-----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, OdjRjGwS2lsrGDqEg1KeKeak7xrQaeGm4K15rkxJoF26/5+asuW0L7Flo4+Lxrhy 7X2XO8KU/wCSM1a7R3PpvA== 0000093542-96-000005.txt : 19960814 0000093542-96-000005.hdr.sgml : 19960814 ACCESSION NUMBER: 0000093542-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 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: 96610558 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 June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________. Commission File Number 0-1349 Stanhome Inc. ___________________________________________________________________________ (Exact name of registrant as specified in its charter) Massachusetts 04-1864170 ____________________________________ ______________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 333 Western Avenue, Westfield, Massachusetts 01085 ___________________________________________________________________________ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 413-562-3631 ___________________________________________________________________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] June 30, 1996 1995 ____ ____ Shares Outstanding: Common Stock with Associated Rights 17,898,467 18,791,638 Total number of pages contained herein 28 Index to Exhibits is on page 20 PART I. FINANCIAL INFORMATION ------------------------------ STANHOME INC. CONSOLIDATED CONDENSED BALANCE SHEETS JUNE 30, 1996 and DECEMBER 31, 1995 (Unaudited)
June 30, December 31, 1996 1995 ---- ---- ASSETS CURRENT ASSETS: Cash and certificates of deposit $ 20,477,816 $ 23,053,926 Notes and accounts receivable, net 195,200,578 158,572,959 Inventories 120,726,325 114,294,928 Prepaid advertising 35,089,298 39,665,306 Other prepaid expenses 10,229,615 6,784,465 ------------ ------------ Total current assets 381,723,632 342,371,584 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT, at cost 132,359,252 131,795,141 Less - Accumulated depreciation and amortization 73,494,942 70,947,871 ------------ ------------ 58,864,310 60,847,270 ------------ ------------ OTHER ASSETS: Goodwill and other intangibles, net 120,773,283 119,826,382 Other 13,063,529 11,420,987 ------------ ------------ 133,836,812 131,247,369 ------------ ------------ $574,424,754 $534,466,223 ============ ============ The accompanying notes are an integral part of these condensed financial statements.
-2- STANHOME INC. CONSOLIDATED CONDENSED BALANCE SHEETS JUNE 30, 1996 and DECEMBER 31, 1995 (Unaudited)
June 30, December 31, 1996 1995 ---- ---- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes and loans payable $125,957,176 $ 74,864,065 Accounts payable 57,832,607 64,880,028 Federal, state and foreign taxes on income 32,077,104 28,758,277 Accrued expenses-- Payroll and commissions 12,951,138 13,658,026 Royalties 9,987,908 8,587,986 Vacation, sick and postretirement benefits 7,824,678 6,979,623 Pensions and profit sharing 6,046,753 8,610,616 Other 38,480,062 36,106,020 ------------ ------------ Total current liabilities 291,157,426 242,444,641 ------------ ------------ LONG-TERM LIABILITIES: Foreign employee severance obligations 12,707,192 12,482,097 Postretirement benefits 12,789,255 12,749,258 ------------ ------------ Total long-term liabilities 25,496,447 25,231,355 ------------ ------------ SHAREHOLDERS' EQUITY: Common stock 3,153,530 3,153,530 Capital in excess of par value 44,705,463 43,098,856 Retained earnings 390,412,975 385,008,394 Cumulative translation adjustments ( 28,612,995) ( 27,409,482) ------------ ------------ 409,658,973 403,851,298 Less - Shares held in treasury, at cost 151,888,092 137,061,071 ------------ ------------ Total shareholders' equity 257,770,881 266,790,227 ------------ ------------ $574,424,754 $534,466,223 ============ ============ 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, 1996 and 1995 (Unaudited)
1996 1995 ---- ---- NET SALES $217,724,172 $209,489,366 COST OF SALES 95,095,791 88,567,476 ------------ ------------ GROSS PROFIT 122,628,381 120,921,890 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 100,008,670 97,920,280 ------------ ------------ OPERATING PROFIT 22,619,711 23,001,610 Interest expense ( 2,105,054) ( 1,936,735) Other expense, net ( 783,212) ( 438,711) ------------ ------------ INCOME BEFORE INCOME TAXES 19,731,445 20,626,164 Income taxes 8,780,493 9,457,068 ------------ ------------ NET INCOME $ 10,950,952 $ 11,169,096 ============ ============ EARNINGS PER COMMON SHARE, primary and fully diluted $ .60 $ .59 ===== ===== 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, 1996 and 1995 (Unaudited)
1996 1995 ---- ---- NET SALES $400,763,899 $394,358,528 COST OF SALES 173,188,356 165,993,464 ------------ ------------ GROSS PROFIT 227,575,543 228,365,064 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 194,560,707 191,593,349 ------------ ------------ OPERATING PROFIT 33,014,836 36,771,715 Interest expense ( 3,951,112) ( 3,279,032) Other expense, net ( 1,582,937) ( 596,178) ------------ ------------ INCOME BEFORE INCOME TAXES 27,480,787 32,896,505 Income taxes 12,459,503 15,277,068 ------------ ------------ NET INCOME 15,021,284 17,619,437 RETAINED EARNINGS, beginning of period 385,008,394 362,946,840 Cash dividends, $.53 per share in 1996 and 1995 ( 9,616,703) ( 10,004,986) ------------ ------------ RETAINED EARNINGS, end of period $390,412,975 $370,561,291 ============ ============ EARNINGS PER COMMON SHARE: Primary and fully diluted $ .82 $ .93 ===== ===== 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, 1996 and 1995 (Unaudited)
1996 1995 ---- ---- OPERATING ACTIVITIES: Net cash used by operating activities ($25,884,695) ($18,802,821) ----------- ----------- INVESTING ACTIVITIES: Purchase of property, plant and equipment ( 3,910,264) ( 5,294,924) Payments for acquisition of businesses, net of cash acquired ( 1,484,383) ( 1,429,057) Proceeds from sales of property, plant and equipment 2,574,793 741,402 Other, principally marketable securities - 114,243 ----------- ----------- Net cash used by investing activities ( 2,819,854) ( 5,868,336) ----------- ----------- FINANCING ACTIVITIES: Cash dividends ( 9,616,703) ( 10,004,986) Exchanges and purchases of common stock ( 15,178,033) ( 11,800,149) Notes and loans payable 49,650,150 65,075,904 Exercise of stock options 1,690,544 805,307 Other common stock issuance 267,075 342,512 ----------- ----------- Net cash provided by financing activities 26,813,033 44,418,588 ----------- ----------- Effect of exchange rate changes on cash and cash equivalents ( 684,594) 391,717 ----------- ----------- Increase/(decrease) in cash and cash equivalents ( 2,576,110) 20,139,148 Cash and cash equivalents, beginning of year 23,051,926 19,349,839 ----------- ----------- Cash and cash equivalents, end of quarter $20,475,816 $39,488,987 =========== =========== SUPPLEMENTAL CASH FLOW DATA Cash paid for: Interest $ 2,760,982 $ 2,646,470 Income taxes $ 9,237,855 $23,768,333 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, 1995 condensed balance sheet, which was derived from the Annual Report on Form 10-K, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The information furnished reflects all normal recurring adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods. It is suggested that these condensed financial statements be read in conjunction with the financial statements and related notes to consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 1. ACCOUNTING POLICIES: The Company's financial statements for the three and six months ended June 30, 1996 have been prepared in accordance with the accounting policies described in Note 1 to the December 31, 1995 consolidated financial statements included in the Company's 1995 Annual Report on Form 10-K. The Company considers all highly liquid securities, including certificates of deposit with maturities of three months or less, when purchased, to be cash equivalents. Notes and accounts receivable were net of reserves for -7- uncollectible accounts, returns and allowances of $23,124,000 at June 30, 1996 and $20,741,000 at December 31, 1995. The Company recognizes revenue as merchandise is turned over to the shipper and a provision for anticipated merchandise returns and allowances is recorded based upon historical experience. Amounts billed to customers for shipping and handling orders are netted against the associated costs. 2. INVENTORY CLASSES: The major classes of inventories at June 30 and December 31 were as follows (in thousands): June 30, December 3l, 1996 1995 ---- ---- Raw materials and supplies $ 7,546 $ 7,312 Work in process 1,258 1,237 Finished goods in transit 14,805 16,215 Finished goods 97,117 89,531 -------- -------- $120,726 $114,295 ======== ======== 3. OTHER EXPENSE, NET: Other expense, net for the quarters and six months ended June 30, 1996 and 1995 consists of the following (in thousands): Quarters Ended June 30 ---------------------- 1996 1995 ---- ---- Interest income $ 733 $ 761 Other assets amortization ( 1,200) ( 1,008) Other items, net ( 316) ( 191) ------ ------ ($ 783) ($ 438) ====== ====== Six Months Ended June 30 ------------------------ 1996 1995 ---- ---- Interest income $1,226 $1,506 Other assets amortization ( 2,353) ( 2,017) Other items, net ( 456) ( 85) ------ ------ ($1,583) ($ 596) ====== ====== -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 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 18,218,514 and 18,913,987 shares for 1996 and 1995, respectively. The average number of shares utilized in the fully diluted computation for the six months ended June 30 was 18,299,763 for 1996 and 19,034,754 for 1995. Both 1996 computations included common share equivalents of 66,434 and both 1995 computations included common share equivalents of 112,814. The lower average number of shares for the second quarter and first six months of 1996 primarily resulted from the repurchase of shares as part of the Company's repurchase program. 5. FINANCIAL INSTRUMENTS: The Company enters into various short-term foreign exchange agreements during the year, all of which are held for purposes other than trading. The purpose of the Company's foreign currency hedging activities is to protect the Company from risk that the eventual settlement of foreign currency transactions will be adversely affected by changes in exchange rates. The Company's various subsidiaries import products in 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, 1996, there were no open inventory purchase agreements and deferred amounts were not material. The Company -9- makes short-term foreign currency intercompany loans to various international subsidiaries and utilizes agreements to fully hedge these transactions against currency fluctuations. The cost of these agreements is included in the interest charged to the subsidiaries and expensed monthly as the interest is accrued. The intercompany interest eliminates upon consolidation and any gains and losses on the agreements are recorded as a component of other expense. All of the outstanding agreements as of June 30, 1996 are to hedge intercompany loans. The Company receives dividends, technical service fees, royalties and other payments from its subsidiaries and licensees. From time to time, the Company will enter into foreign currency forward agreements as a partial hedge against currency fluctuations on these current receivables. Gains and losses are recognized or the credit or debit offsets the foreign currency payables. As of June 30, 1996, net deferred amounts on outstanding agreements were not material. The outstanding agreement amounts (notional value) at June 30, 1996, are as follows (in thousands): Canada $ 6,602 Germany 3,938 U.S. 1,900 ------- Total $12,440 ======= -10- STANHOME INC. QUARTER AND SIX MONTHS ENDED JUNE 30, 1996 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS SEGMENTS of the Company's operations are summarized on Page 18. A discussion and analysis of the segments follows: GIFTWARE Giftware Group sales increased 7% for the second quarter and 1% for the first six months primarily due to unit volume growth in the United States from existing lines. International sales decreased slightly and represented 15% of year-to-date sales in both 1996 and 1995. Year-to-date 1996 sales of the Precious Moments line represented 44% of total sales compared to 48% in 1995 and the Cherished Teddies line represented 17% of year-to-date sales in 1996 compared to 10% in 1995. Operating profit for the first six months as a percentage of sales was 12.7% in 1996 compared to 13.8% in 1995. The decrease was due to higher cost of sales (approximately .7%) from an unfavorable product mix and to a higher percentage of selling, general and administrative expenses. Most of the operating profit decrease was from international markets. Operating profit in the United States was down approximately 1%. DIRECT RESPONSE Direct Response Group sales decreased 5% in the second quarter but were 4% higher for the six months due to unit volume growth from increased product offerings primarily in the figural categories. Year-to-date doll -11- sales decreased to 19% of 1996 sales compared to 33% in 1995 and plate sales decreased to 35% of sales in 1996 compared to 43% in 1995. The Precious Moments line represented 10% of year-to-date 1996 sales compared to 11% in 1995 and the Cherished Teddies line represented 10% of year-to- date sales in both 1996 and 1995. International sales decreased and operating losses increased for the quarter and year-to-date. International sales represented 9% of the first six months sales compared to 10% in 1995. Market conditions for the direct response businesses for the Company's products continue to be soft and very competitive with many product offerings and ads going against weakness in consumer spending. Operating losses increased for the second quarter and first six months. For the first six months, cost of sales as a percentage of sales increased 2.9% due to product mix and higher product returns. For the first six months, total selling, general and administrative expenses decreased as a percentage of sales due to a lower percentage of advertising (47% of sales in 1996 versus 51% in 1995) due to product sales mix and a higher percentage of sales from existing customer lists. Partially offsetting the improved advertising ratio was a higher level of selling, general and administrative expenses, including higher bad debts and approximately $460 thousand of expense during the second quarter for new market testing. DIRECT SELLING Total Direct Selling sales for the quarter and first six months were about level with 1995. Operating profit decreased for the quarter and first six months of 1996. Operating profit for the first six months as a percentage of sales was 10.0% in 1996 compared to 11.3% in 1995. The decrease was due to higher cost of sales (approximately .5%) from product -12- mix and a higher percentage of selling, general and administrative expenses. European sales decreased 3% and 1% for the quarter and first six months, respectively, and represented 87% of total 1996 sales for the quarter and 88% for the year-to-date. Operating profit decreased 27% for the second quarter and 17% for the first six months, and represented 82% of total 1996 operating profit for the quarter and 88% for the year-to- date. Operating profit for the first six months as a percentage of sales for Europe was down 1.7% compared to 1995. The decrease was due to higher levels of selling, general and administrative expense principally in Italy and the impact of full six month expenses of the European headquarters. The Italian government has introduced new social benefit taxes that have become effective during the second quarter of 1996. This additional tax burden has unfavorably impacted the Italian subsidiary's independent Dealer force and its ability to recruit and retain Dealers. First six months 1996 European local currency sales and operating profit translated at 1995 average exchange rates would have resulted in a 3% sales decrease and a 17% operating profit decrease. Sales for the Mexican and Venezuelan group increased 33% and 13%, respectively, for the second quarter and first six months resulting from improvement in Mexico. The group's second quarter and year-to-date operating profit increased substantially from a low base and benefited from higher sales in Mexico. UNALLOCATED EXPENSES increased in the first six months due to higher compensation, benefits and general expenses consistent with the Company programs. Unallocated expenses are corporate expenses and other items not directly related to the operations of the Groups. -13- 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 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 not materially impacted by currency translation rates in 1996 compared to 1995. The value of the U.S. dollar versus international currencies where the Company conducts business will continue to impact the future results of these businesses. In addition to the currency risks, the Company's international operations, including sources of imported products, are subject to other risks of doing business abroad, including import or export restrictions and changes in economic and political climates. The fluctuations in net sales and operating profit margins from quarter to quarter are partially due to the seasonal characteristics of the Company's business segments. INTEREST EXPENSE AND OTHER EXPENSE, NET Interest expense increased due to higher interest rates and higher borrowing levels for general working capital and for stock buy backs. Notes and loans payable going into 1996 were approximately $35.9 million higher than at the start of 1995. Other assets amortization of goodwill increased due to the continuing impact from the 1994 acquisitions. The amortization for Giftware in 1996 was $2.0 million compared to $1.7 million in 1995 and the amortization for Direct Response was $.3 million in 1996 and $.3 million in 1995. -14- THE EFFECTIVE TAX RATE of 45% was lower than the 46% in 1995 despite higher non deductible goodwill in 1996. This was due principally to earnings mix with a lower ratio of foreign income to United States income, which has a lower rate. 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 six months of 1996 were from net income, depreciation, amortization, lower prepaid expense (from less spending in the media) and higher accrued tax levels (due to timing of payments). Prepaid expenses are down from June of last year due principally to less media spending in 1996 by the Direct Response Group since the focus for sales generation has been toward existing customers. The major uses of funds were increased accounts receivable which increased due to the higher sales volume, timing of sales in the quarter and marketing programs, particularly in Giftware; increased inventories to support the higher sales volume and from lower sales of in- stock goods; increased other assets reflecting higher levels of funded retirement benefits; and lower accounts payable and accrued expenses due principally to timing and the payment of year end payrolls and benefits. The June 30, 1996 increase in net accounts receivable compared to 1995 was due to the timing of sales during the second quarter, more customers with extended credit terms and higher sales volume. The increase in inventories in 1996 compared to 1995 was due to increases to support -15- higher levels of sales, lower sales of in-stock goods for the Giftware Group and higher inventories in the Direct Response Group to provide customers with quicker fulfillment of orders. The major uses of cash in investing activities in the first six months of 1996 were for capital expenditures and the acquisition of a small French giftware company. The acquisition was accounted for using the purchase method with basically all of the purchase pricing allocated to goodwill. The Company has an acquisition program, and may utilize funds for this purpose in the future. Capital expenditure commitments for $17 million are forecasted for 1996. Proceeds from the sale of property, plant and equipment was primarily from the sale of a distribution center in Charlotte, North Carolina. As of June 30, 1996, two other distribution centers in the United States with a book value of $622 thousand remain to be sold. The Italian subsidiary invests excess cash in short-term investments which change from time to time based on availability and rates. The level of changes of marketable securities from period to period principally represents investment alternatives versus certificates of deposit, time deposits, and intercompany loans. The major uses of cash in financing activities in the first six months of 1996 were for dividends to shareholders and purchases of common stock. Purchases of common stock principally included shares repurchased by the Company. During the first six months this year, the Company repurchased 515 thousand shares for $15.2 million. The Company has an authorized program to purchase shares of stock for the Company treasury from time to time in the open market, depending on market conditions, and may utilize funds for this purpose in the future. As of June 30, 1996, .8 million shares remained available for purchase under the program. The -16- Company's earnings, cash flow, and available debt capacity have made and make stock repurchases, in the Company's view, one of its best investment alternatives. The major source of funds from financing activities was from higher seasonal borrowings. Total stock options outstanding at the exercise price amounted to $87 million at June 30, 1996 and the Company could receive these funds in the future if the options are exercised. 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 $1,204,000 increased the cumulative translation component which contributed to the shareholders' equity decrease in the first six months of 1996. The translation adjustments to the June 30, 1996 balance sheet that produced the 1996 change in the cumulative translation component of shareholders' equity were decreases in working capital by $885,000; increases in net property, plant and equipment and other assets by $110,000; and increases in long-term liabilities by $429,000. 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. -17- STANHOME INC. SALES AND OPERATING PROFIT BY BUSINESS SEGMENT FOR THE SECOND QUARTER AND FIRST SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited) (In Thousands)
Second Quarter First Six Months ----------------------------- ------------------------------ 1996 1995 Percent 1996 1995 Percent Actual Actual Change Actual Actual Change ------ ------ ------- ------ ------ ------- Net Sales: Giftware $130,823 $122,126 7% $230,435 $228,081 1% Direct Response 35,094 37,019 ( 5) 71,781 68,825 4 Direct Selling 52,282 52,114 - 99,930 99,873 - Eliminations ( 475) ( 1,769) ( 1,382) ( 2,420) -------- -------- -------- -------- Total Net Sales $217,724 $209,490 4% $400,764 $394,359 2% ======== ======== ======== ======== Operating Profit: Giftware $ 21,346 $ 19,913 7% $ 29,356 $ 31,412 ( 7%) Direct Response ( 1,756) ( 852) (106) ( 1,049) ( 868) (21) Direct Selling 5,512 6,586 (16) 10,015 11,335 (12) Unallocated Expense ( 2,482) ( 2,645) 6 ( 5,307) ( 5,107) ( 4) -------- -------- -------- -------- Total Operating Profit $ 22,620 $ 23,002 ( 2%) $ 33,015 $ 36,772 (10%) ======== ======== ======== ========
-18- PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - 1996 Stock Option Plan, as amended - 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: August 13, 1996 /s/G. William Seawright _____________________________________ G. William Seawright President and Chief Executive Officer Date: August 13, 1996 /s/Allan G. Keirstead _____________________________________ Allan G. Keirstead Chief Administrative and Financial Officer -19- EXHIBIT INDEX
Reg. S-K Item 601 Exhibit 10-Q Page No. _________ _______ _____________ 10 1996 Stock Option Plan, as amended 21 and restated through June 4, 1996 27 Financial Data Schedule 28
-20- EX-10 2 1996 STOCK OPTION PLAN, AS AMENDED STANHOME INC. 1996 Stock Option Plan, as amended Through June 4, 1996 1. Purpose. The purpose of this 1996 Stock Option Plan (the "Plan") is to advance the interests of Stanhome Inc. (the "Company") by encouraging key management employees of the Company and its subsidiaries and non- employee directors of the Company to acquire a proprietary interest in the Company through ownership of common stock of the Company. Such ownership will encourage the optionees to remain with the Company and will help attract other qualified persons to become employees and directors. 2. Administration. The Plan shall be administered by the Compensation and Stock Option Committee of the Board of Directors (the "Committee") which shall be composed of not less than three directors of the Company elected or to be elected as members of the Committee from time to time by the Board of Directors of the Company. Each member of the Committee shall be a "disinterested person" within the meaning of Rule 16b- 3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and an "outside director" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). Subject to the provisions of the Plan and the approval of the Board of Directors of the Company, except that the Board of Directors shall have no discretion with respect to the selection of officers within the meaning of Rule 16a-1(f), directors or 10% or more shareholders ("Insiders") for participation and decisions concerning the timing, pricing and amount of a grant or award to such "Insiders", the Committee is authorized to grant options under the Plan and to interpret the Plan and such options, to prescribe, amend and rescind rules and regulations relating to the Plan and the options, and to make other determinations necessary or advisable for the administration of the Plan, all of which determinations shall be conclusive. The Committee shall act pursuant to a majority vote or by unanimous written consent. 3. Types of Options. Options granted pursuant to the Plan may be either incentive stock options under Section 422 of the Code ("Incentive Stock Options") or options not qualifying under that section of the Code ("Non-qualified Stock Options"). It is the intent of the Company that Non- qualified Stock Options granted under the Plan not be classified as Incentive Stock Options, that the Incentive Stock Options granted under the Plan be consistent with and contain or be deemed to contain all provisions required under Section 422 and the other appropriate provisions of the Code and any implementing regulations (and any successor provisions thereof), and that any ambiguities in construction shall be interpreted in order to effectuate such intent. 4. Eligibility. Options shall be granted under the Plan to such selected key full-time salaried and commissioned employees (including officers and directors if they are employees) of the Company or any of its subsidiaries as the Committee shall determine from time to time. Options shall also be granted under the Plan to the non-employee directors of the Company (the "Non-employee Directors") pursuant to Section 9 hereof. 5. Stock Subject to Options. The aggregate number of shares which may be issued or sold under options granted pursuant to the Plan (the "Shares") shall not exceed 1,500,000 shares of the Company's common stock $0.125 par value each. Such Shares shall be either authorized but unissued shares of said common stock or issued shares of said common stock which shall have been reacquired by the Company. Such aggregate number of Shares may be adjusted under Sections 9 and 10 below. If any outstanding option under the Plan expires or is terminated for any reason, the Shares allocated to the unexercised portion of such option may again be subjected to an option or options under the Plan. 6. Allotment of Shares. Except as provided under Section 9 hereof, the Committee shall determine the total number of Shares to be offered to each optionee under the Plan; provided, however, that no optionee may be granted options which exceed 300,000 Shares under the Plan. 7. Option Price. The Shares shall be offered from time to time under the Plan at a price which shall be not less than the greater of (i) 100 percent of the Fair Market Value of the Company's common stock on the date the option is granted, or (ii) the par value of the Company's common stock subject to the option; provided, however, that the price shall be not less than 110 percent of such Fair Market Value in the case of Shares offered under any Incentive Stock Option granted to an individual who, at the time the option is granted, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of its subsidiaries. 8. Terms and Conditions of Options. The Committee shall have power, subject to the limitations contained in the Plan, to prescribe the terms and conditions of any option granted hereunder. Each such option shall be evidenced by a certificate in such form as the Committee shall from time to time determine, which certificate shall prescribe the following terms and conditions and such other terms and conditions as the Committee may deem necessary or advisable: (a) Duration of Options. Except as hereinafter otherwise provided, options granted under the Plan shall be exercisable for such period of time as the Committee shall determine. An Incentive Stock Option shall not be exercisable after the expiration of ten years from the date it is granted; provided, however, that any Incentive Stock Option granted to an individual who, at the time the option is granted, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of its subsidiaries shall by its terms not be exercisable after the expiration of five years from the date of grant. (b) Exercise of Options. Except as hereinafter otherwise provided, each option granted under the Plan may be exercised only after six months of continued employment by the Company or one of its subsidiaries immediately following the date the option is granted, or the date of Stockholder approval under Section 11 below if later, and only during the continuance of the optionee's employment with the Company or one of its subsidiaries and such additional period as may be provided in subsection (e) below. No option shall be exercised for less than 10 Shares except as a result of an adjustment under Sections 9 or 10 below. Subject to the foregoing and to the limitations set forth under subsection 8(e) below, each option granted under the provisions of this Section 8 may be exercised at any time after six months from the date the option is granted or, if later, six months after the date of approval of the Plan by the Stockholders of the Company,(1) as to 50% of the Shares subject to the option if the Fair Market Value of the common stock is at or above 125% of the Option Price on each of at least ten consecutive Trading Days, (2) as to the remaining 50% of the Shares subject to the option if, at any time at or after the initial 50% of said Shares becomes exercisable, the Fair Market Value of the common stock is at or above 150% of the Option Price on each of at least ten consecutive Trading Days, or (3) after the eighth anniversary of the date the option is granted. (c) Payment. The purchase price of each Share purchased upon the exercise of any option granted hereunder shall be paid in full at the time of such purchase, and a stock certificate representing Shares so purchased shall be delivered to the person entitled thereto. Until the stock certificate for such Shares is issued in the optionee's name, he or she shall have none of the rights of a stockholder. Payment may be made in whole or in part in (i) cash or (ii) whole shares of the Company's common stock acquired at least six months previously by the optionee, for which the optionee has good title, free and clear of all liens and encumbrances, and evidenced by negotiable certificates, valued at their Fair Market Value on the date preceding the date the option is exercised. If certificates representing shares of common stock are used to pay all or part of the purchase price of an option, separate certificates shall be delivered by the Company representing the same number of shares as each certificate so used and an additional certificate shall be delivered representing the additional shares to which the option holder is entitled as a result of exercise of the option. It shall be a condition to the performance of the Company's obligation to issue or transfer Shares upon exercise of an option or options that the optionee pay, or make provision satisfactory to the Company for the payment of, any taxes (other than stock transfer taxes) which the Company is obligated to collect with respect to the issue or transfer upon such exercise. With respect to the exercise of Non-qualified Stock Options granted pursuant to this Section 8, optionees may elect to have the Company withhold a designated number of Shares otherwise issuable upon the exercise of such stock options, or, in the case of "Insider" optionees, to commit irrevocably at a time acceptable under the provisions of Section 16 of the Exchange Act to have the Company withhold whole shares of common stock to cover Federal and State tax obligations incident to such exercise, or such other maximum amounts as may be determined by the Committee. (d) Nontransferability of Options. No option shall be transferable by the optionee otherwise than (1) by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Committee, (2) as otherwise permitted under Rule 16b-3 under the Exchange Act from time to time and allowed by the Committee, or (3) pursuant to a qualified domestic relations order as defined in Section 414(p) of the Code. Except to the extent permitted by the foregoing sentence, each option shall be exercisable, during his or her lifetime, only by the optionee or his or her guardian or legal representative(s). (e) Termination of Options. (i) Disability, Retirement at or after age 55, Termination without Substantial Cause, or Death. If the optionee's employment with the Company or any subsidiary terminates by reason of Disability, retirement at or after age 55, termination by the Company or any subsidiary without Substantial Cause, death, or for any other reason not set forth under clauses (ii) and (iii) below, if not sooner terminated pursuant to their terms and subject to subsections (a) and (b) above, all outstanding options then held by the optionee shall be exercisable during the three year period following any such termination of employment by the optionee or his or her guardian or legal representative(s), except further that in the case of Incentive Stock Options the period for such exercise following such termination shall be limited to three months, or, in the case of a termination of employment by reason of disability, to twelve months; (ii) Termination by Voluntary Resignation or Retirement before reaching age 55. If the optionee's employment with the Company or any subsidiary is terminated either by voluntary resignation or retirement before reaching age 55, all outstanding options then held by the optionee shall be exercisable during the three month period following any such termination of employment by the optionee or his or her guardian or legal representative(s); (iii) Termination for Substantial Cause. If the optionee's employment with the Company or any subsidiary is terminated for Substantial Cause, all outstanding options then held by the optionee shall thereupon be forfeited by the optionee and canceled by the Company; and (iv) Termination within Six Months of Grant. Notwithstanding the foregoing, upon the optionee's employment with the Company or any subsidiary terminating at any time for any reason, all outstanding options granted within the last six months prior to the optionee's termination shall thereupon be forfeited by the optionee and canceled by the Company. Cessation of any corporation's relationship with the Company as a subsidiary shall constitute a "termination without Substantial Cause" hereunder as to individuals employed by that corporation, and options held by such individuals shall be terminated in accordance with paragraph (i) above. For purposes of this subsection, the meaning of the word "disability" shall be determined under the provisions of Section 422(c)(7) of the Code or any successor provisions thereof. (f) Fair Market Value. Fair Market Value shall mean the closing transaction price of a share of common stock as reported in the New York Stock Exchange Composite Transactions on the date as of which such value is being determined, or, if the common stock is not listed on the New York Stock Exchange, the closing transaction price of a share of common stock on the principal national stock exchange on which the common stock is traded on the date as of which such value is being determined; or, if there shall be no reported transaction for such date, on the next preceding date for which a transaction was reported; provided, however, that if Fair Market Value for any date cannot be so determined, Fair Market Value shall be determined by the Committee by whatever means or method as the Committee, in the good faith exercise of its sole discretion, shall at such time deem appropriate. (g) "Trading Day". A Trading Day shall be a day on which the Company's common stock may be traded on a stock exchange or, if the Company's common stock is not listed on any exchange, in the Over The Counter market. (h) "Substantial Cause". Substantial Cause shall mean (1) the willful and continued failure by optionee to perform substantially the optionee's duties with the Company or a subsidiary (other than any such failure resulting from the optionee's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the optionee by the Board, which demand specifically identifies the manner in which the Board believes that the optionee has not substantially performed the optionee's duties or (2) the willful engagement by the optionee in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (1) and (2) of this definition, no act or failure to act by a optionee shall be deemed "willful" unless done, or omitted to be done, by the optionee not in good faith and without reasonable belief that the optionee's act or failure to act was in the best interests of the Company. 9. Non-employee Directors' Options. The Committee shall not have any discretion with respect to the options granted to the Non-employee Directors under the provisions of this Section 9. Except as hereinafter otherwise provided, options granted pursuant to this Section 9 shall be subject to the terms and conditions set forth in Section 8. (a) Grant of Options. On the day following each of the 1996 through and including the 1998 annual stockholders' meetings, each person who is a Non-employee Director immediately after such meeting shall automatically be granted an option to purchase 1,500 Shares. The maximum number of Shares for which options may be granted to any Non-employee Director under the Plan shall be 4,500. All such options shall be Non-qualified Stock Options. The price at which each Share covered by such options shall be purchased shall be the greater of (i) 100 percent of the Fair Market Value of the Company's common stock on the date the option is granted, or (ii) the par value of the Company's common stock subject to the option. (b) Exercise of Options. (i) Except as hereinafter otherwise provided, an option granted to the Non-employee Director may be exercised only after six months of continued service as a Director of the Company following the date the option is granted, or the date of Stockholder approval under Section 11 below if later, and only during the continuance of the optionee serving on the Board of Directors and such additional period as is provided for below. The option may be exercised by the Non- employee Director or his or her guardian or legal representative(s) during the period that the Non-employee Director remains a member of the Board of Directors and for a period of three years thereafter, subject to subsection 8(a) and the conditions of exercise set forth below in this subsection 9(b) and, provided further, that in no event shall the option be exercisable more than ten years after the date of grant. Subject to the foregoing, each option granted to the Non-employee Directors under the provisions of this Section 9 may be exercised at any time after six months from the date the option is granted or, if later, six months after the date of approval of the Plan by the Stockholders of the Company, (1) as to 50% of the Shares subject to the option if the Fair Market Value of the common stock is at or above 125% of the Option Price on each of at least ten consecutive Trading Days, (2) as to the remaining 50% of the Shares subject to the option if, at any time at or after the initial 50% of said Shares becomes exercisable, the Fair Market Value of the common stock is at or above 150% of the Option Price on each of at least ten consecutive Trading Days, or (3) after the eighth anniversary of the date the option is granted; and (ii) Notwithstanding the foregoing, upon the Non-employee Director's service as a Director of the Company terminating at any time for any reason, all outstanding options granted within the last six months prior to the Non-employee Director's termination shall thereupon be forfeited by the Non-employee Director and canceled by the Company. (c) Payment. An option granted to the Non-employee Director shall be exercisable only upon payment to the Company in accordance with the provisions of Section 8(c) of the full purchase price of the Shares with respect to which the option is being exercised. (d) Adjustment of Options. In the event of a stock dividend, split- up or combination of shares, recapitalization, reclassification or merger in which the Company is the surviving corporation, or other similar capital or corporate structure change, the number of Shares at the time of such change remaining subject to any option granted or to be granted pursuant to the provisions of this Section 9 shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of common stock of the Company by reason of such change in corporate structure, provided that the number of Shares shall always be a whole number with any fractional Shares being deleted therefrom, and the purchase price per Share of any outstanding options shall, in the case of an increase in the number of Shares, be proportionately decreased, and in the case of a decrease in the number of Shares, be proportionately increased. In the event of a consolidation or merger in which the Company is not the surviving corporation or of a "Change in Control" as defined in Section 10, including, but not limited to, "Changes in Control" in which the Company is the surviving corporation, and notwithstanding the preceding sentence, each option outstanding under the provisions of this Section 9 shall thereupon terminate, provided that within ten days of the effective date of any such consolidation, merger, or "Change in Control", the Company shall pay in cash the difference between the exercise price of the unpurchased Shares under the options and the value of consideration receivable in the transaction by a holder of the number of shares of common stock equal to the number subject to the options. 10. Changes in Stock. In the event of a stock dividend, split-up or combination of shares, recapitalization, reclassification or merger in which the Company is the surviving corporation, or other similar capital or corporate structure change, the number and kind of Shares at the time of such change remaining subject to the Plan and to any option granted or to be granted pursuant to the Plan, except for options granted or to be granted pursuant to Section 9, the option price and any other relevant provisions shall be appropriately adjusted by the Board of Directors of the Company, whose determination shall be binding on all persons. In the event of a consolidation or merger in which the Company is not the surviving corporation, (i) each option outstanding hereunder that is held by an "Insider" optionee and that is not outstanding under the provisions of Section 9 shall become immediately exercisable and (ii) each option outstanding hereunder that is held by an optionee who is not an "Insider" shall terminate, provided that at least twenty days prior to the effective date of any such consolidation or merger, the Board of Directors of the Company shall do one of the following with respect to options held by optionees who are not "Insiders": (1) make such options immediately exercisable, (2) arrange to have the surviving or consolidated corporation grant replacement options to the optionees involved, or (3) pay in cash the difference between the exercise price of the unpurchased Shares under the options and the value of consideration receivable in the transaction by a holder of the number of shares of common stock equal to the number subject to the options. No adjustment provided for in this Section 10 shall require the Company to issue or sell a fractional share under any option hereunder and any fractional share resulting from any such adjustment shall be deleted from the option involved. Notwithstanding anything herein to the contrary, and without regard to subsections 8(e)(iv) and 9(b)(ii) and clauses 1, 2 and 3 of subsections 8(b) and 9(b), in the event of a "Change in Control" as defined below, including certain consolidation or merger events otherwise giving rise to the adjustments or alternatives described in the above paragraph, each option outstanding under this Plan shall thereupon terminate, provided that within ten days of the effective date of such Change in Control, the Company shall pay in cash the difference between the exercise price of the unpurchased Shares under the options and the value of consideration receivable in the transaction by a holder of the number of shares of common stock equal to the number subject to the options. As used herein, "Change in Control" means a Change in Control of a nature that would, in the opinion of the Company counsel, be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act; provided that, without limitation, such a Change in Control shall be deemed to have occurred if: (i) any "Person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company or any subsidiary of the Company, any trustee or fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the stock of the Company)) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; or (ii) during any period of two consecutive years (not including any period prior to the effective date of this Plan), individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii), or (iv) of this paragraph) whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute a majority thereof; or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least 75% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires 25% or more of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. With respect to all optionees other than the Non-employee Directors, no Change in Control shall be deemed to have occurred if the optionee is a member of a management group which first announces a proposal which constitutes a Potential Change in Control, unless otherwise determined by a majority of the members of the Board of Directors who are not members of such management group. A "Potential Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following subsections shall have been satisfied: (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) the Company or any Person publicly announces an intention to take or to consider taking actions, which if consummated, would constitute a Change in Control; (iii) any Person who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's then outstanding securities, increases such Person's beneficial ownership of such securities by 5% or more over the percentage so owned by such Person on the date hereof; or (iv) the Board of Directors adopts a resolution to the effect that, for purposes of this Plan, a Potential Change in Control has occurred. 11. Effective Date; Stockholder Approval; Term. The Plan was adopted by the Board of Directors on January 24, 1996 and shall become effective as of January 24, 1996 if the Plan is approved by the holders of a majority of the common stock outstanding and entitled to vote at the Annual Meeting of Stockholders scheduled for April 25, 1996. No option hereunder shall be granted after January 23, 2006 or the earlier suspension or termination of the Plan in accordance with its terms. The Plan shall terminate on January 23, 2006 or on such earlier date as it may be suspended or terminated under the provisions of Section 12 below or as of which all Shares subject to options authorized to be granted under the Plan shall have been acquired by exercise of such options. 12. Amendment or Discontinuance of the Plan. The Board of Directors of the Company may, insofar as permitted by law, at any time or from time to time, suspend or terminate the Plan or revise or amend it in any respect whatsoever except that, without appropriate approval of the stockholders of the common stock, no such revision or amendment shall increase the maximum number of Shares subject to the Plan, change the designation of the class of employees eligible to receive options, decrease the price at which options may be granted or otherwise change the provisions of this Plan to the extent approval of the holders of the common stock of the Company is required under applicable laws, rules or regulations. Notwithstanding the preceding sentence, amendments to change the provisions of Section 9(a) shall not be made more frequently than once every six months other than to comply with the Code or the Employee Retirement Income Security Act. 13. Applicable Laws or Regulations and Notification of Disposition. The Company's obligation to sell and deliver Shares under an option is subject to such compliance as the Company deems necessary or advisable with federal and state laws, rules and regulations applying to the authorization, issuance, listing or sale of securities. The Company may also require in connection with any exercise of an Incentive Stock Option that the optionee agree to notify the Company when making any disposition of the Shares, whether by sale, gift, or otherwise, within two years of the date of grant or within one year of the date of exercise. 14. No Employment Right; No Obligation to Exercise Option. Nothing contained in the Plan, or in any option granted under it, shall confer upon any optionee any right to continued employment by the Company or any of its subsidiaries or to continued membership on the Board of Directors of the Company or limit in any way the right of the Company or any subsidiary to terminate the optionee's employment at any time. The granting of any option hereunder shall impose no obligation upon the optionee to exercise such option. EX-27 3 FINANCIAL DATA SCHEDULE
5 EXHIBIT 27 6-MOS DEC-31-1996 JUN-30-1996 20,477,816 0 218,324,469 23,123,891 120,726,325 381,723,632 132,359,252 73,494,942 574,424,754 291,157,426 0 0 0 3,153,530 254,617,351 574,424,754 400,763,899 400,763,899 173,188,356 173,188,356 192,177,413 2,383,294 3,951,112 27,480,787 12,459,503 15,021,284 0 0 0 15,021,284 .82 .82
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