<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 April 2, 2000
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.)
390 Dublin Avenue, Columbus, Ohio 43215
(Address of principal executive offices, including zip code)
(614) 222-4400
(Registrant's telephone number, including area code)
(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: 6,062,159 shares of
Common Stock, $.001 par value, were outstanding at May 1, 2000.
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FORM 10-Q
ACORN PRODUCTS, INC.
Table of Contents
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
December 31, 1999 and April 2, 2000
Consolidated Statements of Operations for the Three Months 4
Ended April 4, 1999 and April 2, 2000
Consolidated Statements of Cash Flows for the Three Months 5
Ended April 4, 1999 and April 2, 2000
Interim Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December April 2,
31, 1999 2000
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(Unaudited) (Unaudited)
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ASSETS
Current assets:
Cash............................................................ $ 1,326 $ 548
Accounts receivable, less allowance for doubtful accounts and
sales allowances ($2,140 and $2,400, respectively)............ 18,021 34,825
Inventories..................................................... 33,168 30,888
Prepaids and other current assets............................... 1,012 1,063
-------------- --------------
Total current assets.......................................... 53,527 67,324
Property, plant and equipment, net of accumulated depreciation.. 17,571 16,631
Goodwill, net of accumulated amortization....................... 32,544 32,276
Other intangible assets......................................... 1,431 1,199
-------------- --------------
Total assets.................................................. $ 105,073 $ 117,430
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility....................................... $ 27,228 $ 36,224
Accounts payable................................................ 9,004 11,570
Accrued expenses................................................ 5,694 6,473
Income taxes payable............................................ 206 214
Other current liabilities....................................... 843 309
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Total current liabilities..................................... 42,975 54,790
Long-term debt.................................................. 22,009 22,009
Other long-term liabilities..................................... 3,125 3,014
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Total liabilities............................................. 68,109 79,813
Stockholders' equity:
Common stock, par value of $.001 per share, 20,000,000 shares
authorized, 6,464,105 shares issued, and 6,046,680 shares
outstanding at December 31, 1999 and April 2, 2000............ 78,262 78,262
Contributed capital-stock options............................... 460 460
Accumulated other comprehensive loss............................ (778) (778)
Retained earnings (deficit)..................................... (38,632) (37,979)
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39,312 39,965
Common stock in treasury, 417,425 shares at
December 31, 1999 and April 2, 2000........................... (2,348) (2,348)
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Total stockholders' equity...................................... 36,964 37,617
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Total liabilities and stockholders' equity...................... $ 105,073 $ 117,430
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See accompanying notes.
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ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
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<CAPTION>
For the Three Months Ended
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April 4, April 2,
1999 2000
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(Unaudited) (Unaudited)
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Net sales......................................................... $ 36,877 $ 38,614
Cost of goods sold................................................ 27,164 29,753
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Gross profit...................................................... 9,713 8,861
Selling, general and administrative expenses...................... 5,675 5,989
Interest expense.................................................. 990 1,827
Amortization of goodwill.......................................... 261 269
Other expenses, net............................................... 479 103
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Income before income taxes........................................ 2,308 673
Income taxes...................................................... 462 20
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Net income........................................................ $ 1,846 $ 653
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Comprehensive income.............................................. $ 1,846 $ 653
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Per Share Data (Basic and Diluted):
Net income........................................................ $ 0.29 $ 0.11
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Weighted average shares outstanding - basic....................... 6,410,594 6,046,680
============= ===============
Weighted average shares outstanding - diluted..................... 6,443,852 6,062,586
============= ===============
</TABLE>
See accompanying notes.
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ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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<CAPTION>
For the Three Months Ended
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April 4, April 2,
1999 2000
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(Unaudited) (Unaudited)
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Cash Flows From Operating Activities:
Net cash used in operating activities......................... $ (8,478) $ (9,479)
Cash Flows From Investing Activities:
Purchases of property, plant and equipment, net............... (1,064) (295)
------------ -----------
Net cash used in investing activities......................... (1,064) (295)
Cash Flows From Financing Activities:
Net activity on revolving loan................................ 10,569 8,996
Purchase of treasury stock.................................... (1,502) 0
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Net cash provided by financing activities..................... 9,067 8,996
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Net decrease in cash.......................................... (475) (778)
Cash at beginning of period................................... 1,548 1,326
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Cash at end of period......................................... $ 1,073 $ 548
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Interest paid................................................. $ 734 $ 1,516
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</TABLE>
See accompanying notes.
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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 30, 1999
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
April 2, 2000. 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:
December 31, April 2,
1999 2000
------------ ------------
(in thousands)
Finished goods..................... $ 18,272 $16,034
Work in process.................... 3,836 4,107
Raw materials and supplies......... 11,060 10,747
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Total inventories.................. $ 33,168 $30,888
============ ============
3. Certain prior year amounts have been reclassified to conform to the
presentation for the three month period ended April 2, 2000.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with our
consolidated financial statements 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 our 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 our Annual Report on Form
10-K for the year ended July 30, 1999 as well as in our Current Report on Form
8-K filed with the Securities and Exchange Commission on September 18, 1997, as
amended on October 29, 1998 and November 12, 1999, and as the same may be
amended from time to time.
Three Months Ended April 2, 2000 Compared to Three Months Ended April 4, 1999
Net Sales. Net sales increased 4.7%, or $1.7 million, to $38.6 million
in the first quarter of fiscal 2000, compared to $36.9 million in the first
three months of calendar year 1999. The increase in net sales was primarily
caused by three factors: (1) strong customer demand, (2) improved service
levels, consistently exceeding 95% complete and on-time for key customers, and
(3) dissolution of our wheelbarrow joint venture, resulting in wheelbarrow sales
being included in our results. Sales allowances and deductions in long handled
tool sales, up slightly versus the prior year, have improved dramatically from
the last six months of calendar 1999 due to logistical efficiencies, strong
product availability, and adherence to formalized customer programs.
Gross Profit. Gross profit decreased 8.8%, or $0.8 million, to $8.9
million in the first quarter of fiscal 2000, compared to $9.7 million in the
comparable period of 1999. Gross margin decreased to 22.9% for the first
quarter, from 26.3% for the comparable period of fiscal 1999. The declines in
gross profit and margin were driven primarily by manufacturing inefficiencies
related to continuing effects of the consolidation of our manufacturing
operations, including scrap levels, machine down-time and related costs, and due
to costs incurred with overtime and other expediting costs to keep up with
demand during the peak season for long handled tools.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 5.5%, or $0.3 million, to $6.0 in the first
quarter of fiscal 2000, compared to $5.7 million in the comparable period of
1999. As a percentage of net sales, selling, general and administrative expenses
increased to 15.5% in the first quarter of fiscal 2000, as compared to 15.4% in
the comparable period of 1999. Incremental investments in technology and other
key infrastructure areas were partially offset by cost reductions and
productivity gains.
Operating Income. Operating income decreased $1.1 million, to a profit
of $2.9 million for the first quarter of fiscal 2000, compared to a profit of
$4.0 million in the comparable period of 1999. The decrease in operating profit
for the first quarter was primarily due to the items discussed above.
Interest Expense. Interest expense increased $0.8 million, to $1.8
million for the first quarter of fiscal 2000, compared to $1.0 million in the
comparable period of 1999. The increase in interest expense was primarily due to
higher market rates (LIBOR) and borrowing costs, as a result of the most current
amendment to our loan agreement, and higher borrowing levels. The Company is
actively pursuing the refinancing of its business needs on a more cost-effective
basis.
Amortization of Goodwill and Other Expenses, Net. Other expenses, net,
including special charges and amortization of goodwill, decreased to $0.4
million in the first quarter of fiscal 2000, compared to $0.7 million in the
comparable period of 1999. The decrease in other expenses is primarily due to
the absence of acquisition activity related costs and the charges associated
with the consolidation of manufacturing facilities for our watering product
line, incurred in the prior year.
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Income Before Income Taxes. Income before income taxes decreased to
$0.7 million for the first quarter of fiscal 2000, compared to $2.3 million in
the comparable period of 1999. The decreased profit was attributed primarily to
the items discussed above. Assets related to our commercial watering product
line were determined to be non-strategic and were sold in April 2000. The
operating loss related to this product line was $370,000, or $.06 per share, for
the first quarter of fiscal 2000, and an expected loss of approximately $100,000
in the second quarter of fiscal 2000.
Net Income. Net income was $0.7 million for the first quarter of fiscal
2000, compared to $1.8 million in the comparable period of 1999. Net income per
share (basic and diluted) was $0.11 for the first quarter of fiscal 2000 based
on a weighted average number of shares outstanding of approximately 6.0 million,
compared to net income per share of $0.29 for the comparable period of fiscal
1999, based on a weighted average number of shares outstanding of approximately
6.4 million.
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 June.
Accordingly, our sales tend to be greater during those months. As a result, our
operating results depend significantly on the spring selling season. To support
this sales peak, we must anticipate demand and build inventories of finished
goods throughout the fall and winter. Accordingly, our levels of raw materials
and finished goods inventories tend to be at their highest, relative to sales,
during the last six months of the year. These factors increase variations in our
quarterly results of operations and potentially expose us to greater adverse
effects of changes in economic and industry trends. Moreover, actual demand for
our products may vary substantially from the anticipated demand, leaving us with
excess inventory or insufficient inventory to satisfy customer orders.
Weather is the single most important factor in determining market
demand for our 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
There have been no significant changes in our liquidity and capital
resources as of April 2, 2000 from those discussed in our Annual Report on Form
10-K for the fiscal year ended July 30, 1999.
Effects of Inflation
We are adversely affected by inflation primarily through the purchase
of raw materials, increased operating costs and expenses and higher interest
rates. We believe that the effects of inflation on our operations have not been
material between the first quarter of fiscal 2000 and the comparable period of
1999.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on Tuesday, April 11, 2000,
for the following purposes:
(1) To elect six (6) directors to the Board of Directors, each to serve for
terms expiring at the next Annual Meeting of Stockholders, or until
their successor is elected and qualified.
(2) To ratify the appointment of Ernst & Young LLP as independent certified
public accountants for calendar 2000.
(3) To approve an amendment increasing the number of shares available for
issuance under the 1997 Non-Employee Directors Stock Option Plan.
(4) To approve an amendment increasing the number of shares available for
issuance under the 1997 Stock Incentive Plan.
Management's proposals, as presented in the proxy statement, were
approved with the following votes:
For Withhold Authority
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Proposal (1):
William W. Abbott 5,787,776 170,019
Matthew S. Barrett 5,789,476 168,319
John J. Kahl 5,764,803 192,992
Stephen A. Kaplan 5,789,676 168,119
John L. Mariotti 5,787,776 170,019
A. Corydon Meyer 5,789,676 168,119
For Against Abstain
--- ------- -------
Proposal (2) 5,866,423 76,618 14,754
Proposal (3) 4,692,111 809,600 23,644
Proposal (4) 4,546,080 956,421 22,854
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit Exhibit
Number Description
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
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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: May 15, 2000 By: /s/ A. Corydon Meyer
-------------------------------------
A. Corydon Meyer, President and Chief
Executive Officer
(Principal Executive Officer)
Date: May 15, 2000 By: /s/ John G. Jacob
---------------------------------------
John G. Jacob, Vice President and Chief
Financial Officer
(Principal Financial Officer)
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ACORN PRODUCTS, INC. AND SUBSIDIARIES
FORM 10-Q
EXHIBIT INDEX
Exhibit Exhibit
Number Description
27 Financial Data Schedule.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-02-2000
<CASH> 548
<SECURITIES> 0
<RECEIVABLES> 36,852
<ALLOWANCES> 2,027
<INVENTORY> 30,888
<CURRENT-ASSETS> 67,324
<PP&E> 17,696
<DEPRECIATION> 1,065
<TOTAL-ASSETS> 117,430
<CURRENT-LIABILITIES> 54,790
<BONDS> 0
0
0
<COMMON> 78,262
<OTHER-SE> (40,645)
<TOTAL-LIABILITY-AND-EQUITY> 117,430
<SALES> 38,614
<TOTAL-REVENUES> 38,614
<CGS> 29,753
<TOTAL-COSTS> 29,753
<OTHER-EXPENSES> 103
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<INTEREST-EXPENSE> 1,827
<INCOME-PRETAX> 673
<INCOME-TAX> 20
<INCOME-CONTINUING> 653
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 653
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.11
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