-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SGQOX0OunV9kW+MqZTshAJLZC61usK9yO4W/YiNeLZ0T6vsJfgWi2wjItH6EbGry FcGZ5Tbk15BT5KVdKWoIFA== 0000093542-95-000013.txt : 19951119 0000093542-95-000013.hdr.sgml : 19951119 ACCESSION NUMBER: 0000093542-95-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANHOME INC CENTRAL INDEX KEY: 0000093542 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190] IRS NUMBER: 041864170 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09267 FILM NUMBER: 95589721 BUSINESS ADDRESS: STREET 1: 333 WESTERN AVE CITY: WESTFIELD STATE: MA ZIP: 01085 BUSINESS PHONE: 4135623631 FORMER COMPANY: FORMER CONFORMED NAME: STANLEY HOME PRODUCTS INC DATE OF NAME CHANGE: 19820513 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________. Commission File Number 0-1349 Stanhome Inc. ___________________________________________________________________________ (Exact name of registrant as specified in its charter) Massachusetts 04-1864170 ____________________________________ _______________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 333 Western Avenue, Westfield, Massachusetts 01085 ___________________________________________________________________________ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 413-562-3631 ___________________________________________________________________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes [X] No [_] September 30, 1995 1994 ____ ____ Shares Outstanding: Common Stock with Associated Rights 18,590,589 19,240,950 Total number of pages contained herein 23 Index to Exhibits is on page 22 PART I. FINANCIAL INFORMATION ------------------------------ STANHOME INC. CONSOLIDATED CONDENSED BALANCE SHEETS SEPTEMBER 30, 1995 and DECEMBER 31, 1994 (Unaudited)
September 30, December 31, 1995 1994 ---- ---- ASSETS CURRENT ASSETS: Cash and certificates of deposit $ 22,873,952 $ 19,349,839 Marketable securities, at cost (which approximates market value) 14,358 2,000 Notes and accounts receivable, net 194,127,243 140,696,603 Inventories 111,391,483 116,015,060 Prepaid advertising 46,839,308 40,099,913 Other prepaid expenses 10,061,968 6,513,723 ------------ ------------ Total current assets 385,308,312 322,677,138 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT, at cost 131,310,196 125,995,626 Less - Accumulated depreciation and amortization 72,305,293 68,036,607 ------------ ------------ 59,004,903 57,959,019 ------------ ------------ OTHER ASSETS: Goodwill and other intangibles, net 121,819,191 121,586,984 Other 10,469,706 9,899,491 ------------ ------------ 132,288,897 131,486,475 ------------ ------------ $576,602,112 $512,122,632 ============ ============ The accompanying notes are an integral part of these condensed financial statements.
-2- STANHOME INC. CONSOLIDATED CONDENSED BALANCE SHEETS SEPTEMBER 30, 1995 and DECEMBER 31, 1994 (Unaudited)
September 30, December 31, 1995 1994 ---- ---- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes and loans payable $125,866,234 $ 39,022,890 Accounts payable 58,022,253 63,072,000 Federal, state and foreign taxes on income 26,931,395 37,062,510 Accrued expenses-- Payroll and commissions 18,048,653 17,423,516 Royalties 9,589,899 7,974,606 Vacation, sick and postretirement benefits 8,635,958 9,435,495 Pensions and profit sharing 7,112,812 9,055,259 Other 31,900,093 37,171,244 ------------ ------------ Total current liabilities 286,107,297 220,217,520 ------------ ------------ LONG-TERM LIABILITIES: Foreign employee severance obligations 12,280,071 13,207,097 Pensions 9,988,870 9,302,239 ------------ ------------ Total long-term liabilities 22,268,941 22,509,336 ------------ ------------ SHAREHOLDERS' EQUITY Common stock 3,153,530 3,153,530 Capital in excess of par value 39,388,627 37,376,690 Retained earnings 377,495,105 362,946,840 Cumulative translation adjustments ( 26,343,074) ( 27,660,727) ------------ ------------ 393,694,188 375,816,333 Less - Shares held in treasury, at cost 125,468,314 106,420,557 ------------ ------------ Total shareholders' equity 268,225,874 269,395,776 ------------ ------------ $576,602,112 $512,122,632 ============ ============ The accompanying notes are an integral part of these condensed financial statements.
-3- STANHOME INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE QUARTERS ENDED SEPTEMBER 30, 1995 and 1994 (Unaudited)
1995 1994 ---- ---- NET SALES $205,706,026 $193,255,053 COST OF SALES 92,267,826 85,032,087 ------------ ------------ GROSS PROFIT 113,438,200 108,222,966 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 90,037,720 86,244,463 ------------ ------------ OPERATING PROFIT 23,400,480 21,978,503 Interest expense ( 1,928,605) ( 209,719) Other income, net ( 744,444) 936,331 ------------ ------------ INCOME BEFORE INCOME TAXES 20,727,431 22,705,115 Income taxes 8,859,754 9,587,971 ------------ ------------ NET INCOME $ 11,867,677 $ 13,117,144 ============ ============ EARNINGS PER COMMON SHARE, Primary and fully diluted $ .63 $ .67 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 NINE MONTHS ENDED SEPTEMBER 30, 1995 and 1994 (Unaudited)
1995 1994 ---- ---- NET SALES $600,064,554 $553,616,075 COST OF SALES 258,261,290 229,323,679 ------------ ------------ GROSS PROFIT 341,803,264 324,292,396 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 281,631,069 266,500,132 ------------ ------------ OPERATING PROFIT 60,172,195 57,792,264 Interest expense ( 5,207,637) ( 513,583) Other income, net ( 1,340,622) 2,123,646 ------------ ------------ INCOME BEFORE INCOME TAXES 53,623,936 59,402,327 Income taxes 24,136,822 26,543,970 ------------ ------------ NET INCOME 29,487,114 32,858,357 RETAINED EARNINGS, beginning of period 362,946,840 338,753,939 Cash dividends, $.795 per share in 1995 and $.765 per share in 1994 ( 14,938,849) ( 14,797,122) ------------ ------------ RETAINED EARNINGS, end of period $377,495,105 $356,815,174 ============ ============ EARNINGS PER COMMON SHARE: Primary $1.56 $1.68 Fully diluted $1.55 $1.67 The accompanying notes are an integral part of these condensed financial statements.
-5- STANHOME INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 and 1994 (Unaudited)
1995 1994 ---- ---- OPERATING ACTIVITIES: Net cash used by operating activities ($42,613,521) ($12,625,636) ----------- ----------- INVESTING ACTIVITIES: Purchase of property, plant and equipment ( 8,380,613) ( 4,503,887) Payments for acquisitions ( 1,402,840) ( 12,978,935) Proceeds from sale of property, plant and equipment 1,274,098 2,265,461 Other, principally marketable securities ( 12,165) ( 12,610,392) ----------- ----------- Net cash used by investing activities ( 8,521,520) ( 27,827,753) ----------- ----------- FINANCING ACTIVITIES: Cash dividends ( 14,938,849) ( 14,797,122) Exchanges and purchases of common stock ( 19,438,450) ( 9,534,403) Notes and loans payable 86,421,953 18,411,727 Exercise of stock options 2,026,183 3,313,800 Other common stock issuance 376,447 284,131 ----------- ----------- Net cash provided/(used) by financing activities 54,447,284 ( 2,321,867) ----------- ----------- Effect of exchange rate changes on cash and cash equivalents 211,870 579,394 ----------- ----------- Increase/(decrease) in cash and cash equivalents 3,524,113 ( 42,195,862) Cash and cash equivalents, beginning of year 19,349,839 53,333,754 ----------- ----------- Cash and cash equivalents, end of quarter $22,873,952 $11,137,892 =========== =========== SUPPLEMENTAL CASH FLOW DATA Cash paid for: Interest $ 4,926,419 $ 564,036 Income taxes $34,296,980 $15,655,020 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, 1994 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, 1994. 1. ACCOUNTING POLICIES: The Company's financial statements for the three and nine months ended September 30, 1995 have been prepared in accordance with the accounting policies described in Note 1 to the December 31, 1994 consolidated financial statements included in the Company's 1994 Annual Report on Form 10-K. Marketable securities with maturities of three months or less are considered to be cash equivalents but there were none at September 30, 1995 and December 31, 1994. The cash flows' cash and cash equivalents at September 30, 1995 are equal to the cash and certificates of deposit on the September 30, 1995 balance sheet. Notes and accounts receivable were net -7- of allowance for doubtful accounts of $18,431,000 at September 30, 1995 and $15,249,000 at December 31, 1994. The Company recognizes revenue as merchandise is turned over to the shipper. 2. INVENTORY CLASSES: The major classes of inventories at September 30 and December 31 were as follows (in thousands): September 30, December 3l, 1995 1994 ---- ---- Raw materials and supplies $ 8,018 $ 7,071 Work in process 1,166 818 Finished goods in transit 12,790 9,949 Finished goods 89,418 98,177 -------- -------- $111,392 $116,015 ======== ======== 3. OTHER INCOME, NET: Other income, net for the quarters and nine months ended September 30, 1995 and 1994 consists of the following (in thousands): Quarters Ended September 30 --------------------------- 1995 1994 ---- ---- Interest income $ 613 $ 918 Other assets amortization ( 1,045) ( 594) Other items, net ( 313) 613 ------ ------ ($ 745) $ 937 ====== ====== Nine Months Ended September 30 ------------------------------ 1995 1994 ---- ---- Interest income $2,119 $2,888 Other assets amortization ( 3,062) ( 1,796) Other items, net ( 398) 1,032 ------ ------ ($1,341) $2,124 ====== ====== -8- 4. EARNINGS PER COMMON SHARE (BASIS OF CALCULATION): Earnings per common share are based on the average number of common shares outstanding and common share equivalents for the periods covered. For the third quarters of 1995 and 1994, there were no differences in earnings per share between primary and fully diluted earnings per share computations. There were slight differences for the nine months ended September 30, 1995 and 1994 where 18,888,161 shares for 1995 and 19,596,767 shares for 1994 were utilized as the average number of shares for the primary computations, including common share equivalents of 40,345 and 241,097 for 1995 and 1994, respectively. For the third quarter, the average number of shares utilized in the fully diluted computation was 18,840,554 and 19,513,969 shares for 1995 and 1994, respectively. The average number of shares utilized in the fully diluted computation for the nine months ended September 30 was 18,984,314 for 1995 and 19,618,973 for 1994. Both 1995 fully diluted computations included common share equivalents of 136,498 and both 1994 fully diluted computations included common share equivalents of 263,303. The lower average number of shares for the third quarter and first nine months of 1995 primarily resulted from the repurchase of shares as part of the Company's repurchase program. 5. FINANCIAL INSTRUMENTS: The Company enters into various short-term foreign exchange agreements during the year, all of which are held for purposes other than trading. The purpose of the Company's foreign currency hedging activities is to reduce the risk that the eventual settlement of foreign currency transactions will be adversely affected by changes in exchange rates. The -9- 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 September 30, 1995, there were no open inventory purchase agreements and deferred amounts were not material. The Company makes short-term foreign currency intercompany loans to various international subsidiaries and utilizes agreements to fully hedge these transactions against currency fluctuations. The cost of these agreements is included in the interest charged to the subsidiaries and expensed monthly as the interest is accrued. The intercompany interest eliminates upon consolidation and any gains and losses on the agreements are recorded as a component of other 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. As of September 30, 1995, net deferred amounts on outstanding agreements were not material and all current agreements have expiration dates in 1995. The outstanding agreement amounts (notional value) at September 30, 1995, are as follows (in thousands): Canada $ 6,707 Germany 4,509 Italy 1,561 France 1,225 U.S. 250 ------- Total $14,252 ======= -10- 6. LICENSE AGREEMENT: In January 1995, the Company entered into an agreement with a third party to license the domestic operations of its Worldwide Direct Selling Group. The business licensed, known as Stanley Home Products ("SHP"), marketed home care, personal care and cosmetic items to consumers through direct selling programs. The agreement calls for the third party to license the trademarks and formulas of SHP for use in the U.S., Puerto Rico and Canada, and remit to the Company royalties based on sales of the related products. The licensed areas recorded net sales of approximately $9 million and $28 million in the third quarter and first nine months of 1994, respectively, and operating losses of approximately $.8 million and $1.9 million in the third quarter and first nine months of 1994, respectively. These sales represented approximately 17% of the Worldwide Direct Selling Group's first nine months 1994 net sales and 5% of the Company's consolidated net sales for the same period. The transfer of the businesses was completed in the second quarter of 1995. In connection with this agreement, the Company closed administrative and distribution facilities in the U.S. and Puerto Rico during the first quarter of 1995. Management believes that the total costs to exit the SHP operations, including employee severance benefits, will be offset in 1995 by a comparable amount of gains, approximately $6 million, net, primarily from the sale of SHP's distribution facilities. The costs to exit the SHP operations have not had and are not expected to have a material adverse impact on the Company's future operating results or financial condition. -11- STANHOME INC. QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS SEGMENTS of the Company's operations are summarized on Page 20. A discussion and analysis of the segments follows: GIFTWARE Giftware Group sales increased for the third quarter and first nine months primarily due to unit volume growth from existing lines and from new businesses acquired in 1994. The new businesses accounted for 10% of the third quarter 18% increase in sales and 10% of the year-to-date 24% increase in sales. Sales in the United States benefited from an expansion of the Company's program of extended accounts receivable terms on Christmas related merchandise. This facilitated the shipment of Christmas related orders sooner this year versus last year. The extended accounts receivable are not expected to have a material impact on bad debts. Since the new businesses acquired in 1994 recorded sales in the fourth quarter of 1994 and considering the impact of the Company's expanded credit program, the rate of sales increase achieved for the first nine months is not expected to be maintained during the fourth quarter of 1995. International results increased and, including the new businesses, international sales represented 15% of year-to-date 1995 sales compared to 10% in 1994. The Precious Moments line represented 46% of total year-to-date sales in 1995 and 1994. The Cherished Teddies line represented 13% of total year-to-date sales in 1995 compared to 16% in 1994. Operating profit for the third -12- quarter decreased as a percentage of sales compared to 1994 due to lower margins from the new businesses. Operating profit for the first nine months increased as a percentage of sales compared to 1994, despite lower margins from the new businesses, as a result of lower percentage of selling, general and administrative expenses principally due to the favorable impact of the sales increase on fixed costs. DIRECT RESPONSE Direct Response Group sales increased in the third quarter and first nine months due principally to unit volume growth in dolls and figurines. International sales and operating losses increased for the quarter and year- to-date. International sales represented 10% of the first nine months sales compared to 9% in 1994. Year-to-date total Group doll sales accounted for 32% of 1995 sales compared to 29% in 1994, while plate sales accounted for 41% of sales in 1995 compared to 55% in 1994. All other categories of sales, which are primarily figurines, increased to 27% of sales in 1995 compared to 16% in 1994. Market conditions for the direct response businesses for the Company's products continue to be soft and very competitive with many product offerings and ads going against weakness in consumer spending. These conditions have significantly increased advertising expense to 52% of sales in 1995 compared to 47% in 1994 due to reduced response rates to ads, a significantly lower success rate for product introductions which have increased over 1994, and a resistance by customers to higher prices. Additionally, product returns and bad debts on installment billing programs have increased. Reflecting these poor market conditions combined with postage, paper and advertising rate increases, the Group recorded an operating loss for the third quarter and first -13- nine months. Some of the key management group have been replaced. If the market conditions do not improve, it is expected that the Group's operating performance will not improve for the balance of the year. DIRECT SELLING Comparable Direct Selling results for the third quarter and first nine months excluding the United States and Puerto Rico operations, which in 1995 have been licensed to a third party, are as follows: Third Quarter ------------- 1995 1994 % Change ---- ---- -------- Sales $ 33,715 $ 34,788 ( 3) Operating profit 1,739 1,090 60 First Nine Months ----------------- 1995 1994 % Change ---- ---- -------- Sales $133,588 $140,762 ( 5) Operating profit 13,074 15,474 ( 16) European sales for the quarter and first nine months were level with 1994, and represented 88% of total 1995 year-to-date sales. Operating profit, compared to 1994, increased 184% for the seasonally slow third quarter on a small base due to lower selling and marketing expenses but decreased 10% for the first nine months, and represented 90% of total year- to-date 1995 operating profit. For the quarter and year-to-date, sales decreased in Italy and higher year-to-date selling, general and administrative expenses in Italy reduced operating margins. First nine months 1995 European local currency sales and operating profit translated -14- at 1994 average exchange rates would have resulted in a 5% sales decrease and a 14% operating profit decrease. Sales for the Mexican and Venezuelan group decreased 20% and 35%, respectively, for the third quarter and first nine months resulting primarily from the devaluation of the Mexican peso compared to 1994. The group's third quarter and year-to-date operating profit decreased 12% and 47%, respectively, due to the peso devaluation and the resulting unfavorable economic impact. The United States and Puerto Rico direct selling operations in 1995 have been assumed by a third party. The assets of these businesses, not assumed by the third party, have been and are being disposed during 1995 and, as of September 30, 1995, amounted to $3.2 million in inventories and $1.3 million of net property plant and equipment. The severance and other exit costs are expected to approximate $6 million, which should be offset by gains on the sale of assets of the business. GENERAL CORPORATE EXPENSE increased for the quarter and first nine months due to higher compensation, benefits and general expenses consistent with the Company programs. INTERNATIONAL ECONOMIES AND CURRENCY The Latin American operations in Mexico and Venezuela have experienced highly inflationary economies with rapidly changing prices in local currencies. These conditions, with the resulting adverse impact on local economies, have made it difficult for operations in these locations to achieve consistent 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 -15- were favorably impacted by higher currency translation rates in 1995 compared to 1994. The value of the U.S. dollar versus international currencies where the Company conducts business will continue to impact the future results of these businesses. In addition to the currency risks, the Company's international operations, including sources of imported products, are subject to other risks of doing business abroad, including import or export restrictions and changes in economic and political climates. The fluctuations in net sales and operating profit margins from quarter to quarter are partially due to the seasonal characteristics of the Company's business segments. INTEREST EXPENSE AND OTHER INCOME, NET Net interest expense increased due to higher borrowing levels principally for the 1994 acquisitions and the stock buy back program. Other assets amortization of goodwill increased due to the impact from the 1994 acquisitions. The year-to-date amortization for Giftware in 1995 was $2.6 million compared to $1.3 million in 1994 and the amortization for Direct Response was $.5 million in 1995 and $.5 million in 1994. Year-to- date other income, net last year includes $1.2 million in gains on the sale of distribution centers in the U.S. and Puerto Rico. THE EFFECTIVE TAX RATE year-to-date of 45% was the same as 1994 despite international rate increases, and higher non deductible goodwill in 1995. This was due principally to earnings mix with a lower ratio of foreign income to United States income, which has a lower rate. -16- FINANCIAL CONDITION The Company has historically satisfied its capital requirements with internally generated funds and short-term loans. Working capital requirements have seasonal variations during the year and are generally greatest during the third quarter. The major sources of funds from operating activities in the first nine months of 1995 were from net income, depreciation, amortization and lower inventory levels. The major uses were increased accounts receivable which increased due to the higher sales volume and marketing programs (particularly the expansion of the Company's Giftware program of extended accounts receivable terms on Christmas related merchandise); increased prepaid expenses from higher advertising in direct response; lower accounts payable and accrued expenses due principally to timing and the payment of year end payrolls and benefits; and lower accrued taxes due to timing of payments. The first nine months 1995 working capital increases in receivables, inventories and prepaids compared to 1994 reflect increases to support higher levels of sales. The major uses of cash in investing activities in the first nine months of 1995 were for capital expenditures and payments related to acquisition liabilities. Capital expenditure commitments for $15 million are forecasted for 1995. Due to the Company's exit from the United States direct selling business, the Company had for sale, as of September 30, 1995, four United States distribution facilities with a total appraised value of approximately $6 million, net. One of the facilities was sold for $2.3 million, net in October. The Company has an acquisition program, and may utilize funds for this purpose in the future. The Italian subsidiary invests excess cash in short-term investments which change from -17- time to time based on availability and rates. The level of changes of marketable securities from period to period principally represents investment alternatives versus certificates of deposit, time deposits, and intercompany loans. The major uses of cash in financing activities were for dividends to shareholders and purchases of common stock. Purchases of common stock principally included shares repurchased by the Company. During the first nine months this year, the Company repurchased 652,017 shares for $19,350,000. 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. On June 6, 1995, the repurchase of up to 2,000,000 shares was newly authorized and, at September 30, 1995, 1,745,000 shares remained available for purchase under the program. The Company's earnings, cash flow, and available debt capacity have made and make stock repurchases, in the Company's view, one of its best investment alternatives. The major source of funds for the seasonal working capital requirements, investing activities and financing activities was an increase in borrowings, which also increased due to reduced intercompany loans which fluctuate depending on market condition rates. Total stock options outstanding at the exercise price amounted to $85 million at September 30, 1995 and the Company could receive these funds in the future if the options are exercised. In August 1995 the Company entered into a five year $200 million multicurrency revolving credit agreement with various banks which can be used for working capital, investing and financing activities. The agreement has an annual facility and agency fee as well as a margin supplement for Eurocurrency rate loans where more than one third of the -18- commitment is utilized. The agreement contains financial covenants that include requirements, as defined, for minimum net worth, interest coverage and maximum borrowings. None of these covenants is expected to have an adverse effect on the Company's ability to operate in the future. 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. 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 $1,318,000 reduced the cumulative translation component which reduced the shareholders' equity decrease in the first nine months of 1995. The translation adjustments to the balance sheet that produced the 1995 change in the cumulative translation component of shareholders' equity were decreases in working capital by $64,000; increases in net property, plant and equipment and other assets by $1,544,000; and increases in long- term liabilities by $162,000. 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. -19- STANHOME INC. SALES AND OPERATING PROFIT BY BUSINESS SEGMENT FOR THE THIRD QUARTER AND FIRST NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (Unaudited) (In Thousands)
Third Quarter First Nine Months ------------------------------ ---------------------------- - --- 1995 1994 Percent 1995 1994 Percent Actual Actual Change Actual Actual Change ------ ------ ------- ------ ------ ------- Net Sales: Giftware $138,150 $116,913 18% $366,231 $294,685 24% Direct Response 33,986 33,494 1 102,811 92,362 11 Direct Selling 33,715 43,535 (23) 133,588 168,632 (21) Eliminations ( 145) ( 687) ( 2,565) ( 2,063) -------- -------- -------- -------- Total Net Sales $205,706 $193,255 6% $600,065 $553,616 8% ======== ======== ======== ======== Operating Profit: Giftware $ 25,462 $ 21,851 17% $ 56,874 $ 45,027 26% Direct Response ( 1,290) 2,100 ( 2,158) 5,901 Direct Selling 1,739 245 610 13,074 13,533 ( 3) Corporate ( 2,511) ( 2,218) (13) ( 7,618) ( 6,669) (14) -------- -------- -------- -------- Total Operating Profit $ 23,400 $ 21,978 6% $ 60,172 $ 57,792 4% ======== ======== ======== ========
-20- PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the Quarter for which this report is filed. All other items hereunder are omitted because either such item is inapplicable or the response to it is negative. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STANHOME INC. (Registrant) Date: November 10, 1995 /s/ G. William Seawright _____________________________________ G. William Seawright President and Chief Executive Officer Date: November 10, 1995 /s/ Allan G. Keirstead _____________________________________ Allan G. Keirstead Chief Administrative and Financial Officer -21- EXHIBIT INDEX
Reg. S-K Item 601 Exhibit 10-Q Page No. _________ _______ _____________ 27 Financial Data Schedule 23
-22- EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1995 SEP-30-1995 22,873,952 14,358 212,558,362 18,431,119 111,391,483 385,308,312 131,310,196 72,305,293 576,602,112 286,107,297 0 0 0 3,153,530 265,072,344 576,602,112 600,064,554 600,064,554 258,261,290 258,261,290 278,448,764 3,182,305 5,207,637 53,623,936 24,136,822 29,487,114 0 0 0 29,487,114 1.56 1.55
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