10-Q 1 0001.txt ACORN PRODUCTS, INC. 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 July 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 August 1, 2000. 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, 1999 and July 2, 2000 Consolidated Statements of Operations for the Three Months 4 And Six Months Ended July 4, 1999 and July 2, 2000 Consolidated Statements of Cash Flows for the Six Months 5 Ended July 4, 1999 and July 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 6. Exhibits and Reports on Form 8-K 10 Signatures 11
-2- PART I. FINANCIAL INFORMATION Item 1. Financial Statements ACORN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
December 31, 1999 July 2, 2000 ------------------- -------------- (Unaudited) (Unaudited) ASSETS Current assets: Cash $ 1,326 $ 998 Accounts receivable, less allowance for doubtful accounts and sales allowances ($2,140 and $3,104, respectively) 18,021 30,627 Inventories 33,168 26,797 Prepaids and other current assets 1,012 513 ------------------- -------------- Total current assets 53,527 58,935 Property, plant and equipment, net of accumulated depreciation 17,571 15,929 Goodwill, net of accumulated amortization 32,544 27,251 Other intangible assets 1,431 1,233 ------------------- -------------- Total assets $ 105,073 $ 103,348 =================== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving credit facility $ 27,228 $ 30,665 Accounts payable 9,004 8,436 Accrued expenses 5,694 5,548 Income taxes payable 206 175 Other current liabilities 843 308 ------------------- -------------- Total current liabilities 42,975 45,132 Long-term debt 22,009 22,644 Other long-term liabilities 3,125 2,846 ------------------- -------------- Total liabilities 68,109 70,622 Stockholders' equity: Common stock, par value of $.001 per share, 20,000,000 shares authorized, 6,464,105 shares issued, 6,046,680 and 6,062,159 shares outstanding at December 31, 1999 and July 2, 2000, respectively 78,262 78,262 Contributed capital-stock options 460 460 Accumulated other comprehensive loss (778) (778) Retained earnings (deficit) (38,632) (42,957) ------------------- -------------- 39,312 34,987 Common stock in treasury, 417,425 and 401,946 shares at December 31, 1999 and July 2, 2000, respectively (2,348) (2,261) ------------------- -------------- Total stockholders' equity 36,964 32,726 ------------------- -------------- Total liabilities and stockholders' equity $ 105,073 $ 103,348 =================== ==============
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 4, 1999 July 2, 2000 July 4, 1999 July 2, 2000 (Unaudited) (Unaudited) (Unaudited) (Unaudited) ------------ ------------ ------------ ------------ Net sales $ 35,033 $ 33,555 $ 71,910 $ 72,169 Cost of goods sold 32,316 26,006 59,480 55,759 ------------ ------------ ------------ ------------ Gross profit 2,717 7,549 12,430 16,410 Selling, general and administrative expenses 6,464 5,826 12,139 11,815 Interest expense 1,222 1,885 2,212 3,712 Asset impairment charge 0 4,402 0 4,402 Amortization of goodwill 261 297 522 566 Other expenses, net 262 97 741 200 ------------ ------------ ------------ ------------ Loss before income taxes (5,492) (4,958) (3,184) (4,285) Income taxes 99 20 561 40 ------------ ------------ ------------ ------------ Loss from continuing operations (5,591) (4,978) (3,745) (4,325) Loss from discontinued operations, net of tax (758) 0 (758) 0 ------------ ------------ ------------ ------------ Net loss ($6,349) ($4,978) ($4,503) ($4,325) ============ ============ ============ ============ Comprehensive loss ($6,349) ($4,978) ($4,503) ($4,325) ============ ============ ============ ============ Per Share Data (Basic and Diluted): Loss from continuing operations ($0.92) ($0.82) ($0.60) ($0.71) Loss from discontinued operations ($0.13) $ 0.00 ($0.12) $ 0.00 ------------ ------------ ------------ ------------ Net loss ($1.05) ($0.82) ($0.72) ($0.71) ============ ============ ============ ============ Weighted average shares outstanding - basic and diluted 6,053,652 6,058,728 6,234,966 6,052,639 ============ ============ ============ ============
See accompanying notes. -4- ACORN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
For the Six Months Ended ----------------------------------- July 4, 1999 July 2, 2000 ---------------- ----------------- (Unaudited) (Unaudited) Cash Flows From Operating Activities: Net cash used in operating activities ($1,241) ($4,266) Cash Flows From Investing Activities: Purchases of property, plant and equipment, net (3,011) (134) ------------- -------------- Net cash used in investing activities (3,011) (134) Cash Flows From Financing Activities: Net activity on revolving loan 6,375 4,072 Purchase of treasury stock (2,488) 0 ------------- -------------- Net cash provided by financing activities 3,887 4,072 ------------- -------------- Net decrease in cash (365) (328) Cash at beginning of period 1,548 1,326 ------------- -------------- Cash at end of period $ 1,183 $ 998 ============= ============== Interest paid $ 1,966 $ 3,022 ============= ==============
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 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 July 2, 2000. All such adjustments are of a normal recurring nature, except for the adjustment as described in note 3. 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, 1999 July 2, 2000 (in thousands) (in thousands) ----------------- -------------- Finished goods $ 18,272 $ 13,825 Work in process 3,836 2,633 Raw materials and supplies 11,060 10,339 ----------------- -------------- Total inventories $ 33,168 $ 26,797 3. 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. 4. On August 11, 2000, the Company entered into an agreement to sell certain assets related to the manufacturing and sale of its watering products, for approximately $3.6 million. The transaction is expected to close within 60 days, at which time the Company will discontinue offering watering products for sale. -6- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the 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 July 30, 1999 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 2, 2000 Compared to Three Months Ended July 4, 1999 Net Sales. Net sales decreased 4.2%, or $1.5 million, to $33.5 million in the second quarter of fiscal year 2000 compared to $35.0 million in the comparable period of calendar year 1999. The decline in net sales was caused primarily by lower gross sales of long handled tools, partially offset by lower sales allowances and deductions. Sales of long handled tools have lessened due to reduced levels of retail inventory and the loss of volume at a few customer accounts as the Company continues to focus on profitable relationships. Lower sales allowances and deductions are driven by the continuation of good customer service performance of on time and complete shipments, and related efficiencies. Gross Profit. Gross profit increased 178%, or $4.8 million, to $7.5 million for the second quarter of fiscal year 2000 compared to $2.7 million in the comparable period of calendar 1999. Gross margin increased to 22.5% for the second quarter of fiscal 2000 from 7.8% for the comparable period of calendar 1999. The increase in gross profit and margin were driven primarily by several factors. Improvements in logistical and manufacturing controls have contributed to the year to year gains in the Company's results in fiscal year 2000. Specifically, the improvements in inventory control and transaction integrity have resulted in lower levels of obsolescence and shrinkage versus a year ago. In 1999, the Company wrote off product tooling and obsolete inventory related to a discontinued product offering, with no related effect in fiscal 2000. These improvements versus prior year were partially offset by the expediting costs and manufacturing inefficiencies incurred in fiscal year 2000 related to the final effects of the consolidation of the Company's manufacturing operations. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $0.7 million, or 9.9%, to $5.8 million for the second quarter of fiscal year 2000 versus $6.5 million in the comparable period of 1999. As a percentage of net sales, selling, general and administrative expenses decreased to 17.4% in the second quarter of fiscal 2000 as compared to 18.5% in the comparable period of calendar 1999. The improvement reflects productivity gains and cost reductions, including lower sales expenses and a reduction in personnel. Operating Income. Operating income increased $5.5 million, to a profit of $1.7 million for the second quarter of fiscal year 2000 compared to a loss of $3.8 million in the comparable period of calendar 1999. The improvement in operating profit for the second quarter was primarily due to the items discussed above. Interest Expense. Interest expense increased $0.7 million, to $1.9 million for the second quarter of fiscal year 2000 compared to $1.2 million in the comparable period of calendar 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 the Company's loan agreement, and higher borrowing levels. Amortization of Goodwill and Other Expenses, Net. Other expenses, net, including amortization of goodwill, decreased to $0.4 million in the second quarter of fiscal year 2000 compared to $0.5 million in the -7- comparable period of calendar 1999. The decrease in other expenses is primarily due to the absence of severance costs incurred in the prior year as a result of the Company's manufacturing facility consolidation. 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 calendar 1999. Loss from Continuing Operations Before Income Taxes. Loss from continuing operations before income taxes improved to a loss of $5.0 million for the second quarter of fiscal year 2000 compared to $5.5 million in the comparable period of calendar 1999. The improvement was attributed primarily to the items discussed above. Net Loss. Net loss was $5.0 million for the second quarter of fiscal year 2000 compared to $6.3 million in the comparable period of calendar 1999. Net loss per share (basic and diluted) was $0.82 for the second quarter of fiscal year 2000 based on a weighted average number of shares outstanding of approximately 6.1 million, compared to net loss per share of $1.05 for the comparable period of calendar 1999, based on a weighted average number of shares outstanding of approximately 6.1 million. Six Months Ended July 2, 2000 Compared to Six Months Ended July 4, 1999 Net Sales. Net sales increased slightly, up $0.3 million, to $72.2 million for the first six months of fiscal year 2000 compared to $71.9 million in the comparable period of calendar year 1999. Improvements in customer service levels and dissolution of the Company's wheelbarrow joint venture, resulting in wheelbarrow sales being included in results, were offset by the loss of volume at a few customer accounts as the Company continues to focus on profitable relationships. Gross Profit. Gross profit increased 32.0%, or $4.0 million, to $16.4 million for the first six months of fiscal year 2000 compared to $12.4 million in the comparable period of calendar 1999. Gross margin increased to 22.7% for the first six months of fiscal 2000 from 17.3% for the comparable period of calendar 1999. The increase in gross profit and margin were driven primarily by several factors. Improvements in logistical and manufacturing controls have contributed to the year to year gains in the Company's results in fiscal year 2000. Specifically, the improvements in inventory control and transaction integrity have resulted in lower levels of obsolescence and shrinkage versus a year ago. In 1999, the Company wrote off product tooling and obsolete inventory related to a discontinued product offering, with no related effect in fiscal 2000. These improvements versus prior year were partially offset by the expediting costs and manufacturing inefficiencies incurred in fiscal year 2000 related to the final effects of the consolidation of the Company's manufacturing operations. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $0.3 million, or 2.7%, to $11.8 million for the first six months of fiscal year 2000 versus $12.1 million in the comparable period of calendar 1999. As a percentage of net sales, selling, general and administrative expenses decreased to 16.4% in the first six months of fiscal 2000 as compared to 16.9% in the comparable period of calendar 1999. The improvement reflects productivity gains and cost reductions, including lower sales expenses and a reduction in personnel. These gains were partially offset by incremental investments in technology and other key infrastructure areas. Operating Income. Operating income increased $4.3 million, to a profit of $4.6 million for the first six months of fiscal year 2000 compared to a profit of $0.3 million in the comparable period of calendar 1999. The improvement in operating profit for the first six months was primarily due to the items discussed above. Interest Expense. Interest expense increased $1.5 million, to $3.7 million for the first six months of fiscal year 2000 compared to $2.2 million in the comparable period of calendar 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 the Company's loan agreement, and higher borrowing levels. Amortization of Goodwill and Other Expenses, Net. Other expenses, net, including special charges and amortization of goodwill, decreased to $0.8 million for the first six months of fiscal year 2000 compared to $1.3 million in the comparable period of calendar 1999. The decrease in other expenses is primarily due to the absence -8- of acquisition activity related costs and the charges associated with the consolidation of the Company's manufacturing facilities, incurred in the prior year. Asset Impairment Charge. An asset impairment charge of $4.4 million was recognized in 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 calendar 1999. Loss from Continuing Operations Before Income Taxes. Loss from continuing operations before income taxes increased to a loss of $4.3 million for the first six months of fiscal year 2000 compared to $3.2 million in the comparable period of calendar 1999. The difference was attributed primarily to the items discussed above. Net Loss. Net loss was $4.3 million for the first six months of fiscal year 2000 compared to $4.5 million in the comparable period of calendar 1999. Net loss per share (basic and diluted) was $0.71 for the first six months of fiscal year 2000 based on a weighted average number of shares outstanding of approximately 6.1 million, compared to net loss per share of $0.72 for the comparable period of calendar 1999, based on a weighted average number of shares outstanding of approximately 6.2 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, 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 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 There have been no significant changes in the Company's liquidity and capital resources as of July 2, 2000 from those discussed in the Annual Report on Form 10-K for the fiscal year ended July 30, 1999. 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 2000 and the comparable period of 1999. -9- PART II. OTHER INFORMATION 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. -10- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ACORN PRODUCTS, INC. Date: August 11, 2000 By: /s/ A. Corydon Meyer ---------------------- A. Corydon Meyer, President and Chief Executive Officer (Principal Executive Officer) Date: August 11, 2000 By: /s/ John G. Jacob ------------------- John G. Jacob, Vice President and Chief Financial Officer (Principal Financial Officer)
-11- ACORN PRODUCTS, INC. AND SUBSIDIARIES FORM 10-Q EXHIBIT INDEX Exhibit Exhibit Number Description 27 Financial Data Schedule.