<PAGE>
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 March 3, 1996
-----------------------------------------------
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.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 21-0481254
- -----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 April 8, 1996 there were outstanding 10,968,145 shares of the registrant's
common stock.
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Page 2
HUNT MANUFACTURING CO.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
---------------------
Item 1 - Financial Statements
--------------------
Condensed Consolidated Balance Sheets as of
March 3, 1996 and December 3, 1995 3
Condensed Consolidated Statements of Income -
Three Months Ended March 3, 1996 and February 26, 1995 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 3, 1996 and February 26, 1995 5
Notes to Condensed Consolidated Financial
Statements 6 - 7
Item 2 - Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations 8 - 10
---------------------------------------------
PART II OTHER INFORMATION
-----------------
Item 6 - Exhibits and Reports on Form 8-K 11
--------------------------------
Signatures 12
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Exhibit Index 13
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Page 3
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
Hunt Manufacturing Co.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands except share and per share amounts)
March 3, December 3,
ASSETS 1996 1995
--------- -----------
Current assets:
Cash and cash equivalents $ 2,767 $ 15,503
Accounts receivable, less allowance
for doubtful accounts: 1996, $2,142;
1995, $2,305 43,401 42,036
Inventories:
Raw materials 12,324 12,561
Work in process 6,014 5,452
Finished goods 19,066 18,118
--------- ---------
Total inventories 37,404 36,131
Deferred income taxes 5,039 4,938
Prepaid expenses and other current assets 1,580 1,484
--------- ---------
Total current assets 90,191 100,092
Property, plant and equipment, at cost, less
accumulated depreciation and amortization:
1996, $49,754; 1995, $48,111 51,559 52,008
Intangible assets, net 25,737 25,997
Other assets 5,357 4,713
--------- ---------
Total assets $ 172,844 $ 182,810
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,344 $ 766
Accounts payable 12,644 10,759
Accrued expenses:
Salaries, wages and commissions 3,286 5,446
Income taxes 4,968 3,064
Insurance 2,601 2,449
Compensated absences 1,622 1,673
Other 5,385 6,793
--------- ---------
Total current liabilities 35,850 30,950
Long-term debt, less current portion 73,750 3,559
Deferred income taxes 4,172 4,520
Other non-current liabilities 7,271 7,588
--------- ---------
Total liabilities 121,043 46,617
--------- ---------
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:
1996 -16,152,322 shares;
1995 - 16,152,322 shares 1,615 1,615
Capital in excess of par value 6,434 6,434
Cumulative translation adjustment (1,026) (983)
Retained earnings 132,613 131,216
--------- ---------
139,636 138,282
Less cost of treasury stock:
1996 - 5,184,177 shares; 1995 - 159,159
shares (87,835) (2,089)
--------- ---------
Total stockholders' equity 51,801 136,193
--------- ---------
Total liabilities and stockholders'
equity $ 172,844 $ 182,810
========= =========
See accompanying notes to condensed consolidated financial statements.
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Page 4
Hunt Manufacturing Co.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands except per share amounts)
Three months ended
---------------------------
March 3, February 26,
1996 1995
-------- ------------
Net sales $73,668 $70,530
Cost of sales 46,880 44,888
------- -------
Gross profit 26,788 25,642
Selling and shipping expenses 14,159 13,905
Administrative and general expenses 7,023 6,513
Provision for special charges 354 --
------- -------
Income from operations 5,252 5,224
Interest expense 875 28
Other expense (income), net 20 (75)
------- -------
Income before income taxes 4,357 5,271
Provision for income taxes 1,531 1,924
------- -------
Net income $2,826 $3,347
======= =======
Average shares of common
stock outstanding 12,939 16,118
======= =======
Earnings per common share $0.22 $0.21
======= =======
Dividends per common share $0.095 $0.095
======= =======
See accompanying notes to condensed consolidated financial statements.
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Page 5
Hunt Manufacturing Co.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
------------------------
March 3, February 26,
1996 1995
-------- ------------
Cash flows from operating activities:
Net income $ 2,826 $ 3,347
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,336 2,250
Deferred income taxes (449) 184
Loss on disposals of property, plant and
equipment 36 26
Payments for special charges, net of provision (939) (18)
Issuance of stock under management incentive bonus
and stock grant plans 241 152
Changes in operating assets and liabilities (2,449) (7,811)
-------- --------
Net cash provided by (used for) operating
activities 1,602 (1,870)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (1,438) (2,002)
Other, net (221) --
-------- --------
Net cash used for investing activities (1,659) (2,002)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt 75,000 --
Payments of long-term debt, including current
maturities (230) (234)
Purchase of treasury stock (86,436) (1,189)
Proceeds from exercise of stock options 69 274
Dividends paid (1,042) (1,530)
Other, net (47) (46)
-------- --------
Net cash used for financing activities (12,686) (2,725)
-------- --------
Effect of exchange rate changes on cash 7 (24)
-------- --------
Net decrease in cash and cash equivalents (12,736) (6,621)
Cash and cash equivalents, beginning of period 15,503 13,807
-------- --------
Cash and cash equivalents, end of period $ 2,767 $ 7,186
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 776 $ 94
Income taxes paid 86 1,579
See accompanying notes to consolidated financial statements.
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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 March 3, 1996 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. 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. The pre-tax special charge of $.4 million, or $.02 per share after tax,
relates to the Company's previously-announced fiscal 1995 decision to
relocate and consolidate certain manufacturing and distribution
operations. Approximately $1.3 million of the provisions for
organizational changes and relocation and consolidation of operations
is included in liabilities at the end of the first quarter of fiscal
1996, which principally relates to future severance related payments.
4. In the first quarter of fiscal 1996, the Company purchased from Mary F.
Bartol an aggregate of 2,150,165 of the Company's common shares for a
cash purchase price of $16.32 per share in a private transaction. Mary
F. Bartol is the widow of George E. Bartol III, the late Chairman of
the Board, the mother-in-law of Gordon A. MacInnes, the current
Chairman of the Board, and the mother of Victoria B. Vallely, another
Director of the Company. In addition, later in the first quarter of
fiscal 1996, the Company purchased 2,954,378 of its common shares at
$17.00 net per share in cash in a tender offer. The aggregate purchase
price (plus related expenses) of the shares purchased in the private
transaction and in the tender offer was approximately $86.4 million.
5. During the first quarter of fiscal 1996, the Company obtained a new
five-year $125 million bank credit facility, consisting of a revolving
credit facility in an amount up to $81.725 million, and an amortizing
term loan in the amount of $43.275 million. The Company used borrowings
of $75 million under this credit facility, together with cash on hand,
to fund the shares repurchased from Mary F. Bartol and in the tender
offer. (See Note 4 above.) This new credit facility replaced the
revolving credit agreements (totalling $45 million) which were in
effect at December 3, 1995.
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Page 7
Notes to Condensed Consolidated Financial Statements, continued
(Unaudited)
Long-term debt at the end of the first quarter of fiscal 1996 and at
year-end 1995 is as follows:
As of
Mar. 3, Dec. 3,
1996 1995
---------- ------
Term loan (a) $43,275 --
Revolving credit facility (b) 31,725 --
Line of credit 535 $ 766
Capitalized lease obligation 2,000 2,000
Industrial development revenue bond 1,559 1,559
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79,094 4,325
Less current portion 5,344 766
------- -------
Long-term debt, less current portion $73,750 $3,559
====== ======
(a) The term loan will amortize in twenty quarterly installments,
consisting of four installments each of $1.202 million, $1.683
million, $2.404 million, $2.645 million, and $2.885 million,
respectively. The first installment was due and paid on March
31, 1996, and the last installment is due and payable December
31, 2000. The interest rates under the term loan (6.06% at
March 3,1996) are at the base rate or, at the option of the
Company, LIBOR plus a margin of between 55 and 87.5 basis
points, the margin to be adjusted quarterly based on the
Company's leverage ratio (as defined in the credit facility).
(b) The revolving credit facility matures on December 31, 2000.
The interest rates under this facility (5.91% at March 3,1996)
are at a base rate (defined as the higher of (i) the
applicable prime rate of the bank and (ii) the federal funds
rate plus 50 basis points) or, at the option of the Company,
LIBOR plus a margin of between 40 and 72.5 basis points, the
margin in each case to be adjusted quarterly based on the
Company's leverage ratio (as defined in the credit facility).
The new credit facility also contains certain representations,
warranties, covenants, and conditions, including, but not limited to,
requirements that the Company comply with certain financial covenants,
including interest coverage, fixed charge coverage and leverage ratios,
and maintenance of certain levels of net worth, and also contains
limitations on liens, indebtedness, investments, changes in lines of
business, acquisitions, transactions with affiliates, and modifications
of certain documents. In addition, the new credit facility prohibits
dividends and other distributions to shareholders unless a minimum
fixed charge coverage ratio is satisfied after giving effect to such
dividend or distribution; however, the Company does not presently
anticipate that this dividend restriction will require any reduction
from the Company's current dividend level.
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Page 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
------------------------------------------------------------
Financial Condition
- -------------------
The Company's working capital decreased to $54.3 million at the end of the first
quarter of fiscal 1996 from $69.1 million at the end of fiscal 1995. The
decrease was largely attributable to the Company's repurchases of its common
stock discussed below. The current ratio decreased to 2.5 at March 3, 1996 from
3.2 at December 3, 1995, and debt capitalization percentage increased to
approximately 60% at the end of the first quarter of fiscal 1996 from 3% at the
end of fiscal 1995 as a net result of the purchases of the Company's common
stock and the related debt assumed to finance the purchases. Available cash
balances were used to fund a portion of the common stock purchases
(approximately $10 million), additions to property, plant, and equipment of $1.4
million and to pay cash dividends of $1.0 million.
Current assets decreased to $90.2 million at the end of the first quarter of
fiscal 1996 from $100.1 million at the end of fiscal 1995, primarily as a result
of a $12.7 million decrease in cash, attributable, in part, to the uses of cash
mentioned above. Inventories grew from $36.1 million at December 3, 1995 to
$37.4 million at March 3, 1996, due primarily to new products and stocking in
anticipation of promotional sales expected in the second and third quarters.
Current liabilities of $35.9 million at the end of the first quarter of fiscal
1996 increased from $31.0 million at the end of fiscal 1995. This increase was
largely attributable to increases in the current portion of long-term debt and
accounts payable, partially offset by decreases in accrued salaries, wages and
commissions due principally to payments of incentive compensation in the first
quarter of fiscal 1996, which had been accrued at the end of fiscal 1995, and
other accrued expenses due primarily to payments associated with the provision
for special charges discussed below.
During the first quarter of fiscal 1996, the Company purchased an aggregate of
5.1 million of its common shares in a private transaction and a subsequent
tender offer. The price of the common shares acquired in the private transaction
and tender offer, including related expenses, aggregated $86.4 million. The
Company also obtained a new five-year $125 million credit facility, of which $75
million was used to finance the aforementioned repurchases. This new credit
facility replaced the revolving credit agreements which were in effect at the
end of fiscal 1995.
Management believes that funds generated from operations combined with the new
credit facility will be sufficient to meet currently anticipated working capital
and other capital and debt service requirements. Should the Company require
additional funds, management believes that the Company could obtain them at
competitive costs. Management expects that total 1996 expenditures for additions
to property, plant, and equipment to increase capacity and productivity will
approximate $11.0 million, of which approximately $1.4 million has been expended
through the first quarter of fiscal 1996.
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Page 9
Results of Operations
- ---------------------
Net Sales
- ---------
Net sales in the first quarter of fiscal 1996 grew 4.4% to $73.7 million from
$70.5 million in the first quarter of fiscal 1995. This increase was due to
higher selling prices (up 2.7%) and higher unit volume (up 1.7%). The first
quarter sales increase was comprised of a 13.9% increase in sales of art/craft
products, which grew to $35.1 million from first quarter fiscal 1995 sales of
$30.8 million, partially offset by a 2.8% decrease in sales of office products,
which decreased to $38.6 million compared to first quarter of fiscal 1995 sales
of $39.7 million.
The art/craft products sales increase was led by a 20.3% increase in sales of
presentation graphics products. Higher sales of mounting and laminating
equipment and supplies, as well as growth in the digital imaging market were
contributing factors for this sales increase. Sales of art supplies products and
hobby/craft products were essentially unchanged in the first quarter of fiscal
1996 compared to the same period in fiscal 1995. First quarter fiscal 1996
export sales of art/craft products were down 4.5% compared to the first quarter
of fiscal 1995, largely as a result of lower sales in Latin America, the Middle
East, and Europe. Foreign sales of art/craft products continue to increase
significantly, growing 37.4% in the first quarter of fiscal 1996, due primarily
to higher sales of presentation graphics products in Europe, which includes
sales of products of Centafoam (acquired in late April, 1995). Excluding the
sales from the Centafoam business, foreign sales grew 16.2% in the first quarter
of fiscal 1996.
The office products sales decrease in the first quarter of fiscal 1996 was
attributable to lower sales of mechanical and electromechanical products (down
9.9%) and desktop accessories and supplies (down 9.2%), partially offset by
higher sales of office furniture products (up 9.4%). The decrease in sales of
mechanical and electromechanical products in the first quarter of fiscal 1996
was largely due to lower sales of Boston brand products, particularly paper
shredders, pencil sharpeners and manual staplers. The decrease in Boston brand
products sales was principally attributable to lost distribution of certain of
these products at some of the Company's large superstore customers and resulting
loss of market share for such products. Management is taking measures aimed at
stemming the continuing loss of market share for certain of its mechanical and
elctromechanical products but it is uncertain whether it will be successful in
so doing. Export sales of office products grew by 36.8% in the first quarter of
fiscal 1996, primarily as a result of higher sales in Latin America
(particularly Mexico and Puerto Rico).
Gross Profit
- ------------
The Company's gross profit margin percentage of 36.4% of net sales in the first
quarter of fiscal 1996 remained unchanged from the first quarter of fiscal 1995
due to a combination of factors: net selling price increases offset by changes
in product sales mix (i. e., higher sales for certain office furniture products
and higher foreign sales, which yield lower gross profit percentages than many
of the Company's other products) and lower sales and production volume of Boston
brand products. Although the Company has realized the positive effects of its
recent selling price increases and, to some extent, stabilization of costs of
some of its raw materials, management is uncertain if these conditions will
continue in 1996.
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Page 10
Selling, Shipping, Administrative and General Expenses
- ------------------------------------------------------
Selling and shipping expenses decreased to 19.2% of net sales for the first
quarter of fiscal 1996 from 19.7% in the first quarter of fiscal 1995, largely
due to lower advertising expenses and transportation costs.
First quarter of fiscal 1996 administrative and general expenses were up 7.8%
compared to the first quarter of fiscal 1995 primarily as a result of higher
management incentive compensation expenses and fees for professional services.
Provision for Special Charges
- -----------------------------
In the first quarter of fiscal 1996, the Company recorded a pre-tax charge of
$.4 million, or $.02 per share after tax, relating to the Company's
previously-announced fiscal 1995 decision to relocate and consolidate certain
manufacturing and distribution operations. Approximately $1.3 million of the
provisions for organizational changes and relocation and consolidation of
operations is included in liabilities at the end of the first quarter of fiscal
1996, which principally relates to future severance related payments.
Interest Expense
- ----------------
Interest expense increased to $875,000 for the first quarter of fiscal 1996 from
$28,000 in the first quarter of fiscal 1995 due to significant borrowings under
the new credit facility discussed previously.
Provision for Income Taxes
- --------------------------
The Company's effective tax rate decreased to 35.1% in the first quarter of
fiscal 1996 from the 36.5% rate incurred in the first quarter of fiscal 1995.
This decrease was largely the result of lower state and local effective tax
rates.
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Page 11
Item 6 - Exhibits and Reports on Form 8-K
----------------------------------
(a) Exhibits
--------
11. Computation of Per Share Earnings
27. Financial Data Schedule
(b) Reports on Form 8-K
-------------------
On January 2, 1996, the Company filed a Report on Form 8-K with the
Securities and Exchange Commission, reporting, under Item 5 of said Report, the
Company's purchase of an aggregate of 2,150,165 of its common shares from Mary
F. Bartol, widow of George E. Bartol III, the late Chairman of the Board of the
Company.
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Page 12
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 April 12, 1996 By /s/ William E. Chandler
-------------------- ---------------------------
William E. Chandler
Senior Vice President, Finance
(Principal Financial and Accounting Officer)
Date April 12, 1996 By /s/ Robert B. Fritsch
-------------------- ------------------------
Robert B. Fritsch
President and Chief Executive Officer
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Page 13
EXHIBIT INDEX
Exhibit 11 - Computation of Per Share Earnings
---------------------------------
Exhibit 27 - Financial Data Schedule
-----------------------
<PAGE>
Exhibit 11
Computation of Per Share Earnings
(Unaudited)
(In thousands except per share amounts)
Three Months Ended
---------------------------
March 3, February 26,
1996 1995
-------- ------------
Primary per share earnings
- --------------------------
Earnings applicable to primary
per share earnings $2,826 $3,347
====== ======
Average number of common shares
outstanding 12,939 16,118
Add - common equivalent shares
representing shares issuable
upon exercise of stock options
and stock grants 196 87
------ ------
Average shares used to calculate
primary per share earnings 13,135 16,205
====== ======
Primary per share earnings $0.22 $0.21
====== ======
Fully diluted per share earnings
- --------------------------------
Earnings applicable to fully diluted
per share earnings $2,826 $3,347
====== ======
Average number of common shares
outstanding 12,939 16,118
Add - common equivalent shares
representing shares issuable
upon exercise of stock options
and stock grants 214 89
------ ------
Average shares used to calculate
fully diluted per share earnings 13,153 16,207
====== ======
Net fully diluted per share earnings $0.21 $0.21
====== ======
See accompanying notes to consolidated financial statements.
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<NAME> HUNT MANUFACTURING CO.
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