<PAGE>
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 November 30, 1997
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 November 30, 1997 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:
Name of Each Exchange
Title of Each Class: on Which Registered:
-------------------- --------------------
Common Shares, par value $.10 per share New York Stock Exchange
Rights to Purchase Series A Junior New York Stock Exchange
Participating Preferred Stock
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 2, 1998 was
approximately $232,000,000. (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 2, 1998 was 11,235,000.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's 1998 definitive proxy statement relating to
its scheduled April 1998 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.
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Certain statements contained in this report are forward-looking statements. Such
forward-looking statements represent management's assessment based upon
information currently available, but are subject to risks and uncertainties
which could cause actual results to differ materially from those set forth in
the forward-looking statements. These risks and uncertainties include, but are
not limited to, the Company's ability to successfully complete the
implementation, and realize the anticipated growth and other benefits, of its
strategic plan on a timely basis, the effect of general economic conditions,
technological and other changes affecting the manufacture of and demand for the
Company's products, competitive and other pressures in the market place, and
other risks and uncertainties set forth in the Company's Forms 10-K, 10-Q and
8-K filings with the Securities and Exchange Commission.
PART I
Item 1. Business
General
Hunt Corporation (formerly Hunt Manufacturing Co.) and its subsidiaries (herein
called the "Company", unless the context indicates otherwise) are primarily
engaged in the manufacture and distribution of office products and art/craft
products which the Company markets worldwide.
In April 1997, the Company announced its adoption of a new strategy for growth
and restructuring plan (the "strategic plan") designed to restore higher levels
of growth and profitability and to reduce the Company's cost structure. This
plan resulted from a strategic assessment of the Company's business, conducted
with the aid of outside consultants. The restructuring portion of the strategic
plan has been substantially completed, resulting in a significant reduction in
the Company's stock keeping units, rationalization of its manufacturing and
warehouse facilities and a major restructuring of its administrative and
marketing and selling functions, all of which management believes will generate
approximately $18 million in annual savings commencing in fiscal 1998. The
Company's operating results for fiscal 1997 include the effects of a pre-tax
special charge of $26.8 million (approximately $18.5 million after taxes or,
$1.61 per share) recorded in conjunction with the implementation of the
strategic plan. The charge to restructuring includes employee severance costs,
inventory writedowns and returns, fixed and intangible asset writedowns,
recognition of future lease obligations, and other related costs.
In connection with the strategic plan, the Company has repositioned itself for
growth by focusing on three core business areas: Graphics, which includes
laminating equipment and supplies for the large format digital images;
Substrates, which are products like foam board used for mounting images; and
Consumer Products, which is a group of select BOSTON, X-ACTO and BIENFANG brand
products. A comprehensive three-year growth plan for the Company's core business
areas has been developed which establishes annual goals of consolidated revenue
growth of 10 to 15 percent and earnings growth of 15 to 20 percent into the next
century. However, there can be no assurance that such goals will be achieved.
This revenue and earnings growth is expected to be driven, in large part, by
increased focus on the Company's Graphics and Substrates products in the
high-growth digital imaging, and sign and display markets, as well as by
leveraging its brand strength in Consumer Products.
As part of the strategic plan, the Company sold its Lit-Ning Products business
(desktop accessories and supplies), its Hunt Data Products' MediaMate and
Calise' brand products (computer accessory products), and its Speedball brand
art products during fiscal 1997. The divestiture of these businesses resulted in
an aggregate net pre-tax gain of $3.7 million (approximately $2.5 million after
taxes, or $.22 per share). The combined sales of these divested business units
were approximately $11.5 million, $30.9 million and $34.3 million in fiscal
years 1997 (through the various divestiture dates), 1996 and 1995, respectively.
In addition, in mid-November 1997, the Company sold its Bevis office furniture
business for approximately $45.1 million. The Company recorded an after-tax gain
of $16.0 million, or $1.39 per share, on this sale. Bevis had sales of
approximately $52.5 million in fiscal 1997 (through the date of divestiture),
$62.2 million in fiscal 1996, and $59.1 million in fiscal 1995. This transaction
represented the last major divestiture in the Company's strategic plan. The
Bevis business is presented as a discontinued operation in the accompanying
Consolidated Statements of Income and Notes to Consolidated Financial
Statements. See Item 7 herein and Note 4 to the Notes to Consolidated Financial
Statements herein for further information.
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Business Segments
The following table sets forth the Company's net sales from continuing
operations and income (loss) from continuing operations by business segment for
the last three fiscal years:
1997 1996 1995
---- ---- ----
(In thousands)
Net Sales:
Office products $ 78,138 $ 98,101 $ 103,100
Art/Craft products 181,402 166,356 150,503
--------- --------- ---------
Total $ 259,540 $ 264,457 $ 253,603
========= ========= =========
Income (loss) from continuing
operations:*
Office products $ (7,376) $ 2,352 $ 1,432
Art/Craft products 7,680 24,435 21,678
- ----------------
* Includes a portion of the charge for the strategic plan of $26.8 million, of
which $13.2 million and $13.4 million is reflected in the office products and
art/craft products amounts, respectively, in fiscal 1997. Also includes a
provision for organizational changes and relocation and consolidation of
operations which reduced the office products income from continuing operations
by $.4 million and $4.1 million in fiscal years 1996 and 1995, respectively, and
reduced the art/craft products income from continuing operations by $1.2 million
in fiscal 1995. See Items 6 and 7 herein and Note 19 to the Notes to
Consolidated Financial Statements herein for further information concerning the
Company's business segments (including information concerning identifiable
assets).
Office Products
The Company has two major classes of office products: mechanical and
electromechanical products and desktop accessories and supplies. The amounts and
percentages of net sales from continuing operations of these product classes for
the last three fiscal years were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Product Class:
Mechanical and
electromechanical $ 68,134 87% $ 67,777 69% $ 69,018 67%
Desktop accessories
and supplies 10,004 13 30,324 31 34,082 33
-------- -------- -------- -------- -------- --------
Total $ 78,138 100% $ 98,101 100% $103,100 100%
======== ======== ======== ======== ======== ========
</TABLE>
The Company's mechanical and electromechanical office products currently consist
of a variety of items sold under the Company's BOSTON brand, including: manual
and electric pencil sharpeners; paper trimmers; spring clips used to hold sheets
of paper; manual and electronic staplers; and other office supplies products. As
part of the strategic plan, the Company divested some of its mechanical and
electromechanical products, including paper punches and shredders. In 1996, the
Company obtained the exclusive distribution rights in the United States and
Canada for RAPID(1) manual and electric staplers which are included under the
mechanical and electromechanical product class. After the divestitures of its
Lit-Ning Products business and its Hunt Data Products' MediaMate and Calise'
brand products in February 1997, the Company's desktop accessories and supplies
currently consist of Schwan-STABILO(2) highlighter markers and writing
instruments sold under an exclusive distribution agreement. The
- ----------
(1) Trademark of Isaberg AB.
(2) Trademark of Schwan-STABILO Schwanhausser GmbH & Co.
3
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combined sales of the divested Lit-Ning Products and Hunt Data Products'
MediaMate and Calise' brand products for fiscal years 1997 (through the various
divestiture dates), 1996 and 1995 were $4 million, $22.5 million and $25.6
million, respectively.
The Company consistently has sought to expand its office products business
through internal product development, the acquisition of distribution rights to
products which complement or extend the Company's established lines, the
acquisition of complementary businesses and through broadened distribution.
Examples of new office product introductions by the Company in recent years are:
BOSTON brand electronic staplers, grip and stand-up staplers, rotary paper
trimmers, and electric and battery powered pencil sharpeners.
There are three major and generally distinct domestic markets for the Company's
office products: commercial offices, home offices and the general consumer. The
commercial line of the Company's office products is distributed primarily
through a network of office supply wholesalers and dealers and office product
superstores. Sales to the home office and the general consumer include
mechanical and electromechanical, and desktop accessories and supplies products
which are sold through large retail outlets, such as office products
superstores, drug and food chain stores, variety stores, discount chains,
catalog showrooms and membership chains. The consumer market has increased
significantly over the last several years primarily due to the dramatic growth
of office products superstores. A more limited line of products is sold to
schools through specialized school supply distributors.
Art/Craft Products
The Company manufactures and distributes three major classes of art/craft
products: presentation graphics products; art supplies; and hobby/craft
products. The amounts and percentages of net sales from continuing operations of
these three product classes for the last three fiscal years were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ----------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Product Class:
Presentation
graphics $137,299 76% $121,339 73% $104,271 69%
Art supplies 26,315 14 26,492 16 26,610 18
Hobby/craft 17,788 10 18,525 11 19,622 13
-------- -------- -------- -------- -------- --------
Total $181,402 100% $166,356 100% $150,503 100%
======== ======== ======== ======== ======== ========
</TABLE>
The Company's presentation graphics products are used largely by picture
framers, graphic artists, display designers and photo laboratories, and include
a range of substrates products consisting of: BIENFANG and CENTAFOAM foam boards
(which constitute a significant portion, although less than 40%, of presentation
graphics products) and BIENFANG project display boards; TECHMOUNT dry mount
adhesive products; pressure sensitive and dry mount adhesive products sold under
the SEAL brand, as well as under the COLORMOUNT, SEALEZE, PRINT GUARD, PRINT
MOUNT and GARDIAN brand names; THERMASHIELD laminating films; an array of
mounting and laminating equipment sold under the CLEAR TECH, SEALEZE, and IMAGE
brand names; and specialty tapes and films supplied under various private
brands. The Company's art supply products are used primarily by commercial and
amateur artists, and include: commercial and fine art papers which the Company
converts, finishes and sells under its BIENFANG brand name; various types of
X-ACTO brand knives and blades; and CONTE(3) pastels, crayons and related
drawing products, for which the Company is the exclusive United States and
Canadian distributor. The Company's hobby/craft products generally are used by
hobbyists and craft enthusiasts and include X-ACTO brand tools and kits and
paint markers. In conjunction with the strategic plan, the Company sold its
Speedball art brand products and divested other art/craft products during fiscal
1997. The sales of the divested Speedball brand art products for fiscal years
1997 (through the divestiture date), 1996 and 1995 were $7.5 million, $8.4
million and $8.7 million, respectively.
The Company consistently has sought to expand its art/craft business primarily
through acquisitions of complementary businesses and of distribution rights to
complementary products manufactured by others, through internal product
development, and through broadened distribution. Major art/craft products
introduced during the last several fiscal years include: SINGLE STEP adhesive
- ----------
(3) Trademark of Conte S. A.
4
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coated BIENFANG foam board; BIENFANG project display boards; SHOWTIME portable
display products; the X-ACTO X-2000 knife; IMAGE brand large format laminators;
GARDIAN outdoor protective laminates and adhesives; PRINT MOUNT pressure
sensitive adhesives; and THERMASHIELD laminating films. In 1993, the Company
acquired IMAGE TECHNOLOGIES, Inc., a start-up company engaged in the development
and production of large format laminators, which has allowed the Company to
broaden its distribution into the digital imaging market.
In 1995, the Company acquired the Centafoam business, a United Kingdom
manufacturer and marketers of a line of styrene-based foam board products, which
has enabled the Company to be more competitive in international foam board
markets, and has provided the Company with a base from which to build a rigid
substrate business for sign and display markets in Europe.
In 1997, the Company acquired Sallmetall b.v., a Dutch company, whose operations
involve the design and assembly of laminating equipment and related adhesive
film coating manufacturing. This acquisition should further strengthen the
Company's position as a leading global supplier of print finishing systems and
expand its capacity in the growing market for wide format short-run digital
imaging.
BIENFANG foam board has been particularly important as it has allowed the
Company to penetrate the picture framing, sign, display and exhibit markets, yet
it also holds wide appeal to the traditional customer groups in art supply,
hobby/craft and office product markets. The success of foam board has been
attributable, in significant part, to the Company's ability to offer the
end-user a variety of value-added foam board products, such as colored or
adhesive-coated foam board.
Traditionally, the Company's art/craft products have been distributed primarily
through wholesalers (framing, photomounting, art and hobby), dealers
(specialized art supply and hobby/craft stores), general consumer-oriented
retail outlets (primarily office product superstores and chain stores),
industrial concerns (photo labs, screen printers) and through specialized school
supply distributors. Over the last several years, consumer-oriented retail
outlets have become an increasingly important distribution channel for the
Company's art/craft products.
Sales and Marketing
General
The Company has over 10,000 active customers, the ten largest of which accounted
for approximately 32% of its sales in fiscal 1997. Three of these ten largest
customers were office products superstore chains. The largest single customer
accounted for 6% of sales for that year. There is a continuing 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.
Because most of the Company's sales are made from inventory, the Company
generally operates without a material backlog. The Company's sales generally are
not subject to material seasonal fluctuations. See Note 18 to the Notes to
Consolidated Financial Statements herein.
Domestic Operations
Domestic marketing of the Company's office products and art/craft products is
effected principally through four separate sales forces, one each of consumer
products, substrates, graphics, and mass market. The combined sales forces are
comprised of over 30 company salespeople and over 160 independent manufacturers'
representatives.
The Company maintains domestic distribution operations in Naugatuck, Connecticut
and Sun Prairie, Wisconsin for art/craft products; and in Statesville, North
Carolina for both office and art/craft products.
Foreign Operations
The Company distributes its products in more than 60 foreign markets through its
own sales force of eight area sales managers and nine salespersons, and through
over 20 independent sales agents and over 350 distributors.
Sales of office products and art/craft products represented approximately 47%
and 53%, respectively, of the Company's
5
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export sales in fiscal 1997, with electrical and mechanical pencil sharpeners,
X-ACTO brand knives and blades, BIENFANG paper and foam board products, and
pressure sensitive and dry mount adhesive products accounting for the major
portion of these sales.
Sales from foreign operations in Europe included principally presentation
graphics products. See Note 19 to the Notes Consolidated Financial Statements
herein for further information concerning the Company's foreign operations.
The Company maintains distribution operations in Ontario, Canada; Basildon,
England; Raalte, Netherlands; and in Hong Kong.
Foreign operations are subject to the usual risks of doing business abroad,
particularly currency fluctuations and foreign exchange controls. At the present
time, the Company is experiencing some general softness in demand for its
products in Asia, primarily as a result of the current economic situation there.
Management is uncertain, at this point, as to the extent that the unsettled
conditions in Asia will affect the Company's business in the future. See Item 7
herein. See also Note 1 to the Notes to Consolidated Financial Statements herein
for information concerning hedging.
Manufacturing and Production
The Company's operations include manufacturing and converting of products, as
well as purchasing and assembly of various component parts. Excluding products
for which it acts as a distributor, the vast majority of the Company's sales are
of products which are either manufactured, converted or assembled by it. See
Item 2 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 or increased prices of such items. Although the Company
has realized stabilization of costs for its raw materials during fiscal 1997,
management is uncertain if these conditions will continue in fiscal 1998. See
Item 7 herein.
Competition
The Company does not have any single competitor which offers substantially the
same overall lines of either office products or art/craft products as the
Company. However, competition in a number of areas of the Company's businesses,
such as electric pencil sharpeners, staplers, and foam board, 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 office products and art/craft 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 manual and electric
pencil sharpeners; BIENFANG foam board products; presentation graphics materials
and equipment; and X-ACTO brand knives and blades. The Company also believes
that it is among the leaders in the United Kingdom picture framing and
photomounting market for dry mounting products.
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.
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. The following trademarks, some of
which are mentioned in this report, are owned by the Company: ADEMCO-SEAL(TM),
AQUASEAL(TM), BIENFANG(R), BOSTON(R), CENTAFOAM(TM), CLEAR TECH(R),
COLORMOUNT(R),CLASSIC STANDUP STAPLER(TM), DELUXE STANDUP STAPLER(TM), FLOOR
GUARD(TM), GARDIAN(R), GRIP STANDUP STAPLER(TM), IMAGE(R), JET GUARD(TM), PALM
STANDUP STAPLER(TM), PAINTERS(R), PRINT GUARD(R), PRINT MOUNT(R), SEAL(R),
SEALEZE(R), SHOWTIME(TM), SINGLE STEP(R), TECHMOUNT(R), THERMASHIELD(TM),
X-2000(R) and X-ACTO(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; Schwan-STABILO highlighter markers and writing
instruments and RAPID manual and electric stapling machines. Such rights
customarily are granted for limited periods, after which they expire
6
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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 seven 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 1997), the loss of the right
to market certain products could have an adverse effect on the Company's
profitability.
Research and Development
During fiscal 1997, the Company spent approximately $3.3 million on
Company-sponsored research and development, as compared with approximately $2.9
million in fiscal 1996 and $1.6 million in fiscal 1995.
Personnel
As of January 2, 1998, the Company had approximately 1,200 full-time employees.
As a result of the implementation of the strategic plan, the Company's workforce
was reduced by over 800 persons during fiscal 1997.
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 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. A substantial portion of the remediation has been completed,
although testing is continuing.
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 15 to the Notes
to Consolidated Financial Statements herein.
7
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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:
<TABLE>
<CAPTION>
Industry Primary Approximate Owned or
segment function Location size leased
- ------- -------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Art/Craft Manufacturing Statesville, 219,000 sq. (1)
Products & Offices NC ft. bldg.
on 13 acres
Manufacturing, Naugatuck, 86,000 sq. Leased
Distribution, CT ft. bldg. (exp. 2000)
& Offices on 15 acres
Manufacturing, Basildon, 64,000 sq. Owned
Distribution, England ft. in two
& Offices bldgs. on
3 acres
Manufacturing, Raalte, 90,000 sq. (2)
Distribution, Netherlands ft. in two
& Offices bldgs. on
3 acres
Office Manufacturing Statesville, 218,000 sq. Owned
Products & Offices NC ft. bldg.
and Art/ on 16 acres
Craft
Products Distribution Statesville, 320,000 sq. Leased
& Offices NC ft. bldg. (exp. 2005)
Distribution Ontario, 59,000 sq. Leased
& Offices Canada ft. bldg. (exp. 2001)
</TABLE>
- ----------
(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 books. The Company has the option, subject to certain
conditions, to purchase the property for a nominal consideration upon payment of
the bonds.
(2) One of these buildings is 50% owned by the Company and 50% is leased from a
third party with an expiration date of September, 1999. The Company has entered
into an agreement to purchase the leased portion at the expiration date for 1.4
million Dutch guilders. The other building is entirely owned by the Company.
At present, the above facilities generally are believed to be adequately
utilized and suitable for the Company's present needs.
8
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Item 3. Pending Legal Proceedings
The Company is not aware of any material pending legal proceedings involving the
Company or its subsidiaries. See Note 15 to the Notes to Consolidated Financial
Statements herein and Item 1-"Environmental Matters" herein.
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 56 Chairman of the Board, President and
Chief Executive Officer
John W. Carney 54 Vice President, General Manager
Substrates
William E. Chandler 54 Senior Vice President, Finance;
Chief Financial Officer, and
Secretary
Spencer W. O'Meara 51 Executive Vice President, Hunt Products
W. Ernest Precious 56 Executive Vice President,
Hunt Graphics
Eugene A. Stiefel 50 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, and Stiefel, 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. Stiefel was elected an executive officer of the Company in April, 1993. He
joined the Company in February, 1985 and has served as Vice
President-Information Services since 1987.
----------
9
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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 officers of the Company. However,
this should not be deemed to constitute an admission that all directors and
officers of the Company are, in fact, affiliates of the Company, or that there
are not other persons who may be deemed to be affiliates of the Company. Further
information concerning shareholdings of officers, directors and principal
shareholders is included in the Company's definitive proxy statement filed or to
be filed with the Securities and Exchange Commission.
----------
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
1997
-------------------------------------------
First Second Third Fourth
----- ------ ----- ------
High $18 1/2 $19 1/8 $21 1/4 $23 15/16
Low 16 3/4 17 1/2 18 1/2 20 3/8
Fiscal Quarter
1996
First Second Third Fourth
-------------------------------------------
High $17 1/2 $17 3/8 $16 5/8 $17 5/8
Low 13 5/8 15 12 3/4 14 1/2
See Note 14 to the Notes to Consolidated Financial Statements herein for
information concerning certain Rights which were distributed by the Company to
shareholders and which currently are deemed to be attached to the Company's
common stock.
As of February 2, 1998, there were over 700 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: 1997 and 1996 -
$.095 per quarter. 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 10 to the Notes to Consolidated Financial Statements herein.
During fiscal 1997, the Company issued from its Treasury an aggregate of 77,430
unregistered common shares as awards and grants under its long-term incentive
compensation program. 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
<PAGE>
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.
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------------------------------------------
Nov. 30, Dec. 1, Dec. 3, Nov. 27, Nov. 28,
1997 (1) 1996(2) 1995(3) 1994 1993
-------- ------- ------- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $ 259,540 $ 264,457 $ 253,603 $ 236,488 $ 211,917
Income (loss) from
continuing
operations (6,062) 10,473 11,897 15,056 12,528
Income (loss) from
continuing
operations per
common share (.53) .89 .74 .92 .77
Total assets 209,522 175,674 182,810 173,385 156,317
Long-term debt 54,096 64,559 3,559 3,559 3,003
Cash dividends
declared per share .38 .38 .38 .36 .35
</TABLE>
- ----------
(1) In fiscal 1997, the Company recorded a charge for the strategic plan of
approximately $18.5 million after taxes, or $.1.61 per share, and other related
costs of $2.2 million after-taxes, or $19 per share, and recorded a net gain on
sales of divested businesses (excluding the discontinued business) of $2.5
million after taxes, or $.22 per share.
(2) 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, or $.02 per share.
(3) In fiscal 1995, the Company recorded a charge for anticipated costs relating
to organizational changes and relocation and consolidation of operations to
income from operations of approximately $3.5 million after taxes, or $.22 per
share.
11
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Certain statements contained in this report are forward-looking statements. Such
forward-looking statements represent management's assessment based upon
information currently available, but are subject to risks and uncertainties
which could cause actual results to differ materially from those set forth in
the forward-looking statements. These risks and uncertainties include, but are
not limited to, the Company's ability to successfully complete the
implementation, and realize the anticipated growth and other benefits, of its
strategic plan on a timely basis, the effect of general economic conditions,
technological and other changes affecting the manufacture of and demand for the
Company's products, competitive and other pressures in the market place, and
other risks and uncertainties set forth herein and in the Company's Forms 10-Q
and 8-K filings with the Securities and Exchange Commission.
Results of Operations
In April 1997, the Company announced its adoption of a new
strategy for growth and restructuring plan (the "strategic plan") designed to
restore higher levels of sales growth, profitability and to reduce its cost
structure. This plan resulted from a strategic assessment of the Company's
business conducted with the aid of outside consultants. The cost reduction
portion of the strategic plan resulted in cost savings of approximately $7.3
million in fiscal 1997 and management believes will result in annual cost
savings of approximately $18.0 million commencing in fiscal 1998 .The cost
savings are expected to result primarily from a significant reduction of the
Company's stock keeping units ("SKUs"), the rationalization of manufacturing and
warehouse facilities and from a major restructuring of its administrative and
marketing and selling functions, most of which actions were accomplished during
fiscal 1997. Over 250 positions (not including 550 positions from the
divestiture of businesses described below) were eliminated in connection with
the restructuring plan. Although the Company expects realization of such future
cost savings, there is no assurance that they will be achieved. (See Note 3 to
the Notes to Consolidated Financial Statements.)
The Company's operating results for fiscal 1997 include the
effects of a pre-tax special charge of $26.8 million (approximately $18.5
million after taxes, or $1.61 per share) recorded in conjunction with the
implementation of the strategic plan. The charge to restructuring includes
employee severance costs ($4.1 million), inventory writedowns and returns ($8.2
million), fixed and intangible asset writedowns ($7.9 million), recognition of
future lease obligations ($3.3 million), and other related costs. Approximately
49% of this special charge is for cash items, of which $11.0 million remains
accrued in the accompanying Consolidated Balance Sheet at November 30, 1997. The
special charge to earnings for fiscal 1997 is included in the following
categories in the accompanying Consolidated Statements of Income (in thousands,
except per share data):
Pre-Tax Dollar After-Tax
Amount Per Share Amount
-------------- ----------------
Restructuring $18,627 $1.12
Cost of Sales 8,204 .49
------- -----
$26,831 $1.61
======= =====
In late March 1997, the Company acquired all of the stock of
Sallmetall b.v., a Dutch company, for approximately $14 million and the
assumption of debt of approximately $6 million. (See Note 5 to the Notes to
Consolidated Financial Statements.) Sallmetall's operations involve the design
and assembly of laminating equipment and related adhesive film coating
manufacturing. Management believes that the acquisition of this business will
further strengthen the Company's position as a leading global supplier of print
finishing systems and expand its activity in the growing market for wide format
short-run digital imaging.
12
<PAGE>
In connection with the Company's strategic plan, during fiscal
1997 the Company sold its Lit-Ning Products business (desktop accessories and
supplies), its Hunt Data Products' MediaMate and Calise' brand products
(computer accessory products), and its Speedball brand art products. These
divestitures resulted in an aggregate net pre-tax gain of $3.7 million
(approximately $2.5 million after taxes, or $.22 per share). The combined sales
of these business units were approximately $11.5 million, $30.9 million and
$34.3 million in fiscal years 1997 (through the various divestiture dates), 1996
and 1995, respectively.
In addition, in mid-November 1997, the Company sold its Bevis
office furniture business for $45.1 million. The Company recorded an after-tax
gain of $16.0 million, or $1.39 per share, on this sale. Bevis had sales of
approximately $52.5 million in fiscal 1997 (through the date of divestiture),
$62.2 million in fiscal 1996, and $59.1 million in fiscal 1995. This transaction
completed the Company's planned significant divestitures and represented the
last major divestiture in the Company's strategic plan. The Bevis business is
presented as a discontinued operation in the accompanying Consolidated
Statements of Income and Notes to Consolidated Financial Statements. (See Note 4
to the Notes to Consolidated Financial Statements.) The following discussion is
on a continuing operations basis.
As a result of the above divestitures, including the
discontinued business, an aggregate of approximately $100 million of revenue on
an annualized basis and related profit will not be available to the Company
going forward. Management believes a critical part of the strategic plan is to
offset these revenue and earnings losses through increased focus on the
Company's Graphics and Substrates products in the high-growth digital imaging,
and sign and display markets, through leveraging of the Company's brand 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 losses.
Comparison of Fiscal 1997 vs. 1996
Net Sales. Net sales from continuing operations decreased 1.9%
to $259.5 million in fiscal 1997 from $264.5 million in fiscal 1996 largely due
to the divestitures of the Lit-Ning, Hunt Data Products and Speedball brand
products businesses and, to a lesser extent, to lower sales of other products
rationalized during fiscal 1997. Excluding the divested businesses, net sales of
retained businesses would have increased 6.2 % over fiscal 1996. Net average
selling prices increased 2.2% in fiscal 1997. Excluding the effect of currency
exchange rate changes, net selling price increases would have been 1.4%.
Art/craft products sales of $181.4 million for fiscal 1997
increased 9% from fiscal 1996 sales of $166.4 million. This increase was
attributable to higher sales of presentation graphics products (up 13%),
partially offset by lower sales of hobby/craft products (down 4%) and art
supplies products (down .7%). The increase in presentation graphics products
sales was due primarily to higher sales of mounting and laminating supplies,
which included sales of products of Sallmetall (acquired near the end of March
1997) and to higher sales of substrates related products (i.e., foam board and
other board products). Excluding the sales from the Sallmetall business,
presentation graphics products sales would have increased approximately 4%. The
decreases in hobby/craft and art supplies products were due largely to lower
sales of products targeted for rationalization and to the divestiture of the
Speedball brand art products. Export sales of art/craft products were
essentially unchanged in fiscal 1997 from a year ago. Foreign sales of art/craft
products increased 31% in fiscal 1997 over fiscal 1996, due largely to higher
sales of presentation graphics products in Europe, which includes the sales of
products of Sallmetall and, to a lesser extent, to increases in the value of the
British pound sterling. Excluding the effect of currency exchange rate changes
and the sales of the Sallmetall business, foreign sales would have decreased
approximately 4% in fiscal 1997 as compared to fiscal 1996. The Company recently
has experienced some general softness in demand for its products in Asia,
primarily as a result of the current economic situation there. Management is
uncertain as to the extent that the unsettled conditions in Asia will affect the
Company's business in the future.
Office products sales decreased 20.3% to $78.1 million in
fiscal 1997 from $98.1 million in fiscal 1996. This decrease was principally
attributable to lower sales of desktop accessories and supplies (down 67%) while
sales of mechanical and electromechanical products remained essentially
unchanged. The divested Lit-Ning and Hunt Data Products businesses largely
accounted for the decrease in desktop accessories and supplies in fiscal 1997.
The increase in mechanical and electromechanical products sales was primarily
attributable to higher sales of electric and manual pencil sharpeners (increased
distribution) and staplers (new products), partially offset by lower sales of
products targeted for rationalization. Export sales of office products decreased
1.4% in fiscal 1997 as
13
<PAGE>
compared to fiscal 1996, primarily due to lower sales in Canada, resulting
principally from the decrease in the value of the Canadian dollar.
Gross Profit. The Company's gross profit margin decreased to
36.3% of net sales in fiscal 1997 from 38.3% in fiscal 1996. The decrease was
primarily the result of the $8.2 million special charge recorded in cost of
sales in fiscal 1997 in connection with the Company's strategic plan previously
discussed. Excluding the effect of this special charge, the gross profit
percentage for fiscal 1997 would have been 39.4%. The improvement in gross
profit percentage, before special charges, was largely attributable to inventory
reductions, which resulted in liquidation of certain LIFO inventories carried at
lower costs prevailing in prior years ($2.6 million), favorable product mix, net
selling price increases, and to some extent, realization of some cost savings
stemming from the restructuring plan implementation. The gross profit
percentages for foreign sales were 26.4% (27.2% excluding the effect of special
charges) in fiscal 1997, 26.7% in fiscal 1996 and 28.5% in fiscal 1995. Although
the Company has realized selling price increases and stabilization of costs for
some of its raw materials, management is uncertain if these conditions will
continue.
Selling, Shipping, Administrative, and General Expenses.
Selling and shipping expenses decreased to 18.8% of net sales in fiscal 1997
from 19.4% in fiscal 1996, principally due to lower promotion expenses, lower
shipping and distribution costs and reductions in personnel resulting from
implementation of the Company's strategic plan. Although the Company has
experienced lower freight and distribution costs in fiscal 1997, management
expects these costs to increase during fiscal 1998 and is pursuing process
changes to help mitigate these anticipated cost increases.
Administrative and general expenses increased $4.1 million, or
13.9%, in fiscal 1997 from the previous year. The increase was largely due to
higher consulting fees primarily related to the Company's strategic assessment
of its operations ($1.2 million pre-tax, or $.07 per share after-tax) and to the
Sallmetall acquisition.
Restructuring and Other. The Company recorded pre-tax special
charges of $26.8 million (approximately $18.5 million after-taxes, or $1.61 per
share), in connection with the Company's strategic plan previously discussed.
Approximately $18.6 million pre-tax, or $1.12 per share after-tax, of the fiscal
1997 special charges are included in restructuring and other in the accompanying
Consolidated Statements of Income. The cash and non-cash portions of the special
charges in fiscal 1997 represent $10.6 million and $8.0 million, respectively,
and include employee severance costs ($4.1 million), fixed and intangible asset
writedowns ($7.9 million), lease obligations ($3.3 million), and other related
costs. In addition, during fiscal 1997, the Company realized a net gain on
business divestitures of $3.7 million pre-tax, or $.22 per share after-tax, as
discussed earlier. (See Note 3 to the Notes to Consolidated Financial
Statements.)
During fiscal 1996, the Company recorded a pre-tax charge of
$.4 million, or $.02 per share after-tax, relating to the Company's fiscal 1995
decision to relocate and consolidate certain manufacturing and distribution
operations.
Interest Expense. Interest expense increased to $4.9 million
in fiscal 1997 from $4.6 million in fiscal 1996 due to higher average debt
borrowings in fiscal 1997.
Interest Income. Interest income increased $.2 million in
fiscal 1997 from fiscal 1996 due to higher average cash balances as a result of
the business divestitures discussed above.
Other Income and Expenses. Other expense, net, increased $.9
million in fiscal 1997 from fiscal 1996 due principally to a gain on sale of
certain distribution rights in fiscal 1996.
Provision for Income Taxes. The Company realized an income tax
benefit of $2.7 million in fiscal 1997 relating to the loss from continuing
operations resulting primarily from the restructuring charge previously
mentioned. The Company's effective tax rate was a 31.0% benefit for fiscal 1997
and a 33.7% provision in fiscal 1996. (See Note 11 to the Notes to Consolidated
Financial Statements.)
14
<PAGE>
Comparison of Fiscal 1996 vs. 1995
The Company's 1996 fiscal year comprised 52 weeks, compared to 53 weeks
for fiscal 1995.
Net Sales. Net sales from continuing operations increased 4.3%
to $264.5 million in fiscal 1996 from $253.6 million in fiscal 1995 primarily as
a result of higher unit volume, particularly from new products, and from average
selling price increases of approximately 2.6%.
Art/craft products sales increased 10.5% to $166.4 million in
fiscal 1996 from $150.5 million in fiscal 1995. This increase was led by higher
sales of presentation graphics products (up 16%), partially offset by lower
sales of hobby/craft products (down 6%). Art supplies products sales were
essentially unchanged in fiscal 1996 when compared to fiscal 1995. The increase
in presentation graphics products sales was largely attributable to higher sales
of mounting and laminating products (e.g., Seal and Image Series brand mounting
and laminating equipment; and Bienfang brand foam board and project display
boards). The decrease in hobby/craft products sales was due principally to lower
sales of Accent Mats brand pre-cut framing mats, craft products, and X-Acto
brand knives and tool sets. Export sales of art/craft products were essentially
unchanged in fiscal 1996 from fiscal 1995. Foreign sales of art/craft products
continued to increase substantially, growing 27.5% in 1996 compared to fiscal
1995. This increase was primarily due to higher sales of presentation graphics
products in Europe, which included sales of products manufactured by the
Company's Centafoam operation (acquired in late April, 1995). Excluding the
sales of the Centafoam operation, foreign sales grew 17% in fiscal 1996.
Office products sales decreased 4.9% in fiscal 1996 to $98.1
million from $103.1 million in fiscal 1995 as a net result of lower sales of
desktop accessories and supplies (down 11%) and lower mechanical and
electromechanical products sales (down 2%). The sales decrease in desktop
accessories and supplies was largely due to lower sales of MediaMate computer
accessory products and lower sales of Lit-Ning brand metal desk organizing
products. The sales decrease in mechanical and electromechanical products was
principally attributable to lower sales of electric and manual pencil sharpeners
and paper shredders, partially offset by higher sales of staplers, which were
due principally to sales of Rapid brand manual and high quality electric
staplers (the distribution rights to which in the United States and Canada were
obtained during the latter part of fiscal 1996). The sales decrease in desktop
accessories and supplies was due to a combination of factors: lower consumer
demand for certain products, and lost distribution at some of the Company's
large retail customers. Export sales of office products grew 35.1% in fiscal
1996 compared to fiscal 1995, primarily as a result of higher sales in Canada,
Latin America (particularly Mexico), and Australia.
Gross Profit. The Company's gross profit margin decreased
slightly to 38.3% of net sales in fiscal 1996 from 38.6% in fiscal 1995. The
decrease was largely the net result of higher customer rebates and returns,
partially offset by higher selling prices and lower raw material costs. The
gross profit percentages for foreign sales were 26.7% in fiscal 1996 and 28.5%
in fiscal 1995.
Selling, Shipping, Administrative, and General Expenses.
Selling and shipping expenses increased slightly to 19.4% of net sales in fiscal
1996 from 19.3% in fiscal 1995. This increase was largely the net result of
higher shipping and distribution costs, primarily from higher freight expenses
and marketing administrative expenses, partially offset by lower field sales
related expenses, such as promotions.
Administrative and general expenses increased $4.2 million, or
16.3%, in fiscal 1996 over the previous year. This increase was principally the
result of a charge related to incentive compensation arrangements from the
hiring in 1996 of a new Chief Executive Officer ($1.6 million, or $.09 per share
after-tax) and to costs associated with issuance of stock grants to certain
employees ($.6 million, or $.04 per share after-tax).
Restructuring and Other. During the first quarter of fiscal
1996, the Company recorded a pre-tax charge of $.4 million, or $.02 per share
after-tax, relating to the Company's fiscal 1995 decision to relocate and
consolidate certain manufacturing and distribution operations. In fiscal 1995,
the Company recorded a provision for organizational changes of $5.3 million
(approximately $3.5 million after income taxes, or $.22 per share) for costs
incurred in connection with the resignation and replacement of the Company's
Chairman and Chief Executive Officer and other organizational changes.
15
<PAGE>
Interest Expense. Interest expense increased to $4.6 million
in fiscal 1996 from $.1 million in fiscal 1995 due to significant borrowings
under various debt arrangements. (See Note 10 to the Notes to Consolidated
Financial Statements.)
Other Income and Expenses. Other income, net, of $52,000 in
fiscal 1996 was primarily due to a gain on the sale of certain distribution
rights.
Provision for Income Taxes. The Company's effective tax rate
decreased to 33.7 % in fiscal 1996 from 34.4% in fiscal 1995 as a result of
several factors, including resolution of certain prior years' tax exposures.
Extraordinary Item. During the third quarter of fiscal 1996,
the Company placed $50 million of senior notes with several insurance companies,
the proceeds of which were used to repay the outstanding balance of the
Company's term loan and part of its revolving credit facility. As a result, the
Company recorded an after-tax loss of $.3 million, or $.02 per share, for early
extinguishment of debt which has been reflected in the accompanying Consolidated
Statements of Income as an extraordinary item.
Financial Condition
The Company's working capital increased to $66.2 million at
the end of fiscal 1997 from $58.3 million at the end of fiscal 1996, largely as
a result of the net cash proceeds received from its fiscal 1997 business
divestitures, partially offset by the costs related to the strategic plan
previously discussed. The Company's debt/capitalization percentage decreased to
approximately 43% at the end of fiscal 1997 from 51% at the end of fiscal 1996
as a net result of the reduction of long-term debt and the reduction in earnings
from the strategic plan special charge discussed above. Net cash flow of $38.2
million, provided by operating activities in fiscal 1997 combined with available
cash balances, were sufficient during fiscal 1997 to fund additions to property,
plant, and equipment of $11.8 million, to pay cash dividends of $4.2 million, to
reduce debt by $14.0 million, net, and to fund a portion ($2.0 million) of the
purchase price of the Sallmetall acquisition.
The Company's current assets increased to $130.3 million at
the end of fiscal 1997 from $92.0 million at the end of fiscal 1996, primarily
as a result of a $63.9 million increase in cash and cash equivalents and to
higher deferred income taxes, partially offset by lower accounts receivable and
inventory balances. The increase in cash and cash equivalents was largely due to
the business divestitures previously discussed. Accounts receivable decreased to
$33.6 million at the end of fiscal 1997 from $48.9 million at fiscal 1996
year-end as a result of the business divestitures, improved accounts receivable
aging and lower sales in the last month of fiscal 1997 compared to those at the
end of fiscal 1996, partially offset by the Sallmetall acquisition. The decrease
in inventories from $35.4 million at fiscal 1996 year-end to $20.2 million at
the end of fiscal 1997 was principally attributable to the $8.2 million of
inventory writedowns associated with the strategic plan and to the business
divestitures. The $4.5 million increase in deferred income taxes was due to
temporary differences between reporting for financial and income tax purposes in
connection with the restructuring special charges.
The net decrease in non-current assets of $4.5 million was due
largely to the results of the business divestitures and the restructuring plan,
partially offset by the Sallmetall acquisition.
Current liabilities of $64.1 million at the end of fiscal 1997
increased from $33.7 million at the end of fiscal 1996. This increase was
largely due to accruals associated with the restructuring, accruals associated
with business divestitures, higher income taxes payable resulting from the sale
of the Bevis office furniture business and to cash book overdraft balances at
the end of fiscal 1997.
Other non-current liabilities increased to $13.1 million at
the end of fiscal 1997 from $10.1 million at the end of fiscal 1996 due to
several factors, including the accrual associated with the restructuring special
charges and to accrued incentive compensation, partially offset by a decrease in
pension liability due to the sale of the Bevis business.
16
<PAGE>
The effect of unfavorable currency exchange rates for the
Dutch Guilder (the functional currency of the Company's Holland operations) was
the principal cause for a $.6 million decrease in the cumulative translation
adjustment account in stockholders' equity.
Management believes that funds generated from operations,
combined with the existing credit facility, will be sufficient to meet currently
anticipated working capital and other capital and debt service requirements.
(See Note 10 to the Notes to Consolidated Financial Statements.) Should the
Company require additional funds, management believes that the Company could
obtain them at competitive costs.
Readiness for Year 2000
The Company has taken actions to understand the nature and
extent of the work required to make its systems and infrastructure Year 2000
compliant. The Company began work several years ago to prepare its financial,
information and other computer-based systems for the Year 2000, including
replacing and/or updating existing legacy systems. The Company continues to
evaluate the estimated future costs associated with these efforts based on
actual experience but does not currently anticipate that such costs will have a
material impact on the Company's results of operations or financial position.
The Company also is in the process of initiating formal communications with its
significant suppliers and customers to determine the extent to which the Company
might be impacted by those third parties' failure to be Year 2000 compliant.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." SFAS No.128 simplifies the standards for computing
earnings per share by replacing the "primary" and "fully diluted" calculations
currently used with "basic earnings per share" which includes only actual shares
outstanding and "diluted earnings per share" which includes the effect of any
common stock equivalents or other items that dilute earnings per share. SFAS No.
128 is effective for fiscal periods ending after December 15, 1997, with prior
year periods restated to comply with the new standards at that time. (See Note 2
to the Notes to Consolidated Financial Statements.)
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" which establishes standards for reporting and display of
comprehensive income and its components in the financial statements. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company is in the process of determining
its preferred display format. The adoption of SFAS No. 130 is not expected to
have any impact on the Company's consolidated results of operations, financial
position or cash flows.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. Financial statement disclosures for prior
periods are required to be restated. The Company is in the process of evaluating
the disclosure requirements. The adoption of SFAS No. 131 is not expected to
have any impact on the consolidated results of operations, financial position or
cash flows.
Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities," provides guidance on specific accounting issues that are present
in the recognition, measurement, display and disclosure of environmental
remediation liabilities. SOP 96-1 is effective for fiscal years beginning after
December 15, 1996. Accordingly, the Company will adopt SOP 96-1 during fiscal
1998. Management believes that the adoption of this statement will not have a
material impact on its results of operations or financial position.
17
<PAGE>
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 15 to the Notes to Consolidated Financial Statements.)
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 Coopers & Lybrand L.L.P. thereon, are set forth
below.
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Hunt Corporation
We have audited the consolidated financial statements and the financial
statement schedule of Hunt Corporation (formerly Hunt Manufacturing Co.) and
Subsidiaries listed in the index on page 20 of this Form 10-K. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Hunt Corporation
and Subsidiaries as of November 30, 1997 and December 1, 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended November 30, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included herein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 28, 1998
F-1
<PAGE>
HUNT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the fiscal years 1997, 1996 and 1995
(In thousands except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
(52 weeks) (52 weeks) (53 weeks)
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 259,540 $ 264,457 $ 253,603
Cost of sales 165,396 163,175 155,784
--------- --------- ---------
Gross profit 94,144 101,282 97,819
Selling and shipping expenses 48,903 51,191 48,903
Administrative and general expenses 33,825 29,710 25,545
Restructuring and other 14,973 354 5,342
--------- --------- ---------
Income (loss) from operations (3,557) 20,027 18,029
Interest expense (less $139, $336,
and $229 capitalized in 1997,
1996 and 1995, respectively) (4,920) (4,586) (333)
Interest income 538 301 571
Other (expense) income, net (852) 52 (116)
--------- --------- ---------
Income (loss) from continuing operations before
income taxes and extraordinary item (8,791) 15,794 18,151
Provision (benefit) for income taxes (2,729) 5,321 6,254
--------- --------- ---------
Income (loss) from continuing operations before
extraordinary item (6,062) 10,473 11,897
Discontinued operations:
Income from discontinued business,
net of income taxes of $2,276, $2,731 and $2,056
in 1997, 1996 and 1995, respectively 4,153 4,746 3,438
Gain on disposal of discontinued business,
net of income taxes of $9,031 15,961 -- --
Extraordinary loss on early extinguishment
of debt, net of income tax benefit of $134 -- (251) --
--------- --------- ---------
Net income $ 14,052 $ 14,968 $ 15,335
========= ========= =========
Average shares of common and common
equivalent shares 11,511 11,677 16,175
========= ========= =========
Earnings (loss) per common share:
Income (loss) from continuing operations $ (.53) $ .89 $ .74
Income from discontinued operations .36 .41 .21
Gain on disposal of discontinued business 1.39 -- --
Extraordinary loss on early extinguishment of debt -- (.02) --
--------- --------- ---------
Net income per share $ 1.22 $ 1.28 $ .95
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
HUNT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30, 1997 and December 1, 1996
(In thousands except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 65,449 $ 1,528
Accounts receivable, less allowance for doubtful
accounts: 1997 - $1,842 ; 1996 - $1,809 33,565 48,912
Inventories 20,152 35,391
Deferred income taxes 9,107 4,563
Prepaid expenses and other current assets 2,051 1,606
--------- ---------
Total current assets 130,324 92,000
Property, plant and equipment, at cost, less
accumulated depreciation and amortization 42,973 52,711
Excess of acquisition cost over net assets
acquired, less accumulated amortization 26,906 18,239
Intangible assets, net 2,587 6,738
Other assets 6,732 5,986
--------- ---------
TOTAL ASSETS $ 209,522 $ 175,674
========= =========
LIABILITIES
Current liabilities:
Current portion of debt $ 2,203 --
Accounts payable 11,120 $ 13,271
Accrued expenses:
Salaries, wages and commissions 4,675 5,284
Income taxes 14,089 3,770
Insurance 1,891 2,082
Compensated absences 2,116 2,145
Restructuring 9,385 851
Other 18,633 6,272
--------- ---------
Total current liabilities 64,112 33,675
Long-term debt, less current portion 54,096 64,559
Deferred income taxes 3,527 4,704
Other non-current liabilities 13,126 10,056
Commitments and contingencies
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: 1997 and 1996 -16,152,322 shares 1,615 1,615
Capital in excess of par value 6,434 6,434
Cumulative translation adjustment 275 894
Retained earnings 151,093 141,587
Less cost of treasury stock:
1997 - 4,985,224 shares; 1996 - 5,178,127 shares (84,756) (87,850)
--------- ---------
Total stockholders' equity 74,661 62,680
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 209,522 $ 175,674
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F- 3
<PAGE>
HUNT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the fiscal years 1997, 1996 and 1995
(In thousands except share and per share amounts)
<TABLE>
<CAPTION>
Common Stock Capital in Cumulative
----------------------- Excess of Translation Retained
Issued Treasury Par Value Adjustments Earnings
------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balances, November 27, 1994 (issued 16,130,068
shares; treasury 29,945 shares) $ 1,613 $ (475) $ 6,217 $ (639) $122,518
Net income 15,335
Cash dividends on common stock ($.38 per share) (6,081)
Translation adjustments (344)
Purchase of treasury stock (204,900 shares) (2,853)
Exercise of stock options (issued 8,044 shares;
treasury 70,580 shares, net of shares received
as payment upon exercise) 1 1,168 55 (562)
Issuance of stock grants (issued 14,210 shares;
treasury 5,106 shares) 1 71 162 6
-------- -------- -------- -------- --------
Balances, December 3, 1995 (issued 16,152,322
shares; treasury 159,159 shares) 1,615 (2,089) 6,434 (983) 131,216
Net income 14,968
Cash dividends on common stock ($.38 per share) (4,168)
Translation adjustments 1,877
Purchase of treasury stock (5,104,543 shares ) (86,550)
Exercise of stock options (treasury 71,190 shares, net of
shares received as payment upon exercise) 561 (442)
Issuance of stock grants (treasury 14,385 shares) 228 13
-------- -------- -------- -------- --------
Balances, December 1, 1996 (issued 16,152,322
shares; treasury 5,178,127 shares) 1,615 (87,850) 6,434 894 141,587
Net income 14,052
Cash dividends on common stock ($.38 per share) (4,204)
Translation adjustments (619)
Exercise of stock options (treasury 115,473 shares, net of
shares received as payment upon exercise) 1,863 (220)
Issuance of stock grants (treasury 77,430 shares) 1,231 (122)
-------- -------- -------- -------- --------
Balances, November 30, 1997 (issued 16,152,322
shares; treasury 4,985,224 shares) $ 1,615 $(84,756) $ 6,434 $ 275 $151,093
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HUNT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the fiscal years 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 14,052 $ 14,968 $ 15,335
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,085 9,170 8,758
Provision for inventory obsolescence 1,040 2,216 1,778
Provision for doubtful accounts 786 655 916
Extraordinary loss on early extinguishment of debt -- 251 --
Deferred income taxes (5,721) 559 410
Loss on disposal of property, plant and equipment 32 633 184
Gain on sale of businesses (28,678) -- --
Provision (payments) for special charges 23,781 (1,305) 4,109
Issuance of stock under management incentive bonus
and stock grant plans 1,110 241 240
Changes in operating assets and liabilities, net of
acquisition of businesses:
Accounts receivable 11,166 (6,921) (705)
Inventories 6,631 (1,139) (4,332)
Prepaid expenses and other current assets 540 684 44
Accounts payable (3,594) 2,257 529
Accrued expenses 8,623 1,763 (2,240)
Other non-current assets and liabilities (652) 1,559 (1,660)
--------- --------- ---------
Net cash provided by operating activities 38,201 25,591 23,366
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (11,787) (7,504) (9,523)
Proceeds from the sale of businesses 63,771 -- --
Acquisition of businesses (13,928) -- (2,919)
Other, net 355 (684) (667)
--------- --------- ---------
Net cash provided by (used for) investing activities 38,411 (8,188) (13,109)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from additional borrowings 13,326 127,404 930
Payments of debt, including current maturities (27,325) (67,170) (1,167)
Book overdrafts 3,755 -- --
Purchases of treasury stock -- (86,550) (2,853)
Payments of debt issuance costs -- (1,134) --
Proceeds from exercise of stock options 1,643 119 662
Dividends paid (4,204) (4,168) (6,081)
Other, net (66) (36) (20)
--------- --------- ---------
Net cash used for financing activities (12,871) (31,535) (8,529)
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents 180 157 (32)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 63,921 (13,975) 1,696
Cash and cash equivalents, beginning of year 1,528 15,503 13,807
--------- --------- ---------
Cash and cash equivalents, end of year $ 65,449 $ 1,528 $ 15,503
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
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 1997 ended November 30,
1997; fiscal year 1996 ended December 1, 1996; fiscal year 1995 ended
December 3, 1995. Fiscal years 1997 and 1996 comprised 52 weeks; fiscal
year 1995 comprised 53 weeks.
As a result of the Company's sale of its Bevis office furniture
business, the Bevis operation is reflected as a discontinued operation
in the accompanying Consolidated Statements of Income and certain prior
year amounts have been reclassified to reflect discontinued operations
as described in Note 4 to the Consolidated Financial Statements.
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 liabilities in the accompanying
Consolidated Balance Sheets and amounted to $3.8 million at November
30, 1997.
Revenue Recognition:
Revenue is recognized when products are shipped and title has passed to
the customer.
Inventories:
Inventories are valued at the lower of cost or market. Cost is
determined by the last-in, first-out ("LIFO") method for 51% and 58% of
the inventories in 1997 and 1996, 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 other expense, net.
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.
F-6
<PAGE>
1. Summary of Significant Accounting Policies (continued):
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), Centafoam (1995) and Sallmetall (1997). 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.
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 20 to 40 years. The costs
of other intangible assets are amortized on a straight-line basis over
their respective estimated useful lives, ranging from five to 30 years.
Amortization of assets under capital leases which contain purchase
options is provided over the assets' useful lives. Other capital leases
are amortized over the terms of the related leases or asset lives, if
shorter.
Currency Translation:
The assets and liabilities of subsidiaries having a functional currency
other than the U.S. dollar are translated at the fiscal year-end
exchange rate, while elements of the income statement are translated at
the weighted average exchange rate for the fiscal year. The cumulative
translation adjustment is recorded as a separate component of
stockholders' equity. Gains and losses on foreign currency transactions
are included in the determination of net income and are reflected in
other expense, net. Such gains and losses were not material in any of
the years presented in the consolidated financial statements.
Income Taxes:
Income tax expense (benefit) is based on pre-tax financial accounting
income (loss). 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.
Hedging:
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 November 30, 1997, 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 (Loss) Per Share:
Earnings (loss) per share are calculated based on the weighted average
number of common shares and common stock equivalents outstanding.
Shares issuable under outstanding stock option, stock grant and
long-term incentive compensation plans are common stock equivalents.
F-7
<PAGE>
1. Summary of Significant Accounting Policies (continued):
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.
Stock-Based Compensation Plans:
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), and related
interpretations in accounting for its stock-based compensation. The
Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," which was effective in fiscal 1997. SFAS No.
123 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.
2. New Accounting Standards:
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share."
SFAS 128 simplifies the standards for computing earnings per share by
replacing the "primary" and "fully diluted" calculations currently used
with "basic earnings per share" which includes only actual shares
outstanding and "diluted earnings per share" which includes the effect
of any common stock equivalents or other items that dilute earnings per
share. SFAS No. 128 is effective for fiscal periods ending after
December 15, 1997, with prior year periods restated to comply with the
new standards at that time. Had SFAS No. 128 provisions been required
at November 30, 1997, the Company's net earnings (loss) per share would
approximate the pro-forma amounts below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic earnings (loss) per share :
Income (loss) from continuing operations $ ( .55) $ .91 $ .74
Net income $ 1.27 $ 1.31 $ .96
Diluted earnings (loss) per share:
Income (loss) from continuing operations $ ( .55) $ .89 $ .74
Net income $ 1.27 $ 1.28 $ .95
</TABLE>
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in the financial statements.
SFAS No. 130 is effective for fiscal years beginning after December 15,
1997. Reclassification
F-8
<PAGE>
2. New Accounting Standards (continued):
of financial statements for earlier periods provided for comparative
purposes is required. The Company is in the process of determining its
preferred format. The adoption of SFAS No. 130 is not expected to have
any impact on the Company's consolidated results of operations,
financial position or cash flows.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for
fiscal years beginning after December 15, 1997. Financial statement
disclosures for prior periods are required to be restated. The Company
is in the process of evaluating the disclosure requirements. The
adoption of SFAS No. 131 is not expected to have any impact on the
consolidated results of operations, financial position or cash flows.
Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities," provides guidance on specific accounting issues that are
present in the recognition, measurement, display and disclosure of
environmental remediation liabilities. SOP 96-1 is effective for fiscal
years beginning after December 15, 1996. Accordingly, the Company will
adopt SOP 96-1 during fiscal 1998. Management believes that the
adoption of this statement will not have a material impact on its
results of operations or financial position.
3. Restructuring and Other:
Restructuring and other for fiscal years 1997, 1996 and 1995 consist of
the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Restructuring $18,627 $354 $5,342
Net gain on divestitures (3,686) - -
Loss on disposal of
property, plant and equipment 32 - -
------- ----- ------
$14,973 $354 $5,342
------- ---- ------
</TABLE>
During fiscal 1997, the Company announced the adoption of a new
strategy for growth and restructuring plan (the "strategic plan")
designed to restore higher levels of sales growth and profitability and
to reduce its cost structure. The cost reduction phase of the plan
included a significant reduction of the Company's stock keeping units
("SKUs") and a major restructuring of its administrative and marketing
and selling functions. In conjunction with the implementation of the
strategic plan, the Company recorded pre-tax charges to earnings of
approximately $26.8 million (approximately $18.5 million after taxes,
or $1.61 per share) in fiscal 1997. The amount is included in the
accompanying Consolidated Statements of Income as follows: $18.6
million in restructuring and other as summarized below and $8.2 million
to cost of sales related principally to inventory writedowns and
returns from the reduction in SKUs. The charge to restructuring
includes employee severance costs ($4.1 million), fixed and intangible
asset writedowns ($7.9 million), recognition of future lease
obligations ($3.3 million), and other related costs.
During fiscal 1996 and 1995, the Company recorded pre-tax charges
aggregating $.4 million (approximately $.3 million after taxes, or $.02
per share) and $5.3 million (approximately $3.5 million after taxes, or
$.22 per share), respectively, as a provision for costs relating to
organizational changes and relocation and consolidation
F-9
<PAGE>
3. Restructuring and Other (continued) :
of certain manufacturing and distribution operations. The fiscal 1996
charge of $ .4 million and $2.9 million of the fiscal 1995 charge were
for costs relating to the relocation and consolidation of its Hunt Data
Products manufacturing and distribution operations located in Nuevo
Laredo, Mexico, and Laredo, Texas, with its manufacturing and
distribution facilities in Statesville, North Carolina, and the move of
the distribution operations of its Lit-Ning business from Florence,
Kentucky, to Statesville, North Carolina. The fiscal 1995 pre-tax
charge was also comprised of $2.4 million for costs incurred in
connection with organizational changes being made to more effectively
align the Company's organization with its markets including the
resignation and replacement of the Company's former Chairman and Chief
Executive Officer. The provision included recognition of future lease
obligations, write-off of property, plant, and equipment, relocation
costs, employee severance costs, and other related costs.
The following table sets forth the details and the cumulative activity
in the various accruals associated with the above restructuring plans
in the Consolidated Balance Sheets from December 3, 1995 to November
30, 1997:
<TABLE>
<CAPTION>
Accrual Balance Current Cash Non-Cash Accrual Balance at
at December 3, 1995 Provision Reductions Reductions December 1, 1996
------------------- --------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Restructuring and non-current
liabilities $ 2,429 - $(1,305) - $ 1,124
PP&E, inventory and intangible
assets 81 - - - 81
--------- ---------- --------- --------- --------
$ 2,510 - $ (1,305) - $ 1,205
======== ========= ========= ========= ========
Accrual Balance Current Cash Non-Cash Accrual Balance at
at December 1, 1996 Provision Reductions Reductions November 30, 1997
------------------- --------- ---------- ---------- ------------------
Restructuring and non-current
liabilities $ 1,124 $ 13,317 $(3,050) - $ 11,391
PP&E, inventory and intangible
assets 81 13,514 - $(11,504) 2,091
------- --------- --------- --------- --------
$ 1,205 $ 26,831 $(3,050) $(11,504) $ 13,482
======= ======== ======= ======== ========
</TABLE>
In connection with the Company's strategic plan, during fiscal 1997 the
Company sold its Lit-Ning business, its Hunt Data Products' MediaMate
and Calise' brand products, and its Speedball brand products. The
combined sales of these business units were $11.5 million, $30.9
million, and $34.3 million in fiscal 1997 (through the various
divestiture dates), 1996 and 1995, respectively. The divestitures of
these businesses resulted in a net pre-tax gain of $3.7 million
(approximately $2.5 million after taxes, or $.22 per share).
4. Discontinued Operations:
In mid-November 1997, the Company sold its Bevis office furniture
business for approximately $45.1 million. The Company recorded an
after-tax gain of $16.0 million, or $1.39 per share, on the sale.
Included in the after-tax gain on the sale of Bevis is income from
operations of $.5 million representing the period October 7, 1997
(measurement date) to November 13, 1997 (disposal date). Bevis had
sales of approximately $52.5 million in fiscal 1997 (through the date
of divestiture), $62.2 million in fiscal 1996 and $59.1 million in
fiscal 1995.
F-10
<PAGE>
4. Discontinued Operations (continued):
The Bevis operation has been accounted for as a discontinued operation,
and accordingly, has been segregated in the accompanying Consolidated
Statements of Income and prior years have been reclassified to conform
to the current year's presentation. However, the Consolidated Balance
Sheets and Consolidated Statements of Cash Flows have not been
reclassified.
5. Business Acquisitions:
In late March 1997, the Company acquired all of the outstanding stock
of Sallmetall b.v., a Dutch company, for approximately $14 million and
the assumption of debt of approximately $6 million. Sallmetall's
operations involve the design and assembly of laminating equipment and
related adhesive film coating manufacturing. Sallmetall had sales of
approximately $21 million for its fiscal year ended December 31, 1996.
The acquisition was accounted for under the purchase method of
accounting and was financed with borrowings under an existing credit
facility and from internal cash generation. The excess of purchase
price over the fair value of the net assets acquired was approximately
$14 million, which is being amortized on a straight line basis over 20
years. Sallmetall's net sales were $11.4 million for fiscal 1997 (after
the date of acquisition) which are included within the art/craft
business segment. The results of operations are included in the
Consolidated Financial Statements from the date of acquisition. 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.
In late April 1995, the Company acquired the Centafoam business for
cash consideration and related costs aggregating approximately $2.8
million. Centafoam, whose facilities are located in the United Kingdom,
manufactures and markets a line of styrene-based foam board products.
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.
6. Private Stock Purchase and Tender Offer:
In mid-December 1995, the Company purchased from Mary F. Bartol an
aggregate of 2,150,165 of the Company's common shares for a cash
purchase price of $16.32 per share, or $35.1 million in a private
transaction. Mrs. Bartol is the widow of George E. Bartol III, the late
Chairman of the Board, the mother-in-law of Gordon A. MacInnes, the
then Chairman of the Board, and the mother of Victoria B. Vallely,
another Director of the Company. The Company then commenced a tender
offer to purchase up to 3,230,000 of the Company's common shares at a
price of $17.00 net per share in cash. The Company purchased 2,954,378
common shares in January 1996 under the terms and subject to conditions
of the tender offer. The aggregate purchase price of the common shares
and estimated expenses pursuant to the tender offer was $51.5 million.
In connection with these transactions, the Company entered into certain
credit facilities and debt agreements which are discussed in detail in
Note 10.
7. Inventories:
The classification of inventories at the end of fiscal years 1997 and
1996 is as follows:
1997 1996
---- ----
Finished goods $9,962 $19,664
Work in process 2,845 4,839
Raw materials 7,345 10,888
------ -------
$20,152 $35,391
======= =======
Inventories determined under the LIFO method were $14,102 and $20,696
at November 30, 1997 and December 1, 1996, respectively. The current
replacement cost for these inventories exceeded the LIFO cost by $4,648
and $7,287 at November 30, 1997 and December 1, 1996, respectively.
F-11
<PAGE>
7. Inventories (continued):
Inventory quantities were reduced in fiscal years 1997, 1996, and 1995,
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 $1,782, or $.15 per share, $109, or $.01 per
share, and $115, or $.01 per share in fiscal years 1997, 1996 and 1995,
respectively.
8. Property, Plant and Equipment:
Property, plant and equipment at the end of fiscal years 1997 and 1996
is as follows:
1997 1996
---- ----
Land and land improvements $ 2,622 $ 4,031
Buildings 12,837 18,253
Machinery and equipment 60,107 80,830
Leasehold improvements 1,135 1,041
Construction in progress 5,010 2,493
---------- ---------
81,711 106,648
Less accumulated depreciation
and amortization 38,738 53,937
---------- ---------
$ 42,973 $ 52,711
========== =========
Depreciation expense was $6,258, $5,941 and $5,689 for fiscal years
1997, 1996 and 1995, respectively.
9. Excess of Acquisition Cost Over Net Assets Acquired and Other
Intangible Assets:
Excess of acquisition cost over net assets acquired at the end of
fiscal years 1997 and 1996 is as follows:
1997 1996
---- ----
Excess of acquisition cost
over net assets acquired $31,076 $22,674
Less accumulated amortization 4,170 4,435
------ --------
$26,906 $18,239
====== ======
Other intangible assets at the end of fiscal years 1997 and 1996 are as
follows:
1997 1996
---- ----
Covenants not to compete $ 2,823 $ 11,551
Customer lists 10 1,510
Patents 1,530 1,533
Trademarks 1,215 1,443
Licensing agreements 492 1,154
Other 2,093 2,338
----- -------
8,163 19,529
Less accumulated amortization 5,576 12,791
----- ------
$ 2,587 $ 6,738
====== ======
F-12
<PAGE>
10. Debt:
At November 30, 1997, the Company had a revolving credit agreement that
provides for unsecured borrowings up to $75 million, which expires
December 31, 2000. The Company also had a line of credit agreement that
provides for unsecured borrowings up to $2.5 million. There were no
borrowings under either agreement at November 30, 1997.
During the first quarter of fiscal 1996, the Company obtained a $125
million bank credit facility, consisting of a revolving credit facility
in an amount up to $81.725 million, and an amortizing term loan in the
amount of $43.275 million. The Company used borrowings of $75 million
under this credit facility, together with cash on hand, to fund the
shares repurchased from Mary F. Bartol and in the tender offer. (See
Note 6.)
During the second half of fiscal 1996, the Company placed $50 million
of senior notes with several insurance companies. The proceeds of this
transaction were used to repay the outstanding balance of the
amortizing term loan referred to above and to reduce the outstanding
balance on the revolving credit facility. In addition, the terms of the
credit facility were revised, among other things, to reduce the amount
of funds available under the facility from $81.725 million to $75
million; to modify certain limitations, covenants, borrowings and
facility fee margins; and to provide for additional borrowing options.
The costs associated with these financing activities 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 $140 and $122 in fiscal years 1997 and 1996,
respectively.
Debt at the end of fiscal years 1997 and 1996 was as follows:
1997 1996
---- ----
Senior notes (a) $ 50,000 $ 50,000
Revolving credit facility (b) - 11,000
Capitalized lease obligations 2,095 2,000
Industrial development revenue bond - 1,559
Bank loans (c) 1,561 -
Mortgage 483 -
Governmental development loan 573 -
Bank overdrafts (d) 1,587 -
------- --------
56,299 64,559
Less current portion 2,203 -
-------- --------
Long-term portion $ 54,096 $ 64,559
======== ========
(a) The senior notes are payable in ten annual payments of $5,000,000
beginning August 1, 2002 and bear interest at a rate of 7.86%.
(b) The revolving credit facility, which allows for borrowings of up
to $75 million, was paid down during fiscal 1997. The interest
rates under this facility (between 5.73% and 8.50% during fiscal
1997) 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 27.5 and 50.0 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.
(c) The interest rate on the bank loans range between 6.20% and 8.10%
and have an average term of 3 years.
(d) The bank overdrafts for the Company's foreign operations carry an
interest rate of 5%.
F-13
<PAGE>
10. Debt (continued):
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. Under the most restrictive covenant, the Company
is required to maintain a minimum consolidated net worth that is the
sum of $45 million plus an aggregate amount equal to 30% of its
consolidated net income for each completed fiscal quarter subsequent to
December 3, 1995. As of November 30, 1997, the Company had $18.9
million excess consolidated net worth under this provision which would
be available for payment of dividends.
.
As a result of the Company's issuance of the senior notes and the use
of the proceeds to pay down debt in fiscal 1996 referred to above, the
Company recorded an after-tax loss of $.3 million, or $.02 per share,
for the early extinguishment of debt which has been reflected in the
accompanying Consolidated Statements of Income as an extraordinary
item.
The capitalized lease obligations are collateralized by the property,
plant and equipment described in Note 15.
Aggregate annual maturities for all long-term debt, including the
capitalized leases, for each of the four fiscal years subsequent to
November 29, 1998 are as follows:
1999 $ 555 2001 $ 362
2000 $ 448 2002 $ 5,284
11. Income Taxes:
Income (loss) from continuing operations before provision (benefit) for
income taxes consists of the following:
1997 1996 1995
---- ---- ----
Domestic $(10,774) $ 11,545 $ 14,505
Foreign 1,983 4,249 3,646
--------- --------- --------
$ (8,791) $ 15,794 $ 18,151
========= ========= =======
The provision (benefit) for income taxes from continuing operations
consists of the following:
1997 1996 1995
---- ---- ----
Currently payable:
Federal $ 94 $ 3,968 $ 5,094
State 661 176 612
Foreign 345 711 109
-------- ------- -------
1,100 4,855 5,815
Deferred (3,829) 466 439
-------- ------- -------
$ (2,729) $ 5,321 $ 6,254
======== ======= ======
F-14
<PAGE>
11. Income Taxes (continued):
The following is a reconciliation of the statutory federal income tax
rate with the Company's effective income tax rate from continuing
operations:
1997 1996 1995
---- ---- ----
Statutory federal rate (35.0)% 35.0% 35.0%
State income taxes, net of
federal tax benefit 1.8 2.4 1.8
Amortization of assets
not deductible 3.9 1.4 1.0
Tax benefit of loss carryforwards
of foreign subsidiaries -- (.4) (3.1)
Resolution of certain prior years'
tax exposures (3.6) (4.0) (.2)
Other, net 1.9 (.7) (.1)
------ ------ -------
Effective tax rate from
continuing operations (31.0)% 33.7% 34.4%
====== ====== ======
The significant components of deferred tax assets and liabilities at
November 30, 1997 and December 1, 1996 consist of:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- --------------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Inventories $ 1,699 -- $ 1,982 --
Accrued expenses 9,776 $ 199 3,293 $ 434
Allowance for doubtful
accounts -- -- 595 --
Net operating loss
carryforwards-foreign 232 -- 121 --
Pensions 1,660 373 1,014 12
Net operating loss
carryforwards-states 220 -- 539 --
Depreciation and
amortization 49 7,032 99 6,767
-------- -------- -------- --------
13,636 7,604 7,643 7,213
Valuation allowance (452) -- (571) --
-------- -------- -------- --------
$ 13,184 $ 7,604 $ 7,072 $ 7,213
======== ======== ======== ========
</TABLE>
Included in the above table for November 30, 1997 are deferred tax
assets of $2,071 relating to retained contingencies for the
discontinued operation and a deferred tax liability of $179 in
connection with the 1997 business acquisition.
As of November 30, 1997, the Company had foreign net operating loss
carryforwards of approximately $1,010 which may be carried forward
indefinitely, approximately $664 of which were acquired in connection
with business acquisitions.
The valuation allowance of approximately $452 relates to net operating
losses for which realization is not more likely than not as of November
30, 1997. The net change in the total valuation allowance for the year
ended November 30, 1997 was a decrease of approximately $119 due to
utilization of tax net operating loss carryforwards.
F-15
<PAGE>
12. Employee Benefit Plans:
Pension Plans:
Net pension costs for fiscal years 1997, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 2,349 $ 2,206 $ 1,901
Interest cost on projected
benefit obligation 3,206 2,695 2,387
Actual return on plan assets (10,461) (4,598) (4,749)
Net amortization and deferral 7,345 2,102 2,643
Net curtailment gain (732) -- --
-------- -------- --------
Net pension costs $ 1,707 $ 2,405 $ 2,182
======== ======== ========
</TABLE>
During fiscal 1997, the Company realized a net curtailment gain of $732
resulting from its business divestitures of which $914 of the net gain
is included in the gain on disposal of discontinued business.
Net amortization and deferral consists of the deferral of the excess of
actual return on assets over estimated return and amortization of the
net unrecognized transition asset on a straight-line basis, principally
over 15 years.
The funded status of the Company's pension plans at September 30, 1997
and 1996 (dates of actuarial valuations) was as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------ -----------------------------
Overfunded Underfunded Overfunded Underfunded
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Plan assets at fair value $ 48,100 $ 494 $ 36,753 $ 791
-------- -------- -------- --------
Actuarial present value of benefit obligations:
Vested 30,256 4,494 25,618 3,355
Non-vested 373 275 152 281
-------- -------- -------- --------
Accumulated benefit obligation 30,629 4,769 25,770 3,636
Effect of increase in compensation 10,410 790 9,950 707
-------- -------- -------- --------
Projected benefit obligation 41,039 5,559 35,720 4,343
-------- -------- -------- --------
Projected benefit obligation less than
(in excees of ) plan assets 7,061 (5,065) 1,033 (3,552)
Unrecognized net (gain) loss (8,133) 1,900 (2,319) 619
Unrecognized transition asset (1,005) (21) (1,231) (12)
Unrecognized prior service cost 242 925 435 1,202
Minimum liability adjustment -- (2,028) (35) (1,096)
-------- -------- -------- --------
Pension liability $ (1,835) $ (4,289) $ (2,117) $ (2,839)
======== ======== ======== ========
</TABLE>
F-16
<PAGE>
12. Employee Benefit Plans (continued):
Pension costs are determined using the assumptions as of the beginning
of the year. The funded status is determined using the assumptions as
of the date of the actuarial valuation and is deemed overfunded or
underfunded based on a comparison of the plan assets at fair value with
the accumulated benefit obligation. Plan assets consist principally of
common stock and U.S. Government and corporate obligations.
Significant assumptions as of the dates of actuarial valuations
include:
1997 1996 1995
----- ----- ----
Discount rate 7.35% 7.75% 7.50%
Rate of increase in
compensation levels 5.00% 6.00% 6.00%
Expected long-term rate of
return on plan assets 8.50% 7.50% 7.50%
Effective with the September 30, 1997 measurement date, the discount
rate, rate of increase in compensation levels and expected long-term
rate of return on assets were revised to reflect current market
conditions. These changes had no impact on fiscal 1997 net pension
costs and are not expected to have a material effect on fiscal 1998
pension costs.
Supplemental Executive Benefits Plan:
The Company has a nonqualified, Supplemental Executive Benefits Plan
which constitutes a significant portion of the underfunded status above
and covers all officers. Expenses of $698, $421 and $505 in fiscal
years 1997, 1996 and 1995, 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 $45, $36 and $32 for fiscal years 1997, 1996
and 1995, respectively.
Employee Savings Plan:
The Company has a defined contribution 401(k) plan available to a
majority of its employees in the United States. For participating
employees, the Company matches 25 cents for each dollar contributed up
to a maximum of 6% of pre-tax compensation, subject to limitations of
the plan and the Internal Revenue Code. Contributions to the 401(k)
plan by the Company were $437, $426, and $396 for fiscal years 1997,
1996 and 1995, respectively.
13. 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.
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-17
<PAGE>
13. 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:
<TABLE>
<CAPTION>
1993 Plan 1983 Plan
--------- ---------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 994,723 634,800 363,400 355,606 631,842 730,003
Options granted 1,160,456 364,923 317,300 -- -- --
Options exercised (at an average price
per share of $15.27, $15.63, $14.31,
$12.74, and $9.55 respectively) (38,900) (5,000) -- (100,671) (256,236) (89,561)
Options expired -- -- -- -- -- --
Options terminated (35,550) -- (45,900) (2,600) (20,000) (8,600)
---------- ---------- ---------- ---------- ---------- ----------
Outstanding, end of year 2,080,729 994,723 634,800 252,335 355,606 631,842
========== ========== ========== ========== ========== ==========
Average option price per share $ 17.04 $ 15.56 $ 15.05 $ 14.53 $ 14.49 $ 13.95
Outstanding exercisable options,
end of year 546,314 159,900 -- 252,335 355,606 631,842
Shares reserved for future
stock options and grants 1,339,821 750,277 1,115,200 -- -- --
</TABLE>
The following table summarizes information about options outstanding at
November 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------ --------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 11/30/97 Contractual Life Price at 11/30/97 Price
--------------- ----------- ---------------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
$11.63 - $15.81 750,533 5.8 years $14.53 563,497 $14.65
$16.38 - $16.88 411,923 8.2 years $16.52 199,000 $16.44
$18.63 - $21.13 1,170,608 9.3 years $18.72 36,152 $19.92
--------- --------
$11.63 - $21.13 2,333,064 8.0 years $16.99 798,649 $15.33
</TABLE>
The Company's 1988 Long-Term Incentive Compensation Plan provided
for the granting to management-level employees of long-term
incentive awards, payable in cash and/or by the Company's common
stock at the end of a designated performance period of from two to
five years, based upon the degree of attainment of pre-established
performance standards during the performance period. A maximum of
180,000 shares were authorized for issuance under this plan. This
plan was terminated during fiscal 1996.
As of the end of fiscal 1997, an aggregate of 105,389 shares had
been earned under this plan (8,050, 12,217 and 19,114 shares in
fiscal years 1997, 1996 and 1995, respectively, and 66,008 shares
in all previous years). There are no outstanding unvested grants
remaining. The charges (credits) to administrative and general
expenses relating to this plan were $(25), $84 and $186 in fiscal
years 1997, 1996 and 1995, respectively.
F-18
<PAGE>
13. Stock-Based Compensation Plans (continued):
The Company adopted the 1994 Non-Employee Directors' Stock Option
Plan authorizing the granting 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 non-officer directors of the Company. Options granted under
this plan extend for a term of ten years and become exercisable at
the rate of 20% per year over five years commencing one year after
the date of grant. During fiscal 1997, 5,000 common shares were
granted to a newly elected non-officer director. As of November 30,
1997, only 3,000 options had been exercised under this plan.
Other Grants:
During 1995, the Company made stock grants, under the 1993 Stock
Option and Stock Grant Plan in the amount of 84,759 common shares
to certain officers and other employees. By their terms, these
grants vested at varying times during 1997. The charges to
administrative and general expense with respect to these grants was
$74, $955 and $310 in fiscal years 1997, 1996 and 1995,
respectively.
The Company has a long-term incentive compensation agreement with
Donald L. Thompson, Chairman of the Board and Chief Executive
Officer, who joined the Company in fiscal 1996. Among the
provisions of this agreement is a so-called "Phantom Stock Plan."
Under this plan, Mr. Thompson earns the right to the cash value of
a total of 175,000 shares of the Company's common stock in the
following installments, provided that he is employed by the Company
on each of the dates shown: 25% on December 1, 1996, 25% on
December 1, 1997, 25% on December 1, 1998 and 25% on December 1,
1999. The charges to administrative and general expenses with
respect to this plan were $1,431 and $1,621 in fiscal years 1997
and 1996, respectively.
During 1997, the Company adopted the 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 which 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, such options to vest
after two years (subject to possible acceleration) and to extend
for 10 years (subject to possible earlier termination). During
fiscal 1997, 1,000 common shares were issued to each of the nine
non-officer directors pursuant to this plan and, as of November 30,
1997, no options had been exercised.
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 1996, to recognize compensation cost based on fair value of
the options granted at grant date as prescribed by SFAS No. 123,
earnings (loss) and earnings (loss) per share would have
approximated the pro forma amounts shown below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Earnings (loss):
As reported:
Income (loss) from continuing operations $ (6,062) $ 10,473
Net income $ 14,052 $ 14,968
Pro forma:
Income (loss) from continuing operations $(7,397) $ 9,901
Net income $12,717 $ 14,396
Earnings (loss) per share:
As reported:
Income (loss) from continuing operations $( .53) $ .89
Net income $ 1.22 $ 1.28
Pro forma:
Income (loss) from continuing operations $( .65) $ .84
Net income $ 1.10 $ 1.23
</TABLE>
F-19
<PAGE>
13. Stock-Based Compensation Plans (continued):
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:
1997 1996
---- ----
Expected dividend yield 2.27% 2.38%
Risk-free interest rate 6.50% 5.88%
Expected volatility 24.50% 25.50%
Expected life (in years) 4.3 5.5
The weighted average estimated fair values of employee stock
options granted during fiscal 1997 and 1996 were $4.56 and $4.66
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 1996.
14. Shareholders' Rights Plan:
In 1990, the Company adopted a Shareholders' Rights Agreement and
declared a dividend of one right (a "Right") for each outstanding
share of the Company's common shares held of record as of the close
of business on August 22, 1990. The Rights initially are deemed to
be attached to the common shares and detach and become exercisable
only if (with certain exceptions and limitations) a person or group
attempts to obtain beneficial ownership of 15% or more of the
Company's common shares or is determined to be an "adverse person"
by the Board of Directors of the Company. Each Right, if and when
it becomes exercisable, initially will entitle holders of the
Rights to purchase one one-thousandth of a share of Junior
Participating Preferred Shares (Series A, of which 50,000 shares
currently are authorized for issuance) for $60, subject to
adjustment. The Rights will convert into the right to purchase
common shares or other securities or property of the Company or an
acquiring company in certain other potential or actual takeover
situations. The Rights are redeemable by the Company at $.01 per
Right in certain circumstances and expire, unless earlier exercised
or redeemed, on December 31, 2000.
15. Commitments and Contingencies:
Leases:
The capitalized lease obligations (see Note 10) represent amounts
payable under leases which are, in substance, installment
purchases. Property, plant and equipment includes the following
assets under capital leases:
1997 1996
---- ----
Land $ 152 $ 314
Buildings 1,356 2,632
Machinery and equipment 814 1,009
Accumulated depreciation (2,098) (2,960)
------- -------
$ 224 $ 995
======= ========
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 which mature no
later than June 15, 2004.
F-20
<PAGE>
15. Commitments and Contingencies (continued):
The minimum rental commitments under all noncancellable leases as of
November 30, 1997 are as follows:
Fiscal Operating
Period Leases
------ ------
1998 $ 4,500
1999 3,917
2000 3,461
2001 2,372
2002 2,229
Thereafter 8,626
---------
Minimum lease
payments $ 25,105
=========
Rent expense, including related real estate taxes charged to
operations, amounted to $5,254, $4,850 and $4,475 for fiscal years
1997, 1996 and 1995, 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 $16.4 million at November 30, 1997.
Prior to the acquisition of the Graphic Arts Group by the Company
from Bunzl plc in May 1990, it was discovered that some hazardous
waste materials had been stored on the premises of one of the Graphic
Arts Group companies, Seal, located in Naugatuck, Connecticut. In
compliance with applicable state law, this environmental condition
was reported to the Connecticut Department of Environmental
Protection by Bunzl. Seal, which is now a subsidiary of the Company,
may be partially responsible under law for the environmental
conditions on the premises and any liabilities resulting therefrom.
However, in connection with the Company's acquisition of Seal, Bunzl
agreed to take responsibility for correcting such environmental
conditions and to indemnify Seal and the Company for resulting
liabilities, subject to certain limitations. Management believes that
this contingency will not have a material effect on the Company's
results of operations or financial condition.
The Company is also involved on a continuing basis in monitoring its
compliance with environmental laws and in making capital and
operating improvements necessary to comply with existing and
anticipated environmental requirements. Despite its efforts, the
Company has been cited for occasional violations or alleged
violations of environmental laws or permits and on several occasions
has been named as a potentially responsible party for the remediation
of sites. Expenses incurred by the Company to date relating to
violations of and compliance with environmental laws and permits and
site remediation have not been material. While it is impossible to
predict with certainty, management currently does not foresee such
expense in the future as having a material effect on the Company's
business, results of operations or financial condition.
There are other contingent liabilities with respect to product
warranties, legal proceedings and other matters occurring in the
normal course of business. In the opinion of management, all such
matters are adequately covered by insurance or by accruals, and if
not so covered, are without merit or are of such kind, or involve
such amounts, as would not have significant effect on the financial
condition or results of operations of the Company, if disposed of
unfavorably.
F-21
<PAGE>
16. Research and Development:
Research and development expenses were approximately $3,284, $2,865
and $1,597 in fiscal years 1997, 1996 and 1995, respectively.
17. Cash Flow Information:
Cash payments for interest and income taxes (net of refunds) were as
follows:
1997 1996 1995
---- ---- ----
Interest paid $ 5,000 $ 3,500 $ 282
Income taxes 3,386 6,653 8,941
Excluded from the accompanying Consolidated Statements of Cash Flows
are the effects of certain non-cash investing and financing
activities as follows:
1997 1996 1995
---- ---- ----
Fair value of assets acquired $11,667 - $ 3,863
Liabilities assumed or created 11,719 - 944
Value of common shares received as pay-
ment upon exercise of stock options 444 $3,227 150
18. Quarterly Financial Data (unaudited):
Quarterly financial data for each of the quarters during fiscal years
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------
First Second Third Fourth Total
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Net sales $ 61,366 $ 62,373 $ 67,210 $ 68,591 $259,540
Gross profit 23,263 20,045 25,968 24,868 94,144
Income (loss) from continuing
operations 1,290 (7,959) 1,892 (1,285) (6,062)
Net income (loss) 2,399 (6,994) 3,503 15,144 14,052
Income (loss) per share from
continuing operations $.11 $(.70) $.16 $(.11) $(.53)
Net income (loss) per share $.21 $(.62) $.30 $1.30 $1.22
</TABLE>
F-22
<PAGE>
18. Quarterly Financial Data (unaudited) (continued):
<TABLE>
<CAPTION>
1996
---------------------------------------------------------
First Second Third Fourth Total
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Net sales $58,116 $66,988 $67,600 $71,753 $264,457
Gross profit 21,962 25,464 26,069 27,787 101,282
Income from continuing
operations 1,924 2,616 1,764 4,169 10,473
Extraordinary loss - (251) - - (251)
Net income 2,826 3,273 3,150 5,719 14,968
Income per share from
continuing operations $.16 $.22 $.15 $.37 $.89
Loss per share from
extraordinary loss $(.02) $(.02)
Net income per share $.22 $.29 $.28 $.51 $1.28
</TABLE>
The number of weighted average shares outstanding decreased during
fiscal 1996 as a result of the private purchase and stock tender
offer discussed in Note 6. For these reasons, the sums of the
quarterly income (loss) per share data is not the same as income
(loss) per share for the year.
The second quarter of fiscal 1997 net loss includes pre-tax charges
of $16.7 million, or $.91 per share after taxes, the third quarter
of fiscal 1997 net income includes pre-tax charges of $.4 million,
or $.02 per share after taxes, and the fourth quarter of fiscal
1997 net income includes pre-tax charges of $9.7 million, or $.71
per share after taxes relating to the implementation of the
strategic plan as described in Note 3. Also in fiscal 1997, the
Company divested businesses which resulted in a net pre-tax gain of
$3.7 million of which $.5 million is included in the first quarter
and $3.2 million is included in the fourth quarter. See Note 3.
Liquidations of LIFO inventories during fiscal 1997 reduced
expenses in the first, second, third and fourth quarters by $300,
or $.02 per share after taxes, $459, or $.02 per share after taxes,
$380, or $.02 per share after taxes, and $1,444, or $.09 per share
after taxes, respectively. See Note 7.
During the fourth quarter of fiscal 1997, the Company adjusted its
effective tax rate relating to the loss from continuing operations
from a 40% benefit in the first nine months of fiscal 1997 to a 31%
benefit for the full year due primarily from the restructuring
charge previously described. The effect of this adjustment in the
fourth quarter was an increase in the loss from continuing
operations of $411, or $(.04) per share after taxes. See Notes 3
and 11.
The first quarter of fiscal 1996 includes pre-tax charges to net
income of $.3 million, or $.02 per share after taxes, relating to
the provision for organizational changes and relocation and
consolidation of operations as described in Note 3.
Quarterly net sales and gross profit amounts exclude net sales and
gross profit of the Company's Bevis operation, which the Company
classified as discontinued operations during the fourth quarter of
fiscal 1997. Net sales and gross profit of Bevis for the fiscal
1997 quarters ended March 2, June 1, August 31, and November 30
were $15.2 million and $5.1 million, $13.0 million and $4.6
million, $13.9 million and $5.4 million, and $10.5 million and $3.8
million, respectively. Net sales and gross profit of Bevis for the
fiscal 1996 quarters ended March 3, June 2, September 1, and
December 1 were $15.6 million and $4.8 million, $14.2 million and
$4.6 million, $16.3 million and $5.7 million, and $17.0 million and
$6.1 million, respectively.
F-23
<PAGE>
19. Industry Segment Information:
The Company operates in two industry segments, Office Products and
Art/Craft Products. Total export sales aggregated $23,347 in fiscal
1997, $23,303 in fiscal 1996, and $20,502 in fiscal 1995, of which
$14,419, $14,913, and $12,921 in fiscal years 1997, 1996 and 1995,
respectively, were made in Canada.
Income (loss) from operations include all revenues and expenses of
the reportable segment except for interest expense, interest
income, other expenses, other income and income taxes.
Net sales, operating profits, and depreciation and amortization are
on a continuing operation basis.
Identifiable assets are those assets used in the operations of each
business segment. The office products amounts include discontinued
operation assets of $26,456 and $26,113 in fiscal 1996 and 1995,
respectively.
Corporate assets include cash and miscellaneous other assets not
identifiable with any particular segment. Capital additions include
amounts related to acquisitions.
<TABLE>
<CAPTION>
Office Art/Craft
Fiscal Year 1997 Products Products Corporate Consolidated
---------------- -------- -------- --------- ------------
<S> <C> <C> <C> <C>
Net sales $78,138 $181,402 $259,540
======= ======== ========
Income (loss) from
operations* $(7,376) $ 7,680 $ (3,861) $( 3,557)
======= ======== ========
Interest expense (4,920)
Interest income 538
Other expense, net (852)
Loss from continuing
operations before
income taxes $(8,791)
Identifiable assets $26,975 $100,219 $ 82,328 $209,522
======= ======== ======== ========
Capital additions ** $ 2,741 $ 12,832 $ 243 $ 15,816
======= ======== ======== ========
Depreciation and
amortization $ 2,238 $ 4,838 $ 764 $ 7,840
======= ======== ======== ========
</TABLE>
* Includes the charge for the strategic plan of $26.8 million of
which $13.2 million, $13.4 million and $.2 million is reflected
in the office products, art/craft products and corporate amounts,
respectively. Also included in the corporate amount is the net
gain on sales of divested businesses of $3.7 million.
** Includes $4.0 million of capital additions relating to business
acquisition.
F-24
<PAGE>
19. Industry Segment Information (continued):
<TABLE>
<CAPTION>
Office Art/Craft
Fiscal Year 1996 Products Products Corporate Consolidated
---------------- -------- -------- --------- ------------
<S> <C> <C> <C> <C>
Net sales $ 98,101 $166,356 $ 264,457
========= ======== ==========
Income from
operations * $ 2,352 $ 24,435 $(6,760) $ 20,027
========== ======== ========
Interest expense (4,586)
Interest income 301
Other income, net 52
----------
Income from continuing
operations before
income taxes $ 15,794
==========
Identifiable assets $ 78,648 $ 83,063 $ 13,963 $ 175,674
========== ======== ======= ==========
Capital additions $ 4,085 $ 3,212 $ 207 $ 7,504
========== ======== ======== ==========
Depreciation and
amortization $ 3,420 $ 3,837 $ 712 $ 7,969
========== ======== ======== ==========
</TABLE>
* Includes the provision for organizational changes and relocation
and consolidation of operations which reduced the office products
income from operations by $.4 million.
<TABLE>
<CAPTION>
Office Art/Craft
Fiscal Year 1995 Products Products Corporate Consolidated
---------------- -------- -------- --------- ------------
<S> <C> <C> <C> <C>
Net sales $ 103,100 $ 150,503 $ 253,603
========= ========= ==========
Income from
operations * $ 1,432 $ 21,678 $ (5,081) $ 18,029
========= ========= ========
Interest expense (333)
Interest income 571
Other expense, net (116)
Income from continuing ----------
operations before
income taxes $ 18,151
==========
Identifiable assets $ 78,272 $ 77,310 $ 27,228 $ 182,810
========= ========= ======== ==========
Capital additions ** $ 5,619 $ 3,550 $ 1,473 $ 10,642
========= ========= ======== ==========
Depreciation and
amortization $ 3,309 $ 3,676 $ 588 $ 7,573
========= ========= ======== ==========
</TABLE>
* Includes the provision for organizational changes and relocation
and consolidation of operations which reduced the office products
and art/craft products income from operations by $4.1 million and
$1.2 million, respectively.
** Includes $1.1 million of capital additions relating to business
acquisitions.
F-25
<PAGE>
19. Industry Segment Information (continued):
The Company's operations by geographical areas for fiscal years
1997, 1996 and 1995 are presented below. Intercompany sales to
affiliates represent products which are transferred between
geographic areas on a basis intended to reflect as nearly as
possible the market value of the products. North America
identifiable assets include discontinued operation assets of $26,456
and $26,113 in fiscal 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Europe Adjustments
North and and Consoli-
Fiscal Year 1997 America Other Corporate Eliminations dated
---------------- ------- -------- --------- ------------ -------
<S> <C> <C> <C> <C>
Net sales:
Customers $ 214,597 $ 44,943 $259,540
Intercompany 6,734 5,981 $(12,715) -
--------- -------- -------- --------
Total $ 221,331 $ 50,924 $(12,715) $259,540
========= ======== ======== ========
Income (loss) from
operations * $ (736) $ 1,040 $(3,861) $ (3,557)
========= ======== ======= ========
Identifiable assets $ 77,153 $ 50,041 $82,328 - $209,522
========= ======== ======= ======== ========
</TABLE>
* Includes the charge for the strategic plan of $26.8 million of
which $24.3 million, $2.3 million and $.2 million is reflected in
the North America, Europe and Other and corporate amounts,
respectively.
<TABLE>
<CAPTION>
Europe Adjustments
North and and Consoli-
Fiscal Year 1996 America Other Corporate Eliminations dated
---------------- ------- -------- --------- ------------ -------
<S> <C> <C> <C> <C> <C>
Net sales:
Customers $230,031 $34,426 $264,457
Intercompany 7,111 3,369 $ (10,480) -
-------- ------- --------- ---------
Total $237,142 $37,795 $ (10,480) $264,457
======== ======= ========= ========
Income from operations $ 24,228 $ 2,559 $(6,760) $ 20,027
======== ====== ======= ========
Identifiable assets $133,824 $27,887 $13,963 - $175,674
======== ====== ====== ============ ========
Europe Adjustments
North and and Consoli-
Fiscal Year 1995 America Other Corporate Eliminations dated
---------------- ------- ------- --------- ------------ --------
Net sales:
Customers $225,035 $28,568 $253,603
Intercompany 8,866 3,257 $ (12,123) -
-------- -------- --------- ---------
Total $233,901 $31,825 $ (12,123) $253,603
======== ======= ========= ========
Income from operations $ 21,088 $ 2,022 $(5,081) $ 18,029
======== ======= ======= ========
Identifiable assets $131,496 $24,086 $27,228 - $182,810
======== ======= ======= ========= ========
</TABLE>
F-26
<PAGE>
20. 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 November 30, 1997 and December 1,
1996, the Company had outstanding letters of credit for $219 and
$115, 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 ($62.6 million and $.1 million at November 30, 1997
and December 1, 1996, 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, 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 27%
and 34% of accounts receivable at November 30, 1997 and December 1,
1996, respectively. 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
November 30, 1997 and December 1, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 65,449 $ 65,449 $ 1,528 $ 1,528
Debt (excluding capital
lease obligations) $ 54,204 $ 57,963 $ 62,559 $ 65,622
</TABLE>
F-27
<PAGE>
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
for the fiscal years 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- ----------------------------- ----------- ----------
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Classification Of Period Expenses Accounts Deductions Period
-------------- --------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1997:
Allowance for doubtful accounts $1,809 $ 786 $185 (D) $ 938 (A) $ 1,842
====== ======= ==== ====== =======
Reserve for customer returns and deductions $ 888 $ - $ - $ 208 (B) $ 680
====== ======= ==== ====== =======
Reserve for inventory obsolescence $2,229 $ 601 $227 $1,868 (C) $ 1,189
====== ======= ==== ====== =======
1996:
Allowance for doubtful accounts $2,305 $ 655 $ - $1,151 (A) $ 1,809
====== ======= ==== ====== =======
Reserve for customer returns and deductions $1,721 $ 34 $ - $ 867 (B) $ 888
====== ======= ==== ====== =======
Reserve for inventory obsolescence $2,421 $ 2,216 $ - $2,408 (C) $ 2,229
====== ======= ==== ====== =======
1995:
Allowance for doubtful accounts $2,510 $ 916 $ - $1,121 (A) $ 2,305
====== ======= ==== ====== =======
Reserve for customer returns and deductions $1,267 $ 735 $ - $ 281 (B) $ 1,721
====== ======= ==== ====== =======
Reserve for inventory obsolescence $3,530 $ 1,778 $ - $2,887 (C) $ 2,421
====== ======= ==== ====== =======
</TABLE>
(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 the acquisition of Sallmetall.
F-28
<PAGE>
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 15, 1998, 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 . . . . . . . . . . "ADDITIONAL INFORMATION - Certain
Relationships and Related
Transactions"
19
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
(a) Documents filed as part of the Report
1. Financial Statements: Pages
-----
Report of Independent Accountants F-1
Consolidated Statements of Income
for the fiscal years 1997, 1996
and 1995 F-2
Consolidated Balance Sheets,
November 30, 1997 and
December 1, 1996 F-3
Consolidated Statements of
Stockholders' Equity for the
fiscal years 1997, 1996
and 1995 F-4
Consolidated Statements of
Cash Flows for the fiscal years
1997, 1996, and 1995 F-5
Notes to Consolidated Financial
Statements F-6-27
2. Financial Statement Schedule:
II. Valuation and Qualifying
Accounts for the fiscal years
1997, 1996 and 1995 F-28
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.
20
<PAGE>
3. Exhibits:
(2) Plans of acquisition and disposition:
(a) Share Purchase Agreement dated as of March 28, 1997
by and among Seal Products Subsidiary, Inc. and the
various shareholders of Sallmetall B. V. (incorp. by
ref. to Ex. 2 to Form 8-K as of March 28, 1997).
(b) Asset Purchase Agreement dated October 6, 1997 by
and among HON Industries, Inc., AHC, Inc., the
Company, and Bevis Custom Furniture, Inc. (incorp.
by ref. to Ex. 2 to Form 8-K as of November 13,
1997).
(3) Articles of incorporation and bylaws:
(a) Restated Articles of Incorporation, as amended
(composite) (filed herewith) (reference also is made
to Exhibit 4(C) below for the Designation of Powers,
Preferences, Rights and Qualifications of Preferred
Stock).
(b) By-laws, as amended (incorp. by ref. to Ex. 3(b) to
Form 10-Q for quarter ended May 28, 1995).
(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) (1) Credit Agreement dated December 19, 1995 between
the Company and NationsBank, N. A. (incorp. by ref.
to Ex. 9(b) to the Company's Schedule 13E-4 filed
with the SEC on December 21, 1995 (the "1995
Schedule 13E-4"); (2) Amendment dated as of February
1, 1996 to Credit Agreement (incorp. by ref. to Ex.
(4)(a)(2) to fiscal 1995 Form 10-K); and (3)
Amendment dated as of February 26, 1996 to Credit
Agreement (incorp. by ref. to Ex. (4)(a)(3) to
fiscal 1995 Form 10-K); (4) Amendment dated as of
August 1, 1996 to Credit Agreement (incorp. by ref.
to Ex. 4.1 to Form 10-Q for quarter ended September
1, 1996).
(c) (1) Rights Agreement dated as of August 8, 1990
(including as Exhibit A thereto the Designation of
Powers, Preferences, Rights and Qualifications of
Preferred Stock), between the Company and Mellon
Bank (East), N. A., as original Rights Agent
(incorp. by ref. to Ex. 4.1 to August 1990 Form
8-K); and (2) Assignment and Assumption Agreement
dated December 2, 1991, with American Stock Transfer
and Trust Company, as successor Rights Agent
(incorp. by ref. to Ex. 4(d) to fiscal 1991 Form
10-K).
Miscellaneous long-term debt instruments and credit
facility agreements of the Company, under which the
underlying authorized debt is equal to less than 10%
of the total assets of the Company and its
subsidiaries on a consolidated basis, may not be
filed as exhibits to this report. The Company agrees
to furnish to the Commission, upon request, copies
of any such unfiled instruments.
21
<PAGE>
(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 1994 Form 10-K).
(b) 1983 Stock Option and Stock Grant Plan, as amended,
of the Company (incorp. by ref. to Ex. 10(C) to
fiscal 1996 Form 10-K).**
(c) 1993 Stock Option and Stock Grant Plan of the
Company, as amended (incorp. by ref. to Ex. 10 to
Form 10-Q for quarter ended June 1, 1997).**
(d) Form of Stock Grant Agreement between the Company
and Messrs. Carney, Chandler, O'Meara and Precious
(incorp. by ref. to Ex. 10(f) to fiscal 1995 Form
10-K).**
(e) 1994 Non-Employee Directors' Stock Option Plan
(incorp. be ref. to Ex. 10(f) to fiscal 1993 Form
10-K).**
(f) 1997 Non-Employee Director Compensation Plan (filed
herewith).**
(g) (1) Form of Change in Control Agreement between the
Company and various officers of the Company (incorp.
by ref. to Ex. 10(I) to fiscal 1994 Form 10-K)** and
(2) list of executive officers who are parties
(incorp. by ref. to Ex. 10(h) to fiscal 1996 Form
10-K).**
(h) Employment-Severance Agreement between the Company
and William E. Chandler (incorp. by ref. to Ex.
10(j) to fiscal 1993 Form 10-K).**
(i) (1) Supplemental Executive Benefits Plan of the
Company, effective January 1, 1995, and (2) related
Amended and Restated Trust Agreement, effective
January 1, 1995 (incorp. by ref. to Ex. 10(j) to
fiscal 1996 Form 10-K).**
(j) Employment-Severance arrangements with Robert B.
Fritsch (incorp. by ref. To Ex. 10(k) to fiscal 1996
Form 10-K).**
(k) 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).**
(11) Statement re: computation of per share earnings (filed
herewith).
(21) Subsidiaries (filed herewith).
(23) Consent of Coopers & Lybrand L.L.P. to incorporation by
reference in Registration Statements Nos. 33-70660,
33-25947, 33-6359, 2-83144, 33-57105, and 33-57103 on
Form S-8 of their report on the consolidated financial
statements and schedule included in this report (filed
herewith).
(27) Financial Data Schedule (filed herewith).
22
<PAGE>
- ----------
* Reference also is made to (1) Articles 5th, 6th, 7th, and 8th of the
Company's composite Articles of Incorporation (ex. 3(a) to this report)
and (2) to Sections 1, 7, and 8 of the Company's By-laws (Ex. 3(b) to
this report).
** Indicates a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
During the fourth quarter of 1997, the Company filed a Report
on Form 8-K with the Securities and Exchange Commission, reporting the Company's
sale of its Bevis office furniture business.
23
<PAGE>
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 25 , 1998 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 25, 1998
- ------------------------------------
Donald L. Thompson
Chairman, President and
Chief Executive Officer
\s\ William E. Chandler February 25, 1998
- ------------------------------------
William E. Chandler
Senior Vice President,
Finance (Principal Financial Officer)
\s\ Donald Belcher February 25, 1998
- ------------------------------------
Donald Belcher
Director
\s\ Jack Farber February 25, 1998
- ------------------------------------
Jack Farber
Director
\s\ William F. Hamilton, Ph.D. February 25, 1998
- ------------------------------------
William F. Hamilton, Ph.D.
Director
\s\ Mary R. Henderson February 25, 1998
- ------------------------------------
Mary R. (Nina) Henderson
Director
24
<PAGE>
\s\ Gordon A. MacInnes February 25, 1998
- ------------------------------------
Gordon A. MacInnes
Director
- ------------------------------------ February , 1998
Wilson D. McElhinny
Director
\s\ Robert H. Rock February 25, 1998
- ------------------------------------
Robert H. Rock
Director
\s\ Roderic H. Ross February 25, 1998
- ------------------------------------
Roderic H. Ross
Director
\s\ Victoria B. Vallely February 25, 1998
- ------------------------------------
Victoria B. Vallely
Director
\s\ John Fanelli III February 25, 1998
- ------------------------------------
John Fanelli III
Vice President, Corporate Controller
(Principal Accounting Officer)
25
<PAGE>
EXHIBIT INDEX
(of Exhibits filed herewith)
(3) Restated Articles of Incorporation, as amended (composite).
(10)(f) 1997 Non-Employee Director Compensation Plan.
(11) Statement re: computation of per share earnings.
(21) Subsidiaries.
(23) Consent of Coopers & Lybrand L.L.P.
(27) Financial Data Schedule.
<PAGE>
Exhibit 3(a)
Composite
Restated Articles of Incorporation
as amended (through October 9, 1997)
of
HUNT CORPORATION
1st. The name of the corporation is Hunt Corporation.
2nd. The location and post office address of its registered
office in the Commonwealth of Pennsylvania is 1405 Locust Street, Philadelphia,
Pennsylvania.
3rd. The corporation shall have unlimited power to engage in
or to do any lawful act concerning any or all lawful business for which
corporations may be incorporated under the Act of May 5, 1933, P.L. 364, as
amended.
The corporation is organized under the Act of May
5, 1933, P.L. 364, as amended.
4th. The term of which it is to exist is perpetual.
5th. The aggregate number of shares which the Corporation
shall have authority to issue is: 41,000,000 shares, dividend into 1,000,000
Preferred Shares of the par value of $.10 per share, and 40,000,000 Common
Shares of the par value of $.10 per share.
A description of the shares of each class and a statement of
the preferences, qualifications, limitations, restrictions, and the special or
relative rights granted to or imposed upon the shares of each class, except such
thereof as the Board of Directors is authorized to fix, as hereinafter provided,
is as follows:
I. PREFERRED SHARES
The Preferred Shares may be divided into and issued in series,
each series to be so designated as to distinguish the shares thereof from the
shares of all other series and classes. The Board of Directors of the
Corporation shall have authority, by resolution, to divide any or all of the
Preferred Shares into one or more series and, with respect to each series to
establish and, prior to the issue thereof, to fix and determine a distinguishing
designation therefor and to fix and determine:
(a) the rate at which dividends on the shares shall be
declared and paid or set aside for payment; whether dividends at the
rate so determined shall be cumulative and if so from what date or
dates and on what terms; and whether the shares shall be entitled to
any participating or other
<PAGE>
dividends in addition to dividends at the rate so determined, and if
so on what terms;
(b) whether or not the shares shall have voting rights, in
addition to the voting rights provided by law, and if so, the terms and
conditions thereof;
(c) whether the shares shall have conversion privileges and,
if so, the terms and conditions of such conversion, including
provisions for any adjustment of the conversion rate;
(d) whether or not the shares shall be redeemable, and, if so,
the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
(e) whether any shares shall be redeemed through sinking fund
payments, and, if so, on what terms;
(f) the rights of the shares of each series in the event of
voluntary or involuntary liquidation, dissolution, winding up or
distribution of the assets of the Corporation; and
(g) any other relative rights, preferences and limitations of
each series.
II. COMMON SHARES
Except as expressly provided by law or by resolution of the
Board of Directors pursuant to the authority granted under Article 5 I hereof,
all voting rights shall be vested in the holders of the Common Shares.
6th. The number of directors which shall constitute the whole
board of directors of the corporation shall be the number from time to time
fixed by the by-laws of the corporation, and such number of directors so fixed
in such by-laws may be changed only upon the affirmative vote of (i) the holders
of at least 70% of all the securities of the corporation then entitled to vote
on such change, or (ii) two-thirds of the directors in office at the time of the
vote.
At the time of the corporation's annual meeting of
stockholders in 1982, the Board of Directors shall be divided into three
classes: Class I, Class II and Class III. Such classes shall consist of, as
nearly as possible, equal numbers of directors. The term of office of the
initial Class I directors shall expire at the regular annual meeting of
stockholders in 1983; the term of office of the initial Class II directors shall
expire at the regular annual meeting of stockholders in 1984,
<PAGE>
and the term of office of the initial Class III directors shall expire at the
regular annual meeting of stockholders in 1985, or in each case when their
respective successors are thereafter elected and qualified. At each annual
election held after 1982, the directors chosen to succeed those whose terms are
expiring shall be identified as being of the same class of directors as those
whom they succeed and shall be elected for a term expiring at the third
succeeding regular annual meeting of stockholders after their election or in
each case when their respective successors are thereafter elected and qualified.
In the event of any increase or decrease in the authorized
number of directors, (i) each director then serving as such shall nevertheless
continue as a director of the class of which he is a member until the expiration
of his current term and (ii) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the Board of
Directors among the three classes of directors so as to maintain such classes as
nearly equal in number as possible. Subject to Sections 4.05(B) and 4.05(C) of
the Pennsylvania Business Corporation Law, any director may be removed with or
without cause only upon the affirmative vote of the holders of at least 70% of
all of the securities of the corporation entitled to vote for the election of
directors; provided that no director shall be removed unless the entire class of
the Board of which the director is a member is removed in any case where the
votes cast against the resolution for said director's removal represent a number
of shares sufficient, if cumulatively voted at an annual election of directors,
to elect one or more directors to the class of [which] the director is a member.
Should a vacancy occur or be created, whether arising through
death, resignation or removal (otherwise than by vote of the voting stockholders
of the corporation, as provided above) of a director or through an increase in
the number of directors of any class (effected otherwise than by vote of the
voting stockholders of the corporation, as provided above), such vacancy shall
be filled by a majority vote of the remaining directors of the class in which
such vacancy occurs or by the sole remaining director of that class if only one
such director remains or by a majority vote of the remaining directors of the
other two classes if there be no remaining member of the class in which the
vacancy occurs. In all other cases any such vacancy shall be filled by vote of
the voting stockholders of the corporation. A director so elected to fill a
vacancy shall serve for the remainder of the then present term of office of the
class to which he was elected.
(A) The affirmative vote of the holders of at least 70% of all
of the securities of the corporation entitled to vote shall, except as provided
in paragraph (B) of this Article 7th, be required in order for any of the
following actions or transactions to be effected by the corporation, or approved
by the corporation as stockholder of any subsidiary of the corporation:
<PAGE>
(i) any merger or consolidation of the corporation or
any of its subsidiaries with or into a Related Person (as
hereinafter defined) or any affiliate, subsidiary or associate
(as each of said terms is defined in the Securities Exchange
Act of 1934 and the rules and regulations promulgated
thereunder) of a Related Person, or
(ii) any sale, lease, exchange or other disposition
of all or any substantial part of the assets of the
corporation or any of its subsidiaries to or with a Related
Person or any affiliate, subsidiary or associate of a Related
Person, or
(iii) any issuance or delivery by the corporation of
any voting securities (or any securities or other instruments
convertible into voting securities) of the corporation or any
of its subsidiaries (other than securities issued or delivered
by the corporation pursuant to (a) any present or future stock
option plan or other stock plan created for the benefit of the
officers and employees of the corporation or any of its
subsidiaries or (b) any underwritten public offering) to a
Related Person or any affiliate, subsidiary or associate of a
Related Person in exchange for cash, other assets or
securities, or any combination thereof, or
(iv) any dissolution of the corporation.
(B) The vote of the securityholders specified in paragraph (A)
of this Article 7th shall not apply to any action or transaction specified in
such paragraph if:
(i) such action or transaction is approved in advance by a majority of the
"Continuing Directors" (said term to mean and include all directors of the
corporation then in office who were duly elected prior to the time the person,
corporation or entity involved in such action or transaction (either directly or
with or through any affiliates, subsidiaries or associates) became a Related
Person, and all directors of the corporation elected as such at the annual
meeting of securityholders at which this Article 7th was adopted) or (ii) such
action or transaction involves solely the corporation and one or more
subsidiaries of the corporation, or involves solely two or more subsidiaries of
the corporation (provided that none of the stock of any such subsidiary involved
is directly or indirectly beneficially owned by a Related Person (other than
such ownership arising solely because of ownership interests in the
corporation)), and, in the case of a merger, the corporation is the surviving
corporation or a subsidiary of the corporation is the surviving corporation and
following such merger the certificate or articles of incorporation of such
subsidiary contain provisions substantially the same as those in Articles 6th,
7th and 8th of these Articles of Incorporation.
<PAGE>
(C) In determining whether or not to approve or recommend the
approval of any transaction of the type enumerated in items (i), (ii) or (iii)
of paragraph (B) above, whether or not involving (directly or indirectly) a
Related Person, or any other transaction having a similar major effect upon the
properties, operations or control of the Company, the Board of Directors or the
Continuing Directors, as the case may be, shall be entitled to consider, as
separate and independent factors, with such relative weights as they may assign,
the following:
(i) the character, integrity, business philosophy and
financial status of the other party or parties to the
transaction;
(ii) the consideration to be received by the corporation or
its securityholders in connection with such transaction, as compared to
(a) the current market price or value of the
corporation's properties or securities;
(b) the value of the corporation, its properties or
securities in a freely negotiated transaction;
(c) the estimated future value of the corporation,
its properties or securities;
(d) such other measures of the value of the
corporation, its properties or securities as the directors may
deem appropriate;
(iii) the projected social, legal and economic effects of the
proposed action or transaction upon employees, suppliers and customers
of the corporation and the communities where the corporation does
business;
(iv) the general desirability of the corporation's
continuing as an independent entity; and
(v) such other factors as they may deem relevant.
(D) The term "Related Person" as used herein shall mean and include any
individual, corporation, partnership or other person or entity which, together
with its affiliates and associates and any other person or entity with which it
or its affiliates or associates has any agreement, arrangement or understanding,
directly or indirectly, for the purpose of acquiring, holding, voting or
disposing of voting securities of the corporation, directly or indirectly
beneficially owns 5% or more in the aggregate of the outstanding voting
securities of the corporation. A majority of the Continuing Directors then in
<PAGE>
office shall have the power and the duty to determine for purposes of this
Article 7th, on the basis of information then known to them, who shall
constitute a Related Person and its affiliates, subsidiaries and associates. Any
such determination by the Continuing Directors shall be conclusive and binding
for all purposes.
8th The provisions set forth in this Article 8th and in Articles 6th
and 7th herein may not be repealed or amended in any respect unless such action
is approved by the affirmative vote of the holders of at least 70% of all of the
securities of the corporation entitled to vote thereon.
<PAGE>
Exhibit 10(f)
HUNT CORPORATION
NON-EMPLOYEE DIRECTOR COMPENSATION PLAN
Article I - Purpose
This HUNT CORPORATION NON-EMPLOYEE DIRECTOR COMPENSATION PLAN
(the "Plan"), effective June 25, 1997, is intended to provide a means whereby
HUNT CORPORATION (the "Company") may compensate its Non-Employee Directors (as
defined in Article III), not only through cash fees but also through the grants
of shares ("Stock Grants") of common stock of the Company ("Common Shares") and
of non-qualified stock options to purchase such Common Shares ("Options") in
order to attract and retain capable independent directors and to motivate such
independent directors to promote the best interests of the Company and its
affiliates.
Article II - Administration
The Plan shall be administered by the Company's Compensation
Committee, which shall consist of not less than three "non-employee directors"
of the Company (within the meaning of Rule 16b-3(b)(3) under the Securities
Exchange Act of 1934, as amended, or any successor thereto) and who shall be
appointed by, and shall serve at the pleasure of, the Company's Board of
Directors (the "Board"). Each member of such Committee, while serving as such,
shall be deemed to be acting in his or her capacity as a director of the
Company.
The Committee shall have full authority, subject to the terms
of the Plan, to administer the Plan in accordance with its terms, but shall have
no discretion with respect to the selection of Non-Employee Directors to receive
cash fees, Stock Grants, and Options, the number of Common Shares subject to the
Plan, setting the purchase price for Common Shares subject to Stock Grants and
Options at other than Fair Market Value (as defined in Section 5.1), the method
or methods for determining the amount of cash fees, Stock Grants, or Options to
be awarded to each Non-Employee Director, or the timing of payment, grants, or
awards hereunder. Subject to the foregoing, the Committee may correct any
defect, supply any omission, and reconcile any inconsistency in the Plan and in
any Stock Grant or Option granted hereunder in the manner and to the extent it
shall deem desirable. The Committee also shall have the authority to establish
such rules and regulations, not inconsistent with the provisions of the Plan,
for the proper administration of the Plan, to amend, modify, or rescind any such
rules and regulations, and to make such determinations and interpretations
under, or in connection with, the Plan, as it deems necessary or advisable. All
such rules, regulations, determinations, and interpretations shall be binding
and conclusive upon the Company, its shareholders, and all directors, officers,
and employees and
-1-
<PAGE>
former directors, officers, and employees of the Company, their respective legal
representatives, beneficiaries, successors, and assigns, and all other persons
claiming under or through any of them.
No member of the Board or the Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
Stock Grant or Option granted hereunder.
Article III - Participation
Each director of the Company who is a Non-Employee Director
shall be eligible to participate and shall participate in the Plan on the date
he or she becomes a Non-Employee Director. As used herein, "Non-Employee
Director" shall mean a director who is not, and during the immediately preceding
12-month period has not been, an employee of the Company or of any corporate
parent or subsidiary of the Company.
Article IV - Cash Fees
Section 4.1. Retainer Fee. Effective July 1, 1997, each
Non-Employee Director shall be entitled to receive a fee of $1,250 in cash as of
the last day of each quarter of the Company's fiscal year ("fiscal quarter"),
provided he or she is a Non-Employee Director on such day.
Section 4.2 Meeting Fees. In addition to the fees described in
Section 4.1, the following cash fees shall be paid to each Non-Employee
Director:
(a) $1,000 for each Board meeting attended by such
Non-Employee Director;
(b) $1,250 for each committee meeting chaired by
such Non-Employee Director; and
(c) $1,000 for each other committee meeting
attended by such Non-Employee Director.
The fees described in this Section 4.2 shall be paid as soon as practicable
after the date on which the applicable meeting occurs.
Article V - Stock Grants
Section 5.1. Stock Grants. Each Non-Employee Director shall be
entitled to receive a Stock Grant consisting of Common Shares with a Fair Market
Value of $6,000 as of June 25, 1997, and as of the date of each April and
October meeting of the Committee for each year after 1997, provided he or she is
a Non-Employee Director on such date.
-2-
<PAGE>
For purposes of the Plan, "Fair Market Value" shall mean:
(a) If the principal market for the Common Shares
is a registered securities exchange, the mean between the highest and
lowest quoted selling prices of such Common Shares on the date of
grant, or, if there are no such reported sales on that date but there
are sales on dates within a reasonable period both before and after the
date of grant, the weighted average of the means between the highest
and lowest sales on the nearest date before and the nearest date after
the date of grant; or
(b) Such other method of determining fair market
value as shall be authorized by the Code, or the rules and
regulations thereunder, and adopted by the Committee.
Section 5.2. Deferral Elections. A Non-Employee Director who
is entitled to receive a Stock Grant under Section 5.1 may elect in writing, at
any time prior to the beginning of the Non-Employee Director's taxable year in
which such Stock Grant is to be made, to defer receipt of the Common Shares
subject to such Stock Grant until the earlier of a date specified in such
election (the "Deferral Date") or the date on which he or she ceases to be a
Non-Employee Director; provided, however, that the Deferral Date must be at
least six months after the date on which the Stock Grant would otherwise be
payable under ss.5.1.
Section 5.3. Deferral Accounts. In the event a Non-Employee
Director makes an election under Section 5.2 to defer the receipt of Common
Shares subject to a Stock Grant, an amount equal to the Fair Market Value of
Common Shares subject to such Stock Grant shall be credited to the Non-Employee
Director's Deferral Account as of the date such Common Shares would otherwise
have been delivered to such Non-Employee Director. Any amounts credited to a
Non-Employee Director's Deferral Account shall be merely book entries, and no
assets shall be held in such Deferral Account.
Section 5.4. Grantor Trust. In the event a Non-Employee
Director makes an election under Section 5.2 to defer the receipt of Common
Shares subject to a Stock Grant, Common Shares equal to the number of Common
Shares subject to such election shall be set aside by the Company in a grantor
trust (the "Trust") under the Hunt Corporation Non-Employee Director
Compensation Plan Trust Agreement (the "Trust Agreement"). Under the provisions
of Section 5 of the Trust Agreement, dividends on Common Shares held by the
Trust shall be invested in a money market fund selected by the trustee of the
Trust.
-3-
<PAGE>
Section 5.5. Adjustment of Deferral Account for Income or
Loss. As of the last day of each fiscal year of the Company, or as of each other
date on which the amounts credited to a Non-Employee Director's Deferral Account
are to be determined (a "Valuation Date"), there shall be credited or debited to
such Account an amount equal to the income (or loss) of the Trust since the
preceding Valuation Date to reflect any dividends paid on the Common Shares
contributed to the Trust as a result of such Non-Employee Director's deferral
election, as described in Section 5.4, and any earnings or losses of the Trust
attributable to the investment of such dividends (or to the investment of any
assets substituted by the Company for such Common Shares under Section 5 of the
Trust Agreement). In no event, however, shall the balance of a Non-Employee
Director's Deferral Account be less than the Fair Market Value of his or her
deferred Common Shares as of the Valuation Date.
Section 5.6. Distribution of Deferral Account. As of the
earlier of the date specified in the Non-Employee Director's deferral election
under Section 5.2 or the date on which he or she ceases to be a Non-Employee
Director, the Company shall distribute to the Non-Employee Director the Common
Shares deferred under Section 5.2, plus, if the amount credited to his or her
Deferral Account as of such date exceeds the Fair Market Value of such Common
Shares, an amount in cash equal to such excess.
Section 5.7. Designation of Beneficiary. A Non-Employee
Director shall have the right to designate a beneficiary or beneficiaries to
receive any benefits under this Article V which may become payable upon the
death of such Non-Employee Director.
Section 5.8. Benefits Unfunded. Nothing contained in this
Article V and no action taken pursuant to the provisions of this Article V shall
create or be construed to create a trust of any kind, or a fiduciary
relationship between the Company and the Non-Employee Director, his or her
designated beneficiary, or any other person. Any funds which may be invested
under the provisions of this Article V shall continue for all purposes to be a
part of the general funds of the Company, and no person other than the Company
shall by virtue of the provisions of this Article V have any interest in such
funds. To the extent that any person acquires a right to receive payments from
the Company under this Article V, such right shall be no greater than the right
of an unsecured creditor of the Company.
-4-
<PAGE>
Article VI - Stock Options
Section 6.1. Granting of Options. As of June 25, 1997, the
Company shall grant to each individual who is a Non-Employee Director on such
date an Option to purchase 1,000 Common Shares, subject to the terms and
conditions described in this Article VI. As of the date of the June meeting of
the Committee for 1998 and each year thereafter, the Company shall grant to each
individual who is a Non-Employee Director on such date an Option to purchase
2,000 Common Shares, subject to the terms and conditions of this Article VI.
Section 6.2. Price. The exercise price of each Option granted
under ss.6.1 shall be equal to 100 percent of the Fair Market Value of the
optioned Common Shares on the date the Option is granted.
Section 6.3. Term. Subject to earlier termination as provided
in Section 6.6 below, the term of each Option granted under Section 6.1 shall be
ten years from the date of grant.
Section 6.4. Exercise. Options granted under Section 6.1 shall
become exercisable two years from the date of grant.
Any Common Shares the right to the purchase of which has
accrued under an Option may be purchased at any time up to the expiration or
termination of the Option. Exercisable Options may be exercised, in whole or in
part, from time to time by giving written notice of exercise to the Company at
its principal office, specifying the number of Common Shares to be purchased and
accompanied by payment in full of the aggregate Option exercise price for such
Common Shares. Only full Common Shares shall be issued under the Plan, and any
fractional Share which might otherwise be issuable upon the exercise of an
Option shall be forfeited.
Section 6.5. Manner of Payment. The Option price shall be
payable:
(a) In cash or its equivalent;
(b) In whole or in part through the surrender or
delivery of Common Shares previously acquired by the Optionee;
(c) By delivering a properly executed notice of
exercise of the Option to the Company and a broker, with irrevocable
instructions to the broker promptly to deliver to the Company the
amount of sale or loan proceeds necessary to pay the exercise price of
the option; or
(d) In any combination of the above methods.
-5-
<PAGE>
In the event such purchase price is paid, in whole or in part, with Common
Shares, the portion of the purchase price so paid shall be equal to the Fair
Market Value, on the date of exercise of the Option, of the Common Shares
surrendered or delivered in payment of such purchase price.
Section 6.6. Termination of Service. If a Non-Employee
Director ceases to be a Non-Employee Director prior to the expiration date of
his or her Option for any reason, his or her then outstanding Option shall
remain outstanding and shall continue to become exercisable in accordance with
its terms (except that if such cessation is due to death, such then outstanding
Option shall immediately accelerate and become exercisable in full), but only
for a period of one year following such cessation as a Non-Employee Director or
until the earlier expiration of the stated term of such Option or its earlier
termination pursuant to Section 7.3.
Section 6.7. Rights as Shareholder. A Non-Employee Director
shall have no rights as a shareholder with respect to any Common Shares covered
by his or her Option until the issuance of a stock certificate to him or her for
such Common Shares.
Section 6.8. Option Agreements. Options granted under this
Article VI shall be evidenced by written documents ("Option Agreements") in such
form as the Committee shall from time to time approve and shall contain such
provisions, not inconsistent with the terms of the Plan, as the Committee shall
deem advisable. Each Non-Employee Director who receives Options hereunder shall
enter into and be bound by the terms of the Option Agreements.
Section 6.9. Nontransferability. No Option shall be assignable
or transferable by the Non-Employee Director otherwise than by will or by the
laws of descent and distribution, and during the lifetime of the Non-Employee
Director, any Options shall be exercisable only by the Non-Employee Director or
by his or her guardian or legal representative. If a Non-Employee Director is
married at the time of exercise of an Option and if the Non-Employee Director so
requests at the time of exercise, the certificate or certificates issued shall
be registered in the name of the Non-Employee Director and his or her spouse,
jointly, with right of survivorship.
Section 6.10. Sign-On Option Award. The Options described in
the foregoing provisions of this Article VI shall be in addition to any
non-qualified stock options to which the Non-Employee Director may be entitled
under the terms of the Company's 1994 Non-Employee Directors' Stock Option Plan.
Article VII - Miscellaneous
Section 7.1. Treasury Shares. All Common Shares issuable under
the Plan shall be treasury shares.
-6-
<PAGE>
Section 7.2. Minimum Stock Ownership Requirement. Each
Non-Employee Director shall, as a condition of his or her continued
participation in this Plan, be required to own Common Shares with a Fair Market
Value at least equal to two times the sum of:
(a) The annual amount of fees to which he or she is
entitled under Section 4.1; plus
(b) The annual dollar amount of Stock Grants to
which he or she is entitled under Section 5.1.
This minimum stock ownership requirement must be met within three years from the
date the Plan is adopted or within three years from the date the individual
becomes a Non-Employee Director, if later.
Section 7.3. Capital Adjustments, Acceleration, and
Cancellation of Options. The number of Common Shares to which Non-Employee
Directors are entitled under Section 5.1 and Section 6.1, the number of Common
Shares issuable upon exercise of outstanding Options under the Plan (as well as
the purchase price for such Common Shares), and the number of deferred Common
Shares issuable under Section 5.6 shall, in accordance with the provisions of
Code Section 424, be adjusted proportionately to reflect any stock dividend,
stock split, share combination, or similar change in the capitalization of the
Company. In the event of a corporate transaction (as that term is described in
Code Section 424(a) and the Treasury regulations issued thereunder, such as, for
example, a merger, consolidation, acquisition of property or stock, separation,
reorganization, or liquidation), if provision is not made for the continuance
and assumption of Options and of rights to deferred Common Shares under the
Plan, or the substitution for such Options and rights to deferred Common Shares
of new Options and similar rights relating to securities or other property to be
delivered in connection with the transaction, all deferred Common Shares (and
other amounts described in Section 5.6) shall become immediately payable, and
all unexercised Options shall accelerate and become fully exercisable, but all
unexercised Options shall terminate on the day immediately prior to the
consummation of such corporate transaction. The Committee shall give the holders
of outstanding Options not less than ten days' prior written notice of any such
acceleration and termination pursuant to this Section 7.3, and such outstanding
Options thereafter may be exercised in whole or in part up to and including the
date of such termination or until their earlier stated expiration date or their
earlier termination pursuant to Section 6.6.
Section 7.4. Listing and Registration of Common Shares. Each
Option and each Stock Grant under the Plan shall be subject to the requirement
that, if at any time the Board shall determine, in its discretion, that the
listing, registration, or qualification of the Common Shares covered thereby
upon any securities exchange or under the laws of any jurisdiction, or the
consent or approval of any regulatory body, is necessary or desirable as a
condition of, or in
-7-
<PAGE>
connection with, the granting of an Option or receipt of a Stock Grant, then no
such Option may be exercised in whole or in part, and no certificate
representing Common Shares shall be issued pursuant to such Stock Grant, unless
and until such listing, registration, qualification, consent, or approval shall
have been effected or obtained, on conditions acceptable to the Board. Each
Non-Employee Director, or his or her legal representative or beneficiaries, also
may be required to give satisfactory assurance that Common Shares purchased upon
the exercise of an Option or received pursuant to a Stock Grant are being
acquired for investment and not with a view to distribution, and certificates
representing such Common Shares may be legended accordingly.
Section 7.5. Amendment or Discontinuance of Plan. The Board
may amend, suspend, or terminate the Plan at any time and from time to time,
provided that no such amendment, suspension, or termination shall materially
impair the rights of a Non-Employee Director with regard to any outstanding
Option or with regard to any deferred Stock Grant. In addition, the Committee
may, in its discretion, from time to time amend the Plan to adjust the dollar
amounts and/or numbers of Common Shares described in Section 4.1, Section 4.2,
Section 5.1, and Section 6.1. Notwithstanding the foregoing, no amendment to the
Plan shall be made if such amendment would cause the terms and conditions of
Stock Grants made pursuant to Article V or of Options granted pursuant to
Article VI to fail to be fixed in advance, within the meaning of Securities and
Exchange Commission interpretations under section 16(b) of the Securities
Exchange Act of 1934.
Section 7.6. Governing Law. The Plan and any Option Agreements
entered into thereunder shall be governed by applicable Federal law and
otherwise by the laws of the Commonwealth of Pennsylvania.
-8-
<PAGE>
Exhibit 11
Computation of Per Share Earnings
(In thousands except per share amounts)
<TABLE>
<CAPTION>
November 30, December 1, December 3,
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Income (loss) from continuning operations
before extraordinary item ($ 6,062) $ 10,473 $ 11,897
Income from discontinued operations,
net of income taxes 4,153 4,746 3,438
Gain on disposal of discontinued businesses,
net of income taxes 15,961 -- --
Extraordinary loss on early extinquishment
of debt, net of income tax benefit of $134 -- (251) --
-------- -------- --------
Net income $ 14,052 $ 14,968 $ 15,335
======== ======== ========
Primary per share earnings
Average number of common shares
outstanding 11,079 11,462 16,003
Add - common equivalent shares representing
shares issuable upon excercise of stock options
and stock grants 390 187 161
-------- -------- --------
Average shares used to calculate
primary per share earnings 11,469 11,649 16,164
======== ======== ========
Earnings (loss) per common share:
Earnings (loss) from continuing operations (0.53) 0.89 0.74
Income from discontinued operations 0.36 0.41 0.21
Gain on sale of discontinued operations 1.39 -- --
Extraordinary loss on early extinguishment of debt -- (0.02) --
-------- -------- --------
Net earnings per share - primary 1.22 1.28 0.95
======== ======== ========
Fully diluted per share earnings
Average number of common shares outstanding 11,079 11,462 16,003
Add - common equivalent shares representing
shares issuable upon excercise of stock options
and stock grants 432 215 172
-------- -------- --------
Average shares used to calculate fully diluted
per share earnings 11,511 11,677 16,175
======== ======== ========
Earnings (loss) per common share:
Earnings (loss) from continuing operations (0.53) 0.89 0.74
Income from discontinued operations 0.36 0.41 0.21
Gain on sale of discontinued operations 1.39 -- --
Extraordinary loss on early extinguishment of debt -- (0.02) --
-------- -------- --------
Net earnings per share - fully diluted 1.22 1.28 0.95
======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES
OF
HUNT CORPORATION
Hunt Holdings, Inc., a Delaware Corporation
Hunt X-Acto, Inc., a Pennsylvania Corporation
Huntgraphics Americas Corporation, a Delaware Corporation
Hunt Graphics Europe Limited, a United Kingdom Corporation
Hunt Graphics Europe B.V., a Netherlands Corporation
The Company holds all of the outstanding capital stock of Hunt Holdings, Inc.
Hunt Holdings, Inc., in turn, holds all of outstanding capital stock of Hunt
X-Acto, Inc., Huntgraphics Americas Corporation, Hunt Graphics Europe Limited,
and Hunt Graphics Europe B. V.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements Nos.
33-57103, 33- 57105, 33-70660, 33-25947, 33-6359, and 2-83144 on Forms S-8 dated
December 28, 1994, December 28, 1994, October 21, 1993, December 7, 1988, June
29, 1986 and April 8, 1983, respectively, of our report dated January 28, 1998
on our audits of the consolidated financial statements and financial statement
schedule of Hunt Corporation (formerly Hunt Manufacturing Co.) and Subsidiaries
as of November 30, 1997 and December 1, 1996 and for the three years in the
period ended November 30, 1997, which report is included in this Annual Report
on Form 10-K.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
February 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF HUNT CORPORATION
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<CASH> 65,449
<SECURITIES> 0
<RECEIVABLES> 35,407
<ALLOWANCES> (1,842)
<INVENTORY> 20,152
<CURRENT-ASSETS> 130,324
<PP&E> 81,711
<DEPRECIATION> (38,738)
<TOTAL-ASSETS> 209,522
<CURRENT-LIABILITIES> 64,112
<BONDS> 54,096
0
0
<COMMON> 1,615
<OTHER-SE> 73,046
<TOTAL-LIABILITY-AND-EQUITY> 209,522
<SALES> 259,540
<TOTAL-REVENUES> 259,540
<CGS> 165,396
<TOTAL-COSTS> 165,396
<OTHER-EXPENSES> 97,767
<LOSS-PROVISION> 786
<INTEREST-EXPENSE> 4,382
<INCOME-PRETAX> (8,791)
<INCOME-TAX> (2,729)
<INCOME-CONTINUING> (6,062)
<DISCONTINUED> 20,114
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,052
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
</TABLE>
