-----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, C9fReho+Ndqn/SU58nWyKnixZIpd5viGEVMBrPAMIYrBOOvZ1rz/gl5lm0w5D7Sx bVywVWdIUY8Ev2kOt3wvbg== 0000950152-02-007641.txt : 20021017 0000950152-02-007641.hdr.sgml : 20021017 20021017113648 ACCESSION NUMBER: 0000950152-02-007641 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20021017 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-22717 FILM NUMBER: 02791128 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/A 1 l96196be10vqza.txt ACORN PRODUCTS, INC. * FORM 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A No. 1 (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 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: 6,397,374 shares of Common Stock, $.001 par value, were outstanding at August 1, 2002. FORM 10-Q/A ACORN PRODUCTS, INC. TABLE OF CONTENTS PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets 3 December 31, 2001, June 30, 2002 and July 1, 2001 Consolidated Statements of Operations for the Three Months 4 and Six Months Ended July 1, 2001 and June 30, 2002 Consolidated Statements of Cash Flows for the Six Months 5 Ended July 1, 2001 and June 30, 2002 Interim Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 8 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by the Chief Executive Officer 15 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by the Chief Financial Officer 16
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ACORN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
December 31, 2001 June 30, 2002 July 1, 2001 ----------------- -------------- --------------- (Audited) (Unaudited) (Unaudited) ASSETS Current assets: Cash $ 1,391 $ 1,598 $ 1,447 Accounts receivable, less allowance for doubtful accounts and sales allowances ($1,290, $1,337 and $2,561, respectively) 10,831 16,097 21,682 Inventories, less reserves for excess and obsolete inventory ($1,042, $1,381 and $833, respectively) 24,642 20,094 20,053 Prepaids and other current assets 358 3,328 313 -------- -------- -------- Total current assets 37,222 41,117 43,495 Property, plant and equipment, net of accumulated depreciation 11,568 10,707 12,646 Goodwill, net of accumulated amortization 11,808 11,808 26,375 Deferred financing fees 0 1,787 0 Other assets 554 553 645 -------- -------- -------- Total assets $ 61,152 $ 65,972 $ 83,161 ======== ======== ======== LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Revolving credit facility $ 18,132 $ 13,435 $ 23,583 Acquisition facility and junior participation notes 22,348 0 22,231 Accounts payable 5,890 5,232 5,151 Accrued expenses 7,923 6,499 6,414 Income taxes payable 45 45 44 Other current liabilities 76 25 208 -------- -------- -------- Total current liabilities 54,414 25,236 57,631 Term loan facility 0 12,500 0 12% convertible notes 0 10,600 0 Other long term liabilities 676 728 2,340 -------- -------- -------- Total liabilities 55,090 49,064 59,971 Series A redeemable preferred stock 0 8,272 0 Redeemable common stock 0 160 0 Stockholders' equity: Common stock, par value of $.001 per share, 20,000,000 shares authorized, 6,464,105 shares issued, and 6,062,359, 6,397,374 and 6,062,159 shares outstanding at December 31, 2001, June 30, 2002 and July 1, 2001 78,262 78,179 78,262 Contributed capital-stock options 460 460 460 Accumulated other comprehensive loss (2,121) (2,121) (1,551) Retained earnings (deficit) (68,278) (65,871) (51,720) -------- -------- -------- 8,323 10,647 25,451 Common stock in treasury, 401,746, 385,840 and 401,946 shares at December 31, 2001, June 30, 2002 and July 1, 2001 (2,261) (2,171) (2,261) -------- -------- -------- Total stockholders' equity 6,062 8,476 23,190 -------- -------- -------- Total liabilities, redeemable stock and stockholders' equity $ 61,152 $ 65,972 $ 83,161 ======== ======== ========
See accompanying notes. 3 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 1, 2001 June 30, 2002 July 1, 2001 June 30, 2002 ------------- --------------- ------------- --------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net sales $ 28,752 $ 26,655 $ 56,593 $ 53,490 Cost of goods sold 23,291 20,236 43,916 40,319 ----------- ----------- ----------- ----------- Gross profit 5,461 6,419 12,677 13,171 Selling, general and administrative expenses 3,971 3,418 7,749 6,721 Interest expense 1,730 949 3,568 1,818 Amortization of goodwill 218 0 438 0 Other expenses, net 0 1,599 0 2,178 ----------- ----------- ----------- ----------- Income (loss) before income taxes (458) 453 922 2,454 Income taxes 21 21 42 42 ----------- ----------- ----------- ----------- Net income (loss) (479) 432 880 2,412 Preferred stock dividends 0 5 0 5 ----------- ----------- ----------- ----------- Net income (loss) attributable to common shareholders ($ 479) $ 427 $ 880 $ 2,407 =========== =========== =========== =========== Comprehensive income (loss) ($ 479) $ 432 $ 880 $ 2,412 =========== =========== =========== =========== PER COMMON SHARE DATA (BASIC AND DILUTED): Net income (loss) per common share - basic ($ 0.08) $ 0.07 $ 0.15 $ 0.40 =========== =========== =========== =========== Weighted average common shares outstanding - basic 6,062,159 6,092,292 6,062,159 6,082,329 =========== =========== =========== =========== Net income (loss) per common share - diluted ($ 0.08) $ 0.07 $ 0.14 $ 0.40 =========== =========== =========== =========== Weighted average common shares outstanding - diluted 6,062,159 6,092,292 6,078,065 6,082,329 =========== =========== =========== ===========
See accompanying notes. 4 ACORN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
For the Six Months Ended --------------------------------- July 1, 2001 June 30, 2002 ------------ -------------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net cash used in operating activities ($ 2,603) ($ 1,889) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment, net (417) (444) CASH FLOWS FROM FINANCING ACTIVITIES: Net activity on revolving loan 3,797 (4,697) Net activity on term loans and notes (339) (3,363) Proceeds from 12% convertible notes 0 10,600 Proceeds from subordinated debt 413 0 -------- -------- Net cash provided by financing activities 3,871 2,540 -------- -------- Net increase in cash 851 207 Cash at beginning of period 596 1,391 -------- -------- Cash at end of period $ 1,447 $ 1,598 ======== ======== Interest paid $ 2,758 $ 3,427 ======== ========
See accompanying notes. 5 ACORN PRODUCTS, INC. AND SUBSIDIARIES INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Footnote disclosure which would substantially duplicate the disclosure contained in the Annual Report to Stockholders on Form 10-K/A for the year ended December 31, 2001 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 June 30, 2002. 2. Inventories of the Company 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, 2001 June 30, 2002 July 1, 2001 ----------------- ------------- ------------ (in thousands) Finished goods $14,401 $11,619 $10,655 Work in process 5,653 4,401 5,733 Raw materials and supplies 4,588 4,074 3,665 ------- ------- ------- Total inventories $24,642 $20,094 $20,053 ======= ======= =======
3. 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 was effective in the second quarter of fiscal 2001. The Company recognized a gain of approximately $500,000 in the first quarter of fiscal 2001 related to the termination of these benefits. 4. The FASB's Emerging Issues Task Force (EITF) has issued EITF 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products", effective for years beginning after December 15, 2001. The Company adopted EITF 00-25 in the first quarter of fiscal 2002. In accordance with the provisions of this EITF, the Company has reclassified co-op advertising expenses from selling, general and administrative expenses to net sales for the second quarter and the first six months of fiscal 2001. In June 2001, the FASB issued Statements of Financial Accounting Standards No. 141, "Business Combinations", effective for business combinations initiated after June 30, 2001, 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 are no longer amortized but are subject to annual impairment tests in accordance with Statement No. 142. Other intangible assets continue to be amortized over their useful lives. The Company adopted the new rules on accounting for goodwill in the first quarter of 2002. The impact of the non-amortization provisions of Statement No. 142 is as follows:
For the Three Months Ended For the Six Months Ended --------------------------------- ------------------------------- July 1, 2001 June 30, 2002 July 1, 2001 June 30, 2002 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ------------ ------------ ------------ ------------- (in thousands, except per share data) Reported net income (loss) ($479) $432 $880 $2,412 Goodwill amortization 218 0 438 0 ------ ------ ------ ------ Adjusted net income (loss) ($261) $432 $1,318 $2,412 ====== ====== ====== ====== Basic earnings per share: Reported net income (loss) ($0.08) $0.07 $0.15 $0.40 Goodwill amortization 0.04 0.00 0.07 0.00 ------ ------ ------ ------ Adjusted net income (loss) ($0.04) $0.07 $0.22 $0.40 ====== ====== ====== ====== Diluted earnings per share: Reported net income (loss) ($0.08) $0.07 $0.14 $0.40 Goodwill amortization 0.04 0.00 0.07 0.00 ------ ------ ------ ------ Adjusted net income (loss) ($0.04) $0.07 $0.21 $0.40 ====== ====== ====== ======
The Company has performed the required transitional impairment tests of goodwill as of January 1, 2002 and concluded that goodwill at that date was not impaired. However, at June 30, 2002, certain market conditions indicate that a goodwill impairment may exist at that date. Accordingly, pursuant to Statement No. 142, the Company expects to perform the next phase of the impairment evaluation and have a final study prepared during the third quarter of the fiscal year. The net book value of goodwill at June 30, 2002 was $11.8 million. While the result will not be known until the impairment evaluation is complete, the required goodwill writeoff, if any, could be in a range of no impairment to $6 million. The final outcome of the impairment evaluation will be influenced by the valuation of the individual assets and liabilities as required under Statement No. 142, particularly with regard to deferred financing fees, fixed assets, prepaid pension plan asset, and trademarks. 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 borrowing under its credit facility. On June 28, 2002, the Company entered into a recapitalization transaction, obtaining a new $10.0 million investment from its majority stockholders representing funds and accounts managed by TCW Special Credits and Oaktree Capital Management, LLC (the "Principal Holders"). The Company also entered into a new $45.0 million credit facility, agented by CapitalSource Finance, LLC (the "Lender"), consisting of a $12.5 million term loan and a $32.5 million revolving credit component. The term loan bears interest at prime plus 5.0% and the revolving credit component bears interest at prime plus 3.0%. The Lender's facility terminates initially in December 2004 which is automatically extended to June 2007 upon completion of an offering of common shares to minority shareholders (the "Rights Offering") and conversion of certain convertible notes and preferred stock described below. The majority of the proceeds from this transaction went to pay off borrowings under the Company's previous credit facility ($33.7 million was borrowed as of June 27, 2002), that otherwise expired on June 30, 2002. Relative to the extension and termination of its previous credit facility, the Company paid $2.0 million of success fees during the second quarter of fiscal 2002. At June 30, 2002, the Company had $6.7 million available to borrow under its new credit facility. 6 In conjunction with the new facility, the Company issued to the Lender 319,109 shares of its common stock on June 28, 2002, the value of which has been included in deferred financing fees and redeemable common stock in the balance sheet. Moreover, the Company is committed to issue to the Lender additional shares of common stock upon completion of the Rights Offering. In connection with a future termination in full of this new credit facility, the Lender has the right to require the Company to repurchase all the shares issued to such Lender at a price per share that is dependent on certain measures of cash flow, debt and cash at a future date. As of June 28, 2002, the Company's theoretical repurchase obligation on account of all shares issued to the Lender was approximately $0.2 million. Under the Company's commitment to issue additional shares of common stock to the Lender, the theoretical repurchase obligation could increase up to $1.2 million. As part of the recapitalization transaction, the Principal Holders purchased for cash from the Company $10,000,000 principal amount of 12% Convertible Notes due June 15, 2005 (the "Convertible Notes"). Upon the closing of the Rights Offering, the Convertible Notes will be converted into shares of the Company's common stock at the Rights Offering price of $0.50 per share, expected to be completed during the fourth quarter of fiscal 2002. The recapitalization transaction also caused the Principal Holders to receive 822.6696 shares of newly-issued Series A Preferred Stock, $10,000 per share liquidation preference (the "Preferred Stock"), in exchange for all of their previously existing and outstanding interests in the 12% Junior Participation Notes (the "Junior Participation Notes") of UnionTools, Inc., the Company's subsidiary, which represented the total amount of principal and accrued interest on the Junior Participation Notes. The Preferred Stock has an initial aggregate liquidation preference equal to $8,226,696 and accrues dividends at a 12% annual rate. The Preferred Stock becomes mandatorily convertible into common stock at the Rights Offering price upon the closing of the Rights Offering based on the liquidation preference and accrued dividends owing thereon as of the closing date of the Rights Offering. The Rights Offering, the conversion of the Preferred Stock and the conversion of the Convertible Notes are conditioned on the receipt of stockholder approval of the transactions. To the extent that stockholder approval is not obtained for the foregoing transactions, (1) the Preferred Stock shall not convert into common stock but instead shall have an initial investment value of 200% of the initial liquidation preference (the "Investment Value") which shall increase based upon the amount of unpaid dividends, accreted at an effective annual rate of 19% from the date of issuance and the Preferred Stock shall be mandatorily redeemable at June 15, 2005; and (2) the Convertible Notes shall not convert into common stock, but instead shall remain outstanding and the interest rate shall increase to 19% retroactive from the date of issuance of the Convertible Notes. The Principal Holders have agreed to vote their shares in favor of the foregoing transactions and as such the Company believes it is unlikely that the Preferred Stock and Convertible Notes will not be converted into common stock unless a material adverse change shall have occurred prior to the consummation of the Rights Offering (which shall include an actual or prospective default under the Company's debt agreements and the actual or threatened loss of a key employee). If such a material adverse change were to occur, the Principal Holders will not be required to convert the Preferred Stock or Convertible Notes and the terms of the Preferred Stock and Convertible Notes will change to the same terms described above in the case where stockholder approval of the transactions is not obtained. The Company's primary cash needs are for working capital, capital expenditures and debt service. The Company continues to finance these needs through internally generated cash flow and funds borrowed under the credit facility. The Company believes that the liquidity provided by the recapitalization transaction and new credit facility will be sufficient to move through its operating cycle. 6. Restructuring. During the second quarter of 2002, the Company implemented a restructuring plan to relocate its primary distribution center from Columbus, Ohio to Louisville, Kentucky. The total cost of the plan is estimated at $600,000, which is comprised of severance costs of $300,000 associated with 40 terminated distribution center associates and $300,000 in lease termination costs, and is included in Other Expenses, net, in the Consolidated Statements of Operations. Payments associated with severance costs are expected to be made in the third quarter of 2002 and lease termination payments are expected to be paid through the first quarter of 2003. There has not yet been any payments related to these restructuring items as of June 30, 2002. 7 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/A, as well as the factors set forth under the caption "Forward-Looking Information" below. FORWARD-LOOKING INFORMATION Statements in the following discussion that indicate our 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 December 31, 2001, 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 JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JULY 1, 2001 Net Sales. Net sales decreased 7.3%, or $2.1 million, to $26.7 million in the second quarter of fiscal 2002 compared to $28.8 million in the comparable period of fiscal 2001. The decline in net sales was due to a softer demand for our products and the absence of certain customers due to bankruptcy or liquidation, who accounted for $1.0 million of net sales in the second quarter of fiscal 2001. The softer demand for long handled tools was a result of cold spring weather, not conducive to gardening or general yard work, and general economic conditions which have unfavorably affected our industrial business activity. This effect was partially offset by new business gains in the sale of wheelbarrows and in our custom injection molding facility. Gross Profit. Gross profit increased 17.5%, or $0.9 million, to $6.4 million for the second quarter of fiscal 2002 compared to $5.5 million in the comparable period of fiscal 2001. Gross margin increased to 24.1% for the second quarter of fiscal 2002 from 19.0% for the comparable period of fiscal 2001. The increase in gross profit and gross margin was due to continued cost improvements and efficiencies in our manufacturing and logistical processes. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $0.6 million, or 13.9%, to $3.4 million for the second quarter of fiscal 2002 versus $4.0 million in the comparable period of fiscal 2001. As a percentage of net sales, selling, general and administrative expenses decreased to 12.8% in the second quarter of fiscal 2002 as compared to 13.8% in the comparable period of fiscal 2001. The decrease in selling, general and administrative expenses is primarily due to lower sales support costs, in part due to lower sales volume, an increase in information technology costs as a component of product cost, and reductions in employee related costs and other discretionary expenses. Operating Profit. Operating profit increased $1.5 million, or 101.4%, to $3.0 million for the second quarter of fiscal 2002 versus $1.5 million in the comparable period of fiscal 2001. The increase in operating profit is attributable primarily to the items discussed above. Interest Expense. Interest expense decreased $0.8 million, or 45.1%, to $0.9 million in the second quarter of fiscal 2002 compared to $1.7 million in the comparable period of fiscal 2001. We have benefited from lower debt levels and interest rates. Amortization of Goodwill. Amortization of goodwill decreased $0.2 million, or 100.0%, in the second quarter of fiscal 2002 compared to the comparable period of fiscal 2001 due to the adoption of the new accounting rules for goodwill. Other Expenses, Net. Other expenses, net, of $1.6 million were incurred in the second quarter of fiscal 2002 as a result of $0.9 million incurred with respect to investment banking and other costs associated with the strategic alternative process initiated in fiscal 2001 and $0.6 million related to the relocation of our primary distribution center from Columbus, Ohio to Louisville, Kentucky. The Louisville distribution center will provide 8 additional cost savings estimated to be approximately $1.0 million in annualized savings once it is fully functional, which is expected by the end of the third quarter of fiscal 2002. Income (Loss) Before Income Taxes. Income (loss) before income taxes improved $0.9 million to a profit of $0.4 million for the second quarter of fiscal 2002 compared to a loss of $0.5 million in the comparable period of fiscal 2001. The improvement in income is attributable primarily to the items discussed above. Income Taxes. We have not recognized any federal or state income tax liability as we expect to utilize a portion of our $76.9 million net operating loss carryforwards to offset any taxable income for this year. Net Income (Loss). Net income and net income (loss) attributable to common shareholders was $0.4 million for the second quarter of fiscal 2002 compared to a loss of $0.5 million in the comparable period of fiscal 2001. Net income per common share (basic and diluted) was $0.07 for the second quarter of fiscal 2002 based on a weighted average number of common shares outstanding of approximately 6.1 million, compared to net loss per common share of $0.08 (basic and diluted) for the comparable period of fiscal 2001, based on a weighted average number of common shares outstanding of approximately 6.1 million. SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JULY 1, 2001 Net Sales. Net sales decreased 5.5%, or $3.1 million, to $53.5 million in the first six months of fiscal 2002 compared to $56.6 million in the comparable period of fiscal 2001. The decline in net sales was due to the absence of certain customers in the first six months of fiscal 2002, who had purchased approximately $2.0 million in the first six months of fiscal 2001, but subsequently filed for bankruptcy or liquidation. In addition, we experienced softer demand for our products due to general economic conditions and cold spring weather in the second quarter of fiscal 2002. This effect was partially offset by new business we obtained from a few key customers. Gross Profit. Gross profit increased 3.9%, or $0.5 million, to $13.2 million for the first six months of fiscal 2002 compared to $12.7 million in the comparable period of fiscal 2001. Gross margin increased to 24.6% for the first six months of fiscal 2002 from 22.4% for the comparable period of fiscal 2001. The increase is primarily due to continued cost improvements and efficiencies in our manufacturing and logistical processes. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $1.0 million, or 13.3%, to $6.7 million for the first six months of fiscal 2002 versus $7.7 million in the comparable period of fiscal 2001. As a percentage of net sales, selling, general and administrative expenses decreased to 12.6% in the first six months of fiscal 2002 as compared to 13.7% in the comparable period of fiscal 2001. The decrease in selling, general and administrative expenses is primarily due to lower sales support costs, in part due to lower sales volume, an increase in information technology costs as a component of product cost, and reductions in employee related costs and other discretionary expenses. Operating Profit. Operating profit increased 30.9%, or $1.6 million, to $6.5 million for the first six months of fiscal 2002 compared to $4.9 million in the comparable period of fiscal 2001. The increase in operating profit is attributable primarily to the items discussed above. Interest Expense. Interest expense decreased $1.8 million, or 49.1%, to $1.8 million in the first six months of fiscal 2002 compared to $3.6 million in the comparable period of fiscal 2001. We have benefited from lower debt levels and interest rates. Amortization of Goodwill. Amortization of goodwill decreased $0.4 million, or 100.0%, in the first six months of fiscal 2002 compared to $0.4 million in the comparable period of fiscal 2001 due to the adoption of the new accounting rules for goodwill. Other Expenses, Net. Other expenses, net, of $2.2 million were incurred in the first six months of fiscal 2002. In the first quarter of fiscal 2002, we incurred $0.6 million with respect to restricted stock and director bonuses for the success of the strategic alternative process and our performance. In the second quarter of fiscal 2002, we incurred $0.9 million related to investment banking and other costs associated with the strategic alternative process initiated in fiscal 2001. Also in the second quarter of fiscal 2002, we incurred $0.6 million related to the relocation of our primary distribution center from Columbus, Ohio to Louisville, Kentucky. The Louisville distribution center will provide 9 additional cost savings estimated to be approximately $1.0 million in annualized savings once it is fully functional, which is expected by the end of the third quarter of fiscal 2002. Income Before Income Taxes. Income before income taxes improved $1.5 million, or 166.2%, to a profit of $2.5 million for the first six months of fiscal 2002 compared to a profit of $0.9 million in the comparable period of fiscal 2001. The improvement in profit is attributable primarily to the items discussed above. Income Taxes. We have not recognized any federal or state income tax liability as we expect to utilize a portion of our $76.9 million net operating loss carryforwards to offset any taxable income for this year. Net Income. Net income and net income attributable to common shareholders increased 174.1%, or $1.5 million, to a profit of $2.4 million for the first six months of fiscal 2002 compared to a profit of $0.9 million in the comparable period of fiscal 2001. Net income per common share (basic and diluted) was $0.40 for the first six months of fiscal 2002 based on a weighted average number of common shares outstanding of approximately 6.1 million, compared to net income per common share of $0.15 (basic) and $0.14 (diluted) for the comparable period of fiscal 2001, based on a weighted average number of common 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 May. Accordingly, our 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, we 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 fourth quarter of the fiscal year. These factors increase variations in quarterly results of operations and potentially expose us to greater adverse effects of changes in economic and industry trends. Moreover, actual demand for products may vary substantially from the anticipated demand, leaving us with excess inventory or insufficient inventory to satisfy customer orders. LIQUIDITY AND CAPITAL RESOURCES On June 28, 2002, we entered into a recapitalization transaction with our Principal Holders, and entered into a new $45.0 million credit facility. The majority of the proceeds from this transaction went to pay off borrowings under our previous credit facility ($33.7 million), that otherwise was due to expire on June 30, 2002. At June 30, 2002, we had $6.7 million available to borrow under our new credit facility. This has been favorably influenced by requiring a lower investment in accounts receivable, as we have focused on lowering effective payment terms and more timely dispute resolution. NEW CREDIT FACILITY In June 2002, we entered into a five-year, $45.0 million credit facility, agented by CapitalSource Finance, LLC, consisting of a $12.5 million term loan and a $32.5 million revolving credit component. The term loan bears interest at prime plus 5.0% and the revolving credit component bears interest at prime plus 3.0%. The Lender's facility terminates initially in December 2004, but automatically extends to June 2007 upon completion of the Rights Offering and conversion of certain convertible notes and preferred stock described below. In conjunction with the new facility, we issued to the Lender 319,109 shares of our common stock on June 28, 2002, the value of which has been included in deferred financing fees and redeemable common stock in the balance sheet. Moreover, we are committed to issue to the Lender additional shares of common stock upon completion of the Rights Offering. In connection with a future termination in full of this new credit facility, the Lender has the right to require us to repurchase all the shares issued to such Lender at a price per share that is dependent on certain measures of cash flow, debt and cash at a future date. As of June 28, 2002, our theoretical repurchase obligation on account of all shares issued to the Lender was approximately $0.2 million. Under our commitment to issue additional shares of common stock to the Lender, the theoretical repurchase obligation could increase up to $1.2 million. SALE OF CONVERTIBLE NOTES The Principal Holders purchased for cash from us $10,000,000 principal amount of 12% Convertible Notes due June 15, 2005. Upon the closing of the Rights Offering, the Convertible Notes will be converted into shares of our common stock at the Rights Offering price of $0.50 per share, expected to be completed during the fourth quarter of fiscal 2002. To the extent that 10 stockholder approval is not obtained for the foregoing transactions, the Convertible Notes shall not convert into common stock, but instead shall remain outstanding and the interest rate shall increase to 19% retroactive from the date of issuance of the Convertible Notes. NOTE EXCHANGE The Principal Holders received 822.6696 shares of newly-issued Series A Preferred Stock, $10,000 per share liquidation preference (the "Preferred Stock"), in exchange for all of their previously existing and outstanding interests in the 12% Junior Participation Notes of UnionTools, Inc., our subsidiary, which represented the total amount of principal and accrued interest on the Junior Participation Notes. PREFERRED STOCK The Preferred Stock has an initial aggregate liquidation preference equal to $8,226,696 and accrues dividends at a 12% annual rate. The Preferred Stock becomes mandatorily convertible into common stock at the Rights Offering price upon the closing of the Rights Offering (as discussed below) based on the liquidation preference and accrued dividends owing thereon as of the closing date of the Rights Offering. The Rights Offering (and the conversion of the Preferred Stock and the Convertible Notes) are conditioned on the receipt of stockholder approval of the transactions. To the extent that stockholder approval is not obtained for the foregoing transactions, the Preferred Stock shall not convert into common stock but instead shall have an initial investment value of 200% of the initial liquidation preference (the "Investment Value") which shall increase based upon the amount of unpaid dividends. Such Investment Value shall accrete at an effective annual rate of 19% from the date of issuance and the Preferred Stock shall be mandatorily redeemable at June 15, 2005. The Principal Holders have agreed to vote their shares in favor of the foregoing transactions and as such it is unlikely that the Preferred Stock will not be converted into common stock unless a material adverse change shall have occurred prior to the consummation of the Rights Offering (which shall include an actual or prospective default under our debt agreements and the actual or threatened loss of a key employee). PRO FORMA IMPACT OF RECAPITALIZATION AFTER COMPLETION OF THE RIGHTS OFFERING We are pursuing stockholder approval and the Rights Offering, expected to be completed in the fourth quarter of fiscal 2002. The following table shows the effect, at June 30, 2002, as if stockholder approval and the Rights Offering had already been completed (assuming no proceeds are received from the Rights Offering). To the extent shares are sold in the Rights Offering, the net proceeds must be applied to reduce up to $600,000 of redeemable common stock, with the next $500,000 paid to us and amounts greater than $1.1 million to reduce the long-term debt. While we expect the full transaction to be completed, there can be no assurance as to when and if the transaction will be finalized. June 30, 2002 ------------- Actual Pro Forma ------ --------- Long-Term Debt and Notes $23,100 $12,500 Series A Redeemable Preferred Stock 8,272 0 Redeemable Common Stock 160 1,847 Stockholders' Equity 8,476 26,748 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 operations have not been material between the first six months of fiscal 2002 and the comparable period of fiscal 2001. 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INFLATION AND INTEREST RATES We have not been significantly affected by inflation in recent years and anticipate that we will not be significantly affected by inflation in the near term. A material change in interest rates could have an impact on our financial results as we are presently paying a variable interest rate on our outstanding debt. On June 28, 2002, we entered into a five-year, $45.0 million credit facility. In connection with the facility, the interest rate charged on outstanding borrowings is prime plus 5.0% for the term loan and prime plus 3.0% for the revolving line of credit. 12 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. Exhibit No. Description 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (b) REPORTS ON FORM 8-K. On June 6, 2002, we filed with the SEC a report on Form 8-K dated May 29, 2002 (Items 5 and 7). On June 17, 2002, we filed with the SEC a report on Form 8-K dated June 13, 2002 (Items 5 and 7). On July 2, 2002, we filed with the SEC a report on Form 8-K dated June 28, 2002 (Items 5 and 7). 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned thereunto duly authorized. ACORN PRODUCTS, INC. Date: October 17, 2002 By: /s/ A. Corydon Meyer ---------------------------------------- A. Corydon Meyer, President and Chief Executive Officer (Principal Executive Officer) Date: October 17, 2002 By: /s/ John G. Jacob ---------------------------------------- John G. Jacob, Vice President and Chief Financial Officer (Principal Financial Officer) 14 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, A. Corydon Meyer, certify that: 1. I have reviewed this quarterly report on Form 10-Q/A No. 1 of Acorn Products, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statments, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: October 17, 2002 /s/ A. Corydon Meyer ----------------------------------------------- A. Corydon Meyer Chief Executive Officer of Acorn Products, Inc. 15 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John G. Jacob, certify that: 1. I have reviewed this quarterly report on Form 10-Q/A No. 1 of Acorn Products, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: October 17, 2002 /s/ John G. Jacob ----------------------------------------------- John G. Jacob Chief Financial Officer of Acorn Products, Inc. 16 EX-99.1 3 l96196bexv99w1.txt EX-99.1 CERTIFICATION OF CEO EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Acorn Products, Inc. (the "Company") on Form 10-Q/A No. 1 for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, A. Corydon Meyer, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ A. Corydon Meyer -------------------------------------------- A. Corydon Meyer, Chief Executive Officer October 17, 2002 EX-99.2 4 l96196bexv99w2.txt EX-99.2 CERTIFICATION OF CFO EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Acorn Products, Inc. (the "Company") on Form 10-Q/A No. 1 for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John G. Jacob, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ John G. Jacob -------------------------------------------- John G. Jacob, Chief Financial Officer October 17, 2002 -----END PRIVACY-ENHANCED MESSAGE-----