<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 2, 1997
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8044
-----------------------------------------------------
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 March 24, 1997 there were outstanding 11,044,679 shares of the
registrant's common stock.
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HUNT MANUFACTURING CO.
INDEX
Page
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
--------------------
<S> <C> <C>
Condensed Consolidated Balance Sheets as of
March 2, 1997 and December 1, 1996 3
Condensed Consolidated Statements of Income -
Three Months Ended March 2, 1997 and March 3, 1996 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 2, 1997 and March 3, 1996 5
Notes to Condensed Consolidated Financial
Statements 6 - 7
Item 2 - Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations 8 - 11
---------------------------------------------
PART II - OTHER INFORMATION
-----------------
Item 6 - Exhibits and Reports on Form 8-K 12
--------------------------------
Signatures 13
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Exhibit Index 14
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</TABLE>
<PAGE>
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)
<TABLE>
<CAPTION>
March 2, December 1,
ASSETS 1997 1996
---------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,098 $ 1,528
Accounts receivable, less allowance for doubtful
accounts: 1997, $1,772 ; 1996, $1,809 45,269 48,912
Inventories:
Raw materials 10,260 10,888
Work in process 4,651 4,839
Finished goods 14,594 19,664
---------- ------------
Total inventories 29,505 35,391
Deferred income taxes 5,198 4,563
Prepaid expenses and other current assets 2,092 1,606
---------- ------------
Total current assets 86,162 92,000
Property, plant and equipment, at cost, less
accumulated depreciation and amortization:
1997, $48,385; 1996, $53,938 48,911 52,711
Intangible assets, net 23,467 24,977
Other assets 6,794 5,986
---------- ------------
Total assets $ 165,334 $ 175,674
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 0 $ 0
Accounts payable 10,983 13,271
Accrued expenses:
Salaries, wages and commissions 3,445 5,284
Income taxes 5,891 3,770
Insurance 1,926 2,082
Compensated absences 1,949 2,145
Other 9,429 7,123
---------- ------------
Total current liabilities 33,623 33,675
Long-term debt, less current portion 53,559 64,559
Deferred income taxes 4,340 4,704
Other non-current liabilities 9,588 10,056
Commitments and contingencies
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: 1997 and 1996 -16,152,322 shares 1,615 1,615
Capital in excess of par value 6,434 6,434
Cumulative translation adjustment 50 894
Retained earnings 142,864 141,587
---------- ------------
150,963 150,530
Less cost of treasury stock:
1997 - 5,108,943 shares; 1996 - 5,178,127 shares (86,739) (87,850)
---------- ------------
Total stockholders' equity 64,224 62,680
---------- ------------
Total liabilities and stockholders' equity $ 165,334 $ 175,674
========== ============
</TABLE>
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)
<TABLE>
<CAPTION>
Three months ended
------------------------------------------
March 2, March 3,
1997 1996
---------------- ---------------
<S> <C> <C>
Net sales $76,602 $73,668
Cost of sales 48,218 46,880
---------------- ---------------
Gross profit 28,384 26,788
Selling and shipping expenses 14,517 14,159
Administrative and general expenses 9,316 7,023
(Gain) provision - disposals and special charges (438) 354
---------------- ---------------
Income from operations 4,989 5,252
Interest expense 1,323 875
Other expense (income), net (5) 20
---------------- ---------------
Income before income taxes 3,671 4,357
Provision for income taxes 1,271 1,531
---------------- ---------------
Net income $2,400 $2,826
================ ===============
Average shares of common
stock outstanding 11,007 12,939
================ ===============
Earnings per common share $0.22 $0.22
================ ===============
Dividends per common share $0.095 $0.095
================ ===============
</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
March 2, March 3,
1997 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,400 $ 2,826
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,345 2,336
Deferred income taxes 271 (449)
Loss on disposals of property, plant and equipment 36 36
Gain on sale of businesses (474) -
Payments for special charges, net of provision (181) (939)
Issuance of stock under management incentive bonus
and stock grant plans 918 241
Changes in operating assets and liabilities, including
effect of divestitures (22) (2,449)
-------------- --------------
Net cash provided by operating activities 5,293 1,602
-------------- --------------
Cash flows from investing activities:
Additions to property, plant and equipment (995) (1,438)
Proceeds from sale of businesses 10,956 -
Other, net (838) (221)
-------------- --------------
Net cash provided by (used in) investing activities 9,123 (1,659)
-------------- --------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt - 75,000
Payments on long-term debt, including current maturities (11,000) (230)
Purchase of treasury stock - (86,436)
Proceeds from exercise of stock options 113 69
Dividends paid (1,043) (1,042)
Other, net 139 (47)
-------------- --------------
Net cash used in financing activities (11,791) (12,686)
-------------- --------------
Effect of exchange rate changes on cash (55) 7
-------------- --------------
Net increase (decrease) in cash and cash equivalents 2,570 (12,736)
Cash and cash equivalents, beginning of period 1,528 15,503
-------------- --------------
Cash and cash equivalents, end of period $ 4,098 $ 2,767
============== ==============
Supplemental disclosures of cash flow information:
Interest paid $ 2,260 $ 776
Income taxes paid 78 86
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
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 2, 1997 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 net gain on disposals of $.4 million relates principally to the first
quarter of fiscal 1997 divestitures of the Company's Lit-Ning Products business
and its Hunt Data Products' MediaMate and Calise brand products. The first
quarter of 1996 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 $.9 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 1997, which principally relates to future
severance related payments.
4. In the first quarter of fiscal 1996, in a private transaction, the Company
purchased an aggregate of 2,150,165 of the Company's common shares for a cash
purchase price of $16.32 per share. 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 $86.6 million.
5. During fiscal 1996, the Company obtained a 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 $75.0 million under this credit facility, together
with cash on hand, to fund the shares repurchased in the private transaction
referred to in Note 4 above. Also in fiscal 1996, the Company placed $50 million
of senior notes with several insurance companies. The proceeds of this
transaction were used to repay the outstanding balance of the amortizing term
loan referred to above and to reduce the outstanding balance on the revolving
credit facility. In addition, the terms of the credit facility were revised,
among other things, to reduce the amount of funds available under the facility
from $81.725 million to $75 million; to modify certain limitations, covenants,
borrowings and facility fee margins; and to provide for additional borrowing
options.
<PAGE>
Page 7
Hunt Manufacturing Co.
Notes to Condensed Consolidated Financial Statements, continued
(Unaudited)
6. During the first quarter of fiscal 1997, the Company reached an agreement in
principle to acquire all of the stock of Sallmetall B.V., a Dutch company, for
approximately $14 million and the assumption of debt of approximately $7
million. The acquisition, which is subject to typical conditions, is expected to
be completed by the end of March 1997. Sallmetall's operations involve the
design and assembly of laminating equipment and related adhesive film coating
manufacturing. Sallmetall had sales of approximately $21 million for their
fiscal year ended December 31, 1996. It is anticipated that the acquisition,
which will be accounted for under the purchase method, will be financed with
borrowings under the Company's existing credit facility.
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Page 8
Item 2. Management's Discussion and Analysis of Financial Condition
--------------------------------------------------------------
and Results of Operations
-------------------------
The following discussion includes certain forward-looking statements. Such
forward- looking statements are subject to a number of risks and uncertainties,
including those referred to herein and in the Company's Report on Form 10-K and
other filings with the Securities and Exchange Commission, which could cause
actual results to differ materially from the forward-looking statements.
Financial Condition
- -------------------
The Company's working capital decreased to $52.5 million at the end of the first
quarter of fiscal 1997 from $58.3 million at the end of fiscal 1996. The
decrease was primarily the result of the Company's decision to further reduce
its long-term debt by using the cash proceeds of $11.0 million received from the
first quarter fiscal 1997 divestitures of the businesses discussed below. The
debt-capitalization percentage decreased to 45% at the end of the first quarter
of fiscal 1997 from 51% at the end of fiscal 1996. Available cash balances were
used during the quarter to repay long-term debt of $11.0 million, to purchase
property, plant and equipment of $1.0 million, and to pay cash dividends of $1.0
million.
Current assets decreased to $86.2 million at the end of the first quarter of
fiscal 1997 from $92.0 million at the end of fiscal 1996, principally due to the
uses of cash and to the business divestitures mentioned above. Accounts
receivable decreased to $45.3 million at the end of the first quarter from $48.9
million at fiscal 1996 year-end, largely due to significantly higher sales in
the third month of the fourth quarter of fiscal 1996 compared to those sales in
the last month of the first quarter of fiscal 1997. The decrease in inventories
from $35.4 million at the end of fiscal 1996 to $29.5 million at the end of the
first quarter fiscal 1997 was principally attributable to the business
divestitures and to improved manufacturing processes.
Current liabilities of $33.6 million at the end of the first quarter of fiscal
1997 remained essentially unchanged from $33.7 million at the end of fiscal
1996. Accounts payable decreased primarily due to lower inventory balances in
the first quarter of fiscal 1997, while salaries, wages and commissions
decreased due to payments of incentive compensation in the first quarter of
fiscal 1997, which had been accrued at the end of fiscal 1996. These decreases
were offset by increases in accrued income taxes and other accrued expenses. The
increase in other accrued expenses was largely due to accrual provisions
associated with the aforementioned business divestitures, while the increase in
accrued income taxes was due to timing of tax payments.
The effect of unfavorable currency exchange rates for the British pound sterling
(the functional currency of the Company's U. K. operations) was the principal
cause for the $.8 million decrease in the cumulative translation adjustment
account in stockholders' equity.
Management believes that funds generated from operations, combined with the
existing credit facility, will be sufficient to meet currently anticipated
working capital and other capital and debt service requirements. Should the
Company require additional funds,
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Page 9
management believes that the Company could obtain them at competitive costs.
Management expects that total 1997 expenditures for additions to property, plant
and equipment to increase capacity and productivity will approximate $11.0
million, of which approximately $.9 million has been expended through the first
quarter of fiscal 1997.
Recent Developments
- -------------------
The Company is currently in the process of finalizing, with the assistance of an
outside consulting firm, a strategic assessment and plan for the operation and
direction of the Company. Information concerning details of such plan are
expected to be released by the Company in the near future. Management
anticipates that it will take at least the remaining balance of the 1997 fiscal
year to complete implementation of this plan and further anticipates incurring
significant charges associated with this plan during fiscal 1997. Obviously,
there are risks inherent in the implementation of any major strategic change,
but management believes that the result will be a faster-growing, more
profitable and forward-looking Company.
As a result of this strategic assessment, on February 28, 1997, the Company sold
its Lit-Ning Products business and its Hunt Data Products' MediaMate and Calise
brand products. The sales of these businesses resulted in a net pre-tax gain of
$.5 million, or $.03 per share after-tax. The consolidated results of operations
for the first quarter of fiscal 1997 include the results of these businesses
through the divestiture date. The combined sales of these business units were
approximately $4 million and $24 million in the first quarter of fiscal 1997 and
fiscal year 1996, respectively.
During the first quarter of fiscal 1997, the Company reached an agreement in
principle to acquire all of the stock of Sallmetall B.V., a Dutch company, for
approximately $14 million and the assumption of debt of approximately $7
million. The acquisition, which is subject to typical conditions, is expected to
be completed by the end of March 1997. Sallmetall's operations involve the
design and assembly of laminating equipment and related adhesive film coating
manufacturing. Sallmetall had sales of approximately $21 million for their
fiscal year ended December 31, 1996. It is anticipated that the acquisition,
which will be accounted for under the purchase method, will be financed with
borrowings under the Company's existing credit facility. Management believes
that the acquisition of this business will further strengthen the Company's
position as a leading global supplier of print finishing systems and expand its
activities in the growing market for wide format short-run digital imaging.
Results of Operations
- ---------------------
Net Sales
- ---------
Net sales in the first quarter of fiscal 1997 grew 4.0% to $76.6 million from
$73.7 million in the first quarter of fiscal 1996. This increase was due to
higher unit volume (up 2.5%) and higher selling prices (up 1.5%). The first
quarter sales increase included a 13.9% increase in sales of art/craft products,
which grew to $39.9 million from the first quarter of fiscal 1996 sales of $35.1
million, partially offset by a 5.0% decrease in sales of office products, which
decreased to $36.7 million compared to first quarter of fiscal 1996 sales
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Page 10
of $38.6 million. The art/craft sales increase was led by a 17.6% increase in
sales of presentation graphics products. Higher sales of mounting and laminating
products were contributing factors to this sales growth. Sales of art supplies
products and hobby/craft products grew 2.0% and 7.8%, respectively, compared to
the same period in fiscal 1996. First quarter fiscal 1997 export sales of
art/craft products were up 4.4% compared to the first quarter of fiscal 1996,
due largely to higher sales in Latin America and the Middle East. Foreign sales
of art/craft products continue to increase significantly, growing 22.8% in the
first quarter of fiscal 1997, due primarily to higher sales of presentation
graphics products in Europe.
The office products sales decrease in the first quarter of fiscal 1997 was
principally attributable to lower sales of desktop accessories and supplies
(down 27.0%) and office furniture (down 2.3%), partially offset by higher sales
of mechanical and electromechanical products (up 3.0%). The recently divested
Lit-Ning and Hunt Data Products businesses largely accounted for the desktop
accessories and supplies product sales decrease. The continuing trend toward
consolidation of wholesalers, dealers, and superstores in the office products
market has resulted in an increasing percentage of the Company's office product
sales being attributable to a smaller number of customers and increased buying
and bargaining power in customers. Management is uncertain how this trend will
affect future sales of its office products. Export sales of office products grew
by 8.3% in the first quarter of fiscal 1997, primarily as a result of higher
sales in Canada.
Gross Profit
- ------------
The Company's gross profit percentage increased to 37.1% of net sales in the
first quarter of fiscal 1997 from 36.4% in the same quarter of fiscal 1996. The
increase was due largely to lower product costs, net selling price increases,
and favorable product sales mix. Although the Company has realized positive
effects from its recent selling price increases and to some extent from
stabilization of costs of some of its raw materials, management is uncertain if
future selling prices will offset anticipated raw material increases for the
balance of fiscal 1997.
Selling, Shipping, Administrative, and General Expenses
- -------------------------------------------------------
Selling and shipping expenses decreased slightly to 19.0% of net sales in the
first quarter of fiscal 1997 from 19.2% in first quarter of fiscal 1996. This
decrease was largely the net result of lower field sales related expenses, such
as promotions, partially offset by higher shipping and distribution costs,
primarily higher freight expenses, and marketing administrative expenses.
Administrative and general expenses increased $2.3 million, or 32.6%, in the
first quarter of fiscal 1997 compared to the same period in fiscal 1996. This
increase was principally due to consulting fees related to assistance being
provided during the Company's current strategic assessment of its operations
($1.0 million pre-tax, or $.06 per share after-tax) and to higher management
incentive compensation expenses.
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Page 11
(Gain) Provision - Disposals and Special Charges
- ------------------------------------------------
In the first quarter of fiscal 1997, the Company realized a net gain on business
divestitures of $.5 million pre-tax, or $.03 per share after tax. 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 fiscal 1995 decision to
relocate and consolidate certain manufacturing and distribution operations.
Approximately $.9 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 1997, which principally relates to future
severance-related payments.
Interest Expense
- ----------------
Interest expense increased to $1.3 million for the first quarter of fiscal 1997
from $.9 million in the first quarter of fiscal 1996 due to a higher average
debt balance in the first quarter of fiscal 1997 as compared to the same period
in fiscal 1996.
Provision for Income Taxes
- --------------------------
The Company's effective tax rate decreased to 34.6% in the first quarter of
fiscal 1997 from the 35.1% rate incurred in the first quarter of fiscal 1995.
This decrease was a result of several factors, including resolution of certain
prior years' tax exposures.
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Page 12
Part II - OTHER INFORMATION
-----------------
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
-------------------
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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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 March 24, 1997 By /s/ William E. Chandler
------------------------ ------------------------------------------
William E. Chandler
Senior Vice President, Finance
(Principal Financial and Accounting Officer)
Date March 24, 1997 By /s/ Donald L. Thompson
------------------------ ----------------------------------------
Donald L. Thompson
Chairman of the Board
and Chief Executive Officer
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Page 14
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)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------
March 2, March 3,
1997 1996
-------------- --------------
Primary per share earnings
Earnings applicable to primary
<S> <C> <C>
per share earnings $2,400 $2,826
============== ==============
Average number of common shares
outstanding 11,007 12,939
Add - common equivalent shares
representing shares issuable
upon exercise of stock options
and stock grants 276 196
-------------- --------------
Average shares used to calculate
primary per share earnings 11,283 13,135
============== ==============
Primary per share earnings $0.21 $0.22
============== ==============
Fully diluted per share earnings
Earnings applicable to fully diluted
per share earnings $2,400 $2,826
============== ==============
Average number of common shares
outstanding 11,007 12,939
Add - common equivalent shares
representing shares issuable
upon exercise of stock options
and stock grants 290 214
-------------- --------------
Average shares used to calculate
fully diluted per share earnings 11,297 13,153
============== ==============
Net fully diluted per share earnings $0.21 $0.21
============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000049146
<NAME> HUNT MANUFACTURING CO.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-02-1996
<PERIOD-END> MAR-02-1997
<EXCHANGE-RATE> 00001
<CASH> 4,098
<SECURITIES> 0
<RECEIVABLES> 47,041
<ALLOWANCES> (1,772)
<INVENTORY> 29,505
<CURRENT-ASSETS> 86,162
<PP&E> 97,296
<DEPRECIATION> (48,385)
<TOTAL-ASSETS> 165,334
<CURRENT-LIABILITIES> 33,623
<BONDS> 53,559
0
0
<COMMON> 1,615
<OTHER-SE> 62,609
<TOTAL-LIABILITY-AND-EQUITY> 165,334
<SALES> 76,602
<TOTAL-REVENUES> 76,602
<CGS> 48,218
<TOTAL-COSTS> 48,218
<OTHER-EXPENSES> 23,318
<LOSS-PROVISION> 72
<INTEREST-EXPENSE> 1,323
<INCOME-PRETAX> 3,671
<INCOME-TAX> 1,271
<INCOME-CONTINUING> 2,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,400
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
</TABLE>
