<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 30, 1998
--------------------------------------------------
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 CORPORATION
- --------------------------------------------------------------------------------
(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
----------------
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 2, 1998, there were outstanding 11,150,930 shares of the
registrant's common stock.
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Page 2
HUNT CORPORATION
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
--------------------
Condensed Consolidated Balance Sheets as of
August 30, 1998 and November 30, 1997 3
Condensed Consolidated Statements of Operations -
Three Months and Nine Months Ended August 30, 1998
and August 31, 1997 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended August 30, 1998 and August 31, 1997 5
Notes to Condensed Consolidated Financial
Statements 6 - 9
Item 2 - Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations 10 - 16
---------------------------------------------
PART II - OTHER INFORMATION
-----------------
Item 2 - Changes in Securities and Use of Proceeds 17
-----------------------------------------
Item 5 - Other Information 18
-----------------
Item 6 - Exhibits and Reports of Form 8-K 19
--------------------------------
Signatures 20
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Exhibit Index 21
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<PAGE>
Part I - FINANCIAL INFORMATION Page 3
Item 1. Financial Statements
--------------------
Hunt Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands except share and per share amounts)
<TABLE>
<CAPTION>
August 30, November 30,
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 40,952 $ 65,449
Accounts receivable, less allowance for doubtful
accounts: 1998, $2,117; 1997, $1,842 37,021 33,565
Inventories:
Raw materials 8,470 7,345
Work in process 3,471 2,845
Finished goods 12,360 9,962
--------- ---------
Total inventories 24,301 20,152
Deferred income taxes 4,174 9,107
Prepaid expenses and other current assets 1,749 2,051
--------- ---------
Total current assets 108,197 130,324
Property, plant and equipment, at cost, less
accumulated depreciation and amortization:
1998, $42,106; 1997, $38,738 49,343 42,973
Excess of acquisition costs over net assets acquired,
less accumulated amortization 25,489 26,906
Intangible assets, net 2,444 2,587
Other assets 8,508 6,732
--------- ---------
Total assets $ 193,981 $ 209,522
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of debt $ 642 $ 2,203
Accounts payable 11,964 11,120
Accrued expenses:
Salaries, wages and commissions 1,579 4,675
Income taxes 5,006 14,089
Insurance 1,530 1,891
Compensated absences 1,916 2,116
Restructuring 3,268 9,385
Other 11,591 18,633
--------- ---------
Total current liabilities 37,496 64,112
Long-term debt, less current portion 58,528 54,096
Deferred income taxes - 3,527
Other non-current liabilities 15,490 13,126
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: 1998 and 1997 -16,152,322 shares 1,615 1,615
Capital in excess of par value 6,434 6,434
Cumulative translation adjustment (370) 275
Retained earnings 158,916 151,093
--------- ---------
166,595 159,417
Less cost of treasury stock:
1998 - 4,898,092 shares; 1997 - 4,985,224 shares (84,128) (84,756)
--------- ---------
Total stockholders' equity 82,467 74,661
--------- ---------
Total liabilities and stockholders' equity $ 193,981 $ 209,522
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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Page 4
Hunt Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------------
August 30, August 31, August 30, August 31,
1998 1997 1998 1997
------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C>
Net sales $61,236 $67,210 $184,882 $190,947
Cost of sales 37,994 41,242 113,340 121,672
------------- ------------- -------------- ----------------
Gross profit 23,242 25,968 71,542 69,275
Selling and shipping expenses 11,568 11,988 34,793 36,069
Administrative and general expenses 6,770 8,960 21,520 25,748
Restructuring and other (253) 351 (2,424) 10,827
------------- ------------- -------------- ----------------
Income (loss) from operations 5,157 4,669 17,653 (3,369)
Interest expense 1,185 1,300 3,405 3,971
Other (income) expense, net (586) 23 (2,476) 183
------------- ------------- -------------- ----------------
Income (loss) from continuing operations before
income taxes 4,558 3,346 16,724 (7,523)
Provision (benefit) for income taxes 1,740 1,453 5,753 (2,746)
------------- ------------- -------------- ----------------
Income (loss) from continuing operations 2,818 1,893 10,971 (4,777)
Discontinued operations:
Income from discontinued operations,
net of income taxes of $882
and $2,018, respectively - 1,611 - 3,685
Gain on sale of discontinued operations,
net of income taxes of $260 484 - 484 -
------------- ------------- -------------- ----------------
Net income (loss) $3,302 $3,504 $11,455 ($1,092)
============= ============= ============== ================
Basic earnings per common share:
Income (loss) from continuing operations $ .25 $ .17 $ .98 $ (.43)
Income from discontinued operations - .15 - .33
Gain on sale of discontinued business .04 - .04 -
------------- ------------- -------------- ----------------
Net income (loss) per share $ .29 $ .32 $1.02 $ (.10)
============= ============= ============== ================
Diluted earnings per common share:
Income (loss) from continuing operations $ .24 $ .16 $ .93 $ (.43)
Income from discontinued operations - .14 - .33
Gain on sale of discontinued operations .04 - .04 -
------------- ------------- -------------- ----------------
Net income (loss) per share $ .28 $ .30 $ .97 $ (.10)
============= ============= ============== ================
Dividends per common share $0.103 $0.095 $0.308 $0.285
============= ============= ============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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Page 5
Hunt Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------
August 30, August 31,
1998 1997
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 11,455 $ (1,092)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,306 6,565
Deferred income taxes 877 (6,684)
(Gain) loss on disposals of property, plant and equipment (13) 161
Gain on sale of businesses (1,394) (474)
(Payments) provision for special charges (6,805) 15,280
Issuance of stock under management incentive bonus
and stock grant plans 252 1,109
Changes in operating assets and liabilities, including
effect of divestitures (23,130) 12,178
-------------- ---------------
Net cash provided by (used in) operating activities (12,452) 27,043
-------------- ---------------
Cash flows from investing activities:
Additions to property, plant and equipment (12,352) (6,157)
Proceeds from sale of businesses - 10,956
Acquisition of business - (13,951)
Other, net - 19
-------------- ---------------
Net cash used in investing activities (12,352) (9,133)
-------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 5,446 13,223
Reductions of long-term debt, including current maturities (2,501) (24,159)
Book overdrafts (225) -
Proceeds from exercise of stock options 1,813 793
Dividends paid (3,460) (3,147)
Purchases of treasury stock (941) -
Other, net 185 (47)
-------------- ---------------
Net cash provided by (used in) financing activities 317 (13,337)
-------------- ---------------
Effect of exchange rate changes on cash (10) 25
-------------- ---------------
Net increase (decrease) in cash and cash equivalents (24,497) 4,598
Cash and cash equivalents, beginning of period 65,449 1,528
-------------- ---------------
Cash and cash equivalents, end of period $ 40,952 $ 6,126
============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Page 6
Hunt Corporation
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 30, 1998 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. During fiscal 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 simplifies the
standards for computing earnings per share by replacing the "primary" and "fully
diluted" calculations previously 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. Earnings per share amounts have been calculated in
accordance with SFAS No. 128 including the restatement of prior year amounts as
shown below:
<TABLE>
<CAPTION>
Three Months Ended
August 30, 1998 August 31, 1997
--------------- ---------------
<S> <C> <C>
Income from continuing operations $ 2,818 $ 1,893
Income from discontinued operations - 1,611
Gain on sale of discontinued operations 484 -
------ -------
Net income $ 3,302 $ 3,504
Basic earnings per share:
Average common shares outstanding 11,284 11,104
Income from continuing operations $ .25 $ .17
Income from discontinued operations - .15
Gain on sale of discontinued operations .04 -
---- ----
Net income $ .29 $ .32
Diluted earnings per share:
Average common shares outstanding 11,284 11,104
Add: common equivalent shares representing
shares issuable upon exercise of stock options
and stock grants 426 565
-------- -------
Average common shares and dilutive
securities outstanding 11,710 11,669
Income from continuing operations $ .24 $.16
Income from discontinued operations - .14
Gain on sale of discontinued operations .04 -
----- -----
Net income $ .28 $.30
</TABLE>
<PAGE>
Page 7
<TABLE>
<CAPTION>
Nine Months Ended
August 30, 1998 August 31, 1997
--------------- ---------------
<S> <C> <C>
Income (loss) from continuing operations $ 10,971 $ (4,777)
Income from discontinued operations - 3,685
Gain on sale of discontinued operations 484 -
--------- -------
Net income (loss) $ 11,455 $ (1,092)
Basic earnings per share:
Average common shares outstanding 11,255 11,055
Income (loss) from continuing operations $ .98 $ (.43)
Income from discontinued operations - .33
Gain on sale of discontinued operations .04 -
------- -----
Net income (loss) $ 1.02 $ (.10)
Diluted earnings per share:
Average common shares outstanding 11,255 11,055
Add: common equivalent shares representing
shares issuable upon exercise of stock options
and stock grants (antidilutive in 1997) 532 -
-------- ------
Average common shares and dilutive
securities outstanding 11,787 11,055
Income (loss) from continuing operations $ .93 $ (.43)
Income from discontinued operations - .33
Gain on sale of discontinued operations .04 -
------- -----
Net income (loss) $ .97 $ (.10)
</TABLE>
3. During the second quarter of fiscal 1997, the Company initiated a new
strategy for growth and restructuring plan (the "strategic plan"). As a result,
the Company recorded a pretax charge to earnings of $26.8 million in fiscal 1997
of which 49% was for cash items. 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 30,
1998 (in thousands):
<TABLE>
<CAPTION>
Accrual Balance Provision Cash Non-Cash Accrual Balance
at November 30, 1997 (Credit) Reductions Activity at August 30, 1998
-------------------- --------- ---------- -------- ------------------
<S> <C> <C> <C> <C> <C>
Inventory $ 4,519 $ (318) $ (1,224) $ (1,162) $ 1,815
Lease Obligations 3,259 (591) (430) - 2,238
Severance 3,045 (1,132) (1,581) - 332
Fixed Assets 558 - - 248 806
Other 2,101 (120) (1,409) - 572
------- -------- --------- -------- -------
Total $13,482 $(2,161) $(4,644) $(914) $5,763
</TABLE>
<PAGE>
Page 8
During the third quarter and first nine months of fiscal 1998, the Company
reduced its accruals associated with the strategic plan by $.2 million pretax
(or $.01 per share after taxes on a basic basis and diluted basis) and $2.2
million pretax (or $.11 per share after taxes on a basic basis and $.10 per
share after taxes on a diluted basis), respectively, due primarily to lower than
expected severance costs, inventory returns and a decision not to vacate a
leased facility. These amounts are included in "Restructuring and other" ($1.8
million for the first nine months) and "Cost of Sales" ($.2 million and $.4
million for the third quarter and first nine months, respectively) in the
accompanying Condensed Consolidated Statements of Operations.
4. During the first quarter of fiscal 1997, the Company realized a net gain of
$.5 million pretax, or $.03 per share after taxes, 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" in the
accompanying Condensed Consolidated Statements of Operations. In addition, the
Company sold its Speedball brand products during the fourth quarter of fiscal
1997. During the third quarter and first nine months of fiscal 1998, due
primarily to lower than anticipated inventory returns and other accruals
established at the time of the respective divestitures, the Company reversed
contingent liabilities in the amounts of $.3 million pretax (or $.01 per share
after taxes on a basic basis and diluted basis) and $.6 million pretax (or $.02
per share after taxes on a basic and diluted basis), respectively, related to
these divested businesses. These amounts are included in "Restructuring and
other" in the accompanying Condensed Consolidated Statements of Operations.
5. In November 1997, the Company sold its Bevis office furniture business. Bevis
had sales of approximately $13.9 million and $42.2 million, and income after
taxes of $1.6 million and $3.7 million in the third quarter and the first nine
months of fiscal 1997, respectively. The Bevis business is presented as a
discontinued operation in the accompanying Condensed Consolidated Statements of
Operations and Notes to Condensed Consolidated Financial Statements.
During the third quarter of fiscal 1998, the Company reduced its accruals
associated with this divestiture by $.7 million pretax (or $.04 per share after
taxes on a basic and diluted basis) due primarily to lower than expected costs
associated with accruals established at the time of divestiture. This amount is
included in "Gain on disposal of discontinued business" in the accompanying
Condensed Consolidated Statements of Operations.
<PAGE>
Page 9
6. The Company has been sued for patent infringement with respect to one of its
relatively minor products. After a jury trial, the U.S. District Court in the
Western District of Wisconsin entered judgment against the Company in this
matter and awarded damages to the plaintiffs in the amount of $3 million, plus
interest and costs. The Company and its patent legal counsel believe that the
verdict against the Company was incorrect and that it will be reversed on
appeal. Accordingly, the Company has not accrued any liability in its financial
statements associated with this judgment. However, there can be no assurance
that the Company will prevail in this matter. In the event of an unfavorable
final judgment against the Company, management believes that it will not have a
material impact on the Company's financial position, but it could have a
material effect on quarterly or annual results of operations.
<PAGE>
Page 10
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 represent management's assessment based upon
information currently available, but are subject to risks and uncertainties
which could cause actual results to differ materially from those set forth in
the forward-looking statements. These risks and uncertainties include, but are
not limited to, the Company's ability to successfully complete the
implementation, and realize the anticipated growth and other benefits, of its
strategic plan on a timely basis, the effect of, and changes in, worldwide
general economic conditions, technological and other changes affecting the
manufacture of and demand for the Company's products, competitive and other
pressures in the market place, the impact of the Year 2000 issue, and other
risks and uncertainties set forth herein and in the Company's Forms 10-K, 10-Q,
and 8-K filings with the Securities and Exchange Commission.
In April 1997, the Company initiated a new strategy for growth and restructuring
plan (the "strategic plan") designed to restore higher levels of sales growth,
profitability and to reduce its cost structure. The cost reduction portion of
the strategic plan resulted in cost savings of approximately $7.3 million in
fiscal 1997 and management believes will result in cost savings of approximately
$18 million in fiscal 1998. Approximately $14.2 million of the anticipated
fiscal 1998 savings was realized in the first nine months of fiscal 1998. The
cost savings have resulted and are expected to result primarily from a
significant reduction of the Company's stock keeping units, the rationalization
of manufacturing and warehouse facilities and from a major restructuring of its
administrative and marketing and selling functions, most of which actions were
accomplished during fiscal 1997. Although the Company expects realization of
such future cost savings, there is no assurance that they will be achieved. (See
Note 3 to Condensed Consolidated Financial Statements herein.)
Results of Operations
- ---------------------
Net Sales
- ---------
Net sales from continuing operations of $61.2 million for the third quarter and
$184.9 million for the first nine months of fiscal 1998 declined 9% and 3%,
respectively, from the corresponding fiscal periods of 1997. However, excluding
the sales of businesses divested and products rationalized in fiscal 1997, net
sales would have decreased 2% in the third quarter and increased 8% in the first
nine months of fiscal 1998 compared to the same periods of fiscal 1997. The
decrease in the third quarter was largely attributable to lower sales of
presentation products (down 8%), partially offset by higher sales of consumer
products (up 5%). The decrease in presentation products was largely the result
of lower mounting and laminating equipment sales due primarily to the
unfavorable economic conditions in Asia and Latin America as well as to slower
than anticipated industry acceptance of technological change. The increase in
consumer products was due to the introduction of new products, expanded
placement of existing products and new distribution in current sales channels.
The increase in the first nine months was largely attributable to
<PAGE>
Page 11
higher sales of presentation products (up 7%) and consumer products (up 10%).
The increase in presentation products was the result of higher sales of foam
board and related board products, and mounting and laminating supplies products,
while the increase in consumer products was due to introduction of new products
and new distribution.
Export sales decreased 22% and 11% in the third quarter and first nine months of
fiscal 1998, respectively, compared to the same prior year periods. Excluding
the sales of divested businesses and product rationalization, export sales would
have decreased 16% in the third quarter and increased 3% in the first nine
months over the comparable prior year periods. The decrease in export sales in
the third quarter was largely attributable to a stronger U.S. dollar versus the
Canadian dollar and to the economic conditions in Latin America. Foreign sales
decreased 19% and 5% in the third quarter and first nine months of fiscal 1998,
respectively, compared to the same periods of fiscal 1997. The Company has
continued to experience some softness in demand for its products (particularly
presentation products) in Asia, which management believes, is primarily as a
result of the current economic situation there.
Management is uncertain as to the extent that the unsettled conditions in Asia
and Latin America will affect the Company's business in the future. If the
economic conditions in these markets worsen, or if these unfavorable conditions
result in a wider regional or global economic slowdown, this decline could have
a material adverse impact on the Company's business, operations, and financial
condition.
Gross Profit
- ------------
The Company's gross profit percentage decreased to 38.0% of net sales in the
third quarter of fiscal 1998 from 38.6% in the third quarter of fiscal 1997 and
increased to 38.7% in the first nine months of 1998 compared to 36.3% in the
first nine months of fiscal 1997. The first nine months increase 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 strategic plan.
Excluding the effect of special items, the Company's adjusted gross profit
percentages of net sales would have been 37.6% and 38.5% for the third quarter
and first nine months of fiscal 1998, respectively, and 38.6% and 39.4% for the
third quarter and first nine months of fiscal 1997, respectively. The decreases
in the adjusted third quarter and first nine months gross profit percentages
from the adjusted gross profit percentages in the prior year periods were the
result of higher than anticipated start-up costs related to the Company's new
substrate facility in the United Kingdom, unfavorable overhead absorption as a
result of lower than expected sales, lower net selling prices, and changes in
customer mix. These higher costs were partially offset by the cost saving
initiatives undertaken as part of the Company's strategic plan.
Selling, Shipping, Administrative and General Expenses
- ------------------------------------------------------
Selling and shipping expenses, as a percentage of net sales, increased to 18.9%
in the third quarter of fiscal 1998 and decreased to 18.8% for the first nine
months of fiscal 1998
<PAGE>
Page 12
compared to 17.8% and 18.9% for the same periods of fiscal 1997. The third
quarter increase was principally due to higher distribution and field sales
expenses, partially offset by lower marketing administration expenses primarily
due to reductions in personnel resulting from the Company's strategic plan.
Administrative and general expenses decreased $2.2 million, or 24%, in the third
quarter of fiscal 1998 and $4.2 million, or 16%, for the first nine months of
fiscal 1998 compared to the corresponding periods of fiscal 1997. The third
quarter decrease was largely attributable to lower management incentive
compensation costs. The first nine months decrease was due to a combination of
factors, the most significant of which were lower management incentive
compensation costs, the inclusion in the fiscal 1997 nine month period of prior
year consulting fees related to the Company's strategic plan ($1.2 million
pretax, or $.07 per share after taxes on a basic and diluted basis) and current
year capitalization of costs ($.6 million pretax) in connection with the
adoption of Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." Such costs were
previously expensed. These decreases were partially offset by higher legal
expenses related to the patent infringement litigation previously mentioned
($.8 million pretax, or $.05 per share after taxes on a basic and diluted
basis). (See Note 6 to the Condensed Consolidated Financial Statements herein).
Restructuring and Other
- -----------------------
During the third quarter and first nine months of fiscal 1998, the Company
reduced by $.3 million pretax ($.2 million after taxes, or $.01 per share on a
basic and diluted basis) and by $.6 million pretax ($.4 million after taxes, or
$.02 per share on a basic and diluted basis) some of its reserves established in
connection with the Company's 1997 business divestitures. The reserve reductions
related principally to lower than anticipated inventory returns and other
accruals. In addition, in the first nine months of fiscal 1998, the Company
reduced by $1.8 million ($1.2 million after taxes, or $.11 per share on a basic
basis and $.10 per share on a diluted basis) some of its reserves established in
connection with the Company's implementation of its strategic plan during fiscal
1997. The reserve reduction related primarily to lower than expected severance
costs and a decision not to vacate a leased facility.
In the first nine months of fiscal 1997, the Company recorded a pretax special
charge of $17.1 million, or $.93 per share after taxes, in connection with its
strategic plan, of which $11.2 million, or $.61 per share after taxes, is
included in "Restructuring and other" in the accompanying Condensed Consolidated
Statements of Operations. Additionally, in the first nine months of fiscal 1997,
the Company realized a net gain on business divestitures of $.5 million pretax,
or $.03 per share after taxes on a basic and diluted basis.
<PAGE>
Page 13
Interest Expense
- ----------------
Interest expense decreased $.1 million, or 9%, in the third quarter of fiscal
1998 from the third quarter of fiscal 1997 and $.6 million, or 14%, in the first
nine months of fiscal 1998 compared to the first nine months of fiscal 1997 due
to lower average debt balances.
Other (Income) Expense, Net
- ---------------------------
The increase in other income, net, of $.6 million in the third quarter of fiscal
1998 and $2.7 million in the first nine months of fiscal 1998 compared to the
third quarter and first nine months of fiscal 1997 was due to higher interest
income resulting from higher average cash balances and the forgiveness of a loan
($.4 million pretax) at one of the Company's foreign operations.
Provision for Income Taxes
- --------------------------
The Company's effective income tax rate from continuing operations was 38.2% and
34.4% for the third quarter and first nine months of fiscal 1998, respectively,
compared to 43.4% and 36.5% for the third quarter and first nine months of 1997.
The effective rate decreases were due primarily to favorable resolutions of
prior years' tax exposures.
Discontinued Operations
- -----------------------
In the third quarter of fiscal 1998, the Company reduced by $.7 million pretax
($.5 million after taxes, or $.04 per share on a basic and diluted basis) some
of its accruals established in connection with the Company's discontinued office
furniture business due to the favorable resolution of certain contingent
liabilities established at the time of divestiture.
Financial Condition
- -------------------
The Company's working capital increased to $70.7 million at the end of the third
quarter of fiscal 1998 from $66.2 million at the end of fiscal 1997. The current
ratio increased to 2.9 at August 30, 1998 from 2.0 at November 30, 1997. The
Company's debt/capitalization percentage decreased slightly to 42% at the end of
the third quarter of fiscal 1998 compared to 43% at the end of fiscal 1997.
Available cash balances were sufficient during the first nine months of fiscal
1998 to fund additions to property, plant and equipment of $12.4 million, to
make cash payments related to the strategic plan of $4.3 million and to pay cash
dividends of $3.5 million.
Current assets decreased to $108.2 million at the end of the third quarter of
fiscal 1998 from $130.3 million at the end of fiscal 1997, largely as a result
of lower cash and cash equivalent balances and deferred income taxes, partially
offset by higher inventory and accounts receivable. The decrease in cash and
cash equivalents was largely due to income tax payments in connection with the
net gains on business divestitures, capital expenditures and payments associated
with the strategic plan. Inventories increased to
<PAGE>
Page 14
$24.3 million at August 30, 1998 from $20.2 million at November 30, 1997, due
principally to lower than anticipated third quarter sales volume, while the
accounts receivable increase was due to seasonal dating and promotional
programs. The $4.9 million decrease in deferred income taxes was due primarily
to temporary differences between reporting for financial and income tax purposes
in connection with the restructuring charges.
Current liabilities decreased to $37.5 million at the end of the third quarter
of fiscal 1998 from $64.1 million at the end of fiscal 1997. This decrease was
largely attributable to the payments of income taxes and reductions in the
accruals associated with the Company's business divestitures and strategic plan.
The effect of unfavorable currency exchange rates for the British pound
sterling, Dutch guilder (the functional currencies of the Company's U.K. and
Holland operations, respectively) was the principal cause for the $.6 million
decrease in the cumulative translation adjustment account in stockholders'
equity.
The Company has a revolving credit agreement of $75 million and a line of credit
agreement of $2.5 million. There was $5.4 million borrowed under these credit
facilities as of August 30, 1998. Management believes that funds generated from
operations, combined with the existing credit facilities, 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 1998 expenditures for additions to property, plant and
equipment to increase capacity and productivity will approximate $16 million, of
which approximately $12.4 million has been expended through the first nine
months of fiscal 1998.
Year 2000 Issue
- ---------------
The Year 2000 ("Y2K") issue is the result of computer programs being written
for, or microprocessors using, two digits (rather than four) to define the
applicable year. Company computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000, which
could result in system failures or miscalculations. The Company is currently
working to mitigate the Y2K issue and has established processes for assessing
the risks and associated costs.
The Company has been formally addressing its internal Y2K issues during the past
few years. These efforts involve assessments, identification of non-compliant
systems, remediation, testing, and verification, including replacing and/or
updating existing systems. The Company has completed the necessary modifications
to most of its critical systems and applications. To date, the project is
proceeding on schedule and is expected to be completed during 1999.
The Company also has initiated communications with significant suppliers and
customers to coordinate the Y2K issue, and is in the process of determining the
Company's
<PAGE>
Page 15
vulnerability if these companies fail to remediate their Y2K issues. There can
be no guarantee that the system of other companies will be timely remediated or
that other companies' failure to remediate Y2K issues would not have a material
adverse effect on the Company.
Costs incurred to date by the Company in addressing the Y2K issues have not been
significant and are being funded through operating cash flows. The total
implementation costs, relating principally to new hardware and software,
capitalized to date are $5.3 million, which should represent substantially all
of the capitalized costs to be incurred. These costs not only addressed Y2K
issues but also provided for operational efficiencies and cost reductions. The
Company continues to evaluate the estimated future costs associated with these
efforts based on actual experience but does not currently anticipate that such
costs will have a material impact on the Company's results of operations or
financial position.
The Company currently believes that its systems will be fully operational and
will not cause any material disruptions because of Y2K issues, but there can be
no assurance that this will be the case. Further, because of the uncertainties
associated with assessing preparedness of suppliers and customers, there is a
risk of a material adverse effect on the Company's future results of operations
if these constituencies do not correct their Y2K problems, if any, on a timely
basis. The Company plans to continue assessing these risks through reviews with
its major suppliers and customers. Contingency plans will be developed to deal
with any problems which may become known as a result of these reviews.
Contingency plans relating to suppliers and customers, if necessary, will be
developed by the end of 1999.
New Accounting Standards
- ------------------------
During the first nine months of fiscal 1998, the Company adopted several new
accounting standards:
SFAS No. 128, "Earnings per Share", changes the manner in which
earnings per share amounts are calculated and presented. (See Note 2
to Condensed Consolidated Financial Statements herein).
SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", provides guidance in accounting for the
costs of computer software developed or obtained for internal use and
for determining if computer software is for internal use (See the
aforementioned discussion in Selling, Shipping, Administrative and
General expenses).
SOP 96-1, "Environmental Remediation Liabilities," provides guidance
on specific accounting issues that are present in the recognition,
measurement, display and disclosure of environmental remediation
liabilities. The adoption of this statement did not have a material
impact on the Company's results of operations or financial position.
<PAGE>
Page 16
During 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 requires that the components
of comprehensive income be reported in the financial statements. The statement
is effective for fiscal years beginning after December 15, 1997.
During 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." 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.
The statement also is effective for fiscal years beginning after December 15,
1997.
During February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 does not change
the measurement or recognition of those plans. It standardizes the disclosure
requirements for pensions and other postretirement benefits, requires additional
information on changes in the benefit obligations and fair values of plan
assets, and eliminates certain disclosures that are no longer as useful. The
statement also is effective for fiscal years beginning after December 15, 1997,
but earlier application is encouraged.
During April 1998, The Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-5, "Reporting on the
Costs of Start-up Activities." SOP 98-5 provides guidance on the financial
reporting on start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred. The
standard is effective for fiscal years beginning after December 15, 1998.
Earlier application is encouraged.
During June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes new procedures for
accounting for derivatives and hedging activities and supercedes and amends a
number of existing standards. The statement is effective for fiscal years
beginning after June 15, 1999, but earlier application is permitted as of the
beginning of any fiscal quarter subsequent to June 15, 1998.
The adoption of SFAS Nos. 130, 131, 132, 133, and SOP 98-5 are not expected to
have a material impact on the Company's consolidated results of operations,
financial position or cash flows.
<PAGE>
Page 17
Part II - OTHER INFORMATION
---------------------------
Item 2 - Changes in Securities and Use of Proceeds
- --------------------------------------------------
(c)
During the third quarter of fiscal 1998, the Company issued from its Treasury an
aggregate of 2,178 unregistered common shares under its 1997 Non-Employee
Director Compensation Plan. Registration of such shares was not required because
their issuance did not involve a "sale" under Section 2(3) of the Securities Act
of 1993, or, alternatively, their issuance was exempt pursuant to the private
offering provisions of that Act and the rules thereunder.
<PAGE>
Page 18
Item 5. Other Information
- -------------------------
Recently, the Securities and Exchange Commission adopted a new proxy rule (Rule
14a-4(c)(i) under the Securities Exchange Act of 1934) which specifies the
circumstances in which a company's annual meeting proxies executed by its
shareholders may confer discretionary authority on the persons named in the
proxies to vote on shareholder proposals which may be presented at the annual
meeting. Under this new rule, such proxies may confer discretionary authority to
vote on shareholder proposals presented at an annual meeting if: (i) the company
did not have notice of the shareholder proposal at least 45 days before the date
on which the company first mailed its proxy materials for the prior year's
annual meeting, and (ii) a specific statement to that effect is made in the
company's proxy statement or form of proxy.
The Company intends to avail itself of the provisions of Rule 14a-4(c)(i), and
accordingly, with respect to the Company's 1999 annual meeting, Company proxies
executed by shareholders will be deemed to have granted discretionary authority
to vote on any shareholder proposals presented at the 1999 annual meeting of
which the Company has not received written notice (addressed to the Company at
its principal executive offices set forth on the cover page of this Report,
Attention: Corporate Secretary) by January 19, 1999, or such other date as the
Company may hereafter specify.
The foregoing has no affect on the requirement (as set forth in the Company's
proxy statement for its April 15, 1998 annual meeting) that in order to be
eligible for inclusion in the Company's proxy statement relating to its 1999
annual meeting, shareholder proposals must be received by the Company not later
than November 16, 1998.
<PAGE>
Page 19
Item 6 -Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
27. Financial Data Schedule for the nine months ended August 30, 1998.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for which this
report is filed.
<PAGE>
Page 20
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 CORPORATION.
Date October 14, 1998 By /s/ William E. Chandler
------------------------------- ------------------------------------
William E. Chandler
Senior Vice President, Finance
(Principal Financial Officer)
Date October 14, 1998 By /s/ Donald L. Thompson
-------------------------------- ------------------------------------
Donald L. Thompson
Chairman of the Board
and Chief Executive Officer
Date October 14, 1998 By /s/ John Fanelli III
-------------------------------- ------------------------------------
John Fanelli III
Vice President, Corporate Controller
(Principal Accounting Officer)
<PAGE>
Page 21
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule for the nine months ended August 30, 1998.
-----------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> AUG-30-1998
<CASH> 40,952
<SECURITIES> 0
<RECEIVABLES> 39,138
<ALLOWANCES> (2,117)
<INVENTORY> 24,301
<CURRENT-ASSETS> 108,197
<PP&E> 91,449
<DEPRECIATION> (42,106)
<TOTAL-ASSETS> 193,981
<CURRENT-LIABILITIES> 37,496
<BONDS> 58,528
0
0
<COMMON> 1,615
<OTHER-SE> 80,852
<TOTAL-LIABILITY-AND-EQUITY> 193,981
<SALES> 184,882
<TOTAL-REVENUES> 184,882
<CGS> 113,340
<TOTAL-COSTS> 113,340
<OTHER-EXPENSES> 51,230
<LOSS-PROVISION> 183
<INTEREST-EXPENSE> 3,405
<INCOME-PRETAX> 16,724
<INCOME-TAX> 5,753
<INCOME-CONTINUING> 10,971
<DISCONTINUED> 484
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,455
<EPS-PRIMARY> 1.02
<EPS-DILUTED> .97
</TABLE>
