-----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, Wdcxm9h8Mi9QgU0pGVmbUliL8GZZFXzQFEpspWlEyJN6GxYhiSQH12E0xpXK03Hy H/0mtoMUk+5F7LQALhTzdQ== 0000950116-02-000772.txt : 20020416 0000950116-02-000772.hdr.sgml : 20020416 ACCESSION NUMBER: 0000950116-02-000772 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020303 FILED AS OF DATE: 20020416 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08044 FILM NUMBER: 02612156 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-Q 1 tenq.txt TENQ.TXT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 3, 2002 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-8044 ----------------------------------------------------------------------- HUNT CORPORATION ---------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 21-0481254 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One Commerce Square 2005 Market Street, Philadelphia, PA 19103 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone no., including area code 215-656-0300 ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of April 1, 2002, there were outstanding 8,917,375 shares of the registrant's common stock. HUNT CORPORATION INDEX
Page ---------- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets as of 3 March 3, 2002 and December 2, 2001 Condensed Consolidated Statements of Income - 4 Three Months Ended March 3, 2002 and March 4, 2001 Consolidated Statements of Comprehensive Income - Three Months Ended 5 March 3, 2002 and March 4, 2001 Condensed Consolidated Statements of Cash Flows - 6 Three Months Ended March 3, 2002 and March 4, 2001 Notes to Condensed Consolidated Financial 7 - 9 Statements Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10-15 Item 3 - Quantitative and Qualitative Disclosures about Market Risk 16 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 17 Item 6 - Exhibits and Reports on Form 8-K 17 Signatures 18
Part I - FINANCIAL INFORMATION Page 3 Item 1. Financial Statements Hunt Corporation Condensed Consolidated Balance Sheets (In thousands except share and per share amounts)
March 3, December 2, ASSETS 2002 2001 --------- ---------- (Unaudited) Current assets: Cash and cash equivalents $ 27,502 $ 25,966 Accounts receivable, less allowance for doubtful accounts: 2002, $746; 2001, $1,031 20,325 17,486 Inventories: Raw materials 2,923 2,973 Work in process 1,431 1,440 Finished goods 4,698 4,976 --------- --------- Total inventories 9,052 9,389 Deferred income taxes 4,366 5,834 Prepaid expenses and other current assets 10,191 14,101 --------- --------- Total current assets 71,436 72,776 Property, plant and equipment, less accumulated depreciation and amortization: 2002, $43,484; 2001, $42,548 23,374 24,188 Goodwill 754 754 Intangible assets 65 65 Other assets 8,472 8,604 --------- --------- Total assets $ 104,101 $ 106,387 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 5,000 $ 5,000 Accounts payable 3,112 4,428 Accrued expenses 20,383 22,776 --------- --------- Total current liabilities 28,495 32,204 Long-term debt, less current portion 22,000 22,000 Deferred income taxes 847 1,004 Other non-current liabilities 14,048 14,106 Commitments and contingencies Stockholders' equity: Preferred stock, $.10 par value, authorized 1,000,000 shares; none issued -- -- Common stock, $.10 par value, 40,000,000 shares authorized; issued: 2001 and 2000 -16,152,322 shares 1,615 1,615 Capital in excess of par value 7,412 7,412 Accumulated other comprehensive loss (10) -- Retained earnings 131,147 129,695 --------- --------- 140,164 138,722 Less cost of treasury stock: 2002 - 7,236,347 shares; 2001 - 7,248,347 shares; (101,453) (101,649) --------- --------- Total stockholders' equity 38,711 37,073 --------- --------- Total liabilities and stockholders' equity $ 104,101 $ 106,387 ========= =========
See accompanying notes to condensed consolidated financial statements. Page 4 Hunt Corporation Condensed Consolidated Statements of Income (Unaudited) (In thousands except per share amounts)
Three Months Ended ----------------------------- March 3, March 4, 2002 2001 --------- -------- Net sales $ 40,496 $ 42,263 Cost of sales 24,536 24,883 -------- -------- Gross profit 15,960 17,380 Selling, general, and administrative expenses 12,181 12,685 Restructuring and other 81 41 -------- -------- Income from operations 3,698 4,654 Interest expense 561 1,073 Interest and other income, net (671) (197) -------- -------- Income from continuing operations before income taxes 3,808 3,778 Provision for income taxes 1,352 1,278 -------- -------- Income from continuing operations 2,456 2,500 -------- -------- Discontinued operations: Loss from discontinued business, net of tax benefit of $64 -- (821) -------- -------- Net income $ 2,456 $ 1,679 ======== ======== Basic earnings per common share: Income from continuing operations $ 0.28 $ 0.28 Loss from discontinued business -- (0.09) -------- -------- Net income per share - Basic $ 0.28 $ 0.19 ======== ======== Diluted earnings per common share: Income from continuing operations $ 0.27 $ 0.27 Loss from discontinued business -- (0.09) -------- -------- Net income per share - Diluted $ 0.27 $ 0.18 ======== ======== Dividends per common share $ 0.103 $ 0.103 ======== ========
See accompanying notes to condensed consolidated financial statements. Page 5 Hunt Corporation Consolidated Statements of Comprehensive Income (Unaudited) (In thousands)
Three Months Ended --------------------------------- March 3, March 4, 2002 2001 ------------ ------------- Net income $ 2,456 $ 1,679 Other comprehensive income (loss): Foreign currency translation adjustments, net of income tax expense of $913 - 1,261 Currency hedging adjustments, net of income tax benefit of $7 (10) - ------------ ------------- Other comprehensive income (loss) (10) 1,261 ------------ ------------- Comprehensive income $ 2,446 $ 2,940 ============ =============
See accompanying notes to condensed consolidated financial statements. Page 6 Hunt Corporation Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands)
Three Months Ended --------------------------- March 3, March 4, 2002 2001 -------- -------- Cash flows from operating activities: Net income $ 2,456 $ 1,679 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 1,196 1,987 Deferred income taxes 1,311 71 (Gain) loss on disposals of property, plant and equipment 124 (10) Provision for patent infringement litigation -- 52 Payments/credits for special charges (382) (119) Changes in operating assets and liabilities (1,425) (1,378) -------- -------- Net cash provided by operating activities 3,280 2,282 -------- -------- Cash flows from investing activities: Additions to property, plant and equipment (514) (1,028) Acquisition of business -- (92) Other, net 13 10 -------- -------- Net cash used for investing activities (501) (1,110) -------- -------- Cash flows from financing activities: Proceeds from issuance of long-term debt -- 2,106 Payments on long-term debt, including current maturities -- (1,984) Proceeds from exercise of stock options 105 -- Book overdrafts (382) (2,213) Purchases of treasury stock -- (3,680) Dividends paid (913) (912) Other, net -- (12) -------- -------- Net cash used for financing activities (1,190) (6,695) -------- -------- Effect of exchange rate changes on cash (53) 53 -------- -------- Net increase (decrease) in cash and cash equivalents 1,536 (5,470) Cash and cash equivalents, beginning of period 25,966 23,878 -------- -------- Cash and cash equivalents, end of period $ 27,502 $ 18,408 ======== ========
See accompanying notes to condensed consolidated financial statements. Page 7 Hunt Corporation Notes to Condensed Consolidated Financial Statements (Unaudited) 1. The accompanying condensed consolidated financial statements and related notes are unaudited; however, in management's opinion all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the financial position at March 3, 2002 and the results of operations and cash flows for the periods shown have been made. Such statements are presented in accordance with the requirements of Form 10-Q and do not include all disclosures normally required by generally accepted accounting principles or those normally made in Form 10-K. 2. Effective October 1, 2001, the Company sold its commercial Graphics Products business and related assets. The divested business had net sales of approximately $14.5 million and an after-tax loss of $.8 million in the first quarter of fiscal 2001. The divested business is presented as a discontinued operation in the accompanying Condensed Consolidated Statements of Income. However, the Consolidated Statements of Comprehensive Income and Condensed Consolidated Statements of Cash Flows have not been restated for the fiscal 2001 first quarter. 3. A reconciliation of weighted average common shares outstanding to weighted average common shares outstanding assuming dilution in calculating the earnings per share is shown below (in thousands): Three Months Ended -------------------------- March 3, March 4, 2002 2001 ----------- ----------- Average common shares outstanding-basic 8,905 9,062 Add: common equivalent shares representing shares issuable upon exercise of stock options and stock grants 85 26 ----------- ----------- Average common shares and dilutive securities outstanding 8,990 9,088 =========== =========== Page 8 Hunt Corporation Notes to Condensed Consolidated Financial Statements (Unaudited) 4. The following table sets forth the details and the cumulative activity in the various accruals and reserves associated with the Company's 2001 cost reduction plan in the Condensed Consolidated Balance Sheet at March 3, 2002 (in thousands):
Balance at Balance at December 2, Cash Non-Cash March 3, 2001 Credits Activity Activity 2002 --------------- ------------ --------------- ------------- ----------- Lease obligations $256 - (64) - $192 Severance 3,513 - (258) - 3,255 Fixed assets 38 - - (27) 11 Other 51 - (38) - 13 --------------- ------------ --------------- ------------- ----------- Total $3,858 - (360) (27) $3,471 =============== ============ =============== ============= ===========
The following table sets forth the details and the cumulative activity in the various accruals and reserves associated with the Company's 1999 restructuring plan in the Condensed Consolidated Balance Sheet at March 3, 2002 (in thousands):
Balance at Balance at December 2, Cash Non-Cash March 3, 2001 Credits Activity Activity 2002 --------------- ------------ --------------- ------------- ----------- Lease obligations $249 - - - $249 Severance 23 (10) (13) - - --------------- ------------ --------------- ------------- ----------- Total $272 (10) (13) - $249 =============== ============ =============== ============= ===========
5. As a result of the sale of the commercial Graphics Products business in fiscal 2001 (see Note 2) and its impact on the Company's internal organizational structure, the Company now has only a single reportable segment: Consumer Products. All of the Company's long-lived assets are located in North America. 6. Effective December 3, 2001, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." Under this SFAS, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized, but will be subject to periodic reviews for impairment. As a result, effective December 3, 2001, the Company no longer amortizes goodwill or intangible assets with indefinite lives. Within six months of adopting SFAS No. 142, the Company will complete a transitional impairment review to identify whether there is an impairment to goodwill or indefinite-lived intangible assets using a fair value methodology. Any impairment loss resulting from the transitional impairment test will be reflected as the cumulative effect of a change in accounting principle, retroactive to the first quarter of fiscal 2002. The Company does not expect a material impact on its consolidated financial statements from the adoption of SFAS No. 142. Page 9 Hunt Corporation Notes to Condensed Consolidated Financial Statements (Unaudited) The Company's indefinite-lived intangible assets consist of trademarks, and the Company has no amortizable intangible assets. In conformity with SFAS No. 142, the results of prior periods have not been restated. The following is a reconciliation of the Company's net income and earnings per share for the three months ended March 3, 2002 and March 4, 2001:
March 3, March 4, 2002 2001 ------------ ----------- Net income: As reported $2,456 $1,679 Amortization expense - goodwill - 185 Amortization expense - intangible assets - 25 ------------ ----------- Adjusted net income $2,456 $1,889 ============ =========== Basic earnings per share: As reported $.28 $.19 Amortization expense - goodwill - .02 Amortization expense - intangible assets - - ------------ ----------- Adjusted earnings per share - Basic $.28 $.21 ============ =========== Diluted earnings per share: As reported $.27 $.18 Amortization expense - goodwill - .02 Amortization expense - intangible assets - - ------------ ----------- Adjusted earnings per share - Diluted $.27 $.20 ============ ===========
Page 10 Item 2. 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 benefits of its restructuring and cost reduction plans on a timely basis; the effect of, and changes in, worldwide general economic conditions, including the severity and duration of any economic slowdown; price and availability of raw materials; foreign exchange rates; technological and other changes affecting the manufacture of and demand for the Company's products; competitive and other pressures in the marketplace; acts of terrorism; and other risks and uncertainties set forth herein and in the Company's 2001 Form 10-K 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. (Note: All earnings per share amounts in Management's Discussion and Analysis are presented on an after-tax, diluted basis.) In November 2001, the Company initiated a cost reduction plan (the "2001 cost reduction plan") designed to reduce the Company's cost structure. This plan resulted primarily from the sale of the commercial Graphics Products business to Neschen AG in October 2001 and is expected to generate approximately $3.9 million of annualized pre-tax cost savings in fiscal 2002 and annualized pre-tax cost savings of approximately $4.7 million in future years. Pre-tax cost savings realized in the first quarter of 2002 were approximately $.5 million, or $.04 per share. Although the Company expects to realize such future cost savings, there is no assurance that such future cost savings will actually be achieved. The adoption of the 2001 cost reduction plan in the fourth quarter of fiscal 2001 resulted in the recognition of charges totaling $3.9 million pre-tax ($.30 per share) in that quarter which included employee severance costs, recognition of future lease obligations, and other related costs. In addition to the fiscal 2001 fourth quarter charges related to this plan, the Company expects to spend a total of approximately $1.0 million for implementation costs (which will be recorded as period costs as incurred) over the next three fiscal years. During the first quarter of fiscal 2002, the Company recognized $.1 million, or $.01 per share, of such implementation costs (consisting of outplacement expenses). See Notes 2 and 4 to the Condensed Consolidated Financial Statements. As a result of the sale of the commercial Graphics Products business, management believes that the Company has simplified its operations, and thus, is afforded greater potential strategic options. The sale and related cost reduction plan are also expected to improve the overall profitability and financial strength of the Company's continuing operations. As noted in the Company's proxy statement relating to its 2002 Annual Meeting, the Company's Board of Directors in the past has reviewed and evaluated, and continues to review and evaluate, various possible strategies that the Company might pursue to strengthen the Company and enhance shareholder value. Such potential strategies range from growing the Company, through internal development, joint ventures, and/or acquisitions, to selling some or all of the Company. Page 11 Results of Operations The following discussion is on a continuing operations basis. Net Sales Net sales from continuing operations of $40.5 million for the fiscal 2002 first quarter decreased 4.2% from the first quarter of fiscal 2001 due to lower sales of office supplies products (down 12%), partially offset by higher sales of art/framing products (up 1%). Export sales decreased 11% in the fiscal 2002 first quarter compared to the same prior year period due to lower sales in Canada and Latin America. Management believes that the decrease in sales was due primarily to a continuing uncertain U.S. economy, which has prompted some of the Company's key customers to reduce their inventory and purchasing levels, which, in turn, resulted in lower orders to and sales by the Company. Although management expects sales to improve in the second half of fiscal 2002 in conjunction with an anticipated economic rebound in the U.S., there is no assurance that such sales growth will be achieved. Gross Profit The Company's gross profit percentage decreased to 39.4% of net sales in the first quarter of fiscal 2002 from 41.1% in the first quarter of fiscal 2001, and gross margin dollars decreased $1.4 million from the same prior year period. The decrease in the gross profit percentage relative to the prior year period was primarily the result of unfavorable fixed overhead absorption, lower net selling prices, sales of a higher proportion of lower margin products, and an increase in inventory valuation adjustments, partially offset by favorable purchase price variances. The decrease in gross margin dollars in the fiscal 2002 first quarter was due largely to lower sales volume compared to the same prior year period. Selling, General, and Administrative Expenses Selling, general, and administrative expenses decreased $.5 million, or 4.0%, in the first quarter of fiscal 2002 compared to the prior year first quarter as the net result of lower marketing and selling expenses, partially offset by higher general and administrative expenses. The decrease in marketing and selling expenses was due to lower salaries and benefits expenses attributable to the costs savings resulting from the 2001 divestiture of the Company's commercial Graphics Products business, reduced discretionary marketing spending, and to lower sales volume, partially offset by higher freight costs. The increase in general and administrative expenses was due principally to an increase in incentive compensation expense, partially offset by lower bad debt expense, and by a lesser reduction in the cash surrender value of officers' life insurance policies than was the case in the fiscal 2001 first quarter. Selling, general, and administrative expenses, as a percentage of net sales, were 30.1% and 30.0% in the first quarters of fiscal 2002 and 2001, respectively. Page 12 Restructuring and Other During the first quarter of fiscal 2002, the Company reduced by $10,000 a reserve related to its 1999 restructuring plan, and reversed an accrual of $33,000 established in connection with the implementation of the 1999 restructuring plan. These reductions reflected lower than anticipated severance expense. During the first quarter of fiscal 2001, the Company recorded an interest charge of $51,000 in connection with a previously reported patent infringement suit judgment. The Company also recorded a net loss on disposals of property, plant and equipment of $124,000 during the first quarter of fiscal 2002 compared to a net gain of $10,000 in the same period of fiscal 2001. Interest Expense Interest expense in the fiscal 2002 first quarter decreased to $.6 million from $1.1 million in the first quarter of fiscal 2001 due primarily to a principal repayment of the Company's senior notes of $25 million during the fourth quarter of fiscal 2001. Interest and Other Income, net Interest and other income, net increased to $.7 million in the fiscal 2002 first quarter from $.2 million in the prior year first quarter due principally to management and other net fees for transition services rendered in connection with the Company's sale of its commercial Graphics Products business to Neschen AG. Provision for Income Taxes The Company's effective income tax rate increased to 35.5% for the first quarter of fiscal 2002 from 33.8% for the fiscal 2001 first quarter due principally to the impact of decreased foreign sales corporation benefits and increased state income taxes. Financial Condition The Company's working capital increased to $42.9 million from $40.6 million, and its current ratio increased to 2.5 from 2.3, at the end of the first quarter of fiscal 2002 from the end of fiscal 2001. The Company's debt/capitalization percentage was 41% at the end of the fiscal 2002 first quarter compared to 42% at the end of fiscal 2001. Funds from operations and available cash balances were sufficient during the first quarter of fiscal 2002 to fund additions to property, plant and equipment of $.5 million, to pay cash dividends of $.9 million, and to make cash payments of $.4 million related to the 2001 cost reduction plan. Current assets decreased to $71.4 million at the end of the first quarter of fiscal 2002 from $72.8 million at the end of fiscal 2001, largely as a result of a decrease in prepaid and other assets and deferred tax assets, partially offset by higher cash and cash equivalents and higher accounts receivable balances. The decrease in deferred tax assets was due primarily to current deductibility of reserves related to the divested business. The decrease in prepaid and other assets and the increase in cash and cash equivalents were due to the receipt of income tax refunds, as well as the receipt of amounts due to the Company from Neschen AG for transition services. Accounts receivable increased $2.8 million from the $17.5 million balance at the end of fiscal 2001 due to higher sales in the last month of the fiscal 2002 first quarter compared to the last month of fiscal 2001, payments to customers pursuant to customer incentive programs accrued at the end of fiscal 2001, and to lower bad debt reserve balances in the first quarter of 2002. Page 13 Current liabilities decreased to $28.5 million at the end of the first quarter of fiscal 2002 from $32.2 million at the end of fiscal 2001. This decrease was largely attributable to the timing of accounts payable payments ($1.3 million), as well as to a decrease in accrued expenses ($2.4 million), primarily due to settlement of amounts owed to Neschen AG in connection with the Company's 2001 divestiture of its commercial Graphics Products business, and to lower accrued interest. The Company has a revolving credit facility of $25 million. There were no outstanding borrowings under this facility at March 3, 2002. The Company's ability to comply with various of its debt covenants under its credit facility and outstanding senior notes will depend largely on the achievement of the Company's business plan, which, in turn, could be adversely affected by the economic climate, competitive uncertainties, and other factors. In the event that non-compliance with such debt covenants should occur or appear to be likely, the Company would pursue various alternatives to successfully resolve the non-compliance, which might include, among other things, seeking debt covenant waivers or amendments, refinancing of debt, restricting payments of future cash dividends, and/or reducing future capital expenditures. Although the Company believes that it would be successful in resolving any such actual or potential non-compliance with its debt covenants, there can be no assurance that such would be the case. Management believes that funds generated from operations, combined with its existing credit facilities, will be sufficient to meet currently anticipated working capital and other capital and debt service requirements. Should the Company require additional funds, management believes that the Company could obtain them at competitive costs. While subject to change, management currently expects that total fiscal 2002 expenditures for additions to property, plant and equipment to increase capacity and productivity will be approximately $2.9 million, of which approximately $.5 million has been expended through the first three months of fiscal 2002. Critical Accounting Policies and Estimates Critical accounting policies are those that involve subjective or complex judgments, often as a result of the need to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to customer programs, product returns, bad debts, inventories, valuation of long-lived assets, assets held for sale, intangible assets, cash surrender value of life insurance policies, deferred cash accounts, income taxes, warranty obligations, restructuring, business divestitures, pensions and other employee benefit plans or arrangements, environmental matters, and contingencies and litigation. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Page 14 The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements: |o| The Company records estimated reductions to revenue for customer programs including special promotions and other volume-based incentives. |o| The Company maintains allowances for doubtful accounts for estimated losses resulting from the Company's review and assessment of its customers' ability to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required. |o| The Company provides for estimated costs of future anticipated product returns and warranty obligations based on historical experience. |o| The Company maintains reserves for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. |o| The Company holds life insurance policies for all of its officers in connection with the Company's Supplemental Executive Benefits Plan. The carrying value of these policies is subject to changes in market conditions. |o| The Company maintains an accrual for a deferred cash account in connection with a long-term incentive compensation agreement with the Company's Chief Executive Officer. The value of the deferred cash account is tied to the Company's stock price. This accrual is subject to changes in market conditions. |o| The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event that the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. Page 15 New Accounting Standards Effective December 3, 2001, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 supersedes APB 17, "Intangible Assets," and primarily addresses accounting for goodwill and intangible assets subsequent to their acquisition (i.e., the post-acquisition accounting). The most significant changes made by SFAS No. 142 are that goodwill and indefinite lived intangible assets will no longer be amortized, goodwill will be tested for impairment at least annually at the reporting unit level, intangible assets deemed to have an indefinite life will be tested for impairment at least annually, and the amortization period of intangible assets with finite lives will no longer be limited to forty years. As a result of the adoption of SFAS No. 142, the Company no longer amortizes goodwill or intangible assets. In June 2001, the Financial Accounting Standards Board ("FASB") approved the issuance of Statements of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires that entities record as a liability obligations associated with the retirement of a tangible long-lived asset when such obligations are incurred, and capitalize the cost by increasing the carrying amount of the related long-lived asset. SFAS No. 143 will be effective for fiscal years beginning after June 15, 2002. The Company does not expect a material impact from the adoption of SFAS No. 143 on its consolidated financial statements. In August 2001, the FASB approved the issuance of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and certain parts of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 establishes an accounting model based on SFAS No. 121 for long lived assets to be disposed of by sale, previously accounted for under APB Opinion No. 30. This Statement is effective for fiscal years beginning after December 15, 2001. The Company is currently assessing the impact of the adoption of this statement, but believes it will not materially affect the Company's financial position or results of operations. Page 16 Item 3 - Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in the Company's market risk from that set forth in Part II, Item 7A of the Company's fiscal 2001 Form 10-K. Page 17 PART II - OTHER INFORMATION Item 1 - Legal Proceedings Reference is made to Part I, Item 3 of the Company's fiscal 2001 Form 10-K. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits (10)(c)(4) - Addendum to Stock Option Agreement dated December 20, 2000 between Hunt Corporation and Bradley P. Johnson. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. Page 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HUNT CORPORATION Date April 16, 2002 By /s/ Dennis S. Pizzica -------------------- ---------------------------------------- Dennis S. Pizzica Vice President, Chief Financial Officer Date April 16, 2002 By /s/ Donald L. Thompson -------------------- ---------------------------------------- Donald L. Thompson Chairman of the Board and Chief Executive Officer Date April 16, 2002 By /s/ John Fanelli III -------------------- ---------------------------------------- John Fanelli III Vice President, Corporate Controller (Principal Accounting Officer) EX-10 3 ex10c4.txt EX10C4.TXT Exhibit 10(c)(4) HUNT CORPORATION ADDENDUM to Stock Option Agreement dated December 20, 2000 Between Hunt Corporation and Bradley P. Johnson On December 20, 2000, the Compensation Committee of the Board of Directors of Hunt Corporation (the "Company") granted stock options (the "Options") to Bradley P. Johnson under the Company's 1993 Stock Option and Stock Grant Plan (the "Plan"). Subsequently an option agreement dated December 20, 2000 (the "Option Agreement") was entered into between the Company and Bradley P. Johnson setting forth the terms of the Options. Section 5 of the Option Agreement 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 on January 2, 2002 that, in the event of a Change in Control of the Company (as defined below) occurring prior to December 20, 2002, 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 20, 2000 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: - ------------------------ ------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----