Item 1. Business
General
Hunt Manufacturing Co. and its subsidiaries (herein called the "Company", unless the context indicates otherwise) are primarily engaged in the manufacture and distribution of office products and art/craft products which the Company markets worldwide.
Business Segments
The following table sets forth the Company's net sales and operating profit by business segment for the last three fiscal years:
1994 1993 1992 ---- ---- ---- (In thousands)
Net Sales: Office products....... $160,307 $142,462 $126,101 Art/Craft products.... 127,896 113,688 108,828 -------- -------- -------- Total........... $288,203 $256,150 $234,929 ======== ======== ========
Operating Profit: Office products....... $ 12,172 $ 11,411 $ 8,541 Art/Craft products.... 21,211 18,832 18,516 -------- -------- -------- Total........... $ 33,383 $ 30,243 $ 27,057 ======== ======== ========
See Items 6 and 7 herein and Note 15 to Consolidated Financial Statements herein for further information concerning the Company's business segments (including information concerning identifiable assets).
Office Products
The Company has three major classes of office products: mechanical and electromechanical products; office furniture; and desktop accessories and supplies. The amounts and percentages of net sales of these product classes for the last three fiscal years were as follows:
1994 1993 1992 ------------- ------------ ------------ (Dollars in thousands) Product Class: Mechanical and electromechanical.... $ 76,897 48% $ 70,047 49% $ 62,323 49% Office furniture....... 51,715 32% 44,233 31 37,271 30 Desktop accessories and supplies.... 31,695 20% 28,182 20 26,507 21 -------- --- -------- --- -------- --- Total.............. $160,307 100% $142,462 100% $126,101 100% ======== === ======== === ======== ===
The Company's mechanical and electromechanical office products consist of a variety of items sold under the Company's BOSTON brand, including manual and electric pencil sharpeners; paper punches, trimmers and shredders; electric letter openers; spring clips used to hold sheets of paper; manual and electronic staplers; electric air cleaners, fans and heaters, laminators, and other related products. The Company's office furniture products are sold primarily under the BEVIS brand name. These products include conference, computer, utility and folding tables; office chairs; bookcases and screen panels; metal and wood workstations for computer terminals, personal computers, word processors, printers and other similar electronic office equipment; and home/office furniture. The Company's desktop accessories and supplies consist of an array of items marketed under its LIT-NING brand, including metal horizontal and vertical files, letter trays, desk organizers and paper sorting racks. Also included in desktop accessories and supplies are a broad range of products that support the use of computers, such as computer diskette storage devices, printer stands, mouse pads, and surge suppressors which are marketed under the MEDIAMATE brand name. In 1994, the Company obtained exclusive distribution rights in the United States and Canada for Schwan-STABILO1 highlighter markers and writing instruments which are included under desktop accessories and supplies.
The Company consistently has sought to expand its office products business through internal product development, the acquisition of distribution rights to products which complement or extend the Company's established lines, the acquisition of complementary businesses and through broadened distribution. Examples of new office product introductions by the Company in recent years are BOSTON brand electronic staplers, various models of air cleaners, fans and heaters, personal paper shredders, electric and battery powered pencil sharpeners, paper punches, and desk-top laminators; BEVIS UNIWORX, BEVIS ULTRAWORX and BEVIS MEGAWORX lines of modular offices furniture systems; BEVIS STACKAWAYS stackable chairs; MEDIAMATE LASERRAK printer stands; MEDIAMATE FASTRAC mouse pads; MEDIAMATE multi-media storage files, MEDIAMATE ROLL'N RAK portable printer stands, MEDIAMATE POWER TAMER surge suppressors and MEDIAMATE POWER MAKER automobile power adapters.
There are three major and generally distinct domestic markets for the Company's office products: commercial offices, home offices and the gen- eral consumer. The commercial line of the Company's office products is distributed primarily through a network of office supply wholesalers and dealers and office product superstores. Sales to the home office and the general consumer include mechanical and electromechanical products which are sold through large retail outlets, such as office products superstores, drug and food chain stores, variety stores, discount chains, catalog showrooms and membership chains. The consumer market has increased significantly over the last several years primarily due to the dramatic growth of office products superstores. A more limited line of products is sold to schools through specialized school supply distributors.
- ----------- 1. Trademark of Schwan-STABILO Schwanhausser GmbH & Co.
Art/Craft Products
The Company manufactures and distributes three major classes of art/craft products: presentation graphics products; art supplies; and hobby/craft products. (The Company renamed its mounting and laminating products class "presentation graphics" in fiscal 1994 to better describe an expanded product offering.) The amounts and percentages of net sales of these three product classes for the last three fiscal years were as follows:
1994 1993 1992 ----------- ----------- ----------- (Dollars in thousands)
Product Class: Presentation graphics...... $ 83,354 65% $ 68,734 61% $ 63,475 58% Art supplies............... 26,772 21 27,569 24 29,134 27 Hobby/craft................ 17,770 14 17,385 15 16,219 15 -------- -- -------- -- -------- -- Total..................... $127,896 100% $113,688 100% $108,828 100% ======== === ======== === ======== ===
The Company's presentation graphics products are used largely by picture framers, graphic artists, display designers and photo laboratories, and include a range of BIENFANG foam boards (which constitute a significant portion, although less than 40%, of presentation graphics products); TECHMOUNT dry mount adhesive products; pressure sensitive and dry mount adhesive products sold under the SEAL and ADEMCO-SEAL brands, as well as under the COLORMOUNT, SEALEZE and PRINT GUARD brand names; an array of mounting and laminating equipment sold under the CLEAR TECH, SEALEZE, and IMAGE SERIES brand names; and specialty tapes and films supplied under various private brands. The Company's art supply products are used primarily by commercial and amateur artists, and include commercial and fine art papers which the Company converts, finishes and sells under its BIENFANG brand; various types of X-ACTO brand knives and blades; SPEEDBALL paint markers and acrylic and water-color paints; and CONTE2 pastels, crayons and related drawing products, for which the Company is the exclusive United States and Canadian distributor. The Company's hobby/craft products generally are used by hobbyists and craft enthusiasts and include SPEEDBALL print-making products; ACCENT MATS beveled-edge picture framing mats; SPEEDBALL ELEGANT WRITERS and PANACHE calligraphy products; a range of punch quilting products; and X-ACTO brand tools and kits.
The Company consistently has sought to expand its art/craft business primarily through acquisitions of complementary businesses and of distribution rights to complementary products manufactured by others, through internal product development, and through broadened distribution. Major art/craft products introduced during the last several fiscal years include BIENFANG colored and black on black foam board, as well as SINGLE STEP adhesive coated BIENFANG foam board; BIENFANG project display boards; PANACHE calligraphy products; punch quilting products; CLEAR TECH pouch laminators; IMAGE SERIES large format laminators; CLEAR GUARD protective adhesive film; THERMASHIELD laminating film, and X-ACTO self healing mats and craft tools. The acquisition of the Graphic Arts Group from Bunzl plc during fiscal 1990 has significantly expanded the number of the Company's presentation graphics products and enhanced the Company's position in the framing and photomounting markets. In 1993, the Company acquired IMAGE TECHNOLOGIES, Inc., a start-up company engaged in the development and production of large format laminators, which has allowed the Company to broaden its distribution into the digital imaging market. BIENFANG foam board has been particularly important, as it has allowed the Company to penetrate the picture framing, sign, display and exhibit markets, yet it also holds wide appeal to the traditional customer groups in art supply and hobby/craft markets. The success of foam board has been attributable, in significant part, to the Company's ability to offer the end-user a variety of value-added foam board products, such as colored or adhesive coated foam board.
- ----------- 2. Trademark of Conte S.A.
Traditionally, the Company's art/craft products have been distributed primarily through wholesalers (framing, photomounting, art and hobby), dealers (specialized art supply and hobby/craft stores), general consumer-oriented retail outlets (primarily office product superstores and chain stores), industrial concerns (photo labs, screen printers) and through specialized school supply distributors. Over the last several years, consumer-oriented retail outlets have become an increasingly important distribution channel for the Company's art/craft products.
Sales and Marketing
General
The Company has over 12,000 active customers, the ten largest of which accounted for approximately 38% of its sales in fiscal 1994. Three of these ten largest customers were office products superstore chains. The largest single customer accounted for 8.4% of sales for that year. There is a continuing trend toward consolidation of wholesalers, dealers and superstores, resulting in an increasing percentage of the Company's sales being attributable to a smaller number of customers. See Item 7 of this report.
Because most of the Company's sales are made from inventory, the Company generally operates without a material backlog. The Company's sales generally are not subject to material seasonal fluctuations. See Note 14 to Consolidated Financial Statements herein.
Domestic Operations
Domestic marketing of the Company's office products and art/craft products is effected principally through six separate sales forces, one each for office products, furniture, computer accessory products, art/craft products, photomounting and mass market. The combined sales forces are comprised of over 30 Company salespeople and over 300 independent manufacturers' representatives.
The Company maintains domestic distribution centers in Florence, Kentucky; Florence, Alabama; and Laredo, Texas, for office products; in Naugatuck, Connecticut; and Cottage Grove, Wisconsin, for art/craft products; and in Statesville, North Carolina, for both office and art/craft products.
Foreign Operations
The Company distributes its products in more than 60 foreign markets through its own sales force of seven area sales managers and 18 salespersons, and through over 30 independent sales agents and over 300 distributors.
Sales of office products and art/craft products represented approximately 48% and 52%, respectively, of the Company's export sales in fiscal 1994, with electrical and mechanical pencil sharpeners, paper punches, staplers, X-ACTO brand knives and blades, BIENFANG paper and foam board products and pressure sensitive and dry mount adhesive products accounting for the major portion of these sales. Sales from foreign operations were primarily attributable to the Graphic Arts Group acquired in 1990 and included principally presentation graphics products. See Note 15 to Consolidated Financial Statements herein for further information concerning the Company's foreign operations.
The Company maintains distribution centers in Ontario, Canada; Basildon, England; and in Kornwestheim, Germany.
Foreign operations are subject to the usual risks of doing business abroad, particularly currency fluctuations and foreign exchange controls. See also Note 1 and 16 to Consolidated Financial Statements herein for information concerning hedging.
Manufacturing and Production
The Company's operations include manufacturing and converting of products, as well as purchasing and assembly of various component parts. Excluding products for which it acts as a distributor, the vast majority of the Company's sales are of products which are either manufactured, converted or assembled by it. See Item 2
Item 2. Properties
In January, 1995 the Company relocated its principal executive offices to One Commerce Square, 2005 Market Street, Philadelphia, PA 19103 in approximately 56,000 square feet of leased space under a sublease expiring in 2002.
The following table sets forth information with respect to certain of the other facilities of the Company:
Industry Primary Approximate Owned or segment function Location size leased - -------- -------- -------- ----------- -------- Office Manufacturing, Florence, 108,000 sq. (1) Products Warehouse KY ft. bldg. & Offices on 27 acres
Manufacturing, Florence, 266,000 sq. Owned (2) Warehouse AL ft. bldg. & Offices on 24 acres
Manufacturing Nuevo Laredo, 47,000 sq. Leased & Offices Mexico ft. in 2 (exp. 1998) bldgs.
Warehouse Laredo, 45,000 sq. Leased & Offices TX ft. bldg. (exp. 1997)
-----------------
Art/Craft Manufacturing States- 219,000 sq. (3) Products & Offices ville, NC ft. bldg. on 13 acres
Manufacturing, Naugatuck, 86,000 sq. Leased Warehouse & CT ft. bldg. (exp. 2000) Offices on 15 acres
Manufacturing, Basildon, 64,000 sq. Owned Warehouse & England ft. in two Offices bldgs. on 3 acres
-----------------
Industry Primary Approximate Owned or segment function Location size leased - -------- -------- -------- ----------- -------- Office Manufacturing States- 196,000 sq. Owned Products & Offices ville, ft. bldg. and Art/ NC on 16 acres Craft Products
Warehouse States- 190,000 sq. Leased & Offices ville, ft. bldg. (exp. 2005) NC
Warehouse Ontario, 52,000 sq. Leased & Offices Canada ft. bldg. (exp. 1996)
(1) The construction and expansion of this facility was financed by the issuance of industrial revenue bonds by the City of Florence, Kentucky, which bonds have matured and been paid off. The City retains title to the property and leases it to the Company for a nominal consideration, and the Company has the option, subject to certain conditions, to purchase the property for a nominal consideration.
(2) A portion of this facility was financed by the issuance of industrial revenue bonds, due 1995, by the City of Florence, Alabama, which are collateralized by a plant facility and certain equipment.
(3) A portion of this facility was financed by the issuance of industrial revenue bonds, due 2004, by the Iredell County Industrial Facilities and Pollution Control Financing Authority. The Authority retains title to the property and leases it to the Company for rental payments equal to principal and interest payments on the bonds. The Company has the option, subject to certain conditions, to purchase the property for a nominal consideration upon payment of the bonds.
At present, the above facilities generally are believed to be adequately utilized and suitable for the Company's present needs.
Item 3.
Item 3. Pending Legal Proceedings
There currently are no material pending legal proceedings (within the meaning of the Form 10-K Instructions), other than routine litigation incidental to the business of the Company, to which the Company is a party or to which any of its property is subject. See Note 10 to Consolidated Financial Statements herein and Item 1 - - "Environmental Matters" herein.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the security holders of the Company during the fourth quarter of the fiscal year covered by this report.
Additional Information
The following information is furnished in this Part I pursuant to Instruction 3 to Item 401(b) of Regulation S-K:
Executive Officers of the Company
Name Age Position ---- --- --------
Ronald J. Naples 49 Chairman of the Board and Chief Executive Officer
Robert B. Fritsch 63 President and Chief Operating Officer
John W. Carney 51 Vice President, Human Resources
William E. Chandler 51 Senior Vice President, Finance (Chief Financial Officer), and Secretary
Roy M. Delizia 51 Vice President, Corporate Planning and Development
Spencer W. O'Meara 48 Vice President and General Manager
W. Ernest Precious 53 Vice President and General Manager
Eugene A. Stiefel 47 Vice President, Information Services
The executive officers of the Company customarily are elected annually by the Board of Directors to serve, at the pleasure of the Board, for a period of one year or until their successors are elected. All of the executive officers of the Company, except for Messrs. Chandler, Delizia and Stiefel have served in varying executive capacities with the Company for over five years.
Mr. Chandler was elected an executive officer of the Company in February 1993. He joined the Company in September 1992 after three years at Bally Manufacturing Corporation during which he held positions as Acting Chief Financial Officer and Vice President, Financial Operations and Controller. Prior to that, he served for three years at Household Manufacturing, Inc. as Senior Vice President of Finance, Treasurer and Chief Financial Officer.
Messrs. Delizia and Stiefel were elected executive officers of the Company in April 1993. Mr. Delizia joined the Company in October 1983 and has served as Vice President, Corporate Development and Planning since 1987. Mr. Stiefel joined the Company in February 1985 and has served as Vice President, Information Services since 1987.
-----------------------
For the purposes of calculating the aggregate market value of the shares of common stock of the Company held by nonaffiliates, as shown on the cover page of this report, it has been assumed that all the outstanding shares were held by nonaffiliates except for the shares held by directors and officers of the Company. However, this should not be deemed to constitute an admission that all directors and officers of the Company are, in fact, affiliates of the Company, or that there are not other persons who may be deemed to be affiliates of the Company. Further information concerning shareholdings of officers, directors and principal shareholders is included in the Company's definitive proxy statement filed or to be filed with the Securities and Exchange Commission.
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PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
(a) The Company's common stock is traded on the New York Stock Exchange (trading symbol "HUN"). The following table sets forth the high and low quarterly sales prices of the Company's common stock during the two most recent fiscal years (all as reported by The Wall Street Journal):
Fiscal Quarter ------------------------------------------ First Second Third Fourth ----- ------ ----- ------ High $18.25 $18.25 $17 $16.63 Low 15.13 15.25 15.13 14.25
Fiscal Quarter ------------------------------------------ First Second Third Fourth ----- ------ ----- ------ High $15.25 $16.25 $16.25 $16.38 Low 12.75 13.63 13.25 15.25
See Note 9 to Consolidated Financial Statements herein for information concerning certain Rights which were distributed by the Company to shareholders in 1990 and which currently are deemed to be attached to the Company's common stock.
(b) As of February 1, 1995, there were over 1,000 record holders of the Company's common stock, which number does not include shareholders whose shares were held in nominee name.
(c) During the past two fiscal years, the Company has paid regular quarterly cash dividends on its common stock at the following rates per share: 1994 - $.09 per quarter and 1993 - $.0875 per quarter.
Certain of the Company's credit agreements contain restrictions on the Company's present and future ability to pay dividends. See Note 5 to Consolidated Financial Statements herein.
Item 6.
Item 6. Selected Financial Data
The following table contains selected financial data for each of the Company's last five fiscal years. This data should be read in conjunction with the Company's Consolidated Financial Statements (and related notes) appearing elsewhere in this report and with Item 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition
The Company further improved its strong financial condition in fiscal 1994 with working capital increasing to $64.6 million at the end of fiscal 1994 from $47.1 million and $45.5 million at the end of fiscal 1993 and 1992, respectively. The current ratio improved to 3.1 at November 27, 1994 from 2.4 at November 28, 1993 and 2.7 at November 29, 1992, and the percentage of debt to equity was further reduced to 3.5% at the end of fiscal 1994 from 5.3% and 6.9% at the end of fiscal 1993 and 1992, respectively.
The return on average equity, before special charges and an accounting change, improved to 13.8% in fiscal 1994 from 13.1% and 12.5% in fiscal 1993 and 1992, respectively, due primarily to growth in earnings. This improvement was achieved despite the relatively low debt level in the Company's capital structure.
Net cash flows of $20.8 million provided by operating activities in fiscal 1994 were more than sufficient to fund additions to property, plant and equipment of $9.3 million, to pay cash dividends of $5.8 million and to reduce debt by $1.6 million. Management anticipates expenditures for additions to property, plant and equipment in fiscal 1995 to approximate the amount expended in fiscal 1994. Net cash flows provided by operating activities were $23.2 million in 1993 and $20.4 million in 1992. Changes in the accounts payable balances due to timing of payments largely accounted for the decrease in net cash provided by operating activities in fiscal 1994 as compared with fiscal 1993.
The Company's current assets increased to $95.3 million at the end of fiscal 1994 from $80.8 million at the end of fiscal 1993 attributable primarily to a $5.6 million increase in inventories, a $5.1 million increase in deferred tax assets and a $3 million increase in cash and cash equivalents. The increase in inventories was due to several factors, including increases in finished goods for key product categories in anticipation of higher sales and to improve customer deliveries, the purchase of inventories related to an exclusive distribution agreement for Schwan-STABILO highlighter markers and additional inventories of new products. Changes in deferred income taxes were due to several factors, including the adoption of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Current liabilities decreased to $30.7 million at the end of fiscal 1994 from $33.7 million at the end of fiscal 1993 largely due to a $2.2 million reduction of the current portion of long-term debt and a $1.3 million reduction in accounts payable.
Other non-current liabilities increased to $5.5 million at the end of fiscal 1994 from $2.1 million at the end of fiscal 1993 due to several factors, including increases in pension and long-term incentive compensation liabilities.
The Company currently has line-of-credit agreements with three banks providing for borrowing capacity totaling $45 million. There were no borrowings under these line-of- credit agreements at the end of fiscal 1994. Management believes that funds generated from operations combined with existing credit agreements are sufficient to meet currently anticipated working capital and other capital and financing requirements. If additional resources are needed, management believes that the Company could obtain funds at competitive costs.
Results of Operations
Comparison of Fiscal 1994 vs. 1993 - ----------------------------------
Net Sales and Earnings. Net sales increased 12.5% to $288.2 million in fiscal 1994 from $256.2 million in fiscal 1993. This increase was largely the result of higher unit volume, particularly from new products, as selling prices were essentially unchanged in fiscal 1994 from those in fiscal 1993. Sales for both of the Company's business segments, office products and art/craft products, grew by 12.5% in fiscal 1994.
The office products sales increase to $160.3 million in fiscal 1994 from $142.5 million in fiscal 1993 was led by a 16.9% increase in sales of office furniture, while desktop accessories and supplies and mechanical and electromechanical products contributed increases of 12.5% and 9.8%, respectively. The office furniture sales increase was primarily due to higher sales of Bevis brand furniture. The desktop accessories and supplies sales increase was principally attributable to Schwan-STABILO highlighter markers, the exclusive distribution rights to which in the United States and Canada were obtained by the Company in fiscal 1994, and the mechanical and electromechanical products sales increase was due to higher sales of Boston brand office products. Export sales of office products increased 8.6% in fiscal 1994 as compared with sales in fiscal 1993.
Art/craft products sales grew to $127.9 million in fiscal 1994 from $113.7 million in fiscal 1993 led by a 21.3% increase in sales of presentation graphics products. (The Company renamed its mounting and laminating product class "presentation graphics" in fiscal 1994 to better describe an expanded product offering.) Sales of art supplies and hobby/craft products were essentially unchanged in fiscal 1994 from the levels in fiscal 1993. The presentation graphics products sales increase was largely the result of new products, growth in the digital imaging market and improved economic conditions in the United Kingdom. Management expects the growth in the digital imaging markets, while still a relatively small component of the presentation graphics products sales, to continue into 1995. Foreign sales of art/craft products grew 34.6% and export sales were up 4.4% in fiscal 1994 from sales in fiscal 1993.
Net income of $18 million, or $1.12 per share, in fiscal 1994 represents an increase of 20.5% over net income for fiscal 1993. The Company adopted SFAS No. 109, "Accounting for Income Taxes," in fiscal 1994, the cumulative effect of which increased net income by $.8 million, or $.05 per share. Income before the cumulative effect of this accounting change was up 15.2% from the comparable net income for fiscal 1993.
Gross Profit. Gross profit, as a percentage of net sales, decreased to 39.3% in fiscal 1994 from 40.1% in fiscal 1993 due to several factors, including changes in sales mix and higher raw material costs. Higher sales for certain furniture products and higher foreign sales, which yield lower gross profit percentages than the Company's other businesses, caused most of the gross profit percentage decrease attributable to changes in sales mix. The gross profit percentage for foreign sales was 28.7% in fiscal 1994 and 26.7% in fiscal 1993. Higher costs, particularly near the end of fiscal 1994, for commodities such as wood, corrugated packaging materials and styrene plastic were not offset by selling price increases due in large part to continued competitive pressures and the increasing power of superstores and other large customers in the office products area. Management expects the trend of higher raw material costs to continue into fiscal 1995, but believes that the resulting pressure on all manufacturers to pass along their increased raw material costs may enable the Company to institute some selling price increases in fiscal 1995.
Selling, Shipping, Administrative and General Expenses. Selling and shipping expenses, as a percentage of net sales, were reduced to 20.3% in fiscal 1994 from 20.6% in fiscal 1993 largely as a result of lower sales commission expense attributable to changes in customer sales mix. Lower freight expenses in the fourth quarter of fiscal 1994 also accounted for a portion of the decrease. Management expects that the lower rate of selling and shipping expenses will continue into fiscal 1995.
Administrative and general expenses increased 7.6% to $27.3 million in fiscal 1994 from $25.4 million in fiscal 1993. This increase was the result of several factors, including higher management incentive compensation and new product development expenses, as well as a stronger British pound sterling, which increased foreign administrative and general expenses in U.S. dollar terms.
Interest Income and Expense. Interest income increased $152,000 in fiscal 1994 from fiscal 1993 due primarily to higher average cash balances. Interest expense was reduced by $157,000 in fiscal 1994 from fiscal 1993 largely as a result of debt reduction and higher capitalized interest related to additions to property, plant and equipment.
Provision for Income Taxes. The Company's effective tax rate decreased to 36.5% in fiscal 1994 from 37.9% in fiscal 1993. This decrease was the result of several factors, including lower state and local income taxes.
New Accounting Standards. SFAS No. 112, "Employers' Accounting for Postemployment Benefits," requires the accrual of postemployment benefits if the obligation is attributable to employees' services already rendered, employees' rights to those benefits accumulate or vest, payment of the benefits is probable and the amount of the benefits can be reasonably estimated. The Company currently does not believe SFAS No. 112, when adopted in fiscal 1995, will have a material effect on its results of operations or financial condition.
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," requires changes in accounting and reporting for certain investments in debt and equity securities. SFAS No. 115 is effective for fiscal years beginning after December 15, 1993. Accordingly, the Company will adopt SFAS No.115 when required. Management does not believe SFAS No. 115 will have a material effect on its results of operations or financial condition or that additional disclosures will be necessary.
Environmental Matters. The Company is involved on a continuing basis in monitoring its compliance with environmental laws and in making capital and operating improvements necessary to comply with existing and anticipated environmental requirements. Despite its efforts, the Company has been cited for occasional violations or alleged violations of environmental laws or permits and on several occasions has been named as a potentially responsible party for the remediation of sites. Expenses incurred by the Company to date relating to violations of and compliance with environmental laws and permits and site remediation have not been material. While it is impossible to predict with certainty, management currently does not foresee such expenses in the future as having a material effect on the Company's business, results of operations or financial condition (see Note 10 of the Notes to Consolidated Financial Statements).
Comparison of Fiscal 1993 vs. 1992
Net Sales and Earnings. Net sales of $256.2 million for fiscal 1993 increased 9% from $234.9 million in fiscal 1992 due primarily to higher unit volume largely attributable to new products. Average selling prices decreased approximately 3% in fiscal 1993 from fiscal 1992 prices due to continuing competitive pressures and to foreign currency exchange rate changes of approximately 1%.
Office products sales increased 13% in fiscal 1993 to $142.5 million from $126.1 million in fiscal 1992. This increase was led by higher sales of office furniture products, which were up 18.7%, primarily due to broadened distribution for these products gained in fiscal 1993. Mechanical and electromechanical products sales grew by 12.4% in fiscal 1993 due, in large part, to higher sales of Boston brand products, and desktop accessories and supplies were up 6.3% attributable principally to new products, particularly MediaMate brand computer-related accessories. Export sales of office products increased 5.2% in fiscal 1993.
Art/craft products sales of $113.7 million for fiscal 1993 increased 4.5% from fiscal 1992 sales of $108.8 million. This increase was the net result of higher sales of presentation graphics products (up 8.3%) and hobby/craft products (up 7.2%), partially offset by lower sales of art supplies (down 5.4%). The presentation graphics products sales increase was principally attributable to higher sales of Seal brand laminating equipment. The hobby/craft products sales increase was largely due to higher sales of X-Acto brand knife and tool kits. The decrease in sales of art supplies was attributable primarily to lower sales of Bienfang brand paper products. Export sales of art/craft products were essentially unchanged in fiscal 1993, and foreign sales decreased 11.3% primarily due to a decrease in the value of the British pound sterling. Excluding the effect of exchange rate changes, foreign sales increased 3.2% in fiscal 1993.
Net income of $14.9 million for fiscal 1993 grew 12.2% from fiscal 1992 net income of $13.3 million, and earnings per share increased to $.93 in fiscal 1993 from $.83 reported for fiscal 1992. Higher sales volume and lower interest expense were significant factors leading to the earnings increase.
Gross Profit. The Company's gross profit margin decreased to 40.1% of net sales in fiscal 1993 from 40.7% in fiscal 1992. The domestic gross profit margin decreased to 40.3% from 41% and the foreign gross profit margin decreased to 26.7% from 28.6% in 1993 and 1992, respectively. The overall decrease was attributable to lower selling prices which were largely offset by lower raw material costs, the favorable effect of higher sales volume leveraging relatively fixed manufacturing overhead costs and lower employee fringe benefit expenses.
Selling, Shipping, Administrative and General Expenses. Selling and shipping expenses, as a percentage of net sales, were reduced to 20.6% in fiscal 1993 from 21.1% in fiscal 1992 primarily as a result of lower sales commission expenses due, in part, to changes in customer sales mix.
Administrative and general expenses increased to $25.4 million in fiscal 1993 from $23.1 million in fiscal 1992 primarily as a result of higher management incentive compensation expenses and higher management consulting fees.
Interest Expense. Interest expense was reduced to $.2 million in fiscal 1993 from $1.1 million in fiscal 1992 due principally to debt reduction at the end of fiscal 1992 and in fiscal 1993, as well as to an increase in capitalized interest in fiscal 1993.
Provision for Income Taxes. The Company's effective tax rate decreased to 37.9% in fiscal 1993 from 38.4% in fiscal 1992 as a net result of losses incurred by the European operations in fiscal 1992 which did not generate offsetting tax benefits, partially offset by an increase in the U.S. statutory corporate tax rate in fiscal 1993 from 34% to 35% retroactive to January 1, 1993.
Item 8.
Item 8. Financial Statements and Supplementary Data
Financial statements and supplementary financial information specified by this Item, together with the report of Coopers & Lybrand L.L.P. thereon, are presented following Item 14 of this report.
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosure Not applicable.
PART III
Incorporated by Reference
The information called for by Item 10
Item 12 "Security Ownership of Certain Beneficial Owners and Management" and Item 13
Item 13 "Certain Relationships and Related Transactions" is incorporated herein by reference to the Company's definitive proxy statement for its Annual Meeting of Shareholders scheduled to be held April 19, 1995, which definitive proxy statement is expected to be filed with the Commission not later than 120 days after the end of the fiscal year to which this report relates.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents Filed as a part of the Report
1. Financial Statements:
Pages ----- Report of Independent Accountants
Consolidated Statements of Income for the fiscal years 1994, 1993 and 1992
Consolidated Balance Sheets, November 27, 1994 and November 28, 1993
Consolidated Statements of Stockholders' Equity for the fiscal years 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the fiscal years 1994, 1993 and 1992
Notes to Consolidated Financial -27 Statements
2. Financial Statement Schedule:
II. Valuation and Qualifying Accounts for the fiscal years 1994, 1993 and 1992
All other schedules not listed above have been omitted, since they are not applicable or are not required, or because the required information is included in the consolidated financial statements or notes thereto.
Individual financial statements of the Company have been omitted, since the Company is primarily an operating company and any subsidiary companies included in the consolidated financial statements are directly or indirectly wholly-owned and are not indebted to any person, other than the parent or the consolidated subsidiaries, in an amount which is material in relation to total consolidated assets at the date of the latest balance sheet filed, except indebtedness incurred in the ordinary course of business which is not overdue and which matures in one year.
3. Exhibits:
(3) Articles of incorporation and bylaws:
(a) Restated Articles of Incorporation, as amended (composite) (incorp. by ref. to Ex. 4(a) to Reg. Stmt. No. 33-57105 on Form S-8) (reference also is made to Exhibit 4(d) below for the Designation of Powers, Preferences, Rights and Qualifications of Preferred Stock).
(b) By-laws, as amended (incorp. by ref. to Ex. 4(b) to fiscal 1990 Form 10-K).
(4) Instruments, defining rights of security holders, including indentures:*
(a) Credit Agreement dated as of October 2, 1990, between the Company and The Chase Manhattan Bank, N.A. (incorporated by reference to Ex. 4.1 to third quarter fiscal 1990 Form 10-Q).
(b) Credit Agreement dated as of October 2, 1990, between the Company and Mellon Bank (East) PSFS, N.A. (incorp. by ref. to Ex. 4.2 to third quarter fiscal 1990 Form 10- Q).
(c) Credit Agreement dated as of October 2, 1990, between the Company and Philadelphia National Bank, incorporated as CoreStates Bank, N.A. (incorp. by ref. to Ex. 4.3 to third quarter fiscal 1990 Form 10-Q).
(d) Rights Agreement dated as of August 8, 1990 (including as Exhibit A thereto the Designation of Powers, Preferences, Rights and Qualifications of Preferred Stock), between the Company and Mellon Bank (East), N.A., as original Rights Agent (incorp. by ref. to Ex. 4.1 to August, 1990 Form 8-K) and Assignment and Assumption Agreement dated December 2, 1991, with American Stock Transfer and Trust Company, as successor Rights Agent (incorp. by ref. to Ex. 4(d) to fiscal 1991 Form 10-K).
Miscellaneous long-term debt instruments and credit facility agreements of the Company, under which the underlying authorized debt is equal to less than 10% of the total assets of the Company and its subsidiaries on a consolidated basis, may not be filed as exhibits to this report. The Company agrees to furnish to the Commission, upon request, copies of any such unfiled instruments.
(10) Material contracts:
(a) Lease Agreement dated June 1, 1979 and First Supplemental Lease Agreement dated as of July 31, 1994 between the Iredell County Industrial Facilities and Pollution Control Financing Authority and the Company (filed herewith).
(b) 1978 Stock Option Plan, as amended, of the Company (incorp. by ref. to Ex. 28(a) to Reg. Stat. No. 33-25947 on Form S-8).**
(c) 1983 Stock Option and Stock Grant Plan, as amended, of the Company (incorp. by. ref. to Ex. 10(c) to fiscal 1992 Form 10-K).**
(d) 1993 Stock Option and Stock Grant Plan of the Company (incorp. by ref. to Ex. 10(d) to fiscal 1992 Form 10-K).**
(e) 1988 Long-Term Incentive Compensation Plan of the Company (filed herewith).**
(f) 1994 Non-Employee Directors' Stock Option Plan (incorp. by ref. to Ex. 10(f) to fiscal 1993 Form 10-K).**
(g) Loan and Security Agreement dated January 31, 1984, as amended, between the Company and Ronald J. Naples (filed herewith).**
(h) Loan and Security Agreement dated April 20, 1988 between the Company and Robert B. Fritsch (filed herewith).**
(i) (1) Form of Change in Control Agreement between the Company and various officers of the Company (filed herewith) and (2) list of executive officers who are parties (filed herewith)**
(j) Employment-Severance Agreement between the Company and William E. Chandler (incorp. by ref. to Ex. 10(j) to fiscal 1993 Form 10-K).**
(k) (1) Supplemental Executive Benefits Plan of the Company, effective April 16, 1992, and (2) related Amended and Restated Trust Agreement, effective February 17, 1993 (incorp. by ref. to Ex. 10(j) to fiscal 1992 Form 10-K).**
(l) Master Agreement dated May 3, 1990 between the Company and Bunzl plc (incorp. by ref. to Ex. 2(a) to May 1990 Form 8-K).
(m) Stock Acquisition Agreement dated May 3, 1990 between Seal Purchase Corp. and Bunzl Graphic Arts, Inc. relating to Seal (incorp. by ref. to Ex 2(b) to May 1990 Form 8-K).
(11) Statement re: computation of per share earnings (filed herewith).
(21) Subsidiaries (incorp. by ref. to Ex. 21 to fiscal 1993 Form 10-K).
(23) Consent of Coopers & Lybrand L.L.P. to incorporation by reference, in Registration Statement No.s 33-70660, 33- 25947, 33-6359, 2-83144, 33-57105 and 33- 57103 on Form S-8, of their report on the consolidated financial statements and schedules included in this report (filed herewith).
(27) Financial Data Schedule (filed herewith).
- ------------------ * Reference also is made to (i) Articles 5th, 6th, 7th and 8th of the Company's composite Articles of Incorporation (Ex. 3(a) to this report), and (ii) to Sections 1, 7 and 8 of the Company's By-laws (Ex. 3 (b) to this report).
** Indicates a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last quarter of the fiscal year covered by this report.
--------------------
REPORT OF INDEPENDENT ACCOUNTANTS ---------------------------------
To the Stockholders and the Board of Directors of Hunt Manufacturing Co.:
We have audited the accompanying consolidated financial statements and the financial statement schedule of Hunt Manufacturing Co. and Subsidiaries as listed in the index on page 22 of this Form 10-K. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hunt Manufacturing Co. and Subsidiaries as of November 27, 1994 and November 28, 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended November 27, 1994 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects, the information required to be included therein.
As discussed in Notes 1 and 6 to the consolidated financial statements, the Company changed its method of accounting for income taxes in fiscal year 1994.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center Philadelphia, Pennsylvania January 16, 1995
HUNT MANUFACTURING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME for the fiscal years 1994, 1993 and 1992 (In thousands except per share amounts)
1994 1993 1992 ----- ----- -----
Net sales $288,203 $256,150 $234,929
Cost of sales 174,927 153,353 139,366 -------- -------- --------
Gross profit 113,276 102,797 95,563
Selling and shipping expenses 58,572 52,831 49,605 Administrative and general expenses 27,338 25,405 23,064 -------- -------- --------
Income from operations 27,366 24,561 22,894
Interest expense (less $354, $283 and $50 capitalized in 1994, 1993 and 1992, respectively) (85) (242) (1,073)
Interest income 342 190 422
Other expense, net (542) (471) (634) -------- -------- --------
Income before income taxes and cumulative effect of accounting change 27,081 24,038 21,609
Provision for income taxes 9,884 9,110 8,307 -------- -------- --------
Income before cumulative effect of accounting change 17,197 14,928 13,302
Cumulative effect of change in accounting for income tax 795 -- -- -------- -------- --------
Net Income $ 17,992 $ 14,928 $ 13,302 ======== ======== ========
Average shares of common stock outstanding 16,102 16,107 16,104 ======== ======== ========
Earnings per common share: Income before cumulative effect of accounting change $ 1.07 $ .93 $ .83
Cumulative effect of change in accounting for income taxes .05 -- -- -------- -------- --------
Net Income per share $ 1.12 $ .93 $ .83 ======== ======== ========
See accompanying notes to consolidated financial statements.
HUNT MANUFACTURING CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS November 27, 1994 and November 28, 1993 (In thousands except share and per share amounts)
ASSETS 1994 1993 -------- -------- Current assets: Cash and cash equivalents $ 13,807 $ 10,778
Accounts receivable, less allowance for doubtful accounts: 1994, $2,510; 1993, $2,643 41,390 39,472
Inventories 33,550 27,960
Deferred income taxes 5,051 --
Prepaid expenses and other current assets 1,520 2,632 -------- --------
Total current assets 95,318 80,842
Property, plant and equipment, at cost, less accumulated depreciation and amortization 49,729 46,617
Excess of acquisition cost over net assets acquired, less accumulated amortization 17,218 17,054
Intangible assets, at cost, less accumulated amortization 8,764 9,965
Other assets 2,356 1,839 --------- -------- TOTAL ASSETS $ 173,385 $156,317 ========= ========
LIABILITIES
Current liabilities: Current portion of long-term debt $ 1,003 $ 3,158 Accounts payable 9,782 11,060 Accrued expenses: Salaries, wages and commissions 5,742 5,402 Income taxes 4,464 4,992 Insurance 2,430 2,526 Compensated absences 1,741 1,526 Other 5,553 5,050 -------- -------- Total current liabilities 30,715 33,714
Long-term debt, less current portion 3,559 3,003
Deferred income taxes 4,331 1,230
Other non-current liabilities 5,546 2,103
STOCKHOLDERS' EQUITY Capital Stock: Preferred, $.10 par value, authorized 1,000,000 shares (including 50,000 shares of Series A Junior Participating Preferred); none issued - -
Common, $.10 par value, authorized 40,000,000 shares; issued: 1994 - 16,130,068 shares; 1993 - 16,125,321 shares 1,613 1,613
Capital in excess of par value 6,217 6,158
Cumulative translation adjustment (639) (1,495)
Retained earnings 122,518 110,290
Less cost of treasury stock: 1994 - 29,945 shares; 1993 - 18,634 shares (475) (299) -------- -------- Total stockholders' equity 129,234 116,267 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $173,385 $156,317 ======== ========
See accompanying notes to consolidated financial statements.
HUNT MANUFACTURING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for the fiscal years 1994, 1993 and 1992 (In thousands except share and per share amounts)
HUNT MANUFACTURING CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the fiscal years 1994, 1993 and 1992 (In thousands)
1994 1993 1992 ------ ------ ------- Cash flows from operating activities: Net income $17,992 $14,928 $13,302 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,039 7,664 7,558 Provision for inventory obsolescence 2,083 1,598 766 Cumulative effect of change in accounting for income taxes (795) - - Deferred income taxes (1,155) (456) 626 Loss on disposals of property, plant and equipment 634 571 119 Payments relating to relocation and consolidation of operations (132) (400) (2,151) Issuance of stock under management incentive bonus and stock grant plans 312 48 101 Changes in operating assets and liabilities, net of acquisition of business: Accounts receivable (1,688) (1) (710) Inventories (7,485) (4,639) 2,210 Prepaid expenses and other current assets 1,124 (922) (872) Accounts payable (1,352) 2,847 (1,729) Accrued expenses 400 2,009 1,188 Other non-current assets and 2,820 (50) 34 liabilities ------- ------ ------ Net cash provided by operating activities 20,797 23,197 20,442 ------- ------ ------ Cash flows from investing activities: Additions to property, plant and equipment (9,305) (10,339) (6,002) Acquisition of business - (1,051) - Other, net (620) 2 (183) ------- ------ ------
Net cash used for investing activities (9,925) (11,388) (6,185) ------- ------ ------ Cash flows from financing activities: Payments of long-term debt, including current maturities (1,600) (1,209) (11,128) Purchases of treasury stock (728) (308) (365) Proceeds from exercise of stock options 331 211 1 Dividends paid (5,794) (5,639) (5,456) Other, net (45) (49) 65 ------- ------ ------ Net cash used for financing activities (7,836) (6,994) (16,883) ------- ------ ------
Effect of exchange rate changes on cash and cash equivalents (7) (50) (99) ------- ------ ------
Net increase (decrease) in cash and cash equivalents 3,029 4,765 (2,725)
Cash and cash equivalents, beginning of year 10,778 6,013 8,738 ------- ------ ------
Cash and cash equivalents, end of year $13,807 $10,778 $ 6,013 ======= ====== =======
See accompanying notes to consolidated financial statements.
HUNT MANUFACTURING CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands except share and per share amounts) ------ 1. Summary of Significant Accounting Policies:
Basis of Presentation:
The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. The Company's fiscal year ends on the Sunday nearest the end of November. Fiscal year 1994 ended November 27, 1994; fiscal year 1993 ended November 28, 1993; and fiscal year 1992 ended November 29, 1992. All three fiscal years are comprised of 52 weeks. Certain amounts in the 1993 financial statements have been reclassified to conform to the 1994 presentation.
Cash Equivalents:
The Company considers all highly liquid temporary cash investments purchased with a maturity of three months or less to be cash equivalents.
Inventories:
Inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for approximately half of the inventories and by the first-in, first-out (FIFO) method for the remainder. The Company uses the FIFO method of inventory valuation for certain acquired businesses because the related products and operations are separate and distinct from the Company's other businesses.
Property, Plant and Equipment:
Expenditures for additions and improvements to property, plant and equipment are capitalized, and normal repairs and maintenance are charged to expense as incurred. The related cost and accumulated depreciation of depreciable assets disposed of are eliminated from the accounts, and any profit or loss is reflected in other expense, net.
Excess of Acquisition Cost Over Net Assets Acquired and Intangible Assets:
Excess of acquisition cost over net assets acquired relates principally to the Company's acquisitions of X-Acto (1981), Bevis Custom Tables, Inc. (1985), and the Graphic Arts Group of Bunzl plc (1990). The Company's policy is to record an impairment loss against the net unamortized excess of acquisition cost over net assets acquired and net intangible assets in the period when it is determined that the carrying amount of the net assets may not be recoverable. The Company performs this evaluation on a quarterly basis. This determination includes evaluation of factors such as current market value, future asset utilization, business climate and future net cash flows (undiscounted and without interest) expected to result from the use of the net assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands except share and per share amounts) -------
1. Summary of Significant Accounting Policies (continued):
Depreciation and Amortization:
Depreciation for financial reporting purposes is computed using the straight- line method over the estimated useful life of the asset as follows: buildings, 12 to 40 years; machinery and equipment, four to 12 years; and leasehold improvements over the lease term. Depreciation for tax purposes is computed principally using accelerated methods. The excess of acquisition cost over net assets acquired is amortized on a straight-line basis over periods ranging from 20 to 40 years. The costs of intangible assets are amortized on a straight-line basis over their respective estimated useful lives, ranging from five to 30 years. Amortization of assets under capital leases which contain purchase options is provided over the assets' useful lives. Other capital leases are amortized over the terms of the related leases or asset lives, if shorter.
Currency Translation:
The assets and liabilities of subsidiaries having a functional currency other than the U.S. dollar are translated at the fiscal year-end exchange rate, while elements of the income statement are translated at the weighted average exchange rate for the fiscal year. The cumulative translation adjustment is recorded as a separate component of stockholders' equity. Gains and losses on foreign currency transactions are included in the determination of net income and are reflected in other expense, net. Such gains and losses are not material for any of the years presented.
Income Taxes:
Effective November 29, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The adoption of SFAS No. 109 changed the Company's method of accounting for income taxes from the deferral method under Accounting Principles Board Opinion No. 11 to an asset/liability approach. The adoption of SFAS No. 109 has been recognized as the effect of a change in accounting principle and increased net income in fiscal 1994 by $795, or $.05 per share. The increase in net income results primarily from adjusting deferred tax balances to current tax rates. Financial statements of years prior to 1994 have not been restated.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands except share and per share amounts) -------
1. Summary of Significant Accounting Policies (continued):
Hedging:
The Company periodically enters into forward exchange contracts to hedge foreign currency transactions for periods generally consistent with its committed exposure. Cash flows from hedges are classified in the statement of cash flows in the same category as the item being hedged.
Earnings Per Share:
Earnings per share are calculated based on the weighted average number of common shares outstanding. The effect of outstanding stock options and stock grants is not material and has not been included in the calculation.
Employee Benefit Plans:
The Company and its subsidiaries have non-contributory, defined benefit pension plans covering the majority of their employees. It is the Company's policy to fund pension contributions in accordance with the requirements of the Employee Retirement Income Security Act of 1974. The benefit formula used to determine pension costs is the final-average-pay method.
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," requires the accrual of postemployment benefits if the obligation is attributable to employees' services already rendered, employees' rights to those benefits accumulate or vest, payment of the benefits is probable and the amount of the benefits can be reasonably estimated. The Company currently does not believe SFAS No. 112, when adopted in fiscal year 1995, will have a material effect on its results of operations or financial condition.
Environmental Matters:
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are also expensed. The Company records liabilities for environmental costs when environmental assessments and/or remedial efforts are probable and the costs can be reasonably estimated. The liability for future environmental remediation costs is evaluated on a quarterly basis by management. Generally, the timing of these accruals coincides with the earlier of the completion of a feasibility study or the Company's commitment to a plan of action based on the then-known facts. Recoveries of expenditures are recognized as a receivable only when they are estimable and probable.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands except share and per share amounts) -------
2. Inventories:
The classification of inventories at the end of fiscal years 1994 and 1993 is as follows: 1994 1993 -------- -------- Finished goods $ 17,242 $ 13,094 Work in process 5,807 5,289 Raw materials 10,501 9,577 -------- -------- $ 33,550 $ 27,960 ======== ========
Inventories determined under the LIFO method were $17,276 and $13,299 at November 27, 1994 and November 28, 1993, respectively. The current replacement cost for these inventories exceeded the LIFO cost by $5,881 and $5,569 at November 27, 1994 and November 28, 1993, respectively.
Inventory reductions in fiscal years 1994, 1993 and 1992 resulted 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 $315, or $.02 per share, $101, or $.01 per share and $262, or $.02 per share, in fiscal years 1994, 1993 and 1992, respectively.
3. Property, Plant and Equipment:
Property, plant and equipment at the end of fiscal years 1994 and 1993 is as follows: 1994 1993 ------- ------- Land and land improvements $ 3,859 $ 3,698 Buildings 17,683 17,434 Machinery and equipment 66,708 61,718 Leasehold improvements 661 661 Construction in progress 6,981 5,439 ------- ------- 95,892 88,950 Less accumulated depreciation and amortization 46,163 42,333 ------- ------- $49,729 $46,617 ======= =======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands except share and per share amounts) -------
4. Excess of Acquisition Cost Over Net Assets Acquired and Intangible Assets:
Excess of acquisition cost over net assets acquired at the end of fiscal years 1994 and 1993 is as follows: 1994 1993 ------- -------- Excess of acquisition cost over net assets acquired $20,298 $19,573 Less accumulated amortization 3,080 2,519 -------- -------- $17,218 $17,054 ======== ========
Intangible assets at the end of fiscal years 1994 and 1993 are as follows:
1994 1993 ------- ------- Covenants not to compete $11,648 $11,643 Customer lists 1,510 1,510 Patents 1,533 1,533 Trademarks 1,418 1,400 Licensing agreements 1,154 1,154 Other 1,829 1,751 ------- ------- 19,092 18,991
Less accumulated amortization 10,328 9,026 ------- ------- $ 8,764 $ 9,965 ======= ======= 5. Debt:
Credit Agreements and Lines of Credit:
At November 27, 1994, the Company had revolving credit agreements with three banks that provide for unsecured borrowings up to $45 million. There were no borrowings under these agreements at November 27, 1994 or November 28, 1993. Amounts borrowed under these agreements, which expire October 2, 1996, would be converted to term loans upon expiration of the revolving credit termination dates. Principal payments would be made in quarterly installments beginning January 2, 1997 through October 2, 1999. Interest on borrowings under these agreements are at varying rates based, at the Company's option, on the banks' prime rate, certificate of deposit rate, or money market rate, the London Interbank Offering Rate (LIBOR), or the as- offered rate. None of these agreements has compensating balance requirements. Commitment fees of 1/8 of 1% are payable under these agreements.
Long-Term Debt:
Long-term debt at the end of fiscal years 1994 and 1993 is as follows:
1994 1993 ------ ------ Term loan (a) $ 938 $1,875 Capitalized lease obligation (See Note 10) 2,000 2,000 Industrial development revenue bond (b) 1,559 1,559 Industrial development revenue bond (c) 65 700 Other - 27 ------ ----- 4,562 6,161
Less current portion 1,003 3,158 ------ ------ $3,559 $3,003 ====== ======
(a) The principal of this term loan is payable in equal quarterly installments of $234.4 through September 29, 1995. Interest on the borrowing is payable quarterly at a rate of 10.93% per annum on the outstanding principal amount of the loan.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands except share and per share amounts) ------ 5. Debt (continued):
(b) In June 1994, the Company refinanced this industrial development revenue bond with a new maturity date of June 15, 1999. The interest rate (5.525% at November 27, 1994) remained the same at 65% of the lending bank's average daily prime rate.
(c) This bond bears interest (6.426% at November 27, 1994) at 75.6% of the lending bank's average daily prime rate. The principal balance of $65 is payable in installments of $60 on May 1, 1995 and $5 on November 1, 1995. It is collateralized by a plant facility and certain equipment.
The terms of certain financing agreements contain, among other provisions, requirements for maintaining certain working capital and other financial ratios, and restrictions on incurring additional indebtedness and obligate the Company to equally and ratably collateralize the indebtedness under such agreements if the Company grants or assumes certain liens on its assets. Under the most restrictive covenants, dividends and purchases of capital stock of the Company may not exceed, on a cumulative basis, 75% of the cumulative net income of the Company at any time during the period beginning November 28, 1983. As of November 27, 1994, $53 million was available to the Company under this provision for future cash dividends and future purchases of its own capital stock. In addition, as of November 27, 1994, the Company exceeded its minimum tangible net worth requirement of $62 million by $41.3 million.
The capitalized lease obligation is collateralized by the property, plant and equipment described in Note 10.
There are no maturities of long-term debt, including the capitalized lease, for three fiscal years subsequent to December 3, 1995. In fiscal 1999 there will be an aggregate maturity of $1,559.
6. Income Taxes:
Income before provision for income taxes consists of the following:
1994 1993 1992 ------- ------- ------- Domestic $24,935 $21,758 $20,341 Foreign 2,146 2,280 1,268 ------- ------- ------- $27,081 $24,038 $21,609 ======= ======= =======
The provision for income taxes consists of the following:
1994 1993 1992 ------- ------ ------- Currently payable:
Federal $ 9,863 $8,406 $6,694 State 1,009 877 815 Foreign 167 283 159 ------- ------ ------ 11,039 9,566 7,668 Deferred (1,155) (456) 639 ------- ------ ------ $ 9,884 $9,110 $8,307 ======= ====== ======
The following is a reconciliation of the statutory federal income tax rate with the Company's effective income tax rate:
1994 1993 1992 ----- ----- ----- Statutory federal rate 35.0% 34.9% 34.0% State income taxes, net of federal tax benefit 2.1 2.2 2.6 Losses of foreign subsidiaries with no current offsetting tax benefit - - 1.0
Other, net (.6) .8 .8 ---- ---- ---- Effective tax rate 36.5% 37.9% 38.4% ==== ==== ====
Effective November 29, 1993, the Company adopted SFAS No. 109 (see Note 1).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands except share and per share amounts) -------
6. Income Taxes (continued):
The significant components of deferred tax assets and liabilities at November 27, 1994 consist of: Assets Liabilities --------- ----------- Inventories $ 2,609 - Accrued expenses 2,705 $ 443 Allowance for doubtful accounts 901 - Net operating loss carryforwards-foreign 821 - Pensions 766 271 Net operating loss carryforwards-states 313 - Depreciation and amortization 497 6,044 ------- -------- 8,612 6,758 Valuation allowance (1,134) - ------- -------- $ 7,478 $ 6,758 ======= ========
As of November 27, 1994, the Company had foreign net operating loss carry- forwards of approximately $2.1 million which may be carried forward indefinitely, approximately $.9 million of which were acquired in connection with business acquisitions. To the extent that net operating loss carryforwards acquired in connection with business acquisitions are utilized in the future and the associated valuation allowance reduced, the tax benefit thereof will be allocated to reduce excess of acquisition cost over net assets acquired related to the acquisition.
The valuation allowance of $1.1 million relates to net operating losses which are uncertain as to realizability as of November 27, 1994. The net change in the total valuation allowance for the year ended November 27, 1994 was an increase of $52.
Deferred income taxes relate to the following timing differences between amounts reported for financial accounting and income tax purposes:
1993 1992 ------ ----- Depreciation $ 53 $119 Provision for relocation and consolidation of operations 61 622 Other, net (570) (102) ----- ---- $(456) $639 ===== ====
7. Employee Benefit Plans:
Pension Plans:
Net pension costs for fiscal years 1994, 1993 and 1992 consist of the following:
1994 1993 1992 ------ ------ ------ Service cost-benefits earned during the period $2,049 $1,580 $1,595 Interest cost on projected benefit obligation 2,155 1,852 1,672 Actual return on plan assets (1,031) (1,863) (1,692) Net amortization and deferral (759) 107 184 ------ ------ ------ Net pension costs $2,414 $1,676 $1,759 ====== ====== ======
Net amortization and deferral consists of the deferral of the excess of actual return on assets over estimated return and amortization of the net unrecognized transition asset on a straight-line basis, principally over 15 years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands except share and per share amounts) -------
7. Employee Benefit Plans (continued):
The funded status of the Company's pension plans at September 30, 1994 and 1993 (dates of actuarial valuations) is as follows:
1994 1993 ----------------------- ------------------------ Overfunded Underfunded Overfunded Underfunded ---------- ----------- ---------- ----------- Plan assets at fair value $26,227 $ 643 $24,327 $ 660 ------- ------ ------- ------ Actuarial present value of benefit obligations: Vested 18,434 1,715 19,139 1,718
Non-vested 67 185 390 249 ------- ------ ------ ------ Accumulated benefit obligation 18,501 1,900 19,529 1,967
Effect of increase in compensation 7,999 818 7,288 875 ------- ------ ------ ------ Projected benefit obligation 26,500 2,718 26,817 2,842 ------- ------ ------ ------ Projected benefit obligation in excess of plan assets (273) (2,075) (2,490) (2,182)
Unrecognized net (gain) loss (7) 89 2,612 486
Unrecognized transition asset (1,668) (19) (1,890) (22)
Unrecognized prior service cost 754 1,102 857 1,218
Minimum liability adjustment - (355) - - ------ ------- ------ ------ Pension liability $(1,194) $(1,258) $ (911) $ (500) ====== ======= ====== ======
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands except share and per share amounts) -------
7. Employee Benefit Plans: (continued):
Pension costs are determined using the assumptions as of the beginning of the year. The funded status is determined using the assumptions as of the end of the year andis deemed overfunded or underfunded based on a comparison of the plan assets atfair value with the accumulated benefit obligation. Plan assets consist principally ofcommon stock and U.S. Government and corporate obligations.
Significant assumptions at year-end include:
1994 1993 1992 ---- ---- ---- Discount rate 8.00% 7.00% 7.75% Rate of increase in compensation levels 6.00% 6.00% 6.00% Expected long-term rate of return on plan assets 7.50% 7.50% 7.50%
Supplemental Executive Benefits Plan:
The Company has instituted a nonqualified, Supplemental Executive Benefits (retirement) Plan covering all officers. Expenses of $394, $331 and $325 in fiscal years 1994, 1993 and 1992, respectively, relating to this plan were actuarially determined and are included in the pension costs described above. In 1994 the Company added an elective salary deferral feature to this plan. Contributions to this portion of the plan will begin in fiscal 1995.
Employee Savings Plan:
The Company has a defined contribution 401(k) plan available to a majority of its employees in the United States. For participating employees, the Company matches 25 cents for each dollar contributed up to a maximum of 6% of pre-tax compensation, subject to limitations of the plan and the Internal Revenue Code. Contributions to the 401(k) plan by the Company were $407, $379 and $300 for fiscal years 1994, 1993 and 1992, respectively.
8. Stock Option, Stock Grant and Long-Term Incentive Compensation Plans:
In 1993 the Company adopted the 1993 Stock Option and Stock Grant Plan which replaced the expired 1983 Stock Option and Stock Grant Plan. The 1993 plan authorizes the issuance of up to 1,750,000 common shares, of which up to 525,000 may be issued in the form of stock grants. The terms of the 1993 plan are essentially similar to the terms of the 1983 plan described below.
The Company's 1983 Stock Option and Stock Grant Plan and the 1978 Stock Option Plan expired by their terms in February 1993 and November 1988, respectively, and, while incentive stock options granted under them remain outstanding, no further options may be granted under these plans.
Under the 1983 plan, common shares were authorized for the granting of incentive stock options, nonqualified stock options and stock grants to key employees, provided that stock grants may be made for no more than 373,125 common shares. The option price of options granted under the plan may not be less than the market value of the shares at the date granted. Options may be granted for terms of between two and ten years and generally become exercisable not less than one year following the date of grant.
Stock grants under the 1983 plan are subject to a vesting period or periods of between one and five years from the date of grant. Common shares are not actually issued to a grantee until such shares have vested under the plan. The plan also provides for the payment of an annual cash bonus to recipients of stock grants in an amount equal to the cash dividends which would have been received had the shares not yet vested under the grant been actually held by the recipients.
Under the 1978 plan, options for 632,813 common shares were authorized for the granting of options to key employees at option prices not less than the market value of the common shares at the date of grant. Options granted under this plan have terms of not more than ten years and generally become exercisable not less than one year following the date of grant.
Payment upon exercise of stock options under the 1993, 1983 and 1978 plans may be by cash and/or by the Company's common stock in an amount equivalent to the market value of the stock at the date exercised.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands except share and per share amounts) -------
8. Stock Option, Stock Grant and Long-Term Incentive Compensation Plans (continued):
A summary of options under the Company's stock option plans is as follows:
1993 Plan 1983 Plan 1978 Plan --------- --------- --------- 1994 1994 1993 1994 1993 ------- -------- ------- ----- ------ Outstanding, beginning of year - 779,004 756,486 2,638 3,493 Options granted 388,100 - 148,200 - -
Options exercised (at an average price per share of $12.49, $10.47 and $7.77, respectively) - (31,501) (102,282) - (855) Options expired - - - - - Options terminated (24,700) (17,500) (23,400) - - ------- ------- ------- ----- ----- Outstanding, end of year 363,400 730,003 779,004 2,638 2,638 ======= ======= ======= ===== ===== Average option price per share $15.79 $13.44 $13.43 $10.58 $10.58
Outstanding exercisable options, end of year - 596,803 506,754 2,638 2,638
Shares reserved for future stock options and grants 1,386,600 - - - -
In 1992 there were 17,022 options exercised at an average price of $7.77 under the 1983 plan.
The Company's 1988 Long-Term Incentive Compensation Plan provides for the granting to management-level employees of long-term incentive awards, which are payable in cash and/or by the Company's common stock at the end of a designated performance period of from two to five years, based upon the degree of attainment of pre-established performance standards during the performance period. A maximum of 180,000 shares are authorized for issuance under this plan.
As of the end of fiscal 1994, an aggregate of 66,008 shares had been earned under this plan (17,042, 13,394 and 4,300 shares in fiscal years 1994, 1993 and 1992, respectively, and 31,272 shares in all previous years), and an aggregate of 51,185 shares were subject to outstanding unvested grants. There is no stated limitation on the aggregate amount of cash payable under this plan, but the maximum amount (in cash and/or shares) which may be paid to a participant under all long-term incentive awards under the plan with respect to the same performance period may not exceed 125% of the participant's base salary in effect at the time the award initially was made. The charges to administrative and general expenses relating to this plan were $532, $563 and $88 in fiscal years 1994, 1993 and 1992, respectively.
9. Shareholders' Rights Plan:
In 1990 the Company adopted a Shareholders' Rights Agreement and declared a dividend of one right (a "Right") for each outstanding share of the Company's common shares held of record as of the close of business on August 22, 1990. The Rights initially are deemed to be attached to the common shares and detach and become exercisable only if (with certain exceptions and limitations) a person or group attempts to obtain beneficial ownership of 15% or more of the Company's common shares or is determined to be an "adverse person" by the Board of Directors of the Company. Each Right, if and when it becomes exercisable, initially will entitle holders of the Rights to purchase one one-thousandth of a share of Junior Participating Preferred Shares (Series A, of which 50,000 shares currently are authorized for issuance) for $60, subject to adjustment. The Rights will convert into the right to purchase common shares or other securities or property of the Company or an acquiring company in certain other potential or actual takeover situations. The Rights are redeemable by the Company at $.01 per Right in certain circumstances and expire, unless earlier exercised or redeemed, on December 31, 2000.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands except share and per share amounts) -------
10. Commitments and Contingencies:
Leases:
The capitalized lease obligation (see Note 5) represents the amount payable under a lease which is, in substance, an installment purchase. Property, plant and equipment includes the following assets under a capital lease:
1994 1993 ------- ------- Land $ 314 $ 314 Buildings 2,632 2,632 Machinery and equipment 1,009 1,009 Accumulated depreciation (2,746) (2,639) ------- ------- $1,209 $1,316 ====== ======= The Company has the option to purchase the above assets at any time during the term of thelease for amounts sufficient to redeem and retire the underlying lessor debt obligation.The capitalized lease obligation has one principal payment at maturity on June 15, 2004.
The minimum rental commitments under all noncancellable leases as of November 27, 1994 are as follows:
Fiscal Operating Period Leases ------ ---------- 1995 $ 3,976 1996 2,867 1997 2,264 1998 2,120 1999 2,123 Thereafter 7,128 ------- Minimum lease payments $20,478 =======
Rent expense, including related real estate taxes charged to operations, amounted to $3,912, $4,217 and $4,076 for fiscal years 1994, 1993 and 1992, respectively.
Contingencies:
The Company has employment/severance (change in control) agreements with its officers under which severance payments and benefits would become payable in the event of specified terminations of employment following a change in control (as defined) of the Company. The Company also has a termination policy applicable to other employees which provides severance payments and benefits in the event of certain terminations of employment. In the event of a change in control of the Company and subsequent termination of all employees, the maximum contingent severance liability would have been approximately $16.1 million at November 27, 1994.
Prior to the acquisition of the Graphic Arts Group by the Company from Bunzl plc in May 1990, it was discovered that some hazardous waste materials had been stored on the premises of one of the Graphic Arts Group companies, Seal, located in Naugatuck, Connecticut. In compliance with applicable state law, this environmental condition was reported to the Connecticut Department of Environmental Protection by Bunzl. Seal, which is now a subsidiary of the Company, may be partially responsible under law for the environmental conditions on the premises and any liabilities resulting therefrom. However, in connection with the Company's acquisition of Seal, Bunzl agreed to take responsibility for correcting such environmental conditions and, for a period of seven years, to indemnify Seal and the Company for such resulting liabilities, subject to certain limitations. Management believes that this contingency will not have a material effect on the Company's results of operations or financial condition.
The Company is also involved on a continuing basis in monitoring its compliance with environmental laws and in making capital and operating improvements necessary to comply with existing and anticipated environmental requirements. Despite its efforts, the Company has been cited for occasional violations or alleged violations of environmental laws or permits and on several occasions has been named as a potentially responsible party for the remediation of sites. Expenses incurred by the Company to date relating to violations of and compliance with environmental laws and permits and site remediation have not been material. While it is impossible to predict with certainty, management currently does not foresee such expense in the future as having a material effect on the Company's business, results of operations or financial condition. There are other contingent liabilities with respect to product warranties, legal proceedings and other matters occurring in the normal course of business. In the opinion of management, all such matters are adequately covered by insurance or by accruals, and if not so covered, are without merit or are of such kind, or involve such amounts, as would not have significant effect on the financial condition or results of operations of the Company, if disposed of unfavorably.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands except share and per share amounts) ------- 11. Common Stock:
In April 1994 the shareholders approved an increase in the number of authorized shares of common stock from 20,000,000 to 40,000,000.
12. Research and Development:
Research and development expenses were approximately $1,606, $1,657 and $1,519 in fiscal years 1994, 1993 and 1992, respectively.
13. Cash Flow Information:
Cash payments for interest and income taxes (net of refunds) were as follows:
1994 1993 1992 ---- ---- ---- Interest paid $ 408 $ 580 $ 863 Income taxes 9,481 8,761 5,987
14. Quarterly Financial Data (unaudited):
Results of operations for each of the quarters during fiscal years 1994 and 1993 are as follows:
---- First Second Third Fourth Total ------ ------- ------- ------ -------- Net sales $64,550 $69,023 $75,765 $78,865 $288,203 Gross profit 25,155 27,866 29,350 30,905 113,276 Net income 3,798* 4,088 4,391 5,715 17,992* Net income per share .24* .25 .27 .36 1.12*
*Includes the cumulative effect of a change in accounting for income taxes (adoption of SFAS No. 109) which increased net income by $795, or $.05 per share.
---- First Second Third Fourth Total ------ ------- ------- ------ -------- Net sales $57,117 $60,825 $65,021 $73,187 $256,150 Gross profit 22,465 24,701 25,702 29,929 102,797 Net income 2,533 3,544 3,856 4,995 14,928 Net income per share .16 .22 .24 .31 .93
15. Industry Segment Information:
The Company operates in two industry segments, Office Products and Art/Craft Products. Total export sales aggregated $21,235 in fiscal 1994, $21,580 in fiscal 1993 and $20,919 in fiscal 1992, of which $11,844, $11,619 and $10,981 in fiscal years 1994, 1993 and 1992, respectively, were made in Canada.
Operating profits include all revenues and expenses of the reportable segment except for general corporate expenses, interest expense, interest income, other expenses, other income and income taxes.
Identifiable assets are those assets used in the operations of each business segment. Corporate assets include cash and miscellaneous other assets not identifiable with any particular segment. Capital additions include amounts related to acquisitions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands except share and per share amounts) -------
15. Industry Segment Information (continued):
Office Art/Craft Corp. Fiscal Year 1994 Products Products Assets Consolidated - ---------------- -------- -------- ------- ------------ Net sales $160,307 $127,896 $288,203 ======== ======= ========
Operating profit $ 12,172 $ 21,211 $ 33,383 ======== =======
General corporate (6,017) Interest expense (85) Interest income 342 Other expense, net (542) -------- Income before income taxes $ 27,081 ======== Identifiable assets $ 80,218 $ 70,362 $ 22,805 $173,385 ======== ======= ======== ========
Capital additions $ 5,923 $ 3,109 $ 273 $ 9,305 ======== ======= ======== ========
Depreciation and amortization $ 4,123 $ 3,286 $ 630 $ 8,039 ======== ======= ======== ========
Office Art/Craft Corp. Fiscal Year 1993 Products Products Assets Consolidated - ---------------- --------- --------- -------- ------------ Net sales $142,462 $113,688 $256,150 ======== ======= ========
Operating profit $ 11,411 $ 18,832 $ 30,243 ======== =======
General corporate (5,682) Interest expense (242) Interest income 190 Other expense, net (471) -------- Income before income taxes $ 24,038 ======== Identifiable assets $ 74,098 $ 67,619 $ 14,600 $156,317 ======== ======= ======== ========
Capital additions $ 5,559 $ 4,082 $ 698 $ 10,339 ======== ======= ======== ========
Depreciation and amortization $ 3,898 $ 3,234 $ 532 $ 7,664 ======== ======= ======== ========
Office Art/Craft Corp. Fiscal Year 1992 Products Products Assets Consolidated - ---------------- --------- --------- -------- ------------ Net sales $126,101 $108,828 $234,929 ======== ======= ========
Operating profit $ 8,541 $ 18,516 $ 27,057 ======== =======
General corporate (4,163) Interest expense (1,073) Interest income 422 Other expense, net (634) -------- Income before income taxes $ 21,609 ======== Identifiable assets $ 69,894 $64,715 $ 9,561 $144,170 ======== ======= ======== ========
Capital additions $ 3,666 $ 1,813 $ 523 $ 6,002 ======== ======= ======== ========
Depreciation and amortization $ 3,552 $ 3,521 $ 485 $ 7,558 ======== ======= ======== ========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands except share and per share amounts) -------
15. Industry Segment Information (continued):
The Company's operations by geographical areas for fiscal years 1994, 1993 and 1992 are presented below. Intercompany sales to affiliates represent products which are transferred between geographic areas on a basis intended to reflect as nearly as possible the market value of the products.
Adjustments and Fiscal Year 1994 North America Europe Corporate Eliminations Consolidated - --------------- ------------- ------ --------- ------------ ------------ Net sales:
Customers $268,710 $19,493 - $288,203 Intercompany 5,060 2,154 $(7,214) - -------- ------- ------- -------- Total $273,770 $21,647 $(7,214) $288,203 ======== ======= ======= ======== Operating profit $ 32,648 $ 735 - $ 33,383 ======== ======= ======= ========
Identifiable assets $131,310 $19,270 $22,805 - $173,385 ======== ======= ======= ======= ========
Adjustments and Fiscal Year 1993 North America Europe Corporate Eliminations Consolidated - --------------- ------------- ------ --------- ------------ ------------
Net sales:
Customers $241,059 $15,091 - $256,150 Intercompany 2,941 1,640 $(4,581) - -------- ------- ------- -------- Total $244,000 $16,731 $(4,581) $256,150 ======== ======= ======= ========
Operating profit $ 30,203 $ 40 - $ 30,243 ======== ======= ======= ========
Identifiable assets $124,841 $16,876 $14,600 - $156,317 ======== ======= ======= ======= ========
Adjustments and Fiscal Year 1992 North America Europe Corporate Eliminations Consolidated - --------------- ------------- ------ --------- ------------ ------------
Net sales:
Customers $218,111 $16,818 - $234,929 Intercompany 2,241 1,230 $(3,471) - -------- ------- ------- --------
Total $220,352 $18,048 $(3,471) $234,929 ======== ======= ======= ========
Operating profit (loss) $ 27,614 $ (557) - $ 27,057 ======== ======= ======= ========
Identifiable assets $117,066 $17,543 $ 9,561 - $144,170 ======== ======= ======== ======= ========
16. Financial Instruments:
Off-Balance Sheet Risk:
The Company had no forward exchange contracts outstanding as of November 27, 1994. As of November 28, 1993, the Company had $992 in forward exchange contracts outstanding to hedge accounts receivable denominated in Canadian dollars. The forward exchange contracts generally have maturities which do not exceed six months and require the Company to exchange Canadian dollars for U.S. dollars at maturity at rates agreed to at the inception of the contracts.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands except share and per share amounts) -------
16. Financial Instruments (continued):
Letters of credit are issued by the Company during the ordinary course of businessthrough major domestic banks as required by certain vendor contracts. As ofNovember 27, 1994 and November 28, 1993, the Company had outstanding lettersof credit for $216 and $511, respectively.
Concentrations of Credit Risk:
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments ($11.7 million and $7.3 million at November 27, 1994 and November 28, 1993, respectively) with quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. The Company provides credit, in the normal course of business, to a large number of distributors and retailers and generally does not require collateral or other security to support customer receivables. Management believes that concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base, and their dispersion across many different industries and geographies with no single customer accounting for over 10% of net sales; however, the Company's ten largest customers account for approximately 32% and 26% of accounts receivable at November 27, 1994 and November 28, 1993, respectively. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses.
Fair Value:
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and cash equivalents - The carrying amount approximates fair value because of the short maturity of these instruments.
Debt (excluding capital lease obligation) - The fair value of the Company's debt is estimated based on the current rates offered to the Company for debt of the same remaining maturities.
Forward exchange contracts - The fair value of forward exchange contracts (used for hedging purposes) approximates fair value because of the short maturity of these instruments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (In thousands except share and per share amounts) -------
16. Financial Instruments (continued):
The estimated fair values of the Company's financial instruments at November 27, 1994 and November 28, 1993 are as follows:
1994 1993 ------------------ ----------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- ------- -------- ------- Cash and cash equivalents $13,807 $13,807 $10,778 $10,778
Debt (excluding capital lease obligation) 2,561 2,523 4,161 4,324
Forward exchange contracts - - 992 992
Debt and Equity Securities:
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," requires changes in accounting and reporting for certain investments in debt and equity securities. SFAS No. 115 is effective for fiscal years beginning after December 15, 1993. Accordingly, the Company will adopt SFAS No. 115 when required. Management does not believe SFAS No. 115 will have a material effect on its results of operations or financial condition or that additional disclosures will be necessary.
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS for the fiscal years 1994, 1993 and 1992 (in thousands)
SIGNATURES
Pursuant to the requirements of Section 13 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.
Dated: February 16, 1995 By:/s/ Ronald J. Naples -------------------- Ronald J. Naples Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on behalf of the registrant and in the capacities and on the dates indicated:
/s/ Ronald J. Naples February 16, 1995 - -------------------- Ronald J. Naples Chairman of the Board and Chief Executive Officer
/s/ William E. Chandler February 16, 1995 - ----------------------- William E. Chandler Senior Vice President, Finance (Principal Financial and Accounting Officer)
/s/ Vincent G. Bell, Jr. February 16, 1995 - ------------------------ Vincent G. Bell, Jr. Director
/s/ Jack Farber February 16, 1995 - --------------- Jack Farber Director
/s/ Robert B. Fritsch February 16, 1995 - --------------------- Robert B. Fritsch Director
/s/ William F. Hamilton, Ph.D. February 16, 1995 - ------------------------------ William F. Hamilton, Ph.D. Director
February , 1995 - ------------------------ Mary R. (Nina) Henderson Director
/s/ Gordon A. MacInnes, Jr. February 16, 1995 - --------------------------- Gordon A. MacInnes, Jr. Director
/s/ Wilson D. McElhinny February 16, 1995 - ----------------------- Wilson D. McElhinny Director
/s/ Robert H. Rock February 16, 1995 - ------------------ Robert H. Rock Director
February , 1995 - --------------- Roderic H. Ross Director
/s/ Victoria B. Vallely February 16, 1995 - ----------------------- Victoria B. Vallely Director
EXHIBIT INDEX
(Exhibits being filed with this Form 10-K)
(10) Material contracts:
(a) Lease Agreement dated June 1, 1979 and First Supplemental Lease Agreement dated as of July 31, 1994 between the Iredell County Industrial Facilities and Pollution Control Financing Authority and the Company
(e) 1988 Long-Term Incentive Compensation Plan of the Company
(g) Loan and Security Agreement dated January 31, 1984, as amended, between the Company and Ronald J. Naples
(h) Loan and Security Agreement dated April 20, 1988 between the Company and Robert B. Fritsch
(i) (1) Form of Change in Control Agreement between the Company and various officers of the Company (filed herewith) and (2) list of executive officers who are parties
(11) Statement re: computation of per share earnings
(23) Consent of Coopers & Lybrand to L.L.P. incorporation by reference, in Registration Statement No.s 33-70660, 33-25947, 33-6359, 2-83144, 33-57105 and 33-57103 on Form S-8, of their report on the consolidated financial statements and schedules included in this report
(27) Financial Data Schedule