1
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 April 1, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ______________ to ______________
Commission file number: 0-22717
ACORN PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3265462
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
390 WEST NATIONWIDE BOULEVARD, COLUMBUS, OHIO 43215
(Address of principal executive offices, including zip code)
(614) 222-4400
(Registrant's telephone number, including area code)
(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 May 1, 2001.
2
FORM 10-Q
ACORN PRODUCTS, INC.
Table of Contents
-----------------
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
December 31, 2000 and April 1, 2001
Consolidated Statements of Operations for the Three Months 4
Ended April 2, 2000 and April 1, 2001
Consolidated Statements of Cash Flows for the Three Months 5
Ended April 2, 2000 and April 1, 2001
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 9
Signatures 10
2
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
December 31, 2000 April 1, 2001
--------------------- -----------------
ASSETS (unaudited)
Current assets:
Cash $596 $866
Accounts receivable, less allowance for doubtful accounts
and sales allowances ($2,125 and $2,759, respectively) 14,541 23,595
Inventories, less reserves for excess and obsolete inventory 24,488 27,416
($1,523 and $1,254, respectively)
Prepaids and other current assets 616 282
--------------------- -----------------
Total current assets 40,241 52,159
Property, plant and equipment, net of accumulated depreciation 14,096 13,398
Goodwill, net of accumulated amortization 26,813 26,595
Other intangible assets 731 618
--------------------- -----------------
Total assets $81,881 $92,770
===================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility $19,787 $28,732
Acquisition facility 15,342 15,009
Junior participation term loan note 6,707 6,913
Accounts payable 7,196 8,883
Accrued expenses 7,307 6,803
Income taxes payable 50 49
Other current liabilities 211 208
--------------------- -----------------
Total current liabilities 56,600 66,597
Other long-term liabilities 2,971 2,504
--------------------- -----------------
Total liabilities 59,571 69,101
Stockholders' equity:
Common stock, par value of $.001 per share, 20,000,000 shares
authorized, 6,464,105 shares issued, and 6,062,159 shares
outstanding at December 31, 2000 and April 1, 2001 78,262 78,262
Contributed capital-stock options 460 460
Accumulated other comprehensive loss (1,551) (1,551)
Retained earnings (deficit) (52,600) (51,241)
--------------------- -----------------
24,571 25,930
Common stock in treasury, 401,946 shares at
December 31, 2000 and April 1, 2001 (2,261) (2,261)
--------------------- -----------------
Total stockholders' equity 22,310 23,669
--------------------- -----------------
Total liabilities and stockholders' equity $81,881 $92,770
===================== =================
See accompanying notes.
3
4
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
For the Three Months Ended
----------------------------------------
April 2, 2000 April 1, 2001
----------------- -----------------
(unaudited) (unaudited)
Net sales $40,737 $28,317
Cost of goods sold 31,876 20,626
----------------- -----------------
Gross profit 8,861 7,691
Selling, general and administrative expenses 5,986 4,211
Interest expense 1,827 1,838
Amortization of goodwill 269 219
Other expenses, net 106 44
----------------- -----------------
Income before income taxes 673 1,379
Income taxes 20 21
----------------- -----------------
Net income $653 $1,358
================= =================
Comprehensive income $653 $1,358
================= =================
PER SHARE DATA (BASIC AND DILUTED):
Net income $0.11 $0.22
================= =================
Weighted average shares outstanding - basic 6,046,680 6,062,159
================= =================
Weighted average shares outstanding - diluted 6,062,586 6,078,065
================= =================
See accompanying notes.
4
5
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
For the Three Months Ended
----------------------------------------
April 2, 2000 April 1, 2001
------------------ -----------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities ($9,479) ($8,378)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (361) (170)
Net proceeds from sale of assets 66 0
------------------ -----------------
Net cash provided by (used in) investing activities (295) (170)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net activity on revolving loan 8,996 8,945
Proceeds from subordinated debt 0 206
Principal payment on long-term debt 0 (333)
------------------ -----------------
Net cash provided by (used in) financing activities 8,996 8,818
------------------ -----------------
Net increase (decrease) in cash (778) 270
Cash at beginning of period 1,326 596
------------------ -----------------
Cash at end of period $548 $866
================== =================
Interest paid $1,516 $1,366
================== =================
See accompanying notes.
5
6
ACORN PRODUCTS, INC. AND SUBSIDIARIES
INTERIM NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Footnote disclosure which would substantially duplicate the
disclosure contained in the Annual Report to Stockholders for the year ended
December 31, 2000 has not been included. The unaudited interim consolidated
financial statements reflect all adjustments (consisting of normal recurring
adjustments), that in the opinion of management, are necessary to a fair
statement of results for the periods presented and to present fairly the
consolidated financial position of Acorn Products, Inc. (the "Company") as of
April 1, 2001.
2. Inventories of the Company are stated at the lower of cost or
market. Cost is determined using the first-in, first-out (FIFO) method.
Inventories consist of the following:
December 31, 2000 April 1, 2001
-------------------- -----------------
(in thousands)
Finished goods $11,349 $13,378
Work in process 6,652 8,198
Raw materials and supplies 6,487 5,840
-------------------- -----------------
Total inventories $24,488 $27,416
==================== =================
3. In July 2000, the FASB's Emerging Issues Task Force (EITF) issued
EITF 00-10, Accounting for Shipping and Handling Fees and Costs. In accordance
with the provisions of this EITF, the Company has reclassified freight expenses
from sales to cost of goods sold for the first quarter of fiscal 2000.
4. In February 2001, the Company, acting in its capacity as plan
sponsor and policy holder, notified certain of its retirees of its decision to
eliminate retiree medical and life benefits. The amended change in the
post-retirement benefit plans is effective in the second quarter of fiscal 2001.
Subsequently, certain of the Company's retirees challenging its actions have
taken legal action. While the Company's actions have been disputed, the Company
has reserved the rights to modify or terminate the benefits within the context
of each plan document. The Company has recognized a gain of approximately
$500,000 related to the termination of these benefits.
5. The Company's consolidated financial statements have been presented
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company is
substantially dependent upon borrowing under its credit facility.
The Company continues to negotiate with its bank group to
finalize an extension of its existing credit facility. Temporary extensions have
been executed beyond the April 30, 2001 expiration date. It is the Company's
belief that it will be able to extend the existing credit facility by the end of
the second quarter of fiscal 2001.
6
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Company's consolidated financial statements and the other financial information
included elsewhere in this Quarterly Report on Form 10-Q, as well as the factors
set forth under the caption "Forward-Looking Information" below.
FORWARD-LOOKING INFORMATION
Statements in the following discussion that indicate the Company's or
management's intentions, hopes, beliefs, expectations or predictions of the
future are forward-looking statements. It is important to note that the
Company's actual results could differ materially from those projected in such
forward-looking statements. Additional information concerning factors that could
cause actual results to differ materially from those suggested in the
forward-looking statements is contained under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000 as
well as in the Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 18, 1997, as amended on October 29, 1998 and November
12, 1999, and as the same may be amended from time to time.
THREE MONTHS ENDED APRIL 1, 2001 COMPARED TO THREE MONTHS ENDED APRIL 2, 2000
Net Sales. Net sales decreased 30.5%, or $12.4 million, to $28.3
million in the first quarter of fiscal 2001 compared to $40.7 million in the
comparable period of fiscal 2000. The decline in net sales was driven by a 20%
drop in the sale of long handled tools, caused by soft demand and the credit
condition of a few key customers, limiting our ability to ship their full demand
in the first quarter of fiscal 2001. We believe the soft demand has been
industry wide and resulted from customer actions to manage to lower retail
inventories, as well as, a longer winter weather pattern across the country that
negatively affected spring season purchases. The discontinuation of the sale and
manufacture of watering products and the ongoing rationalization of customers
and products within our custom injection molding product line also contributed
to the decline in net sales in the first quarter of fiscal 2001.
Gross Profit. Gross profit decreased 13.2%, or $1.2 million, to $7.7
million for the first quarter of fiscal 2001 compared to $8.9 million in the
comparable period of fiscal 2000. Gross margin increased to 27.2% for the first
quarter of fiscal 2001 from 21.8% for the comparable period of fiscal 2000. The
decrease in gross profit was due to lower sales volume partially offset by cost
improvements. The improvement in gross margin is due to actions taken to lower
costs and generate efficiencies, primarily in the manufacturing and logistical
processes of the Company. The cost improvements also include the effect of
rationalizing products and customers, as well as, the reduction of certain
employee benefit programs, including post-retirement medical benefits.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $1.8 million, or 29.7%, to $4.2 million for
the first quarter of fiscal 2001 versus $6.0 million in the comparable period of
2000. As a percentage of net sales, selling, general and administrative expenses
increased to 14.9% in the first quarter of fiscal 2001 as compared to 14.7% in
the comparable period of fiscal 2000. The decrease in selling, general and
administrative expenses is due to cost reductions in overhead personnel and
expenses, including the affect of the discontinuation of watering products.
Operating Profit. Operating profit improved $0.6 million, or 21.0%, to
a profit of $3.5 million for the first quarter of fiscal 2001 compared to a
profit of $2.9 million in the comparable period of fiscal 2000. The improvement
in operating profit for the first quarter was primarily due to the items
discussed above.
Interest Expense. Interest expense remained flat at $1.8 million for
the first quarter of fiscal 2001 and the comparable period of fiscal 2000. The
benefit of lower debt levels was offset by higher financing and related costs.
Other Expenses, Net, and Amortization of Goodwill. Other expenses, net,
including amortization of intangibles decreased $0.1 million, or 29.9%, to $0.3
million in the first quarter of fiscal 2001 compared to $0.4 million in the
comparable period of fiscal 2000. This was driven primarily by lower
amortization cost as a result of the reduction in goodwill in the second quarter
of fiscal 2000.
7
8
Income Before Income Taxes. Income before income taxes improved $0.7
million, or 104.9%, to a profit of $1.4 million for the first quarter of fiscal
2001 compared to $0.7 million in the comparable period of fiscal 2000. The
improvement in profit was attributed primarily to the items discussed above.
Net Income. Net income was $1.4 million for the first quarter of fiscal
2001 compared to $0.7 million in the comparable period of fiscal 2000. Net
income per share (basic and diluted) was $0.22 for the first quarter of fiscal
2001 based on a weighted average number of shares outstanding of approximately
6.1 million, compared to net income per share of $0.11 (basic and diluted) for
the comparable period of fiscal 2000, based on a weighted average number of
shares outstanding of approximately 6.0 million.
SEASONAL AND QUARTERLY FLUCTUATIONS
The lawn and garden industry is seasonal in nature, with a high
proportion of sales and operating income generated in January through June.
Accordingly, the Company's sales tend to be greater during those months. As a
result, operating results depend significantly on the spring selling season. To
support this sales peak, the Company must anticipate demand and build
inventories of finished goods throughout the fall and winter. Accordingly,
inventory levels tend to be at their highest, relative to sales, during the last
six months of the year. The seasonality of sales also causes variability in
selling, general and administrative expenses as a percentage of net sales, with
the fixed component of these expenses driving a lower percentage relationship to
net sales in the first half of the year and a higher percentage relationship to
net sales in the second half of the year. These factors increase variations in
quarterly results of operations and potentially expose the Company to greater
adverse effects of changes in economic and industry trends. Moreover, actual
demand for products may vary substantially from the anticipated demand, leaving
the Company with excess inventory or insufficient inventory to satisfy customer
orders.
LIQUIDITY AND CAPITAL RESOURCES
There have been no significant changes in the Company's liquidity and
capital resources as of April 1, 2001 from those discussed in the Annual Report
on Form 10-K for the fiscal year ended December 31, 2000. The Company continues
to negotiate with its bank group to finalize an extension of its existing credit
facility. Temporary extensions have been executed beyond the April 30, 2001
expiration date. It is the Company's belief that it will be able to extend the
existing credit facility by the end of the second quarter of fiscal 2001.
The Company continues to take actions to generate cash from sources
other than operations, including the evaluation of all non-strategic assets for
purposes of sale, particularly the liquidation of excess or obsolete inventory.
EFFECTS OF INFLATION
The Company is adversely affected by inflation primarily through the
purchase of raw materials, increased operating costs and expenses and higher
interest rates. The Company believes that the effects of inflation on operations
have not been material between the first quarter of fiscal 2001 and the
comparable period of 2000.
8
9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
None.
(b) REPORTS ON FORM 8-K.
On March 14, 2001, the Company filed with the SEC a report on
Form 8-K dated March 13, 2001 (Items 5 and 7).
9
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: May 16, 2001 By: /s/ A. Corydon Meyer
----------------------
A. Corydon Meyer, President and Chief
Executive Officer (Principal Executive
Officer)
Date: May 16, 2001 By: /s/ John G. Jacob
-------------------
John G. Jacob, Vice President and Chief
Financial Officer (Principal Financial
Officer)
10