATIVE EXPENSES 87,126 82,287
-------- --------
OPERATING PROFIT 26,100 24,849
Interest expense ( 3,690) ( 3,802)
Other expense, net ( 1,066) ( 1,168)
-------- --------
INCOME BEFORE INCOME TAXES
FROM CONTINUING OPERATIONS 21,344 19,879
Income taxes 9,392 8,747
-------- --------
INCOME OF CONTINUING OPERATIONS, NET OF TAXES 11,952 11,132
INCOME OF DISCONTINUED OPERATIONS, NET OF TAXES 2,858 3,889
NET LOSS ON SALE OF DIRECT RESPONSE ( 35,000) -
-------- --------
NET INCOME (LOSS) ( 20,190) 15,021
RETAINED EARNINGS, beginning of period 403,805 385,008
Cash dividends, $.56 per share in
1997 and $.53 per share in 1996 ( 9,909) ( 9,616)
-------- --------
RETAINED EARNINGS, end of period $373,706 $390,413
======== ========
EARNINGS (LOSS) PER COMMON SHARE
(Primary and fully diluted):
CONTINUING OPERATIONS $ .67 $ .61
DISCONTINUED OPERATIONS .15 .21
SALE OF DIRECT RESPONSE ( 1.95) -
----- -----
TOTAL EARNINGS (LOSS) PER COMMON SHARE ($1.13) $ .82
===== =====
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
-5-
STANHOME INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 and 1996 (Unaudited)
(In Thousands)
1997 1996
---- ----
OPERATING ACTIVITIES:
Net income ($20,190) $15,021
Less- Net income discontinued operations ( 2,858) ( 3,889)
- Loss on sale of Direct Response 35,000 -
Adjustments to reconcile continuing operations net
income to net cash provided by operating activities ( 40,110) ( 33,265)
Operating activities of discontinued operations 59,587 ( 13,118)
------- -------
Net cash provided (used) by operating activities 31,429 ( 35,251)
------- -------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment ( 2,177) ( 1,945)
Proceeds from sales of property, plant and equipment 658 637
Payments for acquisition of businesses,
net of cash acquired ( 36) ( 1,484)
Investing activities of discontinued operations ( 892) ( 28)
------- -------
Net cash used by investing activities ( 2,447) ( 2,820)
------- -------
FINANCING ACTIVITIES:
Cash dividends ( 9,909) ( 9,617)
Exchanges and purchases of common stock ( 14,636) ( 15,178)
Notes and loans payable ( 7,872) 49,930
Exercise of stock options 667 1,691
Other common stock issuance 230 267
Financing activities of discontinued operations ( 97) ( 280)
------- -------
Net cash provided (used) by financing activities ( 31,617) 26,813
------- -------
Effect of exchange rate changes on cash
and cash equivalents ( 657) ( 132)
------- -------
Increase/(decrease) in cash and cash equivalents ( 3,292) ( 11,390)
Cash and cash equivalents,
beginning of year 10,306 12,871
------- -------
Cash and cash equivalents, end of quarter $ 7,014 $ 1,481
======= =======
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
-6-
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, 1996 condensed balance sheet, which was derived from the
Company's Annual Report on Form 10-K for the year ended December 31, 1996,
pursuant to the rules and regulations of the Securities and Exchange
Commission. The audited balance sheet has been reclassified to reflect
certain subsequently discontinued operations described in Note 2. 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, 1996.
1. ACCOUNTING POLICIES:
The Company's financial statements for the six months ended June 30,
1997 have been prepared in accordance with the accounting policies
described in Note 1 to the December 31, 1996 consolidated financial
statements included in the Company's 1996 Annual Report on Form 10-K. The
Company considers all highly liquid securities, including certificates of
deposit with maturities of three months or less, when purchased, to be cash
-7-
equivalents. Notes and accounts receivable were net of reserves for
uncollectible accounts, prompt payment discounts, returns and allowances of
$12,754,000 at June 30, 1997 and $9,891,000 at December 31, 1996.
The Company recognizes revenue as merchandise is turned over to the
shipper and a provision for anticipated merchandise returns and allowances
is recorded based upon historical experience. Amounts billed to customers
for shipping and handling orders are netted against the associated costs.
Continuing operations cash paid is as follows (in thousands):
Six Months Ended
June 30
------------------
1997 1996
---- ----
Interest $ 3,243 $ 2,569
Income taxes $ 9,780 $ 5,783
2. DISCONTINUED OPERATIONS:
On May 22, 1997, the Company completed the previously announced sale
of the Company's United States Hamilton Direct Response businesses to The
Crestley Collection, Ltd., an affiliate of The Bradford Group, for
approximately $48 million, including repayment of intercompany debt,
subject to certain conditions. The purchase price for the stock is $17.5
million, which approximates book value. The stock purchase and sale
agreement provides for a long-term worldwide license agreement for
Bradford to sell products under license from the Company's Enesco Giftware
Group through the direct response channel. The Hamilton Group is a direct
marketer of collectible dolls, plates and figurines primarily in the
United States and in Canada, Germany and the United Kingdom. In
connection with the sale, the Company recorded, in the first quarter, a
$35 million after tax charge or $1.95 per share. Bradford will not be
-8-
acquiring the operating businesses in Canada, Germany and the United
Kingdom, but they will be facilitating the closure of these businesses by
the Company. The Company is in the process of closing these businesses by
selling the assets and paying closing costs. The approximate components
of the charge were as follows (in thousands):
Write down of goodwill $23,000
Write down of international current
assets due to anticipated proceeds
being less than carrying value 3,000
Anticipated before tax loss until closing 1,000
Closing costs of international operations
and termination indemnities 8,000
Transaction fees 2,000
-------
Before tax charge 37,000
Anticipated tax benefit 2,000
-------
After tax charge $35,000
=======
The anticipated income tax benefit is limited, since most of the
international closing costs will not receive a tax benefit and the loss
will be primarily capital in nature and the Company is unable to quantify
the portion of such capital loss benefit which may ultimately be realized.
The charge reflects the Company's best estimate at this time.
In late April 1997, the Company's Board approved a plan to actively
seek the sale or other disposition of the Company's Direct Selling business
segment during the next twelve months. The Direct Selling Group is a
manufacturer and distributor of home care and cosmetic items in Europe and
Latin America. The disposition of the Direct Selling business segment is
not anticipated to result in a loss.
In accordance with the above, the applicable financial statements and
related notes have been reclassified to present these two business segments
as discontinued operations. Therefore, the net assets and operating
-9-
results of these two business segments have been segregated and reported as
discontinued operations in the Consolidated Balance Sheets, Statements of
Income and Statements of Cash Flows.
Operating results of discontinued operations are summarized as follows
(in thousands):
Six Months Ended
June 30
------------------
1997 1996
---- ----
Net sales of discontinued operations $122,631 $171,711
======= =======
Income before income taxes from
discontinued operations $ 6,122 $ 7,602
Income taxes 3,264 3,713
------- -------
Net income of discontinued operations $ 2,858 $ 3,889
======= =======
Loss on sale of Hamilton before income taxes ($37,000) $ -
Income taxes (benefits) ( 2,000) -
------- -------
Net loss on sale of Hamilton ($35,000) $ -
======= =======
Net assets of discontinued operations were as follows (in thousands):
June 30, December 31,
1997 1996
-------- -----------
Cash and certificates of deposit $18,763 $17,154
Notes and accounts receivable, net 21,927 44,237
Inventories 21,161 37,382
Prepaid expenses 2,684 32,885
Net property, plant and equipment 16,617 21,468
Other assets 800 24,046
Net intercompany receivables/(payables) 10,036 ( 26,463)
Notes and loans payable - ( 107)
All other current liabilities ( 48,597) ( 62,994)
Long-term liabilities ( 11,197) ( 12,742)
------- -------
Net assets of discontinued operations $32,194 $74,866
======= =======
-10-
3. INVENTORY CLASSES:
The major classes of inventories at June 30 and December 3l were as
follows (in thousands):
June 30, December 31,
1997 1996
---- ----
Raw materials and supplies $ 1,444 $ 1,678
Work in process 848 959
Finished goods in transit 14,517 14,299
Finished goods 74,450 67,082
-------- --------
$ 91,259 $ 84,018
======== ========
4. OTHER EXPENSE, NET:
Other expense, net for the quarters and six months ended June 30,
1997 and 1996 consists of the following (in thousands):
Quarters Ended June 30
----------------------
1997 1996
---- ----
Interest income $ 366 $ 157
Amortization of other assets ( 1,062) ( 1,029)
Other, net 29 114
------ ------
($ 667) ($ 758)
====== ======
Six Months Ended June 30
------------------------
1997 1996
---- ----
Interest income $1,057 $ 844
Amortization of other assets ( 2,019) ( 2,015)
Other, net ( 104) 3
------ ------
($1,066) ($1,168)
====== ======
5. EARNINGS PER COMMON SHARE (BASIS OF CALCULATION):
Earnings per common share are based on the average number of common
shares outstanding and common share equivalents for the periods covered.
-11-
For both years, there was no difference in earnings per share between
primary and fully diluted earnings per share computations. For the second
quarter, the average number of shares utilized in the fully diluted
computation was 17,781,000 and 18,219,000 shares for 1997 and 1996,
respectively. The average number of shares utilized in the fully diluted
computation for the six months ended June 30 was 17,897,000 for 1997 and
18,300,000 for 1996. Both 1997 computations included common share
equivalents of 146,000 and both 1996 computations included common share
equivalents of 66,000. The lower average number of shares for the second
quarter and first six months of 1997 primarily resulted from the
repurchase of shares as part of the Company's repurchase program.
In February 1997, the Financial Accounting Standards Board adopted a
new standard on accounting for earnings per share (EPS). This new
standard replaces the presentation of primary EPS with a presentation of
basic EPS and changes the fully diluted terminology to diluted. It also
requires dual presentation of basic and diluted EPS on the face of the
income statement. Basic EPS excludes dilution and is computed by using
the average number of common shares outstanding. The standard will become
effective for the Company in December 1997. The pro forma average shares
and EPS for the second quarter and first six months would be as follows
(in thousands, except per share amounts):
Second Quarter First Six Months
-------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
Pro forma:
Earnings per common share
basic $.66 $.60 $.82 $.82
diluted $.65 $.60 $.82 $.82
Average common shares
basic 17,635 18,153 17,751 18,234
diluted 17,781 18,219 17,897 18,300
-12-
6. FINANCIAL INSTRUMENTS:
The Company operates globally with various manufacturing and
distribution facilities and product sourcing locations around the world.
The Company may reduce its exposure to fluctuations in foreign interest
rates and exchange rates by creating offsetting positions through the use
of derivative financial instruments. The Company currently does not use
derivative financial instruments for trading or speculative purposes.
The notional amount of forward exchange contracts and options is the
amount of foreign currency bought or sold at maturity. The notional amount
of interest rate swaps is the underlying principal amount used in
determining the interest payments exchanged over the life of the swap. The
notional amounts are not a direct measure of the Company's exposure through
its use of derivatives.
The Company periodically uses interest rate swaps to hedge portions
of interest payable on debt. In addition, the Company may periodically
employ interest rate caps to reduce exposure, if any, to increases in
variable interest rates. In October 1996, the Company entered into a three
year interest rate swap with a notional amount of $50 million to
effectively convert variable interest on debt to a fixed rate of 6.12%.
The Company may periodically hedge foreign currency royalties, net
investments in foreign subsidiaries, firm purchase commitments, contractual
foreign currency cash flows or obligations, including third-party and
intercompany foreign currency transactions. The Company regularly monitors
its foreign currency exposures and ensures that hedge contract amounts do
not exceed the amounts of the underlying exposures.
The Company enters into various short-term foreign exchange
agreements during the year. The purpose of the Company's foreign currency
-13-
hedging activities is to protect the Company from risk that the eventual
settlement of foreign currency transactions will be adversely affected by
changes in exchange rates. The Company's various subsidiaries import
products in foreign currencies and from time to time will enter into
agreements or build foreign currency deposits as a partial hedge against
currency fluctuations on inventory purchases. Gains and losses on these
agreements are deferred and recorded as a component of cost of sales when
the related inventory is sold. At June 30, 1997, deferred amounts were not
material. The Company makes short-term foreign currency intercompany loans
to various international subsidiaries and utilizes agreements to fully
hedge these transactions against currency fluctuations. The cost of these
agreements is included in the interest charged to the subsidiaries and
expensed monthly as the interest is accrued. The intercompany interest
eliminates upon consolidation and any gains and losses on the agreements
are recorded as a component of other income. The Company receives
dividends, technical service fees, royalties and other payments from its
subsidiaries and licensees. From time to time, the Company will enter into
foreign currency forward agreements as a partial hedge against currency
fluctuations on these current receivables. Gains and losses are recognized
or the credit or debit offsets the foreign currency payables. If
anticipated foreign currency requirements would disappear, the Company
would record any gain or loss in income. As of June 30, 1997, net deferred
amounts on outstanding agreements were not material. The outstanding
agreement amounts (notional value) at June 30, 1997, are as follows (in
thousands):
Canada $ 5,802
U.S. 5,050
Germany 2,292
-------
Total $13,144
=======
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STANHOME INC.
QUARTER AND SIX MONTHS ENDED JUNE 30, 1997
DISCONTINUED OPERATIONS:
On May 22, 1997, the Company completed the previously announced sale
of the Company's United States Hamilton Direct Response businesses to The
Crestley Collection, Ltd., an affiliate of The Bradford Group, for
approximately $48 million, including repayment of intercompany debt,
subject to certain conditions. In connection with the sale, the Company
recorded in the first quarter 1997 a $35 million after tax charge
consisting mainly of the write down of goodwill, current assets and
associated transaction and severance costs. Also, during April 1997, the
Company's Board approved a plan to actively seek the sale or other
disposition of the Company's Direct Selling business segment during the
next twelve months. The disposition of the Direct Selling business segment
is not anticipated to result in a loss.
Accordingly, the applicable financial statements and related notes
have been reclassified to present these two business segments as
discontinued operations. Therefore, the net assets and operating results
of these two business segments have been segregated and reported as
discontinued operations in the Consolidated Balance Sheets, Statements of
Income, and Statements of Cash Flows.
Cash proceeds from the disposition of these two business segments will
be used for share repurchases, debt repayment and acquisitions in the
giftware industry. Note 2, Discontinued Operations, to the Consolidated
-15-
Condensed Financial Statements provides additional information on the two
discontinued operations.
CONTINUING OPERATIONS:
NET SALES in 1997 increased 4.7% in the second quarter and 3.7% for
the first six months due primarily to unit volume growth in the United
States and in international markets. International sales increased 17.8%
and represented 16.5% of year-to-date sales compared to 14.5% in 1996.
Sales from a new business acquired in France at the end of the first
quarter last year accounted for approximately 15% of the year-to-date sales
increase. Year-to-date sales in the United States increased 1.4% in a soft
retail environment, with increased numbers of customers at their credit
limit. The Precious Moments line sales decreased and represented 40.5% of
the 1997 year-to-date sales compared to 43.9% in 1996, while the Cherished
Teddies line sales increased and represented 21.7% of 1997 year-to-date
sales compared to 16.7% in 1996. During the past few years the Company has
been able to increase the available supply and accelerate delivery of the
products, particularly the Precious Moments line, to retailers.
Consequently, retailers have not ordered as much product in advance.
Principally reflecting the improved supply and delivery of products, total
unfilled orders as of June 30, 1997 were down approximately $15 million or
11% compared to June 30, 1996. This trend is expected to continue.
Gross profit in 1997 increased for the second quarter and first six
months due to higher sales and a lower cost of sales percentage. For the
first six months of 1997 cost of sales represented 52.6% of sales compared
to 53.5% of sales in 1996. The lower cost of sales percentage was due to
improved margins on the sale of slow moving inventories, less sales
discounting and sales mix.
-16-
Selling, distribution, general and administrative expenses for 1997
increased for the second quarter and first six months and year-to-date
amounted to 36.4% of sales, compared to 35.7% of sales in the first six
months of 1996. The 1997 expenses were a higher percentage of sales
principally due to a higher level of spending, inflationary cost increases,
and a higher provision for bad debts to reflect the exposure from the
company's program of extended accounts receivable.
Operating profit increased in the second quarter and first six months
due to the factors described above. The year-to-date improvement in
operating profit as a percentage of sales was due to a higher gross profit
which was partially offset by higher selling, distribution, general and
administrative expenses.
In connection with the sale of Hamilton, the Company announced that
it would downsize Corporate Headquarters and eventually sell its
Westfield, Massachusetts facility. This will be accomplished after the
disposal of the Direct Selling discontinued operation. The facility has a
book value of approximately $.8 million. The Company has not established
a formal downsizing plan for Corporate Headquarters.
INTERNATIONAL ECONOMIES AND CURRENCY
The value of the U.S. dollar versus international currencies where the
Company conducts business impacts the results of these businesses. In
addition to the currency risks, the Company's international operations,
including sources of imported products, are subject to other risks of doing
business abroad, including import or export restrictions and changes in
economic and political climates.
-17-
The fluctuations in net sales and operating profit margins from
quarter to quarter are partially due to the seasonal characteristics of the
Company's business.
INTEREST EXPENSE decreased slightly in the second quarter and first
six months of 1997 compared to 1996 due to lower borrowing levels in 1997
compared to 1996. Other expense, net is principally the amortization of
goodwill and was approximately the same amount for 1997 and 1996.
THE PROVISION FOR INCOME TAXES was 44% in the second quarter and
first six months of 1997 and 1996.
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 and lowest at the beginning of the first quarter.
The major sources of funds in the first six months of 1997 from
operating activities for continuing operations were from net income,
depreciation and amortization. The major uses of funds were increased
accounts receivable which increased due to the higher sales volume, timing
of sales in the quarter and extended credit programs; increased inventories
to support the higher sales volume; increased other assets reflecting the
addition of a long-term escrow deposit related to the sale of Hamilton
U.S.; and lower accounts payable and accrued expenses due principally to
timing and the payment of year-end payrolls and benefits. Accounts
receivable in the second quarter of 1997 increased 9% compared to the
-18-
second quarter of 1996. The increase exceeded the 4.7% second quarter 1997
sales increase due to the impact of the expansion of the Company's program
of extended accounts receivable terms.
The major use of cash in investing activities in the first six months
of 1997 was for capital expenditures. The Company has an acquisition
program, and may utilize funds for this purpose in the future. Capital
expenditure commitments for $11 million are forecasted for 1997. Proceeds
in 1997 from the sale of property, plant and equipment are primarily from
the sale of a plant in Easthampton, Massachusetts. The level of changes of
marketable securities from period to period principally represents
investment alternatives versus certificates of deposit, time deposits, and
intercompany loans.
The major uses of cash in financing activities in the first six months
of 1997 were for dividends to shareholders, purchases of common stock and
reduced borrowings. Purchases of common stock principally included shares
repurchased by the Company. During the first six months this year, the
Company repurchased 487 thousand shares for $14.6 million. The Company has
an authorized program to purchase shares of stock for the Company treasury
from time to time in the open market, depending on market conditions, and
may utilize funds for this purpose in the future. As of June 30, 1997, .3
million shares remained available for purchase under the program. On July
23, 1997, the Company's Board of Directors authorized the repurchase of up
to 2.5 million shares of the Company's outstanding common stock under its
ongoing stock repurchase program, to be used for general corporate purposes
or employee benefit plans. Share purchases will be made from time to time
in the open market or in private transactions, depending
-19-
on market and business conditions. 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 aggregate
exercise price of the total number of stock options outstanding was $83
million at June 30, 1997, and the Company could receive some or all of
these funds in the future if the options are exercised.
Loans payable were reduced by the proceeds from the sale of the
Company's United States Hamilton Direct Response businesses. Net payables
to discontinued operations on the balance sheet are principally
intercompany loans from the Direct Selling Group. Net receivables from
discontinued operations and net assets of discontinued operations decreased
principally due to the impact from the sale of the Company's United States
Hamilton business and net loss on disposition.
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 $9,767,000 increased the cumulative translation component
of shareholders' equity which contributed to the shareholders' equity
decrease in the first six months of 1997. The translation adjustments to
the June 30, 1997 balance sheet that produced the 1997 change in the
cumulative translation component of shareholders' equity were decreases in
net discontinued operations by $3,135,000; and continuing operations
decreases in working capital by $291,000, decreases in net property, plant
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and equipment by $185,000 and other assets by $6,156,000. The Company
depends upon its international operations to pay dividends and to make
other payments to the Company. The Company's international operations are
subject to the risks of doing business abroad including currency, economic
and political.
The Company currently believes that cash from operations and available
financing alternatives are adequate to meet anticipated requirements for
working capital, dividends, capital expenditures, the stock repurchase
program and other needs. No liquidity problems are anticipated.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
- Amendment of G. William Seawright Employment Agreement
- Amendment of G. William Seawright Retirement Agreement
- Amendment of Allan G. Keirstead Supplemental Retirement
Contract
- Second Amendment to the Supplemental Retirement Contract
with Ronald R. Jalbert
- Thomas E. Evangelista Agreement
- Carmen J. Mascaro Agreement
- Bruce H. Wyatt Retirement Agreement
- John J. Dur Separation Letter Agreement
- Form of Retention Benefits Plan as described in the
Estimated Termination Benefits Summary Letters for Stanhome
Inc. Corporate Headquarters Exempt Employees (Similar plans
exist with Allan G. Keirstead, Bruce H. Wyatt, Ronald R.
Jalbert, Thomas E. Evangelista, and Carmen J. Mascaro)
- Second Amendment to Stanhome Inc. Supplemental Pension
Plan
- Stanhome Supplemental Investment Savings Plan, as amended
and restated
- Financial Data Schedule
(b) Reports on Form 8-K
- A Current Report on Form 8-K dated May 22, 1997 was filed
by Stanhome Inc. with the Securities and Exchange Commission on
June 5, 1997 reporting under Item 2 and Item 7 regarding the
disposition of the Company's U.S. Hamilton Direct Response
Group together with the associated pro forma condensed
consolidated balance sheet dated March 31, 1997 and pro forma
condensed consolidated statements of income for the three
months ended March 31, 1997 and for the year ended December 31,
1996.
All other items hereunder are omitted because either such item is
inapplicable or the response to it is negative.
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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: August 12, 1997
/s/G. William Seawright
G. William Seawright
President and Chief Executive Officer
Date: August 12, 1997
/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.
_________ _______ _____________
10(a) Amendment of G. William Seawright 25
Employment Agreement
10(b) Amendment of G. William Seawright 26
Retirement Agreement
10(c) Amendment of Allan G. Keirstead 28
Supplemental Retirement Contract
10(d) Second Amendment to the Supplemental 29
Retirement Contract with
Ronald R. Jalbert
10(e) Thomas E. Evangelista Agreement 31
10(f) Carmen J. Mascaro Agreement 35
10(g) Bruce H. Wyatt Retirement Agreement 39
10(h) John J. Dur Separation Letter Agreement 48
10(i) Form of Retention Benefits Plan as 51
described in the Estimated Termination
Benefits Summary Letters for
Stanhome Inc. Corporate Headquarters
Exempt Employees (Similar plans exist
with Allan G. Keirstead, Bruce H. Wyatt,
Ronald R. Jalbert, Thomas E. Evangelista,
and Carmen J. Mascaro)
10(j) Second Amendment to Stanhome Inc. 52
Supplemental Pension Plan
10(k) Stanhome Supplemental Investment 53
Savings Plan, as amended and
restated
27 Financial Data Schedule 71
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