<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 August 31, 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 October 1, 1997, there were outstanding 11,143,887 shares of the
registrant's common stock.
<PAGE>
<TABLE>
<CAPTION>
Page 2
HUNT MANUFACTURING CO.
INDEX
Page
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
---------------------
Item 1 - Financial Statements
--------------------
Condensed Consolidated Balance Sheets as of
August 31, 1997 and December 1, 1996 3
Condensed Consolidated Statements of Operations -
Three Months and Nine Months Ended August 31, 1997
and September 1, 1996 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended August 31, 1997 and September 1, 1996 5
Notes to Condensed Consolidated Financial
Statements 6 - 8
Item 2 - Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations 9 - 14
---------------------------------------------
PART II - OTHER INFORMATION
-----------------
Item 6 - Exhibits and Reports on Form 8-K 15
--------------------------------
Signatures 16
----------
Exhibit Index 17
-------------
</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>
August 31, December 1,
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,126 $ 1,528
Accounts receivable, less allowance for doubtful
accounts: 1997, $2,231 ; 1996, $1,809 44,043 48,912
Inventories:
Raw materials 11,015 10,888
Work in process 3,676 4,839
Finished goods 14,760 19,664
------------ ------------
Total inventories 29,451 35,391
Deferred income taxes 10,758 4,563
Prepaid expenses and other current assets 2,194 1,606
------------ ------------
Total current assets 92,572 92,000
Property, plant and equipment, at cost,
less accumulated depreciation and amortization:
1997, $45,600; 1996, $53,938 48,821 52,711
Intangible assets, net 33,712 24,977
Other assets 5,923 5,986
------------ ------------
Total assets $ 181,028 $ 175,674
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,464 $ -
Accounts payable 14,077 13,271
Accrued expenses:
Salaries, wages and commissions 4,922 5,284
Income taxes 7,035 3,770
Insurance 2,342 2,082
Compensated absences 2,362 2,145
Restructuring 5,459 -
Other 9,071 7,123
------------ ------------
Total current liabilities 46,732 33,675
Long-term debt, less current portion 57,811 64,559
Deferred income taxes 4,217 4,704
Other non-current liabilities 13,008 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 (188) 894
Retained earnings 136,950 141,587
------------ ------------
144,811 150,530
Less cost of treasury stock:
1997 - 5,034,135 shares; 1996 - 5,178,127 shares (85,551) (87,850)
------------ ------------
Total stockholders' equity 59,260 62,680
------------ ------------
Total liabilities and stockholders' equity $ 181,028 $ 175,674
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Page 4
Hunt Manufacturing Co.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
August 31, September 1, August 31, September 1,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $81,112 $83,881 $233,135 $238,774
Cost of sales 49,768 52,086 148,725 150,111
-------- -------- -------- --------
Gross profit 31,344 31,795 84,410 88,663
Selling and shipping expenses 14,334 16,197 43,723 46,251
Administrative and general
expenses 9,483 9,012 27,465 23,721
Restructuring, impairment and other costs 351 - 10,827 354
-------- -------- -------- --------
Income from operations 7,176 6,586 2,395 18,337
Interest expense 1,300 1,384 3,971 3,524
Other expense, net 37 62 244 276
-------- -------- -------- --------
Income (loss) before income taxes 5,839 5,140 (1,820) 14,537
Provision (benefit) for income taxes 2,335 1,739 (728) 5,037
-------- -------- -------- --------
Income (loss) before extraordinary item 3,504 3,401 (1,092) 9,500
Extraordinary loss on early extinguishment
of debt (net of income tax benefit of $134) - 251 - 251
-------- -------- -------- --------
Net income (loss) $3,504 $3,150 ($1,092) $9,249
======== ======== ======== ========
Average common and common
equivalent shares outstanding 11,669 11,118 11,450 11,816
======== ======== ======== ========
Net income (loss) per share $0.30 $0.28 ($0.10) $0.78
======== ======== ======== ========
Dividends per common share $0.095 $0.095 $0.285 $0.285
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Page 5
Hunt Manufacturing Co.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------
August 31, September 1,
1997 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (1,092) $ 9,249
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 6,565 6,876
Deferred income taxes (6,684) (559)
Loss on disposals of property, plant and equipment 161 775
Gain on sale of businesses (474) -
Provision (payments) for special charges, net 15,280 (1,271)
Issuance of stock under management incentive bonus
and stock grant plans 1,109 241
Changes in operating assets and liabilities, excluding
effects of acquisition and divestitures 12,178 (6,703)
----------- ----------
Net cash provided by operating activities 27,043 8,608
----------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment (6,157) (5,720)
Proceeds from sale of businesses 10,956 -
Acquisition of business (13,951) -
Other, net 19 (517)
----------- ----------
Net cash used in investing activities (9,133) (6,237)
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of debt 13,223 127,404
Payments on long-term debt, including current maturities (24,159) (53,170)
Purchase of treasury stock - (86,550)
Proceeds from exercise of stock options 793 94
Dividends paid (3,147) (3,126)
Other, net (47) (47)
----------- ----------
Net cash used in financing activities (13,337) (15,395)
----------- ----------
Effect of exchange rate changes on cash 25 144
----------- ----------
Net increase (decrease) in cash and cash equivalents 4,598 (12,880)
Cash and cash equivalents, beginning of period 1,528 15,503
----------- ----------
Cash and cash equivalents, end of period $ 6,126 $ 2,623
=========== ==========
</TABLE>
See accompanying notes to condensed 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 August 31, 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 net income (loss) per share is calculated based on the weighted average
number of common and common equivalent shares outstanding. Shares issuable under
outstanding stock option, stock grant and long-term incentive compensation plans
are common stock equivalents.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share." The new statement replaces the "primary" and "fully diluted"
calculations currently used with "basic earnings per share" which includes only
actual shares outstanding and "diluted earnings per share" which includes the
effect of any common stock equivalents or other items that dilute earnings per
share. The new rules are effective for fiscal periods ending after December 15,
1997, with prior periods restated to comply with the new standards at that time.
Had the SFAS No. 128 provisions been required at August 31, 1997, the Company's
earnings (loss) per share would approximate the pro-forma amounts below:
Nine Months
Third Quarter Year-to-Date
1997 1996 1997 1996
---- ---- ---- ----
Basic earnings (loss) per share $.32 $.29 $(.10) $.80
Diluted earnings (loss) per share $.30 $.28 $(.10) $.78
3. In April, 1997, the Company announced a new strategy for growth and
restructuring plan. In conjunction with the implementation of the growth and
restructuring plan, the Company recorded pre-tax charges to earnings of
approximately $.4 million and $17.1 million in the third quarter and first nine
months of fiscal 1997, respectively. The third quarter amount is included in
restructuring and other costs in the accompanying Condensed Consolidated
Statements of Operations. The first nine months amount is included in the
accompanying Condensed Consolidated Statements of Operations as follows: $11.2
million to restructuring and other costs as further
<PAGE>
Page 7
described below and $5.9 million to costs of sales related principally to
inventory write downs and returns from the reduction in SKU's. The following
table sets forth the details and the cumulative activity in the various accruals
associated with the restructuring plan in the Condensed Consolidated Balance
Sheets at August 31, 1997 (in thousands):
<TABLE>
<CAPTION>
Accrual Balance Current Cash Non-Cash Accrual Balance
at June 1, 199 Provision Reductions Reductions at August 31, 1997
-------------- --------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Restructuring $6,343 $130 $(1,014) - $5,459
PP&E, Inventory, and
non-current liabilities 6,962 288 (10) (463) 6,777
------- --- ----- ----- -----
Total $13,305 $418 $(1,024) $(463) $12,236
</TABLE>
4. During the first quarter of fiscal 1997, the Company realized a net gain of
$.5 million pre-tax, or $.03 per share after-tax, on the divestitures of its
Lit-Ning business and its Hunt Data Products' MediaMate and Calise' brand
products. The net gain is included in restructuring and other costs in the
accompanying Condensed Consolidated Statements of Operations.
5. In the first half 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 reorganize, and relocate and consolidate certain manufacturing and
distribution operations. This pre-tax charge is included in restructuring and
other costs for the first nine months of fiscal 1996 in the accompanying
Condensed Consolidated Statements of Operations. Approximately $ .5 million of
accruals for organizational changes and relocations and consolidation of
operations is included in liabilities at the end of the third quarter of fiscal
1997, which principally relates to future severance-related payments.
6. During the second quarter of fiscal 1997, the Company completed its
previously announced acquisition of all of the stock of Sallmetall B. V., a
Dutch company, for approximately $14 million and the assumption of debt of
approximately $6 million. 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 its fiscal
year ended December 31, 1996. The acquisition was accounted for under the
purchase method of accounting and was financed with borrowings under the
Company's existing credit facility and from internal cash generation. The
purchase price allocation is based upon preliminary appraisal values and
management's estimates and is subject to reclassifications and adjustments in
the future. Sallmetall's net sales were $3.8 million and $6.6 million for the
third quarter and first nine months of fiscal 1997 (after date of acquisition),
respectively, which are included within the art/craft business segment.
<PAGE>
Page 8
7. During the third quarter and first nine months of fiscal 1997, inventory
quantities were reduced, resulting in a liquidation of certain LIFO inventories
carried at lower costs prevailing in prior years. The effect of these reductions
was to increase net income by $380, or $.02 per share, and $1,139, or $.06 per
share, in the third quarter and first nine months of fiscal 1997, respectively.
8. The Company periodically enters into forward exchange contracts to hedge
foreign currency transactions for periods generally consistent with its
committed exposure. These transactions were not material in any of the periods
presented in the condensed consolidated financial statements. As of August 31,
1997, there were no forward exchange contracts outstanding. Cash flows from
hedges are classified in the statements of cash flows in the same category as
the item being hedged. The Company does not hold or issue financial instruments
for trading purposes.
<PAGE>
Page 9
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 factors, material risks
and uncertainties, including those referred to herein and in the Company's
Reports on Forms 10-K, 10-Q and 8-K and other filings with the Securities and
Exchange Commission ("SEC"), which could cause actual results to differ
materially from the forward-looking statements.
In April, 1997, the Company initiated a new strategy for growth and
restructuring plan. As a result, the Company's operating results for the third
quarter and first nine months of fiscal 1997 include the effects of pre-tax
special charges of approximately $.4 million and $17.1 million, respectively.
The special charges include employee severance costs, asset and inventory
writedowns, recognition of future lease obligations, and other related costs.
Approximately 42% of the total special charges in the first nine months of
fiscal 1997 are for cash items, of which $5.8 million remains in the
accompanying Condensed Consolidated Balance Sheet at August 31, 1997. The
Company anticipates that the total charge relating to this growth and
restructuring plan will range from $20 million to $23 million pre-tax, or $1.03
to $1.21 per share after-tax. The remaining portion of the special charge is
expected to be recognized in the fourth quarter of fiscal 1997.
Management believes that the cost reduction portion of the growth and
restructuring plan will result in annual cost savings of approximately $18.0
million. Such annual cost savings are expected to commence in fiscal 1998, with
approximately $7.4 million to be realized in fiscal 1997. Although the Company
expects realization of such cost savings, there is no assurance that these
savings will be achieved. Approximately $3.8 million of the 1997 savings was
realized through the third quarter of fiscal 1997.
The special charges for the third quarter and first nine months of fiscal 1997
are included in the following categories in the Condensed Consolidated
Statements of Operations (in thousands, except per share data):
<TABLE>
<CAPTION>
Pre-Tax Dollar After-Tax
Amount Per Share Amount
-------------- ----------------
Nine Months Nine Months
Third Quarter Year-to-Date Third Quarter Year-to-Date
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Restructuring and other costs $418 $11,236 $.02 $.61
Cost of sales - 5,895 - .32
---------- ------- ------ ------
Total $418 $17,131 $.02 $.93
</TABLE>
<PAGE>
Page 10
Other Developments
- ------------------
In connection with the Company's strategic assessment, at the end of the first
quarter of fiscal 1997 (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 Condensed Consolidated Statements of
Operations for the nine months ended August 31, 1997 include the results of
these businesses through the divestiture date. The combined sales of these
business units were approximately $4 million and $16 million in the first nine
months of fiscal 1997 and fiscal 1996, respectively. The Company is continuing
to actively explore the divestiture of certain other assets which do not fit
with its new strategy. The Company is currently in negotiations with a third
party to sell its Bevis office furniture business. The Bevis business had
revenues of $62 million in fiscal 1996.
During the second quarter of fiscal 1997, the Company completed its previously
announced acquisition of all of the stock of Sallmetall B. V., a Dutch company,
for approximately $14 million and the assumption of debt of approximately $6
million. See Note 6 to Condensed Consolidated Financial Statements herein.
Sallmetall's operations involve the design and assembly of laminating equipment
and related adhesive film coating manufacturing. 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 activity in
the growing market for wide format short-run digital imaging.
Financial Condition
- -------------------
The Company's working capital decreased to $45.8 million at the end of the third
quarter of fiscal 1997 from $58.3 million at the end of fiscal 1996. The
decrease was largely attributable to the Company's special charges related to
its growth and restructuring plan previously discussed. The current ratio
decreased to 2.0 at August 31, 1997 from 2.7 at December 1, 1996, primarily
attributable to the reduction in earnings as a result of the growth and
restructuring plan special charges described above. Debt capitalization
decreased to 50% at the end of the third quarter of fiscal 1997 from 51% at the
end of fiscal 1996. Available cash balances were sufficient during the first
nine months of fiscal 1997 to fund additions to property, plant and equipment of
$6.2 million, pay cash dividends of $3.1 million, reduce net long-term debt by
$10.9 million, and to partially fund the acquisition of Sallmetall B. V. of $2.0
million.
Current assets increased slightly to $92.6 million at the end of the third
quarter of fiscal 1997 from $92.0 million at the end of fiscal 1996, largely as
a result of higher cash and cash equivalent balances and deferred income taxes
offset by lower inventory and accounts receivable balances. Inventories
decreased from $35.4 million at December 1, 1996 to $29.5 million at August 31,
1997, due principally to the $5.9 million inventory write
<PAGE>
Page 11
downs associated with the restructuring plan and to the business divestitures
mentioned above. Accounts receivable decreased to $44.0 million at the end of
the third quarter of fiscal 1997 from $48.9 million at the end of fiscal 1996
due to several factors, including lower sales for the third quarter of fiscal
1997 as compared with those for the fourth quarter of fiscal 1996 and to
divestitures of businesses at the end of the first quarter of fiscal 1997. The
$6.2 million increase in deferred income taxes was due to temporary differences
between reporting for financial and income tax purposes in connection with the
restructuring charges.
Current liabilities increased to $46.7 million at the end of the third quarter
of fiscal 1997 from $33.7 million at the end of fiscal 1996. This increase was
largely attributable to the accrual associated with the restructuring charges
recorded in the second and third quarters of fiscal 1997, accruals associated
with the aforementioned business divestitures and accrued income taxes payable.
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 $1.1 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, management believes that the Company could
obtain them at competitive costs. Management currently expects that total fiscal
1997 expenditures for additions to property, plant and equipment to increase
capacity and productivity will approximate $10.0 million, of which approximately
$6.2 million has been expended through the first nine months of fiscal 1997.
Results of Operations
- ---------------------
Net Sales
- ---------
Net sales of $81.1 million for the third quarter and $233.1 million for the
first nine months of fiscal 1997 declined 3.3% and 2.4%, respectively, from the
corresponding fiscal 1996 periods, largely due to the sale of the Lit-Ning and
Hunt Data Products businesses at the end of the first quarter of fiscal 1997.
Excluding the sales of the divested businesses, net sales would have increased
2.7% in the third quarter of fiscal 1997 and 3.0% in the first nine months of
fiscal 1997 when compared to the same periods in fiscal 1996. Net average
selling prices increased 1.5% in the third quarter and 2.0% in the first nine
months of fiscal 1997 from those in the same periods last year. Excluding the
effect of currency exchange rate changes, net selling prices increases for both
the third quarter and first half of fiscal 1997 would have been 1.2%.
Art/craft products sales increased 7.1% to $44.6 million in the third quarter
and 9.9% to $129.9 million in the first nine months of fiscal 1997 from the same
periods in fiscal 1996.
<PAGE>
Page 12
The increases in art/craft products sales were attributable to higher sales of
presentation graphics products (up 11% in the third quarter and 15% in the first
nine months of fiscal 1997) and art supplies products (up 2% and essentially
unchanged), partially offset by lower sales of hobby/craft products (down 8% and
7%) in the third quarter and first nine months of fiscal 1997, respectively,
compared to the same periods in fiscal 1996. The increase in presentation
graphics products sales in the third quarter of fiscal 1997 was due primarily to
higher sales of mounting and laminating supplies, which includes sales of
products of Sallmetall (acquired near the end of March, 1997) partially offset
by lower sales of substrates related products (i.e., foam board and other board
products). The increase in presentation graphics products sales in the first
nine months of fiscal 1997 was largely due to higher sales of mounting and
laminating equipment and supplies, which includes the sales of products of
Sallmetall and to higher sales of substrates related products. Excluding the
sales from the Sallmetall business, presentation graphics products sales would
have decreased 2% and increased 7% in the third quarter and first nine months of
fiscal 1997, respectively. The third quarter increase in art supplies products
sales was due primarily to higher sales of X-Acto brand knives, partially offset
by lower sales of products targeted for discontinuation in connection with the
product line rationalization and restructuring mentioned above. The decreases in
hobby/craft product sales were due largely to lower sales of products targeted
for discontinuation. Export sales of art/craft products increased 28% and 2% in
the third quarter and first nine months of fiscal 1997, respectively, from the
same periods in fiscal 1996 due principally to higher sales in Latin America.
Foreign sales of art/craft products increased 40% in the third quarter and 32%
in the first nine months of fiscal 1997 compared to the same periods in fiscal
1996, due primarily to higher sales of presentation graphics products in Europe,
which includes the sales of products of Sallmetall and, to a lesser extent, to
increases in the value of the British pound sterling. Excluding the effect of
currency exchange rate changes and the sales of the Sallmetall business, foreign
sales would have decreased 2% in the third quarter and grown 5% in the first
nine months of fiscal 1997.
Office products sales decreased 13.6% to $36.5 million in the third quarter and
decreased 14.4% to $103.2 million in the first nine months of fiscal 1997
compared to the same fiscal 1996 periods. These decreases were principally
attributable to lower sales of desktop accessories and supplies (down 78% and
61%), and office furniture (down 15% and 9%), partially offset by increased
sales of mechanical and electromechanical products (up 10% and .3%), in the
third quarter and first nine months of fiscal 1997, respectively, compared to
the same periods in fiscal 1996. The divested Lit-Ning and Hunt Data Products
businesses largely accounted for the desktop accessories and supplies products
sales decreases. The office furniture sales decreases were due principally to
lower sales of folding tables. The third quarter increase in mechanical and
electromechanical products sales was primarily attributable to higher sales of
electric sharpeners and the effects of large customer product returns in the
third quarter of fiscal 1996. Export sales of office products increased by 8%
and 4% in the third quarter and first nine months of fiscal 1997, respectively.
<PAGE>
Page 13
Gross Profit
- ------------
The Company's gross profit percentage increased to 38.6% of net sales in the
third quarter of fiscal 1997 from 37.9% in the third quarter of fiscal 1996 and
decreased to 36.2% in the first nine months of fiscal 1997 from 37.1% in the
first nine months of fiscal 1996. The third quarter improvements in gross profit
percentages were due largely to inventory reductions, which resulted in
liquidations of certain LIFO inventories carried at lower costs prevailing in
prior years, favorable product sales mix, net selling price increases, and, to
some extent, realization of some cost savings stemming from the early stages of
the restructuring plan implementation. The first nine months decrease was
primarily the result of the $5.9 million special charge recorded in cost of
sales in the second quarter of fiscal 1997 in connection with the Company's
growth and restructuring plan previously discussed. Excluding the effect of this
special charge, gross profit percentages for the first nine months of fiscal
1997 would have been 38.7%. Although the Company has realized recent selling
price increases and stabilization of costs of some of its raw materials,
management is uncertain if these conditions will continue.
Selling, Shipping, Administrative and General Expenses
- ------------------------------------------------------
Selling and shipping expenses, as a percentage of net sales, decreased to 17.7%
and 18.8% for the third quarter and the first nine months of fiscal 1997,
respectively, compared to the prior year expense levels of 19.3% and 19.4% for
the same periods. The reduced percentage is due to lower field sales and
shipping expenses as well as lower headcount resulting from the Company's growth
and restructuring plan previously discussed.
Administrative and general expenses increased $0.5 million, or 5%, in the third
quarter and increased $3.7 million, or 16%, in the first nine months of fiscal
1997 compared to the prior year expense levels for the same periods. The
increase in the third quarter of fiscal 1997 was due primarily to the Sallmetall
acquisition. The increase in the first nine months of fiscal 1997 was largely
due to higher consulting fees primarily related to assistance with the Company's
strategic assessment of its operations ($1.0 million pre-tax, or $.05 per share
after-tax), the Sallmetall acquisition and to higher management incentive
compensation expenses.
Restructuring and Other Costs
- -----------------------------
The Company recorded special charges of $0.4 million pre-tax, or $.02 per share
after-tax, and $17.1 million pre-tax, or $.93 per share after-tax, in connection
with its previously announced growth and restructuring plan. Approximately $11.2
million pre-tax, or $.61 per share after-tax, of the first nine months of fiscal
1997 special charges are included in restructuring and other costs in the
accompanying Condensed Consolidated Statements of Operations. The cash and
non-cash portions of the special charges in the first nine months of fiscal 1997
represent $5.1 million and $6.1 million, respectively, and include employee
severance costs, lease obligations, and other related costs. Expenditures for
cash restructuring items are planned to be substantially expended during the
fourth
<PAGE>
Page 14
quarter of fiscal 1997 and with some carryover into fiscal 1998. Additionally,
in the first nine months of fiscal 1997, the Company realized a net gain on
business divestitures of $.5 million pre-tax, or $.03 per share after-tax,
previously discussed.
In the first nine months 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 $.5 million of accruals for organizational changes and
relocation and consolidation of operations is included in liabilities at the end
of the third quarter of fiscal 1997, which principally relates to future
severance-related payments.
Interest Expense
- ----------------
Interest expense remained essentially unchanged for the third quarter of fiscal
1997 from the third quarter of fiscal 1996 and increased to $4.0 million in the
first nine months of fiscal 1997 from $3.5 million in the first nine months of
fiscal 1996. This increase was due to a higher average debt balance in the first
nine months of fiscal 1997 as compared to the same period in fiscal 1996.
Provision (Benefit) for Income Taxes
- ------------------------------------
The Company recorded an income tax provision of $2.3 million in the third
quarter of fiscal 1997 but incurred an income tax benefit of $.7 million for the
first nine months of fiscal 1997 due primarily to the restructuring charge
recorded in the second quarter. The Company's effective income tax rate was 40%
for both the third quarter and first nine months of fiscal 1997, compared to
33.8% and 34.6% for comparable periods of fiscal 1996.
New Accounting Standards
- ------------------------
During 1997 the FASB issued SFAS No. 128, "Earnings Per Share," SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." All of these standards are effective
in fiscal 1998. The Company is currently assessing the impact these new
standards will have on its financial statements.
SFAS No. 128 changes the manner in which earnings per share amounts are
calculated and presented. See Note 2 to Condensed Consolidated Financial
Statements herein.
SFAS No. 130 requires that the components of comprehensive income be reported in
the financial statements. SFAS No. 131 requires the reporting of segment
information utilizing the approach that the Company uses to manage its internal
organization. Also, SFAS 131 requires the reporting of segment information on a
condensed basis for interim periods beginning in fiscal 1999.
<PAGE>
Page 15
Item 6 - Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits
--------
10. Outside Directors' Compensation Package *
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.
- -------------------
* Indicates a management contract or compensatory plan or arrangement.
<PAGE>
Page 16
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 2, 1997 By /s/ William E. Chandler
--------------------- ----------------------------
William E. Chandler
Senior Vice President, Finance
(Principal Financial Officer)
Date October 2, 1997 By /s/ Donald L. Thompson
--------------------- ---------------------------
Donald L. Thompson
Chairman of the Board
and Chief Executive Officer
Date October 2, 1997 By /s/ John Fanelli III
--------------------- -------------------------
John Fanelli III
Vice President, Corporate Controller
(Principal Accounting Officer)
<PAGE>
Page 17
EXHIBIT INDEX
-------------
Exhibit 10 - Outside Directors' Compensation Package
---------------------------------------
Exhibit 11 - Computation of Per Share Earnings
---------------------------------
Exhibit 27 - Financial Data Schedule
-----------------------
<PAGE>
Exhibit 10
Outside Directors' Compensation Package
In June 1997, the Company's Board of Directors approved a new
compensation package for the Company's outside directors which provides for: (i)
an annual fee of $17,000, of which $12,000 will be paid in the form of Company
stock; (ii) additional fees of $1,000 for each Board and Committee meeting
attended ($1,250 per Committee meeting for Committee Chairpersons); and (iii)
annual grants of nonqualified stock options to purchase 2,000 shares of Company
stock at the fair market value of such stock on the date of the grant, such
options to vest after two years (subject to possible acceleration) and to extend
for 10 years (subject to possible earlier termination).
New outside directors also receive a grant of 5,000 nonqualified stock
options under the Company's 1994 Non-Employee Directors' Stock Option Plan at
the time they join the Board.
<PAGE>
Exhibit 11
Computation of Per Share Earnings
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
August 31, September 1, August 31, September 1,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary per share earnings (losses)
- ----------------------------------
Earnings (losses) applicable to primary
per share earnings (losses) $ 3,504 $ 3,149 ($ 1,092) $ 9,249
======== ======== ======== ========
Average number of common shares
outstanding 11,104 10,970 11,055 11,625
Add - common equivalent shares
representing shares issuable
upon exercise of stock options
and stock grants 436 149 339 184
-------- -------- -------- --------
Average shares used to calculate
primary per share earnings (losses) 11,540 11,119 11,394 11,809
======== ======== ======== ========
Primary per share earnings (losses) $ 0.30 $ 0.28 ($ 0.10) $ 0.78
======== ======== ======== ========
Fully diluted per share earnings (losses)
- ----------------------------------------
Earnings (losses) applicable to fully diluted
per share earnings (losses) $ 3,504 $ 3,149 ($ 1,092) $ 9,249
======== ======== ======== ========
Average number of common shares
outstanding 11,104 10,970 11,055 11,625
Add - common equivalent shares
representing shares issuable
upon exercise of stock options
and stock grants 565 149 395 191
-------- -------- -------- --------
Average shares used to calculate
fully diluted per share earnings (losses) 11,669 11,119 11,450 11,816
======== ======== ======== ========
Net fully diluted per share earnings (losses) $ 0.30 $ 0.28 ($ 0.10) $ 0.78
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> NOV-30-1997
<CASH> 6,126
<SECURITIES> 0
<RECEIVABLES> 46,274
<ALLOWANCES> (2,231)
<INVENTORY> 29,451
<CURRENT-ASSETS> 92,572
<PP&E> 94,421
<DEPRECIATION> (45,600)
<TOTAL-ASSETS> 181,028
<CURRENT-LIABILITIES> 46,732
<BONDS> 57,811
0
0
<COMMON> 1,615
<OTHER-SE> 57,645
<TOTAL-LIABILITY-AND-EQUITY> 181,028
<SALES> 233,135
<TOTAL-REVENUES> 233,135
<CGS> 148,725
<TOTAL-COSTS> 148,725
<OTHER-EXPENSES> 81,450
<LOSS-PROVISION> 809
<INTEREST-EXPENSE> 3,971
<INCOME-PRETAX> (1,820)
<INCOME-TAX> (728)
<INCOME-CONTINUING> (1,092)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,092)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
