-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dj90sW3LCsyqyUPm5bytgeCPPCwoRjpnmH9XX3q3lHBDby2Awca6Gm0D+cCt44ke fikbXNd+eX7I2kNCKhE6vA== 0000950116-01-000371.txt : 20010307 0000950116-01-000371.hdr.sgml : 20010307 ACCESSION NUMBER: 0000950116-01-000371 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20001203 FILED AS OF DATE: 20010305 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUNT CORP CENTRAL INDEX KEY: 0000049146 STANDARD INDUSTRIAL CLASSIFICATION: PENS, PENCILS & OTHER ARTISTS' MATERIALS [3950] IRS NUMBER: 210481254 STATE OF INCORPORATION: PA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08044 FILM NUMBER: 1561077 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQ STREET 2: 2005 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2157327700 MAIL ADDRESS: STREET 1: ONE COMMERCE SQ STREET 2: 2005 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: HUNT MANUFACTURING CO DATE OF NAME CHANGE: 19920703 10-K 1 0001.txt SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 3, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ______ to ______. For the fiscal year ended December 3, 2000 Commission File No. 1-8044 HUNT CORPORATION (Registrant) Pennsylvania 21-0481254 (State of Incorporation) (IRS Employer Identification No.) One Commerce Square, 2005 Market Street, Philadelphia, PA 19103-7085 (Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (215) 656-0300 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class: Name of Each Exchange on Which Registered: Common Shares, par value $.10 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the registrant's common shares (its only voting stock) held by non-affiliates of the registrant as of February 1, 2001 was approximately $45,042,000. (Reference is made to the final paragraph of Part I herein for a statement of the assumptions upon which this calculation is based.) The number of shares of the registrant's common shares outstanding as of February 1, 2001 was 8,886,099. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the registrant's definitive proxy statement relating to its scheduled April 2001 Annual Meeting of Shareholders (which proxy statement is expected to be filed with the Commission not later than 120 days after the end of the registrant's last fiscal year) are incorporated by reference into Part III of this report. Certain statements contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Such forward-looking statements represent management's assessment based upon information currently available, but are subject to risks and uncertainties which could cause actual results to differ materially from those set forth in the forward-looking statements. These risks and uncertainties include, but are not limited to, the Company's ability to successfully complete the implementation, and realize the anticipated growth and other benefits, of its restructuring and strategic plans on a timely basis; the effect of, and changes in, worldwide general economic conditions including increases in raw materials and freight costs; technological and other changes affecting the manufacture of and demand for the Company's products; competitive and other pressures in the marketplace; and other risks and uncertainties set forth herein and as may be set forth in the Company's subsequent press releases and/or Forms 10-Q, 8-K and other filings with the Securities and Exchange Commission. PART I ITEM 1. BUSINESS General Hunt Corporation and its subsidiaries (herein called the "Company" unless the context indicates otherwise) are primarily engaged in the manufacture and distribution of consumer products and graphics products which the Company markets worldwide. The Consumer Products segment includes a group of select BOSTON, X-ACTO and BIENFANG brand products, and the Graphics Products segment consists of a full line of mounting and finishing solutions, including laminates, adhesives, board and lamination sold under the SEAL brand, as well as STURDY BOARD brand of foam board and HUNT project display board products. In October 1999, the Company's Board of Directors approved and the Company initiated a comprehensive reorganization and restructuring plan (the "1999 restructuring plan"). The major components of this plan include (with principal emphasis on the Company's Graphics Products business) creating manufacturing centers of excellence, outsourcing the Company's European distribution activities and consolidating its U. S. distribution activities, and focusing its product offering and marketing efforts. The Company recorded restructuring charges relating to this plan totaling $6.2 million pre-tax ($.39 per share) in the fiscal 1999 fourth quarter. In addition to such restructuring charges, the Company expects to spend approximately $5.9 million pre-tax for implementation costs of this plan (to be recorded as period costs as incurred), of which $5.5 million pre-tax ($.37 per share) was recorded in fiscal 2000 and $.4 million pre-tax ($.03 per share) is expected to be spent in fiscal 2001. (Note: earnings per share amounts in this Item 1 are presented on an after-tax, diluted basis.) The fiscal 2000 implementation costs consisted primarily of manufacturing and operating costs, employee retention bonuses, severance, outplacement, relocation and training costs, project consulting, plant rearrangement and moving costs and other costs. The Company has completed the consolidation of its manufacturing operations and distribution activities in the U.S. and the outsourcing of its European distribution activities contemplated by the 1999 restructuring plan. In addition, the Company has substantially completed the planned consolidation of its European manufacturing operations and expects completion by early fiscal 2001. The Company realized pre-tax cost savings of approximately $1.5 million ($.10 per share) from the plan during fiscal 2000, and such pre-tax cost savings are expected to increase to $5.5 million in fiscal 2001 and $5.9 million per year thereafter. Although the Company expects to realize such future cost savings, there can be no assurance that they will be achieved. See Item 7 herein and Note 3 to the Consolidated Financial Statements herein for further information. Patent Infringement Litigation Several years ago, the Company was sued for patent infringement with respect to one of its minor products. After a jury trial in 1998, the U.S. District Court for the Western District of Wisconsin entered judgment against the Company in this matter and awarded damages to the plaintiffs in the amount of $3.3 million, plus interest and costs. The verdict was appealed, and, contrary to the expectations of the Company and its patent counsel, a three-judge panel of the U.S. Court of Appeals affirmed the judgment in July 2000. Subsequently, a request, filed with the Court of Appeals by the Company to have the case reconsidered by all twelve judges of 2 the Court of Appeals, was denied in October 2000. As a result, the Company recorded a liability of $3.8 million pre-tax (including interest and other costs), or $.25 per share, relating to this matter in fiscal 2000. However, the Company and its patent counsel continue to believe that the verdict against the Company was incorrect and are seeking a review of the decision by the Supreme Court of the United States and are considering other possible courses to challenge the verdict. See Item 7 herein and Note 4 to the Consolidated Financial Statements herein for further information. Business Segments The following table sets forth the Company's net sales and operating income by business segment for the last three fiscal years. 2000 1999 1998 ------------ ------------ ------------ (In millions) Net Sales: Consumer products ......... $ 106.1 $ 108.2 $ 107.9 Graphics products ......... 142.5 136.6 138.7 -------- -------- -------- Total ..................... $ 248.6 $ 244.8 $ 246.6 ======== ======== ======== Operating Income:* Consumer products ......... $ 17.4 $ 18.2 $ 16.7 Graphics products ......... 6.1 7.3 6.5 -------- -------- -------- Total ..................... $ 23.5 $ 25.5 $ 23.2 ======== ======== ======== *Excludes restructuring, implementation and patent infringement litigation amounts. See Items 6 and 7 herein and Notes 3, 4 and 18 to the Consolidated Financial Statements herein for further information concerning such amounts and business segments (including information concerning identifiable assets). Consumer Products The Company has two major classes of consumer products: office supplies and art supplies. The amounts and percentages of net sales of these product classes for the last three fiscal years were as follows:
2000 1999 1998 ---------------------- ---------------------- ---------------------- (Dollars in millions) Product Class: Office supplies ......... $ 71.6 67% $ 74.7 69% $ 73.9 68% Art supplies ............ 34.5 33 33.5 31 34.0 32 ------- --- ------- --- ------- --- Total ................... $ 106.1 100% $ 108.2 100% $ 107.9 100% ======= === ======= === ======= ===
The Company's consumer office supplies products currently consist of a variety of items sold primarily under the Company's BOSTON brand, including: manual and electric pencil sharpeners; paper trimmers; manual and electronic staplers; RAPID(1) manual and electric staplers; and other office supplies products. Effective September 1, 1999, Schwan-STABILO Schwanhausser GmbH & Co. terminated its distribution agreement with the Company relating to highlighter markers and writing instruments, which accounted for most of the decrease in office products net sales in fiscal 2000. Sales of Schwan-STABILO(2) products in fiscal 1999 were less than 10% of the Company's consumer office products sales and less than 5% of its total consumer products sales. The Company's art supplies products are used primarily by commercial and amateur artists, hobbyists and craft enthusiasts and include: various types of X-ACTO brand knives and blades; X-ACTO brand tools and kits; CONTE(3) pastels, crayons and related drawing products, for which the Company is the exclusive United States and Canadian distributor; commercial and fine art papers which the Company converts, finishes and sells under its BIENFANG brand name; and paint markers. (1) Trademark of Isaberg Rapid AB. (2) Trademark of Schwan-STABILO Schwanhausser GmbH & Co. (3) Trademark of Conte S. A. 3 The Company consistently has sought to expand its consumer 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 consumer products introductions by the Company in recent years are: BOSTON brand electric and battery powered pencil sharpeners and lines of staplers under the STANDUP and ORCA brand names. The Company's consumer products are sold domestically primarily in the commercial office, home office and the general consumer markets, chiefly through large retail outlets, such as office products superstores, drug and food chain stores, variety stores, discount chains and membership chains, and through office supply wholesalers and dealers. The consumer market has increased significantly in recent years, largely due to the dramatic growth of office products superstores and discount chains. A more limited line of products is sold to schools through specialized school supply distributors. Graphics Products The Company manufactures and distributes two major classes of graphics products: supplies and equipment. The amounts and percentages of net sales of these product classes for the last three fiscal years were as follows:
2000 1999 1998 ---------------------- ---------------------- ---------------------- (Dollars in millions) Product Class: Supplies ............... $ 117.4 82% $ 111.6 82% $ 108.5 78% Equipment .............. 25.1 18 25.0 18 30.2 22 ------- --- ------- --- ------- --- Total .................. $ 142.5 100% $ 136.6 100% $ 138.7 100% ======= === ======= === ======= ===
The Company's graphics products are used largely by picture framers, graphic artists, display designers and photo laboratories, and include a range of board products consisting of: STURDY BOARD and SEAL brand foam boards (which constitute a significant portion, somewhat less than 45%, of supplies products), a full line of mounting and finishing solutions sold under the SEAL brand name, and HUNT brand project display boards which include project display boards sold by the Company under a worldwide exclusive distribution agreement with Showboard, Inc. The Company consistently has sought to expand its graphics 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 graphics products introduced during the last several fiscal years include: PROSEAL brand finishing system, a low-cost, one-step method of mounting and laminating photographic and digital images; AQUASEAL brand line of innovative, low-cost liquid lamination products; STURDY BOARD and SEAL brand foam boards; MIGHTY CORE, a heavy duty foam board; HUNT project display boards; SHOWTIME portable display products; IMAGE brand large format laminators; and an array of innovative laminate and adhesive products sold under the SEAL brand name. In fiscal 1999, the Company acquired Axiom Graphics Manufacturing, Inc., a California-based manufacturer, distributor, and marketer of wet transfer lamination equipment and liquid laminates. This acquisition has enabled the Company to be a complete supplier of finishing solutions and to take advantage of the growth in the outdoor sign market. STURDY BOARD and SEAL foam boards and HUNT project display boards have been particularly important as they have allowed the Company to penetrate the picture framing, sign, display and exhibit markets, yet they also hold wide appeal to the traditional customer groups in art supply, hobby/craft and office product markets. The success of these board products has been attributable, in significant part, to the Company's ability to offer the end-user a variety of value-added board products, such as colored or adhesive-coated foam board, as well as foam core and corrugated display boards. 4 Traditionally, the Company's graphics products have been distributed primarily through wholesalers (framing and photomounting), general consumer-oriented retail outlets (mainly office product superstores and chain stores) and industrial concerns (photo labs and screen printers). Over the last several years, consumer-oriented retail outlets have become an increasingly important distribution channel for the Company's graphics products. Sales and Marketing General The Company has more than 3,500 active customers, the ten largest of which accounted for approximately 41% of its sales in fiscal 2000. Three of the ten largest customers were office products superstore chains. The largest single customer accounted for 8.5% of total sales for that year. In recent years there has been a trend toward consolidation of wholesalers, dealers and superstores, particularly in the office products market. This has resulted in an increasing percentage of the Company's sales being attributable to a smaller number of customers with increased buying and bargaining power. This increase in bargaining power has led to downward pressure on selling prices for the Company's office supplies products and board products. See Item 7 of this report. Because most of the Company's sales are made from inventory, the Company generally operates without a significant backlog. The Company's sales generally are not subject to significant seasonal fluctuations. See Note 17 to the Consolidated Financial Statements herein. Domestic Operations Domestic marketing of the Company's consumer products and graphics products is effected principally through three separate sales forces, one each for consumer products, graphics, and mass market. The sales forces are comprised largely of the Company's own salespeople and independent manufacturers' representatives. The Company currently maintains its primary domestic distribution operations in Sun Prairie, Wisconsin and Yuba City, California for graphics products, and in Statesville, North Carolina for both consumer and graphics products. As part of the 1999 restructuring plan, the Company consolidated its Beacon Falls, Connecticut manufacturing and distribution operations with its Statesville, North Carolina and Sun Prairie, Wisconsin facilities during fiscal 2000. Foreign Operations The Company distributes its products in more than 80 foreign markets, primarily through its own sales force and through independent sales agents and distributors. Sales of consumer products and graphics products represented approximately 57% and 43%, respectively, of the Company's export sales in fiscal 2000, with BOSTON brand electrical and mechanical pencil sharpeners, X-ACTO brand knives and blades, BIENFANG brand paper products and HUNT foam board products, and SEAL brand mounting and finishing solutions products accounting for the major portion of these sales. Sales from foreign operations in Europe consisted primarily of graphics products. See Note 18 of the Notes to the Consolidated Financial Statements herein for further information concerning the Company's foreign operations. The Company maintains distribution operations in Ontario, Canada; Basildon, England; and Hong Kong. As part of the 1999 restructuring plan, the Company outsourced the majority of its European distribution operations to a third party during fiscal 2000. Foreign operations are subject to the usual risks of doing business abroad, particularly currency fluctuations and foreign exchange controls, as well as to general economic conditions. During fiscal 2000, the Company experienced lower foreign sales due principally to the unfavorable impact of weaker foreign currencies against the U.S. dollar. Management is uncertain as to the extent that this situation will continue. See Items 7 and 7A herein. See also Note 1 to the Consolidated Financial Statements herein for information concerning hedging. 5 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 manufactured, converted or assembled by it. See Item 2 herein for information concerning the Company's major manufacturing facilities. The Company customarily has more than one source of supply for its critical raw materials and component parts, and its businesses have not been materially hindered by shortages of such items. However, the Company experienced significant cost increases for some of its raw materials, such as styrene plastic and corrugated packaging materials, during fiscal 2000. Management has initiated planned selling price increases, cost reduction measures and other programs in an effort to offset these cost increases. In addition, the Company expects cost savings in fiscal 2001 from the 1999 restructuring plan to help mitigate these raw materials cost increases and improve gross profit percentages and gross profit dollars. The Company has experienced some cost reductions for certain raw materials so far during fiscal 2001, but management is uncertain if this trend will continue. See Item 7 herein. Competition The Company does not have any single competitor which offers substantially the same overall lines of either consumer products or graphics products as the Company. However, competition in a number of areas of the Company's businesses, such as electric pencil sharpeners, staplers, foam board, and laminating equipment and supplies, is substantial, and some of the Company's competitors are larger and have considerably greater financial resources than the Company. Because of the fragmented nature of the consumer products and graphics products businesses, the multiple markets served by the Company, and the absence of published market data, the Company generally is not able to determine with certainty its relative domestic or foreign market share for its various products. Nevertheless, the Company believes that it is among the leaders in domestic markets in a number of its products, including BOSTON manual and electric pencil sharpeners; STURDY BOARD foam board products; HUNT project display board products; laminating equipment; and X-ACTO brand knives and blades. The Company considers product performance and brand recognition to be important competitive factors in its businesses, but competitive pricing and promotional discounts also have become increasingly important factors, particularly in the consumer products area. Trademarks, Patents and Licenses The Company's business is not dependent, to a material extent, upon any patents. However, the Company regards its many trademarks as being of substantial value in the marketing of its various products including particularly BOSTON(R), X-ACTO(R), BIENFANG(R), HUNT(R) and SEAL(R). The following additional trademarks, some of which are mentioned in this report, are owned by the Company: AQUASEAL(R), CLASSIC STANDUP STAPLER(R), DELUXE STANDUP STAPLER(R), FLOOR GUARD(R), GARDIAN(R), GRIP STANDUP STAPLER(R), IMAGE(R), IMAGE TINTTM, JET GUARD(R), MIGHTY CORE(R), NAUTILUSTM, ORCATM, PALM STANDUP STAPLERTM, PAINTERS(R), POWERHOUSE(R), PRINT GUARD(R), PRINT MOUNT(R), PROSEAL(R), SCHOOLPROTM, SHOWTIME(R), SINGLE STEP(R), STAND-UP(R) STURDY BOARD(R) and ULTIMATE STANDUP STAPLER(R). As previously indicated, the Company also has been granted exclusive distribution rights in designated territories with respect to various products, including CONTE drawing products, RAPID manual and electric stapling machines and certain project display boards owned by Showboard, Inc. Such rights customarily are granted for limited periods, after which they expire or may be terminated at the option of the grantor. The Company's distribution rights generally are of limited duration (the longest usually not exceeding approximately five years) and may be terminated or expire, in certain cases, with as little as approximately six months' notice from the grantor of such rights. While the Company's business is not dependent upon any of these distribution rights (no line of such distributed products having accounted for as much as 3% of the Company's net sales in fiscal 2000), the loss of the right to market certain products could have an adverse effect on the Company's profitability. 6 Research and Development During fiscal 2000, the Company spent approximately $3.0 million on Company-sponsored research and development, as compared with approximately $4.0 million in fiscal 1999 and $3.3 million in fiscal 1998. Personnel As of January 2001, the Company had approximately 1,300 full-time employees. Environmental Matters Prior to the Company's acquisition of Seal Products, Inc. ("Seal") from Bunzl plc in 1990, it was discovered that some hazardous waste materials had been stored at Seal's premises then 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 now is 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 to indemnify Seal and the Company for resulting liabilities, subject to certain limitations. Bunzl is continuing the process of remediating these environmental conditions. During fiscal 2000, the Company entered into a termination and release agreement with the current owners of the site. This agreement releases the Company's subsidiary from all environmental claims by the owners prior to the Company's 1990 acquisition of Seal. 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 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 14 to the Consolidated Financial Statements herein. 7 ITEM 2. PROPERTIES The Company presently maintains its principal executive offices at 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 - ----------------- ---------------- -------------- ------------------ ---------------- Graphics Manufacturing Basildon, 64,000 sq. Owned Products & Offices England ft. in two bldgs. on 3 acres Manufacturing Basildon, 57,000 sq. Leased England ft. on 3 acres (exp. 2022) Manufacturing Raalte, 59,000 sq. Owned & Offices Netherlands ft. bldg. on 3 acres Manufacturing, Sun Prairie, 40,000 sq. Leased Distribution WI ft. bldg. (exp. 2009) & Offices on 2 acres - ----------------- ---------------- -------------- ------------------ ---------------- Consumer Manufacturing Statesville, 219,000 sq. (1) Products & Offices NC ft. bldg. and Graphics on 13 acres Products Manufacturing Statesville, 218,000 sq. Owned & Offices NC ft. bldg. on 16 acres Distribution Statesville, 320,000 sq. Leased & Offices NC ft. bldg. (exp. 2005) Distribution Ontario, 59,000 sq. Leased & Offices Canada ft. bldg. (exp. 2006)
(1) 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. PENDING LEGAL PROCEEDINGS The Company is not aware of any material pending legal proceedings involving the Company or its subsidiaries other than as set forth in Notes 4 and 14 to the Consolidated Financial Statements herein and Item 1--"Patent Infringement Litigation" and "Environmental Matters" herein. 8 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 - ------------------------- ----- -------------------------------------------- Donald L. Thompson 59 Chairman of the Board, President and Chief Executive Officer John W. Carney 57 Vice President, Chief Administrative Officer William E. Chandler 57 Senior Vice President, Finance; Chief Financial Officer, and Secretary Bradley P. Johnson 38 Senior Vice President/General Manager, Hunt Products James P. Machut 54 Vice President, Operations/ Supply Chain Logistics Worldwide W. Ernest Precious 59 Executive Vice President, Corporate Development Eugene A. Stiefel 53 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. Thompson, Machut and Johnson have served in varying executive capacities with the Company for over five years. Mr. Thompson joined the Company and was elected an executive officer in June, 1996 after 23 years at Avery Dennison Corporation where he served in a variety of positions, the most recent as Group Vice President of the Office Products business. Mr. Machut was elected an executive officer of the Company in December, 1999. He joined the Company in July, 1992 and has served as Vice President of Purchasing as well as Vice President, Operations prior to his most recent position as Vice President of Operations/Supply Chain Logistics Worldwide. Mr. Johnson was elected an executive officer of the Company in December, 2000, effective January 1, 2001. He joined the Company in May, 1999 and served as Vice President/General Manager of Hunt Products prior to his most recent position as Senior Vice President/General Manager of Hunt Products. Prior to joining the Company, Mr. Johnson was General Manager of the Infant Feeding Business Unit at H. J. Heinz Company from 1997 to 1999 and had held several marketing related positions with Kimberly-Clark Corporation from 1988 to 1997. ------------------------------- For the purposes of calculating the aggregate market value of the common shares 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 executive officers of the Company. However, this should not be deemed to constitute an admission that all directors and executive 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 executive 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. 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common shares are 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 shares during the two most recent fiscal years (all as reported by The Wall Street Journal): Fiscal Quarter 2000 -------------------------------------------- First Second Third Fourth --------- -------- --------- --------- High $11 1/8 $10 5/8 $ 10 5/8 $ 9 1/4 Low 8 1/16 8 3/8 8 11/16 3 13/16 Fiscal Quarter 1999 -------------------------------------------- First Second Third Fourth ---------- -------- ---------- ------- High $14 3/16 $12 $12 1/16 $9 1/8 Low 9 1/4 9 7/16 8 1/8 6 5/8 The Company's 1990 Rights Plan and the Rights distributed to shareholders under such plan expired by their terms on December 31, 2000 and are no longer deemed to be attached to the Company's common shares. See Note 13 to the Consolidated Financial Statements herein. As of February 1, 2001, there were over 500 record holders of the Company's common shares, which number does not include shareholders whose shares were held in nominee name. During the past two fiscal years, the Company has paid regular quarterly cash dividends on its common shares at the following rates per share: 2000 - $.1025 per quarter and 1999 - $.1025 per quarter. There can be no assurance, however, as to the payment or the amount of future dividends, since they are periodically reviewed by the Company's Board of Directors and are subject to possible change based upon the Company's earnings, financial condition and other factors. Certain of the Company's credit agreements contain representations, warranties, covenants and conditions, the violation of which could result in restrictions on the Company's present and future ability to pay dividends. See Note 9 to the Consolidated Financial Statements herein. During fiscal 2000, the Company issued from its Treasury an aggregate of 15,050 unregistered common shares as awards and grants under its non-employee director compensation plan. Registration of such shares was not required because their issuance did not involve a "sale" under Section 2(3) of the Securities Act of 1933, or, alternatively, their issuance was exempt pursuant to the private offering provisions of that Act and the rules thereunder. 10 ITEM 6. SELECTED FINANCIAL DATA The following table contains selected financial data derived from the Company's audited Consolidated Financial Statements for each of the 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 of this report. The following data is on a continuing operations basis.
Year Ended --------------------------------------------------------------- Dec 3, Nov. 28, Nov. 29, Nov. 30, Dec. 1, 2000 (1) 1999 (2) 1998 (3) 1997 (4) 1996 (5) ---------- ---------- ---------- ---------- ----------- (In millions, except per share data) Net sales ................................. $ 248.6 $ 244.8 $ 246.6 $ 259.5 $ 264.5 Income (loss) from continuing operations ............................... 2.0 6.4 11.6 (6.1) 10.5 Income (loss) from continuing operations per common share(6): Basic .................................... .20 .61 1.04 (.55) .91 Diluted .................................. .20 .61 1.01 (.55) .89 Total assets .............................. 163.5 179.6 186.9 209.5 175.7 Long-term debt ............................ 54.7 56.6 57.7 54.1 64.6 Cash dividends declared per share ......... .41 .41 .41 .38 .38
(1) In fiscal 2000, the Company recorded charges of $3.6 million after taxes ($.37 per share) of implementation costs in connection with the implementation of the Company's 1999 restructuring plan. In addition, the Company recorded a charge of $2.5 million after taxes ($.25 per share) in connection with a patent infringement suit with respect to one of the Company's minor products. Also, the Company reduced by $.4 million after taxes ($.04 per share) some of its reserves established in connection with the Company's implementation of its 1999 restructuring and 1997 strategic plans, and reduced by $.1 million after taxes ($.01 per share) some its reserves in connection with its 1997 business divestitures. (2) In fiscal 1999, the Company recorded a charge for the 1999 restructuring plan of approximately $4.0 million after taxes ($.39 per share). In addition, the Company reduced by $.4 million after taxes ($.04 per share) some of its reserves established in connection with the Company's implementation of its 1997 strategic plan and reduced by $.3 million after taxes ($.03 per share) some of its reserves in connection with its 1997 business divestitures. (3) In fiscal 1998, the Company on a net basis reduced by $1.9 million after taxes ($.16 per share) some of its reserves established in connection with the implementation of the strategic plan during fiscal 1997. In addition, the Company reduced by $.5 million after taxes ($.04 per share) some of its reserves established in connection with its 1997 business divestitures. (4) In fiscal 1997, the Company recorded a charge for the 1997 strategic plan of approximately $18.5 million after taxes ($1.61 per share) and other related costs of $2.2 million after taxes ($.19 per share) and recorded a net gain on sales of divested businesses (excluding the discontinued business) of $2.5 million after taxes ($.22 per share). (5) In fiscal 1996, the Company recorded a charge for anticipated costs related to the relocation and consolidation of certain manufacturing and distribution operations to income from continuing operations of approximately $.3 million after taxes ($.02 per share). (6) The average common shares outstanding (diluted) during fiscal years 1996 through 2000 were as follows: 1996 - 11,677,000 shares 1997 - 11,079,000 shares 1998 - 11,556,000 shares 1999 - 10,493,000 shares 2000 - 9,908,000 shares 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Such forward-looking statements represent management's assessment based upon information currently available, but are subject to risks and uncertainties which could cause actual results to differ materially from those set forth in the forward-looking statements. These risks and uncertainties include, but are not limited to, the Company's ability to successfully complete the implementation, and realize the anticipated growth and other benefits, of its restructuring and strategic plans on a timely basis; the effect of, and changes in, worldwide general economic conditions including increases in raw materials and freight costs; technological and other changes affecting the manufacture of and demand for the Company's products; competitive and other pressures in the marketplace; and other risks and uncertainties set forth herein and as may be set forth in the Company's subsequent press releases and/or Forms 10-Q, 8-K and other filings with the Securities and Exchange Commission. Restructuring Plans and Related Matters In October 1999, the Company's Board of Directors approved and the Company initiated a comprehensive reorganization and restructuring plan (the "1999 restructuring plan"). The major components of this plan include (with principal emphasis on the Company's Graphics Products business) creating manufacturing centers of excellence, outsourcing the Company's European distribution activities and consolidating its U. S. distribution activities, and focusing its product offering and marketing efforts. The Company recorded restructuring charges relating to this plan totaling $6.2 million pre-tax ($.39 per share) in the fiscal 1999 fourth quarter. (Note: All earnings per share amounts included in Management's Discussion and Analysis are presented on an after-tax, diluted basis.) These fiscal 1999 restructuring charges are classified as restructuring and other in the accompanying Consolidated Statements of Income. The restructuring charges include employee severance costs ($2.6 million), recognition of future lease obligations ($1.8 million), fixed asset writedowns ($1.6 million), and other related costs. In addition to such restructuring charges, the Company expects to spend approximately $5.9 million pre-tax for implementation costs of this plan (to be recorded as period costs as incurred), of which $5.5 million pre-tax ($.37 per share) was recorded in fiscal 2000 and $.4 million pre-tax ($.03 per share) is expected to be spent in fiscal 2001. The total estimated implementation costs of $5.9 million are approximately $2.9 million higher than originally anticipated, primarily as a result of higher than expected manufacturing and operating costs ($1.8 million) consisting mainly of air freight costs of transporting products from the Company's European operations for sale in the U.S., outsourcing costs of some converting operations, inventory losses incurred from plant shutdown, and higher material product substitution costs. Management believes that these additional expenditures were appropriate in order to protect the Company's service levels and customer base in the face of higher demand for certain of its products in the U.S. and Europe. The other implementation costs in fiscal 2000 included employee retention bonuses, severance, outplacement, relocation and training costs ($1.8 million); project consulting ($.6 million); plant rearrangement and moving costs ($.7 million); and other costs and are included in the following categories in the accompanying Consolidated Statements of Income: cost of sales ($3.1 million) and selling, general and administrative expenses ($2.4 million). The Company has completed the consolidation of its manufacturing operations and distribution activities in the U.S. and the outsourcing of its European distribution activities. In addition, the Company has substantially completed its plan to consolidate its European manufacturing operations and expects completion by early fiscal 2001. Approximately $1.1 million remains accrued in the accompanying Consolidated Balance Sheets at December 3, 2000. This accrual relates largely to severance with the expectation that all spending will be substantially completed by the end of fiscal 2001. See Note 3 to the Consolidated Financial Statements. Creating manufacturing centers of excellence is expected to result in consolidated manufacturing operations in both the U.S. and Europe. These actions are intended to eliminate redundancies and reduce fixed costs. The outsourcing and consolidation of some of the Company's distribution activities are expected to improve customer service, utilize space more efficiently, and reduce capital investment and operating costs. The Company's focus on its product offering and marketing efforts also is expected to reduce operating costs, improve margins and inventory turns, and ultimately provide the foundation for further sales growth of the Company's Graphics Products business. These actions resulted in the elimination of approximately 150 12 positions during fiscal 1999 and 2000. The Company realized pre-tax cost savings from the 1999 restructuring plan of approximately $1.5 million ($.10 per share) during fiscal 2000, and such pre-tax cost savings are expected to increase to $5.5 million in fiscal 2001 and $5.9 million per year thereafter. Although the Company expects to realize such future cost savings, there can be no assurance that they will be achieved. In April 1997, the Company initiated a new strategy for growth and restructuring (the "1997 strategic plan") designed to restore higher levels of sales growth and profitability and to reduce its cost structure. The key initiatives of the 1997 strategic plan were focused on significant reduction of the Company's stock keeping units, rationalization of manufacturing and warehouse facilities, and a major restructuring of its administrative and marketing and selling functions. The Company has completed the implementation of its 1997 strategic plan. See Note 3 to the Consolidated Financial Statements. During fiscal 2000, the Company reduced by $.5 million pre-tax ($.03 per share) and $.1 million pre-tax ($.01 per share), respectively, some of its reserves for the 1999 restructuring and 1997 strategic plans. These reserve reductions related primarily to a decision not to vacate a certain facility ($.2 million), final resolution of lease obligations for a vacant facility ($.1 million), lower than anticipated severance costs ($.1 million) and lower than expected losses on asset disposals ($.2 million). During fiscal 1999, the Company reduced by $.6 million pre-tax ($.04 per share) some of its reserves established in connection with the Company's implementation of its 1997 strategic plan. This reserve reduction related primarily to a final resolution of lease obligations for a vacated facility and to lower than expected severance costs. During fiscal 1998, the Company, on a net basis, reduced some of its restructuring reserves by $2.9 million pre-tax ($.16 per share), a portion of which is included in cost of sales ($1.4 million). This reserve reduction related primarily to lower than expected severance costs ($1.1 million), inventory returns ($1.4 million), decisions not to vacate certain leased facilities ($.6 million), and other related costs ($1.0 million) in connection with the Company's implementation of its 1997 strategic plan, partially offset by additional restructuring charges in connection with the consolidation of the graphics and substrates business units in fiscal 1998 relating principally to employee severance costs ($1.2 million). In connection with the Company's 1997 strategic plan, during fiscal 1997, the Company sold its Lit-Ning Products business (office supplies), its Hunt Data Products' MediaMate and Calise brand products (office supplies), and its Speedball brand art products (art supplies). In addition in mid-November 1997, the Company sold its Bevis Office Furniture business. During fiscal 2000, the Company reduced by $.1 million pre-tax ($.01 per share) some of its reserves related to its 1997 business divestitures. These reserve reductions related primarily to lower than anticipated inventory returns and environmental reserves. During fiscal 1999, the Company reduced by $.5 million pre-tax ($.03 per share) some of its reserves established with respect to its 1997 business divestitures. This reserve reduction was principally related to lower than expected inventory returns. During fiscal 1998, the Company reduced by $.7 million pre-tax ($.04 per share) some of its reserves in connection with its 1997 business divestitures. This reserve reduction was principally related to lower than expected inventory returns. In addition, the Company reduced in fiscal 1998 by $.7 million pre-tax ($.04 per share) some of its reserves established in connection with its 1997 sale of its Bevis Office Furniture discontinued operation. This reduction was largely attributable to lower than expected costs associated with accruals, primarily for accounts receivable and fixed assets, established at the time of the divestiture. As a result of the above divestitures, including the Bevis operation, an aggregate of approximately $100 million of revenue on an annualized basis and related earnings will not be available to the Company going forward. Management believes a critical part of the 1997 strategic plan and the 1999 restructuring plan is to offset these revenue and earnings losses through increased focus on the Company's graphics products in the rapidly growing digital imaging and sign and display markets, through leveraging of the Company's brand 13 strength in consumer products, from internal new product development, and through acquisitions. Also, management believes improved manufacturing processes, rationalization of distribution facilities, and savings in administrative, marketing, and selling support areas will help offset these revenue and earnings losses. Patent Infringement Litigation Several years ago, the Company was sued for patent infringement with respect to one of its minor products. After a jury trial in 1998, the U.S. District Court for the Western District of Wisconsin entered judgment against the Company in this matter and awarded damages to the plaintiffs in the amount of $3.3 million, plus interest and costs. The verdict was appealed, and, contrary to the expectations of the Company and its patent counsel, a three-judge panel of the U.S. Court of Appeals affirmed the judgment in July 2000. Subsequently, a request, filed with the Court of Appeals by the Company to have the case reconsidered by all twelve judges of the Court of Appeals, was denied in October 2000. As a result, the Company recorded a liability of $3.8 million pre-tax (including interest and other costs), or $.25 per share, relating to this matter in fiscal 2000, which amount is included in the accompanying Consolidated Statements of Income for fiscal 2000 under restructuring and other. However, the Company and its patent counsel continue to believe that the verdict against the Company was incorrect and are seeking a review of the decision by the Supreme Court of the United States and are considering other possible courses to challenge the verdict. See Note 4 to the Consolidated Financial Statements. The following tables provide a comparison of the Company's reported results and the results excluding restructuring related items and other special items for fiscal years 2000, 1999 and 1998:
2000(1) -------------------------------------------------- Gross Income from Net Per Share Profit Operations Income Amount ---------- ------------- -------- ---------- (Dollars in millions except per share amounts) Reported results ..................................... $ 87.7 $ 6.0 $ 2.0 $ .20 Implementation costs ................................. 3.1 5.5 3.6 .37 Reversals of accruals of 1999 strategic plan ......... -- (.5) (.3) (.03) Reversals of accruals of 1997 strategic plan ......... -- ( 1) (.1) (.01) Gain on sale of business divestitures ................ -- (.1) (.1) (.01) Patent infringement litigation ....................... -- 3.8 2.5 .25 ------ ------ ----- ----- Results excluding special items ...................... $ 90.8 $ 14.6 $ 7.6 $ .77 ====== ====== ===== ===== 1999(1) ----------------------------------------------------------- Gross Income from Net Per Share Profit Operations Income Amount ---------- ------------- ------------- -------------- (Dollars in millions except per share amounts) Reported results ..................................... $ 92.9 $ 12.0 $ 6.4 $ .61 1999 restructuring costs ............................. -- 6.2 4.0 .39 Reversals of accruals of 1997 strategic plan ......... -- (.6) (.4) (.04) Gain on sale of business divestitures ................ -- (.5) (.3) (.03) ------ ------ ------ ------- Results excluding special items ...................... $ 92.9 $ 17.1 $ 9.7(2) $ .93(2) ====== ====== ======= ======= 1998(1) ---------------------------------------------------- Gross Income from Net Per Share Profit Operations Income Amount ---------- ------------- ---------- ---------- (Dollars in millions except per share amounts) Reported results ..................................... $ 94.8 $ 19.3 $ 12.1 $ 1.05 Reversals of accruals of 1997 strategic plan ......... (1.4) (2.9) (1.9) (.16) Gain on sale of business divestitures ................ -- (.7) (.5) (.04) Gain on sale of discontinued operations .............. -- -- (.5) (.04) ------ ------ ------ ------ Results excluding special items ...................... $ 93.4 $ 15.7 $ 9.2 $ .81 ====== ====== ====== ======
(1) Per share amounts for all years presented were impacted by the reduction of the average common shares outstanding as a result of the Company's stock repurchase program (average common shares outstanding diluted were 9,908,000, 10,493,000 and 11,556,000 in fiscal 2000, 1999 and 1998, respectively). 14 (2) Net income and per share amount were favorably impacted by a lower effective tax rate of 29.2% in fiscal 1999 compared to 34.1% and 34.4% for fiscal years 2000 and 1998, respectively, primarily as a result of higher amounts not deductible for tax purposes (fiscal 2000) and to resolution of certain prior years' tax exposures (fiscal 1999). See Note 10 to the Consolidated Financial Statements. Comparison of Fiscal 2000 vs. 1999 The Company's 2000 fiscal year comprised 53 weeks compared to 52 weeks for fiscal 1999. Net Sales. Net sales increased 1.6% to $248.6 million in fiscal 2000 from $244.8 million in fiscal 1999. This sales increase was largely due to the introduction of new products and higher unit volume, partially offset by the effects of unfavorable exchange rates for the Dutch guilder (the functional currency of the Company's Netherlands operations) and the British pound sterling (the functional currency of the Company's U.K. operations) and lower net selling prices. Consumer products sales of $106.1 million for fiscal 2000 decreased 2.0% from fiscal 1999 sales of $108.2 million. This decrease was due principally to the termination (effective September 1, 1999) of the Company's distribution agreement with respect to Schwan-STABILO highlighter markers and writing instruments, to lower sales of stapler products (down 6.8%) and lower net selling prices, partially offset by higher sales of trimmer products (up 17.7%). Export sales of consumer products increased 15.3% in fiscal 2000 from fiscal 1999, mainly due to higher sales in Latin America and Canada. Graphics products sales of $142.5 million for fiscal 2000 increased 4.3% from fiscal 1999 sales of $136.6 million. This increase was primarily due to the introduction of new products and higher sales of board products (up 10.4%), partially offset by the effects of unfavorable foreign currency exchange rates. Export sales of graphics products increased 10.6% in fiscal 2000 from the prior year. Foreign sales of graphics products decreased 11.0% in fiscal 2000 from fiscal 1999, largely as a result of decreases in the values of the British pound sterling and Dutch guilder. Consolidated net sales decreased 1.1% during the fourth quarter of fiscal 2000 which management believes was largely due to a general economic slowdown in the U.S. which, in turn, prompted some of the Company's key distributors to reduce their inventory and purchasing levels. Management is uncertain how long this trend will continue. Gross Profit. The Company's gross profit ratio decreased to 35.3% of net sales in fiscal 2000 from 38.0% in fiscal 1999, while the gross margin dollars decreased $5.3 million. These decreases were primarily the result of $3.1 million of implementation costs related to the 1999 restructuring plan recorded in cost of sales. Excluding the effect of these implementation costs, the gross profit percentage for fiscal 2000 would have been 36.5%. The remaining decreases in the gross profit percentage and gross profit dollars were largely due to higher material costs, lower net selling prices and unfavorable inventory adjustments, partially offset by cost savings realized from the 1999 restructuring plan and lower net pension costs. The gross margin percentages for foreign sales were 27.1% in fiscal 2000 and 27.2% in fiscal 1999. The Company experienced significant cost increases for some of its raw materials, such as styrene plastic and corrugated packaging materials, during fiscal 2000. Management has initiated planned selling price increases, cost reduction measures and other programs in an effort to offset these cost increases. In addition, the Company expects cost savings in fiscal 2001 from the 1999 restructuring plan to help mitigate these cost increases and improve gross profit percentages and gross profit dollars. Also, the Company has experienced reductions of some of its raw materials costs so far during fiscal 2001; however, management is uncertain if this trend will continue. Selling, General, and Administrative Expenses. Selling, administrative, and general expenses increased $2.5 million, or 3.3%, in fiscal 2000 from the previous year. This increase was largely attributable to implementation costs related to the 1999 restructuring plan, higher freight related costs and higher royalty, travel and entertainment, relocation and recruiting costs, partially offset by lower research and development expenses, lower professional services expenses, cost savings related to the 1999 restructuring plan and a lower special performance award for Company employees. Restructuring and Other. During fiscal 2000, the Company recorded a charge and related liability of $3.8 million (including interest) in connection with a patent infringement suit involving one of its minor products. See Note 4 to Consolidated Financial Statements for further information concerning this charge. 15 In addition, during fiscal 2000, the Company reduced by $.5 million pre-tax ($.03 per share) and $.1 million pre-tax ($.01 per share), respectively, some reserves relating to its 1999 restructuring and 1997 strategic plans. These reserve reductions related primarily to a decision not to vacate a certain facility ($.2 million), final resolution of lease obligations for a vacant facility ($.1 million), lower than anticipated severance costs ($.1 million) and lower than expected losses on asset disposals ($.2 million). Also during fiscal 2000, the Company reduced by $.1 million pre-tax ($.01 per share) some of its reserves related to its 1997 business divestitures. These reserve reductions related primarily to lower than anticipated inventory returns and environmental reserves. During fiscal 1999, the Company recorded special charges of $6.2 million pre-tax ($.39 per share) in connection with the Company's 1999 restructuring plan, as previously discussed. All of these special charges are included in restructuring and other in the accompanying Consolidated Statements of Income. In addition, during fiscal 1999, the Company reduced by $.6 million pre-tax ($.04 per share) some of its reserves established in connection with its 1997 strategic plan. This reserve reduction related primarily to a final resolution of lease obligations for a vacated facility and to lower than expected severance costs. The Company also reduced, during fiscal 1999, by $.5 million pre-tax ($.03 per share) some of its reserves with respect to its 1997 business divestitures. The reserve reduction was principally related to lower than expected inventory returns. See Note 3 to the Consolidated Financial Statements. Interest Expense. Interest expense decreased to $4.4 million in fiscal 2000 from $4.5 million in fiscal 1999 due to lower average debt borrowings in fiscal 2000. Interest Income. Interest income decreased $.2 million in fiscal 2000 from fiscal 1999 due to lower average cash balances. Provision for Income Taxes. The Company's effective tax rate increased to 34.1% in fiscal 2000 from 29.2% in fiscal 1999, primarily due to higher amounts not deductible for tax purposes. See Note 10 to the Consolidated Financial Statements. Net Income and Earnings Per Share. Net income for fiscal 2000 was $2.0 million compared to $6.4 million for fiscal 1999. Excluding the effects of special items recorded in fiscal 2000 and 1999 in connection with the 1999 restructuring plan, the patent infringement litigation and the reduction of reserves related to the 1999 restructuring plan, the 1997 strategic plan and the 1997 business divestitures, earnings per share would have been $.77 and $.93 for fiscal 2000 and 1999, respectively. The decrease in earnings per share, before special items, was due largely to higher raw materials and freight costs, lower net selling prices and unfavorable inventory adjustments. Management has initiated planned selling price increases, cost reduction measures and other programs to offset the higher raw materials and freight costs. In addition, the Company expects cost savings in fiscal 2001 from the 1999 restructuring plan to help mitigate these higher costs. The earnings per share results for fiscal 2000 were favorably impacted by lower average common shares outstanding as a result of the Company's stock repurchase program (average diluted common shares outstanding were 9,908,000 and 10,493,000 in fiscal 2000 and 1999, respectively). Comparison of Fiscal 1999 vs. 1998 Net Sales. Net sales decreased .7% to $244.8 million in fiscal 1999 from $246.6 million in fiscal 1998. This decrease was primarily the result of lower net selling prices, partially offset by higher unit volume, particularly from broader distribution in current sales channels, expanded placement of existing products, and introduction of new products. Consumer products sales of $108.2 million for fiscal 1999 increased .3% from fiscal 1998 sales of $107.9 million. This increase was due largely to broader distribution in current sales channels, expanded placement of existing products and the introduction of new products, partially offset by lower net selling prices, and lower sales of X-Acto brand products. Export sales of consumer products decreased 12.17% in fiscal 1999 as compared to fiscal 1998, principally due to lower sales in Latin America. 16 Graphics products sales of $136.6 million for fiscal 1999 decreased 1.5% from fiscal 1998 sales of $138.7 million. This decrease was primarily due to lower sales of laminating equipment products (down 17.1%), partially offset by higher sales of mounting and laminating supplies products (up 2.9%) and board products (up 2.6%). The decrease in laminating equipment products sales was due largely to significantly lower demand for high-end equipment products and to continued softness in demand in Asia and Latin America. Export sales of graphics products decreased 4.8% in fiscal 1999 from the prior year. Foreign sales of graphics products decreased 4.9% in fiscal 1999 from fiscal 1998, due largely to lower sales of laminating equipment (down 21.7%) and to decreases in the value of the British pound sterling and Dutch guilder, partially offset by higher mounting and laminating supplies products sales. Gross Profit. The Company's gross profit margin decreased slightly to 38.0% of net sales in fiscal 1999 from 38.4% in fiscal 1998, primarily as a result of a $1.4 million special credit recorded in cost of sales in fiscal 1998 in connection with the Company's 1997 strategic plan, as previously discussed. Excluding the effect of this special credit, the gross profit percentage for fiscal 1998 would have been 37.9%. The slight increase in the fiscal 1999 gross profit percentage, before special credit, was due to the net result of favorable production efficiencies and favorable customer and product mix, partially offset by lower net selling prices. The gross margin percentages for foreign sales were 27.2% in fiscal 1999 and 22.2% in fiscal 1998. Selling, General, and Administrative Expenses. Selling, administrative, and general expenses decreased $1.7 million, or 2.1%, in fiscal 1999 from the previous year. The decrease was largely attributable to lower promotional advertising and packaging development costs, lower discretionary marketing spending and lower professional services expenses, partially offset by higher research and development expenses and a special cash award granted by the Board of Directors to the Company's employees in fiscal 1999. Restructuring and Other. The Company recorded special charges of $6.2 million pre-tax ($.39 per share) in connection with the Company's 1999 restructuring plan, as previously discussed. The cash and non-cash portions of the special charges in fiscal 1999 were $4.6 million and $1.6 million, respectively, and include employee severance ($2.6 million), future lease obligations ($1.8 million), fixed asset writedowns ($1.6 million), and other related costs. In addition, during fiscal 1999, the Company reduced by $.6 million pre-tax ($.04 per share) some of its reserves established in connection with its 1997 strategic plan. This reserve reduction related primarily to a lease facility settlement and to lower than expected severance costs. The Company also reduced, during fiscal 1999, by $.5 million pre-tax ($.03 per share) some of its reserves with respect to its 1997 business divestitures. The reserve reduction was principally related to lower than expected inventory returns. During fiscal 1998, the Company, on a net basis, reduced by $2.9 million pre-tax ($.16 per share), a portion of which ($1.4 million) is included in cost of sales, some of its restructuring reserves. This reserve reduction related primarily to lower than expected employee severance costs ($1.1 million), inventory returns ($1.4 million), decisions not to vacate certain leased facilities ($.6 million), and other related costs ($1.0 million) in connection with the Company's implementation of its 1997 strategic plan, partially offset by additional restructuring charges in connection with the consolidation of the graphics and substrates business units in fiscal 1998 related principally to employee severance costs ($1.2 million). In addition, during fiscal 1998, the Company reduced by $.7 million pre-tax ($.04 per share) some of its reserves in connection with its 1997 business divestitures. This reduction was principally related to lower than expected inventory returns. Interest Expense. Interest expense increased to $4.5 million in fiscal 1999 from $4.3 million in fiscal 1998 due to lower interest capitalized in fiscal 1999. Interest Income. Interest income decreased $1.1 million in fiscal 1999 from fiscal 1998 due to lower average cash balances. Provision for Income Taxes. The Company's effective tax rate decreased to 29.2% in fiscal 1999 from 34.4% in fiscal 1998, primarily due to resolution of certain prior years' tax exposures. 17 Financial Condition Working capital decreased to $56.4 million at the end of fiscal 2000 from $61.4 million at the end of fiscal 1999. The Company's debt/capitalization ratio was 46.9% and 44.6% at the end of fiscal 2000 and 1999, respectively. Funds from operations and available cash balances were sufficient during fiscal 2000 to fund additions to property, plant and equipment of $6.4 million, to pay cash dividends of $4.1 million, to make cash payments related to the 1999 restructuring and 1997 strategic plans of $4.1 million, to make cash payments related to the implementation of the 1999 restructuring plan of $3.4 million and to fund the repurchase of $3.2 million of the Company's common shares. Current assets decreased to $88.3 million at the end of fiscal 2000 from $97.3 million at the end of fiscal 1999 largely as a result of lower cash and cash equivalents and the effects of unfavorable foreign currency exchange rates for the Dutch guilder and the British pound sterling, partially offset by higher accounts receivable and other current assets balances. The decrease in cash and cash equivalents was due to items discussed in the preceding paragraph. The increase in accounts receivable of $1.6 million was primarily due to higher sales in the last month of fiscal 2000 and to increased promotional sales with extended payment terms, compared to those at the end of fiscal 1999. Other current assets increased to $2.6 million at the end of fiscal 2000 from $.9 million at the end of fiscal 1999 due largely to income tax refund receivables at the end of fiscal 2000. Current liabilities of $31.9 million at the end of fiscal 2000 decreased from $35.9 million at the end of fiscal 1999. This decrease was largely attributable to the timing of accounts payable and salaries, wages and commissions payments and reductions in the accruals associated with the Company's 1999 restructuring and 1997 strategic plans, partially offset by the patent infringement litigation accrual and the effects of unfavorable foreign currency exchange rates. Other non-current liabilities decreased to $12.5 million at the end of fiscal 2000 from $14.7 million at the end of fiscal 1999 due to several factors, including a decrease in the phantom stock accrual, lower pension accruals and to a lease facility settlement in connection with the 1999 restructuring plan, partially offset by an increase in the Supplemental Executive Benefits Plan liability. The increase in the accumulated other comprehensive loss in stockholders' equity of $4.4 million was due to the effect of unfavorable currency exchange rates of $4.5 million, partially offset by a favorable minimum pension liability adjustment of $.1 million. In fiscal 2000 and 1999, the Company repurchased 352,600 and 838,500 of its common shares, respectively, pursuant to its stock repurchase program. In February 1999, the Board of Directors authorized to the Company to repurchase up to 750,000 shares of the Company's common stock. In September 1999, the Board of Directors authorized the Company to purchase up to an additional $5 million of the Company's common shares through September 2000. During fiscal 2000 and 1999, the Company spent $3.2 million and $8.2 million, respectively, on its repurchase program. The average common shares outstanding diluted decreased from 10,493,000 shares in fiscal 1999 to 9,908,000 shares in fiscal 2000. On December 21, 2000, as authorized by its Board of Directors, the Company purchased 941,290 of its common shares from an institutional investor for $3.7 million. This transaction was funded from the Company's available cash. These and other previously repurchased shares are held by the Company as treasury stock to be used for Company stock-based compensation plans and other general corporate purposes. During the fourth quarter of fiscal 2000, the Company amended its $75 million revolving credit agreement, reducing the amount of the facility to $50 million and extending the expiration date to September 12, 2003. As of December 3, 2000, in addition to this revolving credit facility, the Company had lines of credit facilities at its foreign operations of 1.5 million British pound sterling (approximately $2.1 million) and 2.5 million Dutch guilders (approximately $1.0 million). There were outstanding borrowings totaling $2.7 million under these credit facilities as of December 3, 2000. Management believes that funds generated from operations, combined with the existing credit facilities, will be sufficient to meet currently anticipated working capital and other capital and debt service requirements. See Note 9 to the Consolidated Financial Statements. Should the Company require additional funds, management believes that the Company could obtain them at competitive costs. 18 New Accounting Standards In March 2000, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation," an Interpretation of Accounting Principles Board ("APB") Opinion No. 25. This interpretation was intended to clarify certain problems that have arisen in practice since the issuance of APB Opinion No. 25 in October 1972. It specifically answers certain questions and provides guidance on the implementation of APB Opinion No. 25. The adoption of this interpretation did not have any impact on the Company's financial position or results of operations. In November 2000, the Emerging Issues Task Force ("EITF") reached a final consensus on Issue No. 00-14, "Accounting for Coupons, Rebates and Discounts" that addresses the recognition, measurement, and income statement classification for sales incentives offered voluntarily by a vendor without charge to customers that can be used in, or that are exercisable by a customer as a result of, a single exchange transaction. This Issue is applicable no later than in annual financial statements for fiscal years beginning after December 15, 1999, or financial statements for the first quarter beginning after March 15, 2001, whichever is later. The Company believes that adoption of this Issue will not have a material impact on the Company's results of operations, financial position, or cash flows. In June 2000, the FASB approved issuance of Statement of Financial Accounting Standards ("SFAS") No. 138, which amended SFAS No. 133, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." SFAS No. 138 provides additional guidance related to accounting for derivative instruments and hedging activities. This statement is applicable for fiscal years beginning after June 15, 2000. The Company believes that adoption of this statement will not have a material impact on the Company's results of operations, financial position, or cash flows. In September 2000, the EITF reached a final consensus on Issue No. 00-10, "Accounting for Shipping and Handling Revenues and Costs," which requires amounts charged to customers for shipping and handling to be classified as revenue. In addition, the Issue established that the classification of shipping and handling costs is an accounting policy decision that should be disclosed pursuant to APB Opinion No. 22, "Disclosure of Accounting Policies." If shipping and handling costs are significant and are not included in cost of sales, a company should disclose both the amount of such costs and which line item on the income statement includes that amount. This Issue is applicable no later than the fourth quarter of fiscal years beginning after December 15, 1999. Since the Issue only relates to financial statement classification, its adoption will not affect the Company's financial position or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." This SAB summarizes certain of the staff's views in applying generally accepted accounting principles to selected revenue recognition issues. Accordingly, guidance is provided with respect to the recognition, presentation, and disclosure of revenue in the financial statements. Adoption of SAB No. 101, as amended by SAB No. 101A, "Amendment: Revenue Recognition in Financial Statements" and SAB No. 101B, "Second Amendment: Revenue Recognition in Financial Statements," must be no later than the fourth quarter of fiscal years beginning after December 15, 1999. The Company is currently assessing the impact of these SABs but believes that they will not materially affect the Company's financial position or results of operations. 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 a potentially responsible party for the remediation of sites. Expenses incurred by the Company for all years presented in the accompanying consolidated financial statements 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 14 to the Consolidated Financial Statements. 19 Item 7A. Quantitative and Qualitative Disclosures about Market Risk Market Risk The Company is exposed to various types of market risk in the normal course of business, including the impact of interest rate changes, foreign currency exchange rate fluctuations, and changes in corporate tax rates. The Company employs risk management strategies, including the use of derivatives such as forward exchange contracts. The Company does not hold derivatives for trading purposes. As of December 3, 2000 and November 28, 1999, the Company had no forward exchange contracts outstanding. It is the Company's policy to enter into forward exchange contract transactions only to the extent necessary to achieve the desired objectives of management in limiting the Company's exposure to the various market risks discussed in Item 1 - -- "Sales and Marketing" and Item 7 herein. However, the Company does not hedge all of its market risk exposure in a manner that would completely eliminate the impact of changes in interest rates and foreign exchange rates on the Company's net income. The Company does not expect that its results of operations or financial position will be materially affected by these risk management strategies. Interest Rate Risk Management See Item 7 -- "Financial Condition" and Note 9 to the Consolidated Financial Statements herein. Foreign Exchange Risk Management See Item 1 -- "Sales and Marketing" and Note 1 to the Consolidated Financial Statements herein. Item 8. Financial Statements and Supplementary Data The Financial Statements and supplementary financial information listed in the index appearing under Item 14(a) 1 & 2 herein, together with the report of PricewaterhouseCoopers LLP thereon, are set forth following the signature pages below. Item 9. Disagreements on Accounting and Financial Disclosure Not applicable. PART III Incorporated by Reference The information called for by Item 10, "Directors and Executive Officers of the Registrant" (other than the information concerning executive officers set forth after Item 4 herein); Item 11, "Executive Compensation"; Item 12, "Security Ownership of Certain Beneficial Owners and Management"; and Item 13, "Certain Relationships and Related Transactions," is incorporated herein by reference to the following sections of the Company's definitive proxy statement for its Annual Meeting of Shareholders scheduled to be held April 18, 2001, 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:
Form 10-K Item No. Proxy Statement Section - ------------------ ----------------------- Item 10 .......... Proposal 1. "ELECTION OF DIRECTORS"; "ADDITIONAL INFORMATION -- Section 16(a) Beneficial Ownership Reporting Compliance" Item 11 .......... Proposal 1. "ELECTION OF DIRECTORS -- Compensation of Directors"; "ADDITIONAL INFORMATION -- Executive Compensation" (not including "Compensation Committee Report on Executive Compensation") Item 12 .......... "ADDITIONAL INFORMATION -- Common Share Ownership by Certain Beneficial Owners and Management" Item 13 .......... Not applicable
20 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as part of the Report Pages 1. Financial Statements: ----- Report of Independent Accountants F-1 Consolidated Statements of Income F-2 for the fiscal years 2000, 1999 and 1998 Consolidated Balance Sheets, F-3 December 3, 2000 and November 28, 1999 Consolidated Statements of Stockholders' Equity F-4 for the fiscal years 2000, 1999 and 1998 Consolidated Statements of Comprehensive Income (Loss) F-5 for the fiscal years 2000, 1999 and 1998 Consolidated Statements of Cash Flows F-6 for the fiscal years 2000, 1999 and 1998 Notes to Consolidated Financial Statements F-7-F-29 2. Financial Statement Schedule: Schedule II. Valuation and Qualifying Accounts F-30 for the fiscal years 2000, 1999 and 1998 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 (incorp. by ref. to Ex. 3(a) to January 2001 Form 8-K). (b) By-laws, as amended (incorp. by ref. to Ex. 3(b) to January 2001 Form 8-K). (4) Instruments defining rights of security holders, including indentures:* (a) Note Purchase Agreement dated as of August 1, 1996 between the Company and several insurance companies (incorp. by ref. to Form 10-Q for quarter ended September 1, 1996). (b) Amended and Restated Credit Agreement dated as of September 12, 2000 between the Company and Bank of America, N.A. and other lenders (incorp. by ref. to Ex. 4(b) to Form 10-Q for quarter ended September 3, 2000). 21 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 (incorp. by ref. to Ex. 10(a) to fiscal 1999 Form 10-K). (b) 1983 Stock Option and Stock Grant Plan, as amended, of the Company (incorp. by ref. to Ex. 10(b) to fiscal 1996 Form 10-K).** (c) (1) 1993 Stock Option and Stock Grant Plan of the Company, as amended (incorp. by ref. to Ex. 10(c) to Form 10-Q for quarter ended September 3, 2000); (2) Addendum relating to options granted December 16, 1999; and (3) Description of January 2001 stock grants (Exhibits 10(c)(2) and (3) filed herewith.)** (d) 1994 Non-Employee Directors' Stock Option Plan (incorp. by ref. to Ex. 10(d) to fiscal 1999 Form 10-K).** (e) 1997 Non-Employee Director Compensation Plan (incorp. by ref. to Ex. 10(f) to fiscal 1997 Form 10-K).** (f) (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).** (g) (1) Form of Supplemental Executive Benefits Plan ("SEBP") of the Company, effective January 1, 1997, (incorporated by reference to Ex. 10 (g)(1) of fiscal 1998 Form 10-K); (2) Amendment No. 1 to SEBP (incorp. by ref. to Ex. 10(g)(2) to fiscal 1999 Form 10-K); (3) form of related Amended and Restated Trust Agreement, effective January 1, 1997(incorp. by ref. to Ex. 10(g)(2) to fiscal 1998 Form 10-K); (4) Amendment No. 2 to SEBP; and (5) Amendment No. 3 to SEBP (Exhibits 10(g)(4) and (5) filed herewith).** (h) Employment Agreement, dated as of April 8, 1996, between the Company and Donald L. Thompson (incorp. by ref. to Ex. 10 to Form 10-Q for quarter ended June 2, 1996); (2) Amendment No. 1 dated October 1, 1999 to Employment Agreement; (3) Amendment, effective June 28, 2000, to Appendix A to Employment Agreement; and (4) Nonqualified Stock Option Agreement dated June 28, 2000 (Exhibits 10(h)(2), (3) and (4) are incorp. by ref. to Exs. 10(h)(2), (3) and (4), respectively, to Form 10-Q for the quarter ended September 3, 2000).** (i) Officer Severance Plan (incorp. by ref. to Ex. 10 to Form 10-Q for quarter ended February 28, 1999). (21) Subsidiaries (filed incorp. by reference to Ex. 11 to fiscal 1997 Form 10-K). (23) Consent of PricewaterhouseCoopers LLP to incorporation by reference in registration statements on Form S-8 of their report on the consolidated financial statements and schedule included in this report (filed herewith). (27) Financial Data Schedule (filed herewith). 22 * Reference also is made to (1) Articles 5th, 6th, 7th, and 8th of the Company's Restated Articles of Incorporation (ex. 3(a) to this report) and (2) Sections 1 and 6 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. 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 CORPORATION Dated: February 26, 2001 By: \s\ Donald L. Thompson ----------------------------------------------- Donald L. Thompson Chairman, President 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\ Donald L. Thompson February 26, 2001 ------------------------- Donald L. Thompson Chairman, President and Chief Executive Officer \s\ William E. Chandler February 26, 2001 ------------------------- William E. Chandler Senior Vice President, Finance (Principal Financial Officer) \s\ John Fanelli III February 26, 2001 ------------------------- John Fanelli III Vice President, Corporate Controller (Principal Accounting Officer) \s\ Donald D. Belcher February 26, 2001 ------------------------- Donald D.Belcher Director \s\ Ursula M. Burns February 26, 2001 ------------------------- Ursula M. Burns Director \s\ Jack Farber February 26, 2001 ------------------------- Jack Farber Director \s\ William F. Hamilton, Ph.D. February 26, 2001 ------------------------- William F. Hamilton, Ph.D. Director 23 \s\ Mary R. Henderson February 26, 2001 ------------------------- Mary R. (Nina) Henderson Director \s\ Gordon A. MacInnes February 26, 2001 ------------------------- Gordon A. MacInnes Director \s\ Robert H. Rock February 26, 2001 ------------------------- Robert H. Rock Director \s\ Roderic H. Ross February 26, 2001 ------------------------- Roderic H. Ross Director \s\ Malcolm J. Thompson February 26, 2001 ------------------------- Malcolm J. Thompson Director \s\ Victoria B. Vallely February 26, 2001 ------------------------- Victoria B. Vallely Director 24 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and the Board of Directors of Hunt Corporation In our opinion, the consolidated financial statements in the accompanying index appearing under Item 14(a) (1) on page 21 present fairly, in all material respects, the financial position of Hunt Corporation and its subsidiaries at December 3, 2000 and November 28, 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 3, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under item 14(a)(2) on page 21 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Philadelphia, PA 19103 January 30, 2001 F-1 HUNT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME for the fiscal years 2000, 1999 and 1998 (In thousands except per share amounts)
2000 1999 1998 (53 weeks) (52 weeks) (52 weeks) ------------ ------------ ------------- Net sales ............................................ $ 248,637 $ 244,808 $ 246,563 Cost of sales ........................................ 160,959 151,861 151,784 --------- --------- --------- Gross profit ................................... 87,678 92,947 94,779 Selling, general and administrative expenses ......... 78,309 75,805 77,458 Restructuring and other .............................. 3,370 5,185 (1,933) --------- --------- --------- Income from operations ......................... 5,999 11,957 19,254 Interest expense ..................................... (4,396) (4,471) (4,344) Interest income ...................................... 1,315 1,471 2,626 Other income, net .................................... 70 126 176 --------- --------- --------- Income from continuing operations before income taxes ........................... 2,988 9,083 17,712 Provision for income taxes ........................... 1,019 2,656 6,089 --------- --------- --------- Income from continuing operations .............. 1,969 6,427 11,623 Discontinued operations: Gain on disposal of discontinued business, net of income taxes of $260 ...................... -- -- 484 --------- --------- --------- Net income ..................................... $ 1,969 $ 6,427 $ 12,107 ========= ========= ========= Basic earnings per common share: Income from continuing operations ................. $ .20 $ .61 $ 1.04 Gain on disposal of discontinued business ......... -- -- .04 --------- --------- --------- Net income per share ........................... $ .20 $ .61 $ 1.08 ========= ========= ========= Diluted earnings per common share: Income from continuing operations ................. $ .20 $ .61 $ 1.01 Gain on disposal of discontinued business ......... -- -- .04 --------- --------- --------- Net income per share ........................... $ .20 $ .61 $ 1.05 ========= ========= =========
See accompanying notes to consolidated financial statements. F-2 HUNT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 3, 2000 and November 28, 1999 (In thousands except share and per share amounts)
2000 1999 ------------- ------------- ASSETS Current assets: Cash and cash equivalents ......................................................... $ 23,878 $ 36,897 Accounts receivable, less allowance for doubtful accounts: 2000 - $873; 1999 - $967 ............................................... 35,058 33,445 Inventories ....................................................................... 21,823 20,676 Deferred income taxes ............................................................. 4,966 5,406 Prepaid expenses and other current assets ......................................... 2,590 850 --------- --------- Total current assets ........................................................... 88,315 97,274 Property, plant and equipment, net ................................................... 41,216 45,121 Excess of acquisition cost over net assets acquired, net ............................. 22,117 25,013 Intangible assets, net ............................................................... 2,416 2,814 Other assets ......................................................................... 9,468 9,407 --------- --------- TOTAL ASSETS ................................................................... $ 163,532 $ 179,629 ========= ========= LIABILITIES Current liabilities: Current portion of debt ........................................................... $ -- $ 23 Accounts payable .................................................................. 7,876 10,762 Accrued expenses: Salaries, wages and commissions .................................................. 2,460 3,584 Income taxes ..................................................................... 1,297 1,481 Insurance ........................................................................ 1,843 1,565 Compensated absences ............................................................. 2,871 2,649 Restructuring .................................................................... 862 4,777 Other ............................................................................ 14,698 11,010 --------- --------- Total current liabilities ...................................................... 31,907 35,851 Long-term debt, less current portion ................................................. 54,682 56,647 Deferred income taxes ................................................................ 2,434 1,906 Other non-current liabilities ........................................................ 12,539 14,710 Commitments and contingencies (see Note 14) 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: 2000 and 1999 -16,152,322 shares ......................................... 1,615 1,615 Capital in excess of par value ....................................................... 7,412 6,434 Accumulated other comprehensive loss ................................................. (6,840) (2,459) Retained earnings .................................................................... 158,044 160,267 Less cost of treasury stock: 2000 - 6,324,933 shares; 1999 - 5,987,383 shares ..... (98,261) (95,342) --------- --------- Total stockholders' equity ..................................................... 61,970 70,515 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................. $ 163,532 $ 179,629 ========= =========
See accompanying notes to consolidated financial statements. F-3 HUNT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for the fiscal years 2000, 1999 and 1998 (In thousands except share and per share amounts)
Accumulated Common Stock Capital in Other ------------------------- Excess of Comprehensive Retained Issued Treasury Par Value Loss Earnings ---------- ------------- ------------ --------------- ------------- Balances, November 30, 1997 (issued 16,152,322 shares; treasury 4,985,224 shares) ...................... $ 1,615 $ (84,756) $ 6,434 $ 275 $ 151,093 Net income ....................................... 12,107 Cash dividends on common stock ($.41 per share) ................................ (4,604) Translation adjustments (net of tax expense of $90) ..................... 171 Minimum pension adjustment (net of tax benefit of $810) .................... (1,545) Purchase of treasury shares (371,800 shares) ..... (5,729) Exercise of stock options (treasury 179,433 shares, net of shares received as payment upon exercise) .............. 2,864 (357) Issuance of stock grants (treasury 15,509 shares) ........................ 235 77 ------- ---------- ------- --------- --------- Balances, November 29, 1998 (issued 16,152,322 shares; treasury 5,162,082 shares) ...................... 1,615 (87,386) 6,434 (1,099) 158,316 Net income ....................................... 6,427 Cash dividends on common stock ($.41 per share) ................................ (4,317) Translation adjustments (net of tax benefit of $1,005) .................. (2,437) Minimum pension adjustment (net of tax expense of $475) .................... 1,077 Purchase of treasury shares (838,500 shares) ................................ (8,171) Issuance of stock grants (treasury 13,199 shares) ........................ 215 (159) ------- ---------- ------- --------- --------- Balances, November 28, 1999 (issued 16,152,322 shares; treasury 5,987,383 shares) ...................... 1,615 (95,342) 6,434 (2,459) 160,267 Net income ....................................... 1,969 Cash dividends on common stock ($.41 per share) ................................ (4,067) Translation adjustments (net of tax benefit of $2,338) .................. (4,518) Minimum pension adjustment (net of tax expense of $71) ..................... 137 Tax benefit of stock option transactions ......... 978 Purchase of treasury shares (352,600 shares) ..... (3,165) Issuance of stock grants (treasury 15,050 shares) ........................ 246 (125) ------- ---------- ------- --------- --------- Balances, December 3, 2000 (issued 16,152,322 shares; treasury 6,324,933 shares) ...................... $ 1,615 $ (98,261) $ 7,412 $ (6,840) $ 158,044 ======= ========== ======= ========= =========
See accompanying notes to consolidated financial statements. F-4 HUNT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) for the fiscal years 2000, 1999 and 1998 (In thousands)
2000 1999 1998 ------------- ---------- ----------- Net income ............................................................ $ 1,969 $ 6,427 $ 12,107 --------- -------- -------- Comprehensive income (loss): .......................................... Foreign currency translation adustments, net of income tax expense (benefit) of ($2,338), ($1,005) and $90 in 2000, 1999 and 1998, respectively .............. (4,518) (2,437) 171 Minimum pension liability adustments, net of income tax expense (benefit) of $71, $475 and ($810) in 2000, 1999 and 1998, respectively .......... 137 1,077 (1,545) --------- -------- -------- Other comprehensive loss ............................................. (4,381) (1,360) (1,374) --------- -------- -------- Comprehensive income (loss) .......................................... $ (2,412) $ 5,067 $ 10,733 ========= ======== ========
See accompanying notes to consolidated financial statements. F-5 HUNT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the fiscal years 2000, 1999 and 1998 (in thousands)
2000 1999 1998 -------------- ------------ ----------- Cash flows from operating activities: Net income ........................................................... $ 1,969 $ 6,427 $ 12,107 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization ..................................... 8,604 8,540 8,267 Provision for inventory obsolescence .............................. 1,007 828 1,526 Provision (credit) for doubtful accounts .......................... (52) 161 77 Deferred income taxes ............................................. 948 312 1,991 Loss on disposal of property, plant and equipment ................. 247 120 251 Gain on sale of businesses ........................................ (133) (554) (1,394) Provision (payments/credits) for special charges .................. (4,675) 3,495 (8,102) Provision for patent infringement litigation ...................... 3,815 -- -- Issuance of stock under management incentive bonus and stock grant plans ............................................ 118 56 312 Changes in operating assets and liabilities, net of acquisition of businesses: Accounts receivable ............................................ (2,256) (2,962) 2,432 Inventories .................................................... (3,083) (90) (1,396) Prepaid expenses and other current assets ...................... (1,888) 525 634 Accounts payable ............................................... (2,436) (1,607) 1,359 Accrued expenses ............................................... (822) 297 (5,322) Other non-current assets and liabilities ....................... 641 (679) (16,338) -------- --------- --------- Net cash provided by (used for) operating activities .......... 2,004 14,869 (3,596) -------- --------- --------- Cash flows from investing activities: Additions to property, plant and equipment ........................ (6,439) (4,879) (13,853) Acquisition of businesses ......................................... (417) (1,435) -- Other, net ........................................................ 63 339 32 -------- --------- --------- Net cash used for investing activities ........................ (6,793) (5,975) (13,821) -------- --------- --------- Cash flows from financing activities: Proceeds from issuance of long-term debt .......................... 13,229 16,132 7,272 Reduction of long-term debt, including current maturities ......... (14,642) (17,301) (5,500) Book overdrafts ................................................... 498 1,128 (1,281) Purchases of treasury stock ....................................... (3,163) (8,171) (5,729) Proceeds from exercise of stock options ........................... -- -- 2,507 Dividends paid .................................................... (4,066) (4,317) (4,604) Other, net ........................................................ (2) (29) -- -------- --------- --------- Net cash used for financing activities ........................ (8,146) (12,558) (7,335) -------- --------- --------- Effect of exchange rate changes on cash and cash equivalents ......... (84) (163) 27 -------- --------- --------- Net decrease in cash and cash equivalents ............................ (13,019) (3,827) (24,725) Cash and cash equivalents, beginning of year ......................... 36,897 40,724 65,449 -------- --------- --------- Cash and cash equivalents, end of year ............................... $ 23,878 $ 36,897 $ 40,724 ======== ========= =========
See accompanying notes to consolidated financial statements. F-6 HUNT CORPORATION 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. Significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's fiscal year ends on the Sunday nearest the end of November. Fiscal year 2000 ended December 3, 2000; fiscal year 1999 ended November 28, 1999; and fiscal year 1998 ended November 29, 1998. Fiscal year 2000 comprised 53 weeks and fiscal years 1999 and 1998 comprised 52 weeks, respectively. Cash and Cash Equivalents: The Company considers all highly liquid temporary cash investments purchased with a maturity of three months or less to be cash equivalents. The Company's cash management program utilizes zero balance accounts. Accordingly, all book overdraft balances have been reclassified to other accrued expenses in the accompanying Consolidated Balance Sheets and amounted to $4.1 million at December 3, 2000 and $3.6 million at November 29, 1999. Revenue Recognition: Revenue is recognized when products are shipped and title has passed to the customer. Provisions for estimated product returns and warranty costs are accrued in the period of revenue recognition. Inventories: Inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out ("LIFO") method for 39% and 52% of the inventories in fiscal 2000 and 1999, respectively. Cost of the remaining inventories is determined using the first-in, first-out ("FIFO") method. The Company uses the FIFO method of inventory valuation for certain 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 restructuring and other in the Consolidated Statements of Income. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. Excess of Acquisition Cost Over Net Assets Acquired and Other Intangible Assets: Excess of acquisition cost over net assets acquired relates principally to the Company's acquisitions of X-Acto (1981), the Graphic Arts Group of Bunzl plc (1990), Image Technologies (1993), Centafoam (1995), Sallmetall (1997) and Axiom (1999). The Company's policy is to record an impairment loss against the net unamortized excess of acquisition cost over net assets acquired and net other 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. F-7 HUNT CORPORATION AND SUBSIDIARIES 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, 3 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 15 to 40 years. The costs of other intangible assets are amortized on a straight-line basis over their respective estimated useful lives, ranging from 5 to 30 years. Amortization of assets under capital leases that 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 were not material in any of the years presented in the consolidated financial statements. Income Taxes: Income tax expense is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts. The Company provides a valuation allowance for deferred taxes for which it does not consider realization of such assets to be more likely than not. Derivatives: Derivative financial instruments are used to hedge risk caused by fluctuating currency. The Company periodically enters into forward exchange contracts to hedge foreign currency transactions for periods generally consistent with its committed exposure. These transactions were not material in any of the years presented in the consolidated financial statements. As of December 3, 2000 and November 28, 1999, there were no forward exchange contracts outstanding. Cash flows from hedges are classified in the Consolidated Statements of Cash Flows in the same category as the item being hedged. The Company does not hold or issue financial instruments for trading purposes. Earnings Per Share: Basic earnings per share is computed by dividing net earnings by the weighted average of common shares outstanding during the year. Diluted earnings per share reflects the potential dilution of securities that could share in earnings, including stock options. All earnings per share amounts are presented on an after-tax, diluted basis unless otherwise noted. A reconciliation of weighted average common shares outstanding to weighted average of common shares outstanding assuming dilution is shown below:
2000 1999 1998 ------- -------- --------- Average common shares outstanding -- basic .............. 9,905 10,488 11,220 Add: common equivalent shares representing shares issuable upon exercise of stock options and stock grants ...................................... 3 5 336 ----- ------ ------ Average common shares and dilutive securities outstanding 9,908 10,493 11,556 ===== ====== ======
F-8 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): Comprehensive Income: The Company applies Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which requires disclosure of comprehensive income, which includes, in addition to net income, other comprehensive income consisting of unrealized gains and losses which bypass the traditional income statement and are recorded directly into a separate section of shareholders' equity on the balance sheet. The components of other comprehensive income for the Company consist of unrealized gains and losses relating to the translation of foreign currency financial statements and additional minimum pension liability adjustments. 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. The Company applies SFAS No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits," which does not change the measurement or recognition of those plans; but does require the company to disclose additional information on changes in the benefit obligations and fair values of plan assets, and eliminates certain disclosures that are no longer useful. Stock-Based Compensation Plans: The Company applies Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation. SFAS No. 123, "Accounting for Stock-Based Compensation," provides the option either to continue the Company's current method of accounting for stock-based compensation or to adopt the fair value method of accounting. The Company elected to continue accounting for stock-based compensation under APB No. 25. 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. Segment Information: The Company applies SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" and uses the management approach to report segment results and operations. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. The Company also discloses information about products and services, geographic areas, and major customers. F-9 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 2. NEW ACCOUNTING STANDARDS: In March 2000, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation," an Interpretation of APB Opinion No. 25. This Interpretation was intended to clarify certain problems that have arisen in practice since the issuance of APB Opinion No. 25 in October 1972. It specifically answers certain questions and provides guidance on the implementation of APB Opinion No. 25. The adoption of this interpretation did not have any impact on the Company's financial position or results of operations. In November 2000, the Emerging Issues Task Force ("EITF") reached a final consensus on Issue No. 00-14, "Accounting for Coupons, Rebates and Discounts" that addresses the recognition, measurement, and income statement classification for sales incentives offered voluntarily by a vendor without charge to customers that can be used in, or that are exercisable by a customer as a result of, a single exchange transaction. This Issue is applicable no later than in annual financial statements for fiscal years beginning after December 15, 1999, or financial statements for the first quarter beginning after March 15, 2001, whichever is later. The Company believes that adoption of this Issue will not have a material impact on the Company's results of operations, financial position, or cash flows. In June 2000, the FASB approved issuance of SFAS No. 138, which amended SFAS No. 133, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." SFAS No. 138 provides additional guidance related to accounting for derivative instruments and hedging activities. This statement is applicable for fiscal years beginning after June 15, 2000. The Company believes that adoption of this statement will not have a material impact on the Company's results of operations, financial position, or cash flows. In September 2000, the EITF reached a final consensus on Issue No. 00-10, "Accounting for Shipping and Handling Revenues and Costs," which requires amounts charged to customers for shipping and handling to be classified as revenue. In addition, the Issue established that the classification of shipping and handling costs is an accounting policy decision that should be disclosed pursuant to APB Opinion No. 22, "Disclosure of Accounting Policies." If shipping and handling costs are significant and are not included in cost of sales, a company should disclose both the amount of such costs and which line item on the income statement includes that amount. This Issue is applicable no later than the fourth quarter of fiscal years beginning after December 15, 1999. Since the Issue only relates to financial statement classification, its adoption will not affect the Company's financial position or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." This SAB summarizes certain of the staff's views in applying generally accepted accounting principles to selected revenue recognition issues. Accordingly, guidance is provided with respect to the recognition, presentation, and disclosure of revenue in the financial statements. Adoption of SAB No. 101, as amended by SAB No. 101A, "Amendment: Revenue Recognition in Financial Statements" and SAB No. 101B, "Second Amendment: Revenue Recognition in Financial Statements," must be no later than the fourth quarter of fiscal years beginning after December 15, 1999. The Company is currently assessing the impact of these SABs but believes that they will not materially affect the Company's financial position or results of operations. F-10 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 3. RESTRUCTURING AND OTHER: Restructuring and other for fiscal years 2000, 1999 and 1998 consist of the following:
2000 1999 1998 --------- --------- ------------ Patent infringement litigation costs ....................... $3,815 -- -- Restructuring .............................................. (559) $5,619 $ (1,534) Net gain on divestitures ................................... (133) (554) (650) Loss on disposals, of property, plant & equipment .......... 247 120 251 ------ ------ -------- $3,370 $5,185 $ (1,933) ====== ====== ========
During fiscal 2000, the Company recorded a charge and related liability of $3.8 million pre-tax (including interest and other costs), or $.25 per share, in connection with a patent infringement suit involving one of its minor products. (See Note 4). During the fourth quarter of fiscal 1999, a comprehensive reorganization and restructuring plan (the "1999 restructuring plan") was approved by the Company's Board of Directors and resulted in recognition of restructuring charges totaling $6.2 million pre-tax ($.39 per share) which are included in restructuring and other in the accompanying Consolidated Statements of Income. The major components of this plan included creating manufacturing centers of excellence, outsourcing the Company's European distribution activities, consolidating its U. S. distribution activities, and focusing its product offering and marketing efforts. The restructuring charges included employee severance costs ($2.6 million), recognition of future lease obligations ($1.8 million), fixed asset writedowns ($1.6 million), and other related costs. In addition to such restructuring charges, the Company expects to spend approximately $5.9 million for implementation costs of this plan (to be recorded as period costs as incurred), of which $5.5 million pre-tax ($.37 per share) was recorded in fiscal 2000. The implementation costs in fiscal 2000 included manufacturing and operating costs ($1.8 million); employee retention bonuses, severance, outplacement, relocation and training costs ($1.8 million); project consulting ($.6 million); plant rearrangement and moving costs ($.7 million); and other costs and are included in the following categories in the accompanying Consolidated Statements of Income: cost of sales ($3.1 million) and selling, general and administrative expenses ($2.4 million). During fiscal 2000, the Company reduced by $.5 million pre-tax ($.03 per share) some of its reserves established in connection with the company's implementation of its 1999 restructuring plan. These reserve reductions related primarily to a decision not to vacate a certain facility ($.2 million), final resolution of lease obligations for a vacant facility ($.1 million), lower than anticipated severance costs ($.1 million) and lower than expected losses on asset disposals ($.1 million). The following tables set forth the details and the cumulative activity in the various accruals associated with the above 1999 restructuring plan in the Consolidated Balance Sheets from November 30, 1998 to December 3, 2000:
Balance at Balance at November 30, Current Cash Non-Cash November 28, 1998 Provision Credits Reductions Activity 1999 -------------- ----------- --------- ------------ ---------- ------------- Lease obligations .. -- $1,772 -- $ (6) -- $1,766 Severance .......... -- 2,593 -- (54) -- 2,539 Fixed assets ....... -- 1,584 -- (3) -- 1,581 Other .............. -- 257 -- (80) -- 177 ---- ------ ---- ----- ---- ------ Total .............. -- $6,206 -- $(143) -- $6,063 ==== ====== ==== ===== ==== ======
F-11 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 3. RESTRUCTURING AND OTHER (Continued):
Balance at Balance at November 29, Current Cash Non-Cash December 3, 1999 Provision Credits Reductions Activity 2000 -------------- ----------- ----------- ------------ ------------- ------------ Lease obligations ......... $1,766 -- $(117) $(1,577) -- $ 72 Severance ................. 2,539 -- (119) (1,630) -- 790 Fixed assets .............. 1,581 -- (124) (35) $(1,225) 197 Other ..................... 177 -- (116) (61) -- -- ------ ---- ----- ------- ------- ------ Total ..................... $6,063 -- $(476) $(3,303) $(1,225) $1,059 ====== ==== ===== ======= ======= ======
During fiscal 1997, the Company initiated a new strategy for growth and restructuring (the "1997 strategic plan") designed to restore higher levels of sales growth and profitability and to reduce its cost structure. The key initiatives of the 1997 strategic plan were focused on significant reduction of the Company's stock keeping units, rationalization of manufacturing and warehouse facilities, and a major restructuring of its administrative and marketing and selling functions. During fiscal 2000, the Company completed the implementation of its 1997 strategic plan. During fiscal 2000, the Company reduced by $.1 million pre-tax ($.01 per share) some of its reserves established in connection with the Company's implementation of its 1997 strategic plan. The reserve reduction related primarily to lower than expected losses on asset disposals. During fiscal 1999, the Company reduced by $.6 million pre-tax ($.04 per share) some of its 1997 strategic plan restructuring reserves. The reserve reduction related primarily to a final resolution of lease obligations for a vacated facility and to lower than expected severance costs. During fiscal 1998, the Company, on a net basis, reduced some of its restructuring reserves by $2.9 million pre-tax ($.16 per share), a portion of which is included in cost of sales ($1.4 million). This reserve reduction related primarily to lower than expected severance costs ($1.1 million), inventory returns ($1.4 million), decisions not to vacate certain leased facilities ($.6 million), and other related costs ($1.0 million) in connection with the Company's implementation of its 1997 strategic plan, partially offset by additional restructuring charges in connection with the consolidation of the graphics and substrates business units in the fourth quarter of fiscal 1998 relating principally to employee severance costs ($1.2 million). The following tables set forth the details and the cumulative activity in the various accruals and reserves associated with the above 1997 strategic plan in the Consolidated Balance Sheets from November 30, 1998 to December 3, 2000:
Balance at Balance at November 30, Current Cash Non-Cash November 28, 1998 Provision Credits Reductions Activity 1999 -------------- ----------- --------- ------------ ------------ ------------- Inventory ................. $ 400 -- -- $ (370) $ (30) -- Lease obligations ......... 1,873 -- $ (467) (847) (5) $554 Severance ................. 722 -- (103) (573) -- 46 Fixed assets .............. 235 -- (17) -- (218) -- Other ..................... 487 -- -- (191) -- 296 ------ ---- ------ -------- ----- ---- Total ..................... $3,717 -- $ (587) $ (1,981) $(253) $896 ====== ==== ====== ======== ===== ====
F-12 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 3. RESTRUCTURING AND OTHER (Continued):
Balance at Balance at November 29, Current Cash Non-Cash December 3, 1999 Provision Credits Reductions Activity 2000 -------------- ----------- --------- ------------ ---------- ------------ Lease obligations ......... $554 -- -- $ (554) -- -- Severance ................. 46 -- -- (46) -- -- Other ..................... 296 -- $ (83) (213) -- -- ---- ---- ----- ------ ---- ---- Total ..................... $896 -- $ (83) $ (813) -- -- ==== ==== ===== ====== ==== ====
During fiscal 2000, 1999, and 1998, the Company reduced by $.1 million pre-tax ($.01 per share), $.5 million pre-tax ($.03 per share) and $.7 million ($.04 per share), respectively, some of its reserves established with respect to its 1997 business divestitures. These reductions were principally related to lower than expected inventory returns and environmental reserves. 4. PATENT INFRINGEMENT LITIGATION: Several years ago, the Company was sued for patent infringement with respect to one of its minor products. After a jury trial in 1998, the U.S. District Court for the Western District of Wisconsin entered judgment against the Company in this matter and awarded damages to the plaintiffs in the amount of $3.3 million, plus interest and costs. The verdict was appealed, and contrary to the expectations of the Company and its patent counsel, a three-judge panel of the U.S. Court of Appeals affirmed the judgment in July 2000. Subsequently, a request, filed with the Court of Appeals by the Company to have the case reconsidered by all twelve judges of the Court of Appeals, was denied in October 2000. As a result, the Company recorded a liability of $3.8 million pre-tax (including interest and other costs), or $.25 per share, relating to this matter in fiscal 2000 which amount is included in the accompanying Consolidated Statements of Income under restructuring and other and in the accompanying Consolidated Balance Sheets under other current liabilities. However, the Company and its patent counsel continue to believe that the verdict against the Company was incorrect and are seeking a review of the decision by the Supreme Court of the United States and are considering other possible courses to challenge the verdict. 5. BUSINESS ACQUISITION: On October 4, 1999, the Company acquired the business and assets of Axiom Graphics Manufacturing, Inc. ("Axiom") for $1.4 million and future contingent considerations. Axiom is a manufacturer, distributor, and marketer of a line of liquid laminating machines and wet separator finishing devices for the large format print industry. This acquisition was accounted for under the purchase method of accounting and was financed from internal cash generation. The excess of purchase price over the fair value of the net assets acquired was approximately $1.3 million, which is being amortized on a straight line basis for 15 years. Pro forma information is not presented, as this acquisition had no material effect on the Company's results of operations or financial condition for any of the years presented. The results of operations of this business are included in the Company's consolidated financial statements from the date of acquisition. 6. INVENTORIES: The classification of inventories at the end of fiscal years 2000 and 1999 is as follows: 2000 1999 ---------- ---------- Finished goods ............ $10,593 $10,373 Work in progress .......... 2,784 3,337 Raw materials ............. 8,446 6,966 ------- ------- $21,823 $20,676 ======= ======= F-13 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 6. INVENTORIES (Continued): Inventories determined under the LIFO method were $10,773 and $14,062 at December 3, 2000 and November 28, 1999, respectively. The current replacement cost for these inventories exceeded the LIFO cost by $4,234 and $4,119 at December 3, 2000 and November 28, 1999, respectively. Inventory quantities were reduced in fiscal years 2000, 1999 and 1998, resulting in a liquidation of LIFO inventories carried at lower costs prevailing in prior years. The effect of these reductions was to increase net income by $237 ($.02 per share), $236 ($.02 per share) and $110 ($.01 per share), in fiscal years 2000, 1999 and 1998, respectively. 7. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment, net, at the end of fiscal years 2000 and 1999 is as follows:
2000 1999 --------- --------- Land and land improvements .............................. $ 2,275 $ 2,512 Buildings ............................................... 14,795 16,509 Machinery and equipment ................................. 67,284 65,707 Leasehold improvements .................................. 803 1,271 Construction in progress ................................ 2,066 2,903 ------- ------- 87,223 88,902 Less accumulated depreciation and amortization .......... 46,007 43,781 ------- ------- $41,216 $45,121 ======= =======
Depreciation expense was $6,982, $7,053 and $6,769 for fiscal years 2000, 1999 and 1998, respectively. 8. EXCESS OF ACQUISITION COST OVER NET ASSETS ACQUIRED AND INTANGIBLE ASSETS, NET: Excess of acquisition cost over net assets acquired at the end of fiscal years 2000 and 1999 is as follows:
2000 1999 ---------- ---------- Excess of acquisition cost over net assets acquired .......... $29,642 $31,500 Less accumulated amortization ................................ 7,525 6,487 ------- ------- $22,117 $25,013 ======= =======
Intangible assets, net, at the end of fiscal years 2000 and 1999 are as follows: 2000 1999 --------- --------- Covenants not to compete ............... $2,728 $2,728 Patents ................................ 1,530 1,530 Trademarks ............................. 1,159 1,197 Licensing agreements ................... 492 492 Other .................................. 2,295 2,628 ------ ------ 8,204 8,575 Less accumulated amortization .......... 5,788 5,761 ------ ------ $2,416 $2,814 ====== ====== F-14 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 9. DEBT: Debt at the end of fiscal years 2000 and 1999 was as follows: 2000 1999 ---------- ---------- Senior notes (a) ........................... $50,000 $50,000 Revolving credit facility (b) .............. 2,676 4,262 Capitalized lease obligations (c) .......... 2,006 2,011 Mortgage (d) ............................... -- 397 ------- ------- 54,682 56,670 Less current portion ....................... -- 23 ------- ------- Long-term portion .......................... $54,682 $56,647 ======= ======= (a) The senior notes are payable in ten annual payments of $5 million beginning August 1, 2002 and bear interest at a rate of 7.86%. (b) During the fourth quarter of fiscal 2000, the Company amended its $75 million revolving credit agreement, reducing the amount of the facility to $50 million and extending the expiration date to September 12, 2003. The interest rates under this facility (between 3.05% and 6.71% dependent on the currency borrowed during fiscal 2000) are, at the option of the Company, one of the following: a base rate (defined as the higher of (i) the applicable prime rate of the bank and (ii) the federal funds rate plus 50 basis points); LIBOR plus a margin of between 55.0 and 95.0 basis points, the margin in each case to be adjusted quarterly based on the Company's leverage ratio (as defined in the credit facility); a competitive bid rate based on a competitive bid made by a competitive bid lender; or a quoted rate offered by a swingline lender. The weighted average interest rate was 5.76% and 4.99% at December 3, 2000 and November 28, 1999, respectively. (c) The capitalized lease obligations are collateralized by the property, plant and equipment described in Note 14. (d) The mortgage loan was refinanced with revolving credit facility loans in fiscal 2000. The senior notes and credit facility contain certain representations, warranties, covenants and conditions, including, but not limited to, requirements that the Company comply with certain financial covenants, including interest coverage, fixed charge coverage and leverage ratios, and maintenance of certain levels of net worth, and also contain limitations on liens, indebtedness, investments, changes in lines of business, acquisitions, transactions with affiliates and modifications of certain documents. The Company was in compliance with its debt covenants at December 3, 2000 and November 28, 1999. The costs associated with the senior notes and revolving credit facility referred to above are amortized over the life of each of the respective instruments and charged to interest expense. The charge to interest expense with respect to this amortization was $166 and $140 in fiscal years 2000 and 1999, respectively. The Company has lines of credit agreements at its foreign operations that provide for unsecured borrowings up to 1.5 million British pounds sterling (approximately $2.1 million) and 2.5 million Dutch guilders (approximately $1.0 million). There were no borrowings under these lines of credit at December 3, 2000. Aggregate annual maturities for all long-term debt, including the capitalized leases, for each of the four fiscal years subsequent to December 2, 2001 are as follows: 2002 $5,002 2004 $7,000 2003 $7,676 2005 $5,000 F-15 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 10. INCOME TAXES: Income from continuing operations before provision for income taxes consists of the following: 2000 1999 1998 -------- --------- ------- Domestic .......... $ 864 $6,487 $16,832 Foreign ........... 2,124 2,596 880 ------ ------ ------- $2,988 $9,083 $17,712 ====== ====== ======= The provision for income taxes from continuing operations consists of the following: 2000 1999 1998 ---------- --------- -------- Currently payable: Federal ............. $ (769) $1,686 $4,911 State ............... 131 208 247 Foreign ............. 724 830 44 ------ ------ ------ 86 2,724 5,202 Deferred ............ 933 (68) 887 ------ ------ ------ $1,019 $2,656 $6,089 ====== ====== ====== The following is a reconciliation of the statutory federal income tax rate with the Company's effective income tax rate from continuing operations:
2000 1999 1998 ---------- ---------- ---------- Statutory federal rate .................................... 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit ............ 2.9 .7 .9 Amortization of assets not deductible ..................... 13.3 4.4 2.3 Effect of life insurance policies ......................... 12.5 (.3) (.1) Tax benefit of foreign sales corporation .................. (4.5) (1.4) (.6) Effect of foreign income tax rates ........................ (4.3) .4 .2 Resolution of certain prior years' tax exposures .......... (20.9) (11.7) (4.2) Other, net ................................................ .1 2.1 .9 ------ ------ ----- Effective tax rate from continuing operations ............. 34.1% 29.2% 34.4% ====== ====== =====
The significant components of deferred tax assets and liabilities at December 3, 2000 and November 28, 1999 consist of:
2000 1999 -------------------------- ------------------------- Assets Liabilities Assets Liabilities ---------- ------------- ---------- ------------ Inventories ......................................... $ 808 -- $ 880 -- Accrued expenses .................................... 3,500 $ 225 4,101 $ 221 Allowance for doubtful accounts ..................... 241 224 186 336 Net operating loss carryforwards -- foreign ......... 715 -- 851 -- Pensions ............................................ 3,399 -- 3,666 -- Minimum pension liability adjustment ................ 171 -- 207 -- Net operating loss carryforwards -- states .......... 39 -- 60 -- Depreciation and amortization ....................... -- 5,853 -- 5,741 ------ ------ ------ ------ 8,873 6,302 9,951 6,298 Valuation allowance ................................. (39) -- (153) -- ------ ------ ------ ------ $8,834 $6,302 $9,798 $6,298 ====== ====== ====== ======
F-16 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 10. INCOME TAXES (Continued): Included in the above table for December 3, 2000 and November 28, 1999 are deferred tax assets of $397 and $397, respectively, relating to retained contingencies for the discontinued operation. As of December 3, 2000, the Company had foreign net operating loss carryforwards of approximately $2,376 that may be carried forward indefinitely. The valuation allowance of approximately $39 relates to net operating losses for which realization is not more likely than not as of December 3, 2000. The net change in the total valuation allowance for the year ended December 3, 2000 was a decrease of approximately $114 principally due to the realization of tax loss carryforwards of foreign subsidiaries. 11. EMPLOYEE BENEFIT PLANS: Pension Plans: The Company applies SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", which standardizes the disclosure requirements of pensions and other postretirement benefits. The components of net pension costs for fiscal years 2000, 1999, and 1998 consist of the following:
2000 1999 1998 ----------- ----------- ---------- Service cost ............................ $ 2,021 $ 2,612 $ 2,251 Interest cost ........................... 3,843 3,744 3,408 Expected return on plan assets .......... (4,680) (4,101) 708 Net amortization & deferral ............. (430) 238 (5,314) Net curtailment gain .................... (33) -- -- -------- -------- -------- Net periodic benefit cost ............... $ 721 $ 2,493 $ 1,053 ======== ======== ========
During fiscal 2000, the Company realized a net curtailment gain of $33 resulting from a U.S. plant closing that occurred as part of its 1999 restructuring plan. F-17 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 11. EMPLOYEE BENEFIT PLANS (Continued): The reconciliations of the beginning and ending balances of benefit obligations and fair value of plan assets and the funded status of the plans at September 30, 2000 and 1999 (dates of actuarial valuations) are as follows:
2000 1999 ----------- ----------- Change in benefit obligation: Benefit obligation at beginning of year ................ $ 52,461 $ 56,528 Service cost ........................................... 2,021 2,612 Interest cost .......................................... 3,843 3,744 Participants' contributions ............................ 127 135 Actuarial gain ......................................... (3,771) (8,395) Benefits paid .......................................... (1,886) (2,011) Exchange rate changes .................................. (665) (152) Curtailments ........................................... (153) -- Settlements ............................................ (146) -- --------- -------- Benefit obligation at end of year ...................... $ 51,831 $ 52,461 ========= ======== Change in plan assets: Fair value of plan assets at beginning of year ......... $ 53,129 $ 46,538 Actual return on plan assets ........................... 4,054 7,821 Employer contributions ................................. 705 764 Participants' contributions ............................ 127 135 Benefits paid .......................................... (1,885) (2,011) Exchange rate changes .................................. (597) (118) Settlements ............................................ (146) -- --------- -------- Fair value of assets at end of year .................... $ 55,387 $ 53,129 ========= ======== Reconciliation of funded status: Funded status .......................................... $ 3,555 $ 667 Unrecognized net actuarial gain ........................ (10,231) (7,324) Unrecognized prior service cost ........................ 900 1,120 Unrecognized transition asset .......................... (371) (594) Other .................................................. 59 58 --------- -------- Net amount recognized .................................. $ (6,088) $ (6,073) ========= ========
Amounts recognized in the Consolidated Balance Sheets are as follows:
2000 1999 ----------- ----------- Pension benefit cost ............................ $ 80 $ 17 Accrued benefit liability ....................... (7,196) (7,413) Intangible assets ............................... 526 648 Deferred income taxes liability ................. 171 207 Accumulated other comprehensive income .......... 331 468 -------- -------- Net amount recognized ........................... $ (6,088) $ (6,073) ======== ========
F-18 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 11. EMPLOYEE BENEFIT PLANS (Continued): Significant weighted average assumptions as of the dates of actuarial valuations include: 2000 1999 ---------- ---------- Discount rate ........................... 8.00% 7.75% Expected return on plan assets .......... 9.00% 9.00% Rate of compensation increase ........... 5.00% 5.00% The projected benefit obligation, accumulated benefit, and fair value of plan assets for the pension plans with accumulated benefits obligations in excess of plan assets were $7,176, $5,787 and $0, respectively, as of December 3, 2000 and $6,998, $5,264, and $0, respectively, as of November 28, 1999. The Company recognizes a minimum pension liability for underfunded plans. The minimum liability is equal to the excess of the accumulated benefit obligation over plan assets. A corresponding amount is recognized as either an intangible asset, to the extent of previously unrecognized prior service cost and previously unrecognized transition obligation, or a reduction of shareholders' equity. Supplemental Executive Benefits Plan: The Company has a nonqualified, Supplemental Executive Benefits Plan that constitutes a significant portion of the underfunded status above and covers all officers. Expenses of $1,068, $1,194, and $1,001, in fiscal years 2000, 1999, and 1998, respectively, relating to this plan were actuarially determined and are included in the pension costs described above. Contributions to the elective salary deferral feature of the plan by the Company were $50, $48 and $51 for fiscal years 2000, 1999, and 1998, respectively. Employee Savings Plan: The Company has a defined contribution 401(k) plan available to most 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 $317, $312, and $379 for fiscal years 2000, 1999, and 1998, respectively. 12. STOCK-BASED COMPENSATION PLANS: The 1993 Stock Option and Stock Grant Plan which replaced the expired 1983 Stock Option and Stock Grant Plan, authorizes the issuance of up to 3,500,000 common shares (of which an additional 1,750,000 common shares were authorized through a plan amendment in fiscal 1997) for the granting of incentive stock options, nonqualified stock options and stock grants to key employees. A maximum of 525,000 common shares under the 1993 plan may be issued in the form of stock grants. The limit of the aggregate number of options and/or stock grants that can be granted to any one individual in any one-year period is 300,000 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 1993 plan are subject to a vesting period or periods of between one and five years from the date of grant. Common shares subject to a stock grant 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 grantees 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 grantees. Stock options and stock grants under the plan are subject to possible acceleration of vesting and earlier termination in certain circumstances. The Company's 1983 Stock Option and Stock Grant Plan expired by its terms in February 1993 and, while incentive stock options granted under that plan remain outstanding, no further options may be granted under the plan. The terms of the 1983 plan are essentially similar to the terms of the 1993 plan described above. F-19 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 12. STOCK-BASED COMPENSATION PLANS (Continued): Payment upon exercise of stock options under the 1993 and 1983 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. A summary of options under the Company's stock option plans is as follows:
1993 Plan 1983 Plan ---------------------------------------- -------------------------------------- 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ ---------- ------------ Outstanding, beginning of year ..................... 1,948,677 1,913,027 2,080,729 161,633 170,933 252,335 Options granted .......... 486,100 139,200 143,920 -- -- -- Options exercised (at an average price per share of $14.88, and $14.17, respectively) -- -- (120,000) -- -- (80,102) Options expired .......... -- -- -- (18,200) -- -- Options terminated ....... (425,426) (103,550) (191,622) (44,200) (9,300) (1,300) --------- --------- --------- ------- ------- ------- Outstanding, end of year ........................ 2,009,351 1,948,677 1,913,027 99,233 161,633 170,933 ========= ========= ========= ======= ======= ======= Average option price per share ................... $ 15.06 $ 17.27 $ 18.85 $ 13.59 $ 14.66 $ 15.11 Outstanding exercis- able options, end of year ........................ 1,485,251 792,023 691,785 99,233 161,633 170,933 Shares reserved for future stock options and grants .................. 570,601 1,056,701 1,195,901 -- -- --
The following table summarizes information about options outstanding at December 3, 2000:
Options Outstanding Options Exercisable - --------------------------------------------------------------------------- --------------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices at 12/03/00 Life Price at 12/03/00 Price - ------------------------------ ------------- ------------- ---------- ------------- ----------- $8.41 - $11.63 .......... 626,733 9.2 years $ 9.39 107,633 $ 10.65 $13.06 - $16.88 ......... 596,619 4.3 years $ 15.57 593,619 $ 15.58 $18.63 - $24.84 ......... 885,232 6.6 years $ 19.38 883,232 $ 19.38 --------- --------- ------- --------- ------- $8.41 - $24.84 .......... 2,108,584 6.7 years $ 15.33 1,584,484 $ 17.36
F-20 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 12. STOCK-BASED COMPENSATION PLANS (Continued): The Company's 1994 Non-Employee Directors' Stock Option Plan authorizes the granting at fair market value of up to an aggregate of 90,000 common shares to non-officer directors of the Company. Options to purchase an aggregate of 45,000 common shares at $16.875 per share were automatically granted in January 1994 in equal amounts to each of the then non-officer directors of the Company. Options granted under this plan extend for a term of ten years (subject to possible earlier termination) and become exercisable at the rate of 20% per year over five years commencing one year after the date of grant (subject to possible acceleration). During fiscal 1999 and 1998, 5,000 common shares were separately granted to two newly elected non-officer directors. As of December 3, 2000, only 3,000 options had been exercised under this plan. The Company also has a Non-Employee Director Compensation Plan for non-officer directors of the Company. The plan includes a compensation package for the Company's non-officer directors that provides for basic directors' fees to be paid in a combination of cash and the Company's common shares. In addition, the plan provides for annual grants of nonqualified stock options to purchase 2,000 Company common shares at the fair market value of such common shares on the date of the grant. These options vest after two years (subject to possible acceleration) and extend for 10 years (subject to possible earlier termination). During fiscal 2000 and fiscal 1999, 2,000 common shares were issued each year to each of the non-officer directors pursuant to this plan (20,000 shares in fiscal 2000 and 1999, respectively). As of December 3, 2000, no options had been exercised. Other: The Company has a long-term incentive compensation agreement with Donald L. Thompson, Chairman of the Board and Chief Executive Officer, entered into at the time he joined the Company in fiscal 1996. On June 28, 2000, the Company amended its agreement with Mr. Thompson to replace Mr. Thompson's stock account consisting of 175,000 phantom shares of common stock of the Company (fully vested) with a deferred cash account with an opening balance equal to the closing value of the stock account on June 28, 2000, determined on the basis of the fair market value of a share of the Company's common stock on such date ($9.6875) multiplied by 175,000. Prior to Mr. Thompson's termination of employment, the amount in his deferred cash account will be decreased by $175,000 for each $1.00 decline in the price of the Company's common stock below the $9.6875 stock value and will be subsequently increased by $175,000 for each $1.00 increase in the price of the Company's common stock up to, but not in excess of, the $9.6875 stock value. Mr. Thompson will, however, continue to be credited with dividend amounts as if he were still credited with 175,000 phantom shares. In addition, on June 28, 2000, the Company granted to Mr. Thompson stock options under the Company's Amended 1993 Stock Option and Stock Grant Plan for 175,000 common shares at an option price of $9.6875 per share, which was the fair market value of such common shares at the date of the grant. The credits to administrative and general expenses with respect to this arrangement were $727, $531 and $802 in fiscal years 2000, 1999, and 1998, respectively. F-21 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 12. STOCK-BASED COMPENSATION PLANS (Continued): The Company has adopted the disclosure requirements of SFAS No. 123 "Accounting for Stock-Based Compensation," and as permitted under SFAS No. 123, applies APB No. 25 and related interpretations in accounting for its stock option plans, and accordingly does not record compensation costs. If the Company had elected, beginning in fiscal 1997, to recognize compensation cost based on fair value of the options granted at grant date as prescribed by SFAS No. 123, earnings and earnings per share would have approximated the pro forma amounts shown below:
2000 1999 1998 ----------- ----------- ------------ Earnings: As reported: Income from continuing operations ......... $ 1,969 $ 6,427 $ 11,623 Net income ................................ $ 1,969 $ 6,427 $ 12,107 Pro forma: Income from continuing operations ......... $ 1,253 $ 5,222 $ 10,461 Net income ................................ $ 1,253 $ 5,222 $ 10,945 Basic earnings per share: As reported: Income from continuing operations ......... $ .20 $ .61 $ 1.04 Net income ................................ $ .20 $ .61 $ 1.08 Pro forma: Income from continuing operations ......... $ .13 $ .50 $ .93 Net income ................................ $ .13 $ .50 $ .98 Diluted earnings per share: As reported: Income from continuing operations ......... $ .20 $ .61 $ 1.01 Net income ................................ $ .20 $ .61 $ 1.05 Pro forma: Income from continuing operations ......... $ .13 $ .50 $ .91 Net income ................................ $ .13 $ .50 $ .95
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: 2000 1999 1998 ---------- ---------- ---------- Expected dividend yield ........... 4.50% 4.21% 2.40% Risk-free interest rate ........... 5.87% 5.45% 5.31% Expected volatility ............... 33.47% 29.99% 26.10% Expected life (in years) .......... 3.6 4.4 4.1 The weighted average estimated fair values of employee stock options granted during fiscal 2000, 1999 and 1998 were $2.08, $2.18 and $5.46 per share, respectively. The pro forma disclosures are not likely to be representative of the effects on earnings and earnings per common share in future years, because they do not take into consideration pro forma compensation expense related to grants made prior to the Company's fiscal year 1997. F-22 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 13. SHAREHOLDERS' RIGHTS PLAN: The Company's 1990 Rights Agreement and the Rights distributed to the Company's shareholders under that Agreement expired by their terms on December 31, 2000, and the Company's Series A Junior Participating Preferred Stock authorized for possible issuance pursuant to the Rights has ceased to be a series of stock which the Company is authorized to issue. 14. COMMITMENTS AND CONTINGENCIES: Leases: The capitalized lease obligations (see Note 9) represent amounts payable under leases that are, in substance, installment purchases. Property, plant and equipment includes the following assets under capital leases: 2000 1999 -------- -------- Land .............................. $ 152 $ 152 Buildings ......................... 1,356 1,356 Machinery and equipment ........... 466 466 Accumulated depreciation .......... (1,816) (1,812) -------- -------- $ 158 $ 162 ======== ======== The Company has the option to purchase the above assets at any time during the terms of the leases for amounts sufficient to redeem and retire the underlying lessor debt obligations. The capitalized lease obligations have various principal payments that mature no later than June 15, 2004. The minimum rental commitments under all noncancellable leases as of December 3, 2000 are as follows: Operating Fiscal Period Leases ------------- ---------- 2001 ........................... $ 3,527 2002 ........................... 3,207 2003 ........................... 2,079 2004 ........................... 1,836 2005 ........................... 1,468 Thereafter ..................... 6,652 ------- Minimum lease payments ......... $18,769 ======= Rent expense, including related real estate taxes charged to operations, amounted to $4,729, $4,573 and $4,818 for fiscal years 2000, 1999 and 1998, 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 $16.9 million at December 3, 2000. 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 F-23 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 14. COMMITMENTS AND CONTINGENCIES (Continued): 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 to indemnify Seal and the Company for resulting liabilities, subject to certain limitations. During fiscal 2000, the Company entered into a termination and release agreement with the current owners of the site. This agreement releases the Company subsidiary from all environmental claims by the owners prior to the Company's 1990 acquisition of Seal. 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. 15. RESEARCH AND DEVELOPMENT: Research and development expenses were approximately $2,970, $4,025, and $3,260 in fiscal years 2000, 1999 and 1998, respectively. 16. CASH FLOW INFORMATION: Cash payments for interest and income taxes (net of refunds) were as follows:
2000 1999 1998 --------- --------- --------- Interest paid (net of amounts capitalized of $167, $104, and $376, in fiscal years 2000, 1999, and 1998, respectively) $4,503 $ 4,661 $ 4,644 Income taxes ............................................... $ 864 $ 2,934 $16,249
Excluded from the accompanying Consolidated Statements of Cash Flows are the effects of certain non-cash investing and financing activities as follows:
2000 1999 1998 ------ ------ ------- Fair value of assets acquired ....................... -- $441 -- Liabilities assumed or created ...................... -- 361 -- Value of common shares received as payment upon exercise of stock options ......................... -- -- $414
F-24 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 17. QUARTERLY FINANCIAL DATA (UNAUDITED): Quarterly financial data for each of the quarters during fiscal years 2000 and 1999 are as follows:
2000 ----------------------------------------------------- First Second Third Fourth ------------ ------------ ---------- ---------- Net sales ........................ $ 60,633 $ 62,863 $ 63,697 $61,444 Gross profit ..................... 21,917 22,125 22,076 21,560 Net income (loss) ................ 2,202 1,015 (1,288) 40 Basic earnings per common share: Net income (loss) ................ $ .22 $ .10 $ (.13) -- Diluted earnings per common share: Net income (loss) ................ $ .22 $ .10 $ (.13) -- 1999 ------------------------------------------------------- First Second Third Fourth ------------ ------------ ------------ ---------- Net sales ........................ $ 60,369 $ 61,185 $ 61,143 $62,111 Gross profit ..................... 22,782 23,687 22,945 23,533 Net income (loss) ................ 2,393 2,250 2,266 (482) Basic earnings per common share: Net income (loss) ................ $ .22 $ .22 $ .22 $ (.05) Diluted earnings per common share: Net income (loss) ................ $ .22 $ .22 $ .22 $ (.05)
The sum of the quarterly income (loss) per share data may not be the same as income per share for the year due to changes in the number of average outstanding shares. The third quarters of fiscal years 2000 and 1999 contain 14 weeks and 13 weeks, respectively. The second quarter of fiscal 2000 net income includes pre-tax expenses of $2.0 million ($.13 per share) for implementation costs in connection with the 1999 restructuring plan. In addition the Company reduced by $.2 million pre-tax ($.01 per share) some of its reserves related to its 1997 strategic plan and its 1997 business divestitures. (See Note 3.) The third quarter of fiscal 2000 net loss includes pre-tax expenses of $2.2 million ($.15 per share) for implementation costs in connection with the 1999 restructuring plan and a pre-tax charge of $3.6 million ($.24 per share) relating to a patent infringement litigation suit with respect to one of the Company's minor products. In addition, the Company reduced by $.3 million pre-tax ($.02 per share) some of its reserves related to its 1999 restructuring and 1997 strategic plans. (See Notes 3 and 4.) The fourth quarter of fiscal 2000 net income includes pre-tax expenses of $1.1 million ($.08 per share) for implementation costs in connection with the 1999 restructuring plan and a pre-tax charge of $.2 million ($.01 per share) relating to accrued interest with respect to the patent infringement litigation suit. In addition the Company reduced by $.2 million pre-tax ($.01 per share) some of its reserves related to the 1999 restructuring plan. (See Notes 3 and 4). Also, the Company realized lower gross profits in the fourth quarter of fiscal 2000 stemming from higher material costs ($.7 million pre-tax or $.03 per share) and unfavorable inventory adjustments ($.5 million pre-tax or $.03 per share), partially offset by liquidations of LIFO inventories which reduced expenses by $.2 million (or $.02 per share), and a lower effective tax rate in the fourth quarter of fiscal 1999 (20.3%) compared to fiscal 2000 (34.1%), due primarily to higher amounts not deductible for tax purposes ($.5 million or $.05 per share). The fourth quarter of fiscal 1999 net loss includes pre-tax charges of $6.2 million ($.39 per share) relating to the implementation of the 1999 restructuring plan and pre-tax credits of $.6 million ($.04 per share) relating to F-25 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 17. QUARTERLY FINANCIAL DATA (UNAUDITED) (Continued): the net reduction to some of the reserves established in connection with the implementation of the 1997 strategic plan during fiscal 1997. Also in the fourth quarter of fiscal 1999, the Company reduced by $.5 million pre-tax ($.03 per share) some of its reserves established in connection with its 1997 business divestitures. (See Note 3.) In addition, the Company realized tax benefits of $.5 million ($.05 per share) as a result of favorable resolutions of certain prior years' tax exposures and liquidations of LIFO inventories which reduced expenses by $.3 million pre-tax ($.02 per share). 18. INDUSTRY SEGMENT INFORMATION: During fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires the presentation of descriptive information about reportable segments that is consistent with that made available to management to assess performance. The Company operates in two reportable business segments, each of which is a strategic business that is managed separately because each business develops, manufactures and sells distinct products. The business segments consist of consumer products (including office and art supplies) and graphics products (including supplies and equipment). The Company's management evaluates performance based on several factors. However, the primary measurement focus is "operating income" excluding restructuring, net gain on divestitures and any other unusual items. The accounting policies of the segments are the same as those described in Note 1. The following table presents information about the Company's reportable segments. Intersegment sales, if applicable, are recorded on a basis intended to reflect as nearly as possible the market value of the products. Operating income includes all revenues and expenses of the reportable segment except for restructuring, net gain on divestitures, patent infringement litigation costs, interest expense, interest income, other expenses, other income, and income taxes, which are excluded from the measure of segment profitability reviewed by the Company's management. 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 business segment. Capital additions include amounts related to acquisitions. F-26 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 18. INDUSTRY SEGMENT INFORMATION (Continued):
Consumer Graphics Fiscal Year 2000 Products Products Corporate Consolidated - ---------------- ------------ ------------ ----------- ------------- Net external sales ................ $106,059 $142,578 -- $248,637 ======== ======== ======== ======== Operating income .................. $ 17,363 $ 6,094 $ (8,845) $ 14,612 ======== ======== ======== Restructuring reserve accrual reversals* ...................... $ 73 $ 486 -- 559 ======== ======== ======== Implementation costs* ............. $ (40) $ (5,450) -- (5,490) ======== ======== ======== Net gain on divestitures* ......... -- -- $ 133 133 ======== ======== ======== Patent infringement litigation costs** ......................... $ (3,815) -- -- (3,815) ======== ======== ======== -------- Income from operations ............ 5,999 Interest expense .................. (4,396) Interest income ................... 1,315 Other income, net ................. 70 -------- Income from continuing operations before income taxes .................... $ 2,988 ======== Identifiable assets ............... $ 33,700 $ 88,900 $ 40,932 $163,532 ======== ======== ======== ======== Capital additions ................. $ 2,723 $ 3,373 $ 343 $ 6,439 ======== ======== ======== ======== Depreciation and amortization .................... $ 2,818 $ 5,385 $ 401 $ 8,604 ======== ======== ======== ========
*See Note 3. **See Note 4. F-27 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 18. INDUSTRY SEGMENT INFORMATION (Continued):
Consumer Graphics Fiscal Year 1999 Products Products Corporate Consolidated - ---------------- ------------ ------------ ----------- ------------- Net external sales ................ $108,237 $136,571 -- $244,808 ======== ======== ======== ======== Operating income .................. $ 18,156 $ 7,320 $ (8,454) $ 17,022 ======== ======== ======== Restructuring charges and reserve accrual reversals* $ (204) $ (5,593) $ 178 (5,619) ======== ======== ======== Net gain on divestitures* ......... -- -- $ 554 554 ======== ======== ======== -------- Income from operations ............ 11,957 Interest expense .................. (4,471) Interest income ................... 1,471 Other income, net ................. 126 -------- Income from continuing operations before income taxes ........................... $ 9,083 ======== Identifiable assets ............... $ 33,644 $ 93,241 $ 52,744 $179,629 ======== ======== ======== ======== Capital additions** ............... $ 2,028 $ 2,767 $ 145 $ 4,940 ======== ======== ======== ======== Depreciation and amortization .................... $ 2,600 $ 5,627 $ 313 $ 8,540 ======== ======== ======== ========
*See Note 3. **Includes $.1 million of capital additions relating to business acquisition.
Consumer Graphics Fiscal Year 1998 Products Products Corporate Consolidated - ---------------- ---------- ------------ ----------- ------------- Net external sales ................ $107,893 $138,670 -- $ 246,563 ======== ======== ======== ========= Operating income .................. $ 16,640 $ 6,517 $ (7,438) $ 15,719 ======== ======== ======== Restructuring charges and reserve accrual reversals* $ 2,944 $ (334) $ 275 2,885 ======== ======== ======== Net gain on divestitures* ......... -- -- $ 650 650 ======== ======== ======== --------- Income from operations ............ 19,254 Interest expense .................. (4,344) Interest income ................... 2,626 Other expense, net ................ 176 --------- Income from continuing operations before income taxes ........................... $ 17,712 ========= Identifiable assets ............... $ 33,555 $ 98,297 $ 55,005 $ 186,857 ======== ======== ======== ========= Capital additions ................. $ 4,357 $ 9,211 $ 285 $ 13,853 ======== ======== ======== ========= Depreciation and amortization .................... $ 2,661 $ 5,241 $ 365 $ 8,267 ======== ======== ======== =========
*See Note 3. F-28 HUNT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) (In thousands except share and per share amounts) 18. INDUSTRY SEGMENT INFORMATION (Continued): The Company has significant sales and long-lived assets in the following geographic areas. Sales are based on the location in which the sale originated. Long-lived assets include property, plant and equipment, goodwill, trademarks, and other intangibles, net of related depreciation and amortization.
Net External Sales Long-Lived Assets ------------------------------------- ------------------------------------ 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ----------- ---------- ----------- North America ..... $213,785 $205,663 $205,213 $ 83,741 $ 82,507 $ 81,750 Europe and other .. 34,852 39,145 41,350 38,859 44,378 50,102 Corporate ......... -- -- -- 40,932 52,744 55,005 -------- -------- -------- --------- -------- -------- Total ............. 248,637 $244,808 $246,563 $ 163,532 $179,629 $186,857 ======== ======== ======== ========= ======== ========
19. FINANCIAL INSTRUMENTS: Off-Balance Sheet Risk: Letters of credit are issued by the Company during the ordinary course of business through major domestic banks as required by certain vendor contracts. As of December 3, 2000 and November 28, 1999, the Company had outstanding letters of credit for $1 million, respectively. 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 ($21.4 million and $32.8 million at December 3, 2000 and November 28, 1999, 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 more than 10% of net sales. However, the Company's ten largest customers accounted for approximately 41% and 39% of accounts receivable at December 3, 2000 and November 28, 1999. The Company performs on-going credit evaluations of its customers, maintains allowances for potential credit losses, and carries credit insurance coverage for most of its large customer accounts. Fair Value: The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents -- The carrying amount approximates fair value because of the short maturity of these instruments. Debt (excluding capital lease obligations) -- 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. The estimated fair values of the Company's financial instruments at December 3, 2000 and November 28, 1999 are as follows:
2000 1999 ----------------------- ------------------------ Carrying Fair Carrying Fair Amount Value Amount Value ---------- ---------- ---------- ----------- Cash and cash equivalents ......... $23,878 $23,878 $ 36,897 $ 36,897 Debt (excluding capital lease obligations) ............... $52,676 $56,211 $ 54,659 $ 56,984
F-29 SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS for the fiscal years 2000, 1999, and 1998 (in thousands)
Column C Column A Column B Additions Column D Column E - -------- ------------ -------------------------- --------------- ---------- Balance at Charged to Charged to Balance Beginning Costs and Other at End Classification Of Period Expenses Accounts Deductions of Period - -------------- ------------ ------------ ------------ --------------- ---------- 2000: Allowance for doubtful accounts ..................... $ 967 $ (51) -- $ 43(A) $ 873 ======= ======= ====== ======== ======= Reserve for customer returns and deductions ......... $ 1,101 $ 11 -- $ 186(B) $ 926 ======= ======= ====== ======== ======= Reserve for inventory obsolescence .................. $ 2,262 $ 1,007 -- $ 1,247(C) $ 2,022 ======= ======= ====== ======== ======= 1999: Allowance for doubtful accounts ..................... $ 1,721 $ 161 $ 14(D) $ 929(A) $ 967 ======= ======= ====== ======== ======= Reserve for customer returns and deductions ......... $ 1,060 $ 176 -- $ 135(B) $ 1,101 ======= ======= ====== ======== ======= Reserve for inventory obsolescence .................. $ 2,432 $ 828 -- $ 998(C) $ 2,262 ======= ======= ====== ======== ======= 1998: Allowance for doubtful accounts ..................... $ 1,842 $ 77 -- $ 198(A) $ 1,721 ======= ======= ====== ======== ======= Reserve for customer returns and deductions ......... $ 1,017 $ 92 -- $ 49(B) $ 1,060 ======= ======= ====== ======== ======= Reserve for inventory obsolescence .................. $ 1,189 $ 1,526 -- $ 283(C) $ 2,432 ======= ======= ====== ======== =======
(A) Doubtful accounts written off, net of collection expenses. (B) Primarily credits issued to customers. (C) Largely the result of programs to dispose of fully reserved obsolete inventory. Amount is net of recoveries. (D) Primarily due to business acquisitions. F-30 EXHIBIT INDEX (of Exhibits filed herewith) (10)(c)(2) Addendum relating to Options Granted December 16, 1999 (10)(c)(3) Description of January 2001 Stock Grants (10)(f)(1) Form of Change in Control Agreement (10)(f)(2) List of Executive Officers Who Are Parties to Such Change of Control Agreements (10)(g)(4) Amendment No. 2 to Supplemental Executive Benefits Plan (10)(g)(5) Amendment No. 3 to Supplemental Executive Benefits Plan (23) Consent of PricewaterhouseCoopers LLP (27) Financial Data Schedule EX-10.(C)(2) 2 0002.txt EXHIBIT (10)(C)(2) Exhibit (10) (c) (2) HUNT CORPORATION ADDENDUM to Stock Option Agreements dated February 1, 2000 On December 16, 1999, the Compensation Committee of the Board of Directors of Hunt Corporation (the "Company") granted stock options (the "Options") to a number of persons under the Company's 1993 Stock Option and Stock Grant Plan (the "Plan"). Subsequently option agreements dated February 1, 2000 (the "Option Agreements") were entered into between the Company and Employees setting forth the terms of the Options. Section 5 of the Option Agreements provides, in part, that the Options are subject to possible acceleration as provided in Section 8 of the Plan. Section 8 of the Plan, in turn, authorizes the Compensation Committee, in its discretion, to accelerate, in whole or in part, options granted under the Plan in the event the Compensation Committee determines that a change in control of the Company has occurred or is likely to occur. Pursuant to such authority, the Compensation Committee determined at the time of the granting of the Options that, in the event of a Change in Control of the Company (as defined below), any and all then outstanding unvested Options automatically shall accelerate and immediately become exercisable in full. It is the purpose of this Addendum to incorporate formally such automatic acceleration in such circumstances as a term of the Options, it being understood, however, that such automatic acceleration shall only be applicable to the Options granted December 16, 1999 and shall not limit other authority granted to the Compensation Committee with respect to such Options under the Plan, including Section 8 thereof. As used in this Addendum, a "Change in Control" of the Company shall be deemed to have occurred if: (a) any person (a "Person"), as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than (i) the Company and/or its wholly-owned subsidiaries, (ii) any ESOP or other employee benefit plan of the Company, and any trustee or other fiduciary in such capacity holding securities under such plan, (iii) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company or (iv) the Executive or any group of Persons of which he voluntarily is a part), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities, or such lesser percentage of voting power, but not less than 15%, as the Board of Directors of the Company shall determine; provided, however that a Change in Control shall not be deemed to have occurred under the provisions of this subsection (a) by reason of the beneficial ownership of voting securities by members of the Bartol Family (as defined below) unless and until the beneficial ownership of all members of the Bartol Family (including any other individuals or entities who or which, together with any member or members of the Bartol Family, are deemed under Sections 13(d) or 14(d) of the Exchange Act to constitute a single Person) exceeds 50% of the combined voting power of the Company's then outstanding securities; (b) during any two-year period beginning after October 1, 1999, Directors of the Company in office at the beginning of such period plus any new Director (other than a Director designated by a Person who has entered into an agreement with the Company to effect a transaction within the purview of subsections (a) or (c) hereof) whose election by the Board of Directors of the Company, or whose nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved, shall cease for any reason to constitute at least a majority of the Board; or (c) the Company's shareholders or the Company's Board of Directors shall approve (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which the Company's voting common shares (the "Common Shares") would be converted into cash, securities and/or other property, other than a merger of the Company in which holders of Common Shares immediately prior to the merger have the same proportionate ownership of common shares of the surviving corporation immediately after the merger as they had in the Common Shares immediately before, (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets or earning power of the Company, or (iii) the liquidation or dissolution of the Company. As used in this Addendum, "members of the Bartol Family" shall mean the wife, children and descendants of such children of the late George E. Bartol III, their respective spouses and estates, any trusts primarily for the benefit of any of the foregoing and the administrators, executors and trustees of any such estates or trusts. IN WITNESS WHEREOF, the Company, intending to be legally bound hereby, has caused this Addendum to be duly executed by its officers thereunto duly authorized. (Corporate Seal) HUNT CORPORATION Attest: ________________________ By: ________________________ EX-10.(C)(3) 3 0003.txt EXHIBIT (10)(C)(3) Exhibit (10) (c) (3) Description of January 2001 Stock Grants In January 2001 the Company's Compensation Committee made an aggregate of 144,810 stock grants to the six executive officers of the Company (other than Donald L. Thompson, Chairman, President and Chief Executive Officer) under the Company's 1993 Stock Option and Stock Grant Plan. These stock grants vest in five years, subject to earlier vesting if specified profit before taxes levels are attained by the Company, and in certain other circumstances, including a change in control of the Company. EX-10.(F)(1) 4 0004.txt EXHIBIT (10)(F)(1) Exhibit (10) (f) (1) (Level II) CHANGE IN CONTROL AGREEMENT AGREEMENT dated as of _________________, between HUNT CORPORATION, a Pennsylvania corporation (the "Company"), and _______________ (the "Executive"). W I T N E S S E T H T H A T WHEREAS, the Board of Directors of the Company has determined that it is in the best interests of the Company and its shareholders that the Company and its subsidiaries be able to attract, retain and motivate highly-qualified executive personnel and, in particular, that they be assured of continuity of management in the event of any actual or threatened change in control of the Company; and WHEREAS, the Board of Directors of the Company believes that the execution by the Company of change in control agreements with certain executive personnel, including the Executive, is an important factor in achieving this desired end. THEREFORE, in consideration of the mutual obligations and agreements contained herein, and intending to be legally bound hereby, the Executive and the Company agree as follows: 1. Term of Agreement. This Agreement shall become effective at such time (the "Effective Date"), if any, as a Change in Control (as defined in Section 2 hereof) of the Company occurs; provided, however, that this Agreement shall terminate and be of no further force and effect if: (a) a Change in Control shall not have occurred by December 31, 2004, or such later date as shall have been approved by the Board of Directors of the Company and agreed to by the Executive; or (b) prior to the Effective Date, the Executive ceases, for any reason, to be an officer of the Company, except that if the Executive's status as an officer of the Company is terminated by the Company prior to a Change in Control and it is reasonably demonstrated that such termination (i) was at the request of a person or entity who or which has taken steps reasonably calculated to effect an imminent Change in Control or (ii) otherwise arose in connection with or in anticipation of an imminent Change in Control, then this Agreement shall become effective, and the "Effective Date" shall be, the date of such termination. 2. Change in Control. As used in this Agreement, a "Change in Control" of the Company shall be deemed to have occurred if: (a) any person (a "Person"), as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than (i) the Company and/or its wholly-owned subsidiaries, (ii) any ESOP or other employee benefit plan of the Company, and any trustee or other fiduciary in such capacity holding securities under such plan, (iii) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company or (iv) the Executive or any group of Persons of which he or she voluntarily is a part), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities, or such lesser percentage of voting power, but not less than 15%, as the Board of Directors of the Company shall determine; provided, however that a Change in Control shall not be deemed to have occurred under the provisions of this subsection (a) by reason of the beneficial ownership of voting securities by members of the Bartol Family (as defined below) unless and until the beneficial ownership of all members of the Bartol Family (including any other individuals or entities who or which, together with any member or members of the Bartol Family, are deemed under Sections 13(d) or 14(d) of the Exchange Act to constitute a single Person) exceeds 50% of the combined voting power of the Company's then outstanding securities; (b) during any two-year period beginning after October 1, 1999, Directors of the Company in office at the beginning of such period plus any new Director (other than a Director designated by a Person who has entered into an agreement with the Company to effect a transaction within the purview of subsections (a) or (c) hereof) whose election by the Board of Directors of the Company, or whose nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the period or whose election or nomination for election was previously so approved, shall cease for any reason to constitute at least a majority of the Board; or (c) the Company's shareholders or the Company's Board of Directors shall approve (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which the Company's voting common shares (the "Common Shares") would be converted into cash, securities and/or other property, other than a merger of the Company in which holders of Common Shares immediately prior to the merger have the same proportionate ownership of common shares of the surviving corporation immediately after the merger as they had in the Common Shares immediately before, (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets or earning power of the Company, or (iii) the liquidation or dissolution of the Company. As used in this Agreement, "members of the Bartol Family" shall mean the wife, children and descendants of such children of the late George E. Bartol III, their respective spouses and estates, any trusts primarily for the benefit of any of the foregoing and the administrators, executors and trustees of any such estates or trusts. 3. Employment. (a) The Company hereby agrees to continue the Executive in its employ (directly and/or indirectly through a subsidiary), and the Executive hereby agrees to remain in the employ of the Company (and/or any such subsidiary), for not less than the period commencing on the Effective Date and ending on the earlier to occur of the second anniversary of the Effective Date or the first day of the month following the Executive's 65th birthday (the "Employment Period"), subject to earlier termination as hereinafter provided in Section 5(a), to exercise such authority, to perform such duties, and to possess such status, offices, support staff, titles and reporting requirements as are at least commensurate with those generally exercised, performed and possessed by the Executive during the 90-day period immediately prior to the Effective Date or such lesser period as the Executive shall have been employed by the Company or its subsidiaries (the "Base Period"). Such services shall be performed at the location where the Executive was primarily employed during the Base Period or at such other location as the Company may reasonably require; provided that the Executive's travel requirements shall not be materially different in nature or scope than during the Base Period and the Executive shall not be required to accept a primary employment location which is more than 25 miles from the location at which he primarily was employed during the Base Period. During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to perform faithfully, diligently and efficiently his or her responsibilities hereunder; provided, however, that the Executive may (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not materially interfere with the performance of the Executive's responsibilities hereunder. To the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or activities similar in nature and scope thereto) thereafter shall be deemed not to interfere with the performance of the Executive's responsibilities hereunder. (b) The Executive acknowledges that nothing in this Agreement shall be deemed to give him or her continued rights to employment by the Company or its subsidiaries in an executive or any other capacity with respect to any period prior to the Effective Date, if any, of this Agreement, or, subject to Section 1(b) hereof, to entitle the Executive to compensation or benefits in the event of termination of the Executive's employment prior to the Effective Date. 4. Compensation, Benefits, etc. During the Employment Period, the Executive shall be compensated as follows: (a) The Executive shall receive an annual cash salary, payable not less frequently than semi-monthly, which is not less than (i) the average of the Executive's aggregate compensation from the Company and its subsidiaries during the two calendar years preceding the Effective Date (or such lesser period as the Executive shall have been employed by the Company or its subsidiaries), as reported on the Executive's Internal Revenue Service Forms W-2 (other than compensation relating to relocation expense; the grant, exercise or settlement of stock options; the sale or other disposition of shares received upon exercise or settlement of such options; the grant, vesting or settlement of stock grants made under the Company's 1983 and 1993 Stock Option and Grant Plans; or the sale or other disposition of shares received upon vesting or settlement of such grants), or (ii) at the Executive's sole option, exercised in writing within 90 days after the Effective Date, the Executive's average annual base salary from the Company and its subsidiaries during such two-year period (or such lesser period as the Executive shall have been employed by the Company or its subsidiaries). (b) The Executive shall be entitled to receive fringe benefits, employee benefits and perquisites (including, but not limited to, vacation, automobile, medical, disability, dental and life insurance benefits) which are at least as favorable to the Executive as the fringe benefits, employee benefits and perquisites provided directly or indirectly by the Company to executives with comparable duties. (c) If the Executive limits his or her compensation pursuant to subsection (a)(ii) to his or her average base salary (but not otherwise), he or she shall be eligible to participate in all stock option, restricted stock and other short-term and long-term incentive compensation plans and programs which provide opportunities to receive compensation which are at least as favorable to the Executive as the opportunities provided by the Company to executives with comparable duties. (d) Notwithstanding any other provision of this Agreement (whether in this Section 4, in Section 6 or elsewhere), (i) the Board of Directors may authorize an increase in the amount, duration and nature of and/or the acceleration of any compensation or benefits payable under this Agreement, as well as waive or reduce the requirements for entitlement thereto, and (ii) the Company may deduct from amounts otherwise payable to the Executive such amounts as it reasonably believes it is required to withhold for the payment of federal, state and local taxes. 5. Early Termination of Employment. (a) The Executive's Employment Period shall terminate prior to its stated expiration set forth in Section 3 hereof in the following circumstances: (i) the Executive's Death; (ii) at the option of the Company in the event of the Executive's Disability (as defined below); (iii) at the option of the Company for Cause (as defined below) or without Cause; or (iv) upon resignation of the Executive in the circumstances set forth in Section 6(b)(ii) or (iii). For purposes of this Agreement: "Disability" shall mean: (1) a physical or mental disability which, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and reasonably acceptable to the Executive or the Executive's legal representative or (2) if the Company then has in effect a disability plan covering executives generally, including the Executive, the definition of covered total and permanent "disability" set forth in such plan; and "Cause" shall mean (A) willful and material breach of this Agreement by the Executive, (B) dishonesty, fraud, willful malfeasance, gross negligence or other gross misconduct, in each case relating to the performance of the Executive's employment hereunder, which is materially injurious to the Company, or (C) conviction of or plea of guilty to a felony; such Cause to be determined, in each case, by a resolution approved by at least two-thirds of the Directors of the Company after having afforded the Executive a reasonable opportunity to appear before the Board of Directors of the Company and present his or her position. (b) The Company shall give the Executive not less than 60 days prior written notice of any intended termination of the Executive's employment by the Company and its subsidiaries for Cause or without Cause. In the event of a proposed termination for Cause, such notice shall specify the grounds for such termination, and the Company and its subsidiaries shall only be entitled to terminate the Executive for Cause if the Executive shall have failed to remedy such Cause within said 60-day notice period. The Executive shall give the Company not less than 60 days prior written notice of any proposed resignation by the Executive. 6. Compensation, Benefits, etc. upon Termination. (a) If the Executive's Employment Period is terminated by death, Disability, resignation (other than a resignation in the circumstances set forth in subsection (b) below) or for Cause, the Company shall be obligated only to provide the compensation, benefits, etc. set forth in Section 4 hereof up to the date of termination; provided, however, that the Executive shall be entitled to such additional compensation and benefits, if any, as may be provided for under the express terms of any benefit plans or programs of the Company and its subsidiaries in which he or she is then participating. (b) If the Executive's Employment Period is terminated by: (i) the Company without Cause; (ii) resignation of the Executive at any time during the four-month period commencing one year after the Effective Date; or (iii) resignation of the Executive as a result of: (1) a material change in the nature or scope of the Executive's authorities, powers, functions or duties from those described in Section 3 hereof, a reduction in the Executive's total compensation, benefits, etc. from those provided for in Section 4 hereof, or a material breach by the Company of any other provision of this Agreement, or (2) a reasonable determination by the Executive that, as a result of a Change in Control of the Company and a change in the Company's circumstances and/or operations thereafter significantly affecting his or her position, he or she is unable effectively to exercise the authorities, powers, functions or duties contemplated by Section 3 hereof; there shall have been deemed to be a "Covered Termination" for the purposes of this Agreement, and the Executive shall be entitled to the compensation, benefits, etc. hereinafter provided in this Section 6. (c) In the event of a Covered Termination of the Executive during the Employment Period, the Company shall pay or cause to be paid to the Executive in cash a severance allowance (the "Severance Allowance") equal to two times the sum of the amounts determined in accordance with the following paragraphs (i) and (ii): (i) an amount equivalent to the highest annualized base salary which the Executive was entitled to receive from the Company and its subsidiaries at any time during the Employment Period prior to the Covered Termination; and (ii) an amount equal to the average of the aggregate annual cash amounts paid to the Executive under all applicable short-term and long-term incentive compensation plans maintained by the Company and its subsidiaries during the three calendar years prior to the year such Covered Termination occurs (provided, however, that (1) such calculation shall be made on an individual incentive plan basis, (2) in determining the average amount paid under a given incentive plan during such period there shall be excluded any year in which no amounts were paid to the Executive under the plan, and (3) there shall be excluded from such calculation any amounts paid to the Executive under any such incentive compensation plan as a result of the acceleration of such payments under such plan due to termination of the plan, a Change in Control of the Company or a similar occurrence). (d) The Severance Allowance shall be paid to the Executive in a lump sum within 60 days after the date of any Covered Termination of the Executive under by Section 6(b), subject to subsection (h) below. (e) Subject to subsection (h) below: (i) for a period of one year following a Covered Termination of the Executive, the Company shall make or cause to be made available to the Executive, at its expense, (1) outplacement counseling and other outplacement services comparable to those available for the Company's senior executives prior to the Effective Date and (2) an office with standard telephone equipment at the Executive's primary place of business prior to termination, or at another location reasonably satisfactory to the Executive; and (ii) for a period of two years following a Covered Termination of the Executive, the Executive and the Executive's dependents shall be entitled to participate in the Company's life, medical and dental insurance plans at the Company's expense (to the extent provided in such plans at the time of such Covered Termination) as if the Executive were still employed by the Company or its subsidiaries under this Agreement. The Executive also shall be entitled during such period to the continued use of an automobile, at the Company's or its subsidiaries' expense, if one was being provided by the Company or its subsidiaries for the Executive's use at the time of such Covered Termination or at any time during the Base Period; provided that if such automobile is under lease, such right to continued use shall not extend beyond the expiration of the term of such lease, but if the Company, its subsidiaries or the Executive have an option to purchase the automobile under such lease, the Executive shall have the right to cause such purchase option to be exercised and to purchase said automobile at its depreciated cost (as determined in accordance with the Company's policies as in effect on October 1, 1999). (f) If, despite the provisions of subsection (e) above, life, medical or dental insurance benefits are not paid or provided under any such plan to the Executive or his or her dependents because the Executive is no longer an employee of the Company or its subsidiaries, the Company itself shall, to the extent necessary, pay or otherwise provide for such benefits to the Executive or his or her dependents. (g) Except as expressly provided in subsections (a), (c), (d), (e) and (f) above or under the express terms of any compensation or benefit plans or agreements thereunder of the Company or its subsidiaries applicable to the Executive, upon the date of any Covered Termination, all other compensation and benefits of the Executive shall cease to accrue; provided, however, that the Severance Allowance payable hereunder shall be in lieu of any severance payments to which the Executive might otherwise be entitled under the terms of any severance pay plan, policy or arrangement maintained by the Company and shall be credited against any severance payments to which the Executive may be entitled by statute. (h) Except as otherwise provided under the express terms of any benefit plans or agreements thereunder of the Company or its subsidiaries, the Company's obligations to continue benefits pursuant to Sections 6(e) and 6(f) shall terminate on the earlier to occur of: (i) the termination date therefor specified in such Sections and (ii) the date of a determination by a court or arbitration panel pursuant to Sections 7(c) or 9 hereof, respectively, that the Executive has materially and willfully violated the provisions of Sections 7(a) or (b) hereof. Further, in the event the Executive becomes employed (as defined below) during the period with respect to which benefits are continuing pursuant to Sections 6(e) and/or 6(f): (1) the Executive shall notify the Company not later than the day such employment commences, and (2) the benefits provided for in Sections 6(e) and 6(f) shall terminate as of the date of such employment (except to the extent that continued coverage is required to be made available under applicable law). For the purposes of this subsection (h), the Executive shall be deemed to have become "employed" by another entity or person only if the Executive becomes essentially a full-time employee of a person or an entity (not more than 30% of which is owned by the Executive and/or members of his or her family); and the Executive's "family" shall mean his or her parents, his or her siblings and their spouses, his or her children and their spouses, and the Executive's spouse and his or her parents and siblings. Nothing herein shall relieve the Company of its obligations for or benefits accrued up to the time of termination provided for herein. 7. Confidentiality and Non-Competition. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company and its subsidiaries all secret or confidential information, knowledge or data relating to the Company or any of its subsidiaries and their respective businesses which shall have been obtained by the Executive during the Executive's employment by the Company or any of its subsidiaries and which shall not have become public knowledge (other than by acts by the Executive or his or her representatives in violation of this Agreement). After termination of the Executive's employment with the Company and its subsidiaries for any reason, the Executive shall not, without the prior written consent of the Company, use for the Executive's own benefit or communicate or divulge to anyone other than the Company and those designated by it any such information, knowledge or data. (b) The Executive agrees that, during the Executive's employment by the Company or any of its subsidiaries and, if Executive's employment is terminated by Executive pursuant to Sections 6(b)(ii) or 6(b)(iii)(2), for a period of two years following such termination of employment, the Executive shall not: (i) directly or indirectly, anywhere in the world, manufacture, produce, sell or market or cause or assist any other person or entity to manufacture, produce, sell or market any product in direct competition with any product then sold or marketed by the Company or any of its subsidiaries, whether or not utilizing any confidential information of the Company or any of its subsidiaries, or (ii) be an employee, employer, consultant, officer, director, partner, trustee or shareholder of more than 5% of the outstanding common stock of any person or entity that is engaged in any such activities. (c) The Executive acknowledges that the covenants of the Executive contained in subsections (a) and (b) above are reasonable and necessary for the protection of the Company's legitimate interests. However, in the event that the duration and/or scope of any such covenant of the Executive are finally determined by any court or arbitration panel of applicable jurisdiction to be of such length or breadth as to render the covenant unenforceable, the duration and/or scope of such covenant shall be reduced to such length and/or breadth as shall render such covenant enforceable. Notwithstanding the provisions of Section 9 hereof, the Company shall be entitled to seek equitable remedies, including injunctive relief, in any court of applicable jurisdiction in the event of any breach or threatened breach by the Executive of the covenants contained in subsection (a) above (but no such equitable judicial remedy shall be available for a breach of subsection (b) above). (d) In the event that it is determined by a court or arbitration panel pursuant to Sections 7(c) or 9 hereof, respectively, that Executive has materially and willfully violated the provisions of Section 7(a) or (b) hereof, the court or arbitration panel may award damages to the Company; provided, however, that such damages, in the case of a violation of Section 7(b) hereof, shall not exceed the amount of the compensation and the cost to the Company of the benefits received by the Executive under this Agreement during the period that the violation existed plus interest thereon at the rate applied by Pennsylvania courts to damage awards. (For the purposes of the proviso in the preceding sentence, the Severance Allowance, although actually payable in a lump sum pursuant to Section 6(d), shall be deemed to be payable ratably over the two-year period following Executive's Covered Termination.) In no event shall an asserted violation of the provisions of Section 7(a) or (b) hereof constitute a basis for deferring or withholding any compensation or benefits otherwise payable to the Executive under this Agreement unless and until the existence of a material and willful violation is determined by a court or by arbitration pursuant to Sections 7(c) or 9 hereof, respectively. 8. Set-Off Mitigation. Subject to Section 6(h) hereof, the Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. 9. Arbitration; Costs and Expenses of Enforcement. (a) Except as otherwise provided in Section 7(c) and 10(b) hereof, any controversy or claim arising out of or relating to this Agreement or the breach thereof which cannot promptly be resolved by the parties shall be promptly submitted to and settled exclusively by arbitration in the City of Philadelphia, Pennsylvania in accordance with the laws of the Commonwealth of Pennsylvania by three arbitrators, one of whom shall be appointed by the Company, one by the Executive and the third of whom shall be appointed by the first two arbitrators. The arbitration shall be conducted in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this Section 9. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. (b) In the event that it shall be necessary or desirable for the Executive to retain legal counsel and/or incur other costs and expenses in connection with the enforcement of any and all of his or her rights under this Agreement, the Company shall pay (or the Executive shall be entitled to recover from the Company, as the case may be) his or her reasonable attorneys' fees and costs and expenses in connection with the enforcement of his or her said rights (including those incurred in or related to any arbitration proceedings provided for in subsection (a) above and the enforcement of any arbitration award in court), regardless of the final outcome, unless the arbitrators or a court shall determine that under the circumstances recovery by the Executive of all or a part of any such fees and costs and expenses would be unjust. 10. Limitation on Payment Obligation. (a) For purposes of this Section 10, all terms capitalized but not otherwise defined herein shall have the meanings as set forth in Section 280G of the Internal Revenue Code of 1986, as amended, together with any applicable regulations thereunder (the "Code"). In addition: (i) The term "Parachute Payment" shall mean a payment described in ss.280G(b)(2)(A) or ss.280G(b)(2)(B) (including, but not limited to, any stock option rights, stock grants and other cash and noncash compensation amounts that are treated as payments under either such section), and not excluded under ss.280G(b)(4)(A) or ss.280G(b)(6), of the Code; (ii) The term "Reasonable Compensation" shall mean reasonable compensation for prior personal services as defined in ss.280G(b)(4)(B) of the Code and subject to the requirement that any such reasonable compensation must be established by clear and convincing evidence; and (iii) The portion of the "Base Amount" and the amount of "Reasonable Compensation" allocable to any "Parachute Payment" shall be determined in accordance with ss.280G(b)(3) and (4) of the Code. (b) Notwithstanding any other provision of this Agreement, each Parachute Payment to be made to or for the benefit of the Executive, whether pursuant to this Agreement or otherwise, with respect to a Change in Control shall be reduced if and to the extent necessary so that the aggregate Present Value of all such Parachute Payments shall be at least one dollar ($1) less than the greater of (i) three times the Executive's Base Amount and (ii) the aggregate Reasonable Compensation allocable to such Parachute Payments. Unless otherwise agreed by the Executive and the Company, any reduction in Parachute Payments caused by reason of this subsection (b) shall be made proportionately with respect to each such Parachute Payment. This subsection (b) shall be interpreted and applied to limit the amounts otherwise payable to the Executive under this Agreement or otherwise only to the extent required to avoid any material risk of the imposition of excise taxes on the Executive under ss.4999 of the Code or the disallowance of a deduction to the Company under ss.280G(a) of the Code. In the making of any such interpretation and application, the Executive shall be presumed to be a disqualified individual for purposes of applying the limitations set forth in this subsection (b) without regard to whether or not the Executive meets the definition of disqualified individual set forth in ss.280G(c) of the Code. In the event that the Executive and the Company are unable to agree as to the application of this subsection (b), the Company's independent auditors shall select independent tax counsel to determine the amount of such limits. Such selection of tax counsel shall be subject to the Executive's consent, provided that the Executive shall not unreasonably withhold his or her consent. The determination of such tax counsel under this Section shall be final and binding upon the Executive and the Company. (c) Notwithstanding any other provision of this Agreement, no payments shall be made hereunder to or for the benefit of the Executive if and to the extent that such payments are determined to be illegal. 11. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and if hand delivered or if sent by registered or certified mail, if to the Executive, at the last address he or she has filed in writing with the Company or, if to the Company, at its principal executive offices. Notices, requests, etc. shall be effective when actually received by the addressee or at such address. 12. Assignment and Benefit. (a) This Agreement is personal to the Executive and shall not be assignable by the Executive, by operation of law or otherwise, without the prior written consent of the Company, otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's heirs and legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns, including without limitation, any subsidiary of the Company to which the Company may assign any of its rights hereunder; provided, however, that no assignment of this Agreement by the Company, by operation of law or otherwise, shall relieve it of its obligations hereunder, except an assignment of this Agreement to, and its assumption by, a successor pursuant to subsection (c) below. (c) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation operation of law or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, but, irrespective of any such assignment or assumption, this Agreement shall inure to the benefit of and be binding upon such a successor. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid. 13. Governing Law. The provisions of this Agreement shall be construed in accordance with the laws of the Commonwealth of Pennsylvania without reference to principles of conflicts of laws. 14. Full Settlement. In the event of the termination of the Executive's Employment Period under this Agreement, the payments and other benefits provided for by this Agreement (except as otherwise provided under the express terms of any compensation or benefit plans of the Company or its subsidiaries or as may otherwise be provided by applicable law) shall constitute the entire obligation of the Company and its subsidiaries to the Executive and shall also constitute full and complete settlement of any claim under law or in equity that the Executive might otherwise assert against the Company, its subsidiaries or any of its or their respective directors, officers or employees on account of such termination of employment. 15. Entire Agreement. This Agreement represents the entire agreement and understanding of the parties with respect to the subject matter hereof, and it may not be altered or amended except by an agreement in writing. 16. No Waiver. The failure to insist upon strict compliance with any provision of this Agreement by any party shall not be deemed to be a waiver of any future noncompliance with such provision or of noncompliance with any other provision. 17. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. IN WITNESS WHEREOF, the Executive has hereunto set his or her hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name and on its behalf, and attested by its Secretary or Assistant Secretary, all as of the day and year first above written. EXECUTIVE HUNT CORPORATION By ----------------------------------- Its ----------------------------------- ATTEST: EX-10.(F)(2) 5 0005.txt EXHIBIT (10)(F)(2) Exhibit (10)(f)(2) HUNT CORPORATION Executive Officers Who Are Parties to Change in Control Agreement The following current Executive Officers of Hunt Corporation are parties to the aforesaid Change in Control Agreement: John W. Carney, William E. Chandler, Bradley P. Johnson, James P. Machut, W. Ernest Precious and Eugene A. Stiefel. Donald L. Thompson, Chairman, President and CEO of the Company, is not a party to that Change in Control Agreement, but has change in control provisions providing for a higher level of benefits in his April 8, 1996 Employment Agreement, as amended. There are also two non-executive officers who are parties to change in control agreements which are similar to those stated above. All other non-executive officers also are parties to change in control agreements which are similar to those of Executive Officers, but with lower levels of benefits. EX-10.(G)(4) 6 0006.txt EXHIBIT (10)(G)(4) Exhibit (10) (g) (4) AMENDMENT NO. 2 TO THE HUNT CORPORATION SUPPLEMENTAL EXECUTIVE BENEFITS PLAN (As Amended and Restated Effective January 1, 1997) WHEREAS, Hunt Corporation (the "Company") maintains the Hunt Corporation Supplemental Executive Benefits Plan (the "Plan"); and WHEREAS, the Company most recently amended and restated the Plan effective January 1, 1997, and subsequently further amended the Plan by an Amendment No. 1, again effective January 1, 1997; and WHEREAS, the Plan as amended by Amendment No. 1 permits certain participants to elect to receive distribution in installments over a period not to exceed ten years, provided that such election is made at least 90 days before the beginning of the participant's taxable year in which such distribution is to be made or commence; and WHEREAS, the Plan generally provides that distribution will be made or commence as soon as practicable after a participant separates from service; and WHEREAS, under the terms of Amendment No. 1, an installment election with respect to a participant who retires during 2000 and whose distribution is to be made or commence in 2000 would be required to be made no later than October 3, 1999, which was prior to the date on which Amendment No. 1 was adopted by the Company; and WHEREAS, Spencer O'Meara, a participant in the Plan, has ceased to be an executive officer of the Company, and has therefore ceased to be eligible to participate in the Plan under its terms; WHEREAS, the Company therefore desires further to amend the Plan (i) to provide that, in the case of a participant who retires during 2000, distribution will not be made or commence earlier than January 1, 2001, and (ii) to permit Spencer O'Meara to continue to participate in the Plan until his termination of employment; NOW, THEREFORE, effective January 1, 2000, the Company hereby amends the Plan as follows: 1. Section 2.35 of the Plan is amended to read as follows: 2.35 Executive Officer: Any Employee who is an officer or director (as such terms are defined in Section 16 of the Securities Exchange Act of 1934 and the rules, regulations, and interpretations thereunder) of the Company or of Hunt Management Company, Inc. ("HMC") or of any other Participating Company, or who is an officer of the Company or HMC of the rank of Vice President or above, provided he or she is a member of a select group of management or highly compensated employees within the meaning of section 201(2) of ERISA. In addition, Spencer W. O'Meara shall be deemed to be an Executive Officer for purposes of the Plan during the period beginning on the date he ceases to be an officer of the Company and ending September 30, 2000. 2. Section 6.5(a) of the Plan is amended to read as follows: 6.5 Manner, Form and Time of Distribution of Accounts: (a) Time of Distribution. The vested balance in an Executive Officer Participant's Accounts shall be paid, or commence to be paid, as soon as practicable after the Executive Officer Participant separates from service with the Participating Companies and all their Affiliates for any reason; provided, however, that in the case of an Executive Officer Participant who retires in 2000 on or after his Early or Normal Retirement Date, such vested balance shall not be paid, or commence to be paid, earlier than January 1, 2001. IN WITNESS WHEREOF, Hunt Corporation has caused these presents to be duly executed this 23rd day of February, 2000. Attest: HUNT CORPORATION /s/ By: /s/ - --------------------------------- -------------------------------- EX-10.(G)(5) 7 0007.txt EXHIBIT (10)(G)(5) Exhibit (10) (g) (5) AMENDMENT NO. 3 TO THE HUNT CORPORATION SUPPLEMENTAL EXECUTIVE BENEFITS PLAN (As Amended and Restated Effective January 1, 1997) WHEREAS, Hunt Corporation (the "Company") maintains the Hunt Corporation Supplemental Executive Benefits Plan (the "Plan"); and WHEREAS, the Board of Directors has previously authorized the amendment of the Plan to permit the continued participation of Spencer O'Meara in the Plan from the date he ceased to be an executive officer of the Company to the date of his termination of employment; and WHEREAS, the Company agreed in its Separation Agreement with Spencer O'Meara to amend the Plan by adding Exhibit D thereto to reflect such continued participation; NOW, THEREFORE, the Plan is hereby amended by adding at the end thereof Plan Exhibit D in the form attached hereto and incorporated herein. IN WITNESS WHEREOF, Hunt Corporation has caused these presents to be duly executed this 30th day of September, 2000. Attest: HUNT CORPORATION /s/ By: /s/ - ------------------------------- ------------------------------- PLAN EXHIBIT D - SPECIAL PROVISIONS FOR SPENCER W. O'MEARA I. Continued Participation in Plan by O'Meara. In accordance with the terms of the Separation Agreement (the "Agreement") effective on September 30, 1999, between the Company and Spencer W. O'Meara, ("O'Meara"), O'Meara shall continue to participate in the Plan, which provides supplemental retirement benefits under Article IV of the Plan, death benefits under Article V of the Plan, and salary deferral benefits (including matching employer contributions) under Article VI of the Plan, subject to, and in accordance with, the terms of the Plan, this Plan Exhibit D and Exhibits 1 and 2 hereto. II. Calculation and Payment of Benefit under Article IV of the Plan. (A) Calculation of Benefit. For purposes of calculating O'Meara's benefit under Article IV of the Plan, O'Meara shall be credited with Years of Benefit Service and Applicable Compensation in accordance with the terms of the Plan as if he were an Executive Officer during his transitional employment, except that in no event shall Applicable Compensation include the payments provided for under Section 2(e) and 2(f) of the Agreement. Attached as Exhibit 1 hereto are the benefit amounts payable in the various annuity forms under Article IV of the Supplemental Executive Benefits Plan ("SERP Benefits for Mr. Spencer O'Meara"), which represent final calculations except that an estimate of O'Meara's Compensation for 2000 has been used and the benefit amount will change to some extent as soon as O'Meara's Compensation for 2000 is finally determined. (B) Payment of Benefit. Under the Plan, any Participant (including O'Meara) who retires after age 52 with at least 20 years of Vesting Service or after age 55 with at least 15 years of Vesting Service shall be able to commence receiving payments under Article IV of the Plan at such time provided a timely election is made in accordance with Plan terms. Such payments shall be actuarially reduced in accordance with the terms of the Plan. III. O'Meara's Life Insurance Benefits and Determination of Base Salary under Article V. (A) Life Insurance Benefit. Life insurance coverage equal to three times O'Meara's Base Salary, as determined under III(B) of this Plan Exhibit D shall continue in effect until the earlier of September 30, 2001, or, the date O'Meara commences new employment. (B) Base Salary. O'Meara's Base Salary for purposes of Article V of the Plan from October 1, 1999 through the earlier of the first anniversary of the Transition Date or the date O'Meara commences new employment, shall be at the rate of $290,000 per year. IV. Application of Article VI to O'Meara. O'Meara may continue to make Deferral Amounts and be credited with Matching Amounts thereon in accordance with Section 6.2 of the Plan until his Transition Date, or if earlier, the date his employment terminates in accordance with the terms of the Plan. V. Election to Take Ownership of Certain Insurance Policies under Article VI of Plan. Pursuant to the terms of Article VI of the Plan, O'Meara shall be entitled to elect to take ownership of certain life insurance policies held by the Trust under the Plan for benefits under Article VI of the Plan, in lieu of receiving such benefits under the Plan. Such election shall be made in accordance with the terms of Section 6.10 of the Plan. VI. Use of Cash Value of Separate Insurance Contracts Purchased on O'Meara's Life. Under the Plan, the cash value of any separate insurance contracts purchased on O'Meara's life shall be used solely for the payment of benefits under the Plan to O'Meara (to the extent such cash value does not exceed the Company's obligation to O'Meara under the Plan). The Company agrees to pay the premiums on such contracts as they come due during the period prior to January 1, 2001. Upon O'Meara's termination of employment on the Transition Date, a separate subfund shall be established within the Trust pursuant to Section 7.4 of the Plan for such contracts. Thereafter the terms of the Plan shall govern with respect to the continuation of such contracts and the payment of premiums therefor. Exhibit 2 hereto sets forth the methodology for determining the annual amounts to be paid during O'Meara's ten year payout and the order in which the policies on O'Meara's life shall be utilized and surrendered in order to provide O'Meara's benefit under Article VI of the Plan ("Spencer O'Meara Ten Year Payout Scenario"). Note -- The following Exhibits to this Exhibit D to amendment No.3 are not being filed herewith but will be furnished to the Commission upon request: Exhibit 1 (information concerning Mr. O'Meara's credited service, fiscal average earnings, pay history, estimated benefits and related information) and Exhibit 2 (methodology for determining annual amounts to be paid to Mr. O'Meara during 10-year payout and utilization of life insurance policies to provide benefits). EX-23 8 0008.txt EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements Nos. 333-73197, 33-57103, 33-57105, 33-70660, 33-25947, 33-6359, and 2-83144 on Forms S-8 dated March 2, 1999, December 28, 1994, December 28, 1994, October 21, 1993, December 7, 1988, June 29, 1986 and April 8, 1983, respectively, of Hunt Corporation and its subsidiaries of our report dated January 30, 2001 relating to the consolidated financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers Philadelphia, PA 19103 March 1, 2001 EX-27 9 0009.txt FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-2000 DEC-31-2000 23,878 0 35,931 (873) 21,823 88,315 87,223 (46,007) 163,532 31,907 54,682 0 0 1,615 60,355 163,532 248,637 248,637 160,959 160,959 81,660 (51) 3,081 2,988 1,019 1,969 0 0 0 1,969 0.20 0.20
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