-----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, CR5CXeQ+vBBPSIB0Qf2CPS04LmFwFnPzvat5KFucr6VnfVio1tyfISKPzMMGDcDC SvmgwcnWHMuFn7W6IZVxPg== 0000093542-96-000008.txt : 19961118 0000093542-96-000008.hdr.sgml : 19961118 ACCESSION NUMBER: 0000093542-96-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 96663107 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, 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 [_] September 30, 1996 1995 ____ ____ Shares Outstanding: Common Stock with Associated Rights 17,899,443 18,590,589 Total number of pages contained herein 31 Index to Exhibits is on page 21 PART I. FINANCIAL INFORMATION ------------------------------ STANHOME INC. CONSOLIDATED CONDENSED BALANCE SHEETS SEPTEMBER 30, 1996 and DECEMBER 31, 1995 (Unaudited)
September 30, December 31, 1996 1995 ---- ---- ASSETS CURRENT ASSETS: Cash and certificates of deposit $ 22,731,932 $ 23,053,926 Notes and accounts receivable, net 210,194,141 158,572,959 Inventories 122,244,630 114,294,928 Prepaid advertising 32,935,649 39,665,306 Other prepaid expenses 10,052,827 6,784,465 ------------ ------------ Total current assets 398,159,179 342,371,584 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT, at cost 134,570,735 131,795,141 Less - Accumulated depreciation and amortization 75,895,746 70,947,871 ------------ ------------ 58,674,989 60,847,270 ------------ ------------ OTHER ASSETS: Goodwill and other intangibles, net 119,366,869 119,826,382 Other 13,813,776 11,420,987 ------------ ------------ 133,180,645 131,247,369 ------------ ------------ $590,014,813 $534,466,223 ============ ============ The accompanying notes are an integral part of these condensed financial statements.
-2- STANHOME INC. CONSOLIDATED CONDENSED BALANCE SHEETS SEPTEMBER 30, 1996 and DECEMBER 31, 1995 (Unaudited)
September 30, December 31, 1996 1995 ---- ---- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes and loans payable $135,924,087 $ 74,864,065 Accounts payable 54,106,279 64,880,028 Federal, state and foreign taxes on income 39,531,516 28,758,277 Accrued expenses-- Payroll and commissions 12,002,823 13,658,026 Royalties 8,366,111 8,587,986 Pensions and profit sharing 6,621,198 8,610,616 Vacation, sick and postretirement benefits 6,382,517 6,979,623 Other 35,594,077 36,106,020 ------------ ------------ Total current liabilities 298,528,608 242,444,641 ------------ ------------ LONG-TERM LIABILITIES: Postretirement benefits 13,346,728 12,749,258 Foreign employee severance obligations 12,940,387 12,482,097 ------------ ------------ Total long-term liabilities 26,287,115 25,231,355 ------------ ------------ SHAREHOLDERS' EQUITY: Common stock 3,153,530 3,153,530 Capital in excess of par value 44,729,118 43,098,856 Retained earnings 396,854,413 385,008,394 Cumulative translation adjustments ( 27,653,910) ( 27,409,482) ------------ ------------ 417,083,151 403,851,298 Less - Shares held in treasury, at cost 151,884,061 137,061,071 ------------ ------------ Total shareholders' equity 265,199,090 266,790,227 ------------ ------------ $590,014,813 $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 SEPTEMBER 30, 1996 and 1995 (Unaudited)
1996 1995 ---- ---- NET SALES $209,931,607 $205,706,026 COST OF SALES 96,588,837 92,267,826 ------------ ------------ GROSS PROFIT 113,342,770 113,438,200 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 89,747,168 90,037,720 ------------ ------------ OPERATING PROFIT 23,595,602 23,400,480 Interest expense ( 2,468,267) ( 1,928,605) Other expense, net ( 1,031,389) ( 744,444) ------------ ------------ INCOME BEFORE INCOME TAXES 20,095,946 20,727,431 Income taxes 8,642,931 8,859,754 ------------ ------------ NET INCOME $ 11,453,015 $ 11,867,677 ============ ============ EARNINGS PER COMMON SHARE, Primary and fully diluted $ .64 $ .63 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, 1996 and 1995 (Unaudited)
1996 1995 ---- ---- NET SALES $610,695,506 $600,064,554 COST OF SALES 269,777,193 258,261,290 ------------ ------------ GROSS PROFIT 340,918,313 341,803,264 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 284,307,875 281,631,069 ------------ ------------ OPERATING PROFIT 56,610,438 60,172,195 Interest expense ( 6,419,379) ( 5,207,637) Other expense, net ( 2,614,326) ( 1,340,622) ------------ ------------ INCOME BEFORE INCOME TAXES 47,576,733 53,623,936 Income taxes 21,102,434 24,136,822 ------------ ------------ NET INCOME 26,474,299 29,487,114 RETAINED EARNINGS, beginning of period 385,008,394 362,946,840 Cash dividends, $.81 per share in 1996 and $.795 per share in 1995 ( 14,628,280) ( 14,938,849) ------------ ------------ RETAINED EARNINGS, end of period $396,854,413 $377,495,105 ============ ============ EARNINGS PER COMMON SHARE: Primary $1.46 $1.56 Fully diluted $1.46 $1.55 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, 1996 and 1995 (Unaudited)
1996 1995 ---- ---- OPERATING ACTIVITIES: Net cash used by operating activities ($26,622,773) ($42,613,521) ----------- ----------- INVESTING ACTIVITIES: Purchase of property, plant and equipment ( 6,406,773) ( 8,380,613) Payments for acquisition of businesses, net of cash acquired ( 1,566,165) ( 1,402,840) Proceeds from sale of property, plant and equipment 2,603,924 1,274,098 Other, principally marketable securities - ( 12,165) ----------- ----------- Net cash used by investing activities ( 5,369,014) ( 8,521,520) ----------- ----------- FINANCING ACTIVITIES: Cash dividends ( 14,628,280) ( 14,938,849) Exchanges and purchases of common stock ( 15,178,033) ( 19,438,450) Notes and loans payable 59,650,937 86,421,953 Exercise of stock options 1,692,019 2,026,183 Other common stock issuance 293,286 376,447 ----------- ----------- Net cash provided by financing activities 31,829,929 54,447,284 ----------- ----------- Effect of exchange rate changes on cash and cash equivalents ( 160,136) 211,870 ----------- ----------- Increase/(decrease) in cash and cash equivalents ( 321,994) 3,524,113 Cash and cash equivalents, beginning of year 23,051,926 19,349,839 ----------- ----------- Cash and cash equivalents, end of quarter $22,729,932 $22,873,952 =========== =========== SUPPLEMENTAL CASH FLOW DATA Cash paid for: Interest $ 5,879,821 $ 4,926,419 Income taxes $10,414,538 $34,296,980 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 nine months ended September 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 uncollectible amounts, returns and allowances of $22,097,000 at September 30, 1996 and $20,741,000 at December 31, 1995. -7- 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 September 30 and December 31 were as follows (in thousands): September 30, December 3l, 1996 1995 ---- ---- Raw materials and supplies $ 8,447 $ 7,312 Work in process 911 1,237 Finished goods in transit 15,595 16,215 Finished goods 97,292 89,531 -------- -------- $122,245 $114,295 ======== ======== 3. OTHER EXPENSE, NET: Other expense, net for the quarters and nine months ended September 30, 1996 and 1995 consists of the following (in thousands): Quarters Ended September 30 --------------------------- 1996 1995 ---- ---- Interest income $ 445 $ 613 Other assets amortization ( 1,072) ( 1,045) Other items, net ( 404) ( 313) ------ ------ ($1,031) ($ 745) ====== ====== Nine Months Ended September 30 ------------------------------ 1996 1995 ---- ---- Interest income $1,671 $2,119 Other assets amortization ( 3,425) ( 3,062) Other items, net ( 860) ( 398) ------ ------ ($2,614) ($1,341) ====== ====== -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 1996 and 1995 and the nine months ended September 30, 1996, there were no differences in earnings per share between primary and fully diluted earnings per share computations. There was a slight difference for the nine months ended September 30, 1995 where 18,888,161 shares were utilized as the average number of shares for the primary computation, including common share equivalents of 40,345. For the third quarter, the average number of shares utilized in the fully diluted computation was 17,950,076 and 18,840,554 shares for 1996 and 1995, respectively. The average number of shares utilized in the fully diluted computation for the nine months ended September 30 was 18,184,175 for 1996 and 18,984,314 for 1995. Both 1996 fully diluted computations included common share equivalents of 51,102 and both 1995 fully diluted computations included common share equivalents of 136,498. The lower average number of shares for the third quarter and first nine 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 -9- 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, 1996, 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 expense. All of the outstanding agreements as of September 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 September 30, 1996, net deferred amounts on outstanding agreements were not material. The outstanding agreement amounts (notional value) at September 30, 1996, are as follows (in thousands): Canada $ 6,607 Germany 3,934 U.S. 3,500 ------- Total $14,041 ======= -10- STANHOME INC. QUARTER AND NINE MONTHS ENDED SEPTEMBER 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 19. A discussion and analysis of the segments follows: GIFTWARE Giftware Group sales increased 5% for the third quarter and 2% for the first nine months primarily due to unit volume growth in the United States from existing lines and from incoming goods for open orders. Additionally, sales from a new business acquired in France during the first quarter of 1996 accounted for approximately 1% of the sales increase for the third quarter and first nine months. International sales increased primarily due to the new business acquired in France and represented approximately 15% of year-to-date sales in both 1996 and 1995. Year-to-date 1996 sales of the Precious Moments line represented 40% of total sales compared to 46% in 1995 and the Cherished Teddies line represented 18% of year-to-date sales in 1996 compared to 13% in 1995. Operating profit for the first nine months as a percentage of sales was 15.2% in 1996 compared to 15.5% in 1995. The decrease was due to higher cost of sales (approximately .9%) primarily from an unfavorable product mix. All of the operating profit decrease was from international markets. Operating profit in the United States was up approximately 1%. -11- DIRECT RESPONSE Direct Response Group sales increased 2% in the third quarter and 3% for the nine months due to unit volume growth from increased product offerings primarily in the figural categories. Year-to-date doll sales decreased to 19% of 1996 sales compared to 32% in 1995 and plate sales decreased to 31% of sales in 1996 compared to 41% in 1995. The Precious Moments line represented 11% of year-to-date 1996 sales compared to 12% in 1995 and the Cherished Teddies line represented 10% of year-to-date sales in both 1996 and 1995. International sales increased for the quarter primarily due to timing of shipments but sales decreased 8% for the year-to- date and operating losses increased substantially for the quarter and year- to-date due to higher selling, marketing and advertising expenses. International sales represented approximately 10% of the first nine months sales in 1996 and 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 and credit. Operating losses decreased for the third quarter and first nine months due to the return to profitability in 1996 in the United States. For the first nine months, cost of sales as a percentage of sales increased 1.6% due to product mix and higher product returns. For the first nine months, total selling, general and administrative expenses decreased as a percentage of sales due to a lower percentage of advertising (46% of sales in 1996 versus 52% in 1995) due to product sales mix and a higher percentage of sales from existing customer lists, that have a much higher rate of advertising productivity. Partially offsetting the improved advertising ratio was a higher level of selling, general and administrative expenses, including higher bad debts. -12- DIRECT RESPONSE - NEW BUSINESSES Direct Response New Businesses represent the cost in the United States to develop and test existing products and new product offerings in the potentially profitable catalog and telephone response markets. The catalog tests are targeted for the fourth quarter and, in total, are expected to be unprofitable due to the development costs. The results of the test in the fourth quarter will determine the future course of action for these programs. DIRECT SELLING Total Direct Selling sales for the quarter and first nine months were below 1995 by 8% and 2%, respectively. For the 1996 quarter and first nine months, sales, principally in Europe, include $1.6 million and $2.8 million, respectively, from extending the normal sales period close from the last Thursday of the month to the last day of the month. Operating results decreased for the quarter and first nine months of 1996. Operating profit for the first nine months as a percentage of sales was 7.2% in 1996 compared to 9.8% in 1995. The decrease was due to lower sales and higher cost of sales (approximately .4%) from product mix and a higher percentage of selling, general and administrative expenses. European sales decreased 5% and 2% for the quarter and first nine months, respectively, and represented 85% of total 1996 sales for the quarter and 88% for the year-to-date. An operating loss was incurred for the seasonally slow third quarter. For the first nine months, operating profit decreased 31% and represented 86% of total 1996 Direct Selling operating profit. Operating profit for the first nine months as a percentage of sales for Europe was down 3.0% compared to 1995. The decrease was due to higher levels of selling, general and administrative -13- expense principally in Italy and the impact of full nine month expenses of the European headquarters. The Italian government introduced new social benefit taxes that became 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 nine 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 32% operating profit decrease. Sales for the America's Group (Mexico, Venezuela and Colombia - starting in the third quarter of 1996) decreased 20% for the third quarter and increased 1% for the first nine months. Following the sales decline, operating profit for the third quarter decreased to break even and included a $105 thousand loss from the new start up in Colombia. For the first nine months, operating profit was down 36% due to the Colombian $105 thousand loss and to higher cost of sales due to the impact of currency. UNALLOCATED EXPENSES increased in the first nine months due to higher general expenses, primarily outside consultant fees, consistent with the Company programs. Unallocated expenses are corporate expenses and other items not directly related to the operations of the Groups. INTERNATIONAL ECONOMIES AND CURRENCY The 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 -14- dollar versus the Mexican and Venezuelan 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 recent acquisitions. The amortization for Giftware in 1996 was $2.9 million compared to $2.6 million in 1995 and the amortization for Direct Response was $.5 million in 1996 and 1995. THE EFFECTIVE TAX RATE year-to-date of 44% was lower than the 45% 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. -15- 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 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 September 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 and extended credit 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 September 30, 1996 increase in net accounts receivable compared to 1995 was due to 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 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 nine 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 -16- 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 September 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 nine 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 nine 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 September 30, 1996, .8 million shares remained available for purchase under the program. The Company's earnings, cash flow, and available debt capacity have made and make stock repurchases, in the Company's view, one of its best investment alternatives. The major source of funds from financing activities was from higher seasonal borrowings. Total stock options outstanding at the exercise price amounted to $86 million at September 30, 1996 and the Company could receive these funds in the future if the options are exercised. -17- 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 $244,000 increased the cumulative translation component which contributed to the shareholders' equity decrease in the first nine months of 1996. The translation adjustments to the September 30, 1996 balance sheet that produced the 1996 change in the cumulative translation component of shareholders' equity were decreases in working capital by $126,000; increases in net property, plant and equipment and other assets by $395,000; and increases in long-term liabilities by $513,000. 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. -18- STANHOME INC. SALES AND OPERATING PROFIT BY BUSINESS SEGMENT FOR THE THIRD QUARTER AND FIRST NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited) (In Thousands)
Third Quarter First Nine Months ------------------------------ --------- - --------------------- 1996 1995 Percent 1996 1995 Percent Actual Actual Change Actual Actual Change ------ ------ ------- ------ ------ ------- Net Sales: Giftware $144,756 $138,150 5% $375,191 $366,231 2% Direct Response 34,614 33,986 2 106,390 102,811 3 Dir. Response - New Businesses 29 - 34 - Direct Selling 30,983 33,715 ( 8) 130,913 133,588 ( 2) Eliminations ( 451) ( 145) ( 1,833) ( 2,565) -------- -------- -------- -------- Total Net Sales $209,931 $205,706 2% $610,695 $600,065 2% ======== ======== ======== ======== Operating Profit: Giftware $ 27,502 $ 25,462 8% $ 56,858 $ 56,874 - Direct Response ( 271) ( 1,290) 79 ( 721) ( 2,158) 67 Dir. Response - New Businesses ( 232) - ( 831) - Direct Selling ( 530) 1,739 9,485 13,074 (27) Unallocated Expense ( 2,874) ( 2,511) (14) ( 8,181) ( 7,618) ( 7) -------- -------- -------- -------- Total Operating Profit $ 23,595 $ 23,400 1% $ 56,610 $ 60,172 ( 6%) ======== ======== ======== ========
-19- PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - Enesco Corporation Supplemental Profit Sharing Plan - 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 11, 1996 /s/G. William Seawright _____________________________________ G. William Seawright President and Chief Executive Officer Date: November 13, 1996 /s/Allan G. Keirstead _____________________________________ Allan G. Keirstead Chief Administrative and Financial Officer -20- EXHIBIT INDEX
Reg. S-K Item 601 Exhibit 10-Q Page No. _________ _______ _____________ 10 Enesco Corporation Supplemental 22 Profit Sharing Plan, effective January 1, 1994 27 Financial Data Schedule 31
-21- EX-10 2 ENESCO CORPORATION SUPPLEMENTAL PROFIT SHARING PLAN ENESCO CORPORATION SUPPLEMENTAL PROFIT SHARING PLAN (Effective January 1, 1994) WHEREAS, Enesco Corporation, an Ohio corporation (the "Company"), has for many years maintained the Enesco Corporation Profit Sharing Plan (the "Qualified Plan") for the benefit of certain of its employees; WHEREAS, section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code") limits the amount of annual compensation which may be taken into account under the Qualified Plan to $150,000 (as adjusted for increases in the cost of living) (the "Compensation Limit"); WHEREAS, section 415 of the Code requires that allocations to participant's accounts under the Qualified Plan generally be limited to the lesser of $30,000 (adjusted for increases in the cost of living) and 25% of a participant's compensation in certain other respects (the "Section 415 Limit"); and WHEREAS, the Company desires to adopt an unfunded plan to provide benefits to "a select group of management or highly compensated employees," within the meaning of ERISA, equal to the contributions which, but for section 401(a)(17) of the Code, would be provided to such participants under the Qualified Plan. NOW, THEREFORE, the Company hereby agrees as follows: 1. Definitions. All capitalized terms used herein shall have the respective meanings assigned to such terms by the Qualified Plan, except as otherwise set forth in the preamble to or text of this Plan or below: (a) Plan. This Enesco Corporation Supplemental Profit Sharing Plan, as from time to time amended. (b) Key Associate. For any Plan Year, an employee of the Company who is a Participant in the Qualified Plan for a Plan Year and who either is (i) a senior officer of the Company, or (ii) is classified by the Committee as a "key associate." A person shall cease to be Key Associate upon the complete distribution of his or her Account under the Plan. (c) Account. An account established on behalf of a Key Associate pursuant to the Plan. (d) Valuation Date. The date as of which earnings (or losses) are credited to an Account pursuant to Section 3 of the Plan. (e) Trust. A trust entered into between the Company and the trustee for the purpose of administering assets of the Company to be used for the purpose of satisfying the obligations of the Company under the Plan. Any such trust shall be established in such manner so as to be a "grantor trust" of which the Company is the grantor, within the meaning of section 671 et. seq. of the Code. 2. Accounts. There shall be established on the books of the Company an Employee Account in the name and on behalf of each employee thereof who is a Key Associate and who, during any Plan Year beginning after December 31, 1993, would have been entitled to an allocation to his or her Account in excess of the amount actually so allocated because of the application of the last two sentences of subdivision (15) of Article 2 of the Qualified Plan, relating to the Compensation Limit. As of the close of each Plan Year, the amount, if any, to be allocated to the account of each Key Associate shall be equal to the amount which would have been allocated to the Key Associate's Account under the Qualified Plan, but for the application of the last two sentences of subdivision (15) of Article 2 of the Qualified Plan (relating to the Compensation Limit); provided, however, that the amount of such allocation shall not exceed the difference of (i) the Key Associate's Section 415 Limit, less (ii) the total amount of Company contributions made pursuant to Section 4.1 of the Qualified Plan that are allocated to the Key Associate's account under the Qualified Plan for such Plan Year, pursuant to Section 6.4 of the Qualified Plan. 3. Earnings on Accounts. As of the close of each Plan Year, the Company shall credit to or charge against, as the case may be, each Account established on its books pursuant to Section 2 of this Plan, an amount representing investment gains or losses in respect of the balance of such Account. The amount of such gains or losses in respect of the Account of any Participant shall be determined by the Committee to be equal to the net gain or loss that would have been earned on an amount equal to the balance of such Participant's Account as of the close of the preceding business day, as adjusted for any credits, withdrawals or distributions, based on the hypothetical investment elections made by the Key Associate. Each Key Associate shall be entitled to elect to have the earnings in respect of his or her Plan Account determined as if an amount equal to the balance thereof were invested among the investment funds available from time to time under the Qualified Plan. Such elections shall be subject to the same provisions regarding the time, manner and portion of the account subject to such election as are applicable from time to time under the Qualified Plan. 4. Vesting. (a) Termination of Employment. If a Key Associate's employment shall terminate under any of the following circumstances, he or she shall be fully vested in his or her Account under the Plan: (1) After attaining age 65; (2) Because of the Key Associate's death; (3) Because of total and permanent disability of a character which prevents the Key Associate, in the judgment of the Committee corroborated in writing by a licensed physician, from performing his or her usual duties for the Company; or (4) After the Key Associate has at least 7 Years of Service. If a Key Associate's employment shall terminate under circumstances other than as set forth in the foregoing paragraph, the Key Associate shall be entitled to receive a percentage of the balance of his or her Account as of the Valuation Date coincident with or next following his or her termination employment which percentage shall be determined as follows by reference to the Key Associate's Years of Service at the date of his or her termination of employment: YEARS OF SERVICE PERCENTAGE 0 0% 1 10% 2 20% 3 30% 4 40% 5 60% 6 80% 7 100% The difference between the balance of the Key Associate's Account and the amount distributable with respect to such Account pursuant to the above schedule shall be charged to such Account and forfeited. Such forfeiture shall occur as of the close of the Plan Year in which the Key Associate's termination of employment occurs; provided, however, if the Key Associate's employment shall have been terminated on the last business day of a Plan Year, such forfeiture shall occur as of the beginning of the following Plan Year. (b) Forfeiture for Cause. Notwithstanding any other provision of the Plan to the contrary, the right of any Key Associate or former Key Associate to receive or to have paid to any other person and the right of any such other person to receive any benefits hereunder shall terminate and shall be forfeited if such Key Associate's employment with the Company is terminated because of his or her fraud, embezzlement or dishonesty, or if the Key Associate enters into competition with the Company, or is employed by a competitor of the Company within one (1) year after termination of his or her employment and after receiving notice by the Company to cease such competition. This subsection shall be inapplicable to any such termination of employment occurring after such Key Associate has attained age 65 or has completed 5 Years of Service, or after the Plan has been terminated. 5. Hardship Withdrawals. If a Key Associate experiences an "unforeseeable financial emergency," as defined below, he or she may file a request with the Committee to receive a complete or partial distribution of the Key Associate's Account under the Plan. The amount of any distribution pursuant to this Section 5 shall not exceed the lesser of (i) the balance of the Key Associate's Account under the Plan, determined as of the Valuation Date next following the date of such request, and (ii) the amount reasonably necessary to satisfy such unforeseeable financial emergency. Such Key Associate also shall be required to certify, in the form and manner prescribed by the Committee, that the amount reasonably necessary to satisfy such unforeseeable emergency cannot be satisfied from sources other than a withdrawal from the Key Associate's Account. For purposes of this Section 5, "unforeseeable financial emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Key Associate resulting from (i) a sudden and unexpected illness or accident of the Key Associate or a dependent of the Key Associate, (ii) a loss of the Key Associate's property due to casualty or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Key Associate, all as determined in the sole discretion of the Committee. 6. Distributions. The distribution of a Key Associate's Accounts under this Plan shall be made at the same time and in the same manner as distributions are made to the Key Associate under the Qualified Plan. Such distribution shall be based on the balance of the Key Associate's Accounts as of the Valuation Date coinciding with or next following the valuation date used to determine the amount to be distributed to or on behalf of the Key Associate under the Qualified Plan. 7. Beneficiaries. If a Key Associate shall die while any amount remains credited to the Accounts established on his behalf pursuant to Section 2 of this Plan, such amount shall be distributed as provided in Section 6 of this Plan to the beneficiary or beneficiaries as the Key Associate may, from time to time, designate in writing delivered to the Committee. A Key Associate may revoke or change his or her beneficiary designation at any time in writing delivered to the Committee. If a Key Associate does not designate a beneficiary under this Plan, or if no designated beneficiary survives the Key Associate, the balance of his or her Account shall be distributed to the person or persons entitled to his or her account under Section 7.5 of the Qualified Plan (or who would be so entitled if there were then an amount remaining unpaid under the Qualified Plan). 8. Amendment and Termination. This Plan shall be subject to the same reserved powers of amendment and termination as the Qualified Plan (without regard to any limitations imposed on such powers by the Code or ERISA), except that no such amendment or termination shall reduce or otherwise adversely affect the rights of Key Associates or Beneficiaries in respect of amounts credited to their Accounts as of the date of such amendment or termination. 9. Application of ERISA. This Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of ERISA and Department of Labor Regulation Section 2520.104-23. This Plan shall not be a funded plan, and the Company shall be under no obligation to set aside any funds for the purpose of making payments under this Plan. Any payments hereunder shall be made out of the general assets of the Company. 10. Administration. The Committee shall be charged with the administration of this Plan and shall have the same powers and duties, and shall be subject to the same limitations, as are described in the Qualified Plan. The provisions of Article 9 of the Qualified Plan (other than Section 9.3 relating to qualified domestic relations orders) are hereby incorporated herein by reference, and shall be applicable as if such provisions were set forth herein. 11. Nonassignment of Benefits. Notwithstanding anything contained in the Qualified Plan to the contrary, it shall be a condition of the payment of benefits under this Plan that neither such benefits nor any portion thereof shall be assigned, alienated or transferred to any person voluntarily or by operation of any law, including any assignment, division or awarding of property under state domestic relations law (including community property law). If any person shall endeavor or purport to make any such assignment, alienation or transfer, the amount otherwise provided hereunder which is the subject of such assignment, alienation or transfer shall cease to be payable to any person. 12. No Guaranty of Employment. Nothing contained in this Plan shall be construed as a contract of employment between the Company and any employee or as conferring a right on any employee to be continued in the employment of the Company. 13. Trust. The Company shall establish the Trust and shall at least annually contribute to the Trust such assets as the Committee determines, in its sole discretion, are necessary to provide for the Company's future liabilities created with respect to the amounts credited to the Accounts established hereunder. The existence of the Trust shall not relieve the Company of its liabilities under the Plan, but the Company's obligations under the Plan shall be deemed satisfied to the extent paid from the Trust. 14. Miscellaneous. (a) Certain Qualified Plan Provisions. Except as otherwise provided herein, the miscellaneous provisions contained in Sections 11.6 (relating to gender and plurals), 11.7 (relating to applicable law) and 11.8 (relating to severability) of the Qualified Plan are hereby incorporated herein by reference, and shall be applicable as if such provisions were set forth herein. (b) Expenses. All costs and expenses incurred in administering the Plan, including the expenses of the Committee, the fees of counsel and any agents of the Committee and other administrative expenses shall be charged against the Accounts in such amounts and at such time and in such manner as the Committee, in its sole discretion, shall determine. (c) FICA Taxes. For each calendar year in which an amount is deferred on a Key Associate's behalf pursuant to this Plan, his or her employer shall withhold an amount from the Key Associate's regular compensation to provide for the payment of taxes imposed upon the Key Associate pursuant to section 3121 of the Code in respect of such deferral. (d) Successors and Assigns. The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns, as well as each Key Associate and his or her beneficiaries and successors. IN WITNESS WHEREOF, the Company has caused this instrument to be executed and its corporate seal to be hereunder affixed this 26 day of August, 1996. ENESCO CORPORATION By: /s/Eugene Freedman Title: President ATTEST: /s/Patrick Gebhardt Title: Group Vice President EX-27 3 FINANCIAL DATA SCHEDULE
5 EXHIBIT 27 9-MOS DEC-31-1996 SEP-30-1996 22,731,932 0 232,290,697 22,096,556 122,244,630 398,159,179 134,570,735 75,895,746 590,014,813 298,528,608 0 0 0 3,153,530 262,045,560 590,014,813 610,695,506 610,695,506 269,777,193 269,777,193 282,951,916 1,355,959 6,419,379 47,576,733 21,102,434 26,474,299 0 0 0 26,474,299 1.46 1.46
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