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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 May 28, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8044
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HUNT MANUFACTURING CO.
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(Exact name of registrant as specified in its charter)
Pennsylvania 21-0481254
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Commerce Square 2005 Market Street, Philadelphia, PA 19103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone no., including area code (215) 656-0300
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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
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As of June 30, 1995 there were outstanding 15,953,222 shares of the registrant's
common stock.
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HUNT MANUFACTURING CO.
INDEX
Page
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PART I - FINANCIAL INFORMATION
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Item 1 - Financial Statements
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Condensed Consolidated Balance Sheets as of
May 28, 1995 and November 27, 1994 3
Condensed Consolidated Statements of Income -
Three Months and Six Months Ended May 28, 1995
and May 29, 1994 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended May 28, 1995 and
May 29, 1994 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
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PART II - OTHER INFORMATION
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Item 4 - Submission of Matters to a Vote of Security Holders 11
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Item 6 - Exhibits and Reports on Form 8-K 12
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Signatures 13
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Exhibit Index 14
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Part I - FINANCIAL INFORMATION
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Item 1. Financial Statements
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Hunt Manufacturing Co.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands except share and per share amounts)
May 28, November 27,
ASSETS 1995 1994
--------- ------------
Current assets:
Cash and cash equivalents $ 2,350 $ 13,807
Accounts receivable, less allowance for doubtful
accounts: 1995, $2,463 ; 1994, $2,510 38,802 41,390
Inventories:
Raw materials 14,052 10,501
Work in process 6,134 5,807
Finished goods 22,663 17,242
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Total inventories 42,849 33,550
Deferred income taxes 5,867 5,051
Prepaid expenses and other current assets 2,473 1,520
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Total current assets 92,341 95,318
Property, plant and equipment, at cost, less
accumulated depreciation and amortization:
1995, $48,314; 1994, $46,163 51,569 49,729
Intangible assets, net 25,976 25,982
Other assets 2,896 2,356
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Total assets $ 172,782 $ 173,385
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,438 $ 1,003
Accounts payable 9,617 9,782
Accrued expenses:
Salaries, wages and commissions 4,268 5,742
Income taxes 2,727 4,464
Insurance 2,180 2,430
Compensated absences 1,852 1,741
Other 6,112 5,553
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Total current liabilities 28,194 30,715
Long-term debt, less current portion 3,559 3,559
Deferred income taxes 4,731 4,331
Other non-current liabilities 5,662 5,546
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Total liabilities 42,146 44,151
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Stockholders' equity:
Preferred stock, $.10 par value, authorized 1,000,000
shares (including 50,000 shares of Series A Junior
Participating Preferred); none issued -- --
Common stock, $.10 par value, 40,000,000 shares
authorized; issued: 1995 -16,152,322 shares;
1994 - 16,130,068 shares 1,615 1,613
Capital in excess of par value 6,434 6,217
Cumulative translation adjustment (97) (639)
Retained earnings 125,445 122,518
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133,397 129,709
Less cost of treasury stock:
1995 - 199,100 shares; 1994 - 29,945 shares (2,761) (475)
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Total stockholders' equity 130,636 129,234
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Total liabilities and stockholders equity $ 172,782 $ 173,385
========= =========
See accompanying notes to condensed consolidated financial statements.
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Hunt Manufacturing Co.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands except per share amounts)
Three Months Ended Six Months Ended
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May 28, May 29, May 28, May 29,
1995 1994 1995 1994
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Net sales $ 74,881 $ 69,023 $ 145,411 $ 133,573
Cost of sales 46,795 41,157 91,683 80,552
--------- --------- --------- ---------
Gross profit 28,086 27,866 53,728 53,021
Selling and shipping expenses 15,197 14,579 29,102 27,941
Administrative and general
expenses 6,924 6,819 13,437 13,686
Provision for organizational changes 2,118 -- 2,118 --
--------- --------- --------- ---------
Income from operations 3,847 6,468 9,071 11,394
Interest expense 25 76 53 147
Other expense (income), net (431) 30 (507) 80
--------- --------- --------- ---------
Income before income taxes and cum-
ulative effect of accounting change 4,253 6,362 9,525 11,167
Provision for income taxes 1,319 2,274 3,243 4,076
--------- --------- --------- ---------
Income before cumulative effect of
accounting change 2,934 4,088 6,282 7,091
Cumulative effect of change in
accounting for income taxes -- -- -- 795
--------- --------- --------- ---------
Net income $ 2,934 $ 4,088 $ 6,282 $ 7,886
========= ========= ========= =========
Average shares of common
stock outstanding 15,969 16,110 16,035 16,112
========= ========= ========= =========
Earnings per common share:
Income before cumulative effect of
accounting change $ 0.18 $ 0.25 $ 0.39 $ 0.44
Cumulative effect of change in
accounting for income taxes -- -- -- 0.05
--------- --------- --------- ---------
Net income per share $ 0.18 $ 0.25 $ 0.39 $ 0.49
========= ========= ========= =========
Dividends per common share $ 0.095 $ 0.09 $ 0.19 $ 0.18
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
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Hunt Manufacturing Co. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
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May 28, May 29,
1995 1994
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Cash flows from operating activities:
Net income $ 6,282 $ 7,886
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,463 3,982
Cumulative effect of change in account for income taxes -- (795)
Deferred income taxes (414) (670)
Loss on disposals of property, plant and equipment 91 80
Provision net of payments for organizational changes 2,005 --
Payments relating to relocation and
consolidation of operations (7) (93)
Issuance of stock under management incentive bonus
and stock grant plans 163 184
Changes in operating assets and liabilities, net of
acquisition of business (12,215) (8,463)
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Net cash provided by operating activities 368 2,111
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Cash flows from investing activities:
Additions to property, plant and equipment (4,135) (4,245)
Acquisition of business (2,505) --
Other, net 86 128
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Net cash used for investing activities (6,554) (4,117)
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Cash flows from financing activities:
Proceeds from long-term debt 963 --
Payments of long-term debt, including current maturities (528) (1,071)
Purchase of treasury stock (2,841) (729)
Proceeds from exercise of stock options 306 105
Dividends paid (3,051) (2,897)
Other, net (46) 13
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Net cash used for financing activities (5,197) (4,579)
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Effect of exchange rate changes on cash (74) (63)
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Net decrease in cash and cash equivalents (11,457) (6,648)
Cash and cash equivalents, beginning of period 13,807 10,778
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Cash and cash equivalents, end of period $ 2,350 $ 4,130
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 178 $ 247
Income taxes paid 5,110 4,286
See accompanying notes to condensed consolidated financial statements.
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Hunt Manufacturing Co.
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 May 28, 1995 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 the Form 10-K.
2. The earnings per share are calculated based on the weighted average number
of common shares outstanding. Shares issuable under outstanding stock
option, stock grant and long-term incentive compensation plans are common
stock equivalents, but are not used in computing earnings per share because
the dilutive effect would be less than 3%.
3. Effective November 29, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes." The
adoption of SFAS No. 109 changed the Company's method of accounting for
income taxes from the deferred method to an asset and liability approach.
The effect of adopting SFAS No. 109 was recognized immediately as the
effect of a change in accounting principle and increased net income in the
first quarter and in the first half of fiscal 1994 by $795,000, or $.05 per
share. The increase in net income resulted primarily from adjusting
deferred tax balances to current tax rates.
4. The provision for organizational changes of $2.1 million (approximately
$1.4 million after income taxes, or $.09 per share) relates to costs
incurred in connection with the resignation and planned replacement of the
Company's Chairman and Chief Executive Officer and other organizational
changes.
5. The provision for income taxes for the second quarter of fiscal 1995
reflects the reversal of valuation allowances relating to tax net operating
loss carryforwards from the European operations ($.3 million, or $.02 per
share).
6. In the second quarter of fiscal 1995, the Company acquired the Centafoam
business of Spicers, Ltd., a division of David S. Smith (Holdings) PLC, for
cash consideration and related costs aggregating approximately $2.5
million. Centafoam, whose facilities are located in the United Kingdom,
manufactures and markets a line of styrene-based foam board products.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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Financial Condition
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The Company's working capital was reduced slightly to $64.1 million at May 28,
1995 from $64.6 million at November 27, 1994. The decrease was largely
attributable to repurchases of the Company's common stock, discussed below. The
Company's current ratio improved to 3.3 at May 28, 1995 from 3.1 at November 27,
1994. Debt to equity ratio increased slightly (up to 3.8 from 3.5 at those
respective dates) as a result of additional debt incurred to partially finance
the acquisition of the Centafoam business from Spicers Ltd., a division of David
S. Smith (Holdings) PLC. Available cash balances were sufficient to fund
additions to property, plant and equipment of $4.1 million, pay cash dividends
of $3.1 million and to repurchase shares of the Company's common stock for $2.8
million primarily (as previously authorized and announced) for use in the
Company's various compensation plans.
Current assets decreased to $92.3 million at the end of the second quarter of
fiscal 1995 from $95.3 million at the end of fiscal 1994 primarily as a result
of a $11.5 million decrease in cash attributed, in part, to the uses of cash
mentioned in the discussion of cash flows above. Inventories increased from
$33.6 million at November 27, 1994 to $42.8 million at May 28, 1995 due to
several factors, including lower than anticipated sales of certain office
products, such as mechanical and electromechanical products; higher inventories
held in order to service increases in sales of presentation graphics products;
inventory build-up in anticipation of sales expected in the third quarter; and
increases in some raw material purchases in advance of future supplier price
increases. Accounts receivable decreased to $38.8 million at the end of the
second quarter of fiscal 1995 from $41.4 million at the end of fiscal 1994
primarily due to lower sales near the end of the second quarter as compared with
those near the end of fiscal 1994.
Current liabilities decreased to $28.2 million at the end of the second quarter
of fiscal 1995 from $30.7 million at the end of fiscal 1994 largely as a result
of decreases in accrued salaries, wages and commissions and a decrease in
accrued income taxes, partially offset by the accrual associated with the
provision for organizational changes, discussed below. The $1.5 million decrease
in accrued salaries, wages and commissions was primarily due to payments of
incentive compensation in the first half of fiscal 1995 which had been accrued
at the end of fiscal 1994. Accrued income taxes decreased $1.7 million
principally due to timing of estimated tax payments.
There were no borrowings under the Company's line-of-credit agreements of $45
million at May 28, 1995. Management believes that cash generated from
operations, along with available cash balances and, if necessary, cash available
under its existing credit agreements will be sufficient to meet the Company's
currently anticipated capital expenditures, working capital and other investing
and financing needs.
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Should the Company require additional funds, management believes that the
Company could obtain them at competitive costs. Management also expects that
total 1995 expenditures for additions to property, plant and equipment to
increase capacity and productivity will approximate the $9.3 million expended
for such purpose in fiscal 1994.
Results of Operations
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Net Sales
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Net sales of $74.9 million for the second quarter and $145.4 million for the
first half of fiscal 1995 grew over 8% from $69.0 million and $133.6 million,
respectively in the same fiscal 1994 periods primarily as a result of higher
unit volume. Average selling prices in the first half of fiscal 1995 increased
approximately .5% from those in the first half of fiscal 1994. Management
believes that although overall selling prices have increased somewhat in fiscal
1995, competitive pressures on selling prices will continue.
Sales of art/craft products increased 22.7% to $37.2 million in the second
quarter and 18.2% to $67.9 million in the first half of fiscal 1995 from the
same periods in fiscal 1994. Higher sales of presentation graphics products made
the most significant contribution (up 26.0% in the second quarter and 23.7% in
the first half of fiscal 1995) and were largely due to higher sales in Europe,
growth in the digital imaging market and increases in sales of certain mounting
and laminating products (e.g., Bienfang(R) foam board products). Sales of
hobby/craft products were up 20.6% and 17.4% in the second quarter and first
half of fiscal 1995, respectively, compared to the same periods in fiscal 1994.
The increases were primarily attributable to introductions of new products, as
well as sales increases of X-Acto(R) knife and tool kits and Speedball(R) paint
markers. Art supplies sales grew 13.0% in the second quarter and 2.2% in the
first half of fiscal 1995 when compared to the same periods of fiscal 1994 due
primarily to higher sales of the Company's X-Acto(R) brand blades and knives.
Export sales of art/craft products grew by 9.7% in the second quarter and by
3.5% for the first half of fiscal 1995. Foreign sales of art/craft products
increased substantially, growing 43.5% in the second quarter and 40.2% in the
first half of fiscal 1995 when compared to the same periods of fiscal 1994.
These increases were due primarily to higher sales of presentation graphics
products in Europe and, to a lesser extent, to the exchange effect of a stronger
British pound sterling.
Office products sales decreased 2.6% to $37.7 million in the second quarter and
increased 1.8% to $77.5 million in the first half of fiscal 1995 compared to the
same fiscal 1994 periods. Sales of mechanical and electromechanical products
were down 13.0% and 11.0% in the second quarter and first half of fiscal 1994,
respectively. This decrease was largely due to lower sales of electric and
manual pencil sharpeners and staplers which is believed to be attributable to
lost market share, inventory reductions made by several of the Company's large
retail customers and general softness in demand. Management is taking measures
aimed at regaining such lost market share. Management is uncertain if the
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decrease in demand for mechanical and electromechanical products will
continue for the balance of fiscal 1995. Office furniture sales grew 13.6% and
19.3% in the second quarter and first half of fiscal 1995, respectively, as
compared with the same periods of fiscal 1994. The increase in furniture sales
was primarily a result of higher sales of Bevis(R) brand furniture, particularly
folding tables, computer-related furniture and screen panels. Desktop
accessories and supplies decreased 3.8% in the second quarter and increased 5.8%
in the first half of 1995 as compared to the same periods of fiscal 1994. The
decrease in desk top accessories and supplies in the second quarter was
primarily due to lower sales of Lit-Ning(R) brand metal paper organizers while
the increase in the first half of fiscal 1995 was the result of a full six
months of sales of Schwan-STABILO(R) highlighter markers in 1995 compared to
four months of sales in fiscal 1994. Export sales of office products decreased
by approximately 2% in the second quarter but were essentially flat for the
first half of fiscal 1995 compared to the same periods of fiscal 1994 due
primarily to lower sales to the Far East, Europe and Latin America.
During June, the first month of the third quarter of fiscal 1995, the Company
experienced a decrease in sales of and orders for its office and art/craft
products and an increase in its sales of and orders for presentation graphics
products when compared to the same period in fiscal 1994. Management is
uncertain whether this is indicative of any trend.
Gross Profit
- ------------
The Company's gross profit decreased to 37.5% of net sales in the second quarter
of fiscal 1995 from 40.4% in the second quarter of fiscal 1994 and decreased to
36.9% in the first half of fiscal 1995 from 39.7% in the first half of fiscal
1994. These decreases were largely the result of changes in sales mix (i.e.,
higher sales of lower margin products such as presentation graphics and office
furniture products) and higher raw material costs. Higher costs for commodities,
such as wood, paper, styrene plastics and packaging materials, had the greatest
impact on raw material cost increases. Management expects raw material price
increases to continue in 1995 but anticipates some moderation of cost increases,
as well as some flexibility in the Company's ability to raise its own selling
prices in the second half of fiscal 1995 as most competitors face the same cost
increases.
Selling, Shipping, Administrative and General Expenses
- ------------------------------------------------------
Selling and shipping expenses decreased to 20.3% of net sales for the second
quarter of fiscal 1995 from 21.1% in the second quarter of fiscal 1994 and
decreased to 20.0% in the first half of fiscal 1995 from 20.9% in the first half
of fiscal 1994. The lower rates were largely due to cost reduction initiatives
which have resulted in lower commissions and transportation costs.
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Administrative and general expenses increased 1.5%, or $.1 million, in the
second quarter and decreased 1.8%, or $.2 million in the first half of fiscal
1995 as compared to the prior year expense levels for the same periods. The
improvement in the first half was due to lower management incentive compensation
expense, lower fringe benefits and a reduction in consulting fees.
Provision for Organizational Changes
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In the second quarter of fiscal 1995, the Company recorded a charge of $2.1
million as a provision for costs incurred in connection with the resignation and
planned replacement of the Company's Chairman and Chief Executive Officer and
other organizational changes. This charge reduced net income by approximately
$1.4 million, or $.09 per share. It is currently anticipated that the total
charge relating to these organizational changes will range from $2.5 million to
$3.5 million, or $.10 to $.14 per share, with the remaining portion of the
charges to be recognized over the balance of fiscal 1995.
Interest Expense
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Interest expense decreased to $25,000 for the second quarter of fiscal 1995 from
$76,000 in the second quarter of fiscal 1994 and decreased to $53,000 in the
first half of fiscal 1995 from $147,000 in the first half of fiscal 1994 due
primarily to reductions of long-term debt.
Other Expense (Income), Net
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Other income, net in the second quarter and first half of fiscal 1995 was
primarily due to a recovery of previously written-off machinery and equipment,
as well as to greater currency exchange gains as compared to the other expense,
net incurred in the same periods in fiscal 1994.
Provision for Income Taxes
- --------------------------
The effective tax rate decreased to 31.0% for the second quarter of fiscal 1995
from the 35.7% incurred in the second quarter of fiscal 1994 and for the first
half of fiscal 1995 decreased to 34.0% from 36.5% for the first half of fiscal
1994. The second quarter decrease was principally a result of a reversal of
valuation allowances relating to tax net operating loss carryforwards from the
European operations.
Accounting Change
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In the first fiscal quarter of 1994, the Company adopted the provisions of SFAS
No. 109, "Accounting for Income Taxes," the cumulative effect of which increased
net income by $.8 million, or $.05 per share for the six months ended May 29,
1994.
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Part II - OTHER INFORMATION
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Item 4 - Submission of Matters to a Vote of Security Holders
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(a) and (c)
The Company's Annual Meeting of Shareholders was held on April 19,
1995, and in connection therewith, proxies were solicited by management
pursuant to Regulation 14 under the Securities Exchange Act of 1934. An
aggregate of 16,081,153 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 four directors to serve until the 1998 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)
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William F. Hamilton 14,590,771 22,346
Mary R. Henderson 14,301,122 311,995
Wilson D. McElhinny 14,301,122 311,995
Roderic H. Ross 14,304,122 308,995
2. Ratification of independent auditors. The appointment of Coopers & Lybrand
as the Company's independent auditors for fiscal 1995 was ratified. The
tabulation of votes was as follows:
Abstentions
For Against (including any broker nonvotes)
--- ------- -----------------------------
14,583,085 10,249 19,783
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Item 6 -Exhibits and Reports on Form 8-K
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(a) Exhibits
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3(b). By-Laws, as amended, of the Company
11. Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
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No reports on Form 8-K were filed by the registrant during the fiscal
quarter to which this report relates.
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SIGNATURES
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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 MANUFACTURING CO.
Date July 7, 1995 By /s/ William E. Chandler
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William E. Chandler
Senior Vice President, Finance
(Principal Financial and Accounting Officer)
Date July 7, 1995 By /s/ Robert B. Fritsch
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Robert B. Fritsch
President and Chief Executive Officer
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EXHIBIT INDEX
Exhibit 3(b) - By-Laws, as amended, of the Company
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Exhibit 11 - Computation of Per Share Earnings
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Exhibit 27 - Financial Data Schedule
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