<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 29, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from___________________ to ___________________
Commission file number: 0-22717
ACORN PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3265462
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 DUBLIN AVENUE, COLUMBUS, OHIO 43215
(Address of principal executive offices, including zip code)
(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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 6,364,105 shares of
Common Stock, $.001 par value, were outstanding at March 10, 1999.
<PAGE>
FORM 10-Q
ACORN PRODUCTS, INC.
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets 3
July 31, 1998 and January 29, 1999
Consolidated Statements of Operations For the 4
Three Months and Six Months Ended
January 30, 1998 and January 29, 1999
Consolidated Statements of Cash Flows For the 5
Six Months Ended January 30, 1998 and
January 29, 1999
Interim Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7-10
Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 5. Other Matters. 11
Item 6. Exhibits and Reports on Form 8-K. 11
Signatures 12
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JULY 31, JANUARY 29,
1998 1999
------------------- -------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................................... $ 1,240 $ 898
Accounts receivable, less allowance for
doubtful accounts ($894 and $874, respectively)............................... 24,553 20,477
Inventories.................................................................... 30,123 38,388
Prepaids and other current assets.............................................. 2,948 2,784
--------- ---------
Total current assets.......................................................... 58,864 62,547
Property, plant and equipment, net of accumulated
depreciation.................................................................. 16,205 16,583
Goodwill, net of accumulated amortization...................................... 35,271 35,468
Other intangible assets........................................................ 2,293 2,057
--------- ---------
Total assets.................................................................. $ 112,633 $ 116,655
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility...................................................... $ 16,308 $ 20,623
Accounts payable............................................................... 7,010 9,399
Accrued expenses............................................................... 4,413 5,195
Income taxes payable........................................................... 43 (626)
Other current liabilities...................................................... 445 231
--------- ---------
Total current liabilities..................................................... 28,219 34,822
Long-term debt................................................................. 16,009 16,009
Other long-term liabilities.................................................... 4,054 3,637
--------- ---------
Total liabilities............................................................. 48,282 54,468
Stockholders' equity:
Common stock, par value of $.001 per share,
20,000,000 shares authorized, 6,464,105 shares
issued and outstanding at July 31, 1998 and
January 29, 1999, respectively.............................................. 78,391 78,391
Contributed capital-stock options............................................... 460 460
Minimum pension liability....................................................... (285) (285)
Retained earnings (deficit)..................................................... (14,215) (16,379)
--------- ---------
Total stockholders' equity.................................................... 64,351 62,187
--------- ---------
Total liabilities and stockholders' equity.................................... $ 112,633 $ 116,655
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
-3-
<PAGE>
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED For the Six Months Ended
--------------------------------------- ------------------------------------
JANUARY 30, JANUARY 29, JANUARY 30, JANUARY 29,
1998 1999 1998 1999
------------------ ----------------- ---------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales.................................... $ 21,143 $ 22,449 $ 41,559 $ 44,621
Cost of goods sold........................... 16,340 16,965 31,617 33,779
------------------ ----------------- ---------------- -----------------
Gross profit................................. 4,803 5,484 9,942 10,842
Selling, general and administrative
expenses................................... 4,411 4,981 9,230 9,791
Interest expense............................. 522 801 1,041 1,473
Amortization of intangibles.................. 219 262 437 523
Other expenses, net:
Watering products consolidation............ -- 355 -- 355
Strategic transactions..................... -- 856 -- 994
Miscellaneous.............................. 38 92 79 204
------------------ ----------------- ---------------- -----------------
Income (loss) from continuing
operations before income taxes............. (387) (1,863) (845) (2,498)
Income taxes (benefit)....................... (112) (373) (246) (500)
------------------ ----------------- ---------------- -----------------
Income (loss) from continuing
operations................................. (275) (1,490) (599) (1,998)
Loss from discontinued operations,
net of tax................................. -- -- -- (166)
------------------ ----------------- ---------------- -----------------
Net income (loss)............................ $ (275) $ (1,490) $ (599) $ (2,164)
------------------ ----------------- ---------------- -----------------
------------------ ----------------- ---------------- -----------------
PER SHARE DATA (BASIC AND DILUTED):
Income (loss) from continuing operations $ (0.04) $ (0.23) $ (0.09) $ (0.31)
Loss from discontinued operations............ -- -- -- (0.02)
------------------ ----------------- ---------------- -----------------
Net income (loss) ........................... $ (0.04) $ (0.23) $ (0.09) $ (0.33)
------------------ ----------------- ---------------- -----------------
------------------ ----------------- ---------------- -----------------
Weighted average shares
outstanding................................ 6,464,105 6,464,105 6,464,105 6,464,105
------------------ ----------------- ---------------- -----------------
------------------ ----------------- ---------------- -----------------
</TABLE>
See accompanying notes.
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<PAGE>
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
----------------------------------------
JANUARY 30, JANUARY 29,
1998 1999
------------------- ------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................................... $ (599) $ (2,164)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) continuing operations:
Depreciation and amortization............................................ 1,849 2,048
Changes in operating assets and liabilities:
Accounts receivable.................................................... (1,185) 4,076
Inventories............................................................ (5,745) (8,265)
Other assets........................................................... 1,195 400
Accounts payable and accrued expenses.................................. 2,288 3,171
Income taxes payable................................................... (508) (669)
Other liabilities...................................................... (116) (465)
------------------- ------------------
Net cash provided by (used in) continuing operations....................... (2,821) (1,868)
Net cash provided by (used in) discontinued operations..................... (469) (166)
------------------- ------------------
Net cash provided by (used in) operating activities........................ (3,290) (2,034)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additional cost of net assets acquired in acquisitions..................... -- (720)
Purchases of property, plant and equipment, net............................ (2,119) (1,903)
------------------- ------------------
Net cash provided by (used in) investing activities........................ (2,119) (2,623)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net activity on revolving loan............................................. 4,478 4,315
------------------- ------------------
Net cash provided by (used in) financing activities........................ 4,478 4,315
------------------- ------------------
Net increase (decrease) in cash............................................ (931) (342)
Cash at beginning at period................................................ 1,509 1,240
------------------- ------------------
Cash at end of period...................................................... $ 578 $ 898
------------------- ------------------
------------------- ------------------
Interest paid.............................................................. $ 834 $ 1,469
------------------- ------------------
------------------- ------------------
</TABLE>
See accompanying notes.
-5-
<PAGE>
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 to Stockholders for the year ended July 31, 1998
has not been included. The unaudited interim consolidated financial statements
reflect all adjustments that in the opinion of management are necessary to a
fair statement of results for the periods presented and to present fairly the
consolidated financial position of Acorn Products, Inc. (the "Company") as of
January 29, 1999. All such adjustments are of a normal recurring nature.
2. Inventories of Acorn Products, Inc. are stated at the lower of cost or
market. Cost is determined using the first-in, first-out (FIFO) method.
Inventories consist of the following:
<TABLE>
<CAPTION>
JULY 31, JANUARY 29,
1998 1999
-------------- ---------------
(In thousands)
<S> <C> <C>
Finished goods..................... $ 16,270 $ 21,030
Work in process.................... 5,709 7,229
Raw materials and supplies......... 9,212 11,163
-------------- ---------------
31,191 39,422
Valuation reserves................. (1,068) (1,034)
-------------- ---------------
Total inventories.................. $ 30,123 $ 38,388
-------------- ---------------
-------------- ---------------
</TABLE>
3. In November 1998, the Company received notification of an assessment
of approximately $200,000 in state taxes and interest related to the sale in
August 1997 of substantially all of the assets of its McGuire-Nicholas Company,
Inc. subsidiary. The Company is contesting the amount of the assessment. The
Company has recorded the contingent liability associated with the assessment,
net of the effect of taxes, as a loss from discontinued operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Disposition of Non-Lawn and Garden Business Operations."
4. In June 1997, the Financial Standards Board issued Statement No. 130,
Reporting Comprehensive Income ("SFAS 130"). SFAS 130 requires adoption for
fiscal years beginning after December 15, 1997. Therefore, the Company was
required to adopt SFAS 130 effective August 1, 1998. The total comprehensive
loss for the quarter and the six months ended January 29, 1999 was $599 and
$2,164 respectively.
5. In January 1999 the Company incurred expenses of $355 in
consolidating its watering products division into a single facility.
6. The Company incurred expenses for legal, accounting, consulting and
other expenses related to certain strategic transactions in the amount of $856
in the second quarter of fiscal 1999 and $994 for the six months ended January
29, 1999.
-6-
<PAGE>
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 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 July 31, 1998, 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 amended on October 29,1998 and as
the same may be amended from time to time.
THREE MONTHS ENDED JANUARY 29, 1999 COMPARED TO THREE MONTHS ENDED JANUARY 30,
1998
NET SALES. Net sales increased 6.2%, or $1.3 million, to $22.4 million in
the second quarter of fiscal 1999 compared to $21.1 million in the second
quarter of fiscal 1998. The increase in net sales reflected the addition of the
Company's watering products division and increased net sales by the Company's
injection molding division, partially offset by a decrease in reported
wheelbarrow sales. Although the Company's overall wheelbarrow sales increased
in the period, most of those sales were attributable to the Company's
wheelbarrow joint venture. Only the Company's portion of the profit or loss
from the wheelbarrow joint venture is included in the Company's financial
statements.
GROSS PROFIT. Gross profit increased 14.2%, or $0.7 million, to $5.5
million in the second quarter of fiscal 1999 compared to $4.8 million in the
comparable period of fiscal 1998. Gross margin increased to 24.4% in the second
quarter of fiscal 1999 from 22.7% in the second quarter of fiscal 1998. The
increase in gross margin primarily was due to realization of benefits from the
Company's cost reduction programs as well as greater overhead absorption rates.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 12.9%, or $570,000, to $5.0 million in the
second quarter of fiscal 1999 from $4.4 million in the second quarter of fiscal
1998. As a percentage of net sales, selling general and administrative expenses
increased to 22.2% in the second quarter of fiscal 1999 from 20.9% in the second
quarter of fiscal 1998. The increase in selling, general and administrative
expenses resulted primarily from increased customer program costs, as well as
the addition of the company's watering products division.
OTHER EXPENSES, NET. Other expenses, net, increased to $1.3 million in the
second quarter of fiscal 1999 from $38,000 in the second quarter of fiscal 1998.
Approximately $856,000 of other expense, net, in the second quarter of fiscal
1999 related to accounting, legal, consulting and other expenses incurred in
connection with the exploration of strategic transactions. In addition, the
Company incurred expenses of approximately $355,000 in the second quarter of
fiscal 1999 related to the consolidation of the manufacturing operations of
the Company's watering products division. The Company also incurred other
expenses, net, of approximately $92,000 in the second quarter of fiscal 1999
primarily related to the amortization of bank financing fees.
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES. Loss from continuing
operations before income taxes increased to $1.9 million in the second quarter
of fiscal 1999 from $387,000 in the second quarter of fiscal 1998. The increase
in loss from continuing operations before income taxes resulted primarily from
the strategic transaction and watering products consolidation expenses described
above.
NET LOSS. The Company recognized a tax benefit of $373,000 in the second
quarter of fiscal 1999 compared to a tax benefit of $112,000 in the second
quarter of fiscal 1998, bringing the loss from continuing operations to $1.5
million in the second quarter of fiscal 1999 compared to a loss of $275,000 in
the second quarter of fiscal 1998.
SIX MONTHS ENDED JANUARY 29, 1999 COMPARED TO SIX MONTHS ENDED JANUARY 30, 1998
NET SALES. Net sales increased 7.4%, or $3.0 million to $44.6 million in
the first six months of fiscal 1999 compared to $41.6 million in the first six
months of fiscal 1998. The increase in net sales reflected the addition of the
Company's watering products division and increased net sales by the Company's
injection molding division.
-7-
<PAGE>
GROSS PROFIT. Gross profit increased 9.1%, or $900,000, in the first six
months of fiscal 1999 to $10.8 million from $9.9 million in the first six months
of fiscal 1998. Gross margin increased to 24.3% in the first six months of
fiscal 1999 from 23.9% in the comparable period of fiscal 1998. The increase in
gross margin primarily was due to realization of benefits from the Company's
cost reduction program, as well as greater overhead absorption rates.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 6.1%, or $561,000, to $9.8 million in the
first six months of fiscal 1999 compared to $9.2 million in the first six months
of fiscal 1998. As a percentage of net sales, selling, general and
administrative expenses decreased to 21.9% in the first six months of fiscal
1999 compared to 22.2% in the first six months of fiscal 1998. The increase in
selling, general and administrative expenses resulted primarily from the
addition of the Company's watering products division.
OTHER EXPENSES, NET. Other expenses, net increased to $1.6 million in the
first six months of fiscal 1999 from $79,000 in the first six months of fiscal
1998. Approximately $994,000 of other expenses, net in the first six months of
1999 related to accounting, legal, consulting and other related expenses
incurred in connection with the exploration of strategic transactions. In
addition, the Company incurred expenses of approximately $355,000 in the first
six months of fiscal 1999 related to the consolidation of the manufacturing
operations of the Company's watering products division. The Company also
incurred other expenses, net of approximately $204,000 in the first six months
of fiscal 1999 primarily related to the amortization of bank financing fees.
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES. Loss from continuing
operations before income taxes increased to $2.5 million in the first six months
of fiscal 1999 from $845,000 in the comparable period of fiscal 1998. The
increase in loss from continuing operations before income taxes resulted
primarily from the strategic transaction and watering products consolidation
expenses described above.
LOSS FROM CONTINUING OPERATIONS. The Company recognized a tax benefit of
$500,000 in the first six months of fiscal 1999 compared to a tax benefit of
$246,000 in the comparable period of fiscal 1998, bringing the loss from
continuing operations to $2.0 million in the first six months of fiscal 1999
compared to a loss of $599,000 in the first six months of fiscal 1998.
NET LOSS. The Company incurred a loss from discontinued operations, net of
tax, of $166,000 in the first six months of fiscal 1999, bringing the net loss
to $2.2 million for the period compared to a loss of $599,000 for the first six
months of fiscal 1998.
SEASONAL AND QUARTERLY FLUCTUATIONS; IMPACT OF WEATHER
The lawn and garden industry is seasonal in nature, with a high proportion
of sales and operating income generated in January through May. Accordingly,
the Company's sales tend to be greater during its third and fourth fiscal
quarters. As a result, the Company's operating results depend significantly on
the spring selling season. To support this sales peak, the Company must
anticipate demand and build inventories of finished goods throughout the fall
and winter. Accordingly, the Company's level of raw materials and finished
goods inventories tend to be at their highest, relative to sales, during the
Company's first and second fiscal quarters. These factors increase variations
in the Company's quarterly results of operations and potentially expose the
Company to greater adverse effects of changes in economic and industry trends.
Moreover, actual demand for the Company's products may vary substantially from
the anticipated demand, leaving the Company with excess inventory or
insufficient inventory to satisfy customer orders.
Weather is the single most important factor in determining market demand
for the Company's products and also is the least predictable. For example,
while floods in the Midwest adversely affected the sale of most types of lawn
and garden equipment in 1992, the severe winter of 1994 resulted in a surge in
demand for snow shovels. In addition, bad weather during the spring gardening
season, such as that experienced throughout most of the U.S. in the spring of
1995 and 1998, can adversely affect overall annual sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company entered into an amendment to its Credit Facility on February
26, 1999. This amendment provided for modifications to certain financial and
reporting covenants as well as other modifications to the agreement including a
$10.0 million increase in the revolving portion of the Credit Facility. This
increase will be available annually from January 1 to June 30 of each fiscal
year.
On March 3, 1999, the Company's Board of Directors authorized a stock
repurchase program to permit the acquisition of up to $2.5 million of the
Company's common stock during the next 12 months. The purchases may be made
from time to time on the open market or in privately negotiated transactions,
depending upon market conditions.
There have been no other significant changes in the Company's liquidity and
capital resources as of January 29, 1999 from those discussed in the Company's
Annual Report on Form 10-K for the year ended July 31, 1998.
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<PAGE>
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. 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.
CONSOLIDATION OF MANUFACTURING FACILITIES
On March 3, 1999, the Company announced that it will close its Columbus,
Ohio manufacturing facility and consolidate the operations into its primary
manufacturing facility in Frankfort, New York. The Company will continue to
operate the Columbus facility, which has about 110 manufacturing positions,
through August 1999. The Company plans to add 110 new employees at the
Frankfort plant. The net consolidation costs are expected to be under $3
million, while savings will be over $1 million annually. The Company expects to
incur the costs of the consolidation over the next nine months.
IMPACT OF THE YEAR 2000 ON COMPUTER SYSTEMS
STATE OF READINESS. The Company has reviewed its Year 2000 issues in
regard to both its information-technology and its non-information-technology.
The Company's operating system software as well as some of the Company's older
software applications were written using two digits rather than four to define
the applicable year. As a result, those software applications have
time-sensitive software that recognize a date using "00" as the year 1900 rather
than the Year 2000. This could cause a system failure or miscalculations
causing disruptions of operations, including a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
The Company has determined that it will have to modify or replace portions of
its software applications and hardware so that its computer systems will
function properly with respect to dates in the Year 2000 and thereafter. The
Company expects that its information-technology will be Year 2000-ready by June
1, 1999, which is prior to any anticipated impact on its operating systems. The
Company does not believe that there any material Year 2000 issues with regard to
its non-information-technology.
In addition, the Company has initiated communications with its significant
customers and suppliers to determine the extent to which the Company's interface
systems are vulnerable to the failure of such customers and suppliers to
remediate their own Year 2000 issues. Based on such communications, the Company
is not currently aware of any third-party issue applicable to the Year 2000 that
is likely to have a material impact on the conduct of the business, the results
of operations or the financial condition of the Company.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. Although the Company is
currently updating its computer systems, such updating was not accelerated due
to Year 2000 issues. The following chart reflects the Company's estimated Year
2000-specific costs plus the estimated cost to update its current computer
systems.
<TABLE>
<CAPTION>
ESTIMATED CONVERSION COST
EXPENSE CAPITAL
------- -------
<S> <C> <C>
Hardware -- $200,000
Project Management $125,000 75,000
Software and Custom Coding 165,000 --
-------- --------
$290,000 $275,000
-------- --------
-------- --------
</TABLE>
RISKS OF THE COMPANY'S YEAR 2000 ISSUES. The Company does not believe that
any Year 2000 issues will impact its manufacturing. The Company believes
that its greatest Year 2000 risk is the risk that its customers and suppliers
are not Year 2000-ready. Failure by the Company, or its customers or
suppliers to adequately address the Year 2000 issues in a timely manner could
have a material impact on the conduct of the business, the results of
operations and the financial
-9-
<PAGE>
condition of the Company. Accordingly, the Company plans to address all Year
2000 issues before problems materialize. The Company believes that the
associated costs are adequately budgeted for in its fiscal 1999 business plans.
However, should efforts on the part of the Company, its customers and suppliers
fail to adequately address their relevant Year 2000 issues, the most likely
worst case scenario would be a material loss of revenue to the Company.
THE COMPANY'S CONTINGENCY PLANS. The Company will produce contingency
plans on a case by case basis as required as it completes its Year 2000 efforts.
At the present time, as no material risks have been identified, no contingency
plans have been formed.
RISKS. There can be no assurance that the Company will not experience cost
overruns or delays in the completion of its year 2000 project. Factors that
could cause such cost overruns or delays include, among other things, an
unavailability of properly trained personnel, unforeseen difficulty locating and
correcting relevant computer codes and similar uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
-10-
<PAGE>
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 MATTERS.
If any stockholder of the Company wishes to submit a proposal to be
included in this year's Proxy Statement and acted upon at the Company's 1999
Annual Meeting of Stockholders which will be held on June 15, 1999, the proposal
must be received by the Secretary of the Company at the principal executive
offices of the Company, 500 Dublin Avenue, Columbus, Ohio 43215 prior to the
close of business on March 31, 1999. Any stockholder proposal submitted outside
the processes of Rule 14a-8 under the Securities Exchange Act of 1934 for
presentation to the Company's 1999 Annual Meeting of Stockholders will be
considered untimely for purposes of Rule 14a-4 and 14a-5 if notice thereof is
received by the Company after March 31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
10.1 Fourth Amendment to Amended and Restated Credit Agreement,
February 26, 1999, between UnionTools, Inc. and Heller
Financial, Inc., in its capacity as Agent for the Lenders
party to the Amended and Restated Credit Agreement.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
None.
-11-
<PAGE>
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: March 12, 1999 By: /S/ GABE MIHALY
----------------------------------------
Gabe Mihaly, President and Chief
Executive Officer (Principal Executive
Officer)
Date: March 12, 1999 By: /S/ STEPHEN M. KASPRISIN
----------------------------------------
Stephen M. Kasprisin, Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
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<PAGE>
ACORN PRODUCTS, INC. AND SUBSIDIARIES
FORM 10-Q
EXHIBIT INDEX
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
10.1 Fourth Amendment to Amended and Restated Credit Agreement,
February 26, 1999, between UnionTools, Inc. and Heller
Financial, Inc., in its capacity as Agent for the Lenders
party to the Amended and Restated Credit Agreement.
27 Financial Data Schedule.
<PAGE>
FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"AMENDMENT") is dated as of February 26, 1999 and entered into by and among
UNIONTOOLS, INC., a Delaware corporation ("BORROWER"), ACORN PRODUCTS, INC., a
Delaware corporation ("HOLDINGS"), H.B. SHERMAN MANUFACTURING COMPANY, a
Missouri corporation ("H.B. SHERMAN"), UNIONTOOLS IRRIGATION, INC., a Delaware
corporation formerly known as UnionTools Watering Products, Inc. ("IRRIGATION"
and together with Borrower, Holdings and H.B. Sherman collectively, the "LOAN
PARTIES"), HELLER FINANCIAL, INC., in its individual capacity as a Lender and as
Agent for all Lenders ("AGENT"), and the other Lenders.
RECITALS
WHEREAS, Borrower, Agent and Lenders have entered into an Amended and
Restated Credit Agreement dated as of May 20, 1997, as amended by that certain
Amendment No. 1 to Credit Agreement dated November 24, 1997, Second Amendment to
Credit Agreement dated as of May 22, 1998 and Third Amendment to Amended and
Restated Credit Agreement dated as of October 29, 1998 (as the same may be
further amended, restated, supplemented or otherwise modified from time to time,
the "CREDIT AGREEMENT"), pursuant to which, among other things, Lenders have
agreed, subject to the terms and conditions set forth in the Credit Agreement,
to make loans and financial accommodations to Borrower; and
WHEREAS, the Loan Parties have requested that the Agent and Lenders agree
to modify the Credit Agreement pursuant to the terms and conditions of this
Amendment; and
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Loan Parties, Lenders and Agent
agree as follows:
1. DEFINED TERMS. All capitalized terms used herein but not elsewhere
defined shall have the respective meanings ascribed to such terms in the Credit
Agreement, as amended by this Amendment.
2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is amended as
follows:
2.1 REVOLVING LOAN COMMITMENT. With respect to subsection
1.1.(A)(1) of the Credit Agreement, the Revolving Loan Commitment for all
Lenders in the aggregate shall be $40,000,000 during the period from January 1
through June 30, inclusive, of each year, and $30,000,000 during the period from
July 1 through December 31, inclusive, of each year.
2.2 ACQUISITIONS BY HOLDINGS. With respect to subsection 1.1(C) of
the Credit Agreement, and subject to the terms and conditions thereof, the
proceeds of an Acquisition Loan may be used to fund the acquisition by Holdings
or its wholly-owned Subsidiaries of all of the issued and outstanding capital
stock of another Person, or the acquisition
<PAGE>
by Holdings' wholly-owned Subsidiaries of all or substantially all of the assets
of another Person or of a division of another Person. In the event of any such
acquisition, each wholly-owned Subsidiary of Holdings that either owns or has
rights in any assets or properties or maintains any business operations (other
than Borrower) shall become a co-borrower under the Credit Agreement (and for
the purposes of the Credit Agreement shall thereupon be included in the
definition of "Borrower"), whereby such Subsidiary shall become jointly and
severally liable with Borrower in respect of the Obligations, and shall,
together with the other Loan Parties, duly execute and deliver such documents as
are reasonably requested by Agent to reflect such co-borrowing or guaranty
arrangement. All present and future Subsidiaries of Holdings that either own or
have rights in any assets or properties or maintain any business operations
shall be required to take the actions and duly execute and deliver the documents
as set forth in subsection 2.5(B) of the Credit Agreement, whether or not they
have received a request from Agent or Requisite Lenders to take such actions or
deliver such documents. The references to Borrower in subsections 1.1(C)(3),
(5) and (8) of the Credit Agreement shall mean and be references to Holdings and
its Subsidiaries.
2.3 REBORROWINGS OF ACQUISITION LOANS. With respect to subsection
1.1(C) of the Credit Agreement, the amounts of the Acquisition Loans borrowed
under that subsection and repaid from Excess Cash Flow pursuant to subsection
1.5(B) thereof may be reborrowed subject to the other terms and conditions set
forth in subsection 1.1(C).
2.4 PRO FORMA TOTAL INDEBTEDNESS TO OPERATING CASH FLOW RATIO.
Subsection 1.1(C)(7) of the Credit Agreement is hereby deleted in its entirety
and replaced with the following:
"(7) Based upon the financial performance of Holdings, its
Subsidiaries and the subject Target during the twelve (12) months
immediately preceding the acquisition of the subject Target, the Pro
Forma Total Indebtedness to Operating Cash Flow Ratio of Holdings, its
Subsidiaries and the subject Target on a pro forma combined basis
would not be more than 4.00:1 as of the last day of any month in the
first, second or third Loan Year. For the purposes of this subsection
1.1(C)(7), "Pro Forma Total Indebtedness to Operating Cash Flow Ratio"
means the ratio of (i) the sum of (a) the average daily principal
balance of the Revolving Loans during the twelve (12) month period
ending on the last day of the subject month, plus (b) the aggregate
outstanding principal balance of the Acquisition Loans, the Lender
Letters of Credit and Risk Participation Agreements as of the last day
of such month, plus (c) all other Indebtedness for borrowed money of
Holdings, its Subsidiaries and the subject Target on a consolidated
basis as of the last day of such month, to (ii) Operating Cash Flow of
Holdings, its Subsidiaries and the subject Target on a consolidated
basis (calculated as illustrated on Exhibit 4.10(C) with EBIDAT
calculated in accordance with subsection 1.1(C)(4)) for the twelve
(12) month period ending on the last day of such month."
2.5 INTEREST RATE MARGINS. The pricing table in subsection 1.2(A)
of the Credit Agreement is hereby deleted in its entirety and replaced with the
following:
2
<PAGE>
PRICING TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ADJUSTED TOTAL INDEBTEDNESS TO
OPERATING CASH FLOW RATIO BASE RATE MARGIN LIBOR MARGIN
- --------------------------------------------------------------------------------
<S> <C> <C>
Greater than 4.50:1 1.00% 3.00%
- --------------------------------------------------------------------------------
Equal to or greater than 3.75:1 but equal 0.75% 2.75%
to or less than 4.50:1
- --------------------------------------------------------------------------------
Equal to or greater than 3.00:1 but less 0.50% 2.50%
than 3.75:1
- --------------------------------------------------------------------------------
Less than 3.00:1 0.25% 2.25%
- --------------------------------------------------------------------------------
</TABLE>
With respect to clause (i)(c) of the definition of "Adjusted Total Indebtedness
to Operating Cash Flow Ratio", Adjusted Total Indebtedness shall include all
other Indebtedness for borrowed money of Holdings and its Subsidiaries on a
consolidated basis.
2.6 FURTHER ASSURANCES. With respect to subsection 2.5(B) of the
Credit Agreement, all present and future Subsidiaries of Holdings that either
own or have rights in any assets or properties or maintain any business
operations shall be required to take the actions and duly execute and deliver
the documents as set forth therein, whether or not they have received a request
from Agent or Requisite Lenders to take such actions or deliver such documents.
2.7 INVESTMENTS. With respect to subsection 3.3 of the Credit
Agreement, Borrower and its Subsidiaries may make loans and advances to Holdings
to fund a Permitted Acquisition, or for any corporate expenditures made by
Holdings or by any Borrower or a Subsidiary thereof in the ordinary course of
business (it being understood and agreed that such corporate expenditures shall
specifically exclude (i) subject to Paragraph 2.9 of this Amendment, any
Restricted Junior Payment by Holdings, (ii) any Investment by Holdings in a
Person that is not a Borrower or a Subsidiary thereof, except for a Permitted
Acquisition, and (iii) any expenditures related to a Subsidiary of Holdings
other than a Borrower or a Subsidiary thereof, and it being further understood
and agreed that the proceeds of any such loans and advances to Holdings may be
used only for such permitted corporate expenditures); provided, however, that no
Default or Event of Default would exist after giving effect to such loans and
advances; and provided further that the proceeds of such loans and advances, to
the extent not used by Holdings or by a Borrower or a Subsidiary thereof, shall
be pledged by Holdings to Agent in a manner reasonably satisfactory to Agent.
"Permitted Acquisitions" shall mean acquisitions by Holdings or any of its
Subsidiaries of the stock or assets of any Person in a negotiated transaction;
provided that such acquisition either is funded by an Acquisition Loan made
pursuant to subsection 1.1(C) or is consented to in writing by the Requisite
Lenders.
2.8 RESTRICTED JUNIOR PAYMENTS. Subsection 3.5(C) of the Credit
Agreement is hereby deleted in its entirety and replaced with the following:
3
<PAGE>
"(C) Any Borrower may make payments and distributions in
cash to Holdings to fund a Permitted Acquisition, or for any
corporate expenditures made by Holdings or by any Borrower
or a Subsidiary thereof in the ordinary course of business
(it being understood and agreed that such corporate
expenditures shall specifically exclude (i) subject to
Paragraph 2.9 of a certain Fourth Amendment to the
Agreement, any Restricted Junior Payment by Holdings, (ii)
any Investment by Holdings in a Person that is not a
Borrower or a Subsidiary thereof, except for a Permitted
Acquisition, and (iii) any expenditures related to a
Subsidiary of Holdings other than a Borrower or a Subsidiary
thereof, and it being further understood and agreed that any
such payments and distributions to Holdings may be used only
for such permitted corporate expenditures); provided,
however, that such payments and distributions, to the extent
not used by Holdings or by a Borrower or a Subsidiary
thereof, shall be pledged by Holdings to Agent in a manner
reasonably satisfactory to Agent; and"
2.9 STOCK REPURCHASE. With respect to subsection 3.5 of the Credit
Agreement, and that certain Consent by Agent and Lenders dated as of March 3,
1998, Borrower may make Restricted Junior Payments to Holdings for the
repurchase of Holdings' Common Stock issued pursuant to the IPO, provided that
(i) the aggregate sum of such Restricted Junior Payments shall not exceed
$2,500,000, (ii) the Maximum Revolving Loan Balance after giving effect to any
such Restricted Junior Payment must exceed the Revolving Loans then outstanding
by not less than $4,000,000, (iii) any such Restricted Junior Payment shall not
be made from the proceeds of any Loans other than the Revolving Loans, and (iv)
no event shall have occurred and be continuing or would result from any such
Restricted Junior Payment that would constitute an Event of Default or a
Default.
2.10 RESTRICTION ON FUNDAMENTAL CHANGES. With respect to subsection
3.6 of the Credit Agreement, Borrower will not permit Holdings to: (a) enter
into any transaction of merger or consolidation; (b) liquidate, wind-up or
dissolve itself (or suffer any liquidation or dissolution); or (c) acquire,
directly or indirectly, by purchase or otherwise, either the stock, partnership
interest or other equity securities of any other Person or all or any
substantial part of the business or assets of any other Person, except Permitted
Acquisitions by Holdings and its Subsidiaries.
2.11 SALE/LEASEBACK TRANSACTIONS. With respect to subsection 3.7 of
the Credit Agreement, Borrower and its Subsidiaries may sell assets and
concurrently lease those assets back from the purchaser, subject to the
conditions set forth in clauses (b)(ii) through (vi), inclusive, of subsection
3.7 of the Credit Agreement, and provided that the aggregate market value of
assets sold in such sale/leaseback transactions shall not exceed $500,000 during
any of their fiscal years.
2.12 CAPITAL EXPENDITURE LIMITS. With respect to subsection 4.1 of
the Credit
4
<PAGE>
Agreement, the Capex Limit shall be $4,000,000 for each fiscal year ending on or
after July 31, 1999 for Holdings and its Subsidiaries on a consolidated basis.
2.13 EBIDAT. Subsection 4.3 of the Credit Agreement is hereby deleted
in its entirety and replaced with the following:
"4.3 EBIDAT. Borrower shall not permit EBIDAT of Holdings
and its Subsidiaries on a consolidated basis for the twelve
(12) month period ending on the last day of any fiscal
quarter ending on the dates or during the periods set forth
below to be less than the amount set forth below for such
date or period.
<TABLE>
<CAPTION>
Date/Period Amount
----------- ------
<S> <C>
January 31, 1999 $7,500,000
April 30, 1999 $9,000,000
July 31, 1999 $9,500,000
On and after
October 31, 1999 $13,100,000
</TABLE>
"EBIDAT" will be calculated as illustrated on Exhibit 4.10(C)."
2.14 FIXED CHARGE COVERAGE. Subsection 4.4 of the Credit Agreement is
hereby deleted in its entirety and replaced with the following:
"4.4 FIXED CHARGE COVERAGE. Borrower shall not permit Fixed Charge
Coverage of Holdings and its Subsidiaries on a consolidated basis for
the twelve (12) month period ending on the last day of any fiscal
quarter ending on the dates or during the periods set forth below to
be less than the amount set forth below for such date or period.
<TABLE>
<CAPTION>
Date/Period Amount
----------- ------
<S> <C>
On and after
January 31, 1999 1.20:1
</TABLE>
"Fixed Charge Coverage" will be calculated as illustrated on Exhibit
4.10(C)."
2.15 TOTAL INTEREST COVERAGE. Subsection 4.5 of the Credit Agreement
is hereby deleted in its entirety and replaced with the following:
"4.5 TOTAL INTEREST COVERAGE. Borrower shall not permit Total
Interest Coverage of Holdings and its Subsidiaries on a consolidated
basis for the twelve (12) month period ending on the last day of any
5
<PAGE>
fiscal quarter ending on the dates or during the periods set forth below to
be less than the amount set forth below for such date or period.
<TABLE>
<CAPTION>
Date/Period Amount
----------- ------
<S> <C>
January 31, 1999 1.50:1
April 30, 1999 2.50:1
July 31, 1999 2.50:1
October 31, 1999 2.75:1
On and after
January 31, 2000 3.00:1
</TABLE>
"Total Interest Coverage" will be calculated as illustrated in Exhibit
4.10(C)."
2.16 TOTAL INDEBTEDNESS TO OPERATING CASH FLOW RATIO. Subsection 4.6
of the Credit Agreement is hereby deleted in its entirety and replaced with the
following:
"4.6 TOTAL INDEBTEDNESS TO OPERATING CASH FLOW RATIO.
Borrower shall not permit the ratio of Total Indebtedness to
Operating Cash Flow of Holdings and its Subsidiaries on a
consolidated basis for the twelve (12) month period ending
on the last day of any fiscal quarter ending on the dates or
during the periods set forth below to be greater than the
amount set forth below for such date or period.
<TABLE>
<CAPTION>
Date/Period Amount
----------- ------
<S> <C>
January 31, 1999 7.00:1
April 30, 1999 4.65:1
July 31, 1999 4.50:1
On and after
October 31, 1999 3.00:1
</TABLE>
"Total Indebtedness" and "Operating Cash Flow" will be
calculated as illustrated on Exhibit 4.10(C)."
2.17 DUE DILIGENCE EXPENSES. The expenses in the sum of $1,200,000.00
incurred in connection with the due diligence on the potential acquisitions
disclosed to the Agent prior to the date hereof shall not be deducted in
calculating EBIDAT for the purposes of determining (i) satisfaction of the
condition to the Acquisition Loans set forth in subsection 1.1(C)(7) of the
Credit Agreement, and (ii) compliance with the financial covenants set forth in
subsections 4.3, 4.4, 4.5 and 4.6 thereof.
2.18 QUARTERLY FINANCIALS. The financial statements and schedules as
required
6
<PAGE>
in subsection 4.10(A) of the Credit Agreement for any fiscal quarter shall be
delivered within forty-five (45) days after the end of such fiscal quarter.
2.19 YEAR-END FINANCIALS. The financial statements, schedules and
reports as required in subsection 4.10(B) of the Credit Agreement for any fiscal
year shall be delivered within ninety (90) days after the end of such fiscal
year.
2.20 COMPLIANCE CERTIFICATE. Exhibit 4.10(C) to the Credit Agreement
shall be deleted in its entirety and replaced with Exhibit 4.10(C) attached
hereto and incorporated herein by reference.
2.21 YEAR 2000. A new subsection 5.10 is hereby added to the Credit
Agreement as follows:
"5.10 YEAR 2000. Holdings and its Subsidiaries have made an
assessment of the microchip and computer-based systems and
the software used in their business and based upon such
assessment believes that they will be "Year 2000 Compliant"
by January 1, 2000, except where the failure to be Year 2000
Compliant would not have a Material Adverse Effect. For
purposes of this paragraph, "Year 2000 Compliant" means that
all software, embedded microchips and other processing
capabilities utilized by, and material to the business
operations or financial condition of, Holdings and its
Subsidiaries are able to interpret, store, transmit, receive
and manipulate data on and involving all calendar dates
correctly and without causing any abnormal ending scenarios
in relation to dates in and after the Year 2000. From time
to time, at the request of Agent or any Lender, Holdings and
its Subsidiaries shall provide to Lenders such updated
information as is requested regarding the status of their
efforts to become Year 2000 Compliant."
3. ACCOMMODATION FEE. Upon the effectiveness of this Amendment, Borrower
shall pay an accommodation fee in the amount of $100,000 to Agent for the
benefit of all Lenders (based upon their respective Pro Rata Shares).
4. CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment
shall be subject to the satisfaction of the following conditions in a manner,
form and substance satisfactory to Agent:
4.1 DELIVERY OF DOCUMENTS. This Amendment shall have been delivered
to Agent, duly authorized and executed by the parties hereto, together with
replacement Notes in favor of the respective Lenders for their Pro Rata Shares
of the increased Revolving Loan Commitment, and such other instruments,
documents, certificates, consents, waivers, opinions and financing statements as
Agent may reasonable request.
7
<PAGE>
4.2 MATERIAL ADVERSE CHANGE. No event shall have occurred since the
Closing Date which has had or reasonably could be expected to have a Material
Adverse Effect.
4.3 PERFORMANCE; NO DEFAULT. Each Loan Party shall have performed
and complied with all agreements and conditions contained in the Loan Documents
to be performed by or complied with by such Loan Party prior to the date hereof,
and no Event of Default shall exist.
5. REPRESENTATIONS AND WARRANTIES. Each Loan Party hereby confirms to
Agent and the Lenders that the representations and warranties set forth in
Section 5 of the Credit Agreement are true and correct in all material respects
as of the date hereof, and shall be deemed to be remade as of the date hereof.
6. NO FURTHER AMENDMENTS; RATIFICATION OF LIABILITY. Each Loan Party
hereby consents to the execution and delivery of this Amendment. Each Loan
Party hereby agrees that except as amended hereby, the Credit Agreement and each
of the other Loan Documents shall remain in full force and effect in accordance
with their respective terms. Each Loan Party hereby ratifies and confirms its
liabilities, obligations and agreements under the Credit Agreement and each
other Loan Document, all as amended by this Amendment, and acknowledges that:
(i) as of the date of the Amendment, such Loan Party, to its knowledge, has no
defenses, claims or set-offs to the enforcement by Agent and Lenders of such
liabilities, obligations and agreements; and (ii) other than as specifically set
forth herein, Agent and Lenders do not waive, diminish or limit any term or
condition contained in the Credit Agreement or any of the other Loan Documents.
Agent's and each Lender's agreement to the terms of this Amendment or any other
amendment shall not be deemed to establish or create a custom or course of
dealing between Agent or Lenders, on the one hand, and any Loan Party, on the
other hand.
7. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, and all of which,
when taken together, shall constitute one and the same instrument.
8. FURTHER ASSURANCES AND FEES AND EXPENSES. Each Loan Party covenants
and agrees that it will at any time and from time to time do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such further acts, documents and instruments as reasonably may be
required by Agent in order to effectuate fully the intent of this Amendment.
The Borrower shall pay all fees and expenses incurred in the preparation,
negotiation and execution of this Amendment, including, without limitation, the
fees and expenses of counsel for Agent.
9. GOVERNING LAW. This Amendment shall be a contract made under and
governed by the laws of the State of Illinois, without regard to conflict of
laws principles.
10. SEVERABILITY. In the event that any provision of this Amendment is
deemed to be invalid by reason of the operation of any law or by reason of the
interpretation placed thereon by
8
<PAGE>
any court or governmental authority, this Amendment shall be construed as not
containing such provision and the invalidity of such provision shall not affect
the validity of any other provisions hereof, and any and all other provisions
hereof which otherwise are lawful and valid shall remain in full force and
effect.
11. HEADINGS AND RECITALS. The paragraph headings used in this Amendment
are for convenience of reference only and in no way define, describe or limit
the scope or intent of this Amendment. The foregoing recitals are hereby
incorporated herein by this reference thereto.
12. NO STRICT CONSTRUCTION. The language used in this Amendment shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party
hereto.
IN WITNESS WHEREOF, this Amendment has been executed and delivered by each
of the parties hereto on the date first set forth above.
UNIONTOOLS, INC., a Delaware corporation
By: /s/ Stephen M. Kasprisin
--------------------------------------
Name: Stephen M. Kasprisin
--------------------------------------
Title: Vice President and
Chief Financial Officer
--------------------------------------
ACORN PRODUCTS, INC., a Delaware corporation
By: /s/ Stephen M. Kasprisin
--------------------------------------
Name: Stephen M. Kasprisin
--------------------------------------
Title: Vice President and
Chief Financial Officer
--------------------------------------
H.B. SHERMAN MANUFACTURING COMPANY, a Missouri
corporation
By: /s/ J. Mitchell Dolloff
--------------------------------------
Name: J. Mitchell Dolloff
--------------------------------------
Title: President
--------------------------------------
9
<PAGE>
UNIONTOOLS IRRIGATION, INC., a Delaware
corporation
By: /s/ J. Mitchell Dolloff
--------------------------------------
Name: J. Mitchell Dolloff
--------------------------------------
Title: President
--------------------------------------
HELLER FINANCIAL, INC., a Delaware corporation, in
its individual capacity as a Lender and as Agent
for all Lenders
By: /s/ William Vokevich
--------------------------------------
Name: William Vokevich
--------------------------------------
Title: A.V.P.
--------------------------------------
FLEET CAPITAL CORPORATION
By: /s/ Matthew R. Van Steenhuysr
--------------------------------------
Name: Matthew R. Van Steenhuysr
--------------------------------------
Title: Senior Vice President
--------------------------------------
PNC BANK, NATIONAL ASSOCIATION
By: /s/ John L. Nielck
--------------------------------------
Name: John L. Nielck
--------------------------------------
Title: Senior Vice President
--------------------------------------
BANKBOSTON, N.A., (formerly known as The First
National Bank of Boston)
By: /s/ Cheryl J. Carangelo
--------------------------------------
Name: Cheryl J. Carangelo
--------------------------------------
Title: Vice President
--------------------------------------
10
<PAGE>
FIRSTAR BANK, N.A.
By: /s/ Derek S. Roudebush
--------------------------------------
Name: Derek S. Roudebush
--------------------------------------
Title: Vice President
--------------------------------------
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Matthew R. Van Steenhuysr
--------------------------------------
Name: Matthew R. Van Steenhuysr
--------------------------------------
Title: Senior Vice President
--------------------------------------
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUL-30-1999 JUL-30-1999
<PERIOD-START> OCT-31-1998 AUG-01-1998
<PERIOD-END> JAN-29-1999 JAN-29-1999
<CASH> 898 898
<SECURITIES> 0 0
<RECEIVABLES> 21,351 21,351
<ALLOWANCES> (874) (874)
<INVENTORY> 38,388 38,388
<CURRENT-ASSETS> 62,547 62,547
<PP&E> 28,771 28,771
<DEPRECIATION> (12,188) (12,188)
<TOTAL-ASSETS> 116,655 116,655
<CURRENT-LIABILITIES> 34,822 34,822
<BONDS> 0 0
0 0
0 0
<COMMON> 78,391 78,391
<OTHER-SE> (16,204) (16,204)
<TOTAL-LIABILITY-AND-EQUITY> 116,655 116,655
<SALES> 22,449 44,621
<TOTAL-REVENUES> 22,449 44,621
<CGS> 16,965 33,779
<TOTAL-COSTS> 16,965 33,779
<OTHER-EXPENSES> 5,335 10,518
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 801 1,473
<INCOME-PRETAX> (1,863) (2,498)
<INCOME-TAX> (373) (500)
<INCOME-CONTINUING> (1,490) (1,998)
<DISCONTINUED> 0 (166)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,490) (2,164)
<EPS-PRIMARY> (0.23) (0.33)
<EPS-DILUTED> (0.23) (0.33)
</TABLE>
