<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For Quarter Ended Commission File Number:
OCTOBER 31, 1997 0-22717
---------------- -------
ACORN PRODUCTS, INC.
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-3265462
-------- ----------
(State of Incorporation) (IRS Employer Identification Number)
500 DUBLIN AVENUE
COLUMBUS, OHIO 43215
--------------------
(Address of principal executive offices)
(614) 222-4400
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address, and former fiscal year if
changed since last report.)
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 twelve (12) months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past ninety (90) days.
Yes X No
--- ---
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date.
6,464,105 shares of common stock, $.001 par value,
outstanding at December 5, 1997.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ACORN PRODUCTS, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 1, OCTOBER 31,
1997 1997
--------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash ................................................. $ 1,509 $ 1,359
Accounts receivable, less allowance for
doubtful accounts ($713 and $782 at August 1, 1997
and October 31, 1997, respectively) .............. 18,462 17,406
Inventories .......................................... 27,642 29,518
Prepaids and other current assets .................... $ 3,773 $ 2,449
-------- --------
Total current assets ............................... 51,386 50,732
Property, plant and equipment, net of
accumulated depreciation ........................... 15,650 16,238
Goodwill, net of accumulated amortization .............. 29,374 29,173
Other intangible assets ................................ $ 2,480 $ 3,032
-------- --------
Total assets ....................................... $ 98,890 $ 99,175
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility ............................ $ 12,837 $ 12,830
Accounts payable ..................................... 5,872 7,160
Accrued expenses ..................................... 4,707 4,492
Income taxes payable ................................. 350 16
Other current liabilities ............................ 711 714
-------- --------
Total current liabilities .......................... 24,477 25,212
Long-term debt ......................................... 6,098 6,098
Other long-term liabilities ............................ 4,496 4,419
Net liabilities of discontinued operations ............. 595 546
-------- --------
Total liabilities ................................. 35,666 36,275
Stockholders' equity:
Common stock, par value $.001 per share,
20,000,000 shares authorized, 6,464,105
shares issued and outstanding at August 1,
1997 and October 31,1997, respectively ............. 78,391 78,391
Contributed capital-stock options .................... 460 460
Minimum pension liability ............................ (133) (133)
Retained earnings (deficit) .......................... (15,494) (15,818)
-------- --------
Total stockholders' equity ......................... 63,224 62,900
-------- --------
Total liabilities and stockholders' equity ......... $ 98,890 $ 99,175
======== ========
</TABLE>
See accompanying notes.
2
<PAGE> 3
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATE)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
----------------------------
NOVEMBER 1, OCTOBER 31,
1996 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Net sales ..................................... $ 19,679 $ 20,416
Cost of goods sold ............................ 14,507 15,277
---------- ----------
Gross profit .................................. 5,172 5,139
Selling, general and administrative expenses .. 4,403 4,819
Interest expense .............................. 1,807 519
Amortization of intangibles ................... 201 218
Other expenses, net ........................... 51 41
---------- ----------
Income (loss) from continuing operations before
income taxes ................................ (1,290) (458)
Income taxes .................................. -- (134)
---------- ----------
Income (loss) from continuing operations ...... (1,290) (324)
Loss from discontinued operations ............. (985) --
---------- ----------
Net income (loss) ............................. $ (2,275) $ (324)
========== ==========
Per Share Data:
Income (loss) from continuing operations ...... $ (0.87) $ (0.05)
Loss from discontinued operations per share ... (0.66) --
---------- ----------
Net Income (loss) per share ................... $ (1.53) $ (0.05)
========== ==========
Weighted average shares outstanding ........... 1,490,826 6,464,105
</TABLE>
See accompanying notes.
3
<PAGE> 4
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
NOVEMBER 1, OCTOBER 31,
1996 1997
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................. $(2,275) $ (324)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) continuing operations:
Loss from discontinued operations ................................ 985 --
Depreciation and amortization .................................... 740 894
Issuance of stock options ........................................ 120 --
Changes in operating assets and liabilities:
Accounts receivable ............................................ (3,222) 1,056
Inventories .................................................... (3,528) (1,876)
Other assets ................................................... (2,745) 772
Accounts payable and accrued expenses .......................... 3,071 1,073
Income taxes payable ........................................... (1,218) (334)
Other liabilities .............................................. 1,555 (73)
------- -------
Net cash provided by (used in) continuing operations ............... (6,517) 1,188
Net cash provided by (used in) discontinued operations ............. 2,443 (49)
------- -------
Net cash provided by (used in) operating activities ................ (4,074) 1,139
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net .................... (437) (1,281)
------- -------
Net cash provided by (used in) investing activities ................ (437) (1,281)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net activity on revolving loan ..................................... 4,278 (8)
Issuance of stock .................................................. 77 --
------- -------
Net cash provided by (used in) financing activities ................ 4,355 (8)
------- -------
Net increase (decrease) in cash .................................... (156) (150)
Cash at beginning of period ........................................ 502 1,509
------- -------
Cash at end of period .............................................. $ 346 $ 1,359
======= =======
Interest paid ...................................................... $ 311 $ 362
======= =======
</TABLE>
See accompanying notes
4
<PAGE> 5
ACORN PRODUCTS, INC. AND SUBSIDIARIES
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Footnote disclosure which would substantially duplicate the disclosure
contained in the Annual Report on Form 10-K for the fiscal year ended
August 1, 1997 has not been included. The unaudited interim
consolidated financial statements reflect all adjustments that, in the
opinion of management, are necessary to present fairly the results of
operations of Acorn Products, Inc. and its consolidated subsidiaries
(the "Company") for the periods presented and to present fairly the
consolidated financial position of the Company as of October 31, 1997.
All such adjustments are of a normal recurring nature.
5
<PAGE> 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto and the
other financial information included elsewhere in this Quarterly Report on Form
10-Q, as well as the factors set forth under the caption "Forward Looking
Information" below.
FORWARD LOOKING INFORMATION
Statements in the following discussion that indicate the Company's or
management's intentions, hopes, beliefs, expectations or predictions of the
future are forward-looking statements. It is important to note that the
Company's actual results could differ materially from those projected in such
forward-looking statements. Additional information concerning factors that could
cause actual results to differ materially from those suggested in the
forward-looking statements is contained under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Company's Annual Report on Form 10-K for the year ended August 1, 1997, as well
as in the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on September 18, 1997, as the same may be amended from time
to time.
THREE MONTHS ENDED OCTOBER 31, 1997 COMPARED TO THREE MONTHS ENDED NOVEMBER 1,
1996
Net Sales. Net sales increased 3.7%, or $737,000, to $20.4 million in
the first quarter of fiscal 1998 compared to $19.7 million in the first quarter
of fiscal 1997. The increase in net sales reflected $1.6 million of net sales by
the Company's injection molding division, which was acquired in February 1997,
partially offset by a decline in net sales of snow tools and leaf rakes of
approximately $1 million.
Gross Profit. Gross profit remained flat at approximately $5.1 million
for the first quarter of fiscal 1998 compared to the comparable period in fiscal
1997. Gross margin decreased to 25.2% in the first quarter of fiscal 1998
compared to 26.3% in the first quarter of fiscal 1997. The decrease in gross
margin primarily was due to lower overhead absorption rates realized as the
Company decreased production to prevent inventory build-up. Gross margin also
was adversely affected by lower gross margins on sales by the Company's
injection molding division.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 9.4%, or $416,000, to $4.8 million in the
first quarter of fiscal 1998 compared to $4.4 million in the first quarter of
fiscal 1997. As a percentage of net sales, selling, general and administrative
expenses increased to 23.6% in the first quarter of fiscal 1998 from 22.4% in
the first quarter of fiscal 1997. The increase primarily resulted from increased
sales to commissioned, rather than non-commissioned, accounts, as well as
increased trade-show and convention costs.
6
<PAGE> 7
Other Expenses, Net. Other expenses decreased $10,000 to $41,000 in the
first quarter of fiscal 1998 compared to $51,000 in the first quarter of fiscal
1997.
Loss From Continuing Operations. Loss from continuing operations before
income taxes decreased $832,000 to $458,000 in the first quarter of fiscal 1998
compared to $1.3 million in the same period of fiscal 1997. The Company
recognized a tax benefit of $134,000 in the first quarter of fiscal 1998,
bringing the loss from continuing operations to $324,000 for the first quarter
of fiscal 1998 compared to a loss from continuing operations of $1.3 million in
the first quarter of fiscal 1997. The decrease in loss from continuing
operations primarily was due to a $1.3 million reduction in interest expense as
a result of the retirement of indebtedness in connection with the Company's
initial public offering in July 1997.
Net Loss. Net loss decreased $2.0 million to $324,000 in the first
quarter of fiscal 1998 compared to $2.3 million in the first quarter of fiscal
1997. The Company incurred a loss from discontinued operations of $985,000 in
the first quarter of fiscal 1997.
DISPOSITION OF NON-LAWN AND GARDEN BUSINESS OPERATIONS
In December 1996, the Company sold substantially all of the assets of
VSI Fasteners, Inc. ("VSI"), a distributor of packaged fasteners, for
approximately $6.9 million, plus the assumption of approximately $2.3 million of
related liabilities. In August 1997, the Company sold substantially all of the
assets of McGuire-Nicholas Company, Inc. ("McGuire-Nicholas"), a manufacturer
and distributor of leather, canvas and synthetic fabric tool holders and work
aprons, for approximately $4.7 million, plus the assumption of approximately $4
million of related liabilities. Final determination of the Company's proceeds
from the disposition of McGuire-Nicholas remains subject to certain closing
balance sheet adjustments. VSI's and McGuire-Nicholas' results of operations are
shown as "Loss from Discontinued Operations" in the consolidated financial
statements appearing elsewhere in this Quarterly Report on Form 10-Q. Net
liabilities of the discontinued VSI and McGuire-Nicholas operations are shown as
"net liabilities of discontinued operations" on the consolidated balance sheets
appearing elsewhere in this Quarterly Report on Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
There have been no significant changes in the Company's liquidity and
capital resources as of October 31, 1997 from those discussed in the Company's
Annual Report on Form 10-K for the year ended August 1, 1997.
In July 1997, the Company used approximately $9.6 million of the net
proceeds from its initial public offering to redeem outstanding preferred stock
and pay accumulated dividends thereon, approximately $11.0 million of the net
proceeds from its initial public offering to repay a portion of certain
subordinated notes and accrued interest thereon and approximately $20.6 million
of the net proceeds from its initial public offering to repay a portion of the
indebtedness outstanding under its bank credit facility and accrued interest
thereon. The Company also exchanged the remaining $24
7
<PAGE> 8
million aggregate principal amount of its outstanding subordinated notes for
1,716,049 shares of Common Stock.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not Applicable.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS.
None.
ITEM 2 - CHANGES IN SECURITIES.
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5 - OTHER INFORMATION.
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
10 Amendment No. 1 to Credit Agreement, dated as of
November 24, 1997, between UnionTools, Inc. and
Heller Financial, Inc.
27 Financial Data Schedule.
8
<PAGE> 9
(b) Reports on Form 8-K.
(1) Form 8-K (Item 5) filed September 18, 1997 reporting
the cautionary statement for purposes of the "Safe
Harbor" provisions of the Private Securities
Litigation Reform Act of 1995.
(2) Form 8-K (Item 2) filed August 22, 1997 reporting the
completed the sale of substantially all of the assets
of Acorn's subsidiary McGuire-Nicholas Company, Inc.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACORN PRODUCTS, INC.
Date: 12/15/97 By: /s/ Gabe Mihaly
---------------------------------------------
Gabe Mihaly, President and Chief Executive
Officer (Duly Authorized Officer)
Date: 12/15/97 By: /s/ Stephen M. Kasprisin
---------------------------------------------
Stephen M. Kasprisin, Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
10
<PAGE> 11
ACORN PRODUCTS, INC.
AND SUBSIDIARIES
FORM 10-Q
EXHIBIT INDEX
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
10 Amendment No. 1 to Credit Agreement, dated as of
November 24, 1997, between UnionTools, Inc. and
Heller Financial, Inc.
27 Financial Data Schedule.
<PAGE> 1
Exhibit 10
AMENDMENT NO. 1
---------------
TO CREDIT AGREEMENT
-------------------
This Amendment dated as of November 24, 1997 (this "Amendment"), is
entered into by and among UnionTools, Inc., a Delaware corporation ("Borrower"),
Heller Financial, Inc., a Delaware corporation, in its capacity as Agent
("Agent"), and each of the Lenders under the Credit Agreement (as defined
below), with reference to the following facts:
RECITALS
--------
A. Lenders are extending various secured financial accommodations to
Borrower upon the terms of that certain Amended and Restated Credit Agreement
dated as of May 20, 1997 among Borrower, Agent and Lenders (the "Credit
Agreement").
B. Borrower, Agent and Lenders desire to amend the Credit Agreement
upon the terms and conditions set forth herein.
AGREEMENT
---------
NOW THEREFORE, in consideration of the foregoing and for the other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged by each party hereto, Borrower, Agent and Lenders hereby agree as
follows:
1. Defined Terms. Unless otherwise specified herein, any capitalized
terms defined in the Credit Agreement shall have the same respective meanings as
used herein.
2. Interest Rate Adjustment Date. With respect to the definitions of
"Base Rate Margin" and "LIBOR Margin" in subsection 1.2 of the Credit Agreement,
the Base Rate Margin and the LIBOR Margin shall be adjusted based upon the
pricing table set forth therein on December 1, 1997 and on each subsequent first
Business Day of a calendar quarter after Agent has received a new Compliance
Certificate delivered by Borrower pursuant to subsection 4.10(c) thereof.
Accordingly, December 1, 1997 and each such first Business Day shall be deemed
an "Adjustment Date".
3. Restricted Junior Payments. With respect to clause (ii) of
subsection 3.5(C) of the Credit Agreement, and without affecting the other
restrictions and requirements of such subsection, up to $750,000 in the
aggregate of the payments and distributions made by Borrower to Holdings
pursuant to such subsection may be used for the expenditures relating to the
sale of McGuire - Nichols Company, Inc. and VSI Fasteners, Inc.
4. Total Interest Coverage. With respect to subsection 4.5 of the
Credit Agreement, Borrower shall not permit Total Interest Coverage to be less
than 3.0:1 during the ten (10) months ended October 31, 1997, and during each
twelve (12) month period ending on the last day of any
<PAGE> 2
fiscal quarter thereafter. In calculating Total Interest Coverage, the Operating
Cash Flow of any acquired Target during the subject period shall be included.
5. Financial Statements. With respect to subsection 4.10(A) of the
Credit Agreement, Borrower shall deliver the financial statements and schedules
set forth therein on a fiscal quarter basis, as soon as available and in any
event within thirty (30) days after the end of each fiscal quarter.
6. Representations and Warranties. Borrower reaffirms that the
representations and warranties made to Agent or Lenders in the Credit Agreement
and other Loan Documents are true and correct in all material respects as of the
date of this Amendment as though made as of such date and after giving effect to
this Amendment. In addition, Borrower makes the following representations and
warranties to Agent and Lenders, which shall survive the execution of this
Amendment:
a. The execution, delivery and performance of this Amendment
are within Borrower's powers, have been duly authorized by all necessary
actions, have received all necessary governmental approvals, if any, and do not
contravene any law or any contractual restrictions binding on Borrower.
b. This Amendment is the legal, valid and binding obligation
of Borrower enforceable against Borrower in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium and other
similar laws affecting the rights of creditors generally.
c. No event has occurred and is continuing, or would result
from the execution, delivery and/or performance of this Amendment, which
constitutes a Default or Event of Default under the Credit Agreement or any
other of the Loan Documents, or would constitute such a Default or Event of
Default but for the requirement that notice be given or time elapse or both,
after giving effect to this Amendment.
7. Continuing Effect of Loan Documents. To the extent of any
inconsistencies between the terms of this Amendment and the Credit Agreement,
this Amendment shall govern. In all other respects, the Credit Agreement and
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
8. References. Upon the effectiveness of this Amendment, each reference
in any Loan Document to "the Agreement", "hereunder," "herein," "hereof," or of
like import referring to the Credit Agreement shall mean and be a reference to
the Credit Agreement as amended hereby.
9. Governing Laws. This Amendment, upon becoming effective, shall be
deemed to be a contract made under, governed by, and subject to, and shall be
construed in accordance with, the internal laws of the State of Illinois.
2
<PAGE> 3
10. Effectiveness. This Amendment shall become effective upon its due
execution and delivery by the parties hereto and the due execution and delivery
of the following Consent of Guarantor to Agent.
11. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed this Amendment as of the date first set forth above, to
become effective in the manner set forth above.
UNIONTOOLS, INC.
By: /s/ Steve Kasprisin
--------------------------------
Name: Steve Kasprisin
------------------------------
Title: Vice President
-----------------------------
HELLER FINANCIAL, INC., as Agent
By: /s/ Joseph F. Romic
--------------------------------
Name: Joseph F. Romic
------------------------------
Title: Vice President
-----------------------------
HELLER FINANCIAL, INC., as a Lender
By: /s/ Joseph F. Romic
--------------------------------
Name: Joseph F. Romic
------------------------------
Title: Vice President
-----------------------------
SANWA BUSINESS CREDIT CORPORATION,
as a Lender
By: /s/ Lawrence J. Placek
--------------------------------
Name: Lawrence J. Placek
------------------------------
Title: Vice President
-----------------------------
3
<PAGE> 4
FLEET CAPITAL CORPORATION, as a Lender
By: /s/ Lisa Frederick
--------------------------------
Name: Lisa Frederick
------------------------------
Title: Vice President
-----------------------------
PNC BANK, OHIO, NATIONAL
ASSOCIATION, as a Lender
By: /s/ Warren F. Webber
--------------------------------
Name: Warren F. Webber
------------------------------
Title: Vice President
-----------------------------
BANKBOSTON, N.A., as a Lender
By: /s/ Gregory R. D. Clark
--------------------------------
Name: Gregory R. D. Clark
------------------------------
Title: Managing Director
-----------------------------
STAR BANK, N.A., as a Lender
By: /s/ Derek S. Rovdebush
--------------------------------
Name: Derek S. Rovdebush
------------------------------
Title: Asst. Vice President
-----------------------------
4
<PAGE> 5
CONSENT OF GUARANTOR
--------------------
The undersigned, as guarantor of the Obligations of Borrower to Agent
and Lenders pursuant to that certain Guaranty dated as of December 27, 1996 (the
"Guaranty") hereby acknowledges receipt of a copy of the foregoing Amendment No.
1 and acknowledges, consents and agrees that (i) the Guaranty remains in full
force and effect and is hereby reaffirmed, and (ii) the execution and delivery
of the foregoing Amendment No. 1 and any and all documents executed in
connection therewith shall not alter, amend, reduce or modify its obligations
and liability under the Guaranty.
Dated: As of November 24, 1997 ACORN PRODUCTS, INC., a Delaware
corporation formerly known as Vision
Hardware Group, Inc.
By: /s/ J. Mitchell Dolloff
--------------------------------
Name: J. Mitchell Dolloff
------------------------------
Title: Vice President
-----------------------------
5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-02-1997
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,359
<SECURITIES> 0
<RECEIVABLES> 18,188
<ALLOWANCES> (782)
<INVENTORY> 29,518
<CURRENT-ASSETS> 50,732
<PP&E> 24,642
<DEPRECIATION> (8,404)
<TOTAL-ASSETS> 99,175
<CURRENT-LIABILITIES> 25,212
<BONDS> 0
0
0
<COMMON> 78,391
<OTHER-SE> (15,491)
<TOTAL-LIABILITY-AND-EQUITY> 99,175
<SALES> 20,416
<TOTAL-REVENUES> 20,416
<CGS> 15,277
<TOTAL-COSTS> 15,277
<OTHER-EXPENSES> 5,078
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 519
<INCOME-PRETAX> (458)
<INCOME-TAX> (134)
<INCOME-CONTINUING> (324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (324)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
