-----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, VnJIxhb7Wpty3ZzWuQF17w+HxtBFghyTzFjSQhjQQRfJS6SQJ93MI4u49C9Tq7wN BHx0yOADP0+pFNW2Rplm+g== 0001047469-98-024078.txt : 19980616 0001047469-98-024078.hdr.sgml : 19980616 ACCESSION NUMBER: 0001047469-98-024078 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980501 FILED AS OF DATE: 19980615 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACORN PRODUCTS INC CENTRAL INDEX KEY: 0001036713 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 223265462 FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22717 FILM NUMBER: 98647980 BUSINESS ADDRESS: STREET 1: 500 DUBLIN AVENUE CITY: COLUMBUS STATE: OH ZIP: 43216-1930 BUSINESS PHONE: 6142224400 MAIL ADDRESS: STREET 1: 500 DUBLIN AVENUE CITY: COLUMBUS STATE: OH ZIP: 43216-1930 10-Q 1 10-Q 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 May 1, 1998 OR / / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 0-22717 ACORN PRODUCTS, INC. (Exact name of registrant as specified in its charter) DELAWARE 22-3265462 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 DUBLIN AVENUE, COLUMBUS, OHIO 43215 (Address of principal executive offices, including zip code) (614) 222-4400 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 6,464,105 shares of Common Stock, $.001 par value, were outstanding at June 11, 1998. FORM 10-Q ACORN PRODUCTS, INC. TABLE OF CONTENTS
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Balance Sheets 3 August 1, 1997 and May 1, 1998 Consolidated Statements of Operations For the Quarter 4 and the Nine Months Ended May 2, 1997 and May 1, 1998 Consolidated Statements of Cash Flows For the Nine Months Ended 5 May 2, 1997 and May 1, 1998 Interim Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 7-9 Condition and Results of Operations. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. 10 Signatures 11
-2- PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ACORN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
AUGUST 1, MAY 1, 1997 1998 --------- ------ (Unaudited) ASSETS Current assets: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,509 $ 1,730 Accounts receivable, less allowance for doubtful accounts ($713 and $971, respectively). . . . . . . . . . . 18,462 36,487 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,642 31,559 Prepaids and other current assets . . . . . . . . . . . . . . . . . . . 3,773 1,602 -------- -------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 51,386 71,378 Property, plant and equipment, net of accumulated depreciation. . . . . 15,650 16,407 Goodwill, net of accumulated amortization . . . . . . . . . . . . . . . 29,374 30,997 Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . 2,480 2,462 -------- -------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,890 $121,244 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . $ 12,837 $ 26,164 Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,872 11,750 Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,707 4,764 Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . 350 258 Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . 711 674 -------- -------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . . 24,477 43,610 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,098 9,358 Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . 4,496 4,308 Net liabilities of discontinued operations . . . . . . . . . . . . . . . . 595 -- -------- -------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 35,666 57,276 Stockholders' equity: Common stock, par value of $.001 per share, 20,000,000 shares authorized, 6,464,105 shares issued and outstanding at August 1, 1997 and May 1, 1998, respectively. . . . . . . . . . . . . . . . 78,391 78,391 Contributed capital-stock options. . . . . . . . . . . . . . . . . . . . . 460 460 Minimum pension liability. . . . . . . . . . . . . . . . . . . . . . . . . (133) (133) Retained earnings (deficit). . . . . . . . . . . . . . . . . . . . . . . . (15,494) (14,750) -------- -------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 63,224 63,968 -------- -------- Total liabilities and stockholders' equity . . . . . . . . . . . . . $ 98,890 $121,244 -------- -------- -------- --------
See accompanying notes. -3- ACORN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE QUARTER ENDED FOR THE NINE MONTHS ENDED ------------------------ ------------------------- MAY 2, MAY 1, MAY 2, MAY 1, 1997 1998 1997 1998 --------- --------- --------- --------- (Unaudited) (Unaudited) Net sales . . . . . . . . . . . . . . . . $ 37,270 $ 37,911 $ 77,967 $ 79,470 Cost of goods sold . . . . . . . . . . . . . 26,935 29,440 57,077 61,057 --------- --------- --------- --------- Gross profit . . . . . . . . . . . . . . . . 10,335 8,471 20,890 18,413 Selling, general and administrative expenses . . . . . . . . . . . . . . . . . 4,807 5,526 13,448 14,756 Interest expense . . . . . . . . . . . . . . 2,500 720 5,743 1,761 Amortization of intangibles. . . . . . . . . 202 231 604 668 Other expenses, net. . . . . . . . . . . . . (36) 102 1,222 181 --------- --------- --------- --------- Income (loss) from continuing operations before income taxes . . . . . . 2,862 1,892 (127) 1,047 Income taxes . . . . . . . . . . . . . . . . 52 549 52 303 --------- --------- --------- --------- Income (loss) from continuing operations . . . . . . . . . . . . . . . . 2,810 1,343 (179) 744 Discontinued operations: Loss from operations . . . . . . . . . . . 602 -- (461) -- Loss from disposal . . . . . . . . . . . . (3,095) -- (9,114) -- --------- --------- --------- --------- Loss from discontinued operations . . . . . . . . . . . . . . (2,493) -- (9,575) -- --------- --------- --------- --------- Net income (loss). . . . . . . . . . . . . . $317 $1,343 $(9,754) $744 --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) applicable to common stock . . . . . . . . . . . . . . . $38 $1,343 $(10,591) $744 PER SHARE DATA (BASIC AND DILUTED): Income (loss) from continuing operations . . . . . . . . . . . . . . . . $1.88 $0.21 $(0.12) $0.12 Loss from discontinued operations. . . . . . $(1.66) $-- $(6.40) $-- Preferred stock dividend . . . . . . . . . . $(0.19) $-- $(0.56) $-- --------- --------- --------- --------- Net income (loss) applicable to common stock . . . . . . . . . . . . . . . $0.03 $0.21 $(7.08) $0.12 --------- --------- --------- --------- --------- --------- --------- --------- Weighted average shares outstanding. . . . . . . . . . . . . . . . 1,498,056 6,464,105 1,495,249 6,464,105 --------- --------- --------- --------- --------- --------- --------- ---------
See accompanying notes. -4- ACORN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE NINE MONTHS ENDED ------------------------- MAY 2, MAY 1, 1997 1998 -------- -------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9,754) $ 744 Adjustments to reconcile net income (loss) to net cash provided by (used in) continuing operations: Loss from discontinued operations. . . . . . . . . . . . . . . . . . 9,575 -- Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 2,402 2,886 Financing fees, net. . . . . . . . . . . . . . . . . . . . . . . . . 30 -- Issuance of stock options. . . . . . . . . . . . . . . . . . . . . . 120 -- Changes in operating assets and liabilities: Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . (20,875) (17,464) Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,276) (2,701) Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (53) 1,755 Accounts payable and accrued expenses. . . . . . . . . . . . . . . 8,432 5,541 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . (911) (92) Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . (711) (225) -------- -------- Net cash provided by (used in) continuing operations . . . . . . . . . (19,021) (9,556) Net cash provided by (used in) discontinued operations . . . . . . . . 3,598 (625) -------- -------- Net cash provided by (used in) operating activities. . . . . . . . . . (15,423) (10,181) CASH FLOWS FROM INVESTING ACTIVITIES: Net assets from acquisitions . . . . . . . . . . . . . . . . . . . . . (6,455) (3,260) Purchases of property, plant and equipment, net. . . . . . . . . . . . (1,639) (2,925) Proceeds from disposal of discontinued operations. . . . . . . . . . . 6,177 -- -------- -------- Net cash provided by (used in) investing activities. . . . . . . . . . (1,917) (6,185) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on acquisition loan . . . . . . . . . . . . . . . . . . . . 8,268 3,260 Net activity on revolving loan . . . . . . . . . . . . . . . . . . . . 8,482 13,327 Issuance of stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 88 -- -------- -------- Net cash provided by (used in) financing activities. . . . . . . . . . 16,838 16,587 -------- -------- Net increase (decrease) in cash. . . . . . . . . . . . . . . . . . . . (502) 221 Cash at beginning of period. . . . . . . . . . . . . . . . . . . . . . 502 1,509 -------- -------- Cash at end of period. . . . . . . . . . . . . . . . . . . . . . . . . $ -- $1,730 -------- -------- -------- -------- Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,186 $1,354 -------- -------- -------- --------
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 August 1, 1997 has not been included. The unaudited interim consolidated financial statements reflect all adjustments, in the opinion of management, that 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 May 1, 1998. All such adjustments are of a normal recurring nature. 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:
AUGUST 1, MAY 1, 1997 1998 --------- ------- (IN THOUSANDS) Finished goods . . . . . . . . . . . . . . . $14,460 $15,418 Work in process. . . . . . . . . . . . . . . 7,041 7,101 Raw materials and supplies . . . . . . . . . 6,741 9,677 ------- ------- 28,242 32,196 Valuation reserves . . . . . . . . . . . . . (600) (637) ------- ------- Total inventories. . . . . . . . . . . . . . $27,642 $31,559 ------- ------- ------- -------
3. In June 1998, the Company completed the acquisition of Thompson Manufacturing Company ("Thompson") for approximately $6.65 million. The final purchase price is subject to certain closing working capital adjustments. The Company will account for the acquisition as a purchase. Based in Chino, California, Thompson manufactures and markets consumer-oriented hose attachment products, such as spray nozzles and sprinklers, as well as commercial irrigation systems. The Company borrowed approximately $6.7 million through the acquisition line of its bank credit facility to finance the Thompson acquisition. -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 consolidated financial statements of the Company and the other financial information included elsewhere in this Quarterly Report on Form 10-Q, as well as the factors set forth under the caption "Forward-Looking Information" below. FORWARD-LOOKING INFORMATION Statements in the following discussion that indicate the Company's or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those suggested in the forward-looking statements is contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year ended August 1, 1997, as well as in the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 18, 1997, as the same may be amended from time to time. THREE MONTHS ENDED MAY 1, 1998 COMPARED TO THREE MONTHS ENDED MAY 2, 1997 NET SALES. Net sales increased 1.7%, or $641,000, to $37.9 million in the third quarter of fiscal 1998 compared to $37.3 million in the third quarter of fiscal 1997. The increase in net sales reflected $3.9 million of net sales by the Company's injection molding division and the Company's watering products subsidiary, as well as sales of new products, partially offset by a decline in net sales of long handle tools of approximately $3.2 million. GROSS PROFIT. Gross profit decreased 18.0%, or $1.9 million, to $8.5 million in the third quarter of fiscal 1998 compared to $10.3 million in the third quarter of fiscal 1997. Gross margin decreased to 22.3% in the third quarter of fiscal 1998 compared to 27.7% in the comparable period in fiscal 1997. The decrease in gross margin primarily was due to lower net sales of long handle tools and lower overhead absorption rates realized as the Company decreased production in response to sluggish demand, as well as additional promotional pricing in response to competitive pressures. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 15.0%, or $719,000, to $5.5 million in the third quarter of fiscal 1998 compared to $4.8 million in the third quarter of fiscal 1997. As a percentage of net sales, selling, general and administrative expenses increased to 14.6% in the third quarter of fiscal 1998 from 12.9% in the third quarter of fiscal 1997. The increase primarily resulted from increased selling expenses related to trade shows and cooperative advertising and to increased administrative expenses resulting from the Company's public company reporting requirements and pursuit of the Company's acquisition strategy. The Company also incurred additional selling expenses related to its injection molding division and watering products subsidiary. OTHER EXPENSES, NET. Other expenses, net, increased to $102,000 in the third quarter of fiscal 1998 compared to other income, net of $36,000 in the third quarter of fiscal 1997 primarily due to foreign currency transaction gains in the third quarter of 1997 not realized in 1998. INCOME FROM CONTINUING OPERATIONS. Income from continuing operations before income taxes decreased 33.9%, or $970,000, to $1.9 million in the third quarter of fiscal 1998 compared to $2.9 million in the same period of fiscal 1997. The Company recognized taxes of $549,000 in the third quarter of fiscal 1998, bringing income from continuing operations to $1.3 million in the third quarter of fiscal 1998 compared to $2.8 million in the third quarter of fiscal 1997. The decrease in income from continuing operations primarily was due to the decline in net sales and gross profit discussed above, partially offset by a $1.8 million reduction in interest expense as a result of the retirement of indebtedness in connection with the Company's initial public offering in July 1997. NET INCOME. Net income increased $1.0 million to $1.3 million in the third quarter of fiscal 1998 compared to $317,000 in the third quarter of fiscal 1997. The Company incurred a loss from discontinued operations of $2.5 million in the third quarter of fiscal 1997. NINE MONTHS ENDED MAY 1, 1998 COMPARED TO NINE MONTHS ENDED MAY 2, 1997 NET SALES. Net sales increased 1.9%, or $1.5 million, to $79.5 million in the first nine months of fiscal 1998 compared to $78.0 million in the first nine months of fiscal 1997. The increase in net sales reflected $7.0 million of net sales by the Company's injection molding division and the Company's recently acquired H.B. Sherman Manufacturing -7- Company watering products subsidiary, as well as sales of new products, partially offset by a decline in net sales of long handle tools and snow tools of approximately $5.4 million. GROSS PROFIT. Gross profit decreased 11.9%, or $2.5 million, to $18.4 million in the first nine months of fiscal 1998 compared to $20.9 million in the first nine months of fiscal 1997. Gross margin decreased to 23.2% in the first nine months of fiscal 1998 compared to 26.8% in the first nine months of fiscal 1997. The decrease in gross margin primarily was due to lower net sales of long handle tools and lower overhead absorption rates realized as the Company decreased production in response to sluggish demand, as well as additional promotional pricing in response to competitive pressures. Gross margin also was adversely affected by increased manufacturing costs related to new product development and lower gross margins realized on sales by the Company's injection molding division. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 9.7%, or $1.3 million, to $14.8 million in the first nine months of fiscal 1998 compared to $13.4 million in the first nine months of fiscal 1997. As a percentage of net sales, selling, general and administrative expenses increased to 18.6% in the first nine months of fiscal 1998 compared to 17.2% in the same period of fiscal 1997. The increase primarily resulted from the addition of selling expenses related to trade shows and cooperative advertising and to increased administrative expenses resulting from the Company's public company reporting requirements and pursuit of the Company's acquisition strategy. The Company also incurred additional selling expenses related to its injection molding division and watering products subsidiary. OTHER EXPENSES, NET. Other expenses, net, decreased $1.0 million to $181,000 in the first nine months of fiscal 1998 compared to $1.2 million in the first nine months of fiscal 1997. The Company incurred bank fees of $951,000 in the second quarter of fiscal 1997. INCOME FROM CONTINUING OPERATIONS. Income from continuing operations before income taxes increased to $1.0 million in the first nine months of fiscal 1998 from a loss of $127,000 in the first nine months of fiscal 1997. The Company recognized taxes of $303,000 in the in the first nine months of fiscal 1998, bringing income from continuing operations to $744,000 compared to a loss of $179,000 in the comparable period of fiscal 1997. The increase in income from continuing operations primarily was due to a $4.0 million reduction in interest expense as a result of retirement of indebtedness in connection with the Company's initial public offering in July 1997 and a $1.0 million reduction in other expenses, net. NET INCOME. Net income increased $10.5 million to $744,000 in the first nine months of fiscal 1998 compared to a loss of $9.8 million in the first nine months of fiscal 1997. The Company incurred a loss from discontinued operations of $9.6 million in the first nine months of fiscal 1997. ACQUISITIONS In June 1998, the Company completed the acquisition of Thompson for approximately $6.65 million. The final purchase price is subject to certain closing working capital adjustments. Based in Chino, California, Thompson manufactures and markets consumer-oriented hose attachment products, such as spray nozzles and sprinklers, as well as commercial irrigation systems. The Company borrowed approximately $6.7 million through the acquisition line of its bank credit facility to finance the Thompson acquisition. SEASONAL AND QUARTERLY FLUCTUATIONS; IMPACT OF WEATHER The lawn and garden industry is seasonal in nature, with a high proportion of sales and operating income generated in January through May. Accordingly, the Company's sales tend to be greater during its third and fourth fiscal quarters. As a result, the Company's operating results depend significantly on the spring selling season. To support this sales peak, the Company must anticipate demand and build inventories of finished goods throughout the fall and winter. Accordingly, the Company's level of raw materials and finished goods inventories tend to be at their highest, relative to sales, during the Company's first and second fiscal quarters. These factors increase variations in the Company's quarterly results of operations and potentially expose the Company to greater adverse effects of changes in economic and industry trends. Moreover, actual demand for the Company's products may vary substantially from the anticipated demand, leaving the Company with excess inventory or insufficient inventory to satisfy customer orders. Weather is the single most important factor in determining market demand for the Company's products and also is the least predictable. For example, while floods in the Midwest adversely affected the sale of most types of lawn and garden equipment in 1992, the severe winter of 1994 resulted in a surge in demand for snow shovels. In addition, bad weather during the spring gardening season, such as that experienced throughout most of the U.S. in the spring of 1995 and 1998, can adversely affect overall annual sales. -8- LIQUIDITY AND CAPITAL RESOURCES There have been no significant changes in the Company's liquidity or capital resources as of May 1, 1998 from those discussed in the Company's Annual Report on Form 10-K for the year ended August 1, 1997. In July 1997, the Company used approximately $9.6 million of the net proceeds from its initial public offering to redeem outstanding preferred stock and pay accumulated dividends thereon, approximately $11.0 million of the net proceeds from its initial public offering to repay a portion of certain subordinated notes and accrued interest thereon and approximately $20.6 million of the net proceeds from its initial public offering to repay a portion of the indebtedness outstanding under its bank credit facility and accrued interest thereon. The Company also exchanged the remaining $24 million aggregate principal amount of its outstanding subordinated notes for 1,716,049 shares of its Common Stock. DISPOSITION OF NON-LAWN AND GARDEN BUSINESS OPERATIONS In December 1996, the Company sold substantially all of the assets of VSI Fasteners, Inc. ("VSI"), a distributor of packaged fasteners, for approximately $6.9 million, plus the assumption of approximately $2.3 million of related liabilities. In August 1997, the Company sold substantially all of the assets of McGuire-Nicholas Company, Inc. ("McGuire-Nicholas"), a manufacturer and distributor of leather, canvas and synthetic fabric tool holders and work aprons, for approximately $4.3 million, plus the assumption of approximately $4 million of related liabilities. VSI's and McGuire-Nicholas' results of operations are shown as "Loss from Discontinued Operations" in the consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Net liabilities of the discontinued VSI and McGuire-Nicholas operations are shown as "net liabilities of discontinued operations" on the consolidated balance sheets appearing elsewhere in this Quarterly Report on Form 10-Q. IMPACT OF THE YEAR 2000 ON COMPUTER SYSTEMS Some of the Company's older computer programs were written using two digits rather than four to define the applicable year. As a result, those computer programs have time-sensitive software that recognize a date using "00" as the year 1900 rather than the year 2000. This could cause a system failure or miscalculations causing disruptions of operations, including a temporary inability to process transactions, send invoices or engage in similar normal business activities. The Company has determined that it will have to modify or replace portions of its computer software and hardware so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. In addition, the Company has initiated communications with its significant customers and suppliers to determine the extent to which the Company's interface systems are vulnerable to the failure of such customers and suppliers to remediate their own year 2000 issues. The Company anticipates completing its year 2000 project by December 31, 1998, which is prior to any anticipated impact on its operating systems. The total cost of the year 2000 project is estimated at approximately $500,000, which includes approximately $300,000 for the purchase of new computer software and hardware that will be capitalized and approximately $200,000 that will be expensed as incurred. The cost of the Company's year 2000 project and its anticipated date of completion are based on management's current estimates. There can be no assurance that the Company will not experience cost overruns or delays in the completion of its year 2000 project. Factors that could cause such cost overruns or delays include, among other things, an unavailability of properly trained personnel, unforeseen difficulty locating and correcting relevant computer codes and similar uncertainties. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. None. -9- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER MATTERS. None. 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. The Registrant did not file any Current Reports on Form 8-K with the Securities and Exchange Commission for the quarter ended May 1, 1998. -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: June 11, 1998 By: /s/ Gabe Mihaly -------------------------------------------- Gabe Mihaly, President and Chief Executive Officer (Principal Executive Officer) Date: June 11, 1998 By: /s/ Stephen M. Kasprisin -------------------------------------------- Stephen M. Kasprisin, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) -11- ACORN PRODUCTS, INC. AND SUBSIDIARIES FORM 10-Q EXHIBIT INDEX EXHIBIT EXHIBIT NUMBER DESCRIPTION 27 Financial Data Schedule. EX-27 2 EXHIBIT 27
5 1,000 U.S. 3-MOS 9-MOS JUL-31-1998 JUL-31-1998 FEB-01-1998 AUG-02-1997 MAY-01-1998 MAY-1-1998 1 1 1,730 1,730 0 0 36,487 36,487 0 0 31,559 31,559 71,378 71,378 16,407 16,407 0 0 121,244 121,244 43,610 43,610 0 0 0 0 0 0 78,391 78,391 (14,423) (14,423) 121,244 121,244 37,911 79,470 37,911 79,470 29,440 61,057 29,440 61,057 333 849 0 0 720 1,761 1,892 1,047 549 303 1,343 744 0 0 0 0 0 0 1,343 744 0.21 0.12 0.21 0.12
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