-----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, IG758/71DBe+ZC3CcMqSyE3HbaREqJMoGPQihfnNN2+5ymd/yMIyMwdTm9V+XGA3 odcNX/tJX1st4inc8qaDJg== 0001047469-98-009987.txt : 19980317 0001047469-98-009987.hdr.sgml : 19980317 ACCESSION NUMBER: 0001047469-98-009987 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980130 FILED AS OF DATE: 19980316 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: 98566115 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 January 30, 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 March 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 January 30, 1998 Consolidated Statements of Operations For the Quarter 4 and the Six Months Ended January 31, 1997 and January 30, 1998 Consolidated Statements of Cash Flows For the Six Months Ended 5 January 31, 1997 and January 30, 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 4. Submission of Matters to a Vote of Security Holders. 10 Item 6. Exhibits and Reports on Form 8-K. 11 Signatures 12
-2- PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ACORN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
AUGUST 1, JANUARY 30, 1997 1998 --------------- -------------- (Unaudited) ASSETS CURRENT ASSETS: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,509 $ 578 Accounts receivable, less allowance for doubtful accounts ($713 and $629, respectively). . . . . . . . . . 18,462 19,647 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,642 33,387 Prepaids and other current assets . . . . . . . . . . . . . . . . . . . 3,773 2,125 --------------- -------------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . 51,386 55,737 Property, plant and equipment, net of accumulated depreciation. . . . . 15,650 16,357 Goodwill, net of accumulated amortization . . . . . . . . . . . . . . . 29,374 28,968 Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . 2,480 2,902 Net assets of discontinued operations . . . . . . . . . . . . . . . . . -- 30 --------------- -------------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,890 $ 103,994 --------------- -------------- --------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . $ 12,837 $ 17,315 Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,872 8,957 Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,707 4,065 Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . 350 (158) Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . 711 712 --------------- -------------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . 24,477 30,891 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,098 6,098 Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . 4,496 4,380 Net liabilities of discontinued operations . . . . . . . . . . . . . . . . 595 -- --------------- -------------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 35,666 41,369 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 January 30, 1998, respectively . . . . . . . . . . . . . 78,391 78,391 Contributed capital-stock options. . . . . . . . . . . . . . . . . . . . . 460 460 Minimum pension liability. . . . . . . . . . . . . . . . . . . . . . . . . (133) (133) Retained earnings (deficit). . . . . . . . . . . . . . . . . . . . . . . . (15,494) (16,093) --------------- -------------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 63,224 62,625 --------------- -------------- Total liabilities and stockholders' equity . . . . . . . . . . . . $ 98,890 $ 103,994 --------------- -------------- --------------- --------------
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 SIX MONTHS ENDED ------------------------------------------------------ JANUARY 31, JANUARY 30, JANUARY 31, JANUARY 30, 1997 1998 1997 1998 --------- --------- --------- --------- (Unaudited) (Unaudited) Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,018 $21,143 $40,697 $ 41,559 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . 15,635 16,340 30,142 31,617 ----------------------- ---------------------- Gross profit . . . . . . . . . . . . . . . . . . . . . . . . 5,383 4,803 10,555 9,942 Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . 4,238 4,411 8,641 9,230 Interest expense . . . . . . . . . . . . . . . . . . . . . . 1,436 522 3,243 1,041 Amortization of intangibles. . . . . . . . . . . . . . . . . 201 219 402 437 Other expenses, net. . . . . . . . . . . . . . . . . . . . . 1,207 38 1,258 79 ----------------------- ---------------------- Income (loss) from continuing operations before income taxes . . . . . . . . . . . . . . (1,699) (387) (2,989) (845) Income taxes (benefit) . . . . . . . . . . . . . . . . . . . -- (112) -- (246) ----------------------- ---------------------- Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . (1,699) (275) (2,989) (599) Discontinued operations: Loss from operations . . . . . . . . . . . . . . . . . . . (78) -- (1,063) -- Loss from disposal . . . . . . . . . . . . . . . . . . . . (6,019) -- (6,019) -- ----------------------- ---------------------- Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . (6,097) -- (7,082) -- ----------------------- ---------------------- Net income (loss). . . . . . . . . . . . . . . . . . . . . . $ (7,796) $ (275) $(10,071) $ (599) ----------------------- ---------------------- Net income (loss) applicable to common stock . . . . . . . . $ (8,075) $ (275) $(10,629) $ (599) ----------------------- ---------------------- ----------------------- ---------------------- PER SHARE DATA (Basic and Diluted): Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . $ (1.14) $ (0.04) $ (2.00) $ (0.09) Loss from discontinued operations. . . . . . . . . . . . . . (4.07) -- (4.74) -- Preferred stock dividend . . . . . . . . . . . . . . . . . . (0.18) -- (0.37) -- ----------------------- ---------------------- Net income (loss) applicable to common stock . . . . . . . . $ (5.39) $ (0.04) $ (7.11) $ (0.09) ----------------------- ---------------------- ----------------------- ---------------------- Weighted average shares outstanding. . . . . . . . . . . . . . . . . . . . . . . . 1,496,864 6,464,105 1,493,845 6,464,105 ------------------------ ------------------------ ------------------------ ------------------------
See accompanying notes. -4- ACORN PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE SIX MONTHS ENDED ---------------------------- JANUARY 31, JANUARY 30, 1997 1998 ------------ ----------- (Unaudited) CASH FLOWS FROM OPERATING Activities: Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (10,071) $ (599) Adjustments to reconcile net income (loss) to net cash provided by (used in) continuing operations: Loss from discontinued operations. . . . . . . . . . . . . . . . . . . . . . . 7,082 -- Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . 1,780 1,849 Issuance of stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . 120 -- Changes in operating assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,945) (1,185) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,354) (5,745) Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (497) 1,195 Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . 4,400 2,288 Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (432) (508) Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (538) (116) --------- --------- Net cash provided by (used in) continuing operations . . . . . . . . . . . . . . (12,455) (2,821) Net cash provided by (used in) discontinued operations . . . . . . . . . . . . . 9,568 (469) --------- --------- Net cash provided by (used in) operating activities. . . . . . . . . . . . . . . (2,887) (3,290) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment, net. . . . . . . . . . . . . . . . . (887) (2,119) --------- --------- Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . (887) (2,119) CASH FLOWS FROM FINANCING ACTIVITIES: Net activity on term loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 -- Net activity on revolving loan . . . . . . . . . . . . . . . . . . . . . . . . . 1,686 4,478 Issuance of stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 -- --------- --------- Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . 3,774 4,478 --------- --------- Net increase (decrease) in cash. . . . . . . . . . . . . . . . . . . . . . . . . -- (931) Cash at beginning at period. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,509 --------- --------- Cash at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 578 --------- --------- --------- --------- Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,665 $ 834 --------- --------- --------- ---------
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 January 30, 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, January 30, 1997 1998 ---- ---- in thousands Finished goods . . . . . . . . . . . . . . . . . . $ 14,460 $ 17,930 Work in process. . . . . . . . . . . . . . . . . . 7,041 7,572 Raw materials and supplies . . . . . . . . . . . . 6,741 8,656 ------- ------- 28,242 34,158 Valuation reserves . . . . . . . . . . . . . . . . (600) (771) Total inventories. . . . . . . . . . . . . . . . . 27,642 33,387 ------- ------- ------- -------
3. In February 1998, the Company completed the acquisition of H.B. Sherman Manufacturing Company ("Sherman") for approximately $3.1 million, with up to an additional $366,000 payable subject to the achievement of certain profit levels in 1998. The Company will account for the acquisition as a purchase. Based in Poplar Bluff, Missouri, Sherman manufactures and markets high-quality hose attachments and related products, such as spray nozzles, sprinklers and couplings. 4. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE ("Statement 128"). Statement 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. The Company adopted the provisions of Statement 128, as required, for the quarter ended January 30, 1998. All earnings per share amounts for all periods have been presented and, where necessary, restated to conform to the Statement 128 requirements. -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 notes thereto 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 JANUARY 30, 1998 COMPARED TO THREE MONTHS ENDED JANUARY 31, 1997 NET SALES. Net sales increased 0.6%, or $125,000, to $21.1 million in the second quarter of fiscal 1998 compared to $21.0 million in the second quarter of fiscal 1997. The increase in net sales reflected $1.4 million of net sales by the Company's injection molding division, which was acquired in February 1997, and increased net sales of the Company's core products, partially offset by a decline in net sales of snow tools of approximately $1.8 million. GROSS PROFIT. Gross profit decreased 10.8%, or $580,000, to $4.8 million in the second quarter of fiscal 1998 compared to $5.4 million in the second quarter of fiscal 1997. Gross margin decreased to 22.7% in the second quarter of fiscal 1998 compared to 25.6% in the comparable period in fiscal 1997. The decrease in gross margin primarily was due to increased manufacturing administration costs related to new product development, as well as lower gross margins realized on sales by the Company's injection molding division. Gross margin also was adversely affected by lower overhead absorption rates realized as the Company decreased production to prevent inventory build-up. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 4.1%, or $173,000, to $4.4 million in the second quarter of fiscal 1998 compared to $4.2 million in the second quarter of fiscal 1997. As a percentage of net sales, selling, general and administrative expenses increased to 20.9% in the second quarter of fiscal 1998 from 20.2% in the second quarter of fiscal 1997. The increase primarily resulted from the addition of selling expenses related to the Company's injection molding division and increased administrative expenses resulting from the Company's public reporting requirements and pursuit of the Company's acquisition strategy. OTHER EXPENSES, NET. Other expenses, net, decreased to $38,000 in the second quarter of fiscal 1998 compared to $1.2 million in the second quarter of fiscal 1997. The Company incurred bank fees of $951,000 in the second quarter of fiscal 1997. LOSS FROM CONTINUING OPERATIONS. Loss from continuing operations before income taxes decreased 77.2%, or $1.3 million, to $387,000 in the second quarter of fiscal 1998 compared to $1.7 million in the same period in fiscal 1997. The Company recognized a tax benefit of $112,000 in the second quarter of fiscal 1998, bringing the loss from continuing operations to $275,000 in the second quarter of fiscal 1998 compared to a loss from continuing operations of $1.7 million in the second quarter of fiscal 1997. The decrease in loss from continuing operations primarily was due to a $1.2 million reduction in other expenses, net and a $914,000 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 LOSS. Net loss decreased $7.5 million to $275,000 in the second quarter of fiscal 1998 compared to $7.8 million in the second quarter of fiscal 1997. The Company incurred a loss from discontinued operations of $6.1 million in the second quarter of fiscal 1997. SIX MONTHS ENDED JANUARY 30, 1998 COMPARED TO SIX MONTHS ENDED JANUARY 31, 1997 NET SALES. Net sales increased 2.1%, or $862,000, to $41.6 million in the first six months of fiscal 1998 compared to $40.7 million in the first six months of fiscal 1997. The increase in net sales reflected $3.1 million of net sales by the Company's injection molding division, which was acquired in February 1997, partially offset by a decline in net snow tool sales of approximately $2.4 million. -7- GROSS PROFIT. Gross profit decreased 5.8%, or $613,000, to $9.9 million in the first six months of fiscal 1998 compared to $10.6 million in the first six months of fiscal 1997. Gross margin decreased to 23.9% in the first six months of fiscal 1998 compared to 25.9% in the first six months of fiscal 1997. The decrease in gross margin primarily was due to increased manufacturing administration costs related to new product development, as well as lower gross margins realized on sales by the Company's injection molding division. Gross margin also was adversely affected by lower overhead absorption rates realized as the Company decreased production to prevent inventory build-up. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 6.8%, or $589,000, to $9.2 million in the first six months of fiscal 1998 compared to $8.6 million in the first six months of fiscal 1997. As a percentage of net sales, selling, general and administrative expenses increased to 22.2% in the first six months of fiscal 1998 from 21.2% in the same period of fiscal 1997. The increase primarily resulted from the addition of selling expenses related to the Company's injection molding division and increased administrative expenses resulting from the Company's public reporting requirements and pursuit of the Company's acquisition strategy. OTHER EXPENSES, NET. Other expenses, net, decreased $1.2 million to $79,000 in the first six months of fiscal 1998 compared to $1.3 million in the first six months of fiscal 1997. The Company incurred bank fees of $951,000 in the second quarter of fiscal 1997. LOSS FROM CONTINUING OPERATIONS. Loss from continuing operations before income taxes decreased $2.1 million to $845,000 in the first six months of fiscal 1998 from $3.0 million in the first six months of fiscal 1997. The Company recognized a tax benefit of $246,000 in the first six months of fiscal 1998, bringing the loss from continuing operations to $599,000 for the first six months of fiscal 1998 compared to a loss from continuing operations of $3.0 million in the comparable period of fiscal 1997. The decrease in loss from continuing operations primarily was due to a $2.2 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 and a $1.2 million reduction in other expenses, net. NET LOSS. Net loss decreased $9.4 million to $599,000 in the first six months of fiscal 1998 compared to $10.1 million in the first six months of fiscal 1997. The Company incurred a loss from discontinued operations of $7.1 million in the first six months of fiscal 1997. ACQUISITIONS In February 1998, the Company completed the acquisition of H.B. Sherman Manufacturing Company ("Sherman") for approximately $3.1 million, with up to an additional $366,000 payable subject to the achievement of certain profit levels in 1998. Based in Poplar Bluff, Missouri, Sherman manufactures and markets high-quality hose attachments and related products, such as spray nozzles, sprinklers and couplings. The Company borrowed approximately $3.3 million through the acquisition line of its bank credit facility to finance the Sherman 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 levels 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, can adversely affect overall annual sales. LIQUIDITY AND CAPITAL RESOURCES There have been no significant changes in the Company's liquidity and capital resources as of January 30, 1998 from those discussed in the Company's Annual Report on Form 10-K for the year ended August 1, 1997. -8- 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. The Company held an Annual Meeting of Stockholders on December 9, 1997 for the following purposes: 1. To elect six (6) directors of the Company, each to serve for one-year terms expiring at the 1998 Annual Meeting of Stockholders. 2. To ratify the appointment of Ernst & Young LLP as the Company's independent certified public accountants for fiscal 1998. Each of management's proposals as presented in the proxy statement were approved with the following vote: Proposal 1: The election of directors of the Company, to serve until the 1998 Annual Meeting of Stockholders or until their successors are elected and qualified.
Number of Shares Voted ------------------------------------------ WITHHOLD FOR AUTHORITY TOTAL --------- --------- --------- William W. Abbott 6,170,501 25,004 6,195,505 Matthew S. Barrett 6,170,501 25,004 6,195,505 Stephen A. Kaplan 6,170,501 25,004 6,195,505 John I. Leahy 6,170,501 25,004 6,195,505 Gabe Mihaly 6,170,501 25,004 6,195,505 Conor D. Reilly 6,170,501 25,004 6,195,505
Proposal 2: To ratify appointment of Ernst & Young LLP to serve as the Company's independent certified public accountants for the 1998 fiscal year.
Number of Shares Voted --------------------------------------------------- FOR AGAINST ABSTAINED TOTAL --------- -------- --------- --------- 6,191,080 765 3,660 6,195,505
ITEM 5. OTHER MATTERS. None. -10- 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 January 30, 1998. -11- 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: March 12, 1998 By: /s/ Gabe Mihaly ------------------------------------- Gabe Mihaly, President and Chief Executive Officer (Principal Executive Officer) Date: March 12, 1998 By: /s/ Stephen M. Kasprisin -------------------------------------- Stephen M. Kasprisin, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) -12- 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 3-MOS 6-MOS JUL-31-1998 JUL-31-1998 NOV-01-1997 AUG-02-1997 JAN-30-1998 JAN-30-1998 578 578 0 0 20,276 20,276 (629) (629) 33,387 33,387 55,737 55,737 25,480 25,480 (9,123) (9,123) 103,994 103,994 30,891 30,891 0 0 0 0 0 0 78,391 78,391 (15,766) (15,766) 103,994 103,994 21,143 41,559 21,143 41,559 16,340 31,617 16,340 31,617 4,668 9,746 0 0 522 1,041 (387) (845) (112) (246) (275) (599) 0 0 0 0 0 0 (275) (599) (0.04) (0.09) (0.04) (0.09)
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