-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vt3H9/Y+J7y+C2h9NhaUsjotLIZcxbGCmYm+inzaL9Od5bxJYaU/5vzgRk3qBl3y TQxFoFyNwo5DGJxso+wBJg== 0000950152-01-503726.txt : 20010813 0000950152-01-503726.hdr.sgml : 20010813 ACCESSION NUMBER: 0000950152-01-503726 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010701 FILED AS OF DATE: 20010810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACORN PRODUCTS INC CENTRAL INDEX KEY: 0001036713 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 223265462 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22717 FILM NUMBER: 1704419 BUSINESS ADDRESS: STREET 1: 390 W NATIONWIDE BLVD CITY: COLUMBUS STATE: OH ZIP: 43215-1930 BUSINESS PHONE: 6142224400 MAIL ADDRESS: STREET 1: 390 W NATIONWIDE BLVD CITY: COLUMBUS STATE: OH ZIP: 43215-1930 10-Q 1 l89425ae10-q.txt ACORN PRODUCTS, INC. FORM 10-Q 1 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 July 1, 2001 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 WEST NATIONWIDE BOULEVARD, COLUMBUS, OHIO 43215 (Address of principal executive offices, including zip code) (614) 222-4400 (Registrant's telephone number, including area code) NONE (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 August 1, 2001. 2 FORM 10-Q ACORN PRODUCTS, INC. TABLE OF CONTENTS -----------------
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets 3 December 31, 2000 and July 1, 2001 Consolidated Statements of Operations for the Three Months 4 And Six Months Ended July 2, 2000 and July 1, 2001 Consolidated Statements of Cash Flows for the Six Months 5 Ended July 2, 2000 and July 1, 2001 Interim Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 8 Condition and Results of Operations PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 14
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ACORN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
December 31, 2000 July 1, 2001 --------------------- ---------------- (Unaudited) ASSETS Current assets: Cash $596 $1,447 Accounts receivable, less allowance for doubtful accounts 14,541 21,682 and sales allowances ($2,125 and $2,561, respectively) Inventories, less reserves for excess and obsolete inventory 24,488 20,053 ($1,523 and $833, respectively) Prepaids and other current assets 616 313 --------------------- ---------------- Total current assets 40,241 43,495 Property, plant and equipment, net of accumulated depreciation 14,096 12,646 Goodwill, net of accumulated amortization 26,813 26,375 Other intangible assets 731 645 --------------------- ---------------- Total assets $81,881 $83,161 ===================== ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving credit facility $19,787 $23,583 Acquisition facility 15,342 15,111 Junior participation term loan note 6,707 7,120 Accounts payable 7,196 5,151 Accrued expenses 7,307 6,414 Income taxes payable 50 44 Other current liabilities 211 208 --------------------- ---------------- Total current liabilities 56,600 57,631 Other long-term liabilities 2,971 2,340 --------------------- ---------------- Total liabilities 59,571 59,971 Stockholders' equity: Common stock, par value of $.001 per share, 20,000,000 shares 78,262 78,262 authorized, 6,464,105 shares issued, and 6,062,159 shares outstanding at December 31, 2000 and July 1, 2001 Contributed capital-stock options 460 460 Accumulated other comprehensive loss (1,551) (1,551) Retained earnings (deficit) (52,600) (51,720) --------------------- ---------------- 24,571 25,451 Common stock in treasury, 401,946 shares at (2,261) (2,261) December 31, 2000 and July 1, 2001 --------------------- ---------------- Total stockholders' equity 22,310 23,190 --------------------- ---------------- Total liabilities and stockholders' equity $81,881 $83,161 ===================== ================
See accompanying notes. 3 4 ACORN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
For the Three Months Ended For the Six Months Ended ------------------------------ ------------------------------ July 2, 2000 July 1, 2001 July 2, 2000 July 1, 2001 ------------- -------------- ------------- -------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net sales $35,170 $29,428 $75,907 $57,744 Cost of goods sold 27,621 23,099 59,497 43,724 ------------- -------------- ------------- -------------- Gross profit 7,549 6,329 16,410 14,020 Selling, general and administrative expenses 5,784 4,665 11,770 8,874 Interest expense 1,885 1,730 3,712 3,568 Asset impairment charge 4,402 0 4,402 0 Amortization of goodwill 297 218 566 438 Other expenses, net 139 174 245 218 ------------- -------------- ------------- -------------- Income (loss) before income taxes (4,958) (458) (4,285) 922 Income taxes 20 21 40 42 ------------- -------------- ------------- -------------- Net income (loss) ($4,978) ($479) ($4,325) $880 ============= ============== ============= ============== Comprehensive income (loss) ($4,978) ($479) ($4,325) $880 ============= ============== ============= ============== Per Share Data (Basic and Diluted): Net income (loss) - basic ($0.82) ($0.08) ($0.71) $0.15 ============= ============== ============= ============== Net income (loss) - diluted ($0.82) ($0.08) ($0.71) $0.14 ============= ============== ============= ============== Weighted average shares outstanding - basic 6,058,728 6,062,159 6,052,639 6,062,159 ============= ============== ============= ============== Weighted average shares outstanding - diluted 6,058,728 6,062,159 6,052,639 6,078,065 ============= ============== ============= ==============
See accompanying notes. 4 5 ACORN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
For the Six Months Ended ---------------------------------------- July 2, 2000 July 1, 2001 ----------------- ----------------- (Unaudited) (Unaudited) Cash Flows From Operating Activities: Net cash provided by (used in) operating activities ($4,266) ($2,603) Cash Flows From Investing Activities: Purchases of property, plant and equipment, net (134) (417) ----------------- ----------------- Net cash provided by (used in) investing activities (134) (417) Cash Flows From Financing Activities: Net activity on revolving loan 4,072 3,797 Proceeds from subordinated debt 0 413 Principal payment on long-term debt 0 (339) ----------------- ----------------- Net cash provided by (used in) financing activities 4,072 3,871 ----------------- ----------------- Net increase (decrease) in cash (328) 851 Cash at beginning of period 1,326 596 ----------------- ----------------- Cash at end of period $998 $1,447 ================= ================= Interest paid $3,022 $2,758 ================= =================
See accompanying notes. 5 6 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 December 31, 2000 has not been included. The unaudited interim consolidated financial statements reflect all adjustments (consisting of normal recurring 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 July 1, 2001. The lawn and garden industry is seasonal in nature, with a high proportion of sales and operating income generated in January through June. Accordingly, the Company's sales tend to be greater during those months. As a result, 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, inventory levels tend to be at their highest, relative to sales, during the last six months of the year. The seasonality of sales also causes variability in selling, general and administrative expenses as a percentage of net sales, with the fixed component of these expenses driving a lower percentage relationship to net sales in the first half of the year and a higher percentage relationship to net sales in the second half of the year. Weather is the most significant factor in determining market demand for the Company's products and is inherently unpredictable. Fluctuations in weather can be favorable or unfavorable for the sale of lawn and garden equipment. Management believes that a longer winter weather pattern across the country negatively affected spring season purchases. 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, 2000 July 1, 2001 -------------------- ----------------- (in thousands) Finished goods $11,349 $10,655 Work in process 6,652 5,733 Raw materials and supplies 6,487 3,665 -------------------- ----------------- Total inventories $24,488 $20,053 3. In July 2000, the FASB's Emerging Issues Task Force (EITF) issued EITF 00-10, Accounting for Shipping and Handling Fees and Costs. In accordance with the provisions of this EITF, the Company has reclassified freight expenses from sales to cost of goods sold for the first two quarters of fiscal 2000. 4. In February 2001, the Company, acting in its capacity as plan sponsor and policy holder, notified certain of its retirees of its decision to eliminate retiree medical and life benefits. The amended change in the post-retirement benefit plans is effective in the second quarter of fiscal 2001. Subsequently, certain of the Company's retirees challenging its actions have taken legal action. While the Company's actions have been disputed, the Company has reserved the rights to modify or terminate the benefits within the context of each plan document. In the first quarter of 2001, the Company recognized a gain of approximately $500,000 related to the termination of these benefits. 5. The Company's consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is substantially dependent upon borrowings under its credit facility. On August 9, 2001, the Company entered into a sixteenth amendment to the amended and restated credit facility (the "sixteenth amendment"), the terms of which it believes will be sufficient to fund operations through April 30, 2002, the revised term of the facility. The sixteenth amendment provides for a $35 million revolving credit facility (the "Revolving Facility") from January 1 through June 30 ($25 million from July 1 through October 31; $30 million from November 1 through December 31). Available borrowings under the Revolving Facility are based on specified percentages of accounts receivable and inventory. In addition, the sixteenth amendment 6 7 provides for scheduled loan payments to be applied on a pro rata basis to the outstanding balances under the Company's acquisition loans and Revolving Facility. The scheduled loan payments are as follows: DATE PAYMENT -------------------- ---------------------------------- July 23, 2001 $350,000 September 30, 2001 $350,000 December 31, 2001 $350,000 March 31, 2002 $350,000 April 30, 2002 Entire remaining principal balance of the acquisition loans, together with all accrued but unpaid interest thereon, and all other obligations, shall be due and payable in full. The sixteenth amendment contains certain covenants, which, among other things, require the Company to maintain specified financial ratios and satisfy certain tests, including maintaining cumulative EBITDA above specified levels, and places limits on future capital expenditures. The sixteenth amendment also maintains the negative covenants that existed under the previous credit facility. In addition, in compliance with the requirements of the sixteenth amendment, the Company has engaged investment bankers to identify strategic alternatives. Borrowings under the sixteenth amendment bear interest at either the bank prime rate plus a margin of 3% or, at the Company's option, the LIBOR rate plus a margin of 4%. Interest is due and payable monthly in arrears. In addition, the Company is required to pay a fee of 0.5% per year on the unused portion of the Revolving Facility. The sixteenth amendment also includes a "success fee" of approximately $1,750,000. The success fee can be reduced to a minimum of $500,000 based upon the Company satisfying certain provisions within the sixteenth amendment. Borrowings under the amended facility are secured by substantially all of the assets of UnionTools and are guaranteed by Acorn. The Acorn guarantee is secured by a pledge of all the capital stock of UnionTools. 6. In June 2001, the FASB issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of $875,000 ($0.14 per share) per year. During 2002, the Company will perform the first of the required impairment tests of goodwill as of January 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's 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 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 December 31, 2000 as well as in the 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 JULY 1, 2001 COMPARED TO THREE MONTHS ENDED JULY 2, 2000 Net Sales. Net sales decreased 16.3%, or $5.8 million, to $29.4 million in the second quarter of fiscal 2001 compared to $35.2 million in the comparable period of fiscal 2000. The decline in net sales reflects the discontinuation of the sale and manufacture of watering products and the ongoing rationalization of customers and products within our custom injection molding product line. There was also a decrease in the sale of long handled tools, primarily due to the credit condition of a few key customers, limiting our ability to ship their full demand in the second quarter of fiscal 2001. Gross Profit. Gross profit decreased 16.2%, or $1.2 million, to $6.3 million for the second quarter of fiscal 2001 compared to $7.5 million in the comparable period of fiscal 2000. Gross margin was essentially flat at 21.5% for the second quarter of fiscal 2001 and for the comparable period of fiscal 2000. The decrease in gross profit was due to lower sales volume. The gross margin was influenced by continued cost improvements offset by the loss of overhead absorption due to lower production levels in response to the decline in sales. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $1.1 million, or 19.4%, to $4.7 million for the second quarter of fiscal 2001 versus $5.8 million in the comparable period of fiscal 2000. As a percentage of net sales, selling, general and administrative expenses decreased to 15.9% in the second quarter of fiscal 2001 as compared to 16.4% in the comparable period of fiscal 2000. The improvement in selling, general and administrative expenses is due to cost reductions in sales support costs and administrative overhead, including the effect of the discontinuation of watering products. Operating Profit. Operating profit (gross profit less selling, general and administrative expenses) decreased $0.1 million, or 5.7%, to a profit of $1.7 million for the second quarter of fiscal 2001 compared to a profit of $1.8 million in the comparable period of fiscal 2000. The decrease in operating profit for the second quarter was primarily due to the items discussed above. Interest Expense. Interest expense decreased $0.2 million, to $1.7 million for the second quarter of fiscal 2001 compared to $1.9 million in the comparable period of fiscal 2000. The benefit of lower debt levels was partially offset by higher financing and related costs. Amortization of Goodwill and Other Expenses, Net. Other expenses, net, including amortization of goodwill, was essentially flat at $0.4 million in the second quarter of fiscal 2001 and the comparable period of fiscal 2000. Asset Impairment Charge. An asset impairment charge of $4.4 million was recognized in the second quarter of fiscal 2000 based on management review of the net realizable value on long-lived assets, specifically the value of goodwill related to the acquisitions of the Company's watering product line. There was no asset impairment charge taken in the comparable period of fiscal 2001. 8 9 Loss Before Income Taxes. Loss before income taxes improved to a loss of $0.5 million for the second quarter of fiscal 2001 compared to $5.0 million in the comparable period of fiscal 2000. The improvement was attributed primarily to the items discussed above. Net Loss. Net loss was $0.5 million for the second quarter of fiscal 2001 compared to $5.0 million in the comparable period of fiscal 2000. Net loss per share (basic and diluted) was $0.08 for the second quarter of fiscal 2001 based on a weighted average number of shares outstanding of approximately 6.1 million, compared to net loss per share of $0.82 (basic and diluted) for the comparable period of fiscal 2000, based on a weighted average number of shares outstanding of approximately 6.1 million. SIX MONTHS ENDED JULY 1, 2001 COMPARED TO SIX MONTHS ENDED JULY 2, 2000 Net Sales. Net sales decreased 23.9%, or $18.2 million, to $57.7 million for the first six months of fiscal 2001 compared to $75.9 million in the comparable period of fiscal 2000. The decline in net sales was driven by a 17% drop in the sale of long handled tools, caused by soft demand and the credit condition of a few key customers, limiting our ability to ship their full demand in the first six months of fiscal 2001. We believe the soft demand has been industry wide and resulted from customer actions to manage to lower retail inventories, as well as, a longer winter weather pattern across the country that negatively effected spring season purchases. The discontinuation of the sale and manufacture of watering products and the ongoing rationalization of customers and products within our custom injection molding product line also contributed to the decline in net sales in the first six months of fiscal 2001. Gross Profit. Gross profit decreased 14.6%, or $2.4 million, to $14.0 million for the first six months of fiscal 2001 compared to $16.4 million in the comparable period of fiscal 2000. Gross margin increased to 24.3% for the first six months of fiscal 2001 from 21.6% for the comparable period of fiscal 2000. The decrease in gross profit was due to lower sales volume partially offset by cost improvements in the manufacturing and logistical processes of the Company. The increase in gross margin was driven by cost improvements which includes the effect of rationalizing products and customers, as well as, the reduction of certain employee benefit programs, including post-retirement medical benefits. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $2.9 million, or 24.6%, to $8.9 million for the first six months of fiscal 2001 versus $11.8 million in the comparable period of fiscal 2000. As a percentage of net sales, selling, general and administrative expenses decreased to 15.4% in the first six months of fiscal 2001 as compared to 15.5% in the comparable period of fiscal 2000. The decrease in selling, general and administrative expenses is due to cost reductions in sales support costs and administrative overhead, including the effect of the discontinuation of watering products. Operating Profit. Operating profit (gross profit less selling, general and administrative expenses) increased $0.5 million, or 10.9%, to a profit of $5.1 million for the first six months of fiscal 2001 compared to a profit of $4.6 million in the comparable period of fiscal 2000. The increase in operating profit was primarily due to the items discussed above. Interest Expense. Interest expense decreased $0.1 million, to $3.6 million for the first six months of fiscal 2001 compared to $3.7 million in the comparable period of fiscal 2000. The benefit of lower debt levels was offset by higher financing and related costs. Amortization of Goodwill and Other Expenses, Net. Other expenses, net, including amortization of goodwill, decreased to $0.7 million for the first six months of fiscal 2001 compared to $0.8 million in the comparable period of fiscal 2000. Asset Impairment Charge. An asset impairment charge of $4.4 million was recognized for the first six months of fiscal 2000 based on management review of the net realizable value on long-lived assets, specifically the value of goodwill related to the acquisitions of the Company's watering product line. There was no asset impairment charge taken in the comparable period of fiscal 2001. 9 10 Income (Loss) Before Income Taxes. Income (loss) before income taxes improved to a profit of $0.9 million for the first six months of fiscal 2001 compared to a loss of $4.3 million in the comparable period of fiscal 2000. The improvement was attributed primarily to the items discussed above. Net Income (Loss). Net income was $0.9 million for the first six months of fiscal 2001 compared to a loss of $4.3 million in the comparable period of fiscal 2000. Net income per share was $0.15 (basic) and $0.14 (diluted) for the first six months of fiscal 2001 based on a weighted average number of shares outstanding of approximately 6.1 million, compared to net loss per share of $0.71 (basic and diluted) for the comparable period of fiscal 2000, based on a weighted average number of shares outstanding of approximately 6.1 million. SEASONAL AND QUARTERLY FLUCTUATIONS The lawn and garden industry is seasonal in nature, with a high proportion of sales and operating income generated in January through June. Accordingly, the Company's sales tend to be greater during those months. As a result, 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, inventory levels tend to be at their highest, relative to sales, during the last six months of the year. The seasonality of sales also causes variability in selling, general and administrative expenses as a percentage of net sales, with the fixed component of these expenses driving a lower percentage relationship to net sales in the first half of the year and a higher percentage relationship to net sales in the second half of the year. These factors increase variations in quarterly results of operations and potentially expose the Company to greater adverse effects of changes in economic and industry trends. Moreover, actual demand for products may vary substantially from the anticipated demand, leaving the Company with excess inventory or insufficient inventory to satisfy customer orders. LIQUIDITY AND CAPITAL RESOURCES The Company is substantially dependent upon borrowings under its credit facility. On August 9, 2001, the Company entered into a sixteenth amendment to the amended and restated credit facility (the "sixteenth amendment"), the terms of which it believes will be sufficient to fund operations through April 30, 2002, the revised term of the facility. The sixteenth amendment provides for a $35 million revolving credit facility (the "Revolving Facility") from January 1 through June 30 ($25 million from July 1 through October 31; $30 million from November 1 through December 31). Available borrowings under the Revolving Facility are based on specified percentages of accounts receivable and inventory. In addition, the sixteenth amendment provides for scheduled loan payments to be applied on a pro rata basis to the outstanding balances under the Company's acquisition loans and Revolving Facility. The scheduled loan payments are as follows: DATE PAYMENT -------------------- ---------------------------------- July 23, 2001 $350,000 September 30, 2001 $350,000 December 31, 2001 $350,000 March 31, 2002 $350,000 April 30, 2002 Entire remaining principal balance of the acquisition loans, together with all accrued but unpaid interest thereon, and all other obligations, shall be due and payable in full. The sixteenth amendment contains certain covenants, which, among other things, require the Company to maintain specified financial ratios and satisfy certain tests, including maintaining cumulative EBITDA above specified levels, and places limits on future capital expenditures. The sixteenth amendment also maintains the negative covenants that existed under the previous credit facility. In addition, in compliance with the requirements of the sixteenth amendment, the Company has engaged investment bankers to identify strategic alternatives. 10 11 Borrowings under the sixteenth amendment bear interest at either the bank prime rate plus a margin of 3% or, at the Company's option, the LIBOR rate plus a margin of 4%. Interest is due and payable monthly in arrears. In addition, the Company is required to pay a fee of 0.5% per year on the unused portion of the Revolving Facility. The sixteenth amendment also includes a "success fee" of approximately $1,750,000. The success fee can be reduced to a minimum of $500,000 based upon the Company satisfying certain provisions within the sixteenth amendment. The Company continues to take actions to generate cash from sources other than operations, including the evaluation of all non-strategic assets for purposes of sale, particularly the liquidation of excess or obsolete inventory. EFFECTS OF INFLATION The Company is adversely affected by inflation primarily through the purchase of raw materials, increased operating costs and expenses and higher interest rates. The Company believes that the effects of inflation on operations have not been material between the second quarter of fiscal 2001 and the comparable period of 2000. 11 12 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its 2001 Annual Meeting of Stockholders on May 30, 2001. Holders of 5,031,236 common shares of the Company were present representing 83.0% of the Company's common shares issued and outstanding and entitled to vote at the meeting. The following persons were elected as members of the Company's Board of Directors to serve until the annual meeting following their election or until their successors are duly elected and qualified. Each person received the number of votes for or the number of votes with authority withheld indicated below. Name Votes For Votes Withheld ---- --------- -------------- William W. Abbott 4,860,333 170,903 Matthew S. Barrett 4,860,333 170,903 John J. Kahl 4,860,333 170,903 Stephan A. Kaplan 4,860,333 170,903 John L. Mariotti 4,860,333 170,903 A. Corydon Meyer 4,860,333 170,903 The proposal to approve Ernst & Young LLP as the Company's independent certified public accountants passed with 5,028,136 shares voting in favor, 3,000 shares voting against and 100 shares abstaining. The proposal to approve an amendment increasing the number of common shares available for issuance under the Company's Non-employee Director Stock Option Plan from 73,000 to 200,000 passed with 4,789,963 shares voting in favor, 239,473 shares voting against and 1,800 shares abstaining. ITEM 5. OTHER INFORMATION Effective June 1, 2001, Acorn Director Stephen A. Kaplan resigned as a director of the Company. The Board of Directors elected Vincent J. Cebula to the Board of Directors to fill the vacancy created by Mr. Kaplan's resignation. Mr. Cebula is a Managing Director of Oaktree Capital Management, LLC, where he has worked since June 1995. From April 1994 until May 1995, Mr. Cebula was a Senior Vice President of TCW Asset Management Company. Mr. Cebula serves on the boards of directors of several private companies. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. None. (b) REPORTS ON FORM 8-K. On May 1, 2001, the Company filed with the SEC a report on Form 8-K dated April 30, 2001 (Items 5 and 7). On May 10, 2001, the Company filed with the SEC a report on Form 8-K dated May 7, 2001 (Items 5 and 7). On May 17, 2001, the Company filed with the SEC a report on Form 8-K dated May 14, 2001 (Items 5 and 7). On May 23, 2001, the Company filed with the SEC a report on Form 8-K dated May 21, 2001 (Items 5 and 7). On June 7, 2001, the Company filed with the SEC a report on Form 8-K dated June 4, 2001 (Items 5 and 7). 12 13 On June 13, 2001, the Company filed with the SEC a report on Form 8-K dated June 5, 2001 (Item 5). On June 20, 2001, the Company filed with the SEC a report on Form 8-K dated June 15, 2001 (Items 5 and 7). On June 29, 2001, the Company filed with the SEC a report on Form 8-K dated June 26, 2001 (Items 5 and 7). On August 10, 2001, the Company filed with the SEC a report on Form 8-K dated August 10, 2001 (Item 5). 13 14 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: August 10, 2001 By: /s/ A. Corydon Meyer ------------------------------------------------- A. Corydon Meyer, President and Chief Executive Officer (Principal Executive Officer) Date: August 10, 2001 By: /s/ John G. Jacob ------------------------------------------------- John G. Jacob, Vice President and Chief Financial Officer (Principal Financial Officer) 14 -----END PRIVACY-ENHANCED MESSAGE-----