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 September 3, 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 October 5, 1995 there were outstanding 15,974,538 shares of the
registrant's common stock.
Page 2
HUNT MANUFACTURING CO.
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of
September 3, 1995 and November 27, 1994 3
Condensed Consolidated Statements of Income -
Three Months and Nine Months Ended September 3, 1995
and August 28, 1994 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 3, 1995 and
August 28, 1994 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-11
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
Part I FINANCIAL INFORMATION Page 3
Item 1 Financial Statements
Hunt Manufacturing Co.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands except share and per share amounts)
September 3, November 27,
ASSETS 1995 1994
------------- ------------
Current assets:
Cash and cash equivalents $ 3,193 $ 13,807
Accounts receivable, less allowance for doubtful
accounts: 1995, $2,537 ; 1994, $2,510 47,582 41,390
Inventories:
Raw materials 13,673 10,501
Work in process 5,735 5,807
Finished goods 20,243 17,242
--------- ---------
Total inventories 39,651 33,550
Deferred income taxes 6,347 5,051
Prepaid expenses and other current assets 1,712 1,520
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Total current assets 98,485 95,318
Property, plant and equipment, at cost, less
accumulated depreciation and amortization:
1995, $49,709; 1994, $46,163 52,150 49,729
Intangible assets, net 25,858 25,982
Other assets 2,953 2,356
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Total assets $ 179,446 $ 173,385
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,015 $ 1,003
Accounts payable 10,964 9,782
Accrued expenses:
Salaries, wages and commissions 4,597 5,742
Income taxes 4,045 4,464
Insurance 2,534 2,430
Compensated absences 1,647 1,741
Other 7,753 5,553
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Total current liabilities 32,555 30,715
Long-term debt, less current portion 3,559 3,559
Deferred income taxes 4,639 4,331
Other non-current liabilities 6,414 5,546
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Total liabilities 47,167 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 (774) (639)
Retained earnings 127,471 122,518
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134,746 129,709
Less cost of treasury stock:
1995 - 185,792 shares; 1994 - 29,945 shares (2,467) (475)
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Total stockholders' equity 132,279 129,234
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Total liabilities and stockholders' equity $ 179,446 $ 173,385
========= =========
See accompanying notes to condensed consolidated financial statements.
Page 4
Hunt Manufacturing Co.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands except per share amounts)
Three Months Ended Nine Months Ended
-------------------------- --------------------------
September 3, August 28, September 3, August 28,
1995 1994 1995 1994
(14 weeks) (13 weeks) (40 weeks) (39 weeks)
------------ ---------- ------------ ----------
Net sales $ 86,302 $ 75,765 $ 231,713 $ 209,338
Cost of sales 55,055 46,415 146,738 126,967
------------ ---------- ------------ ----------
Gross profit 31,247 29,350 84,975 82,371
Selling and shipping expenses 15,862 15,294 44,964 43,235
Administrative and general
expenses 8,027 6,782 21,464 20,468
Provision for organizational changes and
relocation and consolidation of operations 1,579 -- 3,697 --
------------ ---------- ------------ ----------
Income from operations 5,779 7,274 14,850 18,668
Interest expense 5 63 58 210
Other expense (income), net 104 296 (403) 376
------------ ---------- ------------ ----------
Income before income taxes and cum-
ulative effect of accounting change 5,670 6,915 15,195 18,082
Provision for income taxes 2,015 2,524 5,258 6,600
------------ ---------- ------------ ----------
Income before cumulative effect of
accounting change 3,655 4,391 9,937 11,482
Cumulative effect of change in
accounting for income taxes -- -- -- 795
------------ ---------- ------------ ----------
Net income $ 3,655 $ 4,391 $ 9,937 $ 12,277
============ ========== ============ ==========
Average shares of common
stock outstanding 15,959 16,087 16,009 16,104
============ ========== ============ ==========
Earnings per common share:
Income before cumulative effect of
accounting change $ 0.23 $ 0.27 $ 0.62 $ 0.71
Cumulative effect of change in
accounting for income taxes -- -- -- 0.05
------------ ---------- ------------ ----------
Net income per common share $ 0.23 $ 0.27 $ 0.62 $ 0.76
============ ========== ============ ==========
Dividends per common share $ 0.095 $ 0.09 $ 0.285 $ 0.27
============ ========== ============ ==========
See accompanying notes to condensed consolidated financial statements.
Page 5
Hunt Manufacturing Co. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
----------------------------
September 3, August 28,
1995 1994
(40 weeks) (39 weeks)
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Cash flows from operating activities:
Net income $ 9,937 $ 12,277
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,694 6,371
Cumulative effect of change in accounting for income taxes -- (795)
Deferred income taxes (988) (832)
Loss on disposals of property, plant and equipment 192 160
Provision (payments) for organizational changes and
relocation and consolidation of operations 3,450 (114)
Issuance of stock under management incentive bonus
and stock grant plans 239 184
Changes in operating assets and liabilities, net of
acquisition of business (13,456) (10,689)
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Net cash provided by operating activities 6,068 6,562
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Cash flows from investing activities:
Additions to property, plant and equipment (6,740) (6,080)
Acquisition of business (2,789) --
Other, net (346) (325)
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Net cash used for investing activities (9,875) (6,405)
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Cash flows from financing activities:
Proceeds from long-term debt 930 --
Payments of long-term debt, including current maturities (918) (1,306)
Purchase of treasury stock (2,841) (729)
Proceeds from exercise of stock options 411 160
Dividends paid (4,566) (4,345)
Other, net (47) (40)
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Net cash used for financing activities (7,031) (6,260)
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Effect of exchange rate changes on cash 224 (40)
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Net decrease in cash and cash equivalents (10,614) (6,143)
Cash and cash equivalents, beginning of period 13,807 10,778
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Cash and cash equivalents, end of period $ 3,193 $ 4,635
============ ===========
Supplemental disclosures of cash flow information:
Interest paid $ 310 $ 304
Income taxes paid 6,372 6,459
See accompanying notes to condensed consolidated financial statements.
Page 6
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 September 3, 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 Form 10-K. Both
the third quarter and first nine months of fiscal 1995 contained one
additional week compared to the same comparable periods of fiscal 1994.
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 nine months of fiscal 1994 by $.8 million,
or $.05 per share. The increase in net income resulted primarily from
adjusting deferred tax balances to current tax rates.
4. The pre-tax charge of $1.6 million recorded in the third quarter of fiscal
1995 relates to the relocation and consolidation of certain manufacturing
and distribution operations ($1.3 million) and to additional costs
incurred in connection with the previously announced organizational
changes ($.3 million). This charge reduced third quarter net income by
approximately $1 million, or $.06 per share. For the first nine months of
fiscal 1995, a pre-tax provision, aggregating $3.7 million, was recorded
relating to these charges (approximately $2.4 million after income taxes,
or $.15 per share).
5. In late April 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 $2.8 million.
Centafoam, whose facilities are located in the United Kingdom,
manufactures and markets a line of styrene-based foam board products.
Page 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition
In the first nine months of fiscal 1995, the Company improved its financial
condition with working capital increasing to $65.9 million at September 3, 1995
from $64.6 million at November 27, 1994. Net cash flows of $6.1 million provided
by operating activities combined with available cash balances were sufficient to
fund additions to property, plant and equipment of $6.7 million, to pay cash
dividends of $4.6 million, 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, and to fund a portion ($1.9 million)
of the Centafoam acquisition. The Company acquired the Centafoam business from
Spicers Ltd., a division of David S. Smith (Holdings) PLC. The debt to equity
ratio percentage at September 3, 1995 of 3.5% remained unchanged from November
27, 1994 despite additional debt ($.9 million) incurred to partially finance the
Centafoam acquisition.
Current assets increased to $98.5 million at September 3, 1995 from $95.3
million at the end of fiscal 1994 primarily as a result of increases in accounts
receivable and inventories, partially offset by a $10.6 million decrease in
cash, attributable, in part, to the uses of cash mentioned in the discussion of
cash flows above. Accounts receivable increased to $47.6 million at the end of
the third quarter of fiscal 1995 from $41.4 million at the end of fiscal 1994
primarily due to higher sales near the end of the third quarter of fiscal 1995
compared with those near the end of fiscal 1994, as well as to an increase in
promotional sales with extended payment terms. The increase in inventories from
$33.6 million at November 27, 1994 to $39.7 million at September 3, 1995 was
principally attributable to higher inventories held to service increases in
sales of presentation graphics products; additional inventories for new products
and from an acquisition of a business, as well as to customary replenishment of
certain key inventory items in anticipation of fall promotional sales. Inventory
balances were reduced by $3.2 million during the third quarter of fiscal 1995 as
a result of targeted inventory reduction programs which are planned to continue
in the fourth quarter of fiscal 1995.
Current liabilities of $32.6 million at the end of the third quarter of fiscal
1995 increased $1.9 million from $30.7 million at the end of fiscal 1994
primarily as a result of increases in accounts payable and other current
liabilities, partially offset by a decrease in accrued salaries, wages and
commissions. The increase in accounts payable to $11 million at September 3,
1995 from $9.8 million at November 27, 1994 was largely the result of the
inventory increase discussed above. Other accrued liabilities increased $2.2
million principally due to the accrual associated with the provision for
organizational changes and relocation and consolidation of operations discussed
below. The decrease in accrued salaries, wages and commissions was due primarily
to payments of incentive compensation in fiscal 1995 which had been accrued at
the end of fiscal 1994.
Page 8
There were no borrowings under the Company's line-of-credit agreements of $45
million at September 3, 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
capital expenditure commitments, working capital and other currently anticipated
operational needs. Should the Company require additional funds, management
believes that the Company could obtain them at competitive costs.
Management expects that total 1995 expenditures for additions to property, plant
and equipment to increase capacity and productivity will approximate $8.5
million, of which approximately $6.7 million has been expended through the first
nine months of fiscal 1995.
Results of Operations
The Company's 1995 fiscal year will be comprised of 53 weeks, compared to 52
weeks for fiscal 1994. The third quarter of fiscal 1995 and fiscal 1994
contained 14 weeks and 13 weeks, respectively, while the first nine months of
fiscal 1995 and fiscal 1994 contained 40 weeks and 39 weeks, respectively.
Net Sales
Net sales in the third quarter of fiscal 1995 increased 13.9% to $86.3 million
from $75.8 million in the third quarter of fiscal 1994, while net sales of
$231.7 million for the first nine months of fiscal 1995 grew by $22.4 million,
or 10.7%, compared to the first nine months of fiscal 1994. These increases were
primarily the result of higher unit sales volume. Average selling prices in the
third quarter and the first nine months of fiscal 1995 increased approximately
3.5% and 1.8%, respectively, from those in the third quarter and first nine
months of fiscal 1994. Management believes that although overall selling prices
have increased in fiscal 1995, competitive pressures on selling prices will
continue.
The increases in net sales were led by higher sales of art/craft products which
grew 21.9% to $41.1 million in the third quarter and 19.6% to $109.1 million in
the first nine months of fiscal 1995 compared to the same periods in fiscal
1994. Presentation graphics products continue to make a significant contribution
to sales in the art/craft segment. Sales in this product class grew 30.9% and
26.3% in the third quarter and first nine months of fiscal 1995, respectively,
compared to the same fiscal 1994 periods. These increases were due to a
combination of factors: higher sales in Europe, growth in the digital imaging
market and increases in sales of certain mounting and laminating products (e.g.,
Seal(R) and Image Series(R) mounting and laminating equipment, and Bienfang(R)
brand foam board). Sales of hobby/craft products increased 12.9% and 15.8% in
Page 9
the third quarter and first nine months of fiscal 1995, respectively, compared
to the same periods of fiscal 1994. The increases were primarily attributable to
higher sales of Speedball(R) Elegant Writer(R) calligraphy markers, Speedball(R)
Painters(R) markers, and Accent Mats(R) pre-cut framing mats as well as
introduction of new products. Art supplies products sales were essentially flat
in the third quarter and first nine months of fiscal 1995 when compared to the
same periods of fiscal 1994. Export sales of art/craft products grew by 10.9% in
the third quarter and by 6.4% for the first nine months of fiscal 1995. Foreign
sales of art/craft products continue to increase substantially, growing 47.5% in
the third quarter and 30.9% in the first nine months 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, which includes
sales of products of Centafoam (acquired in late April 1995).
Office products sales increased 7.5% to $45.2 million in the third quarter and
3.8% to $122.7 million in the first nine months of fiscal 1995 compared to the
same fiscal 1994 periods. Sales of office furniture products were up 22.2% and
20.3% and desktop accessories and supplies products were up 8.3% and 6.6%, while
mechanical and electromechanical products were down 1.7% and 7.6% in the third
quarter and first nine months of fiscal 1995, respectively, compared with the
same periods of fiscal 1994. The sales growth in office furniture products was
due primarily to higher sales of Bevis(R) brand products, particularly folding
tables, computer-related furniture, conference tables and screen panels. The
sales increase in desktop accessories and supplies products was the result of
higher sales of MediaMate(R) brand products and Schwan-STABILO(R) highlighter
products, partially offset by lower sales of Lit-Ning(R) brand metal paper
organizers. The sales decrease in mechanical and electromechanical products was
largely due to lower sales of Boston(R) brand products, particularly pencil
sharpeners, manual staplers, paper punches and office machines. The decrease in
mechanical and electromechanical sales is primarily attributable to lost
distribution at some of the Company's large retail customers and to general
softness in demand. Management is taking measures aimed at regaining such lost
market share. Management is uncertain if the decrease in demand for mechanical
and electromechanical products will continue into fiscal 1996. Export sales of
office products were essentially flat for the third quarter and first nine
months of fiscal 1995 when compared to the same periods of fiscal 1994 primarily
due to higher sales in Canada offset by lower sales to the Far East, Europe and
Latin America.
Gross Profit
The Company's gross profit margin decreased to 36.2% of net sales in the third
quarter of fiscal 1995 from 38.7% in the third quarter of fiscal 1994 and
decreased to 36.7% in the first nine months of fiscal 1995 from 39.3% in the
first nine months of fiscal 1994. These decreases were primarily the result of
Page 10
changes in product sales mix (i.e., higher sales of lower margin products, such
as presentation graphics and office furniture products), higher raw material
costs and lower sales and production volume of Boston(R) brand products. Higher
costs for commodities, such as wood, styrene plastics, polyester and packaging
materials, had the greatest impact on raw material cost increases. The Company
is beginning to realize the positive effects of its recent selling price
increases and, to some extent, stabilization of prices of some of its raw
materials; however, management expects the price of some of its raw materials to
continue increasing in 1995.
Selling, Shipping, Administrative and General Expenses
Selling and shipping expenses decreased to 18.4% of net sales for the third
quarter of fiscal 1995 from 20.2% in the third quarter of fiscal 1994 and
decreased to 19.4% in the first nine months of fiscal 1995 from 20.7% in the
first nine months of fiscal 1994. The lower rates were largely due to cost
reduction initiatives which have resulted in lower commissions and
transportation costs.
Administrative and general expenses increased 18.4%, or $1.2 million, in the
third quarter and increased 4.9%, or $1 million in the first nine months of
fiscal 1995 as compared to the prior year expense levels for the same periods.
The increases were due to several factors, the most significant of which was
that the third quarter and first nine months of fiscal 1995 contained one
additional week. Higher provisions for bad debts and fees for professional
services also caused a portion of the increase.
Provision for Organizational Changes and Relocation and
Consolidation of Operations
In the third quarter of fiscal 1995, the Company recorded a pre-tax charge of
$1.6 million as a provision for costs relating to the Company's decision to
relocate and consolidate certain manufacturing and distribution operations ($1.3
million) and for additional costs incurred in connection with the previously
announced organizational changes ($.3 million). This charge reduced third
quarter net income by approximately $1 million, or $.06 per share. For the first
nine months of fiscal 1995, a pre-tax provision aggregating $3.7 million was
recorded relating to these charges (approximately $2.4 million after income
taxes, or $.15 per share). It is anticipated that the total pre-tax charge
associated with the relocation and consolidation of operations and
organizational changes will range from $4.7 million to $5.3 million, or from
$.19 to $.21 per share. The remaining portion of these charges will be
recognized in the Company's fourth quarter of fiscal 1995 and the first quarter
of fiscal 1996.
Interest Expense
Interest expense decreased to $5,000 for the third quarter of fiscal 1995 from
$63,000 in the third quarter of fiscal 1994 and decreased to $58,000 in the
first nine months of fiscal 1995 from $210,000 in the first nine months of
Page 11
fiscal 1994. These decreases were due primarily to higher capitalized interest
in the fiscal 1995 period related to additions to property, plant and equipment.
Other Expense (Income), Net
Other income, net in the first nine months of fiscal 1995 was due to a recovery
of previously written-off machinery and equipment, as well as to greater
currency exchange gains and higher interest income resulting from higher
interest rates.
Provision for Income Taxes
The effective tax rate decreased to 35.5% in the third quarter of fiscal 1995
from the 36.5% in the third quarter of fiscal 1994 and for the first nine months
of fiscal 1995 decreased to 34.6% from 36.5% for the first nine months of fiscal
1994. The first nine months decrease was principally a result of a reversal of
valuation allowances relating to tax net operating loss carryforwards from the
European operations which was recorded in the second quarter of fiscal 1995.
Accounting Change
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 first nine months of
fiscal 1994.
Page 12
Item 6 -Exhibits and Reports on Form 8-K
(a) Exhibits
10. Transition Agreement dated June 13, 1995 between the Company and
Ronald J. Naples
11. Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the fiscal
quarter to which this report relates.
Page 13
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 MANUFACTURING CO.
Date October 16, 1995 By /s/ William E. Chandler
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William E. Chandler
Senior Vice President, Finance
(Principal Financial and Accounting
Officer)
Date October 16, 1995 By /s/ Robert B. Fritsch
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Robert B. Fritsch
President and Chief Executive Officer
Page 14
EXHIBIT INDEX
Exhibit 10 - Transition Agreement dated June 13, 1995 between the Company and
Ronald J. Naples
Exhibit 11 - Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule