FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 3, 2001
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8044
---------------------------------------------------------
HUNT CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 21-0481254
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Commerce Square 2005 Market Street, Philadelphia, PA 19103
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone no., including area code 215-656-0300
----------------------
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
--- ---
As of July 1, 2001, there were outstanding 8,895,569 shares of the registrant's
common stock.
Page 2
HUNT CORPORATION
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of 3
June 3, 2001 and December 3, 2000
Condensed Consolidated Statements of Income - 4
Three Months and Six Months Ended
June 3, 2001 and May 28, 2000
Consolidated Statements of Comprehensive Income - 5
Three Months and Six Months Ended
June 3, 2001 and May 28, 2000
Condensed Consolidated Statements of Cash Flows - 6
Six Months Ended June 3, 2001 and May 28, 2000
Notes to Condensed Consolidated Financial 7 - 10
Statements
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-17
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk 18
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 19
Item 4 - Submission of Matters to a Vote of Security Holders 20
Item 6 - Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibit Index 23
Part I - FINANCIAL INFORMATION Page 3
Item 1. Financial Statements
Hunt Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands except share and per share amounts)
June 3, December 3,
ASSETS 2001 2000
------------- -------------
Current assets:
Cash and cash equivalents $ 18,771 $ 23,878
Accounts receivable, less allowance for doubtful
accounts: 2001, $945; 2000, $873 29,092 35,058
Inventories:
Raw materials 9,043 8,446
Work in process 3,259 2,784
Finished goods 15,340 10,593
------------- -------------
Total inventories 27,642 21,823
Deferred income taxes 5,290 4,966
Prepaid expenses and other current assets 3,190 2,590
------------- -------------
Total current assets 83,985 88,315
Property, plant and equipment, at cost, less accumulated depreciation and
amortization:
2001, $49,280; 2000, $46,007 39,925 41,216
Excess of acquisition costs over net assets acquired, net 23,900 22,117
Other assets 9,631 11,884
------------- -------------
Total assets $ 157,441 $ 163,532
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,950 $ 7,876
Accrued expenses:
Salaries, wages and commissions 1,243 2,460
Income taxes 3,021 1,297
Other 17,839 20,274
------------- -------------
Total current liabilities 29,053 31,907
Long-term debt, less current portion 54,688 54,682
Deferred income taxes 2,591 2,434
Other non-current liabilities 12,428 12,539
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par value, authorized 1,000,000
shares; none issued - -
Common stock, $.10 par value, 40,000,000 shares
authorized; issued: 2001 and 2000 -16,152,322 shares 1,615 1,615
Capital in excess of par value 7,412 7,412
Accumulated other comprehensive loss (7,348) (6,840)
Retained earnings 158,788 158,044
------------- -------------
160,467 160,231
Less cost of treasury stock:
2001 - 7,256,753 shares; 2000 - 6,324,933 shares; (101,786) (98,261)
------------- -------------
Total stockholders' equity 58,681 61,970
------------- -------------
Total liabilities and stockholders' equity $ 157,441 $ 163,532
============= =============
See accompanying notes to condensed consolidated financial statements.
Page 4
Hunt Corporation
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands except per share amounts)
Three Months Ended Six Months Ended
---------------------------- ----------------------------
June 3, May 28, June 3, May 28,
2001 2000 2001 2000
------- ------- -------- --------
Net sales $53,565 $62,863 $109,430 $123,496
Cost of sales 33,440 40,738 67,886 79,454
------- ------- -------- --------
Gross profit 20,125 22,125 41,544 44,042
Selling, administrative and general expenses 17,469 19,996 35,034 37,877
Restructuring and other 43 (171) 84 (171)
------- ------- -------- --------
Income from operations 2,613 2,300 6,426 6,336
Interest expense 1,020 1,058 2,147 2,202
Interest and other income, net (68) (319) (276) (815)
------- ------- -------- --------
Income before income taxes 1,661 1,561 4,555 4,949
Provision for income taxes 678 546 1,893 1,732
------- ------- -------- --------
Net income $983 $1,015 $2,662 $3,217
======= ======= ======== ========
Net income per share - Basic $0.11 $0.10 $0.30 $0.32
======= ======= ======== ========
Net income per share - Diluted $0.11 $0.10 $0.29 $0.32
======= ======= ======== ========
Dividends per common share $0.1025 $0.1025 $0.205 $0.205
======= ======= ======== ========
See accompanying notes to condensed consolidated financial statements.
Page 5
Hunt Corporation
Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)
Three Months Ended Six Months Ended
---------------------- -------------------------
June 3, May 28, June 3, May 28,
2001 2000 2001 2000
------ -------- ------- -------
Net income $ 983 $ 1,015 $ 2,662 $ 3,217
Other comprehensive loss:
Foreign currency translation adjustments,
net of income tax benefit of $1,219
and $362 in 2001, and $1,524 and $1,787 in 2000,
respectively (1,769) (3,319) (508) (2,830)
------ -------- ------- -------
Other comprehensive loss (1,769) (3,319) (508) (2,830)
------ -------- ------- -------
Comprehensive income (loss) $ (786) $ (2,304) $ 2,154 $ 387
====== ======== ======= =======
See accompanying notes to condensed consolidated financial statements.
Page 6
Hunt Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six Months Ended
-----------------------------------
June 3, May 28,
2001 2000
----------- --------------
Cash flows from operating activities:
Net income $ 2,662 $ 3,217
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 4,046 4,454
Deferred income taxes (162) 81
(Gain) loss on disposals of property, plant and equipment (10) 44
Provision for patent infringement litigation 102 -
Payments/credits for special charges (306) (1,182)
Issuance of stock under management incentive bonus
and stock grant plans 60 59
Changes in operating assets and liabilities (1,713) (11,909)
----------- -------------
Net cash provided by (used for) operating activities 4,679 (5,236)
----------- -------------
Cash flows from investing activities:
Additions to property, plant and equipment (2,081) (3,032)
Acquisition of business (152) (60)
Other, net (53) -
----------- -------------
Net cash used for investing activities (2,286) (3,092)
----------- -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 4,598 4,627
Payments on long-term debt, including current maturities (4,522) (6,199)
Book overdrafts (2,012) 60
Purchases of treasury stock (3,680) (2,784)
Dividends paid (1,823) (2,049)
Other, net (5) (57)
----------- -------------
Net cash used for financing activities (7,444) (6,402)
----------- -------------
Effect of exchange rate changes on cash (56) (143)
----------- -------------
Net decrease in cash and cash equivalents (5,107) (14,873)
Cash and cash equivalents, beginning of period 23,878 36,897
----------- -------------
Cash and cash equivalents, end of period $ 18,771 $ 22,024
============ =============
See accompanying notes to condensed consolidated financial statements.
Page 7
Hunt Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. The accompanying condensed consolidated financial statements and related
notes are unaudited; however, in management's opinion all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the financial position at June 3, 2001 and the results of operations and cash
flows for the periods shown have been made. Such statements are presented in
accordance with the requirements of Form 10-Q and do not include all disclosures
normally required by generally accepted accounting principles or those normally
made in Form 10-K.
2. A reconciliation of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution in calculating the earnings
per share is shown below (in thousands):
Three Months Ended
------------------------
June 3, May 28,
2001 2000
----- -----
Average common shares outstanding - basic 8,892 9,914
Add: common equivalent shares representing
shares issuable upon exercise of stock options
and stock grants 71 11
----- -----
Average common shares and dilutive
securities outstanding 8,963 9,925
===== =====
Six Months Ended
------------------------
June 3, May 28,
2001 2000
----- -----
Average common shares outstanding - basic 8,977 9,969
Add: common equivalent shares representing
shares issuable upon exercise of stock options
and stock grants 56 14
----- -----
Average common shares and dilutive
securities outstanding 9,033 9,983
===== =====
Page 8
3. The following table sets forth the details and the cumulative activity for
the six months ended June 3, 2001 in the various accruals and reserves
associated with the Company's 1999 restructuring plan included in the Condensed
Consolidated Balance Sheet at June 3, 2001 (in thousands):
Balance at Cash Non-Cash Balance at
December 3, 2000 Credits Activity Activity June 3, 2001
----------------- ------- -------- -------- ------------
Severance $ 790 $(1) $ (287) $(2) $ 500
Lease Obligations 249 - - - 249
Fixed Assets 20 (7) (11) (2) -
------- --- ------ --- -----
Total $ 1,059 $(8) $ (298) $(4) $ 749
======= === ====== === =====
4. Several years ago, the Company was sued for patent infringement with respect
to one of its minor products. After a jury trial in 1998, the U. S. District
Court for the Western District of Wisconsin entered judgment against the Company
in this matter and awarded damages to the plaintiffs in the amount of $3.3
million, plus interest and costs. The verdict was appealed, and, contrary to the
expectations of the Company and its patent counsel, a three-judge panel of the
U. S. Court of Appeals affirmed the judgment in July 2000. Subsequently, a
request, filed with the Court of Appeals by the Company to have the case
reconsidered by all twelve judges of the Court of Appeals, was denied in October
2000. As a result, the Company recorded a liability of $3.8 million pre-tax
(including interest and costs) in fiscal 2000. The Company and its patent
counsel then requested a review of the decision by the Supreme Court of the
United States. The petition for review by the Supreme Court was denied in April
2001. The Company recorded an additional liability of $.1 million pre-tax for
interest costs in the first half of fiscal 2001, which is included in the
accompanying fiscal 2001 Condensed Consolidated Statements of Operations under
Restructuring and other. Subsequent to the end of the fiscal 2001 second
quarter, the Company made a payment to the plaintiff in the amount of
approximately $3.9 million with respect to this judgment. However, the Company
and its patent counsel continue to pursue other options for overturning the
verdict.
5. The following table presents information about the Company's reportable
segments. Intersegment sales are not significant. Operating income includes all
revenues and expenses of the reportable segment except for amounts related to
the 1997 strategic and 1999 restructuring plans, net gain on divestitures, costs
incurred in connection with the implementation of the 1999 restructuring plan,
costs incurred in connection with the patent infringement litigation described
in Note 4, interest expense, interest income, other expenses, other income, and
income taxes, which are excluded from the measure of segment profitability
reviewed by Company's management. Identifiable assets are those assets used in
the operations of each business segment. Corporate assets include cash and
miscellaneous other assets not identifiable with any particular segment.
Page 9
Six Months Ended Consumer Graphics
June 3, 2001 Products Products Corporate Consolidated
- ---------------------- -------- -------- --------- ------------
Net external sales $ 48,414 $ 61,016 $ 109,430
======== ======== =========
Operating income $ 8,361 $ 2,514 $ (4,100) $ 6,775
======== ======== ========
Patent infringement
litigation costs $ (102) $ - $ - (102)
======== ======== ========
Restructuring
reversals $ - $ 8 $ - 8
======== ======== ========
Implementation costs $ (118) $ (137) $ - (255)
======== ======== ======== ---------
Income from operations $ 6,426
Interestexpense (2,147)
Interestincome 468
Other income, net (192)
Income from continuing
operations before
income taxes $ 4,555
=========
Identifiable assets $ 35,474 $ 85,812 $ 36,155 $ 157,441
======== ======== ======== =========
Six Months Ended Consumer Graphics
May 28, 2000 Products Products Corporate Consolidated
- ---------------------- -------- -------- --------- ------------
Net external sales $ 50,252 $ 73,244 $ 123,496
======== ======== =========
Operating income $ 7,299 $ 4,481 $ (3,387) $ 8,393
======== ======== ========
Restructuring and
net gain on
divestitures $ 133 $ 82 $ - 215
======== ======== ========
Implementation costs $ - $ (2,095) $ (177) (2,272)
======== ======== ======== ---------
Income from operations $ 6,336
Interest expense (2,202)
Interest income 795
Other income, net 20
---------
Income from continuing
operations before
income taxes $ 4,949
=========
Identifiable assets $ 35,610 $ 95,274 $ 38,193 $ 169,077
======== ======== ======== =========
Page 10
6. In fiscal 2001 the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." This standard requires that all
derivative instruments be recorded on the balance sheet at fair value and
establishes criteria for designation and effectiveness of the hedging
relationships. There was no cumulative effect of adopting SFAS No. 133 to the
Company's condensed consolidated financial statements as of June 3, 2001, since
the Company had no outstanding derivatives as of December 3, 2000.
During the second quarter of fiscal 2001, the Company entered into
foreign exchange forward contracts to reduce its risk from exchange rate
fluctuations associated with receivables and payables denominated in foreign
currencies that arise primarily as a result of its operations outside the United
States of America. The fair value of these contracts, which typically have
maturities of approximately thirty days, was not material at June 3, 2001. Gains
and losses on these instruments are recorded in other income, net in the
Company's Condensed Consolidated Statement of Income. Principal foreign
currencies include the Euro, the British pound sterling and the Canadian dollar.
The Company does not hold or purchase any foreign currency contracts for trading
purposes.
Page 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion includes certain forward-looking statements within the
meaning of the Private Securities Litigation Act of 1995. Such forward-looking
statements represent management's assessment based upon information currently
available, but are subject to risks and uncertainties which could cause actual
results to differ materially from those set forth in the forward-looking
statements. These risks and uncertainties include, but are not limited to, the
Company's ability to successfully complete the implementation, and realize the
anticipated growth and other benefits, of its restructuring and strategic plans
on a timely basis; the effect of, and changes in, worldwide general economic
conditions including the severity of any economic slowdown; price and
availability of raw materials; foreign exchange rates; technological and other
changes affecting the manufacture of and demand for the Company's products;
competitive and other pressures in the market place particularly within the
Company's graphics products business segment; and other risks and uncertainties
set forth herein and in the Company's 2000 Form 10-K and as may be set forth in
the Company's subsequent Forms 10-Q, 8-K and other filings with the Securities
and Exchange Commission.
In October 1999, the Company initiated a comprehensive reorganization and
restructuring plan (the "1999 restructuring plan"). The major components of the
1999 restructuring plan include (with principal emphasis on the Company's
Graphics Products business) creating manufacturing centers of excellence,
outsourcing the Company's European distribution activities and consolidating its
U.S. distribution activities, and focusing its product offering and marketing
efforts. The Company completed the consolidation of its operations and
distribution activities in the U.S. and the outsourcing of its European
distribution activities contemplated by the 1999 restructuring plan during
fiscal 2000. In addition, the Company has substantially completed the planned
consolidation of its European manufacturing operations. The Company has spent
approximately $5.5 million pre-tax for implementation costs of this plan through
fiscal 2000 and expects to spend an additional $.4 million pre-tax in fiscal
2001 (to be recorded as period costs as incurred). During the second quarter and
first half of fiscal 2001, the Company recorded $.1 million and $.3 million,
respectively, of such implementation costs, compared to $2.0 million and $2.3
million, respectively, for the same prior year periods. These implementation
costs consisted primarily of employee retention bonuses, severance, relocation,
outplacement, and other costs and are included in the Condensed Statements of
Income for the three months and six months ended June 3, 2001 and May 28, 2000
as follows (in millions except per share data):
Three Months Three Months
Ended Ended
June 3, 2001 May 28, 2000
---------------------- -------------------------
Per Share Per Share
$ Amount $ Amount
---- --------- ---- ---------
Cost of sales - - $1.1 $.07
Selling, administrative &
general expenses $.1 - .9 .06
---
--------- ---- --------
Total $.1 - $2.0 $.13
=== ========= ==== ========
Page 12
Six Months Six Months
Ended Ended
June 3, 2001 May 28, 2000
---------------------- -------------------------
Per Share Per Share
$ Amount $ Amount
---- --------- ---- ---------
Cost of sales - - $1.2 $.08
Selling, administrative &
general expenses $.3 $.02 1.1 .07
--- ---- ---- -----
Total $.3 $.02 $2.3 $.15
=== ==== ==== =====
The Company realized pre-tax cost savings from the 1999 restructuring plan of
$1.0 million and $2.0 million during the second quarter and first half of fiscal
2001, respectively. Although the Company expects realization of future cost
savings, there can be no assurance that they will be achieved. (Note: All
earnings per share amounts included in Management's Discussion and Analysis are
presented on an after-tax, diluted basis.)
The following tables provide a comparison of the Company's reported results and
the results excluding restructuring related items and other special items for
the three months and six months ended June 3, 2001 and May 28, 2000 (in millions
except per share data):
Three Months Ended
June 3, 2001
----------------------------------------------------------------------------
Gross Income from Net Per Share
Profit Operations Income Amount
------------- ------------------- -------------- -----------------
Reported results $20.1 $2.6 $1.0 $.11
1999 restructuring plan
implementation costs - .1 - -
Patent infringement
litigation interest - .1 .1 .01
-------- ---------- -------- ----------
Results excluding special items $20.1 $2.8 $1.1 $.12
======== ========== ======== ==========
Page 13
Three Months Ended
May 28, 2000
----------------------------------------------------------------------------
Gross Income from Net Per Share
Profit Operations Income Amount
------------- ------------------- -------------- -----------------
Reported results $22.1 $2.3 $1.0 $.10
1999 restructuring plan
implementation costs 1.2 2.0 1.3 .13
Reversals of accruals of
1997 strategic plan - (.1) - -
Gain on sale of business
divestitures - (.1) (.1) (.01)
-------- ---------- -------- ----------
Results excluding special items $23.3 $4.1 $2.2 $.22
======== ========== ======== ==========
Six Months Ended
June 3, 2001
----------------------------------------------------------------------------
Gross Income from Net Per Share
Profit Operations Income Amount
------------- ------------------- -------------- -----------------
Reported results $41.5 $6.4 $2.7 $.29
1999 restructuring plan
implementation costs .3 .1 .02
-
Patent infringement
litigation interest - .1 .1 .01
-------- ---------- -------- ----------
Results excluding special items $41.5 $6.8 $2.9 $.32
======== ========== ======== ==========
Six Months Ended
May 28, 2000
----------------------------------------------------------------------------
Gross Income from Net Per Share
Profit Operations Income Amount
------------- ------------------- -------------- -----------------
Reported results $44.0 $6.3 $3.2 $.32
1999 restructuring plan
implementation costs 1.3 2.3 1.5 .15
Reversals of accruals of
1997 strategic plan - (.1) - -
Gain on sale of business
divestitures - (.1) (.1) (.01)
-------- ---------- -------- ----------
Results excluding special items $45.3 $8.4 $4.6 $.46
======== ========== ======== ==========
Page 14
Results of Operations
Net Sales
Net sales of $53.6 million for the second quarter and $109.4 million for the
first half of fiscal 2001 decreased 15% and 11%, respectively, from the
corresponding periods of fiscal 2000. These decreases were largely due to lower
sales of graphics products (down 21% for the second quarter and 17% for the
first half), and lower sales of consumer products (down 5% for the second
quarter and 4% for the first half). The decrease in graphics products sales was
due to lower sales of consumables and equipment products (down 30% and 35% for
the second quarter and 26% and 28% for the first half, respectively), while
board products decreased 4% for the second quarter and 3% for the first half of
fiscal 2001. Export sales decreased 13% and 10% in the fiscal 2001 second
quarter and first half, respectively, compared to the same prior year periods
due to lower sales in Canada and Latin America. Foreign sales, which are
principally sales of graphics products, decreased 27% and 18% in the second
quarter and first half of fiscal 2001, respectively, compared to the same prior
year periods. Excluding the impact of currency exchange rates, foreign sales
would have decreased 23% and 12% for the second quarter and first half of fiscal
2001, respectively, from the comparable prior year periods.
Management believes that the decrease in sales was largely due to the continuing
economic slowdown in the U.S., to lower sales to certain large graphics products
customers (several of whom have decided to exit the graphics business), to
increased competition in the graphics products business, and to a softening in
the Company's European graphics markets. Further, there have been recent
announcements of planned closings of certain office products superstores which
may have an adverse effect on future consumer and graphics products sales. Thus
far in the third fiscal 2001 quarter, the Company is continuing to experience
softness in demand for some of its products, particularly the graphics products
business both domestically and foreign. Management is uncertain how long this
trend will continue. Management also continues to consider and evaluate various
strategies to strengthen the Company and increase shareholder value.
Gross Profit
The Company's gross profit percentage increased to 37.6% of net sales in the
second quarter of fiscal 2001 from 35.2% in the second quarter of fiscal 2000
and increased to 38.0% in the first half of fiscal 2001 compared to 35.7% in the
first half of fiscal 2000. However, gross margin dollars decreased $2.0 million
and $2.5 million in the second quarter and first half of fiscal 2001,
respectively, from the same prior year periods. The decreases in gross margin
dollars in fiscal 2001 were due largely to lower sales volume, particularly the
graphics products business, compared to the same prior year periods. The
increases in the gross profit percentages relative to the prior year periods
were primarily the result of cost savings resulting from the 1999 restructuring
plan, favorable net inventory adjustments, lower pension costs, and higher
implementation costs incurred in fiscal 2000 related to the 1999 restructuring
plan. Excluding the effects of the implementation costs, the gross profit
percentages would have been 37.0% and 36.7% in the second quarter and first half
of fiscal 2000, respectively. Since the end of fiscal 2000, the Company has
experienced some cost reductions for certain of its raw materials. Management is
uncertain if this trend will continue.
Page 15
Selling, Administrative and General Expenses
Selling, administrative and general expenses decreased $2.5 million, or 13%, in
the second quarter of fiscal 2001 and $2.8 million, or 8%, in the first half of
fiscal 2001 compared to the same prior year periods. The decrease was partially
due to lower marketing and selling expenses (e.g., lower sales volume, pension
costs, product development costs, recruiting and relocations expenses, and
implementation costs, partially offset by higher net promotional advertising and
trade show expenses). In addition, general and administrative expenses were
lower due principally to an increase in the cash surrender value of officers'
life insurance policies, lower pension costs and lower salaries and benefits
attributable to the cost savings resulting from the implementation of the 1999
restructuring plan, partially offset by higher depreciation expense,
professional services fees and other costs.
Selling, administrative and general expenses, as a percentage of net sales,
totaled 32.6% and 32.0% in the second quarter and first half of fiscal 2001,
respectively, and 31.8% and 30.7%, respectively, in the same prior year periods.
Restructuring and Other
The Company recorded interest of $51,000 and $102,000 in the second quarter and
first half of fiscal 2001, respectively, in connection with a previously
reported patent infringement suit judgment for which the Company had recorded a
liability of $3.8 million in fiscal 2000. Subsequent to the end of the second
quarter of fiscal 2001, the Company made a payment to the plaintiff in the
amount of approximately $3.9 million with respect to this judgment.
In addition, during the second quarter of fiscal 2001, the Company reduced by
$8,000 a reserve related to its 1999 restructuring plan. This reserve reduction
reflected lower than anticipated losses in asset disposals. Also, during the
first half of fiscal 2001, the Company recorded a net gain on disposals of
property, plant and equipment of $10,000.
Provision for Income Taxes
The Company's effective income tax rate was 40.8% and 41.6% for the second
quarter and first half of fiscal 2001, respectively, and 35.0% for the same
prior year periods. The increases in the effective income tax rates was due
principally to the impact of items not deductible for income tax purposes
(primarily of goodwill amortization) in relation to pre-tax income.
Net Income and Earnings Per Share
Net income of $1.0 million for the second quarter of fiscal 2001 was largely
unchanged from the second quarter of fiscal 2000, and net income of $2.7 million
for the fiscal 2001 first half decreased $.5 million from the first half of
fiscal 2000. Excluding the effects of special items recorded during the second
quarter and first half of fiscal 2001 in connection with the implementation of
the 1999 restructuring plan and reduction of reserves related to its 1997
business divestitures, earnings per share would have been $.12 and $.32 per
share for the second quarter and first half of fiscal 2001, respectively,
compared to
Page 16
$.22 and $.46 per share, respectively, for the same prior year periods. These
decreases were due primarily to lower sales, partially offset by the favorable
impact of lower average common shares outstanding as a result of the Company's
stock repurchase program (average diluted common shares outstanding were
8,963,382 and 9,033,489 in the second quarter and first half of fiscal 2001,
respectively, and were 9,924,778 and 9,982,778, respectively, for the same prior
year periods).
Financial Condition
The Company's working capital decreased to $54.9 million from $56.4 million, and
its current ratio increased to 2.9 from 2.8, at the end of the second quarter of
fiscal 2001 from the end of fiscal 2000, respectively. The Company's
debt/capitalization percentage was 48% at the end of the fiscal 2001 second
quarter compared to 47% at the end of fiscal 2000. Funds from operations and
available cash balances were sufficient during the first six months of fiscal
2001 to fund the repurchase of $3.7 million of the Company's common shares, to
fund additions to property, plant and equipment of $2.1 million, and to pay cash
dividends of $1.8 million.
Current assets decreased to $84.0 million at the end of the second quarter of
fiscal 2001 from $88.3 million at the end of fiscal 2000 largely as a result of
lower cash and cash equivalents and lower accounts receivable balances,
partially offset by higher inventory balances. The decrease in cash and cash
equivalents was largely due to items discussed in the preceding paragraph.
Accounts receivable decreased $6.0 million from the $35.1 million balance at the
end of fiscal 2000 due to increased collections, timing of customer dating
promotions and to lower sales in the last month of the fiscal 2001 second
quarter compared to the last month of fiscal 2000. Inventories increased to
$27.6 million at the end of the fiscal 2001 second quarter from $21.8 million at
the end of fiscal 2000 due primarily to inventory build-up in connection with
the Company's back-to-school programs and to lower than planned sales in the
first half of fiscal 2001.
Current liabilities decreased to $29.1 million at the end of the second quarter
of fiscal 2001 from $31.9 million at the end of fiscal 2000. This decrease was
largely attributable to the timing of accounts payable payments ($.9 million),
other liabilities payments ($2.1 million), and the payment of a $.8 million
special performance award to Company employees which had been accrued for at the
end of fiscal 2000, partially offset by an increase in income taxes liability
($1.7 million) due to timing of payments and expected receipt of an income tax
refund.
The effect of unfavorable currency exchange rates for the Euro and the British
pound sterling was the principal cause for the $0.5 million increase in the
accumulated other comprehensive loss account in stockholders' equity.
The Company has a revolving credit agreement of $50 million and lines of credit
facilities at its foreign operations of 1.5 million British pounds sterling
(approximately $2.2 million) and 1.1 million Euros (approximately $1.0 million).
There were outstanding borrowings totaling $2.7 million under these credit
facilities at June 3, 2001. Management believes that funds generated from
operations, combined with the existing credit facilities, will be sufficient to
meet currently anticipated working capital and other capital and debt service
Page 17
requirements. Should the Company require additional funds, management believes
that the Company could obtain them at competitive costs. While subject to
change, management currently expects that total fiscal 2001 expenditures for
additions to property, plant and equipment to increase capacity and productivity
will be approximately $5.0 million, of which approximately $2.1 million has been
expended through the first six months of fiscal 2001.
Page 18
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to the impact of foreign currency exchange rate changes.
The Company's objective in managing the exposure to these changes is to reduce
the risk on earnings and cash flow associated with foreign exchange rate
changes. As a result, the Company enters into foreign exchange forward contracts
to reduce risks associated with the value of its existing foreign currency
assets, liabilities and anticipated foreign revenues and costs. The gains and
losses on these contracts are intended to offset changes in the related
exposures. The Company does not hedge its foreign currency exposure in a manner
that would entirely eliminate the effects of changes in foreign exchange rates
on the Company's consolidated net income. The Company does not hold or purchase
any foreign currency contracts for trading purposes.
In the normal course of operations, the Company also faces other risks that are
either nonfinancial or nonquantifiable. Such risks principally include changes
in economic or political conditions, other risks associated with foreign
operations, commodity price risk and litigation risks.
Page 19
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Reference is made to Part I, Item 3 of the Company's fiscal 2000 Form 10-K and
to Note 4 to the Condensed Consolidated Financial Statements herein.
Page 20
Part II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
(a) and (c)
The Company's Annual Meeting of Shareholders was held on April 18,
2001, and in connection therewith, proxies were solicited by management pursuant
to Regulation 14 under the Securities Exchange Act of 1934. An aggregate of
8,886,099 shares of the Company's common stock ("Shares") were outstanding and
entitled to vote at the meeting. At the meeting the following matters (not
including ordinary procedural matters) were submitted to a vote of the holders
of Shares, with the results indicated below:
1. Election of a class of three directors to serve until the 2004 Annual
Meeting. The following persons, all of whom were serving as directors
and were management's nominees for reelection, were reelected. There
was no solicitation in opposition to such nominees. The tabulation of
votes was as follows:
- ----------------------------------------------------------------------------------------------------------------
Withheld
Nominee For (including any broker nonvotes)
- ----------------------------------------------------------------------------------------------------------------
Mary R. (Nina) Henderson 7,785,426 469,969
- ----------------------------------------------------------------------------------------------------------------
William F. Hamilton, Ph.D. 7,785,444 469,951
- ----------------------------------------------------------------------------------------------------------------
Victoria B. Vallely 7,785,232 470,163
- ----------------------------------------------------------------------------------------------------------------
2. Ratification of independent auditors. The appointment of
PricewaterhouseCoopers LLP as the Company's independent auditors for
fiscal 2001 was ratified. The tabulation of votes was as follows:
===================================================================================================================
Abstentions
For Against (including any broker nonvotes)
- -------------------------------------------------------------------------------------------------------------------
8,213,536 18,216 19,602
===================================================================================================================
Page 21
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule for the quarter ended June 3, 2001.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
_____________
Page 22
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.
HUNT CORPORATION
Date July 17, 2001 By /s/ William E. Chandler
---------------------------- ------------------------------------------
William E. Chandler
Senior Vice President, Finance
(Principal Financial Officer)
Date July 17, 2001 By /s/ Donald L. Thompson
----------------------------- ------------------------------------------
Donald L. Thompson
Chairman of the Board
and Chief Executive Officer
Date July 17, 2001 By /s/ John Fanelli III
----------------------------- ------------------------------------------
John Fanelli III
Vice President, Corporate Controller
(Principal Accounting Officer)
Page 22
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.
HUNT CORPORATION.
Date July 17, 2001 By
---------------------------- ----------------------------------------
William E. Chandler
Senior Vice President, Finance
(Principal Financial Officer)
Date July 17, 2001 By
----------------------------- ----------------------------------------
Donald L. Thompson
Chairman of the Board
and Chief Executive Officer
Date July 17, 2001 By
----------------------------- ----------------------------------------
John Fanelli III
Vice President, Corporate Controller
(Principal Accounting Officer)
Page 23
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule for the quarter ended June 3, 2001