-----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, SSoTsqThaazvDtbCVqN6Nlw1WyUB7r7/Hepw+Bxn4V58b4ItMXAgMBNjTjLmjCob uZkvdD8+itOC5UtxjCEnzA== 0001042422-98-000008.txt : 19980518 0001042422-98-000008.hdr.sgml : 19980518 ACCESSION NUMBER: 0001042422-98-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEDSTROM HOLDINGS INC CENTRAL INDEX KEY: 0001042422 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 541389361 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-32385-05 FILM NUMBER: 98623688 BUSINESS ADDRESS: STREET 1: 585 SLAWIN COURT CITY: MOUNT PROSPECT STATE: IL ZIP: 60056 BUSINESS PHONE: 8478039200 MAIL ADDRESS: STREET 1: 585 SLAWIN COURT CITY: MOUNT PROSPECT STATE: IL ZIP: 60056 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 Commission File Numbers: 333-32385-05 and 333-32385 HEDSTROM HOLDINGS, INC. HEDSTROM CORPORATION (Exact name of Registrant as specified in its charter) Delaware 51-0329830 Delaware 51-0329829 (State or other jurisdiction of incorporation (IRS Employer Identification or organization) Number) 585 Slawin Court, Mount Prospect, Illinois 60056 (Address of principal executive offices, including zip code) (847) 803-9200 (Registrant's telephone number, including area code) 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 such filing requirements for the past 90 days. Yes __X__ No ____ At May 14, 1998, there were outstanding: (i) 36,142,883 shares of the Common Stock, par value $.01 per share, of Hedstrom Holdings, Inc., (ii) 31,520,000 shares of the Non-Voting Common Stock, par value $.01 per share, of Hedstrom Holdings, Inc. and (iii) 10 shares of the Common Stock, par value $.01 per share, of Hedstrom Corporation. HEDSTROM HOLDINGS, INC. HEDSTROM CORPORATION FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 TABLE OF CONTENTS Page Number PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets As of March 31, 1998 and December 31, 1997 Consolidated Income Statements Three months ended March 31, 1998 and 1997 Consolidated Statements of Cash Flows Three months ended March 31, 1998 and 1997 Consolidated Statement of Stockholders' Equity As of and for the three months ended March 31, 1998 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition PART II OTHER INFORMATION Item 1. Legal Proceedings Item 6. Exhibits and Reports on Form 8-K Signature PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements HEDSTROM HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) March 31, December 31, 1998 1997 ---------- ----------- (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,748 $ 10,844 Trade accounts receivable, net of allowance for doubtful accounts 84,464 82,702 Inventories 51,637 47,464 Deferred income taxes 7,128 7,045 Prepaid expenses and other current assets 4,746 4,801 -------- -------- TOTAL CURRENT ASSETS 151,723 152,856 -------- -------- PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation 43,913 42,823 -------- -------- OTHER ASSETS: Deferred charges, net of accumulated amortization 17,876 18,861 Goodwill, net of accumulated amortization 160,958 161,176 Deferred income taxes 9,959 10,057 -------- -------- TOTAL OTHER ASSETS 188,793 190,094 -------- -------- TOTAL ASSETS $384,429 $385,773 ======== ========
HEDSTROM HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) March 31, December 31, 1998 1997 ---------- ----------- (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Revolving line of credit $ 37,500 $ 35,500 Current portion of long-term debt and capital leases 10,128 9,222 Accounts payable 31,396 23,381 Accrued expenses 16,980 25,824 -------- -------- TOTAL CURRENT LIABILITIES 96,004 93,927 -------- -------- LONG-TERM DEBT: Senior Subordinated Notes 110,000 110,000 Senior Discount Notes 24,080 23,288 Term Loans 100,250 104,375 Notes payable to related parties 2,500 2,500 Capital leases 1,535 1,605 Other 2,777 2,914 -------- -------- TOTAL LONG-TERM DEBT 241,142 244,682 -------- -------- STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding - Common stock, $0.01 par value, 100,000,000 shares authorized, 36,142,883 and 36,142,883 shares issued and outstanding, respectively 361 361 Non-voting common stock, $0.01 par value, 40,000,000 shares authorized, 31,520,000 and 31,520,000 issued and outstanding, respectively 315 315 Additional paid-in capital 51,553 51,553 Foreign currency translation adjustment (400) (778) Accumulated deficit (4,546) (4,287) -------- -------- TOTAL STOCKHOLDERS' EQUITY 47,283 47,164 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $384,429 $385,773 ======== ======== The accompanying notes to consolidated financial statements are an integral part of these statements.
HEDSTROM HOLDINGS, INC. CONSOLIDATED INCOME STATEMENTS (In thousands, except per share data) (Unaudited) For the three months ended March 31, ------------------------------------ 1998 1997 ---- ---- Net sales $78,389 $47,937 Cost of sales 56,325 34,541 ------- ------- Gross profit 22,064 13,396 Selling, general and administrative expense 14,815 6,788 ------- ------- Operating income 7,249 6,608 Interest expense 7,688 1,535 ------- ------- Income (loss) before income taxes (439) 5,073 Income tax expense (180) 1,857 ------- ------- Net income (loss) $ (259) $ 3,216 ======= ======= Basic earnings (loss) per share: Net income (loss) per share ($0.00) $0.10 Weighted average number of common shares outstanding (in thousands) 67,663 32,941 Diluted earnings (loss) per share: Net income (loss) per share ($0.00) $0.10 Weighted average number of common shares outstanding (in thousands) 69,010 33,416 The accompanying notes to consolidated financial statements are an integral part of these statements.
HEDSTROM HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) For the three months ended March 31, ----------------------------------- 1998 1997 ---- ---- Cash flows from operating activities: Net income (loss) $ (259) $3,216 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation of property, plant and equipment and amortization of goodwill and deferred charge 3,354 1,481 Amortization of deferred financing fees 1,539 - Deferred income tax provision 15 1,867 Changes in current assets and current liabilities, net of acquisitions: Accounts receivable (1,120) (33,297) Inventories (3,527) 1,601 Prepaid expenses and other current assets 55 (591) Accounts payable 8,015 7,472 Accrued expenses (5,433) 2,175 ------- ------- Net cash provided by (used for) operating activities 2,639 (16,076) ------- ------- Cash flows from investing activities: Acquisitions of property, plant and equipment (1,772) (1,022) Acquisition of ERO, Inc. (3,037) - Other acquisitions (3,500) - ------- ------- Net cash used for investing activities (8,309) (1,022) ------- ------- Cash flows from financing activities: Principal payments on Term Loans (3,125) - Borrowings on Revolving Credit Facility, net 2,000 17,200 Other (301) 88 ------- ------- Net cash provided by (used for) financing activities (1,426) 17,288 ------- ------- Net increase (decrease) in cash and cash equivalents (7,096) 190 Cash and cash equivalents: Beginning of period 10,844 533 ------- ------- End of period $ 3,748 $ 723 ======= ======= The accompanying notes to consolidated financial statements are an integral part of these statements.
HEDSTROM HOLDINGS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands, except shares) (Unaudited) Common Stock Foreign ------------ Additional Currency Par Paid-In Translation Accumulated Shares Value Capital Adjustment Deficit Total ---------- ------ ------- ----------- ----------- ----- Balance at December 31, 1997 67,662,883 $ 676 $51,553 $ (778) $(4,287) $47,164 Foreign currency translation adjustment - - - 378 - 378 Net income - - - - (259) (259) ---------- ----- ------- ------ ------- ------- Balance at March 31, 1998 67,662,883 $ 676 $51,553 $ (400) $(4,546) $47,283 ========== ===== ======= ====== ======= ======= The accompanying notes to consolidated financial statements are an integral part of these statements.
HEDSTROM HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - PRINCIPLES OF CONSOLIDATION: The accompanying interim consolidated financial statements include the accounts of Hedstrom Holdings, Inc. ("Holdings") and its wholly owned subsidiary, Hedstrom Corporation ("Hedstrom," and together with Holdings, the "Company"). Effective June 12, 1997, the Company acquired ERO, Inc. ("ERO"), which became a wholly owned subsidiary of Hedstrom (see Note 2). The accompanying consolidated financial statements reflect the operations of ERO since June 1, 1997. These financial statements are unaudited but, in the opinion of management, contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial condition, results of operations and cash flows of the Company. Certain prior period amounts have been reclassified to conform with the current period presentation. All intercompany balances and transactions have been eliminated in consolidation. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 as filed with the Securities and Exchange Commission. The results of operations for the three months ended March 31, 1998 are not necessarily indicative of the results to be expected for the entire fiscal year. NOTE 2 - ACQUISITION OF ERO, INC.: On April 10, 1997, Hedstrom and HC Acquisition Corp., a wholly owned subsidiary of Hedstrom, entered into an Agreement and Plan of Merger (the "Merger Agreement") with ERO to acquire ERO for a total enterprise value of approximately $200 million. Pursuant to the Merger Agreement, HC Acquisition Corp. commenced and, on June 12, 1997, consummated a tender offer for all of the outstanding shares of the common stock of ERO at a purchase price of $11.25 per share (the "Tender Offer"). The Company also assumed a purchase price contingency related to ERO, Inc.'s acquisition of Amav in October of 1995. The contingency included an additional $3.0 million of purchase price contingent upon achievement of certain conditions. As those conditions were met as of December 31, 1997, the Company accrued a liability for the contingency against goodwill. This was reflected in accrued expenses in the consolidated balance sheet as of December 31, 1997. The payment was made in March 1998. Upon consummation of the Tender Offer, (i) HC Acquisition Corp. was merged with and into ERO (the "Merger") with ERO surviving the Merger as a wholly owned subsidiary of Hedstrom, (ii) certain of ERO's outstanding indebtedness was refinanced by Hedstrom (the "ERO Refinancing") and (ii) Hedstrom refinanced (the "Hedstrom Refinancing") its existing revolving credit facility and term loan facility. The Merger, the Tender Offer, the ERO Refinancing and the Hedstrom Refinancing are collectively referred to herein as the "Acquisition". Holdings and Hedstrom required approximately $301.1 million in cash to consummate the Acquisition, including approximately (i) $122.6 million paid in connection with the Tender Offer and the Merger, (ii) $82.6 million paid in connection with the ERO Refinancing, (iii) $74.9 million paid in connection with the Hedstrom Refinancing and (iv) $21.0 million incurred in respect of fees and expenses. The funds required to consummate the Acquisition were provided by (i) $75.0 million of term loans under a new six-year senior secured term loan facility (the "Tranche A Term Loan Facility"), (ii) $35.0 million of term loans under a new eight-year senior secured term loan facility (the "Tranche B Term Loan Facility" and, together with the Tranche A Term Loan Facility, the "Term Loan Facilities"), (iii) $16.1 million of borrowings under a new $70.0 million senior secured revolving credit facility (the "Revolving Credit Facility" and, together with the Term Loan Facilities, the "Senior Credit Facilities"), (iv) $110.0 million of gross proceeds from the offering by Hedstrom of 10% Senior Subordinated Notes Due 2007 (the "Senior Subordinated Notes"), (v) $25.0 million of gross proceeds from the offering by Holdings of 44,612 units consisting of 12% Senior Discount Notes Due 2009 (the "Discount Notes")and 2,705,896 shares of Common Stock, $.01 par value per share, of Holdings ("Holdings Common Stock") and (vi)$40.0 million of gross proceeds from the private placement of 31,520,000 shares of Non-Voting Common Stock, $.01 par value per share, of Holdings ("Holdings Non-Voting Common Stock") and 480,000 shares of Holdings Common Stock. The Revolving Credit Facility will also be used to finance certain seasonal working capital requirements. The acquisition of ERO has been accounted for under the purchase method of accounting, and accordingly, the purchase price has been allocated to the assets acquired and the liabilities assumed based upon fair value at the date of the acquisition of ERO. The excess of the purchase price over the fair values of the tangible net assets acquired was approximately $148.1 million, has been recorded as goodwill and is being amortized on a straight- line basis over 40 years. In the event that facts and circumstances indicate that the goodwill may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the assets carrying amount to determine if an adjustment is required. The fair value of assets acquired and liabilities assumed, reflecting the final allocation, was as follows (in thousands): Current assets $56,200 Net property, plant and equipment 20,000 Other assets 14,700 Goodwill 148,100 Liabilities assumed (116,400) -------- Cash paid for ERO $122,600 ======== The unaudited pro forma results below assume the Acquisition occurred at the beginning of the periods presented (in thousands, except per share amounts): Three Months Ended March 31, ------------------ 1998 1997 ------- ------- Net sales $78,389 $67,876 Net loss $ (259) $ (837) Net loss per share basic $ (0.00) (0.03) Net loss per share diluted $ (0.00) (0.03) The above pro forma results include adjustments to give effect to amortization of goodwill, interest expense related to the Senior Subordinated Notes, the Discount Notes and the Senior Credit Facilities and cost savings resulting from the rationalization of the sales, marketing and general and administrative functions, closings of duplicate facilities and reductions in external administrative expenditures including legal, insurance, tax, audit and public relations expenditures. These cost savings reflect personnel terminations that have already occurred or that have been formally communicated to the employees, closings of duplicate facilities that have occurred and reductions in external administrative expenses that have been negotiated, together with the related tax effects. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisition of ERO been consummated and had the cost actions giving rise to the savings been implemented as of the beginning of the periods presented, nor are they necessarily indicative of future operating results. NOTE 3 - INCOME PER COMMON SHARE: Holdings adopted SFAS No. 128 "Earnings Per Share", effective December 15, 1997. SFAS No. 128 requires the calculation of basic and diluted earnings per share. Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing the net income by the weighted average number of shares of common stock and other dilutive securities. NOTE 4 - INVENTORIES: Inventories at March 31, 1998 and December 31, 1997 consist of the following (in thousands): March 31, December 31, 1998 1997 --------- ---------- Raw materials $19,180 $16,502 Work-in-process 6,813 5,690 Finished goods 25,644 25,272 ------- ------- $51,637 $47,464 ======= ======= NOTE 5 - DEBT: Debt consists of the following (in thousands): March 31, December 31, 1998 1997 --------- ---------- Senior Subordinated Notes $110,000 $110,000 Senior Discount Notes 24,080 23,288 Term Loans 109,250 112,375 Revolving Credit Facility 37,500 35,500 Other 7,940 8,241 -------- -------- $288,770 $289,404 ======== ======== Senior Subordinated Notes The $110.0 million Senior Subordinated Notes bear interest at 10% per annum, payable on June 1 and December 1 of each year, commencing December 1, 1997. The Senior Subordinated Notes mature on June 1, 2007. Except as set forth below, the Senior Subordinated Notes are not redeemable at the option of the Company prior to June 1, 2002. On and after such date, the Senior Subordinated Notes are redeemable, at the Company's option, in whole or in part, at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest to the redemption date: if redeemed during the 12-month period commencing on June 1 of the years set forth below: Redemption Period Price ------ ---------- 2002 105.000 2003 103.333 2004 101.667 2005 and thereafter 100.000% In addition, at any time and from time to time prior to June 1, 2000, the Company may redeem in the aggregate up to $44.0 million principal amount of Senior Subordinated Notes with the proceeds of one or more equity offerings so long as there is a public market at the time of such redemption (provided that the equity offering is an offering by Holdings, a portion of the net cash proceeds thereof equal to the amount required to redeem any such Senior Subordinated Notes is contributed to the equity capital of the Company), at a redemption price (expressed as a percentage of principal amount) of 110%, plus accrued and unpaid interest, if any, to the redemption date; provided, however, that at least $66.0 million aggregate principal amount of the Senior Subordinated Notes remains outstanding after each such redemption. The Senior Subordinated Notes are unsecured senior subordinated obligations of the Company and are unconditionally and fully guaranteed (jointly and severally) on a senior basis by Holdings and on a senior subordinated basis by each domestic subsidiary of the Company. The Senior Subordinated Notes are subordinated to all senior indebtedness (as defined) of the Company and rank pari passu in right of payment with all senior subordinated indebtedness (as defined) of the Company. The Senior Subordinated Notes Indenture contains certain covenants that, among other things, limit (i) the incurrence of additional indebtedness by the Company and its restricted subsidiaries (as defined), (ii) the payment of dividends and other restricted payments by the Company and its restricted subsidiaries, (iii) distributions from restricted subsidiaries, (iv) asset sales, (v) transactions with affiliates, (vi) sales or issuances of restricted subsidiary capital stock and (vii) mergers and consolidations. Term Loans and Revolving Credit Facility As discussed in Note 2, in connection with the Acquisition, the Company obtained the Senior Credit Facilities. The Senior Credit Facilities consist of (a) the six-year $75.0 million Tranche A Senior Secured Term Loan Facility; (b) the eight-year $35.0 million Tranche B Senior Secured Term Loan Facility; and (c) the Senior Secured Revolving Credit Facility providing for revolving loans to the Company and the issuance of letters of credit for the account of the Company in an aggregate principal and stated amount at any time not to exceed $70 million. Borrowings under the Revolving Credit Facility will be available based upon a borrowing base not to exceed 85% of eligible accounts receivable and 50% of eligible inventory. At the Company's option, the interest rates per annum applicable to the Senior Credit Facilities will be either (i) the Eurocurrency Rate (as defined) plus 2.5% in the case of the Tranche A Term Loan Facility and the Revolving Credit Facility or 3.0% in the case of the Tranche B Term Loan Facility or (ii) the Alternate Base Rate (as defined) plus 1.5% in the case of the Tranche A Term Loan Facility and the Revolving Credit Facility or 2.0% in the case of the Tranche B Term Loan Facility. The Alternate Base Rate is the highest of (a) Credit Suisse First Boston's Prime Rate (as defined) or (b) the federal funds effective rate from time to time plus 0.5%. The applicable margin in respect of the Tranche A Term Loan Facility and the Revolving Credit Facility will be adjusted from time to time by amounts to be agreed upon based on the achievement of certain performance targets to be determined. The obligations of the Company under the Senior Credit Facilities are unconditionally, fully and irrevocably guaranteed (jointly and severally) by Holdings and each of the Company's direct or indirect domestic subsidiaries (collectively, the "Senior Credit Facilities Guarantors"). In addition, the Senior Credit Facilities will be secured by first priority or equivalent security interests in (i) all the capital stock of, or other equity interests in, each direct or indirect domestic subsidiary of the Company and 65% of the capital stock of, or other equity interests in, each direct foreign subsidiary of the Company, or any of its domestic subsidiaries and (ii) all tangible and intangible assets (including, without limitation, intellectual property and owned real property) of the Company and the Senior Credit Facilities Guarantors. The Senior Credit Facilities contain a number of significant covenants that, among other things, restrict the ability of the Company to dispose of assets, incur additional indebtedness, repay other indebtedness or amend debt instruments, pay dividends, create liens on assets, make investments or acquisitions, engage in mergers or consolidations, make capital expenditures, or engage in certain transactions with affiliates. In addition, under the Senior Credit Facilities, the Company is required to comply with specified interest coverage and maximum leverage ratios. Senior Discount Notes In connection with the acquisition, Holdings received $25.0 million of gross proceeds from the issuance by Holdings of 44,612 units, consisting of the Discount Notes and 2,705,896 shares of Holdings common stock. Of the $25.0 million in gross proceeds, $3.4 million ($1.25 per share) was allocated to the common stock, based upon management's estimate of fair market value, and $21.6 million was allocated to Discount Notes. The Discount Notes are unsecured obligations of Holdings and have an aggregate principle amount at maturity (June 1, 2009) of $44.6 million, representing a yield to maturity of 12%. No cash interest will accrue on the Discount Notes prior to June 1, 2002. Thereafter, cash interest will be payable on June 1 and December 1 of each year, commencing December 1, 2002. Except as set forth below, the Discount Notes will not be redeemable at the option of Holdings prior to June 1, 2002. On and after such, the Discount Notes will be redeemable, at Holdings' option, in whole or in part, at the following redemption prices (expressed in percentages of principal amount at maturity), plus accrued and unpaid interest to the redemption date: if redeemed during the 12-month period commencing on June 1 of the years set forth below: Redemption Period Price ------ ---------- 2002 106.000 2003 104.000 2004 102.000 2005 and thereafter 100.000% In addition, at any time and from time to time prior to June 1, 2000, Holdings may redeem in the aggregate up to 40% of the accreted value of the Discount Notes with the proceeds of one or more equity offerings by Holdings so long as there is a public market at the time of such redemption, at a redemption price (expressed as a percentage of accreted value on the redemption date) of 112%, plus accrued and unpaid interest, if any, to the redemption date; provided however, that at least $26.8 million aggregate principal amount at maturity of the Discount Notes remains outstanding after each such redemption. At any time on or prior to June 1, 2002, the Discount Notes may also be redeemed as a whole at the option of Holdings upon the occurrence of a change of control (as defined) at a redemption price equal to 100% of the accreted value thereof plus the applicable premium, and accrued and unpaid interest, if any, to the date of redemption. The Discount Notes Indenture contains certain covenants that, among other things, limit (i) the incurrence of additional indebtedness by Holdings and its restricted subsidiaries (as defined), (ii) the payment of dividends and other restricted payments by Holdings and its restricted subsidiaries, (iii) distributions from restricted subsidiaries, (iv) asset sales, (v) transactions with affiliates, (vi) sales or issuances of restricted subsidiary capital stock and (vii) mergers and consolidations. Other Debt Other debt consists of a $2.5 million Holdings note payable to the previous owners of Holdings as well as various other mortgages, capital leases and equipment loans. The $2.5 million note payable bears interest at 10% per annum and is payable at the earlier of April 30, 2002, or when the Company has met certain cash flow levels. The mortgages and equipment loans have varying interest rates and maturities. NOTE 6 - RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS: Holdings has adopted SFAS No. 130, "Reporting Comprehensive Income", as of January 1, 1998. SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is defined as the total of net income and all other non-owner changes in equity. Holdings Comprehensive Income for the quarter ended March 31, 1998 would be as follows (in thousands): Net Loss $(259) Foreign currency 231 translation adjustments ----- Comprehensive Loss $ (28) ===== Adjustments to other non-owner changes will be reflected in comprehensive income and cumulative comprehensive income that will be reported in the consolidated statement of shareholders' equity in Holding's Annual Report on Form 10-K for the fiscal year ending December 31, 1997. Holdings has adopted SFAS No. 131, "Disclosure about Segments of An Enterprise and Related Information", as of January 1, 1998. This pronouncement changes the requirements under which public businesses must report segment information. The objective of the pronouncement is to provide information about a company's different types of business activities and different economic environments. SFAS No. 131 requires companies to select segments based on their internal reporting system. Holdings' current segments, as reported herein, are consistent with the company's internal reporting systems. As required by SFAS No 131, compliance with the respective reporting requirements will be reflected in Holdings Annual Report on Form 10-K for the fiscal year ended December 31, 1997. Holdings has adopted SFAS No. 132, "Employees' Disclosures about Pension and Other Postretirement Benefits," as of January 1, 1998. This pronouncement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans, however, it does require additional information on changes in the benefit obligations and fair values of plan assets in order to facilitate financial analysis. Management does not believe that SFAS No. 132 will have a significant impact on Holdings' financial statements. NOTE 7 - SUBSIDIARY GUARANTORS/NON GUARANTORS FINANCIAL INFORMATION: The following is financial information pertaining to Hedstrom and its subsidiary guarantors and subsidiary nonguarantors (with respect to the Senior Subordinated Notes and the Senior Credit Facilities) for the periods in which they are included in Holding's accompanying consolidated financial statements. HEDSTROM CORPORATION AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS (In thousands) At March 31, 1998 At December 31, 1997 -------------------------------------------- ------------------------------------------ Hedstrom Hedstrom Hedstrom Subsidiary Hedstrom Subsidiary Subsidiary Non- Adjustments/ Total Subsidiary Non- Adjustments Total Assets Guarantor guarantor Eliminations Hedstrom Guarantor guarantor Elimination Hedstrom - ---------------------------- -------- -------- ------------ -------- --------- --------- ----------- -------- Current Assets: Cash and cash equivalents $ 2,486 $ 1,262 $ - $ 3,748 $ 8,984 $ 1,860 $ - $ 10,844 Accounts receivable, net 78,935 5,529 - 84,464 73,625 9,077 - 82,702 Inventories 40,481 11,305 (149) 51,637 38,429 9,075 (40) 47,464 Deferred income taxes (c) 7,128 - - 7,128 7,045 - - 7,045 Prepaid expenses and other current assets 3,854 892 - 4,746 4,310 491 - 4,801 -------- ------- -------- -------- -------- ------- --------- -------- Total current assets 132,884 18,988 (149) 151,723 132,393 20,503 (40) 152,856 -------- ------- -------- -------- -------- ------- --------- -------- Property, plant and equipment, net 27,002 16,911 - 43,913 27,448 15,375 - 42,823 -------- ------- -------- -------- -------- ------- --------- -------- Other Assets: Investment in and advances to Nonguarantor Subsidiaries 44,131 - (44,131) - 44,799 - (44,799) - Deferred charges, net 16,782 - - 16,782 17,715 - - 17,715 Goodwill, net 142,595 18,363 - 160,958 142,692 18,484 - 161,176 Deferred income taxes 10,481 (522) - 9,959 10,579 (522) - 10,057 -------- ------- -------- -------- -------- ------- -------- -------- Total other assets 213,989 17,841 (44,131) 187,699 215,785 17,962 (44,799) 188,948 -------- ------- -------- -------- -------- ------- -------- -------- Total assets $373,875 $53,740 $(44,280) $383,335 $375,626 $53,840 $(44,839) $384,627 ======== ======= ======== ======== ======== ======= ======== ========
HEDSTROM CORPORATION AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS (In thousands) At March 31, 1998 At December 31, 1997 -------------------------------------------- ------------------------------------------ Hedstrom Hedstrom Hedstrom Subsidiary Hedstrom Subsidiary Subsidiary Non- Adjustments/ Total Subsidiary Non- Adjustments Total Guarantor guarantor Eliminations Hedstrom Guarantor guarantor Elimination Hedstrom -------- -------- ------------ -------- --------- --------- ----------- -------- Liabilities and stockholders' equity - ---------------------------- Current liabilities: Revolving line of credit $ 30,550 $ 6,950 $ - $ 37,500 $ 33,282 $ 2,218 $ - $35,500 Current portion of long-term debt and capital lease 9,398 730 - 10,128 8,492 730 - 9,222 Advances from Guarantor Subsidiaries - 32,268 (32,268) - - 31,956 (31,956) - Accounts payable (c) 29,359 2,037 - 31,396 20,784 2,597 - 23,381 Accrued expenses 18,890 (936) (132) 17,822 23,939 2,432 (16) 26,355 -------- ------- -------- -------- -------- ------- -------- -------- Total current liabilities 88,197 41,049 (32,400) 96,846 86,497 39,933 (31,972) 94,458 -------- ------- -------- -------- -------- ------- -------- -------- Senior Subordinated Notes 110,000 - - 110,000 110,000 - - 110,000 Term Loans 100,250 - - 100,250 104,375 - - 104,375 Capital leases 1,533 - - 1,533 1,605 - - 1,605 Other 1,843 934 - 2,777 1,857 1,057 - 2,914 -------- ------- -------- -------- -------- ------- -------- -------- Total long-term debt (a) 213,626 934 - 214,560 217,837 1,057 - 218,894 -------- ------- -------- -------- -------- ------- -------- -------- Total Liabilities 301,823 41,983 (32,400) 311,406 304,334 40,990 (31,972) 313,352 -------- ------- -------- -------- -------- ------- -------- -------- Total stockholder's equity (deficit) (b) 72,052 11,757 (11,880) 71,929 71,292 12,850 (12,867) 71,275 -------- ------- -------- -------- -------- ------- -------- -------- Total liabilities and stockholder's equity $373,875 $53,740 $(44,280) $383,335 $375,626 $53,840 $ 44,839 $384,627 ======== ======= ======== ======== ======== ======= ======== ========
HEDSTROM CORPORATION AND SUBSIDIARIES CONSOLIDATING INCOME STATEMENTS (In thousands) Three Months Ended March 31, 1998 Three Months Ended March 31, 1997 ------------------------------------------ ------------------------------------------ Hedstrom Hedstrom Hedstrom Subsidiary Hedstrom Subsidiary Subsidiary Non- Adjustments Total Subsidiary Non- Adjustments Total Statement of Operations Guarantor guarantor Eliminations Hedstrom Guarantor guarantor Eliminations Hedstrom - ------------------------- --------- -------- ------------ -------- ---------- --------- ------------ -------- Net Sales $76,739 $5,941 $(4,291) $78,389 $46,527 $1,410 $ - $47,937 Cost of sales 55,438 5,240 (4,353) 56,325 33,404 1,137 - 34,541 ------- ------ ------- ------- ------- ------ -------- ------- Gross profit 21,301 701 62 22,064 13,123 273 - 13,396 Selling, general and administrative expense 13,077 1,738 - 14,815 6,520 268 - 6,788 ------- ------ ------- ------- ------- ------ -------- ------- Operating Income(loss) 8,224 (1,037) 62 7,249 6,603 5 - 6,608 Interest expense(c) 6,222 560 - 6,782 1,471 1 - 1,472 ------- ------ ------- ------- ------- ------ -------- ------- Income(loss)before income taxes 2,002 (1,597) 62 467 5,132 4 - 5,136 Income tax provision(benefit)(c) 794 (627) 25 192 1,879 1 - 1,880 ------- ------ ------- ------- ------- ------ -------- ------- Net income(loss) $ 1,208 $ (970) $ 37 $ 275 $ 3,253 $ 3 $ - $ 3,256 ======= ====== ======= ======= ======= ====== ======== =======
HEDSTROM CORPORATION AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF CASH FLOWS (In thousands) Three Months Ended March 31, 1998 Three Months Ended March 31, 1997 --------------------------------------- --------------------------------------- Hedstrom Hedstrom Hedstrom Subsidiary Hedstrom Subsidiary Subsidiary Non- Adjustment Total Subsidiary Non- Adjustments Total Guarantor guarantor Eliminations Hedstrom Guarantor guarantor Eliminations Hedstrom --------- --------- ------------ -------- --------- --------- ----------- -------- Cash Flows from operating activities: Net income(loss)(c) $ 1,208 $ (970) $ 37 $ 275 $3,253 $ 3 $ - $ 3,256 Adjustments to reconcile net income (loss) to net cash (used for) provided by operating activities Depreciation of property, plant and equipment and amortization of other assets 3,597 452 - 4,049 1,478 3 - 1,481 Deferred income tax provision(c) 15 - - 15 1,867 - - 1,867 Changes in current assets and current liabilities, net of acquisitions: Accounts receivable (4,667) 3,548 - (1,119) (32,141) (1,196) - (33,337) Inventories (1,108) (2,230) (189) (3,527) 1,636 (35) - 1,601 Prepaid expenses and other current assets 456 (401) - 55 (586) (5) - (591) Accounts payable(c) 8,576 (560) - 8,016 7,401 71 - 7,472 Accrued expenses (1,907) (3,368) 152 (5,123) 1,810 365 - 2,175 Net cash(used for) provided by ------- ------ ------- ------- ------- ------- ------- ------- operating activities 6,170 (3,529) - 2,641 (15,282) (794) - (16,076) ------- ------ ------- ------- ------- ------- ------- -------
HEDSTROM CORPORATION AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF CASH FLOWS (In thousands) Three Months Ended March 31, 1998 Three Months Ended March 31, 1997 --------------------------------------- --------------------------------------- Hedstrom Hedstrom Hedstrom Subsidiary Hedstrom Subsidiary Subsidiary Non- Adjustment Total Subsidiary Non- Adjustments Total Guarantor guarantor Eliminations Hedstrom Guarantor guarantor Eliminations Hedstrom --------- --------- ------------ -------- --------- --------- ----------- -------- Cash flows from investing activities: Acquisitions of property, plant and equipment (688) (1,084) - (1,772) (1,021) (1) - (1,022) Acquisition of ERO, Inc. (3,037) - - (3,037) - - - - Other Acquisition - (3,500) - (3,500) - - - - ------- ------ ------- ------- ------- ------- ----------- ------ Net cash used for investing activities (3,725) (4,584) - (8,309) (1,021) (1) - (1,022) ------- ------ ------- ------- ------- ------- ----------- ------- Cash flows from financing activities: Principal payments on term loans (4,125) - - (4,125) - - - - Borrowings on new revolving line of credit 2,000 - - 2,000 17,200 - - 17,200 Borrowings(repayments)on old revolving loans of credit, net - - - - (860) 860 - - Advances to/(from) Nonguarantor subsidiaries (7,924) 7,924 - - - - - - Other 1,106 (409) - 697 88 - - 88 ------- ------ ------- ------- ------- ------- ----------- ------- Net increase(decrease)in cash and cash equivalents (8,943) 7,515 - (1,428) 16,428 860 - 17,288 ------- ------ ------- ------- ------- ------- ----------- ------- Cash and cash equivalents (6,498) (598) - (7,096) 125 65 - 190 Beginning of period 8,984 1,860 - 10,844 467 66 - 533 ------- ------ ------- ------- ------- ------- ----------- ------- End of period $2,486 $1,262 $ - $ 3,748 $ 592 $ 131 $ - $ 723 ======= ====== ======= ======= ======= ======= =========== =======
Each of the Subsidiary Guarantors is a wholly-owned subsidiary of Hedstrom and has fully and unconditionally guaranteed the Senior Subordinated Notes on a joint and several basis. The Company has not presented separate financial statements and other disclosures concerning each Subsidiary Guarantor because management has determined that such information is not material to investors. The column "Total Hedstrom" represents the consolidated financial statements of Hedstrom Corporation and its subsidiaries. Hedstrom Corporation is Holdings' only direct subsidiary. The primary differences between the consolidated amounts of Hedstrom Corporation and the consolidated amounts included in the accompanying consolidated financial statements of Holdings are as follows: (a) Hedstrom Corporation's Long-Term Debt does not include a $2.5 million note payable issued by Holdings in connection with its 1995 recapitalization, and the issuance of Senior Discount Notes valued at $24.1 million at March 31, 1998. (b) Hedstrom Corporation's stockholder's equity includes Holdings' stockholders' equity plus $21.6 million in proceeds from the issuance of Senior Discount Notes, which proceeds were contributed as equity by Holdings to Hedstrom Corporation less the interest, net of taxes, accrued thereon and as of both March 31, 1998 and December 31, 1997, the $2.5 million note payable described in (a) above less the interest, net of taxes, accrued thereon. (c) Accounts payable, interest expense, and deferred income taxes do not reflect the accrued interest, interest expense and the deferred tax benefit of accrued interest on the obligations discussed in (a) above. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion of the Company's results of operations and financial condition should be read in conjunction with the consolidated financial statements of the Company and the notes thereto contained herein, as well as included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 as filed with the Securities and Exchange Commission. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such statements. These risks, which are further detailed in the Registration Statement on Form S-1 of the Company and Holdings as filed with the Securities and Exchange Commission (File Nos. 333-32385-05 and 333-32385), include, but are not limited to, the Company's recent net losses, substantial leverage and debt service requirements, financing restrictions and covenants, reliance on key customers, dependence on key licenses and obtaining new licenses, raw materials prices and product liability risks. In addition such forward-looking statements are necessarily dependent upon assumptions, estimates and dates that may be incorrect or imprecise and involve known and unknown risks, uncertainties and other factors. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized . Forward-looking statements can be identified by, among other things, the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "seeks," "pro forma," "anticipates," or "intends" or the negative of any thereof, or other variations thereon or comparable terminology, or by discussions of strategy or intentions. Given these uncertainties, undue reliance should not be placed on any forward-looking statements. The Company and Holdings disclaim any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. Results of Operations The following table sets forth net sales and gross profit for each of Hedstrom's operating divisions for the periods indicated: Three Months Ended March 31, 1998 1997 ---- ---- (in millions) Net sales Bedford Division............ $39.9 $30.9 Ashland Division............ 13.7 13.7 International Division...... 5.1 3.3 ERO Division................ 13.6 -- Amav Division............... 6.1 -- ----- ----- Total net sales $78.4 $47.9 ===== ===== Gross profit: Bedford Division............ $ 9.7 $ 8.4 Ashland Division............ 4.1 4.2 International Division...... 1.2 0.8 ERO Division............ 6.0 -- Amav Division 1.1 -- ----- ----- Total gross profit $22.1 $13.4 ===== ===== A comparison of the Company's results of operations for the three months ended March 31, 1998 with the same period in 1997 is necessarily affected by the impact of the consummation of the acquisition of ERO on June 12, 1997. Due to the inclusion of ERO's results from and after June 12, 1997, management does not believe the comparison of operating results with the same period in 1997 is meaningful. Net Sales. Total net sales increased to $78.4 million for the quarter ended March 31, 1998 from $47.9 million for the comparable prior year quarter, an increase of $30.5 million. The increase was attributable to the inclusion of the ERO and AMAV Divisions and increases in sales at the Bedford and International Divisions. The inclusion of the ERO and AMAV Divisions resulted in an increase of $18.7 million versus the prior year first quarter. Net sales of the Bedford Division increased by approximately $9.0 million, primarily as a result of (i) increased sales of trampolines due to the business acquired from Bollinger Industries, Inc. and (ii) sales associated with the acquisition of M.A. Henry Limited in August of 1997. Sales at the Ashland Division were even with the prior year comparable quarter. On a pro-forma basis, the net sales of the ERO and AMAV Divisions for the quarter were even compared to the prior year. Gross Profit. Gross profit for the quarter ended March 31, 1998 increased $8.7 million to $22.1 million as compared to $13.4 million for the quarter ended March 31, 1997. The increase was primarily due to higher sales as compared to the prior years first quarter. As a percentage of consolidated net sales, consolidated gross profit increased slightly to 28.2% for the first quarter of 1998 versus 28.0% for the first quarter of 1997. The increase was due in part to the inclusion of the results of the ERO and AMAV Divisions, whose combined gross profit margin of 35.9% is higher than the other divisions of Hedstrom. The Bedford Division's gross profit margin for the first quarter of 1998 decreased to 24.3% from 27.0% from the prior years comparable quarter. The decrease was primarily attributable to product mix as sales of trampolines, which carry a lower overall gross profit margin, increased as a percentage of total Bedford Division sales and wood kit sales, which generally carry a higher overall gross margin, decreased as a percentage of total sales. Gross profit margin at Ashland remained relatively unchanged quarter to quarter at 30.2% versus 30.7% as changes in product sales mix did not significantly impact overall division margins. On a pro-forma basis, the gross profit percentage of the ERO Division increased in the first quarter of 1998 versus the first quarter of 1997 due to a more favorable product mix. On a pro-forma basis, the gross margin percentage of the AMAV Division decreased in the quarter ended March 31, 1998 versus the quarter ended March 31, 1997 due to higher than expected product returns and unfavorable product sales mix. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $8.0 million to $14.8 million in the first quarter of 1998 versus $6.8 million in the prior years first quarter. Expressed as a percentage of sales, selling, general and administrative expenses increased to 18.8%. The increase was primarily due to the inclusion of the ERO and AMAV Divisions which experience relatively high selling, general and administrative expenses, and include the amortization of acquisition-related intangible assets and royalty expense. Interest expense. Interest expense increased as a result of the incurrence of Acquisition-related indebtedness. Income Tax Expense. Holdings' effective income tax rate for the quarter ended March 31, 1998 was 76.8% versus 36.6% for the quarter ended March 31, 1997. The increase was attributable to the acquisition of ERO, which generated a large amount of non-deductible goodwill. Liquidity and Capital Resources of the Company Working Capital and Cash Flows Net cash used for operating activities was $0.4 million for the fiscal quarter ended March 31, 1998. The use of cash reflects the seasonal nature of sales. The ERO and AMAV Divisions sales and accounts receivable build during the second half of the year and are liquidated in the first half of the following year while the Bedford, Ashland and International Divisions build sales and accounts receivable during the first half of the year and liquidate them during the second half of the year. Net cash used for investing activities was $5.3 million during the first quarter of 1998, including $1.8 million used for the acquisition of property, plant and equipment, $3.0 million of contingency payments relating to the ERO Acquisition as discussed in Note 2 and $3.5 million used to purchase certain assets of a United Kingdom manufacturer. Net cash used for financing activities was $1.4 million representing $3.4 million of principal payments on the Companies term loans offset by net proceeds on the Companies revolving loan to fund operating cash requirements of $2.0 million. Liquidity Interest payments on the Senior Subordinated Notes and interest and principal payments under the Senior Credit Facilities, as detailed in the Registration Statements, represent significant cash requirements for the Company. The senior subordinated notes require semiannual interest payments of $5.5 million commencing in December 1997. Borrowings under the Senior Credit Facilities will bear interest at floating rates and will require interest payments on varying dates depending on the interest rate option selected by the Company. Borrowings under the Senior Credit Facilities consisted of $110 million under the Term Loan Facilities, comprised of a $75 million Tranche A Term Loan maturing in 2003 and a $35 million Tranche B term loan maturing in 2005. In addition, the Senior Credit Facilities include a $70 million Revolving Credit Facility. At present, the Discount Notes do not require cash interest payments. Rather, principal will accrete to an aggregate principal amount of $44.6 million on June 1, 2002. Commencing on such date, Holdings will be required to make semiannual interest payments of $2.7 million. The Company's remaining liquidity demands will be for capital expenditures and for working capital needs. For the foreseeable future, the Company expects that its capital expenditures will be limited primarily to maintaining existing facilities and equipment and completing its insourcing of manufacturing certain components. The Company's credit agreement imposes an annual limit of $10.0 million on its capital expenditures and investments (subject in any given year to a roll-over of up to $4.0 million of unused capital expenditure capacity from the previous year). In addition, the Company may incur expenditures in order to achieve certain anticipated cost savings. The Company's primary sources of liquidity are cash flows from operations and borrowings under the Revolving Credit Facility. As of March 31, 1998, approximately $30.3 million was available to the Company as cash and available borrowings under the Revolving Credit Facility (subject to borrowing base limitations). Management believes that cash generated from operations, together with borrowings under the Revolving Credit Facility, will be sufficient to meet the Company's working capital and capital expenditures needs for the foreseeable future. PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is currently involved in several lawsuits arising in the ordinary course of business. The Company maintains insurance covering such liability, and does not believe that the outcome of any such lawsuits will have a material adverse effect on the Company's financial condition. Item 6. Exhibits and Reports on Form 8-K a) Exhibits (1) 2.1 - Agreement and Plan of Merger, dated as of April 10, 1997, among Hedstrom Corporation, HC Acquisition Corp. and ERO, Inc. (1) 3.1 - Restated Certificate of Incorporation of Hedstrom Holdings, Inc., as filed with the Secretary of State of the State of Delaware on October 27, 1995. (1) 3.2 Certificate of Amendment of Restated Certificate of Incorporation of Hedstrom Holdings, Inc., as filed with the Secretary of State of the State of Delaware on June 6, 1997. (1) 3.3 - Restated Bylaws of Hedstrom Holdings, Inc. (1) 3.4 - Certificate of Incorporation of New Hedstrom Corp., as filed with the Secretary of State of the State of Delaware on November 20, 1990. (1) 3.5 - Certificate of Amendment of the Certificate of Incorporation of New Hedstrom Corp., as filed with the Secretary of State of the State of Delaware on January 14, 1991. (1) 3.6 - By-Laws of Hedstrom Corporation. (1) 4.1 - Indenture, dated as of June 1, 1997, among Hedstrom Corporation, Hedstrom Holdings, Inc., the Subsidiary Guarantors identified on the signature pages thereto and IBJ Schroder Bank & Trust Company, as Trustee. (1) 4.2 - Form of Senior Subordinated Note. (1) 4.4 - Indenture, dated as of June 1, 1997, among Hedstrom Holdings, Inc. and United States Trust Company of New York, as Trustee. (1) 4.5 - Form of Discount Note. 11.1 - Computation of Earnings Per Share. 27.1 - Financial Data Schedule. (1) Incorporated by reference to the respective exhibit to Holdings' and Hedstrom's Registration Statement on Form S-1 (File Nos. 333-32385-05 and 333-32385). b) Reports on Form 8-K The registrant has not filed any reports on Form 8-K during the quarter. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. Date: May 14, 1998 HEDSTROM HOLDINGS, INC. HEDSTROM CORPORATION /s/ David F. Crowley ---------------------- David F.Crowley Chief Financial Officer EX-11 2 EXHIBIT 11.1 HEDSTROM HOLDINGS, INC. AND SUBSIDIARY EARNINGS PER SHARE DISCLOSURE For the quarterly period ended March 31, 1998 (Dollars in thousands) Income Shares Share (Numerator) (Denominator) Amount ----------- ------------- ------ Basic Earnings Per Share: Net loss $(259) $ 67,663 $ (0.00) Effect of Dilutive Securities: Stock options in the money - 4,142 - Buyback of shares at average price of $1.64 _ (2,795) - ----- -------- ------- Net effect of stock options - 1,347 - ----- -------- ------- Diluted Earnings Per Share: Net income (loss) $(259) $ 69,010 $ (0.00) ===== ======== ======= Options to purchase 85,000 shares of common stock at $1.64 per share were outstanding at December 31, 1997 but were not included in the computation of diluted EPS because average market price of the common shares was not greater than the options exercise price. EX-27 3
5 1,000 3-MOS DEC-31-1998 MAR-31-1998 3748 0 84464 0 51637 151723 43913 0 384429 96004 0 0 0 676 46607 384429 78389 78389 56325 14815 0 0 7688 (439) (180) 0 0 0 0 (259) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----